Birmingham Utilities, Inc.
Annual Report
2000
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, 2001, 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 9,062 customers, 94% residential and commercial Water delivered
in 2000 - 1.25 Billion Gallons Average daily demand - 3.4 MGD.
Maximum daily demand in 2000 - 4.54 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.
Chairwoman's Letter
The year 2000 was an extremely busy year for your Company and its management
team.
Your Company's pursuit to dispose of its excess properties continued throughout
the year 2000, with finalization of those agreements taking place in February
2001, for the sale of 892 acres of excess water company lands. As a result of
those efforts, your Company will realize gross revenues of $9.8 million in 2001.
Completion of these transactions is expected by the end of the second quarter in
2001. These sales will continue the transformation of your Company and will
allow your Company the flexibility to explore strategic opportunities in the
market place.
As reported in 1999, the Company entered into two separate agreements, which
provided for the sale of 570 acres of land in Ansonia and Seymour for $6,050,000
and the second provided for the sale of 43 acres in Ansonia for $200,000. Both
agreements were contingent upon the availability of public funding. I am pleased
to report that in October of 2000, the Company did sell the 43-acre parcel to
the City of Ansonia for $200,000. This property was added to Ansonia's nature
center and will be preserved as open space. In February of 2001, the Company
also reached agreement with the Connecticut Department of Environmental
Protection for the sale of the 570-acre parcel. The sales price will be
$5,500,000 of which $250,000 will be contributed by the City of Ansonia. The
Company will request that the Department of Public Utility Control reopen the
approved docket in this land sale matter, to adjust the sale price from the
approved price of $6,050,000 to $5,500,000 and to provide that the public entity
owner of the land will be the DEP. The reduction in the sales price, and the
gain realized, is expected to be minimized through the availability of
additional tax credits and a reduction in a service fee attributed to the sale.
In March of 2000, your Company executed a purchase and sale agreement with Toll
Brothers, Inc. ("Toll Bros.") for the sale of 322 acres of property, consisting
of two parcels of 245 and 77 acres in Seymour, Connecticut. The Company's
application to the DPUC for this sale was approved in November of 2000. The DPUC
approved a minimum sales price of $4,270,000, however, the final sales price is
expected to be $4,338,000, which is based on the number of (developable) units
allowed for the properties. In February of 2001, the Connecticut Department of
Environmental Protection notified the Company and the DPUC of the DEP's intent
to acquire the same 322 acres in accordance with Section 16-50d of the
Connecticut General Statutes. The DEP notified the Company it would match the
Toll Bros. offer.
The Company was surprised by the DEP's action, as the DEP was not a participant
in the proceeding before the DPUC in 2000 and had not previously stated its
intent to purchase the property. The DEP's intent is to close on this property
as noted previously, by the end of the second quarter. The Company has filed a
letter with the DPUC to reopen the Docket in this matter to determine the legal
rights, duties and privileges of the DEP and Toll Bros.
Once the Company completes the sale of the 892 acres in 2001, it will then have
sold approximately 1900 acres since 1995. With the exception of 59 acres, which
was sold to the City of Ansonia for its new High School, all of the properties
will remain as open space. Although the Company did intend to sell the 322-acre
parcel to Toll Bros. for development, it was expected that 180 acres of that
parcel would have remained as open space, subsequent to the development. The
Town of Seymour's First Selectman
supported the Company's sale to Toll Bros. and was disappointed that the State
DEP exercised its right to purchase the property.
The issue of permanent preservation of open space, specifically water company
lands, is the subject of proposed legislation in Connecticut in 2001, as is a
proposed DEP transaction with another public utility in Connecticut. This
includes Class I and Class II properties, which have not been considered for
disposition, based on source protection value and the associated regulatory
restrictions. The Company currently owns and maintains approximately 1400 acres
of Class I and Class II properties. The Company will begin discussions with our
respective regulatory agencies in an attempt to develop scenarios that will
return value to the Company for these Class I and Class II lands. This may
include the outright transfer of ownership, the transfer of development rights
or various ratemaking scenarios. The goal of each of these methods would be the
permanent preservation of those properties with the use of funds being
designated to improve water systems. Many believe these properties are
threatened at some time in the future, due to changes in technology or the
regulatory climate, whereby the elimination of the current restrictions might
create an opportunity for market sale or development of those properties. The
Company intends to work vigorously on this matter.
Looking toward the future, we are confident that the strategic actions we have
taken will position your Company to take advantage of sound business
opportunities we expect to encounter in the future. Meanwhile, we remain
committed to being an efficient supplier of water and look forward to maximizing
that commitment which, in turn, will provide an exceptional return on your
investment.
As always, feel free to contact me at the Company.
Betsy Henley-Cohn
Chairwoman
President's Letter
Fellow Shareholders, the first year in our new century was extremely productive
for the Company.
The decisions made and the results achieved in accordance with your Company's
directed strategy have ensured future profitability, extraordinary financial
strength for a company of this size, and the ability to deliver a high quality
product for many future generations. The disposition of excess water company
lands has been the driving force of your Company's financial resurgence.
Although the Company did not have any land sales in 1999, and only a small sale
of 43 acres in 2000, the Company's agreement made early in 2001 to dispose of
almost 570 acres of land to the State of Connecticut Department of Environmental
Protection ("DEP"), and the DEP's intent to purchase an additional 322 acres,
for a total of $9.8 million, will allow future profitable growth, the internal
generation of funds for all capital expenditures and the ability to review
future strategic opportunities. These results will be achieved and will
simultaneously transform an aging water system into facilities that will be a
model for a medium-size company operation. This transformation began a few short
years ago with the start of your Company's land sale program and will continue
with the funds derived from the sales in 2001.
The financial results achieved in 2000 were solid, despite the adverse effects
of the weather and the delay in the sale of the former Quillinan reservoir
property, (the 570-acre parcel mentioned above).
The Company's net income in 2000 was $725,700 or $.45 per share basic as
compared to $919,897 or $.59 per basic in 1999. Reduced water sales in 2000 as a
result of the wet and cool summer period were in direct contrast to 1999 whereby
the Company recorded strong sales due to an extended dry summer period. Your
Company also incurred higher interest costs in 2000. The delay in the sale of
the Quillinan property made the Company enter the short-term borrowing market to
fund its 2000 capital improvement program. This short-term debt will be repaid
once the property sales take place in 2001. On the positive side, the Company's
sale of 42 acres of property in 2000 netted a $132,892 gain, which almost
entirely offset the reduction in the amortization of prior year land sales in
2000. Operating expenses remained stable in 2000 with less than a 1% increase
over 1999 levels.
This was achieved despite rising fuel and purchased water costs.
Although the financial performance was somewhat subdued in 2000, the Company's
financial strength allowed for two important events to take place in 2000.
First, the Company was able to increase the dividend by $.10 per share for the
year, a 25% increase over the $.40 per share amount paid in 1999. The 2000
dividend represents a 67% cumulative increase over the per share amount paid in
1997. The Company was also able in 2000 to convert a $2,100,000 secured
revolving note into a $5,000,000 unsecured note. This transaction allows the
Company to continue its capital program during periods when land sales are not
taking place. This financial flexibility allows for a capital planning process
that is cost effective and efficient.
Under the direction of John "Jack" Keefe, Jr. in 2000, the Company continued to
implement its long-range capital program especially the replacement of
undersized water mains that are 80 years and older. In 2000, the Company
replaced over 12,000 feet of this type of main and for the four-year period,
beginning in 1997, that total exceeds 41,000 feet. These improvements, coupled
with the Company's improvement
program for the low system and the addition of a 12-inch water main crossing the
Hawkins Street Bridge, have allowed for the more efficient movement of water
between its sources of supply, increased flow capabilities needed for fire
protection and domestic service, as well as improved water quality and service.
In total, the Company has replaced or added 13 miles of new main over the last
four years. Patrick Knott, Construction Foreman, should be commended for
directing the Company's in-house crew on this very important program.
Long range planning has not stopped. The Company will continue its capital
improvement program in 2001. In addition to routine mandated replacements, the
Company expects to complete the last phase of its low system improvements,
increase the pumping capacity of the Hill Street pumping station, as well as
begin the planning for the construction of a one million gallon tank on the west
side of Derby.
These improvements will assure that our customers have a viable and efficient
water delivery system for generations to come at rates that will remain
affordable.
The replacement of infrastructure has been identified as the next greatest
challenge for all water utilities, especially in the Northeast. Your Company
believes we are meeting that challenge, in fact, we began this process in 1995
long before other water utilities, (especially companies our size). Over the
last four years we have made considerable gains in upgrading that infrastructure
in the most critical and vital areas. Long-range planning will continue and we
believe we will complete this task long before others in our industry. This will
benefit both the shareholder through higher returns and the customer through
improved service and stabilized affordable water rates.
In December of 2000, your Company's stock became listed on the American Stock
Exchange under the symbol "BIW". We believe that your Company's story will be
best told to investors through the use of the Exchange's state of the art
technology and its trading specialists.
The Company also developed a web site in 2000. Please feel free to log on to
buiweb.com to find the most current information on your Company. I would
sincerely like to thank the Board of Directors for their support during the year
as well as our small dedicated group of very talented employees. I thank you for
your work ethic, your support and your dedication that is exhibited every day
throughout the year. Your support has been critical in allowing this Company to
meet its goals in a manner that exceeds industry standards.
John S. Tomac
President & Treasurer
Financial Highlights
Market For the Registrant's Common Stock and Related Security Holding Matters
As of December 31, 2000, there were approximately 464 record holders of the
Company's common stock. Approximately 61% of the Company's stock is held in
"nominee" or "street" name. On December 14, 2000, the Company's common stock
began trading on the American Stock Exchange under the new symbol of "BIW".
Prior to December 14, 2000, the stock was traded on the NASDAQ-AMEX Small Cap
Market. 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 American Stock Exchange and NASDAQ records provided
to the Company. The prices given are retail prices. The Company's Mortgage Bond
Indenture under which its First Mortgage Bonds are issued contains provisions
that limit the dividends the Company may pay, under certain circumstances.
Bid Dividend
--- --------
High Low Paid
---- --- ----
2000 First Quarter $25.00 $13.875 $.125
Second Quarter 15.25 11.375 .125
Third Quarter 15.50 12.50 .125
Fourth Quarter 15.00 11.75 .125
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
Selected Financial Data
Presented below is a summary of selected financial data for the years 1996
through 2000: (000's omitted except for per share data)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating Revenues $4,496 $ 4,624 $ 4,395 $ 4,367 $ 4,380
Income before Interest Charges 1,126 1,368 1,170 1,112 968
Income from Land Dispositions** 133 -- 3,354 195 387
Net Income 726 920 3,911 668 765
Earnings Per Share-Basic* .45 .59 2.55 .44 .51
Earnings Per Share-Diluted* .44 .56 2.48 .44 .51
Cash Dividends Declared (per share)* .50 .40 .34 .30 .25
Total Assets 19,958 18,281 19,519 16,491 15,568
Long Term Debt 4,230 4,324 4,418 5,662 5,981
Short Term Debt 2,330 454 94 1,524 294
Shareholder Equity 8,277 8,147 7,648 4,097 3,841
* 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.
Management's Discussion and Analysis
Results of Operations
Overview
- --------
The Company recorded net income of $725,700 in 2000 as compared to $919,897 in
1999 and $3,910,793 in 1998. Earnings per share, basic for 2000, 1999 and 1998
were $.45, $.59 and $2.55, respectively. The decline in net income in 2000 of
$194,197 is principally a result of lower revenues, a reduction in the
amortization of prior year land sales and higher interest charges. The decline
in net income in 1999 from 1998 was due to the absence of land sale income in
1999. In 1998, land sales contributed $3,354,240 to net income.
Revenues
- --------
Water sales in 2000 of $4,496,452 were $127,365 below water sales of $4,623,817
that were recorded in 1999. An overall 4% reduction in consumption as a result
of a cool and wet summer period in 2000 was in direct contrast to the hot and
dry summer period in 1999. 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 accounted for this
increase.
Operating Expenses
- ------------------
Operating expenses in 2000 of $2,434,651 are $14,697 lower than operating
expenses of $2,449,348 recorded in 1999. A charge for professional fees
regarding strategic planning which was recorded in 1999 did not occur in 2000.
This reduction was somewhat offset by increased workers compensation insurance
and increased costs related to purchased power and fuel. Operating expenses of
$2,449,348 in 1999 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.
Maintenance Expenses
- --------------------
Maintenance expenses of $216,121 are $32,865 higher than the level recorded in
1999 of $183,256. Meter maintenance expense and the maintenance of general plant
account for this variance. 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 have caused
the increase.
Depreciation Expense
- --------------------
Depreciation expense of $509,814 in 2000 exceeds depreciation expense of
$501,313 in 1999 by $8,501 due to the continuation of plant additions in 2000.
Depreciation expense in 1999 was $12,927 higher than 1998, also as a result of
utility plant additions.
Taxes other than Income Taxes
- -----------------------------
Taxes other than income taxes of $348,324 are $27,882 higher than the 1999
expense of $320,442. A change in the depreciation methodology in the City of
Derby which had the effect of significantly increasing the assessed value, and
an increasing amount of new plant additions throughout the Company's service
territory account for this variance. 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.
Income Taxes
- ------------
Income taxes from operations in 2000 of $161,341 have decreased $116,785 from
the 1999 comparable period principally due to a decrease in pre-tax operating
earnings. 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. 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 $91,862, $192,720, and $1,756,937 in 2000, 1999 and 1998,
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 $253,203 in 2000, $470,846 in 1999 and $1,967,871 in 1998.
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 $132,892 in 2000, and $3,354,240 in1998, 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 $184,548,
$342,960 and $153,225 for the years 2000, 1999 and 1998, 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 of $115,237 is $3,398 lower than the comparable 1999 period in
which other income totaled $118,635. Decreased investment interest income in
2000 is almost entirely offset by increased AFUDC income in 2000. 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.
Interest Expense
- ----------------
Interest expense of $533,179 in 2000 is $84,993 higher than interest charges of
$448,186 recorded in 1999. Interest charges relating to an increasing amount of
short-term borrowing account for the increase. Borrowings in 2000 were necessary
due to a delay in the Company's land sale program. 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.
Inflation
- ---------
Inflation, as measured by the Consumer Price Index, increased 2.6 percent, 1.7
percent and 1.6 percent in 2000, 1999 and 1998, 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.
Financial Resources
- -------------------
During 2000, 1999 and 1998, 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 $919,052, ($405,981) and
$968,586, respectively (see Statement of Cash Flows).
Net cash provided by operating activities increased $1,325,033 from 1999 to
2000. This increase 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 2000, 1999 and 1998, 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 2000, 1999 and 1998, the Company's additions to
utility plant, net of customer advances, were $1,991,966, $1,690,055 and
$1,597,247, 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 short-term debt.
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 subject to the
lien of the Mortgage Indenture.
In 2000, the Company converted its $2,100,000 secured line of credit to a
two-year $5,000,000 unsecured, revolving line of credit. There was a balance of
$2,236,714 outstanding under the new, unsecured line of credit at December 31,
2000 and $360,000 outstanding on the secured line of credit at December 31,
1999. The interest rate on the unsecured line of credit is a variable option of
30, 60, 90 or 180-day LIBOR plus 100 basis points or prime. The Company is
required to pay interest only during the revolving period. The loan is payable
in full at maturity.
The Company's 2001 Capital Budget of $1,820,000 is two-tiered. The first tier
consists of typical capital improvements made each year for services, hydrants,
meters budgeted for $600,000 in 2001 and is expected to be financed primarily
with internally generated funds.
The second tier of the 2001 Capital Budget consists of replacements and
betterments which are part of the Company's Long Term Capital Improvement
Program and includes $1,220,000 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
$7,200,000. 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 21, 2000, the Company executed a Purchase and Sale Agreement with Toll
Brothers, Inc. ("Toll Bros.") for the sale by the Company and purchase by Toll
Bros. of 322 acres of unimproved property in the Town of Seymour, Connecticut.
The property consists of two parcels of 245 acres and 77 acres. The purchase
price of the parcels is $3,294,000 and $1,026,000, respectively. An application
for approval was filed with the DPUC on July 14, 2000 and final approval for the
sale was given on November 8, 2000 for a sale price of no less than $4,270,000
for both parcels.
On February 13, 2001, the Connecticut Department of Environmental Protection
("DEP) notified the Company and the DPUC of the DEP's intent to acquire the 322
acres in accordance with Section 16-50d of the Connecticut General Statutes. The
purchase price of the property will be $4,338,000, matching the purchase price
of Toll Bros. The Company will ask the DPUC to reopen Docket 00-07-15 to review
the DEP's request under Section 16-50d.
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's 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 DPUC approved these
transactions on March 1, 2000. On October 4, 2000, the Company sold the
42.5-acre parcel to the City of Ansonia for $200,000. The total gain on the sale
amounted to $145,984, of which $13,092 was deferred and will be recognized over
a 3-year period as approved by the DPUC.
On February 16, 2001, the DEP notified the Company that it would purchase the
570-acre parcel for $5,250,000. As part of the transaction, the City of Ansonia
will contribute an additional $250,000 toward
the purchase price. The Company will ask the DPUC to reopen Docket 99-11-05 to
approve the new purchase price of $5,500,00. The closing of this transaction is
expected to take place before June 30, 2000.
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 1999 totaled $67,066 and in 2000, $59,889.
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, 2000 and 1999, and the related statements of income and retained
earnings and cash flows for each of the three years in the period ended December
31, 2000. 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, 2000 and 1999 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with generally accepted accounting principles.
February 15, 2001
Bridgeport, Connecticut
Balance Sheets
December 31,
-----------------------------
2000 1999
---- ----
Assets
Utility plant $24,302,917 $22,265,530
Accumulated depreciation (6,985,983) (6,543,747)
----------- -----------
17,316,934 15,721,783
Current assets:
Cash and cash equivalents 41,726 44,471
Accounts receivable, net of allowance for doubtful
accounts of $45,000 in 2000 and $50,000 1999. 447,945 415,330
Accrued utility and other revenue 445,141 429,127
Materials and supplies 84,082 87,042
Prepayments 26,723 55,154
----------- -----------
Total current assets 1,045,617 1,031,124
Deferred charges 728,432 595,263
Unamortized debt expense 141,125 154,234
Income taxes recoverable 359,042 360,812
Other assets 366,924 418,055
1,595,523 1,528,364
----------- -----------
$19,958,074 $18,281,271
=========== ===========
Shareholders' Equity and Liabilities
Shareholders' equity:
Common stock, no par value; authorized 2,000,000 shares;
issued and outstanding (1999, 1,623,071 shares;
1999, 1,583,025 shares) $2,841,759 $ 2,634,762
Retained earnings 5,435,602 5,511,802
----------- -----------
8,277,361 8,146,564
Long term debt 4,230,000 4,324,000
Current liabilities:
Current portion of long term debt 94,000 94,000
Note payable 2,236,714 360,000
Accounts payable and accrued liabilities 628,411 691,142
----------- -----------
Total current liabilities 2,959,125 1,145,142
Customers' advances for construction 1,192,057 1,182,216
Contributions in aid of construction 1,195,934 1,188,934
Regulatory liability - income taxes refundable 157,210 164,772
Deferred income taxes 1,729,248 1,630,976
Deferred income on dispositions of land 217,139 498,667
Commitments and contingent liabilities (Note 13) -- --
4,491,588 4,665,565
----------- -----------
$19,958,074 $18,281,271
=========== ===========
See notes to financial statements
Statements of Income and Retained Earnings
Years Ended December 31,
---------------------------------------------
2000 1999 1998
---- ---- ----
Operating revenues:
Residential and commercial $3,355,517 $3,477,897 $3,319,318
Industrial 166,074 174,395 148,367
Fire protection 680,245 670,786 657,005
Public authorities 88,238 103,343 95,135
Other 206,378 197,396 175,086
---------- ---------- ----------
4,496,452 4,623,817 4,394,911
Operating deductions:
Operating expenses 2,434,651 2,449,348 2,363,523
Maintenance expenses 216,121 183,256 162,126
Depreciation 509,814 501,313 488,386
Taxes, other than income taxes 348,324 320,442 274,863
Taxes on income 161,341 278,126 210,934
3,670,251 3,732,485 3,499,832
---------- ---------- ----------
826,201 891,332 895,079
Amortization of deferred income on dispositions
of land (net of income taxes of $108,490 in 2000,
$192,720 in 1999 and $108,175 in 1998) 184,548 342,960 153,225
Operating income 1,010,749 1,234,292 1,048,304
Other income, net 115,237 133,789 121,571
---------- ---------- ----------
Income before interest expense 1,125,986 1,368,081 1,169,875
Interest expense 533,178 448,184 613,322
Income from dispositions of land (net of income
taxes of $(16,628) in 2000
and $1,648,762 in 1998) 132,892 -- 3,354,240
---------- ---------- ----------
Net income 725,700 919,897 3,910,793
========== ========== ==========
Retained earnings, beginning of year 5,511,802 5,219,875 1,831,377
Dividends 801,900 627,970 522,295
Retained earnings, end of year $5,435,602 $5,511,802 $5,219,875
========== ========== ==========
Earnings per share, basic $ .45 $ .59 $ 2.55
========== ========== ==========
Earnings per share, diluted $ .44 $ .56 $ 2.48
========== ========== ==========
Dividends per share $ .50 $ .40 $ .34
========== ========== ==========
See notes to financial statements
Statements of Cash Flows
Years Ended December 31,
-------------------------------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 725,700 $ 919,897 $ 3,910,793
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Income from land dispositions 132,892 -- (3,354,240)
Depreciation and amortization 580,657 571,330 551,498
Amortization of deferred income (184,548) (342,960) (153,225)
Deferred income taxes 642 92,416 (2,033,909)
Allowance for funds used during construction (75,015) (27,435) (46,639)
Change in assets and liabilities:
Decrease in accounts receivable and
accrued revenues (48,629) 10,156 125,341
(Increase) in materials and supplies 2,959 (24,996) (5,070)
(Increase) decrease in prepayments 28,170 (12,511) (27,575)
Increase (decrease) in accounts payable
and accrued liabilities 94,008 (1,591,878) 2,001,61
----------- ----------- -----------
Net cash provided by (used in) operating activities 919,052 (405,981) 968,586
Cash flows from investing activities
Capital expenditures (2,027,386) (1,760,245) (1,820,297)
Sales of utility plant -- 25,000
Proceeds from land disposition 200,000 -- 6,916,000
Increase in deferred charges and other assets (238,829) (261,295) (523,941)
Customer advances 35,420 70,190 223,
----------- ----------- -----------
Net cash provided by (used in) investing activities (2,030,795) (1,951,350) 4,819,812
Cash flows from financing activities:
Borrowings under line of credit 1,876,714 360,000 --
Repayments of note payable and long term debt (94,000) (94,000) (1,319,000)
Repayments of line of credit -- (1,355,000)
Debt issuance cost (3,965) -- (10,590)
Dividends paid, net (742,000) (560,904) (469,801)
----------- ----------- -----------
Net cash provided by (used in) financing activities (1,036,749 (294,904) (3,154,391)
=========== =========== ===========
Net increase (decrease) in cash (2,994) (2,652,235) 2,634,007
=========== =========== ===========
Cash and cash equivalents, beginning of year 44,471 2,696,706 62,699
=========== =========== ===========
Cash and cash equivalents, end of year $ 41,477 $ 44,471 $ 2,696,706
=========== =========== ===========
See notes to financial statements
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.
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 and 2000, 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 $277,200 at December 31, 2000 and $196,040 at December 31,
1999. 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 matched 50% of employee
contributions up to 6% of total compensation through December 31, 2000. As of
January 1, 2001 the Company will match 100% of employee contributions also 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 disposed to total surplus 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.
Note 2
Utility Plant
December 31,
-----------------------------
2000 1999
----------- -----------
Pumping, treatment and distribution $19,023,881 $16,973,769
Source of Supply 3,335,435 3,278,420
General Plant 1,545,822 1,418,922
Organization 30,219 30,219
----------- -----------
23,935,357 21,701,330
Construction in process 367,559 564,200
----------- -----------
$24,302,916 $22,265,530
=========== ===========
Note 3
Note Payable
Note Payable consists of a $5,000,000 two-year, unsecured line of credit. During
the revolving period, the Company can choose between variable rate options of
30, 60, 90 or 180-day LIBOR plus 1.00%, or Prime plus 0%. The Company is
required to pay only interest during the revolving period. The principal is
payable in full at maturity. The two-year, unsecured line of credit requires the
maintenance of certain financial ratios and shareholders equity of $7,500,000.
Borrowings of $2,236,714 and $360,000 were outstanding on the line of credit at
December 31, 2000 and December 31, 1999, respectively.
Note 4
Long Term Debt
December 31,
-----------------------------
2000 1999
----------- -----------
First mortgage bonds, Series E. 9.64%,
due September 1, 2011 $ 4,342,000 $ 4,418,000
Pursuant to its Mortgage Bond Indenture, the Company has outstanding a series of
first mortgage bonds in the amount of $4,324,000 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 $4,481,000 was available to pay dividends at December 31, 2000
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,
--------------------------
2000 1999
-------- --------
Accounts payable $152,606 $124,561
Accrued liabilities:
Interest 138,945 141,965
Taxes 83,750 123,471
Pension 284,131 278,610
Other (30,721) 22,535
-------- --------
$628,411 $691,142
======== ========
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
- ------------------------ ------ ----- ----------------
2001 $102,948 $ 38,427 $64,521
2002 55,421 21,021 34,400
2003 30,332 12,568 17,764
2004 19,359 8,017 11,342
2005 8,463 3,500 4,963
Thereafter 586 237 349
-------- -------- --------
$217,109 $ 83,770 $133,339
======== ======== ========
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,
-------------------------------------------
2000 1999 1998
-------- -------- --------
Municipal $266,466 $241,254 $194,472
Payroll 81,858 79,188 80,391
-------- -------- --------
$348,324 $320,442 $274,863
======== ======== ========
Note 8
Income Taxes
The provisions for taxes on income for the years ended December 31, 2000, 1999
and 1998 consist of:
2000 1999 1998
---------- ---------- ----------
Current:
Federal $ 160,700 $ 180,800 $1,715,170
State -- 4,899 529,545
Deferred:
Federal:
Accelerated depreciation 75,370 75,866 76,240
Income on land dispositions 50,700 192,220 (268,490)
Investment tax credit (14,700) (14,700) (14,700)
Other (30,875) 261 4,606
State 12,000 31,500 (74,500)
---------- ---------- ----------
$ 253,195 $ 470,846 $1,967,871
========== ========== ==========
State deferred income taxes relate solely to timing differences in the
recognition of income related to land dispositions.
A reconciliation of the income tax expense at the federal statutory tax rate of
34 percent to the effective rate follows:
2000 1999 1998
---- ---- ----
Federal income tax at statutory rates $ 332,825 $ 477,748 $1,998,791
Increase (decrease) resulting from:
State income tax, net of federal benefit 7,920 24,023 398,669
Bargain sale portion of land dispositions (60,615) (19,890) (392,950)
Rate case expense 7,844 7,844 5,384
SFAS 106 expense in excess of funding (3,804) (11,634) 713
Other, net (16,275) 7,455 (28,036)
Investment tax credit (14,700) (14,700) (14,700)
Total provision for income taxes 253,195 470,846 1,967,871
Taxes related to land dispositions 91,854 (192,720) (1,756,937)
Operating provision for taxes $ 161,341 $ 278,126 $ 210,934
Deferred tax liabilities (assets) were comprised of the following:
2000 1999
---- ----
Depreciation $1,869,850 $1,783,507
Investment tax credits 305,161 319,861
Other 173,636 183,128
Gross deferred tax liabilities 2,348,647 2,286,496
Land Sales (413,813) (445,619)
Other (205,588) (209,901)
Gross deferred tax assets (619,401) (655,520)
Total deferred income taxes $1,729,246 $1,630,976
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,
2000, 1999 and 1998, fees paid amounted to $12,238, $13,702 and $26,038,
respectively.
Note 10
Allowance for Doubtful Accounts
December 31,
---------------------------------
2000 1999 1998
---- ---- ----
Allowance for doubtful accounts, beginning $50,000 $50,000 $50,000
Provision (2,221) 10,590 9,389
Recoveries 3,302 6,748 17,047
Charge-offs (6,081) (17,338) (26,436)
Allowance for doubtful accounts, ending $45,000 $50,000 $50,000
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 Benefits Other Postretirement Benefits
-------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
Change in Benefit Obligation:
Benefit obligation, beginning of year $913,786 $832,762 $446,252 $371,456
Service cost 45,383 43,242 24,919 21,202
Interest cost 62,115 58,010 28,786 28,697
Actuarial loss/(gain) (10,569) 12,122 (23,466) 52,093
Benefits paid (30,923) (32,350) (23,119) (27,196)
Benefit obligation, end of year 979,792 913,786 453,372 446,252
Change in Plan Assets:
Fair value, beginning of year 806,406 682,009 368,543 274,716
Actual return on plan assets (12,599) 114,136 (2,041) 43,827
Employer contribution 30,000 42,611 25,000 50,000
Benefits paid (30,923) (32,350) 0 --
Fair value, end of year 792,884 806,406 391,502 368,543
Funded Status (186,908) (107,380) (61,870) (77,709)
Unrecognized net actuarial gain/(loss) 126,262 58,957 (192,746) (215,730)
Unrecognized transition obligation 64,589 70,461 304,536 329,914
Unrecognized prior service cost (35,166) (37,421) -- --
Prepaid (accrued) benefit cost $(31,223) $ (15,383) $49,920 $ 36,475
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 2001. The rate was assumed to
decrease gradually to 6% for 2006 and remain at that level thereafter.
Net periodic pension and other postretirement benefit costs include the
following components:
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Components of Net Periodic
Benefit Cost:
Service Cost $45,383 $43,242 $44,549 $24,919 $21,202 $14,186
Interest Cost 62,115 58,010 52,384 28,786 28,697 24,249
Expected return on plan assets (65,276) (55,708) (52,110) (29,567) (24,019) (21,730)
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 -- (14,842) (10,376) (15,394)
Net periodic benefit cost $45,840 $51,063 $48,441 $34,674 $40,882 $26,689
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 $ 8,819 $ (7,998)
Effect on postretirement benefit obligation $67,240 $(61,422)
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 $25,000, $50,000 and $0 in 2000, 1999 and 1998, 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, 2000 and
1999 was $232,900 and $243,200, respectively. At December 31, 2000, an amount of
$169,300 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 $25,236, $23,634 and
$23,568 in 2000, 1999 and 1998, 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:
2000 1999 1998
---- ---- ----
Weighted average shares outstanding
for earnings per share, basic 1,623,071 1,567,725 1,532,922
Incremental shares from assumed
conversion of stock options 23,174 73,990 46,000
Weighted average shares outstanding
for earnings per share, diluted 1,646,245 1,641,715 1,578,922
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 $1,820,000 for capital expenditures in 2001, $600,000 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 $709,305,
$705,934 and $705,162 for the years 2000, 1999 and 1998, respectively. The
purchase price is based on South Central Connecticut Regional Water Authority's
wholesale rate. At December 31, 2000, this rate was $1,160 per million gallons.
This agreement expires December 31, 2015 but provides for two ten-year
extensio0ns at the Company's option.
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, 1999 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 issued through Dividend Reinvestment Plan 4,521 59,889
Stock issued through Key Employee and
Non-Employee Stock Option Plans 35,525 152,293
Amortization of stock plan costs (5,185)
Balance, December 31, 2000 1,623,071 2,841,759
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, 2000:
Granted Exercisable
------------------------------ ------------------------------
Weighted Weighted
Number Average Number Average
of Shares Exercise Price of Shares Exercise Price
--------- -------------- --------- --------------
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
Granted 2,500 $ 15.50
Exercised (38,854) $ 5.21
Outstanding at December 31, 2000 68,158 $ 8.04 58,958 $6.98
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.
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 2000, 1999, and 1998 was
$519,125, $434,956 and $616,341, respectively.
Cash paid for income taxes for the years ended 2000, 1999 and 1998 was $278,195,
$1,859,000, and $428,600, 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,
----------------------------------------
2000 1999 1998
---- ---- ----
Gross plant additions $2,027,386 $1,760,245 $1,820,297
Customers' advances for construction (35,420) (70,190) (223,050)
$1,991,966 $1,690,055 $1,597,247
NOTE 17
Quarterly Financial Data
(Unaudited)
Income before
Income Taxes Land Net per Share
Revenues & Land Sales Sales Income basic Diluted
-------- ------------ ----- ------ ----- -------
2000 First Quarter $1,063,515 $99,655 - $85,453 $.05 $.05
Second Quarter 1,191,390 253,135 - 198,174 $.12 $.12
Third Quarter 1,154,036 214,685 - 165,619 $.10 $.10
Fourth Quarter 1,087,511 186,674 132,892 276,454 $.18 $.17
--------- -------- -------- ---------
Total $4,496,452 754,149 132,892 725,700
1999 First Quarter $1,076,641 $249,640 - $201,905 $.13 $.12
Second Quarter 1,164,439 268,338 - 213,346 $.14 $.13
Third Quarter 1,294,636 385,178 - 263,448 $.17 $.16
Fourth Quarter 1,088,374 294,867 - 241,198 $.15 $.15
--------- --------- -------- ---------
Total 4,623,817 1,198,023 - 919,897
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.
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 (2,4)
Retired; President of the Company from
1985 to October 1998
Michael J. Adanti (4)
President, Southern Connecticut State University
Mary Jane Burt (1,4)
Principal, The Laurer Group
Previously, President Burt Medical Lab 1984-1988
Director, INSITE ONE
James E. Cohen (2,3)
Lawyer in Practice in Derby
Alvaro da Silva (1)
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)
Themis Klarides (2,4)
Associate Attorney, Law Offices of Shawn K. Splan, Shelton
State Representative, 114th District, Connecticut General Assembly
Elected to fulfill the un-expired term of former Board member David Silverstone,
vacated in December 2000. (2,4)
B. Lance Sauerteig (2,4)
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);
President, Shelton Savings Bank and Shelton Bancorp., Inc. (1972-1995)
Charles T. Seccombe
Director Emeritus
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
Wiggin & Dana
New Haven, Connecticut
Registrar and
Transfer Agent
American Stock Transfer
& Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Stock Market Listing
AMEX - Under the
symbol BIW
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) Committee on Directors makes recommendations to the Board of Directors for
Board replacements when they become available and for compensation levels for
the Board of Directors. 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.