Securities and Exchange Commission
Washington, D.C. 20549
Form 10Q-A
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 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 October 31, 1998
Common stock, $1.00 par value 21,570,990 shares
<PAGE>
BLACK HILLS CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets- 4-5
September 30, 1998, December 31, 1997
and September 30, 1997
Consolidated Statements of Income- 6
Three, Nine and Twelve Months
Ended September 30, 1998 and 1997
Consolidated Statements of Cash Flows- 7
Three, Nine and Twelve Months
Ended September 30, 1998 and 1997
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of 12-16
Financial Position and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
TEXT OF AMENDMENT
Explanatory Note:
Each of the above listed Items is hereby amended by deleting the Item in its
entirety and replacing it with the Items attached hereto and filed herewith.
The purpose of this amendment is to amend the Company's 10-Q for the period
ended September 30, 1998, (the "Original Filing") to reflect changes resulting
from the Company filing its Form 10-K, for the period ended December 31, 1998
originally filed on March 9, 1999 which restated its 1998 historical financial
statements.
<PAGE>
In the fourth quarter of 1998, Enserco Energy, Inc. reacquired the shares not
owned by the Company resulting in 100% ownership by the Company. The Company's
results of operations and financial position for the periods from January 1,
1998 to the time the Company acquired majority ownership in Enserco Energy, Inc.
have been restated to reflect the consolidation of Enserco Energy. Enserco
Energy's 1997 results were recorded using the equity method of accounting. Net
income for the 1998 and 1997 periods did not significantly change.
Any item in the Original Filing not expressly changed hereby shall be as set
forth in the Original Filing. All information contained in this amendment and
the Original Filing is subject to updating and supplementing as provided in the
Company's periodic reports filed with the SEC subsequent to the date of such
reports.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
September 30 December 31 September 30
1998 1997 1997
------------- ----------- -------------
(in thousands)
Assets
Current assets:
Cash and cash equivalents ... $ 14,421 $ 16,774 $ 11,200
Securities available for sale 23,951 13,969 14,579
Receivables, net
Customers ................. 67,557 39,639 43,696
Other ..................... 3,267 3,414 3,471
Materials, supplies, and fuel 9,205 8,642 8,219
Prepaid expenses ............ 3,083 1,571 1,125
--------- --------- ---------
121,484 84,009 82,290
--------- --------- ---------
Property and investments:
Electric .................... 493,727 487,424 485,787
Coal mining ................. 53,460 52,804 52,843
Oil and gas ................. 60,178 52,412 50,943
Other ....................... 5,425 5,666 4,988
--------- --------- ---------
612,790 598,306 594,561
Less accumulated depreciation
and depletion ................ (214,043) (197,179) (193,764)
--------- --------- ---------
Net property and investments 398,747 401,127 400,797
--------- --------- ---------
Other assets:
Federal income taxes ........ 8,068 8,061 8,268
Regulatory asset ............ 4,042 3,776 3,626
Other ....................... 13,626 11,768 12,645
--------- --------- ---------
25,736 23,605 24,539
--------- --------- ---------
Total .................... $ 545,967 $ 508,741 $ 507,626
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
September 30 December 31 September 30
1998 1997 1997
------------- ------------ -------------
(in thousands)
Liabilities and Capitalization
Current liabilities:
Current maturities of long-term debt $ 1,330 $ 1,331 $ 1,331
Notes payable ...................... 1,502 23 1,528
Accounts payable ................... 60,816 32,622 36,048
Accrued liabilities-
Taxes ............................ 9,079 8,040 8,837
Interest ......................... 3,196 3,991 2,996
Other ............................ 8,043 7,800 7,103
--------- --------- ---------
83,966 53,807 57,843
--------- --------- ---------
Deferred credits:
Federal income taxes ............... 54,765 53,010 50,792
Investment tax credits ............. 3,639 4,014 4,139
Reclamation costs .................. 17,192 16,664 16,793
Regulatory liability ............... 5,785 6,152 6,277
Other .............................. 6,826 6,331 6,327
--------- --------- ---------
88,207 86,171 84,328
--------- --------- ---------
Capitalization:
Common stock equity-
Common stock ..................... 21,717 21,705 14,466
Additional paid-in
capital ......................... 40,238 39,995 47,158
Retained earnings ................ 153,105 143,703 140,471
Treasury stock ................... (3,296) -- --
--------- --------- ---------
Total common stock equity .......... 211,764 205,403 202,095
Long-term debt ..................... 162,030 163,360 163,360
--------- --------- ---------
373,794 368,763 365,455
--------- --------- ---------
Total ......................... $ 545,967 $ 508,741 $ 507,626
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Electric ................................... $ 34,982 $ 33,358 $ 96,810 $ 94,738 $ 128,569 $ 125,099
Coal mining ................................ 8,185 8,178 23,956 24,005 31,030 31,572
Oil and gas ................................ 3,199 3,029 9,675 9,958 13,012 13,165
Energy marketing ........................... 123,792 53,617 354,888 53,617 444,061 53,617
--------- --------- --------- --------- --------- ---------
170,158 98,182 485,329 182,318 616,672 223,453
--------- --------- --------- --------- --------- ---------
Operating expenses:
Fuel and purchased power ................... 131,130 62,557 375,932 80,840 472,540 89,254
Operations and maintenance ................. 8,113 8,580 24,168 23,895 32,313 32,203
Administrative and general ................. 4,062 2,936 10,901 7,478 14,860 9,523
Depreciation, depletion, and amortization .. 6,117 5,439 18,501 16,731 24,081 22,196
Taxes, other than income taxes ............. 3,133 3,097 9,434 9,430 11,989 12,383
--------- --------- --------- --------- --------- ---------
152,555 82,609 438,936 138,374 555,783 165,559
--------- --------- --------- --------- --------- ---------
Operating income (loss):
Electric ................................... 14,436 12,141 37,493 32,427 49,678 42,460
Coal mining ................................ 3,433 3,198 9,737 9,731 12,224 12,362
Oil and gas ................................ 267 494 959 2,276 1,591 3,619
Energy marketing ........................... (533) (260) (1,796) (490) (2,604) (547)
--------- --------- --------- --------- --------- ---------
17,603 15,573 46,393 43,944 60,889 57,894
--------- --------- --------- --------- --------- ---------
Other income and (expense):
Interest expense ........................... (3,709) (3,559) (10,984) (10,516) (14,594) (14,032)
Investment income .......................... 793 585 2,129 1,412 2,850 1,805
Allowance for funds used during construction 54 44 148 152 184 141
Other, net ................................. (223) (128) 167 (110) 323 909
--------- --------- --------- --------- --------- ---------
(3,085) (3,058) (8,540) (9,062) (11,237) (11,177)
--------- --------- --------- --------- --------- ---------
Income before income taxes ................... 14,518 12,515 37,853 34,882 49,652 46,717
Income taxes ................................. (4,902) (3,871) (12,196) (10,898) (15,625) (14,600)
--------- --------- --------- --------- --------- ---------
Net income available for common stock ........ $ 9,616 $ 8,644 $ 25,657 $ 23,984 $ 34,027 $ 32,117
========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding (Basic): ....................... 21,577 21,696 21,639 21,689 21,655 21,685
========= ========= ========= ========= ========= =========
(Diluted): ....................... 21,633 21,707 21,676 21,698 21,684 21,690
========= ========= ========= ========= ========= =========
Earnings per share (Basic) : ................. $ 0.45 $ 0.40 $ 1.19 $ 1.11 $ 1.57 $ 1.48
========= ========= ========= ========= ========= =========
(Diluted): ....................... $ 0.44 $ 0.40 $ 1.18 $ 1.11 $ 1.57 $ 1.48
========= ========= ========= ========= ========= =========
Dividends paid per share of
common stock ............................... $ 0.250 $ 0.237 $ 0.750 $ 0.710 $ .987 $ 0.940
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income ................................... $ 9,616 $ 8,644 $ 25,657 $ 23,984 $ 34,027 $ 32,117
Principal non-cash items-
Depreciation, depletion, and amortization ... 6,117 5,439 18,501 16,731 24,081 22,196
Deferred income taxes and
investment tax credits .................... 295 37 767 865 2,165 1,775
Allowance for other funds
used during construction ................... (33) (21) (90) (80) (108) (41)
(Increase) decrease in receivables,
inventories, and other current assets ...... (10,256) (33,701) (29,846) (30,312) (26,601) (26,077)
Increase (decrease) in other current
liabilities ............................... 6,197 31,089 28,681 28,546 26,150 31,943
Other, net .................................. (1,145) (668) (789) (1,267) 1,024 (833)
-------- -------- -------- -------- -------- --------
10,791 10,819 42,881 38,467 60,738 61,080
-------- -------- -------- -------- -------- --------
Investing activities:
Property additions, excluding
allowance for other funds used
during construction ........................ (5,902) (6,325) (16,104) (15,463) (22,431) (25,362)
Available for sale securities sold ............. 586 11,764 11,810 17,743 12,317 44,623
Available for sale securities purchased ........ (1,108) (8,132) (21,792) (20,864) (21,689) (48,517)
Energy marketing assets ........................ -- (6,810) -- (6,810) -- (6,810)
-------- -------- -------- -------- -------- --------
(6,424) (9,503) (26,086) (25,394) (31,803) (36,066)
-------- -------- -------- -------- -------- --------
Financing activities:
Dividends paid ............................... (5,428) (5,140) (16,255) (15,397) (21,392) (20,392)
Common stock acquired ........................ 33 -- (3,296) -- (3,296) --
Common stock issued .......................... 56 98 255 333 331 415
Net short-term borrowings .................... 1,490 1,505 1,479 1,385 (26) 180
Long-term debt retired ....................... (514) (783) (1,331) (1,534) (1,331) (1,546)
-------- -------- -------- -------- -------- --------
(4,363) (4,320) (19,148) (15,213) (25,714) (21,343)
-------- -------- -------- -------- -------- --------
Increase (decrease) in
cash and cash equivalents .................. 4 (3,004) (2,353) (2,140) 3,221 3,671
Cash and cash equivalents:
Beginning of period .......................... 14,417 14,204 16,774 13,340 11,200 7,529
-------- -------- -------- -------- -------- --------
End of period ................................ $ 14,421 $ 11,200 $ 14,421 $ 11,200 $ 14,421 $ 11,200
======== ======== ======== ======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest .................................. $ 4,593 $ 4,566 $ 8,183 $ 11,555 $ 14,393 $ 14,047
Income taxes .............................. $ 3,450 $ 2,140 $ 9,250 $ 8,640 $ 12,450 $ 11,840
Assumption of Clovis Point
reclamation liability ........................ $ -- $ -- $ -- $ -- $ -- $ 7,957
</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 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 September 30, 1998, December 31, 1997
and September 30, 1997, financial information and are of a normal recurring
nature. The results of operations for the three, nine and twelve months ended
September 30, 1998, are not necessarily indicative of the results to be expected
for the full fiscal 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
distributed 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.
In April 1998, the Board of Directors authorized the acquisition of up
to 300,000 shares of the Company's Common Stock on the open market to fund
possible future acquisitions and for other corporate purposes. At September 30,
1998, the Company has acquired 146,400 shares for such purposes and is reflected
as treasury stock on the accompanying consolidated balance sheets.
<PAGE>
(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 Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income ......................... $ 9,616 $ 8,644 $25,657 $23,984 $34,027 $32,117
======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding:
Basic ........................ 21,577 21,696 21,639 21,689 21,655 21,685
Dilutive effect of option plan 56 11 37 9 29 5
------- ------- ------- ------- ------- -------
Diluted ...................... 21,633 21,707 21,676 21,698 21,684 21,690
======= ======= ======= ======= ======= =======
Earnings per share (Basic): ........ $ 0.45 $ 0.40 $ 1.19 $ 1.11 $ 1.57 $ 1.48
======= ======= ======= ======= ======= =======
(Diluted): ........ $ 0.44 $ 0.40 $ 1.18 $ 1.11 $ 1.57 $ 1.48
======= ======= ======= ======= ======= =======
</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 in the accompanying financial statements.
(5) Accounting Pronouncements
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
requires 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. The Company will adopt this Statement in the fourth quarter of 1998.
<PAGE>
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.
The Company will adopt this Statement in the fourth quarter of 1998.
In March, 1998, the Accounting Standards Executive Committee issued
Statement of Position 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 capitalized and which costs are expensed. 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 results of
operations.
In May 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." The
Statement is effective for fiscal years beginning after December 15, 1998. The
Statement defines one-time start up costs and requires such costs to be expensed
as incurred. 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 results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge
accounting. Statement 133 is effective for fiscal years beginning after June 15,
1999.The Company has not yet quantified the impacts of adopting Statement 133 on
its financial statements and has not determined the timing of adoption of
Statement 133. However, the Statement could increase volatility in earnings and
other comprehensive income.
(6) New Business Venture
On September 28, 1998 the Company through Black Hills FiberCom
announced it will build a telecommunications fiber optic network. The newly
formed company will invest approximately $40,000,000 over the next three years
in state-of-the-art technology.
<PAGE>
(7) Restatement of Financial Statements
In the fourth quarter of 1998, Enserco Energy, Inc. reacquired the
shares not owned by the Company resulting in 100% ownership by the Company. The
Company's results of operations and financial position for the periods from
January 1, 1998 to the time the Company acquired majority ownership in Enserco
Energy, Inc. have been restated to reflect the consolidation of Enserco Energy.
Enserco Energy's 1997 results were recorded using the equity method of
accounting. Net income for the 1998 and 1997 periods did not significantly
change.
(8) Reclassifications
Certain 1998 and 1997 amounts in the financial statements have been
reclassified to conform to the 1998 presentation in the Company's Form 10-K.
These reclassifications did not have a material effect on 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 $12 million which
provide for interim borrowings and the opportunity for timing of permanent
financing. The Company had a $250,000 balance at September 30, 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 September 30, 1998, Black Hills Energy Resources has
approximately $33 million of outstanding letters of credit.
In addition to the above lines of credit, Wyodak Resources Development
Corp. has guaranteed a $15 million line of credit for Enserco Energy, Inc. to
use to guarantee letters of credit. At September 30, 1998, there were no
balances outstanding on this line of credit.
In September, 1998, the Company announced that it will invest
approximately $40 million over the next three years in state-of-the-art
technology that will offer local and long distance telephone service, expanded
cable television service, Internet access and high-speed data and video
services. Such investment is expected to come from the appropriate mix of
internally generated funds and short-term debt.
Black Hills FiberCom will experience operating losses over the next two
to four years as it develops and constructs its network infrastructure, builds
its customer base and internal staffing, and develops its systems. Management
believes Black Hills FiberCom's operating losses will be offset by growth in the
Company's other business segments and overall the Company should have stable or
slight growth during this start up phase.
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 $9,616,000, $25,657,000 and $34,027,000 for the
three months, nine months and twelve months ended September 30, 1998,
respectively, representing an increase of 11 percent, 7 percent and 6 percent,
respectively. The increase in earnings was primarily due to increased electric
sales, lower purchased power expense and strong cost management, 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 months,
nine months and twelve months ended September 30, 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:
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
Revenues
Electric ........ 21% 34% 20% 52% 21% 56%
Coal mining ..... 5 8 5 13 5 14
Oil and gas ..... 2 3 2 6 2 6
Energy marketing 72 55 73 29 72 24
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
Net Income/(Loss)
Electric ........ 74% 71% 72% 66% 73% 64%
Coal mining ..... 28 27 29 29 28 30
Oil and gas ..... 2 4 3 7 4 8
Energy marketing
and Other ..... (4) (2) (4) (2) (5) (2)
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
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
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
Capital Expenditures
(includes AFDC)
<S> <C> <C> <C> <C> <C> <C>
Electric $2,267 $3,168 $ 7,569 $7,879 $12,272 $12,036
Coal mining 167 100 686 1,545 647 2,298
Oil and gas 3,288 2,887 7,766 5,993 9,235 10,743
Energy marketing 22 6,810 112 6,810 258 6,810
Other 191 191 61 126 127 326
-------- ------- ------- ------- ------- -------
$5,935 $13,156 $16,194 $22,353 $22,539 $32,213
======= ======= ======= ======= ======= =======
Depreciation, Depletion,
and Amortization
Electric $3,797 $3,321 $11,392 $10,963 $15,037 $15,171
Coal mining 859 878 2,564 2,427 3,325 3,434
Oil and gas 1,292 1,142 4,075 3,243 5,107 3,493
Energy marketing 169 98 470 98 612 98
------- ------- ------- ------- ------- -------
$6,117 $5,439 $18,501 $16,731 $24,081 $22,196
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Electric Operations
Electric revenues increased 5 percent, 2 percent and 3 percent for the
three, nine and twelve months ended September 30, 1998. Firm kilowatthour sales
increased 3 percent for the three month period primarily due to increased
residential, commercial and wholesale sales, were stable for the nine month
period and increased 2 percent for the twelve month period due to serving the
Montana-Dakota Utilities, Sheridan, Wyoming load beginning January 1, 1997.
Industrial sales for the three month, nine month and twelve month periods
declined primarily due to Homestake Mining Company. Our low-cost generation
allowed the Company to recapture a portion of the margin loss from Homestake in
the spot energy market. Such spot energy sales result from additional physical
energy available to sell from existing sources.
Electric expenses decreased 3 percent, 5 percent and 5 percent for the
three months, nine months, and twelve months ended September 30, 1998 due to
continued cost containment and lower purchased power and fuel costs. For the
twelve months ended September 30, 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 increased $370,000, $579,000 and $118,000 for the three
month, nine month and twelve month periods ended September 30, 1998, primarily
due to increased non-operating income and continued cost management. Tons of
coal sold were relatively flat for the three months, nine months and twelve
months ended September 30, 1998 as compared to the prior periods.
Oil and Gas Production Operations
Oil and gas earnings decreased $171,000, $876,000 and $1,386,000 for the
three months, nine months and twelve months ended September 30, 1998 primarily
as a result of decreased commodity prices partially offset by production
increases. Average oil prices decreased 34 percent, 33 percent and 30 percent
and average gas prices decreased 9 percent, 15 percent and 6 percent for the
three months, nine months and twelve months ended September 30, 1998,
respectively. Production increased 30 percent, 17 percent and 14 percent for the
three month, nine month 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, and Enserco Energy,
Inc. (the energy marketing companies). 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 nine month and twelve month periods. The energy
marketing companies marketed 482,700 mmbtus and 22,700 barrels of oil per day
for the three month period ended September 30, 1998, 453,000 mmbtus and 18,100
barrels of oil per day for the nine month period and Black Hills Energy
Resources marketed 418,000 mmbtus and 16,800 barrels of oil per day for the
twelve month period. At September 30, 1998, Energy Marketing activities have
occurred in crude oil and natural gas sales and have not included electricity.
<PAGE>
Accounting Pronouncements
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
requires 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. The Company will adopt this Statement in the fourth quarter of 1998.
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.
The Company will adopt this Statement in the fourth quarter of 1998.
In March, 1998, the Accounting Standards Executive Committee issued
Statement of Position 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 capitalized and which costs are expensed. 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 results of
operations.
In May 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." The
Statement is effective for fiscal years beginning after December 15, 1998. The
Statement defines one-time start up costs and requires such costs to be expensed
as incurred. 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 results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. Statement 133 is effective for
fiscal years beginning after June 15, 1999. The Company has not yet quantified
the impacts of adopting Statement 133 on its financial statements and has not
determined the timing of adoption of Statement 133. However, the Statementcould
increase volatility in earnings and other comprehensive income.
<PAGE>
Year 2000 Issues
What is referred to as the Year 2000 problem ("Year 2000 problem") is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's computer systems and
products that have date-sensitive software may recognize a date using "00" as
the Year 1900 rather than the Year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Management has formed a Year 2000
Committee to establish and ensure the Company's compliance with what is commonly
known as the "Year 2000 problem". In addition, consultants may be engaged to
assist with a comprehensive review of the Company's state of readiness and to
assist with any necessary remedial plans for the Year 2000 date change. The
Company's review encompassed supporting information technology systems, product
generation and distribution systems, and business supply chain systems and
infrastructure. Management presently believes that with modifications to the
Company's existing software and conversions to new software, the Year 2000
problem can be mitigated. However, if such modifications and conversions are not
made, or are not completed on a timely basis, the Year 2000 problem could have a
material adverse effect on the Company's business, financial condition and
results of operations. Management further believes that the cost of either
repairing or replacing certain business systems to ensure business continuance
beyond Year 2000 should not have a significant impact on the results of
operations. The cost of the Year 2000 project is currently estimated at less
than $1 million and is being funded through operating cash flows. These costs
are primarily attributable to the purchase of new software and equipment which
will be expensed or capitalized on a basis consistent with the Company's
accounting policies for capital assets. Other than seeking representations and
assurances, the Company has not made an assessment as to whether any of its
customers, suppliers or service providers will be affected by the date change.
The Company's business, financial condition and results of operations may be
adversely impacted should the efforts of customers, suppliers or service
providers for the Company to address the Year 2000 issue prove to be inadequate.
The Company's risk management program includes emergency backup and recovery
procedures to be followed in the event of failure of a business-critical system.
These procedures will be expanded to include specific procedures for potential
Year 2000 issues. Contingency plans to protect the business from Year
2000-related interruptions are being developed. These plans will be complete by
June 1999 and will include, for example, development of backup procedures,
identification of alternate suppliers and possible increases in safety inventory
levels.
Forward Looking Statements
The above information includes forward-looking statements that are
subject to certain risks, uncertainties and assumptions. Although management
believes that its expectations are based on reasonable assumptions, it can give
no assurances that its goals will be achieved. Actual results may differ
materially from management's expectations as a result of a variety of factors
including, but not necessarily limited to, technological changes, regulation,
market conditions and marketing success, general economic conditions, and a
changing competitive environment.
<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, 1998.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
On September 28, 1998, the Registrant filed a Form 8-K
announcing that it will build a telecommunications fiber
optic network to serve the growing needs of Rapid City and
the Northern Black Hills of South Dakota.
<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 13, 1999
<PAGE>
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