e10vq
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2007
Or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-18516
ARTESIAN RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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51-0002090 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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664 Churchmans Road, Newark, Delaware
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19702 |
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(Address of principal executive offices)
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(Zip Code) |
(302) 453 6900
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
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.
þ Yes o No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):
o Yes þ No
As of April 30, 2007, 5,245,396 shares of Class A Non-Voting Common Stock and 881,452 shares of
Class B Common Stock were outstanding.
ARTESIAN RESOURCES CORPORATION
INDEX TO FORM 10-Q
2
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
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Unaudited |
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March 31, 2007 |
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December 31, 2006 |
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ASSETS |
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Utility plant, at original cost less accumulated depreciation |
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$ |
256,789 |
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$ |
253,182 |
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Current assets |
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Cash and cash equivalents |
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2,571 |
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1,414 |
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Accounts receivable, net |
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3,781 |
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3,416 |
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Unbilled operating revenues |
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2,449 |
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2,655 |
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Materials and supplies-at cost on FIFO basis |
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1,022 |
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1,054 |
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Prepaid property taxes |
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476 |
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924 |
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Prepaid expenses and other |
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569 |
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782 |
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Total current assets |
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10,868 |
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10,245 |
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Other assets |
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Non-utility property (less accumulated depreciation 2007-$123;
2006-$146) |
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301 |
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307 |
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Other deferred assets |
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3,991 |
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3,745 |
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Total other assets |
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4,292 |
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4,052 |
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Regulatory assets, net |
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1,851 |
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1,881 |
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$ |
273,800 |
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$ |
269,360 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Stockholders equity |
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Common stock |
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$ |
6,120 |
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$ |
6,086 |
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Additional paid-in capital |
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45,322 |
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45,052 |
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Retained earnings |
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10,841 |
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10,662 |
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Total stockholders equity |
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62,283 |
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61,800 |
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Long-term debt, net of current portion |
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91,958 |
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92,073 |
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154,241 |
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153,873 |
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Current liabilities |
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Lines of Credit |
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9,151 |
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7,906 |
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Current portion of long-term debt |
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312 |
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310 |
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Accounts payable |
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2,092 |
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2,790 |
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Accrued expenses |
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2,776 |
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3,287 |
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Overdraft payable |
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3,584 |
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1,990 |
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Income taxes payable |
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3 |
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Deferred income taxes |
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77 |
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284 |
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Interest accrued |
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516 |
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360 |
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Customer deposits |
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471 |
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472 |
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Other |
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2,047 |
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1,723 |
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Total current liabilities |
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21,029 |
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19,122 |
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Deferred credits and other liabilities
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Net advances for construction |
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24,708 |
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24,991 |
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Postretirement benefit obligation |
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912 |
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927 |
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Deferred investment tax credits |
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758 |
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765 |
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Deferred income taxes |
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22,601 |
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21,505 |
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Total deferred credits and other liabilities |
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48,979 |
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48,188 |
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Commitments and contingencies
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Net contributions in aid of construction |
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49,551 |
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48,177 |
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$ |
273,800 |
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$ |
269,360 |
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See notes to the consolidated financial statements.
3
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(In thousands, except per share amounts)
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For the Quarter |
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Ended March 31 |
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2007 |
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2006 |
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OPERATING REVENUES |
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Water sales |
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$ |
10,707 |
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$ |
10,015 |
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Other utility operating revenue |
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432 |
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225 |
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Non-utility revenue |
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465 |
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249 |
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11,604 |
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10,489 |
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OPERATING EXPENSES |
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Utility operating expenses |
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6,485 |
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5,802 |
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Non-utility operating expenses |
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210 |
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182 |
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Depreciation and amortization |
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1,212 |
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1,165 |
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State and federal income taxes |
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741 |
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653 |
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Property and other taxes |
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688 |
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634 |
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9,336 |
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8,436 |
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OPERATING INCOME |
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2,268 |
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2,053 |
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OTHER INCOME, NET |
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Allowance for funds used during construction |
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60 |
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35 |
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Other income, net |
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463 |
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411 |
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INCOME BEFORE INTEREST CHARGES |
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2,791 |
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2,499 |
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INTEREST CHARGES |
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1,635 |
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1,503 |
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NET INCOME |
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$ |
1,156 |
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$ |
996 |
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INCOME PER COMMON SHARE: |
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Basic |
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$ |
0.19 |
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$ |
* 0.17 |
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Diluted |
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$ |
0.18 |
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$ |
* 0.16 |
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CASH DIVIDEND PER COMMON SHARE |
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$ |
0.16 |
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$ |
* 0.15 |
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AVERAGE COMMON SHARES OUTSTANDING |
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Basic |
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6,111 |
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* 6,027 |
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Diluted |
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6,273 |
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* 6,217 |
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See notes to the consolidated financial statements.
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* |
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Restated for the stock split effective May 30, 2006. |
4
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Unaudited
(In thousands)
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For the Quarter |
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Ended March 31, |
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2007 |
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2006 |
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Balance, beginning of period |
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$ |
10,662 |
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$ |
10,330 |
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Net income |
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1,156 |
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996 |
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11,818 |
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11,326 |
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Less: Dividends |
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977 |
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898 |
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Balance, end of period |
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$ |
10,841 |
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$ |
10,428 |
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See notes to the consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
(In thousands)
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For the Quarter |
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Ended March 31, |
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2007 |
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2006 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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NET INCOME |
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$ |
1,156 |
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$ |
996 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
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1,212 |
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1,165 |
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Deferred income taxes, net |
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|
882 |
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|
650 |
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Stock Compensation |
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32 |
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Allowance for funds used during construction |
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(60 |
) |
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(35 |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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(365 |
) |
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266 |
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Income tax payable |
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3 |
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(111 |
) |
Unbilled operating revenues |
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206 |
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275 |
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Materials and supplies |
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32 |
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46 |
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Prepaid property taxes |
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448 |
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|
411 |
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Prepaid expenses and other |
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213 |
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(23 |
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Other deferred assets |
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(273 |
) |
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(218 |
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Regulatory assets |
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30 |
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|
181 |
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Postretirement benefit obligation |
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(15 |
) |
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(19 |
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Accounts payable |
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(698 |
) |
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(1,011 |
) |
Accrued expenses |
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(511 |
) |
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|
435 |
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Interest accrued |
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156 |
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142 |
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Customer deposits and other, net |
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323 |
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344 |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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2,771 |
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3,494 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures, net of AFUDC |
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(5,045 |
) |
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(6,154 |
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Investment in Aquastructure |
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37 |
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Proceeds from sale of assets |
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6 |
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1 |
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NET CASH USED IN INVESTING ACTIVITIES |
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(5,039 |
) |
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(6,116 |
) |
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5
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Unaudited
(In thousands)
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For the Quarter |
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Ended March 31, |
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2007 |
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2006 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Net borrowings (repayments) under line of credit agreements |
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1,245 |
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(265 |
) |
Overdraft payable |
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|
1,594 |
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|
768 |
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Net advances and contributions in aid of construction |
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|
1,378 |
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|
2,792 |
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Principal repayments of long-term debt |
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(113 |
) |
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|
(108 |
) |
Net proceeds from issuance of common stock |
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|
272 |
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|
163 |
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Dividends |
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(977 |
) |
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(898 |
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Deferred debt issuance costs |
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|
26 |
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|
25 |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
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3,425 |
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|
2,477 |
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NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
EQUIVALENTS |
|
|
1,157 |
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(145 |
) |
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CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD |
|
|
1,414 |
|
|
|
1,359 |
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|
|
|
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|
|
|
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
2,571 |
|
|
$ |
1,214 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
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|
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Interest paid |
|
$ |
1,438 |
|
|
$ |
1,319 |
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
|
|
|
$ |
114 |
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 GENERAL
Artesian Resources Corporation, or Artesian Resources, operates as a holding company, whose income
is derived from the earnings of our five wholly owned subsidiaries and our one-third interest in
AquaStructure Delaware, L.L.C., a limited liability corporation whose primary activity is marketing
wastewater services. The terms we, our, Artesian and the Company as used herein refer to
Artesian Resources and its subsidiaries.
Artesian Water Company, Inc., or Artesian Water, our principal subsidiary, is the oldest and
largest public water utility in the State of Delaware and has been providing water service within
the state since 1905. Artesian Water distributes and sells water to residential, commercial,
industrial, governmental, municipal and utility customers throughout Delaware. In addition,
Artesian Water provides services to other water utilities, including operations and billing
functions, and has contract operation agreements with 19 private and municipal water providers.
Our other water utility subsidiary, Artesian Water Pennsylvania, Inc., or Artesian Water
Pennsylvania, began operations in 2002, and is providing water service to a residential community,
consisting of 39 customers, in Chester County, Pennsylvania. In 2005, the Pennsylvania Public
Utilities Commission approved our application to increase our service area to encompass four
specific developments that are expected to add 350 customers over 10 years.
Another subsidiary of ours, Artesian Wastewater Management, Inc., or Artesian Wastewater, is a
regulated entity that owns wastewater infrastructure and provides wastewater services in Delaware.
Artesian Wastewater is currently providing service to five communities in Delaware.
Our two other subsidiaries, neither of which is regulated, are Artesian Utility Development, Inc.,
or Artesian Utility, which designs and builds wastewater infrastructure and provides contract
wastewater services in Delaware, and Artesian Development Corporation, or Artesian Development, the
sole activity of which is the ownership of a six-acre parcel of land zoned for office buildings
located immediately adjacent to our corporate headquarters.
On February 1, 2007, Artesian Resources entered an agreement on the terms of purchase of Carpenters
Point Water Company (Carpenters Point). On April 26, 2007, the agreement was amended to extend the
closing date to June 15, 2007, to complete due diligence by Artesian. Carpenters Point currently
serves a 130 home community in Cecil County, Maryland near the Interstate 95 growth corridor
between Philadelphia and Baltimore. The proposed acquisition is expected to provide sufficient
groundwater supply and elevated water storage to serve additional customers in the undeveloped
portions of the Carpenters Point franchise and surrounding area. The purchase is subject to a
number of conditions, including the completion of Artesian Resources due diligence, execution of
definitive agreements and approvals by appropriate state regulatory agencies, including the
Maryland Public Service Commission and the Maryland Department of the Environment. If the
conditions are satisfied, we expect the acquisition will be completed in 2007.
On May 1, 2007, Artesian Utility acquired all rights, titles and interest in operations contracts
of TMH Environmental Services, Inc. (TMH). TMH, incorporated in Pennsylvania, provided contract
water and wastewater operation services to 23 private, municipal and governmental institutions in
the southeastern part of Pennsylvania (the Contract Parties). Artesian Utility expects the
acquisition of these contracts to be immediately accretive to earnings.
Stock Compensation Plans
We maintain an equity compensation plan that provides for grants of stock options and restricted
stock awards and other forms of stock compensation to our directors, officers and key employees.
Prior to May 25, 2005, we maintained three stock compensation plans. No further equity
compensation can be issued under those plans. On May 25, 2005, the Companys stockholders approved
a new Equity Compensation Plan, or the Plan, which authorized up to 750,000 shares of Class A
Non-Voting Common Stock for issuance. Term and vesting schedules for options granted under the
Plan may vary and are set at the time of grant by the Compensation Committee of the Board of
Directors. Approximately $32,000 in compensation expense was recorded during the three months
ended March 31, 2007 for stock options issued in May 2006 under the Equity Compensation Plan. For
the three months ended March 31, 2006 expense of approximately $22,000 was recorded for stock bonus
grants and related tax.
7
Effective January 1, 2006, we adopted the fair value recognition provisions of FASB Statement No.
123R, Share-Based Payment, and related interpretations (SFAS No. 123R) using the
modified-prospective transition method. Under this method, compensation cost recognized in the
first quarter of 2006 included (a) compensation cost for all share-based payments granted prior to,
but not yet vested, as of January 1, 2006 based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123 and (b) compensation cost for all
share-based payments granted on or subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS No. 123R. We have used the modified
prospective method and estimated the fair value of each option grant using the Black-Scholes option
pricing model. For the three month period ending March 31, 2007 an expense of $32,000 has been
realized for options granted in May 2006. Also, for the three-month period ending March 31, 2006,
$22,000 in expense was recorded for stock awards and related tax. The stock awards were fully
vested on the date of grant and were valued at the fair market value on the date of the grant. The
options were granted at market value with a 10 year option term and will vest in a one year period
from the date of grant, May 12, 2006. The fair value of the options that were granted in 2006 were
estimated using a Black-Scholes-Merton option-pricing formula, applying the following assumptions:
|
|
|
|
|
Expected Dividend Yield
|
|
|
2.930 |
% |
Expected Stock Price Volatility
|
|
|
0.238 |
|
Weighted Average Risk-Free Interest Rate
|
|
|
5.030 |
% |
Weighted Average Expected Life of Options
|
|
|
3.260 |
|
The expected dividend yield was based on a 12 month rolling average of the current dividend yield.
The expected volatility is the standard deviation of the change in the natural logarithm of the
stock price (expressed as an annual rate) for the three year period ended June 30, 2006. The
expected life was based on historic exercise patterns for similar grants. The risk free interest
rate is the 3-year Treasury Constant Maturity rate as of the date of the grant.
The following summary reflects changes in the shares of Class A Non Voting Common Stock under
option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
|
|
Option |
|
|
Exercise |
|
|
Remaining |
|
|
Intrinsic Value |
|
|
|
Shares |
|
|
Price |
|
|
Life (Yrs.) |
|
|
(in thousands) |
|
Plan options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2007 |
|
|
595,699 |
|
|
$ |
13.832 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
0 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(23,062 |
) |
|
$ |
7.696 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
0 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007 |
|
|
572,637 |
|
|
$ |
14.079 |
|
|
|
5.72 |
|
|
$ |
3,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2007 |
|
|
538,887 |
|
|
$ |
13.639 |
|
|
|
5.51 |
|
|
$ |
3,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during 2007 was approximately $266,000.
8
The following summary reflects changes in the nonvested shares of Class A Stock under option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant -Date |
|
|
Option |
|
Fair Value |
|
|
Shares |
|
Per Option |
Nonvested Shares |
|
|
|
|
|
|
|
|
Nonvested at January 1, 2007
|
|
|
33,750 |
|
|
|
$ 3.809 |
|
Granted
|
|
|
|
|
|
|
N/A |
|
Vested
|
|
|
|
|
|
|
N/A |
|
Canceled
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2007
|
|
|
33,750 |
|
|
|
$ 3.809 |
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007, there was $15,000 of total unrecognized expense related to nonvested option
shares granted under the Plan. That cost will be recognized over the remaining vesting period of
the unvested options.
NOTE 2 BASIS OF PRESENTATION
The unaudited Consolidated Financial Statements are presented in accordance with the requirements
of Form 10-Q and consequently do not include all the disclosures required in the financial
statements included in the Companys annual report on Form 10-K. Accordingly, these financial
statements and related notes should be read in conjunction with the financial statements and
related notes in the Companys annual report on Form 10-K for fiscal year 2006.
In the opinion of the Company, the accompanying unaudited Consolidated Financial Statements reflect
all normal recurring adjustments necessary to present fairly the Companys balance sheet position
as of March 31, 2007 and the results of operations for the three month periods ended March 31, 2007
and 2006 and cash flows for the three month periods ended March 31, 2007 and 2006.
The results of operations for the interim period presented are not necessarily indicative of
the results for the full year or for future periods.
NOTE 3 REGULATORY ASSETS
Certain expenses are recoverable through rates charged to our customers, without a return on
investment, and are deferred and amortized during future periods using various methods as permitted
by the Delaware Public Service Commission, or PSC. Expenses related to applications to increase
rates are amortized on a straight-line basis over a period of two 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 with the reversal of tax effects of temporary differences that
previously flowed through to the customers. Regulatory assets net of amortization, are comprised
of the following:
|
|
|
|
|
|
|
|
|
|
|
Unaudited |
|
|
|
|
|
|
March 31, 2007 |
|
|
December 31, 2006 |
|
|
|
(in thousands) |
|
Postretirement benefit obligation |
|
$ |
1,012 |
|
|
$ |
1,027 |
|
Deferred income taxes recoverable in future rates |
|
|
578 |
|
|
|
582 |
|
Expense of rate proceedings |
|
|
249 |
|
|
|
257 |
|
Compensation study |
|
|
12 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
$ |
1,851 |
|
|
$ |
1,881 |
|
|
|
|
|
|
|
|
9
Expenses related to the Net Periodic Pension Cost for the postretirement benefit obligation are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
For the Three Months Ended March 31, |
|
(in thousands) |
|
Net Periodic Pension Cost |
|
|
|
|
|
|
|
|
Interest Cost |
|
$ |
12 |
|
|
$ |
13 |
|
Amortization of Net Gain |
|
|
(5 |
) |
|
|
(7 |
) |
Amortization of Transition Obligation/Asset |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Periodic Benefit Cost |
|
$ |
9 |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
Contributions
Artesian Water contributed $23,000 to its postretirement benefit plan in the first three months of
2007 and expects to contribute another $70,000 for the remainder of the year. These contributions
consist of insurance premium payments for medical, dental and life insurance benefits made on
behalf of the Companys eligible retired employees.
NOTE 4 NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE
Basic net income per share is based on the weighted average number of common shares outstanding.
Diluted net income per share is based on the weighted average number of common shares outstanding
and the potentially dilutive effect of employee stock options. The following table summarizes the
shares used in computing basic and diluted net income per share, which reflect the stock split
effective May 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
For the Quarter |
|
|
|
Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands) |
|
Average common shares outstanding during
the period for Basic computation |
|
|
6,111 |
|
|
|
6,027 |
|
Dilutive effect of employee stock options |
|
|
162 |
|
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding during
the period for Diluted computation |
|
|
6,273 |
|
|
|
6,217 |
|
|
|
|
|
|
|
|
Equity per common share was $10.18 and $9.63 at March 31, 2007 and 2006, respectively. These
amounts were computed by dividing common stockholders equity by the number of shares of common
stock outstanding on March 31, 2007 and 2006, respectively. These calculations reflect the stock
split effective May 30, 2006.
NOTE 5 IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, FASB issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 Accounting for Income Taxes. This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an enterprises financials
statements in accordance with FASB Statement No. 109. The Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. This interpretation allows an
enterprise to recognize economic benefits resulting from positions taken in income tax returns, as
long as a more likely than not approach is taken. This interpretation is effective for fiscal
years beginning after December 15, 2006. The Company adopted this statement effective January 1,
2007 and after analyzing Artesians various tax positions determined that no further entry,
recognition or derecognition were required. The company would
10
recognize, if applicable, interest accrued and penalties related to unrecognized tax benefits in
interest expense and in accordance with the regulations of the jurisdictions involved.
In February 2007, the Financial Accounting Standards Board, FASB, issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB
No.115. This statement permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge accounting
provisions. This Statement is effective as of the beginning of an entitys first fiscal year that
begins after November 15, 2007. The Company expects to adopt this statement effective January 1,
2008 and does not expect it to have a material effect on the financial statements.
NOTE 6 RATE PROCEEDINGS
In May 2006, Artesian Water filed a petition with the PSC to implement new rates to meet a
requested increase in revenue of 23%, or approximately $9.9 million, on an annualized basis. This
request was primarily due to the Companys significant investment in infrastructure, as well as an
approximately 92% increase in purchased power expense due to the expiration of price caps imposed
in 1999 when deregulation of the electric industry in Delaware was adopted. As permitted by law,
in July 2006 we placed into effect temporary rates designed to generate an increase in annual
operating revenue of approximately 5.9%, or $2.5 million on an annual basis, until new rates were
approved by the PSC.
On December 19, 2006 the PSC approved a Settlement Agreement in this case. The increase in annual
revenue requirement under the Settlement Agreement of $6 million will be recovered in two steps.
The first step was placed in effect January 1, 2007 to recover approximately $4.8 million in annual
revenue. The second step will be designed to recover approximately $1.2 million of annual revenue
reflecting the issuance of additional equity not to exceed $20 million. However, should the
Company issue less than the projected $20 million in equity, the increase will be adjusted to
reflect the change in recovery associated with the Companys capital structure.
Delaware statute permits water utilities to put into effect, on a semi-annual basis, increases
related to specific types of distribution system improvements through a Distribution System
Improvement Charge, or DSIC. This charge is available to water utilities to be implemented between
general rate increase applications that normally recognize changes in a water utilitys overall
financial position. The DSIC approval process is less costly when compared to the approval process
for general rate increase requests. The DSIC rate applied between base rate filings is capped at
7.5% of the amount billed to customers under otherwise applicable rates and charges, and the DSIC
rate increase applied can not exceed 5% within any 12-month period.
NOTE 7 STOCK SPLIT
On May 12, 2006, the Companys Board of Directors approved a three for two stock split in the form
of a stock dividend. Stockholders of record on May 30, 2006 received one additional share for each
two shares held. All share and per share information have been presented to retroactively show the
effect of the stock split as if it had occurred January 1, 2006.
|
|
|
|
|
|
|
|
|
|
|
For the Quarter |
|
Weighted Average Shares |
|
Ended March 31, |
|
Outstanding |
|
2007 |
|
|
2006 |
|
Basic |
|
|
6,110,946 |
|
|
|
6,026,678 |
|
Diluted |
|
|
6,272,810 |
|
|
|
6,216,680 |
|
11
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 2007
Overview
Strategic Direction
Our profitability is primarily attributable to the sale of water by Artesian Water, the amount of
which is dependent on seasonal fluctuations in weather, particularly during the summer months when
water demand may vary with rainfall and temperature. In the event that temperatures during the
typically warmer months are cooler than expected, or rainfall is greater than expected, the demand
for water may decrease and our revenues may be adversely affected. We believe the effects of
weather are short term and do not materially affect the execution of our strategic initiatives.
Our initiatives south of the Chesapeake & Delaware Canal, or the C&D Canal, that began in 1992
are now providing the greatest portion of our customer growth. This shift in growth is primarily
the result of the build out of our service area in northern New Castle County, Delaware.
While customer growth in our utility subsidiaries continued to be a major focus in the first three
months of 2007, we aggressively seek opportunities that produce revenue streams that are not as
directly affected by weather. These opportunities include the efforts of Artesian Utility, which
is actively pursuing opportunities to design, build and operate wastewater facilities throughout
Delaware and surrounding areas, and Artesian Wastewater, which began providing wastewater services
to customers in Delaware as a regulated public wastewater service company in July 2005. The
opportunities generated through our wastewater service companies may provide additional service
territory for the regulated water subsidiary or may provide contract operations services for
municipalities or other regulated entities. We will continue to focus attention on expanding our
contract operations opportunities with municipalities and private water providers in Delaware and
surrounding areas.
Our strategy is to focus on total resource management covering a wide spectrum of activities, which
include identifying new and dependable sources of supply; developing the wells, treatment plants
and delivery systems to get water to customers; educating customers on the wise use of water; and
providing responsible wastewater management to assist with recharge of the aquifers. Our strategy
includes focusing our efforts to expand in new regions added to our service territory over the last
10 years, where growth is strong and demand is increasing. We currently own and operate 5
wastewater treatment facilities currently able to treat 391,000 gallons per day, which may be
expanded to 1,570,000 gallons per day. We also foresee significant growth opportunities in our
wastewater subsidiaries and will continue to seek strategic partnerships and relationships with
developers and municipalities to complement existing agreements for the provision of wastewater
service in Delaware and surrounding areas.
We believe additional growth for Artesian will be developed in the Maryland counties on the
Delmarva Peninsula. In furtherance of our strategic initiative, we reached an agreement on terms
to purchase the Carpenters Point Water Company adjacent to an area in Cecil County, Maryland
designated as a growth corridor. The growth corridor is focused primarily around the Route 40 and
Interstate 95 between Philadelphia, Pennsylvania and Baltimore, Maryland. Carpenters Point
currently serves a 130 home community in Cecil County, Maryland near the Interstate 95 growth
corridor between Philadelphia and Baltimore. The proposed acquisition is expected to provide
sufficient groundwater supply and elevated water storage to serve additional customers in the
undeveloped portions of the Carpenters Point franchise and surrounding area.
In May 2007, we completed the purchase of all the wastewater and water operations agreements of TMH
Environmental Services, Inc. In connection with this acquisition, we expanded our water and
wastewater contract activity in the region and added experienced, qualified and licensed water and
wastewater operators to our staff. We believe this strategic expansion will provide Artesian with
additional potential for continued growth.
12
Regulatory Matters and Inflation
As of March 31, 2007, we had approximately 74,000 metered water customers, 254 wastewater
customers, and served a population of approximately 250,000 (including contract services),
representing approximately 29% of Delawares total population. Increases in the number of
customers served by Artesian Water and Artesian Wastewater contribute to increases in our operating
revenues. The PSC regulates both Artesian Waters and Artesian Wastewaters rates charged for
service, the sale and issuance of securities and other matters.
Our regulated utilities periodically seek rate increases to cover the cost of increased operating
expenses, increased financing expenses due to additional investments in utility plant and other
costs of doing business. In Delaware, utilities are permitted by law to place rates into effect,
under bond, on a temporary basis pending completion of a rate increase proceeding. The first
temporary increase may be up to the lesser of $2.5 million on an annual basis or 15% of annual
gross water sales. Should the rate case not be completed within seven months, by law, the utility
may put the lesser of the entire requested rate relief or 15% of annual gross water sales in
effect, under bond, until a final resolution is ordered and placed into effect. If such rates are
found to be in excess of rates the PSC finds to be appropriate, we must refund the portion found in
excess to customers with interest. The timing of our rate increase requests are therefore
dependent upon the estimated cost of the administrative process in relation to the investments and
expenses that we hope to recover through the rate increase. We can provide no assurances that rate
increase requests will be approved by the applicable regulatory agencies; and, if approved, we
cannot guarantee that these rate increases will be granted in a timely or sufficient manner to
cover the investments and expenses for which we initially sought the rate increase. A rate
increase went into effect on January 1, 2007, as discussed in Note 6 to the Financial Statements.
We are affected by inflation, most notably by the continually increasing costs required to
maintain, improve and expand our service capability. The cumulative effect of inflation results in
significantly higher facility costs compared to investments made 20 to 40 years ago, which must be
recovered from future cash flows.
Delaware statute permits utilities to put into effect, on a semi-annual basis, increases related to
specific types of distribution system improvements through DSIC. This charge is available to water
utilities to be implemented between general rate increase applications that normally recognize
changes in a water utilitys overall financial position. The DSIC process is less costly when
compared to the approval process for general rate increase requests. The DSIC rate applied between
base rate filings is capped at 7.5% of the amount billed to customers under otherwise applicable
rates and charges, and the DSIC rate increase applied can not exceed 5% within any 12-month period.
Results of Operations Analysis of the Three Months Ended March 31, 2007 Compared to the
Three Months Ended March 31, 2006
Operating Revenues
Revenues totaled $11.6 million for the three months ended March 31, 2007, $1.1 million, or 10.6%,
above revenues for the three months ended March 31, 2006 of $10.5 million, primarily due to an
increase in water sales revenues. Water sales revenues increased 6.9% for the three months ended
March 31, 2007, over the corresponding period in 2006. A portion of the increase in water sales
revenue reflects a 2.3% increase in the number of customers served. The remaining increase in
operating revenues for the three months ended March 31, 2007 is primarily due to an increase in
rates effective January 1, 2007. This increase was moderated by a decrease in volumes of water
delivered to customers in the first quarter of 2007 compared to the same period in 2006 and revenue
related to the Distribution System Improvement Charge, which was not in effect during the first
quarter of 2007 but generated $132,000 in revenue during the first quarter of 2006. Further, there
was an adjustment of $154,000 related to the 2004 rate case reserve, as described in our annual
report on Form 10-K for the year ended December 31, 2006.
The increase in the non-utility revenues of $216,000, or 86.7%, was due to an increase in
non-regulated wastewater project activity compared to the same period last year and a $67,000
increase in Service Line Protection Plan, or SLP Plan, revenue. The SLP Plan covers all parts,
material and labor required to repair or replace participants leaking water service lines up to an
annual limit.
The increase in other utility operating revenue of $207,000, or 92.0%, was due to increases in
operational subsidies paid by developers for various wastewater plants, compared to the same period
last year. Several of Artesian
13
Wastewaters contracts require developers to pay a one-time contribution toward the cost of
infrastructure and a subsidy to defray the expense of operating the wastewater facility through its
start up period, as each customer is added to the system.
We realized 92.3% of our total revenue for the three months ended March 31, 2007 from the sale of
water, compared to 95.5% during the same period last year. The change resulted from the increase
in wastewater project activity and Service Line Protection Plan revenue.
Operating Expenses
Operating expenses, excluding depreciation and taxes, increased $0.7 million, or 11.9%, to $6.7
million for the three months ended March 31, 2007, compared to $6.0 million for the same period in
2006. The components of the increase in operating expenses included an increase in utility
operating expenses of $683,000. Non-utility operating expenses increased $28,000 in the first
quarter of 2007, or 15.5%, compared to the same period last year.
The increase in operating expense of $683,000 for the quarter ended March 31, 2007, or 11.8%, over
the same period in 2006, is primarily comprised of increases in purchased power, payroll, and
repair and maintenance costs.
Purchased power expense increased $291,000, or 83.5%, compared to the same period in 2006, due to
an increase in electric rates of approximately 92% effective May 2006. Price caps instituted by
electric restructuring legislation in Delaware in 1999 were lifted in 2006, resulting in extreme
price increases for all of Delmarva Powers customers. Artesian sought to mitigate these increases
by signing a two-year supply contract with another provider at a fixed price in May 2006.
Payroll and employee benefit expense increased $251,000, or 8.1%, compared to the same period in
2006, primarily due to increases in employee count, employee wages and medical insurance premiums.
Repair and maintenance expense increased by $189,000, or 52.5%, compared to the same period in
2006, due primarily to a $90,000 increase in our tank painting expense. A new five year agreement
to paint a specified number of water storage tanks was negotiated with a contractor following
completion of a previous five year agreement in 2005. Additional carbon filter replacements also
increased costs $74,000 in the quarter ended March 31, 2007 compared to the same period last year.
Purchased water expense decreased $144,000 compared to the same period a year ago due to less water
purchased from Chester Water Authority and the expiration of a contract with the City of Wilmington
in December 2006 that had required minimum annual water purchases. During the first quarter of
2006, we purchased 48 million gallons of water from the City of Wilmington, at an expense of
$81,000, compared to 430,000 gallons, an expense of $700, in the same period of 2007.
Property taxes, assessed on property primarily held by Artesian Water, increased by $54,000, or
8.5%, compared to the same period in 2006, reflecting increases in tax rates charged for public
schools in various areas where Artesian holds property and increases in the amount of plant owned
by Artesian. Property taxes are assessed on land, buildings and certain utility plant, which
includes the footage and size of pipe, hydrants and wells owned by Artesian Water.
The ratio of operating expense, excluding depreciation and taxes, to total revenue was 63.6% for
the three months ended March 31, 2007, compared to 63.1% for the three months ended March 31, 2006.
Depreciation and amortization expense increased $47,000, or 4.0%, over the three months ended March
31, 2007, due to continuing investment in utility plant in service providing supply, treatment,
storage and distribution of water.
Federal and State income tax expense increased $88,000, or 13.5%, due to higher profitability for
the three months ended March 31, 2007, compared to the three months ended March 31, 2006. The
effective tax rate was 39.1% for the three months ended March 31, 2007, compared to 39.6% for the
three months ended March 31, 2006.
14
Other Income, Net
Our Allowance for Funds Used During Construction, or AFUDC, increased $25,000, or 71.4%, compared
to the same period in 2006, as a result of higher long-term construction activity subject to AFUDC
for the first quarter of 2007 compared to the same period in 2006.
Interest Charges
Interest charges increased $132,000, or 8.8%, for the three months ended March 31, 2007, compared
to the three months ended March 31, 2006, primarily due to higher short-term debt balances and
interest rates.
Net Income
For the three months ended March 31, 2007, the Company recorded net income of $1,156,000, which
represents a $160,000, or 16.1%, increase in comparison to net income of $996,000 recorded for the
same period in 2006. This increase is primarily due to improved gross margins in our non-utility
business, as well as the increase in our other utility operating revenues from regulated wastewater
services.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity for the three months ended March 31, 2007 were $2.8 million
provided by cash flow from operating activities, $1.4 million in net contributions and advances
from developers, and $1.2 million in borrowing on our lines of credit. Cash flow from operating
activities is primarily provided by our utility operations, and is impacted by the timeliness and
adequacy of rate increases and changes in water consumption as a result of year-to-year variations
in weather conditions particularly during the summer. A significant part of our ability to
maintain and meet our financial objectives is to assure our investments in utility plant and
equipment are recovered in the rates charged to customers. As such, from time to time we file rate
increase requests to recover increases in operating expenses and investments in utility plant and
equipment.
We invested $5.0 million in capital expenditures during the first three months of 2007 compared to
$6.2 million invested during the same period in 2006. The primary focus of Artesian Waters
investment was to continue to provide high quality reliable service to our growing service
territory. We have invested $1.7 million through the three months ended March 31, 2007, for the
construction of new treatment facilities, to enhance or improve existing treatment facilities, and
for the rehabilitation of pumping equipment to better serve our customers. In addition, we are
continuing our regional approach to building infrastructure through connecting existing supply
infrastructure to new developments and at the same time providing redundancy to existing
developments by connecting them to the regional system. These efforts resulted in an investment of
$2.0 million in the first three months of 2007. Artesian Wastewater invested $1.0 million in the
first three months of 2007 towards construction of two new wastewater treatment facilities in
Sussex County, Delaware including the construction of a regional wastewater system. When
completed, Artesian Wastewater will have invested approximately $6.5 million in these facilities,
which will be capable of serving approximately 1,700 customers. Artesian funded the TMH
acquisition using cash on hand.
At March 31, 2007, Artesian Water had lines of credit totaling $40.0 million to meet temporary cash
requirements. These revolving credit facilities are unsecured. As of March 31, 2007, we had $30.8
million of available funds under these lines. The interest rate for borrowings under each of these
lines is the London Interbank Offering Rate, or LIBOR, plus 1.0% or, at our discretion, the
banks federal funds rate plus 1.0%. Each bank reviews all of their facilities annually for
renewal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
Commitments |
|
Committed |
|
|
1 Year |
|
|
1-3 Years |
|
|
4-5 Years |
|
|
Over 5 Years |
|
Lines of Credit |
|
$ |
9,151 |
|
|
$ |
9,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2007, Artesian Utility and Artesian Wastewater had lines of credit with a financial
institution for $3.5 million and $1.5 million, respectively, to meet temporary cash requirements.
These revolving credit facilities are unsecured. As of March 31, 2007, we had not borrowed funds
under any of these lines. Effective May 7, 2007,
15
Artesian Wastewaters line of credit was increased to $10 million. The interest rate for
borrowings under each of these lines is the LIBOR plus 1.75%. The bank reviews its facilities
annually for renewal.
We expect to fund our activities for the next twelve months using our available cash balances and
bank credit lines, and projected cash generated from operations and the capital markets.
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less than |
|
|
1-3 |
|
|
4-5 |
|
|
After 5 |
|
|
|
|
In thousands |
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
First Mortgage Bonds
(Principal and
Interest) |
|
$ |
5,544 |
|
|
$ |
11,088 |
|
|
$ |
11,088 |
|
|
$ |
160,871 |
|
|
$ |
188,591 |
|
State revolving fund loans |
|
|
590 |
|
|
|
1,180 |
|
|
|
1,180 |
|
|
|
6,442 |
|
|
|
9,392 |
|
Operating leases |
|
|
140 |
|
|
|
170 |
|
|
|
83 |
|
|
|
1,833 |
|
|
|
2,226 |
|
Unconditional purchase
obligations |
|
|
2,787 |
|
|
|
8,368 |
|
|
|
5,581 |
|
|
|
27,883 |
|
|
|
44,619 |
|
Tank painting contractual
obligation |
|
|
374 |
|
|
|
749 |
|
|
|
549 |
|
|
|
0 |
|
|
|
1,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash
obligations |
|
$ |
9,435 |
|
|
$ |
21,555 |
|
|
$ |
18,481 |
|
|
$ |
197,029 |
|
|
$ |
246,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations reflect the maturities of certain series of our first mortgage bonds,
which we intend to refinance when due. The state revolving fund loan obligation has an amortizing
mortgage payment payable over a 20-year period, and will be refinanced as future securities are
issued. Both the long-term debt and the state revolving fund loan have certain financial covenant
provisions, the violation of which could result in default and require the obligation to be
immediately repaid, including all interest. For information about these financial covenant
provisions, refer to the Companys annual report on Form 10-K for the year ended December 31, 2006.
We have not experienced conditions that would result in our default under these agreements, and we
do not anticipate any such occurrence. Payments for unconditional purchase obligations reflect
minimum water purchase obligations based on rates that are subject to change under our
interconnection agreement with the Chester Water Authority.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, including any arrangements with any structured
finance, special purpose or variable interest entities.
Critical Accounting Assumptions, Estimates and Policies; Recent Accounting Standards
This discussion and analysis of our financial condition and results of operations is based on the
accounting policies used and disclosed in our 2006 consolidated financial statements and
accompanying notes that were prepared in accordance with accounting principles generally accepted
in the United States of America and included as part of our annual report on Form 10-K for the year
ended December 31, 2006. The preparation of those financial statements required management to make
assumptions and estimates that affected the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial statements as well as
the reported amounts of revenues and expenses during the reporting periods. Actual amounts or
results could differ from those based on such assumptions and estimates.
Our critical accounting policies are described in Managements Discussion and Analysis included in
our annual report on Form 10-K for the year ended December 31, 2006. There have been no changes in
these accounting policies. Our significant accounting policies are described in our 2006
consolidated financial statements included in our annual report on Form 10-K for the year ended
December 31, 2006.
16
Information concerning our implementation and the impact of recent accounting standards issued by
the Financial Accounting Standards Board is included in the notes to our 2006 consolidated
financial statements included in our annual report on Form 10-K for the year ended December 31,
2006 and also in the notes to our consolidated financial statements contained in this quarterly
report on Form 10-Q. We did not adopt any accounting policy in the first three months of 2007 that
had a material impact on our financial condition, liquidity or results of operations.
Caution Regarding forward-looking Statements
Statements in this Quarterly Report on Form 10-Q which express our belief, anticipation or
expectation, as well as other statements which are not historical fact, are forward-looking
statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act and the Private Securities Litigation Reform
Act of 1995. Statements regarding our goals, priorities, growth and expansion plans for our water
and wastewater subsidiaries, customer base growth opportunities in Cecil County, Maryland, our
belief regarding our capacity to provide water services for the foreseeable future to our
customers, our belief relating to our compliance and the cost to achieve compliance with relevant
governmental regulations, the impact of weather on our operations and the execution of our
strategic initiatives, our expectation relating to the adoption of recent accounting
pronouncements, contract operations opportunities, legal proceedings, our properties, our
expectations regarding the acquisitions of Carpenters Point and TMH, deferred tax assets, increases
to purchased water and electricity expense, adequacy of our available sources of financing, the
expected recovery of expenses related to our long-term debt, our expectation to be in compliance
with financial covenants in our debt instruments, our ability to refinance our debt as it comes
due, plans to increase our wastewater treatment operations and other revenue streams less affected
by weather, appropriate investment in infrastructure regarding the filing of the certification of
sufficient sources of self-supply, expected contributions in 2007 to our postretirement benefit
plan, and our liquidity needs are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and involve risks and uncertainties that could cause
actual results to differ materially from those projected. Words such as expects, anticipates,
intends, plans, believes, seeks, estimates, projects, forecasts, may, should,
variations of such words and similar expressions are intended to identify such forward-looking
statements. Certain factors as discussed under Item 1A -Risk Factors, such as changes in weather,
changes in our contractual obligations, changes in government policies, the timing and results of
our rate requests, changes in economic and market conditions generally, and other matters could
cause results to differ materially from those in the forward-looking statements. While the Company
may elect to update forward-looking statements, we specifically disclaim any obligation to do so
and you should not rely on any forward-looking statement as representation of the Companys views
as of any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to the risk of fluctuating interest rates in the normal course of business. Our
policy is to manage interest rates through the use of fixed rate, long-term debt and, to a lesser
extent, short-term debt. The Companys interest rate risk related to existing fixed rate,
long-term debt is not material due to the terms of our First Mortgage Bonds, which have maturity
dates ranging from 2018 to 2043.
At March 31, 2007, Artesian Water had lines of credit of $20.0 million each with two separate
financial institutions totaling $40.0 million to meet temporary cash requirements. These revolving
credit facilities are unsecured. As of March 31, 2007, we had $30.8 million of available funds
under these lines. The interest rate for borrowings under each of these lines is the London
Interbank Offering Rate, or LIBOR, plus 1.0% or, at our discretion, the banks federal funds rate
plus 1.0%. Each bank reviews all of their facilities annually for renewal.
At March 31, 2007, Artesian Utility and Artesian Wastewater had lines of credit with a financial
institution for $3.5 million and $1.5 million, respectively, to meet temporary cash requirements.
These revolving credit facilities are unsecured. As of March 31, 2007, we had not borrowed funds
under these lines. Effective May 7, 2007, Artesian Wastewaters line of credit was increased to
$10 million. The interest rate for borrowings under each of these lines is the LIBOR plus 1.75%.
The bank reviews its facilities annually for renewal. Consequently, our interest expense for short
term debt could be materially affected should interest rates change materially and we have material
balances outstanding on our lines of credit.
17
ITEM 4 CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures as of the end of the period covered
by this report are functioning effectively to provide reasonable assurance that
the information required to be disclosed by us in reports filed under the
Securities Exchange Act of 1934, as amended is (i) recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission and (ii) accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding
disclosure. A controls system cannot provide absolute assurance, however, that
the objectives of the controls system are met, and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the
Companys most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no material legal proceedings pending at this time to which we or any of our properties
is the subject that are material or are expected to have a material effect on our financial
position or operations.
ITEM 1A RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the
factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2006, which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the only risks facing us.
Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition and/or operating
results.
ITEM 6 EXHIBITS
|
|
|
10.1
|
|
Indemnification Agreement, dated as of March 12, 2007, between Artesian Resources
Corporation and KPMG LLP (Filed as Exhibit 99.1 to our report on Form 8-K dated March
16, 2007 and filed with the Securities and Exchange Commission on March 16, 2007 and
incorporated herein by reference) |
|
|
|
31.1
|
|
Certification of Chief Executive Officer of the Registrant required by Rule 13a 14 (a)
under the Securities Exchange Act of 1934, as amended.* |
|
|
|
31.2
|
|
Certification of Chief Financial Officer of the Registrant required by Rule 13a 14 (a)
under the Securities Exchange Act of 1934, as amended.* |
|
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer required by Rule
13a-14(b) under the Securities Exchange Act of 1934, as amended and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)* |
* Filed herewith
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ARTESIAN RESOURCES CORPORATION
|
|
Date: May 8, 2007 |
By: |
/s/ DIAN C. TAYLOR
|
|
|
|
Dian C. Taylor |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
Date: May 8, 2007 |
By: |
/s/ DAVID B. SPACHT
|
|
|
|
David B. Spacht |
|
|
|
(Principal Financial and Accounting Officer) |
|
19
INDEX TO EXHIBITS
|
|
|
Exhibit Number |
|
Description |
10.1
|
|
Indemnification Agreement, dated as of March 12, 2007, between Artesian Resources
Corporation and KPMG LLP (Filed as Exhibit 99.1 to our report on Form 8-K dated March
16, 2007 and filed with the Securities and Exchange Commission on March 16, 2007 and
incorporated herein by reference) |
|
|
|
31.1
|
|
Certification of Chief Executive Officer of the Registrant required by Rule 13a 14 (a)
under the Securities Exchange Act of 1934, as amended.* |
|
|
|
31.2
|
|
Certification of Chief Financial Officer of the Registrant required by Rule 13a 14 (a)
under the Securities Exchange Act of 1934, as amended.* |
|
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer required by Rule
13a-14(b) under the Securities Exchange Act of 1934, as amended and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)* |
* Filed herewith
20