SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission file Number 1-7978
BLACK HILLS CORPORATION
Incorporated in South Dakota IRS Identification Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57709
Registrant's telephone number, including area code
(605) 348-1700
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common stock of $1.00 par value New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant.
At February 29, 1996 $370,052,400
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT FEBRUARY 29, 1996
Common stock, $1.00 par value 14,433,686 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. Definitive Proxy Statement of the Registrant filed pursuant to
Regulation 14A for the 1996 Annual Meeting of Stockholders to be
held on May 21, 1996, is incorporated by reference in Part III.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants 25
Consolidated Statements of Income and Retained Earnings
for the three years ended December 31, 1995 26
Consolidated Statements of Cash Flows for
the three years ended December 31, 1995 27
Consolidated Balance Sheets as of December 31, 1995 and 1994 28
Consolidated Statements of Capitalization as of
December 31, 1995 and 1994 29
Notes to Consolidated Financial Statements 30
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, 1995 and 1994, and the related consolidated
statements of income, retained earnings and cash flows for each of the
three years in the period ended December 31, 1995. 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 30, 1996
<PAGE>
BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Operating revenues:
Electric $108,783 $104,756 $ 98,155
Coal mining 29,870 28,594 29,822
Oil and gas 11,164 12,052 11,396
-------- -------- --------
149,817 145,402 139,373
-------- -------- --------
Operating expenses:
Fuel and purchased 39,265 41,970 36,946
power
Operations and 28,523 28,713 30,237
maintenance
Administrative and 9,226 7,920 8,144
general
Depreciation, depletion 19,660 17,601 16,051
and amortization
Taxes, other than 10,981 10,366 10,208
income taxes
-------- -------- --------
107,655 106,570 101,586
-------- -------- --------
Operating income:
Electric 28,243 25,076 23,982
Coal mining 12,226 11,900 12,361
Oil and gas 1,693 1,856 1,444
-------- -------- --------
42,162 38,832 37,787
-------- -------- --------
Other income (expense):
Interest expense (14,195) (10,339) (8,817)
Investment income 1,368 1,631 1,739
Allowance for funds 5,867 3,983 729
used during construction
Other, net 1,125 93 473
-------- -------- --------
(5,835) (4,632) (5,876)
-------- -------- --------
Income before income 36,327 34,200 31,911
taxes
Income taxes (10,737) (10,395) (8,965)
-------- -------- --------
Net income $ 25,590 $ 23,805 $ 22,946
======== ======== ========
Weighted average common 14,409 14,339 13,811
shares outstanding
Earnings per share of $ 1.78 $ 1.66 $ 1.66
common stock
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $115,284 $110,399 $105,173
Net income 25,590 23,805 22,946
Cash dividends on common
stock ($1.34, $1.32 (19,312) (18,920) (17,720)
and $1.28 per share,
respectively)
-------- -------- --------
Balance, end of year $121,562 $115,284 $110,399
======== ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net income $ 25,590 $23,805 $22,946
Principal non-cash
items-
Depreciation, depletion 19,660 17,601 16,051
and amortization
Deferred income taxes
and investment tax 2,097 2,470 1,042
credits
Allowance for other
funds used during (3,645) (2,371) (333)
construction
Increase in receivables,
inventories and other (669) (3,438) (1,556)
current assets
Increase (decrease) in (1,420) 5,054 (2,562)
current liabilities
Other, net 3,677 5,815 4,259
------- ------- -------
45,290 48,936 39,847
------- ------- -------
Investing activities:
Neil Simpson Unit #2
construction costs,
excluding allowance for (29,820) (71,956) (12,675)
other funds used during
construction
Other property
additions, excluding (18,430) (28,732) (27,282)
allowance for other
funds used during
construction
Available for sale (19,323) (41,923) (33,622)
securities purchased
Available for sale 36,941 46,964 40,228
securities sold
------- ------- -------
(30,632) (95,647) (33,351)
------- ------- -------
Financing activities:
Dividends paid (19,312) (18,920) (17,720)
Common stock issued 654 2,436 13,705
Net short-term (36,400) 25,250 3,784
borrowings (repayments)
Long-term debt issued 46,904 45,795 -
Long-term debt retired (10,499) (3,542) (4,166)
------- ------- -------
(18,653) 51,019 (4,397)
------- ------- -------
Increase (decrease) in
cash and cash (3,995) 4,308 2,099
equivalents
Cash and cash equivalents:
Beginning of year 12,174 7,866 5,767
------- ------- -------
End of year $ 8,179 $12,174 $ 7,866
======= ======= =======
Supplemental disclosure of
cash flow information:
Cash paid during the
period for-
Interest $12,901 $ 9,244 $ 9,283
Income taxes $ 7,775 $ 7,290 $ 8,000
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1995 1994
ASSETS (in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,179 $ 12,174
Securities available for sale 6,804 24,422
Receivables, net
Customers 13,339 12,409
Other 3,825 4,045
Materials, supplies and fuel 7,415 7,139
Prepaid expenses 1,247 1,564
-------- --------
40,809 61,753
-------- --------
Property and investments:
Electric 469,135 425,690
Coal mining 44,473 51,755
Oil and gas 40,704 38,842
Other 3,330 3,009
-------- --------
557,642 519,296
Less accumulated depreciation and (164,383) (156,046)
depletion
-------- --------
393,259 363,250
-------- --------
Deferred charges:
Federal income taxes 7,543 7,505
Regulatory asset 2,576 699
Other 4,643 3,670
-------- --------
14,762 11,874
-------- --------
$448,830 $436,877
======== ========
LIABILITIES AND CAPITALIZATION
Current liabilities:
Current maturities of long-term $ 1,405 $ 2,144
debt
Notes payable 618 37,018
Accounts payable 9,737 12,018
Accrued liabilities-
Taxes 7,047 6,331
Interest 4,089 2,795
Other 6,977 8,126
-------- --------
29,873 68,432
-------- --------
Deferred credits:
Federal income taxes 45,290 39,953
Investment tax credits 5,018 5,521
Reclamation costs 7,974 7,618
Regulatory liability 7,111 6,925
Other 5,153 4,093
-------- --------
70,546 64,110
-------- --------
Commitments and contingent
liabilities
(Notes 6, 7 and 8)
Capitalization, per accompanying
statements:
Common stock equity 182,342 175,410
Long-term debt 166,069 128,925
-------- --------
348,411 304,335
-------- --------
$448,830 $436,877
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31 1995 1994
(in thousands)
<S> <C> <C>
Common stock equity:
Common stock, $1 par value;
50,000,000 shares authorized; $ 14,425 $ 14,386
14,424,952 and 14,386,353
shares outstanding respectively
Additional paid-in capital 46,355 45,740
Retained earnings 121,562 115,284
-------- --------
Total common stock equity 182,342 175,410
-------- --------
Cumulative preferred stock:
No par value; 400,000 share - -
authorized; no shares outstanding
$100 par value; 270,000 shares - -
authorized; no shares outstanding
Long-term debt:
First mortgage bonds-
8.375% retired 1995 - 2,675
8.05% retired 1995 - 4,850
6.625% pollution control bonds, - 1,680
retired 1995
6.50% due 2002 15,000 -
9.00% due 2003 9,275 10,561
8.06% due 2010 30,000 -
9.49% due 2018 6,000 6,000
9.35% due 2021 35,000 35,000
8.30% due 2024 45,000 45,000
-------- --------
140,275 105,766
-------- --------
Other-
6.7% pollution control revenue 12,300 12,300
bonds, due 2010
7.5% pollution control revenue 12,200 12,200
bonds, due 2024
Other long-term obligations 2,699 803
-------- --------
27,199 25,303
-------- --------
Total long-term debt 167,474 131,069
Current maturities (1,405) (2,144)
-------- --------
Net long-term debt 166,069 128,925
-------- --------
Total capitalization $348,411 $304,335
======== ========
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, 1995, 1994, AND 1993
(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Black Hills Corporation and its subsidiaries 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 18 percent of the Company's electric revenue in
1995 and 20 percent in 1994 and 1993. 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 discussed in
Note 6, 64 percent of the coal mining operation's sales are to the
Wyodak Plant. Sales of coal to the Company and to PacifiCorp represent
88 percent of total coal sales. The Company's oil and gas exploration
and production business operates and has working interests in properties
located in the western United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Black
Hills Corporation and its wholly owned subsidiaries. All significant
intercompany 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 $10,498,000, $9,445,000 and $10,047,000 in 1995, 1994
and 1993, respectively.
REGULATORY ACCOUNTING
Black Hills Power follows Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," and its financial statements reflect the effects of the
different ratemaking principles followed by the various jurisdictions
regulating Black Hills Power. As a result of Black Hills Power's recent
regulatory activity, a 50-year depreciable life for NS #2 is used for
financial reporting purposes. If Black Hills Power were not following
SFAS 71, a 35 to 40 year life would probably be more appropriate which
would increase depreciation expense by approximately $600,000 per year.
If rate recovery of generation-related costs becomes unlikely or
uncertain, due to competition or regulatory action, these accounting
standards may no longer apply to Black Hills Power's generation
operations. In the event Black Hills Power determines that it no longer
meets the criteria for following SFAS 71, the accounting impact to the
Company would be an extraordinary noncash charge to operations of an
amount that could be material. Criteria that give rise to the
discontinuance of SFAS 71 include increasing competition that could
restrict Black Hills Power's ability to establish prices to recover
specific costs and a significant change in the manner in which rates are
set by regulators from cost-based regulation to another form of
regulation. The Company periodically reviews these criteria to ensure
the continuing application of
SFAS 71 is appropriate.
PROPERTY
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.
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
3.0 percent in 1995, 3.1 percent in 1994 and 3.2 percent in 1993.
Composite depreciation rates for other property were 8.9 percent, 10.3
percent and 9.6 percent in 1995, 1994 and 1993, 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.
AVAILABLE FOR SALE SECURITIES
The Company has investments in marketable securities which are
classified as available-for-sale securities. The difference between the
securities fair value and cost basis and the realized gains and losses
on sales of the securities were not significant for the periods
presented.
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.
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Ultimate results could differ from those
estimates.
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 10.2 percent in 1995, 8.7 percent in 1994 and 7.7
percent in 1993.
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.
RECLASSIFICATIONS
Certain amounts previously reported in the 1994 financial statements
have been reclassified to conform to the 1995 financial statement
presentation. Those reclassifications had no effect on previously
reported net income or common stock equity.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of," which imposes a stricter
criterion for assets by requiring that such assets be probable of future
recovery at each balance sheet date. The adoption of the standard did
not have an impact on the financial position or results of operations
based on the current regulatory structure in which the Company operates.
This may change in the future as competitive factors influence wholesale
and retail pricing in the utility industry.
(2) CAPITAL STOCK
COMMON STOCK
Common shares issued at $1.00 par value during the years indicated were:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Public Offering - - 525,000
Employee Stock 38,599 4,195 16,402
Purchase Plan
Dividend Reinvestment
and Stock Purchase Plan - 112,578 26,891
------ ------- -------
38,599 116,773 568,293
====== ======= =======
</TABLE>
At December 31, 1995, 231,415 shares of unissued common stock were
available for future offerings under the Employee Stock Purchase Plan.
The Company has a 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
percent 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, 1995, 860,531 shares of unissued common stock were
available for future offerings under the Plan.
<PAGE>
ADDITIONAL PAID-IN CAPITAL
Changes in additional paid-in capital for the years indicated were:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Balance, beginning of $45,740 $43,420 $30,284
year
Premium, net of expenses,
received from sales of stock 615 2,320 13,136
------- ------- -------
Balance, end of year $46,355 $45,740 $43,420
======= ======= =======
</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. Scheduled
maturities of long-term debt for the next five years are: $1,405,000 in
1996, $1,534,000 in 1997, $1,331,000 in 1998, and $1,330,000 in 1999 and
2000.
In 1994 the Company filed a Form S-3, shelf registration for
$100,000,000 first mortgage bonds. Under the filing, the Company issued
bonds in the amount of $45,000,000 on September 1, 1994, $30,000,000 on
February 3, 1995 and $15,000,000 on July 14, 1995. The $30,000,000 bond
issue is redeemable at the option of the holders in integral multiples
of $1,000 on February 1, 2002. These bond issues were used to finance
NS #2.
The Company also completed the refinancing of the $12,200,000, City of
Gillette Pollution Control Revenue Bonds during 1994. In 1992 the
Company entered into a forward refunding on the $12,200,000, 10.5
percent, City of Gillette Pollution Control Revenue Bonds. The new
bonds were issued in July 1994 at 7.5 percent, due 2024.
(4) NOTES PAYABLE TO BANKS
The Company had $36,000,000 of unsecured short-term lines of credit at
December 31, 1995 and $70,000,000 at December 31, 1994. Borrowings
outstanding under these lines of credit were $575,000 and $36,975,000 as
of December 31, 1995 and 1994, respectively. The weighted average
interest rate on these borrowings at December 31, 1995 and 1994 was 7.4
percent and 6.9 percent, respectively. Average borrowings during 1995
and 1994 were $6,619,000 and $21,070,000, respectively. The Company has
no compensating balance requirements associated with these lines of
credit. The lines of credit are subject to periodic review and renewal
during the year by the banks.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash of the Company is invested in money market investments such as
municipal put bonds, money market preferreds, commercial paper,
Eurodollars and certificates of deposit. The Company considers all
highly liquid investments with an original maturity of three months or
less to be cash equivalents.
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
these instruments.
AVAILABLE FOR SALE SECURITIES
The fair value of the Company's investments equals the quoted market
price when available and a quoted market price for similar securities if
a quoted market price is not available. The Company has classified all
of its marketable securities as available-for-sale as of December 31,
1995.
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. The Company's outstanding bonds
are either currently not callable or are subject to make-whole
provisions which would eliminate any economic benefits for the Company
to call and refinance the bonds.
<PAGE>
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 8,179 $ 8,179 $ 12,174 $ 12,174
Securities available for sale:
Corporate debt securities 1,000 1,000 12,200 12,200
State and local agency 5,804 5,804 12,222 12,222
obligations
Long-term debt 167,474 194,625 131,069 133,313
</TABLE>
(6) WYODAK PLANT
The Company owns a 20 percent interest and PacifiCorp an 80 percent
interest in the Wyodak Plant (the Plant), a 330 megawatt coal-fired
electric generating station located in Campbell County, Wyoming.
PacifiCorp is the operator of the Plant. The Company receives 20
percent of the Plant's capacity and is committed to pay 20 percent of
its additions, replacements and operating and maintenance expenses. As
of December 31, 1995, the Company's investment in the Plant included
$73,203,000 in electric plant and $23,053,000 in accumulated
depreciation. The Company's share of direct expenses of the Plant were
$6,503,000, $6,945,000 and $6,882,000 for the years ended December 31,
1995, 1994 and 1993, respectively, and are included in the corresponding
categories of operating expenses in the accompanying consolidated
statements of income. Wyodak Resources supplies coal to the Plant under
an agreement expiring in 2013 with a PacifiCorp option to renew for 10
years. This coal supply agreement is collateralized by a mortgage on
and a security interest in some of Wyodak Resources' coal reserves. At
December 31, 1995, approximately 28,412,000 tons were covered under this
agreement. Wyodak Resources' sales to the Plant were $20,224,000,
$20,671,000 and $21,438,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
(7) COMMITMENTS AND CONTINGENT LIABILITIES
MDU POWER SALE
During 1994, the Company entered into a Power Integration Agreement with
MDU. The agreement provides that for a period of 10 years commencing
January 1, 1997, the Company will supply up to 55 megawatts of electric
power and associated energy required by MDU for its Sheridan, Wyoming,
service territory. MDU's Sheridan service area has experienced a 45
megawatt peak and a load factor of approximately 60 percent.
COAL OBLIGATIONS
In addition to the 28,412,000 tons of coal reserved under the agreement
to supply coal to the Wyodak Plant, Wyodak Resources has reserved
28,110,000 tons of coal under existing contracts and 51,000,000 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 Wyodak Resources has not committed the coal reserves
to other buyers prior to the exercise of the option.
PACIFICORP PURCHASE POWER 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 from its system. The price paid for the capacity
and energy is based on the operating costs of one of PacifiCorp's
coal-fired electric generating plants. Costs incurred under this
agreement were $20,689,000, $23,132,000 and $21,106,000 in 1995, 1994
and 1993, respectively.
RECLAMATION
Under its mining permit, Wyodak Resources 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 $600,000 is
charged to operations as reclamation expense annually. As of December
31, 1995, accrued reclamation costs were approximately $8,000,000.
OTHER
The Company is subject to various legal proceedings and claims which
arise in the ordinary course of operations. 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.
<PAGE>
(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 securities and cash
equivalents.
Net pension expense for the Plan was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Service cost $ 802 $ 865 $ 651
Interest cost 2,169 2,074 1,899
Return on
assets:
Actual (5,204) (1,819) (2,852)
Deferred 2,603 (793) 333
------ ------ ------
Net pension $ 370 $ 327 $ 31
expense ====== ====== ======
</TABLE>
Funding information for the Plan as of October 1 of each year was as
follows:
1995 1994
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Fair value of plan assets $29,184 $25,584
Projected benefit obligation (30,714) (27,931)
------- -------
(1,530) (2,347)
Unrecognized:
Net loss 1,559 2,747
Prior service cost 796 885
Transition asset (451) (541)
------- -------
Prepaid pension cost $ 374 $ 744
======= =======
Accumulated benefit obligation $24,969 $22,649
======= =======
Vested benefit obligation $23,919 $21,749
======= =======
Actuarial assumptions:
Discount rate 7.5% 8.0%
Expected long-term rate of
return on assets 10.5% 10.5%
Rate of increase
in compensaton levels 5% 5%
</TABLE>
The change in the assumed discount rate from 8.0 percent in 1994 to 7.5
percent in 1995 resulted in an increase in the accumulated benefit
obligation and projected benefit obligation of $1,381,000 and
$1,923,000, respectively.
The Company has various supplemental retirement plans for outside
directors and key executives of the Company. The plans are nonqualified
defined benefit plans. Expenses recognized under the plans were
$350,000, $401,000 and $633,000 in 1995, 1994 and 1993, respectively.
The Company follows Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
The 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 in 1993, 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.
<PAGE>
The net periodic postretirement cost for the Company was as follows:
1995 1994
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Service cost $211 $188
Interest cost 429 303
Amortization of 150 150
transition obligation
Amortization of loss 79 28
---- ----
$869 $669
==== ====
</TABLE>
Funding information as of October 1 was as follows:
1995 1994
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $1,485 $1,805
Fully eligible active 723 1,246
participants
Other active 1,906 2,400
participants
------ ------
Unfunded accumulated 4,114 5,451
postretirement benefit
obligation
Unrecognized net gain 140 (1,838)
(loss)
Unrecognized transition (2,546) (2,696)
obligation
------ ------
$1,708 $ 917
====== ======
</TABLE>
For measurement purposes, a 10.5 percent annual rate of increase in
healthcare benefits was assumed for 1996; the rate was assumed to
decrease gradually to 6 percent in 2005 and remain at that level
thereafter. The healthcare cost trend rate assumption has a significant
effect on the amounts reported. A one percent increase in the
healthcare cost trend assumption would increase the net periodic
postretirement cost by approximately $116,000 annually or 18.8 percent.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent.
(9) INCOME TAXES
The Company follows 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 and tax bases 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 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.
Income tax expense for the years indicated was:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Current $ 8,640 $ 7,925 $7,923
Deferred 2,600 2,975 1,547
Investment tax (503) (505) (505)
credits, net
------- ------- ------
$10,737 $10,395 $8,965
======= ======= ======
</TABLE>
<PAGE>
The temporary differences which gave rise to the net deferred tax
liability at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
NET DEFERRED
INCOME
TAX ASSET
December 31, 1995 ASSETS LIABILITIES (LIABILITY)
(in thousands)
<S> <C> <C> <C>
Accelerated depreciation
and other plant-
related differences $ - $42,182 $(42,182)
Regulatory asset 2,482 - 2,482
Regulatory liability - 1,415 (1,415)
Unamortized investment 1,756 - 1,756
tax credits
Mining development 988 898 90
and oil exploration
Employee benefits 1,828 137 1,691
Other 489 658 (169)
------ ------- --------
$7,543 $45,290 $(37,747)
====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
NET DEFERRED
INCOME
TAX ASSET
December 31, 1994 ASSETS LIABILITIES (LIABILITY)
(in thousands)
<S> <C> <C> <C>
Accelerated
depreciation and $ - $34,940 $(34,940)
other plant-
related differences
Regulatory asset 2,350 - 2,350
Regulatory liability - - -
Unamortized 2,109 - 2,109
investment tax
credits
Mining development 678 2,896 (2,218)
and oil exploration
Employee benefits 1,521 278 1,243
Other 847 1,839 (992)
------ ------- --------
$7,505 $39,953 $(32,448)
====== ======= ========
</TABLE>
The effective tax rate differs from the federal statutory rate for the
years ended December 31, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal statutory 35.0% 35.0% 35.0%
rate
Regulatory asset (1.9) - -
recognition
Amortization of (1.4) (1.5) (1.6)
investment tax
credits
Tax-exempt interest (0.8) (1.1) (1.7)
income
Percentage depletion (0.4) (1.7) (2.8)
in excess of cost
Other (0.9) (0.3) (0.8)
---- ---- ----
29.6% 30.4% 28.1%
==== ==== ====
</TABLE>
(10) OIL AND GAS RESERVES (Unaudited)
Western Production has interests in 448 producing oil and gas properties
in eight states. Western Production's non-operated properties are
located in the western United States. Western Production also holds
leases on approximately 62,000 net undeveloped acres.
The following table summarizes Western Production's quantities of proved
developed and undeveloped oil and natural gas reserves, estimated using
constant year-end product prices, as of December 31, 1995 and 1994, and
a reconciliation of the changes between these dates. These estimates
are based on reserve reports by Ralph E. Davis Associates, Inc. (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.
<PAGE>
<TABLE>
<CAPTION>
1995 1994
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 1,438 9,080 1,116 2,759
beginning of year
Production (266) (1,986) (321) (1,731)
Additions 168 4,106 107 7,582
Property sales (103) (843) - -
Revisions to
previous estimates
due primarily to 375 (2,699) 536 470
changed economic
conditions
----- ----- ----- -----
Balance at end of 1,612 7,658 1,438 9,080
year ===== ===== ===== =====
Proved developed
reserves at end of 1,606 6,370 1,436 6,246
year included above ===== ===== ===== =====
Year-end prices $18.50 $ 1.90 $15.75 $ 1.72
</TABLE>
(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>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Assets at year-end:
Electric $380,256 $340,042 $259,680
Coal mining 45,224 72,851 72,328
Oil and gas 23,350 23,984 20,845
-------- -------- --------
$448,830 $436,877 $352,853
======== ======== ========
Depreciation,
depletion and
amortization:
Electric $ 11,943 $ 10,314 $ 9,952
Coal mining 3,575 2,427 1,953
Oil and gas 4,142 4,860 4,146
-------- -------- --------
$ 19,660 $ 17,601 $ 16,051
======== ======== ========
Capital
expenditures:
NS #2 (includes $ 33,219 $ 73,984 $ 12,792
AFDC)
Other electric 11,242 14,187 13,140
Coal mining 1,546 5,911 7,425
Oil and gas 5,888 8,977 6,933
-------- -------- --------
$ 51,895 $103,059 $ 40,290
======== ======== ========
</TABLE>
(12) SUPPLEMENTARY INCOME STATEMENT INFORMATION
TAXES OTHER THAN INCOME TAXES
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Property $ 3,696 $ 3,637 $ 3,549
Production and 3,385 2,995 2,982
severance
Payroll 1,402 1,334 1,195
Black lung 1,263 1,205 1,256
Federal reclamation 1,027 979 1,060
Other 208 216 166
------- ------- -------
$10,981 $10,366 $10,208
======= ======= =======
</TABLE>
<PAGE>
FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS (in thousands) $448,830 $436,877 $352,853 $330,202 $319,895
PROPERTY AND INVESTMENTS
(in thousands)
Total property and $557,642 $519,296 $433,143 $413,192 $390,766
investments
Accumulated depreciation 164,383 156,046 144,492 132,890 122,574
and depletion
Capital expenditures 51,895 103,059 40,290 27,915 36,981
(includes AFDC)
CAPITALIZATION (in
thousands)
Long-term debt $166,069 $128,925 $ 85,274 $ 88,816 $ 92,982
Common stock equity 175,410 149,158 141,963 182,342 168,089
-------- -------- -------- -------- --------
Total $348,411 $304,335 $253,363 $237,974 $234,945
======== ======== ======== ======== ========
CAPITALIZATION RATIOS
Long-term debt 47.7% 42.4% 33.7% 37.3% 39.6%
Common stock equity 52.3 57.6 66.3 62.7 60.4
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
AVERAGE INTEREST RATE ON 8.1% 8.5% 9.0% 8.9% 8.9%
LONG-TERM DEBT
NET INCOME AVAILABLE FOR
COMMON STOCK (in thousands) $25,590 $23,805 $22,946 $23,638 $22,681
DIVIDENDS PAID ON COMMON $19,312 $18,920 $17,720 $16,977 $16,045
STOCK (in thousands)
COMMON STOCK DATA (in
thousands)*
Shares outstanding, 14,409 14,339 13,811 13,689 13,675
average
Shares outstanding, end of 14,425 14,386 14,270 13,701 13,675
year
Earnings per average $1.78 $1.66 $1.66 $1.73 $1.66
share, in dollars
Dividends paid per share, $1.34 $1.32 $1.28 $1.24 $1.17
in dollars
Book value per share, end $12.64 $12.19 $11.78 $10.89 $10.38
of year, in dollars
RETURN ON COMMON STOCK 14.0% 13.6% 13.7% 15.8% 16.0%
EQUITY
ALLOWANCE FOR FUNDS USED
DURING CONSTRUCTION AS 22.9% 16.7% 3.2% 1.6% 0.8%
PERCENT OF NET INCOME
</TABLE>
* Common stock data have been adjusted retroactively to reflect
the three-for-two stock split in March 1992.
<PAGE>
ELECTRIC OPERATION STATISTICS
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
ELECTRIC ENERGY GENERATED
AND PURCHASED (megawatt
hours)
Generated, net station 1,320,630 1,108,530 1,227,084 1,226,153 1,148,259
output
Purchased and net 473,175 595,872 435,990 397,478 444,848
interchange
Total generated and 1,793,805 1,704,402 1,663,074 1,623,631 1,593,107
purchased
Non-firm sales (60,575) (1,000) (7,780) (10,405) (1,040)
Company use and losses (87,512) (65,651) (61,336) (73,627) (59,896)
--------- --------- --------- --------- ---------
Total electric 1,645,718 1,637,751 1,593,958 1,539,599 1,532,171
energy sales ========= ========= ========= ========= =========
ELECTRIC ENERGY SALES
(megawatt hours)
Residential 383,929 368,953 370,736 339,341 355,691
General and commercial 513,854 495,909 469,496 446,036 440,043
Industrial 552,829 583,258 568,316 572,244 550,999
Public authorities 23,164 23,051 22,621 21,798 21,347
Sales for resale 171,942 166,580 162,789 160,180 164,091
--------- --------- --------- --------- ---------
Total electric 1,645,718 1,637,751 1,593,958 1,539,599 1,532,171
energy sales ========= ========= ========= ========= =========
ELECTRIC REVENUE (in
thousands)
Residential $ 30,433 $ 28,574 $ 27,064 $ 25,366 $ 27,053
General and commercial 37,663 35,390 32,295 30,742 31,227
Industrial 26,495 27,318 25,901 27,106 26,812
Public authorities 1,775 1,718 1,537 1,586 1,593
Sales for resale 8,366 7,460 7,122 7,002 7,223
-------- -------- -------- -------- --------
Total electric 104,732 100,460 93,919 91,802 93,908
revenue
Other revenue 4,051 4,296 4,236 5,646 4,250
-------- -------- -------- -------- --------
Total revenue $108,783 $104,756 $ 98,155 $ 97,448 $ 98,158
======== ======== ======== ======== ========
ELECTRIC CUSTOMERS
(end of year)
Residential 45,886 45,060 44,657 44,100 43,539
General and commercial 8,958 8,732 8,507 8,279 8,083
Industrial 35 36 41 38 40
Public authorities 138 130 124 117 112
Other electric 1 1 1 1 1
utilities
------ ------ ------ ------ ------
Total 55,018 53,959 53,330 52,535 51,775
====== ====== ====== ====== ======
RESIDENTIAL STATISTICS
Average annual KWH
usage:
With electric heating 16,901 16,369 17,601 15,380 16,773
Without electric 6,688 6,488 6,428 6,172 6,502
heating
All residential 8,452 8,198 8,351 7,743 8,218
Average price per KWH, 7.9 7.7 7.3 7.5 7.6
in cents
AVERAGE PRICE PER KWH,
ALL SALES 6.1 6.1 5.9 5.9 6.1
(in cents)
AVERAGE PRICE PER KWH, 6.3 6.1 5.9 5.9 6.1
FIRM SALES (in cents)
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this amendment to be signed on
its behalf by the undersigned, thereunto duly authorized.
BLACK HILLS CORPORATION
By /c/ROXANN R. BASHAM
Roxann R. Basham
Corpoarate Secretary and Treasurer
Dated: March 19, 1996
