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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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 No.: 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Class A Non-Voting Common Stock
(Title of class)
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
Indicate by check mark if the disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X Yes _ No
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant at March 12, 1998 was $2,312,000 and
$21,425,000 respectively.
As of March 12, 1998, 1,283,132 shares and 508,282 shares of Class A
Non-Voting Common Stock and Class B Common Stock, respectively, were
outstanding.
Page 1 of 54
PART I
Item 1. - Business.
Artesian Resources Corporation (Artesian Resources) operates as the
parent holding company of Artesian Water Company, Inc. (Artesian Water), the
principal subsidiary of Artesian Resources and a regulated public water
utility, and several nonregulated subsidiaries, which collectively
employed 143, 152, and 158 persons at December 31, 1997, 1996, and 1995,
respectively.
Artesian Water Company was organized in 1927 as the successor to the
Richardson Park Water Company, founded in 1905. In 1984, the name of Artesian
Water Company was changed to Artesian Resources Corporation and the utility
assets were contributed to a newly formed subsidiary, Artesian Water.
Artesian Water provides water utility service to customers within its
established service territory in portions of Delaware, pursuant to rates
filed with and approved by the Delaware Public Service Commission (PSC).
As of December 31, 1997, Artesian Water is serving 59,218 customers compared
to 57,934 at December 31, 1996. The Company's service territory consists
of two distinct, independent water supply systems, not connected by
transmission lines. The first system consists of the northern New Castle
County service territory, north of the C&D Canal and covers approximately
101 square miles (the Northern System.) The second system consists of
territory south of the C&D Canal covering approximately 28 square miles, and
also includes two tracts of service territory in Kent County and Southern
Sussex County (the Southern System.) This includes territory served by the
Cat Hill Water Company and the Whites Haven Water Company currently serving
approximately 225 customers in southern Sussex County, which companies the
Company acquired on October 2, 1997. The Company believes there are
substantial water resources in each system sufficient to handle its water
supply needs for the foreseeable future. The Company's sources of water in
the Northern System are self-supply from permitted wells that pump ground
water from aquifers and other formations, and through interconnections with
neighboring utilities that supply mostly surface water from river basins.
The Company has the ability to purchase water from several neighboring water
utilities, primarily the City of Wilmington and the Chester Water Authority.
The Southern System's water supply is entirely self-supplied from permitted
wells that pump groundwater.
In 1993, Artesian Water began acquiring service territory in southern
New Castle County south of the C&D Canal, comprising its southern
system. The Southern System has experienced substantial residential
development in the past seven years. In addition, the State of Delaware is
constructing a new limited access highway running north and south through
southern New Castle County, portions of which are open to traffic. A
substantial portion of southern New Castle County remains to be developed and
is not presently the service territory of any private or public water systems.
This presents significant expansion opportunities for Artesian Water as
development continues. The pursuit of additional service area in the State
of Delaware south of the C&D Canal is, however, competitive. Two other water
utilities currently provide service in some areas south of the C&D Canal.
The principal source of Artesian Water's water supply for both its
northern and southern systems is the Potomac aquifer. Current peak capacity
developed from this aquifer is 21 million gallons a day, with additional
capacity believed to still be available while continuing to ensure the natural
recharge of the aquifer. The Potomac aquifer covers a large area beneath
northern Delaware and Maryland. Although the Mt. Laurel and water table
aquifers, which are located closer to the ground surface, could provide ample
supply in the southern system, the Company has chosen, consistent with its
focus on water quality, to generally utilize the deeper formation of the
Potomac aquifer. Pumpage from the deeper formation does not interfere with
residential and agricultural uses currently found in the upper formations and
potential land use contamination will be less likely to affect the deeper
formation. To date, the Company has obtained, on a cost effective basis,
commercially acceptable quantities of water from these deeper formations.
Artesian Water has several well sites on land it owns or leases within its
existing and proposed service territory. Access to the aquifer is not
exclusive; however, any significant withdrawals from the aquifer require
state regulatory approvals. Artesian Water also obtains water supply in the
northern system through interconnections with several neighboring utilities
which increases peak capacity to approximately 42 million gallons a day. In
1997, the Company's highest daily consumption was 26.9 million gallons and
average daily consumption was 18.2 million gallons. The quality of water
distributed by the system is subject to the rules of federal and state
environmental regulatory agencies.
The Company is subject to regulation by the EPA and DNREC with respect
to the operation of public water supply systems and with respect to the
quality of any wastewater and similar effluent from treatment plants. As a
normal by-product of iron removal, the Company's iron removal facility at Old
County Road generates iron removed from untreated ground water plus residue
from chemicals used in the treatment process. The Company has contracted
with a licensed third party vendor to dispose of the solids produced at the
facility. The Company's other iron removal facilities rely on disposal
through county approved wastewater facilities. Management believes that
compliance with existing federal, state or local laws and regulations
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment has no material effect upon the
business and affairs of Artesian Resources.
On February 28, 1997, Artesian Water filed a petition with the PSC to
implement new rates to meet an increased revenue requirement of approximately
13.5% or $3.0 million on an annualized basis. Artesian Water was permitted
to collect a temporary rate increase not in excess of $2.5 million on an
annualized basis, under bond, until permanent rates were approved. The
temporary rates became effective on or about May 1, 1997. The Hearing
Examiner and the PSC approved a settlement of this rate case on August 15,
1997 and August 26, 1997, respectively; finalizing an annualized revenue
increase of approximately $0.2 million or 1.13%, effective May 1, 1997.
In September 1997, Artesian Water refunded to customers approximately $0.3
million in excess billings collected May 1, 1997 through August 30, 1997
under the 4.5% temporary rate increase. The refund had no impact on revenues
as the temporary rates were not recognized in revenue.
On October 3, 1997, Artesian Water filed a petition with the PSC to
implement new rates to meet a projected increased revenue requirement of
approximately 23.3% or $5.2 million on an annualized basis which management
believes would allow Artesian Water the opportunity to achieve a fair rate of
return. Artesian Water is permitted to collect a temporary rate increase not
in excess of $2.5 million on an annualized basis, under bond, until permanent
rates are approved. These temporary rates became effective on December 3,
1997 and approximately $0.2 million in additional revenue was recognized as a
result of the increased rates. The Company cannot predict the timing or
outcome of this rate proceeding.
In 1985, Artesian Laboratories, Inc. (Artesian Laboratories) was organized
as the principal non-regulated subsidiary of Artesian Resources. On December
21, 1995, the Board of Directors of Artesian Resources authorized the
disposal of substantially all the net assets of Artesian Laboratories. On
April 9, 1997, the net assets of Artesian Laboratories were sold for $425,000
in cash and $150,000 note receivable to be held by Artesian Resources.
On December 19, 1996 Artesian Wastewater Management, Inc. (Artesian
Wastewater) was created as a non-regulated subsidiary of Artesian Resources.
Artesian Wastewater plans to provide wastewater treatment services in
Delaware. This subsidiary did not engage in any business activity in 1996.
On March 12, 1997 Artesian Wastewater became a one-third participant, along
with heavy-construction contractor George and Lynch and engineering firm
Woodward-Clyde International-Americas (a subsidiary of URS Greiner), in a
limited liability company called AquaStructure Delaware, L.L.C. which intends
to develop and market various proposals to provide wastewater treatment
services.
None of the operations of the subsidiaries is considered seasonal.
Item 2. - Properties.
Artesian Resources' corporate headquarters are located at 664 Churchmans
Road, Newark, Delaware. Corporate headquarters for Artesian Water are also
located at this address. The property is leased from White Clay Realty by
Artesian Water through December 31, 2002. See Item 13, Certain Relationships
and Related Transactions, for further disclosures. The lease may be extended
at the Company's option for two consecutive five-year renewal terms subject
to the terms set forth in the lease.
Artesian Resources and Artesian Development own various parcels of land
in New Castle County, Delaware. Artesian Water owns land, transmission and
distribution mains, pump facilities, treatment plants, storage tanks and
related facilities within New Castle County, Kent County, and Sussex County,
Delaware. The acreage owned by the Company, not including rights-of-way and
easements, totals approximately 646. Of this amount, approximately 500 acres
are located directly adjacent to the corporate headquarters of the Company.
Approximately one-half remains the subject of an Environmental Impact Study
being performed by the United States Army Corps of Engineers, one of the first
steps toward identifying a site for a possible reservoir and the environmental
impact to the natural area at the prospective reservoir site. Several other
locations are also being evaluated for the site of a new reservoir in New
Castle County. A current reassessment of future demands on water supply is
under way and must be completed before the Environmental Impact Study is
concluded. At this date, it is not known whether any site will be designated
as needed for a reservoir. Substantially all of Artesian Water's utility
plant, except utility plant within the town of Townsend, Delaware, is pledged
as security for First Mortgage Bonds.
All of Artesian Water's existing facilities adequately meet current
necessary productive capacities and current levels of utilization.
Item 3. - Legal Proceedings.
On October 3, 1997, Artesian Water filed a petition with the PSC to
implement new rates to meet a projected increased revenue requirement of
approximately 23.3% or $5.2 million on an annualized basis. The primary
reasons for the filing are (1) substantial capital investments in transmission
and distribution systems, sources of supply, main relocations due to State
highway improvements, and other investments in general facilities and
equipment; (2) increases in various operations and maintenance expenses; and
(3) to improve the Company's opportunity to achieve a fair rate of return.
Artesian Water is permitted to collect a temporary rate increase not in excess
of $2.5 million on an annualized basis, under bond, until permanent rates are
approved. These temporary rates became effective on December 3, 1997. The
Company cannot predict the timing or outcome of this rate proceeding.
There are no other material legal proceedings pending at this date.
Item 4. - Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. - Market for Company's Common Equity and Related Stockholder Matters.
The Class A Non-Voting Common Stock (Class A Stock) of Artesian
Resources began trading on the Nasdaq National Market (symbol ARTNA) on
Friday, May 24, 1996. Also on May 24, 1996, the trading symbol of Artesian
Resources' Class B Common Stock changed to ARTNB. The Class B Common Stock
is traded on the Nasdaq Bulletin Board.
Prior to the commencement of trading of Class A Stock on the Nasdaq
National market on May 24, 1996, the Class A Common Stock traded sporadically
on the over-the-counter market. There has been a limited public trading
market for the Class B Stock on the over-the-counter market. The following
table sets forth the high and low closing bid quotations for the Class A Stock
on the OTC bulletin board for the periods indicated below prior to May 24,
1996 and on the Nasdaq National Market after that date, and sets forth high
and low closing bid quotations on the OTC bulletin board for the Class B Stock
for the period indicated. The table also sets forth for the periods indicated
the cash dividends declared per share.
CLASS A NON-VOTING CLASS B VOTING
COMMON STOCK COMMON STOCK
DIVIDEND DIVIDEND
HIGH LOW PER SHARE HIGH LOW PER SHARE
1996
First Quarter $13.88 $13.00 $0.21 $16.25 $15.00 $0.21
Second Quarter 16.00 13.50 0.23 16.25 15.00 0.23
Third Quarter 16.63 14.50 0.23 16.87 15.25 0.23
Fourth Quarter 17.00 15.75 0.23 16.87 16.25 0.23
1997
First Quarter $18.25 $16.25 $0.23 $17.00 $16.50 $0.23
Second Quarter 18.25 17.00 0.23 17.00 17.00 0.23
Third Quarter 19.13 17.00 0.23 17.00 17.00 0.23
Fourth Quarter 19.00 18.00 0.23 17.00 17.00 0.23
The above quotations reflect prices between dealers and do not include
retail markups or mark downs or commissions and may not necessarily represent
actual transactions.
In 1997, Artesian Resources paid cash dividends of 23 cents per share
in each quarter. Artesian Resources paid cash dividends of 21 cents per share
in the first quarter of 1996 and 23 cents per share in each of the last three
quarters of 1996. In 1995, Artesian Resources paid cash dividends of 15 cents
per share in each of the first three quarters and 18 cents per share in the
fourth quarter.
On July 14, 1997, Artesian Resources filed a Registration Statement on
Form S-8 registering 200,000 shares of $1.00 par value Class A Non-Voting
Common Stock available for purchase through the Artesian Retirement Plan and
the Artesian Supplemental Retirement Plan. An Annual Report on Form 11-K for
each plan was also filed on July 14, 1997.
As of February 12, 1998, there were 659 shareholders of record of Class A
Stock and 249 shareholders of record of Class B Stock.
Item 6 - Selected Financial Data.
SUMMARY OF FIVE YEARS OF OPERATION
(Balance Sheet and Income Statement Amounts,
Except Per Share Information, In thousands)
1997 1996 1995 1994 1993
Operating revenues $22,340 $ 20,892 $ 22,631 $ 21,012 $20,340
Operating expenses
Operation&maint. 12,775 12,154 13,385 13,014 12,418
Depreciation 2,441 2,193 2,240 1,986 1,955
State & Federal income taxes1,278 1,096 791 963 914
Write-down on rental
office building --- --- 784 --- ---
Loss on disposal of Artesian
Laboratories --- --- 128 --- ---
Property and other taxes 1,439 1,348 1,370 1,235 1,230
17,933 16,791 18,698 17,198 16,517
Operating income 4,407 4,101 3,933 3,814 3,823
Other income (expense)-net 158 94 32 6 (14)
Total income before
interest charges 4,565 4,195 3,965 3,820 3,809
Interest charges
Long-term debt 2,122 1,601 2,250 2,252 2,286
Short-term debt 401 881 463 28 56
Amortization of debt expense 25 26 26 27 68
Other 32 28 19 27 24
2,580 2,536 2,758 2,334 2,434
Income before
cumulative effect of changes
in accounting principles 1,985 1,659 1,207 1,486 1,375
Cumulative effect of changes in
accounting principles --- --- --- --- 251
Net income $ 1,985 $ 1,659 $ 1,207 $ 1,486 $1,626
Basic net income per common share:
Continuing operations $ 1.07 $ 1.03 $ 1.05 $ 1.34 $ 1.50
Diluted net income per common share:
Continuing operations $ 1.07 $ 1.03 $ 1.05 $ 1.34 $ 1.49
Avg. common shares outstanding
during the period
Basic 1,762,374 1,508,744 1,031,656 1,011,066 995,336
Diluted 1,774,994 1,515,313 1,034,243 1,012,884 997,013
Cash dividends per share of
common stock $ 0.92 $ 0.90 $ 0.63 $ 0.60 $ 0.30
Utility plant at
year-end, cost $120,851 $112,312 $104,434 $ 92,684 $84,561
Total assets $107,867 $ 99,708 $ 96,841 $ 87,453 $81,827
Long-term obligations and
redeemable preferred
stock $ 32,975 $ 27,356 $ 18,803 $ 26,045 $26,117
Total capitalization
at year-end $ 59,290 $ 52,843 $ 34,199 $ 40,773 $39,918
Average water sales
per customer $ 376 $ 359 $ 367 $ 344 $ 348
Water pumped (millions
of gallons) 6,637 6,419 6,561 6,506 6,409
Number of customers served
at year-end 59,218 57,934 56,672 55,097 53,599
Miles of water main at
year-end 797 781 763 746 728
Item 7. - Management's Discussion and Analysis of Operations and Financial
Condition
Results of Operations
Overview
For the year ended December 31, 1997, Artesian Resources Corporation and
subsidiaries (Artesian Resources) increased net income by $326,000, or 19.7%,
as compared to 1996. Net income applicable to common stock was $1,892,000
for the year ended December 31, 1997 compared to net income of $1,554,000 for
1996. The 21.8% increase in net income is primarily attributable to two
increases in Artesian Water Company's (Artesian Water) rates charged to
customers of approximately 1.13% and 11.35% which were placed in effect
May 1, 1997 and December 3, 1997, respectively, and a 2.2% growth in
customers served.
Artesian Resources realized 98.5% of its total revenue from the sale of
water by Artesian Water and 1.5% from other utility revenues. Other operating
revenues declined from 0.3% of total operating revenues in 1996 to zero in
1997 as a result of the sale of the rental office building owned by Artesian
Development Corporation (Artesian Development), a non-regulated subsidiary
of Artesian Resources, which was completed in March 1996. In April 1997,
Artesian Resources completed the sale of the net assets of Artesian
Laboratories, Inc. (Artesian Laboratories) for approximately $425,000 in cash
and a $150,000 note receivable held by Artesian Resources. As of February 28,
1998, Artesian Resources only active revenue generating subsidiary is Artesian
Water. Artesian Wastewater Management Inc. (Artesian Wastewater) is a newly
formed non-regulated subsidiary of Artesian Resources and is participating as
a one-third member in AquaStructure Delaware, L.L.C. (AquaStructure), which
is actively pursuing contractual relationships with landowners, developers,
and municipalities for the provision of wastewater removal and treatment for
developments in Delaware.
The following table sets forth certain information with respect to
Artesian Resources' consolidated statement of operations as a percentage of
revenue:
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AS A
PERCENTAGE OF REVENUE
DECEMBER 31,
1997 1996 1995
Operating Revenues
Water sales 98.5% 98.4% 90.7%
Other utility operating revenue 1.5% 1.3% 0.9%
Non-utility operating revenue 0.0% 0.3% 8.4%
100.0% 100.0% 100.0%
Operating Expenses
Utility operating expenses 55.9% 56.7% 50.9%
Non-utility operating expenses 0.2% 0.3% 7.1%
Related party expenses 1.1% 1.2% 1.1%
Depreciation 10.9% 10.5% 9.9%
State and federal taxes 5.7% 5.2% 3.5%
Property and other 6.5% 6.5% 6.1%
Write-down on rental
office building --- --- 3.5%
Loss on disposal of Artesian
Laboratories --- --- 0.6%
80.3% 80.4% 82.7%
Operating Income 19.7% 19.6% 17.3%
Other Income, Net 0.7% 0.5% 0.1%
20.4% 20.1% 17.4%
Interest Charges 11.5% 12.1% 12.2%
Net Income 8.9% 8.0% 5.2%
Dividends on Preferred Stock 0.4% 0.5% 0.5%
Net income applicable to
common stock 8.5% 7.5% 4.7%
Revenues
1997 Compared to 1996
Utility Revenues
Water sales revenue increased $1,455,000, or 7.1%, for the year ended
December 31, 1997 compared to 1996. The increase is primarily attributable to
rate increases placed in effect in 1997 and a 2.2% increase in the number
of customers served. As a result of a settlement agreement reached with the
Division of the Public Advocate and approved by the Delaware Public Service
Commission (PSC) in a limited rate filing under PSC Docket 97-66, an increase
of 1.13%, or approximately $248,000 on an annualized basis, was awarded and
placed in effect on May 1, 1997. In addition, Artesian Water filed a full
base rate case on October 3, 1997 and, as permitted under Delaware law, placed
into effect on December 3, 1997 a temporary rate increase of 11.35%, or $2.5
million on an annualized basis, which is subject to refund should the PSC
award a rate increase of less than 11.35%.
Other utility operating revenues increased $63,000, or 23.0%, primarily
due to the increase in lease revenue paid by cellular telephone companies
which lease space on the water utility tanks for site antennas for their
operations.
Utility Operating and Related Party Expenses
OPERATING EXPENSES
(In thousands)
For the year ended December 31,
1997 1996 1995
Payroll and related employee
benefit expenses $ 5,950 $ 5,623 $ 5,480
Purchased water 2,704 2,663 2,492
Administration expenses 1,719 1,554 1,646
Power 943 873 849
Repair and maintenance expenses 624 661 573
Property and liability insurance 241 247 269
Water treatment expenses 399 340 295
Other 154 140 167
$12,734 $12,101 $11,771
Utility operating and related party expenses increased $633,000, or
5.2%. The increase results primarily from increases in payroll and related
expenses, purchased water rate increases, purchased power increases and
increases in water treatment expenses.
Payroll and related expenses for Artesian Water increased $327,000, or
5.8%, primarily due to salary adjustments resulting from a comprehensive
study commissioned by Artesian Water to ensure that it is fairly compensating
personnel in comparison to other companies in the mid-Atlantic region. In
addition, annual merit and incentive compensation increases contributed to
the increase. Reductions in pension and health related benefit costs offset
salary increases by $107,000. The decrease is primarily attributable to a
change in medical insurance providers during 1996. In 1997, workers
compensation premium expense decreased by $34,000 as compared to 1996 due to
a reduction in claims resulting from Artesian Water's ongoing safety
practices.
Purchased water expense increased $41,000, or 1.5%, primarily due to an
8.8% price increase placed in effect by the City of Wilmington on July 1, 1997
and a 19% price increase placed in effect by the Chester Water Authority
(Chester) on September 1, 1996. The projected effect of these price changes
would have been an increase in purchased water expense of approximately
$364,000 annually based on current minimum purchase requirements; however,
Artesian Water was able to nearly offset the effects of the price increases in
1997 by increasing its sources of self-supplied well water by 0.73 million
gallons per day (mgd), or 6.0%, and successfully renegotiating its contractual
obligations with Chester effective August 1, 1997. The new agreement with
Chester reduces average annual minimum purchase requirements from four mgd, or
1,460 million gallons annually, to three mgd, or 1,095 million gallons
annually. In addition, Artesian Water is permitted to reduce its daily
pumpage to a minimum of 2 mgd or increase its daily pumpage to a maximum of
4.5 mgd. This change allows Artesian Water to match purchases appropriately
with demand rather than reducing water provided by its own sources to meet
daily minimum purchase requirements. The reduced minimum purchase
requirements with Chester more than offset the possible effect of the
purchased water price increases discussed above. Artesian Water also has two
take-or-pay arrangements totaling 300 million gallons per year with the City
of Wilmington, which are subject to the price increase noted above. Artesian
Water has submitted a letter of its intent to renegotiate one of the
take-or-pay agreements with the City of Wilmington which requires an annual
purchase of 100 million gallons. This agreement expires on April 29, 1998
and Artesian Water intends to negotiate an extension to this contract on more
favorable and less restrictive terms.
Administrative expenses increased $165,000, or 10.6%, as a result of
increases in expenses primarily related to employment agencies, outside
services employed and Artesian Resources' independent accountants. Expenses
related to temporary employment services and employee recruitment services
increased $55,000. Various accounting and tax consulting services provided
by Artesian Resources independent accounting firm increased expense by
$39,000. Other outside services expense increased $36,000 primarily due to
the $22,000 recorded in 1997 for the continuing conservation study being
performed by the Center for Energy and Environmental Policy of the University
of Delaware, which was partially financed for the first three years through a
grant from Delaware's Department of Natural Resources and Environmental
Control.
Purchased power increased $70,000, or 8.0%, due to the use of
electricity in pumping a 6.0% increase in self-supplied water and in
connection with the increase in the number of treatment facilities operating
in Artesian Water's southern New Castle County service area. At various
times during 1997, five new stations were constructed to supply water to new
developments.
Water treatment expenses increased $59,000, or 17.4%, due to increases in
self-supplied pumpage and new treatment facilities, as noted above.
Expenses related to repairs and maintenance of Artesian Water's
distribution system declined nearly $37,000, or 5.6%, primarily due to a
reduction in tank painting expenses in 1997. Artesian Water was able to
repair and paint tanks in areas specifically requiring maintenance rather
than fully restoring a particular storage tank, which includes sand blasting,
maintenance, and fully coating interior and exterior surfaces.
Depreciation and Amortization
Depreciation and amortization expense increased $248,000, or 11.3%,
primarily due to the overall increase in utility plant in service at
December 31, 1997.
Taxes
Income tax expense increased $182,000, or 16.6%, reflecting the increased
profitability of Artesian Resources in 1997. Property and other taxes
increased $91,000, or 6.7%, due primarily to increases in local real estate
property taxes totaling $53,000 in 1997 when compared to 1996. This increase
results from property additions which include both land and miles of water
main on which Artesian Resources is assessed. Payroll taxes increased
approximately $38,000 as a result of overall increases in Artesian Resources
payroll expense. The total effective income tax rate for 1997 was 39.7% as
compared to 39.8% for 1996. See Notes 1 and 3 to the Consolidated Financial
Statements and the Schedule of Income Tax Expense.
Other Income
Allowance for funds used during construction (AFUDC) decreased
approximately $14,000, or 7.8%, as a result of a decrease in the number of
projects which were financed by Artesian Water and whose construction period
exceeded one month. See Note 1 to the Consolidated Financial Statements for
a complete discussion relating to the calculation of AFUDC. Other
miscellaneous expense decreased $78,000 in 1997 when compared to 1996 due
primarily to the return on Artesian Water's investment in CoBank as a
condition of the Bond Purchase Agreement entered into for sale of the Series
M and N First Mortgage Bonds and as provided for in CoBank's charter as a
cooperative Bank. Cooperative Banks by charter are owned by the clients who
use the Bank's facilities.
Interest Charges
The increase of $521,000, or 32.5%, in long-term debt interest expense
and the corresponding decrease of $480,000, or 54.5%, in short-term debt
interest expense is primarily attributable to the refinancing of Artesian
Water's short-term lines of credit through the issuance of the 7.84% Series M
and 7.56% Series N First Mortgage Bonds issued June 17, 1997 and September 18,
1997, respectively. See Note 6 to the Consolidated Financial Statements for
a complete discussion concerning Artesian Water's debt facilities.
1996 Compared to 1995
Utility Revenues
Although Artesian Water experienced a 2.2% increase in the number of
customers served from 1995 to 1996, the extremely wet weather conditions
during 1996, as well as the continuing effects of Artesian Water's
conservation education efforts, decreased per capita water usage, resulting
in 1996 water sales revenue just about equal to those of 1995. The number of
customers served increased from 56,672 in 1995 to 57,934 in 1996, while
customers' average billed consumption decreased to 258 gallons per day in
1996 compared to 276 gallons per day in 1995.
The $79,000, or 40.9%, increase in other utility revenues was primarily
attributable to a $33,000 increase in rental income received in 1996 from
various cellular communication providers as rent for antennas installed on
Artesian Water's storage tanks under long-term rental agreements with
Artesian Water. Revenue from late payment fees and purchase discounts also
increased $24,000 and $17,000, respectively.
Utility Operating Expenses
The expense for water purchased from neighboring utilities increased
$171,000, or 6.9%. The increase in purchased water expense was 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.
Effective October 1996, the minimum monthly purchase requirement from Chester
was increased to 121.6 million gallons from 108.3 million gallons. Artesian
Water also experienced an 8.3% price increase, or $29,000 annually based on
minimum required purchases, from the City of Wilmington effective
January 1, 1996.
Repair and maintenance expense increased $88,000, or 15.4%, primarily
due to increased tank painting expense. Artesian Water did not take any
storage tanks out of service for painting during the drought conditions in
1995. The remainder of the increase is primarily attributable to completing
routine maintenance work in 1996 which was not performed in 1995 due to the
drought conditions.
Payroll and related expenses for Artesian Water increased $143,000, or
2.6%, primarily due to a $189,000 increase related to annual salary
adjustments, promotions, and bonuses paid during 1996 of approximately 4.8%.
Offsetting this increase was a $46,000 reduction in employee benefits expense
primarily attributable to a change in medical insurance provider during 1996.
Administrative expenses decreased $92,000, or 5.6%, primarily due to a
drop in legal expenses. A significant portion of the 1995 legal costs were
one-time expenses associated with proceedings concerning applications for
additional franchised area of Artesian Water in southern New Castle County,
Delaware.
Depreciation and Amortization
Depreciation and amortization expense decreased $47,000, or 2.1%. The
disposal of the assets of the non-utility subsidiaries decreased depreciation
and amortization expense by $287,000 while the overall increase in utility
plant assets in service at December 31, 1996 increased Artesian Water's
depreciation and amortization expense by $240,000.
Taxes
Income tax expense in 1996 increased $305,000, or 38.5%, due primarily
to the loss reflected in 1995 associated with the disposition of non-utility
assets. The total income tax effective rate for 1996 was 39.8% as compared
to 39.7% for 1995. Property and other taxes decreased $22,000 from 1995 to
1996 due primarily to the disposal of the non-utility subsidiaries.
Other Income
Allowance for funds used during construction (AFUDC) decreased $54,000,
primarily due to two construction projects commenced and completed in 1995 at
a cost of approximately $5 million and financed by Artesian Water. Offsetting
the decrease in other income is the decrease in other miscellaneous expenses
of $115,000. The decrease was primarily attributable to one-time expenses
recorded in the settlement of an employee litigation matter in 1995.
Interest Charges
The decrease in interest and debt amortization expense of $223,000 was
attributable to the repayment of Artesian Development's building mortgage in
March 1996. Artesian Water's decreased use of its $15 million available
lines of credit also contributed to the decrease in interest expense. The
lines of credit were repaid as a result of the application of proceeds from
the public offering of equity securities in May 1996. Finally, Artesian
Water's Series J First Mortgage Bonds were repaid on December 1, 1996.
Non-Utility Revenues and Expenses
In 1997, Artesian Resources completed the sale of assets owned by
Artesian Laboratories Inc. a wholly owned subsidiary, and discontinued
operations of this non-regulated subsidiary. Expenses related to the active
pursuit of contractual relationships by Artesian Wastewater of $19,000 were
recorded in 1997. These expenses are one-third of the net expenses
attributable to AquaStructure Delaware, L.L.C. (AquaStructure) of which
Artesian Wastewater is a participant.
Liquidity & Capital Resources
The disclosure set forth below contains forward-looking statements which
involve risks and uncertainties. The investment in facilities and capital
needs of the Company may differ significantly from the forecasts set forth
below. Factors that might cause such a difference include, but are not
limited to, developments in the rate proceeding with the PSC pursuant to the
petition filed by Artesian Water on October 3, 1997, changes to construction
schedules for projects controlled by governmental agencies and the timing of
housing construction in new developments.
Overview
The sources of liquidity for 1997 were proceeds from the issuance of
Artesian Water's $10 million Series M and $5 million Series N First Mortgage
Bonds, cash flow from operations, proceeds from issuance of Common Stock, and
Advances and Contributions in Aid of Construction (CIAC). Cash flow from
operating activities is primarily provided by the operations of Artesian
Water and is impacted by operation and maintenance expenses, the timeliness
and adequacy of rate increases, and weather conditions, such as the extremely
wet conditions experienced in 1996 referred to above. Artesian Water also
maintains two separate short term lines of credit with an aggregate available
limit of $15.0 million. These funds are primarily used to finance Artesian
Water's capital expenditure program until cost effective long term financing
can be arranged.
Artesian Resources relies on its sources of liquidity for investments in
its facilities and to meet its various payment obligations. The total amount
of Artesian Resource's obligations related to the dividend and sinking fund
payments on preferred stock, interest payments on indebtedness, rental
payments and water service interconnection agreements for 1998 is anticipated
to be $5.6 million. Artesian Water currently estimates that its aggregate
investments in its facilities in 1998 will be approximately $15.6 million.
Investment in Facilities
Capital expenditures increased approximately $3.0 million for the year
ended December 31, 1997, or approximately 38.5% over capital expenditures
recorded in 1996. Utility plant financed by Artesian Water increased by
$4.5 million, or 70%, from $6.4 million recorded in 1996 to $10.9 million
for the year ended December 31, 1997. In addition, developers financed
$1.7 million for the installation of water mains and hydrants serving their
developments, consistent with the $1.7 million financed by developers
in 1996. Artesian Water continued its efforts to locate and develop new
sources of supply, particularly in southern New Castle County, investing over
$2.9 million in new wells and treatment facilities as it prepares to serve
new developments, and for the possible location of a water intensive industry
in southern New Castle County. The single largest project for Artesian Water
begun in 1997 was the replacement and renewal of a primary transmission main
and related appurtances totaling approximately $1.0 million for mains,
services and hydrants located in northern New Castle County. In southern New
Castle County, Artesian Water began its rehabilitation of the municipal
system in Townsend with the renewal of the primary transmission main costing
over $0.5 million in 1997. Artesian Water was also required to invest over
$1.3 million for the relocation of existing facilities resulting from
government mandated roadway construction projects. Investments in new
transmission and distribution facilities, including the relocation of an
existing elevated storage tank from northern to southern New Castle County,
totaled $0.8 million. Approximately $0.3 million was invested in the
continued progress toward a fully automated water delivery system.
Artesian Water intends to invest over $13.0 million in utility plant in
1998. Developers are expected to finance and construct an additional $2.6
million. Approximately $7.0 million of the total investment in plant is to
be initiated by Artesian Water. Of these projects within Artesian Water's
control, $2.0 million is expected to be invested in new sources of supply,
new treatment facilities, rehabilitation of current facilities and an Aquifer
Storage and Recovery System (ASR). The single largest project to be
undertaken in 1998 is phase two of a rehabilitation project for the water
system infrastructure in the town of Townsend totaling $0.9 million. As part
of Artesian Water's replacement and renewal program, Artesian Water will be
investing an additional $1.0 million to improve facilities at nearly 20
different locations. Continuing its system automation program, Artesian
Water is expected to put in place $0.5 million in new equipment designed
to transmit and receive information to and from tanks, wells, pumping and
treatment facilities. In addition, Artesian Water has projected an investment
of $0.5 million in new computer hardware and software designed to fully
automate systems, where appropriate, and assure "Year 2000" systems
compliance. Many computer systems using two-digit fields to store years must
be converted to read four-digit fields before the turn of the century in
order to recognize the difference between the years 1900 and 2000. Artesian
Resources has considered the impact of "Year 2000" issues on its computer
systems and applications and developed a remediation plan. No material
expenses were incurred in 1997 for the "Year 2000" project, and the Company
does not expect that the completion of the project will result in material
costs in the future in addition to the investment discussed above.
The remaining $6.0 million to be invested by Artesian Water is for
projects whose timing of project initiation and completion are directly
influenced by the needs of developers or governmental agencies. The
primary projects include wells, treatment facilities and transmission
systems for prospective developments in southern New Castle, Kent and Sussex
Counties which total $3.4 million in 1998. In addition, Artesian Water has
projected nearly $2.6 million for the relocation of existing mains as a
result of government mandated roadway construction. The projected single
most extensive relocation pertains to state highway interchange work under
construction on State Route 7 and Churchmans Road which will result in an
investment in 1998 by Artesian Water of approximately $1.0 million. With the
exception of the state highway relocation projects, Artesian Water may
exercise some discretion in the exact timing of many of these expenditures.
Financing
Artesian Resources utilizes several sources of liquidity to finance its
investment in utility plant and other fixed assets. Developer advances and
CIAC are used for the installation of mains and hydrants in new developments.
Capital expenditures in 1998 require the Company to utilize other sources of
liquidity beyond those provided by developers. Artesian Resources estimates
that approximately $12.7 million of its capital expenditures will be financed
by the operations of Artesian Water and external sources, including a
combination of capital contributions and short term borrowings by Artesian
Water under its revolving credit agreement discussed below. The remaining
$2.7 million of capital expenditures will be financed by developers.
At December 31, 1997, Artesian Resources had a working capital deficit of
approximately $0.4 million which increased from a deficit of approximately
$0.3 million in 1996. The increase in the working capital deficit results
from the increased use in 1997 of Artesian Water's lines of credit to finance
capital expenditures.
At December 31, 1997, Artesian Water had two lines of credit totaling $15
million to meet its temporary cash requirements. These revolving credit
facilities are unsecured. As of February 28, 1998, Artesian Water had $12.5
million of available unused funds under these lines. The interest rate for
borrowing under these lines is the London Interbank Offering Rate (LIBOR)
plus 1.5% or the bank's federal funds rate plus 1.5%, at Artesian Water's
discretion. Both facilities are reviewed annually by the respective banks
for renewal. Artesian Water will continue to have its two lines of credit
totaling $15.0 million and is currently negotiating with several banks for
the availability of up to an additional $5.0 million in lines of credit to
support future investment in its facilities.
Impact of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128") which introduces new methods for calculating earnings per
share. The Company adopted this Statement, as required, in December 1997.
The adoption of this Statement required the Company to restate earnings per
share reported in prior periods.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
("SFAS 129"). SFAS 129 establishes standards for disclosing information
about an entity's capital structure. SFAS 129 contains no change in
disclosure requirements for entities that were previously subject to the
requirements of Opinions 10 and 15 and Statement 47. The Company adopted
this Statement on December 31, 1997, as required.
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 plans to adopt this Statement on January 1, 1998, as required.
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 plans to adopt
this Statement on January 1, 1998, as required.
In February 1998, the FASB issued Statement of Financial Accounting
Standard No. 132 "Employees Disclosure about Pension and Other Postretirement
Benefits" ("SFAS 132"), which revises employers' 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
on January 1, 1998, as required.
Item 7a - Quantitative and Qualitative Disclosures about Market Risk
None.
Item 8 - Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
1997 1996
ASSETS
Utility plant, at original cost
less accumulated depreciation $ 97,694 $ 88,993
Current assets
Cash and cash equivalents 146 148
Accounts receivable, net 2,131 1,885
Unbilled operating revenues 1,869 1,663
Materials and supplies-at
cost on FIFO basis 610 621
Prepaid property taxes 519 490
Prepaid expenses and other 388 320
State and federal income taxes 135 233
5,798 5,360
Other assets
Non-utility property (less
accumulated depreciation
1997-$145;1996-$1,505) 349 874
Deferred income taxes --- 730
Other deferred assets 1,208 1,156
1,557 2,760
Regulatory assets, net 2,818 2,595
$107,867 $ 99,708
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock $ 1,780 $ 1,748
Additional paid-in capital 17,648 17,125
Retained earnings 6,887 6,614
Preferred stock 272 272
Total common stockholders' equity 26,587 25,759
Preferred stock-mandatorily redeemable 600 825
Long-term debt, net of current portion 32,103 26,259
59,290 52,843
Current liabilities
Notes payable 1,164 25
Current portion of long-term debt 46 350
Current portion of mandatorily
redeemable preferred stock 112 ---
Accounts payable 2,616 2,883
Overdraft payable 510 687
Deferred income taxes 189 179
Interest accrued 880 630
Customer deposits 370 378
Other 360 519
6,247 5,651
Deferred credits and other liabilities
Net advances for construction 17,880 19,080
Postretirement benefit obligation 1,704 1,759
Deferred investment tax credits 1,029 1,025
Deferred income taxes 176 ---
Commitments and contingencies (Note 13)
20,789 21,864
Net contributions in aid of construction 21,541 19,350
$107,867 $ 99,708
The notes and schedules are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amount)
For the Year Ended December 31,
1997 1996 1995
Operating revenues
Water sales $22,003 $20,547 $20,526
Other utility operating revenue 337 274 194
Non-utility operating revenue (Note 7) --- 71 1,911
22,340 20,892 22,631
Operating expenses
Utility operating expenses 12,487 11,855 11,527
Non-utility operating
expenses (Note 7) 41 53 1,614
Related party expenses (Note 8) 247 246 244
Depreciation and amortization 2,441 2,193 2,240
Taxes
State and federal income
Currently payable 336 61 668
Deferred 942 1,035 123
Property and other 1,439 1,348 1,370
Write-down on rental office building --- --- 784
Loss on disposal of Artesian
Laboratories --- --- 128
17,933 16,791 18,698
Operating income 4,407 4,101 3,933
Other income (expense)-net
Allowance for funds used
during construction 165 179 232
Miscellaneous (7) (85) (199)
158 94 33
Income before interest charges 4,565 4,195 3,966
Interest charges
Long-term debt 2,122 1,601 2,250
Short-term debt 400 880 463
Amortization of debt expense 25 26 26
Other 33 29 20
2,580 2,536 2,759
Net income 1,985 1,659 1,207
Dividends on preferred stock 93 105 119
Net income applicable to
common stock $ 1,892 $ 1,554 $ 1,088
Income per common share:
Basic $ 1.07 $ 1.03 $ 1.05
Diluted $ 1.07 $ 1.03 $ 1.05
Average common shares
outstanding during the period 1,762,374 1,508,744 1,031,656
Cash dividends per share of
common stock $ 0.92 $ 0.90 $ 0.63
The notes and schedules are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended December 31,
1997 1996 1995
Cash flows from operating activities
Net income $1,985 $1,659 $1,207
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization 2,287 2,031 2,082
Deferred income taxes, net 920 1,010 108
Allowance for funds used during const. (165) (178) (232)
Write-down on rental office building --- --- 784
Loss on disposal of Artesian Laboratories --- --- 128
Changes in assets and liabilities:
Accounts receivable, net (247) 249 (216)
Unbilled operating revenues (205) (332) (262)
Materials and supplies 11 (14) (5)
Prepaid property taxes (29) (28) (32)
Prepaid expenses and other (68) (83) (187)
Other deferred assets (22) 172 226
Regulatory assets (223) 120 (59)
Accounts payable (267) 148 (836)
State and federal income taxes 97 (373) 161
Interest accrued 250 (37) 38
Customer deposits and other, net (166) (2) 176
Postretirement benefit obligation (56) (14) (24)
Net cash provided by operating activities 4,102 4,328 3,057
Cash flows used in investing activities
Capital expenditures (net of AFUDC) (11,242) (8,084) (11,993)
Proceeds from sale of assets 366 2,107 23
Net cash used in investing activities (10,876) (5,977) (11,970)
Cash flows from financing activities
Net (repayments) borrowings under
line of credit agreements (7,919) (142) 7,700
Overdraft payable (177) 18 165
Net advances and contributions in aid
of construction 1,377 839 1,874
Proceeds from issuance of
long-term debt 15,000 --- 146
Proceeds from issuance of common stock 555 9,795 229
Dividends (1,712) (1,362) (768)
Repayment of mortgage bond --- (5,000) ---
Principal payments under capital
lease obligation (239) (336) (293)
Principal payments under long-term
debt obligations --- (2,017) (72)
Redemption of preferred stock (113) (148) (148)
Net cash provided by financing activities 6,772 1,647 8,833
Net decrease in cash and cash equivalents (2) (2) (80)
Cash and cash equivalents at
beginning of year 148 150 230
Cash and cash equivalents at end of year $ 146 $ 148 $ 150
Supplemental Disclosures of Cash Flow Information:
Interest paid $2,305 $2,547 $2,694
Income taxes paid $ 387 $ 468 $ 555
Supplemental Schedule of Non-Cash Investing and Financial Activities:
Capital lease obligations incurred $ 67 $ --- $ 114
The notes and schedules are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Common Shares
Preferred Shares Outstanding Common Shares
Outstanding 7% Class A Outstanding
Prior Preferred Non-Voting Class B
Balance as of
January 1, 1995 10,868 519,613 497,784
Net income
Par value adjustment on Class A
Non-Voting common stock (4)
Cash dividends declared
Common stock
Preferred stock
Issuance of common stock
Dividend reinvestment plan 6,527 3,336
Employee stock options 12,471 174
Reacquired shares held as treasury stock (3) (52) (2,359)
Mandatory sinking fund payments
Balance as of
December 31, 1995 10,868 538,559 498,935
Net income
Cash dividends declared
Common stock
Preferred stock
Issuance of common stock
Bonus issuances 3,425
Dividend reinvestment plan 8,866 4,670
Employee stock options 18,830
Issuance of common stock (5) 675,000
Mandatory sinking fund payments
Balance as of
December 31, 1996 10,868 1,244,680 503,605
Net income
Cash dividends declared
Common stock
Preferred stock
Issuance of common stock
Bonus issuances 2,250
Dividend reinvestment plan 7,832 3,757
Employee stock options 4,844
Issuance of common stock (5) 13,303
Mandatory sinking fund payment
Balance as of
December 31, 1997 10,868 1,272,909 507,362
$25 Par
Value $1 Par $1 Par
Preferred Value Class A Value Class B
7% Prior Non-Voting (1) (2)
Preferred
Balance as of
January 1, 1995 $272 $3,638 $498
Net income
Par value adjustment on Class A
Non-Voting common stock (4) (3,118)
Cash dividends declared
Common stock
Preferred stock
Issuance of common stock
Dividend reinvestment plan 7 3
Employee stock options 12
Reacquired shares held as treasury stock (2)
Mandatory sinking fund payments
Balance as of
December 31, 1995 $272 $ 539 $499
Net income
Cash dividends declared
Common stock
Preferred stock
Issuance of common stock
Bonus issuances 3
Dividend reinvestment plan 9 5
Employee stock options 18
Issuance of common stock (5) 675
Mandatory sinking fund payments
Balance as of
December 31, 1996 $272 $1,244 $504
Net income
Cash dividends declared
Common stock
Preferred stock
Issuance of common stock
Bonus issuances 2
Dividend reinvestment plan 8 3
Employee stock options 5
Employee retirement plan (6) 14
Mandatory sinking fund payments
Balance as of
December 31, 1997 $272 $1,273 $507
Additional
Paid-in Retained
Capital Earnings Total
Balance as of January 31, 1995 $ 4,714 $5,878 $15,000
Net income 1,207 1,207
Par value adjustment on Class A
Non-Voting common stock (4) 3,118
Cash dividends declared
Common stock (649) (649)
Preferred stock (119) (119)
Issuance of common stock
Dividend reinvestment plan 136 146
Employee stock options 110 122
Reacquired shares held as
treasury stock (3) (37) (39)
Mandatory sinking fund payments
Balance as of December 31, 1995 $ 8,041 $6,317 $15,668
Net income 1,659 1,659
Cash dividends declared
Common stock (1,258) (1,258)
Preferred stock (104) (104)
Issuance of common stock
Bonus issuances 43 46
Dividend reinvestment plan 198 212
Employee stock options 242 260
Issuance of common stock (5) 9,450 10,125
Stock issuance cost (849) (849)
Mandatory sinking fund payments
Balance as of December 31, 1996 $ 17,125 $6,614 $25,759
Net income 1,985 1,985
Cash dividends declared
Common stock (1,619) (1,619)
Preferred stock (93) (93)
Issuance of common stock
Bonus issuances 36 38
Dividend reinvestment plan 193 204
Employee stock options 65 70
Employee retirement plan (6) 229 243
Mandatory sinking fund payments
Balance as of December 31, 1997 $ 17,648 $6,887 $26,587
(1) At December 31, 1997 and 1996, Class A Non-Voting Common Stock had
3,500,000 shares authorized. At December 31, 1995, the Class A
Non-Voting Common Stock had no par value and 1,000,000 shares were
authorized.
(2) At December 31, 1997 and 1996, Class B Common Stock had 1,040,000 shares
authorized. At December 31, 1995, the Class B Common Stock had
520,000 shares authorized.
(3) Treasury stock is recorded at cost.
(4) On May 23, 1995, a reclassification on the balance sheet between common
stock and additional paid in capital occurred as a result of the
shareholders' approval to change the Class A Non-Voting Common Stock
from no par stock to stock with a par value of $1.00 per share.
(5) Artesian Resources Corporation issued 675,000 shares of Class A
Non-Voting Common stock on May 24, 1996.
(6) Artesian Resources registered 200,000 shares of Class A Non-Voting Common
Stock available for purchase through the Artesian Retirement Plan and the
Artesian Supplemental Retirement Plan.
The notes and schedules are an integral part of the consolidated financial
statements.
SCHEDULE OF INCOME TAX EXPENSE
(In thousands)
For the Year Ended December 31,
1997 1996 1995
State Income Taxes
Current $ (23) $ 47 $141
Deferred - current
Property taxes 2 4 3
Allowance for bad debts (4)
Deferred - non-current
Accelerated depreciation 235 225 224
Rate case expenses 27 (6) 8
Taxable contractor advances and
contributions in aid of construction 62 (5) (120)
Tax credit carryforwards (31) --- ---
Other 21 (11) 10
Total State Income Tax Expense $ 293 $250 $266
Federal Income Taxes
Current $ 359 $ 14 $527
Deferred - current
Property taxes 10 8 10
Allowance for bad debts (2) (12) ---
Deferred non-current
Accelerated depreciation 876 666 681
Rate case expenses 95 (22) 29
Taxable contractor advances
and contributions in aid of
construction 222 (17) (427)
Federal tax credit carryforwards (532) --- ---
Amortization of investment tax credits 8 (35) (36)
Write-down on rental building
and Artesian Laboratories --- 265 (310)
Amortization of regulatory
asset for deferred taxes 15 15 15
Other (66) (36) 36
Total Federal Income Tax Expense $985 $846 $525
RECONCILIATION OF EFFECTIVE TAX RATE
(In thousands)
1997 1996 1995
Amount % Amount % Amount %
Reconciliation of Effective Tax Rate
Income before
federal and state
income taxes less
amortization of
deferred investment
tax credits $3,221 100.0 $2,755 100.0 $1,999 100.0
Amount computed at
statutory rate 1,095 34.0 937 34.0 680 34.0
Reconciling items
State income tax-net
of federal tax
benefit 193 6.0 165 6.0 176 8.8
Allowance for funds used
during construction not
treated as income
for tax purposes --- --- --- --- (79) (3.9)
Other (10) (.3) (6) (.2) 14 0.8
Total Income Tax Expense
and Effective Rate $1,278 39.7 $1,096 39.8 $ 791 39.7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share information)
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation-- The consolidated financial statements include
the accounts of Artesian Resources Corporation and its wholly-owned
subsidiaries (Artesian Resources or the Company), including its principal
operating company, Artesian Water Company, Inc. (Artesian Water). Appropriate
eliminations have been made of all material intercompany transactions and
account balances.
Utility Subsidiary Accounting-- The accounting records of Artesian Water are
maintained in accordance with the uniform system of accounts as prescribed by
the Delaware Public Service Commission (PSC). Artesian Water follows the
provisions of Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation," which provides guidance for
companies in regulated industries.
Utility Plant and Capitalized Leases-- All additions to plant are recorded at
cost. Cost includes direct labor, materials, and indirect charges for such
items as transportation, supervision, pension, and other fringe benefits
related to employees engaged in construction activities. When depreciable
units of utility plant are retired, the cost of retired property, together
with any cost associated with retirement and less any salvage value or
proceeds received, is charged to accumulated depreciation. Maintenance,
repairs, and replacement of minor items of plant are charged to expense as
incurred.
In accordance with a rate order issued by the PSC, Artesian Water
accrues an Allowance for Funds Used During Construction (AFUDC). AFUDC, which
represents the cost of funds devoted to construction projects through the date
the project is placed in service, is capitalized as part of construction work
in progress. The rate used for the AFUDC calculation is based on Artesian
Water's weighted average cost of debt and the rate of return on equity
authorized by the PSC. The rate used to capitalize AFUDC in 1997, 1996, and
1995 was 9.7%, 10.9%, and 10.6%, respectively.
Utility plant comprises:
Estimated December 31,
Useful Life 1997 1996
Utility plant, at original cost
Utility plant in service
Intangible plant --- $ 118 $ 101
Source of supply plant 19-47 yrs. 4,327 3,704
Pumping and water
treatment plant 27-31 yrs. 10,257 9,280
Transmission and distribution plant
Mains 79 yrs. 64,468 59,577
Services 50 yrs. 10,769 9,841
Storage Tanks 54 yrs. 7,495 7,493
Meters 26 yrs. 6,422 5,979
Hydrants 59 yrs. 3,708 3,437
General plant 5-57 yrs. 8,385 9,488
Property held for future use --- 2,098 1,310
Construction work in progress --- 2,830 2,102
120,877 112,312
Less - accumulated depreciation 23,183 23,319
$ 97,694 $88,993
Depreciation and Amortization-- For financial reporting purposes,
depreciation is provided using the straight-line method at rates based on
estimated economic useful lives which range from 3 to 79 years. Composite
depreciation rates for utility plant were 2.38%, 2.35%, and 2.12% for the
years ended December 31, 1997, 1996, and 1995, respectively. In rate orders
issued by the PSC, Artesian Water was directed effective May 28, 1991 and
August 25, 1992 to offset depreciation on utility property funded by
Contributions in Aid of Construction (CIAC) and Advances for Construction
(Advances), respectively, against CIAC and Advances. Other deferred assets
are amortized using the straight-line method over applicable lives which range
from two to ten years. The expense which would result from depreciating
Artesian Water's leased office building and shop complex on a straight-line
basis over the lease term is not an allowable cost of service. Thus,
depreciation of the leased property has been modified so that the total
interest on the lease obligation and depreciation of the leased property is
equal to the rental expense that is allowed for ratemaking purposes.
Regulatory Assets-- Certain expenses, which are recoverable through rates as
permitted by the 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 postretirement benefit obligation,
which is being amortized over 20 years, is adjusted for the difference between
the net periodic postretirement 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 customers reverse.
Regulatory assets at December 31, net of amortization, comprise:
1997 1996
Postretirement benefit obligation $1,704 $1,759
Deferred income taxes recoverable
in future rates 710 725
Expense of rate proceedings 404 111
$2,818 $2,595
Other Deferred Assets-- Certain expenses are deferred and amortized using
the straight-line method over various time periods ranging from 2 years to
25 years. In 1992, Artesian Water entered a ten-year agreement for a water
service interconnection with the Chester (Pennsylvania) Water Authority
(Chester). The interconnection was placed in service during October 1992
at a total cost of $1.5 million and is being amortized over a ten year period
as approved by the PSC.
Other deferred assets at December 31, net of amortization, comprise:
1997 1996
Chester Interconnection $ 730 $ 884
Debt issuance expense 256 137
Other 222 135
$1,208 $1,156
Advances for Construction-- Water mains, services and hydrants or cash
advances to reimburse Artesian Water its costs to construct water mains,
services and hydrants, are contributed to Artesian Water by customers, real
estate developers and builders in order to extend water service to their
properties. The value of these contributions is recorded as Advances for
Construction. Artesian Water makes refunds on these advances over a specific
period of time based on operating revenues generated by the specific plant or
as new customers are connected to the mains. After all refunds are made, any
remaining balance is transferred to Contributions in Aid of Construction.
Contributions in Aid of Construction-- Contributions in Aid of Construction
include the non-refundable portion of advances for construction and direct
contributions of water mains, services and hydrants or cash to reimburse
Artesian Water its costs to construct water mains, services and hydrants by
customers, real estate developers and builders in order to extend water
service to their properties.
Income Taxes-- Deferred income taxes are provided in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109) on all differences between the tax basis of
assets and liabilities and the amounts at which they are carried in the
financial statements based on the enacted tax rates to be in effect when such
temporary differences are expected to reverse.
The difference between state income tax at the statutory rate of 8.7%
and the effective rate of 9.1%, 9.1%, and 13.3% in 1997, 1996, and 1995,
respectively, is primarily attributable to Artesian Resources filing a
separate state tax return for each of its subsidiaries as required, whereby
current year losses of certain subsidiaries cannot be offset against taxable
income of others.
The Tax Reform Act of 1986 mandated that Advances and CIAC received
subsequent to December 31, 1986, generally are taxable income to Artesian
Water. For Advances, Artesian Water was directed by the PSC to pay the
related taxes and collect amounts equal to the taxes paid from the developer.
For CIAC, Artesian Water was directed to pay the taxes instead of the
developer contributing the taxes. The 1996 Tax Act provides an exclusion from
taxable income for CIAC and Advances received after June 12, 1996 by Artesian
Water that are not included in rate base for rate-making purposes.
Investment tax credits were deferred through 1986 and are recognized as
a reduction of deferred income tax expense over the estimated economic useful
lives of the related assets.
Net Income Per Common Share-- The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" in the fourth
quarter of 1997. SFAS No. 128 requires the Company to use methods for
calculating earnings per share that differ from methods used in prior
periods and requires the Company to restate net income per share reported in
prior periods. The adoption of this statement had no effect on the results
of operations, financial conditions, or long-term liquidity.
Revenue Recognition and Unbilled Revenues-- Water service revenue for
financial statement purposes includes amounts billed to customers on a cycle
basis and unbilled amounts based upon estimated usage from the date of the
last meter reading to the end of the accounting period.
Cash and Cash Equivalents-- For purposes of the Consolidated Statement of
Cash Flows, Artesian Resources considers all temporary cash investments with a
maturity of three months or less to be cash equivalents. Artesian Water
utilizes its bank's controlled disbursement service to reduce the use of its
line of credit by funding checks as they are presented to the bank for payment
rather than at issuance. If the checks currently outstanding but not yet
funded exceed the cash balance on Artesian Water's books, the net liability is
recorded as a current liability on the balance sheet in the "overdraft
payable" account.
Use of Estimates in the Preparation of Consolidated Financial Statements--
The consolidated financial statements were prepared in conformity with
generally accepted accounting principles, which require management to make
estimates that affect the reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from management's estimate.
NOTE 2
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
Current Assets and Liabilities-- For those current assets and liabilities
that are considered financial instruments, the carrying amounts approximate
fair value because of the short maturity of those instruments.
Long-term Financial Liabilities-- The fair value of Artesian Resources'
long-term debt and mandatorily redeemable preferred stock as of December 31,
1997 and 1996, determined by discounting their future cash flows using current
market interest rates on similar instruments with comparable maturities, are
approximately as follows:
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Long-term debt $32,103 $34,200 $26,259 $27,363
Mandatorily redeemable
preferred stock $ 713 $ 716 $ 825 $ 799
The fair value of Advances cannot be reasonably estimated due to the
inability to accurately estimate future refunds expected to be paid over the
life of the contracts. Refund payments are based on the water sales to new
customers in the particular development constructed. Future refunds expected
to be paid would have to be estimated on a per contract basis using the past
history of refund payments. The fair value of Advances would be less than the
carrying amount because these financial instruments are non-interest bearing.
NOTE 3
INCOME TAXES
Deferred income taxes reflect temporary differences between the
valuation of assets and liabilities for financial tax reporting. Deferred
income taxes at December 31, 1997, and 1996 are comprised of the following:
1997 1996
Deferred tax assets related to:
Federal minimum tax credit carryforwards $ 560 $ 212
Federal and state operating loss carryforwards 898 660
Bad debt allowance 18 16
Valuation allowance (670) (660)
Total deferred tax assets 806 228
Deferred tax liabilities related to:
Property plant and equipment basis differences (796) 610
Expenses of rate proceedings (161) (39)
Property taxes (207) (195)
Other (7) (53)
Total deferred tax liabilities (1,171) 323
Net deferred tax liability $ (365) $ 551
Deferred taxes, which are classified into a net current and noncurrent
balance, are presented in the balance sheet as follows:
1997 1996
Current deferred income tax $ (189) $ (179)
Noncurrent deferred income tax (176) 730
Net deferred tax (liability) asset $ (365) $ 551
At December 31, 1997 for state income tax purposes, Artesian Resources
had net operating loss carryforwards aggregating approximately $8.1 million,
which will expire if unused between 1997 and 2012. Artesian Resources has
recorded a valuation allowance to reflect the estimated amount of deferred
tax assets that may not be realized due to the expiration of the state net
operating loss carryforwards. The valuation allowance increased from $660 in
1996 to $670 in 1997 as a result of an increase in net operating losses that
are expected to expire unutilized.
At December 31, 1997 for federal income tax purposes, there was a
consolidated net operating loss carryforward of approximately $575, which can
be carried forward through 2012. Also, at December 31, 1997, for federal
income tax purposes, there were minimum tax credit carryforwards aggregating
approximately $560 resulting from the payment of alternative minimum tax in
current and prior years. These minimum tax credit carryforwards may be
carried forward indefinitely to offset future regular federal income taxes.
Artesian Resources has not recorded a valuation allowance for these federal
tax carryforwards, because the Company believes it is more likely than not
that such benefits will be realized.
NOTE 4
PREFERRED STOCK
Artesian Resources has two classes of preferred stock outstanding. The
7% Prior Preferred stock (on which dividends are cumulative) is redeemable at
Artesian Resources' option at $30 per share plus accrued dividends. The 9.96%
Series Cumulative Prior Preferred stock has annual mandatory redemption
requirements and is redeemable at Artesian Resources' option at various
declining prices ranging from $25.75 through January 31, 2000, to $25.00
after February 1, 2003. The remaining shares outstanding on the 8 1/2%
Series Cumulative Prior Preferred Stock will be redeemed at $25.00 per share
on January 31, 1998. Under mandatory sinking fund provisions, redemptions
will aggregate $113 (4,500 shares) in 1998; and $100 (4,000 shares) in 1999,
2000, 2001, and 2002. The Company also has 100,000 shares of $1 par value
Series Preferred stock authorized but unissued. See the Consolidated
Statement of Stockholders' Equity.
The following Cumulative Prior Preferred stock was outstanding at
December 31:
Par Value
of Shares Cash
Shares Outstanding Dividends
Mandatorily Redeemable
Authorized 80,000
Outstanding at December 31:
9 5/8% Series
1997 --- $ --- $ ---
1996 --- --- 1
1995 600 15 2
8 1/2% Series
1997 500 $ 13 $ 1
1996 1,000 25 2
1995 1,500 38 3
11 1/8% Series
1997 --- $ --- $ ---
1996 --- --- 1
1995 800 20 3
9.96% Series
1997 28,000 $ 700 $ 72
1996 32,000 800 82
1995 36,000 900 92
NOTE 5
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
In 1996, Artesian Resources issued 675,000 shares of Class A Non-Voting
Common Stock (Class A Stock) at $15.00 per share. Net proceeds from the
offering were used to reduce debt incurred to finance investment in utility
plant.
The Class A Stock of Artesian Resources began trading on the Nasdaq
National Market (symbol ARTNA) on Friday, May 24, 1996. Also on May 24, 1996,
the trading symbol of Artesian Resources' Class B Common Stock changed to
ARTNB. The Class B Common Stock is traded on the Nasdaq Bulletin Board.
Contributions to the Tax Reduction Act Employees' Stock Ownership Plan
(PAYSOP) by Artesian Resources for the purchase of its Class B Common stock on
behalf of employees were limited to dividend reinvestments in 1997, 1996, and
1995. In 1997 the PAYSOP was merged into the Company's 401(k) plan. Under
Artesian Resources' dividend reinvestment plan, stockholders were issued
11,589, 13,536, and 9,863 shares at fair market value for the reinvestment of
$204, $212, and $145 of their cash dividends for the years 1997, 1996 and
1995, respectively.
NOTE 6
DEBT
Artesian Water has available unsecured lines of credit, with no
financial covenant restrictions, totaling $15.0 million at December 31, 1997
which are renewable annually at the banks' discretion. Borrowings under the
lines of credit bear interest based on the London Interbank Offering Rate
(LIBOR) plus 1.5% for 30, 60, 90, or 180 days or the banks' Federal Funds
Rate plus 1.5%, at the option of Artesian Water.
At December 31, 1997, 1996, and 1995, Artesian Water had $1.1 million,
$9.1 million, and $9.2 million outstanding under these lines at weighted
average interest rates of 7.6%, 7.0%, and 7.4%, respectively. The maximum
amount outstanding was $13.0 million, $11.4 million, and $9.5 million in
1997, 1996, and 1995, respectively. The average amount outstanding was
approximately $5.1 million, $9.1 million and $5.4 million, at weighted
average annual interest rates of 6.5%, 6.9%, and 7.8% in 1997, 1996, and
1995, respectively. At December 31, 1996, the $9.1 million outstanding on
these lines and a $113 sinking fund payment due in 1997 were classified as
long-term debt due to a refinancing agreement entered into on March 31, 1997.
Artesian Laboratories had a line of credit with a bank totaling $75 at
December 31, 1996, secured by equipment and accounts receivable, and
guaranteed by Artesian Resources and its subsidiaries other than Artesian
Water. Artesian Laboratories had $25 outstanding under this line at
December 31, 1996 and 1995. This line was repaid and terminated prior to the
sale of the net assets of Artesian Laboratories as explained in Note 12.
On March 13, 1996, the Company completed the sale of Artesian
Development's rental office building and 4.27 acres of land for $2.1 million.
The proceeds were used to repay the mortgage on the property and related
closing costs (See Note 11).
On June 17, 1997, Artesian Water issued a $10.0 million, 7.84%, ten year
Series M Mortgage Bond and borrowed $2.5 million against a $5.0 million, ten
year Series N Mortgage Bond to repay the outstanding balance on the lines of
credit. On September 18, 1997, Artesian Water borrowed the remaining $2.5
million on the Series N Mortgage Bond. The $5.0 million, ten year Series N
First Mortgage Bond has a fixed interest rate of 7.56%. On December 1, 1996,
the $5.0 million Series J First Mortgage Bond was repaid. No other
repayments or sinking fund deposits on first mortgage bonds are required over
the next five years. As of December 31, 1997 and 1996, substantially all of
Artesian Water's utility plant was pledged as security for the First Mortgage
Bonds. In addition, the trust indentures contain covenants which limit
long-term debt, including the current portion thereof, to 66 2/3% of total
capitalization including the current portion of the long-term debt, and which,
in certain circumstances, could restrict the payment of cash dividends. As
of December 31, 1997, however, no dividend restrictions were imposed under
these covenants.
Long-term debt consists of:
December 31,
1997 1996
First mortgage bonds
Series K, 10.17%, due March 1, 2009 $ 7,000 $ 7,000
Series L, 8.03%, due February 1, 2003 10,000 10,000
Series M, 7.84%, due December 31, 2007 10,000 ---
Series N, 7.56%, due December 31, 2007 5,000 ---
32,000 17,000
Notes payable --- 9,058
Capitalized lease obligations 149 551
32,149 26,609
Less current maturities 46 350
$ 32,103 $ 26,259
NOTE 7
NON-UTILITY OPERATING REVENUE AND EXPENSES
Non-utility operating revenue consists of environmental testing revenue
received by Artesian Laboratories and rental income received by Artesian
Development as follows:
1996 1995
Artesian Laboratories (1) $ --- $ 1,616
Artesian Development (2) 71 295
Total $ 71 $ 1,911
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. This company did not engage in any business activity
in 1996. On March 12, 1997 Artesian Wastewater became a one-third member in
AquaStructure Delaware, L.L.C. which intends to develop and market various
proposals to provide wastewater treatment services.
Non-utility operating expenses are as follows:
1997 1996 1995
Artesian Laboratories (1) $ 10 $ --- $1,366
Artesian Development (2) --- 53 242
Artesian Resources 12 --- 6
Artesian Wastewater 19 --- ---
Total $ 41 $ 53 $1,614
(1) See Note 12.
(2) See Note 11.
NOTE 8
RELATED PARTY TRANSACTIONS
The office building and shop complex utilized by Artesian Water are
leased at an annual rental of $204 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 (See Note 13).
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 $43. 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:
1997 1996 1995
White Clay Realty $204 $204 $204
Glendale Enterprises 43 42 40
Total $247 $246 $244
NOTE 9
STOCK COMPENSATION PLANS
At December 31, 1997, the Company has two stock-based compensation
plans, which are described below. The Company applies APB Opinion 25 and
related Interpretations in accounting for compensation expense under its
plans. Accordingly, the compensation cost that has been charged against
income for the two plans was $48, $42, and $20 for 1997, 1996, and 1995,
respectively. Had compensation cost for the Company's two plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method recommended by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS
123), the Company's net income and net income per common share would have
been reduced to the pro-forma amounts indicated below:
1997 1996 1995
Net income applicable to common stock
As reported $1,892 $1,554 $1,088
Pro-forma $1,850 $1,496 $1,064
Basic net income per common share
As reported $ 1.07 $ 1.03 $ 1.05
Pro-forma $ 1.05 $ 0.99 $ 1.03
Diluted net income per common share
As reported $ 1.07 $ 1.03 $ 1.05
Pro-forma $ 1.04 $ 0.99 $ 1.03
In 1995, the Company continued the 1992 Non-qualified Stock Option Plan
(the 1992 Plan), under which options may be granted to purchase up to 50,000
shares, subject to certain adjustments, of the Company's Class A Stock.
Options to purchase shares of Class A Stock may be granted to employees at
prices not less than 85% of the fair market value on the date of grant.
Employees who participate and who are not executive officers or directors of
the Company may receive options to purchase up to 1,000 shares. Each
director or officer who participates in any year receives an option to
purchase 3,000 shares of stock. The option price for directors and officers
of the Company is 90% of the fair market value on the date of grant. Options
granted under this plan extend for a period of one year, are exercisable after
six months of service from the date of initial grant, after one year of
service to the Company, and are adjusted for stock dividends and splits. No
more than 34 directors, officers and employees were permitted to participate
in the 1992 Plan in 1995.
On April 30, 1996, the Board of Directors amended the 1992 Plan. Under
the amended plan: (i) the number of shares of Class A Stock authorized for
issuance was increased to 100,000, (ii) the maximum amount of shares of Class
A Stock that may be granted to any individual during the term of the 1992 Plan
is an amount equal to 50% of the number of shares of Class A Stock available
for issuance under the 1992 Plan, (iii) the Company may require a participant
to enter into a covenant not to compete and/or a confidentiality agreement as
a condition of an option grant, (iv) provisions relating to grants to
directors and officers of the Company were changed to add a prohibition on
amending such provisions more than once in any six month period, to extend the
exercise term from one to ten years and to eliminate the possibility of
administrative discretion with respect to such grants, and (v) the provision
that limited to 34 the number of plan participants eligible to receive options
under the 1992 Plan within any calendar year was removed.
On April 30, 1996, the Board of Directors adopted the Incentive Stock
Option Plan (ISO Plan), under which the Company may grant options to its key
employees and officers for up to 100,000 shares of Class A Stock. Options
are granted at the fair market value on the date of grant. The option
exercise period shall not exceed ten years from the date of grant and will be
determined by the Company for each stock option granted. Options granted will
vest in accordance with the terms and conditions determined by the Company and
are adjusted for stock dividends and splits.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995,
respectively: dividend yield of 5.1%, 6.0% and 4.8%; expected volatility of
..33% for 1997 and .31% for 1996 and 1995; risk free interest rates of 5.63%,
4.90% and 5.42% for the employee options under the 1992 Plan, 6.65%, 6.60% and
5.89% for the director and officer options under the 1992 Plan and 6.60% for
the 1996 ISO Plan options; and expected lives of one year for the employee
options under the 1992 Plan for all years, five years for 1997 and 1996
and one year for 1995 for the director and officer options under the 1992
Plan, and five years for the 1996 ISO Plan options. In 1997, no ISO Plan
options were granted.
The following summary reflects changes in the Class A shares under option:
1997 1996 1995
Options outstanding at beginning
of year (1997-$11.09-$15.54,
1996-$11.26 to $12.49,
1995-$8.55 to $8.08) 43,554 25,063 18,231
Granted (1997-$14.24 to $15.73,
1996-$11.90 to $15.54, &
1995-$11.26 to $12.49) 25,887 47,340 25,450
Exercised (1997-$11.90 to $15.09,
1996-$11.26 to $12.49, &
1995-$8.08 to $11.26) (4,844) (18,709) (12,467)
Options reverting back to the
plan during the year (811) (10,140) (6,151)
Options outstanding and exercisable
at end of year (1997-$12.71
to $15.73, 1996-$11.09 to $15.54,
& 1995-$11.26 to $12.49) 63,786 43,554 25,063
NOTE 10
EMPLOYEE BENEFIT PLANS
401(k) Plan--
Artesian Resources has a defined contribution 401(k)Salary Reduction
Plan (the Plan) which covers substantially all employees. Under the terms of
the Plan, Artesian Resources contributes 2% of eligible salaries and wages and
matches employee contributions up to 6% of gross pay at a rate of 50%.
Artesian Resources may, at its option, make additional contributions of up to
3% of eligible salaries and wages. No such additional contributions were made
in 1996, 1995, and 1994. Plan expenses, which include Company contributions
and administrative fees, for the years 1997, 1996, and 1995, were
approximately $255, $259, and $239, respectively.
Postretirement Benefit Plan--
Artesian Resources has a Postretirement Benefit Plan (the Benefit Plan)
which provides medical and life insurance benefits to certain retired
employees. Prior to the amendment of the Benefit Plan, as described below,
substantially all employees could become eligible for these benefits if they
reached retirement age while still working for Artesian Resources.
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106)
requires Artesian Resources to accrue the expected cost of providing
postretirement health care and life insurance benefits as employees render
the services necessary to earn the benefits. Artesian Resources elected to
defer recognition and amortize its approximately $3.1 million transition
obligation over twenty years, of which $154 was recognized at December 31,
1993.
In February of 1994, Artesian Resources amended its Benefit Plan
effective January 1, 1993 to reduce eligibility. As a result of the
amendment, only current retirees and certain "grandfathered" active employees
are eligible for benefits.
The amendment had the effect of reducing the unrecognized obligation by
approximately $1.5 million to $1.6 million, and eligible participants by 108
to 23. The amendment also had the effect of curtailing the Benefit Plan.
This curtailment resulted in a curtailment loss of approximately $1.5 million
This loss, when added to the 1993 amortization of $154 increased the
Company's recorded liability with respect to SFAS 106 to approximately
$1.6 million.
Artesian Resources recognized an offsetting regulatory asset with
respect to the SFAS 106 liability. This asset is recorded based on the PSC
order which permits Artesian Water to continue recovery of postretirement
health care and life insurance expense on a pay-as-you-go basis for the
remaining eligible employees. Artesian Water anticipates liquidating its SFAS
106 obligation and substantially recovering the expenses in rates over a
period of approximately 20 years (based on the age and life expectancy of the
remaining eligible participants). Further, expense recovery as a percentage
of rates is expected to remain constant over the initial years, and then
decline until the obligation is liquidated. Amounts charged to expense were
$70, $90, and $105 for 1997, 1996 and 1995 respectively.
The following table sets forth the amount recognized in Artesian Resources'
consolidated balance sheet for the Benefit Plan as of December 31:
1997 1996
Accumulated Postretirement Benefit Obligation
Retirees $ (823) $ (855)
Actives fully eligible (50) (71)
Total Accumulated Postretirement Benefit
Obligation (873) (926)
Unrecognized:
Transition obligation 136 145
Net gain from changes in assumptions (967) (978)
Postretirement Benefit Obligation $(1,704) $(1,759)
Net Periodic Postretirement Benefit Cost for:
1997 1996
Interest cost $ 69 $ 94
Amortization of transition obligation 8 8
Amortization of net gain (63) (26)
Total Net Periodic Postretirement
Benefit Cost 14 76
Amounts charged to expense 70 90
Decrease in Regulatory Asset $ (56) $ (14)
For measurement purposes, a 9.5% annual rate of increase in per capita
cost of covered health care benefits was assumed for 1997; the rate was
assumed to decrease gradually to 5% through the year 2006 and remain at that
level thereafter. The health care cost trend rate assumption has a
significant effect on the amount of the obligation and periodic cost reported.
An increase in the assumed health care cost trend rates by 1% in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1997 by $62 and the interest cost component of net periodic
postretirement benefit cost for the year then ended by $5.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% and 7.75% for the years ended
December 31, 1997 and 1996, respectively.
Supplemental Pension Plan--
Effective October 1, 1994, Artesian Water established a Supplemental
Pension Plan (the Supplemental Plan) to provide additional retirement benefits
to full time employees hired prior to April 26, 1994. The purpose of the
Supplemental Plan is to help employees save for future retiree medical costs,
which will be paid by employees. The Supplemental Plan accomplishes this
objective by providing additional cash resources to employees upon a
termination of employment or retirement, to meet the cost of future medical
expenses. Artesian Water has established a contribution based upon each
employee's years of service ranging from 2% to 6% of eligible salaries and
wages. Artesian Water also provides additional benefits to individuals who
were over age 50 as of January 1, 1994. These individuals are referred to as
the "Transition Group." Effective November 1, 1994, individuals eligible for
the Transition Group had the opportunity to defer compensation to the
Supplemental Plan, and to receive a transition matching contribution for 5
years. Each one dollar of eligible salaries and wages deferred by the
Transition Group is matched with three, four, or five dollars by Artesian
Water based on the employee's years of service subject to certain limitations
under the federal tax rules. Plan expenses, which include Company
contributions and administrative fees, for the years 1997, 1996, and 1995
were approximately $228, $220, and $221, respectively.
NOTE 11
DISPOSAL OF NON-UTILITY ASSETS
In October 1995, Artesian Development entered into an agreement with an
unrelated third party for the sale of its rental office building and 4.27
acres of land with a net book value of $2.7 million at December 31, 1995 for
$2.1 million, resulting in a loss of $0.8 million. The loss reflects the
difference between the net book value and the selling price, and also
includes $0.2 million in expenses associated with completing the sale. The
loss on disposal of this building, net of tax benefit, reduced basic and
diluted net income per share by $0.46 for the year ended December 31, 1995.
The sale of this rental office building was completed in March 1996.
NOTE 12
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 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 and
estimated additional expenses associated with completing the sale. The
estimated loss, net of tax benefit, associated with the disposal of Artesian
Laboratories, reduced basic and diluted net income per share by $0.07 for the
year ended December 31, 1995. The disposal of Artesian Laboratories was
completed on April 9, 1997.
NOTE 13
COMMITMENTS
The office building and shop complex are leased at an aggregate annual
rental of $204 from a partnership, White Clay Realty (See Note 8). Artesian
Water may terminate the lease at any time by purchasing the leased facilities
for (1) an amount equal to the sum of any mortgage on such facilities and any
accrued rental to date or (2) its fair market value, whichever is higher.
The original lease has been accounted for as a capital lease; accordingly,
the present value of all future payments for the leased property at the
inception of the lease ($1.9 million) was recorded in General Plant and in
Capitalized Lease Obligations. At December 31, 1997, the fully amortized
leased property was retired from General Plant and the five year lease
renewal, commencing January 1, 1998, will be accounted for as an operating
lease.
In 1995, Artesian Water entered into four five-year leases for computer
equipment and in 1997 Artesian Water entered a 10 year lease for a land
easement which have been recorded as capital leases. Also in 1997, Artesian
Water entered a 33 year operating lease for a parcel of land with improvements
located in South Bethany, a municipality in Sussex County, Delaware.
During 1996, Artesian Water entered into a ten year lease commitment for
office space for its data processing facilities. Rent expense for 1997 and
1996 relating to Artesian Water's data processing facilities was $62,315 and
$48, respectively.
Future minimum annual rental payments under these lease obligations for
the five years subsequent to 1997 and the present value of the minimum lease
payments as of December 31, 1997, are as follows:
Artesian Water Artesian Water Artesian Water
Office Building Data Processing Computer Equipment
& Shop Complex Facilities and Land Easements
1998 $184 $ 64 $ 65
1999 182 66 55
2000 179 67 23
2001 177 69 7
2002 175 71 7
Minimum lease payments 897 337 157
Less amount
representing interest --- --- 34
Present value of
minimum lease
payments $897 $337 $123
Artesian Water has two water service interconnection agreements with
two neighboring utilities which require minimum annual purchases. Rates
charged under all agreements are subject to change. Effective August 1, 1997,
Artesian Water renegotiated the contract with Chester Water Authority to,
among other things, reduce the minimum purchase requirements from 1,459.2
million gallons to 1,095 million gallons annually and to extend the contract
through the year 2021. The minimum annual purchase commitments for all
interconnection agreements for 1998 through 2002 and the aggregate total
for the years 2003 through 2021, at current rates, are as follows:
1998 $ 2,475
1999 2,429
2000 2,429
2001 2,429
2002 2,157
2003 through 2021 40,986
$ 52,905
Expenses for purchased water were $2,703, $2,663, and $2,491,
for the years ended December 31, 1997, 1996, and 1995, respectively.
Budgeted mandatory utility plant expenditures, due to planned
governmental highway projects which require the relocation of Artesian Water's
water service mains, expected to be incurred in 1998 through 2002 are as
follows:
1998 $ 2,569
1999 790
2000 400
2001 ---
2002 200
$ 3,959
The exact timing and extent of these relocation projects is
controlled primarily by the Delaware Department of Transportation.
NOTE 14
GEOGRAPHIC CONCENTRATION OF CUSTOMERS
Artesian Water provides water utility service to customers within its
established service territory in portions of New Castle County, Kent County,
and Sussex County, Delaware, pursuant to rates filed with and approved by the
PSC. As of December 31, 1997, Artesian Water is serving 59,218 customers.
NOTE 15
RATE PROCEEDINGS
On February 28, 1997, Artesian Water filed a petition with the PSC to
implement new rates to meet an increased revenue requirement of approximately
13.5% or $3.0 million on an annualized basis. Artesian Water was permitted
to collect a temporary rate increase not in excess of $2.5 million on an
annualized basis, under bond, until permanent rates were approved. The
temporary rates become effective on or about May 1, 1997. The Hearing
Examiner and the PSC approved a settlement of this rate case on August 15,
1997 and August 26, 1997, respectively; finalizing an annualized revenue
increase of approximately $0.2 million or 1.13%, effective May 1, 1997. In
September 1997, Artesian Water refunded to customers approximately $0.3
million in excess billings collected May 1, 1997 through August 30, 1997
under the 4.5% temporary rate increase. The refund had no impact on revenues
as the temporary rates were not recognized in revenues.
On October 3, 1997, Artesian Water filed a petition with the PSC to
implement new rates to meet a projected increased revenue requirement of
approximately 23.3% or $5.2 million on an annualized basis which management
believes would allow Artesian Water the opportunity to achieve a fair rate of
return. Artesian Water is permitted to collect a temporary rate increase of
not in excess of $2.5 million on an annualized basis, under bond, until
permanent rates are approved. These temporary rates became effective on
December 3, 1997 and approximately $0.2 million in additional revenue was
recognized as a result of the increased rates.
NOTE 16
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:
Years Ended December 31,
1997 1996 1995
Average common shares
outstanding during the
period for Basic computation 1,762,374 1,508,744 1,031,656
Dilutive effect of employee
stock options 12,620 6,569 2,587
Average common shares
outstanding during the
period for Diluted computation 1,774,994 1,515,313 1,034,243
Equity per common share was $14.78, $14.58, and $14.84 at December 31,
1997, 1996, and 1995, respectively. These amounts were computed by dividing
common stockholders' equity excluding preferred stock by the number of shares
of common stock outstanding at the end of each year.
NOTE 17
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
("SFAS 129"). SFAS 129 establishes standards for disclosing information
about an entity's capital structure. SFAS 129 contains no change in
disclosure requirements for entities that were previously subject to the
requirements of Opinion 10 and 15 and Statement 47. The Company adopted
this Statement on December 31, 1997, as required.
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 plans to adopt this Statement on January 1, 1998, as required.
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 plans to adopt
this Statement on January 1, 1998, as required.
In February 1998, the FASB issued Statement of Financial Accounting
Standard No. 132 "Employers Disclosure about Pension and Other Postretirement
Benefits" ("SAFS 132"), which revises employers' 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 on
January 1, 1998, as required.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Artesian Resources Corporation
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Artesian
Resources Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Artesian
Resources Corporation and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Wilmington, Delaware
February 9, 1998
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
PART III
Item 10 - Directors and Executive Officers of the Registrant
Name Age Position
Dian C. Taylor 52 Director; Chair of the Board since July 1993,
and Chief Executive Officer and President of
the Company since September 1992. Executive
Vice President from April 1992 through September
1992 and Vice President of Corporate Development
of the Company from August 1991 through April
1992. Formerly consultant to the Small Business
Development Center at the University of Delaware
from February 1991 to August 1991 and
Owner/President of Achievement Resources Inc.
from 1977 to 1991. Achievement Resources, Inc.
specialized in strategic planning, marketing,
entrepreneurial and human resources development
consulting. Ms. Taylor was a marketing director
for SMI, Inc. from 1982 to 1985. Ms. Taylor is
the cousin of William H. Taylor, II and the
aunt of John R. Eisenbrey, Jr. She serves on
the Executive Committee.
William H. Taylor, II 52 Director; President and Certified Business
Counselor of the Susquehanna Corporation, a
national affiliate of Business Brokers Network
of Dallas, Texas since 1995. President of
Taylor Capital Associates, investment brokers
since 1991. President and Chief Operating
Officer of the Company from 1990 to 1991.
Vice President of Artesian Water Company, Inc.
from 1987 to 1990. President of Delaware
Micrographics, Inc., a provider of microfiche
services, from 1981 to 1995. Previously, Vice
President of Butcher & Singer, Inc., an
investment banking firm, from 1981 to 1987.
Mr. Taylor is the cousin of Dian C. Taylor.
Kenneth R. Biederman 54 Director; Currently, Professor of Finance at the
College of Business and Economics of the
University of Delaware. Dean of the College of
Business and Economics of the University of
Delaware from 1990 to 1996. Director of Chase
Manhattan Bank USA from 1993 to 1996. Formerly
a financial and banking consultant from 1989 to
1990 and President of Gibraltar Bank from 1987
to 1989. Previously Chief Executive Officer and
Chairman of the Board of West Chester Savings
Bank; Economist and former Treasurer of the
State of New Jersey and Staff Economist for the
United States Senate Budget Committee. He
serves on the Executive; Audit; Personnel,
Compensation and Benefits; and Budget Committees
of the Board.
John R. Eisenbrey, Jr. 42 Director; Owner/President of Bear Industries,
Inc., a privately held mechanical contracting
firm specializing in fire protection for more
than ten years. Mr. Eisenbrey is the nephew of
Dian C. Taylor. He serves on the Audit and
Budget Committees.
William C. Wyer 51 Managing Director of Wilmington 2000 since
January 1998. Wilmington 2000 is a private
organization seeking to revitalize the City of
Wilmington, Delaware. President of AllNation
Life Insurance and Senior Vice President of Blue
Cross/Blue Shield of Delaware from September
1995 to January 1998. Managing Director of
Wilmington 2000 from May 1993 to September 1995.
Formerly President of Wyer Group, Inc. from
1991 to 1993 and Commerce Enterprise Group from
1989 to 1991, management consulting firms
specializing in operations reviews designed to
increase productivity, cut overhead and increase
competitiveness, and President of the Delaware
State Chamber of Commerce from 1978 to 1989. He
serves on the Executive; Audit; Budget;
Incentive Stock Option; and Personnel,
Compensation and Benefits Committees.
David B. Spacht 38 Vice President, Chief Financial Officer and
Treasurer of Artesian Resources Corporation and
Subsidiaries since January 1995. Mr. Spacht
previously served as Treasurer and Chief
Financial Officer of Artesian Resources
Corporation and Subsidiaries since July 1992.
Mr. Spacht formerly held the positions of
Assistant Secretary, Assistant Treasurer and
Controller of Artesian Resources Corporation and
Subsidiaries and has been employed by the
Company for seventeen years.
Joseph A. DiNunzio 35 Vice President and Secretary of Artesian
Resources Corporation and Subsidiaries since
January 1995. Mr. DiNunzio previously served as
Secretary of Artesian Resources Corporation and
Subsidiaries since July 1992. Mr. DiNunzio
formerly held the positions of Assistant
Secretary and Manager of Budgeting and Financial
Planning. Mr. DiNunzio was employed by Price
Waterhouse from 1984 to 1989.
Bruce P. Kraeuter 48 Vice President and Chief Engineer of Artesian
Water Company, Inc. since January 1995.
Mr. Kraeuter formerly held the position of
Manager of Engineering since February 1994 and
has been employed by Artesian Water Company,
Inc. as an engineer since July 1989.
Mr. Kraeuter served as Senior Engineer with the
Water Resources Agency for New Castle County,
Delaware from 1974 to 1989.
John M. Thaeder 39 Vice President of Operations since February
1998. Previously employed by Hydro Group, Inc.
from 1996 to 1998 as Southeastern District
Manager of Sales and Operations from Maryland
to Florida. During 1995 and 1996, Mr. Thaeder
was Hydro Group's Sales Manager of the North
East Division with sales responsibilities from
Maine to Florida. From 1988 to 1995, he
served as District Manager of the Payne Well
and Pump Division of Hydro Group.
In accordance with the provisions of Artesian Resources' certificate of
incorporation, as amended, and bylaws, Artesian Resources' Board of Directors
is divided into three classes. Members of each class serve for three years
and one class is elected each year to serve a term until his or her successor
shall have been elected and qualified or until earlier resignation or removal.
On March 2, 1998, Mr. Ellis D. Taylor, who served as a member of the Board
since 1948, resigned as a Director for personal reasons. Also on March 2,
1998, Mr. William H. Taylor, II was elected by the Board to fill the
vacancy created by his father's resignation for the remainder of the term
which expires at the May 6, 1998 Annual Meeting of Shareholders.
Item 11 - Executive Compensation
The name and cash compensation paid to those executive officers of
Artesian Resources whose total direct remuneration exceeded $100,000 for the
year ended December 31, 1997 is as follows:
ANNUAL LONG TERM
COMPENSATION COMPENSATION
Number of
Name and Other Securities All
Principal Year Salary Bonus Annual Underlying Other
Position Compensation Options Compensation
Awarded
Dian C. Taylor, 1997 $154,600 $24,538(1) $17,341(3) 3,000 $10,808(4)
Chair, CEO & 1996 $143,785 $ 9,648 $11,986(3) 8,000 $10,263(4)
President 1995 $116,359 $ 7,500 $21,620(3) 3,000 $ 8,368(4)
David B. Spacht 1997 $100,500 $19,649(1) $ 722 3,000 $11,278(4)
Vice President, 1996 $ 94,604 $ 8,897(1) $ 293 5,000 $ 9,582(4)
Treasurer & 1995 $ 89,128 $11,572(2) $ 1,979 3,000 $ 8,270(4)
Chief Financial
Officer
Joseph A. 1997 $100,500 $17,625(1) $ 349 3,000 $10,100(5)
DiNunzio 1996 $ 94,604 $ 3,893(2) $ 37 5,000 $ 8,521(5)
Vice Pres. & 1995 $ 89,128 $13,886(3) $ 706 --- $ 6,234(5)
Secretary
Bruce P. 1997 $ 86,000 $17,070(1) $ 1,510 3,000 $ 8,791(5)
Kraeuter 1996 $ 81,615 $ 524 $ 1,505 5,000 $ 7,367(5)
V.P. & Chief 1995 $ 76,298 $11,572(3) $ 1,257 3,000 $ 5,338(5)
Engineer
(1) The Executive Committee of the Board approved a stock and cash bonus
under the Cash and Stock Bonus Compensation Plan previously approved by
the shareholders to Ms. Taylor and Messrs. Spacht, DiNunzio, and Kraeuter
on January 28, 1997. Ms. Taylor received 750 shares of Class A Stock and
$9,381 in cash. Mr. Spacht received 500 shares of Class A Stock and
$6,254 in cash. Mr. DiNunzio received 600 shares of Class A Stock and
$7,505 in cash. Mr. Kraeuter received 400 shares of Class A Stock and
$5,003 in cash. The cash portion of the bonus was issued to cover the
individual tax liability associated with the stock bonus issued. The
fair market value of the Class A Stock issued was $16.75 per share.
(2) The Executive Committee of the Board approved a stock and cash bonus
to Mr. Spacht and Mr. DiNunzio on June 20, 1996. Mr. Spacht received
300 shares of Class A Stock and $2,463 in cash. Mr. DiNunzio received
150 shares of Class A Stock and $1,232 in cash. The cash portion of
the bonus was issued to cover the individual tax liability associated
with the stock bonus issued. The fair market value of the Class A Stock
issued was $14.25 per share.
(3) The Executive Committee of the Board approved a stock and cash bonus to
Messrs. Spacht, DiNunzio, and Kraeuter at its meeting held on December
13, 1995. The bonus was paid in January 1996. Messrs. Spacht and
Kraeuter received 500 shares of Class A Stock and $4,947 in cash and
Mr. DiNunzio received 600 shares of Class A Stock and $5,936 in cash.
The cash portion of the bonus was issued to cover the individual tax
liability associated with the stock bonus issued. The fair market value
of the Class A Stock issued was $13.25 per share.
(4) Includes $14,600 in 1997, $11,750 in 1996, and $17,900 in 1995 received
as compensation for attendance at meetings of the Board and its
committees.
(5) The Company contributes two percent of an eligible employee's gross
earnings to the 401(k) Deferred Compensation Retirement Plan. In
addition, employees can contribute up to twelve percent, and the
Company will match fifty percent of the first six percent of the
employee's gross earnings. Ms. Taylor received $7,277, $7,622 and
$6,042 in Company contributions to the 401(k) Deferred Compensation
Retirement Plan in 1997, 1996, and 1995, respectively. Mr. Spacht
received $5,379, $4,765, and $3,817 in Company contributions to the
401(k) Deferred Compensation Retirement Plan in 1997, 1996, and 1995,
respectively. Mr. DiNunzio received $5,377, $4,732, and $4,453 in
Company Contributions to the 401(k) Deferred Compensation Retirement Plan
in 1997, 1996, and 1995 respectively. Mr. Kraeuter received $4,644,
$4,099, and $3,813 in Company contributions to the 401(k) Deferred
Compensation Retirement Plan in 1997, 1996, and 1995, respectively.
In addition, effective October 1, 1994, the Company established a
Supplemental 401(k) Retirement Plan. All employees hired before
April 26, 1994 and under the age of sixty at that date are eligible for
the Supplemental 401(k) Retirement Plan. Employees over the age of sixty
waived participation in the plan in order to receive Company paid
medical, dental, and life insurance benefits upon retirement. Such
benefits will not be provided by the Company to any other current
or future employees. Contributions are made by the Company to the
Supplemental 401(k) Retirement Plan based upon an eligible employee's
years of service. Ms. Taylor received $3,531, $2,635, and $2,326 in
Company contributions to the Supplemental 401(k) Retirement Plan in
1997, 1996, and 1995, respectively. Mr. Spacht received $5,889, $4,817,
and $4,453 in Company contributions to the Supplemental 401(k)
Retirement Plan in 1997, 1996, and 1995, respectively. Mr. DiNunzio
received $4,722, $3,788, and $1,781 in Company contributions to the
Supplemental 401(k) Retirement Plan in 1997, 1996, and 1995,
respectively. Mr. Kraeuter received $4,128, $3,269, and $1,524 in
Company contributions to the Supplemental 401(k) Retirement Plan in 1997,
1996, and 1995, respectively.
Option/SAR Grants in Last Fiscal Year
Potential Realizable Value
Assumed Annual Rates of
Individual Grants at Stock Price Appreciation for Option Term
Number of % of Total
Securities Options/SARS Market Exercise
Underlying Granted to Price on or Base
Options/SARS Employees Date of Price per Expiration
Granted in Fiscal Grant Share Date 0%($) 5%($) 10%($)
Year
Dian C. Taylor
3,000 (1) 11.6% $17.25 $15.525 05/28/07 $5,175 $37,719 $ 87,651
David B. Spacht
3,000 (1) 11.6% $17.25 $15.525 05/28/07 $5,175 $37,719 $87,651
Joseph A. DiNunzio
3,000 (1) 11.6% $17.25 $15.525 05/28/07 $5,175 $37,719 $87,651
Bruce P. Kraeuter
3,000 (1) 11.6% $17.25 $15.525 05/28/07 $5,175 $37,719 $87,651
(1) Option granted for Class A Non-Voting Common stock under the 1992
Non-qualified Stock Option Plan. These grants vest in six months
following the date of grant.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values
Number of Securities Value of Unexercised
Shares Acquired Value Underlying Unexercised In-the-Money
Name On Exercise Realized Options/SARS at Fiscal Options/SARS at
Year End Fiscal Year End
(Un) Exercisable (Un) Exercisable
Dian C.
Taylor --- --- 7,000(3)/4,000(2) $32,420/$18,500
David B.
Spacht 106(1)/72(2) $536(1)/$288(2) 6,222(4)/1,600(2) $28,672/$7,400
Joseph A.
DiNunzio --- --- 6,400(5)/1,600(2) $29,645/$7,400
Bruce P.
Kraeuter 3,000 (1) $ 16,470 (1) 3,300(6)/1,200(2) $11,063/$5,550
(1) Class A Non-Voting Common stock under the 1992 Non-qualified Stock
Option Plan.
(2) Class A Non-Voting Common stock under the Incentive Stock Option Plan.
(3) 6,000 shares of Class A Stock under the 1992 Non-qualified Stock Option
Plan and 1,000 shares of Class A Stock under the Inventive Stock Option
Plan.
(4) 5,894 shares of Class A Stock under the 1992 Non-qualified Stock Option
Plan and 328 shares of Class A Stock under the Incentive Stock Option
Plan.
(5) 6,000 shares of Class A Stock under the 1992 Non-qualified Stock Option
Plan and 400 shares of Class A Stock under the incentive Stock Option
Plan.
(6) 3,000 shares of Class A Stock under the 1992 Non-qualified Stock Option
Plan and 300 shares of Class A Stock under the Incentive Stock Option
Plan.
Outside Directors receive an annual retainer fee of $3,200 paid in
advance. Each Director receives $800 for each board meeting attended, $350
for each committee meeting attended on the day of a regular board meeting and
$700 for each committee meeting attended on any other day. The Chair of each
Committee, who is also an outside Director, receives an annual retainer of
$1,000.
Artesian Resources has an Officer's Medical Reimbursement Plan which
reimburses officers for certain medical expenses not covered under the
Company's medical insurance plan.
Artesian Resources has a Cash and Stock Bonus Compensation Plan for
Officers. The purpose of this Plan is to compensate the Officers of Artesian
Resources and Artesian Water, as appointed by the Board of Directors, for
their contributions to the long-term growth and prosperity of the companies in
the form of cash or shares of the Class A Stock of Artesian Resources.
Compensation in the form of a bonus of the Class A Stock of Artesian Resources
also serves to increase their proprietary interest in the companies.
Item 12 - Security Ownership of Directors, Executive Officers and Certain
Other Beneficial Owners
The following table sets forth the beneficial ownership of the equity
securities of the Company for each director and nominee for director, each
executive officer of the Company earning in salary and bonus in excess of
$100,000, each beneficial owner of more than 5% of the outstanding shares of
any class of stock, and all directors and executive officers as a group as of
March 12, 1998, based in each case on information furnished to the Company.
BENEFICIAL OWNERSHIP (1)
CLASS A CLASS B 7%
NAME COMMON COMMON PREFERRED
NON-VOTING (2) (2) (2)
Dian C. Taylor
664 Churchmans Road
Newark, DE 19702 (3) 19,429 1.46% 46,812 9.21% 24
William H. Taylor, II
64 Welsh Tract Road
Suite 304
Newark, DE 19713 336 1,148 24
John R. Eisenbrey, Jr. (4)
P. O. Box 9174
Newark, DE 19711 18,087 1.36% 17,896 3.52%
Kenneth R. Biederman
14 Hayden Way
Newark, DE 19711 13,500 1.02%
William C. Wyer
1980 Superfine Lane
Apt. 501
Wilmington, DE 19802 12,000
David B. Spacht (5)
664 Churchmans Rd.
Newark, DE 19702 10,828 77 31
Joseph A. DiNunzio
664 Churchmans Rd.
Newark, DE. 19702 7,889 43
Bruce P. Kraeuter
664 Churchmans Rd.
Newark, DE 19702 7,291
Ellis D. Taylor (6)
212 Washington Avenue
Newport, DE 19804 27,165 2.05% 126,653 24.92% 244 2.25%
Norman H. Taylor, Jr. (7)
1597 Porter Road
Bear, DE 19701 3,341 98,208 19.32% 24
Louisa Taylor Welcher (8)
219 Laurel Avenue
Newark, DE 19711 7,812 39,863 7.84% 188 1.73%
Hilda Taylor
4 East Green Valley Circle
Newark, DE 19711 35,736 2.69% 41,695 8.20% 41
Directors and Executive
Officers as a Group
(8 Individuals) 89,806 6.77% 65,954 12.98% 79 0.73%
(1) The nature of ownership consists of sole voting and investment power
unless otherwise indicated. The amount also includes all shares
issuable to such person or group upon the exercise of options held by
such person or group to the extent such options are exercisable within
60 days of March 12, 1998. At March 12, 1998, Messrs. Eisenbrey, Jr.,
Biederman, and Wyer each held options for 6,000 shares of Class A Stock
under the 1992 Non-qualified Stock Option Plan. Mr. Ellis D. Taylor,
former Director, held options for 3,000 shares of Class A Stock under
the 1992 Non-qualified Stock Option Plan. Ms. Taylor held options for
6,000 shares of Class A Stock under the 1992 Non-qualified Stock Option
Plan and for 1,000 shares of Class A Stock exercisable under the
Incentive Stock Option Plan. Mr. David B. Spacht, Vice President, Chief
Financial Officer and Treasurer, held options for 5,894 shares of Class
A Stock under the 1992 Non-qualified Stock Option Plan and for 307
shares of Class A Stock exercisable under the Incentive Stock Option
Plan. Mr. DiNunzio, Vice President & Secretary, held options for 6,000
shares of Class A Stock under the 1992 Non-qualified Stock Option Plan
and for 400 shares of Class A Stock exercisable under the Incentive
Stock Option Plan. Mr. Kraeuter, Vice President & Chief Engineer, held
options for 3,000 shares of Class A Stock under the 1992 Non-qualified
Stock Option Plan and for 300 shares of Class A Stock exercisable under
the Incentive Stock Option Plan.
(2) The percentage of the total number of shares of the class outstanding is
shown where that percentage is one percent or greater. Percentages for
each person or group are based on the aggregate number of shares of the
applicable class outstanding as of March 12, 1998, and all shares
issuable to such person or group upon the exercise of options held by
such person or group, to the extent such options are exercisable within
60 days of that date.
(3) Includes 548 shares of Class A stock held in the Company's 401(k)
Deferred Compensation Retirement Plan.
(4) Includes 320 shares of Class B stock owned by a trust of which Mr.
Eisenbrey, Jr. is a trustee and in which he has a beneficial ownership
interest.
(5) Includes 54 shares of Class B stock held in the Company's 401(k)
Deferred Compensation Retirement Plan and 83 shares of Class A stock
held in the Company's 401(k) Deferred Compensation Retirement Plan.
(6) Includes 2,500 shares of Class B stock held by a Company wholly owned by
Mr. Taylor.
(7) Includes 339 shares of Class B stock held in the Company's 401(k)
Deferred Compensation Retirement Plan and 661 shares of Class B stock
and 141 shares of Class A Stock owned by Mr. Taylor's wife to which Mr.
Taylor disclaims beneficial ownership.
(8) Includes 59 shares of Class B stock held jointly by Ms. Welcher's
husband and son, 10 shares of Class B stock held by Ms. Welcher's son,
13 shares of 7% Preferred Stock held by Ms. Welcher's son, 114 shares of
Class A Stock owned by Ms. Welcher's husband and 300 shares of Class A
Stock owned by Ms. Welcher's son, to which Ms. Welcher disclaims
beneficial ownership.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of the copies of beneficial ownership
statements received by it, or written representations from certain reporting
persons that no beneficial ownership statements were required for those
persons, the Company believes that during 1997 all beneficial ownership
statements under Section 16(a) of the Exchange Act which were required to be
filed by executive officers and directors of the Company in their personal
capacities were filed in a timely manner.
Item 13 - Certain Relationships and Related Transactions
Artesian Water rents an office building and shop complex at an aggregate
annual rental of $204,052 from White Clay Realty, a partnership in which Ellis
D. Taylor, Patia Ziegler (daughter of Mr. Taylor), Dian C. Taylor, Louisa
Welcher (sister of Ms. Taylor), and a trust in which John R. Eisenbrey, Jr.
and Virginia Rettig (sister of Mr. Eisenbrey) are trustees and in which they
have a beneficial interest, are partners. The lease expires in 2002, with
provisions for renewals for two five year periods thereafter. Artesian Water
may terminate the lease at any time by purchasing the leased facilities for
(1) an amount equal to the sum of any mortgage on such facilities and any
accrued rental to date or (2) its fair market value, whichever is higher.
Management believes that payments made to White Clay Realty are generally
comparable to what would be paid 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.
These water production wells provide a portion of Artesian Water's source of
supply. The initial term of the lease was for the ten years ended September
30, 1995 with automatic year to year renewal thereafter unless sixty days
written notice is given by either party prior to the end of the lease year.
The annual rental was $42,883 in 1997 and 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 providing sixty days written notice to
Glendale Enterprises should water supply be exhausted or other conditions
beyond the control of Artesian Water materially and adversely affect its
interest in the lease.
The terms of transactions with related parties are determined on a basis
that management believes is comparable to terms which could be negotiated with
non-affiliates.
Item 14 - Exhibits, Financial Statements Schedules, and Reports on Form 8-k
Page(s)*
a) The following documents are filed as part of this report:
(1) Financial Statements:
Consolidated Balance Sheets at December 31, 1997 and 1996 16
Consolidated Statements of Operations for the three years
ended December 31, 1997 17
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997 18
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1997 19-22
Schedules Accompanying Financial Statements 22-23
Notes to Consolidated Financial Statements 23-40
Reports of Independent Accountants 40
(2) Financial Statement Schedule:
Reports of Independent Accountants on
Financial Statement Schedule 54
Schedule V: Valuation and Qualifying Accounts 57
* Page number shown refers to page number in this Report on Form 10-K.
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits: The Exhibits listed in the accompanying Index to
Exhibits on Page 52 are filed as part of, or incorporated by
reference into, this Form 10-K Annual Report.
(b) Reports on Form 8-K.
During the last quarter of the period covered by this Report on Form
10-K, Artesian Resources filed no reports on Form 8-K
ARTESIAN RESOURCES CORPORATION
Date: 3/31/98 By: David B. Spacht /s/
David B. Spacht, Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
Principal Executive Officer:
Dian C. Taylor /s/
Dian C. Taylor President and Chief Executive Officer 3/31/98
Principal Financial and Accounting Officer:
David B. Spacht /s/
David B. Spacht Vice President, Chief Financial Officer 3/31/98
and Treasurer
Directors:
Dian C. Taylor /s/
Dian C. Taylor
William H. Taylor, II. /s/
William H. Taylor, II.
Kenneth R. Biederman /s/
Kenneth R. Biederman
William C. Wyer /s/
William C. Wyer
John R. Eisenbrey, Jr. /s/
John R. Eisenbrey, Jr.
ARTESIAN RESOURCES CORPORATION
FORM 10-K ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1997
INDEX TO EXHIBITS
Exhibit Number Description
3 Articles of Incorporation and By-Laws Page*
(a) Restated Certificate of Incorporation of the Company
effective May 26, 1995 including Certificate of Amendment (h)
(b) Restated Certificate of Incorporation of the Company
effective April 26, 1994 including Certificate of Correction (f)
(c) By-Laws of the Company effective April 27, 1993 (d)
4 Instruments Defining the Rights of Security Holders, Including Indentures
(a) 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 (j)
(b) 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 (i)
(c) 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 (c)
(d) 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 (a)
(e) 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 (a)
10 Material Contracts
(a) Artesian Resources Corporation Non-Qualified
Stock Option Plan (a)
(b) Lease dated as of March 1, 1972 between White Clay
Realty Company and Artesian Water Company, Inc. (a)
(c) 1992 Artesian Resources Corporation Non-Qualified
Stock Option Plan (b)
(d) Artesian Resources Corporation Cash and Stock Bonus
Compensation Plan for Officers (e)
(e) Artesian Resources Corporation Incentive Stock
Option Plan (i)
11 Computation of Earnings per Common Share 55
21 Subsidiaries of the Company as of December 31, 1997 55
27 Financial Data Schedule 51
See footnote explanation on page 48.
FOOTNOTE EXPLANATIONS:
(a) Incorporated by reference to the exhibit filed with the Artesian
Resources Corporation Registration Statement on Form 10 filed April 30,
1990 and as amended by Form 8 filed on June 19, 1990.
(b) Incorporated by reference to the exhibit filed with the Artesian
Resources Corporation Annual Report on Form 10-K for the year ended
December 31, 1991
(c) Incorporated by reference to the exhibit filed with the Artesian
Resources Corporation Annual Report on Form 10-K for the year ended
December 31, 1992
(d) Incorporated by reference to the exhibit filed with the Artesian
Resources Corporation Form 8-K filed April 27, 1993
(e) Incorporated by reference to the exhibit filed with the Artesian
Resources Corporation Form 10-K for the year ended December 31, 1993
(f) Incorporated by reference to the exhibit filed with the Artesian
Resources Corporation Form 10-Q for the quarter ended March 31, 1994
(g) Incorporated by reference to the exhibit filed with the Artesian
Resources Corporation Form 8-K filed July 5, 1994
(h) Incorporated by reference to the exhibit filed with Artesian Resources
Corporation Form 10-Q for the quarter ended June 30, 1995
(i) 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
(j) Incorporated by reference to the exhibits filed with Artesian Resources
Corporation Form 10-Q for the quarter ended June 30, 1997.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Artesian Resources Corporation:
Our audits of the consolidated financial statements referred to in our
report dated February 9, 1998 appearing on page 40 of this Annual Report on
Form 10-K also included audits of the Financial Statement Schedule for the
years ended December 31, 1997, 1996, and 1995 listed in Item 14(a) of this
Form 10-K. In our opinion, this Financial Statement Schedule for the years
ended December 31, 1997, 1996, and 1995 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
KPMG PEAT MARWICK LLP
Wilmington, Delaware
February 9, 1998
EXHIBIT 11
ARTESIAN RESOURCES CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
For the Twelve Months Ended December 31,
1997 1996 1995
Earnings
Income Applicable to
Common Stock $1,892,730 $1,554,157 $1,088,239
Shares
Weighted average number of
Shares outstanding
Basic 1,762,374 1,508,744 1,031,656
Diluted 1,774,994 1,515,313 1,034,243
Net Income per Common Share
Basic $ 1.07 $ 1.03 $ 1.05
Diluted $ 1.07 $ 1.03 $ 1.05
EXHIBIT 21
ARTESIAN RESOURCES CORPORATION AND SUBSIDIARY COMPANIES
Subsidiaries of the Registrant
The following list includes the Registrant and all of its subsidiaries
as of December 31, 1997. The voting stock of each company shown is owned, to
the extent indicated by the percentage, by the company immediately above which
is not indented to the same degree. All subsidiaries of the Registrant
appearing in the following table are included in the consolidated financial
statements of the Registrant and its subsidiaries.
State of Percentage of Voting
Name of Company Incorporation Stock Owned
Artesian Resources Corporation Delaware
Artesian Water Company, Inc. Delaware 100
Southwood Company Pennsylvania 100
Cat Hill Water Company, Inc. Delaware 100
Whites Haven Water Company, Inc. Delaware 100
Artesian Laboratories, Inc. Delaware 100
Artesian Development, Corporation Delaware 100
Artesian Wastewater Management, Inc. Delaware 100
AquaStructure Delaware, L.L.C. Delaware 33 1/3
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 December 31, 1997
Form 10-K and is qualified in its entirety by reference to such financial
statements.
[/LEGEND]
[PERIOD-TYPE] 3-MOS 12-MOS
[FISCAL-YEAR-END] DEC-31-1997 DEC-31-1997
[PERIOD-END] DEC-31-1997 DEC-31-1997
[BOOK-VALUE] PER-BOOK PER-BOOK
[TOTAL-NET-UTILITY-PLANT] 97,694,000 97,694,000
[OTHER-PROPERTY-AND-INVEST] 349,000 349,000
[TOTAL-CURRENT-ASSETS] 5,798,000 5,798,000
[TOTAL-DEFERRED-CHARGES] 4,026,000 4,026,000
[OTHER-ASSETS] 0 0
[TOTAL-ASSETS] 107,867,000 107,867,000
[COMMON] 1,780,000 1,780,000
[CAPITAL-SURPLUS-PAID-IN] 17,648,000 17,648,000
[RETAINED-EARNINGS] 6,887,000 6,887,000
[TOTAL-COMMON-STOCKHOLDERS-EQ] 25,315,000 25,315,000
[PREFERRED-MANDATORY] 600,000 600,000
[PREFERRED] 272,000 272,000
[LONG-TERM-DEBT-NET] 32,000,000 32,000,000
[SHORT-TERM-NOTES] 1,164,000 1,164,000
[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] 103,000 103,000
[LEASES-CURRENT] 46,000 46,000
[OTHER-ITEMS-CAPITAL-AND-LIAB] 48,255,000 48,255,000
[TOT-CAPITALIZATION-AND-LIAB] 107,867,000 107,867,000
[GROSS-OPERATING-REVENUE] 5,947,000 22,340,000
[INCOME-TAX-EXPENSE] 429,000 1,278,000
[OTHER-OPERATING-EXPENSES] 4,207,000 16,655,000
[TOTAL-OPERATING-EXPENSES] 4,636,000 17,933,000
[OPERATING-INCOME-LOSS] 1,311,000 4,407,000
[OTHER-INCOME-NET] 72,000 158,000
[INCOME-BEFORE-INTEREST-EXPEN] 1,383,000 4,565,000
[TOTAL-INTEREST-EXPENSE] 714,000 2,580,000
[NET-INCOME] 669,000 1,985,000
[PREFERRED-STOCK-DIVIDENDS] 23,000 93,000
[EARNINGS-AVAILABLE-FOR-COMM] 646,000 1,892,000
[COMMON-STOCK-DIVIDENDS] 408,000 1,619,000
[TOTAL-INTEREST-ON-BONDS] 2,677,000 2,677,000
[CASH-FLOW-OPERATIONS] 2,595,000 4,102,000
[EPS-PRIMARY] 0.37 1.07
[EPS-DILUTED] 0.37 1.07