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 June 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 July 31, 1998
Common stock, $1.00 par value 21,580,506 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
June 30, 1998, December 31, 1997
and June 30, 1997
Consolidated Statements of Income- 6
Three, Six and Twelve Months
Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows- 7
Three, Six and Twelve Months
Ended June 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 4. Submission of Matters to a Vote of Security Holders 17-18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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 June 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
June 30 December 31 June 30
1998 1997 1997
------------- ------------ -------------
(in thousands)
Assets
Current assets:
Cash and cash equivalents ... $ 14,417 $ 16,774 $ 14,204
Securities available for sale 23,429 13,969 18,211
Receivables, net
Customers ................. 59,649 39,639 11,636
Other ..................... 3,377 3,414 2,652
Materials, supplies, and fuel 8,169 8,642 7,834
Prepaid expenses ............ 1,661 1,571 688
--------- --------- ---------
110,702 84,009 55,225
--------- --------- ---------
Property and investments:
Electric .................... 491,827 487,424 493,372
Coal mining ................. 53,315 52,804 52,838
Oil and gas ................. 56,891 52,412 49,291
Other ....................... 5,218 5,666 4,301
--------- --------- ---------
607,251 598,306 599,802
Less accumulated depreciation
and depletion ................ (208,395) (197,179) (200,189)
--------- --------- ---------
Net property and investments 398,856 401,127 399,613
--------- --------- ---------
Other assets:
Federal income taxes ........ 8,055 8,061 8,110
Regulatory asset ............ 4,042 3,776 3,476
Other ....................... 12,183 11,768 4,931
--------- --------- ---------
24,280 23,605 16,517
--------- --------- ---------
Total .................... $ 533,838 $ 508,741 $ 471,355
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
June 30 December 31 June 30
1998 1997 1997
------------- ------------ -------------
(in thousands)
Liabilities and Capitalization
Current liabilities:
Current maturities of long-term debt $ 1,330 $ 1,331 $ 1,310
Notes payable ...................... 12 23 23
Accounts payable ................... 55,698 32,622 5,397
Accrued liabilities-
Taxes ............................ 7,871 8,040 7,509
Interest ......................... 4,140 3,991 4,003
Other ............................ 7,228 7,800 6,986
--------- --------- ---------
76,279 53,807 25,228
--------- --------- ---------
Deferred credits:
Federal income taxes ............... 54,216 53,010 49,995
Investment tax credits ............. 3,764 4,014 4,265
Reclamation costs .................. 17,012 16,664 16,614
Regulatory liability ............... 5,909 6,152 6,485
Other .............................. 6,627 6,331 6,111
--------- --------- ---------
87,528 86,171 83,470
--------- --------- ---------
Capitalization:
Common stock equity-
Common stock ..................... 21,714 21,705 14,461
Additional paid-in
capital ......................... 40,189 39,995 47,065
Retained earnings ................ 148,884 143,703 136,967
Treasury stock ................... (3,300) -- --
--------- --------- ---------
Total common stock equity .......... 207,487 205,403 198,493
Long-term debt ..................... 162,544 163,360 164,164
--------- --------- ---------
370,031 368,763 362,657
--------- --------- ---------
Total ......................... $ 533,838 $ 508,741 $ 471,355
========= ========= =========
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
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Electric .................................... $ 29,839 $ 29,347 $ 61,829 $ 61,381 $ 126,945 $ 122,815
Coal mining ................................. 7,847 7,703 15,771 15,828 31,023 31,657
Oil and gas ................................. 3,291 3,209 6,477 6,929 12,843 13,366
Energy marketing ............................ 120,357 -- 231,094 -- 373,885 --
--------- --------- --------- --------- --------- ---------
161,334 40,259 315,171 84,138 544,696 167,838
--------- --------- --------- --------- --------- ---------
Operating expenses:
Fuel and purchased power .................... 126,573 8,816 244,803 18,282 403,905 35,731
Operations and maintenance .................. 7,809 7,676 16,053 15,316 32,709 31,016
Administrative and general .................. 3,725 2,264 6,834 4,542 13,870 8,682
Depreciation, depletion, and amortization ... 6,237 5,699 12,382 11,293 23,396 22,685
Taxes, other than income taxes .............. 3,075 3,062 6,309 6,334 11,960 12,480
--------- --------- --------- --------- --------- ---------
147,419 27,517 286,381 55,767 485,840 110,594
--------- --------- --------- --------- --------- ---------
Operating income (loss):
Electric .................................... 10,743 9,078 23,058 20,286 47,383 41,146
Coal mining ................................. 3,109 3,103 6,306 6,533 11,989 12,468
Oil and gas ................................. 420 713 692 1,782 1,818 3,912
Energy marketing and others ................. (357) (152) (1,266) (230) (2,334) (282)
--------- --------- --------- --------- --------- ---------
13,915 12,742 28,790 28,371 58,856 57,244
--------- --------- --------- --------- --------- ---------
Other income and (expense):
Interest expense ............................ (3,649) (3,465) (7,273) (6,946) (14,449) (13,958)
Investment income ........................... 731 459 1,335 829 2,641 1,620
Allowance for funds used during construction 65 43 94 109 174 209
Other, net .................................. 34 120 387 15 416 1,165
--------- --------- --------- --------- --------- ---------
(2,819) (2,843) (5,457) (5,993) (11,218) (10,964)
--------- --------- --------- --------- --------- ---------
Income before income taxes .................... 11,096 9,899 23,333 22,378 47,638 46,280
Income taxes .................................. (3,599) (3,137) (7,292) (7,028) (14,589) (14,565)
--------- --------- --------- --------- --------- ---------
Net income available for common stock ....... $ 7,497 $ 6,762 $ 16,041 $ 15,350 $ 33,049 $ 31,715
========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding ................................. 21,633 21,687 21,671 21,684 21,685 21,677
========= ========= ========= ========= ========= =========
Earnings per share (basic and diluted) ........ $ 0.35 $ 0.31 $ 0.74 $ 0.71 $ 1.52 $ 1.46
========= ========= ========= ========= ========= =========
Dividends paid per share of
common stock ................................ $ 0.250 $ 0.237 $ 0.500 $ 0.473 $ .974 $ 0.934
========= ========= ========= ========= ========= =========
</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
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income ................................... $ 7,497 $ 6,762 $ 16,041 $ 15,350 $ 33,049 $ 31,715
Principal non-cash items-
Depreciation, depletion, and amortization ... 6,237 5,699 12,382 11,293 23,396 22,685
Deferred income taxes and
investment tax credits .................... 227 247 472 829 2,100 1,947
Allowance for other funds
used during construction ................... (39) (23) (57) (58) (97) (90)
(Increase) decrease in receivables,
inventories, and other current assets ...... 6,047 1,635 (19,590) 3,389 (50,046) 4,202
Increase (decrease) in other current
liabilities ............................... (7,647) (3,240) 22,484 (2,544) 51,042 4,590
Other, net .................................. 405 1,294 479 (440) 504 1,402
-------- -------- -------- -------- -------- --------
12,727 12,374 32,211 27,819 59,948 66,451
-------- -------- -------- -------- -------- --------
Investing activities:
Property additions, excluding
allowance for other funds used
during construction ........................ (7,673) (8,022) (10,323) (9,299) (21,619) (26,240)
Available for sale securities sold ............. 7,343 3,638 11,223 5,979 23,494 36,057
Available for sale securities purchased ........ (11,459) (6,579) (20,683) (12,732) (28,712) (43,670)
Energy marketing assets ........................ -- -- -- -- (7,232) --
-------- -------- -------- -------- -------- --------
(11,789) (10,963) (19,783) (16,052) (34,069) (33,853)
-------- -------- -------- -------- -------- --------
Financing activities:
Dividends paid ............................... (5,430) (5,134) (10,878) (10,267) (21,150) (20,236)
Common stock acquired ........................ (3,282) -- (3,282) -- (3,282) --
Common stock issued .......................... 48 96 203 235 377 443
Net short-term borrowings .................... -- -- (11) (120) (11) (1,055)
Long-term debt retired ....................... (290) -- (817) (751) (1,600) (1,313)
-------- -------- -------- -------- -------- --------
(8,954) (5,038) (14,785) (10,903) (25,666) (22,161)
-------- -------- -------- -------- -------- --------
Increase (decrease) in
cash and cash equivalents .................. (8,016) (3,627) (2,357) 864 213 10,437
Cash and cash equivalents:
Beginning of period .......................... 22,433 17,831 16,774 13,340 14,204 3,767
-------- -------- -------- -------- -------- --------
End of period ................................ $ 14,417 $ 14,204 $ 14,417 $ 14,204 $ 14,417 $ 14,204
======== ======== ======== ======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest .................................. $ 2,640 $ 2,458 $ 7,232 $ 6,961 $ 14,421 $ 13,991
Income taxes .............................. $ 3,800 $ 6,500 $ 5,800 $ 6,500 $ 11,140 $ 12,366
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 June 30, 1998, December 31, 1997 and
June 30, 1997, financial information and are of a normal recurring nature. The
results of operations for the three, six and twelve months ended June 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 June 30, 1998,
the Company has acquired 147,400 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 Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income ............................ $ 7,497 $ 6,762 $16,041 $15,350 $33,049 $31,715
======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding:
Basic ............................. 21,633 21,687 21,671 21,684 21,685 21,677
Dilutive effect of option plan .... 29 10 30 9 18 5
------- ------- ------- ------- ------- -------
Diluted ........................... 21,662 21,697 21,701 21,693 21,703 21,682
======= ======= ======= ======= ======= =======
Earnings per share (Basic and Diluted): $ 0.35 $ 0.31 $ 0.74 $ 0.71 $ 1.52 $ 1.46
======= ======= ======= ======= ======= =======
</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 expense. The Company has not
yet determined when they will adopt the new Statement. The effect of adoption is
not expected to materially affect the Company's financial position or 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) 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.
(7) 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 no balances outstanding under these lines of credit
on June 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 June 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 June 30, 1998, there were no balances
outstanding on this line of credit.
Results of Operations
Black Hills Corporation is an energy company consisting of four
principal businesses: electric, coal mining, oil and gas production, and crude
oil and natural gas marketing.
Consolidated net income was $7,497,000, $16,041,000 and $33,049,000 for
the three months, six months and twelve months ended June 30, 1998,
respectively, representing an increase of 11 percent, 5 percent and 4 percent,
respectively. The increase in earnings was primarily due to stable 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,
six months and twelve months ended June 30, 1998 primarily due to oil and
natural gas purchases and sales from the energy marketing operations.
<PAGE>
Consolidated revenue and income from continuing operations provided by
the four businesses as a percentage of the total were as follows:
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
Revenues
Electric ........ 18% 73% 20% 73% 23% 73%
Coal mining ..... 5 19 5 19 6 19
Oil and gas ..... 2 8 2 8 2 8
Energy marketing 75 -- 73 -- 69 --
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
Net Income/(Loss)
Electric ........ 66% 62% 71% 63% 72% 62%
Coal mining ..... 33 33 31 31 28 30
Oil and gas ..... 4 7 3 8 4 9
Energy marketing
and Other ..... (3) (2) (5) (2) (4) (1)
---- ---- ---- ---- ---- ----
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 Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
Capital Expenditures
- --------------------
(includes AFDC)
<S> <C> <C> <C> <C> <C> <C>
Electric ............... $ 3,547 $ 4,666 $ 5,302 $ 4,711 $13,174 $12,734
Coal mining ............ 274 1,335 519 1,445 580 3,367
Oil and gas ............ 3,848 1,981 4,478 3,107 7,600 10,093
Energy marketing ....... -- -- -- -- 7,232 --
Other .................. 43 63 81 94 362 136
------- ------- ------- ------- ------- -------
$ 7,712 $ 8,045 $10,380 $ 9,357 $28,948 $26,330
======= ======= ======= ======= ======= =======
Depreciation, Depletion,
and Amortization
Electric ............... $ 3,797 $ 3,821 $ 7,595 $ 7,642 $14,561 $15,942
Coal mining ............ 850 787 1,705 1,549 3,345 3,220
Oil and gas ............ 1,441 1,091 2,783 2,102 4,956 3,523
Energy marketing ....... 149 -- 299 -- 534 --
------- ------- ------- ------- ------- -------
$ 6,237 $ 5,699 $12,382 $11,293 $23,396 $22,685
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Electric Operations
Electric revenues were stable for the three months and six months ended
June 30, 1998 and increased 3% for the twelve months ended June 30, 1998. Firm
kilowatthour sales decreased 3 percent for the three and six month periods due
to milder weather and the Homestake reorganization, and increased 4 percent for
the twelve month period due to serving the Montana-Dakota Utilities, Sheridan,
Wyoming load beginning January 1, 1997. Industrial sales 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 6 percent, 6 percent and 3 percent for the
three months, six months, and twelve months ended June 30, 1998 due to continued
cost containment and lower purchased power and fuel costs. For the twelve months
ended June 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 $277,000 and $228,000 for the three and six
month periods ended June 30, 1998. Earnings decreased $370,000 for the twelve
month period primarily as a result of a gain from the sale and retirement of
property recognized in the fourth quarter of 1996. Tons of coal sold were
relatively flat for the three months, six months and twelve months ended June
30, 1998 as compared to the prior periods.
Oil and Gas Production Operations
Oil and gas earnings decreased $158,000, $704,000 and $1,372,000 for the
three months, six months and twelve months ended June 30, 1998 primarily as a
result of decreased commodity prices. Average oil prices decreased 18 percent,
33 percent and 25 percent for the three months, six months and twelve months
ended June 30, 1998, respectively. Average gas prices increased 1 percent for
the three months and decreased 16 percent and 5 percent for the six months and
twelve months ended June 30, 1998, respectively. Production increased 14
percent, 11 percent and 5 percent for the three month, six 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 periods. The energy marketing companies marketed
439,900 mmbtus and 16,500 barrels of oil per day for the three month period
ended June 30, 1998, 437,800 mmbtus and 15,700 barrels of oil per day for the
six month period and Black Hills Energy Resources marketed 282,100 mmbtus and
14,200 barrels of oil per day since the Company acquired the assets in July
1997. At June 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 capital and which costs are expense. The Company has not yet
determined when they will adopt the new Statement. The effect of adoption is not
expected to materially affect the Company's financial position or 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. Year 2000 Issues
The Company uses technologies throughout its operations that will be
affected by year 2000 issues. During 1997, the Company implemented remediation
steps to make the core business systems which are part of the Company's
mid-range computer systems year 2000 compliant. The Company also has initiated a
company-wide project, to be completed in 1998, to identify and assess year 2000
compliance for all other Company systems and the compliance status of its
critical suppliers. The expenses related to year 2000 compliance incurred in
1998 were not material, and the Company believes the amounts that are expected
to be expensed in the future for such compliance will not have a material impact
on its results of operations.
<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, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 19, 1998.
(b) The following Directors were elected to serve until the
Annual Meeting of Shareholders in 2001.
Adil M. Ameer
Everett E. Hoyt
Thomas J. Zeller
Other Directors whose term of office continues are:
Glenn C. Barber
Bruce B. Brundage
David C. Ebertz
John R. Howard
Kay S. Jorgensen
Daniel P. Landguth
(c) Matters Voted Upon at the Meeting
1. Elected three Class III Directors to serve until
the Annual Meeting of Shareholders in 2001.
Adil M. Ameer
Votes For 18,558,695
Votes Withheld 407,313
Everett E. Hoyt
Votes For 18,623,474
Votes Withheld 342,534
Thomas J. Zeller
Votes For 18,637,100
Votes Withheld 328,908
<PAGE>
2. Ratified the appointment of Arthur Andersen LLP
to serve as independent auditors of the Company
Votes For 18,776,750
Votes Against 66,516
Abstain 122,742
Broker Non-Votes -0-
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
<PAGE>
BLACK HILLS CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK HILLS CORPORATION
/s/ Roxann R. Basham
-------------------------------------------
Roxann R. Basham, Vice President - Finance
(Principal Financial Officer)
/s/ Mark T. Thies
-------------------------------------------
Mark T. Thies, Controller
(Principal Accounting Officer)
Dated: May 13, 1999
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