EXHIBIT 13
                                                                      ----------









                                   BIW LIMITED
                               2006 Annual Report















<PAGE>

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. The Company refers to this operation as its Ansonia
Division. Water service is also provided for domestic and commercial use in 33
satellite water operations in 16 towns in eastern Connecticut, which form BUI's
Eastern Division. This division, which was acquired in 2003, was the former
Eastern Connecticut Regional Water Company, Inc. Both the Ansonia Division and
the Eastern Division were combined in 2006 for ratemaking purposes as a result
of a rate decision issued by the Connecticut Department of Public Utility
Control (DPUC).

H2O Services, the Company's non-regulated subsidiary, offers a consumer
protection program for residential service lines and provides water related
services to other water utilities, municipalities, contractors and individuals
throughout Connecticut. H2O Services operates from both the Ansonia and Eastern
Divisions as well as from another location in Guilford, CT. Non-regulated
operations from the Ansonia Division principally relate to construction
activities including the installation of water mains, services and other water
related infrastructure. Non-regulated operations at the Eastern Division
principally relate to the operation of other water systems not owned by the
Company through contract operations. Non-regulated operations from our Guilford,
CT location relate to a residential pump and filter services business.

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.
<TABLE><CAPTION>
(000's omitted except for per share data)      2006       2005       2004       2003       2002
------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>        <C>        <C>        <C>
Operating Revenues                          $  9,256   $  9,055   $  9,866   $  6,408   $  4,836
Income before Interest Expense                 1,548      1,341      1,085      1,253        978
Income from Land Dispositions                     --         --         --         --        261
Net Income                                       649        659        511        820        817
Earnings Per Share - Basic                       .39        .40        .31        .50        .50
Earnings Per Share - Diluted                     .39        .39        .30        .49        .49
Cash Dividends Declared (per share)              .68        .68        .68        .60        .60
Total Assets                                  36,487     32,742     30,228     28,399     22,321
Long-Term Debt                                 9,000      9,000      9,000      3,948      4,042
Short-Term Debt                                7,330      4,755      2,255      4,799         94
Shareholders' Equity                          11,395     11,729     12,187     12,723     12,889
</TABLE>

<PAGE>

WE ENTER 2007 WITH A STRENGTHENED REVENUE AND EARNINGS BASE REALIZED FROM OUR
2006 RATE DECISION FOR BIRMINGHAM UTILITIES.
We believe the larger base and combined operations for our utility divisions
will increase shareholder value of your Company.

CORPORATE STRUCTURE 2006

BIW LIMITED
Parent Company


BIRMINGHAM UTILITIES
Regulated


EASTERN DIVISION
33 Systems in Eastern Connecticut


ANSONIA DIVISION
Ansonia, Derby, and Seymour, Connecticut


BIRMINGHAM H20 SERVICES
Non-regulated


RHODES PUMP SERVICE

CONTRACT OPERATIONS
(Eastern)


CONTRACT OPERATIONS
(Ansonia)

<PAGE>

TO OUR SHAREHOLDERS

In last year's Annual Report, we reported to you that your Company would request
rate relief with the Connecticut Department of Public Utility Control (DPUC) in
2006 for both the Ansonia and Eastern division regulated operations. I am
pleased to report that we did file for rate relief and received a favorable
decision from the DPUC in a challenging regulatory environment. Your Company was
granted a rate increase intended to result in a $1,200,000 (or 16.2%) overall
increase in water revenues. The DPUC also allowed the regulated operations in
the Ansonia and Eastern divisions to be combined for regulatory purposes.
Regulated operating revenues will now approximate $8,400,000 per year. In its
decision, the DPUC allowed a rate base valuation of $22,800,000, accepting
nearly all capital additions made in Ansonia since 2003 and at the Eastern
division subsequent to the acquisition in late 2003 through 2006. This is
significant as this is the new base of allowed utility operating income. The
rate base valuation of $22,800,000 is now 71% greater than the rate base value
of $13,300,000 in 2003 (prior to the acquisition of the Eastern division), and
181% greater than the rate base value of $8,100,000 in 1998. Beginning on
November 27, 2006, the date of the final decision, our rates were set on the
basis of an overall ratemaking weighted rate of return on the new rate base of
7.99%. This includes a ratemaking cost of equity of 10.2%. Since the rate
decision did not go into effect until late in the year there is little effect
from the rate decision on earnings in 2006; however, we enter 2007 with a
strengthened revenue base. The rate decision also allows your Company to recover
operating expenses, property taxes, and depreciation expense, which have
increased significantly since the Ansonia division's last general rate decision
in 2003 and the Eastern division's last general rate decision in 1997. Since the
adjudication of those two rate decisions, the expense items noted at both
divisions recoverable for ratemaking have outpaced revenue growth by $772,000.
These costs are now included in the determination of rates as a result of the
2006 rate decision.

In 2006, consolidated net income of BIW Limited was $649,000, compared to
$659,000 in 2005, and $511,000 in 2004. Earnings per basic share were $.39 in
2006, compared to $.40 per basic share in 2005, and $.31 per basic share in
2004.

Earnings of the regulated operations declined to $385,000 in 2006 from $467,000
in 2005 while earnings of H2O Services increased to $264,000 in 2006 from
$192,000 in 2005. Management believes that our regulated business will emerge
from three years of disappointing financial results, while our non-regulated H2O
Services will continue to deliver strong results. Since 2002, when H2O Services
was formed, it has contributed net income totaling $1,051,000. We believe that
the consolidation of the regulated Ansonia operation with the Eastern regulated
operation for regulatory purposes as approved in the rate decision, will be
beneficial to your Company and to our customers as well.

While growth rates in the Valley towns of Ansonia and Derby have been low, we
continue to see a larger base of customer growth and development in our Eastern
Connecticut service territory. A larger customer base that has the potential to
grow further will assist in allocating the fixed costs of your Company's
regulated operations over a larger customer population over time. Our strategy
for 2007 and beyond is to manage our regulated capital expenditures and to find
ways to streamline our operations where possible, and to file timely rate
applications.

In 2006, we reduced the employee count from 2005 levels and have utilized our
talented workforce between our divisions in an effort to reduce both operating
and capital expenditures and to stay in line with the allowed amount of
operating expenses granted in our rate decision.

2 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

Success in our non-regulated business is an important factor in seeking to
produce profitable and sustainable growth for your Company. We will continue to
look for business opportunities where there is modest risk and relatively small
requirements of additional capital. In our Ansonia division, we continue to
concentrate on construction activities principally relating to the installation
of water mains and services as we have significant operational expertise for
these types of construction projects. We are committed to working with
municipalities, developers and industry to pursue opportunities for profitable
growth. We also continue to offer our service line program, "Linebacker" to
residential customers in our Ansonia division. In our Eastern division, our
non-regulated business is centered on providing contract operations to small
water systems throughout the eastern portion of Connecticut. As regulatory
requirements increase, many of these systems, which are typically owned by an
association or an individual, are seeking professional water operators who have
the expertise to find solutions for the problems that exist with these small
water systems. Your Company currently has over 50 operating contracts with such
small systems. Contract operations not only provide a steady monthly flow of
income, but also offer the opportunity to provide additional services that are
over and above the contract amount.

Over the last three years, your Company has invested a great deal in capital
improvements at both our regulated Ansonia and Eastern divisions, most of which
is now included in our rate base. To fund these projects, we borrowed those
funds utilizing our short-term line of credit. Our long-term goal is to achieve
a capital structure of 50% equity and 50% debt, which is a water industry norm.
In order to achieve and maintain this ratio, your Company is likely to explore
the opportunity to issue new equity in 2007. The funds from any equity offering
would be used to repay short-term debt, and would also increase the equity ratio
and book value of your Company.

Beginning in 2007, your Board of Directors has decided to hold the annual
meeting of stockholders in September. The later date will better allow your
Company to report at the annual meeting on developments of the current year and
to reflect on the progress made in the prior year. The date of the meeting will
be September 26, 2007.

It is with sincere gratitude that we thank all employees for their efforts and
support in 2006. With the rate case now behind us, we look forward to a
successful 2007 for both our regulated and non-regulated operations.

Sincerely,

/S/ BETSY HENLEY-COHN
BETSY HENLEY-COHN
Chairwoman

/S/ JOHN S. TOMAC
JOHN S. TOMAC
President and Treasurer

                                                BIW LIMITED 2006 ANNUAL REPORT 3
<PAGE>

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

MARY JANE BURT (1, 2, 3, 4)
Realtor, H. Pearce Co.
Principal, The Laurel Group
Director, Insite One 1999-2002
Previously, President, Burt Medical Lab 1984-1998

JAMES E. COHEN (2, 3)
Practicing Attorney with Cohen & Thomas
Attorney Trial Referee, Connecticut Superior Court

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)
Vice President, Joseph Cohn & Sons, Inc.
Managing Member, Cohn Realty & Investment
Writer and Producer

THEMIS KLARIDES (1, 4)
Associate Attorney, Law Offices of Shawn K. Splan, Shelton
State Representative,  114th District, Connecticut General Assembly

B. LANCE SAUERTEIG (1, 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, 4)
Real Estate Developer
Director, AuthX, Inc.
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 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 meets quarterly and 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 Funds 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.

4 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

2006 VS. 2005

The Company recorded net income of $648,652 in 2006 compared to $658,786 in
2005. Earnings per share, basic for 2006 and 2005 were $.39 and $.40
respectively. Net income of the Birmingham Utilities segment was $384,537
compared to $466,543 in 2005. Efficient and normalized operations along with the
necessity to earn on capital investments made in recent years was the reason the
Company filed for and received rate relief from the DPUC for its regulated
operations in 2006. The tax treatment of the expenses associated with the rate
case resulted in a lower effective income tax rate in 2006 which almost offset
higher interest charges. The unregulated H2O Services segment had net income of
$264,115 in 2006 compared to $192,243 in 2005. Additional maintenance contracts
for water systems in Eastern CT and a reduced effective income tax rate
principally accounts for the increase in net income.

Operating Revenues increased $200,450 or 2% in 2006 versus 2005. This is
primarily due to the 4.47% rate increase effective January 25, 2006 and to the
small effect of the rate increase which became effective November 27, 2006.
Decreased residential consumption in the Ansonia division has mitigated the
effect of the 4.47% rate increase.

Operating Expenses increased $193,388 or 3% in 2006 compared with 2005.
Increased purchased water costs accounts for $148,718 of the increase. The
balance is principally related to increased energy and gasoline costs.

Maintenance Expenses decreased $72,730 or 18% in 2006, reflecting the benefit of
the Company's aggressive maintenance and capital improvement plan made in recent
years. The Eastern Division maintenance expenses decreased 18% or $24,240 due to
operating efficiencies and improvements achieved since its purchase in 2003.
These improvements have allowed the Company to operate its water systems in a
routine fashion and have limited the frequency of emergency situations.

Depreciation increased 15% or $130,396 in 2006. This is directly related to the
increased capital improvements made by the Company in 2004, 2005 and 2006.
Several of the water systems acquired in 2003 required immediate capital
expenditures, which increased depreciation expense. The benefit of these capital
improvements is now evident in the reduced maintenance expenses and are now
included in the Company's allowed rate base.

Taxes other than Income Taxes decreased 5% or $38,059 in 2006. Increased payroll
taxes were offset by decreased property taxes as a result of lower property tax
rates due to re-evaluations.

Taxes on Income of $154,516 recorded in 2006 are $157,528 lower than the 2005
expense of $312,044 due to a decrease in operating earnings and the tax
treatment of 2006 rate case expenses.

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 2006 and 2005.

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 $352 and $6,425 in 2006
and 2005, respectively.

Allowance for Funds Used During Construction in 2006 is $54,313 or 64% higher
than 2005. The size and scope of capital improvement projects completed in 2006
were larger and longer in duration than those undertaken in 2005.

Other Income is $14,070 higher in 2006 than in 2005. An increase in jobbing or
contract work related to the regulated operations is the reason for the
increase.

Interest Expense of $899,303 for 2006 is $217,427 higher than the interest
expense recorded for 2005. Increased borrowings needed for the Company's capital
improvement plan as well as rising short term interest rates are the reason for
the increase.

2005 VS. 2004
The Company recorded net income of $658,786 in 2005 compared to $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 to $144,118 in 2004. Corporate reorganization, an emphasis on
efficient operations, as well as capital improvements made since 2003,

                                                BIW LIMITED 2006 ANNUAL REPORT 5
<PAGE>

which have had the effect of reducing maintenance expenses, all have contributed
to the increase in earnings. 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 $810,103 or 8% in 2005 versus 2004. Slightly lower
water revenues due to decreased consumption principally in the Ansonia Division
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 Services accounts for 58% 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 in 2005 is $35,611 or 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.

6 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

REGULATORY MATTERS AND INFLATION

Inflation, as measured by the Consumer Price Index, increased 3.2 percent, 3.4
percent, and 2.4 percent in 2006, 2005 and 2004, 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 its 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 also 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.

                                                BIW LIMITED 2006 ANNUAL REPORT 7
<PAGE>

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 June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions. FIN 48 requires the recognition of
a tax position when it is more likely than not that the tax position will be
sustained upon examination by taxing authorities, based upon the technical
merits of the position. The provisions of FIN 48 are effective for the Company
on January 1, 2007. The Company does not expect the adoption of FIN 48 to have a
material impact on its financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements" (SFAS 157), which provides guidance
for using fair value to measure assets and liabilities. SFAS 157 defines fair
value and establishes a framework for measuring fair value; however, SFAS 157
does not expand the use of fair value in any new circumstances. The provisions
of SFAS 157 are effective for the Company on January 1, 2008. The Company does
not expect the adoption of SFAS 157 to have a material impact on its financial
statements.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB
Statements No. 87, 88, 106, and 132(R)" (SFAS 158). SFAS 158 requires companies
to recognize the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its balance sheet and to
recognize changes in the funded status in the year in which the changes occur
through comprehensive income. SFAS 158 also requires the funded status of a plan
to be measured as of the balance sheet date. The Company adopted the provisions
of SFAS 158 effective December 31, 2006. The adoption of SFAS 158 did not have a
material impact on the Company's financial statements.

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. 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.

The Company believes it is prudently monitoring the economic environment in
which it operates to best take advantage of market opportunities. We will
continue to pursue opportunities in both the regulated and non regulated
operations that are financially sound that compliment existing operations and
increase shareholder value. The establishment of a holding

8 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

company, the formation of H2O Services, and the acquisition of the Eastern
Division, 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.

With the 2006 rate case now behind us and with both divisions combined for
regulatory purposes, the Company's base of earnings has grown substantially. All
operating costs for both divisions are now fully recoverable which should allow
the regulated operations to achieve its allowed rate of return. H2O Services
should continue to contribute positively to earnings as the market for its
services remains strong.

FINANCIAL RESOURCES
During 2006, 2005 and 2004, 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 $2,440,092, $2,029,237 and $790,965
respectively (see Consolidated Statements of Cash Flows).

Net cash provided by operating activities increased $410,855 in 2006 as a result
of increased revenues and also a change in accounts payable procedures. Checks
processed on the last day of the month in previous years are now processed on
the first day of the following month resulting in increased payables for the
month and year ended December 31, 2006.

During the 3-year period 2006, 2005 and 2004, 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 2006, 2005 and 2004, the
Company's additions to utility plant, net of customer advances, were $3,627,112,
$3,300,595 and $1,773,718, respectively (see Consolidated Statements of Cash
Flows and Note 19). 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 Eastern Division
regulated and non-regulated operations.

The Mortgage Indenture limits the issuing of additional First Mortgage Bonds and
the payment of dividends. Under the dividend limitation, approximately
$6,500,000 was available to pay dividends at December 31, 2006 after the
quarterly dividend payment made on that date. It does not, however, restrict the
issuance of additional long-term or short-term debt, provided such additional
debt is either unsecured or secured with liens subject to the lien of the
Mortgage Indenture.

Note Payable consists of a $9,000,000 unsecured line of credit, which was
renewed in August 2006, and will expire in September 2007. During the revolving
period, Birmingham Utilities can choose between variable rate options of 30, 60,
90 or 180-day LIBOR plus 100 basis points or prime. BUI is required to pay only
interest during the revolving period. The principal is payable in full at
maturity. Borrowings of $7,330,000 were outstanding on the line of credit at
December 31, 2006. The line of credit requires the maintenance of certain
financial ratios and net worth of $7,500,000. BUI was in compliance with all
covenants as of December 31, 2006.

Birmingham Utilities' 2007 Capital Budget of $1,700,000 is two-tiered. The first
tier, consisting of typical capital improvements made each year for services,
hydrants and meters is budgeted for $900,000 and is expected to be financed
primarily with internally generated funds. The second tier of the 2007 Capital
Budget consists of replacements and betterments, which are part of Birmingham
Utilities' Long-Term Capital Improvement Program and includes $800,000 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

                                                BIW LIMITED 2006 ANNUAL REPORT 9
<PAGE>

estimated at approximately $10,400,000. 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 $90,116 and $84,836 in 2006 and 2005, 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,
2006:

<TABLE><CAPTION>
                                                               Less than                                 More than
                                                   Total         1 year      1-3 years      4-5 years     5 years
-------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>          <C>           <C>            <C>
Debt obligations
Series F Mortgage Bonds                         $ 9,000,000                                $ 9,000,000
Interest on Series F Mortgage Bonds               2,110,050       468,900       937,800        703,350
Note Payable (1)                                  7,330,000     7,330,000
Purchase Obligations Regional Water Authority     8,154,000       906,000     1,812,000      1,812,000    3,624,000
Other Obligations
   Capital Budget (2)                             7,600,000       900,000     1,500,000      1,400,000    3,800,000
Operating Lease                                     150,000        60,000        90,000
   Defined Benefit Pension                          100,000       100,000
-------------------------------------------------------------------------------------------------------------------
Total                                           $34,444,050    $9,764,900    $4,339,800    $12,915,350   $7,424,000
===================================================================================================================
</TABLE>

(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, 2006:
<TABLE><CAPTION>
                                                                                      Number of securities
                                                                                      remaining available
                                       Number of securities      Weighted-average     for future issuance
                                   to be issued upon exercise   exercise price of       under equity
Plan Category                         of outstanding options   outstanding options     compensation plans
----------------------------------------------------------------------------------------------------------
<S>                                           <C>                    <C>                     <C>
Equity compensation plans approved
     by security holders                      62,000                 $16.33                  61,000
----------------------------------------------------------------------------------------------------------
Total                                         62,000                 $16.33                  61,000
==========================================================================================================
</TABLE>
10 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

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 $7,330,000 at December 31, 2006. 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.

                                               BIW LIMITED 2006 ANNUAL REPORT 11
<PAGE>

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, 2006 and 2005, 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, 2006. 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, 2006 and 2005 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2006 in conformity with accounting principles generally accepted in
the United States of America.

As described in Note 2 to the consolidated financial statements, in 2006 the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R,
"Share-Based Payment" and SFAS No. 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans."



March 14, 2007
Shelton, Connecticut

12 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>
<TABLE><CAPTION>
CONSOLIDATED BALANCE SHEETS
                                                                            December 31,
                                                                       2006              2005
-------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>
Assets
Utility plant                                                     $ 42,628,195      $ 38,736,311
Accumulated depreciation                                           (10,805,946)       (9,978,362)
-------------------------------------------------------------------------------------------------
                                                                    31,822,249        28,757,949
-------------------------------------------------------------------------------------------------
Other property, net                                                    501,927           529,837
-------------------------------------------------------------------------------------------------

Current assets:
    Accounts receivable, net of allowance for doubtful
        accounts (2006, $199,000; 2005, $232,000)                    1,179,559         1,193,815
    Accrued utility and other revenue                                  664,482           552,125
    Materials and supplies                                             312,766           386,946
    Prepayments and other current assets                                 8,135            44,821
-------------------------------------------------------------------------------------------------
Total current assets                                                 2,164,942         2,177,707
-------------------------------------------------------------------------------------------------
Deferred charges                                                       137,007           137,007
Unamortized debt expense                                               276,999           333,444
Regulatory asset - income taxes recoverable                            672,803           473,851
Other assets                                                           910,847           332,225
-------------------------------------------------------------------------------------------------
                                                                     1,997,656         1,276,527
-------------------------------------------------------------------------------------------------
                                                                  $ 36,486,774      $ 32,742,020
=================================================================================================

Shareholders' Equity and Liabilities
Shareholders' equity:
    Common stock, no par value; authorized 5,000,000 shares:
        issued and outstanding
        (2006, 1,674,579 shares; 2005, 1,662,079 shares)          $  3,125,329      $  2,987,704
    Additional paid in capital                                          14,832              --
    Retained earnings                                                8,254,588         8,740,825
-------------------------------------------------------------------------------------------------
                                                                    11,394,749        11,728,529
-------------------------------------------------------------------------------------------------
Long-term debt                                                       9,000,000         9,000,000
-------------------------------------------------------------------------------------------------
Current liabilities:
    Note payable                                                     7,330,000         4,755,000
    Accounts payable and accrued liabilities                         1,249,576           669,212
-------------------------------------------------------------------------------------------------
    Total current liabilities                                        8,579,576         5,424,212
-------------------------------------------------------------------------------------------------
Customers' advances for construction                                   611,413           438,631
Contributions in aid of construction                                 3,209,589         3,101,165
Accumulated provision for pension and postretirement benefits          245,557              --
Regulatory liability - income taxes refundable                         111,768           119,340
Deferred income taxes                                                3,334,122         2,929,554
Deferred income on dispositions of land                                   --                 589
Commitments and contingent liabilities (Note 16)
-------------------------------------------------------------------------------------------------
                                                                     7,512,449         6,589,279
-------------------------------------------------------------------------------------------------
                                                                  $ 36,486,774      $ 32,742,020
=================================================================================================
</TABLE>

See notes to consolidated financial statements

                                               BIW LIMITED 2006 ANNUAL REPORT 13
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE><CAPTION>
                                                          Year Ended December 31,
                                                    2006           2005           2004
------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>
Operating revenues:
    Residential and commercial                   $5,515,433     $5,380,969     $5,330,329
    Industrial                                      133,361        117,786        201,687
    Fire protection                               1,028,903        954,694        952,472
    Public authorities                              137,479        117,619        108,662
    Other                                           282,247        275,106        275,075
    Service operations                            2,158,500      2,209,299      2,997,351
------------------------------------------------------------------------------------------
                                                  9,255,923      9,055,473      9,865,576
------------------------------------------------------------------------------------------
Operating expenses:
    Operating expenses                            5,723,689      5,530,301      6,571,322
    Maintenance expenses                            321,031        393,761        463,295
    Depreciation                                  1,018,312        887,916        749,114
    Taxes other than income taxes                   705,746        743,805        618,752
    Taxes on income                                 154,516        312,044        246,527
------------------------------------------------------------------------------------------
                                                  7,923,294      7,867,827      8,649,010
------------------------------------------------------------------------------------------
                                                  1,332,629      1,187,646      1,216,566
------------------------------------------------------------------------------------------
Amortization of deferred income on
  dispositions of land
  (net of income taxes of $237 in 2006,
  $3,500 in 2005, and $8,017 in 2004)                   352          6,425         11,342
------------------------------------------------------------------------------------------
Operating income                                  1,332,981      1,194,071      1,227,908
------------------------------------------------------------------------------------------
Allowance for funds used during construction        138,981         84,668        120,279
Other income                                         75,993         61,923        205,267
Other expense                                          --             --          468,035
------------------------------------------------------------------------------------------
Income before interest expense                    1,547,955      1,340,662      1,085,419
Interest expense                                    899,303        681,876        574,184
------------------------------------------------------------------------------------------
Net income                                          648,652        658,786        511,235
Retained earnings, beginning of year              8,740,825      9,211,403      9,822,197
Dividends                                         1,134,889      1,129,364      1,122,029
------------------------------------------------------------------------------------------
Retained earnings, end of year                   $8,254,588     $8,740,825     $9,211,403
==========================================================================================

Earnings per share, basic                        $      .39     $      .40     $      .31
------------------------------------------------------------------------------------------
Earnings per share, diluted                      $      .39     $      .39     $      .30
------------------------------------------------------------------------------------------
Dividends per share                              $      .68     $      .68     $      .68
------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

14 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
                                                                    Year Ended December 31,
                                                            2006             2005             2004
------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>              <C>
Cash flows from operating activities:
    Net income                                          $   648,652      $   658,786      $   511,235
    Adjustments to reconcile net income to net cash
        provided by operating activities:
           Depreciation and amortization                  1,125,004        1,033,593          889,942
           Amortization of deferred income                     (352)          (6,425)         (11,342)
           Deferred income taxes                            204,188          328,936          143,582
           Allowance for funds used during
             construction                                  (138,981)         (84,668)        (120,279)
           Stock-based compensation expense                  14,832             --               --
    Changes in assets and liabilities:
        Accounts receivable and accrued revenues            (98,101)         152,985         (420,380)
        Materials and supplies                               74,180          (74,308)         (32,319)
        Prepayments and other current assets                 36,686          150,508          107,153
        Accounts payable and accrued liabilities            573,984         (130,170)        (276,627)
------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                 2,440,092        2,029,237          790,965
------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Capital expenditures - utility plant                 (3,908,318)      (3,544,527)      (2,111,381)
    Capital expenditures - other property                   (19,749)        (125,932)         (31,022)
    Sales of utility plant                                   12,345           46,611           69,869
    Cash paid for acquisition                                  --               --           (335,217)
    Increase in deferred charges and other assets          (383,312)         (34,332)        (334,231)
    Customer advances                                       281,206          243,932          337,663
------------------------------------------------------------------------------------------------------
Net cash used in investing activities                    (4,017,828)      (3,414,248)      (2,404,319)
------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Proceeds from long-term debt                               --               --          9,000,000
    Repayment of long-term debt                                --               --         (4,042,000)
    Borrowings under line of credit                       2,575,000        2,500,000             --
    Repayments on line of credit                               --               --         (2,450,000)
    Exercise of stock options                               137,625           14,375           78,765
    Dividends paid                                       (1,134,889)      (1,129,364)      (1,122,029)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                 1,577,736        1,385,011        1,464,736
------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                      --               --           (148,618)
Cash and cash equivalents, beginning of year                   --               --            148,618
------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                  $      --        $      --        $      --
======================================================================================================
</TABLE>

See notes to consolidated financial statements

                                               BIW LIMITED 2006 ANNUAL REPORT 15
<PAGE>

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 2.4% for 2006, 2.3% for 2005, and 2.1% for 2004.

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.

BIW LIMITED 2006 ANNUAL REPORT 16
<PAGE>

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 also 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, 2006 and 2005was
approximately $7,981,000 and $8,212,000, respectively.

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 $561,000 at December 31, 2006 and $354,500 at
December 31, 2005. 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.

                                               BIW LIMITED 2006 ANNUAL REPORT 17
<PAGE>

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.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions. FIN 48 requires the recognition of
a tax position when it is more likely than not that the tax position will be
sustained upon examination by taxing authorities, based upon the technical
merits of the position. The provisions of FIN 48 are effective for the Company
on January 1, 2007. The Company does not expect the adoption of FIN 48 to have a
material impact on its financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements" (SFAS 157), which provides guidance
for using fair value to measure assets and liabilities. SFAS 157 defines fair
value and establishes a framework for measuring fair value; however, SFAS 157
does not expand the use of fair value in any new circumstances. The provisions
of SFAS 157 are effective for the Company on January 1, 2008. The Company does
not expect the adoption of SFAS 157 to have a material impact on its financial
statements.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB
Statements No. 87, 88, 106, and 132(R)" (SFAS 158). SFAS 158 requires companies
to recognize the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its balance sheet and to
recognize changes in the funded status in the year in which the changes occur
through comprehensive income. SFAS 158 also requires the funded status of a plan
to be measured as of the balance sheet date. The Company adopted the provisions
of SFAS 158 effective December 31, 2006. The adoption of SFAS 158 did not have a
material impact on the Company's financial statements.

NOTE 2

CHANGE IN ACCOUNTING PRINCIPLES

In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123R, "Share-Based Payment" (SFAS 123R). The
pronouncement requires companies to measure and recognize compensation expense
for all share-based payments to employees in the financial statements based on
the fair value at the date of the grant. In the first quarter of 2006, the
Company adopted SFAS 123R using the modified prospective method. Under the
modified prospective method, compensation cost is recognized for all share-based
payments granted after the adoption of SFAS 123R and for all awards granted to
employees prior to the adoption date of SFAS 123R that were unvested on the
adoption date. Accordingly, no restatements were made to prior periods.

Prior to the adoption of SFAS 123R, the Company applied 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 had chosen to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its employee stock
compensation plans. Accordingly, no compensation expense was recognized for its
employee stock option issuances, as stock options are issued with an exercise
price at least equal to the closing price at the date of grant.

18 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB
Statements No. 87, 88, 106, and 132(R)" (SFAS 158). SFAS 158 requires companies
to recognize the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its balance sheet and to
recognize changes in the funded status in the year in which the changes occur
through comprehensive income. SFAS 158 also requires the funded status of a plan
to be measured as of the balance sheet date. The Company adopted the provisions
of SFAS 158 effective December 31, 2006. The adoption of SFAS 158 did not have a
material impact on the Company's financial statements.

NOTE 3

WATER SERVICE RATE INCREASES

On November 27,2006, the DPUC granted Birmingham Utilities a 16.2 percent water
service rate increase designed to provide a $1,172,148 annual increase in
revenues and a 10.2 percent ratemaking cost of common equity. The rate order
allowed BUI to combine its Ansonia and Eastern divisions for ratemaking
purposes.

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 BUI's request in its entirety in January
2006.


NOTE 4

UTILITY PLANT
                                                         December 31,
                                                   2006               2005
------------------------------------------------------------------------------
Pumping, treatment and distribution            $31,743,810        $30,471,044
Source of supply                                 4,598,874          4,235,169
General plant                                    3,605,447          3,610,710
Organization                                        44,330             41,510
------------------------------------------------------------------------------
                                                39,992,461         38,358,433
Construction in process                          2,635,734            377,878
------------------------------------------------------------------------------
                                               $42,628,195        $38,736,311
==============================================================================

NOTE 5

OTHER ASSETS
                                                                   Regulatory
                                             December 31,           Recovery
                                         2006           2005         Period
------------------------------------------------------------------------------
Regulatory assets:
    Deferred post
         retirement benefits           $357,210       $128,189       10 Years
    Deferred rate
         case expenses                 $348,987        $38,772        7 Years
    Various deferred
         costs and charges              168,920        115,046     3-15 Years
Non-regulatory assets:
    Various deferred
         costs and charges               35,730         50,218
------------------------------------------------------------------------------
                                       $910,847       $332,225
==============================================================================

NOTE 6

NOTE PAYABLE

Note Payable consists of a $9,000,000 unsecured line of credit, which was
renewed in August 2006, and will expire in September 2007. During the revolving
period, Birmingham Utilities can choose between variable rate options of 30, 60,
90 or 180-day LIBOR plus 100 basis points or prime. BUI is required to pay only
interest during the revolving period. The principal is payable in full at
maturity. Borrowings of $7,330,000 were outstanding on the line of credit at
December 31, 2006. The line of credit requires the maintenance of certain
financial ratios and net worth of $7,500,000. BUI was in compliance with all
covenants as of December 31, 2006.

NOTE 7

LONG-TERM DEBT

                                                         December 31,
                                                    2006            2005
------------------------------------------------------------------------------
First mortgage bonds, Series F. 5.21%,           $9,000,000      $9,000,000
     due April 15, 2011

In April 2004, Birmingham Utilities 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.

                                               BIW LIMITED 2006 ANNUAL REPORT 19
<PAGE>

The Mortgage Indenture limits the issuing of additional First Mortgage Bonds and
the payment of dividends. Under the dividend limitation, approximately
$6,500,000 was available to pay dividends at December 31, 2006, after the
quarterly dividend payment made on that date. It does not, however, restrict the
issuance of additional long-term or short-term debt, provided such additional
debt is either unsecured or secured with liens subject to the lien of the
Mortgage Indenture.


NOTE 8

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
                                                         December 31,
                                                   2006               2005
------------------------------------------------------------------------------
Accounts payable                               $   914,465        $   367,541
Accrued liabilities:
    Interest                                        79,453             79,453
    Taxes                                          113,237             83,729
    Pension                                        129,967            133,215
    Other                                           12,454              5,274
------------------------------------------------------------------------------
                                               $ 1,249,576        $   669,212
==============================================================================

NOTE 9

TAXES OTHER THAN INCOME TAXES
                                                   December 31,
                                        2006           2005           2004
------------------------------------------------------------------------------
Municipal                             $483,869       $524,700       $441,373
Payroll                                221,877        219,105        177,379
------------------------------------------------------------------------------
                                      $705,746       $743,805       $618,752
==============================================================================

NOTE 10

INCOME TAXES
The provisions for taxes on income for the years ended December 31, 2006, 2005
and 2004 consist of:

                                            2006          2005           2004
-------------------------------------------------------------------------------
Current:
     Federal                            $   6,381     $     --      $      --
     State                                 19,784        11,700         69,246
Deferred:
     Federal:
         Accelerated depreciation         143,051        85,184        723,981
         Operating loss carryforward          --        229,860      (532,000)
         Income on land disposition           225         3,327          7,620
         Investment tax credit            (14,700)      (14,700)       (14,700)
     State                                     12           173            397
-------------------------------------------------------------------------------
                                        $ 154,753     $ 315,544     $  254,544
===============================================================================

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:

                                            2006          2005          2004
-------------------------------------------------------------------------------
Federal income tax at
     statutory rates                    $  273,158    $  331,272    $  260,365
Increase (decrease) resulting from:
     State income tax, net of
         federal benefit                    13,065         7,836        45,964
     Rate case expense                    (105,473)        6,225        14,565
     Pension expense                         9,156         3,088         5,031
     Other, net                            (20,453)      (18,177)      (56,681)
     Investment tax credit                 (14,700)      (14,700)      (14,700)
-------------------------------------------------------------------------------
Total provision for income
     taxes                                 154,753       315,544       254,544
Taxes related to land
     dispositions                             (237)       (3,500)       (8,017)
-------------------------------------------------------------------------------
Operating provision for taxes           $  154,516    $  312,044    $  246,527
===============================================================================

20 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

Deferred tax liabilities (assets) were comprised of the following:


                                                    2006             2005
------------------------------------------------------------------------------
Depreciation                                    $  3,666,263     $  3,489,598
Investment tax credits                               216,961          231,661
Other                                                412,796          220,758
------------------------------------------------------------------------------
Gross deferred tax liabilities                     4,296,020        3,942,017
Land sales                                        (2,560,137)      (2,221,707)
Operating loss carryforward                         (274,000)        (335,840)
Other                                               (186,168)        (174,655)
------------------------------------------------------------------------------
Gross deferred tax assets                         (3,020,305)      (2,732,202)
Valuation allowance                                2,058,407        1,719,739
------------------------------------------------------------------------------
Net deferred tax assets                             (961,898)      (1,012,463)
------------------------------------------------------------------------------
Total deferred income taxes                     $  3,334,122     $  2,929,554
==============================================================================


At December 31, 2006, the Company had approximately $806,000 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 11

RELATED PARTY TRANSACTIONS

The Company has paid legal and consulting fees to firms whose partners are
directors of the Company. During the years ended December 31, 2006, 2005 and
2004, fees paid amounted to $9,717, $4,505, and $4,663, respectively.

NOTE 12

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,
                                            2006          2005          2004
-------------------------------------------------------------------------------
Allowance for doubtful
      accounts, beginning                $ 232,000     $ 149,000     $  87,000
Provision                                  (15,000)       93,431        93,353
Recoveries                                  15,000         2,434         1,334
Charge-offs                                (33,000)      (12,865)      (32,687)
-------------------------------------------------------------------------------
Allowance for doubtful
      accounts, ending                   $ 199,000     $ 232,000     $ 149,000
===============================================================================

NOTE 13

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 $124,348, $121,024 and $114,140, in 2006, 2005 and 2004
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, 2006 and
2005 was $85,061 and $95,824, respectively. This amount will be paid to the
former president's surviving spouse. At December 31, 2006, an amount of $111,653
has been included in other assets relating to a regulatory asset for costs that
were approved in the Company's rate case.

The Company has a noncontributory defined benefit plan that covers employees of
Birmingham Utilities, subject to eligibility requirements. The benefits are
primarily based on years of

                                               BIW LIMITED 2006 ANNUAL REPORT 21
<PAGE>

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 2007, based upon 2006 market
performance and current conditions, is estimated by management to be $100,000.

In addition, the Company provides certain health care and life insurance
benefits for retired employees of Birmingham Utilities and their spouses,
subject to eligibility requirements. 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 2006, 2005, and 2004.

The Company adopted SFAS 158 effective December 31, 2006. SFAS 158 requires
employers to recognize the overfunded or underfunded status of a defined benefit
pension and postretirement plan as an asset or liability in the balance sheet
and to recognize changes in the funded status in the year in which the changes
occur through comprehensive income.

SFAS 71 provides guidance to regulated utilities for deferring costs that would
otherwise be charged to expense or equity by non-regulated enterprises.
Ratemaking practices of the DPUC have been clear and consistent in allowing
pension and postretirement benefit plan expenses to be recovered through rates.
Accordingly, the Company has recorded a regulatory asset of $245,557 at December
31, 2006 representing the funded status of its pension and postretirement plan
liability.

The Company uses a January 1 measurement date for its defined benefit and
postretirement medical benefit plans. Effective for fiscal years ending after
December 31, 2008, SFAS 158 will require the measurement of the funded status of
the plan to coincide with the date of the year end balance sheet.

BENEFIT OBLIGATIONS AND FUNDED STATUS

The following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans.
<TABLE><CAPTION>
                                                                                     Other
                                              Pension Benefits              Postretirement Benefits
                                           2006             2005             2006            2005
------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>              <C>              <C>
Change in Benefit Obligation:
   Benefit obligation, beginning
       of year                         $ 1,504,504      $ 1,349,283      $   646,125      $   594,376
   Service cost                             68,406           67,194           28,927           28,625
   Interest cost                           107,715          107,628           44,620           41,255
   Actuarial loss (gain)                  (142,029)          11,732            5,694            8,097
   Benefits paid                           (32,082)         (31,333)         (28,788)         (26,228)
------------------------------------------------------------------------------------------------------
   Benefit obligation, end of year     $ 1,506,514      $ 1,504,504      $   696,578      $   646,125
------------------------------------------------------------------------------------------------------
Change in Plan Assets:
   Fair value, beginning of year       $ 1,118,651      $   937,321      $   588,810      $   522,938
   Actual return on plan assets            123,139           76,163           59,017           40,872
   Employer contribution                    75,000          136,500           25,000           25,000
   Benefits paid                           (32,082)         (31,333)            --               --
------------------------------------------------------------------------------------------------------
   Fair value, end of year               1,284,708        1,118,651          672,827          588,810
------------------------------------------------------------------------------------------------------
Funded Status                          $  (221,806)     $  (385,853)     $   (23,751)     $   (57,315)
======================================================================================================
</TABLE>
22 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

At December 31, 2006 the defined benefit pension plan had plan assets in excess
of the accumulated benefit obligation as summarized in the following table:

     Projected benefit obligation                          $1,506,514
     Accumulated benefit obligation                        $1,171,780
     Fair value of plan assets                             $1,284,708

NET PERIODIC BENEFIT COST
Net periodic pension and other postretirement benefit costs recognized in the
Consolidated Statements of Income include the following components:
<TABLE><CAPTION>

                                                     Pension Benefits                       Other Postretirement Benefits
                                            2006           2005           2004           2006           2005           2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>            <C>            <C>            <C>
Service cost                             $  68,406      $  67,194      $  58,032      $  28,927      $  28,625      $  27,414
Interest cost                              107,715        107,628         97,145         44,620         41,255         37,833
Expected return on plan assets             (91,209)       (76,918)       (68,133)       (47,188)       (42,015)       (37,025)
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           --           (1,141)        (2,754)
------------------------------------------------------------------------------------------------------------------------------
   Net periodic benefit cost             $  95,954      $ 113,953      $ 103,208      $  51,737      $  52,102      $  50,846
==============================================================================================================================
</TABLE>

ASSUMPTIONS
Weighted average assumptions used are as follows:

                                                                 Other
                                  Pension Benefits      Postretirement Benefits
                                 2006   2005   2004        2006   2005   2004
-------------------------------------------------------------------------------
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%     4%          --     --     --


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 2006 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                              $ 13,221          $ (11,587)
Effect on postretirement
     benefit obligation                         $ 88,719          $ (82,008)

                                               BIW LIMITED 2006 ANNUAL REPORT 23
<PAGE>

PLAN ASSETS

The following table sets forth the weighted average asset allocations for the
Company's pension plan assets:

                                              Defined          Welfare Benefit
                                            Benefit Plan          VEBA Trust
-------------------------------------------------------------------------------
                                           2006     2005        2006     2005
Equity Securities                           65%      69%         68%      67%
Debt Securities                             32%      29%         31%      32%
Cash                                         3%       2%          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
-------------------------------------------------------------
2007                                           $  30,994
2008                                              29,942
2009                                              28,829
2010                                              27,663
2011                                              26,443
2012-2016                                      $ 370,464

NOTE 14

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.

NOTE 15

EARNINGS PER SHARE SUPPLEMENTAL INFORMATION

The following table summarizes the number of common shares used in the
calculation of earnings per share:

                                           2006          2005          2004
------------------------------------------------------------------------------
Weighted average shares
     outstanding for earnings
     per share, basic                   1,668,312     1,660,407     1,647,303
Incremental shares from
     assumed conversion
     of stock options                      10,135        16,220        26,894
------------------------------------------------------------------------------
Weighted average shares
     outstanding for earnings
     per share, diluted                 1,678,447     1,676,627     1,674,197
==============================================================================

NOTE 16

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 $1,700,000 for capital expenditures in 2007, $900,000 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 $906,000, $740,747 and $699,138 for the years 2006, 2005 and 2004,
respectively. The purchase price is based on the Authority's wholesale rate. At
December 31, 2006, 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.

24 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

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 $5,000. 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 in the lease agreement.

NOTE 17

EQUITY

COMMON STOCK
                                                    Number
                                                  of Shares          Amount
------------------------------------------------------------------------------
Balance, January 1, 2005                          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 issued through Key Employee
     and Non-Employee Director
     Stock Option Plans                              12,500           139,727
Amortization of stock plan costs                        --             (2,102)
------------------------------------------------------------------------------
Balance, December 31, 2006                        1,674,579        $3,125,329
==============================================================================

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
shares of 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 18

STOCK-BASED COMPENSATION

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. Under the Plans, options have been granted to key personnel to
purchase shares at not less than fair market value on the date of the grant.
Stock options generally vest ratably over two years from the date of grant and
must be exercised within ten years from the date of grant. The Company's policy
is to recognize compensation expense on a straight-line basis over the vesting
period. Compensation expense is recognized only for those options expected to
vest, with forfeitures estimated at the date of grant based on historical
experience and future expectations.

In the first quarter of 2006, the Company adopted SFAS 123R using the modified
prospective method. Under the modified prospective method, compensation cost is
recognized for all share-based payments granted after the adoption of SFAS 123R
and for all awards granted to employees prior to the adoption date of SFAS 123R
that were unvested on the adoption date. Accordingly, no restatements were made
to prior periods.

                                               BIW LIMITED 2006 ANNUAL REPORT 25
<PAGE>

Prior to the adoption of SFAS 123R, the Company applied 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 had chosen to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and, accordingly, no
compensation cost was recognized for stock options in the financial statements.


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
-----------------------------------------------------------------------------
Net income:                         As reported       $658,786      $511,235
                                    Pro forma         $621,561      $472,403
Earnings per share, basic:          As reported       $    .40      $    .31
                                    Pro forma         $    .37      $    .29
Earnings per share, diluted:        As reported       $    .39      $    .30
                                    Pro forma         $    .37      $    .28

The following table summarizes the transactions with respect to the Company's
stock option plans for the three years ended December 31, 2006:
<TABLE><CAPTION>
                                                  Weighted       Weighted
                                                   Average        Average
                                      Shares      Exercise       Remaining      Aggregate
                                    Subject to    Price Per     Contractual     Intrinsic
                                      Option        Share     Life (In Years)     Value
------------------------------------------------------------------------------------------
<S>                                  <C>          <C>               <C>         <C>
Outstanding, January 1, 2004          86,418       $11.53
      Granted                         14,500        19.51
      Exercised                     (24,178)         6.50
----------------------------------------------------------
Outstanding, December 31, 2004        76,740        14.63            6.4         $393,235
                                                                   =======================
      Granted                          2,500        19.90
      Exercised                      (7,240)         8.94
----------------------------------------------------------
Outstanding, December 31, 2005        72,000        15.38            6.0         $184,975
                                                                   =======================
      Granted                          2,500        17.00
      Exercised                     (12,500)        11.01
----------------------------------------------------------
Outstanding, December 31, 2006        62,000        16.33            5.6         $    --
==========================================================================================
Exercisable, December 31, 2006        58,250       $16.22            5.3         $    --
==========================================================================================
</TABLE>

The fair value of each option grant is established on the date of grant using
the Black-Scholes option pricing model. The fair value per option was estimated
using the following assumptions:

                                      2006              2005             2004
--------------------------------------------------------------------------------
Expected option term                10 years          10 years         10 years
Risk-free interest rate                4.9%              4.3%             4.6%
Expected dividend yield                3.9%              3.5%             3.5%
Expected volatility factor            32.1%             33.0%            34.1%
Fair value per option                 $4.80             $5.89            $5.98

The Company recognized stock-based compensation expense related to stock options
of $14,832 in 2006. As of December 31, 2006, the Company had $19,355 of
unrecognized stock-based compensation expense related to nonvested stock option
grants that will be recognized over a period of twenty months.

26 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

NOTE 19

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH FINANCING
ACTIVITIES

Cash paid for interest for the years ended 2006, 2005, and 2004 was $836,920,
$629,299 and $569,786, respectively.

Cash paid for income taxes for the years ended 2006, 2005 and 2004 was $12,781,
$22,020 and $30,013, 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,
                                        2006           2005           2004
------------------------------------------------------------------------------
Gross plant additions                $3,908,318     $3,544,527     $2,111,381
Customers' advances
     for construction                  (281,206)      (243,932)      (337,663)
------------------------------------------------------------------------------
                                     $3,627,112     $3,300,595     $1,773,718
==============================================================================

NOTE 20

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:
<TABLE><CAPTION>
                           Operating    Operating                  Taxes on    Interest      Net        Total        Deferred
                            Revenues     Expenses   Depreciation    Income     Expense     Income       Assets     Tax Liability
--------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>          <C>          <C>          <C>         <C>         <C>         <C>           <C>
For the year ended
     December 31, 2006
Birmingham Utilities       $7,097,423   $3,983,294   $1,001,606   $  85,517   $ 868,132   $ 384,537   $34,734,989   $3,334,122
H2O Services               $2,158,500   $1,740,395   $   16,706   $  68,999   $  31,171   $ 264,115   $ 1,751,785   $      --
--------------------------------------------------------------------------------------------------------------------------------
     Total Consolidated    $9,255,923   $5,723,689   $1,018,312   $ 154,516   $ 899,303   $ 648,652   $36,486,774   $3,334,122
================================================================================================================================

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
================================================================================================================================
</TABLE>
                                               BIW LIMITED 2006 ANNUAL REPORT 27
<PAGE>

NOTE 21

QUARTERLY FINANCIAL DATA
(Unaudited)
                       Operating     Operating    Net Income  Earnings Per Share
                        Revenues       Income       (loss)     Basic    Diluted
--------------------------------------------------------------------------------
2006 First Quarter     $2,040,097   $  136,329   $  (38,731)   $(.02)    $(.02)
     Second Quarter     2,428,901      335,442      178,687    $ .11     $ .11
     Third Quarter      2,378,367      360,969      155,587    $ .09     $ .09
     Fourth Quarter     2,408,558      500,241      353,109    $ .21     $ .21
--------------------------------------------------------------------------------
          Total        $9,255,923   $1,332,981     $648,652    $ .39     $ .39
================================================================================

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
================================================================================

28 BIW LIMITED 2006 ANNUAL REPORT
<PAGE>

SOURCES OF SUPPLY

WELLS

Located in Derby and Seymour with a safe daily yield of 3.0 million gallons per
day (MGD) and 75 wells located in 16 towns in Eastern CT that service 33
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

11,705 customers, 97% residential and commercial

Water delivered in 2006 - 1.12 Billion Gallons

Average daily demand - 3.07 MGD.

Maximum daily demand in 2006 - 3.97 MGD. Total safe daily yield - 8.0 MGD.

WORKFORCE

On March 1, 2007, the Company maintained a workforce of 40 full-time employees
and 1 part-time employee, 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

LEGAL 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, 2006, there were approximately 384 record holders of the
Company's common stock. Approximately 71% 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
-------------------------------------------------------------------------------
2006

       First Quarter                    $18.73         16.73         $.17
       Second Quarter                    18.73         17.49          .17
       Third Quarter                     17.46         16.12          .17
       Fourth Quarter                    16.36         14.70          .17

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

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.

<PAGE>













BIW LIMITED
230 Beaver Street, PO Box 426  Ansonia, CT 06401-0426  203 735.1888