X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission File Number 1-7978
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____
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
YES ____ NO X
As of July 31, 2003 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.
TABLE OF CONTENTS
| Page | ||||||||
|---|---|---|---|---|---|---|---|---|
| PART 1 | FINANCIAL INFORMATION | |||||||
Item 1 | Financial Statements | |||||||
Condensed Statements of Income - | ||||||||
| Three and six months ended | ||||||||
| June 30, 2003 and 2002 | 3 | |||||||
Condensed Balance Sheets - | ||||||||
| June 30, 2003 and December 31, 2002 | 4 | |||||||
Condensed Statements of Cash Flows - | ||||||||
| Six months ended June 30, 2003 and 2002 | 5 | |||||||
Notes to Condensed Financial Statements | 6-10 | |||||||
Item 2 | Results of Operations | 10-13 | ||||||
Item 4 | Controls and Procedures | 13 | ||||||
PART II | OTHER INFORMATION | |||||||
Item 1 | Legal Proceedings | 14 | ||||||
Item 6 | Exhibits and Reports on Form 8-K | 14 | ||||||
| Signatures | 15 | |||||||
| Exhibit Index | 16 | |||||||
2
| Three months ended | Six months ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30 | June 30 | |||||||||||||
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| (in thousands) | ||||||||||||||
| Operating revenue | $ | 39,207 | $ | 38,303 | $ | 82,970 | $ | 75,494 | ||||||
| Operating expenses: | ||||||||||||||
| Fuel and purchased power | 11,445 | 9,354 | 25,881 | 18,442 | ||||||||||
| Operations and maintenance | 6,679 | 6,176 | 12,103 | 11,801 | ||||||||||
| Administrative and general | 3,665 | 3,050 | 7,103 | 4,879 | ||||||||||
| Depreciation and amortization | 4,809 | 4,431 | 9,537 | 8,678 | ||||||||||
| Taxes, other than income taxes | 2,012 | 1,939 | 4,097 | 4,014 | ||||||||||
| 28,610 | 24,950 | 58,721 | 47,814 | |||||||||||
| Operating income | 10,597 | 13,353 | 24,249 | 27,680 | ||||||||||
| Other income (expense): | ||||||||||||||
| Interest expense | (4,301 | ) | (3,267 | ) | (8,604 | ) | (6,491 | ) | ||||||
| Other income | 741 | 146 | 1,424 | 752 | ||||||||||
| (3,560 | ) | (3,121 | ) | (7,180 | ) | (5,739 | ) | |||||||
| Income before income taxes and | ||||||||||||||
| discontinued operations | 7,037 | 10,232 | 17,069 | 21,941 | ||||||||||
| Income taxes | (2,315 | ) | (3,440 | ) | (5,648 | ) | (7,327 | ) | ||||||
| Income from continuing operations | 4,722 | 6,792 | 11,421 | 14,614 | ||||||||||
| Discontinued operations, net of | ||||||||||||||
| income taxes (Note 2) | -- | 2,339 | 1,906 | 6,501 | ||||||||||
| Net income | $ | 4,722 | $ | 9,131 | $ | 13,327 | $ | 21,115 | ||||||
The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.
3
| June 30 2003 |
December 31 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,976 | $ | 518 | ||||
| Receivables (net of allowance for doubtful accounts of $889 and $871, respectively) | 14,356 | 16,391 | ||||||
| Receivables - related party | 50,403 | 54,253 | ||||||
| Materials, supplies and fuel | 10,187 | 9,743 | ||||||
| Deferred income taxes | 1,540 | 5,397 | ||||||
| Assets from discontinued operations | -- | 1,008,901 | ||||||
| 78,462 | 1,095,203 | |||||||
| Investments | 2,860 | 2,681 | ||||||
| Property and equipment | 624,308 | 613,926 | ||||||
| Less accumulated depreciation | (219,992 | ) | (211,992 | ) | ||||
| 404,316 | 401,934 | |||||||
| Other assets: | ||||||||
| Regulatory asset | 4,350 | 4,350 | ||||||
| Other | 6,591 | 7,159 | ||||||
| 10,941 | 11,509 | |||||||
| Total | $ | 496,579 | $ | 1,511,327 | ||||
| LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt | $ | 2,547 | $ | 3,095 | ||||
| Accounts payable | 19,413 | 14,653 | ||||||
| Accounts payable - related party | 563 | 2,585 | ||||||
| Accrued liabilities | 17,816 | 15,575 | ||||||
| Liabilities from discontinued operations | -- | 964,759 | ||||||
| 40,339 | 1,000,667 | |||||||
| Long-term debt, net of current maturities | 210,072 | 212,042 | ||||||
| Deferred credits: | ||||||||
| Deferred income taxes | 55,257 | 58,539 | ||||||
| Regulatory liability | 3,564 | 5,395 | ||||||
| Other | 19,547 | 16,456 | ||||||
| 78,368 | 80,390 | |||||||
| Stockholder's equity: | ||||||||
| Common stock $1 par value; 50,000,000 shares authorized; 23,416,396 shares issued | 23,416 | 23,416 | ||||||
| Additional paid-in capital | 39,549 | 80,961 | ||||||
| Retained earnings | 113,430 | 131,906 | ||||||
| Accumulated other comprehensive loss | (8,595 | ) | (18,055 | ) | ||||
| 167,800 | 218,228 | |||||||
| Total | $ | 496,579 | $ | 1,511,327 | ||||
The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.
4
| Six months ended June 30 |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | |||||||
| (in thousands) | ||||||||
| Cash flows from operations | $ | 30,760 | $ | 21,606 | ||||
| Investing activities: | ||||||||
| Property additions | (11,724 | ) | (15,301 | ) | ||||
| Change in notes receivable from associated companies, net | 2,846 | 9,817 | ||||||
| (Increase) decrease in investments | (179 | ) | 1,317 | |||||
| (9,057 | ) | (4,167 | ) | |||||
| Financing activities | ||||||||
| Dividends paid | (17,727 | ) | (15,536 | ) | ||||
| Long-term debt - repayments | (2,518 | ) | (2,492 | ) | ||||
| (20,245 | ) | (18,028 | ) | |||||
| Increase (decrease) in cash and cash equivalents | 1,458 | (589 | ) | |||||
| Cash and cash equivalents: | ||||||||
| Beginning of period | 518 | 1,079 | ||||||
| End of period | $ | 1,976 | $ | 490 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 8,529 | $ | 6,618 | ||||
| Income taxes paid (refunded), net | $ | (3,886 | ) | $ | 10,100 | |||
| Stock dividend distribution to Black Hills Corporation, the | ||||||||
| parent company of Black Hills Power, Inc. (Note 2) | $ | 45,687 | $ | -- | ||||
The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.
5
BLACK HILLS POWER, INC.
Notes to Condensed
Financial Statements
(unaudited)
(Reference
is made to Notes to 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 of America 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 2002 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 June 30, 2003, December 31, 2002 and June 30, 2002, financial information and are of a normal recurring nature. The results of operations for the six months ended June 30, 2003, 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, 2003, the Company distributed a non-cash dividend to its parent company, Black Hills Corporation (Parent). The dividend consisted of 10,000 common shares of Black Hills Generation, Inc., formerly known as Black Hills Energy Capital, Inc., (Generation), which represents 100 percent ownership of Generation. The Company therefore no longer operates in the independent power production business. As a result, the Company no longer has any subsidiaries and operates only in the electric utility business. The Company’s investment in Generation at the time of the distribution was $45.7 million. |
| The disposition was accounted for under the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). Accordingly, results of operations have been classified as “Discontinued operations, net of income taxes” in the accompanying Condensed Statements of Income, and prior periods have been restated. For business segment reporting purposes, Generation’s business results were previously included in the segment “Independent Power Production”. The assets and liabilities of Generation are shown in the accompanying Condensed Balance Sheets under the captions “Assets from discontinued operations” and “Liabilities from discontinued operations.” |
6
Revenues and net income from the discontinued operations are as follows:
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| (in thousands) | ||||||||||||||
Revenue |
$ | -- | $ | 37,206 | $ | 41,485 | $ | 67,600 | ||||||
| Income before income taxes and | ||||||||||||||
| change in accounting principle | $ | -- | $ | 4,153 | $ | 2,833 | $ | 9,362 | ||||||
| Income taxes | -- | (1,814 | ) | (927 | ) | (3,757 | ) | |||||||
| Change in accounting principle, | ||||||||||||||
| net of tax | -- | -- | -- | 896 | ||||||||||
| Net income from discontinued | ||||||||||||||
| operations | $ | -- | $ | 2,339 | $ | 1,906 | $ | 6,501 | ||||||
| June 30 2003 |
December 31 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | ||||||||
| Current assets | $ | -- | $ | 77,213 | ||||
| Non-current assets | -- | 931,688 | ||||||
| Current liabilities | -- | (555,100 | ) | |||||
| Non-current liabilities | -- | (409,659 | ) | |||||
| Net assets of discontinued | ||||||||
| operations (including | ||||||||
| accumulated other | ||||||||
| comprehensive loss of | ||||||||
| $0 and $9,440) | $ | -- | $ | 44,142 | ||||
(3) RECLASSIFICATIONS
| Certain 2002 amounts in the financial statements have been reclassified to conform to the 2003 presentation. These reclassifications did not have an effect on the Company’s total stockholder’s equity or net income as previously reported. |
(4) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
| In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143). SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred with associated asset retirement costs being capitalized as part of the carrying amount of the long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Management adopted SFAS 143 effective January 1, 2003 and it had no impact on the Company’s financial statements. |
7
(5) COMPREHENSIVE INCOME
The following table presents the components of the Company’s comprehensive income:
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| (in thousands) | ||||||||||||||
| Net income | $ | 4,722 | $ | 9,131 | $ | 13,327 | $ | 21,115 | ||||||
| Other comprehensive income (loss): | ||||||||||||||
| Reclassification adjustment on | ||||||||||||||
| interest rate swap included in | ||||||||||||||
| net income | 10 | -- | 20 | -- | ||||||||||
| Fair value adjustment on | ||||||||||||||
| derivatives designated as cash | ||||||||||||||
| flow hedges, included in | ||||||||||||||