<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 1999
INDEX
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Page
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Independent Auditors' Report 1-2
FINANCIAL STATEMENTS
Statement of Net Assets Available for
Benefits, December 31, 1999 3
Statement of Net Assets Available for
Benefits, December 31, 1998 4
Statement of Changes in Net Assets
Available for Benefits, Year
Ended December 31, 1999 5
Notes to the Financial Statements 6-13
SUPPLEMENTAL SCHEDULES
Schedule of Assets Held for Investment Purposes 14
Schedule of Reportable Transactions (Series of
Transactions in One Issue Aggregating 5 Percent or
More of Net Assets) for the Year Ended December 31,
1999 15
--------------------------------------------------------------------------------
<PAGE>
Independent Accountants Report
Participants, Board of Trustees and
Administrator
of Artesian Resources Corporation
Retirement Plan
We have audited the accompanying statements of net assets available for benefits
of Artesian Resources Corporation Retirement Plan as of December 31, 1999 and
1998, and the related statement of changes in net assets available for benefits
for the year ended December 31, 1999. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Artesian
Resources Corporation Retirement Plan as of December 31, 1999 and 1998, and the
changes in net assets available for plan benefits for the year then ended in
conformity with generally accepted accounting principles.
<PAGE>
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules are presented
for the purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The fund information in the
statements of net assets available for plan benefits and the statement of
changes in net assets available for plan benefits is presented for purposes of
additional analysis rather than to present the net assets available for plan
benefits and changes in net assets available for plan benefits of each fund. The
supplemental schedules and fund information have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Wilmington, Delaware
February 24, 2000, except for Note 6,
for which the date is March 31, 2000
See accompanying notes to the financial statements.
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
STATEMENT OF NET ASSETS
AVAILABLE FOR BENEFITS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Participant Directed
----------------------------------------------------------------------------------------------
Fidelity Family of Mutual Funds
----------------------------------------------------------------
Managed
Equity Aggressive Income Intermediate Artesian Participant
Income II Growth Puritan Portfolio Bond A Loans
------------ ----------- ---------- ---------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments, at
fair value- $ - $ - $ - $724,540 $ - $ - $ -
Common/Collective
Trusts
Registered
Investment
Companies 3,798,561 3,265,255 705,324 - 512,955 - -
Employer
Securities - - - - - 419,761 -
Funds held in insurance
companies' general
accounts, at
contract value - - - - - - -
Participant loans - - - - - - 351,909
---------- ---------- -------- -------- --------- -------- --------
Total investments 3,798,561 3,265,255 705,324 724,540 512,955 419,761 351,909
Amounts due from
employer - - - 27,884 - - -
---------- ---------- -------- -------- --------- -------- --------
Net assets available
for benefits $3,798,561 $3,265,255 $705,324 $752,424 $ 512,955 $419,761 $351,909
========== ========== ======== ======== ========= ======== ========
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Non-
Participant
Directed
--------------
Appreciation
Plus Total
-------------- --------
<S> <C> <C>
Assets:
Investments, at
fair value- $ - $ 724,540
Common/Collective
Trusts
Registered
Investment
Companies - 8,282,095
Employer
Securities - 419,761
Funds held in insurance
companies' general
accounts, at
contract value 245,366 245,366
Participant loans - 351,909
--------- -----------
Total investments 245,366 10,023,671
Amounts due from
employer - 27,884
--------- -----------
Net assets available
for benefits $ 245,366 $10,051,555
========= ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Non-
Participant
Participant Directed Directed
------------------------------------------------------------------------------ ----------------
Fidelity Family of Mutual Funds
----------------------------------------------------------
Managed
Equity Aggressive Income Intermediate Artesian Participant Appreciation
Income II Growth Puritan Portfolio Bond A Loans Plus Total
--------- ------ ------- --------- ------------ --------- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to Net Assets
attributed to:
Investment income:
Net appreciation
(depreciation)
of investments $ 133,642 $3,573,721 $ (1,042) $ - $ (26,966) $ 96,650 $ - $ - $3,776,005
Dividends 44,430 - 22,785 - 31,701 17,827 - 10,653 127,396
Interest - - - 43,147 - - 33,867 - 77,014
Contributions:
Participant's 146,674 183,999 42,799 15,226 26,299 9,299 - - 424,296
Employer 110,061 62,156 14,913 (71,698) 52,691 2,833 - 16,606 187,562
---------- ---------- -------- -------- -------- -------- -------- -------- -----------
434,807 3,819,876 79,455 (13,325) 83,725 126,609 33,867 27,259 4,592,273
---------- ---------- -------- -------- -------- -------- -------- -------- -----------
Deductions from Net
Assets attributed to:
Participant distributions 243,766 224,779 51,421 42,235 26,744 109,507 2,679 32,011 733,142
Expenses - - - - - - - - -
---------- ---------- -------- -------- -------- -------- -------- -------- -----------
Total deductions 243,766 224,779 51,421 42,235 26,744 109,507 2,679 32,011 733,142
---------- ---------- -------- -------- -------- -------- -------- -------- -----------
Net increase prior to
interfund
transfers 191,041 3,595,097 28,034 (55,560) 56,981 17,102 31,188 (4,752) 3,859,131
Interfund transfers (365,932) 332,762 (21,053) (3,666) (37,344) 109,694 (14,461) - -
---------- ---------- -------- -------- -------- -------- -------- -------- -----------
Net increase (decrease) in
plan assets (174,891) 3,927,859 6,981 (59,226) 19,637 126,796 16,727 (4,752 3,859,131
---------- ---------- -------- -------- -------- -------- -------- -------- -----------
Net assets available for
benefits-beginning
of year 3,798,561 3,265,255 705,324 752,424 512,955 419,761 351,909 245,366 10,051,555
---------- ---------- -------- -------- -------- -------- -------- -------- -----------
Net assets available for
benefits-end
of year $3,623,670 $7,193,114 $712,305 $693,198 $532,592 $546,557 $368,636 $240,614 $13,910,686
========== ========== ======== ======== ======== ======== ======== ======== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 DESCRIPTION OF THE PLAN
General
Effective July 1, 1984, Artesian Resources Corporation (the "Company")
established the Artesian Resources Corporation Retirement Plan (the
"Plan") as a defined contribution retirement plan for its employees.
Pursuant to Internal Revenue Code ("IRC") Section 401(k), the Plan
permits employees to exclude contributions to the Plan from their current
taxable income, subject to certain limits. The Plan is administered by a
Committee of Trustees which consists of five members appointed by the
Company's Board of Directors. Plan expenses may be paid out of the plan
unless paid by the Company. The Company has paid all such expenses
incurred during 1999 and 1998.
Participation, Vesting and Withdrawals
Generally, all employees are eligible for Plan participation after
attaining age 21 and completing 1,000 hours of service during a one-year
period.
Employees may elect to make tax deductible contributions up to a maximum
of 15 percent of their compensation, however, such contributions may not
exceed the IRC limitation of $10,000 for all deferrals under all plans in
1999 (basic contribution). For every dollar an employee contributes up to
6 percent of compensation, the Company will provide a 50 percent
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
DESCRIPTION OF THE PLAN (Cont'd.)
Participation, Vesting and Withdrawals (Cont'd.)
matching contribution. In each Plan year, the Company may make a
discretionary contribution to the Plan based on up to 2 percent of
compensation for all employees eligible to participate in the Plan. The
full discretionary contribution was made for 1999.
Also, the Company's Board of Directors, at its sole discretion, may make
an additional discretionary contribution. No additional discretionary
contribution was made for 1999.
Participant contributions, and the related earnings thereon, are fully
vested at all times. Company contributions, and the related earnings
thereon, vest as follows:
Years Vested
of Service Percentage
---------- ----------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 years or more 100%
Any forfeitures of non-vested contributions are offset against required
Company contributions. Withdrawals may generally commence without penalty
upon attaining age 59 1/2 or for situations involving hardship, as
defined in the Plan and the IRC.
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
DESCRIPTION OF THE PLAN (Cont'd.)
Investment Elections
Participants may allocate basic and matching contributions among the
various Fidelity Family of Mutual Funds or Artesian Resources Class A
non-voting common stock. The Appreciation Plus investment represented an
annuity contract with New England Mutual Life Insurance Company, which
matured on January 4, 2000. The maturity value of $240,496 was
transferred into the Fidelity managed Income Portfolio.
Participants may elect an allocation among one or more of the investment
funds in multiples of 5 percent with a minimum investment of 10 percent
in any selected fund. Discretionary Company contributions are invested by
the Trustee in a uniform manner for all participants.
Loans
Participants may borrow from the Plan under the following guidelines:
- A participant may borrow as much as 50 percent of his account balance,
subject to certain minimum and maximum limitations as defined in the
Plan.
- Loans are repaid over a period not to exceed 5 years, unless the loan
is to buy, build or substantially rehabilitate the borrower's principal
residence.
- Interest on loans is set at current market rates.
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
DESCRIPTION OF THE PLAN (Cont'd.)
Loans (Cont'd.)
As disclosed in the Statement of Changes in Net Assets Available for
Benefits, the net interfund transfer into Participant Loans for the year
ended December 31, 1999 was made up of:
New loans $ 58,977
Loan repayments (41,113)
Transfer of interest
income (32,325)
--------
$(14,461)
========
Benefits
Participants are entitled to a benefit payment equal to the amount
credited to their accounts upon retirement; upon permanent disability; at
age 59 1/2; or upon termination of employment or death. In the event of
death of a participant, a death benefit payment is made to the
participant's beneficiary. In the event of termination, distributions of
less than $3,500 must be made in a lump sum. All other distributions may
be made in the form of a joint and survivor annuity, installments or in a
lump sum subject to certain restrictions as defined in the Plan.
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
DESCRIPTION OF THE PLAN (Cont'd.)
Termination
The Company may amend or terminate the Plan. In the event of Plan
termination, the accounts of all participants affected shall become fully
vested and nonforfeitable. Assets remaining in the Plan may be
immediately distributed to the participants, inactive participants and
beneficiaries in proportion to their respective account balances; or the
trust may be continued with distributions made at such time and in such
manner as though the Plan had not been terminated.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
For financial reporting purposes, the assets and liabilities of the Plan
are reflected on the accrual basis of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
Investment Valuation and Income Recognition
Plan assets held in the Fidelity Family of Mutual Funds and Artesian
Resources Class A non-voting common stock are unsecured and are valued at
fair value based on quoted market prices.
In accordance with the policy of stating investments at fair value, net
unrealized appreciation (depreciation) for the year is included in the
statement of changes in net assets available for benefits. The investment
in the New England Mutual Life Insurance Company annuity represented
funds held in that insurance companies' general account. These funds are
stated at contract value, which is cost. Participant loans are valued at
cost which approximates market.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date.
Participant Distributions
Participant distributions are recorded when paid.
Income Taxes
The Internal Revenue Service has determined and informed the Company by a
letter dated April 6, 1995, that the Plan is qualified and the trust
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
Income Taxes (Cont'd.)
established under the Plan is tax-exempt, under the appropriate sections
of the Code. The Plan has been amended since receiving the determination
letter. However, the Plan administrator and the Plan's tax counsel
believe that the Plan is currently designed and being operated in
compliance with the applicable requirements of the Code. Therefore, they
believe that the Plan was qualified and the related trust was tax-exempt
as of the financial statement date.
NOTE 3 EXCESS CONTRIBUTIONS
During the years 1995 through 1998, contributions were made to the Plan
in excess of the limitation imposed on the total annual additions to each
participants account by section 415(c) of the Internal Revenue Code.
These excess contributions of $242,746 were refunded to the participants
during 1999.
NOTE 4 INVESTMENTS REPRESENTING 5% OR MORE OF NET ASSETS AVAILABLE FOR BENEFITS
The following investments each represent 5% or more of the net assets
available for benefits at December 31, 1998:
Fidelity Family of Mutual Funds
Equity Income II
Aggressive Growth
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 5 PARTICIPANTS' CONTRIBUTIONS
Included in participants' contributions for 1999 is $233,016 in rollover
contributions from other plans.
NOTE 6 MERGER
The Company also sponsors another defined contribution retirement plan
for its employees, the Artesian Resources Corporation Supplemental Plan
("the Supplemental Plan"). The trustees of the Plan are also the trustees
of the Supplemental Plan. On March 31, 2000 the Board of Directors of the
Company and the Board of Trustees of the Plan unanimously approved the
merger of the Supplemental Plan into the Plan. The net assets available
for benefits of the Supplemental Plan at December 31, 1999 were
$2,072,135.
<PAGE>
SUPPLEMENTAL SCHEDULES
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
EIN: 51-0002090, PLAN NO.: 003
SCEDULE H, PART IV, LINE 4i: SCHEDULE OF ASSETS HELD FOR
INVESTMENT PURPOSES AT END OF YEAR
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
(a) (b) Identity of issue, borrower, (c)Description of investment including maturity date, (d)Cost (e)Current
------------------------------------------------------------------------------------------------------------------------------------
lessor or similar party rate of interest, collateral, par or maturity value Value
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
New England Mutual Life Appreciation Plus, group annuity policy -
------------------------------------------------------------------------------------------------------------------------------------
Insurance Company 5159; 6.2% guaranteed, expired 12/31/99 $ 240,614 $ 240,614
----------- -----------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Fidelity Family of Mutual Equity Income II $ 3,378,460 3,594,475
------------------------------------------------------------------------------------------------------------------------------------
Funds Aggressive Growth 3,489,566 7,193,114
------------------------------------------------------------------------------------------------------------------------------------
Puritan 683,157 712,305
------------------------------------------------------------------------------------------------------------------------------------
Managed Income Portfolio 693,198
------------------------------------------------------------------------------------------------------------------------------------
Intermediate Bond 544,213 532,592
----------- -----------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Total mutual funds 8,778,042 12,725,684
----------- -----------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
* Artesian Resources Corporation Class A non-voting common stock 335,684 546,557
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Participant Loans Interest rates range from 7.00% to 9.50%,
------------------------------------------------------------------------------------------------------------------------------------
can borrow up to 50% of account balance,
------------------------------------------------------------------------------------------------------------------------------------
repayment terms range from 5 to 15 years - 368,636
----------- -----------
------------------------------------------------------------------------------------------------------------------------------------
Secured by account balance $ 9,354,340 $13,881,491
===========
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ARTESIAN RESOURCES CORPORATION
RETIREMENT PLAN
EIN: 51-0002090, PLAN NO.: 003
SCHEDULE H, PART IV, LINE 4j: SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1999
(Series of transactions in one issue
aggregating 5 percent or more of net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
(a)Identity of (b)Description (c)Purchase (d)Selling (g)Cost of (i)Net gain
------------------------------------------------------------------------------------------------------------------------------------
Party Involved of asset Price Price asset or (loss)
--------------- --------------- ----------- ---------- ---------- -----------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Fidelity Family
------------------------------------------------------------------------------------------------------------------------------------
of Funds: Equity Income II $ 738,383 $658,645 $545,625 $113,020
------------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $1,120,829 $324,474 $115,213 $129,261
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
