Artesian Resources Corp 10-K for FY2020

Artesian Resources Corp (ARTNA)

10-K 2021-03-12 For: 2020-12-31

Added on April 06, 2026

About this 10-K

Artesian Resources Corp filed this 10-K on March 12, 2021, covering the fiscal year ended December 31, 2020 (FY2020).

Headline figures

Fiscal year ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $88.14M; up 5.4% from $83.6M a year earlier
Net income: $16.82M; up 12.7% from net income of $14.93M a year earlier
Diluted EPS: $1.79; up 11.9% from $1.60 a year earlier

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

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

Large Accelerated Filer □	Accelerated Filer □	Non-Accelerated Filer ☑	Smaller Reporting Company ☑
Emerging Growth Company ☐

FORWARD LOOKING STATEMENTS

PART I
Item 1. – Business
Item 1A. – Risk Factors
Item 1B. – Unresolved Staff Comments
Item 2. – Properties
Item 3. – Legal Proceedings
Item 4. – Mine Safety Disclosures
PART II
Item 5. – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. – Selected Financial Data
Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. – Quantitative and Qualitative Disclosure About Market Risk
Item 8. – Financial Statements and Supplementary Data
Item 9. – Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
Item 9A. – Controls and Procedures
Item 9B. – Other Information
PART III
Item 10. – Directors, Executive Officers and Corporate Governance
Item 11. – Executive Compensation
Item 12. – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. – Certain Relationships and Related Transactions, and Director Independence
Item 14. – Principal Accountant Fees and Services
PART IV
Item 15. – Exhibits and Financial Statement Schedules

SIGNATURES

Exhibit 21-Subsidiaries of the Company
Exhibit 23.1-Consent of BDO USA, LLP
Exhibit 31.1-Certification of Chief Executive Officer
Exhibit 31.2-Certification of Chief Financial Officer
Exhibit 32- Certification of Chief Executive Officer and Chief Financial Officer

Utility plant comprises:
In thousands
	Estimated Useful Life (In Years)		December 31, 2020
Utility plant at original cost
Utility plant in service-Water
Intangible plant		---	$	140
Source of supply plant		45-85		23,940
Pumping and water treatment plant		8-62		100,317
Transmission and distribution plant
Mains		81		293,643
Services		39		49,937
Storage tanks		76		29,946
Meters		26		27,994
Hydrants		60		15,895
General plant		5-31		62,379

Utility plant in service-Wastewater
Intangible plant		---		116
Treatment and disposal plant		21-81		41,860
Collection mains and lift stations		81		32,133
General plant		5-31		1,545

Property held for future use		---		5,711
Construction work in progress		---		21,474
				707,030
Less – accumulated depreciation				147,469
			$	559,561

			INDEXED RETURNS
	Base Period		Years Ending December 31
Company Name / Index	2015		2016		2017		2018		2019		2020
Artesian Resources Corporation		100		118.92		147.36		136.76		149.97		153.67
S&P 500 Index		100		111.96		136.40		130.42		171.49		203.04
Peer Group		100		122.78		156.72		157.81		211.69		244.13

Percentage of Operating Revenues
	2020			2019			2018
Water Sales
Residential		53.8	%		52.8	%		52.7	%
Commercial		19.5			21.0			21.4
Industrial		0.1			0.1			0.1
Government and Other		13.4			14.1			13.9
Other utility operating revenues		7.4			5.9			5.5
Non-utility operating revenues		5.8			6.1			6.4
Total		100.0	%		100.0	%		100.0	%

Percentage of Operating and Maintenance Expenses
	2020			2019			2018
Payroll and Associated Expenses		51.0	%		50.1	%		48.9	%
Administrative		14.1			13.6			14.3
Purchased Water		9.9			9.9			10.1
Repair and Maintenance		8.3			9.3			10.3
Purchased Power		5.5			5.5			5.8
Water Treatment		3.7			3.8			3.6
Non-utility Operating		7.5			7.8			7.0

Total		100.0	%		100.0	%		100.0	%

Line of Credit Commitments	Commitment Due by Period
In thousands	Less than 1 Year			1-3 Years			4-5 Years			Over 5 Years
Lines of Credit		$	26,813		$	-----		$	-----		$	-----

Contractual Obligations	Payments Due by Period
In thousands	Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total
First mortgage bonds (principal and interest)	$	6,650	$	13,218	$	13,115	$	194,734	$	227,717
State revolving fund loans (principal and interest)		1,002		674		674		3,626		5,976
Promissory note (principal and interest)		960		1,922		1,921		12,538		17,341
Operating leases		42		51		47		1,306		1,446
Operating agreements		73		78		79		866		1,096
Unconditional purchase obligations		3,881		114		28		---		4,023
Total contractual cash obligations	$	12,608	$	16,057	$	15,864	$	213,070	$	257,599

ASSETS	December 31, 2020		December 31, 2019
Utility plant, at original cost less accumulated depreciation	$	559,561	$	530,721
Current assets
Cash and cash equivalents		28		596
Accounts receivable (less allowance for doubtful accounts 2020 - $862; 2019-$264)		10,162		6,913
Income tax receivable		629		19
Unbilled operating revenues		1,166		1,211
Materials and supplies		1,535		1,264
Prepaid property taxes		1,891		1,954
Prepaid expenses and other		2,208		2,250
Total current assets		17,619		14,207
Other assets
Non-utility property (less accumulated depreciation 2020-$865; 2019-$790)		3,796		3,812
Other deferred assets		5,309		4,257
Operating lease right of use assets		460		480
Total other assets		9,565		8,549
Regulatory assets, net		6,473		6,891
Total Assets	$	593,218	$	560,368

LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock	$	9,357	$	9,292
Preferred stock		—		—
Additional paid-in capital		103,463		101,811
Retained earnings		56,606		49,165
Total stockholders' equity		169,426		160,268
Long-term debt, net of current portion		142,333		144,156
		311,759		304,424
Current liabilities
Lines of credit		26,813		7,500
Current portion of long-term debt		1,757		1,706
Accounts payable		6,341		8,176
Accrued expenses		3,414		3,113
Overdraft payable		105		15
Accrued interest		930		830
Income taxes payable		237		343
Customer and other deposits		2,060		1,970
Other		2,067		1,946
Total current liabilities	$	43,724	$	25,599

Commitments and contingencies (Note 11)

Deferred credits and other liabilities
Net advances for construction	$	4,578	$	5,421
Operating lease liabilities		432		450
Regulatory liabilities		21,681		22,246
Deferred investment tax credits		473		490
Deferred income taxes		50,313		52,259
Total deferred credits and other liabilities	$	77,477	$	80,866

Net contributions in aid of construction		160,258		149,479
Total Liabilities and Stockholders' Equity	$	593,218	$	560,368

	For the Year Ended December 31,
	2020			2019			2018

Operating revenues
Water sales	$	76,476		$	73,609		$	70,829
Other utility operating revenue		6,525			4,916			4,456
Non-utility operating revenue		5,140			5,070			5,126
Total Operating Revenues		88,141			83,595			80,411

Operating expenses
Utility operating expenses		40,338			39,189			38,330
Non-utility operating expenses		3,277			3,315			2,879
Depreciation and amortization		11,143			10,803			10,288
Taxes
State and federal income tax expense (benefit)
Current		8,073			8,420			4,172
Deferred		(2,389	)		(3,239	)		819
Property and other taxes		5,404			5,182			4,968
Total Operating Expenses		65,846			63,670			61,456

Operating income		22,295			19,925			18,955

Other income, net
Allowance for funds used during construction (AFUDC)		1,170			1,410			622
Miscellaneous		971			614			953
		2,141			2,024			1,575

Income before interest charges		24,436			21,949			20,530

Interest charges		7,619			7,024			6,252

Net income applicable to common stock	$	16,817		$	14,925		$	14,278

Income per common share:
Basic	$	1.80		$	1.61		$	1.55
Diluted	$	1.79		$	1.60		$	1.54

Weighted average common shares outstanding:
Basic		9,327			9,277			9,239
Diluted		9,369			9,326			9,293

Cash dividends per share of common stock	$	1.01		$	0.9837		$	0.9549

	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, 2017		8,333		882	$	8,333	$	882	$	99,526	$	37,903		$	146,644

Net income		—		—		—		—		—		14,278			14,278
Cash dividends declared
Common stock		—		—		—		—		—		(8,819	)		(8,819	)
Issuance of common stock
Dividend reinvestment plan		10		—		10		—		356		—			366
Employee stock options and awards(4)		13		—		13		—		306		—			319
Employee Retirement Plan(3)		12		—		12		—		451		—			463
Balance as of December 31, 2018		8,368		882	$	8,368	$	882	$	100,639	$	43,362		$	153,251

Net income		—		—		—		—		—		14,925			14,925
Cash dividends declared
Common stock		—		—		—		—		—		(9,122	)		(9,122	)
Issuance of common stock
Dividend reinvestment plan		11		—		11		—		389		—			400
Employee stock options and awards(4)		21		—		21		—		426		—			447
Employee Retirement Plan(3)		10		—		10		—		357		—			367
Balance as of December 31, 2019		8,410		882	$	8,410	$	882	$	101,811	$	49,165		$	160,268

Net income		—		—		—		—		—		16,817			16,817
Cash dividends declared
Common stock		—		—		—		—		—		(9,376	)		(9,376	)
Issuance of common stock
Dividend reinvestment plan		11		—		11		—		377		—			388
Employee stock options and awards(4)		42		—		42		—		832		—			874
Employee Retirement Plan(3)		12		—		12		—		443		—			455
Balance as of December 31, 2020		8,475		882	$	8,475	$	882	$	103,463	$	56,606		$	169,426

Utility plant comprises:
In thousands
			December 31,
	Estimated Useful Life (In Years)		2020		2019
Utility plant at original cost
Utility plant in service-Water
Intangible plant		—	$	140	$	140
Source of supply plant		45-85		23,940		22,611
Pumping and water treatment plant		8-62		100,317		90,795
Transmission and distribution plant
Mains		81		293,643		277,125
Services		39		49,937		48,190
Storage tanks		76		29,946		27,968
Meters		26		27,994		27,498
Hydrants		60		15,895		15,071
General plant		5-31		62,379		61,512

Utility plant in service-Wastewater
Intangible plant		—		116		—
Treatment and disposal plant		21-81		41,860		19,315
Collection mains & lift stations		81		32,133		19,348
General plant		5-31		1,545		1,223

Property held for future use		—		5,711		24,632
Construction work in progress		—		21,474		31,881
				707,030		667,309
Less – accumulated depreciation				147,469		136,588
			$	559,561	$	530,721

Expense	Years Amortized
Rate case studies	5
Delaware rate proceedings	2.5
Maryland rate proceedings	5
Debt related costs	15 to 30 (based on term of related debt)
Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)	50
Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)	20
Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)	80

(in thousands)	December 31, 2020		December 31, 2019

Deferred income taxes	$	370	$	386
Expense of rate case studies and other		46		78
Debt related costs		5,233		5,556
Goodwill		281		288
Deferred acquisition and franchise costs		543		583
	$	6,473	$	6,891

Regulatory liabilities comprise:
	(in thousands)
	December 31, 2020		December 31, 2019

Utility plant retirement cost obligation	$	126	$	247
Deferred income taxes (related to TCJA)		21,555		21,999

	$	21,681	$	22,246

Non-Tariff Revenue
Service line protection plans	$	4,381	$	4,177	$	3,992
Contract operations		840		1,122		1,352
Design and installation		88		—		—
Inspection fees		266		246		211
Total Non-Tariff Revenue	$	5,575	$	5,545		5,555

Other Operating Revenue not in scope of ASC 606	$	1,516	$	1,413		1,271

Total Operating Revenue	$	88,141	$	83,595	$	80,411

	For the Twelve Months Ended December 31,
(in thousands)
	2020		2019

Minimum rentals	$	44	$	40
Contingent rentals		—		—
	$	44	$	40

	Twelve Months Ended		Twelve Months Ended
	December 31,		December 31,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	44	$	40
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	460	$	480

(in thousands, except lease term and discount rate)
	December 31, 2020			December 31, 2019

Operating Leases:
Operating lease right-of-use assets	$	460		$	480

Other current liabilities	$	20		$	19
Operating lease liabilities		432			450
Total operating lease liabilities	$	452		$	469


Weighted Average Remaining Lease Term
Operating leases	59 years			58 years
Weighted Average Discount Rate
Operating leases		5.0	%		5.0	%

	(in thousands)
	Operating Leases
Year
2021	$	42
2022		28
2023		23
2024		23
2025		24
Thereafter		1,306
Total undiscounted lease payments	$	1,446
Less effects of discounting		(994	)
Total lease liabilities recognized		452

Components of Income Tax Expense
In thousands	For the Year Ended December 31,
State income taxes	2020			2019			2018
Current	$	2,348		$	2,405		$	1,768
Deferred		(279	)		(610	)		71
Total state income tax expense	$	2,069		$	1,795		$	1,839

	For the Year Ended December 31,
Federal income taxes	2020			2019			2018
Current	$	5,725		$	6,015		$	2,404
Deferred		(2,110	)		(2,629	)		748
Total federal income tax expense	$	3,615		$	3,386		$	3,152

Reconciliation of effective tax rate:
	For the Year Ended December 31,
In thousands	2020			2020			2019			2019			2018			2018
	Amount			Percent			Amount			Percent			Amount			Percent
Reconciliation of effective tax rate
Income before federal and state income taxes	$	22,501			100.0	%	$	20,106			100.0	%	$	19,270			100.0	%

Amount computed at statutory rate		4,725			21.0	%		4,222			21.0	%		4,047			21.0	%
Reconciling items
State income tax-net of federal tax benefit		1,704			7.6	%		1,414			7.0	%		1,350			7.0	%
Regulatory liability adjustment		(451	)		(2.0	)%		(451	)		(2.2	)%		(920	)		(4.8	)%
Federal rate change and TCJA effect		—			–			—			-			325			1.7	%
Other		(294	)		(1.3	)%		(4	)		0.0	%		189			1.0	%
Total income tax expense and effective rate	$	5,684			25.3	%	$	5,181			25.8	%	$	4,991			25.9	%

	For the Year Ended December 31,
In thousands	2020			2019

Deferred tax assets related to:
Federal and state operating loss carry-forwards	$	629		$	725
Less: valuation allowance		(493	)		(335	)
Bad debt allowance		240			73
Stock options		148			185
Other		75			70
Total deferred tax assets	$	599		$	718

Deferred tax liabilities related to:
Property plant and equipment basis differences	$	(48,536	)	$	(50,490	)
Bond retirement costs		(1,210	)		(1,286	)
Expenses of rate proceedings		—			—
Property taxes		(481	)		(544	)
Other		(685	)		(657	)
Total deferred tax liabilities	$	(50,912	)	$	(52,977	)

Net deferred tax liability	$	(50,313	)	$	(52,259	)

Schedule of Valuation Allowance
	Balance at Beginning of Period			Additions Charged to Costs and Expenses			Deductions			Balance at End of Period
In thousands

Classification
For the Year Ended December 31, 2020 Valuation allowance for deferred tax assets		$	335		$	158		—			$	493
For the Year Ended December 31, 2019 Valuation allowance for deferred tax assets		$	396		$	41		(102	)		$	335
For the Year Ended December 31, 2018 Valuation allowance for deferred tax assets		$	360		$	36		—			$	396

	For the years ended December 31,
In thousands	2020			2019
Balance at beginning of year	$	271		$	283
Additions based on tax positions related to the current year		—			37
Additions based on tax positions related to prior years		21			24
Reductions for tax positions of prior years		(83	)		—
Settlements		—			—
Federal tax rate change		—			—
Lapses in statutes of limitations		—			(73	)
Balance at end of year	$	209		$	271

	2020 Shares			2020 Weighted Average Exercise Price		2019 Shares			2019 Weighted Average Exercise Price		2018 Shares			2018 Weighted Average Exercise Price
Plan options
Outstanding at beginning of year		153,250		$	20.40		168,750		$	20.11		176,802		$	19.91
Granted		—			—		—			—		—			—
Exercised		(36,903	)		18.83		(15,500	)		17.15		(8,052	)		15.77
Expired		—			—		—			—		—			—
Outstanding at end of year		116,347		$	20.90		153,250		$	20.40		168,750		$	20.11

Options exercisable at year end		116,347		$	20.90		153,250		$	20.40		168,750		$	20.11

Options Outstanding and Exercisable
Range of Exercise Price		Shares Outstanding at December 31, 2020	Weighted Average Remaining Life	Weighted Average Exercise Price		Aggregate Intrinsic Value
$	19.01 - 20.46	48,847	0.92 Years	$	19.03	$	881,573
$	20.47 - 22.66	67,500	2.85 Years	$	22.26	$	1,000,350

	2020 Shares			2020 Weighted Average Grant Date Fair Value		2019 Shares			2019 Weighted Average Grant Date Fair Value		2018 Shares			2018 Weighted Average Exercise Price
Plan RSA’s
Outstanding at beginning of year		5,000		$	36.11		5,000		$	38.51		5,000		$	38.10
Granted		5,000			35.01		5,000			36.11		5,000			38.51
Vested/Released		(5,000	)		36.11		(5,000	)		38.51		(5,000	)		38.10
Cancelled		—			—		—			—		—			—
Unvested Outstanding at end of year		5,000		$	35.01		5,000		$	36.11		5,000		$	38.51

Application Date	11/28/2018	05/29/2019	11/15/2019	5/29/2020	11/20/2020
DEPSC Approval Date	12/20/2018	06/18/2019	12/12/2019	6/17/2020	12/14/2020
Effective Date	01/01/2019	07/01/2019	01/01/2020	07/1/2020	01/1/2021
Cumulative DSIC Rate	5.55%	7.41%	7.50%	7.50%	7.50%
Net Eligible Plant Improvements – Cumulative Dollars (in millions)	30.4	43.1	43.1	43.1	43.1
Eligible Plant Improvements – Installed Beginning Date	10/01/2014	10/01/2014	10/01/2014	10/01/2014	10/01/2014
Eligible Plant Improvements – Installed Ending Date	10/31/2018	04/30/2019	04/30/2019	04/30/2019	04/30/2019

	For the Year
	Ended December 31,
		2020		2019		2018
	(in thousands)

Weighted average common shares outstanding during the period for Basic computation		$	9,327	$	9,277	$	9,239
Dilutive effect of employee stock options			42		49		54
Weighted average common shares outstanding during the period for Diluted computation		$	9,369	$	9,326	$	9,293

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
In thousands (except per share data)	2020		2019		2020		2019		2020		2019		2020		2019

Operating revenues	$	19,901	$	19,386	$	21,752	$	20,652	$	24,737	$	22,549	$	21,751	$	21,008
Operating income	$	4,462	$	4,284	$	6,124	$	5,320	$	6,869	$	5,730	$	4,840	$	4,591
Net income applicable to common stock	$	4,074	$	3,590	$	4,566	$	3,778	$	5,063	$	4,458	$	3,114	$	3,099

Income per common share
Basic	$	0.44	$	0.39	$	0.49	$	0.41	$	0.54	$	0.48	$	0.33	$	0.33
Diluted	$	0.44	$	0.39	$	0.49	$	0.41	$	0.54	$	0.48	$	0.33	$	0.33

(In thousands)
Utility plant
Source of supply plant	$	201
Pumping and water treatment plant		1,455
Transmission and distribution plant		3,462
Other deferred assets
Goodwill		623
Purchase Price	$	5,741