Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 April 28, 2000
Common stock, $1.00 par value 21,390,946 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
March 31, 2000, December 31, 1999
and March 31, 1999
Consolidated Statements of Income- 5
Three and Twelve Months
Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows- 6
Three and Twelve Months
Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of 13-19
Financial Position and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Unaudited Unaudited
March 31 December 31 March 31
2000 1999 1999
------------- ------------ -------------
(in thousands)
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 14,203 $ 16,482 $ 20,055
Securities available for sale 2,504 7,586 19,079
Receivables, net
Customers 105,194 84,331 76,543
Other 79,396 55,694 3,453
Materials, supplies, and fuel 9,734 10,310 10,540
Prepaid expenses 3,551 2,828 3,011
----------- ---------- -----------
214,582 177,231 132,681
--------- -------- ---------
Property and investments:
Electric utility 529,031 526,945 502,192
Independent energy 137,020 132,331 123,008
Communications 61,331 54,589 8,323
Other 1,931 591 1,229
--------- ---------- ----------
729,313 714,456 634,752
Less accumulated depreciation
and depletion (252,169) (246,299) (236,300)
-------- -------- --------
Net property and investments 477,144 468,157 398,452
--------- --------- ---------
Other assets:
Federal income taxes 11,485 11,472 12,370
Regulatory asset 3,944 3,944 3,978
Other 14,590 14,002 14,375
---------- ---------- ----------
30,019 29,418 30,723
----------- ---------- ----------
Total $721,745 $674,806 $561,856
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Unaudited Unaudited
March 31 December 31 March 31
2000 1999 1999
------------- ------------ -------------
(in thousands)
Liabilities and Capitalization
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 1,329 $ 1,330 $ 1,330
Notes payable 119,274 97,579 4,570
Accounts payable 98,895 80,355 71,650
Accrued liabilities-
Taxes 13,350 8,357 15,969
Interest 3,278 4,119 3,047
Other 12,206 13,612 7,928
--------- ---------- ----------
248,332 205,352 104,494
-------- --------- --------
Deferred credits:
Federal income taxes 59,777 59,140 55,758
Investment tax credits 2,899 3,022 3,391
Reclamation costs 17,486 17,315 17,178
Regulatory liability 5,056 5,179 5,539
Other 7,686 7,492 6,956
---------- ---------- ----------
92,904 92,148 88,822
--------- --------- ----------
Capitalization:
Common stock equity-
Common stock 21,746 21,739 21,726
Additional paid-in
capital 40,811 40,658 40,397
Retained earnings 165,430 162,239 151,160
Treasury stock (7,652) (8,030) (6,247)
----------- ------------ -----------
Total common stock equity 220,335 216,606 207,036
Long-term debt 160,174 160,700 161,504
--------- --------- ---------
380,509 377,306 368,540
--------- --------- ---------
Total $721,745 $674,806 $561,856
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Twelve Months
March 31 March 31
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues:
Electric utility $ 33,299 $ 33,084 $133,437 $130,331
Independent energy 214,111 135,117 737,369 563,287
Communications 549 - 827 -
--------- --------- --------- ---------
247,959 168,201 871,633 693,618
--------- -------- --------- ---------
Operating expenses:
Fuel and purchased power 207,710 130,737 714,275 543,950
Operations and maintenance 8,702 7,750 34,198 31,227
Administrative and general 4,391 4,334 21,541 17,891
Depreciation, depletion, and amortization 6,596 5,915 25,748 23,879
Oil and gas ceilings test write down - - - 13,546
Taxes, other than income taxes 3,688 3,485 13,084 12,787
--------- -------- --------- ---------
231,087 152,221 808,846 643,280
--------- -------- --------- ---------
Operating income 16,872 15,980 62,787 50,338
--------- -------- --------- ---------
Other income and (expense):
Interest expense (5,494) (3,557) (17,322) (14,248)
Investment income 2,095 573 5,060 2,539
Allowance for funds used during construction 230 64 363 254
Other, net (611) 124 1,880 (421)
---------- ---------- ---------- ---------
(3,780) (2,796) (10,019) (11,876)
--------- ---------- ---------- ---------
Income before income taxes 13,092 13,184 52,768 38,462
Income taxes (4,031) (4,149) (15,671) (12,163)
-------- --------- --------- ---------
Net income available for common stock $ 9,061 $ 9,035 $ 37,097 $ 26,299
======== ========= ========= =========
Weighted average common shares
Outstanding (Basic): 21,376 21,503 21,472 21,572
======== ========= ========= ==========
(Diluted): 21,410 21,539 21,512 21,618
======== ========= ========= ==========
Earnings per share (Basic): $ 0.42 $ 0.42 $ 1.73 $ 1.22
======== ========= ========= ==========
(Diluted): $ 0.42 $ 0.42 $ 1.72 $ 1.22
======== ========= ========= ==========
Dividends paid per share of common stock $ 0.27 $ 0.26 $ 1.05 $ 1.01
======== ========= ========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Twelve Months
March 31 March 31
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Operating activities:
Net Income $ 9,061 $ 9,035 $37,097 $26,299
Principal non-cash items-
Depreciation, depletion, and amortization 6,596 5,915 25,748 37,425
Deferred income taxes and investment tax credits 609 (261) 2,731 (4,543)
(Increase) decrease in receivables,
inventories, and other current assets (23,207) 9,494 (30,504) (14,644)
Increase in other current liabilities 21,286 2,432 29,135 16,010
Other, net (1,189) 10 (7,806) 1,436
-------- -------- -------- --------
13,156 26,625 56,401 61,983
-------- -------- -------- --------
Investing activities:
Property additions, excluding allowance
for other funds used during construction (14,849) (15,219) (94,580) (39,906)
Available for sale securities purchased - (917) (5,212) (14,054)
Available for sale securities sold 5,082 4,513 21,787 14,288
Independent power investment (21,505) - (73,824) -
--------- -------- -------- ---------
(31,272) (11,623) (151,829) (39,672)
--------- -------- -------- ---------
Financing activities:
Dividends paid (5,870) (5,649) (22,827) (21,938)
Treasury stock, net 378 (3,166) (1,405) (6,247)
Common stock issued 160 150 434 268
Increase (decrease) in short-term borrowings 21,695 (520) 114,704 4,558
Long-term debt payments (526) (526) (1,330) (1,330)
-------- -------- -------- ---------
15,837 (9,711) 89,576 (24,689)
------- -------- -------- ---------
Increase (decrease) in
cash and cash equivalents (2,279) 5,291 (5,852) (2,378)
Cash and cash equivalents:
Beginning of period 16,482 14,764 20,055 22,433
------- ------- -------- --------
End of period $14,203 $20,055 $ 14,203 $ 20,055
======= ======= ======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 6,335 $ 4,589 $17,091 $14,846
Income taxes $ - $ - $ 8,584 $11,135
</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 March 31, 2000, December 31, 1999 and
March 31, 1999, financial information and are of a normal recurring nature. The
results of operations for the three and twelve months ended March 31, 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 affect 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 Twelve Months Ended
March 31 March 31
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 9,061 $ 9,035 $37,097 $26,299
======= ======= ======= =======
Weighted average common shares outstanding:
Basic 21,376 21,503 21,472 21,572
Dilutive effect of option plan 34 36 40 46
--------- --------- --------- ---------
Diluted 21,410 21,539 21,512 21,618
====== ====== ======= ======
Earnings per share Basic: $0.42 $0.42 $1.73 $1.22
===== ===== ===== =====
Diluted: $0.42 $0.42 $1.72 $1.22
===== ===== ===== =====
</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 March 31, 2000 Electric Mining and Gas Marketing Power & Others Eliminations Total
----------- ---------- ---------- ----------- ----------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets $ 102,517 $78,562 $ 1,487 $ 97,724 $ 75,274 $ 6,250 $ (147,232) $ 214,582
Total assets $ 539,038 $161,872 $32,142 $ 112,456 $ 79,091 $ 81,382 $ (284,236) $ 721,745
At December 31, 1999
Current assets $ 93,837 $57,393 $ 1,988 $ 79,709 $ 52,471 $ 5,764 $ (113,931) $ 177,231
Total assets $528,164 $137,762 $ 32,724 $ 94,692 $ 52,690 $ 72,785 $ (244,011) $ 674,806
At March 31, 1999
Current assets $ 48,109 $ 27,793 $ 1,808 $ 74,354 $ 43 $ 6,191 $ (25,617) $ 132,681
Total assets $456,347 $101,640 $31,646 $ 83,015 $ 92 $ 24,533 $ (135,417) $ 561,856
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Independent Energy
---------------------------------------------
First Quarter Oil Energy Independent Communications
March 31, 2000 Electric Mining and Gas Marketing Power & Others Eliminations Total
----------- ---------- ---------- ----------- ----------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 33,299 $ - $ - $ - $ - $ - $ - $ 33,299
Coal revenues - 8,095 - 9,657 - - - 17,752
Gas revenues - - 1,556 85,621 - - - 87,177
Oil revenues - - 1,618 106,776 - - - 108,394
Other revenues - - 788 - - 1,455 (906) 1,337
---------- ---------- ---------- ----------- ----------- ------------- --------------- ---------------
Total revenues $ 33,299 $ 8,095 $ 3,962 $202,054 $ - $ 1,455 $ (906) $ 247,959
---------- ---------- ---------- ----------- ----------- ------------- --------------- ---------------
Depreciation,
depletion
& amortization $ 3,909 $ 862 $ 770 $ 156 $ - $ 899 $ - $ 6,596
Operating income
(loss) 13,644 3,314 1,330 988 (31) (2,373) - 16,872
Interest expense 4,535 652 101 75 2 129 - 5,494
Income taxes 3,389 1,012 327 358 17 (1,072) - 4,031
Net income (loss) 7,198 2,363 890 570 31 (1,991) - 9,061
Property additions 3,583 681 654 (134) 25,103 6,467 - 36,354
</TABLE>
<TABLE>
<CAPTION>
Independent Energy
----------------------------------------------
First Quarter Oil Energy Independent Communications
March 31, 1999 Electric Mining and Gas Marketing Power & Others Eliminations Total
----------- ---------- ---------- ----------- ------------ ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $ 33,084 $ - $ - $ - $ - $ - $ - $ 33,084
Coal revenues - 7,777 - 10,065 - - - 17,842
Gas revenues - - 1,231 85,156 - - - 86,387
Oil revenues - - 964 29,135 - - - 30,099
Other revenues - - 789 - - 654 (654) 789
----------- ---------- ---------- ----------- ------------- ------------ --------------- ---------------
Total revenues $ 33,084 $ 7,777 $ 2,984 $ 124,356 $ - $ 654 $ (654) $ 168,201
----------- ---------- ---------- ----------- ------------- ------------ --------------- ----------------
Depreciation,
depletion
& amortization $ 3,948 $ 869 $ 856 $ 221 $ - $ 21 $ - $ 5,915
Operating income
(loss) 13,376 3,038 487 (342) - (579) - 15,980
Interest expense 3,353 3 135 59 - 7 - 3,557
Income taxes 3,359 955 88 (156) - (97) - 4,149
Net income (loss) 6,873 2,377 266 (318) - (163) - 9,035
Property additions 2,104 1,827 5,132 38 - 6,118 - 15,219
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Independent Energy
----------------------------------------------
Twelve Months Ended Oil Energy Independent Communications
March 31, 2000 Electric Mining and Gas Marketing Power & Others Eliminations Total
----------- ---------- ---------- ----------- ------------ ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $133,437 $ - $ - $ - $ - $ - $ - $ 133,437
Coal revenues - 31,413 - 38,803 - - - 70,216
Gas revenues - - 5,659 383,273 - - - 388,932
Oil revenues - - 5,395 269,849 - - - 275,244
Other revenues - - 2,977 - - 4,224 (3,397) 3,804
----------- ---------- ---------- ----------- ----------- ----------- --------------- -------------
Total revenues $133,437 $31,413 $ 14,031 $691,925 $ - $ 4,224 $ (3,397) $ 871,633
----------- ---------- ---------- ----------- ----------- ----------- --------------- -------------
Depreciation,
depletion
& amortization $ 15,513 $ 3,252 $ 2,867 $ 2,692 $ - $ 1,424 $ - $ 25,748
Operating income
(loss) 52,555 12,886 4,821 (919) (171) (6,385) - 62,787
Interest expense 15,012 1,338 534 262 - 176 - 17,322
Income taxes 12,477 3,496 1,206 563 (33) (2,038) - 15,671
Net income (loss) 27,611 9,399 3,086 688 (62) (3,625) - 37,097
Property additions 26,718 2,706 1,494 5,539 77,600 54,347 - 168,404
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Independent Energy
----------------------------------------------
Twelve Months Ended Oil Energy Independent Communications
March 31, 1999 Electric Mining and Gas Marketing Power & Others Eliminations Total
----------- ---------- ---------- ----------- ------------ ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electric revenues $130,331 $ - $ - $ - $ - $ - $ - $ 130,331
Coal revenues - 31,267 - 22,989 - - - 54,256
Gas revenues - - 4,757 377,939 - - - 382,696
Oil revenues - - 4,282 118,732 - - - 123,014
Other revenues - - 3,321 - - 2,469 (2,469) 3,321
----------- ---------- ---------- ----------- ----------- ------------- -------------- --------------
Total revenues $130,331 $31,267 $12,360 $519,660 $ - $ 2,469 $ (2,469) $ 693,618
----------- ---------- ---------- ----------- ----------- ------------- -------------- --------------
Depreciation,
depletion
& amortization $ 15,032 $ 3,266 $18,275* $ 759 $ - $ 93 $ - $ 37,425
Operating income
(loss) 50,957 12,564 (12,125) 728 (156) (1,630) - 50,338
Interest expense 13,536 12 438 197 27 38 - 14,248
Income taxes 13,063 3,996 (4,644) 163 (64) (351) - 12,163
Net income (loss) 25,278 9,538 (7,895) (41) (119) (462) - 26,299
Property additions 11,930 3,029 14,671 439 - 7,877 - 37,946
Increase in goodwill - - - 1,960 - - - 1,960
*Includes the impact of a $13.5 million pretax write down of certain oil and natural gas properties
</TABLE>
(5) 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.
(6) Market Risk Disclosures
There has not been any significant changes in market risk since December
31, 1999.
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.
Non-Trading Activities
To reduce risk from fluctuations in the price of oil and natural gas, the
Company enters into futures and swap transactions. The transactions are used to
hedge price risk from sales of the Company's crude oil and natural gas
production. For such transactions, the Company utilizes hedge accounting. At
March 31, 2000 the Company had fixed rate for floating rate swaps sold for
20,000 barrels per month for the year 2000 to hedge its crude oil price risk,
with a fair value of $(935,000), and 10,000 barrels per month for the year 2001
with a fair value of $(242,000).
<PAGE>
Trading Activities
The Company, through its independent energy business unit, utilizes
derivatives for its energy marketing services. The notional quantities and
maximum terms of derivative financial instruments held for trading activities at
March 31, 2000 are presented below:
Volume Purchased Max. Term
Natural Gas (MMBtu's) (Years)
Basis Swaps Purchased 23,531,340 3
Basis Swaps Sold 14,486,340 3
Fixed Float Swaps Purchased 8,785,816 1
Fixed Float Swaps Sold 10,477,702 1
Futures Contracts Purchased 120,000 1
Volume Purchased Max. Term
Crude Oil (Bbls) (Years)
Fixed float swaps purchased 300,000 2
Fixed float swaps sold 600,000 2
<PAGE>
At March 31, 1999
Volume Purchased Max. Term
Natural Gas (MMBtu's) (Years)
Basis Swaps Purchased 10,170,500 1
Basis Swaps Sold 9,099,500 1
Fixed Float Swaps Purchased 8,681,542 3
Fixed Float Swaps Sold 6,777,920 1
Futures Contracts Purchased 860,000 2
Because these contracts are entered into for hedging purposes, the Company
did not have a material gain or loss for the quarter ended March 31, 2000 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, short term debt and long-term
debt obligations. The Company does not use derivative financial instruments in
its available for sale securities.
Due to the short-term duration of the Company's investment portfolio at
March 31, 2000 a 100 basis point increase in interest rates would not have a
material effect on the Company's results of operations or financial results.
Based on the Company's short term debt outstanding at March 31, 2000, the
effect of a 100 basis point increase in interest rates would amount to
approximately a $1,200,000 increase in interest expense.
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.
<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 $135,000,000, which
provide for interim borrowings and the opportunity for timing of permanent
financing. The Company had $113,000,000 outstanding under these lines of credit
on March 31, 2000. There are no compensating balance requirements associated
with these lines of credit.
The Company plans to place long-term non-recourse project level financing
in 2000 to fund independent energy's combustion turbines in Colorado and is in
the process of obtaining a $100,000,000-$150,000,000 credit facility for the
independent energy group. At March 31, 2000 the Company has funded approximately
$21,500,000 in the first quarter of 2000 and a total of $73,800,000 of the
expected $80,000,000 capital requirements associated with the combustion
turbines project, and are recorded in the Consolidated Balance Sheets in
Receivables, Other. In addition, upon satisfaction of the conditions of closing,
including regulatory approval, the Company will issue equity and preferred stock
to acquire Indeck Capital, Inc. The Company will issue $34 million of common
stock and $4 million of preferred stock to fund the acquisition.
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 March 31, 2000, Black Hills Energy Resources had
letters of credit outstanding of $5,800,000.
In addition to the above lines of credit, Enserco Energy, Inc. has a
$30,000,000 uncommitted, discretionary credit facility. The transactional 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 March
31, 2000, Enserco had letters of credit outstanding of $26,900,000.
Market Risk Disclosures
There has not been any significant changes in market risk since December
31, 1999.
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.
Non-Trading Activities
To reduce risk from fluctuations in the price of oil and natural gas, the
Company enters into futures and swap transactions. The transactions are used to
hedge price risk from sales of the Company's crude oil and natural gas
production. For such transactions, the Company utilizes hedge accounting. At
March 31, 2000 the Company had fixed rate for floating rate swaps sold for
20,000 barrels per month for the year 2000 to hedge its crude oil price risk,
with a fair value of $(935,000), and 10,000 barrels per month for the year 2001
with a fair value of $(242,000).
Trading Activities
The Company, through its independent energy business unit, utilizes
derivatives for its energy marketing services. The notional quantities and
maximum terms of derivative financial instruments held for trading activities at
March 31, are presented below:
Volume Purchased Max. Term
Natural Gas (MMBtu's) (Years)
Basis Swaps Purchased 23,531,340 3
Basis Swaps Sold 14,486,340 3
Fixed Float Swaps Purchased 8,785,816 1
Fixed Float Swaps Sold 10,477,702 1
Futures Contracts Purchased 120,000 1
<PAGE>
Volume Purchased Max. Term
Crude Oil (Bbls) (Years)
Fixed float swaps purchased 300,000 2
Fixed float swaps sold 600,000 2
At March 31, 1999
Volume Purchased Max. Term
Natural Gas (MMBtu's) (Years)
Basis Swaps Purchased 10,170,500 1
Basis Swaps Sold 9,099,500 1
Fixed Float Swaps Purchased 8,681,542 3
Fixed Float Swaps Sold 6,777,920 1
Futures Contracts Purchased 860,000 2
Because these contracts are entered into for hedging purposes, the Company
did not have a gain or loss for the quarter ended March 31, 2000 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, short term debt and long-term
debt obligations. The Company does not use derivative financial instruments in
its available for sale securities.
Due to the short-term duration of the Company's investment portfolio at
March 31, 2000 a 100 basis point increase in interest rates would not have a
material effect on the Company's results of operations or financial results.
Based on the Company's short term debt outstanding at March 31, 2000, the
effect of a 100 basis point increase in interest rates would amount to
approximately a $1,200,000 increase in interest expense.
The Company has no cash flow exposure due to rate changes for long-term
debt obligations. The Company primarily enters into debt obligations to support
general corporate purposes including capital expenditures and working capital
needs.
Results of Operations
Black Hills Corporation is an energy and communications company consisting
of three principal businesses: electric utility, independent energy and
communications.
<PAGE>
Consolidated net income was $9,061,000 for the three months ended and
$37,097,000 for the twelve months ended March 31, 2000 compared to $9,035,000
and $35,104,000 (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. Strong
Independent Energy earnings and moderate Electric Utility earnings growth were
offset by continuing Communications start-up losses. Consolidated EBITDA (see
next paragraph) was $22,900,000 and $90,400,000 for the three and twelve month
periods ended March 31, 2000 compared to $22,000,000 and $87,300,000 for the
comparable periods ended March 31, 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 Twelve Months Ended
March 31 March 31
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Electric utility 13% 20% 15% 19%
Independent energy 86 80 85 81
Communications 1 - - -
----- ---- ---- ----
100% 100% 100% 100%
Net Income/(Loss)
Electric utility 79% 76% 74% 72%
Independent energy 43 26 35 30*
Communications and other (22) (2) (9) (2)
---- ---- ---- ----
100% 100% 100% 100%
*Excludes the impact of a $8.8 million after tax write down of certain oil and natural gas properties
</TABLE>
Capital expenditures and depreciation, depletion, and amortization by
business segment were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 March 31
2000 1999 2000 1999
---- ---- ---- ----
Capital Expenditures
(excludes AFDC)
<S> <C> <C> <C> <C>
Electric utility $3,583 $2,104 $26,718 $11,930
Independent energy 4,799 6,997 13,515 20,099
Independent energy, other 21,505 - 73,824 -
Communications and other 6,467 6,118 54,347 7,877
------- ------- -------- -------
$36,354 $15,219 $168,404 $39,906
======= ======= ======== =======
<PAGE>
Depreciation, Depletion,
and Amortization
Electric utility $3,909 $3,948 $15,513 $15,032
Independent energy 1,788 1,946 8,811 22,300*
Communications and other 899 21 1,424 93
------- ------- ------- -------
$ 6,596 $ 5,915 $25,748 $37,425
======= ======= ======= =======
*Includes the impact of a $13.5 million pretax write down of certain oil and natural gas properties
</TABLE>
Electric Operations
Electric earnings increased $325,000 or 5 percent and $2,300,000 or 9
percent for the three and twelve month periods ending March 31, 2000, despite
mild weather. Degree days, a measure of weather trends, were stable and 4
percent lower for the three and twelve month periods ended March 31, 2000, as
compared to the prior periods. Total kilowatthour sales were flat for the three
month period and increased 2 percent for the twelve month period. Increased
market sales and lower purchased power and fuel costs contributed to the
increase in earnings.
Electric expenses were stable for the three and twelve months ended March
31, 2000 due to continued cost containment and lower purchased power and fuel
costs offset by increased interest expense. EBITDA for the electric utility was
$18,800,000 for the three month period ended March 31, 2000 compared to
$17,200,000 for the period ended March 31, 1999 and $69,900,000 for the twelve
month period ended March 31, 2000 compared to $65,900,000 for the prior year
twelve month period.
Independent Energy Operations
Earnings from non-regulated energy operations increased $1,530,000 or 66
percent and $2,800,000 or 27 percent (excluding the impact of a $8.8 million
pretax write down of certain oil and natural gas properties) for the three
months and twelve months ended March 31, 2000 primarily due to stable coal
mining earnings, strong oil and natural gas production earnings and improved
energy marketing results. Non-regulated energy EBITDA was $6,500,000 for the
three month period ending March 31, 2000 and $5,100,000 for the same period
ended March 31, 1999, and $26,300,000 for the March 31, 2000 twelve month period
compared to $22,600,000 for the twelve month period ended March 31, 1999.
Earnings from oil and gas operations increased $623,000 and $2,200,000 for
the three months and twelve months ended March 31, 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 increased oil and gas
prices, and lower depletion expense. Oil prices increased 86 percent and 141
percent for the three and twelve month periods and gas prices increased 11
percent for the three month period and 23 percent for the twelve month period
ending March 31, 2000. Production for the three month period ended March 31,
2000 was flat with the prior three month period and increased 11 percent from
the twelve month period ending March 31, 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 $888,000 and $729,000
for the three and twelve month periods ending March 31, 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 $1,400,000 for the three month
period and $3,600,000 for the twelve month period ended March 31, 2000. Prices
for natural gas increased 34 percent for the three month period and 13 percent
for the twelve month period. Crude oil prices increased 64 percent and 125
percent for the March 31, 2000 three month period and twelve month period,
respectively. Coal prices decreased 6 percent and margins decreased 47 percent
for the three month period ended March 31, 2000. The Company acquired its coal
marketer, Black Hills Coal Network in September, 1998.
The energy marketing operations marketed 387,000 mmbtus of gas, 44,000
barrels of oil and 4,600 tons of coal per day in the three month period ended
March 31, 2000 and 518,700 mmbtus, 20,000 barrels and 4,500 tons of coal per day
for the three month period ended March 31, 1999. For the twelve month period
ending March 31, 2000, 455,000 mmbtus of gas, 25,300 barrels of oil and 4,500
tons of coal per day were marketed as compared to 507,400 mmbtus of gas and
20,300 barrels of oil 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 continues to install
broadband services to residential and business customers and expects to complete
its initial build-out by the end of 2000. Revenues for the three and twelve
month periods ended March 31, 2000 were $549,000 and $827,000 respectively.
Operating expenses at March 31, 2000 for the three month period were $2,400,000
and $5,700,000 for the twelve month period. Losses for the three month period
ended March 31, 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
Black Hills Generation, Inc. and Black Hills Energy Capital, Inc. represent
the Company's entry into the independent power generation business. In December
1999, Black Hills Generation, Inc. acquired a 50% interest in a limited
liability company that is constructing three gas-fired combustion turbine
peaking units that have a total capacity of approximately 111 megawatts. These
facilities are scheduled to become operational in the second quarter of 2000,
and the production has been sold to Public Service of Colorado under a seven
year tolling arrangement. Ultimately, upon closure of the contemplated Indeck
Capital, Inc. acquisition in 2000 (see next paragraph), the independent energy
business unit will control 100% of these three facilities as Indeck Capital,
Inc. currently owns the other 50% interest. At March 31, 2000, the Company had
funded approximately $73,800,000 of the expected $80,000,000 capital
requirements associated with these three peaking units through notes receivable
from the limited liability company.
In January 2000, the Company announced that it had reached a definitive
agreement to acquire 100% of Indeck Capital, Inc. a privately-held independent
power company that owns and operates certain independent power facilities, and
has direct or indirect investments in other independent power facilities. As of
January 1, 2000, Indeck Capital, Inc.'s net megawatt interest in operating
facilities or development projects is approximately 240 megawatts, which are
primarily concentrated in hydro-electric and gas-fired generating facilities.
The pending acquisition is subject to certain conditions of closing, including
regulatory approval, and management expects to close late in the second quarter
of 2000. The Company has received approval from the Justice Department relating
to the Hart, Scott, Rodino Filing and has filed with the Federal Energy
Regulatory Commission and the South Dakota and Wyoming regulatory authorities
for approval of the merger. Indeck Capital, Inc. will be merged into Black Hills
Energy Capital, Inc. upon closure of the acquisition. Management believes this
acquisition, when completed, will have a positive impact on earnings, and will
enable the Company to further its expansion into the independent power
generation business in the future.
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
March 31, 2000.
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 Accounting Officer)
/s/ Mark T. Thies
Mark T. Thies, Senior Vice President and CFO
(Principal Financial Officer)
Dated: May 11, 2000
<TABLE> <S> <C>
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<PERIOD-END> MAR-31-2000
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<TOTAL-NET-UTILITY-PLANT> 346,712,000
<OTHER-PROPERTY-AND-INVEST> 130,432,000
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<OTHER-ASSETS> 30,019,000
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<COMMON> 21,746,000
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