<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 November 30, 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 November 30, 1996, the Company had 27,304,870 shares of common stock
outstanding.
1
<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 Months Ended November 30, 1996 and 1995 3
Consolidated Condensed Balance Sheets -
November 30, 1996, and August 31, 1996 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended November 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 12
PART II - OTHER INFORMATION 13 - 15
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
November 30,
(Thousands of Dollars except per share amounts) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES
Regulated $113,246 $104,858
Nonregulated 135,506 133,602
- --------------------------------------------------------------------------------
Total Operating Revenues 248,752 238,460
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas 147,432 151,282
Operations and maintenance 50,566 43,726
Depreciation, depletion, and amortization 16,984 15,862
General taxes 5,092 4,775
Income taxes 7,665 5,276
- --------------------------------------------------------------------------------
Total Operating Expenses 227,739 220,921
- --------------------------------------------------------------------------------
Operating Income 21,013 17,539
Interest 8,839 9,116
- --------------------------------------------------------------------------------
NET INCOME 12,174 8,423
Preferred Stock Dividends 107 107
- --------------------------------------------------------------------------------
Income Available for Common Stock $ 12,067 $ 8,316
================================================================================
Earnings Per Share of Common Stock $ 0.44 $ 0.31
================================================================================
Dividends Per Share of Common Stock $ 0.30 $ 0.29
================================================================================
Average Shares of Common Stock
Outstanding (Thousands) 27,305 27,023
================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
ONEOK INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
November 30, August 31,
(Thousands of Dollars) 1996 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Property $ 1,342,855 $ 1,336,652
Accumulated depreciation, depletion, and amortization 549,660 541,618
- ----------------------------------------------------------------------------------------------------------------
Net Property 793,195 795,034
- ----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 13,028 598
Accounts and notes receivable 168,987 119,338
Inventories 102,258 91,556
Other 19,841 21,654
- ----------------------------------------------------------------------------------------------------------------
Total Current Assets 304,114 233,146
- ----------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Regulatory assets, net 152,491 155,253
Other 37,303 36,458
- ----------------------------------------------------------------------------------------------------------------
Total Deferred Charges and Other Assets 189,794 191,711
- ----------------------------------------------------------------------------------------------------------------
Total Assets $ 1,287,103 $ 1,219,891
================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
COMMON SHAREHOLDER'S EQUITY
Common stock without par value: authorized 60,000,000
shares; issued and outstanding 27,304,870 shares at
November 30, 1996 and 27,260,646 shares at August 31, 1996 $ 208,233 $ 207,084
Retained earnings 211,497 207,611
- ----------------------------------------------------------------------------------------------------------------
Total Common Shareholders' Equity 419,730 414,695
- ----------------------------------------------------------------------------------------------------------------
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
November 30, 1996 and August 31, 1996 9,000 9,000
- ----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 428,730 423,695
- ----------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 336,821 336,821
CURRENT LIABILITIES
Long-term debt 15,050 15,050
Notes payable 85,220 50,223
Accounts payable 112,943 96,872
Accrued taxes 21,028 10,820
Accrued interest 9,286 7,732
Other 22,426 21,933
- ----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 265,953 202,630
- ----------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 179,800 180,620
Customers' advances for construction and other deferred credits 75,799 76,125
- ----------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 255,599 256,745
- ----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies - -
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,287,103 $ 1,219,891
================================================================================================================
</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>
- --------------------------------------------------------------------------------
Three Months Ended
November 30,
(Thousands of Dollars except per share amounts) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,174 $ 8,423
Depreciation, depletion, and amortization 16,985 15,862
Net losses of equity investees 91 207
Deferred income taxes (647) (984)
Changes in assets and liabilities (31,899) (25,228)
- -------------------------------------------------------------------------------
Cash used in operating activities (3,296) (1,720)
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Changes in other investments, net 569 135
Capital expenditures, net of salvage (12,701) (11,806)
- -------------------------------------------------------------------------------
Cash used in investing activities (12,132) (11,671)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of notes payable, net 34,997 15,000
Payments of debt - (34)
Issuance of common stock 578 -
Dividends paid (7,717) (7,392)
- -------------------------------------------------------------------------------
Cash provided by financing activities 27,858 7,574
- -------------------------------------------------------------------------------
Change in cash and cash equivalents 12,430 (5,817)
Cash and cash equivalents at beginning of year 598 12,461
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 13,028 $ 6,644
===============================================================================
</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 November 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended August 31, 1997. 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,
1996.
RECLASSIFICATION. Certain amounts in the November 1995 consolidated
condensed financial statements have been reclassified to conform with the
November 1996 presentation.
B. SIGNIFICANT EVENTS
The Company and Western Resources Inc. (Western) announced a strategic
alliance combining the natural gas assets of both companies. The agreement
provides for the Company to own and operate the natural gas assets of
Western located in Kansas and northeast Oklahoma. In exchange for the
assets, Western will receive approximately three million shares of common
stock and 19 million shares of convertible preferred stock making Western
the largest shareholder of the Company. The preferred stock will be
non-voting and convertible into common shares only under certain
circumstances. Additionally, a standstill agreement prevents Western from
increasing their position in the Company for 15 years and restricts the
conditions under which Western can vote any common shares created from
conversion of its preferred stock.
Western's gas distribution system serves 660,000 customers. The assets
include 10,068 miles of pipeline, a Kansas gas processing plant with 15
million cubic feet per day capacity, a 42 percent interest in a New
Mexico plant with a 200 million cubic feet per day capacity, and a natural
gas marketing company with a retail marketing focus. The transaction is
expected to close in mid-1997.
C. REGULATORY ASSETS
The following table is a summary of regulatory assets, net of amortization,
outstanding at November 30, 1996 and August 31, 1996.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Nov. 30, Aug. 31,
(Thousands of dollars) 1996 1996
- ----------------------------------------------------------------
<S> <C> <C>
Recoupable take-or-pay settlements $ 98,996 $100,155
Pension costs 32,380 33,426
Postretirement costs other than pensions 9,248 9,386
Postemployment benefits costs 2,975 2,975
Income tax rate changes 8,222 8,354
Unamortized gas storage costs 670 957
- ----------------------------------------------------------------
Regulatory Assets, Net $152,491 $155,253
================================================================
</TABLE>
D. SUPPLEMENTAL CASH FLOW INFORMATION
The following table is supplemental information relative to the Company's
cash flows for the three months ended November 30, 1996 and November 30,
1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Three Months Ended
November 30,
(Thousands of dollars) 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Cash paid during the period for:
Interest $7,019 $4,521
Income taxes - $2,523
Noncash transactions-
Gas received as payment in kind $ 163 $ 745
Common stock issued under dividend
Reinvestment program $ 572 $ 551
================================================================
</TABLE>
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
ONEOK Inc. provides natural gas and related products and services to its
customers through regulated and nonregulated segments. The regulated
business unit provides natural gas distribution and transmission services
for about 75 percent of Oklahoma. The nonregulated business unit is
primarily involved in the marketing, processing and production of natural
gas and natural gas liquids.
CONSOLIDATED OPERATIONS
The Company continues to take steps to strengthen its competitive edge and
position itself to be a leader in the industry. Intensive efforts to acquire
additional gas distribution and transmission facilities to enhance its
operations has resulted in the recent announcement of a strategic alliance to
combine the natural gas assets of the Company and Western Resources. Under this
alliance, the Company will own and operate the natural gas assets of Western
Resources located in Kansas and northeast Oklahoma while Western Resources will
become the largest equity holder of ONEOK through a combination of common and
convertible preferred stock. This transaction, anticipated to close by
mid-1997, will require approvals from ONEOK shareholders, the Oklahoma
Corporation Commission, the Kansas Corporation Commission and the Securities
and Exchange Commission, and antitrust clearance under the Hart-Scott-Rodino
Act.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Three Months Ended
November 30,
(Thousands of dollars) 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Financial Results
Operating revenues - regulated $ 113,246 $ 104,858
Operating revenues - nonregulated 135,506 133,602
- -----------------------------------------------------------------
Total operating revenues 248,752 238,460
Operating costs 203,090 199,783
Depreciation, depletion and amortization 16,984 15,862
Operating income before taxes $ 28,678 $ 22,815
=================================================================
</TABLE>
EARNINGS PER SHARE
THREE MONTHS ENDED NOVEMBER
[BAR CHART]
Graph indicates Earnings Per Share for Regulated and Nonregulated companies.
Regulated E.P.S. is $0.20 for 1996 and $0.23 for 1995. Nonregulated E.P.S.
is $0.24 for 1996 and $0.08 for 1995.
1996 1995
[x] Regulated $0.20 $0.23
[ ] Nonregulated $0.24 $0.08
The marketing operation launched a new venture, ONEOK Producer Services, in
order to bring gas marketing and other services to the small gas producer to
fill a niche market. An application with FERC to market electricity was
approved.
7
<PAGE> 8
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.
GAS SALES VOLUMES
MMCF
[BAR CHART]
1996 1995
[x] Residential 10,826 9,892
[ ] Commercial 5,419 4,744
[ ] Industrial 2,758 4,351
[ ] PCL 40,727 37,155
Graphs shows gas sales volumes for 1996 and 1995 in MMcf. 1996 volumes were PCL
40,727 MMcf. Commercial 5,419 MMcf, Industrial 2,758 MMcf and Residential
10,826 MMcf. 1995 volumes were PCL 37,155 MMcf, Commercial 4,744 MMcf,
Industrial 4,351 MMcf and Residential 9,892 MMcf.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Three Months Ended
November 30,
(Thousands of dollars) 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
FINANCIAL RESULTS
Gas sales $ 102,061 $ 92,203
Cost of gas 50,214 42,054
- -----------------------------------------------------------------
Gross margins on gas sales 51,847 50,149
Pipeline capacity lease margins 9,606 9,238
Other revenues 1,836 3,785
- -----------------------------------------------------------------
Net revenues 63,289 63,172
Operating expenses 33,390 32,511
Depreciation, depletion and amortization 12,889 12,380
- -----------------------------------------------------------------
Operating income before taxes $ 17,010 $ 18,281
=================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Three Months Ended
November 30,
1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
GROSS MARGIN PER MCF
Residential $ 3.57 $ 3.86
Commercial $ 2.30 $ 2.43
Industrial $ 0.96 $ 0.59
Pipeline capacity lease $ 0.19 $ 0.18
=================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Three Months Ended
November 30,
1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
VOLUMES (MMCF)
Gas sales
Residential 10,826 9,892
Commercial 5,419 4,744
Industrial 2,758 4,351
Pipeline capacity leases 40,727 37,155
- -----------------------------------------------------------------
Total 59,730 56,142
=================================================================
</TABLE>
Net revenues and gross margins from base sales rates increased over the same
period one year ago due to an increase in the number of customers and the
resulting increase in volumes sold and/or transported under a pipeline capacity
lease (PCL) agreement partially offset by a decrease in the gross margin per Mcf
for residential and commercial customers. Operating costs, as a percentage of
net revenue, increased slightly over the same period one year ago while the
number of customers served and volumes increased.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Three Months Ended
November 30,
1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Number of customers 744,437 736,215
Customers per employee 417 388
Capital expenditures (thousands) $ 10,201 $ 11,040
Identifiable assets (thousands) $1,067,877 $1,063,500
=================================================================
</TABLE>
8
<PAGE> 9
NONREGULATED OPERATIONS
ONEOK's nonregulated operations are involved in the marketing, processing and
production of natural gas, oil and natural gas liquids. The gas marketing
subsidiary directs its activities to the mid-continent region of the United
States. The Company's interests in 15 gas liquids extraction plants and its
producing properties are concentrated principally in Oklahoma. The Company also
operates its headquarters office building and a parking garage.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
(THOUSANDS OF DOLLARS) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL RESULTS
COMBINED NONREGULATED OPERATIONS
Gas sales $108,665 $117,668
Cost of gas 105,237 115,187
- ---------------------------------------------------------------------------
Gross margins on gas sales 3,428 2,481
Gas and oil production 9,171 5,371
Gas processing 23,132 15,189
Other 3,918 2,664
- ---------------------------------------------------------------------------
Net revenues 39,649 25,705
Operating expenses 23,885 17,690
Depreciation, depletion and amortization 4,095 3,481
- ---------------------------------------------------------------------------
Operating income before taxes $ 11,669 $ 4,534
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
COMBINED NONREGULATED
NATURAL GAS OPERATIONS
Natural gas volumes (MMcf)
Marketing 54,587 81,535
Natural gas production 3,577 2,151
Residue gas 1,549 1,809
- ---------------------------------------------------------------------------
59,713 85,495
- ---------------------------------------------------------------------------
Less intersegment sales
Marketing 969 1,678
Natural gas production 1,700 840
Residue gas 1,549 1,807
- ---------------------------------------------------------------------------
4,218 4,325
- ---------------------------------------------------------------------------
Net natural gas volumes 55,495 81,170
===========================================================================
</TABLE>
Total nonregulated operating income increased for the first quarter primarily
as a result of improvements in marketing margins, product prices and gas
production.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
(THOUSANDS OF DOLLARS) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
MARKETING SEGMENT
Natural gas sales $108,665 $117,668
Cost of gas 105,237 115,187
- ----------------------------------------------------------------------------
Gross margins on gas sales 3,428 2,481
Other 454 271
- ----------------------------------------------------------------------------
Operating revenues 3,882 2,752
Operating costs, net 805 983
Depreciation, depletion and amortization 114 28
- ----------------------------------------------------------------------------
Operating income before taxes $ 2,963 $ 1,741
============================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
MARKETING SEGMENT
Operating Information
Natural gas volumes (MMcf) 54,587 81,535
Capital expenditures (thousands) $40 $87
Identifiable assets (thousands) $97,620 $28,500
============================================================================
</TABLE>
Increased profitability of the Company's gas marketing operation is
attributable to operational changes implemented in fiscal 1996 which enabled
the Company to capitalize on day to day pricing volatility. Such changes
included increased use of gas storage facilities, hedging and transportation
arbitraging. The decrease in gas marketing volumes reflects the emphasis on
daily trading activity. Gross margin rose reflecting the operational changes
and a significant increase in price volatility for both the physical and
futures market over the same quarter one year ago. An aggressive marketing
strategy using hedging and gas storage has allowed the marketing operation to
take advantage of the volatility in gas prices.
MARKETING MARGINS/MCF
QUARTER ENDED NOVEMBER 30
[CHART]
1996 1995
----- -----
[ ] Margins $0.06 $0.03
Graph shows Marketing margins per Mcf for 1996 and 1995. Margins for 1996
were $0.06 per Mcf and $0.03 per Mcf for 1995.
9
<PAGE> 10
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
November 30,
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
PROCESSING SEGMENT
Natural gas liquids and residue sales $22,478 $14,545
Other 1 62
- --------------------------------------------------------------------------------
Operating revenues 22,479 14,607
Operating costs, net 17,001 11,852
Depreciation, depletion and amortization 521 468
- --------------------------------------------------------------------------------
Operating income before taxes $ 4,957 $ 2,287
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
November 30,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
PROCESSING SEGMENT
Operating Information
Residue gas (MMcf) 1,549 1,809
Natural gas liquids (MBbls) 52,772 44,933
Average NGL's price (Bbls) $ 0.370 $ 0.266
Fuel & Shrink price (MMbtu) $ 1.84 $ 1.37
Capital expenditures (thousands) $ 316 $ 3,578
Identifiable assets (thousands) $30,086 $27,200
================================================================================
</TABLE>
Gas processing volumes and revenue rose reflecting improved market conditions
for natural gas liquids (NGL). Product prices and processing margins, were at
the highest level in recent times. This was partially offset by increased fuel
and shrink costs due to higher gas prices.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
November 30,
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
PROCESSING SEGMENT
Natural gas sales $ 7,288 $ 3,094
Oil residue sales 1,883 2,276
Liquids and residue 654 645
Other 100 34
- --------------------------------------------------------------------------------
Operating revenues 9,925 6,049
Operating costs, net 2,584 2,213
Depreciation, depletion and amortization 3,370 2,896
- --------------------------------------------------------------------------------
Operating income before taxes $ 3,971 $ 940
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
November 30,
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
PRODUCTION SEGMENT
Proved Reserves
Gas (MMcf) 74,766 35,294
Oil (MBbls) 1,715 3,777
- --------------------------------------------------------------------------------
Production
Gas (MMcf) 3,577 2,151
Oil (MBbls) 90 138
- --------------------------------------------------------------------------------
Average price
Gas (Mcf) $ 2.04 $ 1.44
Oil (Bbls) $ 21.00 $ 16.50
- --------------------------------------------------------------------------------
Capital expenditure (thousands) $ 1,380 $ 619
Identifiable assets (thousands) $72,606 $60,100
================================================================================
</TABLE>
Gas production volumes increased over the same quarter one year ago due to the
purchase of additional producing properties during the third quarter of 1996.
The increase in the average price of gas and oil is attributable to general
market conditions and an aggressive marketing campaign conducted through the
Company's gas marketing segment. The production operation continues to actively
look for acquisitions. The operation also continues to seek opportunities to
sell producing properties located outside of Oklahoma.
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.
10
<PAGE> 11
FINANCIAL FLEXIBILITY AND LIQUIDITY
Prior to closing its strategic alliance with Western Resources, the Company's
goals are to continue 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 November 30, 1996, the equity component was 50
percent, which increased from 48 percent at November 30, 1995. Debt ratings are
A3 by Moody's Investors Service and A- by Standard & Poor's Corporation. The
Company's long-term debt represents 41 percent of total capital at November 30,
1996.
Cash provided by operating activities remains 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 short-term credit agreements and, if necessary, through
long-term borrowings.
OPERATING CASH FLOWS
Operating cash flows for the three months ended November 30, 1996, as compared
to the same period in 1995 are lower. The effect of increased earnings in both
the regulated and nonregulated segments was offset primarily by the timing of
accounts receivables.
INVESTING CASH FLOWS
Capital expenditures for the three months ended November 30, 1996 and 1995 are
as follows.
CAPITAL EXPENDITURES
THREE MONTHS ENDED NOVEMBER
[CHART]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(MILLIONS OF DOLLARS) 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-regulated $ 2.0 $ 4.6
Processing 0.3 3.6
Production 1.4 0.6
Other 0.3 0.4
- -----------------------------------------------------------------
Regulated $10.2 $11.0
=================================================================
</TABLE>
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
[ ] Regulated $10,201 $11,040
[ ] Nonregulated $ 1,961 $ 4,547
</TABLE>
Graphs show Capital expenditures for Regulated and Nonregulated companies for
1996 and 1995. Capital expenditures for regulated companies were $10,201,000 in
1996 and $11,040,000 in 1995. Nonregulated capital expenditures were $1,961,000
in 1996 and $4,547,000 in 1995.
FINANCING CASH FLOW
At November 30, 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.
11
<PAGE> 12
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
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
November 30, 1996, the net deferred gain on these contracts was approximately
$4 million.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
UNITED STATES EX REL. JACK J. GRYNBERG V. ALASKA PIPELINE COMPANY, ET AL.
(INCLUDING ONEOK INC.), No. 95-725-TFH, in the United States District Court for
the District of Columbia. The Company joined with 52 other defendants in filing
a motion to dismiss the claims of the plaintiff on a number of grounds. The
plaintiff is to respond to the motion by January 7, 1997, and a hearing is set
on March 12, 1997.
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 and related dockets (PUD
96-85, 96-100, 96-186) Oklahoma Corporation Commission. On December 17, 1996,
the Commission staff filed its report finding no improprieties on the part of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual Meeting of Shareholders of ONEOK Inc. was held on December 12, 1996,
in Tulsa, Oklahoma. At this meeting, shareholders voted to elect directors and
approve the appointment of independent auditors. Proxies for the meeting were
solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, and
there was no solicitation in opposition to management's solicitation.
The results of the voting are as follows:
(1) Election of Class A directors
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
COMMON STOCK VOTES PREFERRED STOCK VOTES
FOR WITHHELD FOR WITHHELD
---------- -------- --------- -----------
<S> <C> <C> <C> <C>
Edwyna G. Anderson 23,625,804 256,518 188,442 1,700
William L. Ford 23,663,986 218,336 188,442 1,700
Bert H. Mackie 23,657,783 224,539 188,442 1,700
Gary D. Parker 23,664,339 217,983 188,442 1,700
Stanton L. Young 23,653,328 228,994 188,442 1,700
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Class B Directors continuing after the meeting are as follows:
Larry W. Brummett
David L. Kyle
Douglas Ann Newson, Ph.D.
J. D. Scott
Class C Directors continuing after the meeting are as follows:
William M. Bell
Douglas R. Cummings
J. M. Graves
Stephen J. Jatras
G. Rainey Williams, M.D.
13
<PAGE> 14
(2) Appointment of KPMG Peat Marwick LLP as independent auditors for the
Company
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
------------------------------------------------------------------
<S> <C> <C> <C>
Preferred 188,152 1,106 884
Common 23,635,201 108,617 138,504
- --------------------------------------------------------------------------------------------------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
One exhibit was filed during the first quarter of the 1997 fiscal year.
Exhibit (96) (a) ONEOK Inc. Financial News dated December 23, 1996
announced the intent of ONEOK Inc. to form an alliance with Western
Resources. The alliance would combine the natural gas assets of both
companies.
(b) Reports
None
No financial statements were filed with the Form 8-K.
14
<PAGE> 15
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 27th day of
December, 1996.
ONEOK Inc.
Registrant
By: /s/ J.D. NEAL
-----------------------------
J.D. Neal
Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial and
Accounting Officer)
15
<PAGE> 16
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 1997 FISCAL YEAR'S FIRST
QUARTER ENDED NOVEMBER 30, 1996, AND THE CONSOLIDATED CONDENSED BALANCE SHEET AT
NOVEMBER 30, 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-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 13,028
<SECURITIES> 0
<RECEIVABLES> 168,987
<ALLOWANCES> 0
<INVENTORY> 102,258
<CURRENT-ASSETS> 304,114
<PP&E> 1,342,855
<DEPRECIATION> 549,660
<TOTAL-ASSETS> 1,287,103
<CURRENT-LIABILITIES> 265,953
<BONDS> 0
0
9,000
<COMMON> 208,233
<OTHER-SE> 211,497
<TOTAL-LIABILITY-AND-EQUITY> 1,287,103
<SALES> 0
<TOTAL-REVENUES> 248,752
<CGS> 0
<TOTAL-COSTS> 220,074
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,839
<INCOME-PRETAX> 19,839
<INCOME-TAX> 7,665
<INCOME-CONTINUING> 12,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,174
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
