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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 2001 COMMISSION FILE NUMBER 0-6028
BIRMINGHAM UTILITIES, INC.
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(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0878647
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(State of Incorporation) (IRS Employer I.D. No.)
230 BEAVER STREET, ANSONIA, CT 06401
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(Address of principal executive office) (Zip Code)
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(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
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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 July 31, 2001
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COMMON STOCK, NO PAR VALUE 1,626,166
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PART I. FINANCIAL INFORMATION
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ITEM 1 FINANCIAL STATEMENTS
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
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UNAUDITED
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Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Operating Revenue $1,151,768 $1,191,390 $2,244,120 $2,254,903
---------- ---------- ---------- ----------
Operating Expenses:
Operating Expenses 651,186 614,080 1,267,169 1,241,408
Maintenance Expense 46,512 43,610 116,109 115,108
Depreciation 130,002 131,251 260,004 262,500
Taxes Other Than Income Taxes 84,720 80,423 170,946 164,748
Taxes on Income 52,761 54,961 69,521 69,163
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Total Operating Expense 965,181 922,325 1,883,749 1,852,927
---------- ---------- ---------- ----------
Utility Operating Income 186,587 267,064 360,371 401,976
Amortization of Prior Years'
Deferred Income on Land Dispositions
(Net of income taxes) 16,131 46,137 32,262 92,274
Other Income, net 11,571 9,538 44,722 31,826
---------- ---------- ---------- ----------
Income before interest expense 214,289 322,739 437,355 526,076
Interest and Amortization of Debt Discount 147,882 124,565 290,078 242,451
Income from dispositions of land (net of
income taxes) 3,051,258 - 3,051,258 -
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Net income $3,117,665 $ 198,174 $3,198,535 $ 283,625
Retained earnings, beginning $5,280,633 $5,398,299 $5,435,602 $5,511,799
Dividends 235,521 200,119 471,360 399,070
Retained earnings, ending $8,162,777 $5,396,354 $8,162,777 $5,396,354
========== ========== ========== ==========
Earnings per share - basic $ 1.92 $ .12 $ 1.97 $ .18
========== ========== ========== ==========
Earnings per share - diluted $ 1.88 $ .12 $ 1.93 $ .17
========== ========== ========== ==========
Dividends per share $ .145 $ .125 $ .29 $ .25
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
BIRMINGHAM UTILITIES, INC.
BALANCE SHEETS
(Unaudited)
June 30, Dec. 31,
2001 2000
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ASSETS:
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Utility Plant $ 24,583,220 $ 24,302,917
Accumulated depreciation (7,210,217 (6,985,983)
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Net Utility Plant 17,373,003 17,316,934
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Current Assets:
Cash and cash equivalent 2,264,842 41,477
Accounts receivable, net of
allowance for doubtful accounts 409,923 447,945
Accrued utility revenue 463,885 445,141
Materials & supplies 127,888 84,082
Prepayments 93,794 26,972
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Total current assets 3,360,332 1,045,617
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Deferred Charges 502,280 728,432
Unamortized debt expense 133,001 141,125
Income taxes recoverable 359,042 359,042
Other assets 341,046 366,924
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1,335,369 1,595,523
$ 22,068,704 $ 19,958,074
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STOCKHOLDERS' EQUITY AND LIABILITIES
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Stockholders' Equity:
Common Stock, no par value, authorized
2,000,000 shares; issued and outstanding
6/30/01-1,626,166 shares;
12/31/00-1,623,071 $ 2,887,285 $ 2,841,759
Retained earnings 8,162,777 5,435,602
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11,050,062 8,277,361
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Long-term debt 4,230,000 4,230,000
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Current Liabilities:
Current portion of long-term debt 94,000 94,000
Note Payable -0- 2,236,714
Accounts payable and accrued liabilities 2,229,928 628,411
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Total current liabilities 2,323,928 2,959,125
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Customers' advances for construction 1,185,880 1,192,057
Contributions in aid of construction 1,195,934 1,195,934
Regulatory liability-income taxes refundable 157,210 157,210
Deferred income taxes 1,347,238 1,729,248
Deferred income on disposition of land 578,452 217,139
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4,464,714 4,491,588
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$ 22,068,704 $ 19,958,074
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The accompanying notes are an integral part of these financial statements.
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
Cash Flows From Operating Activities 2001 2000
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Net Income $ 3,198,535 $ 283,625
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Adjustments to reconcile net income to
net cash provided by operating activities:
Income from land dispositions (3,051,258) --
Depreciation and amortization 286,870 290,260
Amortization of deferred income, net of tax (32,262) (92,274)
Deferred income taxes (1,689,484) (7,350)
Increases and decreases in assets and liabilities:
Accounts receivable and accrued utility revenue 19,278 (44,099)
Materials and supplies (43,806) (32,936)
Prepayments (66,822) (17,629)
Accounts payable and accrued expenses 1,601,517 (4,616)
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Total Adjustments (2,975,967) 91,356
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Net cash flows provided by operating activities 222,568 374,981
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Cash flows from investing activities:
Proceeds from land dispositions 5,530,000 --
Net construction expenditures (748,736) (834,380)
Sales of utility plant 14,100 --
Customer refunds (6,177) --
Other assets and deferred charges, net (125,832) (47,351)
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Net Cash flows provided by (used in)
investing activities 4,663,355 (881,731)
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Cash flows from financing activities:
Increase (decrease) in note payable (2,236,714) 1,080,000
Dividends paid - net (425,844) (368,594)
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Net Cash flows provided by (used in)
financing activities: (2,662,558) 711,406
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Net increase in cash & cash equivalents 2,223,365 204,656
Cash and cash equivalents, beginning 41,477 44,471
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Cash, and cash equivalents, ending $ 2,264,842 $ 249,127
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Supplemental disclosure of cash flow information:
Cash paid for
Interest $ 288,293 $ 234,328
Income Taxes $ 26,000 $ 153,195
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 $ 748,736 $ 861,550
Customers' advances for construction -- (27,170)
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Capital expenditures, net $ 748,736 $ 834,380
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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
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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, 1999, which has been audited. The interim financial
information conforms to the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X and, as applied in the case of rate-regulated public utilities,
complies with the Uniform System of Accounts and ratemaking practices prescribed
by the authorities. Certain information and footnote disclosures required by
generally accepted accounting principles have been omitted, pursuant to such
rules and regulations; although the Company believes that the disclosures are
adequate to make the information presented not misleading. For further
information, refer to the financial statements and accompanying footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
The Company's business of selling water is to a certain extent seasonal
because water consumption normally increases during the warmer summer months.
Other factors affecting the comparability of various accounting periods include
the timing of rate increases and the timing and magnitude of property sales.
Accordingly, annualization of the results of operations for the six months ended
June 30, 2001 and June 30, 2000 would not necessarily accurately forecast the
annual results of each year.
NOTE 2 - CALCULATION OF WEIGHTED AVERAGE SHARES
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OUTSTANDING-DILUTED
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The following table summarizes the number of common shares used in the
calculation of earnings per share.
Three Months Ended Six Months Ended
6/30/01 6/30/00 6/30/01 6/30/00
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Weighted average shares outstanding
for earnings per share, basic 1,624,297 1,596,832 1,623,684 1,591,449
Incremental shares from assumed
conversion of stock options 33,413 46,464 32,084 55,510
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Weighted average shares outstanding
for earnings per share, diluted 1,657,710 1,643,296 1,655,768 1,646,959
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NOTE 3 - LAND SALES
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On June 28, 2001, the Company sold 570 acres of unimproved land in
Ansonia and Seymour, Connecticut to the State of Connecticut, Department of
Environmental Protection for 5,250,000. An additional $250,000 was contributed
by the City of Ansonia for a total selling price of $5,500.00. This land was
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
$3,350,000 of which $315,698 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 $571,300 of which $402,000 will be carried forward to
reduce the Company's tax liability in subsequent years. The $571,300 tax
deduction is comprised of contribution deductions and state tax credits of
$2,316,600 offset by a valuation allowance of $1,745,300.
On April 18, 2001, the Company sold a small parcel of property,
approximately one quarter of an acre, in Ansonia, CT to Giaimo Associates for
$30,000. The net gain on this transaction amounted to $16,956. The DPUC did not
approve this transaction, as the sales price was less than the required $50,000.
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 $145,216, of
which $12,318 was deferred and will be recognized over a 3 year period as
approved 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., which exceeded the minimum price set
by the DPUC. The Company did ask the DPUC to reopen Docket 00-07-15, to review
the DEP's request under Section 16-50d to determine the legal rights, duties and
privileges of the DEP and Toll Bros. On June 27, 2001 the DPUC did approve the
DEP's request under Section 16-50d to purchase the property for $4,338,000.
On June 19, 2001 Toll Bros. filed an action in the Superior Court of
the State of Connecticut, Judicial District of Ansonia/Milford at Milford,
seeking to enjoin the closing of the sale from the Company to DEP, asserting,
INTER ALIA, that Section 16-50d allows for an unconstitutional taking of its
contractual right to the property. On July 20, 2001 the Superior Court issued a
decision denying Toll Bros.' claim for temporary injunctive relief. On August 3,
2001 Toll Bros. applied to the Connecticut Supreme Court for emergency
certification to appeal the trial court's decision regarding its constitutional
claim.
On July 25, 2001 Toll Bros. served the Company with an administrative
appeal to the Superior Court of the State of Connecticut, Judicial District of
New Britain at New Britain, resulting from the DPUC's June 27, 2001 decision.
On August 10, 2001 the Supreme Court denied Toll Bros. emergency certification.
The Company anticipates closing on the sale of the property to DEP shortly,
subject to conditions protecting DEP in the event of a subsequent judicial
ruling unwinding the sale.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
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Management's Discussion and Analysis of the Results of Operations and
Financial Condition contained in the Company's Annual Report on Form 10K for the
year ended December 31, 2000, 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 three months ended June 30, 2001 and
2000, the Company's additions to utility plant, net of customer advances, cost
$748,736 and $834,380, respectively. (See Statement of Cash Flows). These
additions were financed primarily from external sources, namely proceeds from
land sales.
The Company has outstanding $4,230,000 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 maintains a $5,000,000 two-year, unsecured revolving
line of credit. During the revolving period, the company can choose between
variable rate options of 30, 60, 90 or 180-day LIBOR plus 100 basis points or
the Prime plus 0%. The Company is required to pay interest only during the
revolving period. The loan is payable in full at maturity.
The DPUC approved this transaction on July 26, 2000. This $5,000,000
two-year, unsecured revolving line replaces the Company's $2,100,000 secured
line of credit, which expired on July 31, 2000. There were no borrowings
outstanding on the revolving line of credit on June 30, 2001.
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 and meters, is 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 2001 budget will require use of the Company's line of
credit and the proceeds from expected land sales.
As of June 30, 2001, the Company has approximately 350 acres of excess
land available for sale, all of which is currently under contract, 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 and the 570 acre parcel sold in June of 2001, 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
to close by August 31, 2001.
at the time of closing and portions of the gains are deferred and amortized over
various times as stipulated by the DPUC. All sales of excess land are expected
Results of Operations for the six months ended and three months ended
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June 30, 2001 and 2000
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Net Income
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Net income for the six months ended June 30, 2000 was $3,198,535
compared with $283,625 for the same 2000 period. Increased land sale income
which contributed $3,051,258 to the company's bottom line accounts for this
increase. There were no land sales in 2000. Operating income for the six months
ended June 30, 2001 has declined from the comparable 2000 period. Increased
interest charges and a decline in the amortization of prior year land sales
accounts for the variance. Net income for the three months ended June 30, 2001
was $3,117,665 compared with $198,174 for the comparable 2000 period. Land sales
which took place in the second quarter of 2001 have accounted for this
significant increase. Operating income for the second quarter of 2001 is below
the comparable 2000 period due to decreased revenues, increased interest
charges, higher operating expenses and a decline in the amortization of prior
year land sales.
Operating Revenues
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Operating revenues for the first six months of 2001 of $2,244,120 are
$10,783 below the comparable 2000 period. Decreased consumption principally
during the second quarter of 2001 for industrial usage accounts for this
decline. Operating revenues for the three month period ending June 30, 2001 are
$39,622 below the comparable 2000 quarter. Lower industrial consumption
principally accounts for this decline.
Operating and Maintenance Expenses
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Operating and Maintenance expenses for the first six months of 2001 of
$1,383,278 are $26,762 higher than operating and maintenance expenses of
$1,356,516 recorded in the first six months of 2000. Increased fringe benefit
costs relating to health insurance expense, 401K costs and worker compensation
insurance principally account for this increase. Increases in these expenses are
also causing operating and maintenance expenses for the three month period
ending June 30, 2001 to exceed the comparable 2000 period.
Depreciation Expense
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Depreciation expense for the first six months of 2001 and for the three
month period ending June 30, 2001 are $2,496 and $1,249, respectively lower than
the comparable 2000 periods due to the timing and nature of new plant additions
in 2000.
Taxes Other Than Income Taxes
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Taxes other than income taxes for the six month period ending June 30,
2001 are $6,198 higher than the comparable 2000 period. Increased payroll taxes
and property taxes account for this increase. Taxes other than income taxes for
the three month period ending June 30, 2001 are $4,297 higher than the
comparable 2000 period. Increased payroll taxes and property taxes also account
for this variance.
Other Income
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Other income for the first six months of 2001 is $12,896 higher than
the comparable period in 2000. Increased AFUDC accounts for the increase. Other
income for the three month period ending June 30, 2001 is $2,033 higher than the
second quarter of 2000. Increased AFUDC is largely offset by a reduction in
operating income from the company's managed system.
Land Dispositions
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When the Company disposes of land, any gain recognized, net of tax, is
shared between ratepayers 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 $3,051,258 for the six months ended June 30, 2001. That amount
represents the sale of 570 acres in Ansonia and in Seymour, CT on June 28, 2001
and .25 acres in Ansonia on April 18, 2001.
That amount represents the stockholders immediate share of income from
the land sales. The net gain on both sales totaled $3,366,956 including the
deferred portion. The DPUC's March 1, 2000 decision approving the 570 acre sale
provided for a three year amortization period as 100% of this parcel will be
dedicated as open space. The total gain on the .25 acre sale amounted to
$16,956. The DPUC did not approve this sale as the sale price was less than
$50,000. No portion of that sale was deferred.
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
$32,262 and $92,274 for the six months ended June 30, 2001 and 2000, and $16,131
and $46,137, respectively, for the three month periods ending June 30, 2001 and
2000.
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
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the first half of 2001, the only matters submitted to a vote of
the holders of the Company's common stock, its only class of voting stock, were
submitted at the Company's Annual Meeting of Shareholders held on May 9, 2001,
as follows:
(a) Election of Directors - All nominees for Director were elected, as
follows:
Votes % O/S Votes
Director For Shares Against
-------- --- ------ ---------
Michael J. Adanti 1,450,455 89% 19,936
Mary Jane Burt 1,450,455 89% 19,936
James E. Cohen 1,450,191 89% 20,200
Alvaro da Silva 1,450,302 89% 20,088
Betsy Henley-Cohn 1,450,191 89% 20,200
Themis Klarides 1,448,630 89% 21,760
Aldore J. Rivers, Jr. 1,450,351 89% 20,040
B. Lance Sauerteig 1,450,191 89% 20,200
Kenneth E. Schaible 1,450,191 89% 20,200
John S. Tomac 1,450,455 89% 19,936
(b) Approval of Stock Option Plan for Non-Employee Directors, as follows:
A motion was made, seconded and so voted to adopt the 2000 Option Plan
for Non-Employee Directors. Total votes cast were 1,470,392, representing 90.63%
of all outstanding shares. 1,383,711, representing 85% of all outstanding
shares, were cast in favor of the adoption of the 2000 Stock Option Plan.
(c ) Approval of Auditors as follows:
A motion was made, seconded and so voted to appoint Dworken, Hillman,
LaMorte & Sterczala, P.C. as independent auditors for the Company for 2001.
Total votes cast were 1,470,392, representing 90.63% of all outstanding shares.
1,451,116, representing 89% of all outstanding shares, were cast in favor of the
appointment of Dworken, Hillman, LaMorte & Sterczala, P.C.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits - 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.
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Registrant
Date: August , 2001
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/s/ John S. Tomac
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John S. Tomac, President