Company Quick10K Filing
Artesian Resources
Price36.54 EPS2
Shares9 P/E23
MCap341 P/FCF26
Net Debt114 EBIT24
TEV455 TEV/EBIT19
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-07
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-03-13
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-15
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-03-15
10-Q 2017-09-30 Filed 2017-11-03
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-03-10
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-11
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-03-13
10-Q 2014-09-30 Filed 2014-11-07
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-14
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-08
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-03-14
10-Q 2012-09-30 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-08
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-03-15
10-Q 2010-09-30 Filed 2010-11-08
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-11
8-K 2020-06-11
8-K 2020-05-06
8-K 2020-04-28
8-K 2020-04-02
8-K 2020-02-27
8-K 2019-12-17
8-K 2019-10-11
8-K 2019-07-30
8-K 2019-05-13
8-K 2018-09-23
8-K 2018-05-10
8-K 2018-05-07
8-K 2018-01-31

ARTNA 10Q Quarterly Report

Part I - Financial Information
Item 1 - Financial Statements
Note 1 - General
Note 2 - Basis of Presentation
Note 3 - Revenue Recognition
Note 4 - Leases
Note 5 - Stock Compensation Plans
Note 6 - Other Deferred Assets
Note 8 - Regulatory Liabilities
Note 9 - Net Income per Common Share and Equity per Common Share
Note 11 - Income Taxes
Note 13 - Related Party Transactions
Note 14 - Business Combinations
Note 15 - Impact of Recent Accounting Pronouncements
Note 16 - Subsequent Event
Item 2
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities
Item 4 - Mine Safety Disclosures
Item 5 - Other Information
Item 6 - Exhibits
EX-31.1 exhibit31-1.htm
EX-31.2 exhibit31-2.htm
EX-32 exhibit32.htm

Artesian Resources Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
55044033022011002012201420172020
Assets, Equity
25201510502016201720182020
Rev, G Profit, Net Income
1593-3-9-152012201420172020
Ops, Inv, Fin

Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from  _____  to  _____

Commission file number 000-18516

Title of each class
Trading Symbol (s)
Name of each exchange on which registered

 
graphic
 

ARTESIAN RESOURCES CORPORATION
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware
51-0002090
--------------------------------------------------------------------
-------------------------------------------------
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)

664 Churchmans Road, Newark, Delaware 19702
------------------------------------------------------------------
Address of principal executive offices

(302) 453 – 6900
-----------------------------------------------------------
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol (s)
Name of each exchange on which registered
Common Stock
ARTNA
The Nasdaq Stock Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes
No
 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes
No
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.


Large Accelerated Filer
Accelerated Filer 
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act ).

Yes
No
 

As of August 5, 2020, 8,454,153 shares of Class A Non-Voting Common Stock and 881,442 shares of Class B Common Stock were outstanding.




TABLE OF CONTENTS

ARTESIAN RESOURCES CORPORATION
FORM 10-Q

-
   
         
-
 
Page(s)
         
     
3
         
     
4
         
     
5 - 6
         
     
7 - 8
         
     
  9 - 22
         
-
 
23 - 31
         
-
 
31
         
-
 
31
         
      Part II
-
 
32
         
-
 
32
         
-
 
32
         
-
 
32
         
   
33
         
   
33
         
   
33
         
-
 
34
         
   Signatures
       
2




PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS

ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)

ASSETS
 
June 30, 2020
   
December 31, 2019
 
Utility plant, at original cost (less accumulated depreciation 2020 - $ 143,051; and 2019 - $136,588)
 
$
544,575
   
$
530,721
 
Current assets
               
Cash and cash equivalents
   
373
     
596
 
Accounts receivable (less allowance for doubtful accounts 2020 - $601; 2019 - $264)
   
8,191
     
6,913
 
Income tax receivable
   
     
19
 
Unbilled operating revenues
   
1,759
     
1,211
 
Materials and supplies
   
1,518
     
1,264
 
Prepaid property taxes
   
2
     
1,954
 
Prepaid expenses and other
   
2,657
     
2,250
 
Total current assets
   
14,500
     
14,207
 
Other assets
               
Non-utility property (less accumulated depreciation - 2020 - $828; 2019 - $790)
   
3,774
     
3,812
 
Other deferred assets
   
5,884
     
4,257
 
   Operating lease right of use assets
   
469
     
480
 
Total other assets
   
10,127
     
8,549
 
Regulatory assets, net
   
6,697
     
6,891
 
Total Assets
 
$
575,899
   
$
560,368
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Stockholders' equity
               
Common stock
 
$
9,333
   
$
9,292
 
Preferred stock
   
     
 
Additional paid-in capital
   
102,746
     
101,811
 
Retained earnings
   
50,831
     
49,165
 
Total stockholders' equity
   
162,910
     
160,268
 
Long-term debt, net of current portion
   
143,183
     
144,156
 
     
306,093
     
304,424
 
Current liabilities
               
Lines of credit
   
14,735
     
7,500
 
Current portion of long-term debt
   
1,799
     
1,706
 
Accounts payable
   
4,853
     
8,176
 
Accrued expenses
   
3,003
     
3,113
 
Dividends payable
   
2,330
     
 
Overdraft payable
   
197
     
15
 
Accrued interest
   
908
     
830
 
Income taxes payable
   
4,840
     
343
 
Customer and other deposits
   
2,011
     
1,970
 
Other
   
1,797
     
1,946
 
Total current liabilities
   
36,473
     
25,599
 
                 
Commitments and contingencies
   
     
 
                 
Deferred credits and other liabilities
               
Net advances for construction
   
5,058
     
5,421
 
Operating lease liabilities
   
440
     
450
 
Regulatory liabilities
   
21,969
     
22,246
 
Deferred investment tax credits
   
482
     
490
 
Deferred income taxes
   
50,501
     
52,259
 
Total deferred credits and other liabilities
   
78,450
     
80,866
 
                 
Net contributions in aid of construction
   
154,883
     
149,479
 
Total Liabilities and Stockholders’ Equity
 
$
575,899
   
$
560,368
 
See notes to the condensed consolidated financial statements.
3



ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share amounts)

 
For the Three Months Ended June 30,
   
For the Six Months Ended June30,
 
             
   
2020
   
2019
   
2020
   
2019
 
Operating revenues
                       
Water sales
 
$
19,423
   
$
18,192
   
$
36,816
   
$
35,125
 
Other utility operating revenue
   
1,084
     
1,150
     
2,336
     
2,270
 
Non-utility operating revenue
   
1,245
     
1,310
     
2,501
     
2,642
 
Total Operating Revenues
   
21,752
     
20,652
     
41,653
     
40,037
 
                                 
Operating expenses
                               
Utility operating expenses
   
9,359
     
9,249
     
18,593
     
18,370
 
Non-utility operating expenses
   
733
     
779
     
1,462
     
1,546
 
Depreciation and amortization
   
2,693
     
2,724
     
5,445
     
5,438
 
State and federal income taxes
   
1,537
     
1,325
     
2,896
     
2,504
 
Property and other taxes
   
1,306
     
1,255
     
2,672
     
2,575
 
Total Operating Expenses
   
15,628
     
15,332
     
31,068
     
30,433
 
                                 
Operating income
   
6,124
     
5,320
     
10,585
     
9,604
 
                                 
Other income, net
                               
   Allowance for funds used during construction (AFUDC) construction (AFUDC)
   
338
     
266
     
762
     
492
 
 Miscellaneous (expense) income
   
(13
)
   
(58
)
   
1,075
     
742
 
                                 
Income before interest charges
   
6,449
     
5,528
     
12,422
     
10,838
 
                                 
Interest charges
   
1,883
     
1,750
     
3,782
     
3,470
 
                                 
Net income applicable to common stock
 
$
4,566
   
$
3,778
   
$
8,640
   
$
7,368
 
                                 
Income per common share:
                               
Basic
 
$
0.49
   
$
0.41
   
$
0.93
   
$
0.80
 
Diluted
 
$
0.49
   
$
0.41
   
$
0.92
   
$
0.79
 
                                 
Weighted average common shares outstanding:
                               
Basic
   
9,326
     
9,276
     
9,311
     
9,267
 
Diluted
   
9,367
     
9,324
     
9,357
     
9,319
 
                                 
Cash dividends per share of common stock
 
$
0.2496
   
$
0.2459
   
$
0.4992
   
$
0.4882
 

See notes to the condensed consolidated financial statements.
4



ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)

           
   
2020
   
2019
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
 
$
8,640
   
$
7,368
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
5,445
     
5,438
 
Deferred income taxes, net
   
(1,766
)
   
(1,690
)
Stock compensation
   
90
     
90
 
AFUDC, equity portion
   
(508
)
   
(311
)
                 
Changes in assets and liabilities:
               
Accounts receivable, net of allowance for doubtful accounts
   
(1,278
)
   
3,604
 
Income tax receivable
   
19
     
574
 
Unbilled operating revenues
   
(548
)
   
(335
)
Materials and supplies
   
(254
)
   
159
 
Prepaid property taxes
   
1,952
     
1,867
 
Prepaid expenses and other
   
(407
)
   
(572
)
Other deferred assets
   
(425
)
   
(373
)
Regulatory assets
   
165
     
189
 
Regulatory liabilities
   
(323
)
   
(258
)
Income tax payable
   
4,497
     
899
 
Accounts payable
   
(3,323
)
   
(3,775
)
Accrued expenses
   
(110
)
   
(1,404
)
Accrued interest
   
78
     
1,023
 
Revenue reserved for refund
   
     
(3,298
)
Customer deposits and other
   
(107
)
   
(267
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
   
11,837
     
8,928
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Capital expenditures (net of AFUDC, equity portion)
   
(16,952
)
   
(18,109
)
Investment in acquisitions
   
(3,632
)
   
 
Proceeds from sale of assets
   
34
     
36
 
NET CASH USED IN INVESTING ACTIVITIES
   
(20,550
)
   
(18,073
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net borrowings under lines of credit agreements
   
7,235
     
9,757
 
Increase in overdraft payable
   
182
     
661
 
Net advances and contributions in aid of construction
   
5,711
     
3,314
 
Net proceeds from issuance of common stock
   
886
     
598
 
Dividends paid
   
(4,644
)
   
(4,522
)
Principal repayments of long-term debt
   
(880
)
   
(771
)
NET CASH PROVIDED BY FINANCING ACTIVITIES
   
8,490
     
9,037
 
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
   
(223
)
   
(108
)
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
   
596
     
293
 
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
373
   
$
185
 
                 
Non-cash Investing and Financing Activity:
               
Utility plant received as construction advances and contributions
 
$
619
   
$
1,595
 
Dividends declared but not paid
   
2,330
     
2,282
 
                 
Supplemental Disclosures of Cash Flow Information:
               
Interest paid
 
$
3,704
   
$
2,447
 
Income taxes paid
 
$
360
   
$
2,940
 
                 
Preliminary purchase price of allocation of investment in acquisitions:
               
Utility plant
 
$
2,412
   
$
 
Other deferred assets/goodwill
   
1,220,000
     
 
Total investment in acquisitions
 
$
3,632,000
   
$
 

See notes to the condensed consolidated financial statements.
5




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, 2018
   
8,368
     
882
   
$
8,368
   
$
882
   
$
100,639
   
$
43,362
   
$
153,251
 
Net income
   
     
     
     
     
     
3,590
     
3,590
 
Cash dividends declared
                                                       
Common stock
   
     
     
     
     
     
(2,241
)
   
(2,241
)
Issuance of common stock
                                                       
Dividend reinvestment plan
   
2
     
     
2
     
     
85
     
     
87
 
Employee stock options and awards(4)
   
14
     
     
14
     
     
263
     
     
277
 
Employee Retirement Plan(3)
   
2
     
     
2
     
     
76
     
     
78
 
Balance as of March 31, 2019
   
8,386
     
882
     
8,386
     
882
     
101,063
     
44,711
     
155,042
 
Net income
   
     
     
     
     
     
3,778
     
3,778
 
Cash dividends declared
                                                       
Common stock
   
     
     
     
     
     
(4,563
)
   
(4,563
)
Issuance of common stock
                                                       
Dividend reinvestment plan
   
3
     
     
3
     
     
87
     
     
90
 
Employee stock options and awards(4)
   
5
     
     
5
     
     
38
     
     
43
 
Employee Retirement Plan(3)
   
3
     
     
3
     
     
110
     
     
113
 
Balance as of June 30, 2019
   
8,397
     
882
     
8,397
     
882
     
101,298
     
43,926
     
154,503
 

 
 
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, 2019
   
8,410
     
882
   
$
8,410
   
$
882
   
$
101,811
   
$
49,165
   
$
160,268
 
Net income
   
     
     
     
     
     
4,074
     
4,074
 
Cash dividends declared
                                                       
Common stock
   
     
     
     
     
     
(2,319
)
   
(2,319
)
Issuance of common stock
                                                       
Dividend reinvestment plan
   
3
     
     
3
     
     
105
     
     
108
 
Employee stock options and awards(4)
   
5
     
     
5
     
     
129
     
     
134
 
Employee Retirement Plan(3)
   
2
     
     
2
     
     
87
     
     
89
 
Balance as of March 31, 2020
   
8,420
     
882
     
8,420
     
882
     
102,132
     
50,920
     
162,354
 
Net income
   
     
     
     
     
     
4,566
     
4,566
 
Cash dividends declared
                                                       
Common stock
   
     
     
     
     
     
(4,655
)
   
(4,655
)
Issuance of common stock
                                                       
Dividend reinvestment plan
   
3
     
     
3
     
     
87
     
     
90
 
Employee stock options and awards(4)
   
24
     
     
24
     
     
399
     
     
423
 
Employee Retirement Plan(3)
   
4
     
     
4
     
     
128
     
     
132
 
Balance as of June 30, 2020
   
8,451
     
882
     
8,451
     
882
     
102,746
     
50,831
     
162,910
 

(1)
At June 30, 2020 and June 30, 2019, Class A Common Stock had 15,000,000 shares authorized.  For the same periods, shares issued, inclusive of treasury shares, were 8,451,917 and 8,426,291, respectively.
(2)
At June 30, 2020 and June 30, 2019, Class B Common Stock had 1,040,000 shares authorized and 881,452 shares issued.
(3)
Artesian Resources Corporation registered 500,000 shares of Class A Common Stock available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan.
(4)
Under the Equity Compensation Plan, effective December 9, 2015, or the 2015 Plan, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in the form of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the 2015 Plan. Includes stock compensation expense for June 30, 2020, and June 30, 2019, see Note 5-Stock Compensation Plans.

See notes to the condensed consolidated financial statements
6




NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – GENERAL

Artesian Resources Corporation, or Artesian Resources, includes income from the earnings of our eight wholly owned subsidiaries. The terms "we", "our", "Artesian" and the "Company" as used herein refer to Artesian Resources and its subsidiaries.

DELAWARE REGULATED SUBSIDIARIES

Artesian Water Company, Inc., or Artesian Water, our principal subsidiary, is the oldest and largest public water utility in the State of Delaware and has been providing water service within the state since 1905.  Artesian Water 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 billing functions, and has contract operation agreements with private and municipal 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, is a regulated entity that owns wastewater collection and treatment infrastructure and provides wastewater services to customers in Delaware as a regulated public wastewater service company.  Artesian Wastewater owns and operates four wastewater treatment facilities, which are permitted to treat approximately 500,000 gallons per day.  Artesian Wastewater and Sussex County, a political subdivision of Delaware, provide reciprocal services to address the periodic need of each for additional wastewater treatment and disposal capacity in certain service areas within Sussex County. There are numerous locations in Sussex County where Artesian Wastewater’s and Sussex County’s facilities are capable of being connected or integrated to allow for the movement and disposal of wastewater generated by one or the other’s system in a manner that most efficiently and cost effectively manages wastewater transmission, treatment and disposal.  Artesian Wastewater received an operations permit in March 2020 for a disposal facility that includes a 90 million gallon storage lagoon and spray irrigation to agricultural land.  This facility will be used to provide treated process wastewater disposal services for an industrial customer at a rate of approximately 1.5 million gallons per day. We anticipate to be operating this facility in the third quarter of 2020, pending Allen Harim's receipt of their operations permit.

MARYLAND REGULATED SUBSIDIARIES

Artesian Water Maryland, Inc., or Artesian Water Maryland, began operations in August 2007. 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, was incorporated on June 3, 2008 and is able to provide regulated wastewater services to customers in the State of Maryland.  It is currently not providing these services in Maryland.

PENNSYLVANIA REGULATED SUBSIDIARY

Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, began operations in 2002.  It provides water service to a residential community in Chester County, Pennsylvania.

OTHER SUBSIDIARIES

Our three other subsidiaries, none of which are regulated, are Artesian Utility Development, Inc., or Artesian Utility, Artesian Development Corporation, or Artesian Development, and Artesian Storm Water Services, Inc., or Artesian Storm Water.

Artesian Utility was formed in 1996 and 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 organizations.  Artesian Utility also contracts with developers for design and construction of wastewater facilities within the Delmarva Peninsula, using a number of different technologies for treatment of wastewater at each facility.  In addition, as further discussed below, Artesian Utility operates the Water Service Line Protection Plan, or WSLP Plan, the Sewer Service Line Protection Plan, or SSLP Plan, and the Internal Service Line Protection Plan, or ISLP Plan.
7


Artesian Utility currently operates wastewater treatment facilities for the town of Middletown, in southern New Castle County, Delaware, or Middletown, under a 20-year contract that expires in July 2039.  The Company has been operating these facilities, which currently include two wastewater treatment stations with a combined capacity of up to approximately 2.8 million gallons per day, or mgd, and the related wastewater disposal facilities, since 1998.  The wastewater treatment facilities in Middletown provide reclaimed wastewater for use in spray irrigation on public and agricultural lands in the area.

Artesian Utility also offers three protection plans to customers, the WSLP Plan, the SSLP Plan, and the ISLP Plan. 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 ISLP Plan enhances available coverage to include water and wastewater lines within customers' residences.

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

Artesian Storm Water, incorporated on January 17, 2017, was formed to provide design, installation, maintenance and repair services related to existing or proposed storm water management systems in Delaware and the surrounding areas.  The ability to offer storm water services will complement the primary water and wastewater services that we provide.

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 not misleading.  Accordingly, these condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes in the Company's annual report on Form 10-K for fiscal year 2019 as filed with the SEC on March 13, 2020.

The condensed consolidated financial statements include the accounts of Artesian Resources Corporation and its wholly owned subsidiaries, including its principal operating company, Artesian Water.  In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments (unless otherwise noted) necessary to present fairly the Company's balance sheet position as of June 30, 2020, the results of its operations for the three and six months periods ended June 30, 2020 and June 30, 2019, its cash flows for the six month periods ended June 30, 2020 and June 30, 2019 and the changes in stockholders’ equity for the three and six  months periods ended June 30, 2020 and June 30, 2019.  The December 31, 2019 Condensed Consolidated Balance Sheet was derived from the Company’s December 31, 2019 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.

Use of Estimates

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.


The ultimate impact from the coronavirus pandemic, or COVID-19, on the Company’s operations and financial results during 2020 will depend on, among other things, the severity and scope of the pandemic and the timing of when governmental restrictions and executive orders will ease.  We are not able to fully quantify the impact that these factors will have on our financial results during 2020 and beyond.  Management has made certain estimates and assumptions regarding credit losses and reserves for bad debt related to the executive orders issued by state government agencies requiring utility companies to temporarily prohibit late fees and service disconnections for non-payment.

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.


NOTE 3 – REVENUE RECOGNITION

Background

Artesian’s operating revenues are primarily attributable to contract services based upon tariff rates approved by the Delaware Public Service Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.  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 consist of Service Line Protection Plan, or SLP Plan, fees, water and wastewater contract operations and wastewater inspection fees.  Other operating revenue primarily consists of developer guarantee contributions for wastewater and rental income for antenna contracts.

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 judgements 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.

Artesian generates fixed fee revenue for water and wastewater services provided to customers once a customer requests service in our territory.  Our wastewater territory is located in Sussex County, Delaware.  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 in advance at tariff rates on a monthly, quarterly or semi-annual 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.  This deferred revenue is netted with 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 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.
9


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.

The DEPSC required Delaware utilities to determine the impact that the Tax Cuts and Jobs Act, or TCJA, had on its customers and potential rate relief due to customers.  The reduction in corporate income tax expense resulting from the TCJA was passed through to customers in the form of reduced tariff rates as approved by the DEPSC on January 31, 2019.  Approximately $3.8 million was refunded to customers during the second quarter of 2019.  This amount was previously held in reserve (refund liability) and was not reflected in income.

Accounts receivable related to tariff contract revenues are typically due within 25 days of invoicing.  An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.  We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.  However, due to the COVID-19 pandemic causing hardships for many utility customers, state government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees.  The Company anticipates a longer receivable cycle and the need for increased reserves for bad debt compared to 2019.  Effective June 30, 2020 an adjustment was made to increase the reserve for bad debt in the amount of $0.3 million.  The DEPSC and MDPSC issued orders authorizing utilities deferred regulatory treatment for incremental costs related to COVID-19.

As of June 30, 2020, we have not recorded a deferred regulatory asset for incremental costs related to COVID-19, but will continue to evaluate the on-going impact of the pandemic and whether incremental costs incurred are sufficient to warrant treatment as a deferred regulatory asset in accordance with the orders issued by the DEPSC and MDPSC.


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 residences, 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.  An allowance for doubtful accounts 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 allowance for doubtful accounts 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. 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 these revenues.  An allowance for doubtful accounts 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 allowance for doubtful accounts and associated bad debt expense has not been significant.

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, allowance for doubtful accounts or bad debt expense associated with inspection fee contracts.
10


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:

(in thousands)
 
Three months ended June 30, 2020
   
Three months ended June 30, 2019
   
Six months ended June 30, 2020
   
Six months ended June 30, 2019
 
Tariff Revenue
                       
     Consumption charges
 
$
12,182
   
$
11,505
   
$
22,342
   
$
21,476
 
     Fixed fees
   
6,657
     
6,349
     
13,394
     
12,997
 
     Service charges
   
15
     
156
     
162
     
333
 
     DSIC
   
1,267
     
908
     
2,418
     
1,795
 
     Industrial wastewater services
   
7
     
3
     
15
     
3
 
Total Tariff Revenue
 
$
20,128
   
$
18,921
   
$
38,331
   
$
36,604
 
                                 
Non-Tariff Revenue
                               
     Service line protection plans
 
$
1,079
   
$
1,028
   
$
2,167
   
$
2,079
 
     Contract operations
   
213
     
328
     
429
     
656
 
     Inspection fees
   
8
     
64
     
110
     
86
 
Total Non-Tariff Revenue
 
$
1,300
   
$
1,420
   
$
2,706
   
$
2,821
 
                                 
Other Operating Revenue
     not in scope of ASC 606
 
$
324
   
$
311
   
$
616
   
$
612
 
                                 
Total Operating Revenue
 
$
21,752
   
$
20,652
   
$
41,653
   
$
40,037
 

Contract Assets and Contract Liabilities

Our contract assets and liabilities consist of the following:

(in thousands)
 
June 30, 2020
   
December 31, 2019
 
             
Contract Assets – Tariff
 
$
2,731
   
$
2,146
 
                 
Deferred Revenue
               
     Deferred Revenue – Tariff
 
$
1,104
   
$
1,050
 
     Deferred Revenue – Non-Tariff
   
244
     
251
 
Total Deferred Revenue
 
$
1,348
   
$
1,301
 

For the six months ended June 30, 2020, the Company recognized revenue of $1.0 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $0.2 million from amounts that were included in Deferred Revenue – Non- Tariff at the beginning of the year.

The increases (decreases) of Accounts Receivable, Contract Assets and Deferred Revenue were primarily due to normal timing differences between our performance and customer payments.

Remaining Performance Obligations

As of June 30, 2020 and December 31, 2019, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining performance obligations for our fixed fee water and wastewater services, all of which are expected to be satisfied and associated revenue recognized in the next three months.

As of June 30, 2020 and December 31, 2019, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months and one year for the SLP Plan revenue and inspection fee revenue, respectively.

11



NOTE 4 – 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 77 years, some of which include options to automatically extend the leases for up to 66 years.  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 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 terms of the lease agreements.  Periodically, the annual lease payment for one land operating 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.

Rent expense for all operating leases except those with terms of 12 months or less comprises:

 
(in thousands)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2020
   
2019
   
2020