-----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, Fg5rFXXCKc7SzKzdZYN8hRdADi+IhbdNGKIQOL64T22BMBFxfd/WrMvUzHJnKyu0 jd0SNvsWJ855rhM2xkNYMg== 0000950134-97-002523.txt : 19970401 0000950134-97-002523.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950134-97-002523 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970331 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: 97570813 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 FEBRUARY 28, 1997 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 February 28, 1997. 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 February 28, 1997, the Company had 27,815,783 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 Months and Six Months Ended February 28, 1997 and February 29, 1996 3 Consolidated Condensed Balance Sheets - February 28, 1997, and August 31, 1996 4 Consolidated Condensed Statements of Cash Flows - Six Months Ended February 28, 1997 and February 29, 1996 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
3 PART 1 - FINANCIAL INFORMATION ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended FEBRUARY 28, February 29, FEBRUARY 28, February 29, (Thousands of Dollars except per share amounts) 1997 1996 1997 1996 ------------ ------------ ------------ ------------ OPERATING REVENUES Regulated $ 282,794 $ 227,539 $ 396,041 $ 332,397 Nonregulated 190,859 237,201 326,363 370,803 ------------ ------------ ------------ ------------ Total Operating Revenues 473,653 464,740 722,404 703,200 ------------ ------------ ------------ ------------ OPERATING EXPENSES Cost of gas 344,123 336,873 506,706 498,270 Operations and maintenance 33,531 34,954 68,944 68,564 Depreciation, depletion, and amortization 19,012 15,602 35,996 31,464 General taxes 5,930 5,804 11,023 10,579 Income taxes 23,818 23,840 31,481 29,117 ------------ ------------ ------------ ------------ Total Operating Expenses 426,414 417,073 654,150 637,994 ------------ ------------ ------------ ------------ Operating Income 47,239 47,667 68,254 65,206 Interest 8,998 9,124 17,838 18,240 ------------ ------------ ------------ ------------ NET INCOME 38,241 38,543 50,416 46,966 Preferred Stock Dividends 107 107 214 214 ------------ ------------ ------------ ------------ Income Available for Common Stock $ 38,134 $ 38,436 $ 50,202 $ 46,752 ============ ============ ============ ============ Earnings Per Share of Common Stock $ 1.39 $ 1.42 $ 1.84 $ 1.73 ============ ============ ============ ============ Dividends Per Share of Common Stock $ 0.30 $ 0.29 $ 0.60 $ 0.58 ============ ============ ============ ============ Average Shares of Common Stock Outstanding (Thousands) 27,378 27,100 27,326 27,062 ============ ============ ============ ============
See accompanying notes to consolidated condensed financial statements. 4 ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
FEBRUARY 28, August 31, (Thousands of Dollars) 1997 1996 ------------ ------------ ASSETS Property $ 1,386,538 $ 1,336,652 Accumulated depreciation, depletion, and amortization 561,558 541,618 ------------ ------------ Net Property 824,980 795,034 ------------ ------------ CURRENT ASSETS Cash and cash equivalents 6,095 598 Accounts and notes receivable 232,948 119,338 Inventories 50,932 91,556 Other 27,575 21,654 ------------ ------------ Total Current Assets 317,550 233,146 ------------ ------------ DEFERRED CHARGES AND OTHER ASSETS Regulatory assets, net 149,723 155,253 Other 41,161 36,458 ------------ ------------ Total Deferred Charges and Other Assets 190,884 191,711 ------------ ------------ Total Assets $ 1,333,414 $ 1,219,891 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY COMMON SHAREHOLDER'S EQUITY Common stock without par value: authorized 60,000,000 shares; issued and outstanding 27,815,783 shares at February 28, 1997 and 27,260,646 shares at August 31, 1996 $ 222,178 $ 207,084 Retained earnings 241,402 207,611 ------------ ------------ Total Common Shareholders' Equity 463,580 414,695 ------------ ------------ 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 February 28, 1997 and August 31, 1996 9,000 9,000 ------------ ------------ Total Shareholders' Equity 472,580 423,695 ------------ ------------ LONG-TERM DEBT, EXCLUDING CURRENT PORTION 342,218 336,821 CURRENT LIABILITIES Long-term debt 18,911 15,050 Notes payable 35,066 50,223 Accounts payable 146,481 96,872 Accrued taxes 20,521 10,820 Accrued interest 7,804 7,732 Other 29,052 21,933 ------------ ------------ Total Current Liabilities 257,835 202,630 ------------ ------------ DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 182,104 180,620 Customers' advances for construction and other deferred credits 78,677 76,125 ------------ ------------ Total Deferred Credits and Other Liabilities 260,781 256,745 Commitments and Contingencies -- -- ------------ ------------ Total Liabilities and Shareholders' Equity $ 1,333,414 $ 1,219,891 ============ ============
See accompanying notes to consolidated condensed financial statements. 5 ONEOK INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended FEBRUARY 28, February 29, (Thousands of Dollars except per share amounts) 1997 1996 ------------ ------------ OPERATING ACTIVITIES Net income $ 50,416 $ 46,966 Depreciation, depletion, and amortization 35,996 31,464 Net losses of equity investees 155 1,290 Deferred income taxes (1,086) 2,604 Changes in assets and liabilities (15,916) (50,127) ------------ ------------ Cash provided by operating activities 69,565 30,907 ------------ ------------ INVESTING ACTIVITIES Changes in other investments, net 798 (2,231) Capital expenditures, net of salvage (38,304) (19,832) ------------ ------------ Cash used in investing activities (37,506) (22,063) ------------ ------------ FINANCING ACTIVITIES Payment of notes payable, net (15,158) (5,000) Payments of debt -- (41) Issuance of common stock 3,327 1,144 Dividends paid (14,731) (14,036) ------------ ------------ Cash used in financing activities (26,562) (17,933) ------------ ------------ Change in cash and cash equivalents 5,497 (9,089) Cash and cash equivalents at beginning of year 598 12,499 ------------ ------------ Cash and cash equivalents at end of year $ 6,095 $ 3,410 ============ ============
See accompanying notes to consolidated condensed financial statements. 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 and six month periods ended February 28, 1997 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 1996 consolidated condensed financial statements have been reclassified to conform with the 1997 presentation. B. SIGNIFICANT EVENTS During the first quarter of this fiscal year, 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 received upon 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. Requests for approval of the alliance have been filed with the Oklahoma Corporation Commission and the Kansas Corporation Commission. The S-4 Registration Statement is expected to be filed with the Securities and Exchange Commission by mid-April. Transition teams representing the Company and Western continue working toward a 3rd quarter 1997 closing of the transaction. C. REGULATORY ASSETS The following table is a summary of regulatory assets, net of amortization, outstanding at February 28, 1997 and August 31, 1996.
FEB. 28, AUG. 31, (THOUSANDS OF DOLLARS) 1997 1996 -------- -------- Recoupable take-or-pay settlements $ 97,831 $100,155 Pension costs 31,335 33,426 Postretirement costs other than pensions 9,111 9,386 Postemployment benefits costs 2,975 2,975 Income tax rate changes 8,088 8,354 Unamortized gas storage costs 383 957 -------- -------- Regulatory Assets, Net $149,723 $155,253 ======== ========
7 D. SUPPLEMENTAL CASH FLOW INFORMATION The following table is supplemental information relative to the Company's cash flows for the six months ended February 28, 1997 and February 29, 1996.
SIX MONTHS ENDED FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 -------- -------- Cash paid during the period for: Interest $ 17,254 $ 23,310 Income taxes $ 9,018 $ 8,132 Noncash transactions - Gas received as payment in kind $ 320 $ 1,698 Common stock issued under dividend Reinvestment program 1,894 $ 1,874 Distribution of net assets from partnership -- $ 14,625 ======== ========
In connection with the acquisition of PSEC, Inc. and other oil and gas properties, the Company issued common stock of $9.8 million, debt of $9.2 million and recognized a deferred tax liability of $3.5 million. The acquisitions were accounted for as a purchase. 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 have resulted in the first quarter announcement of a strategic alliance to combine the natural gas assets of the Company and Western Resources, Inc. (Western). Under this alliance, the Company will own and operate the natural gas assets of Western located in Kansas and northeast Oklahoma while Western will become the largest equity holder of ONEOK through a combination of common and convertible preferred stock. 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 received upon conversion of its preferred stock. Requests for approval of the alliance have been filed with the Oklahoma Corporation Commission and the Kansas Corporation Commission. This transaction is anticipated to close by September 1997 and will also require additional approvals from ONEOK shareholders and the Securities and Exchange Commission and antitrust clearance under the Hart-Scott-Rodino Act.
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 -------- -------- -------- -------- FINANCIAL RESULTS Operating revenues - regulated $282,794 $227,539 $396,041 $332,397 Operating revenues - nonregulated 190,859 237,201 326,363 370,803 -------- -------- -------- -------- Total operating revenues 473,653 464,740 722,404 703,200 Operating costs 383,584 377,630 586,673 577,413 Depreciation, depletion and amortization 19,012 15,602 35,996 31,464 -------- -------- -------- -------- Operating income before taxes $ 71,057 $ 71,508 $ 99,735 $ 94,323 ======== ======== ======== ========
EARNINGS PER SHARE 2ND QUARTER ENDED FEBRUARY [GRAPH] Graph indicates 2nd Quarter E.P.S. for Regulated and Nonregulated companies. Regulated E.P.S. is $1.13 for 1997 and $1.21 for 1996. Nonregulated E.P.S. is $0.27 for 1997 and $0.21 for 1996. EARNINGS PER SHARE SIX MONTHS ENDED FEBRUARY [GRAPH] Graph indicates 2nd Quarter Earnings Per Share for Regulated and Nonregulated companies. Regulated E.P.S. is $1.33 for 1997 and $1.44 for 1996. Nonregulated E.P.S. is $0.51 for 1997 and $0.29 for 1996. 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 (OCC)
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 -------- -------- -------- -------- FINANCIAL RESULTS Gas sales $266,654 $214,533 $368,715 $306,736 Cost of gas 178,798 119,466 229,012 161,520 -------- -------- -------- -------- Gross margins on gas sales 87,856 95,067 139,703 145,216 Pipeline capacity lease margins 11,574 12,434 21,180 21,672 Other revenues 5,057 1,356 6,893 5,141 -------- -------- -------- -------- Net revenues 104,487 108,857 167,776 172,029 Operating expenses 33,532 35,088 66,922 67,598 Depreciation, depletion and amortization 12,886 12,406 25,775 24,786 -------- -------- -------- -------- Operating income $ 58,069 $ 61,363 $ 75,079 $ 79,645 ======== ======== ======== ========
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, 1997 1996 1997 1996 -------- -------- -------- -------- GROSS MARGIN PER Mcf Residential $ 1.98 $ 1.95 $ 2.40 $ 2.41 Commercial $ 1.97 $ 1.97 $ 2.06 $ 2.08 Industrial $ 1.11 $ 1.02 $ 1.06 $ 0.83 Pipeline capacity lease $ 0.19 $ 0.21 $ 0.19 $ 0.19 ======== ======== ======== ========
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, 1997 1996 1997 1996 -------- -------- -------- -------- VOLUMES (MMcf) Gas sales Residential 30,141 31,367 40,967 41,259 Commercial 14,580 14,865 19,999 19,609 Industrial 4,749 5,277 7,507 9,628 Pipeline capacity leases 45,417 41,854 86,144 79,008 -------- -------- -------- -------- Total 94,887 93,363 154,617 149,504 ======== ======== ======== ======== Capital expenditures (thousands) $ 11,133 $ 10,132 $ 21,334 $ 21,172 ======== ======== ======== ========
FEB. 28, FEB. 29, 1997 1996 ---------- ---------- Number of customers 752,775 744,868 Customers per employee 426 402 Identifiable assets (thousands) $1,115,637 $1,114,007 ========== ==========
GAS SALES VOLUMES/MMcf SIX MONTHS ENDED FEBRUARY [GRAPH] Graph shows gas sales volumes for 1997 and 1996 in MMcf. 1997 volumes: PCL 86,144 MMcf, Commercial 19,999 MMcf, Industrial 7,507 MMcf and Residential 40,967 MMcf. 1996 volumes were PCL 79,008 MMcf, Commercial 19,609 MMcf, Industrial 9,628 MMcf and Residential 41,259 MMcf. During the second quarter, the Company filed two related applications with the Oklahoma Corporation Commission (OCC). The first was an application for approval of a plan to deregulate the transmission, gathering and storage functions of the regulated operations. If approved, these functions would be separated into a nonregulated company which would continue to provide services to the regulated operation on a competitive bid basis. Subsequent phases would further unbundle services for large industrial and commercial customers allowing them to separately contract for transmission and storage services. The second application proposed unbundling the merchant function of the regulated operations in order to provide its customers with a choice of gas supplier. Initially, large industrial and 9 commercial customers would have the opportunity to choose a qualified supplier. Small industrial and commercial customers and residential customers would be given that opportunity on May 1, 1998. These applications are in response to increasing competition in the natural gas industry, as well as to the OCC's recent decision to go forward with restructuring of the Oklahoma gas utility industry. Net revenues decreased from the same periods one year ago although volumes delivered increased. Operating costs declined from the same periods one year ago while the number of customers served increased. The reduction in operating costs is primarily attributable to lower employee benefit costs. Other revenues increased primarily due to revenues from storage of gas for an affiliate, ONEOK Gas Marketing Company. 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 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 SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 -------- -------- -------- -------- FINANCIAL RESULTS COMBINED NONREGULATED OPERATIONS Gas sales $171,471 $223,672 $280,136 $341,340 Cost of gas 165,854 216,771 271,091 331,958 -------- -------- -------- -------- Gross margins on gas sales 5,617 6,901 9,045 9,382 Gas and oil production 10,416 5,965 19,587 11,336 Gas processing (net) 10,862 4,992 18,842 10,067 Other (87) 3,262 3,831 5,926 -------- -------- -------- -------- Net revenues 26,808 21,120 51,305 36,711 Operating expenses 7,694 7,779 16,429 15,354 Depreciation, depletion and amortization 6,126 3,196 10,221 6,677 -------- -------- -------- -------- Operating income before taxes $ 12,988 $ 10,145 $ 24,655 $ 14,680 ======== ======== ======== ========
The Company adheres to a prudent risk management strategy of hedging fixed price or location differential transactions using natural gas futures contracts or other derivative agreements to offset potential price risk exposure.
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, 1997 1996 1997 1996 -------- -------- -------- -------- COMBINED NONREGULATED NATURAL GAS OPERATIONS Natural gas volumes (MMcf) Marketing 50,441 109,712 105,028 191,247 Natural gas production 3,788 1,970 7,365 4,121 Residue gas 1,446 1,766 2,995 3,575 -------- -------- -------- -------- 55,675 113,448 115,388 198,943 -------- -------- -------- -------- Less intersegment sales Marketing 2,868 3,589 3,837 5,267 Natural gas production 2,232 919 3,932 1,759 Residue gas 1,446 1,766 2,995 3,573 -------- -------- -------- -------- 6,546 6,274 10,764 10,599 -------- -------- -------- -------- Net natural gas volumes 49,129 107,174 104,624 188,344 ======== ======== ======== ========
Total nonregulated operating income increased for the same period one year ago primarily as a result of improvements in product prices and natural gas production. 10 MARKETING
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 -------- -------- -------- -------- MARKETING SEGMENT Natural gas sales $171,471 $223,672 $280,136 $341,340 Cost of gas 165,854 216,771 271,091 331,958 -------- -------- -------- -------- Gross margins on gas sales 5,617 6,901 9,045 9,382 Other 34 899 488 1,170 -------- -------- -------- -------- Operating revenues 5,651 7,800 9,533 10,552 Operating costs, net 2,685 799 3,490 1,782 Depreciation, depletion and amortization 127 215 241 243 -------- -------- -------- -------- Operating income $ 2,839 $ 6,786 $ 5,802 $ 8,527 ======== ======== ======== ========
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 -------- -------- -------- -------- OPERATING INFORMATION Natural gas volumes (MMcf) 50,441 109,712 105,028 191,247 Capital expenditures (thousands) 195 $ 29 235 $ 116 Identifiable assets (thousands) -- -- $106,969 $ 79,631 ======== ======== ======== ========
MARKETING GROSS MARGINS / Mcf 2ND QUARTER ENDED FEBRUARY [GRAPH] Graph shows 2nd Quarter Marketing margins per Mcf. Margins for 1997 were $0.11 per Mcf and $0.06 per Mcf for 1996. MARKETING GROSS MARGINS / Mcf SIX MONTHS ENDED FEBRUARY [GRAPH] Graph shows Six Months ended Marketing margins per Mcf. Margins for 1997 were $0.09 per Mcf and $0.05 per Mcf for 1996. The Company's gas marketing operation concentrates its efforts on capitalizing on day to day pricing volatility through the use of gas storage facilities, hedging and transportation arbitraging. The decrease in gas marketing volumes and gross margins for the quarter reflects the reduction in base load gas trading as compared to the same period in the prior year. The Company will continue to pursue an aggressive marketing strategy using hedging and gas storage to allow the marketing operation to take advantage of the volatility in gas prices. The increase in operating costs is due to a nonrecurring expense. 11 PROCESSING Gas processing volumes and revenue rose over the same periods one year ago reflecting improved market conditions for natural gas liquids (NGL). Product prices and processing margins continued at the highest level in recent times. Significant increases in fuel and shrink costs were minimized through hedging.
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 -------- -------- -------- -------- PROCESSING SEGMENT Gas processing (net) $ 10,155 $ 4,338 $ 17,482 $ 8,769 Other 33 9 35 71 -------- -------- -------- -------- Operating revenues 10,188 4,347 17,517 8,840 Operating costs, net 2,138 2,117 3,989 3,855 Depreciation, depletion and amortization 574 467 1,095 935 -------- -------- -------- -------- Operating income $ 7,476 $ 1,763 $ 12,433 $ 4,050 ======== ======== ======== ========
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, 1997 1996 1997 1996 -------- -------- -------- -------- PROCESSING SEGMENT Operating Information Residue gas (MMcf) 1,446 1,766 2,995 3,575 Natural gas liquids (MBbls) 55,943 49,576 108,715 94,509 Average NGL's price (Bbls) $ 0.470 $ 0.280 $ 0.420 $ 0.280 Fuel & Shrink price (MMbtu) $ 2.370 $ 1.836 $ 2.104 $ 1.612 Capital expenditures (thousands) $ 9,171 $ 436 $ 9,487 $ 4,014 Identifiable assets (thousands) -- -- $ 36,081 $ 32,348 ======== ======== ======== ========
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 -------- -------- -------- -------- PRODUCTION SEGMENT Natural gas sales $ 8,802 $ 3,619 $ 16,090 $ 6,713 Oil residue sales 1,614 2,346 3,497 4,622 Liquids and residue 707 654 1,361 1,299 Other 308 27 408 61 -------- -------- -------- -------- Operating revenues 11,431 6,646 21,356 12,695 Operating costs, net 3,070 2,414 5,654 4,627 Depreciation, depletion and amortization 5,335 2,425 8,705 5,321 -------- -------- -------- -------- Operating income $ 3,026 $ 1,807 $ 6,997 $ 2,747 ======== ======== ======== ========
THREE MONTHS ENDED SIX MONTHS ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 29, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 -------- -------- -------- -------- PRODUCTION SEGMENT Proved Reserves Gas (MMcf) -- -- 88,626 35,922 Oil (MBbls) -- -- 1,829 2,979 -------- -------- -------- -------- Production Gas (MMcf) 3,788 1,970 7,365 4,121 Oil (MBbls) 81 134 171 272 -------- -------- -------- -------- Average price Gas (Mcf) $ 2.32 $ 1.84 $ 2.18 $ 1.63 Oil (Bbls) $ 19.81 $ 17.52 $ 20.44 $ 17.00 -------- -------- -------- -------- Capital expenditures (thousands) $ 28,725 $ 841 $ 30,105 $ 1,460 Identifiable assets (thousands) -- -- $ 94,872 $ 55,892 ======== ======== ======== ========
PRODUCTION Gas production volumes increased over the same periods one year ago reflecting the effects of gas reserves acquired in the latter part of fiscal 1996 and operational changes and efficiencies. 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. Operating efficiencies also resulted in a decline of the operating cost per equivalent Mcf. The Company completed the acquisition of PSEC, Inc. an independent oil and gas producing company in February 1997. The transaction included 180 wells with proven reserves of 20 Bcf of natural gas and 167,000 barrels of oil concentrated in three counties in Oklahoma. Also included in the acquisition was PSPC, Ltd., which operates and holds a 42 percent interest in the Sycamore Gas Gathering System. The $25 million acquisition was made with a combination of cash, notes payable and ONEOK common stock, and is in keeping with the Company's objective to acquire quality producing properties in its core areas. 12 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 February 28, 1997, the equity component was 54 percent, which increased from 51 percent at August 31, 1996. 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 February 28, 1997. 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 six months ended February 28, 1997, as compared to the same period in 1996 are higher due to increased earnings and lower net invested working capital. INVESTING CASH FLOWS Capital expenditures for the six months ended February 28, 1997 and February 29, 1996 are as follows.
(MILLIONS OF DOLLARS) 1997 1996 ------ ------ Regulated $ 21.3 $ 21.2 ------ ------ Processing 9.4 4.0 Production 30.1 1.5 Other 0.6 0.1 ------ ------ Nonregulated $ 40.1 $ 5.6 ====== ======
CAPITAL EXPENDITURES SIX MONTHS ENDED FEBRUARY [GRAPH] Graph shows Capital expenditures for Regulated and Nonregulated companies for 1997 and 1996. Capital expenditures for regulated companies were $22.7 million in 1997 and $21.2 million in 1996. Nonregulated capital expenditures were $37.6 million in 1997 and $5.6 million in 1996. In connection with the acquisition of PSEC, Inc. and other oil and gas properties, the Company issued common stock of $9.8 million, debt of $9.2 million and recognized a deferred tax liability of $3.5 million. The acquisitions were accounted for as a purchase. FINANCING CASH FLOW At February 28, 1997, $361 million of long-term debt was outstanding. As of that date, the Company could have issued $315 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. 13 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 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 February 28, 1997, the net deferred gain on these contracts was approximately $2.2 million. 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS OCTAGON RESOURCES, INC. V. OKLAHOMA NATURAL GAS COMPANY, No. CJ-96-2328-L, in the District Court of Cleveland County, Oklahoma. The plaintiff brought this action against the Company for the alleged breach of a gas purchase agreement seeking to recover actual damages in excess of $10,000 and punitive damages in excess of $10,000. The plaintiff has also asserted claims for fraud and deceit and for declaratory relief to determine the rights and obligations of the parties under the agreement. The Company has filed an answer denying the claims of the plaintiff and has asserted a counterclaim seeking to recover damages from the plaintiff for its repudiation of the gas purchase agreement. The case is now in discovery. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports None No financial statements were filed with the Form 8-K. 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 31st day of March, 1997. ONEOK Inc. Registrant By: /s/ J. D. NEAL ------------------------------------ J. D. Neal Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer) 16 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ------- ------- ----------- Ex 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 ENDED FEBRUARY 28, 1997, AND THE CONSOLIDATED CONDENSED BALANCE SHEET AT FEBRUARY 28, 1997, FOR ONEOK INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR AUG-31-1997 SEP-01-1996 FEB-28-1997 6,095 0 232,948 0 50,932 317,550 1,386,538 561,558 1,333,414 257,835 0 0 9,000 222,178 241,402 1,333,414 0 722,404 0 622,669 0 0 17,838 81,997 31,481 50,416 0 0 0 50,416 1.84 1.84
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