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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 MARCH 31, 2004
COMMISSION FILE NUMBER 1-31374
BIW LIMITED
(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 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 [ ]
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 May 12, 2004
COMMON STOCK, NO PAR VALUE 1,642,542
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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
March 31,
2004 2003
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Operating revenue $2,111,457 $1,116,192
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Operating expenses:
Operating expenses 1,336,161 729,969
Maintenance expenses 134,725 74,160
Depreciation 180,000 145,000
Taxes other than income taxes 136,769 105,589
Taxes on income 53,267 912
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Total operating expenses 1,840,922 1,055,630
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Utility operating income 270,535 60,562
Amortization of deferred income
on land dispositions (net of income taxes) 2,835 44,793
Other income, net (including allowance
for funds used during construction of
$45,269 in 2004, and $34,976 in 2003) 57,345 55,374
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Income before interest expense 330,715 160,729
Interest and amortization of debt discount 128,830 103,741
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Net income $ 201,885 $ 56,988
Retained earnings, beginning $9,822,197 $9,984,068
Dividends 279,232 245,561
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Retained earnings, ending $9,744,850 $9,795,495
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Earnings per share, basic $ .12 $ .03
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Earnings per share, diluted $ .12 $ .03
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Dividends per share $ .17 $ .15
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The accompanying notes are an integral part of these consolidated financial
statements.
2
BIW Limited
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, Dec. 31,
2004 2003
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ASSETS:
Utility plant $ 33,698,095 $ 33,213,665
Accumulated depreciation (8,804,854) (8,578,855)
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Net utility plant 24,893,241 24,634,810
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Other property 401,575 388,678
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Current assets:
Cash and cash equivalents 84,902 148,618
Accounts receivable, net of
allowance for doubtful accounts 999,261 916,985
Accrued utility revenue 552,699 561,560
Materials & supplies 285,436 280,319
Prepayments 294,838 302,482
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Total current assets 2,217,136 2,209,964
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Deferred charges 228,468 226,034
Unamortized debt expense 134,424 89,242
Regulatory asset - income taxes recoverable 439,050 439,050
Other assets 456,179 411,691
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1,258,121 1,166,017
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$ 28,770,073 $ 28,399,469
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STOCKHOLDERS' EQUITY AND LIABILITIES:
Stockholders' equity:
Common stock, no par value, authorized 5,000,000
shares; issued and outstanding 3/31/04
1,642,542 shares; 12/31/03 1,637,076 shares $ 2,900,942 $ 2,900,913
Retained earnings 9,744,850 9,822,197
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12,645,792 12,723,110
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Long-term debt 3,948,000 3,948,000
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Current liabilities:
Current portion of long-term debt 94,000 94,000
Note payable 5,505,000 4,705,000
Accounts payable and accrued liabilities 1,066,428 1,411,227
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Total current liabilities 6,665,428 6,210,227
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Customers' advances for construction 503,127 503,897
Contributions in aid of construction 2,454,304 2,454,304
Regulatory liability-income taxes refundable 134,486 134,486
Deferred income taxes 2,395,364 2,397,034
Deferred income on disposition of land 23,572 28,411
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5,510,853 5,518,132
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$ 28,770,073 $ 28,399,469
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The accompanying notes are an integral part of these consolidated financial
statements.
3
BIW Limited
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
Cash Flows From Operating Activities 2004 2003
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Net income $ 201,885 $ 56,988
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Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 202,259 157,445
Amortization of deferred income, net of tax (2,835) (44,793)
Deferred income taxes (3,675) (3,675)
Increases and decreases in assets and liabilities:
Accounts receivable and accrued utility revenue (73,415) 53,855
Materials and supplies (5,117) (42,316)
Prepayments 7,644 (158,016)
Accounts payable and accrued liabilities (344,799) (133,129)
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Total Adjustments (219,938) (170,629)
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Net cash flows used in operating activities (18,053) (113,641)
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Cash flows from investing activities:
Net construction expenditures (498,096) (304,931)
Sale of investments -- 190,905
Other assets and deferred charges, net (68,335) (68,694)
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Net cash flows used in
investing activities (566,431) (182,720)
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Cash flows from financing activities:
Dividends paid (279,232) (245,561)
Borrowings under line of credit 800,000 --
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Net cash flows provided by(used in)
financing activities: 520,768 (245,561)
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Net decrease in cash and cash equivalents (63,716) (541,922)
Cash and cash equivalents, beginning 148,618 663,060
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Cash and cash equivalents, ending $ 84,902 $ 121,138
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Supplemental disclosure of cash flow information:
Cash paid for
Interest $ 194,824 $ 199,355
Income taxes 10,000 9,000
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 $ 497,326 $ 329,296
Customers' advances for construction 770 (24,365)
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Capital expenditures, net $ 498,096 $ 304,931
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The accompanying notes are an integral part of these consolidated financial
statements.
4
BIW Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BIW Limited (BIW or the Company) is the parent company of Birmingham
Utilities, Inc. and its wholly-owned subsidiary Eastern Connecticut Regional
Water Company, Inc. (Eastern Division), collectively (BUI or Birmingham
Utilities), a regulated public water service company that provides water service
to customers in various cities and towns in Connecticut and Birmingham H2O
Services, Inc. (BHS or H2O Services), which provides water related services to
other water utilities, municipalities, contractors and individuals throughout
Connecticut.
Birmingham Utilities is subject to the jurisdiction of the Connecticut
Department of Public Utility Control (DPUC) as to accounting, financing,
ratemaking, disposal of property, the issuance of long-term securities and other
matters affecting its operations. The Connecticut Department of Public Health
(the Health Department or DPH) has regulatory powers over BUI under state law
with respect to water quality, sources of supply, and the use of watershed land.
The Connecticut Department of Environmental Protection (DEP) is authorized to
regulate BUI's operations with regard to water pollution abatement, diversion of
water from streams and rivers, safety of dams and the location, construction and
alteration of certain water facilities. BUI's activities are also subject to
regulation with regard to environmental and other operational matters by
federal, state and local authorities, including, without limitation, zoning
authorities.
In addition, Birmingham Utilities is subject to regulation of its water
quality under the Federal Safe Drinking Water Act (SDWA). The United States
Environmental Protection Agency has granted to the Health Department the primary
enforcement responsibility in Connecticut under the SDWA. The Health Department
has established regulations containing maximum limits on contaminants, which
have or may have an adverse effect on health.
NOTE 1 - QUARTERLY FINANCIAL DATA
The accompanying consolidated financial statements of BIW Limited have been
prepared in accordance with accounting principles generally accepted in the
United States of America, without audit, except for the Balance Sheet for the
year ended December 31, 2003, 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 omitted, pursuant to such rules and regulations; although the Company
believes that the disclosures are adequate to make the information presented not
misleading.
5
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, 2003.
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, Birmingham H2O Services'
business activities will slow in the winter months. Accordingly, annualization
of the results of operations for the three months ended March 31, 2004 and 2003
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 subsidiaries Birmingham Utilities, Inc. and Birmingham H2O Services,
Inc. All significant intercompany balances and transactions have been eliminated
in consolidation.
NOTE 3 - ACQUISITION
On October 31, 2003, Birmingham Utilities purchased from Aqua America,
formerly the Philadelphia Suburban Corporation (PSC) for $4,651,000 all of the
issued and outstanding shares of common stock of Eastern Connecticut Regional
Water Company, Inc., and Birmingham H2O Services purchased certain non-regulated
assets consisting largely of operating maintenance agreements with various
unregulated water supply systems located in eastern Connecticut and Rhodes Pump
Service, Inc. located in Guilford, Connecticut. The purchase price was funded
through borrowings on BUI's existing line of credit.
The acquisition has been accounted for in accordance with Statement of
Financial Accounting Standards No. 141, "Business Combinations." Accordingly,
the cost of the acquisition was allocated to the assets acquired and liabilities
assumed based on estimates of their respective fair values at the date of
acquisition.
In 2003, Birmingham Utilities entered into a Purchase Agreement with PSC to
purchase all of the issued and outstanding shares of common stock of five small
regulated water companies located in eastern New York. The purchase price for
the New York operations is $1,000,000 subject to certain adjustments based on
changes in rate base and working capital. These adjustments may not increase the
purchase price by more than $450,000. The closing of this transaction is subject
to regulatory approval. Applications for regulatory approval were filed with the
New York State Public Service Commission in July 2003. A decision is expected in
2004. See Note 5.
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NOTE 4 - WATER SERVICE RATE INCREASE
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. This rate increase does not
apply to the newly acquired Eastern Division.
NOTE 5 - SUBSEQUENT EVENT
On April 30, 2004, the Company issued First Mortgage Bonds in the principal
amount of $9,000,000. The bonds carry an interest rate of 5.21%. The proceeds
from the bond issue were used to repay the $4,042,000 outstanding principal of
the existing Mortgage Bonds, which carried an interest rate of 9.64%, repay
$4,280,000 of short-term debt used to fund the purchase of the Connecticut
regulated and non-regulated operations from PSC, and will be used to fund the
purchase of the New York operations from PSC.
NOTE 6 - CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED
The following table summarizes the number of common shares used in the
calculation of earnings per share.
Three Months Ended
3/31/04 3/31/03
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Weighted average shares outstanding
for earnings per share, basic 1,639,719 1,637,076
Incremental shares from assumed
conversion of stock options 34,625 32,574
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Weighted average shares outstanding
for earnings per share, diluted 1,674,344 1,669,650
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7
NOTE 7 - PENSION AND OTHER POSTRETIREMENT BENEFITS
Net periodic pension and other postretirement benefit costs include the
following components:
Pension Benefits Postretirement Benefits
For the three months For the three months
ended March 31, ended March 31,
2004 2003 2004 2003
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Components of Net Periodic
Benefit Cost:
Service cost 14,508 14,879 6,854 6,955
Interest cost 24,286 23,158 9,379 8,987
Expected return on plan assets (17,047) (15,823) (9,243) (7,274)
Amortization of unrecognized
transition obligation 1,468 1,468 6,345 6,345
Amortization of unrecognized
prior service cost 1,293 1,293 -- --
Recognized net actuarial loss (gain) 1,281 1,311 (689) --
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Net periodic benefit cost 25,789 26,286 12,646 15,013
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10K for the year
ended December 31, 2003 should be read in conjunction with the information
below.
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
three months ended March 31, 2004 and 2003, BUI's additions to utility plant,
net of customer advances, were $498,096 and $304,931, respectively (See
Statement of Cash Flows).
Birmingham Utilities has outstanding a series of first mortgage bonds in
the amount of $9,000,000 due on April 15, 2011, issued under its Mortgage
Indenture. The 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
expiring in December 2004. This note replaces the $5,000,000 1-year unsecured
line of credit that expired in October 2003. 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.
8
Results of Operations for the Three Months Ended March 31, 2004 and 2003
- ------------------------------------------------------------------------
Net Income
- ----------
Net income for the three months ended March 31, 2004 was $201,885 compared
with $56,988 for the same 2003 period. Additional income as a result of the
water service rate increase granted Birmingham Utilities in August 2003 along
with increased activity in Birmingham H2O Services accounts for the change.
Operating Revenues
- ------------------
Operating revenues of $2,111,457 for the first three months of 2004 are
$995,265 higher than the comparable 2003 period. Increased revenues from
Birmingham Utilities of $594,733, including additional revenues of $261,791 from
the newly acquired Eastern Division and increased revenues of $400,532 from
Birmingham H2O Services account for the increase.
Operating and Maintenance Expenses
- ----------------------------------
Operating and maintenance expenses for the first three months of 2004 of
$1,470,886 are $666,757 higher than comparable costs for the first three months
of 2003. Increased Birmingham H2O Services costs of $357,831, additional cost
relating to the acquired operations of the Eastern Division of $229,252 and
increased BUI costs relating to shareholder matters, additional amortization of
regulatory costs and higher personnel costs accounts for this increase.
Depreciation
- ------------
Depreciation for the first three months of 2004 of $180,000 is $35,000
higher than the comparable 2003 period due to depreciation relating to plant
additions for Birmingham Utilities along with depreciation of assets acquired
with the Eastern Division.
Taxes Other Than Income Taxes
- -----------------------------
Taxes other than income taxes for the three month period ended March 31,
2004 is $31,180 higher than the comparable 2003 period. An increase in payroll
taxes in 2004 as a result of higher wages as well as increased municipal
property taxes as a result of plant additions accounts for this increase.
Other Income
- ------------
Other income for the first three months of 2004 of $57,345 is $1,971 higher
than the comparable three month period in 2003. Increased AFUDC relating to
Eastern Division operations is offset by lower investment income from cash and
investments.
9
Interest Expense
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Interest expense of $128,830 recorded in the first three months of 2004 is
$25,089 higher than the comparable 2003 period. The increase is short term
borrowings related to the 2003 acquisition accounts for the additional expense.
Land Dispositions
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When Birmingham Utilities disposes of land, any gain recognized, net of
tax, is shared between ratepayers and stockholders based upon a formula approved
by the DPUC.
The portion of land disposition income applicable to stockholders is
recognized in the year of disposition. There were no land sales in the first
quarter of 2004 and 2003.
Land disposition income applicable to ratepayers is recognized in the
financial statements as a component of operating income on the line entitled
"Amortization of Deferred Income on Land Dispositions". These amounts represent
the recognition of income deferred on land dispositions, which occurred in prior
years. The amortization of deferred income on land dispositions, net of tax, was
$2,835 and $44,793 for the three months ended March 31, 2004 and 2003,
respectively.
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, 2003.
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.
10
As of March 31, 2004, 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. 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 control over financial
reporting during the quarter ended March 31, 2004 that have materially affected,
or are reasonably likely to materially affect the Company internal control over
financial reporting.
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PART II. OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of CEO pursuant to Section 302 of Sarbanes Oxley Act.
31.2 Certification of CFO pursuant to Section 302 of Sarbanes Oxley Act.
32.1 Certification of CEO and CFO pursuant to Section 906 of
Sarbanes Oxley Act.
(b) Reports on Form 8-K
On January 14, 2004, the Company filed a current report on Form 8-K
including audited financial information with respect to its recently
acquired Eastern Division.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIW Limited
Registrant
Date: May 14, 2004
By: /s/ John S. Tomac
---------------------------
John S. Tomac, President
(Duly authorized officer, and
chief financial officer)
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