Item 1. Financial Statements
ITEM 1 – FINANCIAL STATEMENTS
ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)
ASSETS June 30, 2026 December 31, 2025
Utility plant, at original cost (less accumulated depreciation - 2026- $ 208,603 ; 2025 - $ 202,077 ) $ 825,816 $ 801,694
Current assets
Cash and cash equivalents 9,804 52
Accounts and other receivables (less provision for expected credit loss 2026 - $ 368 ; 2025 - $ 340 ) 10,491 9,489
Income tax receivable 222 769
Unbilled operating revenues 2,788 1,910
Materials and supplies 3,659 3,716
Prepaid property taxes 1 1,808
Prepaid expenses and other 3,874 3,673
Total current assets 30,839 21,417
Other assets
Non‑utility property (less accumulated depreciation - 2026 - $ 1,179 ; 2025 - $ 1,146 ) 3,524 3,541
Other deferred assets 9,468 9,571
Goodwill 1,939 1,939
Operating lease right-of-use assets 411 414
Total other assets 15,342 15,465
Regulatory assets, net 12,015 12,653
Total Assets $ 884,012 $ 851,229
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock $ 10,327 $ 10,316
Preferred stock - -
Additional paid-in capital 144,824 144,492
Retained earnings 101,085 95,114
Total stockholders' equity 256,236 249,922
Long-term debt, net of current portion 182,551 174,276
438,787 424,198
Current liabilities
Lines of credit - 5,719
Current portion of long-term debt 2,525 2,132
Accounts payable 9,512 14,018
Accrued expenses 7,289 4,601
Overdraft payable 7 103
Accrued interest 941 916
Income taxes payable 1,478 389
Customer and other deposits 3,758 3,474
Reserve for customer refund 2,248 394
Other 2,630 1,976
Total current liabilities 30,388 33,722
Commitments and contingencies
Deferred credits and other liabilities
Net advances for construction 344 374
Operating lease liabilities 403 407
Regulatory liabilities 25,719 26,301
Deferred investment tax credits 388 395
Deferred income taxes 55,409 54,756
Total deferred credits and other liabilities 82,263 82,233
Net contributions in aid of construction 332,574 311,076
Total Liabilities and Stockholders' Equity $ 884,012 $ 851,229
See notes to the condensed consolidated financial statements .
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ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share amounts)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2026 2025 2026 2025
Operating revenues
Water sales $ 24,429 $ 23,083 $ 46,621 $ 43,771
Other utility operating revenue 4,221 3,639 7,787 6,997
Non-utility operating revenue 2,014 1,827 4,029 3,667
Total Operating Revenues 30,664 28,549 58,437 54,435
Operating expenses
Utility operating expenses 13,436 12,505 26,589 24,830
Non-utility operating expenses 1,293 1,009 2,507 2,131
Depreciation and amortization 3,520 3,414 6,972 6,771
State and federal income taxes 2,262 2,163 4,322 4,015
Property and other taxes 1,538 1,603 3,157 3,288
Total Operating Expenses 22,049 20,694 43,547 41,035
Operating income 8,615 7,855 14,890 13,400
Other income, net
Allowance for funds used during construction (AFUDC) 260 619 759 1,186
Miscellaneous (expense) income 44 ( 29 ) 1,431 1,459
Income before interest charges 8,919 8,445 17,080 16,045
Interest charges 2,344 2,155 4,571 4,320
Net income applicable to common stock $ 6,575 $ 6,290 $ 12,509 $ 11,725
Net income per common share:
Basic $ 0.64 $ 0.61 $ 1.21 $ 1.14
Diluted $ 0.64 $ 0.61 $ 1.21 $ 1.14
Weighted average common shares outstanding:
Basic 10,325 10,308 10,321 10,305
Diluted 10,330 10,310 10,327 10,308
Cash dividends per share of common stock $ 0.3199 $ 0.3074 $ 0.6335 $ 0.6088
See notes to the condensed consolidated financial statements.
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ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
For the Six Months Ended
June 30,
2026 2025
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,509 $ 11,725
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,972 6,771
Amortization of debt expense 177 176
Amortization of deferred income tax regulatory liability ( 649 ) ( 649 )
Provision for expected credit loss 110 103
Deferred income taxes, net 646 458
Stock compensation 169 92
AFUDC, equity portion ( 539 ) ( 807 )
Changes in assets and liabilities, net of acquisitions:
Accounts and other receivables ( 4,266 ) 234
Income tax receivable 547 512
Unbilled operating revenues ( 878 ) ( 809 )
Materials and supplies 57 ( 265 )
Income tax payable 1,089 805
Prepaid property taxes 1,807 2,187
Prepaid expenses and other ( 201 ) ( 531 )
Other deferred assets ( 382 ) ( 478 )
Regulatory assets ( 91 ) 30
Regulatory liabilities ( 78 ) ( 103 )
Accounts payable ( 1,800 ) 614
Accrued expenses 972 ( 1,272 )
Reserve for customer refund 1,854 -
Accrued interest 25 ( 37 )
Customer deposits and other, net 761 139
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,811 18,895
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (net of AFUDC, equity portion) ( 25,858 ) ( 26,259 )
Proceeds from sale of assets 85 88
NET CASH USED IN INVESTING ACTIVITIES ( 25,773 ) ( 26,171 )
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments under lines of credit agreements ( 10,933 ) ( 357 )
Borrowings under lines of credit agreements 5,214 2,343
Deferred debt issuance costs ( 45 ) -
(Decrease) increase in overdraft payable ( 96 ) 31
Proceeds from contributions in aid of construction and advances 21,220 13,223
Payouts for contributions in aid of construction and advances ( 950 ) ( 1,336 )
Net proceeds from issuance of common stock 174 172
Issuance of long–term debt 10,000 -
Dividends paid ( 6,538 ) ( 6,273 )
Principal repayments of long-term debt ( 1,332 ) ( 1,325 )
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,714 6,478
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ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
Unaudited
(In thousands)
For the Six Months Ended
June 30,
2026 2025
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS $ 9,752 $ ( 798 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 52 1,147
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,804 $ 349
Supplemental Disclosures of Cash Flow Information:
For the Six Months Ended
June 30,
2026 2025
Non-cash Investing and Financing Activity:
Utility plant received as contributions in aid of construction $ 7,681 $ 7,111
Contractual amounts of contributions in aid of construction due from developers included in accounts receivable and class action settlement funds included in accounts receivable and other deferred assets (See Note 15 – Legal Proceedings) $ 171 $ -
Change in amounts included in accounts payable, accrued payables and other related to capital expenditures $ ( 814 ) $ ( 2,335 )
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 4,369 $ 4,181
Income taxes paid $ 2,842 $ 2,937
Income taxes refunded $ 165 $ 50
See notes to the condensed consolidated financial statements.
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ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Unaudited
(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, 2024 9,419 881 $ 9,419 $ 881 $ 143,920 $ 84,969 $ 239,189
Net income - - - - - 5,435 5,435
Cash dividends declared
Common stock - - - - - ( 3,104 ) ( 3,104 )
Issuance of common stock
Dividend reinvestment plan 3 - 3 - 82 - 85
Employee stock options and awards(4) - - - - 45 - 45
Employee Retirement Plan(3) - - - - - - -
Balance as of March 31, 2025 9,422 881 $ 9,422 $ 881 $ 144,047 $ 87,300 $ 241,650
Net income - - - - - 6,290 6,290
Cash dividends declared -
Common stock - - - - - ( 3,169 ) ( 3,169 )
Issuance of common stock
Dividend reinvestment plan 3 - 3 - 84 - 87
Employee stock options and awards(4) 5 - 5 - 42 - 47
Employee Retirement Plan(3) - - - - - - -
Balance as of June 30, 2025 9,430 881 $ 9,430 $ 881 $ 144,173 $ 90,421 $ 244,905
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, 2025 9,435 881 $ 9,435 $ 881 $ 144,492 $ 95,114 $ 249,922
Net income - - - - - 5,934 5,934
Cash dividends declared -
Common stock - - - - - ( 3,236 ) ( 3,236 )
Issuance of common stock
Dividend reinvestment plan 2 - 2 - 84 - 86
Employee stock options and awards(4) - - - - 92 - 92
Employee Retirement Plan(3) - - - - - - -
Balance as of March 31, 2026 9,437 881 $ 9,437 $ 881 $ 144,668 $ 97,812 $ 252,798
Net income - - - - - 6,575 6,575
Cash dividends declared - -
Common stock - - - - - ( 3,302 ) ( 3,302 )
Issuance of common stock
Dividend reinvestment plan 3 - 3 - 85 - 88
Employee stock options and awards(4) 6 - 6 - 71 - 77
Employee Retirement Plan(3) - - - - - - -
Balance as of June 30, 2026 9,446 881 $ 9,446 $ 881 $ 144,824 $ 101,085 $ 256,236
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(1)
At June 30, 2026 and June 30, 2025, Class A Non-Voting Stock had 15,000,000 shares authorized. For the same periods, shares issued, inclusive of 28,970
treasury shares, were 9,474,635 and 9,458,054,
respectively.
(2)
At June 30, 2026 and June 30, 2025, Class B Voting Stock had 1,040,000 shares authorized and 881,452 shares issued.
(3)
Artesian Resources Corporation registered 200,000 shares of Class A Non-Voting 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, or the 2015 Plan, and
the 2025 Equity Compensation Plan, effective October 31, 2025, or the 2025
Plan, Artesian Resources Corporation authorized up to 331,500 shares and 263,932 , respectively, of Class A Non-Voting Stock for
issuance of grants in the form of stock options, stock units, dividend
equivalents and other stock-based awards, subject to adjustment in certain
circumstances as discussed in the Plan. The
2025 Plan replaces the 2015 Plan, and outstanding grants under the 2015 Plan
shall continue in effect according to their terms, consistent with the 2015
Plan. Includes stock compensation expense for June 30, 2026 and June 30, 2025. See Note 8 – Stock Compensation Plans .
See notes to the condensed consolidated financial statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – GENERAL
Artesian Resources
Corporation, or Artesian Resources, includes income from the earnings of all our
wholly-owned subsidiaries. The terms "we", "our",
"Artesian" and the "Company" as used herein refer to
Artesian Resources and its subsidiaries.
DELAWARE REGULATED UTILITY SUBSIDIARIES
Artesian Water Company, Inc., or Artesian Water, our principal subsidiary, distributes and sells water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware. In addition, Artesian Water provides services to other water utilities, including operations, and has contract operation agreements with private, municipal and state water providers. Artesian Water also provides water for public and private fire protection to customers in our service territories.
Artesian Wastewater
Management, Inc., or Artesian Wastewater, operates as the
parent holding company of Tidewater Environmental Services, Inc. dba Artesian
Wastewater, or TESI. Artesian Wastewater
and TESI are regulated entities that own wastewater collection and treatment
infrastructure and provide wastewater services to customers in Sussex County,
Delaware as regulated public wastewater service companies. In July 2026, Artesian
Wastewater filed a Certificate of Ownership and Merger with the Secretary of
State of the State of Delaware, pursuant to which TESI was merged with and into
Artesian Wastewater. This internal
corporate restructuring had no effect on the condensed consolidated financial
statements of the Company, as the accounts of both entities were already fully
consolidated in the Company's financial reporting.
MARYLAND REGULATED UTILITY SUBSIDIARIES
Artesian Water Maryland, Inc., or Artesian Water Maryland, distributes and sells water to residential, commercial, industrial and municipal customers in Cecil County, Maryland.
Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, is authorized and able to provide regulated wastewater services to customers in the State of Maryland. It is currently not providing these services.
PENNSYLVANIA REGULATED UTILITY SUBSIDIARY
Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, provides water service to a residential community in Chester County, Pennsylvania.
OTHER NON-UTILITY SUBSIDIARIES
We have two other subsidiaries, neither of which are regulated. They are Artesian Utility Development, Inc., or Artesian Utility, and Artesian Development Corporation, or Artesian Development.
Artesian Utility designs
and builds water and wastewater infrastructure and provides contract water and
wastewater operation services on the Delmarva Peninsula to private, municipal
and governmental institutions. Artesian
Utility also evaluates land parcels, provides recommendations to developers on
the size of water or wastewater facilities and the type of technology that
should be used for treatment at such facilities and operates water and
wastewater facilities in Delaware for municipal and governmental agencies. Artesian Utility also contracts with
developers and government agencies for design and construction of wastewater
infrastructure throughout the Delmarva Peninsula.
Artesian Utility currently
operates three wastewater treatment facilities with a combined capacity of up to
approximately 3.8 mgd for the Town of Middletown, in southern New Castle
County, Delaware, or Middletown, under a 20 -year contract that expires in July
2039. The wastewater treatment
facilities in Middletown provide reclaimed wastewater for use in spray
irrigation on public and agricultural lands in the area.
Artesian Utility also
offers the following protection plans to customers, the Water Service Line
Protection Plan, or WSLP Plan, and the Sewer Service Line Protection Plan, or
SSLP Plan (collectively, SLP Plan or SLP Plans). The WSLP Plan covers all parts, material and
labor required to repair or replace participating customers' leaking water
service lines up to an annual limit. The
SSLP Plan covers all parts, material and labor required to repair or replace
participating customers' leaking or clogged sewer lines up to an annual
limit. The Company also maintains the
Internal Service Line Protection Plan, or ISLP Plan, in which the Company
discontinued enrolling new customers effective January 2026. For customers that were previously enrolled,
the ISLP Plan enhances available coverage to include water and wastewater lines
within customers' residences up to an annual limit.
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Artesian Development is a real estate holding company that owns properties, including land approved for office buildings, a water treatment plant and wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware.
NOTE 2 – BASIS OF PRESENTATION
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for Form 10-Q. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information provided not misleading. Accordingly, these unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes thereto in the Company's annual report on Form 10-K for fiscal year 2025 as filed with the SEC on March 16, 2026.
The unaudited condensed consolidated financial statements include the accounts of Artesian Resources Corporation and its wholly-owned subsidiaries, including its principal operating company, Artesian Water. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments (unless otherwise noted) necessary to present fairly the Company's balance sheet position as of June 30, 2026, the results of its operations for the three and six-month periods ended June 30, 2026 and June 30, 2025, its cash flows for the six-month periods ended June 30, 2026 and June 30, 2025 and the changes in stockholders’ equity for the three and six-month periods ended June 30, 2026 and June 30, 2025. The December 31, 2025 Condensed Consolidated Balance Sheet was derived from the Company’s December 31, 2025 audited consolidated financial statements but does not include all disclosures and notes normally provided in annual financial statements.
The results of operations for the interim periods presented are not necessarily indicative of the results for the full year or for future periods.
Reclassification
Certain accounts in the
prior year financial statements have been reclassified for comparative purposes
to conform with the presentation in the current year financial statements. These reclassifications had no effect on net
income or stockholders' equity.
Regulated Utility Accounting
The accounting records of
Artesian Water, Artesian Wastewater, and 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 Maryland and Artesian Wastewater Maryland are
maintained in accordance with the uniform system of accounts as prescribed by
the Maryland Public Service Commission, or the MDPSC. The accounting records of Artesian Water
Pennsylvania are maintained in accordance with the uniform system of accounts
as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC. All these subsidiaries follow the provisions
of Accounting Standards Codification, or ASC, 980, Regulated Operations, which
provides guidance for companies in regulated industries. These regulated
subsidiaries account for the majority of our operating revenue. See Note 16 –
Business Segment Information to our Unaudited Condensed Consolidated Financial
Statements for a full description of our segment information.
Use
of Estimates in the Preparation of
Unaudited Condensed Consolidated Financial Statements
The unaudited condensed 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, reserve for revenues associated with temporary
rates expected to be refunded, accounting for income taxes, credit losses and
reserves for bad debt, lease agreements, goodwill and contingent assets and
liabilities.
Utility Plant
All additions to utility
plant are recorded at cost. Business
combinations pursuant to ASC 805, Business Combinations, may result in a
purchase price allocation and the acquired assets are required to be evaluated
by the applicable regulatory agency. Cost includes direct labor, materials, AFUDC
(see description below) and indirect charges for such capitalized items as
transportation, supervision, pension, medical, and other fringe benefits
related to employees engaged in construction activities. When depreciable
units of utility plant are retired, the historical costs of plant retired is
charged to accumulated depreciation. Any
cost associated with retirement, less any salvage value or proceeds received,
is charged to the regulated retirement liability. Maintenance,
repairs, and replacement of minor items of utility plant are charged to expense
as incurred.
Allowance for Funds Used
during Construction, or AFUDC, is a non-cash credit to income with a
corresponding charge to utility plant that represents the cost of borrowed funds
or a return on equity funds devoted to plant under construction.
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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 1.91 %, and 1.91 % for June 30, 2026 and December 31, 2025, respectively. 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 Condensed Consolidated Balance Sheet. Regulatory assets are amortized using the
straight-line method over future periods, which range from 5 to 80 years.
NOTE 3 – 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 standalone 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 is primarily derived from developer guarantee
contributions for wastewater and rental income for antenna agreements, which
are not considered in the scope of ASC 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 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.
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.
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 wastewater 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.
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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 Condensed 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 tariff indicates 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 is recorded reducing revenue from temporary rates. The DEPSC approved and Artesian Water
implemented temporary rate increases effective June 3, 2025 and November 6,
2025. As of June 30, 2026, approximately
$ 2.2 million of the revenue from the November 6, 2025 temporary rate increase
was recorded as a reserve for customer refund in the Condensed Consolidated Balance Sheets.
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.
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.
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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 June 30, 2026, 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 Three Months For the Six Months
Ended June 30, Ended June 30,
(in thousands) 2026 2025 2026 2025
Tariff Revenue
Consumption charges $ 17,055 $ 15,454 $ 31,367 $ 28,476
Fixed fees 9,485 9,335 19,450 18,600
Service charges 228 178 382 359
DSIC - 235 - 534
Metered wastewater services 203 213 345 400
Industrial wastewater services 398 500 1,026 932
Total Tariff Revenue $ 27,369 $ 25,915 $ 52,570 $ 49,301
Non-Tariff Revenue
Service line protection plans $ 1,793 $ 1,614 $ 3,591 $ 3,245
Contract operations 261 249 509 501
Design and installation - 3 - 7
Inspection fees 175 144 309 316
Total Non-Tariff Revenue $ 2,229 $ 2,010 $ 4,409 $ 4,069
Other Operating Revenue $ 1,066 $ 624 $ 1,458 $ 1,065
Total Operating Revenue $ 30,664 $ 28,549 $ 58,437 $ 54,435
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Contract Assets and Contract Liabilities
Our contract assets and liabilities consist of the following:
(in thousands) June 30, 2026 December 31, 2025
Contract Assets – Tariff $ 4,041 $ 3,265
Deferred Revenue
Deferred Revenue – Tariff $ 1,507 $ 1,598
Deferred Revenue – Non-Tariff 778 573
Total Deferred Revenue $ 2,285 $ 2,171
For the six months ended June 30, 2026, the Company recognized revenue of $ 1.6 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $ 0.4 million from amounts that were included in Deferred Revenue – Non-Tariff at the beginning of the year.
The changes in Contract Assets and Deferred Revenue are primarily due to normal timing differences between our performance and customer payments.
Remaining Performance Obligations
As of June 30, 2026 and December 31, 2025, Deferred Revenue – Tariff is recorded
partially within Unbilled operating revenues net against contract assets
representing our remaining performance obligations for our fixed fee water
services and partially within Other current liabilities representing our
remaining performance obligations for our fixed fee wastewater services, all of
which are expected to be satisfied and associated revenue recognized in the
next six months .
As of June 30, 2026 and December 31, 2025, 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 six months , approximately four years and one year , respectively.
NOTE 4 – ACCOUNTS RECEIVABLE
Accounts receivable are
recorded at the invoiced amounts. As set
forth in a settlement agreement, Artesian Water received 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. The full amount of $ 10.0 million has been
paid to us, in four installments of approximately $ 2.5 million each, in August
2022, July 2023, July 2024 and July 2025.
In addition, from July 1, 2021 onward the Trust shall reimburse Artesian
Water for documented reasonable and necessary capital and operating costs that
Artesian Water incurs to treat contaminants of concern and of emerging concern.
The settlement receivable as of June 30,
2026 includes the short-term portion of multi-district litigation, MDL,
reimbursements as further discussed in Note 15 - Legal Proceedings.
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 following table summarizes the changes in
the Company’s accounts receivable balance.
The reduction in the water customer accounts receivable balance as of
December 31, 2025 is the result of a one-time bill credit that was applied to
Artesian Water’s customer bills in December 2025 related to MDL settlement
funds received as further discussed in Note 15 – Legal Proceedings.
(in thousands) June 30, 2026 December 31, 2025 December 31, 2024
Customer accounts receivable – water $ 8,333 $ 4,366 $ 6,824
Customer accounts receivable – wastewater 1,008 706 928
Customer accounts receivable – SLP Plan 492 371 470
Settlement receivable – short term 562 2,023 2,523
Developer receivable 361 2,249 837
Miscellaneous accounts receivable 103 114 100
10,859 9,829 11,682
Less: provision for expected credit loss 368 340 343
Net accounts receivable $ 10,491 $ 9,489 $ 11,339
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NOTE 5 – LEASES
The Company leases land and office equipment under operating leases from non-related parties. Our leases have remaining lease terms of 2 years to 70 years, one of which includes
options to automatically extend the leases for up to 66 years and is included
as part of the lease liability and right-of-use assets as we expect to exercise
the options. Payments made under
operating leases are recognized in the condensed consolidated statement of
operations on a straight-line basis over the period of the lease. The annual lease payment for the land
operating lease increases each year by the most recent increase in the Consumer
Price Index and includes a provision to periodically adjust the annual lease
payment based on the fair market value of the 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.
Rent expense for all operating leases, except those with terms of 12 months or less, comprises:
For the Three Months Ended June 30, For the Six Months Ended June 30,
(in thousands) 2026 2025 2026 2025
Minimum rentals $ 2 $ 2 $ 4 $ 4
Contingent rentals - - - -
$ 2 $ 2 $ 4 $ 4
Supplemental cash flow information related to leases is as follows:
(in thousands)
Six months ended Six months ended
June 30, 2026 June 30, 2025
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 4 $ 4
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ - $ 410
Supplemental balance sheet information related to leases is as follows:
(in thousands, except lease term and discount rate)
June 30, 2026 December 31, 2025
Operating Leases:
Operating lease right-of-use assets $ 411 $ 414
Other current liabilities $ 9 $ 9
Operating lease liabilities 403 407
Total operating lease liabilities $ 412 $ 416
Weighted Average Remaining Lease Term
Operating leases 68 years 68 years
Weighted Average Discount Rate
Operating leases 5.0 % 5.0 %
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Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2026 are as follows:
(in thousands)
Operating Leases
Year
2026 $ 29
2027 27
2028 21
2029 21
2030 21
Thereafter 1,337
Total undiscounted lease payments $ 1,456
Less effects of discounting ( 1,044 )
Total lease liabilities recognized $ 412
As of June 30, 2026, we have not entered into operating or finance leases that will commence at a future date.
NOTE 6 – 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.
Other Deferred Assets
The other deferred assets
associated with the MDL class action settlement reimbursements, as further discussed
in Note 15 – Legal Proceedings, has a carrying amount of $ 2.1 million as of June
30, 2026 and $ 2.6 million as of December 31, 2025, which approximates fair
value, and was recorded at amortized cost using an estimated market discount
rate. The fair value of this non-current
receivable is classified as Level 3.
Long-term Financial Liabilities
As of June 30, 2026 and December 31, 2025, 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 ASC 825, Financial Instruments. 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)
June 30, 2026 December 31, 2025
Carrying amount $ 185,076 $ 176,408
Estimated fair value 163,786 156,980
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.
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NOTE 7 – INCOME TAXES
Deferred income taxes are
provided in accordance with ASC 740, Income Taxes, on all differences between
the tax basis of assets and liabilities and the amounts at which they are
carried in the unaudited condensed 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.
Under ASC 740, Income
Taxes, 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 2025, the
Company accrued approximately $ 22 thousand in penalties and interest related to
positions taken on the 2022 and 2024 corporate income tax return. For the six
months ended June 30, 2026, the Company has accrued approximately $ 12 thousand
in penalties and interest related to positions taken on the 2022 and 2024
corporate income tax return. The Company
remains subject to examination by federal and state authorities for the tax
years 2022 through 2025 .
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.
On July 4, 2025, the One
Big Beautiful Bill Act, or OBBBA, was signed into law, which includes several
changes to U.S. tax and related laws, including the temporary and permanent
extension of expiring provisions of the Tax Cuts and Jobs Act of 2017, or TCJA. The Company has evaluated the impact that the
OBBBA may have on its consolidated financial condition and results of
operations and determined there is no material impact on our business,
financial position or results of operations.
NOTE 8 – STOCK COMPENSATION PLANS
On October 30, 2025, the
Company’s stockholders approved the 2025 Equity Compensation Plan, or the 2025
Plan, that replaced the 2015 Equity Compensation Plan, or the 2015 Plan. The 2025 Plan provides for the issuance of
263,932 shares of Class A Non-Voting Stock.
Outstanding grants under the 2015 Plan shall continue in effect
according to their terms, consistent with the 2015 Plan. No further grants will be made under the 2015
Plan after the approval date of the 2025 Plan.
The 2025 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 2025 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 2025
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 2025 Plan) and deal with any other
matters arising under the 2025 Plan. All
of the employees of the Company and its subsidiaries are eligible for grants
under the 2025 Plan. Non-employee directors of the Company are also
eligible to receive grants under the 2025 Plan.
On May 5, 2026, 4,000 shares
of Class A Non-Voting Stock were granted as restricted stock awards. The fair value per share was $ 31.41 , the
closing price of the Class A Non-Voting Stock as recorded on the Nasdaq Global
Select Market on May 5, 2026. 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 September 16, 2025,
5,000 shares of Class A Non-Voting Stock were granted as restricted stock awards. The fair value per share was $ 32.08 , the
closing price of the Class A Non-Voting Stock as recorded on the Nasdaq Global
Select Market on September 16, 2025. 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 July 1, 2025, 1,000
shares of Class A Non-Voting Stock were granted as a restricted stock
award. The fair value per share was $ 33.96 ,
the closing price of the Class A Non-Voting Stock as recorded on the Nasdaq
Global Select Market on July 1, 2025.
This restricted stock award was fully vested and released May 5,
2026.
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On May 5, 2025, 4,000
shares of Class A Non-Voting Stock were granted as restricted stock
awards. The fair value per share was
$ 34.27 , the closing price of the Class A Non-Voting Stock as recorded on the
Nasdaq Global Select Market on May 5, 2025.
These restricted stock awards were fully vested and released one year
after the grant date.
On April 11, 2025, 1,000
shares of Class A Non-Voting Stock were granted as a restricted stock
award. The fair value per share was
$ 33.51 , the closing price of the Class A Non-Voting Stock as recorded on the
Nasdaq Global Select Market on April 11, 2025.
This restricted stock award was fully vested and released one year
after the grant date.
Compensation expense of
approximately $ 77 thousand and $ 169 thousand, was recorded for the three and
six months ended June 30, 2026, respectively, for restricted awards issued in
April, May, July, September 2025 and May 2026.
Compensation expense of approximately $ 47 thousand and $ 92 thousand was
recorded for the three and six months ended June 30, 2025, respectively, for
restricted stock awards issued in May 2024, April 2025, and May 2025. Costs were determined based on the fair value
on the dates of the awards and those costs were charged to income over the
service periods associated with the awards.
There was no stock compensation cost capitalized as part of an asset.
There were no options exercised during the six months ended June 30, 2026.
There were no unvested option shares outstanding under the 2025 Plan during the six months ended June 30, 2026.
As of June 30, 2026, there were no unrecognized expenses related to non-vested option shares granted under the 2025 Plan.
As of June 30, 2026, there was approximately $ 140 thousand total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2025 Plan. The cost will be recognized over 0.69 years, the remaining vesting period for the restricted stock awards.
NOTE 9 - 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 June 30, 2026, Artesian Water was serving approximately 100,000 customers, Artesian Water Maryland was serving approximately 2,700 customers and Artesian Water Pennsylvania was serving approximately 40 customers.
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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 June 30, 2026, Artesian Wastewater and TESI were serving approximately 9,400 customers combined, including one large industrial customer.
NOTE 10 – OTHER DEFERRED ASSETS
The investment in CoBank,
ACB, or CoBank, which is a cooperative bank, is related to certain outstanding
First Mortgage Bonds and is a required investment in the bank based on the
underlying long-term debt agreements . The
settlement agreement receivable is related to the long-term portion of MDL
class action settlement reimbursements, as further discussed in Note 15 - Legal
Proceedings, and is recorded at amortized cost, with the difference between the
carrying amount and the amortized cost recognized as CIAC.
(in thousands) June 30, 2026 December 31, 2025
Investment in CoBank $ 7,351 $ 6,889
Settlement receivable-long term 2,117 2,596
Other deferred assets - 86
$ 9,468 $ 9,571
NOTE 11 - REGULATORY ASSETS
ASC 980, Regulated
Operations, 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.
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.
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 are being amortized over the periods
noted in the table below and recovered in customer rates as approved by the
DEPSC. Amortization of these deferred
costs began in the third quarter of 2024.
Unrecovered reserve for
depreciation 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 as approved by the DEPSC. Amortization of these deferred costs began in
the third quarter of 2024.
Regulatory expenses amortized on a straight-line basis are noted below:
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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)
June 30, 2026 December 31, 2025
Deferred contract costs and other $ 151 $ 109
Rate case studies 114 105
Delaware rate proceedings 287 312
Deferred income taxes 392 403
Debt related costs 3,485 3,617
Deferred costs affiliated interest agreement 970 998
Goodwill 240 243
Deferred acquisition and franchise costs - Maryland 334 352
Deferred acquisition costs – Delaware 213 219
Deferred acquisition adjustments – Delaware 3,252 3,288
Unrecovered reserve for depreciation 2,577 3,007
$ 12,015 $ 12,653
NOTE 12 – REGULATORY LIABILITIES
ASC 980, Regulated
Operations, 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 income taxes
primarily represent tax benefits that will be returned to regulated utility customers
through an approved rate making process, as described below. These tax benefits resulted from the TCJA. The TCJA required the Company to remeasure its
deferred income tax balances to reflect the reduction in the corporate income
tax rate from 34 % to 21 %. This remeasurement adjustment made to deferred income
taxes was substantially offset by the recognition of a regulatory liability for
excess accumulated deferred income taxes, or EADIT, and reflects the benefits
customers will receive in future approved rates. Pursuant to a DEPSC rate order, Artesian
Water is amortizing $ 24.3 million of the EADIT balance. The DEPSC has not issued a final order on the
TCJA regulatory liability amount of $ 0.6 million for wastewater customers, and
the MDPSC has not issued a final order on the TCJA regulatory liability amount
of $ 0.6 million for Maryland customers.
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Regulatory liabilities comprise:
(in thousands)
June 30, 2026 December 31, 2025
Utility plant retirement cost obligation $ 174 $ 107
Deferred income taxes (related to TCJA) 25,545 26,194
$ 25,719 $ 26,301
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 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.
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 is permitted sixty days after the rate case filing date 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.
Effective July 13, 2026, temporary rate regulation in Delaware changed for
public utilities replacing the two temporary rates with three as follows: (1) ninety
days after the filing date, temporary rates are allowed up to the lesser of
$ 2.5 million on an annual basis or 15 % of gross water sales; (2) seven months
after the filing date, temporary rates are allowed at 50 % of the proposed rate
change, up to 15 % of gross water sales; (3) twelve months after the filing date,
temporary rates are allowed at 75 % of the proposed rate change, up to 15 % of
gross water sales. 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.
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On April 4, 2025, Artesian
Water filed a request with the DEPSC to implement new rates to meet a requested
increase in revenue of 12.41 %, or approximately $ 10.8 million, on an annualized
basis. Supplemental and rebuttal filings
were subsequently filed, reducing the requested increase to 10.2 %, or
approximately $ 9.0 million, on an annualized basis. The actual effective
increase would be less than 10.2 % if the requested increase is granted in full
by the DEPSC since Artesian Water has been permitted to recover specific
investments made in infrastructure through the assessment of a 1.66 % DSIC rate, which rate is set to zero once temporary rates are
placed into effect. Temporary rates were
placed into effect as noted below. The new proposed rates are designed to
support Artesian Water’s ongoing capital improvement program and to cover
increased costs of operations, including chemicals and electricity for water
treatment, water quality regulation compliance, taxes, labor and benefits. In accordance with applicable Delaware law,
the DEPSC approved and Artesian Water implemented the first temporary rate
increase effective June 3, 2025 of approximately $ 2.5 million in additional
annual revenue, or 2.88 %, subject to refund, and reduced the DSIC previously in
effect from approximately 1.66 % to zero , for a temporary rate increase of net
1.22 %. Also, as permitted by law, on
November 6, 2025, Artesian Water placed into effect a second step of temporary
rates designed to generate an increase in annual operating revenue of
approximately 6.82 %, or $ 5.8 million, on an annualized basis, until permanent
rates are determined by the DEPSC. As of June 30, 2026,
approximately $ 2.2 million of the revenue from the
second step of temporary rates was recorded as a reserve for refund.
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 any 12-month period.
The following table
summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC
rates and (2) rate upon which each eligible plant improvement was based:
Application Date 11/22/2024
DEPSC Approval Date 12/18/2024
Effective Date 01/01/2025
Cumulative DSIC Rate 1.66 %
Net Eligible Plant Improvements – Cumulative Dollars (in millions) $ 11.7
Eligible Plant Improvements – Installed Beginning Date 11/01/2023
Eligible Plant Improvements – Installed Ending Date 10/31/2024
Effective January 1, 2025,
Artesian Water was permitted to recover specific investments made in
infrastructure through the assessment of a 1.66 % DSIC. The January 1,
2025 DSIC rate was reset to zero when the temporary base rate increase was
placed into effect on June 3, 2025. For the three and six months ended June 30,
2026, we did not report any earnings in DSIC revenue. For the three and six
months ended June 30, 2025, we earned approximately $ 0.2 million and $ 0.5
million, respectively, in DSIC revenue.
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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:
Three Months Ended Six Months Ended
June 30, June 30,
2026 2025 2026 2025
(in thousands) (in thousands)
Weighted average common shares outstanding during the period for basic computation 10,325 10,308 10,321 10,305
Dilutive effect of employee stock options and awards 5 2 6 3
Weighted average common shares outstanding during the period for diluted computation 10,330 10,310 10,327 10,308
For
the three and six months ended June 30, 2026, no shares of restricted stock
awards were excluded from the calculations of diluted net income per share. For the three and six
months ended June 30, 2025, 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 Voting Stock. As of June 30, 2026, 9,445,658 shares of Class A Non-Voting Stock and 881,452 shares of Class B Voting Stock were issued and outstanding. As of June 30, 2025, 9,429,077 shares of Class A Non-Voting Stock and 881,452 shares of Class B Voting Stock were issued and outstanding. The par value for both classes is $ 1.00 per share.
NOTE 15 - 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 four 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 four groups of settling defendants on behalf of: (1) the 3M Company
(“3M”); (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”); (3) Tyco Fire Products LP and Chemguard, Inc. ( collectively, “the
Tyco Defendants”); and (4) BASF Corporation (“BASF”). Claims Forms have been submitted on behalf of
Artesian Resources’ eligible systems in each of the Settlements. In October 2025, the Company received its
first payment from 3M in the amount of $ 2.3 million, and its second payment of
$ 5.2 million in November 2025, with an anticipated additional net settlement of
approximately $ 5.1 million to be paid over eight years . In December 2025, the Company received the
full DuPont settlement award payment of approximately $ 1.3 million. In April 2026, the Company received
approximately $ 1.3 million in settlement payments from the Tyco defendants and approximately
$ 0.5 million in settlement payments from BASF.
In June 2026, the Company received the next scheduled payment due from
3M in the amount of $ 2.0 million. The
settlement proceeds are intended to reimburse the Company for past and future
capital investments or operations and maintenance expenses related to PFAS
water contamination to its water systems.
The DEPSC approved the return of $ 7.2 million received from 3M to
Artesian Water’s customers through a one-time bill credit, which was applied to
customers’ bills in December 2025. The
DEPSC also approved the regulatory treatment of the settlement amounts for DuPont,
the Tyco Defendants and BASF and the remaining settlement amounts for 3M to be
recorded as CIAC.
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On September 15, 2025,
Artesian Water was served as a third-party defendant in a third-party complaint
filed by Metra Industries, Inc., in the Superior Court of the State of
Delaware. The litigation arises from a contractual dispute related to a water main
renewal project and asserts a claim against us in the total amount of $ 3.4
million consisting mainly of $ 2.7 million in unabsorbed office overhead, $ 0.1
million in end-of-job direct costs, and $ 0.6 million in change orders. While we plan to defend the claim vigorously,
it is possible that we could incur a loss; however, any loss is not estimable
at this time .
NOTE 16 - 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 3 – Revenue Recognition. 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 June 30, 2026 and June 30, 2025.
In thousands
Three Months Ended June 30,
2026 2025
Regulated Utility Total Regulated Utility Total
Regulated Utility Revenues $ 28,650 $ 28,650 $ 26,723 $ 26,723
Reconciliation of revenue
Other revenues 2,076 (a) 1,891 (a)
Inter-segment elimination ( 62 ) ( 65 )
Consolidated revenues $ 30,664 $ 28,549
Less: (b)
Payroll and Benefits (c) 6,638 6,183
Supply and Delivery (d) 4,300 4,069
Administrative (e) 2,560 2,318
Depreciation and Amortization 3,507 3,401
Income Taxes 2,006 1,866
Property and other taxes 1,517 1,585
Regulated Utility Operating Income $ 8,122 $ 8,122 $ 7,301 $ 7,301
Reconciliation of operating income
Other profit 493 (a) 554 (a)
Consolidated operating income $ 8,615 $ 7,855
In thousands
Six Months Ended June 30,
2026 2025
Regulated Utility Total Regulated Utility Total
Regulated Utility Revenues $ 54,409 $ 54,409 $ 50,768 $ 50,768
Reconciliation of revenue
Other revenues 4,152 (a) 3,795 (a)
Inter-segment elimination ( 124 ) ( 128 )
Consolidated revenues $ 58,437 $ 54,435
Less: (b)
Payroll and Benefits (c) 13,418 12,394
Supply and Delivery (d) 8,122 7,521
Administrative (e) 5,173 5,043
Depreciation and Amortization 6,946 6,745
Income Taxes 3,785 3,450
Property and other taxes 3,114 3,253
Regulated Utility Operating Income $ 13,851 $ 13,851 $ 12,362 $ 12,362
Reconciliation of operating income
Other profit 1,039 (a) 1,038 (a)
Consolidated operating income $ 14,890 $ 13,400
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In thousands
June 30, 2026 December 31, 2025
Regulated Utility Total Regulated Utility Total
Assets
Regulated Utility Assets $ 870,603 $ 870,603 $ 846,820 $ 846,820
Reconciliation of assets
Other assets 13,409 4,409
Consolidated assets $ 884,012 $ 851,229
(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 Condensed 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) Administrative:
– This category includes computer systems maintenance and subscription fees, audit and legal fees, insurance, customer billing, and other general and administrative expenses
NOTE 17 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
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.
In September 2025, the FASB
issued guidance that amends the existing standard to remove all references to
prescriptive and sequential software development project stages. Under this guidance, eligible software development
costs will begin capitalization when management has authorized and committed to
funding the software project, and it is probable that the project will be
completed and the software will be used to perform the function intended. In evaluating whether it is probable the
project will be completed, management is required to consider whether there is
significant uncertainty associated with the development activities of the
software. This guidance is effective for
all annual periods beginning after December 15, 2027, and for interim periods
within those annual reporting periods, with early adoption permitted. The guidance may be applied on a prospective
basis, a modified basis for in-process projects, or a retrospective basis. We are currently evaluating the impact of
this guidance to determine the impact on the consolidated financial statements
and related disclosures.
In December
2025, the FASB issued guidance to enhance, clarify, and streamline interim
disclosure requirements, emphasizing events and material changes that have
occurred since the most recent annual reporting period. The amendments are effective for the Company
for interim reporting periods within annual reporting periods beginning after
December 15, 2027, with early adoption permitted. The Company is required to apply the
amendments in its interim reporting starting with the first quarter of fiscal
year 2028. The guidance may be adopted
prospectively or retrospectively. The
Company is currently evaluating the impact of this new guidance, which may
alter the structure of our interim financial statement disclosures.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.