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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
Commission file number 0-18516
ARTESIAN RESOURCES CORPORATION
_________________________________
(exact name of registrant as specified in its charter)
Delaware 51-0002090
________________________________ _______________________________________
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
664 Churchmans Road, Newark, Delaware 19702
_____________________________________________
Address of principal executive offices
(302) 453 -- 6900
_____________________________
Registrant's telephone number, including area code
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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2)
|X| Yes |_| No
The aggregate market value of the Class A Non-Voting Common Stock and Class B
Common Stock held by non-affiliates of the registrant at June 30, 2003 was
$75,250,000 and $3,930,000, respectively. The aggregate market value of Class
A Non-Voting Common Stock was computed by reference to the closing price of
such class as reported on the Nasdaq National Market on June 30, 2003. The
aggregate market value of Class B Common Stock was computed by reference to
the last reported trade of such class as reported on the OTC Bulletin Board as
of June 30, 2003, which trade date was May 21, 2003.
As of March 1, 2004, 3,330,648 shares of Class A Non-Voting Common Stock and
587,680 shares of Class B Common Stock were outstanding.
1
PART I
Item 1. -- Business.
Artesian Resources Corporation ("Artesian Resources" or the "Company")
operates as the parent holding company of Artesian Water Company, Inc.
("Artesian Water"), our principal subsidiary, Artesian Water Pennsylvania,
Inc. and two non-regulated subsidiaries. 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 the newly
formed subsidiary, Artesian Water. In this Annual Report on Form 10-K, we
frequently use the terms "we," "our" and the "Company" to refer to Artesian
Resources and its subsidiaries, including Artesian Water.
We distribute and sell water to residential, commercial, industrial,
governmental, municipal and utility customers throughout the State of
Delaware. As of December 31, 2003, we had approximately 70,000 metered
customers and served a population of approximately 230,000 (including contract
services), representing approximately 29% of Delaware's total population. We
also provide water for public and private fire protection to customers in our
service territories. Our gross water sales revenue for 2003 was approximately
$35.2 million, and our percentages of gross water sales revenue by major
customer classifications were 62% for residential, 32% for commercial,
industrial, governmental, municipal and utility, and 6% for fire protection
and other. These percentages have remained fairly constant for the past three
years. We received recognition of Artesian Water Pennsylvania, Inc. as a
regulated public water utility by the Pennsylvania Public Utility Commission
in 2002. We are now serving a community in Pennsylvania consisting of 41
homes.
Demand for water during the warmer months is generally greater than during
cooler months due primarily to additional requirements for water in connection
with cooling systems, swimming pools, irrigation systems and other outside
water use. Throughout the year, and particularly during typically warmer
months, demand for water will vary with temperature and rainfall. In the event
that temperatures during the typically warmer months are cooler than expected,
or as in 2003 there is more rainfall than expected, the demand for water may
decrease and our revenues may be adversely affected.
Our primary current market area is the State of Delaware, which had a
population of approximately 800,000 at December 31, 2003. According to the US
Census Bureau, Delaware's population has increased 17.6% over the last 10
years, the 14th largest percentage increase among the states. Although New
Castle is the most populous of Delaware's three counties, Sussex County, in
southern Delaware, has experienced the most significant growth with a
population increase of approximately 38.3% over the last ten years.
Substantial portions of Delaware, particularly outside of New Castle County,
are not served by a public water system and represent potential opportunities
for Artesian Water to obtain new exclusive franchised service areas. We
continue to focus resources on developing and serving existing service
territories and obtaining new territories throughout the State.
In Delaware, a Certificate of Public Convenience and Necessity ("CPCN") grants
a water company the exclusive right to serve all existing and new customers
within a designated area. Effective July 1, 2001, the authority to issue
CPCN's was transferred to the Delaware Public Service Commission ("PSC") from
the Delaware Department of Natural Resources and Environmental Control
("DNREC"). In this Annual Report on Form 10-K, we refer to these Certificates
as "CPCN's", "franchises" or "service territories." Currently the PSC grants a
CPCN under circumstances where there has been a determination that the water
in the proposed service area does not meet the regulations governing drinking
water standards of the State Division of Public Health for human consumption,
where the supply is insufficient to meet the projected demand, or where the
applicant is in possession of one of the following: (i) a signed service
agreement with the developer of a proposed subdivision or development, which
subdivision or development has been duly approved by the respective county
government; (ii) a petition requesting such service signed by a majority of
the landowners of the proposed territory to be served; or (iii) a duly
certified copy of a resolution from the governing body of a county or
municipality requesting the applicant to provide service to the proposed
territory to be served. CPCN's are not transferable, and a water utility must
obtain the approval of the PSC to abandon a service territory once granted.
Once a CPCN to a water utility is granted, it may not be suspended or
terminated unless the Delaware PSC determines in accordance with its rules and
regulations that good cause exists for any such suspension or termination.
We hold CPCN's for approximately 140 square miles of exclusive service
territory, which is segmented into a number of service areas. Our largest
connected regional water system, consisting of approximately 98.6 square miles
and 65,000 customers, is located in northern Delaware. A significant portion
of our exclusive service territory remains undeveloped, and if and when
development occurs and there is population growth in these areas, we will
increase our customer base by providing water service to the newly developed
areas and new customers. The total number of customers we serve has grown at
an average annual rate of approximately 2.7% since 1993, when we began
expansion of our service territory. Within our existing service territory, we
hold
2
CPCN's for nearly 5,000 vacant acres zoned for industrial and manufacturing
development.
In 1993, we initiated efforts to expand our service territory in Delaware
beyond northern New Castle County. This expansion, which has occurred in
southern New Castle, Kent and Sussex Counties, has increased our exclusive
service area in Delaware by approximately 39% since 1993. The pursuit of new
service territory in the State of Delaware by water companies is competitive.
Our strategy is to continue our efforts to acquire additional exclusive
service areas, although the future rate of increase will depend upon interest
rates, land use rules, and our ability to enter into agreements with
landowners, developers or municipalities.
Beginning in 1992, we undertook steps to increase our sources of groundwater
supply, recognizing that such sources provided improved reliability while also
being more cost effective. We have identified sufficient sources of
groundwater supply to serve our expanding customer base for the foreseeable
future. Our self-supply has increased from 63% of our total water supply in
1992 to approximately 82% in 2003. Since 1992, we have increased our sources
of groundwater supply from our own wells by 51%, or nearly nine million
gallons per day. We plan to continue development of new sources of groundwater
supplies as demand warrants.
Our primary sources of water are our wells that pump groundwater from aquifers
and other formations. To supplement our groundwater supply, we purchase
surface water through interconnections only in the northern service area of
our New Castle County system. The purchased surface water is blended with our
groundwater supply for distribution to our customers. Nearly 82% of the
overall 7.2 billion gallons of water we distributed in all our systems during
2003 came from our groundwater wells, while the remaining 18% came from
interconnections with other utilities and municipalities. During 2003, our
average rate of water pumped was approximately 16.2 million gallons per day
("mgd") from our groundwater wells and approximately 3.6 mgd was supplied from
interconnections. Our peak water supply capacity currently is approximately
50.0 mgd. Our peak water demand in 2003 was approximately 25.8 mgd. We believe
that we have in place sufficient capacity to provide water service for the
foreseeable future to all existing and new customers in all of our service
territories.
Under state laws and regulations, we are required to file applications with
the DNREC for water allocation permits for each of our operating wells pumping
quantities of water above certain levels. We have 98 operating and 58
monitoring wells in our systems. Presently, we have permits for 74 wells,
permit applications pending for 13 wells and 11 wells not requiring a permit.
Our access to aquifers within our service territory is not exclusive. Water
allocation permits control the amount of water that can be drawn from water
resources and are granted with specific restrictions on water level draw down
limits, annual, monthly and daily pumpage limits, and well field allocation
pumpage limits. We are also subject to water allocation regulations that
control the amount of water that we can draw from water sources. As a result,
if new or more restrictive water allocation regulations are imposed, they
could have an adverse effect on our ability to supply the demands of our
customers, and in turn, our water supply revenues and results of operations.
Our ability to supply the demands of our customers historically has not been
affected by private usage of the aquifers by landowners or the limits imposed
by the State. Because of the extensive regulatory requirements relating to the
withdrawal of any significant amounts of water from the aquifers, we believe
that third party usage of the aquifers within our service territory will not
interfere with our ability to meet the present and future demands of our
customers.
Our northern New Castle County system is interconnected. During the first half
of 2004, we will complete the installation of water main beneath the
Chesapeake and Delaware Canal, joining our northern New Castle County system
to a portion of our southern New Castle County system. In the remainder of the
State, we have several satellite systems that have not yet been connected by
transmission and distribution facilities. We intend to join these systems into
larger integrated regional systems through the construction of a transmission
and distribution network as development continues and our expansion efforts
provide us with contiguous exclusive service territories.
We have 17 interconnections with three neighboring water utilities and five
municipalities that provide us with the ability to purchase or sell water.
Interconnection agreements with the Chester Water Authority and the City of
Wilmington have "take or pay" clauses requiring us to take, as of December 31,
2003, minimum draws totaling 1.295 billion gallons annually. We presently use
the minimum draws under these agreements. The Chester Water Authority
agreement, which expires in 2021, provides for a renewal period of an
additional 25 years at our option, subject to the approval of the Susquehanna
River Basin Commission. Our remaining take or pay agreement with the City of
Wilmington was renewed in December 2001 for a period of five years. All of the
interconnections provide Artesian Water the ability to sell water to
neighboring water utilities or municipalities.
As of December 31, 2003, we were serving customers through approximately 938
miles of transmission and distribution mains. Mains range in diameter from two
inches to twenty-four inches, and most of the mains are made of ductile iron,
cast iron or transite pipe. Ductile iron is more durable than plastic and we
install ductile iron pipes wherever possible. We are installing a more durable
type of plastic pipe only near ocean front property in southern Delaware where
corrosive conditions of the surrounding ground affect the longevity of ductile
iron pipe. We also supply public fire protection service through approximately
3,800 hydrants installed throughout our service territories.
3
We have 30 storage tanks, most of which are elevated, providing total system
storage of 38.0 million gallons. We have developed and are using an aquifer
storage and recovery system. At some locations, we rely on hydropneumatic
tanks to maintain adequate system pressures. Where possible, we will combine
our smaller satellite systems with systems having elevated storage facilities.
We pump all of our water with electric power purchased from major electric
utilities. We also have diesel and propane powered generating equipment at
most treatment and elevated storage facilities for the provision of basic
water service during possible electrical outages.
We derive about 95% of our self-supplied groundwater from wells located in the
Atlantic Coastal Plain. The remaining 5% comes from wells in the Piedmont
Province. We use a variety of treatment methods, including aeration, pH
adjustment, chlorination, fluoridation and iron removal, to meet federal,
state and local water quality standards. Additionally, a corrosion inhibitor
is added to all of our self-supplied groundwater and most of the supply from
interconnections. We have 48 different water treatment facilities. All water
supplies that we purchase from neighboring utilities are potable. We believe,
based on our experience, the costs of treating groundwater are significantly
lower than those of treating surface water.
The United States Environmental Protection Agency (the "EPA"), DNREC, and the
Delaware Division of Public Health ("DPH") regulate the water quality of our
treatment and distribution systems. We believe that we are in material
compliance with all current federal, state and local water quality standards,
including regulations under the federal Safe Drinking Water Act. However, if
new water quality regulations are too costly, or if we fail to comply with
such regulations, it could have a material adverse effect on our financial
condition and results of operations. Chester Water Authority, which supplies
water to Artesian Water through interconnections in northern New Castle
County, is regulated by the Pennsylvania Department of Environmental
Protection as well as the EPA.
As required by the Safe Drinking Water Act, the EPA has established maximum
contaminant levels for various substances found in drinking water. DPH has set
maximum contaminant levels for certain substances that are more restrictive
than the maximum contaminant levels set by the EPA. The DPH is the EPA's agent
for enforcing the Safe Drinking Water Act in Delaware and, in that capacity,
monitors the activities of Artesian Water and reviews the results of water
quality tests performed by Artesian Water for adherence to applicable
regulations. Artesian Water is also subject to other laws regulating
substances and contaminants in water, including the Lead and Copper Rule,
rules for volatile organic compounds and the Total Coliform Rule. Because we
have no surface water sources of supply that we treat for consumption, the
Surface Water Treatment Rule generally does not apply to us.
Delaware enacted legislation in 1998 requiring water utilities to meet
secondary water quality standards that include limitations on iron content,
odor and other water quality-related issues that are not proven health risks
but may be objectionable for consumption. We believe our current treatment
systems and facilities meet or exceed these secondary standards.
As a normal by-product of iron removal, our treatment facility at Old County
Road in New Castle County and our treatment facilities in South Bethany and
Bayville in Sussex County generate iron removed from untreated groundwater
plus residue from chemicals used in the treatment process. We have contracted
with a licensed third party vendor to dispose of the solids produced at these
facilities. Our 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, but there is no assurance that such compliance will
continue to not have a material effect in the future.
Artesian Water, as a public utility, is regulated by the PSC with respect to
rates and charges for service, the sale and issuance of securities, mergers
and other matters. We periodically seek rate increases to cover the cost of
increased operating expenses, increased financing expenses due to additional
investments in utility plant and other costs of doing business. 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 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.
We filed a request for a rate increase in February 2004 for an $8.8 million
increase in our annual revenue requirement, but we cannot predict whether the
PSC will approve the requested increase, approve a smaller increase or deny
the request altogether. We currently derive our water service revenues from
water consumption, upon which base rates are applied, which were last
increased by 9.68% as of May 1, 2003. This reflected an authorized return on
equity rate of 10.5%, and an overall rate of return on rate base of 8.75%.
4
On December 19, 1996, Artesian Wastewater Management, Inc. ("Artesian
Wastewater") was created as a non-regulated subsidiary of Artesian Resources.
Artesian Wastewater provides wastewater treatment services in Delaware.
Artesian Wastewater is a one-third participant, along with heavy-construction
contractor George and Lynch and engineering firm D. Preston Lee, Jr., P.E.,
Inc., in a limited liability company called AquaStructure Delaware, L.L.C.
("AquaStructure"). The purpose of AquaStructure is to develop and market
proposals for design, construction and operation of wastewater facilities. In
1999, Artesian Wastewater began operating a 250,000 gallon per day wastewater
facility for the town of Middletown in southern New Castle County. In 2002,
AquaStructure substantially completed construction of a 2.5 million gallon per
day wastewater facility for Middletown and Artesian Wastewater, under contract
with AquaStructure, began operating the facility for Middletown under a 20
year contract.
The Company has no collective bargaining agreements with any of its employees,
and its work force is not union organized or union represented. As of
December 31, 2003, we employed 174 full-time and 10 part-time employees, all
of whom were non-unionized. Of these full-time employees, 24 were officers and
managers; 99 were employed as operations personnel, including engineers,
technicians, draftsman, maintenance and repair persons, meter readers and
utility personnel; and 45 were employed in the accounting, budgeting,
information systems, human resources, customer relations, public relations and
conservation departments. The remaining six employees were administrative
personnel. We believe that our employee relations are good.
We are a Delaware corporation with our principal executive offices located at
664 Churchmans Road, Newark, Delaware, 19702. Our telephone number is (302)
453-6900 and our website address is www.artesianwater.com. We make available
free of charge through the Investor Information section of our website our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports
on Form 8-K and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or furnished to
the Securities and Exchange Commission. We include our website address in this
Annual Report on Form 10-K only as an inactive textual reference and do not
intend it to be an active link to our website.
Item 2. -- Properties.
The corporate headquarters of Artesian Resources, Artesian Water and its other
non-regulated subsidiaries are located at 664 Churchmans Road, Newark,
Delaware. As of October 20, 2003, the property is owned by Artesian Water.
Prior to that date, the property was leased from White Clay Realty by Artesian
Water. For a discussion on the manner by which Artesian Water acquired this
property, see Item 3 (Legal Proceedings) below.
Artesian Resources and Artesian Development Company, Inc. ("Artesian
Development"), a wholly owned subsidiary of Artesian Resources, 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, Kent and Sussex
Counties, Delaware. Artesian Water Pennsylvania, Inc. owns transmission and
distribution mains as well. In the aggregate, we own rights-of-way and
easements totaling approximately 706 acres. Substantially all of Artesian
Water's utility plant, except utility plant within the town of Townsend,
Delaware, is pledged as security for First Mortgage Securities.
Of the 706 acres we own, Artesian Development owns approximately eleven acres
zoned for office buildings located immediately adjacent to our corporate
headquarters. Artesian Development has no present plans to purchase new land
or develop the acreage it owns.
All of our existing facilities adequately meet current necessary production
capacities and current levels of utilization.
Item 3. -- Legal Proceedings.
On February 5, 2004, Artesian Water Company, Inc. filed a petition with the
Delaware Public Service Commission (PSC) to implement new rates to meet a
requested increase in revenue of 24%, or approximately $8.8 million, on an
annualized basis. Artesian Water anticipates placing temporary rates into
effect, 60 days from the filing date, up to the statutory limit of $2.5 million
on an annual basis, under bond until the level of permanent rates is decided
by the Delaware Public Service Commission.
On April 2, 2002, Artesian Water filed a petition with the PSC seeking to
raise rates for water service by 23.12%, or $7.5 million on an annual basis.
As is permitted by law, we placed a 7.71% rate increase into effect under bond
beginning June 1, 2002. On June 17, 2002, we filed a supplemental application
reducing the requested increase to 19%, or $6.4 million on an annual basis.
Hearings regarding the rate increase were held on October 30 and 31, 2002.
During these hearings, we reduced our requested rate increase to 14.2%, or
$4.8 million on an annual basis. Beginning December 3, 2002, as is permitted
by law, we placed an additional 3.69% of the proposed rates into effect. These
rates represented an increase in water consumption charges, customer
5
charges and fire hydrant ready to serve charges necessary to generate an
increase in operating revenues of approximately $3.9 million on an annual
basis. On March 18, 2003, the PSC approved an increase in rates for Artesian
Water. Based on the decisions made during the Commission hearings, the Company
calculated the increase to be approximately $3.3 million on an annual basis.
This calculation was reviewed by PSC staff. Since temporary rates were in
excess of the final rate increase, in June 2003 we refunded approximately
$201,000 plus interest to our customers. Since the Company had reserved
revenue related to the second temporary increase of approximately $234,000,
$33,000 was recorded to revenue in the second quarter of 2003.
Until October 20, 2003, the office building and shop complex utilized by
Artesian Water were leased at an average annual rental of $173,000 from the
former partners of White Clay Realty who owned the property jointly as tenants
in common. Dian C. Taylor, Chair and Chief Executive Officer of Artesian
Resources, was a tenant in common and John R. Eisenbrey, Jr., a director of
Artesian Resources, was a beneficiary of a tenant in common. The rental of
$173,000 was below market rates. In December 2002, Artesian Water filed a
condemnation action in the Delaware Superior Court, seeking to acquire title
to the office and shop complex leased by Artesian Water, known as 664
Churchmans Road, Newark, Delaware (the "Property"). Artesian Water filed this
action under its statutory power of eminent domain against the owner of the
Property, White Clay Realty, a Delaware Limited Partnership, and each of the
limited partners. The Superior Court ruled that since White Clay Realty had no
general partner, the partnership was dissolved and all of the former partners
owned the Property jointly as tenants in common. A special committee of the
Board of Directors of Artesian Water, composed entirely of outside directors
who had no ownership interest in the Property, made the determination to
purchase the Property through the condemnation procedures. Under this
procedure, if the acquisition of the Property is approved by the court, the
fair market value of the Property will be determined by a panel of
commissioners after an evidentiary hearing. Artesian Water's independent
appraiser valued the Property to be worth $3,800,000. In December 2002,
Artesian Water issued a payment to the Prothonotary for the State of Delaware
for $3,800,000. As the court delayed payment until the matter was decided, the
amount was refunded to Artesian Water in June 2003. Until a final
determination of the condemnation, the parties agreed that Artesian Water
could continue to occupy the Property under the terms of the lease with a
quarterly rental payment of $43,361. Pursuant to a deadline set by the
Superior Court, the owners of the Property submitted an independent appraisal
that valued the Property to be worth $4,800,000. The condemnation case was
scheduled for trial on October 20, 2003, wherein the fair market value of the
Property would have been determined by a panel of three Commissioners after an
evidentiary hearing. Prior to the commencement of the trial, all parties
agreed to settle the case for a purchase price of $4,500,000 paid by Artesian
Water on October 20, 2003. The decision to settle on the part of Artesian
Water was made by the Special Committee of independent directors and with the
recommendation of special counsel to the Special Committee. The settlement was
approved by order of the Superior Court on October 20, 2003. The Court also
approved applications of two of the tenants in common (neither of whom is an
officer or director of Artesian) for their expenses, totaling $50,000, to be
paid by Artesian Water, to which applications Artesian Water did not object.
There are no other material legal proceedings pending at this time.
Item 4. -- Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of 2003.
6
PART II
Item 5. -- Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchase of Equity Securities.
Artesian Resources' Class A Non-Voting Common Stock ("Class A Stock") is
listed on the Nasdaq National Market and trades under the symbol "ARTNA." On
January 30, 2004, there were 795 holders of record of the Class A Stock. The
following table sets forth, for the periods indicated, the high and low
closing sale prices for the Class A Stock on the Nasdaq National Market and
the cash dividends declared per share:
CLASS A NON-VOTING COMMON STOCK
Dividend
High Low Per Share
2002
First Quarter $21.000 $19.067 $0.1933
Second Quarter 22.666 19.267 0.1933
Third Quarter 19.653 16.761 0.1933
Fourth Quarter 19.927 18.013 0.1933
2003
First Quarter $21.733 $19.713 $0.1984
Second Quarter 24.667 19.900 0.1984
Third Quarter 25.860 23.200 0.1984
Fourth Quarter 29.330 25.680 0.2025
The closing sale prices shown above reflect prices between dealers and do not
include retail markups or markdowns or commissions and may not necessarily
represent actual transactions.
Our Class B Voting Stock ("Class B Stock") is quoted on the OTC Bulletin Board
under the symbol "ARTNB." There has been a limited and sporadic public trading
market for the Class B Stock. As of January 30, 2004, the last reported trade
of the Class B Stock on the OTC Bulletin Board was at a price of $27.90 per
share on December 10, 2003. As of January 30, 2004, we had 216 holders of
record of the Class B Stock.
Per SEC Regulation S-K, Item 701, the following table represents recent sales
of unregistered securities.
Use of Exemption from
Securities Sold Underwriters/Purchasers Consideration Proceeds Registration Claimed
First Mortgage Bonds, Series Q, Underwriter -- Offering Price -- Financing of Private Placement
4.75% Janney Montgomery Scott $15,400,000 specific pursuant to Rule
Date of Sale -- December 1, 2003 Purchaser -- Cost of Issuance construction 144A of the
Delaware Economic $1,181,574 projects Securities Exchange
Development Authority Net Proceeds Act of 1934
$14,218,426
First Mortgage Bonds, Series P, Purchaser -- Offering Price -- Repayment of Private Placement
6.58% Co-Bank $25,000,000 $10 million pursuant to Rule
Date of Sale -- January 31, 2003 Cost of Issuance First Mortgage 144A of the
$57,030 Bonds, Series L, Securities Exchange
Net Proceeds 8.03% to CoBank. Act of 1934
$24,942,970 Balance to pay
down the
Company's line
of credit.
7
Item 6. -- Selected Financial Data.
The selected consolidated financial data for each of the years in the 5-year
period ended December 31, 2003 are derived from the audited financial
statements of the Company. The following data should be read in conjunction
with the financial statements and related notes and also with Management's
Discussion and Analysis of Financial Condition and Results of Operations,
which are included elsewhere in this Annual Report on Form 10-K.
In thousands, except per share and operating data 2003 2002 2001 2000 1999
STATEMENT OF OPERATIONS DATA
Operating revenues
Water sales $ 35,164 $ 33,644 $ 31,362 $ 27,090 $ 26,310
Other revenue 1,131 953 625 461 467
Total operating revenues $ 36,295 $ 34,597 $ 31,987 $ 27,551 $ 26,777
Operating expenses
Operating and maintenance $ 19,629 $ 18,334 $ 17,619 $ 15,399 $ 14,690
Depreciation and amortization 3,635 3,392 3,001 2,706 2,417
State and federal income taxes 2,387 2,825 2,184 1,619 1,960
Property and other taxes 2,115 1,871 1,782 1,616 1,620
Total operating expenses $ 27,766 $ 26,422 $ 24,586 $ 21,340 $ 20,687
Operating income $ 8,529 $ 8,175 $ 7,401 $ 6,211 $ 6,090
Other income, net 277 380 457 295 188
Total income before interest charges $ 8,806 $ 8,555 $ 7,858 $ 6,506 $ 6,278
Interest charges $ 4,889 $ 4,388 $ 4,537 $ 4,055 $ 3,298
Net income $ 3,917 $ 4,167 $ 3,321 $ 2,451 $ 2,980
Dividends on preferred stock 71 42 51 61 71
Net income applicable to common stock $ 3,846 $ 4,125 $ 3,270 $ 2,390 $ 2,909
Net income per share of common stock:
Basic $ 0.99 $ 1.17 $ 1.07 $ 0.79 $ 0.99
Diluted $ 0.96 $ 1.14 $ 1.05 $ 0.78 $ 0.97
Avg. shares of common stock outstanding
Basic 3,880 3,534 3,039 3,011 2,942
Diluted 3,993 3,612 3,108 3,066 2,994
Cash dividends per share of common stock $ 0.7975 $ 0.77 $ 0.74 $ 0.73 $ 0.71
BALANCE SHEET DATA
Utility plant, at original cost less accumulated depreciation $187,893 $167,338 $152,356 $134,038 $122,481
Total assets $216,324 $183,072 $163,534 $144,407 $132,482
Notes payable $ 12,499 $ 3,163 $ 16,118 $ 2,000 $ 7,617
Long-term obligations and redeemable preferred stock, including current
portions $ 80,846 $ 64,591 $ 50,998 $ 52,236 $ 36,165
Stockholders' equity $ 52,691 $ 51,176 $ 34,445 $ 32,829 $ 32,356
Total capitalization $133,249 $115,246 $ 84,015 $ 83,846 $ 67,285
OPERATING DATA
Average water sales per customer $ 505 $ 495 $ 474 $ 417 $ 420
Water pumped (millions of gallons) 7,199 7,198 7,321 6,886 6,758
Number of metered customers 69,687 68,049 66,173 64,902 62,621
Miles of water main 938 917 888 872 842
8
Item 7 -- Management's Discussion & Analysis of Operations & Financial
Condition.
OVERVIEW
Our earnings per share applicable to our common stock shareholders were lower
than we anticipated for 2003 as a result of the weather conditions experienced
in 2003. Our regulated water utility's earnings, which comprise 98.9% of the
total earnings, are directly affected by the amount and duration of
precipitation during periods when water is used for purposes outside the home
or office such as irrigation. In 2003, our service area experienced an unusual
amount of precipitation throughout the year, especially affecting the need for
irrigation for our customers. By comparison, in 2002, our service area was
impacted by drought conditions that, because of the duration of the drought
period, resulted in mandatory restrictions for non-essential water use. These
restrictions had the effect of reducing consumption through voluntary and
mandatory restricted usage. We do not expect this trend to continue although
we can not reasonably predict the amount, timing and duration of precipitation
nor the effect it might have on our customers' water consumption.
Our gross water sales revenues were also affected in 2003 by the completion of
a rate application which resulted in an increase in rates to customers of
9.68%. However, that rate increase request, filed in April 2002, did not
include recovery of capital expense associated with the investment in utility
plant made during 2003. To recognize these investments and increases in other
expenses incurred during 2003 and expected through June 30, 2004, we filed for
an additional increase in rates of 24% with the Delaware Public Service
Commission on February 5, 2004. We expect to complete this application before
December 31, 2004, however, as permitted by state law, we plan to collect
revenues reflecting a temporary increase of $2.5 million on an annual basis
beginning April 2004.
Artesian Water Pennsylvania, Inc., our wholly owned Pennsylvania water utility
subsidiary, began operations in 2002, providing water service to a residential
community, consisting of 41 homes, in Chester County. Our other subsidiaries,
neither of which is regulated, are Artesian Wastewater Management, Inc., which
provides wastewater services in Delaware, and Artesian Development
Corporation, whose sole activity is the ownership of an eleven-acre parcel of
land. On October 14, 2003, we filed an application with the Pennsylvania
Public Utilities Commission to increase our service area in Pennsylvania. The
application concerns four specific developments that are expected to add 350
customers over 10 years.
While water sales revenues are our primary source of gross revenues,
generating nearly 96.9% of total gross revenues, we continue to explore and
develop relationships with developers and municipalities in order to increase
revenues from contract water operations and from wastewater management
services provided by Artesian Wastewater Management, Inc. In 2003, our efforts
led to an increase in those revenues of $100,000, or 34.8% over 2002. Our
contract operations and wastewater management services provide a revenue
stream which is not affected by changes in weather patterns. We plan to
continue developing and expanding our contract operations and wastewater
services in a manner that complements our growth in water service to new
customers. Our anticipated growth in these areas is subject to changes in
residential and commercial construction in Delaware which may be affected by
interest rates, inflation and general housing and economic market conditions.
Water Industry
In the United States, the water industry is comprised of more than 50,000
systems, 84% of which serve less than 3,300 customers. Only 15% of all water
systems are currently run by investor-owned utilities. There are currently 12
publicly traded water utilities. The rest are privately or municipally owned
systems. The water industry is capital intensive, with the highest capital
investment in plant and equipment per dollar of revenue among all utilities.
Increasingly stringent drinking water regulations have required the water
industry to invest in more advanced treatment systems and processes which
require a heightened level of expertise. In February 2001, the EPA estimated
that the nation's water systems must invest a minimum of $141.6 billion
through 2018 to meet the requirements of the Safe Drinking Water Act of 1974.
We are currently in full compliance with the requirements of the Safe Drinking
Water Act. Even though our water utility was founded in 1905, over 90% of our
investment in infrastructure has occurred through growth over the last 30
years.
We believe that Delaware's generally lower cost of living in the region,
availability of development sites in relatively close proximity to the
Atlantic Ocean in Sussex County, and attractive financing rates for
construction and mortgages have resulted, and will continue to result, in
increases to our customer base. Based on U.S. Census Bureau reports, Delaware
has recorded a 17% growth in residents since 1990 with Sussex County providing
a
9
population growth of 38% during the same period. Substantial portions of
Delaware are not served by a public water system. Interest rates for mortgages
have fallen from 6.84% on average in December 2001 to 5.81% through December
2003. Long-term interest rates for our recent First Mortgage Bond issuance
(see Note 6) reflect a similar trend as we were able to reduce our overall
weighted cost of debt from 7.93% in 2001 to 6.88% at the end of 2003.
Strategic Direction
We believe the effects of weather are short term and do not materially affect
the execution of our strategic initiatives. In 2003, we met our customer
growth objective, increasing our customer base by 2.5%. We exceeded our
expectations concerning growth in service territory during 2003, adding 7.8
square miles, a 6.0% increase. We continued to increase our sources of supply,
adding 4.0 million gallons to our daily production capacity, to assure we have
adequate high quality water supply to meet our customer growth expectations.
Our continued focus on these objectives has permitted us to increase net
income available to common shareholders by 32.2% over the last five years. 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
the 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. These regions have provided over half of our growth in customers
in 2003 and we expect growth to remain strong in these regions. We also
foresee significant growth opportunities in our wastewater subsidiary 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.
Regulatory Matters and Inflation
As of December 31, 2003, we had approximately 70,000 metered customers and
served a population of approximately 230,000, representing approximately 29%
of Delaware's total population. Increases in the number of customers served by
Artesian Water contribute to increases in our operating revenues. The Delaware
PSC regulates Artesian Water's rates charged for water service, the sale and
issuance of securities and other matters. We periodically seek rate increases
to cover the cost of increased operating expenses, increased financing
expenses due to additional investments in utility plant and other costs of
doing business. 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 gross water sales. Should the rate
case not be completed within seven months, by law, the utility may put the
entire requested rate relief in effect under bond until a final resolution is
ordered and placed into effect. If any such rates are found to be in excess of
rates the PSC finds to be appropriate, the utility must refund the portion
found to be in excess to customers with interest.
We currently derive our water service revenues from water consumption, upon
which base rates are applied, which were last increased and placed into effect
May 1, 2003. We filed for a rate increase in April 2002. Temporary rates
generating an additional $2.5 million on an annual basis, or a 7.71% increase,
were placed into effect on June 1, 2002. On December 3, 2002 we placed into
effect an additional $1.4 million in temporary rates as permitted by law. A
final rate increase award of $3.3 million on an annual basis, or a 9.68%
increase, was approved and placed into effect on May 1, 2003. On February 5,
2004, we again filed with the Delaware Public Service Commission (PSC) a rate
application requesting an increase in rates sufficient to generate an
additional $8.8 million on an annual basis, or an approximate 24.22% increase,
in gross water sales revenue to recognize the significant increase in utility
plant and equipment placed in service and increases in operating expenses. We
expect to place temporary rates into effect on April 5, 2004 that will
generate an additional $2.5 million on an annual basis in water sales revenue
as permitted by law. We cannot predict whether the Public Service Commission
will approve the requested increase, approve a smaller increase or deny the
request altogether.
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 (DSIC). This charge is
available to water utilities to be implemented between general rate increase
applications that normally recognize changes in a water utility's overall
financial position. The DSIC process significantly reduces expenses when
compared to those typically associated with general rate increase requests. We
requested on May 30, 2003 and subsequently implemented a 0.39% overall
surcharge for bills rendered subsequent to July 1, 2003. Through this
10
charge, we generated approximately $80,000 in revenues during 2003.
Furthermore, we requested on November 30, 2003, and subsequently implemented,
a 1.13% DSIC surcharge for bills rendered subsequent to January 1, 2004. This
surcharge was designed and is expected to generate approximately $204,000 in
revenues between January and June of 2004.
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.
CRITICAL ACCOUNTING ESTIMATES
We record water service revenue, including 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. These estimates
are made on an individual customer basis, based on the previous year's
consumption in the same period, and are adjusted to reflect current changes in
water demand on a system-wide basis. While actual usage for individual
customers may differ materially from the estimate, we believe the overall
total estimate of consumption and revenue for the fiscal period will not
differ materially from actual billed consumption, as the overall estimate has
been adjusted to reflect any change in overall demand on the system for the
period.
Our regulated water utility records deferred regulatory assets under Statement
of Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation," which are expenses that may be recovered over
various lengths of time as prescribed by the PSC. As the utility incurs
certain expenses, such as expenses related to rate case applications, a
deferred regulatory asset is created. Adjustments to these deferred regulatory
assets are made when the PSC determines whether the expense is recoverable in
rates, the length of time over which an expense is recoverable, or, because of
changes in circumstances, whether a remaining balance of deferred expense is
no longer recoverable in rates charged to customers. Adjustments to reflect
changes in recoverability of certain deferred regulatory assets may have a
material effect on our financial results.
RESULTS OF OPERATIONS
2003 Compared to 2002
Operating Revenues
Revenues totaled $36.3 million in 2003 and were 4.9% above revenues in 2002 of
$34.6 million, reflecting an increase in water sales of 4.5% due to customer
growth and rate increases approved by the PSC in 2003. We realized 96.9% of
our total revenue in 2003 from the sale of water.
On April 2, 2002, Artesian Water filed a petition with the Delaware PSC
seeking to raise rates for water service by 23.12% or $7.5 million. The
Delaware PSC, on April 16, 2002, suspended the implementation of the proposed
new rates pending further investigation and public evidentiary hearings.
Pending these hearings and a final ruling by the Delaware PSC, Artesian Water,
as is permitted by law, placed 7.71% of the proposed rates into effect under
bond beginning June 1, 2002. Beginning December 3, 2002, Artesian Water placed
an additional 3.69% of the proposed rates into effect. On April 15, 2003, the
Delaware PSC issued PSC Order No. 6147 approving an increase in Artesian
Water's revenue requirement of 9.68% effective May 1, 2003. These rates
represent an increase in water consumption charges, customer charges, and fire
hydrant ready-to-serve charges necessary to generate an increase in annual
operating revenues of approximately $3.3 million. Since temporary rates were
in excess of the final rate increase, in June 2003 we refunded approximately
$201,000 plus interest to our customers. Since Artesian Water had reserved
revenue related to the second temporary increase of $234,000, an additional
$33,000 was recorded to revenue for the second quarter.
11
Percentage of Revenues by Customer Class
2003 2002 2001
------- ------- -------
Residential 59.83% 59.57% 60.28%
Commercial 24.00% 23.83% 24.80%
Industrial 0.88% 1.31% 1.25%
Government and Other 12.17% 12.54% 11.71%
Other utility operating revenues 2.05% 1.92% 1.60%
Non-utility operating revenues 1.07% 0.83% 0.36%
------- ------- -------
Total 100.00% 100.00% 100.00%
Residential
Residential water service revenues in 2003 amounted to $21.7 million, an
increase of 5.3% over the $20.6 million recorded in 2002. The increase in 2003
follows an increase of 6.9% in 2002. The volume of water sold to residential
customers increased from 3,627 million gallons in 2002 to 3,650 million
gallons in 2003. Although the number of residential customers served increased
2.6% in 2003, unusually wet weather during the summer of 2003 suppressed water
demand.
Commercial
Revenues from commercial customers in 2003 increased by 6.1% to $8.7 million,
from $8.2 million in 2002 due to rate increases in 2003. The number of
commercial customers served increased 0.9% in 2003 and the 2,166 million
gallons of water sold to commercial customers in 2003 was nearly the same as
the 2,167 million gallons sold in 2002, as unusually wet weather in 2003 and
restrictions on water use imposed during the drought of 2002 both suppressed
demand by these customers.
Industrial
Revenues from industrial customers decreased by 29.8% from $453,000 in 2002 to
$318,000 in 2003. The volume of water sold to industrial customers decreased
47.1% from 221 million gallons in 2002 to 117 million gallons in 2003
primarily as a result of decreased usage by three of our industrial customers
and it is currently unknown whether it will return to its former level.
Government and Other
Government and other revenues in 2003 increased by 2.3% to $4.4 million from
$4.3 million in 2002. Revenues derived from fire protection services totaled
$2.3 million in 2003 and 2002. The increase in revenue resulted from increases
in rates, offset by decreased resale customer consumption.
Other Utility Operating Revenue
Other utility operating revenue, derived from contract operations, antenna
leases on water tanks and finance charges increased 11.7% in 2003 to $744,000
from $666,000 in 2002. This is primarily a result of an increase in revenues
from contract operation services as a result of the operation of the
Middletown Wastewater Treatment Plant for a full year in 2003 versus a partial
year in 2002.
Operating Expenses
Operating expenses, excluding depreciation and taxes, increased approximately
$1.3 million, or 7.1%, to $19.6 million in 2003. The increase in operating
expenses resulted primarily from increases in payroll and related expenses,
purchased water and administrative expenses. Payroll and related expenses
increased by $386,000, or 4.0%, due to increases in annual merit compensation
and medical insurance premiums. Purchased water expense increased $491,000
from 2002 levels due to the Chester Water Authority removing minimum purchase
requirements
12
due to the drought conditions in the summer and fall of 2002 and our ability
to rely on our less costly groundwater supply in 2002. Administrative expenses
increased by $272,000 due to increased power expense due to additional pumping
and treatment stations, and due to increased property and liability insurance.
The ratio of operating expense, excluding depreciation and taxes, to total
revenue was 54.1% for the year ended December 31, 2003, compared to 53.0% for
the year ended December 31, 2002.
Operating and Maintenance Expenses
2003 2002 2001
------- ------- -------
Payroll and Associated Expenses 50.98% 52.47% 50.46%
Purchased Water 15.16% 13.55% 15.62%
Repair and Maintenance 5.57% 5.48% 5.11%
Water Treatment 3.28% 3.47% 3.50%
Administrative 23.76% 23.96% 24.90%
Non-utility Operating 1.25% 1.07% 0.41%
------- ------- -------
Total operating and maintenance expenses 100.00% 100.00% 100.00%
Depreciation and amortization expense increased $243,000, or 7.2%, due to
increases in our utility plant in service during 2003. Income tax expense
decreased $438,000, or 15.5%, due to decreased profitability in 2003. Our
total effective income tax rate for 2003 and 2002 was 37.9% and 40.4%,
respectively.
Interest Charges
Interest charges increased $501,000, or 11.4%, primarily due to a $777,000
increase associated with the net issuance of $15 million in First Mortgage
Bonds financing additions to utility plant. This was partially offset by lower
interest expense associated with short term debt. Average outstanding lines of
credit during 2003 of $8.6 million decreased by $7.9 million, compared to the
average outstanding lines of credit during 2002 of $16.5 million as a result
of the issuance of First Mortgage Bonds. The average interest rate applied to
these balances decreased from 2.7% in 2002 to 2.2% in 2003 due to a decreasing
interest rate environment in 2003.
Net Income
For the year ended December 31, 2003, our net income applicable to common
stock decreased $279,000, or 6.8%, compared to 2002. The decrease in net
income was primarily due to unusually wet weather conditions during the summer
of 2003 that reduced customer water usage, an increase in purchased water
expense compared to 2002 when minimum purchase requirements were waived during
drought conditions, and increased interest expense associated with the
issuance of debt to finance additions to utility plant.
2002 Compared to 2001
Operating Revenues
Revenues totaled $34.6 million in 2002 and were 8.2% above revenues in 2001 of
$32.0 million, reflecting an increase in water sales of 7.3% due to customer
growth and rate increases approved by the PSC in 2002. We realized 97.2% of
our total revenue in 2002 from the sale of water.
We filed an application with the PSC on April 2, 2002, to increase rates for
water service for all of Artesian Water's customers. A temporary rate
increase, calculated to increase annualized revenues $2.5 million, was
approved by the PSC and placed into effect on June 1, 2002. Beginning
December 3, 2002, as is permitted by law, the Company placed an additional
rate increase into effect, to generate an additional increase in annualized
revenues of $1.4 million. The increase in revenues for the various customer
classes will not consistently match changes in consumption levels for the
class primarily due to our use of a multiple rate block structure. This
structure charges different rates for different levels of consumption. In
addition, rate increases are distributed among the rate blocks and service
charges through a cost of service analysis and may not reflect, on an
individual class or charge basis, the overall increase in rates approved by
the PSC.
13
Residential
Residential water service revenues in 2002 amounted to $20.6 million, an
increase of 6.9% over the $19.3 million recorded in 2001. The increase in 2002
follows an increase of 17.4% in 2001. The volume of water sold to residential
customers, however, decreased by 5.0% from 3,809 million gallons in 2001 to
3,627 million gallons in 2002, primarily as a result of drought water use
restrictions in 2002. The number of residential customers served increased
2.8% in 2002.
Commercial
Revenues from commercial customers in 2002 increased by 3.9% to $8.2 million,
from $7.9 million in 2001. The volume of water sold to commercial customers
decreased by 9.1% from 2,384 million gallons in 2001 to 2,167 million gallons
in 2002, primarily as a result of drought water use restrictions in 2002. The
number of commercial customers served increased 1.2% in 2002.
Industrial
Revenues from industrial customers in 2002 increased by 13.1% to $453,000,
from $400,000 in 2001. The volume of water sold to industrial customers
increased 33.8% from 165 million gallons in 2001 to 221 million gallons in
2002 primarily as a result of the addition of one new customer.
Government and Other
Government and other revenues in 2002 increased by 15.8% to $4.3 million, from
$3.7 million in 2001. Revenues derived from fire protection services totaled
$2.3 million in 2002, exceeding 2001 revenue by 22.9%. The remaining revenue
increase was derived from the sale of water to neighboring utilities,
government agencies, pools and other temporary and seasonal customers.
Other Utility Operating Revenue
Other utility operating revenue, derived from contract operations, antenna
leases on water tanks and finance charges increased 30.6% in 2002 to $666,000,
from $509,000 in 2001. This is primarily a result of an increase in revenues
for contract operation services.
Operating Expenses
Operating expenses, excluding depreciation and taxes, increased approximately
$715,000, or 4.1%, to $18.3 million in 2002. The increase in operating
expenses resulted primarily from an increase in payroll and related expense of
$731,000, or 8.2%, due to the addition of new employees and increases in
annual merit compensation. Purchased water expenditure decreased $267,000 from
2001 levels due to the Chester Water Authority removing minimum purchase
requirements due to the drought conditions in the summer and fall of 2002 and
our ability to rely on our less costly groundwater supply in 2002. Water
treatment expense increased $68,000 primarily due to expanded testing of our
sources of supply. Finally, our administrative expenses remained flat. This
reflects the one-time $280,000 expense recognition in 2001 for legal costs
associated with the suspended negotiations for the purchase of Tidewater
Utilities, a subsidiary of Middlesex Water Company, offset by an increase in
2002 in consulting and temporary services of $323,000, which reflects the use
of these services prior to filling positions with full-time employees. The
ratio of operating expense, excluding depreciation and taxes, to total revenue
was 53.0% for the year ended December 31, 2002, compared to 55.1% for the year
ended December 31, 2001.
Depreciation and amortization expense increased $391,000, or 13.0%, due to
increases in our utility plant in service in 2002. Income tax expense
increased $641,000, or 29.3%, due to increased profitability in 2002. Our
total effective income tax rate for 2002 and 2001 was 40.4% and 39.7%,
respectively.
14
Interest Charges
Interest charges decreased $149,000, or 3.3%, primarily due to a $208,000
decrease in interest associated with our short-term debt. Average outstanding
lines of credit during 2002 of $16.5 million increased by $2.3 million,
compared to the average outstanding lines of credit during 2001 of
$14.2 million. The average interest rate applied to these balances decreased
from 4.8% in 2001 to 2.7% in 2002 due to a decreasing interest rate
environment in 2002.
Net Income
For the year ended December 31, 2002, our net income applicable to common
stock increased $855,000, or 26.1%, compared to 2001. The increase in net
income was primarily due to decreases in purchased water and legal expenses,
lower interest rates on short-term lines of credit, continued customer growth,
and rate increases authorized in 2001 and 2002.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our primary sources of liquidity for 2003 were $14.1 million provided by cash
flow from operating activities and $10.7 million from financing activities,
which includes $2.0 million in contributions and advances. 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.
We rely on our sources of liquidity for investments in our utility plant and
to meet our various payment obligations. We expect that our aggregate
investments in our utility plant and systems in 2004 will be approximately
$25.4 million. Our total obligations related to dividend and sinking fund
payments on preferred stock, interest and principal payments on indebtedness,
rental payments and water service interconnection agreements for 2004 are
anticipated to be approximately $8.7 million. We expect that our available
cash balances, our projected cash generated from operations and available bank
credit lines will be sufficient to fund our activities for the next two years.
Investment in Utility Plant and Systems
Capital expenditures increased by approximately $6.2 million for the year
ended December 31, 2003, or approximately 33.7%, from $18.4 million in 2002 to
$24.6 million in 2003. Investment in utility plant, excluding advances and
contributions in aid of construction received from real estate developers,
increased by $7.1 million, or 44.1%, from $15.9 million in 2002 to
$23.2 million in 2003. Developers financed $1.4 million for the installation
of water mains and hydrants serving their developments in 2003, compared to
$2.3 million financed by developers in 2002.
We invested approximately $10.7 million in new transmission and distribution
facilities, including refunds of advances for developer-financed
infrastructure. Of the $10.7 million invested, we invested $6.0 million in new
infrastructure to serve 1,677 new customers and $4.7 million in our
rehabilitation program for transmission and distribution facilities, replacing
aging or deteriorating mains. An investment of $6.7 million was made to
enhance or improve existing treatment facilities, rehabilitation of pumping
equipment and installation of new wells to increase supply capabilities.
The remaining $5.8 million of capital investment in 2003 was made for general
plant, including the purchase of our corporate office, fleet vehicles and
computer equipment. We completed the purchase of the land and our principal
corporate office at 664 Churchmans Road, Newark, Delaware for $5.0 million,
including expenses, on October 20, 2003. This facility had been previously
leased from the former partners of White Clay Realty who owned the property
jointly as tenants in common. For a discussion of the events leading up to our
purchase of this property and for additional disclosures regarding this
transaction, see Item 3 (Legal Proceedings).
15
Investment in Utility Plant and Systems
In thousands 2003 2002 2001
------- ------- -------
Source of supply $ 6,113 $ 1,491 $ 1,217
Treatment and pumping 569 5,686 5,935
Transmission and distribution 10,699 7,451 10,657
General plant and equipment 5,806 1,429 1,428
Developer financed utility plant 1,375 2,345 2,108
------- ------- -------
Total Investment in utility plant and systems $24,562 $18,402 $21,345
We have planned to invest approximately $25.4 million in utility plant in
2004. Developers are expected to finance an additional $3.2 million in utility
plant construction. The largest portion of projected investment is primarily a
result of our efforts to identify, develop, treat and protect sources of water
supply to assure uninterrupted service to our customers. We expect to invest
approximately $7.7 million in new treatment facilities, equipment and wells
throughout Delaware.
As part of our total utility plant investment, we expect to invest over
$14.6 million in transmission and distribution facilities. We project
approximately $4.1 million will be invested in the relocations of facilities
as a result of government mandates and renewals associated with the
rehabilitation of aging infrastructure. We also project investing
approximately $9.5 million in new transmission and distribution facilities to
improve our system hydraulics and address service needs in growth areas of our
service territory.
Financing
We have several sources of liquidity to finance our investment in utility
plant and other fixed assets. We estimate that the projected investment of
approximately $25.4 million will be financed by our operations and external
sources, including a combination of capital investment and borrowings from the
Delaware Drinking Water State Revolving Fund and short-term borrowings under
our revolving credit agreements discussed below. Developers are expected to
finance, through advances and contributions in aid of construction, an
additional $3.2 million of capital expenditures, which includes the
installation of mains and hydrants in new developments.
Our cash flows from operations are primarily derived from water sales revenues
and may be materially affected by changes in water sales due to weather and
the timing and extent of increases in rates approved by the Delaware Public
Service Commission.
At December 31, 2003, Artesian Water had lines of credit with three separate
financial institutions totaling $35.0 million to meet temporary cash
requirements. These revolving credit facilities are unsecured. As of
December 31, 2003, we had $22.5 million of available funds under these lines.
The interest rate for borrowings under each of these lines is the London
Interbank Offering Rate plus 1.0% or the banks' federal funds rate plus 1.0%,
at our discretion. All the facilities are reviewed annually by each bank for
renewal.
We may, from time to time, sell our securities to meet capital requirements.
The amount and timing of future sales of our securities will depend upon
market conditions and our specific needs. Our trust indentures, which set
certain criteria for the issuance of new long-term debt, limit long-term debt,
including the short-term portion thereof, to 66 2/3% of total capitalization.
Our debt to total capitalization, including the short-term portion thereof,
was 60.46% at December 31, 2003.
In order to meet the expected level of investment in utility plant and retain
future financing flexibility, we issued a $25 million Series P 6.58% First
Mortgage Bond on January 31, 2003. With the proceeds, we refinanced our Series
L 8.03% First Mortgage Bond, which was due on February 1, 2003, along with
$14.9 million of outstanding short-term debt under our lines of credit.
On February 25, 2003, Artesian Water Company, Inc. (the "Company") entered
into an agreement to borrow funds from the Delaware Drinking Water State
Revolving Fund (the "Fund"). The Company previously received a binding
commitment offer from the Fund for a loan in the amount of $2,900,285 for a
term of twenty years at an interest rate of 3.57%. The loan will be used for
costs associated with the installation of new public water systems
16
for Keen-wick West/Keen-wick South and Route 54, Phase II projects in Sussex
County, Delaware. The funds will be disbursed as construction is completed. We
have requested and received disbursements of $1,745,646 through February 26,
2004, of which $1,318,750 was received at December 31, 2003.
On November 7, 2003, Artesian Water Company, Inc. entered into an agreement to
borrow $5,456,495 from the Fund for a term of twenty years at an interest rate
of 3.64%. The loan will be used for costs associated with the replacement and
rehabilitation of transmission and distribution mains within several
developments in our northern New Castle County service territory. The funds
will be disbursed as construction is completed. We have not requested any
disbursements as of December 31, 2003.
In order to meet certain expected investments in 2004, we issued Series Q
4.75% First Mortgage Bonds in December 2003 (the "Series Q Bonds") in the
amount of $15 million. The interest paid to investors for the Series Q Bonds
is considered tax free as these bonds were issued through an agreement with
the Delaware Economic Development Authority. The Series Q Bonds were issued to
pay for specific projects previously approved to assure the Series Q Bonds tax
free status. The proceeds from these bonds are held on our behalf by the First
Mortgage Bond Trustee, Wilmington Trust and will be disbursed to us as
construction is completed. Interest which accrues to our benefit is added to
the fund for use in completing construction of the various approved projects.
None of the proceeds had been disbursed to us at December 31, 2003.
Our 7% Preferred Stock was called for redemption on February 21, 2003. The
total amount paid to stockholders was $30.00 per share or $326,040. On
February 1, 2004, the 9.96% Preferred Stock was retired as provided under the
terms of our Restated Certificate of Incorporation.
Contractual Obligations
Payments Due by Period
Less than 4-5 After 5
In thousands 1 Year 1-3Years Years Years Total
--------- -------- ------- ------- --------
First Mortgage Bonds $ -- $ -- $15,000 $60,400 $ 75,400
State revolving fund loans 188 452 481 4,225 5,346
Operating leases 80 99 10 -- 189
Unconditional purchase obligations 2,973 5,932 5,351 34,755 49,011
Tank painting contractual obligation 249 249 -- -- 498
------ ------ ------- ------- --------
Total contractual cash obligations $3,490 $6,732 $20,842 $99,380 $130,444
====== ====== ======= ======= ========
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, which could result in default and require the
obligation to be repaid, however, there are also specific cure provisions
which allow us to avoid default of the obligation. We have not experienced
conditions which 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 agreements with neighboring
utilities.
Less than
Commitments Committed 1 Year 1-3 Years 4-5 Years Over 5 Years
- ------------------------------------------- --------- --------- --------- --------- ------------
Lines of Credit $12,499 $12,499
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits-an amendment of
FASB Statements No. 87, 88, and 106." This statement requires additional
disclosures to those in the original Statement No. 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined pension
plans and other defined benefit postretirement plans. Disclosures for earlier
17
annual periods presented for comparative purposes are restated. This statement
is effective for financial statements with fiscal years ending after
December 15, 2003. The additional disclosures required for our postretirement
benefit obligation are presented in Note 10.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. The statement is effective for financial instruments entered into or
modified after May 31, 2003 and effective for other instruments beginning at
the first interim period beginning after June 15, 2003. The adoption of this
statement did not have a material impact on our financial condition or results
of operation.
In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting related to derivatives and
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for contracts
entered into or modified, and hedging relationships designated, after June 30,
2003. The adoption of this statement did not have a material impact on our
financial condition or results of operation.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-
Based Compensation-Transition and Disclosure." Statement No. 148 amends
Statement No. 123, "Accounting for Stock-Based Compensation," by providing
alternate methods of transitioning to fair value based accounting for Stock-
Based compensation, for those who choose to change. It also amends disclosure
requirements of SFAS No. 123 for both annual and interim financial statements.
Certain of the disclosure modifications are required for fiscal years ending
after December 15, 2002, and are included in the notes to our consolidated
financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement nullifies EITF
94-3, which addressed this subject. The statement requires recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred. Our adoption of this statement did not have a material
impact on our financial condition or results of operation.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." Statement No. 145 eliminates accounting treatment described in
Statements No. 4 and 64 related to Extinguishment of Debt and amends Statement
No. 13 regarding the use of sale -- lease back accounting. Our adoption of
this statement did not have a material impact on our financial condition or
results of operation.
In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." Statement No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-
lived assets and the associated asset retirement costs. Statement No. 143
requires recognition of a liability at fair value and an increase to the
carrying value of the related asset for any retirement obligation. This amount
would then be amortized over the life of the asset. The liability would be
adjusted at the end of each period to reflect the passage of time and changes
in the estimated future cash flows. This statement was effective January 2003.
Our adoption of this statement did not have a material impact on our financial
condition or results of operation
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others," an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of
the Interpretation are applicable to guarantees issued or modified after
December 31, 2002 and did not have a material effect on the Company's
financial statements. The disclosure requirements were effective for financial
statements of interim and annual periods ending after December 31, 2002.
CAUTIONARY STATEMENT
Statements in this Annual Report which express our "belief," "anticipation,"
"projection" or "expectation," as well as other statements which are not
historical fact, are forward-looking statements within the meaning of the
Private
18
Securities Litigation Reform Act of 1995. These may include statements
regarding our goals, priorities and growth and expansion plans for our water
and wastewater subsidiaries, the timing and the amount of a final decision in
our pending rate case, exact amounts that may be collected under DSIC and the
temporary rate increase we plan to implement, our investment in utility plant
and systems in 2004, our sources of financing, and water quality standards.
Also included are our anticipated payments due in 2004 and satisfaction of our
debt covenants. Such statements involve risks and uncertainties that could
cause actual results to differ materially from those projected, including
material changes in demand from larger customers, changes in weather,
availability of labor, changes in government policies, levels of rate relief
granted and changes in economic conditions and the other risks described in
this document. All of the forward-looking statements made in this Annual
Report are based on our current beliefs and we undertake no obligation to
update any of these cautionary statements.
19
Item 8. -- Financial Statements and Supplementary Data.
CONSOLIDATED BALANCE SHEETS
December 31,
In thousands 2003 2002
ASSETS
Utility plant, at original cost less accumulated
depreciation $187,893 $167,338
Current assets
Cash and cash equivalents 1,128 874
Accounts receivable, net 2,408 2,743
Income tax receivable 841 --
Receivable, other -- 3,800
Unbilled operating revenues 2,745 2,718
Materials and supplies -- at cost on FIFO basis 801 712
Prepaid property taxes 711 651
Prepaid expenses and other 577 422
-------- --------
9,211 11,920
-------- --------
Other assets
Non-utility property (less accumulated depreciation
2003-$75; 2002-$69) 334 308
Restricted cash 14,219 --
Other deferred assets 2,544 1,069
-------- --------
17,097 1,377
Regulatory assets, net 2,123 2,437
-------- --------
$216,324 $183,072
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock $ 3,901 $ 3,862
Additional paid-in-capital 41,160 40,341
Retained earnings 7,630 6,973
-------- --------
Total stockholders' equity 52,691 51,176
-------- --------
Preferred stock-mandatory redeemable, net of current
portion -- 100
Long-term debt, net of current portion 80,558 63,970
-------- --------
133,249 115,246
-------- --------
Current liabilities
Notes payable 12,499 3,163
Current portion of long-term debt 188 421
Current portion of mandatorily redeemable preferred
stock 100 100
Accounts payable 3,951 3,119
Overdraft payable 1,337 709
Income taxes payable -- 135
Deferred income taxes 213 --
Interest accrued 267 569
Customer deposits 422 410
Other 697 905
-------- --------
19,674 9,531
-------- --------
Deferred credits and other liabilities
Net advances for construction 19,175 19,457
Postretirement benefit obligation 1,232 1,298
Deferred investment tax credits 843 873
Deferred income taxes 11,775 8,024
-------- --------
Commitments and contingencies (Note 11)
33,025 29,652
Net contributions in aid of construction 30,376 28,643
$216,324 $183,072
======== ========
The notes are an integral part of the consolidated financial statements.
20
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
In thousands, except per share amounts 2003 2002 2001
Operating revenues
Water sales $35,164 $33,644 $31,362
Other utility operating revenue 744 666 509
Non-utility operating revenue (Note 7) 387 287 116
------- ------- -------
36,295 34,597 31,987
------- ------- -------
Operating expenses
Utility operating expenses 19,245 17,963 17,368
Non-utility operating expenses (Note 7) 245 196 73
Related party expenses (Note 8) 139 175 178
Depreciation and amortization 3,635 3,392 3,001
Taxes
State and federal income
Currently payable (Note 3) (1,543) 693 470
Deferred (Note 3) 3,930 2,132 1,714
Property and other 2,115 1,871 1,782
------- ------- -------
27,766 26,422 24,586
------- ------- -------
Operating income 8,529 8,175 7,401
Other income net
Allowance for funds used during construction 230 380 375
Miscellaneous 47 -- 82
------- ------- -------
277 380 457
------- ------- -------
Income before interest charges 8,806 8,555 7,858
------- ------- -------
Interest charges 4,889 4,388 4,537
------- ------- -------
Net income 3,917 4,167 3,321
Dividends on preferred stock and redemption premium 71 42 51
------- ------- -------
Net income applicable to common stock $ 3,846 $ 4,125 $ 3,270
Income per common share:
Basic $ 0.99 $ 1.17 $ 1.07
Diluted $ 0.96 $ 1.14 $ 1.05
Weighted average common shares outstanding:
Basic 3,880 3,534 3,039
Diluted 3,993 3,612 3,108
Cash dividends per share of common stock $0.7975 $ 0.77 $ 0.74
The notes are an integral part of the consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands For the Year Ended December 31,
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,917 $ 4,167 $ 3,321
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization 3,635 3,238 2,848
Deferred income taxes, net 3,930 2,104 1,628
Allowance for funds used during construction (230) (380) (375)
Changes in assets and liabilities:
Accounts receivable, net 335 (133) (643)
Income tax receivable (841)
Receivable, other 3,800 (3,800) --
Unbilled operating revenues (27) (559) (57)
Materials and supplies (89) (96) 114
Prepaid property taxes (60) (62) 2
Prepaid expenses and other (155) 26 172
Other deferred assets (557) 124 157
Regulatory assets 314 (209) 136
Accounts payable 832 (1,626) 1,577
State and federal income taxes (135) 97 38
Interest accrued (302) 14 25
Customer deposits and other, net (196) (89) 45
Postretirement benefit obligation (66) (62) (95)
-------- -------- ---------
Net cash provided by operating activities 14,105 2,754 8,893
-------- -------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures (net of AFUDC) (24,562) (18,402) (21,345)
Proceeds from sale of assets 13 13 11
Investments in unconsolidated affiliates 9 (15) --
-------- -------- ---------
Net cash used in investing activities (24,540) (18,404) (21,334)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit agreements 9,336 1,716 9,811
Overdraft payable 628 (274) (241)
Net advances and contributions in aid of construction 2,024 2,542 2,169
Proceeds from issuance of long-term debt 26,588 -- 4,307
Restricted funds from issuance of tax-free bonds (14,219) -- --
Deferred issuance costs (927) -- --
Net proceeds from issuance of common stock 769 15,560 590
Dividends (3,177) (2,724) (2,296)
Repayment of capital lease obligations -- -- (26)
Principal repayments of long-term debt (10,233) (1,249) (1,112)
Redemption of preferred stock (100) (100) (100)
-------- -------- ---------
Net cash provided by financing activities 10,689 15,471 13,102
-------- -------- ---------
Net (decrease) increase in cash and cash equivalents 254 (179) 661
Cash and cash equivalents at beginning of year 874 1,053 392
-------- -------- ---------
Cash and cash equivalents at end of year $ 1,128 $ 874 $ 1,053
-------- -------- ---------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 5,141 $ 4,312 $ 4,426
Income taxes paid $ 150 $ 440 $ 432
See Note 1 (Stock Split) for a discussion of non-cash financing activity.
The notes are an integral part of the consolidated financial statements.
22
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Shares
Preferred Shares Outstanding Common Shares
Outstanding 7% Class A Outstanding
>In thousands, except share amounts Prior Preferred Non-Voting(1)(6) Class B(2)(6)
Balance as of December 31, 2000 10,868 2,432,001 587,680
Net income
Cash dividends declared
Common stock
Preferred stock
Stock repurchase
Issuance of common stock
Officer bonus 9,000
Dividend reinvestment plan 14,859
Employee stock options 8,193
Employee Retirement Plan(3) 8,178
Balance as of December 31, 2001 10,868 2,472,231 587,680
Net income
Cash dividends declared
Common stock
Preferred stock
Stock repurchase (10,868)
Issuance of common stock
Public stock issuance(4) 750,000
Officer bonus 5,400
Dividend reinvestment plan 16,160
Employee stock options 27,795
Employee Retirement Plan(3) 2,179
Balance as of December 31, 2002 0 3,273,765 587,680
Net income
Cash dividends declared
Common stock
Preferred stock (including redemption premium)(5)
Stock repurchase
Issuance of common stock
Officer bonus 3,000
Dividend reinvestment plan 16,051
Employee stock options 9,635
Employee Retirement Plan(3) 10,683
Balance as of December 31, 2003 0 3,313,134 587,680
(1) At December 31, 2003 and 2002, Class A Non-Voting Common Stock had
15,000,000 shares authorized. At December 31, 2001 and 2000, Class A Non-
Voting Common Stock had 3,500,000 shares authorized.
(2) At December 31, 2003, 2002, 2001 and 2000, Class B Common Stock had
1,040,000 shares authorized.
(3) 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.
(4) Artesian Resources Corporation issued 500,000 shares of Class A Non-Voting
Common Stock on June 5, 2002.
(5) Includes redemption of 7% prior preferred shares on February 21, 2003.
(6) Artesian Resources Corporation approved a three for two stock split on
April 30, 2003, effected in the form of a 50% stock distribution. Each
shareholder of record on May 30, 2003 received one additional share for
each two shares held. All share and per share data for all prior periods
have been restated to give effect to this stock split. Additionally,
Retained Earnings as of December 31, 2000 has been restated to give effect
to this stock split.
The notes are an integral part of the consolidated financial statements.
23
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
$25 Par Value
Preferred $1 Par Value
7% Prior Class A $1 Par Value
In thousands, except share amounts Preferred Non-Voting(1)(6) Class B(2)(6)
Balance as of December 31, 2000 $ 272 $2,432 $588
Net income
Cash dividends declared
Common stock
Preferred stock
Stock repurchase
Issuance of common stock
Officer bonus 9
Dividend reinvestment plan 15
Employee stock options 8
Employee Retirement Plan(3) 8
Balance as of December 31, 2001 $ 272 $2,472 $588
Net income
Cash dividends declared
Common stock
Preferred stock
Stock repurchase $(272)
Issuance of common stock
Public stock issuance(4) 750
Officer bonus 6
Dividend reinvestment plan 16
Employee stock options 28
Employee Retirement Plan(3) 2
Balance as of December 31, 2002 $ 0 $3,274 $588
Net income
Cash dividends declared
Common stock
Preferred stock (including redemption premium)(5)
Stock repurchase
Issuance of common stock
Officer bonus 3
Dividend reinvestment plan 16
Employee stock options 10
Employee Retirement Plan(3) 10
Balance as of December 31, 2003 $ 0 $3,313 $588
(1) At December 31, 2003 and 2002, Class A Non-Voting Common Stock had
15,000,000 shares authorized. At December 31, 2001 and 2000, Class A Non-
Voting Common Stock had 3,500,000 shares authorized.
(2) At December 31, 2003, 2002, 2001 and 2000, Class B Common Stock had
1,040,000 shares authorized.
(3) 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.
(4) Artesian Resources Corporation issued 500,000 shares of Class A Non-Voting
Common Stock on June 5, 2002.
(5) Includes redemption of 7% prior preferred shares on February 21, 2003.
(6) Artesian Resources Corporation approved a three for two stock split on
April 30, 2003, effected in the form of a 50% stock distribution. Each
shareholder of record on May 30, 2003 received one additional share for
each two shares held. All share and per share data for all prior periods
have been restated to give effect to this stock split. Additionally,
Retained Earnings as of December 31, 2000 has been restated to give effect
to this stock split.
The notes are an integral part of the consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Paid-in Retained
In thousands, except share amounts Capital Earnings(4) Total(4)
Balance as of December 31, 2000 $24,474 $ 4,783 $ 32,549
Net income 3,321 3,321
Cash dividends declared
Common stock (2,245) (2,245)
Preferred stock (51) (51)
Stock repurchase (69) (69)
Issuance of common stock
Officer bonus 151 160
Dividend reinvestment plan 249 264
Employee stock options 97 105
Employee Retirement Plan(1) 136 144
Balance as of December 31, 2001 $25,107 $ 5,739 $ 34,178
Net income 4,167 4,167
Cash dividends declared
Common stock (2,683) (2,683)
Preferred stock (41) (41)
Stock repurchase (209) (481)
Issuance of common stock
Public stock issuance(2) 14,408 15,158
Officer bonus 108 114
Dividend reinvestment plan 309 325
Employee stock options 370 398
Employee Retirement Plan(1) 39 41
Balance as of December 31, 2002 $40,341 $ 6,973 $ 51,176
Net income 3,917 3,917
Cash dividends declared
Common stock (3,106) (3,106)
Preferred stock (including redemption premium)(3) (71) (71)
Stock repurchase (83) (83)
Issuance of common stock
Officer bonus 76 79
Dividend reinvestment plan 363 379
Employee stock options 142 152
Employee Retirement Plan(1) 238 248
Balance as of December 31, 2003 $41,160 $ 7,630 $ 52,691
(1) 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.
(2) Artesian Resources Corporation issued 500,000 shares of Class A Non-Voting
Common Stock on June 5, 2002.
(3) Includes redemption of 7% prior preferred shares on February 21, 2003.
(4) Artesian Resources Corporation approved a three for two stock split on
April 30, 2003, effected in the form of a 50% stock distribution. Each
shareholder of record on May 30, 2003 received one additional share for
each two shares held. All share and per share data for all prior periods
have been restated to give effect to this stock split. Additionally,
Retained Earnings as of December 31, 2000 has been restated to give effect
to this stock split.
The notes are an integral part of the consolidated financial statements.