Summary
ONEOK, Inc. (OKE) reported significant year-over-year revenue growth for the first quarter of 2003, driven by a substantial increase in operating revenues excluding energy trading, up from $548.8 million to $949.6 million. This growth was bolstered by the acquisition of Southern Union Company's Texas distribution and other assets in January 2003 for approximately $420 million, which added approximately 535,000 customers. The company also benefited from a gain on the sale of a discontinued component of its Production segment, contributing $38.4 million. However, a notable impact on net income was a cumulative effect of accounting changes, resulting in a significant charge of $143.9 million (net of tax), primarily related to the rescission of EITF 98-10 for energy trading contracts. This led to a reported Net Income of $22.4 million for the quarter, down from $72.6 million in the prior year, and diluted EPS of $0.28 compared to $0.60. Despite the net income decline due to accounting adjustments, the core operational performance appears robust with strong revenue increases and strategic acquisitions aimed at expanding the distribution segment. The company's balance sheet reflects increased assets and liabilities, partly due to the Texas acquisition and financing activities. Cash flow from operations remains strong, though impacted by working capital changes. Investors should note the significant shifts in the company's capital structure, including equity offerings and preferred stock transactions, alongside the ongoing management of market and regulatory risks inherent in the energy sector.
Key Highlights
- 1Total revenues (excluding energy trading) increased significantly by 73.2% to $949.6 million for Q1 2003 compared to $548.8 million in Q1 2002, driven by acquisitions and higher commodity prices.
- 2Acquisition of Southern Union Company's Texas distribution assets for $420 million in January 2003, expanding the Distribution segment's customer base by approximately 535,000.
- 3A gain of $38.4 million (net of tax) was recognized from the sale of a portion of the Production segment's assets, classified as discontinued operations.
- 4A substantial cumulative effect of accounting changes of ($143.9 million) net of tax was recorded, primarily due to the rescission of EITF 98-10 for energy trading contracts, significantly impacting net income.
- 5Diluted Earnings Per Share (EPS) decreased to $0.28 from $0.60 year-over-year, largely due to the accounting charge and a larger number of shares outstanding after equity issuances.
- 6The company completed significant financing activities, including common stock and equity unit offerings totaling over $500 million in net proceeds, and repurchased $300 million of Series A Convertible Preferred Stock.
- 7Debt to capital ratio increased from 53% at year-end 2002 to 61% at March 31, 2003, primarily due to increased long-term debt, though equity financings also contributed to restructuring.