ARTESIAN RESOURCES CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS In thousands ASSETS December 31, 2024 December 31, 2023 Utility plant, at original cost less accumulated depreciation $ 747,186 $ 714,284 Current assets Cash and cash equivalents 1,147 2,505 Accounts and other receivables (less provision for expected credit loss 2024 - $ 343 ; 2023 - $ 328 ) 11,339 12,830 Income tax receivable 624 1,799 Unbilled operating revenues 1,861 1,934 Materials and supplies 4,278 5,983 Prepaid property taxes 2,188 2,269 Prepaid expenses and other 3,091 3,297 Total current assets 24,528 30,617 Other assets Non-utility property (less accumulated depreciation 2024 - $ 1,116 ; 2023 - $ 1,052 ) 3,603 3,693 Other deferred assets 6,525 8,504 Goodwill 1,939 1,939 Operating lease right of use assets 414 506 Total other assets 12,481 14,642 Regulatory assets, net 14,428 7,289 Total Assets $ 798,623 $ 766,832 LIABILITIES AND STOCKHOLDERS’ EQUITY Stockholders’ equity Common stock $ 10,300 $ 10,285 Preferred stock — — Additional paid-in capital 143,920 143,369 Retained earnings 84,969 76,743 Total stockholders’ equity 239,189 230,397 Long-term debt, net of current portion 176,509 178,307 415,698 408,704 Current liabilities Lines of credit — — Current portion of long-term debt 2,167 2,235 Accounts payable 11,228 9,697 Accrued expenses 5,336 3,519 Overdraft payable 31 9 Accrued interest 930 2,275 Income taxes payable 500 2 Customer and other deposits 3,347 2,983 Other 2,054 1,694 Total current liabilities $ 25,593 $ 22,414 Commitments and contingencies (Note 11) — — Deferred credits and other liabilities Net advances for construction $ 1,582 $ 2,797 Operating lease liabilities 404 503 Regulatory liabilities 30,267 25,676 Deferred investment tax credits 409 423 Deferred income taxes 52,265 58,381 Total deferred credits and other liabilities $ 84,927 $ 87,780 Net contributions in aid of construction 272,405 247,934 Total Liabilities and Stockholders’ Equity $ 798,623 $ 766,832 The notes are an integral part of the consolidated financial statements . 28 Table of Contents CONSOLIDATED STATEMENTS OF OPERATIONS In thousands, except per share amounts For the Year Ended December 31, 2024 2023 2022 Operating revenues Water sales $ 88,079 $ 80,033 $ 78,318 Other utility operating revenue 13,129 12,195 11,506 Non-utility operating revenue 6,744 6,633 9,073 Total Operating Revenues 107,952 98,861 98,897 Operating expenses Utility operating expenses 49,796 46,205 43,772 Non-utility operating expenses 4,743 4,428 6,850 Depreciation and amortization 13,629 13,335 12,620 Taxes State and federal income tax expense Current 6,737 2,962 4,285 Deferred 578 3,386 1,593 Property and other taxes 6,318 6,099 5,871 Total Operating Expenses 81,801 76,415 74,991 Operating income 26,151 22,446 23,906 Other income, net Allowance for funds used during construction (AFUDC) 1,643 2,002 1,329 Miscellaneous 1,379 1,407 1,265 3,022 3,409 2,594 Income before interest charges 29,173 25,855 26,500 Interest charges 8,779 9,156 8,502 Net income applicable to common stock $ 20,394 $ 16,699 $ 17,998 Net income per common share: Basic $ 1.98 $ 1.67 $ 1.90 Diluted $ 1.98 $ 1.67 $ 1.90 Weighted average common shares outstanding: Basic 10,294 10,018 9,462 Diluted 10,296 10,022 9,481 Cash dividends per share of common stock $ 1.18 $ 1.14 $ 1.09 The notes are an integral part of the consolidated financial statements. 29 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands For the Year Ended December 31, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 20,394 $ 16,699 $ 17,998 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 13,629 13,335 12,620 Amortization of debt expense 353 355 354 Amortization of deferred income tax regulatory liability ( 916 ) ( 444 ) — Provision for bad debt expense 233 92 68 Deferred income taxes, net 1,480 3,813 2,282 Stock compensation expense 219 254 152 AFUDC, equity portion ( 1,135 ) ( 1,243 ) ( 894 ) Changes in assets and liabilities, net of acquisitions: Accounts and other receivables ( 257 ) 807 ( 3,847 ) Income tax receivable 1,175 ( 167 ) 602 Unbilled operating revenues 73 ( 348 ) ( 141 ) Materials and supplies 1,705 ( 1,281 ) ( 2,769 ) Income taxes payable 498 ( 4 ) 6 Prepaid property taxes 81 ( 83 ) 697 Prepaid expenses and other 206 ( 419 ) ( 216 ) Other deferred assets 1,945 1,998 ( 5,473 ) Regulatory assets ( 206 ) ( 497 ) ( 37 ) Regulatory liabilities ( 2,800 ) ( 2,724 ) 6,799 Accounts payable 305 284 ( 3,989 ) Accrued expenses 552 614 ( 564 ) Accrued interest ( 1,345 ) 1,286 72 Customer deposits and other, net 634 ( 476 ) 545 NET CASH PROVIDED BY OPERATING ACTIVITIES 36,823 31,851 24,265 CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures (net of AFUDC, equity portion) ( 45,942 ) ( 62,177 ) ( 48,483 ) Investment in acquisitions, net of cash acquired — — ( 6,341 ) Proceeds from sale of assets 623 99 65 NET CASH USED IN INVESTING ACTIVITIES ( 45,319 ) ( 62,078 ) ( 54,759 ) CASH FLOWS FROM FINANCING ACTIVITIES Repayments under lines of credit agreements — ( 23,477 ) ( 41,038 ) Borrowings under lines of credit agreements — 3,303 34,509 Increase(decrease) in overdraft payable 22 ( 34 ) 13 Proceeds from contributions in aid of construction and advances 23,983 24,747 17,494 Payouts for contributions in aid of construction and advances ( 3,547 ) ( 2,228 ) ( 1,063 ) Net proceeds from issuance of common stock 347 37,073 2,090 Equity issuance cost — ( 317 ) — Issuance of long-term debt 758 5,608 31,803 Dividends paid ( 12,168 ) ( 11,242 ) ( 10,319 ) Debt issuance costs — — ( 135 ) Principal repayments of long-term debt ( 2,257 ) ( 2,010 ) ( 1,643 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 7,138 31,423 31,711 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 1,358 ) 1,196 1,217 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,505 1,309 92 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,147 $ 2,505 $ 1,309 Non-cash Investing and Financing Activity: Utility plant received as construction advances and contributions in aid of construction $ 8,718 $ 3,492 $ 8,416 Contractual amounts of contributions in aid of construction due from developers included in accounts receivable $ 641 $ 1,695 $ 726 Contractual amounts of contributions in aid of construction received from developers previously included in accounts receivable $ 1,790 $ 799 $ 356 Change in amounts included in accounts payable and accrued payables related to capital expenditures $ 2,577 $ ( 3,384 ) $ 3,182 Supplemental Cash Flow Information: Interest paid $ 9,771 $ 7,515 $ 8,430 Income taxes paid $ 5,732 $ 3,590 $ 3,482 Income taxes refunded $ 701 $ — $ — The notes are an integral part of the consolidated financial statements. 30 Table of Contents CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY In thousands Common Shares Outstanding Class A Non-Voting (1) (3) (4) Common Shares Outstanding Class B Voting (2) $ 1 Par Value Class A Non-Voting $ 1 Par Value Class B Voting Additional Paid-in Capital Retained Earnings Total Balance as of December 31, 2021 8,532 881 $ 8,532 $ 881 $ 104,989 $ 63,607 $ 178,009 Net income — — — — — 17,998 17,998 Cash dividends declared Common stock — — — — — ( 10,319 ) ( 10,319 ) Issuance of common stock Dividend reinvestment plan 7 — 7 — 366 — 373 Employee stock options and awards (4) 82 — 82 — 1,787 — 1,869 Employee Retirement Plan (3) — — — — — — — Balance as of December 31, 2022 8,621 881 $ 8,621 $ 881 $ 107,142 $ 71,286 $ 187,930 Net income — — — — — 16,699 16,699 Cash dividends declared Common stock — — — — — ( 11,242 ) ( 11,242 ) Issuance of common stock Public offering, net of costs 763 — 763 — 35,464 — 36,227 Dividend reinvestment plan 8 — 8 — 373 — 381 Employee stock options and awards (4) 12 — 12 — 390 — 402 Employee Retirement Plan (3) — — — — — — — Balance as of December 31, 2023 9,404 881 $ 9,404 $ 881 $ 143,369 $ 76,743 $ 230,397 Net income — — — — — 20,394 20,394 Cash dividends declared Common stock — — — — — ( 12,168 ) ( 12,168 ) Issuance of common stock Dividend reinvestment plan 10 — 10 — 337 — 347 Employee stock options and awards (4) 5 — 5 — 214 — 219 Employee Retirement Plan (3) — — — — — — — Balance as of December 31, 2024 9,419 881 $ 9,419 $ 881 $ 143,920 $ 84,969 $ 239,189 (1) At December 31, 2024, 2023, and 2022, Class A Stock had 15,000,000 shares authorized. For the same periods, shares issued, inclusive of treasury shares, were 9,447,848 , 9,433,288 and 8,650,392 , respectively. (2) At December 31, 2024, 2023, and 2022, Class B Stock had 1,040,000 shares authorized and 881,452 shares issued. (3) 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. (4) Under the Equity Compensation Plan, effective December 9, 2015, Artesian Resources Corporation authorized up to 331,500 shares of Class A Stock for issuance of grants in forms of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the Plan. Includes stock compensation expense for the years ended December 31, 2024, 2023, and 2022, See Notes to Consolidated Financial Statements - Note 9-Stock Compensation Plans. The notes are an integral part of the consolidated financial statements. 31 Table of Contents NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The audited consolidated financial statements are presented in accordance with the requirements of Form 10-K and accounting principles generally accepted in the United States and consequently include all the disclosures required in the consolidated financial statements included in the Company’s Annual Report on Form 10-K. The accompanying consolidated financial statements include the accounts of Artesian Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated. 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 The accounting records of Artesian Water Company, Inc., or Artesian Water, Artesian Wastewater Management, Inc., or Artesian Wastewater, and, effective January 14, 2022, Tidewater Environmental Services, Inc. dba Artesian Wastewater, or TESI, are maintained in accordance with the uniform system of accounts as prescribed by the Delaware Public Service Commission, or the DEPSC. The accounting records of Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC. The accounting records of Artesian Water Maryland, Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the MDPSC. All these subsidiaries follow the provisions of Financial Accounting Standards Board, or FASB, ASC Topic 980, which provides guidance for companies in regulated industries. These regulated subsidiaries account for the majority of our operating revenue. See Note 17 (Business Segment Information) to our Consolidated Financial Statements for a full description of our segment information. Use of Estimates in the Preparation of Consolidated Financial Statements The consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require management to make certain estimates and assumptions that could impact the Company’s financial condition, results of operations and cash flows. Actual results could differ from management's estimates. Management makes certain estimates and assumptions regarding unbilled revenues, accounting for income taxes, credit losses and reserves for bad debt, lease agreements, goodwill and contingent assets and liabilities. All additions to utility plant are recorded at cost. Business combinations pursuant to ASC Topic 805 may result in a purchase price allocation and the acquired assets are required to be evaluated by the applicable regulatory agency. Artesian Wastewater acquired TESI in January 2022 and Artesian Water purchased substantially all of the water operating assets from the Town of Clayton in May 2022. On December 31, 2022, the fair value determinations for TESI and the water operating assets acquired from the Town of Clayton were finalized. 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. 32 Table of Contents 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 or a return on equity funds devoted to plant under construction. Presented in the table below is AFUDC for the years ended December 31: In thousands 2024 2023 2022 AFUDC - Debt $ 509 $ 759 $ 435 AFUDC - Equity $ 1,135 $ 1,243 $ 894 Utility plant comprises : In thousands Estimated Useful Life (In Years) Estimated Useful Life (In Years) Effective June 12, 2024 December 31, 2024 December 31, 2023 Utility plant at original cost Utility plant in service-Water Intangible plant — $ 140 — $ 140 Source of supply plant 45 - 85 30,320 45 - 85 29,960 Pumping and water treatment plant 15 - 64 130,226 8 - 62 130,337 Transmission and distribution plant Mains 73 - 81 390,741 81 370,977 Services 39 - 58 63,613 39 60,818 Storage tanks 70 - 76 39,760 76 40,933 Meters 16 - 26 30,223 26 30,318 Hydrants 60 - 68 20,158 60 18,980 General plant 5 - 81 59,634 5 - 31 67,317 Utility plant in service-Wastewater Intangible plant — 116 — 116 Treatment and disposal plant 20 - 81 71,332 20 - 81 67,789 Collection mains & lift stations 70 - 81 57,084 70 - 81 51,539 General plant 5 - 31 2,632 5 - 31 2,478 Property held for future use — 3,742 — 4,028 Construction work in progress — 39,718 — 23,724 939,439 899,454 Less – accumulated depreciation 192,253 185,170 $ 747,186 $ 714,284 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 1.93 % , 2.13 % and 2.16 % for 2024 , 2023 and 2022 , 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. This reduction in depreciation expense is also netted against outstanding CIAC and Advances on the Consolidated Balance Sheet. Certain other deferred assets are amortized using the straight-line method over applicable lives, which range from 20 to 24 years . Regulatory Assets The FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the DEPSC, MDPSC, and PAPUC. 33 Table of Contents The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed. Debt related costs include debt issuance costs and other debt related expense. The DEPSC has approved deferred regulatory accounting treatment for issuance costs associated with Artesian Water’s First Mortgage bonds. Debt issuance costs and other debt related expenses are reviewed during Artesian Water’s rate applications as part of its cost of capital calculations. 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 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 are being amortized over the periods noted in the table below and 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 are being amortized over five years and 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. Amortization of these deferred costs began in the third quarter of 2024. Regulatory expenses amortized on a straight-line basis are noted below: Expense Years Amortized Deferred contract costs and other 5 Rate case studies 5 Delaware rate proceedings 3 Debt related costs 15 to 30 (based on term of related debt) Deferred costs affiliated interest agreement 20 Goodwill (Mountain Hill Water Company acquisition in 2008) 50 Deferred acquisition and franchise costs - Maryland 20 – 80 Deferred acquisition costs – Delaware 20 Deferred acquisition adjustments - Delaware 36 – 62 Unrecovered reserve for depreciation (general plant assets) 5 Regulatory assets, net of amortization, comprise: (in thousands) December 31, 2024 December 31, 2023 Deferred contract costs and other $ 161 $ 209 Rate case studies 141 166 Delaware rate proceedings 474 355 Deferred income taxes 423 444 Debt related costs 3,969 4,322 Deferred costs affiliated interest agreement 1,054 1,110 Goodwill 251 258 Deferred acquisition and franchise costs - Maryland 499 425 Deferred acquisition costs – Delaware 231 — Deferred acquisition adjustments – Delaware 3,359 — Unrecovered reserve for depreciation 3,866 — $ 14,428 $ 7,289 34 Table of Contents Impairment or Disposal of Long-Lived Assets Our long-lived assets consist primarily of utility plant in service and regulatory assets. A review of our long-lived assets is performed in accordance with the requirements of FASB ASC Topic 360. In addition, the regulatory assets are reviewed for the continued application of FASB ASC Topic 980. The review determines whether there have been changes in circumstances or events that have occurred requiring adjustments to the carrying value of these assets. FASB ASC Topic 980 stipulates that adjustments to the carrying value of these assets would be made in instances where the inclusion in the rate-making process is unlikely. For the years ended December 31, 2024, 2023 and 2022, there was no impairment or regulatory disallowance identified in our review. Goodwill 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. At December 31, 2024 and December 31, 2023, the Company had approximately $ 1.9 million of goodwill, respectively. The $ 1.9 million of goodwill arose from the January 2022 acquisition of Tidewater Environmental Services, Inc. Artesian Wastewater operates as the parent holding company of Tidewater Environmental Services, Inc. dba Artesian Wastewater, or TESI, and is a subsidiary of our Regulated Utility segment. In accordance with the accounting guidance for testing goodwill for impairment, the Company performs an annual assessment. In 2023 and 2024, the Company used the optional qualitative assessment, “step zero”, to identify and evaluate relevant events and circumstances to conclude whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. Relevant events and circumstances assessed included macroeconomic conditions, industry and market conditions, cost factors, financial performance, management and overall strategy. After evaluating and weighing these relevant events and circumstances, it was concluded that there was no impairment of goodwill and it was not necessary to perform quantitative testing. 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 as further discussed in Note 1 – Accounts Receivable. Other deferred assets at December 31, net of amortization, comprise: In thousands 2024 2023 Investment in CoBank $ 6,425 $ 5,882 Settlement agreement receivable-long term — 2,496 Other deferred assets 100 126 $ 6,525 $ 8,504 Advances for Construction Cash advances to reimburse Artesian Water for its costs to construct water mains, services and hydrants are contributed to Artesian Water by real estate developers and builders in order to extend water service to their properties. The value of these contributions is recorded as Advances for Construction. Artesian Water makes refunds on these advances over a specific period of time based on operating revenues generated by the specific plant or as new customers are connected to the mains. After all refunds are made within the contract period, any remaining balance is transferred to CIAC. Contributions in Aid of Construction CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, and wastewater treatment facilities and collection systems, or cash to reimburse our water and wastewater subsidiaries for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plants. Effective with the Tax Cuts and Jobs Act, or TCJA, in 2017 CIAC was taxable and the DEPSC, MDPSC and PAPUC allowed the Company to collect additional CIAC to pay the associated tax. In 2021, legislation was enacted to amend the TCJA, which now exempts CIAC from income taxes for regulated water and wastewater utilities, effective for all of 2021 and forward. For the year ended December 31, 2023, Artesian Water received approximately $ 3.8 million in grant funding from the State of Delaware, Delaware Department of Health and Social Services, Division of Public Health, or DPH, pursuant to grant agreements. For the year ended December 31, 2024, Artesian Water did no t receive grant funding. The grants received in 2023 were used by Artesian Water to cover the costs associated with certain construction projects. The grant funds received under the grant agreements were recorded in accordance with the requirements under FASB ASC Topic 980, in Net contributions in aid of construction in the Consolidated Balance Sheets. Pursuant to the grant agreements, Artesian Water is no longer eligible to receive grant funds under these grants. 35 Table of Contents Regulatory Liabilities FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain obligations are deferred and/or amortized as determined by the DEPSC, MDPSC, and PAPUC. Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates. Utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company’s water and wastewater properties. As authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to a regulated retirement liability. The annual amortization currently authorized by the DEPSC could be adjusted in future rate applications. Deferred settlement refunds consist of 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, pursuant to the Settlement Agreement. Three installments for approximately $ 2.5 million each were paid in August 2022, July 2023 and July 2024. The final $ 2.5 million installment 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. The refund for the reimbursements is applied to current and future customer bills in annual installments. The first three refunds occurred in October 2022, August 2023 and August 2024. The final customer refund will occur no later than August 2025. The amount of the credit will be calculated by dividing the amount of the reimbursement by the number of eligible customers. Beginning in 2022, Artesian Water began recording recovery of capital expenditures as Contributions in Aid of Construction and began recording expense recovery as an offset to operations and maintenance expense, with the intention that those recoveries will be available for inclusion and consideration in any future rate applications. 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 reflect the decrease in the corporate income tax rate from 34 % to 21 % (see Note 7 – Income Taxes) resulting in a decrease in the net deferred income tax liability of $ 24.3 million, of which $ 22.8 million was reclassified to a regulatory liability related to Artesian Water and Artesian Water Maryland. 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 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. Income Taxes Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. The Company’s rate regulated subsidiaries recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate. Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties. 36 Table of Contents Under FASB ASC Topic 740 , an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. The Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known. 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. 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 full year 2024, the Company has accrued approximately $ 17,000 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 2021 through 2024 . Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets. Stock Compensation Plans See Note 9 (Stock Compensation Plans) to our Consolidated Financial Statements for a full description of our stock compensation plans. Revenue Recognition and Unbilled Revenues See Note 2 (Revenue Recognition) to our Consolidated Financial Statements for a full description of our revenue recognition . Leases The Company has agreements for land easements and office equipment under operating leases. Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight-line basis. The amount of rent expense and income reported could vary if different estimates and assumptions are used. Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components. See Note 3 (Leases) to our Consolidated Financial Statements for a full description of our leases. Accounts Receivable Accounts receivable are recorded at the invoiced amounts. As set forth in a settlement agreement, Artesian Water will receive reimbursements from the 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 Site, in groundwater that Artesian Water uses for public potable water supply. Three installments for approximately $ 2.5 million each were paid in August 2022, July 2023 and July 2024. The final $ 2.5 million installment 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. A provision for expected credit loss is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current and reasonable projections based upon expected economic conditions. We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related provision for expected credit loss and associated bad debt expense has not been significant. The provision for expected credit loss was $ 0.3 million and $ 0.3 million at December 31, 2024 and December 31, 2023 , respectively. The corresponding expense for the years ended December 31, 2024 and 2023 was $ 0.2 million and $ 0.1 million, respectively, reported in Operating expenses – Utility and Non-utility operating expenses on the Company’s Consolidated Statements of Operations. The following table summarizes the changes in the Company’s accounts receivable balance: December 31, In thousands 2024 2023 2022 Customer accounts receivable – water $ 6,824 $ 6,573 $ 5,981 Customer accounts receivable – wastewater 928 869 767 Customer accounts receivable – SLP Plan 470 409 384 Settlement agreement receivable – short term 2,523 2,747 2,532 Developer receivable 837 2,089 1,151 Miscellaneous accounts receivable 100 471 3,112 11,682 13,158 13,927 Less provision for expected credit loss 343 328 416 Net accounts receivable $ 11,339 $ 12,830 $ 13,511 37 Table of Contents The activities in the provision for expected credit loss are as follows: December 31, In thousands 2024 2023 Beginning balance $ 328 $ 416 Provision adjustments 204 92 Recoveries 29 48 Write off of uncollectible accounts ( 218 ) ( 228 ) Ending balance $ 343 $ 328 Cash and Cash Equivalents For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with an original maturity of three months or less to be cash equivalents. The Company utilizes its bank’s zero balance account disbursement service to reduce the use of their lines of credit by funding checks as they are presented to the bank for payment rather than at issuance. If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is recorded as a current liability on the Consolidated Balance Sheet in the Overdraft Payable account. Inventories Inventories consist of materials and supplies related to water and wastewater utility plant. These materials and supplies are used for new construction and repairs and are recorded at the purchase cost. Usage costs are determined by the first-in, first-out method. The Company adjusts inventory value based on historical usage and forecasted demand. NOTE 2 – REVENUE RECOGNITION Background 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, 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 Artesian generates revenue from the sale of water to customers in Delaware, Cecil County, Maryland, and Southern Chester County, Pennsylvania once a customer requests service in our territory. We recognize water consumption revenue at tariff rates on a cycle basis for the volume of water transferred to customers based upon meter readings for actual gallons of water consumed as well as unbilled amounts for estimated usage from the date of the last meter reading to the end of the accounting period. As actual usage amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results. Estimates are made on an individual customer basis, based on one of three methods: the previous year’s consumption in the same period, the previous billing period’s consumption, or averaging. While actual usage for individual customers may differ materially from the estimate based on management judgments described above, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption. The majority of our water customers are billed for water consumed on a monthly basis, while the remaining customers are billed on a quarterly basis. As a result, we record unbilled operating revenue (contract asset) for any estimated usage through the end of the accounting period that will be billed in the next monthly or quarterly billing cycle. 38 Table of Contents Artesian generates revenue from industrial wastewater services provided to a customer in Sussex County, Delaware. We recognize industrial wastewater service revenue at a contract rate on a monthly basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of wastewater transferred. These services are invoiced at the end of every month based on the actual meter readings for that month, and therefore there is no contract asset or liability associated with this revenue. The contract also provides for a minimum required volume of wastewater flow to our facility. At each year end, any shortfall of the actual volume from the required minimum volume is billed to the industrial customer and recorded as revenue. Additionally, if during the course of the year it is probable that the actual volume will not meet the minimum required volume, estimated revenue amounts would be recorded for the pro rata minimum volume, constrained for potential flow capacity that could occur in the remainder of the year. 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 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. As actual volume amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results. Estimates are made on an individual customer basis, based on one of three methods: the previous year’s volume in the same period, the previous billing period’s volume, or averaging. While actual usage for individual customers may differ from the estimate based on management judgments described above, we believe the overall total estimate of volume and revenue for the fiscal period will not differ materially from actual billed consumption. The majority of these wastewater customers are billed for the volume of water transferred on a quarterly basis. As a result, we record unbilled operating revenue (contract asset) for any estimated volume through the end of the accounting period that will be billed in the next quarterly cycle. Artesian generates fixed-fee revenue for water and wastewater services provided to customers once a customer requests service in our territory. We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of the Company remaining ready to provide them water and wastewater service. These contract services are billed either in advance or arrears at tariff rates on a monthly, quarterly or semi-annual basis. For contract services billed in arrears, we record unbilled operating revenue (contract asset) for any services through the end of the accounting period that will be billed in the next monthly or quarterly cycle. For contract services billed in advance, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided. This deferred revenue is netted against unbilled operating revenue on the Consolidated Balance Sheet. Artesian generates service charges primarily from non-payment fees, such as water shut-off and reconnection fees and finance charges. These fees are billed and recognized as revenue at the point in time when our tariffs indicate the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed. There is no contract asset or liability associated with these fees. Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware related to specific types of water distribution system improvements. This rate is calculated on a semi-annual basis based on an approved projected revenue requirement over the following six-month period. This rate is adjusted up or down at the next DSIC filing to account for any differences between actual earned revenue and the projected revenue requirement. Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending on whether the surcharge was applied to consumption revenue or fixed-fee revenue. Artesian generates revenue from interim temporary rates. In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis, pending resolution of an application for a base rate increase by the DEPSC. Temporary rate revenue is calculated as a percentage increase on tariff rates. 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 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. A provision for expected credit loss 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 provision for expected credit loss and associated bad debt expense has not been significant. Non-tariff Contract Revenues Artesian generates SLP Plan revenue once a customer requests service to cover all parts, materials and labor required to repair or replace leaking water service lines, leaking or clogged sewer lines, or water and wastewater lines within the customer’s residence, up to an annual limit. We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of having service line protection services. These contract services are billed in advance on a monthly or quarterly basis. As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided. Accounts receivable from SLP Plan customers are typically due within 25 days of invoicing. A provision for expected credit loss is calculated as a percentage of total SLP Plan contract revenue. We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related provision for expected credit loss and associated bad debt expense has not been significant. 39 Table of Contents Artesian generates contract operation revenue from water and wastewater operation services provided to customers. We recognize revenue from these operation contracts, which consist primarily of monthly operation and maintenance services, over time as customers receive and consume the benefits of such services performed. The majority of these services are invoiced in advance at the beginning of every month and are typically due within 30 days, and therefore there is no contract asset or liability associated with most of these revenues. We have one operation contract that was paid in advance resulting in a contract liability for services that have not yet been provided. A provision for expected credit loss is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness. The related provision for expected credit loss and associated bad debt expense has not been significant. Artesian generates design and installation revenue for services related to the design and construction of wastewater infrastructure for a state agency under contract. We recognize revenue from these services over time as services are performed using the percentage-of-completion method based on an input method of incurred costs (cost-to-cost). These services are invoiced at the end of every month based on incurred costs to date. As of December 31, 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. Artesian generates inspection fee revenue for inspection services related to onsite wastewater collection systems installed by developers of new communities. These fees are paid by developers in advance when a service is requested for a new phase of a development. Inspection fee revenue is recognized on a per lot basis once the inspection of the infrastructure that serves each lot is completed. As a result, we record deferred revenue (contract liability) for any amounts related to infrastructure not yet inspected. There are no accounts receivable, provision for expected credit loss or bad debt expense associated with inspection fee contracts. Sales Tax The majority of Artesian’s revenues are earned within the State of Delaware, where there is no sales tax. Revenues earned in the State of Maryland and the Commonwealth of Pennsylvania are related primarily to the sale of water by a public water utility and are exempt from sales tax. Therefore, no sales tax is collected on revenues. Disaggregated Revenues The following table shows the Company’s revenues disaggregated by service type; all revenues are generated within a similar geographical location: For the Year Ended December 31, (in thousands) 2024 2023 2022 Tariff Revenue Consumption charges $ 58,477 $ 49,051 $ 47,809 Fixed fees 36,825 33,074 31,431 Service charges 735 682 597 DSIC 136 4,727 5,085 Metered wastewater services 809 602 649 Industrial wastewater services 1,859 1,851 1,853 Total Tariff Revenue $ 98,841 $ 89,987 $ 87,424 Non- Tariff Revenue Service line protection plans $ 5,825 $ 5,632 $ 5,020 Contract operations 1,047 1,046 931 Design and installation 62 181 3,315 Inspection fees 410 424 326 Total Non- Tariff Revenue $ 7,344 $ 7,283 $ 9,592 Other Operating Revenue $ 1,767 $ 1,591 $ 1,881 Total Operating Revenue $ 107,952 $ 98,861 $ 98,897 40 Table of Contents Contract Assets and Contract Liabilities Our contract assets and liabilities consist of the following: (in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Contract Assets – Tariff $ 3,030 $ 3,043 $ 2,618 Deferred Revenue Deferred Revenue – Tariff $ 1,385 $ 1,300 $ 1,231 Deferred Revenue – Non-Tariff 714 539 438 Total Deferred Revenue $ 2,099 $ 1,839 $ 1,669 For the year ended December 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 year ended December 31, 2023, 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 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 December 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 December 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 and one year , respectively. NOTE 3 – LEASES The Company leases land and office equipment under operating leases from non-related parties. Our leases have remaining lease terms of 3 years to 72 years , some of which include options to automatically extend the leases for up to 66 years and are included as part of the lease liability and right of use assets as we expect to exercise the options. One of the leases for land was terminated in its entirety effective October 10, 2024. The remaining lease liability and right-of-use asset for the terminated lease was removed in the fourth quarter of 2024. Any difference between the carrying amounts of the right-of-use asset and the lease liability will be recorded in the income statement as a gain or loss. Payments made under operating leases are recognized in the consolidated statement of operations on a straight-line basis over the period of the lease. The annual lease payments for the land operating leases increase each year either by the most recent increase in the Consumer Price Index or by 3 %, as applicable based on the lease agreements. Periodically, the annual lease payment for one operating land lease is determined based on the fair market value of the applicable parcel of land. None of the operating leases contain contingent rent provisions. The commencement date of all the operating leases is the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the land or equipment. The Company currently does not have any financing leases and does not have any lessor leases that require disclosure. Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right of use asset and liability amounts for the operating leases. As our leases do not provide an implicit rate, we use our incremental borrowing rates for long-term and short-term agreements and apply the rates accordingly based on the term of the lease agreements to determine the present value of lease payments. In October 1997, Artesian Water entered into a 33-year operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware. The annual lease payments increase each year by the most recent increase in the Consumer Price Index for Urban Workers, CPI-U, as published by the U.S. Department of Labor, Bureau of Labor Statistics. At each eleven th year of the lease term, the annual lease payment shall be determined based on the fair market value of the parcel of land. Rental payments for 2024, 2023 and 2022 were $ 20,000 , $ 19,000 , and $ 19,000 , respectively. The future minimum rental payment as disclosed in the following table is calculated using CPI-U from August 2024 as well as the adjustment for an appraisal conducted in 2019 to determine the fair market value of the parcel of land. 41 Table of Contents In March 2023, Artesian Water entered into a 5-year operating lease for office equipment. The quarterly lease payments under the lease agreement remain fixed throughout the term of the lease. The previous lease for office equipment expired in March 2022. Payments pursuant to the lease agreements for 2024, 2023 and 2022 were $ 8,000 , $ 6,000 and $ 5,000 , respectively. Rent expense for all operating leases except those with terms of 12 months or less comprises: For the Twelve Months Ended December 31, (in thousands) 2024 2023 Minimum rentals $ 35 $ 34 Contingent rentals — — $ 35 $ 34 Supplemental cash flow information related to leases is as follows: (in thousands) Twelve Months Ended Twelve Months Ended December 31, December 31, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 35 $ 34 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 414 $ 506 Supplemental balance sheet information related to leases is as follows: (in thousands, except lease term and discount rate) December 31, 2024 December 31, 2023 Operating Leases: Operating lease right-of-use assets $ 414 $ 506 Other current liabilities $ 8 $ 9 Operating lease liabilities 404 503 Total operating lease liabilities $ 412 $ 512 Weighted Average Remaining Lease Term Operating leases 68 years 58 years Weighted Average Discount Rate Operating leases 5.0 % 5.0 % 42 Table of Contents Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2024 are as follows: 43 Table of Contents (in thousands) Operating Leases Year 2025 $ 28 2026 28 2027 28 2028 22 2029 20 Thereafter 1,321 Total undiscounted lease payments $ 1,447 Less effects of discounting ( 1,035 ) Total lease liabilities recognized 412 As of December 31, 2024, we have not entered into finance leases that will commence at a future date. NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value. Current Assets and Liabilities For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments. Under the fair value hierarchy, the fair value of such financial instruments is classified as a Level 1. Long-term Financial Liabilities As of December 31, 2024 and December 31, 2023 , all of the Company’s outstanding long-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. 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 carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below: In thousands December 31, 2024 2023 Carrying amount $ 178,676 $ 180,542 Estimated fair value 154,795 162,720 The fair value of Advances for Construction cannot be reasonably estimated due to the inability to estimate accurately the timing and amounts of future refunds expected to be paid over the life of the contracts. Refund payments are based on the water sales to new customers in the particular development constructed. The fair value of Advances for Construction would be less than the carrying amount because these financial instruments are non-interest bearing . NOTE 5 – INCOME TAXES Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. The Company’s rate regulated subsidiaries recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate. Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties. 44 Table of Contents As of December 31, 2024 , the Company has separate company state net operating loss carry-forwards aggregating approximately $ 16.5 million. Most of these net operating loss carry-forwards will not expire, with a negligible amount expiring in 2025. The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized in the future. The valuation allowance increased to approximately $ 1,084,000 in 2024 from approximately $ 906,000 in 2023 . Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of the valuation allowance. Components of Income Tax Expense In thousands For the Year Ended December 31, Federal income taxes 2024 2023 2022 Current $ 4,733 $ 1,946 $ 2,912 Deferred ( 104 ) 1,968 930 Total federal income tax expense $ 4,629 $ 3,914 $ 3,842 For the Year Ended December 31, State income taxes 2024 2023 2022 Current $ 2,004 $ 1,016 $ 1,373 Deferred 682 1,418 663 Total state income tax expense $ 2,686 $ 2,434 $ 2,036 45 Table of Contents Reconciliation of effective tax rate: For the Year Ended December 31, In thousands 2024 2024 2023 2023 2022 2022 Amount Percent Amount Percent Amount Percent Reconciliation of effective tax rate Income before federal and state income taxes $ 27,709 100.0 % $ 23,047 100.0 % $ 23,876 100.0 % Amount computed at statutory rate 5,819 21.0 % 4,840 21.0 % 5,014 21.0 % Reconciling items State income tax-net of federal tax benefit 2,094 7.6 % 1,918 8.3 % 1,696 7.1 % Regulatory liability adjustment ( 719 ) ( 2.6 )% ( 449 ) ( 1.9 )% ( 450 ) ( 1.9 )% Other 121 0.4 % 39 0.2 % ( 382 ) ( 1.6 )% Total income tax expense and effective rate $ 7,315 26.4 % $ 6,348 27.6 % $ 5,878 24.6 % Deferred income taxes at December 31, 2024 and 2023 were comprised of the following: For the Year Ended December 31, In thousands 2024 2023 Deferred tax assets related to: State operating loss carry-forwards $ 1,086 $ 1,037 Bad debt allowance 96 92 Stock options 31 47 Tax effect of regulatory liabilities 7,408 — Other 183 48 Total deferred tax assets $ 8,804 $ 1,224 Less: valuation allowance ( 1,084 ) ( 906 ) Total deferred tax assets net of valuation allowance 7,720 318 Deferred tax liabilities related to: Property plant and equipment basis differences $ ( 57,296 ) $ ( 56,012 ) Bond retirement costs ( 907 ) ( 982 ) Property taxes ( 610 ) ( 624 ) Other ( 1,172 ) ( 1,081 ) Total deferred tax liabilities $ ( 59,985 ) $ ( 58,699 ) Net deferred tax liability $ ( 52,265 ) $ ( 58,381 ) 46 Table of Contents Schedule of Valuation Allowance Balance at Beginning of Period Additions Charged to Costs and Expenses Deductions Balance at End of Period In thousands Classification For the Year Ended December 31, 2024 Valuation allowance for deferred tax assets $ 906 $ 190 $ 12 $ 1,084 For the Year Ended December 31, 2023 Valuation allowance for deferred tax assets $ 600 $ 312 $ 6 $ 906 For the Year Ended December 31, 2022 Valuation allowance for deferred tax assets $ 546 $ 54 $ — $ 600 Under FASB ASC Topic 740, the Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of these positions. The Company reserved a liability related to the difference in the tax depreciation utilizing the half-year convention rather than the mid-quarter convention for 2022 and 2024. The following table provides the changes in the Company’s uncertain tax position: For the years ended December 31, In thousands 2024 2023 Balance at beginning of year $ 158 $ 146 Additions based on tax positions related to the current year 46 — Additions based on tax positions related to prior years 17 12 Reductions for tax positions of prior years — — Lapses in statutes of limitations — — Balance at end of year $ 221 $ 158 NOTE 6 – PREFERRED STOCK As of December 31, 2024 and 2023, Artesian Resources had no preferred stock outstanding. Artesian Resources has 100,000 shares of $ 1.00 par value Series Preferred stock authorized but unissued. NOTE 7 – COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL The Class A Non-Voting Common Stock, or Class A Non-Voting Stock, of Artesian Resources trades on the Nasdaq Global Select Market under the symbol ARTNA. The Class B Common Stock, or Class B Stock, of Artesian Resources trades on the Nasdaq’s OTC Bulletin Board under the symbol ARTNB. The rights of the holders of the Class A Non-Voting Stock and the Class B Stock are identical, except with respect to voting. Under Artesian Resources’ dividend reinvestment plan, which allows for reinvestment of cash dividends and optional cash payments, stockholders were issued approximately 10,000 , 8,000 and 7,000 shares at fair market value for the investment of $ 347 ,000, $ 381 ,000 and $ 373 ,000 of their monies in the years 2024, 2023, and 2022, respectively. 47 Table of Contents NOTE 8 – DEBT At December 31, 2024 , Artesian Resources had a $ 40 million line of credit with Citizens Bank, or Citizens, which is available to all subsidiaries of Artesian Resources. As of December 31, 2024 , there was $ 40.0 million of available funds under this line of credit. The interest rate is a one month Daily Secured Overnight Financing Rate, or SOFR plus 10 basis points, or Term SOFR, plus an applicable margin of 0.85 % , which was increased to 1.10 % effective August 3, 2023. Term SOFR cannot be less than 0.00 % . This is a demand line of credit and therefore the financial institution may demand payment for any outstanding amounts at any time. The term of this line of credit expires on the earlier of May 19, 2025 or any date on which Citizens demands payment. The Company expects to renew this line of credit. At December 31, 2024 , Artesian Water had a $ 20 million line of credit with CoBank, ACB, or CoBank, that allows for the financing of operations for Artesian Water, with up to $ 10 million of this line available for the operations of Artesian Water Maryland. As of December 31, 2024 , there was $ 20.0 million of available funds under this line of credit. The interest rate for borrowings under this line is either a daily SOFR rate plus 1.45 % option or a term SOFR rate plus 1.45 % option that is locked in for either one or three months . The term of this line of credit expires on October 31, 2025 . Artesian Water expects to renew this line of credit. CoBank may make an annual patronage refund based on the average line of credit and loan volume outstanding in the prior year . The $ 20 million line of credit, the First Mortgage Bonds and the promissory note are with CoBank. Patronage refunds earned by Artesian in 2024 and 2023 were $ 1.6 million and $ 1.6 million, respectively. The weighted average interest rate on the lines of credit discussed above paid by the Company was 6.47 % for the year ended December 31, 2024. These lines of credit, as well as the long-term debt obligations shown below, require us to abide by certain financial covenants and ratios. As of December 31, 2024, we were in compliance with these financial covenants. Long-term debt consists of: December 31, In thousands 2024 2023 First mortgage bonds Series R, 5.96 %, due December 31, 2028 $ 25,000 $ 25,000 Series S, 4.45 %, due December 31, 2033 5,400 6,000 Series T, 4.24 %, due December 20, 2036 40,000 40,000 Series U, 4.71 %, due January 31, 2038 25,000 25,000 Series V, 4.42 %, due October 31, 2049 30,000 30,000 Series W, 4.43 %, due April 30, 2047 30,000 30,000 155,400 156,000 State revolving fund loans 3.57 %, due September 1, 2023 — — 3.64 %, due May 1, 2025 77 228 3.41 %, due February 1, 2031 1,246 1,415 3.40 %, due July 1, 2032 1,296 1,445 1.187 %, due November 1, 2041 559 588 1.187 %, due November 1, 2041 655 690 1.187 %, due November 1, 2041 1,021 1,075 2.00 %, due February 1, 2043 793 828 2.00 %, due February 1, 2043 1,095 1,143 2.00 %, due June 1, 2043 960 1,002 2.00 %, due June 1, 2043 978 1,022 2.00 %, due February 1, 2044 3,086 2,696 2.00 %, due January 1, 2043 978 1,000 12,744 13,132 Notes Payable Promissory Note, 5.12 %, due December 30, 2028 $ 9,590 $ 10,155 Asset Purchase, 2.00 %, due May 26, 2027 942 1,255 10,532 11,410 Sub-total 178,676 180,542 Less: current maturities (principal amount) 2,167 2,235 Total long-term debt $ 176,509 $ 178,307 48 Table of Contents Payments of principal amounts due during the next five years and thereafter: In thousands 2025 2026 2027 2028 2029 Thereafter First Mortgage bonds $ 600 $ 600 $ 600 $ 25,600 $ 600 $ 127,400 State revolving fund loans 773 816 836 857 878 8,584 Asset Purchase-Contractual Obligation 314 314 314 — — — Promissory note 480 505 532 559 590 6,924 Total payments $ 2,167 $ 2,235 $ 2,282 $ 27,016 $ 2,068 $ 142,908 Substantially all of Artesian Water’s utility plant is pledged as security for our First Mortgage Bonds. As of December 31, 2024, no other water utility plant has been pledged as security for loans. Two parcels of land in Artesian Wastewater are pledged as security for the promissory note. NOTE 9 – STOCK COMPENSATION PLANS On December 9, 2015, the Company’s stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, that replaced the 2005 Equity Compensation Plan, or the 2005 Plan, which expired on May 24, 2015. The 2015 Plan provides that grants may be in any of the following forms: incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The 2015 Plan is administered and interpreted by the Compensation Committee of the Board of Directors, or the Committee. The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, determine the type, size and terms of the grants, determine the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan) and deal with any other matters arising under the 2015 Plan. The Committee presently consists of three directors, each of whom is a non-employee director of the Company. All of the employees of the Company and its subsidiaries are eligible for grants under the 2015 Plan. Non-employee directors of the Company are also eligible to receive grants under the 2015 Plan. The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718. Compensation expenses for restricted stock awards were $ 219,000 , $ 254,000 and $ 152,000 in 2024, 2023 and 2022, respectively. 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. As of December 31, 2024, there was $ 63,000 of unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan. There was no stock compensation cost capitalized as part of an asset. The following summary reflects changes in the shares of Class A Non-Voting Stock under option: 2024 Shares 2024 Weighted Average Exercise Price 2023 Shares 2023 Weighted Average Exercise Price 2022 Shares 2022 Weighted Average Exercise Price Plan options Outstanding at beginning of year — $ — 6,750 $ 21.86 83,000 $ 21.65 Granted — — — — — — Exercised — — ( 6,750 ) 21.86 ( 76,250 ) 21.63 Expired — — — — — — Outstanding at end of year — $ — — $ — 6,750 $ 21.86 Options exercisable at year end — $ — — $ — 6,750 $ 21.86 49 Table of Contents The total intrinsic value of options exercised during 2024, 2023 and 2022 were $ 0 , $ 137,000 and $ 2,226,000 , respectively. During 2024, we received $ 0 in cash from the exercise of options, with a $ 0 tax benefit realized for those options. The following table summarizes information about employee and director stock options outstanding and exercisable at December 31, 2024: Options Outstanding and Exercisable Range of Exercise Price Shares Outstanding at December 31, 2024 Weighted Average Remaining Life Weighted Average Exercise Price Aggregate Intrinsic Value $ 00.00 0 0 Years $ 0 0.00 $ 0 As of December 31, 2024, there were no outstanding option shares. The following summary reflects changes in the shares of Class A Stock underlying options and restricted stock awards (RSA): 2024 Shares 2024 Weighted Average Grant Date Fair Value Restricted stock awards Outstanding at January 1, 2024 5,000 $ 54.88 Granted 5,000 37.07 Exercised/vested and released ( 5,000 ) 54.88 Expired/cancelled — — Outstanding at December 31, 2024 5,000 $ 37.07 Exercisable/vested at December 31, 2024 — — Stock Options No options were granted in 2024, 2023 or 2022. Shares of Class A Non-Voting Stock have been reserved for future issuance under the 2015 Plan. Stock Awards On May 6, 2024, 5,000 shares of Class A Non Voting Common Stock, or Class A Stock, were granted as restricted stock awards. The fair value per share was $ 37.07 , the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2024. 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. On May 9, 2023, 5,000 shares of Class A Non-Voting Common Stock, or Class A Non-Voting Stock, were granted as restricted stock awards. The fair value per share was $ 54.88 , the closing price of the Class A Non-Voting 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. On May 3, 2022, 5,000 shares of Class A Non-Voting Stock, were granted as restricted stock awards. The fair value per share was $ 45.58 , the closing price of the Class A Non-Voting Stock as recorded on the Nasdaq Global Select Market on May 3, 2022. These shares were fully vested and released one year after the grant date. As of December 31, 2024, there was $ 63,000 of total unrecognized expense related to non-vested awards of restricted shares awarded under the 2015 Plan. The cost will be recognized over 0.34 years, the remaining vesting period for the restricted stock awards. The total intrinsic value of awards released during 2024 was approximately $ 197,400 . 50 Table of Contents NOTE 10 – EMPLOYEE BENEFIT PLANS 401(k) Plan Artesian Resources has a defined contribution 401(k) Salary Reduction Plan, or the 401(k) Plan, which covers substantially all employees. Under the terms of the 401(k) Plan, Artesian Resources contributed 2 % of eligible salaries and wages and matched employee contributions up to 6 % of gross pay at a rate of 50 % . The 401(k) Plan also provides additional retirement benefits to full-time employees hired prior to April 26, 1994, allowing them to save for future retiree medical costs that will be paid by employees by providing additional cash resources to those employees upon a termination of employment or retirement to meet the cost of future medical expenses. These eligible employees receive an additional contribution of 6 % of eligible salaries and wages. The 401(k) Plan expenses, which include Company contributions and administrative fees, for the years 2024 , 2023 and 2022 , were approximately $ 1.2 million, $ 1.4 million and $ 1.3 million, respectively. NOTE 11 – COMMITMENTS AND CONTINGENCIE S Leases The Company’s leases are disclosed in Note 3 – Leases . Easements During 2003, Artesian Water Pennsylvania entered into a 40-year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian’s water system to a well, including a parcel of land around the well. Management made certain estimates and assumptions regarding the separation of lease and non-lease components related to this easement agreement. It was determined that the majority of this easement agreement contained non-lease components. In October 2024, this easement agreement was terminated in its entirety. Easement payments, including both lease and non-lease components, for 2024 , 2023 and 2022 were $ 34,000 , $ 45,000 and $ 43,000 , respectively. Artesian Wastewater entered into a perpetual agreement for the use of approximately 460 acres of land in Sussex County, Delaware for wastewater disposal. Beginning November 2016, Artesian Wastewater was required to pay a minimum of $ 40,000 per year for the use of this land. Once operations began in 2021, the monthly fee is based on the volume of wastewater disposed on the properties charged at a rate per one thousand gallons of wastewater, providing for a minimum monthly payment. Payments for 2024, 2023 and 2022 were $ 119,000 , $ 126,000 , $ 113,000 , respectively. The agreement can be terminated by giving 180-day notice prior to the termination date. The future minimum annual payment related to this easement agreement for the years subsequent to 2024 is $ 22,000 . Interconnections Artesian Water has one water service interconnection agreement with a neighboring utility, Chester Water Authority. The agreement is effective from January 1, 2022 through December 31, 2026, includes automatic five-year renewal terms, unless terminated by either party, and has a “take or pay” clause which currently requires us to purchase a minimum of 0.5 million gallons of water per day. Rates charged under this agreement are subject to change with notice. Artesian Water Maryland has one interconnection agreement with the Town of North East that has a “take or pay” clause requiring us to purchase a minimum of 35,000 gallons of water per day. The agreement extends through June 2029. The agreement includes one remaining automatic five-year renewal term, unless terminated by either party. The minimum annual purchase commitments for all interconnection agreements for 2025 through 2029, calculated at the noticed rates, are as follows: In thousands 2025 $ 928 2026 943 2027 57 2028 57 2029 57 $ 2,042 Expenses for purchased water were $ 1.5 million, $ 1.3 million and $ 1.8 million for 2024, 2023 and 2022, respectively. 51 Table of Contents Other Commitments In April 2021, Artesian Water entered into a 3-year agreement with Worldwide Industries Corporation effective July 1, 2021 to paint elevated water storage tanks. Pursuant to the agreement, the total expenditure for the three years was $ 1.2 million. In September 2022, this agreement was amended to paint an additional elevated water storage tank and to extend the term of the agreement for an additional year. Pursuant to the amended agreement, the total expenditure for the four years is $ 2.2 million. Tank painting expense for 2024 , 2023 and 2022 was $ 735,000 , $ 689,000 , and $ 531,000 , respectively. Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of Artesian Water’s water service mains, expected to be incurred in 2025 through 2027 are as follows: In thousands 2025 $ 4,050 2026 13,715 2027 2,400 $ 20,165 The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation. NOTE 12 – GEOGRAPHIC CONCENTRATION OF CUSTOMERS 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 December 31, 2024, Artesian Water was serving approximately 97,400 customers, Artesian Water Maryland was serving approximately 2,700 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 December 31, 2024, Artesian Wastewater and TESI were serving approximately 8,600 customers combined including one large industrial customer. NOTE 13 – REGULATORY PROCEEDINGS Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state public service commissions through a rate-setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the Company’s requested level of rates. We are subject to regulation by the following state regulatory commissions: • The DEPSC, regulates Artesian Water, Artesian Wastewater, and TESI. • The MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland. • The PAPUC, regulates Artesian Water Pennsylvania. Our water and wastewater utility operations are also subject to regulation under the federal Safe Drinking Water Act of 1974, or Safe Drinking Water Act, the Clean Water Act of 1972, or the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws. These laws and regulations establish criteria and standards for drinking water and for wastewater discharges. Capital expenditures and operating costs required as a result of water quality standards and environmental requirements have been traditionally recognized by state regulatory commissions as appropriate for inclusion in establishing rates. 52 Table of Contents Water and Wastewater Rates Our regulated subsidiaries periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business . In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding. Any DSIC rate in effect will be reset to zero upon implementation of a temporary increase in base rates charged to customers. The first temporary increase may be up to the lesser of $ 2.5 million on an annual basis or 15 % of gross water sales. Should the rate case not be completed within seven months , by law, the utility may put the entire requested rate relief, up to 15 % of gross water sales, in effect under bond until a final resolution is ordered and placed into effect. If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest. The timing of our rate increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase. 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 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 Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through a DSIC. This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility’s overall financial position. The DSIC approval process is less costly when compared to the approval process for general rate increase requests. 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 two applications with the DEPSC to collect DSIC rates and (2) the rate upon which eligible plant improvements was based: Application Date 11/20/2020 05/30/2024 11/22/2024 DEPSC Approval Date 12/14/2020 06/12/2024 12/18/2024 Effective Date 01/01/2021 07/01/2024 01/01/2025 Cumulative DSIC Rate 7.50 % 0.34 % 1.66 % Net Eligible Plant Improvements – Cumulative Dollars (in millions) $ 43.1 $ 2.0 $ 11.7 Eligible Plant Improvements – Installed Beginning Date 10/01/2014 10/01/2023 11/01/2023 Eligible Plant Improvements – Installed Ending Date 04/30/2019 04/30/2024 10/31/2024 On December 18, 2024, the DEPSC approved Artesian Water’s application to implement a DSIC rate of 1.66 %, effective January 1, 2025. Effective July 1, 2024, Artesian Water was permitted to recover specific investments made in infrastructure through the assessment of a 0.34 % DSIC. The January 1, 2025 and July 1, 2024 DSIC are subject to periodic audit by the DEPSC. 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 percent when the temporary base rate increase was placed into effect on November 28, 2023. For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022 , we earned approximately $ 0.1 million, $ 4.7 million and $ 5.1 million in DSIC revenue, respectively. 53 Table of Contents NOTE 14 – 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. Diluted net income per share is based on the weighted 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: For the Year Ended December 31, 2024 2023 2022 (in thousands) Weighted average common shares outstanding during the period for basic computation $ 10,294 $ 10,018 $ 9,462 Dilutive effect of employee stock options 2 4 19 Weighted average common shares outstanding during the period for diluted computation $ 10,296 $ 10,022 $ 9,481 For the years ended 2024, 2023 and 2022 no shares of restricted stock awards were excluded from the calculations of diluted net income per share. For the years ended 2024, 2023 and 2022, no stock options 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 December 31, 2024 , 9,418,871 shares of Class A Non-Voting Stock and 881,452 shares of Class B Stock were issued and outstanding. As of December 31, 2023 , 9,404,311 shares of Class A Non-Voting Stock and 881,452 shares of Class B Stock were issued and outstanding. As of December 31, 2022 , 8,621,415 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 $ 23.24 , $ 23.00 , and $ 19.86 at December 31, 2024, December 31, 2023, and December 31, 2022, respectively. These amounts were computed by dividing common stockholders’ equity by the number of weighted average shares of common stock outstanding on December 31, 2024, December 31, 2023, and December 31, 2022, respectively. NOTE 15 – COMMON STOCK OFFERING On May 23, 2023, the Company completed the sale of 695,650 shares of its Class A Stock, par value $ 1.00 per share, at a price to the public of $ 50 per share. The net proceeds to the Company from the offering, after deducting the underwriting discounts and commissions and other offering costs, were approximately $ 33.0 million. The Company also granted the underwriter a 30-day option to purchase up to an additional 104,348 shares of Class A Stock at the public offering price, less the underwriting discount. On June 16, 2023, the underwriter exercised its over-allotment option to purchase 67,689 shares of Class A Stock at the public offering price. The net proceeds to the Company resulting from the exercise of the over-allotment option, after deducting the underwriting discounts and commissions and other offering costs, were approximately $ 3.2 million. All of the shares of Class A Stock sold in the offering were offered by the Company. The proceeds from both the initial offering and the over-allotment option were used to repay short-term borrowings, including borrowings incurred under our lines of credit with Citizens Bank and CoBank, incurred primarily to finance capital expenditures, including investment in utility plant and equipment, and other general corporate purposes. NOTE 16 – LEGAL PROCEEDINGS Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business. We do not believe that the ultimate resolution of these matters will materially affect our business, financial position or results of operations. 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 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”); and (2) E.I. Du Pont de Nemours and Company (n/k/a Eidp, Inc.), DuPont de Nemours Inc., The Chemours Company, The Chemours Company FC, LLC, and Corteva, Inc. (collectively, “DuPont”). 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 deadline for eligible claimants to submit requests for exclusion from the settlement was September 23, 2024; Artesian Resources’ subsidiaries have elected to remain in the settlement class. The amount of any recovery, if any, by Artesian Resources’ subsidiaries is uncertain. 54 Table of Contents 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 deadline for eligible claimants to submit requests for exclusion from the settlement was October 15, 2024; Artesian Resources’ subsidiaries have elected to remain in the settlement class. The amount of any recovery, if any, by Artesian Resources’ subsidiaries is uncertain. NOTE 17 – BUSINESS SEGMENT INFORMATION The Company’s operating segments are comprised of its businesses which generate revenues and incur expenses, for which separate operational financial information is available and is regularly evaluated by management for the purpose of making operating decisions, assessing performance, and allocating resources. The Company operates its businesses primarily through one reportable segment, the Regulated Utility segment. The Regulated Utility segment is the largest component of the Company’s business and includes an aggregation of our five regulated utility subsidiaries that are in the business of providing regulated water and wastewater services on the Delmarva Peninsula. Our regulated water utility services include treating, distributing, and selling water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware and in Cecil County, Maryland and to a residential community in Chester County, Pennsylvania. Our regulated wastewater utility services include the treatment and disposal of wastewater for customers in Sussex County, Delaware. The Company is subject to regulations as to its rates, services, and other matters by the states of Delaware, Maryland and Pennsylvania with respect to utility service within these states. The Chief Operating Decision Maker, or CODM, is the Executive Committee led by the Chief Executive Officer and includes the Chief Financial Officer. The CODM uses operating income as its measure of profit to assess the performance of each segment. This profit measure excludes the financing component and allows management to focus on controllable expenses, to allocate resources during the annual budgeting process and to monitor budget versus actual results on a monthly basis. The accounting policies of the operating segments are the same as those described in Note 2 – Basis of Presentation. 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 consolidated amounts as of December 31, 2024, December 31, 2023 and December 31, 2022. Years Ended December 31, 2024 2023 2022 in thousands Regulated Utility Total Regulated Utility Total Regulated Utility Total Regulated Utility Revenues $ 101,210 $ 101,210 $ 92,228 $ 92,228 $ 89,818 $ 89,818 Reconciliation of revenue Other revenues 7,014 (a) 6,877 (a) 9,248 (a) Inter-segment elimination ( 272 ) ( 244 ) ( 169 ) Consolidated revenues 107,952 98,861 98,897 Less: (b) Payroll and Benefits (c) 25,975 25,031 24,018 Supply and Delivery (d) 14,704 12,595 11,936 Administrative (e) 9,389 8,823 7,987 Depreciation and Amortization 13,578 13,281 12,563 Income Taxes 6,552 5,216 5,091 Property and other taxes 6,255 6,036 5,812 Regulated Utility Operating Income $ 24,757 $ 24,757 $ 21,246 $ 21,246 $ 22,411 $ 22,411 Reconciliation of operating income Other profit 1,394 (a) 1,200 (a) 1,495 (a) Consolidated operating income $ 26,151 $ 22,446 $ 23,906 55 Table of Contents December 31, 2024 December 31, 2023 Regulated Utility Total Regulated Utility Total Assets Regulated Utility Assets $ 793,118 $ 793,118 $ 760,339 $ 760,339 Reconciliation of assets Other assets 5,505 6,493 Consolidated assets $ 798,623 $ 766,832 (a) Other revenues and other profit: – Revenue and profit from segments below the quantitative thresholds are attributable to four non-utility businesses of the Company – These businesses are primarily comprised of: Service Line Protection Plan services for water, sewer and internal plumbing; design, construction and engineering services; contract services for the operation and maintenance of water and wastewater systems in Delaware and Maryland; and leased space to the Regulated Utility Segment – These non-utility businesses do not individually or in the aggregate meet the quantitative thresholds for determining reportable segments – Certain corporate costs have been allocated from the regulated utility segment to the non-utility businesses and are included in the other profit amounts shown (b) Significant expense categories: – The significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM – Inter-segment expenses related to leased space provided by one non-utility business, calculated on the lower of cost or market method, are included in the amounts shown (c) Payroll and benefits: – This category does not include amounts capitalized on the Consolidated Balance Sheet (d) Supply and Delivery: – This category includes purchased power, purchased water, chemicals, infrastructure maintenance and repair costs, and wastewater disposal fees (e) Administration expense: – This category includes computer systems maintenance and subscription fees, audit and legal fees, insurance, customer billing, and other general and administrative expenses NOTE 18 – IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In November 2023, the FASB issued amended guidance for improvements to reportable segment disclosures. The amendments in this update require the Company to disclose significant segment expenses that are regularly provided to the chief operating decision makers, or CODMs, and are included within each reported measure of segment operating results. The standard also requires the Company to disclose the total amount of any other items included in segment operating results which were not deemed to be significant expenses for separate disclosure, along with a qualitative description of the composition of these other items. In addition, the standard also requires disclosure of the CODM’s, title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources. The standard also aligns interim segment reporting disclosure requirements with annual segment reporting disclosure requirements. The Company adopted this standard effective with our December 31, 2024 year end reporting, and the standard will be effective for interim reporting periods in fiscal years beginning after December 15, 2024. The standard required retrospective application to all prior periods presented. The standard required additional disclosures related to the Company’s reportable segments, and did not have an impact on the Company’s results of operations or cash flows due to the adoption of this guidance. In December 2023, FASB issued amended guidance on Income Taxes: Improvements to Income Tax. The amendments require the Company to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as additional information about federal, state/local and foreign income taxes. The standard also requires the Company to annually disclose its income taxes paid (net of refunds received), disaggregated by jurisdiction. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied on a prospective basis, although optional retrospective application is permitted. While the standard will require additional disclosures related to the Company’s income taxes, management does not expect the adoption of this guidance to have an impact on the Company’s results of operations or cash flows. In November 2024, FASB issued amended guidance which requires disaggregated disclosure of income statement expenses for public business entities. The guidance does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. 56 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Artesian Resources Corporation Newark, Delaware Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Artesian Resources Corporation (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, cash flows and changes in stockholders’ equity for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 , in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Revenue recognition – Water Sales As indicated in Note 2 to the consolidated financial statements, water sales revenue consists of tariff contract revenues from the sale of water, fixed fees for water services, and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in the Company's tariffs. The Company recognizes revenues from the sale of water, and fixed fees for water services over time as water is consumed and as the customers simultaneously receive and consume the benefits of the Company remaining ready to provide them water services, respectively. DSIC revenue is a surcharge applied to tariff rates, and the Company recognizes DSIC revenue depending on whether the surcharge was applied to water consumption revenue or fixed-fee revenue. As indicated in the consolidated statements of operations, the Company recorded $88 million of water sales revenue for the year ended December 31, 2024. We identified the recognition of water sales as a critical audit matter due to the large volume of customers and transactions which involved an increased extent of auditor effort in performing audit procedures and evaluating audit evidence related to the Company’s water sales revenue recognition. 57 Table of Contents The primary procedures we performed to address this critical audit matter included: • Testing the design and operating effectiveness of certain relevant internal controls related to the Company’s recognition of water sales revenue. • Testing a sample of revenue transactions by obtaining and inspecting source documents such as invoices, cash receipts, approved tariff rates and recalculating the revenue recognized. • Testing a sample of revenue transactions to verify that the customer’s property is located within the Company’s approved service territory. • Performing analytical procedures to reconcile cash received from customers to revenue recognized. / s/ BDO USA, P.C. We have served as the Company’s auditor since 2005. Wilmington, Delaware March 26, 2025 58 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.