ARTESIAN RESOURCES CORPORATION
664 CHURCHMANS ROAD
NEWARK, DE 19702
August 10, 2005
Securities and Exchange Commission
100 F. Street N.E.
Washington, DC 20549
Attention: Michael Moran
Accounting Branch Chief
Division of Corporation Finance
Re: ARTESIAN RESOURCES CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
FILED MARCH 31, 2005
FILE NO. 0-18516
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Dear Mr. Moran:
On behalf of Artesian Resources Corporation (the "Company"), we are responding
to the comments of the Staff of the Securities and Exchange Commission (the
"Commission") contained in your letter to the undersigned dated July 18, 2005
with respect to the Company's Annual Report on Form 10-K referenced above (the
"Form 10-K").
In response to your letter, set forth below are the Staff's comments in bold
followed by the Company's responses to the Staff's comments. We have sent to
your attention three courtesy copies of this letter as filed via EDGAR.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, page 10
Results of Operations, page 12
1. WE NOTE THAT YOU CAPITALIZED $315,723 OF PAYROLL AND RELATED COSTS
ASSOCIATED WITH YOUR INTERNAL STAFF EFFORT TO CONVERT YOUR CUSTOMER
INFORMATION SYSTEM COMPUTER PROGRAMS. PLEASE TELL US WHY YOU BELIEVE
THIS TREATMENT IS APPROPRIATE AND TELL US ANY ALTERNATE TREATMENT THAT
YOU CONSIDERED. IF APPLICABLE, PLEASE ADDRESS THE REQUIREMENT OF SOP
98-1. WE NOTE THAT YOU HAVE NOT DISCLOSED AN ACCOUNTING POLICY RELATED
TO INTERNAL USE COMPUTER SOFTWARE. IF SOP 98-1 IS NOT APPLICABLE,
PLEASE INDICATE THE ACCOUNTING GUIDANCE IN WHICH YOU RELIED UPON TO
SUPPORT YOUR POSITION AND DESCRIBE IN MORE DETAIL THE NATURE OF THE
COSTS THAT ARE BEING CAPITALIZED.
Response: The Company capitalized $315,733 in payroll and related
expense associated with our internal staff's development and
configuration of our new customer information system programs (the "CIS
programs"). In deciding to capitalize this expense, the Company used
AICPA Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use as its
accounting policy for recording these costs. The Company purchased the
CIS programs from a third party vendor. However, for the CIS programs
to work with the Company's existing software, the Company needed to
develop interface and other software programs. The employees that
worked on this project were either dedicated entirely to the project or
were required to maintain time records so that the Company could
properly allocate each employee's time to the project in order to
capitalize the expenses in accordance with SOP 98-1.
Specifically, under SOP 98-1, paragraph 21, the payroll and related
expense the Company capitalized was "incurred to develop internal-use
computer software during the application development stage." Under
paragraph 31b, these costs were "for employees who are directly
associated with and who devote time to the internal-use computer
software project, to the extent of the time spent directly on the
project..." The Company will disclose the amount and nature of these
capitalized costs for each income statement presented and its
accounting policy in Note 1, Summary of Significant Accounting
Policies, in future filings.
Contractual Obligations, page 19
2. PLEASE CONSIDER REVISING YOUR TABLE OF CONTRACTUAL CASH OBLIGATIONS TO
INCLUDE THE ESTIMATED INTEREST PAYMENTS ON YOUR DEBT BECAUSE THE TABLE
IS AIMED AT INCREASING TRANSPARENCY OF CASH FLOW, WE BELIEVE THESE
PAYMENTS SHOULD BE INCLUDED IN THE TABLE. IF YOU CHOOSE NOT TO INCLUDE
THESE PAYMENTS, A FOOTNOTE TO THE TABLE SHOULD CLEARLY IDENTIFY THE
EXCLUDED ITEMS AND PROVIDE ANY ADDITIONAL INFORMATION THAT IS MATERIAL
TO AN UNDERSTANDING OF YOUR CASH REQUIREMENTS.
Response: The Company will incorporate the estimated interest payments
on its debt in its contractual obligations table included in future
filings. Had we done so in our Annual Report on Form 10-K for the year
ended December 31, 2004, the table would have appeared as follows.
CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD
In thousands Less than 1-3 4-5 After 5
1 Year Years Years Years Total
--------- --------- --------- ---------- ----------
First Mortgage Bonds* $ 5,172 $ 29,355 $ 8,021 $ 112,471 $ 155,019
State revolving fund loans* 1,399 1,575 1,264 6,779 11,017
Operating leases 87 36 24 ------ 147
Unconditional purchase 2,982 5,703 5,417 32,478 46,580
obligations
Tank painting contractual obligation 249 ---- ---- ---- 249
-------- -------- --------- ---------- ----------
Total contractual cash
obligations $ 9,889 $ 36,669 $ 14,726 $ 151,728 $ 213,012
======== ======== ========= ========== ==========
* This includes principal and interest.
Note 14. Net Income per Common Share and Equity per Common Share, page 42
3. PLEASE DISCLOSE THOSE SECURITIES THAT COULD POTENTIALLY DILUTE BASIC
EPS IN THE FUTURE THAT WERE NOT INCLUDED IN THE COMPUTATION OF DILUTED
EPS BECAUSE TO DO SO WOULD HAVE BEEN ANTIDILUTIVE FOR THE PERIODS
PRESENTED. REFER TO PARAGRAPH 40(C) OF SFAS 128.
Response: The only security included in our calculation of diluted EPS
is employee stock options, which, as a group, are dilutive. For any
period presented, we did not have any other securities that could
potentially dilute EPS in the future as defined in paragraph 40(c) of
SFAS 128.
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Additionally, the Company acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in its Commission filings;
o Staff comments or changes to disclosure in response to Staff comments
in the filings reviewed by the Staff do not foreclose the Commission
from taking any action with respect to the filing; and
o the Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you have any questions, please feel free to contact me at 302-453-6912.
Very truly yours,
/s/ David B. Spacht
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David B. Spacht
Chief Financial Officer