UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1995
COMMISSION FILE NO. 1-2572
ONEOK Inc.
100 West Fifth Street, Tulsa, OK 74103
(918) 588-7000
INCORPORATED IN IRS EMPLOYER
DELAWARE IDENTIFICATION NO.
73-0383100
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
The number of common shares outstanding of the registrant was
27,020,004 as of February 28, 1995.
Page 1 of 19
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TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of
Earnings - Three Months and Six Months
Ended February 28, 1995 and 1994 3
Consolidated Condensed Balance Sheets -
February 28, 1995, and August 31, 1994 4
Consolidated Condensed Statements of
Cash Flows - Six Months Ended
February 28, 1995 and 1994 5
Notes to Consolidated Condensed Financial
Statements 6- 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16-17
Item 4. Submission of Matters to a Vote of
Security Holders 17-18
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ONEOK Inc.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
3 Months Ended 6 Months Ended
February 28, February 28,
1995 1994 1995 1994
OPERATING REVENUES
Distribution and transmission $245,335 $250,643 $371,788 $386,618
Exploration and production 6,601 6,421 11,752 13,095
Gas processing 32,381 25,274 56,036 54,804
Other 3,041 13,106 14,050 18,118
Total operating revenues 287,358 295,444 453,626 472,635
OPERATING EXPENSES
Gas purchase expense 163,464 179,892 245,634 267,116
Operations 47,297 44,184 90,972 93,479
Maintenance 1,784 1,579 3,542 3,297
Depreciation, depletion,
and amortization 13,305 12,993 25,158 26,052
Income taxes 17,810 16,518 22,645 21,312
Other taxes 5,571 4,896 10,476 9,405
Total operating expense 249,231 260,062 398,427 420,661
Operating income 38,127 35,382 55,199 51,974
Net interest 9,840 8,995 19,124 17,775
Net income 28,287 26,387 36,075 34,199
Preferred stock dividend
requirement 107 107 214 214
Earnings available for
common stock $ 28,180 $ 26,280 $ 35,861 $ 33,985
Earnings per common share $1.05 $.98 $1.34 $1.27
Dividends per common share $.28 $.28 $.56 $.55
Weighted average common
shares outstanding (thousands) 26,712 26,681 26,701 26,657
See accompanying notes to consolidated condensed financial statements.
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ONEOK Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Feb. 28, Aug. 31,
1995 1994
ASSETS
Property and equipment $1,257,578 $1,217,739
Less accumulated depreciation,
depletion, and amortization 500,002 480,288
Net property and equipment 757,576 737,451
Current assets:
Cash and cash equivalents 14,933 4,545
Accounts receivable 164,401 51,029
Inventories 81,403 94,454
Purchased gas cost adjustment 5,100 11,809
Other current assets 11,013 7,416
Total current assets 276,850 169,253
Deferred debits and other assets:
Take-or-pay 108,240 107,491
Other 122,189 122,805
Total deferred debits and
other assets 230,429 230,296
$1,264,855 $1,137,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Common shareholders' equity:
Common stock $ 201,404 $ 195,568
Retained earnings 195,842 174,926
Total common shareholders' equity 397,246 370,494
Preferred stock 9,000 9,000
Total shareholders' equity 406,246 379,494
Long-term debt, excluding current maturities 362,849 362,897
Current liabilities:
Current maturities of long-term debt 14,050 14,050
Notes payable 75,000 50,000
Accounts payable 94,307 44,238
Accrued income taxes 11,099 -
Accrued general taxes 13,730 9,845
Accrued liabilities 29,579 20,140
Customers' deposits 7,325 6,413
Deferred taxes 1,808 3,822
Total current liabilities 246,898 148,508
Deferred credits:
Deferred income taxes 196,364 197,156
Other 52,498 48,945
Total deferred credits 248,862 246,101
$1,264,855 $1,137,000
See accompanying notes to consolidated condensed financial statements.
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ONEOK Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
6 Months Ended
Feb. 28,
1995 1994
OPERATING ACTIVITIES
Net income $ 36,075 $ 34,199
Amortization of take-or-pay deferrals 2,225 -
Depreciation, depletion, and amortization 25,158 26,052
Nonproductive well drilling 132 866
Net losses of equity investees 746 540
Net gain on sale of property - (2,053)
Deferred income taxes (2,886) 1,282
Changes in assets and liabilities (15,777) (2,042)
Net cash provided by operating
activities 45,673 58,844
INVESTING ACTIVITIES
(Increase) decrease in investments, net 337 (1,637)
Capital expenditures (48,799) (38,276)
Proceeds from salvage, net of removal costs 3,384 1,672
Net cash used in investing
activities (45,078) (38,241)
FINANCING ACTIVITIES
Principal payments on long-term debt (48) -
Increase (decrease) in notes payable, net 25,000 (2,000)
Dividends paid (15,159) (14,878)
Net cash provided by (used in)
financing activities 9,793 (16,878)
Change in cash and cash equivalents 10,388 3,725
Cash and cash equiv. beginning of period 4,545 9,667
Cash and cash equiv. end of period $ 14,933 $ 13,392
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $18,231 $17,470
Income taxes $12,482 $ 9,122
Noncash transactions:
Gas received as payment-in-kind $52,130 $32,533
Stock Performance Plan $ - $ 1,203
Issuance of common stock $ 5,836 $ -
See accompanying notes to consolidated condensed financial statements.
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ONEOK Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. General. 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.
Note 2. Rate Regulation. On December 30, 1994, the Company filed an
application for a general rate increase with the Oklahoma Corporation
Commission. The request is for an increase of $36.4 million, a return on
equity of 13.2 percent, and an overall return of 10.977 percent. The Company
is also seeking approval to restructure the method in which it handles
revenues from its largest customers and for the implementation of incentive
ratemaking and weather normalization plans. Under the incentive ratemaking
plan, the Company would be allowed limited rate adjustments, and in turn,
would agree not to seek a general rate increase for three years. Hearings
before an administrative law judge are scheduled to begin on May 30, 1995.
Note 3. Other Commission Matters. On March 31, 1995, the Oklahoma
Corporation Commission Staff filed two applications with the Oklahoma
Corporation Commission. The first application involves the Company's
Purchased Gas Adjustment Clause ("PGA Clause") requesting a hearing to
determine the appropriateness of the PGA Clause and requesting that the Clause
be amended. The Staff also requested that all collections pursuant to the
most recent filing (March 29, 1995) be placed under bond and subject to
refund. The second application requests that the Company's Payment in Kind
Program ("PIK") be modified to set the PIK Rate at the rate used in the
Company's last rate case ($2.68 per Mcf), adjusted for heat content, with
adjustment allowed for increases in the PIK customers' cost above the contract
price cap. Alternatively, the Staff requests that the revenue received by the
Company under PIK be made interim, under bond, and subject to refund. Any
change in the Company's PGA Clause that would not allow the Company to
immediately pass through the full cost of increases in the gas purchase costs
of the Company to its customers and any change in the PIK that would result in
a reduction of revenues received by the Company would have an adverse effect
on the Company's cash flow and earnings. The amount of such effect is not
presently determinable.
Note 4. Other Assets. Through TransTex Pipeline Company (TransTex), a
subsidiary, the Company is a 25 percent partner in Red River Pipeline (Red
River), which operates in Texas. The Company has agreed to advance cash to
Red River, limited to its proportionate share, for operating expenses and for
debt sinking fund payments when cash deficiencies occur. The Company has made
such cash advances in each of the last three years. During 1993, long-term
debt was refinanced, the system was modified to allow bidirectional flow, and
the method of allocating transportation revenue was changed to credit revenues
to the partner responsible for the throughput. Subsequently, TransTex has
entered into a one-year limited agency agreement with a third party for
shipping gas on Red River, which may generate additional revenue for TransTex
during the 1995 fiscal year. If the system does not improve cash flow as a
result of these or other changes, the Company may not be able to fully recover
its investment. The amount of such effect is not presently determinable.
The Company is a party to an agreement between Columbia Gulf Transmission,
Tennessee Gas Pipeline Company, USX Corporation, and ONEOK Inc. (Sellers) and
NGC Energy Resources (Buyer), pursuant to which the Sellers have agreed to
sell Ozark Gas Transmission System (Ozark System) to the Buyer. The Sellers
<PAGE>
directly or indirectly own the Ozark System. ONEOK Inc., through its wholly
owned subsidiary, Caney River Transmission Company, is a 25 percent partner in
the Ozark System. The closing of the transaction is anticipated on or about
May 1, 1995. Recently, the remaining long-term notes were called. It is
anticipated that the funds generated from certain exit agreements and from the
sale of the Ozark System will retire the notes and allow the Company to fully
recover its investment in the Ozark System.
Through the issuance of 330,000 shares of previously unissued shares of ONEOK
Inc. common stock, ONEOK Gas Marketing Company recently acquired through a
merger transaction the remaining interest in a partnership which markets
natural gas. The partnership had been moving approximately 400 to 450 million
cubic feet per day of natural gas, primarily out of Oklahoma. The Company
intends to continue the gas marketing business.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ONEOK Inc. and its subsidiaries (the Company) engage in natural gas
distribution, transmission, gathering, and storage operations; oil and gas
energy operations; and certain other operations, as described below.
Distribution and Transmission. Oklahoma Natural Gas Company purchases,
distributes, and sells natural gas and leases pipeline capacity. ONG
Transmission Company and four subsidiaries gather, compress, transport, and
store natural gas for intrastate distribution, transport gas in interstate
commerce, and lease pipeline capacity. In addition, two subsidiaries own
interests in partnerships that operate natural gas transmission systems.
The Company is in the process of reorganizing and consolidating its gathering
and transmission operations into two separate subsidiaries. Distribution
operations will remain in the parent corporation.
Exploration and Production. ONEOK Exploration Company and ONEOK Resources
Company explore for and produce natural gas and oil.
Gas Processing. ONEOK Products Company extracts and sells natural gas
liquids. It also buys and sells natural gas.
Other Operations. ONEOK Gas Marketing Company markets natural gas. Other
subsidiaries operate the headquarters office building and a parking garage.
RESULTS OF OPERATIONS
The Company reported consolidated net income of $28.3 million, or $1.05 per
share of common stock, for its second quarter ended February 28, 1995, and
$36.1 million, or $1.34 per share, for the fiscal year to date. This compares
with net income of $26.4 million, or 98 cents per share, and $34.2 million, or
$1.27 per share, respectively, for the previous year.
Distribution and transmission operations reported increases in net income, up
3 percent for the current fiscal year second quarter and 6.5 percent for the
fiscal year to date, compared with the same periods last year. Major
contributing factors were additional customers being served, increased margins
on pipeline capacity leases, and the nonrecurring effect of a rate order
issued during the 1995 first quarter. Current periods' earnings were
negatively impacted by warmer weather.
Exploration and production earnings increased for the current quarter compared
with last year because of increased sales of natural gas liquids from
recently acquired Black Lake properties, a gain on the sale of property, lower
nonproductive well drilling costs, and decreased depreciation and depletion
expenses. Earnings for the current fiscal year to date declined as a result
of lower natural gas prices.
Net income for the gas processing business increased during the current 3-
month period primarily because of increased volumes of natural gas liquids
sold at slightly higher prices. Earnings for the current 6-month period
decreased primarily because a gain of $2.1 million for the sale of a plant was
included in previous year earnings.
Consolidated net interest expense increased during the current year second
quarter and fiscal year to date due to increased amounts of short-term debt
<PAGE>
outstanding and higher interest rates during the periods. The average cost of
debt for the current quarter was 8.46 percent, compared with 8.14 percent for
the previous year. The average cost of debt for the current 6-month period
was 8.2 percent, compared with 8.09 percent for the previous year.
Following is a summary of consolidated earnings:
3 Months Ended 6 Months Ended
February 28, February 28,
NET INCOME (LOSS) 1995 1994 1995 1994
(Thousands of $)
Distribution and transmission $27,011 $26,184 $34,611 $32,489
Exploration and production 335 23 (6) 177
Gas processing 1,485 639 2,368 2,685
Contract drilling - (238) - (551)
Other operations (544) (221) (898) (601)
Consolidated $28,287 $26,387 $36,075 $34,199
3 Months Ended 6 Months Ended
February 28, February 28,
EARNINGS (LOSS) PER COMMON SHARE 1995 1994 1995 1994
Distribution and transmission $1.00 $ .98 $1.28 $1.21
Exploration and production .01 (.01) - -
Gas processing .06 .03 .09 .10
Contract drilling - (.01) - (.02)
Other operations (.02) (.01) (.03) (.02)
Consolidated $1.05 $ .98 $1.34 $1.27
Following are summaries of financial results and operating information for the
various segments of the Company for the three months and six months periods
ended February 28, 1995 and 1994.
3 Months Ended 6 Months Ended
February 28, February 28,
DISTRIBUTION AND TRANSMISSION 1995 1994 1995 1994
(Thousands of $, except per share amounts)
Revenues:
From unaffiliated customers $245,335 $250,643 $371,788 $386,618
Intersegment sales 503 985 574 1,064
Total revenues 245,838 251,628 372,362 387,682
Less gas purchase expense 147,814 159,865 213,526 235,796
Net revenues/gross margins 98,024 91,763 158,836 151,886
Operating expenses 45,296 41,187 85,394 83,295
Operating income before
income taxes 52,728 50,576 73,442 68,591
Income taxes 17,006 16,392 21,723 20,233
Net interest expense 8,711 8,000 17,108 15,869
Net income $ 27,011 $ 26,184 $ 34,611 $ 32,489
Earnings per share $1.00 $.98 $1.28 $1.21
<PAGE>
3 Months Ended 6 Months Ended
February 28, February 28,
DISTRIBUTION AND TRANSMISSION 1995 1994 1995 1994
(Continued)
Gas sales:
Residential and commercial $187,556 $189,129 $269,156 $274,432
Industrial 9,676 9,561 15,110 14,562
Wholesale 954 1,703 1,201 2,326
PCL/SISP gas sales 13,840 25,983 27,945 47,550
Total gas sales 212,026 226,376 313,412 338,870
Less gas purchase expense 147,814 159,865 213,526 235,796
Gas sales margins 64,212 66,511 99,886 103,074
PCL/SISP margins 6,063 5,576 11,702 10,506
Pipeline capacity lease margins 22,009 13,461 38,008 26,640
Other revenues 5,740 6,215 9,240 11,666
Net revenues $ 98,024 $ 91,763 $158,836 $151,886
Volumes (MMcf):
Gas sales:
Residential and commercial 37,636 42,829 51,245 60,886
Industrial 3,031 3,126 4,738 4,684
Wholesale 312 521 380 733
Total gas sales 40,979 46,476 56,363 66,303
PCL/SISP 8,803 12,044 18,259 22,820
Pipeline capacity leases 35,810 31,043 66,350 61,069
Total volumes 85,592 89,563 140,972 150,192
Average cost of gas purchased (per Mcf):
General system $3.30 $2.92 $3.30 $2.92
SISP $1.55 $2.05 $1.60 $2.01
PCL margins (per MMcf) $.63 $.44 $.59 $.44
Degree days:
Actual 2,019 2,314 2,596 3,212
Normal 2,331 2,335 2,979 2,966
Number of customers at end of periods 737,018 729,642
The Company was serving more than 7,000 additional customers. In addition, a
rate increase became effective in November 1994. However, residential and
commercial sales decreased compared with the previous year because of warmer
weather for both the 3-month and 6-month periods ended February 28, 1995.
The market to serve industrial customers remains extremely competitive, so the
Company offers its pipeline capacity lease program (PCL) and payment-in-kind
program (PIK) to certain of these customers as a response to the competitive
pressures. Under its PIK program, the Company accepts gas in lieu of cash for
PCL payments and for transportation charges. PIK gas is priced to general
system gas distribution operations at the weighted average cost of gas
(WACOG). Some of the PCL contracts include price caps, which reduce the
volume of gas delivered to the Company as the price of gas purchased by the
customers escalates. Average spot market prices increased significantly in
1993 and continued to increase for part of 1994, triggering price caps and
reducing the volume of PIK gas delivered to the Company. In May 1994, spot
market prices began declining to levels under those which triggered the price
caps, improving PCL margins. Spot prices continued to decline during the
current fiscal year causing PCL margins to increase.
<PAGE>
3 Months Ended 6 Months Ended
February 28, February 28,
EXPLORATION AND PRODUCTION 1995 1994 1995 1994
(Thousands of $ except per share amounts)
Revenues:
From unaffiliated customers $6,601 $6,421 $11,752 $13,095
Intersegment sales 211 363 482 738
Total revenues 6,812 6,784 12,234 13,833
Operating expenses 5,698 6,311 11,227 12,645
Operating income (loss)
before income taxes 1,114 473 1,007 1,188
Income taxes 211 15 (4) 112
Net interest expense 568 435 1,017 899
Net income (loss) $ 335 $ 23 $ (6) $ 177
Earnings (loss) per share $.01 $(.01) $ $ - $ -
Oil production sales:
Revenue (thousands of $) $1,720 $1,838 $3,395 $4,117
Volumes (Bbls.) 109,361 137,852 215,508 281,941
Average price (per bbl.) $15.73 $13.33 $15.75 $14.60
Gas production sales:
Revenue (thousands of $) $4,015 $4,665 $7,345 $9,295
Volumes (MMcf) 2,493 2,249 4,652 4,549
Average price (per Mcf) $1.61 $2.07 $1.58 $2.04
Natural gas liquids sales:
Revenue (thousands of $) $833 $114 $1,117 $225
Volumes (Mgals.) 2,897 470 4,102 932
Average price (per gal.) $.29 $.24 $.27 $.24
Exploration and production earnings increased for the current quarter compared
with last year because of increased sales of natural gas liquids from
recently acquired Black Lake properties, a gain on the sale of property, lower
nonproductive well drilling costs, and decreased depreciation and depletion
expenses. Earnings for the current fiscal year to date declined as a result
of lower natural gas prices.
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3 Months Ended 6 Months Ended
February 28, February 28,
GAS PROCESSING 1995 1994 1995 1994
(Thousands of $ except per share amounts)
Revenues:
From unaffiliated customers $32,381 $25,274 $56,036 $54,804
Intersegment sales - 634 - 647
Total revenues 32,381 25,908 56,036 55,451
Operating expenses 29,700 24,666 51,676 50,652
Operating income before
income taxes 2,681 1,242 4,360 4,799
Income taxes 937 403 1,494 1,694
Net interest expense 259 200 498 420
Net income $ 1,485 $ 639 $ 2,368 $ 2,685
Earnings per share $.06 $.03 $.09 $.10
Natural gas liquids sales:
Revenue (thousands of $) $13,743 $10,414 $27,788 $24,642
Volumes (Mgals.) 50,376 41,294 103,252 95,022
Average price (per gal.) $.27 $.25 $.27 $.26
Margin (per gal.) $.02 $ - $.03 $.02
Other gas sales:
Revenue (thousands of $) $15,641 $11,524 $22,394 $21,115
Volumes (MMcf) 7,011 4,537 11,186 8,919
Average price (per Mcf) $2.23 $2.54 $2.00 $2.37
Margin (per Mcf) $.30 $.32 $.21 $.22
In July 1994, the Company began trading NYMEX natural gas futures contracts to
hedge shrinkage and fuel requirements in its gas processing operations. These
contracts were entered into in order to effectively manage the risks involved
in gas commodities price fluctuations. Gains or losses are recognized when
the futures contracts expire. In the first quarter, a loss of $1.2 million
was recognized for futures contracts that had expired, $.9 million of which
was applicable to shrinkage and fuel costs recorded in December 1994 and
January 1995. During the second quarter, a $1.8 million loss was recognized,
$1.3 million of which was applicable to shrinkage and fuel costs recorded in
March and April 1995. Hedging losses are offset by purchases of replacement
fuel and shrinkage at amounts less than the hedged cost. At February 28,
1995, the Company had no deferred gains or losses on gas futures contracts.
Net income for the gas processing business increased during the current 3-
month period primarily because of increased volumes of natural gas liquids
sold at slightly higher prices. Earnings for the current 6-month period
decreased primarily because a gain of $2.1 million for the sale of a plant was
included in previous year earnings.
Margins on other gas sales decreased during the current quarter and fiscal
year to date because of lower natural gas prices.
<PAGE>
3 Months Ended 6 Months Ended
February 28, February 28,
OTHER 1995 1994 1995 1994
(Thousands of $ except per share amounts)
Revenues:
From unaffiliated customers $ 3,041 $11,064 $14,050 $14,024
Intersegment sales 22,236 17,332 40,228 42,253
Total revenues 25,277 28,396 54,278 56,277
Gas purchase expense 23,013 25,654 49,557 51,153
Operating expenses 2,846 2,800 5,685 5,629
Operating income (loss)
before income taxes (582) (58) (964) (505)
Income taxes (342) (139) (567) (379)
Net interest expense 304 302 501 475
Net income (loss) $ (544) $ (221) $ (898) $ (601)
Earnings (loss) per share $(.02) $(.01) $(.03) $(.02)
Buildings operations (thousands of $):
Revenue $2,192 $2,294 $4,348 $4,621
Earnings per share $(.01) $(.01) $(.02) $(.02)
Corporate operations (thousands of $):
Revenue $136 $169 $228 $242
Earnings per share $ - $ - $ - $ -
Gas marketing operations (thousands of $):
Revenue $22,949 $25,933 $49,702 $51,414
Less gas purchase expense 23,013 25,654 49,557 51,153
Net revenue $ (64) $ 279 $ 145 $ 261
Earnings per share $(.01) $ - $(.01) $ -
Through the issuance of 330,000 shares of previously unissued shares of ONEOK
Inc. common stock, ONEOK Gas Marketing Company recently acquired through a
merger transaction the remaining interest in a partnership which markets
natural gas. The partnership had been moving approximately 400 to 450 million
cubic feet per day of natural gas, primarily out of Oklahoma.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The estimated sources of funds (cash) for the 1995 fiscal year are as follows:
Sources of Funds (Millions of $)
Proceeds from:
Issuance of short-term debt $ 20.0
Cash provided by operating
activities 91.7
Total $111.7
Short-Term Debt. The aggregate amount of short-term debt outstanding at
April 3, 1995, and February 28, 1995, was $50 million and $75 million,
respectively.
Long-Term Debt. As of April 3, 1995, the Company could have issued
approximately $265.5 million of additional long-term debt under the most
restrictive of the provisions contained in the Company's various lending
agreements.
Stock and Dividends. As of April 3, 1995, the Company could have issued
approximately 33 million shares of common stock, 160,000 shares of preferred
stock, and three million shares of preference stock. Common dividends were 28
cents per share for the 1995 first and second quarters and 27 cents and 28
cents, respectively, for the same periods a year earlier. Preferred dividends
were 59.375 cents per share for all periods.
Rate Regulation. On December 30, 1994, the Company filed an application for a
general rate increase with the Oklahoma Corporation Commission. The request
is for an increase of $36.4 million, a return on equity of 13.2 percent, and
an overall return of 10.977 percent. The Company is also seeking approval to
restructure the method in which it handles revenues from its largest customers
and implementation of incentive ratemaking and weather normalization plans.
Under the incentive ratemaking plan, the Company would be allowed limited rate
adjustments, and, in turn, would agree not to seek a general rate increase for
three years. Hearings before an administrative law judge are scheduled to
begin on May 30, 1995.
Other Commission Matters. On March 31, 1995, the Oklahoma Corporation
Commission Staff filed two applications with the Oklahoma Corporation
Commission. The first application involves the Company's Purchased Gas
Adjustment Clause ("PGA Clause") requesting a hearing to determine the
appropriateness of the PGA Clause and requesting that the Clause be amended.
The Staff also requested that all collections pursuant to the most recent
filing (March 29, 1995) be placed under bond and subject to refund. The
second application requests that the Company's Payment in Kind Program ("PIK")
be modified to set the PIK Rate at the rate used in the Company's last rate
case ($2.68 per Mcf), adjusted for heat content, with adjustment allowed for
increases in the PIK customers' cost above the contract price cap.
Alternatively, the Staff requests that the revenue received by the Company
under PIK be made interim, under bond, and subject to refund. Any change in
the Company's PGA Clause that would not allow the Company to immediately pass
through the full cost of increases in the gas purchase costs of the Company to
its customers and any change in the PIK that would result in a reduction of
revenues received by the Company would have an adverse effect on the Company's
cash flow and earnings. The amount of such effect is not presently
determinable.
<PAGE>
Industrial Load. The Company's largest industrial customer, Agricultural
Mineral, Limited Partnership (AMLP), a fertilizer manufacturer, has instituted
an antitrust proceeding in state District Court challenging the validity of
its 15-year PCL contract with the Company entered into in 1989, contending
that the Company's practice of charging negotiated rather than uniform PCL
rates is discriminatory and illegal. The Company responded by filing an
Oklahoma Corporation Commission (Commission) proceeding seeking a
determination that the terms and conditions of its contract with AMLP are just
and reasonable. The Administrative Law Judge ruled that the case should be
stayed pending the outcome of the District Court proceedings. The Company
appealed the ruling to the Commission, and the Commission subsequently
determined that the matter should proceed. Management believes that AMLP's
contentions are unfounded and will be rejected in both the judicial and
administrative proceedings. Nevertheless, unfavorable results in such
proceedings, unless the Company could offset or recover any resulting damages
or earnings reduction by increased revenue from customers, could have a
materially adverse effect on the Company's earnings. The amount of such
effect is not presently determinable.
Capital Expenditures. Capital expenditures budgeted for the 1995 fiscal year
are as follows:
(Est.)
CAPITAL EXPENDITURES 1995
(Millions of $)
Distribution $44.0
Transmission 15.0
Exploration and production 26.3
Gas processing 3.5
Other operations .9
Total $89.7
The 1995 estimate for the exploration and production segment includes an
October 1994 acquisition of Louisiana properties at a cost of approximately
$17.6 million.
Other. ONEOK Inc. is a party to an agreement between Columbia Gulf
Transmission, Tennessee Gas Pipeline Company, USX Corporation, and ONEOK Inc.
(Sellers) and NGC Energy Resources (Buyer), pursuant to which the Sellers have
agreed to sell Ozark Gas Transmission System (Ozark System) to the Buyer. The
Sellers directly or indirectly own the Ozark System. ONEOK Inc., through its
wholly owned subsidiary, Caney River Transmission Company, is a 25 percent
partner in the Ozark System. The closing of the transaction is anticipated on
or about May 1, 1995. Recently, the remaining long-term notes were called.
It is anticipated that the funds generated from certain exit agreements and
from the sale of the Ozark System will retire the notes and allow the Company
to fully recover its investment in the Ozark System.
Through the issuance of 330,000 shares of previously unissued shares of ONEOK
Inc. common stock, ONEOK Gas Marketing Company recently acquired through a
merger transaction the remaining interest in a partnership which markets
natural gas. The partnership had been moving approximately 400 to 450 million
cubic feet per day of natural gas, primarily out of Oklahoma.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Agricultural Minerals Limited Partnership v. ONEOK Inc., et al., No. CJ-94-93,
District Court, Rogers County. On January 25, 1995, the Company filed a
motion for leave to file a counterclaim against the Plaintiff for abuse of
process, which has been briefed. The parties are awaiting a decision. A
Scheduling Order was entered on February 11, 1995, with a discovery cut-off of
September 1, 1995, and a trial date of October 9, 1995. The case is in the
discovery stage.
Application of Ernest G. Johnson Director of the Public Utility Division,
Oklahoma Corporation Commission seeking Commission Authorization to Modify
Oklahoma Natural Gas Company's Purchased Gas Adjustment Clause, Cause No. PUD
590000059, Oklahoma Corporation Commission. On March 31, 1995, the Director
of the Public Utility Division of the Commission filed an application for an
administrative proceeding to determine the appropriateness of the Company's
Purchased Gas Adjustment Clause ("PGA Clause"), the most recent proposed
adjustment having been filed with the Commission on March 29, 1995, requesting
that the PGA Clause be amended and that any collections pursuant to the most
recent filing be placed under bond and subject to refund. The matter has been
set for hearing on April 12, 1995.
Application of Ernest G. Johnson Director of the Public Utility Division,
Oklahoma Corporation Commission seeking Commission Authorization to Modify
Oklahoma Natural Gas Company's Payment in Kind Tariff, Cause No. PUD
590000060, Oklahoma Corporation Commission. On March 31, 1995, the Director
of the Public Utility Division of the Commission filed an application
requesting that the Company's Payment in Kind Program ("PIK") be modified "to
set the PIK rate at the rate used in the Company's last rate case, $2.68 Mcf,
adjusted for heat content, with adjustment allowed for increases in PIK
customers' cost above the contract price caps." Alternatively, the Staff
requests that the revenues received by the Company under PIK be made interim,
under bond, and subject to refund.
Fent, et ux v. Oklahoma Natural Gas Company, a division of ONEOK Inc., No.
79,243, Oklahoma Supreme Court. A petition for rehearing was denied by the
Oklahoma Supreme Court on January 31, 1995. On February 13, 1995, the court
granted the Plaintiffs' application for attorney fees in connection with the
appeal. A petition for rehearing of the attorney fee order has been filed.
Hadson Energy Resources Corporation v. ONG Western, Inc., No. 93-3953-62,
District Court, Oklahoma County. An Order dismissing the action with
prejudice was entered on February 1, 1995.
In the Matter of the Ad Valorem Tax Protest of Oklahoma Natural Gas Company,
ONG Sayre Storage, ONG Transmission Company, ONEOK Services, Inc., ONG
Western, Inc., ONG Red Oak Transmission Company, and OkTex Pipeline Company,
Case Nos. E-94-32, E-94-33, E-94-34, E-94-35, E-94-36, E-94-37, E-94-38, Court
of Tax Review, Oklahoma Board of Equalization. This proceeding is in the
discovery stage. (In a separate action filed in the Oklahoma Supreme Court by
another Protestant, the court assumed original jurisdiction, decided the
matter against the Protestant, and subsequently rejected a petition for
rehearing. The Protestant is considering an appeal to the United States
Supreme Court.)
<PAGE>
In the Matter of the Application of Oklahoma Natural Gas Company, a Division
of ONEOK Inc., for Examination of Standby Service. Cause No. PUD 880000598,
Oklahoma Corporation Commission. Under a scheduling order entered on
December 9, 1994, the Company must file testimony and proposed tariffs by
April 14, 1995, and a hearing on the merits is scheduled for
September 13, 1995. On March 22, 1995, the Company filed a motion asking for
an extension until July 14, 1995, to file testimony and tariffs and like
extensions of other dates. The motion, heard on March 30, 1995, was denied.
Application for a Determination that the Rate Charges Pursuant to a Pipeline
Capacity Lease Agreement between ONG and AMLP is Just and Reasonable, Cause
No. PUD 940000419, Oklahoma Corporation Commission. A hearing on the
Company's appeal of the ruling of the Administrative Law Judge that the matter
should be stayed pending the outcome of the District Court proceedings (see
Agricultural Minerals Limited Partnership v. ONEOK Inc., et al., above) was
held on February 8, 1995, and the Commission subsequently determined that it
had jurisdiction and that the matter should proceed. A hearing is set for
April 13, 1995, to hear the Company's motion for a scheduling order.
In the Matter of the Application for a Change or Modification of the Rates,
Charges, and Tariffs of Oklahoma Natural Gas Company, a Division of ONEOK
Inc., Cause No. 940000477, Oklahoma Corporation Commission. This proceeding
is in the discovery stage (Company answering numerous data requests from the
Staffs of the Commission and the Attorney General). The hearing on the
application is set for May 30 through June 2, 1995.
Application of Oklahoma Natural Gas Company for Limited Deviation from the
General Priority Schedule Established by OCC-OGR 1-305, General Cause No.
28738, Oklahoma Corporation Commission. On January 6, 1995, the Company filed
a motion to dismiss. On January 12, 1995, an Administrative Law Judge
recommended that the motion be granted, and on January 19,1995, the Commission
accepted the recommendation and dismissed the Cause.
Application of Oklahoma Natural Gas Company to Amend its Limited Deviation
from the General Priority Schedule Established by OAC 165;10-17-12 in Order to
Modify its Special Industrial Sales Program, Cause No. 9500000391; and
Application of Oklahoma Natural Gas Company for Modification of its Special
Industrial Sales Program, Cause PUD No. 950000017.
On February 3, 1995, the Company filed an application in the Public Utility
Division requesting that its Special Industrial Sales Program (SISP) be
modified to offset any decline in the receipt of Payment-In-Kind gas.
Concurrently, the Company filed an application with the Conservation Division
to permit the Company to purchase the additional SISP gas without regard to
priority. A motion to consolidate the two proceedings was also filed. A date
for the hearing on the merits has not yet been set.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Results of Votes of Security Holders
The Annual Meeting of Shareholders of ONEOK Inc. was held on January 19, 1995,
in Tulsa, Oklahoma. At this meeting, shareholders voted to elect directors
and approve the appointment of independent auditors. Proxies for the meeting
were solicited pursuant to Section 14(a) of the Securities Exchange Act of
1934, and there was no solicitation in opposition to management's
solicitation.
<PAGE>
The results of the voting are as follows:
(1) Election of Class B Directors
Common Stock Votes Preferred Stock Votes
For Withheld For Withheld
Larry W. Brummett 23,013,347 244,423 249,922 7,548
S. J. Jatras 22,993,404 264,366 249,872 7,598
Douglas Ann Newsom, Ph.D. 22,968,404 289,287 249,872 7,598
Class A Directors continuing after the meeting are as follows:
W. M. Bell
W. L. Ford
B. H. Mackie
G. D. Parker
Class C Directors continuing after the meeting are as follows:
D. R. Cummings
J. M. Graves
J. D. Scott
G. R. Williams
S. L. Young
(2) Appointment of KPMG Peat Marwick LLP as independent auditors for the
Company
For Against Abstain
Preferred 195,250 6,982 55,238
Common 22,887,338 187,999 182,433
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Three reports on Form 8-K were filed during the second quarter of the 1995
fiscal year or preceding the filing of this report. The first report was
dated December 30, 1994, and reported that Oklahoma Natural Gas Company, a
division of ONEOK Inc., filed an application with the Oklahoma Corporation
Commission seeking a $36.4 million rate increase. The second report was dated
February 14, 1995, and reported that ONEOK Inc. was a party to a certain Stock
and Interest Purchase and Sale Agreement, dated February 10, 1995, between
Columbia Gulf Transmission, Tennessee Gas Pipeline Company, USX Corporation,
and ONEOK Inc. (Sellers) and NGC Energy Resources, Limited Partnership
(Buyer), pursuant to which the Sellers have agreed to sell Ozark Gas
Transmission System to the Buyer. The third report was dated on February 24,
1995, and reported that ONEOK Inc. had acquired Ward Gas Services, Inc., from
Ward Petroleum Corporation through merger into ONEOK Gas Marketing Company, a
wholly owned subsidiary, on February 23, 1995.
There were no financial statements filed with any of these Forms 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements 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 10th day of April 1995.
ONEOK Inc.
(Registrant)
By: (J. D. NEAL)
J. D. Neal
Vice President,
Chief Financial Officer,
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE 1995 FISCAL YEAR'S SECOND
QUARTER ENDED FEBRUARY 28, 1995, AND THE CONSOLIDATED BALANCE SHEET AT
FEBRUARY 28, 1995, FOR ONEOK INC. AND SUBSIDIARIES AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 14,933
<SECURITIES> 0
<RECEIVABLES> 164,401
<ALLOWANCES> 0
<INVENTORY> 81,403
<CURRENT-ASSETS> 276,850
<PP&E> 1,257,578
<DEPRECIATION> 500,002
<TOTAL-ASSETS> 1,264,855
<CURRENT-LIABILITIES> 246,898
<BONDS> 0
<COMMON> 201,404
0
9,000
<OTHER-SE> 195,842
<TOTAL-LIABILITY-AND-EQUITY> 1,264,855
<SALES> 0
<TOTAL-REVENUES> 287,358
<CGS> 0
<TOTAL-COSTS> 231,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,840
<INCOME-PRETAX> 46,097
<INCOME-TAX> 17,810
<INCOME-CONTINUING> 28,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,287
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
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