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 September 30, 1998.March 31, 1999.
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from _______________ to _______________.
Commission File Number 1-7978
Black Hills Corporation
Incorporated in South Dakota IRS Identification Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57709
Registrant's telephone number (605)-348-1700
Former name, former address, and former fiscal year if changed since last
report
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable date.
Class Outstanding at October 31, 1998April 30, 1999
Common stock, $1.00 par value 21,570,99021,450,704 shares
BLACK HILLS CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets- 3-4
September 30, 1998,March 31, 1999, December 31, 19971998
and September 30, 1997March 31, 1998
Consolidated Statements of Income- 5
Three Nine and Twelve Months
Ended September 30,March 31, 1999 and 1998 and 1997
Consolidated Statements of Cash Flows- 6
Three Nine and Twelve Months
Ended September 30,March 31, 1999 and 1998 and 1997
Notes to Consolidated Financial Statements 7-107-11
Item 2. Management's Discussion and Analysis of 11-1512-17
Financial Position and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 1618
Item 6. Exhibits and Reports on Form 8-K 1618
Signatures 1719
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
September 30 December 31 September 30
1998 1997 1997
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 12,015 $ 16,774 $11,200
Securities available for sale 23,951 13,969 14,579
Receivables, net
Customers 58,830 39,639 43,696
Other 3,267 3,414 3,471
Materials, supplies, and fuel 9,936 8,642 8,219
Prepaid expenses 2,307 1,571 1,125
110,306 84,009 82,290
Property and investments:
Electric 493,727 487,424 485,787
Coal mining 53,460 52,804 52,843
Oil and gas 60,178 52,412 50,943
Other 6,755 5,666 4,988
614,120 598,306 594,561
Less accumulated depreciation
and depletion (213,990) (197,179) (193,764)
Net property and investments 400,130 401,127 400,797
Other assets:
Federal income taxes 8,068 8,061 8,268
Regulatory asset 4,042 3,776 3,626
Other 13,626 11,768 12,645
25,736 23,605 24,539
Total $536,172 $508,741 $507,626
Consolidated Balance Sheets
Unaudited Unaudited
March 31 December 31 March 31
1999 1998 1998
----------- ------------ ------------
(in thousands)
Assets
Current assets:
Cash and cash equivalents ... $ 20,055 $ 14,764 $ 22,433
Securities available for sale 19,079 22,675 19,313
Receivables, net
Customers ................. 76,543 87,068 65,204
Other ..................... 3,453 2,919 3,269
Materials, supplies, and fuel 10,540 9,733 8,409
Prepaid expenses ............ 3,011 3,321 2,021
--------- --------- ---------
132,681 140,480 120,649
--------- --------- ---------
Property and investments:
Electric .................... 498,809 496,883 489,036
Coal mining ................. 53,716 51,889 53,039
Oil and gas ................. 67,714 62,581 53,043
Other ....................... 14,513 8,196 5,218
--------- --------- ---------
634,752 619,549 600,336
Less accumulated depreciation
and depletion ................ (235,283) (229,942) (202,520)
--------- --------- ---------
Net property and investments 399,469 389,607 397,816
--------- --------- ---------
Other assets:
Federal income taxes ........ 12,370 12,347 8,020
Regulatory asset ............ 3,978 3,978 3,926
Other ....................... 13,358 13,005 11,845
--------- --------- ---------
29,706 29,330 23,791
--------- --------- ---------
Total .................... $ 561,856 $ 559,417 $ 542,256
========= ========= =========
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
September 30 December 31 September 30
1998 1997 1997
(in thousands)
Liabilities and Capitalization
Current liabilities:
Current maturities of
long-term debt $ 1,330 $ 1,331 $ 1,331
Notes payable 1,502 23 1,528
Accounts payable 50,996 32,622 36,048
Accrued liabilities-
Taxes 9,325 8,040 8,837
Interest 2,983 3,991 2,996
Other 8,035 7,800 7,103
74,171 53,807 57,843
Deferred credits:
Federal income taxes 54,765 53,010 50,792
Investment tax credits 3,639 4,014 4,139
Reclamation costs 17,192 16,664 16,793
Regulatory liability 5,785 6,152 6,277
Other 6,826 6,331 6,327
88,207 86,171 84,328
Capitalization:
Common stock equity-
Common stock 21,717 21,705 14,466
Additional paid-in
capital 40,238 39,995 47,158
Retained earnings 153,105 143,703 140,471
Treasury stock (3,296) - -
Total common stock equity 211,764 205,403 202,095
Long-term debt 162,030 163,360 163,360
373,794 368,763 365,455
Total $536,172 $508,741 $507,626
BLACK HILLS CORPORATION
Consolidated Balance Sheets
Unaudited Unaudited
March 31 December 31 March 31
1999 1998 1998
------------- ------------ ------------
(in thousands)
Liabilities and Capitalization
Current liabilities:
Current maturities of long-term debt $ 1,330 $ 1,330 $ 1,330
Notes payable ........................ 4,570 5,090 12
Accounts payable ..................... 71,650 74,087 59,893
Accrued liabilities-
Taxes .............................. 15,969 9,950 13,220
Interest ........................... 3,047 3,956 3,131
Other .............................. 7,928 8,169 6,340
--------- --------- ---------
104,494 102,582 83,926
--------- --------- ---------
Deferred credits:
Federal income taxes ................. 55,758 55,107 53,605
Investment tax credits ............... 3,391 3,514 3,889
Reclamation costs .................... 17,178 17,000 16,840
Regulatory liability ................. 5,539 5,661 6,028
Other ................................ 6,956 6,857 6,480
--------- --------- ---------
88,822 88,139 86,842
--------- --------- ---------
Capitalization:
Common stock equity-
Common stock ....................... 21,726 21,719 21,712
Additional paid-in
capital ........................... 40,397 40,254 40,143
Retained earnings .................. 151,160 147,774 146,799
Treasury stock ..................... (6,247) (3,081) --
--------- --------- ---------
Total common stock equity ............ 207,036 206,666 208,654
Long-term debt ....................... 161,504 162,030 162,834
--------- --------- ---------
368,540 368,696 371,488
--------- --------- ---------
Total ........................... $ 561,856 $ 559,417 $ 542,256
========= ========= =========
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Statements of Income
(unaudited)
Three Months Nine Months Twelve Months
September 30 September 30 September 30March 31 March 31
1999 1998 19971999 1998
1997 1998 1997---- ---- ---- ----
(in thousands, except per share amounts)
Operating revenues:
Electric ............................................. $ 34,98233,084 $ 33,358 $ 96,810 $ 94,738 $128,569 $125,09931,990 $130,331 $126,452
Coal mining 8,185 8,178 23,956 24,005 31,030 31,572.......................................... 7,777 7,924 31,267 30,878
Oil and gas 3,199 3,029 9,675 9,958 13,012 13,165.......................................... 2,984 3,186 12,360 12,762
Energy marketing 97,803 53,617 286,304 53,617 375,476 53,617
144,169 98,182 416,745 182,318 548,087 223,453..................................... 124,356 110,737 519,660 253,528
-------- -------- -------- --------
168,201 153,837 693,618 423,620
-------- -------- -------- --------
Operating expenses:
Fuel and purchased power 105,857 62,557 308,905 80,840 405,512 89,254............................. 130,737 118,229 543,950 286,072
Operations and maintenance 8,113 8,511 24,168 23,596 32,313 31,847........................... 7,750 8,244 31,227 32,423
Administrative and general 3,194 2,936 9,348 7,478 13,136 9,523........................... 4,334 3,110 17,891 12,662
Depreciation, depletion, and amortization 6,093 5,439 18,463 16,731 24,044 22,196............ 5,915 6,145 23,879 22,857
Oil and gas ceilings test write down ................. -- -- 13,546 --
Taxes, other than income taxes 3,122 3,097 9,394 9,430 11,948 12,383
126,379 82,540 370,278 138,075 486,953 165,203....................... 3,485 3,234 12,787 11,922
-------- -------- -------- --------
152,221 138,962 643,280 365,936
-------- -------- -------- --------
Operating income (loss):
Electric 14,436 12,141 37,493 32,427 49,678 42,460
Coal mining 3,433 3,198 9,737 9,731 12,224 12,362
Oil and gas 267 494 959 2,276 1,591 3,619
Energy marketing (346) (191) (1,722) (191) 2,359) (191)
17,790 15,642 46,467 44,243 61,134 58,250....................................... 15,980 14,875 50,338 57,684
-------- -------- -------- --------
Other income and (expense):
Interest expense (3,656) (3,559) (10,860) (10,516) (14,470) (14,032)..................................... (3,680) (3,624) (14,762) (14,268)
Investment income 771 585 2,077 1,412 2,799 1,805.................................... 696 604 3,053 2,371
Allowance for funds used during construction 54 44 148 152 184 141........ 64 29 254 151
Other, net (513) (197) (96) (409) (112) 553
(3,344) (3,127) (8,731) (9,361) (11,599) (11,533)........................................... 124 353 (421) 505
-------- -------- -------- --------
(2,796) (2,638) (11,876) (11,241)
-------- -------- -------- --------
Income before income taxes 14,446 12,515 37,736 34,882 49,535 46,717............................. 13,184 12,237 38,462 46,443
Income taxes (4,830) (3,871) (12,079) (10,898) (15,508) (14,600)........................................... (4,149) (3,693) (12,163) (14,127)
Net income available for common stock ................ $ 9,6169,035 $ 8,644 $25,657 $23,984 $34,027 $32,1178,544 $ 26,299 $32,316
======== ======== ======== ========
Earnings per share - basic and diluted ................. $ 0.42 $ 0.39 $ 1.22 $ 1.49
======== ======== ======== ========
Weighted average common shares outstanding (Basic): 21,577 21,696 21,639 21,689 21,655 21,685
(Diluted): 21,633 21,707 21,676 21,698 21,684 21,690
Earnings per share
(Basic): $0.45 $0.40 $1.19 $1.11 $1.57 $1.48
(Diluted): $0.44 $0.40 $1.18 $1.11 $1.57 $1.48............ 21,503 21,712 21,572 21,699
======== ======== ======== ========
Dividends paid per share of common stock $0.250 $0.237 $0.750 $0.710 $0.987 $0.940stock. ............. $ 0.26 $ 0.25 $ 1.01 $ 0.96
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
Three Months Nine Months Twelve Months
September 30 September 30 September 30March 31 March 31
1999 1998 19971999 1998
1997 1998 1997------- ------- ------- --------
(in thousands)
Operating activities:
Net incomeIncome ................................................... $ 9,6169,035 $ 8,644 $25,657 $23,984 $34,027 $32,1178,544 $ 26,299 $ 32,316
Principal non-cash items-
Depreciation, depletion, and amortization 6,093 5,439 18,463 16,731 24,044 22,196................... 5,915 6,145 37,425 22,857
Deferred income taxes and investment tax credits 295 37 767 865 2,165 1,775
Allowance for other funds
used during construction (33) (21) (90) (80) (108) (41)credits............. (261) 245 (4,543) 1,881
(Increase) decrease in receivables,
inventories, and other current assets (8,363) (33,701) (21,074) (30,312) (17,829) (26,077)..................... 9,494 (25,637) (14,644) (54,458)
Increase (decrease) in other current liabilities 3,332 31,089 18,886 28,546 16,355 31,943....................... 2,432 30,131 16,010 55,450
Other, net (1,218) (668) (2,135) (1,267) (323) (833)
9,722 10,819 40,474 38,467 58,331 61,080.................................................. (26) 424 1,288 1,180
------- ------- -------- --------
26,589 19,852 61,835 59,226
------- ------- -------- --------
Investing activities:
Property additions, excluding allowance
for other funds used during construction (5,902) (6,325) (16,104) (15,463) (22,431) (25,362).................... (15,183) (3,018) (37,798) (21,597)
Available for sale securities purchased ...................... (917)(14,054) (14,054) (23,832)
Available for sale securities sold 586 11,764 11,810 17,743 12,317 44,623
Available for sale
securities purchased (1,108) (8,132) (21,792) (20,864) (21,689) (48,517)........................... 4,513 3,880 14,288 19,789
Energy marketing assets - (6,810) - (6,810) - (6,810)
(6,424) (9,503) (26,086) (25,394) (31,803) (36,066)...................................... -- -- (1,960) (7,232)
------- ------- -------- --------
(11,587) (8,362) (39,524) (32,872)
------- ------- -------- --------
Financing activities:
Dividends paid (5,395) (5,140) (16,255) (15,397) (21,392) (20,392)............................................... (5,649) (5,448) (21,938) (20,856)
Treasury stock, net (4) - (3,296) - (3,296) -.......................................... (3,166) -- (6,247) --
Common stock issued 60 98 255 333 331 415
Net.......................................... 150 155 268 425
Increase (decrease) in short-term borrowings 1,490 1,505 1,479 1,385 (26) 180borrowings.................. (520) (11) 4,558 (11)
Long-term debt retired (514) (783)payments ...................................... (526) (527) (1,330) (1,534) (1,330) (1,546)
(4,363) (4,320) (19,147) (15,213) (25,713) (21,343)(1,310)
------- ------- -------- --------
(9,711) (5,831) (24,689) (21,752)
------- ------- -------- --------
Increase (decrease) in
cash and cash equivalents (1,065) (3,004) (4,759) (2,140) 815 3,671.................................. 5,291 5,659 (2,378) 4,602
Cash and cash equivalents:
Beginning of period 13,080 14,204.......................................... 14,764 16,774 13,340 11,200 7,52922,433 17,831
------- ------- -------- --------
End of period $12,015 $11,200 $12,015 $11,200 $12,015 $11,200................................................ $20,055 $22,433 $ 20,055 $ 22,433
======== ======= ======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest .................................................. $ 4,589 $ 4,593 $ 4,56614,846 $ 8,183 $11,555 $14,393 $14,04714,133
Income taxes $ 3,450 $ 2,140 $ 9,250 $ 8,640 $12,450 $11,840
Assumption of Clovis Point
reclamation liability.............................................. $ - $ -2,000 $ -11,135 $ - $ - $ 7,95713,840
See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION
Notes to Consolidated Financial Statements
(Reference is made to Notes to Consolidated Financial Statements
included in the CompanysCompany's Annual Report and Form 10-K)
(1) ManagementsManagement'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 Companys 1997Company's 1998 Annual Report on Form 10-
K10-K filed
with the Securities and Exchange Commission.
Accounting methods historically employed require certain estimates as of
interim dates. The information furnished in the accompanying financial
statements reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the September 30, 1998,March 31, 1999, December 31, 19971998 and
September 30, 1997,March 31, 1998, financial information and are of a normal recurring nature. The
results of operations for the three nine
and twelve months ended September 30, 1998,March 31, 1999, 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 1998,1999, the Board of Directors authorized the acquisition of up to
300,0001,000,000 shares of the CompanysCompany's Common Stock on the open market to fund
possible future acquisitions by the Company, for its Employee Stock Option Plan,
and for other corporategeneral purposes. The Board had authorized a similar purchase of
300,000 shares in April 1998. At September 30, 1998,March 31, 1999, the Company has acquired
146,400275,701 shares for such purposes and is reflected as treasury stock on the
accompanying consolidated balance sheets.
(3) Net Income Per Share
The Company adopted the
Financial Accounting Standards Board (FASB) Statement No. 128 Earnings"Earnings
Per Share in 1997 whichShare" 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):
Three Months Ended Twelve MonthsEnded
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
Net Income ............................. $ 9,035 $ 8,544 $26,299 $32,316
======= ======= ======= =======
Weighted average common shares outstanding:
Basic ............................ 21,503 21,712 21,572 21,699
Dilutive effect of option plan ... 36 24 46 16
------- ------- ------- -------
Diluted .......................... 21,539 21,736 21,618 21,715
======= ======= ======= =======
Earnings per share (Basic and Diluted): $0.42 $0.39 $1.22 $1.49
===== ===== ===== =====
(4) Comprehensive Income
FASB Statement No. 130, "Reporting Comprehensive Income," establishes
standards for reporting and display of comprehensive earnings and its components
in financial statements. Statement No. 130 requires minimum pension liability
adjustments, unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive earnings. There were no material differences between net earnings
and comprehensive earnings for any periods presented in the accompanying
financial statements.
(5) Summary of Information Relating to Segments of the Company's Business
Effective December 31, 1998 the Company adopted FASB Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information." Black
Hills Corporation's business segments include: Electric which supplies electric
utility service to western South Dakota, northeastern Wyoming and southeastern
Montana; Mining which engages in the mining and sale of coal from its mine near
Gillette, Wyoming; Oil and Gas which produces, explores and operates oil and gas
interests located in the Rocky Mountain region, Texas, California and other
states; Energy Marketing which markets natural gas, oil, coal and related
services to customers in the East Coast, Midwest, Southwest, Rocky Mountain,
West Coast and Northwest Regions markets and Technology and Others which
primarily markets communications and software development services.
Financial data for the business segments are as follows (in thousands):
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997Oil Energy Technology
March 31, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------- --------- --------- --------- --------- --------- ------------ ---------
Operating revenues $ 33,084 $ 7,777 $ 2,984 $ 124,356 $ 654 $ (654) $ 168,201
Depreciation,
depletion & amort 3,948 869 856 221 21 -- 5,915
Operating income
(loss) ........ 13,376 3,038 487 (342) (579) -- 15,980
Interest expense . 3,353 7 135 178 7 -- 3,680
Income taxes ..... 3,359 955 88 (156) (97) -- 4,149
Net income (loss) 6,873 2,377 266 (303) (178) -- 9,035
Current assets ... 48,109 27,793 1,808 74,397 6,191 (25,617) 132,681
Total assets ..... 456,347 101,640 31,646 83,107 24,533 (135,417) 561,856
Property additions 2,104 1,827 5,132 38 6,118 -- 15,219
Three Months Ended Oil Energy Technology
March 31, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------ ---------- --------- --------- ---------- ---------- ------------ ---------
Operating revenues $ 31,990 $ 7,924 $ 3,186 $ 110,737 $ 622 $ (622) $ 153,837
Depreciation,
depletion & amort 3,797 855 1,342 151 -- -- 6,145
Operating income
(loss) ........ 12,315 3,197 272 (874) (35) -- 14,875
Interest expense . 3,390 -- 52 173 9 -- 3,624
Income $9,616 $8,644 $25,657 $23,984 $34,027 $32,117
Weighted average common
shares outstanding:
Basic 21,577 21,696 21,639 21,689 21,655 21,685
Dilutive
effect of
option plan 56 11 37 9 29 5
Diluted 21,633 21,707 21,676 21,698 21,684 21,690
Earnings per share
(Basic): $0.45 $0.40 $1.19 $1.11 $1.57 $1.48
(Diluted): $0.44 $0.40 $1.18 $1.11 $1.57 $1.48
(4) Comprehensivetaxes ..... 2,906 1,051 43 (374) 67 -- 3,693
Net income (loss) 6,421 2,423 185 (607) 122 -- 8,544
Current assets ... 38,708 20,399 1,091 64,275 8,046 (11,870) 120,649
Total assets ..... 449,752 92,123 30,088 71,467 15,164 (116,338) 542,256
Property additions 2,162 245 630 24 (26) -- 3,035
Three Months Ended Oil Energy Technology
March 31, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
- ----------------- --------- --------- --------- --------- ---------- ------------ ---------
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 ........... $ 33,084 $ 7,777 $ 2,984 $ 124,356 $ 654 $ (654) $ 168,201
========= ========= ========= ========= ========= ========= =========
Three Months Ended Oil Energy Technology
March 31, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------ --------- -------- -------- --------- ---------- ------------ --------
Electric revenues $ 31,990 $ -- $ -- $ -- $ -- $ -- $ 31,990
Coal revenues ... -- 7,924 -- -- -- -- 7,924
Gas revenues .... -- -- 1,087 83,150 -- -- 84,237
Oil revenues .... -- -- 1,273 27,587 -- -- 28,860
Other revenues .. -- -- 826 -- 622 (622) 826
-------- -------- -------- -------- -------- -------- --------
Total ........... $ 31,990 $ 7,924 $ 3,186 $110,737 $ 622 $ (622) $153,837
======== ======== ======== ======== ======== ======== ========
Twelve Months Ended Oil Energy Technology
March 31, 1999 Electric Mining and Gas Marketing & Others Eliminations Total
- -------------------- --------- --------- --------- --------- ----------- ------------ ---------
Operating revenues . $ 130,331 $ 31,267 $ 12,360 $ 519,660 $ 2,469 $ (2,469) $ 693,618
Depreciation,
depletion & amort 15,032 3,266 18,275* 759 93 -- 37,425
Operating income
(loss) .......... 50,957 12,564 (12,125) 572 (1,630) -- 50,338
Interest expense ... 13,536 15 438 735 38 -- 14,762
Income The Company adopted FASB Statement No. 130, Reporting
Comprehensivetaxes ....... 13,063 3,996 (4,644) 99 (351) -- 12,163
Net income (loss) .. 25,278 9,538 (7,895) (41) (581) -- 26,299
Current assets ..... 48,109 27,793 1,808 74,397 6,190 (25,616) 132,681
Total assets ....... 456,347 101,640 31,646 83,107 24,533 (135,417) 561,856
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 $13.546 million pretax write down of certain oil
and natural gas properties.
Twelve Months Ended Oil Energy Technology
March 31, 1998 Electric Mining and Gas Marketing & Others Eliminations Total
- ------------------ --------- -------- ------- --------- ---------- ------------ --------
Operating revenues $126,452 $30,878 $12,762 $253,528 $ - $ - $423,620
Depreciation,
depletion & amort. 14,584 3,282 4,606 385 - - 22,857
Operating income
(loss) 45,718 11,984 2,110 (1,700) (428) - 57,684
Interest expense 13,645 4 208 375 36 - 14,268
Income effective January 1, 1998. Statement No.
130 establishes standards for reportingtaxes 10,428 4,037 377 (721) 6 - 14,127
Net income (loss) 23,038 9,025 1,601 (1,469) (40) 161 32,316
Current assets 38,708 20,399 1,091 64,275 8,046 (11,870) 120,649
Total assets 449,752 92,123 30,088 71,467 15,164 (116,338) 542,256
Property additions 13,254 1,546 6,699 45 134 - 21,678
Increase in goodwill - - - 7,232 - - 7,232
Twelve Months Ended Oil Energy Technology
March 31, 1999 Electric Mining and display of
comprehensive earningsGas Marketing & Others Eliminations Total
- ----------------- -------- -------- -------- --------- --------- ------------ -----
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 ........... $130,331 $ 31,267 $ 12,360 $519,660 $ 2,469 $ (2,469) $693,618
======== ======== ======== ======== ======== ======== ========
Twelve Months Ended Oil Energy Technology
March 31, 1998 Electric Mining and its components in financial
statements; however, the adoption of this Statement had no impact
on the Companys net earnings or shareholders equity. Statement
No. 130 requires minimum pension liability adjustments,
unrealized gains or losses on the Companys 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.
FASB Statement No. 132 Employers Disclosures about
Pensions andGas Marketing & Others Eliminations Total
- ------------------ --------- -------- -------- ---------- --------- ------------ -----
Electric revenues $126,452 $ -- $ -- $ -- $ -- $ -- $126,452
Coal revenues ... -- 30,878 -- -- -- -- 30,878
Gas revenues .... -- -- 5,331 179,131 -- -- 184,462
Oil revenues .... -- -- 3,944 74,397 -- -- 78,341
Other Postretirement Benefits - an amendment of FASB
Statements No. 87, 88, and 106 requires revised disclosures
about pension and other postretirement benefit plans. The
Company does not expect that adoption of the disclosure
requirements of this pronouncement will have a material impact on
its financial statements. The Company will adopt this Statement
in the fourth quarter of 1998.
In March, 1998, the Accounting Standards Executive Committee
issued Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The
Statement is effective for fiscal years beginning after December
15, 1998. Earlier application is encouraged in fiscal years for
which annual financial statements have not been issued. The
statement defines which costs of computer software developed or
obtained for internal use are capitalized and which costs are
expensed. The Company has not yet determined when they will
adopt the new Statement. The effect of adoption is not expected
to materially affect the Companys 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 Companys 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
derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivatives gains and
losses to offset related results on the hedged item in the income
statement and requires that a company must formally document,
designate, and assess the effectiveness of transactions that
receive hedge accounting. Statement 133 is effective for fiscal
years beginning after June 15, 1999.The Company has not yet
quantified the impacts of adopting Statement 133 on its financial
statements and has not determined the timing of adoption of
Statement 133. However, the Statement could increase volatility
in earnings and other comprehensive income.
(6) New Business Venture
On September 28, 1998 the Company through Black Hills
FiberCom announced it will build a telecommunications fiber
optic network. The newly formed company will invest
approximately $40,000,000 over the next three years in state-of-
the-art technology.
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity, Capital Resources, and Commitments
In the past the Company has depended upon internally
generated funds, issuance of short and long-term debt and sales
of common stock to finance its activities. It is expected that
future activities will also be financed by the most appropriate
mix of these various sources of funds.
The Company currently has bank lines of credit totaling $12
million which provide for interim borrowings and the opportunity
for timing of permanent financing. The Company had a $250,000
balance at September 30, 1998. There are no compensating balance
requirements associated with these lines of credit.
In addition to the above lines of credit, Black Hills Energy
Resources, Inc. has an uncommitted demand credit facility for up
to $65 million. This facility allows $50 million for a
transactional line of credit and $15 million overdraft line of
credit. This facility is used to support the issuance of letters
of credit. At September 30, 1998, Black Hills Energy Resources
has approximately $33 million of outstanding letters of credit.
In addition to the above lines of credit, Wyodak Resources
Development Corp. has guaranteed a $15 million line of credit for
Enserco Energy, Inc. to use to guarantee letters of credit. At
September 30, 1998, there were no balances outstanding on this
line of credit.
In September, 1998, the Company announced that it will invest
approximately $40 million over the next three years in state-of-
the-art technology that will offer local and long distance
telephone service, expanded cable television service, Internet
access and high-speed data and video services. Such investment
is expected to come from the appropriate mix of internally
generated funds and short-term debt.
Black Hills FiberCom will experience operating losses over
the next two to four years as it develops and constructs its
network infrastructure, builds its customer base and internal
staffing, and develops its systems. Management believes Black
Hills FiberComs operating losses will be offset by growth in the
Companys other business segments and overall the Company should
have stable or slight growth during this start up phase.
Results of Operations
Black Hills Corporation is an energy company consisting of
four principal businesses: electric, coal mining, oil and gas
production, and crude oil and natural gas marketing.
Consolidated net income was $9,616,000, $25,657,000 and
$34,027,000 for the three months, nine months and twelve months
ended September 30, 1998, respectively, representing an increase
of 11 percent, 7 percent and 6 percent, respectively. The
increase in earnings was primarily due to increased electric
sales, lower purchased power expense and strong cost management,
partially offset by lower oil and gas commodity prices, mild
weather and weak market conditions in the areas served by the
energy marketing companies. Consolidated revenues and fuel and
purchased power expense increased for the three months, nine
months and twelve months ended September 30, 1998 primarily due
to oil and natural gas purchases and sales from the energy
marketing operations.
Consolidated revenue and income from continuing operations
provided by the four.. -- -- 3,487 -- -- -- 3,487
-------- -------- -------- -------- -------- --------- --------
Total ........... $126,452 $ 30,878 $ 12,762 $253,528 $ -- $ -- $423,620
======== ======== ======== ======== ======== ========= ========
(6) Energy Trading and Risk Management Activities
Effective January 1, 1999, the Company adopted the provisions in Emerging
Issues Task Force 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities. (EITF 98-10)." EITF requires
disclosure of energy trading and risk management activity for energy
contracts used for trading purposes. At March 31, 1999, the Company had
approximately 220,000 mmbtus of natural gas forward sales at a fixed
price. The market value of such contracts approximated the fixed price.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity, Capital Resources, and Commitments
In the past the Company has depended upon internally generated funds,
issuance of short and long-term debt and sales of common stock to finance its
activities. It is expected that future activities will also be financed by the
most appropriate mix of these various sources of funds.
The Company currently has bank lines of credit totaling $44,000,000, which
provide for interim borrowings and the opportunity for timing of permanent
financing. The Company had $3,330,000 outstanding under these lines of credit on
March 31, 1999. There are no compensating balance requirements associated with
these lines of credit.
In addition to the above lines of credit, Black Hills Energy Resources,
Inc. has an uncommitted demand credit facility for up to $65 million. This
facility allows $50 million for a transactional line of credit and $15 million
overdraft line of credit. This facility is used to support the issuance of
letters of credit. At March 31, 1999, Black Hills Energy Resources has
approximately $21 million of outstanding letters of credit.
In addition to the above lines of credit, Wyodak Resources Development
Corp. has guaranteed a $15,000,000 line of credit for Enserco Energy, Inc. to
use to guarantee letters of credit. At March 31, 1999, there were no balances
outstanding on this line of credit.
Market Risk Disclosures
There has not been any significant changes in market risk since December
31, 1998.
Commodity Risk
The Company is exposed to market risk stemming from changes in commodity
prices. These changes could cause fluctuations in the Company's earnings and
cash flows.
Trading Activities
For trading transactions that do not qualify for hedge accounting, the
Company utilizes marked-to-market accounting, and such financial instruments are
recorded at fair value with realized and unrealized gains (losses) recorded as a
component of income. The quantities and maximum terms of derivative financial
instruments held for trading purposes at March 31, 1999 and 1998 are not
significant to the Company's financial position or results of operations.
Non-trading Activities
The notional quantities and maximum terms of derivative financial
instruments held for non-trading activities at March 31, 1999, are presented
below:
Volume Purchased Max. Term Fair Value
(MMBtu's) (Years) (in thousands)
--------------- --------- ------------
Natural gas futures contracts
purchased 860,000 2 $(61)
Natural gas swap contracts
purchased 18,852,042 3 $(1,566)
Natural gas swap contracts sold 15,877,420 1 $738
Because these contracts are entered into for hedging purposes, the Company
expects that the gains (losses) will be offset by gains (losses) on the
underlying physical transactions; Such physical transactions are subject to
weather trends, transportation and delivery risks and other factors that the
Company monitors on a regular basis. The notional amounts detailed above are
intended to be indicative of the Company's level of activity in such
derivatives.
At March 31, 1999, the Company did not have material crude oil derivatives
in its non-trading activities.
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's short-term investments and long-term debt
obligations. The Company does not use derivative financial instruments in its
available for sale securities.
At March 31, 1999, the effect of a 100 basis point increase in interest
rates does not have a material effect to the Company's results of operations or
financial condition, due to the short-term duration of the investment portfolio.
The Company has no cash flow exposure due to rate changes for long-term
debt obligations. The Company primarily enters into debt obligations to support
general corporate purposes including capital expenditures and working capital
needs.
Results of Operations
Black Hills Corporation is an energy company consisting of five principal
businesses: electric, coal mining, oil and gas production, crude oil and natural
gas marketing, and communications.
Consolidated net income was $9,035,000 for the three months ended and
$35,104,000 for the twelve months (before a special non-cash charge) ended March
31, 1999, representing an increase of 6 percent and 9 percent, respectively. In
December 1998, the Company recorded an $8.8 million after tax charge primarily
due to a non-cash write down of certain oil and natural gas assets. Consolidated
revenues and fuel and purchased power expense increased for the three and twelve
months ended March 31, 1999 primarily due to oil and natural gas purchases and
sales from the energy marketing operations.
Consolidated revenue and income from continuing operations provided by the
Company's businesses as a percentage of the total were as follows:
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
Revenues
Electric 24% 34% 23% 52% 23% 56%
Coal mining 6 8 6 13 6 14
Oil and gas 2 3 2 6 2 6
Energy marketing 68 55 69 29 69 24
100% 100% 100% 100% 100% 100%
Net Income/(Loss)
Electric 74% 71% 72% 66% 73% 64%
Coal mining 28 27 29 29 28 30
Oil and gas 2 4 3 7 4 8
Energy marketing
and Other (4) (2) (4) (2) (5) (2)
100% 100% 100% 100% 100% 100%
Capital expenditures and depreciation, depletion, and
amortization by business segment were as follows (in thousands):
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
Capital Expenditures
(includes AFDC)
Electric $2,267 $3,168 $7,569 $7,879 $12,272 $12,036
Coal mining 167 100 686 1,545 647 2,298
Oil and gas 3,288 2,887 7,766 5,993 9,235 10,743
Energy
marketing 22 6,810 112 6,810 258 6,810
Other 191 191 61 126 127 326
$5,935 $13,156 $16,194 $22,353 $22,539 $32,213
Depreciation, Depletion,
and Amortization
Electric $3,797 $3,321 $11,392 $10,963 $15,037 $15,171
Coal mining 859 878 2,564 2,427 3,325 3,434
Oil and gas 1,292 1,142 4,075 3,243 5,107 3,493
Energy
marketing 145 98 432 98 575 98
$6,093 $5,439 $18,463 $16,731 $24,044 $22,196
Electric Operations
Electric revenues increased 5 percent, 2 percent and 3
percent for the three, nine and twelve months ended September 30,
1998. Firm kilowatthour sales increased 3 percent for the three
month period primarily due to increased residential, commercial
and wholesale sales, were stable for the nine month period and
increased 2 percent for the twelve month period due to serving
the Montana-Dakota Utilities, Sheridan, Wyoming load beginning
January 1, 1997. Industrial sales for the three month, nine
month and twelve month periods declined primarily due to
Homestake Mining Company. Our low-cost generation allowed the
Company to recapture a portion of the margin loss from Homestake
in the spot energy market. Such spot energy sales result from
additional physical energy available to sell from existing
sources.
Electric expenses decreased 3 percent, 5 percent and 5
percent for the three months, nine months, and twelve months
ended September 30, 1998 due to continued cost containment and
lower purchased power and fuel costs. For the twelve months
ended September 30, 1998, such cost containment and lower
purchased power and fuel costs partially offset additional cost
associated with serving the Sheridan, Wyoming load.
Mining Operations
Mining earnings increased $370,000, $579,000 and $118,000 for
the three month, nine month and twelve month periods ended
September 30, 1998, primarily due to increased non-operating
income and continued cost management. Tons of coal sold were
relatively flat for the three months, nine months and twelve
months ended September 30, 1998 as compared to the prior periods.
Oil and Gas Production Operations
Oil and gas earnings decreased $171,000, $876,000 and
$1,386,000 for the three months, nine months and twelve months
ended September 30, 1998 primarily as a result of decreased
commodity prices partially offset by production increases.
Average oil prices decreased 34 percent, 33 percent and 30
percent and average gas prices decreased 9 percent, 15 percent
and 6 percent for the three months, nine months and twelve months
ended September 30, 1998, respectively. Production increased 30
percent, 17 percent and 14 percent for the three month, nine
month and twelve month periods, respectively.
Energy Marketing Operations
Energy marketing revenues and related fuel and purchased
power expenses represents the crude oil and natural gas purchases
and sales of Black Hills Energy Resources, Inc. which was
acquired on July 25, 1997. Crude oil and natural gas wholesale
marketing operations are high-volume, low margin operations.
Mild weather in the East Coast and Midwest markets served and
high storage levels through the winter depressed margins for the
nine month and twelve month periods. Black Hills Energy
Resources marketed 343,000 mmbtus and 22,700 barrels of oil per
day for the three month period ended September 30, 1998, 331,000
mmbtus and 18,100 barrels of oil per day for the nine month
period and 302,000 mmbtus and 16,800 barrels of oil per day for
the twelve month period. At September 30, 1998, Energy
Marketing activities have occurred in crude oil and natural gas
sales and have not included electricity.
Accounting Pronouncements
FASB Statement No. 131 Disclosures about Segments of an
Enterprise and Related Information requires that a publicly-held
company report financial and descriptive information about its
operating segments in financial statements issued to shareholders
for interim and annual periods. The Statement also requires
additional disclosures with respect to products and services,
geographic areas of operation, and major customers. The Company
has historically presented segment information in the
consolidated financial statements and related notes and as such
does not expect adoption of the disclosures requirements of this
pronouncement will have a material impact on its financial
statements. The Company will adopt this Statement in the fourth
quarter of 1998.
FASB Statement No. 132 Employers Disclosures about
Pensions and Other Postretirement Benefits - an amendment of FASB
Statements No. 87, 88, and 106 requires revised disclosures
about pension and other postretirement benefit plans. The
Company does not expect that adoption of the disclosure
requirements of this pronouncement will have a material impact on
its financial statements. The Company will adopt this Statement
in the fourth quarter of 1998.
In March, 1998, the Accounting Standards Executive Committee
issued Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The
Statement is effective for fiscal years beginning after December
15, 1998. Earlier application is encouraged in fiscal years for
which annual financial statements have not been issued. The
statement defines which costs of computer software developed or
obtained for internal use are capitalized and which costs are
expensed. The Company has not yet determined when they will
adopt the new Statement. The effect of adoption is not expected
to materially affect the Companys 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 Companys 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
derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivatives 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
What is referred to as the Year 2000 problem (Year 2000
problem) is the result of computer programs being written using
two digits rather than four to define the applicable year. Any
of the Companys computer systems and products that have date-
sensitive software may recognize a date using 00 as the Year
1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities. Management has formed a Year 2000 Committee to
establish and ensure the Companys compliance with what is
commonly known as the Year 2000 problem. In addition,
consultants may be engaged to assist with a comprehensive review
of the Companys state of readiness and to assist with any
necessary remedial plans for the Year 2000 date change. The
Companys review encompassed supporting information technology
systems, product generation and distribution systems, and
business supply chain systems and infrastructure. Management
presently believes that with modifications to the CompanYs
existing software and conversions to new software, the Year 2000
problem can be mitigated. However, if such modifications and
conversions are not made, or are not completed on a timely basis,
the Year 2000 problem could have a material adverse effect on the
Companys business, financial condition and results of
operations. Management further believes that the cost of either
repairing or replacing certain business systems to ensure
business continuance beyond Year 2000 should not have a
significant impact on the results of operations. The cost of the
Year 2000 project is currently estimated at less than $1 million
and is being funded through operating cash flows. These costs
are primarily attributable to the purchase of new software and
equipment which will be expensed or capitalized on a basis
consistent with the Companys accounting policies for capital
assets. Other than seeking representations and assurances, the
Company has not made an assessment as to whether any of its
customers, suppliers or service providers will be affected by the
date change. The Companys business, financial condition and
results of operations may be adversely impacted should the
efforts of customers, suppliers or service providers for the
Company to address the Year 2000 issue prove to be inadequate.
The Companys risk management program includes emergency backup
and recovery procedures to be followed in the event of failure of
a business-critical system. These procedures will be expanded to
include specific procedures for potential Year 2000 issues.
Contingency plans to protect the business from Year 2000-related
interruptions are being developed. These plans will be complete
by JuneThree Months Ended Twelve Months Ended
March 31 March 31
1999 and will include, for example, development of backup
procedures, identification of alternate suppliers and possible
increases in safety inventory levels.
Forward Looking Statements
The above information includes forward-looking statements
that are subject to certain risks, uncertainties and assumptions.
Although management believes that its expectations are based on
reasonable assumptions, it can give no assurances that its goals
will be achieved. Actual results may differ materially from
managements expectations as a result of a variety of factors
including, but not necessarily limited to, technological
changes, regulation, market conditions and marketing success,
general economic conditions, and a changing competitive
environment.
BLACK HILLS CORPORATION
Part II - Other Information
Item 1. Legal Proceedings
There are no legal proceedings to be reported on for the
quarter ending September 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
On September 28, 1998, the Registrant filed a Form 8-
K announcing that it will build a telecommunications
fiber optic network to serve the growing needs of
Rapid City and the Northern Black Hills of South
Dakota.
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: November 12, 1998
1999 1998
---- ---- ---- ----
Revenues
Electric .............. 20% 21% 19% 30%
Coal mining ........... 5 5 4 7
Oil and gas ........... 2 2 2 3
Energy marketing ...... 73 72 75 60
---- ---- ---- ----
100% 100% 100% 100%
Net Income/(Loss)
Electric .............. 76% 75% 72% 71%
Coal mining ........... 26 28 27 28
Oil and gas ........... 3 2 3* 5
Energy marketing ...... (3) (7) -- (4)
Communication and other (2) 2 (2) --
---- ---- ---- ----
100% 100% 100% 100%
*Excludes $8.8 million (net-of-tax) write down of certain oil and natural gas
properties
Capital expenditures and depreciation, depletion, and amortization by
business segment were as follows (in thousands):
Three Months Ended Twelve Months Ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
Capital Expenditures
(includes AFDC)
Electric ............... $ 2,104 $ 2,162 $ 11,930 $ 13,254
Coal mining ............ 1,827 245 3,029 1,546
Oil and gas ............ 5,132 630 14,671 6,699
Energy marketing ....... 38 24 2,399 7,277
Communications and other 6,118 (26) 7,877 134
-------- -------- -------- --------
$ 15,219 $ 3,035 $ 39,906 $ 28,910
Depreciation, Depletion,
and Amortization
Electric ............... $ 3,948 $ 3,797 $ 15,032 $ 14,584
Coal mining ............ 869 855 3,266 3,282
Oil and gas ............ 856 1,342 4,729 4,606
Oil and gas ceilings
test write down ...... -- -- 13,546 --
Energy marketing ....... 221 151 759 385
Communications and other 21 -- 93 --
-------- -------- -------- --------
$ 5,915 $ 6,145 $ 37,425 $ 22,857
Electric Operations
Electric revenues increased 3 percent for the three and twelve month
periods ending March 31, 1999, despite milder weather. Degree days, a measure of
weather trends, were 11 percent and 5 percent lower for the three and twelve
month periods as compared to the prior periods. Total kilowatthour sales
increased 6 percent and 12 percent for the three and twelve month period due to
increased residential, commercial and non-firm sales partially offset by
decreased industrial sales. In addition, our low-cost generation allowed the
Company to recapture a portion of the decline in industrial sales in the spot
energy market.
Electric expenses were stable for the three and twelve months ended March
31, 1999 due to continued cost containment and lower purchased power and fuel
costs offset by increased taxes other than income.
Mining Operations
Mining earnings were stable and increased 6% the three and twelve month
periods ending March 31, 1999. Earnings increased $513,000 for the twelve month
period in part due to increased revenue, lower operating costs and increased
interest income. Tons of coal sold increased slightly compared to the prior
year.
Oil and Gas Production Operations
Earnings from oil and gas operations increased $81,000 for the three
months and decreased $691,000 (excluding a write-down of certain assets) for the
twelve months ended March 31, 1999, as compared to 1998. Increased earnings were
primarily due to increased oil and natural gas production and lower depletion
expense partially offset by lower commodity prices for the three month period.
Production increased 23 percent and 20 percent for the three and twelve month
periods. Oil and natural gas prices decreased 26 percent and 17 percent,
respectively, for the three months ended March 31, 1999 and 33 percent and 15
percent, respectively for the twelve month period.
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.
Energy Marketing Operations
Energy marketing revenue increased in the three months and twelve months
ended March 31, 1999 due to increased natural gas, crude oil and coal sales.
Although energy marketing earnings were negative in the three and twelve month
periods, the negative earnings improved $304,000 and $1,428,000, respectively
for the three and twelve months ended March 31, 1999. The increase was primarily
due to increased volumes and margins in the natural gas, crude oil and coal
marketing areas in targeted markets in the first quarter of 1999 and fourth
quarter of 1998.
Crude oil and natural gas wholesale marketing operations are high-volume,
low margin operations. The operations marketed 518,700 mmbtus and 20,000 barrels
of oil per day in the three month period ended March 31, 1999 and 306,700 mmbtus
and 14,900 barrels of oil per day for the three month period ended March 31,
1998. For the twelve month period ending March 31, 1999, 507,400 mmbtus and
20,300 barrels of oil per day were marketed as compared to 258,900 mmbtus and
13,400 barrels of oil per day were marketed since the Company acquired Black
Hills Energy Resources in July 1997.
Communications Operations
Build out of the Black Hills FiberCom network continues and the first
customers are expected to be served later this summer. Start up losses did not
significantly impact earnings and were in line with management's expectations.
Year 2000 Issues
What is referred to as the Year 2000 problem ("Year 2000 problem") is the
result of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's computer systems and products
that have date-sensitive software may recognize a date using "00" as the Year
1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Management has formed a Year 2000
Committee to establish and ensure the Company's compliance with what is commonly
known as the "Year 2000 problem". In addition, consultants may be engaged to
assist with a comprehensive review of the Company's state of readiness and to
assist with any necessary remedial plans for the Year 2000 date change. The
Company's review encompassed supporting information technology systems, product
generation and distribution systems, and business supply chain systems and
infrastructure. Management presently believes that with modifications to the
Company's existing software and conversions to new software, the Year 2000
problem can be mitigated. However, if such modifications and conversions are not
made, or are not completed on a timely basis, the Year 2000 problem could have a
material adverse effect on the Company's business, financial condition and
results of operations. Management further believes that the cost of either
repairing or replacing certain business systems to ensure business continuance
beyond Year 2000 should not have a significant impact on the results of
operations. The cost of the Year 2000 project is currently estimated at less
than $1 million and is being funded through operating cash flows. These costs
are primarily attributable to the purchase of new software and equipment which
will be expensed or capitalized on a basis consistent with the Company's
accounting policies for capital assets. Other than seeking representations and
assurances, the Company has not made an assessment as to whether any of its
customers, suppliers or service providers will be affected by the date change.
The Company's business, financial condition and results of operations may be
adversely impacted should the efforts of customers, suppliers or service
providers for the Company to address the Year 2000 issue prove to be inadequate.
The Company's risk management program includes emergency backup and recovery
procedures to be followed in the event of failure of a business-critical system.
These procedures will be expanded to include specific procedures for potential
Year 2000 issues. Contingency plans to protect the business from Year
2000-related interruptions are being developed. These plans will be complete by
June 1999 and will include, for example, development of backup procedures,
identification of alternate suppliers and possible increases in safety inventory
levels.
Forward Looking Statements
The above information includes forward-looking statements that are subject
to certain risks, uncertainties and assumptions. Although management believes
that its expectations are based on reasonable assumptions, it can give no
assurances that its goals will be achieved. Actual results may differ materially
from management's expectations as a result of a variety of factors including,
but not necessarily limited to, technological changes, regulation, market
conditions and marketing success, general economic conditions, and a changing
competitive environment.
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, 1999.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
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