UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000. 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 001-13643 ONEOK, Inc. (Exact name of registrant as specified in its charter) Oklahoma 73-1520922 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation of organization) 100 West Fifth Street, Tulsa, OK (Address of principal executive offices) 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 June 30, 2000, the Company had 29,200,781 shares of common stock outstanding.
ONEOK, Inc. QUARTERLY REPORT ON FORM 10-Q Part I. Financial Information Page No. Consolidated Condensed Statements of Income - Three and Six Months Ended June 30, 2000 and 1999 3 Consolidated Condensed Balance Sheets - June 30, 2000 and December 31, 1999 4 - 5 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999 6 Notes to Consolidated Condensed Financial Statements 7 - 14 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 - 26 Quantitative and Qualitative Disclosures about Market Risk 26 - 27 Part II. Other Information 28 - 30 2
Part I - FINANCIAL INFORMATION Item 1. Financial Statements ONEOK, Inc. and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF INCOME <TABLE> <CAPTION> <S> <C> <C> <C> <C> Three Months Ended Six Months Ended June 30, June 30, (Unaudited) 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues $ 1,387,130 $ 390,323 $ 2,211,079 $ 937,494 Cost of gas 1,020,233 239,194 1,578,529 570,265 - ----------------------------------------------------------------------------------------------------------------------------------- Net Revenues 366,897 151,129 632,550 367,229 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Expenses Operations and maintenance 239,988 79,793 352,018 141,041 Depreciation, depletion, and amortization 37,161 34,168 71,488 66,260 General taxes 12,116 9,953 24,355 20,251 - ----------------------------------------------------------------------------------------------------------------------------------- Total Operating Expenses 289,265 123,914 447,861 227,552 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income 77,632 27,215 184,689 139,677 - ----------------------------------------------------------------------------------------------------------------------------------- Other income and (expenses) (2,517) - 11,764 - Interest expense 28,343 14,337 50,328 26,919 Income taxes 19,610 3,397 58,056 42,827 - ----------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in 27,162 9,481 88,069 69,931 accounting principle Cumulative effect of a change in accounting principle, net of tax (Note J) - - 2,115 - - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 27,162 9,481 90,184 69,931 Preferred Stock Dividends 9,275 9,307 18,550 18,631 - ----------------------------------------------------------------------------------------------------------------------------------- Income Available for Common Stock $ 17,887 $ 174 $ 71,634 $ 51,300 =================================================================================================================================== Earnings Per Share of Common Stock (Note F) Basic $ 0.61 $ 0.01 $ 2.45 $ 1.62 =================================================================================================================================== Diluted $ 0.55 $ 0.01 $ 1.83 $ 1.35 =================================================================================================================================== Average Shares of Common Stock (Thousands) Basic 29,196 31,590 29,219 31,609 Diluted 49,146 31,603 49,167 51,731 </TABLE> See accompanying notes to consolidated condensed financial statements. 3
<TABLE> <CAPTION> ONEOK, Inc. and Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS June 30, December 31, (Unaudited) 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> Assets Current Assets Cash and cash equivalents $ 7,137 $ 72 Trade accounts and notes receivable 841,290 371,313 Inventories 161,018 134,871 Assets from price risk management activities 649,444 - Restricted deposits 81,839 40,928 Other current assets 46,135 46,537 - ------------------------------------------------------------------------------------------------------------------------- Total Current Assets 1,786,863 593,721 - ------------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment 3,980,877 3,143,693 Accumulated depreciation, depletion, and amortization 1,061,365 1,021,915 - ------------------------------------------------------------------------------------------------------------------------- Net Property 2,919,512 2,121,778 - ------------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets Regulatory assets, net (Note D) 257,573 247,486 Goodwill 91,523 80,743 Assets from price risk management activities 106,259 - Investments and other 210,374 195,847 - ------------------------------------------------------------------------------------------------------------------------- Total Deferred Charges and Other Assets 665,729 524,076 - ------------------------------------------------------------------------------------------------------------------------- Total Assets $5,372,104 $3,239,575 ========================================================================================================================= See accompanying notes to consolidated condensed financial statements. </TABLE> 4
<TABLE> <CAPTION> ONEOK, Inc. and Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS June 30, December 31, (Unaudited) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> Liabilities and Shareholders' Equity Current Liabilities Current maturities of long-term debt $ 10,767 $ 21,767 Notes payable 247,103 462,242 Accounts payable 777,079 237,653 Accrued taxes 36,112 359 Accrued interest 28,643 16,628 Liabilities from price risk management activities 702,641 - Other 67,546 48,064 - ---------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,869,891 786,713 - ---------------------------------------------------------------------------------------------------------------------- Long-term Debt, excluding current maturities 1,357,869 775,074 Deferred Credits and Other Liabilities Deferred income taxes 371,394 348,218 Liabilities from price risk management activities 263,796 - Lease obligation 124,718 - Other deferred credits 188,801 178,046 - ---------------------------------------------------------------------------------------------------------------------- Total Deferred Credits and Other Liabilities 948,709 526,264 - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities 4,176,469 2,088,051 - ---------------------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note G) Shareholders' Equity Convertible Preferred Stock, $0.01 par value: Series A authorized 199 199 20,000,000 shares; issued and outstanding 19,946,448 shares Common stock, $0.01 par value: authorized 100,000,000 shares; issued 316 316 31,599,305 shares and outstanding 29,200,781and 29,554,623 shares Paid in capital (Note I) 894,976 894,976 Unearned compensation (1,577) (1,825) Retained earnings 370,815 317,964 Treasury stock at cost: 2,398,524 and 2,044,682 shares (69,094) (60,106) - ---------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 1,195,635 1,151,524 - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $5,372,104 $3,239,575 ====================================================================================================================== See accompanying notes to consolidated condensed financial statements. - - </TABLE> 5
ONEOK, Inc. and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (Unaudited) 2000 1999 - ------------------------------------------------------------------------------ (Thousands of Dollars) Operating Activities Net income $ 90,184 $ 69,931 Depreciation, depletion, and amortization 71,488 66,260 Gain on sale of assets (27,050) - Net income from equity investments (2,801) (1,262) Deferred income taxes 13,320 12,921 Changes in assets and liabilities 72,192 61,100 - ---------------------------------------------------------------------------- Cash Provided by Operating Activities 217,333 208,950 - ---------------------------------------------------------------------------- Investing Activities Changes in other investments, net (6,840) (62,582) Acquisitions, net (460,472) (296,287) Capital expenditures, net of retirements (110,044) (105,288) Proceeds from sale of property 60,659 - - ---------------------------------------------------------------------------- Cash Used in Investing Activities (516,697) (464,157) - ---------------------------------------------------------------------------- Financing Activities (Payment) borrowing of notes payable, net (215,139) 130,000 Issuance of debt 589,429 199,494 Payment of debt (21,395) (17,249) Issuance of common stock - 1,381 Issuance of treasury stock 1,997 - Acquisition of treasury stock (11,813) (5,507) Dividends paid (36,650) (38,262) - ---------------------------------------------------------------------------- Cash Provided by Financing Activities 306,429 269,857 - ---------------------------------------------------------------------------- Change in Cash and Cash Equivalents 7,065 14,650 Cash and Cash Equivalents at Beginning of Period 72 - - ---------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 7,137 $ 14,650 ============================================================================ See accompanying notes to consolidated condensed financial statements. 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) A. Change in Fiscal Year End. In October 1999, the Board of Directors of ONEOK, Inc. (the Company) approved a change in the Company's fiscal year-end from August 31 to December 31 beginning January 1, 2000. The consolidated condensed financial statements for the second quarter and fiscal year to date under the new fiscal year are presented in this Form 10-Q. A transition report was filed on Form 10-Q for the period September 1, 1999, through December 31, 1999. B. 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 six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for a twelve- month period. 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, 1999. C. Significant Events On April 5, 2000, the Company acquired certain natural gas gathering and processing assets located in Oklahoma, Kansas and West Texas from Kinder Morgan, Inc. (KMI). The Company also acquired KMI's marketing and trading operations, as well as some storage and transmission pipelines in the mid-continent region. The Company paid approximately $109 million for these assets plus an adjustment for working capital of approximately $53 million. The Company also assumed certain liabilities including those related to an operating lease for a processing plant for which the Company established a liability for uneconomic lease obligation terms and some firm capacity lease obligations to third parties for which the Company established a reserve for out-of-market terms of those obligations. The assets and liabilities acquired have been recorded at preliminary fair values. As additional information is obtained, there could be significant adjustments to the purchase price allocation. The acquisition was accounted for as a purchase. The results of operations of this acquisition are included in the consolidated condensed statement of income subsequent to the purchase date. The table of unaudited pro forma information, set forth below, presents a summary of consolidated results of operations of the Company as if the acquisition of the businesses acquired from KMI had occurred at the beginning of the periods presented. The results do not necessarily reflect the results which would have been obtained if the acquisition had actually occurred on the dates indicated or the results which may be expected in the future. <TABLE> <CAPTION> Pro Forma Six months ended June 30, 2000 1999 ----------------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> Operating revenues $ 3,164,888 $ 2,829,571 Net income $ 97,342 $ 69,743 Income available for common shareholders $ 78,792 $ 51,112 Earnings Per Share of Common Stock - Diluted $ 1.98 $ 1.35 </TABLE> 7
The Company received a final order (the Order), on May 30, 2000, in the rate case before the Oklahoma Corporation Commission (OCC). The Order provided a $20 million net revenue reduction in rates which will be offset by an annual reduction in depreciation expense of $11.4 million. The Order also transferred the Oklahoma assets and customers of Kansas Gas Service Company Division (KGS) to Oklahoma Natural Gas Company Division (ONG), separated the distribution assets of ONG and the transmission and storage assets of ONEOK Gas Transportation, L.L.C. (OGT), and related affiliates into two separate public utilities, adjusted rates for the removal of the gathering and storage assets no longer collected in base rates and provided for the recovery of gas purchase operations and maintenance expenses and line losses through a rider rather than base rates. Additionally, the Order approved a contract between ONG and OGT and affiliates for transportation and storage services. In March 2000, the Company completed the sale of its 42.4 percent interest in Indian Basin Gas Processing Plant and gathering system for $55 million. In March 2000, the Company completed the acquisition of assets located in Oklahoma, Kansas, and the Texas panhandle from Dynegy, Inc. for $305 million in cash which included a $3 million preliminary adjustment for working capital. The working capital adjustment is expected to be finalized in November 2000. The assets include gathering systems, gas processing facilities, and transmission pipelines. On January 20, 2000, the Board of Directors of the Company voted unanimously to terminate the merger agreement with Southwest Gas Corporation (Southwest) in accordance with ther terms of the merger agreement. The Company charged $9.5 million of previously deferred transaction and ongoing litigation costs to Other income and expense during the first half of 2000. D. Regulatory Assets The following table is a summary of the Company's regulatory assets, net of amortization. <TABLE> <CAPTION> June 30, December 31, 2000 1999 ------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> Recoupable take-or-pay $ 81,849 $ 84,343 Pension costs 17,396 19,487 Postretirement costs other than pension 63,512 62,207 Transition costs 22,500 22,746 Reacquired debt costs 23,639 24,068 Income taxes 32,561 23,337 Other 16,116 11,298 ------------------------------------------------------------------------- Regulatory assets, net $257,573 $247,486 ========================================================================= </TABLE> 8
E. Supplemental Cash Flow Information The following table is supplemental information relative to the Company's cash flows. <TABLE> <CAPTION> Six Months Ended June 30, 2000 1999 --------------------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> Cash paid during the year Interest (including amounts capitalized) $ 35,932 $ 22,073 Income taxes $ 3,651 $ 52,698 Acquisitions Plant, property, and equipment $ 782,970 $ 289,931 Current assets 74,012 - Current liabilities (20,996) - Goodwill 14,459 10,817 Leased obligation (139,000) - Price risk management activities (239,660) - Deferred credits (11,313) - Deferred income taxes - (4,461) --------------------------------------------------------------------------------------- Cash paid $ 460,472 $ 296,287 ======================================================================================= </TABLE> F. Earnings per Share Information The following is a reconciliation of the basic and diluted EPS computations. <TABLE> <CAPTION> Three Months Ended June 30, 2000 Three Months Ended June 30, 1999 Per Share Per Share Income Shares Amount Income Shares Amount ------------------------------------------------------------------------ (Thousands, except per share amounts) <S> <C> <C> <C> <C> <C> <C> Basic EPS Income available for common stock $ 17,887 29,196 $ 0.61 $ 174 31,590 $ 0.01 ====== ====== Effect of Dilutive Securities Options - 4 - 13 Convertible preferred stock 9,275 19,946 - - -------- ------ -------- ------ Diluted EPS Income available for common stock + assumed conversion $ 27,162 49,146 $ 0.55 $ 174 31,603 $ 0.01 ================================================================================================================================ </TABLE> 9
<TABLE> <CAPTION> Six Months Ended June 30, 2000 Three Months Ended June 30, 1999 Per Share Per Share Income Shares Amount Income Shares Amount ------------------------------------------------------------------------ (Thousands, except per share amounts) <S> <C> <C> <C> <C> <C> <C> Basic EPS Income available for common stock $ 71,634 29,219 $ 2.45 $ 51,300 31,609 $ 1.62 ====== ====== Effect of Dilutive Securities Options - 2 - 13 Convertible preferred stock 18,550 19,946 18,631 20,109 -------- ------ -------- ------ Diluted EPS Income available for common stock + assumed conversion $ 90,184 49,167 $ 1.83 $ 69,931 51,731 $ 1.35 ================================================================================================================================ </TABLE> There were 180,597 and 86,871 option shares excluded from the calculation of Diluted Earnings per Share for the three months ended June 30, 2000 and 1999, respectively, due to being antidilutive for the periods. There were 19,946,448 shares of convertible preferred stock excluded from the calculation of Diluted Earnings per Share due to being antidilutive for the three months ended June 30, 1999. For the six months ended June 30, 2000 and 1999, there were 229,559 and 83,496 option shares excluded from the calculation of Diluted Earnings per Share, respectively, due to being antidilutive. The following is a reconciliation of the basic and diluted EPS computations on income before the cumulative effect of a change in accounting principle to net income. <TABLE> <CAPTION> Six Months Ended June 30, Basic EPS Diuluted EPS 2000 1999 2000 1999 ------------------------------------ <S> <C> <C> <C> <C> Income available for common stock before cumulative effect of a change in accounting principle $ 2.38 $ 1.62 $ 1.79 $ 1.35 Cumulative effect of a change in accounting principle, net of tax 0.07 - 0.04 - ------ ------ ------ ------ Income available for common stock $ 2.45 $ 1.62 $ 1.83 $ 1.35 ================================================================================ </TABLE> G. Commitments and Contingencies The Company and Southwest entered into a merger agreement, as amended, in which the Company agreed to acquire Southwest for $30 per share of common stock in an all cash transaction valued at $918 million. On January 20, 2000, the Company terminated the merger in accordance with the terms of the merger agreement. The Company and certain of its officers as well as Southwest have been named as defendants in a lawsuit brought by Southern Union Company (Southern Union). The complaint asks for $750 million damages to be trebled for racketeering and unlawful violations, compensatory damages of not less than $750 million and rescission of the Confidentiality and Standstill Agreement. Southwest has filed a complaint against the Company and Southern Union in the United States District Court in Arizona. Southwest seeks actual, consequential, incidental and punitive damages in an amount in excess of $75,000 and a declaration that the Company has breached the merger agreement. 10
On February 3, 2000, two substantially identical derivative actions were filed in the District Court in Tulsa, Oklahoma by shareholders against the members of the Board of Directors of the Company for alleged violation of their fiduciary duties to the Company by causing or allowing the Company to engage in certain fraudulent and improper schemes relating to the planned merger with Southwest. In June 2000, these cases were consolidated into one case. Such conduct allegedly caused the Company to be sued by both Southwest and Southern Union which exposed the Company to millions of dollars in liabilities. The plaintiffs seek an award of compensatory and punitive damages and costs, disbursements and reasonable attorney fees. It is anticipated that Southern Union and Southwest will continue their litigation against the Company. If any of the plaintiffs should be successful in any of their claims against the Company and substantial damages are awarded, it could have a material adverse effect on the Company's operations, cash flow and financial position. The Company intends to vigorously defend against the claims asserted by Southern Union and Southwest and all other matters relating to the now terminated merger with Southwest. The Company has responsibility for 12 manufactured gas sites located in Kansas which may contain potentially harmful materials that are classified as hazardous substances. Hazardous substances are subject to control or remediation under various environmental laws and regulations. A consent agreement with the Kansas Department of Health and Environment presently governs all future work at these sites. The terms of the consent agreement allow the Company to investigate these sites and set remediation priorities based upon the results of the investigations and risk analysis. The prioritized sites will be investigated over a ten-year period. At June 30, 2000, the costs of the investigations and risk analysis have been minimal. Limited information is available about the sites. Management's best estimate of the cost of remediation ranges from $100 thousand to $10 million per site based on a limited comparison of costs incurred to remediate comparable sites. These estimates do not give effect to potential insurance recoveries, recoveries through rates or from third parties. The Kansas Corporation Commission (KCC) has permitted others to recover remediation costs through rates. It should be noted that additional information and testing could result in costs significantly below or in excess of the amounts estimated above. To the extent that such remediation costs are not recovered, the costs could be material to the Company's results of operations and cash flows depending on the remediation done and number of years over which the remediation is completed. The Company is a party to other litigation matters and claims which are normal in the course of its operations, and while the results of litigation and claims cannot be predicted with certainty, management believes the final outcome of such matters will not have a materially adverse effect on consolidated results of operations, financial position, or liquidity. H. Segments The Company conducts its operations through six segments: (1) the Marketing segment markets natural gas to wholesale and retail customers and markets electricity to wholesale customers; (2) the Gathering and Processing segment gathers and processes natural gas and natural gas liquids; (3) the Transportation and Storage segment transports and stores natural gas for others and sells natural gas; (4) the Distribution segment distributes natural gas to residential, commercial and industrial customers, leases pipeline capacity to others and provides transportation services for end-use customers; (5) the Production segment develops and produces natural gas and oil; and (6) the Other segment primarily operates and leases the Company's headquarters building and a related parking facility. Intersegment sales are recorded on the same basis as sales to unaffiliated customers. All corporate overhead costs relating to a reportable segment have been allocated for the purpose of calculating operating income. The Company's equity method investments do not represent operating segments of the Company. The Company has no single external customer from which it receives ten percent or more of its revenues. 11
<TABLE> <CAPTION> Gathering Three Months Ended and Transportation Other and June 30, 2000 Marketing Processing and Storage Distribution Production Eliminations Total - ------------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) <S> <C> <C> <C> <C> <C> <C> <C> Sales to unaffiliated customers $ 954,791 $ 198,040 $ 32,842 $ 187,772 $ 13,821 $ (136) $ 1,387,130 Intersegment sales 53,262 24,921 14,357 915 4,648 (98,103) - - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues $ 1,008,053 $ 222,961 $ 47,199 $ 188,687 $ 18,469 $ (98,239) $ 1,387,130 - ------------------------------------------------------------------------------------------------------------------------------------ Net revenues $ 29,910 $ 222,961 $ 39,512 $ 75,511 $ 18,469 $ (19,466) $ 366,897 Operating costs $ 4,161 $ 186,952 $ 17,188 $ 56,417 $ 5,879 $ (18,493) $ 252,104 Depreciation, depletion and amortization $ 314 $ 6,402 $ 5,004 $ 16,802 $ 7,990 $ 649 $ 37,161 Operating income $ 25,435 $ 29,607 $ 17,320 $ 2,292 $ 4,600 $ (1,622) $ 77,632 Income from equity Investments $ - $ - $ 1,543 $ - $ 22 $ - $ 1,565 Capital expenditures, including acquisitions $ 10,183 $ 298,321 $ 191,866 $ 27,306 $ 10,014 $ 9,940 $ 547,630 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <TABLE> <CAPTION> Gathering Three Months Ended and Transportation Other and June 30, 1999 Marketing Processing and Storage Distribution Production Eliminations Total - ------------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) <S> <C> <C> <C> <C> <C> <C> <C> Sales to unaffiliated customers $ 181,710 $ 23,895 $ 7,474 $ 162,848 $ 13,259 $ 1,137 $ 390,323 Intersegment sales 11,851 2,387 19,786 1,689 6,637 (42,350) - - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues $ 193,561 $ 26,282 $ 27,260 $ 164,537 $ 19,896 $ (41,213) $ 390,323 - ------------------------------------------------------------------------------------------------------------------------------------ Net revenues $ 6,651 $ 26,282 $ 27,260 $ 75,200 $ 19,896 $ (4,160) $ 151,129 Operating Costs $ 2,501 $ 17,950 $ 9,206 $ 60,126 $ 4,901 $ (4,938) $ 89,746 Depreciation, depletion and amortization $ 150 $ 1,334 $ 3,419 $ 19,103 $ 9,595 $ 567 $ 34,168 Operating income $ 4,000 $ 6,998 $ 14,635 $ (4,029) $ 5,400 $ 211 $ 27,215 Income from equity investments $ - $ - $ 541 $ - $ 9 $ - $ 550 Capital expenditures, including acquisitions $ 10 $ 286,595 $ 10,688 $ 33,503 $ 4,365 $ 2,027 $ 337,188 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> 12
<TABLE> <CAPTION> Gathering Three Months Ended and Transportation Other and June 30, 2000 Marketing Processing and Storage Distribution Production Eliminations Total - ------------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) <S> <C> <C> <C> <C> <C> <C> <C> Sales to unaffiliated customers $ 1,310,915 $ 248,089 $ 47,900 $ 567,482 $ 28,343 $ 8,350 $ 2,211,079 Intersegment sales 145,978 43,317 28,721 1,827 9,964 (229,807) - - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues $ 1,456,893 $ 291,406 $ 76,621 $ 569,309 $ 38,307 $ (221,457) $ 2,211,079 - ------------------------------------------------------------------------------------------------------------------------------------ Net revenues $ 45,720 $ 291,406 $ 68,934 $ 216,174 $ 38,307 $ (27,991) $ 632,550 Operating costs $ 6,700 $ 245,884 $ 28,607 $ 111,403 $ 11,525 $ (27,746) $ 376,373 Depreciation, depletion and amortization $ 505 $ 8,691 $ 9,197 $ 35,373 $ 16,452 $ 1,270 $ 71,488 Operating income $ 38,515 $ 36,831 $ 31,130 $ 69,398 $ 10,330 $ (1,515) $ 184,689 Cumulative effect of a change in accounting principle, before tax $ 3,449 $ - $ - $ - $ - $ - $ 3,449 Income from equity investments $ - $ - $ 2,772 $ - $ 29 $ - $ 2,801 Total assets $ 1,814,099 $ 1,003,288 $ 615,738 $ 1,633,375 $ 352,681 $ (47,077) $ 5,372,104 Capital expenditures, including acquisitions $ 19,683 $ 601,652 $ 204,523 $ 53,680 $ 19,378 $ 11,369 $ 910,285 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Gathering Three Months Ended and Transportation Other and June 30, 2000 Marketing Processing and Storage Distribution Production Eliminations Total - ------------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) <S> <C> <C> <C> <C> <C> <C> <C> Sales to unaffiliated customers $ 339,708 $ 30,067 $ 14,602 $ 525,332 $ 26,483 $ 1,302 $ 937,494 Intersegment sales 43,039 5,319 39,322 4,616 12,716 (105,012) - - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues $ 382,747 $ 35,386 $ 53,924 $ 529,948 $ 39,199 $ (103,710) $ 937,494 - ------------------------------------------------------------------------------------------------------------------------------------ Net revenues $ 17,748 $ 35,386 $ 53,924 $ 230,445 $ 39,199 $ (9,473) $ 367,229 Operating costs $ 4,517 $ 25,270 $ 15,954 $ 115,510 $ 9,892 $ (9,851) $ 161,292 Depreciation, depletion and amortization $ 301 $ 1,693 $ 6,834 $ 38,961 $ 18,082 $ 389 $ 66,260 Operating income $ 12,930 $ 8,423 $ 31,136 $ 75,974 $ 11,225 $ (11) $ 139,677 Income from equity investments $ - $ - $ 1,225 $ - $ 37 $ - $ 1,262 Total assets $ 172,428 $ 360,032 $ 361,354 $ 1,728,527 $361,762 $ (26,164) $ 2,957,939 Capital expenditures, including acquisitions $ 149 $ 287,383 $ 16,955 $ 55,469 $ 51,847 $ 2,441 $ 414,244 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> I. Paid in Capital Paid in Capital at June 30, 2000 and December 31, 1999, was $330.8 million for common stock and $564.2 million for convertible preferred stock. 13
J. Energy Trading and Risk Management At January 1, 2000, the Company adopted the provisions of Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" (EITF 98-10) for certain energy trading contracts. EITF 98-10 requires entities involved in energy trading activities to record energy trading contracts using the mark-to-market method of accounting. Under this methodology, the energy trading contracts with third parties are reflected at fair market value, net of reserves, with the resulting unrealized gains and losses recorded as assets and liabilities from price risk management activities in the consolidated condensed balance sheet. These assets and liabilities are affected by the actual timing of settlements related to these contracts and current period changes resulting from newly originated transactions and the impact of price movements. These changes are recognized in gross margin on a net basis in the consolidated condensed statement of income in the period the change occurs. The cumulative effect to January 1, 2000, of adopting EITF 98-10 was a gain of $3.4 million, $2.1 million, net of tax, or $0.04 per diluted share of common stock. In prior years, these contracts were accounted for under the accrual method of accounting, therefore, gains and losses were recognized as the contracts settled. Energy contracts held by other Company segments are generally designated as and considered effective as hedges of non-trading activities and are not considered energy trading contracts. 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-Q contains statements concerning Company expectations or predictions of the future that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are intended to be covered by the safe harbor provision of the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements are based on management's beliefs and assumptions based on information currently available. It is important to note that actual results could differ materially from those projected in such forward-looking statements. Factors that may impact forward-looking statements include, but are not limited to, the following: . the effects of weather and other natural phenomena on sales and prices; increased competition from other energy suppliers as well as alternative forms of energy; . the capital intensive nature of the Company's business; . further deregulation, or "unbundling" of the natural gas business; . competitive changes in the natural gas gathering, transportation and storage business resulting from deregulation, or "unbundling," of the natural gas business; . the profitability of assets or businesses acquired by the Company; . risks of hedging and marketing activities as a result of changes in energy prices; . economic climate and growth in the geographic areas in which the Company does business; . the uncertainty of gas and oil reserve estimates; . the timing and extent of changes in commodity prices for natural gas, natural gas liquids, electricity, and crude oil; . the effects of changes in governmental policies and regulatory actions, including income taxes, environmental compliance, and authorized rates; . the results of litigation related to the Company's previously proposed acquisition of Southwest Gas Corporation (Southwest) or to the termination of the Company's merger agreement with Southwest; and . the other factors listed in the reports the Company has filed and may file with the Securities and Exchange Commission, which are incorporated by reference. Accordingly, while the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. When used in Company documents, the words "anticipate," "expect," "projection," "goal" or similar words are intended to identify forward-looking statements. The Company does not have any intention or obligation to update forward-looking statements after they distribute this Form 10-Q even if new information, future events or other circumstances have made them incorrect or misleading. A. Acquisitions and Sales Kinder Morgan, Inc. On April 5, 2000, the Company acquired certain natural gas gathering and processing assets located in Oklahoma, Kansas and West Texas from Kinder Morgan, Inc. (KMI). The Company also acquired KMI's marketing and trading operations, as well as some storage and transmission pipelines in the mid-continent region. The Company paid approximately $109 million for these assets plus an adjustment for working capital of approximately $53 million. The Company also assumed certain liabilities including those related to an operating lease for a processing plant for which the Company established a liability for uneconomic lease obligation terms and some firm capacity lease obligations to third parties for which the Company established a reserve for out-of-market terms of those obligations. This acquisition includes more than 12,000 miles of pipeline, six gas processing plants with capacity of 1.26 billion cubic feet per day and 10.5 billion cubic feet of storage. Approximately 350 employees were added 15
to the ONEOK workforce as part of the acquisition. Most are located in Kansas and West Texas. Indian Basin Gas Processing Plant During the first quarter of 2000, the Company sold its 42.4 percent interest in the Indian Basin Gas Processing Plant and gathering system for $55 million to El Paso Field Services Company, a business unit of El Paso Energy Corporation. The gain on this sale is shown in Other income and expenses. Dynegy, Inc. In March 2000, the Company acquired eight gas processing plants, interests in two other gas processing plants and approximately 7,000 miles of gas gathering and transmission pipeline systems in Oklahoma, Kansas and Texas from Dynegy, Inc. (Dynegy). The Company paid approximately $305 million for these assets which included a preliminary adjustment for working capital. The working capital adjustment is expected to be finalized in November 2000. The current throughput of the assets is approximately 240 million cubic feet per day with an approximate capacity of 375 million cubic feet per day. Production of natural gas liquids from the assets averages 25,000 barrels per day. In July 2000, the Company received approval of the acquisition from the KCC for transfer of the portion of these assets located in Kansas. Approximately 75 employees have been added to the ONEOK workforce as part of the acquisition. The majority of these employees are in field operations in Western Oklahoma, the Texas panhandle and Southern Kansas. Southwest Gas Corporation On January 18, 2000, the Company received a letter from Michael O. Maffie, President and Chief Executive Officer of Southwest, taking the position that the Company had breached the merger agreement entered into between the Company and Southwest and demanding that the breach be cured. On January 20, 2000, the Board of Directors of the Company voted unanimously to terminate the merger agreement in accordance with the terms of the merger agreement. On January 21, 2000, a letter was sent to Southwest denying that the Company was in breach of the merger agreement and advising Southwest of the Company's election to terminate the merger agreement. On the same date, the Company filed a complaint in Federal District Court in Tulsa, Oklahoma asking the court to declare that under the terms of the merger agreement, the Company has properly terminated the merger agreement. On the same date, the Company advised the Arizona Corporation Commission (ACC) of the termination of the merger agreement and gave notice the Company withdrew the Application asking for authorization to implement the merger agreement. On January 25, 2000, Southwest filed an objection that the Company could not unilaterally withdraw a joint application. On February 4, 2000, the Hearing Officer granted the withdrawal and closed the docket. On January 24, 2000, in reaction to the notice of termination of the merger agreement, Southwest filed a complaint against the Company and Southern Union in the United States District Court in Arizona. In the complaint, Southwest alleges, among other things, that the Company failed to disclose to Southwest that the Company had purportedly participated in improper lobbying efforts allegedly involving a state regulatory official for the purpose of influencing state utility regulators to oppose Southern Union's attempt to acquire Southwest and inducing Southwest to enter into the merger agreement with the Company instead of accepting Southern Union's acquisition proposal. The complaint also alleges that the Company failed to use commercially reasonable efforts to obtain all necessary governmental authorization for the planned merger with Southwest by failing to remedy alleged improper conduct and by failing to make truthful disclosure of such purportedly improper lobbying and relationships to the ACC. The complaint further alleges that, because of the Company's alleged breach of the merger agreement, the Company was contractually unable to terminate the merger agreement and that the 16
Company's notice of termination of the agreement was therefore wrongful. The complaint uses these allegations as a basis for causes of action for fraud in the inducement, fraud, breach of contract, breach of implied covenant of good faith and fair dealing, and declaratory relief. Southwest seeks actual, consequential, incidental and punitive damages in an amount in excess of $75,000 and a declaration that the Company has breached the merger agreement. On February 3, 2000, two substantially identical derivative actions were filed in the District Court in Tulsa, Oklahoma by shareholders against the members of the Board of Directors of the Company for alleged violation of their fiduciary duties to the Company by causing or allowing the Company to engage in certain fraudulent and improper schemes relating to the planned merger with Southwest. In June 2000, these cases were consolidated into one case. Such conduct allegedly caused the Company to be sued by both Southwest and Southern Union which exposed the Company to millions of dollars in liabilities. The plaintiffs seek an award of compensatory and punitive damages and costs, disbursements and reasonable attorney fees. It is anticipated that Southern Union and Southwest will continue their litigation against the Company. If any of the plaintiffs should be successful in any of their claims against the Company and substantial damages are awarded, it could have a material adverse effect on the Company's operations, cash flow and financial position. The Company intends to vigorously defend against the claims asserted by Southern Union and Southwest and all other matters relating to the now terminated merger with Southwest. The Company charged $9.5 million of previously deferred transaction and ongoing litigation costs to Other income and expense during the first half of 2000. B. Results of Operations Consolidated Operations The Company is a diversified energy company whose objective has been to maximize value for shareholders by vertically integrating its business operations from the wellhead to the burner tip. This strategy has focused on acquiring assets that provide synergistic trading and marketing opportunities all along the natural gas energy chain. Products and services are provided to its customers through the following segments: . Marketing . Gathering and Processing . Transportation and Storage . Distribution . Production . Other 17
<TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) <S> <C> <C> <C> <C> Financial Results Operating revenues $ 1,387,130 $ 390,323 $ 2,211,079 $ 937,494 Coast of gas 1,020,233 239,194 1,578,529 570,265 - ------------------------------------------------------------------------------------------------------------------------------ Net revenue 366,897 151,129 632,550 367,229 Operating costs 252,104 89,746 376,373 161,292 Depreciation, depletion, and amortization 37,161 34,168 71,488 66,260 - ------------------------------------------------------------------------------------------------------------------------------ Operating income $ 77,632 $ 27,215 $ 184,689 $ 139,677 ============================================================================================================================== Other income and (expenses) $ (2,517) $ - $ 11,764 $ - ============================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------ Cumulative effect of a change in accounting principle $ - $ - $ 3,449 $ - Income tax - - 1,334 - - ------------------------------------------------------------------------------------------------------------------------------ Cumulative effect of a change in accounting principle, net of tax $ - $ - $ 2,115 $ - ============================================================================================================================== </TABLE> The acquisition of certain assets of KMI and Dynegy and the integration of these operations had a significant impact on the financial results for the three and six month periods ended June 30, 2000. Net revenue increased $215.8 million and $265.3 million for the three and six months ended June 30, 2000, respectively. Operating income for the three and six months ended June 30, 2000 increased $50.4 million and $45.0 million, respectively, as compared to the same periods in 1999. The majority of this increase is due to the acquisitions that occurred in late March and early April 2000 and the gain on marking energy contracts to market. The increase in operating costs for the three and six months ended June 30, 2000, as compared to the year ago periods, is primarily due to increased employee costs resulting from the acquisitions. The $26.7 million gain on the sale of the Company's interest in the Indian Basin Gas Processing Plant is included in Other income and expenses for the six month period ended June 30, 2000. Other income and expenses also includes a contribution to the ONEOK Foundation of $5.0 million and the write-off of $9.5 million of previously deferred transaction and ongoing litigation costs associated with the terminated acquisition of Southwest. Marketing The Company continues to develop new market areas by arbitraging storage in the day trading market rather than focusing on the baseload market. With the completion of the acquisition of KMI's marketing and trading operation in April 2000, the Company's marketing operation purchases, stores and markets natural gas at both the retail and wholesale level in 25 states. The Marketing segment expanded its midcontinent presence through this acquisition. This expansion includes both firm transport capacity and storage capacity. The transport capacity of 1 Bcf per day, allows for trade from the California border, throughout the Rockies, to the Chicago city gate. The increased storage capacity, now 63 Bcf, gives the Company direct access to all parts of the country. The withdrawal capability of 2 Bcf per day and injection of 1.1 Bcf per day allows the Company great flexibility in capturing the volatility in the energy markets. 18
<TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> <C> <C> Financial Results Gas sales $1,007,276 $193,389 $1,455,915 $382,484 Cost of gas 978,143 186,910 1,411,173 364,999 - -------------------------------------------------------------------------------------------------------------------------------- Gross margin on gas sales 29,133 6,479 44,742 17,485 Other revenues 777 172 978 263 - -------------------------------------------------------------------------------------------------------------------------------- Net revenues 29,910 6,651 45,720 17,748 Operating costs 4,161 2,501 6,700 4,517 Depreciation, depletion, and amortization 314 150 505 301 - -------------------------------------------------------------------------------------------------------------------------------- Operating income $ 25,435 $ 4,000 $ 38,515 $ 12,930 ================================================================================================================================ Cumulative effect of a change in accounting principle, before tax $ - $ - $ 3,449 $ - ================================================================================================================================ </TABLE> <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Information Natural gas volumes (MMcf) 273,222 100,573 435,415 198,646 Capital expenditures, including acquisitions (Thousands) $ 10,183 $ 10 $ 19,683 $ 149 Total assets (Thousands) - - $1,814,099 $172,428 ---------------------------------------------------------------------------------------------------------------------- </TABLE> Net revenues and operating income for the three and six months ended June 30, 2000, as compared with the corresponding previous periods, increased primarily due to the acquisition of KMI's marketing and trading operation, the gain resulting from marking energy contracts to market, increased optionality on storage and increased storage demand fees. In prior years, energy contracts were accounted for under the accrual method of accounting, therefore, gains and losses were recognized as the contracts settled. The Company's strategy is to continue to grow by acquiring assets that enhance the interconnectivity and marketing arbitrage capability. Operating costs for the three and six months ended June 30, 2000, as compared to the corresponding previous period, increased primarily as a result of increased personnel resulting from the acquisition of KMI's marketing and trading operation. The increase in volumes sold for the three and six months ended June 30, 2000, as compared to the prior year, is primarily due to the acquisition of KMI's marketing and trading operation. Total assets increased as compared to the prior year primarily due to the price risk management assets and an increase in accounts receivable. Trading of electricity, at market-based wholesale rates, began in early 1999 but has had minimal impact on operations to date. Capital expenditures of $10.2 million and $19.7 million for the three and six month periods ended June 30, 2000, relates to the construction of a 300-megawatt gas-fired electric generating plant. The plant is expected to be in service in June, 2001. The Company signed a definitive agreement with a third party for a 15-year term providing for the purchase of about 25 percent of the plant's generating capacity. Gathering and Processing Acquisitions of gas processing plants from Dynegy and KMI in March and April 2000, respectively, increased the number of wholly-owned gas processing plants by 14 and gave the Gathering and Processing segment an interest in two additional plants while increasing the percentage in another plant. These plants increased the Company's capacity by 1.63 billion cubic feet per day. 19
<TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> <C> <C> Financial Results Natural gas liquids and condensate sales $109,159 $17,165 $145,084 $23,472 Gas sales 90,777 5,841 116,698 8,773 Gathering revenues 11,759 3,136 16,880 3,136 Other revenues 11,266 140 12,744 5 ------------------------------------------------------------------------------------------------------------------------- Total revenues 222,961 26,282 291,406 35,386 Cost of sales 161,972 14,759 217,241 20,548 ------------------------------------------------------------------------------------------------------------------------- Gross margin 60,989 11,523 74,165 14,838 Operating costs 24,980 3,191 28,643 4,722 Depreciation, depletion, and amortization 6,402 1,334 8,691 1,693 ------------------------------------------------------------------------------------------------------------------------- Operating income $ 29,607 $ 6,998 $ 36,831 $ 8,423 ========================================================================================================================= Other income and expenses, net $ - $ - $ 26,585 $ - ========================================================================================================================= </TABLE> Revenues increased for the three and six month periods ended June 30, 2000, compared to the corresponding year ago periods, as a result of acquisitions of gathering and processing assets in March and April 2000. The Koch acquisition in June of 1999 also contributed to increased revenues for the three and six month periods ended June 30, 2000. Operating costs and depreciation also increased as a result of the acquisitions. The operating results from the new acquisitions more than offset the impact on operations associated with the sale of the Indian Basin plant in March 2000. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Information Average NGL price ($/Gal) $ 0.433 $ 0.281 $0.431 $0.255 Average gas price ($/Mcf) $ 2.69 $ 2.07 $2.58 $1.99 Capital expenditures, $ 298,321 $286,595 $ 601,652 $287,383 including acquisitions (Thousands) Total assets (Thousands) - - $1,003,288 $360,032 Total gas gathered (Mcf/D) 1,457,247 529,313 973,279 332,519 Total gas processed (Mcf/D) 1,350,937 402,988 880,373 262,757 Natural gas liquids sales (MGal) 250,246 54,151 352,194 83,890 Gas sales (MMcf) 33,133 2,673 44,581 4,259 Natural Gas Liquids by Component (%) Ethane 39 48 43 49 Propane 32 25 30 25 Iso butane 5 5 5 4 Normal butane 12 10 11 10 Natural gasoline 12 12 11 12 </TABLE> NGL and natural gas prices have been strong during the first half of 2000 and are expected to remain strong for the remainder of the year. The Company uses derivative instruments to reduce the volatility in prices. Transportation and Storage The transportation and storage segment represents the Company's intrastate transmission pipelines and natural gas 20
storage facilities. The Company has five storage facilities in Oklahoma, two in Kansas and three in Texas with a combined working capacity of approximately 60 Bcf. The Company's intrastate transmission pipelines operate in Oklahoma, Kansas and Texas and are regulated by the Oklahoma Corporation Commission (OCC), Kansas Corporation Commission (KCC), and Texas Railroad Commission (TRC), respectively. The acquisition of transmission pipelines and storage fields from KMI was completed in April 2000. This acquisition increased transportation capacity by 57 percent, miles of transmission pipeline by 95 percent, and Company-owned storage capacity by 23 percent. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> <C> <C> Financial Results Gas sales $12,295 $ - $12,295 $ - Cost of gas 7,687 - 7,687 - ------------------------------------------------------------------------------------------------------------------- Gross margin on gas sales 4,608 - 4,608 - ------------------------------------------------------------------------------------------------------------------- Transportation revenues 21,225 18,038 36,115 36,135 Storage revenues 4,936 7,095 12,722 13,482 Other revenues 8,743 2,127 15,489 4,307 ------------------------------------------------------------------------------------------------------------------- Net revenues 39,512 27,260 68,934 53,924 Operating costs 17,188 9,206 28,607 15,954 Depreciation, depletion, and amortization 5,004 3,419 9,197 6,834 ------------------------------------------------------------------------------------------------------------------- Operating income $17,320 $14,635 $31,130 $31,136 =================================================================================================================== </TABLE> <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Information Volumes transported (MMcf) 132,588 87,855 235,510 192,783 Capital expenditures, $191,866 $10,688 $204,523 $ 16,955 including acquisitions (Thousands) Total assets (Thousands) - - $615,738 $361,354 ------------------------------------------------------------------------------------------------------------------- </TABLE> The acquisition of the Texas assets from KMI led to the Transportation and Storage segment generating gross margin on gas sales due to merchant gas sales by ONEOK WesTex Transmission, Inc. Transportation revenues increased for the three months ended June 30, 2000, as compared to the year ago period, due to the increased volumes transported resulting from acquisitions. This increase was partially offset by reduced tariff rates charged to the affiliated Distribution segment. Storage revenues decreased due to decreased storage activity from the Distribution segment and third parties for the three and six month periods ended June 30, 2000 as compared to the year ago periods. The decrease in storage activity during the second quarter of 2000 is a result of high gas prices that have prevailed throughout the spring months and are expected to remain high. Accordingly, customers are not buying and storing gas at the high prices. Other revenues increased during the three and six month periods ended June 30, 2000, as compared to the year ago periods, due to increased retained fuel. Operating costs and depreciation, depletion and amortization increased for the three and six months ended June 30, 2000, as compared to the corresponding year ago periods, due to the acquisitions. The Company received a final order from the OCC (the Order) in the second quarter of 2000 that separated the distribution assets of ONG and the transmission and storage assets of ONEOK Gas Transportation, L. L. C, (OGT) and related affiliates into two separate public utilities, adjusted rates for the removal of the gathering, transmission 21
and storage assets, approved a tariff between OGT and ONG for transportation services and established a competitive bid process. Through the competitive bid process, OGT retained approximately 98 percent of ONG's upstream transportation requirements which was included in the Order. Distribution The Distribution segment provides natural gas distribution services in Oklahoma and Kansas. The Company's operations in Oklahoma are primarily conducted through ONG which serves residential, commercial, and industrial customers and leases pipeline capacity. The Company's operations in Kansas are conducted through KGS which serves residential, commercial, and industrial customers. The Distribution segment serves about 80 percent of Oklahoma and about 67 percent of Kansas. ONG is subject to regulatory oversight by the OCC. KGS is subject to regulatory oversight by the KCC. The Order received in May 2000, provided for a $20 million net revenue reduction in rates which will be offset by an annual reduction in depreciation expense of $11.4 million. Pursuant to the Order, the Oklahoma assets and customers of KGS were transferred to ONG. The Order also adjusted rates for the removal of the gathering and storage assets no longer included in base rates and provided for the recovery of gas purchase, operations and maintenance expenses and line losses through a rider rather than base rates. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) <S> <C> <C> <C> <C> Financial Results Gas sales $172,416 $146,622 $530,106 $489,548 Cost of gas 113,176 89,337 353,135 299,503 ---------------------------------------------------------------------------------------------------------------------- Gross margin on gas sales 59,240 57,285 176,971 190,045 PCL and ECT revenues 11,720 11,969 30,571 30,054 Other revenues 4,551 5,946 8,632 10,346 ---------------------------------------------------------------------------------------------------------------------- Net revenues 75,511 75,200 216,174 230,445 Operating costs 56,417 60,126 111,403 115,510 Depreciation, depletion, and amortization 16,802 19,103 35,373 38,961 ---------------------------------------------------------------------------------------------------------------------- Operating income $ 2,292 $ (4,029) $ 69,398 $ 75,974 ====================================================================================================================== </TABLE> Gross margin for the three months ended June 30, 2000, as compared to the year ago period, increased as a result of decreased transportation costs paid to an affiliate. Operating costs for the three months ended June 30, 2000, compared to the year ago period, decreased due to operational efficiencies gained and reduced personnel through attrition. The decrease in depreciation, depletion and amortization for the first half of 2000 as compared to the first half of 1999 is due to the rate order granted in May 2000 which reduced depreciation expense by $11.4 million annually for Oklahoma assets and the transfer of certain transportation assets from the Distribution segment to the Transportation and Storage segment. Under the Order, the previous average life of certain assets was extended. Gross margin on gas sales decreased for the six months ended June 30, 2000, as compared to the corresponding previous period, as a result of warmer weather, primarily in Kansas during the first quarter of 2000, the interim rate reduction in Oklahoma and the impact of unbundling. The decrease in operating costs for the six months ended June 30, 2000, as compared to the corresponding previous period, is primarily due to reduced personnel resulting from attrition. 22
As evidenced above, the Distribution segment continues its strategy of increased operational efficiency while maintaining quality customer service resulting in reductions in labor expenses and other operating efficiencies. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Gross Margin per Mcf Oklahoma Residential $ 4.54 $ 5.00 $ 2.50 $ 2.72 Commercial $ 2.60 $ 2.89 $ 2.23 $ 2.31 Industrial $ 0.96 $ 1.06 $ 1.20 $ 1.21 Pipeline capacity leases $ 0.25 $ 0.25 $ 0.26 $ 0.26 Kansas Residential $ 3.17 $ 2.88 $ 2.25 $ 2.16 Commercial $ 2.33 $ 2.09 $ 1.82 $ 1.73 Industrial $ 1.97 $ 2.34 $ 1.81 $ 2.04 End-use customer transportation $ 0.51 $ 0.46 $ 0.62 $ 0.53 ------------------------------------------------------------------------------------------------ </TABLE> <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Operating Information Number of customers 1,431,406 1,421,712 1,436,932 1,424,967 Capital expenditures including acquisitions (Thousands) $ 27,306 $ 33,503 $ 53,680 $ 55,469 Total assets (Thousands) - - $1,633,375 $1,728,527 Customers per employee 554 530 553 532 ------------------------------------------------------------------------------------------------------ </TABLE> <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Volumes (MMcf) Gas sales Residential 14,242 15,491 65,631 69,796 Commercial 5,486 6,249 24,294 27,160 Industrial 930 1,132 3,012 3,273 ------------------------------------------------------------------------------------------------ Total volumes sold 20,658 22,872 92,937 100,229 PCL and ECT 47,872 48,328 99,775 103,439 ------------------------------------------------------------------------------------------------ Total volumes delivered 68,530 71,200 192,712 203,668 ================================================================================================ </TABLE> Certain costs to be recovered through the rate making process have been recorded as regulatory assets in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation". As services continue to unbundle, certain of these assets may no longer meet the criteria of a regulatory asset, and accordingly, a write-off of regulatory assets and stranded costs may be required. The Company's most recent Order did not change the recoverability of regulatory assets. The Order allows the Company to recover transition costs due to unbundling and allows an initial annual recovery of $1.8 million which will be updated annually. Accordingly, the Company does not anticipate that write-off of costs, if any, will be material. 23
Production <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) <S> <C> <C> <C> <C> Financial Results Natural gas sales $15,489 $16,680 $31,665 $33,088 Oil sales 1,762 1,866 4,174 3,155 Other revenues 1,218 1,350 2,468 2,956 ------------------------------------------------------------------------------------------------------------------ Net revenues 18,469 19,896 38,307 39,199 Operating costs 5,879 4,901 11,525 9,892 Depreciation, depletion, and amortization 7,990 9,595 16,452 18,082 ------------------------------------------------------------------------------------------------------------------ Operating income $ 4,600 $ 5,400 $10,330 $11,225 ================================================================================================================== Other income and expenses, net $ 193 $ - $ 360 $ - ================================================================================================================== </TABLE> Oil and gas prices have been strong during fiscal 2000; however, the Company hedged the majority of its production through December 2000. For the three and six month periods ended June 30, 2000, as compared to the year ago period, the increase in prices, net of hedging activities, has been offset by the decrease in production. During the first six months of 2000, the Production segment added 17.5 Bcfe of reserves and produced 15.2 Bcfe. Although, replacements exceeded production, 6.2 Bfce of replacements are proved undeveloped and behind pipe. Operating costs for the three and six month periods ended June 30, 2000, compared to the corresponding previous period, increased primarily as a result of increased production taxes resulting from higher oil and gas prices which are calculated on wellhead price rather than hedged price. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Information Proved reserves Gas (MMcf) - - 242,530 244,444 Oil (MBbls) - - 3,977 4,014 Production Gas (MMcf) 6,893 7,826 13,868 15,471 Oil (MBbls) 98 123 226 246 Average realized price Gas (MMcf) $ 2.25 $ 2.13 $ 2.28 $ 2.14 Oil (MBbls) $ 17.94 $15.16 $ 18.44 $ 12.82 Capital expenditures, including acquisitions (Thousands) $10,014 $4,365 $ 19,378 $ 51,847 Total assets (Thousands) - - $352,681 $361,762 --------------------------------------------------------------------------------------------------------------- </TABLE> C. Financial Flexibility and Liquidity The Company's capitalization structure is 42 percent equity and 58 percent debt (including short-term debt) at June 30, 2000, compared to 48 percent equity and 52 percent debt at December 31, 1999. Cash provided by operating activities continues as the primary source for meeting day-to-day cash requirements. However, due to seasonal fluctuations, acquisitions, and additional capital requirements, the Company accesses funds through commercial paper, and short- term credit agreements and, if necessary, through long-term borrowing. 24
Operating cash flows for the six months ended June 30, 2000, as compared to the same period one year ago, are slightly higher primarily due to changes in working capital. Competition continues to increase in all segments of the Company's business. The loss of major customers without recoupment of those revenues and negative effects of weather are among the events which could have a material adverse effect on the Company's financial condition. However, strategies such as the use of derivative instruments to offset the effect of weather variances, aggressive negotiations with potential new customers and increased use of storage in the day trading market are expected to reduce other risks to the Company. Additionally, rates in the Distribution segment are structured to reduce the Company's risk in serving its large customers. Capital expenditures, including acquisitions, totaled $910.3 million for the six months ended June 30, 2000. This included $19.7 million for construction of an electric generating plant and $460.5 million for assets purchased from KMI and Dynegy. For the same period one year ago, capital expenditures, including acquisitions, totaled $414.2 million including $44.1 million for the purchase of production assets. At June 30, 2000, $1.4 billion of long-term debt was outstanding. As of that date, the Company could have issued $864.2 million of additional long-term debt under the most restrictive provisions contained in its various borrowing agreements. The Company issued $240 million of two-year floating rate notes in April 2000. The interest rate for these notes will reset quarterly at a 0.65 percent spread over the three month London InterBank Offered Rate (LIBOR). The proceeds from the notes were used to fund acquisitions. In March 2000, the Company issued $350 million of five year, 7.75 percent, fixed rate notes to refinance short term debt and finance acquisitions. In June 2000, the Company entered into an $800 million 364-day Revolving Credit Facility with Bank of America, N.A. and other financial institutions with a maturity date of June 30, 2001. This credit facility replaces the previously existing $600 million Revolving Credit Facility dated July 2, 1999, with a maturity date of June 30, 2000 and the $200 million Revolving Credit Facility entered into in March 2000 that was terminated on June 1, 2000. At June 30, 2000, $247 million was outstanding under the commercial paper facility. On April 20, 2000, the Board of Directors of the Company renewed the authorized stock buyback plan for up to 15 percent of its capital stock for an additional year. The program authorizes the Company to make purchases of its common stock on the open market with the timing and terms of purchases and the number of shares purchased to be determined by management based on market conditions and other factors. Purchases began in May 1999. Through June 30, 2000, 2,562,958 shares had been purchased. The purchased shares are held in treasury and are available for general corporate purposes, funding of stock-based compensation plans, resale, or retirement. Through June 30, 2000, shares reissued for compensation and benefit plans totaled 164,434. Purchases are financed with short-term debt. The Company believes that internally generated funds and access to financial markets will be sufficient to meet its normal debt services, dividend requirements, and capital expenditures. D. New Accounting Pronouncements Statement of Financial Accounting Standards No. 133, Accounting for Derivatives Instruments and Hedging Activities (Statement 133), was issued by the Financial Accounting Standards Board (FASB) in June, 1998. Statement 133 standardizes the accounting for derivatives instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair values, cash flows, or foreign currencies. If the hedge exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged exposure is a cash flow exposure, 25
the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss is reported in earnings immediately. Statement 133 was amended by Statement of Financial Accounting Standards No. 137 in June, 1999 which delayed implementation until fiscal years beginning after June 15, 2000, with early adoption permitted. Statement 133 was amended again by Statement of Financial Accounting Standards No. 138 in June 2000 which amends the accounting and reporting standards of Statement 133 for certain derivative instruments and certain hedging activities. Statement 138 also amends Statement 133 for decisions made by the FASB relating to the Derivatives Implementation Group process. The Company has not determined the impact of adopting Statement 133. In July 2000, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 00-17, "Measuring the Fair Value of Energy-Related Contracts in Applying EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" (EITF 00-17). EITF 00-17 is effective for the Company's third quarter of 2000 and requires companies engaging in an arbitrage strategy to value each energy trading contract separately rather than link the contracts. Management believes that the impact of adopting EITF 00-17 will be immaterial to the financial statements. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Risk Management - The Company, substantially through its nonutility segments, is exposed to market risk in the normal course of its business operations through the impact of market fluctuations in the price of natural gas and oil. Market risk refers to the risk of loss in cash flows and future earnings arising from adverse changes in commodity energy prices. The Company's primary exposure arises from fixed price purchase or sale agreements which extend for periods of up to 48 months, gas in storage inventories utilized by the gas marketing operation, and anticipated sales of oil and gas production and natural gas liquids. To a lesser extent, the Company is exposed to risk of changing prices or the cost of intervening transportation resulting from purchasing gas at one location and selling it at another (hereinafter referred to as basis risk). To minimize the risk from market fluctuations in the price of natural gas and oil, the Company uses commodity derivative instruments such as futures contracts, swaps and options to hedge existing or anticipated purchase and sale agreements, existing physical gas in storage, and basis risk. None of these derivatives are held for speculative purposes. The Company adheres to policies and procedures which limit its exposure to market risk from open positions and monitors its exposure to market risk. The results of the Company's derivative hedging activities continue to meet its stated objective. The Company's regulated distribution operations are exposed to market risk in the normal course of business operations due to the impact of fluctuations on gas sales resulting from weather as measured by heating degree days (HDD). Market risk refers to the risk of loss in cash flows and future earnings arising from adverse fluctuation in gross margins on gas sales. To minimize the impact of weather on operations, the Company uses weather derivative swaps to manage the risk of fluctuations in HDD during the heating season. Under the weather derivative swap agreements, the Company receives a fixed payment per degree day below the contracted normal HDD and pays a fixed amount per degree day above the contracted normal HDD. The swaps also contain a contract cap that limits the amount either party is required to pay. There are no HDD swaps outstanding at June 30, 2000. KGS uses derivative instruments to hedge the cost of some anticipated gas purchases during the winter heating months to protect their customers from upward volatility in the market price of natural gas. The gain or loss resulting from such derivatives is combined with the physical cost of gas and recovered from the customer through the gas purchase clause in rates. The Company has no market risk associated with such activities and, accordingly, these derivatives have been omitted from the value-at-risk disclosures below. 26
Interest Rate Risk - The Company is subject to the risk of fluctuating interest rates in the normal course of business. The Company manages interest rate risk through the use of fixed rate debt, floating rate debt and interest rate swaps. As of June 30, 2000 and December 31, 1999, a hypothetical 10 percent change in market interest rates would result in an annual $3.8 and $2.1 million change in interest costs related to short-term and floating rate debt including the interest rate swaps, respectively, based on principal balances outstanding at these dates. Value-at-Risk Disclosure of Market Risk - The Company measures market risk in its price risk management portfolios using value at risk. The quantification of market risk, using value at risk, provides a consistent measure of risk across energy markets and products with different risk factors in order to set overall risk tolerance and risk targets. The use of this methodology requires a number of key assumptions. The Company relies on value at risk to determine the potential reduction in the price risk management portfolio value arising from changes in market conditions. At June 30, 2000, the Company's estimated potential one-day favorable or unfavorable impact on future earnings, as measured by the VAR, using a 95 percent confidence level, diversified correlation and assuming three days to liquidate positions is immaterial. The Company's calculated VAR exposure represents an estimate of potential losses that would be recognized for its portfolio of derivative financial instruments and firm physical contracts and gas-in-storage assuming hypothetical movements in future market rates and are not necessarily indicative of actual results that may occur. It does not represent the maximum possible loss nor any expected loss that may occur, because actual future gains and losses will differ from those estimated, based on actual fluctuations in the market rates, operating exposures, and the timing thereof, and changes in the Company's portfolio of derivative financial instruments and firm physical contracts. 27
PART II - OTHER INFORMATION Item 1. Legal Proceedings Southern Union Company v. Southwest Gas Corporation, et al., No. CIV 99 1294 PHX ROS, United States District Court for the District of Arizona ("the Court"). The Company and the other defendants filed motions to dismiss the amended complaint on December 6, 1999. A portion of the motions were heard by the Court on August 4, 2000. On May 30, 2000 Southern Union filed a dismissal with prejudice of its claims against Larry Brummett. Southern Union filed its Second Amended Complaint on August 3, 2000. On August 4, 2000, the Court granted Southern Union's motion to dismiss without prejudice its federal and state Racketeer Influenced and Corrupt Organizations claims against the ONEOK officers. Joint Application of Oklahoma Natural Gas Company, a Division of ONEOK, Inc., ONEOK Gas Transportation Company, a Division of ONEOK, Inc., and Kansas Gas Service Company, a Division of ONEOK, Inc., for Approval of Their Unbundling Plan for Natural Gas Services Upstream of the City Gates or Aggregation Points, Cause PUD No. 980000177 before the Oklahoma Corporation Commission. On July 10, 2000, the Company and counter-appellant, Octagon Resources, filed a Joint Motion to Dismiss the appeal pursuant to the stipulation of the parties to the Company's rate proceeding. The court issued an order dismissing the case on July 17, 2000. Application of Ernest G. Johnson, Director of the Public Utility Division, Oklahoma Corporation Commission, to Review the Rates, Charges, Services and Service Terms of Oklahoma Natural Gas Company, a division of ONEOK, Inc., and All Affiliated Companies and Any Affiliate or Nonaffiliate Transaction Relevant to Such Inquiry, Cause PUD No. 980000683, Oklahoma Corporation Commission. The Commission issued a final order concluding the case on May 30, 2000. The time for appeal has passed and the order is now final. In re: ONEOK, Inc. Derivative litigation f/k/a Gaetan Lavalla, Derivatively on Behalf of Nominal Defendant ONEOK, Inc. v. Larry W. Brummett, et al., District Court of Tulsa County, No. CJ-2000-598 and Hayward Lane, Derivatively on Behalf of Nominal Defendant ONEOK, Inc. v. Larry W. Brummett, et al., District Court of Tulsa County, No. CJ-2000-593. Counsel for the parties agreed to the terms of a motion which was subsequently granted and entered as an order by the Court on June 6, 2000, under which these cases have been consolidated into one case, and a schedule was established. The plaintiffs filed a consolidated amended petition on July 21, 2000, to which the defendants are to respond within 45 days. Brenda Morrison v. Chesapeake Panhandle Limited Partnership prior to merger known as MC Panhandle, Inc. and as Chesapeake Panhandle, Inc. and Chesapeake Operating, Inc., general partner of Chesapeake Panhandle Limited Partnership, Chesapeake Energy Corporation, Chesapeake Energy Marketing, Inc., Natural Gas Pipeline Company of America, Midcon Gas Services Corp., Midcon Gas Products Corp., Kinder Morgan, Inc. f/k/a KN Energy, Inc., ONEOK Texas Gas Marketing L.P. f/k/a KN Marketing, L.P. American Pipeline Company and Occidental Petroleum Corporation, 100th District Court, Carson County, Texas, Cause No. 8864. Certain royalty owners in this action are making claims for excessive and unreasonable gathering and transportation charges and are seeking class certification. Plaintiffs allege that several hundred royalty owners are members of the proposed class. Plaintiffs have not yet alleged specific dollar amounts of damages. 28
Switzer, et al., v. Chevron U.S.A., Inc., Dynegy Midstream Services, Ltd., and Dynegy Midstream, L.L.C., Case No. CIV-00-478-R, in the United States District Court for the Western District of Oklahoma. On March 8, 2000, plaintiffs filed a Complaint against Chevron U.S.A., Inc. ("Chevron") and Dynegy, Inc. On March 24, 2000, plaintiffs substituted Dynegy Midstream Services, Ltd. for Dynegy, Inc. as defendant. In a Second Amended Complaint filed April 7, 2000, plaintiffs added Dynegy Midstream, L.L.C. as a defendant. In connection with an acquisition between the Company, Dynegy, Inc. and certain of Dynegy's affiliates which closed March 22, 2000, the Company purchased all of the ownership units of Dynegy Midstream, L.L.C. The Second Amended Complaint seeks certification of a class of royalty owners in Chevron leases or units that produced gas processed in the Leedey Plant. The first cause of action is against Chevron for breach of contract for failure to properly compute and pay royalties. The second cause of action is against Chevron and the Dynegy defendants for an accounting and money damages for failure to properly account for all sales and purchases of hydrocarbons from the subject oil and gas leases. The third cause of action is for declaratory relief against all three defendants. On May 16, 2000, an Answer was filed on behalf of ONEOK Midstream, L.L.C. (formerly Dynegy Midstream, L.L.C.). Condemnation Actions. A subsidiary of the Company recently commenced condemnation actions against certain surface and mineral owners with expired or expiring leases relating to its Sayre storage facility. These cases are in their initial stages and there has been no evaluation at this time of any potential liability involved with these matters. Joseph H. Pool, et al., vs. Natural Gas Pipeline Company of America, MidCon Gas Services Corp., Chesapeake Panhandle Limited Partnership, MidCon Gas Products Corp., et al., 100th District Court, Moore County, Texas, Cause No. 98-50. Certain mineral owners filed litigation approximately two years ago against certain defendants seeking a declaration that their leases have expired and that defendants have converted gas from the premises for a value of not less than $3.4 million plus damages for defendants' bad faith trespassing and fraudulent conduct. Plaintiffs have recently added MidCon Gas Products Corp., predecessor by merger to ONEOK Field Services Holdings, Inc., as a defendant to this action. For additional information regarding the Company's legal proceedings, see the Company's Form 10-K for the period ended August 31, 1999, the Company's Form 10- Q for the period ended November 30, 1999, the Company's Form 10-Q for the transition period ended December 31, 1999 and the Company's Form 10-Q for the period ended March 31, 2000. 29
Item 6. Exhibits and Reports on Form 8-K and 8-K/A (A) Exhibits Incorporated by Reference Certificate of Incorporation of the Company, filed May 16, 1997 (Incorporated by reference from Exhibit 3.1 to Amendment No. 3 to the Company's Registration Statement on Form S-4 filed August 6, 1997). Certificate of Merger of the Company filed November 26, 1997 (Incorporated by reference from Exhibit (1)(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998). Amended Certificate of Incorporation of ONEOK, Inc., filed January 16, 1998 (Incorporated by reference from Exhibit (1)(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998). Certificate of Designation for Convertible Preferred Stock of WAI, Inc. (now ONEOK, Inc.) Filed November 26, 1997 (Incorporated by reference from Exhibit 3.3 to Amendment No. 3 to Registration Statement on Form S-4 filed August 31, 1997). Certificate of Designation for Series C Participating Preferred Stock of ONEOK, Inc. filed November 26, 1998 (Incorporated by reference from Exhibit No. 1 to Form 8-A filed November 26, 1997). Certificate of Merger of the Company filed April 3, 1998. Certificate of Merger of the Company filed April 28, 2000. By-laws of ONEOK, Inc., as amended (Incorporated by reference from Exhibit (3)(d) to the Company's Annual Report on Form 10-K for the year ended August 31, 1999. Sixth Supplemental Indenture dated March 1, 2000, between the Company and Chase Bank of Texas, National Association, incorporated by reference from Registration Statement on Form S-4 filed March 13, 2000. Registration Rights Agreement dated March 1, 2000 among the Company and the Initial Purchasers described therein, incorporated by reference from Registration Statement on Form S-4 filed March 13, 2000. Seventh Supplemental Indenture dated April 24, 2000, between the Company and Chase Bank of Texas, National Association, incorporated by reference from Form 8-K dated April 24, 2000. (B) Reports on Form 8-K and Form 8-K/A May 30, 2000 - Announced that construction began on an electricity generating plant. June 19, 2000 - Amended the 8-K filed April 6, 2000, announcing the closing of the acquisition of the businesses acquired from Kinder Morgan, Inc. June 19, 2000 - Amended the 8-K filed April 6, 2000, announcing the closing of the acquisition of the businesses acquired from Kinder Morgan, Inc. July 10, 2000 - Entered in an $800 million Revolving Credit Facility. 30
Signatures 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 11th day of August 2000. ONEOK, Inc. Registrant By: /s/ Jim Kneale ----------------------------------- Jim Kneale Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) 31