10-Q 1 form10-q_13479.txt BIW LTD. FORM 10-Q ================================================================================ 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, 2005 COMMISSION FILE NUMBER 1-31374 BIW LIMITED ----------- (Exact name of registrant as specified in its charter) CONNECTICUT 04-3617838 ----------- ---------- (State of Incorporation or 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 May 4, 2005 -------------------------- -------------------------- COMMON STOCK, NO PAR VALUE 1,659,579 ================================================================================ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BIW LIMITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) Three Months Ended March 31, 2005 2004 ---------- ---------- Operating revenue $1,968,436 $2,111,457 ---------- ---------- Operating expenses: Operating expenses 1,294,230 1,336,161 Maintenance expenses 142,019 134,725 Depreciation 185,000 180,000 Taxes other than income taxes 168,433 136,769 Taxes on income 5,887 53,267 ---------- ---------- Total operating expenses 1,795,569 1,840,922 ---------- ---------- Utility operating income 172,867 270,535 Amortization of deferred income on land dispositions (net of income taxes) 1,241 2,835 Other income, net (including allowance ---------- ---------- for funds used during construction of $17,295 in 2005, and $45,269 in 2004) 34,420 57,345 ---------- ---------- Income before interest expense 208,528 330,715 Interest and amortization of debt discount 154,335 128,830 ---------- ---------- Net income $ 54,193 $ 201,885 Retained earnings, beginning $9,211,405 $9,822,197 Dividends 282,128 279,232 ---------- ---------- Retained earnings, ending $8,983,470 $9,744,850 ========== ========== Earnings per share, basic $ .03 $ .12 ========== ========== Earnings per share, diluted $ .03 $ .12 ========== ========== Dividends per share $ .17 $ .17 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 2 BIW Limited CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements. 3 BIW Limited CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (UNAUDITED)

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 non-regulated water-related services to other water utilities, municipalities, contractors and individuals throughout Connecticut. Birmingham Utilities is subject to the jurisdiction of the Connecticut Department of Public Utility Control (DPUC) as to accounting, financing, ratemaking, disposal of property, the issuance of long-term securities and other matters affecting its operations. The Connecticut Department of Public Health (the Health Department or DPH) has regulatory powers over BUI under state law with respect to water quality, sources of supply, and the use of watershed land. The Connecticut Department of Environmental Protection (DEP) is authorized to regulate BUI's operations with regard to water pollution abatement, diversion of water from streams and rivers, safety of dams and the location, construction and alteration of certain water facilities. BUI's activities are also subject to regulation with regard to environmental and other operational matters by federal, state and local authorities, including, without limitation, zoning authorities. In addition, Birmingham Utilities is subject to regulation of its water quality under the Federal Safe Drinking Water Act (SDWA). The United States Environmental Protection Agency has granted to the Health Department the primary enforcement responsibility in Connecticut under the SDWA. The Health Department has established regulations containing maximum limits on contaminants, which have or may have an adverse effect on health. NOTE 1 - QUARTERLY FINANCIAL DATA 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, 2004, 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, 2004. Birmingham Utilities' business of selling water is to a certain extent seasonal because water consumption normally increases during the warmer summer months. Another factor affecting the comparability of various accounting periods includes the timing of rate increases. In addition, H2O Services' business activities will slow in the winter months. Accordingly, annualization of the results of operations for the three months ended March 31, 2005 and 2004 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 - NEW YORK ACQUISITION In May 2003, Birmingham Utilities entered into a Purchase Agreement with AquaAmerica, formerly the Philadelphia Suburban Corporation (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 was expected to be $1,000,000 subject to certain adjustments based on changes in rate base and working capital. These adjustments would not have increased the purchase price by more than $450,000. Applications for regulatory approval were filed with the New York State Public Service Commission (NY Commission) in July 2003. A decision was expected in 2004. During the regulatory approval process, it became apparent that significant capital costs would be required upon completion of the transaction. In January 2005, Birmingham Utilities and PSC, citing continued delays on the part of the NY Commission, mutually agreed that they no longer wished to pursue this transaction. NOTE 4 - FIRST MORTGAGE BOND ISSUANCE On April 30, 2004, Birmingham Utilities issued First Mortgage Bonds in the principal amount of $9,000,000. The bonds carry an interest rate of 5.21%. The 6 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%, and repay $4,280,000 of short-term debt used to fund the purchase of the Connecticut regulated and non-regulated operations from PSC. NOTE 5 - 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 3/31/05 3/31/04 --------- --------- Weighted average shares outstanding for earnings per share, basic 1,658,244 1,639,719 Incremental shares from assumed conversion of stock options 18,734 34,625 --------- --------- Weighted average shares outstanding for earnings per share, diluted 1,676,978 1,674,344 ========= ========== NOTE 6 - PENSION AND OTHER POSTRETIREMENT BENEFITS Net periodic pension and other postretirement benefit costs include the following components:

7 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, 2004 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 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, 2005 and 2004, BUI's additions to utility plant, net of customer advances, were $722,349 and $498,096 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 which was renewed in April 2005 and will expire in April 2006. 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. Results of Operations for the Three Months Ended March 31, 2005 and 2004 ------------------------------------------------------------------------ Net Income ---------- Net income for the three months ended March 31, 2005 was $54,193 compared with $201,885 for the same 2004 period. Decreased revenues from Birmingham Utilities and H2O Services due to weather conditions is primarily responsible for the decline in net income. Operating Revenues ------------------ Operating revenues of $1,968,436 for the first three months of 2005 are $143,021 lower than the comparable 2004 period. Decreased revenues from H2O Services of $98,230 are due to the cold temperatures and snow late into the winter season delaying the start of construction projects. Decreased revenues from Birmingham Utilities of $44,791 are also primarily due to the cold wet weather conditions. 8 Operating and Maintenance Expenses ---------------------------------- Operating and maintenance expenses for the first three months of 2005 of $1,436,249 are $34,637 lower than comparable costs for the first three months of 2004. Increased payroll expenses were offset by decreased H2O Services costs due to a late start for construction activity. Depreciation ------------ Depreciation for the first three months of 2005 of $185,000 is $5,000 higher than the comparable 2004 period due to depreciation relating to plant additions for Birmingham Utilities. Taxes Other Than Income Taxes ----------------------------- Taxes other than income taxes for the three month period ended March 31, 2005 is $31,664 higher than the comparable 2004 period. An increase in payroll taxes in 2005 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 2005 of $34,420 is $22,925 lower than the comparable three month period in 2004. Decreased AFUDC due to smaller capital projects accounts for the difference. Interest Expense ---------------- Interest expense of $154,335 recorded in the first three months of 2005 is $25,505 higher than the comparable 2004 period. The increase in short term borrowings as well as higher interest rates account for the additional expense. 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 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 2005 and 2004. 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 $1,241 and $2,835 for the three months ended March 31, 2005 and 2004, respectively. 9 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, 2004. 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. As of March 31, 2005, 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 as of March 31, 2005. There have been no changes in the Company's internal control over financial reporting during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect the Company internal control over financial reporting. PART II. OTHER INFORMATION ITEM 6 - 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 10 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 13, 2005 By: /s/ John S. Tomac --------------------------------------- John S. Tomac, President (Duly authorized officer, and chief financial officer) 11

BIW LTD 10-Q