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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, 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 November 7, 2006
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Common Stock, No Par Value 1,674,579
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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 Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2006 2005 2006 2005
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Operating revenue $2,378,367 $2,343,862 $6,847,365 $6,901,300
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Operating expenses:
Operating expenses 1,434,658 1,394,855 4,274,272 4,134,951
Maintenance expenses 87,354 113,999 311,335 336,281
Depreciation 268,751 185,000 806,253 555,000
Taxes other than income taxes 163,630 184,420 507,371 523,383
Taxes on income 63,005 63,873 115,636 241,635
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Total operating expenses 2,017,398 1,942,147 6,014,867 5,791,250
---------- ---------- ---------- ----------
Operating income 360,969 401,715 832,498 1,110,050
Amortization of prior years'
deferred income on land dispositions
(net of income taxes) -- 2,703 242 5,184
Other income, net (including allowance
for funds used during construction of
$68,806 in 2006 and $63,913 in 2005) 58,878 58,501 119,587 97,443
---------- ---------- ---------- ----------
Income before interest expense 419,847 462,919 952,327 1,212,677
Interest and amortization of debt discount 264,260 158,915 656,784 476,744
---------- ---------- ---------- ----------
Net income $ 155,587 $ 304,004 $ 295,543 $ 735,933
Retained earnings, beginning 8,315,249 9,079,075 8,740,825 9,211,403
Dividends 284,678 282,553 850,210 846,810
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Retained earnings, ending $8,186,158 $9,100,526 $8,186,158 $9,100,526
========== ========== ========== ==========
Earnings per share - basic $ 0.09 $ 0.18 $ 0.18 $ 0.44
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Earnings per share - diluted $ 0.09 $ 0.18 $ 0.18 $ 0.44
========== ========== ========== ==========
Dividends per share $ 0.17 $ 0.17 $ 0.51 $ 0.51
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The accompanying notes are an integral part of these consolidated financial statements.
2
BIW Limited
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CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
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2006 2005
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Assets
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Utility plant $ 41,349,588 $ 38,736,311
Accumulated depreciation (10,780,725) (9,978,362)
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Net utility plant 30,568,863 28,757,949
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Other property, net 535,020 529,837
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Current assets:
Accounts receivable, net of allowance for doubtful
accounts (2006, $225,700; 2005, 205,000) 1,090,732 1,193,815
Accrued utility and other revenue 614,788 552,125
Materials and supplies 438,984 386,946
Prepayments and other current assets 129,749 44,821
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Total current assets 2,274,253 2,177,707
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Deferred charges 137,007 137,007
Unamortized debt expense 286,493 333,444
Regulatory asset - income taxes recoverable 473,851 473,851
Other assets 537,554 332,225
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1,434,905 1,276,527
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34,813,041 $ 32,742,020
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Shareholders' Equity and Liabilities
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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) $ 3,125,329 $ 2,987,704
Retained earnings 8,186,158 8,740,825
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11,311,487 11,728,529
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Long-term debt 9,000,000 9,000,000
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Current liabilities:
Note payable 6,405,000 4,755,000
Accounts payable and accrued liabilities 1,355,845 669,212
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Total current liabilities 7,760,845 5,424,212
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Customers' advances for construction 601,328 438,631
Contributions in aid of construction 3,101,165 3,101,165
Regulatory liability - income taxes refundable 119,340 119,340
Deferred income taxes 2,918,693 2,929,554
Deferred income on dispositions of land 183 589
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6,740,709 6,589,279
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$ 34,813,041 $ 32,742,020
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The accompanying notes are an integral part of these consolidated financial statements.
3
BIW Limited
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
Nine Months Ended September 30,
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Cash flows from operating activities: 2006 2005
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Net income $ 295,543 $ 735,933
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Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 806,253 589,874
Amortization of deferred income, net of tax (242) (5,184)
Deferred income taxes (11,025) (11,025)
Increases and decreases in assets and liabilities:
Accounts receivable and accrued utility revenue 40,419 (145,226)
Materials and supplies (52,038) (14,581)
Prepayments (84,927) 43,382
Accounts payable and accrued expenses 686,633 238,201
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Total adjustments 1,385,073 695,441
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Net cash flows provided by operating activities 1,680,616 1,431,374
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Cash flows from investing activities:
Capital expenditures - utility plant (2,450,580) (2,451,108)
Capital expenditures - other property (23,683) (125,904)
Sales of utility plant 14,610 42,118
Other assets and deferred charges, net (158,378) (14,045)
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Net cash flows used in investing activities (2,618,031) (2,548,939)
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Cash flows from financing activities:
Dividends paid (850,210) (846,810)
Exercise of stock options 137,625 14,375
Advances on line of credit 1,650,000 1,950,000
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Net cash flows provided by financing activities 937,415 1,117,565
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Net change in cash & cash equivalents -- --
Cash & cash equivalents, beginning -- --
Cash & cash equivalents, ending $ 0 $ 0
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Supplemental disclosure of cash flow formation:
Cash paid for
Interest $ 726,708 $ 324,179
Income taxes 12,781 88,020
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 $ 2,613,277 $ 2,574,820
Customers' advances for construction (162,697) (123,712)
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Capital expenditures, net $ 2,450,580 $ 2,451,108
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The accompanying notes are an integral part of these consolidated financial statements.
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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 nine months ended September 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 nine months ended September 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 of $1,793,000 and an allowed return on equity of
11.5% for all its regulated operations. That request was reduced to $1,782,000
as a result of the hearing process. 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.
On November 9, 2006 the Company received a draft decision granting an increase
of $1,063,000 in revenues and
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an allowed return on equity of 10.2%. The company will file written exceptions
to the draft decision on November 17, 2006. A final decision is expected on or
around November 28, 2006.
NOTE 4 - CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING- DILUTED
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The following table summarizes the number of common shares used in
the calculation of earnings per share.
Nine Months Ended Three Months Ended
9/30/06 9/30/05 9/30/06 9/30/05
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Weighted average shares outstanding
for earnings per share, basic 1,666,163 1,659,844 1,672,786 1,661,671
Incremental shares from assumed
conversion of stock options 11,579 17,138 7,663 15,863
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Weighted average shares outstanding
for earnings per share, diluted 1,677,742 1,676,982 1,680,449 1,677,534
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NOTE 5 - PENSION AND OTHER POSTRETIREMENT BENEFITS
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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,
2006 2005 2006 2005
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Components of Net Periodic
Benefit Cost:
Service cost $ 51,996 $ 73,661 $ 21,837 $ 21,762
Interest cost 89,211 82,354 33,369 31,372
Expected return on plan assets (68,550) (59,780) (34,542) (31,502)
Amortization of unrecognized
transition obligation 4,404 4,404 19,035 19,034
Amortization of unrecognized
prior service cost 3,879 3,878 -- --
Recognized net actuarial loss (gain) 2,859 4,919 (147) (121)
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Net periodic benefit cost $ 83,799 $ 109,436 $ 39,552 $ 40,545
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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, 2005 should be read in conjunction with the comments below.
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
nine months ended September 30, 2006 and 2005, BUI's additions to utility plant,
net of customer advances, were $2,450,580 and $2,451,108 respectively (See
Statement of Cash Flows).
In May 2006, Birmingham Utilities filed an application with the DPUC
seeking a water service rate increase of $1,793,000 and an allowed return on
equity of 11.5% for all its regulated operations. That request was reduced to
$1,782,000 as a result of the hearing process. 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.
On November 9, 2006 the Company received a draft decision granting an increase
of $1,063,000 in revenues and an allowed return on equity of 10.2%. The company
will file written exceptions to the draft decision on November 17, 2006. A final
decision is expected on or around November 28, 2006.
8
Birmingham Utilities has outstanding a series of first mortgage bonds in
the amount of $9,000,000 due in April 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 August 2006, increased to $9,000,000 in October 2006, and
will expire in September 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 was in compliance with all covenants as of September 30, 2006.
Results of Operations for the nine months and three months ended
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September 30, 2006 and 2005
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Net Income
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Net income for the nine months ended September 30, 2006 was $295,543
compared with $735,933 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 September
30, 2006 was $155,587 compared with $304,004 for the comparable 2005 period for
the same reasons noted above.
Operating Revenues
- ------------------
Operating revenues for the first nine months of 2006 of $6,847,365 are
$53,935 below the comparable 2005 period. Although the Ansonia 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
$8,591. The Eastern Division had increased water revenues of $32,540, due to
growth in customer base.
H2O Services had decreased revenues of $77,884 due in part to a decline in
Rhodes Pump Service revenues of $52,935 due to less demand for services. The
balance of the decline in H2O Services is attributable to less contract work in
the Naugatuck Valley of $11,630 and a decline in Eastern Connecticut of $13,318.
Operating revenues for the three months ended September 30, 2006 were
$34,505 or 1% above the comparable 2005 period. The increase was in the Ansonia
Division where revenues for the quarter were helped by the 4.4% rate increase
effective January 25, 2006 resulting in higher revenues of $82,419.
H2O Services had lower revenues of $41,136 for the three month period ended
September 30, 2006 as compared with the same period in 2005. Lower revenues for
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Rhodes Pump Service of $33,847 due to less demand for services accounts for most
of the decline.
Operating and Maintenance Expenses
- ----------------------------------
Operating and Maintenance expenses for the first nine months of 2006 of
$4,585,607 are $114,375 or 2.5% higher than operating and maintenance expenses
of $4,471,232 recorded in the first nine months of 2005. Increased energy costs
for electric power as well as higher gasoline charges and higher purchased water
costs in the amount of $240,000 were offset by lower maintenance costs of
$25,000 and lower operating costs associated with H2O Services of approximately
$100,000. The operating and maintenance expenses for the three month period
ended September 30, 2006 are higher than the comparable 2005 period for the same
reasons.
Depreciation
- ------------
Depreciation expense of $806,253 for the first nine months of 2006 is
$251,253 higher than the comparable 2005 period, due to substantial plant
additions and improvements made over the last two years. Depreciation expense
for the three month period ended September 30, 2006 was $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 nine month period ended September 30,
2005 were $16,012 lower than the comparable 2005 period. Increased payroll taxes
were offset by decreased property taxes as a result of lower property tax rates
due to re-evaluations. Adjustments to property tax accruals were made in the
third quarter of 2006 when the first installment invoices reflecting the revised
assessments and mil rate changes were received. Taxes other than income taxes
for the three month period ended September 30, 2006 were $20,790 lower than the
comparable 2005 period. Increased payroll taxes offset by decreased property tax
rates in some communities accounts for the variance.
Other Income
- ------------
Other income for the first nine months of 2006 was $22,144 higher than the
comparable period in 2005. Increased AFUDC relating to long term capital
projects in the Ansonia Division along with higher income from the Derby
contract operations and higher jobbing revenues account for the increase.
Interest Expense
- ----------------
Interest expense of $656,784 recorded in the nine month period ended
September 30, 2006 was $180,040 higher than the comparable 2005 period.
Increased borrowings
10
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, 2006 was $105,345 higher than the 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 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 September 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 September 30, 2006.
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, 2006.
11
PART II. OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
- --------------------------
On August 28, 2006, Birmingham Utilities renewed its unsecured line of
credit with Citizens Bank, which consisted of a $7,000,000 1-year, unsecured
line of credit. 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. Birmingham Utilities 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.
On October 30, 2006, the unsecured line of credit was amended to increase
the amount which can be borrowed thereunder to $9,000,000. The line of credit,
as amended, will expire in September 2007.
ITEM 6 - EXHIBITS
10.1 Third Modification and Reaffirmation Agreement
10.2 Fourth Modification and Reaffirmation Agreement
10.3 Commercial Revolving Promissory Note
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
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Registrant
Date: November 14, 2006
By: /s/ John S. Tomac
----------------------------------------
John S. Tomac, President
(Duly authorized officer, and chief
financial officer)
12