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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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) (I.R.S. IDENTIFICATION 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 changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports; and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
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 Nov.1, 2001
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COMMON STOCK, NO PAR VALUE 1,632,880
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PART I. FINANCIAL INFORMATION
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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Operating Revenue $ 1,236,859 $ 1,154,036 $ 3,480,979 $ 3,408,939
----------- ----------- ----------- -----------
Operating Expenses:
Operating Expenses 629,948 598,689 1,897,117 1,840,097
Maintenance Expense 41,979 46,208 158,088 161,316
Depreciation 130,002 131,250 390,006 393,750
Taxes Other Than Income Taxes 78,982 94,139 249,928 258,887
Taxes on Income 61,151 49,066 130,672 118,229
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Total Operating Expense 942,062 919,352 2,825,811 2,772,279
----------- ----------- ----------- -----------
Utility Operating Income 294,797 234,684 655,168 636,660
Amortization of Prior Years'
Deferred Income on Land Dispositions
(Net of income taxes) 16,131 46,137 48,393 138,411
Other Income, net 62,799 25,005 107,521 56,831
----------- ----------- ----------- -----------
Income before interest expense 373,727 305,826 811,082 831,902
Interest and Amortization of Debt Discount 107,361 140,207 397,439 382,658
Income from dispositions of land (net of
income taxes) 2,082,121 -- 5,133,379 --
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Net income $ 2,348,487 $ 165,619 $ 5,547,022 $ 449,244
Retained earnings, beginning $ 8,162,777 $ 5,396,354 $ 5,435,602 $ 5,511,802
Dividends 235,796 200,089 707,156 599,162
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Retained earnings, ending $10,275,468 $ 5,361,884 $10,275,468 $ 5,361,884
=========== =========== =========== ===========
Earnings per share - basic $ 1.44 $ .10 $ 3.41 $ .28
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Earnings per share - diluted $ 1.41 $ .10 $ 3.35 $ .27
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Dividends per share $ .145 $ .125 $ .435 $ .375
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The accompanying notes are an integral part of these financial statements.
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BIRMINGHAM UTILITIES, INC.
BALANCE SHEETS
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(Unaudited)
September 30, Dec. 31,
2001 2000
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ASSETS:
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Utility Plant $ 24,911,700 $ 24,302,917
Accumulated depreciation (7,340,365) (6,985,983)
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Net Utility Plant 17,571,335 17,316,934
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Current Assets:
Cash and cash equivalents 4,123,256 41,477
Accounts receivable, net of
allowance for doubtful accounts 532,941 447,945
Accrued utility revenue 463,698 445,141
Materials & supplies 119,292 84,082
Prepayments 66,737 26,972
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Total current assets 5,305,924 1,045,617
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Deferred Charges 66,379 728,432
Unamortized debt expense 128,938 141,125
Income taxes recoverable 359,042 359,042
Other assets 313,145 366,924
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867,504 1,595,523
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$ 23,744,763 $ 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 9/30/01-
1,628,055 shares; 12/31/00-1,623,071 $ 2,917,317 $ 2,841,759
Retained earnings 10,275,468 5,435,602
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13,192,785 8,277,361
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Long-term debt 4,136,000 4,230,000
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Current Liabilities:
Current portion of long-term debt 94,000 94,000
Note Payable -- 2,236,714
Accounts payable and accrued liabilities 1,532,688 628,411
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Total current liabilities 1,626,688 2,959,125
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Customers' advances for construction 1,197,585 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 1,373,459 1,729,248
Deferred income on disposition of land 865,102 217,139
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4,789,290 4,491,588
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$ 23,744,763 $ 19,958,074
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The accompanying notes are an integral part of these financial statements.
3
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF CASH FLOWS
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(UNAUDITED)
Nine Months Ended September 30,
2001 2000
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Cash Flows From Operating Activities
Net Income $ 5,547,022 $ 449,244
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Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Income from land dispositions (7,694,128) --
Depreciation and amortization 430,304 435,386
Amortization of deferred income, net of tax (48,393) (138,411)
Deferred income taxes (248,305) (11,025)
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Increases and decreases in assets and liabilities:
Accounts receivable and accrued utility revenue (103,553) (107,100)
Materials and supplies (35,210) (18,561)
Prepayments (39,765) (3,138)
Accounts payable and accrued expenses 971,275 74,662
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Total Adjustments (6,767,775) 231,813
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Net cash flows provided by (used in) operating activities (1,220,753) 681,057
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Cash flows from investing activities:
Proceeds from land dispositions 9,868,000 --
Net construction expenditures (1,071,690) (1,603,136)
Sales of utility plant 14,245 --
Other assets and deferred charges, net (545,710) (91,861)
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Net Cash flows provided by (used in)
investing activities 8,264,845 (1,694,997)
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Cash flows from financing activities:
Increase (decrease) in note payable (2,236,714) 1,896,715
Decrease in long-term debt (94,000) (94,000)
Dividends paid, net (631,599) (554,013)
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Net Cash flows provided by (used in)
financing activities: (2,962,313) 1,248,702
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Net increase in cash & cash equivalents 4,081,779 234,762
Cash & cash equivalents, beginning 41,477 44,471
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Cash & cash equivalents, ending $ 4,123,256 $ 279,233
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Supplemental disclosure of cash flow information:
Cash paid for
Interest $ 495,799 $ 477,702
Income Taxes 1,445,088 200,695
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 $ 1,077,218 $ 1,630,306
Customers' advances for construction (5,528) (27,170)
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Capital expenditures, net $ 1,071,690 $ 1,603,136
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The accompanying notes are an integral part of these financial statements.
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BIRMINGHAM UTILITIES, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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, 2000, 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
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the results of operations for the nine months ended September 30, 2001 and
September 30, 2000 would not necessarily accurately forecast the annual results
of each year.
NOTE 2 - CALCULATION OF WEIGHTED AVERAGE SHARES 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 Nine Months Ended
9/30/01 9/30/00 9/30/01 9/30/00
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Weighted average shares outstanding
for earnings per share, basic 1,626,165 1,600,073 1,624,522 1,594,341
Incremental shares from assumed
conversion of stock options 34,118 43,833 32,774 51,781
--------- --------- --------- ---------
Weighted average shares outstanding
for earnings per share, diluted 1,660,283 1,643,906 1,657,296 1,646,122
========= ========= ========= =========
NOTE 3 - LAND SALES
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On August 17, 2001, the Company sold 322 acres of unimproved land in
Seymour, Connecticut to the State of Connecticut, Department of Environmental
Protection ("DEP") for $4,338,000. The DEP exercised its right to purchase this
property in accordance with Section 16-50d of the Connecticut General Statutes.
Notification for this purchase was given to the Company by the DEP on February
13, 2001, subsequent to the DPUC decision approving a sale to Toll Brothers,
Inc. ("Toll Bros.") for the same price. The funds from this sale were held in
escrow until September 25, 2001 when Toll Bros. agreed to remove all legal
actions it had filed in regard to its contractual rights and administrative
appeals for this sale. The total gain on this sale amounted to $2,288,297, of
which $206,176 was deferred and will be recognized over a 3-year period as
approved by the DPUC.
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 $5,500,000. 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
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transaction amounted to $16,956. The DPUC was not required to approve this
transaction, as the sales price was less than the required threshold of $50,000.
On October 4, 2000, the Company sold a 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.
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 nine months ended September 30, 2001
and 2000 the Company's additions to utility plant, net of customer advances,
cost $1,071,690 and $1,603,136, respectively. (See Statement of Cash Flows).
These additions were financed primarily from external sources, namely, land
sales and short-term borrowing.
The Company has outstanding $4,136,000 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 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
rate. The Company is required to pay interest only during the revolving period.
The loan is payable in full at maturity on June 30, 2002.
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 September 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.
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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 proceeds from the land
sales that took place in 2001.
As of September 30, 2001, the Company has approximately 30 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 through the sale of land in June and August of 2001 and through
the use of internally generated funds, it can generate sufficient equity capital
to support its 5-year capital budget, currently estimated at $7,200,000. All
land dispositions were approved by the DPUC. Proceeds from the sale of land are
recorded as revenue at the time of closing and portions of the gains are
deferred and amortized over various times as stipulated by the DPUC.
Results of Operations for the Nine Months Ended and Three Months Ended
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September 30, 2001 and 2000
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Net Income
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Net income for the nine months ended September 30, 2001 was
$5,547,022 compared with $449,244 for the same 2000 period. Increased land sale
income of $5,133,379 accounts for this increase. There were no land sales in the
comparable period in 2000. Operating income for the nine months ended September
30, 2001 has slightly declined from the comparable 2000 period. Increased
interest charges and a decline in the amortization of prior year land sales more
than offsets increases in other income. Net income for the three months ended
September 30, 2001 was $2,348,487 compared with $165,619 for the comparable 2000
period. Land sales which took place in the third quarter of 2001 have accounted
for $2,082,121 of this significant increase. Operating income for the third
quarter of 2001 is significantly ahead of the comparable 2000 period due to
increased revenues, lower interest charges and increased other income.
Operating Revenues
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Operating revenues for the first nine months of 2001 of $3,480,979
are $72,040 ahead of the comparable 2000 period. Increased water consumption
during the third quarter of 2001 due to an extended hot and dry summer period
accounts for this increase. Operating revenues for the three month period ending
September 30, 2001 are $82,823 ahead of the comparable 2000 quarter also due to
the hot and dry summer period.
Operating and Maintenance Expenses
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Operating and Maintenance Expenses for the first nine months of 2001
of $2,055,205 are $53,792 higher than operating and maintenance expenses of
$2,001,413 recorded in the first nine months of 2000. Increased fringe benefit
costs relating to health insurance expense, 401K costs and workers compensation
insurance principally account for this increase. Increases in these expenses
also caused operating and maintenance expenses
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for the three month period ending September 30, 2001 to exceed the comparable
2000 period by $27,030.
Depreciation Expense
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Depreciation expense for the first nine months of 2001 and for the
three-month period ending September 30, 2001 are $3,744 and $1,248,
respectively, lower than the comparable 2000 periods due to the timing and
nature of new plant additions in 2001.
Taxes Other Than Income Taxes
-----------------------------
Taxes other than income taxes for the nine-month period ending
September 30, 2001 are $8,959 lower than the comparable 2000 period. Reduced
property taxes principally due to the sale of land accounts for this decrease.
Taxes other than income taxes for the three-month period ending September 30,
2001 are $15,157 lower than the comparable 2000 period. Decreased property
taxes, also due to land sales, account for this variance.
Other Income
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Other income for the first nine months of 2001 is $50,690 higher
than the comparable period in 2000. Increased AFUDC and income from the
Company's linebacker and outside construction programs as well as increased
investment interest income account for the increase. Other income for the
three-month period ended September 30, 2001 is $37,794 higher than the third
quarter of 2000. Linebacker income, outside construction income, and increased
AFUDC account for this increase.
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 $5,133,379 for the nine months ended September 30, 2001. That
amount represents the sale of .25 acres in Ansonia on April 18, 2001, 570 acres
in Ansonia and in Seymour, CT on June 28, 2001 and 322 acres in Seymour on
August 17, 2001.
That amount represents the stockholders immediate share of income
from the land sales. The net gain on all sales totaled $5,655,253 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, and the DPUC's June 27, 2001 decision approving the 322
acre sale also provided for a three year amortization period. 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.
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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
$48,393 and $138,411 for the nine months ended September 30, 2001 and 2000, and
$16,131 and $46,137, respectively, for the three-month periods ending September
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.
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PART II. OTHER INFORMATION
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits - None.
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIRMINGHAM UTILITIES, INC.
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Registrant
Date: November 5, 2001 /s/ John S. Tomac
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John S. Tomac, President
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