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, 1999.
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, 1999
Common stock, $1.00 par value 21,450,704 shares
BLACK HILLS CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets- 3-4
March 31, 1999, December 31, 1998
and March 31, 1998
Consolidated Statements of Income- 5
Three and Twelve Months
Ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows- 6
Three and Twelve Months
Ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of 12-17
Financial Position and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
March 31 December 31 March 31
1999 1998 1998
----------- ------------ ------------
(in thousands)
Assets
Current assets:
Cash and cash equivalents ... $ 20,055 $ 14,764 $ 22,433
Securities available for sale 19,079 22,675 19,313
Receivables, net
Customers ................. 76,543 87,068 65,204
Other ..................... 3,453 2,919 3,269
Materials, supplies, and fuel 10,540 9,733 8,409
Prepaid expenses ............ 3,011 3,321 2,021
--------- --------- ---------
132,681 140,480 120,649
--------- --------- ---------
Property and investments:
Electric .................... 498,809 496,883 489,036
Coal mining ................. 53,716 51,889 53,039
Oil and gas ................. 67,714 62,581 53,043
Other ....................... 14,513 8,196 5,218
--------- --------- ---------
634,752 619,549 600,336
Less accumulated depreciation
and depletion ................ (235,283) (229,942) (202,520)
--------- --------- ---------
Net property and investments 399,469 389,607 397,816
--------- --------- ---------
Other assets:
Federal income taxes ........ 12,370 12,347 8,020
Regulatory asset ............ 3,978 3,978 3,926
Other ....................... 13,358 13,005 11,845
--------- --------- ---------
29,706 29,330 23,791
--------- --------- ---------
Total .................... $ 561,856 $ 559,417 $ 542,256
========= ========= =========
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
March 31 December 31 March 31
1999 1998 1998
------------- ------------ ------------
(in thousands)
Liabilities and Capitalization
Current liabilities:
Current maturities of long-term debt $ 1,330 $ 1,330 $ 1,330
Notes payable ........................ 4,570 5,090 12
Accounts payable ..................... 71,650 74,087 59,893
Accrued liabilities-
Taxes .............................. 15,969 9,950 13,220
Interest ........................... 3,047 3,956 3,131
Other .............................. 7,928 8,169 6,340
--------- --------- ---------
104,494 102,582 83,926
--------- --------- ---------
Deferred credits:
Federal income taxes ................. 55,758 55,107 53,605
Investment tax credits ............... 3,391 3,514 3,889
Reclamation costs .................... 17,178 17,000 16,840
Regulatory liability ................. 5,539 5,661 6,028
Other ................................ 6,956 6,857 6,480
--------- --------- ---------
88,822 88,139 86,842
--------- --------- ---------
Capitalization:
Common stock equity-
Common stock ....................... 21,726 21,719 21,712
Additional paid-in
capital ........................... 40,397 40,254 40,143
Retained earnings .................. 151,160 147,774 146,799
Treasury stock ..................... (6,247) (3,081) --
--------- --------- ---------
Total common stock equity ............ 207,036 206,666 208,654
Long-term debt ....................... 161,504 162,030 162,834
--------- --------- ---------
368,540 368,696 371,488
--------- --------- ---------
Total ........................... $ 561,856 $ 559,417 $ 542,256
========= ========= =========
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Statements of Income
(unaudited)
Three Months Twelve Months
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share amounts)
Operating revenues:
Electric ............................................. $ 33,084 $ 31,990 $130,331 $126,452
Coal mining .......................................... 7,777 7,924 31,267 30,878
Oil and gas .......................................... 2,984 3,186 12,360 12,762
Energy marketing ..................................... 124,356 110,737 519,660 253,528
-------- -------- -------- --------
168,201 153,837 693,618 423,620
-------- -------- -------- --------
Operating expenses:
Fuel and purchased power ............................. 130,737 118,229 543,950 286,072
Operations and maintenance ........................... 7,750 8,244 31,227 32,423
Administrative and general ........................... 4,334 3,110 17,891 12,662
Depreciation, depletion, and amortization ............ 5,915 6,145 23,879 22,857
Oil and gas ceilings test write down ................. -- -- 13,546 --
Taxes, other than income taxes ....................... 3,485 3,234 12,787 11,922
-------- -------- -------- --------
152,221 138,962 643,280 365,936
-------- -------- -------- --------
Operating income ....................................... 15,980 14,875 50,338 57,684
-------- -------- -------- --------
Other income and (expense):
Interest expense ..................................... (3,680) (3,624) (14,762) (14,268)
Investment income .................................... 696 604 3,053 2,371
Allowance for funds used during construction ........ 64 29 254 151
Other, net ........................................... 124 353 (421) 505
-------- -------- -------- --------
(2,796) (2,638) (11,876) (11,241)
-------- -------- -------- --------
Income before income taxes ............................. 13,184 12,237 38,462 46,443
Income taxes ........................................... (4,149) (3,693) (12,163) (14,127)
Net income available for common stock ................ $ 9,035 $ 8,544 $ 26,299 $32,316
======== ======== ======== ========
Earnings per share - basic and diluted ................. $ 0.42 $ 0.39 $ 1.22 $ 1.49
======== ======== ======== ========
Weighted average common shares outstanding ............ 21,503 21,712 21,572 21,699
======== ======== ======== ========
Dividends paid per share of common stock. ............. $ 0.26 $ 0.25 $ 1.01 $ 0.96
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
Three Months Twelve Months
March 31 March 31
1999 1998 1999 1998
------- ------- ------- --------
(in thousands)
Operating activities:
Net Income ................................................... $ 9,035 $ 8,544 $ 26,299 $ 32,316
Principal non-cash items-
Depreciation, depletion, and amortization ................... 5,915 6,145 37,425 22,857
Deferred income taxes and investment tax credits............. (261) 245 (4,543) 1,881
(Increase) decrease in receivables,
inventories, and other current assets ..................... 9,494 (25,637) (14,644) (54,458)
Increase in other current liabilities ....................... 2,432 30,131 16,010 55,450
Other, net .................................................. (26) 424 1,288 1,180
------- ------- -------- --------
26,589 19,852 61,835 59,226
------- ------- -------- --------
Investing activities:
Property additions, excluding allowance
for other funds used during construction .................... (15,183) (3,018) (37,798) (21,597)
Available for sale securities purchased ...................... (917)(14,054) (14,054) (23,832)
Available for sale securities sold ........................... 4,513 3,880 14,288 19,789
Energy marketing assets ...................................... -- -- (1,960) (7,232)
------- ------- -------- --------
(11,587) (8,362) (39,524) (32,872)
------- ------- -------- --------
Financing activities:
Dividends paid ............................................... (5,649) (5,448) (21,938) (20,856)
Treasury stock, net .......................................... (3,166) -- (6,247) --
Common stock issued .......................................... 150 155 268 425
Increase (decrease) in short-term borrowings.................. (520) (11) 4,558 (11)
Long-term debt payments ...................................... (526) (527) (1,330) (1,310)
------- ------- -------- --------
(9,711) (5,831) (24,689) (21,752)
------- ------- -------- --------
Increase (decrease) in
cash and cash equivalents .................................. 5,291 5,659 (2,378) 4,602
Cash and cash equivalents:
Beginning of period .......................................... 14,764 16,774 22,433 17,831
------- ------- -------- --------
End of period ................................................ $20,055 $22,433 $ 20,055 $ 22,433
======== ======= ======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest .................................................. $ 4,589 $ 4,593 $ 14,846 $ 14,133
Income taxes .............................................. $ - $ 2,000 $ 11,135 $ 13,840
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 1998 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, 1999, December 31, 1998 and
March 31, 1998, financial information and are of a normal recurring nature. The
results of operations for the three and twelve months ended March 31, 1999, are
not necessarily indicative of the results to be expected for the full year.
(2) Capital Stock
In April 1999, the Board of Directors authorized the acquisition of up to
1,000,000 shares of the Company's Common Stock on the open market to fund
possible future acquisitions by the Company, for its Employee Stock Option Plan,
and for other general purposes. The Board had authorized a similar purchase of
300,000 shares in April 1998. At March 31, 1999, the Company has acquired
275,701 shares for such purposes and is reflected as treasury stock on the
accompanying consolidated balance sheets.
(3) Net Income Per Share
Financial Accounting Standards Board (FASB) Statement No. 128 "Earnings
Per Share" 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 Twelve MonthsEnded
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
Net Income ............................. $ 9,035 $ 8,544 $26,299 $32,316
======= ======= ======= =======
Weighted average common shares outstanding:
Basic ............................ 21,503 21,712 21,572 21,699
Dilutive effect of option plan ... 36 24 46 16
------- ------- ------- -------
Diluted .......................... 21,539 21,736 21,618 21,715
======= ======= ======= =======
Earnings per share (Basic and Diluted): $0.42 $0.39 $1.22 $1.49
===== ===== ===== =====
(4) Comprehensive Income
FASB Statement No. 130, "Reporting Comprehensive Income," establishes
standards for reporting and display of comprehensive earnings and its components
in financial statements. 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 in the accompanying
financial statements.
(5) Summary of Information Relating to Segments of the Company's Business
Effective December 31, 1998 the Company adopted FASB Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information." Black
Hills Corporation's business segments include: Electric which supplies electric
utility service to western South Dakota, northeastern Wyoming and southeastern
Montana; Mining which engages in the mining and sale of coal from its mine near
Gillette, Wyoming; Oil and Gas which produces, explores and operates oil and gas
interests located in the Rocky Mountain region, Texas, California and other
states; Energy Marketing which markets natural gas, oil, coal and related
services to customers in the East Coast, Midwest, Southwest, Rocky Mountain,
West Coast and Northwest Regions markets and Technology and Others which
primarily markets communications and software development services.
Financial data for the business segments are as follows (in thousands):
Three Months Ended Oil Energy Technology
March 31, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------- --------- --------- --------- --------- --------- ------------ ---------
Operating revenues $ 33,084 $ 7,777 $ 2,984 $ 124,356 $ 654 $ (654) $ 168,201
Depreciation,
depletion & amort 3,948 869 856 221 21 -- 5,915
Operating income
(loss) ........ 13,376 3,038 487 (342) (579) -- 15,980
Interest expense . 3,353 7 135 178 7 -- 3,680
Income taxes ..... 3,359 955 88 (156) (97) -- 4,149
Net income (loss) 6,873 2,377 266 (303) (178) -- 9,035
Current assets ... 48,109 27,793 1,808 74,397 6,191 (25,617) 132,681
Total assets ..... 456,347 101,640 31,646 83,107 24,533 (135,417) 561,856
Property additions 2,104 1,827 5,132 38 6,118 -- 15,219
Three Months Ended Oil Energy Technology
March 31, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------ ---------- --------- --------- ---------- ---------- ------------ ---------
Operating revenues $ 31,990 $ 7,924 $ 3,186 $ 110,737 $ 622 $ (622) $ 153,837
Depreciation,
depletion & amort 3,797 855 1,342 151 -- -- 6,145
Operating income
(loss) ........ 12,315 3,197 272 (874) (35) -- 14,875
Interest expense . 3,390 -- 52 173 9 -- 3,624
Income taxes ..... 2,906 1,051 43 (374) 67 -- 3,693
Net income (loss) 6,421 2,423 185 (607) 122 -- 8,544
Current assets ... 38,708 20,399 1,091 64,275 8,046 (11,870) 120,649
Total assets ..... 449,752 92,123 30,088 71,467 15,164 (116,338) 542,256
Property additions 2,162 245 630 24 (26) -- 3,035
Three Months Ended Oil Energy Technology
March 31, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
- ----------------- --------- --------- --------- --------- ---------- ------------ ---------
Electric revenues $ 33,084 $ -- $ -- $ -- $ -- $ -- $ 33,084
Coal revenues ... -- 7,777 -- 10,065 -- -- 17,842
Gas revenues .... -- -- 1,231 85,156 -- -- 86,387
Oil revenues .... -- -- 964 29,135 -- -- 30,099
Other revenues .. -- -- 789 -- 654 (654) (789)
--------- --------- --------- --------- --------- -------- ---------
Total ........... $ 33,084 $ 7,777 $ 2,984 $ 124,356 $ 654 $ (654) $ 168,201
========= ========= ========= ========= ========= ========= =========
Three Months Ended Oil Energy Technology
March 31, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------ --------- -------- -------- --------- ---------- ------------ --------
Electric revenues $ 31,990 $ -- $ -- $ -- $ -- $ -- $ 31,990
Coal revenues ... -- 7,924 -- -- -- -- 7,924
Gas revenues .... -- -- 1,087 83,150 -- -- 84,237
Oil revenues .... -- -- 1,273 27,587 -- -- 28,860
Other revenues .. -- -- 826 -- 622 (622) 826
-------- -------- -------- -------- -------- -------- --------
Total ........... $ 31,990 $ 7,924 $ 3,186 $110,737 $ 622 $ (622) $153,837
======== ======== ======== ======== ======== ======== ========
Twelve Months Ended Oil Energy Technology
March 31, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
- -------------------- --------- --------- --------- --------- ----------- ------------ ---------
Operating revenues . $ 130,331 $ 31,267 $ 12,360 $ 519,660 $ 2,469 $ (2,469) $ 693,618
Depreciation,
depletion & amort 15,032 3,266 18,275* 759 93 -- 37,425
Operating income
(loss) .......... 50,957 12,564 (12,125) 572 (1,630) -- 50,338
Interest expense ... 13,536 15 438 735 38 -- 14,762
Income taxes ....... 13,063 3,996 (4,644) 99 (351) -- 12,163
Net income (loss) .. 25,278 9,538 (7,895) (41) (581) -- 26,299
Current assets ..... 48,109 27,793 1,808 74,397 6,190 (25,616) 132,681
Total assets ....... 456,347 101,640 31,646 83,107 24,533 (135,417) 561,856
Property additions . 11,930 3,029 14,671 439 7,877 -- 37,946
Increase in goodwill -- -- -- 1,960 -- -- 1,960
*Includes the impact of a $13.546 million pretax write down of certain oil
and natural gas properties.
Twelve Months Ended Oil Energy Technology
March 31, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------ --------- -------- ------- --------- ---------- ------------ --------
Operating revenues $126,452 $30,878 $12,762 $253,528 $ - $ - $423,620
Depreciation,
depletion & amort. 14,584 3,282 4,606 385 - - 22,857
Operating income
(loss) 45,718 11,984 2,110 (1,700) (428) - 57,684
Interest expense 13,645 4 208 375 36 - 14,268
Income taxes 10,428 4,037 377 (721) 6 - 14,127
Net income (loss) 23,038 9,025 1,601 (1,469) (40) 161 32,316
Current assets 38,708 20,399 1,091 64,275 8,046 (11,870) 120,649
Total assets 449,752 92,123 30,088 71,467 15,164 (116,338) 542,256
Property additions 13,254 1,546 6,699 45 134 - 21,678
Increase in goodwill - - - 7,232 - - 7,232
Twelve Months Ended Oil Energy Technology
March 31, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
- ----------------- -------- -------- -------- --------- --------- ------------ -----
Electric revenues $130,331 $ -- $ -- $ -- $ -- $ -- $130,331
Coal revenues ... -- 31,267 -- 22,989 -- -- 54,256
Gas revenues .... -- -- 4,757 377,939 -- -- 382,696
Oil revenues .... -- -- 4,282 118,732 -- -- 123,014
Other revenues .. -- -- 3,321 -- 2,469 (2,469) 3,321
-------- -------- -------- -------- -------- -------- --------
Total ........... $130,331 $ 31,267 $ 12,360 $519,660 $ 2,469 $ (2,469) $693,618
======== ======== ======== ======== ======== ======== ========
Twelve Months Ended Oil Energy Technology
March 31, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------ --------- -------- -------- ---------- --------- ------------ -----
Electric revenues $126,452 $ -- $ -- $ -- $ -- $ -- $126,452
Coal revenues ... -- 30,878 -- -- -- -- 30,878
Gas revenues .... -- -- 5,331 179,131 -- -- 184,462
Oil revenues .... -- -- 3,944 74,397 -- -- 78,341
Other revenues .. -- -- 3,487 -- -- -- 3,487
-------- -------- -------- -------- -------- --------- --------
Total ........... $126,452 $ 30,878 $ 12,762 $253,528 $ -- $ -- $423,620
======== ======== ======== ======== ======== ========= ========
(6) Energy Trading and Risk Management Activities
Effective January 1, 1999, the Company adopted the provisions in Emerging
Issues Task Force 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities. (EITF 98-10)." EITF requires
disclosure of energy trading and risk management activity for energy
contracts used for trading purposes. At March 31, 1999, the Company had
approximately 220,000 mmbtus of natural gas forward sales at a fixed
price. The market value of such contracts approximated the fixed price.
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 $44,000,000, which
provide for interim borrowings and the opportunity for timing of permanent
financing. The Company had $3,330,000 outstanding under these lines of credit on
March 31, 1999. 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 March 31, 1999, Black Hills Energy Resources has
approximately $21 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, 1999, there were no balances
outstanding on this line of credit.
Market Risk Disclosures
There has not been any significant changes in market risk since December
31, 1998.
Commodity Risk
The Company is exposed to market risk stemming from changes in commodity
prices. These changes could cause fluctuations in the Company's earnings and
cash flows.
Trading Activities
For trading transactions that do not qualify for hedge accounting, the
Company utilizes marked-to-market accounting, and such financial instruments are
recorded at fair value with realized and unrealized gains (losses) recorded as a
component of income. The quantities and maximum terms of derivative financial
instruments held for trading purposes at March 31, 1999 and 1998 are not
significant to the Company's financial position or results of operations.
Non-trading Activities
The notional quantities and maximum terms of derivative financial
instruments held for non-trading activities at March 31, 1999, are presented
below:
Volume Purchased Max. Term Fair Value
(MMBtu's) (Years) (in thousands)
--------------- --------- ------------
Natural gas futures contracts
purchased 860,000 2 $(61)
Natural gas swap contracts
purchased 18,852,042 3 $(1,566)
Natural gas swap contracts sold 15,877,420 1 $738
Because these contracts are entered into for hedging purposes, the Company
expects that the gains (losses) will be offset by gains (losses) on the
underlying physical transactions; Such physical transactions are subject to
weather trends, transportation and delivery risks and other factors that the
Company monitors on a regular basis. The notional amounts detailed above are
intended to be indicative of the Company's level of activity in such
derivatives.
At March 31, 1999, the Company did not have material crude oil derivatives
in its non-trading activities.
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's short-term investments and long-term debt
obligations. The Company does not use derivative financial instruments in its
available for sale securities.
At March 31, 1999, the effect of a 100 basis point increase in interest
rates does not have a material effect to the Company's results of operations or
financial condition, due to the short-term duration of the investment portfolio.
The Company has no cash flow exposure due to rate changes for long-term
debt obligations. The Company primarily enters into debt obligations to support
general corporate purposes including capital expenditures and working capital
needs.
Results of Operations
Black Hills Corporation is an energy company consisting of five principal
businesses: electric, coal mining, oil and gas production, crude oil and natural
gas marketing, and communications.
Consolidated net income was $9,035,000 for the three months ended and
$35,104,000 for the twelve months (before a special non-cash charge) ended March
31, 1999, representing an increase of 6 percent and 9 percent, respectively. In
December 1998, the Company recorded an $8.8 million after tax charge primarily
due to a non-cash write down of certain oil and natural gas assets. Consolidated
revenues and fuel and purchased power expense increased for the three and twelve
months ended March 31, 1999 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
Company's businesses as a percentage of the total were as follows:
Three Months Ended Twelve Months Ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
Revenues
Electric .............. 20% 21% 19% 30%
Coal mining ........... 5 5 4 7
Oil and gas ........... 2 2 2 3
Energy marketing ...... 73 72 75 60
---- ---- ---- ----
100% 100% 100% 100%
Net Income/(Loss)
Electric .............. 76% 75% 72% 71%
Coal mining ........... 26 28 27 28
Oil and gas ........... 3 2 3* 5
Energy marketing ...... (3) (7) -- (4)
Communication and other (2) 2 (2) --
---- ---- ---- ----
100% 100% 100% 100%
*Excludes $8.8 million (net-of-tax) write down of certain oil and natural gas
properties
Capital expenditures and depreciation, depletion, and amortization by
business segment were as follows (in thousands):
Three Months Ended Twelve Months Ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
Capital Expenditures
(includes AFDC)
Electric ............... $ 2,104 $ 2,162 $ 11,930 $ 13,254
Coal mining ............ 1,827 245 3,029 1,546
Oil and gas ............ 5,132 630 14,671 6,699
Energy marketing ....... 38 24 2,399 7,277
Communications and other 6,118 (26) 7,877 134
-------- -------- -------- --------
$ 15,219 $ 3,035 $ 39,906 $ 28,910
Depreciation, Depletion,
and Amortization
Electric ............... $ 3,948 $ 3,797 $ 15,032 $ 14,584
Coal mining ............ 869 855 3,266 3,282
Oil and gas ............ 856 1,342 4,729 4,606
Oil and gas ceilings
test write down ...... -- -- 13,546 --
Energy marketing ....... 221 151 759 385
Communications and other 21 -- 93 --
-------- -------- -------- --------
$ 5,915 $ 6,145 $ 37,425 $ 22,857
Electric Operations
Electric revenues increased 3 percent for the three and twelve month
periods ending March 31, 1999, despite milder weather. Degree days, a measure of
weather trends, were 11 percent and 5 percent lower for the three and twelve
month periods as compared to the prior periods. Total kilowatthour sales
increased 6 percent and 12 percent for the three and twelve month period due to
increased residential, commercial and non-firm sales partially offset by
decreased industrial sales. In addition, our low-cost generation allowed the
Company to recapture a portion of the decline in industrial sales in the spot
energy market.
Electric expenses were stable for the three and twelve months ended March
31, 1999 due to continued cost containment and lower purchased power and fuel
costs offset by increased taxes other than income.
Mining Operations
Mining earnings were stable and increased 6% the three and twelve month
periods ending March 31, 1999. Earnings increased $513,000 for the twelve month
period in part due to increased revenue, lower operating costs and increased
interest income. Tons of coal sold increased slightly compared to the prior
year.
Oil and Gas Production Operations
Earnings from oil and gas operations increased $81,000 for the three
months and decreased $691,000 (excluding a write-down of certain assets) for the
twelve months ended March 31, 1999, as compared to 1998. Increased earnings were
primarily due to increased oil and natural gas production and lower depletion
expense partially offset by lower commodity prices for the three month period.
Production increased 23 percent and 20 percent for the three and twelve month
periods. Oil and natural gas prices decreased 26 percent and 17 percent,
respectively, for the three months ended March 31, 1999 and 33 percent and 15
percent, respectively for the twelve month period.
In December 1998, Black Hills Exploration and Production recognized a
$13,546,000 pretax loss related to a write down of oil and gas properties. The
write down was primarily due to historically low crude oil prices, lower natural
gas prices and decline in value of certain unevaluated properties. Absent other
factors impacting depletion expense, the Company expects future depletion
expense per unit of production to be reduced because of this write down.
Energy Marketing Operations
Energy marketing revenue increased in the three months and twelve months
ended March 31, 1999 due to increased natural gas, crude oil and coal sales.
Although energy marketing earnings were negative in the three and twelve month
periods, the negative earnings improved $304,000 and $1,428,000, respectively
for the three and twelve months ended March 31, 1999. The increase was primarily
due to increased volumes and margins in the natural gas, crude oil and coal
marketing areas in targeted markets in the first quarter of 1999 and fourth
quarter of 1998.
Crude oil and natural gas wholesale marketing operations are high-volume,
low margin operations. The operations marketed 518,700 mmbtus and 20,000 barrels
of oil per day in the three month period ended March 31, 1999 and 306,700 mmbtus
and 14,900 barrels of oil per day for the three month period ended March 31,
1998. For the twelve month period ending March 31, 1999, 507,400 mmbtus and
20,300 barrels of oil per day were marketed as compared to 258,900 mmbtus and
13,400 barrels of oil per day were marketed since the Company acquired Black
Hills Energy Resources in July 1997.
Communications Operations
Build out of the Black Hills FiberCom network continues and the first
customers are expected to be served later this summer. Start up losses did not
significantly impact earnings and were in line with management's expectations.
Year 2000 Issues
What is referred to as the Year 2000 problem ("Year 2000 problem") is the
result of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's computer systems and products
that have date-sensitive software may recognize a date using "00" as the Year
1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Management has formed a Year 2000
Committee to establish and ensure the Company's compliance with what is commonly
known as the "Year 2000 problem". In addition, consultants may be engaged to
assist with a comprehensive review of the Company's state of readiness and to
assist with any necessary remedial plans for the Year 2000 date change. The
Company's review encompassed supporting information technology systems, product
generation and distribution systems, and business supply chain systems and
infrastructure. Management presently believes that with modifications to the
Company's existing software and conversions to new software, the Year 2000
problem can be mitigated. However, if such modifications and conversions are not
made, or are not completed on a timely basis, the Year 2000 problem could have a
material adverse effect on the Company's business, financial condition and
results of operations. Management further believes that the cost of either
repairing or replacing certain business systems to ensure business continuance
beyond Year 2000 should not have a significant impact on the results of
operations. The cost of the Year 2000 project is currently estimated at less
than $1 million and is being funded through operating cash flows. These costs
are primarily attributable to the purchase of new software and equipment which
will be expensed or capitalized on a basis consistent with the Company's
accounting policies for capital assets. Other than seeking representations and
assurances, the Company has not made an assessment as to whether any of its
customers, suppliers or service providers will be affected by the date change.
The Company's business, financial condition and results of operations may be
adversely impacted should the efforts of customers, suppliers or service
providers for the Company to address the Year 2000 issue prove to be inadequate.
The Company's risk management program includes emergency backup and recovery
procedures to be followed in the event of failure of a business-critical system.
These procedures will be expanded to include specific procedures for potential
Year 2000 issues. Contingency plans to protect the business from Year
2000-related interruptions are being developed. These plans will be complete by
June 1999 and will include, for example, development of backup procedures,
identification of alternate suppliers and possible increases in safety inventory
levels.
Forward Looking Statements
The above information includes forward-looking statements that are subject
to certain risks, uncertainties and assumptions. Although management believes
that its expectations are based on reasonable assumptions, it can give no
assurances that its goals will be achieved. Actual results may differ materially
from management's expectations as a result of a variety of factors including,
but not necessarily limited to, technological changes, regulation, market
conditions and marketing success, general economic conditions, and a changing
competitive environment.
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, 1999.
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 - Finance
(Principal Financial Officer)
/s/ Mark T. Thies
-------------------------------------------
Mark T. Thies, Controller
(Principal Accounting Officer)
Dated: May 13, 1999