<PAGE> 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, 1998.
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 001-13643
ONEOK, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1520922
(State or other jurisdiction of (I.R.S. Employer
incorporation of 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, 1998, the Company had 31,515,976 shares of common stock outstanding.
<PAGE> 2
ONEOK, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C>
Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended
May 31, 1998 and 1997 3
Consolidated Condensed Balance Sheets -
May 31, 1998, and August 31, 1997 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended May 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 16
PART II - OTHER INFORMATION 17
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ONEOK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of Dollars, except per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Regulated $256,434 $128,970 $845,385 $525,011
Nonregulated 187,614 102,657 634,877 429,020
- --------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 444,048 231,627 1,480,262 954,031
- --------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas 287,633 123,396 971,610 594,972
Operations and maintenance 69,798 52,439 202,433 156,752
Depreciation, depletion, and amortization 26,799 19,719 71,258 55,715
General taxes 9,768 5,960 25,176 16,983
Income taxes 17,270 8,174 71,319 39,655
- --------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 411,268 209,688 1,341,796 864,077
- --------------------------------------------------------------------------------------------------------------------
Operating Income 32,780 21,939 138,466 89,954
Interest 5,844 8,170 25,174 25,769
- --------------------------------------------------------------------------------------------------------------------
NET INCOME 26,936 13,769 113,292 64,185
Preferred Stock Dividends 8,983 71 17,959 285
- --------------------------------------------------------------------------------------------------------------------
Income Available for Common Stock $17,953 $13,698 $95,333 $63,900
====================================================================================================================
Earnings Per Share of Common Stock - Basic $0.57 $0.49 $3.13 $2.32
====================================================================================================================
Earnings Per Share of Common Stock - Diluted $0.52 $0.49 $2.59 $2.32
====================================================================================================================
Dividends Per Share of Common Stock $0.30 $0.30 $0.90 $0.90
====================================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
ONEOK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MAY 31, August 31,
(Thousands of Dollars) 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Property $2,239,680 $1,429,493
Accumulated depreciation, depletion, & amortization 596,810 586,156
- ---------------------------------------------------------------------------------------------------------
Total property 1,642,870 843,337
- ---------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents 26,734 14,377
Accounts and notes receivable 212,196 100,937
Inventories 99,814 78,330
Other current assets 12,598 13,633
- ---------------------------------------------------------------------------------------------------------
Total current assets 351,342 207,277
- ---------------------------------------------------------------------------------------------------------
DEFERRED CHARGES AND OTHER ASSETS:
Regulatory assets, net 171,764 144,712
Goodwill 90,924 4,756
Other 52,107 37,325
- ---------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 314,795 186,793
- ---------------------------------------------------------------------------------------------------------
Total assets $2,309,007 $1,237,407
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
COMMON SHAREHOLDER'S EQUITY:
Common stock with $0.01 par value: authorized 100,000,000 shares:
issued and outstanding 31,515,976 shares at May 31, 1998 $316 -
and no par value 28,079,783 shares at August 31, 1997. - $229,803
Premium on capital stock 326,821 -
Retained earnings 300,786 232,823
- ---------------------------------------------------------------------------------------------------------
Total common shareholders' equity 627,923 462,626
Convertible preferred stock: $0.01 par value, Series A authorized
20,000,000 shares; issued and outstanding 19,946,448 shares
at May 31, 1998 199 -
Series B authorized 30,000,000 shares; issued and outstanding
60,526 at May 31, 1998 1 -
Premium on preferred stock 567,222 -
TOTAL SHAREHOLDERS' EQUITY 1,195,345 462,626
- ---------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 314,355 328,214
CURRENT LIABILITIES:
Long-term debt 18,909 18,909
Notes payable 105,000 45,000
Accounts payable 158,177 80,155
Accrued taxes 36,901 12,996
Accrued interest 12,871 7,376
Unrecovered Purchased Gas Costs 22,154 -
Other 48,778 24,611
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 402,790 189,047
- ---------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 275,303 183,991
Customers' advances for construction
and other deferred credits: 121,214 73,529
- ---------------------------------------------------------------------------------------------------------
TOTAL DEFERRED CREDITS AND OTHER LIABILITIES 396,517 257,520
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,309,007 $1,237,407
=========================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
(Thousands of Dollars) 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income 113,292 64,185
Depreciation, depletion, and amortization 75,353 55,715
Net losses of equity investees - 257
Deferred income taxes (2,156) (8,053)
Other (17,564) -
Changes in assets and liabilities 203,290 40,679
- ----------------------------------------------------------------------------------
Cash provided by operating activities 372,215 152,783
- ----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Changes in other investments, net (632) 1,560
Acquisition, net (2,829) -
Capital expenditures, net of salvage (201,566) (58,583)
- ----------------------------------------------------------------------------------
Cash used in investing activities (205,027) (57,023)
- ----------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of notes payable, net (101,698) (54,413)
Payment of long-term debt (13,859) (4,748)
Issuance of common and preferred stock 6,055 6,704
Dividends paid (45,329) (21,510)
Redemption of preferred stock - (9,540)
- ----------------------------------------------------------------------------------
Cash used in financing activities (154,831) (83,507)
- ----------------------------------------------------------------------------------
Change in cash and cash equivalents 12,357 12,253
Cash and cash equivalents at beginning of period 14,377 598
- ----------------------------------------------------------------------------------
Cash and cash equivalents at end of period $26,734 $12,851
==================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. ONEOK, Inc., formerly WAI, Inc. (The Company or
New ONEOK) is successor by merger of ONEOK Inc. (Old ONEOK). The Company
acquired the gas business of Western Resources, Inc. and merged with Old ONEOK
on November 26, 1997, however, the transaction was effective November 30, 1997,
for financial reporting purposes.
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 nine months
ended May 31, 1998, are not necessarily indicative of the results that may be
expected for the year ended August 31, 1998. 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, 1997.
RECLASSIFICATION. Certain amounts in the May 1997 consolidated
condensed financial statements have been reclassified to conform with the May
1998 presentation.
B. SIGNIFICANT EVENTS
ONEOK Resources, whose strategy is to acquire additional natural gas
reserves in Oklahoma and Kansas which in turn adds value to all of the Company's
operations, finalized the $127 million purchase of oil and gas reserves from OXY
USA, Inc. The reserves purchased include low risk development potential with 400
wells located in Oklahoma and Kansas. Net production is approximately 30 million
cubic feet of gas per day and 400 barrels of oil per day and includes a gas
sweetening plant located in the Aledo Field. Based on projected reserves, this
transaction will almost double the Company's oil and gas reserves and will
provide the Company, for the first time, with reserves located in Kansas.
On June 2, 1998, ONEOK Resources acquired a 40 percent equity interest in K.
Stewart Petroleum Corp., an Oklahoma City-based independent oil and gas
producer. This acquisition creates increased opportunities for the Company to
expand its oil and gas reserve base in the Anadarko Basin, one of North
America's most prolific gas fields. K. Stewart Petroleum Corp. has been
successful in applying new exploration and drilling technologies including 3-D
seismic, directional drilling, magnetic resonance imaging, and advanced
completion and stimulation techniques. Gross cumulative discoveries through
December 31, 1997, exceed 100 Bcfe.
On May 29, 1998 the Company closed the purchase of an additional 55 percent
interest in the Sycamore Gas Gathering System located in Carter County,
Oklahoma, from Continental Natural Gas, Inc. (CNG). The Company is the operator
of the Sycamore Gas Gathering System and a major gas producer in the area. The
transaction increases the Company's ownership of the system to 97 percent. In a
separate transaction, CNG acquired the Company's minority ownership in the
Laverne gas processing plant located in Harper County, Oklahoma.
On November 26, 1997 (the Acquisition Date), the Company acquired substantially
all of the natural gas assets of Western Resources, Inc. (Western), a
diversified natural gas and electric utility company. For accounting purposes
the acquisition became effective November 30, 1997, and Western received the
financial benefits of the Gas Business through that date. The acquisition was
accounted for as a purchase and, accordingly, the operating results of the gas
properties acquired from Western are included in the consolidated financial
statements since December 1, 1997. The aggregate purchase price, prior to the
working capital adjustment, was approximately $666 million, including
transaction costs. The aggregate purchase price, which was funded through the
issuance of a combination of preferred and common stock, was allocated based on
the estimated fair market value of the net assets. The excess of the purchase
price
6
<PAGE> 7
over assets acquired (goodwill) approximated $88 million and is being amortized
over 40 years.
The table of unaudited pro forma information presents a summary of consolidated
results of operations of the Company as if the acquisition of the gas business
had occurred at the beginning of fiscal 1997, with pro forma adjustments to
give effect to the working capital adjustment. These results do not necessarily
reflect the results which would have been obtained if the merger had actually
occurred on the dates indicated or the results which may be expected in the
future.
<TABLE>
<CAPTION>
Pro Forma
Nine Months Ended
(Thousands of dollars, May 31,
except per share amounts) 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Total operating revenues $1,679,501 $1,680,002
Operating income $207,520 $194,343
Net income $116,005 $97,257
Preferred stock dividends $26,935 $26,935
Income available for common stock $89,070 $70,322
Earnings per share of common stock - basic $2.93 $2.30
Earnings per share of common stock - diluted $2.63 $1.96
- ------------------------------------------------------------------
</TABLE>
C. REGULATORY ASSETS
The table presents a summary of regulatory assets, net of amortization,
outstanding at May 31, 1998, and August 31, 1997. The Western transaction
increased regulatory assets by approximately $36 million.
<TABLE>
<CAPTION>
MAY 31, August 31,
(Thousands of Dollars) 1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Recoupable take-or-pay $91,911 $95,482
Pension costs 26,108 29,244
Postretirement costs other than pension 22,824 8,836
Postemployment benefits 4,485 3,327
Service line replacement 5,599 -
Rate Case 171 -
Transition Costs 13,242 -
Income tax rate change 7,424 7,823
Regulatory Assets, Net $171,764 144,712
===========================================================
</TABLE>
D. SUPPLEMENTAL CASH FLOW INFORMATION
The table presents supplemental information relative to the Company's
cash flows for the nine months ended May 31, 1998 and 1997.
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
(Thousands of Dollars) 1998 1997
- -----------------------------------------------------------
Cash paid during the period for:
<S> <C> <C>
Interest $19,679 $17,254
Income taxes $53,272 $9,018
Noncash transactions:
Gas received as payment in kind $207 $320
Common stock issued under dividend
reinvestment program - $1,894
Acquisition of assets and liabilities
Plant, property and equipment $642,752 -
Current assets $232,338 -
Deferred debits 120,848
Current liabilities ($24,468) -
Debt assumed ($161,698) -
Deferred credits ($54,774) -
Deferred income taxes ($93,468) -
Stock ($658,701) -
- -----------------------------------------------------------
Cash Paid $2,829 -
===========================================================
</TABLE>
7
<PAGE> 8
E. EARNINGS PER SHARE INFORMATION
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"), during the second quarter. All prior
periods have been restated. SFAS 128 replaces the "primary earnings per share"
("primary EPS") and "fully diluted earnings per share" ("fully diluted EPS")
with "basic earnings per share" ("basic EPS") and "diluted earnings per share"
("diluted EPS"). Unlike the calculation of primary EPS which includes, in its
denominator, "common stock equivalents" basic EPS is calculated using only the
actual weighted average shares outstanding during the relevant periods. The
following is a required reconciliation of the numerators and denominators of
the basic and diluted EPS computations.
<TABLE>
<CAPTION>
Three Months Ended May 31, 1998 Nine Months Ended May 31, 1998
Per Share Per Share
(In Thousands) Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common stockholders $17,953 31,536 $0.57 $95,333 30,424 $3.13
===== =====
EFFECT OF DILUTIVE SECURITIES
Options 75 56
Convertible preferred stock 8,983 19,978 17,959 13,248
----- ------ ------ ------
DILUTED EPS
Income available to common stockholders
+ assumed conversions $26,936 51,589 $0.52 $113,292 43,728 $2.59
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended May 31, 1997 Nine Months Ended May 31, 1997
Per Share Per Share
(In Thousands) Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common stockholders $13,698 27,897 $0.49 $63,900 27,518 $2.32
===== =====
EFFECT OF DILUTIVE SECURITIES
Options
Convertible preferred stock
DILUTED EPS
Income available to common stockholders
+ assumed conversions $13,698 27,897 $0.49 $63,900 27,518 $2.32
============================================================================================================
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this discussion that include company
expectations or predictions of the future are forward-looking statements
intended to be covered by the safe harbor provisions of the Securities Act of
1933 and the Securities Exchange Act of 1934. It is important to note that
actual results of company earnings could differ materially from those projected
in such forward-looking statements.
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 to
three-fourths of Oklahoma and two-thirds of Kansas. The Company is the eighth
largest natural gas distribution company in the United States in terms of
numbers of customers. The nonregulated business unit is primarily involved in
the marketing, processing, and production of natural gas and natural gas
liquids.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Operating revenues - regulated $256,434 $128,970 $845,385 $525,011
Operating revenues - nonregulated 187,614 102,657 634,877 429,020
- ------------------------------------------------------------------------------------------
Total operating revenues 444,048 231,627 1,480,262 954,031
Operating costs 367,199 181,795 1,199,219 768,707
Depreciation, depletion and amortization 26,799 19,719 71,258 55,715
- ------------------------------------------------------------------------------------------
Operating income before taxes $50,050 $30,113 $209,785 $129,609
==========================================================================================
</TABLE>
CONSOLIDATED OPERATIONS
The Company continues to seek opportunities to strengthen its
competitive edge and position itself to be a leader in the industry. The Company
just completed the second quarter of operation of the gas assets acquired
through the strategic alliance with Western. This alliance allowed the Company
to extend its regulated operation into the state of Kansas and serve two-thirds
of that state. Additionally, the Company purchased natural gas and oil reserves
located in Kansas and Oklahoma from OXY USA, Inc. The purchase is consistent
with the Company's strategy of focusing reserve ownership close to other
business operations, including natural gas distribution, marketing, processing,
and transmission and storage. This purchase is significant because the Company,
while being the major gas distributor in the state of Kansas, owned no reserves
in Kansas prior to this acquisition. The additional reserves will almost double
the Company's oil and gas reserve base.
During the third quarter, the Company completed the purchase of an additional 55
percent ownership interest in the Sycamore Gas Gathering System, increasing
ownership to 97 percent. The purchase, effective June 1, gives the Company
control over the company- owned production in the area located near the
gathering system. On June 2, 1998 the Company acquired a 40 percent interest in
K. Stewart Petroleum Corp., an independent oil and gas producer. In a separate
transaction the Company sold its minority ownership in the Laverne gas
processing plant.
[BASIC EARNINGS PER SHARE GRAPH] [DILUTED EARNINGS PER SHARE GRAPH]
<TABLE>
<CAPTION>
1998 1997 Diluted 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
E.P.S. $3.13 $2.32 E.P.S. $2.59 $2.32
</TABLE>
9
<PAGE> 10
REGULATORY. The Kansas Corporation Commission (KCC) has approved a pilot program
designed to moderate the cost its customers pay for natural gas in cold weather
months. Under the program, the Company will use hedges to cap the price of its
anticipated winter heating season gas purchases in order to protect customers
from the upward volatility during the winter heating months.
During third quarter, the Company asked the KCC to approve a pilot program in
Kansas that would offer some residential customers the option of paying a fixed
monthly bill. The proposed program would allow a qualified residential customer
the option of paying an amount based on the projected average annual bill rather
than actual usage. A similar program is already in effect for customers in
Oklahoma.
Also during third quarter, the Company filed an application in Oklahoma in
compliance with the Oklahoma Corporation Commission's (OCC) new rules governing
the restructuring of the state's natural gas industry. The filing details how
the Company plans to solicit competitive bids for "upstream" services, including
gas transportation, storage and supply, that are required by the Company's
distribution system. The filing also requests permission to lower the volume
requirements for commercial and industrial customers who wish to participate in
the Pipeline Capacity Lease program (PCL). If approved, the customer's bill
would include the distribution service charge and the natural gas consumed,
including associated transportation, gathering, and storage fees, taxes, and
other Commission-approved charges.
YEAR 2000. Management has initiated an enterprise-wide program to prepare the
Company's computer systems and applications for the year 2000. The Company
expects to incur internal installation costs as well as other expenses related
to infrastructure and facilities enhancements necessary to prepare the systems
for the year 2000. Testing and conversion of system applications is estimated to
cost between $1.0 million and $1.5 million and be completed by early 1999. A
significant proportion of these costs are not likely to be incremental costs to
the Company, but rather will represent the redeployment of existing information
technology resources.
REGULATED OPERATIONS
ONEOK's regulated operations in Oklahoma are conducted through Oklahoma Natural
Gas Company Division (ONG), an integrated intrastate natural gas distribution
and transmission business which serves residential, commercial, and industrial
customers in the state of Oklahoma and ONEOK Gas Transportation Company. ONEOK
Gas Transportation, a wholly- owned subsidiary, has exclusive rights to
competitively bid transmission service ("upstream activities") into the
distribution system. ONG also leases space in its pipeline system under its PCL
program to large volume customers for their use in transporting natural gas to
their facilities. ONG is subject to regulatory oversight by the OCC. ONEOK's
regulated operations in Kansas are conducted through Kansas Gas Service Company
Division (KGS) and Mid Continent Market Center (MCMC), an affiliated
transmission company. KGS serves residential, commercial, and industrial
customers and provides end-use customer transportation (ECT). KGS also conducts
regulated gas distribution operations in northeastern Oklahoma. KGS and MCMC
are subject to regulatory oversight by the KCC and/or the OCC.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Gas Sales $230,306 $116,824 $779,197 $485,539
Cost of Gas 135,345 56,396 477,655 285,408
- ---------------------------------------------------------------------------------------------
Gross margins on gas sales 94,961 60,428 301,542 200,131
Pipeline capacity lease margins 25,088 11,102 59,740 32,282
Other revenues 8,155 1,829 22,664 8,722
- ---------------------------------------------------------------------------------------------
Net revenues 128,204 73,359 383,946 241,135
Operating expenses 68,533 35,958 167,784 103,112
Depreciation, depletion and amortization 22,117 12,892 57,402 38,667
- ---------------------------------------------------------------------------------------------
Operating income before taxes $37,554 $24,509 $158,760 $99,356
=============================================================================================
</TABLE>
10
<PAGE> 11
Net revenues and operating expenses increased over the same period one year ago,
primarily due to inclusion of KGS's and MCMC's operations since December 1,
1997. On a pro forma basis, assuming the Western acquisition had occurred at the
beginning of fiscal 1997, net revenues and operating expenses would have been
$431 million and $204 million, respectively, for the nine months ended 1998 as
compared to $435 million and $220 million respectively, for the nine months
ended 1997. The decrease in pro forma net revenues in the current year reflects
the fact that KGS's rates are not weather normalized as are ONG's and,
accordingly, were negatively impacted by warmer than normal weather. Pro forma
operating expenses have declined in the current year reflecting ongoing efforts
to improve operating efficiencies while increasing total customers served.
Personnel costs, including pensions and postretirement costs, on a pro forma
basis, decreased from the prior year partially due to a reduced personnel
complement achieved solely through attrition. Other cost reductions related to
occupancy costs and reduced levels of contract labor.
Identifiable assets at May 31, 1998, included $972.6 million acquired through
the alliance with Western.
<TABLE>
<CAPTION>
May 31,
1998 1997
- -----------------------------------------------------------
Number of customers
<S> <C> <C>
Oklahoma 750,852 744,096
Kansas 661,633 -
- -----------------------------------------------------------
Total 1,412,485 744,096
===========================================================
Customers per employee
Oklahoma 491 421
Kansas 492 -
Identifiable assets (thousands) $1,942,762 $1,061,272
===========================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Margin per Mcf
OKLAHOMA
Residential $3.42 $3.25 $2.73 $2.69
Commercial $2.46 $2.26 $2.33 $2.15
Industrial $1.07 $0.56 $1.12 $0.94
Pipeline capacity leases $0.27 $0.20 $0.24 $0.19
KANSAS
Residential $2.22 - $2.04 -
Commercial $1.77 - $1.68 -
Industrial $1.91 - $1.90 -
End-use customer transportation $0.55 - $0.61 -
==========================================================================
</TABLE>
The statistics presented for the nine months ended May 31 include volumes
attributable to Kansas Gas Service since
December 1, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Volumes (MMcf)
Gas sales
Residential 28,490 13,515 96,402 54,564
Commercial 11,192 6,599 38,756 26,816
Industrial 1,743 2,344 6,342 9,850
PCL and ECT 56,776 45,641 154,755 131,785
- ------------------------------------------------------------------------
Total Gas Sales, PCL AND ECT 98,201 68,099 296,255 223,015
========================================================================
Capital expenditures (thousands)
Oklahoma 16,679 17,762 51,824 39,096
Kansas 11,204 - 20,838 -
========================================================================
</TABLE>
[GAS SALES, PCL & ECT VOLUMES GRAPH]
[GAS SALES, PCL & ECT VOLUMES (MMcf)GRAPH]
11
<PAGE> 12
Nonregulated Operations
ONEOK's nonregulated operations are involved in the marketing, gathering and
processing, and production of natural gas and natural gas liquids. The gas
marketing subsidiary has directed its activities toward wholesale sales in the
mid-continent region of the United States. The Company's interests in gas
liquids extraction plants and producing properties have been concentrated
principally in Oklahoma. The Company also operates its headquarters office
building and a parking garage. With the closing of the transaction with Western,
the nonregulated operations acquired additional marketing and processing
businesses which complement the existing businesses. For the marketing
operation, the acquisition provided a retail focus. In the processing operation,
an additional 34 percent interest in the Indian Basin Plant in New Mexico was
acquired, bringing the total to 42 percent.
The Company adheres to a prudent risk management strategy of hedging fixed price
or location differential transactions using natural gas contracts or other
derivative agreements to offset potential price risk exposure.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
COMBINED NONREGULATED OPERATIONS
Gas Sales $174,093 $82,618 $561,089 $362,754
Cost of Gas 167,948 79,890 545,873 350,981
- ---------------------------------------------------------------------------------------
Gross margins on gas sales 6,145 2,728 15,216 11,773
Gas and oil production 8,776 10,374 28,881 29,961
Gas processing (net) 4,532 5,296 18,626 24,138
Other 7,542 3,410 30,818 7,241
- ---------------------------------------------------------------------------------------
Net revenues 26,995 21,808 93,541 73,113
Operating expenses 9,817 9,377 28,660 25,814
Depreciation, depletion and amortization 4,682 6,827 13,856 17,048
- ---------------------------------------------------------------------------------------
Operating income $ 12,496 $5,604 $51,025 $30,251
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
COMBINED NONREGULATED Three Months Ended Nine Months Ended
NATURAL GAS OPERATIONS May 31, May 31,
1998 1997 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Natural gas volumes (MMcf)
Marketing 89,829 46,958 241,367 151,986
Natural gas production 3,710 3,521 10,989 10,172
Residue gas 1,380 1,541 4,354 4,536
- -----------------------------------------------------------------
Total natural gas volumes 94,919 52,020 256,710 166,694
- -----------------------------------------------------------------
Less intersegment sales
Marketing 2,672 2,711 10,723 6,548
Natural gas production 1,177 2,046 3,646 5,978
Residue gas 1,380 1,541 4,354 4,536
- -----------------------------------------------------------------
Total intersegment sales 5,229 6,298 18,723 17,062
- -----------------------------------------------------------------
Net natural gas volumes 89,690 45,722 237,987 149,632
=================================================================
</TABLE>
12
<PAGE> 13
MARKETING
Gas margins increased over the same period one year ago due to increased
volumes. For the quarter, the margin per Mcf increased over one year ago due to
the effect of an abnormally cool spring. However, for the fiscal year, the
margin per Mcf remained down over one year ago due to lack of extreme weather
changes across the country during this year's winter. This resulted in less
volatility in prices and less opportunity to take advantage of the volatility.
Sales volumes increased partly due to additional customers acquired in the
alliance with Western. The increase in other revenues includes the recovery of
prior period costs.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Natural gas sales $174,093 $82,618 $561,089 $362,754
Cost of Gas 167,948 79,890 545,873 350,981
- ---------------------------------------------------------------------------------
Gross margins on gas sales 6,146 2,728 15,216 11,773
Other 772 16 3,585 504
- ---------------------------------------------------------------------------------
Operating revenues 6,918 2,744 18,802 12,277
Operating costs, net 2,025 949 4,933 4,439
Depreciation, depletion and amortization 145 121 456 362
- ---------------------------------------------------------------------------------
Operating income $4,749 $1,674 $13,412 $7,476
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING INFORMATION
Natural gas volumes (MMcf) 89,829 46,958 241,367 151,986
Capital expenditures (thousands) $ 0 $ 60 $ 112 $ 295
=================
Identifiable assets (thousands) $170,384 $ 65,473
=============================== ====================
</TABLE>
GATHERING AND PROCESSING
The Company's sale in February 1998 of 11 gas processing plants resulted in a
decrease in volumes for the third quarter over the same period one year ago. For
the nine months, volumes remained up over one year ago as a result of the
additional interest in the Indian Basin Plant. Average NGL price per gallon
decreased for both the quarter and the nine months. NGL prices continued to
experience a downward correction from the abnormally high prices prevalent
throughout much of fiscal 1997 and coincide with a decline in crude oil prices.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gas processing (net) $4,352 $4,813 $17,666 $22,295
Gathering and other 3,703 (119) 18,395 (84)
- ---------------------------------------------------------------------------------
Operating revenues 8,055 4,694 36,061 22,211
Operating costs, net 2,007 1,896 5,717 5,885
Depreciation, depletion and amortization 550 649 1,709 1,744
- ---------------------------------------------------------------------------------
Operating income $5,498 $2,149 $28,635 $14,582
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING INFORMATION
Residue gas (MMcf) 1,380 1,541 4,354 4,536
Natural gas liquids (MGal) 30,809 47,745 166,832 156,460
Average NGL's price (MGal) $ 0.274 $ 0.322 $0.313 $ 0.390
Fuel & Shrink price (MMbtu) $ 2.31 $ 1.99 $2.56 $ 2.07
Capital expenditures (thousands) $12,340 $ 495 $14,091 $ 9,982
===================
Identifiable assets (thousands) $70,652 $ 37,074
=============================== ==================
</TABLE>
The purchase of an additional 55 percent interest in the Sycamore Gas Gathering
System effective June 1, 1998, gives the Company control over the company-owned
production in that area. The sale of the Company's interest in the 12 gas
processing plants during the second and third quarter resulted in a book gain
and eliminated the Company's interest in "fuel-and-shrink" plants, which are
subject to volatile swings in profitability.
13
<PAGE> 14
PRODUCTION
The increased gas production is primarily related to the additional proved
reserves acquired from PSEC and Washita Production Company in the second quarter
of 1997 and 1998, respectively. Production from these properties more than
offset the natural decline in production from other fields. The increase in
operating costs for the three and nine month periods in 1998 as compared to the
same periods in the prior year is indicative of the increase in the total number
of fields owned or operated by the Company. Depreciation, depletion, and
amortization expense is higher in 1998 reflecting the increased level of
production; this, however, was offset in the prior year by an impairment loss on
certain marginal properties. No impairment expense has been recognized in fiscal
1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Natural gas sales $7,617 $8,759 $25,081 $24,849
Oil sales 1,160 1,617 3,801 5,114
Liquids and residue 180 483 960 1,844
Other 113 65 1,028 473
- ---------------------------------------------------------------------------------
Operating revenues 9,070 10,924 30,870 32,280
Operating costs, net 3,251 2,998 10,311 8,652
Depreciation, depletion and amortization 3,893 5,967 11,409 14,672
- ---------------------------------------------------------------------------------
Operating income $1,926 $1,959 $9,150 $8,956
=================================================================================
</TABLE>
The Company finalized the purchase of natural gas and oil reserves from OXY USA,
Inc. The reserves are located in Kansas and Oklahoma and include more than 400
wells. Net production is approximately 30 million cubic feet of gas per day and
400 barrels of oil per day. The purchase price is approximately $135 million
before adjustments.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Proved reserves
Gas (MMcf) - - 175,327 78,844
Oil (MBbls) - - 3,676 1,583
- -----------------------------------------------------------------------------
Production
Gas (MMcf) 3,710 3,521 10,989 10,886
Oil (MBbls) 79 80 221 246
- -----------------------------------------------------------------------------
Average price
Gas (Mcf) $ 2.05 $2.49 $ 2.28 $ 2.28
Oil (Bbls) $ 14.68 $20.21 $ 17.20 $ 20.79
- -----------------------------------------------------------------------------
Capital expenditures (thousands) $ 133,750 $5,743 $160,184 $28,920
==================
Identifiable assets (thousands) $107,798 $98,860
=============================== =================
</TABLE>
A 40 percent interest in the K. Stewart Petroleum Corp., was acquired on June 2,
1998. The acquisition creates opportunities to expand oil and gas reserves in
the Anadarko Basin. The transaction helps the Company achieve its strategic
objective of growing its reserves base in areas where it has other
energy-related operations.
14
<PAGE> 15
FINANCIAL FLEXIBILITY AND LIQUIDITY
Due to the closing of the strategic alliance with Western, the Company's
capitalization structure changed from a ratio of 54 percent equity and 46
percent debt (including short-term debt) at August 31, 1997, to 73 percent
equity and 27 percent debt at May 31, 1998. On December 1, 1997, Moody's
Investors Service announced that it had upgraded the Company's debt rating from
A3 to A2 due to the benefits expected from the acquisition, including
strengthened market and financial positions. The debt rating by Standard and
Poor's Corporation remains at A-.
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, 1998, as compared to the
same period in 1997 are higher due to increased operating income and changes in
assets and liabilities.
INVESTING CASH FLOWS
Capital expenditures for the nine months ended May 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1998 1997
- -------------------------------------------
<S> <C> <C>
Regulated $ 72.6 $39.1
- -------------------------------------------
Processing $ 14.1 $10.0
Production $160.0 $28.9
Other $ 0.7 $ 0.9
- -------------------------------------------
Nonregulated $174.8 $39.8
===========================================
</TABLE>
[CAPITAL EXPENDITURES GRAPH]
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
[ ] Regulated $ 72.6 $ 39.1
[ ] Nonregulated $174.8 $ 39.8
</TABLE>
FINANCING CASH FLOW
At May 31, 1998, $333 million of long-term debt was outstanding. As of that
date, the Company could have issued $850 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 normal debt service, dividend
requirements, and normal capital expenditures. Additional debt was issued to
finance part of the purchase of natural gas and oil reserves from OXY USA, Inc.,
and other significant acquisitions may require additional debt or equity
financing.
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, since 1995, rates have been structured to reduce the
Company's risk in serving its large volume customers.
15
<PAGE> 16
In response to the rules issued by the OCC in January 1998 which would require
the Company to competitively bid transmission service into its distribution
system, the Company filed a plan on April 1, 1998, for upstream unbundling. It
is expected that the bidding process will be in place, and unbundling will be
implemented in Tulsa and Oklahoma City by November 1998. While the Company will
seek recovery of stranded costs, the Company's filing estimates these costs to
be $10-12 million if the OCC does not allow any recovery through rates, and the
Company is not able to otherwise mitigate the costs.
OTHER
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 and swaps 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. 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, 1998, the net
deferred gain on these contracts was approximately $9.2 million.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Fent. Et ux v. Oklahoma Natural Gas Company, a division of ONEOK, Inc. et al.,
No. CJ-88-10148, District Court, Oklahoma County. The Supreme Court granted
Certiorari on April 20, 1998. The Company filed a Request to File Supplemental
Briefs on April 30, 1998, which is pending.
Application of Oklahoma Natural Gas Company, a division of ONEOK, Inc. for a
Determination that under the Commission's existing Natural Gas Utility Rules and
Regulations and Oklahoma Natural's existing Service Rules and Regulations, the
gas utility customers of Oklahoma Natural Gas Company, except Jerry R. Fent and
Margaret B. Fent, are responsible for installing and maintaining all piping
between the Customers' property or curb lines and such Customers' Points of
Consumption of Gas, Cause PUD No. 95000223. On March 16, 1998, the Oklahoma
Supreme Court denied the Petitions for Writ of Certiorari filed by the Company
and the Commission and Jenk's Motion for Publication of Opinion. The case has
been concluded.
ITEM 5. OTHER INFORMATION.
OTHER EVENTS. On January 15, 1998 ONEOK, Inc. filed an Amended Certificate of
Incorporation in the state of Oklahoma. On November 26, 1997 ONEOK, Inc. filed a
Certificate of Merger with the Secretary of State of the State of Oklahoma.
EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <C>
1.a. Amended Certificate of Incorporation of ONEOK, Inc. dated January 15, 1998.
1.b. Certificate of Merger dated November 26, 1997.
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27-1 Financial Data Schedule
(b) Reports
On May 26, 1998 the Company filed an 8-K report announcing the illness
of its chairman and chief executive officer, Larry Brummett, 47.
No financial statements were filed with the Form 8-K.
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 25th day of June
1998.
ONEOK, Inc.
Registrant
By: J. D. Neal
-----------------------------------
J. D. Neal
Vice President, Chief Financial
Officer, and Treasurer (Principal
Financial and Accounting Officer
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.a Amended Certificate of Incorporation of ONEOK, Inc. dated
January 15, 1998.
1.b Certificate of Merger dated November 26, 1997.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT (1)(a)
AMENDED CERTIFICATE OF INCORPORATION
OF
ONEOK, INC.
ONEOK, Inc., a corporation organized and existing under the laws of the
State of Oklahoma, for the purpose of amending its Certificate of Incorporation
as provided by Title 18, Oklahoma Statutes, Section 1077 hereby certifies:
i. The name of the corporation is ONEOK, Inc., as filed
on May 16, 1997.
ii. The address of the registered office in the State of
Oklahoma and the name of the registered agent at such
address is as filed on May 16, 1997.
iii. The duration of the corporation is as filed on May
16, 1997.
iv. The purpose or purposes for which the corporation is
formed are as filed on May 16, 1997.
v. The aggregate number of the authorized shares,
itemized by class, par value of shares, shares
without par value, and series, if any within a class
is as filed on May 16, 1997.
vi. The Certificate of Incorporation, as now in effect
for the Corporation, has been amended by adding a new
Article TWELFTH, as follows:
"1 Election. Section 1145 through 1155 of Title 18 of the
Oklahoma General Corporation Law, as the same may be amended, shall not
apply to the Corporation as of January 17, 1998.
2 Amendment. The affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all
outstanding equity securities of the Corporation, voting as a class,
shall be required in order to amend this Article TWELFTH."
That at a meeting of the Board of Directors, a resolution was duly
adopted setting forth the foregoing proposed amendment to the Certificate of
Incorporation of said corporation, declaring said amendment to be advisable and
referring and directing said amendment be considered at the next annual meeting
of the shareholders of the Corporation.
That thereafter, pursuant to the resolution of its Board of Directors,
the matter was considered at the next annual meeting of shareholders and the
necessary number of shares as required by statute were voted in favor of the
amendment.
<PAGE> 2
SUCH AMENDMENT WAS DULY ADOPTED IN ACCORDANCE WITH 18 O.S.
Section 1077.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
signed by its President and attested by its Secretary, this 15th day of January,
1998.
ONEOK, Inc.
By: /s/ David L. Kyle
-----------------------------------
David L. Kyle
President
ATTEST:
/s/ Deborah B. Barnes
- -----------------------------------
Deborah B. Barnes
Secretary
<PAGE> 1
EXHIBIT (1)(b)
CERTIFICATE OF MERGER
TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:
The undersigned Surviving Corporation, WAI, Inc., an Oklahoma
corporation, hereby certifies:
1. The names of the constituent corporations merged and the names of
the states under the laws of which such corporations are incorporated are:
<TABLE>
<CAPTION>
State of
Name of Corporation Incorporation
------------------- -------------
<S> <C>
WAI, Inc. Oklahoma
ONEOK Inc. Delaware
</TABLE>
2. An agreement (the "Agreement") providing for the merger has been
approved, adopted, certified, executed and acknowledged by each corporation in
accordance with the provisions of Section 1082 of Title 18 of the Oklahoma
General Corporation Act (the "Act"). An Agreement of Merger has been approved,
adopted, certified, executed and acknowledged by ONEOK Inc. in accordance with
the laws under which it is formed.
3. The name of the Surviving Corporation is: WAI, Inc.
4. The Certificate of Incorporation of the Surviving Corporation shall
be the Certificate of Incorporation of WAI, Inc., except that Article FIRST
thereof shall be amended and changed as follows:
FIRST: The name of the corporation is
"ONEOK, Inc."
5. The executed Agreement is on file at the principal place of business
of the Surviving Corporation at the following address:
1800 ONEOK Plaza
100 West Fifth Street
Tulsa, OK 74103
6. A copy of the Agreement will be furnished on request and without
cost to any shareholder of any constituent corporation.
7. The authorized capital stock of ONEOK Inc. is:
<TABLE>
<CAPTION>
Total Number Par Value of
of Shares Each Share
--------- ----------
<S> <C>
60,000,000 Common Stock No Par Value
340,000 Preferred Stock Par Value $50.00
3,000,000 Preference Stock No Par Value
</TABLE>
<PAGE> 2
IN WITNESS WHEREOF, WAI, Inc., an Oklahoma corporation, as the
Surviving Corporation, has caused this Certificate of Merger to be executed in
its name, by its President, and attested by its Secretary, this 26th day of
November, 1997.
WAI, Inc., an Oklahoma corporation
ATTEST:
/s/ Richard Terrill By /s/ John K. Rosenberg
- ------------------------------ ------------------------------
Secretary President
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE 1998 FISCAL YEAR'S SECOND QUARTER
ENDED MAY 31, 1998, AND THE CONSOLIDATED BALANCE SHEET AT AUGUST 31, 1998, FOR
ONEOK, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,343,488
<OTHER-PROPERTY-AND-INVEST> 299,382
<TOTAL-CURRENT-ASSETS> 351,342
<TOTAL-DEFERRED-CHARGES> 314,795
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,309,007
<COMMON> 327,137
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 300,786
<TOTAL-COMMON-STOCKHOLDERS-EQ> 627,923
0
567,422
<LONG-TERM-DEBT-NET> 314,355
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 105,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 18,909
0
<CAPITAL-LEASE-OBLIGATIONS> 876
<LEASES-CURRENT> 1,129
<OTHER-ITEMS-CAPITAL-AND-LIAB> 45,470
<TOT-CAPITALIZATION-AND-LIAB> 2,309,007
<GROSS-OPERATING-REVENUE> 444,048
<INCOME-TAX-EXPENSE> 17,270
<OTHER-OPERATING-EXPENSES> 393,998
<TOTAL-OPERATING-EXPENSES> 411,268
<OPERATING-INCOME-LOSS> 32,780
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 32,780
<TOTAL-INTEREST-EXPENSE> 5,844
<NET-INCOME> 26,936
8,983
<EARNINGS-AVAILABLE-FOR-COMM> 17,953
<COMMON-STOCK-DIVIDENDS> 45,329
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 372,215
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.52
</TABLE>
