Black Hills Corporation (BKH)

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Black Hills Corporation (BKH)

Q3 2007 Earnings Call

November 2, 2007 11:00 am ET

Executives

Dale Jahr - Director of IR

David Emery - Chairman, President and CEO

Analysts

Neil Stein - Latin Capital

Gordon Howald - Caylon

Ella Sansibar - RBC Capital Markets

Presentation

Operator

Ladies and gentlemen thank you for standing by, and welcome to the Black Hills Corp. Quarterly Earnings Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct the question-and-answer session. Instructions will be given to you at that time. (Operator Instructions). As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to Mr. Dale Jahr. Please go ahead.

Dale Jahr

Good morning everyone and I’d like to add my welcome. Thank you for joining us. We are conducting this conference call a little differently this morning. Mr. David Emery, our Chairman, President and CEO, will be joining us from Cheyenne, Wyoming where our Board of Directors held its quarterly meeting. Of course, Cheyenne is home to our utility, Cheyenne Light, Fuel & Power. I am in our Rapid City headquarters, handling the logistics of this call and other matters related to our earnings release of yesterday. Our CFO, Mark Thies, could not join us in the call this morning.

I remind the audience that this conference call may include forward-looking statements as defined by the SEC. These statements concern our plans, expectations, and objectives for future operations. Such statements are based on what we believe are reasonable assumptions and based on current expectations of industry and economic conditions and other factors. However, risks and uncertainties could cause results to differ materially from those in forward-looking statements. I refer you to the cautionary language published in our press release and other public disclosures.

Again, this discussion will be led by Mr. David Emery, and Dave would like to start off with the review of the recent results before we open the call to you r questions. Dave?

David Emery

Thank you Dale and I'll reiterate my welcome to everybody. Thanks for being on the call today, we appreciate it.

2007 continues to be a good year for Black Hills Corporation. And in the third quarter, which we are here to talk about today, we posted some pretty good operating results in a quarter that historically is the weaker quarter for us, primarily due to seasonality of some of the energy markets. We also, during this quarter, made significant progress on some of our key strategic initiatives, and I'll talk about that more later.

First, yesterday, our Board approved an increase in our quarterly dividend of $0.35 a share. That's up a penny, which would equate to a $1.40 in an annual dividend.

2007 represents the 37th consecutive year dividend increases, and this will be the 38th year after we go through another year here with this penny increase. We typically do this dividend increase after the results and in conjunction with our year-end results' disclosures.

This year, as I think is a sign of confidence in our confidence in the future, the Board accelerated the increase to this quarter instead, which I think, bodes well for the future for Black Hills.

Looking at third quarter results, the net income for the third quarter was $17.5 million or about $0.46 a share versus $22.3 million or $0.66 a share last year. One thing I will note is that we did in February issue about 4.17 million shares, which was roughly an 11% dilution in our outstanding shares of stock.

If you look at continuing operations in the third quarter, the number was $17.6 million or $0.46 again compared to 22.2% or $0.66 in 2006.

If you look at the year-over-year comparison, there is a couple of one-time issues that impacted each year. First in 2007, couple of items and I'll talk about them both more a little later, but we had a $1.9 million impairment of our Ontario, California qualifying facility power plant.

We also had a couple cents in expenses, $0.02 in expenses, related to our Aquila transaction, which were ongoing and progressing towards closing.

In 2006, we had a couple positive items; one was a $2 million, just under $0.06 beneficial tax adjustment and $1.9 million insurance proceed that we received due to our Las Vegas plant outage. So if you take out those items quarter-over-quarter were relatively comparable slightly down, but fairly consistent quarterly performance.

Switching to the business units and operations, in almost all of our business units with the exception of one and I will talk about that, we had either normal or a little better than normal operations in the business units. Our utilities performed well. Black Hills Power was essentially flat, nominally greater than last year in the same quarter. Significantly higher numbers as far as just our native load, we had a good native load year as well as the impacts of the rate case that went into effect January 1.

Those were offset by much lower margins from off-system sales in this quarter. The quarter was just really weak from a market perspective and in addition our native load use with higher, which meant we had less of our low-cost resources to sell into the market.

Cheyenne Light, good performance continuing there, more aggressive particularly related to in operating expense reductions and more aggressive on some of our collections activity and less bad debt expense as a result of that. Our power plant availability and our regulated fleet was very good. A little bit of maintenance outage at some of our coal facilities, but other than that availability was very, very high.

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