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, 2000.
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) 721-1700
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, 2000
Common stock, $1.00 par value 22,932,391 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, 2000, December 31, 1999
and June 30, 1999
Consolidated Statements of Income and
Comprehensive Income- 5
Three, Six and Twelve Months
Ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows- 6
Three, Six and Twelve Months
Ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of 13-18
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19-20
Signatures 21
<PAGE>
<TABLE>
<CAPTION>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
June 30 December 31 June 30
2000 1999 1999
------------- ------------ -------------
(in thousands)
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 13,644 $ 16,482 $ 15,432
Securities available for sale 4,552 7,586 12,700
Receivables, net
Customers 134,117 84,331 88,340
Other 88,177 55,694 3,338
Materials, supplies, and fuel 11,283 14,278 16,342
Prepaid expenses 3,384 2,828 2,670
----------- ---------- -----------
255,157 181,199 138,822
--------- -------- ---------
Property and investments:
Electric utility 539,843 526,945 503,555
Independent energy 146,916 132,331 121,629
Communications 81,427 50,621 20,047
Other 2,490 591 1,250
---------- ---------- ----------
770,676 710,488 646,481
Less accumulated depreciation
and depletion (255,127) (246,299) (237,130)
-------- -------- --------
Net property and investments 515,549 464,189 409,351
--------- --------- ---------
Deferred charges:
Federal income taxes 11,517 11,472 12,494
Regulatory asset 3,944 3,944 3,978
Other 11,372 14,002 13,091
---------- ---------- ----------
26,833 29,418 29,563
---------- ---------- ----------
Total $797,539 $674,806 $577,736
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
June 30 December 31 June 30
2000 1999 1999
----------- ------------ -------------
(in thousands)
Liabilities and Capitalization
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 3,029 $ 1,330 $ 1,330
Notes payable 156,699 97,579 5,613
Accounts payable 133,155 80,355 89,065
Accrued liabilities-
Taxes 6,517 8,357 9,261
Interest 4,375 4,119 4,026
Other 13,602 13,612 8,335
--------- ---------- ----------
317,377 205,352 117,630
-------- --------- --------
Deferred credits:
Federal income taxes 60,523 59,140 56,651
Investment tax credits 2,776 3,022 3,268
Reclamation liability 21,407 17,315 17,333
Regulatory liability 4,919 5,179 5,416
Other 8,070 7,492 7,263
---------- ---------- ----------
97,695 92,148 89,931
--------- --------- ---------
Capitalization:
Common stock equity-
Common stock 21,751 21,739 21,731
Additional paid-in
capital 40,909 40,658 40,492
Retained earnings 167,615 162,239 153,269
Treasury stock (7,556) (8,030) (6,531)
Accumulated other comprehensive income 488 - -
--------- --------- ---------
Total common stock equity 223,207 216,606 208,961
Long-term debt 159,260 160,700 161,214
--------- --------- ---------
382,467 377,306 370,175
--------- --------- ---------
Total $797,539 $674,806 $577,736
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLACK HILLS CORPORATION
Consolidated Statements of Income and Comprehensive Income
(unaudited)
Three Months Six Months Twelve Months
June 30 June 30 June 30
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Electric utility $ 35,899 $ 30,721 $ 69,198 $ 63,805 $138,615 $131,213
Independent energy 299,709 155,474 513,903 290,591 881,687 587,267
Communications 1,370 - 1,859 - 2,137 -
--------- --------- --------- --------- --------- --------
336,978 186,195 584,960 354,396 1,022,439 718,480
--------- --------- --------- --------- --------- --------
Operating expenses:
Fuel and purchased power 297,431 151,158 505,046 281,895 860,453 568,460
Operations and maintenance 8,970 8,069 17,690 15,880 35,067 32,042
Administrative and general 5,292 4,929 9,697 9,212 22,015 18,678
Depreciation, depletion, and amortization 6,890 5,908 13,486 11,823 26,723 23,517
Oil and gas ceilings test write-down - - - - - 13,546
Taxes, other than income taxes 3,195 2,345 6,884 5,830 13,936 12,036
--------- --------- -------- -------- -------- ---------
321,778 172,409 552,803 324,640 958,194 668,279
--------- --------- -------- -------- -------- ---------
Operating income 15,200 13,786 32,157 29,756 64,245 50,201
--------- --------- -------- -------- -------- --------
Other income(expense):
Interest expense (6,264) (3,871) (11,706) (7,428) (19,651) (14,608)
Investment income 2,590 750 4,631 1,323 6,826 2,697
Other, net 226 (227) (302) (252) 880 (708)
Minority interest - 298 65 515 1,485 515
--------- --------- -------- -------- --------- ---------
(3,448) (3,050) (7,312) (5,842) (10,460) (12,104)
--------- --------- -------- -------- --------- ---------
Income before income taxes 11,752 10,736 24,845 23,914 53,785 38,097
Income taxes (3,691) (2,973) (7,723) (7,121) (16,389) (11,537)
--------- --------- -------- -------- --------- ---------
Net income available for common stock 8,061 7,763 17,122 16,793 37,396 26,560
--------- --------- -------- -------- --------- ---------
Other comprehensive income, net of tax:
Unrealized holding gains 488 - 488 - 488 -
-------- --------- --------- --------- --------- ---------
Comprehensive income $ 8,549 $ 7,763 $ 17,610 $ 16,793 $ 37,884 $ 26,560
======== ========= ========= ========= ========= =========
Weighted average common shares
outstanding basic: 21,394 21,451 21,385 21,476 21,458 21,526
========= ========= ========= ========= ========= =========
diluted: 21,449 21,487 21,429 21,512 21,503 21,573
========= ========= ========= ========= ========= =========
Earnings per share
basic and diluted: $0.38 $0.36 $0.80 $0.78 $1.74 $1.23
========= ========= ========= ========= ========= =========
Dividends paid per share of
common stock $0.27 $0.26 $0.54 $0.52 $1.06 $1.02
========= ========== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
Three Months Six Months Twelve Months
June 30 June 30 June 30
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income $ 8,061 $ 7,763 $17,122 $16,793 $37,396 $26,560
Principal non-cash items-
Depreciation, depletion, and amortization 6,890 5,908 13,486 11,823 26,723 37,063
Deferred income taxes and
investment tax credits 388 (361) (219) (622) 1,148 (4,519)
Increase in receivables,
inventories, and other current assets (36,154) (17,143) (55,393) (7,649) (49,515) (37,834)
Increase in other current liabilities 29,920 12,093 51,206 14,525 46,962 35,750
Other, net 732 1,676 768 1,692 (2,305) 175
----------- --------- ---------- --------- ----------- -----------
9,837 9,936 26,970 36,562 60,409 57,195
---------- --------- -------- -------- ----------- -----------
Investing activities:
Net property additions, including
allowance for other funds used
during construction (41,363) (15,858) (60,188) (31,078) (124,195) (46,094)
Available for sale securities sold 1,365 8,944 6,447 13,457 14,252 15,889
Available for sale securities purchased - (2,565) - (3,482) (2,691) (5,160)
Independent power investment (2,932) - (24,437) - (76,756) -
---------- --------- ---------- --------- --------- ---------
(42,930) (9,479) (78,178) (21,103) (189,390) (35,365)
---------- --------- --------- --------- --------- ---------
Financing activities:
Dividends paid (5,876) (5,649) (11,746) (11,298) (23,050) (22,158)
Treasury stock, net 96 (284) 474 (3,450) (1,025) (3,248)
Common stock issued 103 100 263 250 437 320
Increase in short-term borrowings 37,425 1,043 59,120 523 151,086 5,601
Long-term debt, net 786 (290) 259 (816) (255) (1,330)
--------- -------- --------- --------- --------- ---------
32,534 (5,080) 48,370 (14,791) 127,193 (20,815)
--------- -------- --------- --------- --------- ---------
Increase (decrease) in
cash and cash equivalents (559) (4,623) (2,838) 668 (1,788) 1,015
Cash and cash equivalents:
Beginning of period 14,203 20,055 16,482 14,764 15,432 14,417
------- ------- -------- -------- -------- -------
End of period $13,644 $15,432 $ 13,644 $ 15,432 $ 13,644 $15,432
======= ======= ======== ======== ======== =======
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 5,167 $ 3,263 $ 11,450 $ 7,865 $ 19,302 $15,482
Income taxes $ 7,750 $ 7,148 $ 7,750 $ 7,148 $ 13,751 $14,483
</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 1999 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, 2000, December 31, 1999 and June 30, 1999, financial information and
are of a normal recurring nature. The results of operations for the
three, six and twelve months ended June 30, 2000, are not necessarily
indicative of the results to be expected for the full year.
(2) Reclassifications
Certain 2000 and 1999 amounts in the financial statements have
been reclassified to conform to the 2000 presentation. These
reclassifications did not have an effect on the Company's stockholders'
investment or results of operations.
(3) Net Income 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
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income $8,061 $ 7,763 $17,122 $16,793 $37,396 $26,560
====== ======= ======= ======= ======= =======
Weighted average common shares outstanding:
Basic 21,394 21,451 21,385 21,476 21,458 21,526
Dilutive effect of option plan 55 36 44 36 45 47
------ ------ ------ ------ ------ ------
Diluted 21,449 21,487 21,429 21,512 21,503 21,573
====== ====== ====== ====== ====== ======
Earnings per share Basic: $0.38 $0.36 $0.80 $0.78 $1.74 $1.23
===== ===== ===== ===== ===== =====
Diluted: $0.38 $0.36 $0.80 $0.78 $1.74 $1.23
===== ===== ===== ===== ===== =====
</TABLE>
(4) Summary of Information Relating to Segments of the Company's Business
Black Hills Corporation's business segments include: Electric
which supplies electric utility service to western South Dakota,
northeastern Wyoming and southeastern Montana; Independent Energy
consisting of: Mining which engages in the mining and sale of coal from
its mine near Gillette, Wyoming; Oil and Gas which produces, explores
and operates oil and gas interests located in the Rocky Mountain
region, Texas, California and other states; 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 Independent Power activities; and
Communications and Others which primarily markets communications and
software development services.
Financial data for the business segments are as follows (in thousands):
<TABLE>
<CAPTION>
ASSETS Independent Energy
-------------------------------------------------
Oil Energy Independent Communications
At June 30, 2000 Electric Mining and Gas Marketing Power & Others Eliminations Total
-------------- ---------- ---------- ------------- ------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets $104,811 $106,576 $4,938 $126,573 $80,291 $ 6,676 $(174,708) $255,157
Total assets $549,989 $194,763 $37,512 $142,229 $88,009 $103,220 $(318,183) $797,539
At December 31, 1999
Current assets $93,837 $57,393 $1,988 $79,709 $52,471 $ 9,732 $(113,931) $181,199
Total assets $528,164 $137,762 $32,724 $94,692 $52,690 $ 72,785 $(244,011) $674,806
At June 30, 1999
Current assets $46,135 $ 35,394 $1,413 $90,773 $ 135 $ 6,128 $ (41,156) $138,822
Total assets $455,763 $110,431 $30,813 $109,401 $ 135 $ 25,767 $(154,574) $577,736
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Independent Energy
-------------------------------------------------
Quarter to date Oil Energy Independent Communications
June 30, 2000 Electric Mining and Gas Marketing Power & Others Eliminations Total
-------------- ---------- ---------- ------------- ------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $35,899 $ - $ - $ - $ - $ - $ - $35,899
Coal revenues - 5,818 - 8,810 - - - 14,628
Gas revenues - - 1,616 168,644 - - - 170,260
Oil revenues - - 1,745 112,007 - - - 113,752
Other revenues - - 911 - 158 2,322 (952) 2,439
-------------- ---------- ---------- ------------- ------------- -------------- -------------- ----------
Total revenues $35,899 $5,818 $4,272 $289,461 $158 $ 2,322 $(952) $336,978
-------------- ---------- ---------- ------------- ------------- -------------- -------------- -----------
Depreciation,
depletion
& amortization $ 3,909 $ 818 $ 701 $ 156 $ - $ 1,306 $ - $ 6,890
Operating income
(loss) 12,980 1,890 1,723 995 135 (2,523) - 15,200
Interest expense 4,435 1,103 94 111 54 467 - 6,264
Income tax expense
(benefit) 3,523 606 410 384 56 (1,288) - 3,691
Net income (loss) 7,094 1,441 1,226 593 98 (2,391) - 8,061
Property additions 10,847 2,176 2,619 1,196 3,902 20,623 - 41,363
</TABLE>
<TABLE>
<CAPTION>
Independent Energy
-------------------------------------------------
Quarter to date Oil Energy Independent Communications
June 30, 1999 Electric Mining and Gas Marketing Power & Others Eliminations Total
-------------- ---------- ---------- ------------- ------------- --------------- -------------- -----------
<S> <C> <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 revenues $30,721 $6,979 $3,061 $145,434 $ - $ 726 $(726) $186,195
-------------- ---------- ---------- ------------- ------------- ---------------- -------------- ----------
Depreciation,
depletion
& amortization $3,948 $ 844 $ 871 $ 224 $ - $ 21 $ - $ 5,908
Operating income
(loss) 10,356 3,217 826 166 (77) (702) - 13,786
Interest expense 3,351 298 148 69 2 3 - 3,871
Income tax expense
(benefit) 2,216 722 144 25 (27) 107) - 2,973
Net income (loss) 4,923 2,499 536 55 (51) (199) - 7,763
Property additions 2,585 1,036 (658) 50 - 12,845 - 15,858
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Independent Energy
-------------------------------------------------
Year to Date Oil Energy Independent Communications
June 30, 2000 Electric Mining and Gas Marketing Power & Others Eliminations Total
-------------- ---------- ---------- ------------- ------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $69,198 $ - $ - $ - $ - $ - $ - $69,198
Coal revenues - 13,913 - 18,466 - - - 32,379
Gas revenues - - 3,172 254,265 - - - 257,437
Oil revenues - - 3,364 218,783 - - - 222,147
Other revenues - - 1,698 - 242 3,717 (1,858) 3,799
-------------- ---------- ---------- ------------- ------------- --------------- ------------- ------------
Total revenues $69,198 $13,913 $8,234 $491,514 $ 242 $ 3,717 $(1,858) $584,960
-------------- ---------- ---------- ------------- ------------- --------------- ------------- ------------
Depreciation,
depletion
& amortization $7,819 $ 1,679 $1,471 $ 311 $ - $ 2,206 $ - $13,486
Operating income
(loss) 26,625 5,204 3,052 1,983 189 (4,896) - 32,157
Interest expense 8,970 1,756 195 187 - 598 - 11,706
Income tax expense
(benefit) 6,912 1,619 737 742 72 (2,359) - 7,723
Net income (loss) 14,292 3,804 2,116 1,161 130 (4,381) - 17,122
Property additions 13,962 2,837 3,273 974 7,500 31,642 - 60,188
</TABLE>
<TABLE>
<CAPTION>
Independent Energy
-------------------------------------------------
Year to date Oil Energy Independent Communications
June 30, 1999 Electric Mining and Gas Marketing Power & Others Eliminations Total
-------------- ---------- ---------- ------------- ------------- --------------- -------------- -----------
<S> <C> <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 revenues $63,805 $14,757 $6,044 $269,790 $ - $ 1,379 $(1,379) $354,396
-------------- ---------- ---------- ------------- ------------- --------------- -------------- ----------
Depreciation,
depletion
& amortization $7,896 $ 1,712 $1,728 $ 446 $ - $ 41 $ - $11,823
Operating income
(loss) 23,731 6,251 1,313 (177) (93) (1,269) - 29,756
Interest expense 6,705 302 283 127 9 2 - 7,428
Income tax expense
(benefit) 5,574 1,678 232 (131) (36) (196) - 7,121
Net income (loss) 11,797 4,872 803 (248) (66) (365) - 16,793
Property additions 4,689 2,864 4,474 82 - 18,969 - 31,078
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Independent Energy
-------------------------------------------------
12 Months Ended Oil Energy Independent Communications
June 30, 2000 Electric Mining and Gas Marketing Power & Others Eliminations Total
-------------- ---------- ---------- ------------- ------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $138,615 $ - $ - $ - $ - $ - $ - $ 138,615
Coal revenues - 30,252 - 38,588 - - - 68,840
Gas revenues - - 6,067 387,082 - - - 393,149
Oil revenues - - 5,996 410,281 - - - 416,277
Other revenues - - 3,179 - 242 5,760 (3,623) 5,558
-------------- ---------- ---------- ------------- ------------- ----------------- ----------- -----------
Total revenues $138,615 $30,252 $15,242 $835,951 $ 242 $ 5,760 $(3,623) $1,022,439
-------------- ---------- ---------- ------------- ------------- ----------------- ----------- -----------
Depreciation,
depletion
& amortization $15,474 $ 3,226 $ 2,696 $ 2,625 $ - $ 2,702 $ - $ 26,723
Operating income
(loss) 55,180 11,557 5,717 (142) 124 (8,191) - 64,245
Interest expense 16,096 2,024 480 426 13 612 - 19,651
Income tax expense
(benefit) 13,784 3,354 1,472 923 50 (3,194) - 16,389
Net income (loss) 29,782 8,291 3,776 1,225 87 (5,765) - 37,396
Property additions 36,240 5,422 4,771 7,167 7,678 62,917 - 124,195
</TABLE>
<TABLE>
<CAPTION>
Independent Energy
-------------------------------------------------
12 months ended Oil Energy Independent Communications
June 30, 1999 Electric Mining and Gas Marketing Power & Others Eliminations Total
-------------- ---------- ---------- ------------- ------------- ---------------- --------------- --------
<S> <C> <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 revenues $131,213 $30,400 $ 12,130 $544,737 $ - $ 2,573 $(2,573) $718,480
-------------- ---------- ---------- ------------- ------------- --------------- --------------- --------
Depreciation,
depletion
& amortization $15,183 $ 3,259 $17,705* $ 833 $ - $ 83 $ - $37,063
Operating income
(loss) 50,570 12,670 (11,719) 1,043 (215) (2,148) - 50,201
Interest expense 13,493 311 512 258 23 11 - 14,608
Income tax expense
(benefit) 12,656 3,673 (4,536) 269 (83) (442) - 11,537
Net income (loss) 25,257 9,563 (7,689) 333 (155) (749) - 26,560
Property additions 10,969 3,792 10,165 367 - 20,801 - 46,094
</TABLE>
*Includes the impact of a $13.5 million pretax write down of certain oil and
natural gas properties
<PAGE>
(5) Subsequent Events
On July 7, 2000, the Company announced that it had completed its
acquisition of Indeck Capital, Inc., merging it into Black Hills Energy
Capital, Inc. The new entity will own varying interests in 14 operating
independent power plants in California, New York, Massachusetts, Colorado
and Idaho totaling approximately 350 megawatts (MW), and will also manage
fund equity of approximately $750 million in six power-related funds. The
power funds have investments in over 35 power projects throughout the
United States and various foreign countries. The Indeck transaction, first
announced in January 2000, is the largest acquisition by Black Hills
Corporation to date.
The acquisition is a stock transaction, and will be accounted for
under the purchase method of accounting. Black Hills anticipates that the
acquisition will be accretive to earnings per share. Black Hills
Corporation issued approximately 1,540,000 shares of common stock to the
shareholders of Indeck in the acquisition priced at $22.13 per share
(approximately 7 percent of Black Hills Corporation's common stock after
the transaction), along with $4,000,000 in preferred stock. Additional
consideration, consisting of common and preferred stock, may be paid in the
form of an earn-out over a four-year period. The earn-out consideration
will be based on the acquired company's earnings during the next four years
and cannot exceed $35,000,000 in total.
<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 $160,000,000,
which provide for interim borrowings and the opportunity for timing of permanent
financing. The Company had $153,350,000 outstanding under these lines of credit
on June 30, 2000. 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 a $25,000,000, uncommitted, discretionary credit facility. The
transactional line of credit provides credit support for the purchases of crude
oil of Black Hills Energy Resources. The Company and it subsidiaries provide no
guarantee to the Lender. At June 30, 2000, Black Hills Energy Resources had
letters of credit outstanding of $8,900,000.
In addition to the above lines of credit, Enserco Energy, Inc. has a
$40,900,000 uncommitted, discretionary credit facility. The borrowing base line
of credit provides credit support for the purchases of natural gas of Enserco.
The Company and its subsidiaries provide no guarantee to the Lender. At June 30,
2000, Enserco had letters of credit outstanding of $34,800,000.
On July 7, 2000, in conjunction with the closing of the Indeck Capital,
Inc. acquisition (see "Recent Development and Acquisitions"), the Company closed
on a new $115,000,000 credit facility to provide flexibility in financing future
growth in the independent energy business unit. In addition, the Company is in
the process of obtaining $60,000,000 of long-term non-recourse project level
financing to fund independent energy's combustion turbines in Colorado which
were declared commercial late in the second quarter. This financing is expected
to close in the third quarter and will replace the existing short-term debt. At
June 30, 2000, the Company funded approximately $3,000,000 in the second quarter
of 2000 and a total of $76,800,000 of the expected $80,000,000 capital
requirement associated with the combustion turbines project, and are recorded in
the Consolidated Balance Sheets in Receivables, Other.
Results of Operations
Black Hills Corporation is an energy and communications company
consisting of three principal businesses: electric utility, independent energy
and communications.
<PAGE>
Consolidated net income was $8,061,000 for the three months, $17,122,000
for the six months and $37,396,000 for the twelve months ended June 30, 2000
compared to $7,763,000, $16,793,000 and $35,375,000 (excluding the impact of a
$8.8 million after tax write down of certain oil and natural gas properties) for
the same periods in 1999. Outstanding earnings posted by electric utility
segment combined with continued growth in the independent energy segment offset
the development stage losses in communications. Consolidated EBITDA (see next
paragraph) was $21,746,000, $44,604,000 and $92,318,000 for the three, six and
twelve month periods ended June 30, 2000 compared to $19,847,000, $41,859,000
and $86,965,000 for the comparable periods ended June 30, 1999.
EBITDA represents the sum of earnings before interest, taxes,
depreciation and amortization.
EBITDA:
* is not intended to be a performance measure that should be
regarded as an alternative either to operating income or net
income as an indicator of operating performance or to cash flows
as a measure of liquidity;
* is not intended to represent funds available for debt service,
dividends, reinvestment, or other discretionary uses; and
* should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally
accepted accounting principles.
EBITDA is included because our management believes that EBITDA is a
meaningful measurement commonly used by the investment community. Our definition
of EBITDA may not be identical to similarly titled measures reported by other
companies.
Consolidated revenue and income from continuing operations provided by
the Company's businesses as a percentage of the total were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues
Electric utility 11% 16% 12% 18% 14% 18%
Independent energy 89 84 88 82 86 82
Communications - - - - - -
--- --- --- --- --- ---
100% 100% 100% 100% 100% 100%
=== === === === === ===
Net Income/(Loss)
Electric utility 88% 63% 83% 70% 80% 71%
Independent energy 42 39 42 32 36 32*
Communications and other (30) (2) (25) (2) (16) (3)
--- --- --- --- --- ---
100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>
*Excludes $8.8 million (net-of-tax) write down of certain oil and natural gas
properties
<PAGE>
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
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Capital Expenditures
(includes AFDC)
Electric utility $10,847 $ 2,585 $13,962 $ 4,689 $36,240 $10,969
Independent energy 9,893 428 14,584 7,420 25,038 14,324
Communications and other 20,623 12,845 31,642 18,969 62,917 20,801
------- ------- ------- ------- -------- -------
$41,363 $15,858 $60,188 $31,078 $124,195 $46,094
======= ======= ======= ======= ======== =======
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
Depreciation, Depletion,
and Amortization
Electric utility $3,909 $3,948 $7,819 $7,896 $15,474 $15,183
Independent energy 1,675 1,939 3,461 3,886 8,547 21,797*
Communications and others 1,306 21 2,206 41 2,702 83
------- ------ ------- ------- ------- -------
$6,890 $5,908 $13,486 $11,823 $26,723 $37,063
======= ====== ======= ======= ======= =======
</TABLE>
*Includes the impact of a $13.5 million pretax write down of certain oil and
natural gas properties
Electric Utility Operations
Earnings from electric utility operations increased $2,200,000 or 44
percent, $2,500,000 or 21 percent and $4,500,000 or 18 percent for the three,
six and twelve month periods ended June 30, 2000, respectively, due to
off-system sales that more than doubled and a moderate increase in residential
and commercial sales. Total kilowatt-hour sales were up 9 percent, 4 percent and
3 percent for the three, six and twelve month periods ended June 30, 2000,
respectively. These increases were partially offset by continued mild weather in
our service territory and higher purchased power costs and fuel costs related to
the operation of the combustion turbine in our new electricity generation
peaking facility. Degree days, a measure of weather trends, were 2 percent lower
for the three month period, stable for the six month period and 7 percent lower
for the twelve month period ended June 30, 2000 compared to the prior year. In
addition, the electric utility operations were negatively impacted by a planned
maintenance outage at the Wyodak power plant. EBITDA for the electric utility
was $18,341,000 for the three month period, $37,145,000 for the six month period
and $73,940,000 for the twelve month periods ended June 30, 2000 compared to
$14,344,000, $31,605,000 and $65,696,000 for the same periods in the prior year,
respectively.
Independent Energy Operations
Earnings from independent energy operations increased $319,000 or 10
percent, $1,850,000 or 35 percent and $2,512,000 or 23 percent (excluding the
impact of a $8.8 million pretax write down of certain oil and natural gas
properties) for the three, six and twelve months ended June 30, 2000 primarily
due to strong oil and natural gas production earnings and strong energy
marketing results partially offset by a decrease in coal mining earnings caused
by the Wyodak plant's scheduled maintenance outage. Independent energy EBITDA
was $5,588,000, $11,998,000 and $25,598,000 for the three, six and twelve month
periods ended June 30, 2000 compared to $5,787,000, $10,773,000 and $22,367,000
for the same periods in the prior year, respectively.
Earnings from oil and gas operations increased $690,000, $1,313,000 and
$2,650,000 for the three, six and twelve months ended June 30, 2000 (excluding
the impact of a $8.8 million pretax write down of certain oil and natural gas
properties), as compared to 1999. Increased earnings were primarily due to
higher crude oil and natural gas prices, increased oil production and lower
depletion expense. Oil prices increased 68 percent, 98 percent and 95 percent
for the three, six and twelve month periods, respectively, and gas prices
increased 55 percent, 38 percent and 29 percent for the same periods,
respectively. Production for the three and six month periods ended June 30, 2000
was flat with the prior three and six month periods and increased 7 percent from
the twelve month period ending June 30, 1999.
In December 1998, Black Hills Exploration and Production recognized a
$13,546,000 pretax loss related to a write-down of oil and gas properties. The
write-down was primarily due to historically low crude oil prices, lower natural
gas prices and decline in value of certain unevaluated properties. Absent other
factors impacting depletion expense, the Company expects future depletion
expense per unit of production to be reduced because of this write-down.
Earnings from energy marketing operations increased $538,000, $1,409,000
and $892,000 for the three, six and twelve month periods ending June 30, 2000.
The increase was primarily due to increased natural gas margins and prices and
increased crude oil volumes marketed and prices partially offset by adverse
market conditions in coal marketing. Natural gas margins increased $1,059,000
for the three month period, $1,790,000 for the six month period and $1,770,000
for the twelve month period ended June 30, 2000. Prices for natural gas
increased 61 percent for the three month period, 53 percent for the six month
period and 29 percent for the twelve month period. Crude oil prices increased 7
percent, 30 percent and 71 percent for the June 30, 2000 three, six and twelve
month periods, respectively. Coal prices decreased 2 percent and 4 percent for
the three and six month periods ended June 30, 2000, respectively and coal
margins decreased 137 percent and 93 percent for the same periods primarily due
to a $250,000 inventory write-down. The Company acquired its coal marketer,
Black Hills Coal Network in September, 1998.
The energy marketing operations marketed 594,000 mmbtus of gas, 47,000
barrels of oil and 4,200 tons of coal per day in the three month period ended
June 30, 2000 and 486,000 mmbtus, 19,000 barrels and 4,200 tons of coal per day
for the three month period ended June 30, 1999. For the six month period ended
June 30, 2000, 490,000 mmbtus of gas, 45,400 barrels of oil and 4,400 tons of
coal were marketed compared to 502,000 mmbtus, 19,400 barrels and 4,400 tons
marketed during the same periods in 1999. For the twelve month period ending
June 30, 2000, 482,000 mmbtus of gas, 32,300 barrels of oil and 4,500 tons of
coal per day were marketed as compared to 515,000 mmbtus, 20,900 barrels and
4,400 tons per day in 1999.
Communications Operations
Deployment continues on the state of the art communications network in
Rapid City and the northern Black Hills. The construction of the fiber optic
network to more than 14,000 residents and businesses in 2000 is expected to
continue to build value for the company. The company currently provides
broadband services to approximately 4,000 residential and 300 business customers
and expects to complete its initial build-out by mid-2001. Revenues for the
three, six and twelve month periods ended June 30, 2000 were $1,370,000,
$1,859,000 and $2,137,000 respectively. Operating expenses at June 30, 2000 for
the three, six and twelve month periods were $3,938,000, $7,308,000 and
$11,824,000, respectively. Losses for the three month period ended June 30, 2000
were in line with management's expectations and primarily represent
administrative and operating expenses and increased depreciation and interest
expense. Losses are expected to decline through 2000 as the Company continues
deployment of its communications network. The Company is currently recognizing
100 percent of the operating losses of Black Hills FiberCom LLC and will
continue to do so until such time that an additional equity investment is made
by a third party. The Company is currently seeking such an investor.
Recent Developments and Acquisitions
On June 20, 2000 the Company's shareholders approved the formation of a
holding company and the exchange of Black Hills Corporation common stock for
common stock of the holding company. The creation of the holding company is
subject to various regulatory approvals. The Company anticipates receiving the
necessary approvals and having the holding company in place by the end of the
year.
On July 7, 2000, the Company announced that it had completed its
acquisition of Indeck Capital, Inc., merging it into Black Hills Energy Capital,
Inc. The new entity will own varying interests in 14 operating independent power
plants in California, New York, Massachusetts, Colorado and Idaho totaling
approximately 350 megawatts (MW), and will also manage fund equity of
approximately $750 million in six power-related funds. The power funds have
investments in over 35 power projects throughout the United States and various
foreign countries. The Indeck transaction, first announced in January 2000, is
the largest acquisition by Black Hills Corporation to date.
The acquisition is a stock transaction, and will be accounted for under
the purchase method of accounting. Black Hills anticipates that the acquisition
will be accretive to earnings per share. Black Hills Corporation issued
approximately 1,540,000 shares of common stock to the shareholders of Indeck in
the acquisition priced at $22.13 per share (approximately 7 percent of Black
Hills Corporation's common stock after the transaction), along with $4,000,000
in preferred stock. Additional consideration, consisting of common and preferred
stock, may be paid in the form of an earn-out over a four-year period. The
earn-out consideration will be based on the acquired company's earnings during
the next four years and cannot exceed $35,000,000 in total.
In conjunction with the closing of this acquisition, Black Hills'
Independent Energy business unit closed a new revolving credit facility. ABN
AMRO N.V. and Scotia Bank acted in concert to provide a $115,000,000 credit
facility with three participating banks to provide flexibility in financing
future growth in the independent energy business unit. In addition, Scotia Bank
is acting as Agent bank for a $60,000,000 non-recourse project financing in
conjunction with the Black Hills/Arapahoe (80 MW) and Black Hills/Valmont (40
MW) projects which were recently declared commercial (see paragraph below). This
financing will replace existing short-term debt, and is expected to close in the
third quarter of 2000.
In June, the Company's Independent Energy business unit announced that
both of its recently constructed electricity generation peaking facilities were
complete and ready for commercial operation. Arapahoe (80 MW) and Valmont (40
MW) will sell peaking capacity and energy to Public Service Company of Colorado
("PSCo") under a seven-year agreement. In addition, PSCo has awarded Black Hills
Energy Capital two additional independent power projects totaling 90 MW to be
built in the Front Range of Colorado. The parties are currently negotiating the
necessary documents to finalize the project, and Black Hills has placed an order
to purchase the required equipment. It is currently anticipated that the
projects will have 10-year contracts from PSCo, and the plants are scheduled to
come on line in the second quarter of 2002.
Forward Looking Statements
The above information includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts in this Report 10-Q, which address
activities, events, or developments which the Company expects or anticipates
will or may occur in the future are forward-looking statements, including
without limitation to statements concerning future revenues, earnings, and
performance. Although the Company believes that the expectations and assumptions
reflected in these statements are reasonable, there can be no assurance that
these expectations will prove to be correct. These forward-looking statements
involve a number of risks and uncertainties, and actual results may differ
materially from the results discussed in the forward-looking statements. In
addition to the factors discussed above, the following are among the important
factors that could cause actual results to differ materially from the
forward-looking statements: market demand and prices of electricity, fuel
pricing, weather variations affecting customer energy usage, deployment of the
Company's fiber optic network, customer penetration rates relating to
communications products and services, operating performance of its electric
generation plants, environmental conditions, changes in the U.S. energy
industry, new regulatory developments, economic conditions, competition in power
markets and continued availability of capital and financing. Any such
forward-looking statements should be considered in conjunction with Black Hills
Corporation's 1999 Form 10-K on file with the Securities and Exchange
Commission. New factors that could cause actual results to differ materially
from those described in forward-looking statements emerge from time to time, and
it is not possible for the Company to predict all such factors, or to the extent
to which any such factor or combination of factors may cause actual results to
differ from those contained in any forward-looking statement. The Company
assumes no obligation to update publicly any such forward-looking statements,
whether as a result of new information, future events, or otherwise.
<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, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on June 20,
2000.
(b) The following Directors were elected to serve until the
Annual Meeting of Shareholders in 2003.
David C. Ebertz
John R. Howard
Daniel P. Landguth
Other Directors whose term of office continues are:
Adil M. Ameer
Bruce B. Brundage
Everett E. Hoyt
Kay S. Jorgensen
David S. Maney
Thomas J. Zeller
(c) Matters Voted Upon at the Meeting
1. Approved the formation of a holding company and the
exchange of Black Hills Corporation common stock for
common stock of the holding company.
Votes For 12,987,600
Votes Against 1,861,557
Abstain 225,459
Broker Non-Votes 3,354,236
2. Elected three Class II Directors to serve until
the Annual Meeting of Shareholders in 2003.
David C. Ebertz
Votes For 18,195,414
Votes Withheld 235,438
John R. Howard
Votes For 18,189,819
Votes Withheld 241,591
Daniel P. Landguth
Votes For 16,687,960
Votes Withheld 1,745,333
3. Ratified the appointment of Arthur Andersen LLP
to serve as Black Hills Corporation's
independent auditors in 2000.
Votes For 18,216,574
Votes Against 97,664
Abstain 116,613
Broker Non-Votes -0-
<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 - Controller
(Principal Accounting Officer)
/s/ Mark T. Thies
Mark T. Thies, Senior VP & CFO
(Principal Financial Officer)
Dated: August 11, 2000
