<PAGE>
BLACK HILLS CORPORATION
625 NINTH STREET
RAPID CITY, SOUTH DAKOTA 57701
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 24, 1994
To the Shareholders of
Black Hills Corporation
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of Common
Stock of BLACK HILLS CORPORATION (herein called the Company) will be held at
the Holiday Inn Rushmore Plaza Hotel, 505 North Fifth Street, Rapid City,
South Dakota, on Tuesday, May 24, 1994, commencing at 9:30 A.M., for the
following purposes:
1. To elect three Class II Directors to serve until the
Annual Meeting of Shareholders in 1997;
2. To consider a proposal to increase the Company's
authorized indebtedness from $200,000,000 to
$500,000,000;
3. To act on a proposal to amend Article Fourth of the
Company's Restated Articles of Incorporation as amended
to provide that the control share provisions of the South
Dakota Takeover Act do not apply to the Company;
4. To ratify the appointment of Arthur Andersen & Co. to
serve as independent auditors of the Company for the year
1994;
5. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only shareholders of record at the close of business on March 11, 1994,
are entitled to notice of and to vote at the meeting or any adjournment
thereof.
All shareholders are cordially invited to attend the meeting. Please
complete, date, sign, and return the accompanying form of proxy. A return
envelope is enclosed which requires no postage if mailed in the United
States. We appreciate your giving this matter your prompt attention.
By Order of the Board of Directors
ROXANN R. BASHAM
Corporate Secretary
Dated: March 25, 1994
<PAGE>
<PAGE>
BLACK HILLS CORPORATION
625 NINTH STREET
RAPID CITY, SOUTH DAKOTA 57701
PROXY STATEMENT
A proxy in the accompanying form is solicited by the Board of Directors
of Black Hills Corporation, a South Dakota corporation (the Company), to be
voted at the Annual Meeting of Shareholders of the Company to be held
Tuesday, May 24, 1994, and at any adjournment thereof.
The enclosed form of proxy, when executed and returned, will be voted as
set forth therein. Any shareholder signing a proxy has the power to revoke
the same in writing, addressed to the Secretary of the Company, or in person
at the meeting at any time before the proxy is exercised.
All shares represented by valid, unrevoked proxies will be voted at the
Annual Meeting. Shares voted as abstentions on any matter (or as "withhold
authority" as to Directors) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting and as unvoted, although present and entitled to vote, for purposes
of determining the approval of each matter as to which the shareholder has
abstained. If a broker submits a proxy which indicates that the broker does
not have discretionary authority as to certain shares to vote on one or more
matters, those shares will be counted as shares that are present and entitled
to vote for purposes of determining the presence of a quorum at the meeting,
but will not be considered as present and entitled to vote with respect to
such matters.
The Company will bear all costs of the solicitation. In addition to
solicitation by mail, officers and employees of the Company may solicit
proxies by telephone, telegraph, or in person. Chemical Bank has been
retained by the Company to assist in the solicitation of proxies at an
anticipated cost of $4,500. Also, the Company will, upon request, reimburse
brokers or other persons holding stock in their names or in the names of
their nominees for reasonable expenses in forwarding proxies and proxy
material to the beneficial owners of stock.
This Proxy Statement and the accompanying form of proxy are to be first
mailed on March 25, 1994. The Company's Annual Report for the year 1993 has
been mailed to shareholders.
VOTING RIGHTS AND PRINCIPAL HOLDERS
Only shareholders of record at the close of business on March 11, 1994,
will be entitled to vote at the meeting. The outstanding voting stock of the
Company as of such record date consisted of 14,307,119 shares of Common
Stock.
Each outstanding share of Common Stock is entitled to one vote.
Cumulative voting is permitted in the election of directors. Each share is
entitled to three votes, one each for the election of three directors, and
the three votes may be cast for a single person or may be distributed among
two or three persons.
The Company is not aware of any person or group who is the beneficial
owner of more than five percent of the Company's Common Stock.
<PAGE>
ITEM I
ELECTION OF DIRECTORS
In accordance with the Bylaws and Article Fifth of the Restated Articles
of Incorporation, the Company's directors are elected to three classes of
staggered terms consisting of three years each. At this Annual Meeting of
Shareholders, three directors will be elected to Class II of the Board of
Directors to hold office for a term of three years until the Annual Meeting
of Shareholders in 1997 and until their respective successors shall be duly
elected and qualified.
Each of the nominees for director is presently a member of the Board of
Directors of the Company and its subsidiaries, including Wyodak Resources
Development Corp., the Company's coal mining subsidiary, and Western
Production Company, the Company's oil and gas producing company. The proxy
attorneys will vote your stock for the election of the three nominees for
director listed below, unless otherwise instructed, but will, at their
discretion, cumulate votes for any one or more of the nominees. If, at the
time of the meeting, any of such nominees shall be unable to serve in the
capacity for which they are nominated or for good cause will not serve, an
event which the Board of Directors does not anticipate, it is the intention
of the persons designated as Proxy Attorneys to vote, at their discretion,
for nominees to replace those who are unable to serve. The affirmative vote
of a majority of the common shares present and entitled to vote with respect
to the election of directors is required for the election of the nominees to
the Board of Directors.
The following information, including principal occupation or employment
for the past five or more years, is furnished with respect to each of the
following persons who are nominated as Class II directors, each to serve for
a term of three years to expire in 1997.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
FOLLOWING NOMINEES:
NOMINEES FOR ELECTION UNTIL
1997 ANNUAL MEETING - CLASS II
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
DANIEL P. LANDGUTH, 47 1989
Chairman, President, and Chief Executive
Officer of the Company since January 1,
1991; President and Chief Operating
Officer of Black Hills Corporation from
October 1989; Senior Vice President and
Chief Operating Officer of the Utility
from May 1985 to October 1989
DALE E. CLEMENT, 60 1979
Senior Vice President-Finance of the Company
and subsidiaries since September 1, 1989;
Dean of the School of Business and Professor
of Finance, University of South Dakota,
Vermillion, South Dakota, prior to
September 1989
JOHN R. HOWARD, 53 1977
President, Industrial Products, Inc. (an
industrial parts distributor) since
March 2, 1992; General Manager of Black
Hills Packing Co. (a meat processing
concern), Rapid City, South Dakota, from
December 1978 to June 1, 1991; Director,
Norwest Bank-South Dakota, N.A.
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE AT
1995 ANNUAL MEETING - CLASS III
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
MICHAEL B. ENZI, 50 1992
Accounting Manager, Dunbar Well Service,
Inc. (an oil well servicing company),
Gillette, Wyoming; Wyoming State Senator,
Campbell County, Wyoming; President of NZ
Shoes, Inc. (retail shoe store), Gillette,
Wyoming
EVERETT E. HOYT, 54 1991
President and Chief Operating Officer of
Black Hills Power and Light Company from
October 1, 1989; Director since January 1,
1991; Senior Vice President - Legal
and Corporate Secretary of Northwestern
Public Service Company, Huron, South
Dakota, prior to October 1989;
Director-Northwestern Public
Service Company from May 1988 through
September 1989
CHARLES T. UNDLIN, 66 1970
Vice Chairman, Rushmore State Bank,
Rapid City, South Dakota
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE AT
1996 ANNUAL MEETING - CLASS I
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
GLENN C. BARBER, 60 1984
President and General Manager, Glenn
C. Barber & Associates Inc. (a general
construction company)
BRUCE B. BRUNDAGE, 58 1986
President and Director, Brundage &
Company (a firm specializing in corporate
financing), Englewood, Colorado; Director,
Vicorp Restaurants, Inc., Denver, Colorado
KAY S. JORGENSEN, 43 1992
Concessionaire, Black Hills Passion Play,
Spearfish, South Dakota; South Dakota
Legislative Representative, Lawrence County,
South Dakota
__________________________
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information, as of December 31, 1993,
with respect to beneficial ownership of Common Stock of the Company for each
Director, each executive officer named in the Summary Compensation table
herein, and all Directors and executive officers of the Company as a group.
NUMBER OF SHARES AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP <F1>
Glenn C. Barber 2,687
Bruce B. Brundage 3,615<F2>
Dale E. Clement 9,597
Michael B. Enzi 998<F3>
John R. Howard 10,420
Everett E. Hoyt 4,048<F4>
Kay S. Jorgensen 343
Daniel P. Landguth 7,988<F4>
Charles T. Undlin 8,356
All Directors and executive
officers as a group 58,246<F4>
<F1> Represents outstanding Common Stock beneficially owned both
directly and indirectly as of December 31, 1993. The Common Stock interest
of each named person and all Directors and executive officers as a group
represents less than one percent of the aggregate amount of Common Stock
issued and outstanding. Except as indicated by footnote below, the
beneficial owner possesses sole voting and investment powers with respect to
the shares shown.
<F2> Includes 3,600 shares owned by Brundage & Co. Pension Plan and
Trust which Mr. Brundage is the Trustee and has sole voting and investment
power.
<F3> Includes 100 shares owned jointly with Mr. Enzi's son as to which
he shares voting and investment power and 100 shares for which Mr. Enzi is
custodian of his minor daughter.
<F4> Includes Common Stock held by the Trustee of the Company's
Retirement Savings Plan (401K) of which the Trustee has sole voting and
investment power as follows: Mr. Hoyt 3,711 shares, Mr. Landguth 2,593
shares, and all Directors and executive officers as a group 10,880 shares.
<PAGE>
THE BOARD AND COMMITTEES
The Executive Committee is comprised of Glenn C. Barber, Bruce B.
Brundage, John R. Howard, Daniel P. Landguth, and Charles T. Undlin, with Mr.
Landguth serving as Chairman. The Committee exercises the authority of the
Board of Directors in the interval between meetings of the Board, recommends
to the Board of Directors persons to be elected as officers, and recommends
persons to be appointed to Board Committees. The Executive Committee held
two meetings during 1993.
The Compensation Committee is comprised of Glenn C. Barber, Bruce B.
Brundage, Michael B. Enzi, John R. Howard, Kay S. Jorgensen, and Charles T.
Undlin, with Mr. Barber serving as Chairman. The Committee performs
functions required by the Board of Directors in the administration of all
federal and state statutes relating to employment and compensation,
recommends to the Board of Directors compensation for officers, and considers
and approves the Company's compensation program including benefits and stock
ownership plans. The Compensation Committee held three meetings in 1993.
The Audit Committee is comprised of Bruce B. Brundage, Michael B. Enzi,
John R. Howard, and Kay S. Jorgensen, with Mr. Howard serving as Chairman.
The Committee annually recommends to the Board of Directors an independent
accounting firm to be appointed by the Board for ratification by the
shareholders, reviews the scope and results of the annual audit including
reports and recommendations of the firm, reviews the Company's internal audit
function, and periodically confers with the internal audit group, management
of the Company, and its independent accountants. The Audit Committee held
three meetings in 1993.
The Nominating Committee is comprised of Glenn C. Barber, John R.
Howard, Daniel P. Landguth, and Charles T. Undlin, with Mr. Howard serving as
Chairman. The Committee recommends to the Board of Directors persons to be
nominated as directors or to be elected to fill vacancies on the Board. The
Bylaws require that an outside director serve as Chairman of the Committee.
The Nominating Committee held one meeting in 1993.
Pursuant to the Company's Bylaws, nominations from shareholders for
Board membership will be considered by the Nominating Committee.
Shareholders who wish to submit names for future consideration for Board
membership should do so in writing prior to November 26, 1994, addressed to
Nominating Committee, c/o Corporate Secretary, Black Hills Corporation, P.O.
Box 1400, Rapid City, South Dakota 57709.
Members of the Committees referred to herein are designated by the Board
of Directors upon recommendation of the Executive Committee each year at a
meeting held following the Annual Meeting of Shareholders.
The Board of Directors held twelve meetings during 1993. During 1993
Bruce B. Brundage only attended 70 percent of the aggregate of the total
number of Board meetings and Committee meetings on which he served due to his
recuperation from an accident.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is solely comprised of the following outside
directors, Glenn C. Barber, Bruce B. Brundage, Michael B. Enzi, John R.
Howard, Kay S. Jorgensen, and Charles T. Undlin.
Mr. Howard is also a director of Norwest Bank - South Dakota, N.A. of
which the Company has a $15 million line of credit. During 1993, Norwest
Bank - South Dakota, N.A. participated in short-term loans to the Company of
up to $10 million at an interest rate of 1/8 percent less than the prime
rate.
DIRECTORS' FEES
Directors who are not officers of the Company receive an annual fee of
$12,000 plus a fee of $600 for each board meeting and committee meeting
attended providing such committee meetings are substantive in nature and
content.
DIRECTORS' RETIREMENT PLAN
The Company has a Retirement Plan for those directors who are not
otherwise employed by the Company (outside directors). The monthly benefit
is $1,000 payable for a period of time equal to the number of months the
outside director served or for 120 months, whichever is less. The monthly
benefits commence at the earliest of (1) the first full complete month the
outside director is 60 years of age or more and is no longer a director of
the Company or (2) the first full month after the death of the outside
director or former outside director. The Board of Directors may withdraw
retirement benefits for any outside director dismissed for cause. The
monthly benefit is paid to the participating director, or if deceased, the
director's designated beneficiary, and if none, his or her estate.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board on executive compensation.
The components of the Company's executive compensation program consists of a
base salary and an incentive gainsharing bonus. The mix of base salary and
incentive bonus reflects the Company's goals of attracting and retaining
highly qualified and motivated managers, recognizing and rewarding
outstanding performance, and fostering a cohesive management team.
The Committee makes annual recommendations to the Board concerning the
base salary and incentive gainsharing bonus for the Chief Executive Officer
and each of the other executive officers of the Company. Recognizing a
market based compensation structure, the Committee strives to ensure that
competitive salary ranges and base salaries are being maintained. In the
later part of 1992, the Compensation Committee had hired Hewitt Associates,
an internationally recognized compensation consultant firm, to review the
executive and director compensation being paid at the Company. Data
collected for that 1992 review was again utilized. Hewitt Associates
confirmed that their data, if aged for the few months that had passed, would
be adequate as a basis for 1993.
Utilizing the data from the Hewitt Associates study and comparing it to
data from the Edison Electric Institute, the trade association of investor-
owned electric utilities, the Committee recommended to the Board the base
salary for the Chief Executive Officer as well as for the other executive
officers. The salaries were not only based upon comparable market salary
information but also on the accomplishments of key corporate and individual
performance objectives.
The Company's position is to establish a market salary level for each
salary range that is at or near the median (50th percentile) of the range of
salaries of comparable companies surveyed. A performance matrix system is
used in determining the percentage of salary increase taking into account the
performance rating for the individual officer and the relationship of the
officers current salary to market. An outstanding performance rating is
given when there is extraordinary and exceptional accomplishment, results are
far in excess of requirements, and demanding objectives are attained. A
superior performance rating indicates results are well above the expected
level and the individual was successful in accomplishing challenging
objectives. Competent performance ratings are given when all position
requirements are met, the individual consistently performs the job in a
satisfactory manner, and realistic objectives are obtained. All executive
officers received either a superior or outstanding performance rating.
The Compensation Committee granted the Chief Executive Officer a
superior rating based on the Company's performance and obtaining successful
regulatory approval and all permits to construct the new power plant.
Overall corporate results were very positive in 1992, corporate earnings
increased 4 percent, and dividends increased by 6 percent over 1991. The
Compensation Committee approved a 6 percent base salary increase and a one-
time $4,900 performance bonus for the Chief Executive Officer. The increase
to the base salary brings the Chief Executive Officer's base salary to 95.8
percent of market as determined by wage surveys.
The Company currently maintains a variety of employee benefit plans and
programs in which its executive officers may participate, including the
gainsharing program, the retirement savings (401k) plan, the pension plan,
and the pension equalization plan. With the exception of the Pension
Equalization Plan (PEP), these benefit plans and programs are generally
available to all employees within the Company.
The Executive Gainsharing Program is one of three sections of a Company
wide program. The goals of the Executive Gainsharing Program support the
interests of the ratepayer and shareholder by increasing net income. This is
accomplished through increased cost containment and operating efficiencies
which in the end result reduce costs and increase earnings. The program for
1992 which paid a 3 percent gainshare award in 1993 specifically consisted of
a net income goal. The Company's actual net income in 1993 exceeded budgeted
net income by more than 109 percent resulting in a maximum 3 percent
gainshare award.
It is the objective of the Company to pay its executives a fair salary,
based on the comparable pay of similar types of companies in relation to
achieving corporate, business unit, and individual performance objectives.
The Company does not offer any restricted stock awards, stock options, or
other long-term incentive compensation plans. Furthermore, officers are not
permitted to serve on the Board of Directors of any other corporation
operating for profit. The intent of the latter is that if the executives are
paid fairly, the Company and its shareholders should demand their full
attention and, therefore, their efforts are totally directed toward the
Company and not interrupted by the obligations of serving as a director for
other for profit corporations.
COMPENSATION COMMITTEE
Glenn C. Barber, Chairman Bruce B. Brundage Michael B. Enzi
John R. Howard Kay S. Jorgensen Charles T. Undlin
____________________
<PAGE>
The following table is furnished for the fiscal year ended December 31,
1993, with respect to the Chief Executive Officer of the Company and the
executive officers whose salary and bonus compensation for 1993 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL
POSITION YEAR SALARY BONUS<F1> OTHER
ANNUAL
COMPENSATION<F2>
Daniel P. Landguth
Chairman, President, 1993 $178,466 $10,761 -
and Chief Executive 1992 173,134 4,400 $13,850
Officer of the Company 1991 169,866 - -
and subsidiaries
Dale E. Clement
Senior Vice President- 1993 $124,266 $ 3,966 -
Finance of the Company 1992 122,430 3,163 $ 2,449
and subsidiaries 1991 116,865 - -
Everett E. Hoyt
President and Chief 1993 $123,566 $ 3,906 -
Operating Officer of 1992 121,008 3,245 $ 2,546
Black Hills Power 1991 121,008 - 3,630
and Light Company
<F1> Bonus is the amount received under the Incentive Gainshare
Program, a cash bonus program for all Company employees based on the
attainment of predetermined profitability measures.
Mr. Landguth's bonus in 1993 includes both his Gainshare bonus and a one-time
performance bonus of $4,900.
<F2> Other Annual Compensation is the amount of lump sum payments
received in lieu of base salary increases in 1992. Mr. Hoyt also received a
lump sum payment in 1991 in lieu of an increase in his base salary.
RETIREMENT PLANS
The Company has a defined benefit retirement plan (Retirement Plan) for
its employees. The Retirement Plan provides benefits at retirement based on
length of employment service and average monthly pay in the five consecutive
calendar years of highest earnings out of the last ten years. Employees do
not contribute to the Retirement Plan. The amount of annual contribution by
the employers to the Retirement Plan is based on an actuarial determination.
Accrued benefits become 100 percent vested after an employee completes five
years of service.
The Company also has a Pension Equalization Plan (the PEP), a
nonqualified supplemental plan, which is designed to provide the higher paid
executive employee a retirement benefit which, when added to social security
benefits and the pension to be received from the Retirement Plan, will
approximate retirement benefits being paid by other employers to its
employees with like executive positions. The employee's pension from the
qualified pension plan is limited under the current law to not exceed
$118,800 annually and the compensation taken into account in determining
contributions and benefits cannot exceed $150,000. The amounts of deferred
compensation paid under nonqualified plans such as the PEP are not subject to
the limits. A participant under the PEP does not qualify for benefits until
the benefits become vested under a vesting schedule - 20 percent after three
years of employment under the plan increasing up to 100 percent vesting after
eight years of employment under the plan. No credit for past service is
granted under the PEP. The annual benefit is 25 percent of the employee's
average earnings (if salary was less than two times the Social Security Wage
Base) or 30 percent (if salary was more than two times the Social Security
Wage Base) times the vesting percentage. Average earnings are normally an
employees average earnings for the five highest consecutive full years of
employment during the ten full years of employment immediately preceding the
year of calculation. The annual PEP benefit is paid on a monthly basis for
15 years to each participating employee and if deceased to the employee's
designated beneficiary or estate, commencing at the earliest of death or when
the employee is both retired and 62 years of age or more.
Participants in the PEP are designated by the Board of Directors upon
recommendation of the Chief Executive Officer. Selection is based on key
employees as determined by management and consideration of performance rather
than salary based only. The minimum salary component applied in the
selection process is the maximum annual Social Security taxable wage base
which is presently at $60,600. Four officers of the Company were initially
excluded because the period of time up to the date of their likely retirement
would not result in vested benefits as intended by the PEP. The Company
extended to those four individuals certain benefits paid at retirement which
would approximate 50 percent of the present value of the PEP. Since then,
arrangements have been made with three of those persons who retired.
<PAGE>
RETIREMENT BENEFITS
The following table illustrates estimated annual benefits, as of January
1, 1994, payable under the Retirement Plan and the PEP to employees who
retire at the normal retirement date.
Years of Service
Annual 15 20 25 30 35
Pay Years Years Years Years Years
$ 60,000 $ 27,945 $ 32,260 $ 36,575 $ 40,890 $ 45,205
75,000 35,295 40,810 46,325 51,840 57,355
90,000 42,645 49,360 56,075 62,790 69,505
110,000 52,445 60,760 69,075 77,390 85,705
125,000 66,045 75,560 85,075 94,550 104,105
150,000 79,545 91,060 102,575 114,090 125,605
175,000 87,045 98,560 110,075 121,590 133,105
200,000 94,545 106,060 117,575 129,090 140,605
225,000 102,045 113,560 125,075 136,590 148,105
Estimated annual benefits payable to officers named below at age 65 from
all sources are as follows: Daniel P. Landguth, 35 yrs. - $134,991; Dale E.
Clement, 33 yrs. - $88,235<F1>; Everett E. Hoyt, 31 yrs. - $81,393<F1>.
The benefits in the foregoing table were calculated as a straight life
annuity. Amounts shown are exclusive of Social Security benefits and include
benefits from both the Retirement Plan and from the PEP assuming a 100
percent vested interest in the PEP.
_________________________
<F1> Such amounts are adjusted for benefits applicable to service for
prior employment.
<PAGE>
EMPLOYEES' STOCK PURCHASE PLAN
Employees of the Company and its subsidiaries are eligible to
participate in the Employees' Stock Purchase Plan, as approved by the
shareholders at the 1987 Annual Meeting under which offerings of the
Company's Common Stock, at the discretion of the Board, are made to employees
at a price equal to 90 percent of the closing sale price on the New York
Stock Exchange on the date of the offering. An offering was extended to
employees in 1993 and officers subscribed to 350 shares at a price of $24.08
per share. Shares are held in nominee name until subscriptions are paid for
in full.
RETIREMENT SAVINGS PLAN
The Company has a Retirement Savings Plan under Section 401(k) of the
Internal Revenue Code of 1954, as amended, which permits employees of the
Company and its subsidiaries, including officers, to elect to invest up to 15
percent of their eligible earnings on a pre-tax basis into an investment fund
subject to limitations imposed by the Internal Revenue Code. The Company
makes no contributions to the Plan.
Distribution from the fund will be made to employees at termination of
employment, retirement, death, or in case of hardship. No amounts were paid
or distributed pursuant to the Retirement Savings Plan to the individuals
named herein nor to the officers as a group.
The Trustee for the Retirement Savings Plan (401(k) Plan) has voting
power with respect to shares held in the name of the Trustee of the Plan.
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative shareholder return on the
Company's Common Shares for the last five fiscal years with the cumulative
total return of the Duff & Phelps Quality II Electrics and the S&P 500 Index
over the same period (assuming the investment of $100 on December 31, 1988, and
the reinvestment of all dividends). The Company changed its broad market
index this year from the Edison Electric Institute Investor-Owned Electric
Utility Index to the S&P 500 Index because the Securities and Exchange
Commission notified the Company that they do not accept the Edison Electric
Institute Investor-Owned Electric Utility Index as a published broad market
index.
1989 1990 1991 1992 1993
Black Hills Corporation 120 135 194 202 176
Duff & Phelps Quality
II Electric Companies 127 131 173 186 204
S&P 500 Index 132 128 166 179 197
<PAGE>
ITEM II
AUTHORIZATION OF INCREASE IN INDEBTEDNESS
Under the provisions of Article XVII, Section 8 of the Constitution of
the State of South Dakota, the maximum amount of indebtedness which the
Company is authorized to issue may not be increased without the consent of
the shareholders. Pursuant to this provision, the shareholders in 1992, on
the recommendation of the Board of Directors, approved and authorized an
increase in the maximum amount of the Company's authorized indebtedness to
$200,000,000. As of February 28, 1994, the Company's outstanding
indebtedness was as follows:
First Mortgage Bonds . . . . . . . . . . . $ 62,794,000
Other Long Term Debt . . . . . . . . . . . . 24,500,000
Notes Payable. . . . . . . . . . . . . . . 14,468,000
$101,762,000
The Company's construction expenditures for the next three years are
estimated as follows:
<TABLE>
<CAPTION>
1994 1995 1996
(in thousands)
<S> <C> <C> <C>
Neil Simpson Unit #2
(new power plant) $65,113 $45,035 $ -
Other Production Plant 2,283 859 897
Transmission Plant 4,228 1,617 8,478
Distribution Plant 6,511 6,503 6,876
General Plant 1,448 814 2,354
$79,583 $54,828 $18,605
</TABLE>
These and future construction requirements of the Company will require
additional debt financing. The Company has not entered into agreements with
respect to the issuance of any additional debt securities. It is expected,
however, that the Company will issue and sell additional debt securities from
time to time. The timing and amount of such issuance will depend on market
conditions and other factors existing at the time. Under the terms of the
proposed resolution, the Board of Directors, subject to the approval of
regulatory authorities, can, at the opportune time without further
authorization of the shareholders, determine and fix the amount and terms of
the debt securities to be issued including interest rates, maturity dates,
call provisions, sinking fund requirements, and similar matters.
Accordingly, the following resolution will be presented at the meeting:
RESOLVED, That the consent of the shareholders be, and it is
hereby given to an increase in the Company's authorized
indebtedness to not exceed $500,000,000 at any one time
outstanding; that for the purpose of effecting such increase,
bonds, debentures, notes, and other instruments evidencing
indebtedness of the Company may be issued from time to time in such
form and of such character as seems desirable to the Board of
Directors; and that for the purpose of consenting to an increase of
authorized indebtedness of the Company, it is the intention of this
resolution that bonds, debentures, notes, and other instruments
evidencing indebtedness are authorized to be issued whenever the
maximum indebtedness by this resolution is not thereby exceeded;
said bonds, debentures, notes and other evidences of indebtedness
to be issued when and as the Board of Directors shall deem
advantageous for the Company's interest and upon such terms and
conditions as shall be approved by the Board.
VOTE REQUIRED
An affirmative vote of the holders of the majority of all issued and
outstanding shares of Common Stock is required to adopt the foregoing
resolution.
While the current debt limitation is believed to be sufficient to
complete the above construction expenditures, the Board of Directors is of
the opinion that the debt limitation should be set high enough so as to give
the Board the flexibility to determine from time to time on short notice the
borrowing requirements and terms of those borrowings and to be able to close
those borrowings without the necessity of calling frequent shareholder
meetings.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ADOPTION OF THE RESOLUTION
<PAGE>
ITEM III
AMENDMENT TO ARTICLE FOURTH OF THE RESTATED ARTICLES
OF INCORPORATION TO PROVIDE THAT THE
CONTROL SHARE ACQUISITION PROVISIONS OF THE SOUTH DAKOTA
TAKEOVER ACT DO NOT APPLY TO THE COMPANY
The Board of Directors unanimously adopted a resolution to submit to the
shareholders for their consideration an amendment, as described herein, to
Article Fourth of the Restated Articles of Incorporation, as amended, that if
adopted will add paragraph 8 to Article Fourth providing that the Control
Share Acquisition (hereinafter defined) provisions of the South Dakota
Domestic Public Corporation Takeover Act ("Takeover Act") do not apply to the
Company.
The Takeover Act, found at Chapter 47-33 of the South Dakota Codified
Laws ("SDCL"), was adopted by the South Dakota Legislature in 1990 and became
effective July 1, 1990. The Control Share Acquisition provisions along with
other provisions of the Takeover Act became applicable to domestic public
corporations, including the Company, on the effective date of the Takeover
Act. However, the Takeover Act provides that a corporation through its
articles of incorporation may elect not to have the Control Share Acquisition
provisions apply to that corporation.
The Control Share Acquisition provisions and other provisions of the
Takeover Act are summarized in the Proxy Statement. However, the summary
does not include each and every provision of the act. A full understanding
of the Takeover Act would require a thorough reading of the act at
SDCL 47-33.
If the proposed amendment to Article Fourth is adopted by the
shareholders, the Control Share Acquisition provisions of the Takeover Act
shall not apply to any Control Share Acquisition occurring after such
adoption.
Control Share Acquisition Provisions Explained
Definition. A "Control Share Acquisition" as defined by the Takeover
Act at SDCL Section 47-33-3(l) is generally, subject to certain exceptions,
an acquisition, directly or indirectly, by an acquiring person of beneficial
ownership of shares of a domestic public corporation that when added to all
other shares beneficially owned by the acquiring person would allow that
person to exercise certain ranges of voting power. Acquisition of shares as
a result of a merger first approved by the Board of Directors followed by
approval of the shareholders is not a Control Share Acquisition.
Shareholder Election Required to Give Voting Rights. The Control Share
Acquisition provisions of the Takeover Act provides generally that a Control
Share Acquisition that exceeds certain thresholds of voting power (described
below) shall have the same voting rights as other shares of the same class or
series only if approved by the affirmative vote of the majority of all
outstanding shares entitled to vote, including all shares held by the
acquiring person, and by the affirmative vote of the holders of the majority
of the voting power of all outstanding shares entitled to vote, excluding all
interested shares. The thresholds which would require shareholder approval
before voting powers are obtained with respect to shares acquired in excess
of such thresholds are 20 percent, 33 2/3 percent and 50 percent,
respectively. Each time an acquiring person reaches a threshold, an election
must be held as described above before the acquiring person will have any
voting rights with respect to shares in excess of such threshold.
The Control Share Acquisition provisions of the Takeover Act further
provides that any person who proposes to make or has made a Control Share
Acquisition may at that person's election cause an informational statement to
be furnished the Company and, if an undertaking is furnished to pay the costs
of the meeting, may request a special meeting of the shareholders to be
called for the sole purpose of considering the voting rights to be accorded
the shares acquired or to be acquired pursuant to the Control Share
Acquisition. If such informational statement, request and undertaking are
furnished, the Takeover Act provides that a special meeting of shareholders
be called for such purpose be held no later than 50 days after receipt of the
informational statement. If the informational statement is furnished but a
special meeting of shareholders is not requested, consideration of the voting
rights to be accorded shares pursuant to the Control Share Acquisition is to
be submitted to the shareholders at the next special or annual meeting of
shareholders.
Redemption of Shares. The Control Share Acquisition provision of the
Takeover Act further provides that the Company may redeem at the market value
as of the time of redemption those shares that were acquired in a Control
Share Acquisition if (i) an informational statement was not furnished the
Company within the tenth day after the Control Share Acquisition or (ii) an
informational statement was furnished but the shareholders voted not to
accord voting rights.
Purpose of Takeover Act
The Takeover Act provides that the purpose of the Control Share
Acquisition provisions and other anti-takeover provisions of the Takeover Act
generally, among other things, is to provide the stable, long-term growth of
South Dakota's domestic public corporations, to prevent the impairment of
local employment conditions and disruption of local commercial activity and
stable relationship of corporations and to protect shareholders from forced
mergers and other coercive devices adopting short-term business strategies
that deprive shareholders of value.
Reasons for Board's Recommendation
The Board of Directors does not have any knowledge of any effort to
accumulate the Company's Common Stock or to obtain control of the Company.
Notwithstanding lack of those efforts at this time, the Board believes that
for the reasons in the following paragraph, it should be prepared for such
possibility. Once a Control Share Acquisition is proposed, it would be too
late to amend the Articles of Incorporation.
The reasons why the Board of Directors is recommending to the
shareholders to elect to not have the Control Share Acquisition provisions
apply to the Company is that the provisions could allow a person to force the
Board of Directors to call a shareholder meeting to consider voting rights of
the acquiring person within only 50 days from the time the Board first
discovers that the person is interested in acquiring the Company. In the
opinion of the Board of Directors, this period of time does not give the
Board an ample opportunity to study the proposal and to act in the best long-
term interests of the shareholders. The Board further believes that the
issue of granting or not granting voting rights for shares that may not even
have been acquired at the time of the shareholder meeting would be confusing
to shareholders, and the results of such vote would, in the opinion of the
Board of Directors, be of little guidance in determining what action the
Board should take to protect shareholders' interests. The Board believes
this to be especially true because the Company is an electric public utility,
and under current law any acquisition by a person of 10 percent or more of
its shares must be first approved by the South Dakota Public Utilities
Commission, and any acquisition over 50 percent by the Wyoming Public Service
Commission. The Federal Energy Regulatory Commission would also be required
to approve any merger, and the Securities and Exchange Commission may become
involved if a holding company is created under the Public Utilities Holding
Company Act. The Board of Directors believes that any future acquisition of
the Company whether supported or opposed by the Board will largely depend
upon the decisions of some or all of these regulatory commissions which will
apply public interests standards to any such proposed mergers. In view of
these regulatory requirements, the Board of Directors believes that forced
shareholder meetings to consider voting rights to be given to a proposed
acquiring person before regulatory proceedings are held would be premature
and would interfere with strategies to be undertaken by the Board of
Directors to protect the interests of shareholders.
The Board of Directors has no intention at this time to propose any
additional anti-takeover measures or modify or remove any of those other
defenses disclosed under "Other Takeover Defenses Not Affected by Proposal"
following.
Overall Effect of the Proposal--Advantages and Disadvantages
The Control Share Acquisition provisions are designed to discourage any
change of control of the Company that the Board of Directors does not
approve. Since the acquiring person must get permission from the other
shareholders to be able to vote the shares at the 20, 33 1/3 and 50 percent
thresholds, and if approval is not given, the Company would have the right to
redeem those shares, an acquiring person would obviously be discouraged from
investing in the shares. Conceivably an acquiring person could own over 50
percent of the shares but be denied any right to vote those shares.
Therefore, the effect of the proposal to amend the articles to not have the
Control Share Acquisition provisions apply is to make it easier for
shareholders to obtain control and remove management.
On the other hand, the Control Share Acquisition provisions do allow an
acquiring person an opportunity to force a reluctant Board of Directors to
call a shareholder meeting. While the shareholder vote would be whether to
grant voting rights to the stock of the acquiring person, the vote could be
perceived as a referendum of the shareholders on the acquiring person's
proposal to acquire the Company. Granting voting rights would be a clear
signal to the acquiring person to acquire additional stock. To that extent,
the Control Share Acquisition provisions would encourage shareholder
participation in a takeover proposal, and the proposed amendment discourages
shareholder participation.
However, the Board of Directors believes that for all the reasons stated
above under "Reasons for Board's Recommendations" and especially in view of
the regulatory approvals required for any change in control, forced
shareholder meetings to vote on granting voting rights would be premature and
confusing to the regulatory process and undermine the Board's strategy in
protecting the shareholder interest in that regulatory process.
Other Takeover Defenses Not Affected by Proposal
The Takeover Act and the Company's Restated Articles of Incorporation
contain other provisions hereafter described that would not be affected by
the adoption of the proposed Amendment but would discourage or make more
difficult a change in control of the Company without approval of the Board of
Directors. The Board of Directors believes that these remaining provisions
are adequate without the Control Share Acquisition provisions to protect the
Company's shareholders against coercive, unfair or inadequate tender offers
and other abusive takeover tactics and to encourage any person contemplating
a business combination with the Company to negotiate with its Board of
Directors for the fair and equitable treatment of all of the Company's
shareholders.
Election of Directors. In electing directors, shareholders may
cumulate their votes as provided by Article XVII, Section 5 of the South
Dakota Constitution and SDCL Section 47-5-6. Article Fifth of the Company's
Restated Articles of Incorporation provides that the Board of Directors is
divided into three classes as nearly equal in number as possible with
staggered terms of office so that only approximately one-third of the
directors are elected at each annual meeting of shareholders. The existence
of a classified Board along with cumulative voting rights may make it more
difficult for a group owning a significant amount of the Company's voting
securities to effect a change in the majority of the Board than would be the
case if a classified Board and cumulative voting did not exist. Article
Fifth cannot be amended or repealed without the affirmative vote of the
holders of at least 80 percent of the Common Stock of the Company and 66 2/3
percent of the Cumulative Preferred Stock of the Company.
Fair Price Article. Article Sixth of the Company's Restated Articles
of Incorporation provides that the affirmative vote of the holders of not
less than 80 percent of the outstanding shares of voting stock of the Company
is required for the approval of any Business Transaction (a merger or similar
transaction) with any Related Person (a beneficial owner of 10 percent or
more of the outstanding voting stock of the Company) or any Business
Transaction in which a Related Person has an interest; provided, that the 80
percent voting requirement is not applicable if the Continuing Directors
(Directors who are unaffiliated with, and are not nominees of, the Related
Person involved in the Business Transaction) of the Company by at least a
majority vote thereof have (i) expressly approved in advance the acquisition
of the outstanding shares of voting stock that caused such Related Person to
become a Related Person, or (ii) expressly approved such Business
Transaction. Article Sixth of the Company's Restated Articles of
Incorporation also provides that the 80 percent voting requirement is not
required for a Business Transaction involving a Related Person if the
following conditions are satisfied: (a) the cash or fair market value or
other consideration to be received per share by holders of voting stock of
the Company in the Business Transaction is not less than the highest purchase
price paid by the Related Person involved in the Business Transaction in
acquiring any of its holdings of the Company's voting stock; (b) the ratio of
the amount of cash and other consideration to be received per share by
holders of Common Stock in such Business Transaction to the market price of
the Common Stock immediately prior to the announcement of such Business
Transaction is at least as great as the ratio of the highest per share price
paid by the Related Person for any shares of Common Stock acquired by it to
the market price of the Common Stock immediately prior to the initial
acquisition by such Related Person of any Common Stock; and (c) the
consideration to be received by holders of each class of capital stock of the
Company in such Business Transaction is the same form and of the same kind as
the consideration paid by the Related Person in acquiring the shares of that
class of capital stock already owned by it. Article Sixth cannot be amended
or repealed without the affirmative vote of the holders of at least 80
percent of the Common Stock of the Company.
Takeover Act--Business Combination Provisions. The Takeover Act
provides that certain domestic public corporations (including the Company)
shall not engage at any time in any business combination (a merger, transfer
of ten percent of the Company's assets, issuance or transfer of stock equal
to five percent of the aggregate market value of all outstanding shares of the
Company, the adoption of a plan of liquidation or dissolution or other
similar transaction) with any interested shareholder (the beneficial owner or
an affiliate of a beneficial owner of ten percent or more of the Company's
voting shares) unless (i) the Board of Directors of the Company, prior to the
interested shareholder becoming an interested shareholder, approves either
the business combination or the acquisition of shares by the interested
shareholder which causes it to become an interested shareholder, (ii) subject
to the fair price requirements discussed below, the business combination is
approved by the affirmative vote of the holders of a majority of the
outstanding voting shares, not including any voting shares beneficially owned
by the interested shareholder, at a meeting called for such purpose at such
time as the interested shareholder beneficially owns 80 percent of the voting
shares of the Company and not earlier than three months after the interested
shareholder became the beneficial owner of 80 percent of the voting shares of
the Company, (iii) the business combination is approved by the affirmative
vote of the holders of all of the outstanding voting shares of the Company,
(iv) the business combination is approved by the affirmative vote of the
holders of a majority of the outstanding voting shares of the Company, not
including any voting shares beneficially owned by the interested shareholder,
at a meeting called for such purpose no earlier than four years after the
interested shareholder became an interested shareholder, or (v) subject to
the fair price requirements discussed below, the business combination is
approved by a majority of the outstanding voting shares at a shareholders'
meeting called for such purpose no earlier than four years after the interested
shareholder became an interested shareholder.
Takeover Act--Fair Price Provisions. The Takeover Act provides for a
fair price provision for business combinations approved pursuant to (ii) or
(v) of the preceding paragraph. Business combinations approved by
shareholders of the Company pursuant to the requirements of (ii) or (v) of
the preceding paragraph must meet certain conditions which require, among
other things, that the value of the consideration received per share by
holders of outstanding shares of Common Stock in the business combination
must be at least equal to the higher of (i) the price per share paid for any
shares of Common Stock acquired by the interested shareholder within the
three-year period immediately prior to (a) the announcement of the business
combination or (b) the transaction in which the interested shareholder became
an interested shareholder, whichever is higher, or (ii) the market value per
share of Common Stock on the announcement date with respect to the business
combination or the date on which the interested shareholder became an
interested shareholder, whichever is higher.
Takeover Act--Board May Protect Other Constituencies and Consider Long-
Term Interests. The Takeover Act further allows the Board of Directors of
the Company in determining whether to approve a merger or other change of
control to take into account both the long-term as well as short-term
interests of the Company and its shareholders, the effect on the Company's
employees, customers, creditors and suppliers, the effect upon the community
in which the Company operates and the effect on the economy of the state and
nation.
Proposed Resolution
To cause the Control Share Acquisition provisions of the Takeover Act
not to apply to any Control Share Acquisition occurring after the adoption of
the Resolution, the following Resolution will be submitted to the
shareholders:
BE IT RESOLVED by the shareholders of Black Hills Corporation
that Article Fourth of the Company's Restated Articles of
Incorporation be amended by adding thereto the following paragraph
8:
8. The provisions of South Dakota Codified Laws Sections 47-33-8
through 47-33-16, inclusive, do not apply to control share
acquisitions (as defined by South Dakota Codified Laws Section
47-33-3(1)) of shares of the Company.
Vote Required
The affirmative vote of the holders of the majority of all issued and
outstanding shares of Common Stock is required to adopt the foregoing
resolution.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ADOPTION OF THE RESOLUTION
<PAGE>
ITEM IV
APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Arthur Andersen & Co., independent public accountants,
conducted the audit of the Company and its subsidiaries for 1993.
Representatives of Arthur Andersen & Co. will be present at the Annual
Meeting and will have the opportunity to make a statement, if they desire to
do so, and to respond to appropriate questions.
Audit services performed by Arthur Andersen & Co. during 1993 included
examinations of the financial statements of the Company and its subsidiaries
and limited reviews of interim financial information.
The Board of Directors, on recommendation of the Audit Committee and
subject to ratification by shareholders, has appointed Arthur Andersen & Co.
to perform an examination of the consolidated financial statements of the
Company and its subsidiaries for the year 1994 and to render their opinion
thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN & CO. TO SERVE AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR 1994
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1995 Annual
Meeting of Shareholders must be received by the Secretary of the Company in
writing at its home offices at 625 Ninth Street, P.O. Box 1400, Rapid City,
South Dakota 57709, prior to November
26, 1994. Any proposal submitted must be in compliance with Rule 14a-8 of
Regulation 14A of the Securities and Exchange Commission.
<PAGE>
ITEM V
TRANSACTION OF OTHER BUSINESS
The Board of Directors does not intend to present any business for
action by the shareholders at the meeting except the matters referred to in
this Proxy Statement. If any other matters should be properly presented at
the meeting, it is the intention of the persons named in the accompanying
form of proxy to vote thereon in accordance with the recommendations of the
Board of Directors.
If a stockholder participates in the Company's Dividend Reinvestment and
Stock Purchase Plan, the proxy to vote shares of record will serve as
instructions to vote shares held in custody for the shareholder.
Accordingly, as Transfer Agent for shares of the Company's Common Stock,
Chemical Bank will cause shares held in the name of its nominee for the
account of a shareholder participating in the Plan to be voted in the same
way as that shareholder votes shares registered in their name. If
shareholders do not vote the shares registered in their name, shares held for
their account in the Plan will not be voted.
Please complete and sign the accompanying form of proxy whether or not
you expect to be present at the meeting and promptly return it in the
enclosed postage paid envelope.
By Order of the Board of Directors
ROXANN R. BASHAM
Corporate Secretary
Dated: March 25, 1994
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information required by Item 13, Financial and Other Information, of
Regulation 14-A is provided in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, which is incorporated by reference into
this Proxy Statement.
The Company hereby undertakes to provide to each shareholder whose proxy
is solicited for the 1994 Annual Meeting, upon written or oral request and
without charge, a copy of the Company's 1993 Annual Report on Form 10-K
(without exhibits) to the Securities and Exchange Commission. Requests
should be directed to Roxann R. Basham, Corporate Secretary and Treasurer,
Black Hills Corporation, P.O. Box 1400, Rapid City, SD 57709, or telephone
(605)-348-1700.
PLEASE COMPLETE, SIGN AND RETURN PROMPTLY
THE ENCLOSED PROXY SO THAT YOUR STOCK MAY
BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
<PAGE>
PROXY CARD
Front of Proxy Card
BLACK HILLS CORPORATION
625 NINTH STREET
RAPID CITY, SOUTH DAKOTA 57701
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS OF THE COMPANY
TO BE HELD MAY 24, 1994 AT 9:30 A.M.
The undersigned hereby appoints Daniel P. Landguth, Dale E. Clement, and
David E. Morrill, and any one or more of them, proxy attorneys, with full
substitution and revocation in each, for and on behalf of the undersigned,
and with all powers the undersigned would possess if personally present, to
vote at the above Annual Meeting and any adjournment thereof all shares of
Common Stock of Black Hills Corporation that the undersigned would be
entitled to vote at such meeting.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY
ITEM. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATION, PLEASE SIGN THE REVERSE SIDE; NO BOXES NEED TO BE CHECKED.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
Back of Proxy Card X Please mark your votes this way
__________ ____________________________
COMMON DIVIDEND REINVESTMENT SHARES
The Board of Directors recommends a vote FOR Items 1,2,3 and 4.
WITHHELD
FOR FOR ALL
Item 1-ELECTION OF CLASS II DIRECTORS
Nominees:
Daniel P. Landguth
Dale E. Clement
John R. Howard
WITHHELD FOR: (Write that nominee's name in the
space provided below). (To cumulate votes so indicate)
FOR AGAINST ABSTAIN
Item 2-INCREASE THE COMPANY'S AUTHORIZED
INDEBTEDNESS TO $500,000,000.
Item 3-AMEND ARTICLE FOURTH OF THE
COMPANY'S RESTATED ARTICLES OF INCORPORATION
Item 4-RATIFY THE APPOINTMENT OF ARTHUR
ANDERSEN & CO. TO SERVE AS THE COMPANY'S
INDEPENDENT AUDITORS IN 1994
Item 5-PROXY ATTORNEYS ARE AUTHORIZED AT
THEIR DISCRETION TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING
I PLAN TO ATTEND MEETING
COMMENTS/ADDRESS CHANGE
Please mark this box if you have
written comments/address change on the
reverse side
Black Hills Corporation, as Administrator under the Company's Dividend
Reinvestment and Stock Purchase Plan, is instructed to execute a proxy with
identical instructions, for any shares held for my benefit.
Signature(s) Date ____________________
Please mark, date and sign as your account name appears and return in the
enclosed envelope. If acting as executor, administrator, trustee, guardian,
etc., you should indicate same when signing. If the signer is a corporation
or partnership, please sign the full corporate or partnership name by
authorized officer or person. If shares are held jointly, each stockholder
should sign.
<PAGE>
EXHIBIT INDEX
EX-13 1993 FINANCIAL SECTION OF ANNUAL REPORT
<PAGE>
FINANCIAL SECTION OF ANNUAL REPORT
FINANCIAL DIRECTORY
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . .12
Report of Management . . . . . . . . . . . .19
Report of Independent Public Accountants . .19
Consolidated Statements of Income . . . . .20
Consolidated Statements of Retained
Earnings . . . . . . . . . . . . . . . . .20
Consolidated Statements of Cash Flows. . . .21
Consolidated Balance Sheets . . . . . . . .22
Consolidated Statements of Capitalization .23
Notes to Consolidated Financial Statements .24
Financial Statistics . . . . . . . . . . . .30
Electric Operation Statistics . . . . . . .31
Investor Information . . . . . . . . . . . .32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Black Hills Corporation (the Company) is an energy services company
consisting of three principal businesses: electric, coal mining, and oil
and gas production. Under the assumed name of Black Hills Power and Light
Company, the Company provides electric service to customers in the states
of South Dakota, Wyoming, and Montana; Wyodak Resources Development Corp.
(WRDC) mines and sells coal via long-term contracts; and Western Production
Company (WPC) explores and produces oil and gas.
FINANCIAL CONDITION
An important analysis of the Company's financial condition is its
overall ability to generate cash to fund its operations and to pay
dividends. Of particular importance in the management of liquidity are:
funds generated by operations, changes in working capital, fixed asset
additions, and the financial flexibility to attract short and long-term
financing on competitive terms.
Net cash provided from operating and investing activities for the
years ended December 31, 1993, 1992, and 1991, was $6,496,000, $15,359,000,
and $(4,666,000), respectively.
Except for the Company's current construction of Neil Simpson Unit #2
(NSS #2), a new power plant, and acquisition of a 20% interest in the
Wyodak Plant in 1991, property additions from 1991 through 1993 were
primarily for replacement of equipment and modernization of facilities.
Cash used for property additions in 1993 totaled $39,957,000 compared to
$27,821,000 in 1992 and $25,587,000 in 1991. Major property additions in
1993 included $12,675,000 for NSS #2 (see Construction of Neil Simpson Unit
#2), $6,000,000 for distribution projects, $2,000,000 for transmission
projects, $2,000,000 for a computer conversion, $4,800,000 for a new coal
conveying system, $2,200,000 for coal mining equipment, and $6,933,000 for
oil and gas investments. Property additions in 1992 included $2,227,000
for NSS #2, $1,300,000 for the dual fuel conversion of two combustion
turbines, $6,700,000 for distribution projects, $2,600,000 for coal
haulers, $2,000,000 for an electric shovel, and $5,000,000 for oil and gas
investments. Property additions in 1991 included $1,300,000 for remodeling
the General Office, $1,500,000 for transmission lines, $2,500,000 for a
230/69 KV substation, $6,700,000 for distribution projects, $1,500,000 for
new information services technology, $1,000,000 for the purchase of surface
rights over the Fortin Draw Tract coal lease, and $6,000,000 for oil and
gas investments.
On April 8, 1991, the Company purchased a 20% interest and PacifiCorp
an 80% interest in the Wyodak Plant, a 330 MW coal-fired electric
generating station located in Campbell County, Wyoming. PacifiCorp is the
operator of the Wyodak Plant. The total acquisition cost of the Company's
20% interest was approximately $42,022,000. The Company financed its 20%
interest with the issuance of first mortgage bonds, therefore, the
acquisition is not included above in the amount of cash used for property
additions.
In 1990 the Company received a rate order from the South Dakota Public
Utilities Commission that allows the capitalization of the full cost of the
Wyodak Plant for rate making purposes in South Dakota. Electric sales to
South Dakota customers represent approximately 82% of total electric sales.
The Company and PacifiCorp had leased the Wyodak Plant since 1978
under a leveraged lease agreement. The capital asset and associated debt
were previously amortized over the original term of the lease. The net
effect of terminating the lease and purchasing the Wyodak Plant was
approximately an $11,300,000 increase in debt.
The Company purchased the 20% interest in the Wyodak Plant in order to
provide its customers a reasonable cost of power from the plant after the
term of the original lease. The purchase of the Wyodak Plant also gives
the Company more control over the use of common facilities in the operation
of any new plants which may be constructed at the site.
Other financial requirements during the period included dividends of
$17,720,000, $16,977,000, and $16,045,000 and retirement of long-term debt
totaling $4,166,000, $3,725,000, and $1,921,000 for the years 1993, 1992,
and 1991, respectively.
Capital requirements for projected construction, capital improvements,
and oil and gas production are estimated to be as follows:
<TABLE>
<CAPTION>
1994 1995 1996
(in thousands)
<S> <C> <C> <C>
NSS #2 $65,113 $45,035 $ -
Other electric 14,470 9,793 18,605
Coal mining 2,129 853 2,042
Oil and gas
production 5,000 6,000 6,000
$86,712 $61,681 $26,647
</TABLE>
Major capital expenditures forecasted for the electric operations in
the 1994-1996 time frame include approximately $110,148,000 for additional
capacity (See Construction of Neil Simpson Unit #2). The coal mining
operations forecasted expenditures include the replacement of mining
equipment. Forecasted expenditures for the oil and gas operations include
an active development and exploratory drilling program and acquisition of
existing producing properties.
<PAGE>
Long-term debt and sinking fund requirements are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
(in thousands)
<S> <C> <C> <C>
Electric $2,028 $2,136 $2,255
Coal mining 1,514 8 -
$3,542 $2,144 $2,255
</TABLE>
Under its mining permit, WRDC is required to reclaim all land where it
has mined coal reserves. The cost of reclaiming the land is accrued as the
coal is mined. While the reclamation process takes place on a continual
basis, much of the reclamation occurs over an extended period after the
area is mined. Approximately $650,000 is charged to operations as
reclamation expense annually. As of December 31, 1993, accrued reclamation
costs were $7,290,000.
The Company's capitalization for the three years ended December 31 was
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Long-term debt 34% 37% 40%
Common equity 66 63 60
100% 100% 100%
</TABLE>
The Company sold 525,000 shares of Common Stock, $1 par value, at a
price of $25-3/8 per share in 1993 through a public stock offering.
Proceeds from the sale were used to finance NSS #2. Net proceeds from the
sale were approximately $12,700,000.
During 1993 the Company also revised its Dividend Reinvestment and
Stock Purchase Plan, under which shareholders may purchase additional
shares of Common Stock through dividend reinvestment or optional cash
payments at 100% of the recent average market price. The Company has the
option of issuing new shares or purchasing the shares on the open market.
Proceeds from the sale of new shares will be used to finance capital
expenditures.
The Company issued $12,300,000 Pollution Control Revenue Refunding
Bonds in 1992 to redeem $12,300,000 Pollution Control and Industrial
Revenue Bonds which were collateralized as first mortgage bonds. The
refunding bonds have no sinking fund requirements and are longer term than
the redeemed bonds maturing in 2010, thereby preserving the lower tax
exempt interest rate for a longer period of time. The redeemed bonds had
sinking fund provisions which were to begin in 1993 and would have retired
the principal in approximately equal amounts until their final due date in
2007. The refunding bonds are not secured under the Company's Indenture of
Mortgage, therefore this refunding transaction increased the Company's
ability to issue first mortgage bonds.
During 1992, the Company also entered into a refunding agreement to
refund the existing August 1, 1984, $12,200,000, 10.5% Pollution Control
Revenue Bonds in July 1994 with 7.5% Pollution Control Revenue Bonds. The
refunding agreement obligates the Company to call and satisfy in full the
existing bonds as of August 1, 1994, including a redemption premium of
2% or $240,000 on the existing bonds. Because of the forward nature of
this transaction it will not be reflected in the Company's financial
statements until 1994.
- --------------------------------------------------------------------------------
(TABLE IN ANNUAL REPORT)
COMMON STOCK DATA
1993 1992 1991
Net Income $22,946,000 $23,638,000 $22,681,000
Earnings Per Average Share $1.66 $1.73 $1.66
Weighted Average Shares
Outstanding 13,810,912 13,689,105 13,674,983
Dividends Paid Per Share $1.28 $1.24 $1.17
Five Year Dividend Growth
Rate 6.6% 8.4% 9.1%
Payout Ratio 77.1% 71.7% 70.7%
Book Value $11.78 $10.89 $10.38
Year-end Stock Price $22-3/4 $27-1/2 $27-1/2
Dividend Yield on Market
Value 5.6% 4.5% 4.3%
Price Earnings Ratio 14 16 17
Return on Common Equity
at Year-end 13.7% 15.8% 16.0%
- --------------------------------------------------------------------------------
During 1991, the Company issued $48,806,000 of first mortgage bonds.
The bonds were issued in two series, $35,000,000 at 9.35% due 2021 and
$13,806,000 at 9.00% due 2003. The funds were primarily used for the
purchase of the Company's 20% interest in the Wyodak Plant.
At December 31, 1993, the Company had $40,000,000 of unsecured short-
term lines of credit which provides for interim borrowings and the
opportunity for timing of permanent financing, with borrowings outstanding
of $11,700,000. Average borrowings during 1993, 1992, and 1991 were
$11,059,000, $5,616,000, and $4,552,000, respectively. The average interest
rate on these borrowings was 5.2%, 6.0%, and 8.3% in 1993, 1992, and 1991,
respectively. The Company anticipates that the average borrowings in 1994
and 1995 will increase significantly directly related to the financing of
the construction of NSS #2. There are no compensating balance requirements
associated with these lines of credit. The Company pays a 0.125% facility
fee on $10,000,000 of the existing lines.
- --------------------------------------------------------------------------------
(CHART IN ANNUAL REPORT)
CONSOLIDATED DEBT RATIOS (in percent)
1993 33.7
1992 37.3
1991 39.6
1990 36.9
1989 38.3
- --------------------------------------------------------------------------------
Credit ratings for the Company's First Mortgage Bonds remained at an
A1 level at Moody's Investors Service, Inc., a 5 (High Single A) at Duff &
Phelps, Inc., and at an A+ level with a negative outlook at Standard &
Poor's Corporation in 1993. These ratings reflect the opinion of the
respective agencies as to the credit quality of the Company's bonds.
Standard & Poor's stated that the negative outlook was issued reflecting a
burdensome future construction program which will pressure financials and
will require supportive rate treatment to maintain current credit
worthiness.
In the past the Company has depended upon internally generated funds,
issuance of short and long-term debt, and sales of preferred and common
stock to finance its activities. Additional long-term financing will be
necessary in the 1994-1995 time period to finance NSS #2 (See Construction
of Neil Simpson Unit #2).
CONSTRUCTION OF NEIL SIMPSON UNIT #2
Construction of NSS #2, an 80 MW coal fired generating plant located
adjacent to WRDC's coal mine, commenced in August 1993. The plant
construction is scheduled to be completed by the end of 1995. Purchased
power will be utilized by the Company in the interim to meet load growth
not satisfied by existing resources. The construction costs of the plant
are estimated at $124,889,000 which will increase net utility plant by
approximately 58%. As of December 31, 1993, the Company has incurred
approximately $15,000,000 of costs related to the plant. NSS #2 will be
air cooled, and will meet all Clean Air Act requirements. NSS #2 will be
fueled by coal from WRDC's mine and will increase the amount of tons sold
annually by approximately 10%. The coal pricing methodology will continue
to restrict WRDC's earnings on all coal sales to the Company to a return on
its investment base and to further reduce the price for coal to be used in
any of the Company's power plants during a period of time that under
prudent dispatch that power plant would not have been operated if it were
not for the discounted price of coal.
Additional long-term financing will be needed in the 1994-1995 time
period to finance NSS #2. The Company estimates that approximately
$87,000,000 of debt and $4,000,000 of additional equity will need to be
issued. The Company plans to raise the additional equity through the
Company's Employee Stock Purchase Plan and Dividend Reinvestment Plan.
These additional financings are expected to increase the debt component of
the Company's capital structure from 34% at December 31, 1993 to
approximately 45% to 48% by 1996.
The Company has guaranteed to the South Dakota Public Utilities
Commission (SDPUC) and the Wyoming Public Service Commission that the
Company will never include in rate base for the determination of electric
rates those costs of NSS #2 which exceed $124,889,000 including allowance
for funds used during construction. Due to the guarantee, the Company
would likely be forced to write off against earnings any construction costs
of NSS #2 in excess of the guaranteed costs except to the extent that those
costs could be recovered through performance guarantees and damage
provisions in the contracts with the vendors and contractors. The Company
estimates that over 85% of the completion costs of the project has been
contracted. The $124,889,000 estimated cost of the plant currently
includes a $4,800,000 unallocated contingency.
During 1993, the Company withdrew its application to the SDPUC for a
rate stability plan that had requested rate increases to be phased in
during construction of NSS #2. The Company reassessed the probable rate
impact of NSS #2 and determined that a phased-in plan would not be
necessary. The Company estimates that due to lower capital costs, coal
cost concessions, and cost containment, an overall rate increase of
approximately 10% in 1996, along with adjustments during construction as a
result of the purchased power and automatic fuel adjustment tariff, should
be sufficient to incorporate NSS #2 into the Company's electrical rates.
ROSEBUD QUALIFYING FACILITY CHALLENGE DISMISSED
In May 1993, the SDPUC issued an order denying a request by Rosebud
Enterprises, Inc. (Rosebud) that the SDPUC determine the Company's resource
needs, the avoided costs of the needed resource, and to force the Company
to purchase power from Rosebud. Rosebud had proposed to sell the Company
power generated from a waste fuel facility that would be qualified under
the Public Utility Regulatory Policies Act. The SDPUC further denied
Rosebud's request to issue an order finding that the Company may be
imprudent to proceed with construction of NSS #2. The SDPUC did find that
the Company had in good faith planned and permitted NSS #2 in order to
fulfill the Company's duty to serve its customers. The SDPUC's bench
ruling stated that in order to be able to defer or cancel the construction
of new generation, a utility must obtain a sufficient commitment from a
qualifying facility ahead of the lead time for the construction of its own
new capacity. By its late qualifying facility proposal to the Company and
its failure to move its project forward, Rosebud had not enabled the
Company to avoid NSS #2. The SDPUC further ruled that the risk of building
NSS #2 was on the Company, and the Commission would not rule on the
prudency and need for the plant until the Company applied for a rate
increase that included NSS #2 in rate base.
- --------------------------------------------------------------------------------
(CHART IN ANNUAL REPORT)
FIRM ELECTRIC SALES (Millions of KWH)
1993 1,594
1992 1,540
1991 1,532
1990 1,479
1989 1,433
- --------------------------------------------------------------------------------
<PAGE>
RESULTS OF OPERATIONS:
CONSOLIDATED RESULTS
Consolidated net income for 1993 was $22,946,000 compared to
$23,638,000 in 1992 and $22,681,000 in 1991 or $1.66, $1.73, and $1.66 per
average common share, respectively. This equates to a 13.7% return on
year-end common equity in 1993, 15.8% in 1992, and 16.0% in 1991. The
Company recognized a non-recurring $940,000 after-tax non-cash gain in 1992
related to the PacifiCorp Settlement (see PacifiCorp Settlement) which was
equivalent to $0.07 per share. Without this gain, earnings per share would
have been flat for the three year period with 1% more average common shares
outstanding in 1993.
Consolidated revenue and income provided by the three businesses as a
percentage of the total were as follows:
<TABLE>
<CAPTION>
Revenue
1993 1992 1991
<S> <C> <C> <C>
Electric 71% 72% 73%
Coal mining 21 21 20
Oil and gas
production 8 7 7
100% 100% 100%
Net Income
Electric 49% 47% 54%
Coal mining 46 49 42
Oil and gas
production 5 4 4
100% 100% 100%
</TABLE>
Dividends paid on Common Stock totaled $1.28 per share in 1993. This
reflected increases approved by the Board of Directors from $1.24 per share
in 1992 and $1.17 per share in 1991. Dividends have increased at a 5.5%
average annual compound growth rate over the last three years. All
dividends were paid out of current earnings.
In January 1994 the Board of Directors increased the quarterly
dividend 3.1% to 33 cents per share. If this dividend is maintained during
1994, the increase is equivalent to an annual increase of 4 cents per
share. In January 1992 the Board of Directors declared a three-for-two
common stock split in the form of a 50% stock dividend, payable March 2,
1992. All per share information included herein gives retroactive effect
for the stock split for all periods presented.
WYODAK PLANT MAINTENANCE SCHEDULE
The Wyodak Plant was out of operation for six weeks in 1991 for
scheduled maintenance and is scheduled for maintenance again in the spring
of 1994. Fiscal 1992 and 1993 represent whole years of operations from the
Wyodak Plant.
When the Wyodak Plant is out of service, replacement power is provided
from purchased power and increased generation from the Company's other
generating plants. Additional purchased power costs are recovered by the
utility through the fuel adjustment clauses. The loss of coal sales to the
Wyodak Plant is partially mitigated through greater coal sales to the
Company's other generating plants and reduced operating costs.
PACIFICORP SETTLEMENT
In 1987 WRDC and the Company entered into settlement agreements with
PacifiCorp canceling PacifiCorp's obligation to purchase coal commencing in
1990 for a second plant scheduled to be constructed adjacent to the Wyodak
Plant but which had been canceled, and settling a dispute over the quantity
of coal PacifiCorp was required to purchase to operate the Wyodak Plant.
These settlements resulted in an increase in the Company's net income in
1993, 1992, and 1991 of approximately $1,500,000, $2,800,000, and
$2,600,000 or $0.11, $0.20, and $0.19 per share of common stock,
respectively. The settlements provided for, among other things, payments to
WRDC of $2,000,000 each on January 2, 1988 through 1991 for an option to
purchase 50,000,000 tons of coal if PacifiCorp should construct a second
Wyodak power plant and require PacifiCorp to pay up to $15,000,000, such
amount to be adjusted for inflation and deflation, for the cost of new coal
handling facilities. Construction of the coal handling facilities occurred
in 1992 and 1993. As a result of a definitive agreement entered into with
PacifiCorp in 1992 regarding the construction of these facilities, the
Company recognized a nonrecurring $940,000 after-tax non-cash gain in
1992. The gain was due to the assumption by PacifiCorp of certain
liabilities related to the existing coal handling facilities that were
replaced by the construction of the new facilities. Other benefits from
the PacifiCorp Settlement will continue to have a positive effect on
earnings for the life of the agreements. The exact amount of earnings each
year will depend largely upon the continued successful operation of the
Wyodak Plant.
- --------------------------------------------------------------------------------
(CHART IN ANNUAL REPORT)
TONS OF COAL SOLD (thousands of tons)
1993 3,027
1992 2,958
1991 2,742
1990 2,908
1989 2,349
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Electric Operations
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Revenue $98,155 $97,448 $98,158
Operating expenses 74,173 74,056 73,522
Operating income $23,982 $23,392 $24,636
Net income $11,171 $11,041 $12,156
</TABLE>
Electric revenue increased 0.7% in 1993 compared to a 0.7% decrease in
1992 and a 6.4% increase in 1991. Firm kilowatthour sales increased 3.5%
in 1993 compared to a 0.5% increase in 1992 and a 3.6% increase in 1991 and
have averaged an annual 2.5% growth rate over the last three years.
Homestake Mining Company, the Company's largest customer, reduced its
energy usage by 22,000 megawatt hours in 1993 by concentrating on more
efficient production areas in a depressed gold market. Sales growth in
1992 was reduced by mild weather conditions.
The revenue increase in 1993 from additional electric sales was offset
by a decrease in the fuel and purchased power adjustment passed on to
electric customers. The decrease in purchased power was due to a
$2,000,000 refund received from PacifiCorp on the 40-year power purchase
agreement.
Revenue decreased in 1992 due to a decrease in the fuel and purchased
power adjustment passed on to electric customers. This decrease was a
result of a $600,000 increase in the refund accrued for the limitation on
the return allowed on WRDC coal sales to the Company's power plants and a
$600,000 decrease in fuel and purchased power expense. Purchased power
decreased in 1992 compared to 1991 due to a full year of operations at the
Wyodak Plant.
In South Dakota, the Company may not include in rates any cost of coal
which allows WRDC to earn a return on equity on sales of coal to the
Company's utility operations in excess of a percentage equal to the rate on
long-term "A" rated utility bonds plus 400 basis points (4%). The
investment base on which the return is calculated includes all of WRDC's
investment base except for investments in subsidiary companies and other
non-mining interests. The maximum return on equity to be applied in 1994
for the 1993 adjustment will be approximately 11.6%. The returns applied in
1992 and 1991 were 12.7% and 13.4%, respectively. The Company has recorded
an accrual for the 1994 refund for sales in 1993 of approximately
$1,060,000. The 1993 and 1992 refunds were approximately $1,538,000 and
$940,000, respectively. Tons of WRDC's coal sold to Black Hills represent
approximately 35% of its total coal sales. The refund increased in 1994
and 1993 compared to 1992 primarily due to the decrease in long-term "A"
rated utility bond interest rates. The decrease in the allowed return in
1993 was offset by an increase in WRDC's investment base primarily due to
its investment in an electric shovel and new coal conveying facilities.
Revenue per kilowatt sold was 6.0 cents in 1993 down from 6.2 cents in
1992 and 6.1 cents in 1991. The number of customers in the service area
increased to 53,330 in 1993 from 52,535 in 1992 and 51,775 in 1991.
Operating expenses were relatively flat in 1993 compared to 1992 as a
result of the $2,000,000 purchased power refund. Operating expenses
increased 0.7% in 1992, and decreased slightly in 1991. The decrease in
1991 reflects the effect of buying out the Wyodak Plant Lease and a
decrease in administrative and general expenses and property taxes. The
Wyodak Plant Lease payment was recorded as an operating expense in the
past. Since the purchase of the Plant in April 1991, the cost of ownership
is now reflected in depreciation and interest expense.
The Company went through a corporate reorganization during the first
quarter of 1991 resulting in a $600,000 reduction in administrative and
general expenses. Eleven existing positions and several vacant positions
were eliminated.
During 1991 the South Dakota Department of Revenue instituted the unit
valuation method in determining property values for those entities whose
property is centrally assessed for tax purposes resulting in a decrease in
property taxes of approximately $1,050,000 from 1990 levels. Property
taxes increased $540,000 in 1993 and $600,000 in 1992 as a result of
increased valuations.
<PAGE>
<TABLE>
<CAPTION>
COAL MINING OPERATIONS
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Revenue $29,822 $28,296 $26,138
Operating expenses 17,462 16,724 16,667
Operating income $12,360 $11,572 $ 9,471
Net income $10,648 $11,695 $ 9,623
</TABLE>
Revenue increased 5.4% in 1993 and 8.3% in 1992 due to a 2.3% and 7.9%
increase, respectively in tons of coal sold. The increase in tons of coal
sold reflects two whole years of operations at the Wyodak Plant. Operating
expense increased 4.4% in 1993 reflecting an increase in depreciation
expense as a result of an increase in capital investments and higher taxes
associated with increased revenues. Operating expenses remained relatively
flat in 1992 caused by a decrease in administrative and general expenses
offset by an increase in coal production. Operating income increased 6.8%
in 1993 and 22.2% in 1992 reflecting the increase in coal revenue.
- --------------------------------------------------------------------------------
(CHART IN ANNUAL REPORT)
EQUIVALENT BARRELS OF OIL SOLD (thousands of barrels)
1993 465
1992 315
1991 262
1990 205
1989 207
- --------------------------------------------------------------------------------
Revenue decreased 1.5% in 1991 due to a 5.7% decrease in tons of coal
sold offset by a 4.5% increase in the average price per ton sold. The
decrease in tons of coal sold was primarily due to the Wyodak Plant's
scheduled six week maintenance period during the year. The increase in the
average price was due to increases in the government indices used in the
coal contract price calculations and 1990 coal audit adjustments.
Operating expenses decreased 4.1% in 1991 due to the decrease in coal
production and a decrease in ad valorem taxes and administrative expenses.
Administrative expenses decreased due to the corporate reorganization that
occurred during the year. Operating income increased 3.4% primarily due to
the decrease in administrative expenses.
Non-operating income was $2,226,000 in 1993 compared to $3,894,000 in
1992 and $3,677,000 in 1991. Non-operating income includes the PacifiCorp
Settlement, a coal contract settlement from Grand Island, Nebraska, and
interest income from investments. Non-operating income decreased in 1993
due to a decrease in interest income attributable to lower interest rates
and a non-recurring $940,000 after-tax non-cash gain recognized in 1992
related to the PacifiCorp Settlement.
In late 1987 WRDC agreed to the termination of a long-term coal supply
agreement with the City of Grand Island, Nebraska. Grand Island was
granted a 14 year option to purchase coal and in return WRDC receives
payments of approximately $155,000 each year. WRDC has reserved sufficient
coal in the eventuality the City of Grand Island exercises its option.
<PAGE>
<TABLE>
<CAPTION>
Oil and Gas Production
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Revenue $11,396 $9,599 $9,077
Operating expenses 9,952 8,214 7,717
Operating income $ 1,444 $1,385 $1,360
Net income $ 1,127 $ 902 $ 902
</TABLE>
The oil and gas operations have not been a significant percent of the
Company's total operations. Net income and assets related to oil and gas
operations have been 7% or less of the Company's consolidated amounts over
the last three years.
Revenue, primarily comprised of oil and gas sales, is supplemented by
field services in the Finn-Shurley oil field in eastern Wyoming.
Equivalent barrels of oil sold increased approximately 48% to 465,000
barrels in 1993 from 315,000 barrels in 1992 and 262,000 barrels in 1991.
The average sales price of oil per barrel was $16.69 in 1993 compared to
$19.10 in 1992 and $20.03 in 1991. WPC's operating expenses increased 21%
in 1993 compared to 6.4% in 1992 and 9.6% in 1991. Operating expenses
increased primarily due to increased depletion expense as a result of
increased oil and gas production and lower oil prices. WPC recognized
$3,725,000, $2,291,000, and $1,350,000 of depletion expense in 1993, 1992,
and 1991, respectively.
Low commodity prices reduce the value of the Company's oil and gas
assets and will cause the Company to increase its depletion expense.
Management estimates that oil prices must average $14 to $15 per barrel for
its oil and gas operations to remain profitable.
WPC's proved reserves, and the revenues generated from production,
will decline as production occurs, except to the extent WPC conducts
successful exploration and development activities or acquires additional
proved reserves. WPC has been in an active exploration and development
drilling program during 1991, 1992, and 1993. Much of WPC's production
growth in 1993 was the result of its horizontal drilling program in the
Austin Chalk formation in Texas. WPC intends to increase its net proved
reserves by selectively increasing its oil and gas exploration and
development activities and by acquiring additional interests in the Finn-
Shurley oil field and Rocky Mountain region primarily with the use of
internally generated funds.
WPC's reserves are based on reports prepared by Ralph E. Davis
Associates, Inc. in 1993 and 1992 and Huddleston & Co., Inc. in 1991,
independent engineering companies, selected by the Company. Reserves were
determined using constant product prices at the end of the respective
years. Estimates of economically recoverable reserves and future net
revenues are based on a number of variables which may differ from actual
results. WPC's unaudited reserves, principally proved developed and
undeveloped properties, were estimated to be 1.1, 2.2, and 2.5 million
barrels of oil and 2.8, 3.2, and 4.8 billion cubic feet of natural gas as
of December 31, 1993, 1992, and 1991, respectively. The decrease in the
reserves was caused by price decreases, production increases, and
engineering revisions. WPC has interests in 386 oil and gas properties in
seven states. WPC operates a total of 347 wells in Wyoming, Colorado, and
South Dakota. WPC's non-operated properties are located in Wyoming,
Colorado, North Dakota, Montana, Kansas, and Texas.
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
On January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. This new standard requires that the expected
cost of these benefits must be accrued for during the years employees
render service. The Company prospectively adopted the new standard
effective January 1, 1993, and is amortizing the discounted present value
of the accumulated postretirement benefit obligation of $2,996,000 to
expense over a 20 year period. The net periodic postretirement cost
charged to expense in 1993 was $527,000 (pre-tax). For measurement
purposes, an 11.5% annual rate of increase in healthcare benefits was
assumed for 1994; the rate was assumed to decrease gradually to 6% in 2005
and remain at that level thereafter. The healthcare cost trend rate
assumption has a significant effect on the amount reported. A 1% increase
in the health care cost trend assumption would increase the net periodic
postretirement benefit cost by approximately $140,000 annually or 20.8%.
ACCOUNTING FOR INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
the use of the liability method in accounting for income taxes. Under the
liability method, deferred income taxes are recognized, at currently
enacted income tax rates, to reflect the tax effect of temporary
differences between the financial reporting and tax basis of assets and
liabilities. Such temporary differences are the result of provisions in
the income tax law that either require or permit certain items to be
reported on the income tax return in a different period than they are
reported in the financial statements. The new standard required
adjustments to existing balances of accumulated deferred income taxes to
reflect changes in income tax rates. To the extent such income taxes are
recoverable or payable through future rates, a $6,912,000 net regulatory
liability has been recorded in the accompanying consolidated balance
sheets. Initial application of the statement had no material impact on the
Company's results of operations.
INFLATION
Inflation may have a significant impact on replacement of property and
capital improvements in the future due to the capital intensive nature of
the utility business. The rate making process gives no recognition to the
fair value of existing plant; however, in the past, the Company has been
allowed to recover and earn on the increased cost of its net investment
when the addition to or replacement of facilities occurred. The majority
of the mining operations' coal contracts provide for the adjustment over
time of components of the sales price through indexes, formulas, or direct
pass-through of costs.
<PAGE>
REPORT OF MANAGEMENT
Management of Black Hills Corporation is responsible for the
preparation, integrity, and objectivity of the consolidated financial
statements of the Company and its subsidiaries. The consolidated financial
statements are prepared in conformity with generally accepted accounting
principles and reflect management's informed judgments and best estimates
with due consideration given to materiality. Information contained
elsewhere in the Annual Report is consistent with the consolidated
financial statements.
The Company's system of internal controls is designed to provide
reasonable assurance that assets are safeguarded, transactions are executed
in accordance with management's authorization, and the consolidated
financial statements are prepared in accordance with generally accepted
accounting principles. The internal controls are continually reviewed and
evaluated for effectiveness. No internal control system can prevent the
occurrence of errors and irregularities with absolute assurance due to the
inherent limitations of any system. Management's objective is to maintain
a system that meets its goals in a cost effective manner.
The Audit Committee, composed exclusively of outside directors, is
responsible for overseeing the Company's financial reporting process and
reporting the results of its activities to the Board of Directors. This
committee, management, and the internal auditor periodically review matters
associated with financial reporting, audit activities, and internal
controls. As part of their audit of the Company's 1993 consolidated
financial statements, the Company's independent auditors, Arthur Andersen &
Co., considered the Company's system of internal controls to the extent
they deemed necessary to determine the nature, timing, and extent of their
audit tests. The independent and internal auditors have free access to the
Audit Committee to discuss the results of their audits without the presence
of management.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Black Hills Corporation:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of BLACK HILLS CORPORATION AND SUBSIDIARIES as
of December 31, 1993 and 1992, and the related consolidated statements of
income, retained earnings, and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Black Hills
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes 8 and 9 to the consolidated financial
statements, effective January 1, 1993, the Company changed its method of
accounting for post retirement benefits other than pensions and its method
of accounting for income taxes.
ARTHUR ANDERSEN & CO.
Minneapolis, Minnesota,
January 28, 1994
<PAGE>
<TABLE>
BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Operating revenues:
Electric . . . . . . . . . . .$ 98,155 $ 97,448 $ 98,158
Coal mining. . . . . . . . . . 29,822 28,296 26,138
Oil and gas production . . . . 11,396 9,599 9,077
139,373 135,343 133,373
Operating expenses:
Fuel and purchased power . . . 36,946 38,209 38,851
Operations . . . . . . . . . . 23,368 23,337 23,825
Maintenance . . . . . . . . . 6,869 6,513 6,729
Administrative and general . . 8,144 7,811 7,910
Depreciation, depletion, and
amortization . . . . . . . . 16,051 13,860 12,012
Taxes, other than income
taxes (Note 12) . . . . . . . 10,209 9,264 8,579
101,587 98,994 97,906
Operating income:
Electric . . . . . . . . . . . 23,982 23,392 24,636
Coal mining . . . . . . . . . 12,360 11,572 9,471
Oil and gas production . . . . 1,444 1,385 1,360
37,786 36,349 35,467
Other income (expense):
Interest expense . . . . . . . (8,817) (8,965) (8,001)
Investment income . . . . . . 1,739 3,149 2,956
Allowance for funds used
during construction . . . . 729 378 177
Other, net (Note 12) . . . . . 474 1,233 631
(5,875) (4,205) (4,237)
Income before income taxes . . . 31,911 32,144 31,230
Income taxes (Note 9). . . . . . (8,965) (8,506) (8,549)
Net income . . . . . . . .$ 22,946 $ 23,638 $ 22,681
Weighted average common shares
outstanding (Note 2) . . . . . 13,811 13,689 13,675
Earnings per share of common
stock (Note 2) . . . . . . . .$ 1.66 $ 1.73 $ 1.66
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year . . . . . . $105,173 $ 98,512 $91,876
Net income . . . . . . . . . . . . . . 22,946 23,638 22,681
Cash dividends on common stock
($1.28, $1.24, and $1.17 per
share, respectively) . . . . . . . . (17,720) (16,977) (16,045)
Balance, end of year . . . . . . . . . $110,399 $105,173 $98,512
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31 1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Cash flows provided from
(used for) operating activities:
Net income . . . . . . . . . . . . . $ 22,946 $23,638 $22,681
Principal non-cash items-
Depreciation, depletion, and
amortization . . . . . . . . . . 16,051 13,860 12,012
Deferred income taxes and
investment tax credits. . . . . . 1,042 761 (801)
Gain on coal settlement . . . . . . - (940) -
Allowance for other funds used during
construction . . . . . . . . . . (333) (94) (65)
(Increase) decrease in receivables,
inventories, and other current assets (1,556) 1,378 488
Increase (decrease) in current
liabilities . . . . . . . . . . . . (2,562) 4,814 1,847
Other, net . . . . . . . . . . . . . . 4,259 1,091 (470)
39,847 44,508 35,692
Cash flows provided from (used for)
investing activities:
Neil Simpson Unit #2 construction
costs, excluding allowance for
other funds used during construction
(Note 7) . . (12,675) (2,227) -
Other property additions, excluding
allowance for other funds used
during construction . . . . . . . . . (27,282) (25,594) (25,587)
Short-term investments purchased . . . (33,622) (33,938) (14,771)
Short-term investments sold . . . . . . .25,504 32,610 -
Proceeds from sale of long-term
investments . . . . . . . . . . . . . 14,724 - -
(33,351) (29,149) (40,358)
Cash flows provided from (used for)
financing activities:
Dividends paid . . . . . . . . . . . . (17,720) (16,977) (16,045)
Common stock issued . . . . . . . . . . 13,705 534 -
Net short-term borrowings . . . . . . . 3,784 900 (500)
Long-term debt issued . . . . . . . . . - - 8,768
Long-term debt retired . . . . . . . . (4,166) (3,725) (1,921)
(4,397) (19,268) (9,698)
Increase (decrease) in cash and
cash equivalents. . . . . . . . . . 2,099 (3,909) (14,364)
Cash and cash equivalents:
Beginning of year . . . . . . . . . . . 5,767 9,676 24,040
End of year . . . . . . . . . . . . . .$ 7,866 $ 5,767 $ 9,676
Supplemental disclosure of cash flow
information:
Cash paid during the period for -
Interest . . . . . . . . . . . . . .$ 9,283 $ 9,296 $ 6,837
Income taxes. . . . . . . . . . . . .$ 8,000 $ 7,440 $ 8,700
Non-cash investing and financing
activities (Notes 3 and 6)
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31 1993 1992
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . .$ 7,866 $ 5,767
Short-term investments . . . . . . . 24,217 16,099
Receivables, net
Customers . . . . . . . . . . . . 12,415 10,246
Other . . . . . . . . . . . . . . 901 1,807
Materials, supplies, and fuel. . . . 6,765 6,448
Prepaid expenses . . . . . . . . . . 1,638 1,662
Total current assets . . . . . 53,802 42,029
Property and investments:
Electric . . . . . . . . . . . . . . 341,852 318,270
Coal mining. . . . . . . . . . . . . 51,670 44,483
Oil and gas production . . . . . . . 32,371 28,465
Investments . . . . . . . . . . . . 7,250 21,974
433,143 413,192
Less accumulated depreciation
and depletion. . . . . . . . . . .(144,492) (132,890)
Net property and investments. . 288,651 280,302
Deferred charges:
Federal income taxes . . . . . . . . 7,271 2,153
Other . . . . . . . . . . . . . . . 3,129 5,718
10,400 7,871
$352,853 $330,202
LIABILITIES AND CAPITALIZATION
Current liabilities:
Current maturities of
long-term debt. . . . . . . . . . .$ 3,542 $ 4,166
Notes payable (Note 4) . . . . . . . 11,768 7,984
Accounts payable . . . . . . . . . . 9,535 8,939
Accrued liabilities-
Taxes. . . . . . . . . . . . . . . 5,583 5,544
Fuel and purchased power refunds 1,375 4,120
Interest . . . . . . . . . . . . . 1,700 2,167
Other. . . . . . . . . . . . . . . 6,023 6,008
Total current liabilities . . . 39,526 38,928
Deferred credits:
Federal income taxes . . . . . . . . 36,705 37,687
Investment tax credits . . . . . . . 6,027 6,532
Reclamation costs. . . . . . . . . . 7,290 6,651
Regulatory liability . . . . . . . . 6,912 -
Other. . . . . . . . . . . . . . . . 3,030 2,430
Total deferred credits. . . . . 59,964 53,300
Commitments and contingent liabilities
(Notes 7 and 8). . . . . . . . . . .
Capitalization, per accompanying
statements:
Common stock equity. . . . . . . . . 168,089 149,158
Long-term debt . . . . . . . . . . . 85,274 88,816
Total capitalization. . . . . . 253,363 237,974
$352,853 $330,202
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
December 31 1993 1992
(in thousands)
<S> <C> <C>
Common stock equity (Note 2):
Common stock, $1 par value; 50,000,000
shares authorized; 14,269,580 and
13,701,287 shares outstanding,
respectively . . . . . . . . . . . . . .$ 14,270 $ 13,701
Additional paid-in capital . . . . . . . . 43,420 30,284
Retained earnings . . . . . . . . . . . . . 110,399 105,173
Total common stock equity . . . . . . 168,089 149,158
Cumulative preferred stock:
No par value; 400,000 shares authorized;
no shares outstanding . . . . . . . . . . - -
$100 par value; 270,000 shares
authorized; no shares outstanding . . . . - -
Long-term debt (Note 3):
First mortgage bonds-
4.75% due 1993. . . . . . . . . . . . . . - 854
8.375% due 1998 . . . . . . . . . . . . . 3,340 4,005
8.05% due 1999. . . . . . . . . . . . . . 4,875 4,900
6.625% and 6.85% pollution control
and industrial development revenue
bonds, collateralized with first
mortgage bonds, due 2007 . . . . . . . 1,840 2,000
9.00% due 2003. . . . . . . . . . . . . . 11,739 12,818
9.49% due 2018. . . . . . . . . . . . . . 6,000 6,000
9.35% due 2021 . . . . . . . . . . . . . 35,000 35,000
62,794 65,577
Other-
6.7% pollution control revenue bonds,
due 2010. . . . . . . . . . . . . . . . 12,300 12,300
10.50% pollution control revenue
bonds, due 2014 . . . . . . . . . . . . 12,200 12,200
Other long-term obligations . . . . . . . 1,522 2,905
26,022 27,405
Total long-term debt 88,816 92,982
Current maturities . . . . . . . . . . . . (3,542) (4,166)
Net long-term debt . . . . . . . . . . 85,274 88,816
Total capitalization . . . . . . . . .$253,363 $237,974
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992, AND 1991
(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Black Hills Corporation and its Subsidiaries (the Company) operate in three
primary business segments: electric, coal mining, and oil and gas
production. The Company's electric utility operation is engaged in the
generation, purchase, transmission, distribution, and sale of electric
power and energy in western South Dakota, northeastern Wyoming, and
southeastern Montana. Sales of electric power to the three largest
electric customers represented 20% of the Company's electric revenue in
1993, 22% in 1992, and 21% in 1991.
The coal mining operation of the Company, located in northeastern Wyoming,
mines and sells sub-bituminous coal primarily under long-term coal supply
agreements. As described in Note 6, a substantial portion of the coal
mining operation's sales are to the Wyodak Plant. Sales of coal to the
Company and to PacifiCorp represent 89% of total coal sales.
The Company's oil and gas exploration and production business operates and
has working interests in oil wells principally located in the Rocky
Mountain region and Texas.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Black Hills
Corporation and its wholly owned subsidiaries. All significant inter-
company balances and transactions have been eliminated in consolidation
except for revenues and expenses associated with intercompany coal sales in
accordance with the provisions of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation." Total intercompany coal sales not eliminated were
$10,047,000, $9,811,000, and $9,220,000 in 1993, 1992, and 1991,
respectively.
PROPERTY AND INVESTMENTS
Property is recorded at cost which includes an allowance for funds used
during construction where applicable. The cost of electric property
retired, together with removal cost less salvage, is charged to accumulated
depreciation. Repairs and maintenance of property are charged to
operations as incurred.
Investments, consisting principally of tax exempt municipal bonds held for
corporate development purposes, are carried at cost which approximates
market.
DEPRECIATION AND DEPLETION
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Depreciation provisions for the
electric property were equivalent to annual composite rates of 3.2% in 1993
and 1992, and 3.3% in 1991. Composite depreciation rates for other
property were 9.6%, 7.5%, and 8.2% in 1993, 1992, and 1991, respectively.
Depletion of coal and oil and gas properties is computed using the cost
method for financial reporting and the gross income method or cost method,
whichever is applicable, for federal income tax reporting.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash of the Company is invested in money market investments such as
municipal put bonds, money market preferreds, commercial paper,
Euro-dollars, and certificates of deposit. The Company considers all
highly liquid investments with an original maturity of three months or less
to be cash equivalents. Cash equivalents and short-term investments are
stated at cost which approximates market.
REVENUE RECOGNITION
Revenue from sales of electric energy is based on rates filed with
applicable regulatory authorities. Electric revenue includes an accrual
for estimated unbilled revenue for services provided through year-end.
Revenue from other business segments is recognized at the time the products
are delivered or the services are rendered.
OIL AND GAS EXPLORATION
The Company accounts for its oil and gas exploration activities under the
full cost method. Capitalized costs associated with unsuccessful wells are
amortized over future periods as the reserves from successful wells are
produced.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Allowance for funds used during construction (AFDC) represents the
approximate composite cost of borrowed funds and a return on capital used
to finance construction expenditures and is capitalized as a component of
the electric property. The AFDC was computed at an annual composite rate
of 7.7% in 1993, 10.5% in 1992, and 12% in 1991.
INCOME TAXES
Deferred taxes are provided on all significant temporary differences,
principally depreciation. Investment tax credits have been deferred in the
electric operation and the accumulated balance is amortized as a reduction
of income tax expense over the useful lives of the related electric
property which gave rise to the credits.
(2) CAPITAL STOCK
Common Stock
Common shares issued at $1.00 par value during the years indicated were:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Public offering 525,000 -
Employee Stock
Purchase Plan 16,402 24,332
Dividend Reinvestment
and Stock Purchase Plan 26,891 -
568,293 24,332
</TABLE>
There were no shares issued in 1991.
At December 31, 1993, 74,209 shares of unissued common stock were available
for future offerings under the Employee Stock Purchase Plan.
During 1993, the Board of Directors adopted a new Dividend Reinvestment and
Stock Purchase Plan, under which shareholders may purchase additional
shares of common stock through dividend reinvestment and/or optional cash
payments at 100% of the recent average market price. The Company has the
option of issuing new shares or purchasing the shares on the open market.
At December 31, 1993, 973,109 shares of unissued common stock were
available for future offerings under the Plan.
On January 30, 1992, the Board of Directors declared a three-for-two common
stock split in the form of a 50% stock dividend, payable March 2, 1992, to
shareholders of record on February 10, 1992. The common stock and per
share information in the accompanying consolidated financial statements and
notes have been restated to reflect the stock distribution.
ADDITIONAL PAID-IN CAPITAL
Changes in additional paid-in capital for the years indicated were:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $30,284 $29,776 $34,336
Premium, net of expenses,
received from sales of
common stock 13,136 508 -
Three-for-two stock split - - (4,560)
Balance, end of year $43,420 $30,284 $29,776
</TABLE>
(3) LONG-TERM DEBT
Substantially all of the Company's utility property is subject to the lien
of the Indenture securing its first mortgage bonds. First mortgage bonds
of the Company may be issued in amounts limited by property, earnings, and
other provisions of the mortgage indentures.
In 1992, the Company issued $12,300,000, 6.7% Unsecured Pollution Control
Refunding Revenue Bonds, due 2010. The proceeds were used to redeem
$12,300,000 of 6.625% and 6.85%, Pollution Control Revenue Bonds, due 2007.
The Company entered into a refunding agreement in 1992 to refund the
existing $12,200,000, 10.5% Pollution Control Revenue Bonds in 1994 with
7.5% Pollution Control Revenue Bonds. The refunding agreement obligates
the Company to call and satisfy in full the existing bonds in 1994,
including a redemption premium of 2% or $240,000 on the existing bonds.
Because of the forward nature of this transaction, the refunding will not
be reflected in the Company's consolidated financial statements or capital
structure until 1994.
In 1991, the Company issued two series of first mortgage bonds, $35,000,000
at 9.35% due 2021 and $13,806,000 at 9.00% due 2003. The funds were
primarily used for the purchase of the Wyodak Plant as described in Note 6.
Scheduled maturities of long-term debt for the next five years are:
$3,542,000 in 1994, $2,144,000 in 1995, $2,255,000 in 1996, $2,384,000 in
1997, and $2,196,000 in 1998.
(4) NOTES PAYABLE TO BANKS
At December 31, 1993, the Company had $40,000,000 of unsecured short-term
lines of credit. Borrowings outstanding under these lines of credit were
$11,700,000 and $6,000,000 as of December 31, 1993 and 1992, respectively.
Average borrowings during 1993, 1992, and 1991 were $11,059,000,
$5,616,000, and $4,552,000, respectively. The average interest rate on
these borrowings was 5.2%, 6.0%, and 8.3% in 1993, 1992, and 1991,
respectively. The Company has no compensating balance requirements
associated with these lines of credit. The Company pays a 0.125% facility
fee on $10,000,000 of the existing lines. The lines of credit are subject
to periodic review and renewal during the year by the banks.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of the Company's financial instruments.
Cash and Cash Equivalents
The carrying amount approximates fair value due to the short maturity of
those instruments.
Short-Term and Other Investments
The fair value of the Company's short-term and other investments equals the
quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on quoted
market rates for utility debt instruments having similar maturities and
similar debt ratings, with an exception for debt associated with the
federal coal lease modifications. The fair value of the bonus payments for
the federal coal lease modifications equals the discounted future cash
flows using the prime rate as the discount rate. The final federal bonus
payment is due February 1, 1994.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1993
(in thousands)
Carrying Fair
Amount Value
<S> <C> <C>
Cash and cash equivalents $ 7,866 $ 7,866
Short-term investments 24,217 24,217
Other investments 7,250 7,257
Long-term debt 88,816 105,639
</TABLE>
<TABLE>
<CAPTION>
1992
(in thousands)
Carrying Fair
Amount Value
<S> <C> <C>
Cash and cash equivalents $ 5,767 $ 5,767
Short-term investments 16,099 16,177
Other investments 21,974 22,023
Long-term debt 92,982 101,885
</TABLE>
The majority of the Company's outstanding bonds are currently subject to
make-whole provisions which would eliminate any economic benefits for the
Company to call and refinance the bonds.
(6) WYODAK PLANT
On April 8, 1991, the Company purchased a 20% interest and PacifiCorp an
80% interest in the Wyodak Plant (the Plant), a 330 MW coal-fired electric
generating station located in Campbell County, Wyoming. PacifiCorp is the
operator of the Plant. The total acquisition cost of the Company's 20%
interest was approximately $42,022,000. The Company financed its 20%
interest through the issuance of first mortgage bonds.
The Company and PacifiCorp had leased the Plant since 1978 under a
leveraged lease agreement. The lease was recorded by the Company as a
capital asset with corresponding debt at the present value of the lease
payments.
Non-cash investing and financing activities associated with the acquisition
were as follows:
Acquisition of interest in Wyodak Plant
through debt issuance and assumption $42,022,000
Elimination of capital lease asset and
obligation relating to the Wyodak Plant 30,694,000
The Company received a rate order from the South Dakota Public Utilities
Commission that allows the capitalization of the full cost of the Plant for
rate making purposes in South Dakota. Electric sales to South Dakota
customers represent approximately 82% of total electric sales.
The Company receives 20% of the Plant's capacity and is committed to pay
20% of its additions, replacements, and operating and maintenance expenses.
As of December 31, 1993, the Company's investment in the Plant included
$71,207,000 in electric plant and $18,844,000 in accumulated depreciation.
The Company's share of direct expenses of the Plant is included in the
corresponding categories of operating expenses in the accompanying
consolidated statements of income.
Wyodak Resources Development Corp. (WRDC) supplies coal to the Plant under
an agreement expiring in 2013 with a 10 year renewal option. This coal
supply agreement is collateralized by a mortgage on and a security interest
in some of WRDC's coal reserves. At December 31, 1993, approximately
32,250,000 tons were covered under this agreement. WRDC's sales to the
Plant were $21,438,000, $20,317,000, and $17,775,000 for the years ended
December 31, 1993, 1992, and 1991, respectively.
(7) COMMITMENTS AND CONTINGENT LIABILITIES
NEW POWER PLANT
Construction of Neil Simpson Unit #2 (NSS #2), an 80 MW coal fired
generating plant located adjacent to the Wyodak coal mine, commenced in
August 1993. The Company has committed to the South Dakota Public
Utilities Commission and the Wyoming Public Service Commission to construct
NSS #2 at a capital cost not to exceed $124,889,000 including AFDC and to
not include in rate base any capital costs in excess thereof. The
construction of the plant is scheduled to be completed by the end of 1995.
The Company has incurred approximately $15,000,000 of costs related to the
plant as of December 31, 1993.
WRDC has committed to supply all of the coal requirements for the life of
the plant. The coal pricing methodology would restrict WRDC's earnings on
all coal sales to the Company to a return on its investment base. WRDC has
committed to further reduce the price for coal to be used in any of the
Company's power plants during a period of time that under prudent dispatch
that power plant would not have been operated if it were not for the
discounted price of coal.
COAL OBLIGATIONS
In addition to the 32,250,000 tons of coal reserved under the agreement
with the Wyodak Plant, WRDC has reserved 30,000,000 tons of coal under
existing contracts and 52,000,000 tons of coal under future purchase
options. None of the purchase options are expected to be exercised because
the option price is substantially higher than the market price. An option
for 50,000,000 tons can be exercised only if WRDC has not committed the
coal reserves to other buyers prior to the exercise of the option.
POWER PURCHASE AGREEMENT
In 1983 the Company entered into a 40 year power agreement with PacifiCorp
providing for the purchase of 75 megawatts of electric capacity and energy.
Although the price paid for the capacity and energy is based on the
operating costs of one of PacifiCorp's coal-fired electric generating
plants, the power can come from anywhere in PacifiCorp's system. Costs
incurred under this agreement were $21,106,000, $21,507,000, and
$22,280,000 in 1993, 1992, and 1991, respectively.
RECLAMATION
Under its mining permit, WRDC is required to reclaim all land where it has
mined coal reserves. The cost of reclaiming the land is accrued as the
coal is mined. While the reclamation process takes place on a continual
basis, much of the reclamation occurs over an extended period after the
area is mined. Approximately $650,000 is charged to operations as
reclamation expense annually. As of December 31, 1993, accrued reclamation
costs were approximately $7,290,000.
OTHER
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of operations and in the sales of formerly owned
companies. In the opinion of management, the amount of liability, if any,
with respect to these actions would not materially affect the consolidated
financial position or results of operations of the Company.
(8) EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan (the Plan) covering
substantially all employees. The benefits are based on years of service
and compensation levels during the highest five consecutive years of the
last ten years of service. The Company's funding policy is in accordance
with the federal government's funding requirements. The Plan's assets
consist primarily of equity and debt securities and cash equivalents.
Net pension expense (income) for the Plan was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Service cost $ 651 $ 535 $ 499
Interest cost 1,899 1,687 1,510
Return on assets:
Actual (2,852) (2,224) (5,210)
Deferred 333 (215) 3,203
Net pension expense (income) $ 31 $ (217) $ 2
</TABLE>
Funding information for the Plan as of October 1 of each year was as
follows:
<TABLE>
<CAPTION>
1993 1992
(in thousands)
<S> <C> <C>
Fair value of plan
assets $25,186 $23,602
Projected benefit
obligation 28,367 22,969
(3,181) 633
Unrecognized:
Net loss (gain) 3,779 (13)
Prior service cost 1,105 1,204
Transition asset (631) (721)
Prepaid pension cost $ 1,072 $ 1,103
Accumulated benefit
obligation $22,464 $18,885
Vested benefit obligation $21,507 $18,123
Actuarial assumptions:
Discount rate 7.5% 8.5%
Expected long-term rate of
return on assets 11% 11%
Rate of increase in
compensation levels 5% 5%
</TABLE>
The change in the assumed discount rate from 8.5% in 1992 to 7.5% in 1993
resulted in an increase in the accumulated benefit obligation and projected
benefit obligation of $2,260,000 and $3,403,000, respectively.
The Company has various supplemental retirement plans for outside directors
and key executives of the Company. The plans are nonqualified defined
benefit plans. Costs incurred under the plans were $633,000, $735,000, and
$570,000 in 1993, 1992, and 1991, respectively.
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions. The new standard requires that the expected cost of these
benefits must be charged to expense during the years that the employees
render service. Prior to adopting the standard the Company expensed these
benefits as they were paid. The Company is amortizing the transition
obligation of $2,996,000 over a 20 year period.
Employees retiring from the Company on or after attaining age 55 who have
rendered at least five years of service to the Company are entitled to
postretirement healthcare benefits coverage. These benefits are subject to
premiums, deductibles, copayment provisions, and other limitations. The
Company may amend or change the plan periodically. The Company is not pre-
funding its retiree medical plan.
The net periodic postretirement cost for the Company was as follows:
<TABLE>
<CAPTION>
1993
(in thousands)
<S> <C>
Service cost $127
Interest cost 250
Amortization of transition
obligation 150
Net periodic postretirement
benefit cost $527
</TABLE>
Funding information as of October 1 was as follows:
<TABLE>
<CAPTION>
1993
(in thousands)
<S> <C>
Accumulated postretirement benefit
obligation:
Retirees $1,316
Fully eligible active participants 865
Other active participants 1,921
Unfunded accumulated postretirement
benefit obligation 4,102
Unrecognized net loss (892)
Unrecognized transition obligation (2,846)
Accrued postretirement benefit cost $ 364
</TABLE>
For measurement purposes, an 11.5% annual rate of increase in healthcare
benefits was assumed for 1994; the rate was assumed to decrease gradually
to 6% in 2005 and remain at that level thereafter. The healthcare cost
trend rate assumption has a significant effect on the amounts reported. A
1% increase in the healthcare cost trend assumption would increase the net
periodic postretirement cost by approximately $140,000 annually or 20.8%.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%.
(9) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
the use of the liability method in accounting for income taxes. Under the
liability method, deferred income taxes are recognized, at currently
enacted income tax rates, to reflect the tax effect of temporary
differences between the financial reporting and tax basis of assets and
liabilities. Such temporary differences are the result of provisions in
the income tax law that either require or permit certain items to be
reported on the income tax return in a different period than they are
reported in the financial statements. To implement the statement, certain
adjustments were made to accumulated deferred income taxes. To the extent
such income taxes are recoverable or payable through future rates,
regulatory assets and liabilities have been recorded in the accompanying
consolidated balance sheets. Initial application of the statement had no
material impact on the Company's results of operations.
Income tax expense for the years indicated was:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Current $7,923 $7,745 $9,350
Deferred 1,547 1,273 (289)
Investment tax credits, net (505) (512) (512)
$8,965 $8,506 $8,549
</TABLE>
The sources of temporary differences and the tax effect of each are
summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Tax in excess of book depreciation $ 662 $ 566 $ 257
Inventory accounting method (184) (179) (308)
Mining development and oil
exploration costs 1,315 848 61
Other (246) 38 (299)
$1,547 $1,273 $ (289)
</TABLE>
The temporary differences which gave rise to the net deferred tax liability
at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
Net Deferred
Income
Tax Asset
Assets Liabilities (Liability)
(in thousands)
<S> <C> <C> <C>
Accelerated depreciation and
other plant-related differences $ - $32,507 $(32,507)
AFUDC-equity - 461 (461)
Regulatory asset 2,350 - 2,350
Unamortized investment tax credits 2,109 - 2,109
Mining development and oil
exploration 746 2,383 (1,637)
Employee benefits 1,227 455 772
Other 839 899 (60)
$7,271 $36,705 $(29,434)
</TABLE>
The effective tax rate differs from the federal statutory rate for the
years ended December 31, as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Federal statutory rate 35.0% 34.0% 34.0%
Percentage depletion in
excess of cost (2.8) (2.3) (2.3)
Amortization of investment
tax credits (1.6) (1.5) (1.6)
Tax exempt interest income (1.7) (2.3) (2.8)
Other (0.8) (1.4) 0.1
28.1% 26.5% 27.4%
</TABLE>
(10) OIL AND GAS RESERVES (Unaudited)
The following table summarizes Western Production Company's (WPC) estimated
quantities of proved developed and undeveloped oil and natural gas reserves
at December 31, 1993 and 1992, and a reconciliation of the changes between
these dates using constant product prices for the respective years. These
estimates are based on reserve reports by an independent engineering
company selected by the Company. Such reserve estimates are based upon a
number of variable factors and assumptions which may cause these estimates
to differ from actual results.
<TABLE>
<CAPTION>
1993 1992
Oil Gas Oil Gas
(in thousands of barrels of oil and MCF of gas)
<S> <C> <C> <C> <C>
Proved developed and
undeveloped reserves:
Balance at beginning of year 2,199 3,243 2,524 4,799
Production (327) (777) (247) (379)
Additions 259 1,847 193 272
Revisions to previous
estimates due to changed
economic conditions (1,015) (1,554) (271) (1,449)
Balance at end of year 1,116 2,759 2,199 3,243
Proved developed reserves at end
of year included above 1,116 2,759 1,630 2,633
Year end prices $13.00 $ 2.35 $18.75 $ 1.65
</TABLE>
WPC has interests in 386 oil and gas properties in seven states. WPC
operates a total of 347 wells in Wyoming, Colorado, and South Dakota.
WPC's non-operated properties are located in Wyoming, Colorado, North
Dakota, Montana, Kansas, and Texas. WPC also holds leases on approximately
74,000 gross and 50,000 net undeveloped acres.
(11) SUMMARY OF INFORMATION RELATING TO SEGMENTS OF THE COMPANY'S BUSINESS
The three primary segments of the Company's business are its electric, coal
mining, and oil and gas production operations. The following table
summarizes certain information specifically identifiable with each segment
as of or for the years ended December 31.
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Assets at year end:
Electric $259,680 $238,378 $228,788
Coal mining 72,328 71,194 71,873
Oil and gas 20,845 20,630 19,234
$352,853 $330,202 $319,895
Depreciation, depletion, and
amortization:
Electric $ 9,952 $ 9,614 $ 8,644
Coal mining 1,953 1,482 1,572
Oil and gas 4,146 2,764 1,796
$ 16,051 $ 13,860 $ 12,012
Capital expenditures:
NSS #2 (includes AFDC) $12,792 $ 2,227 $ -
Other electric 13,140 15,507 29,865*
Coal mining 7,425 5,001 1,129
Oil and gas 6,933 5,180 5,987
$ 40,290 $ 27,915 $ 36,981
<FN>
* Includes the acquisition of the Wyodak Plant (See Note 6).
</TABLE>
(12) SUPPLEMENTARY INCOME STATEMENT INFORMATION
PACIFICORP COAL SETTLEMENT
In 1987 WRDC entered into an agreement with PacifiCorp which (a) settled
PacifiCorp's obligation to purchase coal commencing in 1990 for a second
plant to be located at Wyodak, the construction of which had been canceled,
(b) provided for, among other things, increases in the coal price and
minimum coal purchase obligations by PacifiCorp for the Wyodak Plant, and
(c) provided for payments to WRDC of $2,000,000 each on January 2, 1988
through 1991 for an option to purchase additional coal. These settlements
resulted in an increase in the Company's net income in 1993, 1992, and 1991
of approximately $1,500,000, $2,800,000, and $2,600,000 or $0.11, $0.20,
and $0.19 per share of common stock, respectively.
OTHER COAL SETTLEMENTS
In late 1987, WRDC agreed to the termination of a long-term coal supply
agreement with the city of Grand Island, Nebraska. Grand Island was
granted a 14 year option to purchase coal and in return WRDC will receive
payments of approximately $155,000 each year.
<TABLE>
TAXES OTHER THAN INCOME TAXES
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Property $ 3,549 $2,996 $2,366
Production and severance 2,982 2,622 2,820
Payroll 1,195 1,225 1,164
Black lung 1,256 1,191 1,099
Federal reclamation 1,060 1,035 960
Other 167 195 170
$10,209 $9,264 $8,579
</TABLE>
<TABLE>
COMPONENTS OF OTHER INCOME (EXPENSE):
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Coal settlements
PacifiCorp $ - $ 940 $ 802
Grand Island 155 155 125
Other 319 138 (296)
$ 474 $1,233 $ 631
</TABLE>
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years indicated are summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Operating revenues $34,375 $32,924 $36,304 $35,770
Operating income 9,980 7,793 10,087 9,926
Net income 6,103 4,575 6,011 6,257
Earnings per share of common
stock 0.45 0.33 0.44 0.44
Common stock prices
High $28-1/4 $27-1/4 $27-1/8 $26-1/8
Low $24-7/8 $24-5/8 $25-1/8 $21-7/8
Dividends paid per share
of common stock $ 0.32 $ 0.32 $ 0.32 $ 0.32
YEAR ENDED DECEMBER 31, 1992
Operating revenues $32,463 $32,175 $35,359 $35,346
Operating income 8,826 7,608 10,050 9,865
Net income 5,588 5,581 6,276 6,193
Earnings per share of common
stock 0.41 0.41 0.46 0.45
Common stock prices
High $29-1/2 $32-1/4 $29-5/8 $29-1/4
Low $25-3/8 $25-1/2 $27-1/2 $23-3/4
Dividends paid per share
of common stock $ 0.31 $ 0.31 $ 0.31 $ 0.31
</TABLE>
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
(unaudited)
<CAPTION>
Years ended December 31 1993 1992 1991 1990 1989
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $139,373 $135,343 $133,373 $127,498 $120,004
Net income from
continuing operations 22,946 23,638 22,681 22,938 21,957
Per share of common
stock:
Earnings from
continuing operations 1.66 1.73 1.66 1.68 1.60
Dividends paid 1.28 1.24 1.17 1.09 1.01
Total assets 352,853 330,202 319,895 294,929 272,523
Total long-term
obligations 85,274 88,816 92,982 78,978 78,939
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATISTICS
<CAPTION>
Years ended December 31 1993 1992 1991
<S> <C> <C> <C>
TOTAL ASSETS (in thousands) $352,853 $330,202 $319,895
PROPERTY AND INVESTMENTS (in thousands)
Total property and investments . . .$433,143 $413,192 $390,766
Accumulated depreciation
and depletion. . . . . . . . . . . . 144,492 132,890 122,574
Capital expenditures
(includes AFDC) . . . . . . . . . . 40,290 27,915 36,981
CAPITALIZATION (in thousands)
Long-term debt . . . . . . . . . . .$ 85,274 $ 88,816 $ 92,982
Common stock equity . . . . . . . . . 168,089 149,158 141,963
Total . . . . . . . . . . . . .$253,363 $237,974 $234,945
CAPITALIZATION RATIOS
Long-term debt . . . . . . . . . . . 33.7% 37.3% 39.6%
Common stock equity . . . . . . . . . 66.3 62.7 60.4
Total . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
AVERAGE INTEREST RATE ON LONG-TERM DEBT 9.0% 8.9% 8.9%
NET INCOME AVAILABLE FOR
COMMON STOCK (in thousands) . . . . $ 22,946 $ 23,638 $ 22,681
DIVIDENDS PAID ON COMMON STOCK
(in thousands) . . . . . . . . . . . $ 17,720 $ 16,977 $ 16,045
COMMON STOCK DATA (in thousands)*
Shares outstanding, average. . . . . . 13,811 13,689 13,675
Shares outstanding, end of year. . . . 14,270 13,701 13,675
Earnings per average share,
in dollars. . . . . . . . . . . . . $ 1.66 $ 1.73 $ 1.66
Dividends paid per share, in dollars $ 1.28 $ 1.24 $ 1.17
Book value per share, end of
year, in dollars. . . . . . . . . . $ 11.78 $ 10.89 $ 10.38
RETURN ON COMMON STOCK EQUITY. . . . . 13.7% 15.8% 16.0%
ALLOWANCE FOR FUNDS USED DURING
CONSTRUCTION AS PERCENT OF NET
INCOME. . . . . . . . . . . . . . . . 3.2% 1.6% 0.8%
(continued)
<CAPTION>
Years ended December 31 1990 1989 1988
<S> <C> <C> <C>
TOTAL ASSETS (in thousands) $294,929 $272,523 $270,258
PROPERTY AND INVESTMENTS (in thousands)
Total property and investments. . . .$355,276 $331,310 $304,445
Accumulated depreciation
and depletion. . . . . . . . . . . . 111,111 101,591 92,661
Capital expenditures
(includes AFDC) . . . . . . . . . . 22,336 10,176 12,950
CAPITALIZATION (in thousands)
Long-term debt . . . . . . . . . . .$ 78,978 $ 78,939 $ 82,709
Common stock equity . . . . . . . . . 135,329 127,338 120,100
Total . . . . . . . . . . . . .$214,307 $206,277 $202,809
CAPITALIZATION RATIOS
Long-term debt . . . . . . . . . . . 36.9% 38.3% 40.8%
Common stock equity . . . . . . . . . 63.1 61.7 59.2
Total . . . . . . . . . . . . . 100.0% 100.0% 100.0%
AVERAGE INTEREST RATE ON LONG-TERM DEBT 8.6% 8.5% 8.5%
NET INCOME AVAILABLE FOR
COMMON STOCK (in thousands) . . . . $ 22,938 $ 21,096 $ 22,191
DIVIDENDS PAID ON COMMON STOCK
(in thousands) . . . . . . . . . . . $ 14,947 $ 13,858 $ 12,756
COMMON STOCK DATA (in thousands)*
Shares outstanding, average. . . . . . 13,675 13,675 13,665
Shares outstanding, end of year. . . . 13,675 13,675 13,675
Earnings per average share,
in dollars. . . . . . . . . . . . . $ 1.68 $ 1.54 $ 1.62
Dividends paid per share, in dollars.$ 1.09 $ 1.01 $ 0.93
Book value per share, end of
year, in dollars . . . . . . . . . $ 9.90 $ 9.31 $ 8.78
RETURN ON COMMON STOCK EQUITY . . . . 16.9% 16.6% 18.5%
ALLOWANCE FOR FUNDS USED DURING
CONSTRUCTION AS PERCENT OF
NET INCOME . . . . . . . . . . . . 1.2% 0.5% 0.7%
<FN>
* Common stock data have been adjusted retroactively to reflect the three-
for-two stock split in March 1992.
</TABLE>
<PAGE>
<TABLE>
ELECTRIC OPERATION STATISTICS
<CAPTION>
Years ended December 31 1993 1992 1991
<S> <C> <C> <C>
ELECTRIC ENERGY GENERATED
AND PURCHASED (megawatt hours)
Generated, net station output . . . 1,227,084 1,226,153 1,148,259
Purchased and net interchange . . . 435,990 397,478 444,848
Total generated and purchased . 1,663,074 1,623,631 1,593,107
Non-firm sales . . . . . . . . . . . (7,780) (10,405) (1,040)
Company use and losses . . . . . . . (61,336) (73,627) (59,896)
Total electric energy sales . . 1,593,958 1,539,599 1,532,171
ELECTRIC ENERGY SALES (megawatt hours)
Residential . . . . . . . . . . . . 370,736 339,341 355,691
General and commercial . . . . . . . 469,496 446,036 440,043
Industrial . . . . . . . . . . . . . 568,316 572,244 550,999
Public authorities . . . . . . . . . 22,621 21,798 21,347
Sales for resale . . . . . . . . . . 162,789 160,180 164,091
Total electric energy sales . . 1,593,958 1,539,599 1,532,171
ELECTRIC REVENUE (in thousands)
Residential . . . . . . . . . . . . $ 27,064 $ 25,366 $ 27,053
General and commercial . . . . . . . 32,295 30,742 31,227
Industrial . . . . . . . . . . . . . 25,901 27,106 26,812
Public authorities . . . . . . . . . 1,537 1,586 1,593
Sales for resale . . . . . . . . . . 7,122 7,002 7,223
Total electric revenue . . . . 93,919 91,802 93,908
Other revenue. . . . . . . . . . . . 4,236 5,646 4,250
Total revenue $ 98,155 $ 97,448 $ 98,158
ELECTRIC CUSTOMERS (end of year)
Residential . . . . . . . . . . . . 44,657 44,100 43,539
General and commercial . . . . . . . 8,507 8,279 8,083
Industrial . . . . . . . . . . . . . 41 38 40
Public authorities . . . . . . . . . 124 117 112
Other electric utilities . . . . . . 1 1 1
Total . . . . . . . . . . . . . 53,330 52,535 51,775
RESIDENTIAL STATISTICS
Average annual KWH usage:
With electric heating. . . . . . . 17,601 15,380 16,773
Without electric heating . . . . . 6,428 6,172 6,502
All residential. . . . . . . . . . 8,351 7,743 8,218
Average price per KWH, in cents . . 7.2 7.6 7.6
AVERAGE PRICE PER KWH, ALL CUSTOMERS
(in cents) . . . . . . . . . . . . . . 6.0 6.2 6.1
(continued)
<CAPTION>
Years ended December 31 1990 1989 1988
<S> <C> <C> <C>
ELECTRIC ENERGY GENERATED
AND PURCHASED (megawatt hours)
Generated, net station output . . . 1,169,054 1,046,971 1,119,073
Purchased and net interchange . . . 379,268 468,768 388,394
Total generated and purchased . 1,548,322 1,515,739 1,507,467
Non-firm sales . . . . . . . . . . . (5,576) (29,087) (45,943)
Company use and losses . . . . . . . (64,031) (53,282) (56,869)
Total electric energy sales . . 1,478,715 1,433,370 1,404,655
ELECTRIC ENERGY SALES (megawatt hours)
Residential . . . . . . . . . . . . 338,391 343,645 337,375
General and commercial . . . . . . . 415,635 395,712 396,366
Industrial . . . . . . . . . . . . . 542,312 529,703 509,036
Public authorities . . . . . . . . . 20,819 20,980 24,574
Sales for resale . . . . . . . . . . 161,558 143,330 137,304
Total electric energy sales . . 1,478,715 1,433,370 1,404,655
ELECTRIC REVENUE (in thousands)
Residential . . . . . . . . . . . . $ 25,498 $ 25,456 $ 24,768
General and commercial . . . . . . . 29,027 27,815 26,884
Industrial . . . . . . . . . . . . . 25,917 25,153 23,359
Public authorities . . . . . . . . . 1,540 1,563 1,656
Sales for resale . . . . . . . . . . 6,532 5,745 5,740
Total electric revenue . . . . 88,514 85,732 82,407
Other revenue . . . . . . . 3,762 4,650 3,838
Total revenue $ 92,276 $ 90,382 $ 86,245
ELECTRIC CUSTOMERS (end of year)
Residential . . . . . . . . . . . . 43,020 42,505 41,880
General and commercial . . . . . . . 7,866 7,703 7,512
Industrial . . . . . . . . . . . . . 44 40 37
Public authorities . . . . . . . . . 114 111 105
Other electric utilities . . . . . . 1 1 1
Total . . . . . . . . . . . . . 51,045 50,360 49,535
RESIDENTIAL STATISTICS
Average annual KWH usage:
With electric heating. . . . . . . 15,978 16,881 16,218
Without electric heating . . . . . 6,288 6,421 6,461
All residential. . . . . . . . . . 7,897 8,171 8,056
Average price per KWH, in cents . . 7.5 7.4 7.3
AVERAGE PRICE PER KWH, ALL CUSTOMERS
(in cents) . . . . . . . . . . . . . . 6.0 6.0 5.9
</TABLE>
<PAGE>
DIRECTORY
COMMON STOCK
Transfer Agent, Registrar, and Dividend Disbursing Agent
Chemical Bank
450 West 33rd Street
New York, New York 10001
FIRST MORTGAGE BONDS
Trustee and Paying Agent
Chemical Bank
450 West 33rd Street
New York, New York 10001
POLLUTION CONTROL AND INDUSTRIAL DEVELOPMENT REVENUE BONDS
Trustee and Paying Agent
Norwest Bank Minnesota, N.A.
Eighth Street and Marquette Avenue
Minneapolis, Minnesota 55479
GENERAL COUNSEL
Morrill Brown & Thomas
P.O. Box 8108
Rapid City, South Dakota 57709
CORPORATE OFFICES
Black Hills Corporation
P.O. Box 1400
Rapid City, South Dakota 57709
(605) 348-1700
The Company's common stock ($1 par value) is traded on The New York Stock
Exchange. Quotations for the common stock are reported under the symbol
BKH. At year-end the Company had 7,243 common stockholders of record. All
fifty states and the District of Columbia plus twelve foreign countries are
represented.
The continued interest and support of equity owners is appreciated. The
Company has declared common stock dividends payable in cash in each year
since its incorporation in 1941. At its January 1994 meeting the Board of
Directors raised the quarterly dividend to 33 cents per share, equivalent
to an annual increase of 4 cents per share. This regular quarterly
dividend is payable March 1, 1994. All dividends are reportable for
federal income tax purposes as ordinary dividend income.
The Annual Report is mailed to each shareholder in accordance with
government rules. Dividend payments and interim reports of the Company are
mailed quarterly. Dividend payment dates are March 1, June 1, September 1,
and December 1. You may receive more than one copy of the Annual Report if
there are variations in your name or address in which your stock is
registered. Duplicate mailings of annual and interim reports can be
eliminated upon written request of the shareholder.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, FILED WITH THE
SECURITIES AND EXCHANGE COMMISION, IS AVAILABLE TO SHAREHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO ROXANN R. BASHAM, SECRETARY, P.O. BOX 1400,
RAPID CITY, SOUTH DAKOTA 57709.
1994 ANNUAL MEETING
The Annual Meeting of Stockholders will be held at the Holiday Inn -
Rushmore Plaza Hotel, 505 North Fifth Street, Rapid City, South Dakota, at
9:30 A.M., on May 24, 1994. Prior to the meeting, formal notice, proxy
statement, and proxy will be mailed to shareholders.
DIRECT DEPOSIT OF DIVIDENDS
The Company encourages you to consider the direct deposit of your
dividends. With direct deposit, your quarterly dividend payment can be
automatically transferred on the dividend payment date to the bank, savings
and loan, or credit union of your choice. Direct deposit assures payments
are credited to shareholders' accounts without delay. A form is attached
to your dividend check where you can request information about this method
of payment. Questions regarding direct deposit should be directed to
Chemical Bank, Security Holder Relations, P. O. Box 24935, Church Street
Station, New York, New York 10249.
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment and Stock Purchase Plan (the Plan) is available to
common shareholders. The Company revised its plan in November 1993. The
new Plan provides a method of investing common stock dividends and optional
cash payments in additional shares of common stock of the Company at 100
percent of the recent average market price. The participant may elect to
continue to receive cash dividends on shares registered in their names and
invest by making optional cash payments only. Questions regarding the Plan
should be directed to the Secretary of the Company or Chemical Bank,
Dividend Reinvestment Department, J.A.F. Building, P.O. Box 3069, New York,
New York 10116-3069 or by calling the Bank toll free at 1-800-279-1246.
