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 March 31, 1997
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from January 1, 1997 to March 31, 1997
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of class: CLASS A NON-VOTING COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
As of April 18, 1997, 1,249,478 shares and 504,790 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 -
March 31, 1997 and December 31, 1996 3
Consolidated Statement of Income for
the quarters ended March 31, 1997 and 1996 4
Consolidated Statement of Retained Earnings
for the quarters ended March 31, 1997 and 1996 5
Consolidated Statement of Cash Flows for the
quarters ended March 31, 1997 and 1996 5
Notes to the Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 9-10
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 11
Part I - Financial Information
Item I - Financial Statements
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET
Unaudited
March 31, December 31,
1997 1996
(,000) (,000)
ASSETS
Utility plant, at original cost
less accumulated depreciation $ 90,489 $ 88,993
Current assets
Cash and cash equivalents 252 148
Accounts receivable, net 1,697 1,885
Unbilled operating revenues 1,504 1,664
Materials and supplies-at cost
on FIFO basis 675 621
Prepaid property taxes 244 490
Prepaid expenses and other 561 320
State and federal income taxes 98 232
5,031 5,360
Other assets
Non-utility property (less accumulated
depreciation 1997-& $1,548; 1996-$1,505) 822 874
Deferred income taxes 730 730
Other deferred assets 1,095 1,156
2,647 2,760
Regulatory assets, net 2,709 2,595
$100,876 $ 99,708
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock $ 1,752 $ 1,748
Additional paid-in capital 17,184 17,125
Retained earnings 6,360 6,614
Total common stockholders' equity 25,296 25,487
Preferred stock-mandatorily redeemable 712 825
Preferred stock 272 272
984 1,097
Long-term debt, net of current portion 29,268 26,259
55,548 52,843
Current liabilities
Notes payable --- 25
Current portion of long-term debt 286 350
Accounts payable 1,234 2,883
Overdraft payable 847 687
Deferred income taxes 179 179
Interest accrued 595 630
Customer deposits 367 378
Dividends payable 22 ---
Other 668 519
4,198 5,651
Deferred credits and other liabilities
Net advances for construction 19,055 19,080
Postretirement benefit obligation 1,761 1,759
Deferred investment tax credits 1,016 1,025
21,832 21,864
Net contributions in aid of construction 19,298 19,350
$100,876 $ 99,708
See notes to the consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
For the Quarter
Ended March 31,
1997 1996
(,000) (,000)
OPERATING REVENUES
Water sales $ 4,892 $ 4,932
Other utility operating revenue 87 58
Non-utility operating revenue --- 80
4,979 5,070
OPERATING EXPENSES
Utility operating expenses 3,078 2,740
Non-utility operating expenses --- 54
Related party expenses 62 61
Depreciation and amortization 586 528
State and federal income taxes 126 253
Property and other taxes 378 331
4,230 3,967
OPERATING INCOME 749 1,103
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 47 35
OTHER EXPENSE (22) (30)
INCOME BEFORE INTEREST CHARGES 774 1,108
INTEREST CHARGES
Long-term debt 564 539
Short-term debt --- 172
Other 13 14
577 725
NET INCOME $ 197 $ 383
DIVIDENDS ON PREFERRED STOCK 25 29
NET INCOME APPLICABLE TO COMMON STOCK $ 172 $ 354
PER SHARE OF COMMON STOCK:
Net income $ 0.10 $ 0.33
Cash dividends $ 0.23 $ 0.21
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Unaudited
For the Quarter
Ended March 31,
1997 1996
(,000) (,000)
Balance, beginning of period $ 6,614 $ 6,317
Net income 197 383
6,811 6,700
Dividends 451 272
Balance, end of period $ 6,360 $ 6,428
See notes to the consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
For the Quarter
Ended March 31,
1997 1996
(,000) (,000)
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 197 $ 383
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 548 491
Allowance for funds used during construction (47) (35)
Write-down on rental office building --- 2
Changes in Assets and Liabilities:
Accounts receivable 188 344
Unbilled operating revenue 160 (97)
Materials and supplies (54) (36)
State and federal income taxes 134 162
Prepaid property taxes 246 238
Prepaid expenses and other (241) (80)
Deferred income taxes, net --- (11)
Other deferred assets 61 64
Regulatory assets (114) 37
Postretirement benefit obligation 1 (7)
Accounts payable (1,649) (1,189)
Interest accrued (34) (277)
Customer deposits and other, net 138 99
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (466) 88
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures (net of AFUDC) (2,022) (1,281)
Proceeds from sale of assets --- 1,915
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (2,022) 634
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under line of credit agreement 3,033 1,265
Overdraft payable 160 336
Net advances and contributions in aid
of construction 13 129
Repayment on long-term note (25) ---
Proceeds from issuance of Common Stock 62 75
Dividends (451) (272)
Principal payments under capital
lease obligations (88) (82)
Principal payments under long-term
debt obligations --- (2,017)
Retirement of preferred stock (112) (148)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,592 (714)
NET INCREASE IN CASH AND CASH EQUIVALENTS 104 8
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 148 150
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 252 $ 158
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 543 $ 995
Income taxes paid --- $ 98
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 financial statements and
notes thereto for the year ended December 31, 1996 included in the Company's
Annual Report on Form 10-K. The accompanying financial statements as of and
for the quarter ended March 31, 1997 have not been examined by independent
accountants in accordance with generally accepted auditing standards, but in
the opinion of management such financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to fairly summarize
the Company's financial position and results of operations. The results of
operations for the quarter ended March 31, 1997 may not be indicative of the
results that may be expected for the year ending December 31, 1997.
NOTE 2 - REGULATORY ASSETS
Certain expenses, which are recoverable through rates as permitted by the
State of Delaware Public Service Commission ("PSC"), are deferred and
amortized during future periods using various methods. Expenses related to
rate proceedings are amortized on a straight-line basis over three years. The
post retirement benefit obligation, which is being amortized over twenty years
is adjusted for the difference between the net periodic post retirement
benefit costs and the cash payments. The deferred income taxes will be
amortized over future years as the tax effects of temporary differences
previously flowed through to the customer reverse. Regulatory assets, net of
amortization, comprise:
March 31, 1997 December 31, 1996
(,000) (,000)
Postretirement benefit obligation $1,761 $1,759
Deferred income taxes recoverable
in future rates 725 725
Expense of rate proceedings 223 111
$2,709 $2,595
NOTE 3 - NON-UTILITY OPERATING REVENUE AND EXPENSES
The 1996 non-utility operating revenue and expenses are attributable to
rental income and operating expenses of Artesian Development Corporation
("Artesian Development"). Artesian Development's rental office building was
sold on March 13, 1996.
NOTE 4 - RELATED PARTY TRANSACTIONS
The office building and shop complex utilized by Artesian Water are
leased at an annual rental of $204,052 from a partnership, White Clay Realty,
in which certain of Artesian Resources' officers and directors are partners.
The lease expires in 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 generally
comparable to what Artesian Water would have to pay to unaffiliated parties
for similar facilities.
Artesian Water leases certain parcels of land for water production wells
from Glendale Enterprises Limited, a company wholly-owned by Ellis D. Taylor,
Director and Chairman Emeritus of Artesian Resources, at an annual rental of
$41,707. The initial term of the lease was for ten years ending September 30,
1995 and, thereafter, renewal is automatic from year to year unless 60 days
written notice is given by either party before the end of the year's lease.
The annual rental is adjusted each year by the consumer price index as of
June 30 of the preceding year. Artesian Water has the right to terminate this
lease by giving 60 days written notice should the water supply be exhausted or
other conditions beyond the control of Artesian Water materially and adversely
affect its interest in the lease.
Expenses associated with related party transactions are as follows:
For the Quarter Ended
March 31,
1997 1996
(,000) (,000)
White Clay Realty $ 51 $ 51
Glendale Enterprises 11 10
$ 62 $ 61
NOTE 5 - DISPOSAL OF NON-UTILITY BUSINESS
In December 1995, the Board of Directors of Artesian Resources authorized
the disposal of substantially all of the net assets of Artesian Laboratories,
resulting in an estimated pre-tax loss of $128,000 which was recorded as an
operating expense in 1995. The loss reflected the difference between the
projected sales price and the net book value of substantially all the assets
and liabilities of the business, and also included estimated operating losses
through the anticipated disposal date of $137,000 and estimated additional
expenses associated with completing the sale.
The sale of the net assets of Artesian Laboratories was completed on
April 9, 1997 for net cash proceeds of $346,000 and a note in the amount of
$150,000 which bears interest at 8.0%. Artesian Resources also received
laboratory equipment valued at $63,000 which the company expects to sell at
full value.
NOTE 6 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
statement No. 128, Earnings Per Share (SFAS 128) which supersedes APB opinion
No. 15. SFAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held common
stock. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997. The Company will adopt SFAS 128 in December
1997 and does not expect it to have a material impact on the Company's
earnings per share.
ITEM 2
ARTESIAN RESOURCES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE
QUARTER ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
For the quarter ended March 31, 1997, Artesian Resources recorded net
income of $171,576 which represents a $182,620 decrease as compared to
earnings of $354,196 for the quarter ended March 31, 1996. The decrease is
primarily due to Artesian Water's increased purchased water expense and
reduced water sales revenue.
Water sales revenue for the quarter ended March 31, 1997 decreased
$40,021, or 0.8%, as compared to the same period in 1996 due to an
approximately 6.0% decrease in per capita customer consumption which has been
partially offset by a 2.3% growth in customers served.
Purchased water expense increased $246,107 for the quarter ended March
31, 1997 as compared to the same period in 1996 due primarily to a 19% price
increase effective September 1, 1996 and a 12.3% increase in the minimum
monthly contractual purchase requirements from Chester Water Authority (CWA).
Effective October 1996, the minimum monthly purchase requirement from CWA
increased to 121.6 million gallons from 108.3 million gallons.
For the quarter ended March 31, 1997, interest expense decreased
$147,101 as compared to the same period in 1996 due primarily to the repayment
of Artesian Water's $5 million Series J Mortgage Bond on December 1, 1996
which reduced interest expense for the first quarter of 1997 by approximately
$119,000. Artesian Development's interest expense decreased $27,928 due to
the repayment of the building mortgage in March 1996 when the building was
sold.
On February 28, 1997, Artesian Water filed a petition with the Delaware
Public Service Commission (PSC) seeking new rates to provide increased
revenue of approximately 13.5%, or $3.0 million on an annualized basis. This
petition asserted that, since the settlement of its rate proceeding in 1995,
circumstances arose in three areas which were beyond the control of Artesian
Water and that these circumstances prevented Artesian Water from earning the
rate of return authorized in that 1995 rate proceeding. This petition was
opposed by the Office of the public Advocate of the State of Delaware which
challenged the increases sought by Artesian Water and asserted that the
circumstances set forth in the petition of Artesian Water were not beyond its
control. Under a settlement agreement approved by the PSC as a part of the
1995 rate proceeding, Artesian Water agreed that it would not file a rate case
using a test period earlier than the test period ending June 30, 1998 unless
circumstances beyond its control arose which would prevent Artesian Water from
the opportunity to earn the rate of return authorized in that proceeding.
On April 29, 1997, the PSC determined that the only circumstance set
forth in Artesian Water's petition which was beyond its control related to the
investments in transmission and distribution mains as a result of highway
relocations mandated by governmental agencies. The PSC referred this issue to
a hearing examiner to make recommendations concerning the appropriate amount
of rate increase.
Effective May 1, 1997 Artesian Water was permitted to collect a temporary
increase in revenues of approximately 4.5%, or approximately $1.0 million on
an annualized basis, subject, however to refund depending upon the final
determination of the amount of the increase pertaining to its petition
currently under consideration by the hearing examiner. Artesian Water cannot
predict the timing or final outcome of these proceedings.
Under the terms of the settlement agreement with the Office of the Public
Advocate referred to above, Artesian Water may initiate a new rate proceeding
later in 1997 using a test period ending June 30, 1998. Any such rate
proceeding would not be limited solely to circumstances beyond its control
which have arisen since the 1995 rate proceeding.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of liquidity for the three months ended March 31,
1997 is $3,033,000 borrowed on Artesian Water's lines of credit. As of May 7,
1997 $12,458,000 is drawn on the lines of credit with an additional $2.5
million available to borrow. At March 31, 1997, Artesian Resources had a
working capital surplus of $1,011,000 primarily attributable to the
classification of borrowings on the lines of credit as long-term debt due to
a refinancing agreement entered into on March 31, 1997. On March 31, 1997,
Artesian Water entered into an agreement with a bank to issue $15 million in
mortgage bonds during 1997 at an interest rate equivalent to the ten year U.S.
Treasury yield plus 1.25% on or about the day of funding. Artesian Water
anticipates that a ten year $10 million mortgage bond will be issued in May
1997. Prior to the end of 1997, Artesian Water anticipates that it will issue,
in $500,000 increments, the additional $5 million in mortgage bonds, which
mature on the same date as the ten year mortgage bond.
On April 9, 1997 Artesian Resources completed the sale of the net assets
of Artesian Laboratories for net cash proceeds of $346,000 and a note in the
amount of $150,000 which bears interest at 8.0%. Artesian Resources also
received laboratory equipment valued at $63,000 which the Company expects to
sell at full value.
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended March 31, 1997.
EXHIBIT 11 - COMPUTATION OF EARNINGS PER COMMON SHARE
For the Three Months Ended
March 31,
1997 1996
Earnings
Income applicable to Common Stock $ 171,576 $ 354,196
Shares
Weighted average number of
shares outstanding 1,762,103 1,066,210
Net income per Common Share $ 0.10 $ 0.33
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
5/14/97 /s/ Dian C. Taylor
Dian C. Taylor
President, CEO, and Chair of the Board
Artesian Resources Corporation and Subsidiaries
5/14/97 /s/ David B. Spacht
David B. Spacht
Vice President, Chief Financial Officer, and
Treasurer
Artesian Resources Corporation and Subsidiaries
[ARTICLE] UT
[LEGEND]
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income contained in
the Company's 1996 Annual Report to Stockholders and is qualified in its
entirety by reference to such financial statements.
[/LEGEND]
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] MAR-31-1997
[BOOK-VALUE] PER-BOOK
[TOTAL-NET-UTILITY-PLANT] 90,489,000
[OTHER-PROPERTY-AND-INVEST] 822,000
[TOTAL-CURRENT-ASSETS] 5,031,000
[TOTAL-DEFERRED-CHARGES] 4,534,000
[OTHER-ASSETS] 0
[TOTAL-ASSETS] 100,876,000
[COMMON] 1,752,000
[CAPITAL-SURPLUS-PAID-IN] 17,184,000
[RETAINED-EARNINGS] 6,360,000
[TOTAL-COMMON-STOCKHOLDERS-EQ] 25,296,000
[PREFERRED-MANDATORY] 599,500
[PREFERRED] 272,000
[LONG-TERM-DEBT-NET] 17,000,000
[SHORT-TERM-NOTES] 0
[LONG-TERM-NOTES-PAYABLE] 12,091,000
[COMMERCIAL-PAPER-OBLIGATIONS] 0
[LONG-TERM-DEBT-CURRENT-PORT] 0
[PREFERRED-STOCK-CURRENT] 112,500
[CAPITAL-LEASE-OBLIGATIONS] 177,000
[LEASES-CURRENT] 286,000
[OTHER-ITEMS-CAPITAL-AND-LIAB] 45,042,000
[TOT-CAPITALIZATION-AND-LIAB] 100,876,000
[GROSS-OPERATING-REVENUE] 4,979,000
[INCOME-TAX-EXPENSE] 126,000
[OTHER-OPERATING-EXPENSES] 4,104,000
[TOTAL-OPERATING-EXPENSES] 4,230,000
[OPERATING-INCOME-LOSS] 749,000
[OTHER-INCOME-NET] 25,000
[INCOME-BEFORE-INTEREST-EXPEN] 774,000
[TOTAL-INTEREST-EXPENSE] 577,000
[NET-INCOME] 197,000
[PREFERRED-STOCK-DIVIDENDS] 25,000
[EARNINGS-AVAILABLE-FOR-COMM] 172,000
[COMMON-STOCK-DIVIDENDS] 426,000
[TOTAL-INTEREST-ON-BONDS] 1,514,900
[CASH-FLOW-OPERATIONS] (466,000)
[EPS-PRIMARY] 0.10
[EPS-DILUTED] 0.10