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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, 2003
COMMISSION FILE NUMBER 1-31374
BIW LIMITED
(Exact name of registrant as specified in its charter)
CONNECTICUT 04-3617838
(State of Incorporation of Organization) (I.R.S Employer I.D. No.)
230 BEAVER STREET, ANSONIA, CT 06401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 735-1888
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--------- ---------
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
YES NO X
--------- ---------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 2003
- --------------------------------------------------------------------------------
COMMON STOCK, NO PAR VALUE 1,637,076
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIW LIMITED
-----------
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
-------------------------------------------------------
(UNAUDITED)
-----------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Operating revenue $ 1,835,209 $ 1,384,686 $ 4,247,384 $ 3,710,153
------------ ------------ ------------ ------------
Operating expenses:
Operating expenses 956,006 820,551 2,419,544 2,246,519
Maintenance expenses 63,409 38,137 224,131 174,085
Depreciation 182,685 137,499 472,685 412,497
Taxes other than income taxes 104,115 106,766 310,643 284,687
Taxes on income 134,109 92,962 170,140 130,380
------------ ------------ ------------ ------------
Total operating expenses 1,440,324 1,195,915 3,597,143 3,248,168
------------ ------------ ------------ ------------
Operating income 394,885 188,771 650,241 461,985
Amortization of prior years'
deferred income on land dispositions
(net of income taxes) 44,793 98,693 134,379 296,081
Other income, net (including allowance
for funds used during construction of
$58,339 in 2003 and $30,860 in 2002) 13,368 31,379 74,062 83,140
------------ ------------ ------------ ------------
Income before interest expense 453,046 318,843 858,682 841,206
Interest and amortization of debt discount 103,748 105,250 311,227 318,416
Income from dispositions of land (net of
income taxes) -- 261,317 -- 261,317
------------ ------------ ------------ ------------
Net income $ 349,298 $ 474,910 $ 547,455 $ 784,107
Retained earnings, beginning $ 9,691,103 $ 9,966,062 $ 9,984,068 $ 10,146,829
Dividends 245,562 244,900 736,684 734,864
------------ ------------ ------------ ------------
Retained earnings, ending $ 9,794,839 $ 10,196,072 $ 9,794,839 $ 10,196,072
============ ============ ============ ============
Earnings per share - basic $ 0.21 $ 0.29 $ 0.33 $ 0.48
============ ============ ============ ============
Earnings per share - diluted $ 0.20 $ 0.28 $ 0.32 $ 0.47
============ ============ ============ ============
Dividends per share $ 0.15 $ 0.15 $ 0.45 $ 0.45
============ ============ ============ ============
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, Dec. 31,
2003 2002
------------ ------------
ASSETS:
- -------
Utility plant $ 28,196,367 $ 27,049,864
Accumulated depreciation (8,472,997) (8,013,941)
Net utility plant 19,723,370 19,035,923
Current Assets:
Cash and cash equivalents 98,735 663,060
Investments -- 737,141
Accounts receivable, net of
allowance for doubtful accounts 754,835 457,932
Accrued utility revenue 570,726 434,312
Materials & supplies 137,068 115,568
Prepayments 62,795 16,106
------------ ------------
Total current assets 1,624,159 2,424,119
------------ ------------
Deferred charges 346,170 120,050
Unamortized debt expense 93,305 105,491
Regulatory asset - income taxes recoverable 342,257 342,257
Other assets 426,744 293,449
------------ ------------
1,208,476 861,247
------------ ------------
$ 22,556,005 $ 22,321,289
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STOCKHOLDERS' EQUITY AND LIABILITIES
- ------------------------------------
Stockholders' Equity:
Common Stock, no par value, authorized
5,000,000 shares; issued and outstanding at 9/30/03
and 12/31/02, 1,637,076 shares $ 2,905,190 $ 2,905,190
Retained earnings 9,794,836 9,984,068
------------ ------------
12,700,026 12,889,258
------------ ------------
Long-term debt 3,948,000 4,042,000
------------ ------------
Current Liabilities:
Note payable 565,000 --
Current portion of long-term debt 94,000 94,000
Accounts payable and accrued liabilities 633,826 631,340
------------ ------------
Total current liabilities 1,292,826 725,340
------------ ------------
Customers' advances for construction 450,609 428,684
Contributions in aid of construction 2,087,462 2,013,522
Regulatory liability-income taxes refundable 142,059 142,059
Deferred income taxes 1,842,877 1,797,075
Deferred income on disposition of land 92,146 283,351
------------ ------------
4,615,153 4,664,691
------------ ------------
$ 22,556,005 $ 22,321,289
============ ============
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)
-----------
Nine Months Ended September 30,
---------------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income $ 547,455 $ 784,107
------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from land dispositions -- (421,576)
Depreciation and amortization 510,007 453,798
Amortization of deferred income, net of tax (134,379) (296,081)
Deferred income taxes (11,025) 57,896
Increases and decreases in assets and liabilities:
Accounts receivable and accrued utility revenue (433,316) 36,524
Materials and supplies (21,500) (37,203)
Prepayments (46,689) (62,884)
Accounts payable and accrued expenses 2,485 (19,082)
------------ ------------
Total adjustments (134,417) (288,608)
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Net cash flows provided by operating activities 413,038 495,499
------------ ------------
Cash flows from investing activities:
Proceeds from land dispositions 537,500
Net construction expenditures (1,050,638) (1,103,282)
Sales of investments 737,141 --
Other assets and deferred charges, net (398,182) (74,155)
------------ ------------
Net cash flows used in
investing activities (711,679) (639,937)
------------ ------------
Cash flows from financing activities:
Increase in short term debt 565,000 --
Decrease in long-term debt (94,000) (94,000)
Dividends paid, net (736,684) (699,382)
------------ ------------
Net cash flows used in
financing activities: (265,684) (793,382)
------------ ------------
Net decrease in cash & cash equivalents (564,325) (937,820)
Cash & cash equivalents, beginning 663,060 3,039,640
------------ ------------
Cash & cash equivalents, ending $ 98,735 $ 2,101,820
Supplemental disclosure of cash flow formation:
Cash paid for
Interest $ 398,710 $ 407,772
Income taxes 9,000 108,000
Supplemental disclosure of non-cash investing activities:
Birmingham Utilities receives contributions of plant from
builders and developers. These contributions of plant
are reported in utility plant and in customers' advances
for construction. The contributions are deducted from
construction expenditures by BUI
Gross plant, additions $ 1,146,503 $ 1,115,942
Customers' advances for construction (95,865) (12,660)
------------ ------------
Capital expenditures, net $ 1,050,638 $ 1,103,282
============ ============
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. (BUI or
Birmingham Utilities), a specially chartered public service corporation in the
business of collecting and distributing water for domestic, commercial and
industrial uses and fire protection and Birmingham H2O Services, Inc. (BHS or
Birmingham H2O Services), which provides water related services to other water
utilities, contractors and individuals throughout Connecticut. Birmingham
Utilities 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 9).
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.
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, 2002, 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
5
interim periods presented. Certain information and footnote disclosures required
by accounting principles generally accepted in the United States of America have
been omitted, pursuant to such rules and regulations; although the Company
believes that the disclosures are adequate to make the information presented not
misleading.
The Company applies Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" (SFAS 123) to account for its
stock option plans. As permitted by SFAS 123, the Company has chosen to continue
to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) and, accordingly, no compensation cost has been
recognized for stock options in the financial statements.
For further information, refer to the financial statements and
accompanying footnotes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.
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. BUI was granted a 27.74 percent
water service rate increase on August 7, 2003 (See Note 6). In addition,
Birmingham H2O Services' business activities will slow in the winter months.
Accordingly, annualization of the results of operations for the nine months
ended September 30, 2003 and 2002 would not necessarily accurately forecast the
annual results of each year.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
- ---------------------------------------
The consolidated financial statements include the accounts of BIW
Limited and its wholly owned subsidiaries Birmingham Utilities, Inc. and
Birmingham H2O Services, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
NOTE 3 - RECLASSIFICATIONS
- -----------------------------
Certain September 30, 2002 balances have been reclassified to conform to the
September 30, 2003 presentation.
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.
6
Three Months Ended Nine Months Ended
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9/30/03 9/30/02 9/30/03 9/30/02
--------- --------- --------- ---------
Weighted average shares outstanding
for earnings per share, basic 1,637,076 1,632,880 1,637,076 1,632,880
Incremental shares from assumed
conversion of stock options 31,406 35,430 31,671 36,125
--------- --------- --------- ---------
Weighted average shares outstanding
for earnings per share, diluted 1,668,482 1,668,310 1,668,747 1,669,005
========= ========= ========= =========
NOTE 5 - PURCHASE AND SALE AGREEMENT
- ---------------------------------------
On May 19, 2003 BIW Limited's wholly-owned subsidiaries Birmingham
Utilities, Inc. (BUI) and Birmingham H2O Services, Inc. (BHS) entered into a
Purchase Agreement (the Purchase Agreement) with Philadelphia Suburban
Corporation (PSC). The Purchase Agreement provides for the acquisition by BUI of
all of the issued and outstanding shares of common stock of Eastern Connecticut
Regional Water Company, Inc., as well as certain assets used in regulated water
utility operations in Connecticut. BUI would also acquire all of the issued and
outstanding stock of five regulated water companies located in and operating in
the State of New York. Pursuant to the Purchase Agreement, BHS would purchase
certain non-regulated assets that consist largely of operating and maintenance
agreements with respect to various unregulated water supply systems located in
eastern and central Connecticut.
The aggregate purchase price for the regulated and unregulated
Connecticut operations and the New York operations to be purchased by Birmingham
Utilities and Birmingham H2O Services pursuant to the Purchase Agreement is
$5,000,000. The purchase price is subject to certain adjustments based on
changes in the rate base and working capital of the Connecticut and New York
regulated companies. These adjustments may not increase the purchase price by
more than $1,200,000 in the aggregate.
On July 31, 2003, PSC purchased the Aqua Source utility and
non-utility systems, which include the Connecticut and New York operations from
Aqua Source, Inc., pursuant to a previously announced purchase agreement among
PSC, Aqua Source and DQE, Inc. The sale of the Connecticut and New York
regulated operations to Birmingham Utilities is subject to Connecticut and New
York regulatory approval. Applications for approval were filed with the
Connecticut DPUC on June 19, 2003 and with the New York Commission on July 3,
2003.
On August 1, 2003 PSC and Birmingham H2O Services signed a
professional service agreement whereby BHS would operate the Connecticut
operations for PSC until such time that the transaction was approved by the
Connecticut DPUC. Under the terms of the agreement Birmingham H2O Services would
pay PSC their carrying costs for the purchase of the Connecticut operations
while Birmingham H2O Services would retain all profits from the operation.
7
On October 31, 2003 Birmingham Utilities and Birmingham H2O Services
purchased the Connecticut regulated and unregulated operations from PSC. The
Connecticut DPUC approved the sale of the regulated operations on October 22,
2003. The purchase price was $4,000,000 which included the regulated and non
regulated operation in Connecticut which is also subject to certain purchase
price adjustments. The purchase price was funded through borrowings on
Birmingham Utilities' existing line of credit with Citizens Bank. The
application filed with the New York Commission on July 3, 2003 is expected to be
adjudicated early next year.
NOTE 6 - WATER SERVICES RATE APPLICATION
- -------------------------------------------
On February 11, 2003, Birmingham Utilities filed an application with
the DPUC for a 34.55 percent water service rate increase designed to provide a
$1,576,183 increase in annual water service revenues. On August 7, 2003, the
DPUC granted the company a 27.74 percent water service rate increase designed to
provide a $1,264,178 annual increase in revenues and a 10.5 percent return on
common equity.
NOTE 7 - FORMATION OF BIRMINGHAM H2O SERVICES, INC.
- ------------------------------------------------------
On November 22, 2002, Birmingham H2O Services, Inc., a non-regulated
subsidiary of BIW Limited, was formed. This company provides water related
services to other water utilities, developers and individuals.
NOTE 8 - LAND SALES
- ----------------------
On September 27, 2002, Birmingham Utilities sold 27 acres of
unimproved land in Seymour, Connecticut to the State of Connecticut, Department
of Environmental Protection (DEP) for $537,500. The after tax gain on this
transaction amounted to $311,092, of which 16% or $49,775, was allocated by the
DPUC to an account stipulated as an offset to rate base for a period of 40
years. The rate base offset account does not represent a claim by ratepayers on
any asset of BUI. The rate base offset account was utilized in calculating rate
base in the recently approved rate decision.
NOTE 9 - CORPORATE RESTRUCTURING
- -----------------------------------
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 BUI'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.
8
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, 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, was 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 FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- -------------
Management's Discussion and Analysis of the Financial Condition and
Results of Operations contained in the Company's Annual Report on Form 10K for
the year ended December 31, 2002 should be read in conjunction with the comments
below.
CAPITAL RESOURCES AND LIQUIDITY
Completion of Birmingham Utilities' Long Term Capital Improvement
Program will be funded from the proceeds available from the 2001 and 2002 land
sales, 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, 2003 and 2002, BUI's additions to utility plant, net of
customer advances, were $1,050,638 and $1,103,282 respectively (See Statement of
Cash Flows). These additions were financed primarily from proceeds of land
sales.
9
Birmingham Utilities has outstanding $3,948,000 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.
Birmingham Utilities also maintains a $5,000,000 one-year, unsecured
revolving line of credit that expired in October 2003. This line was
subsequently extended until December 28, 2003. The Company has received
preliminary approval for a new $7,000,000 one year unsecured revolving line of
credit that is expected to close before the end of the year. During the
revolving period, BUI 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 interest
only during the revolving period. The loan is payable in full at maturity. The
extended revolving line maintains the same terms as the expired line. Borrowings
of $565,000 were outstanding on the revolving line of credit on September 30,
2003 and there were no outstanding borrowings on the revolving line of credit on
September 30, 2002.
Results of Operations for the nine months ended and three months ended
- ----------------------------------------------------------------------
September 30, 2003 and 2002
- ---------------------------
Net Income
- ----------
Net income for the nine months ended September 30, 2003 was $547,455
compared with $784,107 for the same 2002 period. Land sale income contributed
$261,317 to net income in 2002 while there was no land sale income in 2003. Net
income for the three months ended September 30, 2003 was $349,298 compared with
$474,910 for the comparable 2002 period. Land sales, which took place in the
third quarter of 2002, contributed $261,317 to net income while there were no
land sales recorded in the third quarter of 2003.
Operating Revenues
- ------------------
Operating revenues for the first nine months of 2003 of $4,247,384
are $537,231 above the comparable 2002 period. The third quarter 2003 includes
revenues from the managed Eastern Connecticut regulated and unregulated
operations of PSC for the months of August and September of $381,204. Birmingham
H20 Services under the operating agreement signed with PSC assumed full
responsibility of operating these entities on August 1, 2003 (See Note 5).
Birmingham H2O Services revenues decreased by $25,587 and Birmingham Utilities'
revenues increased by $181,614. Although consumption was lower due to the
unusually wet weather, this was offset by the rate increase which went into
effect on August 7, 2003. Operating revenues for the three month period ended
September 30, 2003 are $450,523 above the comparable 2002 quarter. Birmingham
Utilities accounts for $136,795 of the increase while Birmingham
10
H2O Services revenues decreased by $67,476. The remaining $381,204 is
attributable to the newly managed operations.
Operating and Maintenance Expenses
- ----------------------------------
Operating and Maintenance expenses for the first nine months of 2003
of $2,643,675 are $223,071 higher than operating and maintenance expenses of
$2,420,604 recorded in the first nine months of 2002. Increased property,
liability and workers' compensation insurance costs, partially offset by a
decrease in the supplemental pension expense, for Birmingham Utilities as well
as the higher costs relating to the newly managed operations, accounts for this
increase. Operating and maintenance expenses for the three month period ended
September 30, 2003 exceeded the comparable 2002 period for the same reasons
noted above for the nine month period.
Depreciation
- ------------
Depreciation for the first nine months of 2003 and for the three
month period ended September 30, 2003 are $60,188 and $45,186, respectively,
higher than the comparable 2002 periods due to depreciation related to the newly
managed operations as well as the depreciation expense relating to plant
addition that have continued throughout 2002 and 2003.
Taxes Other Than Income Taxes
- -----------------------------
Taxes other than income taxes for the nine month period ended
September 30, 2003 were $25,956 higher than the comparable 2002 period.
Increased payroll taxes and property taxes due to new operations as well as new
utility plant additions account for this increase. Taxes other than income taxes
for the three month period ended September 30, 2003 are $2,651 lower than the
comparable 2002 period due to an increase in the monthly expense accrual which
began in the third quarter of 2002. This same increase is spread over the entire
twelve month period of 2003. Although expenses did increase for the reasons
noted above, the timing of the expense between the two years causes the variance
for the quarter.
Other Income
- ------------
Other income for the first nine months of 2003 was $9,078 lower than
the comparable period in 2002. A decrease in investment interest income
partially offset by an increase in allowance for funds used during construction
accounts for this decrease. Other income for the three month period ended
September 30, 2003 was $18,011 lower than the second quarter of 2002. Decreases
in investment interest income also accounts for this decrease.
11
Interest Expense
- ----------------
Interest expense of $311,227 recorded in the first nine months of
2003 is $7,189 lower than the comparable 2002 period due to the annual sinking
fund payment relating to Birmingham Utilities' Series E Bonds. The interest
expense for the three month period ended September 30, 2003 is $1,502 lower also
because on the sinking fund payment.
Land Dispositions
- -----------------
When Birmingham Utilities disposes of land, any gain recognized, net
of tax, is shared between ratepayers and stockholders based upon a formula
approved by the DPUC. The 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 $0 and $261,317 for the nine months ended September 30,
2003 and September 30, 2002 respectively. That amount represents the
stockholders immediate share of income from the sales.
The net gain on the 2002 sale totaled $311,091. The DPUC's September
26, 2002 decision called for 16% of the gain to be allocated to an account
stipulated as an offset to rate base. That amount, $49,775, is to remain in that
account for a 40 year period. (See Note 8.)
Land disposition income applicable to ratepayers is also recognized
in the financial statements as a component of operating income on the line
entitled "Amortization of 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 $134,379 and $296,081 for the nine months ended
September 30, 2003 and 2002, and $44,793 and $98,693 for the three months ended
September 30, 2003 and 2002.
Recognition of deferred income will continue over time periods
ranging from three to fifteen years, depending upon the amortization period
ordered by the DPUC for each particular disposition except for the 2002 sale in
which the deferred portion will remain as an offset to rate base for a period of
40 years.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------------------
The Company has certain exposures to market risk related to changes
in interest rates. There have been no material changes in market risk since the
filing of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
12
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, 2003. 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.
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, 2003.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------
(a) Exhibits
2.1 Purchase Agreement dated May 19, 2003 by and among Birmingham
Utilities, Inc., Birmingham H2O Services, Inc. and Philadelphia
Suburban Corporation (incorporated by reference to Exhibit 99.1 to
the Company's Form 8-K filed May 28, 2003)
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.
(b) Reports on Form 8-K
None
13
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 13, 2003
By: /s/ John S. Tomac
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John S. Tomac, President
(Duly authorized officer, and chief
financial officer)
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