10-Q 1 form10-q_14525.txt FORM 10-Q DATED JUNE 30, 2006 ================================================================================ 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 JUNE 30, 2006 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 a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): LARGE ACCELERATED FILER [_] ACCELERATED FILER [_] NON-ACCELERATED FILER [X] Indicate by check mark whether the registrant is a shell company (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 August 9, 2006 ---------------------------- ----------------------------- COMMON STOCK, NO PAR VALUE 1,662,079 ================================================================================ PART I. FINANCIAL INFORMATION ----------------------------- ITEM 1 FINANCIAL STATEMENTS -------------------- BIW Limited ----------- CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS ------------------------------------------------------- (UNAUDITED) -----------

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 (i) 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 (ii) 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, 2005, 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 5 omitted, pursuant to such rules and regulations; although the Company believes that the disclosures are adequate to make the information presented not misleading. On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" (SFAS 123R) utilizing the modified prospective transition method. SFAS 123R requires employee stock options to be valued at fair value on the date of grant and charged to expense over the applicable vesting period. Under the modified prospective method, compensation expense is recognized for all share based payments issued on or after January 1, 2006 and for all share payments issued to employees prior to January 1, 2006 that remain unvested. The adoption of SFAS 123R did not have a material impact on the Company's results of operations for the six months ended June 30, 2006. 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, 2005. 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 six months ended June 30, 2006 and 2005 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 - RATE RELIEF REQUEST ---------------------------- In May 2006, Birmingham Utilities filed an application with the DPUC seeking a water service rate increase for all its regulated operations. As part of the water service rate application, BUI requested that Eastern Division regulated operations be combined with Ansonia Division regulated operations for ratemaking purposes. BUI's Ansonia Division last received full rate relief in 2003 while its Eastern Division's last rate case was in 1997. As part of that application, Birmingham Utilities will be seeking to earn on approximately $10,000,000 in rate base additions since 2003, which includes the rate base of the Eastern Division acquired in 2003. In addition, BUI will be seeking to recover increases in operating costs as well as increases in depreciation expense and property taxes. BUI expects this rate application to be adjudicated sometime during the fourth quarter of 2006. 6 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.

NOTE 5 - PENSION AND OTHER POSTRETIREMENT BENEFITS -------------------------------------------------- Net periodic pension and other postretirement benefit costs include the following components:

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 10-K for the year ended December 31, 2005 should be read in conjunction with the comments below. 7 Birmingham Utilities, a regulated public water service company, collects and distributes water for domestic, commercial and industrial uses and fire protection in the Naugatuck Valley towns of Ansonia, Derby and small parts of Seymour, Connecticut. The Company refers to this operation as its Ansonia Division. Water service is also provided for domestic and commercial use in 33 satellite water operations in 16 towns in eastern Connecticut, which form BUI's Eastern Division. This division, which was acquired in 2003, was the former Eastern Connecticut Regional Water Company, Inc. H2O Services, the Company's non-regulated subsidiary, offers a consumer protection program for residential service lines and provides water related services to other water utilities, municipalities, contractors and individuals throughout Connecticut. H2O Services operates from both the Ansonia and Eastern Divisions as well as from another location in Guilford, CT. Non-regulated operations from the Ansonia Division principally relate to construction activities including the installation of water mains, services and other water related infrastructure. Non-regulated operations at the Eastern Division principally relate to the operation of other water systems not owned by the Company through contract operations. Non-regulated operations from our Guilford, CT location relate to Rhodes Pump Service, a residential pump and filter services business. 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 six months ended June 30, 2006 and 2005, BUI's additions to utility plant, net of customer advances, were $1,287,887 and $1,582,284 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 bonds carry an interest rate of 5.21%. 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 extended in April 2006 and will expire in August 2006, at which time it is expected to be renewed until August, 2007. 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. BUI is in compliance with all covenants as of June 30, 2006. Results of Operations for the six months ended and three months ended --------------------------------------------------------------------- June 30, 2006 and 2005 ---------------------- 8 Net Income ---------- Net income for the six months ended June 30, 2006 was $139,956 compared with $431,929 for the same 2005 period. A trend of decreased consumption throughout the water industry due to conservation efforts along with increased interest expense, depreciation expense, purchased water and energy costs accounts for the decrease. Net income for the three months ended June 30, 2006 was $178,687 compared with $377,736 for the comparable 2005 period for the same reasons as noted for the six month period discussed above. Operating Revenues ------------------ Operating revenues for the first six months of 2006 of $4,468,998 were 2% or $88,440 below the comparable 2005 period. Although the Ansonia regulated division received a pass through rate increase of 4.4% effective January 25, 2006, this was more than offset by decreased water consumption, resulting in lower revenues of $91,010. The Eastern Division had increased water revenues of $39,318 due to growth in customer base. H2O Services had decreased revenues of $36,748 due in part to a decline in Rhodes Pump Service revenues of $19,088 due to less demand for services. The balance of the decline in H2O Services is attributable to less contract work in the Naugatuck Valley. Operating revenues for the three months ended June 30, 2006 were $160,101 or 6% below the comparable 2005 period. Decreased consumption in the Ansonia regulated division resulted in lower revenues of $92,557. The Eastern Division showed a small increase in consumption of $16,123 due to a growing customer base. H2O Services had lower revenues of $83,667 for the three month period ended June 30, 2006 as compared with the same period in 2005. Less contract work done in the Eastern Division accounts for $41,747 of the decline. Lower revenues for Rhodes Pump Service of $36,459 due to less demand for services along with a small decline of $5,461 for contract work done in the Naugatuck Valley accounts for the balance. Operating and Maintenance Expenses ---------------------------------- Operating and Maintenance expenses for the first six months of 2006 of $3,063,595 are $101,217 or 3% higher than operating and maintenance expenses of $2,962,378 recorded in the first six months of 2005. Increased energy costs for electric power as well as higher gasoline charges in the amount of $58,492 along with higher purchased water costs of $40,000 are the reason for the increase. The operating and maintenance expenses for the three month period ended June 30, 2006 are higher than the comparable 2005 period for the same reasons noted above. Depreciation ------------ Depreciation expense of $537,502 for the first six months of 2006 are $167,502 higher than the comparable 2005 period, due to substantial plant additions and 9 improvements made over the last two years. Depreciation expense for the three month period ended June 30, 2006 were $83,751 higher than the comparable 2005 period for the same reason as noted above. Taxes Other Than Income Taxes ----------------------------- Taxes other than income taxes for the six month period ended June 30, 2006 were $4,778 higher than the comparable 2005 period. Additional payroll taxes as a result of higher wages in 2006 account for this increase. Taxes other than income taxes for the three month period ended June 30, 2006 were $23,091 lower than the comparable 2005 period. Increased payroll taxes are more than offset by a large decrease in property taxes for the City of Derby due to 2005 revaluations, which resulted in the mill rate dropping from 37.7 to 24.3. Other Income ------------ Other income for the first six months of 2006 was $21,767 higher than the comparable period in 2005. Increased AFUDC in the Ansonia Division relating to long term capital projects along with higher income from the Derby contract operations accounts for the increase. Other income for the three month period ended June 30, 2006 was $29,719 higher than the second quarter of 2005. Increased AFUDC for the Ansonia Division as well as higher income for the Derby operations again is the reason for the increase. Interest Expense ---------------- Interest expense of $392,524 recorded in the six month period ended June 30, 2006 is $74,695 higher than the comparable 2005 period. Increased borrowing on the line of credit as well as higher variable interest rates on the line of credit accounts for the difference. Interest expense for the three month period ended June 30, 2005 is $27,502 higher than same period in 2005 also due to increased borrowings and higher interest rates as noted above. 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, 2005. 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 10 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 June 30, 2006. 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 June 30, 2006. There have been no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect the internal control over financial reporting. 11 PART II. OTHER INFORMATION -------------------------- ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ During the quarter ended June 30, 2006, the only matters submitted to a vote of the holders of the Company's common stock, its only class of voting stock, were submitted at the Company's Annual Meeting of Shareholders held on May 10, 2006, as set forth below. There were no broker non-votes on the listed matters. (a) Total Outstanding Shares: 1,662,079 Total Shares Voted: 1,496,259 Total Percentage Voted: 90.02% DIRECTORS INFO DIRECTOR FOR WITHHELD % FOR Mary Jane Burt 1,473,594.41 22,664.19 88.66 James E. Cohen 1,471,462.25 24,796.35 88.53 Betsy Henley-Cohn 1,462,077.94 34,180.66 87.97 Juri Henley-Cohn 1,354,450.02 141,808.58 81.49 Alvaro DaSilva 1,471,735.25 24,523.35 88.55 Themis Klarides 1,457,292.88 38,965.72 87.68 B. Lance Sauerteig 1,473,724.40 22,534.20 88.67 Kenneth Schaible 1,473,531.74 22,726.86 88.66 John S. Tomac 1,357,849.33 138,409.27 81.70 Dworken, Hillman, LaMorte & Sterczala, P.C. were approved as independent accountants and auditors for the Company for 2006. Total votes cast in favor were 1,446,286.78 representing 87% of all outstanding shares. 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 12 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: August 14, 2006 By: /s/ John S. Tomac ------------------------ John S. Tomac, President (Duly authorized officer, and chief financial officer) 13

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