UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006.
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For the transition period from __________ to __________.
Commission File Number 001-31303
Black Hills Corporation | |
Incorporated in South Dakota |
IRS Identification Number 46-0458824 |
625 Ninth Street | |
Rapid City, South Dakota 57701 | |
|
|
Registrants 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 |
o |
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
|
Large accelerated filer |
x |
Accelerated filer |
o |
Non-accelerated filer |
o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|
Yes |
o |
No |
x |
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date.
Class |
Outstanding at October 31, 2006 |
|
|
Common stock, $1.00 par value |
33,313,142 shares |
TABLE OF CONTENTS
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Page |
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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Condensed Consolidated Statements of Income |
|
|
Three and Nine Months Ended September 30, 2006 and 2005 |
3 |
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|
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Condensed Consolidated Balance Sheets |
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|
September 30, 2006, December 31, 2005 and September 30, 2005 |
4 |
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Condensed Consolidated Statements of Cash Flows |
|
|
Nine Months Ended September 30, 2006 and 2005 |
5 |
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|
|
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Notes to Condensed Consolidated Financial Statements |
6-36 |
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Item 2. |
Managements Discussion and Analysis of Financial Condition and |
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|
Results of Operations |
37-59 |
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
60-62 |
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Item 4. |
Controls and Procedures |
62 |
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PART II. |
OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
63 |
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Item 1A. |
Risk Factors |
63 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
63 |
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Item 6. |
Exhibits |
64 |
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Signatures |
65 |
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Exhibit Index |
66 |
2
BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
|
Three Months Ended |
Nine Months Ended | ||||||
|
September 30, |
September 30, | ||||||
|
2006 |
2005 |
2006 |
2005 | ||||
|
(in thousands, except per share amounts) | |||||||
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
157,608 |
$ |
149,008 |
$ |
483,312 |
$ |
433,813 |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Fuel and purchased power |
|
47,740 |
|
49,758 |
|
151,150 |
|
134,849 |
Operations and maintenance |
|
16,490 |
|
18,014 |
|
60,566 |
|
55,071 |
Administrative and general |
|
19,721 |
|
21,669 |
|
64,776 |
|
60,403 |
Depreciation, depletion and amortization |
|
24,141 |
|
22,039 |
|
67,407 |
|
62,362 |
Taxes, other than income taxes |
|
8,570 |
|
8,869 |
|
26,667 |
|
25,483 |
Project development cost write - off |
|
|
|
8,931 |
|
|
|
9,495 |
Impairment of long-lived assets |
|
|
|
50,279 |
|
|
|
50,279 |
|
|
116,662 |
|
179,559 |
|
370,566 |
|
397,942 |
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
40,946 |
|
(30,551) |
|
112,746 |
|
35,871 |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense |
|
(12,400) |
|
(11,089) |
|
(37,310) |
|
(36,421) |
Interest income |
|
389 |
|
331 |
|
1,403 |
|
1,294 |
Other income, net |
|
106 |
|
139 |
|
517 |
|
819 |
|
|
(11,905) |
|
(10,619) |
|
(35,390) |
|
(34,308) |
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
|
|
|
|
|
|
before equity in earnings of |
|
|
|
|
|
|
|
|
unconsolidated subsidiaries, minority |
|
|
|
|
|
|
|
|
interest and income taxes |
|
29,041 |
|
(41,170) |
|
77,356 |
|
1,563 |
Equity in earnings of unconsolidated |
|
|
|
|
|
|
|
|
subsidiaries |
|
615 |
|
3,434 |
|
(16) |
|
7,788 |
Minority interest |
|
(95) |
|
(74) |
|
(273) |
|
(199) |
Income tax (expense) benefit |
|
(7,362) |
|
14,026 |
|
(23,939) |
|
(2,367) |
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
22,199 |
|
(23,784) |
|
53,128 |
|
6,785 |
Income (loss) from discontinued operations, |
|
|
|
|
|
|
|
|
net of taxes |
|
81 |
|
(119) |
|
7,060 |
|
22 |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
22,280 |
|
(23,903) |
|
60,188 |
|
6,807 |
Preferred stock dividends |
|
|
|
|
|
|
|
(159) |
Net income (loss) available for |
|
|
|
|
|
|
|
|
common stock |
$ |
22,280 |
$ |
(23,903) |
$ |
60,188 |
$ |
6,648 |
|
|
|
|
|
|
|
|
|
Weighted average common shares |
|
|
|
|
|
|
|
|
outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
33,187 |
|
32,967 |
|
33,157 |
|
32,660 |
Diluted |
|
33,560 |
|
32,967 |
|
33,526 |
|
33,100 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
Continuing operations |
$ |
0.67 |
$ |
(0.73) |
$ |
1.60 |
$ |
0.20 |
Discontinued operations |
|
|
|
|
|
0.21 |
|
|
Total |
$ |
0.67 |
$ |
(0.73) |
$ |
1.81 |
$ |
0.20 |
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
Continuing operations |
$ |
0.66 |
$ |
(0.73) |
$ |
1.59 |
$ |
0.20 |
Discontinued operations |
|
|
|
|
|
0.21 |
|
|
Total |
$ |
0.66 |
$ |
(0.73) |
$ |
1.80 |
$ |
0.20 |
|
|
|
|
|
|
|
|
|
Dividends paid per share of common stock |
$ |
0.33 |
$ |
0.32 |
$ |
0.99 |
$ |
0.96 |
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
3
BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
|
September 30, |
December 31, |
September 30, | |||
|
2006 |
2005 |
2005 | |||
|
(in thousands, except share amounts) | |||||
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
47,716 |
$ |
31,817 |
$ |
46,060 |
Restricted cash |
|
|
|
|
|
700 |
Receivables (net of allowance for doubtful accounts of $4,007; |
|
|
|
|
|
|
$4,685 and $4,317, respectively) |
|
195,571 |
|
264,695 |
|
240,110 |
Materials, supplies and fuel |
|
91,490 |
|
122,521 |
|
179,387 |
Derivative assets |
|
66,990 |
|
20,681 |
|
33,184 |
Income tax receivable |
|
11,524 |
|
|
|
|
Deferred income taxes |
|
|
|
|
|
6,803 |
Other assets |
|
7,830 |
|
7,842 |
|
6,666 |
Assets of discontinued operations |
|
1,043 |
|
122,158 |
|
119,019 |
|
|
422,164 |
|
569,714 |
|
631,929 |
|
|
|
|
|
|
|
Investments |
|
23,709 |
|
27,558 |
|
24,906 |
|
|
|
|
|
|
|
Property, plant and equipment |
|
2,180,639 |
|
1,928,559 |
|
1,898,313 |
Less accumulated depreciation and depletion |
|
(574,925) |
|
(518,525) |
|
(510,401) |
|
|
1,605,714 |
|
1,410,034 |
|
1,387,912 |
Other assets: |
|
|
|
|
|
|
Derivative assets |
|
3,197 |
|
1,898 |
|
4,722 |
Goodwill |
|
30,563 |
|
29,847 |
|
28,455 |
Intangible assets (net of accumulated amortization of |
|
|
|
|
|
|
$25,072; $22,734 and $21,954, respectively) |
|
25,209 |
|
27,548 |
|
28,328 |
Other |
|
38,177 |
|
53,646 |
|
47,391 |
|
|
97,146 |
|
112,939 |
|
108,896 |
|
$ |
2,148,733 |
$ |
2,120,245 |
$ |
2,153,643 |
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
$ |
181,255 |
$ |
202,639 |
$ |
192,202 |
Accrued liabilities |
|
82,098 |
|
72,514 |
|
71,610 |
Derivative liabilities |
|
18,937 |
|
26,141 |
|
114,941 |
Deferred income taxes |
|
5,001 |
|
1,443 |
|
|
Notes payable |
|
147,000 |
|
55,000 |
|
42,000 |
Current maturities of long-term debt |
|
17,103 |
|
11,771 |
|
11,690 |
Accrued income taxes |
|
|
|
11,650 |
|
16,022 |
Liabilities of discontinued operations |
|
4,131 |
|
92,818 |
|
86,720 |
|
|
455,525 |
|
473,976 |
|
535,185 |
|
|
|
|
|
|
|
Long-term debt, net of current maturities |
|
632,295 |
|
670,193 |
|
672,770 |
|
|
|
|
|
|
|
Deferred credits and other liabilities: |
|
|
|
|
|
|
Deferred income taxes |
|
170,286 |
|
134,533 |
|
128,798 |
Derivative liabilities |
|
2,913 |
|
2,623 |
|
6,096 |
Other |
|
101,819 |
|
95,116 |
|
90,853 |
|
|
275,018 |
|
232,272 |
|
225,747 |
|
|
|
|
|
|
|
Minority interest in subsidiaries |
|
5,198 |
|
4,925 |
|
5,034 |
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
Common stock equity |
|
|
|
|
|
|
Common stock $1 par value; 100,000,000 shares authorized; |
|
|
|
|
|
|
Issued 33,330,841; 33,222,522 and 33,200,699 shares, |
|
|
|
|
|
|
respectively |
|
33,331 |
|
33,223 |
|
33,201 |
Additional paid-in capital |
|
407,488 |
|
404,035 |
|
403,822 |
Retained earnings |
|
338,420 |
|
313,217 |
|
297,204 |
Treasury stock at cost 34,720; 66,938 and 73,805 |
|
|
|
|
|
|
shares, respectively |
|
(883) |
|
(1,766) |
|
(1,909) |
Accumulated other comprehensive income (loss) |
|
2,341 |
|
(9,830) |
|
(17,411) |
|
|
780,697 |
|
738,879 |
|
714,907 |
|
|
|
|
|
|
|
|
$ |
2,148,733 |
$ |
2,120,245 |
$ |
2,153,643 |
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
4
BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
|
Nine Months Ended | |||
|
September 30, | |||
|
2006 |
2005 | ||
|
(in thousands) | |||
Operating activities: |
|
|
|
|
Income from continuing operations |
$ |
53,128 |
$ |
6,785 |
Adjustments to reconcile income from continuing operations |
|
|
|
|
to net cash provided by operating activities: |
|
|
|
|
Depreciation, depletion and amortization |
|
67,407 |
|
62,362 |
Impairment of long-lived assets |
|
|
|
50,279 |
Net change in derivative assets and liabilities |
|
2,136 |
|
2,894 |
Deferred income taxes |
|
32,042 |
|
(17,617) |
Distributed earnings in associated companies |
|
4,304 |
|
1,954 |
Change in operating assets and liabilities, net of acquisition- |
|
|
|
|
Materials, supplies and fuel |
|
(6,389) |
|
(19,058) |
Accounts receivable and other current assets |
|
59,005 |
|
(14,068) |
Accounts payable and other current liabilities |
|
(61,878) |
|
39,932 |
Other operating activities |
|
26,239 |
|
15,489 |
Net cash provided by operating activities of continuing operations |
|
175,994 |
|
128,952 |
Net cash (used in) provided by operating activities of discontinued operations |
|
(1,583) |
|
5,276 |
Net cash provided by operating activities |
|
174,411 |
|
134,228 |
|
|
|
|
|
Investing activities: |
|
|
|
|
Property, plant and equipment additions |
|
(153,820) |
|
(86,897) |
Proceeds from sale of assets |
|
|
|
103,010 |
Payment for acquisition, net of cash acquired |
|
(75,425) |
|
(67,331) |
Other investing activities |
|
(454) |
|
5,615 |
Net cash used in investing activities of continuing operations |
|
(229,699) |
|
(45,603) |
Net cash provided by (used in) investing activities of discontinued operations |
|
40,160 |
|
(6,966) |
Net cash used in investing activities |
|
(189,539) |
|
(52,569) |
|
|
|
|
|
Financing activities: |
|
|
|
|
Dividends paid |
|
(32,954) |
|
(31,612) |
Common stock issued |
|
3,560 |
|
12,822 |
Increase in short-term borrowings, net |
|
92,000 |
|
18,000 |
Long-term debt issuances |
|
90,000 |
|
|
Long-term debt repayments |
|
(122,566) |
|
(91,675) |
Other financing activities |
|
(1,171) |
|
(730) |
Net cash provided by (used in) financing activities of continuing operations |
|
28,869 |
|
(93,195) |
Net cash used in financing activities of discontinued operations |
|
|
|
|
Net cash provided by (used in) financing activities |
|
28,869 |
|
(93,195) |
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
13,741 |
|
(11,536) |
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
Beginning of period |
|
34,198* |
|
64,507** |
End of period |
$ |
47,939* |
$ |
52,971** |
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
Non-cash investing and financing activities- |
|
|
|
|
Property, plant and equipment acquired with accrued liabilities |
$ |
31,481 |
$ |
9,711 |
Cash paid during the period for- |
|
|
|
|
Interest |
$ |
35,317 |
$ |
31,551 |
Net income taxes paid |
$ |
12,806 |
$ |
2,403 |
_________________________
*Includes approximately $0.2 million at September 30, 2006 and $2.4 million at December 31, 2005 of cash included in discontinued operations.
**Includes approximately $6.9 million at September 30, 2005 and $8.6 million at December 31, 2004 of cash included in discontinued operations.
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements.
5
BLACK HILLS CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Reference is made to Notes to Consolidated Financial Statements
included in the Companys 2005 Annual Report on Form 10-K)
(1) |
MANAGEMENTS STATEMENT |
The financial statements included herein have been prepared by Black Hills Corporation (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 Companys 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).
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 September 30, 2006, December 31, 2005 and September 30, 2005 financial information and are of a normal recurring nature. Some of the Companys operations are highly seasonal and revenues from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Demand for natural gas is sensitive to seasonal heating and industrial load requirements, as well as changes in market price. The results of operations for the three and nine months ended September 30, 2006, are not necessarily indicative of the results to be expected for the full year. All earnings per share amounts discussed refer to diluted earnings per share unless otherwise noted.
(2) |
RECLASSIFICATIONS |
Certain 2005 amounts in the financial statements have been reclassified to conform to the 2006 presentation. These reclassifications include reflecting a net presentation for derivative assets and liabilities that are subject to master netting agreements which provide for the legal right of offset of amounts due to and due from the same counterparty under the agreement. At September 30, 2005, current derivative assets and current derivative liabilities on the accompanying Condensed Consolidated Balance Sheet have been reduced by approximately $133.5 million and non-current derivative assets and non-current derivative liabilities have been reduced by approximately $1.7 million to reflect the legal right of offset and conform to the December 31, 2005 and September 30, 2006 presentation. These reclassifications did not have an effect on the Companys total stockholders equity or net income available for common stock as previously reported.
6
(3) |
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS |
SFAS No. 123 (Revised 2004)
On December 16, 2004, the Financial Accounting Standards Board, or FASB, issued FASB Statement No. 123 (Revised 2004) Share-Based Payment, or SFAS 123(R), which is a revision of SFAS Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.
The Company previously accounted for its employee equity compensation stock option plans under the provisions of APB No. 25 and no stock-based employee compensation cost is reflected in net income for the three and nine month periods ended September 30, 2005 for stock options.
As of January 1, 2006, the Company applied the provisions of SFAS 123(R) using the modified prospective method, recognizing compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that were outstanding at the date of adoption. Adoption of SFAS 123(R) did not have a significant effect on the Companys consolidated financial position, results of operations or cash flows. See Note 11, Common Stock, for further discussion of stock-based compensation plans.
EITF Issue No. 04-6
On March 17, 2005, the Emerging Issues Task Force (EITF) issued EITF Issue No. 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry (EITF 04-6). EITF 04-6 provides that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs are incurred. EITF 04-6 is effective for the first reporting period in fiscal years beginning after December 15, 2005. Upon adoption of EITF 04-6 on January 1, 2006, the Company recorded a $2.0 million cumulative effect adjustment to write-off previously recorded deferred charges, with the offset decreasing retained earnings. Additionally, since January 1, 2006, stripping costs are expensed at the time incurred.
EITF Issue No. 04-13
On September 28, 2005 the FASB ratified the consensus reached under EITF Issue No. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty, (EITF 04-13) which determines if such transactions should be reported on a gross basis or a net basis.
EITF 04-13 is effective for new arrangements entered into, and modifications or renewals of existing arrangements, in reporting periods beginning after March 16, 2006. The adoption did not have a significant effect on the Companys consolidated financial position, results of operations or cash flows.
7
(4) |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
SFAS No. 157
During September 2006 the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157) and applies under other accounting pronouncements that require or permit fair value measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management is currently evaluating the impact SFAS 157 will have on the Companys consolidated financial statements.
SFAS No. 158
During September 2006 the FASB issued Statement of Financial Accounting Standards 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). This Statement requires the recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability in the statement of financial position, recognition of changes in the funded status in comprehensive income, measurement of the funded status of a plan as of the date of the year-end statement of financial position, and provides for related disclosures. SFAS 158 is effective for the recognition of the funded status as an asset or liability in the statement of financial position, recognition of changes in the funded status in comprehensive income, and the related disclosures in financial statements issued for fiscal years ending after December 15, 2006. Effective for fiscal years ending after December 15, 2008, SFAS 158 will require the measurement of the funded status of the plan to coincide with the date of the year end statement of financial position. Management is currently evaluating the impact SFAS 158 will have on the Companys consolidated financial statements.
FIN 48
During June 2006 the FASB issued FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement No. 109 Accounting for Income Taxes (FAS 109) and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006 with the impact of adoption to be reported as a cumulative effect of an accounting change. Management is currently evaluating the impact FIN 48 will have on the Companys consolidated financial statements.
8
SAB No. 108 Effects of Prior Year Misstatements on Current Year Financial Statements
During September 2006 the staff of the SEC released SAB No. 108 on Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 provides guidance on how the effects of the carryover or reversal of prior year financial statement misstatements should be considered in quantifying a current year misstatement. Prior practice allowed the evaluation of materiality on the basis of (1) the error quantified as the amount by which the current year income statement was misstated (rollover method) or (2) the cumulative error quantified as the cumulative amount by which the current year balance sheet was misstated (iron curtain method). Reliance on either method in prior years could have resulted in misstatement of the financial statements. The guidance provided in SAB No. 108 requires both methods to be used in evaluating materiality. Immaterial prior year errors may be corrected with the first filing of prior year financial statements after adoption. The cumulative effect of the correction can either be reported in the carrying amounts of assets and liabilities as of the beginning of that fiscal year, and the offsetting adjustment made to the opening balance of retained earnings for that year, or by restating prior periods. Appropriate disclosure of the nature and amount of each individual error being corrected in the cumulative adjustment, as well as a disclosure of when and how each error being corrected arose and the fact that the errors had previously been considered immaterial. SAB No. 108 is effective January 1, 2007. Management is currently evaluating the impact this bulletin might have on the Companys consolidated financial statements.
(5) |
MATERIALS, SUPPLIES AND FUEL |
The amounts of materials, supplies and fuel included on the accompanying Condensed Consolidated Balance Sheets, by major classification, are provided as follows (in thousands):
|
September 30, |
December 31, |
September 30, | |||
Major Classification |
2006 |
2005 |
2005 | |||
|
|
|
|
|
|
|
Materials and supplies |
$ |
30,160 |
$ |
24,567 |
$ |
24,435 |
Fuel |
|
9,387 |
|
7,544 |
|
8,745 |
Gas held by energy marketing* |
|
51,943 |
|
90,410 |
|
146,207 |
|
|
|
|
|
|
|
Total materials, supplies and fuel |
$ |
91,490 |
$ |
122,521 |
$ |
179,387 |
___________________________
* As of September 30, 2006, December 31, 2005 and September 30, 2005, market adjustments related to natural gas held by energy marketing and recorded in inventory were $(29.8) million, $6.6 million and $61.0 million, respectively.
The gas inventory held by the Companys energy marketing subsidiary is held under various contractual storage arrangements. The gas is being held in inventory to capture the price differential between the time at which it was purchased and a sales date in the future. A substantial majority of the gas was economically hedged at the time of purchase either through a fixed price physical or financial forward sale.
9
(6) |
LONG-TERM DEBT AND GUARANTEES |
On July 12, 2006 the Companys subsidiary, Black Hills Colorado, LLC, entered into a Second Amended and Restated Credit Agreement to refinance the floating rate project debt for the Valmont and Arapahoe plants in the amount of $90.0 million. The maturity date of the amortizing borrowings is July 2013. In conjunction with the refinancing, the Company made a payment in the amount of $21.3 million on the $111.3 million principal outstanding at June 30, 2006 and expensed approximately $0.7 million of unamortized deferred finance costs associated with the First Amended and Restated Credit Agreement. In addition, as of July 12, 2006, the Company has guaranteed during the term of the debt the payment obligations of Black Hills Colorado, LLC, to the Bank of Nova Scotia, as administrative agent under the Credit Agreement, for up to $30 million. The cost of borrowings under the facility is determined based upon the Companys corporate credit ratings; at the current ratings levels, the facility has a borrowing spread on Eurodollar loans of 87.5 basis points over LIBOR (which equates to a 6.25 percent, three-month borrowing rate as of September 30, 2006).
On May 24, 2006 the Company entered into an Amended and Restated Credit Agreement for the project financing floating rate debt for Wygen I. The agreement extended the maturity date of the $111.1 million tranche of the financing from June 2006 to June 2008 to coincide with the maturity date of the remaining $17.2 million tranche. The cost of borrowings under the financing is determined based upon the Companys corporate credit ratings; at the Companys current ratings levels, the financing has a borrowing spread on Eurodollar loans of 62.5 basis points over LIBOR (which equates to a 5.95 percent, one-month borrowing rate as of September 30, 2006). In conjunction with the Amended and Restated Credit Agreement, the Company entered into an Amended and Restated Guarantee in favor of Wygen Funding, Limited Partnership, which continues the Companys guarantee obligations under the Wygen I plant lease.
In addition to the guarantees discussed above, during the nine months ended September 30, 2006 the Company had the following changes to its guarantees:
Issued and amended a Guarantee for payment under various transactions by Cheyenne Light with Tenaska Marketing Ventures for $2.0 million, expiring in 2007. |
|
Extinguished a guarantee of up to $3.0 million of Enserco Energy Inc.s obligations to Fortis Capital Corp. and other lenders under its credit facility. |
|
Expiration of a guarantee of an interest rate swap transaction with Union Bank of California. |
At September 30, 2006, we had guarantees totaling $187.9 million in place.
10
(7) |
EARNINGS PER SHARE |
Basic earnings per share from continuing operations is computed by dividing income from continuing operations by the weighted-average number of common shares outstanding during the period. Diluted earnings per share from continuing operations gives effect to all dilutive common shares potentially outstanding during a period. A reconciliation of Income from continuing operations and basic and diluted share amounts is as follows (in thousands):
Period ended September 30, 2006 |
Three Months |
Nine Months | ||||
|
|
Average |
|
Average | ||
|
Income |
Shares |
Income |
Shares | ||
|
|
|
|
|
|
|
Income from continuing operations |
$ |
22,199 |
|
$ |
53,128 |
|
|
|
|
|
|
|
|
Basic available for common shareholders |
|
22,199 |
33,187 |
|
53,128 |
33,157 |
Dilutive effect of: |
|
|
|
|
|
|
Stock options |
|
|
91 |
|
|
85 |
Estimated contingent shares issuable |
|
|
|
|
|
|
for prior acquisition |
|
|
158 |
|
|
158 |
Others |
|
|
124 |
|
|
126 |
Diluted available for common shareholders |
$ |
22,199 |
33,560 |
$ |
53,128 |
33,526 |
Period ended September 30, 2005 |
Three Months |
Nine Months | ||||
|
|
Average |
|
Average | ||
|
Income |
Shares |
Income |
Shares | ||
|
|
|
|
|
|
|
Income (loss) from continuing operations |
$ |
(23,784) |
|
$ |
6,785 |
|
Less: preferred stock dividends |
|
|
|
|
(159) |
|
|
|
|
|
|
|
|
Basic available for common shareholders |
|
(23,784) |
32,967 |
|
6,626 |
32,660 |
Dilutive effect of: |
|
|
|
|
|
|
Stock options |
|
|
|
|
|
164 |
Estimated contingent shares issuable |
|
|
|
|
|
|
for prior acquisition |
|
|
|
|
|
158 |
Others |
|
|
|
|
|
118 |
Diluted available for common shareholders |
$ |
(23,784) |
32,967 |
$ |
6,626 |
33,100 |
11
(8) |
COMPREHENSIVE INCOME |
The following table presents the components of the Companys comprehensive income (loss)
(in thousands):
|
Three Months Ended |
Nine Months Ended | ||||||
|
September 30, |
September 30, | ||||||
|
2006 |
2005 |
2006 |
2005 | ||||
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
22,280 |
$ |
(23,903) |
$ |
60,188 |
$ |
6,807 |
Other comprehensive income (loss), |
|
|
|
|
|
|
|
|
net of tax: |
|
|
|
|
|
|
|
|
Fair value adjustment on derivatives |
|
|
|
|
|
|
|
|
designated as cash flow hedges |
|
7,425 |
|
(11,095) |
|
12,587 |
|
(15,260) |
Reclassification adjustments on cash flow |
|
|
|
|
|
|
|
|
hedges settled and included in net |
|
|
|
|
|
|
|
|
income |
|
(246) |
|
3,262 |
|
(416) |
|
5,441 |
Unrealized gain on available-for-sale |
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
$ |
29,459 |
$ |
(31,736) |
$ |
72,359 |
$ |
(2,997) |
(9) |
INCOME TAXES |
The Companys effective tax rates differ from the federal statutory rate as follows:
|
Three Months Ended |
Nine Months Ended | ||
|
September 30, |
September 30, | ||
|
2006 |
2005 |
2006 |
2005 |
|
|
|
|
|
|
35.0% |
35.0% |
35.0% |
35.0% |
State income tax |
0.3 |
1.1 |
0.5 |
(2.1) |
Percentage depletion in excess of cost |
(1.5) |
0.7 |
(1.3) |
(6.0) |
IRS exam tax adjustment* |
(7.3) |
|
(2.8) |
|
Tax return true-up |
(1.3) |
1.5 |
(0.5) |
(4.5) |
Other |
(0.3) |
(1.2) |
0.2 |
3.5 |
|
24.9% |
37.1% |
31.1% |
25.9% |
________________________
|
* |
As a result of the settlement of an Internal Revenue Service (IRS) exam of the tax years |
| ||
|
2001-2003 with respect to certain tax positions taken by the Company, a reduction to income | ||||
|
tax expense of approximately $2.2 million was recorded in the third quarter of 2006. |
| |||
12
(10) |
PROCEEDS RECEIVED ON INSURANCE CLAIMS |
In late 2005 and the first half of 2006, the Companys Las Vegas II power plant experienced unplanned outages due to damage to three of its gas turbines and two of its steam turbines. The outages lasted approximately six months as repairs were made to the turbines. The Company has filed insurance claims for reimbursement of repair expenditures and business interruption losses in the amount of approximately $11.1 million. At September 30, 2006, the Company has provided for the receipt of insurance proceeds of approximately $4.3 million. Approximately $0.4 million was applied to reduce capitalized repair costs included in Property, plant and equipment on the accompanying Condensed Consolidated Balance Sheet and $2.2 million for repair costs and $1.7 million for business interruption were applied as a reduction to Operations and maintenance expense on the accompanying Condensed Consolidated Statement of Income. While the Company is pursuing additional reimbursement from the insurance carrier, the carrier asserts that certain deductibles, exclusions and limitations apply preventing any future claims reimbursements. There can be no assurance that the Company will obtain any additional recovery from the insurance carrier.
(11) |
COMMON STOCK |
Equity Compensation Plans
The Company has several employee equity compensation plans, which allow for the granting of stock, restricted stock, restricted stock units, stock options and performance shares. The Company has 1,082,894 shares available to grant at September 30, 2006.
At September 30, 2006, the Company had one stock-based employee compensation plan under which it can grant stock options to its employees and three prior plans with stock options outstanding. Prior to January 1, 2006, the Company accounted for these plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. Prior to 2006, no stock-based compensation expense related to stock options was reflected in net income as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. However, the Company did recognize stock-based compensation expense for other non-vested share awards including restricted stock and restricted stock units, performance shares and directors phantom shares.
13
The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (in thousands, except per share amounts):
|
Three Months Ended |
Nine Months Ended | ||
|
September 30, 2005 |
September 30, 2005 | ||
|
|
|
|
|
Net (loss) income available for common stock, as reported |
$ |
(23,903) |
$ |
6,648 |
Deduct: Total stock-based employee compensation expense |
|
|
|
|
determined under fair value based method for all awards, |
|
|
|
|
net of related tax effects |
|
(126) |
|
(389) |
Pro forma net income available for common stock |
$ |
(24,029) |
$ |
6,259 |
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
Basicas reported |
|
|
|
|
Continuing operations |
$ |
(0.73) |
$ |
0.20 |
Discontinued operations |
|
|
|
|
Total |
$ |
(0.73) |
$ |
0.20 |
Dilutedas reported |
|
|
|
|
Continuing operations |
$ |
(0.73) |
$ |
0.20 |
Discontinued operations |
|
|
|
|
Total |
$ |
(0.73) |
$ |
0.20 |
|
|
|
|
|
Basicpro-forma |
|
|
|
|
Continuing operations |
$ |
(0.73) |
$ |
0.19 |
Discontinued operations |
|
|
|
|
Total |
$ |
(0.73) |
$ |
0.19 |
Dilutedpro-forma |
|
|
|
|
Continuing operations |
$ |
(0.73) |
$ |
0.19 |
Discontinued operations |
|
|
|
|
Total |
$ |
(0.73) |
$ |
0.19 |
On January 1, 2006 the Company adopted the fair value recognition provisions of SFAS 123(R) requiring the recognition of expense related to the fair value of stock-based compensation awards. The Company elected the modified prospective transition method. Under this method, compensation expense is recognized for all stock-based awards granted prior to, but not yet vested as of January 1, 2006 and all stock-based awards granted subsequent to January 1, 2006. Adoption of SFAS 123(R) did not have a material effect on the Companys consolidated financial position, results of operations or cash flows. Compensation expense is determined using the grant date fair value estimated in accordance with the provisions of SFAS 123(R) and is recognized over the vesting periods of the individual plans. Total stock-based compensation expense for the three months ended September 30, 2006 and 2005 was $0.1 million ($0.1 million, after tax) and $1.1 million ($0.7 million, after tax), respectively, and for the nine months ended September 30, 2006 and 2005 was $1.8 million ($1.2 million, after tax) and $3.1 million ($2.0 million, after tax), respectively, and is included in administrative and general expense on the accompanying Condensed Consolidated Statements of Income. In accordance with the modified prospective transition method of SFAS 123(R), financial results for prior periods have not been restated. As of September 30, 2006, total unrecognized compensation expense related to stock options and other non-vested stock awards is $3.5 million and is expected to be recognized over a weighted-average period of 1.8 years.
14
In November 2005, the FASB issued FASB Staff Position (FSP) No. FAS 123 (R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. FSP 123(R)-3 provides an alternative method of calculating the excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123(R). The calculation of excess tax benefits reported as an operating cash outflow and a financing inflow in the Consolidated Statements of Cash Flows required by FSP No. 123(R)-3 differs from that required by SFAS 123(R). The Company has until January 1, 2007 to make a one-time election to adopt the transition method described in FSP No. 123 (R)-3. The Company is currently evaluating FSP No. FAS 123 (R)-3; however, the one-time election is not expected to affect the Companys results of operations.
Stock Options
The Company has granted options with an option exercise price equal to the fair market value of the stock on the day of the grant. The options granted vest one-third each year for three years and expire after ten years from the grant date.
A summary of the status of the stock option plans at September 30, 2006 is as follows:
|
|
|
Weighted- |
| ||
|
|
Weighted- |
Average |
| ||
|
|
Average |
Remaining |
Aggregate | ||
|
|
Exercise |
Contractual |
Intrinsic | ||
|
Shares |
Price |
Term |
Value | ||
|
(in thousands) |
|
(in years) |
(in thousands) | ||
|
|
|
|
| ||
Balance at January 1, 2006 |
854 |
$ |
29.56 |
|
|
|
Granted |
15 |
|
33.17 |
|
|
|
Forfeited/cancelled |
(18) |
|
33.53 |
|
|
|
Expired |
|
|
|
|
|
|
Exercised |
(71) |
|
27.99 |
|
|
|
Balance at September 30, 2006 |
780 |
$ |
29.68 |
5.5 |
$ |
3,066 |
|
|
|
|
|
|
|
Exercisable at September 30, 2006 |
680 |
$ |
29.58 |
5.1 |
$ |
2,739 |
The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2006 and 2005 was $3.79 and $6.93, respectively. The total intrinsic value of options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised during the nine months ended September 30, 2006 and 2005 was $0.5 million and $5.1 million, respectively. The total fair value of shares vested during each of the nine months ended September 30, 2006 and 2005 was $0.4 million and $0.7 million, respectively.
15
The fair value of share-based awards is estimated on the date of grant using the Black-Scholes option pricing model. The fair value is affected by the Companys stock price as well as a number of assumptions. The assumptions used to estimate the fair value of share-based awards are as follows:
|
Nine Months Ended |
Nine Months Ended |
Valuations Assumptions1 |
September 30, 2006 |
September 30, 2005 |
|
|
|
Weighted average risk-free interest rate2 |
4.94% |
3.90% |
Weighted average expected price volatility3 |
21.54% |
42.27% |
Weighted average expected dividend yield4 |
3.98% |
4.17% |
Expected life in years5 |
7 |
7 |
_____________________________
|
1 |
Forfeitures are estimated using historical experience and employee turnover. |
|
2 |
Based on treasury interest rates with terms consistent with the expected life of the options. |
|
3 |
Based on a blended historical and implied volatility of the Companys stock price in 2006 and historical volatility only in 2005. |
|
4 |
Based on the Companys historical and expectation of future dividend payouts and may be subject to substantial change in the future. |
|
5 |
Based upon historical experience. |
Net cash received from the exercise of options for the nine months ended September 30, 2006 and 2005 was $2.0 million and $10.0 million, respectively. The tax benefit realized from the exercise of shares granted for the nine months ended September 30, 2006 and 2005 was $0.2 million and $1.8 million, respectively, and was recorded as an increase to equity.
As of September 30, 2006, there was $0.3 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 0.9 years.
Restricted Stock and Restricted Stock Units
The fair value of restricted stock and restricted stock unit awards equals the market price of the Companys stock on the date of grant.
The shares carry a restriction on the ability to sell the shares until the shares vest. The shares substantially vest one-third per year over three years, contingent on continued employment. Compensation cost related to the awards is recognized over the vesting period.
A summary of the status of the restricted stock and non-vested restricted stock units at September 30, 2006 is as follows:
|
|
Weighted | |
|
Stock |
Average | |
|
And |
Grant Date | |
|
Stock Units |
Fair Value | |
|
(in thousands) |
| |
|
|
| |
Balance at January 1, 2006 |
90 |
$ |
30.71 |
Granted |
42 |
|
35.20 |
Vested |
(37) |
|
29.33 |
Forfeited |
(2) |
|
32.12 |
Balance at September 30, 2006 |
93 |
$ |
33.25 |
16
The weighted-average grant-date fair value of restricted stock and restricted stock units granted in the nine months ended September 30, 2006 and 2005 was $35.20 and $30.03, per share, respectively. The total fair value of shares vested during the nine months ended September 30, 2006 and 2005 was $1.3 million and $1.2 million, respectively.
As of September 30, 2006, there was $2.0 million of unrecognized compensation expense related to non-vested restricted stock and non-vested restricted stock units that is expected to be recognized over a weighted-average period of 1.9 years.
Performance Share Plan
Certain officers of the Company and its subsidiaries are participants in a performance share award plan, a market-based plan. Performance shares are awarded based on the Companys total shareholder return over designated performance periods as measured against a selected peer group. In addition, the Companys stock price must also increase during the performance periods.
Participants may earn additional performance shares if the Companys total shareholder return exceeds the 50th percentile of the selected peer group. The final value of the performance shares may vary according to the number of shares of common stock that are ultimately granted based upon the performance criteria.
Outstanding Performance Periods at September 30, 2006 are as follows:
Grant Date |
Performance Period |
Target Grant of Shares |
|
|
(in thousands) |
|
|
|
March 1, 2004 |
March 1, 2004 December 31, 2006 |
23 |
January 1, 2005 |
January 1, 2005 December 31, 2007 |
39 |
January 1, 2006 |
January 1, 2006 December 31, 2008 |
34 |
The performance awards are paid 50 percent in cash and 50 percent in common stock. The cash portion accrued is classified as a liability and the stock portion is classified as temporary equity. In the event of a change-in-control performance awards are paid 100 percent in cash. If it is ever determined that a change-in-control is probable, the equity portion will be reclassified as a liability. At September 30, 2006, the Company had $0.6 million of temporary equity.
17
A summary of the status of the Performance Share Plan at September 30, 2006 and changes during the nine-month period ended September 30, 2006, is as follows:
|
Equity Portion |
Liability Portion | ||||
|
|
|
|
| ||
|
|
|
|
Weighted- | ||
|
|
Weighted- |
|
Average | ||
|
|
Average |
|
September 30, | ||
|
|
Grant Date |
|
2006 | ||
|
Shares |
Fair Value |
Shares |
Fair Value | ||
|
(in thousands) |
|
(in thousands) |
| ||
|
|
|
|
| ||
Balance at January 1, 2006 |
38 |
$ |
29.95 |
38 |
|
|
Granted |
17 |
|
32.06 |
17 |
|
|
Forfeited |
(1) |
|
29.95 |
(1) |
|
|
Vested |
(6) |
|
29.92 |
(6) |
|
|
Balance at September 30, 2006 |
48 |
$ |
30.70 |
48 |
$ |
23.61 |
The weighted-average grant-date fair value of performance share awards granted in the nine months ended September 30, 2006 and 2005 was $32.06 and $29.97, per share, respectively. The grant date fair value for the performance shares granted in 2006 was determined by Monte Carlo simulation using a blended volatility of 21 percent comprised of 50 percent historical volatility and 50 percent implied volatility and the average risk-free interest rate of the three-year U.S. Treasury security rate in effect as of the grant date. The grant date fair value for the performance shares issued in 2005 was equal to the market value of the common stock on the grant date.
During the nine months ended September 30, 2006, the Company issued 11,667 shares of common stock and paid $0.4 million for the Performance Period of March 1, 2004 to December 31, 2005, for a total intrinsic value of $0.8 million. The payout was fully accrued at December 31, 2005.
As of September 30, 2006, there was $1.2 million of unrecognized compensation expense related to outstanding performance share plans that is expected to be recognized over a weighted-average period of 1.8 years.
Other Plans
The Company issued 36,685 shares of common stock with an intrinsic value of $910,000 in the nine months ended September 30, 2006 to certain key employees under the Short-term Annual Incentive Plan, a performance-based plan. The payout was fully accrued at December 31, 2005.
18
(12) |
EMPLOYEE BENEFIT PLANS |
Defined Benefit Pension Plan
The Company has two non-contributory defined benefit pension plans (Plans). One Plan covers employees of the Company and the following subsidiaries who meet certain eligibility requirements: Black Hills Service Company, LLC, Black Hills Power, Inc., Wyodak Resources Development Corp., and Black Hills Exploration and Production, Inc. The other Plan covers employees of the Companys subsidiary, Cheyenne Light, Fuel and Power Company, who meet certain eligibility requirements.
The components of net periodic benefit cost for the two Plans are as follows (in thousands):
|
Three Months Ended |
Nine Months Ended | ||||||
|
September 30, |
September 30, | ||||||
|
2006 |
2005 |
2006 |
2005 | ||||
|
|
|
|
|
|
|
|
|
Service cost |
$ |
649 |
$ |
576 |
$ |
1,947 |
$ |
1,728 |
Interest cost |
|
1,041 |
|
995 |
|
3,123 |
|
2,985 |
Expected return on plan assets |
|
(1,247) |
|
(1,157) |
|
(3,741) |
|
(3,471) |
Amortization of prior service cost |
|
38 |
|
54 |
|
114 |
|
162 |
Amortization of net loss |
|
227 |
|
296 |
|
681 |
|
888 |
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
$ |
708 |
$ |
764 |
$ |
2,124 |
$ |
2,292 |
The Company made a $1.2 million contribution to the Cheyenne Light Pension Plan in the first quarter of 2006; no additional contributions are anticipated to be made to the Plans during the 2006 fiscal year.
Supplemental Non-qualified Defined Benefit Plans
The Company has various supplemental retirement plans for key executives of the Company (Supplemental Plans). The Supplemental Plans are non-qualified defined benefit plans.
The components of net periodic benefit cost for the Supplemental Plans are as follows (in thousands):
|
Three Months Ended |
Nine Months Ended | ||||||
|
September 30, |
September 30, | ||||||
|
2006 |
2005 |
2006 |
2005 | ||||
|
|
|
|
|
|
|
|
|
Service cost |
$ |
87 |
$ |
86 |
$ |
261 |
$ |
258 |
Interest cost |
|
270 |
|
252 |
|
810 |
|
756 |
Amortization of prior service cost |
|
3 |
|
2 |
|
9 |
|
6 |
Amortization of net loss |
|
199 |
|
157 |
|
597 |
|
471 |
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
$ |
559 |
$ |
497 |
$ |
1,677 |
$ |
1,491 |
19
The Company anticipates that it will need to make contributions to the Supplemental Plans for the 2006 fiscal year of approximately $0.7 million. The contributions are expected to be made in the form of benefit payments.
Non-pension Defined Benefit Postretirement Healthcare Plans
Employees who are participants in the Companys Postretirement Healthcare Plans (Healthcare Plans) and who meet certain eligibility requirements are entitled to postretirement healthcare benefits.
The components of net periodic benefit cost for the Healthcare Plans are as follows (in thousands):
|
Three Months Ended |
Nine Months Ended | ||||||
|
September 30, |
September 30, | ||||||
|
2006 |
2005 |
2006 |
2005 | ||||
|
|
|
|
|
|
|
|
|
Service cost |
$ |
164 |
$ |
185 |
$ |
492 |
$ |
555 |
Interest cost |
|
203 |
|
232 |
|
609 |
|
696 |
Amortization of net transition |
|
|
|
|
|
|
|
|
obligation |
|
38 |
|
37 |
|
114 |
|
111 |
Amortization of prior service cost |
|
(6) |
|
(6) |
|
(18) |
|
(18) |
Amortization of net loss |
|
|
|
25 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
$ |
399 |
$ |
473 |
$ |
1,197 |
$ |
1,419 |
The Company anticipates that it will make contributions to the Healthcare Plans for the 2006 fiscal year of approximately $0.2 million. The contributions are expected to be made in the form of benefits payments.
It has been determined that the Companys post-65 retiree prescription drug plans are actuarially equivalent and qualify for the Medicare Part D subsidy. The decrease in net periodic postretirement benefit cost due to the subsidy is as follows (in thousands):
|
Three Months |
Nine Months | ||
|
Ended |
Ended | ||
|
September 30, 2006 |
September 30, 2006 | ||
|
|
|
|
|
Service cost |
$ |
(25) |
$ |
(75) |
Interest cost |
|
(28) |
|
(84) |
Amortization of net loss |
|
(18) |
|
(54) |
|
|
|
|
|
Total decrease to net periodic |
|
|
|
|
postretirement benefit cost |
$ |
(71) |
$ |
(213) |
20
(13) |
IMPAIRMENT TESTING OF OIL AND NATURAL GAS PROPERTIES |
The Companys oil and gas segment follows the full cost method of accounting for its oil and gas properties. Under the full cost method, costs related to acquisition, exploration and development drilling activities are capitalized. The net capitalized costs are subject to a ceiling test that limits these costs to the estimated present value of future net revenues from proved reserves based on a single days spot market prices, and the lower of cost or fair value of unproved properties. Rules mandated by the Securities and Exchange Commission require that future net revenues be based on end-of-period spot market prices, with consideration for alternate prices only to the extent provided for by contractual arrangements, and discounted at a 10 percent interest rate. If the net capitalized costs exceed the full cost ceiling at period end, a permanent non-cash write-down would be required to be charged to earnings in that period unless subsequent market price changes eliminate or reduce the indicated write-down.
In accordance with the Companys full cost method of accounting for its oil and gas properties, we conducted our quarterly ceiling test as of September 30, 2006. Spot market prices for natural gas, particularly in the Rocky Mountain region where a predominant portion of the Companys reserves are located, experienced a drastic and brief decline at the end of the period ended September 30, 2006. If the spot market prices on September 28, 2006, the market trading date for September 30, 2006 natural gas deliveries, were used the ceiling limitation would have exceeded the Companys net capitalized costs and accordingly no ceiling test write-down would have been indicated. Average wellhead adjusted natural gas and crude oil prices on this date were $3.16 per Mcf and $55.39 per barrel, respectively. When using the spot market prices on September 29, 2006, the last market trading day of the period, the calculation resulted in an indicated $15.5 million pre-tax impairment of the Companys oil and gas properties at September 30, 2006. Average wellhead adjusted natural gas and crude oil spot prices used on this date in the ceiling test calculation were $2.79 per Mcf and $55.39 per barrel, respectively. The Company does not believe this short-term decline in natural gas prices impacts the long-term economic value of its oil and gas properties as its average reserve life is approximately 15 years with individual well lives ranging up to 40 years.
Subsequent to September 30, 2006 natural gas prices both nationwide and in the Rocky Mountain region increased significantly. In accordance with the full cost accounting rules the Company recalculated its full cost "ceiling" using November 2, 2006 average wellhead adjusted spot prices of $5.88 per Mcf and $48.69 per barrel, respectively. These prices resulted in a "ceiling" limit significantly in excess of the Company's net capitalized costs, thereby eliminating the need to take a charge to earnings and write-down the carrying value of the Company's oil and gas properties.
21
(14) |
IMPAIRMENT OF LONG-LIVED ASSETS AND CAPITALIZED DEVELOPMENT COSTS |
Due to a significant increase in the long-term forecasts for natural gas prices during the third quarter of 2005, the operation of the Companys Las Vegas I gas-fired power plant (Las Vegas I) became uneconomic. Accordingly, the Company assessed the recoverability of the carrying value of Las Vegas I in accordance with the provisions of SFAS No. 144 Accounting for the Impairment of Long-lived Assets (SFAS 144).
Las Vegas I is a 53 megawatt, natural gas-fired, combined-cycle turbine operating under a contract as a qualifying facility as defined by the Public Utility Regulatory Policies Act of 1978. Under the contract, which extends through 2024, the Company sells capacity and energy to Nevada Power Company and accepts price risk associated with the plants fuel requirements. While the Companys oil and gas exploration and production operation produces gas sufficient to cover the plants fuel requirements thus providing an internal hedge, SFAS 144 requires the determination of asset impairment at each asset group which has separately identifiable cash flows.
The carrying value of the assets tested for impairment was $60.3 million. The assessment resulted in an impairment charge in September, 2005 of $50.3 million to write down the related Property, plant and equipment by $44.7 million, net of accumulated depreciation of $11.1 million, and intangible assets by $5.6 million, net of accumulated amortization of $1.5 million. This charge reflects the amount by which the carrying value of the facility exceeded its estimated fair value determined by its estimated future discounted cash flows. This charge is included as a component of Operating expenses on the accompanying Condensed Consolidated Statements of Income. Operating results from Las Vegas I are included in the Power Generation Segment.
In addition, during the three-month period ended September 30, 2005, the Company recorded an $8.9 million pre-tax charge for the write-off and expensing of certain capitalized costs for various energy development projects determined less likely to advance, and costs related to unsuccessfully bid projects during the third quarter of 2005. The Company determined these projects were less likely to advance, due to reduced economic feasibility of gas-fired power generation in the expected sustained high-priced natural gas environment, increased expectations of reliance on renewable or coal-fired generation, and a perceived preference of utilities in certain regions to acquire existing merchant generation at significant discounts as an alternative to entering into contracts for capacity and energy from new generation. These costs had been capitalized as management believed it was probable that such costs would ultimately result in acquisition or construction of the projects. This charge is included as a component of Operating expenses on the accompanying Condensed Consolidated Statements of Income. For segment reporting the development costs are included in Corporate results.
22
(15) |
SUMMARY OF INFORMATION RELATING TO SEGMENTS OF THE COMPANYS BUSINESS |
The Companys reportable segments are those that are based on the Companys method of internal reporting, which generally segregates the strategic business groups due to differences in products, services and regulation. As of September 30, 2006, substantially all of the Companys operations and assets are located within the United States. On March 1, 2006, the Company completed the sale of the operating assets of Black Hills Energy Resources, Inc. and related subsidiaries, the Companys crude oil marketing and pipeline transportation business which for segment reporting was classified in the Energy marketing and transportation segment; and on June 30, 2005 the Company completed the sale of its subsidiary, Black Hills FiberSystems, Inc., which operated as the Companys Communications segment (see Note 19). The financial information of the related crude oil marketing and pipeline transportation business and communications segment has been reclassified into Discontinued operations on the accompanying condensed consolidated financial statements.
The Company conducts its operations through the following six reporting segments: Retail Services group consisting of the following segments: Electric utility, which supplies electric utility service to western South Dakota, northeastern Wyoming and southeastern Montana; and Electric and gas utility, acquired January 21, 2005, which supplies electric and gas utility service to Cheyenne, Wyoming and vicinity; and Wholesale Energy group, consisting of the following segments: Coal mining, which engages in the mining and sale of coal from its mine near Gillette, Wyoming; Oil and gas, which explores for and produces oil and gas primarily in the Rocky Mountain region, with non-operated interests in Texas, California, Oklahoma and other states; Energy marketing, which markets natural gas, crude oil and related services to customers in the Midwest, Southwest, Rocky Mountain, West Coast and Northwest regions; and Power generation, which produces and sells power and capacity to wholesale customers with plants concentrated in Colorado, Nevada, Wyoming and California.
Segment information follows the same accounting policies as described in Note 22 of the Companys 2005 Annual Report on Form 10-K. In accordance with the provisions of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS 71), intercompany fuel sales to the electric utility are not eliminated.
23
Segment information included in the accompanying Condensed Consolidated Statements of Income is as follows (in thousands):
|
External |
Inter-segment |
Income (Loss) from | |||
|
Operating |
Operating |
Continuing | |||
|
Revenues |
Revenues |
Operations | |||
Three Month Period Ended |
|
|
|
|
|
|
September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail services: |
|
|
|
|
|
|
Electric utility |
$ |
52,467 |
$ |
723 |
$ |
5,764 |
Electric and gas utility |
|
24,479 |
|
|
|
953 |
Wholesale energy: |
|
|
|
|
|
|
Coal mining |
|
6,055 |
|
3,391 |
|
1,908 |
Oil and gas |
|
22,969 |
|
|
|
3,006 |
Energy marketing |
|
6,327 |
|
|
|
2,378 |
Power generation |
|
42,700 |
|
|
|
9,839 |
Corporate |
|
11 |
|
|
|
(1,649) |
Inter-segment eliminations |
|
|
|
(1,514) |
|
|
|
|
|
|
|
|
|
Total |
$ |
155,008 |
$ |
2,600 |
$ |
22,199 |
|
External |
Inter-segment |
Income (Loss) from | |||
|
Operating |
Operating |
Continuing | |||
|
Revenues |
Revenues |
Operations | |||
Three Month Period Ended |
|
|
|
|
|
|
September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail services: |
|
|
|
|
|
|
Electric utility |
$ |
48,336 |
$ |
938 |
$ |
1,888 |
Electric and gas utility |
|
23,501 |
|
|
|
(127) |
Wholesale energy: |
|
|
|
|
|
|
Coal mining |
|
5,537 |
|
2,945 |
|
1,643 |
Oil and gas |
|
22,800 |
|
7 |
|
5,109 |
Energy marketing |
|
3,398 |
|
|
|
(1,206) |
Power generation |
|
43,076 |
|
|
|
(24,587)* |
Corporate |
|
93 |
|
|
|
(6,504)** |
Inter-segment eliminations |
|
|
|
(1,623) |
|
|
|
|
|
|
|
|
|
Total |
$ |
146,741 |
$ |
2,267 |
$ |
(23,784) |
________________________
|
* |
Loss from continuing operations includes $32.7 million after-tax impairment charge for Las Vegas I. |
|
** |
Loss from continuing operations includes $5.8 million after-tax for the write-off and expensing of certain capitalized project development costs. |
24
|
External |
Inter-segment |
Income (Loss) from | |||
|
Operating |
Operating |
Continuing | |||
|
Revenues |
Revenues |
Operations | |||
Nine Month Period Ended |
|
|
|
|
|
|
September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail services: |
|
|
|
|
|
|
Electric utility |
$ |
142,676 |
$ |
1,518 |
$ |
13,099 |
Electric and gas utility |
|
97,907 |
|
|
|
3,214 |
Wholesale energy: |
|
|
|
|
|
|
Coal mining |
|
15,905 |
|
9,579 |
|
4,091 |
Oil and gas |
|
69,519 |
|
|
|
10,439 |
Energy marketing |
|
34,907 |
|
|
|
13,249 |
Power generation |
|
114,991 |
|
|
|
14,310 |
Corporate |
|
43 |
|
|
|
(5,274) |
Inter-segment eliminations |
|
|
|
(3,733) |
|
|
|
|
|
|
|
|
|
Total |
$ |
475,948 |
$ |
7,364 |
$ |
53,128 |
|
External |
Inter-segment |
Income (Loss) from | |||
|
Operating |
Operating |
Continuing | |||
|
Revenues |
Revenues |
Operations | |||
Nine Month Period Ended |
|
|
|
|
|
|
September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail services: |
|
|
|
|
|
|
Electric utility |
$ |
133,295 |
$ |
1,387 |
$ |
9,619 |
Electric and gas utility |
|
78,034 |
|
|
|
1,028 |
Wholesale energy: |
|
|
|
|
|
|
Coal mining |
|
15,717 |
|
9,144 |
|
4,860 |
Oil and gas |
|
61,504 |
|
7 |
|
14,346 |
Energy marketing |
|
16,193 |
|
|
|
2,187 |
Power generation |
|
121,366 |
|
|
|
(14,601)* |
Corporate |
|
647 |
|
|
|
(10,654)** |
Inter-segment eliminations |
|
|
|
(3,481) |
|
|
|
|
|
|
|
|
|
Total |
$ |
426,756 |
$ |
7,057 |
$ |
6,785 |
_________________________
|
* |
Loss from continuing operations includes $32.7 million after-tax impairment charge for Las Vegas I. |
|
** |
Loss from continuing operations includes $6.2 million after-tax for the write-off and expensing of certain capitalized project development costs. |
Other than the sale of the assets of the crude oil marketing and transportation business and its reclassification to Discontinued operations, and the acquisition of certain oil and gas assets in the Piceance Basin in Colorado, the Company had no material changes in the assets of its reporting segments, as reported in Note 22 of the Notes to Consolidated Financial Statements in the Companys 2005 Annual Report on Form 10-K, beyond changes resulting from normal operating activities.
25
(16) |
RISK MANAGEMENT ACTIVITIES |
The Company actively manages its exposure to certain market risks as described in Note 2 of the Notes to Consolidated Financial Statements in the Companys 2005 Annual Report on Form 10-K. Details of derivative and hedging activities included in the accompanying Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income are as follows:
Trading Activities
Natural Gas and Crude Oil Marketing
The Companys natural gas and crude oil marketing subsidiary, Enserco Energy Inc. (Enserco), recently began marketing crude oil in the Rocky Mountain region out of the Companys Golden, Colorado offices. Our primary strategy involves executing physical crude oil purchase contracts with producers, and reselling into various markets. These transactions are primarily entered into as back-to-back purchases and sales, effectively locking in a marketing fee equal to the difference between the sales price and the purchase price, less transportation costs. Under FAS 133, mark-to-market accounting for the related commodity contracts in the Companys back-to-back strategy results in an acceleration of marketing margins locked in for the term of the contracts. These are generally short-term contracts with automatic renewals (typically monthly) if there is no notice of cancellation. The realized and unrealized gains and losses from the oil marketing activities are shown net on the accompanying Condensed Consolidated Income Statement within Operating revenues.
The contract or notional amounts and terms of the Companys natural gas and crude oil marketing activities and derivative commodity instruments are as follows:
|
Outstanding at |
Outstanding at |
Outstanding at | ||||||
|
September 30, 2006 |
December 31, 2005 |
September 30, 2005 | ||||||
|
|
|
Latest |
|
|
Latest |
|
|
Latest |
|
|
Notional |
Expiration |
|
Notional |
Expiration |
|
Notional |
Expiration |
|
|
Amounts |
(months) |
|
Amounts |
(months) |
|
Amounts |
(months) |
(in thousands of MMbtus) |
|
|
|
|
|
|
|
|
|
Natural gas basis |
|
|
|
|
|
|
|
|
|
swaps purchased |
|
146,331 |
16 |
|
43,507 |
22 |
|
51,155 |
18 |
Natural gas basis |
|
|
|
|
|
|
|
|
|
swaps sold |
|
153,530 |
18 |
|
53,665 |
22 |
|
60,522 |
18 |
Natural gas fixed - for - float |
|
|
|
|
|
|
|
|
|
swaps purchased |
|
44,600 |
18 |
|
17,083 |
23 |
|
19,979 |
26 |
Natural gas fixed - for - float |
|
|
|
|
|
|
|
|
|
swaps sold |
|
58,248 |
6 |
|
24,871 |
23 |
|
29,576 |
26 |
Natural gas physical |
|
|
|
|
|
|
|
|
|
purchases |
|
66,972 |
27 |
|
59,855 |
34 |
|
62,020 |
37 |
Natural gas physical sales |
|
117,135 |
39 |
|
88,302 |
46 |
|
110,341 |
49 |
Natural gas options |
|
|
|
|
|
|
|
|
|
purchased |
|
18,447 |
15 |
|
6,176 |
21 |
|
12,725 |
24 |
Natural gas options sold |
|
18,447 |
15 |
|
6,176 |
21 |
|
12,725 |
24 |
26
|
Outstanding at |
Outstanding at |
Outstanding at | ||||||
|
September 30, 2006 |
December 31, 2005 |
September 30, 2005 | ||||||
|
|
|
Latest |
|
|
Latest |
|
|
Latest |
|
|
Notional |
Expiration |
|
Notional |
Expiration |
|
Notional |
Expiration |
|
|
Amounts |
(months) |
|
Amounts |
(months) |
|
Amounts |
(months) |
|
|
|
|
|
|
|
|
|
|
(in thousands of barrels) |
|
|
|
|
|
|
|
|
|
Crude oil physical |
|
|
|
|
|
|
|
|
|
purchases |
|
404 |
1 |
|
|
|
|
|
|
Crude oil physical sales |
|
404 |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars, in thousands) |
|
|
|
|
|
|
|
|
|
Canadian dollars |
|
|
|
|
|
|
|
|
|
purchased |
$ |
23,000 |
1 |
$ |
88,000 |
2 |
$ |
29,700 |
1 |
Canadian dollars sold |
$ |
1,000 |
2 |
$ |
29,000 |
5 |
$ |
37,600 |
8 |
Derivatives and certain natural gas and crude oil marketing activities were marked to fair value on September 30, 2006, December 31, 2005 and September 30, 2005, and the related gains and/or losses recognized in earnings. The amounts included in the accompanying Condensed Consolidated Balance Sheets and Statements of Income are as follows (in thousands):
|
Current |
Non-current |
Current |
Non-current |
| |||||
|
Derivative |
Derivative |
Derivative |
Derivative |
Unrealized | |||||
|
Assets |
Assets |
Liabilities |
Liabilities |
Gain (Loss) | |||||
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 |
$ |
51,528 |
$ |
1,629 |
$ |
17,546 |
$ |
1,873 |
$ |
33,738 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
$ |
20,326 |
$ |
1,747 |
$ |
20,751 |
$ |
2,086 |
$ |
(764) |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005 |
$ |
33,112 |
$ |
4,722 |
$ |
97,215 |
$ |
4,541 |
$ |
(63,922) |
In addition, certain volumes of natural gas inventory have been designated as the underlying hedged item in a fair value hedge transaction. These volumes are stated at market value using published spot industry quotations. Market adjustments are recorded in inventory on the Condensed Consolidated Balance Sheets and the related unrealized gain/loss on the Condensed Consolidated Statements of Income, effectively offsetting the earnings impact of the unrealized gain/loss recognized on the associated derivative asset or liability described above. As of September 30, 2006, December 31, 2005 and September 30, 2005, the market adjustments recorded in inventory were $(29.8) million, $6.6 million and $61.0 million, respectively.
27
Activities Other Than Trading
Oil and Gas Exploration and Production
On September 30, 2006, December 31, 2005 and September 30, 2005, the Company had the following derivatives and related balances (in thousands):
|
|
|
|
|
|
|
Pre-tax |
| ||||||
|
|
Maximum |
|
Non- |
|
Non- |
Accumulated |
| ||||||
|
|
Terms |
Current |
current |
Current |
current |
Other |
Pre-tax | ||||||
|
|
in |
Derivative |
Derivative |
Derivative |
Derivative |
Comprehensive |
Income | ||||||
|
Notional* |
Years |
Assets |
Assets |
Liabilities |
Liabilities |
Income (Loss) |
(Loss) | ||||||
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps/options |
300,000 |
1.00 |
$ |
456 |
$ |
|
$ |
1,308 |
$ |
282 |
$ |
(1,441) |
$ |
307 |
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps |
6,765,000 |
1.50 |
|
13,231 |
|
1,116 |
|
|
|
|
|
14,347 |
|
|
|
|
|
$ |
13,687 |
$ |
1,116 |
$ |
1,308 |
$ |
282 |
$ |
12,906 |
$ |
307 |
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps/options |
300,000 |
1.00 |
$ |
150 |
$ |
|
$ |
2,535 |
$ |
307 |
$ |
(2,842) |
$ |
150 |
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps |
2,950,000 |
0.60 |
|
|
|
151 |
|
2,560 |
|
|
|
(2,409) |
|
|
|
|
|
$ |
150 |
$ |
151 |
$ |
5,095 |
$ |
307 |
$ |
(5,251) |
$ |
150 |
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps |
300,000 |
1.00 |
$ |
|
$ |
|
$ |
4,448 |
$ |
1,177 |
$ |
(5,607) |
$ |
(18) |
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps |
2,502,500 |
0.50 |
|
|
|
|
|
11,829 |
|
378 |
|
(12,207) |
|
|
|
|
|
$ |
|
$ |
|
$ |
16,277 |
$ |
1,555 |
$ |
(17,814) |
$ |
(18) |
________________________
*crude in barrels, gas in MMbtus
Based on September 30, 2006 market prices, an $11.6 million gain would be realized and reported in pre-tax earnings during the next twelve months related to hedges of production. Estimated and actual realized losses will likely change during the next twelve months as market prices change.
Fuel in Storage
The Company holds natural gas in storage for use as fuel for generating electricity with certain of its gas-fired combustion turbines. To minimize associated price risk and seasonal storage level requirements, the Company utilizes various derivative instruments in managing these risks.
28
On September 30, 2006, December 31, 2005 and September 30, 2005, the Company had the following swaps and related balances (in thousands):
|
|
|
|
|
|
|
Pre-tax |
| ||||||
|
|
|
|
Non- |
|
Non- |
Accumulated |
| ||||||
|
|
Maximum |
Current |
current |
Current |
current |
Other |
Unrealized | ||||||
|
|
Terms in |
Derivative |
Derivative |
Derivative |
Derivative |
Comprehensive |
Gain | ||||||
|
Notional* |
Years |
Assets |
Assets |
Liabilities |
Liabilities |
(Loss) |
(Loss) | ||||||
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps |
525,000 |
0.5 |
$ |
1,634 |
$ |
|
$ |
|
$ |
|
$ |
410 |
$ |
1,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps |
275,000 |
0.25 |
$ |
192 |
$ |
|
$ |
219 |
$ |
|
$ |
(219) |
$ |
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps |
425,000 |
0.50 |
$ |
|
$ |
|
$ |
1,246 |
$ |
|
$ |
(759) |
$ |
(487) |
________________________
*gas in MMbtus
Based on September 30, 2006 market prices, a gain of $0.4 million would be realized and reported in pre-tax earnings during the next twelve months related to the cash flow hedge. Estimated and actual realized gains will likely change during the next twelve months as market prices change.
In addition, certain volumes of natural gas inventory were designated as the underlying hedged item in fair value hedge transactions. These volumes are stated at market value using published spot industry quotations. Market adjustments are recorded in inventory on the Balance Sheet and the related unrealized gain/loss on the Statement of Income. As of September 30, 2006, December 31, 2005 and September 30, 2005, the market adjustments recorded in inventory were $(1.2) million, $(0.2) million and $0.5 million, respectively.
29
Financing Activities
On September 30, 2006, December 31, 2005 and September 30, 2005, the Companys interest rate swaps and related balances were as follows (in thousands):
|
|
Weighted |
|
|
|
|
|
Pre-tax |
| |||||||
|
|
Average |
|
|
Non- |
|
Non- |
Accumulated |
| |||||||
|
Current |
Fixed |
Maximum |
Current |
current |
Current |
current |
Other |
Pre-tax | |||||||
|
Notional |
Interest |
Terms in |
Derivative |
Derivative |
Derivative |
Derivative |
Comprehensive |
Income | |||||||
|
Amount |
Rate |
Years |
Assets |
Assets |
Liabilities |
Liabilities |
Income (Loss) |
(Loss) | |||||||
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps |
$ |
100,000 |
5.09% |
10.00 |
$ |
141 |
$ |
452 |
$ |
83 |
$ |
758 |
$ |
(248) |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|