FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NUMBER 0-6028
BIRMINGHAM UTILITIES, INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT06-0878647
230 BEAVER STREET, ANSONIA, CT 06401
(Address of principal executive office)(Zip Code)
None
(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.
NO ________ YES X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 1, 1998
COMMON STOCK, NO PAR VALUE 763,075
I. Financial Statements
[CAPTION]
BIRMINGHAM UTILITIES, INC.
BALANCE SHEETS
(Unaudited)
March 31, Dec. 31,
1998 1997
ASSETS:
Utility Plant $19,133,912 $19,045,629
Accumulated depreciation (5,977,859) (5,834,113)
Current Assets: 13,156,053 13,211,516
Cash and cash equivalent 241,740 62,699
Accounts receivable, net of
allowance for doubtful accounts 482,079 604,627
Accrued utility revenue 360,057 375,327
Materials & supplies 60,319 56,976
Prepayments 69,858 15,068
Total current assets 1,214,053 1,114,697
Deferred Charges 1,049,093 1,148,510
Unamortized debt expense 175,100 176,057
Income taxes recoverable 446,551 446,551
Other assets 394,015 394,096
2,064,759 2,165,214
$16,434,865 $16,491,427
STOCKHOLDERS' EQUITY AND LIABILITIES
Stockholders' Equity:
Common Stock, no par value, authorized
2,000,000 shares; issued and outstanding
3/31/98-762,575 shares;
12/31/97- 761,702 $2,278,901 $2,266,027
Retained earnings 2,586,984 1,831,377
4,865,885 4,097,404
Note Payable 1,131,250 1,150,000
Long-term debt 4,512,000 4,512,000
5,643,250 5,662,000
Current Liabilities:
Note Payable - 1,355,000
Current portion of note
payable and long term debt 169,000 169,000
Accounts payable and accrued
liabilities 931,550 454,659
Total current liabilities 1,100,550 1,978,659
Customers' advances for
construction 1,270,116 1,238,339
Contributions in aid of
construction 851,155 851,154
Regulatory liability-income taxes
refundable 179,916 179,916
Deferred income taxes 1,663,681 1,695,608
Deferred income on disposition of
land 860,312 788,347
$16,434,865 $16,491,427
The accompanying notes are an integral part of these financial statements.
[CAPTION]
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended March 31,
1998 1997
Operating Revenue $1,006,886 $1,081,251
Operating Expenses:
Operating Expenses 596,515 629,109
Maintenance Expenses 41,738 46,160
Depreciation 118,501 105,000
Taxes Other Than Income Taxes79,603 131,407
Taxes on Income 7,427 15,425
Total Operating Expense 843,784 927,101
Utility Operating Income 163,102 154,150
Amortization of Prior Years'
Deferred Income on Land Dispositions
(Net of income taxes of $27,044
in 1998 and $31,179 in 1997) 38,306 43,791
Other Income, net 2,251 19,794
Income before interest expense203,659 217,735
Interest and Amortization of Debt
Discount 146,849 149,878
Income from dispositions of land
(net of income taxes of
$558,456 in 1998) 828,286 -
Net income $885,096 $67,857
Retained earnings, beginning$1,831,377 $1,619,188
Dividends 129,489 113,684
Retained earnings, ending $2,586,984 $1,573,361
Earnings per share - basic $1.16 $.09
Earnings per share - diluted $1.14 $.09
Dividends per share $.17 $.15
The accompanying notes are an integral part of these financial statements.
[CAPTION]
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
1998 1997
Cash Flows From Operating Activities
Net Income $885,096 $67,857
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from land dispositions (828,286) --
Depreciation and amortization 134,985 109,913
Amortization of deferred income,
net of tax (38,306) (43,791)
Increases and decreases in assets
and liabilities:
Accounts receivable and accrued
utility revenue 137,818 94,823
Materials and supplies (3,343) (950)
Prepayments (54,790) (78,250)
Accounts payable and accrued expenses (135,213) (295,255)
Deferred income taxes (3,675) 15,382
Total Adjustments (790,810) (198,128)
Net cash flows provided by (used in)
operating activities 94,286 (130,271)
Cash flows from investing activities:
Proceeds from land dispositions 1,800,000 --
Net construction expenditures (153,721) (131,600)
Other assets and deferred charges, net (71,159) (41,323)
Net Cash flows from (used in)
investing activities 1,575,120 (172,923)
Cash flows from financing activities:
Increase (decrease) in current
note payable (1,373,750) 75,000
Increase (decrease) in long-
term debt -- 216,250
Dividends paid - net (116,615) (102,512)
Net Cash flows provided by
financing activities: (1,490,365) 188,738
Net (decrease) increase in cash
& cash equivalents 179,041 (114,456)
Cash & cash equivalents, beginning 62,699 185,479
Cash, ending $241,740 $71,013
Supplemental disclosure of cash flow information:
Cash paid for
Interest $254,113 $259,473
Income Taxes $12,600 $23,900
Supplemental disclosure of non-cash flow information:
The Company receives contributions of
plant from builders and developers. These
contributions of plant are reported in
utility plant and in customers'
advances for construction. The
contributions are deducted from
construction expenditures by the
Company.
Gross Plant, additions $185,498 $131,600
Customers' advances for construction 31,777 0
Capital expenditures, net. $153,721 $131,600
The accompanying notes are an integral part of these financial statements.
BIRMINGHAM UTILITIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - UNAUDITED STATEMENTS
The statements as of and for the three months ended March 31, 1998 are prepared
without audit, however, in the opinion of management, all material adjustments
for a fair statement of results have been made. The balance sheet as of
December 31, 1997 has been audited.
NOTE B - SEASONALITY OF REVENUE
The Company's business of selling water is to a certain extent seasonal because
water consumption normally increases during the warmer summer months. Other
factors affecting the comparability of various accounting periods include the
timing of rate increases and the timing and magnitude of property sales.
Accordingly, annualization of the results of operations for the three months
ended March 31, 1998 and March 31, 1997, would not necessarily accurately
forecast the annual results of each year.
NOTE C - ACCOUNTS RECEIVABLES, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts Receivable, net, declined $122,548 in the first quarter of 1998, due in
large part to the institution of a read and bill program and to a continued
improvement in the Company's overall collection program.
NOTE D - ACCRUED UTILITY REVENUE
Accrued Utility Revenue at March 31, 1998 and December 31, 1997 includes $13,092
in unreimbursed costs incurred by the Company to date on a Main replacement
project required by the State of Connecticut. The Company's costs are
reimbursable to the Company by the State of Connecticut.
NOTE E - PREPAYMENTS
[CAPTION]
Prepayments consist of:
March 31, December 31,
1998 1997
Insurance $28,714 $6,153
Legal & accounting fees 28,249 0
Other prepaid expenses 12,895 21,221
$69,858 $15,068
The fluctuation in total prepayments as of the end of the year 1997, and the
quarter ended March 31, 1998 is due primarily to prepaid insurance costs and
legal and accounting fees. Insurance premiums payable are recognized during the
first quarter, since January 1 is the beginning of the policy period, and
amortized throughout the year.
The fluctuation in "Legal and Accounting Fees" reflects certain large expenses
which regularly occur in the first quarter and are amortized over the remaining
part of the year to better match costs to the annual time period benefited.
NOTE F - LONG TERM DEBT
March 31, December 31,
1998 1997
First mortgage bonds,
Series E 9.64% due
September 2011 $4,512,000 $4,512,000
Note Payable 1,131,250 1,150,000
$5,643,250 $5,662,000
FIRST MORTGAGE BONDS
Pursuant to its Amended and Restated Mortgage Indenture, the Company has
outstanding a series of first mortgage bonds in the amount of $4,512,000 due on
September 1, 2011. The terms of the Indenture provide for, among other things,
annual sinking fund payments and limitations on (a) payment of cash dividends
and (b) incurrence of additional bonded indebtedness. Pursuant to this
agreement, approximately $1,579,000 was available to pay dividends at March 31,
1998, after the quarterly dividend payment made on that date. Interest is
payable semi-annually on the first day of March and September. The Company
began to pay current maturities of long-term debt of $94,000 on September 1,
1997 and is required to pay $94,000 each September 1, thereafter, until the
bonds are paid in full. The Indenture is secured by a lien on all of the
Company's utility property other than excess land available for sale.
NOTE PAYABLE
The Company has a $1,500,000 secured term loan, (of which $1,131,250 was still
outstanding on March 31, 1998), a $1,500,000 secured revolving line of credit
to fund additional capital improvements, and a one-year, unsecured line of
credit of $600,000 to be used for working capital purposes. The term loan
matures on May 1, 2004 and requires annual principal repayment of $75,000.
The revolving line of credit period expires on August 1, 1998, at which time
the outstanding balance may be converted to a term loan with the same maturity
and payment terms as the original term loan. Both the term loan and the
revolving line of credit are secured by a lien (subordinate to the lien of the
Mortgage Bond Indenture - First Mortgage Bonds, above) on all of the Company's
utility property other than its excess land available for sale.
The term loan portion of the facility has both fixed and variable interest rate
options. The applicable interest rate at March 31, 1998 and through July 2000
is 8.18%. Interest is payable monthly. The revolving line of credit also has
various interest rate options, including a variable rate at .125% above the
prime rate and LIBOR rate options, fixed for various short term periods
including 30, 60 or 90 days, at 1.75% over the applicable LIBOR rate. Interest
is payable monthly. There were no outstanding borrowings on the revolving line
of credit at March 31, 1998 and $1,355,000 was outstanding at December 31,
1997.
The unsecured, working capital line of credit currently expires on August 1,
1998. The unsecured line of credit also provides for various interest rate
options, including a variable rate at 0.125% above the prime rate, a variable
rate at 1.75% above the bank's cost of funds (as provided by the bank), and the
LIBOR options also available under the revolving line of credit. There were no
outstanding borrowings on the unsecured line of credit at March 31, 1998 and
December 31, 1997.
All three facilities provide that a default under any of them or under the
Mortgage Bond Indenture is considered a default under the others. They also
provide that the net proceeds from the sale of any of the Company's excess land
must be used to reduce the balance of the two year line of credit first and then
the term loan.
NOTE G - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
March 31, December 31,
1998 1997
Accounts Payable $150,181 $139,782
Accrued Expenses:
Taxes 538,884 (30,541)
Interest 37,002 148,005
Pension 152,402 160,597
Other 53,081 36,816
$931,550 $454,659
The fluctuation in "Accrued Interest" reflects primarily the semi-annual
interest payment requirement on the Company's bonds. See Note F - Long Term
Debt, First Mortgage Bonds. The fluctuation in taxes primarily reflects the
increased liability for federal income taxes as a result of the January 1998
land sale.
NOTE H - DEFERRED GAINS ON LAND DISPOSITIONS
The Connecticut Department of Public Utility Control ("DPUC") has provided for
a rate making accounting procedure for income from land dispositions which has
the effect of sharing the economic benefits of such dispositions between
ratepayers and shareholders over a period of time. Accordingly, the Company
includes in its income in years in which it has a land disposition, only a
portion of the income that is realized from such disposition. The balance of
the income is deferred and amortized to the Company's rate base and equity for
rate making purposes, and to income for financial reporting purposes, over the
period of time during which the rate making procedure is in effect. For the
three months ended March 31, 1998 and 1997, $38,306 and $43,791 (net of income
taxes) respectively, of such deferred land disposition gains was included in
income.
NOTE I - EARNINGS PER SHARE
The following table summarizes the number of common shares used in the
calculation of earnings per share.
March 31,
1998 1997
Weighted average shares outstanding
for earnings per share, basic 761,702 757,892
Incremental shares from assumed
conversion of stock options 14,605 -
Weighted average shares outstanding
for earnings per share, diluted 776,307 757,892
NOTE J - EQUITY
Stock Option Plans
The Company has adopted two stock option plans, a non-employee director option
plan and a key employee stock option plan. Options with respect to 75,000
shares of common stock were authorized under the two plans in the aggregate.
The plans 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. As of March 31, 1998, options for 62,250 shares are outstanding to
directors and employees of the Company under both plans.
Dividend Reinvestment Plan
The Company also maintains a dividend reinvestment plan which provides for the
issuance and sale of up to 70,000 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 available under the plan may be
purchased at their fair market value price on the date of the dividends to be
invested in the new shares.
The following table summarizes the activity in common shares related to the
dividend reinvestment plan:
March 31, December 31,
1998 1997
Number of Shares issued 873 3,810
Value of shares when issued $12,873 $45,581
NOTE K - RATE MATTERS
On July 18, 1997, the Company filed a rate application with the DPUC for a 14.2%
water service rate increase designed to provide a $601,382 increase in annual
water service revenues and a return on common equity of 12.95%. The Company
subsequently revised its request to $439,426, or an increase in annual revenues
of 10.4%. On January 21, 1998, the DPUC granted the Company a 4.1% water
service rate increase designed to provide a $177,260 annual increase in water
service revenues and a 12.16% return on common equity. New rates became
effective on February 1, 1998.
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Income
Net income for the three months ended March 31, 1998 was $885,096 compared with
$67,857 for the same 1997 period. Operating results during the first three
months of 1998 are higher due to the sale of property in January of 1998, in
Derby, Connecticut, to the City of Derby which contributed $828,286 to operating
income.
Operating Revenues
Operating revenues for the first three months of 1998 have decreased $74,365
from the comparable 1997 period. Lower consumption in 1998, coupled with a
five percent rate reduction that became effective July 1, 1997 (due to the
repeal of the Connecticut Gross Receipts tax effective on that date) more than
offset an overall four percent rate increase that became effective February 1,
1998.
Operating and Maintenance Expenses
Operating and maintenance expenses for the first three months of 1998 are
$37,016 lower than the comparable 1997 quarter. Lower purchased water costs,
uncollectible fees, casualty insurance and professional fees principally account
for this variance.
Depreciation Expense
Depreciation expense for the three months ended March 31, 1998 of $118,501 is
$13,501 higher than the comparable 1997 quarter. Depreciation expense relating
to an increasing amount of general plant additions in 1997 and 1998 vs. prior
years, accounts for this variance.
Taxes other than Income Taxes
Taxes other than income taxes for the quarter ended March 31, 1998 are $51,804
lower than the comparable 1997 quarter. The repeal of the Connecticut Gross
Receipts tax on July 1, 1997 accounts for this reduction. Revenues were also
reduced on July 1, 1997 to reflect the reduced tax expense resulting from the
repeal.
Other Income
Other Income for the first three months of 1998 is $17,543 below the amount
earned for the comparable 1997 period. Decreased income from the Company's
managed water system accounts for this variance.
Land Dispositions
When the Company disposes of land, any gain recognized, net of tax, is shared
between rate payers and stockholders 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 $828,286 for the three months ended March 31, 1998. This entry
represents the sale of 145 acres of land to the City of Derby, CT on January 21,
1998. The amount represents the stockholders' immediate share of income from
this land sale. The net gain on this sale totals $910,306 including the
deferred portion. The DPUC's October 22, 1997 Decision approving this sale
provided for a 3-year amortization, as 75% of this parcel has been dedicated
as open space. There were no land sales during the first quarter of 1997.
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 $38,306
and $43,791 for the three months ended March 31, 1998 and 1997.
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.
CAPITAL RESOURCES AND LIQUIDITY
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. For the three months ended March 31, 1998 and 1997,
the Company's additions to utility plant, net of customer advances, cost
$153,721 and $131,600, respectively. (see Statement of Cash Flows). These
additions were financed primarily from external sources, including proceeds
from land sales and increases in debt.
The Company has outstanding $4,606,000 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 has a secured, term loan with
a principal amount outstanding on December 31, 1997 of $1,225,000 at an interest
rate of 8.18%. Principal and interest payments are made monthly and must be
paid in full in 2004.
The Company also maintains an additional, secured, line of credit in the
principal amount of $1,500,000 maturing on August 1, 1998. The secured line of
credit is used to provide funds to continue the Company's construction program;
at the Company's option it may be converted to a term loan on August 1, 1998,
with the term loan maturing in 2004. In April 1996, when the revolving loan
financing arrangement was approved by the DPUC, the DPUC prohibited the Company
from drawing down funds under the revolving line of credit, if at the time of or
as a result of the draw down, the amount of the Company's long-term debt
(including amounts outstanding under the revolving line of credit) would
exceed 67% of the Company's total capitalization. The effect of the
limitation, as of March 31, 1998, is to limit the Company to
advances outstanding under the line of credit in the aggregate amount of
approximately $1,500,000 for use on budgeted projects until such time as the
Company obtains additional equity capital. There were no outstanding
borrowings under the revolving line of credit at March 31, 1998.
The Company's 1998 Capital Budget of $1,300,000 is two-tiered. The first tier
consists of typical capital improvements made each year for services, hydrants
and meters budgeted for $250,000 in 1998 and is expected to be financed
primarily with internally generated funds.
The second tier of the 1998 Capital Budget consists of replacements and
betterments which are part of the Company's Long Term Capital Improvement
Program and includes $1,050,000 of budgeted plant additions. Plant additions
from this part of the 1998 budget 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 in 1998.
As of March 31, 1998, the Company has approximately 1,105 acres of excess land
available for sale, consisting of land currently classified as Class III, non-
watershed land under the statutory classification system for water company
lands. The Company believes that by selling these excess lands it can generate
sufficient equity capital to support its 10 year capital budget, currently
estimated at $10,715,000. 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 March 18, 1997, the Company entered into a Purchase and Sale Agreement with
M/1 Homes, LLC ("M/1 Homes"), pursuant to which the Company agreed to sell and
M/1 Homes agreed to purchase approximately 245 acres of the Company's
unimproved real property in Seymour, Connecticut for $3,950,000. The agreement
calls for at least 50% of the property to be dedicated for open space. The
purchase and sale was approved by the DPUC on September 17, 1997, stipulating
a four-year amortization period for the net gain, based on that 50% open space
dedication. The agreement may be terminated by either party if M/1 Homes has
not received all the required development approvals by December 31, 1998. There
is a provision in the agreement to extend its term through December 31, 2000
to accommodate appeals of required governmental approvals, in which
case the purchase price for the property will increase by $20,000 for each
month, or portion thereof, after December 31, 1999 until the closing shall
occur. The Company cannot predict whether M/1 Homes will be able to obtain
all of the required approvals.
On February 18, 1998, the Company executed a purchase and sale agreement with
The Trust for Public Land, Inc. ("TPL") for the purchase by TPL of 515 acres of
unimproved real property primarily in the Town of Oxford, Connecticut, and small
adjoining parcels in Seymour, Connecticut, for $3,220,000. TPL is a non-profit,
public benefit corporation with offices in New Haven, Connecticut. TPL is not
required to purchase the property unless voters of the Town of Oxford approve
the Town to acquire such property from TPL. The agreement is also subject to
approval by the DPUC. The closing is scheduled to be completed within 45 days
after the completion of the above events, but in no event, shall any closing
occur after December 31, 1998. The Company has no reason to believe that the
DPUC will not approve the agreement. The Company cannot predict whether or not
the voters of the Town of Oxford will vote to acquire the property or if TPL
will proceed in the event that the voters fail to approve the acquisition.
On March 3, 1998, the Company executed a purchase and sale agreement with the
Town of Seymour (the "Town") for the purchase by the Town of 229 acres of
unimproved real property in the Town for $1,800,000. The sales agreement must
be approved by the DPUC and the Company has no reason to believe that the DPUC
will not approve the agreement.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities. Not applicable.
Item 3. Default Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIRMINGHAM UTILITIES, INC.
Registrant
Date: 5/12/98 /s/ Aldore J. Rivers
Aldore J. Rivers, President
Date: 5/12/98 /s/ John S. Tomac
John S. Tomac, V.P.& Treasurer