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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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
COMMISSION FILE NUMBER 1-31374
BIW LIMITED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 04-3617838
- ---------------------------------------- -------------------------
(State of Incorporation or Organization) (I.R.S Employer I.D. No.)
230 BEAVER STREET, ANSONIA, CT 06401
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 735-1888
--------------
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 [_] NO [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES [_] NO [X]
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 November 8, 2005
-------------------------- -------------------------------
COMMON STOCK, NO PAR VALUE 1,662,079
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PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
BIW Limited
-----------
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
-------------------------------------------------------
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Operating revenue $ 2,343,862 $ 2,704,104 $ 6,901,300 $ 7,241,861
------------ ------------ ------------ ------------
Operating expenses:
Operating expenses 1,394,855 1,806,489 4,134,951 4,722,133
Maintenance expenses 113,999 108,424 336,281 360,267
Depreciation 185,000 185,000 555,000 555,000
Taxes other than income taxes 184,420 163,795 523,383 435,054
Taxes on income 63,873 85,425 241,635 219,275
------------ ------------ ------------ ------------
Total operating expenses 1,942,147 2,349,133 5,791,250 6,291,729
------------ ------------ ------------ ------------
Operating income 401,715 354,971 1,110,050 950,132
Amortization of prior years' deferred
income on land dispositions (net of
income taxes) 2,703 2,835 5,184 8,506
Other income, net (including allowance for
funds used during construction of
$63,913 in 2005 and $125,107 in 2004) 58,501 46,590 97,443 157,112
------------ ------------ ------------ ------------
Income before interest expense 462,919 404,396 1,212,677 1,115,750
Interest and amortization of debt discount 158,915 139,124 476,744 409,851
------------ ------------ ------------ ------------
Net income $ 304,004 $ 265,272 $ 735,933 $ 705,899
Retained earnings, beginning 9,079,075 9,704,360 9,211,403 9,822,197
Dividends 282,553 281,782 846,810 840,246
------------ ------------ ------------ ------------
Retained earnings, ending $ 9,100,526 $ 9,687,850 $ 9,100,526 $ 9,687,850
============ ============ ============ ============
Earnings per share - basic $ 0.18 $ 0.16 $ 0.44 $ 0.43
============ ============ ============ ============
Earnings per share - diluted $ 0.18 $ 0.16 $ 0.44 $ 0.42
============ ============ ============ ============
Dividends per share $ 0.17 $ 0.17 $ 0.51 $ 0.51
============ ============ ============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
2
BIW Limited
-----------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
SEPTEMBER 30, DEC. 31,
2005 2004
------------ ------------
ASSETS:
- -------
Utility plant $ 37,835,987 $ 35,261,167
Accumulated depreciation (9,810,799) (9,213,681)
------------ ------------
Net utility plant 28,025,188 26,047,486
------------ ------------
Other property, net 545,604 419,700
------------ ------------
Current assets:
Accounts receivable, net of allowance for
doubtful accounts 1,505,082 1,338,362
Accrued utility revenue 539,069 560,563
Materials & supplies 327,219 312,638
Prepayments 151,947 195,329
------------ ------------
Total current assets 2,523,317 2,406,892
------------ ------------
Deferred charges 139,429 137,007
Unamortized debt expense 358,520 391,932
Regulatory asset - income taxes recoverable 437,501 437,501
Other assets 399,347 387,725
------------ ------------
1,334,797 1,354,165
------------ ------------
$ 32,428,906 $ 30,228,243
============ ============
STOCKHOLDERS' EQUITY AND LIABILITIES:
- -------------------------------------
Stockholders' equity:
Common stock, no par value, authorized
5,000,000 shares; issued and outstanding
9/30/05 - 1,662,079 shares;
12/31/04 - 1,657,542 shares $ 2,990,347 $ 2,975,972
Retained earnings 9,100,526 9,211,403
------------ ------------
12,090,873 12,187,375
------------ ------------
Long-term debt 9,000,000 9,000,000
------------ ------------
Current liabilities:
Note payable 4,205,000 2,255,000
Accounts payable and accrued liabilities 1,037,583 799,382
------------ ------------
Total current liabilities 5,242,583 3,054,382
------------ ------------
Customers' advances for construction 487,478 491,950
Contributions in aid of construction 2,932,098 2,803,914
Regulatory liability-income taxes refundable 126,913 126,913
Deferred income taxes 2,546,256 2,554,657
Deferred income on disposition of land 2,705 9,052
------------ ------------
6,095,450 5,986,486
------------ ------------
$ 32,428,906 $ 30,228,243
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
3
BIW Limited
-----------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------
Cash flows from operating activities: 2005 2004
------------ ------------
Net income $ 735,933 $ 705,899
------------ ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 589,874 645,517
Amortization of deferred income, net of tax (5,184) (8,506)
Deferred income taxes (11,025) (11,024)
Increases and decreases in assets and liabilities:
Accounts receivable and accrued utility revenue (145,226) (450,098)
Materials and supplies (14,581) (30,766)
Prepayments 43,382 123,236
Accounts payable and accrued expenses 238,201 (480,709)
------------ ------------
Total adjustments 695,441 (212,350)
------------ ------------
Net cash flows provided by operating activities 1,431,374 493,549
------------ ------------
Cash flows from investing activities:
Capital expenditures - utility plant (2,451,108) (1,641,124)
Capital expenditures - other property (125,904) --
Sales of utility plant 42,118 --
Other assets and deferred charges, net (14,045) (529,581)
------------ ------------
Net cash flows used in investing activities (2,548,939) (2,170,705)
------------ ------------
Cash flows from financing activities:
Dividends paid (846,810) (840,246)
Exercise of stock options 14,375 78,750
Increase in long-term debt -- 9,000,000
Repayment of long-term debt -- (4,042,000)
Advances (repayments) on line of credit, net 1,950,000 (2,600,000)
------------ ------------
Net cash flows provided by financing activities 1,117,565 1,596,504
------------ ------------
Net decrease in cash & cash equivalents 0 (80,652)
Cash & cash equivalents, beginning 0 148,618
------------ ------------
Cash & cash equivalents, ending $ 0 $ 67,966
============ ============
Supplemental disclosure of cash flow formation:
Cash paid for
Interest $ 324,179 $ 324,356
Income taxes 88,020 23,169
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 $ 2,574,820 $ 1,723,647
Customers' advances for construction (123,712) (82,523)
------------ ------------
Capital expenditures, net $ 2,451,108 $ 1,641,124
============ ============
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
- ---------------------------------
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
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been omitted, pursuant to such rules and regulations; although the Company
believes that the disclosures are adequate to make the information presented not
misleading.
For further information, refer to the financial statements and
accompanying footnotes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2004.
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.
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 three and nine months ended September 30, 2005 and
2004 would not necessarily accurately forecast the annual results of each year.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
- ------------------------------------
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
- -----------------------------
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.
6
NOTE 4 - FIRST MORTGAGE BOND ISSUANCE
- -------------------------------------
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 proceeds from the bond issue were used to repay the $4,042,000 outstanding
principal of the prior outstanding 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.
NINE MONTHS ENDED THREE MONTHS ENDED
--------------------- ---------------------
9/30/05 9/30/04 9/30/05 9/30/04
--------- --------- --------- ---------
Weighted average shares outstanding
for earnings per share, basic 1,659,844 1,643,863 1,661,671 1,649,342
Incremental shares from assumed
conversion of stock options 17,138 29,553 15,863 24,483
--------- --------- --------- ---------
Weighted average shares outstanding
for earnings per share, diluted 1,676,982 1,673,416 1,677,534 1,673,825
========= ========= ========= =========
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 nine months For the nine months
ended September 30, ended September 30,
--------------------- ---------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Components of Net Periodic
Benefit Cost:
Service cost $ 73,661 $ 43,524 $ 21,762 $ 20,561
Interest cost 82,354 72,859 31,372 28,137
Expected return on plan assets (59,780) (51,141) (31,502) (27,728)
Amortization of unrecognized
transition obligation 4,404 4,404 19,034 19,034
Amortization of unrecognized prior
service cost 3,878 3,878 -- --
Recognized net actuarial loss (gain) 4,919 3,842 (121) (2,066)
--------- --------- --------- ---------
Net periodic benefit cost $ 109,436 $ 77,366 $ 40,545 $ 37,938
========= ========= ========= =========
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
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
The Company's short-term liquidity requirements will be met through
cash flow from operations and, with respect to Birmingham Utilities, through
borrowings under BUI's line of credit. Completion of BUI's 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 nine months ended September 30, 2005 and 2004, BUI's
additions to utility plant, net of customer advances, were $ 2,451,108 and
$1,641,124 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 nine months and three months ended
- ----------------------------------------------------------------
September 30, 2005 and 2004
- ---------------------------
Net Income
- ----------
Net income for the nine months ended September 30, 2005 was $735,933
compared with $705,899 for the same 2004 period. A significant reduction in the
net loss for the Eastern Division primarily due to decreased operating expenses
is partially offset by a slight reduction in net income from H2O Services. Net
income for the three months ended September 30, 2005 was $304,004 compared with
$265,272 for the comparable 2004 period for the same reasons noted above.
8
Operating Revenues
- ------------------
Operating revenues for the first nine months of 2005 of $6,901,300 are
$340,561 below the comparable 2004 period. Decreased revenues of $323,933 from
H2O Services accounts for most of the change. In 2004 H2O Services' revenues
included significant construction projects, which were non recurring in 2005.
Although 2005 construction projects have produced less revenue, the profits and
profit margins recognized on these projects have been greater as H2O Services
has concentrated its focus on efficiency and profitability for its contract
operations and construction business. Operating revenues for the three month
period ended September 30, 2005 are $360,242 below the comparable 2004 period
due again to the size and nature of the construction projects in 2005.
Operating and Maintenance Expenses
- ----------------------------------
Operating and Maintenance expenses for the first nine months of 2005 of
$4,471,232 are $611,168 lower than operating and maintenance expenses of
$5,082,400 recorded in the first nine months of 2004. Decreased costs related to
a reduction in large construction projects performed by H2O Services accounts
for $321,000 of the decrease. Lower operating expenses with the regulated
Eastern Division of $229,000 are due to operating efficiencies achieved since
their purchase in 2003. The operating and maintenance expenses for the three
month period ended September 30, 2005 are lower than the comparable 2004 period
for the same reasons.
Depreciation
- ------------
Depreciation for the first nine months of 2005 and for the three month
period ended September 30, 2005 were the same as the comparable 2004 periods,
due to the Company's ongoing capital improvement program and the timing of
capital expenditures in each year.
Taxes Other Than Income Taxes
- -----------------------------
Taxes other than income taxes for the nine month period ended September
30, 2005 were $88,329 higher than the comparable 2004 period. Increased payroll
taxes as a result of higher wages as well as additional property taxes as a
result of plant additions along with increased property tax rates account for
the increase. Taxes other than income taxes for the three month period ended
September 30, 2005 were $20,625 higher than the comparable 2004 period.
Increased payroll taxes and property taxes also account for this variance.
Other Income
- ------------
Other income for the first nine months of 2005 was $59,669 lower than
the comparable period in 2004. Decreased AFUDC relating to long term capital
projects accounts for the decrease.
9
Interest Expense
- ----------------
Interest expense of $476,744 recorded in the nine month period ended
September 30, 2005 is $66,893 higher than the comparable 2004 period. Increased
borrowings on the line of credit as well as higher interest rates on the line of
credit account for the difference. The interest expense for the three month
period ended September 30, 2005 is $19,791 higher than the same period in 2004
also due to increased borrowings and higher interest rates as noted above.
Land Dispositions
- -----------------
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 2005 and
2004.
Land disposition income applicable to ratepayers is also 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 $5,184 and $8,506 for the nine months ended
September 30, 2005 and 2004, and $2,703 and $2,835 for the three months ended
September 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 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
10
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 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 September 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 September 30, 2005.
There have been no changes in the Company's internal controls that have
materially affected, or are reasonably likely to materially affect the internal
controls over financial reporting during the quarter ended September 30, 2005.
PART II. OTHER INFORMATION
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
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: November 14, 2005
-----------------
By: /s/ John S. Tomac
-----------------------------
John S. Tomac, President
(Duly authorized officer, and
chief financial officer)
11