BLACK HILLS CORP /SD/ Fair Value Disclosure
2019 | 2018 | |||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||
Cash and cash equivalents (a) | $ | 9,777 | $ | 9,777 | $ | 20,776 | $ | 20,776 | ||||
Restricted cash and equivalents (a) | $ | 3,881 | $ | 3,881 | $ | 3,369 | $ | 3,369 | ||||
Notes payable (b) | $ | 349,500 | $ | 349,500 | $ | 185,620 | $ | 185,620 | ||||
Long-term debt, including current maturities (c) | $ | 3,145,839 | $ | 3,479,367 | $ | 2,956,578 | $ | 3,039,108 | ||||
(a) | Carrying value approximates fair value. Cash, cash equivalents, and restricted cash are classified in Level 1 in the fair value hierarchy. |
(b) | Notes payable consist of commercial paper borrowings. Carrying value approximates fair value due to the short-term length of maturity; since these borrowings are not traded on an exchange, they are classified in Level 2 in the fair value hierarchy. |
(c) | Long-term debt is valued based on observable inputs available either directly or indirectly for similar liabilities in active markets and therefore is classified in Level 2 in the fair value hierarchy. Carrying amount of long-term debt is net of deferred financing costs. |
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About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.