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Page
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3
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4
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5
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6 - 13
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15
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Exhibit Index
|
||
|
Consent of BDO USA, LLP
|
||
|
December 31, 2016
|
December 31, 2015
|
|||||||
|
ASSETS
|
||||||||
|
Cash
|
$
|
68,146
|
$
|
25,714
|
||||
|
Investments, at fair value
|
||||||||
|
Artesian Resources Corp. Class A non-voting common stock
|
5,920,886
|
5,230,611
|
||||||
|
Collective trusts
|
1,888,218
|
2,086,159
|
||||||
|
Mutual funds
|
36,801,037
|
34,506,276
|
||||||
|
Total investments, at fair value
|
44,610,141
|
41,823,046
|
||||||
|
Participants' notes receivable
|
356,185
|
292,214
|
||||||
|
Contributions receivable
|
||||||||
|
Employer
|
151,738
|
345,856
|
||||||
|
Participants
|
47,391
|
43,256
|
||||||
|
Total contributions receivable
|
199,129
|
389,112
|
||||||
|
Total assets
|
45,233,601
|
42,530,086
|
||||||
|
NET ASSETS AVAILABLE FOR BENEFITS
|
$
|
45,233,601
|
$
|
42,530,086
|
||||
|
See accompanying notes to financial statements.
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||||||||
|
December 31, 2016
|
||||
|
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
|
||||
|
Net investment income
|
||||
|
Artesian Resources Corp. Class A non-voting common stock dividends
|
$
|
170,595
|
||
|
Interest and dividend income from other investments
|
1,651,969
|
|||
|
Net appreciation in fair value of investments
|
2,334,380
|
|||
|
Other Income
|
35,137
|
|||
|
Total net investment income
|
4,192,081
|
|||
|
Interest income from participants' notes receivable
|
14,259
|
|||
|
Contributions
|
||||
|
Employer contributions
|
1,052,381
|
|||
|
Participant contributions
|
1,608,827
|
|||
|
Rollovers
|
17,355
|
|||
|
Total contributions
|
2,678,563
|
|||
|
Total additions
|
6,884,903
|
|||
|
|
||||
|
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
|
||||
|
Participant distributions
|
4,146,462
|
|||
|
Administrative expenses
|
34,926
|
|||
|
Total deductions
|
4,181,388
|
|||
|
NET INCREASE
|
2,703,515
|
|||
|
|
||||
|
NET ASSETS AVAILABLE FOR BENEFITS - BEGINNING OF YEAR
|
42,530,086
|
|||
|
|
||||
|
NET ASSETS AVAILABLE FOR BENEFITS - END OF YEAR
|
$
|
45,233,601
|
||
|
See accompanying notes to financial statements.
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||||
|
1.
|
General
|
|
|
Effective July 1, 1984, Artesian Resources Corporation (the "Company" or "Plan Sponsor" or "Employer") established the Artesian Resources Corporation Retirement Plan (the "Plan") as a defined contribution retirement plan for its employees, subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Pursuant to Internal Revenue Code (IRC) Section 401(k), the Plan permits employees to exclude contributions to the Plan from their current taxable income, subject to certain limits. The Plan is administered by an Administrative Committee, which consists of six members appointed by the Company's Board of Directors. Plan administration expenses may be paid out of the Plan unless paid by the Company. The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions.
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||
|
2.
|
Participation and Vesting
|
|
|
All employees age 18 and over are eligible for Plan participation immediately after hire. Employees may elect to make tax-deductible contributions up to the IRC limitation, including "catch-up" contributions for participants age 50 and older. Participants are also able to designate part or all of their contributions as Roth 401(k) contributions, which are made on an after-tax basis. For every dollar an employee contributes up to 6% of compensation, the Company will provide a 50% matching contribution. In each Plan year, the Company may make discretionary quarterly and annual contributions to the Plan for all employees eligible to participate in the Plan. The Company made discretionary quarterly contributions to the Plan equal to 2% of quarterly compensation for all four quarters and a discretionary annual contribution to the Plan equal to 1% of annual compensation in 2016. The total matching, discretionary and service contributions in 2016 were approximately $482,000, $343,000 and $227,000, respectively.
|
||
|
The Company's Board of Directors, at its sole discretion, may make a Special Discretionary Stock Contribution to the Plan. A Special Discretionary Stock Contribution was not made for 2016.
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|
The trust maintains separate accounts for each participant in the Plan. These accounts are credited with the participants' contributions and Plan earnings and may be charged with certain administrative expenses. Participant contributions, and the related earnings, are fully vested. Company contributions, and the related earnings, vest as follows:
|
||
|
Years of Service
|
Vested Percentage
|
||
|
Less than 2
|
0
|
%
|
|
|
2 but less than 3
|
20
|
%
|
|
|
3 but less than 4
|
40
|
%
|
|
|
4 but less than 5
|
60
|
%
|
|
|
5 but less than 6
|
80
|
%
|
|
|
6 years or more
|
100
|
%
|
|
|
Any forfeitures of non-vested contributions may be offset against Company contributions or Plan administration expenses. During the year ended December 31, 2016, there were approximately $26,000 of current year forfeitures of which $14,000 was applied to reduce the Plan sponsor's contribution obligations.
|
|
2.
|
Participation and Vesting (Continued)
The Company also sponsored another defined contribution plan for its employees, the Supplemental Plan, which was merged into the Plan on March 31, 2000. The contribution and vesting guidelines for the participants of the Supplemental Plan continued and consist of the following:
|
|
|
·Only employees as of April 26, 1994 are eligible for participation.
|
||
|
·A service contribution is made by the Company to the Plan for all eligible participants each quarter based upon each employee's years of service and current compensation in accordance with the following schedule:
|
|
Years of Service
|
Percent of Compensation
|
||
|
1 – 5
|
2
|
%
|
|
|
6 – 10
|
4
|
%
|
|
|
11 – 20
|
5
|
%
|
|
|
over 20
|
6
|
%
|
|
|
·Company contributions and the related earnings originally vested over a graded period of service, but are now fully vested for active participants.
|
|
3.
|
Investment Elections
|
|
|
All future discretionary Company contributions, as well as all prior discretionary contributions and the corresponding earnings, are participant directed.
|
||
|
Participants may allocate basic contributions among the various investments options, including the Company's Class A non-voting common stock.
|
||
|
The Plan has an automatic enrollment feature for newly hired and/or rehired employees to help employees save for retirement by reducing their compensation automatically with an initial pre-tax contribution of eligible compensation, as defined in the Plan document. Effective January 1, 2016, the initial pre-tax contribution rate of the automatic enrollment feature increased from 3% to 6%. This amount is deemed as the Participant's Employee Savings Contribution election if the Participant does not elect to defer a greater or lesser percentage of compensation, or elects to receive cash in lieu of making any Employee Savings Contribution, within 90 days after employment. Any automatic deferral contributions made and any corresponding matching contributions are placed in a default investment fund as selected by the Administrative Committee, and Participants may modify the investment allocation of these contributions in the same manner as any other Plan contributions. Prior to automatic enrollment, employees may elect to opt out from participating in the Plan, or they may elect to defer more or less than the 6% default contribution as well as choose their own investment elections offered in multiples of 1% with a minimum investment of 1% in any selected investment.
|
|
3.
|
Investment Elections (continued)
|
|
|
The Plan permits an automatic escalation provision on an annual basis, such as each July 1 or January 1, within the discretion of the Administrative Committee, in order to increase employee savings and other employee contributions. This provision of the plan would only become effective should the Administrative Committee decide to implement the automatic escalation feature and after notification of the automatic escalation is given to Participants. However, if implemented, to the extent the participant has opted out of the automatic escalation feature, or has otherwise elected a 0% Employee Savings Contribution, Employee After-Tax Roth 401(k) Contribution or has otherwise elected a 0% Employee Savings Contribution, such Participant would not be subject to automatic increases in the future. Such Participants would only be subject to automatic escalation in the event that they affirmatively elect to increase their contributions during any Plan Year, and do not reconfirm their decision to "opt out" of the automatic escalation feature.
|
||
|
4.
|
Participants' Notes Receivable
|
|
|
Participants may borrow from the Plan under the following guidelines:
|
||
|
·A participant may borrow as much as 50% of his or her vested account balance, subject to certain minimum and maximum limitations as defined in the Plan.
|
||
|
·Loans are repaid over a period not to exceed five years, unless the loan is to buy, build, or substantially rehabilitate the borrower's principal residence.
|
||
|
·The participant's account balance is secured as collateral when the loan is executed. If a participant defaults on a loan, the loan is treated as a distribution from the Plan to the participant.
|
||
|
·Interest rates on loans are prime plus 1% at the date of the loan. Interest rates on outstanding balances ranged from 4.25% to 9.25% for the years ended December 31, 2016 and December 31, 2015.
|
||
|
·As loans are repaid to the Plan, the total payment, principal plus interest, is credited back to the participant's account.
|
||
|
5.
|
Benefits
|
|
|
Participants are entitled to a benefit payment equal to the vested amount credited to their accounts upon retirement, upon permanent disability, at age 59 ½, or upon termination of employment or death. In the event of death of a participant, a death benefit payment is made to the participant's beneficiary. The only form of distribution under the Plan is a single lump sum distribution in cash or stock.
|
||
|
6.
|
Plan Termination
|
|
|
Although it has not expressed the intent to do so, the Company may amend or terminate the Plan. In the event of Plan termination, the accounts of all participants affected shall become fully vested and non-forfeitable. Assets remaining in the Plan may be immediately distributed to the participants, inactive participants, and beneficiaries in proportion to their respective account balances; or the trust may be continued with distributions made at such time and in such manner as though the Plan had not been terminated.
|
|
7.
|
Administrative Expenses
|
|
|
Certain administrative expenses of the Plan are paid by the Employer. The Plan may pay for certain member requested services and investment fees. Any fees for participant requested services are charged to the accounts of participants requesting the transaction, however, for the year ended December 31, 2016 there were no such fees. Investment fees are allocated to participants' accounts based on a specified basis point per investment through the investments' earnings, a portion of which is used to reduce administrative expenses of the Plan. The balance of administrative expenses is paid directly by the Employer.
Management fees and operating expenses charged to the Plan for investments in the mutual funds are deducted from income earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments.
|
|
1.
|
Basis of Accounting
|
|
|
The Plan's financial statements are presented using the accrual method of accounting in conformity with generally accepted accounting principles.
|
||
|
2.
|
Use of Estimates
|
|
|
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and changes therein. Actual results could differ from those estimates.
|
||
|
3.
|
Investment Valuation and Income Recognition
|
|
|
Plan assets held in mutual funds (shares of registered investment companies) and the Company's Class A non-voting common stock are unsecured and are traded on national securities exchanges. Mutual funds and common stock are valued at quoted market prices at December 31, 2016 and 2015.
|
|
3.
|
Investment Valuation and Income Recognition (continued)
|
|
|
Plan assets held in collective trusts are unsecured and are valued at net asset value ("NAV"). The collective trust fund represents investments in the PNC Investment Contract Fund and NAV is determined by PNC, based on the fair value of the underlying securities held by the collective trust. In 2016, the Company adopted two Accounting Standard Updates ("ASU") issued in 2015 by the Financial Accounting Standards Board on fair value disclosure requirements. The first ASU removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value (NAV) per share practical expedient. The ASU also removed the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. Investments that calculate NAV per share (or its equivalent), but for which the practical expedient is not applied, will continue to be included in the fair value hierarchy along with the related required disclosures. The second amended ASU removed the requirement to report fully benefit-responsive investment contracts at fair value with an adjustment to contract value. Under the ASU, fully benefit-responsive investment contracts are measured, presented, and disclosed only at contract value. In addition, this ASU simplified the investment disclosures required for employee benefit plans, including eliminating the requirements to disclose: (a) individual investments that represent 5% or more of net assets available for benefits, (b) net appreciation (depreciation) by individual investment type, and (c) investment information disaggregated based on the nature, characteristics and risks. The requirement to disaggregate participant-directed investments within a self-directed brokerage account has also been eliminated. Self-directed brokerage accounts should be reported as a single type of investment. The amendment also allows plans to measure investments and investment-related accounts as of a month-end date that is closest to the plan's fiscal year-end, when the fiscal period does not coincide with a month-end.
|
||
|
In accordance with the policy of stating investments at fair value, net unrealized appreciation (depreciation) for the year is included in the statement of changes in net assets available for benefits and includes the Plan's gains and losses on investments bought and sold as well as held during the year.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
|
||
|
4.
|
Participants' Notes Receivable
|
|
|
Participant loans are classified as participants' notes receivable, and are measured at the unpaid principal balance plus unpaid accrued interest. The Plan classifies loans in default for various events, including failure to pay timely installments. Defaulted loans are deemed distributed and recorded as benefits paid to participants in the statement of changes in net assets available for benefits. There were no amounts recorded as deemed distributions in 2016 and 2015.
|
||
|
5.
|
Benefit Payments and Participant Distributions
|
|
|
Benefit payments to participants are recorded upon distribution.
|
||
|
6.
|
Income Taxes
|
|
|
The Internal Revenue Service has determined and informed the Company by letter dated August 26, 2016 that the Plan plus amendments is qualified and the trust established under the Plan is tax exempt under the appropriate sections of the Internal Revenue Code. The Plan administrator and the Plan's tax counsel believe that the Plan is designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the financial statements.
|
|
6.
|
Income Taxes (continued)
|
|
|
The Plan Sponsor has analyzed the tax positions taken by the Plan and has concluded that, as of December 31, 2016, no uncertain tax positions are taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, currently no audits are in progress for any tax periods.
|
||
|
7.
|
Cash and Cash Equivalents
|
|
|
Cash and cash equivalents include cash and short-term interest-bearing investments with initial maturities of three months or less.
|
||
|
·
|
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities that the Plan has the ability to access;
|
|
·
|
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in non-active markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
|
|
·
|
Level 3: inputs that are unobservable and significant to the fair value measurement.
|
|
Investments at Fair Value as of December 31, 2016
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Mutual Funds
|
$
|
36,801,037
|
$
|
---
|
$
|
---
|
$
|
36,801,037
|
||||||||
|
Artesian Resources Corporation Class A non-voting common stock
|
5,920,886
|
---
|
---
|
5,920,886
|
||||||||||||
|
Total assets in the fair value hierarchy
|
42,721,923
|
---
|
---
|
42,721,923
|
||||||||||||
|
Common collective trust*
|
---
|
---
|
---
|
1,888,218
|
||||||||||||
|
Total investments, at fair value
|
$
|
42,721,923
|
$
|
---
|
$
|
---
|
$
|
44,610,141
|
||||||||
|
Investments at Fair Value as of December 31, 2015
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Mutual Funds
|
$
|
34,506,276
|
$
|
---
|
$
|
---
|
$
|
34,506,276
|
||||||||
|
Artesian Resources Corporation Class A non-voting common stock
|
5,230,611
|
---
|
---
|
5,230,611
|
||||||||||||
|
Total assets in the fair value hierarchy
|
39,736,887
|
---
|
---
|
39,736,887
|
||||||||||||
|
Common collective trust*
|
---
|
---
|
---
|
2,086,159
|
||||||||||||
|
Total investments, at fair value
|
$
|
39,736,887
|
$
|
---
|
$
|
---
|
$
|
41,823,046
|
||||||||
|
Amounts allocated to withdrawing participants are reported on the Schedule H of Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, but not yet paid as of that date.
|
||
|
At December 31, 2016 and 2015, there were no net assets available for plan benefits for distributions to participants who have requested a distribution from the Plan prior to the end of the Plan year.
|
||
|
Artesian Resources Corporation and its employees are parties-in-interest to the Plan. On December 31, 2016, the Plan's assets included $5,920,886 of Artesian Resources Corporation Class A non-voting stock and $356,185 of participant notes receivable. Additionally, certain plan investments totaling $2,270,617 represent investments managed by PNC Advisors or its affiliates, including BlackRock, Inc. PNC Advisors is the custodian as defined by the Plan and, therefore, these transactions qualify as party-in-interest transactions. Transactions in these assets are exempt from the prohibited transaction rules.
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|||||
|
Identity of issuer, borrower, lessor, or similar party
|
Description of investment, including maturity date, rate of interest, collateral, par, or maturity value
|
Cost**
|
Current Value
|
||||||
|
*
|
Common Stock -
|
||||||||
|
Artesian Resources Corporation
|
Class A Non-Voting Common Stock
|
$
|
5,920,886
|
||||||
|
*
|
PNC Stable Value Fund Z
|
Common/Collective Trust
|
1,888,218
|
||||||
|
Mutual Funds -
|
|||||||||
|
Growth Fund of America R5
|
Mutual Funds
|
6,461,560
|
|||||||
|
American Fundamental Investors R5
|
Mutual Funds
|
5,114,912
|
|||||||
|
American Century Equity Income Institutional Class
|
Mutual Funds
|
5,422,164
|
|||||||
|
American EuroPacific Growth R5
|
Mutual Funds
|
2,445,223
|
|||||||
|
T Rowe Price Growth Stock
|
Mutual Funds
|
1,488,550
|
|||||||
|
American Century Mid Cap Value I
|
Mutual Funds
|
3,248,761
|
|||||||
|
Goldman Sachs Growth Opportunities I
|
Mutual Funds
|
1,082,305
|
|||||||
|
Janus Balanced Fund Class I
|
Mutual Funds
|
2,125,240
|
|||||||
|
*
|
Black Rock Total Return
|
Mutual Funds
|
382,399
|
||||||
|
Federated Total Return Government Bond I
|
Mutual Funds
|
320,144
|
|||||||
|
MFS New Discovery R4
|
Mutual Funds
|
713,236
|
|||||||
|
MFS Total Return Bond Fund
|
Mutual Funds
|
3,541,299
|
|||||||
|
Vanguard Mid Cap Index
|
Mutual Funds
|
144,814
|
|||||||
|
Vanguard Small Cap Index
|
Mutual Funds
|
185,582
|
|||||||
|
American Century One Choice Ret Inst
|
Mutual Funds
|
396,294
|
|||||||
|
American Century One Choice 2025
|
Mutual Funds
|
1,301,413
|
|||||||
|
American Century One Choice 2035
|
Mutual Funds
|
1,190,345
|
|||||||
|
American Century One Choice 2045
|
Mutual Funds
|
881,832
|
|||||||
|
American Century One Choice 2055
|
Mutual Funds
|
354,964
|
|||||||
|
Participants' Notes Receivable -
|
|||||||||
|
*
|
Various Participants
|
Interest rates range from 4.25% to 9.25%
|
356,185
|
||||||
|
|
$
|
44,966,326
|
|||||||
|
*
|
Identifies the party as a "Party in Interest" as defined by ERISA.
|
||||||||
|
**
|
Cost information is not required for participant directed investments and is therefore not included.
|
||||||||
|
ARTESIAN RESOURCES CORPORATION RETIREMENT PLAN
|
|||
|
Date: June 28, 2017
|
By:
|
/s/ David B. Spacht
|
|
|
David B. Spacht
|
|||
|
Principal Financial and Accounting Officer
|
|||
|
Exhibit No.
|
Description
|
|
23.1
|
Consent of BDO USA, LLP *
|
|
*
|
Filed herewith.
|