-----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, S1Rwh4QQv+X+Xzm+4tFK2Ak4LN7eGijP/f/fa4YKkobhcemph+lphE1nEEo9sqEM BcPkBiZhFg1uVPpmeWF+AA== 0000950134-96-003430.txt : 19960711 0000950134-96-003430.hdr.sgml : 19960711 ACCESSION NUMBER: 0000950134-96-003430 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960710 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: 96593193 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 FORM 10-Q FOR QUARTER ENDED MAY 31, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended May 31, 1996. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ________ Commission file number 1-2572 ONEOK INC. (Exact name of registrant as specified in its charter) DELAWARE 73-0383100 (State or other jurisdiction of ( I.R.S. Employer incorporation or organization) Identification No.) 100 WEST FIFTH STREET, TULSA, OK 74103 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (918) 588-7000 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 [ ] On May 31, 1996, the Company had 27,218,343 shares of common stock outstanding. 2 ONEOK INC. QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE NO. Consolidated Condensed Statements of Income - Three and nine months ended May 31, 1996 and 1995 3 Consolidated Condensed Balance Sheets - May 31, 1996 and August 31, 1995 4 Consolidated Condensed Statements of Cash Flows - Nine months ended May 31, 1996 and 1995 5 Notes to Consolidated Condensed Financial Statements 6 - 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 14 PART II - OTHER INFORMATION 15 - 17
2 3 PART I - FINANCIAL INFORMATION ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended May 31, May 31, (Thousands of Dollars except per share amounts) 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------------- OPERATING REVENUES Regulated $131,396 $144,551 $463,793 $515,263 Non-regulated 158,286 157,726 529,089 239,294 - -------------------------------------------------------------------------------------------------- Total Operating Revenues 289,682 302,277 992,882 754,557 - -------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of gas 181,400 215,322 656,496 459,768 Operations 48,247 43,561 136,252 132,627 Maintenance 1,834 1,655 5,568 5,194 Depreciation, depletion, and amortization 24,923 13,328 56,387 40,259 General taxes 5,442 5,158 16,021 15,611 Income taxes 7,746 4,810 36,862 27,456 - -------------------------------------------------------------------------------------------------- Total Operating Expenses 269,592 283,834 907,586 680,915 - -------------------------------------------------------------------------------------------------- Operating Income 20,090 18,443 85,296 73,642 Interest 8,383 9,403 26,623 28,527 - -------------------------------------------------------------------------------------------------- NET INCOME 11,707 9,040 58,673 45,115 Preferred Stock Dividends 107 107 321 321 - -------------------------------------------------------------------------------------------------- Income Available for Common Stock $ 11,600 $ 8,933 $ 58,352 $ 44,794 ================================================================================================== Earnings Per Share of Common Stock $ .42 $ .33 $ 2.15 $ 1.67 ================================================================================================== Dividends per Share of Common Stock $ .30 $ .28 $ .88 $ .84 ================================================================================================== Average Shares of Common Stock Outstanding (Thousands) 27,186 27,020 27,103 26,808 ==================================================================================================
See accompanying notes to consolidated condensed financial statements. 3 4 ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------- MAY 31, August 31, (Thousands of Dollars) 1996 1995 - -------------------------------------------------------------------------------------------------------- ASSETS Property $1,325,648 $1,275,743 Accumulated depreciation, depletion, and amortization 532,990 509,833 - -------------------------------------------------------------------------------------------------------- Net Property 792,658 765,910 - -------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents 35,976 12,499 Accounts receivable 103,261 81,768 Inventories 63,881 82,123 Other current assets 41,595 16,655 - -------------------------------------------------------------------------------------------------------- Total Current Assets 244,713 193,045 - -------------------------------------------------------------------------------------------------------- DEFERRED CHARGES AND OTHER ASSETS Regulatory assets, net 158,008 170,994 Other 38,420 39,516 - -------------------------------------------------------------------------------------------------------- Total Deferred Charges and Other Assets 196,428 210,510 - -------------------------------------------------------------------------------------------------------- Total Assets $1,233,799 $1,169,465 ======================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY COMMON SHAREHOLDERS' EQUITY Common stock without par value: authorized 60,000,000 shares; issued and outstanding 27,218,343 shares at May 31, 1996 and 27,020,004 shares at August 31, 1995 $ 205,959 $ 201,404 Retained earnings 221,724 187,225 - -------------------------------------------------------------------------------------------------------- Total Common Shareholders' Equity 427,683 388,629 Preferred stock: $50 par and involuntary liquidation value; $53 voluntary liquidation value; Series A and B, 4 3/4% (cumulative); authorized 340,000 shares; issued and outstanding 180,000 shares of Series A at May 31, 1996, and August 31, 1995; 9,000 9,000 - -------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 436,683 397,629 - -------------------------------------------------------------------------------------------------------- LONG-TERM DEBT, EXCLUDING CURRENT PORTION 336,821 350,821 CURRENT LIABILITIES Current portion, long-term debt 15,281 13,325 Notes payable 40,000 55,000 Accounts payable 91,651 58,174 Accrued income taxes 16,804 5,031 Accrued general taxes 2,196 8,780 Accrued interest 12,846 7,922 Purchased gas cost adjustment -- 2,706 Other 13,024 17,015 - -------------------------------------------------------------------------------------------------------- Total Current Liabilities 191,802 167,953 - -------------------------------------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 193,702 189,330 Customers' advances for construction and other deferred credits 74,791 63,732 - -------------------------------------------------------------------------------------------------------- Total Deferred Credits and Other Liabilities 268,493 253,062 - -------------------------------------------------------------------------------------------------------- Commitments and Contingencies - -------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $1,233,799 $1,169,465 ========================================================================================================
See accompanying notes to consolidated condensed financial statements. 4 5 ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------- Nine Months Ended May 31, (Thousands of Dollars) 1996 1995 - -------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 58,673 $ 45,115 Depreciation, depletion, and amortization 56,387 40,259 Net losses of equity investees 1,271 561 Deferred income taxes (909) (7,926) Changes in assets and liabilities 17,780 28,404 - -------------------------------------------------------------------------------------------------------- Cash provided by operating activities 133,202 106,413 - -------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Changes in other investments, net (1,821) 15,423 Capital expenditures, net of salvage (61,241) (61,223) - -------------------------------------------------------------------------------------------------------- Cash used in investing activities (63,062) (45,800) - -------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Issuance (payment) of notes payable, net (12,044) (17,674) Payments of debt (15,000) 924 Issuance of common stock 1,144 -- Dividends paid (20,763) (22,833) - -------------------------------------------------------------------------------------------------------- Cash provided by (used in) financing activities (46,663) (39,583) - -------------------------------------------------------------------------------------------------------- Change in cash and cash equivalents 23,477 21,030 Cash and cash equivalents at beginning of year 12,499 4,545 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 35,976 $ 25,575 ========================================================================================================
See accompanying notes to consolidated condensed financial statements. 5 6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTERIM REPORTING. 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. Due to the seasonal nature of the business, the results of operations for the three months ended May 31, 1996, are not necessarily indicative of the results that may be expected for the year ended August 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended August 31, 1995. RECLASSIFICATION. Certain amounts in the May 1995 consolidated condensed financial statements have been reclassified to conform with the May 1996 presentation. (B) REGULATORY ASSETS The following table is a summary of regulatory assets, net of amortization.
------------------------------------------------------------------- MAY 31, August 31, (Thousands of Dollars) 1996 1995 ------------------------------------------------------------------- Recoupable take-or-pay settlements $101,307 $106,122 Pension costs 34,471 40,302 Postretirement costs other than pensions 9,523 10,603 Postemployment benefit costs 2,975 2,975 Income tax rate changes 8,488 8,887 Unamortized gas storage costs 1,244 2,105 ------------------------------------------------------------------- Regulatory Assets, Net $158,008 $170,994 ===================================================================
(C) SUPPLEMENTAL CASH FLOW INFORMATION The following table is supplemental information relative to the Company's cash flows for the nine months ended.
------------------------------------------------------------------- MAY 31, August 31, (Thousands of Dollars) 1996 1995 ------------------------------------------------------------------- Cash paid during the period for: Interest $ 22,077 $ 23,150 Income taxes 21,193 21,849 Noncash transactions - Gas received as payment in kind 2,132 77,494 Common stock issued under Dividend Reinvestment Program 3,410 -- Issuance of common stock -- 5,836 Distribution of net assets from partnership 14,625 -- -------------------------------------------------------------------
6 7 (D) ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 During the third quarter of 1996, the Company elected early adoption of Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and recognized an impairment on certain oil and gas properties. SFAS No. 121 requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the asset carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Under SFAS No. 121, the Company now evaluates impairment of production assets on a field by field basis rather than using one cost center for its proved properties. Fair values are based on discounted future cash flows or information provided by sales and purchases of similar assets. The resultant impairment is included in depreciation, depletion and amortization expense in the consolidated condensed statements of income 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A. RESULTS OF OPERATIONS ONEOK Inc. provides natural gas energy and related products and services to its customers through regulated and non-regulated segments. The regulated businesses provide natural gas distribution and transmission services for about 75 percent of Oklahoma. The non-regulated businesses are primarily involved in the production, processing and marketing of natural gas and natural gas liquids. CONSOLIDATED OPERATIONS
- ----------------------------------------------------------------------- Three Months Ended Nine Months Ended May 31, May 31, (Thousands of dollars) 1996 1995 1996 1995 - ----------------------------------------------------------------------- Operating revenues $289,682 $302,277 $992,882 $754,557 Operating expenses 261,846 279,024 870,724 653,460 - ----------------------------------------------------------------------- Operating income 27,836 23,253 122,158 101,097 Income taxes 7,746 4,810 36,862 27,455 Net interest 8,383 9,403 26,623 28,527 - ----------------------------------------------------------------------- Net income $ 11,707 $ 9,040 $ 58,673 $ 45,115 - -----------------------------------------------------------------------
EARNINGS PER SHARE EARNINGS PER SHARE THREE MONTHS ENDED MAY NINE MONTHS ENDED MAY [GRAPH] [GRAPH] - ---------------------------- ----------------------------- 1996 1995 1996 1995 - ---------------------------- ----------------------------- Non-regulated $0.11 $0.11 Non-regulated $0.40 $0.17 Regulated $0.31 $0.22 Regulated $1.75 $1.50 - ---------------------------- ----------------------------- One of the Company's core strategies is to be proactive in addressing demands of the changing energy industry. In 1995 the Company was successful in restructuring rates within the regulated businesses. In the third quarter of 1996 the Company completed two significant transactions in its non-regulated businesses. These transactions compliment the Company's strategy of concentrating ownership of hydrocarbon reserves in Oklahoma in order to add value not only to its production operations but also to its related gas marketing, gas processing, and transportation businesses. The following is a brief description of these transactions: o Purchase of SCANA Properties - The Company purchased substantially all of the Oklahoma oil and natural gas properties of SCANA Petroleum Resources, Inc. The $46.7 million purchase included over 500 producing properties of which 90 percent are natural gas. The acquisition brings the total net daily production for ONEOK to over 40 million cubic feet of gas and about 1,400 barrels of oil and natural gas liquids. The acquisition was financed through the sale of out of state properties and internally generated funds. 8 9 o Sale of Alabama and Mississippi Properties - The Company sold all of its oil and gas properties in Alabama and Mississippi for approximately $18.9 million. The Company views its segments as operating within either a rate regulated environment (Regulated Operations) or an environment in which rates are not regulated (Non-regulated Operations). The non-regulated environment is further viewed as having three primary, vertically integrated segments: natural gas marketing, processing and production. In order to align this view with its financial reporting, the Company, commencing with this report, will present the combined results of each operating environment. Non-regulated segment data is reported by process rather than entity. 9 10 REGULATED OPERATIONS ONEOK's regulated operations are conducted through Oklahoma Natural Gas Company (ONG) an integrated intrastate natural gas distribution and transmission business which serves residential, commercial and industrial customers in the state of Oklahoma. ONG also leases space in its pipeline system under its Pipeline Capacity Lease (PCL) program to large volume customers for their use in transporting natural gas to their facilities. ONG is subject to regulatory oversight by the Oklahoma Corporation Commission.
- -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended May 31, May 31, (Thousands of dollars) 1996 1995 1996 1995 - -------------------------------------------------------------------------------- FINANCIAL RESULTS Gas sales $117,709 $121,154 $424,444 $434,566 Cost of gas 61,669 79,684 223,189 292,000 - -------------------------------------------------------------------------------- Gross margins on gas sales 56,040 41,470 201,255 142,566 PCL and other 14,506 24,115 41,320 81,746 - -------------------------------------------------------------------------------- Net revenues 70,546 65,585 242,575 224,312 Operating costs 35,674 37,820 103,272 102,856 Depreciation, depletion and amortization 13,282 10,501 38,068 30,750 - -------------------------------------------------------------------------------- Operating income $ 21,590 $ 17,264 $101,235 $ 90,706 ================================================================================ OPERATING INFORMATION Natural Gas Volumes (MMcf) Gas sales Residential 13,439 12,865 54,698 48,580 Commercial 6,371 5,709 23,958 21,238 Industrial 1,623 1,881 6,285 6,727 PCL 42,664 40,793 128,660 125,402 ---------------------------------------------- 64,097 61,248 213,601 201,947 ============================================== Gross margin per Mcf Residential $ 3.01 $ 2.52 $ 2.52 $ 2.18 Commercial 2.31 1.98 2.35 1.91 Industrial 1.03 .81 1.14 .98 PCL .24 .52 .22 .57 Number of Customers 737,577 728,855 733,790 722,667 Customers per Employee 399 375 391 369
Net revenues were greater for both reporting periods reflecting continued customer growth and the impact of rate restructuring completed in the previous year. The restructuring included temperature normalization, a PCL tariff rider and a general rate increase. Additionally, allowed PCL revenues for large volume customers were reduced, a portion of which was shifted to the core customers under the tariff rider. These changes strengthen ONG's position and significantly reduce the Company's competitive risks. The decrease in cost of gas reflects changes initiated by ONG during the rate restructuring to its gas purchasing and pricing practices. The reduction in gas supply costs more than offset the impact of the tariff rider and other rate increases allowing core customers to realize a net savings in rates. The average rate paid by core customers was 8 percent and 13 percent lower compared to the prior periods. Operating costs, as a percentage of net revenue, continue to improve as a result of the Company's focus on reducing expenses and increasing customer growth. 10 11 NON-REGULATED OPERATIONS ONEOK's non-regulated operations are involved in the production, processing and marketing of natural gas, oil and natural gas liquids. As a result of acquisitions and dispositions during the third quarter of 1996, the Company's producing properties are concentrated principally in Oklahoma where it also owns nonoperated interests in fifteen gas liquids extraction plants. The gas marketing subsidiary directs its activities to end users in the mid-continent region of the United States. The Company also operates its headquarters office building and a parking garage.
- -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended May 31, May 31, (Thousands of dollars) 1996 1995 1996 1995 - -------------------------------------------------------------------------------- FINANCIAL RESULTS COMBINED NON-REGULATORY OPERATIONS Gas sales $133,714 $151,006 $475,054 $222,958 Cost of gas 128,039 146,462 459,997 216,055 - -------------------------------------------------------------------------------- Gross margins on gas sales 5,675 4,544 15,057 6,903 Gas and oil production 4,523 4,783 15,859 15,528 Gas processing 19,724 16,122 52,965 50,739 Other 10,014 3,718 15,941 8,926 - -------------------------------------------------------------------------------- Net revenues 39,936 29,167 99,822 82,096 Operating costs 22,049 20,352 60,579 62,194 Depreciation, depletion, and amortization 11,641 2,826 18,320 9,509 - -------------------------------------------------------------------------------- Operating income $ 6,246 $ 5,989 $ 20,923 $ 10,393 ================================================================================ OPERATING INFORMATION Natural gas volumes (MMcf) Natural gas production 1,887 2,077 6,009 6,729 Residue gas 1,693 1,879 5,268 5,602 Marketing 61,549 103,871 252,795 147,104 ------------------------------------------- 65,129 107,827 264,072 159,435 ------------------------------------------- Less intersegment sales Natural gas production 1,031 497 2,790 1,047 Residue gas 1,693 1,872 5,266 3,144 Marketing 1,513 8,953 6,780 31,420 ------------------------------------------- 4,237 11,322 14,836 35,611 ------------------------------------------- Net natural gas volumes 60,892 96,505 249,236 123,824 =========================================== Average gas production price (Mcf) $ 2.12 $ 1.38 $ 1.78 $ 1.52 Natural gas liquids (MGallons) 50,668 54,176 149,799 161,530 Average price (Gallons) $ 0.323 $ 0.251 $ 0.292 $ 0.263 Oil Production (Bbls) 22,125 114,588 294,031 330,096 Average price (Bbls) $ 23.67 $ 16.82 $ 17.50 $ 16.12
Total non-regulated operating income is relatively unchanged for the third quarter as a result of improvements in marketing margins and gains resulting from the disposition of certain producing properties offset by the loss resulting from the early adoption of SFAS 121. Total non-regulated operating income for the nine months ended May 31, 1996 improved as a result of greater gas marketing margins reflecting the Company's aggressive marketing strategy, the acquisition of the remaining 50 percent interest in a gas marketing joint venture in the prior year and weather related demand. 11 12
- ---------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended May 31, May 31, (Thousands of dollars) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------- MARKETING SEGMENT Natural gas sales $133,714 $151,006 $475,054 $222,958 Cost of gas 128,039 146,462 459,997 216,055 - ---------------------------------------------------------------------------------------- Gross margin on gas sales 5,675 4,544 15,057 6,903 Operating costs, net 971 1,870 1,583 2,277 Depreciation, depletion and amortization 120 49 364 50 - ---------------------------------------------------------------------------------------- Operating income $ 4,584 $ 2,625 $ 13,110 $ 4,576 ========================================================================================
Increased profitability of the Company's gas marketing operation is attributable to several operational changes which have been instituted throughout the current year, including increased use of gas storage facilities, hedging and transportation arbitraging. Although gas marketing volumes declined for the quarter, gross margin rose reflecting the operational changes and price volatility resulting from weather related demand. Lower marketing volumes between comparable quarters is attributable to the acquisition of the remaining 50 percent interest in a gas marketing joint venture, effective January 1, 1995, reported in the third quarter of 1995. In addition, a long-term gas sales contract expired in late 1995; however, since the contract margins for this particular contract were narrow, gross margins were only minimally affected. The overall increase in volumes and margins for the nine months is attributable to the aggressive marketing strategy and sole ownership of the marketing operations.
- ---------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended May 31, May 31, (Thousands of dollars) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------- PROCESSING SEGMENT Natural gas liquids and residues sales $ 19,724 $ 16,122 $ 52,965 $ 50,739 Other 188 67 260 204 - ---------------------------------------------------------------------------------------- Net revenues 19,912 16,189 53,225 50,943 Operating costs 15,909 12,780 42,939 43,522 Depreciation, depletion and amortization 467 449 1,403 1,347 - ---------------------------------------------------------------------------------------- Operating income $ 3,536 $ 2,960 $ 8,883 $ 6,074 ========================================================================================
Gas processing revenue rose reflecting improving market conditions for natural gas liquids (NGL). NGL production volumes were lower, due to partial ethane rejection resulting from reduced margins. The reductions were partially offset by a significant expansion in the gathering systems behind the plant.
- ---------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended May 31, May 31, (Thousands of dollars) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------- PRODUCTION SEGMENT Natural gas sales $ 4,000 $ 2,861 $ 10,713 $ 10,205 Oil sales 523 1,922 5,146 5,323 Other 7,376 794 7,437 1,171 - ---------------------------------------------------------------------------------------- Net revenues 11,899 5,577 23,296 16,699 Operating costs 2,699 2,806 7,326 8,408 Depreciation, depletion and amortization 10,964 2,248 16,285 7,872 - ---------------------------------------------------------------------------------------- Operating income (loss) $ (1,764) $ 523 $ (315) $ 419 ========================================================================================
12 13 Gas and oil production volumes were negatively affected by the sale of producing properties in Alabama and Mississippi. Due to the effective dates of these transactions, the volume impact was not offset by the purchase of the SCANA properties during the third quarter of 1996 although the revenue impact was offset by improved prices. Other production revenue includes the gain on sale of the Alabama and Mississippi properties in the third quarter of 1996. As a result of downward reserve revisions of certain properties, the Company, in accordance with SFAS No. 121, recorded a 9.3 million impairment to the recorded value of its oil and natural gas producing properties. The Company will continue to adhere to a prudent risk management strategy of hedging any fixed price or location differential transactions using natural gas futures contracts or other derivative agreements to offset potential price risk exposure. FINANCIAL FLEXIBILITY AND LIQUIDITY With the current mix and relative sizes of ONEOK's business segments, the Company's goals are to maintain an equity to capital ratio, including short-term debt, of approximately 50 percent and to preserve or improve its current debt ratings. At May 31, 1996, the equity component was 53 percent, which increased from 50 percent at May 31, 1995. Debt ratings are A3 by Moody's Investors Service and A- by Standard & Poor's Corporation. The Company's long-term debt represents 42 percent of total capital at May 31, 1996. Cash provided by operating activities is projected to remain strong and continues as the primary source for meeting cash requirements. However, due to seasonal fluctuations and additional capital requirements, the Company periodically accesses funds through a short-term credit agreement and, if necessary, through long-term borrowings. OPERATING CASH FLOWS Operating cash flows for the nine months ended May 31, 1996 as compared to the same period in 1995 are higher reflecting increased earnings in both the regulated and non-regulated segments. INVESTING CASH FLOWS Capital expenditures for the nine months ended May 31, 1996 and 1995 are as follows. CAPITAL EXPENDITURES NINE MONTHS ENDED MAY [GRAPH] ---------------------------------- 1996 1995 ---------------------------------- Non-regulated $47.8 $25.4 Processing 4.7 2.5 Production 42.9 22.2 Other .2 .7 ---------------------------------- Regulated $31.8 $54.4 ---------------------------------- For the nine months ended May 31, 1996, capital expenditures for the non-regulated segment included approximately $46.7 million, of which $6.8 million is currently in escrow, for acquisition of the SCANA properties as compared to approximately $17.6 million for an acquisition of properties in Louisiana during the prior period. Funds generated from the sale of the Alabama and Mississippi properties were approximately $18.9 million. 13 14 FINANCING CASH FLOW At May 31, 1996, $352 million of long-term debt was outstanding. As of that date, the Company could have issued approximately $300 million of additional long-term debt under the most restrictive provisions contained in its various borrowing agreements. The Company believes that internally generated funds and access to financial markets will be sufficient to meet its debt service, dividend requirements, and capital expenditures. However, if certain events occur, such as significant acquisitions, additional debt or equity financing may be required. LIQUIDITY The regulated segment continues to face competitive pressure to serve the substantial market represented by its large volume customers. The loss of a substantial portion of that load, without recoupment of the revenues from that loss, could have a materially adverse effect on the Company's financial condition. However, rate restructuring achieved in the June 1995 rate order further reduced the Company's risk in serving its large volume customers. OTHER PRICE RISK MANAGEMENT. Commodity futures contracts and swaps are periodically used in the production, gas processing, and marketing operations to hedge the impact of natural gas price fluctuations. Natural gas futures contracts require the Company to buy or sell natural gas at a fixed price. Swap agreements are non-exchange trades between parties whereby one party pays a fixed price and the other a floating price. Swaps allow for the creation of customized transactions. The Company's production operation periodically uses commodity futures contracts and swaps to hedge the impact of oil and natural gas price fluctuations. The Company's gas processing operation uses futures to hedge the price of gas used in the natural gas liquid extraction process. The gas marketing operation uses futures and swaps to lock in margins on preexisting purchase or sale commitments for physical quantities of natural gas. The Company adheres to policies and procedures which limit its exposure to market risk from open positions and monitors daily its exposure to market risk. Gains and losses on commodity futures contracts and swaps are recognized when the related physical gas purchases or sales transactions are recognized. At May 31, 1996, the net deferred gain on these contracts was approximately $ .5 million. 14 15 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS FENT, ET UX V. OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC., ET AL., No. CJ-88-10148, District Court, Oklahoma County ("Fent I case"). The Company has filed a motion to strike requested class action application on the basis of the Oklahoma Corporation Commission decision in the Fent III case. See below. The motion is set for hearing on July 12, 1996. LARUE V. ONEOK INC., No. CJ-95-6324, District Court, Oklahoma County, now Case No. CIV-95-1556C, U.S. District Court for the Western District of Oklahoma. On October 30, 1995, the Plaintiff in the state action (LaRue) filed a motion to remand the case back to state court. The motion was denied on March 10, 1996. The case is in the discovery stage. The companion Federal case (ONEOK v. LaRue) is also in the discovery stage. Trial in both cases is scheduled for November, 1996. IN THE MATTER OF THE APPLICATION OF OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC. FOR EXAMINATION OF STANDBY SERVICE, Cause CD No. 598, Oklahoma Corporation Commission. At a Settlement Conference on February 20, 1996, the Company, the Commission Staff and the Attorney General reached agreement and executed a Joint Stipulation which was presented at the hearing on February 21-23, 1996. The Commission continued the matter until March 14, 1996, at which time it ordered the filing of proposed findings of fact and conclusions of law and briefs by April 10, 1996. The Company filed its brief April 10, 1996, with a proposed Order jointly with the Commission Staff and the Attorney General. Oral arguments were held on May 22, 1996. The commission approved the proposed Order. The Order has not yet been issued. APPLICATION OF OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC. FOR A DETERMINATION THAT UNDER THE COMMISSION'S EXISTING NATURAL GAS UTILITY RULES AND REGULATIONS, AND OKLAHOMA NATURAL'S EXISTING SERVICE RULES AND REGULATIONS, THE GAS UTILITY CUSTOMERS OF OKLAHOMA NATURAL GAS COMPANY, EXCEPT JERRY R. FENT AND MARGARET B. FENT, ARE RESPONSIBLE FOR INSTALLING AND MAINTAINING ALL PIPING BETWEEN THE CUSTOMERS' PROPERTY OR CURB LINES, AND SUCH CUSTOMERS' POINTS OF CONSUMPTION OF GAS, Cause PUD No. 95-000223, Oklahoma Corporation Commission ("Fent III" case). On March 6, 1996, the Supreme Court denied the Petition for a Writ of Prohibition, so the proceeding before the Commission could go forward. A hearing was held on April 10, 1996. On April 24, 1996, the Commission granted the Company's Application. An Order was issued May 24, 1996. The Fents and Harold Jacobs (another customer of the Company), have filed notice of appeal of the Commission Order to the Supreme Court. APPLICATION TO ASSUME ORIGINAL JURISDICTION AND PETITION FOR WRIT OF PROHIBITION AND MOTION TO STAY COMMISSION PROCEEDINGS, Case No. 87451, Oklahoma Supreme Court. On May 13, 1996, the Company requested that the Court (1) prohibit Commissioner Anthony from proceeding further with his investigation, and (2) stay the Commission proceedings by Commissioner Anthony pending decision of the Application and Petition on the grounds Commissioner Anthony does not have authority to conduct an independent investigation, the investigation constitutes a collateral attack on the Company's 1992 and 1993 PGA orders, and Commissioner Anthony's clear bias against the Company. Hearing on the Motion to Stay was held before a Referee on May 20, 1996. Hearing on the Application and Petition was held on May 30, 1996, before the same Referee. On June 12, 1996, the Court denied the Application to Assume Original Jurisdiction. 15 16 IN THE MATTER OF COMMISSIONER BOB ANTHONY'S INSPECTION OF THE BOOKS AND RECORDS OF ANY PUBLIC SERVICE CORPORATION AND EXAMINATION, UNDER OATH, ANY OFFICER, AGENT, OR EMPLOYEE OF SUCH, IN RELATION TO THE BUSINESS AND AFFAIRS OF ARKANSAS LOUISIANA GAS COMPANY, A DIVISION OF NORAM ENERGY CORP. AND OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC. PURSUANT TO OKLAHOMA CONSTITUTION ARTICLE 9, SECTIONS 18, 28 AND 34, Cause No. PUD 960000039, Oklahoma Corporation Commission. On April 2, 1996, Commissioner Anthony made additional filings which included an excerpt from THE PRICE V. LUM case concerning the settlement of various lawsuits between Gage Corporation and other parties and the negotiations of a new gas contract with the Company, including attached documents relating to the earlier litigation, involving Creek Systems. On April 18, 1996, he filed several memoranda from the Commission Staff, one of which was marked "Confidential," setting forth some of the terms of one of the gas purchase contracts at issue and stating Staff had found no improper costs or improprieties on the Company's part. On April 8, 1996, a request initiated by Commissioner Anthony's staff was received requesting copies of certain responses to data requests provided to the Commission Staff by the Company as part of the 1991 rate case. The request was refused on grounds an individual Commissioner lacks authority to conduct an investigation, but the Company would provide the information on Order of the Commission. On April 18, 1996, the Company filed a motion to stay further proceedings until Commission Staff has completed its investigation and an Order is issued in Cause PUD No. 960000100 (see below). On May 7, 1996, the Commission reversed the recommendation of the ALJ and denied the motion to stay. On May 13, 1996, the Company filed an Application and Petition for Writ of Prohibition and Motion to Stay the Proceedings Pending Disposition of the Application and Petition by the Supreme Court in Case No. 87451 (see below). On April 30, 1996, PanEnergy Field Services filed a motion requesting a determination on the authority of an individual Commissioner to conduct an investigation and to seek discovery from a non-jurisdictional Company. Alternatively, Pan Energy asked for a stay pending outcome of PUD No. 960000100 (see below). On May 9, 1996, at the hearing on its motion, Pan Energy further asserted that Commissioner Anthony has not followed the Commission's Rules of Practice and the investigation is an improper collateral attack on the 1992 and 1993 utility PGAs. After a hearing on April 19, 1996, an ALJ recommended findings that Commissioner Anthony had not followed Commission Rules and the investigation is a collateral attack. The ALJ's recommendation was presented for Commission decision on May 22, 1996, but no action was taken. (Commissioner Anthony is also pursuing the obtaining of information from other parties related to the matter.) APPLICATION OF OKLAHOMA NATURAL FOR AN ORDER DIRECTING THE COMMISSION'S STAFF, OR APPOINTING AN INDEPENDENT THIRD PARTY OR ENTITY, TO CONDUCT AN INQUIRY INTO THE TRANSACTIONS BETWEEN ONG AND DYNAMIC ENERGY RESOURCES REFERENCED IN THE MARCH 15, 1996, STATEMENT OF COMMISSIONER BOB ANTHONY IN CAUSE PUD NO. 960000039 AND STAYING FURTHER ACTION IN THAT CAUSE SUCH APPOINTMENT AND INQUIRY, CAUSE PUD NO. 960000085. On April 2, 1996, Oklahoma Natural filed an application requesting that the Commission issue an order directing the Staff, or appointing an independent third party or entity, to conduct an inquiry into the transactions between the Company and Dynamic Energy Resources, Inc. referenced in Commissioner Anthony's Statement of March 15, 1996 in Cause PUD No. 930000039 (see above) and staying further action in that cause pending such appointment and inquiry. The Company also filed a Motion to Advance this Cause to the Commission en banc on the basis the matter involves important policy issues. The motion was heard before an ALJ on April 11, 1996, and denied. The Company appealed the recommendation for denial but withdrew the appeal on April 17, 1996, when the Company filed a motion to stay the proceedings pending completion of the Commission Staff's review of the Company's PGA clause and issuance of a final order in Causes No. 960000100. The Company also requested consolidation of the two causes if a stay is determined inappropriate. A hearing was heard by an ALJ on May 2, 1996. On May 7, 1996, the Commission by Order stayed the proceedings for at least 30 days. 16 17 APPLICATION OF ERNEST G. JOHNSON, DIRECTOR OF THE PUBLIC UTILITY DIVISION OF OKLAHOMA CORPORATION COMMISSION, TO REVIEW THE FUEL ADJUSTMENT CLAUSE OF OKLAHOMA NATURAL GAS COMPANY FOR THE CALENDAR YEARS 1994 AND 1995, CAUSE PUD NO. 960000100. On April 12, 1996, the Director of the Public Utility Division filed an application seeking to review Oklahoma Natural's PGA clause for the calendar years 1994 and 1995 separate and apart from the Commission's review of the fuel adjustment clauses of other utilities. Concurrently with service of the application, Staff also served a data request requesting copies of the November 1993 gas purchase contract between Oklahoma Natural and Dynamic Energy Resources and subsequent contracts assigning contract rights to Enogex and PanEnergy Corporation. On April 17, 1996, the Company filed a motion for an order to protect confidential and/or proprietary materials requested by the Commission Staff. A hearing was held before an ALJ who recommended the motion be granted. On April 24, 1996, the Commission voted to stay the proceeding for at least 30 days and issued an order to this effect on May 8, 1996. The attorney-general has intervened in the proceedings. (The Commission Staff is continuing its audit.) On June 28, 1996, the stay was lifted and the Company's motion for a protective order was granted. The Company turned over the requested contracts to the Commission Staff. IN THE MATTER OF COMMISSIONER ED APPLE'S INQUIRY CONCERNING THE BOOKS AND RECORDS OF OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC., PURSUANT TO ARTICLE 9, SECTION 18 OF THE OKLAHOMA CONSTITUTION, Cause PUD No. 960000186, Oklahoma Corporation Commission. Commissioner Apple filed notice in this proceeding that he will request the Public Utility Division of the Commission to conduct an inspection of the books and records of Oklahoma Natural Gas Company. The scope of the review is to include certain contracts between the Company and its gas suppliers and the financial impact of such contracts on the ratepayers of the Company. (These are the same contracts that are the subject of Causes No. PUD 960000039 and 96000100.) The inquiry is to be conducted only if the Commission grants a protective order so that the information contained in such contracts can remain confidential. The Company again stated its position that an individual Commissioner lacks authority to request such an investigation. On June 28, 1996, the commission granted the requested protective order. 17 18 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) 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 July, 1996. ONEOK Inc. Registrant By: J. D. NEAL ---------------------------------------- J. D. Neal Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer) 18 19 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 - Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE 1996 THIRD QUARTER ENDED MAY 31, 1996, AND THE CONSOLIDATED CONDENSED BALANCE SHEET AT MAY 31, 1996, FOR ONEOK INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS AUG-31-1996 SEP-01-1995 MAY-31-1996 35,976 0 103,261 0 63,881 244,713 1,325,648 532,990 1,233,799 191,802 0 205,959 0 9,000 221,724 1,233,799 0 992,882 0 870,724 0 0 26,623 95,535 36,862 58,673 0 0 0 58,673 2.15 2.15
-----END PRIVACY-ENHANCED MESSAGE-----