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Previous: ISLE OF CAPRI CASINOS INC, S-4/A, 1999-08-13 |
Next: HECTOR COMMUNICATIONS CORP, 10-Q, 1999-08-13 |
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 June 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 August 6, 1999, 1,602,188 shares and 389,393 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 -
June 30, 1999 and December 31, 1998 3
Consolidated Statement of Income for
the quarters ended June 30, 1999 and 1998 4
Consolidated Statement of Income for
the six months ended June 30, 1999 and 1998 5
Consolidated Statement of Retained Earnings
for the six months ended June 30, 1999 and 1998 5
Consolidated Statement of Cash Flows for the
six months ended June 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 15
Item 6 - Exhibits and Reports on Form 8-K 15-18
Signatures 19
Part I - Financial Information
Item I - Financial Statements
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
Unaudited
June 30, 1999 December 31, 1998
ASSETS
Utility plant, at original cost
less accumulated depreciation $118,652 $109,780
Current assets
Cash and cash equivalents 77 114
Accounts receivable, net 1,947 1,968
Unbilled operating revenues 2,445 1,981
Materials and supplies-at cost
on FIFO basis 574 617
Prepaid property taxes 2 552
Prepaid expenses and other 271 327
5,316 5,559
Other assets
Non-utility property (less accumulated
depreciation 1999-$146;1998-$152) 276 280
Other deferred assets 1,057 1,071
1,333 1,351
Regulatory assets, net 2,442 2,686
$127,743 $119,376
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock $ 2,144 $ 1,806
Additional paid-in capital 25,578 18,113
Retained earnings 5,010 7,785
Treasury Stock (153) (3)
Additional paid-in capital from
treasury stock (1,573) (40)
Preferred stock 272 272
Total stockholders' equity 31,278 27,933
Preferred stock-mandatorily redeemable,
net of current portion 400 500
Long-term debt, net of current portion 35,096 32,053
66,774 60,486
Current liabilities
Notes payable 5,985 7,704
Current portion of long-term debt 1,148 43
Current portion of mandatorily
redeemable preferred stock 100 100
Accounts payable 4,218 3,148
Overdraft payable 936 635
State and federal taxes 159 ---
Deferred income taxes 27 190
Interest accrued 589 940
Customer deposits 397 388
Dividends payable 17 ---
Other 990 903
14,566 14,051
Deferred credits and other liabilities
Net advances for construction 18,356 18,337
Postretirement benefit obligation 1,585 1,627
Deferred investment tax credits 980 994
Deferred income taxes 2,195 1,471
23,116 22,429
Net contributions in aid of construction 23,287 22,410
$127,743 $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 June 30,
1999 1998
OPERATING REVENUES
Water sales $ 6,688 $ 6,568
Other utility operating revenue 106 104
6,794 6,672
OPERATING EXPENSES
Utility operating expenses 3,908 3,402
Non-utility operating expenses 13 ---
Related party expenses 57 57
Depreciation and amortization 632 472
State and federal income taxes 450 675
Property and other taxes 404 370
5,464 4,976
OPERATING INCOME 1,330 1,696
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 54 70
OTHER INCOME (EXPENSE), NET 13 6
INCOME BEFORE INTEREST CHARGES 1,397 1,772
INTEREST CHARGES 721 759
NET INCOME $ 676 $ 1,013
DIVIDENDS ON PREFERRED STOCK 17 19
NET INCOME APPLICABLE TO COMMON STOCK $ 659 $ 994
INCOME PER COMMON SHARE:
Basic $ .32 $ .55
Diluted $ .32 $ .55
CASH DIVIDEND PER COMMON SHARE $ .26 $ .23
AVERAGE COMMON SHARES OUTSTANDING
Basic 2,040,160 1,793,737
Diluted 2,074,320 1,810,283
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(In thousands, except share and per share amounts.)
For the Six Months
Ended June 30,
1999 1998
OPERATING REVENUES
Water sales $ 12,544 $ 12,115
Other utility operating revenue 189 177
12,733 12,292
OPERATING EXPENSES
Utility operating expenses 7,452 6,773
Related party expenses 113 114
Depreciation and amortization 1,164 1,078
State and federal income taxes 715 893
Property and other taxes 794 746
10,238 9,604
OPERATING INCOME 2,495 2,688
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 79 118
OTHER INCOME (EXPENSE), NET 26 24
INCOME BEFORE INTEREST CHARGES 2,600 2,830
INTEREST CHARGES 1,529 1,490
NET INCOME 1,071 1,340
DIVIDENDS ON PREFERRED STOCK 54 42
NET INCOME APPLICABLE TO COMMON STOCK $ 1,017 $ 1,298
INCOME PER COMMON SHARE:
Basic $ 0.52 $ 0.72
Diluted $ 0.51 $ 0.72
CASH DIVIDEND PER COMMON SHARE $ 0.52 $ 0.46
AVERAGE COMMON SHARES OUTSTANDING
Basic 1,958,271 1,792,787
Diluted 1,992,591 1,809,208
See notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Unaudited
(In thousands) For the Six Months
Ended June 30,
1999 1998
Balance, beginning of period $ 7,785 $ 6,887
Net income 1,071 1,340
8,856 8,227
Dividends 1,080 886
Common stock reacquired 2,766 ---
Balance, end of period $ 5,010 $ 7,341
See notes to the consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
(In thousands)
For the Six Months
Ended June 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 1,071 $ 1,340
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,109 1,001
Deferred income taxes, net 547 115
Allowance for funds used during construction (79) (118)
Changes in Assets and Liabilities:
Accounts receivable 21 185
Unbilled operating revenue (464) (507)
Materials and supplies 43 22
Accrued state and federal income taxes 159 768
Prepaid property taxes 550 507
Prepaid expenses and other 56 (50)
Other deferred assets 14 29
Regulatory assets 244 (68)
Postretirement benefit obligation (42) (28)
Accounts payable 1,070 614
Interest accrued (351) (270)
Customer deposits and other, net 96 419
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,044 3,959
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (net of AFUDC) (10,167) (8,478)
Proceeds from sale of assets 6 13
NET CASH USED IN INVESTING ACTIVITIES (10,161) (8,465)
CASH FLOW FROM FINANCING ACTIVITIES
Net(repayments)borrowings under line of
credit agreement (1,718) 4,905
Overdraft payable 301 345
Net advances and contributions in aid
of construction 1,160 50
Proceeds from issuance of common stock 7,803 265
Dividends (1,063) (866)
Repayment of long-term debt (278) ---
Principal payments under capital
lease obligations (25) (21)
Retirement of preferred stock (100) (112)
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,080 4,566
NET (DECREASE)INCREASE IN CASH AND CASH
EQUIVALENTS (37) 60
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 114 146
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 77 $ 206
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 1,865 $ 1,204
Income taxes paid $ 1 $ ---
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 required 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 six months ended June 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:
June 30, 1999 December 31,1998
(in thousands)
Postretirement benefit obligation $1,585 $1,627
Deferred income taxes recoverable
in future rates 687 695
Expense of rate proceedings 170 364
$2,442 $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 June 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 an annual rental of $180,000 from a partnership, White Clay Realty,
in which certain of Artesian Resources' officers and directors are partners.
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.
Renewal of the Lease 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.
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 June 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 Six Months
June 30, Ended June 30,
1999 1998 1999 1998
(in thousands) (in thousands)
White Clay Realty $ 46 $ 46 $ 91 $ 92
Glendale Enterprises 11 11 22 22
$ 57 $ 57 $113 $114
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 Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(in thousands)
Average common shares outstanding during
the period for Basic computation 2,040 1,793 1,958 1,793 Dilutive effect of employee stock options 34 17 35 16
Average common shares outstanding during
the period for Diluted computation 2,074 1,810 1,993 1,809
Equity per common share was $15.57 and $15.06 at June 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 June 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, 2000. 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.
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.
ITEM 2
ARTESIAN RESOURCES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 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 June 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 six months of 1999 from the sale of water. Water sales revenue increased $120,000, or 1.8%, for the quarter ended June 30, 1999 compared to the second quarter of 1998. For the six months ended June 30, 1999, water sales revenue increased $429,000, or 3.5%, as compared to the same period in 1998. The increase was primarily due to a 3.1% growth in the number of customers served.
Operating Expenses
Operating and maintenance expenses increased $519,000 and $678,000 for the quarter and six months ended June 30, 1999, compared to the same periods in 1998, primarily due to increased payroll and related expenses. In addition, the Company recorded 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 59.4% for the six months ended June 30, 1999 as compared to 56.0% for the same period in 1998. Payroll and related expenses increased $397,000, or 12.9%, and $262,000 or 17.7%, respectively, for the six months and quarter ended June 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 $160,000 and $86,000, or 34% and 8%, respectively, in the quarter and first six months of 1999 due to capital additions. Income tax expense decreased $178,000, or 19.9% and $225,000, or 33.3%, respectively, for the six months and quarter ended June 30, 1999. Our total effective income tax rate for the six months ended June 30, 1999 and 1998 was 40.0%.
Interest Charges
Interest charges increased $39,000, or 2.6% for the six months ended June 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 six months of 1999 and 1998 were $7.0 million and $3.6 million, respectively. Interest charges decreased $38,000 or 5.0% for the second quarter due to repayments on the lines of credit.
Net Income
For the quarter ended June 30, 1999, Artesian Resources recorded net income of $676,000 which represents a $337,000, or a 33.3%, decrease as compared to earnings of $1,013,000 for the quarter ended June 30, 1998. Net income for the six months ended June 30, 1999 was $1,071,000, a decrease of $269,000 or 20.1%, compared to earnings of $1,340,000 for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity for the first six months of 1999 were $4.0 million provided by cash flow from operating activities and the $7.5 million 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 is 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 $7.7 million. 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 $2.8 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 certain upward adjustments based upon
increases 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.
Developer advances and contributions in aid of construction are used for
the installation of mains and hydrants in new developments. An additional $1.4
million of capital expenditures will be financed by developers during the
remainder of 1999.
At June 30, 1999, we had a working capital deficit of $9.3 million
mainly due to borrowings on our lines of credit incurred to finance investment
in utility plant and the $1,112,500 currently payable portion of the note to Ellis and Helena Taylor.
At June 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
June 30, 1999, we had $29.0 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 the bank's federal funds rate plus 1.0%,
at our discretion. 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.
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, 2000. 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.
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 June 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 six 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.
RECENT EVENTS
On August 5, 1999, the Governor of Delaware declared a drought emergency for northern New Castle County and implemented mandatory restrictions on water use. Our regulated water utility provides service to the majority of its customers in the area where the drought emergency was declared. Our water demand and total pumpage has decreased since the drought emergency was declared. We cannot determine what impact the reduction in consumption may have on our financial position or earnings for 1999 or how long the drought emergency will be in effect.
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 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. 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 will become 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
With 473,836 votes in favor, 779 votes withheld, the Class B Common Shareholders also elected John R. Eisenbrey, Jr. to serve a three year term on Artesian Resources' Board of Directors (the "Board") until his successor shall have been elected and qualified or until his earlier resignation or removal. He was last re-elected at the 1996 Annual Meeting of Shareholders. Mr. Eisenbrey has served as a member on the Personnel, Compensation and Benefits; and Incentive Stock Option Plan Committees of the Board.
Following the re-election of Ms. Taylor and Mr. Eisenbrey, the members of the Board and their respective terms are as follows:
Dian C. Taylor term expires at the 2002 annual meeting
John R. Eisenbrey, Jr. term expires at the 2002 annual meeting
William H. Taylor, II term expires at the 2001 annual meeting
William C. Wyer term expires at the 2001 annual meeting
Kenneth R. Biederman term expires at the 2000 annual meeting
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 March 31, 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.
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
08/09/99 /s/ Dian C. Taylor
Dian C. Taylor
President, CEO, and Chair of the Board
Artesian Resources Corporation and Subsidiaries
08/09/99 /s/ David B. Spacht
David B. Spacht
Vice President, Chief Financial Officer, and
Treasurer
Artesian Resources Corporation and Subsidiaries
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