BIW LTD
BIW Limited ("BIW" or the "Company") is the parent company of Birmingham Utilities, Inc. ("BUI" or "Birmingham Utilities") a specially chartered Connecticut public service corporation in the business of collecting and distributing water for domestic, commercial and industrial uses and fire protection in Ansonia and Derby, Connecticut, and in small parts of the contiguous Town of Seymour. 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. Birmingham H2O Services Inc. ("BHS" or "Birmingham 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. Under its charter, Birmingham Utilities enjoys a monopoly franchise in the distribution of water in the area which it serves. In conjunction with its right to sell water, Birmingham Utilities has the power of eminent domain and the right to erect and maintain certain facilities on and in public highways and grounds, all subject to such consents and approvals of public bodies and others as may be required by law.  The current sources of Birmingham Utilities' water are wells located in Derby and Seymour and interconnections with the South Central Connecticut Regional Water Authority's (the "Regional Water Authority") system (a) at the border of Orange and Derby (the "Grassy Hill Interconnection") and (b) near the border of Seymour and Ansonia (the "Woodbridge Interconnection"), and 69 wells located in 16 towns in eastern Connecticut that service 33 satellite water systems. Birmingham Utilities maintains its interconnected Beaver Lake Reservoir System, a 2.2 million gallon per day (MGD) surface supply, in case of emergency needs, located in Seymour and Woodbridge, CT.  Birmingham Utilities' main system operating in Ansonia, Derby, and Seymour has a safe daily yield (including only those supplies that comply with the Federal Safe Drinking Water Act (SDWA) on a consistent basis) of approximately 8.0 MGD, while the average daily demand and the maximum daily demand on the system during 2005 were approximately 3.39 MGD and 4.37 MGD, respectively. The distribution system with the exception of the well supplies, is mainly through gravity, but there are seven distinct areas at higher elevations where pumping, pressure tanks and standpipes are utilized. These higher areas include approximately 25% of BUI's customers.  During 2005, approximately 1.24 billion gallons of water from all sources were delivered to Birmingham Utilities' customers. Birmingham Utilities has approximately 11,459 customers of whom approximately 97% are residential and                                                                                 2   commercial. No single customer accounted for as much as 10% of total billings in 2005. The business of Birmingham Utilities is to some extent seasonal, since greater quantities of water are delivered to customers in the hot summer months.  The Company had, as of March 10, 2006, 43 full-time employees and 3 part-time employees. The Company's employees are not affiliated with any union organization.  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 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 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. Birmingham Utilities' 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. Birmingham Utilities is subject to regulation of its water quality under the 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.                         Executive Officers of the Registrant  Name, Age and Position        Business Experience Past 5 Years  Betsy Henley-Cohn, 53 Chairwoman of the Board       Chairwoman of the Board of Directors and and Chief Executive Officer   Chief Executive Officer of the Company since                               May 1992; Chairperson/Treasurer, Joseph Cohn &                               Sons, Inc. since 1979; Director, UIL Holdings                               Corporation, since 1990; Director, Aristotle                               Corp. (1995-2002); Director, Citizens Bank of                               Connecticut (1997-1999).  John S. Tomac, 52 President and Treasurer       President of the Company since October 1, 1998;                               Vice President of the Company December 1,                               1997-September 30, 1998; Treasurer of the Company                               since December 1997; Assistant Controller, BHC                               Company 1991-1997.
Our business is subject to a number of risks, some of which are discussed below. Other risks are presented elsewhere in this report and in the information incorporated by reference into this report. You should carefully consider the following risks in addition to the other information contained in this report and our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K, before deciding to buy, sell or hold our common stock. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. Any of these risks could materially and adversely affect the Company's business, financial                                                                                 3   condition and results of operations, which in turn could materially and adversely affect the price of the Company's common stock.  DIVIDENDS ON OUR COMMON STOCK WILL BE DEPENDENT ON DIVIDENDS PAID TO BIW LIMITED BY BIRMINGHAM UTILITIES.  Funds required by BIW Limited to enable it to pay dividends on BIW Limited common stock are derived predominantly from the dividends paid by Birmingham Utilities to BIW Limited. Accordingly, the ability of BIW Limited to pay dividends, as a practical matter, will be governed by the ability of Birmingham Utilities to pay common stock dividends. The ability of Birmingham Utilities to pay dividends to BIW Limited will continue to be subject to outstanding common stock dividend restrictions currently contained in Birmingham Utilities' mortgage bond indenture. Because Birmingham Utilities will remain subject to regulation by the Connecticut Department of Public Utility Control (DPUC), the amount of its earnings and dividends will continue to be affected by the manner in which the DPUC regulates Birmingham Utilities. Therefore, there can be no assurance as to the payment of future dividends by BIW Limited. Furthermore, any losses incurred by BIW Limited's unregulated businesses will not be recoverable through the water rates of Birmingham Utilities.  OUR BUSINESS REQUIRES SIGNIFICANT CAPITAL EXPENDITURES AND THE RATES WE CHARGE OUR CUSTOMERS ARE SUBJECT TO REGULATION.  The water utility business is capital intensive. In addition to any capital required to fund potential acquisitions, on an annual basis, we spend significant sums for additions to or replacement of property, plant and equipment. Our ability to maintain and meet our financial objectives is dependent upon the availability of adequate capital and the recovery of our capital investments through the rates we charge our customers. There is no guarantee that we will be able to obtain sufficient capital in the future on reasonable terms and conditions for expansion, construction and maintenance. In the event we are unable to obtain sufficient capital, our expansion efforts could be curtailed, which may affect our growth and may affect our future results of operations.  The rates our regulated operations charge our customers are subject to approval by the DPUC. We file rate increase requests, from time to time, to recover our investments in utility plant and expenses. Once a rate increase petition is filed with the DPUC, the ensuing administrative and hearing process may take up to 180 days and may be costly. We can provide no assurances that any future rate increase request will be approved; and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.  OUR OPERATING COSTS COULD BE SIGNIFICANTLY INCREASED IN ORDER TO COMPLY WITH NEW OR STRICTER REGULATORY STANDARDS IMPOSED BY FEDERAL AND STATE ENVIRONMENTAL AGENCIES.  Our water services are governed by various federal and state environmental protection and health and safety laws and regulations, including the federal Safe Drinking Water Act, the Clean Water Act and similar state laws, and federal and state regulations issued under these laws by the United States Environmental Protection Agency and state environmental regulatory agencies. These laws and regulations establish, among other things, criteria and standards for drinking water and for discharges into the waters of the United States and states. Pursuant to these laws, we are required to obtain various environmental permits from environmental regulatory agencies for our operations. We cannot assure you that we have been or will be at all times in total compliance with these laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators.                                                                                 4   Environmental laws and regulations are complex and change frequently. These laws, and the enforcement thereof, have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with these laws and our permits, it is possible that new or stricter standards could be imposed that will raise our operating costs. Although these costs may be recovered in the form of higher rates, there can be no assurance that the DPUC would approve rate increases to enable us to recover such costs. In summary, we cannot assure you that our costs of complying with, or discharging liability under, current and future environmental and health and safety laws will not adversely affect our business, results of operations or financial condition.  OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS, WHICH COULD AFFECT DEMAND FOR OUR WATER SERVICE AND OUR REVENUES.  Demand for our water during the warmer months is generally greater than during cooler months due primarily to additional requirements for water in connection with irrigation systems, swimming pools, cooling systems and other outside water use. Throughout the year, and particularly during typically warmer months, demand will vary with temperature and rainfall levels. In the event that temperatures during the typically warmer months are cooler than normal, or if there is more rainfall than normal, the demand for our water may decrease and adversely affect our revenues.  DROUGHT CONDITIONS MAY IMPACT OUR ABILITY TO SERVE OUR CURRENT AND FUTURE CUSTOMERS.  We depend on an adequate water supply to meet the present and future demands of our customers. Drought conditions could interfere with our sources of water supply and could adversely affect our ability to supply water in sufficient quantities to our existing and future customers. An interruption in our water supply could have a material adverse effect on our financial condition and results of operations. Moreover, governmental restrictions on water usage during drought conditions may result in a decreased demand for our water, even if our water reserves are sufficient to serve our customers during these drought conditions, which may adversely affect our revenues and earnings.  CONTAMINATION TO OUR WATER SUPPLY MAY RESULT IN DISRUPTION IN OUR SERVICES.  Our water supplies are potentially subject to contamination, including contamination from the development of naturally-occurring compounds, chemicals in groundwater systems, pollution resulting from man-made sources, such as MTBE, and possible terrorist attacks. In the event that our water supply is contaminated, we may have to interrupt the use of that water supply until we are able to substitute the flow of water from an uncontaminated water source. In addition, we may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities, or development of new treatment methods. If we are unable to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, there may be an adverse effect on our revenues, operating results and financial condition. The costs we incur to decontaminate a water source or an underground water system could be significant and could adversely affect our business, operating results and financial condition and may not be recoverable in rates. We could also be held liable for consequences arising out of human exposure to hazardous substances in our water supplies or other environmental damage. For example, private plaintiffs have the right to bring personal injury or other toxic tort claims arising from the presence of hazardous substances in our drinking water supplies. Our insurance policies may not be sufficient to cover the costs of these claims.  WE DEPEND SIGNIFICANTLY ON THE SERVICES OF THE MEMBERS OF OUR MANAGEMENT TEAM.                                                                                 5   Our success depends significantly on the continued individual and collective contributions of our management team. The loss of the services of any member of our management team or the inability to hire and retain experienced management personnel could harm our operating results.
Not Applicable
The Company's properties consist chiefly of land, wells, reservoirs, and pipelines. Birmingham Utilities operations in Ansonia, Derby and Seymour have 5 production wells with an aggregate effective capacity of approximately 3.0 MGD. Birmingham Utilities' existing interconnections with the Regional Water Authority can provide 5.0 MGD. Birmingham Utilities' entire system has a safe daily yield (including only those supplies that comply with the SDWA on a consistent basis) of approximately 8.0 MGD, while the average daily demand and the maximum daily demand on the system during 2005 were approximately 3.39 MGD and 4.37 MGD, respectively. The distribution system, with the exception of the well supplies, is mainly through gravity, but there are seven distinct areas at higher elevations where pumping, pressure tanks and standpipes are utilized. These higher areas include approximately 25% of Birmingham Utilities' customers.       Birmingham Utilities has two emergency stand-by reservoirs (Peat Swamp and Middle) with a storage capacity of 457 million gallons and a safe daily yield of approximately 2.1 MGD. Because the water produced by those reservoirs does not consistently meet the quality standards of the SDWA, none of those reservoirs is actively being used by Birmingham Utilities to supply water to the system.       Birmingham Utilities' Eastern Division consists of 33 satellite water systems in 16 towns in eastern Connecticut serving 2,100 connections. These systems serve residential subdivisions, elderly housing complexes, and condominium complexes. Typical system configuration includes two or more wells, chemical addition, atmospheric storage, booster pumps, and hydropneumatic storage. Several of these systems also include filtration for iron and manganese removal. Two systems have radon removal treatment. Three of the systems are seasonal, only operating during the months of April through October. Two of the systems in East Hampton, CT and a system in Moodus, CT are currently being expanded to accommodate new development. The Company also increased its supply capacity at a system in East Hampton with the addition of new wells as well as through the redevelopment of existing wells. In addition, the Company replaced a large storage tank and added new pumping facilities in East Haddam and refurbished the entire filtration system at a water treatment facility in Coventry.       Birmingham Utilities' dams are subject to inspection by and the approval of the DEP. All of Birmingham Utilities' dams are in compliance with improvements previously ordered by the U.S. Army Corps of Engineers.       Birmingham Utilities owns an office building at 230 Beaver Street, in Ansonia that contains 4,200 square feet of office and storage space. In addition, Birmingham Utilities owns two buildings devoted to equipment storage. Birmingham Utilities owns office space in a wood frame, residential building owned by Birmingham Utilities at 228 Beaver Street, Ansonia, CT. Birmingham Utilities also owns two residential houses at 189 Maple Street and 59 Rimmon Road, Seymour, CT. Birmingham Utilities also rents office and warehouse space in Glastonbury, CT and Birmingham H2O Services owns two buildings in Guilford, CT at 2935 and 2940 Boston Post Road.                                                                                 6        Birmingham Utilities' approximately 1,400 acres of land were acquired over the years principally in watershed areas to protect the quality and purity of the Company's water at a time when land use was not regulated and standards for water quality in streams were non-existent.       Under Connecticut law a water company cannot abandon a source of supply or dispose of any land holdings associated with a source of supply until it has a "water supply plan" approved by the Health Department. The Health Department approved Birmingham Utilities' first Water Supply Plan in 1988 and updated Water Supply Plan in 1993 and in 1998. Pursuant to abandonment permits issued by the Health Department in 1988, Birmingham Utilities abandoned its Upper and Lower Sentinel Hill Reservoirs, Steep Hill (Bungay) Reservoir, and Fountain Lake Reservoir, and the land associated with them then became available for sale. In 1994, the abandonment of Great Hill Reservoir was approved by the Health Department and in 1999 the abandonment of the Quillinan Reservoir was also approved by the Health Department.       Since 1988, Birmingham Utilities has sold approximately 2,325 acres of land in Bethany, Ansonia, Derby, Seymour and Oxford, realizing net gains of $13,085,806.       Birmingham Utilities no longer has any significant land holdings that will not be needed in the future for water supply purposes. The DPUC has accepted with respect to prior transactions, an accounting and ratemaking mechanism by which the gain on the sale of Birmingham Utilities' land holdings is shared between ratepayers and stockholders as contemplated by Connecticut law. (See Note 1 to the Company's Financial Statements.)
None.
None.                                       PART II
The inside back cover of the Company's Annual Report to shareholders for the year ended December 31, 2005, (Market Information), is incorporated herein by reference, pursuant to Rule 12b-23 of the Securities and Exchange Act of 1934 (the "Act") and to Instruction G(2) to Form 10-K.
The inside front cover of the Company's Annual Report to shareholders for the year ended December 31, 2005, (Financial Highlights), is incorporated herein by reference, pursuant to Rule 12b-23 of the Act and to Instruction G(2) to Form 10-K.
Pages 6 through 13 of the Company's Annual Report to Shareholders for the year ended December 31, 2005 (Management's Discussion and Analysis of Financial Condition and Results of Operations) are incorporated herein by reference, pursuant to Rule 12b-23 of the Act and to Instruction G(2) to Form 10-K.
7   The Company has certain exposures to market risk related to changes in interest rates. The Company has an outstanding revolving credit agreement, under which there were borrowings of $4,755,000 at December 31, 2005. The revolving credit agreement bears interest at variable rates based on current LIBOR indices. The Company is not subject in any material respect to currency or other commodity risk.
The consolidated financial statements, together with the report therein, of Dworken, Hillman, LaMorte and Sterczala, P.C., dated March 13, 2006 appearing on pages 14 through 32 of the Company's 2005 Annual Report to Shareholders are incorporated herein by reference, pursuant to Rule 12b-23 of the Act and Instruction G(2) to Form 10-K.
Not applicable.
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 December 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.  In connection with the evaluation described in the foregoing paragraph, there were no changes identified in the Company's internal controls over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
None.                                                                                 8                                       PART III
The information appearing under the captions Proposal No. 1 - "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on May 10,2006, is incorporated by reference in partial response to this item. See also "Executive Officers of the Registrant", following Part I, Item 1 herein.
The information appearing under the captions "Executive Compensation" and "Compensation of Directors" in the Company's definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on May 10, 2006 is incorporated by reference in response to this item.
The information appearing under the caption "Stock Ownership" in the Company's definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on May 10, 2006 is incorporated by reference in partial response to this item.         Securities Authorized for Issuance Under Equity Compensation Plans       The following table provides information regarding our equity compensation plans as of December 31, 2005:  - ------------------------------------------------------------------------------------                                                                 Number of securities                      Number of Securities                       remaining available                      to be issued          Weighted-average     for future issuance                      upon exercise of      exercise price of    under equity Plan Category        outstanding options   outstanding options  compensation plans - -------------------  --------------------  -------------------  --------------------     Equity compensation plans approved by security holders           62,500                $14.73               73,000 - -------------------  --------------------  -------------------  -------------------- Equity compensation plans not approved by security holders           --                    --                   -- - -------------------  --------------------  -------------------  -------------------- Total                      62,500                $14.73               73,000 - ------------------------------------------------------------------------------------
None.
The information concerning Principal Accountant Fees and Services is set forth under the heading "Auditor Matters" in the Company's definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on May 10, 2006 is incorporated by reference in response to this item.                                                                                 9                                        PART IV
(a)  The following statements are filed as part of this report:                                                                      Page in                                                                   Annual Report*           Consolidated Statements of Income and Retained           earnings for the three years ended           December 31, 2005                                            16            Consolidated Balance Sheets at December 31, 2005           and 2004                                                     15            Consolidated Statements of Cash Flows for the three           years ended December 31, 2005                                17            Notes to the Consolidated Financial Statements             18-32            Report of Independent Registered Public Accounting Firm      14  * Incorporated by reference from the indicated pages of the 2005 Annual Report.  (b)  Exhibits  (3)       Certificate of Incorporation and By-Laws of BIW Limited. Incorporated           herein by reference to Exhibits C and D of the prospectus contained in           the Registration Statement of BIW Limited on Form S-4 (Reg. No.           333-84508) dated May 20, 2002.  (4)       Instruments Defining Rights of Security Holders  (4.1)     Bond Purchase Agreement dated as of April 15, 2004 between Birmingham           Utilities, Inc., and General Electric Capital Assurance Company.           Incorporated herein by reference to Exhibit 4.1 of the Form 10-Q of           BIW Limited for the period ended June 30, 2004.  (4.2)     Eighth Supplemental Indenture dated as of April 15, 2004 between           Birmingham Utilities, Inc., and US Bank National Association.           Incorporated herein by reference to Exhibit 4.2 of the Form 10-Q of           BIW Limited for the period ended June 30, 2004.  (4.3)     First Modification and Reaffirmation Agreement by and between           Birmingham Utilities, Inc., Birmingham H2O Services, Inc., and           Citizens Bank of Connecticut, dated December 30, 2003. Incorporated           herein by reference to Exhibit 4.2 of BIW's Annual Report on Form 10-K           for the period ended December 31, 2003.  (4.4)     Birmingham Utilities, Inc. Dividend Reinvestment Plan, adopted by its           Board of Directors on September 13, 1994. Incorporated herein by           reference to Exhibit 4 (iii) of Birmingham Utilities, Inc.'s Annual           Report on Form 10-K for the period ended December 31, 1994.  (10)      Material Contracts  (10.1)    Agreement to Purchase Water by and between The Ansonia Derby Water           Company and South Central Connecticut Regional Water Authority dated           January 18, 1984 for the sale of water by the Authority to the Company           and subsequent amendment dated December 29, 1988. Incorporated herein           by reference to Exhibit (10.1) of the Annual Report on Form 10-K of           Birmingham Utilities, Inc. for the period ended December 31, 1999.                                                                                10   (10.2)    Agreement to Purchase Water by and between The Ansonia Derby Water           Company and South Central Connecticut Regional Water Authority dated           November 30, 1984 for the sale by the Authority to the company of           water and for the construction of the pipeline and pumping and storage           facilities in connection therewith by the Authority at the expense           primarily of the Company and Bridgeport Hydraulic Company.           Incorporated herein by reference to Exhibit (10.2) of the Annual           Report on Form 10-K of Birmingham Utilities, Inc. for the period ended           December 31, 1996.  (10.3)    Employment Agreement between Birmingham Utilities, Inc. and John S.           Tomac dated October 1, 1998. Incorporated herein by reference to           Exhibit (10.3) of the Annual Report on Form 10-K of Birmingham           Utilities, Inc. for the period ended December 31, 1998.  (10.4)    Birmingham Utilities, Inc. 1994 Stock Incentive Plan adopted by its           Board of Directors on September 13, 1994. Incorporated herein by           reference to Exhibit (10.9) of Birmingham Utilities, Inc.'s Annual           Report on Form 10-K for the period ended December 31, 1994.  (10.5)    Birmingham Utilities, Inc. 1994 Stock Option Plan for Non-Employee           Directors adopted by its Board of Directors on September 13, 1994.           Incorporated herein by reference to Exhibit (10.10) of Birmingham           Utilities, Inc.'s Annual Report on Form 10-K for the period ended           December 31, 1994.  (10.6)    Birmingham Utilities, Inc. 1998 Stock Incentive Plan adopted by its           Board of Directors on December 9, 1998. Incorporated herein by           reference to Exhibit (10.8) of Birmingham Utilities, Inc.'s Annual           Report on Form 10-K for the period ended December 31, 1999.  (10.7)    Birmingham Utilities, Inc. 2000 Stock Option Plan for non-employee           Directors adopted by its Board of Directors on September 6, 2000.           Incorporated herein by reference to Exhibit (10.9) of Birmingham           Utilities, Inc.'s Annual Report on Form 10-K for the period ended           December 31, 2000.  (10.8)    BIW Limited's Stock Option Agreement Form for grants pursuant to 2000           Stock Option Plan for non-employee Directors. Incorporated herein by           reference to Exhibit (10.8) of BIW's Annual Report on Form 10-K for           the period ended December 31, 2004.  (10.9)    BIW Limited's Stock Option Agreement Form for grants pursuant to 1998           Stock Incentive Plan. Incorporated herein by reference to Exhibit           (10.9) of BIW Limited's Annual Report on Form 10-K for the period           ended December 31, 2004.  (13)      2005 Annual Report to Shareholders  (21)      Subsidiaries of the Registrant  (23)      Consent of Independent Registered Public Accounting Firm  (31.1)    Certification of the Chief Executive Officer Pursuant to Securities           Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the           Sarbanes-Oxley Act of 2002  (31.2)    Certification of the Chief Financial Officer Pursuant to Securities           Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the           Sarbanes-Oxley Act of 2002  (32)      Certification of the Chief Executive Officer and Chief Financial           Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to           Section 906 of the Sarbanes-Oxley Act of 2002.  (c)  Financial Statement Schedules None.                                                                                11                                      SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) 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)   BY:  /s/ Betsy Henley-Cohn      ------------------------      Betsy Henley-Cohn      Chairwoman of the Board      and Chief Executive Officer   Date: March 30, 2006                                                                                              12        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   /s/ Mary Jane Burt                           /s/ Themis Klarides - -----------------------------                ------------------------------ Mary Jane Burt, Director                     Themis Klarides, Director March 30, 2006                               March 30, 2006     /s/ James E. Cohen                           /s/B. Lance Sauerteig - -----------------------------                ------------------------------ James E. Cohen, Director                     B. Lance Sauerteig, Director March 30, 2006                               March 30, 2006     /s/ Alvaro daSilva                           /s/ Kenneth E. Schaible - ---------------------------- -               ------------------------------ Alvaro daSilva, Director                     Kenneth E. Schaible March 30, 2006                               March 30, 2006     /s/ Juri Henley-Cohn                         /s/ John S. Tomac - -----------------------------                ------------------------------ Juri Henley-Cohn, Director                   John S. Tomac, Director March 30, 2006                               President & Treasurer and Chief                                                Financial Officer                                              March 30, 2006   /s/ Linda B. Batten                          /s/ Betsy Henley-Cohn - -----------------------------                ------------------------------ Linda B. Batten, Controller and              Betsy Henley-Cohn Assistant Treasurer                          Chairwoman and Chief Executive March 30, 2006                               Officer and Director                                              March 30, 2006                                                                                13                                      BIW Limited                                  INDEX TO EXHIBITS   Item No.  (13)    2005 Annual Report to Shareholders  (21)    Subsidiaries of the Registrant  (23)    Consent of Independent Registered Public Accounting Firm  (31.1)  Certification of the Chief Executive Officer Pursuant to Securities         Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the         Sarbanes-Oxley Act of 2002.  (31.2)  Certification of the Chief Financial Officer Pursuant to Securities         Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the         Sarbanes-Oxley Act of 2002.  (32)    Certification of the Chief Executive Officer and Chief Financial Officer         Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906         of the Sarbanes-Oxley Act of 2002.                                                                                              14      EX-13 2 exhibit13_14236.txt ANNUAL REPORT                                                                        EXHIBIT 13                                                                       ----------  2005 Annual Report / BIW Limited Strategic Focus Sound Growth  COMPANY PROFILE BIW Limited (BIW or the Company), formed in 2002, is the parent company of Birmingham Utilities, Inc. (BUI or Birmingham Utilities), founded in 1859, and Birmingham H2O Services, Inc. (H2O Services), established in 2002. 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. 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.  FINANCIAL HIGHLIGHTS The financial highlights set forth below should be read together with, and are qualified by reference to, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and our audited consolidated financial statements and accompanying notes included elsewhere in this annual report.  (000's omitted except for   per share data)                      2005     2004     2003     2002     2001                                       ------   ------   ------   ------   ------ Operating Revenues                    $9,055   $9,866   $6,408   $4,836   $4,852 Income before Interest Expense         1,341    1,085    1,253      978    1,033 Income from Land Dispositions            --       --        --      261    5,133 Net Income                               659      511      820      817    5,655 Earnings Per Share - Basic               .40      .31      .50      .50     3.48 Earnings Per Share - Diluted             .39      .30      .49      .49     3.41 Cash Dividends Declared (per share)      .68      .68      .60      .60      .58 Total Assets                          32,742   30,228   28,399   22,321   22,681 Long-Term Debt                         9,000    9,000    3,948    4,042    4,136 Short-Term Debt                        4,755    2,255    4,799       94       94 Shareholders' Equity                  11,729   12,187   12,723   12,889   13,057   CORPORATE STRUCTURE 2005 BIW Limited Parent Company  Birmingham Utilities Regulated  Eastern Division 33 Systems in Eastern Connecticut  Naugatuck Valley Division Ansonia, Derby, and Seymour, Connecticut  Birmingham H20 Services Non-regulated Rhodes Pump Service Contract Operations (Eastern) Contract Operations (Valley)    TO OUR SHAREHOLDERS       BIW Limited's earnings performance in 2005 was less than expected, and this has perhaps overshadowed many accomplishments and actions that took place in 2005. These accomplishments and actions, we believe, will enhance the financial strength and profitability of your Company in the years ahead.       Your Company's public utility water business, Birmingham Utilities, had mixed earnings results in 2005. Earnings of the Ansonia based regulated operations have declined due to a reduction in sales, increases in depreciation expense and a decline in other income. Those declines, however, were mitigated by a $103,000 reduction in operating expenses in 2005 compared to 2004. The Eastern Division's regulated operations in 2005 experienced operating losses, but the losses were significantly reduced by a $363,000 reduction in operating expenses in 2005 versus 2004. Increased depreciation expense and higher interest charges somewhat offset the decline in operating expenses.       The Company plans to file a request for rate relief with the Connecticut Department of Public Utility Control ("DPUC") in 2006 for both the Ansonia and Eastern regulated operations. General rate relief was last received by our Eastern Division in 1997 and by our Ansonia based operation in 2003. Earlier this year, the DPUC authorized a rate increase for the Ansonia operations to pass through increases in purchased water costs and property taxes. It is clear that the Company needs to recoup the investment it has made in utility plant at both divisions and to recover all of the costs and investments required to efficiently operate our water systems.       Operating results for our water services company, H2O Services, were also lower than in 2004, but contributed positively to consolidated earnings in 2005. The unregulated operations at our Eastern Division had lower revenues in 2005 due to the completion of a large construction project included in the 2004 results, coupled with the harsh winter in 2005 that suppressed business activity throughout H2O Services.       Consolidated earnings increased in 2005 compared to 2004; however, the final results were disappointing and lower than expected. In 2005, consolidated net income of BIW Limited was $659,000 as compared to $511,000 in 2004 and $820,000 in 2003. Earnings per share basic were $.40 in 2005 compared to $.31 per share basic in 2004 and $.50 per share basic in 2003. Pre-tax operating income of the Company, which continues to grow, was $1,506,000 in 2005, compared with $1,475,000 in 2004 and $1,407,000 in 2003. Pre-tax operating income represents the sum of operating income of $1,194,000, $1,228,000 and $1,154,000 in 2005, 2004 and 2003, respectively, plus taxes on income of $312,000, $247,000 and $253,000. Although consolidated revenues in 2005 were $810,000 lower than in 2004, operating and maintenance expenses were $1,110,000 less than in 2004, which more than offset significant increases in depreciation expense and property taxes, due primarily to the Company's continuing substantial investment in utility plant.       As stated earlier, the DPUC granted rate relief to Birmingham Utilities' Ansonia based regulated operations to account for higher purchased water costs and to a lesser extent higher property taxes that became effective in January of 2006. This 4.5% limited rate increase, using the statutory "Pass Through Legislation," was needed to account for a 22%, $201,000 wholesale water rate increase imposed on Birmingham Utilities by the South Central Regional Water Authority ("RWA"). The Company had vigorously opposed the RWA's water rate increase, which equated to more than four times the amount all other customers of the RWA received. In granting the requested rate relief, the DPUC also directed the Company to attempt to renegotiate the purchased water contract with the RWA.       In 2006, the Company will file a general rate application with the DPUC to increase its water service rates for both the Ansonia and Eastern Division regulated operations. We believe the most effective and efficient method to apply for this rate increase is to combine both divisions for ratemaking purposes. We believe that combining the two divisions will mitigate future rate    increases for the Ansonia Division, as we see many growth opportunities in our customer base in Eastern Connecticut while there is limited or no customer growth in our customer base in the Naugatuck Valley towns of Ansonia and Derby. A larger customer base that has the potential to grow further will assist in allocating the fixed costs of the Company over a larger customer population over time. Although we plan to file this application in the second quarter of 2006, the full results of any future increase, if approved, will not go into effect until the last quarter of 2006. This proposed rate increase primarily reflects the costs of improving water quality, reliability and improving customer service, especially in our Eastern Division, while earning a reasonable return for our shareholders on our investment in new utility plant at both divisions.       The Company's dividend exceeded earnings in 2005 and 2004. However, over the period 1998-2005, dividends represented approximately 50% of the utility's earnings, which is lower than the typical 75% dividend payout ratio for utilities. The 2006 rate case application for utility regulated operations is intended to update the Company's rate base for current investments in both utility divisions and enable the Company to earn a reasonable return on this investment, which should allow us to grow the book value of the Company in the future. Although we cannot predict the outcome of any rate proceeding, statutory ratemaking principles require that water service rates be set to allow a utility to recover reasonable operating and capital costs, including a reasonable return on its investments.       We continue to keep on hold our plans to expand our Beaver Brook Reservoir until the rate application process is completed in 2006, and then expect to proceed with further planning and evaluation. The DPUC has stated its belief that Birmingham Utilities should do a feasibility study for the reactivation of the Beaver Brook water supply. This type of long-term planning, which includes the construction of a filter plant, is important to the Company and the region, as it will provide an additional supply of water for future growth of the surrounding Naugatuck Valley towns.       Looking toward the future, we are optimistic about our prospects. Our non-regulated service company remains strong and contributes annually to earnings. We expect this to continue in the future. We continue to look to expand these services through new contracts and other opportunities as well as working to assure that all businesses remain profitable and efficient. We look forward to obtaining rate relief to recover our capital investments and to recover our operating expenses necessary to operate both regulated divisions. We believe we have a management team in place that can direct these activities and a qualified and dedicated workforce to carry out all of our plans. We thank you for your confidence and support, and we look forward to serving you and keeping you apprised of our progress in the months and years to come.       Lastly, we all were saddened at the passing of our director, Michael J. Adanti, on July 31, 2005. Mike served the Company with distinction since 2000. We will all miss Mike's wisdom and charm. He was not only a trusted advisor to the Company, but also a friend to us all.  Sincerely,   Betsy Henley-Cohn Chairwoman   John S. Tomac President and Treasurer    BIW CONTRIBUTORS  Board of Directors  Betsy Henley-Cohn (2) Chairwoman of the Board of Directors of the Company Chairman and Treasurer, Joseph Cohn & Sons, Inc. Director, UIL Holdings Corporation Director, Aristotle Corp. (1995-2002); Director, Citizens Bank of Connecticut (1997-1999);  John S. Tomac (2) President and Treasurer of the Company  Michael J. Adanti (deceased July 31, 2005) President Emeritus, Southern Connecticut State University Director, Griffin Hospital  Mary Jane Burt (1,2,4) Realtor, H. Pearce Co. Principal, The Laurel Group Previously, President, Burt Medical Lab 1984-1998  James E. Cohen (2,3) Lawyer in Practice in Derby  Alvaro da Silva (1,3) President, DSA Corp. President, B.I.D., Inc. (land development and home building company) Managing Partner, Connecticut Commercial Investors, LLC (a commercial real estate and investment partnership)  Juri Henley-Cohn (2) President, Johnson Point Productions  Themis Klarides (1,4) Associate Attorney, Law Offices of Shawn K. Splan, Shelton; State Representative, 114th District, Connecticut General Assembly  B. Lance Sauerteig (2,4) Principal and President of BLS Strategic Capital, Inc. (financial and investment advisory company) Principal and Manager of Tortoise Capital Partners, LLC (real estate investment company) Director, Chemwerth, Inc. Director, United Aluminum Corporation  Kenneth E. Schaible (1,3) Real Estate Developer Previously, Senior Vice President, Webster Bank (1995-1996) President, Shelton Savings Bank and Shelton Bancorp, Inc. (1972-1995)  Charles T. Seccombe Director Emeritus    Officers  Betsy Henley-Cohn Chairwoman and CEO  John S. Tomac President and Treasurer  John J. Keefe, Jr. Vice President, Operations  Linda Batten Controller and Assistant Treasurer  Henrietta Vitale Secretary   Committees (1) Audit Committee meets at least quarterly with management and independent accountants to review accounting, auditing, internal control and financial reporting and discuss the scope and results of the annual audit and quarterly reviews of the Company's financial statements. (2) Executive Committee reviews strategic planning alternatives, recommends to and advises the Board of Directors on financial policy, issuance of securities and other high priority issues. (3) Committee on Directors makes recommendations to the Board of Directors for Board replacements when they become available and for compensation levels for the Board of Directors. (4) Personnel and Pension Committee makes recommendations to the Board of Directors regarding officers' compensation including the promotion and hiring of officers; reviews Company fringe benefit plans other than retirement plans; reviews the Pension Trust Fund of the Birmingham Utilities, Inc. Defined Benefit Plan and the Retired Employee Welfare Benefit Trust for retiree medical benefits; reviews and determines actuarial policies, investment guidelines and selects the investment manager.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  2005 VS. 2004  The Company recorded net income of $658,786 in 2005 as compared with $511,235 in 2004. Earnings per share, basic for 2005 and 2004 were $.40 and $.31 respectively. Net income of the Birmingham Utilities segment was $466,543 in 2005 compared with $144,118 in 2004. The regulated Ansonia Division generated net income of $659,099 in 2005 compared with $517,456 in 2004 principally due to the reduction of operating and maintenance expenses in 2005. The regulated Eastern Division generated a net loss of $192,556 in 2005, a significant improvement compared to the net loss of $373,338 in 2004. Corporate reorganization, an emphasis on efficient operations, as well as capital improvements made since its purchase in 2003 all contributed to the reduction of the loss. Efficient and normalized operations along with the necessity to earn on capital investments made in recent years is the reason the Company will file a rate relief request with the DPUC for both the regulated Ansonia and Eastern divisions in 2006. The unregulated H2O Services segment had net income of $192,243 in 2005 compared to $367,117 in 2004. Delays in construction operations due to harsh weather in the first quarter of 2005 and an increased advertising budget also contributed to the lower earnings.  OPERATING REVENUES decreased 8% in 2005 versus 2004. Slightly lower water revenues and the absence of some large construction projects in 2005 account for the decrease in revenues. Decreases in residential and industrial consumption in the Ansonia Division were partially offset by residential customer growth in the Eastern Division.  OPERATING EXPENSES decreased $1,041,021 or 16% in 2005 compared with 2004. Decreased costs relating to a reduction in large construction projects performed by H2O accounts for 59% or $602,965 of the decrease. Operating expenses for the regulated Eastern Division are 32% or $362,627 lower due to operating efficiencies achieved through personnel reorganization as well as capital investments since its purchase in 2003.  MAINTENANCE EXPENSES also decreased $69,534 or 15% in 2005, reflecting the benefit of the increased capital investments made in recent years. The Eastern Division maintenance expenses decreased 28% or $49,779 also due to operating efficiencies and improvements achieved since its purchase in 2003.  DEPRECIATION increased 18.5% or $138,802 in 2005. This is directly related to the increased capital improvements made by the Company in 2004 and 2005. Several of the water systems acquired in 2003 required immediate capital expenditures which increased depreciation expense. The Company now believes capital improvements will be able to be more systematically scheduled in the future.  TAXES OTHER THAN INCOME TAXES increased 20% or $125,053 in 2005. Capital improvements made in recent years have increased the value of the water systems, which results in a higher assessment upon which property taxes are calculated. Increased mill rates in the individual towns also contributed to the increase in expense.  TAXES ON INCOME of $312,044 recorded in 2005 are $65,517 higher than the 2004 expense of $246,527 due to an increase in operating earnings.  LAND DISPOSITIONS, when Birmingham Utilities disposes of land, any gain recognized, net of taxes, is shared between ratepayers and shareholders 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), which represents the shareholders' immediate share of income from land dispositions occurring in that year. There were no land sales in 2005 and 2004.    LAND DISPOSITION income is also recognized in the statement of income as a component of net income on the line entitled "Amortization of Deferred Income on Dispositions of Land." These amounts represent the recognition of income on deferred land dispositions which occurred in prior years. The amortization of deferred income on land dispositions, net of tax, was $6,425 and $11,342 in 2005 and 2004, respectively. Recognition of deferred income will continue over various time periods depending upon the amortization period ordered by the DPUC for each particular disposition.  ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) in 2005 is 30% lower than 2004. The size and scope of capital improvement projects, especially in the Eastern Division, completed in 2005 were smaller than those undertaken in 2004.  OTHER INCOME is $143,344 lower in 2005 than in 2004. Wellpoint common stock received as a result of the demutualization of Blue Cross/Blue Shield, the Company's former healthcare insurance provider, accounted for $157,550 of other income in 2004. The stock was sold in 2005 and an additional gain of $7,888 was recorded as other income which accounts for the total variance in 2005.  OTHER EXPENSE for 2004 of $468,035 represents non-recurring expenses incurred primarily in the fourth quarter of 2004. Expenses totaling $405,613 were related to the exploration of strategic initiatives that were not consummated. The remaining balance of $62,422 is expense associated with the proposed acquisition of the NY operations from PSC that was terminated in January 2005.  INTEREST EXPENSE Of $681,876 for 2005 is $107,692 higher than the interest expense recorded for 2004. Increased borrowings as well as rising short term interest rates are the reason for the increase.  2004 VS. 2003  The Company recorded net income of $511,235 in 2004 as compared to $820,374 in 2003. Earnings per share, basic for 2004 and 2003 were $.31 and $.50. There was no land sale income in 2004 and 2003 and amortization of deferred income on dispositions of land was $11,342 in 2004 as compared to $179,172 in 2003.  OPERATING REVENUES of the Company were $9,865,576 in 2004 versus $6,408,483 in 2003. The increase is, in part, a result of $1,442,713 in utility revenues collected for the entire year of 2004 from the regulated operations acquired in 2003 and the full year's effect of BUI's rate increase granted in August 2003. H2O Services revenues reflect increased activity of $2,014,380, which includes increased revenues of $1,554,344 for the entire twelve months of 2004 from the acquired non-regulated operations.  OPERATING EXPENSES of $6,571,322 for 2004 are $2,771,387 higher than operating expenses of $3,799,935 for 2003. Operating expenses related to the regulated Eastern Division acquired in 2003 of $1,141,517 reflect an entire twelve months of activity and are $789,138 higher than 2003. These expenses for the Eastern Division are high due to the relocation of the office from Stafford Springs to Glastonbury in July 2004 as well as the reorganization of personnel at all levels done throughout 2004 and unexpected purchased water costs. The total of these expenses were approximately $150,000. Operating expenses for the regulated Ansonia Division of $3,008,270 in 2004 exceeded operating expenses of $2,718,709 for 2003 by $289,561. The increase is due to increases in property and liability insurance, workers compensation, pension, and power or fuel related expenses in 2004. H2O Services operating expenses increased by $1,692,688 in 2004 versus 2003. The increase is in part due to both increased activity as well as the inclusion of twelve months of activity and expenses related to the non-regulated operations acquired in 2003.    MAINTENANCE EXPENSES of $463,295 in 2004 are $151,161 higher than maintenance expenses of $312,134 for 2003. The additional maintenance expenses related to the operations acquired in 2003, both regulated and non-regulated, accounts for the variance.  DEPRECIATION of $749,114 in 2004 exceeds depreciation of $630,462 in 2003 by $118,652. Additional depreciation in the Eastern Division due to continued plant additions along with the inclusion of a full twelve months of activity for these operations accounts for this increase.  TAXES OTHER THAN INCOME TAXES of $618,752 for 2004 are $180,626 higher than taxes other than income taxes of $438,126 in 2003. Increased payroll taxes, real estate taxes and property taxes due to the acquisition of the new operations as well as property taxes related to utility plant additions throughout Birmingham Utilities' service area account for this increase.  INCOME TAXES on operations of $246,527 recorded in 2004 are $5,975 lower than the 2003 expense of $252,502 due to a decrease in operating earnings. The Company also incurs income tax liability for gains from land transactions, both in the year in which they occur and in the later years in which income, previously deferred in accordance with the Department of Public Utility Control's (DPUC) orders concerning the sharing of the gains between the Company's shareholders and ratepayers, is recognized by the Company. Taxes related to gains on land transactions were $8,017 in 2004 and $75,769 in 2003. The Company's total income tax expense, including both the tax on operating income and on land sale gains, was $254,544 in 2004 and $328,271 in 2003.  LAND DISPOSITIONS, when Birmingham Utilities disposes of land, any gain recognized, net of taxes, is shared between ratepayers and shareholders 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), which represents the shareholders' immediate share of income from land dispositions occurring in that year. There were no land sales in 2004 and 2003.  Land disposition income is also recognized in the statement of income 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 $11,342 and $179,172, for 2004 and 2003. Recognition of deferred income will continue over various time periods depending upon the amortization period ordered by the DPUC for each particular disposition.  ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) in 2004 of $120,279 is $39,472 higher than the $80,807 recorded in 2003. Large ongoing capital improvement projects throughout 2004 in the Eastern Division account for this increase.  OTHER INCOME of $205,267 for 2004 is $187,518 higher than other income of $17,749 in 2003. Wellpoint common stock, received as a result of the demutualization of Blue Cross/Blue Shield, our healthcare insurance provider, in the amount of $157,550, accounts for the majority of the increase.  OTHER EXPENSE for 2004 of $468,035 represents non-recurring expenses incurred primarily in the fourth quarter of 2004. Expenses totaling $405,613 were related to the exploration of strategic initiatives that were not consummated. The remaining balance of $62,422 is expense associated with the proposed acquisition of the NY operations from PSC that was terminated in January 2005.  INTEREST EXPENSE of $574,184 for 2004 is $141,506 higher than interest expense of $432,678 for 2003. The increase in long-term borrowings from $4,042,000 in 2003 to $9,000,000 in 2004    accounts for a portion of the increase, although this is somewhat offset by the 5.21% interest rate on the new $9,000,000 mortgage bonds as compared to 9.64% on the $4,042,000 retired mortgage bonds. The balance of the increase is related to short-term borrowings outstanding throughout 2004 as compared to 2003 borrowings outstanding primarily in the fourth quarter only.  REGULATORY MATTERS AND INFLATION Inflation, as measured by the Consumer Price Index, increased 3.4 percent, 2.4 percent, and 2.3 percent in 2005, 2004 and 2003, respectively. The regulatory authorities allow the recovery of depreciation through revenues solely on the basis of the historical cost of plant. The replacement cost of utility plant would be significantly higher than the historical cost. While the regulatory authorities give no recognition in the ratemaking process to the current cost of replacing utility plant, the Company believes that, based on past practices, Birmingham Utilities will continue to be allowed to earn a return on the increased cost of their net investment when prudent replacement of facilities actually occurs.  CRITICAL ACCOUNTING POLICIES Preparation of the Company's financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 of the Notes to Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the Company's financial statements. The most significant areas involving management's estimates and assumptions are described below. Actual results could differ materially from management's estimates under different assumptions or conditions.  Public Utility Regulation The Company's accounting policies conform to the Uniform System of Accounts and ratemaking practices prescribed by the Connecticut Department of Public Utility Control (DPUC), and accounting principles generally accepted in the United States of America, which include the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," (SFAS 71). SFAS 71 requires cost based, rate regulated enterprises to reflect the impact of regulatory decisions in their financial statements. The DPUC, through the rate regulation process, can create regulatory assets that result when costs are allowed for ratemaking purposes in a period after the period in which the costs would be charged to expense by an unregulated enterprise. The balance sheets include regulatory assets and liabilities as appropriate, primarily related to income taxes and post retirement benefit costs. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are likely to be recovered and that its use of regulatory accounting is appropriate and in accordance with the provisions of SFAS 71.  Revenue Recognition Birmingham Utilities recognizes revenue as customers are billed for water consumed. Residential, commercial, and industrial customers are metered, and revenues are based on their usage multiplied by rates approved by the DPUC. Fire protection charges are based on the length and diameter of the water main and the number of hydrants in service. The majority of customers are billed quarterly, except for industrial, fire protection, and Eastern Division customers who are billed monthly. In addition, Birmingham Utilities accrues revenue for the estimated amount of water sold but not billed as of the balance sheet date. Estimates are based on actual usage from the comparable period of the previous year. Management believes that this methodology is preferable to using the most recent quarterly billing due to the seasonality of water usage.  H2O Services bills customers and recognizes revenue from its construction projects monthly as the services are provided. These projects are short-term in nature, typically requiring less than one month to complete.  H2O Services bills customers and recognizes revenue from its routine maintenance and water testing services monthly as the services are provided. Repairs are not included in these services    and are performed on an as needed basis for an additional charge based upon the specific nature of the necessary repair.  Land Dispositions The net gain of each disposition, after deducting costs, expenses and taxes is allocated between the shareholders and ratepayers by a method approved by the DPUC based on legislation passed by the Connecticut General Assembly. The portion of income applicable to shareholders is recognized in the year of disposition. Income attributable to ratepayers is deferred and, for land dispositions through 2001, amortized in a manner that reflects reduced water revenue resulting from the sharing formula as determined by the DPUC. Income attributable to ratepayers for land dispositions in 2002 was allocated by the DPUC to an account stipulated as an offset to rate base for a period of 40 years.  Income Taxes Except for accelerated depreciation since 1981 (federal only), the tax effect of contributions in aid of construction for the period January 1, 1987 through June 12, 1996, and in 1998, 2000 and 2001, the tax effect of bargain sales of land, for which deferred income taxes have been provided, the Company's policy is to reflect as income tax expense the amount of tax currently payable. This method, known as the flow-through method of accounting, is consistent with the ratemaking policies of the DPUC, and is based on the expectation that tax expense payments in future years will be allowed for ratemaking purposes.  The Company's deferred tax provision was determined under the liability method. Deferred tax assets and liabilities were recognized based on differences between the book and tax bases of assets and liabilities using presently enacted tax rates. The provision for income taxes is the sum of the amount of income tax paid or payable as determined by applying the provisions of enacted tax laws to the taxable income for that year and the net change during the year in the Company's deferred tax assets and liabilities.  The deferred tax asset related to land sales represents expected future tax savings resulting from sales of land required to be maintained as open space at less than market value. The Company received a charitable contribution deduction for federal tax purposes and a tax credit for state tax purposes. Unused tax benefits may be carried forward to reduce income taxes in future years; the federal charitable deduction five years and the state tax credit ten years. Utilization of these benefits is primarily subject to the extent of future earnings of the Company, including an estimate for anticipated future rate relief and changes to current tax rates. In addition, the federal charitable contribution deduction is subject to an annual limitation of 10% of taxable income and, as a result of legislation passed in 2002, the state tax credit is now subject to an annual limitation of 70% of the amount of tax due. The Company has established a valuation allowance for the portion of possible tax savings not likely to be realized by the end of the carryforward periods.  RECENTLY ISSUED ACCOUNTING STANDARDS In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 154, "Accounting Changes and Error Corrections" (SFAS 154), which supersedes Accounting Principles Bulletin (APB) Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS 154 changes the requirements for the accounting for and reporting of changes in accounting principle. The statement requires the retroactive application to prior periods' financial statements of changes in accounting principles, unless it is impracticable to determine either the period specific effects or the cumulative effect of the change. SFAS 154 does not change the guidance for reporting the correction of an error in previously issued financial statements or the change in an accounting estimate. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154 is not expected to have a material impact on our consolidated financial statements.    In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment" (SFAS 123R), which is a revision of SFAS No. 123 and supersedes APB No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires employee stock options to be valued at fair value on the date of grant, and charged to expense in the Company's consolidated financial statements over the applicable vesting period. We will adopt the new standard using the modified prospective method in the first quarter of 2006. Under this method, compensation cost is recognized beginning with the effective date for all share based payments granted after the effective date and for all awards granted to employees prior to the effective date that remain unvested. SFAS 123R also amends SFAS No. 95, "Statement of Cash Flows", requiring that any excess tax benefits received upon the exercise of options be reflected as financing cash inflows rather than operating cash inflows. Based on current employee stock options outstanding, management estimates that adoption of SFAS 123R will result in compensation expense related to employee stock options of approximately $22,000 in 2006.  OUTLOOK The Company believes that as a result of health, transportation and supply issues in regard to the physical movement of water, deregulation of the water industry is unlikely in the foreseeable future. Although the Company believes deregulation is not a viable option for this industry, consolidation of the water industry continues to be fast paced over the last five years. The consolidation strategy has allowed many small, non-viable water systems to be purchased by larger purveyors and for larger systems to merge in an effort to create economies of scale. Foreign entities have also been very active in the purchase of investor owned American water systems.  The Company believes it is prudently monitoring the economic environment in which it operates to best take advantage of market opportunities. The establishment of a holding company, the formation of H2O Services, and the acquisition of the Connecticut operations from PSC, both regulated and non-regulated, has allowed the Company to enter a market in Connecticut that is expanding. This should allow for the growth of both the regulated and non-regulated businesses, principally in eastern Connecticut that would create long-term value for the Company. In addition, Birmingham Utilities will file a rate application in 2006 that will allow the Company to earn a rate of return on its increased rate base as a result of its prudent and efficient capital improvement program and to recover its operating costs, especially in the newly acquired Eastern Division.  FINANCIAL RESOURCES During 2005, 2004 and 2003, the Company's operations generated funds available for investment in utility plant and for use in financing activities, including payment of dividends on common stock, of $2,029,237, $790,965 and $1,437,014 respectively (see Consolidated Statements of Cash Flows).  Net cash provided by operating activities increased $1,238,272 in 2005 as a result of decreases in operating expenses as well as the absence of other expenses associated with strategic initiatives that were expended in 2004.  During the 3-year period 2005, 2004 and 2003, the Company has generated sufficient funds to meet its day-to-day operational needs, including regular expenses, payment of dividends, and investment in normal plant replacements, such as new services, meters and hydrants. It expects to be able to continue to do so for the foreseeable future.  Birmingham Utilities Long-Term Capital Improvement Program will be funded by the internal generation of funds, including rate relief, as well as the Company's ability to raise capital from external sources. During 2005, 2004 and 2003, the Company's additions to utility plant, net of customer advances, were $3,300,595, $1,773,718 and $1,526,423, respectively (see Consolidated Statements of Cash Flows and Note 17). These additions were financed primarily from internally generated funds and borrowings on the revolving line of credit.    In January 2004, Birmingham Utilities filed an application with the DPUC for approval of the issuance of First Mortgage Bonds in the principal amount of $9,000,000. In March 2004, the DPUC approved BUI's request to issue the new bonds. In April 2004, BUI issued First Mortgage Bonds in the principal amount of $9,000,000. The bonds carry an interest rate of 5.21%. Interest is payable semi-annually on the fifteenth day of April and October. The bonds are due in April 2011 and are secured by a lien on all utility property. The 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.  The Mortgage Indenture limits the issuing of additional First Mortgage Bonds and the payment of dividends. Under the dividend limitation, approximately $7,100,000 was available to pay dividends at December 31, 2005 after the quarterly dividend payment made on that date. It does not, however, restrict the issuance of either long-term or short-term debt, which is either unsecured or secured with liens subject to the lien of the Mortgage Indenture.  Note Payable consists of a $7,000,000 unsecured line of credit expiring 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 interest only 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. Borrowings of $4,755,000 were outstanding on the line of credit at December 31, 2005.  Birmingham Utilities' 2006 Capital Budget of $1,800,000 is two-tiered. The first tier, consisting of typical capital improvements made each year for services, hydrants and meters is budgeted for $600,000 and is expected to be financed primarily with internally generated funds.  The second tier of the 2006 Capital Budget consists of replacements and betterments, which are part of Birmingham Utilities' Long-Term Capital Improvement Program and includes $1,200,000 of budgeted plant additions. Plant additions from this part of the capital budget will be financed with internally generated funds and short-term borrowings. 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.  The Company believes that through the use of short-term borrowing and internally generated funds, it can generate sufficient capital to support its 5-year capital budget currently estimated at approximately $10,300,000. Internally generated funds in part are dependent on the extent of future rate relief. Future rate relief will be a necessary component in the process of funding this 5-year capital program.  The Company maintains a common stock Dividend Reinvestment Plan (the Plan) pursuant to which shareholders are entitled to purchase up to 140,000 new shares of the Company's common stock by applying to the purchase price of the new shares cash dividends which otherwise would be issued by the Company with respect to its existing common stock. The Plan provides that the purchase price for the new shares will be their fair market value at the time of the purchase. Dividends reinvested totaled $84,836 and $79,748 in 2005 and 2004, respectively. The Company purchases shares in the open market to satisfy its dividend reinvestment obligations.  OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS The Company does not utilize off-balance sheet arrangements and has no contractual obligations with any unconsolidated entities. The following table summarizes the Company's future contractual cash obligations as of December 31, 2005:                                                    Less than                              More than                                     Total         1 year    1-3 years     4-5 years     5 years                                  -----------    ---------   ----------   ----------   -----------       Debt obligations   Series F Mortgage Bonds        $ 9,000,000                                          $ 9,000,000   Interest on Series F     Mortgage Bonds                 2,578,950      468,900      937,800      937,800       234,450   Note Payable (1)                 4,755,000    4,755,000 Purchase Obligations   Regional Water Authority         9,060,000      906,000    1,812,000    1,812,000     4,530,000 Other Obligations   Capital Budget (2)               4,203,000      600,000    1,320,000    1,260,000     1,023,000   Operating Lease                    197,750       56,500      113,000       28,250   Defined Benefit Pension            125,000      125,000 Total                            $29,919,700   $6,911,400   $4,182,800   $4,038,050   $14,787,450   (1) Short-term borrowings at a variable interest rate (2) Includes only Tier 1 additions   SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table provides information regarding our equity compensation plans as of December 31, 2005:                                                                    Number of securities                                                                   remaining available                        Number of securities                           for future                         to be issued upon      Weighted-average        issuance                            exercise of        exercise price of      under equity Plan Category          outstanding options   outstanding options   compensation plans     Equity compensation plans approved by security holders              62,500                 $14.73               73,000 Total                         62,500                 $14.73               73,000   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has certain exposures to market risk related to changes in interest rates. The Company has an outstanding revolving credit agreement, under which there were borrowings of $4,755,000 at December 31, 2005. The revolving credit agreement bears interest at variable rates based on current LIBOR indices. The Company is not subject in any material respect to currency or other commodity risk.  FORWARD LOOKING INFORMATION Forward looking statements in this report, including, without limitation, statements relating to the Company's plans, strategies, objectives, intentions, and expectations, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on current information and involve known and unknown risks and uncertainties, which could cause the Company's actual results to differ materially from expected results.  These factors include, among others, the adequacy of rates approved by the DPUC, weather conditions, changes in governmental regulations affecting water quality, success of operating initiatives, changes in business strategy, as well as general economic and business conditions.    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  Board of Directors and Shareholders BIW Limited Ansonia, Connecticut  We have audited the accompanying consolidated balance sheets of BIW Limited and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BIW Limited and subsidiaries as of December 31, 2005 and 2004 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.  March 13, 2006 Shelton, Connecticut    CONSOLIDATED BALANCE SHEETS                                                            December 31,                                                        2005            2004                                                    ------------    ------------ ASSETS Utility plant                                      $ 38,736,311    $ 35,261,167 Accumulated depreciation                             (9,978,362)     (9,213,681)                                                    ------------    ------------                                                      28,757,949      26,047,486                                                    ------------    ------------ Other property, net                                     529,837         419,700                                                    ------------    ------------ Current assets:   Accounts receivable, net of allowance   for doubtful accounts (2005, $232,000;   2004, $149,000)                                     1,193,815       1,338,362  Accrued utility and other revenue                      552,125         560,563  Materials and supplies                                 386,946         312,638  Prepayments and other current assets                    44,821         195,329                                                    ------------    ------------ Total current assets                                  2,177,707       2,406,892                                                    ------------    ------------ Deferred charges                                        137,007         137,007 Unamortized debt expense                                333,444         391,932 Regulatory asset - income taxes recoverable             473,851         437,501 Other assets                                            332,225         387,725                                                    ------------    ------------                                                       1,276,527       1,354,165                                                    ------------    ------------                                                    $ 32,742,020    $ 30,228,243                                                    ------------    ------------ SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity:   Common stock, no par value; authorized   5,000,000 shares:      issued and outstanding (2005, 1,662,079      shares; 2004, 1,657,542 shares)               $  2,987,704    $  2,975,972    Retained earnings                                  8,740,825       9,211,403                                                    ------------    ------------                                                      11,728,529      12,187,375                                                    ------------    ------------  Long-term debt                                       9,000,000       9,000,000                                                    ------------    ------------  Current liabilities:    Note payable                                       4,755,000       2,255,000    Accounts payable and accrued liabilities             669,212         799,382                                                    ------------    ------------    Total current liabilities                          5,424,212       3,054,382                                                    ------------    ------------ Customers' advances for construction                    438,631         491,950 Contributions in aid of construction                  3,101,165       2,803,914 Regulatory liability - income taxes refundable          119,340         126,913 Deferred income taxes                                 2,929,554       2,554,657 Deferred income on dispositions of land                     589           9,052 Commitments and contingent liabilities (Note 15)                                                    ------------    ------------                                                       6,589,279       5,986,486                                                    ------------    ------------                                                    $ 32,742,020    $ 30,228,243                                                    ------------    ------------  See notes to consolidated financial statements.    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS                                                         December 31,                                              2005          2004         2003                                           ----------    ----------   ---------- Operating revenues:   Residential and commercial              $5,380,969    $5,330,329   $4,154,641   Industrial                                 117,786       201,687      134,290   Fire protection                            954,694       952,472      799,079   Public authorities                         117,619       108,662       91,674   Other                                      275,106       275,075      245,828   Service operations                       2,209,299     2,997,351      982,971                                           ----------    ----------   ----------                                            9,055,473     9,865,576    6,408,483                                           ----------    ----------   ---------- Operating expenses:   Operating expenses                       5,530,301     6,571,322    3,799,935   Maintenance expenses                       393,761       463,295      312,134   Depreciation                               887,916       749,114      630,462   Taxes other than income taxes              743,805       618,752      438,126   Taxes on income                            312,044       246,527      252,502                                           ----------    ----------   ----------                                            7,867,827     8,649,010    5,433,159                                           ----------    ----------   ----------                                            1,187,646     1,216,566      975,324                                           ----------    ----------   ----------  Amortization of deferred income on dispositions of land (net of income taxes of $3,500 in 2005, $8,017 in 2004, and $75,769 in 2003)                     6,425        11,342      179,172                                           ----------    ----------   ---------- Operating income                           1,194,071     1,227,908    1,154,496                                           ----------    ----------   ---------- Allowance for funds used during construction                                  84,668       120,279       80,807 Other income                                  61,923       205,267       17,749 Other expense                                   --         468,035         --                                           ----------    ----------   ---------- Income before interest expense             1,340,662     1,085,419    1,253,052 Interest expense                             681,876       574,184      432,678                                           ----------    ----------   ---------- Net income                                   658,786       511,235      820,374 Retained earnings, beginning of year       9,211,403     9,822,197    9,984,068 Dividends                                  1,129,364     1,122,029      982,245                                           ----------    ----------   ---------- Retained earnings, end of year            $8,740,825    $9,211,403   $9,822,197  Earnings per share, basic                 $      .40    $      .31   $      .50                                           ----------    ----------   ---------- Earnings per share, diluted               $      .39    $      .30   $      .49                                           ----------    ----------   ---------- Dividends per share                       $      .68    $      .68   $      .60                                           ----------    ----------   ----------  See notes to consolidated financial statements.    CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                    Year Ended December 31,                                                              2005            2004            2003                                                         -----------     -----------     -----------     Cash flows from operating activities:   Net income                                            $   658,786     $   511,235     $   820,374   Adjustments to reconcile net income to net cash      provided by operating activities:         Depreciation and amortization                     1,033,593         889,942         700,011         Amortization of deferred income                      (6,425)        (11,342)       (179,172)         Deferred income taxes                               328,936         143,582         435,525         Allowance for funds used during construction        (84,668)       (120,279)        (80,807)   Change in assets and liabilities:       (Increase) decrease in accounts receivable and           accrued revenues                                  152,985        (420,380)       (172,078)      (Increase) in materials and supplies                   (74,308)        (32,319)        (45,292)       (Increase) decrease in prepayments and           other current assets                              150,508         107,153        (286,376)        Increase (decrease) in accounts payable            and accrued liabilities                         (130,170)       (276,627)        244,829                                                         -----------     -----------     ----------- Net cash provided by operating activities                 2,029,237         790,965       1,437,014                                                         -----------     -----------     ----------- Cash flows from investing activities:    Capital expenditures - utility plant                  (3,544,527)     (2,111,381)     (1,689,324)    Capital expenditures - other property                   (125,932)        (31,022)         (7,178)    Sales of utility plant                                    46,611          69,869          54,000    Cash paid for acquisition                                   --          (335,217)     (4,315,856)    Sale of investments                                         --              --           737,141    Increase in deferred charges and other assets            (34,332)       (334,231)       (521,895)    Customer advances                                        243,932         337,663         162,901                                                         -----------     -----------     ----------- Net cash used in investing activities                    (3,414,248)     (2,404,319)     (5,580,211)                                                         -----------     -----------     ----------- Cash flows from financing activities:    Proceeds from long-term debt                                --         9,000,000            --    Repayment of long-term debt                                 --        (4,042,000)        (94,000)    Borrowings under line of credit                        2,500,000            --         4,705,000    Repayments on line of credit                                --        (2,450,000)           --    Exercise of stock options                                 14,375          78,765            --    Dividends paid                                        (1,129,364)     (1,122,029)       (982,245)                                                         -----------     -----------     ----------- Net cash provided by financing activities                 1,385,011       1,464,736       3,628,755                                                         -----------     -----------     ----------- Net decrease in cash and cash equivalents                      --          (148,618)       (514,442) Cash and cash equivalents, beginning of year                   --           148,618         663,060                                                         -----------     -----------     ----------- Cash and cash equivalents, end of year                  $      --       $      --       $   148,618                                                         -----------     -----------     -----------   See notes to consolidated financial statements.    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES  Description of Business 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. (H2O Services), which provides water related services to other water utilities, municipalities, contractors and individuals throughout Connecticut.  Principles of Consolidation The consolidated financial statements include the accounts of BIW Limited and its wholly-owned subsidiaries Birmingham Utilities and H2O Services. All significant intercompany balances and transactions have been eliminated in consolidation.  Public Utility Regulation Birmingham Utilities' accounting policies conform to the Uniform System of Accounts and ratemaking practices prescribed by the Connecticut Department of Public Utility Control (DPUC), and accounting principles generally accepted in the United States of America, which include the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). SFAS 71 requires cost based, rate regulated enterprises to reflect the impact of regulatory decisions in their financial statements. The DPUC, through the rate regulation process, can create regulatory assets that result when costs are allowed for ratemaking purposes in a period after the period in which the costs would be charged to expense by an unregulated enterprise. The balance sheets include regulatory assets and liabilities as appropriate, primarily related to income taxes and post retirement benefit costs. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are likely to be recovered and that its use of regulatory accounting is appropriate and in accordance with the provisions of SFAS 71.  Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could vary from those estimates.  Utility Plant Utility plant of Birmingham Utilities is stated at the original cost of the property when placed in service. The costs of additions to utility plant and the costs of renewals and betterments are capitalized. The cost of repairs and maintenance is charged to income. Upon retirement of depreciable utility plant in service, accumulated depreciation is charged with the book cost of the property retired and the cost of removal, and is credited with the salvage value and any other amounts recovered.  Depreciation For financial statement purposes, Birmingham Utilities provides for depreciation using the straight-line method, at rates approved by the DPUC. The rates used are intended to distribute the cost of depreciable properties over their estimated service lives. For income tax purposes, BUI provides for depreciation utilizing straight-line and accelerated methods. The overall depreciation rates were 2.3% for 2005, 2.1% for 2004, and 2.3% for 2003.    Other Property Other property is stated at cost and consists of property and equipment of H2O Services, the Company's non-regulated subsidiary. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets.  Cash and Cash Equivalents Cash and cash equivalents consist of cash in banks and overnight investment accounts in banks. From time to time, the Company has on deposit at financial institutions cash balances that exceed federal deposit insurance limitations. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.  Allowance for Funds Used During Construction An allowance for funds used during construction (AFUDC) is made by applying the last allowed rate of return on rate base granted to Birmingham Utilities by the DPUC to construction projects exceeding $10,000 and requiring more than one month to complete. AFUDC represents the net cost, for the period of construction, of borrowed funds used for construction purposes and a reasonable rate on other funds used. AFUDC represents a non-cash credit to income. Utility plant under construction is not recognized as part of BUI's rate base for ratemaking purposes until facilities are placed into service. Accordingly, BUI capitalizes AFUDC as a portion of the construction cost of utility plant until it is completed. Capitalized AFUDC is recovered through water service rates over the service lives of the facilities.  Revenue Recognition Birmingham Utilities recognizes revenue as customers are billed for water consumed. Residential, commercial, and industrial customers are metered, and revenues are based on their usage multiplied by rates approved by the DPUC. Fire protection charges are based on the length and diameter of the water main and the number of hydrants in service. The majority of customers are billed quarterly, except for industrial, fire protection, and Eastern Division customers, who are billed monthly. In addition, Birmingham Utilities accrues revenue for the estimated amount of water sold but not billed as of the balance sheet date.  H2O Services bills customers and recognizes revenue from its construction projects monthly as the services are provided. These projects are short-term in nature, typically requiring less than one month to complete.  H2O Services bills customers and recognizes revenue from its routine maintenance and water testing services monthly as the services are provided. Repairs are not included in these services and are performed on an as needed basis for an additional charge based upon the specific nature of the necessary repair.  Advances for Construction/Contributions in Aid of Construction Birmingham Utilities receives cash advances from developers and customers to finance construction of new water main extensions. These advances are refunded over a 10-year contract period as services are connected to the main. Any unrefunded balances are reclassified to "Contributions in aid of Construction" and are no longer refundable. Utility plant funded by advances and contributions is excluded from rate base for regulatory purposes.  Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, trade accounts receivable, and trade accounts payable approximates their fair values due to their short-term nature. The carrying amount of the note payable approximates fair value based on market conditions for debt of similar terms and maturity. The fair value of long-term debt is estimated by discounting the future cash flows using current borrowing rates for similar types and maturity of debt. The estimated fair value of Birmingham Utilities' long-term debt at December 31, 2005 was approximately $8,212,000.    Income Taxes Except for accelerated depreciation since 1981 (federal only), the tax effect of contributions in aid of construction for the period January 1, 1987 through June 12, 1996, and in 1998, 2000, and 2001, the tax effect of bargain sale of land, for which deferred income taxes have been provided, the Company's policy is to reflect as income tax expense the amount of tax currently payable. This method, known as the flow-through method of accounting, is consistent with the ratemaking policies of the DPUC, and is based on the expectation that tax expense payments in future years will be allowed for ratemaking purposes.  The Company's deferred tax provision was determined under the liability method. Deferred tax assets and liabilities are recognized based on differences between the book and tax bases of assets and liabilities using presently enacted tax rates. The provision for income taxes is the sum of the amount of income tax paid or payable as determined by applying the provisions of enacted tax laws to the taxable income for that year and the net change during the year in the Company's deferred tax assets and liabilities.  In addition, the Company is required to record an additional deferred tax liability for temporary differences not previously recognized. This additional deferred tax liability totaled $354,500 at December 31, 2005 and $310,600 at December 31, 2004. Management believes that these deferred taxes will be recovered through the ratemaking process. Accordingly, the Company has recorded an offsetting regulatory asset and regulatory liability.  Stock Based Compensation 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 statement. The Company will adopt SFAS 123R in the first quarter of 2006. Based on current employee stock options outstanding, management estimates that adoption of SFAS 123R will result in compensation expense related to employee stock options of approximately $22,000 in 2006.  The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123:                                                   2005        2004        2003                                                --------    --------    -------- Net income:                    As reported     $658,786    $511,235    $820,374                 Pro forma                      $621,561    $472,403    $774,834  Earnings per share, basic:     As reported       $ .40       $ .31       $ .50                 Pro forma                        $ .37       $ .29       $ .47  Earnings per share, diluted:   As reported       $ .39       $ .30       $ .49                 Pro forma                        $ .37       $ .28       $ .46  Compensated Absences Company policy and practice does not provide for any accumulated but unused vacation, sick time or any other compensated absences to be carried over beyond the year-end.  Land Dispositions Birmingham Utilities has essentially disposed of its surplus land not required for utility operations. The net gain of each disposition, after deducting costs, expenses and taxes is allocated between the shareholders and ratepayers by a method approved by the DPUC based on legislation passed by the Connecticut General Assembly. The portion of income applicable to shareholders is recognized in the year of disposition. Income attributable to ratepayers is deferred and, for land    dispositions through 2001, amortized in a manner that reflects reduced water revenue resulting from the sharing formula as determined by the DPUC. Income attributable to ratepayers for land    dispositions in 2002 was allocated by the DPUC to an account stipulated as an offset to rate base for a period of 40 years.  Unamortized Debt Expense Costs related to the issuance of debt are capitalized and amortized over the term of the related indebtedness. Birmingham Utilities has received permission from the DPUC to amortize the costs associated with debt previously outstanding over the term of the new indebtedness.  NOTE 2 ACQUISITION On October 31, 2003, Birmingham Utilities purchased from AquaAmerica, formerly the Philadelphia Suburban Corporation (PSC), for $4,651,000 all of the issued and outstanding shares of common stock of Eastern Connecticut Regional Water Company, Inc., and H2O Services purchased certain non-regulated assets consisting largely of operating maintenance agreements with various unregulated water supply systems located in eastern Connecticut and Rhodes Pump Service, Inc. located in Guilford, Connecticut. The purchase price was initially funded through borrowings on BUI's existing line of credit and then refinanced through the issuance of long-term debt in April 2004.  The acquisition has been accounted for in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations." Accordingly, the cost of the acquisition was allocated to the assets acquired and liabilities assumed based on estimates of their respective fair values at the date of acquisition.  The following table summarizes the final purchase price allocation:  Utility plant                                                     $2,731,200 Construction in process                                            1,594,400 Other property                                                       385,000 Accounts receivable                                                  414,200 Materials and supplies                                               119,500             Total assets acquired                                  5,244,300 Accounts payable and accrued liabilities                            (240,200) Contributions in aid of construction                                (353,100)             Total liabilities assumed                               (593,300) Fair value of net assets acquired                                 $4,651,000  The Company's consolidated income statement includes the operations of the acquired entities from October 31, 2003, the date of acquisition.  NOTE 3 UTILITY PLANT                                                            December 31,                                                        2005            2004                                                    -----------     ----------- Pumping, treatment and distribution                $30,471,044     $27,841,087 Source of supply                                     4,235,169       3,805,160 General plant                                        3,610,710       3,293,588 Organization                                            41,510          30,219                                                     38,358,433      34,970,054 Construction in process                                377,878         291,113                                                    $38,736,311     $35,261,167    NOTE 4 OTHER ASSETS                                                December 31,        Regulatory                                             2005         2004    Recovery Period                                           --------     --------  --------------- Regulatory assets:      Deferred post retirement benefits    $128,189     $144,725      10 Years      Various deferred costs and charges    153,818      154,921     3-15 Years Non-regulatory assets:      Various deferred costs and charges     50,218       88,079                                           $332,225     $387,725  NOTE 5 NOTE PAYABLE Note Payable consists of a $7,000,000 unsecured line of credit expiring 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 interest only 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. Borrowings of $4,755,000 were outstanding on the line of credit at December 31, 2005.  NOTE 6 LONG-TERM DEBT                                                December 31,                                             2005         2004                                          ----------   ---------- First mortgage bonds, Series F. 5.21%,   $9,000,000   $9,000,000      due April 15, 2011  In January 2004, Birmingham Utilities filed an application with the DPUC for approval of the issuance of First Mortgage Bonds in the principal amount of $9,000,000. In March 2004, the DPUC approved BUI's request to issue the new bonds. In April 2004, BUI issued First Mortgage Bonds in the principal amount of $9,000,000. The bonds carry an interest rate of 5.21%. Interest is payable semi-annually on the fifteenth day of April and October. The bonds are secured by a lien on all utility property. The 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.  The Mortgage Indenture limits the issuing of additional First Mortgage Bonds and the payment of dividends. Under the dividend limitation, approximately $7,100,000 was available to pay dividends at December 31, 2005 after the quarterly dividend payment made on that date. It does not, however, restrict the issuance of either long-term or short-term debt, which is either unsecured or secured with liens subject to the lien of the Mortgage Indenture.  NOTE 7 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES                                                 December 31,                                             2005         2004                                          ---------    --------- Accounts payable                         $ 367,541    $ 487,054 Accrued liabilities:             Interest                        79,453       79,453             Taxes                           83,729        9,468             Pension                        133,215      165,468             Other                            5,274       57,939                                          $ 669,212    $ 799,382 NOTE 8 TAXES OTHER THAN INCOME TAXES                                                       December 31,                                             2005         2004         2003                                          ---------    ---------    ---------    Municipal                             $ 524,700    $ 441,373    $ 302,972    Payroll                                 219,105      177,379      135,154                                          $ 743,805    $ 618,752    $ 438,126   NOTE 9 INCOME TAXES The provisions for taxes on income for the years ended December 31, 2005, 2004 and 2003 consist of:                                              2005         2004         2003                                          ---------    ---------    --------- Current:   Federal                                $    --      $    --      $(220,000)   State                                     11,700       69,246       52,677  Deferred:   Federal:       Accelerated depreciation              85,184      723,981      434,525       Operating loss carryforward          229,860     (532,000)        --       Income on land disposition             3,327        7,620       72,019       Investment tax credit                (14,700)     (14,700)     (14,700)    State                                        173          397        3,750                                           $ 315,544    $ 254,544    $ 328,271    State deferred income taxes relate solely to timing differences in the recognition of income related to land dispositions.  A reconciliation of the income tax expense at the federal statutory tax rate of 34 percent to the effective rate follows:                                                           2005         2004         2003                                                       ---------    ---------    ---------        Federal income tax at statutory rates              $ 331,272    $ 260,365    $ 390,542    Increase (decrease) resulting from:       State income tax, net of federal benefit            7,836       45,964       37,242       Rate case expense                                   6,225       14,565      (28,610)       Pension expense                                     3,088        5,031      (34,159)       Other, net                                        (18,177)     (56,681)     (22,044)       Investment tax credit                             (14,700)     (14,700)     (14,700)    Total provision for income taxes                     315,544      254,544      328,271    Taxes related to land dispositions                    (3,500)      (8,017)     (75,769)    Operating provision for taxes                      $ 312,044    $ 246,527    $ 252,502   Deferred tax liabilities (assets) were comprised of the following:                                                           2005         2004                                                      ----------   ----------    Depreciation                                      $3,489,598   $3,352,772    Investment tax credits                               231,661      246,361    Other                                                220,758      220,492    Gross deferred tax liabilities                     3,942,017    3,819,625    Land sales                                        (2,221,707)  (2,252,506)    Operating loss carryforward                         (335,840)    (565,700)    Other                                               (174,655)    (193,801)    Gross deferred tax assets                         (2,732,202)  (3,012,007)    Valuation allowance                                1,719,739    1,747,039    Net deferred tax assets                           (1,012,463)  (1,264,968)    Total deferred income taxes                       $2,929,554   $2,554,657  At December 31, 2005, the Company had approximately $987,000 of net operating loss carryforwards to offset federal taxable income through 2024.    The deferred tax asset related to land sales represents expected future tax savings resulting from sales of land required to be maintained as open space at less than market value. The Company received a charitable contribution deduction for federal tax purposes and a tax credit for state tax purposes. Unused tax benefits may be carried forward to reduce income taxes in future years; the federal charitable deduction five years and the state tax credit ten years. Utilization of these benefits is primarily subject to the extent of future earnings of the Company, including an estimate for anticipated future rate relief and changes to current tax rates. In addition, the federal charitable contribution deduction is subject to an annual limitation of 10% of taxable income and, as a result of legislation passed in 2002, the state tax credit is now subject to an annual limitation of 70% of the amount of tax due. The Company has established a valuation allowance for the portion of possible tax savings not likely to be realized by the end of the carryforward periods.  NOTE 10 RELATED PARTY TRANSACTIONS The Company has paid legal and consulting fees to firms whose partners are directors and shareholders of the Company. During the years ended December 31, 2005, 2004 and 2003, fees paid amounted to $4,505, $4,663, and $8,445, respectively.  NOTE 11 ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company continuously monitors the creditworthiness of its customers and has established an allowance for amounts that may be uncollectible in the future based on current economic conditions, historical payment and bad debt write-off experience, and any specific customer related collection issues.  Allowance for doubtful accounts includes the following components:                                                            December 31,                                                     2005       2004       2003                                                  --------   --------   --------    Allowance for doubtful accounts, beginning    $149,000   $ 87,000   $ 40,000    Provision                                       93,431     93,353     71,420    Recoveries                                       2,434      1,334      2,268    Charge-offs                                   (12,865)   (32,687)    (26,688)    Allowance for doubtful accounts, ending       $232,000   $149,000   $ 87,000  NOTE 12 EMPLOYEE BENEFITS The Company has a 401(k) Plan. Employees are allowed to contribute a percentage of salary, based on certain parameters. The Company matches 100% of employee contributions up to 6% of total compensation. Company matching contributions to the 401(k) Plan were $121,024, $114,140 and $66,213, in 2005, 2004 and 2003, respectively.  The employment contract of the Company's former President required accounting for benefits payable in accordance with SFAS 106. The accumulated present value of future benefits was recognized during his term of service to the Company, which ended on October 1, 1998. The liability recorded at December 31, 2005 and 2004 was $95,824 and $106,165, respectively. At December 31, 2005, an amount of $128,189 has been included in other assets relating to a regulatory asset for costs that were approved in the Company's rate case. This amount will be paid out to the former president's surviving spouse.  The Company has a noncontributory defined benefit plan that covers employees of Birmingham Utilities, excluding Eastern Division and H2O Services employees. The benefits are primarily based on years of service and the employee's compensation. Pension expense includes the amortization of a net transition obligation over a 23-year period. The Company's funding policy is to make annual contributions in an amount that approximates what was allowed for ratemaking purposes consistent with ERISA funding requirements. Contributions are intended to provide not    only for benefits attributed to service to date, but also for those expected to be earned in the future. The expected pension contribution for 2006, based upon 2005 market performance and current conditions, is estimated by management to be $125,000.  In addition, the Company provides certain health care and life insurance benefits for retired employees of Birmingham Utilities and their spouses, excluding Eastern Division and H2O Services employees. Generally, the plan provides for Medicare wrap-around coverage plus life insurance based on a percentage of each participant's final salary. Substantially all of BUI's employees may become eligible for these benefits if they reach retirement age while working for the Company. The Company's obligation for postretirement benefits must be fully accrued by the date that the employee attains full eligibility for benefits. The Company has elected to recognize the unfunded accumulated postretirement benefit obligation over 20 years. The Company's funding policy is to contribute amounts annually to a benefit trust and pay directly all current retiree premiums. The Company has established tax effective funding vehicles for such retirement benefits in the form of a qualified Voluntary Employee Beneficiary Association (VEBA) trust. The Company funded the VEBA trust with tax deductible contributions of $25,000 in 2005, 2004, and 2003.  The Company uses a January 1 measurement date for its defined benefit and postretirement medical benefit plans.  Benefit Obligations and Funded Status The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans.                                                                                   Other                                                 Pension Benefits        Postretirement Benefits                                                2005          2004          2005          2004                                            -----------   -----------   -----------   -----------      Change in Benefit Obligation:    Benefit obligation, beginning of year   $ 1,349,283   $ 1,291,199   $   594,376   $   561,422    Service cost                                 67,194        58,032        28,625        27,414    Interest cost                               107,628        97,145        41,255        37,833    Actuarial loss (gain)                        11,732       (58,071)        8,097        (9,604)    Benefits paid                               (31,333)      (39,022)      (26,228)      (22,689)    Benefit obligation, end of year         $ 1,504,504   $ 1,349,283   $   646,125   $   594,376  Change in Plan Assets:   Fair value, beginning of year                937,321       806,085       522,938       460,731   Actual return on plan assets                  76,163        70,258        40,872        37,207   Employer contribution                        136,500       100,000        25,000        25,000   Benefits paid                                (31,333)      (39,022)         --            --   Fair value, end of year                    1,118,651       937,321       588,810       522,938 Funded Status                                 (385,853)     (411,962)      (57,315)      (71,438) Unrecognized net actuarial gain (loss)         211,811       204,331       (69,251)      (79,871) Unrecognized transition obligation              35,229        41,101       177,646       203,024 Unrecognized prior service cost                 70,396        75,566          --            -- Prepaid (accrued) benefit cost             $   (68,417)  $   (90,964)  $    51,080   $    51,715    At December 31, 2005 the defined benefit pension plan had plan assets in excess of the accumulated benefit obligation as summarized in the following table:       Projected benefit obligation             $1,504,504      Accumulated benefit obligation           $1,063,994      Fair value of plan assets                $1,118,651    Net Periodic Benefit Cost Net periodic pension and other postretirement benefit costs recognized in the Consolidated Statements of Income include the following components:                                                   Pension Benefits             Other Postretirement Benefits                                            2005        2004        2003        2005        2004        2003                                        ---------   ---------   ---------   ---------   ---------   ---------        Service cost                           $  67,194   $  58,032   $  59,517   $  28,625   $  27,414   $  27,818 Interest cost                            107,628      97,145      92,630      41,255      37,833      35,947 Expected return on plan assets           (76,918)    (68,133)    (63,291)    (42,015)    (37,025)    (29,096) Amortization of unrecognized    transition obligation                   5,872       5,872       5,872      25,378      25,378      25,378 Amortization of unrecognized    prior service cost                      5,170       5,170       5,170        --          --          -- Recognized net actuarial loss (gain)       5,007       5,122       5,243      (1,141)     (2,754)       --    Net periodic benefit cost           $ 113,953   $ 103,208   $ 105,141   $  52,102   $  50,846   $  60,047    Assumptions Weighted average assumptions used are as follows:                                                                   Other                                     Pension Benefits    Postretirement Benefits                                    2005   2004   2003      2005   2004   2003                                    ----   ----   ----      ----   ----   ---- Discount rate                       8%     8%     8%        7%     7%     7% Expected return on plan assets      8%     8%     8%        8%     8%     8% Rate of compensation increase       4%     4%     5%        --     --     --  To determine the expected return on plan assets, the Company first examined actual historical rates of return for the various asset classes. The Company then determined a long-term projected return on plan assets based on expected returns over the next five to 10 years.  The Company's defined benefit plan provides a retirement benefit based on 1.3% of average monthly compensation multiplied by the number of years of service.  For measurement purposes, a 6% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2005 and was assumed to remain at that level thereafter.  Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:                                                  1-Percentage    1-Percentage                                                Point Increase  Point Decrease                                                --------------  -------------- Effect on total of service and interest cost      $12,013        $(10,516) Effect on postretirement benefit obligation       $84,298        $(78,002)  Plan Assets The following table sets forth the weighted average asset allocations for the Company's pension plan assets:                           Defined Benefit Plan    Welfare Benefit VEBA Trust                            2005        2004         2005            2004                            ----        ----         ----            ---- Equity Securities           69%         66%          67%             67% Debt Securities             29%         30%          32%             32% Cash                         2%          4%           1%              1%                            100%        100%         100%            100%  The investments in the defined benefit plan and the retirement welfare benefit trust have a target allocation of 65% equities and 35% fixed income and cash. The equities portion is in established mutual funds that invest in large capitalization companies. The fixed income portion is split    between U.S. Government bonds and investment grade corporate bonds. Any remaining cash is invested in FDIC insured money market accounts.  Estimated Future Benefits Payments The following benefit payments are expected to be paid:                                       Pension Benefits                                      ----------------      2006                                $ 31,095      2007                                  30,140      2008                                  29,128      2009                                  28,058      2010                                  26,934      2011-2015                           $326,205   NOTE 13 OTHER EXPENSE Other expense represents non-recurring expenses incurred primarily in the fourth quarter of 2004. Expenses totaling $405,613 were related to the exploration of strategic initiatives that were not consummated. The remaining balance of $62,422 is expense associated with the proposed acquisition of the NY operations from PSC that was terminated in January 2005 (See Note 21).   NOTE 14 EARNINGS PER SHARE SUPPLEMENTAL INFORMATION The following table summarizes the number of common shares used in the calculation of earnings per share:                                                  2005        2004        2003                                             ---------   ---------   --------- Weighted average shares outstanding   for earnings per share, basic             1,660,407   1,647,303   1,637,076  Incremental shares from assumed   conversion of stock options                  16,220      26,894      31,822  Weighted average shares outstanding   for earnings per share, diluted           1,676,627   1,674,197   1,668,898   NOTE 15 COMMITMENTS AND CONTINGENT LIABILITIES Management Agreement Birmingham Utilities maintains an agreement with the City of Derby (the City), pursuant to which BUI manages the water system owned by the City. BUI is responsible for costs of maintenance and improvements. Amounts collected from customers, net of expenses, are retained by BUI.  Capital Budget Management has budgeted $1,800,000 for capital expenditures in 2006, $600,000 of which is expected to be necessary to meet its service obligations for the coming year.  Purchase Commitment Birmingham Utilities has an agreement with South Central Connecticut Regional Water Authority (Authority) to purchase water. This agreement provides for a minimum purchase of 600 million gallons of water annually. Charges to expense were $740,747, $699,138 and $699,952, for the years 2005, 2004 and 2003, respectively. The purchase price is based on the Authority's wholesale rate. At December 31, 2005, this rate was $1,510 per million gallons. This agreement expires December 31, 2015 but provides for two ten-year extensions at BUI's option.  Operating Lease H2O Services leases its operating facility in Glastonbury under a non-cancelable operating lease expiring in June 2009. The lease requires monthly rental payments of $4,700. In addition, the    lease provides for annual increases based on the Consumer Price Index and H2O Services is obligated to pay its pro rata share of operating costs, as defined.  NOTE 16 EQUITY Common Stock                                                       Number                                                     of Shares       Amount                                                     ---------     ---------- Balance, January 1, 2004                            1,637,076     $2,900,913 Stock issued through Key Employee and    Non-Employee Director Stock Option Plans            20,466         78,765 Amortization of stock plan costs                          --          (3,706) Balance, December 31, 2004                          1,657,542     $2,975,972 Stock issued through Key Employee and    Non-Employee Director Stock Option Plans             4,537         14,375 Amortization of stock plan costs                          --          (2,643) Balance, December 31, 2005                          1,662,079     $2,987,704   Stock Option Plans The Company has four stock option plans which include two non-employee director stock option plans (director plans) and two key employee incentive stock option plans (employee plans). The first director and employee plans were adopted in 1994 and subsequently approved by the Company's shareholders and the DPUC in 1995; 80,000 and 70,000 shares, respectively, were authorized under these two plans. The second employee plan was adopted in 1998 and approved by the Company's shareholders and the DPUC in 1999; 60,000 shares were authorized under this plan. The second director plan was adopted in 2000 and approved by the Company's shareholders and DPUC in 2001; 60,000 shares were authorized under this plan.  The following table summarizes the transactions with respect to the Company's stock option plans for the three years ended December 31, 2005:                                             Granted              Exercisable                                                 Weighted                Weighted                                                 Average                 Average                                       Number    Exercise     Number     Exercise                                     of Shares    Price      of Shares   Price                                     ---------   --------    ---------   -------- Outstanding at January 1, 2003        78,918     $10.91      62,668       $9.45             Granted                    7,500      18.08  Outstanding at December 31, 2003      86,418     $11.53      72,668      $10.37             Granted                    5,000      19.23             Exercised                (24,178)      6.50  Outstanding at December 31, 2004      67,240     $13.92      58,490      $13.19             Granted                    2,500      19.90             Exercised                 (7,240)      8.94  Outstanding at December 31, 2005      62,500     $14.73      57,500      $14.74   The fair value of each option grant is established on the date of grant using the Black-Scholes option pricing model, consistent with the method stipulated by    SFAS 123. The fair value per option was estimated using the following assumptions:                                           2005        2004        2003                                        --------    --------    -------- Expected option term                   10 years    10 years    10 years Risk-free interest rate                   4.3%        4.6%        4.4% Expected dividend yield                   3.5%        3.5%        3.3% Expected volatility factor               33.0%       34.1%       35.5% Fair value per option                    $5.89       $5.98       $5.98  Dividend Reinvestment Plan The Company has a dividend reinvestment plan, which provides for the issuance and sale of up to 140,000 shares of the Company's authorized but un-issued common stock to its shareholders who elect to reinvest cash dividends on the Company's existing shares. Shares under the plan will be purchased at their fair market value price on the date of the dividends to be invested in the new shares. The Company purchases shares in the open market to satisfy its dividend reinvestment obligations.  NOTE 17 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH FINANCING ACTIVITIES Cash paid for interest for the years ended 2005, 2004, and 2003 was $629,299, $569,786 and $415,453, respectively.  Cash paid for income taxes for the years ended 2005, 2004 and 2003 was $22,020, $30,013 and $40,926, respectively.  Birmingham Utilities receives contributions of utility plant from developers. These contributions are reported in utility plant and in customers' advances for construction. The contributions are deducted from construction expenditures to determine cash expenditures by BUI.                                                        December 31,                                              2005         2004         2003                                           ----------   ----------   ---------- Gross plant additions                     $3,544,527   $2,111,381   $1,689,324 Customers' advances for construction        (243,932)    (337,663)    (162,901)                                           $3,300,595   $1,773,718   $1,526,423 NOTE 18 SEGMENT INFORMATION The Company has identified regulated water operations (Birmingham Utilities) and unregulated service operations (H2O Services) as its two reportable segments for the purposes of applying Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". Birmingham Utilities collects and distributes water to domestic, commercial and industrial customers. H2O Services offers a consumer protection program for residential service lines and provides water related services to other water utilities, municipalities, contractors, and individuals including water system design and construction, water main installation and repairs, hydrant installation and repairs, leak surveys, service line piercing, pulling and moling, backflow device testing, residential and commercial well pump installations and repairs and filtration installations and repairs. The accounting policies of each reportable segment are the same as those described in Note 1.  Financial data for reportable segments follows:                          Operating     Operating                    Taxes on     Interest       Net           Total        Deferred                         Revenues     Expenses    Depreciation      Income       Expense       Income        Assets     Tax Liability                       -----------   -----------   -----------   -----------   -----------   -----------   -----------  ------------- For the year ended December 31, 2005          Birmingham Utilities  $ 6,846,174   $ 3,711,731   $   872,121   $   203,956   $   650,705   $   466,543   $31,124,117   $ 2,929,554  H2O Services          $ 2,209,299   $ 1,818,570   $    15,795   $   108,088        31,171   $   192,243     1,617,903    Total Consolidated  $ 9,055,473   $ 5,530,301   $   887,916   $   312,044   $   681,876   $   658,786   $32,742,020   $ 2,929,554   For the year ended December 31, 2004  Birmingham Utilities  $ 6,868,225   $ 4,149,787   $   749,114   $    58,940   $   553,072   $   144,118   $26,422,560   $ 2,554,657  H2O Services            2,997,351     2,421,535          --         187,587        21,112       367,117     3,805,683    Total Consolidated  $ 9,865,576   $ 6,571,322   $   749,114   $   246,527   $   574,184   $   511,235   $30,228,243   $ 2,554,657   For the year ended December 31, 2003  Birmingham Utilities  $ 5,425,512   $ 3,071,088   $   630,462   $   162,902   $   432,678   $   670,946   $26,873,658   $ 2,397,034  H2O Services              982,971       728,847          --          89,600       149,428     1,525,811                       -----------   -----------   -----------   -----------   -----------   -----------   -----------  -------------   Total Consolidated  $ 6,408,483   $ 3,799,935   $   630,462   $   252,502   $   432,678   $   820,374   $28,399,469   $ 2,397,034    NOTE 19 QUARTERLY FINANCIAL DATA (Unaudited)                         Operating     Operating       Net      Earnings Per Share                        Revenues       Income     Income(loss)   Basic   Diluted                        ----------   ----------    ---------     -----   ------- 2005 First Quarter     $1,968,436   $  174,108    $  54,193     $ .03    $ .03      Second Quarter     2,589,002      536,708      377,736     $ .23    $ .23      Third Quarter      2,343,862      404,418      304,004     $ .18    $ .18      Fourth Quarter     2,154,173       78,837     (77,147)     $(.04)   $(.05)                        ----------   ----------    ---------     -----   -------             Total      $9,055,473   $1,194,071    $ 658,786     $ .40    $ .39  2004 First Quarter     $2,111,457   $  270,535    $ 201,885     $ .12    $ .12      Second Quarter     2,426,300      324,626      238,742     $ .15    $ .14      Third Quarter      2,704,104      354,971      265,272     $ .16    $ .16      Fourth Quarter     2,623,715      277,776     (194,664)    $(.12)   $(.12)                        ----------   ----------    ---------     -----   -------             Total      $9,865,576   $1,227,908    $ 511,235     $ .31    $ .30   NOTE 20 WATER SERVICE RATE INCREASE In October 2005, the Ansonia Division of Birmingham Utilities filed an application with the DPUC for a 4.4%, $258,655 water service rate increase to account specifically for increases in purchased water costs and property taxes. This limited rate filing is allowed under Section 16-32c of the Connecticut General Statutes. The DPUC granted the Company's request in its entirety in January 2006.  In August 2003, the DPUC granted Birmingham Utilities a 27.74 percent water service rate increase designed to provide a $1,264,178 annual increase in revenues and a 10.5 percent return on common equity. This rate increase does not apply to the Eastern Division.  NOTE 21 TERMINATION OF PURCHASE AGREEMENT In May 2003, Birmingham Utilities entered into a Purchase Agreement with 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.    SOURCES OF SUPPLY Wells Located in Derby and Seymour with a safe daily yield of 3.0 million gallons per day (MGD) and 69 wells located in 16 towns in Eastern CT that service 30 satellite water systems.  Interconnections Two interconnections with the South Central Regional Water Authority at the border of Orange and Derby (the Grassy Hill Interconnection) and near the border of Seymour and Ansonia (the Woodbridge Interconnection). Annual purchases of water contracted at a minimum of 600 million gallons a year. Safe daily yield of interconnection - 5.0 MGD.  Emergency Supply Beaver Brook Reservoir System - 2.1 MGD surface water supply.  Customer Base and Demand 11,459 customers, 97% residential and commercial Water delivered in 2005 - 1.24 Billion Gallons Average daily demand - 3.39 MGD. Maximum daily demand in 2005 - 4.37 MGD. Total safe daily yield - 8.0 MGD.  Workforce On March 1, 2006, the Company maintained a workforce of 43 full-time and 3 part-time employees, none of whom are affiliated with any union.  Regulation Birmingham Utilities is subject to the jurisdiction of the following agencies:  Connecticut Department of Public Utility Control (DPUC) Matters related to ratemaking, financing, accounting, disposal of property, issuance of long-term debt and securities and other operational matters. Connecticut Department of Public Health (DPH) Water quality, sources of supply and use of watershed land. Connecticut Department of Environmental Protection (DEP) Water quality, pollution abatement, diversion of water from streams and rivers, safety of dams and location, construction and alteration of certain water facilities. Birmingham Utilities is also 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 DPH the primary enforcement responsibility in Connecticut under the SDWA. The DPH has established regulations containing maximum limits on contaminants, which have or may have an adverse effect on health.   SHAREHOLDER INFORMATION  Independent Registered Public Accounting Firm Dworken, Hillman, LaMorte & Sterczala, P.C. Shelton, Connecticut  General Counsel Wiggin and Dana LLP New Haven, Connecticut    Registrar and Transfer Agent American Stock Transfer & Trust Company 59 Maiden Lane New York, New York 10007  Stock Market Listing: AMEX Under the Symbol: BIW Website www.buiweb.com - --------------  MARKET INFORMATION Market For the Company's Common Stock and Related Security Holder Matters  As of December 31, 2005, there were approximately 410 record holders of the Company's common stock. Approximately 64% of the Company's stock is held in "nominee" or "street" name. The Company's common stock trades on the American Stock Exchange under the symbol "BIW". The following table sets forth the dividend record for the Company's common stock and the range of bid prices for the last two calendar years. The stock prices are based upon American Stock Exchange records provided to the Company. The prices given are retail prices. Birmingham Utilities' Mortgage Bond Indenture under which its First Mortgage Bonds are issued contains provisions that limit the dividends BUI may pay under certain circumstances.                                       High         Low         Dividend Paid 2005                                ------      ------        ------------- First Quarter                       $20.58      $18.80             $.17 Second Quarter                       20.65       17.70              .17 Third Quarter                        20.05       18.72              .17 Fourth Quarter                       19.70       17.55              .17                                       High        Low          Dividend Paid 2004                                ------      ------        ------------- First Quarter                       $21.85      $18.90             $.17 Second Quarter                       20.25       18.75              .17 Third Quarter                        20.10       17.70              .17 Fourth Quarter                       19.65       18.43              .17  On written request, the Company will furnish to any shareholder a copy of its most recent annual report to the Securities and Exchange Commission on Form 10K, without charge, including the financial statements and schedules thereto. Such requests should be addressed to Henrietta Vitale, Secretary, BIW Limited, P.O. Box 426, Ansonia, CT 06401-0426 or e-mail: hvitale@buwater.com. All Securities and Exchange Commission filings are also available on our website www.buiweb.com. - ---------------  BIW Limited 230 Beaver Street PO Box 426 Ansonia, CT 06401-0426 203 735.1888       EX-21 3 exhibit21_14236.txt SUBSIDIARIES OF THE REGISTRANT                                                                        EXHIBIT 21                                                                       ----------                           Subsidiaries of the Registrant                          ------------------------------    Name                                                     State of Incorporation - ----                                                     ----------------------  Birmingham H2O Services Inc.                                       CT  Eastern Connecticut Regional Water Company, Inc.                   CT  Birmingham Utilities, Inc.                                         CT        EX-23 4 exhibit23_14236.txt CONSENT OF PUBLIC ACCOUNTING FIRM                                                                        EXHIBIT 23                                                                       ----------                CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 and S-3 (Nos. 33-60145, 33-61275, 33-61277, 333-99707 and 333-31280) of our report dated March 13, 2006, relating to the financial statements incorporated by reference in this Annual Report on Form 10-K of BIW Limited for the year ended December 31, 2005.   /s/ Dworken, Hillman, LaMorte & Sterczala, P.C. - ------------------------------------------------ Dworken, Hillman, LaMorte & Sterczala, P.C.  March 30, 2006 Shelton, Connecticut       EX-31.1 5 exhibit31-1_14236.txt 302 CERTIFICATION OF THE CHAIRWOMAN                                                                      EXHIBIT 31.1                                                                     ------------                                    CERTIFICATION  I, Betsy Henley-Cohn, certify that:  1.   I have reviewed this annual report on Form 10-K of BIW Limited;  2.   Based on my knowledge, this report does not contain any untrue statement of      a material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report;  3.   Based on my knowledge, the financial statements, and other financial      information included in this report, fairly present in all material      respects the financial condition, results of operations and cash flows of      the registrant as of, and for, the periods presented in this report;  4.   The registrant's other certifying officer and I are responsible for      establishing and maintaining disclosure controls and procedures (as defined      in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:       a)   Designed such disclosure controls and procedures, or caused such           disclosure controls and procedures to be designed under our           supervision, to ensure that material information relating to the           registrant, including its consolidated subsidiaries, is made known to           us by others within those entities, particularly during the period in           which this report is being prepared;       b)   Evaluated the effectiveness of the registrant's disclosure controls           and procedures and presented in this report our conclusions about the           effectiveness of the disclosure controls and procedures, as of the end           of the period covered by this report based on such evaluation; and       c)   Disclosed in this report any change in the registrant's internal           control over financial reporting that occurred during the registrant's           most recent fiscal quarter (the registrant's fourth fiscal quarter in           the case of an annual report) that has materially affected, or is           reasonably likely to materially affect, the registrant's internal           control over financial reporting; and  5.   The registrant's other certifying officer and I have disclosed, based on      our most recent evaluation of internal control over financial reporting, to      the registrant's auditors and the audit committee of registrant's board of      directors (or persons performing the equivalent functions):       a)   All significant deficiencies and material weaknesses in the design or           operation of internal control over financial reporting which are           reasonably likely to adversely affect the registrant's ability to           record, process, summarize and report financial information; and       b)   Any fraud, whether or not material, that involves management or other           employees who have a significant role in the registrant's internal           control over financial reporting.   Date: March 30, 2006                                 /s/ Betsy Henley-Cohn                                                      ---------------------------                                                      Chairwoman of the Board &                                                      Chief Executive Officer      EX-31.2 6 exhibit31-2_14236.txt 302 CERTIFICATION OF THE C.F.O.                                                                      EXHIBIT 31.2                                                                     ------------                                    CERTIFICATION   I, John S. Tomac, certify that:  1.   I have reviewed this annual report on Form 10-K of BIW Limited;  2.   Based on my knowledge, this report does not contain any untrue statement of      a material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report;  3.   Based on my knowledge, the financial statements, and other financial      information included in this report, fairly present in all material      respects the financial condition, results of operations and cash flows of      the registrant as of, and for, the periods presented in this report;  4.   The registrant's other certifying officer and I are responsible for      establishing and maintaining disclosure controls and procedures (as defined      in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:       a)   Designed such disclosure controls and procedures, or caused such           disclosure controls and procedures to be designed under our           supervision, to ensure that material information relating to the           registrant, including its consolidated subsidiaries, is made known to           us by others within those entities, particularly during the period in           which this report is being prepared;       b)   Evaluated the effectiveness of the registrant's disclosure controls           and procedures and presented in this report our conclusions about the           effectiveness of the disclosure controls and procedures, as of the end           of the period covered by this report based on such evaluation; and       c)   Disclosed in this report any change in the registrant's internal           control over financial reporting that occurred during the registrant's           most recent fiscal quarter (the registrant's fourth fiscal quarter in           the case of an annual report) that has materially affected, or is           reasonably likely to materially affect, the registrant's internal           control over financial reporting; and  5.   The registrant's other certifying officer and I have disclosed, based on      our most recent evaluation of internal control over financial reporting, to      the registrant's auditors and the audit committee of registrant's board of      directors (or persons performing the equivalent functions):       a)   All significant deficiencies and material weaknesses in the design or           operation of internal control over financial reporting which are           reasonably likely to adversely affect the registrant's ability to           record, process, summarize and report financial information; and       b)   Any fraud, whether or not material, that involves management or other           employees who have a significant role in the registrant's internal           control over financial reporting.   Date: March 30, 2006                                /s/ John S. Tomac                                                     -----------------------                                                     John S. Tomac                                                     President &                                                     Chief Financial Officer     EX-32.1 7 exhibit32-1_14236.txt 906 CERTIFICATION OF THE CHAIRWOMAN & C.F.O.                                                                      EXHIBIT 32.1                                                                     ------------                     CERTIFICATION OF PERIODIC FINANCIAL REPORT                    ------------------------------------------        Pursuant to 18 U.S.C. 1350, the undersigned, Betsy Henley-Cohn and John S. Tomac, the chief executive officer and chief financial officer, respectively, of BIW Limited (the "issuer"), do each hereby certify that the report on Form 10-K accompanying this certification (the "report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the issuer.     /s/ Betsy Henley-Cohn - ---------------------------- Betsy Henley-Cohn Chairwoman of the Board and Chief Executive Officer (chief executive officer) BIW Limited  March 30, 2006    /s/ John S. Tomac - ---------------------------- John S. Tomac President and Treasurer (chief financial officer) BIW Limited  March 30, 2006         -----END PRIVACY-ENHANCED MESSAGE-----