Business Context and Reporting Period
This Form 8-K, filed on October 22, 2009, by Black Hills Corporation, discloses unaudited condensed combined pro forma financial information. The report presents the financial results for the year ended December 31, 2008, assuming the acquisition of utility assets from Aquila, Inc. (an electric utility in Colorado and gas utilities in Colorado, Iowa, Kansas, and Nebraska) occurred on January 1, 2008. The actual acquisition closed on July 14, 2008.
Key Financial Metrics (Pro Forma Year Ended Dec 31, 2008)
| Metric | Amount (in thousands) |
|---|---|
| Operating Revenues | $1,548,688 |
| Operating Expenses | $1,444,602 |
| Operating Income | $104,086 |
| Interest Expense | $(67,573) |
| Income Tax Benefit | $16,272 |
| Net Loss from Continuing Operations | $(31,698) |
| Loss Per Share (Basic & Diluted) | $(0.83) |
Note: The filing does not provide specific data on cash flow, debt balances, or liquidity ratios for the pro forma period, though it references the financing structure used for the acquisition.
Material Changes and Adjustments
The pro forma statement adjusts historical results to reflect the combined entity as if the acquisition occurred at the beginning of 2008. Key adjustments include:
- Operating Expenses: A net reduction of $10.892 million in operations and maintenance expenses. This includes the elimination of incremental acquisition costs ($3.394 million) and allocated Aquila pension/benefit costs ($9.010 million), partially offset by estimated Black Hills benefit costs ($2.765 million).
- Interest Expense: A net increase of $3.702 million to reflect long-term financing costs replacing the short-term acquisition bridge facility. This adjustment eliminates $12.2 million of actual bridge loan interest and $9.7 million of allocated Aquila interest, while adding $25.6 million for assumed long-term debt.
- Income Taxes: A tax benefit of $16.272 million is recorded based on a 37% statutory rate applied to the adjustments.
Outlook, Risks, and Management Commentary
Management states that the pro forma data is for informational purposes only and does not purport to be indicative of actual or future results. The data does not reflect a full year of potential synergies or cost reductions from the acquisition. The filing notes that the historical results of the acquired utilities are not necessarily indicative of future performance. The acquisition was funded by the sale of seven power plants and a $382.8 million bridge facility draw, which was repaid in June 2009 using proceeds from a $250 million long-term financing at 9% and revolving credit facility borrowings.
Investor Verification Checklist
- Verify the actual historical financial performance of Black Hills Corporation for 2008 (excluding the pro forma adjustments) via the Form 10-K filed March 2, 2009.
- Review the historical unaudited interim financial statements of the Aquila Utilities (Exhibit 99.3 to Form 8-K/A filed September 29, 2008) to understand the acquired assets' standalone performance.
- Confirm the terms and status of the $250 million long-term financing completed in May 2009 and the repayment of the acquisition bridge facility.
- Assess the impact of the $94.44 million interest rate swap expense included in the historical results, which is not adjusted in the pro forma statement.
- Investigate the $91.782 million impairment of long-lived assets recorded in the historical results to understand the nature of the write-down.