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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE SECOND QUARTERLY PERIOD ENDED JUNE 30, 2005
COMMISSION FILE NUMBER 1-31374
BIW LIMITED
(Exact name of registrant as specified in its charter)
Connecticut 04-3617838
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(State of Incorporation or Organization) (I.R.S Employer I.D. No.)
230 BEAVER STREET, ANSONIA, CT 06401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 735-1888
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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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 10, 2005
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COMMON STOCK, NO PAR VALUE 1,662,079
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PART I. FINANCIAL INFORMATION
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ITEM 1 FINANCIAL STATEMENTS
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BIW Limited
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CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
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(UNAUDITED)
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Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Operating revenue $2,589,002 $2,426,300 $4,557,438 $4,537,757
---------- ---------- ---------- ----------
Operating expenses:
Operating expenses 1,445,866 1,579,483 2,740,096 2,915,644
Maintenance expenses 80,263 117,118 222,282 251,843
Depreciation 185,000 190,000 370,000 370,000
Taxes other than income taxes 170,530 134,490 338,963 271,259
Taxes on income 171,875 80,583 177,762 133,850
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Total operating expenses 2,053,534 2,101,674 3,849,103 3,942,596
---------- ---------- ---------- ----------
Utility operating income 535,468 324,626 708,335 595,161
Amortization of prior years'
deferred income on land dispositions
(net of income taxes) 1,240 2,836 2,481 5,671
Other income, net (including allowance
for funds used during construction of
$30,481 in 2005 and $94,185 in 2004) 4,522 53,178 38,942 110,522
---------- ---------- ---------- ----------
Income before interest expense 541,230 380,640 749,758 711,354
Interest and amortization of debt discount 163,494 141,898 317,829 270,727
---------- ---------- ---------- ----------
Net income 377,736 238,742 431,929 440,627
Retained earnings, beginning 8,983,468 9,744,850 9,211,403 9,822,197
Dividends 282,129 279,232 564,257 558,464
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Retained earnings, ending $9,079,075 $9,704,360 $9,079,075 $9,704,360
========== ========== ========== ==========
Earnings per share - basic $ .23 $ .15 $ .26 $ .27
========== ========== ========== ==========
Earnings per share - diluted $ .23 $ .14 $ .26 $ .26
========== ========== ========== ==========
Dividends per share $ .17 $ .17 $ .34 $ .34
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2
BIW Limited
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CONSOLIDATED BALANCE SHEETS
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(Unaudited)
June 30, Dec. 31,
2005 2004
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ASSETS:
- -------
Utility plant $ 36,850,822 $ 35,261,167
Accumulated depreciation (9,625,240) (9,213,681)
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Net utility plant 27,225,582 26,047,486
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Other property, net 467,380 419,700
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Current assets:
Accounts receivable, net of
allowance for doubtful accounts 1,289,546 1,338,362
Accrued utility revenue 868,024 560,563
Materials & supplies 384,434 312,638
Prepayments 227,589 195,329
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Total current assets 2,769,593 2,406,892
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Deferred charges 140,337 137,007
Unamortized debt expense 366,620 391,932
Regulatory asset - income taxes recoverable 437,501 437,501
Other assets 394,980 387,725
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1,339,438 1,354,165
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$ 31,801,993 $ 30,228,243
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STOCKHOLDERS' EQUITY AND LIABILITIES:
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Stockholders' equity:
Common stock, no par value, authorized 5,000,000
shares; issued and outstanding 6/30/05 -
1,659,579 shares; 12/31/04 - 1,657,542 shares $ 2,975,972 $ 2,975,972
Retained earnings 9,079,075 9,211,403
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12,055,047 12,187,375
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Long-term debt 9,000,000 9,000,000
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Current liabilities:
Note payable 3,355,000 2,255,000
Accounts payable and accrued liabilities 1,407,921 799,382
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Total current liabilities 4,762,921 3,054,382
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Customers' advances for construction 487,478 491,950
Contributions in aid of construction 2,815,757 2,803,914
Regulatory liability-income taxes refundable 126,913 126,913
Deferred income taxes 2,549,056 2,554,657
Deferred income on disposition of land 4,821 9,052
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5,984,025 5,986,486
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$ 31,801,993 $ 30,228,243
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The accompanying notes are an integral part of these consolidated financial
statements.
3
BIW Limited
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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Six Months Ended June 30,
Cash flows from operating activities 2005 2004
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Net income $ 431,929 $ 440,627
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 395,513 426,984
Amortization of deferred income, net of tax (2,481) (5,671)
Deferred income taxes (7,350) (7,350)
Increases and decreases in assets and liabilities:
Accounts receivable and accrued utility revenue (258,645) (303,350)
Materials and supplies (71,796) (7,128)
Prepayments (32,260) 43,548
Accounts payable and accrued expenses 608,337 (357,726)
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Total adjustments 631,318 (210,693)
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Net cash flows provided by operating activities 1,063,247 229,934
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Cash flows from investing activities:
Capital expenditures - utility plant (1,582,284) (1,009,388)
Capital expenditures - other property (47,680) --
Sales of utility plant 41,559 --
Other assets and deferred charges, net (10,585) (431,728)
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Net cash flows used in investing activities (1,598,990) (1,441,116)
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Cash flows from financing activities:
Dividends paid (564,257) (558,464)
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Increase in long-term debt -- 9,000,000
Repayment of long-term debt -- (4,042,000)
Advances (repayments) on line of credit, net 1,100,000 (2,950,000)
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Net cash flows provided by
financing activities: 535,743 1,449,536
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Net change in cash & cash equivalents -- 238,354
Cash and cash equivalents, beginning -- 148,618
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Cash and cash equivalents, ending $ -- $ 386,972
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Supplemental disclosure of cash flow information:
Cash paid for
Interest $ 292,517 $ 303,037
Income taxes 76,900 10,000
Supplemental disclosure of non-cash investing activities:
Birmingham Utilities receives contributions of plant
from builders and developers. These contributions of
plant are reported in utility plant and in customers'
advances for construction. The contributions are
deducted from construction expenditures by BUI
Gross plant, additions 1,589,655 1,083,876
Customers' advances for construction (7,371) (74,488)
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Capital expenditures, net $ 1,582,284 $ 1,009,388
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The accompanying notes are an integral part of these consolidated financial
statements.
4
BIW Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BIW Limited (BIW or the Company) is the parent company of Birmingham
Utilities, Inc. and its wholly-owned subsidiary Eastern Connecticut Regional
Water Company, Inc. (Eastern Division), (collectively BUI or Birmingham
Utilities), a regulated public water service company that provides water service
to customers in various cities and towns in Connecticut and Birmingham H2O
Services, Inc. (BHS or H2O Services), which provides non-regulated water-related
services to other water utilities, municipalities, contractors and individuals
throughout Connecticut.
Birmingham Utilities 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 BUI 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 BUI'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. BUI'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.
In addition, Birmingham Utilities is subject to regulation of its water
quality under the Federal Safe Drinking Water Act (SDWA). The United States
Environmental Protection Agency has granted to the Health Department the primary
enforcement responsibility in Connecticut under the SDWA. The Health Department
has established regulations containing maximum limits on contaminants, which
have or may have an adverse effect on health.
NOTE 1 - QUARTERLY FINANCIAL DATA
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The accompanying consolidated financial statements of BIW Limited have been
prepared in accordance with accounting principles generally accepted in the
United States of America, without audit, except for the Balance Sheet for the
year ended December 31, 2004, which has been audited. The interim financial
information conforms to the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X and, as applied in the case of rate-regulated public utilities,
complies with the Uniform System of Accounts and ratemaking practices prescribed
by the DPUC. In management's opinion, these consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for the interim
periods presented. Certain information and footnote disclosures required by
accounting principles generally accepted in the United States of America have
been omitted, pursuant to such rules and regulations; although the Company
believes that the disclosures are adequate to make the information presented not
misleading.
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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.
For further information, refer to the financial statements and accompanying
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2004.
Birmingham Utilities' business of selling water is to a certain extent
seasonal because water consumption normally increases during the warmer summer
months. Another factor affecting the comparability of various accounting periods
includes the timing of rate increases. In addition, H2O Services' business
activities will slow in the winter months. Accordingly, annualization of the
results of operations for the six months ended June 30, 2005 and 2004 would not
necessarily accurately forecast the annual results of each year.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
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The consolidated financial statements include the accounts of BIW Limited
and its wholly owned subsidiaries Birmingham Utilities, Inc. and Birmingham H2O
Services, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
NOTE 3 - NEW YORK ACQUISITION
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In May 2003, Birmingham Utilities entered into a Purchase Agreement with
AquaAmerica, formerly the Philadelphia Suburban Corporation (PSC), to purchase
all of the issued and outstanding shares of common stock of five small regulated
water companies located in eastern New York. The purchase price for the New York
operations was expected to be $1,000,000 subject to certain adjustments based on
changes in rate base and working capital. These adjustments would not have
increased the purchase price by more than $450,000. Applications for regulatory
approval were filed with the New York State Public Service Commission (NY
Commission) in July 2003. A decision was expected in 2004. During the regulatory
approval process, it became apparent that significant capital costs would be
required upon completion of the transaction. In January 2005, Birmingham
Utilities and PSC, citing continued delays on the part of the NY Commission,
mutually agreed that they no longer wished to pursue this transaction.
NOTE 4 - FIRST MORTGAGE BOND ISSUANCE
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On April 30, 2004, Birmingham Utilities issued First Mortgage Bonds in the
principal amount of $9,000,000. The bonds carry an interest rate of 5.21%. The
6
proceeds from the bond issue were used to repay the $4,042,000 outstanding
principal of the existing Mortgage Bonds, which carried an interest rate of
9.64%, and repay $4,280,000 of short-term debt used to fund the purchase of the
Connecticut regulated and non-regulated operations from PSC.
NOTE 5 - CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING- DILUTED
- --------------------------------------------------------------------
The following table summarizes the number of common shares used in the
calculation of earnings per share.
Six Months Three Months
Ended Ended
6/30/05 6/30/04 6/30/05 6/30/04
--------- --------- --------- ---------
Weighted average shares outstanding
for earnings per share, basic 1,658,915 1,639,092 1,659,579 1,642,542
Incremental shares from assumed
conversion of stock options 17,786 32,479 16,848 30,333
--------- --------- --------- ---------
Weighted average shares outstanding
for earnings per share, diluted 1,676,701 1,671,571 1,676,427 1,672,875
========= ========= ========= =========
NOTE 6 - PENSION AND OTHER POSTRETIREMENT BENEFITS
- --------------------------------------------------
Net periodic pension and other postretirement benefit costs include the
following components:
Pension Benefits Postretirement Benefits
For the six months For the three months
ended June 30, ended June 30,
2005 2004 2005 2004
---- ---- ---- ----
Components of Net Periodic
Benefit Cost:
Service cost $49,108 $ 29,016 $ 14,508 $ 13,707
Interest cost 54,902 48,573 20,914 18,758
Expected return on plan assets (39,854) (34,094) (21,002) (18,485)
Amortization of unrecognized
transition obligation 2,936 2,936 12,690 12,689
Amortization of unrecognized
prior service cost 2,586 2,585 -- --
Recognized net actuarial
loss (gain) 3,280 2,561 (80) (1,377)
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Net periodic benefit cost $72,958 $51,577 $27,030 $25,292
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Management's Discussion and Analysis of the Financial Condition and Results
of Operations contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2004 should be read in conjunction with the comments below.
CAPITAL RESOURCES AND LIQUIDITY
Completion of Birmingham Utilities' Long Term Capital Improvement Program
will be funded from the internal generation of funds, including rate relief, as
well as the Company's ability to raise capital from external sources. For the
six months ended June 30, 2005 and 2004, BUI's additions to utility plant, net
of customer advances, were $1,582,284 and $1,009,388 respectively (See Statement
of Cash Flows).
Birmingham Utilities has outstanding a series of first mortgage bonds in
the amount of $9,000,000 due on April 15, 2011, issued under its Mortgage
Indenture. The bonds carry an interest rate of 5.21%. The terms of the indenture
provide, among other things, limitations on (a) payment of cash dividends; and
(b) incurrence of additional bonded indebtedness. Interest is payable
semi-annually on the 15th day of April and October.
Note Payable consists of a $7,000,000 1-year, unsecured line of credit
which was renewed in April 2005 and will expire in April 2006. During the
revolving period, Birmingham Utilities can choose between variable rate options
of 30, 60, 90 or 180-day LIBOR plus 100 basis points or prime. BUI is required
to pay only interest during the revolving period. The principal is payable in
full at maturity. The line of credit requires the maintenance of certain
financial ratios and net worth of $7,500,000.
Results of Operations for the six months ended and three months ended June 30,
- --------------------------------------------------------------------- --------
2005 and 2004
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Net Income
- ----------
Net income for the six months ended June 30, 2005 was $431,929 compared
with $440,627 for the same 2004 period. Increased water sales from the Company's
regulated operations and increased profitability at H2O Services were partially
offset by a higher effective tax rate in 2005. Net income for the three months
ended June 30, 2005 was $377,736 compared with $238,742 for the comparable 2004
period. Increased water sales due to a dry weather period in 2005 and increased
profitability at H2O Services more than offset a higher effective tax rate.
Operating Revenues
- ------------------
Operating revenues for the first six months of 2005 of $4,557,438 were
$19,681 above the comparable 2004 period. Increased revenues due to dry weather
conditions
8
more than offset lower revenues at H2O Services. Operating revenues for the
three month period ended June 30, 2005 are $162,702 above the comparable 2004
quarter. This increase is due primarily to increased water sales by the
Company's regulated operations.
Operating and Maintenance Expenses
- ----------------------------------
Operating and Maintenance expenses for the first six months of 2005 of
$2,962,378 are $205,109 lower than operating and maintenance expenses of
$3,167,487 recorded in the first six months of 2004. Decreased costs relating to
strategic initiatives and lower personnel costs accounts for this decrease. The
operating and maintenance expenses for the three month period ended June 30,
2005 are lower than the comparable 2004 period for the same reasons noted above.
Depreciation
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Depreciation expense for the first six months of 2005 and for the three
month period ended June 30, 2005 were basically equal to the comparable 2004
period. A decrease in long term capital projects in 2005 as compared to 2004 is
the primary reason.
Taxes Other Than Income Taxes
- -----------------------------
Taxes other than income taxes for the six month period ended June 30, 2005
were $67,704 higher than the comparable 2004 period. Additional property taxes
as a result of plant additions in 2004, including the Eastern Division, account
for this increase. Taxes other than income taxes for the three month period
ended June 30, 2004 were $36,040 higher than the comparable 2004 period.
Increased property taxes also accounts for this variance.
Other Income
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Other income for the first six months of 2005 was $71,580 lower than the
comparable period in 2004. Decreased AFUDC relating to long term capital
projects accounts for the decrease. Other income for the three month period
ended June 30, 2005 was $48,656 lower than the second quarter of 2005. Decreased
AFUDC for the same reason as noted above accounts for the decrease.
Interest Expense
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Interest expense of $317,829 recorded in the six month period ended June
30, 2005 is $47,102 higher than the comparable 2004 period. Increased borrowing
on the line of credit as well as higher variable interest rates on the line of
credit accounts for the difference. Interest expense for the three month period
ended June 30, 2005 is $21,596 higher than same period in 2004 also due to
increased borrowings and higher interest rates as noted above.
9
Land Dispositions
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When Birmingham Utilities disposes of land, any gain recognized, net of
tax, is shared between ratepayers and stockholders based upon a formula approved
by the DPUC. The portion of land disposition income applicable to stockholders
is recognized in the year of disposition. There were no land sales in the second
quarter of 2005 and 2004.
Land disposition income applicable to ratepayers is recognized in the
financial statements as a component of operating income on the line entitled
"Amortization of Prior Years' Deferred Income on Land Dispositions". 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 $2,481 and $5,671 for the six months ended June
30, 2005 and 2004, and $1,240 and $2,836 for the three months ended June 30,
2005 and 2004.
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 except for the 2002 land sale in which the
deferred portion will remain as an offset to rate base for a period of 40 years.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
The Company has certain exposures to market risk related to changes in
interest rates. There have been no material changes in market risk since the
filing of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2004.
ITEM 4 - CONTROLS AND PROCEDURES
- --------------------------------
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based on the definition of "disclosure
controls and procedures" in Rule 13a-15(e). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive
10
Officer and the Company's Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
June 30, 2005. Based on the foregoing, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of June 30, 2005.
There have been no changes in the Company's internal control over financial
reporting during the quarter ended June 30, 2005 that have materially affected,
or are reasonably likely to materially affect the internal control over
financial reporting.
11
PART II. OTHER INFORMATION
--------------------------
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
During the quarter ended June 30, 2005, the only matters submitted to a
vote of the holders of the Company's common stock, its only class of voting
stock, were submitted at the Company's Annual Meeting of Shareholders held on
May 10, 2005, as set forth below. There were no broker non-votes on the listed
matters.
(a) Election of Directors - All nominees for Director were elected, as follows:
---------------------
Total Outstanding Shares: 1,659,579
Total Shares Voted: 1,520,311
Total Percentage Voted: 91.61%
DIRECTOR FOR WITHHELD % FOR
M. Adanti 1,491,287.26 29,024.03 89.86
M. Burt 1,493,973.41 26,337.87 90.02
J. Cohen 1,492,023.26 28,288.03 89.90
B. Henley-Cohn 1,482,786.11 37,525.17 89.35
J. Henley-Cohn 1,372,693.15 147,618.14 82.71
A. daSilva 1,491,908.26 28,403.03 89.90
T. Klarides 1,493,610.36 26,700.93 90.00
L. Sauerteig 1,494,094.96 26,216.32 90.03
K. Schaible 1,493,755.26 26,556.03 90.01
J. Tomac 1,483,305.26 37,006.03 89.38
Dworken, Hillman, LaMorte & Sterczala, P.C. were approved as independent
accountants and auditors for the Company for 2005. Total votes cast in favor
were 1,506,348 representing 90% of all outstanding shares.
ITEM 6 - EXHIBITS
- -----------------
31.1 Certification of CEO pursuant to Section 302 of Sarbanes Oxley Act.
31.2 Certification of CFO pursuant to Section 302 of Sarbanes Oxley Act.
32.1 Certification of CEO and CFO pursuant to Section 906 of Sarbanes Oxley Act
12
SIGNATURES
Pursuant to the requirements 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.
BIW Limited
Registrant
Date: August 12, 2005
By: /s/ John S. Tomac
----------------------
John S. Tomac, President
(Duly authorized officer, and chief
financial officer)
13