Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998.
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from _______________ to _______________.
Commission File Number 1-7978
Black Hills Corporation
Incorporated in South Dakota IRS Identification Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57709
Registrant's telephone number (605)-348-1700
Former name, former address, and former fiscal year
if changed since last report
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the last practicable date.
Class Outstanding at April 30, 1998
Common stock, $1.00 par value 21,711,598 shares
<PAGE>
BLACK HILLS CORPORATION
I N D E X
Page
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets- 3-4
March 31, 1998, December 31, 1997
and March 31, 1997
Consolidated Statements of Income- 5
Three and Twelve Months
Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows- 6
Three and Twelve Months
Ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of 10-12
Financial Position and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
<TABLE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
<CAPTION>
Unaudited Unaudited
March 31 December 31 March 31
1998 1997 1997
(in thousands)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 20,793 $ 16,774 $ 17,831
Securities available for sale 19,313 13,969 15,270
Receivables, net
Customers 57,292 39,639 12,603
Other 3,269 3,414 2,362
Materials, supplies, and fuel 8,397 8,642 7,895
Prepaid expenses 1,986 1,571 1,585
111,050 84,009 57,546
Property and investments:
Electric 489,036 487,424 480,158
Coal mining 53,039 52,804 53,388
Oil and gas 53,043 52,412 46,344
Other 6,299 5,666 4,549
601,417 598,306 584,439
Less accumulated depreciation
and depletion (202,481) (197,179) (186,182)
Net property andinvestments 398,936 401,127 398,257
Other assets:
Federal income taxes 8,020 8,061 8,013
Regulatory asset 3,926 3,776 3,326
Other 11,845 11,768 4,813
23,791 23,605 16,152
Total $533,777 $508,741 $471,955
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
<CAPTION>
Unaudited Unaudited
March 31 December 31 March 31
1998 1997 1997
(in thousands)
LIABILITIES AND CAPITALIZATION
<S> <C> <C> <C>
Current liabilities:
Current maturities of
long-term debt $ 1,330 $ 1,331 $ 1,310
Notes payable 12 23 23
Accounts payable 51,148 32,622 5,207
Accrued liabilities-
Taxes 13,633 8,040 12,725
Interest 2,988 3,991 2,996
Other 6,336 7,800 6,206
75,447 53,807 28,467
Deferred credits:
Federal income taxes 53,605 53,010 49,254
Investment tax credits 3,889 4,014 4,390
Reclamation costs 16,840 16,664 16,446
Regulatory liability 6,028 6,152 6,568
Other 6,480 6,331 5,897
86,842 86,171 82,555
Capitalization:
Common stock equity-
Common stock 21,712 21,705 14,457
Additional paid-in
capital 40,143 39,995 46,973
Retained earnings 146,799 143,703 135,339
Total common stock
equity 208,654 205,403 196,769
Long-term debt 162,834 163,360 164,164
371,488 368,763 360,933
Total $533,777 $508,741 $471,955
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
BLACK HILLS CORPORATION
Consolidated Statements of Income
(unaudited)
<CAPTION>
Three Months Twelve Months
March 31 March 31
1998 1997 1998 1997
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues:
Electric $ 31,990 $ 32,034 $126,452 $120,447
Coal mining 7,924 8,125 30,878 31,372
Oil and gas 3,186 3,719 12,762 13,543
Energy marketing 87,956 - 230,747 -
131,056 43,878 400,839 165,362
Operating expenses:
Fuel and purchased power 95,691 9,466 263,534 34,846
Operations and
maintenance 8,244 7,353 32,423 30,247
Administrative and
general 2,791 2,476 11,950 8,872
Depreciation, depletion,
and amortization 6,139 5,579 22,851 22,967
Taxes, other than
income taxes 3,218 3,298 11,906 12,599
116,083 28,172 342,664 109,531
Operating income (loss):
Electric 12,315 11,208 45,718 39,711
Coal mining 3,197 3,430 11,984 12,359
Oil and gas 272 1,068 2,110 3,761
Energy marketing (811) - (1,637) -
14,973 15,706 58,175 55,831
Other income and (expense):
Interest expense (3,590) (3,479) (14,234) (13,954)
Investment income 597 369 2,364 1,507
Allowance for funds used
during construction 29 65 151 299
Other, net 277 (183) 36 1,035
(2,687) (3,228) (11,683) (11,113)
Income before
income taxes 12,286 12,478 46,492 44,718
Income taxes (3,742) (3,891) (14,176) (13,880)
Net income available
for common stock $ 8,544 $ 8,587 $ 32,316 $ 30,838
Earnings per share -
basic and diluted $ 0.39 $ 0.40 $ 1.49 $ 1.42
Weighted average common
shares outstanding 21,712 21,681 21,699 21,669
Dividends paid per
share of common stock $ 0.25 $ 0.24 $ 0.96 $ 0.93
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
<CAPTION>
Three Months Twelve Months
March 31 March 31
1998 1997 1998 1997
(in thousands)
<S> <C> <C> <C> <C>
Operating activities:
Net Income $ 8,544 $ 8,587 $32,316 $30,838
Principal non-cash items-
Depreciation, depletion,
and amortization 6,139 5,579 22,851 22,967
Deferred income taxes
and investment tax credits 245 583 1,881 1,632
Allowance for other funds
used during construction (18) (36) (81) (151)
(Increase) decrease in
receivables, inventories,
and other current assets (17,678) 1,754 (46,499) 2,210
Increase (decrease) in
other current liabilities 21,652 696 46,971 2,140
Other, net (673) (180) 147 2,041
18,211 16,983 57,586 61,677
Investing activities:
Available for sale
securities sold 3,880 2,341 19,789 35,518
Property additions,
excluding allowance
for other funds used
during construction (3,018) (2,816) (21,597) (24,605)
Available for sale
securities purchased (9,224) (6,153) (23,832) (37,323)
Energy marketing assets - - (7,232) -
(8,362) (6,628) (32,872) (26,410)
Financing activities:
Dividends paid (5,448) (5,132) (20,856) (20,083)
Common stock issued 155 139 425 470
Net short-term borrowings (11) (120) (11) (900)
Long-term debt issued - - - -
Long-term debt payments (526) (751) (1,310) (1,313)
(5,830) (5,864) (21,752) (21,826)
Increase (decrease) in
cash and cash
equivalents 4,019 4,491 2,962 13,441
Cash and cash equivalents:
Beginning of period 16,774 13,340 17,831 4,390
End of period $20,793 $17,831 $20,793 $17,831
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 4,593 $ 4,518 $14,242 $13,968
Income taxes $ 2,000 $ - $13,840 $12,016
Assumption of Clovis
Point reclamation
liability $ - $ - $ - $ 7,957
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BLACK HILLS CORPORATION
Notes to Consolidated Financial Statements
(Reference is made to Notes to Consolidated Financial Statements
included in the Company's Annual Report and Form 10-K)
(1) MANAGEMENT'S STATEMENT
The financial statements included herein have been prepared by Black
Hills Corporation (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the footnotes adequately
disclose the information presented. These financial statements should be
read in conjunction with the financial statements and the notes thereto,
included in the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Accounting methods historically employed require certain estimates
as of interim dates. The information furnished in the accompanying
financial statements reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of the March 31, 1998,
December 31, 1997 and March 31, 1997, financial information and are of a
normal recurring nature. The results of operations for the three and
twelve months ended March 31, 1998, are not necessarily indicative of the
results to be expected for the full year.
(2) CAPITAL STOCK
In January, 1998, the Board of Directors declared a 3-for-2 Common
Stock Split effected in the form of a stock dividend. The stock dividend
was paid March 10, 1998 to shareholders of record on February 13, 1998.
The common stock share and per share information in the accompanying
consolidated financial statements and notes have been restated to reflect
the stock distribution.
(3) NET INCOME PER SHARE
The Company adopted the Financial Accounting Standards Board (FASB)
Statement No. 128 "Earnings Per Share" in 1997 which requires the
presentation of basic and diluted earnings per share. Basic earnings per
share is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during each
year. Diluted earnings per share is computed under the treasury stock
method and is calculated to compute the dilutive effect of outstanding
stock options. A reconciliation of these amounts is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 March 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Income $ 8,544 $ 8,587 $32,316 $30,838
Weighted average common
shares outstanding:
Basic 21,712 21,681 21,699 21,669
Dilutive effect of
option plan 24 7 16 4
Diluted 21,736 21,688 21,715 21,673
Earnings per share
(Basic and Diluted): $0.39 $0.40 $1.49 $1.42
</TABLE>
(4) COMPREHENSIVE INCOME
The Company adopted FASB Statement No. 130, "Reporting Comprehensive
Income", effective January 1, 1998. Statement No. 130 establishes
standards for reporting and display of comprehensive earnings and its
components in financial statements; however, the adoption of this
Statement had no impact on the Company's net earnings or shareholders'
equity. Statement No. 130 requires minimum pension liability
adjustments, unrealized gains or losses on the Company's available-for-
sale securities and foreign currency translation adjustments, which prior
to adoption were reported separately in shareholders' equity, to be
included in other comprehensive earnings. There were no material
differences between net earnings and comprehensive earnings for any
periods presented on the accompanying financial statements.
(5) ACCOUNTING PRONOUNCEMENTS
The FASB has issued two accounting pronouncements which the Company
will adopt in the fourth quarter of 1998. FASB Statement NO. 131
"Disclosures about Segments of an Enterprise and Related Information"
requires that a publicly-held company report financial and descriptive
information about its operating segments in financial statements issued
to shareholders for interim and annual periods. The Statement also
required additional disclosures with respect to products and services,
geographic areas of operation, and major customers. The Company has
historically presented segment information in the consolidated financial
statements and related notes and as such does not expect adoption of the
disclosures requirements of this pronouncement will have a material
impact on its financial statements.
FASB Statement No. 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits - an amendment of FASB Statements No. 87,
88, and 106" requires revised disclosures about pension and other
postretirement benefit plans. The Company does not expect that adoption
of the disclosure requirements of this pronouncement will have a material
impact on its financial statements.
In March, 1998, the American Institute of Certified Public Accounts
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." The
Statement is effective for fiscal years beginning after December 15,
1998. Earlier application is encouraged in fiscal years for which annual
financial statements have not been issued. The statement defines which
costs of computer software developed or obtained for internal use are
capital and which costs are expense. The Company has not yet determined
when they will adopt the new Statement. The effect of adoption is not
expected to materially affect the Company's financial position or result
operations.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY, CAPITAL RESOURCES, AND COMMITMENTS
In the past the Company has depended upon internally generated
funds, issuance of short and long-term debt and sales of common stock to
finance its activities. It is expected that future activities will also
be financed by the most appropriate mix of these various sources of
funds.
The Company currently has bank lines of credit totaling $12,000,000,
which provide for interim borrowings and the opportunity for timing of
permanent financing. The Company had no balances outstanding under these
lines of credit on March 31, 1998. There are no compensating balance
requirements associated with these lines of credit.
In addition to the above lines of credit, Black Hills Energy
Resources, Inc. has an uncommitted demand credit facility for up to $65
million. This facility allows $50 million for a transactional line of
credit and $15 million overdraft line of credit. This facility is used
to support the issuance of letters of credit. At March 31, 1998, Black
Hills Energy Resources has approximately $28 million of outstanding
letters of credit.
In addition to the above lines of credit, Wyodak Resources
Development Corp. has guaranteed a $15,000,000 line of credit for Enserco
Energy, Inc. to use to guarantee letters of credit. At March 31, 1998,
there were no balances outstanding on this line of credit.
RESULTS OF OPERATIONS
Black Hills Corporation is an energy company consisting of four
principal businesses: electric, coal mining, oil and gas production, and
crude oil and natural gas marketing.
<PAGE>
Consolidated net income was $8,544,000 for the three months ended
and $32,316,000 for the twelve months ended March 31, 1998, representing
stable earnings and an increase of 5 percent, respectively. The increase
in earnings for the twelve months ended March 31, 1998 was primarily due
to increased sales volumes for the electric operations, resulting from
sales to Montana-Dakota Utilities, Sheridan, Wyoming load, which
commenced January 1, 1997, partially offset by lower oil and gas
commodity prices, mild weather and weak market conditions in the areas
served by the energy marketing companies. Consolidated revenues and fuel
and purchased power expense increased for the three and twelve months
ended March 31, 1998 primarily due to oil and natural gas purchases and
sales from the energy marketing operations.
Consolidated revenue and income from continuing operations provided
by the four businesses as a percentage of the total were as follows:
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 March 31
1998 1997 1998 1997
REVENUES
<S> <C> <C> <C> <C>
Electric 25% 73% 32% 73%
Coal mining 6 19 8 19
Oil and gas 2 8 3 8
Energy marketing 67 - 57 -
100% 100% 100% 100%
NET INCOME/(LOSS)
Electric 75% 64% 71% 61%
Coal mining 28 29 28 31
Oil and gas 2 8 5 9
Energy marketing
and Other (5) (1) (4) (1)
100% 100% 100% 100%
</TABLE>
Capital expenditures and depreciation, depletion, and amortization
by business segment were as follows (in thousands):
<TABLE>
CAPITAL EXPENDITURES
(includes AFDC)
<S> <C> <C> <C> <C>
Electric $2,162 $1,490 $13,254 $13,251
Coal mining 245 205 1,546 1,988
Oil and gas 630 1,126 6,699 9,439
Energy marketing - - 7,232 -
Other (1) 31 179 78
$3,036 $2,852 $28,910 $24,756
Depreciation, Depletion,
AND AMORTIZATION
Electric $3,797 $3,821 $14,584 $16,220
Coal mining 855 761 3,282 3,079
Oil and gas 1,342 997 4,606 3,668
Energy marketing 145 - 379 -
$6,139 $5,579 $22,851 $22,967
</TABLE>
ELECTRIC OPERATIONS
Electric revenue were stable and increased 5% for the three and
twelve month periods ending March 31, 1998. Firm kilowatthour sales
decreased 4 percent for the three month period due to milder weather and
the Homestake reorganization, and increased 8 percent for twelve month
periods due to serving the Montana-Dakota Utilities, Sheridan, Wyoming
Load beginning January 1, 1997. In January the Company's third largest
electric customer (5.6 percent of 1997 electric revenues), Homestake
Mining Company, implemented a reorganization plan which included a
temporary shutdown of its gold mine. The mine reopened in April 1998 with
a reduced workforce. In addition, our low-cost generation allowed the
Company to recapture a portion of the margin loss from Homestake in the
spot energy market.
Electric expenses decreased 8% and increased 3% for the three and
twelve months ended March 31, 1998 due to continued cost containment and
lower purchased power and fuel costs. For the twelve months ended March
31, 1998, such cost containment and lower purchased power and fuel costs
partially offset additional cost associated with serving the Sheridan,
Wyoming load.
MINING OPERATIONS
Mining earnings decreased 2% and 7% for the three and twelve month
periods ending March 31, 1998. Earnings decreased $658,000 for the
twelve month period primarily as a result of a gain from the sale and
retirement of property recognized in the fourth quarter of 1996. Tons of
coal sold were relatively flat compared to the prior year.
OIL AND GAS PRODUCTION OPERATIONS
Oil and gas earnings decreased $546,000 and $1,128,000 for the three
and twelve month periods primarily as a result of decreased commodity
prices. Oil and natural gas prices decreased 33 percent and 28 percent,
respectively for the three month period and decreased 21 percent and 4
percent, respectively for the twelve month period ended March 31, 1998.
Production increased 7 percent and 2 percent for the three and twelve
month periods, respectively.
ENERGY MARKETING OPERATIONS
Energy marketing revenues and related fuel and purchased power
expenses represents the crude oil and natural gas purchases and sales of
Black Hills Energy Resources, Inc. which was acquired on July 25, 1997.
Crude oil and natural gas wholesale marketing operations are high-volume,
low margin operations. Mild weather in the East Coast and Midwest
markets served and high storage levels through the winter depressed
margins for the periods. Black Hills Energy Resources marketed 306,700
mmbtus and 14,900 barrels of oil per day for the three month period ended
March 31, 1998 and 258,900 mmbtus and 13,400 barrels of oil per day since
the Company acquired the assets in July 1997.
<PAGE>
BLACK HILLS CORPORATION
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
There are no legal proceedings to be reported on for the
quarter ending March 31, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
None
b. REPORTS ON FORM 8-K
None
<PAGE>
BLACK HILLS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BLACK HILLS CORPORATION
/S/ ROXANN R. BASHAM
Roxann R. Basham, Vice President-Finance
(Principal Financial Officer)
/S/ MARK T. THIES
Mark T. Thies, Controller
(Principal Accounting Officer)
Dated: May 11, 1998
