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 June 30, 1997. 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 NONE Former name, former address, and former fiscal year if changed since last report 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 July 31, 1997 Common stock, $1.00 par value 14,461,464 shares BLACK HILLS CORPORATION I N D E X Page NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets- 2-3 June 30, 1997, December 31, 1996 and June 30, 1996 Consolidated Statements of Income- 4 Three, Six and Twelve Months Ended June 30, 1997 and 1996 Consolidated Statements of Cash Flows- 5 Three, Six and Twelve Months Ended June 30, 1997 and 1996 Consolidated Statements of Shareholders' Equity- 6 Three, Six and Twelve Months Ended June 30, 1997 and 1996 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of 8-10 Financial Position and Consolidated Statements of Earnings PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 BLACK HILLS CORPORATION Consolidated Balance Sheets (unaudited) June 30 December 31 June 30 1997 1996 1996 (in thousands) ASSETS Current assets: Cash and cash equivalents $ 14,204 $ 13,340 $ 3,767 Securities available for sale 18,211 11,458 10,598 Receivables, net Customers 11,636 12,961 11,092 Other 2,652 2,727 7,637 Materials, supplies, and fuel 7,834 7,861 7,508 Prepaid expenses 688 2,650 775 -------- -------- -------- 55,225 50,997 41,377 -------- -------- -------- Property and investments: Electric 493,372 479,237 473,295 Coal mining 52,838 53,200 44,668 Oil and gas 49,291 45,336 42,991 Other 4,301 3,764 3,664 -------- -------- -------- 599,802 581,537 564,618 Less accumulated depreciation and depletion (200,189) (181,103) (174,836) -------- -------- -------- Net property and investments 399,613 400,434 389,782 -------- -------- -------- Deferred charges: Federal income taxes 8,110 7,972 7,620 Regulatory asset 3,476 3,176 2,876 Other 4,931 4,775 4,544 -------- -------- -------- 16,517 15,923 15,040 -------- -------- -------- Total $471,355 $467,354 $446,199 ======== ======== ======== BLACK HILLS CORPORATION Consolidated Balance Sheets (unaudited) June 30 December 31 June 30 1997 1996 1996 (in thousands) LIABILITIES AND CAPITALIZATION Current liabilities: Current maturities of long-term debt $ 1,310 $ 1,534 $ 1,468 Notes payable 23 143 1,078 Accounts payable 5,397 7,332 3,714 Accrued liabilities- Taxes 7,509 8,633 5,857 Interest 4,003 4,035 4,046 Other 6,986 6,438 5,687 -------- -------- -------- 25,228 28,115 21,850 -------- -------- -------- Deferred credits: Federal income taxes 49,995 48,262 46,873 Investment tax credits 4,265 4,516 4,767 Reclamation costs 16,614 16,267 8,314 Regulatory liability 6,485 6,692 6,998 Other 6,111 5,636 5,507 -------- -------- -------- 83,470 81,373 72,459 -------- -------- -------- Capitalization: Common stock equity- Common stock 14,461 14,450 14,440 Additional paid-in capital 47,065 46,841 46,643 Retained earnings 136,967 131,884 125,488 -------- -------- -------- Total common stock equity 198,493 193,175 186,571 Long-term debt 164,164 164,691 165,319 -------- -------- -------- 362,657 357,866 351,890 -------- -------- -------- Total $471,355 $467,354 $446,199 ======== ======== ======== BLACK HILLS CORPORATION Consolidated Statements of Income (unaudited) Three Months Six Months Twelve Months June 30 June 30 June 30 1997 1996 1997 1996 1997 1996 (in thousands) Operating revenues: Electric $ 29,347 $26,978 $61,381 $57,283 $122,815 $116,054 Coal mining 7,703 7,418 15,828 15,486 31,657 30,620 Oil and gas 3,209 3,387 6,929 6,118 13,366 11,487 ------- ------- ------- ------- ------- ------- 40,259 37,783 84,138 78,887 167,838 158,161 ------- ------- ------- ------- ------- ------- Operating expenses: Fuel and purchased power 8,816 7,931 18,282 16,745 35,731 36,241 Operations and maintenance 7,524 7,635 15,086 15,084 30,734 30,569 Administrative and general 2,264 1,843 4,542 3,940 8,682 8,909 Depreciation, depletion, and amortization 5,699 6,023 11,293 11,429 22,685 21,493 Taxes, other than income taxes 3,062 3,155 6,334 6,313 12,480 11,932 ------- ------- ------- ------- ------- ------- 27,365 26,587 55,537 53,511 110,312 109,144 ------- ------- ------- ------- ------- ------- Operating income: Electric 9,078 7,642 20,286 18,229 41,146 35,281 Coal mining 3,103 2,994 6,533 6,299 12,468 11,954 Oil and gas 713 560 1,782 848 3,912 1,782 ------- ------- ------- ------- ------- ------- 12,894 11,196 28,601 25,376 57,526 49,017 ------- ------- ------- ------- ------- ------- Other income and (expense): Interest expense (3,465) (3,462) (6,946) (6,930) (13,958)(14,113) Investment income 459 346 829 583 1,620 1,292 Allowance for funds used during construction 43 134 109 250 209 1,290 Other, net (32) 127 (215) 650 883 1,774 ------- ------- ------- ------- ------- ------- (2,995) (2,855) (6,223) (5,447) (11,246) (9,757) ------- ------- ------- ------- ------- ------- Income before income taxes 9,899 8,341 22,378 19,929 46,280 39,260 Income taxes (3,137) (2,454) (7,028) (6,043) (14,565) (11,424) ------- ------- ------- ------- ------- ------- Net income available for common stock $ 6,762 $ 5,887 $15,350 $13,886 $31,715 $27,836 ======= ======= ======= ======= ======= ======= Weighted average common shares outstanding 14,459 14,437 14,457 14,433 14,451 14,425 Earnings per share $0.47 $0.41 $1.06 $0.96 $2.20 $1.93 Dividends paid per share of common stock $0.355 $0.345 $0.710 $0.690 $1.400 $1.360 BLACK HILLS CORPORATION Consolidated Statements of Cash Flows (unaudited) Three Months Six Months Twelve Months June 30 June 30 June 30 1997 1996 1997 1996 1997 1996 (in thousands) Operating activities: Net Income $ 6,762 $ 5,887 $15,350 $13,886 $31,715 $27,836 Principal non-cash items- Depreciation, depletion, and amortization 5,699 6,023 11,293 11,429 22,685 21,493 Deferred income taxes and investment tax credits, net 247 384 829 913 1,947 2,235 Allowance for other funds used during construction (23) (83) (58) (156) (90) (819) (Increase) decrease in receivables, inventories, and other current assets 1,635 (357) 3,389 (1,186) 4,202 (5,137) Increase (decrease) in other current liabilities (3,240) (5,690) (2,544) (8,546) 4,590 (6,829) Other, net 1,294 91 (440) 373 1,402 2,146 ------- ------- ------- ------- ------- ------- 12,374 6,255 27,819 16,713 66,451 40,925 ------- ------- ------- ------- ------- ------- Investment activities: Property additions, excluding allowance for other funds used during construction (8,022) (5,041) (9,299) (7,447) (26,240)(26,243) Available for sale securities purchased (6,579) (233) (12,732) (9,905) (43,670)(20,799) Available for sale securities sold 3,638 3,100 5,979 6,111 36,057 20,464 ------- ------- ------- ------- ------- ------- (10,963) (2,174) (16,052)(11,241) (33,853)(26,578) ------- ------- ------- ------- ------- ------- Financing activities: Dividends paid (5,134) (4,982) (10,267) (9,960) (20,236)(19,623) Common stock issued 96 123 235 303 443 575 Net short-term borrowings - 155 (120) 460 (1,055) (2,490) Long-term debt issued - - - - - 15,254 Long-term debt retied - - (751) (687) (1,313) (8,863) ------- ------- ------- ------- ------- ------- (5,038) (4,704) (10,903) (9,884) (22,161)(15,147) ------- ------- ------- ------- ------- ------- Increase (decrease) in cash and cash equivalents (3,627) (623) 864 (4,412) 10,437 (800) Cash and cash equivalents: Beginning of period 17,831 4,390 13,340 8,179 3,767 4,567 ------- ------- ------- ------- ------- ------- End of period $14,204 $ 3,767 $14,204 $ 3,767 $14,204 $ 3,767 ======= ======= ======= ======= ======= ======= Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 2,458 $ 2,426 $ 6,961 $ 6,973 $13,991 $13,709 Income taxes $ 6,500 $ 6,150 $ 6,500 $ 6,750 $12,366 $10,380 Assumption of reclamation liability in acquisition of Clovis Point properties $ - $ - $ - $ - $ 7,957 $ - See accompanying notes to consolidated financial statements. BLACK HILLS CORPORATION Consolidated Statements of Shareholders' Equity (unaudited) Three Months Six Months Twelve Months June 30 June 30 June 30 1997 1996 1997 1996 1997 1996 (in thousands) Common stock: Beginning of period $ 14,457 $ 14,434 $ 14,450 $ 14,425 $ 14,440 $ 14,409 Issuance of $1 par value shares 4 6 11 15 21 31 -------- -------- -------- -------- -------- -------- End of period 14,461 14,440 14,461 14,440 14,461 14,440 -------- -------- -------- -------- -------- -------- Additional paid-in capital: Beginning of period 46,973 46,526 46,841 46,355 46,643 46,099 Net proceeds over par value of stock issued 92 117 224 288 422 544 -------- -------- -------- -------- -------- -------- End of period 47,065 46,643 47,065 46,643 47,065 46,643 -------- -------- -------- -------- -------- -------- Retained earnings: Beginning of period 135,339 124,583 131,884 121,562 125,488 117,275 Net income 6,762 5,887 15,350 13,886 31,715 27,836 Cash dividends on common stock (5,134) (4,982) (10,267) (9,960) (20,236) (19,623) -------- -------- -------- -------- -------- -------- End of period 136,967 125,488 136,967 125,488 136,967 125,488 -------- -------- -------- -------- -------- -------- Total shareholders' equity $198,493 $186,571 $198,493 $186,571 $198,493 $186,571 ======== ======== ======== ======== ======== ======== 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) (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. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto, included in the Company's 1996 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 June 30, 1997, December 31, 1996 and June 30, 1996, financial information and are of a normal recurring nature. The results of operations for the three and six months ended June 30, 1996, are not necessarily indicative of the results to be expected for the full year. (2) NEW ACCOUNTING STANDARD During March 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128) which requires the disclosure of basic earnings per share and diluted earnings per share. The company must adopt SFAS 128 in the fourth quarter of 1997 and anticipates it will not have a material impact on the financial position or the results of operations of the Company. (3) SUBSEQUENT EVENT On July 25, 1997, Black Hills Corporation purchased the assets of a wholesale natural gas and crude oil marketing company. The purchase agreement required fixed cash payments of $7,000,000 at the closing date and additionally allows for contingent payments up to $1,600,000. The contingent payments are dependent on certain profit thresholds of the acquired company. The acquisition will be accounted for under the purchase method of accounting and as such, the results of operations will be included in the Company's consolidated financials from July 25, 1997 forward. 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 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 $12,000,000, which provides for interim borrowings and the opportunity for timing of permanent financing. The Company had $500,000 outstanding under these lines of credit on June 30, 1997. There are no compensating balance requirements associated with these lines 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. Enserco pays a .125% facility fee on this line of credit. At June 30, 1997, there were no balances outstanding on this line of credit. RESULTS OF OPERATIONS Black Hills Corporation is an energy services company consisting of three principal businesses: electric, coal mining and oil and gas production. Consolidated income was $6,762,000 for the three months ended, $15,350,000 for the six months ended and $31,715,000 for the twelve months ended June 30, 1997, an increase of 15 percent, 11 percent and 14 percent, respectively. The increase in earnings was primarily due to increased sales volumes for the electric operations, resulting from the sale to Montana- Dakota Utilities, Sheridan, Wyoming load, which commenced January 1, 1997, and the inclusion of Neil Simpson Unit #2 (NS #2), an 80 MW coal-fired power plant which began commercial operation on August 1, 1995, into the Company's rate base, and increased oil and gas prices. Consolidated revenue and income from continuing operations provided by the three businesses as a percentage of the total were as follows: Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1997 1996 1997 1996 1997 1996 REVENUE Electric 73% 71% 73% 73% 73% 74% Coal mining 19 20 19 20 19 19 Oil and gas 8 9 8 7 8 7 --- --- --- --- --- --- 100% 100% 100% 100% 100% 100% Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1997 1996 1997 1996 1997 1996 NET INCOME Electric 62% 56% 63% 60% 62% 60% Coal mining 33 38 31 36 30 35 Oil and gas 7 7 8 4 9 5 Other (2) (1) (2) - (1) - --- --- --- --- --- --- 100% 100% 100% 100% 100% 100% Capital expenditures and depreciation, depletion, and amortization by industry segment were as follows: Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1997 1996 1997 1996 1997 1996 (in thousands) CAPITAL EXPENDITURES (includes AFDC) Electric $4,666 $3,738 $4,711 $4,800 $12,734 $19,030 Coal mining 1,335 53 1,445 196 3,367 1,558 Oil and gas 1,981 1,327 3,107 2,599 10,093 6,468 Other 63 6 94 8 136 7 ------ ------ ------ ----- ------ ------- $8,045 $5,124 $9,357 $7,603 $26,330 $27,063 DEPRECIATION, DEPLETION, AND AMORTIZATION Electric $3,821 $4,099 $7,642 $7,803 $15,942 $14,442 Coal mining 787 647 1,549 1,310 3,220 2,947 Oil and gas 1,091 1,277 2,102 2,316 3,523 4,104 ------ ------ ------ ------ ------- ------- $5,699 $6,023 $11,293 $11,429 $22,685 $21,493 ELECTRIC OPERATIONS Electric revenue increased 28 percent, 16 percent and 17 percent for the three, six and twelve months ended June 30, 1997 primarily due to strong growth in sales. Firm kilowatthour sales increased 14 percent for the three and six month periods and increased 9 percent for the twelve month period directly related to serving the Montana-Dakota Utilities, Sheridan, Wyoming Load. Electric expenses remained relatively flat for the three and six months ended June 30, 1997. Fuel and purchased power expense increased 11 percent for the second quarter, 9 percent for the year to date, and decreased slightly for the twelve month period. The increase in fuel and purchased power expense for the three and six month periods was directly related to the increase in kilowatthour sales. Non-operating income increased $191,000 and $211,000 for the three and six month periods due to an increase in interest income from marketable securities and decreased $453,000 for the twelve month period due to a decrease in allowance for funds used during construction (AFUDC). The decrease in AFUDC was a reflection of the completion of construction on NS #2 and was offset by the increase in electric revenues. MINING OPERATIONS Mining revenue increased 4 percent, 2 percent and 3 percent for the three, six and twelve month periods ending June 30, 1997, directly related to an increase in tons of coal sold of 3 percent, 2 percent and 7 percent, respectively. Mining expenses increased 4 percent, 3 percent and 1 percent for the three, six and twelve months ended June 30, 1997. The increase in expense is related to the increase in tons of coal sold. OIL AND GAS PRODUCTION OPERATIONS Oil and gas earnings increased $86,000 for the second quarter and $617,000 and $1,406,000 for the six month and twelve month periods ending June 30, 1997. The earnings increase is due to an increase in barrels of oil equivalents sold and an increase in gas prices. Operating expenses decreased 12 percent for the second quarter due to a decrease in production expense. Operating expenses increased 2 percent and 7 percent for the six month and twelve month periods compared to the same periods last year. Depletion expense decreased 17 percent, 11 percent and 14 percent for the three, six and twelve month periods directly due to the increase in gas prices and reserve values. Nonoperating income decreased $190,000, $679,000 and $556,000 for the three, six and twelve month periods ending June 30, 1997 as a result of a $500,000 gain recorded from the sale and retirement of property in the first quarter of 1996 offset by increases in interest income on marketable securities. BLACK HILLS CORPORATION Part II - Other Information Item 1. LEGAL PROCEEDINGS There are no legal proceedings to be reported on for the quarter ending June 30, 1997. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS None b. REPORTS ON FORM 8-K The Registrant filed a Form 8-K on July 25, 1997, reporting the purchase of the assets of Jomax Partners, L.P., as successor to and survivor of Wickford Energy Marketing, L.C., and Wickford Energy Marketing Canada Company. 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/ DALE E. CLEMENT Dale E. Clement, Senior Vice President-Finance /S/ MARK T. THIES Mark T. Thies, Controller (Principal Accounting Officer) Dated: August 8, 1997