10-Q 1 form10q_10870.txt BIRMINGHAM UTILITIES, INC. FORM 10-Q ================================================================================ 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, 2001 COMMISSION FILE NUMBER 0-6028 BIRMINGHAM UTILITIES, INC. -------------------------- (Exact name of registrant as specified in its charter) CONNECTICUT 06-0878647 ----------- ---------- (STATE OF INCORPORATION) (I.R.S. IDENTIFICATION NO.) 230 BEAVER STREET, ANSONIA, CT 06401 ------------------------------ ----- (Address of principal executive office) (Zip Code) ---------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at Nov.1, 2001 -------------------------- -------------------------- COMMON STOCK, NO PAR VALUE 1,632,880 ================================================================================ PART I. FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS BIRMINGHAM UTILITIES, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS ------------------------------------------ UNAUDITED ---------

The accompanying notes are an integral part of these financial statements. 2 BIRMINGHAM UTILITIES, INC. BALANCE SHEETS --------------

The accompanying notes are an integral part of these financial statements. 3 BIRMINGHAM UTILITIES, INC. STATEMENTS OF CASH FLOWS ------------------------ (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 4 BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS ----------------------------- Birmingham Utilities, Inc. is a specially chartered public service corporation in the business of collecting and distributing water for domestic, commercial and industrial uses and fire protection. The Company 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. The Company 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 Company 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 Company'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 Company'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 Company 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 financial statements of Birmingham Utilities, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles, without audit, except for the Balance Sheet for the period ending December 31, 2000, 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. Certain information and footnote disclosures required by generally accepted accounting principles 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 Company's Annual Report on Form 10-K for the year ended December 31, 2000. The Company'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 5 the results of operations for the nine months ended September 30, 2001 and September 30, 2000 would not necessarily accurately forecast the annual results of each year. NOTE 2 - CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING-DILUTED ---------------------------------------------------------- The following table summarizes the number of common shares used in the calculation of earnings per share.

NOTE 3 - LAND SALES ------------------- On August 17, 2001, the Company sold 322 acres of unimproved land in Seymour, Connecticut to the State of Connecticut, Department of Environmental Protection ("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 Company 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 Company sold 570 acres of unimproved land in Ansonia and Seymour, Connecticut to the State of Connecticut, Department of Environmental Protection 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 $402,000 will be carried forward to reduce the Company'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 Company 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 6 transaction amounted to $16,956. The DPUC was not required to approve this transaction, as the sales price was less than the required threshold of $50,000. On October 4, 2000, the Company sold a 42.5 acre parcel to the City of Ansonia for $200,000. The total gain on the sale amounted to $145,216, of which $12,318 was deferred and will be recognized over a 3-year period as approved by the DPUC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ---------------------------------- 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, 2000, should be read in conjunction with the comments below. CAPITAL RESOURCES AND LIQUIDITY Completion of the Company'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 Company's holdings of excess land. For the nine months ended September 30, 2001 and 2000 the Company's additions to utility plant, net of customer advances, cost $1,071,690 and $1,603,136, respectively. (See Statement of Cash Flows). These additions were financed primarily from external sources, namely, land sales and short-term borrowing. The Company has outstanding $4,136,000 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. The Company also maintains a $5,000,000 unsecured revolving line of credit. During the revolving period, the Company can choose between variable rate options of 30,60, 90 or 180-day LIBOR plus 100 basis points or the Prime rate. The Company is required to pay interest only during the revolving period. The loan is payable in full at maturity on June 30, 2002. The DPUC approved this transaction on July 26, 2000. This $5,000,000 two-year, unsecured revolving line replaces the Company's $2,100,000 secured line of credit, which expired on July 31, 2000. There were no borrowings outstanding on the revolving line of credit on September 30, 2001. The Company's 2001 Capital Budget of $1,820,000 is two-tiered. The first tier consists of typical capital improvements made each year for services, hydrants and meters, is budgeted for $600,000 in 2001, and is expected to be financed primarily with internally generated funds. 7 The second tier of the 2001 Capital Budget consists of replacements and betterments, which are part of the Company's Long Term Capital Improvement Program, and includes $1,220,000 of budgeted plant additions. Plant additions from this part of the 2001 budget will require use of the proceeds from the land sales that took place in 2001. As of September 30, 2001, the Company has approximately 30 acres of excess land available for sale, all of which is currently under contract, consisting of land currently classified as Class III, non-watershed land under the statutory classification system for water company lands. The Company believes that through the sale of land in June and August of 2001 and through the use of internally generated funds, it can generate sufficient equity capital to support its 5-year capital budget, currently estimated at $7,200,000. All land dispositions were approved by the DPUC. Proceeds from the sale of land are recorded as revenue at the time of closing and portions of the gains are deferred and amortized over various times as stipulated by the DPUC. Results of Operations for the Nine Months Ended and Three Months Ended ----------------------------------------------------------------------- September 30, 2001 and 2000 --------------------------- Net Income ---------- Net income for the nine months ended September 30, 2001 was $5,547,022 compared with $449,244 for the same 2000 period. Increased land sale income of $5,133,379 accounts for this increase. There were no land sales in the comparable period in 2000. Operating income for the nine months ended September 30, 2001 has slightly declined from the comparable 2000 period. Increased interest charges and a decline in the amortization of prior year land sales more than offsets increases in other income. Net income for the three months ended September 30, 2001 was $2,348,487 compared with $165,619 for the comparable 2000 period. Land sales which took place in the third quarter of 2001 have accounted for $2,082,121 of this significant increase. Operating income for the third quarter of 2001 is significantly ahead of the comparable 2000 period due to increased revenues, lower interest charges and increased other income. Operating Revenues ------------------ Operating revenues for the first nine months of 2001 of $3,480,979 are $72,040 ahead of the comparable 2000 period. Increased water consumption during the third quarter of 2001 due to an extended hot and dry summer period accounts for this increase. Operating revenues for the three month period ending September 30, 2001 are $82,823 ahead of the comparable 2000 quarter also due to the hot and dry summer period. Operating and Maintenance Expenses ---------------------------------- Operating and Maintenance Expenses for the first nine months of 2001 of $2,055,205 are $53,792 higher than operating and maintenance expenses of $2,001,413 recorded in the first nine months of 2000. Increased fringe benefit costs relating to health insurance expense, 401K costs and workers compensation insurance principally account for this increase. Increases in these expenses also caused operating and maintenance expenses 8 for the three month period ending September 30, 2001 to exceed the comparable 2000 period by $27,030. Depreciation Expense -------------------- Depreciation expense for the first nine months of 2001 and for the three-month period ending September 30, 2001 are $3,744 and $1,248, respectively, lower than the comparable 2000 periods due to the timing and nature of new plant additions in 2001. Taxes Other Than Income Taxes ----------------------------- Taxes other than income taxes for the nine-month period ending September 30, 2001 are $8,959 lower than the comparable 2000 period. Reduced property taxes principally due to the sale of land accounts for this decrease. Taxes other than income taxes for the three-month period ending September 30, 2001 are $15,157 lower than the comparable 2000 period. Decreased property taxes, also due to land sales, account for this variance. Other Income ------------ Other income for the first nine months of 2001 is $50,690 higher than the comparable period in 2000. Increased AFUDC and income from the Company's linebacker and outside construction programs as well as increased investment interest income account for the increase. Other income for the three-month period ended September 30, 2001 is $37,794 higher than the third quarter of 2000. Linebacker income, outside construction income, and increased AFUDC account for this increase. Land Dispositions ----------------- When the Company 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 $5,133,379 for the nine months ended September 30, 2001. That amount represents the sale of .25 acres in Ansonia on April 18, 2001, 570 acres in Ansonia and in Seymour, CT on June 28, 2001 and 322 acres in Seymour on August 17, 2001. That amount represents the stockholders immediate share of income from the land sales. The net gain on all sales totaled $5,655,253 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, and the DPUC's June 27, 2001 decision approving the 322 acre sale also provided for a three year amortization period. 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 sale was deferred. 9 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 $48,393 and $138,411 for the nine months ended September 30, 2001 and 2000, and $16,131 and $46,137, respectively, for the three-month periods ending September 30, 2001 and 2000. 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. 10 PART II. OTHER INFORMATION -------------------------- ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ----------------------------------------- (a) Exhibits - None. (b) Reports on Form 8-K - None. 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. BIRMINGHAM UTILITIES, INC. -------------------------- Registrant Date: November 5, 2001 /s/ John S. Tomac -------------------------- John S. Tomac, President 11

BIRMINGHAM UTILITIES INC 10-Q