-----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, Fj0Gnpr8lwxvUQJFU3AdES029O8ezxF1sk3M2o1roSKwn0iabXe9uWSAPDFYXaH6 vl6I0FVR/XhyIJuvqjV3zA== 0000950134-97-004846.txt : 19970625 0000950134-97-004846.hdr.sgml : 19970625 ACCESSION NUMBER: 0000950134-97-004846 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970624 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: 97628673 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, 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 May 31, 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 May 31, 1997, the Company had 27,997,925 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 Nine Months Ended May 31, 1997 and May 31, 1996 3 Consolidated Condensed Balance Sheets - May 31, 1997, and August 31, 1996 4 Consolidated Condensed Statements of Cash Flows - Nine Months Ended May 31, 1997 and May 31, 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
2 3 PART 1 - 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) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------- OPERATING REVENUES Regulated $128,970 $131,396 $525,011 $463,793 Nonregulated 102,657 158,286 429,020 529,089 - ------------------------------------------------------------------------------------------- Total Operating Revenues 231,627 289,682 954,031 992,882 - ------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of gas 138,016 195,406 644,722 693,676 Operations and maintenance 38,008 36,075 106,952 104,640 Depreciation, depletion, and amortization 19,719 24,923 55,715 56,387 General taxes 5,960 5,442 16,983 16,021 Income taxes 8,174 7,746 39,655 36,862 - ------------------------------------------------------------------------------------------- Total Operating Expenses 209,877 269,592 864,027 907,586 - ------------------------------------------------------------------------------------------- Operating Income 21,750 20,090 90,004 85,296 Interest 7,981 8,383 25,819 26,623 - ------------------------------------------------------------------------------------------- NET INCOME 13,769 11,707 64,185 58,673 Preferred Stock Dividends 71 107 285 321 - ------------------------------------------------------------------------------------------- Income Available for Common Stock $ 13,698 $ 11,600 $ 63,900 $ 58,352 =========================================================================================== Earnings Per Share of Common Stock $0.49 $0.42 $2.32 $2.15 =========================================================================================== Dividends Per Share of Common Stock $0.30 $0.30 $0.90 $0.88 =========================================================================================== Average Shares of Common Stock Outstanding (Thousands) 27,897 27,186 27,518 27,103 ===========================================================================================
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) 1997 1996 - ---------------------------------------------------------------------------------------- ASSETS Property $1,400,223 $1,336,652 Accumulated depreciation, depletion, and amortization 572,229 541,618 - ---------------------------------------------------------------------------------------- Net Property 827,994 795,034 - ---------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents 12,851 598 Accounts and notes receivable 110,310 119,338 Inventories 64,612 91,556 Other 15,892 21,654 - ---------------------------------------------------------------------------------------- Total Current Assets 203,665 233,146 - ---------------------------------------------------------------------------------------- DEFERRED CHARGES AND OTHER ASSETS Regulatory assets, net 146,949 155,253 Other 41,467 36,458 - ---------------------------------------------------------------------------------------- Total Deferred Charges and Other Assets 188,416 191,711 - ---------------------------------------------------------------------------------------- Total Assets $1,220,075 $1,219,891 ======================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY COMMON SHAREHOLDER'S EQUITY Common stock without par value: authorized 60,000,000 shares; issued and outstanding 27,997,925 shares at May 31, 1997 and 27,260,646 shares at August 31, 1996 $ 227,263 $ 207,084 Retained earnings 246,144 207,611 - ---------------------------------------------------------------------------------------- Total Common Shareholders' Equity 473,407 414,695 - ---------------------------------------------------------------------------------------- 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 August 31, 1996 -- 9,000 - ---------------------------------------------------------------------------------------- Total Shareholders' Equity 473,407 423,695 - ---------------------------------------------------------------------------------------- LONG-TERM DEBT, EXCLUDING CURRENT PORTION 332,073 336,821 CURRRENT LIABILITIES Long-term debt 15,050 15,050 Notes payable 5,069 50,223 Accounts payable 74,303 96,872 Accrued taxes 26,097 10,820 Accrued interest 12,791 7,732 Other 27,377 21,933 - ---------------------------------------------------------------------------------------- Total Current Liabilities 160,687 202,630 - ---------------------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 178,740 180,620 Customers' advances for construction and other deferred credits 75,168 76,125 - ---------------------------------------------------------------------------------------- Total Deferred Credits and Other Liabilities 253,908 256,745 - ---------------------------------------------------------------------------------------- Commitments and Contingencies -- -- - ---------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $1,220,075 $1,219,891 ========================================================================================
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 except per share amounts) 1997 1996 - ----------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 64,185 $ 58,673 Depreciation, depletion, and amortization 55,715 56,387 Net losses of equity investees 257 1,271 Deferred income taxes (8,053) (909) Changes in assets and liabilities 40,679 17,780 - ----------------------------------------------------------------------------- Cash provided by operating activities 152,783 133,202 - ----------------------------------------------------------------------------- INVESTING ACTIVITIES Changes in other investments, net 1,560 (1,821) Capital expenditures, net of salvage (58,583) (61,241) - ----------------------------------------------------------------------------- Cash used in investing activities (57,023) (63,062) - ----------------------------------------------------------------------------- FINANCING ACTIVITIES Payment of notes payable, net (54,413) (12,044) Payments of debt (4,748) (15,000) Issuance of common stock 6,704 1,144 Dividends paid (21,510) (20,763) Redemption of preferred stock (9,540) -- - ----------------------------------------------------------------------------- Cash used in financing activities (83,507) (46,663) - ----------------------------------------------------------------------------- Change in cash and cash equivalents 12,253 23,477 Cash and cash equivalents at beginning of period 598 12,499 - ----------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 12,851 $ 35,976 =============================================================================
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 and nine month periods ended May 31, 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 shareholder agreement containing standstill provisions would prevent Western from increasing their position in the Company and restricts the conditions under which Western can vote any common shares received upon conversion of its preferred stock. In preparation for the strategic alliance, the Company redeemed all of its outstanding shares of preferred stock during the third quarter of fiscal 1997. 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 (OCC) and the Kansas Corporation Commission (KCC). The OCC has issued a procedural schedule calling for a July 14 hearing on the strategic alliance, with a decision expected by the end of July. Transition teams representing the Company and Western continue working toward a September 1997 closing of the transaction. C. REGULATORY ASSETS The following table is a summary of regulatory assets, net of amortization, outstanding at May 31, 1997 and August 31, 1996.
------------------------------------------------------------ MAY 31, AUG. 31, (THOUSANDS OF DOLLARS) 1997 1996 ------------------------------------------------------------ Recoupable take-or-pay settlements $ 96,660 $100,155 Pension costs 30,289 33,426 Postretirement costs other than pensions 8,974 9,386 Postemployment benefits costs 2,975 2,975 Income tax rate changes 7,955 8,354 Unamortized gas storage costs 96 957 ------------------------------------------------------------ Regulatory Assets, Net $146,949 $155,253 ============================================================
6 7 D. SUPPLEMENTAL CASH FLOW INFORMATION The following table is supplemental information relative to the Company's cash flows for the nine months ended May 31, 1997 and 1996.
-------------------------------------------------------------------- NINE MONTHS ENDED MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 -------------------------------------------------------------------- Cash paid during the period for: Interest $20,254 $22,077 Income taxes $24,794 $21,193 Noncash transactions - Gas received as payment in kind $ 427 $ 2,132 Common stock issued under Dividend Reinvestment program $ 3,602 $ 3,411 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 acqusitions were accounted for in accordance with the purchase method. 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.
- ------------------------------------------------------------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------ FINANCIAL RESULTS Operating revenues - regulated $128,970 $131,396 $525,011 $463,793 Operating revenues - nonregulated 102,657 158,286 429,020 529,089 - ------------------------------------------------------------------------------------ Total operating revenues 231,627 289,682 954,031 992,882 Operating costs 181,984 236,924 768,657 814,337 Depreciation, depletion and amortization 19,719 24,923 55,715 56,387 - ------------------------------------------------------------------------------------ Operating income before taxes $ 29,924 $ 27,835 $129,659 $122,158 ====================================================================================
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 shareholder agreement containing standstill provisions would prevent Western from increasing their position in the Company 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 OCC and the KCC. This transaction is anticipated to close during the last half of 1997. It will also require a no-action letter or order from the Securities and Exchange Commission or its staff that as a result of the alliance the Company will not be deemed a "subsidiary company" under the Public Utility Holding Company Act of 1935. The waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 has expired. [GRAPH] Graph indicates 3rd Quarter E.P.S. for Regulated and Nonregulated companies. Regulated E.P.S. is $.40 for 1997 and $.31 for 1996. Nonregulated E.P.S. is $0.09 for 1997 and $0.11 for 1996. [GRAPH] Graph indicates FYTD Earnings Per Share for Regulated and Nonregulated companies. Regulated E.P.S. is $1.73 for 1997 and $1.75 for 1996. Nonregulated E.P.S. is $0.59 for 1997 and $0.40 for 1996. 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 (OCC)
- -------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------- FINANCIAL RESULTS Gas sales $116,824 $117,709 $485,539 $424,444 Cost of gas 56,396 61,669 285,408 223,189 - -------------------------------------------------------------------------------------------- Gross margins on gas sales 60,428 56,040 200,131 201,255 Pipeline capacity lease margins 11,102 11,461 32,282 32,214 Other revenues 1,829 3,045 8,722 9,106 - -------------------------------------------------------------------------------------------- Net revenues 73,359 70,546 241,135 242,575 Operating expenses 36,148 35,674 103,070 103,272 Depreciation, depletion and amortization 12,892 13,282 38,667 38,068 - -------------------------------------------------------------------------------------------- Operating income $ 24,319 $ 21,590 $ 99,398 $101,235 ============================================================================================
- ------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, 1997 1996 1997 1996 - ------------------------------------------------------------------------------- GROSS MARGIN PER MCF Residential $3.52 $3.08 $2.66 $2.57 Commercial $2.36 $2.07 $2.13 $2.07 Industrial $0.56 $0.86 $0.94 $0.83 Pipeline capacity lease $0.20 $0.21 $0.19 $0.20 ===============================================================================
- ------------------------------------------------------------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, 1997 1996 1997 1996 - ------------------------------------------------------------------------------------ VOLUMES (MMCF) Gas sales Residential 12,364 13,438 53,330 54,697 Commercial 6,274 7,498 26,272 27,107 Industrial 2,342 3,178 9,849 12,806 Pipeline capacity leases 45,641 39,983 131,785 118,991 - ------------------------------------------------------------------------------------ Total 66,621 64,097 221,236 213,601 ==================================================================================== Capital expenditures (thousands) $ 17,762 $ 10,611 $ 39,096 $ 31,783 ====================================================================================
---------------------------------------------------------------------- MAY 31, 1997 1996 ---------------------------------------------------------------------- Number of customers 744,096 737,948 Customers per employee 421 401 Identifiable assets (thousands) $1,061,272 $1,028,673 ======================================================================
[GRAPH] Graphs shows gas sales volume for 1997 and 1996 in MMcf. 1997 volumes: PCL 131,785 MMcf, Commercial 26,272 MMcf, Industrial 9,849 MMcf and Residential 53,330 MMcf. 1996 volumes were PCL 118,991 MMcf, Commercial 27,107 MMcf, Industrial 12,806 Mmcf and Residential 54,697 MMcf. Two related applications filed by the Company with the OCC during the second quarter have been withdrawn. The first was an application for approval of a plan to deregulate the transmission, gathering and storage functions of the regulated operations and the second was an application for approval of a plan to unbundle the merchant function of the regulated operations in order to provide its customers with a choice of gas supplier. While the Company remains committed to providing its customers with a choice of gas suppliers, it recognizes the desirability of waiting until the rules are established by the OCC. 8 9 Transportation of gas has begun to one of the natural gas fired electric generating plants owned by Public Service Company of Oklahoma (PSO). The Company will be providing transportation services to half of these plants for PSO by early fiscal 1998 with an anticipated annual delivery of 10.5 Bcf. Firm gas sales will be provided by the Company's nonregulated marketing operation. Capital expenditures include $8 million through the third quarter of fiscal 1997 and are expected to total $11.5 million when the facilities are completed. 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 NINE MONTHS ENDED MAY 31, MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------ FINANCIAL RESULTS COMBINED NONREGULATED OPERATIONS Gas sales $82,618 $133,714 $362,754 $475,054 Cost of gas 79,890 128,039 350,981 459,997 - ------------------------------------------------------------------------------------ Gross margins on gas sales 2,728 5,675 11,773 15,057 Gas and oil production 10,374 4,523 29,961 15,859 Gas processing (net) 5,296 5,717 24,138 15,784 Other 3,410 10,015 7,241 15,940 - ------------------------------------------------------------------------------------ Net revenues 21,808 25,930 73,113 62,640 Operating expenses 9,377 8,043 25,806 23,397 Depreciation, depletion and amortization 6,827 11,641 17,048 18,320 - ------------------------------------------------------------------------------------ Operating income before taxes $ 5,604 $ 6,246 $ 30,259 $ 20,923 ====================================================================================
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 NINE MONTHS ENDED MAY 31, MAY 31, 1997 1996 1997 1996 -------------------------------------------------------------------------- COMBINED NONREGULATED NATURAL GAS OPERATIONS Natural gas volumes (MMcf) Marketing 46,958 61,549 146,846 252,795 Natural gas production 3,521 1,887 10,886 6,009 Residue gas 1,541 1,693 4,536 5,268 -------------------------------------------------------------------------- 52,020 65,129 162,268 264,072 -------------------------------------------------------------------------- Less intersegment sales Marketing 2,711 1,513 6,548 6,780 Natural gas production 2,046 1,031 5,978 2,790 Residue gas 1,541 1,693 4,536 5,266 -------------------------------------------------------------------------- 6,298 4,237 17,062 14,836 -------------------------------------------------------------------------- Net natural gas volumes (MMcf) 45,722 60,892 145,206 249,236 ==========================================================================
9 10 MARKETING
- -------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------- MARKETING SEGMENT Natural gas sales $ 82,586 $133,714 $362,723 $475,054 Cost of gas 79,859 128,039 350,951 459,997 - -------------------------------------------------------------------------------------------- Gross margins on gas sales 2,727 5,675 11,772 15,057 Other 16 39 504 1,209 - -------------------------------------------------------------------------------------------- Operating revenues 2,743 5,714 12,276 16,266 Operating costs, net 938 1,010 4,428 2,793 Depreciation, depletion and amortization 121 120 362 363 - -------------------------------------------------------------------------------------------- Operating income $ 1,684 $ 4,584 $ 7,486 $ 13,110 ============================================================================================
- ----------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------- OPERATING INFORMATION Natural gas volumes (MMcf) 46,958 61,549 151,986 252,796 Capital expenditures (thousands) $60 $3 $295 $119 Identifiable assets (thousands) $65,473 $74,546 =========================================================================================
[GRAPH] Graph shows Nine Months ended May, Marketing margins per Mcf. Margins for 1997 were $0.08 per Mcf and $0.06 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 decreases in gas marketing volumes and gross margins for the current quarter reflect the reduction in base load gas trading as compared to the same period in the prior year and a lower degree of price dispersion. The increase in gross margin per Mcf for the fiscal year to date compared to the same period one year ago reflects the Company's emphasis on daily trading. 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. 10 11 PROCESSING Gas processing revenues and operating income were lower for the quarter ended May 31, 1997 compared to the same quarter one year ago due to a drop in product prices and storage of a significant volume of propane and other products. For the nine months ended May 31, 1997, gas processing revenues and operating income remained higher then the same period one year ago due to higher product prices earlier in fiscal 1997.
- ---------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------- PROCESSING SEGMENT Gas processing (net) $ 4,813 $ 5,156 $ 22,295 $ 13,925 Other (119) 188 (84) 259 - ---------------------------------------------------------------------------------------------- Operating revenues 4,694 5,344 22,211 14,184 Operating costs, net 1,896 1,902 5,885 5,757 Depreciation, depletion and amortization 649 467 1,744 1,402 - ---------------------------------------------------------------------------------------------- Operating income $ 2,149 $ 2,975 $ 14,582 $ 7,025 ==============================================================================================
- ------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, 1997 1996 1997 1996 - ------------------------------------------------------------------------------------- PROCESSING SEGMENT Operating Information Residue gas (MMBtu) 1,541 1,693 4,536 5,268 Natural gas liquids sold (MGal) 47,745 49,252 156,460 143,761 Average NGL's price (Gal) $ 0.322 $ 0.320 $ 0.390 $ 0.290 Fuel & Shrink price (MMbtu) $ 1.99 $ 1.95 $ 2.07 $ 1.73 Capital expenditures (thousands) $ 495 $ 656 $ 9,982 $ 4,670 Identifiable assets (thousands) $ 37,074 $ 27,798 =====================================================================================
PRODUCTION Gas production volumes increased over the same periods one year ago continuing to reflect 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. Other revenues for the prior year reflect the sale of producing properties in Alabama and Mississippi. Operating efficiencies also resulted in a decline of the operating cost per equivalent Mcf of sales. The decrease in depreciation, depletion and amortization reflects the Company's ongoing evaluation of its producing properties in fiscal 1997 offset by a $8.6 million impairment in fiscal 1996 in accordance with the adoption of Statement of Financial Accounting Standard No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
- --------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------- PRODUCTION SEGMENT Natural gas sales $ 8,759 $ 4,000 $ 24,849 $ 10,713 Oil residue sales 1,617 523 5,114 5,146 Liquids and residue 483 561 1,844 1,860 Other 65 7,376 473 7,437 - --------------------------------------------------------------------------------------------- Operating revenues 10,924 12,460 32,280 25,156 Operating costs, net 2,998 2,699 8,652 7,326 Depreciation, depletion and amortization 5,967 10,964 14,672 16,285 - --------------------------------------------------------------------------------------------- Operating income $ 1,959 $ (1,203) $ 8,956 $ 1,545 =============================================================================================
- -------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, (THOUSANDS OF DOLLARS) 1997 1996 1997 1996 - -------------------------------------------------------------------------------- PRODUCTION SEGMENT Proved Reserves Gas (MMcf) -- -- 78,844 31,233 Oil (MBbls) -- -- 1,583 2,701 - -------------------------------------------------------------------------------- Production Gas (MMcf) 3,521 1,887 10,886 6,009 Oil (MBbls) 80 22 252 294 - -------------------------------------------------------------------------------- Average price Gas (Mcf) $ 2.49 $ 2.12 $ 2.28 $ 1.78 Oil (Bbls) $ 20.11 $ 23.67 $ 20.33 $ 17.50 - -------------------------------------------------------------------------------- Capital expenditures (thousands) $ 5,743 $14,433 $28,920 $42,893 Identifiable assets (thousands) $98,860 $77,945 ================================================================================
As a result of the second quarter acquisition of PSEC, Inc., and affiliates, the Company became the operator and managing partner of Sycamore Gas Gathering System (Sycamore). In field drilling of the Sycamore properties has begun to enhance the proven reserves. The Company is also pursuing other opportunities in gathering operations. 11 12 FINANCIAL FLEXIBILITY AND LIQUIDITY Prior to closing its strategic alliance with Western, 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, 1997, the equity component was 57 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 42 percent of total capital at May 31, 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 nine months ended May 31, 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 nine months ended May 31, 1997 and 1996 are as follows.
----------------------------------- (MILLIONS OF DOLLARS) 1997 1996 ----------------------------------- Regulated $39.1 $31.8 ----------------------------------- Processing 10.0 4.7 Production 28.9 42.9 Other .9 .2 ----------------------------------- Nonregulated $39.8 $47.8 ===================================
[GRAPH] Graph shows Capital expenditures for Regulated and Nonregulated companies for the nine months ended 1997 and 1996. Capital expenditures for regulated companies were $39.1 million in 1997 and $31.8 million in 1996. Nonregulated capital expenditures were $39.8 million in 1997 and $47.8 million in 1996. FINANCING CASH FLOW At May 31, 1997, $347 million of long-term debt was outstanding. As of that date, the Company could have issued $313 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. 12 13 LIQUIDITY The regulated segment continues to face competitive pressure in serving 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 May 31, 1997, the net deferred gain on these contracts was approximately $3.8 million. 13 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. Settlement discussions are in progress. 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 motion was granted on March 27, 1997. The Plaintiff has not filed an appeal and the time for appeal has expired. 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"). Fent appealed the decision of the District Court and the appeal was referred to the Court of Appeals for decision. All briefs have been filed. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports On April 25, 1997 the Company filed a form 8-K concerning the death of ONEOK Board member Dr. G. Rainey Williams. 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 20th day of June, 1997. 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 NINE MONTHS ENDED MAY 31, 1997, AND THE CONSOLIDATED CONDENSED BALANCE SHEET AT MAY 31, 1997, 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 MAY-31-1997 12,851 0 110,310 0 64,612 203,665 1,400,223 572,229 1,220,075 160,687 0 0 0 227,263 264,144 1,220,075 0 954,031 0 864,027 0 0 25,819 103,840 39,655 64,185 0 0 0 63,900 0.90 0.90
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