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, 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 April 26, 1999, 1,623,658 shares and 514,154 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, 1999 and December 31, 1998 2
Consolidated Statement of Income for
the quarters ended March 31, 1999 and 1998 3
Consolidated Statement of Retained Earnings
for the quarters ended March 31, 1999 and 1998 4
Consolidated Statement of Cash Flows for the
quarters ended March 31, 1999 and 1998 4
Notes to the Consolidated Financial Statements 5-8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-12
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 12
Part II - Other Information:
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults 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 12-15
Signatures 15
Part I - Financial Information
Item I - Financial Statements
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
Unaudited
March 31, 1999 December 31, 1998
ASSETS
Utility plant, at original cost
less accumulated depreciation $112,961 $109,780
Current assets
Cash and cash equivalents 136 114
Accounts receivable, net 1,858 1,968
Unbilled operating revenues 1,792 1,981
Materials and supplies-at cost
on FIFO basis 635 617
Prepaid property taxes 277 552
Prepaid expenses and other 316 327
5,014 5,559
Other assets
Non-utility property (less accumulated
depreciation 1999-$146;1998-$152) 278 280
Other deferred assets 1,169 1,071
1,447 1,351
Regulatory assets, net 2,588 2,686
$122,010 $119,376
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock $ 1,813 $ 1,803
Additional paid-in capital 18,244 18,073
Retained earnings 7,673 7,785
Preferred stock 272 272
Total stockholders' equity 28,002 27,933
Preferred stock-mandatorily redeemable,
net of current portion 400 500
Long-term debt, net of current portion 32,041 32,053
60,443 60,486
Current liabilities
Notes payable 10,468 7,704
Current portion of long-term debt 43 43
Current portion of mandatorily
redeemable preferred stock 100 100
Accounts payable 2,587 3,148
Overdraft payable 688 635
State and federal taxes 267 ---
Deferred income taxes 77 190
Interest accrued 916 940
Customer deposits 392 388
Dividends payable 18 ---
Other 1,060 903
16,616 14,051
Deferred credits and other liabilities
Net advances for construction 18,311 18,337
Postretirement benefit obligation 1,605 1,627
Deferred investment tax credits 988 994
Deferred income taxes 1,582 1,471
22,486 22,429
Net contributions in aid of construction 22,465 22,410
$122,010 $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 March 31,
1999 1998
OPERATING REVENUES
Water sales $ 5,856 $ 5,548
Other utility operating revenue 82 73
5,938 5,621
OPERATING EXPENSES
Utility operating expenses 3,525 3,365
Non-utility operating expenses 6 5
Related party expenses 57 57
Depreciation and amortization 532 606
State and federal income taxes 264 217
Property and other taxes 390 377
4,774 4,627
OPERATING INCOME 1,164 994
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION 26 49
OTHER INCOME (EXPENSE) 13 16
INCOME BEFORE INTEREST CHARGES 1,203 1,059
INTEREST CHARGES 808 732
NET INCOME $ 395 $ 327
DIVIDENDS ON PREFERRED STOCK 19 22
NET INCOME APPLICABLE TO COMMON STOCK $ 376 $ 305
INCOME PER COMMON SHARE:
Basic $ 0.21 $ .17
Diluted $ 0.20 $ .17
CASH DIVIDEND PER COMMON SHARE $ 0.26 $ 0.23
AVERAGE COMMON SHARES OUTSTANDING
Basic 1,810,280 1,787,687
Diluted 1,843,913 1,803,211
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Unaudited
(In thousands)
For the Quarter
Ended March 31,
1999 1998
Balance, beginning of period $ 7,785 $ 6,887
Net income 395 327
8,180 7,214
Dividends 507 454
Balance, end of period $ 7,673 $ 6,760
See Notes to the Consolidated Financial Statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
(In thousands)
For the Quarter
Ended March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 395 $ 327
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 514 568
Deferred income taxes, net (1) (4)
Allowance for funds used during construction (25) (49)
Changes in Assets and Liabilities:
Accounts receivable 110 (150)
Unbilled operating revenue 189 257
Materials and supplies (18) (27)
State and federal income taxes 267 225
Prepaid property taxes 275 259
Prepaid expenses and other 10 (117)
Other deferred assets (98) 33
Regulatory assets 98 15
Postretirement benefit obligation (22) (14)
Accounts payable (567) 622
Interest accrued (25) (10)
Customer deposits and other, net 162 394
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,264 2,329
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (net of AFUDC) (3,470) (4,219)
Proceeds from sale of assets 5 3
NET CASH USED IN INVESTING ACTIVITIES (3,465) (4,216)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under line of credit agreement 2,764 1,983
Overdraft payable 54 90
Net advances and contributions in aid
of construction (173) 331
Proceeds from issuance of common stock 179 204
Dividends (489) (434)
Principal payments under capital
lease obligations (12) (11)
Retirement of preferred stock (100) (112)
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,223 2,051
NET INCREASE IN CASH AND CASH EQUIVALENTS 22 164
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 114 146
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 136 $ 310
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 775 $ 734
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 ended March 31, 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:
March 31, 1999 December 31, 1998
(in thousands)
Postretirement benefit obligation $1,605 $1,627
Deferred income taxes recoverable
in future rates 691 695
Expense of rate proceedings 292 364
$2,588 $2,686
NOTE 3 - 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. No operations have
occurred under Artesian Wastewater for 1999 and 1998.
NOTE 4 - 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.
Expenses associated with related party transactions are as follows:
For the Quarter Ended
March 31,
1999 1998
(in thousands)
White Clay Realty $ 46 $ 46
Glendale Enterprises 11 11
$ 57 $ 57
NOTE 5 - 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
Ended March 31,
1999 1998
(in thousands)
Average common shares outstanding during
the period for Basic computation 1,810 1,788
Dilutive effect of employee stock options 34 15
Average common shares outstanding during
the period for Diluted computation 1,844 1,803
Equity per common share was $15.30 and $14.74 at March 31, 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 March 31, 1999 and 1998,
respectively.
NOTE 6 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued Statement of Financial Account Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative instruments and
hedging activities. The Company plans to adopt this statement effective
January 1, 2000. The adoption of this statement will not have a material
impact on our financial condition or results of operations.
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 year beginning after December 15, 1998.
Earlier application is encouraged in fiscal years for which annual financial
statements have not been issued. The Company 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.
NOTE 7 - 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. Such temporary
rates will become effective on or about June 30, 1999.
NOTE 8 - SUBSEQUENT EVENT
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, subject to certain upward adjustments based upon
increases in our book value per common share, 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. We anticipate that this
obligation will be financed by our cashflow from operations and external
sources
including our short-term lines of credit.
ITEM 2
ARTESIAN RESOURCES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31,
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 March 31, 1999, we had approximately
61,000 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 98.6% of our total revenue in the first quarter of 1999 from
the sale of water. Water sales revenue increased $308,000 or 5.6%, for the
quarter ended March 31, 1999 compared to the first quarter of 1998. The
increase was primarily due to a rate increase placed in effect the second
quarter of 1998, and to a 2.2% increase in the number of customers served.
Usage per customer increased slightly for the quarter ended March 31, 1999 as
compared to the first quarter of 1998.
Operating Expenses
Operating and maintenance expenses increased $161,000, or 4.7%, primarily
due to increased payroll and related expenses. The ratio of operating and
maintenance expense to total revenue was 60.3% for the quarter ended March 31,
1999, compared to 60.9% for the same period in 1998. Payroll and related
expenses increased $135,000, or 7.0%, 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. Purchased water expense decreased $49,000, or
8.0%,
due to increased pumpage of self-supplied water, and to the expiration of one
of two contracts with the City of Wilmington which required mandatory minimum
purchase obligations.
Depreciation and amortization expense decreased $74,000, or 12.2%, due
to the lower book depreciation rates approved in our last rate case. Income
tax expense increased $47,000, or 21.7%, reflecting our increased profit-
ability in the first quarter of 1999. Our total effective income tax rate
for the first quarter of 1999 was 40.1% compared to 39.9% for 1998.
Interest Charges
Interest charges increased $76,000, or 10.4%, primarily due to increased
borrowings on our lines of credit incurred to finance investment in utility
plant.
Net Income
For the quarter ended March 31, 1999, our net income applicable
to common stock increased by $71,000, or 23.3%, compared to the same period
in 1998. The increase in net income was primarily due to a rate increase
placed in effect in the second quarter of 1998, the addition of new customers,
and a slight increase in usage per customer. Net income also increased as a
result of our cost control programs.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity for the first quarter of 1999 were $2.8
million borrowed on our short-term lines of credit and $1.3 million provided
by cash flow from operating activities. 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 $12.0 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 $4.2 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, subject to certain upward adjustments based upon
increases in our book value per common share, 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. 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 $2.1
million of capital expenditures will be financed by developers during the
remainder of 1999.
At March 31, 1999, we had a working capital deficit of $11.6 million
mainly due to borrowings on our lines of credit incurred to finance investment
in utility plant.
At March 31, 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
March 31, 1999, we had $24.5 million of available funds under these lines.
The interest rate for borrowings under each of these lines is the London
Interbank Offering Rate plus 1.0% or 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 $7.6 million were used to reduce
Artesian
Water's borrowing on the lines of credit incurred to finance investment in
utility plant. As of April 30, 1999 $4.0 million was drawn on the lines of
credit.
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. 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.
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 expect to be compliant by 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. We are currently
developing contingency plans which we expect to be in place by June 30, 1999.
Contingency plans 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 quarter of 1999, and we do not anticipate any significant capital
expenditures for the remainder of 1999 for the purpose of achieving Year 2000
compliance.
CAUTIONARY STATEMENT
Statements in this Quarterly Report on Form 10-Q which express our
"belief", "anticipation" or "expectation", as well as other statements which
are not historical fact, are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties that could cause actual results to differ materially from
those projected. Certain factors, such as 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 on or about June 30, 1999.
There are no other material legal proceedings pending at this date.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended 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 filed herewith.
EXHIBIT 10 - SHARE REPURCHASE AGREEMENT AND PROMISSARY NOTE
April 28, 1999
Mrs. Helena C. Taylor
212 Washington Avenue
Newport
Wilmington, DE 19804
RE:Acquisition of Class A and Class B Common Stock by
Artesian Resources Corporation ("Artesian")
Dear Mrs. Taylor:
This letter, when countersigned by you, will confirm our discussions and
agreement of last evening regarding the purchase by Artesian of all Class A
Non-Voting Common Stock (the "Class A Stock") and Class B Common Stock (the
"Class B Stock") of Artesian currently owned by you and your husband, Ellis D.
Taylor (the "Taylors") (collectively sometimes referred to herein as the
"Stock").
Artesian understands that other local or regional water companies have made
offers to the Taylors to purchase the Stock on terms and for a price you have
not disclosed to Artesian, but for what you have characterized as a "premium".
This Agreement is premised on Artesian's understanding that you personally
have the necessary legal power and authority to enter into this Agreement, as
well as such documents as are necessary, to transfer Stock. Artesian shall
purchase the Stock for an aggregate purchase price of $4,450,000 (the
"Purchase Price") to be allocated and paid in the manner set forth below.
Upon delivery by Artesian of the note described in Paragraphs 3 and 4 below
(which shall occur no later than June 1, 1999), the Taylors will transfer and
sell to Artesian 24,165 shares of Class A Stock of Artesian (the "Class A
Shares") constituting all of the shares of Class A Stock of Artesian owned by,
and held in the name of, Helena C. and Ellis D. Taylor as Joint Tenants.
Artesian will pay the Taylors a total of $604,125 for the Class A Shares
payable as set forth in Paragraphs 3 and 4.
Upon delivery by Artesian of the note described in Paragraphs 3 and 4 below
(which shall occur no later than June 1, 1999), the Taylors will also transfer
and sell to Artesian 126,353 shares of Class B Stock of Artesian (the "Class B
Shares") constituting all of the shares of Class B Stock of Artesian owned by,
and held in the name of, Helena C. and Ellis D. Taylor, as Joint Tenants.
Artesian will pay the Taylors a total of $3,845,875 for the Class B Shares,
payable as set forth in Paragraphs 3 and 4 hereof. The Taylors shall transfer
to Artesian the Class A Shares and the Class B Shares free and clear of all
claims, actions, liens, encumbrances, security interests and all other
restrictions and Artesian shall deliver a note evidencing its obligation to
pay the agreed price for the Stock as follows:
Artesian's obligation to pay the Purchase Price will be evidenced by a Note
payable quarterly, on a calendar basis, over a four year period and in sixteen
equal installments commencing June 30, 1999. The outstanding balance on the
Note shall bear interest in an amount computed based on the quarterly dividend
the Taylors would have received on Stock transferred to Artesian but not yet
paid for by Artesian. The formula for calculating such interest is set forth
in Schedule I.
Each quarterly payment under the Note shall be adjusted by multiplying the
amount of that quarterly payment by a fraction (which in no event shall be
less than one) the numerator of which shall be 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, and the
denominator of which shall be the book value per common share of the company
as reported in the most recent quarterly financial statements distributed to
stockholders prior to transfer to Artesian of the Stock.
The Taylors agree that on and after the date the Stock is transferred to
Artesian, they will not purchase directly or through an entity controlled by
them or either of them any securities of Artesian and will not seek to
influence control of Artesian.
Artesian shall pay its own expenses and costs and the reasonable expenses and
costs of the Taylors in connection with negotiating and closing and carrying
out the transaction contemplated by this Agreement, provided that Artesian
shall not be responsible for any brokers', finders' or other such fee or
expenses or expenses or costs reasonably allocated to tax planning advice
incurred by the Taylors in connection with the proposed transaction.
The parties recognize the unique and peculiar value of the Stock to Artesian
and the Taylors and this Agreement and the legal relations among the parties
hereto will be governed by and construed in accordance with the laws of the
State of Delaware.
In consideration of $4,000.00 already paid to the Taylors (to be applied
against the Purchase Price) and in consideration of the mutual agreement in
paragraph 9 hereof, the receipt and adequacy of which are hereby acknowledged,
the Taylors shall be bound by this Agreement. Upon execution of this
Agreement by the Taylors and delivery by Artesian of the payments referred to
above in this Paragraph, I will promptly seek approval by the Board of
Directors of Artesian, and I anticipate that the Board will act promptly.
This Agreement will not bind Artesian unless it is approved by the Board of
Directors of Artesian. If the Board does not approve this Agreement by May
12, 1999, the Taylors shall no longer be bound and may retain the $4,000
payment referred to above. This Agreement shall inure to the benefit of and
be binding on the successors, assigns and legal representatives of each of the
parties.
This Agreement supersedes all prior agreements and understandings between the
parties regarding purchase by Artesian of the Stock, including the letter
dated April 23, 1999.
This Agreement may be executed in one or more counterparts, each of which will
be considered one and the same Agreement.
If the terms and conditions set forth above are acceptable to you, please
execute the original and the duplicate original of this letter and return the
original to the undersigned.
Very truly yours,
/s/ Dian C. Taylor
Dian C. Taylor
President, CEO & Chair
Artesian Resources Corporation
Accepted and Agreed to this
29th day of April, 1999.
/s/ Helena C. Taylor
Helena C. Taylor
/s/ Helena C. Taylor DPOA Ellis D. Taylor
Ellis D. Taylor by his
Attorney-in-Fact, Helena C. Taylor
SCHEDULE 1
Stock Note Interest Formula
Quarterly Interest payment = most recent prior Artesian quarterly dividend
times 150,518 times X/Y where X equals the number
of remaining quarterly principal payments to be
made and Y equals 16.
PROMISSORY NOTE
$4,450,000.00 May 4, 1999
Wilmington, Delaware
FOR VALUE RECEIVED, the undersigned, Artesian Resources Corporation, a
Delaware corporation (the "Maker"), promises to pay to the order of Ellis D.
Taylor and Helena C. Taylor (the "Payee"), the principal amount of
$4,450,000.00, together with interest computed as provided herein, in sixteen
installments commencing on June 30, 1999, and on each September 30, December
31, and March 31, thereafter (each a "Payment Date"), with a final payment of
all amounts outstanding hereunder on March 31, 2003.
The amount of each installment payable hereunder shall be computed as follows:
1.Interest payments shall be computed by multiplying 150,518 by the amount of
the most recent dividend paid by Maker per share of Maker common stock and
multiplying the product so obtained by the quotient derived by dividing the
number of remaining quarterly principal payments to be made under this
Promissory Note by the number sixteen (16). For purposes of the Note the
"most recent dividend paid by Maker" shall mean the dividend paid since the
last Payment Date.
2.Principal payments shall be computed by multiplying $278,125 by a number
represented as a fraction (which in no event shall be less than one) the
numerator of which shall be the book value per common share of Maker as
reported in Maker's most recent quarterly financial statement distributed to
Maker's stockholders prior to the date on which such payment is to be made,
and the denominator of which shall be the book value per common share of Maker
as reported in the March 31, 1999 quarterly financial statement of Maker.
Payments hereunder shall be payable in lawful money of the United States of
America to the Payee at 1022 Nassau Street, Delray Beach, Florida 33483.
The Maker hereby waives presentment of payment, demand, notice of nonpayment,
notice of protest, protest and notice of dishonor of this Note, and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of the payment of this Note.
The granting by the Payee, with or without notice, of any forbearance or any
extension of time for payment of any sum due hereunder, or the granting of any
other indulgence, or any other modification or amendment of this Note shall in
no way release or discharge the liability of the Maker.
In the event that any one or more of the provisions contained herein shall for
any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof, and this Note shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein.
This Note shall be governed by and construed and enforced in accordance with
the laws of the State of Delaware.
This Note cannot be assigned or transferred by the Payee to any third party
unless Payee gives prior written notice thereof to Maker.
IN WITNESS WHEREOF, the undersigned Maker has duly executed this Note
intending the same to be a sealed instrument on the date first above written.
MAKER:
ATTEST: ARTESIAN RESOURCES COPORATION
By:/s/Dian C. Taylor
/s/ Joseph A. DiNunzio Dian C. Taylor
Secretary President, CEO & Chair
[CORPORATE SEAL]
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
[LEGEND]
This schedule contains summary financial information extracted from the
consolidated balance sheets, consolidated statements of income and the
consolidated statement of cash flows from the Company's March 31, 1999
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
[/LEGEND]
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] MAR-31-1999
[BOOK-VALUE] PER-BOOK
[TOTAL-NET-UTILITY-PLANT] 112,961,000
[OTHER-PROPERTY-AND-INVEST] 278,000
[TOTAL-CURRENT-ASSETS] 5,014,000
[TOTAL-DEFERRED-CHARGES] 3,757,000
[OTHER-ASSETS] 0
[TOTAL-ASSETS] 122,010,000
[COMMON] 1,813,000
[CAPITAL-SURPLUS-PAID-IN] 18,244,000
[RETAINED-EARNINGS] 7,673,000
[TOTAL-COMMON-STOCKHOLDERS-EQ] 27,730,000
[PREFERRED-MANDATORY] 400,000
[PREFERRED] 272,000
[LONG-TERM-DEBT-NET] 32,000,000
[SHORT-TERM-NOTES] 10,468,000
[LONG-TERM-NOTES-PAYABLE] 0
[COMMERCIAL-PAPER-OBLIGATIONS] 0
[LONG-TERM-DEBT-CURRENT-PORT] 0
[PREFERRED-STOCK-CURRENT] 100,000
[CAPITAL-LEASE-OBLIGATIONS] 41,000
[LEASES-CURRENT] 43,000
[OTHER-ITEMS-CAPITAL-AND-LIAB] 50,956,000
[TOT-CAPITALIZATION-AND-LIAB] 122,010,000
[GROSS-OPERATING-REVENUE] 5,939,000
[INCOME-TAX-EXPENSE] 264,000
[OTHER-OPERATING-EXPENSES] 4,510,000
[TOTAL-OPERATING-EXPENSES] 4,774,000
[OPERATING-INCOME-LOSS] 1,165,000
[OTHER-INCOME-NET] 38,000
[INCOME-BEFORE-INTEREST-EXPEN] 1,203,000
[TOTAL-INTEREST-EXPENSE] 808,000
[NET-INCOME] 395,000
[PREFERRED-STOCK-DIVIDENDS] 19,000
[EARNINGS-AVAILABLE-FOR-COMM] 376,000
[COMMON-STOCK-DIVIDENDS] 470,000
<TOTAL-ANNUAL-INTEREST-ON-BONDS> 2,677,000
[CASH-FLOW-OPERATIONS] 1,264,000
<EPS-BASIC> 0.21
[EPS-DILUTED] 0.20
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
5/07/99 /s/ Dian C. Taylor
Dian C. Taylor
President, CEO, and Chair of the Board
Artesian Resources Corporation and Subsidiaries
5/07/99 /s/ David B. Spacht
David B. Spacht
Vice President, Chief Financial Officer, and
Treasurer
Artesian Resources Corporation and Subsidiaries
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