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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 JUNE 30, 2006
COMMISSION FILE NUMBER 1-31374
BIW LIMITED
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(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 a large accelerated
filer, an accelerated filer, or non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
LARGE ACCELERATED FILER [_] ACCELERATED FILER [_] NON-ACCELERATED FILER [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 August 9, 2006
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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,
--------------------------- ---------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Operating revenue $ 2,428,901 $ 2,589,002 $ 4,468,998 $ 4,557,438
------------ ------------ ------------ ------------
Operating expenses:
Operating expenses 1,480,457 1,445,866 2,839,614 2,740,096
Maintenance expenses 123,908 80,263 223,981 222,282
Depreciation 268,751 185,000 537,502 370,000
Taxes other than income taxes 147,439 170,530 343,741 338,963
Taxes on income 72,904 171,875 52,631 177,762
------------ ------------ ------------ ------------
Total operating expenses 2,093,459 2,053,534 3,997,469 3,849,103
------------ ------------ ------------ ------------
Operating income 335,442 535,468 471,529 708,335
Amortization of prior years' deferred
income on land dispositions (net of
income taxes) -- 1,240 242 2,481
Other income, net (including allowance
for funds used during construction of
$35,551 in 2006 and $30,481 in 2005) 34,241 4,522 60,709 38,942
------------ ------------ ------------ ------------
Income before interest expense 369,683 541,230 532,480 749,758
Interest and amortization of debt discount 190,996 163,494 392,524 317,829
------------ ------------ ------------ ------------
Net income 178,687 377,736 139,956 431,929
Retained earnings, beginning 8,419,541 8,983,468 8,740,825 9,211,403
Dividends 282,979 282,129 565,532 564,257
------------ ------------ ------------ ------------
Retained earnings, ending $ 8,315,249 $ 9,079,075 $ 8,315,249 $ 9,079,075
============ ============ ============ ============
Earnings per share - basic $ .11 $ .23 $ .08 $ .26
============ ============ ============ ============
Earnings per share - diluted $ .11 $ .23 $ .08 $ .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, DECEMBER 31,
2006 2005
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ASSETS
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Utility plant $ 40,021,753 $ 38,736,311
Accumulated depreciation (10,516,374) (9,978,362)
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Net utility plant 29,505,379 28,757,949
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Other property, net 539,311 529,837
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Current assets:
Accounts receivable, net of allowance for doubtful
accounts (2006, $225,700; 2005, 205,000) 1,179,355 1,193,815
Accrued utility and other revenue 615,278 552,125
Materials and supplies 399,438 386,946
Prepayments and other current assets 225,312 44,821
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Total current assets 2,419,383 2,177,707
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Deferred charges 137,007 137,007
Unamortized debt expense 301,925 333,444
Regulatory asset - income taxes recoverable 473,851 473,851
Other assets 410,127 332,225
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1,322,910 1,276,527
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33,786,983 $ 32,742,020
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SHAREHOLDERS' EQUITY AND LIABILITIES
------------------------------------
Shareholders' equity:
Common stock, no par value; authorized 5,000,000 shares:
issued and outstanding (2006,1,664,579 shares; 2005,
1,662,079 shares) $ 2,987,704 $ 2,987,704
Retained earnings 8,315,249 8,740,825
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11,302,953 11,728,529
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Long-term debt 9,000,000 9,000,000
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Current liabilities:
Note payable 6,005,000 4,755,000
Accounts payable and accrued liabilities 899,788 669,212
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Total current liabilities 6,904,788 5,424,212
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Customers' advances for construction 436,186 438,631
Contributions in aid of construction 3,101,165 3,101,165
Regulatory liability - income taxes refundable 119,340 119,340
Deferred income taxes 2,922,368 2,929,554
Deferred income on dispositions of land 183 589
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6,579,242 6,589,279
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$ 33,786,983 $ 32,742,020
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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,
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2006 2005
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Cash flows from operating activities
Net income $ 139,956 $ 431,929
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 569,021 395,513
Amortization of deferred income, net of tax (242) (2,481)
Deferred income taxes (7,350) (7,350)
Increases and decreases in assets and liabilities:
Accounts receivable and accrued utility revenue (48,694) (258,645)
Materials and supplies (12,492) (71,796)
Prepayments (180,490) (32,260)
Accounts payable and accrued expenses 230,576 608,337
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Total adjustments 550,329 631,318
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Net cash flows provided by operating activities 690,285 1,063,247
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Cash flows from investing activities:
Capital expenditures - utility plant (1,287,887) (1,582,284)
Capital expenditures - other property (22,974) (47,680)
Sales of utility plant 14,010 41,559
Other assets and deferred charges (77,902) (10,585)
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Net cash flows used in investing activities (1,374,753) (1,598,990)
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Cash flows from financing activities:
Dividends paid (565,532) (564,257)
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Advances on line of credit 1,250,000 1,100,000
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Net cash flows provided by
financing activities 684,468 535,743
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Net change in cash & cash equivalents -- --
Cash and cash equivalents, beginning -- --
------------ ------------
Cash and cash equivalents, ending $ -- $ --
============ ============
Supplemental disclosure of cash flow information:
Cash paid for
Interest $ 360,903 $ 292,517
Income taxes 9,000 76,900
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 $ 1,287,887 $ 1,589,655
Customers' advances for construction -- (7,371)
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Capital expenditures, net $ 1,287,887 $ 1,582,284
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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 (i)
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 (ii) 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, 2005, 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
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omitted, pursuant to such rules and regulations; although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
On January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123R, "Share-Based Payment" (SFAS 123R) utilizing the
modified prospective transition method. SFAS 123R requires employee stock
options to be valued at fair value on the date of grant and charged to expense
over the applicable vesting period. Under the modified prospective method,
compensation expense is recognized for all share based payments issued on or
after January 1, 2006 and for all share payments issued to employees prior to
January 1, 2006 that remain unvested. The adoption of SFAS 123R did not have a
material impact on the Company's results of operations for the six months ended
June 30, 2006.
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, 2005.
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, 2006 and 2005 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 - RATE RELIEF REQUEST
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In May 2006, Birmingham Utilities filed an application with the DPUC
seeking a water service rate increase for all its regulated operations. As part
of the water service rate application, BUI requested that Eastern Division
regulated operations be combined with Ansonia Division regulated operations for
ratemaking purposes. BUI's Ansonia Division last received full rate relief in
2003 while its Eastern Division's last rate case was in 1997. As part of that
application, Birmingham Utilities will be seeking to earn on approximately
$10,000,000 in rate base additions since 2003, which includes the rate base of
the Eastern Division acquired in 2003. In addition, BUI will be seeking to
recover increases in operating costs as well as increases in depreciation
expense and property taxes. BUI expects this rate application to be adjudicated
sometime during the fourth quarter of 2006.
6
NOTE 4 - 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 Ended Three Months Ended
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6/30/06 6/30/05 6/30/06 6/30/05
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Weighted average shares outstanding
for earnings per share, basic 1,662,797 1,658,915 1,663,508 1,659,579
Incremental shares from assumed
conversion of stock options 13,569 17,786 12,623 16,848
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Weighted average shares outstanding
for earnings per share, diluted 1,676,366 1,676,701 1,676,131 1,676,427
========= ========= ========= =========
NOTE 5 - 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,
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2006 2005 2006 2005
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Components of net periodic benefit cost:
Service cost $ 34,664 $ 49,108 $ 14,558 $ 14,508
Interest cost 59,474 54,902 22,246 20,914
Expected return on plan assets (45,700) (39,854) (23,028) (21,002)
Amortization of unrecognized
transition obligation 2,936 2,936 12,690 12,690
Amortization of unrecognized
prior service cost 2,586 2,586 -- --
Recognized net actuarial loss (gain) 1,906 3,280 (98) (80)
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Net periodic benefit cost $ 55,866 $ 72,958 $ 26,368 $ 27,030
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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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, 2005 should be read in conjunction with the comments
below.
7
Birmingham Utilities, a regulated public water service company,
collects and distributes water for domestic, commercial and industrial uses and
fire protection in the Naugatuck Valley towns of Ansonia, Derby and small parts
of Seymour, Connecticut. The Company refers to this operation as its Ansonia
Division. Water service is also provided for domestic and commercial use in 33
satellite water operations in 16 towns in eastern Connecticut, which form BUI's
Eastern Division. This division, which was acquired in 2003, was the former
Eastern Connecticut Regional Water Company, Inc.
H2O Services, the Company's non-regulated subsidiary, offers a consumer
protection program for residential service lines and provides water related
services to other water utilities, municipalities, contractors and individuals
throughout Connecticut. H2O Services operates from both the Ansonia and Eastern
Divisions as well as from another location in Guilford, CT. Non-regulated
operations from the Ansonia Division principally relate to construction
activities including the installation of water mains, services and other water
related infrastructure. Non-regulated operations at the Eastern Division
principally relate to the operation of other water systems not owned by the
Company through contract operations. Non-regulated operations from our Guilford,
CT location relate to Rhodes Pump Service, a residential pump and filter
services business.
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, 2006 and 2005, BUI's additions to utility
plant, net of customer advances, were $1,287,887 and $1,582,284 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 extended in April 2006 and will expire in August 2006, at which time
it is expected to be renewed until August, 2007. 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. BUI is in compliance with all covenants as
of June 30, 2006.
Results of Operations for the six months ended and three months ended
- ---------------------------------------------------------------------
June 30, 2006 and 2005
- ----------------------
8
Net Income
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Net income for the six months ended June 30, 2006 was $139,956 compared
with $431,929 for the same 2005 period. A trend of decreased consumption
throughout the water industry due to conservation efforts along with increased
interest expense, depreciation expense, purchased water and energy costs
accounts for the decrease. Net income for the three months ended June 30, 2006
was $178,687 compared with $377,736 for the comparable 2005 period for the same
reasons as noted for the six month period discussed above.
Operating Revenues
- ------------------
Operating revenues for the first six months of 2006 of $4,468,998 were
2% or $88,440 below the comparable 2005 period. Although the Ansonia regulated
division received a pass through rate increase of 4.4% effective January 25,
2006, this was more than offset by decreased water consumption, resulting in
lower revenues of $91,010. The Eastern Division had increased water revenues of
$39,318 due to growth in customer base.
H2O Services had decreased revenues of $36,748 due in part to a decline
in Rhodes Pump Service revenues of $19,088 due to less demand for services. The
balance of the decline in H2O Services is attributable to less contract work in
the Naugatuck Valley.
Operating revenues for the three months ended June 30, 2006 were
$160,101 or 6% below the comparable 2005 period. Decreased consumption in the
Ansonia regulated division resulted in lower revenues of $92,557. The Eastern
Division showed a small increase in consumption of $16,123 due to a growing
customer base.
H2O Services had lower revenues of $83,667 for the three month period
ended June 30, 2006 as compared with the same period in 2005. Less contract work
done in the Eastern Division accounts for $41,747 of the decline. Lower revenues
for Rhodes Pump Service of $36,459 due to less demand for services along with a
small decline of $5,461 for contract work done in the Naugatuck Valley accounts
for the balance.
Operating and Maintenance Expenses
- ----------------------------------
Operating and Maintenance expenses for the first six months of 2006 of
$3,063,595 are $101,217 or 3% higher than operating and maintenance expenses of
$2,962,378 recorded in the first six months of 2005. Increased energy costs for
electric power as well as higher gasoline charges in the amount of $58,492 along
with higher purchased water costs of $40,000 are the reason for the increase.
The operating and maintenance expenses for the three month period ended June 30,
2006 are higher than the comparable 2005 period for the same reasons noted
above.
Depreciation
- ------------
Depreciation expense of $537,502 for the first six months of 2006 are
$167,502 higher than the comparable 2005 period, due to substantial plant
additions and
9
improvements made over the last two years. Depreciation expense for the three
month period ended June 30, 2006 were $83,751 higher than the comparable 2005
period for the same reason as noted above.
Taxes Other Than Income Taxes
- -----------------------------
Taxes other than income taxes for the six month period ended June 30,
2006 were $4,778 higher than the comparable 2005 period. Additional payroll
taxes as a result of higher wages in 2006 account for this increase. Taxes other
than income taxes for the three month period ended June 30, 2006 were $23,091
lower than the comparable 2005 period. Increased payroll taxes are more than
offset by a large decrease in property taxes for the City of Derby due to 2005
revaluations, which resulted in the mill rate dropping from 37.7 to 24.3.
Other Income
- ------------
Other income for the first six months of 2006 was $21,767 higher than
the comparable period in 2005. Increased AFUDC in the Ansonia Division relating
to long term capital projects along with higher income from the Derby contract
operations accounts for the increase. Other income for the three month period
ended June 30, 2006 was $29,719 higher than the second quarter of 2005.
Increased AFUDC for the Ansonia Division as well as higher income for the Derby
operations again is the reason for the increase.
Interest Expense
- ----------------
Interest expense of $392,524 recorded in the six month period ended
June 30, 2006 is $74,695 higher than the comparable 2005 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 $27,502 higher than same period in 2005 also due
to increased borrowings and higher interest rates as noted above.
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, 2005.
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
10
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 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, 2006. 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, 2006.
There have been no changes in the Company's internal control over
financial reporting during the quarter ended June 30, 2006 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, 2006, 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, 2006, as set forth below. There were no broker non-votes on the listed
matters.
(a) Total Outstanding Shares: 1,662,079
Total Shares Voted: 1,496,259
Total Percentage Voted: 90.02%
DIRECTORS INFO
DIRECTOR FOR WITHHELD % FOR
Mary Jane Burt 1,473,594.41 22,664.19 88.66
James E. Cohen 1,471,462.25 24,796.35 88.53
Betsy Henley-Cohn 1,462,077.94 34,180.66 87.97
Juri Henley-Cohn 1,354,450.02 141,808.58 81.49
Alvaro DaSilva 1,471,735.25 24,523.35 88.55
Themis Klarides 1,457,292.88 38,965.72 87.68
B. Lance Sauerteig 1,473,724.40 22,534.20 88.67
Kenneth Schaible 1,473,531.74 22,726.86 88.66
John S. Tomac 1,357,849.33 138,409.27 81.70
Dworken, Hillman, LaMorte & Sterczala, P.C. were approved as independent
accountants and auditors for the Company for 2006. Total votes cast in favor
were 1,446,286.78 representing 87% 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 14, 2006
By: /s/ John S. Tomac
------------------------
John S. Tomac, President
(Duly authorized officer,
and chief financial officer)
13