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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 QUARTER ENDED JUNE 30, 2002
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 of Organization) (I.R.S Employer I.D. No.)
230 BEAVER STREET, ANSONIA, CT 06401
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(Address of principal executive office) (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
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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 July 31, 2002
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COMMON STOCK, NO PAR VALUE 1,632,880
1
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PART I. FINANCIAL INFORMATION
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ITEM 1 FINANCIAL STATEMENTS
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,
2002 2001 2002 2001
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Operating revenue $ 1,161,474 $ 1,151,768 $ 2,198,621 $ 2,244,120
----------- ----------- ----------- -----------
Operating expenses:
Operating expenses 683,152 651,186 1,340,599 1,267,169
Maintenance expenses 66,528 46,512 135,948 116,109
Depreciation 137,500 130,002 274,998 260,004
Taxes other than income taxes 89,757 84,720 177,921 170,946
Taxes on income 33,009 52,761 37,418 69,521
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Total operating expenses 1,009,946 965,181 1,966,884 1,883,749
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Utility operating income 151,528 186,587 231,737 360,371
Amortization of prior years'
Deferred income on land dispositions
(net of income taxes) 98,694 16,131 197,388 32,262
Other income, net (including allowance
for funds used during construction of
$20,387 in 2002 and $33,076 in 2001) 50,747 11,571 93,238 44,722
----------- ----------- ----------- -----------
Income before interest expense 300,969 214,289 522,363 437,355
Interest and amortization of debt discount 106,581 147,882 213,166 290,078
Income from dispositions of land (net of
income taxes) - 3,051,258 - 3,051,258
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Net income 194,388 3,117,665 309,197 3,198,535
Retained earnings, beginning 10,016,709 5,280,633 10,146,829 5,435,602
Dividends 245,035 235,521 489,964 471,360
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Retained earnings, ending $ 9,966,062 $ 8,162,777 $ 9,966,062 $ 8,162,777
=========== =========== =========== ===========
Earnings per share - basic $ .12 $ 1.92 $ .19 $ 1.97
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Earnings per share - diluted $ .12 $ 1.88 $ .19 $ 1.93
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Dividends per share $ .15 $ .145 $ .30 $ .29
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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
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(Unaudited)
June 30, Dec. 31,
2002 2001
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ASSETS:
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Utility plant $ 25,809,166 $ 25,141,679
Accumulated depreciation (7,746,604) (7,465,532)
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Net utility plant 18,062,562 17,676,147
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Current Assets:
Cash and cash equivalents 2,076,663 3,039,640
Accounts receivable, net of
allowance for doubtful accounts 482,302 480,849
Accrued utility revenue 493,790 458,996
Materials & supplies 138,995 109,033
Prepayments 129,493 44,943
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Total current assets 3,321,243 4,133,461
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Deferred charges 120,085 62,303
Unamortized debt expense 113,614 122,894
Regulatory asset - income taxes recoverable 355,636 355,636
Other assets 299,539 330,146
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888,874 870,979
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$ 22,272,679 $ 22,680,587
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STOCKHOLDERS' EQUITY AND LIABILITIES
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Stockholders' Equity:
Common Stock, no par value, authorized
5,000,000 shares at 6/30/02, 2,000,000
shares at 12/31/01; issued and outstanding
at 6/30/02 and 12/31/01, 1,632,880 shares $ 2,965,269 $ 2,929,756
Retained earnings 9,966,062 10,146,829
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12,931,331 13,076,585
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Long-term debt 4,136,000 4,136,000
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Current Liabilities:
Current portion of long-term debt 94,000 94,000
Accounts payable and accrued liabilities 560,151 613,189
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Total current liabilities 654,151 707,189
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Customers' advances for construction 426,933 1,191,030
Contributions in aid of construction 1,955,152 1,195,934
Regulatory liability-income taxes refundable 149,617 149,617
Deferred income taxes 1,457,625 1,383,843
Deferred income on disposition of land 561,870 840,389
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4,551,197 4,760,813
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$ 22,272,679 $ 22,680,587
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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,
2002 2001
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Cash flows from operating activities
Net income $ 309,197 $ 3,198,535
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Adjustments to reconcile net income to
net cash provided by operating activities:
Income from land dispositions - (3,051,258)
Depreciation and amortization 303,154 286,870
Amortization of deferred income, net of tax (197,388) (32,262)
Deferred income taxes (7,350) (1,689,484)
Increases and decreases in assets
and liabilities:
Accounts receivable and accrued utility revenue (36,247) 19,278
Materials and supplies (29,962) (43,806)
Prepayments (84,800) (66,822)
Accounts payable and accrued expenses (53,038) 1,601,517
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Total adjustments (105,631) (2,975,967)
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Net cash flows provided by operating activities 203,566 222,568
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Cash flows from investing activities:
Proceeds from land dispositions - 5,530,000
Net construction expenditures (667,487) (748,736)
Sales of utility plant - 14,100
Customer refunds (4,880) (6,177)
Other assets and deferred charges, net (39,726) (125,832)
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Net cash flows provided by (used in)
investing activities (712,093) 4,663,355
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Cash flows from financing activities:
Decrease in note payable - (2,236,714)
Dividends paid - net (454,450) (425,844)
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Net cash flows used in
financing activities: (454,450) (2,662,558)
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Net increase (decrease) in cash & cash equivalents (962,977) 2,223,365
Cash and cash equivalents, beginning 3,039,640 41,477
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Cash and cash equivalents, ending $ 2,076,663 $ 2,264,842
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Supplemental disclosure of cash flow information:
Cash paid for
Interest $ 203,886 $ 288,293
Income taxes $ 108,000 $ 26,000
Supplemental disclosure of non-cash flow information:
The Company 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 the Company
Gross plant, additions 667,487 748,736
Customers' advances for construction - -
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Capital expenditures, net $ 667,487 $ 748,736
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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 (the "Company"), formed in March 2002, is a non-operating
holding company whose income is derived from Birmingham Utilities, Inc. (the
"Subsidiary"), a specially chartered public service corporation in the business
of collecting and distributing water for domestic, commercial and industrial
uses and fire protection. The Subsidiary provides water to Ansonia and Derby,
Connecticut and in small parts of the contiguous Town of Seymour with a
population of approximately 31,000 people. BIW Limited became the holding
company for Birmingham Utilities, Inc. pursuant to an Agreement and Plan of
Merger and Share Exchange effective June 28, 2002 (See Note 5).
The Subsidiary 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 the Subsidiary
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 the Subsidiary'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. The
Subsidiary'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.
The Subsidiary 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 ending December 31, 2001, 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 authorities. 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
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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. For further information, refer to the financial statements and
accompanying footnotes included in the Subsidiary's Annual Report on Form 10-K
for the year ended December 31, 2001.
The Subsidiary's business of selling water is to a certain extent
seasonal because water consumption normally increases during the warmer summer
months. Other factors affecting the comparability of various accounting periods
include the timing of rate increases and the timing and magnitude of property
sales. Accordingly, annualization of the results of operations for the six
months ended June 30, 2002 and June 30, 2001 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 subsidiary Birmingham Utilities, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
NOTE 3 - CALCULATION OF WEIGHTED AVERAGE SHARES
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OUTSTANDING-DILUTED
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The following table summarizes the number of common shares used in the
calculation of earnings per share.
Three Months Ended Six Months Ended
6/30/02 6/30/01 6/30/02 6/30/01
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Weighted average shares outstanding
for earnings per share, basic 1,632,880 1,624,297 1,632,880 1,623,684
Incremental shares from assumed
conversion of stock options 37,026 33,413 36,479 32,084
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Weighted average shares outstanding
for earnings per share, diluted 1,669,906 1,657,710 1,669,359 1,655,768
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NOTE 4 - LAND SALES
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On May 21, 2002 the Subsidiary filed an application with the DPUC for
the sale of approximately 27 acres of excess water company lands. The DEP has
notified the Subsidiary of its intent to purchase this property. Hearings were
held on July 25 and 26, 2002 by the DPUC regarding this sale. The sales price is
expected to approximate $575,000. Although there can be no assurance of DPUC
approval, the Company sees no reason why the DPUC would not approve this
transaction.
6
On August 17, 2001, the Subsidiary sold 322 acres of unimproved land in
Seymour, Connecticut to the DEP for $4,338,000. The DEP exercised its right to
purchase this property in accordance with Section 16-50d of the Connecticut
General Statutes. Notification for this purchase was given to the Subsidiary by
the DEP on February 13, 2001, subsequent to the DPUC decision approving a sale
to Toll Brothers, Inc. ("Toll Bros.") for the same price. The funds from this
sale were held in escrow until September 25, 2001 when Toll Bros. agreed to
remove all legal actions it had filed in regard to its contractual rights and
administrative appeals for this sale. The total gain on this sale amounted to
$2,288,297 of which $206,176 was deferred and will be recognized over a 3-year
period as approved by the DPUC.
On June 28, 2001, the Subsidiary sold 570 acres of unimproved land in
Ansonia and Seymour, Connecticut to the DEP for $5,250,000. An additional
$250,000 was contributed by the City of Ansonia for a total selling price of
$5,500,000. This land was sold below market value, and therefore, the
transaction was classified as a bargain sale for income tax purposes. The net
gain from the sale amounted to $3,350,000 of which $315,698 was deferred and
will be recognized over a 3 year period as approved by the DPUC. As a result of
the bargain sale, the net gain includes tax deductions of $571,300 of which
$407,400 was carried forward to reduce the Subsidiary's tax liability in
subsequent years. The $571,300 tax deduction is comprised of contribution
deductions and state tax credits of $2,316,600 offset by a valuation allowance
of $1,745,300.
On April 18, 2001, the Subsidiary sold a small parcel of property,
approximately one quarter of an acre, in Ansonia, CT to Giaimo Associates for
$30,000. The net gain on this transaction amounted to $16,956. The DPUC did not
approve this transaction, as the sales price was less than the required $50,000.
NOTE 5 - CORPORATE RESTRUCTURING
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On January 17, 2002, Birmingham Utilities, Inc., in accordance with
Section 16-47 of the Connecticut General Statutes, filed an application with the
DPUC requesting approval for the establishment of a holding company. The Company
believes the holding company structure will better support business
opportunities that exist in the marketplace and separate these activities from
regulated company activities. On May 8, 2002 the DPUC issued a decision granting
approval of the holding company structure. Shareholders subsequently approved
the holding company structure on June 25, 2002 at the Subsidiary's Annual
Meeting and on June 28, 2002 a Certificate of Merger was filed with the
Secretary of the State of Connecticut and became effective.
In order to implement the plan of merger and share exchange, Birmingham
Utilities, Inc. formed BIW Limited as Birmingham Utilities, Inc.'s wholly-owned
subsidiary. BIW Limited, in turn, formed its own wholly-owned subsidiary,
Birmingham Mergings, Inc. The plan of merger and share exchange was unanimously
approved by the boards of directors of Birmingham Utilities, Inc., BIW Limited
and Birmingham Mergings, Inc., by Birmingham Utilities, Inc. as the sole
stockholder of BIW Limited,
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and by BIW Limited as the sole stockholder of Birmingham Mergings, Inc. On June
28, 2002, the following events ocurred:
o Birmingham Mergings, Inc. merged with and into Birmingham Utilities,
Inc.with Birmingham Utilities, Inc. being the surviving corporation;
o Each outstanding share of Birmingham Mergings common stock was
automatically converted into one share of Birmingham Utilities, Inc.
common stock;
o Each previously outstanding share of Birmingham Utilities, Inc.
common stock was automatically converted into one share of BIW
Limited common stock; and
o Each share of BIW Limited common stock owned by Birmingham
Utilities, Inc. was automatically cancelled.
Neither the certificate of incorporation of Birmingham Utilities, Inc.,
nor Birmingham Utilities, Inc.'s bylaws, were affected by the plan of
merger and share exchange. BIW Limited is governed by its own separate
certificate of incorporation that was filed with the Secretary of State
of the State of Connecticut on March 13, 2002 and by its own separate
bylaws. Upon effectiveness of the merger, each of the directors and
officers of Birmingham Utilities, Inc. also became the directors and
officers of BIW Limited.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL CONDITION
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Management's Discussion and Analysis of the Results of Operations and
Financial Condition contained in the Company's Annual Report on Form 10K for the
year ended December 31, 2001 should be read in conjunction with the comments
below.
CAPITAL RESOURCES AND LIQUIDITY
Completion of the Subsidiary's Long Term Capital Improvement Program is
dependent upon the Company's ability to raise capital from external sources,
including, for the purpose of this analysis, proceeds from the sale of the
Subsidiary's holdings of excess land. For the six months ended June 30, 2002 and
2001, the Subsidiary's additions to utility plant, net of customer advances,
were $667,487 and $748,736, respectively (See Statement of Cash Flows). These
additions were financed primarily from external sources, namely proceeds from
land sales.
The Subsidiary has outstanding $4,230,000 principal amount of Mortgage
Bonds, due September 1, 2011, issued under its Mortgage Indenture. The Mortgage
Indenture limits the issuing of additional First Mortgage Bonds and the payment
of dividends. It does not, however, restrict the issuance of either long term or
short-term debt, which is either unsecured or secured with liens subordinate to
the lien of the Mortgage Indenture.
8
The Subsidiary also maintains a $5,000,000 one-year, unsecured
revolving line of credit that expires on June 30, 2003. During the revolving
period, the Subsidiary can choose between variable rate options of 30, 60, 90 or
180-day LIBOR plus 100 basis points or the Prime plus 0%. The Subsidiary is
required to pay interest only during the revolving period. The loan is payable
in full at maturity. There were no outstanding borrowings on the revolving line
of credit on June 30, 2002.
The Subsidiary's 2002 Capital Budget of $2,081,000 is two-tiered. The
first tier, which consists of typical capital improvements made each year for
services, hydrants and meters, is budgeted for $377,000 in 2002, and is expected
to be financed primarily with internally generated funds.
The second tier of the 2002 Capital Budget consists of replacements and
betterments, which are part of the Subsidiary's Long Term Capital Improvement
Program, and includes $1,704,000 of budgeted plant additions. Plant additions
from this part of the 2002 budget will be financed by proceeds of the 2001 land
sales and with internally generated funds. Second tier plant additions can be,
and portions of it are expected to be, deferred to future years if funds are not
available for their construction in 2002.
The Subsidiary believes that through the sale of land in June and
August of 2001, the use of short-term borrowing and the use of internally
generated funds, it can generate sufficient capital to support its 5-year
capital budget currently estimated at $8,250,000. Internally generated funds in
part are dependent on the extent of future rate relief. Future rate relief will
be a necessary component in the process of funding this 5-year capital program.
Results of Operations for the six months ended and three months ended
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June 30, 2002 and 2001
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Net Income
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Net income for the six months ended June 30, 2002 was $309,197 compared
with $3,198,535 for the same 2001 period. Land sale income contributed
$3,051,258 to the Subsidiary's net income in 2001. There were no land sales in
2002. Operating income for the six months ended June 30, 2002 has increased
$161,920 from the comparable 2001 period. Decreased interest charges coupled
with increased income from contract operations, increased investment interest
income and increased amortizations from prior year land sales more than offset
increased operating expenses and lower revenues in 2002. Net income for the
three months ended June 30, 2002 was $194,388 compared with $3,117,665 for the
comparable 2001 period. Land sales which took place in the second quarter of
2001 did not recur in 2002. Operating income for the second quarter of 2002 is
$125,981 above the comparable 2001 period due to the same reasons noted above
for the six month period.
9
Operating Revenues
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Operating revenues for the first six months of 2002 of $2,198,621 are
$45,499 below the comparable 2001 period. Decreased consumption from all classes
of customers principally in the first quarter account for this decline.
Operating revenues for the three month period ended June 30, 2002 were $9,706
above the comparable 2001 quarter. Consumption during this quarter from the
residential class exceeded the comparable 2001 period.
Operating and Maintenance Expenses
- ----------------------------------
Operating and Maintenance expenses for the first six months of 2002 of
$1,476,547 were $93,269 higher than operating and maintenance expenses of
$1,383,278 recorded in the first six months of 2001. Increased legal fees,
property and liability insurance as well as shareholder expenses principally
relating to the formation of the holding company account for this increase.
Increases in these expenses also caused operating and maintenance expenses for
the three month period ending June 30, 2002 to exceed the comparable 2001
period.
Depreciation Expense
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Depreciation expense for the first six months of 2002 and for the three
month period ended June 30, 2002 were $14,994 and $7,498, respectively higher
than the comparable 2001 period due to the depreciation expense relating to
plant additions that have continued throughout 2001 and into the first half of
2002.
Taxes Other Than Income Taxes
- -----------------------------
Taxes other than income taxes for the six month period ended June 30,
2002 were $6,975 higher than the comparable 2001 period. Increased payroll taxes
and property taxes due to new additions to utility plant account for this
increase. Taxes other than income taxes for the three month period ended June
30, 2002 were $5,037 higher than the comparable 2001 period. Increased payroll
taxes and property taxes also account for this variance.
Other Income
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Other income for the first six months of 2002 was $48,516 higher than
the comparable period in 2001. Increased income from contract operations and
investment interest income account for this increase. Other income for the three
month period ended June 30, 2002 was $39,176 higher than the second quarter of
2001. Increases in contract operating income and investment interest income also
account for this increase.
10
Land Dispositions
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When the Subsidiary disposes of land, any gain recognized, net of tax,
is shared between ratepayers and stockholders based upon a formula approved by
the DPUC. The impact of land dispositions is recognized in two places on the
statement of income.
The statement of income reflects income from the disposition of land
(net of taxes) of $3,051,258 for the six months ended June 30, 2001. That amount
represents the sale of 570 acres in Ansonia and in Seymour, CT on June 28, 2001
and .25 acres in Ansonia on April 18, 2001.
That amount represents the stockholders immediate share of income from
the land sales. The net gain on both sales totaled $3,366,956 including the
deferred portion. The DPUC's March 1, 2000 decision approving the 570 acre sale
provided for a three year amortization period as 100% of this parcel will be
dedicated as open space. The total gain on the .25 acre sale amounted to
$16,956. The DPUC did not approve this sale as the sale price was less than
$50,000. No portion of that gain was deferred.
Land disposition income is also recognized in the financial statements
as a component of operating income on the line entitled "Amortization of
Deferred Income on Dispositions of Land". 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
$197,388 and $32,262 for the six months ended June 30, 2002 and 2001, and
$98,694 and $16,131, respectively, for the three month periods ending June 30,
2002 and 2001.
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.
11
PART II. OTHER INFORMATION
--------------------------
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
During the quarter ended June 30, 2002, the only matters submitted to a
vote of the holders of the Subsidiary's common stock, its only class of voting
stock, were submitted at the Subsidiary's Annual Meeting of Shareholders held on
June 25, 2002, as follows:
(a) Election of Directors - All nominees for Director were elected, as
follows:
Votes % O/S Votes
Director For Shares Against
-------- --------- ------ -------
Michael J. Adanti 1,485,336 90 8,490
Mary Jane Burt 1,487,736 91 6,090
James E. Cohen 1,487,472 91 6,354
Alvaro da Silva 1,487,736 91 6,090
Betsy Henley-Cohn 1,483,727 90 10,099
Themis Klarides 1,487,736 91 6,090
Aldore J. Rivers, Jr. 1,486,936 91 6,890
B. Lance Sauerteig 1,487,736 91 6,090
Kenneth E. Schaible 1,487,572 91 6,235
John S. Tomac 1,487,736 91 6,090
(b) Approval of Auditors
Dworken, Hillman, LaMorte & Sterczala, P.C. were appointed as
independent auditors for the Subsidiary for 2002. Total votes cast were
1,493,826, representing 91.4% of all outstanding shares. 1,482,527, representing
90.8% of all outstanding shares, were cast in favor of the appointment of
Dworken, Hillman, LaMorte & Sterczala, P.C.
(c) Approval of the Holding Company Structure
The formation of the holding company structure pursuant to an Agreement
and Plan of Merger and Share Exchange was approved. Total votes cast were
1,138,680, representing 69.7% of all outstanding shares. 1,095,891, representing
67.1% of all outstanding shares, were cast in favor for the formation of the
holding company structure, 19,447 shares were voted against, 23,342 shares
abstained, and there were 355,146 broker non-votes.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits - None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIW Limited
-----------
Registrant
Date: August 13, 2002
By: /s/ John S. Tomac
----------------------
John S. Tomac, President
(Duly authorized officer, and chief
financial and accounting officer)
13