NOTE 3

LEASES

The Company leases land and office equipment under operating leases from non-related parties. Our leases have remaining lease terms of 3 years to 78 years, some of which include options to automatically extend the leases for up to 66 years. Payments made under operating leases are recognized in the condensed consolidated statement of operations on a straight-line basis over the period of the lease. The annual lease payments for the land operating leases increase each year either by the most recent increase in the Consumer Price Index or by 3%, as applicable based on the lease agreements. Periodically, the annual lease payment for one operating land lease is determined based on the fair market value of the applicable parcel of land. None of the operating leases contain contingent rent provisions. The commencement date of all the operating leases is the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the land or equipment. The Company currently does not have any financing leases and does not have any lessor leases that require disclosure.

Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right of use asset and liability amounts for the operating leases. As our leases do not provide an implicit rate, we use our incremental borrowing rates for long-term and short-term agreements and apply the rates accordingly based on the term of the lease agreements to determine the present value of lease payments.

In October 1997, Artesian Water entered into a 33 year operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware. The annual lease payments increase each year by the most recent increase in the Consumer Price Index for Urban Workers, CPI-U, as published by the U.S. Department of Labor, Bureau of Labor Statistics. At each eleventh year of the lease term, the annual lease payment shall be determined based on the fair market value of the parcel of land. Rental payments for 2019, 2018 and 2017 were $16,300, $16,500, and $16,300, respectively. The future minimum rental payment as disclosed in the following table is calculated using the adjustment for an appraisal conducted in 2019 to determine the fair market value of the parcel of land.

Table of Contents

In March 2019, Artesian Water entered into a 3 year operating lease for office equipment. The quarterly lease payments remain fixed throughout the term of the lease. Payments for 2019 were $27,000.

Rent expense for all operating leases except those with terms of 12 months or less comprises:

	(in thousands)
	Three Months Ended December 31, 2019		Twelve Months Ended December 31, 2019

Minimum rentals	$	23	$	40
Contingent rentals		-		-

	$	23	$	40

Supplemental cash flow information related to leases is as follows:

	(in thousands)
	Twelve Months Ended December 31, 2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	40
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	480

Supplemental balance sheet information related to leases is as follows:

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

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

Other current liabilities	$	19
Operating lease liabilities		450
Total operating lease liabilities	$	469


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

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2019 are as follows:

	(in thousands)
	Operating Leases
Year
2020	$	42
2021		42
2022		28
2023		23
2024		23
Thereafter		1,320
Total undiscounted lease payments	$	1,478
Less effects of discounting		(1,009	)
Total lease liabilities recognized		469

The change in accounting due to the adoption of the new lease guidance did not result in a material change to the future minimum rental payments when compared to December 31, 2018. As of December 31, 2019, we have not entered into operating or finance leases that will commence at a future date.