FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 Commission File Number 0-6028
BIRMINGHAM UTILITIES, INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0878647
230 Beaver Street, Ansonia, CT 06401
(Address of principal executive office) (Zip Code)
______________________________________________________________________________
(Former name, former address and former fiscal year, if changes 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.
No _________ Yes ____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 November 1, 1998
Common Stock, No Par Value 769,131
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating Revenue $1,191,795 $1,153,694 $3,316,813 $3,289,505
Operating Expenses:
Operating Expenses 634,963 610,236 1,813,810 1,859,731
Maintenance Expense 50,553 44,552 126,842 135,655
Depreciation 118,500 107,514 355,500 337,315
Taxes Other Than
Income Taxes 72,811 71,286 215,186 327,113
Taxes on Income 55,314 49,633 135,059 76,269
Total Operating Expense 932,141 883,221 2,646,397 2,736,083
Utility Operating Income 259,654 270,473 670,416 553,422
Amortization of Prior Years'
Deferred Income on Land
Dispositions (Net of
income taxes) 38,306 46,659 114,919 134,241
Other Income, net <1,843> 20,564 19,621 63,487
Income before interest expense 296,117 337,696 804,956 751,150
Interest and Amortization of
Debt Discount 148,471 164,662 435,538 472,098
Income from dispositions of
land (net of income taxes) -0- -0- 849,396 62,559
Net income $147,646 $173,034 $1,218,814 $341,611
Retained earnings, beginning $2,642,568 $1,560,221 $1,831,377 $1,619,188
Dividends 130,631 114,030 390,608 341,574
Retained earnings, ending $2,659,583 $1,619,225 $2,659,583 $1,619,225
Earnings per share - basic $.19 $.23 $1.59 $.45
Earnings per share - diluted $.19 $.22 $1.55 $.45
Dividends per share $.17 $.15 $.51 $.45
</TABLE>
The accompanying notes are an integral part of these financial statements.
BIRMINGHAM UTILITIES,INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, Dec. 31,
1998 1997
ASSETS:
<S> <C> <C>
Utility Plant $20,295,978 $19,045,629
Accumulated depreciation (6,216,881) (5,834,113)
Net Utility Plant 14,079,097 13,211,516
Current Assets:
Cash and cash equivalent 100,054 62,699
Accounts receivable, net of
allowance for doubtful accounts 489,887 604,627
Accrued utility revenue 418,071 375,327
Materials & supplies 90,089 56,976
Prepayments 63,203 15,068
Total current assets 1,161,304 1,114,697
Deferred Charges 1,088,137 1,148,510
Unamortized debt expense 169,077 176,057
Income taxes recoverable 446,551 446,551
Other assets 371,841 394,096
2,075,606 2,165,214
$17,316,007 $16,491,427
$16,753,319 $16,491,427
STOCKHOLDERS' EQUITY AND LIABILITIES
Stockholders' Equity:
Common Stock, no par value, authorized
2,000,000 shares; issued and outstanding
9/30/98-769,131 shares; 12/31/97
- 761,702 $2,357,727 $2,266,027
Retained earnings 2,659,583 1,831,377
5,017,310 4,097,404
Note Payable 1,093,750 1,150,000
Long-term debt 4,418,000 4,512,000
5,511,750 5,662,000
Current Liabilities:
Note Payable 1,100,000 1,355,000
Current portion of note payable
and long term debt 169,000 169,000
Accounts payable and accrued
liabilities 751,028 454,659
Total current liabilities 2,020,028 1,978,659
Customers' advances for construction 1,285,919 1,238,339
Contributions in aid of construction 851,155 851,154
Regulatory liability-income taxes
refundable 179,916 179,916
Deferred income taxes 1,703,746 1,695,608
Deferred income on disposition of land 746,183 788,347
$17,316,007 $16,491,427
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<TABLE>
<CAPTION>
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
Cash Flows From Operating Activities 1998 1997
<S> <C> <C>
Net Income $1,218,814 $341,611
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from land dispositions (849,396) (62,559)
Depreciation and amortization 405,099 366,955
Amortization of deferred income, net of tax (114,919) (134,241)
Increases and decreases in assets
and liabilities:
Accounts receivable and accrued utility revenue 71,996 21,747
Materials and supplies (33,113) (29,658)
Prepayments (48,135) (52,478)
Accounts payable and accrued expenses (291,851) (290,671)
Deferred income taxes (11,025) (57,213)
Total Adjustments (871,344) (238,118)
Net cash flows provided by operating activities 347,470 103,493
Cash flows from investing activities:
Proceeds from land dispositions 1,896,000 175,000
Net construction expenditures (1,303,021) (942,417)
Other assets and deferred charges, net (146,446) (226,355)
Net Cash flows from (used in)
investing activities 446,533 (993,772)
Cash flows from financing activities:
Increase (decrease) in note payable (311,250) 385,000
Increase (decrease) in long-term debt (94,000) 674,750
Dividends paid - net (351,398) (307,549)
Net Cash flows provided by (used in)
financing activities: (756,648) 752,201
Net increase in cash and cash equivalents 37,355 138,078
Cash and cash equivalents, beginning 62,699 185,479
Cash, ending $100,054 $47,401
Supplemental disclosure of cash flow information:
Cash paid for
Interest $535,417 $573,018
Income Taxes $428,600 $148,150
Supplemental disclosure of non-cash flow information:
The Company 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 the Company.
Gross Plant, additions $1,350,601 $988,317
Customers' advances for construction 47,580 45,900
Capital expenditures, net. $1,303,021 $942,417
</TABLE>
The accompanying notes are an integral part of these financial statements.
BIRMINGHAM UTILITIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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, 1997, 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, 1997.
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 the
results of operations for the nine months ended September 30, 1998
and September 30, 1997, would not necessarily accurately forecast the
annual results of each year.
NOTE 2 - CALCULATION OF WEIGHTED AVERAGE SHARES
OUTSTANDING-DILUTED
<TABLE>
<CAPTION>
The following table summarizes the number of common shares used
in the calculation of earnings per share.
Three Months Ended Six Months Ended
<S> <C> <C> <C> <C>
9/30/98 9/30/97 9/30/98 9/30/97
Weighted average shares outstanding
for earnings per share, basic 768,417 760,127 765,216 759,030
Incremental shares from assumed 23,865 10,827 20,157 3,609
conversion of stock options
Weighted average shares outstanding
for earnings per share, diluted 792,282 770,954 785,373 762,639
</TABLE>
NOTE 3 - RATE MATTERS
On January 21, 1998, the DPUC granted the Company a 4.1% water
service rate increase designed to provide a $177,260 annual increase in
water service revenues and a 12.16% return on common equity. New rates
became effective on February 1, 1998.
NOTE 4 - LAND SALES
On February 18, 1998, the Company executed a purchase and sale
agreement with The Trust for Public Land, Inc. ("TPL") for the purchase by
TPL of 515 acres of unimproved real property primarily in the Town of
Oxford, Connecticut, and small adjoining parcels in Seymour, Connecticut,
for $3,220,000. TPL is a non-profit public benefit corporation with
offices in New Haven, Connecticut. Once the property is purchased by
TPL, it is expected that TPL, in turn, will re-sell that property to
the Town of Oxford for the same price. The voters of the Town of Oxford
approved this purchase through a referendum on May 27, 1998.
The Company did file with the DPUC an application to approve the TPL
sales agreement. The DPUC issued a Final Decision approving the sale on
August 26, 1998. The closing is expected to take place on or around
December 3, 1998.
On March 3, 1998, the Company executed a purchase and sale
agreement with the Town of Seymour (the "Town") for the purchase by
the Town of 229 acres of unimproved real property in the Town for
$1,800,000. The voters of the Town of Seymour approved this
purchase through a referendum that was held on November 20, 1997.
The Company did file with the DPUC an application to approve
the Seymour sales agreement. A final decision approving the sale was
issued on September 9, 1998. The closing is expected to take place
in November of 1998.
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 in Form 10K
for the year ended December 31, 1997, 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, 1998 and 1997, the Company's additions to utility plant,
net of customer advances, cost $1,303,021 and $942,417, respectively.
(see Statement of Cash Flows). These additions were financed primarily from
external sources, namely proceeds from land sales.
The Company has outstanding $4,512,000 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 has a secured, term loan with a principal amount
outstanding on December 31, 1997 and September 30, 1998 of $1,148,750
and $1,187,500, respectively. The term loan carries an annual interest
rate of 8.18%. Principal and interest payments are made monthly and must
be paid in full in 2004.
The Company also maintains a $2,100,000 two-year secured line of
credit, which may, at the Company's option, at the end of the two-year
period, be converted to a six-year term loan with a 20-year amortization
schedule. During the revolving period, the Company can choose between
variable rate options of 30 or 90 day LIBOR plus 100 basis points or
Prime plus 0%. The Company is required to pay only interest during the
revolving period. During the term period, the Company may choose among
interest options, including a fixed rate at 100 basis points over the
bank's six-year cost of funds or a 90-day rate at 100 basis points over
the 90-day LIBOR rate.
The DPUC approved this transaction on September 16, 1998. This
$2,100,000 two-year secured line of credit replaces the Company's
$1,500,000 secured line of credit and $600,000 unsecured working capital
line of credit, which expired during the second quarter of 1998.
The Company's 1998 Capital Budget of $1,300,000 is two-tiered.
The first tier consists of typical capital improvements made each year for
services, hydrants and meters budgeted for $250,000 in 1998 and is expected
to be financed primarily with internally generated funds.
The second tier of the 1998 Capital Budget consists of
replacements and betterments which are part of the Company's Long
Term Capital Improvement Program and includes $1,050,000 of budgeted
plant additions. Plant additions from this part of the 1998 budget
may require external financing in addition to the Company's line of
credit. Second tier plant additions can be, and portions of it are
expected to be, deferred to future years if funds are not available
for their construction in 1998.
As of September 30, 1998, the Company has approximately 1,105
acres of excess land available for sale, of which 989 acres is currently
under contract for sale consisting of land currently classified as
Class III, non-watershed land under the statutory classification system
for water company lands. The Company believes that by selling these
excess lands it can generate sufficient equity capital to support its
10 year capital budget, currently estimated at $10,715,000. Such land
dispositions are subject to approval 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. See Note 4 to the financial statements with respect to
pending land sales.
Year 2000 Compliance
The Company is currently evaluating its computer systems for
compliance with issues related to the year 2000. As a result, the
Company will replace existing Billing and Accounting software with
software that is readily available on the market. Management anticipates
its computer systems will be fully compliant by the end of the first
quarter of 1999. Costs are not expected to have a material impact on
the Company's financial position or results of operations.
Results of Operations for the Nine Months and
Three Months Ended September 30, 1998 and 1997.
Net Income
Net Income for the nine months ended September 30, 1998 was
$1,218,814 compared with $341,611 for the same 1997 period. The sale
of property in January of 1998 in Derby Connecticut, to the City of Derby,
contributed $828,286 to net income. Net Income for the three months ended
September 30, 1998 of $147,646 is $25,388 lower than the comparable three
month period in 1997. Increased purchased water expenses, higher
depreciation charges and decreased other income more than offset
increased revenues.
Operating Revenues
Operating Revenues for the first nine months of 1998 of
$3,316,813 are $27,308 higher than operating revenues of $3,289,505
for the first nine months of 1997. Increased water consumption during
the third quarter of 1998, due to a dry summer period and an over-all
four percent rate increase that became effective February 1, 1998, more
than offset lower water consumption during the first quarter of 1998
and a five percent rate reduction that became effective July 1, 1997.
(Due to the repeal of the Connecticut Gross Receipts Tax effective on
that date). Operating Revenues for the three month period ending
September 30, 1998 are $38,101 higher than the comparable 1997 quarter.
The four percent rate increase effective February 1, 1998,is the
principal reason for this increase.
Operating and Maintenance Expenses
Operating and Maintenance Expenses for the first nine months of
1998 are $57,734 below the comparable 1997 period. Lower uncollectible
fees, casualty insurance and professional fees principally account for
this variance. Operating and Maintenance expenses for the three months
ended September 30, 1998 are $30,728 higher than the three months ended
September 30,1997. Increased purchased water costs and main maintenance
expenses principally account for this variance.
Depreciation Expense
Depreciation expense for the first nine months of 1998 and three
months ended September 30, 1998 are $10,986 and $18,185, respectively, higher
than the comparable 1997 periods. Depreciation expense relating to general
plant additions made throughout the year account for this variance.
Taxes Other Than Income Taxes
Taxes Other Than Income Taxes for the nine month period ended
September 30, 1998 is $111,927 lower than the comparable 1997 period. The
repeal of the Connecticut Gross Receipts Tax on July 1, 1997 and lower
property taxes due to the sale of property in Derby Connecticut account for
this variance. Revenues were also reduced on July 1, 1997 to reflect the
reduced tax expense resulting from the Gross Receipts Tax repeal. Taxes
other than income taxes for the three month period ending September 30, 1998
approximate levels for the comparable 1997 period.
Other Income
Other Income for the first nine months of 1998 is $43,866 below the
comparable 1997 period. Decreased income from the Company's managed water
system, and lower timber sales account for this variance. Other income for
the three months ended September 30, 1998 is $22,407 below the comparable
1997 period. Lower timber sales and decreased jobbing income account for the
decline. Jobbing income for the third quarter of 1997 was unusually high,
due to a significant project for the City of Derby.
Land Dispositions
When the Company disposes of land, any gain recognized, net of tax,
is shared between rate payers 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 $849,396 for the nine months ended September 30, 1998. Of
that amount, $828,286 represents the sale of 145 acres of land to the City of
Derby, CT on January 21, 1998. The remainder, $21,110, represents the sale
of 2.9 acres in Woodbridge, Connecticut which took place in May of 1998.
The amounts represent the stockholders' immediate share of income from the
land sales. The net gain on both sales totals $941,312, including the
deferred portion. The DPUC's October 22, 1997 Decision approving the Derby
sale provided for a 3-year amortization period, as 75% of this parcel has
been dedicated as open space. The DPUC's May 15, 1996 Decision regarding
the Woodbridge sale, provided a 10-year amortization period as this parcel
was sold for a single family residence.
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 $114,919 and $134,241 for
the nine months ended September 30, 1998 and 1997 and $38,306 and
$46,659, respectively, for the three month periods ending
September 30, 1998 and 1997.
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.
In June of 1997, the Company sold 3.6 acres of property to the
Connecticut Department of Transportation realizing a net gain of $62,559.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Financial Data Schedule filed herewith.
(b) Report on Form 8-K, dated July 17, 1998 was filed with respect to the
naming of John S. Tomac as the Company's next President, effective
October 1, 1998, replacing Aldore J. Rivers who announced his
retirement in April of 1998.
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, 1998
/s/ John S. Tomac
John S. Tomac, President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEPTEMBER 30, 1998 UNAUDITED BALANCE SHEET, INCOME STATEMENT
AND CASH FLOW STATEMENT, AND NOTES THERETO, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 14,079,097
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 1,161,304
<TOTAL-DEFERRED-CHARGES> 1,088,137
<OTHER-ASSETS> 987,469
<TOTAL-ASSETS> 17,316,007
<COMMON> 2,357,727
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 2,659,583
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,017,310
0
0
<LONG-TERM-DEBT-NET> 5,511,750
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 169,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 6,617,947
<TOT-CAPITALIZATION-AND-LIAB> 17,316,007
<GROSS-OPERATING-REVENUE> 3,316,813
<INCOME-TAX-EXPENSE> 135,059
<OTHER-OPERATING-EXPENSES> 2,511,338
<TOTAL-OPERATING-EXPENSES> 2,646,397
<OPERATING-INCOME-LOSS> 670,416
<OTHER-INCOME-NET> 983,936
<INCOME-BEFORE-INTEREST-EXPEN> 1,654,352
<TOTAL-INTEREST-EXPENSE> 435,538
<NET-INCOME> 1,218,814
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,218,814
<COMMON-STOCK-DIVIDENDS> 390,608
<TOTAL-INTEREST-ON-BONDS> 0(1)
<CASH-FLOW-OPERATIONS> 347,470
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.55
(1)Not reported on an interim basis.
</TABLE>
