-----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, AVXnvhx4Xo6w7hjBRrx0w6DsHCY3X1FxK291ewaPiVXOaFrmNovNHEh2WrSMpXgZ j71MFsBjTHJl8inH+pKDCQ== 0000950134-96-007098.txt : 19961231 0000950134-96-007098.hdr.sgml : 19961231 ACCESSION NUMBER: 0000950134-96-007098 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19961227 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: 96686829 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 PERIOD END DATED NOVEMBER 30, 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 November 30, 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 November 30, 1996, the Company had 27,304,870 shares of common stock outstanding. 1 2 ONEOK INC. QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE NO. Consolidated Condensed Statements of Income - Three Months Ended November 30, 1996 and 1995 3 Consolidated Condensed Balance Sheets - November 30, 1996, and August 31, 1996 4 Consolidated Condensed Statements of Cash Flows - Three Months Ended November 30, 1996 and 1995 5 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 12 PART II - OTHER INFORMATION 13 - 15
2 3 PART I - FINANCIAL INFORMATION ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
- -------------------------------------------------------------------------------- Three Months Ended November 30, (Thousands of Dollars except per share amounts) 1996 1995 - -------------------------------------------------------------------------------- OPERATING REVENUES Regulated $113,246 $104,858 Nonregulated 135,506 133,602 - -------------------------------------------------------------------------------- Total Operating Revenues 248,752 238,460 - -------------------------------------------------------------------------------- OPERATING EXPENSES Cost of gas 147,432 151,282 Operations and maintenance 50,566 43,726 Depreciation, depletion, and amortization 16,984 15,862 General taxes 5,092 4,775 Income taxes 7,665 5,276 - -------------------------------------------------------------------------------- Total Operating Expenses 227,739 220,921 - -------------------------------------------------------------------------------- Operating Income 21,013 17,539 Interest 8,839 9,116 - -------------------------------------------------------------------------------- NET INCOME 12,174 8,423 Preferred Stock Dividends 107 107 - -------------------------------------------------------------------------------- Income Available for Common Stock $ 12,067 $ 8,316 ================================================================================ Earnings Per Share of Common Stock $ 0.44 $ 0.31 ================================================================================ Dividends Per Share of Common Stock $ 0.30 $ 0.29 ================================================================================ Average Shares of Common Stock Outstanding (Thousands) 27,305 27,023 ================================================================================
See accompanying notes to consolidated condensed financial statements. 3 4 ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
- ---------------------------------------------------------------------------------------------------------------- November 30, August 31, (Thousands of Dollars) 1996 1996 - ---------------------------------------------------------------------------------------------------------------- ASSETS Property $ 1,342,855 $ 1,336,652 Accumulated depreciation, depletion, and amortization 549,660 541,618 - ---------------------------------------------------------------------------------------------------------------- Net Property 793,195 795,034 - ---------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents 13,028 598 Accounts and notes receivable 168,987 119,338 Inventories 102,258 91,556 Other 19,841 21,654 - ---------------------------------------------------------------------------------------------------------------- Total Current Assets 304,114 233,146 - ---------------------------------------------------------------------------------------------------------------- DEFERRED CHARGES AND OTHER ASSETS Regulatory assets, net 152,491 155,253 Other 37,303 36,458 - ---------------------------------------------------------------------------------------------------------------- Total Deferred Charges and Other Assets 189,794 191,711 - ---------------------------------------------------------------------------------------------------------------- Total Assets $ 1,287,103 $ 1,219,891 ================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY COMMON SHAREHOLDER'S EQUITY Common stock without par value: authorized 60,000,000 shares; issued and outstanding 27,304,870 shares at November 30, 1996 and 27,260,646 shares at August 31, 1996 $ 208,233 $ 207,084 Retained earnings 211,497 207,611 - ---------------------------------------------------------------------------------------------------------------- Total Common Shareholders' Equity 419,730 414,695 - ---------------------------------------------------------------------------------------------------------------- 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 November 30, 1996 and August 31, 1996 9,000 9,000 - ---------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 428,730 423,695 - ---------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT, EXCLUDING CURRENT PORTION 336,821 336,821 CURRENT LIABILITIES Long-term debt 15,050 15,050 Notes payable 85,220 50,223 Accounts payable 112,943 96,872 Accrued taxes 21,028 10,820 Accrued interest 9,286 7,732 Other 22,426 21,933 - ---------------------------------------------------------------------------------------------------------------- Total Current Liabilities 265,953 202,630 - ---------------------------------------------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 179,800 180,620 Customers' advances for construction and other deferred credits 75,799 76,125 - ---------------------------------------------------------------------------------------------------------------- Total Deferred Credits and Other Liabilities 255,599 256,745 - ---------------------------------------------------------------------------------------------------------------- Commitments and Contingencies - - - ---------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 1,287,103 $ 1,219,891 ================================================================================================================
See accompanying notes to consolidated condensed financial statements. 4 5 ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
- -------------------------------------------------------------------------------- Three Months Ended November 30, (Thousands of Dollars except per share amounts) 1996 1995 - ------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 12,174 $ 8,423 Depreciation, depletion, and amortization 16,985 15,862 Net losses of equity investees 91 207 Deferred income taxes (647) (984) Changes in assets and liabilities (31,899) (25,228) - ------------------------------------------------------------------------------- Cash used in operating activities (3,296) (1,720) - ------------------------------------------------------------------------------- INVESTING ACTIVITIES Changes in other investments, net 569 135 Capital expenditures, net of salvage (12,701) (11,806) - ------------------------------------------------------------------------------- Cash used in investing activities (12,132) (11,671) - ------------------------------------------------------------------------------- FINANCING ACTIVITIES Issuance of notes payable, net 34,997 15,000 Payments of debt - (34) Issuance of common stock 578 - Dividends paid (7,717) (7,392) - ------------------------------------------------------------------------------- Cash provided by financing activities 27,858 7,574 - ------------------------------------------------------------------------------- Change in cash and cash equivalents 12,430 (5,817) Cash and cash equivalents at beginning of year 598 12,461 - ------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 13,028 $ 6,644 ===============================================================================
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 November 30, 1996 are not necessarily indicative of the results that may be expected for the year ended August 31, 1997. 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, 1996. RECLASSIFICATION. Certain amounts in the November 1995 consolidated condensed financial statements have been reclassified to conform with the November 1996 presentation. B. SIGNIFICANT EVENTS The Company and Western Resources Inc. (Western) announced a strategic alliance combining the natural gas assets of both companies. The agreement provides for the Company to own and operate the natural gas assets of Western located in Kansas and northeast Oklahoma. In exchange for the assets, Western will receive approximately three million shares of common stock and 19 million shares of convertible preferred stock making Western the largest shareholder of the Company. The preferred stock will be non-voting and convertible into common shares only under certain circumstances. Additionally, a standstill agreement prevents Western from increasing their position in the Company for 15 years and restricts the conditions under which Western can vote any common shares created from conversion of its preferred stock. Western's gas distribution system serves 660,000 customers. The assets include 10,068 miles of pipeline, a Kansas gas processing plant with 15 million cubic feet per day capacity, a 42 percent interest in a New Mexico plant with a 200 million cubic feet per day capacity, and a natural gas marketing company with a retail marketing focus. The transaction is expected to close in mid-1997. C. REGULATORY ASSETS The following table is a summary of regulatory assets, net of amortization, outstanding at November 30, 1996 and August 31, 1996.
- ---------------------------------------------------------------- Nov. 30, Aug. 31, (Thousands of dollars) 1996 1996 - ---------------------------------------------------------------- Recoupable take-or-pay settlements $ 98,996 $100,155 Pension costs 32,380 33,426 Postretirement costs other than pensions 9,248 9,386 Postemployment benefits costs 2,975 2,975 Income tax rate changes 8,222 8,354 Unamortized gas storage costs 670 957 - ---------------------------------------------------------------- Regulatory Assets, Net $152,491 $155,253 ================================================================
D. SUPPLEMENTAL CASH FLOW INFORMATION The following table is supplemental information relative to the Company's cash flows for the three months ended November 30, 1996 and November 30, 1995.
- ---------------------------------------------------------------- Three Months Ended November 30, (Thousands of dollars) 1996 1995 - ---------------------------------------------------------------- Cash paid during the period for: Interest $7,019 $4,521 Income taxes - $2,523 Noncash transactions- Gas received as payment in kind $ 163 $ 745 Common stock issued under dividend Reinvestment program $ 572 $ 551 ================================================================
6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A. RESULTS OF OPERATIONS ONEOK Inc. provides natural gas and related products and services to its customers through regulated and nonregulated segments. The regulated business unit provides natural gas distribution and transmission services for about 75 percent of Oklahoma. The nonregulated business unit is primarily involved in the marketing, processing and production of natural gas and natural gas liquids. CONSOLIDATED OPERATIONS The Company continues to take steps to strengthen its competitive edge and position itself to be a leader in the industry. Intensive efforts to acquire additional gas distribution and transmission facilities to enhance its operations has resulted in the recent announcement of a strategic alliance to combine the natural gas assets of the Company and Western Resources. Under this alliance, the Company will own and operate the natural gas assets of Western Resources located in Kansas and northeast Oklahoma while Western Resources will become the largest equity holder of ONEOK through a combination of common and convertible preferred stock. This transaction, anticipated to close by mid-1997, will require approvals from ONEOK shareholders, the Oklahoma Corporation Commission, the Kansas Corporation Commission and the Securities and Exchange Commission, and antitrust clearance under the Hart-Scott-Rodino Act.
- ----------------------------------------------------------------- Three Months Ended November 30, (Thousands of dollars) 1996 1995 - ----------------------------------------------------------------- Financial Results Operating revenues - regulated $ 113,246 $ 104,858 Operating revenues - nonregulated 135,506 133,602 - ----------------------------------------------------------------- Total operating revenues 248,752 238,460 Operating costs 203,090 199,783 Depreciation, depletion and amortization 16,984 15,862 Operating income before taxes $ 28,678 $ 22,815 =================================================================
EARNINGS PER SHARE THREE MONTHS ENDED NOVEMBER [BAR CHART] Graph indicates Earnings Per Share for Regulated and Nonregulated companies. Regulated E.P.S. is $0.20 for 1996 and $0.23 for 1995. Nonregulated E.P.S. is $0.24 for 1996 and $0.08 for 1995. 1996 1995 [x] Regulated $0.20 $0.23 [ ] Nonregulated $0.24 $0.08 The marketing operation launched a new venture, ONEOK Producer Services, in order to bring gas marketing and other services to the small gas producer to fill a niche market. An application with FERC to market electricity was approved. 7 8 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. GAS SALES VOLUMES MMCF [BAR CHART] 1996 1995 [x] Residential 10,826 9,892 [ ] Commercial 5,419 4,744 [ ] Industrial 2,758 4,351 [ ] PCL 40,727 37,155 Graphs shows gas sales volumes for 1996 and 1995 in MMcf. 1996 volumes were PCL 40,727 MMcf. Commercial 5,419 MMcf, Industrial 2,758 MMcf and Residential 10,826 MMcf. 1995 volumes were PCL 37,155 MMcf, Commercial 4,744 MMcf, Industrial 4,351 MMcf and Residential 9,892 MMcf.
- ----------------------------------------------------------------- Three Months Ended November 30, (Thousands of dollars) 1996 1995 - ----------------------------------------------------------------- FINANCIAL RESULTS Gas sales $ 102,061 $ 92,203 Cost of gas 50,214 42,054 - ----------------------------------------------------------------- Gross margins on gas sales 51,847 50,149 Pipeline capacity lease margins 9,606 9,238 Other revenues 1,836 3,785 - ----------------------------------------------------------------- Net revenues 63,289 63,172 Operating expenses 33,390 32,511 Depreciation, depletion and amortization 12,889 12,380 - ----------------------------------------------------------------- Operating income before taxes $ 17,010 $ 18,281 =================================================================
- ----------------------------------------------------------------- Three Months Ended November 30, 1996 1995 - ----------------------------------------------------------------- GROSS MARGIN PER MCF Residential $ 3.57 $ 3.86 Commercial $ 2.30 $ 2.43 Industrial $ 0.96 $ 0.59 Pipeline capacity lease $ 0.19 $ 0.18 =================================================================
- ----------------------------------------------------------------- Three Months Ended November 30, 1996 1995 - ----------------------------------------------------------------- VOLUMES (MMCF) Gas sales Residential 10,826 9,892 Commercial 5,419 4,744 Industrial 2,758 4,351 Pipeline capacity leases 40,727 37,155 - ----------------------------------------------------------------- Total 59,730 56,142 =================================================================
Net revenues and gross margins from base sales rates increased over the same period one year ago due to an increase in the number of customers and the resulting increase in volumes sold and/or transported under a pipeline capacity lease (PCL) agreement partially offset by a decrease in the gross margin per Mcf for residential and commercial customers. Operating costs, as a percentage of net revenue, increased slightly over the same period one year ago while the number of customers served and volumes increased.
- ----------------------------------------------------------------- Three Months Ended November 30, 1996 1995 - ----------------------------------------------------------------- Number of customers 744,437 736,215 Customers per employee 417 388 Capital expenditures (thousands) $ 10,201 $ 11,040 Identifiable assets (thousands) $1,067,877 $1,063,500 =================================================================
8 9 NONREGULATED OPERATIONS ONEOK's nonregulated operations are involved in the marketing, processing and production of natural gas, oil and natural gas liquids. The gas marketing subsidiary directs its activities to the mid-continent region of the United States. The Company's interests in 15 gas liquids extraction plants and its producing properties are concentrated principally in Oklahoma. The Company also operates its headquarters office building and a parking garage.
- --------------------------------------------------------------------------- THREE MONTHS ENDED NOVEMBER 30, (THOUSANDS OF DOLLARS) 1996 1995 - --------------------------------------------------------------------------- FINANCIAL RESULTS COMBINED NONREGULATED OPERATIONS Gas sales $108,665 $117,668 Cost of gas 105,237 115,187 - --------------------------------------------------------------------------- Gross margins on gas sales 3,428 2,481 Gas and oil production 9,171 5,371 Gas processing 23,132 15,189 Other 3,918 2,664 - --------------------------------------------------------------------------- Net revenues 39,649 25,705 Operating expenses 23,885 17,690 Depreciation, depletion and amortization 4,095 3,481 - --------------------------------------------------------------------------- Operating income before taxes $ 11,669 $ 4,534 ===========================================================================
- --------------------------------------------------------------------------- THREE MONTHS ENDED NOVEMBER 30, 1996 1995 - --------------------------------------------------------------------------- COMBINED NONREGULATED NATURAL GAS OPERATIONS Natural gas volumes (MMcf) Marketing 54,587 81,535 Natural gas production 3,577 2,151 Residue gas 1,549 1,809 - --------------------------------------------------------------------------- 59,713 85,495 - --------------------------------------------------------------------------- Less intersegment sales Marketing 969 1,678 Natural gas production 1,700 840 Residue gas 1,549 1,807 - --------------------------------------------------------------------------- 4,218 4,325 - --------------------------------------------------------------------------- Net natural gas volumes 55,495 81,170 ===========================================================================
Total nonregulated operating income increased for the first quarter primarily as a result of improvements in marketing margins, product prices and gas production.
- --------------------------------------------------------------------------- THREE MONTHS ENDED NOVEMBER 30, (THOUSANDS OF DOLLARS) 1996 1995 - --------------------------------------------------------------------------- MARKETING SEGMENT Natural gas sales $108,665 $117,668 Cost of gas 105,237 115,187 - ---------------------------------------------------------------------------- Gross margins on gas sales 3,428 2,481 Other 454 271 - ---------------------------------------------------------------------------- Operating revenues 3,882 2,752 Operating costs, net 805 983 Depreciation, depletion and amortization 114 28 - ---------------------------------------------------------------------------- Operating income before taxes $ 2,963 $ 1,741 ============================================================================
- --------------------------------------------------------------------------- THREE MONTHS ENDED NOVEMBER 30, 1996 1995 - --------------------------------------------------------------------------- MARKETING SEGMENT Operating Information Natural gas volumes (MMcf) 54,587 81,535 Capital expenditures (thousands) $40 $87 Identifiable assets (thousands) $97,620 $28,500 ============================================================================
Increased profitability of the Company's gas marketing operation is attributable to operational changes implemented in fiscal 1996 which enabled the Company to capitalize on day to day pricing volatility. Such changes included increased use of gas storage facilities, hedging and transportation arbitraging. The decrease in gas marketing volumes reflects the emphasis on daily trading activity. Gross margin rose reflecting the operational changes and a significant increase in price volatility for both the physical and futures market over the same quarter one year ago. An aggressive marketing strategy using hedging and gas storage has allowed the marketing operation to take advantage of the volatility in gas prices. MARKETING MARGINS/MCF QUARTER ENDED NOVEMBER 30 [CHART] 1996 1995 ----- ----- [ ] Margins $0.06 $0.03 Graph shows Marketing margins per Mcf for 1996 and 1995. Margins for 1996 were $0.06 per Mcf and $0.03 per Mcf for 1995. 9 10
- -------------------------------------------------------------------------------- Three Months Ended November 30, (Thousands of dollars) 1996 1995 - -------------------------------------------------------------------------------- PROCESSING SEGMENT Natural gas liquids and residue sales $22,478 $14,545 Other 1 62 - -------------------------------------------------------------------------------- Operating revenues 22,479 14,607 Operating costs, net 17,001 11,852 Depreciation, depletion and amortization 521 468 - -------------------------------------------------------------------------------- Operating income before taxes $ 4,957 $ 2,287 ================================================================================
- -------------------------------------------------------------------------------- Three Months Ended November 30, 1996 1995 - -------------------------------------------------------------------------------- PROCESSING SEGMENT Operating Information Residue gas (MMcf) 1,549 1,809 Natural gas liquids (MBbls) 52,772 44,933 Average NGL's price (Bbls) $ 0.370 $ 0.266 Fuel & Shrink price (MMbtu) $ 1.84 $ 1.37 Capital expenditures (thousands) $ 316 $ 3,578 Identifiable assets (thousands) $30,086 $27,200 ================================================================================
Gas processing volumes and revenue rose reflecting improved market conditions for natural gas liquids (NGL). Product prices and processing margins, were at the highest level in recent times. This was partially offset by increased fuel and shrink costs due to higher gas prices.
- -------------------------------------------------------------------------------- Three Months Ended November 30, (Thousands of dollars) 1996 1995 - -------------------------------------------------------------------------------- PROCESSING SEGMENT Natural gas sales $ 7,288 $ 3,094 Oil residue sales 1,883 2,276 Liquids and residue 654 645 Other 100 34 - -------------------------------------------------------------------------------- Operating revenues 9,925 6,049 Operating costs, net 2,584 2,213 Depreciation, depletion and amortization 3,370 2,896 - -------------------------------------------------------------------------------- Operating income before taxes $ 3,971 $ 940 ================================================================================
- -------------------------------------------------------------------------------- Three Months Ended November 30, (Thousands of dollars) 1996 1995 - -------------------------------------------------------------------------------- PRODUCTION SEGMENT Proved Reserves Gas (MMcf) 74,766 35,294 Oil (MBbls) 1,715 3,777 - -------------------------------------------------------------------------------- Production Gas (MMcf) 3,577 2,151 Oil (MBbls) 90 138 - -------------------------------------------------------------------------------- Average price Gas (Mcf) $ 2.04 $ 1.44 Oil (Bbls) $ 21.00 $ 16.50 - -------------------------------------------------------------------------------- Capital expenditure (thousands) $ 1,380 $ 619 Identifiable assets (thousands) $72,606 $60,100 ================================================================================
Gas production volumes increased over the same quarter one year ago due to the purchase of additional producing properties during the third quarter of 1996. The increase in the average price of gas and oil is attributable to general market conditions and an aggressive marketing campaign conducted through the Company's gas marketing segment. The production operation continues to actively look for acquisitions. The operation also continues to seek opportunities to sell producing properties located outside of Oklahoma. 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. 10 11 FINANCIAL FLEXIBILITY AND LIQUIDITY Prior to closing its strategic alliance with Western Resources, the Company's goals are to continue 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 November 30, 1996, the equity component was 50 percent, which increased from 48 percent at November 30, 1995. Debt ratings are A3 by Moody's Investors Service and A- by Standard & Poor's Corporation. The Company's long-term debt represents 41 percent of total capital at November 30, 1996. Cash provided by operating activities remains 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 short-term credit agreements and, if necessary, through long-term borrowings. OPERATING CASH FLOWS Operating cash flows for the three months ended November 30, 1996, as compared to the same period in 1995 are lower. The effect of increased earnings in both the regulated and nonregulated segments was offset primarily by the timing of accounts receivables. INVESTING CASH FLOWS Capital expenditures for the three months ended November 30, 1996 and 1995 are as follows. CAPITAL EXPENDITURES THREE MONTHS ENDED NOVEMBER [CHART]
- ----------------------------------------------------------------- (MILLIONS OF DOLLARS) 1996 1995 - ----------------------------------------------------------------- Non-regulated $ 2.0 $ 4.6 Processing 0.3 3.6 Production 1.4 0.6 Other 0.3 0.4 - ----------------------------------------------------------------- Regulated $10.2 $11.0 =================================================================
1995 1996 [ ] Regulated $10,201 $11,040 [ ] Nonregulated $ 1,961 $ 4,547
Graphs show Capital expenditures for Regulated and Nonregulated companies for 1996 and 1995. Capital expenditures for regulated companies were $10,201,000 in 1996 and $11,040,000 in 1995. Nonregulated capital expenditures were $1,961,000 in 1996 and $4,547,000 in 1995. FINANCING CASH FLOW At November 30, 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. 11 12 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 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 November 30, 1996, the net deferred gain on these contracts was approximately $4 million. 12 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS UNITED STATES EX REL. JACK J. GRYNBERG V. ALASKA PIPELINE COMPANY, ET AL. (INCLUDING ONEOK INC.), No. 95-725-TFH, in the United States District Court for the District of Columbia. The Company joined with 52 other defendants in filing a motion to dismiss the claims of the plaintiff on a number of grounds. The plaintiff is to respond to the motion by January 7, 1997, and a hearing is set on March 12, 1997. 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 and related dockets (PUD 96-85, 96-100, 96-186) Oklahoma Corporation Commission. On December 17, 1996, the Commission staff filed its report finding no improprieties on the part of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual Meeting of Shareholders of ONEOK Inc. was held on December 12, 1996, 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 A directors
- --------------------------------------------------------------------------------------------------------- COMMON STOCK VOTES PREFERRED STOCK VOTES FOR WITHHELD FOR WITHHELD ---------- -------- --------- ----------- Edwyna G. Anderson 23,625,804 256,518 188,442 1,700 William L. Ford 23,663,986 218,336 188,442 1,700 Bert H. Mackie 23,657,783 224,539 188,442 1,700 Gary D. Parker 23,664,339 217,983 188,442 1,700 Stanton L. Young 23,653,328 228,994 188,442 1,700 - ---------------------------------------------------------------------------------------------------------
Class B Directors continuing after the meeting are as follows: Larry W. Brummett David L. Kyle Douglas Ann Newson, Ph.D. J. D. Scott Class C Directors continuing after the meeting are as follows: William M. Bell Douglas R. Cummings J. M. Graves Stephen J. Jatras G. Rainey Williams, M.D. 13 14 (2) Appointment of KPMG Peat Marwick LLP as independent auditors for the Company
- -------------------------------------------------------------------------------------------------- FOR AGAINST ABSTAIN ------------------------------------------------------------------ Preferred 188,152 1,106 884 Common 23,635,201 108,617 138,504 - --------------------------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits One exhibit was filed during the first quarter of the 1997 fiscal year. Exhibit (96) (a) ONEOK Inc. Financial News dated December 23, 1996 announced the intent of ONEOK Inc. to form an alliance with Western Resources. The alliance would combine the natural gas assets of both companies. (b) Reports None No financial statements were filed with the Form 8-K. 14 15 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 27th day of December, 1996. ONEOK Inc. Registrant By: /s/ J.D. NEAL ----------------------------- J.D. Neal Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer) 15 16 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 1997 FISCAL YEAR'S FIRST QUARTER ENDED NOVEMBER 30, 1996, AND THE CONSOLIDATED CONDENSED BALANCE SHEET AT NOVEMBER 30, 1996, FOR ONEOK INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS AUG-31-1997 SEP-01-1996 NOV-30-1996 13,028 0 168,987 0 102,258 304,114 1,342,855 549,660 1,287,103 265,953 0 0 9,000 208,233 211,497 1,287,103 0 248,752 0 220,074 0 0 8,839 19,839 7,665 12,174 0 0 0 12,174 0.44 0.44
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