-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GkJimKWo+J9q0rE2C2aEseZ3yMbIujrrJ2L+3NsZDg2VflaG0D8i+9mKwtUTHGVJ V0fqg+PikIe9Vzzb6O5rIw== 0000074154-95-000016.txt : 19950414 0000074154-95-000016.hdr.sgml : 19950414 ACCESSION NUMBER: 0000074154-95-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950410 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ONEOK INC CENTRAL INDEX KEY: 0000074154 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 730383100 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02572 FILM NUMBER: 95527996 BUSINESS ADDRESS: STREET 1: 100 W FIFTH ST CITY: TULSA STATE: OK ZIP: 74103 BUSINESS PHONE: 9185887000 FORMER COMPANY: FORMER CONFORMED NAME: OKLAHOMA NATURAL GAS CO DATE OF NAME CHANGE: 19810111 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1995 COMMISSION FILE NO. 1-2572 ONEOK Inc. 100 West Fifth Street, Tulsa, OK 74103 (918) 588-7000 INCORPORATED IN IRS EMPLOYER DELAWARE IDENTIFICATION NO. 73-0383100 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 The number of common shares outstanding of the registrant was 27,020,004 as of February 28, 1995. Page 1 of 19 TABLE OF CONTENTS Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Earnings - Three Months and Six Months Ended February 28, 1995 and 1994 3 Consolidated Condensed Balance Sheets - February 28, 1995, and August 31, 1994 4 Consolidated Condensed Statements of Cash Flows - Six Months Ended February 28, 1995 and 1994 5 Notes to Consolidated Condensed Financial Statements 6- 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16-17 Item 4. Submission of Matters to a Vote of Security Holders 17-18 Item 6. Exhibits and Reports on Form 8-K 18 Part I. FINANCIAL INFORMATION Item 1. Financial Statements ONEOK Inc. CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (UNAUDITED) 3 Months Ended 6 Months Ended February 28, February 28, 1995 1994 1995 1994 OPERATING REVENUES Distribution and transmission $245,335 $250,643 $371,788 $386,618 Exploration and production 6,601 6,421 11,752 13,095 Gas processing 32,381 25,274 56,036 54,804 Other 3,041 13,106 14,050 18,118 Total operating revenues 287,358 295,444 453,626 472,635 OPERATING EXPENSES Gas purchase expense 163,464 179,892 245,634 267,116 Operations 47,297 44,184 90,972 93,479 Maintenance 1,784 1,579 3,542 3,297 Depreciation, depletion, and amortization 13,305 12,993 25,158 26,052 Income taxes 17,810 16,518 22,645 21,312 Other taxes 5,571 4,896 10,476 9,405 Total operating expense 249,231 260,062 398,427 420,661 Operating income 38,127 35,382 55,199 51,974 Net interest 9,840 8,995 19,124 17,775 Net income 28,287 26,387 36,075 34,199 Preferred stock dividend requirement 107 107 214 214 Earnings available for common stock $ 28,180 $ 26,280 $ 35,861 $ 33,985 Earnings per common share $1.05 $.98 $1.34 $1.27 Dividends per common share $.28 $.28 $.56 $.55 Weighted average common shares outstanding (thousands) 26,712 26,681 26,701 26,657 See accompanying notes to consolidated condensed financial statements. ONEOK Inc. CONSOLIDATED CONDENSED BALANCE SHEETS (THOUSANDS OF DOLLARS) (UNAUDITED) Feb. 28, Aug. 31, 1995 1994 ASSETS Property and equipment $1,257,578 $1,217,739 Less accumulated depreciation, depletion, and amortization 500,002 480,288 Net property and equipment 757,576 737,451 Current assets: Cash and cash equivalents 14,933 4,545 Accounts receivable 164,401 51,029 Inventories 81,403 94,454 Purchased gas cost adjustment 5,100 11,809 Other current assets 11,013 7,416 Total current assets 276,850 169,253 Deferred debits and other assets: Take-or-pay 108,240 107,491 Other 122,189 122,805 Total deferred debits and other assets 230,429 230,296 $1,264,855 $1,137,000 LIABILITIES AND SHAREHOLDERS' EQUITY Common shareholders' equity: Common stock $ 201,404 $ 195,568 Retained earnings 195,842 174,926 Total common shareholders' equity 397,246 370,494 Preferred stock 9,000 9,000 Total shareholders' equity 406,246 379,494 Long-term debt, excluding current maturities 362,849 362,897 Current liabilities: Current maturities of long-term debt 14,050 14,050 Notes payable 75,000 50,000 Accounts payable 94,307 44,238 Accrued income taxes 11,099 - Accrued general taxes 13,730 9,845 Accrued liabilities 29,579 20,140 Customers' deposits 7,325 6,413 Deferred taxes 1,808 3,822 Total current liabilities 246,898 148,508 Deferred credits: Deferred income taxes 196,364 197,156 Other 52,498 48,945 Total deferred credits 248,862 246,101 $1,264,855 $1,137,000 See accompanying notes to consolidated condensed financial statements. ONEOK Inc. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED) 6 Months Ended Feb. 28, 1995 1994 OPERATING ACTIVITIES Net income $ 36,075 $ 34,199 Amortization of take-or-pay deferrals 2,225 - Depreciation, depletion, and amortization 25,158 26,052 Nonproductive well drilling 132 866 Net losses of equity investees 746 540 Net gain on sale of property - (2,053) Deferred income taxes (2,886) 1,282 Changes in assets and liabilities (15,777) (2,042) Net cash provided by operating activities 45,673 58,844 INVESTING ACTIVITIES (Increase) decrease in investments, net 337 (1,637) Capital expenditures (48,799) (38,276) Proceeds from salvage, net of removal costs 3,384 1,672 Net cash used in investing activities (45,078) (38,241) FINANCING ACTIVITIES Principal payments on long-term debt (48) - Increase (decrease) in notes payable, net 25,000 (2,000) Dividends paid (15,159) (14,878) Net cash provided by (used in) financing activities 9,793 (16,878) Change in cash and cash equivalents 10,388 3,725 Cash and cash equiv. beginning of period 4,545 9,667 Cash and cash equiv. end of period $ 14,933 $ 13,392 SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $18,231 $17,470 Income taxes $12,482 $ 9,122 Noncash transactions: Gas received as payment-in-kind $52,130 $32,533 Stock Performance Plan $ - $ 1,203 Issuance of common stock $ 5,836 $ - See accompanying notes to consolidated condensed financial statements. ONEOK Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Note 1. General. The interim consolidated condensed financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Note 2. Rate Regulation. On December 30, 1994, the Company filed an application for a general rate increase with the Oklahoma Corporation Commission. The request is for an increase of $36.4 million, a return on equity of 13.2 percent, and an overall return of 10.977 percent. The Company is also seeking approval to restructure the method in which it handles revenues from its largest customers and for the implementation of incentive ratemaking and weather normalization plans. Under the incentive ratemaking plan, the Company would be allowed limited rate adjustments, and in turn, would agree not to seek a general rate increase for three years. Hearings before an administrative law judge are scheduled to begin on May 30, 1995. Note 3. Other Commission Matters. On March 31, 1995, the Oklahoma Corporation Commission Staff filed two applications with the Oklahoma Corporation Commission. The first application involves the Company's Purchased Gas Adjustment Clause ("PGA Clause") requesting a hearing to determine the appropriateness of the PGA Clause and requesting that the Clause be amended. The Staff also requested that all collections pursuant to the most recent filing (March 29, 1995) be placed under bond and subject to refund. The second application requests that the Company's Payment in Kind Program ("PIK") be modified to set the PIK Rate at the rate used in the Company's last rate case ($2.68 per Mcf), adjusted for heat content, with adjustment allowed for increases in the PIK customers' cost above the contract price cap. Alternatively, the Staff requests that the revenue received by the Company under PIK be made interim, under bond, and subject to refund. Any change in the Company's PGA Clause that would not allow the Company to immediately pass through the full cost of increases in the gas purchase costs of the Company to its customers and any change in the PIK that would result in a reduction of revenues received by the Company would have an adverse effect on the Company's cash flow and earnings. The amount of such effect is not presently determinable. Note 4. Other Assets. Through TransTex Pipeline Company (TransTex), a subsidiary, the Company is a 25 percent partner in Red River Pipeline (Red River), which operates in Texas. The Company has agreed to advance cash to Red River, limited to its proportionate share, for operating expenses and for debt sinking fund payments when cash deficiencies occur. The Company has made such cash advances in each of the last three years. During 1993, long-term debt was refinanced, the system was modified to allow bidirectional flow, and the method of allocating transportation revenue was changed to credit revenues to the partner responsible for the throughput. Subsequently, TransTex has entered into a one-year limited agency agreement with a third party for shipping gas on Red River, which may generate additional revenue for TransTex during the 1995 fiscal year. If the system does not improve cash flow as a result of these or other changes, the Company may not be able to fully recover its investment. The amount of such effect is not presently determinable. The Company is a party to an agreement between Columbia Gulf Transmission, Tennessee Gas Pipeline Company, USX Corporation, and ONEOK Inc. (Sellers) and NGC Energy Resources (Buyer), pursuant to which the Sellers have agreed to sell Ozark Gas Transmission System (Ozark System) to the Buyer. The Sellers directly or indirectly own the Ozark System. ONEOK Inc., through its wholly owned subsidiary, Caney River Transmission Company, is a 25 percent partner in the Ozark System. The closing of the transaction is anticipated on or about May 1, 1995. Recently, the remaining long-term notes were called. It is anticipated that the funds generated from certain exit agreements and from the sale of the Ozark System will retire the notes and allow the Company to fully recover its investment in the Ozark System. Through the issuance of 330,000 shares of previously unissued shares of ONEOK Inc. common stock, ONEOK Gas Marketing Company recently acquired through a merger transaction the remaining interest in a partnership which markets natural gas. The partnership had been moving approximately 400 to 450 million cubic feet per day of natural gas, primarily out of Oklahoma. The Company intends to continue the gas marketing business. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ONEOK Inc. and its subsidiaries (the Company) engage in natural gas distribution, transmission, gathering, and storage operations; oil and gas energy operations; and certain other operations, as described below. Distribution and Transmission. Oklahoma Natural Gas Company purchases, distributes, and sells natural gas and leases pipeline capacity. ONG Transmission Company and four subsidiaries gather, compress, transport, and store natural gas for intrastate distribution, transport gas in interstate commerce, and lease pipeline capacity. In addition, two subsidiaries own interests in partnerships that operate natural gas transmission systems. The Company is in the process of reorganizing and consolidating its gathering and transmission operations into two separate subsidiaries. Distribution operations will remain in the parent corporation. Exploration and Production. ONEOK Exploration Company and ONEOK Resources Company explore for and produce natural gas and oil. Gas Processing. ONEOK Products Company extracts and sells natural gas liquids. It also buys and sells natural gas. Other Operations. ONEOK Gas Marketing Company markets natural gas. Other subsidiaries operate the headquarters office building and a parking garage. RESULTS OF OPERATIONS The Company reported consolidated net income of $28.3 million, or $1.05 per share of common stock, for its second quarter ended February 28, 1995, and $36.1 million, or $1.34 per share, for the fiscal year to date. This compares with net income of $26.4 million, or 98 cents per share, and $34.2 million, or $1.27 per share, respectively, for the previous year. Distribution and transmission operations reported increases in net income, up 3 percent for the current fiscal year second quarter and 6.5 percent for the fiscal year to date, compared with the same periods last year. Major contributing factors were additional customers being served, increased margins on pipeline capacity leases, and the nonrecurring effect of a rate order issued during the 1995 first quarter. Current periods' earnings were negatively impacted by warmer weather. Exploration and production earnings increased for the current quarter compared with last year because of increased sales of natural gas liquids from recently acquired Black Lake properties, a gain on the sale of property, lower nonproductive well drilling costs, and decreased depreciation and depletion expenses. Earnings for the current fiscal year to date declined as a result of lower natural gas prices. Net income for the gas processing business increased during the current 3- month period primarily because of increased volumes of natural gas liquids sold at slightly higher prices. Earnings for the current 6-month period decreased primarily because a gain of $2.1 million for the sale of a plant was included in previous year earnings. Consolidated net interest expense increased during the current year second quarter and fiscal year to date due to increased amounts of short-term debt outstanding and higher interest rates during the periods. The average cost of debt for the current quarter was 8.46 percent, compared with 8.14 percent for the previous year. The average cost of debt for the current 6-month period was 8.2 percent, compared with 8.09 percent for the previous year. Following is a summary of consolidated earnings: 3 Months Ended 6 Months Ended February 28, February 28, NET INCOME (LOSS) 1995 1994 1995 1994 (Thousands of $) Distribution and transmission $27,011 $26,184 $34,611 $32,489 Exploration and production 335 23 (6) 177 Gas processing 1,485 639 2,368 2,685 Contract drilling - (238) - (551) Other operations (544) (221) (898) (601) Consolidated $28,287 $26,387 $36,075 $34,199 3 Months Ended 6 Months Ended February 28, February 28, EARNINGS (LOSS) PER COMMON SHARE 1995 1994 1995 1994 Distribution and transmission $1.00 $ .98 $1.28 $1.21 Exploration and production .01 (.01) - - Gas processing .06 .03 .09 .10 Contract drilling - (.01) - (.02) Other operations (.02) (.01) (.03) (.02) Consolidated $1.05 $ .98 $1.34 $1.27 Following are summaries of financial results and operating information for the various segments of the Company for the three months and six months periods ended February 28, 1995 and 1994. 3 Months Ended 6 Months Ended February 28, February 28, DISTRIBUTION AND TRANSMISSION 1995 1994 1995 1994 (Thousands of $, except per share amounts) Revenues: From unaffiliated customers $245,335 $250,643 $371,788 $386,618 Intersegment sales 503 985 574 1,064 Total revenues 245,838 251,628 372,362 387,682 Less gas purchase expense 147,814 159,865 213,526 235,796 Net revenues/gross margins 98,024 91,763 158,836 151,886 Operating expenses 45,296 41,187 85,394 83,295 Operating income before income taxes 52,728 50,576 73,442 68,591 Income taxes 17,006 16,392 21,723 20,233 Net interest expense 8,711 8,000 17,108 15,869 Net income $ 27,011 $ 26,184 $ 34,611 $ 32,489 Earnings per share $1.00 $.98 $1.28 $1.21 3 Months Ended 6 Months Ended February 28, February 28, DISTRIBUTION AND TRANSMISSION 1995 1994 1995 1994 (Continued) Gas sales: Residential and commercial $187,556 $189,129 $269,156 $274,432 Industrial 9,676 9,561 15,110 14,562 Wholesale 954 1,703 1,201 2,326 PCL/SISP gas sales 13,840 25,983 27,945 47,550 Total gas sales 212,026 226,376 313,412 338,870 Less gas purchase expense 147,814 159,865 213,526 235,796 Gas sales margins 64,212 66,511 99,886 103,074 PCL/SISP margins 6,063 5,576 11,702 10,506 Pipeline capacity lease margins 22,009 13,461 38,008 26,640 Other revenues 5,740 6,215 9,240 11,666 Net revenues $ 98,024 $ 91,763 $158,836 $151,886 Volumes (MMcf): Gas sales: Residential and commercial 37,636 42,829 51,245 60,886 Industrial 3,031 3,126 4,738 4,684 Wholesale 312 521 380 733 Total gas sales 40,979 46,476 56,363 66,303 PCL/SISP 8,803 12,044 18,259 22,820 Pipeline capacity leases 35,810 31,043 66,350 61,069 Total volumes 85,592 89,563 140,972 150,192 Average cost of gas purchased (per Mcf): General system $3.30 $2.92 $3.30 $2.92 SISP $1.55 $2.05 $1.60 $2.01 PCL margins (per MMcf) $.63 $.44 $.59 $.44 Degree days: Actual 2,019 2,314 2,596 3,212 Normal 2,331 2,335 2,979 2,966 Number of customers at end of periods 737,018 729,642 The Company was serving more than 7,000 additional customers. In addition, a rate increase became effective in November 1994. However, residential and commercial sales decreased compared with the previous year because of warmer weather for both the 3-month and 6-month periods ended February 28, 1995. The market to serve industrial customers remains extremely competitive, so the Company offers its pipeline capacity lease program (PCL) and payment-in-kind program (PIK) to certain of these customers as a response to the competitive pressures. Under its PIK program, the Company accepts gas in lieu of cash for PCL payments and for transportation charges. PIK gas is priced to general system gas distribution operations at the weighted average cost of gas (WACOG). Some of the PCL contracts include price caps, which reduce the volume of gas delivered to the Company as the price of gas purchased by the customers escalates. Average spot market prices increased significantly in 1993 and continued to increase for part of 1994, triggering price caps and reducing the volume of PIK gas delivered to the Company. In May 1994, spot market prices began declining to levels under those which triggered the price caps, improving PCL margins. Spot prices continued to decline during the current fiscal year causing PCL margins to increase. 3 Months Ended 6 Months Ended February 28, February 28, EXPLORATION AND PRODUCTION 1995 1994 1995 1994 (Thousands of $ except per share amounts) Revenues: From unaffiliated customers $6,601 $6,421 $11,752 $13,095 Intersegment sales 211 363 482 738 Total revenues 6,812 6,784 12,234 13,833 Operating expenses 5,698 6,311 11,227 12,645 Operating income (loss) before income taxes 1,114 473 1,007 1,188 Income taxes 211 15 (4) 112 Net interest expense 568 435 1,017 899 Net income (loss) $ 335 $ 23 $ (6) $ 177 Earnings (loss) per share $.01 $(.01) $ $ - $ - Oil production sales: Revenue (thousands of $) $1,720 $1,838 $3,395 $4,117 Volumes (Bbls.) 109,361 137,852 215,508 281,941 Average price (per bbl.) $15.73 $13.33 $15.75 $14.60 Gas production sales: Revenue (thousands of $) $4,015 $4,665 $7,345 $9,295 Volumes (MMcf) 2,493 2,249 4,652 4,549 Average price (per Mcf) $1.61 $2.07 $1.58 $2.04 Natural gas liquids sales: Revenue (thousands of $) $833 $114 $1,117 $225 Volumes (Mgals.) 2,897 470 4,102 932 Average price (per gal.) $.29 $.24 $.27 $.24 Exploration and production earnings increased for the current quarter compared with last year because of increased sales of natural gas liquids from recently acquired Black Lake properties, a gain on the sale of property, lower nonproductive well drilling costs, and decreased depreciation and depletion expenses. Earnings for the current fiscal year to date declined as a result of lower natural gas prices. 3 Months Ended 6 Months Ended February 28, February 28, GAS PROCESSING 1995 1994 1995 1994 (Thousands of $ except per share amounts) Revenues: From unaffiliated customers $32,381 $25,274 $56,036 $54,804 Intersegment sales - 634 - 647 Total revenues 32,381 25,908 56,036 55,451 Operating expenses 29,700 24,666 51,676 50,652 Operating income before income taxes 2,681 1,242 4,360 4,799 Income taxes 937 403 1,494 1,694 Net interest expense 259 200 498 420 Net income $ 1,485 $ 639 $ 2,368 $ 2,685 Earnings per share $.06 $.03 $.09 $.10 Natural gas liquids sales: Revenue (thousands of $) $13,743 $10,414 $27,788 $24,642 Volumes (Mgals.) 50,376 41,294 103,252 95,022 Average price (per gal.) $.27 $.25 $.27 $.26 Margin (per gal.) $.02 $ - $.03 $.02 Other gas sales: Revenue (thousands of $) $15,641 $11,524 $22,394 $21,115 Volumes (MMcf) 7,011 4,537 11,186 8,919 Average price (per Mcf) $2.23 $2.54 $2.00 $2.37 Margin (per Mcf) $.30 $.32 $.21 $.22 In July 1994, the Company began trading NYMEX natural gas futures contracts to hedge shrinkage and fuel requirements in its gas processing operations. These contracts were entered into in order to effectively manage the risks involved in gas commodities price fluctuations. Gains or losses are recognized when the futures contracts expire. In the first quarter, a loss of $1.2 million was recognized for futures contracts that had expired, $.9 million of which was applicable to shrinkage and fuel costs recorded in December 1994 and January 1995. During the second quarter, a $1.8 million loss was recognized, $1.3 million of which was applicable to shrinkage and fuel costs recorded in March and April 1995. Hedging losses are offset by purchases of replacement fuel and shrinkage at amounts less than the hedged cost. At February 28, 1995, the Company had no deferred gains or losses on gas futures contracts. Net income for the gas processing business increased during the current 3- month period primarily because of increased volumes of natural gas liquids sold at slightly higher prices. Earnings for the current 6-month period decreased primarily because a gain of $2.1 million for the sale of a plant was included in previous year earnings. Margins on other gas sales decreased during the current quarter and fiscal year to date because of lower natural gas prices. 3 Months Ended 6 Months Ended February 28, February 28, OTHER 1995 1994 1995 1994 (Thousands of $ except per share amounts) Revenues: From unaffiliated customers $ 3,041 $11,064 $14,050 $14,024 Intersegment sales 22,236 17,332 40,228 42,253 Total revenues 25,277 28,396 54,278 56,277 Gas purchase expense 23,013 25,654 49,557 51,153 Operating expenses 2,846 2,800 5,685 5,629 Operating income (loss) before income taxes (582) (58) (964) (505) Income taxes (342) (139) (567) (379) Net interest expense 304 302 501 475 Net income (loss) $ (544) $ (221) $ (898) $ (601) Earnings (loss) per share $(.02) $(.01) $(.03) $(.02) Buildings operations (thousands of $): Revenue $2,192 $2,294 $4,348 $4,621 Earnings per share $(.01) $(.01) $(.02) $(.02) Corporate operations (thousands of $): Revenue $136 $169 $228 $242 Earnings per share $ - $ - $ - $ - Gas marketing operations (thousands of $): Revenue $22,949 $25,933 $49,702 $51,414 Less gas purchase expense 23,013 25,654 49,557 51,153 Net revenue $ (64) $ 279 $ 145 $ 261 Earnings per share $(.01) $ - $(.01) $ - Through the issuance of 330,000 shares of previously unissued shares of ONEOK Inc. common stock, ONEOK Gas Marketing Company recently acquired through a merger transaction the remaining interest in a partnership which markets natural gas. The partnership had been moving approximately 400 to 450 million cubic feet per day of natural gas, primarily out of Oklahoma. LIQUIDITY AND CAPITAL RESOURCES The estimated sources of funds (cash) for the 1995 fiscal year are as follows: Sources of Funds (Millions of $) Proceeds from: Issuance of short-term debt $ 20.0 Cash provided by operating activities 91.7 Total $111.7 Short-Term Debt. The aggregate amount of short-term debt outstanding at April 3, 1995, and February 28, 1995, was $50 million and $75 million, respectively. Long-Term Debt. As of April 3, 1995, the Company could have issued approximately $265.5 million of additional long-term debt under the most restrictive of the provisions contained in the Company's various lending agreements. Stock and Dividends. As of April 3, 1995, the Company could have issued approximately 33 million shares of common stock, 160,000 shares of preferred stock, and three million shares of preference stock. Common dividends were 28 cents per share for the 1995 first and second quarters and 27 cents and 28 cents, respectively, for the same periods a year earlier. Preferred dividends were 59.375 cents per share for all periods. Rate Regulation. On December 30, 1994, the Company filed an application for a general rate increase with the Oklahoma Corporation Commission. The request is for an increase of $36.4 million, a return on equity of 13.2 percent, and an overall return of 10.977 percent. The Company is also seeking approval to restructure the method in which it handles revenues from its largest customers and implementation of incentive ratemaking and weather normalization plans. Under the incentive ratemaking plan, the Company would be allowed limited rate adjustments, and, in turn, would agree not to seek a general rate increase for three years. Hearings before an administrative law judge are scheduled to begin on May 30, 1995. Other Commission Matters. On March 31, 1995, the Oklahoma Corporation Commission Staff filed two applications with the Oklahoma Corporation Commission. The first application involves the Company's Purchased Gas Adjustment Clause ("PGA Clause") requesting a hearing to determine the appropriateness of the PGA Clause and requesting that the Clause be amended. The Staff also requested that all collections pursuant to the most recent filing (March 29, 1995) be placed under bond and subject to refund. The second application requests that the Company's Payment in Kind Program ("PIK") be modified to set the PIK Rate at the rate used in the Company's last rate case ($2.68 per Mcf), adjusted for heat content, with adjustment allowed for increases in the PIK customers' cost above the contract price cap. Alternatively, the Staff requests that the revenue received by the Company under PIK be made interim, under bond, and subject to refund. Any change in the Company's PGA Clause that would not allow the Company to immediately pass through the full cost of increases in the gas purchase costs of the Company to its customers and any change in the PIK that would result in a reduction of revenues received by the Company would have an adverse effect on the Company's cash flow and earnings. The amount of such effect is not presently determinable. Industrial Load. The Company's largest industrial customer, Agricultural Mineral, Limited Partnership (AMLP), a fertilizer manufacturer, has instituted an antitrust proceeding in state District Court challenging the validity of its 15-year PCL contract with the Company entered into in 1989, contending that the Company's practice of charging negotiated rather than uniform PCL rates is discriminatory and illegal. The Company responded by filing an Oklahoma Corporation Commission (Commission) proceeding seeking a determination that the terms and conditions of its contract with AMLP are just and reasonable. The Administrative Law Judge ruled that the case should be stayed pending the outcome of the District Court proceedings. The Company appealed the ruling to the Commission, and the Commission subsequently determined that the matter should proceed. Management believes that AMLP's contentions are unfounded and will be rejected in both the judicial and administrative proceedings. Nevertheless, unfavorable results in such proceedings, unless the Company could offset or recover any resulting damages or earnings reduction by increased revenue from customers, could have a materially adverse effect on the Company's earnings. The amount of such effect is not presently determinable. Capital Expenditures. Capital expenditures budgeted for the 1995 fiscal year are as follows: (Est.) CAPITAL EXPENDITURES 1995 (Millions of $) Distribution $44.0 Transmission 15.0 Exploration and production 26.3 Gas processing 3.5 Other operations .9 Total $89.7 The 1995 estimate for the exploration and production segment includes an October 1994 acquisition of Louisiana properties at a cost of approximately $17.6 million. Other. ONEOK Inc. is a party to an agreement between Columbia Gulf Transmission, Tennessee Gas Pipeline Company, USX Corporation, and ONEOK Inc. (Sellers) and NGC Energy Resources (Buyer), pursuant to which the Sellers have agreed to sell Ozark Gas Transmission System (Ozark System) to the Buyer. The Sellers directly or indirectly own the Ozark System. ONEOK Inc., through its wholly owned subsidiary, Caney River Transmission Company, is a 25 percent partner in the Ozark System. The closing of the transaction is anticipated on or about May 1, 1995. Recently, the remaining long-term notes were called. It is anticipated that the funds generated from certain exit agreements and from the sale of the Ozark System will retire the notes and allow the Company to fully recover its investment in the Ozark System. Through the issuance of 330,000 shares of previously unissued shares of ONEOK Inc. common stock, ONEOK Gas Marketing Company recently acquired through a merger transaction the remaining interest in a partnership which markets natural gas. The partnership had been moving approximately 400 to 450 million cubic feet per day of natural gas, primarily out of Oklahoma. PART II. OTHER INFORMATION Item 1. Legal Proceedings Agricultural Minerals Limited Partnership v. ONEOK Inc., et al., No. CJ-94-93, District Court, Rogers County. On January 25, 1995, the Company filed a motion for leave to file a counterclaim against the Plaintiff for abuse of process, which has been briefed. The parties are awaiting a decision. A Scheduling Order was entered on February 11, 1995, with a discovery cut-off of September 1, 1995, and a trial date of October 9, 1995. The case is in the discovery stage. Application of Ernest G. Johnson Director of the Public Utility Division, Oklahoma Corporation Commission seeking Commission Authorization to Modify Oklahoma Natural Gas Company's Purchased Gas Adjustment Clause, Cause No. PUD 590000059, Oklahoma Corporation Commission. On March 31, 1995, the Director of the Public Utility Division of the Commission filed an application for an administrative proceeding to determine the appropriateness of the Company's Purchased Gas Adjustment Clause ("PGA Clause"), the most recent proposed adjustment having been filed with the Commission on March 29, 1995, requesting that the PGA Clause be amended and that any collections pursuant to the most recent filing be placed under bond and subject to refund. The matter has been set for hearing on April 12, 1995. Application of Ernest G. Johnson Director of the Public Utility Division, Oklahoma Corporation Commission seeking Commission Authorization to Modify Oklahoma Natural Gas Company's Payment in Kind Tariff, Cause No. PUD 590000060, Oklahoma Corporation Commission. On March 31, 1995, the Director of the Public Utility Division of the Commission filed an application requesting that the Company's Payment in Kind Program ("PIK") be modified "to set the PIK rate at the rate used in the Company's last rate case, $2.68 Mcf, adjusted for heat content, with adjustment allowed for increases in PIK customers' cost above the contract price caps." Alternatively, the Staff requests that the revenues received by the Company under PIK be made interim, under bond, and subject to refund. Fent, et ux v. Oklahoma Natural Gas Company, a division of ONEOK Inc., No. 79,243, Oklahoma Supreme Court. A petition for rehearing was denied by the Oklahoma Supreme Court on January 31, 1995. On February 13, 1995, the court granted the Plaintiffs' application for attorney fees in connection with the appeal. A petition for rehearing of the attorney fee order has been filed. Hadson Energy Resources Corporation v. ONG Western, Inc., No. 93-3953-62, District Court, Oklahoma County. An Order dismissing the action with prejudice was entered on February 1, 1995. In the Matter of the Ad Valorem Tax Protest of Oklahoma Natural Gas Company, ONG Sayre Storage, ONG Transmission Company, ONEOK Services, Inc., ONG Western, Inc., ONG Red Oak Transmission Company, and OkTex Pipeline Company, Case Nos. E-94-32, E-94-33, E-94-34, E-94-35, E-94-36, E-94-37, E-94-38, Court of Tax Review, Oklahoma Board of Equalization. This proceeding is in the discovery stage. (In a separate action filed in the Oklahoma Supreme Court by another Protestant, the court assumed original jurisdiction, decided the matter against the Protestant, and subsequently rejected a petition for rehearing. The Protestant is considering an appeal to the United States Supreme Court.) In the Matter of the Application of Oklahoma Natural Gas Company, a Division of ONEOK Inc., for Examination of Standby Service. Cause No. PUD 880000598, Oklahoma Corporation Commission. Under a scheduling order entered on December 9, 1994, the Company must file testimony and proposed tariffs by April 14, 1995, and a hearing on the merits is scheduled for September 13, 1995. On March 22, 1995, the Company filed a motion asking for an extension until July 14, 1995, to file testimony and tariffs and like extensions of other dates. The motion, heard on March 30, 1995, was denied. Application for a Determination that the Rate Charges Pursuant to a Pipeline Capacity Lease Agreement between ONG and AMLP is Just and Reasonable, Cause No. PUD 940000419, Oklahoma Corporation Commission. A hearing on the Company's appeal of the ruling of the Administrative Law Judge that the matter should be stayed pending the outcome of the District Court proceedings (see Agricultural Minerals Limited Partnership v. ONEOK Inc., et al., above) was held on February 8, 1995, and the Commission subsequently determined that it had jurisdiction and that the matter should proceed. A hearing is set for April 13, 1995, to hear the Company's motion for a scheduling order. In the Matter of the Application for a Change or Modification of the Rates, Charges, and Tariffs of Oklahoma Natural Gas Company, a Division of ONEOK Inc., Cause No. 940000477, Oklahoma Corporation Commission. This proceeding is in the discovery stage (Company answering numerous data requests from the Staffs of the Commission and the Attorney General). The hearing on the application is set for May 30 through June 2, 1995. Application of Oklahoma Natural Gas Company for Limited Deviation from the General Priority Schedule Established by OCC-OGR 1-305, General Cause No. 28738, Oklahoma Corporation Commission. On January 6, 1995, the Company filed a motion to dismiss. On January 12, 1995, an Administrative Law Judge recommended that the motion be granted, and on January 19,1995, the Commission accepted the recommendation and dismissed the Cause. Application of Oklahoma Natural Gas Company to Amend its Limited Deviation from the General Priority Schedule Established by OAC 165;10-17-12 in Order to Modify its Special Industrial Sales Program, Cause No. 9500000391; and Application of Oklahoma Natural Gas Company for Modification of its Special Industrial Sales Program, Cause PUD No. 950000017. On February 3, 1995, the Company filed an application in the Public Utility Division requesting that its Special Industrial Sales Program (SISP) be modified to offset any decline in the receipt of Payment-In-Kind gas. Concurrently, the Company filed an application with the Conservation Division to permit the Company to purchase the additional SISP gas without regard to priority. A motion to consolidate the two proceedings was also filed. A date for the hearing on the merits has not yet been set. Item 4. Submission of Matters to a Vote of Security Holders (a) Results of Votes of Security Holders The Annual Meeting of Shareholders of ONEOK Inc. was held on January 19, 1995, in Tulsa, Oklahoma. At this meeting, shareholders voted to elect directors and approve the appointment of independent auditors. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, and there was no solicitation in opposition to management's solicitation. The results of the voting are as follows: (1) Election of Class B Directors Common Stock Votes Preferred Stock Votes For Withheld For Withheld Larry W. Brummett 23,013,347 244,423 249,922 7,548 S. J. Jatras 22,993,404 264,366 249,872 7,598 Douglas Ann Newsom, Ph.D. 22,968,404 289,287 249,872 7,598 Class A Directors continuing after the meeting are as follows: W. M. Bell W. L. Ford B. H. Mackie G. D. Parker Class C Directors continuing after the meeting are as follows: D. R. Cummings J. M. Graves J. D. Scott G. R. Williams S. L. Young (2) Appointment of KPMG Peat Marwick LLP as independent auditors for the Company For Against Abstain Preferred 195,250 6,982 55,238 Common 22,887,338 187,999 182,433 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K Three reports on Form 8-K were filed during the second quarter of the 1995 fiscal year or preceding the filing of this report. The first report was dated December 30, 1994, and reported that Oklahoma Natural Gas Company, a division of ONEOK Inc., filed an application with the Oklahoma Corporation Commission seeking a $36.4 million rate increase. The second report was dated February 14, 1995, and reported that ONEOK Inc. was a party to a certain Stock and Interest Purchase and Sale Agreement, dated February 10, 1995, between Columbia Gulf Transmission, Tennessee Gas Pipeline Company, USX Corporation, and ONEOK Inc. (Sellers) and NGC Energy Resources, Limited Partnership (Buyer), pursuant to which the Sellers have agreed to sell Ozark Gas Transmission System to the Buyer. The third report was dated on February 24, 1995, and reported that ONEOK Inc. had acquired Ward Gas Services, Inc., from Ward Petroleum Corporation through merger into ONEOK Gas Marketing Company, a wholly owned subsidiary, on February 23, 1995. There were no financial statements filed with any of these Forms 8-K. SIGNATURE 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, on this 10th day of April 1995. ONEOK Inc. (Registrant) By: (J. D. NEAL) J. D. Neal Vice President, Chief Financial Officer, and Treasurer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE 1995 FISCAL YEAR'S SECOND QUARTER ENDED FEBRUARY 28, 1995, AND THE CONSOLIDATED BALANCE SHEET AT FEBRUARY 28, 1995, FOR ONEOK INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 3-MOS AUG-31-1995 DEC-01-1994 FEB-28-1995 14,933 0 164,401 0 81,403 276,850 1,257,578 500,002 1,264,855 246,898 0 201,404 0 9,000 195,842 1,264,855 0 287,358 0 231,421 0 0 9,840 46,097 17,810 28,287 0 0 0 28,287 1.05 1.05
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