Exhibit 99
Unaudited Pro Forma Financial Information
The unaudited pro forma condensed consolidated financial statements are presented for Black Hills Corporation to illustrate the estimated effects of the sale by Black Hills Exploration & Production, Inc. ("Black Hills Exploration"), a subsidiary of Black Hills Corporation, of certain oil and gas assets.
On September 27, 2012, Black Hills Exploration sold approximately 85 percent of its Bakken and Three Forks shale assets in the Williston Basin for approximately $243 million, subject to customary post-closing adjustments. The sale involves Black Hills Exploration's non-operated interest in approximately 28,000 net lease acres and 73 gross wells. Per the terms of the sale agreement, the closing proceeds of the properties were calculated based on the July 1, 2012 effective date.
The unaudited pro forma condensed consolidated financial statements are based on assumptions that management believes are reasonable under the circumstances and are intended for informational purposes only. They are not necessarily indicative of the financial results that would have occurred if the transaction described herein had taken place on the dates indicated, nor are they indicative of future consolidated results. The unaudited pro forma condensed consolidated financial statements and the accompanying notes should be read together with the Company’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2011, and Management’s Discussion and Analysis included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as well as the Company's unaudited consolidated financial statements filed with the SEC on Form 10-Q as of and for the six months ended June 30, 2012.
BLACK HILLS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
|
| | | | | | | | | | | |
| | Historical as of | | Pro Forma | | Pro Forma as of |
| | June 30, 2012 | | Adjustments | | June 30, 2012 |
| | (in thousands) |
| ASSETS | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | $ | 40,110 |
| | $ | 226,636 |
| (a) | $ | 266,746 |
|
| Restricted cash and equivalents | 4,772 |
| | | | 4,772 |
|
| Accounts receivable, net | 109,157 |
| | (4,952 | ) | (b) | 104,205 |
|
| Materials, supplies and fuel | 61,455 |
| | | | 61,455 |
|
| Derivative assets, current | 16,595 |
| | | | 16,595 |
|
| Income tax receivable, net | 12,141 |
| | | | 12,141 |
|
| Deferred income tax assets, net, current | 30,401 |
| | | | 30,401 |
|
| Regulatory assets, current | 34,781 |
| | | | 34,781 |
|
| Other current assets | 26,591 |
| | (8,274 | ) | (b) | 18,317 |
|
| Total current assets | 336,003 |
| | 213,410 |
| | 549,413 |
|
| | | | | | |
| Investments | 16,208 |
| | | | 16,208 |
|
| | | | | | |
| Property, plant and equipment | 3,863,380 |
| | (195,366 | ) | (c) | 3,668,014 |
|
| Less accumulated depreciation and depletion | (1,006,827 | ) | | | | (1,006,827 | ) |
| Total property, plant and equipment, net | 2,856,553 |
| | (195,366 | ) | | 2,661,187 |
|
| | | | | | |
| Other assets: | | | | | |
| Goodwill | 353,396 |
| | | | 353,396 |
|
| Intangible assets, net | 3,731 |
| | | | 3,731 |
|
| Derivative assets, non-current | 1,770 |
| | | | 1,770 |
|
| Regulatory assets, non-current | 186,886 |
| | | | 186,886 |
|
| Other assets, non-current | 19,733 |
| | | | 19,733 |
|
| Total other assets | 565,516 |
| | — |
| | 565,516 |
|
| | | | | | |
| TOTAL ASSETS | $ | 3,774,280 |
| | $ | 18,044 |
| | $ | 3,792,324 |
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
BLACK HILLS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
(unaudited)
|
| | | | | | | | | | | |
| | Historical as of | | Pro Forma | | Pro Forma as of |
| | June 30, 2012 | | Adjustments | | June 30, 2012 |
| | (in thousands, except share amounts) |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | |
| Current liabilities: | | | | | |
| Accounts payable | $ | 59,739 |
| | $ | (5,790 | ) | (b) | $ | 53,949 |
|
| Accrued liabilities | 158,240 |
| | (8,613 | ) | (b) | 149,627 |
|
| Derivative liabilities, current | 85,675 |
| | | | 85,675 |
|
| Regulatory liabilities, current | 16,785 |
| | | | 16,785 |
|
| Notes payable | 225,000 |
| | | | 225,000 |
|
| Current maturities of long-term debt | 227,590 |
| | | | 227,590 |
|
| Total current liabilities | 773,029 |
| | (14,403 | ) | | 758,626 |
|
| | | | | | |
| Long-term debt, net of current maturities | 1,044,891 |
| | | | 1,044,891 |
|
| | | | | | |
| Deferred credits and other liabilities: | | | | | |
| Deferred income tax liabilities, net, non-current | 316,393 |
| | 10,720 |
| (d) | 327,193 |
|
| Derivative liabilities, non-current | 42,077 |
| | | | 42,077 |
|
| Regulatory liabilities, non-current | 114,593 |
| | | | 114,593 |
|
| Benefit plan liabilities | 162,530 |
| | | | 162,530 |
|
| Other deferred credits and other liabilities | 124,482 |
| | (51 | ) | (b) | 124,431 |
|
| Total deferred credits and other liabilities | 760,075 |
| | 10,669 |
| | 770,824 |
|
| | | | | | |
| | | | | | |
| | | | | | |
| Stockholders' equity: | | | | | |
| Common stockholders' — | | | | | |
| Common stock | 44,177 |
| | | | 44,177 |
|
| Additional paid-in capital | 727,613 |
| | | | 727,613 |
|
| Retained earnings | 460,324 |
| | 21,778 |
| (a),(b),(c), (d) | 482,022 |
|
| Treasury stock at cost | (2,177 | ) | | | | (2,177 | ) |
| Accumulated other comprehensive income (loss) | (33,652 | ) | | | | (33,652 | ) |
| Total stockholders' equity | 1,196,285 |
| | 21,778 |
| | 1,217,983 |
|
| | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 3,774,280 |
| | $ | 18,044 |
| | $ | 3,792,324 |
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
BLACK HILLS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
|
| | | | | | | | | | | |
| | Historical Six Months Ended | | Pro Forma | | Pro Forma Six Months Ended |
| | June 30, 2012 | | Adjustments | | June 30, 2012 |
| | (in thousands, except per share amounts) |
| Revenue: | | | | | |
| Utilities | $ | 551,601 |
| | $ | | $ | 551,601 |
|
| Non-regulated energy | 56,613 |
| | (10,790 | ) | (e) | 45,823 |
|
| Total revenue | 608,214 |
| | (10,790 | ) | | 597,424 |
|
| | | | | | |
| Operating expenses: | | | | | |
| Utilities - | | | | | |
| Fuel, purchased power and cost of gas sold | 220,635 |
| | | | 220,635 |
|
| Operations and maintenance | 124,323 |
| | | | 124,323 |
|
| Non-regulated energy operations and maintenance | 43,308 |
| | (673 | ) | (e) | 42,635 |
|
| Depreciation, depletion and amortization | 79,990 |
| | (5,709 | ) | (e) | 74,281 |
|
| Taxes - property, production and severance | 20,988 |
| | (1,309 | ) | (e) | 19,679 |
|
| Impairment of long-lived assets | 26,868 |
| | | | 26,868 |
|
| Other operating expenses | 1,463 |
| | | | 1,463 |
|
| Total operating expenses | 517,575 |
| | (7,691 | ) | | 509,884 |
|
| | | | | | |
| Operating income | 90,639 |
| | (3,099 | ) | | 87,540 |
|
| | | | | | |
| Other income (expense): | | | | | |
| Interest charges - | | | | | |
| Interest expense incurred (including amortization of debt issuance costs, premiums, discounts and realized settlements on interest rate swaps) | (57,676 | ) | | — |
| (f) | (57,676 | ) |
| Allowance for funds used during construction - borrowed | 1,481 |
| | | | 1,481 |
|
| Capitalized interest | 292 |
| | | | 292 |
|
| Unrealized gain (loss) on interest rate swaps, net | (3,507 | ) | | | | (3,507 | ) |
| Interest income | 1,064 |
| | | | 1,064 |
|
| Allowance for funds used during construction - equity | 472 |
| | | | 472 |
|
| Other income, net | 2,360 |
| | | | 2,360 |
|
| Total other income (expense) | (55,514 | ) | | — |
| | (55,514 | ) |
| | | | | | |
| Income (loss) before equity in earnings (loss) of unconsolidated subsidiaries and income taxes | 35,125 |
| | (3,099 | ) | | 32,026 |
|
| Equity in earnings (loss) of unconsolidated subsidiaries | (34 | ) | | | | (34 | ) |
| Income tax benefit (expense) | (12,143 | ) | | 1,106 |
| (e) | (11,037 | ) |
| Income (loss) from continuing operations | 22,948 |
| | (1,993 | ) | | 20,955 |
|
| Income (loss) from discontinued operations, net of tax | (6,644 | ) | | | | (6,644 | ) |
| Net income (loss) available for common stock | $ | 16,304 |
| | $ | (1,993 | ) | | $ | 14,311 |
|
| | | | | | |
| Income (loss) per share, Basic - | | | | | |
| Income (loss) from continuing operations, per share | $ | 0.52 |
| | | | $ | 0.48 |
|
| Income (loss) from discontinued operations, per share | (0.15 | ) | | | | (0.15 | ) |
| Total income (loss) per share, Basic | $ | 0.37 |
| | | | $ | 0.33 |
|
| Income (loss) per share, Diluted - | | | | | |
| Income (loss) from continuing operations, per share | $ | 0.52 |
| | | | $ | 0.48 |
|
| Income (loss) from discontinued operations, per share | (0.15 | ) | | | | (0.15 | ) |
| Total income (loss) per share, Diluted | $ | 0.37 |
| | | | $ | 0.33 |
|
| Weighted average common shares outstanding: | | | | | |
| Basic | 43,765 |
| | | | 43,765 |
|
| Diluted | 43,984 |
| | | | 43,984 |
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
BLACK HILLS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
|
| | | | | | | | | | | |
| | Historical for the Year Ended | | Pro Forma | | Pro Forma for the Year Ended |
| | Dec. 31, 2011 | | Adjustments | | Dec. 31, 2011 |
| | (in thousands, except per share amounts) |
| Revenue: | | | | | |
| Utilities | $ | 1,155,519 |
| | $ | | $ | 1,155,519 |
|
| Non-regulated energy | 116,669 |
| | (15,400 | ) | (e) | 101,269 |
|
| Total revenue | 1,272,188 |
| | (15,400 | ) | | 1,256,788 |
|
| | | | | | |
| Operating expenses: | | | | | |
| Utilities - | | | | | |
| Fuel, purchased power and cost of gas sold | 574,989 |
| | | | 574,989 |
|
| Operations and maintenance | 247,496 |
| | | | 247,496 |
|
| Non-regulated energy operations and maintenance | 93,453 |
| | (716 | ) | (e) | 92,737 |
|
| Depreciation, depletion and amortization | 135,591 |
| | (5,398 | ) | (e) | 130,193 |
|
| Taxes - property, production and severance | 33,710 |
| | (1,657 | ) | (e) | 32,053 |
|
| Impairment of long-lived assets | — |
| | | | — |
|
| Other operating expenses | 710 |
| | | | 710 |
|
| Total operating expenses | 1,085,949 |
| | (7,771 | ) | | 1,078,178 |
|
| | | | | | |
| Operating income | 186,239 |
| | (7,629 | ) | | 178,610 |
|
| | | | | | |
| Other income (expense): | | | | | |
| Interest charges - | | | | | |
| Interest expense incurred (including amortization of debt issuance costs, premiums, discounts and realized settlements on interest rate swaps) | (116,684 | ) | | — |
| (f) | (116,684 | ) |
| Allowance for funds used during construction - borrowed | 14,041 |
| | | | 14,041 |
|
| Capitalized interest | 11,260 |
| | | | 11,260 |
|
| Unrealized gain (loss) on interest rate swaps, net | (42,010 | ) | | | | (42,010 | ) |
| Interest income | 2,017 |
| | | | 2,017 |
|
| Allowance for funds used during construction - equity | 932 |
| | | | 932 |
|
| Other income, net | 1,673 |
| | | | 1,673 |
|
| Total other income (expense) | (128,771 | ) | | — |
| | (128,771 | ) |
| | | | | | |
| Income (loss) before equity in earnings (loss) of unconsolidated subsidiaries and income taxes | 57,468 |
| | (7,629 | ) | | 49,839 |
|
| Equity in earnings (loss) of unconsolidated subsidiaries | 1,121 |
| | | | 1,121 |
|
| Income tax benefit (expense) | (18,224 | ) | | 2,724 |
| (e) | (15,500 | ) |
| Income (loss) from continuing operations | 40,365 |
| | (4,905 | ) | | 35,460 |
|
| Income (loss) from discontinued operations, net of tax | 9,365 |
| | | | 9,365 |
|
| Net income (loss) available for common stock | $ | 49,730 |
| | $ | (4,905 | ) | | $ | 44,825 |
|
| | | | | | |
| Income (loss) per share, Basic - | | | | | |
| Income (loss) from continuing operations, per share | $ | 1.01 |
| | | | $ | 0.89 |
|
| Income (loss) from discontinued operations, per share | 0.24 |
| | | | 0.23 |
|
| Total income (loss) per share, Basic | $ | 1.25 |
| | | | $ | 1.12 |
|
| Income (loss) per share, Diluted - | | | | | |
| Income (loss) from continuing operations, per share | $ | 1.01 |
| | | | $ | 0.89 |
|
| Income (loss) from discontinued operations, per share | 0.23 |
| | | | 0.23 |
|
| Total income (loss) per share, Diluted | $ | 1.24 |
| | | | $ | 1.12 |
|
| Weighted average common shares outstanding: | | | | | |
| Basic | 39,864 |
| | | | 39,864 |
|
| Diluted | 40,081 |
| | | | 40,081 |
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
BLACK HILLS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The historical information is derived from the historical financial statements of Black Hills Corporation. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2012 is presented to illustrate the estimated effects of the Bakken and Three Forks shale assets sale as if the transaction had occurred on June 30, 2012. The unaudited pro forma condensed consolidated statements of income for the six months ended June 30, 2012 and for the year ended December 31, 2011 are presented to illustrate the estimated effects on Black Hills Corporation as if the transaction had occurred on January 1, 2011.
NOTE 2. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
Balance Sheet:
(a) The adjustment to cash reflects the following:
|
| | | |
| | (in thousands) |
| Cash proceeds received on date of sale * | $ | 244,883 |
|
| | |
| Less: Transaction adviser fees | (1,400 | ) |
| Less: Estimated payment for contractual obligation related to "back-in" fee ** | (16,847 | ) |
| | |
| Net cash, subject to post-close adjustments | $ | 226,636 |
|
* Net cash proceeds are subject to customary post-close adjustments related to the transaction effective date of July 1, 2012.
** Required payment, triggered by the sale of the property, arising from a contractual obligation contained in the original participation agreement with the property operator. The payment amount is variable depending upon the sale price of the property, after deducting certain costs of development.
| |
| (b) | Represents adjustments for working capital balances related to the properties sold. |
| |
| (c) | Represents net adjustments to oil and gas properties accounted for under the full-cost accounting method. Under the full-cost accounting method, we anticipate booking a one-time, pre-tax gain of approximately $20 million to $40 million and will apply the remainder of the sales price as a reduction to the oil and gas full-cost pool. For pro forma purposes, we have reflected the $30 million mid-point of our estimated gain range. The actual gain on sale will be calculated after the closing of our September 2012 financial statements and will be impacted by post-close adjustments to the sales price. |
| |
| (d) | Represents the net adjustments to deferred taxes that includes the reversal of deferred tax liabilities attributable to the oil and gas properties sold and the deferred tax assets related to the utilization of available net operating losses as a result of the gain to be recognized for income tax purposes. |
Income Statement:
| |
| (e) | Reflects the financial results of the properties sold in the transaction for the periods presented. Depreciation, depletion and amortization, represents an adjustment for reduction in (i) production volumes, (ii) reserve volumes, (iii) capitalized costs and (iv) asset retirement obligations attributable to the assets sold. |
Supplemental Information:
| |
| (f) | The attached pro forma condensed consolidated income statements do not reflect a benefit associated with our use of net cash proceeds associated with the sale. As disclosed in our Form 8-K filed on September 28, 2012, management has announced that the proceeds will be utilized to repay the $225 million senior unsecured 6.5 percent bonds originally maturing on May 15, 2013. |
NOTE 3. SUMMARY OF PRO FORMA OIL AND NATURAL GAS RESERVE INFORMATION
The following table sets forth summary pro forma reserve information as of December 31, 2011 which gives effect to the sale transaction:
|
| | | | | | | | | |
| | Historical as of | Pro Forma | Pro Forma as of |
| | December 31, 2011 | Adjustments | December 31, 2011 |
| | | | |
| Reserves (MMcfe) | 133,242 |
| (19,900 | ) | 113,342 |
|
| | | | |
| Present value of estimated future net revenues, before tax, discounted at 10% (in thousands) | $ | 255,087 |
| $ | (66,289 | ) | $ | 188,798 |
|
