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 MAY 31, 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 May 31, 1995.
Page 1 of 17
<PAGE>
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of
Earnings - Three Months and Nine Months
Ended May 31, 1995 and 1994 3
Consolidated Condensed Balance Sheets -
May 31, 1995, and August 31, 1994 4
Consolidated Condensed Statements of
Cash Flows - Nine Months Ended
May 31, 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 7-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14-16
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
ONEOK Inc.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31,
1995 1994 1995 1994
OPERATING REVENUES
<S> <C> <C> <C> <C>
Distribution and transmission $146,698 $142,726 $518,486 $529,344
Exploration and production 5,184 5,229 16,936 18,324
Gas processing 24,377 26,525 80,413 81,329
Other 128,239 16,000 142,289 34,118
Total operating revenues 304,498 190,480 758,124 663,115
OPERATING EXPENSES
Gas purchase expense 210,073 108,470 455,707 375,586
Operations 51,689 46,607 142,661 140,086
Maintenance 1,659 1,488 5,201 4,785
Depreciation, depletion,
and amortization 12,655 12,494 37,813 38,546
Income taxes 4,811 2,456 27,456 23,768
Other taxes 5,168 4,815 15,644 14,220
Total operating expense 286,055 176,330 684,482 596,991
Operating income 18,443 14,150 73,642 66,124
Net interest 9,403 8,458 28,527 26,233
Net income 9,040 5,692 45,115 39,891
Preferred stock dividend
requirement 107 107 321 321
Earnings available for
Common stock $ 8,933 $ 5,585 $ 44,794 $ 39,570
Earnings per common share $.33 $.21 $1.67 $1.48
Dividends per common share $.28 $.28 $.84 $.83
Weighted average common
shares outstanding (thousands) 27,020 26,690 26,808 26,668
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
ONEOK Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<CAPTION>
May 31, Aug. 31,
1995 1994
ASSETS
<S> <C> <C>
Property and equipment $1,265,427 $1,217,739
Less accumulated depreciation,
depletion, and amortization 504,941 480,288
Net property and equipment 760,486 737,451
Current assets:
Cash and cash equivalents 25,575 4,545
Accounts receivable 90,174 51,029
Inventories 82,750 94,454
Purchased gas cost adjustment - 11,809
Deferred taxes 827 -
Other current assets 7,371 7,416
Total current assets 206,697 169,253
Deferred debits and other assets:
Take-or-pay 106,617 107,491
Other 115,583 122,805
Total deferred debits and
other assets 222,200 230,296
$1,189,383 $1,137,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Common shareholders' equity:
Common stock $ 201,404 $ 195,568
Retained earnings 197,208 174,926
Total common shareholders' equity 398,612 370,494
Preferred stock 9,000 9,000
Total shareholders' equity 407,612 379,494
Long-term debt, excluding current maturities 350,969 362,897
Current liabilities:
Current maturities of long-term debt 13,076 14,050
Notes payable 46,152 50,000
Accounts payable 63,708 44,238
Accrued income taxes 12,017 -
Accrued general taxes 8,127 9,845
Accrued interest 14,035 8,711
Accrued liabilities 18,939 11,429
Customers' deposits 7,209 6,413
Deferred taxes - 3,822
Total current liabilities 183,263 148,508
Deferred credits:
Deferred income taxes 193,879 197,156
Other 53,660 48,945
Total deferred credits 247,539 246,101
$1,189,383 $1,137,000
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
ONEOK Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<CAPTION>
9 Months Ended
May 31,
1995 1994
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 45,115 $ 39,891
Amortization of take-or-pay deferrals 3,347 -
Depreciation, depletion, and amortization 37,813 38,546
Nonproductive well drilling 375 800
Net losses of equity investees 561 186
Net gain on sale of property - (1,693)
Deferred income taxes (7,926) 1,284
Changes in assets and liabilities 27,128 1,837
Net cash provided by operating
activities 106,413 80,851
INVESTING ACTIVITIES
(Increase) decrease in investments, net 4,522 (2,846)
Proceeds from sale of Caney River
Transmission Company 10,901 -
Capital expenditures (64,579) (55,969)
Proceeds from sale of property - 7,861
Proceeds from salvage, net of removal costs 3,356 (106)
Net cash used in investing
activities (45,800) (51,060)
FINANCING ACTIVITIES
Principal payments on long-term debt (12,902) (15,000)
Decrease in notes payable, net (3,848) (2,000)
Dividends paid (22,833) (22,458)
Net cash used in financing activities (39,583) (39,458)
Change in cash and cash equivalents 21,030 (9,667)
Cash and cash equivalents, beginning of period 4,545 9,667
Cash and cash equivalents, end of period $ 25,575 $ -
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $23,150 $30,990
Income taxes $21,849 $13,333
Noncash transactions:
Gas received as payment-in-kind $77,494 $53,269
Stock Performance Plan $ - $ 1,203
Issuance of common stock $ 5,836 $ -
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE> 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 June 19, 1995, the Oklahoma Corporation
Commission (Commission) approved a settlement agreed to by all active
participants in the pending rate proceedings, including the Commission
Staff, the Attorney General, and certain intervenors, which settled all
issues in the proceedings. Under the approved settlement, the Company will
receive a $14.9 million increase in base rates, of which $1.15 million
applies for only two years. In recognition of the current highly
competitive conditions in the industrial gas market, rates for large
industrial customers were restructured and reduced, with revenue losses
associated with such restructuring shifted to the general system "core"
(residential and commercial) customers. The price of Payment-In-Kind (PIK)
gas to be included in the weighted average cost of gas was reduced to the
cost of Special Industrial Sales Program (SISP) gas and limited to an
adjusted index price, the amount of PIK and SISP gas which could be taken
and included in the Purchased Gas Adjustment (PGA) was increased but
limited to 50 percent of the total general system supply on an annual
basis, and the revenue loss resulting from the pricing change for PIK gas
was shifted to the general system customers' base rates. The settlement
also provided for limited (up to 10 percent) rate recovery for large
industrial customer revenue losses resulting from future contract
renegotiation and a temperature normalization adjustment clause. The
Company anticipates that the result of such rate increases and rate
restructuring and gas acquisition and pricing changes could be a net annual
reduction of $6.7 million in burner tip gas costs to the general system
core customers. As a part of the settlement the Company agreed not to file
for a general rate increase for two years.
Note 3. Other Commission Matters. The Oklahoma Corporation Commission, in
an order issued April 27, 1995, established a cap of $2.68 per thousand
cubic feet of gas (Mcf) on the price to be applied to gas volumes received
by the Company in its approved Payment-In-Kind program. Prior to the
order, the gas was priced at the weighted average cost of gas, which was
approximately 60 cents per Mcf higher than the cap at the time of the
order. The Commission order had the effect of reducing revenue but was
superseded by the 1994 Rate Proceedings rate order described above.
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. TransTex
entered into a one-year limited agency agreement with a third party for
shipping gas on Red River, which has generated additional revenue for
TransTex during the 1995 fiscal year. TransTex is considering other
alternatives to maximize the value of its assets. 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.
<PAGE>
The sale of Ozark Gas Transmission System (Ozark System) was closed on
April 28, 1995. The total purchase price was $44.8 million, the
approximate book value of the Ozark System. Caney River Transmission
Company (Caney River), a wholly owned subsidiary of ONEOK Inc., was a
partner in the Ozark System with a twenty-five percent partnership interest
therein. At the closing, ownership of Caney River was transferred by ONEOK
Inc. to Ozark Pipeline, Inc., a subsidiary of NGC Energy Resources Limited
Partnership as part of the transaction. ONEOK Inc. fully recovered its
investment, which, for the current fiscal year, will result in a positive
cash flow but no material impact on earnings.
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 five subsidiaries gather, compress, transport, and
store natural gas for intrastate distribution, transport gas in interstate
commerce, and lease pipeline capacity. In addition, one subsidiary,
TransTex Pipeline Company, owns an interest in a partnership that operates
a natural gas transmission system.
A new subsidiary, ONG Gas Gathering Company, has been formed and
substantially all gas gathering facilities and operations were transferred
to the new subsidiary effective April 1, 1995. Present plans call for
reorganizing and consolidating substantially all gas transmission
facilities and operations into one subsidiary to be named ONG Transmission
Company. All gas distribution facilities and operations will remain in the
parent corporation and continue to be operated under the trade name,
Oklahoma Natural Gas Company.
Exploration and Production. ONEOK Exploration Company and ONEOK Resources
Company primarily 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 $9.0 million, or 33 cents
per share of common stock for the Company's fiscal 1995 third quarter ended
May 31, 1995, compared with $5.7 million, or 21 cents per share for the
prior year's third quarter.
Earnings for Oklahoma Natural Gas Company, the Company's gas distribution
and transmission operation, were $6.1 million, or 22 cents per share,
compared with $6.3 million, or 23 cents per share, last year. The impact
of cooler weather and increased margins was offset by a nonrecurring charge
related to Tri-Fuels Company, a small alternative-fuel subsidiary.
<PAGE>
ONEOK's natural gas liquids processing business contributed $2.9 million,
or 11 cents per share, compared with earnings of $199,000, or one cent per
share, a year ago. The earnings increase was due to additional sales
volumes and improved margins.
Consolidated net interest expense increased during the current year's third
quarter and fiscal year to date due to increased amounts of short-term debt
outstanding and higher interest rates during the periods. The average cost
of debt for the current three-month and nine-month periods was 8.661
percent and 8.238 percent, respectively, compared with 8.568 percent and
8.157 percent for the same periods last year.
Following is a summary of consolidated earnings:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31,
NET INCOME (LOSS) 1995 1994 1995 1994
(Thousands of $)
<S> <C> <C> <C> <C>
Distribution and transmission $6,085 $6,330 $40,696 $38,819
Exploration and production 419 3 413 180
Gas processing 2,908 199 5,276 2,884
Contract drilling - (430) - (981)
Other operations (372) (410) (1,270) (1,011)
Consolidated $9,040 $5,692 $45,115 $39,891
</TABLE>
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31,
EARNINGS (LOSS) PER COMMON SHARE 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Distribution and transmission $ .22 $ .23 $1.50 $1.44
Exploration and production .02 .01 .02 .01
Gas processing .11 .01 .20 .11
Contract drilling - (.02) - (.04)
Other operations (.02) (.02) (.05) (.04)
Consolidated $ .33 $ .21 $1.67 $1.48
</TABLE>
<PAGE>
Following are summaries of financial results and operating information for
the various segments of the Company for the three-month and nine-month
periods ended May 31, 1995 and 1994.
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31,
DISTRIBUTION AND TRANSMISSION 1995 1994 1995 1994
(Thousands of $, except per share amounts)
Revenues:
<S> <C> <C> <C> <C>
From unaffiliated customers $146,698 $142,803 $518,486 $529,421
Intersegment sales 777 500 1,351 1,564
Total revenues 147,475 143,303 519,837 530,985
Less gas purchase expense 80,158 84,411 293,684 320,207
Net revenues/gross margins 67,317 58,892 226,153 210,778
Operating expenses 50,054 41,916 135,448 125,211
Operating income before
income taxes 17,263 16,976 90,705 85,567
Income taxes 3,085 2,980 24,808 23,213
Net interest expense 8,093 7,666 25,201 23,535
Net income $ 6,085 $ 6,330 $ 40,696 $ 38,819
Earnings per share $.22 $.23 $1.50 $1.44
Gas sales:
Residential and commercial $102,749 $ 92,933 $371,905 $367,365
Industrial 5,388 6,826 20,498 21,388
Wholesale 402 168 1,603 2,494
PCL/SISP gas sales 12,815 22,067 40,760 69,617
Total gas sales 121,354 121,994 434,766 460,864
Less gas purchase expense 80,158 84,411 293,684 320,207
Gas sales margins 41,196 37,583 141,082 140,657
PCL/SISP margins 5,922 5,026 17,624 15,532
Pipeline capacity lease margins 15,230 12,767 53,238 39,407
Other revenues 4,969 3,516 14,209 15,182
Net revenues $ 67,317 $ 58,892 $226,153 $210,778
Volumes (MMcf):
Gas sales:
Residential and commercial 18,573 17,393 69,818 78,279
Industrial 1,875 1,955 6,613 6,639
Wholesale 114 55 494 788
Total gas sales 20,562 19,403 76,925 85,706
PCL/SISP 8,600 10,730 26,859 33,550
Pipeline capacity leases 32,193 29,719 98,543 90,788
Total volumes 61,355 59,852 202,327 210,044
Average cost of gas purchased (per Mcf):
General system $3.27 $2.92 $3.28 $2.92
SISP $1.54 $2.08 $1.57 $2.04
PCL margins (per MMcf) $.52 $.44 $.57 $.44
Degree days:
Actual 761 645 3,357 3,857
Normal 650 650 3,629 3,616
Number of customers at end of periods 732,924 722,665
</TABLE>
<PAGE>
Distribution and transmission operations reported decreased net income for
the current fiscal year's third quarter. Revenues for the current quarter
increased due to improved margins and slightly colder weather, offset by a
nonrecurring charge related to Tri-Fuels Company, a small alternative-fuel
subsidiary of the Company. For the fiscal year to date, net income
increased compared with the same period last year. Major contributing
factors were additional customers, increased margins, and the nonrecurring
effect of a rate order issued during the 1995 first quarter, partially
offset by warmer weather and the nonrecurring charge related to Tri-Fuels
Company discussed above.
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. Prior to an
April 27, 1995, order of the Oklahoma Corporation Commission (Commission),
PIK gas had been priced to general system gas distribution operations at
the weighted average cost of gas (WACOG). Some of the PCL contracts
included price caps, which reduced the volume of gas delivered to the
Company as the price of gas purchased by the customers escalated. 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.
The Oklahoma Corporation Commission, in an order dated April 27, 1995,
established a cap of $2.68 on the price to be applied to gas volumes
received by the Company in its approved Payment-In-Kind program. Prior to
the order, the gas was priced at the weighted average cost of gas, which
was approximately 60 cents per Mcf higher than the cap at the time of the
order. The Commission order had the effect of reducing revenue but was
superseded by a new rate order entered June 19, 1995. (For additional
discussion, see "Rate Regulation" on page 13.)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31,
EXPLORATION AND PRODUCTION 1995 1994 1995 1994
(Thousands of $ except per share amounts)
Revenues:
<S> <C> <C> <C> <C>
From unaffiliated customers $5,184 $5,228 $16,936 $18,323
Intersegment sales 1,034 391 1,516 1,129
Total revenues 6,218 5,619 18,452 19,452
Operating expenses 5,054 5,297 16,281 17,942
Operating income
before income taxes 1,164 322 2,171 1,510
Income taxes 248 (66) 244 46
Net interest expense 497 385 1,514 1,284
Net income $ 419 $ 3 $ 413 $ 180
Earnings per share $.02 $.01 $.02 $.01
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31,
EXPLORATION AND PRODUCTION(Cont.) 1995 1994 1995 1994
Oil production sales:
<S> <C> <C> <C> <C>
Revenue (thousands of $) $1,928 $1,583 $5,323 $5,700
Volumes (Bbls.) 114,588 125,679 330,096 407,620
Average price (per bbl.) $16.83 $12.60 $16.12 $13.98
Gas production sales:
Revenue (thousands of $) $2,860 $3,755 $10,205 $13,050
Volumes (MMcf) 2,077 1,781 6,729 6,330
Average price (per Mcf) $1.38 $2.11 $1.52 $2.06
Natural gas liquids sales:
Revenue (thousands of $) $635 $154 $1,752 $379
Volumes (Mgals.) 2,505 893 6,607 1,825
Average price (per gal.) $.25 $.17 $.27 $.21
</TABLE>
Increased earnings for exploration and production for the current quarter and
fiscal year to date were primarily attributable to increased natural gas
liquids and gas sales from properties acquired during the first quarter,
increased oil prices, and decreased depreciation and depletion expenses.
Also contributing to the increased fiscal-year-to-date earnings were a gain
on sale of property and lower nonproductive well drilling costs.
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31,
GAS PROCESSING 1995 1994 1995 1994
(Thousands of $ except per share amounts)
Revenues:
<S> <C> <C> <C> <C>
From unaffiliated customers $24,377 $26,523 $80,413 $81,328
Intersegment sales 4,564 21 4,564 668
Total revenues 28,941 26,544 84,977 81,996
Operating expenses 24,042 26,255 75,718 76,908
Operating income before
income taxes 4,899 289 9,259 5,088
Income taxes 1,712 (102) 3,206 1,592
Net interest expense 279 192 777 612
Net income $ 2,908 $ 199 $ 5,276 $ 2,884
Earnings per share $.11 $.01 $.20 $.11
Natural gas liquids sales:
Revenue (thousands of $) $12,947 $11,734 $40,735 $36,376
Volumes (Mgals.) 51,671 49,409 154,923 144,431
Average price (per gal.) $.25 $.24 $.26 $.25
Margin (per gal.) $.05 $ - $.03 $.01
Other gas sales:
Revenue (thousands of $) $13,392 $11,132 $35,786 $32,247
Volumes (MMcf) 6,730 4,876 17,916 13,795
Average price (per Mcf) $1.99 $2.28 $2.00 $2.34
Margin (per Mcf) $.38 $.12 $.28 $.18
</TABLE>
<PAGE>
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 natural gas price fluctuations. Gains or losses were
recognized as the futures contracts expired. 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 (gas purchase) 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. Lower prices
paid for natural gas purchased for shrinkage and fuel requirements offset
the amounts of the hedging losses. There were no hedging activities during
the third quarter, and the Company has no open positions on gas futures
contracts.
Net income for the gas processing business increased during the current
three-month and nine-month periods primarily because of increased product
sales and decreased shrinkage and fuel costs. Earnings for the nine-month
period ended May 31, 1994, included a gain of $2.1 million for the sale of
a plant.
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31,
OTHER 1995 1994 1995 1994
(Thousands of $ except per share amounts)
Revenues:
<S> <C> <C> <C> <C>
From unaffiliated customers $128,239 $14,806 $142,289 $ 28,828
Intersegment sales 12,246 29,888 52,474 72,141
Total revenues 140,485 44,694 194,763 100,969
Gas purchase expense 135,648 41,770 185,205 92,922
Operating expenses 4,911 2,878 10,596 8,506
Operating income (loss)
before income taxes (74) 46 (1,038) (459)
Income taxes (236) 273 (803) (106)
Net interest expense 534 183 1,035 658
Net income (loss) $ (372) $ (410) $ (1,270) $ (1,011)
Earnings (loss) per share $(.02) $(.02) $(.05) $(.04)
Buildings operations (thousands of $):
Revenue $2,232 $2,306 $6,580 $6,926
Earnings per share $(.01) $(.02) $(.03) $(.04)
Corporate operations (thousands of $):
Revenue $287 $ 56 $515 $298
Earnings per share $ - $ - $ - $ -
Gas marketing operations (thousands of $):
Revenue $137,966 $42,332 $187,668 $93,745
Less gas purchase expense 135,648 41,770 185,205 92,922
Net revenue $ 2,318 $ 562 $ 2,463 $ 823
Earnings per share $(.01) $ - $(.02) $ -
</TABLE>
During the second quarter of 1995, ONEOK Inc. issued 330,000 shares of
previously unissued shares of its common stock as part of a merger to
acquire the remaining interest in a gas marketing partnership in which
ONEOK Gas Marketing Company was a 50 percent owner. Increased revenues
during the third quarter and fiscal year to date were primarily a result of
<PAGE>
gas marketing operations. Losses for other operations, including the
results of gas marketing activities, remained relatively flat for both
periods compared with last year.
LIQUIDITY AND CAPITAL RESOURCES
The estimated sources of funds (cash) for the 1995 fiscal year are as
follows:
(Est.)
Sources of Funds (Millions of $) 1995
Proceeds from:
Issuance of short-term debt $ 5.0
Sale of investment 10.9
Cash provided by operating
activities 100.4
Total $116.3
Short-Term Debt. The aggregate amount of short-term debt outstanding at
June 27, 1995, and May 31, 1995, was $36.2 million and $46.2 million,
respectively.
Long-Term Debt. As of June 27, 1995, the Company could have issued
approximately $269.9 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 June 27, 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
stock dividends were increased from 27 cents per share during the first
quarter of 1994 and have remained at 28 cents per share since that time.
Preferred dividends are 59.375 cents per share. At May 31, 1995,
approximately $169.8 million of retained earnings is available for
dividends.
Rate Regulation. On June 19, 1995, the Commission approved a settlement
agreed to by all active participants in the pending rate proceedings,
including the Commission Staff, the Attorney General, and certain
intervenors, which settled all issues in the proceedings. Under the
approved settlement, the Company will receive a $14.9 million increase in
base rates, of which $1.15 million applies for only two years. In
recognition of the current highly competitive conditions in the industrial
gas market, rates for large industrial customers were restructured and
reduced, with revenue losses associated with such restructuring shifted to
the general system "core" (residential and commercial) customers. The
price of PIK gas to be included in the weighted average cost of gas was
reduced to the cost of SISP gas and limited to an adjusted index price, the
amount of PIK and SISP gas which could be taken and included in the
Purchased Gas Adjustment (PGA) was increased but limited to 50 percent of
the total general system supply on an annual basis, and the revenue loss
resulting from the pricing change for PIK gas was shifted to the general
system customers' base rates. The settlement also provided for limited (up
to 10 percent) rate recovery for large industrial customer revenue losses
resulting from future contract renegotiation and a temperature
normalization adjustment clause. The Company anticipates that the result
of such rate increases and rate restructuring and gas acquisition and
<PAGE>
pricing changes could be a net annual reduction of $6.7 million in burner
tip gas costs to the general system core customers. As a part of the
settlement the Company agreed not to file for a general rate increase for
two years.
Industrial Load. A contingent settlement agreement relating to litigation
with Terra Nitrogen, Limited Partnership, formerly Agricultural Minerals,
Limited Partnership (AMLP), was entered into as a result of, but was not a
part of, the settlement approved by the Commission on June 19, 1995.
Capital Expenditures. Capital expenditures budgeted for the 1995 fiscal
year are as follows:
(Est.)
CAPITAL EXPENDITURES (Millions of $) 1995
Distribution $41.4
Transmission 13.0
Exploration and production 22.2
Gas processing 2.5
Other operations .7
Total $79.8
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. 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. TransTex entered into
a one-year limited agency agreement with a third party for shipping gas on
Red River, which has generated additional revenue for TransTex during the
1995 fiscal year. TransTex is considering other alternatives to maximize
the value of its assets. 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.
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. As a result of the settlement of the
Company's 1994 Rate Proceedings (see Cause No. 940000477 below), a
contingent settlement agreement has been reached relating to this case.
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, 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 matter has
been settled. Under the settlement agreement, the current assessment ratio
<PAGE>
shall remain fixed for three years. A legislative study group is being
established to study the matter and recommend a long-term solution.
McWilliams, et ux v. ONEOK Inc., No. CJ-94-244, District Court, Kay County.
The trial of the case commenced June 6, 1995, and the jury returned a
verdict against the Company for $430,000 actual damages and $1 million
punitive damages. The Company plans to file a motion for a new trial.
Producers Selling Gas Processed at the LaVerne and/or Mooreland Plants
(including ONEOK Exploration Company), Docket No,. IN 92-1-000, and Amoco
Production and Oryx Energy Company, Docket No. IN 92-2-000, before the
Federal Energy Regulatory Commission. The Commission withdrew its Notice
of Proposed Civil Penalty by Order issued May 2, 1995. As such, the
Company is no longer subject to any potential liability under the NGA or
NGPA arising out of matters covered by the Notice.
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; and 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. Orders were issued in these proceedings but will
be superseded by the Order in the 1994 Rate Proceedings. (See Cause No.
940000477 below.)
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. Pursuant to a scheduling order
entered by an administrative law judge (and agreed to by both parties) on
December 9, 1994, a hearing on the merits is scheduled for September 13,
1995. The Company filed its testimony and proposed tariffs on April 14,
1995.
In the Matter of the Application of Oklahoma Natural Gas Company, a
Division of ONEOK Inc., for a Review and Determination Concerning its Rates
and Earnings in Compliance with the Requirements of 17 O. S. Supp. 1990,
Sec. 263, and for Other Appropriate Relief, Cause PUD No. 910001190,
Oklahoma Corporation Commission. As a result of the settlement of the
Company's 1994 Rate Proceedings (see Cause No. 940000477 below), a
contingent settlement agreement has been reached relating to Terra
Nitrogen, Limited Partnership's appeal of the Commission's November 22,
1994 Order.
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. As a
result of the settlement of the Company's 1994 Rate Proceedings (see Cause
No. 940000477 below), a contingent settlement agreement has been reached
relating to this case.
In the Matter of the Application for a Change or Modification in the Rates,
Charges, and Tariffs of Oklahoma Natural Gas Company, a Division of ONEOK
Inc., Cause No. 940000477, Oklahoma Corporation Commission. A joint
stipulation to settle the pending rate proceeding was entered into between
the Company, the Staff of the Public Utility Division of the Corporation
<PAGE>
Commission, the Attorney General, and certain large industrial customers
who intervened in the proceedings, and approval recommended by the
administrative law judge. The joint stipulation was approved by order of
the Commission on June 19, 1995. The approved settlement provides, among
other things, for (a) a $14.9 million increase in basic rates, $1.15
million of which would apply for only the next two years, (b) PIK gas
(previously priced to the general system gas distribution operation at the
weighted average cost of gas (WACOG)) to be priced at the cost of SISP gas
(actual or cash equivalent price cap of each contract) with the resulting
revenue loss of $26.5 million shifted to general system customers' basic
rates, (c) reduction in PIK volumes to be replaced by direct purchase of
SISP gas with combined volumes limited to 50 percent of general system
volumes on an annual basis, (d) maximum rates for customers in the
Competitive Market PCL Class of 16 cents per MMBtu for fertilizer customers
and other customers with annual volumes exceeding 5 million MMBtu's and 34
cents per MMBtu for other customers in the Class (all PCL contracts for
customers in the Competitive Market PCL rate class are automatically
modified to conform to the new maximum rates), with revenue loss of $8.9
million associated with such reduction to be shifted to general system
customers, (e) SISP and PIK gas included in WACOG at actual purchase price
but limited to an index price plus 5 cents per MMBtu, (f) establishment of
base revenue of $25,023,470 for the 35 customers in the Competitive Market
PCL Class with any reduction in such revenue up to a maximum of 10 percent
to be added to base rates, any reductions beyond such 10 percent to be lost
to the Company, and any revenue above the base amount to be realized by the
Company, (g) a temperature adjustment clause, (h) recovery of certain
postretirement benefits and deferred pension expenses, and (i) agreement by
the Company not to file an application for a general rate increase for two
years. In addition, the settlement provides for certain future studies,
exchanges of information, and informal reviews. The changes were effective
with the filing of new tariffs on June 19, 1995.
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. These matters were
settled as part of the 1994 Rate Proceedings (see Cause No. 940000477
above).
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 third quarter of the 1995
fiscal year or preceding the filing of this report. The first report was
dated May 3, 1995, and reported the closing on the sale of Ozark Gas
Transmission System and the transfer of ownership of Caney River
Transmission Company to Ozark Pipeline, Inc.
<PAGE>
The second report was dated May 5, 1995, and reported that the Oklahoma
Corporation Commission issued an order establishing a cap of $2.68 per
thousand cubic feet of gas on the price to be applied to gas volumes
received by the Company in its approved Payment-In-Kind program.
The third report was dated June 19, 1995, and reported the Oklahoma
Corporation Commission approval of a rate settlement for Oklahoma Natural
Gas Company.
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 28th day of June 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 THIRD QUARTER
ENDED MAY 31, 1995, AND THE CONSOLIDATED BALANCE SHEET AT MAY 31, 1995, FOR
ONEOK INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> MAR-01-1995
<PERIOD-END> MAY-31-1995
<CASH> 25,575
<SECURITIES> 0
<RECEIVABLES> 90,174
<ALLOWANCES> 0
<INVENTORY> 82,750
<CURRENT-ASSETS> 206,697
<PP&E> 1,265,427
<DEPRECIATION> 504,941
<TOTAL-ASSETS> 1,189,383
<CURRENT-LIABILITIES> 183,263
<BONDS> 0
<COMMON> 201,404
0
9,000
<OTHER-SE> 197,208
<TOTAL-LIABILITY-AND-EQUITY> 1,189,383
<SALES> 0
<TOTAL-REVENUES> 304,498
<CGS> 0
<TOTAL-COSTS> 281,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,403
<INCOME-PRETAX> 0
<INCOME-TAX> 4,811
<INCOME-CONTINUING> 9,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,040
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
