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 June 30, 1998 Commission File Number 0-6028
BIRMINGHAM UTILITIES, INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0878647
230 Beaver Street, Ansonia, CT 06401
(Address of principal executive office) (Zip Code)
(Former name, former address and former fiscal year, if changes 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 August 1, 1998
Common Stock, No Par Value 768,417
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
[CAPTION]
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Operating Revenue $1,118,132 $1,054,560 $2,125,018 $2,135,811
Operating Expenses:
Operating Expenses 582,332 620,386 1,178,847 1,249,495
Maintenance Expense 34,551 44,943 76,289 91,103
Depreciation 118,499 119,815 237,000 224,815
Taxes Other Than Income
Taxes 62,772 124,420 142,375 255,827
Taxes on Income 72,318 11,211 79,745 26,636
Total Operating Expense 870,472 920,775 1,714,256 1,847,876
Utility Operating Income 247,660 133,785 410,762 287,935
Amortization of Prior Years'
Deferred Income on Land
Dispositions
(Net of income taxes) 38,307 43,792 76,613 87,583
Other Income, net 19,213 18,144 21,464 37,938
Income before interest
expense 305,180 195,721 508,839 413,456
Interest and Amortization of
Debt Discount 140,218 157,558 287,067 307,436
Income from dispositions of
land (net of income taxes) 21,110 62,557 849,396 62,557
Net income $186,072 100,720 1,071,168 168,577
Retained earnings,
beginning $2,586,984 $1,573,361 $1,831,377 $1,619,188
Dividends 130,488 113,860 259,977 227,544
Retained earnings, ending $2,642,568 $1,560,221 $2,642,568 $1,560,221
Earnings per share - basic $.24 $.13 $1.40 $.22
Earnings per share - diluted $.24 $.13 $1.37 $.22
Dividends per share $.17 $.15 $.34 $.30
The accompanying notes are an integral part of these financial statements.
BIRMINGHAM UTILITIES, INC.
BALANCE SHEET
BIRMINGHAM UTILITIES, INC.
BALANCE SHEETS
[CAPTION]
(Unaudited)
June 30, Dec. 31,
1998 1997
ASSETS:
Utility Plant $19,738,338 $19,045,629
Accumulated depreciation (6,097,947) (5,834,113)
Current Assets: 13,640,391 13,211,516
Cash and cash equivalent 52,213 62,699
Accounts receivable, net of
allowance for doubtful accounts 442,340 604,627
Accrued utility revenue 418,242 375,327
Materials & supplies 71,334 56,976
Prepayments 60,715 15,068
Total current assets 1,044,844 1,114,697
Deferred Charges 1,065,061 1,148,510
Unamortized debt expense 168,590 176,057
Income taxes recoverable 446,551 446,551
Other assets 387,882 394,096
2,068,084 2,165,214
$16,753,319 $16,491,427
STOCKHOLDERS' EQUITY AND LIABILITIES
Stockholders' Equity:
Common Stock, no par value,
authorized 2,000,000 shares;
issued and outstanding 6/30/98
-768,417 shares; 12/31/97-761,702 $2,344,542 $2,266,027
Retained earnings 2,642,558 1,831,377
4,987,100 4,097,404
Note Payable 1,112,500 1,150,000
Long-term debt 4,512,000 4,512,000
5,624,500 5,662,000
Current Liabilities:
Note Payable 260,000 1,355,000
Current portion of note payable
and long term debt 169,000 169,000
Accounts payable and accrued
liabilities 919,620 454,659
Total current liabilities 1,348,620 1,978,659
Customers'advances for construction 1,270,119 1,238,339
Contributions in aid of construction 851,155 851,154
Regulatory liability-income taxes
refundable 179,916 179,916
Deferred income taxes 1,680,377 1,695,608
Deferred income on disposition
of land 811,532 788,347
$16,753,319 $16,491,427
The accompanying notes are an integral part of these financial statements.
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
[CAPTION]
Six Months Ended June 30,
Cash Flows From Operating Activities 1998 1997
Net Income $1,071,168 $168,577
Adjustments to reconcile net income to
net cash provided by operating
activities:
Income from land dispositions (849,396) (62,559)
Depreciation and amortization 264,610 249,220
Amortization of deferred income, net of tax (76,613) (87,582)
Increases and decreases in assets
and liabilities:
Accounts receivable and accrued utility
revenue 119,372 (20,849)
Materials and supplies (14,358) (11,617)
Prepayments (45,647) (103,820)
Accounts payable and accrued expenses (103,336) (78,255)
Deferred income taxes (7,350) (14,937)
Total Adjustments (712,718) (130,399)
Net cash flows provided by (used in)
operating activities 358,450 38,178
Cash flows from investing activities:
Proceeds from land dispositions 1,896,000 175,000
Net construction expenditures (761,569) (542,311)
Other assets and deferred charges, net (115,933) (124,431)
Net Cash flows from (used in)
investing activities 1,018,498 (491,742)
Cash flows from financing activities:
Increase (decrease) in current note
payable (1,132,500) 185,000
Increase (decrease) in long-term debt -- 512,500
Dividends paid - net (233,962) (205,004)
Net Cash flows provided by
financing activities: (1,366,462) 492,496
Net (decrease) increase in cash & cash
equivalents (10,486) 38,932
Cash & cash equivalents, beginning 62,699 185,479
Cash, ending $52,213 $224,411
Supplemental disclosure of cash flow information:
Cash paid for
Interest $279,600 $298,820
Income Taxes $382,600 $74,500
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 $793,349 $542,311
Customers' advances for construction 31,780 0
Capital expenditures, net. $761,569 $542,311
The accompanying notes are an integral part of these financial statements.
BIRMINGHAM UTILITIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Birmingham Utilities, Inc. is a specially chartered public service
corporation in the business of collecting and distributing water for
domestic, commercial and industrial uses and fire protection. The Company
provides water to Ansonia and Derby, Connecticut and in small parts of the
contiguous Town of Seymour with a population of approximately 31,000 people.
The Company is subject to the jurisdiction of the Connecticut Department
of Public Utility Control("DPUC") as to accounting, financing, ratemaking,
disposal of property, the issuance oflong term securities and other matters
affecting its operations. The Connecticut Department of Public Health (The
"Health Department" or "DPH") has regulatory powers over the Company under
state law with respect to water quality, sources of supply, and the use of
watershed land. The Connecticut Department of Environmental Protection
"DEP") is authorized to regulate the Company's operations with regard
to water pollution abatement, diversion of water from streams and rivers,
safety of dams and the location, construction and alteration of certain
water facilities. The Company's activities are also subject to regulation
with regard to environmental and other operational matters by federal, state
and local authorities, including, without limitation, zoning authorities.
The Company is 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 Health Department the primary
enforcement responsibility in Connecticut under the SDWA. The Health
Department has established regulations containing maximum limits on
contaminants which have or may have an adverse effect on health.
NOTE 1 - QUARTERLY FINANCIAL DATA
The accompanying financial statements of Birmingham Utilities, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles, without audit, except for the Balance Sheet for the
period ending December 31, 1997, which has been audited. The interim
financial information conforms to the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X and, as applied in the case of rate-regulated
public utilities, complies with the Uniform System of Accounts and ratemaking
practices prescribed by the authorities. Certain information and footnote
disclosures required by generally accepted accounting principles have been
omitted, pursuant to such rules and regulations; although the Company
believes that the disclosures are adequate to make the information presented
not misleading. For further information, refer to the financial statements
and accompanying footnotes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
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 six months ended June 30, 1998 and June 30, 1997, would not
necessarily accurately forecast the annual results of each year.
NOTE 2 - CALCULATION OF WEIGHTED AVERAGE SHARES
OUTSTANDING-DILUTED
The following table summarizes the number of common shares used in
the calculation of earnings per share.
[CAPTION]
Three Months Ending Six Months Ending
6/30/98 6/30/97 6/30/98 6/30/97
Weighted average shares
outstanding for earnings
per share, basic 765,454 759,069 763,586 759,069
Incremental shares from
assumed conversion of
stock options 21,902 -- 17,389 --
Weighted average shares
outstanding for earnings
per share, diluted 787,356 759,069 780,975 759,069
NOTE 3 - RATE MATTERS
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.
NOTE 4 - LAND SALES
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. Once the property is purchased by TPL, it is
expected that TPL, in turn, will re-sell that property to the Town of Oxford
for the same price. The voters of the Town of Oxford approved this purchase
through a referendum on May 27, 1998.
The Company has filed with the DPUC an application to approve the TPL
sales agreement. The DPUC has issued a Draft Decision approving the sale.
A final decision regarding this sale is scheduled to be issued during the
third quarter of 1998. The Company has no reason to believe that the DPUC
will not approve the agreement.
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 voters
of the Town of Seymour approved this purchase through a referendum that
was held on November 20, 1997.
The Company has filed with the DPUC an application to approve the Seymour
sales agreement. The DPUC has issued a Draft Decision approving the sale.
A final decision regarding this sale is scheduled to be issued during the
third quarter of 1998. The Company has no reason to believe that the DPUC
will not approve the agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of the Results of Operations and
Financial Condition contained in the Company's Annual Report in Form 10K
for the year ended December 31, 1997, should be read in conjunction with
the comments below.
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 six months ended
June 30, 1998 and 1997, the Company's additions to utility plant, net
of customer advances, cost $761,569 and $542,311, 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 subordinate to the lien of the Mortgage Indenture. The Company also
has a secured, term loan with a principal amount outstanding on December 31,
1997 and June 30, 1998 of $1,225,000 and $1,187,500, respectively. The
term loan carries an annual 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. The secured revolving credit agreements are
subject to renewal and approval by the DPUC. The secured line of credit is
used to provide funds to continue the Company's construction program.
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. As of June 30, 1998, the Company can draw down the entire
amount of the revolving line of credit without exceeding the 67% debt
capitalization limitation. There was a balance outstanding of $260,000 on
June 30, 1998 and $1,355,000 on December 31, 1997 on the revolving line of
credit.
The Company also maintains a $600,000 unsecured working capital line of
credit. There were no borrowings concerning the working capital line of credit
on June 30, 1998 and December 31, 1997.
By letter dated July 21, 1998, Fleet Bank issued its commitment to the
Company to restructure and refinance the Company's $1,500,000 secured,
construction line of credit and its $600,000 working capital line into a
single $2,100,000 two-year, secured line of credit, which may, at the
Company's option at the end of the two-year period, be converted to a
six-year term loan with a 20-year amortization schedule. During the
revolving period, the Company may choose between variable rate options
of 30 or 90 day LIBOR plus 100 basis points or Prime plus 0%. The Company
will be required to pay interest only during the revolving period. During
the term period, the Company may choose among interest options including a
fixed rate at 100 basis points over the bank's six-year cost of funds or a
90-day rate at 100 basis points over the 90-day LIBOR rate.
The Company has agreed to the terms contained in Fleet's commitment, subject
to approval of the transaction by the DPUC. The Company has no reason to
believe that the DPUC will not approve the financing arrangement.
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 June 30, 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 times as stipulated by the DPUC.
See Note 4 to the financial statements with respect to pending land sales.
Results of Operations for the Six Months and
Three Months Ended June 30, 1998 and 1997.
Net Income
Net Income for the six months ended June 30, 1998 was $1,071,168 compared
with $168,577 for the same 1997 period. The sale of property in January of
1998 in Derby Connecticut, to the City of Derby, contributed $828,286 to
Operating Income. Net Income for the three months ended June 30,1998 of
$186,072 is $85,352 higher than the comparable three month period in 1997.
Higher revenues, lower operating and maintenance expenses as well as lower
interest costs account for the increase in net income.
Operating Revenues
Operating Revenues for the first six months of 1998 of $2,125,018
approximate operating revenues of $2,135,811 for the first six months of
1997. Lower water consumption principally in the first quarter of 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) slightly more than offsets an overall four percent
rate increase that became effective February 1, 1998. Operating Revenues
for the three month period ending June 30, 1998 are $63,572 higher than
the comparable 1997 quarter. Increased consumption and the four percent
rate increase effective February 1, 1998, more than offsets the five
percent rate reduction that took place on July 1, 1997.
Operating and Maintenance Expenses
Operating and Maintenance Expenses for the first six months of 1998 and three
months ended June 30, 1998 are $85,462 and $48,446, respectively, below the
comparable 1997 periods. Lower purchased water costs, uncollectible fees,
casualty insurance and professional fees principally account for this
variance during the six month and three month periods in 1998.
Depreciation Expense
Depreciation expense for the six months ended June 30, 1998 is $12,185
higher than the comparable 1997 period. Depreciation expense relating to
general plant additions in 1998 account for this variance. Depreciation
expense for the three month period ended June 30, 1998 is $1,316 lower
than the comparable 1997 period due to a retroactive adjustment made during
the second quarter of 1997 to account for an increasing amount of plant
additions made in 1997.
Taxes Other Than Income Taxes
Taxes Other Than Income Taxes for the six and three month periods ended
June 30, 1998 is $113,452 and $61,648 respectively lower than the
comparable 1997 periods. The repeal of the Connecticut Gross Receipts
Tax on July 1, 1997 and lower property taxes due to the sale of property
in Derby, Connecticut account for this variance. Revenues were also
reduced on July 1, 1997 to reflect the reduced tax expense resulting from
the Gross Receipts Tax repeal.
Other Income
Other Income for the first six months of 1998 is $16,474 below the comparable
1997 period. Decreased income from the Company's managed water system is
somewhat offset by increased timber sales. Other income for the three months
ended June 30, 1998 is $1,069 greater than the comparable 1997 period.
Increased timber sales during the second quarter of 1998 account 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 $849,396 for the six months ended June 30, 1998. Of
that amount, $828,286 represents the sale of 145 acres of land to the
City of Derby, CT on January 21, 1998. The remainder, $21,110, represents
the sale of 2.9 acres in Woodbridge, Connecticut which took place in May of
1998. The amounts represent the stockholders'immediate share of income
from the land sales. The net gain on both sales totals $941,312,including
the deferred portion. The DPUC's October 22, 1997 Decision approving the
Derby sale provided for a 3-year amortization period, as 75% of this parcel
has been dedicated as open space. The DPUC's May 15, 1996 Decision
regarding the Woodbridge sale, provided a 10-year amortization period as
this parcel was sold for a single family residence.
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
$76,613 and $87,583 for the six months ended June 30, 1998 and 1997 and
$38,307 and $43,792, respectively, for the three month periods ending
June 30, 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.
In June of 1997, the Company sold 3.6 acres of property to the Connecticut
Department of Transportation realizing a net gain of $62,559.
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the first half of 1998, the only matters submitted to a vote
of the holders of the Company's common stock, its only class of voting
stock, were submitted at the Company's Annual Meeting of Shareholders
held on May 13, 1998, as follows:
(a) Election of Directors - All nominees for Director were elected, as
follows:
[CAPTION]
Votes Votes
Director For Pct Against
S.P. Ahern 682,824 89.5 1,547
E.G. Brickett 684,371 89.7 -0-
J.E. Cohen 684,239 89.7 132
B. Henley-Cohn 682,639 89.6 1,732
A. da Silva 684,239 89.7 132
A.J. Rivers 684,371 89.7 -0-
B.L. Sauerteig 684,371 89.7 -0-
K.E. Schaible 682,639 89.5 1,732
D. Silverstone 683,318 89.6 1,052
(b) Approval of Auditors - Shareholders approved the appointment of
Dworken, Hillman, LaMorte & Sterczala, P.C. as auditors for the Company
to make the annual audit for the 1998 fiscal year. There were 680,961
shares voted in favor, representing 90% of all shares voting. There were
2,150 voting against and 1,260 abstentions and broker non-votes.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Financial Data Schedule filed herewith.
(b) The Company did not file a report on Form 8-K for the three
months ended June 30, 1998.
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: August 10, 1998 /s/ Aldore J. Rivers
Aldore J. Rivers, President
Date: August 10, 1998 /s/ John S. Tomac
John S. Tomac, Vice President
& Treasurer