Birmingham Utilities, Inc.
Annual Report
1999
Environmental
Stewardship
Your Company's well established reputation for
sound environmental management practices
has enhanced our regulatory and community relationships,
while adding value for our shareholders.
PAGE 1
Company Profile
The Company is in the business of collecting and distributing water for
domestic, commercial and industrial uses and fire protection in Ansonia,
Derby and in small parts of the contiguous Town of Seymour, Connecticut.
On February 1, 2000, the Company maintained a workforce of 20 full-time
employees, none of whom are affiliated with any union.
Sources of Supply
Wells:
Located in Derby and Seymour with a safe daily yield of 3.0 million
gallons per day (MGD).
Interconnections:
Two interconnections with the South Central Regional Water Authority
at the border of Orange and Derby (the "Grassy Hill Interconnection")
and near the border of Seymour and Ansonia (the "Woodbridge
Interconnection"). Annual purchases of water contracted at
a minimum of 600 million gallons a year. Safe daily yield of
Interconnection - 5.0 MGD.
Emergency Supply:
Beaver Lake Reservoir System - 2.2 MGD surface water supply.
Customer Base and Demand
8,990 customers, 94% residential and commercial
Water delivered in 1999 - 1.25 Billion Gallons
Average daily demand - 3.4 MGD.
Maximum daily demand in 1999 - 4.7 MGD.
Total safe daily yield - 8.0 MGD.
Regulation
The Company is subject to the jurisdiction of the following agencies:
Connecticut Department of Public Utility Control (DPUC)
Matters related to ratemaking, financing, accounting, disposal
of property, issuance of long-term debt and securities and other
operational matters.
Connecticut Department of Public Health (DPH)
Water quality, sources of supply and use of watershed land.
Connecticut Department of Environmental Protection (DEP)
Water quality, pollution abatement, diversion of water from
streams and rivers, safety of dams and location,
construction and alteration of certain water facilities.
The Company is also subject to regulation of its water quality under
the Federal Safe Drinking Water Act ("SDWA"). The United States
Environmental Protection Agency has granted to the DPH the primary
enforcement responsibility in Connecticut under the SDWA. The DPH has
established regulations containing maximum limits on contaminants which
have or may have an adverse effect on health.
PAGE 2
Fellow Shareholders
In 1999 your Company continued to pursue its strategy of disposing of
excess land in order to finance the construction of needed
infrastructure repairs and replacements.
The beginning of 1999 brought with it our attempt to renegotiate the
Company's agreement with M/1 Homes, LLC for the sale to it of
approximately 245 acres of land in Seymour for $3,950,000. That
renegotiation resulted from the developer's inability to get local land
use approval for its planned golf course project. We successfully
renegotiated the agreement in January, and the developer was able to
get local approval for development of a 181 unit "active-adult"
community. Unfortunately, the Connecticut Department of Public Utility
Control (the "DPUC") declined to approve the renegotiated agreement as
required under Connecticut law. Your management came to the conclusion
that its only prudent course of conduct at that time was to terminate
the agreement. We did so with great reluctance on July 14, 1999.
While the above process was playing out at the DPUC, however, the
Company received exciting news about its attempt to change the
watershed land classification of a significant parcel of land,
approximately 582 acres, located primarily in Ansonia; on March 10,
1999, the Connecticut Department of Public Health issued to the Company
a Source Abandonment Permit for the former Quillinan Reservoir, thereby
making the land associated with that water body available for sale for
the first time. Upon the expiration of the statutory waiting period after
declaring its intent to sell the property, the Company immediately began
discussions with The Trust for Public Land ("TPL") to explore ways in
which the land could be preserved for open space for the community. On
September 13, 1999, the Company entered into two separate agreements with
TPL, the first of which provided for the sale to it of approximately 570
acres of the newly reclassified land for $6,050,000.
PAGE 3
The second agreement provided for the sale to TPL of 42.5 previously
available acres in Ansonia for $200,000. Both agreements provide that
TPL must consummate the transactions only if public funding becomes
available. Although not required by the agreements, it is contemplated
by all involved that the larger parcel will actually be purchased by
the Connecticut Department of Environmental Protection as a new state
park facility and that the smaller parcel will be acquired by the City
of Ansonia to add to its Nature Center. The DPUC approved both
transactions on March 1, 2000. While final approvals for the required
public funding are not fully in place, and while the Company needs to
negotiate the release of the property from the lien of the indenture
that secures its mortgage bond indebtedness, the Company hopes that
the sales will be consummated in the early summer of this year. An
exciting achievement.
As I am sure you are aware, the investor-owned utility industry in
Connecticut has been undergoing rapid change over the past year. The
largest electric utility, all three major gas distribution companies
and the largest investor-owned water company in Connecticut were all
recently acquired by other companies, with control of those companies
now based outside of the state. Several smaller water companies have
announced pending acquisitions. You can be assured that your Board of
Directors is monitoring those developments closely to determine how, if
at all, they affect our overall goal to provide an exceptional return
on your investment.
As always, feel free to contact me at the Company.
Your fellow shareholder,
Betsy Henley-Cohn
Chairwoman
PAGE 4
Fellow Shareholders
The year 1999, the last in the 20th century, was certainly an exciting
year for your Company. Our sound and prudent strategy to enhance
shareholder value, while simultaneously committing to provide high
quality water and excellent service, continued through 1999. The
lifeline of this strategy, the careful disposal of land no longer
necessary for water supply, has enabled your Company to continue to
upgrade its facilities and increase the value of your Company while at
the same time holding water rates stable. Although the Company did not
have any significant land sales in 1999, prudent planning has allowed
the Company to use part of the 1998 land sale proceeds to fund the 1999
capital program. It is our intent to use future land sale proceeds to
fund our future capital program.
Birmingham Utilities, Inc. announced net earnings of $919,897 for 1999.
The Company's net income in 1999 was derived entirely from utility
operations and represented a 43% increase over net income derived from
utility operations in 1998. Strong water sales due to an extended dry
period in 1999, together with the Company's ability to maintain
operating expenses approximately at 1998 levels, allowed the Company
to achieve these improved results. The Company's net income in 1998,
however, had also included $3,354,240 derived from the sale of
approximately 889 acres of excess land to the City of Derby and the
Towns of Seymour and Oxford. The Company had no significant land sales
in 1999. Accordingly, the Company's overall 1999 net income of $919,897
was substantially less than its 1998 net income of $3,910,793.
As a result of the solid financial performance in 1999, your Company
was able to increase its dividend to $.40 per share for the year, an
18% increase over the $.34 per share amount paid in 1998. The 1999
dividend also represents a 33% cumulative increase over the $.30 per
share amount paid in 1997. The Company was also able to declare a
2-for-1 stock split in March of 1999. A strong balance sheet, which has
seen shareholder value increase by 99% since 1997, has positioned your
Company for a financial future where maximization of shareholder value
can continue.
PAGE 5
The Company's Capital Improvement program continued to make major
strides in 1999. Over the year, the Company installed approximately
3.3 miles of new 8 and 12 inch water main, of which over 90% was
installed by our in-house personnel. The average cost of all main
installations was less than $67 per foot, including all paving. These
new facilities largely allowed for the abandonment of two additional
pump stations in 1999, bringing the total to five pump stations
eliminated from service since 1998. These improvements not only improve
water quality and service, but also allow the Company to operate in a
more efficient and cost effective manner. Vice President of Operations,
John "Jack" Keefe, Jr. is commended for his efforts in directing these
activities.
As indicated in our first annual Consumer Confidence Report issued in
October 1999, your Company's drinking water exceeds all State and
Federal standards for quality and safety. This did not happen by
accident. Long-range planning has been designed to address the
protection of our sources of supply, increase pipe capacities in key
areas for improved fire and domestic distribution, and aggressively
address the replacement of aged piping. The Company hopes to complete
its low system distribution improvement in 2001. This program, which
has been ongoing since 1995, will allow the Company the opportunity to
move water more efficiently between its major sources of supply.
The goals we achieved, and the plans made for the future, could not
have been accomplished without the support of your Board of Directors
and our highly dedicated employees. I sincerely thank both groups for
that support during my first full year as your Company's President.
John S. Tomac
President & Treasurer
PAGE 6
Financial Highlights
Market For the Registrant's Common Stock and Related Security Holding
Matters
As of December 31, 1999, there were approximately 482 record holders of
the Company's common stock. Approximately 59% of the Company's stock
is held in "nominee" or "street" name. The Company's common stock is
traded on the NASDAQ-AMEX Small Cap Market. The market is not active,
and actual trades are infrequent. The following table sets forth the
dividend record for the Company's common stock and the range of bid
prices for the last two calendar years. The stock prices are based
upon NASDAQ records provided to the Company. The prices given are
retail prices. The Company's Mortgage Bond
Bid* Dividend*
High Low Paid
1999 First Quarter $14.75 $10.50 $.10
Second Quarter 23.00 15.00 .10
Third Quarter 28.13 18.00 .10
Fourth Quarter 26.00 21.00 .10
1998 First Quarter $ 7.50 $ 5.87 $.085
Second Quarter 9.25 7.25 .085
Third Quarter 9.56 7.87 .085
Fourth Quarter 12.62 9.25 .085
Selected Financial Data
Presented below is a summary of selected financial data for the years
1995 through 1999:
(000's omitted except for per share data)
1999 1998 1997 1996 1995
Operating Revenues $ 4,624 $ 4,395 $ 4,367 $ 4,380 $4,238
Income before Interest Charges 1,368 1,170 1,112 968 863
Income from Land Dispositions** -- 3,354 195 387 279
Net Income 920 3,911 668 765 518
Earnings Per Share-Basic* .59 2.55 .44 .51 .35
Earnings Per Share-Diluted* .56 2.48 .44 .51 .35
Cash Dividends Declared (per share)* .40 .34 .30 .25 .24
Total Assets 18,281 19,519 16,491 15,568 14,624
Long Term Debt 4,324 4,418 5,662 5,981 6,001
Short Term Debt 454 94 1,524 294 75
Shareholder Equity 8,147 7,648 4,097 3,841 3,408
* Reflects the 2-for-1 stock split that took place on March 18, 1999.
All prior periods have been adjusted to reflect the stock split.
** See Management Discussion and Analysis, Results of Operations -
Land Dispositions.
PAGE 7
Selected Data
Shareholders' Equity
Dividends
Book Value
Pre-Tax Operating Earnings
PAGE 8
Management's Discussion and Analysis
Results of Operations
Overview
The Company's net income for 1999 was $919,897 compared with net income
of $3,910,793 in 1998 and $667,879 in 1997. Earnings per share, basic
for 1999, 1998 and 1997 were $.59, $2.55 and $.44, respectively. The
decline in net income of $2,990,896 is principally due to the absence
of land sale income in 1999. In 1998, land sales contributed $3,354,240
to the Company's bottom line. This decrease is somewhat offset by
increased operating income from utility operations. The increase in net
income in 1998 from 1997 was a result of land sale income and also
improved operating income from utility operations.
Revenues
Water sales to the Company's customers in 1999 of $4,623,817 were
$228,906 higher than the revenues from water sales achieved in 1998 of
$4,394,911. A 4% increase in consumption from all classes of customers
as a result of an extended hot and dry summer period in 1999 primarily
accounts for this increase. In 1998, water service revenues were
$27,554 higher than sales achieved in 1997. A general water service
rate increase of 4.1% that became effective February 1, 1998, more
than offset a 5% rate reduction that took place on July 1, 1997. The
1997 rate reduction was a result of the repeal of the Connecticut Gross
Receipts tax.
Operating Expenses
Operating expenses of $2,449,348 in 1999 have increased $85,825 over
operating expenses of $2,363,523 in 1998. A non-recurring charge for
professional fees regarding strategic planning accounts for the entire
variance. Cost reductions in 1999 for property, health, and workers
compensation insurance as well as meter reading and collection costs
are offset by increases in post retirement benefits and other
shareholder expenses. Operating expenses of $2,363,523 in 1998
decreased $120,352 from operating expenses of $2,483,875 for 1997.
Decreased costs associated with professional fees, casualty
insurance, uncollectible expenses, pension expense and post retirement
benefits principally accounted for the 1997 to 1998 decrease.
Maintenance Expenses
Maintenance expenses of $183,256 for 1999 are $21,130 higher than
maintenance expenses of $162,126 for 1998. Increased costs associated
with main maintenance, service line and meter expenses account for the
increase. Maintenance expense in 1998 was $23,005 lower than 1997,
principally due to decreased service repairs and main maintenance.
Depreciation Expense Depreciation expense of $501,313 in 1999 exceeds
depreciation expense of $488,386 in 1998 by $12,927 due to the
continuation of plant additions in 1999. Depreciation expense in 1998
was $49,270 higher than 1997, also as a result of utility plant
additions.
Taxes other than Income Taxes
Taxes other than income taxes of $320,442 in 1999 are $45,579 higher
than the expense of $274,863 in 1998. Increased property taxes as a
result of an increasing amount of plant additions account for this
variance. Taxes other than income taxes of $274,863 in 1998 are
$128,697 lower than the expense of $403,560 in 1997. The repeal of
the Connecticut Gross Receipts tax that became effective July 1, 1997
and lower property taxes due to the disposition of property in Derby,
Connecticut account for this variance.
Income Taxes
Income taxes from operations in 1999 of $278,126 have increased
$67,192 over the comparable 1998 period. Income tax expense relating
to increased pre-tax operating earnings of $240,081, or approximately
40%, account for this variance. Income taxes from operations in 1998
also exceeded the 1997 levels, due to increased operating earnings.
Pre tax operating earnings in 1999 have increased $488,671 or 133%
from the level achieved in 1997.
The Company also incurs income tax liability for gains from land
transactions, both in the year in which they occur and in the later
years in which income, previously deferred in accordance with the
DPUC's orders concerning the sharing of the gains between the
Company's shareholders and ratepayers, is recognized by the Company.
Taxes related to gains on land transactions were $192,720, $1,756,937,
and $258,476 in 1999, 1998 and 1997, respectively. There were no
significant land sales in 1999. The Company's total income tax
liability including both the tax on operating income and on land sale
gains was $470,846 in 1999, $1,967,871 in 1998 and $328,190 in 1997.
PAGE 9
Land Dispositions
When the Company disposes of land, any gain recognized, net of taxes,
is shared between ratepayers and shareholders based upon a formula
approved by the DPUC. The impact of land dispositions is recognized
in two places on the statement of income. The statement of income
reflects income from the disposition of land (net of taxes) of
$3,354,240 in 1998, and $195,457 in 1997, which represent the
shareholders' immediate share of income from land dispositions
occurring in each year. There were no significant land sales in 1999.
Land disposition income is also recognized in the financial statements
as a component of operating income on the line entitled "Amortization
of Deferred Income on Dispositions of Land." These amounts represent
the recognition of income deferred on land dispositions which occurred
in prior years. The amortization of deferred income on land
dispositions, net of tax, was $342,960, $153,225 and $175,744 for the
years 1999, 1998 and 1997, respectively.
Recognition of deferred income will continue over time periods ranging
from three to fifteen years, depending upon the amortization period
ordered by the DPUC for each particular disposition. See Note 6 of the
Financial Statements.
Other Income
Other income in 1999 of $133,789 is $12,218 higher than other income of
$121,571 achieved in 1998. Increased investment interest income is
somewhat offset by decreased jobbing income and lower AFUDC income.
Other income in 1998 of $121,571 is $29,137 lower than other income of
$150,708 achieved in 1997. Decreased jobbing income and lower fees
associated with the Company's managed system account for the decline.
Interest Expense
Interest expense of $448,184 in 1999 is $165,138 lower than interest
charges of $613,322 recorded in 1998. Interest charges relating to the
Company's term loan which was repaid in the fourth quarter of 1998 and
short term borrowing which has been outstanding for only three days in
1999 account for this decline. Interest expense of $613,322 in 1998 was
$26,669 lower than interest charges of $639,991 for 1997. Lower interest
charges due to decreased short term borrowings account for this decline.
Inflation
Inflation, as measured by the Consumer Price Index, increased 1.7
percent, 1.6 percent and 1.7 percent in 1999, 1998 and 1997,
respectively. The regulatory authorities allow the recovery of
depreciation through revenues solely on the basis of the historical
cost of plant. The replacement cost of utility plant would be
significantly higher than the historical cost. While the regulatory
authorities give no recognition in the ratemaking process to the
current cost of replacing utility plant, the Company believes that,
based on past practices, the Company will continue to be allowed to
earn a return on the increased cost of their net investment when
prudent replacement of facilities actually occurs.
PAGE 10
Financial Resources
During 1999, 1998 and 1997, the Company's water operations generated
funds available for investment in utility plant and for use in
financing activities, including payment of dividends on common stock,
of ($405,981), $968,586 and $489,361, respectively (see Statement of
Cash Flows).
Net cash provided by operating activities decreased $1,374,567 from
1998 to 1999. This decrease is a result of the payment of income taxes
in the first quarter of 1999 for land sales that took place in the
last quarter of 1998.
During the three-year period 1999, 1998 and 1997, the Company has
generated sufficient funds to meet its day-to-day operational needs,
including regular expenses, payment of dividends, and investment in
normal plant replacements, such as new services, meters and hydrants.
It expects to be able to continue to do so for the foreseeable future.
Completion of the Company's Long Term Capital Improvement Program is
dependent upon the Company's ability to raise capital from external
sources, including, for the purpose of this analysis, proceeds from the
sale of the Company's holdings of excess land. During 1999, 1998 and
1997, the Company's additions to utility plant, net of customer
advances, were $1,690,055, $1,597,247 and $1,281,242, respectively (see
Statement of Cash Flows and Note 16). These additions were financed
primarily from internal sources, including proceeds from land sales and
increases in debt.
The Company has outstanding $4,418,000 principal amount of Mortgage
Bonds, due September 1, 2011, issued under its Mortgage Indenture. The
Mortgage Indenture limits the issuing of additional First Mortgage
Bonds and the payment of dividends. It does not, however, restrict the
issuance of either long term or short term debt which is either
unsecured or secured with liens subject to the lien of the Mortgage
Indenture. The Company also had a $1,500,000 secured, term loan which
was repaid on November 23, 1998. Principal and interest payments were
made monthly in 1998, up to the time of the repayment.
In 1998, the Company converted a $600,000 working capital line of credit
and a $1,500,000 secured line of credit to a two-year $2,100,000
revolving line of credit. In June, 2000, the Company will have the
option to convert any outstanding balance to a six-year term note with
a 20-year amortization schedule, resulting in a balloon payment at the
end of the six-year term. The revolving line of credit is secured by a
lien (subordinate to the lien of the Mortgage Bond Indenture - See Note
4) on all of the Company's utility property other than its excess land
available for sale. There was a balance of $360,000 outstanding under
the revolving line of credit at December 31, 1999 and no borrowings
outstanding at December 31, 1998.
The interest rate on the revolving line of credit is a variable option
of 30- or 90-day LIBOR plus 100 basis points or prime. The term option
consists of a fixed rate of the bank's cost of funds plus 100 basis
points or a variable rate of the prime rate or 90 day LIBOR plus 100
basis points which is reset every 90 days.
The Company's 2000 Capital Budget of $1,900,000 is two-tiered. The
first tier consists of typical capital improvements made each year for
services, hydrants, meters and a state mandated project budgeted for
$700,000 in 2000 and is expected to be financed primarily with
internally generated funds.
The second tier of the 2000 Capital Budget consists of replacements and
betterments which are part of the Company's Long Term Capital
Improvement Program and includes $1,200,000 of budgeted plant
additions. Plant additions from this part of the capital budget, in
future years, may require external financing in addition to the
Company's line of credit. Second tier plant additions can be, and
portions of it are expected to be, deferred to future years if funds
are not available for their construction.
The Company believes that by selling excess lands it can generate
sufficient equity capital to support its 5 year capital budget,
currently estimated at $7,000,000. Such land dispositions are subject
to approval by the DPUC. Proceeds from the sale of land are recorded as
revenue at the time of closing and portions of the gains are deferred
and amortized over various time periods as stipulated by the DPUC.
On September 13, 1999, the Company executed two purchase and sale
agreements with The Trust for Public Land, Inc., ("TPL") for the sale
by the Company and purchase by TPL of 570 and 42.5 acres of unimproved
property in the City of Ansonia and the Towns of Seymour and Woodbridge,
CT, subject to TPL arranging for the availability of public financing
for the purchases. The purchase price of the parcels is $6,050,000 and
$200,000, respectively. The Company is unable to predict at this time
whether or not such financing will be available, although it is the
Company's understanding that TPL expects to convey the property
immediately to the State of Connecticut and the City of Ansonia for
open space purposes and that they expect such financing to be in place by
mid-year. The DPUC approved these transactions on March 1, 2000.
PAGE 11
On January 21, 1998, the Company sold to the City of Derby,
Connecticut, 145 acres of land in Derby, Connecticut for $1,800,000.
The total gain from the sale amounted to $910,306 of which $81,983 was
deferred and will be recognized over a 3-year period, as approved by
the DPUC. On April 29, 1998, the Company sold 2.9 acres of land in
Woodbridge, Connecticut for the development of a single-family home
for $96,000. The total gain from the sale amounted to $28,955 of
which $9,243 was deferred and will be recognized over a 10-year period
as approved by the DPUC.
The Company also sold, on November 23, 1998, 229 acres of land in
Seymour and Oxford, Connecticut to the Town of Seymour. This parcel
was sold below market value, and as a result, the transaction was
classified as a bargain sale for income tax purposes. The net gain
from the sale amounted to $1,010,209 of which $90,965 was deferred
and will be recognized over a 3-year period as approved by the DPUC.
As a result of the bargain sale, the net gain also includes tax
deductions of $177,064, of which $98,900 will be carried forward to
reduce the Company's tax liability in subsequent years.
On December 3, 1998, the Company sold 515 acres of land in Oxford and
Seymour, Connecticut to The Trust for Public Land for $3,220,000. The
Trust for Public Land, in turn, simultaneously sold the property to the
Town of Oxford for the same price. This parcel was also sold below
market value, and therefore, the transaction was classified as a
bargain sale for income tax purposes. The net gain from the sale
amounted to $1,743,998 of which $157,037 was deferred and will be
recognized over a 3-year period as approved by the DPUC. As a result of
the bargain sale, the net gain includes tax deductions of $329,274 of
which $184,100 will be carried forward to reduce the Company's tax
liability in subsequent years.
As of December 31, 1999, the Company had approximately 322 additional
acres of excess land still available for sale. That land consists of
land currently classified as Class III, non-watershed land under the
statutory classification system for water company lands.
The Company maintains a common stock Dividend Reinvestment Plan (the
"Plan") pursuant to which shareholders will be entitled to purchase
up to 140,000 new shares of the Company's Common Stock by applying
to the purchase price of the new shares cash dividends which otherwise
would be issued by the Company with respect to its existing common
stock. The Plan provides that the purchase price for the new shares
will be their fair market value at the time of the purchase. Dividends
reinvested during 1998 totaled $52,493 and in 1999, $67,066.
PAGE 12
Independent Auditors' Report
To the Shareholders
Birmingham Utilities, Inc.
Ansonia, Connecticut
We have audited the accompanying balance sheets of Birmingham
Utilities, Inc. as of December 31, 1999 and 1998, and the related
statements of income and retained earnings and cash flows for each
of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Birmingham
Utilities, Inc. as of December 31, 1999 and 1998 and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
January 28, 2000
Bridgeport, Connecticut
PAGE 13
Balance Sheets
December 31,
1999 1998
Assets
Utility plant $22,265,530 $20,622,907
Accumulated depreciation (6,543,747) (6,189,596)
15,721,783 14,433,311
Current assets:
Cash and cash equivalents 44,471 2,696,706
Accounts receivable, net of allowance
for doubtful accounts of $50,000
in 1999 and 1998. 415,330 493,165
Accrued utility and other revenue 429,127 361,448
Materials and supplies 87,042 62,046
Prepayments 55,154 42,643
Total current assets 1,031,124 3,656,008
Deferred charges 595,263 377,182
Unamortized debt expense 154,234 170,481
Income taxes recoverable 360,812 414,078
Other assets 418,055 467,826
1,528,364 1,429,567
$18,281,271 $19,518,886
Shareholders' Equity and Liabilities
Shareholders' equity:
Common stock, no par value;
authorized 2,000,000 shares;
issued and outstanding
(1999, 1,583,025 shares;
1998, 1,550,316 shares) $ 2,634,762 $ 2,427,752
Retained earnings 5,511,802 5,219,875
8,146,564 7,647,627
Long term debt 4,324,000 4,418,000
Current liabilities:
Current portion of long term debt 94,000 94,000
Note payable 360,000 --
Accounts payable and accrued liabilities 691,142 2,456,271
Total current liabilities 1,145,142 2,550,271
Customers' advances for construction 1,182,216 1,261,090
Contributions in aid of construction 1,188,934 1,043,719
Regulatory liability -
income taxes refundable 164,772 172,356
Deferred income taxes 1,630,976 1,391,476
Deferred income on dispositions of land 498,667 1,034,347
Commitments and contingent liabilities
(Note 13) - -
4,665,565 4,902,988
$18,281,271 $19,518,886
See notes to financial statements
PAGE 14
Statements of Income and Retained Earnings
Years Ended December 31,
1999 1998 1997
Operating revenues:
Residential and commercial $3,477,897 $3,319,318 $3,335,743
Industrial 174,395 148,367 160,307
Fire protection 670,786 657,005 621,592
Public authorities 103,343 95,135 82,488
Other 197,396 175,086 167,227
4,623,817 4,394,911 4,367,357
Operating deductions:
Operating expenses 2,449,348 2,363,523 2,483,875
Maintenance expenses 183,256 162,126 185,131
Depreciation 501,313 488,386 439,116
Taxes, other than income taxes 320,442 274,863 403,560
Taxes on income 278,126 210,934 69,714
3,732,485 3,499,832 3,581,396
891,332 895,079 785,961
Amortization of deferred income
on dispositions of land
(net of income taxes of $192,720
in 1999, $108,175 in 1998 and
$124,718 in 1997) 342,960 153,225 175,744
Operating income 1,234,292 1,048,304 961,705
Other income, net 133,789 121,571 150,708
Income before interest expense 1,368,081 1,169,875 1,112,413
Interest expense 448,184 613,322 639,991
Income from dispositions of land
(net of income taxes of $1,648,762
in 1998 and $133,758 in 1997) - 3,354,240 195,457
Net income 919,897 3,910,793 667,879
Retained earnings, beginning
of year 5,219,875 1,831,377 1,619,188
Dividends 627,970 522,295 455,690
Retained earnings, end of year $5,511,802 $5,219,875 $1,831,377
Earnings per share, basic $ .59 $ 2.55 $ .44
Earnings per share, diluted $ .56 $ 2.48 $ .44
Dividends per share $ .40 $ .34 $ .30
See notes to financial statements
PAGE 15
Statements of Cash Flows
Years Ended December 31,
1999 1998 1997
Cash flows from operating activities:
Net income $ 919,897 $ 3,910,793 $ 667,879
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Income from land dispositions - (3,354,240) (195,457)
Depreciation and amortization 571,330 551,498 491,208
Amortization of deferred income (342,960) (153,225) (175,744)
Deferred income taxes 92,416 (2,033,909) (91,243)
Allowance for funds used during
construction (27,435) (46,639) (41,741)
Change in assets and liabilities:
Decrease in accounts receivable and
accrued revenues 10,156 125,341 112,781
(Increase) in materials and supplies (24,996) (5,070) (5,183)
(Increase) decrease in prepayments (12,511) (27,575) 19,518
Increase (decrease) in accounts
payable and accrued liabilities (1,591,878) 2,001,612 (292,657)
Net cash provided by (used in)
operating activities (405,981) 968,586 489,361
Cash flows from investing activities
Capital expenditures (1,760,245) (1,820,297) (1,359,886)
Sales of utility plant - 25,000 -
Proceeds from land disposition - 6,916,000 475,000
Increase in deferred charges and
other assets (261,295) (523,941) (306,790)
Customer advances 70,190 223,050 78,644
Net cash provided by (used in)
investing activities (1,951,350) 4,819,812 (1,113,032)
Cash flows from financing activities:
Borrowings under line of credit 360,000 - 1,205,000
Repayments of note payable and
long term debt (94,000) (1,319,000) (169,000)
Repayments of line of credit - (1,355,000) (125,000)
Debt issuance cost - (10,590) -
Dividends paid, net (560,904) (469,801) (410,109)
Net cash provided by (used in)
financing activities (294,904) (3,154,391) 500,891
Net increase (decrease) in cash (2,652,235) 2,634,007 (122,780)
Cash and cash equivalents, beginning
of year 2,696,706 62,699 185,479
Cash and cash equivalents, end
of year $ 44,471 $ 2,696,706 $ 62,699
See notes to financial statements
PAGE 16
Notes to Financial Statements
Note 1
Accounting Policies
Description of business
Birmingham Utilities, Inc.'s (the "Company") predominant business
activity is to provide water service to customers in various cities
and towns in Connecticut. The Company's accounting policies conform to
generally accepted accounting principles, and the Uniform System of
Accounts and ratemaking practices prescribed by the Connecticut
Department of Public Utility Control ("DPUC").
Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
revenues and expenses during the reporting period. Actual results could
vary from those estimates.
Utility plant
The costs of additions to utility plant and the costs of renewals and
betterments are capitalized. The cost of repairs and maintenance is
charged to income. Upon retirement of depreciable utility plant in
service, accumulated depreciation is charged with the book cost of the
property retired and the cost of removal, and is credited with the
salvage value and any other amounts recovered.
Depreciation
For financial statement purposes, the Company provides for depreciation
using the straight-line method. The rates used are intended to
distribute the cost of depreciable properties over their estimated
service lives. For income tax purposes, the Company provides for
depreciation utilizing straight-line and accelerated methods.
Cash and cash equivalents
Cash and cash equivalents consist of cash in banks and overnight
investment accounts in banks.
From time to time, the Company has on deposit at financial institutions
cash balances which exceed federal deposit insurance limitations. The
Company has not experienced any losses in such accounts and believes it
is not exposed to any significant credit risk on cash and cash
equivalents.
Allowance for funds used during construction
An allowance for funds used during construction ("AFUDC") is made by
applying the last allowed rate of return on rate base granted by the
DPUC to construction projects exceeding $10,000 and requiring more
than one month to complete. AFUDC represents the net cost, for the
period of construction, of borrowed funds used for construction
purposes and a reasonable rate on other funds used. AFUDC represents
a noncash credit to income. Utility plant under construction is not
recognized as part of the Company's rate base for ratemaking purposes
until facilities are placed into service. Accordingly, the Company
capitalizes AFUDC as a portion of the construction cost of utility
plant until it is completed. Capitalized AFUDC is recovered through
water service rates over the service lives of the facilities.
Revenue recognition
The Company follows the practice of recognizing revenue when bills are
rendered to customers. In addition, the Company accrues revenue for the
estimated amount of water sold but not billed as of the balance sheet
date.
Advances for construction/contributions in aid of construction
The Company receives cash advances from developers and customers to
finance construction of new water main extensions. These advances are
partially refunded over a 10-year contract period to developers, as
revenues are earned on the new water mains. Any unrefunded balances are
reclassified to "Contributions in aid of Construction" and are no longer
refundable.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, trade accounts
receivable, and trade accounts payable approximates their fair values
due to their short-term nature. The carrying amount of note payable
and long-term debt approximate fair value based on market conditions
for debt of similar terms and maturities.
PAGE 17
Income taxes
Except for accelerated depreciation since 1981 (federal only), the tax
effect of contributions in aid of construction for the period January
1, 1987 through June 12, 1996, and in 1998, the tax effect of bargain
sale of land, for which deferred income taxes have been provided, the
Company's policy is to reflect as income tax expense the amount of tax
currently payable. This method, known as the flow-through method of
accounting, is consistent with the ratemaking policies of the DPUC, and
is based on the expectation that tax expense payments in future years
will be allowed for ratemaking purposes.
The Company's deferred tax provision was determined under the liability
method. Deferred tax assets and liabilities were recognized based on
differences between the book and tax bases of assets and liabilities
using presently enacted tax rates. The provision for income taxes is
the sum of the amount of income tax paid or payable as determined by
applying the provisions of enacted tax laws to the taxable income for
that year and the net change during the year in the Company's deferred
tax assets and liabilities.
In addition, the Company is required to record an additional deferred
liability for temporary differences not previously recognized. This
additional deferred tax liability totaled $196,040 at December 31, 1999
and $241,724 at December 31, 1998. Management believes that these
deferred taxes will be recovered through the ratemaking process.
Accordingly, the Company has recorded an offsetting regulatory asset and
regulatory liability.
Employee benefits
The Company has a noncontributory defined benefit plan which covers
substantially all employees. The benefits are primarily based on years
of service and the employee's compensation. Pension expense includes
the amortization of a net transition obligation over a twenty-three
year period. The Company's funding policy is to make annual
contributions in an amount that approximates what was allowed for
ratemaking purposes consistent with ERISA funding requirements.
Contributions are intended to provide not only for benefits attributed
to service to date, but also for those expected to be earned in the
future.
The Company has a 401(k) Plan. Employees are allowed to contribute a
percentage of salary, based on certain parameters. The Company currently
matches 50% of employee contributions up to 6% of total compensation.
In addition, the Company provides certain health care and life insurance
benefits for retired employees and their spouses. Generally, the plan
provides for Medicare wrap-around coverage plus life insurance based
on a percentage of each participant's final salary. Substantially all
of the Company's employees may become eligible for these benefits if
they reach retirement age while working for the Company. The Company's
obligation for postretirement benefits expected to be provided to or for
an employee must be fully accrued by the date that the employee attains
full eligibility for benefits. The Company has elected to recognize the
unfunded accumulated postretirement benefit obligation over 20 years.
The Company's funding policy is to contribute amounts annually to a
benefit trust and pay directly all current retiree premiums.
Compensated absences
Company policy and practice does not provide for any accumulated but
unused vacation, sick time or any other compensated absences to be
carried over beyond the year end.
Deferred charges
Deferred charges consist primarily of costs incurred to prepare the
Company's surplus land for future disposition. Deferred charges are
allocated to dispositions of land based on specific identification, if
applicable, and on the percentage of acres Land dispositions
The Company is actively seeking to dispose of surplus land not required
for utility operations. The net gain of each disposition, after
deducting costs, expenses and taxes is allocated between the
shareholders and ratepayers by a method approved by the DPUC based on
legislation passed by the Connecticut General Assembly. The portion of
income applicable to shareholders is recognized in the year of
disposition. Income attributable to ratepayers is deferred and
amortized in a manner that reflects reduced water revenue resulting
from the sharing formula as determined by the DPUC.
Unamortized debt expense
Costs related to the issuance of debt are capitalized and amortized over
the term of the related indebtedness. The Company has received
permission from the DPUC to amortize the costs associated with debt
previously outstanding over the term of the new indebtedness.
PAGE 18
Note 2
Utility Plant
December 31,
1999 1998
Pumping, treatment and distribution $16,973,769 $15,741,525
Source of Supply 3,278,420 3,242,662
General Plant 1,418,922 1,313,180
Organization 30,219 30,219
21,701,330 20,327,586
Construction in process 564,200 295,321
$22,265,530 $20,622,907
Note 3
Note Payable
Note Payable consists of a $2,100,000 two-year, secured line of credit,
which may, at the Company's option, be converted in June, 2000 into a
six-year term loan with a 20-year amortization schedule. During the
revolving period, the Company can choose between variable rate options
of 30- or 90-day LIBOR plus 1.00%, or Prime plus 0%. The Company is
required to pay only interest during the revolving period. During the
term period, the Company may choose among interest rate options,
including a fixed rate at 100 basis points over the bank's six-year
cost of funds or a 90-day rate at 1.00% over the 90-day LIBOR rate. The
two-year, secured line of credit is secured by a lien (subordinate to
the lien of the Mortgage Bond Indenture - see Note 4) on all of the
Company's utility property other than its excess land for sale and
requires the maintenance of certain financial ratios and shareholders
equity of $3,000,000.
Borrowings of $360,000 were outstanding on the line of credit at
December 31, 1999.
Note 4
Long Term Debt
December 31,
1999 1998
First mortgage bonds, Series E. 9.64%,
due September 1, 2011 $4,418,000 $4,512,000
Pursuant to its Mortgage Bond Indenture, the Company has outstanding a
series of first mortgage bonds in the amount of $4,418,000 due on
September 1, 2011. The terms of the indenture provide, among other
things, annual sinking fund requirements and limitations on (a) payment
of cash dividends; and (b) incurrence of additional bonded indebtedness.
Under the dividend limitation, approximately $4,559,000 was available
to pay dividends at December 31, 1999 after the quarterly dividend
payment made on that date. Interest is payable semi-annually on the
first day of March and September. The indenture is secured by a lien on
all of the Company's utility property other than excess land available
for sale.
The Company is required to pay $94,000 each September 1 until the bonds
are paid in full.
Note 5
Accounts Payable and Accrued Liabilities
December 31,
1999 1998
Accounts payable $124,561 $ 179,967
Accrued liabilities:
Interest 141,965 144,986
Taxes 123,471 1,785,452
Pension 278,610 281,286
Other 22,535 64,580
$691,142 $2,456,271
PAGE 19
Note 6
Deferred Income on Dispositions of Land
Deferred income on the prior dispositions of land is amortized to
operating income under a method that coordinates the sharing of the net
gains from land sales between the Company's shareholders and ratepayers
in accordance with a rate making formula approved by the DPUC.
Amortization of deferred income and related taxes to be included in
future years operating income for land sales completed as of the balance
sheet date follow:
Deferred Amortization To
Deferred Income Be Included In
Year Ending December 31: Income Taxes Operating Income
2000 $293,049 $108,490 $184,559
2001 94,990 39,523 55,467
2002 51,873 21,511 30,362
2003 30,332 12,568 17,764
2004 19,359 8,017 11,342
Thereafter 9,064 3,737 5,327
$498,667 $193,846 $304,821
The amortization of deferred income on prior land sales does not include
the effect of anticipated future land sales under the Company's ongoing
land sales program.
Note 7
Taxes, Other Than Income Taxes
December 31,
1999 1998 1997
Municipal $241,254 $194,472 $227,022
Payrol l79,188 80,391 71,135
Gross receipts - - 105,403
$320,442 $274,863 $403,560
The Connecticut Gross Receipts tax was repealed as of July 1, 1997 and
as a result, water service rates were also reduced to reflect that
reduction.
Note 8
Income Taxes
The provisions for taxes on income for the years ended December 31,
1999, 1998 and 1997 consist of:
1999 1998 1997
Current:
Federal $180,800 $1,715,170 $119,666
State 4,899 529,545 41,291
Deferred:
Federal:
Accelerated depreciation 75,866 76,240 96,384
Income on land dispositions 192,220 (268,490) 83,117
Investment tax credit (14,700) (14,700) (14,700)
Other 261 4,606 (12,207)
State 31,500 (74,500) 14,639
$470,846 $1,967,871 $328,190
State deferred income taxes relate solely to timing differences in the
recognition of income related to land dispositions.
PAGE 20
A reconciliation of the income tax expense at the federal statutory tax
rate of 34 percent to the effective rate follows:
1999 1998 1997
Federal income tax at statutory rates $477,748 $1,998,791 $338,665
Increase (decrease) resulting from:
State income tax, net of federal
benefit 24,023 398,669 17,590
Bargain sale portion of land
dispositions (19,890) (392,950) -
Rate case expense 7,844 5,384 (21,508)
SFAS 106 expense in excess of funding (11,634) 713 750
Other, net 7,455 (28,036) 7,393
Investment tax credit (14,700) (14,700) (14,700)
Total provision for income taxes 470,846 1,967,871 328,190
Taxes related to land dispositions (192,720) (1,756,937) (258,476)
Operating provision for taxes $278,126 $ 210,934 $ 69,714
Deferred tax liabilities (assets) were comprised of the following:
1999 1998
Depreciation $1,783,507 $1,724,831
Investment tax credits 319,861 334,561
Other 183,128 217,701
Gross deferred tax liabilities 2,286,496 2,277,093
Land Sales (445,619) (669,639)
Other (209,901) (215,978)
Gross deferred tax assets (655,520) (885,617)
Total deferred income taxes $1,630,976 $1,391,476
Note 9
Related Party Transactions
The Company has paid legal and consulting fees to firms whose partners
are directors and shareholders of the Company. During the years ended
December 31, 1999, 1998 and 1997, fees paid amounted to $13,702, $26,038
and $123,439, respectively.
Note 10
Allowance for Doubtful Accounts
December 31,
1999 1998 1997
Allowance for doubtful accounts,
beginning $50,000 $50,000 $75,000
Provision 10,590 9,389 28,251
Recoveries 6,748 17,047 3,051
Charge-offs (17,338) (26,436) (56,302)
Allowance for doubtful accounts,
ending $50,000 $50,000 $50,000
PAGE 21
Note 11
Pension and Other Postretirement Benefits
Pension Plan
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" (SFAS 132). The provisions of SFAS
132 revise the disclosure requirements related to pension and other
postretirement benefit plans. SFAS 132 does not change the measurement
or recognition of these plans.
The following provides a reconciliation of benefit obligations, plan
assets and funded status of the plans.
Pension Other
Benefits Postretirement Benefits
1999 1998 1999 1998
Change in Benefit Obligation:
Benefit obligation, beginning
of year $832,762 $851,292 $371,456 $449,159
Service cost 43,242 44,549 21,202 14,186
Interest cost 58,010 52,384 28,697 24,249
Actuarial loss/(gain) 12,122 (90,428) 52,093 (89,341)
Benefits paid (32,350) (25,035) (27,196) (26,797)
Benefit obligation, end
of year 913,786 832,762 446,252 371,456
Change in Plan Assets:
Fair value, beginning
of year 682,009 625,767 274,716 271,622
Actual return on plan assets 114,136 16,277 43,827 3,094
Employer contribution 42,611 65,000 50,000 -
Benefits paid (32,350) (25,035) - -
Fair value, end of year 806,406 682,009 368,543 274,716
Funded Status (107,380) (150,753) (77,709) (96,740)
Unrecognized net actuarial
gain/(loss) 58,957 107,163 (215,730) (258,391)
Unrecognized transition
obligation 70,461 76,333 329,914 355,292
Unrecognized prior service
cost (37,421) (39,674) - -
Prepaid (accrued) benefit
cost $(15,383) $ (6,931) $ 36,475 $ 161
Weighted-average Assumptions as of December 31:
Discount rate 7% 7% 7% 7%
Expected return on plan assets 8% 8% 8% 8%
Rate of compensation increase 5% 5% - -
For measurement purposes, a 10% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000. The
rate was assumed to decrease gradually to 6% for 2005 and remain at that
level thereafter. Net periodic pension and other postretirement benefit
costs include the following components:
Other
Pension Postretirement
Benefits Benefits
1999 1998 1997 1999 1998 1997
Components of
Net Periodic
Benefit Cost:
Service Cost $43,242 $44,549 $48,297 $21,202 $14,186 $19,779
Interest Cost 58,010 52,384 53,319 28,697 24,249 30,709
Expected return
on plan assets (55,708) (52,110) (41,153) (24,019) (21,730) (16,107)
Amortization of
unrecognized
transition
obligation 5,872 5,872 5,872 25,378 25,378 25,378
Amortization of
unrecognized
prior service cost (2,254) (2,254) (2,254) - - -
Recognized net
actuarial gain 1,901 - 9,980 (10,376) (15,394) (14,748)
Net periodic benefit
cost $51,063 $48,441 $74,061 $40,882 $26,689 $45,011
PAGE 22
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
Effect on total of service and
interest cost components $ 8,074 $ (7,590)
Effect on postretirement benefit
obligation $ 65,269 $ (60,059)
The Company has established tax effective funding vehicles for such
retirement benefits in the form of a qualified Voluntary Employee
Beneficiary Association (VEBA) trust. The Company funded the VEBA trust
with tax deductible contributions of $50,000, $0 and $23,500 in 1999,
1998 and 1997, respectively.
The employment contract of the Company's former President required
accounting for benefits payable in accordance with SFAS 106. The
accumulated present value of future benefits was recognized during his
term of service to the Company which ended on October 1, 1998. The
liability recorded at December 31, 1999 and 1998 was $243,200 and
$254,300, respectively. At December 31, 1999, an amount of $182,300 has
been included in other assets relating to a regulatory asset for costs
which were included in the Company's rate case.
Employer matching contributions to the 401(K) Plan were $23,634, $23,568
and $17,645 in 1999, 1998 and 1997, respectively.
Note 12
Earnings per share Supplemental Information
The following table summarizes the number of common shares used in the
calculation of earnings per share:
1999 1998 1997
Weighted average shares outstanding
for earnings per share, basic 1,567,725 1,532,922 1,518,990
Incremental shares from assumed
conversion of stock options 73,990 46,000 16,102
Weighted average shares outstanding
for earnings per share, diluted 1,641,715 1,578,922 1,535,092
Note 13
Commitments and Contingent Liabilities
Management agreement
The Company maintains an agreement with the City of Derby (the "City"),
pursuant to which agreement, the Company manages the water system owned
by the City. The Company is responsible for costs of maintenance and
improvements. Amounts collected from customers, net of expenses, are
retained by the Company.
Capital budget
Management has budgeted $1,900,000 for capital expenditures in 2000,
$700,000 of which is expected to be necessary to meet its service
obligations for the coming year.
Purchase commitment
The Company has an agreement with South Central Connecticut Regional
Water Authority to purchase water. This agreement provides for a
minimum purchase of 600 million gallons of water annually. Charges to
expense were $705,934, $705,162 and $691,166 for the years 1999, 1998 and
1997, respectively. The purchase price is based on South Central
Connecticut Regional Water Authority's wholesale rate. At December 31,
1999, this rate was $1,150 per million gallons. This agreement expires
December 31, 2015 but provides for two ten-year extensions at the
Company's option.
PAGE 23
Note 14
Rate Matters
On January 21, 1998, the DPUC granted the Company a 4.1 percent water
service rate increase designed to provide a $177,260 annual increase in
revenues and a 12.16% return on common equity.
Note 15
Equity
Stock Split
On January 11, 1999, the Company filed with the DPUC an Application for
Approval to Issue approximately 780,000 additional shares of common
stock in conjunction with a 2-for-1 stock split. The stock split was
approved by the Board of Directors in December, 1998, and by the DPUC
on February 26, 1999. The stock split was effected in the form of a
100 percent stock distribution on the Company's common stock, payable
on March 22, 1999 to all shareholders of record on March 18, 1999. All
share and per share values in the financial statements have been
adjusted for all periods to reflect the common stock split.
Common Stock
Number
of Shares Amount
Balance, January 1, 1998 1,523,404 $2,266,027
Stock issued through Dividend Reinvestment Plan 5,912 52,493
Stock issued through Key Employee and
Non-Employee Stock Option Plans 21,000 110,250
Amortization of stock plan costs - (1,018)
Balance, December 31, 1998 1,550,316 2,427,752
Stock issued through Dividend Reinvestment Plan 3,721 67,066
Stock issued through Key Employee and
Non-Employee Stock Option Plans 28,988 152,174
Amortization of stock plan costs - (12,230)
Balance, December 31, 1999 1,583,025 $2,634,762
Stock Option Plans
The Company has three stock option plans, a non-employee director stock
option plan and two key employee incentive stock option plans. 80,000,
70,000 and 60,000 shares, respectively were authorized under the three
plans which provide for options to purchase common stock of the Company
at the fair market value at the date of the grant. The options vest over
various periods and must be exercised within 10 years from date of grant.
The first Key Employee Plan was adopted in 1994 and subsequently
approved by the Company's shareholders and the DPUC in 1995. The second
Key Employee Plan was adopted in 1998 and subsequently approved by the
Company's shareholders and the DPUC in 1999. The following table
summarizes the transactions of the Company's stock option plans for the
three years ended December 31, 1999:
Granted Exercisable
Weighted Weighted
Number Average Number Average
of Shares Exercise Price of Shares Exercise Price
Outstanding at
December 31, 1996 125,500 $ 5.18 111,750 $5.26
Granted 5,000 $ 6.12
Forfeited (6,000) $ 5.25
Outstanding at
December 31, 1997 124,500 $ 5.22 114,500 $5.22
Granted 25,000 $ 8.77
Exercised (21,000) $ 5.25
Outstanding at
December 31, 1998 128,500 $ 5.93 101,000 $5.19
Granted 5,000 $21.00
Exercised (28,988) $ 5.25
Outstanding at
December 31, 1999 104,512 $ 6.81 84,912 $5.59
The Company applies Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS 123) to account for its
stock option plans. As permitted by SFAS 123, the Company has chosen to
continue to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and, accordingly,
no compensation cost has been recognized for stock options in the
financial statements. The pro-forma effect of these options on net
income and earnings per share, utilizing the Black-Scholes
option-pricing model, consistent with the method stipulated by SFAS 123,
was not material to the Company's results of operations.
PAGE 24
Dividend reinvestment plan
The Company has a dividend reinvestment plan which provides for the
issuance and sale of up to 140,000 shares of the Company's authorized
but unissued common stock to its shareholders who elect to reinvest
cash dividends on the Company's existing shares. Shares under the plan
will be purchased at their fair market value price on the date of the
dividends to be invested in the new shares.
Note 16
Supplemental Disclosure of Cash Flow Information and Noncash Financing
Activities
Cash paid for interest for the years ended 1999, 1998 and 1997 was
$434,956, $616,341, and $625,729, respectively.
Cash paid for income taxes for the years ended 1999, 1998 and 1997 was
$1,859,000, $428,600, and $283,150, respectively.
The Company receives contributions of plant from developers. These
contributions are reported in utility plant and in customers' advances
for construction. The contributions are deducted from construction
expenditures to determine cash expenditures by the Company.
December 31,
1999 1998 1997
Gross plant additions $1,760,245 $1,820,297 $1,359,886
Customers' advances for
construction (70,190) (223,050) (78,644)
$1,690,055 $1,597,247 $1,281,242
On written request, the Company will furnish to any shareholder a copy
of its most recent annual report to the Securities and Exchange
Commission on Form 10K, without charge, including the financial
statements and schedules thereto. Such requests should be addressed to
Anne A. Hobson, Secretary, Birmingham Utilities, Inc. P.O. Box 426,
Ansonia, CT 06401-0426.
PAGE 25
Birmingham Contributors
BOARD OF DIRECTORS
Betsy Henley-Cohn (2)*
Chairwoman of the Board of Directors
of the Company;
Chairman and Treasurer,
Joseph Cohn & Sons, Inc.;
Director, United Illuminating Corp.;
Director, Aristotle Corp.;
Director Citizens Bank of Connecticut (1997-1999);
* Ex-Officio on all other committees
John S. Tomac (2)
President and Treasurer of the Company
Aldore J. Rivers (2,3)
Retired; President of the Company from
1985 to October 1998
Stephen P. Ahern (3,4)
Vice President, Unicco Security Services;
Principal, Ahern Builders
Edward G. Brickett (1,4)
Retired; Director of Finance, Town of Southington,
Connecticut until June 1995
James E. Cohen (2,3)
Lawyer in Practice in Derby
Alvaro da Silva (1,3)
President, DSA Corp.;
President, B.I.D., Inc. (land development
& home building company);
Managing Partner, Connecticut Commercial
Investors, LLC., (a commercial real estate
and investment partnership);
Chairman of Shelton Inland Wetlands Commission;
Board of Governors Unquowa School;
Director of Great Country Bank
(1991-1995)
B. Lance Sauerteig (3,4)
Lawyer in Practice in Westport;
Principal in BLS Strategic Capital, Inc.
(financial and investment advisory company);
Previously, President, First Spring Corporation
(1986-1994) (private family investment
management company);
Director, OFFITBANK (a New York based private
investment management bank)
Kenneth E. Schaible (1,3)
Bank Consultant and Real Estate Developer;
Previously, Senior Vice President, Webster Bank (1995-1996);
Officers
Betsy Henley-Cohn
Chairwoman and CEO
John S. Tomac
President and Treasurer
John J. Keefe, Jr.
Vice President, Operations
Anne A. Hobson
Secretary
Diane G. DeBiase
Assistant Treasurer
Auditors
Dworken, Hillman, LaMorte
& Sterczala, P.C.
Bridgeport, Connecticut
General Counsel
Tyler Cooper & Alcorn, LLP
Hartford, Connecticut
Registrar and
Transfer Agent
American Stock Transfer
& Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Stock Market Listing
NASDAQ-AMEX - Under the
symbol BIRM
Committees
(1)Audit Committee meets regularly with the management and independent
accountants to review and discuss the scope and results of the
annual audit of the Company's financial statements.
(2)Executive Committee reviews strategic planning alternatives,
recommends to and advises the Board of Directors on financial
policy, issuance of securities and other high priority issues.
(3)Land Committee makes recommendations regarding the sale and/or
development of land available for sale.
(4)Personnel and Pension Committee makes recommendations to the Board
of Directors regarding officers' compensation including the
promotion and hiring of officers; reviews Company fringe benefit
plans other than retirement plans; reviews the Pension Trust Fund
of the Birmingham Utilities, Inc. Defined Benefit Plan and the
Retired Employee Welfare Benefit Trust for retiree medical benefits;
reviews and determines actuarial policies, investment guidelines
and selects the investment manager.
Birmingham Utilities, Inc.
230 Beaver Street
P.O. Box 426
Ansonia, Connecticut 06401-0426
(203) 735-1888