United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q/A
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 333-52664
Black Hills Corporation
Incorporated in South Dakota IRS Identification Number 46-0458824
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
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable date.
Class Outstanding at April 30, 2001
Common stock, $1.00 par value 26,369,885 shares
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BLACK HILLS CORPORATION
I N D E X
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PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of 3-9
Financial Position and Results of Operations
Signatures 10
2
BLACK HILLS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are a growth oriented, diversified energy holding company operating
principally in the United States. Our regulated and unregulated businesses have
expanded significantly in recent years. Our independent energy group produces
and markets power and fuel. We produce and sell electricity in a number of
markets, with a strong emphasis in the western United States. We also produce
coal, natural gas and crude oil primarily in the Rocky Mountain region and
market fuel products nationwide. We also own Black Hills Power, Inc., an
electric utility serving approximately 58,600 customers in South Dakota, Wyoming
and Montana. Our communications group offers state-of-the-art broadband
communications services to residential and business customers in Rapid City and
the northern Black Hills region of South Dakota.
The following discussion should be read in conjunction with Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - included in our 2000 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Our business and industry outlooks, capital
requirements and market risks as disclosed in that filing continue to be
consistent with management's current expectations and assessments.
Results of Operations
Consolidated Results
Consolidated earnings for the three month period ended March 31, 2001 were $32.1
million or $1.37 per share compared to $9.1 million or $0.42 per share in the
same period of the prior year. Consolidated earnings for the twelve month period
ended March 31, 2001 were $75.6 million or $3.32 per share compared to $37.1 or
$1.72 per share for the same period of the prior year.
Increases in earnings for the three and twelve month periods ended March 31,
2001 were primarily driven by strong natural gas marketing activity, increased
fuel production, expanded power generation and increased wholesale off-system
utility sales. Strong results in our independent energy business group and
electric utility business group were partially offset by losses in our
communications group and increased reserves for exposure to the unstable markets
in the western United States.
Unusual energy market conditions in the western United States continue to
contribute to our strong financial performance. We estimate approximately half
of the current three month period's and one-third of the current twelve month
period's earnings per share could be attributable to high prices of natural gas
and electricity related to the volatile western markets.
Consolidated revenues for the three and twelve month periods ended March 31,
2001 were $561.7 million and $1.9 billion, respectively. Revenues for the same
periods ended March 31, 2000 were $248.0 million and $871.6 million,
respectively.
The growth in revenues was a result of high energy commodity prices and
increased volumes of fuel marketed, primarily as a result of extreme price
volatility in the western markets, acquisitions and growth in the independent
energy business group and increases in off-system sales by our electric utility.
3
Revenue and net income (loss) provided by each business group as a percentage of
our total revenue and net income were as follows:
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
Revenues
Independent Energy 86% 86% 89% 85%
Electric utility 13 13 11 15
Communications 1 1 -- --
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
Net Income/(Loss)
Independent energy 61% 43 59% 35%
Electric utility 54 79 62 74
Communications and other (15) (22) (21) (9)
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
Net income from the independent energy group exceeded net income derived from
our utility for the first time in the first quarter 2001. 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. We also believe that continued strength in commodity prices
and energy markets will provide the opportunity for strong results in our fuel
marketing and oil and gas production operations.
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.
Although our communications business continues to significantly increase
residential and business customers, we expect it will sustain approximately $10
million in net losses in 2001, with annual losses decreasing thereafter and
profitability expected in the next three to four years.
4
The following business group and segment information includes intercompany
eliminations with the exception of intercompany coal sales which are not
eliminated in accordance with the provisions of SFAS No. 71 and the calculations
of EBITDA:
Independent Energy Group
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Revenue $487,188 $214,111 $1,715,759 $737,369
Expenses 449,198 208,510 1,622,635 720,753
------- ------- --------- -------
Operating income $37,990 $5,601 $93,124 $16,616
Net income $19,475 $3,854 $44,431 $13,111
EBITDA $42,445 $7,056 $99,933 $26,400
EBITDA represents earnings before interest, income taxes, depreciation and
amortization and any non-recurring or non-cash items. 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 generally accepted accounting principles. EBITDA as presented may
not be comparable to other similarly titled measures of other companies.
The following is a summary of sales volumes of our coal, oil and natural gas
production:
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
Tons of coal sold 818,000 793,000 3,075,000 3,146,000
Barrels of oil sold 99,000 79,000 354,000 316,000
Mcf of natural gas sold 1,006,000 716,000 3,564,000 2,799,000
Mcf equivalent sales 1,600,000 1,190,000 5,688,000 4,695,000
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The following is a summary of average daily fuel marketing volumes:
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
Natural gas - MMBtus 866,000 630,300 920,000 500,000
Crude oil - barrels 37,000 44,000 43,000 25,300
Coal - tons 6,100 4,600 4,700 4,700
The independent energy business group's revenues increased 128 percent and 133
percent for the three and twelve month periods, respectively. Earnings of this
group increased 405 percent and 239 percent for the three and twelve month
periods, respectively. The revenue and earnings increase for the periods were a
direct result of increased volumes, increased fuel and power prices related to
gas and electricity shortages in the West Coast markets, and the closing of the
Indeck Capital acquisition. Daily volumes of natural gas marketed increased 37
percent and 84 percent for the three and twelve month periods, respectively. In
addition, the increase in the twelve month period was aided by the acquisition
of Indeck Capital and the sale of our ownership interest in a power fund
management company which resulted in a $3.7 million pre-tax gain.
Coal Mining Segment
- -------------------
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Revenue $8,263 $8,095 $30,698 $31,413
Operating income $2,674 $3,314 $8,155 $12,886
Net income $2,066 $2,363 $6,405 $9,399
EBITDA $3,330 $3,801 $10,387 $14,580
A planned five-week overhaul of the Wyodak plant during the second quarter of
2000 resulted in lower coal sales and earnings for the current twelve month
period compared to the prior year.
Oil and Gas Segment
- -------------------
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Revenue $8,581 $3,962 $23,802 $14,031
Operating income $4,398 $1,330 $10,974 $4,821
Net income $2,956 $890 $7,047 $3,086
EBITDA $6,127 $2,096 $16,025 $7,685
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Revenue and earnings of the oil and gas production business segment increased
for the three and twelve month periods due to increases in gas volumes sold of
40 percent and 27 percent, respectively, while average gas prices were 3.6 times
and 1.7 times higher than the same periods in the prior year, respectively.
Barrels of oil sold increased 25 percent and 12 percent for the three and twelve
month periods while prices remained comparable.
The following is a summary of our estimated oil and gas reserves at March 31
determined using constant product prices at the end of the respective period.
Estimates of economically recoverable reserves are based on a number of
variables, which may differ from actual results.
2001 2000
---- ----
Barrels of oil (in millions) 4.2 3.9
Bcf of natural gas 17.2 17.4
Total in Bcf equivalents 42.9 41.0
In addition to the reserves as of March 31, 2001 noted above, we announced
during the first quarter 2001 a definitive agreement to purchase operating and
non-operating interests in 74 gas and oil wells from Stewart Petroleum for
approximately $10 million. The acquisition was closed early in the second
quarter of 2001 and is expected to increase our proved reserves by approximately
10 billion cubic feet equivalent of which approximately 86 percent are natural
gas. The acquisition is expected to increase our current production rates by
approximately 10 percent.
Fuel Marketing Segment
- ----------------------
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Revenue $452,299 $202,054 $1,603,712 $691,925
Operating income $25,188 $988 $48,203 $(919)
Net income $15,559 $570 $28,975 $688
EBITDA $25,819 $1,105 $48,693 $4,312
Revenues and earnings increased primarily due to a significant increase in
natural gas volumes marketed during the current three and twelve month periods
while margins received also increased substantially.
The significant increases can, in part, be attributed to the unusual market
conditions in the western markets, which primarily stem from the natural gas and
electricity shortages in California and may not recur in the future. However, we
believe that the continued growth in demand for natural gas will create
opportunities for us to continue to generate strong fuel marketing operating
results in the future.
7
Independent Power Production Segment
- ------------------------------------
Our independent power segment produced revenues of $18.0 million and $57.5
million for the three and twelve month periods ended March 31, 2001,
respectively. Earnings for the same periods were $(1.1) million and $2.0
million, respectively. Results from this segment were not significant for the
three and twelve month periods ended March 31, 2000. Current periods 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.
Electric Utility Group
- ----------------------
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Revenue $70,580 $33,299 $210,589 $133,437
Operating income $28,664 $13,644 $83,228 $52,555
Net income $17,337 $7,198 $47,244 $27,611
EBITDA $33,167 $17,478 $98,983 $67,949
Electric utility revenues increased 112 percent and 58 percent for the three and
twelve month periods ended March 31, 2000, respectively, compared to the same
periods in the prior year. Earnings for the segment increased 141 percent and 71
percent over the same periods, respectively. The increase in revenues and
earnings for the three and twelve month periods was primarily due to a 145
percent and a 91 percent increase in wholesale off-system sales at average
prices that were seven times and four times higher than the average prices in
the same periods of the prior year, respectively. The increase in off-system
sales was driven by high spot market prices for energy since the middle of 2000,
which enabled us to generate more energy from our combustion turbine facilities,
including the Neil Simpson combustion turbine which we placed into commercial
operation in June 2000.
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Communications Group
- --------------------
Three Months Ended Twelve Months Ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Revenue $3,925 $549 $11,065 $827
Operating expenses 7,697 2,712 25,160 6,289
----- ----- ------ -----
Operating income $(3,772) $(2,163) $(14,095) $(5,462)
Net income $(3,891) $(1,899) $(14,019) $(3,315)
EBITDA $(1,436) $(1,466) $(6,874) $(3,011)
As of March 31, 2001 our Communications business group is providing broadband
services to approximately 10,000 residential and 1,000 business customers.
Operating losses primarily attributable to increased interest, depreciation and
operating expenses, are expected to continue as we proceed with completion of
the network and increase the customer base.
Liquidity and Capital Resources
During the three and twelve month periods ended March 31, 2001, we generated
sufficient cash flow from operations to meet our operating needs, to pay
dividends on common and preferred stock, to pay long-term debt maturities and
substantially increase our cash position over March 31, 2000. We continue to
fund property additions primarily related to construction of additional electric
generation facilities for our independent energy business group through a
combination of operating cash flow, increased short-term debt and long-term
non-recourse project financing. Investing and financing activities increased
primarily due to short and long-term borrowings related to project financing.
During the first quarter of 2001, the Company announced the public offering of 3
million shares of common stock with an option for the underwriters to purchase
450,000 additional shares. Credit Suisse First Boston, Lehman Brothers, CIBC
World Markets and UBS Warburg acted as the managers of the underwriting
syndicate.
Early in the second quarter of 2001 the Company announced the offering price was
set at $52 per share and all 3 million shares were sold with the underwriters
exercising their over-allotment option to purchase an additional 383,000 shares.
Net proceeds were approximately $165 million after commissions and expenses. The
proceeds will be used to fund a portion of the expansion and construction costs
related to certain power plant assets of the Company's independent energy group,
to repay a portion of current indebtedness under revolving credit facilities,
and for general corporate purposes.
There have been no material changes in our forecasted changes in liquidity and
capital requirements from those reported in Item 7 of our 2000 Annual Report on
Form 10-K filed with the Securities Exchange Commission.
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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: July 5, 2001
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