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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 September 30, 1999
Commission File number 0-14846
BONNEVILLE PACIFIC CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 87-0363215
---------- ------------
(State or other jurisdiction (I.R.S. employer identification No.)
of incorporation or organization)
50 West 300 South, Suite 300, Salt Lake City, UT 84101
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(Address of principal executive offices)
Registrant's telephone no., 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 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 ( )
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 November 12, 1999 - 7,275,390 shares of $.01
par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
FORM 10-Q
FINANCIAL STATEMENTS AND SCHEDULES
BONNEVILLE PACIFIC CORPORATION AND SUBSIDIARIES
For Nine Months Ended September 30, 1999
The following financial statements and schedules of the registrant and its
consolidated subsidiaries are submitted herewith:
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page of
Form 10-Q
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet--December 31, 1998
and September 30, 1999......................................................3
Condensed Consolidated Statements of Operations and Comprehensive Income
for Nine Months and Three Months Ended September 30, 1999 and 1998..........4
Condensed Consolidated Statements of Cash Flows - for the Nine Months
Ended September 30, 1999 and 1998...........................................5
Notes to Condensed Consolidated Financial Statements............................6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations....................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................14
Item 2. Changes in Securities and Use of Proceeds.......................................15
Item 3. Defaults Upon Senior Securities.................................................15
Item 4. Submission of Matters to a Vote of Security Holders.............................15
Item 5. Other Information...............................................................15
Item 6 Reports on Form 8-K.............................................................15
Item 6(a)Exhibit 99......................................................................15
Signatures...............................................................................16
</TABLE>
Page 2
<PAGE>
BONNEVILLE PACIFIC CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(1999 Unaudited)
($ in Thousands)
30 Sep 31 Dec
1999 1998
__________ __________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $14,109 $13,276
Accounts Receivable 662 1,275
Other current assets 371 90
__________ __________
Total Current Assets 15,142 14,641
PROPERTY, PLANT AND EQUIPMENT, at cost
Property, plant and equipment 2,416 9,593
Accumulated depreciation, depletion,
amortization and impairment (1,560) (8,100)
__________ __________
Total Property, Plant and Equipment 856 1,493
INVESTMENTS AND OTHER ASSETS:
Investments in affiliated companies 10,745 7,584
Discontinued operations - net (BFC) 10,022 9,397
Other assets 2 2
__________ __________
Total Investments and Other Assets 20,769 16,983
__________ __________
Total Assets $36,767 $33,117
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $4,664 4,782
Other current liabilities 70 0
__________ __________
Total Current Liabilities 4,734 4,782
LONG-TERM LIABILITIES: 0 0
__________ __________
Total Liabilities 4,734 4,782
STOCKHOLDERS' EQUITY
Common stock 73 72
Additional paid-in stock 160,975 160,735
Accumulated deficit (128,749) (132,090)
Cumulative translations adjustment (266) (382)
__________ __________
Total Stockholders' Equity 32,033 28,335
__________ __________
Total Liabilities and Stockholders' Equity $36,767 $33,117
========== ==========
Page 3
<PAGE>
BONNEVILLE PACIFIC CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
($ in Thousands) SEP 30 SEP 30
1999 1998 1999 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Facilities, operations and $1,135 $1,139 $3,247 $3,215
Maintenance
Electric cogeneration 0 537 784 1,323
--------------------------------------------------
Total Revenues 1,135 1,676 4,031 4,538
OPERATING EXPENSES
Facilities, operations and 741 699 2,231 2,125
Maintenance costs
Electric cogeneration 1 364 774 1,149
Depreciation, depletion, 310 43 382 130
Amortization and impairment
Selling, general and administrative 737 387 2,142 1,111
--------------------------------------------------
Expense
Total Operating Expense 1,789 1,493 5,529 4,515
--------------------------------------------------
OPERATING PROFIT (Loss) (654) 183 (1,498) 23
Other Income (expense)
Interest expense 0 (1,889) 0 (5,569)
Equity in net earnings of
affiliated Company 1,798 2,119 3,761 4,445
Reorganization items (22) 1,232 (93) 4,533
Other income (expense) net 181 37 488 324
--------------------------------------------------
Total other income (expense) 1,957 1,499 4,156 3,733
--------------------------------------------------
INCOME FROM CONTINUING
OPERATIONS 1,303 1,682 2,658 3,756
INCOME FROM DISCONTINUED
OPERATIONS 563 (61) 683 535
--------------------------------------------------
NET INCOME 1,866 1,621 3,341 4,291
OTHER COMPREHENSIVE INCOME
Foreign currency translation 32 (145) 116 (145)
--------------------------------------------------
Adjustments
Comprehensive Income $1,898 $1,476 $3,457 $4,146
==================================================
Basic and diluted earnings per share
Continuing operations $.19 $.58 $.37 $1.29
Discontinuing operations .08 (.02) .09 .18
--------------------------------------------------
Total earnings per share $.26 $.56 $.46 $1.47
==================================================
</TABLE>
Page 4
<PAGE>
BONNEVILLE PACIFIC CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
($ in Thousands)
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income From Continuing Operations $2,658 $3,756
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion, amortization and impairment 382 130
Equity in investee earnings (3,761) (4,445)
Gain on sale of property (122) 0
Changes in assets and liabilities:
Accounts receivable 613 5,397
Other current assets 75 (478)
Accounts payable and accrued liabilities (4,675) 4,268
Other 169 (310)
--------------------------------------------------
Net cash provided by (used for) continuing (4,661) 8,318
operating activities
Income from Discontinued Operations 683 535
(Increase) Decrease in Net Assets (191) 2,437
--------------------------------------------------
Net cash provided by Discontinued Operations 492 2,972
--------------------------------------------------
Cash provided by (used for) Operating Activitie (4,169) 11,290
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property, plant and equipment 607 0
Increase in restricted cash - BFC (1,227) (385)
Additions to property, plant and equipment (185) (929)
Additions to oil and gas properties - BFC (4,691) (3,687)
Cash received from investee 600 1,850
Deposit received from sale of BFC and Compamy 4,200 0
Decrease in other assets 70 0
--------------------------------------------------
Net cash used for investing activities (626) (3,151)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from option exercise 240 0
Proceeds from debt 2,950 1,300
--------------------------------------------------
Net cash provided by (used for) financing activities 3,190 1,300
--------------------------------------------------
INCREASE (DECREASE) IN CASH (1,605) 9,439
CASH AND EQUIVALENTS at beginning of period 16,018 154,065
--------------------------------------------------
CASH AND EQUIVALENTS at end of period $14,413 $163,504
==================================================
</TABLE>
Page 5
<PAGE>
BONNEVILLE PACIFIC CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 Fuels Corporation ("BFC") and
Bonneville Pacific Services Company, Inc ("BPS"). All significant intercompany
balances and transactions have been eliminated in consolidation. BFC is reported
under "Discontinued Operations".
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 sheets 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 THE COMPANY
The Company previously announced that it had appointed CIBC World Markets as the
Company's financial advisor. CIBC World Markets was retained to assist the
Company in defining strategic and financial alternatives relating to the
Company's operations.
CIBC World Markets 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 World Markets solicited
bids from interested parties and assisted in the evaluation 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 August 12, 1999 the Company announced that it had entered into a Stock
Purchase Agreement with CEC Resources, Ltd. ("CEC Resources") for the sale of
all of the outstanding shares of Bonneville Pacific's wholly owned subsidiary,
Bonneville Fuels Corporation, the Company's oil and gas subsidiary. The Company
closed the Stock Purchase Agreement with CEC Resources on October 29, 1999. CEC
Resources had previously assigned their rights under the Agreement to Carbon
Energy Corporation who acquired 100% of the stock of Bonneville Fuels
Corporation for a final adjusted purchase price of $23,580,696. The Company no
longer owns any stock of or has any ownership interest in Bonneville Fuels
Corporation. Thus, on the financial statement presented herein, the assets,
liabilities and income are reflected under the caption "Discontinued
Operations".
On September 20, 1999, the Company announced that they have entered into an
Agreement and Plan of Merger whereby El Paso Energy Corporation will acquire all
outstanding shares of the Company. The transaction, valued at approximately $63
million, subject to certain adjustments, plus the value to be realized by the
shareholders of the Company as a result of the Company's sale of Bonneville
Fuels Corporation, is expected to close early in the first quarter of 2000,
subject to approval by the Company's stockholders and appurtenant regulatory
authorities.
Page 6
<PAGE>
The principal business segments of the Company being acquired by El Paso are a
50% interest, through Bonneville Nevada Corporation, in Nevada Cogeneration
Associates#1 (NCA#1 or Garnet Valley), and Bonneville Pacific Services, a
wholly-owned subsidiary, which provides operations and maintenance services
under long-term contracts to the Garnet Valley and Black Mountain cogeneration
facilities in the Las Vegas, Nevada area and is responsible for the Company's
development activities in Mexico.
SEGMENT INFORMATION
The Company has identified the following segments: BFC, BNC and BPS. BFC is
primarily engaged in oil and gas production, exploration and energy marketing.
BNC owns a 50% interest in a company engaged in cogeneration activities. BPS is
primarily engaged in providing operational and maintenance services to
cogeneration plants and is currently responsible for the Company's development
work in Mexico. BPS also has an interest in an additional cogeneration facility
in Mexico.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's Annual Report on
Form 10-K. The Company evaluates performance based on profit or loss from
operations before reorganization items and income taxes.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
($ in Thousands)
- ---------------------------------------------------------------------------------------------------------
*BFC BNC BPS BPC
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1999
- ---------------------
Revenues from external customers $17,790 $0 $3,247 $784
Interest income from non-reorganization items 72 101 60 158
Interest expense 418 0 0 0
Operating expenses 15,776 0 2,227 991
Selling, general and administrative 985 15 752 1,376
Equity in investee earnings 0 3,761 0 0
Segment profits (loss) before reorganization items 683 3,847 328 (1,425)
Segment assets $21,627 $14,523 $3,524 $8,697
- ---------------------------------------------------------------------------------------------------------
September 30, 1998
- ---------------------
Revenues from external customers $12,343 $0 $3,215 $1,323
Interest income from non-reorganization items 38 23 74 0
Interest expense 143 0 0 5,570
Operating expenses 10,979 0 2,137 1,040
Selling, General and administrative 724 30 384 697
Equity in investee earnings 0 4,445 0 0
Segment profits (loss) before reorganization items 535 4,438 768 (5,985)
Segment assets $18,726 $9,986 $4,420 $163,225
- ---------------------------------------------------------------------------------------------------------
*Discontinued Operations
</TABLE>
Page 7
<PAGE>
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 this 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 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 timing
and success of the Company's efforts to develop new projects; the divestiture of
the Company's interest in the projects in Mexico, 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 three quarters of 1998, to a non-bankruptcy period, the
first three quarters of 1999.
As discussed in more detail in the Notes to Condensed Consolidated Financial
Statements Section of this 10Q, the Company closed .the Stock Purchase Agreement
with CEC Resources on October 29, 1999. for a final adjusted purchase price of
$23,580,696. The Company no longer owns any stock of or has any ownership
interest in Bonneville Fuels Corporation.
On September 20, 1999, the Company announced that they have entered into an
Agreement and Plan of Merger whereby El Paso Energy Corporation will acquire all
outstanding shares of the Company. The transaction, valued at approximately $63
million, subject to certain adjustments, plus the value to be realized by the
shareholders of the Company as a result of the Company's sale of Bonneville
Fuels Corporation, is expected to close early in the first quarter of 2000,
subject to approval by the Company's stockholders and appurtenant regulatory
authorities.
Page 8
<PAGE>
Liquidity and Capital Resources
Capital Commitments
The Company's current cash balance is primarily used to fund daily operations.
No new power projects or other development activities are scheduled pending the
conclusion of the sales process discussed in the footnote to the financial
statements. During the first nine months of 1999 approximately $4,700,000 in oil
and gas exploration and development expenditures were capitalized, approximately
$900,000 of that amount was capitalized during the third quarter of 1999. This
compares to $3,700,000 in oil and gas expenditures capitalized in the first nine
months of 1998.
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, $4,200,000 in deposits from
purchasers of BFC and the Company, 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 $4,169,000 during the nine months
ended September 30, 1999, as compared to net cash provided by operating
activities of $11,290,000 for the same period in 1998. The decrease was
primarily due to the payment of $3,714,000 of professional fees and a $2,298,000
escrow liability 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 $2,950,000. BFC had an outstanding
balance under its credit facilities of $8,800,000 at September 30, 1999.
Results of Operations
First Nine Months of 1999 as compared to the First Nine Months of 1998
The Company reported net income of $3,341,000 for the first nine months of 1999
compared to $4,291,000 for the first nine months of 1998. Bankruptcy items are
as follows:
($ in Thousands)
Nine Months Ended Nine Months Ended
09/30/99 09/30/98 Difference
-----------------------------------------------------------
Interest Expense - $(5,713) $5,713
Interest Income - 6,205 (6,205)
Professional Fees $(95) (1,523) 1,428
Other 2 (149) 151
-----------------------------------------------------------
Total $(93) $(1,180) $1,087
Page 9
<PAGE>
Nevada Cogeneration Associates #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
$3,761,000 for the first nine months of 1999 compared to $4,445,000 for the same
period in 1998. The $684,000 decrease in the Company's share of profits was
partially due to the expenses associated with the scheduled installation of
selective catalytic reduction equipment during the first quarter.
Additionally, on August 7, 1999, NCA#1 experienced a failure of one of the three
gas turbines operating at the facility. Damage extended to both the power
turbine and gas generator. A replacement power turbine and gas generator failed
approximately eight days later damaging the power turbine. Because of the
earlier failure, there was not a spare turbine or gas generator on site and the
facility operated at reduced capacity on two turbines. This situation continued
for six days until the project's spare gas generator, previously sent for
repair, could be returned and a replacement power turbine could be obtained and
installed. These failures resulted in repair/replacement costs to the
partnership of approximately $2,500,000 and a loss of revenue for downtime of an
additional $308,000. It appears that insurance proceeds will cover all of the
repair/replacement costs except for a $130,000 deductible. The lost revenue is
not insured. It is expected that $970,000 in insurance proceeds will be received
before year end with the balance being received in the first quarter of 2000.
NCA#1 has accrued the $970,000 and will recognize additional proceeds when
received.
Kyocera Project
The Kyocera Project was sold in June of 1999, recording an $80,000 gain,
offsetting operating losses of $28,000 incurred prior to sale.
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 Company is currently negotiating the sale of
the project. It is anticipated that the project will be sold prior to the
consummation of the merger with El Paso Energy.
Operating and Maintenance Operations
The Company's operating and maintenance group increased revenues by $32,000 to
$3,247,000 in the first nine months of 1999 compared to $3,215,000 in the same
period of 1998. The operating and maintenance group's expenses increased by
$106,000 to $2,231,000.
Oil and Gas Operations and Energy Marketing (Discontinued Operations)
As mentioned in the footnote to the financial statements, the Company completed
the sale of its oil and gas subsidiary, Bonneville Fuels Corporation and its
related subsidiaries on October 29, 1999 for $23,580,696. Therefore, the net
assets and operations of BFC are reflected in the caption of "Discontinued
Operations" on the financial statement.
Oil and Gas Production Operations (Discontinued Operations)
Oil and gas production revenue increased $1,546,000 or 29.8% to $6,731,000 in
the nine months ended September 30, 1999 compared to $5,185,000 in the nine
months ended September 30, 1998. Natural gas volumes produced in the first nine
months of 1999 increased 647,895 mcf or 26.2% to 3,120,145 mcf from 2,472,250
mcf in the nine months ended September 30, 1998. Oil volumes produced increased
213 bbls or
Page 10
<PAGE>
0.4% to 47,904 bbls in the nine months ended September 30, 1999 from 47,691 bbls
in the nine months ended September 30, 1998. The average realized price received
for oil production increased 17.1% to $16.12 per bbl in the first nine months of
1999 from $13.77 per bbl in the first nine months of 1998. The average realized
price received for gas production increased 21.3% to $2.11 per mcf in the first
nine months of 1999 from $1.74 per mcf in the first nine 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 and San Juan Basins of New Mexico. Some of these increases were
partially offset by production declines on previously existing properties.
Oil and gas production cost consists of lease operating expense and production
and severance taxes. Total production costs increased 21.9% in the first nine
months of 1999 to $2,701,000 from $2,216,000 in the first nine months of 1998,
excluding the well connect fees as described herein. Total production costs per
mcf equivalent (MCFE) decreased 1.3% to $0.79 per MCFE in the first nine months
of 1999 from $0.80 in the first nine months of 1998. The primary reason for the
overall increased was the accrual of well connect fees in the amount of
$250,000. The fees are a result of a 1997 agreement that contained a contingency
clause whereby certain costs would need to be reimbursed to the party providing
the well connections if various productions levels were not attained. Those
levels will not be attained.
Energy Marketing (Discontinued Operations)
Energy marketing revenue increased $3,901,000 in the first nine months of 1999
to $11,059,000 from $7,158,000 in the first nine months of 1998. Energy
marketing related expenses increased $3,876,000 to $11,009,000 in the first nine
months of 1999 from $7,133, 000 in the first nine months of 1998. The Company
entered into a management contract which included a high volume of natural gas
in the first quarter of 1999. The contract was not in place until September 1,
1998 and was terminated on April 30, 1999.
Depreciation, Depletion, Amortization and Impairment
Depreciation, depletion, amortization and impairment (DD & A) expense increased
$252,000 in the first nine months of 1999 to $382,000 from $130,000 in the first
nine month of 1998. DD & A per MCFE of gas produced decreased (9.8%) to $0.53
per MCFE in the nine months ended September 30, 1999 compared to $0.58 per MCFE
in the nine months ended September 30, 1998. An impairment charge of $300,000
was taken on the CONAV facility in Mexico.
Exploration Expense (Discontinued Operations)
Exploration expense primarily includes unsuccessful drilling cost, and
Geological and Geophysical (G & G) costs. Exploration expense increased in the
nine months ended September 30, 1999 by 147.4% to $681,000 from $275,000 in the
nine months ended September 30, 1998.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses were $1,031,000
higher in the first nine months of 1999 than in the first nine months of 1998.
This large increase was due primarily to staff increases initiated in mid-1998
to support development activities as the Company emerged from bankruptcy as well
as increased professional fees in support of the sales process and preliminary
cogeneration development expenses.
Page 11
<PAGE>
Third Quarter of 1999 as compared to the Third Quarter of 1998
The Company for the third quarter of 1999 reported net income of $1,866,000
compared to $1,621,000 for the third quarter of 1998. Items relating to the
bankruptcy were as follows:
$ in Thousands)
3rd Quarter 1999 3rd Quarter 1998 Difference
-----------------------------------------------------------
Interest Expense $(1,889) $1,889
Interest Income 2,207 (2,207)
Professional Fees $(22) (906) 884
Other -- (68) 68
-----------------------------------------------------------
Total $(22) $(656) $634
Nevada Cogeneration Associates #1 (NCA#1)
The Company's 50% portion of NCA#1's operating profit was $321,000 lower in the
third quarter of 1999 than in the third quarter of 1998. This was primarily due
to a $1,523,000 increase in maintenance expenses associated with the two engine
outages in August. This amount will partially be offset by expected insurance
reimbursements.
Operating and Maintenance Operations
Revenues were $5,000 lower in the third quarter of 1999 than in the third
quarter of 1998, while expenses increased by $42,000, primarily the result of
decreased summer incentive revenue as the turbine failures effected plant
efficiency during the quarter.
Oil and Gas Operations (Discontinued Operations)
Oil and gas production revenue increased $454,000 or 26.5% to $2,171,000 in the
three months ended September 30, 1999 compared to $1,717,000 in the three months
ended September 30, 1998. Natural gas volumes produced in the third quarter of
1999 increased 149,752 mcf or 17.8% to 989,799 mcf from 840,047 mcf in the three
months ended September 30, 1998. Oil volumes produced increased 4,992 bbls or
47.8% in the three months ended September 30, 1998. The average realized price
received for oil production increased 60.5% to $20.17 per bbl in the third
quarter of 1999 from $12.57 per bbl in the third quarter of 1998. The average
realized price received for gas production increased 52.1% to $2,54 per mcf in
the third quarter of 1999 from $1.67 per mcf in the third quarter 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 and San Juan Basins of New Mexico. Some of these increases were
partially offset by production declines on previously existing properties.
Oil and gas production cost consists of lease operating expense and production
and severance taxes. Total production costs decreased 9.6% in the third quarter
of 1999 to $771,000 from $853,000 in the third quarter of 1998. Total production
costs per mcf equivalent (MCFE) decreased 24.5% to $0.71 per MCFE in the third
quarter of 1999 from $0.94 in the third quarter of 1998.
Energy Marketing (Discontinued Operations)
Energy marketing revenue decreased $1,673,000 in the third quarter of 1999 to
$1,109,000 from $2,782,000 in the third quarter of 1998. Energy marketing
related expenses decreased $1,457,000 to $1,267,000 in the third quarter of 1999
from $2,724,000 in the third quarter of 1998.
Depreciation, Depletion, Amortization and Impairment
Depreciation, depletion, amortization and impairment (DD&A) expense increased
$267,000 in the third quarter of 1999 to $310,000 from $43,000 in the third
quarter of 1998. DD&A per MCFE produced decreased 26.7% to $0.53 per MCFE in the
three months ended September 30, 1999 compared to $0.73 per MCFE in the three
months ended September 30, 1998. As mentioned earlier, a $300,000 impairment
charge was taken in the third quarter for the CONAV facility.
Exploration Expense (Discontinued Operations)
Exploration expense primarily includes unsuccessful drilling cost and geological
and geophysical (G&G) costs. Exploration expense decreased in the three months
ended September 30, 1999 by 53.9% to $43,000 from $92,000
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in the three months ended September 30, 1998.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $350,000 to $737,000 in
the third 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 as a result of
activities relating to selling 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 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 second half of
1999.
Recent Accounting Pronouncements
In September 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 pronouncement was
delayed by SFAS #137 and will now be will be effective for fiscal years
beginning after September 15, 2000. Earlier application is encouraged, however,
the Company does not anticipate adopting SFAS #133 until the fiscal year
beginning January 1, 2001.
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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 relate
primarily to the Company's investment portfolio and 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
adverse 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, are converted to U.S. Dollars to
mitigate exposure to currency changes. 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 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 lost
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 and, In addition, volumes produced in
excess of those contracted are sold at market prices.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Subsequent to December 31, 1998, the Environmental Protection Agency ("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 custom emission control equipment. (United
States of America v. Nevada Cogeneration Associates #1, et al, No. CV-S-99-00107
PMP). As a result of negotiation, all parties entered into a consent decree
prepared by the U.S. Department of Justice that resolved the above mentioned
lawsuit and required NCA#1 to pay a $100,000 fine and install the emission
control
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<PAGE>
equipment. The consent decree became final and was entered by the court on
August 27, 1999. As a condition of settlement with the EPA, NCA#1 installed
Selective Catalytic Reduction Equipment ("SCR's") during the spring of 1999
maintenance outage. The proposed fine was previously accrued by NCA#1 and paid
on September 20, 1999. NCA#1 believes that, with the payment of the fine and
entering of the consent decree, it will have no additional liability for the
violations alleged in the above mentioned lawsuit.
Item 2. Changes in Securities. 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. Form 8K filed on August
20, 1999 "Stock Purchase Agreement dated August
11, 1999 by and Between Bonneville Pacific
Corporation, as Seller, and CEC Resources,
Ltd., As Buyer"
Form 8K filed on September 22, 1999
"Agreement and Plan of Merger dated as of
September 17, 1999 by and between Bonneville
Pacific Corporation, as Seller and El Paso Energy
Corporation, as Buyer" and Press Release dated
September 20, 1999
Form 8K filed on November 4, 1999
"Announcing disposition of Bonneville Fuels
Corporation asset"
Item 6a Exhibit-27 Financial Data Schedule
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<PAGE>
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: November 12, 1999 BONNEVILLE PACIFIC CORPORATION
(Registrant)
s/ Clark M. Mower
Clark M. Mower, President
Principal Executive Officer
s/ R. Stephen Blackham
R. Stephen Blackham
Principal Financial and Accounting Officer
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BONNEVILLE PACIFIC CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. ($ IN THOUSANDS)
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
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