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 June 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 July 31, 1999
Common stock, $1.00 par value 21,730,995 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
June 30, 1999, December 31, 1998
and June 30, 1998
Consolidated Statements of Income- 5
Three, Six and Twelve Months
Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows- 6
Three, Six and Twelve Months
Ended June 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 4. Submission of Matters to a Vote of Security Holders 20-21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
<PAGE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
June 30 December 31 June 30
1999 1998 1998
------------- ------------ -------------
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 15,432 $ 14,764 $ 14,417
Securities available for sale 12,700 22,675 23,429
Receivables, net
Customers 88,340 87,068 59,649
Other 3,338 2,919 3,377
Materials, supplies, and fuel 16,342 9,733 8,169
Prepaid expenses 2,670 3,321 1,661
--------- --------- ---------
138,822 140,480 110,702
--------- --------- ---------
Property and investments:
Electric 500,146 496,883 491,827
Coal mining 53,183 51,889 53,315
Oil and gas 67,056 62,581 56,891
Other 26,096 8,196 5,218
--------- --------- ---------
646,481 619,549 607,251
Less accumulated depreciation
and depletion (237,130) (229,942) (208,395)
--------- --------- ---------
Net property and investments 409,351 389,607 398,856
--------- --------- ---------
Other assets:
Federal income taxes 12,494 12,347 8,055
Regulatory asset 3,978 3,978 4,042
Other 13,091 13,005 12,183
--------- --------- ---------
29,563 29,330 24,280
--------- --------- ---------
Total $ 577,736 $ 559,417 $ 533,838
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
June 30 December 31 June 30
1999 1998 1998
------------- ------------ -----------
(in thousands)
Liabilities and Capitalization
Current liabilities:
Current maturities of long-term debt $ 1,330 $ 1,330 $ 1,330
Notes payable 5,613 5,090 12
Accounts payable 89,065 74,087 55,698
Accrued liabilities-
Taxes 9,261 9,950 7,871
Interest 4,026 3,956 4,140
Other 8,335 8,169 7,228
--------- --------- ---------
117,630 102,582 76,279
--------- --------- ---------
Deferred credits:
Federal income taxes 56,651 55,107 54,216
Investment tax credits 3,268 3,514 3,764
Reclamation costs 17,333 17,000 17,012
Regulatory liability 5,416 5,661 5,909
Other 7,263 6,857 6,627
--------- --------- ---------
89,931 88,139 87,528
--------- --------- ---------
Capitalization:
Common stock equity-
Common stock 21,731 21,719 21,714
Additional paid-in
capital 40,492 40,254 40,189
Retained earnings 153,269 147,774 148,884
Treasury stock (6,531) (3,081) (3,300)
--------- --------- ---------
Total common stock equity 208,961 206,666 207,487
Long-term debt 161,214 162,030 162,544
--------- --------- ---------
370,175 368,696 370,031
--------- --------- ---------
Total $ 577,736 $ 559,417 $ 533,838
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
June 30 June 30 June 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Electric $ 30,721 $ 29,839 $ 63,805 $ 61,829 $ 131,213 $ 126,945
Coal mining 6,979 7,847 14,757 15,771 30,400 31,023
Oil and gas 3,061 3,291 6,044 6,477 12,130 12,843
Energy marketing 145,434 120,357 269,790 231,094 544,737 373,885
--------- --------- --------- --------- --------- ---------
186,195 161,334 354,396 315,171 718,480 544,696
--------- --------- --------- --------- --------- ---------
Operating expenses:
Fuel and purchased power 151,158 126,573 281,895 244,803 568,460 403,905
Operations and maintenance 8,069 7,809 15,880 16,053 32,042 32,709
Administrative and general 4,929 3,725 9,212 6,834 18,678 13,870
Depreciation, depletion, and amortization 5,908 6,237 11,823 12,382 23,517 23,396
Oil and gas ceilings test write-down -- -- -- -- 13,546 --
Taxes, other than income taxes 2,345 3,075 5,830 6,309 12,036 11,960
--------- --------- --------- --------- --------- ---------
172,409 147,419 324,640 286,381 668,279 485,840
--------- --------- --------- --------- --------- ---------
Operating income (loss) 13,786 13,915 29,756 28,790 50,201 58,856
--------- --------- --------- --------- --------- ---------
Other income and (expense):
Interest expense (4,242) (3,649) (7,935) (7,273) (15,368) (14,449)
Investment income 1,121 731 1,830 1,335 3,457 2,641
Other, net (227) 99 (252) 481 (708) 590
Minority interest 298 -- 515 -- 515 --
--------- --------- ---------
(3,050) (2,819) (5,842) (5,457) (12,104) (11,218)
--------- --------- --------- --------- --------- ---------
Income before income taxes 10,736 11,096 23,914 23,333 38,097 47,638
Income taxes (2,973) (3,599) (7,121) (7,292) (11,537) (14,589)
--------- --------- --------- --------- --------- ---------
Net income available for common stock $ 7,763 $ 7,497 $ 16,793 $ 16,041 $ 26,560 $ 33,049
========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding 21,451 21,633 21,476 21,671 21,526 21,685
========= ========= ========= ========= ========= =========
Earnings per share (basic and diluted) $ 0.36 $ 0.35 $ 0.78 $ 0.74 $ 1.23 $ 1.52
========= ========= ========= ========= ========= =========
Dividends paid per share of
common stock $ 0.26 $ 0.25 $ 0.52 $ 0.50 $ 1.02 $ 0.97
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
June 30 June 30 June 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income $ 7,763 $ 7,497 $ 16,793 $ 16,041 $ 26,560 $ 33,049
Principal non-cash items-
Depreciation, depletion, and amortization 5,908 6,237 11,823 12,382 37,063 23,396
Deferred income taxes and
investment tax credits (361) 227 (622) 472 (4,519) 2,100
(Increase) decrease in receivables,
inventories, and other current assets (17,143) 6,047 (7,649) (19,590) (37,834) (50,046)
Increase (decrease) in other current
liabilities 12,093 (7,647) 14,525 22,484 35,750 51,042
Other, net 1,676 405 1,692 479 175 504
-------- -------- -------- -------- -------- --------
9,936 12,766 36,562 32,268 57,195 60,045
-------- -------- -------- -------- -------- --------
Investing activities:
Net property additions, excluding
allowance for other funds used
during construction (15,858) (7,712) (31,078) (10,380) (46,094) (21,716)
Available for sale securities sold 8,944 7,343 13,457 11,223 15,889 23,494
Available for sale securities purchased (2,565) (11,459) (3,482) (20,683) (5,160) (28,712)
Energy marketing assets -- -- -- -- -- (7,232)
-------- -------- -------- -------- -------- --------
(9,479) (11,828) (21,103) (19,840) (35,365) (34,166)
-------- -------- -------- -------- -------- --------
Financing activities:
Dividends paid (5,649) (5,430) (11,298) (10,878) (22,158) (21,150)
Treasury stock, net (284) (3,282) (3,450) (3,282) (3,248) (3,282)
Common stock issued 100 48 250 203 320 377
Net short-term borrowings 1,043 -- 523 (11) 5,601 (11)
Long-term debt retired (290) (290) (816) (817) (1,330) (1,600)
-------- -------- -------- -------- -------- --------
(5,080) (8,954) (14,791) (14,785) (20,815) (25,666)
-------- -------- -------- -------- -------- --------
Increase (decrease) in
cash and cash equivalents (4,623) (8,016) 668 (2,357) 1,015 213
Cash and cash equivalents:
Beginning of period 20,055 22,433 14,764 16,774 14,417 14,204
-------- -------- -------- -------- -------- --------
End of period $ 15,432 $ 14,417 $ 15,432 $ 14,417 $ 15,432 $ 14,417
======== ======== ======== ======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 3,263 $ 2,640 $ 7,865 $ 7,232 $ 15,482 $ 14,421
Income taxes $ 7,148 $ 3,800 $ 7,148 $ 5,800 $ 14,483 $ 11,140
</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 June 30, 1999, December 31, 1998 and
June 30, 1998, financial information and are of a normal recurring nature. The
results of operations for the three, six and twelve months ended June 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 June 30, 1999, the Company has acquired 291,429
shares for such purposes and is 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):
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 7,763 $ 7,497 $16,793 $16,041 $26,560 $33,049
======= ======= ======= ======= ======= =======
Weighted average common shares outstanding:
Basic 21,451 21,633 21,476 21,671 21,526 21,685
Dilutive effect of option plan 36 29 36 30 47 18
------- ------- ------- ------- ------- -------
Diluted 21,487 21,662 21,512 21,701 21,573 21,703
======= ======= ======= ======= ======= =======
Earnings per share (Basic and Diluted): $ 0.36 $ 0.35 $ 0.78 $ 0.74 $ 1.23 $ 1.52
======= ======= ======= ======= ======= =======
</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; 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; 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 Regions markets and Technology and Others which
primarily markets communications and software development services.
<PAGE>
Financial data for the business segments are as follows (in thousands):
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Second Quarter
June 30, 1999
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 30,721 $ 6,979 $ 3,061 $ 145,434 $ 726 $ (726) $ 186,195
Depreciation,
depletion & amort 3,948 844 871 224 21 -- 5,908
Operating income
(loss) 10,356 3,217 826 166 (779) -- 13,786
Interest expense 3,351 408 148 183 152 -- 4,242
Income taxes 2,216 722 144 24 (133) -- 2,973
Net income (loss) 4,923 2,498 536 55 (249) -- 7,763
Current assets 46,135 35,365 1,413 90,773 6,292 (41,156) 138,822
Total assets 455,763 110,396 30,813 109,401 25,937 (154,574) 577,736
Net property additions 2,585 1,036 (658) 50 12,845 -- 15,858
</TABLE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Second Quarter
June 30, 1998
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 29,839 $ 7,847 $ 3,291 $ 120,357 $ 622 $ (622) $ 161,334
Depreciation,
depletion & amort 3,797 850 1,441 149 -- -- 6,237
Operating income
(loss) 10,743 3,109 420 (307) (50) -- 13,915
Interest expense 3,394 -- 75 172 8 -- 3,649
Income taxes 2,623 1,053 36 (143) 30 -- 3,599
Net income (loss) 4,944 2,486 331 (320) 56 -- 7,497
Current assets 35,386 20,298 1,237 58,550 6,540 (11,309) 110,702
Total assets 448,823 95,059 32,697 65,636 15,522 (123,899) 533,838
Property additions 3,547 274 3,848 -- 43 -- 7,712
</TABLE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Second Quarter
June 30, 1999
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 30,721 $ -- $ -- $ -- $ -- $ -- $ 30,721
Coal revenues -- 6,979 -- 9,026 -- -- 16,005
Gas revenues -- -- 1,209 94,241 -- -- 95,450
Oil revenues -- -- 1,145 42,167 -- -- 43,312
Other revenues -- -- 707 -- 726 (726) 707
--------- --------- --------- --------- --------- --------- ---------
Total $ 30,721 $ 6,979 $ 3,061 $ 145,434 $ 726 $ (726) $ 186,195
========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Second Quarter
June 30, 1998
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 29,839 $ -- $ -- $ -- $ -- $ -- $ 29,839
Coal revenues -- 7,847 -- -- -- -- 7,847
Gas revenues -- -- 1,083 92,117 -- -- 93,200
Oil revenues -- -- 1,359 28,157 -- -- 29,516
Other revenues -- -- 849 83 622 (622) 932
--------- --------- --------- --------- --------- --------- ---------
Total $ 29,839 $ 7,847 $ 3,291 $ 120,357 $ 622 $ (622) $ 161,334
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Year to Date
June 30, 1999
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 63,805 $ 14,757 $ 6,044 $ 269,790 $ 1,379 $ (1,379) $ 354,396
Depreciation,
depletion & amort 7,896 1,712 1,728 446 41 -- 11,823
Operating income
(loss) 23,731 6,251 1,313 (177) (1,362) -- 29,756
Interest expense 6,705 415 283 360 172 -- 7,935
Income taxes 5,574 1,677 232 (131) (231) -- 7,121
Net income (loss) 11,797 4,872 803 (248) (431) -- 16,793
Current assets 46,135 35,365 1,413 90,773 6,292 (41,156) 138,822
Total assets 455,763 110,396 30,813 109,401 25,937 (154,574) 577,736
Property additions 4,689 2,864 4,474 82 18,969 -- 31,078
</TABLE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Year to Date
June 30, 1998
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 61,829 $ 15,771 $ 6,477 $ 231,094 $ 1,244 $ (1,244) $ 315,171
Depreciation,
depletion & amort 7,595 1,705 2,783 299 -- -- 12,382
Operating income
(loss) 23,057 6,305 692 (1,177) (87) -- 28,790
Interest expense 6,784 -- 126 346 17 -- 7,273
Income taxes 5,530 2,103 79 (515) 95 -- 7,292
Net income (loss) 11,365 4,909 516 (927) 178 -- 16,041
Current assets 35,386 20,298 1,237 58,550 6,540 (11,309) 110,702
Total assets 448,823 95,059 32,697 65,636 15,522 (123,899) 533,838
Property additions 5,302 519 4,478 -- 81 -- 10,380
</TABLE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Year to Date
June 30, 1999
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 63,805 $ -- $ -- $ -- $ -- $ -- $ 63,805
Coal revenues -- 14,757 -- 19,091 -- -- 33,848
Gas revenues -- -- 2,505 179,397 -- -- 181,902
Oil revenues -- -- 2,044 71,302 -- -- 73,346
Other revenues -- -- 1,495 -- 1,379 (1,379) 1,495
--------- --------- --------- --------- --------- --------- ---------
Total $ 63,805 $ 14,757 $ 6,044 $ 269,790 $ 1,379 $ (1,379) $ 354,396
========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Year to Date
June 30, 1998
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 61,829 $ -- $ -- $ -- $ -- $ -- $ 61,829
Coal revenues -- 15,771 -- -- -- -- 15,771
Gas revenues -- -- 2,170 175,189 -- -- 177,359
Oil revenues -- -- 2,631 55,744 -- -- 58,375
Other revenues -- -- 1,676 161 1,244 (1,244) 1,837
--------- --------- --------- --------- --------- --------- ---------
Total $ 61,829 $ 15,771 $ 6,477 $ 231,094 $ 1,244 $ (1,244) $ 315,171
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Twelve Months Ended
June 30, 1999
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 131,213 $ 30,400 $ 12,130 $ 544,737 $ 2,573 $ (2,573) $ 718,480
Depreciation,
depletion & amort 15,183 3,259 17,705* 833 83 -- 37,063
Operating income
(loss) 50,570 12,670 (11,719) 1,043 (2,363) -- 50,201
Interest expense 13,493 424 512 745 194 -- 15,368
Income taxes 12,656 3,665 (4,536) 269 (517) -- 11,537
Net income (loss) 25,257 9,548 (7,689) 333 (889) -- 26,560
Current assets 46,135 35,365 1,413 90,773 6,292 (41,156) 138,822
Total assets 455,763 110,396 30,813 109,401 25,937 (154,574) 577,736
Property additions 10,969 3,792 10,165 367 20,801 -- 46,094
</TABLE>
*Includes the impact of a $13.546 million pretax write down of certain oil
and natural gas properties
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Twelve Months Ended
June 30, 1998
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 126,945 $ 31,023 $ 12,843 $ 373,885 $ -- $ -- $ 544,696
Depreciation,
depletion & amort 14,561 3,345 4,956 534 -- -- 23,396
Operating income
(loss) 47,383 11,989 1,818 (2,006) (328) -- 58,856
Interest expense 13,617 4 248 546 34 -- 14,449
Income taxes 11,108 4,030 223 (862) 90 -- 14,589
Net income (loss) 23,788 9,282 1,443 (1,582) 118 -- 33,049
Current assets 35,386 20,298 1,237 58,550 6,540 (11,309) 110,702
Total assets 448,823 95,059 32,697 65,636 15,522 (123,899) 533,838
Property additions 13,174 580 7,600 -- 362 -- 21,716
Increase in goodwill -- -- -- 7,232 -- -- 7,232
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Twelve Months Ended
June 30, 1999
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $131,213 $ -- $ -- $ -- $ -- $ -- $131,213
Coal revenues -- 30,400 -- 32,014 -- -- 62,414
Gas revenues -- -- 4,407 379,980 -- -- 384,387
Oil revenues -- -- 4,545 132,743 -- -- 137,288
Other revenues -- -- 3,178 -- 2,573 (2,573) 3,178
-------- -------- -------- -------- -------- -------- --------
Total $131,213 $ 30,400 $ 12,130 $544,737 $ 2,573 $(2,573) $718,480
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Oil Energy Technology
Electric Mining and Gas Marketing & Others Eliminations Total
-------- ------ ------- --------- -------- ------------ -----
Twelve Months Ended
June 30, 1998
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $126,945 $ -- $ -- $ -- $ -- $ -- $126,945
Coal revenues -- 31,023 -- -- -- -- 31,023
Gas revenues -- -- 4,037 271,170 -- -- 275,207
Oil revenues -- -- 5,331 102,554 -- -- 107,885
Other revenues -- -- 3,475 161 -- -- 3,636
-------- -------- -------- -------- -------- -------- --------
Total $126,945 $ 31,023 $ 12,843 $373,885 $ -- $ -- $544,696
======== ======== ======== ======== ======== ======== ========
</TABLE>
(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 June 30 1999, the
Company had approximately 619,000 mmbtus of natural gas forward sales
at a fixed price, and approximately 386,000 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.
<PAGE>
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.
<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 $4,373,000 outstanding under these lines of credit on
June 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 June 30, 1999, Black Hills Energy Resources has
approximately $21 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 June 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 June 30, 1999 and 1998 are not
significant to the Company's financial position or results of operations.
<PAGE>
Non-trading Activities
The notional quantities and maximum terms of derivative financial
instruments held for non-trading activities at June 30, 1999, are presented
below:
Volume Max. Term Fair Value
(MMBtu's) (Years) (in thousands)
Natural Gas:
Natural gas futures contracts purchased 890,000 2 $ 289
Natural gas basis swaps contracts bought 9,111,000 3 (67)
Natural gas basis swaps contracts sold (8,164,000) 3 627
Natural gas swap contracts bought 16,567,000 2 2,601
Natural gas swap contracts sold (9,911,000) 2 (1,597)
Crude Oil:
Crude oil swap contracts sold (144,000) (518)
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 June 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 five principal businesses: electric, coal mining, oil and gas
production, energy marketing, and communications.
<PAGE>
Consolidated net income was $7,763,000 for the three months ended,
$16,793,000 for the six months ended and $35,375,000 for the twelve months
(before a special non-cash charge) ended June 30, 1999, representing an increase
of 4 percent, 5 percent, and 7 percent, respectively. The increases were
primarily due to improved energy marketing results and increased oil prices
partially offset by planned start-up losses in the communication operations.
Earnings from electric and coal mining operations were flat despite planned
outages at the Company's two largest power plants in the three month period. 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, six and
twelve months ended June 30, 1999 primarily due to increased oil and natural gas
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:
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Revenues
Electric 16% 18% 18% 20% 18% 23%
Coal mining 4 5 4 5 4 6
Oil and gas 2 2 2 2 2 2
Energy marketing 78 75 76 73 76 69
--- --- --- --- --- ---
100% 100% 100% 100% 100% 100%
=== === === === === ===
Net Income/(Loss)
Electric 63% 66% 70% 71% 71% 72%
Coal mining 32 33 29 31 27 28
Oil and gas 7 4 5 3 4* 4
Energy marketing 1 (4) (1) (6) 1 (5)
Communications and
other (3) 1 (3) 1 (3) 1
----- ----- ----- ----- ----- ----
100% 100% 100% 100% 100% 100%
=== === === === === ===
*Excludes $8.8 million (net-of-tax) write down of certain oil and natural gas
properties
Capital expenditures and depreciation, depletion, and amortization by
business segment were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Capital Expenditures
(includes AFDC)
<S> <C> <C> <C> <C> <C> <C>
Electric $ 2,585 $ 3,547 $ 4,689 $ 5,302 $ 10,969 $ 13,174
Coal mining 1,036 274 2,864 519 3,792 580
Oil and gas, net of sales (658) 3,848 4,474 4,478 10,165 7,600
Energy marketing 50 -- 82 -- 367 7,232
Communications and other 12,845 43 18,969 81 20,801 362
-------- -------- -------- -------- -------- --------
$ 15,858 $ 7,712 $ 31,078 $ 10,380 $ 46,094 $ 28,948
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Depreciation, Depletion,
and Amortization
<S> <C> <C> <C> <C> <C> <C>
Electric $ 3,948 $ 3,797 $ 7,896 $ 7,595 $15,183 $14,561
Coal mining 844 850 1,712 1,705 3,259 3,345
Oil and gas 871 1,441 1,728 2,783 4,159 4,956
Oil and gas ceilings test
writedown -- -- -- -- 13,546 --
Energy marketing 224 149 446 299 833 534
Communications and others 21 -- 41 -- 83 --
------- ------- ------- ------- ------- -------
$ 5,908 $ 6,237 $11,823 $12,382 $37,063 $23,396
======= ======= ======= ======= ======= =======
</TABLE>
Electric Operations
Earnings from electric operations were flat for the three month period
and increased $432,000 and $1,469,000 for the six month and twelve month periods
ending June 30, 1999. Total kilowatthour sales increased 2 percent for the three
month period and 4 percent for the six and twelve month periods due to increased
residential, commercial, wholesale and off-system sales. Degree days, a measure
of weather trends, were 12 percent higher for the three month period and 5
percent and 1 percent lower for the six 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.
Mining Operations
Mining earnings were stable for the three, six and twelve month periods
ending June 30, 1999. Decreased severance and production taxes offset lower coal
sales due to the planned plant outages for the three month period.
Oil and Gas Production Operations
Earnings from oil and gas operations increased $205,000 and $287,000
for the three months and six months ended June 30, 1999 and decreased $332,000
(excluding a write-down of certain assets) for the twelve months ended June 30,
1999, as compared to 1998. Increased earnings were primarily due to increased
oil prices, increased gas production and lower depletion expense. Production
increased 5 percent, 14 percent and 17 percent for the three, six and twelve
month periods. Oil prices increased 30 percent for the three month period and
decreased 1 percent and 22 percent for the six and twelve month period. Gas
prices decreased 19 percent, 18 percent and 19 percent for the three, six, and
twelve month periods, respectively. Average gas prices decreased primarily due
to the production increases in lower price and lower cost Montana properties for
the three and six 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.
<PAGE>
Energy Marketing Operations
Energy marketing operations were profitable in the second quarter and
the twelve month period and earnings improved $375,000, $679,000 and $1,915,000
for the three months, six months and twelve months ended June 30, 1999. The
increase was primarily due to increased margins and volumes marketed in natural
gas and crude oil partially offset by adverse market conditions in coal
marketing.
The operations marketed 486,000 mmbtus of gas, 19,000 barrels of oil and
4,200 tons of coal per day in the three month period ended June 30, 1999 and
456,000 mmbtus and 16,500 barrels per day for the three month period ended June
30, 1998. For the six month period, 502,000 mmbtus, 19,400 barrels and 4,400
tons were marketed in 1999 and 446,000 mmbtus and 15,700 barrels were marketed
in 1998. For the twelve month period ending June 30, 1999, 515,000 mmbtus,
20,900 barrels and 4,400 tons per day were marketed as compared to 376,000
mmbtus and 14,000 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
expects to begin serving customers by late third quarter. Losses for the three
and six months ended June 30, 1999, primarily represent start-up administrative
and operations 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 identified modifications to the
Company's existing software and/or 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 include specific procedures for potential Year 2000 issues.
Contingency plans to protect the business from Year 2000-related interruptions
continue to be expanded. These plans will be complete by October 1999 and will
include, for example, complete backup procedures for business critical
operations, identification of alternate suppliers and possible increases in
safety inventory levels.
<PAGE>
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 June 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 11, 1999.
(b) The following Directors were elected to serve until
the Annual Meeting of Shareholders in 2002.
Glenn C. Barber
Bruce B. Brundage
Kay S. Jorgensen
Other Directors whose term of office continues are:
Adil M. Ameer
David C. Ebertz
John R. Howard
Everett E. Hoyt
Daniel P. Landguth
Thomas J. Zeller
(c) Matters Voted Upon at the Meeting
1. Elected three Class I Directors to serve until
the Annual Meeting of Shareholders in 2002.
Glenn C. Barber
Votes For 17,964,520
Votes Withheld 211,339
Bruce B. Brundage
Votes For 17,980,431
Votes Withheld 195,429
Kay S. Jorgensen
Votes For 17,997,221
Votes Withheld 178,639
<PAGE>
2. Approved Black Hills Corporation 1999 Stock Option
Plan
Votes For 15,672,628
Votes Against 2,026,227
Abstain 317,360
Broker Non-Votes 159,644
3. Ratified the appointment of Arthur Andersen LLP
to serve as independent auditors of the Company
Votes For 17,982,038
Votes Against 92,331
Abstain 101,491
Broker Non-Votes -0-
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
The Registrant filed a Form 8-K on June 23, 1999,
reporting the extension of the Registrant's electric
utility operations rate freeze until January 1, 2005.
<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: August 13, 1999
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
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