UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 0-18516
Artesian Resources Corporation
(exact name of registrant as specified in its charter)
Delaware 51-0002090
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
664 Churchmans Road, Newark, Delaware 19702
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (302) 453-6900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Non-Voting Common Stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
As of April 10, 1996, 543,028 shares and 499,720 shares of Class A
Non-Voting Common Stock and Class B Common Stock, respectively, were
outstanding.
Page 1 of 10
ARTESIAN RESOURCES CORPORATION
INDEX TO FORM 10-Q
Part I - Financial Information: Page(s)
Item 1 - Financial Statements
Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995 3
Consolidated Statement of Income for
the quarters ended March 31, 1996 and 1995 4
Consolidated Statement of Retained Earnings
for the quarters ended March 31, 1996 and 1995 4
Consolidated Statement of Cash Flows for the
quarters ended March 31, 1996 and 1995 5
Notes to the Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
Part II - Other Information:
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
Part I - Financial Information
Item I - Financial Statements
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET
Unaudited December 31,
March 31, 1996 1995
ASSETS
Utility plant, at original cost
less accumulated depreciation $83,797,312 $83,160,422
Current assets
Cash and cash equivalents 158,138 149,704
Accounts receivable 1,789,289 2,133,217
Unbilled operating revenues 1,429,000 1,332,000
Materials & supplies - FIFO basis 643,085 606,674
Prepaid property taxes 224,233 462,451
Prepaid expenses and other 315,714 236,860
4,559,459 4,920,906
Other Assets
Non-utility property (less accumulated depreciation
1996-$1,335,950; 1995-$2,108,835) 1,034,920 2,952,676
Deferred income taxes 1,765,515 1,764,231
Other deferred assets 1,264,218 1,328,218
4,064,653 6,045,125
Regulatory assets 2,678,156 2,714,713
$95,099,580 $96,841,166
LIABILITIES AND CAPITAL
Capitalization
Common stock $1,042,750 $ 1,037,494
Additional paid-in capital 8,110,481 8,041,183
Retained earnings 6,427,854 6,317,222
Total common stockholders' equity 15,581,085 15,395,899
Preferred stock-mandatorily redeemable 825,000 972,500
Preferred stock 271,700 271,700
Total preferred stock 1,096,700 1,244,200
Long-term debt, net of current portion 17,470,601 17,558,300
34,148,386 34,198,399
Current liabilities
Notes payable 10,490,000 9,225,000
Current portion of long-term debt 5,334,556 7,345,154
Accounts payable 1,546,650 2,735,119
Dividends payable 25,206
Overdraft payable 1,005,099 669,023
Sate and federal income taxes 301,540 139,702
Deferred income taxes 166,241 166,241
Interest accrued 390,037 667,157
Customer deposits 324,393 321,811
Other 590,074 577,298
20,173,796 21,846,505
Deferred credits and other liabilities
Net advances for construction 21,381,993 21,492,568
Postretirement benefit obligation 1,766,435 1,772,960
Deferred investment tax credits 1,050,903 1,060,636
24,199,331 24,326,164
Net contributions in aid of construction 16,578,067 16,470,098
$95,099,580 $96,841,166
See Notes to the Consolidated Financial Statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited For the Quarter
Ended March 31,
1996 1995*
OPERATING REVENUES
Water Sales $4,931,593 $4,641,471
Other utility operating revenue 58,317 44,903
Non-utility operating revenue (Note 3) 79,948 463,585
5,069,858 5,149,959
OPERATING EXPENSES
Utility operating expenses 2,740,265 2,780,748
Non-utility operating expenses (Note 3) 53,328 366,386
Related party expenses (Note 4) 61,360 61,021
Depreciation and amortization 528,010 536,402
State and federal income taxes 253,266 176,200
Property and other taxes 330,834 338,747
3,967,063 4,259,504
OPERATING INCOME 1,102,795 890,455
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 35,228 30,338
OTHER EXPENSE (30,316) (24,965)
INCOME BEFORE INTEREST CHARGES 1,107,707 895,828
INTEREST CHARGES
Long-term debt 539,295 564,582
Short-term debt 171,894 58,154
Amortization of debt expense 6,571 6,607
Other 6,872 3,911
724,632 633,254
NET INCOME 383,075 262,574
DIVIDENDS ON PREFERRED STOCK 28,879 32,552
NET INCOME APPLICABLE TO COMMON STOCK $354,196 $ 230,022
PER SHARE OF COMMON STOCK:
Net income $ .33 $ 0.22
Cash dividends
$ .21 $ 0.15
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Unaudited
For the Quarter
Ended March 31,
1996 1995
Balance, beginning of period $6,317,222 $5,877,661
Net income 383,075 262,574
6,700,297 6,140,235
Dividends 272,443 213,828
Balance, end of period $6,427,854 $5,926,407
See Notes to the Consolidated Financial Statements. * Prior year amounts have
been reclassified to conform with current year presentation.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited For the Quarter
Ended March 31,
1996 1995*
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $383,075 $ 262,574
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 490,789 508,387
Allowance for funds used during construction (35,228) (30,338)
Write-down on rental office building 1,633
Changes in Assets and Liabilities:
Accounts receivable 343,928 227,859
Unbilled operating revenue (97,000) (64,000)
Materials and supplies (36,411) (9,627)
State and federal income taxes 161,838 232,878
Prepaid property taxes 238,210 215,123
Prepaid expenses and other (78,854) (113,419)
Deferred income taxes, net (11,017) (71,160)
Other deferred assets 64,000 87,144
Regulatory assets 36,557 (10,159)
Postretirement benefit obligation (6,525) (18,898)
Accounts payable (1,188,469) (2,094,683)
Interest accrued (277,120) 82,586
Customer deposits and other, net 98,501 97,429
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 87,915 (698,304)
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures (net of AFUDC) (1,281,030) (1,817,971)
Proceeds from sale of assets 1,915,289
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 634,259 (1,817,971)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under line of credit agreement 1,265,000 2,200,000
Overdraft payable 336,076 184,497
Net advances and contributions
in aid of construction 128,873 319,966
Proceeds from issuance of long-term debt 151,072
Repayment on long-term note (2,005,540)
Proceeds from issuance of Common Stock 74,554 125,125
Dividends (272,443) (184,949)
Principal payments under capital
Lease obligations (81,647) (108,028)
Principle payments under long-term
debt obligations (11,113) (16,668)
Retirement of preferred stock (147,500) (147,500)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (713,740) 2,523,515
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,434 7,240
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 149,704 229,673
CASH AND CASH EQUIVALENTS AT END OF PERIOD $158,138 $236,913
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 995,181 $544,061
Income taxes paid $ 98,037 $ 5,000
See Notes to the Consolidated Financial Statements. *Prior year amounts
have been reclassified to conform with current year presentation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General
The unaudited financial statements of Artesian Resources Corporation and
its wholly-owned subsidiaries ("theCompany" or "Artesian Resources"),
including its principle operating company, Artesian Water Company, Inc.
("Artesian Water"), presented herein have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the financial statements and
notes thereto for the year ended December 31, 1995 included in the Company's
Annual Report on Form 10-K. The accompanying financial statements have not
been examined by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management such financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to fairly summarize the Company's financial position and results of
operations. The results of operations for the quarter ended March 31, 1996
may not be indicative of the results that may be expected for the year ending
December 31, 1996.
Note 2 - Regulatory Assets
Certain expenses, which are recoverable through rates as permitted by the
State of Delaware Public Service Commission ("PSC"), are deferred and
amortized during future periods using various methods. Expenses related to
rate proceedings are amortized on a straight-line basis over three years.
The post retirement benefit obligation, which is being amortized over twenty
years is adjusted for the difference between the net periodic post retirement
benefit costs and the cash payments. The deferred income taxes will be
amortized over future years as the tax effects of temporary differences
previously flowed through to the customer reverse. Regulatory assets, net of
amortization, comprise:
March 31, 1996 December 31, 1995
Postretirement benefit obligation $1,766,435 $1,772,960
Deferred income taxes recoverable
in future rates 736,493 740,267
Expense of rate proceedings 175,228 201,486
$2,678,156 $2,714,713
Note 3 - Non-utility Operating Revenue and Expenses
Non-utility operating revenue consists of environmental testing revenue
received by Artesian Laboratories, Inc. ("Artesian Laboratories") and rental
income received by Artesian Development, Corporation ("Artesian Development")
as follows:
For the Quarter Ended
March 31,
1996 1995
Artesian Laboratories $ 0 $385,861
Artesian Development 79,948 77,724
Total $79,948 $463,585
Non-utility operating expenses are as follows:
Artesian Laboratories $ 0 $320,341
Artesian Development 52,328 46,045
Total $53,328 $366,386
See Notes 5 and 6 for additional discussion of the non-utility activities.
Note 4 - Related Party Transactions
The office building and shop complex utilized by Artesian Water are
leased at an aggregate annual rental of $204,052 from a partnership, White
Clay Realty, in which certain of the Company's officers and directors are
partners. The lease expires in 1997, with provisions for renewals for three
five year periods thereafter. Management believes that the payments made to
White Clay Realty for the lease of its office building are generally
comparable to what Artesian Water would have to pay to unaffiliated parties
for similar facilities.
Artesian Water leases certain parcels of land for water production wells
from Glendale Enterprises Limited, a company wholly owned by Ellis D. Taylor,
Director and Chairman Emeritus of Artesian Resources, at an annual rental of
approximately $40,000. The initial term of the lease was for the ten years
ended September 30, 1995, and thereafter,renewal is automatic from year to
year unless 60 days written notice is given by either party before the end of
the year's lease. The annual rental is adjusted each year by the consumer
price index as of June 30 of the preceding year. Artesian Water has the right
to terminate this lease by giving 60 days written notice should the water
supply be exhausted or other conditions beyond the control of Artesian Water
materially and adversely affect its interest in the lease.
Expenses associated with related party transactions are as follows:
For the Quarter Ended
March 31,
1996 1995
White Clay Realty $51,013 $51,013
Glendale Enterprises 10,347 10,008
$61,360 $61,021
Note 5 - Disposal of Non-Utility Assets
In March 1996, the Company completed the sale, to an unrelated third
party, of Artesian Development's rental office building and 4.27 acres of
land with a net book value of $2,658,000 at December 31, 1995 for $2,050,000
resulting in a loss of $786,000. The loss, which was recognized in the fourth
quarter of 1995, reflects the difference between the net book value and the
selling price, and also includes $176,000 in expenses associated with
completing the sale. The proceeds from the sale were used to repay the
mortgage on the property and related closing costs.
Note 6 - Disposal of Non-Utility Business
In December 1995, the Board of Directors of Artesian Resources authorized
the disposal of substantially all of the net assets of Artesian Laboratories,
resulting in an estimated pre-tax loss of $128,000 recorded as an operating
expense in 1995. The loss reflects the difference between the projected sales
price and the net book value of substantially all the assets and liabilities
of the business, and also includes estimated operating losses of $137,000
through the anticipated disposal date and estimated additional expenses
associated with completing the sale.
ITEM 2 ARTESIAN RESOURCES CORPORATION MANAGEMENT'S DISCUSSION AND
ANALYSIS FOR THE QUARTER ENDED MARCH 31, 1996
Results of Operation
For the quarter ended March 31, 1996, Artesian Resources recorded net
income of $354,196 which represents a $124,174 increase over earnings of
$230,022 for the quarter ended March 31, 1995. The increase is primarily due
to Artesian Water's increased water sales revenue attributable to increased
rates and an increase in the number of customers served and Artesian Water's
ability to reduce utility operating expenses by approximately $40,000.
The decrease of approximately $40,000 in utility operating expenses is
primarily due to the reduction in purchased water of approximately $68,000 due
to the investments made in 1995 for the new two million gallon per day Old
County Road Iron Removal facility and the addition in 1995 of a new one
million gallon per day well at the Artisan's Village well field. These
two wells were the first in a series of wells to be brought on line over the
next seven years as part of Artesian Water's strategic plan to become self
sufficient for water supply.
Non-utility revenues and expenses decreased by approximately $384,000 and
$313,000, respectively, due to the write-off in 1995 of the net assets of
Artesian Laboratories Inc. ("Artesian Laboratories"). The write-off in 1995
included a reserve approximating net operating losses expected through the
disposal date.
For the quarter ended March 31, 1996, interest expense on short-term debt
increased $114,000 as compared with the same period in 1995 due to Artesian
Water's increased usage of its $15 million lines of credit.
Liquidity and Capital Resources
The primary source of liquidity for the three months ended March 31, 1996
is $1,265,000 borrowed on Artesian Water's lines of credit. As of April 26,
1996 $10,930,000 is drawn on the lines of credit. Artesian Development
Corporation also received $1,888,000, net of closing costs of $162,000, for
the sale of the rental office building on March 13, 1996. These funds were
used to repay the outstanding long term debt obligation associated with the
building. At March 31, 1996, Artesian Resources had a working capital deficit
of $15,614,000 attributable to the borrowings on the lines of credit of
Artesian Water, noted above, and the reclassification of the $5 million Series
J First Mortgage Bonds which are due December 1996. Artesian Water anticipates
it will complete long term financing arrangements in 1996 to eliminate the
working capital deficit.
PART II - OTHER INFORMATION
ITEM 5 OTHER INFORMATION
On March 13, 1996, the Company completed the sale of Artesian
Development's rental office building and 4.27 acres of land for $2,050,000.
The proceeds were used to repay the mortgage on that property and related
closing costs.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended March 31, 1996.
Exhibit 11 - Computation of Earnings per Common Share
For the Three Months Ended
March 31,
1996 1995
Earnings
Income applicable to Common Stock $354,196 $230,022
Shares
Weighted average number of Common Stock
Shares outstanding 1,040,650 1,020,876
Additional shares assuming conversion of:
Stock options 25,560 10,554
Pro Forma Shares 1,066,210 1,031,430
Primary earnings per share based on pro forma
shares outstanding which assume conversion of
stock options $ .33 $ .22
Primary earnings per share based on weighted
average number of common shares outstanding $ .34 $ .23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARTESIAN RESOURCES CORPORATION
Date ___3 May 1996_____ ___Dian C. Taylor__________________________
Dian C. Taylor
President, CEO, and Chair of the Board
Artesian Resources Corporation and Subsidiaries
Date ____3 May 1996______ ___David B. Spacht_________________________
David B. Spacht
Vice President, Chief Financial Officer, and
Treasurer
Artesian Resources Corporation and Subsidiaries
