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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A AMENDMENT NO. 3
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 Commission file No. 1-16205
BIRMINGHAM UTILITIES, INC.
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(Exact Name of registrant as specified in its charter)
CONNECTICUT 06-0878647
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
230 Beaver Street, Ansonia, CT 06401-0426
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 735-1888
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which Registered
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Common Stock (no par value) The American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Title of Class
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing sale price of such stock as of March 7, 2002:
$24,908,606.
As of April 24, 2002, the Registrant had 1,632,880 shares of common stock, no
par value outstanding.
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PART I
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ITEM 1. BUSINESS
Birmingham Utilities, Inc. (the "Company") is a specially chartered
Connecticut public service corporation in the business of collecting and
distributing water for domestic, commercial and industrial uses and fire
protection in Ansonia and Derby, Connecticut, and in small parts of the
contiguous Town of Seymour. Under its charter, the Company enjoys a monopoly
franchise in the distribution of water in the area which it serves. In
conjunction with its right to sell water, the Company has the power of eminent
domain and the right to erect and maintain certain facilities on and in public
highways and grounds, all subject to such consents and approvals of public
bodies and others as may be required by law.
The current sources of the Company's water are wells located in Derby
and Seymour and interconnections with the South Central Connecticut Regional
Water Authority's (the "Regional Water Authority") system (a) at the border of
Orange and Derby (the "Grassy Hill Interconnection") and (b) near the border of
Seymour and Ansonia (the "Woodbridge Interconnection"). The Company maintains
its interconnected Beaver Lake Reservoir System, a 2.2 million gallon per day
(MGD) surface supply in case of emergency needs.
The Company's entire system has a safe daily yield (including only
those supplies that comply with the Federal Safe Drinking Water Act (SDWA) on a
consistent basis) of approximately 8.0 MGD, while the average daily demand and
the maximum daily demand on the system during 2001 were approximately 3.5 MGD
and 7.5 MGD, respectively. The distribution system with the exception of the
well supplies, is mainly through gravity, but there are seven distinct areas at
higher elevations where pumping, pressure tanks and standpipes are utilized.
These higher areas include approximately 25% of the Company's customers.
During 2001, approximately 1.28 billion gallons of water from all
sources were delivered to the Company's customers. The Company has approximately
9,114 customers of whom approximately 97% are residential and commercial. No
single customer accounted for as much as 10% of total billings in 2001. The
business of the Company is to some extent seasonal, since greater quantities of
water are delivered to customers in the hot summer months.
The Company had, as of February 25, 2002, 20 full-time employees. The
Company's employees are not affiliated with any union organization.
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 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.
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Executive Officers of the Registrant
Name, Age and Position Business Experience Past 5 Years
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Betsy Henley-Cohn, 49 Chairwoman of the Board of Directors and
Chairwoman of the Board Chief Executive Officer of the Company since
And Chief Executive Officer May 1992; Chairman of the Board of Directors
And Treasurer, Joseph Cohn & Sons,Inc.;
Director, United Illuminating Company;
Director, Aristotle Corp.; Director, Citizens
Bank of Connecticut (1997-1999).
John S. Tomac, 48 President of the Company since October 1,
President and Treasurer 1998; Vice President of the Company December
1, 1997-September 30, 1998; Treasurer of the
Company since December 1997; Assistant
Controller, BHC Company 1991-1997.
ITEM 2. PROPERTIES
The Company's properties consist chiefly of land, wells, reservoirs,
and pipelines. The Company has 5 production wells with an aggregate effective
capacity of approximately 3.0 MGD. The Company's existing interconnections with
the Regional Water Authority can provide 5.0 MGD. The Company's entire system
has a safe daily yield (including only those supplies that comply with the SDWA
on a consistent basis) of approximately 8.0 MGD, while the average daily demand
and the maximum daily demand on the system during 2001 were approximately 3.5
MGD and 7.5 MGD, respectively. The distribution system, with the exception of
the well supplies, is mainly through gravity, but there are seven distinct areas
at higher elevations where pumping, pressure tanks and standpipes are utilized.
These higher areas include approximately 25% of the Company's customers.
The Company has two emergency stand-by reservoirs (Peat Swamp and
Middle) with a storage capacity of 457 million gallons and a safe daily yield of
approximately 2.1 MGD. Because the water produced by those reservoirs does not
consistently meet the quality standards of the SDWA, none of those reservoirs is
actively being used by the Company to supply water to the system. During 1996
and in January 1998, the Company sold to the City of Ansonia and the City of
Derby the Sentinel Hill Reservoir system and its watershed located in Ansonia
and Derby. In November 1998, the Company sold to the Town of Seymour the Great
Hill reservoir system and its watershed located in the Towns of Seymour and
Oxford. In 2001 the Company sold to the DEP the Qullinan Reservoir and its
watershed located in Ansonia and Seymour.
The Company's dams are subject to inspection by and the approval of the
DEP. All of the Company's dams are in compliance with improvements previously
ordered by the U.S. Army Corps of Engineers.
The Company owns an office building at 230 Beaver Street, in Ansonia.
That building was built in 1964, is of brick construction, and contains 4,200
square feet of office and storage space. In addition, the Company owns two
buildings devoted to equipment storage. The Company also owns office space in a
wood frame, residential building owned by the Company at 228 Beaver Street,
Ansonia.
The Company's approximately 1,400 acres of land were acquired over the
years principally in watershed areas to protect the quality and purity of the
Company's water at a time when land use was not regulated and standards for
water quality in streams were non-existent.
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Under Connecticut law a water Company cannot abandon a source of supply
or dispose of any land holdings associated with a source of supply until it has
a "water supply plan" approved by the Health Department. The Health Department
approved the Company's first Water Supply Plan in 1988 and updated Water Supply
Plan in 1993 and in 1998. Pursuant to abandonment permits issued by the Health
Department in 1988, the Company abandoned its Upper and Lower Sentinel Hill
Reservoirs, Steep Hill (Bungay) Reservoir, and Fountain Lake Reservoir, and the
land associated with them then became available for sale. In 1994, the
abandonment of Great Hill Reservoir was approved by the Health Department and in
1999 the abandonment of the Quillinan Reservoir was also approved by the Health
Department.
Since 1988, the Company has sold approximately 2,298 acres of land in
Bethany, Ansonia, Derby, Seymour and Oxford, realizing net gains of $12,824,489.
The Company believes that only 30 acres of its land holdings will not
be needed in the future for water supply purposes and can be sold. The Company
has proposed, and the DPUC has accepted with respect to prior transactions, an
accounting and ratemaking mechanism by which the gain on the sale of the
Company's land holdings is shared between ratepayers and stockholders as
contemplated by Connecticut law. (See Note 1 to the Company's Financial
Statements.)
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of December 31, 2001, there were approximately 453 record holders of
the Company's common stock. Approximately 64% of the Company's stock is held in
"nominee" or "street" name. The Company's common stock trades on the American
Stock Exchange under the symbol "BIW". 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 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.
Dividend
High Low Paid
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2001 First Quarter $14.00 $12.25 $.145
Second Quarter 15.50 14.00 .145
Third Quarter 17.10 14.25 .145
Fourth Quarter 18.85 15.00 .145
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
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ITEM 6. SELECTED FINANCIAL DATA
Presented below is a summary of selected financial data for the years
1997 through 2001:
(000's omitted except for per share data) 2001 2000 1999 1998 1997
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Operating Revenues $ 4,616 $ 4,496 $ 4,624 $ 4,395 $ 4,367
Income before Interest Charges 1,033 1,126 1,368 1,170 1,112
Income from Land Dispositions** 5,133 133 -- 3,354 195
Net Income 5,655 726 920 3,911 668
Earnings Per Share-Basic* 3.48 .45 .59 2.55 .44
Earnings Per Share-Diluted* 3.41 .44 .56 2.48 .44
Cash Dividends Declared (Per Share)* .58 .50 .40 .34 .30
Total Assets 22,681 19,958 18,281 19,519 16,491
Long-Term Debt 4,136 4,230 4,324 4,418 5,662
Short-Term Debt 94 2,330 454 94 1,524
Shareholder Equity 13,077 8,277 8,147 7,648 4,097
* 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Overview
The Company recorded net income of $5,655,150 in 2001 as compared to
$725,700 in 2000 and $919,897 in 1999. Earnings per share, basic for 2001, 2000
and 1999 were $3.48, $.45 and $.59, respectively. The increase in net income of
$4,929,450 in 2001 is principally a result of the land sales that took place in
the second and third quarters. 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.
Revenues
Water sales of $4,615,836 in 2001 were $119,384 higher than recorded
water sales of $4,496,452 for 2000. Increased water consumption from all classes
of customers except industrial, due to a dry summer and fall period more than
offset lower industrial consumption due to the loss of a major customer. 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.
Operating Expenses
Operating expenses of $2,558,261 for 2001 are $123,610 higher than
operating expenses of $2,434,651 that occurred in 2000. Increased chemical
costs, transmission and distribution expenses relating to meter and line
expense, health insurance costs, 401(k) expense, pension expense and workers
compensation insurance principally account for the increase. 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
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increased workers compensation insurance and increased costs related to
purchased power and fuel.
Maintenance Expenses
Maintenance expenses of $210,417 are $5,704 lower than maintenance
expenses of $216,121 for 2000. Lower water main maintenance expense relating to
fewer main breaks in 2001 is somewhat offset by increased water treatment
equipment maintenance and meter and service line maintenance expense.
Maintenance expenses of $216,121 are $32,865 higher than the level recorded in
1999 of $183,256, higher meter maintenance expense and the maintenance of
general plant account for this variance.
Depreciation Expense
Depreciation expense of $548,119 in 2001 exceeds depreciation expense
of $509,814 in 2000 by $38,305 due to the continuation of plant additions in
2001. Depreciation expense in 2000 was $8,501 higher than 1999, also as a result
of utility plant additions.
Taxes other than Income Taxes
Taxes other than income taxes of $328,248 for 2001 are $20,076 lower
than the level of $348,324 recorded for 2000. A reduction in real estate taxes
due to the sale of the property in Ansonia and Seymour in 2001 principally
accounts for the decline. Somewhat offsetting this decline is increased personal
property taxes relating to new plant additions throughout the Company's service
territory. Taxes other than income taxes of $348,324 for 2000 are $27,882 higher
than the 1999 expense of $320,442. A change in the depreciation methodology by
the City of Derby which had the effect of significantly increasing the assessed
value of the Company's personal property, and an increasing amount of new plant
additions account for this variance.
Income Taxes
Income taxes on operations of $191,827 recorded in 2001 are $30,486
higher than the 2000 expense of $161,341 due to an increase in taxable operating
earnings. Income taxes from operations in 2000 of $161,341 have decreased
$116,785 from the 1999 comparable period principally due to a decrease in
taxable operating earnings.
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 $2,064,807, $91,854 and $192,720, in 2001, 2000 and 1999,
respectively. The Company's total income tax liability including both the tax on
operating income and on land sale gains was $2,256,634 in 2001, $253,195 in 2000
and $470,846 in 1999.
The deferred tax asset related to land sales primarily represents
future tax savings resulting from sales of land required to be maintained as
open space at less than market value. The Company received a charitable
contribution deduction for federal tax purposes and tax credits for state tax
purposes. Unused tax benefits may be carried forward to reduce income taxes in
future years; the federal charitable deduction five years and state tax credits
ten years. Utilization of these benefits is subject to, among other things, the
extent of future earnings of the Company, including an estimate for anticipated
rate relief, as well as the timing of future land sales. In addition, the
federal charitable contribution deduction is subject to an annual limitation of
10% of taxable income (as defined.) The Company has established a valuation
allowance
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for the portion of possible tax savings not likely to be realized by the end of
the carryforward periods.
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 $5,133,379 in 2001, and $132,892 in 2000, 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
$64,524, $184,548 and $342,960 for the years 2001, 2000 and 1999, 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 7 of the Financial
Statements.
Other Income
Other income of $189,290 in 2001 is $74,053 higher than other income of
$115,237 recognized in 2000. Increased income from contract operations and
investment interest income is somewhat offset by reduced AFUDC. Other Income of
$115,237 is $18,552 lower than the comparable 1999 period in which other income
totaled $133,789. Decreased investment interest income and the absence of minor
land sales in 2000 is somewhat offset by increased AFUDC income in 2000.
Interest Expense
Interest expense of $511,007 for 2001 is $22,171 lower than interest
expense of $533,178 for 2000. Reduced short-term borrowing in 2001 accounts for
reduced interest charges. The Company's short-term borrowing was fully repaid at
the end of the second quarter in 2001 with the proceeds from the Quillinan land
sale. Interest expense of $533,178 in 2000 is $84,994 higher than interest
charges of $448,184 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.
Regulatory Matters and Inflation
Inflation, as measured by the Consumer Price Index, increased 1.6
percent, 3.4 percent and 1.7 percent in 2001, 2000 and 1999, 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.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions in certain circumstances that
affect amounts reported in the accompanying financial statements and related
notes. In preparing our
7
financial statements, management has made its best estimates and judgements of
certain amounts included in the financial statements, giving due consideration
to materiality. Note 1 of the notes to the financial statements includes a
summary of the significant accounting policies and methods used in the
preparation of our financial statements. The following is a brief discussion of
the more significant accounting polices we utilize.
Public Utility Regulation
The Company's accounting policies conform to the Uniform System of
Accounts and ratemaking practices prescribed by the Connecticut Department of
Public Utility Control ("DPUC"), and accounting principles generally accepted in
the United States of America, which include the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation," (SFAS 71). SFAS 71 requires cost based, rate regulated
enterprises to reflect the impact of regulatory decisions in their financial
statements. The DPUC, through the rate regulation process, can create regulatory
assets that result when costs are allowed for ratemaking purposes in a period
after the period in which the costs would be charged to expense by an
unregulated enterprise. The balance sheets include regulatory assets and
liabilities as appropriate, primarily related to income taxes and post
retirement benefit costs. The Company believes, based on current regulatory
circumstances, that the regulatory assets recorded are likely to be recovered
and that its use of regulatory accounting is appropriate and in accordance with
the provisions of SFAS 71.
Revenue Recognition
The Company recognizes revenue as customers are billed for water
consumed. Residential, commercial, and industrial customers are metered, and
revenues are based on their usage multiplied by rates approved by the DPUC. Fire
protection charges are based on the length and diameter of the water main and
the number of hydrants in service. The majority of customers are billed
quarterly, except for industrial customers and fire protection customers, who
are billed monthly. In addition, the Company accrues revenue for the estimated
amount of water sold but not billed as of the balance sheet date.
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.
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, 2000 and 2001, 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
8
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 $206,000 at December 31, 2001 and $201,800 at
December 31, 2000. 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 "Business Combinations,"
(SFAS 141) which eliminates the pooling of interest method of accounting for all
business combinations initiated after June 30, 2001 and SFAS 142 "Goodwill and
Other Intangible Assets," which requires that goodwill and intangible assets
deemed to have indefinite lives no longer be systematically amortized but rather
subject to at least annual impairment testing. Other identifiable intangible
assets will continue to be amortized over their estimated useful lives.
In August 2001, the FASB issued SFAS 143 "Accounting for Asset
Retirement Obligations," which requires legal obligations associated with the
retirement of long-lived assets to be recorded as increases in costs of the
related assets.
In October 2001, the FASB issued SFAS 144 "Accounting for Impairment or
Disposal of Long-Lived Assets," which replaces SFAS 121. SFAS 144 retains
substantially all of the requirements of SFAS 121 while resolving certain
implementation issues and broadening the presentation of discontinued
operations.
Adoption of these statements did not have a material impact on the
financial statements.
OUTLOOK
The Company believes that as a result of health, transportation and
supply issues in regard to the physical movement of water, deregulation of the
water industry will not be contemplated in the foreseeable future. Although the
Company believes deregulation is not a viable option for this industry,
consolidation of the water industry has been fast paced over the last five
years. The consolidation strategy has allowed for many small, non-viable water
systems to be purchased by larger purveyors and for larger systems to merge
among themselves in an effort to create economies of scale. Foreign entities
have also been very active in the purchase of investor owned American water
systems.
The Company believes it is prudently monitoring the economic
environment in which it operates to best take advantage of market opportunities.
The establishment of a holding company, the initiation of three new ventures in
2001 (the sale of maintenance programs for residential water service lines, the
provision of installation services to the Connecticut Water Company and the
installation of water mains for new development projects), and the creation of
value for class I and II properties are expected to bring additional financial
gains to the Company. The Company also believes it will be allowed to earn a
return on the prudent investments it has made since the last rate decision in
1998. The land sale sharing mechanism approval by the DPUC for the Company's
land sale program has minimized the effects of "regulatory lag" of the
ratemaking process.
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The Company sees no reason why the DPUC would not allow the Company to
earn a return on these investments which have been disclosed in numerous land
sale applications to the Department. The Company also believes there are no
environmental issues to consider that may pose a threat to regulatory treatment.
The Company is in compliance with all environmental regulations including all
state and federal drinking water requirements.
FINANCIAL RESOURCES
During 2001, 2000 and 1999, the Company's water operations generated
(utilized) funds available for investment in utility plantand for use in
financing activities, including payment of dividends on common stock, of
($1,683,876), $991,052 and ($405,981), respectively (see Statement of Cash
Flows).
Net cash provided by operating activities decreased $2,674,928 from
2000 to 2001 principally from income taxes paid in connection with land sales in
2001. Net cash provided by operating activities increased $1,397,033 from 1999
to 2000. This increase is also a result of income taxes paid in 1999 from land
sales that took place in the fourth quarter of 1998.
During the 3-year period 2001, 2000 and 1999, 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.
The Company's Long-Term Capital Improvement program will be funded from
the proceeds available from the 2001 land sales, the internal generation of
funds as well as the Company's ability to raise capital from external sources.
During 2001, 2000 and 1999, the Company's additions to utility plant, net of
customer advances, were $1,267,812, $1,991,966 and $1,690,055, respectively (see
Statement of Cash Flows and Note 15). These additions were financed primarily
from proceeds of 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 subject to the
lien of the Mortgage Indenture.
In June 2000, the Company converted its $2,100,000 secured line of
credit to a 2-year $5,000,000 unsecured, revolving line of credit. There were no
borrowings outstanding on the revolving line of credit on December 31, 2001 and
$2,236,714 outstanding on December 31, 2000. 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 2002 Capital Budget of $2,081,000 is two-tiered. The
first tier, consisting of typical capital improvements made each year for
services, hydrants and meters is budgeted for $377,000 in 2002 and is expected
to be financed primarily with internally generated funds.
The second tier of the 2002 Capital Budget consists of replacements and
betterments which are part of the Company's Long-Term Capital Improvement
Program and includes $1,704,000 of budgeted plant additions. Plant additions
from this part of the capital budget will be financed by proceeds from the 2001
land sales and with internally generated funds. 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.
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The Company believes that through the sale of land in June and August
of 2001, through the use of short-term borrowing and through the use of
internally generated funds, it can generate sufficient capital to support its
5-year capital budget currently estimated at $8,250,000. Internally generated
funds in part are dependent on the extent of future rate relief. Future rate
relief will be a necessary component in the process of funding this 5-year
capital program.
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 DEP 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
$407,400 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 was not
required to approve this transaction, as the sales price was less than the
required threshold of $50,000.
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 2000 totaled $59,889 and in 2001,
$94,750.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain exposures to market risk related to changes in
interest rates. The Company has an outstanding revolving credit agreement, under
which there were no borrowings outstanding at December 31, 2001. The revolving
credit agreement bears interest at variable rates based on current LIBOR
indices. The Company is not subject in any material respect to currency or other
commodity risk.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 2001 and 2000, and the related statements of income and retained
earnings and cash flows for each of the three years in the period ended December
31, 2001. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
January 31, 2002
Shelton, Connecticut
/s/ Dworken, Hillman, LaMorte & Sterczala, P.C.
12
Balance Sheets
December 31,
2001 2000
- --------------------------------------------------------------------------------------------------------
Assets
Utility plant $ 25,141,679 $ 24,302,917
Accumulated depreciation (7,465,532) (6,985,983)
- --------------------------------------------------------------------------------------------------------
17,676,147 17,316,934
- --------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents 3,039,640 41,477
Accounts receivable, net of allowance for doubtful
accounts of $40,000 in 2001 and $45,000 in 2000 480,849 447,945
Accrued utility and other revenue 458,996 445,141
Materials and supplies 109,033 84,082
Prepayments 44,943 26,972
- --------------------------------------------------------------------------------------------------------
Total current assets 4,133,461 1,045,617
- --------------------------------------------------------------------------------------------------------
Deferred charges 62,303 728,432
Unamortized debt expense 122,894 141,125
Regulatory asset-income taxes recoverable 355,636 359,042
Other assets 330,146 366,924
- --------------------------------------------------------------------------------------------------------
870,979 1,595,523
- --------------------------------------------------------------------------------------------------------
$ 22,680,587 $ 19,958,074
========================================================================================================
Shareholders' Equity and Liabilities
Shareholders' equity:
Common stock, no par value; authorized 2,000,000 shares;
issued and outstanding (2001, 1,632,879 shares;
2000, 1,623,071 shares) $ 2,929,756 $ 2,841,759
Retained earnings 10,146,829 5,435,602
13,076,585 8,277,361
- --------------------------------------------------------------------------------------------------------
Long-term debt 4,136,000 4,230,000
- --------------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt 94,000 94,000
Note payable -- 2,236,714
Accounts payable and accrued liabilities 613,189 628,411
- --------------------------------------------------------------------------------------------------------
Total current liabilities 707,189 2,959,125
- --------------------------------------------------------------------------------------------------------
Customers' advances for construction 1,191,030 1,192,057
Contributions in aid of construction 1,195,934 1,195,934
Regulatory liability - income taxes refundable 149,617 157,210
Deferred income taxes 1,383,843 1,729,248
Deferred income on dispositions of land 840,389 217,139
Commitments and contingent liabilities (Note 14) -- --
- --------------------------------------------------------------------------------------------------------
4,760,813 4,491,588
- --------------------------------------------------------------------------------------------------------
$ 22,680,587 $ 19,958,074
========================================================================================================
See notes to financial statements 13
Statements of Income and Retained Earnings
Years Ended December 31,
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Operating revenues:
Residential and commercial $ 3,478,678 $ 3,355,517 $ 3,477,897
Industrial 135,701 166,074 174,395
Fire protection 687,934 680,245 670,786
Public authorities 97,839 88,238 103,343
Other 215,684 206,378 197,396
- -----------------------------------------------------------------------------------------------------------------------
4,615,836 4,496,452 4,623,817
- -----------------------------------------------------------------------------------------------------------------------
Operating deductions:
Operating expenses 2,558,261 2,434,651 2,449,348
Maintenance expenses 210,417 216,121 183,256
Depreciation 548,119 509,814 501,313
Taxes, other than income taxes 328,248 348,324 320,442
Taxes on income 191,827 161,341 278,126
- -----------------------------------------------------------------------------------------------------------------------
3,836,872 3,670,251 3,732,485
- -----------------------------------------------------------------------------------------------------------------------
778,964 826,201 891,332
Amortization of deferred income on dispositions
of land (net of income taxes of $38,424 in 2001,
$108,490 in 2000, and $192,720 in 1999) 64,524 184,548 342,960
- -----------------------------------------------------------------------------------------------------------------------
Operating income 843,488 1,010,749 1,234,292
Other income, net (including allowance for funds used
during construction of $46,375 in 2001, $75,015 in
2000, and $27,435 in 1999) 189,290 115,237 133,789
- -----------------------------------------------------------------------------------------------------------------------
Income before interest expense 1,032,778 1,125,986 1,368,081
Interest expense 511,007 533,178 448,184
Income from dispositions of land (net of income taxes of
$2,026,383 in 2001 and ($16,636) in 2000) 5,133,379 132,892 --
- -----------------------------------------------------------------------------------------------------------------------
Net income 5,655,150 725,700 919,897
Retained earnings, beginning of year 5,435,602 5,511,802 5,219,875
Dividends 943,923 801,900 627,970
- -----------------------------------------------------------------------------------------------------------------------
Retained earnings, end of year $10,146,829 $ 5,435,602 $ 5,511,802
=======================================================================================================================
Earnings per share, basic $ 3.48 $ .45 $ .59
- -----------------------------------------------------------------------------------------------------------------------
Earnings per share, diluted $ 3.41 $ .44 $ .56
- -----------------------------------------------------------------------------------------------------------------------
Dividends per share $ .58 $ .50 $ .40
- -----------------------------------------------------------------------------------------------------------------------
See notes to financial statements
14
Statements of Cash Flows
Years Ended December 31,
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 5,655,150 $ 725,700 $ 919,897
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Income from land dispositions (7,355,449) (132,892) --
Depreciation and amortization 621,080 580,657 571,330
Amortization of deferred income (102,951) (184,548) (342,960)
Deferred income taxes (398,739) 642 92,416
Allowance for funds used during construction (46,375) (75,015) (27,435)
Change in assets and liabilities:
(Increase) decrease in accounts receivable and
accrued revenues (46,759) (48,629) 10,156
(Increase) decrease in materials and supplies (24,951) 2,959 (24,996)
(Increase) decrease in prepayments (17,971) 28,170 (12,511)
Increase (decrease) in accounts payable
and accrued liabilities 33,089 94,008 (1,591,878)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (1,683,876) 991,052 (405,981)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,279,517) (2,027,386) (1,760,245)
Sales of utility plant 14,245 -- --
Proceeds from land disposition 9,868,000 200,000 --
Increase in deferred charges and other assets (733,313) (261,295)
Customer advances 11,705 35,420 70,190
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 7,881,120 (2,030,795) (1,951,350)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under line of credit 545,000 1,876,714 360,000
Repayment of long-term debt (94,000) (94,000) (94,000)
Repayments of line of credit (2,781,714) -- --
Debt issuance cost -- (3,965) --
Dividends paid, net (868,367) (742,000) (560,904)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (3,199,081) 1,036,749 (294,904)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 2,998,163 (2,994) (2,652,235)
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 41,477 44,471 2,696,706
Cash and cash equivalents, end of year $ 3,039,640 $ 41,477 $ 44,471
======================================================================================================================
See notes to financial statements
15
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.
Public Utility Regulation
The Company's accounting policies conform to the Uniform System of Accounts and
ratemaking practices prescribed by the Connecticut Department of Public Utility
Control ("DPUC"), and accounting principles generally accepted in the United
States of America, which include the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," (SFAS 71). SFAS 71 requires cost based, rate regulated enterprises
to reflect the impact of regulatory decisions in their financial statements. The
DPUC, through the rate regulation process, can create regulatory assets that
result when costs are allowed for ratemaking purposes in a period after the
period in which the costs would be charged to expense by an unregulated
enterprise. The balance sheets include regulatory assets and liabilities as
appropriate, primarily related to income taxes and post retirement benefit
costs. The Company believes, based on current regulatory circumstances, that the
regulatory assets recorded are likely to be recovered and that its use of
regulatory accounting is appropriate and in accordance with the provisions of
SFAS 71.
Estimates and assumptions
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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
Utility plant is stated at the original cost of the property when placed in
service. 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, at rates approved by the DPUC. 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. The overall depreciation rates
were 2.3% for 2001, 2.2% for 2000, and 2.4% for 1999.
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.
16
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 non-cash 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 recognizes revenue as customers are billed for water consumed.
Residential, commercial, and industrial customers are metered, and revenues are
based on their usage multiplied by rates approved by the DPUC. Fire protection
charges are based on the length and diameter of the water main and the number of
hydrants in service. The majority of customers are billed quarterly, except
for industrial customers and fire protection customers, who are billed monthly.
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 refunded over a
10-year contract period as services are connected to the main. Any unrefunded
balances are reclassified to "Contributions in aid of Construction" and are no
longer refundable. Utility plant funded by advances and contributions is
excluded from rate base for regulatory purposes.
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, 2000 and 2001, 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 $206,000 at December 31, 2001 and $201,800 at December 31,
17
2000. 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 23-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 100% of employee
contributions up to 6% of total compensation in 2001 and 50% of employee
contributions also up to 6% of compensation in 2000.
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.
18
Note 2
Utility Plant
December 31,
2001 2000
- -----------------------------------------------------------------------------
Pumping, treatment and distribution $19,891,028 $19,023,882
Source of Supply 3,035,012 3,335,435
General Plant 1,720,342 1,545,822
Organization 30,219 30,219
- -----------------------------------------------------------------------------
24,676,601 23,935,358
Construction in process 465,078 367,559
- -----------------------------------------------------------------------------
$25,141,679 $24,302,917
=============================================================================
Note 3
Other Assets
December 31, Regulatory
2001 2000 Recovery Period
-------- -------- ---------------
Regulatory assets:
Deferred post retirement benefits $156,300 $169,300 15 Years
Various deferred costs and charges 104,635 112,606 3 - 15 Years
Nonregulatory assets:
Various deferred costs and charges 69,211 85,018
-------- --------
$330,146 $366,924
======== ========
Note 4
Note Payable
Note Payable consists of a $5,000,000 2-year, unsecured line of credit expiring
in June 2002. 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 2-year, unsecured line of
credit requires the maintenance of certain financial ratios and net worth of
$7,500,000.
There were no borrowings outstanding on the line of credit at December 31, 2001
and $2,236,714 at December 31, 2000.
Note 5
Long-Term Debt
December 31,
2001 2000
- -----------------------------------------------------------------------------
First mortgage bonds, Series E. 9.64%,
due September 1, 2011 $ 4,230,000 $ 4,324,000
=============================================================================
19
Pursuant to its Mortgage Bond Indenture, the Company has outstanding a series of
first mortgage bonds in the amount of $4,230,000 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 $9,218,000 was available to pay dividends at December 31, 2001
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 6
Accounts Payable and Accrued Liabilities
December 31,
2001 2000
- -----------------------------------------------------------------------------
Accounts payable $ 155,060 $ 152,606
Accrued liabilities:
Interest 135,924 138,945
Taxes 75,373 83,750
Pension 229,682 234,211
Other 17,150 18,899
- -----------------------------------------------------------------------------
$ 613,189 $ 628,411
=============================================================================
Note 7
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:
Amortization
Deferred To Be Included
Deferred Income In Operating
Year Ending December 31: Income Taxes Income
- -----------------------------------------------------------------------------
2002 $ 557,037 $ 162,262 $ 394,775
2003 254,943 75,769 179,174
2004 19,359 8,017 11,342
2005 8,463 3,500 4,963
2006 406 164 242
Thereafter 181 73 108
- -----------------------------------------------------------------------------
$ 840,389 $ 249,785 $ 590,604
=============================================================================
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.
20
Note 8
Taxes, Other Than Income Taxes
December 31,
2001 2000 1999
- -----------------------------------------------------------------------------
Municipal $ 246,201 $ 266,466 $ 241,254
Payroll 82,047 81,858 79,188
- -----------------------------------------------------------------------------
$ 328,248 $ 348,324 $ 320,442
=============================================================================
Note 9
Income Taxes
The provisions for taxes on income for the years ended December 31, 2001, 2000
and 1999 consist of:
2001 2000 1999
- -----------------------------------------------------------------------------
Current:
Federal $ 2,665,314 $ 160,700 $ 180,800
State -- -- 4,899
Deferred:
Federal:
Accelerated depreciation 80,378 75,370 75,866
Income on land dispositions (201,937) 88,825 192,220
Investment tax credit (14,700) (14,700) (14,700)
Other 7,909 -- 261
State (280,330) (57,000) 31,500
- -----------------------------------------------------------------------------
$ 2,256,634 $ 253,195 $ 470,846
=============================================================================
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% to the effective rate follows:
2001 2000 1999
- -----------------------------------------------------------------------------
Federal income tax at statutory
rates $ 2,690,044 $ 332,825 $ 477,748
Increase (decrease) resulting from:
State income tax, net of federal
benefit (185,018) (57,645) 24,023
Bargain sale portion of land
dispositions (298,350) (25,925) (19,890)
Rate case expense 2,308 7,844 7,844
SFAS 106 expense in excess of
funding (511) (3,804) (11,634)
Other, net 62,861 14,600 7,455
Investment tax credit (14,700) (14,700) (14,700)
- -----------------------------------------------------------------------------
Total provision for income taxes 2,256,634 253,195 470,846
Taxes related to land dispositions (2,064,807) (91,854) (192,720)
- -----------------------------------------------------------------------------
Operating provision for taxes $ 191,827 $ 161,341 $ 278,126
=============================================================================
21
Deferred tax liabilities (assets) were comprised of the following:
2001 2000
- --------------------------------------------------------------
Depreciation $ 1,884,903 $ 1,869,850
Investment tax credits 290,461 305,161
Other 169,564 173,638
Gross deferred tax liabilities 2,344,928 2,348,649
Land Sales (2,631,135) (413,813)
Other (199,370) (205,588)
Gross deferred tax assets (2,830,505) (619,401)
Valuation allowance 1,869,420 --
Net deferred tax assets (961,085) (619,401)
- --------------------------------------------------------------
Total deferred income taxes $ 1,383,843 $ 1,729,248
==============================================================
The deferred tax asset related to land sales primarily represents future tax
savings resulting from sales of land required to be maintained as open space at
less than market value. The Company received a charitable contribution deduction
for federal tax purposes and tax credits for state tax purposes. Unused tax
benefits may be carried forward to reduce income taxes in future years; the
federal charitable deduction five years and state tax credits ten years.
Utilization of these benefits is subject to, among other things, the extent of
future earnings of the Company, including an estimate for anticipated rate
relief, as well as the timing of future land sales. In addition, the federal
charitable contribution deduction is subject to an annual limitation of 10% of
taxable income (as defined.) The Company has established a valuation allowance
for the portion of possible tax savings not likely to be realized by the end of
the carryforward periods.
Note 10
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,
2001, 2000 and 1999, fees paid amounted to $10,447, $12,238 and $13,702,
respectively.
Note 11
Allowance for Doubtful Accounts
December 31,
2001 2000 1999
- -----------------------------------------------------------------------------
Allowance for doubtful accounts,
beginning $ 45,000 $ 50,000 $ 50,000
Provision 11,070 (2,221) 10,590
Recoveries 7,927 3,302 6,748
Charge-offs (23,997) (6,081) (17,338)
- -----------------------------------------------------------------------------
Allowance for doubtful accounts,
ending $ 40,000 $ 45,000 $ 50,000
=============================================================================
Note 12
Pension and Other Postretirement Benefits
The following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans.
22
Pension Benefits Other Postretirement Benefits
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------
Change in Benefit Obligation:
Benefit obligation, beginning of year $ 979,792 $ 913,786 $ 453,372 $ 446,252
Service cost 53,172 45,383 26,123 24,919
Interest cost 71,379 62,115 31,311 28,786
Actuarial loss/(gain) 75,008 (10,569) 4,447 (23,466)
Benefits paid (99,203) (30,923) (21,034) (23,119)
- -----------------------------------------------------------------------------------------------------------
Benefit obligation, end of year 1,080,148 979,792 494,219 453,372
- -----------------------------------------------------------------------------------------------------------
Change in Plan Assets:
Fair value, beginning of year 792,884 806,406 391,502 368,543
Actual return on plan assets (64,943) (12,599) (23,097) (2,041)
Employer contribution 60,000 30,000 25,000 25,000
Benefits paid (99,203) (30,923) -- --
- -----------------------------------------------------------------------------------------------------------
Fair value, end of year 688,738 792,884 393,405 391,502
- -----------------------------------------------------------------------------------------------------------
Funded Status (391,410) (186,908) (100,814) (61,870)
Unrecognized net actuarial gain/(loss) 323,496 126,262 (124,662) (192,746)
Unrecognized transition obligation 58,717 64,589 279,158 304,536
Unrecognized prior service cost (32,912) (35,166) -- --
- -----------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ (42,109) $ (31,223) $ 53,682 $ 49,920
===========================================================================================================
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, an 8% 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 2005 and remain at that level thereafter.
Net periodic pension and other postretirement benefit costs include the
following components:
Pension Benefits Other Postretirement Benefits
2001 2000 1999 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Components of Net Periodic
Benefit Cost:
Service Cost $ 53,172 $ 45,383 $ 43,242 $ 26,123 $ 24,919 $ 21,202
Interest Cost 71,379 62,115 58,010 31,311 28,786 28,697
Expected return on plan assets (63,423) (65,276) (55,708) (31,404) (29,567) (24,019)
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
loss (gain) 6,140 -- 1,901 (9,136) (14,842) (10,376)
- --------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 70,886 $ 45,840 $ 51,063 $ 42,272 $ 34,674 $ 40,882
==========================================================================================================================
23
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 $ 9,314 $ (8,419)
Effect on postretirement benefit obligation $ 69,926 $ (64,223)
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, $25,000 and $50,000 in 2001, 2000 and 1999,
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, 2001 and
2000 was $221,700 and $232,900, respectively. At December 31, 2001, an amount of
$156,300 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 $55,232, $25,236 and
$23,634 in 2001, 2000 and 1999, respectively.
Note 13
Earnings Per Share Supplemental Information
The following table summarizes the number of common shares used in the
calculation of earnings per share:
2001 2000 1999
- -----------------------------------------------------------------------------
Weighted average shares outstanding
for earnings per share, basic 1,626,613 1,598,720 1,567,725
Incremental shares from assumed
conversion of stock options 32,540 47,525 73,990
- -----------------------------------------------------------------------------
Weighted average shares outstanding
for earnings per share, diluted 1,659,153 1,646,245 1,641,715
- -----------------------------------------------------------------------------
Note 14
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 $ 2,081,000 for capital expenditures in 2002, $377,000
of which is expected to be necessary to meet its service obligations for the
coming year.
24
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 $711,583,
$709,305, and $705,934 for the years 2001, 2000 and 1999, respectively. The
purchase price is based on South Central Connecticut Regional Water Authority's
wholesale rate. At December 31, 2001, this rate was $1,160 per million gallons.
This agreement expires December 31, 2015 but provides for two 10-year extensions
at the Company's option.
Note 15
Equity
Common Stock
Number
of Shares Amount
- -----------------------------------------------------------------------------
Balance, January 1, 2000 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 issued through Dividend Reinvestment Plan 4,984 75,557
Stock issued through Key Employee and
Non-Employee Stock Option Plans 4,824 19,202
Amortization of stock plan costs -- (6,762)
- -----------------------------------------------------------------------------
Balance, December 31, 2001 1,632,879 2,929,756
=============================================================================
Stock Option Plans
The Company has four stock option plans which include two non-employee director
stock option plans ("director plan") and two key employee incentive stock option
plans ("employee plan"). The first director and employee plans were adopted in
1994 and subsequently approved by the Company's shareholders and the DPUC in
1995; 80,000 and 70,000 shares, respectively, were authorized under these two
plans. The second employee plan was adopted in 1998 and approved by the
Company's shareholders and the DPUC in 1999; 60,000 shares were authorized under
this plan. The second director plan was adopted in 2000 and approved by the
Company's shareholders and DPUC in 2001; 60,000 shares were authorized under
this plan. The following table summarizes the transactions of the Company's
stock option plans for the three years ended December 31, 2001:
25
Granted Exercisable
--------------------------------------------------------
Weighted Weighted
Number Average Number Average
of Shares Exercise Price of Shares Exercise Price
- --------------------------------------------------------------------------------------------
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
Granted 12,500 $ 14.93 ==========================
Exercised (7,646) $ 5.78
- --------------------------------------------------------------
Outstanding at December 31, 2001 73,012 $ 9.46 61,762 $ 8.47
============================================================================================
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 un-issued
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 Non-cash Financing
Activities
Cash paid for interest for the years ended 2001, 2000, and 1999 was $495,799,
$519,125, and $434,956, respectively.
Cash paid for income taxes for the years ended 2001, 2000 and 1999 was
$2,603,343, $278,195, and $1,859,000, 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.
26
December 31,
2001 2000 1999
- -----------------------------------------------------------------------------
Gross plant additions $ 1,279,517 $ 2,027,386 $ 1,760,245
Customers' advances for construction (11,705) (35,420) (70,190)
- -----------------------------------------------------------------------------
$ 1,267,812 $ 1,991,966 $ 1,690,055
=============================================================================
Note 17
Quarterly Financial Data (Unaudited)
Operating Operating Dispositions Net Earnings Per Share
Revenues Income of Land Income Basic Diluted
- --------------------------------------------------------------------------------------------------------------------------
2001 First Quarter $ 1,092,352 $ 189,915 -- $ 80,870 $ .05 $ .05
Second Quarter 1,151,768 202,718 3,051,258 3,117,665 $ 1.92 $ 1.88
Third Quarter 1,236,859 310,928 2,082,121 2,348,487 $ 1.44 $ 1.41
Fourth Quarter 1,134,857 139,927 -- 108,128 $ .07 $ .07
- --------------------------------------------------------------------------------------------------------------------------
Total $ 4,615,836 $ 843,488 5,133,379 $ 5,655,150
============================================================================================
2000 First Quarter $ 1,063,515 $ 181,050 -- $ 85,453 $ .05 $ .05
Second Quarter 1,191,390 313,201 -- 198,174 $ .12 $ .12
Third Quarter 1,154,036 280,821 -- 165,619 $ .10 $ .10
Fourth Quarter 1,087,511 235,677 132,892 276,454 $ .18 $ .17
- --------------------------------------------------------------------------------------------------------------------------
Total $ 4,496,452 $ 1,010,749 132,892 $ 725,700
============================================================================================
Note 18
Subsequent Event
On January 17, 2002 the Company, in accordance with Section 16-47 of the
Connecticut General Statutes, filed an application with the DPUC requesting
approval for the establishment of a holding company. The Company believes the
holding company structure will better support business opportunities that exist
in the marketplace and separate these activities from regulated company
activities. The DPUC has 90 days to render a decision on this matter and the
Company sees no reason why the DPUC would not grant approval. The establishment
of the holding company will also need shareholder approval. The name of the
holding company will be "BIW Limited."
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 Henrietta Vitale, Secretary, Birmingham
Utilities, Inc. P.O. Box 426, Ansonia, CT 06401-0426 or
e-mail@h.vitale.Birmingham@snet.net.
27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors, their ages, the year in which each first became a
director of the Company and their principal occupations or employment during the
past five years are:
Year First Principal Occupation
Nominee Age Became Director During the Past Five Years
- ------- --- --------------- --------------------------
Michael J. Adanti 61 2000 President, Southern Connecticut State
University since 1984.
Mary Jane Burt 48 2000 Principal, The Laurel Group (Investment
and Business Consultants) since 1998;
Previously, President, Burt Medical Lab
(1984-1998); Director, INSITE ONE from
1999 to 2001.
James E. Cohen 55 1982 Lawyer in private practice in Derby, CT
since 1971; Attorney Trial Referee for
the Connecticut Superior Court since 1996.
Betsy Henley-Cohn 49 1981 Chairwoman of the Board of Directors of
the Company since 1992;
Chairperson/Treasurer, Joseph Cohn &
Sons, Inc. (construction subcontractors)
since 1979; Director, United Illuminating
Corp. since 1990; Director, Aristotle Corp.
since 1995; Director, Citizens Bank of
Connecticut (1997-1999).
Alvaro da Silva 56 1997 President, DSA Corp. (a management
company) since 1979; President B.I.D.,
Inc. (land development and home
building company); Managing Partner,
Connecticut Commercial Investors, LLC
(a commercial real estate and
investment partnership) since 1976;
Director of Great Country Bank (1991-1995).
Themis Klarides 36 2001 Lawyer in Practice in Shelton, CT since
1998; State Representative, 114 District
Connecticut General Assembly since 1998.
Aldore J. Rivers, Jr. 68 1986 Retired; President of the Company until
September 30, 1998
28
B. Lance Sauerteig 56 1996 Principal in BLS Strategic Capital,
Inc. (financial and investment advisory
company) since 1994; Principal in
Tortoise Capital Partners, LLC (real
estate investments) since 2000.
Kenneth E. Schaible 60 1994 Real Estate Developer and Director of
AuthX, Inc.; previously, Senior Vice
President, Webster Bank, 1995-1996;
President, Shelton Savings Bank and
Shelton Bancorp., Inc. 1972-1995.
John S. Tomac 48 1999 President of Company since October 1,
1998; Treasurer of the Company since
December 1997; Vice President of
Company December 1, 1997-September 30,
1998; Assistant Controller, BHC
Company, 1991-1997.
See also "Executive Officers of the Registrant", following Part I, Item
1 herein.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors, and persons who beneficially own more than ten
percent of our common stock, to file initial reports of ownership and reports of
changes in ownership with the SEC and the American Stock Exchange. Executive
officers, directors and greater than ten percent beneficial owners are required
by the SEC to furnish us with copies of all Section 16(a) forms they file.
Based upon a review of the copies of these forms furnished to us and
written representations from our executive officers and directors, we believe
that during fiscal 2001 all executive officers, directors and greater than ten
percent beneficial owners complied with Section 16(a) filing requirements, with
the following exceptions: each of Michael Adanti, a director and Mary Jane Burt,
a director, failed to make a timely filing to disclose the grant of options
during calendar year 2000; each has now made a filing to disclose such grants.
ITEM 11. EXECUTIVE COMPENSATION
Executive Officers: Annual and Long-Term Executive Compensation
The following table sets forth the annual and long-term compensation
paid or accrued by the Company to those persons who were the Chief Executive
Officer and the executive officers of the Company at the end of 2001 whose total
annual salary exceeded $100,000 (collectively, the "Named Executive Officers"),
for services rendered by them in all capacities in which they served the Company
during 1999, 2000 and 2001. The following table does not contain a column for
"Other Annual Compsensation" because the amount of perquisites and other
personal benefits received by the Named Executive Officers was less than the
lesser of $50,000 or 10% of the total salary and bonus reported for each person.
29
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION
-------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS
--------------------------- ---- ---------- -------
John S. Tomac 2001 $116,600 $39,613
President and Director 2000 $109,727 $ 0
1999 $105,098 $ 0
Betsy Henley-Cohn 2001 $ 67,100 $20,000
Chairman of the Board 2000 $ 61,000 $ 0
and Chief Executive Officer 1999 $ 61,000 $ 0
No grants of stock options were made during the year ended December 31,
2001 to the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END (#) YEAR-END($)
------------------------------ ------------------------------
SHARES VALUE
ACQUIRED ON REALIZED
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ---------- ----------- ------------- ----------- -------------
John. S. Tomac 1,576 $12,115.50 9,630 8,000 $106,291 $67,738
Betsy Henley-Cohn 0 -- 0 0 -- --
Retirement Plan
The Company has a noncontributory defined benefit plan, which covers
substantially all employees. The retirement plan generally provides a retirement
benefit based upon the participant's years of credited service and his or her
final average earnings, with final average earnings consisting of the total
compensation (including salary, bonus and overtime earnings) of the participant
during the five years of highest total compensation of the participant in the 10
years preceding the participant's retirement or termination date. Retirement
benefits are payable either as a straight life annuity, a joint and survivor
annuity or in other optional forms. Normal retirement is at age 65, but certain
early retirement benefits may be payable to participants who have attained age
55 and completed 10 years of continuous service, and survivor benefits may be
payable to the surviving spouse of a vested participant who dies prior to early
or normal retirement. A participant's benefit under the retirement plan vests
after five years of credited service, all benefits funded by Birmingham
Utilities are based upon actuarial computations, and no contributions are made
by participants.
The following table shows estimated annual benefits payable under the
plan to participants in specified compensation (final average earnings) and
years-of-service classifications on a straight life annuity basis, assuming
normal retirement at age 65 in 2001. The benefits listed in the following table
are not subject to any deduction for social security or other offset amounts.
30
YEARS OF SERVICE (b)
FINAL AVERAGE ----------------------------------------------------------
EARNINGS (a) 15 20 25 30 35
- ------------- ------ ------ ------ ------ ------
125,000 24,375 32,500 40,625 48,750 56,875
150,000 29,250 39,000 48,750 58,500 68,250
175,000 34,125 45,500 56,875 68,250 79,625
200,000 39,000 52,000 65,000 78,000 91,000
(a) The current final average earnings as of December 31, 2001 for Betsy
Henley-Cohn and John S. Tomac are $60,393 and $116,718, respectively.
(b) Years of credited service under the retirement plan as of December 31, 2001
for Betsy Henley-Cohn and John S. Tomac are 6 and 4, respectively.
Compensation of Directors
The Company's Directors received an annual fee of $5,000 plus $600 for
each full Board meeting and $400 for each Committee meeting actually attended in
2001.
Employment Contracts
John S. Tomac
-------------
Effective October 1, 1998, Birmingham Utilities entered into an
employment agreement with its President, John S. Tomac. The agreement has a
three-year term with automatic three-year extensions, unless either party gives
written notice that the agreement will no longer be automatically extended. No
notice was given in 2001 and this agreement was extended to September 30, 2004.
The employment agreement terminates upon the death of Mr. Tomac or upon mutual
agreement of the parties. The agreement can be terminated by the Company: (i)
for "cause" (as defined in the employment agreement), (ii) in the event Mr.
Tomac becomes disabled, or (iii) without cause, during a six month period during
each term; provided however, that if Mr. Tomac is terminated without cause
during such six month period, he is entitled to receive a severance package
equal to his base salary plus benefits for one year from the date of such
termination. Mr. Tomac may terminate the agreement in the event of a Change of
Control (as defined in the employment agreement) or in the event that Birmingham
Utilities breaches this agreement. If Mr. Tomac elects to terminate the
agreement upon a Change of Control, he will be entitled to receive a lump sum
payment, payable within 90 days of making the election, equal to two times the
greater of (x) his compensation during the last full fiscal year immediately
preceding the election and (y) his average annual compensation with respect to
the two most recent fiscal years preceding such election. Mr. Tomac's
compensation for purposes of the foregoing calculation includes base salary,
bonus and any other cash incentives paid to him. If Mr. Tomac does not elect to
terminate the agreement upon a Change of Control, the agreement will continue in
effect for a period of three years from the Change of Control and then
terminate. None of these termination provisions will become applicable by reason
of the implementation of the plan of merger and share exchange.
The employment agreement provides for an annual salary of $100,000 and
provides that the Board of Directors shall review Mr. Tomac's salary annually.
In addition, Birmingham Utilities agrees to provide an automobile for Mr. Tomac
and agrees to pay all expenses in connection with the operation of the vehicle,
31
including fuel expenses. Pursuant to the employment agreement, Mr. Tomac is
entitled to four weeks paid vacation, to be taken each year and is also entitled
to participate in any employee welfare and retirement plan or program of
Birmingham Utilities available generally to its employees including hospital,
medical and dental benefits.
Under the employment agreement, Birmingham Utilities agrees to
indemnify Mr. Tomac to the fullest extent possible under Connecticut law against
all costs, charges and expenses incurred by him in connection with any action,
suit or proceeding to which he may be made a party by reason of his being or
having been a director, officer or employee of Birmingham Utilities or his
serving or having served any other enterprise as a director, officer or employee
at the request of Birmingham Utilities. In addition, Mr. Tomac is entitled to
the protection of any insurance policies Birmingham Utilities may elect to
maintain generally for the benefit of its directors and officers with respect to
such costs, charges and expenses.
Aldore J. Rivers, Jr.
--------------------
Effective September 30, 1998, Birmingham Utilities entered into a
consulting agreement with its former president, Aldore J. Rivers. The agreement
terminated Mr. Rivers' prior employment agreement and released him from his
duties as an officer and employee of Birmingham Utilities.
The consulting agreement provides that Mr. Rivers will provide
consulting services to Birmingham Utilities until September 30, 2003, provided
that either party may terminate the consulting arrangement upon three months
written notice. Under the agreement, Mr. Rivers provides up to 100 hours of
consulting services per year at the request of Birmingham Utilities and in
exchange, receives $30,000 per year. Under the agreement, Mr. Rivers also serves
on the board of directors of Birmingham Utilities and receives no additional
compensation as a non-employee director.
The consulting agreement also provides Mr. Rivers with supplemental
pension benefits of $2,400 per month for fifteen years and provides that in the
event of his death during that fifteen year period, his designated beneficiaries
shall receive $1,200 per month for the remainder of the period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth information as of March 8, 2002 with
respect to the only persons known to us to be the beneficial owners (for
purposes of the rules of the SEC) of more than 5% of the outstanding shares of
our common stock as of that date.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ----------------- -------------------- ----------------
Group consisting of Cohn Realty & 159,896 9.79%
Investment, Betsy Henley-Cohn, Betsy
Cohn Spray Trust and Betsy Cohn
Income Trust, 80 Hamilton Street,
New Haven, Connecticut 06511
(1) Of the 159,896 shares owned by this Group, Betsy Henley-Cohn owns 10,000
shares, Cohn Realty & Investment (a Connecticut general partnership consisting
of three investment trusts whose managing agent is Betsy Henley-Cohn, whose
beneficiaries are certain members of the Cohn Family and whose Trustees are
Rhoda Cohn and Stanley Bergman) has beneficial ownership of 68,300 shares; Betsy
32
Cohn Spray Trust has beneficial ownership of 60,276 shares; Betsy Cohn Income
Trust has beneficial ownership of 21,320 shares; Betsy Henley-Cohn has either a
controlling or a beneficial interest in Cohn Realty & Investment, Betsy Cohn
Spray Trust and Betsy Cohn Income Trust. No member of the Group owns or has the
right to acquire, directly or indirectly, any other shares. Unless otherwise
indicated, the named beneficial owner of the shares has sole voting and
dispositive power with respect thereto. The information set forth in this
footnote is derived from filings with the Securities and Exchange Commission
made by the Group and from other information available to Birmingham Utilities.
The following table sets forth certain information concerning ownership
of the Company's shares by the Company's officers and directors.
--------------------------- ------------------------------- ------------------
Name Common Shares Beneficially Percent of Class
---- ------------------------------- ------------------
Owned As of March 8, 2002 (1) (2)
--------------------------- ------------------------------- ------------------
Michael J. Adanti 5,900 *
Mary Jane Burt 9,482 *
James E. Cohen 77,596 (3) 4.72%
Betsy Henley-Cohn 159,896 (4) 9.79%
Alvaro da Silva 12,400 *
Themis Klarides 200 *
Aldore J. Rivers, 10,209 *
Jr.
B. Lance Sauerteig 10,400 *
Kenneth E. Schaible 12,960 *
John S. Tomac 11,206 *
Executive Officers, 310,249 18.41%
Directors
And Nominees as a group,
10 in number
--------------------------- ------------------------------- ------------------
* Less than 1%
(1) Includes options to purchase shares of common stock exercisable within 60
days of April 2, 2002, as follows: Mr. Cohen, 10,000; Mr. da Silva, 10,000; Mr.
Sauerteig, 10,000; Mr. Schaible, 10,000; Ms. Burt, 1,250; Mr. Adanti, 1,250 and
Mr. Tomac 9,630.
(2) For the purpose of calculating the percentage of common stock beneficially
owned (a) by the individual persons listed in the table, the number of options
held by such person is included in both the number of shares beneficially owned
by the person and in the total number of shares outstanding in the class with
respect to the individual person's percentage calculation, and (b) by the
directors and officers as a group, the total number of shares beneficially owned
by the group and the total number of shares outstanding includes the 52,130
shares issuable upon the exercise of options exercisable by all persons in the
group within 60 days of the record date.
(3) Includes 64,196 shares held by Mr. Cohen as Trustee for the David B. Cohen
Family Trust, and 3,400 shares held in a brokerage custodial account for Mr.
Cohen's benefit.
(4) Ms. Henley-Cohn is a member of the shareholder group described in the
preceding table. The 159,896 shares set forth in this table is the aggregate
number of shares held by all of the members of the group. See note (1) to the
preceding table for information concerning shares beneficially held by Ms.
Henley-Cohn.
33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Cohen is a partner in the law firm of Cohen & Thomas, which has
represented the Company on occasions in past years; the Company may continue to
employ that firm on occasion in the future. Annual amounts paid since 1999 have
been under $15,000.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Page*
Selected Financial Data 5
Management's Discussion and Analysis 5-11
Report of Independent Accountants 12
Balance Sheets at December 31, 2001 13
Statements of Income and Retained 14
earnings for the three years ended
December 31, 2001
Statements of Cash Flows for the three 15
years ended December 31, 2001
Notes to the Consolidated Financial Statements 16-27
* Refers to the page of this Form 10-K/A Amendment No. 3.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant
during the last quarter of 2001.
(c) Exhibits.
--------
(3) Certificate of Incorporation and By-Laws of Birmingham Utilities, Inc.
Incorporated herein by reference to Exhibit 3 of Birmingham Utilities, Inc.'s
Annual report on Form 10K for the period ended December 31, 1994.
(4) Instruments Defining Rights of Security Holders
(4.1) Amended and Restated Mortgage Indenture by and between The
Ansonia Derby Water Company and The Connecticut National Bank as Trustee, dated
as of August 9, 1991. Incorporated herein by reference to Exhibit (4.1) of the
Annual Report on Form 10-K of Birmingham Utilities, Inc., for the period ended
December 31, 1999.
(4.2) Commercial Loan Agreement by and between Birmingham Utilities, Inc.
and Citizens Bank, dated July 28, 2000. Incorporated herein by reference to
Exhibit (4.2) of the Annual Report on Form 10-K of Birmingham Utilities, Inc.,
for the period ended December 31, 2000.
34
(4.3) Birmingham Utilities, Inc. Dividend Reinvestment Plan, adopted by its
Board of Directors on September 13, 1994. Incorporated herein by reference to
Exhibit 4 (iii) of Birmingham Utilities, Inc.'s Annual Report on Form 10-K for
the period ended December 31, 1994.
(10) Material Contracts
(10.1) Agreement to Purchase Water by and between The Ansonia Derby Water
Company and South Central Connecticut Regional Water Authority dated January 18,
1984 for the sale of water by the Authority to the Company and subsequent
amendment dated December 29, 1988. Incorporated herein by reference to Exhibit
(10.1) of the Annual Report on Form 10-K of Birmingham Utilities, Inc. for the
period ended December 31, 1999.
(10.2) Agreement to Purchase Water by and between The Ansonia Derby Water
Company and South Central Connecticut Regional Water Authority dated November
30, 1984 for the sale by the Authority to the company of water and for the
construction of the pipeline and pumping and storage facilities in connection
therewith by the Authority at the expense primarily of the Company and
Bridgeport Hydraulic Company. Incorporated herein by reference to Exhibit (10.2)
of the Annual Report on Form 10-K of Birmingham Utilities, Inc. for the period
ended December 31, 1996.
(10.3) Employment Agreement between Birmingham Utilities, Inc. and John S.
Tomac dated October 1, 1998. Incorporated herein by reference to Exhibit (10.3)
of the Annual Report on Form 10-K of Birmingham Utilities, Inc. for the period
ended December 31, 1998.
(10.4) Birmingham Utilities, Inc. 1994 Stock Incentive Plan adopted by its
Board of Directors on September 13, 1994. Incorporated herein by reference to
Exhibit (10.9) of Birmingham Utilities, Inc.'s Annual Report on Form 10-K for
the period ended December 31, 1994.
(10.5) Birmingham Utilities, Inc. 1994 Stock Option Plan for Non-Employee
Directors adopted by its Board of Directors on September 13, 1994. Incorporated
herein by reference to Exhibit (10.10) of Birmingham Utilities, Inc.'s Annual
Report on Form 10-K for the period ended December 31, 1994.
(10.6) Birmingham Utilities, Inc. 1998 Stock Incentive Plan adopted by its
Board of Directors on December 9, 1998. Incorporated herein by reference to
Exhibit (10.8) of Birmingham Utilities, Inc.'s Annual Report on Form 10-K for
the period ended December 31, 1999.
(10.7) Birmingham Utilities, Inc. 2000 Stock Option Plan for non-employee
Directors adopted by its Board of Directors on September 6, 2000. Incorporated
herein by reference to Exhibit (10.9) of Birmingham Utilities, Inc.'s Annual
Report on Form 10-K for the period ended December 31, 2000.
(23) Consent of Auditors.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant) BIRMINGHAM UTILITIES, INC.
BY: /s/ Betsy Henley-Cohn
---------------------------------------
Betsy Henley-Cohn
Chairwoman of the Board (Chief Executive Officer)
BY: /s/ John S. Tomac
---------------------------------------
John S. Tomac
President and Treasurer (Chief Financial Officer)
Date: May 20, 2002
36
BIRMINGHAM UTILITIES, INC.
INDEX TO EXHIBITS
Item No. Page No.
23 Consent of Dworken, Hillman, LaMorte 38
& Sterczala, P.C.
37