-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cwfw4IMbdC9WmYQxhtIYbo8SpvJ/BLyzj+C5+dRrP+GH+jQqxinbG38oqQVHzWxP JriMFGDBd8/rnpYJTPXf7w== 0000012400-98-000006.txt : 19980817 0000012400-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000012400-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACK HILLS CORP CENTRAL INDEX KEY: 0000012400 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 460111677 STATE OF INCORPORATION: SD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07978 FILM NUMBER: 98687020 BUSINESS ADDRESS: STREET 1: 625 NINTH ST STREET 2: PO BOX 1400 CITY: RAPID CITY STATE: SD ZIP: 57709 BUSINESS PHONE: 6053481700 MAIL ADDRESS: STREET 1: P O BOX 1400 CITY: RAPID CITY STATE: SD ZIP: 57709 FORMER COMPANY: FORMER CONFORMED NAME: BLACK HILLS POWER & LIGHT CO DATE OF NAME CHANGE: 19860409 10-Q 1 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 June 30, 1998. OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from _______________ to _______________. Commission File Number 1-7978 Black Hills Corporation Incorporated in South Dakota IRS Identification Number 46-0111677 625 Ninth Street Rapid City, South Dakota 57709 Registrant's telephone number (605)-348-1700 Former name, former address, and former fiscal year if changed since last report NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the last practicable date. Class Outstanding at July 31, 1998 Common stock, $1.00 par value 21,580,506 shares BLACK HILLS CORPORATION I N D E X Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets- 3-4 June 30, 1998, December 31, 1997 and June 30, 1997 Consolidated Statements of Income- 5 Three, Six and Twelve Months Ended June 30, 1998 and 1997 Consolidated Statements of Cash Flows- 6 Three, Six and Twelve Months Ended June 30, 1998 and 1997 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of 10-14 Financial Position and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15-16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 BLACK HILLS CORPORATION Consolidated Balance Sheets
Unaudited Unaudited June 30 December 31 June 30 1998 1997 1997 (in thousands) ASSETS Current assets: Cash and cash equivalents $ 13,080 $ 16,774 $14,204 Securities available for sale 23,429 13,969 18,211 Receivables, net Customers 52,806 39,639 11,636 Other 3,377 3,414 2,652 Materials, supplies, and fuel 8,163 8,642 7,834 Prepaid expenses 1,631 1,571 688 102,486 84,009 55,225 Property and investments: Electric 491,827 487,424 493,372 Coal mining 53,315 52,804 52,838 Oil and gas 56,891 52,412 49,291 Other 6,459 5,666 4,301 608,492 598,306 599,802 Less accumulated depreciation and depletion (208,350) (197,179) (200,189) Net property and investments 400,142 401,127 399,613 Other assets: Federal income taxes 8,055 8,061 8,110 Regulatory asset 4,042 3,776 3,476 Other 12,183 11,768 4,931 24,280 23,605 16,517 Total $526,908 $508,741 $471,355
See accompanying notes to consolidated financial statements. BLACK HILLS CORPORATION Consolidated Balance Sheets
Unaudited Unaudited June 30 December 31 June 30 1998 1997 1997 (in thousands) LIABILITIES AND CAPITALIZATION Current liabilities: Current maturities of long-term debt $ 1,330 $ 1,331 $ 1,310 Notes payable 12 23 23 Accounts payable 48,632 32,622 5,397 Accrued liabilities- Taxes 8,193 8,040 7,509 Interest 3,962 3,991 4,003 Other 7,220 7,800 6,986 69,349 53,807 25,228 Deferred credits: Federal income taxes 54,216 53,010 49,995 Investment tax credits 3,764 4,014 4,265 Reclamation costs 17,012 16,664 16,614 Regulatory liability 5,909 6,152 6,485 Other 6,627 6,331 6,111 87,528 86,171 83,470 Capitalization: Common stock equity- Common stock 21,714 21,705 14,461 Additional paid-in capital 40,189 39,995 47,065 Retained earnings 148,884 143,703 136,967 Treasury stock (3,300) - - Total common stock equity 207,487 205,403 198,493 Long-term debt 162,544 163,360 164,164 370,031 368,763 362,657 Total $526,908 $508,741 $471,355 See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION Consolidated Statements of Income (unaudited)
Three Months Six Months TwelveMonths June 30 June 30 June 30 1998 1997 1998 1997 1998 1997 (in thousands, except per share amounts) Operating revenues: Electric $ 29,839 $ 29,347 $ 61,829 $ 61,381 $126,945 $122,815 Coal mining 7,847 7,703 15,771 15,828 31,023 31,657 Oil and gas 3,291 3,209 6,477 6,929 12,843 13,366 Energy marketing 100,544 - 188,500 - 331,291 - 141,521 40,259 272,577 84,138 502,102 167,838 Operating expenses: Fuel and purchased power 107,357 8,816 203,048 18,282 362,150 35,731 Operations and maintenance 7,809 7,524 16,055 15,086 32,709 30,734 Administrative and general 3,359 2,264 6,150 4,542 12,945 8,682 Depreciation, depletion, and amortization 6,231 5,699 12,369 11,293 23,383 22,685 Taxes, other than income taxes 3,061 3,062 6,279 6,334 11,931 12,480 127,817 27,365 243,901 55,537 443,118 110,312 Operating income (loss): Electric 10,743 9,078 23,057 20,286 47,383 41,146 Coal mining 3,109 3,103 6,305 6,533 11,989 12,468 Oil and gas 420 713 692 1,782 1,818 3,912 Energy marketing (568) - (1,378) - (2,206) - 13,704 12,894 28,676 28,601 58,984 57,526 Other income and (expense): Interest expense (3,614) (3,465) (7,203) (6,946) (14,380) (13,958) Investment income 709 459 1,306 829 2,612 1,620 Allowance for funds used during construction 65 43 94 109 174 209 Other, net 160 (32) 436 (215) 223 883 (2,680) (2,995) (5,367) (6,223) (11,371) (11,246) Income before income taxes 11,024 9,899 23,309 22,378 47,613 46,280 Income taxes (3,509) (3,137) (7,250) (7,028) (14,546) (14,565) Net income available for common stock $ 7,515 $ 6,762 $16,059 $15,350 $33,067 $31,715 Weighted average common shares outstanding 21,633 21,687 21,671 21,684 21,685 21,677 Earnings per share (basic and diluted) $0.35 $0.31 $0.74 $0.71 $1.52 $1.46 Dividends paid per share of common stock $0.250 $0.237 $0.500 $0.473 $.974 $0.934 See accompanying notes to consolidated financial statements.
BLACK HILLS CORPORATION Consolidated Statements of Cash Flows (unaudited)
Three Months Six Months Twelve Months June 30 June 30 June 30 1998 1997 1998 1997 1998 1997 (in thousands) Operating activities: Net income $ 7,515 $ 6,762 $16,059 $15,350 $33,067 $31,715 Principal non-cash items- Depreciation, depletion, and amortization 6,231 5,699 12,369 11,293 23,383 22,685 Deferred income taxes and investment tax credits 227 247 472 829 2,100 1,947 Allowance for other funds used during construction (39) (23) (57) (58) (97) (90) (Increase) decrease in receivables, inventories, and other current assets 4,967 1,635 (12,711) 3,389 (43,167) 4,202 Increase (decrease) in other current liabilities (6,098) (3,240) 15,554 (2,544) 44,112 4,590 Other, net 245 1,294 (794) (440) (769) 1,402 13,048 12,374 30,892 27,819 58,629 66,451 Investing activities: Property additions, excluding allowance for other funds used during construction (7,673) (8,022) (10,323) (9,299) (21,619) (26,240) Available for sale securities sold 7,343 3,638 11,223 5,979 23,494 36,057 Available for sale securities purchased (11,459) (6,579) (20,683) (12,732) (28,712) (43,670) Energy marketing assets - - - - (7,232) - (11,789) (10,963) (19,783) (16,052) (34,069) (33,853) Financing activities: Dividends paid (5,430) (5,134) (10,878) (10,267) (21,150) (20,236) Common stock acquire (3,300) - (3,300) - (3,300) - Common stock issued 48 96 203 235 377 443 Net short-term borrowings - - (11) (120) (11) (1,055) Long-term debt retired (290) - (817) (751) (1,600) (1,313) (8,972) (5,038) (14,803) (10,903) (25,684) (22,161) Increase (decrease) in cash and cash equivalents (7,713) (3,627) (3,694) 864 (1,124) 10,437 Cash and cash equivalents: Beginning of period 20,793 17,831 16,774 13,340 14,204 3,767 End of period $13,080 $14,204 $13,080 $14,204 $13,080 $14,204 Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 2,640 $ 2,458 $ 7,232 $ 6,961 $14,421 $13,991 Income taxes $ 3,800 $ 6,500 $ 5,800 $ 6,500 $11,140 $12,366 Assumption of Clovis Point reclamation liability $ - $ - $ - $ - $ - $ 7,957
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 Company's Annual Report and Form 10-K) (1) MANAGEMENT'S STATEMENT The financial statements included herein have been prepared by Black Hills Corporation (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the footnotes adequately disclose the information presented. These financial statements should be read in conjunction with the financial statements and the notes thereto, included in the Company's 1997 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Accounting methods historically employed require certain estimates as of interim dates. The information furnished in the accompanying financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the June 30, 1998, December 31, 1997 and June 30, 1997, financial information and are of a normal recurring nature. The results of operations for the three, six and twelve months ended June 30, 1998, are not necessarily indicative of the results to be expected for the full fiscal year. (2) CAPITAL STOCK In January, 1998, the Board of Directors declared a 3-for-2 Common Stock Split effected in the form of a stock dividend. The stock dividend was distributed March 10, 1998 to shareholders of record on February 13, 1998. The common stock share and per share information in the accompanying consolidated financial statements and notes have been restated to reflect the stock distribution. In April 1998, the Board of Directors authorized the acquisition of up to 300,000 shares of the Company's Common Stock on the open market to fund possible future acquisitions and for other corporate purposes. At June 30, 1998, the Company has acquired 147,400 shares for such purposes and is reflected as treasury stock on the accompanying consolidated balance sheets. (3) NET INCOME PER SHARE The Company adopted the Financial Accounting Standards Board (FASB) Statement No. 128 "Earnings Per Share" in 1997 which requires the presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each year. Diluted earnings per share is computed under the treasury stock method and is calculated to compute the dilutive effect of outstanding stock options. A reconciliation of these amounts is as follows (in thousands, except per share amounts):
Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1998 1997 1998 1997 1998 1997 Net Income $7,515 $ 6,762 $16,059 $15,350 $33,067 $31,715 Weighted average common shares outstanding: Basic 21,633 21,687 21,671 21,684 21,685 21,677 Dilutive effect of option plan 29 10 30 9 18 5 Diluted 21,662 21,697 21,701 21,693 21,703 21,682 Earnings per share (Basic and Diluted): $0.35 $0.31 $0.74 $0.71 $1.52 $1.46
(4) COMPREHENSIVE INCOME The Company adopted FASB Statement No. 130, "Reporting Comprehensive Income", effective January 1, 1998. Statement No. 130 establishes standards for reporting and display of comprehensive earnings and its components in financial statements; however, the adoption of this Statement had no impact on the Company's net earnings or shareholders' equity. Statement No. 130 requires minimum pension liability adjustments, unrealized gains or losses on the Company's available-for- sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive earnings. There were no material differences between net earnings and comprehensive earnings for any periods presented in the accompanying financial statements. (5) ACCOUNTING PRONOUNCEMENTS FASB Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information" requires that a publicly-held company report financial and descriptive information about its operating segments in financial statements issued to shareholders for interim and annual periods. The Statement also requires additional disclosures with respect to products and services, geographic areas of operation, and major customers. The Company has historically presented segment information in the consolidated financial statements and related notes and as such does not expect adoption of the disclosures requirements of this pronouncement will have a material impact on its financial statements. The Company will adopt this Statement in the fourth quarter of 1998. FASB Statement No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106" requires revised disclosures about pension and other postretirement benefit plans. The Company does not expect that adoption of the disclosure requirements of this pronouncement will have a material impact on its financial statements. The Company will adopt this Statement in the fourth quarter of 1998. In March, 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The Statement is effective for fiscal years beginning after December 15, 1998. Earlier application is encouraged in fiscal years for which annual financial statements have not been issued. The statement defines which costs of computer software developed or obtained for internal use are capitalized and which costs are expense. The Company has not yet determined when they will adopt the new Statement. The effect of adoption is not expected to materially affect the Company's financial position or results of operations. In May 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." The Statement is effective for fiscal years beginning after December 15, 1998. The Statement defines one-time start up costs and requires such costs to be expensed as incurred. The Company has not yet determined when they will adopt the new statement. The effect of adoption is not expected to materially affect the Company's financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement 133 is effective for fiscal years beginning after June 15, 1999. The Company has not yet quantified the impacts of adopting Statement 133 on its financial statements and has not determined the timing of adoption of Statement 133. However, the Statement could increase volatility in earnings and other comprehensive income. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY, CAPITAL RESOURCES, AND COMMITMENTS In the past the Company has depended upon internally generated funds, issuance of short and long-term debt and sales of common stock to finance its activities. It is expected that future activities will also be financed by the most appropriate mix of these various sources of funds. The Company currently has bank lines of credit totaling $12 million which provide for interim borrowings and the opportunity for timing of permanent financing. The Company had no balances outstanding under these lines of credit on June 30, 1998. There are no compensating balance requirements associated with these lines of credit. In addition to the above lines of credit, Black Hills Energy Resources, Inc. has an uncommitted demand credit facility for up to $65 million. This facility allows $50 million for a transactional line of credit and $15 million overdraft line of credit. This facility is used to support the issuance of letters of credit. At June 30, 1998, Black Hills Energy Resources has approximately $33 million of outstanding letters of credit. In addition to the above lines of credit, Wyodak Resources Development Corp. has guaranteed a $15 million line of credit for Enserco Energy, Inc. to use to guarantee letters of credit. At June 30, 1998, there were no balances outstanding on this line of credit. RESULTS OF OPERATIONS Black Hills Corporation is an energy company consisting of four principal businesses: electric, coal mining, oil and gas production, and crude oil and natural gas marketing. Consolidated net income was $7,515,000, $16,059,000 and $33,067,000 for the three months, six months and twelve months ended June 30, 1998, respectively, representing an increase of 11 percent, 5 percent and 4 percent, respectively. The increase in earnings was primarily due to stable electric sales, lower purchased power expense and strong cost management, partially offset by lower oil and gas commodity prices, mild weather and weak market conditions in the areas served by the energy marketing companies. Consolidated revenues and fuel and purchased power expense increased for the three months, six months and twelve months ended June 30, 1998 primarily due to oil and natural gas purchases and sales from the energy marketing operations. Consolidated revenue and income from continuing operations provided by the four businesses as a percentage of the total were as follows:
Three Months Six Months Twelve Months Ended Ended Ended June 30 June 30 June 30 1998 1997 1998 1997 1998 1997 REVENUES Electric 21% 73% 23% 73% 25% 73% Coal mining 6 19 6 19 6 19 Oil and gas 2 8 2 8 3 8 Energy marketing 71 - 69 - 66 - 100% 100% 100% 100% 100% 100% NET INCOME/(LOSS) Electric 66% 62% 71% 63% 72% 62% Coal mining 33 33 31 31 28 30 Oil and gas 4 7 3 8 4 9 Energy marketing and Other (3) (2) (5) (2) (4) (1) 100% 100% 100% 100% 100% 100%
Capital expenditures and depreciation, depletion, and amortization by business segment were as follows (in thousands):
Three Months Six Months Twelve Months Ended Ended Ended June 30 June 30 June 30 1998 1997 1998 1997 1998 1997 CAPITAL EXPENDITURES (includes AFDC) Electric $3,547 $4,666 $5,302 $4,711 $13,174 $12,734 Coal mining 274 1,335 519 1,445 580 3,367 Oil and gas 3,848 1,981 4,478 3,107 7,600 10,093 Energy marketing - - - - 7,232 - Other 43 63 81 94 362 136 $7,712 $8,045 $10,380 $9,357 $28,948 $26,330 Depreciation, Depletion, and Amortization Electric $3,797 $3,821 $7,595 $7,642 $14,561 $15,942 Coal mining 850 787 1,705 1,549 3,345 3,220 Oil and gas 1,441 1,091 2,783 2,102 4,956 3,523 Energy marketing 143 - 286 - 521 - $6,231 $5,699 $12,369 $11,293 $23,383 $22,685
ELECTRIC OPERATIONS Electric revenues were stable for the three months and six months ended June 30, 1998 and increased 3% for the twelve months ended June 30, 1998. Firm kilowatthour sales decreased 3 percent for the three and six month periods due to milder weather and the Homestake reorganization, and increased 4 percent for the twelve month period due to serving the Montana-Dakota Utilities, Sheridan, Wyoming load beginning January 1, 1997. Industrial sales declined primarily due to Homestake Mining Company. Our low-cost generation allowed the Company to recapture a portion of the margin loss from Homestake in the spot energy market. Such spot energy sales result from additional physical energy available to sell from existing sources. Electric expenses decreased 6 percent, 6 percent and 3 percent for the three months, six months, and twelve months ended June 30, 1998 due to continued cost containment and lower purchased power and fuel costs. For the twelve months ended June 30, 1998, such cost containment and lower purchased power and fuel costs partially offset additional cost associated with serving the Sheridan, Wyoming load. MINING OPERATIONS Mining earnings increased $277,000 and $228,000 for the three and six month periods ended June 30, 1998. Earnings decreased $370,000 for the twelve month period primarily as a result of a gain from the sale and retirement of property recognized in the fourth quarter of 1996. Tons of coal sold were relatively flat for the three months, six months and twelve months ended June 30, 1998 as compared to the prior periods. OIL AND GAS PRODUCTION OPERATIONS Oil and gas earnings decreased $158,000, $704,000 and $1,372,000 for the three months, six months and twelve months ended June 30, 1998 primarily as a result of decreased commodity prices. Average oil prices decreased 18 percent, 33 percent and 25 percent for the three months, six months and twelve months ended June 30, 1998, respectively. Average gas prices increased 1 percent for the three months and decreased 16 percent and 5 percent for the six months and twelve months ended June 30, 1998, respectively. Production increased 14 percent, 11 percent and 5 percent for the three month, six month and twelve month periods, respectively. ENERGY MARKETING OPERATIONS Energy marketing revenues and related fuel and purchased power expenses represents the crude oil and natural gas purchases and sales of Black Hills Energy Resources, Inc. which was acquired on July 25, 1997. Crude oil and natural gas wholesale marketing operations are high-volume, low margin operations. Mild weather in the East Coast and Midwest markets served and high storage levels through the winter depressed margins for the periods. Black Hills Energy Resources marketed 341,000 mmbtus and 16,500 barrels of oil per day for the three month period ended June 30, 1998, 334,000 mmbtus and 15,700 barrels of oil per day for the six month period and 282,100 mmbtus and 14,200 barrels of oil per day since the Company acquired the assets in July 1997. At June 30, 1998, Energy Marketing activities have occurred in crude oil and natural gas sales and have not included electricity. ACCOUNTING PRONOUNCEMENTS FASB Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information" requires that a publicly-held company report financial and descriptive information about its operating segments in financial statements issued to shareholders for interim and annual periods. The Statement also requires additional disclosures with respect to products and services, geographic areas of operation, and major customers. The Company has historically presented segment information in the consolidated financial statements and related notes and as such does not expect adoption of the disclosures requirements of this pronouncement will have a material impact on its financial statements. The Company will adopt this Statement in the fourth quarter of 1998. FASB Statement No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106" requires revised disclosures about pension and other postretirement benefit plans. The Company does not expect that adoption of the disclosure requirements of this pronouncement will have a material impact on its financial statements. The Company will adopt this Statement in the fourth quarter of 1998. In March, 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The Statement is effective for fiscal years beginning after December 15, 1998. Earlier application is encouraged in fiscal years for which annual financial statements have not been issued. The statement defines which costs of computer software developed or obtained for internal use are capital and which costs are expense. The Company has not yet determined when they will adopt the new Statement. The effect of adoption is not expected to materially affect the Company's financial position or results of operations. In May 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." The Statement is effective for fiscal years beginning after December 15, 1998. The Statement defines one-time start up costs and requires such costs to be expensed as incurred. The Company has not yet determined when they will adopt the new statement. The effect of adoption is not expected to materially affect the Company's financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement 133 is effective for fiscal years beginning after June 15, 1999. The Company has not yet quantified the impacts of adopting Statement 133 on its financial statements and has not determined the timing of adoption of Statement 133. However, the Statement could increase volatility in earnings and other comprehensive income. YEAR 2000 ISSUES The Company uses technologies throughout its operations that will be affected by year 2000 issues. During 1997, the Company implemented remediation steps to make the core business systems which are part of the Company's mid-range computer systems year 2000 compliant. The Company also has initiated a company-wide project, to be completed in 1998, to identify and assess year 2000 compliance for all other Company systems and the compliance status of its critical suppliers. The expenses related to year 2000 compliance incurred in 1998 were not material, and the Company believes the amounts that are expected to be expensed in the future for such compliance will not have a material impact on its results of operations. BLACK HILLS CORPORATION Part II - Other Information Item 1. LEGAL PROCEEDINGS There are no legal proceedings to be reported on for the quarter ending June 30, 1998. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Shareholders was held on May 19, 1998. (b) The following Directors were elected to serve until the Annual Meeting of Shareholders in 2001. Adil M. Ameer Everett E. Hoyt Thomas J. Zeller Other Directors whose term of office continues are: Glenn C. Barber Bruce B. Brundage David C. Ebertz John R. Howard Kay S. Jorgensen Daniel P. Landguth (c) Matters Voted Upon at the Meeting 1. Elected three Class III Directors to serve until the Annual Meeting of Shareholders in 2001. Adil M. Ameer Votes For 18,558,695 Votes Withheld 407,313 Everett E. Hoyt Votes For 18,623,474 Votes Withheld 342,534 Thomas J. Zeller Votes For 18,637,100 Votes Withheld 328,908 2. Ratified the appointment of Arthur Andersen LLP to serve as independent auditors of the Company Votes For 18,776,750 Votes Against 66,516 Abstain 122,742 Broker Non-Votes -0- Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS None b. REPORTS ON FORM 8-K None BLACK HILLS CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BLACK HILLS CORPORATION /S/ ROXANN R. BASHAM Roxann R. Basham, Vice President - Finance (Principal Financial Officer) /S/ MARK T. THIES Mark T. Thies, Controller (Principal Accounting Officer) Dated: August 14, 1998 -----END PRIVACY-ENHANCED MESSAGE-----