Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 1998.
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from _______________ to _______________.
Commission File Number 1-7978
Black Hills Corporation
Incorporated in South Dakota IRS Identification Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57709
Registrant's telephone number (605)-348-1700
Former name, former address, and former fiscal year if changed since last report
NONE
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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the last practicable date.
Class Outstanding at April 30,July 31, 1998
Common stock, $1.00 par value 21,711,59821,580,506 shares
BLACK HILLS CORPORATION
I N D E X
Page
NUMBERNumber
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets- 3-4
March 31,June 30, 1998, December 31, 1997
and March 31,June 30, 1997
Consolidated Statements of Income- 5
Three, Six and Twelve Months
Ended March 31,June 30, 1998 and 1997
Consolidated Statements of Cash Flows- 6
Three, Six and Twelve Months
Ended March 31,June 30, 1998 and 1997
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of 10-1210-14
Financial Position and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 1315
Item 4. Submission of Matters to a Vote of
Security Holders 15-16
Item 6. Exhibits and Reports on Form 8-K 1316
Signatures 1417
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
March 31June 30 December 31 March 31June 30
1998 1997 1997
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 20,79313,080 $ 16,774 $ 17,831$14,204
Securities available for sale 19,31323,429 13,969 15,27018,211
Receivables, net
Customers 57,29252,806 39,639 12,60311,636
Other 3,2693,377 3,414 2,3622,652
Materials, supplies, and fuel 8,3978,163 8,642 7,8957,834
Prepaid expenses 1,9861,631 1,571 1,585
111,050688
102,486 84,009 57,54655,225
Property and investments:
Electric 489,036491,827 487,424 480,158493,372
Coal mining 53,03953,315 52,804 53,38852,838
Oil and gas 53,04356,891 52,412 46,34449,291
Other 6,2996,459 5,666 4,549
601,4174,301
608,492 598,306 584,439599,802
Less accumulated depreciation
and depletion (202,481)(208,350) (197,179) (186,182)(200,189)
Net property andinvestments 398,936and investments 400,142 401,127 398,257399,613
Other assets:
Federal income taxes 8,0208,055 8,061 8,0138,110
Regulatory asset 3,9264,042 3,776 3,3263,476
Other 11,84512,183 11,768 4,813
23,7914,931
24,280 23,605 16,15216,517
Total $533,777$526,908 $508,741 $471,955$471,355
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
March 31June 30 December 31 March 31June 30
1998 1997 1997
(in thousands)
LIABILITIES AND CAPITALIZATION
Current liabilities:
Current maturities of
long-term debt $ 1,330 $ 1,331 $ 1,310
Notes payable 12 23 23
Accounts payable 51,14848,632 32,622 5,2075,397
Accrued liabilities-
Taxes 13,6338,193 8,040 12,7257,509
Interest 2,9883,962 3,991 2,9964,003
Other 6,3367,220 7,800 6,206
75,4476,986
69,349 53,807 28,46725,228
Deferred credits:
Federal income taxes 53,60554,216 53,010 49,25449,995
Investment tax credits 3,8893,764 4,014 4,3904,265
Reclamation costs 16,84017,012 16,664 16,44616,614
Regulatory liability 6,0285,909 6,152 6,5686,485
Other 6,4806,627 6,331 5,897
86,8426,111
87,528 86,171 82,55583,470
Capitalization:
Common stock equity-
Common stock 21,71221,714 21,705 14,45714,461
Additional paid-in
capital 40,14340,189 39,995 46,97347,065
Retained earnings 146,799148,884 143,703 135,339136,967
Treasury stock (3,300) - -
Total common stock equity 208,654207,487 205,403 196,769198,493
Long-term debt 162,834162,544 163,360 164,164
371,488370,031 368,763 360,933362,657
Total $533,777$526,908 $508,741 $471,955
$471,355
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Statements of Income
(unaudited)
Three Months TwelveSix Months March 31 March 31TwelveMonths
June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
(in thousands, except per share amounts)
Operating revenues:
Electric $ 31,99029,839 $ 32,034 $126,452 $120,44729,347 $ 61,829 $ 61,381 $126,945 $122,815
Coal mining 7,924 8,125 30,878 31,3727,847 7,703 15,771 15,828 31,023 31,657
Oil and gas 3,186 3,719 12,762 13,5433,291 3,209 6,477 6,929 12,843 13,366
Energy marketing 87,956100,544 - 230,747188,500 - 131,056 43,878 400,839 165,362331,291 -
141,521 40,259 272,577 84,138 502,102 167,838
Operating expenses:
Fuel and purchased
power 95,691 9,466 263,534 34,846107,357 8,816 203,048 18,282 362,150 35,731
Operations and
maintenance 8,244 7,353 32,423 30,2477,809 7,524 16,055 15,086 32,709 30,734
Administrative
and general 2,791 2,476 11,950 8,8723,359 2,264 6,150 4,542 12,945 8,682
Depreciation,
depletion, and
amortization 6,139 5,579 22,851 22,9676,231 5,699 12,369 11,293 23,383 22,685
Taxes, other than
income taxes 3,218 3,298 11,906 12,599
116,083 28,172 342,664 109,5313,061 3,062 6,279 6,334 11,931 12,480
127,817 27,365 243,901 55,537 443,118 110,312
Operating income (loss):
Electric 12,315 11,208 45,718 39,71110,743 9,078 23,057 20,286 47,383 41,146
Coal mining 3,197 3,430 11,984 12,3593,109 3,103 6,305 6,533 11,989 12,468
Oil and gas 272 1,068 2,110 3,761420 713 692 1,782 1,818 3,912
Energy marketing (811)(568) - (1,637)(1,378) - 14,973 15,706 58,175 55,831(2,206) -
13,704 12,894 28,676 28,601 58,984 57,526
Other income and (expense):
Interest expense (3,590) (3,479) (14,234) (13,954)(3,614) (3,465) (7,203) (6,946) (14,380) (13,958)
Investment income 597 369 2,364 1,507709 459 1,306 829 2,612 1,620
Allowance for funds
used during
construction 29 65 151 29943 94 109 174 209
Other, net 277 (183) 36 1,035
(2,687) (3,228) (11,683) (11,113)160 (32) 436 (215) 223 883
(2,680) (2,995) (5,367) (6,223) (11,371) (11,246)
Income before
income taxes 12,286 12,478 46,492 44,71811,024 9,899 23,309 22,378 47,613 46,280
Income taxes (3,742) (3,891) (14,176) (13,880)(3,509) (3,137) (7,250) (7,028) (14,546) (14,565)
Net income
available for
common stock $ 8,5447,515 $ 8,587 $ 32,316 $ 30,838
Earnings per share -
basic and diluted $ 0.39 $ 0.40 $ 1.49 $ 1.426,762 $16,059 $15,350 $33,067 $31,715
Weighted average
common shares
outstanding 21,712 21,681 21,699 21,66921,633 21,687 21,671 21,684 21,685 21,677
Earnings per share
(basic and diluted) $0.35 $0.31 $0.74 $0.71 $1.52 $1.46
Dividends paid per
share of
common stock $ 0.25 $ 0.24 $ 0.96 $ 0.93$0.250 $0.237 $0.500 $0.473 $.974 $0.934
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
Three Months Six Months Twelve Months
March 31 March 31June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
(in thousands)
Operating activities:
Net Incomeincome $ 8,5447,515 $ 8,587 $32,316 $30,8386,762 $16,059 $15,350 $33,067 $31,715
Principal non-cash items-
Depreciation, depletion,
and amortization 6,139 5,579 22,851 22,9676,231 5,699 12,369 11,293 23,383 22,685
Deferred income
taxes and investment
tax credits 245 583 1,881 1,632227 247 472 829 2,100 1,947
Allowance for
other funds used
during construction (18) (36) (81) (151)(39) (23) (57) (58) (97) (90)
(Increase) decrease in
receivables, inventories,
and other current
assets (17,678) 1,754 (46,499) 2,2104,967 1,635 (12,711) 3,389 (43,167) 4,202
Increase (decrease)
in other current
liabilities 21,652 696 46,971 2,140(6,098) (3,240) 15,554 (2,544) 44,112 4,590
Other, net (673) (180) 147 2,041
18,211 16,983 57,586 61,677245 1,294 (794) (440) (769) 1,402
13,048 12,374 30,892 27,819 58,629 66,451
Investing activities:
Available for sale
securities sold 3,880 2,341 19,789 35,518
Property additions,
excluding allowance
for other funds
used during
construction (3,018) (2,816) (21,597) (24,605)(7,673) (8,022) (10,323) (9,299) (21,619) (26,240)
Available for sale
securities sold 7,343 3,638 11,223 5,979 23,494 36,057
Available for sale
securities
purchased (9,224) (6,153) (23,832) (37,323)(11,459) (6,579) (20,683) (12,732) (28,712) (43,670)
Energy marketing
assets - - - - (7,232) -
(8,362) (6,628) (32,872) (26,410)(11,789) (10,963) (19,783) (16,052) (34,069) (33,853)
Financing activities:
Dividends paid (5,448) (5,132) (20,856) (20,083)(5,430) (5,134) (10,878) (10,267) (21,150) (20,236)
Common stock
acquire (3,300) - (3,300) - (3,300) -
Common stock
issued 155 139 425 47048 96 203 235 377 443
Net short-term
borrowings - - (11) (120) (11) (900)(1,055)
Long-term debt
issuedretired (290) - - - -
Long-term debt payments (526)(817) (751) (1,310)(1,600) (1,313)
(5,830) (5,864) (21,752) (21,826)(8,972) (5,038) (14,803) (10,903) (25,684) (22,161)
Increase (decrease) in
cash and cash
equivalents 4,019 4,491 2,962 13,441(7,713) (3,627) (3,694) 864 (1,124) 10,437
Cash and cash equivalents:
Beginning of
period 20,793 17,831 16,774 13,340 17,831 4,39014,204 3,767
End of period $20,793 $17,831 $20,793 $17,831$13,080 $14,204 $13,080 $14,204 $13,080 $14,204
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 4,5932,640 $ 4,518 $14,242 $13,9682,458 $ 7,232 $ 6,961 $14,421 $13,991
Income taxes $ 2,0003,800 $ - $13,840 $12,0166,500 $ 5,800 $ 6,500 $11,140 $12,366
Assumption of
Clovis Point
reclamation
liability $ - $ - $ - $ - $ - $ 7,957
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Notes to Consolidated Financial Statements
(Reference is made to Notes to Consolidated Financial Statements
included in the Company's Annual Report and Form 10-K)
(1) MANAGEMENT'S STATEMENT
The financial statements included herein have been prepared by Black
Hills Corporation (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the footnotes adequately
disclose the information presented. These financial statements should be
read in conjunction with the financial statements and the notes thereto,
included in the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Accounting methods historically employed require certain estimates
as of interim dates. The information furnished in the accompanying
financial statements reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of the March 31,June 30, 1998,
December 31, 1997 and March 31,June 30, 1997, financial information and are of a
normal recurring nature. The results of operations for the three, six
and twelve months ended March 31,June 30, 1998, are not necessarily indicative of
the results to be expected for the full fiscal year.
(2) CAPITAL STOCK
In January, 1998, the Board of Directors declared a 3-for-2 Common
Stock Split effected in the form of a stock dividend. The stock dividend
was paiddistributed March 10, 1998 to shareholders of record on February 13,
1998. The common stock share and per share information in the
accompanying consolidated financial statements and notes have been
restated to reflect the stock distribution.
In April 1998, the Board of Directors authorized the acquisition of
up to 300,000 shares of the Company's Common Stock on the open market to
fund possible future acquisitions and for other corporate purposes. At
June 30, 1998, the Company has acquired 147,400 shares for such purposes
and is reflected as treasury stock on the accompanying consolidated
balance sheets.
(3) NET INCOME PER SHARE
The Company adopted the Financial Accounting Standards Board (FASB)
Statement No. 128 "Earnings Per Share" in 1997 which requires the
presentation of basic and diluted earnings per share. Basic earnings per
share is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during each
year. Diluted earnings per share is computed under the treasury stock
method and is calculated to compute the dilutive effect of outstanding
stock options. A reconciliation of these amounts is as follows (in
thousands, except per share amounts):
Three Months Ended Six Months Ended Twelve Months Ended
March 31 March 31June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
Net Income $7,515 $ 8,544 $ 8,587 $32,316 $30,8386,762 $16,059 $15,350 $33,067 $31,715
Weighted average common
shares outstanding:
Basic 21,712 21,681 21,699 21,66921,633 21,687 21,671 21,684 21,685 21,677
Dilutive effect of
option plan 24 7 16 429 10 30 9 18 5
Diluted 21,736 21,688 21,715 21,67321,662 21,697 21,701 21,693 21,703 21,682
Earnings per share
(Basic and Diluted): $0.39 $0.40 $1.49 $1.42$0.35 $0.31 $0.74 $0.71 $1.52 $1.46
(4) COMPREHENSIVE INCOME
The Company adopted FASB Statement No. 130, "Reporting Comprehensive
Income", effective January 1, 1998. Statement No. 130 establishes
standards for reporting and display of comprehensive earnings and its
components in financial statements; however, the adoption of this
Statement had no impact on the Company's net earnings or shareholders'
equity. Statement No. 130 requires minimum pension liability
adjustments, unrealized gains or losses on the Company's available-for-
sale securities and foreign currency translation adjustments, which prior
to adoption were reported separately in shareholders' equity, to be
included in other comprehensive earnings. There were no material
differences between net earnings and comprehensive earnings for any
periods presented onin the accompanying financial statements.
(5) ACCOUNTING PRONOUNCEMENTS
The FASB has issued two accounting pronouncements which the Company
will adopt in the fourth quarter of 1998. FASB Statement NO.No. 131 "Disclosures about Segments of an Enterprise
and Related Information" requires that a publicly-held company report
financial and descriptive information about its operating segments in
financial statements issued to shareholders for interim and annual
periods. The Statement also requiredrequires additional disclosures with respect
to products and services, geographic areas of operation, and major
customers. The Company has historically presented segment information in
the consolidated financial statements and related notes and as such does
not expect adoption of the disclosures requirements of this pronouncement
will have a material impact on its financial statements. The Company
will adopt this Statement in the fourth quarter of 1998.
FASB Statement No. 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits - an amendment of FASB Statements No. 87,
88, and 106" requires revised disclosures about pension and other
postretirement benefit plans. The Company does not expect that adoption
of the disclosure requirements of this pronouncement will have a material
impact on its financial statements. The Company will adopt this
Statement in the fourth quarter of 1998.
In March, 1998, the American Institute of Certified Public AccountsAccounting Standards Executive Committee issued
Statement of Position 98-1, ("SOP 98-1"),"Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The Statement is
effective for fiscal years beginning after December 15, 1998. Earlier
application is encouraged in fiscal years for which annual financial
statements have not been issued. The statement defines which costs of
computer software developed or obtained for internal use are capitalized
and which costs are expense. The Company has not yet determined when
they will adopt the new Statement. The effect of adoption is not
expected to materially affect the Company's financial position or results
of operations.
In May 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." The Statement is effective for fiscal years beginning after
December 15, 1998. The Statement defines one-time start up costs and
requires such costs to be expensed as incurred. The Company has not yet
determined when they will adopt the new statement. The effect of
adoption is not expected to materially affect the Company's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Statement establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. Statement
133 is effective for fiscal years beginning after June 15, 1999. The
Company has not yet quantified the impacts of adopting Statement 133 on
its financial statements and has not determined the timing of adoption of
Statement 133. However, the Statement could increase volatility in
earnings and other comprehensive income.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY, CAPITAL RESOURCES, AND COMMITMENTS
In the past the Company has depended upon internally generated
funds, issuance of short and long-term debt and sales of common stock to
finance its activities. It is expected that future activities will also
be financed by the most appropriate mix of these various sources of
funds.
The Company currently has bank lines of credit totaling $12 million
which provide for interim borrowings and the opportunity for timing of
permanent financing. The Company had no balances outstanding under these
lines of credit on June 30, 1998. There are no compensating balance
requirements associated with these lines of credit.
In addition to the above lines of credit, Black Hills Energy
Resources, Inc. has an uncommitted demand credit facility for up to $65
million. This facility allows $50 million for a transactional line of
credit and $15 million overdraft line of credit. This facility is used
to support the issuance of letters of credit. At June 30, 1998, Black
Hills Energy Resources has approximately $33 million of outstanding
letters of credit.
In addition to the above lines of credit, Wyodak Resources
Development Corp. has guaranteed a $15 million line of credit for Enserco
Energy, Inc. to use to guarantee letters of credit. At June 30, 1998,
there were no balances outstanding on this line of credit.
RESULTS OF OPERATIONS
Black Hills Corporation is an energy company consisting of four
principal businesses: electric, coal mining, oil and gas production, and
crude oil and natural gas marketing.
Consolidated net income was $7,515,000, $16,059,000 and $33,067,000
for the three months, six months and twelve months ended June 30, 1998,
respectively, representing an increase of 11 percent, 5 percent and 4
percent, respectively. The increase in earnings was primarily due to
stable electric sales, lower purchased power expense and strong cost
management, partially offset by lower oil and gas commodity prices, mild
weather and weak market conditions in the areas served by the energy
marketing companies. Consolidated revenues and fuel and purchased power
expense increased for the three months, six months and twelve months
ended June 30, 1998 primarily due to oil and natural gas purchases and
sales from the energy marketing operations.
Consolidated revenue and income from continuing operations provided
by the four businesses as a percentage of the total were as follows:
Three Months Six Months Twelve Months
Ended Ended Ended
June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
REVENUES
Electric 21% 73% 23% 73% 25% 73%
Coal mining 6 19 6 19 6 19
Oil and gas 2 8 2 8 3 8
Energy marketing 71 - 69 - 66 -
100% 100% 100% 100% 100% 100%
NET INCOME/(LOSS)
Electric 66% 62% 71% 63% 72% 62%
Coal mining 33 33 31 31 28 30
Oil and gas 4 7 3 8 4 9
Energy marketing
and Other (3) (2) (5) (2) (4) (1)
100% 100% 100% 100% 100% 100%
Capital expenditures and depreciation, depletion, and amortization by
business segment were as follows (in thousands):
Three Months Six Months Twelve Months
Ended Ended Ended
June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
CAPITAL EXPENDITURES
(includes AFDC)
Electric $3,547 $4,666 $5,302 $4,711 $13,174 $12,734
Coal mining 274 1,335 519 1,445 580 3,367
Oil and gas 3,848 1,981 4,478 3,107 7,600 10,093
Energy marketing - - - - 7,232 -
Other 43 63 81 94 362 136
$7,712 $8,045 $10,380 $9,357 $28,948 $26,330
Depreciation, Depletion,
and Amortization
Electric $3,797 $3,821 $7,595 $7,642 $14,561 $15,942
Coal mining 850 787 1,705 1,549 3,345 3,220
Oil and gas 1,441 1,091 2,783 2,102 4,956 3,523
Energy marketing 143 - 286 - 521 -
$6,231 $5,699 $12,369 $11,293 $23,383 $22,685
ELECTRIC OPERATIONS
Electric revenues were stable for the three months and six months
ended June 30, 1998 and increased 3% for the twelve months ended June 30,
1998. Firm kilowatthour sales decreased 3 percent for the three and six
month periods due to milder weather and the Homestake reorganization, and
increased 4 percent for the twelve month period due to serving the
Montana-Dakota Utilities, Sheridan, Wyoming load beginning January 1,
1997. Industrial sales declined primarily due to Homestake Mining
Company. Our low-cost generation allowed the Company to recapture a
portion of the margin loss from Homestake in the spot energy market.
Such spot energy sales result from additional physical energy available
to sell from existing sources.
Electric expenses decreased 6 percent, 6 percent and 3 percent for
the three months, six months, and twelve months ended June 30, 1998 due
to continued cost containment and lower purchased power and fuel costs.
For the twelve months ended June 30, 1998, such cost containment and
lower purchased power and fuel costs partially offset additional cost
associated with serving the Sheridan, Wyoming load.
MINING OPERATIONS
Mining earnings increased $277,000 and $228,000 for the three and six
month periods ended June 30, 1998. Earnings decreased $370,000 for the
twelve month period primarily as a result of a gain from the sale and
retirement of property recognized in the fourth quarter of 1996. Tons of
coal sold were relatively flat for the three months, six months and
twelve months ended June 30, 1998 as compared to the prior periods.
OIL AND GAS PRODUCTION OPERATIONS
Oil and gas earnings decreased $158,000, $704,000 and $1,372,000 for
the three months, six months and twelve months ended June 30, 1998
primarily as a result of decreased commodity prices. Average oil prices
decreased 18 percent, 33 percent and 25 percent for the three months, six
months and twelve months ended June 30, 1998, respectively. Average gas
prices increased 1 percent for the three months and decreased 16 percent
and 5 percent for the six months and twelve months ended June 30, 1998,
respectively. Production increased 14 percent, 11 percent and 5 percent
for the three month, six month and twelve month periods, respectively.
ENERGY MARKETING OPERATIONS
Energy marketing revenues and related fuel and purchased power
expenses represents the crude oil and natural gas purchases and sales of
Black Hills Energy Resources, Inc. which was acquired on July 25, 1997.
Crude oil and natural gas wholesale marketing operations are high-volume,
low margin operations. Mild weather in the East Coast and Midwest
markets served and high storage levels through the winter depressed
margins for the periods. Black Hills Energy Resources marketed 341,000
mmbtus and 16,500 barrels of oil per day for the three month period ended
June 30, 1998, 334,000 mmbtus and 15,700 barrels of oil per day for the
six month period and 282,100 mmbtus and 14,200 barrels of oil per day
since the Company acquired the assets in July 1997. At June 30, 1998,
Energy Marketing activities have occurred in crude oil and natural gas
sales and have not included electricity.
ACCOUNTING PRONOUNCEMENTS
FASB Statement No. 131 "Disclosures about Segments of an Enterprise
and Related Information" requires that a publicly-held company report
financial and descriptive information about its operating segments in
financial statements issued to shareholders for interim and annual
periods. The Statement also requires additional disclosures with respect
to products and services, geographic areas of operation, and major
customers. The Company has historically presented segment information in
the consolidated financial statements and related notes and as such does
not expect adoption of the disclosures requirements of this pronouncement
will have a material impact on its financial statements. The Company
will adopt this Statement in the fourth quarter of 1998.
FASB Statement No. 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits - an amendment of FASB Statements No. 87,
88, and 106" requires revised disclosures about pension and other
postretirement benefit plans. The Company does not expect that adoption
of the disclosure requirements of this pronouncement will have a material
impact on its financial statements. The Company will adopt this
Statement in the fourth quarter of 1998.
In March, 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The Statement is
effective for fiscal years beginning after December 15, 1998. Earlier
application is encouraged in fiscal years for which annual financial
statements have not been issued. The statement defines which costs of
computer software developed or obtained for internal use are capital and
which costs are expense. The Company has not yet determined when they
will adopt the new Statement. The effect of adoption is not expected to
materially affect the Company's financial position or resultresults of
operations.
Management's DiscussionIn May 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." The Statement is effective for fiscal years beginning after
December 15, 1998. The Statement defines one-time start up costs and
Analysisrequires such costs to be expensed as incurred. The Company has not yet
determined when they will adopt the new statement. The effect of
adoption is not expected to materially affect the Company's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial ConditionAccounting Standards No. 133, "Accounting for
Derivative Instruments and ResultsHedging Activities". The Statement establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement and
requires that a company must formally document, designate, and assess the
effectiveness of Operations
LIQUIDITY, CAPITAL RESOURCES, AND COMMITMENTS
Intransactions that receive hedge accounting. Statement
133 is effective for fiscal years beginning after June 15, 1999. The
Company has not yet quantified the pastimpacts of adopting Statement 133 on
its financial statements and has not determined the timing of adoption of
Statement 133. However, the Statement could increase volatility in
earnings and other comprehensive income.
YEAR 2000 ISSUES
The Company uses technologies throughout its operations that will be
affected by year 2000 issues. During 1997, the Company has depended upon internally generated
funds, issuanceimplemented
remediation steps to make the core business systems which are part of short and long-term debt and sales of common stock to
finance its activities. It is expected that future activities will also
be financed by the
most appropriate mix of these various sources of
funds.Company's mid-range computer systems year 2000 compliant. The Company
currentlyalso has bank lines of credit totaling $12,000,000,
which provideinitiated a company-wide project, to be completed in 1998, to
identify and assess year 2000 compliance for interim borrowingsall other Company systems
and the opportunity for timingcompliance status of permanent financing.its critical suppliers. The expenses
related to year 2000 compliance incurred in 1998 were not material, and
the Company had no balances outstanding under these
lines of credit on March 31, 1998. Therebelieves the amounts that are no compensating balance
requirements associated with these lines of credit.
In additionexpected to the above lines of credit, Black Hills Energy
Resources, Inc. has an uncommitted demand credit facility for up to $65
million. This facility allows $50 million for a transactional line of
credit and $15 million overdraft line of credit. This facility is used
to support the issuance of letters of credit. At March 31, 1998, Black
Hills Energy Resources has approximately $28 million of outstanding
letters of credit.
In addition to the above lines of credit, Wyodak Resources
Development Corp. has guaranteed a $15,000,000 line of credit for Enserco
Energy, Inc. to use to guarantee letters of credit. At March 31, 1998,
there were no balances outstanding on this line of credit.
RESULTS OF OPERATIONS
Black Hills Corporation is an energy company consisting of four
principal businesses: electric, coal mining, oil and gas production, and
crude oil and natural gas marketing.
Consolidated net income was $8,544,000 for the three months ended
and $32,316,000 for the twelve months ended March 31, 1998, representing
stable earnings and an increase of 5 percent, respectively. The increase
in earnings for the twelve months ended March 31, 1998 was primarily due
to increased sales volumes for the electric operations, resulting from
sales to Montana-Dakota Utilities, Sheridan, Wyoming load, which
commenced January 1, 1997, partially offset by lower oil and gas
commodity prices, mild weather and weak market conditionsbe expensed in the
areas
served by the energy marketing companies. Consolidated revenues and fuel
and purchased power expense increasedfuture for the three and twelve months
ended March 31, 1998 primarily due to oil and natural gas purchases and
sales from the energy marketingsuch compliance will not have a material impact on its results
of operations.
Consolidated revenue and income from continuing operations provided
by the four businesses as a percentage of the total were as follows:
Three Months Ended Twelve Months Ended
March 31 March 31
1998 1997 1998 1997
REVENUES
Electric 25% 73% 32% 73%
Coal mining 6 19 8 19
Oil and gas 2 8 3 8
Energy marketing 67 - 57 -
100% 100% 100% 100%
NET INCOME/(LOSS)
Electric 75% 64% 71% 61%
Coal mining 28 29 28 31
Oil and gas 2 8 5 9
Energy marketing
and Other (5) (1) (4) (1)
100% 100% 100% 100%
Capital expenditures and depreciation, depletion, and amortization
by business segment were as follows (in thousands):
CAPITAL EXPENDITURES
(includes AFDC)
Electric $2,162 $1,490 $13,254 $13,251
Coal mining 245 205 1,546 1,988
Oil and gas 630 1,126 6,699 9,439
Energy marketing - - 7,232 -
Other (1) 31 179 78
$3,036 $2,852 $28,910 $24,756
Depreciation, Depletion,
AND AMORTIZATION
Electric $3,797 $3,821 $14,584 $16,220
Coal mining 855 761 3,282 3,079
Oil and gas 1,342 997 4,606 3,668
Energy marketing 145 - 379 -
$6,139 $5,579 $22,851 $22,967
ELECTRIC OPERATIONS
Electric revenue were stable and increased 5% for the three and
twelve month periods ending March 31, 1998. Firm kilowatthour sales
decreased 4 percent for the three month period due to milder weather and
the Homestake reorganization, and increased 8 percent for twelve month
periods due to serving the Montana-Dakota Utilities, Sheridan, Wyoming
Load beginning January 1, 1997. In January the Company's third largest
electric customer (5.6 percent of 1997 electric revenues), Homestake
Mining Company, implemented a reorganization plan which included a
temporary shutdown of its gold mine. The mine reopened in April 1998 with
a reduced workforce. In addition, our low-cost generation allowed the
Company to recapture a portion of the margin loss from Homestake in the
spot energy market.
Electric expenses decreased 8% and increased 3% for the three and
twelve months ended March 31, 1998 due to continued cost containment and
lower purchased power and fuel costs. For the twelve months ended March
31, 1998, such cost containment and lower purchased power and fuel costs
partially offset additional cost associated with serving the Sheridan,
Wyoming load.
MINING OPERATIONS
Mining earnings decreased 2% and 7% for the three and twelve month
periods ending March 31, 1998. Earnings decreased $658,000 for the
twelve month period primarily as a result of a gain from the sale and
retirement of property recognized in the fourth quarter of 1996. Tons of
coal sold were relatively flat compared to the prior year.
OIL AND GAS PRODUCTION OPERATIONS
Oil and gas earnings decreased $546,000 and $1,128,000 for the three
and twelve month periods primarily as a result of decreased commodity
prices. Oil and natural gas prices decreased 33 percent and 28 percent,
respectively for the three month period and decreased 21 percent and 4
percent, respectively for the twelve month period ended March 31, 1998.
Production increased 7 percent and 2 percent for the three and twelve
month periods, respectively.
ENERGY MARKETING OPERATIONS
Energy marketing revenues and related fuel and purchased power
expenses represents the crude oil and natural gas purchases and sales of
Black Hills Energy Resources, Inc. which was acquired on July 25, 1997.
Crude oil and natural gas wholesale marketing operations are high-volume,
low margin operations. Mild weather in the East Coast and Midwest
markets served and high storage levels through the winter depressed
margins for the periods. Black Hills Energy Resources marketed 306,700
mmbtus and 14,900 barrels of oil per day for the three month period ended
March 31, 1998 and 258,900 mmbtus and 13,400 barrels of oil per day since
the Company acquired the assets in July 1997.
BLACK HILLS CORPORATION
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
There are no legal proceedings to be reported on for the quarter
ending March 31,June 30, 1998.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on May 19, 1998.
(b) The following Directors were elected to serve until the
Annual Meeting of Shareholders in 2001.
Adil M. Ameer
Everett E. Hoyt
Thomas J. Zeller
Other Directors whose term of office continues are:
Glenn C. Barber
Bruce B. Brundage
David C. Ebertz
John R. Howard
Kay S. Jorgensen
Daniel P. Landguth
(c) Matters Voted Upon at the Meeting
1. Elected three Class III Directors to serve until the
Annual Meeting of Shareholders in 2001.
Adil M. Ameer
Votes For 18,558,695
Votes Withheld 407,313
Everett E. Hoyt
Votes For 18,623,474
Votes Withheld 342,534
Thomas J. Zeller
Votes For 18,637,100
Votes Withheld 328,908
2. Ratified the appointment of Arthur Andersen LLP to
serve as independent auditors of the Company
Votes For 18,776,750
Votes Against 66,516
Abstain 122,742
Broker Non-Votes -0-
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
None
b. REPORTS ON FORM 8-K
None
BLACK HILLS CORPORATION
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.
BLACK HILLS CORPORATION
/S/ ROXANN R. BASHAM
Roxann R. Basham,
Vice President-FinancePresident - Finance
(Principal Financial Officer)
/S/ MARK T. THIES
Mark T. Thies, Controller
(Principal Accounting Officer)
Dated: May 11,August 14, 1998