<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000.
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 Identification No.)
incorporation of organization)
100 West Fifth Street, Tulsa, OK
(Address of principal executive offices)
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 June 30, 2000, the Company had 29,200,781 shares of common stock outstanding.
<PAGE>
ONEOK, Inc.
QUARTERLY REPORT ON FORM 10-Q
Part I. Financial Information Page No.
Consolidated Condensed Statements of Income -
Three and Six Months Ended June 30, 2000 and 1999 3
Consolidated Condensed Balance Sheets -
June 30, 2000 and December 31, 1999 4 - 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Condensed Financial Statements 7 - 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 26
Quantitative and Qualitative Disclosures about Market Risk 26 - 27
Part II. Other Information 28 - 30
2
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
ONEOK, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Revenues $ 1,387,130 $ 390,323 $ 2,211,079 $ 937,494
Cost of gas 1,020,233 239,194 1,578,529 570,265
-----------------------------------------------------------------------------------------------------------------------------------
Net Revenues 366,897 151,129 632,550 367,229
-----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses
Operations and maintenance 239,988 79,793 352,018 141,041
Depreciation, depletion, and amortization 37,161 34,168 71,488 66,260
General taxes 12,116 9,953 24,355 20,251
-----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 289,265 123,914 447,861 227,552
-----------------------------------------------------------------------------------------------------------------------------------
Operating Income 77,632 27,215 184,689 139,677
-----------------------------------------------------------------------------------------------------------------------------------
Other income and (expenses) (2,517) - 11,764 -
Interest expense 28,343 14,337 50,328 26,919
Income taxes 19,610 3,397 58,056 42,827
-----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in 27,162 9,481 88,069 69,931
accounting principle
Cumulative effect of a change in
accounting principle, net of tax (Note J) - - 2,115 -
-----------------------------------------------------------------------------------------------------------------------------------
Net Income 27,162 9,481 90,184 69,931
Preferred Stock Dividends 9,275 9,307 18,550 18,631
-----------------------------------------------------------------------------------------------------------------------------------
Income Available for Common Stock $ 17,887 $ 174 $ 71,634 $ 51,300
===================================================================================================================================
Earnings Per Share of Common Stock (Note F)
Basic $ 0.61 $ 0.01 $ 2.45 $ 1.62
===================================================================================================================================
Diluted $ 0.55 $ 0.01 $ 1.83 $ 1.35
===================================================================================================================================
Average Shares of Common Stock (Thousands)
Basic 29,196 31,590 29,219 31,609
Diluted 49,146 31,603 49,167 51,731
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ONEOK, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
(Unaudited) 2000 1999
-------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 7,137 $ 72
Trade accounts and notes receivable 841,290 371,313
Inventories 161,018 134,871
Assets from price risk management activities 649,444 -
Restricted deposits 81,839 40,928
Other current assets 46,135 46,537
-------------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,786,863 593,721
-------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment 3,980,877 3,143,693
Accumulated depreciation, depletion, and amortization 1,061,365 1,021,915
-------------------------------------------------------------------------------------------------------------------------
Net Property 2,919,512 2,121,778
-------------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets
Regulatory assets, net (Note D) 257,573 247,486
Goodwill 91,523 80,743
Assets from price risk management activities 106,259 -
Investments and other 210,374 195,847
-------------------------------------------------------------------------------------------------------------------------
Total Deferred Charges and Other Assets 665,729 524,076
-------------------------------------------------------------------------------------------------------------------------
Total Assets $5,372,104 $3,239,575
=========================================================================================================================
See accompanying notes to consolidated condensed financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ONEOK, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
(Unaudited) 2000 1999
----------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Current maturities of long-term debt $ 10,767 $ 21,767
Notes payable 247,103 462,242
Accounts payable 777,079 237,653
Accrued taxes 36,112 359
Accrued interest 28,643 16,628
Liabilities from price risk management activities 702,641 -
Other 67,546 48,064
----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,869,891 786,713
----------------------------------------------------------------------------------------------------------------------
Long-term Debt, excluding current maturities 1,357,869 775,074
Deferred Credits and Other Liabilities
Deferred income taxes 371,394 348,218
Liabilities from price risk management activities 263,796 -
Lease obligation 124,718 -
Other deferred credits 188,801 178,046
----------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 948,709 526,264
----------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,176,469 2,088,051
----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note G)
Shareholders' Equity
Convertible Preferred Stock, $0.01 par value: Series A authorized 199 199
20,000,000 shares; issued and outstanding 19,946,448 shares
Common stock, $0.01 par value: authorized 100,000,000 shares; issued 316 316
31,599,305 shares and outstanding 29,200,781and 29,554,623 shares
Paid in capital (Note I) 894,976 894,976
Unearned compensation (1,577) (1,825)
Retained earnings 370,815 317,964
Treasury stock at cost: 2,398,524 and 2,044,682 shares (69,094) (60,106)
----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,195,635 1,151,524
----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $5,372,104 $3,239,575
======================================================================================================================
See accompanying notes to consolidated condensed financial statements.
- -
</TABLE>
5
<PAGE>
ONEOK, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(Unaudited) 2000 1999
------------------------------------------------------------------------------
(Thousands of Dollars)
Operating Activities
Net income $ 90,184 $ 69,931
Depreciation, depletion, and amortization 71,488 66,260
Gain on sale of assets (27,050) -
Net income from equity investments (2,801) (1,262)
Deferred income taxes 13,320 12,921
Changes in assets and liabilities 72,192 61,100
----------------------------------------------------------------------------
Cash Provided by Operating Activities 217,333 208,950
----------------------------------------------------------------------------
Investing Activities
Changes in other investments, net (6,840) (62,582)
Acquisitions, net (460,472) (296,287)
Capital expenditures, net of retirements (110,044) (105,288)
Proceeds from sale of property 60,659 -
----------------------------------------------------------------------------
Cash Used in Investing Activities (516,697) (464,157)
----------------------------------------------------------------------------
Financing Activities
(Payment) borrowing of notes payable, net (215,139) 130,000
Issuance of debt 589,429 199,494
Payment of debt (21,395) (17,249)
Issuance of common stock - 1,381
Issuance of treasury stock 1,997 -
Acquisition of treasury stock (11,813) (5,507)
Dividends paid (36,650) (38,262)
----------------------------------------------------------------------------
Cash Provided by Financing Activities 306,429 269,857
----------------------------------------------------------------------------
Change in Cash and Cash Equivalents 7,065 14,650
Cash and Cash Equivalents at Beginning of Period 72 -
----------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 7,137 $ 14,650
============================================================================
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A. Change in Fiscal Year End.
In October 1999, the Board of Directors of ONEOK, Inc. (the Company) approved a
change in the Company's fiscal year-end from August 31 to December 31 beginning
January 1, 2000. The consolidated condensed financial statements for the second
quarter and fiscal year to date under the new fiscal year are presented in this
Form 10-Q. A transition report was filed on Form 10-Q for the period September
1, 1999, through December 31, 1999.
B. 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 six months ended June 30, 2000 are
not necessarily indicative of the results that may be expected for a twelve-
month period. 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, 1999.
C. Significant Events
On April 5, 2000, the Company acquired certain natural gas gathering and
processing assets located in Oklahoma, Kansas and West Texas from Kinder Morgan,
Inc. (KMI). The Company also acquired KMI's marketing and trading operations, as
well as some storage and transmission pipelines in the mid-continent region. The
Company paid approximately $109 million for these assets plus an adjustment for
working capital of approximately $53 million. The Company also assumed certain
liabilities including those related to an operating lease for a processing plant
for which the Company established a liability for uneconomic lease obligation
terms and some firm capacity lease obligations to third parties for which the
Company established a reserve for out-of-market terms of those obligations. The
assets and liabilities acquired have been recorded at preliminary fair values.
As additional information is obtained, there could be significant adjustments to
the purchase price allocation. The acquisition was accounted for as a purchase.
The results of operations of this acquisition are included in the consolidated
condensed statement of income subsequent to the purchase date.
The table of unaudited pro forma information, set forth below, presents a
summary of consolidated results of operations of the Company as if the
acquisition of the businesses acquired from KMI had occurred at the beginning of
the periods presented. The results do not necessarily reflect the results which
would have been obtained if the acquisition had actually occurred on the dates
indicated or the results which may be expected in the future.
<TABLE>
<CAPTION>
Pro Forma
Six months ended
June 30,
2000 1999
-----------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Operating revenues $ 3,164,888 $ 2,829,571
Net income $ 97,342 $ 69,743
Income available for common shareholders $ 78,792 $ 51,112
Earnings Per Share of Common Stock - Diluted $ 1.98 $ 1.35
</TABLE>
7
<PAGE>
The Company received a final order (the Order), on May 30, 2000, in the rate
case before the Oklahoma Corporation Commission (OCC). The Order provided a $20
million net revenue reduction in rates which will be offset by an annual
reduction in depreciation expense of $11.4 million. The Order also transferred
the Oklahoma assets and customers of Kansas Gas Service Company Division (KGS)
to Oklahoma Natural Gas Company Division (ONG), separated the distribution
assets of ONG and the transmission and storage assets of ONEOK Gas
Transportation, L.L.C. (OGT), and related affiliates into two separate public
utilities, adjusted rates for the removal of the gathering and storage assets no
longer collected in base rates and provided for the recovery of gas purchase
operations and maintenance expenses and line losses through a rider rather than
base rates. Additionally, the Order approved a contract between ONG and OGT and
affiliates for transportation and storage services.
In March 2000, the Company completed the sale of its 42.4 percent interest in
Indian Basin Gas Processing Plant and gathering system for $55 million.
In March 2000, the Company completed the acquisition of assets located in
Oklahoma, Kansas, and the Texas panhandle from Dynegy, Inc. for $305 million in
cash which included a $3 million preliminary adjustment for working capital. The
working capital adjustment is expected to be finalized in November 2000. The
assets include gathering systems, gas processing facilities, and transmission
pipelines.
On January 20, 2000, the Board of Directors of the Company voted unanimously to
terminate the merger agreement with Southwest Gas Corporation (Southwest) in
accordance with ther terms of the merger agreement. The Company charged $9.5
million of previously deferred transaction and ongoing litigation costs to Other
income and expense during the first half of 2000.
D. Regulatory Assets
The following table is a summary of the Company's regulatory assets, net of
amortization.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Recoupable take-or-pay $ 81,849 $ 84,343
Pension costs 17,396 19,487
Postretirement costs other than pension 63,512 62,207
Transition costs 22,500 22,746
Reacquired debt costs 23,639 24,068
Income taxes 32,561 23,337
Other 16,116 11,298
-------------------------------------------------------------------------
Regulatory assets, net $257,573 $247,486
=========================================================================
</TABLE>
8
<PAGE>
E. Supplemental Cash Flow Information
The following table is supplemental information relative to the Company's cash
flows.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
---------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Cash paid during the year
Interest (including amounts capitalized) $ 35,932 $ 22,073
Income taxes $ 3,651 $ 52,698
Acquisitions
Plant, property, and equipment $ 782,970 $ 289,931
Current assets 74,012 -
Current liabilities (20,996) -
Goodwill 14,459 10,817
Leased obligation (139,000) -
Price risk management activities (239,660) -
Deferred credits (11,313) -
Deferred income taxes - (4,461)
---------------------------------------------------------------------------------------
Cash paid $ 460,472 $ 296,287
=======================================================================================
</TABLE>
F. Earnings per Share Information
The following is a reconciliation of the basic and diluted EPS computations.
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 Three Months Ended June 30, 1999
Per Share Per Share
Income Shares Amount Income Shares Amount
------------------------------------------------------------------------
(Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available for common stock $ 17,887 29,196 $ 0.61 $ 174 31,590 $ 0.01
====== ======
Effect of Dilutive Securities
Options - 4 - 13
Convertible preferred stock 9,275 19,946 - -
-------- ------ -------- ------
Diluted EPS
Income available for common stock
+ assumed conversion $ 27,162 49,146 $ 0.55 $ 174 31,603 $ 0.01
================================================================================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 Three Months Ended June 30, 1999
Per Share Per Share
Income Shares Amount Income Shares Amount
------------------------------------------------------------------------
(Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available for common stock $ 71,634 29,219 $ 2.45 $ 51,300 31,609 $ 1.62
====== ======
Effect of Dilutive Securities
Options - 2 - 13
Convertible preferred stock 18,550 19,946 18,631 20,109
-------- ------ -------- ------
Diluted EPS
Income available for common stock
+ assumed conversion $ 90,184 49,167 $ 1.83 $ 69,931 51,731 $ 1.35
================================================================================================================================
</TABLE>
There were 180,597 and 86,871 option shares excluded from the calculation of
Diluted Earnings per Share for the three months ended June 30, 2000 and 1999,
respectively, due to being antidilutive for the periods. There were 19,946,448
shares of convertible preferred stock excluded from the calculation of Diluted
Earnings per Share due to being antidilutive for the three months ended June 30,
1999. For the six months ended June 30, 2000 and 1999, there were 229,559 and
83,496 option shares excluded from the calculation of Diluted Earnings per
Share, respectively, due to being antidilutive.
The following is a reconciliation of the basic and diluted EPS computations on
income before the cumulative effect of a change in accounting principle to net
income.
<TABLE>
<CAPTION>
Six Months Ended June 30,
Basic EPS Diuluted EPS
2000 1999 2000 1999
------------------------------------
<S> <C> <C> <C> <C>
Income available for common stock
before cumulative effect of a
change in accounting principle $ 2.38 $ 1.62 $ 1.79 $ 1.35
Cumulative effect of a change in
accounting principle, net of tax 0.07 - 0.04 -
------ ------ ------ ------
Income available for common stock $ 2.45 $ 1.62 $ 1.83 $ 1.35
================================================================================
</TABLE>
G. Commitments and Contingencies
The Company and Southwest entered into a merger agreement, as amended, in which
the Company agreed to acquire Southwest for $30 per share of common stock in an
all cash transaction valued at $918 million. On January 20, 2000, the Company
terminated the merger in accordance with the terms of the merger agreement.
The Company and certain of its officers as well as Southwest have been named as
defendants in a lawsuit brought by Southern Union Company (Southern Union). The
complaint asks for $750 million damages to be trebled for racketeering and
unlawful violations, compensatory damages of not less than $750 million and
rescission of the Confidentiality and Standstill Agreement.
Southwest has filed a complaint against the Company and Southern Union in the
United States District Court in Arizona. Southwest seeks actual, consequential,
incidental and punitive damages in an amount in excess of $75,000 and a
declaration that the Company has breached the merger agreement.
10
<PAGE>
On February 3, 2000, two substantially identical derivative actions were filed
in the District Court in Tulsa, Oklahoma by shareholders against the members of
the Board of Directors of the Company for alleged violation of their fiduciary
duties to the Company by causing or allowing the Company to engage in certain
fraudulent and improper schemes relating to the planned merger with Southwest.
In June 2000, these cases were consolidated into one case. Such conduct
allegedly caused the Company to be sued by both Southwest and Southern Union
which exposed the Company to millions of dollars in liabilities. The plaintiffs
seek an award of compensatory and punitive damages and costs, disbursements and
reasonable attorney fees.
It is anticipated that Southern Union and Southwest will continue their
litigation against the Company. If any of the plaintiffs should be successful in
any of their claims against the Company and substantial damages are awarded, it
could have a material adverse effect on the Company's operations, cash flow and
financial position. The Company intends to vigorously defend against the claims
asserted by Southern Union and Southwest and all other matters relating to the
now terminated merger with Southwest.
The Company has responsibility for 12 manufactured gas sites located in Kansas
which may contain potentially harmful materials that are classified as hazardous
substances. Hazardous substances are subject to control or remediation under
various environmental laws and regulations. A consent agreement with the Kansas
Department of Health and Environment presently governs all future work at these
sites. The terms of the consent agreement allow the Company to investigate these
sites and set remediation priorities based upon the results of the
investigations and risk analysis. The prioritized sites will be investigated
over a ten-year period. At June 30, 2000, the costs of the investigations and
risk analysis have been minimal. Limited information is available about the
sites. Management's best estimate of the cost of remediation ranges from $100
thousand to $10 million per site based on a limited comparison of costs incurred
to remediate comparable sites. These estimates do not give effect to potential
insurance recoveries, recoveries through rates or from third parties. The Kansas
Corporation Commission (KCC) has permitted others to recover remediation costs
through rates. It should be noted that additional information and testing could
result in costs significantly below or in excess of the amounts estimated above.
To the extent that such remediation costs are not recovered, the costs could be
material to the Company's results of operations and cash flows depending on the
remediation done and number of years over which the remediation is completed.
The Company is a party to other litigation matters and claims which are normal
in the course of its operations, and while the results of litigation and claims
cannot be predicted with certainty, management believes the final outcome of
such matters will not have a materially adverse effect on consolidated results
of operations, financial position, or liquidity.
H. Segments
The Company conducts its operations through six segments: (1) the Marketing
segment markets natural gas to wholesale and retail customers and markets
electricity to wholesale customers; (2) the Gathering and Processing segment
gathers and processes natural gas and natural gas liquids; (3) the
Transportation and Storage segment transports and stores natural gas for others
and sells natural gas; (4) the Distribution segment distributes natural gas to
residential, commercial and industrial customers, leases pipeline capacity to
others and provides transportation services for end-use customers; (5) the
Production segment develops and produces natural gas and oil; and (6) the Other
segment primarily operates and leases the Company's headquarters building and a
related parking facility.
Intersegment sales are recorded on the same basis as sales to unaffiliated
customers. All corporate overhead costs relating to a reportable segment have
been allocated for the purpose of calculating operating income. The Company's
equity method investments do not represent operating segments of the Company.
The Company has no single external customer from which it receives ten percent
or more of its revenues.
11
<PAGE>
<TABLE>
<CAPTION>
Gathering
Three Months Ended and Transportation Other and
June 30, 2000 Marketing Processing and Storage Distribution Production Eliminations Total
------------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 954,791 $ 198,040 $ 32,842 $ 187,772 $ 13,821 $ (136) $ 1,387,130
Intersegment sales 53,262 24,921 14,357 915 4,648 (98,103) -
------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 1,008,053 $ 222,961 $ 47,199 $ 188,687 $ 18,469 $ (98,239) $ 1,387,130
------------------------------------------------------------------------------------------------------------------------------------
Net revenues $ 29,910 $ 222,961 $ 39,512 $ 75,511 $ 18,469 $ (19,466) $ 366,897
Operating costs $ 4,161 $ 186,952 $ 17,188 $ 56,417 $ 5,879 $ (18,493) $ 252,104
Depreciation, depletion and
amortization $ 314 $ 6,402 $ 5,004 $ 16,802 $ 7,990 $ 649 $ 37,161
Operating income $ 25,435 $ 29,607 $ 17,320 $ 2,292 $ 4,600 $ (1,622) $ 77,632
Income from equity
Investments $ - $ - $ 1,543 $ - $ 22 $ - $ 1,565
Capital expenditures,
including acquisitions $ 10,183 $ 298,321 $ 191,866 $ 27,306 $ 10,014 $ 9,940 $ 547,630
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gathering
Three Months Ended and Transportation Other and
June 30, 1999 Marketing Processing and Storage Distribution Production Eliminations Total
------------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 181,710 $ 23,895 $ 7,474 $ 162,848 $ 13,259 $ 1,137 $ 390,323
Intersegment sales 11,851 2,387 19,786 1,689 6,637 (42,350) -
------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 193,561 $ 26,282 $ 27,260 $ 164,537 $ 19,896 $ (41,213) $ 390,323
------------------------------------------------------------------------------------------------------------------------------------
Net revenues $ 6,651 $ 26,282 $ 27,260 $ 75,200 $ 19,896 $ (4,160) $ 151,129
Operating Costs $ 2,501 $ 17,950 $ 9,206 $ 60,126 $ 4,901 $ (4,938) $ 89,746
Depreciation, depletion and
amortization $ 150 $ 1,334 $ 3,419 $ 19,103 $ 9,595 $ 567 $ 34,168
Operating income $ 4,000 $ 6,998 $ 14,635 $ (4,029) $ 5,400 $ 211 $ 27,215
Income from equity
investments $ - $ - $ 541 $ - $ 9 $ - $ 550
Capital expenditures,
including acquisitions $ 10 $ 286,595 $ 10,688 $ 33,503 $ 4,365 $ 2,027 $ 337,188
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Gathering
Three Months Ended and Transportation Other and
June 30, 2000 Marketing Processing and Storage Distribution Production Eliminations Total
------------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 1,310,915 $ 248,089 $ 47,900 $ 567,482 $ 28,343 $ 8,350 $ 2,211,079
Intersegment sales 145,978 43,317 28,721 1,827 9,964 (229,807) -
------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 1,456,893 $ 291,406 $ 76,621 $ 569,309 $ 38,307 $ (221,457) $ 2,211,079
------------------------------------------------------------------------------------------------------------------------------------
Net revenues $ 45,720 $ 291,406 $ 68,934 $ 216,174 $ 38,307 $ (27,991) $ 632,550
Operating costs $ 6,700 $ 245,884 $ 28,607 $ 111,403 $ 11,525 $ (27,746) $ 376,373
Depreciation, depletion and
amortization $ 505 $ 8,691 $ 9,197 $ 35,373 $ 16,452 $ 1,270 $ 71,488
Operating income $ 38,515 $ 36,831 $ 31,130 $ 69,398 $ 10,330 $ (1,515) $ 184,689
Cumulative effect of a change
in accounting principle,
before tax $ 3,449 $ - $ - $ - $ - $ - $ 3,449
Income from equity
investments $ - $ - $ 2,772 $ - $ 29 $ - $ 2,801
Total assets $ 1,814,099 $ 1,003,288 $ 615,738 $ 1,633,375 $ 352,681 $ (47,077) $ 5,372,104
Capital expenditures,
including acquisitions $ 19,683 $ 601,652 $ 204,523 $ 53,680 $ 19,378 $ 11,369 $ 910,285
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gathering
Three Months Ended and Transportation Other and
June 30, 2000 Marketing Processing and Storage Distribution Production Eliminations Total
------------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 339,708 $ 30,067 $ 14,602 $ 525,332 $ 26,483 $ 1,302 $ 937,494
Intersegment sales 43,039 5,319 39,322 4,616 12,716 (105,012) -
------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 382,747 $ 35,386 $ 53,924 $ 529,948 $ 39,199 $ (103,710) $ 937,494
------------------------------------------------------------------------------------------------------------------------------------
Net revenues $ 17,748 $ 35,386 $ 53,924 $ 230,445 $ 39,199 $ (9,473) $ 367,229
Operating costs $ 4,517 $ 25,270 $ 15,954 $ 115,510 $ 9,892 $ (9,851) $ 161,292
Depreciation, depletion and
amortization $ 301 $ 1,693 $ 6,834 $ 38,961 $ 18,082 $ 389 $ 66,260
Operating income $ 12,930 $ 8,423 $ 31,136 $ 75,974 $ 11,225 $ (11) $ 139,677
Income from equity
investments $ - $ - $ 1,225 $ - $ 37 $ - $ 1,262
Total assets $ 172,428 $ 360,032 $ 361,354 $ 1,728,527 $361,762 $ (26,164) $ 2,957,939
Capital expenditures,
including acquisitions $ 149 $ 287,383 $ 16,955 $ 55,469 $ 51,847 $ 2,441 $ 414,244
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
I. Paid in Capital
Paid in Capital at June 30, 2000 and December 31, 1999, was $330.8 million for
common stock and $564.2 million for convertible preferred stock.
13
<PAGE>
J. Energy Trading and Risk Management
At January 1, 2000, the Company adopted the provisions of Emerging Issues Task
Force Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and
Risk Management Activities" (EITF 98-10) for certain energy trading contracts.
EITF 98-10 requires entities involved in energy trading activities to record
energy trading contracts using the mark-to-market method of accounting. Under
this methodology, the energy trading contracts with third parties are reflected
at fair market value, net of reserves, with the resulting unrealized gains and
losses recorded as assets and liabilities from price risk management activities
in the consolidated condensed balance sheet. These assets and liabilities are
affected by the actual timing of settlements related to these contracts and
current period changes resulting from newly originated transactions and the
impact of price movements. These changes are recognized in gross margin on a net
basis in the consolidated condensed statement of income in the period the change
occurs. The cumulative effect to January 1, 2000, of adopting EITF 98-10 was a
gain of $3.4 million, $2.1 million, net of tax, or $0.04 per diluted share of
common stock. In prior years, these contracts were accounted for under the
accrual method of accounting, therefore, gains and losses were recognized as the
contracts settled. Energy contracts held by other Company segments are generally
designated as and considered effective as hedges of non-trading activities and
are not considered energy trading contracts.
14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q contains statements concerning Company expectations or
predictions of the future that are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are intended to be covered by the safe harbor provision of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking
statements are based on management's beliefs and assumptions based on
information currently available. It is important to note that actual results
could differ materially from those projected in such forward-looking statements.
Factors that may impact forward-looking statements include, but are not limited
to, the following:
. the effects of weather and other natural phenomena on sales and prices;
increased competition from other energy suppliers as well as alternative
forms of energy;
. the capital intensive nature of the Company's business;
. further deregulation, or "unbundling" of the natural gas business;
. competitive changes in the natural gas gathering, transportation and storage
business resulting from deregulation, or "unbundling," of the natural gas
business;
. the profitability of assets or businesses acquired by the Company;
. risks of hedging and marketing activities as a result of changes in energy
prices;
. economic climate and growth in the geographic areas in which the Company does
business;
. the uncertainty of gas and oil reserve estimates;
. the timing and extent of changes in commodity prices for natural gas, natural
gas liquids, electricity, and crude oil;
. the effects of changes in governmental policies and regulatory actions,
including income taxes, environmental compliance, and authorized rates;
. the results of litigation related to the Company's previously proposed
acquisition of Southwest Gas Corporation (Southwest) or to the termination of
the Company's merger agreement with Southwest; and
. the other factors listed in the reports the Company has filed and may file
with the Securities and Exchange Commission, which are incorporated by
reference.
Accordingly, while the Company believes these forward-looking statements to be
reasonable, there can be no assurance that they will approximate actual
experience or that the expectations derived from them will be realized. When
used in Company documents, the words "anticipate," "expect," "projection,"
"goal" or similar words are intended to identify forward-looking statements. The
Company does not have any intention or obligation to update forward-looking
statements after they distribute this Form 10-Q even if new information, future
events or other circumstances have made them incorrect or misleading.
A. Acquisitions and Sales
Kinder Morgan, Inc.
On April 5, 2000, the Company acquired certain natural gas gathering and
processing assets located in Oklahoma, Kansas and West Texas from Kinder Morgan,
Inc. (KMI). The Company also acquired KMI's marketing and trading operations, as
well as some storage and transmission pipelines in the mid-continent region. The
Company paid approximately $109 million for these assets plus an adjustment for
working capital of approximately $53 million. The Company also assumed certain
liabilities including those related to an operating lease for a processing plant
for which the Company established a liability for uneconomic lease obligation
terms and some firm capacity lease obligations to third parties for which the
Company established a reserve for out-of-market terms of those obligations. This
acquisition includes more than 12,000 miles of pipeline, six gas processing
plants with capacity of 1.26 billion cubic feet per day and 10.5 billion cubic
feet of storage. Approximately 350 employees were added
15
<PAGE>
to the ONEOK workforce as part of the acquisition. Most are located in Kansas
and West Texas.
Indian Basin Gas Processing Plant
During the first quarter of 2000, the Company sold its 42.4 percent interest in
the Indian Basin Gas Processing Plant and gathering system for $55 million to El
Paso Field Services Company, a business unit of El Paso Energy Corporation. The
gain on this sale is shown in Other income and expenses.
Dynegy, Inc.
In March 2000, the Company acquired eight gas processing plants, interests in
two other gas processing plants and approximately 7,000 miles of gas gathering
and transmission pipeline systems in Oklahoma, Kansas and Texas from Dynegy,
Inc. (Dynegy). The Company paid approximately $305 million for these assets
which included a preliminary adjustment for working capital. The working capital
adjustment is expected to be finalized in November 2000. The current throughput
of the assets is approximately 240 million cubic feet per day with an
approximate capacity of 375 million cubic feet per day. Production of natural
gas liquids from the assets averages 25,000 barrels per day. In July 2000, the
Company received approval of the acquisition from the KCC for transfer of the
portion of these assets located in Kansas. Approximately 75 employees have been
added to the ONEOK workforce as part of the acquisition. The majority of these
employees are in field operations in Western Oklahoma, the Texas panhandle and
Southern Kansas.
Southwest Gas Corporation
On January 18, 2000, the Company received a letter from Michael O. Maffie,
President and Chief Executive Officer of Southwest, taking the position that the
Company had breached the merger agreement entered into between the Company and
Southwest and demanding that the breach be cured.
On January 20, 2000, the Board of Directors of the Company voted unanimously to
terminate the merger agreement in accordance with the terms of the merger
agreement. On January 21, 2000, a letter was sent to Southwest denying that the
Company was in breach of the merger agreement and advising Southwest of the
Company's election to terminate the merger agreement.
On the same date, the Company filed a complaint in Federal District Court in
Tulsa, Oklahoma asking the court to declare that under the terms of the merger
agreement, the Company has properly terminated the merger agreement. On the same
date, the Company advised the Arizona Corporation Commission (ACC) of the
termination of the merger agreement and gave notice the Company withdrew the
Application asking for authorization to implement the merger agreement. On
January 25, 2000, Southwest filed an objection that the Company could not
unilaterally withdraw a joint application. On February 4, 2000, the Hearing
Officer granted the withdrawal and closed the docket.
On January 24, 2000, in reaction to the notice of termination of the merger
agreement, Southwest filed a complaint against the Company and Southern Union in
the United States District Court in Arizona. In the complaint, Southwest
alleges, among other things, that the Company failed to disclose to Southwest
that the Company had purportedly participated in improper lobbying efforts
allegedly involving a state regulatory official for the purpose of influencing
state utility regulators to oppose Southern Union's attempt to acquire Southwest
and inducing Southwest to enter into the merger agreement with the Company
instead of accepting Southern Union's acquisition proposal. The complaint also
alleges that the Company failed to use commercially reasonable efforts to obtain
all necessary governmental authorization for the planned merger with Southwest
by failing to remedy alleged improper conduct and by failing to make truthful
disclosure of such purportedly improper lobbying and relationships to the ACC.
The complaint further alleges that, because of the Company's alleged breach of
the merger agreement, the Company was contractually unable to terminate the
merger agreement and that the
16
<PAGE>
Company's notice of termination of the agreement was therefore wrongful. The
complaint uses these allegations as a basis for causes of action for fraud in
the inducement, fraud, breach of contract, breach of implied covenant of good
faith and fair dealing, and declaratory relief. Southwest seeks actual,
consequential, incidental and punitive damages in an amount in excess of $75,000
and a declaration that the Company has breached the merger agreement.
On February 3, 2000, two substantially identical derivative actions were filed
in the District Court in Tulsa, Oklahoma by shareholders against the members of
the Board of Directors of the Company for alleged violation of their fiduciary
duties to the Company by causing or allowing the Company to engage in certain
fraudulent and improper schemes relating to the planned merger with Southwest.
In June 2000, these cases were consolidated into one case. Such conduct
allegedly caused the Company to be sued by both Southwest and Southern Union
which exposed the Company to millions of dollars in liabilities. The plaintiffs
seek an award of compensatory and punitive damages and costs, disbursements and
reasonable attorney fees.
It is anticipated that Southern Union and Southwest will continue their
litigation against the Company. If any of the plaintiffs should be successful in
any of their claims against the Company and substantial damages are awarded, it
could have a material adverse effect on the Company's operations, cash flow and
financial position. The Company intends to vigorously defend against the claims
asserted by Southern Union and Southwest and all other matters relating to the
now terminated merger with Southwest. The Company charged $9.5 million of
previously deferred transaction and ongoing litigation costs to Other income and
expense during the first half of 2000.
B. Results of Operations
Consolidated Operations
The Company is a diversified energy company whose objective has been to maximize
value for shareholders by vertically integrating its business operations from
the wellhead to the burner tip. This strategy has focused on acquiring assets
that provide synergistic trading and marketing opportunities all along the
natural gas energy chain. Products and services are provided to its customers
through the following segments:
. Marketing
. Gathering and Processing
. Transportation and Storage
. Distribution
. Production
. Other
17
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial Results
Operating revenues $ 1,387,130 $ 390,323 $ 2,211,079 $ 937,494
Coast of gas 1,020,233 239,194 1,578,529 570,265
------------------------------------------------------------------------------------------------------------------------------
Net revenue 366,897 151,129 632,550 367,229
Operating costs 252,104 89,746 376,373 161,292
Depreciation, depletion, and amortization 37,161 34,168 71,488 66,260
------------------------------------------------------------------------------------------------------------------------------
Operating income $ 77,632 $ 27,215 $ 184,689 $ 139,677
==============================================================================================================================
Other income and (expenses) $ (2,517) $ - $ 11,764 $ -
==============================================================================================================================
------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of a change in accounting principle $ - $ - $ 3,449 $ -
Income tax - - 1,334 -
------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of a change in accounting principle, net of tax $ - $ - $ 2,115 $ -
==============================================================================================================================
</TABLE>
The acquisition of certain assets of KMI and Dynegy and the integration of these
operations had a significant impact on the financial results for the three and
six month periods ended June 30, 2000. Net revenue increased $215.8 million and
$265.3 million for the three and six months ended June 30, 2000, respectively.
Operating income for the three and six months ended June 30, 2000 increased
$50.4 million and $45.0 million, respectively, as compared to the same periods
in 1999. The majority of this increase is due to the acquisitions that occurred
in late March and early April 2000 and the gain on marking energy contracts to
market. The increase in operating costs for the three and six months ended June
30, 2000, as compared to the year ago periods, is primarily due to increased
employee costs resulting from the acquisitions.
The $26.7 million gain on the sale of the Company's interest in the Indian Basin
Gas Processing Plant is included in Other income and expenses for the six month
period ended June 30, 2000. Other income and expenses also includes a
contribution to the ONEOK Foundation of $5.0 million and the write-off of $9.5
million of previously deferred transaction and ongoing litigation costs
associated with the terminated acquisition of Southwest.
Marketing
The Company continues to develop new market areas by arbitraging storage in the
day trading market rather than focusing on the baseload market. With the
completion of the acquisition of KMI's marketing and trading operation in April
2000, the Company's marketing operation purchases, stores and markets natural
gas at both the retail and wholesale level in 25 states. The Marketing segment
expanded its midcontinent presence through this acquisition. This expansion
includes both firm transport capacity and storage capacity. The transport
capacity of 1 Bcf per day, allows for trade from the California border,
throughout the Rockies, to the Chicago city gate. The increased storage
capacity, now 63 Bcf, gives the Company direct access to all parts of the
country. The withdrawal capability of 2 Bcf per day and injection of 1.1 Bcf per
day allows the Company great flexibility in capturing the volatility in the
energy markets.
18
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial Results
Gas sales $1,007,276 $193,389 $1,455,915 $382,484
Cost of gas 978,143 186,910 1,411,173 364,999
--------------------------------------------------------------------------------------------------------------------------------
Gross margin on gas sales 29,133 6,479 44,742 17,485
Other revenues 777 172 978 263
--------------------------------------------------------------------------------------------------------------------------------
Net revenues 29,910 6,651 45,720 17,748
Operating costs 4,161 2,501 6,700 4,517
Depreciation, depletion, and amortization 314 150 505 301
--------------------------------------------------------------------------------------------------------------------------------
Operating income $ 25,435 $ 4,000 $ 38,515 $ 12,930
================================================================================================================================
Cumulative effect of a change in accounting principle, before tax $ - $ - $ 3,449 $ -
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Information
Natural gas volumes (MMcf) 273,222 100,573 435,415 198,646
Capital expenditures,
including acquisitions (Thousands) $ 10,183 $ 10 $ 19,683 $ 149
Total assets (Thousands) - - $1,814,099 $172,428
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Net revenues and operating income for the three and six months ended June 30,
2000, as compared with the corresponding previous periods, increased primarily
due to the acquisition of KMI's marketing and trading operation, the gain
resulting from marking energy contracts to market, increased optionality on
storage and increased storage demand fees. In prior years, energy contracts were
accounted for under the accrual method of accounting, therefore, gains and
losses were recognized as the contracts settled. The Company's strategy is to
continue to grow by acquiring assets that enhance the interconnectivity and
marketing arbitrage capability.
Operating costs for the three and six months ended June 30, 2000, as compared to
the corresponding previous period, increased primarily as a result of increased
personnel resulting from the acquisition of KMI's marketing and trading
operation.
The increase in volumes sold for the three and six months ended June 30, 2000,
as compared to the prior year, is primarily due to the acquisition of KMI's
marketing and trading operation. Total assets increased as compared to the prior
year primarily due to the price risk management assets and an increase in
accounts receivable.
Trading of electricity, at market-based wholesale rates, began in early 1999 but
has had minimal impact on operations to date. Capital expenditures of $10.2
million and $19.7 million for the three and six month periods ended June 30,
2000, relates to the construction of a 300-megawatt gas-fired electric
generating plant. The plant is expected to be in service in June, 2001. The
Company signed a definitive agreement with a third party for a 15-year term
providing for the purchase of about 25 percent of the plant's generating
capacity.
Gathering and Processing
Acquisitions of gas processing plants from Dynegy and KMI in March and April
2000, respectively, increased the number of wholly-owned gas processing plants
by 14 and gave the Gathering and Processing segment an interest in two
additional plants while increasing the percentage in another plant. These plants
increased the Company's capacity by 1.63 billion cubic feet per day.
19
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial Results
Natural gas liquids and condensate sales $109,159 $17,165 $145,084 $23,472
Gas sales 90,777 5,841 116,698 8,773
Gathering revenues 11,759 3,136 16,880 3,136
Other revenues 11,266 140 12,744 5
-------------------------------------------------------------------------------------------------------------------------
Total revenues 222,961 26,282 291,406 35,386
Cost of sales 161,972 14,759 217,241 20,548
-------------------------------------------------------------------------------------------------------------------------
Gross margin 60,989 11,523 74,165 14,838
Operating costs 24,980 3,191 28,643 4,722
Depreciation, depletion, and amortization 6,402 1,334 8,691 1,693
-------------------------------------------------------------------------------------------------------------------------
Operating income $ 29,607 $ 6,998 $ 36,831 $ 8,423
=========================================================================================================================
Other income and expenses, net $ - $ - $ 26,585 $ -
=========================================================================================================================
</TABLE>
Revenues increased for the three and six month periods ended June 30, 2000,
compared to the corresponding year ago periods, as a result of acquisitions of
gathering and processing assets in March and April 2000. The Koch acquisition in
June of 1999 also contributed to increased revenues for the three and six month
periods ended June 30, 2000. Operating costs and depreciation also increased as
a result of the acquisitions. The operating results from the new acquisitions
more than offset the impact on operations associated with the sale of the Indian
Basin plant in March 2000.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Information
Average NGL price ($/Gal) $ 0.433 $ 0.281 $0.431 $0.255
Average gas price ($/Mcf) $ 2.69 $ 2.07 $2.58 $1.99
Capital expenditures, $ 298,321 $286,595 $ 601,652 $287,383
including acquisitions (Thousands)
Total assets (Thousands) - - $1,003,288 $360,032
Total gas gathered (Mcf/D) 1,457,247 529,313 973,279 332,519
Total gas processed (Mcf/D) 1,350,937 402,988 880,373 262,757
Natural gas liquids sales (MGal) 250,246 54,151 352,194 83,890
Gas sales (MMcf) 33,133 2,673 44,581 4,259
Natural Gas Liquids by Component (%)
Ethane 39 48 43 49
Propane 32 25 30 25
Iso butane 5 5 5 4
Normal butane 12 10 11 10
Natural gasoline 12 12 11 12
</TABLE>
NGL and natural gas prices have been strong during the first half of 2000 and
are expected to remain strong for the remainder of the year. The Company uses
derivative instruments to reduce the volatility in prices.
Transportation and Storage
The transportation and storage segment represents the Company's intrastate
transmission pipelines and natural gas
20
<PAGE>
storage facilities. The Company has five storage facilities in Oklahoma, two in
Kansas and three in Texas with a combined working capacity of approximately 60
Bcf. The Company's intrastate transmission pipelines operate in Oklahoma, Kansas
and Texas and are regulated by the Oklahoma Corporation Commission (OCC), Kansas
Corporation Commission (KCC), and Texas Railroad Commission (TRC), respectively.
The acquisition of transmission pipelines and storage fields from KMI was
completed in April 2000. This acquisition increased transportation capacity by
57 percent, miles of transmission pipeline by 95 percent, and Company-owned
storage capacity by 23 percent.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial Results
Gas sales $12,295 $ - $12,295 $ -
Cost of gas 7,687 - 7,687 -
-------------------------------------------------------------------------------------------------------------------
Gross margin on gas sales 4,608 - 4,608 -
-------------------------------------------------------------------------------------------------------------------
Transportation revenues 21,225 18,038 36,115 36,135
Storage revenues 4,936 7,095 12,722 13,482
Other revenues 8,743 2,127 15,489 4,307
-------------------------------------------------------------------------------------------------------------------
Net revenues 39,512 27,260 68,934 53,924
Operating costs 17,188 9,206 28,607 15,954
Depreciation, depletion, and amortization 5,004 3,419 9,197 6,834
-------------------------------------------------------------------------------------------------------------------
Operating income $17,320 $14,635 $31,130 $31,136
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Information
Volumes transported (MMcf) 132,588 87,855 235,510 192,783
Capital expenditures, $191,866 $10,688 $204,523 $ 16,955
including acquisitions (Thousands)
Total assets (Thousands) - - $615,738 $361,354
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The acquisition of the Texas assets from KMI led to the Transportation and
Storage segment generating gross margin on gas sales due to merchant gas sales
by ONEOK WesTex Transmission, Inc. Transportation revenues increased for the
three months ended June 30, 2000, as compared to the year ago period, due to the
increased volumes transported resulting from acquisitions. This increase was
partially offset by reduced tariff rates charged to the affiliated Distribution
segment. Storage revenues decreased due to decreased storage activity from the
Distribution segment and third parties for the three and six month periods ended
June 30, 2000 as compared to the year ago periods. The decrease in storage
activity during the second quarter of 2000 is a result of high gas prices that
have prevailed throughout the spring months and are expected to remain high.
Accordingly, customers are not buying and storing gas at the high prices. Other
revenues increased during the three and six month periods ended June 30, 2000,
as compared to the year ago periods, due to increased retained fuel. Operating
costs and depreciation, depletion and amortization increased for the three and
six months ended June 30, 2000, as compared to the corresponding year ago
periods, due to the acquisitions.
The Company received a final order from the OCC (the Order) in the second
quarter of 2000 that separated the distribution assets of ONG and the
transmission and storage assets of ONEOK Gas Transportation, L. L. C, (OGT) and
related affiliates into two separate public utilities, adjusted rates for the
removal of the gathering, transmission
21
<PAGE>
and storage assets, approved a tariff between OGT and ONG for transportation
services and established a competitive bid process. Through the competitive bid
process, OGT retained approximately 98 percent of ONG's upstream transportation
requirements which was included in the Order.
Distribution
The Distribution segment provides natural gas distribution services in Oklahoma
and Kansas. The Company's operations in Oklahoma are primarily conducted through
ONG which serves residential, commercial, and industrial customers and leases
pipeline capacity. The Company's operations in Kansas are conducted through KGS
which serves residential, commercial, and industrial customers. The Distribution
segment serves about 80 percent of Oklahoma and about 67 percent of Kansas. ONG
is subject to regulatory oversight by the OCC. KGS is subject to regulatory
oversight by the KCC.
The Order received in May 2000, provided for a $20 million net revenue reduction
in rates which will be offset by an annual reduction in depreciation expense of
$11.4 million. Pursuant to the Order, the Oklahoma assets and customers of KGS
were transferred to ONG. The Order also adjusted rates for the removal of the
gathering and storage assets no longer included in base rates and provided for
the recovery of gas purchase, operations and maintenance expenses and line
losses through a rider rather than base rates.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial Results
Gas sales $172,416 $146,622 $530,106 $489,548
Cost of gas 113,176 89,337 353,135 299,503
----------------------------------------------------------------------------------------------------------------------
Gross margin on gas sales 59,240 57,285 176,971 190,045
PCL and ECT revenues 11,720 11,969 30,571 30,054
Other revenues 4,551 5,946 8,632 10,346
----------------------------------------------------------------------------------------------------------------------
Net revenues 75,511 75,200 216,174 230,445
Operating costs 56,417 60,126 111,403 115,510
Depreciation, depletion, and amortization 16,802 19,103 35,373 38,961
----------------------------------------------------------------------------------------------------------------------
Operating income $ 2,292 $ (4,029) $ 69,398 $ 75,974
======================================================================================================================
</TABLE>
Gross margin for the three months ended June 30, 2000, as compared to the year
ago period, increased as a result of decreased transportation costs paid to an
affiliate. Operating costs for the three months ended June 30, 2000, compared to
the year ago period, decreased due to operational efficiencies gained and
reduced personnel through attrition. The decrease in depreciation, depletion and
amortization for the first half of 2000 as compared to the first half of 1999 is
due to the rate order granted in May 2000 which reduced depreciation expense by
$11.4 million annually for Oklahoma assets and the transfer of certain
transportation assets from the Distribution segment to the Transportation and
Storage segment. Under the Order, the previous average life of certain assets
was extended.
Gross margin on gas sales decreased for the six months ended June 30, 2000, as
compared to the corresponding previous period, as a result of warmer weather,
primarily in Kansas during the first quarter of 2000, the interim rate reduction
in Oklahoma and the impact of unbundling. The decrease in operating costs for
the six months ended June 30, 2000, as compared to the corresponding previous
period, is primarily due to reduced personnel resulting from attrition.
22
<PAGE>
As evidenced above, the Distribution segment continues its strategy of increased
operational efficiency while maintaining quality customer service resulting in
reductions in labor expenses and other operating efficiencies.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Margin per Mcf
Oklahoma
Residential $ 4.54 $ 5.00 $ 2.50 $ 2.72
Commercial $ 2.60 $ 2.89 $ 2.23 $ 2.31
Industrial $ 0.96 $ 1.06 $ 1.20 $ 1.21
Pipeline capacity leases $ 0.25 $ 0.25 $ 0.26 $ 0.26
Kansas
Residential $ 3.17 $ 2.88 $ 2.25 $ 2.16
Commercial $ 2.33 $ 2.09 $ 1.82 $ 1.73
Industrial $ 1.97 $ 2.34 $ 1.81 $ 2.04
End-use customer transportation $ 0.51 $ 0.46 $ 0.62 $ 0.53
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Information
Number of customers 1,431,406 1,421,712 1,436,932 1,424,967
Capital expenditures
including acquisitions (Thousands) $ 27,306 $ 33,503 $ 53,680 $ 55,469
Total assets (Thousands) - - $1,633,375 $1,728,527
Customers per employee 554 530 553 532
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Volumes (MMcf)
Gas sales
Residential 14,242 15,491 65,631 69,796
Commercial 5,486 6,249 24,294 27,160
Industrial 930 1,132 3,012 3,273
------------------------------------------------------------------------------------------------
Total volumes sold 20,658 22,872 92,937 100,229
PCL and ECT 47,872 48,328 99,775 103,439
------------------------------------------------------------------------------------------------
Total volumes delivered 68,530 71,200 192,712 203,668
================================================================================================
</TABLE>
Certain costs to be recovered through the rate making process have been recorded
as regulatory assets in accordance with Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation".
As services continue to unbundle, certain of these assets may no longer meet the
criteria of a regulatory asset, and accordingly, a write-off of regulatory
assets and stranded costs may be required. The Company's most recent Order did
not change the recoverability of regulatory assets. The Order allows the Company
to recover transition costs due to unbundling and allows an initial annual
recovery of $1.8 million which will be updated annually. Accordingly, the
Company does not anticipate that write-off of costs, if any, will be material.
23
<PAGE>
Production
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial Results
Natural gas sales $15,489 $16,680 $31,665 $33,088
Oil sales 1,762 1,866 4,174 3,155
Other revenues 1,218 1,350 2,468 2,956
------------------------------------------------------------------------------------------------------------------
Net revenues 18,469 19,896 38,307 39,199
Operating costs 5,879 4,901 11,525 9,892
Depreciation, depletion, and amortization 7,990 9,595 16,452 18,082
------------------------------------------------------------------------------------------------------------------
Operating income $ 4,600 $ 5,400 $10,330 $11,225
==================================================================================================================
Other income and expenses, net $ 193 $ - $ 360 $ -
==================================================================================================================
</TABLE>
Oil and gas prices have been strong during fiscal 2000; however, the Company
hedged the majority of its production through December 2000. For the three and
six month periods ended June 30, 2000, as compared to the year ago period, the
increase in prices, net of hedging activities, has been offset by the decrease
in production. During the first six months of 2000, the Production segment added
17.5 Bcfe of reserves and produced 15.2 Bcfe. Although, replacements exceeded
production, 6.2 Bfce of replacements are proved undeveloped and behind pipe.
Operating costs for the three and six month periods ended June 30, 2000,
compared to the corresponding previous period, increased primarily as a result
of increased production taxes resulting from higher oil and gas prices which are
calculated on wellhead price rather than hedged price.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Information
Proved reserves
Gas (MMcf) - - 242,530 244,444
Oil (MBbls) - - 3,977 4,014
Production
Gas (MMcf) 6,893 7,826 13,868 15,471
Oil (MBbls) 98 123 226 246
Average realized price
Gas (MMcf) $ 2.25 $ 2.13 $ 2.28 $ 2.14
Oil (MBbls) $ 17.94 $15.16 $ 18.44 $ 12.82
Capital expenditures,
including acquisitions (Thousands) $10,014 $4,365 $ 19,378 $ 51,847
Total assets (Thousands) - - $352,681 $361,762
---------------------------------------------------------------------------------------------------------------
</TABLE>
C. Financial Flexibility and Liquidity
The Company's capitalization structure is 42 percent equity and 58 percent debt
(including short-term debt) at June 30, 2000, compared to 48 percent equity and
52 percent debt at December 31, 1999. Cash provided by operating activities
continues as the primary source for meeting day-to-day cash requirements.
However, due to seasonal fluctuations, acquisitions, and additional capital
requirements, the Company accesses funds through commercial paper, and short-
term credit agreements and, if necessary, through long-term borrowing.
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Operating cash flows for the six months ended June 30, 2000, as compared to the
same period one year ago, are slightly higher primarily due to changes in
working capital. Competition continues to increase in all segments of the
Company's business. The loss of major customers without recoupment of those
revenues and negative effects of weather are among the events which could have a
material adverse effect on the Company's financial condition. However,
strategies such as the use of derivative instruments to offset the effect of
weather variances, aggressive negotiations with potential new customers and
increased use of storage in the day trading market are expected to reduce other
risks to the Company. Additionally, rates in the Distribution segment are
structured to reduce the Company's risk in serving its large customers.
Capital expenditures, including acquisitions, totaled $910.3 million for the six
months ended June 30, 2000. This included $19.7 million for construction of an
electric generating plant and $460.5 million for assets purchased from KMI and
Dynegy. For the same period one year ago, capital expenditures, including
acquisitions, totaled $414.2 million including $44.1 million for the purchase of
production assets.
At June 30, 2000, $1.4 billion of long-term debt was outstanding. As of that
date, the Company could have issued $864.2 million of additional long-term debt
under the most restrictive provisions contained in its various borrowing
agreements.
The Company issued $240 million of two-year floating rate notes in April 2000.
The interest rate for these notes will reset quarterly at a 0.65 percent spread
over the three month London InterBank Offered Rate (LIBOR). The proceeds from
the notes were used to fund acquisitions. In March 2000, the Company issued $350
million of five year, 7.75 percent, fixed rate notes to refinance short term
debt and finance acquisitions.
In June 2000, the Company entered into an $800 million 364-day Revolving Credit
Facility with Bank of America, N.A. and other financial institutions with a
maturity date of June 30, 2001. This credit facility replaces the previously
existing $600 million Revolving Credit Facility dated July 2, 1999, with a
maturity date of June 30, 2000 and the $200 million Revolving Credit Facility
entered into in March 2000 that was terminated on June 1, 2000. At June 30,
2000, $247 million was outstanding under the commercial paper facility.
On April 20, 2000, the Board of Directors of the Company renewed the authorized
stock buyback plan for up to 15 percent of its capital stock for an additional
year. The program authorizes the Company to make purchases of its common stock
on the open market with the timing and terms of purchases and the number of
shares purchased to be determined by management based on market conditions and
other factors. Purchases began in May 1999. Through June 30, 2000, 2,562,958
shares had been purchased. The purchased shares are held in treasury and are
available for general corporate purposes, funding of stock-based compensation
plans, resale, or retirement. Through June 30, 2000, shares reissued for
compensation and benefit plans totaled 164,434. Purchases are financed with
short-term debt. The Company believes that internally generated funds and access
to financial markets will be sufficient to meet its normal debt services,
dividend requirements, and capital expenditures.
D. New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for Derivatives
Instruments and Hedging Activities (Statement 133), was issued by the Financial
Accounting Standards Board (FASB) in June, 1998. Statement 133 standardizes the
accounting for derivatives instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the balance sheet at fair value. The accounting
for changes in the fair value of a derivative instrument depends on whether it
has been designated and qualifies as part of a hedging relationship and, if so,
on the reason for holding it. If certain conditions are met, entities may elect
to designate a derivative instrument as a hedge of exposures to changes in fair
values, cash flows, or foreign currencies. If the hedge exposure is a fair value
exposure, the gain or loss on the derivative instrument is recognized in
earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure,
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the effective portion of the gain or loss on the derivative instrument is
reported initially as a component of other comprehensive income (outside
earnings) and subsequently reclassified into earnings when the forecasted
transaction affects earnings. Any amounts excluded from the assessment of hedge
effectiveness as well as the ineffective portion of the gain or loss is reported
in earnings immediately.
Statement 133 was amended by Statement of Financial Accounting Standards No. 137
in June, 1999 which delayed implementation until fiscal years beginning after
June 15, 2000, with early adoption permitted. Statement 133 was amended again by
Statement of Financial Accounting Standards No. 138 in June 2000 which amends
the accounting and reporting standards of Statement 133 for certain derivative
instruments and certain hedging activities. Statement 138 also amends Statement
133 for decisions made by the FASB relating to the Derivatives Implementation
Group process. The Company has not determined the impact of adopting Statement
133.
In July 2000, the Emerging Issues Task Force (EITF) reached a consensus on EITF
Issue No. 00-17, "Measuring the Fair Value of Energy-Related Contracts in
Applying EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities" (EITF 00-17). EITF 00-17 is effective
for the Company's third quarter of 2000 and requires companies engaging in an
arbitrage strategy to value each energy trading contract separately rather than
link the contracts. Management believes that the impact of adopting EITF 00-17
will be immaterial to the financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management - The Company, substantially through its nonutility segments, is
exposed to market risk in the normal course of its business operations through
the impact of market fluctuations in the price of natural gas and oil. Market
risk refers to the risk of loss in cash flows and future earnings arising from
adverse changes in commodity energy prices. The Company's primary exposure
arises from fixed price purchase or sale agreements which extend for periods of
up to 48 months, gas in storage inventories utilized by the gas marketing
operation, and anticipated sales of oil and gas production and natural gas
liquids. To a lesser extent, the Company is exposed to risk of changing prices
or the cost of intervening transportation resulting from purchasing gas at one
location and selling it at another (hereinafter referred to as basis risk). To
minimize the risk from market fluctuations in the price of natural gas and oil,
the Company uses commodity derivative instruments such as futures contracts,
swaps and options to hedge existing or anticipated purchase and sale agreements,
existing physical gas in storage, and basis risk. None of these derivatives are
held for speculative purposes. The Company adheres to policies and procedures
which limit its exposure to market risk from open positions and monitors its
exposure to market risk. The results of the Company's derivative hedging
activities continue to meet its stated objective.
The Company's regulated distribution operations are exposed to market risk in
the normal course of business operations due to the impact of fluctuations on
gas sales resulting from weather as measured by heating degree days (HDD).
Market risk refers to the risk of loss in cash flows and future earnings arising
from adverse fluctuation in gross margins on gas sales.
To minimize the impact of weather on operations, the Company uses weather
derivative swaps to manage the risk of fluctuations in HDD during the heating
season. Under the weather derivative swap agreements, the Company receives a
fixed payment per degree day below the contracted normal HDD and pays a fixed
amount per degree day above the contracted normal HDD. The swaps also contain a
contract cap that limits the amount either party is required to pay. There are
no HDD swaps outstanding at June 30, 2000.
KGS uses derivative instruments to hedge the cost of some anticipated gas
purchases during the winter heating months to protect their customers from
upward volatility in the market price of natural gas. The gain or loss resulting
from such derivatives is combined with the physical cost of gas and recovered
from the customer through the gas purchase clause in rates. The Company has no
market risk associated with such activities and, accordingly, these derivatives
have been omitted from the value-at-risk disclosures below.
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Interest Rate Risk - The Company is subject to the risk of fluctuating interest
rates in the normal course of business. The Company manages interest rate risk
through the use of fixed rate debt, floating rate debt and interest rate swaps.
As of June 30, 2000 and December 31, 1999, a hypothetical 10 percent change in
market interest rates would result in an annual $3.8 and $2.1 million change in
interest costs related to short-term and floating rate debt including the
interest rate swaps, respectively, based on principal balances outstanding at
these dates.
Value-at-Risk Disclosure of Market Risk - The Company measures market risk in
its price risk management portfolios using value at risk. The quantification of
market risk, using value at risk, provides a consistent measure of risk across
energy markets and products with different risk factors in order to set overall
risk tolerance and risk targets. The use of this methodology requires a number
of key assumptions. The Company relies on value at risk to determine the
potential reduction in the price risk management portfolio value arising from
changes in market conditions.
At June 30, 2000, the Company's estimated potential one-day favorable or
unfavorable impact on future earnings, as measured by the VAR, using a 95
percent confidence level, diversified correlation and assuming three days to
liquidate positions is immaterial.
The Company's calculated VAR exposure represents an estimate of potential losses
that would be recognized for its portfolio of derivative financial instruments
and firm physical contracts and gas-in-storage assuming hypothetical movements
in future market rates and are not necessarily indicative of actual results that
may occur. It does not represent the maximum possible loss nor any expected loss
that may occur, because actual future gains and losses will differ from those
estimated, based on actual fluctuations in the market rates, operating
exposures, and the timing thereof, and changes in the Company's portfolio of
derivative financial instruments and firm physical contracts.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Southern Union Company v. Southwest Gas Corporation, et al., No. CIV 99 1294 PHX
ROS, United States District Court for the District of Arizona ("the Court"). The
Company and the other defendants filed motions to dismiss the amended complaint
on December 6, 1999. A portion of the motions were heard by the Court on August
4, 2000. On May 30, 2000 Southern Union filed a dismissal with prejudice of its
claims against Larry Brummett. Southern Union filed its Second Amended Complaint
on August 3, 2000. On August 4, 2000, the Court granted Southern Union's motion
to dismiss without prejudice its federal and state Racketeer Influenced and
Corrupt Organizations claims against the ONEOK officers.
Joint Application of Oklahoma Natural Gas Company, a Division of ONEOK, Inc.,
ONEOK Gas Transportation Company, a Division of ONEOK, Inc., and Kansas Gas
Service Company, a Division of ONEOK, Inc., for Approval of Their Unbundling
Plan for Natural Gas Services Upstream of the City Gates or Aggregation Points,
Cause PUD No. 980000177 before the Oklahoma Corporation Commission. On July 10,
2000, the Company and counter-appellant, Octagon Resources, filed a Joint Motion
to Dismiss the appeal pursuant to the stipulation of the parties to the
Company's rate proceeding. The court issued an order dismissing the case on July
17, 2000.
Application of Ernest G. Johnson, Director of the Public Utility Division,
Oklahoma Corporation Commission, to Review the Rates, Charges, Services and
Service Terms of Oklahoma Natural Gas Company, a division of ONEOK, Inc., and
All Affiliated Companies and Any Affiliate or Nonaffiliate Transaction Relevant
to Such Inquiry, Cause PUD No. 980000683, Oklahoma Corporation Commission. The
Commission issued a final order concluding the case on May 30, 2000. The time
for appeal has passed and the order is now final.
In re: ONEOK, Inc. Derivative litigation f/k/a Gaetan Lavalla, Derivatively on
Behalf of Nominal Defendant ONEOK, Inc. v. Larry W. Brummett, et al., District
Court of Tulsa County, No. CJ-2000-598 and Hayward Lane, Derivatively on Behalf
of Nominal Defendant ONEOK, Inc. v. Larry W. Brummett, et al., District Court of
Tulsa County, No. CJ-2000-593. Counsel for the parties agreed to the terms of a
motion which was subsequently granted and entered as an order by the Court on
June 6, 2000, under which these cases have been consolidated into one case, and
a schedule was established. The plaintiffs filed a consolidated amended petition
on July 21, 2000, to which the defendants are to respond within 45 days.
Brenda Morrison v. Chesapeake Panhandle Limited Partnership prior to merger
known as MC Panhandle, Inc. and as Chesapeake Panhandle, Inc. and Chesapeake
Operating, Inc., general partner of Chesapeake Panhandle Limited Partnership,
Chesapeake Energy Corporation, Chesapeake Energy Marketing, Inc., Natural Gas
Pipeline Company of America, Midcon Gas Services Corp., Midcon Gas Products
Corp., Kinder Morgan, Inc. f/k/a KN Energy, Inc., ONEOK Texas Gas Marketing L.P.
f/k/a KN Marketing, L.P. American Pipeline Company and Occidental Petroleum
Corporation, 100th District Court, Carson County, Texas, Cause No. 8864. Certain
royalty owners in this action are making claims for excessive and unreasonable
gathering and transportation charges and are seeking class certification.
Plaintiffs allege that several hundred royalty owners are members of the
proposed class. Plaintiffs have not yet alleged specific dollar amounts of
damages.
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Switzer, et al., v. Chevron U.S.A., Inc., Dynegy Midstream Services, Ltd., and
Dynegy Midstream, L.L.C., Case No. CIV-00-478-R, in the United States District
Court for the Western District of Oklahoma. On March 8, 2000, plaintiffs filed a
Complaint against Chevron U.S.A., Inc. ("Chevron") and Dynegy, Inc. On March 24,
2000, plaintiffs substituted Dynegy Midstream Services, Ltd. for Dynegy, Inc. as
defendant. In a Second Amended Complaint filed April 7, 2000, plaintiffs added
Dynegy Midstream, L.L.C. as a defendant. In connection with an acquisition
between the Company, Dynegy, Inc. and certain of Dynegy's affiliates which
closed March 22, 2000, the Company purchased all of the ownership units of
Dynegy Midstream, L.L.C. The Second Amended Complaint seeks certification of a
class of royalty owners in Chevron leases or units that produced gas processed
in the Leedey Plant. The first cause of action is against Chevron for breach of
contract for failure to properly compute and pay royalties. The second cause of
action is against Chevron and the Dynegy defendants for an accounting and money
damages for failure to properly account for all sales and purchases of
hydrocarbons from the subject oil and gas leases. The third cause of action is
for declaratory relief against all three defendants. On May 16, 2000, an Answer
was filed on behalf of ONEOK Midstream, L.L.C. (formerly Dynegy Midstream,
L.L.C.).
Condemnation Actions. A subsidiary of the Company recently commenced
condemnation actions against certain surface and mineral owners with expired or
expiring leases relating to its Sayre storage facility. These cases are in their
initial stages and there has been no evaluation at this time of any potential
liability involved with these matters.
Joseph H. Pool, et al., vs. Natural Gas Pipeline Company of America, MidCon Gas
Services Corp., Chesapeake Panhandle Limited Partnership, MidCon Gas Products
Corp., et al., 100th District Court, Moore County, Texas, Cause No. 98-50.
Certain mineral owners filed litigation approximately two years ago against
certain defendants seeking a declaration that their leases have expired and that
defendants have converted gas from the premises for a value of not less than
$3.4 million plus damages for defendants' bad faith trespassing and fraudulent
conduct. Plaintiffs have recently added MidCon Gas Products Corp., predecessor
by merger to ONEOK Field Services Holdings, Inc., as a defendant to this action.
For additional information regarding the Company's legal proceedings, see the
Company's Form 10-K for the period ended August 31, 1999, the Company's Form 10-
Q for the period ended November 30, 1999, the Company's Form 10-Q for the
transition period ended December 31, 1999 and the Company's Form 10-Q for the
period ended March 31, 2000.
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Item 6. Exhibits and Reports on Form 8-K and 8-K/A
(A) Exhibits Incorporated by Reference
Certificate of Incorporation of the Company, filed May 16, 1997
(Incorporated by reference from Exhibit 3.1 to Amendment No. 3 to the
Company's Registration Statement on Form S-4 filed August 6, 1997).
Certificate of Merger of the Company filed November 26, 1997 (Incorporated
by reference from Exhibit (1)(b) to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1998).
Amended Certificate of Incorporation of ONEOK, Inc., filed January 16, 1998
(Incorporated by reference from Exhibit (1)(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 31, 1998).
Certificate of Designation for Convertible Preferred Stock of WAI, Inc.
(now ONEOK, Inc.) Filed November 26, 1997 (Incorporated by reference from
Exhibit 3.3 to Amendment No. 3 to Registration Statement on Form S-4 filed
August 31, 1997).
Certificate of Designation for Series C Participating Preferred Stock of
ONEOK, Inc. filed November 26, 1998 (Incorporated by reference from Exhibit
No. 1 to Form 8-A filed November 26, 1997).
Certificate of Merger of the Company filed April 3, 1998.
Certificate of Merger of the Company filed April 28, 2000.
By-laws of ONEOK, Inc., as amended (Incorporated by reference from Exhibit
(3)(d) to the Company's Annual Report on Form 10-K for the year ended
August 31, 1999.
Sixth Supplemental Indenture dated March 1, 2000, between the Company and
Chase Bank of Texas, National Association, incorporated by reference from
Registration Statement on Form S-4 filed March 13, 2000.
Registration Rights Agreement dated March 1, 2000 among the Company and the
Initial Purchasers described therein, incorporated by reference from
Registration Statement on Form S-4 filed March 13, 2000.
Seventh Supplemental Indenture dated April 24, 2000, between the Company
and Chase Bank of Texas, National Association, incorporated by reference
from Form 8-K dated April 24, 2000.
(B) Reports on Form 8-K and Form 8-K/A
May 30, 2000 - Announced that construction began on an electricity
generating plant. June 19, 2000 - Amended the 8-K filed April 6, 2000,
announcing the closing of the acquisition of the businesses acquired from
Kinder Morgan, Inc.
June 19, 2000 - Amended the 8-K filed April 6, 2000, announcing the closing
of the acquisition of the businesses acquired from Kinder Morgan, Inc.
July 10, 2000 - Entered in an $800 million Revolving Credit Facility.
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Signatures
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 11th day of August
2000.
ONEOK, Inc.
Registrant
By: /s/ Jim Kneale
-----------------------------------
Jim Kneale
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
31
