BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2024

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

The condensed consolidated financial statements include the accounts of Artesian Resources Corporation and its wholly owned subsidiaries, including its principal operating company, Artesian Water. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments (unless otherwise noted) necessary to present fairly the Company’s balance sheet position as of September 30, 2024, the results of its operations for the three and nine-month periods ended September 30, 2024 and September 30, 2023, its cash flows for the nine-month periods ended September 30, 2024 and September 30, 2023 and the changes in stockholders’ equity for the three and nine-month periods ended September 30, 2024 and September 30, 2023. The December 31, 2023 Condensed Consolidated Balance Sheet was derived from the Company’s December 31, 2023 audited consolidated financial statements but does not include all disclosures and notes normally provided in annual financial statements.

The results of operations for the interim periods presented are not necessarily indicative of the results for the full year or for future periods.

Reclassification

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. These reclassifications had no effect on net income or stockholders' equity.

Regulated Utility Accounting

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 Pennsylvania are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC. The accounting records of Artesian Water Maryland 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. All these subsidiaries follow the provisions of Financial Accounting Standards Board, or FASB, ASC Topic 980, which provides guidance for companies in regulated industries. These regulated subsidiaries account for the majority of our operating revenue. See Note 17 - Business Segment Information to our Condensed Consolidated Financial Statements for a full description of our segment information.

Use of Estimates

The 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 regarding the reported amounts of assets and liabilities including unbilled revenues, credit losses and reserves for bad debt, regulatory asset recovery, lease agreements, goodwill and contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management's estimates.

Utility Plant

Utility plant is stated at original cost. Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant are retired, the historical costs of plant retired is charged to accumulated depreciation. Any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability. Maintenance, repairs, and replacement of minor items of utility plant are charged to expense as incurred.

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

Utility plant comprises:
In thousands

	Estimated Useful Life (In Years)				Estimated Useful Life (In Years)
	Effective June 12, 2024		September 30, 2024				December 31, 2023
Utility plant at original cost
Utility plant in service-Water
Intangible plant		—	$	140		—	$	140
Source of supply plant		45-85		30,214		45-85		29,960
Pumping and water treatment plant		15-64		130,000		8-62		130,337
Transmission and distribution plant
Mains		73-81		375,731		81		370,977
Services		39-58		62,471		39		60,818
Storage tanks		70-76		39,704		76		40,933
Meters		16-26		30,224		26		30,318
Hydrants		60-68		19,520		60		18,980
General plant		5-81		58,204		5-31		67,317

Utility plant in service-Wastewater
Intangible plant		—		116		—		116
Treatment and disposal plant		20-81		70,055		20-81		67,789
Collection mains & lift stations		81		56,070		81		51,539
General plant		5-31		2,608		5-31		2,478

Property held for future use		—		3,742		—		4,028
Construction work in progress		—		43,992		—		23,724
				922,791				899,454
Less – accumulated depreciation				188,567				185,170
			$	734,224			$	714,284

Depreciation and Amortization

For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 5 to 85 years. Composite depreciation rates for water utility plant were 1.92% and 2.13% for September 30, 2024 and December 31, 2023, respectively. In a rate order issued by the DEPSC, the Company was directed effective June 12, 2024, to begin using revised depreciation rates for utility plant in Artesian Water, which are based on the estimated useful life years noted in the table above. Artesian Water offsets depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances. This reduction in depreciation expense is also netted against outstanding CIAC and Advances on the Condensed Consolidated Balance Sheet. Certain other deferred assets are amortized using the straight-line method over applicable lives, which range from 20 to 24 years.