UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
__ TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
Commission file number 0-18516
ARTESIAN RESOURCES CORPORATION
(exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization: Delaware
I.R.S. Employer Identification Number: 51-0002090
Address of principal executive officers: 664 Churchmans Road, Newark, Delaware
Zip Code: 19702
Registrant's telephone number, including area code: (302) 453-6900
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 November 4, 1999, 1,603,803 shares and 391,824 shares of Class A
Non-Voting Common Stock and Class B Common Stock, respectively, were
outstanding.
ARTESIAN RESOURCES CORPORATION
INDEX TO FORM 10-Q
Part I - Financial Information: Page(s)
Item 1 - Financial Statements
Consolidated Balance Sheet -
September 30, 1999 and December 31, 1998 3
Consolidated Statement of Income for
the quarters ended September 30, 1999 and 1998 4
Consolidated Statement of Income for
the nine months ended September 30, 1999 and 1998 5
Consolidated Statement of Retained Earnings
for the nine months ended September 30, 1999 and 1998 5
Consolidated Statement of Cash Flows for the
nine months ended September 30, 1999 and 1998 6
Notes to the Consolidated Financial Statements 7-10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 14
Part II - Other Information:
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Defaults Upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of
Security Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14-16
Signatures 17
Part I - Financial Information
Item I - Financial Statements
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
Unaudited
September 30, 1999 December 31, 1998
ASSETS
Utility plant, at original cost
less accumulated depreciation $119,312 $109,780
Current assets
Cash and cash equivalents 279 114
Accounts receivable, net 2,598 1,968
Unbilled operating revenues 2,299 1,981
Materials and supplies-at cost
on FIFO basis 623 617
Prepaid property taxes 876 552
Prepaid expenses and other 265 327
6,940 5,559
Other assets
Non-utility property (less accumulated
depreciation 1999-$157;1998-$152) 275 280
Other deferred assets 1,017 1,071
1,292 1,351
Regulatory assets, net 2,392 2,686
$129,936 $119,376
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock $ 2,148 $ 1,806
Additional paid-in capital 24,069 18,073
Retained earnings 5,578 7,785
Treasury Stock (153) (3)
Preferred stock 272 272
Total stockholders' equity 31,914 27,933
Preferred stock-mandatorily redeemable,
net of current portion 400 500
Long-term debt, net of current portion 35,125 32,053
67,439 60,486
Current liabilities
Notes payable 7,452 7,704
Current portion of long-term debt 1,138 43
Current portion of mandatorily
redeemable preferred stock 100 100
Accounts payable 2,582 3,148
Overdraft payable 134 635
State and federal taxes 770 ---
Deferred income taxes --- 190
Interest accrued 906 940
Customer deposits 365 388
Dividends payable 17 ---
Reserve for temporary rate increase 434 ---
Other 777 903
14,675 14,051
Deferred credits and other liabilities
Net advances for construction 18,719 18,337
Postretirement benefit obligation 1,562 1,627
Deferred investment tax credits 972 994
Deferred income taxes 2,220 1,471
23,473 22,429
Net contributions in aid of construction 24,349 22,410
$129,936 $119,376
See notes to the consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(In thousands, except share and per share amounts)
For the Quarter
Ended September 30,
1999 1998
OPERATING REVENUES
Water sales $ 7,265 $ 6,632
Other utility operating revenue 100 90
Non utility revenue 9 ---
7,374 6,722
OPERATING EXPENSES
Utility operating expenses 3,589 3,721
Non-utility operating expenses 6 ---
Related party expenses 45 57
Depreciation and amortization 624 553
State and federal income taxes 761 494
Property and other taxes 413 370
5,438 5,195
OPERATING INCOME 1,936 1,527
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 26 31
OTHER INCOME (EXPENSE), NET 13 15
INCOME BEFORE INTEREST CHARGES 1,975 1,573
INTEREST CHARGES 832 825
NET INCOME $ 1,143 $ 748
DIVIDENDS ON PREFERRED STOCK 17 20
NET INCOME APPLICABLE TO COMMON STOCK $ 1,126 $ 728
INCOME PER COMMON SHARE:
Basic $ .56 $ .40
Diluted $ .55 $ .40
CASH DIVIDEND PER COMMON SHARE $ .27 $ .255
AVERAGE COMMON SHARES OUTSTANDING
Basic 1,994,478 1,798,781
Diluted 2,031,007 1,819,195
See notes to the consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(In thousands, except share and per share amounts)
For the Nine Months
Ended September 30,
1999 1998
OPERATING REVENUES
Water sales $ 19,808 $ 18,747
Other utility operating revenue 285 267
Non utility revenue 14 ---
20,107 19,014
OPERATING EXPENSES
Utility operating expenses 11,021 10,487
Related party expenses 159 170
Non-utility operating expenses 25 7
Depreciation and amortization 1,789 1,632
State and federal income taxes 1,475 1,387
Property and other taxes 1,207 1,116
15,676 14,799
OPERATING INCOME 4,431 4,215
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 106 149
OTHER INCOME (EXPENSE), NET 39 39
INCOME BEFORE INTEREST CHARGES 4,576 4,403
INTEREST CHARGES 2,362 2,314
NET INCOME 2,214 2,089
DIVIDENDS ON PREFERRED STOCK 71 62
NET INCOME APPLICABLE TO COMMON STOCK $ 2,143 $ 2,027
INCOME PER COMMON SHARE:
Basic $ 1.10 $ 1.13
Diluted $ 1.08 $ 1.12
CASH DIVIDEND PER COMMON SHARE $ 0.79 $ 0.715
AVERAGE COMMON SHARES OUTSTANDING
Basic 1,948,306 1,795,150
Diluted 1,981,962 1,812,765
See notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Unaudited
(In thousands) For the Nine Months
Ended September 30,
1999 1998
Balance, beginning of period $ 7,785 $ 6,887
Net income 2,214 2,089
9,999 8,976
Less: Dividends 1,634 1,363
Common stock reacquired 2,787 ---
Balance, end of period $ 5,578 $ 7,613
See notes to the consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
(In thousands)
For the Nine Months
Ended September 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 2,214 $ 2,089
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,697 1,516
Deferred income taxes, net 537 192
Allowance for funds used during construction (106) (149)
Changes in Assets and Liabilities:
Accounts receivable (630) 23
Unbilled operating revenue (318) (307)
Materials and supplies (6) 27
Accrued state and federal income taxes 770 788
Prepaid property taxes (324) (274)
Prepaid expenses and other 62 39
Other deferred assets 54 80
Regulatory assets 294 33
Postretirement benefit obligation (65) (46)
Accounts payable (566) 671
Interest accrued (34) (630)
Customer deposits and other, net 285 282
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,864 4,334
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (net of AFUDC) (11,496) (12,375)
Proceeds from sale of assets 6 14
NET CASH USED IN INVESTING ACTIVITIES (11,490) (12,361)
CASH FLOW FROM FINANCING ACTIVITIES
Net(repayments)borrowings under line of
credit agreement (252) 7,820
Overdraft payable (501) 86
Net advances and contributions in aid
of construction 2,694 1,338
Net proceeds from stock transactions 7,887 380
Dividends (1,617) (1,343)
Repayment of long-term debt (278) ---
Principal payments under capital
lease obligations (42) (40)
Retirement of preferred stock (100) (112)
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,791 8,129
NET INCREASE IN CASH AND CASH
EQUIVALENTS 165 102
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 114 146
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 279 $ 248
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 2,371 $ 1,663
Income taxes paid $ 156 $ 480
See Notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The unaudited financial statements of Artesian Resources Corporation and
its wholly-owned subsidiaries (the Company or Artesian Resources),
including its principal 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 prescribed by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1998 included in
the Company's Annual Report on Form 10-K. The accompanying consolidated
financial statements have not been examined by independent accountants in
accordance with generally accepted auditing standards, but in the opinion of
management such consolidated 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 and nine months ended September 30, 1999
may not be indicative of the results that may be expected for the year ending
December 31, 1999.
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 a period of two
to five 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:
September 30, 1999 December 31,1998
(in thousands)
Postretirement benefit obligation $1,562 $1,627
Deferred income taxes recoverable
in future rates 684 695
Expense of rate proceedings 146 364
$2,392 $2,686
NOTE 3 - DEBT
On April 29, 1999, Artesian entered into an agreement with Helena C.
Taylor and Ellis D. Taylor (the "Taylors") for the purpose of repurchasing
126,353 shares of Class B Common Stock and 24,165 shares of Class A Non-Voting
Common Stock ("the Stock") owned by the Taylors. On May 4, 1999, Artesian
executed a promissory note (the "Note") in the principal amount of $4,450,000
representing the purchase price of the stock. The Note is payable quarterly,
on a calendar basis, over a four year period and in sixteen equal principal
installments of $278,125 commencing on June 30, 1999. The outstanding balance
on the Note bears interest in an amount computed based on the quarterly
dividend the Taylors would have received on the Stock transferred to Artesian
but not yet paid for by Artesian. In addition, the principal installment is
adjusted on a quarterly basis to reflect increases in the book value per
common share of the Company as reported in its most recent quarterly financial
statement distributed to stockholders prior to the quarterly payment. At
September 30, 1999, Artesian had $4,171,900 outstanding under this promissory
note.
NOTE 4 - NON-UTILITY OPERATING EXPENSES
On December 19, 1996, Artesian Wastewater Management, Inc. (Artesian
Wastewater) was created as an additional non-regulated subsidiary of Artesian
Resources. Artesian Wastewater plans to provide wastewater treatment services
in Delaware. On March 12, 1997, Artesian Wastewater became a one-third owner
in AquaStructure Delaware, L.L.C.,which intends to develop and market various
proposals to provide wastewater treatment services. Artesian Wastewater began
operating a small wastewater treatment spray irrigation facility owned by a
municipality in Southern New Castle County Delaware. Artesian Wastewater is
paid a lump sum fee to maintain operations at the facility.
NOTE 5 - RELATED PARTY TRANSACTIONS
The office building and shop complex utilized by Artesian Water are
leased at the 1999 annual rental of $182,000 from a partnership, White Clay
Realty, in which certain of Artesian Resources' officers and directors are
partners. The annual rent decreases each year to the year 2002 by
approximately $2,000 per year. The lease expires in December, 2002, with
provisions for renewals for two five-year periods thereafter. Management
believes that the payments made to White Clay Realty for the lease of its
office building and shop complex are 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,
Chairman Emeritus of Artesian Resources, at an annual rental of $45,000.
Artesian Water has received notice that Glendale Enterprises Limited would
like to discontinue the lease for the well sites. Artesian Water is currently
negotiating with Glendale Enterprises Limited to purchase the land rights for
the well sites associated with the Glendale Lease.
On April 29, 1999, Artesian entered into an agreement with Helena C.
Taylor and Ellis D. Taylor (the "Taylors") for the purpose of repurchasing
126,353 shares of Class B Common Stock and 24,165 shares of Class A Non-Voting
Common Stock ("the Stock") owned by the Taylors. On May 4, 1999, Artesian
executed a promissory note (the "Note") in the principal amount of $4,450,000
representing the purchase price of the stock. The Note is payable quarterly,
on a calendar basis, over a four year period and in sixteen equal principal
installments of $278,125 commencing on June 30, 1999. The outstanding balance
on the Note bears interest in an amount computed based on the quarterly
dividend the Taylors would have received on the Stock transferred to Artesian
but not yet paid for by Artesian. In addition, the principal installment is
adjusted on a quarterly basis to reflect changes in the book value per common
share of the Company as reported in its most recent quarterly financial
statement distributed to stockholders prior to the quarterly payment. At
September 30, 1999, Artesian had $4,171,900 outstanding under this promissory
note.
Expenses associated with related party transactions are as follows:
For the Quarter Ended For the Nine Months
September 30, Ended September 30,
1999 1998 1999 1998
(in thousands) (in thousands)
White Clay Realty $ 45 $ 46 $136 $138
Glendale Enterprises - 11 22 32
Repurchase of Stock $ 37 $ - $ 37 $ -
$ 82 $ 57 $195 $170
NOTE 6 - NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE
Basic net income per share is based on the weighted average number of
common shares outstanding. Diluted net income per share is based on the
weighted average number of common shares outstanding and potentially dilutive
effect of employee stock options. The following table summarizes the shares
used in computing basic and diluted net income per share:
For the Quarter For the Nine Months
Ended September 30, Ended September30,
1999 1998 1999 1998
(in thousands) (in thousands)
Average common shares outstanding during
the period for Basic computation 1,994 1,799 1,948 1,795
Dilutive effect of employee stock options 37 20 34 18
Average common shares outstanding during
the period for Diluted computation 2,031 1,819 1,982 1,813
Equity per common share was $15.85 and $15.23 at September 30, 1999 and
1998, respectively. These amounts were computed by dividing common
stockholders' equity, excluding preferred stock, by the number of shares of
common stock outstanding on September 30, 1999 and 1998, respectively.
NOTE 7 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement is
effective for financial statements for fiscal years beginning after
December 15, 1998. Earlier application is encouraged in fiscal years for
which annual financial statements have not been issued. We implemented this
statement in the first quarter of 1998 and it did not have a material impact
on our financial condition or results of operations.
In June 1998, FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative instruments
and hedging activities. In June 1999, FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," moving the effective date for this standard from fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000. We plan to
adopt this statement effective January 1, 2001. Our adoption of this
statement will not have a material impact on our financial condition or
results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities". This statement is effective for financial statements for fiscal
years beginning after December 15, 1998. Earlier application is encouraged in
fiscal years for which annual financial statement have not been issued. We
implemented this statement in the first quarter of 1999 and it did not have a
material impact on our financial condition or results of operations.
NOTE 8 - RATE PROCEEDINGS
On April 30, 1999, Artesian Water filed a petition with the Delaware
Public Service Commission to implement new rates to meet a requested increase
in revenue of approximately 10.35%, or $2.7 million on an annualized basis. On
September 30, 1999 Artesian Water filed a supplemental rate increase request
which reduced the Company's increase from $2.7 million to approximately $2.5
million. Artesian Water is permitted to collect a temporary increase not in
excess of $2.5 million on an annualized basis, under bond, until the level of
permanent rates are decided by the Delaware Public Service Commission. The
temporary rates became effective on July 1, 1999. Of the amount collected
$434,000 was reserved, pending the final outcome of the rate proceeding.
ITEM 2
ARTESIAN RESOURCES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER
30,1999
RESULTS OF OPERATIONS
Overview
Artesian Water, our principal subsidiary, is the oldest and largest
regulated public water utility in the State of Delaware and has been
providing water within the state since 1905. We distribute and sell water
to residential, commercial, industrial, governmental, municipal and utility
customers throughout Delaware. As of September 30, 1999, we had approximately
62,000 metered customers and served a population of approximately 200,000,
representing approximately 27% of Delaware's total population. We believe
that we have a reputation for providing water and service of superior quality
to our customers.
The Delaware Public Service Commission regulates Artesian Water's rates
charged for water service, the sale and issuance of securities, mergers and
other matters. We periodically seek rate increases to cover the cost of
increased operating expenses, increased financing expenses due to additional
investments in utility plant and other costs of doing business. Increases
in customers served by Artesian Water also contribute to increases in our
operating revenues, although such increases have been offset slightly by
reductions in customers' individual usage. We continue our efforts to contain
expenses and improve efficiencies which contribute to increases in our
operating income. Our business is also subject to seasonal fluctuations and
the effects of weather.
Operating Revenues
We realized 98.5% of our total revenue in the nine months of 1999 from
the sale of water. Water sales revenue increased $633,000, or 9.5%, for the
quarter ended September 30, 1999 compared to the third quarter of 1998. For
the nine months ended September 30, 1999, water sales revenue increased
$1,061,000, or 5.7%, as compared to the same period in 1998. The increase was
primarily due to a growth in the number of customers served, increased usage
due to dry weather conditions and implementation of temporary rates related to
a pending rate proceeding.
Operating Expenses
Operating and maintenance expenses decreased $138,000 for the quarter
ended September 30, 1999, primarily due to decreased purchased water expense
and increased $541,000 for the nine months ended September 30, 1999, primarily
due to increased payroll and benefits, as compared to the same periods in
1998. In addition, the nine month period ended September 30, 1999 includes a
$165,000 write-off related to the unamortized portion of rate case expenses
from PSC Docket No. 97-66 and 97-340. The write-off resulted from the
implementation of temporary rates and the amortization of costs associated
with the rate increase request filed on April 30, 1999. The ratio of
operating and maintenance expense to total revenue was 55.7% for the nine
months ended September 30, 1999 as compared to 56.1% for the same period in
1998. Payroll and benefit expenses increased $139,000, or 8.6%, and $535,000
or 11.4%, respectively, for the quarter and nine months ended September 30,
1999 primarily due to the addition of new employees and increases in annual
merit and incentive compensation and an approximately 20% increase in medical
insurance premiums effective beginning the third quarter of 1998.
Depreciation and amortization expense increased $71,000 and $157,000, or
13% and 10%, respectively, in the quarter and first nine months of 1999,
compared to the comparable periods of the prior year, due to capital
additions. Income tax expense increased $267,000, or 54.0% and $88,000, or
6.3%, respectively, for the quarter and nine months ended September 30, 1999.
Our total effective income tax rate for the nine months ended September 30,
1999 and 1998 was 40.0%.
Interest Charges
Interest charges increased $7,000 or .9% for the third quarter, compared
to the third quarter of 1998. Interest charges increased $48,000, or 2.1% for
the nine months ended September 30, 1999 as compared with the same period in
1998 due to higher average borrowings on the lines of credit incurred to
finance investment in utility plant. Average borrowings for the first nine
months of 1999 and 1998 were $7.0 million and $5.2 million, respectively.
Net Income
For the quarter ended September 30, 1999, Artesian Resources recorded
net income of $1,143,000 which represents a $395,000, or a 52.8%, increase as
compared to earnings of $748,000 for the quarter ended September 30, 1998.
This increase was due to the dry weather conditions affecting usage combined
with decreased purchased water expense. These factors will not be present in
the fourth quarter and therefore, normal seasonal earnings are expected for
the fourth quarter. Net income for the nine months ended September 30, 1999
was $2,214,000, an increase of $125,000 or 6.0%, compared to earnings of
$2,089,000 for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity for the first nine months of 1999 were
$3.9 million provided by cash flow from operating activities and the $7.5
million resulting from the issuance of 325,000 shares of Class A Non-Voting
Common Stock on April 13, 1999. Cash flow from operating activities was
primarily provided by our utility operations, and was impacted by operating
and maintenance expenses, the timeliness and adequacy of rate increases and
weather conditions.
We rely on our sources of liquidity for investments in our utility plant
and systems and to meet our various payment obligations. We currently
estimate that our aggregate investments in our utility plant and systems for
the remainder of 1999 will be approximately $825,000. These investments
will be financed by our operations and short-term borrowings under our
revolving credit agreements. Our total obligations related to dividend and
sinking fund payments on preferred stock, interest payments on indebtedness,
rental payments and water service interconnection agreements for the remainder
of 1999 are anticipated to be approximately $1.9 million and will be financed
with cashflow from our operating activities.
On May 4, 1999, we purchased from Ellis and Helena Taylor 24,165 shares
of Class A Non-Voting Common Stock for $604,125 and 126,353 shares of Class B
Common Stock for $3,845,875, payable in equal quarterly installments over a
four year period and bearing interest at a rate equal to the amount that the
sellers would have received in dividends on the shares as to which the
principal amount has not yet been paid. On a quarterly basis, the
consideration paid is subject to adjustments based upon changes in our book
value per common share. We anticipate that this obligation will be financed by
our cashflow from operations and external sources including our short-term
lines of credit and the anticipated sale of land owned by Artesian Development
Company.
Developer advances and contributions in aid of construction are used for
the installation of mains and hydrants in new developments. An additional
$551,000 of capital expenditures will be financed by developers during the
remainder of 1999.
At September 30, 1999, we had a working capital deficit of $7.7 million
mainly due to borrowings on our lines of credit incurred to finance investment
in utility plant.
At September 30, 1999, Artesian Water had lines of credit with three
separate financial institutions totaling $35.0 million to meet its temporary
cash requirements. These revolving credit facilities are unsecured. As of
September 30, 1999, we had $27.5 million of available funds under these lines.
The interest rate for borrowings under each of these lines is the London
Interbank Offering Rate plus 1.0% or, at our discretion, the bank's federal
funds rate plus 1.0%. All the facilities are reviewed annually by each bank
for renewal.
On April 13, 1999, Artesian Resources issued 325,000 shares of Class A
Non-Voting Common Stock at $25.00 per share in an underwritten public
offering, and the net proceeds of approximately $7.5 million were used to
reduce Artesian Water's borrowing on the lines of credit incurred to finance
investment in utility plant.
YEAR 2000 COMPLIANCE
Our management has completed an assessment of all our information and
non-information technology systems and implemented a company-wide program
which continues to test and correct all of our critical systems to ensure
Year 2000 compliance. We have dedicated the financial, technical and
management resources required to achieve Year 2000 compliance. We identified
the critical systems for our operations and are compliant as of September 30,
1999. Additionally, in 1998, we adopted management practices which require
that any new systems or system upgrades be Year 2000 compliant prior to their
purchase and implementation.
In 1998, we undertook a comprehensive program to assess providers of
critical services for the purpose of identifying and minimizing exposure to
Year 2000 risks that are not under our direct control. Contingency plans have
been developed which include, but are not limited to, the installation of
back-up generators in case of power loss; increasing inventory levels in late
1999 for crucial materials and supplies, including gasoline, diesel fuel and
water treatment chemicals; and identifying alternate providers in case our
primary providers cannot meet delivery requirements.
We are completing our Year 2000 compliance program in the normal course
of business and do not anticipate a material impact on our business, results
of operations, liquidity or capital resources. As a result of our corporate
automation plan developed in 1994, we capitalized $395,000 during the year
ended December 31, 1998 on new computer software and hardware, some of
which replaced software and hardware which was not Year 2000 compliant.
No capital expenditures for computer software and hardware were made during
the first nine months of 1999, and we do not anticipate any significant
capital expenditures for the remainder of 1999 for the purpose of achieving
Year 2000 compliance.
CAUTIONARY STATEMENT
Statements in this Quarterly Report on Form 10-Q which express our
"belief", "anticipation" or "expectation", as well as other statements which
are not historical fact, are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties that could cause actual results to differ materially from
those projected. Certain factors, such as developments in our current rate
proceeding, competitive market pressures, material changes in demand from
larger customers, changes in weather, availability of labor, failure of
critical suppliers to meet Year 2000 compliance, changes in government
policies and changes in economic conditions, could cause results to differ
materially from those in the forward-looking statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On April 30, 1999, Artesian Water filed a petition with the PSC to
implement new rates to meet an increased revenue requirement of approximately
10.35%, or $2.7 million on an annualized basis. On September 30, 1999 Artesian
Water filed a supplemental rate increase request which reduced the Company's
increase from $2.7 million to approximately $2.5 million. Artesian Water is
permitted to collect a temporary increase not in excess of $2.5 million on an
annualized basis, under bond, until permanent rates are approved by the PSC.
Such temporary rates became effective July 1, 1999.
There are no other material legal proceedings pending at this date.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended September 30,
1999.
INDEX TO EXHIBITS
Exhibit Number Description
3 Articles of Incorporation and By-Law
(3.1) Restated Certificate of Incorporation of the Company effective
May 26, 1995 incorporated by reference to the exhibit filed
with Artesian Resources Corporation Form 10-Q for the quarter
ended June 30, 1995.
(3.2) Restated Certificate of Incorporation of the Company effective
April 26, 1994 including Certificate of Correction incorporated
by reference to the exhibit filed with the Artesian Resources
Corporation Form 10-Q for the quarter ended March 31, 1994.
(3.3) By-Laws of the Company effective April 27, 1993 incorporated by
reference to the exhibit filed with the Artesian Resources
Corporation Form 8-K filed April 27, 1993.
4 Instruments Defining the Rights of Security Holders, Including Indentures
(4.1) Thirteenth and Fourteenth Indentures dated as of June 17, 1997
between Artesian Water Company, Inc., subsidiary of Artesian
Resources Corporation, and Wilmington Trust Company, as Trustee.
Incorporated by reference to the exhibits filed with Artesian
Resources Corporation Form 10-Q for the quarter ended June 30,
1997.
(4.2) Twelfth Supplemental Indenture dated as of December 5, 1995
between Artesian Water Company, Inc. subsidiary of Artesian
Resources Corporation, and Wilmington Trust Company, as Trustee.
Incorporated by reference to the exhibit filed with the Artesian
Resources Corporation Annual Report on Form 10-K for the year
ended December 31, 1995.
(4.3) Eleventh Supplemental Indenture dated as of February 16, 1993
between Artesian Water Company, Inc., subsidiary of Artesian
Resources Corporation, and Principal Mutual Life Insurance
Company. Incorporated by reference to the exhibit filed with
Artesian Resources Corporation Annual Report on Form 10-K for
the year ended December 31, 1992.
(4.4) Tenth Supplemental Indenture dated as of April 1, 1989 between
Artesian Water Company, Inc., subsidiary of Artesian Resources
Corporation, and Wilmington Trust Company, as Trustee.
Incorporated by reference to the exhibit filed with Artesian
Resources Corporation Registration Statement on Form 10 filed
April 30, 1990 and as amended by Form 8 filed on June 19, 1990.
(4.5) Other Supplemental Indentures with amounts authorized less than
ten percent of the total assets of the Company and its
subsidiaries on a consolidated basis will be furnished upon
request. Incorporated by reference to the exhibit filed with
Artesian Resources Corporation Registration Statement on Form
10 filed April 30, 1990 and as amended by Form 8 filed on
June 19, 1990.
10 Material Contracts
(10.1) Amended and Restated Artesian Resources Corporation 1992
Non-Qualified Stock Option Plan, as amended, filed herewith.
(10.2) Lease dated as of March 1, 1972 between White Clay Realty
Company and Artesian Water Company, Inc. incorporated by
reference to the exhibit filed with Artesian Resources
Corporation Registration Statement on Form 10 filed April 30,
1990 and as amended by Form 8 filed on June 19, 1990.
(10.3) Artesian Resources Corporation Cash and Stock Bonus
Compensation Plan for Officers incorporated by reference to the
exhibit filed with the Artesian Resources Corporation Form
10-K for the year ended December 31, 1993.
(10.4) Artesian Resources Corporation Incentive Stock Option Plan
incorporated by reference to the exhibit filed with the
Artesian Resources Corporation Annual Report on Form 10-K for
the year ended December 31, 1995.
(10.5) Share Repurchase Agreement dated April 28, 1999 and related
Promissary Note dated May 4, 1999.
<PAGE>
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
11/12/99 /s/ Dian C. Taylor
Dian C. Taylor
President, CEO, and Chair of the Board
Artesian Resources Corporation and Subsidiaries
11/12/99 /s/ David B. Spacht
David B. Spacht
Vice President, Chief Financial Officer, and
Treasurer
Artesian Resources Corporation and Subsidiaries
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, consolidated statements of income and the
consolidated statement of cash flows from the Company's September 30, 1999
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $119,312,000 $119,312,000
<OTHER-PROPERTY-AND-INVEST> 275,000 275,000
<TOTAL-CURRENT-ASSETS> 6,940,000 6,940,000
<TOTAL-DEFERRED-CHARGES> 3,409,000 3,409,000
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> $129,936,000 $129,936,000
<COMMON> $ 1,995,000 $ 1,995,000
<CAPITAL-SURPLUS-PAID-IN> 24,069,000 24,069,000
<RETAINED-EARNINGS> 5,578,000 5,578,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 31,642,000 31,642,000
400,000 400,000
272,000 272,000
<LONG-TERM-DEBT-NET> 35,125,000 35,125,000
<SHORT-TERM-NOTES> 7,452,000 7,452,000
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,138,000 1,138,000
100,000 100,000
<CAPITAL-LEASE-OBLIGATIONS> 3,000 3,000
<LEASES-CURRENT> 18,000 18,000
<OTHER-ITEMS-CAPITAL-AND-LIAB> 53,786,000 53,786,000
<TOT-CAPITALIZATION-AND-LIAB> $129,936,000 $129,936,000
<GROSS-OPERATING-REVENUE> $ 7,374,000 $ 20,107,000
<INCOME-TAX-EXPENSE> 761,000 1,475,000
<OTHER-OPERATING-EXPENSES> 4,677,000 14,201,000
<TOTAL-OPERATING-EXPENSES> 5,438,000 15,676,000
<OPERATING-INCOME-LOSS> 1,936,000 4,431,000
<OTHER-INCOME-NET> 39,000 145,000
<INCOME-BEFORE-INTEREST-EXPEN> 1,975,000 4,576,000
<TOTAL-INTEREST-EXPENSE> 832,000 2,362,000
<NET-INCOME> 1,143,000 2,214,000
17,000 71,000
<EARNINGS-AVAILABLE-FOR-COMM> $ 1,126,000 2,143,000
<COMMON-STOCK-DIVIDENDS> 554,000 1,634,000
<TOTAL-INTEREST-ON-BONDS> $ 2,677,000 2,677,000
<CASH-FLOW-OPERATIONS> (180,000) 3,863,000
<EPS-BASIC> $ 0.56 1.10
<EPS-DILUTED> $ 0.55 1.08
</TABLE>
