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, 1998 or _ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-18516 ARTESIAN RESOURCES CORPORATION (exact name of registrant as specified in its charter) State or other jurisdiction of incorporation or organization: Delaware I.R.S. Employer Identification Number: 51-0002090 Address of principal executive offices: 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 July 30, 1998, 1,286,473 shares and 509,653 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, 1998 and December 31, 1997 3 Consolidated Statement of Income for the quarters ended June 30, 1998 and 1997 4 Consolidated Statement of Income for the six months ended June 30, 1998 and 1997 5 Consolidated Statement of Retained Earnings for the six months ended June 30, 1998 and 1997 5 Consolidated Statement of Cash Flows for the six months ended June 30, 1998 and 1997 6 Notes to the Consolidated Financial Statements 7-10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10-11 Part II - Other Information: Item 1 - Legal Proceedings 11 Item 2 - Changes in Securities 12 Item 3 - Default Upon Senior Securities 12 Item 4 - Submission of Matters to a Vote of Security Holders 12 Item 5 - Other Information 12 Item 6 - Exhibits and Reports on Form 8-K 12 Index to Exhibits 13-14 Exhibit 11 - Computation of Earnings Per Common Share 14 Exhibit 27 - Financial Data Schedules 15-16 Signatures 17 Part I - Financial Information Item I - Financial Statements ARTESIAN RESOURCES CORPORATION CONSOLIDATED BALANCE SHEET (In thousands) Unaudited December 31, June 30, 1998 1997 ASSETS Utility plant, at original cost less accumulated depreciation $105,494 $ 97,694 Current assets Cash and cash equivalents 206 146 Accounts receivable, net 1,946 2,131 Unbilled operating revenues 2,376 1,869 Materials and supplies-at cost on FIFO basis 588 610 Prepaid property taxes 12 519 Prepaid expenses and other 438 388 State and federal income taxes --- 135 5,566 5,798 Other assets Non-utility property (less accumulated depreciation 1998-$148;1997-$145) 345 349 Other deferred assets 1,179 1,208 1,524 1,557 Regulatory assets, net 2,886 2,818 $115,470 $107,867 LIABILITIES AND STOCKHOLDERS' EQUITY Stockholders' equity Common stock $ 1,794 $ 1,780 Additional paid-in capital 17,899 17,648 Retained earnings 7,341 6,887 Preferred stock 272 272 Total common stockholders' equity 27,306 26,587 Preferred stock-mandatorily redeemable 600 600 Long-term debt, net of current portion 32,082 32,103 59,988 59,290 Current liabilities Notes payable 6,070 1,164 Current portion of long-term debt 45 46 Current portion of mandatorily redeemable preferred stock --- 112 Accounts payable 3,230 2,616 Overdraft payable 855 510 State and federal income taxes 633 --- Deferred income taxes 85 189 Interest accrued 610 880 Customer deposits 353 370 Dividends payable 20 --- Other 796 360 12,697 6,247 Deferred credits and other liabilities Net advances for construction 18,247 17,880 Postretirement benefit obligation 1,676 1,704 Deferred investment tax credits 1,010 1,029 Deferred income taxes 414 176 21,347 20,789 Net contributions in aid of construction 21,438 21,541 $115,470 $107,867 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, 1998 1997 OPERATING REVENUES Water sales $ 6,568 $ 5,474 Other utility operating revenue 104 77 6,672 5,551 OPERATING EXPENSES Utility operating expenses 3,402 3,045 Related party expenses 57 62 Depreciation and amortization 472 641 State and federal income taxes 675 324 Property and other taxes 370 356 4,976 4,428 OPERATING INCOME 1,696 1,123 ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 70 42 OTHER INCOME (EXPENSE) 6 (17) INCOME BEFORE INTEREST CHARGES 1,772 1,148 INTEREST CHARGES Long-term debt 672 609 Short-term debt 72 2 Amortization of debt expense 8 5 Other 7 (1) 759 615 NET INCOME 1,013 533 DIVIDENDS ON PREFERRED STOCK 19 23 NET INCOME APPLICABLE TO COMMON STOCK $ 994 $ 510 INCOME PER COMMON SHARE Basic $ 0.55 $ 0.29 Diluted $ 0.55 $ 0.29 CASH DIVIDENDS PER COMMON SHARE $ 0.23 $ 0.23 AVERAGE COMMON SHARES OUTSTANDING Basic 1,793,737 1,756,436 Diluted 1,810,283 1,769,426 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 Six Months Ended June 30, 1998 1997 OPERATING REVENUES Water sales $ 12,115 $ 10,365 Other utility operating revenue 177 165 12,292 10,530 OPERATING EXPENSES Utility operating expenses 6,773 6,123 Related party expenses 114 123 Depreciation and amortization 1,078 1,227 State and federal income taxes 893 450 Property and other taxes 746 735 9,604 8,658 OPERATING INCOME 2,688 1,872 ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 118 89 OTHER INCOME (EXPENSE) 24 (39) INCOME BEFORE INTEREST CHARGES 2,830 1,922 INTEREST CHARGES Long-term debt 1,345 1,170 Short-term debt 109 6 Amortization of debt expense 16 9 Other 20 8 1,490 1,193 NET INCOME 1,340 729 DIVIDENDS ON PREFERRED STOCK 42 47 NET INCOME APPLICABLE TO COMMON STOCK $ 1,298 $ 682 INCOME PER COMMON SHARE: Basic $ 0.72 $ 0.39 Diluted $ 0.72 $ 0.39 CASH DIVIDEND PER COMMON SHARE $ 0.46 $ 0.46 AVERAGE COMMON SHARES OUTSTANDING Basic 1,792,787 1,756,143 Diluted 1,809,208 1,769,156 See notes to the consolidated financial statements. CONSOLIDATED STATEMENT OF RETAINED EARNINGS Unaudited (In thousands) For the Six Months Ended June 30, 1998 1997 Balance, beginning of period $ 6,887 $ 6,614 Net income 1,340 729 8,227 7,343 Dividends 886 876 Balance, end of period $ 7,341 $ 6,467 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, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 1,340 $ 729 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,001 1,151 Allowance for funds used during construction (118) (89) Changes in Assets and Liabilities: Accounts receivable 185 (157) Unbilled operating revenue (507) (386) Materials and supplies 22 39 State and federal income taxes 768 (209) Prepaid property taxes 507 484 Prepaid expenses and other (50) (199) Deferred income taxes, net 115 800 Other deferred assets 29 (294) Regulatory assets (68) 47 Postretirement benefit obligation (28) 3 Accounts payable 614 (1,289) Interest accrued (270) (19) Customer deposits and other, net 419 368 NET CASH PROVIDED BY OPERATING ACTIVITIES 3,959 979 CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures (net of AFUDC) (8,478) (4,041) Proceeds from sale of assets 13 183 NET CASH USED IN INVESTING ACTIVITIES (8,465) (3,858) CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) under line of credit agreement 4,905 (8,979) Proceeds from issuance of mortgage bonds --- 12,500 Overdraft payable, net 345 (160) Net advances and contributions in aid of construction 50 569 Repayment on ALI note --- (25) Proceeds from issuance of Common Stock 265 66 Proceeds from common stock dividends reinvested and stock options exercised --- 113 Dividends (866) (856) Principal payments under capital lease obligations (21) (142) Redemption of preferred stock (112) (113) NET CASH PROVIDED BY FINANCING ACTIVITIES 4,566 2,973 NET INCREASE IN CASH AND CASH EQUIVALENTS 60 94 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 146 148 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 206 $ 242 Supplemental Disclosures of Cash Flow Information: Interest paid $ 1,204 $ 1,212 Income taxes paid $ --- $ --- 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, 1997 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, 1998 may not be indicative of the results that may be expected for the year ending December 31, 1998. 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 two 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, 1998 December 31, 1997 (,000) (,000) Postretirement benefit obligation $1,676 $1,704 Deferred income taxes recoverable in future rates 702 710 Expense of rate proceedings 508 404 $2,886 $2,818 NOTE 3 - NON-UTILITY OPERATIONS Artesian Wastewater Management, Inc. (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. No operations have occurred under Artesian Wastewater for the six months ended June 30, 1998. NOTE 4 - RELATED PARTY TRANSACTIONS The office building and shop complex utilized by Artesian Water are leased at an annual rental of $184,000 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 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, former director and Chairman Emeritus of Artesian Resources, at an annual rental of $44,000. 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 For the Six Months June 30, Ended June 30, (,000) (,000) 1998 1997 1998 1997 White Clay Realty $ 46 $ 51 $ 92 $102 Glendale Enterprises 11 11 22 21 $ 57 $ 62 $ 114 $123 NOTE 5 - RATE PROCEEDINGS On April 20, 1998, Artesian Water entered into a proposed settlement agreement of rate case Docket 97-340 with the Division of the Public Advocate and the PSC staff which allowed Artesian Water to increase customer rates from a temporary increase of 11.35% implemented December 3, 1997 to an increase of approximately 13.2%, or $2.975 million annualized, effective May 12, 1998. The settlement agreement was approved by the Hearing Examiner in the rate case and the PSC on May 5, 1998 and May 12, 1998, respectively. The proposed annualized revenue increase of $2.975 million under the rate case settlement agreement was based on a projected utility plant in service level of $124.2 million as of June 30, 1998. Artesian Water's actual June 30, 1998 utility plant in service balance of $125.7 million will be subject to audit by the PSC. If the actual June 30, 1998 utility plant in service balance had been more than $0.5 million below the $124.2 million projected utility plant in service level, then a refund equaling revenues related to the entire plant in service deficiency would have been required to be made to customers from the effective date of the rate increase put into place as a result of this settlement. The Company believes that the required utility plant in service level of $124.2 million has been exceeded at June 30, 1998 and no refund to customers will be necessary under the terms of the settlement agreement, although there can be no assurance that a refund will not be required. NOTE 6 - NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE In December 1997, the Company adopted SFAS No. 128, "Earnings per Share" which prescribes two methods for calculating net income per common share: "Basic" and "Diluted" methods. These calculations differ from those used in prior periods and as a result all prior period earnings per share data have been restated to reflect the adoption of SFAS No. 128. 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 adoption of this statement had no effect on the results of operations, financial conditions, or long-term liquidity of the Company. 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 1998 1997 1998 1997 Average common shares outstanding during the period for Basic computation 1,793,737 1,756,436 1,792,787 1,756,143 Dilutive effect of employee stock options 16,546 12,990 16,421 13,013 Average common shares outstanding during the period for Diluted computation 1,810,283 1,769,426 1,809,208 1,769,156 Equity per common share was $15.06 and $14.45 at June 30, 1998 and 1997, respectively. These amounts were computed by dividing common stockholders' equity, excluding preferred stock, by the number of shares of common stock outstanding at June 30, 1998 and 1997, respectively. NOTE 7 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company has adopted this Statement effective January 1, 1998, and has no components of comprehensive income to report. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). This Statement established standards for reporting information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas and major customers. The Company has adopted this Statement effective January 1, 1998. In February 1998, the FASB issued Statement of Financial Accounting Standard No. 132 "Employers Disclosure about Pension and Other Postretirement Benefits" ("SFAS 132"), which revises employers' annual disclosures about pensions and other postretirement benefit plans, and does not change the measurement or recognition of those plans. The Company plans to adopt this Statement in connection with the preparation of the December 31, 1998 consolidated financial statement and the adoption of these statements will not have a material impact on the Company's financial condition or results of operation. In June 1998, the FASB issued Statements of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments and hedging activities. The Company plans to adopt this statement effective January 1, 2000 and the adoption of this statement will not have a material impact on the Company's financial condition or results of operations. ITEM 2 ARTESIAN RESOURCES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1997 RESULTS OF OPERATIONS For the quarter ended June 30, 1998, Artesian Resources recorded net income of $1,013,000 which represents a $480,000, or a 90.1%, increase as compared to earnings of $533,000 for the quarter ended June 30, 1997. For the six months ended June 30, 1998, Artesian Resources recorded net income of $1,340,000 which represents a $611,000, or 83.8%, increase as compared to net income of $729,000 for the six months ended June 30, 1997. The increase is primarily attributable to three increases in Artesian Water's rates charged to customers of approximately 1.13%, 11.35%, and 1.85% which were placed in effect May 1, 1997, December 3, 1997, and May 12, 1998, respectively, and a 2.4% growth in customers served. Water sales revenue increased $1,094,000, or 20.0%, and $1,750,000, or 16.9%, respectively, for the quarter and six months ended June 30, 1998 as compared to the same period in 1997. Payroll expense increased $103,000 and $270,000 for the quarter and six months ended June 30, 1998 as compared to the same periods in 1997 due to the addition of several new positions as well as pay increases. Rate case amortization expense increased $53,000 and $151,000 for the quarter and six months ended June 30, 1998 as compared to the same periods in 1997 due to using a two year amortization period for the deferred rate case costs associated with Docket 97-66 and Docket 97-340 as required under the rate case settlement agreement. The estimated total cost of these two dockets is higher than the total cost of Docket 94-164 which was amortized over the three years ended December 31, 1997. Purchased water expense decreased $20,000 and $147,000 for the quarter and six months ended June 30, 1998 as compared to the same period in 1997 primarily due to the renegotiated contract with the Chester Water Authority (CWA) which reduced the mandatory minimum takes from a daily average of four million gallons to three million gallons effective August 1, 1997. Total purchased water consumption is 17% lower in 1998 as compared to 1997 due to the decreased takes from CWA and to the timing of purchases from the City of Wilmington. Income taxes increased $351,000 and $443,000 for the quarter and six months ended June 30, 1998 as compared to the same period in 1997 due to the increased profitability of the Company. Interest expense and debt amortization expense increased by $144,000 and $297,000 for the quarter and six months ended June 30, 1998 as compared with the same period in 1997 due to a higher average debt outstanding of $35.8 million at a slightly lower interest rate for 1998 as compared to $28.1 million in average debt outstanding for 1997. The increase in the average debt outstanding is attributable to the issuance of Artesian Water's $10 million Series M and $5 million Series N Mortgage Bonds in June and September of 1997, respectively, and to increased borrowings on the lines of credit. LIQUIDITY AND CAPITAL RESOURCES The primary sources of liquidity for the six months ended June 30, 1998 is $4.0 million provided by cash flow from operations and $4.9 million borrowed on Artesian Water's lines of credit. At June 30, 1998, Artesian Resources had a working capital deficit of $7.1 million primarily attributable to borrowings on the lines of credit and to an increase in accounts payable associated with the volume of construction projects currently in progress. As of July 31, 1998, $7.9 million was drawn on the $30.0 million available lines of credit. Artesian Resources anticipates it will complete long term financing arrangements in 1999 or 2000 to eliminate the working capital deficit. CAUTIONARY STATEMENT Statements in this Report on Form 10-Q which express the "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 Action 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, 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 Not applicable. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The proposed annualized revenue increase of $2.975 million under the rate case settlement agreement was based on a projected utility plant in service level of $124.2 million as of June 30, 1998. Artesian Water's actual June 30, 1998 utility plant in service balance of $125.7 million will be subject to audit by the PSC. If the actual June 30, 1998 utility plant in service balance had been more than $0.5 million below the $124.2 million projected utility plant in service level, then a refund equaling revenues related to the entire plant in service deficiency would have been required to be made to customers from the effective date of the rate increase put into place as a result of this settlement. The Company believes that the required utility plant in service level of $124.2 million has been achieved at June 30, 1998 and no refund to customers will be necessary under the terms of the settlement agreement, although there can be no assurance that a refund will not be required. 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 VOTE OF SECURITY HOLDERS (a) The annual meeting of Class B Common Shareholders was held on May 6, 1998 (b) With 431,696 votes in favor, 8,076 votes against, and 10,626 votes abstained, the Class B Common Shareholders approved an Amendment to the 1992 Non-Qualified Stock Option Plan. Under the approved Amendment, the number of shares of Class A Non-Voting Common stock authorized for issuance under the 1992 Non-Qualified Stock Option Plan was increased from 100,000 to 250,000. (c) With 446,696 votes in favor, and 4,291 votes withheld, the Class B Common Shareholders elected William C. Wyer 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. Mr. Wyer has served as a member of the Board since 1991. He was last re-elected at the 1995 Annual Meeting of Shareholders. Mr. Wyer has also served on the Executive; Audit; Personnel, Compensation and Benefits; and Budget Committees of the Board. With 443,698 votes in favor and 6,700 votes withheld, the Class B Common Shareholders also elected William H. Taylor, II 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. Mr. Taylor has served as a member of the Board since March 1998. Following the re-election of Mr. Wyer and election of Mr. Taylor, the members of the Board and their respective terms are as follows: 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 Dian C. Taylor-- term expires at the 1999 annual meeting John R. Eisenbrey, Jr.-- term expires at the 1999 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 June 30, 1998. INDEX TO EXHIBITS Exhibit Number Description 3 Articles of Incorporation and By-Laws (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) Artesian Resources Corporation Non-Qualified Stock Option Plan 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. (10.2) 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) 1992 Artesian Resources Corporation Non-Qualified Stock Option Plan incorporated by reference to the exhibit filed with the Artesian Resources Annual Report on Form 10-K for the year ended December 31, 1991. (10.4) 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. (10.5) 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. 11 Computation of Earnings per Common Share 27 Financial Data Schedules EXHIBIT 11 - COMPUTATION OF EARNINGS PER COMMON SHARE For the Six Months Ended June 30, 1998 1997 Earnings Income applicable to Common Stock $1,298,000 $ 682,000 Shares Average common shares outstanding during the period for Basic computation 1,792,787 1,756,143 Dilutive effect of employee stock options 16,421 13,013 Average common shares outstanding during the period for Diluted computation 1,809,208 1,769,156 Net income per Common Share Basic $ 0.72 $ 0.39 Diluted $ 0.72 $ 0.39 EXHIBIT 27 - FINANCIAL DATA SCHEDULES This schedule contains summary financial information extracted from the consolidated balance sheets, consolidated statements of income and the consolidated statement of cash flows the Company's June 30, 1998 Form 10-Q and is qualified in its entirety by reference to such financial statements. PERIOD TYPE 3-MOS 6-MOS FISCAL YEAR END DEC-31-1998 DEC-31-1998 PERIOD END JUN-30-1998 JUN-30-1998 BOOK VALUE PER-BOOK PER-BOOK TOTAL NET UTILITY PLANT 105,494,000 105,494,000 OTHER PROPERTY AND INVEST 345,000 345,000 TOTAL CURRENT ASSETS 5,566,000 5,566,000 TOTAL DEFERRED CHARGES 4,065,000 4,065,000 OTHER ASSETS 0 0 TOTAL ASSETS 115,470,000 115,470,000 COMMON 1,794,000 1,794,000 CAPITAL SURPLUS PAID IN 17,899,000 17,899,000 RETAINED EARNINGS 7,341,000 7,341,000 TOTAL COMMON STOCKHOLDERS EQ 27,034,000 27,034,000 PREFERRED MANDATORY 487,000 487,000 PREFERRED 272,000 272,000 LONG TERM DEBT NET 32,082,000 32,082,000 SHORT TERM NOTES 6,070,000 6,070,000 LONG TERM NOTES PAYABLE 0 0 COMMERCIAL PAPER OBLIGATIONS 0 0 LONG TERM DEBT CURRENT PORT 0 0 PREFERRED STOCK CURRENT 112,000 112,000 CAPITAL LEASE OBLIGATIONS 82,000 82,000 LEASES CURRENT 46,000 46,000 OTHER ITEMS CAPITAL AND LIAB 49,285,000 49,285,000 TOT CAPITALIZATION AND LIAB 115,470,000 115,470,000 GROSS OPERATING REVENUE 6,672,000 12,292,000 INCOME TAX EXPENSE 675,000 893,000 OTHER OPERATING EXPENSES 4,301,000 8,711,000 TOTAL OPERATING EXPENSES 4,976,000 9,604,000 OPERATING INCOME LOSS 1,696,000 2,688,000 OTHER INCOME NET 76,000 142,000 INCOME BEFORE INTEREST EXPEN 1,772,000 2,830,000 TOTAL INTEREST EXPENSE 759,000 1,490,000 NET INCOME 1,013,000 1,340,000 PREFERRED STOCK DIVIDENDS 19,000 42,000 EARNINGS AVAILABLE FOR COMM 994,000 1,298,000 COMMON STOCK DIVIDENDS 432,000 865,000 TOTAL INTEREST ON BONDS 2,677,000 2,677,000 CASH FLOW OPERATIONS 4,425,000 3,959,000 EPS PRIMARY 0.55 0.72 EPS DILUTED 0.55 0.72 This schedule contains summary financial information extracted from the consolidated balance sheets, consolidated statements of income and the consolidated statement of cash flows the Company's June 30, 1997 Form 10-Q, restated as required under SFAS 128, and is qualified in its entirety by reference to such financial statements. PERIOD TYPE 3-MOS 6-MOS FISCAL YEAR END DEC-31-1997 DEC-31-1997 PERIOD END JUN-30-1997 JUN-30-1997 BOOK VALUE PER-BOOK PER-BOOK TOTAL NET UTILITY PLANT $ 91,873,000 $ 91,873,000 OTHER PROPERTY AND INVEST 354,000 354,000 TOTAL CURRENT ASSETS 5,479,000 5,479,000 TOTAL DEFERRED CHARGES 4,624,000 4,624,000 OTHER ASSETS 0 0 TOTAL ASSETS $102,330,000 $102,330,000 COMMON $ 1,755,000 $ 1,755,000 CAPITAL SURPLUS PAID IN 17,236,000 17,236,000 RETAINED EARNINGS 6,467,000 6,467,000 TOTAL COMMON STOCKHOLDERS EQ 25,458,000 25,458,000 PREFERRED MANDATORY 599,500 599,500 PREFERRED 272,000 272,000 LONG TERM DEBT NET 29,500,000 29,500,000 SHORT TERM NOTES 79,000 79,000 LONG TERM NOTES PAYABLE 0 0 COMMERCIAL PAPER OBLIGATIONS 0 0 LONG TERM DEBT CURRENT PORT 0 0 PREFERRED STOCK CURRENT 112,500 112,500 CAPITAL LEASE OBLIGATIONS 86,000 86,000 LEASES CURRENT 142,000 142,000 OTHER ITEMS CAPITAL AND LIAB 46,081,000 46,081,000 TOT CAPITALIZATION AND LIAB $102,330,000 $102,330,000 GROSS OPERATING REVENUE $ 5,551,000 $ 10,530,000 INCOME TAX EXPENSE 324,000 450,000 OTHER OPERATING EXPENSES 4,104,000 8,208,000 TOTAL OPERATING EXPENSES 4,428,000 8,658,000 OPERATING INCOME LOSS 1,123,000 1,872,000 OTHER INCOME NET 25,000 50,000 INCOME BEFORE INTEREST EXPEN 1,148,000 1,922,000 TOTAL INTEREST EXPENSE 615,000 1,193,000 NET INCOME 533,000 729,000 PREFERRED STOCK DIVIDENDS 23,000 47,000 EARNINGS AVAILABLE FOR COMM $ 510,000 $ 682,000 COMMON STOCK DIVIDENDS $ 428,000 $ 854,000 TOTAL INTEREST ON BONDS $ 2,495,000 $ 2,495,000 CASH FLOW OPERATIONS $ 1,467,000 $ 1,001,000 EPS PRIMARY $ 0.29 $ 0.39 EPS DILUTED $ 0.29 $ 0.39 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 8/7/98 /s/ Dian C. Taylor Dian C. Taylor President, CEO, and Chair of the Board Artesian Resources Corporation and Subsidiaries 8/7/98 /s/ David B. Spacht David B. Spacht Vice President, Chief Financial Officer, and Treasurer Artesian Resources Corporation and Subsidiaries