-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L5uYcNfvdzqWSH5J3Jgp7WKu2sJEOEfSFLWGg3e+td3RGkHwNMP8M8GziYICiE9H jlhl89cJ1B6tzFeaCCl58A== 0000795182-99-000017.txt : 19990816 0000795182-99-000017.hdr.sgml : 19990816 ACCESSION NUMBER: 0000795182-99-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BONNEVILLE PACIFIC CORP CENTRAL INDEX KEY: 0000795182 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 870363215 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14846 FILM NUMBER: 99686623 BUSINESS ADDRESS: STREET 1: 50 W 300 SOUTH STREET 2: SUITE 300 CITY: SALT LAKE CITY STATE: UT ZIP: 84101 BUSINESS PHONE: 8013632520 MAIL ADDRESS: STREET 1: 50 WEST 300 SOUTH STREET 2: SUITE 300 CITY: SALT LAKE CITY STATE: UT ZIP: 84101 10-Q 1 QUARTER U.S. 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 Quarter Ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-14846 BONNEVILLE PACIFIC CORPORATION (Exact Name of Registrant as specified in its charter) Delaware 87-0363215 (State or other jurisdiction of (I.R.S. employer identification No.) incorporation or organization) 50 West 300 South, Suite 300 Salt Lake City, UT 84101 (Address of principal executive offices) Registrant's telephone number, including area code: (801) 363-2520 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING PRECEDING FIVE YEARS Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] Common Stock Outstanding at August 11, 1999 - 7,227,390 shares of $.01 par value Common Stock. FORM 10-Q FINANCIAL STATEMENTS AND SCHEDULES BONNEVILLE PACIFIC CORPORATION AND SUBSIDIARIES FOR SIX MONTHS ENDED JUNE 30, 1999 The following financial statements and schedules of the registrant and its consolidated subsidiaries are submitted herewith: PART 1 - FINANCIAL INFORMATION Page of Form 10-Q Item 1. Financial Statements: Condensed Consolidated Balance Sheet - December 31, 1998 and June 30, 1999 4 Condensed Consolidated Statements of Operations and Comprehensive Income for Six Months and Three Months ended June 30, 1999 5 Condensed Consolidated Statements of Cash Flows - for the Six Months and Three Months ended June 30, 1999` 6 Note to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities and Use of Proceeds 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6 Reports on Form 8-K 17 Item 6(a) Exhibits 17 Financial Data Statement 19 Signatures 18 BONNEVILLE PACIFIC CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ in Thousands) 30 JUNE 31 DEC 1999 1998 ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,062 $ 16,018 Restricted cash 1,209 534 Receivables 3,198 6,255 Other current assets 721 343 -------- -------- Total Current Assets 15,190 23,150 PROPERTY, PLANT AND EQUIPMENT, at cost: Oil and gas properties 35,968 32,424 Property, plant and equipment 3,128 10,086 Accumulated depreciation, depletion, amortization and impairment (21,555) (26,991) -------- -------- Total property, plant and equipment 17,541 15,519 INVESTMENTS AND OTHER ASSETS: Investments in affiliated companies 8,948 7,584 Other assets 312 361 -------- -------- Total investments and other assets 9,260 7,945 -------- -------- Total Assets $ 41,991 $46,614 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 2,448 $11,953 Other current liabilities 949 476 --------- ------- Total current liabilities 3,397 12,429 LONG-TERM LIABILITIES: Bank debt 8,700 5,850 --------- ------- Total liabilities 12,097 18,279 STOCKHOLDERS' EQUITY Common stock 72 72 Additional paid-in capital 160,735 160,735 Accumulated deficit (130,615) (132,090) Cumulative translation adjustments (298) (382) --------- -------- Total Stockholders' Equity 29,894 28,335 --------- -------- Total Liabilities and Stockholders' Equity $41,991 $46,614 ========= ========
BONNEVILLE PACIFIC CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME ($ In Thousands) Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 __________________________________________ REVENUES: Oil and gas sales $2,691 $1,709 $4,560 $3,468 Energy marketing revenues 2,333 1,974 9,950 4,376 Facilities operations and maintenance 1,042 1,110 2,113 2,076 Electric cogeneration 477 479 784 786 ------ ------ ------ ------ Total Revenues 6,543 5,272 17,407 10,706 OPERATING EXPENSES: Oil and gas production 1,261 676 1,930 1,363 Energy marketing costs 2,298 1,947 9,742 4,409 Facilities, operations maintenance costs 688 703 1,490 1,426 Electric cogeneration 374 324 773 785 Depreciation, depletion and amortization 823 530 1,346 1,038 Exploration and other oil and gas expense 394 111 638 183 Selling, general and administrative expense 1,048 657 2,227 1,191 ------ ------ ------ ------ Total Operating Expenses 6,886 4,948 18,146 10,395 OPERATING PROFIT (LOSS) (343) 324 (739) 311 OTHER INCOME (EXPENSE): Interest expense (125) (1,893) (251) (3,765) Equity in net earning of affiliated company 1,544 1,465 1,963 2,326 Reorganization items (20) 1,536 (71) 3,301 Other income (expense), net 351 229 573 497 ------ ------ ------ ------ Total Other Income (expense) 1,750 1,337 2,214 2,359 ------ ------ ------ ------ NET INCOME 1,407 1,661 1,475 2,670 OTHER COMPREHENSIVE INCOME Foreign currency translation adjustments 15 0 84 0 ------ ------ ------ ------ COMPREHENSIVE INCOME $1,422 $1,661 $1,559 $2,670 ====== ====== ====== ====== Basic earnings per share $ .19 $ .56 $ .20 $ .91
BONNEVILLE PACIFIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 ($ in Thousands) 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income 1,475 2,670 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 1,346 1,038 Equity in investee earnings (1,963) (2,326) Gain on sale of property (80) 0 Changes in assets and liabilities: Accounts Receivable 3,057 5,141 Other current assets (385) 91 Accounts payable and accrued liabilities (9,032) 1,940 Other 81 (146) ------- ------- Net Cash provided by (used for) operating activities (5,501) 8,408 CASH FLOWS FROM INVESTING ACTIVITIES: Sale of property, plant and equipment 515 0 (Increase) in restricted cash (675) (58) Additions to property, plant and equipment (3,795) (3,119) Cash received from investee 600 0 (Increase) decrease in other assets 50 46 ------- ------- Net cash used for investing activities (3,305) (3,131) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt 2,850 600 ------- ------- Net cash provided by financing activities 2,850 600 ------- ------- INCREASE (DECREASE) IN CASH (5,956) 5,877 CASH AND EQUIVALENTS at beginning of period 16,018 154,065 ------- -------- CASH AND EQUIVALENTS at end of period 10,062 159,942 ======= ========
BONNEVILLE PACIFIC CORPORATION AND SUBSIDIARIES NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The condensed consolidated financial statements include the accounts of Bonneville Pacific Corporation ("BPC") and its wholly-owned subsidiaries, Bonneville Nevada Corporation ("BNC"), Bonneville Pacific Services Company, Inc., ("BPS") and Bonneville Fuels Corporation ("BFC"). All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements have been prepared without audit in accordance with generally accepted accounting principles pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments which are necessary for a fair presentation of the results for the interim periods presented, such adjustments being of a normal recurring nature. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 1998 condensed consolidated financial statements were derived from the audited balance sheet of the Company. It is suggested that these condensed consolidated financial statements and notes thereto be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10K of Bonneville Pacific Corporation for the year ended December 31, 1998. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year. SALE OF ALL OR PART OF THE COMPANY The Company previously announced that it had appointed CIBC Oppenheimer as the Company's financial advisor. CIBC Oppenheimer has been retained to assist the Company in defining strategic and financial alternatives relating to the Company's operations. CIBC Oppenheimer has developed an analysis of the Company's operations and potential valuations of the Company under a variety of alternative strategies and has recommended to the Board of Directors that the Company's operations be sold or merged with one or more other companies. CIBC Oppenheimer has solicited bids from interested parties and is assisting in the evaluations of those bids. All assets of the Company are thus considered to be held for sale and will be operated until a sale is consummated. On June 29, 1999, the Company sold its interest in the Kyocera project to the project thermal host and electricity purchaser. Kyocera America Inc. for $515,000. The project was a 3.2 MW cogeneration facility originally constructed in 1989 at a cost of approximately $7,200,000. Since its construction the Kyocera project has been reduced in value through depreciation and impairment charges to a value of approximately $435,000. At the time of sale an $80,000 gain was recorded. On August 12, 1999 the Company announced that it has entered into a Stock Purchase Agreement with CEC Resources, Ltd. for the sale of all of the outstanding shares of Bonneville Pacific's wholly-owned subsidiary, Bonneville Fuels Corporation (BFC). BFC is the Company's oil and gas subsidiary. The Stock Purchase Agreement provides that if the transaction is completed, the purchase price of approximately $24,000,000 will be payable in cash at closing. The proposed sale of the shares of BFC is subject to certain adjustments and various conditions which may include, the approval of the stockholders of the Company. Although management believes that the sale transaction will be completed, there can be no assurance that the sale transaction will be closed. SEGMENT INFORMATION: The Company has identified the following segments: BFC, BNC and BPS. BFC is primarily engaged in oil and gas production, exploration and energy marketing. BNC owns a 50% interest in Nevada Cogeneration Associates #1 (NCA#1), a company engaged in cogeneration activities. BPS is primarily engaged in providing operational and maintenance services to cogeneration plants and is currently responsible for the Companies development work in Mexico. BPS also has an interest in an additional cogeneration facility in the start-up phase in Mexico. The accounting policies of the segments are the same as those described in the summary of significant account policies in the Company's Annual Report on Form 10-K. The Company evaluates performance based on profit or loss from operations before reorganization items and income taxes. ($ in Thousands) BFC BNC BPS *BPC Total June 30, 1999 Revenues from external customers $ 14,510 $ - $ 2,113 $ 784 $ 17,407 Interest income from non-reorganization items 48 58 38 95 239 Interest expense 251 - - - 251 Operating expense 13,365 - 1,490 730 15,585 Selling, general and administrative 822 11 485 909 2,227 Equity in investee earnings - 1,963 - - 1,963 Segment profits (loss) before reorganization items 120 2,010 176 (760) 1,546 Segment assets $ 20,924 $ 12,683 $ 5,665 $ 2,719 $ 41,991 June 30, 1998 Revenues from external customers $ 7,844 $ - $ 2,076 $ 786 $ 10,706 Interest income from non-reorganization items 29 15 52 96 Interest expense 85 3,680 3,765 Operating expense 6,726 1,434 642 8,802 Selling, general and administrative 466 26 215 484 1,191 Equity in investee earnings 2,326 2,326 Segment profits (loss) before reorganization items 596 2,315 479 (4,020) (630) Segment assets $ 16,642 $ 9,712 $ 4,827 $159,751 $190,932 *Contains the operating results of the Kyocera Project sold on June 29, 1999.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements and Risks: This Quarterly Report on Form 10-Q includes forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward looking statements herein include political developments in Mexico; the ability of the Company to penetrate new retail natural gas and electricity markets in the United States and Mexico; the timing and extent of deregulation of energy markets in the United States and in Mexico; other regulatory developments in the United States and in Mexico, including tax legislation and regulations; the extent of efforts by governments to privatize natural gas and electric utilities and other industries; the timing and extent of changes in commodity prices for crude oil, natural gas, electricity, foreign currency and interest rates; the extent of the Company's success in acquiring oil and gas properties and in discovering, developing, producing and marketing reserves; the timing and success of the Company's efforts to develop new projects; the Company's success in implementing its Year 2000 Plan, and the Year 2000 readiness of outside entities; and the Company's ability to access the capital markets and equity markets during the periods covered by the forward looking statements, which will depend on general market conditions and the Company's ability to maintain or increase long-term debt facilities. These forward-looking statements are based on the Company's current expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, the Company's actual results could differ materially. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed hereunder and elsewhere in this Form 10-Q. These forward-looking statements represent the Company's judgment as of the date of this Form 10-Q. All subsequent written and oral forward-looking statements attributable to the Company are expressly qualified in their entirety by the Cautionary Statements. The Company disclaims, however, any intent or obligation to update its forward-looking statements. General On December 5, 1991, BPC filed a voluntary petition for relief under Chapter 11 of Title 11 of the Federal Bankruptcy Code. From December 5, 1991 until November 2, 1998, BPC operated under the jurisdiction of the United States Bankruptcy Court. The discussion that follows, of necessity, compares a period during bankruptcy, the first six months of 1998 and the second quarter of 1998, to non-bankruptcy periods, the first six months of 1999 and the second quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES CAPITAL COMMITMENTS The Company's current cash balance is primarily used to fund daily operations, to complete the development of oil and gas properties, and complete the CONAV project located in Mexico. No new power projects or major oil and gas development activities are scheduled until the conclusion of the sales process discussed in the footnote to the financial statements. During the first six months of 1999 approximately $3,500,000 in oil and gas exploration and development expenditures were capitalized, approximately $1,300,000 of that amount was capitalized during the second quarter of 1999. This compares to $2,300,000 in oil and gas expenditures being capitalized in the first six months of 1998. Approximately $180,000 has been capitalized in 1999 as part of the CONAV project. Funding for the Company's working capital obligations was provided by internally generated cash flow and bank debt. The Company's primary capital resources are net cash provided by operating activities, the sale of Kyocera, and dividends from the NCA#1 partnership and proceeds from financing activities. The Company expects that these resources will be sufficient to fund its remaining capital commitments. OPERATING ACTIVITIES Net cash used by operating activities was $5,501,000 during the six months ended June 30, 1999, as compared to net cash provided by operating activities of $8,408,000 for the same period in 1998. The decrease was primarily due to the payment of $3,714,000 of professional fees and an escrow liability of $2,298,000 accrued in 1998 and paid in the first quarter of 1999. The 1998 amount primarily reflected proceeds from claims settlements. FINANCING ACTIVITIES The oil and gas exploration and development was funded from internally generated cash flows and additional bank debt of $2,850,000. BFC had an outstanding balance under its credit facilities of $8,700,000 at June 30, 1999, plus an additional $2,500,000 of outstanding letters of credit securing hedge positions, leaving approximately $6,900,000 of additional unused borrowing capacity available. RESULTS OF OPERATIONS First Six Months of 1999 as compared to the First Six Months of 1998 The Company reported net income of $1,475,000 for the first six months of 1999 compared to $2,670,000 for the first six months of 1998. Bankruptcy items are as follows: ($ in Thousands) Six Months Ended 06/30/99 06/30/98 Difference ---------------------------------------- Interest Expense - ($3,680) $3,680 Interest Income - 3,998 (3,998) Professional Fees ($73) (617) 544 Other 2 (80) 82 -------- -------- -------- (71) (379) 308
NEVADA COGENERATION ASSOCIATE #1 (NCA#1) NCA#1 results are not consolidated as the Company is not a majority owner of NCA#1, but the Company's portion of operating profit is reflected as accrued equity earnings. The Company's 50% portion of NCA#1's operating profit totaled $1,963,000 for the first six months of 1999 compared to $2,326,000 for the same period in 1998. The $363,000 decrease in the Company's share of profits was primarily due to the expenses associated with the scheduled installation of selective catalytic reduction equipment during the first quarter and the corresponding increase in maintenance costs during that period. Maintenance costs were $654,000 higher in 1999, fuel costs and other operating costs were also higher. KYOCERA PROJECT The Kyocera Project was sold in June of 1999, recording an $80,000 gain, but operating losses for the first six months of 1999 totaled $28,000 compared to a loss of $44,000 for the first six months of 1998. The loss reduction was the result of reduced fuel, parts and licensing costs. COGENERATION PROJECT DEVELOPMENT The CONAV project is still in start-up, primarily waiting for the installation of water treatment equipment and customers written acceptance of a proposal to complete the project by CONAV. The project is still scheduled to be completed in 1999. OPERATING AND MAINTENANCE OPERATIONS The Company's operating and maintenance group increased revenues by $37,000 to $2,113,000 in the first six months of 1999 compared to $2,076,000 in the same period of 1998. The operating and maintenance group's expenses increased by $64,000 to $1,490,000. OIL AND GAS OPERATIONS AND ENERGY MARKETING As mentioned in the footnote to the financial statements the Company announced on August 12, 1999 the agreement to sell its oil and gas subsidiary, Bonneville Fuels and its related subsidiaries for approximately $24,000,000. The transaction is scheduled to be completed or early fourth quarter 1999. Oil and gas production revenue increased $1,092,000 or 31.5% to $4,560,000 in the six months ended June 30, 1999 compared to $3,468,000 in the six months ended June 30, 1998. Natural gas volumes produced in the first six months of 1999 increased 514,000 mcf or 31.9% to 2,121,000 mcf from 1,607,000 mcf in the six months ended June 30, 1998. Oil volumes produced decreased 3,500 bbls or 9.4% to 33,700 bbls in the six months ended June 30, 1999 from 37,200 bbls in the six months ended June 30, 1998. The average realized price received for oil production declined 6.4% to $13.33 per bbls in the first six months of 1999 from $14.25 per bbls in the first six months of 1998. The average realized price received for gas production increased 10.2% to $1.94 per mcf in the first six months of 1999 from $1.76 per mcf in the first six months of 1998. Prices received for gas production are net of hedging gains and/or losses in the respective periods. The increases in natural gas production resulted from successful drilling and recompletion activities in various basins, particularly in western Kansas and in the Permian Basin of New Mexico. Some of these increases were partially offset by production declines on previously existing properties. Oil and Gas Production Cost Oil and gas production cost consists of lease operating expense and production/severance taxes. Total production costs increased 41.6% in the first six months of 1999 to $1,930,000 from $1,363,000 in the first six months of 1998. Total production costs per mcf equivalent MCFE decreased 7.0% to $.79 per MCFE in the first six months of 1999 from $.85 per MCFE in the first six months of 1998 excluding the well connection fees as described herein. The primary reason for the overall increase was the accrual of well connect fees in the amount of $250,000. The fees are a result of a 1997 agreement which contained a contingency clause whereby certain cost would need to be reimbursed to the party providing the well connectioons if various production levels were not attained. Those levels will not be attained. Gas Marketing Gas marketing revenue increased 127.5% in the first six months of 1999 to $9,950,000 from $4,376,000 in the first six months of 1998. Gas marketing related expenses increased 120.9% to $9,742,000 in the first six months of 1999 from $4,409,000 in the first six months of 1998. The Company entered into a management contract which includes the first quarter of 1999 for the purchase and sale of a high volume of natural gas. The contract was not in place in the first quarter of 1998, and was terminated on April 30, 1999. Depreciation, Depletion, Amortization and Impairment Depreciation, depletion, amortization (DD & A) expense increased 27.5% in the first six months of 1999 to $1,213,000 from $951,000 in the first six month of 1998. DD & A per MCFE of gas produced decreased 3.4% to $.57 per MCFE in the six months ended June 30, 1999 compared to over $.59 per MCFE in the six months ended June 30, 1998. An impairment loss was taken in the first six months of 1999 in the amount of $60,000. It was related to a property in Oklahoma which was drilled in 1998. There were no impairment allowances taken in the six months ended June 30, 1998. Exploration Expense Exploration expense primarily includes unsuccessful drilling cost, and Geological and Geophysical (G & G) costs. Exploration expense increased in the six months ended June 30, 1999 248.6% to $638,000 from $183,000 in the six months ended June 30, 1998. The Company expensed unsuccessful drilling in the amount of $199,000 in the first six months of 1999. The Company expensed unsuccessful drilling in the amount of $25,000 in the six months ended June 30, 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The Company's selling, general and administrative expenses were $1,036,000 higher in the first six months of 1999 than in the first six months of 1998. This large increase was due primarily to staff increases initiated in mid-1998 to support development activities as the Company exited bankruptcy as well as increased professional fees in support of the sales process. Second Quarter of 1999 as compared to the Second Quarter of 1998 The Company for the second quarter of 1999 reported net income of $1,407,000 compared to $1,661,000 for the second quarter of 1998. Items relating to the Bankruptcy were as follows: ($ in Thousands) 2nd Quarter 2nd Quarter 1999 1998 Difference ---------------------------------------- Interest Expense - ($1,869) $1,869 Interest Income - 2,006 (2,006) Professional Fees ($22) (390) 368 Other 2 (80) 82 ------- -------- ------- ( 20) (333) 313
NEVADA COGENERATION ASSOCIATES #1 (NCA#1) The Company's 50% portion of NCA#1's operating profit was $79,000 higher in the second quarter of 1999 than in the second quarter of 1998. This was primarily due to a $703,000 increase in revenues while expenses only increased by $544,000 between the two periods. KYOCERA PROJECT Kyocera operating expenses increased by $50,000 from the second quarter of 1998 to the second quarter of 1999 while revenues decreased $2,000. The expense increases were primarily related to higher maintenance and fuel costs in the second quarter of 1999. OPERATING AND MAINTENANCE OPERATIONS Revenues were $68,000 lower in the second quarter of 1999 than in the second quarter of 1998, while expenses declined by $15,000, primarily the result of decreased payroll and travel costs. OIL AND GAS OPERATIONS AND ENERGY MARKETING Oil and gas production revenue increased $982,000 or 57.5% to $2,691,000 in second quarter of 1999 compared to $1,709,000 in the second quarter of 1998. Natural gas volumes produced increased 447,000 mcf or 56.9% to 1,232,000 mcf from 785,000 mcf in the second quarter of 1998. Oil volumes increased 1,000 bbls or 5.3% to 18,900 bbls from 17,900 bbls in the second quarter of 1998. The average realized price received for oil production increased 18.4% to $15.91 per bbls from $13.43 per bbls in the second quarter of 1998. The average realized price received for gas production decreased 2.5% to $1.92 from $1.97 per mcf in the second quarter of 1998. Prices received for gas production are net of hedging gains and or/losses. Oil and gas production cost consists of lease operating expense and production/severance taxes. Total production cost increased 86.3% in the second quarter of 1999 to $1,260,000 from $676,000 in the second quarter of 1998. Total production cost per mcf equivalent (MCFE) increased 2.3% to $.75 per MCFE from $.73 per MCFE in the second quarter of 1998, excluding the well connect fees as described herein. The primary reason for the overall increase was the accrual of well connect fees in the amount of $250,000. The fees are a result of a 1997 agreement which contained a contingency clause whereby certain costs would need to be reimbursed to the party providing the well connections if various production levels were not attained. Those levels will not be attained. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense increased by $391,000 to $1,048,000 in the second quarter of 1999 compared to the same period in 1998. The increase was due to an increase in payroll and related expenses of rent, payroll taxes and office expense as the company geared up into late 1998 for an increase capital development program. Also professional costs were higher in support of selling all or part of the Company and its assets. YEAR 2000 The Company has reviewed Y2K compliance issues and upgrades have been made to systems and software that are warranted by the vendor to be Y2K compatible. The Company's Y2K compliance effort is ongoing and BPC, BFC, BPS and NCA#1 are also monitoring non-information technology exposure elements, i.e. card key systems, embedded chips, etc. The project is on schedule and expected to be completed by the end of September 1999. The Company has communicated with certain key vendors and has determined that all are making progress toward their respective Y2K compliance. The Company is aware of the issues associated with the "Y2K" problem both in program codes and in hardware systems. The Company has taken and continues to take steps to assure that disruption from the problem with internal software and third party hardware and software vendors will not adversely affect operations. The Company believes that any potential problems that may arise will be with third party vendors such as gas marketers, field service providers, and product purchasers. In all cases the Company represents a minute portion of those vendors business and has no influence on those vendors Y2K compliance. Although there can be no assurance that all Y2K issues will be resolved and that there will not be any significant impact on the Company from these issues, it is not expected that significant detrimental effects will occur. The financial institutions with which the Company has its material relationships have each represented to the Company that their respective Y2K compliance programs are underway with final testing to be completed in the first half of 1999. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS #133"), Accounting for Derivative Instruments and Hedging Activities. This pronoucement was delayed by SFAS #137 and will now be will be effective for fiscal years beginning after June 15, 2000. Earlier application is encouraged, however, the Company does not anticipate adopting SFAS #133 until the fiscal year beginning January 1, 2001. SFAS #133 requires that entities recognize all derivatives as assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company does not believe the adoption of SFAS #133 will have a material impact on assets, liabilities, or equity. The Company has not yet determined the impact of SFAS #133 on the statement of operations, or the impact on the comprehensive statement of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The Company's exposure to market risk for changes in interest rates related primarily to the Company's long-term debt obligations. The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments with high credit quality issuers and by policy is averse to principal loss and seeks to protect its invested funds by limiting default risk and reinvestment risk. The NCA#1 cogeneration facility uses interest rate swap agreements to mitigate their exposure to interest rate fluctuations. Foreign Currency Risk The Company does not use foreign currency forward exchange contracts or purchased currency options to hedge local currency cash flows or for trading purposes. All income received from international customers, with the exception of balances in local operating accounts, is converted to U.S. Dollars. The Company has subsidiary operations in Mexico, which are subject to currency fluctuations. These foreign subsidiaries are limited in their operations and level of investment by the parent company so that the risk of currency fluctuations is minimized. Commodity Price Risk Oil and gas commodity markets are influenced by global as well as regional supply and demand. Worldwide political events can also impact commodity prices. Management's policy is to partially mitigate its exposure to fluctuations in sales prices received for natural gas production through the use of various hedging tools. These tools include, but are not limited to: commodity futures and option contracts; fixed-price swaps; basis swaps; and term sales contracts. Contract terms generally range from one month to three years. While BFC mitigates its exposure to declining natural gas sales prices, it may be subject to opportunity costs resulting from increasing natural gas prices in excess of those committed. Should production from existing facilities under existing operating conditions not fulfill committed contracts, BFC may be required to acquire natural gas in the open market. Volumes produced in excess of those contracted are sold at market prices. PART II - OTHER INFORMATION Item 1. Legal Proceedings NCA#1 has been in negotiations with the United States Environmental Protection Agency (the "EPA") regarding emissions from its gas turbine engines. Subsequent to December 31, 1998, the EPA filed a lawsuit in the United States District Court of Nevada against NCA#1, BNC and TCCCC seeking damages of $25,000 per day from an unspecified point in time and requiring the installation of additional emission control equipment. (United States of America v. Nevada Cogeneration Associates #1, et al, No. CV-S-99-00107 PMP). A consent decree prepared by the U.S. Department of Justice that resolves the above mentioned lawsuit and requires NCA#1 to pay a $100,000 fine and install additional emission control equipment has been signed by all parties and was lodged with the United States District Court of Nevada on June 29, 1999. As a condition of settlement with the EPA, NCA#1 installed Selective Catalytic Reduction Equipment ("SCR's") during the first quarter of 1999 scheduled maintenance outage. The cost of purchasing and installing the equipment and the proposed fine has been accrued by NCA#1 and the necessary funds are being held in a control account. NCA#1 believes that it will have no additional liability for the violations alleged in the above mentioned lawsuit after the consent decree has been entered by the court. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None Item 6. Reports on Form 8-K. None. Item 6a Exhibit-27 - Financial Data Schedule - see page 13. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 11, 1999 BONNEVILLE PACIFIC CORPORATION (Registrant) _______________________________ By /s/ Clark M. Mower Clark M. Mower, President Principal Executive Officer _______________________________ By /s/ R. Stephen Blackham R. Stephen Blackham Principal Financial and Accounting Officer EX-27 2 FDS --
5 This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 1,000 US Dollar 6-MOS Dec-31-1998 Jan-01-1999 Jun-30-1999 1 10,062 0 3,198 0 0 15,190 39,096 21,555 41,991 3,397 0 0 0 72 0 41,991 17,407 19,943 18,146 18,468 322 1 251 1,475 0 0 0 0 0 1,475 .20 .20
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