Artesian Resources(ARTNA) - 2019 Q2 - Quarterly Report

Part I – FINANCIAL INFORMATION ITEM 1 – FINANCIAL STATEMENTS This section presents Artesian Resources Corporation's unaudited condensed consolidated financial statements as of June 30, 2019, with notes on accounting policies and financial position Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets Key Data (As of June 30, Thousands of USD) | Metric | June 30, 2019 | December 31, 2018 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Net Property and Equipment | $512,153 | $498,678 | $13,475 | 2.70% | | Total Current Assets | $10,713 | $16,118 | $(5,405) | -33.53% | | Total Other Assets | $8,606 | $7,780 | $826 | 10.62% | | Net Regulatory Assets | $7,031 | $7,254 | $(223) | -3.07% | | Total Assets | $538,503 | $529,830 | $8,673 | 1.64% | | Total Stockholders' Equity | $154,503 | $153,251 | $1,252 | 0.82% | | Net Long-Term Debt | $114,982 | $115,862 | $(880) | -0.76% | | Total Current Liabilities | $43,749 | $37,731 | $6,018 | 15.95% | | Total Deferred Credits and Other Liabilities | $83,031 | $84,971 | $(1,940) | -2.28% | | Net Contributions in Aid of Construction | $142,238 | $138,015 | $4,223 | 3.06% | | Total Liabilities and Stockholders' Equity | $538,503 | $529,830 | $8,673 | 1.64% | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Key Data (Thousands of USD, except per share amounts) | Metric | June 30, 2019 (3 Months) | June 30, 2018 (3 Months) | Change | Change Rate | June 30, 2019 (6 Months) | June 30, 2018 (6 Months) | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $20,652 | $20,238 | $414 | 2.05% | $40,037 | $39,144 | $893 | 2.28% | | Total Operating Expenses | $15,332 | $14,999 | $333 | 2.22% | $30,433 | $29,935 | $498 | 1.66% | | Operating Income | $5,320 | $5,239 | $81 | 1.55% | $9,604 | $9,209 | $395 | 4.29% | | Interest Expense | $1,750 | $1,501 | $249 | 16.59% | $3,470 | $3,000 | $470 | 15.67% | | Net Income Attributable to Common Stock | $3,778 | $3,926 | $(148) | -3.77% | $7,368 | $7,404 | $(36) | -0.49% | | Basic Earnings Per Share | $0.41 | $0.43 | $(0.02) | -4.65% | $0.80 | $0.80 | $0.00 | 0.00% | | Diluted Earnings Per Share | $0.41 | $0.42 | $(0.01) | -2.38% | $0.79 | $0.80 | $(0.01) | -1.25% | | Cash Dividends Per Share | $0.2459 | $0.2387 | $0.0072 | 3.02% | $0.4882 | $0.4739 | $0.0143 | 3.02% | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Key Data (As of June 30, Thousands of USD) | Cash Flow Type | 2019 | 2018 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $8,976 | $12,664 | $(3,688) | -29.12% | | Net Cash from Investing Activities | $(18,121) | $(22,964) | $4,843 | -21.10% | | Net Cash from Financing Activities | $9,037 | $9,564 | $(527) | -5.51% | | Net Decrease in Cash and Cash Equivalents | $(108) | $(736) | $628 | -85.33% | | Cash and Cash Equivalents at End of Period | $185 | $216 | $(31) | -14.35% | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' Equity Key Data (As of June 30, Thousands of USD) | Metric | June 30, 2019 | December 31, 2018 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Common Stock | $9,279 | $9,250 | $29 | 0.31% | | Additional Paid-in Capital | $101,298 | $100,639 | $659 | 0.65% | | Retained Earnings | $43,926 | $43,362 | $564 | 1.30% | | Total Stockholders' Equity | $154,503 | $153,251 | $1,252 | 0.82% | - As of June 30, 2019, authorized shares for Class A Non-Voting Common Stock and Class B Common Stock were 15,000,000 and 1,040,000 shares, respectively, with 8,397,314 Class A shares and 881,452 Class B shares issued and outstanding[11] NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – GENERAL This note outlines Artesian Resources Corporation's business, covering regulated water and wastewater services and non-regulated infrastructure and protection programs - The company's primary subsidiary, Artesian Water, is Delaware's oldest and largest public water utility, providing water services since 1905[14] - Non-regulated subsidiary Artesian Utility offers water and wastewater infrastructure design, construction, and contract operations, managing Water Service Line Protection (WSLP), Sewer Service Line Protection (SSLP), and In-House Service Line Protection (ISLP) programs[20][22] NOTE 2 – BASIS OF PRESENTATION This note explains the preparation of unaudited condensed consolidated financial statements under SEC Form 10-Q rules and details the Q1 2019 adoption of ASC 842 for lease assets and liabilities - The company adopted the new lease standard (ASC 842) in the first quarter of 2019 using the modified retrospective approach, opting not to restate comparative periods[29][30] - As of June 30, 2019, recognized 'right-of-use assets' and 'lease liabilities' on the balance sheet totaled approximately $494,000, with no material impact on consolidated operations or cash flows[31] NOTE 3 – REVENUE RECOGNITION This note details the company's revenue recognition policy under ASC 606, distinguishing regulated tariff and non-tariff revenues, and discloses revenue breakdown, contract assets/liabilities, and a $3.8 million TCJA-related customer refund - The company's primary operating revenues derive from tariff-based contract services approved by public service commissions in Delaware, Maryland, and Pennsylvania[34] - In the second quarter of 2019, the company refunded approximately $3.8 million to customers due to reduced corporate income tax expenses from the 2017 Tax Cuts and Jobs Act (TCJA), an amount previously held in reserve and not recognized as revenue[39][50] Disaggregated Revenue (Thousands of USD) | Revenue Type | June 30, 2019 (3 Months) | June 30, 2018 (3 Months) | June 30, 2019 (6 Months) | June 30, 2018 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Tariff Revenue | | | | | | Consumption Charges | $11,505 | $11,991 | $21,476 | $22,787 | | Fixed Charges | $6,349 | $6,374 | $12,997 | $12,704 | | Service Charges | $156 | $168 | $333 | $324 | | DSIC | $908 | $800 | $1,795 | $1,548 | | Refund Reserve – TCJA Impact | - | -$800 | - | -$1,548 | | Total Tariff Revenue | $18,918 | $18,533 | $36,601 | $35,815 | | Non-Tariff Revenue | | | | | | Service Line Protection Programs | $1,028 | $996 | $2,079 | $1,978 | | Contract Operations | $328 | $337 | $656 | $696 | | Inspection Fees | $64 | $47 | $86 | $56 | | Total Non-Tariff Revenue | $1,420 | $1,380 | $2,821 | $2,730 | | Other Operating Revenue (Outside ASC 606) | $314 | $325 | $615 | $599 | | Total Operating Revenues | $20,652 | $20,238 | $40,037 | $39,144 | Contract Assets and Contract Liabilities (Thousands of USD) | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Accounts Receivable – Tariff | $3,792 | $5,751 | | Accounts Receivable – Non-Tariff | $275 | $320 | | Total Accounts Receivable | $4,067 | $6,071 | | Contract Assets – Tariff | $2,689 | $2,367 | | Deferred Revenue – Tariff | $1,026 | $1,025 | | Deferred Revenue – Non-Tariff | $265 | $227 | | Total Deferred Revenue | $1,291 | $1,252 | | Refund Liability – Tariff | - | $3,298 | NOTE 4 – LEASES This note details the company's operating leases for land and office equipment, including the recognition of right-of-use assets and liabilities under new lease standards, along with lease liability maturities, weighted-average lease term, and discount rate - The company leases land and office equipment with lease terms ranging from 3 to 78 years, some including automatic renewal options for up to 66 years[52] Lease-Related Supplemental Balance Sheet Information (As of June 30, 2019, Thousands of USD) | Metric | Amount | | :--- | :--- | | Operating Lease Right-of-Use Assets | $494 | | Other Current Lease Liabilities | $19 | | Operating Lease Liabilities | $463 | | Total Operating Lease Liabilities | $482 | | Weighted-Average Remaining Lease Term (Operating Leases) | 57 years | | Weighted-Average Discount Rate (Operating Leases) | 4.9% | NOTE 5 – STOCK COMPENSATION PLANS This note describes the company's 2015 equity incentive plan, allowing for stock options, stock units, and restricted stock awards, and discloses stock compensation expense and restricted stock award activity for the six months ended June 30, 2019 - For the three and six months ended June 30, 2019, the company recorded restricted stock award compensation expense of approximately $43,000 and $90,000, respectively[58] Summary of Class A Stock Option and Restricted Stock Award Activity (Six Months Ended June 30, 2019) | Metric | Number of Options | Weighted-Average Exercise Price | Number of Restricted Stock Awards | Weighted-Average Grant Date Fair Value | | :--- | :--- | :--- | :--- | :--- | | Unexercised/Unvested at January 1, 2019 | 168,750 | $20.11 | 5,000 | $38.51 | | Granted | - | - | 5,000 | $36.11 | | Exercised/Vested and Released | (13,500) | $16.94 | (5,000) | $38.51 | | Unexercised/Unvested at June 30, 2019 | 155,250 | $20.38 | 5,000 | $36.11 | - As of June 30, 2019, total unrecognized compensation cost related to unvested restricted stock awards granted under the 2015 plan was $154,000, to be recognized over a remaining vesting period of 0.85 years[61] NOTE 6 – REGULATORY ASSETS This note explains the company's accounting principles for recognizing regulatory assets under FASB ASC Topic 980, representing costs recoverable from customers through rates and amortized over future periods Net Regulatory Assets (Net of Amortization, Thousands of USD) | Regulatory Asset Type | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Postretirement Benefit Obligation | $74 | $74 | | Deferred Income Taxes | $393 | $401 | | Rate Case Study Costs | $28 | $46 | | Debt Issuance Costs | $5,641 | $5,815 | | Goodwill | $292 | $295 | | Deferred Acquisition and Franchise Costs | $603 | $623 | | Total | $7,031 | $7,254 | NOTE 7 – REGULATORY LIABILITIES This note outlines the company's accounting principles for recognizing regulatory liabilities under FASB ASC Topic 980, representing excess cost recoveries or other items to be returned to customers via regulated rates, and details the TCJA's impact on deferred income tax regulatory liabilities - Under TCJA, the company reduced net deferred income tax liabilities by approximately $24.3 million, reclassifying $22.8 million as regulatory liabilities[72] - The Delaware Public Service Commission (DEPSC) approved amortizing $22.2 million of regulatory liabilities over 49.5 years, commencing February 1, 2018[72] Regulatory Liabilities (Thousands of USD) | Regulatory Liability Type | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Postretirement Benefit Obligation | $52 | $52 | | Utility Plant Decommissioning Cost Obligation | $331 | $319 | | Deferred Income Taxes (TCJA Related) | $22,220 | $22,442 | | Total | $22,603 | $22,813 | NOTE 8 – NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE This note provides the calculation methodology for basic and diluted net income per share, along with details on equity per common share, including the weighted-average common shares used in calculations Shares Used in Net Income Per Share Calculation (Thousands of Shares) | Metric | June 30, 2019 (3 Months) | June 30, 2018 (3 Months) | June 30, 2019 (6 Months) | June 30, 2018 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Weighted-Average Common Shares for Basic Calculation | 9,276 | 9,237 | 9,267 | 9,230 | | Dilutive Effect of Employee Stock Options and Awards | 48 | 56 | 52 | 57 | | Weighted-Average Common Shares for Diluted Calculation | 9,324 | 9,293 | 9,319 | 9,287 | - As of June 30, 2019, and December 31, 2018, equity per common share was $16.67 and $16.53, respectively[77] NOTE 9 – REGULATORY PROCEEDINGS This note outlines the state public service commission regulation of the company's water and wastewater utilities, including rate proceedings, DSIC applications, and the TCJA's impact on customer rates - The company is regulated by the Public Service Commissions of Delaware, Maryland, and Pennsylvania[79] - Delaware law permits water utilities to implement semi-annual rate increases via DSIC for specific distribution system improvements, capped at 7.50% of applicable rates and a 5.0% increase within any 12-month period[82] Artesian Water's DSIC Rate Applications and Qualified Plant Improvements (Millions of USD) | Application Date | November 29, 2016 | May 31, 2018 | November 28, 2018 | May 29, 2019 | | :--- | :--- | :--- | :--- | :--- | | DEPSC Approval Date | December 20, 2016 | June 19, 2018 | December 20, 2018 | June 18, 2019 | | Effective Date | January 1, 2017 | July 1, 2018 | January 1, 2019 | July 1, 2019 | | Cumulative DSIC Rate | 4.71% | 3.63% | 5.55% | 7.41% | | Qualified Plant Improvements, Net – Cumulative | $16.6 | $24.7 | $30.4 | $43.1 | NOTE 10 – INCOME TAXES This note details the significant impact of the 2017 TCJA on the company's income taxes, including federal corporate tax rate reduction and accounting for deferred income taxes and uncertain tax positions - The TCJA significantly impacted the company by reducing the federal corporate tax rate from 34% to 21%, effective January 1, 2018[84] - For the six months ended June 30, 2019, the company accrued approximately $11,000 in penalties and interest related to uncertain tax positions[86] NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS This note provides estimation methods and assumptions for the fair value of the company's financial instruments, especially fixed-rate long-term debt, noting that contributions in aid of construction fair value cannot be reasonably estimated Book Value and Fair Value of Long-Term Debt (Thousands of USD) | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Book Value | $116,816 | $117,587 | | Estimated Fair Value | $125,673 | $116,818 | - The fair value of contributions in aid of construction cannot be reasonably estimated due to the difficulty in accurately estimating the timing and amount of expected refunds over future contract periods[91] NOTE 12 – RELATED PARTY TRANSACTIONS This note discloses legal service transactions between the company and Morris Nichols Arsht & Tunnell (MNAT), a law firm associated with director Michael Houghton, and outlines the Audit Committee's review and approval process for these related party transactions Legal Service Fees Paid to MNAT (Thousands of USD) | Period | June 30, 2019 (3 Months) | June 30, 2018 (3 Months) | June 30, 2019 (6 Months) | June 30, 2018 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Legal Service Fees | $97 | $56 | $123 | $116 | NOTE 13 – BUSINESS COMBINATIONS This note discloses Artesian Water's acquisition of Slaughter Beach Water Company's utility assets on March 29, 2018, for $450,000 in cash, a transaction approved by DEPSC - Artesian Water acquired Slaughter Beach Water Company's utility assets for $450,000 in cash, serving 265 customers in Sussex County, Delaware[94] NOTE 14 – IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS This note states that no new accounting pronouncements applicable to the company were issued by FASB for the six months ended June 30, 2019 - No new accounting pronouncements applicable to the company were issued by FASB for the six months ended June 30, 2019[95] ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's detailed discussion and analysis of the company's financial condition and operating results for the period ended June 30, 2019, covering business overview, divisional operations, strategic direction, inflation impact, comparative operating results, and liquidity and capital resources CAUTION REGARDING FORWARD-LOOKING STATEMENTS - Forward-looking statements in this report involve risks and uncertainties that could cause actual results to differ materially from expectations, including changes in weather, contractual obligations, government policies, rate application outcomes, and economic and market conditions[96] RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 2019 OVERVIEW The company's profitability primarily stems from water sales, accounting for 87.7% of total operating revenues in the first half of 2019, while also pursuing growth through contract operations and service line protection programs to develop weather-independent revenue streams - Water sales constituted 87.7% of total operating revenues in the first half of 2019, though subject to seasonal fluctuations[97] - The company seeks to increase revenue by offering wastewater services, contract water and wastewater operations, wastewater management services, and design, build, and engineering services[98] Water Division The Water Division serves diverse customers across Delaware, Maryland, and Pennsylvania, showing growth in metered water customers in Delaware and Maryland and stable water distribution volumes as of June 30, 2019 Water Division Customers and Water Distribution Volume (As of June 30, 2019) | Metric | June 30, 2019 | June 30, 2018 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Delaware Metered Water Customers | 86,500 | 85,200 | 1,300 | 1.53% | | Maryland Metered Water Customers | 2,450 | 2,350 | 100 | 4.26% | | Delaware Water Distribution Volume (6 Months) | 3.9 Billion Gallons | - | - | - | | Maryland Water Distribution Volume (6 Months) | 57.4 Million Gallons | - | - | - | Wastewater Division The Wastewater Division provides regulated wastewater services in Delaware, achieving continuous customer growth, with a significant increase in Delaware wastewater customers and a service agreement signed with Allen Harim Foods, LLC as of June 30, 2019 - As of June 30, 2019, total Delaware wastewater customers were approximately 2,300, an increase of about 300 customers or 16.3% from June 30, 2018[100] - Artesian Wastewater entered into a wastewater service agreement with Allen Harim Foods, LLC, with services expected to commence in 2019[100] Non-Regulated Division The Non-Regulated Division, through Artesian Utility, offers contract water and wastewater operations and three service line protection programs (WSLP, SSLP, ISLP), which consistently grow customer numbers and provide weather-independent revenue streams Service Line Protection Program Customer Participation (As of June 30, 2019) | Program Type | Participating Customer Percentage | | :--- | :--- | | WSLP Program | 23.4% (approx. 19,400 customers) | | SSLP Program | 19.0% (approx. 15,700 customers) | | ISLP Program | 8.1% (approx. 6,700 customers) | - Approximately 1,900 non-utility customers participate in the company's protection programs[101] Strategic Direction The company's strategy aims to increase customer growth, revenue, profitability, and dividends by expanding water, wastewater, and SLP services, focusing on new water sources, infrastructure development, water conservation, and business expansion through acquisitions and strategic partnerships - The company's strategy is to expand water, wastewater, and SLP program services to increase customer growth, revenue, profitability, and dividends[102] - Plans include expanding regulated water service areas in Delaware and Maryland and growing the business through designing, building, operating, managing, and acquiring additional water systems[103] - The capital investment plan for the next three years includes water treatment plant improvements and expansions in Delaware and Maryland, along with wastewater treatment plant improvements and expansions in Delaware[108] Inflation The company is impacted by inflation, primarily through continuously increasing costs required for maintaining, improving, and expanding service capabilities, resulting in significantly higher facility costs than in the past - Inflation has led to significantly higher facility costs compared to investments made 20 to 40 years ago, which must be recovered from future cash flows[111] Analysis of the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018 For the three months ended June 30, 2019, total operating revenues grew by 2.0%, driven by increased water sales and DSIC revenue, though net income attributable to common stock slightly decreased due to higher operating expenses and interest Operating Results Comparison (Three Months Ended June 30, Thousands of USD) | Metric | 2019 | 2018 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $20,652 | $20,238 | $414 | 2.0% | | Water Sales Revenue | $18,192 | $17,869 | $323 | 1.8% | | DSIC Revenue Increase | $100 | - | - | - | | Operating Expenses (Excluding Depreciation and Income Taxes) | $11,558 | $11,180 | $378 | 3.4% | | Net Income Attributable to Common Stock | $3,778 | $3,926 | $(148) | -3.8% | | Interest Expense | $1,750 | $1,501 | $249 | 16.6% | - Operating expenses (excluding depreciation and income taxes) as a percentage of total revenues increased from 53.8% in 2018 to 54.6% in 2019[117] Analysis of the Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018 For the six months ended June 30, 2019, total operating revenues increased by 2.3%, driven by DSIC, consumption revenue, and customer growth, with net income attributable to common stock only slightly decreasing by 0.49% despite higher operating and interest expenses Operating Results Comparison (Six Months Ended June 30, Thousands of USD) | Metric | 2019 | 2018 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $40,037 | $39,144 | $893 | 2.3% | | Water Sales Revenue | $35,125 | $34,514 | $611 | 1.8% | | DSIC Revenue Increase | $200 | - | - | - | | Operating Expenses (Excluding Depreciation and Income Taxes) | $24,491 | $23,823 | $668 | 2.8% | | Net Income Attributable to Common Stock | $7,368 | $7,404 | $(36) | -0.5% | | Interest Expense | $3,470 | $3,000 | $470 | 15.7% | - Operating expenses (excluding depreciation and income taxes) as a percentage of total revenues increased from 56.0% in 2018 to 56.2% in 2019[126] LIQUIDITY AND CAPITAL RESOURCES Overview The company's primary liquidity sources include cash from operations, credit line borrowings, net developer contributions and advances, and net proceeds from common stock issuance, with cash flow influenced by the timeliness and adequacy of rate increases and water consumption changes - For the six months ended June 30, 2019, key liquidity sources included $9.0 million from operating activities, $9.8 million in credit line borrowings, $3.3 million in net developer contributions and advances, and $0.6 million in net common stock issuance proceeds[130] Investment in Plant and Systems The company continuously invests in utility plant and systems to provide high-quality, reliable service, with $18.2 million in capital expenditures during the first half of 2019 primarily for transmission and distribution upgrades, treatment facility improvements, equipment, and wastewater projects Capital Expenditures (Six Months Ended June 30, Millions of USD) | Category | 2019 | 2018 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Total Capital Expenditures | $18.2 | $23.0 | $(4.8) | -20.9% | | Transmission and Distribution System Upgrades | $4.0 | - | - | - | | Treatment Facility Improvements | $6.3 | - | - | - | | Equipment Purchases, etc. | $1.2 | - | - | - | | Developer-Funded Water Main and Fire Hydrant Installations | $1.9 | $2.0 | $(0.1) | -5.0% | | Wastewater Projects | $3.1 | - | - | - | Lines of Credit The company maintains two credit lines totaling $60 million for operational needs, with $32.3 million available from Citizens Bank and $2.0 million from CoBank as of June 30, 2019 Credit Line Commitments (As of June 30, 2019, Thousands of USD) | Bank | Committed Amount | Available Funds | Interest Rate | Maturity Date | | :--- | :--- | :--- | :--- | :--- | | Citizens Bank | $40,000 | $32,300 | LIBOR + 1.00% | May 23, 2020 | | CoBank, ACB | $20,000 | $2,000 | LIBOR + 1.50% | October 20, 2019 | Long-Term Debt The company's long-term debt agreements include customary affirmative and negative covenants, all of which were complied with as of June 30, 2019, and the note details future contractual cash obligations including first mortgage bonds, state revolving fund loans, and promissory notes - As of June 30, 2019, the company complied with all financial covenants and ratios in its long-term debt agreements[136] Contractual Obligations (Thousands of USD) | Obligation Type | Less than 1 Year | 1-3 Years | 4-5 Years | After 5 Years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | First Mortgage Bonds (Principal and Interest) | $5,356 | $10,620 | $10,517 | $138,162 | $164,655 | | State Revolving Fund Loans (Principal and Interest) | $1,002 | $1,841 | $1,296 | $3,341 | $7,480 | | Promissory Notes (Principal and Interest) | $1,197 | $1,921 | $1,920 | $13,979 | $19,017 | | Operating Leases | $42 | $80 | $46 | $1,353 | $1,521 | | Operating Agreements | $71 | $98 | $76 | $920 | $1,165 | | Unconditional Purchase Obligations | $3,892 | $5,866 | $95 | - | $9,853 | | Storage Tank Painting Contractual Obligations | $213 | - | - | - | $213 | | Total Contractual Cash Obligations | $11,773 | $20,426 | $13,950 | $157,755 | $203,904 | Off-Balance Sheet Arrangements The company has not entered into any off-balance sheet arrangements, including those related to structured finance, special purpose entities, or variable interest entities - The company has no off-balance sheet arrangements[141] Critical Accounting Assumptions, Estimates and Policies; Recent Accounting Pronouncements This section reaffirms that the company's financial statements are based on GAAP and notes no changes in critical accounting policies or adoption of new policies with significant impact on financial condition, liquidity, or operating results as of the first half of 2019 - The company's critical accounting policies remain unchanged[143] - In the first half of 2019, the company adopted no accounting policies with a material impact on financial condition, liquidity, or operating results[144] ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company faces interest rate and commodity price risks, managing interest rate exposure with fixed-rate long-term debt and mitigating commodity price increases through multi-year fixed-price supply contracts and rate adjustments to customers - The company faces interest rate fluctuation risk primarily from fixed-rate long-term debt (maturing 2028-2038, rates 4.24%-5.96%) and a $60 million variable-rate credit line, with approximately $25.7 million borrowed as of June 30, 2019[145] - The company mitigates risks from rising chemical, electricity, and other commodity prices through multi-year fixed-price supply contracts and by passing costs to customers via rate increases[145] ITEM 4 – CONTROLS AND PROCEDURES This section discloses management's assessment of the company's disclosure controls and procedures and reports on changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - As of the end of the reporting period, the company's CEO and CFO assessed and concluded that disclosure controls and procedures are reasonably designed and effective, ensuring timely recording, processing, summarizing, and reporting of information[147] Change in Internal Control over Financial Reporting - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected or are reasonably likely to materially affect the company[148] Part II – OTHER INFORMATION ITEM 1 – LEGAL PROCEEDINGS The company is involved in legal proceedings in the ordinary course of business, but management believes their ultimate resolution will not materially impact the company's business, financial condition, or operating results - The company does not believe that legal proceedings arising in the ordinary course of business will materially impact its business, financial condition, or operating results[148] ITEM 1A – RISK FACTORS This section refers to risk factors disclosed in the company's annual report and states that no material changes to these factors have occurred since the annual report's filing - No material changes to risk factors have occurred since the filing of the 2018 annual report[149] ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section is not applicable ITEM 3 – DEFAULTS UPON SENIOR SECURITIES This section is not applicable ITEM 4 – MINE SAFETY DISCLOSURES This section is not applicable ITEM 5 – OTHER INFORMATION This section is not applicable ITEM 6 – EXHIBITS This section lists all exhibits filed or furnished with this report, including certifications from the Chief Executive Officer and Chief Financial Officer, and financial statements in XBRL format