BIW LIMITED
230 BEAVER STREET
ANSONIA, CT 06401
203-735-1888 (PHONE)
203-732-2616 (FAX)
July 14, 2005
VIA EDGAR
Mr. Michael Moran
Accounting Branch Chief
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, D.C. 20549
Re: BIW Limited
Form 10-K for the Year Ended
December 31, 2004
Filed March 31, 2005
File No. 1-31374
Dear Mr. Moran:
Thank you for your June 23, 2005 letter. Our responses to each of the comments
are indicated below.
BIW Limited is fully committed to providing effective, transparent disclosure,
so we welcome the SEC 10-K comment process and want to be responsive. If you
have any questions or additional concerns, we'd be pleased to discuss them with
you or your designee. You may contact me for that purpose at 203-735-1888.
Part IV, Page 7
- ---------------
Item 15. Exhibits and Financial Statement Schedule, page 7
- ----------------------------------------------------------
1. Please advise or include in future filings a reconciliation of sales
refund allowances. See Rule 12-09 of Regulation S-X. In your response,
please show us what your revised schedule will look like.
Response: The Company does not provide sales refunds. Please see Note
11, on pages 24 and 25 of the Company's 2004 Annual Report for a
reconciliation of allowance for doubtful accounts.
Exhibit 13
----------
2004 Annual Report, BIW Limited
-------------------------------
Financial Highlights, page 1
----------------------------
2. Include a brief description of issues, or cross reference to other
disclosures in your filing, that materially impact the comparability
of the information presented in your selected financial data, as
required by Item 301(b)2 of Regulation S-K. Your description or
references to other disclosures should quantify the effects of:
o non-recurring approved rate cases on regulated revenues;
o the costs associated with the relocation of the Eastern Division
office and staff reorganizations;
o the non-recurring, unexpected water purchase costs in the Eastern
Division;
o the pre and post acquisition impact Eastern Connecticut Regional
Water Company, Inc. has had on regulated and non-regulated
revenues, operating expenses, total assets, short and long-term
debt and interest expense; and
o the issuance of $9 million in First Mortgage Bonds at a
significantly reduced interest rate and the related savings on
interest expense.
Response: In future Annual Reports, the Company will cross reference
the Financial Highlights which in 2004 are contained on page 1 in the
2004 Annual Report to the Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) section of the
report which are shown on pages 6 through 13.
In response to the Staff's specific comment concerning non-recurring
approved rate cases on regulated revenues, the Company notes that it
will from time to time file an application with the Department of
Public Utility Control (DPUC) for an increase in its water service
rates for its regulated operations. The costs associated with the
filing and the adjudication of the application will be deferred and
then amortized over a period of time as determined by the DPUC when
the new water service rates become effective. These expenses then
become an ordinary operating expense for regulatory purposes and are
paid for by the customer.
The Company in the future will be more specific in disclosing the
amounts associated with statements made in the annual report. In
response to the Staff's comment concerning the relocation of the
Eastern Division office, staff reorganizations and purchased water
costs, those expenses were approximately $150,000.
The Company believes it has properly disclosed the pre and post
acquisition impact of the Eastern Connecticut Regional Water Company
acquisition throughout the MD&A section of the 2004 Annual Report,
pages 6 through 13. The Company also believes that the explanation
under the heading "Interest Expense" on page 8 of the MD&A section
appropriately describes the effect of the $9 million in First Mortgage
Bonds in interest expense. See also the disclosure of future scheduled
interest
payments for long-term obligations based on the Company's response to
Comment #3.
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations, page 6
- ------------------
Off-Balance Sheet Arrangements and Contractual Obligations, page 12
- -------------------------------------------------------------------
3. Please disclose scheduled interest payments for long-term obligations
in your table of contractual obligations. When interest rates are
variable and unknown, estimates of future variable rate interest
payments may be included or excluded provided you include the
appropriate disclosure in a footnote to the table. Please show us what
your revised disclosures will look like. See the instruments to Item
303(a) of Regulation S-K.
Response: The Company will revise future filings to include interest
payments for long-term obligations. The following is what the revised
disclosure would look like:
Less than More than
Total 1 year 1-3 years 4-5 years 5 years
----------- ---------- ---------- ---------- -----------
Debt obligations
Series F Mortgage Bonds $ 9,000,000 $ 9,000,000
Interest on Series F Mortgage Bonds $ 3,047,850 468,900 937,800 937,800 703,350
Note Payable (1) $ 2,255,000 2,255,000
Purchase Obligations
Regional Water Authority $ 7,755,000 705,000 1,410,000 1,410,000 4,230,000
Other Obligations
Capital Budget (2) $ 2,059,000 319,000 385,000 340,000 1,015,000
Operating Lease $ 254,250 56,500 113,000 84,750
---------- ----------
Defined Benefit Pension $ 100,000 100,000
----------- ----------
Total $24,471,100 $3,904,400 $2,845,800 $2,772,550 $14,948,350
=========== ========== ========== ========== ===========
(1) Short-term borrowings at a variable rate (2) Includes only Tier 1 additions
Notes to Consolidated Financial Statements, page 18
- ---------------------------------------------------
Note 1 Accounting Policies, page 18
- -----------------------------------
Utility Plant, page 18
- ----------------------
4. We note you are required to receive approval from the Connecticut
Department of Public Health before you may abandon or dispose of land
holdings associated with a source of water supply. Please tell us if
you have a legal obligation, as described in SFAS No. 143, to incur
retirement costs for your water supply sources. If so, tell us if you
can reasonably estimate the fair value for asset retirement
obligations, the amounts you have recorded and if you recorded the
initial application of the
Statement as a change in accounting principle in accordance with
paragraph 20 of APB No. 20. Also, tell us if you recognized a
regulatory asset or liability for the timing differences between the
recognition of asset retirement obligation period costs for financial
reporting purposes and for ratemaking purposes. See paragraph 20 of
SFAS No. 143. If you cannot reasonably estimate the fair value of
retirement liabilities for asset retirement obligations please include
in your response a description of the reasons precluding you from
recording these estimates and when you estimate you will incur asset
retirement obligations.
Response: The Company has no legal obligations nor does it have any
plans to retire any water supply sources. The Company has not
recognized a regulatory asset or liability for timing differences
between the recognition of asset retirement obligation period costs
for financial and ratemaking purposes. Generally, water company lands
are pristine parcels of property that a water utility has owned and
protected for generations. If a parcel is abandoned because it is
considered excess for the supply purposes, and the Department of
Health approves the abandonment, there are no significant costs to the
Company.
Depreciation, page 18
---------------------
5. Please disclose your depreciation policy for non-regulated property,
plant and equipment. Include in your response why H2O Services did not
record any depreciation expense in the three fiscal years ended
December 31, 2004 as disclosed in your segment disclosures on page 30.
Response:
---------
The Company will revise future filings to include the following
disclosure in Note 1:
OTHER PROPERTY
Other property is stated at cost and consists of property and
equipment of H20 Services, the Company's non-regulated
subsidiary. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets.
In response to the Staff's specific comment concerning depreciation
expense, the Company notes that prior to the acquisition in October
2003, H2O services had no depreciation expense as it did not own any
equipment. Work was performed using equipment owned by Birmingham
Utilities and the appropriate intercompany charges were recorded. Due
to its immateriality, depreciation expense for 2003 and 2004 was not
recorded. However, the Company will include depreciation expense on
its non-regulated assets in all future filings. The following table
illustrates the fixed assets owned by H2O Services from the date of
acquisition through 12/31/2004:
Calculated Projected
Depreciation Annual
Description Cost Through 12/31/04 Depreciation
----------- ---- ---------------- ------------
Acquisition - Land $300,000 N/A N/A
Acquisition - Building 85,000 2,543 2,179
Improvements to Building 15,279 673 1,130
Office Furniture and Equipment 7,799 130 780
Equipment 4,716 270 472
Computers and Programming 6,906 1,823 1,381
-------- ------ ------
$419,700 $5,439 $5,942
======== ====== ======
Revenue Recognition, page 19
----------------------------
6. Expand the H2O non-regulated revenue recognition policy to discuss
contract operations, maintenance services, water testing services,
billing services and other products or services this segment may
offer. Tell us how you bill and recognize revenue for contracted
services, unplanned additional services and how you estimate the fair
value of these services. Include accounting pronouncements as
applicable. In your response please show us what your revised
disclosures will look like.
Response:
---------
The Company will revise future filings to include the following
revenue recognition disclosure related to non-regulated operations:
H2O Services bills customers and recognizes revenue from its
construction projects monthly as the services are provided. These
projects are short-term in nature, typically requiring less than
one month to complete.
H2O Services bills customers and recognizes revenue from its
routine maintenance and water testing services monthly as the
services are provided. Repairs are not included in these services
and are performed on an as needed basis for an additional charge
based upon the specific nature of the necessary repair.
Note 2 Acquisition, page 20
---------------------------
7. We note your purchase price allocation does not identify any acquired
intangible assets or assign excess cost over the amounts assigned to
acquired assets and assumed liabilities as goodwill. Tell us your
basis for allocating the cost of the acquired entity based on its
estimated fair value on the date of acquisition as described in
paragraphs 36 - 46 of SFAS No. 141. In your response include the
assumptions, independent appraisals or other relevant information used
to estimate fair value.
Response:
---------
The basis for allocating the purchase price of the acquired entity
based on its estimated fair market value on the date of acquisition
was determined as follows:
ACQUIRED ASSET/LIABILITY METHOD USED TO DETERMINE FAIR MARKET VALUE
- ------------------------ ------------------------------------------
Utility plant Estimated fair market value was based on
Construction in process the net book value of the acquired assets
Contributions in aid of and liabilities on the date of
construction acquisition. Under ratemaking policies of
the Department of Public Utility Control
(DPUC), the Company is allowed to earn a
rate of return on its rate base, defined
as net utility plant less contributions in
aid of construction. Thus rate base
represents the amount upon which the
Company's regulated revenues are
established by the DPUC and the Company
believes are indicative of fair market
value.
Other property Represents the fair market value of the
non-regulated assets acquired by H20
Services and are based on an appraisal
performed by Sheehy, LLC dated December
12, 2003.
Accounts receivable Fair market value was determined based
Accounts payable upon actual cash amounts received and paid
on balances outstanding on the date of
acquisition subsequent to the acquisition.
Material and supplies Fair market value for materials and
supplies, comprised primarily of
chemicals, small pipes and related
fixtures was estimated using current
replacement costs.
Note 3 Utility Plant, page 21
-----------------------------
8. Please advise or revise your future interim and annual filings to
disclose regulated and non-regulated property, plant and equipment,
depreciation expense and accumulated depreciation balances separately
as of your balance sheet dates. In your response, please show us what
your revised disclosure will look like.
Response: As noted in our response to Comment #5, future filings will
include a disclosure of "Other property" in Note 1 to clearly identify
non-regulated property on the balance sheet. Currently, annual
depreciation expense on non-regulated assets is projected to be less
than $6,000, and the Company has deemed this amount to be immaterial
to warrant financial statement disclosure. However, in future filings,
should amounts reach levels deemed material, all appropriate
disclosures will be included.
Note 12 Employee Benefits, page 25
----------------------------------
9. Please tell us why the assumed discount rate of 8% is a representative
assumption for use in the measurement of your benefit obligations and
net periodic pension cost for the prior three fiscal years. In
selecting the discount rate it is generally a best practice approach
to look to available information in current prices of annuity
contracts that can be used to effect settlement of your obligation or
look to annuity rates published by the Pension Benefit Guaranty
Corporation ("PBGC"). The interest rate the PBGC will charge on
employer liability during the calendar quarter beginning January 1 and
ending March 31, 2005, is 5.25%. See paragraphs 43 - 48 of SFAS No.
87.
Response: In our opinion, after consultation with our actuarial firm,
an assumed discount rate of 8% is a representative and reasonable
assumption for measuring the benefit obligations and net periodic
pension cost for the prior three fiscal years. We believe that using a
lower rate, such as one of the annuity rates published by the Pension
Benefit Guaranty Corporation, or adjusting rates based on short-term
stock market or interest rate fluctuations, would have produced
unrealistic benefit obligations and net periodic pension costs.
Because the pension plan is ongoing and subject to primarily long-term
obligations, we believe that our assumption is an appropriate one,
since it is based upon the expectation that the basis for the discount
rate will revert to levels based on long-term historical trends.
Note 18 Segment Information, page 30
------------------------------------
10. Please advise or revise your segment disclosures to include interest
expense, amortization of deferred income on land dispositions and
total expenditures for additions to long-lived assets and deferred tax
assets for each reportable segment. See paragraphs 27.e.,f. and 28.b.
of SFAS No. 131.
Response:
---------
The Company will revise future filings to include the items noted. The
following is what the revised disclosure would look like:
Amortization of
Interest Deferred Income on Deferred
Expense Land Dispositions Tax Liability
------- ----------------- -------------
For the year ended
December 31, 2004
Birmingham Utilities $553,072 $ 11,342 $2,554,657
H2O Services 21,112
-------- -------- ----------
Total Consolidated $574,184 $ 11,342 $2,554,657
======== ======== ==========
For the year ended
December 31, 2003
Birmingham Utilities $432,678 $179,172 $2,397,034
H2O Services
-------- -------- ----------
Total Consolidated $432,678 $179,172 $2,397,034
======== ======== ==========
For the year ended
December 31, 2002
Birmingham Utilities $422,155 $394,775 $1,797,075
H2O Services
-------- -------- ----------
Total Consolidated $422,155 $394,775 $1,797,075
======== ======== ==========
Please note that capital expenditures is segregated on the Statement
of Cash Flows on page 17 of the Company's annual report as follows:
Capital expenditures - utility plant Capital
expenditures - other property.
As discussed previously in our response to Comment #5, the additional
disclosure regarding "Other property" to be included in Note 1 of
future filings will clarify that these capital expenditures relate to
the Company's regulated and non-regulated segments.
*****
As requested in your June 23, 2005 letter, we hereby acknowledge that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
As indicated above, if you have any questions or comments, please do not
hesitate to call me at 203-735-1888.
Sincerely,
/s/ John S. Tomac
---------------------
John S. Tomac
President
cc: Brian V. McAllister (SEC)
William Lesko (Dworken Hillman LaMorte & Sterczala PC)
Michael Grundei (Wiggin and Dana LLP)