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 September 30, 1999 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 November 1, 1999
Common Stock, No Par Value 1,582,509
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
UNAUDITED
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
[S] [C] [C] [C] [C]
Operating Revenue $1,294,363 $1,191,795 $3,535,441 $3,316,813
Operating Expenses:
Operating Expenses 638,733 634,963 1,823,542 1,813,810
Maintenance Expense 36,733 50,553 134,899 126,842
Depreciation 134,001 118,500 402,003 355,500
Taxes Other Than
Income Taxes 82,001 72,811 242,837 215,186
Taxes on Income 121,730 55,314 224,457 135,059
Total Operating
Expense 1,012,888 932,141 2,827,738 2,646,397
Utility Operating
Income 281,475 259,654 707,703 670,416
Amortization of
Prior Years'
Deferred Income
on Land Dispositions
(Net of income taxes) 85,740 38,306 257,220 114,919
Other Income, net 1,221 <1,843> 42,270 19,621
Income before
interest expense 368,436 296,117 1,007,193 804,956
Interest and
Amortization of
Debt Discount 112,045 148,471 337,648 435,538
Income from
dispositions of land
(net of income taxes) 7,057 -0- 9,152 849,396
Net income $263,448 $147,646 $678,697 $1,218,814
Retained earnings,
beginning $5,323,600 $2,642,568 $5,219,875 $1,831,377
Dividends 158,195 130,631 469,719 390,608
Retained earnings,
ending $5,428,853 $2,659,583 $5,428,853 $2,659,583
Earnings per share
- - basic $.17 $.10 $.43 $.80
Earnings per share
- - diluted $.16 $.10 $.41 $.78
Dividends per share $.10 $.085 $.30 $.255
The accompanying notes are an integral part of these financial
statements.
BIRMINGHAM UTILITIES, INC.
BALANCE SHEETS
(Unaudited)
September 30, Dec. 31,
1999 1998
ASSETS:
[S] [C] [C]
Utility Plant $21,491,874 $20,622,907
Accumulated depreciation 6,498,485 (6,189,596)
Net Utility Plant 14,993,389 14,433,311
Current Assets:
Cash and cash equivalent 163,084 2,696,706
Accounts receivable, net of
allowance for doubtful accounts 456,645 493,165
Accrued utility revenue 466,777 361,448
Materials & supplies 138,844 62,046
Prepayments 44,968 42,643
Total current assets 1,270,318 3,656,008
Deferred Charges 570,508 377,182
Unamortized debt expense 158,296 170,481
Income taxes recoverable 414,080 414,078
Other assets 463,093 467,826
1,605,977 1,429,567
$17,869,684 $19,518,886
STOCKHOLDERS' EQUITY AND LIABILITIES
Stockholders' Equity:
Common Stock, no par value,
authorized 2,000,000 shares;
issued and outstanding 9/30/99-
1,581,951 shares;12/31/98- 1,550,316 $2,628,899 $2,427,752
Retained earnings 5,428,853 5,219,875
8,057,752 7,647,627
Long-term debt 4,324,000 4,418,000
Current Liabilities:
Current portion of note payable
and long term debt 94,000 94,000
Accounts payable and accrued
liabilities 692,017 2,456,271
Total current liabilities 786,017 2,550,271
Customers' advances for construction 1,328,265 1,261,090
Contributions in aid of construction 1,043,716 1,043,719
Regulatory liability-income taxes
refundable 172,356 172,356
Deferred income taxes 1,524,991 1,391,476
Deferred income on disposition of land 632,587 1,034,347
4,701,915 4,902,988
$17,869,684 $19,518,886
The accompanying notes are an integral part of these financial
statements.
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
[S] [C] [C]
Nine Months Ended September 30,
Cash Flows From Operating Activities 1999 1998
Net Income $678,697 $1,218,814
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from land dispositions (9,152) (849,396)
Depreciation and amortization 443,640 405,099
Amortization of deferred income,
net of tax (257,220) (114,919)
Increases and decreases in assets
and liabilities:
Accounts receivable and accrued
utility revenue (68,809) 71,996
Materials and supplies (76,798) (33,113)
Prepayments (2,325) (48,135)
Accounts payable and accrued expenses (1,764,264) (291,851)
Deferred income taxes (11,025) (11,025)
Total Adjustments (1,745,953) (871,344)
Net cash flows provided by (used in)
operating activities (1,067,256) 347,470
Cash flows from investing activities:
Proceeds from land dispositions 18,000 1,896,000
Net construction expenditures (913,341) (1,303,021)
Other assets and deferred charges, net (61,770) (146,446)
Net Cash flows from (used in)
investing activities (957,111) 446,533
Cash flows from financing activities:
Increase (decrease) in note payable -0- (311,250)
Increase (decrease) in long-term debt (94,000) (94,000)
Dividends paid - net (414,535) (351,398)
Net Cash flows provided by
financing activities: (508,535) (756,648)
Net (decrease) increase in cash
& cash equivalents (2,532,902) (37,355)
Cash & cash equivalents, beginning 2,696,706 62,699
Cash, ending $163,804 $100,054
Supplemental disclosure of cash flow information:
Cash paid for
Interest $434,957 $535,417
Income Taxes 1,822,000 $428,600
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 $983,532 1,350,601
Customers' advances for
construction (70,191) (47,580)
Capital expenditures, net. $913,341 $1,303,021
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 of long 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, 1998, 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 DPUC. 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, 1998.
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 nine months ended September 30, 1999 and
September 30, 1998, 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.
Three Months Ended Nine Months Ended
9/30/99 9/30/98 9/30/99 9/30/98
[S] [C] [C] [C] [C]
Weighted average shares
outstanding for earnings
per share, basic 1,577,245 1,536,834 1,562,740 1,530,432
Incremental shares from
assumed conversion of
stock options 78,001 47,730 73,801 40,314
Weighted average shares
outstanding for earnings
per share, diluted 1,655,246 1,584,564 1,636,541 1,570,746
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 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 Company is unable to predict at this time
whether or not such financing will be available. The purchase price of
the parcels is $6,050,000 and $200,000, respectively. TPL is a
non-profit California public benefit corporation with offices in New
Haven, Connecticut. The agreements are subject to approval by the
Connecticut Department of Public Utility Control, ("DPUC"), and
applications for approval of these transactions were filed with the DPUC
on November 2, 1999. The closings are scheduled to be completed within
45 days after the completion of DPUC approval, but in no event shall
any of the closings occur after December 31, 2000 unless DPUC final
approval has not been obtained at least 45 days prior to said date, in
which event, Buyer shall designate a closing date within 45 days of
final approval. The Company sees no reason why the DPUC would not
approve these applications.
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.
NOTE 5 - 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, which had been approved by the Board of Directors in
December, 1998 was approved by the DPUC on February 26, 1999. The stock
split became effective on March 31, 1999 with respect to shares held of
record on March 18, 1999. All per share financial information contained
in this Quarterly Report on Form 10-Q has been adjusted to reflect the
impact of the common stock split.
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, 1998, 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 nine months
ended September 30, 1999 and 1998, the Company's additions to utility
plant, net of customer advances, cost $913,341 and $1,303,121,
respectively. (see Statement of Cash Flows). These additions were
financed primarily from external sources, namely proceeds from land
sales.
The Company has outstanding $4,324,000 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 had a $1,500,000 secured,
term loan which was repaid in full on November 23, 1998. Principal and
interest payments were made monthly up to the time of repayment.
In 1998, the Company converted its $600,000 working capital line
of credit and its $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 principal payments based on a 20-year amortization schedule,
with 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) on all of the Company's utility property other
than its excess land available for sale. There were no borrowings
outstanding on the revolving line of credit on June 30, 1999.
The Company may choose among several interest rate options on the
revolving line of credit variable option of 30- or 90-day LIBOR plus 100
basis points, or prime. The term loan interest rate options consist of
a fixed rate at 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 1999 Capital Budget of $1,800,000 is two-tiered.
The first tier consists of typical capital improvements made each year
for services, hydrants and meters, is budgeted for $550,000 in 1999,
and is expected to be financed primarily with internally generated
funds.
The second tier of the 1999 Capital Budget consists of
replacements and betterments which are part of the Company's Long Term
Capital Improvement Program and includes $1,250,000 of budgeted plant
additions. Plant additions from this part of the 1999 budget are
expected to require use of 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
1999.
As of September 30, 1999, the Company has approximately 960
acres of excess land available for sale, of which 612 acres is under
contract for sale (see Note 4), 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 5 year capital budget, currently estimated at $8,000,000. 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 times as stipulated
by the DPUC.
Year 2000 Compliance
The Company has evaluated its exposure to the Year 2000 problem
and has taken steps to be Year 2000 compliant. In general terms, the
problem arises from the fact that many existing computer systems and
other equipment containing date-sensitive embedded technology use only
two digits to identify a year in the date field, with the assumption
that the first two digits of the year are always "19". As a result,
such systems may misinterpret dates after December 31, 1999, which may
result in miscalculations, other malfunctions or the total failure of
such systems.
The Company's existing billing and accounting software was
upgraded to comply with all Year 2000 related issues. That task was
completed on or around November 1, 1999.
The Company also has evaluated the Year 2000 compliance of
systems and equipment which are not linked to billing and accounting
software and has identified items that could be impacted by the Year
2000 problem. For the items identified as possibly presenting a Year
2000 problem, the Company has contacted suppliers, where possible, to
obtain adequate assurance that the product is Year 2000 compliant or is
in the process of determining and addressing any noncompliance. In
addition, wherever practical, the Company is independently testing such
items for compliance.
In addition to its own systems and equipment, the Company depends
upon the proper function of computer systems and other date-sensitive
equipment of outside parties. These parties include other water
companies, banks, telecommunications service providers and electric and
other utilities.
Due to the uncertainties presented by such third party Year 2000
problems, and the possibility that, despite its efforts, the Company may
be unsuccessful in preparing its internal systems and equipment for the
Year 2000, the Company is developing working plans for dealing with its
most reasonably likely worst-case scenario, many of which are contained
in the Company's approved Emergency Contingency Plan. The Company's
assessment of its most reasonably likely worst-case scenario and the
exact nature and scope of its contingency plans will be affected by the
Company's continued Year 2000 assessment.
Results of Operations for the Nine Months and Three Months Ended
September 30, 1999 and 1998.
Net Income
Net Income for the nine months ended September 30, 1999 was
$678,697 compared with $1,218,814 for the same 1998 period. The sale
of property in January of 1998 in Derby, Connecticut, to the City of
Derby, contributed $828,286 to net income in the first quarter of
1998. There were no comparable land sales in 1999. Net Income for the
three months ended September 30, 1999 of $263,448 is $115,802 higher
than the comparable three month period in 1998. Increased revenues,
lower interest charges and increased income resulting from the
amortization of prior year land sales are somewhat offset by increased
property taxes and depreciation expense.
Operating Revenues
Operating revenues for the first nine months of 1999 of
$3,535,441 are $218,628 higher than operating revenues of $3,316,813
for the first nine months of 1998. Increased water consumption in 1999
from all classes of customers and to a lesser extent the effects of an
over-all four percent water service rate increase that became effective
February 1, 1998, accounts for this increase. Operating revenues for
the three month period ending September 30, 1999 are $102,568 higher
than the comparable 1998 quarter. Increased consumption as a result of
dry weather conditions during the third quarter account for the increase.
Operating and Maintenance Expenses
Operating and Maintenance expenses of $1,958,441 for the first
nine months of 1999 are $17,789(1%) higher than the comparable 1998
period. Increased purchased power costs relating to increased water
sales and higher service line and meter expenses principally account
for the variance. Operating and Maintenance expenses of $675,156 for
the three month period ending September 30, 1999 are $10,360 lower than
the comparable 1998 quarter. Reduced general and administrative
expenses principally relating to casualty insurance and workers
compensation expense account for this variance.
Depreciation Expense
Depreciation expense for the first nine months of 1999 and for
the three month period ending September 30,1999 are $46,503 and $15,501,
respectively, higher than the comparable 1998 periods due to
depreciation expense relating to general plant additions.
Taxes Other Than Income Taxes
Taxes other than income taxes for the nine and three month
periods ended September 30, 1999 is $27,651 and $9,160 respectively,
higher than the comparable 1998 periods. Increased property taxes in
conjunction with the Company's capital improvement program account for
these increases.
Other Income
Other income for the first nine months of 1999 is $22,649 ahead
of the comparable 1998 period. Investment interest income as a result
of the Company's temporary cash investments accounts for the increase.
Other income for the three month period ending June 30, 1999 is $3,064
higher than the comparable 1998 period. Increased investment interest
income and timber sales account for this favorable variance.
Interest Expense
Interest expense for the nine and three month periods ending
September 30, 1999 is $97,890 and $36,426 below the comparable 1998
periods. Interest charges relating to short term borrowing and in
conjunction with the Company's term loan, which was repaid in the
fourth quarter of 1998, have not occurred in 1999.
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 nine months ended September 30,
1998. That amount represents the sale of 145 acres of land to the City
of Derby, CT on January 21, 1998 and 2.9 acres of property in
Woodbridge, CT in May of 1998. That amount represents the
stockholders' immediate share of income from the land sales. The net
gain on both sales totaled $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. There were minor sales of property that took
place in 1999 in conjunction with settling disputes about minor boundary
encroachments. The net gain totaled $9,152 on these sales.
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 $257,220 and
$114,919 for the nine months ended September 30, 1999 and 1998, and
$85,740 and $38,306, respectively, for the three-month periods ending
September 30, 1999 and 1998.
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.
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10)(a) Contract by and between the Registrant and The
Trust For Public Land dated September 13, 1999 with respect to the
sale of approximately 570 acres of land in Ansonia and Seymour.
(10)(b) Contract by the between the Registrant and The
Trust for Public Land dated September 13, 1999 with respect to the
sale of approximately 42.5 acres of land in Ansonia and Woodbridge.
(27) - Financial Data Schedule filed herewith.
(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: November 10, 1999 /s/ John S. Tomac
John S. Tomac, President