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BUSINESS COMBINATIONS | 9 Months Ended
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Sep. 30, 2022
BUSINESS COMBINATIONS [Abstract] |
BUSINESS COMBINATIONS | NOTE 15 – BUSINESS COMBINATIONS As part of the Company’s growth strategy, on January 14, 2022 Artesian Wastewater completed its agreement to acquire TESI, which provides regulated wastewater services in Delaware. Artesian Wastewater purchased all of the stock of TESI from Middlesex Water Company for $6.4 million in cash and other consideration, including forgiveness of a $2.1 million note due from Middlesex, consisting of $3.1 million paid at closing. This acquisition more than doubled the number of wastewater customers served by Artesian in Sussex County, Delaware. The acquisition is being accounted for as a business combination under ASC Topic 805, “Business Combinations.” The purchase price allocation is primarily attributed to intangible assets and utility plant assets acquired and liabilities assumed based on their respective estimated fair values. The acquisition method of accounting requires, among other things, that assets acquired, and liabilities assumed in a business purchase combination be recognized at their fair values as of the acquisition date. The Company utilized a third-party valuation firm to assist with the fair value of the assets acquired. The fair value determination is now finalized, with the exception of deferred income taxes, which is still preliminary but expected to be complete by December 31, 2022. The fair value for deferred income taxes affects both goodwill and deferred income taxes. A combination of methods was used to determine the reasonableness of the purchase price: the cost approach and the comparative sales (market) approach. Given the majority of the net assets acquired were tangible utility plant assets and related contributions in aid of construction, the Company primarily utilized the cost approach to record the fair value of the assets as well as some of the assumed liabilities. This approach values the underlying assets to derive market value based on the estimated replacement cost, adjusted for depreciation. Real property was valued using the comparative sales approach. Goodwill was recognized primarily as a result of expected synergies of operations and interconnections to our existing utility plant infrastructure. Any goodwill as a result of the transaction is not expected to be deductible for tax purposes. The TESI acquisition was approved by the DEPSC on October 27, 2021, subject to the DEPSC determining the appropriate ratemaking treatment of the acquisition price and the assets acquired in Artesian Wastewater’s next base rate case. The Company reflected revenue of $0.8 million and $2.2 million for the three and nine months ended September 30, 2022, respectively, in its condensed consolidated statement of operations related to the acquisition. The pro forma revenue for the three and nine months ended September 30, 2022 is estimated to be approximately $0.8 million and $2.2 million, respectively. The Company anticipates the pro forma effects of revenue for the three and nine months ended September 30, 2021 to be approximately the same given there has not been any changes in the rates. The pro forma information is not necessarily indicative of the Company’s future results. Any pro forma effects of earnings is not practicable, as we continue to integrate TESI operations and adjust the operating cost structure as it relates to operating expenses reflective of synergies of the combined operations, and therefore would not present an accurate comparison. The table below sets forth the purchase price allocation of this acquisition as of September 30, 2022. The fair value determination is now finalized, with the exception of deferred income taxes, which is still preliminary but expected to be complete by December 31, 2022. The fair value for deferred income taxes affects both goodwill and deferred income taxes, which is included in the liability amount below.
(In thousands) |  |
|  |  | TESI
| Utility plant |  | $ | 25,354
| Cash |  |  | 280
| Goodwill |  |  | 2,983
| Other assets |  |  | 1,033
| Total assets |  |  | 29,650
| Less: Liabilities and contributions in aid of construction (CIAC) |  |  |
| Liabilities |  |  | 3,852
| CIAC |  |  | 22,676
| Net cash purchase price |  | $ | 3,122
Additionally, as part of the Company’s growth strategy, on May 26, 2022, Artesian Water completed its purchase of substantially all of the water system operating assets from the Town of Clayton, or Clayton, a Delaware municipality located in Kent County, Delaware, including Clayton’s exclusive franchise territory and the right to provide water service to Clayton’s existing customers, or the Clayton Water System. The total purchase price was $5.0 million, less the current payoff amount of secured debt or debt associated with the Clayton Water System. At closing, Artesian Water paid approximately $3.4 million of the total purchase price. The remaining $1.6 million is payable in five equal annual installments on the anniversary date of the closing date. Each annual installment is payable with interest at an annual rate of 2.0%. The acquisition was accounted for as a business combination under ASC Topic 805. The preliminary purchase price allocation is $8.9 million of utility plant assets offset by $3.8 million of CIAC. This preliminary purchase price allocation will be finalized once the valuation of assets acquired has been completed, no later than one year after the acquisition date. This transfer of Clayton’s exclusive franchise territory was approved by the DEPSC on April 20, 2022. The DEPSC will determine the appropriate ratemaking treatment of the acquisition price and the assets acquired in Artesian Water’s next base rate case. The pro forma effects of the business acquired are not material to the Company’s financial position or results of operations based on estimated annual revenue of approximately $0.5 million related to customers acquired.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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