United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31,June 30, 2001.
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from _______________ to _______________.
Commission File Number 1-7978
Black Hills Power, Inc.
Incorporated in South Dakota IRS Identification Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57701
Registrant's telephone number (605)-721-1700
Former name, former address, and former fiscal year if changed since last report
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ----------
As of April 30,July 31, 2001, there were issued and outstanding 23,416,396 shares of the
Registrant's common stock, $1.00 par value, all of which were held beneficially
and of record by Black Hills Corporation.
Reduced Disclosure
The Registrant meets the conditions set forth in General Instruction H (1) (a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
1
BLACK HILLS POWER, INC.
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income- 3
Three and Six Months Ended
March 31,June 30, 2001 and 2000
Consolidated Balance Sheets- 4-5
March 31,June 30, 2001 and December 31, 2000
Consolidated Statements of Cash Flows- 6
Three and Six Months Ended
MarchJune 31, 2001 and 2000
Notes to Consolidated Financial Statements 7-127-13
Item 2. Results of Operations 12-1313-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 1416
Item 6. Exhibits and Reports on Form 8-K 1416
Signatures 1517
2
BLACK HILLS POWER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months March 31Six Months
June 30 June 30
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Operating revenues $88,625 $33,299$84,077 $35,899 $172,701 $69,198
------- ------- -------- -------
Operating expenses:
Fuel and purchased power 30,090 7,97014,763 10,328 44,853 18,298
Operations and maintenance 6,946 5,00510,524 5,511 17,468 10,515
Administrative and general 7,453 9668,403 1,429 15,857 2,394
Depreciation and amortization 6,8716,964 3,909 13,836 7,819
Taxes, other than income taxes 3,035 1,8062,899 1,741 5,934 3,547
------- --------- -------- -------
54,395 19,65643,553 22,918 97,948 42,573
------- --------- -------- -------
Operating income 34,230 13,64340,524 12,981 74,753 26,625
------- --------- -------- -------
Other income and (expense):
Interest expense (10,767) (4,535)(10,751) (4,435) (21,585) (8,970)
Investment income 1,943 1,3241,898 1,468 3,841 2,792
Other, net 1,221 1822,692 604 3,981 757
------- --------- -------- -------
(7,603) (3,029)(6,161) (2,363) (13,763) (5,421)
------- --------- -------- -------
Income from continuing operations before
minority interest and income taxes 26,627 10,61434,363 10,618 60,990 21,204
Minority interest (1,960)(2,611) - (4,571) -
Income taxes (8,418) (3,389)(11,781) (3,523) (20,199) (6,912)
------- ------- -------- -------
Income from continuing operations 16,249 7,22519,971 7,095 36,220 14,292
Discontinued operation, net of
income taxes (Note 2) - 966 4,832 1,8362,830
------- ------- -------- -------
Net income $21,081 $9,061$19,971 $ 8,061 $ 41,052 $17,122
======= ======= ======== =======
SeeThe accompanying notes to the consolidated financial statements are an
integral part of these consolidated financial statements.
3
BLACK HILLS POWER, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31
June 30 December 31
2001 2000
---- ----
(in thousands)
Assets
Assets
Current assets:
Cash and cash equivalents $ 27,10925,574 $ 12,697
Receivables (net of allowance for doubtful accounts of $1,961$3,058
and $3,631, respectively)
Customers 18,39517,360 19,339
Related party 112,827107,232 89,203
Other 16,11410,217 19,653
Materials, supplies and fuel 10,14816,157 10,703
Prepaid expenses 6,7486,281 6,788
Assets of discontinued operations (Note 2) - 247,548
-------- ----------
191,341------------- -------------
182,821 405,931
-------- ----------------------- -------------
Investment in affiliates 58,98064,888 56,225
-------- ----------------------- -------------
Property and equipment 834,5841,010,816 817,728
Less accumulated depreciation (214,989)(220,801) (207,805)
-------- ----------------------- -------------
Net property and equipment 619,595790,015 609,923
-------- ----------------------- -------------
Other assets:
Regulatory asset 4,134 4,1334,134
Other, 32,650 31,714
-------- ----------
36,784principally goodwill 35,863 31,713
------------- -------------
39,997 35,847
-------- ----------------------- -------------
Total $906,700$1,077,721 $1,107,926
======== ======================= =============
SeeThe accompanying notes to the consolidated financial statements are an
integral part of these consolidated financial statements.
4
BLACK HILLS POWER, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31June 30 December 31
2001 2000
---- ----
(in thousands)
Liabilities and Stockholder's Equity
Current liabilities:
Current maturities of long-term debt $ 13,13314,470 $ 13,961
Notes payable 97,129- 86,000
Notes payable - related party 111,608 95,222250,238 98,631
Accounts payable 20,605 15,23220,702 12,734
Accounts payable - related party 3,450 1,2581,727 3,756
Accrued liabilities 27,074 23,74621,801 20,337
Derivatives at market value 12,4358,603 -
Liabilities of discontinued operations (Note 2) - 163,661
---------- ----------
285,434------------- -------------
317,541 399,080
---------- ----------------------- -------------
Long-term debt, net of current maturities 305,463433,814 307,090
---------- ----------------------- -------------
Deferred credits:
Federal income taxes 53,04954,919 54,706
Investment tax credits 2,4102,289 2,530
Regulatory liability 4,5514,459 4,673
Other 10,6029,958 9,459
--------- ----------
70,612------------- --------------
71,625 71,368
--------- ----------------------- --------------
Minority interest in subsidiaries 35,41527,248 37,963
--------- ----------------------- --------------
Stockholder's equity:
Common stock $1 par value; 50,000,000 shares authorized;
Issued: 23,416,396 and 23,416,396 shares respectively 23,416 23,416
Additional paid-in capital 77,32680,075 77,326
Retained earnings 117,371129,848 191,683
Accumulated other comprehensive income (loss) (8,337)loss (5,846) -
--------- ----------------------- --------------
Total stockholder's equity 209,776227,493 292,425
--------- ----------------------- --------------
Total $ 906,700$1,077,721 $1,107,926
========= ======================= ==============
SeeThe accompanying notes to the consolidated financial statements are an
integral part of these consolidated financial statements.
5
BLACK HILLS POWER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months March 31Six Months
June 30 June 30
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Cash flows from operations $15,323 $16,137
------- -------$ 24,660 $ 4,095 $ 39,039 $ 19,668
--------- --------- --------- ---------
Investing activities:
Property additions (16,543) (3,353)(177,623) (10,163) (195,056) (12,950)
Payment to acquire holdings of minority
interests (10,410) -- (10,410) --
Available for sale securities sold --- -- -- 4,315
Increase(Increase) decrease in investments (2,755) (15,867)
-------- -------
(19,298) (14,905)
-------- -------(689) 254 (1,272) (15,613)
--------- --------- --------- ---------
(188,722) (9,909) (206,738) (24,248)
--------- --------- --------- ---------
Financing activities
Dividends paid (6,673) (5,872)(7,494) (5,876) (14,168) (11,749)
Common stock issued - 160-- 103 -- 263
Increase (decrease) in short-term borrowings 27,515 5,000
Long-term41,501 8,000 69,016 13,000
Subsidiary distributions to minority
interests (1,168) -- (1,505) --
Change in long-term debt payments (2,455) (526)
------- -------
18,387 (1,238)
------- -------129,688 786 127,233 259
--------- --------- --------- ---------
162,527 3,013 180,576 1,773
--------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents 14,412 (6)(1,535) (2,801) 12,877 (2,807)
Cash and cash equivalents:
Beginning of period 27,109 3,792 12,697 3,798
------- ---------------- --------- --------- ---------
End of period $27,109 $ 3,792
======= =======25,574 $ 991 $ 25,574 $ 991
========= ========= ========= =========
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest $ 7,8316,990 $ 5,4703,285 $ 20,826 $ 8,755
Income taxes $ 16,335 $ 6,197 $ 19,944 $ 6,197
Stock dividend distribution to Black Hills
Corporation, the parent company of Black
Hills Power, Inc. (Note 2) $89,643 $ --- $ -- $ 89,643 $ --
SeeThe accompanying notes to the consolidated financial statements are an
integral part of these consolidated financial statements.
6
BLACK HILLS POWER, INC.
Notes to Consolidated Financial Statements
(unaudited)
(Reference is made to Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K)
(1) MANAGEMENT'S STATEMENT
The financial statements included herein have been prepared by Black
Hills Power, Inc. (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to
such rules and regulations; however, the Company believes that the
footnotes adequately disclose the information presented. These financial
statements should be read in conjunction with the financial statements
and the notes thereto, included in the Company's 2000 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
Accounting methods historically employed require certain estimates as of
interim dates. The information furnished in the accompanying financial
statements reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the March 31,June 30, 2001,
December 31, 2000 and March 31,June 30, 2000, financial information and are of a
normal recurring nature. The results of operations for the three and six
months ended March 31,June 30, 2001, are not necessarily indicative of the
results to be expected for the full year.
(2) NON-CASH DIVIDEND AND DISCONTINUED OPERATIONS
During the quarter ended March 31, 2001, the Company distributed a
non-cash dividend to its parent company, Black Hills Corporation (Parent)(the
Parent). The dividend consisted of 50,000 common shares of Wyodak
Resources Development Corporation (Wyodak), which represents 100 percent
ownership of Wyodak. The Company therefore no longer operates in the
coal production segment, oil and natural gas production segment, fuel
marketing segment or communications as the Company had indirectly owned
the companies operating in these segments through its ownership of
Wyodak. As a result, the Company's only subsidiary is Black Hills Energy
Capital and its subsidiaries. The Company's investment in Wyodak at the
time of the distribution was $89.6 million.
7
The consolidated financial statements and notes to consolidated
financial statements have been restated to reflect the continuing
operations of the Company for all periods presented. The assets and
liabilities of Wyodak are shown in the Consolidated Balance Sheets under
the captions "Assets of discontinued operations" and "Liabilities of
discontinued operations".
7
The net operating results of discontinued operations are included in the
Consolidated Statements of Income under the caption "Discontinued
operations, net of income taxes" and are summarized as follows:
Three Months Ended ThreeSix Months Ended
March 31,June 30, 2001 March 31,June 30, 2000
-------------- --------------2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Revenue $ - $301,079 $197,274 $215,583$515,763
Income before income taxes - 1,481 7,849 3,1904,434
Federal income taxes - 168 3,017 643810
Net income - 966 4,832 1,8362,830
(3) RECLASSIFICATIONS
Certain 2000 amounts in the financial statements have been reclassified
to conform to the 2001 presentation. These reclassifications did not
have an effect on the Company's stockholders' investment or results of
operations as previously reported.
(4) NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations" (SFAS 141) and No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase
method of accounting. Under SFAS 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed annually
(or more frequently if impairment indicators arise) for impairment.
Intangible assets with a defined life will continue to be amortized
over their useful lives (but with no maximum life). The amortization
provisions of SFAS 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company is required to adopt SFAS
142 effective January 1, 2002. Management is currently evaluating the
effect that adoption of the provisions of SFAS 142 that are effective
January 1, 2002 will have on the Company's financial statements.
(5) CHANGE IN ACCOUNTING PRINCIPLE
In June 1998, the Financial Accounting Standards Board (FASB)FASB issued SFAS No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133, as amended,
establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. The StatementSFAS 133 requires that
changes in the derivative instrument's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met.
SFAS 133 allows special hedge accounting for fair value and cash flow
hedges. The StatementSFAS 133 provides that the gain or loss on a derivative
instrument designated and qualifying as a fair value hedging instrument
as well as the offsetting loss or gain on the hedged item attributable
to the hedged risk be recognized currently in earnings in the same
accounting period. SFAS 133 provides that the effective portion of the
gain or loss on a derivative instrument designated and qualifying as a
cash flow hedging instrument be reported as a
8
component of other comprehensive income and be reclassified into
earnings in the same period or periods during which the hedged
forecasted transaction affects earnings.
8
The remaining gain or loss on the derivative instrument, if any, must
be recognized currently in earnings.
SFAS 133 requires that on date of initial adoption, an entity shall
recognize all freestanding derivative instruments in the balance sheet
as either assets or liabilities and measure them at fair value. The
difference between a derivative's previous carrying amount and its fair
value shall be reported as a transition adjustment. The transition
adjustment resulting from adopting this Statement shall be reported in
net income or other comprehensive income, as appropriate, as the effect
of a change in accounting principle in accordance with paragraph 20 of
Accounting Principles Board Opinion No. 20 (APB 20), "Accounting
Changes."
On January 1, 2001, the Company adopted SFAS 133. The Company had
certain interest rate swaps documented as cash flow hedges, which upon
adoption resulted in a cumulative decrease to accumulated other comprehensive
income of $7.5 million.
(5)(6) CHANGES IN LONG-TERM DEBT AND NOTES PAYABLE
In conjunction with the closing of the Fountain Valley acquisition
(Note 12) the Company issued long-term non-recourse project level
financing. The debt matures July 1, 2006, has a floating interest rate
(5.13 percent at June 30, 2001) and is collateralized by a mortgage on
the project's land and facilities, leases and rights, including rights
to receive payments under long-term purchase power contracts.
Other than the above transactions, the Company had no other material
changes in its consolidated indebtedness, as reported in Notes 6 and 7
of the Company's 2000 Annual Report on Form 10-K.
(7) COMPREHENSIVE INCOME
The following table presents the components of the Company's
comprehensive income:
Three Months Ended March 31Six Months Ended
June 30 June 30
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Net income $21,081 $9,061$19,971 $8,061 $41,052 $17,122
Other comprehensive income:
Initial impact of adoption of SFAS 133,
net of minority interest - - (4,880) -
Fair value adjustment on derivatives
designated as cash flow hedges, net of
minority interest (8,337)2,491 - (966) -
------- ------ ------- -------
Comprehensive income $12,744 $9,061$22,462 $8,061 $35,206 $17,122
======= ====== ======= =============
(6)9
(8) RELATED-PARTY TRANSACTIONS
Receivables
-----------
The Company has an unsecured line of credit extended to Black Hills
Fiber Systems,FiberCom LLC, an indirect subsidiary of Black Hills Corporation,the Parent, which is due on
demand. Outstanding advances were $110.8$88.2 million and $87.8 million as of
March 31,June 30, 2001 and December 31, 2000, respectively.
Advances under the note bear interest at prime rate (8.0 percent at
March 31, 2001) and interest is receivable monthly. Interest income
received on the note for the three months ended March 31,June 30, 2001 and 2000
was $1.9$1.6 million and $0 respectively, and for the six months ended June
30, 2001 and 2000 was $3.5 million and $0 respectively. The Company
also has a line of credit extended to Wyodak, which is due on demand.
Outstanding advances were $14.0 million at June 30, 2001 and $0 at
December 31, 2000. Interest income received on the note was $163,000
for the three and six month periods ended June 30, 2001 and $0 in the
same period for the year 2000. Advances under these notes bear interest
at a variable rate that does not exceed prime and is receivable
monthly.
In addition, the Company has accounts receivable balances related to
transactions with other Black Hills Corporation subsidiaries. The
balances were $2.0$5.1 million and $1.4 million as of March 31,June 30, 2001 and
December 31, 2000, respectively.
Note Payable
------------
The Company has aan unsecured line of credit with Wyodak Resource
Development Corporation, an indirect subsidiary of Black Hills
Corporation,its Parent, which is
due on demand. Borrowings under the note were $75.5 million at June 30,
2001 and $0 at December 31, 2000. Interest expense was $491,000 for the
three and six month periods ended June 30, 2001 and $0 for the same
periods ended June 30, 2000. These borrowings bear interest at a
variable rate based on LIBOR plus 1.375that does not exceed prime and certain
9
adjustments (7.245 percent at March 31, 2001) and interest is payable monthly.
Interest expenseThe Company also has an unsecured line of credit with Wyodak, an
indirect subsidiary of the Parent, which is due on the borrowingsdemand. Borrowings
under thethis note were $174.7 million at June 30, 2001 and $98.6 million
at December 31, 2000. Interest for the three months ended March 31,June 30, 2001
and 2000 was $1.7$1.9 million and $0, respectively.respectively and $3.6 million and $0
for the six months ended June 30, 2001 and 2000. These borrowings bear
interest at a variable rate that does not exceed prime and is payable
monthly.
Other Payables
The Company has accounts payable balances related to transactions with
other Parent subsidiaries. The balances were $1.7 million at June 30,
2001 and $3.8 million at December 31, 2000.
Other Balances and Transactions
-------------------------------
In addition to the notes described above, the Company purchased natural
gas to fuel its combustion turbine from Enserco Energy, an indirect
subsidiary of Black Hills Corporation.the Parent. The amountamounts purchased during the three month
period and six month period ended March 31,June 30, 2001 waswere approximately $3.6
million and $7.5 million, respectively, and is included in "Fuel and
purchased power" on the Consolidated Statements of Income.
10
In the opinion of management, the described related-party transactions
have been fair and reasonable to the Company and have been entered into
under terms and rates substantially the same as those transactions
entered into with unrelated third parties in the ordinary course of
business.
(7)(9) SUMMARY OF INFORMATION RELATING TO SEGMENTS OF THE COMPANY'S BUSINESS
The Company's reportable segments are those that are based on the
Company's method of internal reporting, which generally segregates the
strategic business groups due to differences in products, services and
regulation. Prior to the first quarter of 2001, the Company reported
six operating segments consisting of Electric, Mining, Oil and Gas,
Fuel Marketing, Independent Power and Communications. Due to the
distribution of Wyodak common stock as described in Note 2, the Company
no longer has companies operating in the Mining, Oil and Gas, Fuel
Marketing and Communications segments.
The Company's operations are now conducted through two business
segments. As of March 31,June 30, 2001, substantially all of the Company's
operations and assets are located within the United States. The two
segments consist of: Electric, which supplies electric utility service
to western South Dakota, northeastern Wyoming and southeastern Montana;
and Independent Power, which produces and sells power to wholesale
customers. Independent Power's operations were not significant to the
Company until the Indeck Capital acquisition in the third quarter of
2000.
Segment information follows the same accounting policies as described
in Note 1 of the Company's 2000 Annual Report on Form 10-K. Segment
information included in the accompanying Consolidated Balance Sheets
and Consolidated Statements of Income is as follows (in thousands):
External Inter-segment
Operating Revenues Operating Revenues Net Income (loss)
(In thousands)
Quarter to Date
March 31,June 30, 2001
Electric $ 70,580$61,601 $ - $17,337$16,784
Independent power 18,04522,476 - (1,088)
-------- ----------3,187
------- --------- -------
Total $88,625$84,077 $ - $16,249
======== ==========$19,971
======= ========= =======
10
External Inter-segment
Operating Revenues Operating Revenues Net Income (loss)
(In thousands)
QuarterYear to Date
March 31, 2000June 30, 2001
Electric $ 33,299$132,180 $ - $7,225$34,124
Independent power 40,521 - 2,096
-------- --------- -------
Total $172,701 $ - $36,220
======== ========= ========= =============
(8)11
(10) LEGAL PROCEEDINGS
On April 3rd,3, 2001, Wyodak reached a settlement of ongoing litigation
with PacifiCorp filed in the United States District Court, District of
Wyoming, (File No. 0cv-155B)00CV-155B). The litigation concerned the parties'
rights and obligations under the Further Restated and Amended Coal
Supply Agreement dated May 5, 1987, by which PacifiCorp purchased coal
from our coal mine to meet the coal requirements of the Wyodak Power
Plant. The Settlement Agreement provided for the dismissal of the
litigation, with prejudice, coupled with the execution of several new
coal-related agreements between the parties. As discussed in Note 2,
the Company has distributed its ownership of Wyodak to its parent
company. As a result, the Company is no longer a concerned party to
this litigation.
(9)(11) PRICE RISK MANAGEMENT
Financing Activities
--------------------
To reduce risk from fluctuations in interest rates, the Company enters
into interest rate swap transactions. These transactions are used to
hedge interest rate risk for variable rate debt financing. For such
transactions, the Company utilizes hedge accounting per the
requirements of SFAS 133. These transactions were identified as cash
flow hedges, properly documented, and effectiveness testing
established. At quarter-end, these hedges met effectiveness testing
criteria and retained their cash flow hedge status. At March 31,June 30, 2001,
the Company had interest rate swaps with aan average balance notional
amount of $163.3$112.7 million, having a maximum term of six years and a fair
value of $(12.4)$(8.6) million. Because these hedges are fully effective (no
time value or basis risk), the entire derivative fair value is recorded
in other comprehensive income.
At March 31,June 30, 2001, the Company had $254.5 million of$541.5 outstanding, floating-rate
debt of which $78.3$415.3 million was not offset with interest rate swap
transactions that effectively convert the debt to a fixed rate.
Credit Risk
-----------
In addition to the risk associated with price movements, credit risk is
also inherent in the Company's risk management activities. Credit risk
relates to the risk of loss resulting from non-performance of
contractual obligations by a counterparty. While the Company has not
experienced significant losses due to the credit risk associated with
these arrangements, the Company has off-balance sheet risk to the
extent that the counterparties to these transactions may fail to
perform as required by the terms of each such contract.
11
(10) SUBSEQUENT EVENTS
Acquisitions
------------(12) ACQUISITIONS
Early in the second quarter of 2001, the Company's independent power
subsidiary, Black Hills Energy Capital, closed on the purchase of the
Fountain Valley facility, a 240 megawatt generation facility located
near Colorado Springs, Colorado, featuring six LM-6000 simple-cycle,
gas-fired turbines. The facility is currently under construction and is
expected to come on-line early in the third quarter of 2001. The
facility was purchased from Enron Corporation for approximately $175$183
million and washas been financed primarily with non-recourse financing
from Union Bank of California. In addition, theThe Company has obtained an 11-year
contract with Public Service of Colorado to utilize the facility for
peaking purposes. The contract is a tolling arrangement in which the
Company assumes no fuel risk.
12
(13) SUBSEQUENT EVENT
Early in the third quarter of 2001, Black Hills Energy Capital
announced it had signed a definitive agreement to purchase a 273 MW
gas-fired power generation complex located in North Las Vegas, Nevada
from Enron North America, a wholly-owned subsidiary of Enron
Corporation. The transaction is expected to close during the third
quarter 2001.
Expansion of the present 51 MW co-generation site near Las Vegas is now
under way. Construction of a new combined cycle generation facility
adjacent to the existing plant will add approximately 222 MW of
capacity to the existing plant site. The new generation is expected to
phase in operations in the third quarter of 2002. The facility will
feature LM-6000 gas-fired turbine technology comparable to the Company
facilities in Colorado and Wyoming. The Company has initiated
discussions with several banks and expects to finance the project
primarily with non-recourse debt.
As part of the transaction, the Company also has secured long-term
contracts for the output of the facility. Nearly all of the capacity
and energy produced by the existing 51 MW plant is under contract
through 2024 with the remainder being merchant power. The power of the
planned 222 MW combined-cycle plant is sold under a 15-year contract.
The contract requires the purchaser to provide fuel to the power plant
when the plant is dispatched.
ITEM 2. RESULTS OF OPERATIONS
Consolidated Results
Consolidated earnings were $20.0 million and $8.1 million for the three
month periods ended June 30, 2001 and June 30, 2000, respectively and
$41.1 million and $17.1 million for the six months ended March 31,June 30, 2001
were
$21.1 million compared to $9.1 million in the same period of the prior
year.and June 30, 2000. Consolidated earnings from continuing operations for
the three
month periodsix months ended March 31,June 30, 2001 were $16.2$36.2 million compared to $7.2$14.3
million for the same period of the prior year. As discussed in Note 2
of Notes to Consolidated Financial Statements, during the quarter ended
March 31, 2001, the Company distributed ownership interest in Wyodak to
its parent company, Black Hills Corporation. The consolidated financial
statements have been restated to reflect the continuing operations of
the Company for all periods presented.
The increase in earnings from continuing operations for the three monthsand
six month periods ended March 31,June 30, 2001 were primarily driven by expanded
power generation and increased wholesale off-system utility sales.
Unusual energy market conditions in the United States continuecontinued to
contribute to our strong financial performance. The increaseEnergy prices decreased
substantially beginning in earnings from discontinued operationsJune 2001.
Consolidated revenues for the three months ended March 31,June 30, 2001 were
primarily driven by strong natural gas
marketing activity, increased fuel production and expanded power
generation partially offset by losses in the communications group.
Strong earnings growth for both the continuing and discontinued
operations of the Company was partially offset by reserves for exposure
to the unstable markets in the western United States.
Consolidated revenues from continuing operations for the three months
ended March 31, 2001 were $88.6$84.1 million compared to $33.3$35.9 million for the same period of the
prior year. Consolidated revenues from continuing operations were
$172.7 million and $69.2 million for the six month period ended June
30, 2001 and June 30, 2000, respectively. The growth in revenues was a
result of high electric energy prices, primarily as a result of extreme
price volatility in the western markets, and increases in off-system
sales by our electric utility.
1213
Our electric utility has continued to produce modest growth in revenue
and earnings from the retail business over the past two years. We
believe that this trend is stable and that, absent unplanned system
outages, it will continue for the next several years due to the
extension of our electric utility's rate freeze until January 1, 2005.
The share of the utility's future earnings generated from wholesale
off-system sales will depend on many factors, including native load
growth, plant availability and commodity prices in the western markets.
We expect that earnings growth from the independent energy group over
the next few years will be driven primarily by our continued expansion
in the independent power production segment.
Electric Utility
Three Months Ended March 31Six Months Ended
June 30 June 30
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Revenue $70,580 $33,299$61,601 $35,899 $132,180 $69,198
Operating income 28,664 13,64429,310 12,980 57,974 26,625
Net income 17,337 7,22516,784 7,094 34,123 14,292
EBITDA 33,167 17,47833,179 16,924 66,346 34,401
EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is used by management and some investors as an indicator of
a company's historical ability to service debt. Management believes that an
increase in EBITDA is an indicator of improved ability to service existing debt,
to sustain potential future increases in debt and to satisfy capital
requirements. However, EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to either operating income,
or as an indicator of operating performance or cash flows from operating,
investing and financing activities, as determined by accounting principles
generally accepted in the United States. EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
Electric utility revenues increased 11272 percent and 91 percent for the three and
six month periods ended March 31,June 30, 2001, respectively, compared to the same
periodperiods in the prior year. Earnings from the electric utility increased $9.7
million and $19.8 million for the segment increased 141 percent over the same period. The increase in revenuesthree- and six- month periods ended June 30,
2001, respectively. Increased earnings was primarily duecontinued to a 145 percent increase in wholesalebe driven by off-system
sales atin the wholesale markets; average prices that were seven times higherapproximately double the
three-month average price received and more than triple the six-month average
prices inprice received compared to the same periods of the prior year. The increaseHowever, in off-system sales was driven
by high spotJune
2001, wholesale electricity prices decreased in response to changes in western
energy market conditions. Off-system megawatt hours sold increased 138 percent
for the three months and 141 percent for the six months ended June 30, 2001
compared to the same periods in 2000, due to higher market prices for energy, which enabled usand the 40 MW
generating capacity added in 2000. In addition, the electric utility had modest
gains in firm residential and commercial electric sales and a reduction of
reserves in the second quarter related to generate more energy
from our combustion turbine facilities, includingreduced exposure in the Neil Simpson combustion
turbine which we placed into commercialstabilizing
western markets. These increases were partially offset by higher fuel and
operating costs associated with operation inof the gas turbines and other power
plant operations, and higher purchased power costs.
14
The following table provides certain operating statistics.
Three Months Ended Six Months Ended
June 2000.30 June 30
2001 2000 2001 2000
---- ---- ---- ----
Firm (system) sales - MWh 464,000 462,000 990,000 958,000
Off-system sales - MWh 293,000 123,000 550,000 228,000
Independent Power Production
Our independent power segment produced revenues of $18.0$22.5 million and earnings of
$(1.1)$3.2 million for the three month period ended March 31,June 30, 2001 and revenues of
$40.5 million and earnings of $2.1 million for the six months ended June 30,
2001. Current periodsperiod results stem from our acquisition of Indeck Capital in the
third quarter of 2000. The net loss for the current three month period is due to credit reserves
of $2.5 million being established to offset this segments' direct exposure to
the volatile western markets.
Early in the second quarter of 2001, we closed on the purchase of the Fountain
Valley facility, a 240 megawatt generation facility located near Colorado
Springs, Colorado, featuring six LM-6000 simple-cycle, gas-fired turbines. The
facility is currently under construction and is expected to come on-line early
in the third quarter of 2001. In addition, we obtained an 11-year contract with
Public Service of Colorado to utilize the facility for peaking purposes. The
contract is a tolling arrangement in which the Company assumes no fuel risk.
13Forward Looking Statements.
The above information includes "forward-looking statements" as defined by the
Securities and Exchange Commission. These statements concern the Company's
plans, expectations and objectives for future operations. All statements, other
than statements of historical facts, included above that address activities,
events or developments that the Company expects, believes or anticipates will or
may occur in the future are forward-looking statements. The words believe,
intend, anticipate, estimate, aim, project and similar expressions are also
intended to identify forward-looking statements. These forward-looking
statements may include, among others, such things as expansion and growth of the
Company's business and operations; future financial performance; future
acquisition and development of power plants; and business strategy. These
forward-looking statements are based on assumptions which the Company believes
are reasonable based on current expectations and projections about future events
and industry conditions and trends affecting the Company's business. However,
whether actual results and developments will conform to the Company's
expectations and predictions is subject to a number of risks and uncertainties
which could cause actual results to differ materially from those contained in
the forward-looking statements, including the following factors: prevailing
governmental policies and regulatory actions with respect to allowed rates of
return, industry and rate structure, acquisition and disposal of assets and
facilities, operation and construction of plant facilities, recovery of
purchased power and other capital investments, and present or prospective
wholesale and retail competition; changes in and compliance with environmental
and safety laws and policies; weather conditions; population growth and
demographic patterns; competition for retail and wholesale customers; market
demand, including structural market changes; changes in tax rates or policies or
in rates of inflation; changes in project costs; unanticipated changes in
operating expenses or capital expenditures; capital market conditions;
counterparty credit risk; technological advances; competition for new energy
development opportunities; legal and administrative proceedings that influence
the Company's business and profitability; and unanticipated developments in the
western power markets, including unanticipated governmental intervention,
deterioration in the financial condition of counterparties, default on amounts
due, adverse changes in current or future litigation and adverse changes in the
tariffs of the California Independent System Operator Corporation. Any such
forward-looking statements should be considered in conjunction with the
Company's most recent annual report on Form 10-K and its interim quarterly
reports on Form 10-Q on file with the Securities and Exchange Commission. New
factors that could cause actual results to differ materially from those
described in forward-looking statements emerge from time to time, and it is not
possible for the Company to predict all such factors, or to the extent to which
any such factor or combination of factors may cause actual results to differ
from those contained in any forward-looking statement. The Company assumes no
obligation to update publicly any such forward-looking statements, whether as a
result of new information, future events, or otherwise.
15
BLACK HILLS POWER, INC.
Part II - Other Information
Item 1. Legal Proceedings
-----------------
On April 3, 2001, our former subsidiary, Wyodak Resources
Development Corporation, reached a settlement of ongoing
litigation with PacifiCorp filed in the United States District
Court, District of Wyoming (File No. 0cv-155B)00CV-155B). For more
information on this legal proceeding, see Note 810 - LEGAL
PROCEEDINGS - of Notes to Consolidated Financial Statements in
this Form 10-Q.
Item 6. Exhibits and Reports of Form 8-K
--------------------------------
None
1416
BLACK HILLS CORPORATION
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK HILLS CORPORATION
/s/ Roxann R. Basham
-----------------------------------------------------------------------------------------
Roxann R. Basham, Vice President - Controller
(Principal Accounting Officer)
/s/ Mark T. Thies
----------------------------------------------------------------------------------------
Mark T. Thies, Senior VP & CFO
(Principal Financial Officer)
Dated: May 21,August 14, 2001
1517