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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 JUNE 30, 2000 COMMISSION FILE NUMBER 0-6028
BIRMINGHAM UTILITIES, INC.
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(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0878647
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(State of incorporation) (I.R.S. Employee
Identification Number)
230 BEAVER STREET, ANSONIA, CT 06401
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(Address of principal executive office) (Zip Code)
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(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 July 31, 2000
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COMMON STOCK, NO PAR VALUE 1,599,951
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<PAGE>
PART I. FINANCIAL INFORMATION
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ITEM 1 FINANCIAL STATEMENTS
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
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UNAUDITED
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<TABLE><CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenue $1,191,390 $1,164,439 $2,254,903 $2,241,078
---------- ---------- ---------- ----------
Operating Expenses:
Operating Expenses 614,080 613,624 1,241,408 1,185,119
Maintenance Expense 43,610 43,017 115,108 98,166
Depreciation 131,251 134,001 262,500 268,002
Taxes Other Than Income Taxes 80,423 87,251 164,748 160,836
Taxes on Income 54,961 54,992 69,163 102,727
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Total Operating Expense 922,325 932,885 1,852,927 1,814,850
---------- ---------- ---------- ----------
Utility Operating Income 267,064 231,554 401,976 426,228
Amortization of Prior Years'
Deferred Income on Land Dispositions
(Net of income taxes) 46,137 85,740 92,274 171,480
Other Income, net 9,538 6,758 31,826 41,049
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Income before interest expense 322,739 324,052 526,076 638,757
Interest and Amortization of Debt Discount 124,565 112,801 242,451 225,603
Income from dispositions of land (net of
income taxes) -- $ 2,095 -- 2,095
---------- ---------- ---------- ----------
Net income $ 198,174 $ 213,346 $ 283,625 $ 415,249
Retained earnings, beginning 5,398,299 5,266,306 $5,511,799 5,219,875
Dividends 200,119 156,052 399,070 311,524
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Retained earnings, ending $5,396,354 $5,323,600 $5,396,354 $5,323,600
========== ========== ========== ==========
Earnings per share - basic $ .12 $ .14 $ .18 $ .27
========== ========== ========== ==========
Earnings per share - diluted $ .12 $ .13 $ .17 $ .26
========== ========== ========== ==========
Dividends per share $ .125 $ .10 $ .25 $ .20
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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BIRMINGHAM UTILITIES, INC.
BALANCE SHEETS
<TABLE><CAPTION>
(Unaudited)
June 30, Dec. 31,
ASSETS: 2000 1999
------- ---- ----
<S> <C> <C>
Utility Plant $ 23,127,082 $ 22,265,530
Accumulated depreciation (6,815,262) (6,543,747)
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Net Utility Plant 16,311,820 15,721,783
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Current Assets:
Cash and cash equivalent 249,127 44,471
Accounts receivable, net of
allowance for doubtful accounts 391,568 415,330
Accrued utility revenue 499,978 429,127
Materials & supplies 119,978 87,042
Prepayments 72,783 55,154
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Total current assets 1,333,434 1,031,124
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Deferred Charges 686,188 595,263
Unamortized debt expense 146,110 154,234
Income taxes recoverable 360,812 360,812
Other assets 403,441 418,055
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1,596,551 1,528,364
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$ 19,241,805 $ 18,281,271
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STOCKHOLDERS' EQUITY AND LIABILITIES
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Stockholders' Equity:
Common Stock, no par value, authorized
2,000,000 shares; issued and outstanding 6/30/00-
1,598,034 shares; 12/31/99-1,583,025 $ 2,710,311 $ 2,634,762
Retained earnings 5,396,354 5,511,802
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8,106,665 8,146,564
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Long-term debt 4,324,000 4,324,000
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Current Liabilities:
Note Payable 1,440,000 360,000
Current portion of long-term debt 94,000 94,000
Accounts payable and accrued liabilities 686,526 691,142
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Total current liabilities 2,220,526 1,145,142
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Customers' advances for construction 1,199,887 1,182,216
Contributions in aid of construction 1,195,934 1,188,934
Regulatory liability-income taxes refundable 164,772 164,772
Deferred income taxes 1,677,874 1,630,976
Deferred income on disposition of land 352,147 498,667
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4,590,614 4,665,565
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$ 19,241,805 $ 18,281,271
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
BIRMINGHAM UTILITIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE><CAPTION>
Six Months Ended June 30,
Cash Flows From Operating Activities 2000 1999
---- ----
<S> <C> <C>
Net Income $ 283,625 $ 415,249
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Adjustments to reconcile net income to
net cash provided by operating activities:
Income from land dispositions -- (2,095)
Depreciation and amortization 290,260 295,762
Amortization of deferred income, net of tax (92,274) (171,480)
Increases and decreases in assets
and liabilities:
Accounts receivable and accrued utility revenue (44,099) (53,782)
Materials and supplies (32,936) (48,930)
Prepayments (17,629) (23,867)
Accounts payable and accrued expenses (4,616) (1,640,685)
Deferred income taxes (7,350) (7,350)
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Total Adjustments 91,356 (1,652,427)
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Net cash flows provided by (used in) operating activities 374,981 (1,237,178)
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Cash flows from investing activities:
Proceeds from land dispositions -- 5,000
Net construction expenditures (834,380) (559,754)
Other assets and deferred charges, net (47,351) (78,837)
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Net Cash flows used in
investing activities (881,731) (633,591)
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Cash flows from financing activities:
Increase in note payable 1,080,000 --
Dividends paid - net (368,594) (269,235)
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Net Cash flows provided by (used in)
financing activities: 711,406 (269,235)
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Net (decrease) increase in cash & cash equivalents 204,656 (2,140,004)
Cash & cash equivalents, beginning 44,471 2,696,706
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Cash, ending $ 249,127 $ 556,702
Supplemental disclosure of cash flow information:
Cash paid for
Interest $ 234,328 $ 217,478
Income Taxes 153,195 1,805,000
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 $ 861,550 $ 629,946
Customers' advances for construction (27,170) (70,192)
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Capital expenditures, net $ 834,380 $ 559,754
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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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
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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, 1999, 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, 1999.
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.
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Accordingly, annualization of the results of operations for the six months ended
June 30, 2000 and June 30, 1999 would not necessarily accurately forecast the
annual results of each year.
NOTE 2 - CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING-DILUTED
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The following table summarizes the number of common shares used in the
calculation of earnings per share.
<TABLE><CAPTION>
Three Months Ended Six Months Ended
6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
for earnings per share, basic 1,596,832 1,556,812 1,591,449 1,555,036
Incremental shares from assumed
conversion of stock options 46,464 143,992 55,510 72,392
--------- --------- --------- ---------
Weighted average shares outstanding
for earnings per share, diluted 1,643,296 1,700,804 1,646,959 1,627,428
========= ========= ========= =========
</TABLE>
NOTE 3 - LAND SALES
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On March 21, 2000, the Company executed a Purchase and Sale Agreement with Toll
Brothers, Inc. ("Toll Bros.") for the sale by the Company and purchase by Toll
Bros. of 322 acres of unimproved property in the Town of Seymour, Connecticut.
The property consists of two contiguous parcels of 245 acres and 77 acres. The
purchase price of the parcels is $3,294,000 and $1,026,000, respectively. The
agreement is subject to approval by the Connecticut Department of Public Utility
Control ("DPUC") and application for approval was filed on July 14, 2000. The
closings are scheduled to be completed within 30 days after the completion of
DPUC approval, but in no event shall the closing with respect to the 245-acre
parcel occur before January 1, 2001 or after July 1, 2001 and with respect to
the 77-acre parcel, before January 1, 2001 or after September 1, 2001. The
Company sees no reason why the DPUC would not approve this application.
On September 13, 1999, the Company executed two purchase and sale agreements
with The Trust for Public Land, Inc., ("TPL") for the sale by the Company and
purchase by TPL of 570 and 42.5 acres of unimproved property in the City of
Ansonia and the Towns of Seymour and Woodbridge, CT, subject to TPL arranging
for the availability of public financing for the purchases. The purchase price
of the parcels is $6,050,000 and $200,000, respectively. The Company is unable
to predict at this time whether or not such financing will be available,
although it is the Company's understanding that TPL expects to convey the
property immediately to the State of Connecticut and the City of Ansonia for
open space purposes and that they expect such financing to be in place by the
end of the year. The DPUC approved these transactions on March 1, 2000.
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NOTE 4 - STOCK SPLIT
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On January 11, 1999, the Company filed with the DPUC an Application for Approval
to Issue approximately 780,000 additional shares of common stock in conjunction
with a 2-for-1 stock split. The stock split, which had been approved by the
Board of Directors in December 1998, was approved by the DPUC on February 26,
1999. The stock split became effective on March 31, 1999 with respect to shares
held of record on March 18, 1999. All per share financial information contained
in this Quarterly Report on Form 10-Q has been adjusted to reflect the impact of
the common stock split.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL CONDITION
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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, 1999, 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 three months ended June 30, 2000 and
1999, the Company's additions to utility plant, net of customer advances, cost
$834,380 and $559,754, respectively. (see Statement of Cash Flows). These
additions were financed primarily from external sources, namely proceeds from
land sales.
The Company has outstanding $4,418,000 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 two-year, 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 plus 0%. The Company is required to pay interest only during the
revolving period. The loan is payable in full at maturity.
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. Borrowings of $1,440,000 were
outstanding on the revolving line of credit on June 30, 2000.
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<PAGE>
The Company's 2000 Capital Budget of $1,888,000 is two-tiered. The
first tier consists of typical capital improvements made each year for services,
hydrants and meters, is budgeted for $701,000 in 2000, and is expected to be
financed primarily with internally generated funds.
The second tier of the 2000 Capital Budget consists of replacements and
betterments, which are part of the Company's Long Term Capital Improvement
Program, and includes $1,187,000 of budgeted plant additions. Plant additions
from this part of the 2000 budget will require use of 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 2000.
As of June 20, 2000, the Company has approximately 964 acres of excess
land available for sale, of which substantially all is currently under contract
for sale (See Note 3), 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 5-year capital budget, currently
estimated at $7,100,000. 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.
RESULTS OF OPERATIONS
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Net Income
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Net income for the six months ended June 30, 2000 was $283,625 compared
with $415,249 for the same 1999 period. Increased operating and maintenance
expenses and a reduction in the amortization of prior year land sales
principally account for this decline. Net Income for the three months ended June
30, 2000 of $198,174 is only slightly below earnings of $213,346, achieved for
the comparable quarter in 1999. The reduction in the amortization of prior year
land sales more than offsets increased revenues for both the three and six month
periods.
Operating Revenues
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Operating revenues for the first six months of 2000 of $2,254,903 are
$13,825 higher than the comparable 1999 period. Increased consumption during the
second quarter of 2000 accounts for this increase. Operating revenues for the
three-month period ending June 30, 2000 are $26,951 higher than the comparable
1999 quarter. Increased consumption among the residential and commercial classes
accounts for this increase.
Operating and Maintenance Expenses
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Operating and Maintenance expenses for the first six months of 2000 of
$1,356,516 are $73,231 higher than operating and maintenance expenses of
$1,283,285 recorded in the first six months of 1999. Higher purchased
water costs, increased purchased power expenses, increased pumping and water
treatment facilities maintenance and increased chemical costs principally
account for this variance. Operating and Maintenance expenses for the
three-month period ending June 30, 2000 remain almost equal to the expense
levels achieved in the second quarter of 1999.
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Depreciation Expense
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Depreciation expense for the first six months of 2000 and for the
three-month period ending June 30, 2000 are $5,502 and $2,751, respectively
lower than the comparable 1999 periods due to an overaccrual in 1999, which was
adjusted in the last quarter of 1999. Depreciation expense relating to new plant
additions in 2000, somewhat offset the overaccrual.
Taxes Other Than Income Taxes
-----------------------------
Taxes other than income taxes for the six-month period ending June 30,
2000 are $3,912 higher than the comparable 1999 period. Increased payroll taxes
account for this increase. Taxes other than income taxes for the three-month
period ending June 30, 2000 are $6,827 lower than the comparable 1999 period. An
adjustment made to increase property taxes in the second quarter of 1999
accounts for this variance.
Other Income
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Other income for the first six months of 2000 is $9,223 lower than the
comparable period in 1999. Investment interest income principally recorded in
the first quarter of 1999 did not occur in 2000. Other income for the
three-month period ending June 30, 2000 is $2,780 higher than the second quarter
of 1999. Increased miscellaneous, non-operating income accounts for this
increase.
Land Dispositions
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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 will reflect income from the disposition of
Land (net of taxes) if land sales do occur. Since there were no land sales in
the first or second quarter of 2000, the statement of income reflects zero for
both quarters. The minor land sale booked in 1999, realizing a net gain of
$2,095, related to an encroachment dispute. When land sales occur, the
stockholders' immediate share of income will be booked in the year of the sale
based on a formula approved by the DPUC, when the sales price exceeds $50,000.
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
$92,274 and $171,480 for the six months ended June 30, 2000 and 1999, and
$46,137 and $85,740, respectively, for the three-month periods ending June 30,
2000 and 1999.
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<PAGE>
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.
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<PAGE>
PART II. OTHER INFORMATION
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the first half of 2000, 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, 1999,
as follows:
(a) Election of Directors - All nominees for Director were elected, as follows:
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Votes O/S Shares Votes
Director For Pct Against
-------- --- --- -------
Michael J. Adanti 1,334,735 83 3,685
Mary Jane Burt 1,334,735 83 3,685
James E. Cohen 1,336,940 83 1,480
Betsy Henley-Cohn 1,337,092 84 1,328
Alvaro da Silva 1,334,735 83 3,685
Aldore J. Rivers 1,334,735 83 3,685
B. Lance Sauerteig 1,337,092 84 1,328
Kenneth E. Schaible 1,337,092 84 1,328
David Silverstone 1,337,092 84 1,328
John S. Tomac 1,337,092 84 1,328
(b) Approval of Auditors - Shareholders approved the appointment of Dworken,
Hillman, LaMorte & Sterczala, P.C. as independent auditors for the Company for
2000. Total votes cast were 1,338,419 representing 84% of all outstanding
shares. 1,330,567, representing 83% of all outstanding shares, were cast in
favor of the appointment of Dworken, Hillman, LaMorte & Sterczala, P.C.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits - Financial Data Schedule filed herewith.
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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.
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Registrant
Date: August 10, 2000
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/s/ John S. Tomac
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John S. Tomac, President
11
