<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 February 29, 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 February 29, 1996, the Company had 27,154,347 shares of common stock
outstanding.
<PAGE> 2
ONEOK INC.
QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE NO.
Consolidated Condensed Statements of Income - 3
Three and Six Months Ended February 29, 1996 and
Consolidated Condensed Balance Sheets - 4 - 5
February 29, 1996, and August 31, 1995
Consolidated Condensed Statements of Cash Flows - 6
Six Months Ended February 29, 1996 and
February 28, 1995
Notes to Consolidated Condensed Financial Statements 7
Management's Discussion and Analysis of 8 - 16
Financial Condition and Results of Operations
PART II - OTHER INFORMATION 16 - 18
<PAGE> 3
PART I - FINANCIAL INFORMATION
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
FEBRUARY 29, February 28, FEBRUARY 29, February 28,
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues
Distribution and transmission $ 227,539 $ 244,687 $ 332,397 $ 370,712
Exploration and production 4,846 6,601 9,736 11,752
Gas processing 22,376 32,381 36,523 56,036
Gas marketing 208,978 2,128 322,578 12,310
Other 1,001 703 1,966 1,470
- ------------------------------------------------------------------------------------------------------------
Total Operating Revenues 464,740 286,500 703,200 452,280
- ------------------------------------------------------------------------------------------------------------
Operating Expenses
Cost of gas 323,814 163,033 475,096 244,446
Operations 48,526 47,333 92,842 91,291
Maintenance 1,913 1,782 3,734 3,539
Depreciation, depletion, and amortization 13,176 12,857 26,627 24,707
General taxes 5,804 5,558 10,579 10,453
Income taxes 23,840 17,810 29,116 22,645
- ------------------------------------------------------------------------------------------------------------
Total Operating Expenses 417,073 248,373 637,994 397,081
- ------------------------------------------------------------------------------------------------------------
Operating Income 47,667 38,127 65,206 55,199
Interest 9,124 9,840 18,240 19,124
- ------------------------------------------------------------------------------------------------------------
Net Income 38,543 28,287 46,966 36,075
Preferred Stock Dividends 107 107 214 214
- ------------------------------------------------------------------------------------------------------------
Income Available for Common Stock $ 38,436 $ 28,180 $ 46,752 $ 35,861
============================================================================================================
Earnings Per Share of Common Stock $1.42 $1.05 $1.73 $1.34
============================================================================================================
Dividends Per Share of Common Stock $.29 $.28 $.58 $.56
============================================================================================================
Average Shares of Common Stock
Outstanding (Thousands) 27,100 26,712 27,062 26,701
============================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FEBRUARY 29, August 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Assets
Property $1,294,740 $1,275,743
Accumulated depreciation, depletion, and amortization 521,000 509,833
- ------------------------------------------------------------------------------------------------------------
Net Property 773,740 765,910
- ------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 3,410 12,499
Accounts receivable 208,958 81,768
Inventories 53,322 82,123
Other current assets 24,976 18,760
- ------------------------------------------------------------------------------------------------------------
Total Current Assets 290,666 195,150
- ------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets
- ------------------------------------------------------------------------------------------------------------
Regulatory assets, net 160,857 168,889
Other 34,254 39,516
- ------------------------------------------------------------------------------------------------------------
Total Deferred Charges and Other Assets 195,111 208,405
- ------------------------------------------------------------------------------------------------------------
Total Assets $1,259,517 $1,169,465
============================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FEBRUARY 29, August 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Liabilities and Shareholders' Equity
Common Shareholders' Equity
Common stock without par value: authorized 60,000,000
shares; issued and outstanding 27,154,347 shares at
February 29, 1996 and 27,020,004 shares at August 31, 1995 $204,422 $201,404
Retained earnings 218,281 187,225
- ------------------------------------------------------------------------------------------------------------
Total Common Shareholders' Equity 422,703 388,629
Preferred stock: authorized 340,000 shares; issued and
outstanding 180,000 shares at February 29, 1996, and
August 31, 1995; $50 par and involuntary liquidation value;
$53 voluntary liquidation value; Series A, 4 3/4% (cumulative); 9,000 9,000
- ------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 431,703 397,629
- ------------------------------------------------------------------------------------------------------------
Long-Term Debt 350,821 350,821
- ------------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion, long-term debt 13,284 13,325
Notes payable 50,000 55,000
Accounts payable 111,121 58,174
Accrued income taxes 27,346 5,031
Accrued general taxes 5,411 8,780
Accrued interest 7,851 7,922
Purchased gas cost adjustment - 2,706
Other 12,323 17,015
- ------------------------------------------------------------------------------------------------------------
Total Current Liabilities 227,336 167,953
- ------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Deferred income taxes 187,966 189,330
Customers' advances for construction
and other deferred credits 61,691 63,732
- ------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 249,657 253,062
- ------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,259,517 $1,169,465
============================================================================================================
</TABLE>
5
<PAGE> 6
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Six Months Ended
FEBRUARY 29, February 28,
1996 1995
- ------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 46,966 $ 36,075
Depreciation, depletion, and amortization 26,627 24,707
Net losses of equity investees 1,290 746
Deferred income taxes 2,604 (2,886)
Changes in assets and liabilities (46,580) (13,420)
- ------------------------------------------------------------------------------------------------------------
Cash Provided by Operating Activities 30,907 45,222
- ------------------------------------------------------------------------------------------------------------
Investing Activities
Changes in other investments, net (2,231) 337
Capital expenditures, net of salvage (19,832) (44,964)
- ------------------------------------------------------------------------------------------------------------
Cash Used in Investing Activities (22,063) (44,627)
- ------------------------------------------------------------------------------------------------------------
Financing Activities
Issuance (payment) of notes payable, net (5,000) 25,000
Payments of debt (41) (48)
Issuance of common stock 1,144 -
Dividends paid (14,036) (15,159)
- ------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in) Financing Activities (17,933) 9,793
- ------------------------------------------------------------------------------------------------------------
Change in Cash and Cash Equivalents (9,089) 10,388
Cash and Cash Equivalents at
Beginning of Year 12,499 4,545
- ------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 3,410 $ 14,933
============================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE> 7
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 February 29,
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 February 1995 consolidated condensed
financial statements have been reclassified to conform with the February 1996
presentation.
(B) REGULATORY ASSETS
The following table is a summary of regulatory assets, net of amortization,
outstanding at February 29, 1996, and August 31, 1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
FEBRUARY 29, August 31,
1996 1995
- ----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Recoupable take-or-pay settlements $ 102,554 $ 106,122
Pension costs 35,516 40,302
Postretirement costs other than pensions 9,661 10,603
Postemployment benefit costs 2,975 2,975
Income tax rate changes 8,620 8,887
Unamortized gas storage costs 1,531 -
- ----------------------------------------------------------------------
Regulatory Assets, Net $ 160,857 $ 168,889
- ----------------------------------------------------------------------
</TABLE>
(C) INVESTMENTS
Through its subsidiary, TransTex Pipeline Company (TransTex), the Company owned
a 25 percent limited partner interest in Red River Pipeline (Red River).
Effective January 1, 1996, TransTex withdrew as a limited partner and received
as a distribution a portion of the assets of the partnership. Such assets were
then leased back to Red River under a long-term lease.
(D) SUPPLEMENTAL CASH FLOW INFORMATION
The following table is supplemental information relative to the Company's cash
flows for the six months ended February 29, 1996 and February 28, 1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
FEBRUARY 29, February 28,
1996 1995
- ----------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C>
Cash Paid During the Period
Interest $ 23,310 $ 18,231
Income taxes 8,132 12,482
Noncash Transactions:
Gas received as payment in kind 1,698 52,130
Common stock issued under
Dividend Reinvestment Program 1,874 -
Issuance of common stock - 5,836
Distribution of net assets from
partnership 14,625 -
- ----------------------------------------------------------------------
</TABLE>
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. One of the Company's divisions, Oklahoma Natural Gas, provides
natural gas distribution and transmission for about 75 percent of Oklahoma.
The Energy Companies of ONEOK are involved In the exploration, production,
processing, and marketing of natural gas and natural gas liquids.
CONSOLIDATED OPERATIONS
NET INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
FEB. 29, Feb. 28, FEB. 29, Feb. 28,
1996 1995 1996 1995
- ------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Distribution and transmission $ 32,750 $ 27,011 $ 39,041 $ 34,611
Exploration and production 811 335 1,057 (6)
Gas processing 2,565 1,485 4,351 2,368
Gas marketing 2,443 (289) 2,945 (329)
Other operations (26) (255) (428) (569)
- ------------------------------------------------------------------------------------
Net income $ 38,543 $ 28,287 $ 46,966 $ 36,075
- ------------------------------------------------------------------------------------
</TABLE>
EARNINGS PER SHARE
THREE MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates consolidated earnings
per share for three months ended February
28, 1995 and February 29, 1996 of $1.05 and
$1.42 respectively.
EARNINGS PER SHARE
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates consolidated earnings
per share for six months ended February 28,
1995 and February 29, 1996 of $1.34 and $1.73
respectively.
8
<PAGE> 9
DISTRIBUTION AND TRANSMISSION
ONEOK's distribution and transmission segment is primarily involved in natural
gas services to commercial, residential, and large industrial customers and is
subject to regulatory oversight by the Oklahoma Corporation Commission (OCC).
NET INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
FEB. 29, Feb. 28, FEB. 29, Feb. 28,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Thousands of Dollars)
Gas sales $ 214,533 $ 212,026 $ 306,736 $ 313,412
Cost of gas 119,466 147,300 161,520 212,316
- -------------------------------------------------------------------------------------
Gross margins on gas sales 95,067 64,726 145,216 101,096
Pipeline capacity lease
margins and transporation 12,434 29,690 21,672 52,815
Other revenues 1,356 3,279 5,141 4,816
- -------------------------------------------------------------------------------------
Net revenues 108,857 97,695 172,029 158,727
Operating expenses 45,990 43,693 89,501 82,806
Maintenance 1,504 1,274 2,883 2,479
Income taxes 20,593 17,006 24,521 21,723
- -------------------------------------------------------------------------------------
Operating income 40,770 35,722 55,124 51,719
Interest expense 8,020 8,711 16,083 17,108
- -------------------------------------------------------------------------------------
Net income $ 32,750 $ 27,011 $ 39,041 $ 34,611
- -------------------------------------------------------------------------------------
</TABLE>
EARNINGS PER SHARE
THREE MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates distribution and transmission's earnings
per share for the three months ended February 28, 1995 and
February 29, 1996 of $1.00 and $1.21 respectively.
EARNINGS PER SHARE
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates distribution and transmission's earnings
per share for the six months ended February 28, 1995 and
February 29, 1996 of $1.28 and $1.44 respectively.
Gross margins increased primarily due to an increase in the number of customers
and the impact of rate orders granted in November 1994 and June 1995. These
rate orders included temperature normalization, a pipeline capacity lease
(PCL)tariff rider and general rate increases. The June 1995 rate order granted
temperature normalization during the heating season which extends from November
through April.
The decline in PCL revenues is largely offset by a tariff rider added as a
result of rate restructuring in June 1995.
The increase in operating expenses reflects the inclusion of current net
periodic pension and postretirement benefit costs as well as the amortization
of such previously deferred costs.
9
<PAGE> 10
EXPLORATION AND PRODUCTION
ONEOK's exploration and production segment is engaged in the acquisition,
exploration, and production of crude oil, natural gas, and related liquid
products. The present strategy is to concentrate oil and gas operations in
Oklahoma through the acquisition of oil and gas properties in Oklahoma and the
disposal of properties located outside of Oklahoma.
NET INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Three Months Ended Six Months Ended
FEB. 29, Feb. 28, FEB. 29, Feb. 28,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Thousands of Dollars)
Revenues $ 6,646 $ 6,812 $ 12,696 $ 12,234
Operating expenses 4,839 5,698 9,948 11,227
Income taxes 512 211 667 (4)
- -----------------------------------------------------------------------------------
Operating income 1,295 903 2,081 1,011
Interest expense 484 568 1,024 1,017
- -----------------------------------------------------------------------------------
Net income (loss) $ 811 $ 335 $ 1,057 $ (6)
===================================================================================
</TABLE>
EARNINGS PER SHARE
THREE MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates exploration and production's earnings per
share for the three months ended February 28, 1995 and February
29, 1996 of $.01 and $.03 respectively.
EARNINGS PER SHARE
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates exploration and production's earnings per
share for the six months ended February 28, 1995 and February 29,
1996 of $.00 and $.04 respectively.
GAS PRODUCTION
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates gas production for the exploration and
production segment for the six months ended February 28, 1995 and
February 29, 1996 of 4,652 Mmcf and 4,121 Mmcf respectively, and
related prices of $1.58 per Mcf and $1.63 per Mcf for the same
time periods.
LIQUIDS PRODUCTION
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates liquids production for the exploration and
production segment for the six months ended February 28, 1995 and
February 29, 1996 of 4,102 Mgal. and 4,620 Mgal. respectively, and
related prices of $.27 per gallon and $.27 per gallon for the same
time periods.
10
<PAGE> 11
Revenues for the six months ended February 29, 1996 increased slightly due to
higher crude oil and liquid production and related prices. The increases were
offset by lower natural gas production.
Operating expenses decreased due to reduced dry hole costs and other operating
expenses.
OIL PRODUCTION
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates oil production for the exploration and
production segment for the six months ended February 28, 1995 and
February 29, 1996 of 215,508 barrels and 271,906 barrels
respectively, and related prices of $15.75 per barrel and $17.00
per barrel for the same time periods.
GAS PROCESSING
ONEOK Products Company extracts and sells natural gas liquids and buys and
sells natural gas.
NET INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Three Months Ended Six Months Ended
FEB. 29, Feb. 28, FEB. 29, Feb. 28,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Thousands of Dollars)
Gas sales $ 8,292 $ 15,641 $ 10,411 $ 22,394
Cost of gas 5,650 13,551 6,931 20,037
- -----------------------------------------------------------------------------------
Gross margins on gas sales 2,642 2,090 3,480 2,357
Liquids, residue,
and other revenues 17,406 16,740 32,013 33,642
- -----------------------------------------------------------------------------------
Net revenues 20,048 18,830 35,493 35,999
Operating expenses 15,243 15,641 27,125 30,579
Maintenance 402 508 840 1,060
Income taxes 1,618 937 2,745 1,494
- -----------------------------------------------------------------------------------
Operating income 2,785 1,744 4,783 2,866
Interest expense 220 259 432 498
Net income $ 2,565 $ 1,485 $ 4,351 $ 2,368
===================================================================================
</TABLE>
EARNINGS PER SHARE
THREE MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates gas processing's earnings per share for the
three months ended February 28, 1995 and February 29, 1996 of $.06
and $.09 respectively.
EARNINGS PER SHARE
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates gas processing's earnings per share for the
six months ended February 28, 1995 and February 29, 1996 of $.09
and $.16 respectively.
11
<PAGE> 12
GAS SALES
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates gas sales for the gas processing segment for
the six months ended February 28, 1995 and February 29, 1996 of 11,186
Mmcf and 3,324 Mmcf respectively, and related prices of $2.00 per Mcf
and $3.13 per Mcf for the same time periods.
LIQUID SALES
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates liquid sales for the gas processing segment
for the six months ended February 28, 1995 and February 29, 1996
of 103,252 Mgal and 94,509 Mgal respectively, and related prices
of $.27 per gallon and $.28 per gallon for the same time periods.
RESIDUE GAS SALES
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates residue gas sales for the gas processing
segment for the six months ended February 28, 1995 and February
29, 1996 of 3,723 Mmcf and 3,575 Mmcf respectively, and related
prices of $1.54 per Mcf and $1.65 per Mcf for the same time
periods.
Gas sales are significantly lower in 1996 as compared to 1995 due to the
expiration of a large spot-market priced delivery contract in the current year.
Lower liquids and residue gas volumes for the six months ended February 29,
1996 are attributable to the sale of one of the Company's processing plants in
August 1995. Sales prices for liquids were relatively unchanged.
Reductions in operating expenses are the result of reduced shrinkage and fuel
costs.
GAS MARKETING
ONEOK Gas Marketing Company buys and sells natural gas on the open market.
NET INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Three Months Ended Six Months Ended
FEB. 29, Feb. 28, FEB. 29, Feb. 28,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Thousands of Dollars)
Revenues $ 216,279 $ 22,949 $ 332,099 $ 49,702
Cost of gas 211,121 23,013 325,027 49,557
- -----------------------------------------------------------------------------------
Gross margins 5,158 (64) 7,072 145
Operating expenses 1,015 311 2,026 552
Income taxes 1,540 (183) 1,857 (208)
- -----------------------------------------------------------------------------------
Operating income (loss) 2,603 (192) 3,189 (199)
Interest expense 160 97 244 130
- -----------------------------------------------------------------------------------
Net income (loss) $ 2,443 $ (289) $ 2,945 $ (329)
===================================================================================
</TABLE>
12
<PAGE> 13
EARNINGS PER SHARE
THREE MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates gas marketing's earnings per share for the
three months ended February 28, 1995 and February 29, 1996 of
$(.01) and $.09 respectively.
EARNINGS PER SHARE
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates gas marketing's earnings per share for the
six months ended February 28, 1995 and February 29, 1996 of $(.01)
and $.11 respectively.
In October 1992, the Company entered the gas marketing business by acquiring a
50 percent interest in a joint venture with an entity established in that line
of business. In February 1995, the Company acquired the remaining interest in
the joint venture. The operating results attributable to the joint venture
were included in operating expenses through February 1995.
Average volumes increased from approximately 790,561 Mcf per day in the fourth
quarter of 1995 to approximately 882,268 Mcf per day in fiscal 1996. The
overall improvement in the gross margin is attributable to weather related
demand which contributed to increases in the weighted average sales price of
gas. Revenues for the six months ended Feburary 28, 1995 reflect minimal
trading volume with an affiliate.
OTHER OPERATIONS
Other operations include the Company's leasing and parking and corporate
operations.
NET INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Three Months Ended Six Months Ended
FEB. 29, Feb. 28, FEB. 29, Feb. 28,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Thousands of Dollars)
Revenues $ 2,327 $ 2,313 $ 4,623 $ 4,549
Operating expenses 2,531 2,523 5,257 5,107
Maintenance 7 - 11 -
Income taxes (423) (160) (673) (359)
- -----------------------------------------------------------------------------------
Operating income (loss) 212 (50) 28 (199)
Interest expense 238 205 456 370
- -----------------------------------------------------------------------------------
Net (loss) $ (26) $ (255) $ (428) $ (569)
===================================================================================
</TABLE>
13
<PAGE> 14
EARNINGS PER SHARE
THREE MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates other operations' earnings per share for
the three months ended February 28, 1995 and February 29, 1996 of
$(.01) and $.00 respectively.
EARNINGS PER SHARE
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates other operations' earnings per share for
the six months ended February 28, 1995 and February 29, 1996 of
$(.02) and $(.02) respectively.
ONEOK Leasing Company and ONEOK Parking Company operate the headquarters office
building and a parking garage in downtown Tulsa. The Company leases space in
excess of its requirements. The Company has an outstanding tender offer which
has been extended to April 30, 1996 made in an attempt to ultimately acquire
ownership of the building. Leasing and parking revenues have remained
relatively stable between periods.
FINANCIAL FLEXIBILITY AND LIQUIDITY
With the current mix and relative sizes of ONEOK's business segments, the
Company's goals are to achieve an equity to capital ratio, including short-term
debt, of approximately 50 percent and to preserve or improve its current debt
ratings. At February 29, 1996, the equity component was 51 percent, an
improvement from 47 percent at February 28, 1995. Debt ratings are A3 by
Moody's Investors Service and A- by Standard & Poor's Corporation. The
Company's long- term debt represents 43 percent of total capital at February
29, 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.
14
<PAGE> 15
OPERATING CASH FLOWS
Operating cash flows for fiscal 1996 as compared to fiscal 1995 are lower as a
result of working capital changes.
INVESTING CASH FLOWS
Capital expenditures for the six months ended February 29, 1996 and February
28, 1995 are as follows.
CAPITAL EXPENDITURES
SIX MONTHS ENDED FEBRUARY
[GRAPH]
This graph illustrates capital expenditures for the six months
ended February 28, 1995 and February 29, 1996 of $48.8 and $26.8
respectively.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Six Months Ended
February 28, FEBRUARY 29,
1995 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Distribution and Transmission $26.9 $21.2
- -------------------------------------------------------------------------
Exploration and Production 20.3 1.5
- -------------------------------------------------------------------------
Gas Processing 0.9 4.0
- -------------------------------------------------------------------------
Gas Marketing 0.6 0.1
- -------------------------------------------------------------------------
Other 0.1 0.0
- -------------------------------------------------------------------------
</TABLE>
Capital expenditures for the exploration and production segment included
approximately $17.6 million for an acquisition of properties in Louisiana
during the six months ended February 28, 1995.
FINANCING CASH FLOW
At February 29, 1996, $364 million of long-term debt was outstanding. As of
that date, the Company could have issued approximately $288 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 distribution and transmission segment continues to face competitive
pressure to serve the substantial market represented by its large industrial
customers. The loss of a substantial portion of its industrial 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 industrial customers.
OTHER
Through its subsidiary, TransTex Pipeline Company (TransTex), the Company owned
a 25 percent limited partner interest in Red River Pipeline (Red River).
Effective January 1, 1996, TransTex withdrew as a limited partner and received
as a distribution a portion of the assets of the partnership. Such assets were
then leased back to Red River under a long- term lease.
15
<PAGE> 16
PRICE RISK MANAGEMENT. Commodity futures contracts and swaps are periodically
used in the exploration and 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. Under swap agreements, the Company receives or makes payments based on
the differential between a specified price and the actual price of natural gas.
The Company's exploration and 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
February 29, 1996, the net deferred loss on these contracts was approximately
$1.5 million.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
FENT, ET UX V. OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC., ET AL.,
No. CJ-88-10148, District Court, Oklahoma County. The motion to lift the stay
was granted by the Court, enabling the case to proceed with discovery on the
issue of whether claims should be certified as a class action and plaintiffs
allowed to act as class representatives. The case is now in the discovery
stage.
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 CUSTOMER'S PROPERTY OR CURB LINES, AND SUCH
CUSTOMER'S POINTS OF CONSUMPTION OF GAS, Cause PUD No. 95-000223, Oklahoma
Corporation Commission. On January 8, 1996, the Supreme Court granted a motion
to stay the Commission proceedings pending a ruling in the Supreme Court
proceeding. A response was filed by the Company to the Supreme Court's request
for briefs on whether the category of excepted parties in the Commission
proceedings should be broadened to include potential parties in the District
Court action (Fent I). On March 6, 1996, the Supreme Court denied the Petition
for a Writ of Prohibition, so the proceeding before the Commission will now go
forward.
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. The matter was heard by the Commission en banc on
February 21 through 23, 1996. A status hearing is scheduled for March 14,
1996, to determine the status of completion of the transcript. After such
completion, the parties will be given the opportunity to file proposed findings
of fact and conclusions of law and additional briefs on the legal issues and a
date will be set for oral argument.
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. Commissioner Anthony filed notice in this proceeding that he
intends to conduct an inspection of the books and records of public service
corporations and examine, under oath, any officer, agent, or employee of such,
with information, in order to review the transactions and relationships
involving Oklahoma Natural Gas Company, a division of ONEOK Inc. (hereinafter
16
<PAGE> 17
"ONG") and/or its affiliates; Arkansas Louisiana Gas company, a division of
Noram Energy Corp., (hereinafter "ARKLA") and/or its affiliates; Gage
Corporation; Creek Systems; Dynamic Energy Resources; or any affiliates of
same; or any other jurisdictional entities engaged in transactions or
activities with ONG or ARKLA, including data requests, interrogatories and
depositions. The Notice was filed after Commissioner Anthony failed to secure
an Order from the full Commission authorizing such a course of action. On
March 15, 1996, Commissioner Anthony filed a statement relating to the
transcript in Case No. CJ-95-1948, LINDA PRICE V. EUGENE LUM, ET AL. (INCLUDING
DYNAMIC ENERGY RESOURCES, INC.), DISTRICT COURT, Tulsa County (ONG is not a
party). In the statement, he characterized as "shocking" the testimony
concerning the Creek Systems/Dynamics transaction and stated it was his
constitutional duty as a Commissioner to examine the negotiations and financial
transactions involving the matter. The Company will challenge Commissioner
Anthony's power, as an individual Commissioner, to start such an
investigation. The gas purchase contract resulting from the settlement
involving Creek Systems and Dynamics was the subject of audit review during the
last two major rate cases and two additional audits by the Commission Staff,
the last one in November of 1995.
IN THE MATTER OF A RULEMAKING BY THE OKLAHOMA CORPORATION COMMISSION AMENDING
CERTAIN RULES OF PRACTICE, Cause No. RM 960000010, Oklahoma Corporation
Commission. (This is a proceeding related to Cause No. PUD 960000039 above).
This is a rulemaking proceeding which includes a proposed new rule which would
allow a Commissioner acting alone, without authorization of the full
Commission, to issue an administrative subpoena duces tecum to a public utility
as part of an investigation by a Commissioner (such as is proposed in the
Notice under the above-captioned Cause No. PUD 960000039. The proposed rule on
issuance of administrative subpoenas was withdrawn prior to the hearing on the
proposed rules held on March 27, 1996.
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 1st day of April,
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 STATEMENT OF EARNINGS FOR THE 1996 FISCAL YEAR'S ENDED FEBRUARY 29.
1996, AND THE CONSOLIDATED BALANCE SHEET AT FEBRUARY 29, 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> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 3,410
<SECURITIES> 0
<RECEIVABLES> 208,958
<ALLOWANCES> 0
<INVENTORY> 53,322
<CURRENT-ASSETS> 290,666
<PP&E> 1,294,740
<DEPRECIATION> 521,000
<TOTAL-ASSETS> 1,259,517
<CURRENT-LIABILITIES> 227,336
<BONDS> 0
<COMMON> 204,422
0
9,000
<OTHER-SE> 218,281
<TOTAL-LIABILITY-AND-EQUITY> 1,259,517
<SALES> 0
<TOTAL-REVENUES> 464,740
<CGS> 0
<TOTAL-COSTS> 417,073
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,124
<INCOME-PRETAX> 71,507
<INCOME-TAX> 23,840
<INCOME-CONTINUING> 38,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,543
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
