UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
Or
[ ] 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
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0002090
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
664 CHURCHMANS ROAD, NEWARK, DELAWARE 19702
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(Address of principal executive offices) (Zip Code)
(302) 453 - 6900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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.
[X] Yes [ ] 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 [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the (Exchange Act):
[ ] Yes [X] No
As of May 2, 2006, 3,439,904 shares of Class A Non-Voting Common Stock and
587,680 shares of Class B Common Stock were outstanding.
ARTESIAN RESOURCES CORPORATION
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS Page(s)
Consolidated Balance Sheet
March 31, 2006 and December 31, 2005 (unaudited) 3
Consolidated Statement of Income
for the quarter ended March 31, 2006 and 2005 (unaudited) 4
Consolidated Statement of Retained Earnings
for the quarter ended March 31, 2006 and 2005 (unaudited) 5
Consolidated Statement of Cash Flows
for the quarter ended March 31, 2006 and 2005 (unaudited) 5 - 6
Notes to the Consolidated Financial Statements 7 - 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 - 17
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
ITEM 4 - CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS 18
ITEM 1A - RISK FACTORS 18
ITEM 5 - OTHER INFORMATION 18
ITEM 6 - EXHIBITS 18
SIGNATURES 19
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET
Unaudited
(In thousands)
March 31, 2006 December 31, 2005
-------------- -----------------
ASSETS
Utility plant, at original cost less accumulated depreciation $232,586 $227,566
Current assets
Cash and cash equivalents 1,214 1,359
Accounts receivable, net 4,014 4,281
Unbilled operating revenues 2,100 2,374
Materials and supplies-at cost on FIFO basis 961 1,008
Prepaid property taxes 441 851
Prepaid expenses and other 556 533
-------- --------
Total current assets 9,286 10,406
-------- --------
Other assets
Non-utility property (less accumulated depreciation 2006-$134;
2005-$129) 311 316
Other deferred assets 3,849 3,693
-------- --------
Total other assets 4,160 4,009
Regulatory assets, net 1,692 1,873
-------- --------
$247,724 $243,854
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock $ 4,020 $ 4,014
Additional paid-in capital 43,626 43,469
Retained earnings 10,428 10,330
-------- --------
Total stockholders' equity 58,074 57,813
Long-term debt, net of current portion 92,270 92,379
-------- --------
150,344 150,192
-------- --------
Current liabilities
Notes payable 1,521 1,786
Current portion of long-term debt 302 301
Accounts payable 1,779 2,790
Accrued expenses 2,382 1,948
Overdraft payable 2,186 1,417
Income Tax Payable --- 111
Deferred income taxes 89 269
Interest accrued 496 354
Customer deposits 473 469
Other 3,133 2,793
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Total current liabilities 12,361 12,238
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Deferred credits and other liabilities
Net advances for construction 24,540 24,404
Postretirement benefit obligation 1,078 1,097
Deferred investment tax credits 783 789
Deferred income taxes 18,620 17,784
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Total deferred credits and other liabilities 45,021 44,074
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Commitments and contingencies
Net contributions in aid of construction 39,998 37,350
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$247,724 $243,854
======== ========
See notes to the consolidated financial statements.
3
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(In thousands, except per share amounts)
For the Quarter
Ended March 31,
---------------
2006 2005
---- ----
OPERATING REVENUES
Water sales $10,015 $9,295
Other utility operating revenue 225 225
Non-utility revenue 249 382
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10,489 9,902
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OPERATING EXPENSES
Utility operating expenses 5,802 5,377
Non-utility operating expenses 182 255
Depreciation and amortization 1,165 1,042
State and federal income taxes 653 640
Property and other taxes 634 581
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8,436 7,895
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OPERATING INCOME 2,053 2,007
OTHER INCOME, NET
Allowance for funds used during construction 35 51
Other income, net 411 377
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INCOME BEFORE INTEREST CHARGES 2,499 2,435
INTEREST CHARGES 1,503 1,481
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NET INCOME $ 996 $ 954
======= ======
INCOME PER COMMON SHARE:
Basic $ 0.25 $ 0.24
======= ======
Diluted $ 0.24 $ 0.23
======= ======
CASH DIVIDEND PER COMMON SHARE $ 0.22 $ 0.21
======= ======
AVERAGE COMMON SHARES OUTSTANDING
Basic 4,018 3,967
======= ======
Diluted 4,145 4,094
======= ======
See notes to the consolidated financial statements.
4
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Unaudited
(In thousands)
For the Quarter
Ended March 31,
---------------
2006 2005
---- ----
Balance, beginning of period $ 10,330 $ 8,765
Net income 996 954
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11,326 9,719
Less: Dividends 898 843
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Balance, end of period $ 10,428 8,876
========== ========
See notes to the consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
(In thousands)
For the Quarter
Ended March 31,
---------------
2006 2005
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 996 $ 954
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,165 1,041
Deferred income taxes, net 650 636
Allowance for funds used during construction (35) (51)
Changes in assets and liabilities:
Accounts receivable, net 266 591
Income tax payable (111) --
Unbilled operating revenues 275 415
Materials and supplies 46 21
Prepaid property taxes 411 382
Prepaid expenses and other (23) (1)
Other deferred assets (218) (234)
Regulatory assets 181 17
Postretirement benefit obligation (19) (18)
Accounts payable (1,011) (941)
Accrued expenses 435 (389)
Interest accrued 142 137
Customer deposits and other, net 344 682
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,494 3,242
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (net of AFUDC) (6,154) (4,852)
Investment in Aquastructure 37 ---
Proceeds from sale of assets 1 4
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NET CASH USED IN INVESTING ACTIVITIES (6,116) (4,848)
---------- --------
5
ARTESIAN RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Unaudited
(In thousands)
For the Quarter
Ended March 31,
---------------
2006 2005
---- ----
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit agreements (265) 1,411
Proceeds from issuance of long-term debt --- 252
Restricted funds from issuance of tax-free bonds --- 503
Overdraft payable 768 (56)
Net advances and contributions in aid of construction 2,792 1,242
Principal repayments of long-term debt (108) (853)
Net proceeds from issuance of common stock 163 403
Dividends (898) (843)
Deferred debt issuance costs 25 15
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NET CASH PROVIDED BY FINANCING ACTIVITIES 2,477 2,074
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
EQUIVALENTS (145) 468
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 1,359 1,217
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,214 $ 1,685
======== =======
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 1,319 $ 1,324
======== =======
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
subsidiary companies 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" 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 eighteen
private and municipal water providers.
Our other water utility subsidiary, Artesian Water Pennsylvania, Inc., or
Artesian Water Pennsylvania, began operations in 2002, providing water service
to a residential community, consisting of 39 customers, in Chester County. On
February 4, 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 two communities in Sussex County, 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, whose sole activity
is the ownership of an eleven-acre parcel of land zoned for office buildings
located immediately adjacent to our corporate headquarters.
Stock Compensation Plans
------------------------
We maintain an equity compensation plans that provide 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 Company's stockholders approved a new
Equity Compensation Plan, or the Plan, which authorized up to 500,000 shares of
Class A Non-Voting Common Stock for issuance. Approximately $13,000 in
compensation expense was recorded during the three months ended March 31, 2006
for stock bonus grants issued under the Equity Compensation Plan.
Adoption of New Accounting Guidance and Transition
Prior to January 1, 2006, we accounted for these plans under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations, ("APB 25") as permitted by FASB
Statement No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123").
No compensation cost was recognized between January 1, 2005 and January 1, 2006
related to stock option grants as they all had an exercise price equal to the
market value of the underlying common stock on the date of grant. Vesting terms
are determined by the Compensation Committee at the time of grant.
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 that method,
compensation cost recognized in the first quarter of 2006 includes (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. Compensation cost related to stock awards granted prior to,
but not vested as of, January 1, 2006 continues to be amortized using the
expense attribution method described in FIN 28. Results for the prior periods
have not been restated. We have used the modified prospective method and
estimated the fair value of each option grant using the Black-Scholes option
pricing model, which produced an expense of less than $1,000 related to options
granted prior to January 1, 2006 for the three months ended March 31, 2006. No
options were granted subsequent to January 1, 2006.
7
Pro Forma Information Under SFAS No. 123 for Periods Prior to Fiscal 2006
The table below illustrates the effect on net earnings and earnings per share if
we had applied the fair value recognition provisions of SFAS No. 123 to options
granted in the first quarter of 2005. For purposes of this disclosure, the fair
value of the options is estimated using a Black-Scholes-Merton option-pricing
formula, applying the following assumptions:
Unaudited
For the Quarter
---------------
Ended March 31, 2005
--------------------
In thousands, except per share data
NET INCOME APPLICABLE TO COMMON STOCK
As reported $ 954
Add: compensation expense included
in net income (net of tax) --
Deduct: compensation expense using
fair value based method (net of tax) (3)
----
Pro-forma $ 951
BASIC NET INCOME PER COMMON SHARE
As reported $ 0.24
Pro-forma $ 0.24
DILUTED NET INCOME PER COMMON SHARE
As reported $ 0.23
Pro-forma $ 0.23
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 Company's
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 Company's annual report on Form 10-K for fiscal year 2005.
In the opinion of the Company, the accompanying unaudited Consolidated Financial
Statements reflect all normal recurring adjustments necessary to present fairly
the Company's balance sheet position as of March 31, 2006 and the results of
operations for the three month periods ended March 31, 2006 and 2005 and cash
flows for the three month periods ended March 31, 2006 and 2005.
The results of operations for the interim period presented are not necessarily
indicative of the results to be expected 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,
the 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 as the
tax effects of temporary differences previously flowed through to the customers
reverse. Regulatory assets net of amortization, are comprised of the following:
8
Unaudited
March 31, 2006 December 31,2005 2004
-------------- ---------------------
(in thousands)
Postretirement benefit obligation $ 1,078 $ 1,097
Deferred income taxes recoverable in future rates 593 597
Expense of rate proceedings --- 155
Other 21 24
----------- -----------
$ 1,692 $ 1,873
=========== ===========
Expenses related to the Net Periodic Pension Cost for the postretirement benefit
obligation are as follows:
FOR THE QUARTER ENDED MARCH 31, 2006 2005
---- ----
(in thousands)
NET PERIODIC PENSION COST
Interest Cost $ 13 $ 14
Amortization of Net Gain (7) (9)
Amortization of Transition Obligation 2 2
------------- --------
Total Net Periodic Benefit Cost $ 8 $ 7
============= ========
CONTRIBUTIONS
Artesian Water contributed $28,000 to its postretirement benefit plan in the
first quarter of 2006 and expects to contribute another $82,000 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 Company's
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:
For the Quarter
Ended March 31,
2006 2005
---- ----
(in thousands)
Unaudited
Average common shares outstanding during
the period for Basic computation 4,018 3,967
Dilutive effect of employee stock options 127 127
----- -----
Average common shares outstanding during
the period for Diluted computation 4,145 4,094
===== =====
Equity per common share was $14.45 and $13.96 at March 31, 2006 and 2005,
respectively. These amounts were computed by dividing common stockholders'
equity by the number of shares of common stock outstanding on March 31, 2006 and
2005, respectively.
9
NOTE 5 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 2006, the Financial Accounting Standards Board, FASB, issued Statement
No. 156, "Accounting for Servicing of Financial Assets". This statement amends
FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing liabilities. This statement
requires an entity to recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
servicing contract in some situations. It also requires all separately
recognized servicing assets and servicing liabilities to be initially measured
at fair value, if practicable. This statement is effective for fiscal years
beginning after September 15, 2006. The Company expects to adopt this statement
effective January 1, 2007 and does not expect it to have a material effect on
the financial statements.
In February 2006, the FASB issued Statements No. 155, "Accounting for Certain
Hybrid Financial Instruments". This statement amends FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities, and No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". This statement permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation. This statement is effective for all financial instruments
acquired or issued after the beginning of an entity's first fiscal year that
begins after September 15, 2006. The Company expects to adopt this statement
effective January 1, 2007 and does not expect it to have a material effect on
the financial statements.
In December 2004, the FASB issued Statement No. 123 (Revised 2004), Statement
No. 123(R), "Share-Based Payment." This Statement is a revision of FASB
Statement No. 123, "Accounting for Stock-Based Compensation." This Statement
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and
its related implementation guidance. This Statement establishes standards for
the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. According to the FASB, this Statement is
effective as of the beginning of the first interim or annual reporting period
that begins after June 15, 2005. However, during the first quarter of 2005, the
Securities and Exchange Commission approved a new rule, Staff Accounting
Bulletin 107, that delayed the adoption of this standard to the beginning of
2006, instead of the next reporting period that begins after June 15, 2005. The
rule did not change the accounting required by Statement No. 123(R), but
recognized that preparers would need to use considerable judgment when valuing
employee stock options under this statement. SFAS 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative upon adopting SFAS 123(R). SFAS 123(R)
permits public companies to adopt its requirements using one of two methods:
o A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS 123(R) for all share-based payments granted after
the effective date and (b) based on the requirements of SFAS 123(R) for
all awards granted to employees prior to the effective date of SFAS
123(R) that remain unvested on the effective date; or
o A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on the amounts previously recognized under
SFAS 123(R) for purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year of adoption.
We adopted SFAS 123(R) in the first quarter of 2006. We have used the modified
prospective method and estimated the fair value of each option grant using the
Black-Scholes option pricing model which produced an insignificant expense less
than $1,000.
NOTE 6 - RATE PROCEEDINGS
On April 11, 2006, the Delaware Public Service Commission, or PSC, approved a
rate increase for Artesian Water in response to Artesian Water's February 5,
2004 rate request. Artesian Water filed an initial application in February 2004
with the PSC for a 24% rate increase to generate approximately $8.8 million in
additional revenue on an annualized basis to recognize the significant increase
in utility plant and equipment placed in service and increased operating
expenses. On March 26, 2004, Artesian Water filed a supplemental application
reducing the requested increase to 23.8% or approximately $8.7 million on an
annualized basis. On April 6, 2004, Artesian Water implemented a temporary rate
increase designed to generate an increase in annual operating revenue of
approximately 6.98%, or $2.5 million on an annualized basis. On September 7,
2004, an additional $3.0 million in temporary rates, for a total increase of
15%, was placed into effect as permitted by law.
10
On June 21, 2005, the PSC ruled on various issues within Artesian Water's rate
application. However, on July 5, 2005, the PSC remanded two issues related to
rate base valuation to the Hearing Examiner for further consideration. These two
issues related to approximately $320,000 of the requested increase in annual
revenue. In addition, effective July 1, 2005, Chester Water Authority and the
City of Wilmington increased their rates for water purchased by Artesian Water.
On August 15, 2005, Artesian Water filed a petition with the PSC to place into
effect increased rates resulting from these increased costs. The PSC, in lieu of
opening a second rate proceeding, elected to consolidate this petition with the
already-pending remanded issues in the rate case.
On April 11, 2006, the PSC ruled in Artesian Water's favor on all three issues.
Based on the PSC decision, Artesian Water's new rates would generate
approximately $4.9 million in additional revenue on an annual basis, or an
increase of approximately 13.4% over rates in effect before the implementation
of temporary rates in 2004. Artesian Water will be required to refund the
portion of the temporary rate increase in excess of the 13.4% to its customers.
This amount has been held in reserve and was not reflected in income. The
refund, plus interest, will be applied to customers' future bills. As of March
31, 2006, we have reserved $912,000, or approximately 11% of total temporary
rate revenue, in anticipation of such a refund. A portion of the reserve, or
$154,000 representing revenues that were approved on April 11, 2006, is
reflected in income in the first quarter ending March 31, 2006.
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 utility's overall
financial position. The DSIC approval process is less costly when compared to
the approval process for general rate increase requests. We requested on May 31,
2005, and subsequently implemented, a 0.35% DSIC surcharge for bills rendered
subsequent to July 1, 2005. On November 30, 2005, we requested an increase to
the DSIC surcharge. We implemented the increase from 0.35% to 1.17% for bills
rendered subsequent to January 1, 2006. The 1.17% surcharge was designed to
generate approximately $240,000 in revenues between January and June of 2006.
This surcharge generated approximately $132,000 in revenues in the first quarter
of 2006.
On May 9, 2006, Artesian Water Company, Inc. filed a petition with the Delaware
Public Service Commission to implement new rates to meet a requested increase in
revenue of 23%, or approximately $9.9 million, on an annualized basis. This
request is primarily due to the Company's significant investment in
infrastructure, as well as an almost 100% increase in purchased power expense
due to the deregulation of the electric industry in Delaware. 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.
NOTE 7 - SALE OF LAND
On May 2, 2005, Artesian Development signed a Letter of Intent with The
Commonwealth Group, Ltd., or Commonwealth, for the sale of a parcel of land of
approximately four acres in exchange for a non-refundable deposit in the amount
of $30,000.
On August 5, 2005, Artesian Development entered into an Agreement of Sale, or
the Agreement, with Commonwealth for the sale of this land. The sale price is
$1.35 million and included a $170,000 non-refundable deposit due within 14 days
upon execution of the Agreement, in addition to the $30,000 received with the
Letter of Intent. Closing is to occur not later than 12 months after execution
of the Agreement. The sale is contingent on Commonwealth's ability to obtain 1)
all governmental approvals necessary to construct a medical office facility of
at least 42,000 square feet of leasable space and 2) an acceptable environmental
audit report. The Company's cost basis for the property is approximately $8,000.
11
NOTE 8 - SUBSEQUENT EVENT
On May 9, 2006, Artesian Water Company, Inc. filed a petition with the Delaware
Public Service Commission to implement new rates to meet a requested increase in
revenue of 23%, or approximately $9.9 million, on an annualized basis. This
request is primarily due to the Company's significant investment in
infrastructure, as well as an almost 100% increase in purchased power expense
due to the deregulation of the electric industry in Delaware. 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.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 2006
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.
While customer growth in our utility subsidiaries continued to be a major focus
in the first three months of 2006, we aggressively seek opportunities that
produce revenue streams that are not as directly affected by weather. These
opportunities include the efforts of Artesian Utility Development, Inc.,
Artesian Utility, our non-regulated subsidiary, that continues to actively
pursue opportunities to design, build and operate wastewater facilities
throughout Delaware and surrounding areas. Artesian Wastewater Management, Inc.,
Artesian Wastewater, 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 also continue to focus attention on expanding our contract operations
opportunities with municipalities and private water providers in Delaware and
surrounding areas.
Ensuring our customers have a dependable supply of safe, high-quality water has
been, and will continue to be, a high priority. In 2003, Delaware passed
legislation requiring all water utilities to certify by July 2006 that they have
sufficient sources of self-supply to serve their respective systems. We believe
we have made the appropriate investment in infrastructure and on March 8, 2005,
we filed our certification of self-sufficiency of supply with the PSC. We were
informed by the PSC on March 18, 2005, that our filing was premature and would
not be acted upon at that time. Subsequently, on June 21, 2005, the PSC issued
Order No. 6660, in which they indicated that they were unable to consider our
filing under the Self Sufficiency Act, since the Water Supply Coordinating
Council had not yet published its determination of projected water demand.
However, the PSC accepted our filing, directing the PSC Staff to review and
confirm our assertion of adequate supply through 2006. This review is currently
in progress. The Company will update and refile its application prior to July
2006, requesting certification by the PSC of self sufficiency through 2009.
12
REGULATORY MATTERS AND INFLATION
As of March 31, 2006, we had 72,520 metered water customers and served a
population of approximately 240,000, representing approximately 28% of
Delaware's total population. The PSC regulates Artesian Water's rates charged
for water service, the sale and issuance of securities and other matters. On
July 6, 2004, Delaware enacted legislation authorizing the PSC to regulate
wastewater companies, which includes rates charged for wastewater service,
issuance of securities and other matters. Artesian Wastewater received
recognition as a regulated public wastewater utility by the PSC on March 8,
2005. Artesian Wastewater began providing service to a community in Sussex
County in July 2005 after receiving a Certificate of Public Convenience and
Necessity, or CPCN, in the first quarter of 2005 to serve a planned 725 home
residential community in Sussex County, Delaware. The PSC approved the temporary
rates for this community on July 15, 2005, and on January 24, 2006, approved the
rates and tariff. Artesian Wastewater received approval for another CPCN during
the third quarter of 2005 to provide service to a 97 home community in Sussex
County, Delaware, with service commencing in February 2006. Artesian Wastewater
currently holds 9 CPCNs for areas in Kent and Sussex County Delaware on which
developers have proposed 4,186 residential dwellings. While the developers
expected to construct these houses over the next 10 years, we cannot reasonably
determine the exact time when these customers would be added to our system.
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.
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
utility's overall financial position. The DSIC process is less costly when
compared to the approval process for general rate increase requests.
Results of Operations - Analysis of First Quarter of 2006 Compared to
---------------------------------------------------------------------
First Quarter of 2005
---------------------
Operating Revenues
------------------
Revenues totaled $10.5 million for the three months ended March 31, 2006, $0.6
million, or 5.9% above revenues for the three months ended March 31, 2005, of
$9.9 million. Water sales revenues increased 7.7% for the three months ended
March 31, 2006, over the corresponding period in 2005. A portion of the increase
in water sales revenue reflects a 1.75% increase in the number of customers
served. In addition, since Artesian Water did not record as income in 2005
certain revenues received that we could not reasonably be certain we would
retain, we reflected $154,000 for income received under rates approved in the
remand in the first quarter of 2006, further described below. The remaining
increase in operating revenues for the three months ended March 31, 2006 is
primarily due to additional revenues generated by the increase in DSIC and
higher volumes of water delivered to customers. The decrease in the non-utility
revenues in the amount of $133,000 was due to a decrease in wastewater
construction activity compared to the same period last year. We realized 95.5%
of our total revenue for the three months ended March 31, 2006 from the sale of
water, compared to 93.9% during the same period last year.
13
On April 11, 2006, the PSC approved a rate increase for Artesian Water in
response to Artesian Water's February 5, 2004 rate request. Artesian Water filed
an initial application in February 2004 with the PSC for a 24% rate increase to
generate additional revenue of approximately $8.8 million on an annualized basis
to recognize the significant increase in utility plant and equipment placed in
service and increased operating expenses. On March 26, 2004, Artesian Water
filed a supplemental application reducing the requested increase to 23.8% or
approximately $8.7 million on an annualized basis. On April 6, 2004, Artesian
Water implemented a temporary rate increase designed to generate an increase in
annual operating revenue of approximately 6.98%, or $2.5 million on an
annualized basis. On September 7, 2004, an additional $3.0 million in temporary
rates, for a total increase of 15%, was placed into effect as permitted by law.
On June 21, 2005, the PSC ruled on various issues within Artesian Water's rate
application. However, on July 5, 2005, the PSC remanded two issues related to
rate base valuation to the Hearing Examiner for further consideration. These two
issues related to approximately $320,000 of the requested increase in annual
revenue. In addition, effective July 1, 2005, Chester Water Authority and the
City of Wilmington increased their rates for water purchased by Artesian Water.
On August 15, 2005, Artesian Water filed a petition with the PSC to place into
effect increased rates resulting from these increased costs. The PSC elected to
consolidate this petition with the pending remanded issues in the rate case. On
April 11, 2006, the PSC ruled in Artesian Water's favor on all three issues.
Based on the PSC decision, Artesian Water's new rates will generate
approximately $4.9 million in additional revenue on an annual basis, or an
increase of approximately 13.4%, over rates in effect before the implementation
of temporary rates in 2004. Since Artesian was permitted to bill customers under
temporary rates that were found to be in excess of rates finally approved,
Artesian Water will be required to refund the portion of the temporary rate
increase in excess of the approved 13.4% increase to its customers. This amount
has been held in reserve and was not reflected in income. The refund, plus
interest which has been reflected in interest expense during the appropriate
period, will be applied to the customers' future bills. As of March 31, 2006, we
had reserved $912,000 of the total received under temporary rates in
anticipation of a refund.
On November 30, 2005, we requested an increase to the DSIC surcharge. We
implemented the increase from 0.35% to 1.17% for bills rendered subsequent to
January 1, 2006. The 1.17% surcharge was designed to generate approximately
$240,000 in revenues between January and June of 2006. This surcharge generated
approximately $132,000 in revenues in the first quarter of 2006.
On May 9, 2006, Artesian Water Company, Inc. filed a petition with the Delaware
Public Service Commission to implement new rates to meet a requested increase in
revenue of 23%, or approximately $9.9 million, on an annualized basis. This
request is primarily due to the Company's significant investment in
infrastructure, as well as an almost 100% increase in purchased power expense
due to the deregulation of the electric industry in Delaware. 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.
Operating Expenses
------------------
Operating expenses, excluding depreciation and income taxes, increased $0.4
million, or 6.5%, to $6.6 million for the three months ended March 31, 2006,
compared to $6.2 million for the same period in 2005. The components of the
increase in operating expenses included an increase in utility operating
expenses of $425,000 and an increase in property taxes of $53,000. Non-utility
operating expenses decreased $73,000 in the first quarter of 2006, or 28.6%,
compared to the same period last year primarily due to the timing of
construction projects.
The increase in utility operating expense of $425,000 for the quarter ended
March 31, 2006, or 7.9%, over the same period in 2005, is comprised of increases
in administration expense, payroll and employee benefits, purchased water costs
and water treatment expense.
Administration expense increased $188,000, or 26.1%, compared to the same period
in 2005, due primarily to the recognition of $168,000 in legal expense related
to the 2004 rate proceeding remand that was not expected nor included in the
rate expenses approved in the proceeding. Regulatory expenses related to the
millage assessed to public utilities in Delaware, which increased in 2005 by
50%, and Public Service Commission expenses related to our water self
sufficiency and developer contribution dockets also increased administrative
expense by $23,000.
Payroll and employee benefit expense increased $109,000, or 3.7%, compared to
the same period in 2005, primarily due to a decrease in the capitalization of
payroll and benefits associated with our internal staff efforts in 2005 to
convert our customer information system. The customer information system was
placed into service on January 2, 2006.
14
Utility operating expense also increased $49,000, or 6.5%, compared to the same
period in 2005, due to the recognition of an increase in rates charged for water
purchased from neighboring utilities under minimum take or pay agreements. Water
treatment expense increased utility operating expense by $47,000, or 33.3%,
compared to the same period in 2005, as a result of increases in the cost of
chemicals used in the water treatment process. Increases in energy prices have
been the primary reason for the increase in the cost charged to Artesian Water.
Non-utility expense decreased approximately $73,000 for the three months ended
March 31, 2006, from the three months ended March 31, 2005, primarily due to the
timing of implementation for certain contracted engineering design services for
projects for Artesian Utility. The engineering fees, related to construction
projects, are charged back to developers under contract and the associated
revenues have been reflected in our operating revenues under non-utility
revenue.
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 that method,
compensation cost recognized in the first quarter of 2006 includes (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. Compensation cost related to stock awards granted prior to,
but not vested as of, January 1, 2006 continues to be amortized using the
expense attribution method described in FIN 28. Results for the prior periods
have not been restated. We have used the modified prospective method and
estimated the fair value of each option grant using the Black-Scholes option
pricing model, which produced an expense of less than $1,000 related to options
granted prior to January 1, 2006 for the three months ended March 31, 2006. No
options were granted subsequent to January 1, 2006.
Property taxes assessed on property, primarily held by Artesian Water, increased
by $53,000, or 9.1%, compared to the same period in 2005, 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 income taxes, to
total revenue was 63.1% for the three months ended March 31, 2006, compared to
62.7% for the three months ended March 31, 2005.
Depreciation and amortization expense increased $123,000, or 11.8%, over the
three months ended March 31, 2005, due to increases in our utility plant in
service providing supply, treatment, storage and distribution of water. Income
tax expense increased $13,000 due to higher profitability for the three months
ended March 31, 2006, compared to the three months ended March 31, 2005.
Other Income, Net
-----------------
Our Allowance for Funds Used During Construction, or AFUDC, decreased $16,000,
or 31.9%, compared to the same period in 2005, as a result of lower long-term
construction activity subject to AFUDC for the first three months of 2006
compared to the same period in 2005. Miscellaneous Income increased $34,000
primarily due to recording dividends associated with our investment in CoBank in
the first quarter. CoBank is a cooperative bank that distributes equity and cash
income to its customer-owners. Our ownership interest in CoBank is the result of
our issuance of $50 million in First Mortgage Bonds to CoBank as currently
reflected on our Balance Sheet.
Interest Charges
----------------
Interest charges increased $22,000, or 1.5%, for the three months ended March
31, 2006, compared to the three months ended March 31, 2005, primarily due to
higher long-term debt outstanding.
Net Income
----------
Our net income increased $42,000, or 4.4%, for the three months ended March 31,
2006, compared to the same period a year ago. The increase in net income for the
three months was due to improved operating income margins from our utility
subsidiaries in the first quarter compared to the same period a year ago as a
result of the recognition of income associated with the approval of issues in
Artesian Water's recent rate proceeding.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity for the three months ended March 31, 2006, were
$3.5 million provided by cash flow from operating activities and $2.8 million in
net contributions and advances from developers. 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. On May 1, 2006, the Company's
electric provider released price caps instituted by deregulation. Our current
provider is expecting to raise rates about 100%. The Company is evaluating other
options and has contracted with another electric supplier, using a broker, for
our electric needs. Deregulation will cause our electric rates to increase.
15
We invested $6.2 million in capital expenditures during the first three months
of 2006 compared to $4.9 million invested during the same period in 2005. The
primary focus of Artesian Water's investment was in continuing to provide high
quality reliable service through connecting existing developments and new
storage facilities. We are constructing a new one million gallon elevated
storage facility in southern New Castle County to serve customers in and around
the town of Middletown and invested $0.9 million in the first quarter. When
completed Artesian Water will have invested approximately $2.0 million in the
facility. 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 $3.6M in the first quarter of 2006. Artesian Wastewater invested
$0.5 million in constructing two new wastewater treatment facilities in Sussex
County. When completed these facilities will be capable of serving 976
customers. In addition, Artesian Wastewater Management took ownership of a
wastewater treatment plant in a Sussex County development known as the Reserves.
The $1.4 million facility was contributed to Artesian Wastewater by the
developer. The facility was constructed to serve 97 customers.
At March 31, 2006, 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, 2006, we had $38.5 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, 2006, 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, 2006, we had not borrowed funds
under these lines. The interest rate for borrowings under each of these lines is
the LIBOR plus 1.75%. The bank reviews its facilities annually for renewal.
On August 1, 2005, Artesian Water issued $25 million aggregate principal amount
of its 5.96%, 23-year Series R First Mortgage Bonds. Artesian Water recorded the
total expense of approximately $1.1 million, which included a redemption premium
of $865,000, in connection with the issuance of the bonds as a deferred asset.
These bonds were issued for Artesian Water to CoBank, a cooperative bank, and
the proceeds were used on August 1, 2005, to retire all of Artesian Water's
outstanding $10 million aggregate principal amount of 7.84%, 10-year, Series M
First Mortgage Bonds and $5 million aggregate principal amount of 7.56%,
10-year, Series N First Mortgage Bonds, and to satisfy the $865,000 redemption
premium required as a result of the early retirement of the Series M and Series
N First Mortgage Bonds. The remainder of the bond proceeds were used to pay down
Artesian Water's short-term line of credit, which was used to finance
investments in utility plant and equipment. Artesian Water is amortizing the
redemption premium over the life of the Series R First Mortgage Bonds.
We believe that our available cash and cash equivalents, cash from operations
and cash available under our lines of credit will be sufficient to finance our
operations, planned capital expenditures and commitments for the next twelve
months.
CAUTIONARY STATEMENT
Statements in this Quarterly Report on Form 10-Q which express our "belief,"
"anticipation" or "expectation," as well as other statements which are not
historical fact, including statements regarding our goals, the impact of weather
on our operations and the execution of our strategic initiatives, our
expectations regarding the resolution of our May, 2006 rate request, exact
amounts that may be collected under temporary rate increases and the potential
impact of revenue in 2006, exact amounts that may be collected under DSIC,
contract operations opportunities, increases to purchased water expense,
increases to electric rates after deregulation, adequacy of our available
sources of financing, our expectations regarding the sale of land to
Commonwealth, 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 2006 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. Certain 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
Company's views as of any date subsequent to the date of the filing of this
Quarterly Report on Form 10-Q.
16
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 Company's 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.
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,
2006, we had $38.5 million of available funds under these lines. The interest
rate for borrowings under each of these lines is the LIBOR plus 1.0% or, at our
discretion, the banks' federal funds rate plus 1.0%. As such these rates are
subject to the risk of fluctuating in the normal of course of business.
Consequently, our interest expense for short term debt could be materially
affected should interest rates change materially and we have material
outstanding balances due on our lines of credit.
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, the 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 is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and (ii) accumulated and communicated to our management,
including the 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 Company's 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.
17
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, 2005, 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 5 - OTHER INFORMATION
On May 9, 2006, Artesian Water Company, Inc. filed a petition with the Delaware
Public Service Commission to implement new rates to meet a requested increase in
revenue of 23%, or approximately $9.8 million, on an annualized basis. This
request is primarily due to the Company's significant investment in
infrastructure, as well as an almost 100% increase in purchased power expense
due to the deregulation of the electric industry in Delaware. 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.
ITEM 6 - EXHIBITS
Exhibits
31.1 Certification of Chief Executive Officer of the Registrant
required by Rule 13a - 14 (a) under the Securities Act of 1934.
31.2 Certification of Chief Financial Officer of the Registrant
required by Rule 13a - 14 (a) under the Securities Act of 1934.
32 Certification of Chief Executive Officer and Chief Financial
Officer of the Registrant required by Rule 13a - 14 (b) under the
Securities Act of 1934.
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 10, 2006 By: /s/ DIAN C. TAYLOR
------------------------
Dian C. Taylor,
(Principal Executive Officer)
Date: May 10, 2006 By: /s/ DAVID B. SPACHT
------------------------
David B. Spacht, (Principal Financial
and Accounting Officer)
19
INDEX TO EXHIBITS
Exhibit Number Description
-------------- -----------
31.1 Certification of Chief Executive Officer of the
Registrant required by Rule 13a - 14 (a) under the
Securities Act of 1934.
31.2 Certification of Chief Financial Officer of the
Registrant required by Rule 13a - 14 (a) under the
Securities Act of 1934.
32 Certification of Chief Executive Officer and Chief
Financial Officer of the Registrant required by Rule
13a - 14 (b) under the Securities Act of 1934.
20