<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended May 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _________ to ________
Commission file number 1-2572
ONEOK INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-0383100
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
100 WEST FIFTH STREET, TULSA, OK 74103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (918) 588-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On May 31, 1996, the Company had 27,218,343 shares of common stock outstanding.
<PAGE> 2
ONEOK INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C>
Consolidated Condensed Statements of Income -
Three and nine months ended May 31, 1996 and 1995 3
Consolidated Condensed Balance Sheets -
May 31, 1996 and August 31, 1995 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended May 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 14
PART II - OTHER INFORMATION 15 - 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of Dollars except per share amounts) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Regulated $131,396 $144,551 $463,793 $515,263
Non-regulated 158,286 157,726 529,089 239,294
- --------------------------------------------------------------------------------------------------
Total Operating Revenues 289,682 302,277 992,882 754,557
- --------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas 181,400 215,322 656,496 459,768
Operations 48,247 43,561 136,252 132,627
Maintenance 1,834 1,655 5,568 5,194
Depreciation, depletion, and amortization 24,923 13,328 56,387 40,259
General taxes 5,442 5,158 16,021 15,611
Income taxes 7,746 4,810 36,862 27,456
- --------------------------------------------------------------------------------------------------
Total Operating Expenses 269,592 283,834 907,586 680,915
- --------------------------------------------------------------------------------------------------
Operating Income 20,090 18,443 85,296 73,642
Interest 8,383 9,403 26,623 28,527
- --------------------------------------------------------------------------------------------------
NET INCOME 11,707 9,040 58,673 45,115
Preferred Stock Dividends 107 107 321 321
- --------------------------------------------------------------------------------------------------
Income Available for Common Stock $ 11,600 $ 8,933 $ 58,352 $ 44,794
==================================================================================================
Earnings Per Share of Common Stock $ .42 $ .33 $ 2.15 $ 1.67
==================================================================================================
Dividends per Share of Common Stock $ .30 $ .28 $ .88 $ .84
==================================================================================================
Average Shares of Common Stock
Outstanding (Thousands) 27,186 27,020 27,103 26,808
==================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
MAY 31, August 31,
(Thousands of Dollars) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Property $1,325,648 $1,275,743
Accumulated depreciation, depletion, and amortization 532,990 509,833
- --------------------------------------------------------------------------------------------------------
Net Property 792,658 765,910
- --------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 35,976 12,499
Accounts receivable 103,261 81,768
Inventories 63,881 82,123
Other current assets 41,595 16,655
- --------------------------------------------------------------------------------------------------------
Total Current Assets 244,713 193,045
- --------------------------------------------------------------------------------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Regulatory assets, net 158,008 170,994
Other 38,420 39,516
- --------------------------------------------------------------------------------------------------------
Total Deferred Charges and Other Assets 196,428 210,510
- --------------------------------------------------------------------------------------------------------
Total Assets $1,233,799 $1,169,465
========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
COMMON SHAREHOLDERS' EQUITY
Common stock without par value: authorized 60,000,000
shares; issued and outstanding 27,218,343 shares
at May 31, 1996 and 27,020,004 shares at
August 31, 1995 $ 205,959 $ 201,404
Retained earnings 221,724 187,225
- --------------------------------------------------------------------------------------------------------
Total Common Shareholders' Equity 427,683 388,629
Preferred stock: $50 par and involuntary liquidation
value; $53 voluntary liquidation value; Series A
and B, 4 3/4% (cumulative); authorized 340,000
shares; issued and outstanding 180,000 shares of
Series A at May 31, 1996, and August 31, 1995; 9,000 9,000
- --------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 436,683 397,629
- --------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 336,821 350,821
CURRENT LIABILITIES
Current portion, long-term debt 15,281 13,325
Notes payable 40,000 55,000
Accounts payable 91,651 58,174
Accrued income taxes 16,804 5,031
Accrued general taxes 2,196 8,780
Accrued interest 12,846 7,922
Purchased gas cost adjustment -- 2,706
Other 13,024 17,015
- --------------------------------------------------------------------------------------------------------
Total Current Liabilities 191,802 167,953
- --------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 193,702 189,330
Customers' advances for construction
and other deferred credits 74,791 63,732
- --------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 268,493 253,062
- --------------------------------------------------------------------------------------------------------
Commitments and Contingencies
- --------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,233,799 $1,169,465
========================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Nine Months Ended
May 31,
(Thousands of Dollars) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 58,673 $ 45,115
Depreciation, depletion, and amortization 56,387 40,259
Net losses of equity investees 1,271 561
Deferred income taxes (909) (7,926)
Changes in assets and liabilities 17,780 28,404
- --------------------------------------------------------------------------------------------------------
Cash provided by operating activities 133,202 106,413
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Changes in other investments, net (1,821) 15,423
Capital expenditures, net of salvage (61,241) (61,223)
- --------------------------------------------------------------------------------------------------------
Cash used in investing activities (63,062) (45,800)
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance (payment) of notes payable, net (12,044) (17,674)
Payments of debt (15,000) 924
Issuance of common stock 1,144 --
Dividends paid (20,763) (22,833)
- --------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities (46,663) (39,583)
- --------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 23,477 21,030
Cash and cash equivalents at
beginning of year 12,499 4,545
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 35,976 $ 25,575
========================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM REPORTING. The interim consolidated condensed financial statements
reflect all adjustments which, in the opinion of management, are necessary for
a fair presentation of the results for the interim periods presented. All such
adjustments are of a normal recurring nature. Due to the seasonal nature of the
business, the results of operations for the three months ended May 31, 1996,
are not necessarily indicative of the results that may be expected for the year
ended August 31, 1996. 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, 1995.
RECLASSIFICATION. Certain amounts in the May 1995 consolidated condensed
financial statements have been reclassified to conform with the May 1996
presentation.
(B) REGULATORY ASSETS
The following table is a summary of regulatory assets, net of amortization.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
MAY 31, August 31,
(Thousands of Dollars) 1996 1995
-------------------------------------------------------------------
<S> <C> <C>
Recoupable take-or-pay settlements $101,307 $106,122
Pension costs 34,471 40,302
Postretirement costs other than pensions 9,523 10,603
Postemployment benefit costs 2,975 2,975
Income tax rate changes 8,488 8,887
Unamortized gas storage costs 1,244 2,105
-------------------------------------------------------------------
Regulatory Assets, Net $158,008 $170,994
===================================================================
</TABLE>
(C) SUPPLEMENTAL CASH FLOW INFORMATION
The following table is supplemental information relative to the Company's cash
flows for the nine months ended.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
MAY 31, August 31,
(Thousands of Dollars) 1996 1995
-------------------------------------------------------------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 22,077 $ 23,150
Income taxes 21,193 21,849
Noncash transactions -
Gas received as payment in kind 2,132 77,494
Common stock issued under Dividend
Reinvestment Program 3,410 --
Issuance of common stock -- 5,836
Distribution of net assets from partnership 14,625 --
-------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
(D) ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
During the third quarter of 1996, the Company elected early adoption of
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
and recognized an impairment on certain oil and gas properties. SFAS No. 121
requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the asset carrying amount. The impairment
loss is measured by comparing the fair value of the asset to its carrying
amount. Under SFAS No. 121, the Company now evaluates impairment of production
assets on a field by field basis rather than using one cost center for its
proved properties. Fair values are based on discounted future cash flows or
information provided by sales and purchases of similar assets. The resultant
impairment is included in depreciation, depletion and amortization expense in
the consolidated condensed statements of income
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
ONEOK Inc. provides natural gas energy and related products and services to its
customers through regulated and non-regulated segments. The regulated
businesses provide natural gas distribution and transmission services for about
75 percent of Oklahoma. The non-regulated businesses are primarily involved in
the production, processing and marketing of natural gas and natural gas
liquids.
CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1996 1995 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $289,682 $302,277 $992,882 $754,557
Operating expenses 261,846 279,024 870,724 653,460
- -----------------------------------------------------------------------
Operating income 27,836 23,253 122,158 101,097
Income taxes 7,746 4,810 36,862 27,455
Net interest 8,383 9,403 26,623 28,527
- -----------------------------------------------------------------------
Net income $ 11,707 $ 9,040 $ 58,673 $ 45,115
- -----------------------------------------------------------------------
</TABLE>
EARNINGS PER SHARE EARNINGS PER SHARE
THREE MONTHS ENDED MAY NINE MONTHS ENDED MAY
[GRAPH] [GRAPH]
- ---------------------------- -----------------------------
1996 1995 1996 1995
- ---------------------------- -----------------------------
Non-regulated $0.11 $0.11 Non-regulated $0.40 $0.17
Regulated $0.31 $0.22 Regulated $1.75 $1.50
- ---------------------------- -----------------------------
One of the Company's core strategies is to be proactive in addressing demands
of the changing energy industry. In 1995 the Company was successful in
restructuring rates within the regulated businesses. In the third quarter of
1996 the Company completed two significant transactions in its non-regulated
businesses. These transactions compliment the Company's strategy of
concentrating ownership of hydrocarbon reserves in Oklahoma in order to add
value not only to its production operations but also to its related gas
marketing, gas processing, and transportation businesses. The following is a
brief description of these transactions:
o Purchase of SCANA Properties - The Company purchased substantially all of
the Oklahoma oil and natural gas properties of SCANA Petroleum Resources,
Inc. The $46.7 million purchase included over 500 producing properties of
which 90 percent are natural gas. The acquisition brings the total net
daily production for ONEOK to over 40 million cubic feet of gas and about
1,400 barrels of oil and natural gas liquids. The acquisition was financed
through the sale of out of state properties and internally generated
funds.
8
<PAGE> 9
o Sale of Alabama and Mississippi Properties - The Company sold all of its
oil and gas properties in Alabama and Mississippi for approximately $18.9
million.
The Company views its segments as operating within either a rate regulated
environment (Regulated Operations) or an environment in which rates are not
regulated (Non-regulated Operations). The non-regulated environment is further
viewed as having three primary, vertically integrated segments: natural gas
marketing, processing and production. In order to align this view with its
financial reporting, the Company, commencing with this report, will present the
combined results of each operating environment. Non-regulated segment data is
reported by process rather than entity.
9
<PAGE> 10
REGULATED OPERATIONS
ONEOK's regulated operations are conducted through Oklahoma Natural Gas Company
(ONG) an integrated intrastate natural gas distribution and transmission
business which serves residential, commercial and industrial customers in the
state of Oklahoma. ONG also leases space in its pipeline system under its
Pipeline Capacity Lease (PCL) program to large volume customers for their use
in transporting natural gas to their facilities. ONG is subject to regulatory
oversight by the Oklahoma Corporation Commission.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Gas sales $117,709 $121,154 $424,444 $434,566
Cost of gas 61,669 79,684 223,189 292,000
- --------------------------------------------------------------------------------
Gross margins on gas sales 56,040 41,470 201,255 142,566
PCL and other 14,506 24,115 41,320 81,746
- --------------------------------------------------------------------------------
Net revenues 70,546 65,585 242,575 224,312
Operating costs 35,674 37,820 103,272 102,856
Depreciation, depletion and
amortization 13,282 10,501 38,068 30,750
- --------------------------------------------------------------------------------
Operating income $ 21,590 $ 17,264 $101,235 $ 90,706
================================================================================
OPERATING INFORMATION
Natural Gas Volumes (MMcf)
Gas sales
Residential 13,439 12,865 54,698 48,580
Commercial 6,371 5,709 23,958 21,238
Industrial 1,623 1,881 6,285 6,727
PCL 42,664 40,793 128,660 125,402
----------------------------------------------
64,097 61,248 213,601 201,947
==============================================
Gross margin per Mcf
Residential $ 3.01 $ 2.52 $ 2.52 $ 2.18
Commercial 2.31 1.98 2.35 1.91
Industrial 1.03 .81 1.14 .98
PCL .24 .52 .22 .57
Number of Customers 737,577 728,855 733,790 722,667
Customers per Employee 399 375 391 369
</TABLE>
Net revenues were greater for both reporting periods reflecting continued
customer growth and the impact of rate restructuring completed in the previous
year. The restructuring included temperature normalization, a PCL tariff rider
and a general rate increase. Additionally, allowed PCL revenues for large
volume customers were reduced, a portion of which was shifted to the core
customers under the tariff rider. These changes strengthen ONG's position and
significantly reduce the Company's competitive risks.
The decrease in cost of gas reflects changes initiated by ONG during the rate
restructuring to its gas purchasing and pricing practices. The reduction in gas
supply costs more than offset the impact of the tariff rider and other rate
increases allowing core customers to realize a net savings in rates. The
average rate paid by core customers was 8 percent and 13 percent lower compared
to the prior periods.
Operating costs, as a percentage of net revenue, continue to improve as a
result of the Company's focus on reducing expenses and increasing customer
growth.
10
<PAGE> 11
NON-REGULATED OPERATIONS
ONEOK's non-regulated operations are involved in the production, processing and
marketing of natural gas, oil and natural gas liquids. As a result of
acquisitions and dispositions during the third quarter of 1996, the Company's
producing properties are concentrated principally in Oklahoma where it also
owns nonoperated interests in fifteen gas liquids extraction plants. The gas
marketing subsidiary directs its activities to end users in the mid-continent
region of the United States. The Company also operates its headquarters office
building and a parking garage.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
COMBINED NON-REGULATORY OPERATIONS
Gas sales $133,714 $151,006 $475,054 $222,958
Cost of gas 128,039 146,462 459,997 216,055
- --------------------------------------------------------------------------------
Gross margins on gas sales 5,675 4,544 15,057 6,903
Gas and oil production 4,523 4,783 15,859 15,528
Gas processing 19,724 16,122 52,965 50,739
Other 10,014 3,718 15,941 8,926
- --------------------------------------------------------------------------------
Net revenues 39,936 29,167 99,822 82,096
Operating costs 22,049 20,352 60,579 62,194
Depreciation, depletion, and
amortization 11,641 2,826 18,320 9,509
- --------------------------------------------------------------------------------
Operating income $ 6,246 $ 5,989 $ 20,923 $ 10,393
================================================================================
OPERATING INFORMATION
Natural gas volumes (MMcf)
Natural gas production 1,887 2,077 6,009 6,729
Residue gas 1,693 1,879 5,268 5,602
Marketing 61,549 103,871 252,795 147,104
-------------------------------------------
65,129 107,827 264,072 159,435
-------------------------------------------
Less intersegment sales
Natural gas production 1,031 497 2,790 1,047
Residue gas 1,693 1,872 5,266 3,144
Marketing 1,513 8,953 6,780 31,420
-------------------------------------------
4,237 11,322 14,836 35,611
-------------------------------------------
Net natural gas volumes 60,892 96,505 249,236 123,824
===========================================
Average gas production price (Mcf) $ 2.12 $ 1.38 $ 1.78 $ 1.52
Natural gas liquids (MGallons) 50,668 54,176 149,799 161,530
Average price (Gallons) $ 0.323 $ 0.251 $ 0.292 $ 0.263
Oil Production (Bbls) 22,125 114,588 294,031 330,096
Average price (Bbls) $ 23.67 $ 16.82 $ 17.50 $ 16.12
</TABLE>
Total non-regulated operating income is relatively unchanged for the third
quarter as a result of improvements in marketing margins and gains resulting
from the disposition of certain producing properties offset by the loss
resulting from the early adoption of SFAS 121.
Total non-regulated operating income for the nine months ended May 31, 1996
improved as a result of greater gas marketing margins reflecting the Company's
aggressive marketing strategy, the acquisition of the remaining 50 percent
interest in a gas marketing joint venture in the prior year and weather related
demand.
11
<PAGE> 12
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARKETING SEGMENT
Natural gas sales $133,714 $151,006 $475,054 $222,958
Cost of gas 128,039 146,462 459,997 216,055
- ----------------------------------------------------------------------------------------
Gross margin on gas sales 5,675 4,544 15,057 6,903
Operating costs, net 971 1,870 1,583 2,277
Depreciation, depletion and amortization 120 49 364 50
- ----------------------------------------------------------------------------------------
Operating income $ 4,584 $ 2,625 $ 13,110 $ 4,576
========================================================================================
</TABLE>
Increased profitability of the Company's gas marketing operation is
attributable to several operational changes which have been instituted
throughout the current year, including increased use of gas storage facilities,
hedging and transportation arbitraging. Although gas marketing volumes declined
for the quarter, gross margin rose reflecting the operational changes and price
volatility resulting from weather related demand. Lower marketing volumes
between comparable quarters is attributable to the acquisition of the remaining
50 percent interest in a gas marketing joint venture, effective January 1,
1995, reported in the third quarter of 1995. In addition, a long-term gas sales
contract expired in late 1995; however, since the contract margins for this
particular contract were narrow, gross margins were only minimally affected.
The overall increase in volumes and margins for the nine months is attributable
to the aggressive marketing strategy and sole ownership of the marketing
operations.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROCESSING SEGMENT
Natural gas liquids and residues sales $ 19,724 $ 16,122 $ 52,965 $ 50,739
Other 188 67 260 204
- ----------------------------------------------------------------------------------------
Net revenues 19,912 16,189 53,225 50,943
Operating costs 15,909 12,780 42,939 43,522
Depreciation, depletion and amortization 467 449 1,403 1,347
- ----------------------------------------------------------------------------------------
Operating income $ 3,536 $ 2,960 $ 8,883 $ 6,074
========================================================================================
</TABLE>
Gas processing revenue rose reflecting improving market conditions for natural
gas liquids (NGL). NGL production volumes were lower, due to partial ethane
rejection resulting from reduced margins. The reductions were partially offset
by a significant expansion in the gathering systems behind the plant.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
May 31, May 31,
(Thousands of dollars) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRODUCTION SEGMENT
Natural gas sales $ 4,000 $ 2,861 $ 10,713 $ 10,205
Oil sales 523 1,922 5,146 5,323
Other 7,376 794 7,437 1,171
- ----------------------------------------------------------------------------------------
Net revenues 11,899 5,577 23,296 16,699
Operating costs 2,699 2,806 7,326 8,408
Depreciation, depletion and amortization 10,964 2,248 16,285 7,872
- ----------------------------------------------------------------------------------------
Operating income (loss) $ (1,764) $ 523 $ (315) $ 419
========================================================================================
</TABLE>
12
<PAGE> 13
Gas and oil production volumes were negatively affected by the sale of
producing properties in Alabama and Mississippi. Due to the effective dates of
these transactions, the volume impact was not offset by the purchase of the
SCANA properties during the third quarter of 1996 although the revenue impact
was offset by improved prices. Other production revenue includes the gain on
sale of the Alabama and Mississippi properties in the third quarter of 1996. As
a result of downward reserve revisions of certain properties, the Company, in
accordance with SFAS No. 121, recorded a 9.3 million impairment to the
recorded value of its oil and natural gas producing properties.
The Company will continue to adhere to a prudent risk management strategy of
hedging any fixed price or location differential transactions using natural gas
futures contracts or other derivative agreements to offset potential price risk
exposure.
FINANCIAL FLEXIBILITY AND LIQUIDITY
With the current mix and relative sizes of ONEOK's business segments, the
Company's goals are to maintain an equity to capital ratio, including
short-term debt, of approximately 50 percent and to preserve or improve its
current debt ratings. At May 31, 1996, the equity component was 53 percent,
which increased from 50 percent at May 31, 1995. Debt ratings are A3 by Moody's
Investors Service and A- by Standard & Poor's Corporation. The Company's
long-term debt represents 42 percent of total capital at May 31, 1996.
Cash provided by operating activities is projected to remain strong and
continues as the primary source for meeting cash requirements. However, due to
seasonal fluctuations and additional capital requirements, the Company
periodically accesses funds through a short-term credit agreement and, if
necessary, through long-term borrowings.
OPERATING CASH FLOWS
Operating cash flows for the nine months ended May 31, 1996 as compared to the
same period in 1995 are higher reflecting increased earnings in both the
regulated and non-regulated segments.
INVESTING CASH FLOWS
Capital expenditures for the nine months ended May 31, 1996 and 1995 are as
follows.
CAPITAL EXPENDITURES
NINE MONTHS ENDED MAY
[GRAPH]
----------------------------------
1996 1995
----------------------------------
Non-regulated $47.8 $25.4
Processing 4.7 2.5
Production 42.9 22.2
Other .2 .7
----------------------------------
Regulated $31.8 $54.4
----------------------------------
For the nine months ended May 31, 1996, capital expenditures for the
non-regulated segment included approximately $46.7 million, of which $6.8
million is currently in escrow, for acquisition of the SCANA properties as
compared to approximately $17.6 million for an acquisition of properties in
Louisiana during the prior period. Funds generated from the sale of the Alabama
and Mississippi properties were approximately $18.9 million.
13
<PAGE> 14
FINANCING CASH FLOW
At May 31, 1996, $352 million of long-term debt was outstanding. As of that
date, the Company could have issued approximately $300 million of additional
long-term debt under the most restrictive provisions contained in its various
borrowing agreements.
The Company believes that internally generated funds and access to financial
markets will be sufficient to meet its debt service, dividend requirements, and
capital expenditures. However, if certain events occur, such as significant
acquisitions, additional debt or equity financing may be required.
LIQUIDITY
The regulated segment continues to face competitive pressure to serve the
substantial market represented by its large volume customers. The loss of a
substantial portion of that load, without recoupment of the revenues from that
loss, could have a materially adverse effect on the Company's financial
condition. However, rate restructuring achieved in the June 1995 rate order
further reduced the Company's risk in serving its large volume customers.
OTHER
PRICE RISK MANAGEMENT. Commodity futures contracts and swaps are periodically
used in the production, gas processing, and marketing operations to hedge the
impact of natural gas price fluctuations. Natural gas futures contracts require
the Company to buy or sell natural gas at a fixed price. Swap agreements are
non-exchange trades between parties whereby one party pays a fixed price and
the other a floating price. Swaps allow for the creation of customized
transactions. The Company's production operation periodically uses commodity
futures contracts and swaps to hedge the impact of oil and natural gas price
fluctuations. The Company's gas processing operation uses futures to hedge the
price of gas used in the natural gas liquid extraction process. The gas
marketing operation uses futures and swaps to lock in margins on preexisting
purchase or sale commitments for physical quantities of natural gas. The
Company adheres to policies and procedures which limit its exposure to market
risk from open positions and monitors daily its exposure to market risk. Gains
and losses on commodity futures contracts and swaps are recognized when the
related physical gas purchases or sales transactions are recognized. At May 31,
1996, the net deferred gain on these contracts was approximately $ .5 million.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
FENT, ET UX V. OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC., ET AL.,
No. CJ-88-10148, District Court, Oklahoma County ("Fent I case"). The Company
has filed a motion to strike requested class action application on the basis of
the Oklahoma Corporation Commission decision in the Fent III case. See below.
The motion is set for hearing on July 12, 1996.
LARUE V. ONEOK INC., No. CJ-95-6324, District Court, Oklahoma County, now Case
No. CIV-95-1556C, U.S. District Court for the Western District of Oklahoma. On
October 30, 1995, the Plaintiff in the state action (LaRue) filed a motion to
remand the case back to state court. The motion was denied on March 10, 1996.
The case is in the discovery stage. The companion Federal case (ONEOK v. LaRue)
is also in the discovery stage. Trial in both cases is scheduled for November,
1996.
IN THE MATTER OF THE APPLICATION OF OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF
ONEOK INC. FOR EXAMINATION OF STANDBY SERVICE, Cause CD No. 598, Oklahoma
Corporation Commission. At a Settlement Conference on February 20, 1996, the
Company, the Commission Staff and the Attorney General reached agreement and
executed a Joint Stipulation which was presented at the hearing on February
21-23, 1996. The Commission continued the matter until March 14, 1996, at which
time it ordered the filing of proposed findings of fact and conclusions of law
and briefs by April 10, 1996. The Company filed its brief April 10, 1996, with
a proposed Order jointly with the Commission Staff and the Attorney General.
Oral arguments were held on May 22, 1996. The commission approved the proposed
Order. The Order has not yet been issued.
APPLICATION OF OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC. FOR A
DETERMINATION THAT UNDER THE COMMISSION'S EXISTING NATURAL GAS UTILITY RULES
AND REGULATIONS, AND OKLAHOMA NATURAL'S EXISTING SERVICE RULES AND REGULATIONS,
THE GAS UTILITY CUSTOMERS OF OKLAHOMA NATURAL GAS COMPANY, EXCEPT JERRY R. FENT
AND MARGARET B. FENT, ARE RESPONSIBLE FOR INSTALLING AND MAINTAINING ALL PIPING
BETWEEN THE CUSTOMERS' PROPERTY OR CURB LINES, AND SUCH CUSTOMERS' POINTS OF
CONSUMPTION OF GAS, Cause PUD No. 95-000223, Oklahoma Corporation Commission
("Fent III" case). On March 6, 1996, the Supreme Court denied the Petition for
a Writ of Prohibition, so the proceeding before the Commission could go
forward. A hearing was held on April 10, 1996. On April 24, 1996, the
Commission granted the Company's Application. An Order was issued May 24, 1996.
The Fents and Harold Jacobs (another customer of the Company), have filed
notice of appeal of the Commission Order to the Supreme Court.
APPLICATION TO ASSUME ORIGINAL JURISDICTION AND PETITION FOR WRIT OF
PROHIBITION AND MOTION TO STAY COMMISSION PROCEEDINGS, Case No. 87451, Oklahoma
Supreme Court. On May 13, 1996, the Company requested that the Court (1)
prohibit Commissioner Anthony from proceeding further with his investigation,
and (2) stay the Commission proceedings by Commissioner Anthony pending
decision of the Application and Petition on the grounds Commissioner Anthony
does not have authority to conduct an independent investigation, the
investigation constitutes a collateral attack on the Company's 1992 and 1993
PGA orders, and Commissioner Anthony's clear bias against the Company. Hearing
on the Motion to Stay was held before a Referee on May 20, 1996. Hearing on the
Application and Petition was held on May 30, 1996, before the same Referee. On
June 12, 1996, the Court denied the Application to Assume Original
Jurisdiction.
15
<PAGE> 16
IN THE MATTER OF COMMISSIONER BOB ANTHONY'S INSPECTION OF THE BOOKS AND RECORDS
OF ANY PUBLIC SERVICE CORPORATION AND EXAMINATION, UNDER OATH, ANY OFFICER,
AGENT, OR EMPLOYEE OF SUCH, IN RELATION TO THE BUSINESS AND AFFAIRS OF ARKANSAS
LOUISIANA GAS COMPANY, A DIVISION OF NORAM ENERGY CORP. AND OKLAHOMA NATURAL
GAS COMPANY, A DIVISION OF ONEOK INC. PURSUANT TO OKLAHOMA CONSTITUTION ARTICLE
9, SECTIONS 18, 28 AND 34, Cause No. PUD 960000039, Oklahoma Corporation
Commission. On April 2, 1996, Commissioner Anthony made additional filings
which included an excerpt from THE PRICE V. LUM case concerning the settlement
of various lawsuits between Gage Corporation and other parties and the
negotiations of a new gas contract with the Company, including attached
documents relating to the earlier litigation, involving Creek Systems. On April
18, 1996, he filed several memoranda from the Commission Staff, one of which
was marked "Confidential," setting forth some of the terms of one of the gas
purchase contracts at issue and stating Staff had found no improper costs or
improprieties on the Company's part. On April 8, 1996, a request initiated by
Commissioner Anthony's staff was received requesting copies of certain
responses to data requests provided to the Commission Staff by the Company as
part of the 1991 rate case. The request was refused on grounds an individual
Commissioner lacks authority to conduct an investigation, but the Company would
provide the information on Order of the Commission. On April 18, 1996, the
Company filed a motion to stay further proceedings until Commission Staff has
completed its investigation and an Order is issued in Cause PUD No. 960000100
(see below). On May 7, 1996, the Commission reversed the recommendation of the
ALJ and denied the motion to stay. On May 13, 1996, the Company filed an
Application and Petition for Writ of Prohibition and Motion to Stay the
Proceedings Pending Disposition of the Application and Petition by the Supreme
Court in Case No. 87451 (see below).
On April 30, 1996, PanEnergy Field Services filed a motion requesting a
determination on the authority of an individual Commissioner to conduct an
investigation and to seek discovery from a non-jurisdictional Company.
Alternatively, Pan Energy asked for a stay pending outcome of PUD No. 960000100
(see below). On May 9, 1996, at the hearing on its motion, Pan Energy further
asserted that Commissioner Anthony has not followed the Commission's Rules of
Practice and the investigation is an improper collateral attack on the 1992 and
1993 utility PGAs. After a hearing on April 19, 1996, an ALJ recommended
findings that Commissioner Anthony had not followed Commission Rules and the
investigation is a collateral attack. The ALJ's recommendation was presented
for Commission decision on May 22, 1996, but no action was taken. (Commissioner
Anthony is also pursuing the obtaining of information from other parties
related to the matter.)
APPLICATION OF OKLAHOMA NATURAL FOR AN ORDER DIRECTING THE COMMISSION'S STAFF,
OR APPOINTING AN INDEPENDENT THIRD PARTY OR ENTITY, TO CONDUCT AN INQUIRY INTO
THE TRANSACTIONS BETWEEN ONG AND DYNAMIC ENERGY RESOURCES REFERENCED IN THE
MARCH 15, 1996, STATEMENT OF COMMISSIONER BOB ANTHONY IN CAUSE PUD NO.
960000039 AND STAYING FURTHER ACTION IN THAT CAUSE SUCH APPOINTMENT AND
INQUIRY, CAUSE PUD NO. 960000085. On April 2, 1996, Oklahoma Natural filed an
application requesting that the Commission issue an order directing the Staff,
or appointing an independent third party or entity, to conduct an inquiry into
the transactions between the Company and Dynamic Energy Resources, Inc.
referenced in Commissioner Anthony's Statement of March 15, 1996 in Cause PUD
No. 930000039 (see above) and staying further action in that cause pending such
appointment and inquiry. The Company also filed a Motion to Advance this Cause
to the Commission en banc on the basis the matter involves important policy
issues. The motion was heard before an ALJ on April 11, 1996, and denied. The
Company appealed the recommendation for denial but withdrew the appeal on April
17, 1996, when the Company filed a motion to stay the proceedings pending
completion of the Commission Staff's review of the Company's PGA clause and
issuance of a final order in Causes No. 960000100. The Company also requested
consolidation of the two causes if a stay is determined inappropriate. A
hearing was heard by an ALJ on May 2, 1996. On May 7, 1996, the Commission by
Order stayed the proceedings for at least 30 days.
16
<PAGE> 17
APPLICATION OF ERNEST G. JOHNSON, DIRECTOR OF THE PUBLIC UTILITY DIVISION OF
OKLAHOMA CORPORATION COMMISSION, TO REVIEW THE FUEL ADJUSTMENT CLAUSE OF
OKLAHOMA NATURAL GAS COMPANY FOR THE CALENDAR YEARS 1994 AND 1995, CAUSE PUD
NO. 960000100. On April 12, 1996, the Director of the Public Utility Division
filed an application seeking to review Oklahoma Natural's PGA clause for the
calendar years 1994 and 1995 separate and apart from the Commission's review of
the fuel adjustment clauses of other utilities. Concurrently with service of
the application, Staff also served a data request requesting copies of the
November 1993 gas purchase contract between Oklahoma Natural and Dynamic Energy
Resources and subsequent contracts assigning contract rights to Enogex and
PanEnergy Corporation. On April 17, 1996, the Company filed a motion for an
order to protect confidential and/or proprietary materials requested by the
Commission Staff. A hearing was held before an ALJ who recommended the motion
be granted. On April 24, 1996, the Commission voted to stay the proceeding for
at least 30 days and issued an order to this effect on May 8, 1996. The
attorney-general has intervened in the proceedings. (The Commission Staff is
continuing its audit.) On June 28, 1996, the stay was lifted and the Company's
motion for a protective order was granted. The Company turned over the
requested contracts to the Commission Staff.
IN THE MATTER OF COMMISSIONER ED APPLE'S INQUIRY CONCERNING THE BOOKS AND
RECORDS OF OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC., PURSUANT TO
ARTICLE 9, SECTION 18 OF THE OKLAHOMA CONSTITUTION, Cause PUD No. 960000186,
Oklahoma Corporation Commission. Commissioner Apple filed notice in this
proceeding that he will request the Public Utility Division of the Commission
to conduct an inspection of the books and records of Oklahoma Natural Gas
Company. The scope of the review is to include certain contracts between the
Company and its gas suppliers and the financial impact of such contracts on the
ratepayers of the Company. (These are the same contracts that are the subject
of Causes No. PUD 960000039 and 96000100.) The inquiry is to be conducted only
if the Commission grants a protective order so that the information contained
in such contracts can remain confidential. The Company again stated its
position that an individual Commissioner lacks authority to request such an
investigation. On June 28, 1996, the commission granted the requested
protective order.
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 10th day of July,
1996.
ONEOK Inc.
Registrant
By: J. D. NEAL
----------------------------------------
J. D. Neal
Vice President, Chief Financial Officer,
and Treasurer (Principal Financial and
Accounting Officer)
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE 1996 THIRD QUARTER ENDED MAY
31, 1996, AND THE CONSOLIDATED CONDENSED BALANCE SHEET AT MAY 31, 1996, 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> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 35,976
<SECURITIES> 0
<RECEIVABLES> 103,261
<ALLOWANCES> 0
<INVENTORY> 63,881
<CURRENT-ASSETS> 244,713
<PP&E> 1,325,648
<DEPRECIATION> 532,990
<TOTAL-ASSETS> 1,233,799
<CURRENT-LIABILITIES> 191,802
<BONDS> 0
<COMMON> 205,959
0
9,000
<OTHER-SE> 221,724
<TOTAL-LIABILITY-AND-EQUITY> 1,233,799
<SALES> 0
<TOTAL-REVENUES> 992,882
<CGS> 0
<TOTAL-COSTS> 870,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,623
<INCOME-PRETAX> 95,535
<INCOME-TAX> 36,862
<INCOME-CONTINUING> 58,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,673
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.15
</TABLE>
