Securities and Exchange Commission
Washington, D.C. 20549
Form 10Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999.
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from _______________ to _______________.
Commission File Number 1-7978
Black Hills Corporation
Incorporated in South Dakota IRS Identification Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57709
Registrant's telephone number (605)-348-1700
Former name, former address, and former fiscal year if changed since last report
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable date.
Class Outstanding at October 31, 1999
Common stock, $1.00 par value 21,349,881 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
September 30, 1999, December 31, 1998
and September 30, 1998
Consolidated Statements of Income- 5
Three, Nine and Twelve Months
Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows- 6
Three, Nine and Twelve Months
Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of 14-19
Financial Position and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31 September 30
1999 1998 1998
(unaudited) (in thousands) (unaudited)
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 13,928 $ 14,764 $ 14,421
Securities available for sale 11,417 22,675 23,951
Receivables, net
Customers 124,724 87,068 67,557
Other 4,736 2,919 3,267
Materials, supplies, and fuel 16,056 9,733 9,205
Prepaid expenses 3,563 3,321 3,083
----------- ---------- -----------
174,424 140,480 121,484
--------- -------- ---------
Property and investments:
Electric utility 512,393 496,883 493,727
Non-regulated energy 128,307 115,271 114,180
Communication and others 33,840 7,395 4,883
----------- ---------- ----------
674,540 619,549 612,790
Less accumulated depreciation
and depletion (245,607) (229,942) (214,043)
--------- -------- --------
Net property and investments 428,933 389,607 398,747
--------- --------- ---------
Other assets:
Federal income taxes 11,736 12,347 8,068
Regulatory asset 3,978 3,978 4,042
Other 14,846 13,005 13,626
---------- ---------- ----------
30,560 29,330 25,736
----------- ---------- ----------
Total $633,917 $559,417 $545,967
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
September 30 December 31 September 30
1999 1998 1998
(unaudited) (in thousands) (unaudited)
Liabilities and Capitalization
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 1,330 $ 1,330 $ 1,330
Notes payable 25,291 5,090 1,502
Accounts payable 121,125 74,087 60,816
Accrued liabilities-
Taxes 9,597 9,950 9,079
Interest 2,989 3,956 3,196
Other 9,079 8,169 8,043
---------- ---------- ----------
169,411 102,582 83,966
-------- --------- ---------
Deferred credits:
Federal income taxes 57,257 55,107 54,765
Investment tax credits 3,145 3,514 3,639
Reclamation costs 17,513 17,000 17,192
Regulatory liability 5,302 5,661 5,785
Other 7,334 6,857 6,826
----------- ---------- ----------
90,551 88,139 88,207
---------- --------- ---------
Capitalization:
Common stock equity-
Common stock 21,736 21,719 21,717
Additional paid-in
capital 40,588 40,254 40,238
Retained earnings 157,343 147,774 153,105
Treasury stock (6,412) (3,081) (3,296)
------------ ----------- --------
Total common stock equity 213,255 206,666 211,764
Long-term debt 160,700 162,030 162,030
---------- --------- ---------
373,955 368,696 373,794
---------- --------- ---------
Total $633,917 $559,417 $545,967
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLACK HILLS CORPORATION
Consolidated Statements of Income
(unaudited)
Three Months Nine Months Twelve Months
September 30 September 30 September 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Electric utility $36,425 $ 34,982 $100,231 $ 96,810 132,657 $128,569
Non-regulated energy 183,354 135,176 473,945 388,519 635,444 488,103
--------- --------- --------- --------- --------- ----------
219,779 170,158 574,176 485,329 768,101 616,672
--------- --------- --------- --------- --------- ----------
Operating expenses:
Fuel and purchased power 178,575 131,130 460,470 375,932 615,806 472,540
Operations and maintenance 8,594 8,113 24,567 24,168 33,173 32,313
Administrative and general 5,017 4,062 14,145 10,901 19,122 14,860
Depreciation, depletion, and amortization 7,632 6,117 19,454 18,501 25,015 24,081
Oil and gas ceilings test write-down - - - - 13,546 -
Taxes, other than income taxes 3,286 3,133 9,116 9,434 12,177 11,989
----------- ----------- ---------- ---------- ---------- ----------
203,104 152,555 527,752 438,936 718,839 555,783
--------- --------- --------- -------- --------- ----------
Operating income 16,675 17,603 46,424 46,393 49,262 60,889
---------- --------- ---------- ---------- ---------- ----------
Other income and (expense):
Interest expense (4,847) (3,709) (12,933) (10,984) (16,656) (14,594)
Investment income 2,039 793 4,029 2,129 4,863 2,850
Other, net (9) (169) (266) 315 (552) 507
Minority interest 464 - 979 - 979 -
----------- --------- ----------- ---------- ---------- ----------
(2,353) (3,085) (8,191) (8,540) (11,366) (11,237)
---------- --------- ----------- ---------- ---------- ----------
Income before income taxes 14,322 14,518 38,233 37,853 37,896 49,652
Income taxes (4,597) (4,902) (11,714) (12,196) (11,227) (15,625)
---------- ---------- ----------- ----------- ----------- ----------
Net income available for common stock $ 9,725 $ 9,616 $ 26,519 $ 25,657 $ 26,669 $ 34,027
========== ========= ======== ========= ========= =========
Weighted average common shares
Outstanding (Basic): 21,442 21,577 21,465 21,639 21,492 21,655
========== ========== ========== ========== ========== =========
(Diluted): 21,494 21,633 21,506 21,676 21,523 21,684
========== ========== ========== ========== ========== =========
Earnings per share (Basic): $0.45 $0.45 $1.24 $1.19 $1.24 $1.57
=========== =========== ============ =========== =========== ==========
(Diluted): $0.45 $0.44 $1.23 $1.18 $1.24 $1.57
=========== ========== ============ ========= =========== ========
Dividends paid per share of
common stock $0.26 $0.25 $0.78 $0.75 $1.03 $0.987
=========== ========== =========== ========= =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
Three Months Nine Months Twelve Months
September 30 September 30 September 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income $ 9,725 $ 9,616 $26,519 $25,657 $26,669 $34,027
Principal non-cash items-
Depreciation, depletion, and amortization 7,632 6,117 19,454 18,501 38,561 24,081
Deferred income taxes and
investment tax credits (85) 295 (156) 767 (3,386) 2,165
(Increase) decrease in receivables,
inventories, and other current assets (38,389) (10,256) (46,038) (29,846) (65,967) (26,601)
Increase (decrease) in other current
liabilities 32,103 6,197 46,628 28,681 61,656 26,150
Other, net (4,443) (1,145) (4,387) (789) (5,750) 1,024
------------ ---------- ----------- ----------- ------------ ----------
6,543 10,824 42,020 42,971 51,783 60,846
----------- ------- --------- -------- ---------- ---------
Investing activities:
Net property additions, including
allowance for other funds used
during construction (23,063) (5,935) (53,055) (16,194) (62,142) (22,539)
Available for sale securities sold 3,381 586 16,839 11,810 18,683 12,317
Available for sale securities purchased (2,098) (1,108) (5,581) (21,792) (6,149) (21,689)
---------- ---------- ----------- ---------- ------------ ----------
(21,780) (6,457) (41,797) (26,176) (49,608) (31,911)
--------- --------- ---------- --------- ----------- ---------
Financing activities:
Dividends paid (5,651) (5,428) (16,950) (16,255) (22,380) (21,392)
Treasury stock, net 119 33 (3,331) (3,296) (3,116) (3,296)
Common stock issued 101 56 351 255 369 331
Net short-term borrowings 19,678 1,490 20,201 1,479 23,789 (26)
Long-term debt payments (514) (514) (1,330) (1,331) (1,330) (1,331)
----------- ---------- ------------- ----------- ----------- ----------
13,733 (4,363) (1,059) (19,148) (2,668) (25,714)
-------- --------- ------------- --------- ----------- ---------
Increase (decrease) in
cash and cash equivalents (1,504) 4 (836) (2,353) (493) 3,221
Cash and cash equivalents:
Beginning of period 15,432 14,417 14,764 16,774 14,421 11,200
-------- -------- --------- --------- --------- ---------
End of period $13,928 $14,421 $13,928 $ 14,421 $13,928 $14,421
======== ======= ======== ======== ======= =======
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest $ 5,884 $ 4,593 $13,900 $ 8,183 $16,863 $14,393
Income taxes $ 2,150 $ 3,450 $ 9,322 $ 9,250 $13,183 $12,450
</TABLE>
See accompanying notes to consolidated financial statements.
<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 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Accounting methods historically employed require certain
estimates as of interim dates. The information furnished in the
accompanying financial statements reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
September 30, 1999, December 31, 1998 and September 30, 1998, financial
information and are of a normal recurring nature. The results of
operations for the three, nine and twelve months ended September 30,
1999, are not necessarily indicative of the results to be expected for
the full year.
(2) Capital Stock
In April 1999, the Board of Directors authorized the acquisition
of up to 1,000,000 shares of the Company's Common Stock on the open
market to fund possible future acquisitions by the Company, for its
Employee Stock Option Plan, and for other general purposes. The Board
had authorized a similar purchase of 300,000 shares in April 1998. At
September 30, 1999, the Company had acquired 291,309 shares for such
purposes. The acquired shares are reflected as treasury stock on the
accompanying Consolidated Balance Sheets.
(3) Net Income Per Share
Financial Accounting Standards Board (FASB) Statement No. 128
"Earnings Per Share" requires the presentation of basic and diluted
earnings per share. Basic earnings per share is computed by dividing net
income available to common shareholders by the weighted average number
of common shares outstanding during each year. Diluted earnings per
share is computed under the treasury stock method and is calculated to
compute the dilutive effect of outstanding stock options.
A reconciliation of these amounts is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
Sept 30 Sept 30 Sept 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income $9,725 $ 9,616 $26,519 $25,657 $26,669 $34,027
====== ======= ======= ======= ======= =======
Weighted average common shares outstanding:
Basic 21,442 21,577 21,465 21,639 21,492 21,655
Dilutive effect of option plan 52 56 41 37 31 29
--------- --------- --------- --------- --------- ---------
Diluted 21,494 21,633 21,506 21,676 21,523 21,684
====== ====== ====== ====== ====== ======
Earnings per share (Basic): $0.45 $0.45 $1.24 $1.19 $1.24 $1.57
===== ===== ===== ===== ===== =====
(Diluted): $0.45 $0.44 $1.23 $1.18 $1.24 $1.57
===== ===== ===== ===== ===== =====
</TABLE>
(4) Comprehensive Income
FASB Statement No. 130, "Reporting Comprehensive Income,"
establishes standards for reporting and display of comprehensive
earnings and its components in financial statements. Statement No. 130
requires minimum pension liability adjustments, unrealized gains or
losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other
comprehensive earnings. There were no material differences between net
earnings and comprehensive earnings for any periods presented in the
accompanying financial statements.
(5) Summary of Information Relating to Segments of the Company's Business
Effective December 31, 1998 the Company adopted FASB Statement
No. 131, "Disclosure About Segments of an Enterprise and Related
Information." Black Hills Corporation's business segments include:
Electric which supplies electric utility service to western South
Dakota, northeastern Wyoming and southeastern Montana; Non-regulated
Energy consisting of: Mining which engages in the mining and sale of
coal from its mine near Gillette, Wyoming; Oil and Gas which produces,
explores and operates oil and gas interests located in the Rocky
Mountain region, Texas, California and other states; and Energy
Marketing which markets natural gas, oil, coal and related services to
customers in the East Coast, Midwest, Southwest, Rocky Mountain, West
Coast and Northwest markets and Communications and Others which
primarily markets communications and software development services.
<PAGE>
Financial data for the business segments are as follows (in thousands):
<TABLE>
<CAPTION>
ASSETS Non-regulated Energy
---------------------------------------
Oil Energy Communications
At September 30, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
-------------- ------------ ------------ ------------- --------------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets $ 56,666 $50,843 $ 1,468 $122,879 $ 11,696 $ (69,128) $ 174,424
Total assets 473,118 126,565 31,503 137,322 56,464 (191,055) 633,917
At September 30, 1998
Current assets $ 39,949 $23,054 $ 1,528 $ 65,183 $ 8,483 $ (16,713) $ 121,484
Total assets 453,582 98,374 34,983 74,139 16,259 (131,370) 545,967
</TABLE>
<TABLE>
<CAPTION>
Non-regulated Energy
---------------------------------------
Third Quarter Oil Energy Communications
September 30, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
-------------- ------------ ------------ ------------- --------------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 36,425 - - - - - $ 36,425
Coal revenues - 8,076 - 12,331 - - 20,407
Gas revenues - - 1,341 117,427 - - 118,768
Oil revenues - - 1,273 42,167 - - 43,440
Other revenues - - 739 - 791 (791) 739
-------------- ------------ ------------ ------------- --------------------- ------------------ -----------
Total revenues $ 36,425 $ 8,076 $ 3,353 $ 171,925 $ 791 $ (791) $ 219,779
-------------- ------------ ------------ ------------- --------------------- ------------------ -----------
Depreciation, depletion
& amortization $ 3,768 $ 871 $ 861 $ 2,097 $ 35 $ - $ 7,632
Operating income (loss) 15,286 3,122 1,008 (1,464) (1,277) - 16,675
Interest expense 3,396 315 131 197 808 - 4,847
Income taxes 4,089 1,075 269 (531) (305) - 4,597
Net income (loss) 8,190 2,522 613 (1,032) (568) - 9,725
Property additions 7,887 261 1,267 152 13,496 - 23,063
</TABLE>
<TABLE>
<CAPTION>
Non-regulated Energy
---------------------------------------
Third Quarter Oil Energy Communications
September 30, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 34,982 - - - - - $ 34,982
Coal revenues - 8,185 - 2,958 - - 11,143
Gas revenues - - 1,058 89,103 - - 90,161
Oil revenues - - 1,283 31,417 - - 32,700
Other revenues - - 858 314 558 (558) 1,172
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
Total revenues $ 34,982 $ 8,185 $ 3,199 $ 123,792 $ 558 $ (558) $ 170,158
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
Depreciation, depletion
& amortization $ 3,797 $ 859 $ 1,292 $ 169 - - $ 6,117
Operating income (loss) 14,436 3,433 267 (147) (386) - 17,603
Interest expense 3,407 5 105 190 2 - 3,709
Income taxes 3,955 1,154 (38) (88) (81) - 4,902
Net income (loss) 7,110 2,680 203 (211) (166) - 9,616
Property additions 2,267 167 3,288 22 191 - 5,935
</TABLE>
<TABLE>
<CAPTION>
Non-regulated Energy
---------------------------------------
Year To Date Oil Energy Communications
September 30, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
-------------- ------------ ------------ ------------- --------------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $100,231 - - - - - $ 100,231
Coal revenues - 22,832 - 31,422 - - 54,254
Gas revenues - - 3,846 289,832 - - 293,678
Oil revenues - - 3,317 120,462 - - 123,779
Other revenues - - 2,234 - 2,171 (2,171) 2,234
-------------- ------------ ------------ ------------- --------------------- ------------------ -------------
Total revenues $100,231 $22,832 $ 9,397 $ 441,716 $ 2,171 $ (2,171) $ 574,176
-------------- ------------ ------------ ------------- --------------------- ------------------ -------------
Depreciation, depletion
& amortization $ 11,664 $ 2,583 $ 2,589 $ 2,542 $ 76 $ - $ 19,454
Operating income (loss) 39,017 9,374 2,321 (1,733) (2,555) - 46,424
Interest income 10,100 730 414 566 1,123 - 12,933
Income taxes 9,664 2,779 501 (701) (529) - 11,714
Net income (loss) 19,987 7,443 1,416 (1,344) (983) - 26,519
Property additions 12,577 3,125 5,741 245 31,367 - 53,055
</TABLE>
<TABLE>
<CAPTION>
Non-regulated Energy
---------------------------------------
Year To Date Oil Energy Communications
September 30, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 96,810 - - - - - $ 96,810
Coal revenues - 23,956 - 2,958 - - 26,914
Gas revenues - - 3,228 264,292 - - 267,520
Oil revenues - - 3,913 87,160 - - 91,073
Other revenues - - 2,534 478 1,801 (1,801) 3,012
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
Total revenues $ 96,810 $23,956 $ 9,675 $ 354,888 $ 1,801 $ (1,801) $ 485,329
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
Depreciation, depletion
& amortization $ 11,392 $ 2,564 $ 4,075 $ 470 - - $ 18,501
Operating income (loss) 37,493 9,737 959 (1,359) (437) - 46,393
Interest income 10,191 5 231 549 8 - 10,984
Income taxes 9,484 3,257 41 (620) 34 - 12,196
Net income (loss) 18,475 7,588 719 (1,112) (13) - 25,657
Property additions 7,569 686 7,766 112 61 - 16,194
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-regulated Energy
---------------------------------------
Twelve Months Ended Oil Energy Communications
September 30, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $132,657 - - - - - $ 132,657
Coal revenues - 30,289 - 41,388 - - 71,677
Gas revenues - - 4,690 400,996 - - 405,686
Oil revenues - - 4,534 150,487 - - 155,021
Other revenues - - 3,060 - 2,806 (2,806) 3,060
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
Total revenues $132,657 $30,289 $ 12,284 $ 592,871 $ 2,806 $ (2,806) $ 768,101
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
Depreciation, depletion
& amortization $ 15,154 $ 3,271 $ 3,728 $ 2,760 $ 102 - $ 25,015
Oil and gas ceilings test
write-down - - 13,546 - - - 13,546
Operating income (loss) 51,420 12,360 (10,978) (490) (3,050) - 49,262
Interest income 13,481 733 538 775 1,129 - 16,656
Income taxes 12,791 3,614 (4,229) (261) (688) - 11,227
Net income (loss) 26,338 9,440 (7,279) (642) (1,188) - 26,669
Property additions 16,590 3,886 8,144 511 33,011 - 62,142
</TABLE>
<TABLE>
<CAPTION>
Non-regulated Energy
---------------------------------------
Twelve Months Ended Oil Energy Communications
September 30, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
-------------- ------------ ------------ ------------- --------------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $128,569 - - - - - $ 128,569
Coal revenues - 31,030 - 2,958 - - 33,988
Gas revenues - - 4,277 323,781 - - 328,058
Oil revenues - - 5,307 116,842 - - 122,149
Other revenues - - 3,428 480 2,100 (2,100) 3,908
-------------- ------------ ------------ ------------- --------------------- ------------------ ---------------
Total revenues $128,569 $31,030 $13,012 $ 444,061 $ 2,100 $ (2,100) $ 616,672
-------------- ------------ ------------ ------------- --------------------- ------------------ ---------------
Depreciation, depletion
& amortization $ 15,037 $ 3,325 $ 5,107 $ 612 - - $ 24,081
Operating income (loss) 49,678 12,224 1,591 (2,012) (592) - 60,889
Interest income 13,599 5 302 678 10 - 14,594
Income taxes 12,308 4,059 108 (883) 33 - 15,625
Net income (loss) 24,766 9,653 1,271 (1,660) (3) - 34,027
Property additions 12,272 647 9,235 258 127 - 22,539
</TABLE>
<PAGE>
(6) Energy Trading and Risk Management Activities
Effective January 1, 1999, the Company adopted the provisions
in Emerging Issues Task Force 98-10, "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities. (EITF 98-10)." EITF
requires disclosure of energy trading and risk management activity for
energy contracts used for trading purposes. At September 30, 1999, the
Company had approximately 222,000 mmbtus of natural gas forward sales
at a fixed price, and approximately 256,000 tons of coal forward
purchases at a fixed price, that were not offset by respective purchase
and sales contracts. The market value of such contracts approximates
the fixed prices.
(7) Rate Freeze Extension
The Company's electric utility operations agreed to an
extension of it's rate freeze for South Dakota retail customers until
January 1, 2005, barring extraordinary circumstances. The extension of
the rate freeze was approved by the South Dakota Public Utilities
Commission on June 22, 1999.
The extraordinary circumstances allowing future rate
proceedings include certain forced outages at its two largest plants,
high inflation, loss of a significant customer, new government
impositions, certain fuel cost increases and electric deregulation.
In addition, the Company's electric utility operations shall
not have a fuel and purchased power adjustment tariff, except if an
extraordinary event occurs. The electric utility also retains wholesale
capacity and energy revenues, has assignment rights for wholesale
contracts and may enter into certain affiliate transactions with its
affiliated exempt wholesale generator, all subject to reasonableness
and prudency review at future rate proceedings.
(8) Accounting Pronouncements
In June, 1999, FASB issued Statement of Financial Accounting
Standards No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133."
This statement delayed the effective date of FASB Statement No. 133
until fiscal quarters beginning after June 15, 2000.
(9) Energy Marketing Reorganization
In September, the Company reorganized its natural gas
marketing operations. The Houston wholesale gas marketing operations
were transferred into the Denver office and the Company recorded a $1.2
million after tax non-cash write-down of goodwill related to the
Houston wholesale gas marketing operations. In addition, on October 6,
1999, the Company sold its Rocky Mountain retail gas marketing
operations to Western Natural Gas Marketing, LLC. The Company expects
to record an after tax gain of approximately $1 million related to this
sale in the fourth quarter.
(10) Reclassifications
Certain 1999 and 1998 amounts in the financial statements have
been reclassified to conform to the 1999 presentation. These
reclassifications did not affect the Company's stockholders' investment
or results of 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 $44,000,000,
which provide for interim borrowings and the opportunity for timing of permanent
financing. The Company had $23,200,000 outstanding under these lines of credit
on September 30, 1999. There are no compensating balance requirements associated
with these lines of credit.
In addition to the above lines of credit, Black Hills Energy Resources,
Inc. has an uncommitted demand credit facility for up to $65 million. This
facility allows $50 million for a transactional line of credit and $15 million
overdraft line of credit. This facility is used to support the issuance of
letters of credit. At September 30, 1999, Black Hills Energy Resources has
approximately $35.3 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 September 30, 1999, there were no
balances outstanding on this line of credit.
Market Risk Disclosures
There has not been any significant changes in market risk since December
31, 1998.
Commodity Risk
The Company is exposed to market risk stemming from changes in commodity
prices. These changes could cause fluctuations in the Company's earnings and
cash flows.
Trading Activities
For trading transactions that do not qualify for hedge accounting, the
Company utilizes marked-to-market accounting, and such financial instruments are
recorded at fair value with realized and unrealized gains (losses) recorded as a
component of income. The quantities and maximum terms of derivative financial
instruments held for trading purposes at September 30, 1999 and 1998 are not
significant to the Company's financial position or results of operations.
Non-trading Activities
The notional quantities and maximum terms of derivative financial
instruments held for non-trading activities at September 30, 1999, are presented
below:
<TABLE>
<CAPTION>
Max. Term Fair Value
Volume (Years) (in thousands)
<S> <C> <C> <C>
Natural Gas (Volume in MMBtu's):
Natural gas futures contracts purchased 820,000 2 $ 338
Natural gas basis swaps contracts bought 17,739,000 3 662
Natural gas basis swaps contracts sold (17,846,000) 3 (541)
Natural gas swap contracts bought 12,603,000 2 2,130
Natural gas swap contracts sold (14,326,000) 2 (2,151)
Natural gas collar transactions; puts
purchased, call sold 534,500 2 (46,325)
Natural gas collar transactions; calls
purchased, puts sold 534,500 2 47,875
Crude Oil (Volume in barrels):
Crude oil puts purchased 24,000 1 5
Crude oil swap contracts sold (240,000) 2 (692)
</TABLE>
Because these contracts are entered into for hedging purposes, the
Company expects that the gains (losses) will be offset by gains (losses) on the
underlying physical transactions; such physical transactions are subject to
weather trends, transportation and delivery risks and other factors that the
Company monitors on a regular basis. The notional amounts detailed above are
intended to be indicative of the Company's level of activity in such
derivatives.
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's short-term investments and long-term debt
obligations. The Company does not use derivative financial instruments in its
available for sale securities.
At September 30, 1999, the effect of a 100 basis point increase in
interest rates does not have a material effect to the Company's results of
operations or financial condition, due to the short-term duration of the
investment portfolio.
The Company has no cash flow exposure due to rate changes for long-term
debt obligations. The Company primarily enters into debt obligations to support
general corporate purposes including capital expenditures and working capital
needs.
Results of Operations
Black Hills Corporation is an energy and communications company
consisting of three principal businesses: electric utility, non-regulated
energy, and communications.
<PAGE>
Consolidated net income was $10,889,000 for the three months ended,
$27,683,000 for the nine months ended and $36,633,000 for the twelve months
ended September 30, 1999 (before non-cash charges), representing an increase of
13 percent for the three month period and 8 percent for the nine and twelve
month periods. The increases were primarily due to strong electric utility
income and non-regulated energy results partially offset by expected
communications start-up losses. In September 1999, the Company recorded a $1.2
million after tax charge primarily due to a non-cash write-down of certain
intangible assets associated with the natural gas operations in Houston, Texas.
In December 1998, the Company recorded an $8.8 million after tax charge
primarily due to a non-cash write-down of certain oil and natural gas assets.
Consolidated revenues and fuel and purchased power expense increased for the
three, nine and twelve months ended September 30, 1999 primarily due to
increased oil, natural gas and coal purchases and sales from the energy
marketing operations.
Consolidated revenue and income from continuing operations provided by
the business segments as a percentage of the total were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues
Electric utility 17% 21% 18% 20% 17% 21%
Non-regulated energy 83 79 82 80 83 79
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
=== === ==== === === ===
Net Income/(Loss)
Electric utility 75% 74% 72% 72% 72% 73%
Non-regulated energy 30* 28 31* 28 31* 27
Communications and other (5) (2) (3) - (3) -
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>
*Excludes $10.0 million (net-of-tax) write-down of certain oil and
natural gas properties (December 1998) and certain intangible assets (September
1999)
Capital expenditures and depreciation, depletion, and amortization by
business segment were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Capital Expenditures (includes AFDC)
Electric utility $7,887 $2,267 $ 12,577 $7,569 $16,590 $12,272
Non-regulated energy 1,680 3,477 9,111 8,564 12,541 10,140
Communications and other 13,496 191 31,367 61 33,011 127
------- ------ ------- ------- ------- -------
$23,063 $5,935 $53,055 $16,194 $62,142 $22,539
======= ====== ======= ======= ======= =======
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Depreciation, Depletion,
and Amortization
Electric utility $3,768 $3,797 $11,664 $11,392 $15,154 $15,037
Non-regulated energy 3,829 2,320 7,714 7,109 9,759 9,044
Oil and gas ceilings test
write-down - - - - 13,546 -
Communications and others 35 - 76 - 102 -
------- ------ ------- ------- ------- -------
$7,632 $6,117 $19,454 $18,501 $38,561 $24,081
======= ====== ======= ======= ======= =======
</TABLE>
Electric Operations
Earnings from electric operations increased $1,080,000, $1,512,000 and
$1,572,000 for the three, nine and twelve month periods ending September 30,
1999 respectively. Total kilowatthour sales increased 5 percent for the three
month period and 4 percent for the nine and twelve month periods due to
increased residential, commercial, wholesale and off-system sales. Degree days,
a measure of weather trends, were 3 percent higher for the three month period
and 4 percent and 7 percent lower for the nine and twelve month periods as
compared to the prior periods. Increased revenues were partially offset by
increased operations and maintenance expenses due to planned plant outages.
Non-regulated Energy Operations
Earnings from non-regulated energy operations increased $595,000,
$1,540,000 and $2,220,000 for the three months, nine months, and twelve months
ended September 30, 1999 (excluding a $1.2 million non-cash charge) primarily
due to stable coal mining earnings, strong oil and natural gas production
earnings and improved energy marketing results.
Earnings from oil and gas operations increased $410,000 and $697,000
for the three months and nine months ended September 30, 1999 and increased
$250,000 (excluding write-down of certain oil and gas assets) for the twelve
months ended September 30, 1999, as compared to 1998. Increased earnings were
primarily due to increased oil prices, increased gas production and lower
depletion expense. Production increased 7 percent, 11 percent and 12 percent for
the three, nine and twelve month periods. Oil prices increased 70 percent and 20
percent for the three and nine month periods, and were flat for the twelve month
period. Gas prices decreased 9 percent for the three and nine month periods and
15 percent for the twelve month period. Average gas prices decreased primarily
due to the production increases in lower price and lower cost Montana properties
for the three and nine month periods.
In December 1998, Black Hills Exploration and Production recognized a
$13,546,000 pretax loss related to a write-down of oil and gas properties. The
write-down was primarily due to historically low crude oil prices, lower natural
gas prices and decline in value of certain unevaluated properties. Absent other
factors impacting depletion expense, the Company expects future depletion
expense per unit of production to be reduced because of this write-down.
Earnings from energy marketing operations increased $343,000,
$1,025,000 and $2,182,000 for the three, nine and twelve month periods ending
September 30, 1999 (excluding a $1.2 million write-down of certain intangible
assets). The increase was primarily due to increased margins and volumes
marketed in the natural gas and crude oil partially offset by adverse market
conditions in coal marketing.
The energy marketing operations marketed 533,000 mmbtus of gas, 18,400
barrels of oil and 5,500 tons of coal per day in the three month period ended
September 30, 1999 and 482,700 mmbtus and 22,700 barrels per day for the three
month period ended September 30, 1998. For the nine month period, 513,000
mmbtus, 19,000 barrels and 4,800 tons were marketed in 1999 and 453,000 mmbtus
and 18,100 barrels were marketed in 1998. For the twelve month period ending
September 30, 1999, 524,000 mmbtus, 20,000 barrels and 4,700 tons per day were
marketed as compared to 418,000 mmbtus and 16,800 barrels of oil per day in
1998. The Company acquired its coal marketer, Black Hills Coal Network, in
September 1998.
Communications Operations
Deployment continues on the state of the art communications network in
Rapid City and the northern Black Hills of South Dakota. Installation and
testing of CATV, telephone switching and communications transport systems
continues to progress in line with management's expectations. The company began
serving customers, on a test basis, in the third quarter. The company expects to
increase customer additions throughout the remainder of 1999 and complete its
initial build-out by the end of 2000. Losses for the three month, nine month,
and twelve month periods ended September 30, 1999 primarily represent start-up
administrative and operating expenses and were lower than management's
expectations. Increased Materials, supplies and fuel and Property and
investments on the Consolidated Balance Sheets related primarily to the
continuing development of the communications network.
Year 2000 Issues
What is referred to as the Year 2000 problem ("Year 2000 problem") is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's computer process control
systems that have date-sensitive software may recognize a date using "00" as the
Year 1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Management had previously formed a Year
2000 Committee to review and ensure the Company's compliance with what is
commonly known as the "Year 2000 problem". In addition, consultants have
reviewed the Company's state of readiness. The Company's review encompassed
supporting information technology systems, generation control systems and
distribution systems, and business supply chain systems and infrastructure.
Management presently believes that with modifications that have been made to the
Company's existing software and/or conversions to new software, the Year 2000
problem has been mitigated. The cost of either repairing or replacing certain
business systems to ensure business continuance beyond Year 2000 did not have a
significant impact on the results of operations. The cost of the Year 2000
project is less than $1 million and is funded through operating cash flows.
These costs are primarily attributable to the purchase of new software and
equipment which are expensed or capitalized on a basis consistent with the
Company's accounting policies for capital assets. Other than seeking
representations and assurances, the Company has not made an assessment as to
whether any of its customers, suppliers or service providers will be affected by
the date change. The Company's business, financial condition and results of
operations may be adversely impacted should the efforts of customers, suppliers
or service providers for the Company to address the Year 2000 issue prove to be
inadequate. The Company's risk management program includes emergency backup and
recovery procedures to be followed in the event of failure of a
business-critical system. These procedures include specific procedures for
potential Year 2000 issues. Contingency plans to protect the business from Year
2000-related interruptions were completed in October 1999 and include, for
example, complete backup procedures for business critical operations,
identification of alternate suppliers and possible increases in safety inventory
levels.
Forward Looking Statements
The above information includes forward-looking statements that are
subject to certain risks, uncertainties and assumptions. Although management
believes that its expectations are based on reasonable assumptions, it can give
no assurances that its goals will be achieved. Actual results may differ
materially from management's expectations as a result of a variety of factors
including, but not necessarily limited to, technological changes, regulation,
market conditions and marketing success, general economic conditions, and a
changing competitive environment.
<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 September 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Annual Report on Form 11-K of the Black Hills Corporation
401K Plan
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: November 12, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 332,035,000
<OTHER-PROPERTY-AND-INVEST> 96,898,000
<TOTAL-CURRENT-ASSETS> 174,424,000
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 30,560,000
<TOTAL-ASSETS> 633,917,000
<COMMON> 21,736,000
<CAPITAL-SURPLUS-PAID-IN> 40,588,000
<RETAINED-EARNINGS> 157,343,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 213,255,000
0
0
<LONG-TERM-DEBT-NET> 160,700,000
<SHORT-TERM-NOTES> 25,291,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,330,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 233,341,000
<TOT-CAPITALIZATION-AND-LIAB> 633,917,000
<GROSS-OPERATING-REVENUE> 574,176,000
<INCOME-TAX-EXPENSE> 11,714,000
<OTHER-OPERATING-EXPENSES> 527,752,000
<TOTAL-OPERATING-EXPENSES> 539,466,000
<OPERATING-INCOME-LOSS> 34,710,000
<OTHER-INCOME-NET> 4,742,000
<INCOME-BEFORE-INTEREST-EXPEN> 39,452,000
<TOTAL-INTEREST-EXPENSE> 12,933,000
<NET-INCOME> 26,519,000
0
<EARNINGS-AVAILABLE-FOR-COMM> 26,519,000
<COMMON-STOCK-DIVIDENDS> 16,950,000
<TOTAL-INTEREST-ON-BONDS> 9,888,000
<CASH-FLOW-OPERATIONS> 42,020,000
<EPS-BASIC> 1.24
<EPS-DILUTED> 1.23
</TABLE>
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------------------------------------
For the fiscal year ended December 31, 1999
Commission File Number 1-7978
BLACK HILLS CORPORATION
401K RETIREMENT SAVINGS PLAN
BLACK HILLS CORPORATION
625 NINTH STREET
PO BOX 1400
RAPID CITY, SOUTH DAKOTA 57709
- -----------------------------------------------------------------------------
<PAGE>
Black Hills Corporation Retirement Savings Plan
Financial Statements as of
December 31, 1998 and 1997
Together With Report of
Independent Public Accountants
<PAGE>
<PAGE>
BLACK HILLS CORPORATION RETIREMENT SAVINGS PLAN
Index to Financial Statements and Supplemental Schedules
Page
Report of Independent Public Accountants 1
- -------------------------------------------------------------------------------
Statements of Net Assets Available for Benefits 2
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets Available for Benefits 4
- -------------------------------------------------------------------------------
Notes to Financial Statements 5
- -------------------------------------------------------------------------------
Item 27a--Schedule of Assets Held for Investment Purposes 10
- -------------------------------------------------------------------------------
Item 27d--Schedule of Reportable Transactions 12
- -------------------------------------------------------------------------------
Item 27f--Schedule of Nonexempt Transactions 13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of
Black Hills Corporation Retirement Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of the Black Hills Corporation Retirement Savings Plan as of December 31, 1998
and 1997, and the related statement of changes in net assets available for
benefits for the year ended December 31, 1998. These financial statements and
the schedules referred to below are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these financial statements and
supplemental schedules 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 net assets available for benefits of the Black Hills
Corporation Retirement Savings Plan as of December 31, 1998 and 1997, and the
changes in net assets available for benefits for the year ended December 31,
1998, in conformity with generally accepted accounting principles.
Minneapolis, Minnesota,
August 6, 1999
<PAGE>
BLACK HILLS CORPORATION RETIREMENT SAVINGS PLAN
Statement of Net Assets Available for Benefits
As of December 31, 1998
<TABLE>
<CAPTION>
Guaranteed Fixed Foreign & Growth Stock
Investment Income Balanced Mutual Equity Global Mutual Mutual Funds
Contract Trust Mutual Funds Fund Collective Trust Funds
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, at market value (Note 2):
Collective trusts $2,729,500 $ - $ - $3,631,468 $ - $ -
Mutual funds - 823,962 1,197,186 - 2,694,519 2,957,797
Common stocks - - - - - -
Self-directed accounts - - - - - -
PARTICIPANT LOANS - - - - - -
CONTRIBUTIONS RECEIVABLE:
Participant contributions receivable - - - - - -
Participant contributions--loan payments
in-transit - - - - - -
NET ASSETS AVAILABLE FOR BENEFITS $2,729,500 $823,962 $1,197,186 $3,631,468 $2,694,519 $2,957,797
</TABLE>
<TABLE>
<CAPTION>
Other Black Hills
Specialized Corporation Self-Directed
Mutual Funds Common Stock Accounts Participant Contributions
Loans Receivable Total
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, at market value (Note 2):
Collective trusts $ - $ - $ - $ - $ - $ 6,360,968
Mutual funds 155,655 - - - - 7,829,119
Common stocks - 7,210,038 - - - 7,210,038
Self-directed accounts - - 92,234 - - 92,234
PARTICIPANT LOANS - - - 820,244 - 820,244
CONTRIBUTIONS RECEIVABLE:
Participant contributions receivable - - - - 5,446 5,446
Participant contributions--loan payments
in-transit - - - - 66,258 66,258
NET ASSETS AVAILABLE FOR BENEFITS $155,655 $7,210,038 $92,234 $820,244 $71,704 $22,384,307
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
BLACK HILLS CORPORATION RETIREMENT SAVINGS PLAN
Statement of Net Assets Available for Benefits
As of December 31, 1997
<TABLE>
<CAPTION>
American Investment
Express Income Company of New American
Fund AMCAP Fund America Fund Perspective Balanced Fund
Fund
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
INVESTMENTS, at market value:
Mutual funds $2,575,405 $3,233,585 $2,958,270 $2,435,361 $1,242,120
Common stock - - - - -
PARTICIPANT LOANS - - - - -
RECEIVABLES:
Contributions from participants 8,126 14,629 19,234 15,732 8,131
Loan payments from participants 8,290 5,755 5,185 4,380 2,161
NET ASSETS AVAILABLE FOR BENEFITS $2,591,821 $3,253,969 $2,982,689 $2,455,473 $1,252,412
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Black Hills Participant
Corporation Contribution/Loan
Common Stock Participant Payment Receivable
Loans Total
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
INVESTMENTS, at market value:
Mutual funds $ - $ - $ - $12,444,741
Common stock 6,254,700 - - 6,254,700
PARTICIPANT LOANS - 819,813 - 819,813
RECEIVABLES:
Contributions from participants - - 12,802 78,654
Loan payments from participants - - 7,133 32,904
NET ASSETS AVAILABLE FOR BENEFITS $6,254,700 $819,813 $19,935 $19,630,812
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
BLACK HILLS CORPORATION RETIREMENT SAVINGS PLAN
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Other
Guaranteed Fixed Income Equity Foreign & Growth Stock Specialized
Investment Mutual Funds Balanced Collective Global Mutual Mutual Funds Mutual Funds
Contract Trust Mutual Fund Trust Funds
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year
$ - $ - $ - $ - $ - $ - $ -
INCREASES (DECREASES) DURING THE YEAR:
Participant contributions
154,219 71,368 89,020 244,107 177,881 269,043 21,056
Investment interest and dividends
172,652 58,513 75,565 10,066 182,491 68,605 3,316
Net appreciation (depreciation) in market value of investments
(8,528) (13,425) (7,391) 761,318 104,157 (602,127) 12,295
Net realized gain (loss) on sale of investments
- 2,182 12,521 82,491 69,445 (41,322) (1,212)
Interfund transfers 2,569,532 760,845 1,030,329 2,617,449 2,184,209 3,416,954 121,105
Administrative expenses (714) (48) (165) (445) (249) (618) (23)
Total increases (decrease)
2,887,161 879,435 1,199,879 3,714,986 2,717,934 3,110,535 156,537
DISTRIBUTIONS TO PARTICIPANTS
(157,661) (55,473) (2,693) (83,518) (23,415) (152,738) (882)
NET INCREASE (DECREASE) IN NET ASSETS
2,729,500 823,962 1,197,186 3,631,468 2,694,519 2,957,797 155,655
NET ASSETS AVAILABLE FOR BENEFITS, end of year
$2,729,500 $823,962 $1,197,186 $3,631,468 $2,694,519 $2,957,797 $155,655
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Black Hills Contributions American American Funds
Corporation Self-Directed Participant Receivable Express Income Mutual Funds Total
Common Stock Accounts Loans Fund
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year
$6,254,700 $ - $819,813 $19,935 $2,591,821 $9,944,543 $19,630,812
INCREASES (DECREASES) DURING THE YEAR:
Participant contributions 196,841 - - 71,704 - - 1,295,239
Investment interest and dividends
280,940 592 - - - - 852,740
Net appreciation (depreciation) in market value of investments
755,130 - - - - - 1,001,429
Net realized gain (loss) on sale of investments
4,214 - - - 8,528 44,332 181,179
Interfund transfers (191,342) 91,642 8,436 (19,935) (2,600,349) (9,988,875) -
Administrative expenses (988) - - - - - (3,250)
Total increases (decreases)
1,044,795 92,234 8,436 51,769 (2,591,821) (9,944,543) 3,327,337
DISTRIBUTIONS TO PARTICIPANTS
(89,457) - (8,005) - - - (573,842)
NET INCREASE (DECREASE) IN NET ASSETS
955,338 92,234 431 51,769 (2,591,821) (9,944,543) 2,753,495
NET ASSETS AVAILABLE FOR BENEFITS, end of year
$7,210,038 $92,234 $820,244 $71,704 $ - $ - $22,384,307
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
BLACK HILLS CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
1. Description of the Plan:
General
The Black Hills Corporation Retirement Savings Plan (the Plan) is a defined
contribution plan for eligible employees of Black Hills Power and Light Company,
the assumed business name of the electric utility of Black Hills Corporation
(the Company); Wyodak Resources Development Corp. (WRDC), a wholly owned
subsidiary of the Company; Black Hills Exploration and Production, a wholly
owned subsidiary of WRDC; and Black Hills Energy Resources, Inc., Varifuel,
Inc., Black Hills FiberCom, Inc., Daksoft, Inc. and Black Hills Coal Network,
Inc. (all wholly owned subsidiaries of Black Hills Capital Group, Inc., a wholly
owned subsidiary of WRDC). The eligible employees may have a percentage of their
compensation withheld and contributed to the Plan, subject to limitations, as
defined. The Plan is designed to comply with the provisions of Section 401(k) of
the Internal Revenue Code (the Code).
Effective January 1, 1998, the board of directors of the Company adopted the
Merrill Lynch special prototype defined contribution plan and appointed Merrill
Lynch as the asset custodian and recordkeeper. The Black Hills Corporation
Benefits Committee (the Committee) was appointed the trustee of the Plan,
replacing the risk manager of the Company as trustee. Also effective January 1,
1998, the risk manager was appointed administrator of the Plan, replacing the
Committee as administrator. Administrative fees of $10,500 were paid by the
Company in 1998.
In January 1998, in connection with the adoption of the prototype plan, funds of
the Plan (other than Black Hills Corporation common stock) were liquidated and
invested in other mutual funds having similar investment objectives.
The following is not a comprehensive description of the Plan and, therefore,
does not include all situations and limitations covered by the Plan.
Participants should refer to the plan agreement for more complete information.
Eligibility
Employees are eligible to participate in the Plan on the first day of
employment.
Contributions
The maximum percentage of compensation an employee may contribute to the Plan is
20%, with an annual maximum contribution of $10,000 in 1998 and $9,500 in 1997,
as provided by the Code. There is no limit to the number of times participants
may change their contribution percentages. Amounts contributed are invested at
the discretion of plan participants in any one of the 22 investment options
described in Note 2.
All contributions made and any earnings therefrom are fully vested to the
participant at all times. The Company does not contribute to the Plan.
The Plan received $101,239 in rollover transfers from other qualified plans in
1998, which are included in participant contributions on the statement of
changes in net assets available for benefits.
Distributions
Upon termination of employment, a participant may elect to have an account
distributed. A terminated participant whose account balance is $5,000 or less
will receive a nonelective lump-sum distribution of their account. No
distribution of a participant's account shall be made while the participant is
an active employee of the Company unless a financial hardship, as defined by the
Code and demonstrated to the plan administrator, exists.
The normal form of distributions of account balances is a lump sum. Participants
may elect, at the time of distribution, the option of having payments made in
installments over a period not to exceed the expected future lifetime of the
participant (or the joint expected future lifetime of the participant and the
participant's spouse).
Participant Loans
The Plan contains a loan provision which allows participants to borrow up to a
maximum equal to the lesser of $50,000 or 50% of their account balances at an
interest rate of 1% over the prime interest rate and to repay the loan through
payroll deductions, with a maximum repayment period of five years. During 1998,
interest rates on participant loans ranged from 8.75% to 9.5%. Loans are
prohibited for terminated employees.
Amendments and Termination
The Company reserves the right to amend or terminate the Plan at any time. Upon
termination of the Plan, all assets will be distributed among the participants
in accordance with plan provisions.
2. Summary of Significant Accounting Policies:
Basis of Accounting
The accompanying financial statements have been prepared using the accrual basis
of accounting.
Investments
The investment options of the Plan at December 31, 1998 consist of deposits in
collective trusts of Merrill Lynch, mutual funds, common stock of the Company
and self-directed accounts. Units (shares) of the various investment funds are
valued daily at net asset value (which equals market value).
The investment options are participant-directed. Participants may change their
investment elections daily.
The investment options are grouped as follows:
Guaranteed Investment Contract Trust
Merrill Lynch Retirement Preservation Trust--This trust seeks to provide
preservation of capital liquidity and current income at levels that are
typically higher than money market funds. The trust is a collective trust
which invests primarily in guaranteed investment contracts (the investments
are neither insured nor guaranteed by the U.S. government).
Fixed Income Mutual Funds
PIMCO Total Return Fund--This fund seeks to provide maximum total return,
consistent with preservation of capital and prudent investment management,
and invests primarily in an intermediate-term portfolio of investment-grade
bonds.
Federated International Income Fund--This fund seeks to provide current
income; capital growth is a secondary objective. The fund invests at least
65% of assets in high-quality foreign currency-denominated debt securities.
Van Kampen Worldwide High Income Fund (formerly the Morgan Stanley
Worldwide High Income Fund)--This fund seeks to provide high current income
consistent with relative stability of principal and potential for capital
appreciation, and invests primarily in higher-yielding emerging market
fixed-income securities of issues through the world.
Oppenheimer U.S. Government Fund--This fund seeks current income and
preservation of capital and normally invests at least 80% of assets in U.S.
government securities and related repurchase agreements.
Balanced Mutual Fund
Merrill Lynch Capital Fund--This fund seeks the highest total investment
return consistent with product risk, primarily through a fully managed
investment policy that permits management of the fund to vary investment in
equity, debt and convertible securities based on its evaluation of changes
in economic and market trends. The fund may invest up to 25% of its assets
in foreign securities.
Equity Collective Trust
Merrill Lynch Equity Index Trust--This trust seeks to provide investment
results that, before expenses, replicate the total return of the Standard &
Poor's 500 Composite Stock Price Index. The fund is a collective trust in
which most of the assets will be comprised of all, or nearly all, of the
500 stocks in the index in weightings closely aligned with those of the
index.
Foreign & Global Mutual Funds
Managers International Equity Fund--This fund seeks to achieve long-term
capital appreciation through a diversified portfolio of equity securities
of non-U.S. companies. The fund generally invests in companies having
medium and large capitalizations.
Oppenheimer Global Fund--This fund seeks capital appreciation by investing
primarily in common stocks and convertible securities issued by U.S. and
foreign companies.
Growth Stock Mutual Funds
Davis New York Venture Fund--This fund seeks growth of capital by investing
primarily in common stock of U.S. companies with market capitalizations of
at least $5 billion.
Merrill Lynch Growth Fund--This fund seeks growth of capital and,
secondarily, income by investing in common stock, preferred stock and
convertible securities.
Alliance Quasar Fund--This fund seeks growth of capital by investing in
equity securities that offer the possibility of above-average earnings
growth and currently emphasizes investment in companies having small levels
of capitalization.
Other Specialized Mutual Funds
Davis Convertible Securities Fund--This fund seeks growth and income by
investing in common and convertible stocks of U.S. companies.
Van Kampen Real Estate Securities Fund--This fund seeks long-term growth of
capital, with current income as a secondary objective, and invests
primarily in securities of the real estate industry, including common
stocks and real estate investment trusts.
Merrill Lynch Pacific Fund--This fund seeks long-term capital appreciation
and normally invests at least 80% of assets in equities issued by companies
domiciled in far-eastern or western Pacific countries.
Munder Framlington Healthcare Fund--This fund seeks long-term capital
appreciation by investing primarily in equity securities of issuers for
whom at least 50% of sales, profits or net assets arise from health
services or medical technology activities.
Oppenheimer Gold and Special Minerals Fund--This fund seeks capital
appreciation by normally investing between 80% and 100% of assets in mining
securities and metals investments.
State Street Research Global Resources Fund--This fund seeks to provide
long-term growth of capital by normally investing at least 65% of total
assets in securities of energy and natural resources companies, as well as
utilities. The fund invests primarily in stocks, including foreign stocks.
Pioneer Europe Fund--This fund seeks long-term growth of capital by
investing primarily in equity securities of European issuers.
Seligman Communications and Information Fund--This fund seeks capital
appreciation by normally investing at least 80% of assets in common stocks
issued by companies that operate in the communication, information and
related industries.
Black Hills Corporation Common Stock
The Company's common stock is valued daily based upon the closing price on
the New York Stock Exchange.
Self-Directed Accounts
Participants may elect to invest a portion or all of their account in a
self-directed brokerage account with Merrill Lynch. The self-directed
account allows participants to purchase and hold investments that are not
part of the Plan's regular investment menu. Investment options are subject
to qualified plan restrictions as specified by the Code.
In January 1998, funds at the American Funds Group invested in the AMCAP Fund,
the Investment Company of America Fund, the New Perspective Fund and the
American Balanced Fund were liquidated and invested in other mutual funds having
similar investment objectives.
3. Tax Status:
The Plan obtained its latest determination letter on June 19, 1991, in which the
Internal Revenue Service stated that the Plan, as then designed, was in
compliance with the applicable requirements of the Code. The Plan has been
amended since receiving the determination letter; however, the plan
administrator and the Plan's legal counsel believe that the Plan is currently
designed and being operated in compliance with the applicable requirements of
the Code. Therefore, no provision for income taxes has been included in the
Plan's financial statements.
<PAGE>
BLACK HILLS CORPORATION RETIREMENT SAVINGS PLAN
(Employer Identification Number: 46-0111677) (Plan Number: 003)
Item 27a--Schedule of Assets Held for Investment Purposes
As of December 31, 1998
<TABLE>
<CAPTION>
Number of
Shares of Units Description Cost Market Value
GUARANTEED INVESTMENT CONTRACT TRUST:
<S> <C> <C> <C>
2,719,480 Merrill Lynch Retirement Preservation Trust $ 2,729,500 $ 2,729,500
----------- ------------
FIXED INCOME MUTUAL FUNDS:
71,191 PIMCO Total Return Fund 763,960 750,353
53 Federated International Income Fund 569 601
173 Van Kampen Worldwide High Income Fund 1,838 1,687
7,368 Oppenheimer U.S. Government Fund 71,019 71,321
----------- ----------
Total fixed income mutual funds 837,386 823,962
----------- ----------
BALANCED MUTUAL FUND:
34,842 Merrill Lynch Capital Fund 1,199,031 1,197,186
----------- ----------
EQUITY COLLECTIVE TRUST:
43,272 Merrill Lynch Equity Index Trust 2,854,442 3,631,468
----------- ----------
FOREIGN & GLOBAL MUTUAL FUNDS:
54,294 Managers International Equity Fund 2,521,069 2,652,256
992 Oppenheimer Global Fund 44,148 42,263
----------- ----------
Total foreign & global mutual funds 2,565,217 2,694,519
GROWTH STOCK MUTUAL FUNDS:
18,662 Davis New York Venture Fund 446,712 466,720
115,330 Merrill Lynch Growth Fund 3,098,356 2,474,980
644 Alliance Quasar Fund 16,921 16,097
Total growth stock mutual funds 3,561,989 2,957,797
OTHER SPECIALIZED MUTUAL FUNDS:
1,000 Davis Convertible Securities Fund 24,023 23,765
83 Van Kampen Real Estate Securities Fund 1,011 965
35 Merrill Lynch Pacific Fund 584 617
569 Munder Framlington Healthcare Fund 6,827 6,624
146 Oppenheimer Gold and Special Minerals Fund 1,319 1,350
101 State Street Research Global Resources Fund 1,395 1,004
949 Pioneer Europe Fund 31,922 29,786
2,979 Seligman Communications and Information Fund 76,277 91,544
-------- --------
Total other specialized mutual funds 143,358 155,655
-------- --------
273,366 BLACK HILLS CORPORATION COMMON STOCK* $ 6,454,907 $ 7,210,038
SELF-DIRECTED ACCOUNTS 92,234 92,234
PARTICIPANT LOANS 820,244 820,244
----------- -----------
Total investments $21,258,308 $22,312,603
=========== ===========
</TABLE>
*Denotes party in interest.
<PAGE>
BLACK HILLS CORPORATION RETIREMENT SAVINGS PLAN
(Employer Identification Number: 46-0111677) (Plan Number: 003)
Item 27d--Schedule of Reportable Transactions
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Number of Number of Total Cost of
Purchases Sales Purchases
Description
<S> <C> <C> <C>
American Funds Group:
AMCAP Fund - 1 $ -
Investment Company of America Fund - 1 -
New Perspective Fund - 1 -
American Balanced Fund - 1 -
American Express Income Fund - 2 -
Black Hills Corporation common stock 110 150 660,974
Merrill Lynch Equity Index Trust 146 133 3,523,863
Merrill Lynch Retirement Preservation Trust 313 140 3,500,805
Managers International Equity Fund 166 143 3,095,735
Merrill Lynch Capital Fund 67 64 1,447,927
Merrill Lynch Growth Fund 170 162 3,863,402
PIMCO Total Return Fund 158 46 914,516
</TABLE>
<TABLE>
<CAPTION>
Total Net Gain
Total Sale Cost of Sales (Loss) on
Description Proceeds Sales
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Funds Group:
AMCAP Fund $3,231,519 $3,233,585 $(2,066)
Investment Company of America Fund 2,973,976 2,958,270 15,706
New Perspective Fund 2,460,508 2,435,361 25,147
American Balanced Fund 1,247,665 1,242,120 5,545
American Express Income Fund 2,583,932 2,575,405 8,527
Black Hills Corporation common stock 409,523 405,309 4,214
Merrill Lynch Equity Index Trust 751,912 669,420 82,492
Merrill Lynch Retirement Preservation Trust 781,325 781,325 -
Managers International Equity Fund 644,219 574,666 69,553
Merrill Lynch Capital Fund 261,416 248,895 12,521
Merrill Lynch Growth Fund 730,688 765,046 (34,358)
PIMCO Total Return Fund 152,873 150,691 2,182
</TABLE>
<PAGE>
BLACK HILLS CORPORATION RETIREMENT SAVINGS PLAN
(Employer Identification Number: 46-0111677) (Plan Number: 003)
Item 27f--Schedule of Nonexempt Transactions
For the Period Ended December 31, 1998
<TABLE>
<CAPTION>
Relationship to Description of Transactions, Including
Plan, Employer or Maturity Date, Rate of Interest, Interest
Identity of Other Collateral, and Par or Maturity Value Amount Incurred
Party Involved Party-in-Interest Loaned on Loan
-------------- ----------------- ---------------------------------------- ------ --------
<S> <C> <C> <C> <C>
Black Hills Sponsor Lending of moneys from the Plan to the $6,419 $1,496
Corporation employer (contributions not timely
remitted to the Plan), as follows:
Deemed loan dated March 15, 1998,
maturity September 30, 1999, deemed
interest on the loan, 14.6%
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated August 6, 1999 included in this Form 11-K, into the Company's
previously filed Registration Statement (Form S-8 No. 333-61969).
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
November 12, 1999
