filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of ONEOK, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of ONEOK, Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and December 31, 2017, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Notes A and O to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2018.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Tulsa, OK
February 26, 2019
We have served as the Company’s auditor since 2007.
| ONEOK, Inc. and Subsidiaries | ||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (Thousands of dollars, except per share amounts) | ||||||||||||
| Revenues | ||||||||||||
| Commodity sales | $ | 11,395,642 | $ | 9,862,652 | $ | 6,858,456 | ||||||
| Services | 1,197,554 | 2,311,255 | 2,062,478 | |||||||||
| Total revenues | 12,593,196 | 12,173,907 | 8,920,934 | |||||||||
| Cost of sales and fuel (exclusive of items shown separately below) | 9,422,708 | 9,538,045 | 6,496,124 | |||||||||
| Operations and maintenance | 803,146 | 724,314 | 658,233 | |||||||||
| Depreciation and amortization | 428,557 | 406,335 | 391,585 | |||||||||
| Impairment of long-lived assets (Note D) | — | 15,970 | — | |||||||||
| General taxes | 103,922 | 98,396 | 88,849 | |||||||||
| Gain on sale of assets | (601 | ) | (924 | ) | (9,635 | ) | ||||||
| Operating income | 1,835,464 | 1,391,771 | 1,295,778 | |||||||||
| Equity in net earnings from investments (Note M) | 158,383 | 159,278 | 139,690 | |||||||||
| Impairment of equity investments (Note M) | — | (4,270 | ) | — | ||||||||
| Allowance for equity funds used during construction | 7,962 | 107 | 209 | |||||||||
| Other income | 674 | 15,385 | 6,091 | |||||||||
| Other expense | (14,928 | ) | (35,812 | ) | (14,161 | ) | ||||||
| Interest expense (net of capitalized interest of $28,062, $5,510 and $10,591, respectively) | (469,620 | ) | (485,658 | ) | (469,651 | ) | ||||||
| Income before income taxes | 1,517,935 | 1,040,801 | 957,956 | |||||||||
| Income taxes (Note L) | (362,903 | ) | (447,282 | ) | (212,406 | ) | ||||||
| Income from continuing operations | 1,155,032 | 593,519 | 745,550 | |||||||||
| Income (loss) from discontinued operations, net of tax | — | — | (2,051 | ) | ||||||||
| Net income | 1,155,032 | 593,519 | 743,499 | |||||||||
| Less: Net income attributable to noncontrolling interests | 3,329 | 205,678 | 391,460 | |||||||||
| Net income attributable to ONEOK | 1,151,703 | 387,841 | 352,039 | |||||||||
| Less: Preferred stock dividends | 1,100 | 767 | — | |||||||||
| Net income available to common shareholders | $ | 1,150,603 | $ | 387,074 | $ | 352,039 | ||||||
| Amounts available to common shareholders: | ||||||||||||
| Income from continuing operations | $ | 1,150,603 | $ | 387,074 | $ | 354,090 | ||||||
| Income (loss) from discontinued operations | — | — | (2,051 | ) | ||||||||
| Net income | $ | 1,150,603 | $ | 387,074 | $ | 352,039 | ||||||
| Basic earnings per common share: | ||||||||||||
| Income from continuing operations (Note I) | $ | 2.80 | $ | 1.30 | $ | 1.68 | ||||||
| Income (loss) from discontinued operations | — | — | (0.01 | ) | ||||||||
| Net income | $ | 2.80 | $ | 1.30 | $ | 1.67 | ||||||
| Diluted earnings per common share: | ||||||||||||
| Income from continuing operations (Note I) | $ | 2.78 | $ | 1.29 | $ | 1.67 | ||||||
| Income (loss) from discontinued operations | — | — | (0.01 | ) | ||||||||
| Net income | $ | 2.78 | $ | 1.29 | $ | 1.66 | ||||||
| Average shares (thousands) | ||||||||||||
| Basic | 411,485 | 297,477 | 211,128 | |||||||||
| Diluted | 414,195 | 299,780 | 212,383 |
See accompanying Notes to Consolidated Financial Statements.
| ONEOK, Inc. and Subsidiaries | ||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (Thousands of dollars) | ||||||||||||
| Net income | $ | 1,155,032 | $ | 593,519 | $ | 743,499 | ||||||
| Other comprehensive income (loss), net of tax | ||||||||||||
| Unrealized gains (losses) on derivatives, net of tax of $1,694, $19,006 and $5,452 respectively | (5,673 | ) | (21,408 | ) | (30,300 | ) | ||||||
| Realized (gains) losses on derivatives recognized in net income, net of tax of $(11,013), $(26,899) and $230, respectively | 36,870 | 63,687 | (6,977 | ) | ||||||||
| Change in pension and postretirement benefit plan liability, net of tax of $(1,425), $(878) and $11,128, respectively | 4,771 | (4,175 | ) | (16,693 | ) | |||||||
| Other comprehensive income (loss) on investments in unconsolidated affiliates, net of tax of $(724), $145 and $270, respectively | 2,424 | (970 | ) | (1,505 | ) | |||||||
| Total other comprehensive income (loss), net of tax | 38,392 | 37,134 | (55,475 | ) | ||||||||
| Comprehensive income | 1,193,424 | 630,653 | 688,024 | |||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 3,329 | 236,704 | 363,093 | |||||||||
| Comprehensive income attributable to ONEOK | $ | 1,190,095 | $ | 393,949 | $ | 324,931 |
See accompanying Notes to Consolidated Financial Statements.
| ONEOK, Inc. and Subsidiaries | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Assets | (Thousands of dollars) | |||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 11,975 | $ | 37,193 | ||||
| Accounts receivable, net | 818,958 | 1,202,951 | ||||||
| Materials and supplies | 141,174 | 90,301 | ||||||
| Natural gas and natural gas liquids in storage | 296,667 | 342,293 | ||||||
| Commodity imbalances | 29,050 | 38,712 | ||||||
| Other current assets | 100,808 | 53,008 | ||||||
| Total current assets | 1,398,632 | 1,764,458 | ||||||
| Property, plant and equipment | ||||||||
| Property, plant and equipment | 18,030,963 | 15,559,667 | ||||||
| Accumulated depreciation and amortization | 3,264,312 | 2,861,541 | ||||||
| Net property, plant and equipment (Note D) | 14,766,651 | 12,698,126 | ||||||
| Investments and other assets | ||||||||
| Investments in unconsolidated affiliates (Note M) | 969,150 | 1,003,156 | ||||||
| Goodwill and intangible assets (Note E) | 967,142 | 993,460 | ||||||
| Deferred income taxes (Note L) | — | 205,907 | ||||||
| Other assets | 130,096 | 180,830 | ||||||
| Total investments and other assets | 2,066,388 | 2,383,353 | ||||||
| Total assets | $ | 18,231,671 | $ | 16,845,937 |
| ONEOK, Inc. and Subsidiaries | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (Continued) | December 31, | December 31, | ||||||
| 2018 | 2017 | |||||||
| Liabilities and equity | (Thousands of dollars) | |||||||
| Current liabilities | ||||||||
| Current maturities of long-term debt (Note F) | $ | 507,650 | $ | 432,650 | ||||
| Short-term borrowings (Note F) | — | 614,673 | ||||||
| Accounts payable | 1,118,102 | 1,140,571 | ||||||
| Commodity imbalances | 110,197 | 164,161 | ||||||
| Accrued interest | 161,377 | 135,309 | ||||||
| Other current liabilities | 211,110 | 179,971 | ||||||
| Total current liabilities | 2,108,436 | 2,667,335 | ||||||
| Long-term debt, excluding current maturities (Note F) | 8,873,334 | 8,091,629 | ||||||
| Deferred credits and other liabilities | ||||||||
| Deferred income taxes (Note L) | 219,731 | 52,697 | ||||||
| Other deferred credits | 450,627 | 348,924 | ||||||
| Total deferred credits and other liabilities | 670,358 | 401,621 | ||||||
| Commitments and contingencies (Note N) | ||||||||
| Equity (Note G) | ||||||||
| ONEOK shareholders’ equity: | ||||||||
| Preferred stock, $0.01 par value: authorized and issued 20,000 shares at December 31, 2018, and at December 31, 2017 | — | — | ||||||
| Common stock, $0.01 par value: authorized 1,200,000,000 shares; issued 445,016,234 shares and outstanding 411,532,606 shares at December 31, 2018; issued 423,166,234 shares and outstanding 388,703,543 shares at December 31, 2017 | 4,450 | 4,232 | ||||||
| Paid-in capital | 7,615,138 | 6,588,878 | ||||||
| Accumulated other comprehensive loss (Note H) | (188,239 | ) | (188,530 | ) | ||||
| Retained earnings | — | — | ||||||
| Treasury stock, at cost: 33,483,628 shares at December 31, 2018, and 34,462,691 shares at December 31, 2017 | (851,806 | ) | (876,713 | ) | ||||
| Total ONEOK shareholders’ equity | 6,579,543 | 5,527,867 | ||||||
| Noncontrolling interests in consolidated subsidiaries | — | 157,485 | ||||||
| Total equity | 6,579,543 | 5,685,352 | ||||||
| Total liabilities and equity | $ | 18,231,671 | $ | 16,845,937 |
See accompanying Notes to Consolidated Financial Statements.
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| ONEOK, Inc. and Subsidiaries | ||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (Thousands of dollars) | ||||||||||||
| Operating activities | ||||||||||||
| Net income | $ | 1,155,032 | $ | 593,519 | $ | 743,499 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 428,557 | 406,335 | 391,585 | |||||||||
| Impairment charges | — | 20,240 | — | |||||||||
| Noncash contribution of preferred stock, net of tax | — | 12,600 | — | |||||||||
| Equity in net earnings from investments | (158,383 | ) | (159,278 | ) | (139,690 | ) | ||||||
| Distributions received from unconsolidated affiliates | 170,528 | 167,372 | 144,673 | |||||||||
| Deferred income taxes | 361,010 | 437,917 | 211,638 | |||||||||
| Share-based compensation expense | 31,664 | 26,262 | 40,563 | |||||||||
| Pension and postretirement benefit expense, net of contributions | 469 | 4,079 | 11,643 | |||||||||
| Allowance for equity funds used during construction | (7,962 | ) | (107 | ) | (209 | ) | ||||||
| Gain on sale of assets | (601 | ) | (924 | ) | (9,635 | ) | ||||||
| Changes in assets and liabilities: | ||||||||||||
| Accounts receivable | 383,993 | (330,521 | ) | (285,806 | ) | |||||||
| Natural gas and natural gas liquids in storage | 38,456 | (202,259 | ) | (11,950 | ) | |||||||
| Accounts payable | (320,132 | ) | 261,305 | 287,632 | ||||||||
| Commodity imbalances, net | (44,302 | ) | 43,699 | 45,971 | ||||||||
| Accrued interest | 26,068 | 22,795 | (16,529 | ) | ||||||||
| Risk-management assets and liabilities | 117,717 | 37,617 | (78,136 | ) | ||||||||
| Other assets and liabilities, net | 4,605 | (25,239 | ) | 17,971 | ||||||||
| Cash provided by operating activities | 2,186,719 | 1,315,412 | 1,353,220 | |||||||||
| Investing activities | ||||||||||||
| Capital expenditures (less allowance for equity funds used during construction) | (2,141,475 | ) | (512,393 | ) | (624,634 | ) | ||||||
| Contributions to unconsolidated affiliates | (1,748 | ) | (87,861 | ) | (68,275 | ) | ||||||
| Distributions received from unconsolidated affiliates in excess of cumulative earnings | 26,757 | 28,742 | 52,044 | |||||||||
| Proceeds from sale of assets | 1,578 | 3,879 | 25,420 | |||||||||
| Cash used in investing activities | (2,114,888 | ) | (567,633 | ) | (615,445 | ) | ||||||
| Financing activities | ||||||||||||
| Dividends paid | (1,335,058 | ) | (829,414 | ) | (517,601 | ) | ||||||
| Distributions to noncontrolling interests | (3,500 | ) | (276,260 | ) | (549,419 | ) | ||||||
| Borrowing (repayment) of short-term borrowings, net | (614,673 | ) | (495,604 | ) | 563,937 | |||||||
| Issuance of long-term debt, net of discounts | 1,795,773 | 1,190,496 | 1,000,000 | |||||||||
| Debt financing costs | (13,441 | ) | (11,425 | ) | (2,770 | ) | ||||||
| Repayment of long-term debt | (932,650 | ) | (994,776 | ) | (1,108,040 | ) | ||||||
| Issuance of common stock | 1,203,981 | 471,358 | 21,971 | |||||||||
| Acquisition of noncontrolling interests | (195,000 | ) | — | — | ||||||||
| Other, net | (2,481 | ) | (13,836 | ) | 5,403 | |||||||
| Cash used in financing activities | (97,049 | ) | (959,461 | ) | (586,519 | ) | ||||||
| Change in cash and cash equivalents | (25,218 | ) | (211,682 | ) | 151,256 | |||||||
| Cash and cash equivalents at beginning of period | 37,193 | 248,875 | 97,619 | |||||||||
| Cash and cash equivalents at end of period | $ | 11,975 | $ | 37,193 | $ | 248,875 | ||||||
| Supplemental cash flow information: | ||||||||||||
| Cash paid for interest, net of amounts capitalized | $ | 418,244 | $ | 432,210 | $ | 461,208 | ||||||
| Cash paid for income taxes | $ | 2,225 | $ | 6,633 | $ | 361 |
See accompanying Notes to Consolidated Financial Statements.
| ONEOK, Inc. and Subsidiaries | ||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||||||||
| ONEOK Shareholders’ Equity | ||||||||||||||||||
| Common Stock Issued | Preferred Stock Issued | Common Stock | Preferred Stock | Paid-in Capital | ||||||||||||||
| (Shares) | (Thousands of dollars) | |||||||||||||||||
| January 1, 2016 | 245,811,180 | — | $ | 2,458 | $ | — | $ | 1,378,444 | ||||||||||
| Net income | — | — | — | — | — | |||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | |||||||||||||
| Common stock issued | — | — | — | — | 2,331 | |||||||||||||
| Common stock dividends - $2.46 per share (Note G) | — | — | — | — | (165,562 | ) | ||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | |||||||||||||
| Other | — | — | — | — | 19,101 | |||||||||||||
| December 31, 2016 | 245,811,180 | — | 2,458 | — | 1,234,314 | |||||||||||||
| Cumulative effect adjustment for adoption of ASU 2016-09 | — | — | — | — | — | |||||||||||||
| Net income | — | — | — | — | — | |||||||||||||
| Other comprehensive income (loss) (Note H) | — | — | — | — | — | |||||||||||||
| Preferred stock issued | — | 20,000 | — | — | 20,000 | |||||||||||||
| Preferred stock dividends (Note G) | — | — | — | — | (767 | ) | ||||||||||||
| Common stock issued | 8,434,223 | — | 85 | — | 456,537 | |||||||||||||
| Common stock dividends - $2.72 per share (Note G) | — | — | — | — | (367,578 | ) | ||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | |||||||||||||
| Acquisition of ONEOK Partners’ noncontrolling interests (Note A) | 168,920,831 | — | 1,689 | — | 5,228,580 | |||||||||||||
| Other | — | — | — | — | 17,792 | |||||||||||||
| December 31, 2017 | 423,166,234 | 20,000 | 4,232 | — | 6,588,878 | |||||||||||||
| Cumulative effect adjustment for adoption of ASUs (Note A) | — | — | — | — | — | |||||||||||||
| Net income | — | — | — | — | — | |||||||||||||
| Other comprehensive income (loss) (Note H) | — | — | — | — | — | |||||||||||||
| Preferred stock dividends (Note G) | — | — | — | — | — | |||||||||||||
| Common stock issued | 21,850,000 | — | 218 | — | 1,183,321 | |||||||||||||
| Common stock dividends - $3.245 per share (Note G) | — | — | — | — | (144,805 | ) | ||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | |||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | |||||||||||||
| Acquisition of noncontrolling interests (Note G) | — | — | — | — | (21,220 | ) | ||||||||||||
| Other | — | — | — | — | 8,964 | |||||||||||||
| December 31, 2018 | 445,016,234 | 20,000 | $ | 4,450 | $ | — | $ | 7,615,138 |
| ONEOK, Inc. and Subsidiaries | ||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||||||||||
| (Continued) | ||||||||||||||||||||
| ONEOK Shareholders’ Equity | ||||||||||||||||||||
| Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Noncontrolling Interests in Consolidated Subsidiaries | Total Equity | ||||||||||||||||
| (Thousands of dollars) | ||||||||||||||||||||
| January 1, 2016 | $ | (127,242 | ) | $ | — | $ | (917,862 | ) | $ | 3,430,538 | $ | 3,766,336 | ||||||||
| Net income | — | 352,039 | — | 391,460 | 743,499 | |||||||||||||||
| Other comprehensive income (loss) | (27,108 | ) | — | — | (28,367 | ) | (55,475 | ) | ||||||||||||
| Common stock issued | — | — | 24,185 | — | 26,516 | |||||||||||||||
| Common stock dividends - $2.46 per share (Note G) | — | (352,039 | ) | — | — | (517,601 | ) | |||||||||||||
| Distributions to noncontrolling interests | — | — | — | (549,419 | ) | (549,419 | ) | |||||||||||||
| Other | — | — | — | (4,042 | ) | 15,059 | ||||||||||||||
| December 31, 2016 | (154,350 | ) | — | (893,677 | ) | 3,240,170 | 3,428,915 | |||||||||||||
| Cumulative effect adjustment for adoption of ASU 2016-09 | — | 73,368 | — | — | 73,368 | |||||||||||||||
| Net income | — | 387,841 | — | 205,678 | 593,519 | |||||||||||||||
| Other comprehensive income (loss) (Note H) | 6,108 | — | — | 31,026 | 37,134 | |||||||||||||||
| Preferred stock issued | — | — | — | — | 20,000 | |||||||||||||||
| Preferred stock dividends (Note G) | — | — | — | — | (767 | ) | ||||||||||||||
| Common stock issued | — | — | 16,964 | — | 473,586 | |||||||||||||||
| Common stock dividends - $2.72 per share (Note G) | — | (461,209 | ) | — | — | (828,787 | ) | |||||||||||||
| Distributions to noncontrolling interests | — | — | — | (276,260 | ) | (276,260 | ) | |||||||||||||
| Acquisition of ONEOK Partners’ noncontrolling interests (Note A) | (40,288 | ) | — | — | (3,043,519 | ) | 2,146,462 | |||||||||||||
| Other | — | — | — | 390 | 18,182 | |||||||||||||||
| December 31, 2017 | (188,530 | ) | — | (876,713 | ) | 157,485 | 5,685,352 | |||||||||||||
| Cumulative effect adjustment for adoption of ASUs (Note A) | (38,101 | ) | 39,803 | — | 17 | 1,719 | ||||||||||||||
| Net income | — | 1,151,703 | — | 3,329 | 1,155,032 | |||||||||||||||
| Other comprehensive income (loss) (Note H) | 38,392 | — | — | — | 38,392 | |||||||||||||||
| Preferred stock dividends (Note G) | — | (1,100 | ) | — | — | (1,100 | ) | |||||||||||||
| Common stock issued | — | — | 24,907 | — | 1,208,446 | |||||||||||||||
| Common stock dividends - $3.245 per share (Note G) | — | (1,190,406 | ) | — | — | (1,335,211 | ) | |||||||||||||
| Distributions to noncontrolling interests | — | — | — | (3,500 | ) | (3,500 | ) | |||||||||||||
| Contributions from noncontrolling interests | — | — | — | 16,449 | 16,449 | |||||||||||||||
| Acquisition of noncontrolling interests (Note G) | — | — | — | (173,780 | ) | (195,000 | ) | |||||||||||||
| Other | — | — | — | — | 8,964 | |||||||||||||||
| December 31, 2018 | $ | (188,239 | ) | $ | — | $ | (851,806 | ) | $ | — | $ | 6,579,543 |
See accompanying Notes to Consolidated Financial Statements.
ONEOK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| A. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization and Nature of Operations - We are a corporation incorporated under the laws of the state of Oklahoma, and our common stock is listed on the NYSE under the trading symbol “OKE.”
Our Natural Gas Gathering and Processing segment provides midstream services to producers in North Dakota, Montana, Wyoming, Kansas and Oklahoma. Raw natural gas is typically gathered at the wellhead, compressed and transported through pipelines to our processing facilities. Processed natural gas, usually referred to as residue natural gas, is then recompressed and delivered to natural gas pipelines, storage facilities and end users. The NGLs separated from the raw natural gas are delivered through natural gas liquids pipelines to fractionation facilities for further processing.
Our Natural Gas Liquids segment owns and operates facilities that gather, fractionate, treat and distribute NGLs and store NGL products, primarily in Oklahoma, Kansas, Texas, New Mexico and the Rocky Mountain region, which includes the Williston, Powder River and DJ Basins. We provide midstream services to producers of NGLs and deliver those products to the two primary market centers, one in the Mid-Continent in Conway, Kansas, and the other in the Gulf Coast in Mont Belvieu, Texas. The majority of the pipeline-connected natural gas processing plants in Oklahoma, Kansas, the Texas Panhandle and the Williston Basin are connected to our natural gas liquids gathering systems. We own or have an ownership interest in FERC-regulated natural gas liquids gathering and distribution pipelines in Oklahoma, Kansas, Texas, New Mexico, Montana, North Dakota, Wyoming and Colorado, and terminal and storage facilities in Missouri, Nebraska, Iowa and Illinois. We also own FERC-regulated natural gas liquids distribution and refined petroleum products pipelines in Kansas, Missouri, Nebraska, Iowa, Illinois and Indiana that connect our Mid-Continent assets with Midwest markets, including Chicago, Illinois.
Our Natural Gas Pipelines segment provides interstate and intrastate transportation and storage services to end users through its wholly owned assets and its 50 percent ownership interests in Northern Border Pipeline and Roadrunner. Our interstate pipelines are regulated by the FERC and are located in North Dakota, Minnesota, Wisconsin, Illinois, Indiana, Kentucky, Tennessee, Oklahoma, Texas and New Mexico. Our intrastate natural gas pipeline and storage assets are located in Oklahoma and Texas. Our assets connect major natural gas producing basins and market hubs with end-use customers.
Merger Transaction - On June 30, 2017, we completed the acquisition of all of the outstanding common units of ONEOK Partners that we did not already own at a fixed exchange ratio of 0.985 of a share of our common stock for each ONEOK Partners common unit. We issued 168.9 million shares of our common stock to third-party common unitholders of ONEOK Partners in exchange for all of the 171.5 million outstanding common units of ONEOK Partners that we previously did not own. As a result of the completion of the Merger Transaction, common units of ONEOK Partners are no longer publicly traded.
As we controlled ONEOK Partners and continue to control ONEOK Partners after the Merger Transaction, the change in our ownership interest was accounted for as an equity transaction, and no gain or loss was recognized in our Consolidated Statements of Income resulting from the Merger Transaction. The Merger Transaction was a taxable exchange to the ONEOK Partners unitholders resulting in a book/tax difference in the basis of the underlying assets acquired. We recorded a deferred tax asset of $2.1 billion, computed as the net of the equity value exchanged of $8.8 billion and noncontrolling interests of $3.0 billion at a tax rate of 37 percent, based on a tax allocation of the transaction value.
Prior to June 30, 2017, we and our subsidiaries owned all of the general partner interest, which included incentive distribution rights, and a portion of the limited partner interest, which together represented a 41.2 percent ownership interest in ONEOK Partners. The earnings of ONEOK Partners that are attributed to its units held by the public until June 30, 2017, are reported as “Net income attributable to noncontrolling interest” in our accompanying Consolidated Statements of Income. Our general partner incentive distribution rights effectively terminated at the closing of the Merger Transaction.
Effective with the close of the Merger Transaction, we, ONEOK Partners and the Intermediate Partnership issued, to the extent not already in place, guarantees of the indebtedness of ONEOK and ONEOK Partners.
Supplemental Cash Flow Information - Our noncash balance sheet activity at June 30, 2017, related to the Merger Transaction was as follows (in millions):
| Common stock | $ | 1.7 | ||
| Paid-in capital | $ | 5,228.6 | ||
| Accumulated other comprehensive loss | $ | (40.3 | ) | |
| Noncontrolling interests in consolidated subsidiaries | $ | (3,043.5 | ) | |
| Deferred income taxes | $ | (2,146.5 | ) |
Consolidation - Our Consolidated Financial Statements include our accounts and the accounts of our subsidiaries over which we have control or are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
Investments in unconsolidated affiliates are accounted for using the equity method if we have the ability to exercise significant influence over operating and financial policies of our investee. Under this method, an investment is carried at its acquisition cost and adjusted each period for contributions made, distributions received and our share of the investee’s comprehensive income. For the investments we account for under the equity method, the premium or excess cost over underlying fair value of net assets is referred to as equity-method goodwill. Impairment of equity investments is recorded when the impairments are other than temporary. These amounts are recorded as investments in unconsolidated affiliates on our accompanying Consolidated Balance Sheets. See Note M for disclosures of our unconsolidated affiliates.
Distributions paid to us from our unconsolidated affiliates are classified as operating activities on our Consolidated Statements of Cash Flows until the cumulative distributions exceed our proportionate share of income from the unconsolidated affiliate since the date of our initial investment. The amount of cumulative distributions paid to us that exceeds our cumulative proportionate share of income in each period represents a return of investment and is classified as an investing activity on our Consolidated Statements of Cash Flows.
Use of Estimates - The preparation of our Consolidated Financial Statements and related disclosures in accordance with GAAP requires us to make estimates and assumptions with respect to values or conditions that cannot be known with certainty that affect the reported amounts on our Consolidated Financial Statements. Items that may be estimated include, but are not limited to, the economic useful life of assets, fair value of assets, liabilities and equity-method investments, obligations under employee benefit plans, provisions for uncollectible accounts receivable, expenses for services received but for which no invoice has been received, provision for income taxes, including any deferred tax valuation allowances, the results of litigation and various other recorded or disclosed amounts. In addition, a portion of our revenues and cost of sales and fuel are recorded based on current month estimated volumes and prices. The estimates are reversed in the following month and recorded with actual volumes and prices.
We evaluate these estimates on an ongoing basis using historical experience, consultation with experts and other methods we consider reasonable based on the particular circumstances. Nevertheless, actual results may differ significantly from the estimates. Any effects on our financial position or results of operations from revisions to these estimates are recorded in the period when the facts that give rise to the revision become known.
Fair Value Measurements - For our fair value measurements, we utilize market prices, third-party pricing services, present value methods and standard option valuation models to determine the price we would receive from the sale of an asset or the transfer of a liability in an orderly transaction at the measurement date. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date.
While many of the contracts in our derivative portfolio are executed in liquid markets where price transparency exists, some contracts are executed in markets for which market prices may exist, but the market may be relatively inactive. This results in limited price transparency that requires management’s judgment and assumptions to estimate fair values. For certain transactions, we may utilize modeling techniques using NYMEX-settled pricing data and implied forward LIBOR curves. Inputs into our fair value estimates include commodity-exchange prices, data obtained from third-party pricing services, LIBOR and other liquid money-market instrument rates. Our financial commodity derivatives are generally settled through a NYMEX or Intercontinental Exchange (ICE) clearing broker account with daily margin requirements. We validate our valuation inputs with third-party information and settlement prices from other sources, where available.
We compute the fair value of our derivative portfolio by discounting the projected future cash flows from our derivative assets and liabilities to present value using interest-rate yields to calculate present-value discount factors derived from the implied
forward LIBOR yield curve. The fair value of our forward-starting interest-rate swaps are determined using financial models that incorporate the implied forward LIBOR yield curve for the same period as the future interest-rate swap settlements. We consider current market data in evaluating counterparties’, as well as our own, nonperformance risk, net of collateral, by using counterparty-specific bond yields. Although we use our best estimates to determine the fair value of the derivative contracts we have executed, the ultimate market prices realized could differ materially from our estimates.
Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our financial statements based on the observability of inputs used to estimate such fair value. The levels of the hierarchy are described below:
| • | Level 1 - fair value measurements are based on unadjusted quoted prices for identical securities in active markets. These balances are comprised predominantly of exchange-traded derivative contracts for natural gas and crude oil. |
| • | Level 2 - fair value measurements are based on significant observable pricing inputs, including quoted prices for similar assets and liabilities in active markets and inputs from third-party pricing services supported with corroborative evidence. These balances are comprised of over-the-counter interest-rate derivatives. |
| • | Level 3 - fair value measurements are based on inputs that may include one or more unobservable inputs, including internally developed natural gas basis and NGL price curves that incorporate observable and unobservable market data from broker quotes and third-party pricing services. These balances are comprised predominantly of exchange-cleared and over-the-counter derivatives for natural gas basis and NGLs. Our commodity derivatives are generally valued using forward quotes provided by third-party pricing services that are validated with other market data. We believe any measurement uncertainty at December 31, 2018, is immaterial as our Level 3 fair value measurements are based on unadjusted pricing information from broker quotes and third-party pricing services. We do not believe that our Level 3 fair value estimates have a material impact on our results of operations, as our derivatives are accounted for as hedges. |
Determining the appropriate classification of our fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data. We categorize derivatives for which fair value is determined using multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety.
See Note B for our fair value measurements disclosures.
Cash and Cash Equivalents - Cash equivalents consist of highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.
Revenue Recognition - Revenues are recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. Our payment terms vary by customer and contract type, including requiring payment before products or services are delivered to certain customers. However, the term between customer prepayments, completion of our performance obligations, invoicing and receipt of payment due is not significant.
A significant portion of supply volumes in our Natural Gas Gathering and Processing and Natural Gas Liquids segments are under contracts that include the purchase of commodities. Therefore, upon adoption of Topic 606, the contractual fees we charge on these contracts are considered a reduction of the commodity purchase price in cost of sales and fuel. In 2017 and prior periods, we recorded these fees as services revenue. See “Cost of Sales and Fuel” below for a description of these arrangements.
Performance Obligations and Revenue Sources - Revenues sources are disaggregated in Note P and are derived from commodity sales and services revenues, as described below:
Commodity Sales (all segments) - We contract to deliver residue natural gas, condensate, unfractionated NGLs and/or NGL products to customers at a specified delivery point. Our sales agreements may be daily or longer-term contracts for a specified volume. We consider the sale and delivery of each unit of a commodity an individual performance obligation as the customer is expected to control, accept and benefit from each unit individually. We record revenue when the commodity is delivered to the customer as this represents the point in time when control of the product is transferred to the customer. Revenue is recorded based on the contracted selling price, which is generally index-based and settled monthly.
Services
Gathering only contracts (Natural Gas Gathering and Processing segment) - Under this type of contract, we charge fees for providing midstream services, which include gathering and treating our customer’s natural gas. Our performance obligation begins with delivery of raw natural gas to our system. This service is treated as one performance obligation that is satisfied over time. We use the output method based on delivery of product to our system as the measure of progress, as our services are performed simultaneously.
POP with fee contracts with producer take-in-kind rights (Natural Gas Gathering and Processing segment) - Under this type of contract, we do not control the stream of unprocessed natural gas that we receive at the wellhead due to the producer’s take-in-kind rights. We purchase a portion of the raw natural gas stream, charge fees for providing midstream services, which include gathering, treating, compressing and processing our customer’s natural gas. After performing these services, we return primarily the residue natural gas to the producer, sell the remaining commodities and remit a portion of the commodity sales proceeds to the producer less our contractual fees. Our performance obligation begins with delivery of raw natural gas to our system. This service is treated as one performance obligation that is satisfied over time. We use the output method based on delivery of product to our system as the measure of progress, as our services are performed simultaneously.
Transportation and exchange contracts (Natural Gas Liquids segment) - Under this type of contract, we charge fees for providing midstream services, which may include a bundled combination of gathering, transporting and/or fractionation of our customer’s NGLs. Our performance obligation begins with delivery of unfractionated NGLs or NGL products to our system. These services represent a series of distinct services that are treated as one performance obligation that is satisfied over time. We use the output method based on delivery of product to our system as the measure of progress, as our services are performed simultaneously. For transportation services under a tariff on our NGL transportation pipelines, fees are recorded upon redelivery to our customer at the completion of the transportation services.
Storage contracts (Natural Gas Liquids and Natural Gas Pipelines segments) - We reserve a stated storage capacity and inject/withdraw/store commodities for our customer. The capacity reservation and injection/withdrawal/storage services are considered a bundled service, as we integrate them into one stand-ready obligation provided on a daily basis over the life of the agreement and satisfied over time. Fixed capacity reservation fees are allocated and evenly recognized in revenue. Capacity reservation fees that vary based on a stated or implied economic index and correspond with the costs to provide our services are recognized in revenue as invoiced to our customers. For contracts that do not include a capacity reservation, transportation, injection and withdrawal fees are recognized in revenue as those services are provided and are dependent on the volume transported, injected or withdrawn by our customer, which is at our customer’s discretion. We use the output method based on the passage of time to measure satisfaction of the performance obligation associated with our daily stand-ready services.
Firm service transportation contracts (Natural Gas Pipelines segment) - We reserve a stated transportation capacity and transport commodities for our customer. The capacity reservation and transportation services are considered a bundled service, as we integrate them into one stand-ready obligation provided on a daily basis over the life of the agreement and satisfied over time. Fixed capacity reservation fees are allocated and evenly recognized in revenue. Capacity reservation fees that vary based on a stated or implied economic index and correspond with the costs to provide our services are recognized in revenue based on a daily effective fee rate. If the capacity reservation fees vary solely as a contract feature, contract assets or liabilities are recorded for the difference between the amount recorded in revenue and the amount billed to the customer. Transportation fees are recognized in revenue as those services are provided and are dependent on the volume transported by our customer, which is at our customer’s discretion. We use the output method based on the passage of time to measure satisfaction of the performance obligation associated with our daily stand-ready services.
Interruptible transportation contracts (Natural Gas Pipelines segment) - We agree to transport natural gas on our pipelines between the customer’s specified nomination and delivery points if capacity is available after satisfying firm transportation service obligations. The transaction price is based on the transportation fees times the volumes transported. These fees may change over time based on an index or other factors provided in the agreement. We use the output method based on delivery of product to the customer to measure satisfaction of the performance obligation. The total consideration for delivered volumes is recorded in revenue at the time of delivery, when the customer obtains control.
See Note O for our revenue disclosures.
Contract Assets and Contract Liabilities - Upon adoption of Topic 606 in January 2018, contract assets and contract liabilities are recorded when the amount of revenue recognized from a contract with a customer differs from the amount billed to the customer and recorded in accounts receivable. Our contract asset balances at the beginning and end of the period primarily relate to our firm service transportation contracts with tiered rates. Our contract liabilities primarily represent deferred revenue on NGL storage contracts for which revenue is recognized over a one-year term and deferred revenue on
contributions in aid of construction received from customers for which revenue is recognized over the contract period. In 2017 and prior periods, we recorded these reimbursements as reductions to property, plant and equipment.
Cost of Sales and Fuel - Cost of sales and fuel primarily includes (i) the cost of purchased commodities, including NGLs, natural gas and condensate, (ii) fees incurred for third-party transportation, fractionation and storage of commodities, and (iii) fuel and power costs incurred to operate our own facilities that gather, process, transport and store commodities.
POP with fee contracts with no producer take-in-kind rights (Natural Gas Gathering and Processing segment) - We purchase raw natural gas and charge contractual fees for providing midstream services, which include gathering, treating, compressing and processing the producer’s natural gas. After performing these services, we sell the commodities and return a portion of the commodity sales proceeds to the producer less our contractual fees. Upon adoption of Topic 606, the contractual fees we charge producers on these POP with fee contracts are recorded as a reduction to the commodity purchase price in cost of sales and fuel. In 2017 and prior periods, we recorded these fees as services revenue.
Purchase with fee (Natural Gas Liquids segment) - Under this type of contract, we purchase raw, unfractionated NGLs at an index price and charge fees for providing midstream services, which may include a bundled combination of gathering, transporting and/or fractionation of our customer’s NGLs. Upon adoption of Topic 606, the contractual fees we charge processors on these exchanges services contracts that include the purchase of commodities are recorded as a reduction to the commodity purchase price in cost of sales and fuel. In 2017 and prior periods, we recorded these fees as services revenue.
Operations and Maintenance - Operations and maintenance primarily includes (i) payroll and benefit costs, (ii) third-party costs for operations, maintenance and integrity management, regulatory compliance and environmental and safety, and (iii) other business related service costs.
Accounts Receivable - Accounts receivable represent valid claims against nonaffiliated customers for products sold or services rendered, net of allowances for doubtful accounts. We assess the creditworthiness of our counterparties on an ongoing basis and require security, including prepayments and other forms of collateral, when appropriate. Outstanding customer receivables are reviewed regularly for possible nonpayment indicators, and allowances for doubtful accounts are recorded based upon management’s estimate of collectability at each balance sheet date. At December 31, 2018 and 2017, our allowance for doubtful accounts was not material.
Inventory - The values of current natural gas and NGLs in storage are determined using the lower of weighted-average cost or net realizable value. Noncurrent natural gas and NGLs are classified as property and valued at cost. Materials and supplies are valued at average cost.
Commodity Imbalances - Commodity imbalances represent amounts payable or receivable for NGL exchange contracts and natural gas pipeline imbalances and are valued at market prices. Under the majority of our NGL exchange agreements, we physically receive volumes of unfractionated NGLs, including the risk of loss and legal title to such volumes, from the exchange counterparty. In turn, we deliver NGL products back to the customer and charge them gathering, transportation and fractionation fees. To the extent that the volumes we receive under such agreements differ from those we deliver, we record a net exchange receivable or payable position with the counterparties. These net exchange receivables and payables are settled with movements of NGL products rather than with cash. Natural gas pipeline imbalances are settled in cash or in-kind, subject to the terms of the pipelines’ tariffs or by agreement.
Derivatives and Risk Management - We utilize derivatives to reduce our market-risk exposure to commodity price and interest-rate fluctuations and to achieve more predictable cash flows. We record all derivative instruments at fair value, with the exception of normal purchases and normal sales transactions that are expected to result in physical delivery. Commodity price and interest-rate volatility may have a significant impact on the fair value of derivative instruments as of a given date. 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, the reason for holding it. The table below summarizes the various ways in which we account for our derivative instruments and the impact on our Consolidated Financial Statements:
| Recognition and Measurement | ||||
| Accounting Treatment | Balance Sheet | Income Statement | ||
| Normal purchases and normal sales | - | Fair value not recorded | - | Change in fair value not recognized in earnings |
| Mark-to-market | - | Recorded at fair value | - | Change in fair value recognized in earnings |
| Cash flow hedge | - | The gain or loss on the derivative instrument is reported initially as a component of accumulated other comprehensive income (loss) | - | The gain or loss on the derivative instrument is reclassified out of accumulated other comprehensive income (loss) into earnings when the forecasted transaction affects earnings |
| Fair value hedge | - | Recorded at fair value | - | The gain or loss on the derivative instrument is recognized in earnings |
| - | Change in fair value of the hedged item is recorded as an adjustment to book value | - | Change in fair value of the hedged item is recognized in earnings |
To reduce our exposure to fluctuations in natural gas, NGLs and condensate prices, we periodically enter into futures, forward purchases and sales, options or swap transactions in order to hedge anticipated purchases and sales of natural gas, NGLs and condensate. Interest-rate swaps and treasury lock contracts are used from time to time to manage interest-rate risk. Under certain conditions, we designate our derivative instruments as a hedge of exposure to changes in fair values or cash flows. We formally document all relationships between hedging instruments and hedged items, as well as risk-management objectives and strategies for undertaking various hedge transactions, and methods for assessing and testing correlation and hedge effectiveness. We specifically identify the forecasted transaction that has been designated as the hedged item in a cash flow hedge relationship. We assess the effectiveness of hedging relationships at inception of the hedge by performing an effectiveness analysis on our fair value and cash flow hedging relationships to determine whether the hedge relationships are highly effective. Subsequently we perform qualitative assessments. We also document our normal purchases and normal sales transactions that we expect to result in physical delivery and that we elect to exempt from derivative accounting treatment.
The realized revenues and purchase costs of our derivative instruments not considered held for trading purposes and derivatives that qualify as normal purchases or normal sales that are expected to result in physical delivery are reported on a gross basis.
Cash flows from futures, forwards and swaps that are accounted for as hedges are included in the same category as the cash flows from the related hedged items in our Consolidated Statements of Cash Flows.
See Notes B and C for disclosures of our fair value measurements and risk-management and hedging activities.
Property, Plant and Equipment - Our properties are stated at cost, including AFUDC and capitalized interest. In some cases, the cost of regulated property retired or sold, plus removal costs, less salvage, is charged to accumulated depreciation. Gains and losses from sales or transfers of nonregulated properties or an entire operating unit or system of our regulated properties are recognized in income. Maintenance and repairs are charged directly to expense.
The interest portion of AFUDC and capitalized interest represent the cost of borrowed funds used to finance construction activities for regulated and nonregulated projects, respectively. We capitalize interest costs during the construction or upgrade of qualifying assets. These costs are recorded as a reduction to interest expense. The equity portion of AFUDC represents the capitalization of the estimated average cost of equity used during the construction of major projects and is recorded in the cost of our regulated properties and as a credit to the allowance for equity funds used during construction.
Our properties are depreciated using the straight-line method over their estimated useful lives. Generally, we apply composite depreciation rates to functional groups of property having similar economic circumstances. We periodically conduct depreciation studies to assess the economic lives of our assets. For our regulated assets, these depreciation studies are completed as a part of our rate proceedings or tariff filings, and the changes in economic lives, if applicable, are implemented prospectively when the new rates are billed. For our nonregulated assets, if it is determined that the estimated economic life
changes, the changes are made prospectively. Changes in the estimated economic lives of our property, plant and equipment could have a material effect on our financial position or results of operations.
Property, plant and equipment on our Consolidated Balance Sheets includes construction work in process for capital projects that have not yet been placed in service and therefore are not being depreciated. Assets are transferred out of construction work in process when they are substantially complete and ready for their intended use.
See Note D for our property, plant and equipment disclosures.
Impairment of Goodwill and Long-Lived Assets, Including Intangible Assets - We assess our goodwill for impairment at least annually on July 1, unless events or changes in circumstances indicate an impairment may have occurred before that time. Our qualitative goodwill impairment analysis performed as of July 1, 2018, did not result in an impairment charge nor did our analysis reflect any reporting units at risk, and subsequent to that date, no event has occurred indicating that the implied fair value of each of our reporting units is less than the carrying value of its net assets.
As part of our goodwill impairment test, we may first assess qualitative factors (including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance) to determine whether it is more likely than not that the fair value of each of our reporting units is less than its carrying amount. If further testing is necessary or a quantitative test is elected, we perform a two-step impairment test for goodwill. In the first step, an initial assessment is made by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value is less than the book value, an impairment is indicated, and we must perform a second test to measure the amount of the impairment. In the second test, we calculate the implied fair value of the goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value determined in step one of the assessment. If the carrying value of the goodwill exceeds the implied fair value of the goodwill, we will record an impairment charge.
To estimate the fair value of our reporting units, we use two generally accepted valuation approaches, an income approach and a market approach, using assumptions consistent with a market participant’s perspective. Under the income approach, we use anticipated cash flows over a period of years plus a terminal value and discount these amounts to their present value using appropriate discount rates. Under the market approach, we apply EBITDA multiples to forecasted EBITDA. The multiples used are consistent with historical asset transactions. The forecasted cash flows are based on average forecasted cash flows for a reporting unit over a period of years.
We assess our long-lived assets for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. An impairment is indicated if the carrying amount of a long-lived asset exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If an impairment is indicated, we record an impairment loss equal to the difference between the carrying value and the fair value of the long-lived asset.
For the investments we account for under the equity method, the impairment test considers whether the fair value of the equity investment as a whole, not the underlying net assets, has declined and whether that decline is other than temporary. Therefore, we periodically evaluate the amount at which we carry our equity-method investments to determine whether current events or circumstances warrant adjustments to our carrying values.
See Notes D, E and M for our long-lived assets, goodwill and intangible assets and investments in unconsolidated affiliates disclosures.
Regulation - Depending on the specific service provided, our natural gas transmission pipelines, natural gas liquids pipelines and storage facilities are subject to rate regulation and accounting requirements by one or more of the FERC, OCC, KCC and RRC. Accordingly, portions of our Natural Gas Liquids and Natural Gas Pipelines segments follow the accounting and reporting guidance for regulated operations. In our Consolidated Financial Statements and our Notes to Consolidated Financial Statements, regulated operations are defined pursuant to Financial Accounting Standards Board’s (FASB) ASC 980, Regulated Operations. During the rate-making process for certain of our assets, regulatory authorities set the framework for what we can charge customers for our services and establish the manner that our costs are accounted for, including allowing us to defer recognition of certain costs and permitting recovery of the amounts through rates over time as opposed to expensing such costs as incurred. Certain examples of types of regulatory guidance include costs for fuel and losses, acquisition costs, contributions in aid of construction, charges for depreciation, and gains or losses on disposition of assets. This allows us to stabilize rates over time rather than passing such costs on to the customer for immediate recovery. Actions by regulatory authorities could have an effect on the amounts we may charge our customers. Any difference in the amount recoverable and the amount deferred is recorded as income or expense at the time of the regulatory action. A write-off of regulatory assets and costs not
recovered may be required if all or a portion of the regulated operations have rates that are no longer (i) established by independent, third-party regulators and (ii) set at levels that will recover our costs when considering the demand and competition for our services.
Retirement and Other Postretirement Employee Benefits - We have defined benefit retirement plans covering certain employees and former employees. We sponsor welfare plans that provide postretirement medical and life insurance benefits to certain employees hired prior to 2017 who retire with at least five years of service. The expense and liability related to these plans is calculated using statistical and other factors that attempt to anticipate future events. These factors include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases, mortality and employment length. In determining the projected benefit obligations and costs, assumptions can change from period to period and may result in changes in the costs and liabilities we recognize.
See Note K for our pension and postretirement employee benefits disclosures.
Income Taxes - Deferred income taxes are provided for the difference between the financial statement and income tax basis of assets and liabilities and carryforward items based on income tax laws and rates existing at the time the temporary differences are expected to reverse. Generally, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date of the rate change.
We utilize a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that is taken or expected to be taken in a tax return. We reflect penalties and interest as part of income tax expense as they become applicable for tax provisions that do not meet the more-likely-than-not recognition threshold and measurement attribute. During 2018, 2017 and 2016, we had no uncertain tax positions that required the establishment of a material reserve.
We utilize the “with-and-without” approach for intra-period tax allocation for purposes of allocating total tax expense (or benefit) for the year among the various financial statement components.
We file numerous consolidated and separate income tax returns with federal tax authorities of the United States along with the tax authorities of several states. We are not under any United States federal audits or statute waivers at this time.
See Note L for our income taxes disclosures.
Asset Retirement Obligations - Asset retirement obligations represent legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. Certain of our natural gas gathering and processing, natural gas liquids and natural gas pipeline facilities are subject to agreements or regulations that give rise to our asset retirement obligations for removal or other disposition costs associated with retiring the assets in place upon the discontinued use of the assets. We recognize the fair value of a liability for an asset retirement obligation in the period when it is incurred if a reasonable estimate of the fair value can be made. We are not able to estimate reasonably the fair value of the asset retirement obligations for portions of our assets, primarily certain pipeline assets, because the settlement dates are indeterminable given our expected continued use of the assets with proper maintenance. We expect our pipeline assets, for which we are unable to estimate reasonably the fair value of the asset retirement obligation, will continue in operation as long as supply and demand for natural gas and natural gas liquids exists. Based on the widespread use of natural gas for heating and cooking activities for residential users and electric-power generation for commercial users, as well as use of natural gas liquids by the petrochemical industry, we expect supply and demand to exist for the foreseeable future.
For our assets that we are able to make an estimate, the fair value of the liability is added to the carrying amount of the associated asset, and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for an amount other than the carrying amount of the liability, we will recognize a gain or loss on settlement. The depreciation and accretion expense are immaterial to our Consolidated Financial Statements.
Contingencies - Our accounting for contingencies covers a variety of business activities, including contingencies for legal and environmental exposures. We accrue these contingencies when our assessments indicate that it is probable that a liability has been incurred or an asset will not be recovered and an amount can be estimated reasonably. We expense legal fees as incurred and base our legal liability estimates on currently available facts and our estimates of the ultimate outcome or resolution. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of a remediation feasibility study. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Our expenditures for environmental evaluation, mitigation, remediation and compliance to
date have not been significant in relation to our financial position or results of operations, and our expenditures related to environmental matters had no material effect on earnings or cash flows during 2018, 2017 and 2016. Actual results may differ from our estimates resulting in an impact, positive or negative, on earnings. See Note N for additional discussion of contingencies.
Share-Based Payments - We expense the fair value of share-based payments net of estimated forfeitures. We estimate forfeiture rates based on historical forfeitures under our share-based payment plans.
See Note J for our share-based payments disclosures.
Earnings per Common Share - Basic EPS is calculated based on the daily weighted-average number of shares of common stock outstanding during the period, vested restricted and performance units that have been deferred and share awards deferred under the compensation plan for nonemployee directors. Diluted EPS is calculated based on the daily weighted-average number of shares of common stock outstanding during the period plus potentially dilutive components. The dilutive components are calculated based on the dilutive effect for each quarter. For fiscal-year periods, the dilutive components for each quarter are averaged to arrive at the fiscal year-to-date dilutive component.
See Note I for our earnings per share disclosures.
Segment Reporting - Our chief operating decision-maker reviews the financial performance of each of our three segments, as well as our financial performance as a whole, on a regular basis. Adjusted EBITDA by segment is utilized in this evaluation. We believe this financial measure is useful to investors because it and similar measures are used by many companies in our industry as a measurement of financial performance and are commonly employed by financial analysts and others to evaluate our financial performance and to compare financial performance among companies in our industry. Adjusted EBITDA for each segment is defined as net income adjusted for interest expense, depreciation and amortization, noncash impairment charges, income taxes, allowance for equity funds used during construction, noncash compensation expense, and other noncash items. Prior periods have been adjusted to conform to current presentation. This calculation may not be comparable with similarly titled measures of other companies.
See Note P for our segments disclosures.
Reclassifications - Certain reclassifications have been made in the prior-year financial statements to conform to the current-year presentation.
Discontinued Operations - Beginning in 2017, the results of operations and financial position of our former energy services business are no longer reflected as discontinued operations in our Consolidated Financial Statements and Notes to the Consolidated Financial Statements, as they are not material.
Recently Issued Accounting Standards Update - Changes to GAAP are established by the FASB in the form of ASUs to the FASB Accounting Standards Codification. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or clarifications of ASUs listed below. The following tables provide a brief description of recent accounting pronouncements and our analysis of the effects on our financial statements:
| Standard | Description | Date of Adoption | Effect on the Financial Statements or Other Significant Matters | |||
| Standards that were adopted as of December 31, 2018 | ||||||
| ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” | The standard outlines the principles an entity must apply to measure and recognize revenue for entities that enter into contracts to provide goods or services to their customers. The core principle is that an entity should recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The amendment also requires more extensive disaggregated revenue disclosures in interim and annual financial statements. | First quarter 2018 | We adopted this standard on January 1, 2018, using the modified retrospective method. We recognized the cumulative effect of adopting the new revenue standard as an increase to beginning retained earnings of $1.7 million. Results for reporting periods beginning after January 1, 2018, are presented under the new standard, while prior periods are not adjusted and continue to be reported under the accounting standards in effect for those periods. The adoption of Topic 606 was not material to our net income; however, a significant portion of amounts historically presented as services revenues are now presented as a reduction to cost of sales and fuel. See Note O for discussion of these changes and additional disclosures. | |||
| ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” | The standard requires all equity investments, other than those accounted for using the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income, eliminates the available-for-sale classification for equity securities with readily determinable fair values and eliminates the cost method for equity investments without readily determinable fair values. | First quarter 2018 | We do not have any equity investments classified as available-for-sale or accounted for using the cost method; therefore, the impact of adopting of this standard was not material. | |||
| ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” | The standard clarifies the classification of certain cash receipts and cash payments on the statement of cash flows where diversity in practice has been identified. | First quarter 2018 | The impact of adopting this standard was not material. | |||
| ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” | The standard requires the service cost component of net benefit cost to be reported in the same line item or items as other compensation costs from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. | First quarter 2018 | We adopted this standard on January 1, 2018, and utilized the practical expedient to estimate the impact on the prior comparative period information presented. Immaterial reclassifications have been made to prior comparative period information to reflect the current period presentation. Prior to adoption, we expensed all components of the net periodic benefit costs for our pension and postretirement benefit plans in operations and maintenance expense. We now record only the service component of the net periodic benefit costs in operations and maintenance expense, with the remainder being recorded in other expense. There was no change to net income from the adoption of this standard. | |||
| ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” | The standard more closely aligns hedge accounting with companies’ existing risk-management strategies by expanding the strategies eligible for hedge accounting, relaxing the timing requirements of hedge documentation and effectiveness assessments, permitting in certain cases, the use of qualitative assessments on an ongoing basis to assess hedge effectiveness, and requiring new disclosures and presentation. | First quarter 2018 | We adopted this standard in the first quarter 2018 and recorded an immaterial cumulative-effect adjustment to the opening balance of retained earnings and other comprehensive income to eliminate the separate measurement of hedge ineffectiveness. See Note C for changes to disclosures due to adopting this standard. |
| Standard | Description | Date of Adoption | Effect on the Financial Statements or Other Significant Matters | |||
| Standards that were adopted as of December 31, 2018 (continued) | ||||||
| ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” | This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. | First quarter 2018 | We adopted this standard in the first quarter 2018 using the portfolio approach and recorded a $38.1 million adjustment to retained earnings and accumulated other comprehensive income to eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. | |||
| ASU 2018-13, “Fair Value Measurement (Topic 820)” | The standard modifies certain disclosure requirements for fair value measurements in Topic 820. | Fourth quarter 2018 | The impact of adopting this standard was not material. | |||
| ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20)” | The standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. | Fourth quarter 2018 | The impact of adopting this standard was not material. | |||
| Standards that are not yet adopted as of December 31, 2018 | ||||||
| ASU 2016-02, “Leases (Topic 842)” | The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. It also requires qualitative disclosures along with specific quantitative disclosures by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. | First quarter 2019 | We adopted this standard on January 1, 2019, using the modified retrospective method and the optional transition method to record the adoption impact through a cumulative adjustment to equity. We recorded an immaterial cumulative effect for the adoption of the new standard and recorded approximately $17.0 million of right-of-use assets and lease liabilities related to operating leases that were not previously recorded on our Consolidated Balance Sheets. Our finance lease assets and liabilities of $28.1 million and $28.0 million, respectively, did not change as a result of adopting this standard. We also implemented accounting software and developed internal controls designed to ensure compliance with the standard and the completeness and accuracy of our data. | |||
| ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” | The standard aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. | First quarter 2019 | We do not expect the adoption of this standard to materially impact us. | |||
| ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” | The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented net of the allowance for credit losses to reflect the net carrying value at the amount expected to be collected on the financial asset; and the initial allowance for credit losses for purchased financial assets, including available-for-sale debt securities, to be added to the purchase price rather than being reported as a credit loss expense. | First quarter 2020 | We do not expect the adoption of this standard to materially impact us. | |||
| ASU 2017-04, “Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” | The standard simplifies the subsequent measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill under step 2. Instead, an entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard does not change step zero or step 1 assessments. | First quarter 2020 | We do not expect the adoption of this standard to materially impact us. |
| B. | FAIR VALUE MEASUREMENTS |
Recurring Fair Value Measurements - The following tables set forth our recurring fair value measurements for the periods indicated:
| December 31, 2018 | ||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total - Gross | Netting (a) | Total - Net | |||||||||||||||||||
| (Thousands of dollars) | ||||||||||||||||||||||||
| Derivative assets | ||||||||||||||||||||||||
| Commodity contracts | ||||||||||||||||||||||||
| Financial contracts | $ | 10,812 | $ | — | $ | 69,165 | $ | 79,977 | $ | (32,739 | ) | $ | 47,238 | |||||||||||
| Physical contracts | — | — | 1,142 | 1,142 | — | 1,142 | ||||||||||||||||||
| Interest-rate contracts | — | 19,005 | — | 19,005 | — | 19,005 | ||||||||||||||||||
| Total derivative assets | $ | 10,812 | $ | 19,005 | $ | 70,307 | $ | 100,124 | $ | (32,739 | ) | $ | 67,385 | |||||||||||
| Derivative liabilities | ||||||||||||||||||||||||
| Commodity contracts | ||||||||||||||||||||||||
| Financial contracts | $ | (2,916 | ) | $ | — | $ | (29,823 | ) | $ | (32,739 | ) | $ | 32,739 | $ | — | |||||||||
| Interest-rate contracts | — | (99,260 | ) | — | (99,260 | ) | — | (99,260 | ) | |||||||||||||||
| Total derivative liabilities | $ | (2,916 | ) | $ | (99,260 | ) | $ | (29,823 | ) | $ | (131,999 | ) | $ | 32,739 | $ | (99,260 | ) |
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At December 31, 2018, we held no cash and posted $0.8 million of cash with various counterparties, which is included in other current assets in our Consolidated Balance Sheets.
| December 31, 2017 | ||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total - Gross | Netting (a) | Total - Net | |||||||||||||||||||
| (Thousands of dollars) | ||||||||||||||||||||||||
| Derivative assets | ||||||||||||||||||||||||
| Commodity contracts | ||||||||||||||||||||||||
| Financial contracts | $ | 4,252 | $ | — | $ | 20,203 | $ | 24,455 | $ | (24,455 | ) | $ | — | |||||||||||
| Interest-rate contracts | — | 49,960 | — | 49,960 | — | 49,960 | ||||||||||||||||||
| Total derivative assets | $ | 4,252 | $ | 49,960 | $ | 20,203 | $ | 74,415 | $ | (24,455 | ) | $ | 49,960 | |||||||||||
| Derivative liabilities | ||||||||||||||||||||||||
| Commodity contracts | ||||||||||||||||||||||||
| Financial contracts | $ | (5,708 | ) | $ | — | $ | (48,260 | ) | $ | (53,968 | ) | $ | 53,936 | $ | (32 | ) | ||||||||
| Physical contracts | — | — | (4,781 | ) | (4,781 | ) | — | (4,781 | ) | |||||||||||||||
| Total derivative liabilities | $ | (5,708 | ) | $ | — | $ | (53,041 | ) | $ | (58,749 | ) | $ | 53,936 | $ | (4,813 | ) |
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At December 31, 2017, we held no cash and posted $49.7 million of cash with various counterparties, including $29.5 million of cash collateral that is offsetting derivative net liability positions under master-netting arrangements in the table above. The remaining $20.2 million of cash collateral in excess of derivative net liability positions is included in other current assets in our Consolidated Balance Sheets.
The following table sets forth a reconciliation of our Level 3 fair value measurements for the periods indicated:
| Years Ended | ||||||||
| December 31, | ||||||||
| Derivative Assets (Liabilities) | 2018 | 2017 | ||||||
| (Thousands of dollars) | ||||||||
| Net assets (liabilities) at beginning of period | $ | (32,838 | ) | $ | (23,319 | ) | ||
| Total realized/unrealized gains (losses): | ||||||||
| Included in earnings (a) | (140 | ) | 212 | |||||
| Included in other comprehensive income (loss) (b) | 73,462 | (9,731 | ) | |||||
| Net assets (liabilities) at end of period | $ | 40,484 | $ | (32,838 | ) |
(a) - Included in commodity sales revenues in our Consolidated Statements of Income.
(b) - Included in unrealized gains (losses) on derivatives in our Consolidated Statement of Comprehensive Income.
Realized/unrealized gains (losses) include the realization of our derivative contracts through maturity. During the years ended December 31, 2018 and 2017, gains or losses included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the end of each reporting period were not material.
During the years ended December 31, 2018 and 2017, there were no transfers in or out of Level 3 of the fair value hierarchy.
Other Financial Instruments - The approximate fair value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value due to the short-term nature of these items. Our cash and cash equivalents are comprised of bank and money market accounts and are classified as Level 1. Our short-term borrowings are classified as Level 2 since the estimated fair value of the short-term borrowings can be determined using information available in the commercial paper market.
The estimated fair value of our consolidated long-term debt, including current maturities, was $9.6 billion and $9.3 billion at December 31, 2018 and 2017, respectively. The book value of our consolidated long-term debt, including current maturities, was $9.4 billion and $8.5 billion at December 31, 2018 and 2017, respectively. The estimated fair value of the aggregate senior notes outstanding was determined using quoted market prices for similar issues with similar terms and maturities. The estimated fair value of our consolidated long-term debt is classified as Level 2.
| C. | RISK-MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES |
Risk-Management Activities - We are sensitive to changes in natural gas, crude oil and NGL prices, principally as a result of contractual terms under which these commodities are processed, purchased and sold. We are also subject to the risk of interest-rate fluctuation in the normal course of business. We use physical-forward purchases and sales and financial derivatives to secure a certain price for a portion of our natural gas, condensate and NGL products; to reduce our exposure to commodity price and interest-rate fluctuations; and to achieve more predictable cash flows. We follow established policies and procedures to assess risk and approve, monitor and report our risk-management activities. We have not used these instruments for trading purposes.
Commodity price risk - Commodity price risk refers to the risk of loss in cash flows and future earnings arising from adverse changes in the price of natural gas, NGLs and condensate. We may use the following commodity derivative instruments to reduce the near-term commodity price risk associated with a portion of the forecasted sales of these commodities:
| • | Futures contracts - Standardized contracts to purchase or sell natural gas and crude oil for future delivery or settlement under the provisions of exchange regulations; |
| • | Forward contracts - Nonstandardized commitments between two parties to purchase or sell natural gas, crude oil or NGLs for future physical delivery. These contracts are typically nontransferable and can only be canceled with the consent of both parties; |
| • | Swaps - Exchange of one or more payments based on the value of one or more commodities. These instruments transfer the financial risk associated with a future change in value between the counterparties of the transaction, without also conveying ownership interest in the asset or liability; and |
| • | Options - Contractual agreements that give the holder the right, but not the obligation, to buy or sell a fixed quantity of a commodity at a fixed price within a specified period of time. Options may either be standardized and exchange-traded or customized and nonexchange-traded. |
We may also use other instruments including collars to mitigate commodity price risk. A collar is a combination of a purchased put option and a sold call option, which places a floor and a ceiling price for commodity sales being hedged.
In our Natural Gas Gathering and Processing segment, we are exposed to commodity price risk as a result of retaining a portion of the commodity sales proceeds associated with our POP with fee contracts. Under certain POP with fee contracts, our fees and POP percentage may increase or decrease if production volumes, delivery pressures or commodity prices change relative to specified thresholds. We also are exposed to basis risk between the various production and market locations where we buy and sell commodities. As part of our hedging strategy, we use the previously described commodity derivative financial instruments and physical-forward contracts to reduce the impact of price fluctuations related to natural gas, NGLs and condensate.
In our Natural Gas Liquids segment, we are primarily exposed to commodity price risk resulting from the relative values of the various NGL products to each other, the value of NGLs in storage and the relative value of NGLs to natural gas. We are also exposed to location price differential risk as a result of the relative value of NGL purchases at one location and sales at another location, primarily related to our optimization and marketing business. As part of our hedging strategy, we utilize physical-forward contracts and commodity derivative financial instruments to reduce the impact of price fluctuations related to NGLs.
In our Natural Gas Pipelines segment, we are exposed to commodity price risk because our intrastate and interstate pipelines consume natural gas in operations and retain natural gas from our customers for operations or as part of our fee for services provided. When the amount consumed in operations differs from the amount provided by our customers, our pipelines must buy or sell natural gas, or store or use natural gas from inventory, which can expose this segment to commodity price risk depending on the regulatory treatment for this activity. To the extent that commodity price risk in our Natural Gas Pipelines segment is not mitigated by fuel cost-recovery mechanisms, we may use physical-forward sales or purchases to reduce the impact of natural gas price fluctuations. At December 31, 2018 and 2017, there were no financial derivative instruments with respect to our natural gas pipeline operations.
Interest-rate risk - We manage interest-rate risk through the use of fixed-rate debt, floating-rate debt, interest-rate swaps, and treasury lock contracts. Interest-rate swaps are agreements to exchange interest payments at some future point based on specified notional amounts. In 2018, we entered into $2.8 billion of forward-starting interest-rate swaps and treasury lock contracts to hedge the variability of interest payments on a portion of our forecasted debt issuances that may result from changes in the benchmark interest rate before the debt is issued. In addition, we entered into $1.3 billion of forward-starting interest-rate swaps to hedge the variability of our LIBOR based interest payments. Also in 2018, we settled $1.0 billion of our forward-starting interest-rate swaps and treasury lock contracts related to our underwritten public offering of $1.25 billion senior unsecured notes completed in July 2018, and $500 million of our interest-rate swaps in January 2018 used to hedge our LIBOR-based interest payments.
At December 31, 2018 and 2017, we had forward-starting interest-rate swaps with notional amounts totaling $3.0 billion and $1.3 billion, respectively, to hedge the variability of interest payments on a portion of our forecasted debt issuances. At December 31, 2018 and 2017, we had interest-rate swaps with notional amounts totaling $1.3 billion and $500 million, respectively, to hedge the variability of our LIBOR-based interest payments. All of our interest-rate swaps are designated as cash flow hedges.
Fair Values of Derivative Instruments - The following table sets forth the fair values of our derivative instruments presented on a gross basis for the periods indicated:
| December 31, 2018 | December 31, 2017 | ||||||||||||||||
| Location in our Consolidated Balance Sheets | Assets | (Liabilities) | Assets | (Liabilities) | |||||||||||||
| (Thousands of dollars) | |||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||
| Commodity contracts | |||||||||||||||||
| Financial contracts | Other current assets/other current liabilities | $ | 78,891 | $ | (31,793 | ) | $ | 16,978 | $ | (42,819 | ) | ||||||
| Other assets/other deferred credits | 1,086 | (946 | ) | — | (3,838 | ) | |||||||||||
| Physical contracts | Other current assets/other current liabilities | 1,142 | — | — | (4,781 | ) | |||||||||||
| Interest-rate contracts | Other current assets/other current liabilities | 19,005 | (15,012 | ) | 1,330 | — | |||||||||||
| Other assets/other deferred credits | — | (84,248 | ) | 48,630 | — | ||||||||||||
| Total derivatives designated as hedging instruments | 100,124 | (131,999 | ) | 66,938 | (51,438 | ) | |||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||
| Commodity contracts | |||||||||||||||||
| Financial contracts | Other current assets/other current liabilities | — | — | 7,477 | (7,311 | ) | |||||||||||
| Total derivatives not designated as hedging instruments | — | — | 7,477 | (7,311 | ) | ||||||||||||
| Total derivatives | $ | 100,124 | $ | (131,999 | ) | $ | 74,415 | $ | (58,749 | ) |
Notional Quantities for Derivative Instruments - The following table sets forth the notional quantities for derivative instruments held for the periods indicated:
| December 31, 2018 | December 31, 2017 | |||||||||||||||
| Contract Type | Purchased/ Payor | Sold/ Receiver | Purchased/ Payor | Sold/ Receiver | ||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||
| Cash flow hedges | ||||||||||||||||
| Fixed price | ||||||||||||||||
| -Natural gas (Bcf) | Futures and swaps | — | (29.9 | ) | — | (24.5 | ) | |||||||||
| -Crude oil and NGLs (MMBbl) | Futures, forwards and swaps | 6.5 | (13.8 | ) | 3.5 | (11.1 | ) | |||||||||
| Basis | ||||||||||||||||
| -Natural gas (Bcf) | Futures and swaps | — | (29.9 | ) | — | (24.5 | ) | |||||||||
| Interest-rate contracts (Millions of dollars) | Swaps | $ | 4,250.0 | $ | — | $ | 1,750.0 | $ | — | |||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||
| Fixed price | ||||||||||||||||
| -NGLs (MMBbl) | Futures, forwards and swaps | — | — | 0.8 | (0.8 | ) |
These notional amounts are used to summarize the volume of financial instruments; however, they do not reflect the extent to which the positions offset one another and, consequently, do not reflect our actual exposure to market or credit risk.
The following table sets forth the unrealized effect of cash flow hedges recognized in other comprehensive income (loss) for the periods indicated:
| Derivatives in Cash Flow Hedging Relationships | Years Ended December 31, | |||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (Thousands of dollars) | ||||||||||||
| Commodity contracts | $ | 53,217 | $ | (40,577 | ) | $ | (78,513 | ) | ||||
| Interest-rate contracts | (60,584 | ) | 163 | 42,761 | ||||||||
| Total unrealized gain (loss) recognized in other comprehensive income (loss) on derivatives | $ | (7,367 | ) | $ | (40,414 | ) | $ | (35,752 | ) |
The following table sets forth the effect of cash flow hedges in our Consolidated Statements of Income for the periods indicated:
| Derivatives in Cash Flow Hedging Relationships | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income | |||||||||||||
| Years Ended December 31, | ||||||||||||||
| 2018 | 2017 | 2016 | ||||||||||||
| (Thousands of dollars) | ||||||||||||||
| Commodity contracts | Commodity sales revenues | $ | (29,596 | ) | $ | (69,561 | ) | $ | 26,422 | |||||
| Interest-rate contracts | Interest expense | (18,287 | ) | (21,025 | ) | (19,215 | ) | |||||||
| Total gain (loss) reclassified from accumulated other comprehensive loss into net income on derivatives | $ | (47,883 | ) | $ | (90,586 | ) | $ | 7,207 |
Credit Risk - We monitor the creditworthiness of our counterparties and compliance with policies and limits established by our Risk Oversight and Strategy Committee. We maintain credit policies with regard to our counterparties that we believe minimize overall credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit ratings, bond yields and credit default swap rates), collateral requirements under certain circumstances and the use of standardized master-netting agreements that allow us to net the positive and negative exposures associated with a single counterparty. We use internally developed credit ratings for counterparties that do not have a credit rating.
Our financial commodity derivatives are generally settled through a NYMEX or Intercontinental Exchange (ICE) clearing account broker account with daily margin requirements. However, we may enter into financial derivative instruments that contain provisions that require us to maintain an investment-grade credit rating from S&P and/or Moody’s. If our credit ratings on our senior unsecured long-term debt were to decline below investment grade, the counterparties to the derivative instruments could request collateralization on derivative instruments in net liability positions. There were no financial derivative instruments with contingent features related to credit risk at December 31, 2018.
The counterparties to our derivative contracts typically consist of major energy companies, financial institutions and commercial and industrial end users. This concentration of counterparties may affect our overall exposure to credit risk, either positively or negatively, in that the counterparties may be affected similarly by changes in economic, regulatory or other conditions. Based on our policies, exposures, credit and other reserves, we do not anticipate a material adverse effect on our financial position or results of operations as a result of counterparty nonperformance.
At December 31, 2018, the net credit exposure from our derivative assets is with investment-grade companies in the financial services sector.
D. PROPERTY, PLANT AND EQUIPMENT
The following table sets forth our property, plant and equipment by property type, for the periods indicated:
| Estimated Useful Lives (Years) | December 31, 2018 | December 31, 2017 | ||||||||
| (Thousands of dollars) | ||||||||||
| Nonregulated | ||||||||||
| Gathering pipelines and related equipment | 5 to 40 | $ | 3,851,043 | $ | 3,613,344 | |||||
| Processing and fractionation and related equipment | 3 to 40 | 4,171,072 | 3,873,709 | |||||||
| Storage and related equipment | 3 to 54 | 656,455 | 604,656 | |||||||
| Transmission pipelines and related equipment | 5 to 54 | 782,258 | 700,455 | |||||||
| General plant and other | 2 to 60 | 547,424 | 504,610 | |||||||
| Construction work in process | — | 797,182 | 362,253 | |||||||
| Regulated | ||||||||||
| Storage and related equipment | 5 to 25 | 8,987 | 12,486 | |||||||
| Natural gas transmission pipelines and related equipment | 5 to 77 | 1,475,789 | 1,406,780 | |||||||
| Natural gas liquids transmission pipelines and related equipment | 5 to 88 | 4,677,599 | 4,340,428 | |||||||
| General plant and other | 2 to 50 | 61,136 | 57,902 | |||||||
| Construction work in process | — | 1,002,018 | 83,044 | |||||||
| Property, plant and equipment | 18,030,963 | 15,559,667 | ||||||||
| Accumulated depreciation and amortization - nonregulated | (2,168,855 | ) | (1,888,010 | ) | ||||||
| Accumulated depreciation and amortization - regulated | (1,095,457 | ) | (973,531 | ) | ||||||
| Net property, plant and equipment | $ | 14,766,651 | $ | 12,698,126 |
The average depreciation rates for our regulated property are set forth, by segment, in the following table for the periods indicated:
| Years Ended December 31, | ||||||
| 2018 | 2017 | 2016 | ||||
| Natural Gas Liquids | 1.9% | 1.9% | 1.9% | |||
| Natural Gas Pipelines | 2.1% | 2.1% | 2.1% |
We incurred costs for construction work in process that had not been paid at December 31, 2018, 2017 and 2016, of $388.3 million, $92.4 million and $83.0 million, respectively. Such amounts are not included in capital expenditures (less AFUDC and capitalized interest) on the Consolidated Statements of Cash Flows.
Impairment Charges - In 2017, following a review of nonstrategic assets for potential divestiture, we recorded $16.0 million of noncash impairment charges related to certain nonstrategic gathering and processing assets located in North Dakota.
| E. | GOODWILL AND INTANGIBLE ASSETS |
Goodwill - The following table sets forth our goodwill, by segment, for the periods indicated:
| December 31, 2018 | December 31, 2017 | |||||||
| (Thousands of dollars) | ||||||||
| Natural Gas Gathering and Processing | $ | 153,404 | $ | 153,404 | ||||
| Natural Gas Liquids | 371,217 | 371,217 | ||||||
| Natural Gas Pipelines | 156,479 | 156,479 | ||||||
| Total goodwill | $ | 681,100 | $ | 681,100 |
Intangible Assets - Our intangible assets relate primarily to contracts acquired through acquisitions in our Natural Gas Gathering and Processing and Natural Gas Liquids segments, which are being amortized over periods of 20 to 40 years. Amortization expense for intangible assets was $11.9 million in 2018, 2017 and 2016, and the aggregate amortization expense for each of the next five years is estimated to be $11.9 million. The following table reflects the gross carrying amount and accumulated amortization of intangible assets for the periods presented:
| December 31, 2018 | December 31, 2017 | |||||||
| (Thousands of dollars) | ||||||||
| Gross intangible assets | $ | 411,650 | $ | 426,068 | ||||
| Accumulated amortization | (125,608 | ) | (113,708 | ) | ||||
| Net intangible assets | $ | 286,042 | $ | 312,360 |
| F. | DEBT |
The following table sets forth our consolidated debt for the periods indicated:
| December 31, 2018 | December 31, 2017 | |||||||
| (Thousands of dollars) | ||||||||
| Commercial paper outstanding, bearing a weighted-average interest rate of 2.23% as of December 31, 2017 | $ | — | $ | 614,673 | ||||
| Senior unsecured obligations: | ||||||||
| $425,000 at 3.2% due September 2018 | — | 425,000 | ||||||
| $1,000,000 term loan, rate of 2.87% as of December 31, 2017, due January 2019 | — | 500,000 | ||||||
| $500,000 at 8.625% due March 2019 | 500,000 | 500,000 | ||||||
| $300,000 at 3.8% due March 2020 | 300,000 | 300,000 | ||||||
| $1,500,000 term loan, rate of 3.63% as of December 31, 2018, due November 2021 | 550,000 | — | ||||||
| $700,000 at 4.25% due February 2022 | 547,397 | 547,397 | ||||||
| $900,000 at 3.375 % due October 2022 | 900,000 | 900,000 | ||||||
| $425,000 at 5.0 % due September 2023 | 425,000 | 425,000 | ||||||
| $500,000 at 7.5% due September 2023 | 500,000 | 500,000 | ||||||
| $500,000 at 4.9 % due March 2025 | 500,000 | 500,000 | ||||||
| $500,000 at 4.0% due July 2027 | 500,000 | 500,000 | ||||||
| $800,000 at 4.55% due July 2028 | 800,000 | — | ||||||
| $100,000 at 6.875% due September 2028 | 100,000 | 100,000 | ||||||
| $400,000 at 6.0% due June 2035 | 400,000 | 400,000 | ||||||
| $600,000 at 6.65% due October 2036 | 600,000 | 600,000 | ||||||
| $600,000 at 6.85% due October 2037 | 600,000 | 600,000 | ||||||
| $650,000 at 6.125% due February 2041 | 650,000 | 650,000 | ||||||
| $400,000 at 6.2% due September 2043 | 400,000 | 400,000 | ||||||
| $700,000 at 4.95% due July 2047 | 700,000 | 700,000 | ||||||
| $450,000 at 5.2% due July 2048 | 450,000 | — | ||||||
| Guardian Pipeline | ||||||||
| Weighted average 7.85% due December 2022 | 28,957 | 36,607 | ||||||
| Total debt | 9,451,354 | 9,198,677 | ||||||
| Unamortized portion of terminated swaps | 16,750 | 18,468 | ||||||
| Unamortized debt issuance costs and discounts | (87,120 | ) | (78,193 | ) | ||||
| Current maturities of long-term debt | (507,650 | ) | (432,650 | ) | ||||
| Short-term borrowings (a) | — | (614,673 | ) | |||||
| Long-term debt | $ | 8,873,334 | $ | 8,091,629 |
(a) - Individual issuances of commercial paper under our commercial paper program generally mature in 90 days or less.
$2.5 Billion Credit Agreement - In June 2018, we extended the term of our $2.5 Billion Credit Agreement by one year to June 2023. Our $2.5 Billion Credit Agreement is a revolving credit facility and contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining a ratio of indebtedness to adjusted EBITDA (EBITDA, as defined in our $2.5 Billion Credit Agreement, adjusted for all noncash charges and increased for projected EBITDA from
certain lender-approved capital expansion projects). At December 31, 2018, due to our acquisition of the remaining 20 percent interest in WTLPG for $195 million, the covenant increased to 5.5 to 1 for the second half of 2018 and first quarter 2019, and 5.0 to 1 thereafter.
Our $2.5 Billion Credit Agreement includes a $100 million sublimit for the issuance of standby letters of credit and a $200 million sublimit for swingline loans. Under the terms of our $2.5 Billion Credit Agreement, we may request an increase in the size of the facility to an aggregate of $3.5 billion by either commitments from new lenders or increased commitments from existing lenders. Our $2.5 Billion Credit Agreement contains provisions for an applicable margin rate and an annual facility fee, both of which adjust with changes in our credit ratings. Based on our current credit ratings, borrowings, if any, will accrue at LIBOR plus 110 basis points, and the annual facility fee is 15 basis points. We have the option to request an additional one-year extension, subject to lender approval, which may be used for working capital, capital expenditures, acquisitions and mergers, the issuance of letters of credit and for other general corporate purposes. At December 31, 2018, our ratio of indebtedness to adjusted EBITDA was 3.5 to 1, and we were in compliance with all covenants under our $2.5 Billion Credit Agreement.
At December 31, 2018 and 2017, we had letters of credit issued totaling $1.4 million and $15.8 million, respectively, and no borrowings outstanding under our $2.5 Billion Credit Agreement.
Senior Unsecured Obligations - All notes are senior unsecured obligations, ranking equally in right of payment with all of our existing and future unsecured senior indebtedness, and are structurally subordinate to any of the existing and future debt and other liabilities of any nonguarantor subsidiaries.
Issuances - In November 2018, we entered into our $1.5 Billion Term Loan Agreement with a syndicate of banks, which is available to be drawn until May 2019. Our $1.5 Billion Term Loan Agreement matures in November 2021 and bears interest at LIBOR plus 112.5 basis points based on our current credit ratings. The agreement contains an option, which may be exercised up to two times, to extend the term of the loan, in each case, for an additional one-year term subject to approval of the banks. Our $1.5 Billion Term Loan Agreement allows prepayment of all or any portion outstanding, without penalty or premium, and contains substantially the same covenants as those contained in our $2.5 Billion Credit Agreement. As of December 31, 2018, we had borrowings totaling $550 million outstanding under our $1.5 Billion Term Loan Agreement, which were used for general corporate purposes, including repayment of existing indebtedness.
In July 2018, we completed an underwritten public offering of $1.25 billion senior unsecured notes consisting of $800 million, 4.55 percent senior notes due 2028 and $450 million, 5.2 percent senior notes due 2048. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $1.23 billion. The proceeds were used for general corporate purposes, which included repayment of existing indebtedness and funding capital expenditures.
In July 2017, we completed an underwritten public offering of $1.2 billion senior unsecured notes consisting of $500 million, 4.0 percent senior notes due 2027, and $700 million, 4.95 percent senior notes due 2047. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $1.2 billion. The proceeds were used for general corporate purposes, which included repayment of existing indebtedness and capital expenditures.
In 2016, ONEOK Partners entered into the $1.0 billion senior unsecured ONEOK Partners Term Loan Agreement with a syndicate of banks that was due to mature in 2019 with interest at LIBOR plus 130 basis points based on our current credit ratings and contained substantially the same covenants as our $2.5 Billion Credit Agreement. As of January 2018, all amounts outstanding under the ONEOK Partners Term Loan Agreement had been repaid. See “Repayments” section below.
Repayments - In August 2018, we repaid the $425 million, 3.2 percent senior notes due September 2018 with cash on hand.
We repaid the ONEOK Partners Term Loan Agreement due 2019 with two payments of $500 million each in January 2018 and July 2017 with a combination of cash on hand and short-term borrowings.
In September 2017, we repaid ONEOK Partners’ $400 million, 2.0 percent senior notes due in October 2017 with a combination of cash on hand and short-term borrowings.
In July 2017, we redeemed our 6.5 percent senior notes due 2028 at a redemption price of $87.0 million, including the outstanding principal amount, plus accrued and unpaid interest, with cash on hand.
In October 2016, ONEOK Partners repaid its $450 million, 6.15 percent senior notes at maturity with a combination of cash on hand and short-term borrowings.
The aggregate maturities of long-term debt outstanding as of December 31, 2018, for the years 2019 through 2023 are shown below:
| Senior Notes | Guardian Pipeline | Total | ||||||||||
| 2019 | $ | 500.0 | $ | 7.7 | $ | 507.7 | ||||||
| 2020 | $ | 300.0 | $ | 7.7 | $ | 307.7 | ||||||
| 2021 | $ | 550.0 | $ | 7.7 | $ | 557.7 | ||||||
| 2022 | $ | 1,447.4 | $ | 5.9 | $ | 1,453.3 | ||||||
| 2023 | $ | 925.0 | $ | — | $ | 925.0 |
Covenants - Our senior notes are governed by indentures containing covenants, including among other provisions, limitations on our ability to place liens on our property or assets and to sell and leaseback our property. The indentures governing our 6.875 percent senior notes due 2028 include an event of default upon acceleration of other indebtedness of $15 million or more, and the indentures governing the remainder of our senior notes include an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding senior notes to declare those senior notes immediately due and payable in full. The indenture for the 7.5 percent notes due 2023 also contains a provision that allows the holders of the notes to require ONEOK to offer to repurchase all or any part of their notes if a change of control and a credit rating downgrade occur at a purchase price of 101 percent of the principal amount, plus accrued and unpaid interest, if any.
We may redeem our senior notes, in whole or in part, at any time prior to their maturity at a redemption price equal to the principal amount, plus accrued and unpaid interest and a make-whole premium. We may redeem the balance of our senior notes due 2020, 2022, 2023, 2025, 2027, 2028 (4.55%), 2041, 2043, 2047 and 2048 at a redemption price equal to the principal amount, plus accrued and unpaid interest, starting one to six months before the maturity date as stipulated in the respective contract terms. Our senior notes are senior unsecured obligations, ranking equally in right of payment with all of our existing and future unsecured senior indebtedness.
Guardian Pipeline Senior Notes - These senior notes were issued under a master shelf agreement dated November 8, 2001, with certain financial institutions. Principal payments are due quarterly through 2022. Guardian Pipeline’s senior notes contain financial covenants that require the maintenance of certain financial ratios as defined in the master shelf agreement based on Guardian Pipeline’s financial position and results of operations. Upon any breach of these covenants, all amounts outstanding under the master shelf agreement may become due and payable immediately. At December 31, 2018, Guardian Pipeline was in compliance with its financial covenants.
Other - We amortize premiums, discounts and expenses incurred in connection with the issuance of long-term debt consistent with the terms of the respective debt instrument.
Debt Guarantees - ONEOK, ONEOK Partners and the Intermediate Partnership have cross guarantees in place for our and ONEOK Partners’ indebtedness.
| G. | EQUITY |
Noncontrolling Interests - As a result of the Merger Transaction in 2017, we and our subsidiaries own 100 percent of ONEOK Partners. At December 31, 2017, the caption “Noncontrolling interests” on our Consolidated Balance Sheet reflects only the 20 percent of WTLPG that we did not own. On July 31, 2018, we acquired the remaining 20 percent interest in WTLPG for $195 million with cash on hand. We are now the sole owner of the West Texas LPG pipeline system.
Series A and B Convertible Preferred Stock - There are no shares of Series A or Series B Preferred Stock currently issued or outstanding.
Series E Preferred Stock - In April 2017, through a wholly owned subsidiary, we contributed 20,000 shares of newly issued Series E Preferred Stock, having an aggregate value of $20 million, to the Foundation for use in charitable and nonprofit causes. The contribution was recorded as a $20 million noncash expense in 2017, which represents a noncash financing activity, and is included in other expense in our Consolidated Statements of Income.
Equity Issuances - In January 2018, we completed an underwritten public offering of 21.9 million shares of our common stock at a public offering price of $54.50 per share, generating net proceeds of $1.2 billion. We used the net proceeds from this offering to fund capital expenditures and for general corporate purposes, which included repaying a portion of our outstanding indebtedness.
In July 2017, we established an “at-the-market” equity program for the offer and sale from time to time of our common stock up to an aggregate amount of $1 billion. The program allows us to offer and sell our common stock at prices we deem appropriate through a sales agent. Sales of our common stock may be made by means of ordinary brokers’ transactions on the NYSE, in block transactions, or as otherwise agreed to between us and the sales agent. We are under no obligation to offer and sell common stock under the program. No shares were sold through our “at-the-market” equity program in 2018.
During the year ended December 31, 2017, we sold 8.4 million shares of common stock through our “at-the-market” equity program that resulted in net proceeds of $448.3 million. The net proceeds from these issuances were used for general corporate purposes, including repayment of outstanding indebtedness and to fund capital expenditures.
Prior to the close of the Merger Transaction, ONEOK Partners had an “at-the-market” equity program for the offer and sale from time to time of its common units, up to an aggregate amount of $650 million. During the six months ended June 30, 2017, and the year ended December 31, 2016, no common units were sold through ONEOK Partners’ “at-the-market” equity program. Upon the close of the Merger Transaction on June 30, 2017, the ONEOK Partners “at-the-market” equity program terminated.
Dividends - Holders of our common stock share equally in any dividend declared by our board of directors, subject to the rights of the holders of outstanding preferred stock. Dividends paid totaled $1.3 billion, $829.4 million and $517.6 million for 2018, 2017 and 2016, respectively. In addition to the increase in dividends paid per share outlined in the table below, dividends paid increased due to the increase in number of shares outstanding as a result of the closing of the Merger Transaction and our equity issuances. The following table sets forth the quarterly dividends per share paid on our common stock in the periods indicated:
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| First Quarter | $ | 0.770 | $ | 0.615 | $ | 0.615 | ||||||
| Second Quarter | 0.795 | 0.615 | 0.615 | |||||||||
| Third Quarter | 0.825 | 0.745 | 0.615 | |||||||||
| Fourth Quarter | 0.855 | 0.745 | 0.615 | |||||||||
| Total | $ | 3.245 | $ | 2.72 | $ | 2.46 |
Additionally, in February 2019, we paid a quarterly dividend of $0.86 per share ($3.44 per share on an annualized basis), which was paid to shareholders of record as of January 28, 2019.
The Series E Preferred Stock pays quarterly dividends on each share of Series E Preferred Stock, when, as and if declared by our Board of Directors, at a rate of 5.5 percent per year. We paid dividends for the Series E Preferred Stock of $1.1 million and $0.6 million in 2018 and 2017, respectively. We paid dividends totaling $0.3 million for the Series E Preferred Stock in February 2019.
Cash Distributions - Prior to the consummation of the Merger Transaction, we received distributions from ONEOK Partners on our common and Class B units and our 2 percent general partner interest, which included our incentive distribution rights.
As a result of the Merger Transaction, we are entitled to receive all available ONEOK Partners cash. Our incentive distribution rights effectively terminated at the close of the Merger Transaction.
The following table sets forth ONEOK Partners’ distributions paid during the periods prior to the closing of the Merger Transaction on June 30, 2017:
| Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| (Thousands, except per unit amounts) | ||||||||
| Distribution per unit | $ | 1.58 | $ | 3.16 | ||||
| General partner distributions | $ | 13,320 | $ | 26,640 | ||||
| Incentive distributions | 201,076 | 402,152 | ||||||
| Distributions to general partner | 214,396 | 428,792 | ||||||
| Limited partner distributions to ONEOK | 180,646 | 361,292 | ||||||
| Limited partner distributions to other unitholders | 270,959 | 541,919 | ||||||
| Total distributions paid | $ | 666,001 | $ | 1,332,003 |
| H. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The following table sets forth the balance in accumulated other comprehensive loss for the periods indicated:
| Unrealized Gains (Losses) on Risk- Management Assets/Liabilities (a) | Pension and Postretirement Benefit Plan Obligations (a) (b) | Unrealized Gains (Losses) on Risk- Management Assets/Liabilities of Unconsolidated Affiliates (a) | Accumulated Other Comprehensive Loss (a) | |||||||||||||
| (Thousands of dollars) | ||||||||||||||||
| January 1, 2017 | $ | (52,155 | ) | $ | (101,236 | ) | $ | (959 | ) | $ | (154,350 | ) | ||||
| Other comprehensive income (loss) before reclassifications | (35,013 | ) | (12,337 | ) | (409 | ) | (47,759 | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | 45,541 | 8,162 | 164 | 53,867 | ||||||||||||
| Impact of Merger Transaction (c) | (40,288 | ) | — | — | (40,288 | ) | ||||||||||
| Other comprehensive income (loss) attributable to ONEOK | (29,760 | ) | (4,175 | ) | (245 | ) | (34,180 | ) | ||||||||
| December 31, 2017 | (81,915 | ) | (105,411 | ) | (1,204 | ) | (188,530 | ) | ||||||||
| Beginning balance adjustments (d) | 3,078 | (805 | ) | (2,273 | ) | — | ||||||||||
| Other comprehensive income (loss) before reclassifications | (5,673 | ) | (8,116 | ) | 2,396 | (11,393 | ) | |||||||||
| Amounts reclassified from accumulated other comprehensive loss | 36,870 | 12,887 | 28 | 49,785 | ||||||||||||
| Other comprehensive income (loss) attributable to ONEOK | 31,197 | 4,771 | 2,424 | 38,392 | ||||||||||||
| Impact of adoption of ASU 2018-02 (e) | (17,020 | ) | (20,340 | ) | (741 | ) | (38,101 | ) | ||||||||
| December 31, 2018 | $ | (64,660 | ) | $ | (121,785 | ) | $ | (1,794 | ) | $ | (188,239 | ) |
(a) All amounts are presented net of tax.
(b) Includes amounts related to supplemental executive retirement plan.
(c) Includes the remaining portion of ONEOK Partners’ accumulated other comprehensive loss at June 30, 2017, that we acquired in the Merger Transaction, related to commodity and interest-rate contracts.
(d) Reclassifications were made between categories to conform to current presentation.
(e) We elected to adopt this guidance in the first quarter 2018, which allows a reclassification from accumulated other comprehensive income/loss to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act. After adopting and applying this guidance, our accumulated other comprehensive loss balance does not include stranded taxes resulting from the Tax Cuts and Jobs Act.
The following table sets forth information about the balance of accumulated other comprehensive loss at December 31, 2018, representing unrealized gains/(losses) related to risk management assets and liabilities:
| Risk- Management Assets/Liabilities (a) | ||||
| (Thousands of dollars) | ||||
| Commodity derivative instruments expected to be realized within the next 24 months (b) | $ | 37,589 | ||
| Settled interest-rate swaps to be recognized over the life of the long-term, fixed-rate debt (c) | (40,037 | ) | ||
| Forward-starting interest-rate swaps with future settlement dates expected to be amortized over the life of long-term fixed-rate debt upon issuance of the debt | (62,212 | ) | ||
| Accumulated other comprehensive loss at December 31, 2018 | $ | (64,660 | ) |
(a) - All amounts are presented net of tax.
(b) - Based on December 31, 2018, commodity prices, we will realize $37.5 million in net gains, net of tax, over the next 12 months and $0.1 million in net gains, net of tax, thereafter.
(c) - Losses of $13.5 million, net of tax, will be reclassified into earnings during the next 12 months as the hedged items affect earnings.
The remaining amounts in accumulated other comprehensive loss relate primarily to our pension and postretirement benefit plan obligations, which are expected to be amortized over the average remaining service period of employees participating in these plans.
The following table sets forth the effect of reclassifications from accumulated other comprehensive loss in our Consolidated Statements of Income for the periods indicated:
| Details about Accumulated Other Comprehensive Loss Components | Years Ended December 31, | Affected Line Item in the Consolidated Statements of Income | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||||
| (Thousands of dollars) | ||||||||||||||
| Risk-management assets/liabilities | ||||||||||||||
| Commodity contracts | $ | (29,596 | ) | $ | (69,561 | ) | $ | 26,422 | Commodity sales revenues | |||||
| Interest-rate contracts | (18,287 | ) | (21,025 | ) | (19,215 | ) | Interest expense | |||||||
| (47,883 | ) | (90,586 | ) | 7,207 | Income before income taxes | |||||||||
| 11,013 | 26,899 | (230 | ) | Income taxes | ||||||||||
| (36,870 | ) | (63,687 | ) | 6,977 | Net income | |||||||||
| Noncontrolling interests | — | (18,146 | ) | 6,301 | Less: Net income attributable noncontrolling interests | |||||||||
| $ | (36,870 | ) | $ | (45,541 | ) | $ | 676 | Net income attributable to ONEOK | ||||||
| Pension and postretirement benefit plan obligations (a) | ||||||||||||||
| Amortization of net loss | $ | (18,398 | ) | $ | (15,265 | ) | $ | (12,012 | ) | Other income (expense) | ||||
| Amortization of unrecognized prior service cost | 1,662 | 1,662 | 1,662 | Other income (expense) | ||||||||||
| (16,736 | ) | (13,603 | ) | (10,350 | ) | Income before income taxes | ||||||||
| 3,849 | 5,441 | 4,140 | Income taxes | |||||||||||
| $ | (12,887 | ) | $ | (8,162 | ) | $ | (6,210 | ) | Net income attributable to ONEOK | |||||
| Risk-management assets/liabilities of unconsolidated affiliates | ||||||||||||||
| Interest-rate contracts | $ | (36 | ) | $ | (367 | ) | $ | (63 | ) | Equity in net earnings from investments | ||||
| 8 | 97 | 10 | Income taxes | |||||||||||
| (28 | ) | (270 | ) | (53 | ) | Net income | ||||||||
| Noncontrolling interests | — | (106 | ) | (37 | ) | Less: Net income attributable to noncontrolling interests | ||||||||
| $ | (28 | ) | $ | (164 | ) | $ | (16 | ) | Net income attributable to ONEOK | |||||
| Total reclassifications for the period attributable to ONEOK | $ | (49,785 | ) | $ | (53,867 | ) | $ | (5,550 | ) | Net income attributable to ONEOK |
(a) These components of accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note K for additional detail of our net periodic benefit cost.
| I. | EARNINGS PER SHARE |
The following tables set forth the computation of basic and diluted EPS for the periods indicated:
| Year Ended December 31, 2018 | |||||||||||
| Income | Shares | Per Share Amount | |||||||||
| (Thousands, except per share amounts) | |||||||||||
| Basic EPS | |||||||||||
| Net income attributable to ONEOK available for common stock | $ | 1,150,603 | 411,485 | $ | 2.80 | ||||||
| Diluted EPS | |||||||||||
| Effect of dilutive securities | — | 2,710 | |||||||||
| Net income attributable to ONEOK available for common stock and common stock equivalents | $ | 1,150,603 | 414,195 | $ | 2.78 |
| Year Ended December 31, 2017 | |||||||||||
| Income | Shares | Per Share Amount | |||||||||
| (Thousands, except per share amounts) | |||||||||||
| Basic EPS | |||||||||||
| Net income attributable to ONEOK available for common stock | $ | 387,074 | 297,477 | $ | 1.30 | ||||||
| Diluted EPS | |||||||||||
| Effect of dilutive securities | — | 2,303 | |||||||||
| Net income attributable to ONEOK available for common stock and common stock equivalents | $ | 387,074 | 299,780 | $ | 1.29 |
| Year Ended December 31, 2016 | |||||||||||
| Income | Shares | Per Share Amount | |||||||||
| (Thousands, except per share amounts) | |||||||||||
| Basic EPS | |||||||||||
| Net income attributable to ONEOK available for common stock | $ | 352,039 | 211,128 | $ | 1.67 | ||||||
| Diluted EPS | |||||||||||
| Effect of dilutive securities | — | 1,255 | |||||||||
| Net income attributable to ONEOK available for common stock and common stock equivalents | $ | 352,039 | 212,383 | $ | 1.66 |
| J. | SHARE-BASED PAYMENTS |
The ONEOK, Inc. Equity Compensation Plan (ECP) and the ONEOK, Inc. Long-Term Incentive Plan (LTIP) historically provided for the granting of stock-based compensation, including incentive stock options, nonstatutory stock options, stock bonus awards, restricted stock awards, restricted stock unit awards, performance stock awards and performance unit awards to eligible employees and the granting of stock awards to nonemployee directors. The ECP was terminated immediately following the issuance of new awards in February 2018. The awards issued prior to the termination remain subject to the terms of the ECP and the applicable award agreement. Similarly, the LTIP was terminated in May 2018, and the awards issued under the LTIP prior to the termination date remain subject to the terms of the LTIP and the applicable award agreement. In May 2018, our shareholders approved a new Equity Incentive Plan (EIP), which has been used for all new equity awards since such date. We have reserved 8.5 million shares of common stock for issuance under the EIP and at December 31, 2018, we had 8.5 million shares available for issuance under the plan. This calculation of available shares reflects shares issued and estimated shares expected to be issued upon vesting of outstanding awards granted under the EIP, excluding estimated forfeitures expected to be returned to the plan.
Restricted Stock Units - We have granted restricted stock units to key employees that vest at the end of a three-year period and entitle the grantee to receive shares of our common stock. Restricted stock unit awards are measured at fair value as if they were vested and issued on the grant date and adjusted for estimated forfeitures. Restricted stock unit awards granted accrue dividend equivalents in the form of additional restricted stock units prior to vesting. Compensation expense is recognized on a straight-line basis over the vesting period of the award.
Performance Unit Awards - We have granted performance unit awards to key employees that vest at the end of a three-year period. Upon vesting, a holder of outstanding performance units is entitled to receive a number of shares of our common stock equal to a percentage (0 percent to 200 percent) of the performance units granted, based on our total shareholder return over the vesting period, compared with the total shareholder return of a peer group of other energy companies over the same period. Performance unit awards are measured at fair value on the grant date based on a Monte Carlo model and adjusted for estimated forfeitures. Performance stock unit awards granted accrue dividend equivalents in the form of additional performance units prior to vesting. Compensation expense is recognized on a straight-line basis over the vesting period of the award.
Stock Compensation for Non-Employee Directors
The ONEOK, Inc. Stock Compensation Plan for Non-Employee Directors (the DSCP) historically provided for the granting of nonstatutory stock options, stock bonus awards, including performance unit awards and restricted stock awards. The DSCP was terminated in May 2018 and replaced by the EIP. Under the EIP, awards may be granted by the Executive Compensation Committee at any time, until grants have been made for all shares authorized under the EIP. The maximum number of shares of
common stock and cash-based awards that can be issued to a participant under the EIP during any year is limited to $0.8 million in value as of the grant date. No performance unit awards or restricted stock awards have been made to nonemployee directors under the EIP or DSCP. There are no options outstanding under the EIP or DSCP.
General
For all awards outstanding, we used a 3 percent forfeiture rate based on historical forfeitures under our share-based payment plans. We currently use treasury stock to satisfy our share-based payment obligations.
Compensation expense for our share-based payment plans was $25.6 million, $16.6 million and $30.7 million during 2018, 2017 and 2016, respectively, which is net of tax benefits of $7.6 million, $11.1 million and $9.8 million, respectively.
Restricted Stock Unit Activity
As of December 31, 2018, we had $13.9 million of total unrecognized compensation cost related to our nonvested restricted stock unit awards, which is expected to be recognized over a weighted-average period of 1.9 years. The following tables set forth activity and various statistics for our restricted stock unit awards:
| Number of Units | Weighted Average Price | ||||||
| Nonvested December 31, 2017 | 1,001,805 | $ | 32.30 | ||||
| Granted | 296,277 | $ | 46.94 | ||||
| Released to participants | (243,289 | ) | $ | 39.26 | |||
| Forfeited | (29,600 | ) | $ | 39.34 | |||
| Nonvested December 31, 2018 | 1,025,193 | $ | 34.68 |
| 2018 | 2017 | 2016 | ||||||||||
| Weighted-average grant date fair value (per share) | $ | 46.94 | $ | 45.11 | $ | 20.04 | ||||||
| Fair value of units granted (thousands of dollars) | $ | 13,907 | $ | 12,685 | $ | 11,081 | ||||||
| Fair value of units vested (thousands of dollars) | $ | 9,552 | $ | 7,258 | $ | 4,429 |
Performance Unit Activity
As of December 31, 2018, we had $21.1 million of total unrecognized compensation cost related to the nonvested performance unit awards, which is expected to be recognized over a weighted-average period of 1.9 years. The following tables set forth activity and various statistics related to the performance unit awards and the assumptions used in the valuations at the respective grant dates:
| Number of Units | Weighted Average Price | ||||||
| Nonvested December 31, 2017 | 1,136,133 | $ | 40.08 | ||||
| Granted | 370,677 | $ | 59.57 | ||||
| Released to participants | (257,807 | ) | $ | 48.66 | |||
| Forfeited | (5,360 | ) | $ | 46.97 | |||
| Nonvested December 31, 2018 | 1,243,643 | $ | 44.08 |
| 2018 | 2017 | 2016 | ||||
| Volatility (a) | 39.20% | 40.59% | 39.94% | |||
| Dividend yield | 5.49% | 4.68% | 11.32% | |||
| Risk-free interest rate | 2.44% | 1.49% | 0.93% |
(a) - Volatility was based on historical volatility over three years using daily stock price observations.
| 2018 | 2017 | 2016 | ||||||||||
| Weighted-average grant date fair value (per share) | $ | 59.57 | $ | 56.65 | $ | 25.54 | ||||||
| Fair value of units granted (thousands of dollars) | $ | 22,081 | $ | 17,621 | $ | 15,229 | ||||||
| Fair value of units vested (thousands of dollars) | $ | 12,545 | $ | 8,704 | $ | — |
Employee Stock Purchase Plan
We have reserved a total of 11.6 million shares of common stock for issuance under our ONEOK, Inc. Employee Stock Purchase Plan (the ESPP). Subject to certain exclusions, all employees are eligible to participate in the ESPP. Employees can choose to have up to 10 percent of their annual base pay withheld to purchase our common stock, subject to terms and limitations of the plan. The purchase price of the stock is 85 percent of the lower of its grant date or exercise date market price. Approximately 60 percent, 58 percent and 57 percent of employees participated in the plan in 2018, 2017 and 2016, respectively. Under the plan, we sold 165,877 shares at $45.53 per share in 2018, 151,803 shares at $44.20 per share in 2017 and 232,553 shares at $27.21 per share in 2016.
Employee Stock Award Program
Under our Employee Stock Award Program, we issued, for no monetary consideration, to all eligible employees one share of our common stock when the per-share closing price of our common stock on the NYSE was for the first time at or above $13 per share, and one additional share of common stock when the per-share closing price of our common stock on the NYSE was at or above each one dollar increment above $13. The total number of shares of our common stock available for issuance under this program is 900,000. Shares issued to employees under this program during 2018 totaled 2,553 and compensation expense related to the Employee Stock Award Program was $0.2 million. No shares were issued to employees under this program during 2017 or 2016. The next award will be issued when our common stock closes at or above $72.
Deferred Compensation Plan for Non-Employee Directors
The ONEOK, Inc. Deferred Compensation Plan for Non-Employee Directors provides our nonemployee directors the option to defer all or a portion of their compensation for their service on our Board of Directors. Under the plan, directors may elect either a cash deferral option or a phantom stock option. Under the cash deferral option, directors may elect to defer the receipt of all or a portion of their annual retainer fees, which will be credited with interest during the deferral period. Under the phantom stock option, directors may defer all or a portion of their annual retainer fees and receive such fees on a deferred basis in the form of shares of common stock under our EIP, which earn the equivalent of dividends declared on our common stock. Shares are distributed to nonemployee directors at the fair market value of our common stock at the date of distribution.
| K. | EMPLOYEE BENEFIT PLANS |
Retirement and Other Postretirement Benefit Plans
Retirement Plans - We have a defined benefit pension plan covering certain employees and former employees hired before January 1, 2005. Employees hired after December 31, 2004, and employees who accepted a one-time opportunity to opt out of our defined benefit pension plan historically were covered by our Profit Sharing Plan, which was merged into our 401(k) Plan effective January 1, 2019. In addition, we have a supplemental executive retirement plan for the benefit of certain officers. No new participants in our supplemental executive retirement plan have been approved since 2005, and effective January 2014, the plan was formally closed to new participants. We fund our retirement costs at a level needed to maintain or exceed the minimum funding levels required by the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006.
Other Postretirement Benefit Plans - We sponsor health and welfare plans that provide postretirement medical and life insurance benefits to employees hired prior to 2017 who retire with at least five years of service. The postretirement medical plan is contributory with retiree contributions adjusted periodically and contains other cost-sharing features such as deductibles and coinsurance.
Obligations and Funded Status - The following table sets forth our retirement and other postretirement benefit plans benefit obligations and fair value of plan assets for the periods indicated:
| Retirement Benefits | Other Postretirement Benefits | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Change in benefit obligation | (Thousands of dollars) | |||||||||||||||
| Benefit obligation, beginning of period | $ | 481,615 | $ | 428,386 | $ | 57,938 | $ | 54,823 | ||||||||
| Service cost | 7,339 | 6,896 | 845 | 662 | ||||||||||||
| Interest cost | 17,659 | 18,645 | 2,108 | 2,261 | ||||||||||||
| Plan participants’ contributions | — | — | 1,050 | 901 | ||||||||||||
| Actuarial loss (gain) | (24,345 | ) | 41,678 | (10,233 | ) | 3,456 | ||||||||||
| Benefits paid | (15,274 | ) | (13,990 | ) | (4,868 | ) | (4,165 | ) | ||||||||
| Benefit obligation, end of period | 466,994 | 481,615 | 46,840 | 57,938 | ||||||||||||
| Change in plan assets | ||||||||||||||||
| Fair value of plan assets, beginning of period | 306,008 | 261,671 | 34,133 | 29,550 | ||||||||||||
| Actual return on plan assets | (12,350 | ) | 50,827 | (998 | ) | 5,385 | ||||||||||
| Employer contributions | 12,300 | 7,500 | 1,100 | 2,000 | ||||||||||||
| Plan participants’ contributions | — | — | 1,050 | 901 | ||||||||||||
| Benefits paid | (15,274 | ) | (13,990 | ) | (4,485 | ) | (3,703 | ) | ||||||||
| Fair value of plan assets, end of period | 290,684 | 306,008 | 30,800 | 34,133 | ||||||||||||
| Balance at December 31 | $ | (176,310 | ) | $ | (175,607 | ) | $ | (16,040 | ) | $ | (23,805 | ) | ||||
| Current liabilities | $ | (4,514 | ) | $ | (4,544 | ) | $ | — | $ | — | ||||||
| Noncurrent liabilities | (171,796 | ) | (171,063 | ) | (16,040 | ) | (23,805 | ) | ||||||||
| Balance at December 31 | $ | (176,310 | ) | $ | (175,607 | ) | $ | (16,040 | ) | $ | (23,805 | ) |
The table above includes the supplemental executive retirement plan obligation. ONEOK has investments included in other assets on the Consolidated Balance Sheets, which totaled $87.7 million and $93.2 million at December 31, 2018 and 2017, respectively, for the purpose of funding the obligation. These assets are not assets of the supplemental executive retirement plan and are excluded from the table above.
The accumulated benefit obligation for our retirement plans was $434.4 million and $456.6 million at December 31, 2018 and 2017, respectively.
The actuarial gains and losses impacting our benefit obligations for our retirement and other postretirement benefit plans are due primarily to changes in the discount rate assumptions discussed in the “Actuarial Assumptions” section below.
Components of Net Periodic Benefit Cost - The following table sets forth the components of net periodic benefit cost for our retirement and other postretirement benefit plans for the periods indicated:
| Retirement Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
| Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||
| (Thousands of dollars) | ||||||||||||||||||||||||
| Components of net periodic benefit cost | ||||||||||||||||||||||||
| Service cost | $ | 7,339 | $ | 6,896 | $ | 6,501 | $ | 845 | $ | 662 | $ | 596 | ||||||||||||
| Interest cost | 17,659 | 18,645 | 19,820 | 2,108 | 2,261 | 2,404 | ||||||||||||||||||
| Expected return on plan assets | (23,917 | ) | (21,376 | ) | (20,348 | ) | (2,690 | ) | (2,257 | ) | (2,124 | ) | ||||||||||||
| Amortization of prior service credit | — | — | — | (1,662 | ) | (1,662 | ) | (1,662 | ) | |||||||||||||||
| Amortization of net loss | 17,060 | 13,586 | 10,966 | 1,338 | 1,679 | 1,046 | ||||||||||||||||||
| Net periodic benefit cost | $ | 18,141 | $ | 17,751 | $ | 16,939 | $ | (61 | ) | $ | 683 | $ | 260 |
Other Comprehensive Income (Loss) - The following table sets forth the amounts recognized in other comprehensive income (loss) related to our retirement benefits and other postretirement benefits for the periods indicated:
| Retirement Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
| Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||
| (Thousands of dollars) | ||||||||||||||||||||||||
| Net gain (loss) arising during the period | $ | (16,351 | ) | $ | (16,572 | ) | $ | (33,043 | ) | $ | 6,545 | $ | (328 | ) | $ | (5,128 | ) | |||||||
| Amortization of prior service credit | — | — | — | (1,662 | ) | (1,662 | ) | (1,662 | ) | |||||||||||||||
| Amortization of net loss | 17,060 | 13,586 | 10,966 | 1,338 | 1,679 | 1,046 | ||||||||||||||||||
| Deferred income taxes (a) | (18,928 | ) | (960 | ) | 8,831 | (2,831 | ) | 82 | 2,297 | |||||||||||||||
| Total recognized in other comprehensive income (loss) | $ | (18,219 | ) | $ | (3,946 | ) | $ | (13,246 | ) | $ | 3,390 | $ | (229 | ) | $ | (3,447 | ) |
(a) - Year ended December 31, 2018, includes the impact of adopting ASU 2018-02.
The table below sets forth the amounts in accumulated other comprehensive loss that had not yet been recognized as components of net periodic benefit expense for the periods indicated:
| Retirement Benefits | Other Postretirement Benefits | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (Thousands of dollars) | ||||||||||||||||
| Prior service credit | $ | — | $ | — | $ | 227 | $ | 1,889 | ||||||||
| Accumulated loss | (160,212 | ) | (160,921 | ) | (5,108 | ) | (12,991 | ) | ||||||||
| Accumulated other comprehensive loss | (160,212 | ) | (160,921 | ) | (4,881 | ) | (11,102 | ) | ||||||||
| Deferred income taxes | 43,286 | 62,214 | 1,567 | 4,398 | ||||||||||||
| Accumulated other comprehensive loss, net of tax | $ | (116,926 | ) | $ | (98,707 | ) | $ | (3,314 | ) | $ | (6,704 | ) |
Actuarial Assumptions - The following table sets forth the weighted-average assumptions used to determine benefit obligations for retirement and other postretirement benefits for the periods indicated:
| Retirement Benefits | Other Postretirement Benefits | |||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | 2018 | 2017 | |||||
| Discount rate | 4.50% | 3.75% | 4.50% | 3.75% | ||||
| Compensation increase rate | 3.65% | 3.00% | N/A | N/A |
The following table sets forth the weighted-average assumptions used to determine net periodic benefit costs for the periods indicated:
| Years Ended December 31, | ||||||
| 2018 | 2017 | 2016 | ||||
| Discount rate - retirement plans | 3.75% | 4.50% | 5.25% | |||
| Discount rate - other postretirement plans | 3.75% | 4.25% | 5.00% | |||
| Expected long-term return on plan assets | 8.00% | 7.75% | 7.75% | |||
| Compensation increase rate | 3.00% | 3.10% | 3.10% |
We determine our overall expected long-term rate of return on plan assets based on our review of historical returns and economic growth models.
We determine our discount rates annually. We estimate our discount rate based upon a comparison of the expected cash flows associated with our future payments under our retirement and other postretirement obligations to a hypothetical bond portfolio created using high-quality bonds that closely match expected cash flows. Bond portfolios are developed by selecting a bond for each of the next 60 years based on the maturity dates of the bonds. Bonds selected to be included in the portfolios are only those rated by Moody’s as AA- or better and exclude callable bonds, bonds with less than a minimum issue size, yield outliers and other filtering criteria to remove unsuitable bonds.
Health Care Cost Trend Rates - The following table sets forth the assumed health care cost-trend rates for the periods indicated:
| 2018 | 2017 | |||
| Health care cost-trend rate assumed for next year | 6.50% | 7.00% | ||
| Rate to which the cost-trend rate is assumed to decline (the ultimate trend rate) | 5.00% | 5.00% | ||
| Year that the rate reaches the ultimate trend rate | 2022 | 2022 |
Plan Assets - Our investment strategy is to invest plan assets in accordance with sound investment practices that emphasize long-term fundamentals. The goal of this strategy is to maximize investment returns while managing risk in order to meet the plan’s current and projected financial obligations. The investment policy follows a glide path approach toward liability-driven investing that shifts a higher portfolio weighting to fixed income as the plan's funded status increases. The purpose of liability-driven investing is to structure the asset portfolio to more closely resemble the pension liability and thereby more effectively hedge against changes in the liability. The plan’s current investments include a diverse blend of various domestic and international equities, investments in various classes of debt securities, real estate and hedge funds. The target allocation for the assets of our retirement plan as of December 31, 2018, is as follows:
| Domestic and international equities | 42 | % | |
| Long duration fixed income | 30 | % | |
| Return-seeking credit | 11 | % | |
| Hedge funds | 10 | % | |
| Real estate funds | 7 | % | |
| Total | 100 | % |
As part of our risk management for the plans, minimums and maximums have been set for each of the asset classes listed above. All investment managers for the plan are subject to certain restrictions on the securities they purchase and, with the exception of indexing purposes, are prohibited from owning our stock.
The following tables set forth the plan assets by fair value category as of the measurement date for our defined benefit pension and other postretirement benefit plans:
| Pension Benefits | ||||||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | Subtotal | Measured at NAV (d) | Total | ||||||||||||||||||
| (Thousands of dollars) | ||||||||||||||||||||||||
| Investments: | ||||||||||||||||||||||||
| Equity securities (a) | $ | 58 | $ | — | $ | — | $ | 58 | $ | 116,790 | $ | 116,848 | ||||||||||||
| Real estate funds | — | — | — | — | 20,569 | 20,569 | ||||||||||||||||||
| Government obligations | — | — | — | — | 48,913 | 48,913 | ||||||||||||||||||
| Corporate obligations (b) | — | — | — | — | 69,377 | 69,377 | ||||||||||||||||||
| Common/collective trusts | — | 3,961 | — | 3,961 | — | 3,961 | ||||||||||||||||||
| Cash | 95 | — | — | 95 | — | 95 | ||||||||||||||||||
| Other investments (c) | — | — | — | — | 30,921 | 30,921 | ||||||||||||||||||
| Fair value of plan assets | $ | 153 | $ | 3,961 | $ | — | $ | 4,114 | $ | 286,570 | $ | 290,684 |
(a) - This category represents securities of the respective market sector from diverse industries.
(b) - This category represents bonds from diverse industries.
(c) - This category represents alternative investments in limited partnerships, which can be redeemed with a 30-day notice with no further restrictions. There are no unfunded capital commitments.
(d) - Plan asset investments measured at fair value using the net asset value per share.
| Pension Benefits | ||||||||||||||||||||||||
| December 31, 2017 | ||||||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | Subtotal | Measured at NAV (d) | Total | ||||||||||||||||||
| (Thousands of dollars) | ||||||||||||||||||||||||
| Investments: | ||||||||||||||||||||||||
| Equity securities (a) | $ | 176,347 | $ | 19,199 | $ | — | $ | 195,546 | $ | — | $ | 195,546 | ||||||||||||
| Government obligations | — | 19,481 | — | 19,481 | — | 19,481 | ||||||||||||||||||
| Corporate obligations (b) | — | 62,981 | — | 62,981 | — | 62,981 | ||||||||||||||||||
| Common/collective trusts | — | 6,621 | — | 6,621 | — | 6,621 | ||||||||||||||||||
| Cash | 298 | — | — | 298 | — | 298 | ||||||||||||||||||
| Other investments (c) | — | — | — | — | 21,081 | 21,081 | ||||||||||||||||||
| Fair value of plan assets | $ | 176,645 | $ | 108,282 | $ | — | $ | 284,927 | $ | 21,081 | $ | 306,008 |
(a) - This category represents securities of the respective market sector from diverse industries.
(b) - This category represents bonds from diverse industries.
(c) - This category represents alternative investments in limited partnerships, which can be redeemed with a 30-day notice with no further restrictions. There are no unfunded capital commitments.
(d) - Plan asset investments measured at fair value using the net asset value per share.
| Other Postretirement Benefits | ||||||||||||||||
| December 31, 2018 | ||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (Thousands of dollars) | ||||||||||||||||
| Investments: | ||||||||||||||||
| Equity securities (a) | $ | 1,792 | $ | — | $ | — | $ | 1,792 | ||||||||
| Money market funds | 1 | 413 | — | 414 | ||||||||||||
| Insurance and group annuity contracts | — | 28,594 | — | 28,594 | ||||||||||||
| Fair value of plan assets | $ | 1,793 | $ | 29,007 | $ | — | $ | 30,800 |
(a) - This category represents securities of the respective market sector from diverse industries.
| Other Postretirement Benefits | ||||||||||||||||
| December 31, 2017 | ||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (Thousands of dollars) | ||||||||||||||||
| Investments: | ||||||||||||||||
| Equity securities (a) | $ | 1,951 | $ | — | $ | — | $ | 1,951 | ||||||||
| Money market funds | — | 1,515 | — | 1,515 | ||||||||||||
| Insurance and group annuity contracts | — | 30,667 | — | 30,667 | ||||||||||||
| Fair value of plan assets | $ | 1,951 | $ | 32,182 | $ | — | $ | 34,133 |
(a) - This category represents securities of the respective market sector from diverse industries.
Contributions - During 2018, we made $12.3 million in contributions to our defined benefit pension plan and $1.1 million in contributions to our other postretirement benefit plans. We contributed $14.5 million to our defined benefit pension plan in January 2019 and expect to make $2.0 million in contributions to our other postretirement plans in 2019.
Pension and Other Postretirement Benefit Payments - Benefit payments for our defined benefit pension and other postretirement benefit plans for the period ending December 31, 2018, were $15.3 million and $4.9 million, respectively. The following table sets forth the defined benefit pension and other postretirement benefits payments expected to be paid in 2019 through 2028:
| Pension Benefits | Other Postretirement Benefits | |||||||
| Benefits to be paid in: | (Thousands of dollars) | |||||||
| 2019 | $ | 17,014 | $ | 3,114 | ||||
| 2020 | $ | 18,164 | $ | 3,237 | ||||
| 2021 | $ | 19,215 | $ | 3,230 | ||||
| 2022 | $ | 20,279 | $ | 3,346 | ||||
| 2023 | $ | 21,362 | $ | 3,315 | ||||
| 2024 through 2028 | $ | 122,012 | $ | 16,178 |
The expected benefits to be paid are based on the same assumptions used to measure our benefit obligation at December 31, 2018, and include estimated future employee service.
Other Employee Benefit Plans
401(k) Plan - We have a 401(k) Plan covering all employees, and employee contributions are discretionary. We match 100 percent of employee contributions up to 6 percent of each participant’s eligible compensation, subject to certain limits. Our contributions made to the plan were $15.1 million, $13.7 million and $11.9 million in 2018, 2017 and 2016, respectively.
Profit Sharing Plan - We historically maintained a profit-sharing plan (Profit Sharing Plan) for all employees hired after December 31, 2004. Employees who were employed prior to January 1, 2005, were given a one-time opportunity to make an irrevocable election to participate in the Profit Sharing Plan and not accrue any additional benefits under our defined benefit pension plan after December 31, 2004. The Profit Sharing Plan was merged into our 401(k) Plan as of January 1, 2019, and ceased to exist as a separate plan. We plan to make a contribution to the 401(k) Plan each quarter equal to 1 percent of each profit-sharing participant’s eligible compensation during the quarter. Additional discretionary employer profit-sharing contributions may be made at the end of each year. Our contributions made to our former Profit Sharing Plan were $12.9 million, $7.4 million and $8.2 million in 2018, 2017 and 2016, respectively.
Nonqualified Deferred Compensation Plan - The Nonqualified Deferred Compensation Plan provides select employees, as approved by our Chief Executive Officer, with the option to defer portions of their compensation and provides nonqualified deferred compensation benefits that are not available due to limitations on employer and employee contributions to qualified defined contribution plans under the federal tax laws. The plan also provides benefits in excess of applicable tax limits for certain participants in the defined benefit pension plan who are not participants in the supplemental executive retirement plan. Our contributions to the plan were not material in 2018, 2017 and 2016.
| L. | INCOME TAXES |
The following table sets forth our provision for income taxes from continuing operations and excludes discontinued operations for the periods indicated:
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (Thousands of dollars) | ||||||||||||
| Current income tax provision | ||||||||||||
| Federal | $ | 260 | $ | 295 | $ | 6,086 | ||||||
| State | 1,633 | 1,670 | 2,449 | |||||||||
| Total current income taxes | 1,893 | 1,965 | 8,535 | |||||||||
| Deferred income tax provision | ||||||||||||
| Federal | 319,551 | 376,728 | 193,974 | |||||||||
| State | 41,459 | 68,589 | 9,897 | |||||||||
| Total deferred income taxes | 361,010 | 445,317 | 203,871 | |||||||||
| Total provision for income taxes | $ | 362,903 | $ | 447,282 | $ | 212,406 |
The following table is a reconciliation of our income tax provision from continuing operations and excludes discontinued operations for the periods indicated:
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (Thousands of dollars) | ||||||||||||
| Income before income taxes | $ | 1,517,935 | $ | 1,040,801 | $ | 957,956 | ||||||
| Less: Net income attributable to noncontrolling interests | 3,329 | 205,678 | 391,460 | |||||||||
| Net income attributable to ONEOK before income taxes | 1,514,606 | 835,123 | 566,496 | |||||||||
| Federal statutory income tax rate | 21.0 | % | 35.0 | % | 35.0 | % | ||||||
| Provision for federal income taxes | 318,067 | 292,293 | 198,274 | |||||||||
| State income taxes, net of federal benefit | 38,668 | 16,197 | 12,303 | |||||||||
| Deferred tax rate change, inclusive of valuation allowance | 5,552 | 141,283 | 43 | |||||||||
| Other, net | 616 | (2,491 | ) | 1,786 | ||||||||
| Income tax provision | $ | 362,903 | $ | 447,282 | $ | 212,406 |
The following table sets forth the tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities for the periods indicated:
| December 31, 2018 | December 31, 2017 | |||||||
| Deferred tax assets | (Thousands of dollars) | |||||||
| Employee benefits and other accrued liabilities | $ | 91,587 | $ | 85,355 | ||||
| Federal net operating loss | 420,318 | 159,162 | ||||||
| State net operating loss and benefits | 108,004 | 73,277 | ||||||
| Derivative instruments | 22,108 | 30,060 | ||||||
| Other | 13,378 | 13,546 | ||||||
| Total deferred tax assets | 655,395 | 361,400 | ||||||
| Valuation allowance for state net operating loss and tax credits | ||||||||
| Carryforward expected to expire prior to utilization | (73,820 | ) | (66,632 | ) | ||||
| Net deferred tax assets | 581,575 | 294,768 | ||||||
| Deferred tax liabilities | ||||||||
| Excess of tax over book depreciation | 73,113 | 64,508 | ||||||
| Investment in partnerships (a) | 728,193 | 77,035 | ||||||
| Regulatory assets | — | 15 | ||||||
| Total deferred tax liabilities | 801,306 | 141,558 | ||||||
| Net deferred tax assets (liabilities) | $ | (219,731 | ) | $ | 153,210 |
(a) Due primarily to excess of tax over book depreciation.
In December 2017, the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act made extensive changes to the U.S. tax laws and included provisions that, beginning in 2018, reduced the U.S. corporate tax rate to 21 percent from 35 percent, increased expensing for capital investment, limited the interest deduction, and limited the use of net operating losses to offset future taxable income. We revalued our deferred tax assets and liabilities as required at enactment. At that time, our net deferred tax assets represented expected corporate tax benefits in the future. The reduction in the federal corporate tax rate reduced these benefits, which resulted in a one-time noncash charge to net income through income tax expense of $141.3 million, inclusive of the valuation allowance described below, recorded in the fourth quarter 2017.
Tax benefits related to certain state net operating loss, tax credit carryforwards and charitable contribution carryforwards will begin expiring in 2020. Due to the Tax Cuts and Jobs Act and the impact of increased expensing for capital investment, we believe that it is more likely than not that the tax benefits of certain carryforwards will not be utilized prior to their expirations; therefore, we recorded a valuation allowance of $5.6 million and $54.1 million related to these tax benefits in 2018 and 2017, respectively.
As a result of adopting ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” in first quarter 2017, we recorded an adjustment increasing beginning retained earnings and deferred tax assets of $73.4 million to recognize the cumulative tax benefits included in net operating loss carryforwards on the tax return but not reflected in deferred tax assets as of December 31, 2016. Beginning in January 2017, all share-based payment tax effects have been recorded in earnings.
| M. | UNCONSOLIDATED AFFILIATES |
Investments in Unconsolidated Affiliates - The following table sets forth our investments in unconsolidated affiliates for the periods indicated:
| Net Ownership Interest | December 31, 2018 | December 31, 2017 | ||||||||
| (Thousands of dollars) | ||||||||||
| Northern Border Pipeline | 50% | $ | 381,623 | $ | 396,800 | |||||
| Overland Pass Pipeline Company | 50% | 429,295 | 436,111 | |||||||
| Roadrunner Gas Transmission | 50% | 93,857 | 93,048 | |||||||
| Other | Various | 64,375 | 77,197 | |||||||
| Investments in unconsolidated affiliates (a) | $ | 969,150 | $ | 1,003,156 |
(a) - Equity-method goodwill (Note A) was $38.8 million at December 31, 2018 and 2017.
Equity in Net Earnings from Investments and Impairments - The following table sets forth our equity in net earnings from investments for the periods indicated:
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (Thousands of dollars) | ||||||||||||
| Northern Border Pipeline | $ | 67,854 | $ | 68,153 | $ | 69,990 | ||||||
| Overland Pass Pipeline Company | 65,887 | 60,067 | 53,984 | |||||||||
| Roadrunner Gas Transmission | 22,993 | 19,150 | 4,445 | |||||||||
| Other | 1,649 | 11,908 | 11,271 | |||||||||
| Equity in net earnings from investments | $ | 158,383 | $ | 159,278 | $ | 139,690 | ||||||
| Impairment of equity investments | $ | — | $ | (4,270 | ) | $ | — |
Impairment Charges - In the third quarter 2017, following a review of nonstrategic assets for potential divestiture, we recorded $4.3 million of noncash impairment charges related to a nonstrategic equity investment located in Oklahoma, which was later sold.
Unconsolidated Affiliates Financial Information - The following tables set forth summarized combined financial information of our unconsolidated affiliates for the periods indicated:
| December 31, 2018 | December 31, 2017 | |||||||
| (Thousands of dollars) | ||||||||
| Balance Sheet | ||||||||
| Current assets | $ | 158,723 | $ | 151,907 | ||||
| Property, plant and equipment, net | $ | 2,413,662 | $ | 2,490,692 | ||||
| Other noncurrent assets | $ | 16,273 | $ | 14,793 | ||||
| Current liabilities | $ | 83,057 | $ | 70,434 | ||||
| Long-term debt | $ | 480,731 | $ | 479,050 | ||||
| Other noncurrent liabilities | $ | 47,826 | $ | 53,830 | ||||
| Accumulated other comprehensive loss | $ | 2,053 | $ | (9,946 | ) | |||
| Owners’ equity | $ | 1,974,991 | $ | 2,064,024 |
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (Thousands of dollars) | ||||||||||||
| Income Statement | ||||||||||||
| Operating revenues | $ | 637,762 | $ | 639,102 | $ | 578,542 | ||||||
| Operating expenses | $ | 276,373 | $ | 277,121 | $ | 260,753 | ||||||
| Net income | $ | 337,694 | $ | 347,692 | $ | 293,921 | ||||||
| Distributions paid to us | $ | 197,285 | $ | 196,114 | $ | 196,717 |
We incurred expenses in transactions with unconsolidated affiliates of $153.9 million, $156.1 million and $140.3 million for 2018, 2017 and 2016, respectively, primarily related to Overland Pass Pipeline Company and Northern Border Pipeline. Accounts payable to our equity-method investees at December 31, 2018 and 2017, was $14.7 million and $13.6 million, respectively.
Northern Border Pipeline - The Northern Border Pipeline partnership agreement provides that distributions to Northern Border Pipeline’s partners are to be made on a pro rata basis according to each partner’s percentage interest. The Northern Border Pipeline Management Committee determines the amount and timing of such distributions. Any changes to, or suspension of, the cash distribution policy of Northern Border Pipeline requires the unanimous approval of the Northern Border Pipeline Management Committee. Cash distributions are equal to 100 percent of distributable cash flow as determined from Northern Border Pipeline’s financial statements based upon EBITDA less interest expense and maintenance capital expenditures. Loans or other advances from Northern Border Pipeline to its partners or affiliates are prohibited under its credit agreement. In 2018, we made no contributions to Northern Border Pipeline. In 2017, we made equity contributions of $83 million to Northern Border Pipeline.
Northern Border Pipeline entered into a settlement with shippers that was approved by the FERC in February 2018. The settlement provides for tiered rate reductions beginning January 1, 2018, that will reduce tariff rates 12.5 percent by January 2020, compared with previous tariff rates and requires new rates to be established by January 2024. We do not expect the impact of lower tariff rates on Northern Border Pipeline’s earnings and cash distributions to be material to us.
In compliance with the FERC final rule, Northern Border Pipeline completed the required filing related to the Tax Cuts and Jobs Act, and we do not expect the impact on tariff rates to be material to us.
Overland Pass Pipeline Company - The Overland Pass Pipeline Company limited liability company agreement provides that distributions to Overland Pass Pipeline Company’s members are to be made on a pro rata basis according to each member’s percentage interest. The Overland Pass Pipeline Company Management Committee determines the amount and timing of such distributions. Any changes to, or suspension of, the cash distributions from Overland Pass Pipeline Company requires the unanimous approval of the Overland Pass Pipeline Company Management Committee. Cash distributions are equal to 100 percent of available cash as defined in the limited liability company agreement.
Roadrunner Gas Transmission - The Roadrunner limited liability company agreement provides that distributions to members are made on a pro rata basis according to each member’s ownership interest. As the operator, we have been delegated the authority to determine such distributions in accordance with, and on the frequency set forth in, the Roadrunner limited liability company agreement. Cash distributions are equal to 100 percent of available cash, as defined in the limited liability company agreement. We made contributions of $65 million to Roadrunner in 2016. In 2018 and 2017, our contributions to Roadrunner were not material.
We have an operating agreement with Roadrunner that provides for reimbursement or payment to us for management services and certain operating costs. Reimbursements and payments from Roadrunner included in operating income in our Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016, were not material.
| N. | COMMITMENTS AND CONTINGENCIES |
Commitments - Operating leases represent future minimum lease payments under noncancelable leases, which primarily includes office space, pipeline equipment, rail cars and information technology equipment. Rental expense in 2018, 2017 and 2016 was not material. We have no material operating leases. We lease certain compression facilities under a capital lease that has a fixed-price purchase option in 2028. Firm transportation and storage contracts are fixed-price contracts that provide us with firm transportation and storage capacity. The following table sets forth our capital lease future minimum payments and our firm transportation and storage contract payments for the periods indicated:
| Capital Lease (a) | Firm Transportation and Storage Contracts | |||||||
| (Millions of dollars) | ||||||||
| 2019 | $ | 4.5 | $ | 63.7 | ||||
| 2020 | 4.5 | 51.6 | ||||||
| 2021 | 4.5 | 35.7 | ||||||
| 2022 | 4.5 | 22.4 | ||||||
| 2023 | 4.5 | 17.3 | ||||||
| Thereafter | 21.6 | 11.7 | ||||||
| Total | $ | 44.1 | $ | 202.4 | ||||
| (a) - At December 31, 2018, $28 million in principal represents noncash financing activities. |
Environmental Matters and Pipeline Safety - The operation of pipelines, plants and other facilities for the gathering, processing, transportation and storage of natural gas, NGLs, condensate and other products is subject to numerous and complex laws and regulations pertaining to health, safety and the environment. As an owner and/or operator of these facilities, we must comply with laws and regulations that relate to air and water quality, hazardous and solid waste management and disposal, cultural resource protection and other environmental matters. The cost of planning, designing, constructing and operating pipelines, plants and other facilities must incorporate compliance with these laws and regulations and safety standards. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures, including citizen suits, which can include the assessment of monetary penalties, the imposition of remedial requirements and the issuance of injunctions or restrictions on operation or construction. Management believes that, based on currently known information, compliance with these laws and regulations will not have a material adverse effect on our results of operations, financial condition or cash flows.
Legal Proceedings - Gas Index Pricing Litigation - As previously reported, we and our affiliate, ONEOK Energy Services Company, L.P. (OESC), along with several other energy companies, were named as defendants in multiple lawsuits arising from alleged market manipulation or false reporting of natural gas prices to natural gas-index publications alleged to have occurred prior to 2003.
In March 2017, the United States District Court for the District of Nevada (the Nevada District Court) granted summary judgment to OESC in Sinclair Oil Corporation v. ONEOK Energy Services Company, L.P. (filed in the United States District Court for the District of Wyoming (the Wyoming District Court) in September 2005, transferred to MDL-1566 in the Nevada District Court). In September 2017, the Nevada District Court entered a final judgment in favor of OESC in Sinclair, which was appealed by Sinclair Oil Corporation to the Ninth Circuit Court of Appeals. On August 1, 2018, the Ninth Circuit Court of Appeals reversed the Nevada District Court’s granting of summary judgment and remanded the case back to the Nevada District Court. On February 11, 2019, Sinclair was further remanded back to the Wyoming District Court. We expect that
future charges, if any, from the ultimate resolution of the Sinclair case will not be material to our results of operations, financial position or cash flows.
Other Legal Proceedings - We are a party to various other litigation matters and claims that have arisen in the normal course of our operations. While the results of these litigation matters and claims cannot be predicted with certainty, we believe the reasonably possible losses from such matters, individually and in the aggregate, are not material. Additionally, we believe the probable final outcome of such matters will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.
| O. | REVENUES |
Adoption of ASC Topic 606: Revenue from Contracts with Customers - We adopted Topic 606 on January 1, 2018, using the modified retrospective method applied to contracts that were active as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior periods are not adjusted and continue to be reported under the accounting standards in effect for those periods. We recorded a net increase to the beginning balance of retained earnings of $1.7 million as of January 1, 2018, due to the cumulative impact of adopting the standard, primarily related to the timing of revenue on transportation contracts with tiered rates that resulted in contract assets in our Natural Gas Pipelines segment, contributions in aid of construction from customers that resulted in contract liabilities and an adjustment to NGL inventory related to contractual fees in our Natural Gas Liquids Segment, as described below.
Based on the new guidance, we determined that certain Natural Gas Gathering and Processing segment POP with fee contracts and Natural Gas Liquids segment exchange services contracts that include the purchase of commodities are supplier contracts. Therefore, contractual fees in these identified contracts are now recorded as a reduction of the commodity purchase price in cost of sales and fuel pursuant to ASC 705 rather than as services revenue. To the extent we hold inventory related to these purchases, the related fees previously recorded in services revenue will not be recognized until the inventory is sold. We continue to be principal on the downstream sales of those commodities, which is unchanged from our assessment under previous guidance.
The impact on our Consolidated Income Statement and Balance Sheet is as follows (in thousands):
| Year Ended December 31, 2018 | ||||||||||||
| Income Statement | As Reported | Balance Without Adoption of Topic 606 | Effect of Change Increase/(Decrease) | |||||||||
| Commodity sales | $ | 11,395,642 | $ | 11,460,913 | $ | (65,271 | ) | |||||
| Services revenue | $ | 1,197,554 | $ | 2,712,256 | $ | (1,514,702 | ) | |||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | $ | 9,422,708 | $ | 11,006,278 | $ | (1,583,570 | ) | |||||
| Depreciation and amortization | $ | 428,557 | $ | 427,976 | $ | 581 | ||||||
| Income taxes | $ | 362,903 | $ | 362,210 | $ | 693 | ||||||
| Net income | $ | 1,155,032 | $ | 1,152,709 | $ | 2,323 | ||||||
| Net income attributable to noncontrolling interests | $ | 3,329 | $ | 3,322 | $ | 7 | ||||||
| Net income attributable to ONEOK | $ | 1,151,703 | $ | 1,149,387 | $ | 2,316 |
| December 31, 2018 | ||||||||||||
| Balance Sheet | As Reported | Balance Without Adoption of Topic 606 | Effect of Change Increase/(Decrease) | |||||||||
| Accounts receivable, net | $ | 818,958 | $ | 956,523 | $ | (137,565 | ) | |||||
| Natural gas and natural gas liquids in storage | $ | 296,667 | $ | 301,555 | $ | (4,888 | ) | |||||
| Other current assets | $ | 100,808 | $ | 99,579 | $ | 1,229 | ||||||
| Property, plant and equipment | $ | 18,030,963 | $ | 18,006,653 | $ | 24,310 | ||||||
| Accumulated depreciation and amortization | $ | 3,264,312 | $ | 3,262,359 | $ | 1,953 | ||||||
| Other assets | $ | 130,096 | $ | 125,606 | $ | 4,490 | ||||||
| Accounts payable | $ | 1,118,102 | $ | 1,255,667 | $ | (137,565 | ) | |||||
| Other current liabilities | $ | 211,110 | $ | 209,258 | $ | 1,852 | ||||||
| Deferred income taxes | $ | 219,731 | $ | 218,536 | $ | 1,195 | ||||||
| Other deferred credits | $ | 450,627 | $ | 434,508 | $ | 16,119 | ||||||
| Retained earnings/paid-in capital | $ | 7,615,138 | $ | 7,611,116 | $ | 4,022 |
Practical Expedients - We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) variable consideration on contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Receivables from Customers - The balances in accounts receivable on our Consolidated Balance Sheet at December 31, 2018, and December 31, 2017, include customer receivables of $0.8 billion and $1.2 billion, respectively.
Accounting Policies - See Note A for revenue recognition accounting policies.
Contract Assets and Contract Liabilities - Contract assets and contract liabilities are recorded when the amount of revenue recognized from a contract with a customer differs from the amount billed to the customer and recorded in accounts receivable. Our contract asset balances at the beginning and end of the period primarily relate to our firm service transportation contracts with tiered rates. Our contract liabilities primarily represent deferred revenue on NGL storage contracts for which revenue is recognized over a one-year term and deferred revenue on contributions in aid of construction received from customers for which revenue is recognized over the contract period, which averages 10 years. The following tables set forth the changes in our contract asset and contract liability balances for the year ended December 31, 2018:
| Contract Assets | (Millions of dollars) | |||
| Balance at January 1, 2018 (a) | $ | 6.4 | ||
| Amounts invoiced in excess of revenue recognized | (0.9 | ) | ||
| Net additions | 0.7 | |||
| Balance at December 31, 2018 (b) | $ | 6.2 |
(a) - Balance includes $0.9 million of current assets.
(b) - Contract assets of $1.7 million and $4.5 million are included in other current assets and other assets, respectively, in our Consolidated Balance Sheet.
| Contract Liabilities | (Millions of dollars) | |||
| Balance at January 1, 2018 (a) | $ | 33.3 | ||
| Revenue recognized included in beginning balance | (19.5 | ) | ||
| Net additions | 17.9 | |||
| Balance at December 31, 2018 (b) | $ | 31.7 |
(a) - Balance includes $19.5 million of current liabilities.
(b) - Contract liabilities of $15.6 million and $16.1 million are included in other current liabilities and other deferred credits, respectively, in our Consolidated Balance Sheet.
Transaction Price Allocated to Unsatisfied Performance Obligations - The following table presents aggregate value allocated to unsatisfied performance obligations as of December 31, 2018, and the amounts we expect to recognize in revenue in future periods, related primarily to firm transportation and storage contracts with remaining contract terms ranging from one month to 25 years:
| Expected Period of Recognition in Revenue | (Millions of dollars) | |||
| 2019 | $ | 308.6 | ||
| 2020 | 256.1 | |||
| 2021 | 242.4 | |||
| 2022 | 192.7 | |||
| 2023 and beyond | 892.0 | |||
| Total estimated transaction price allocated to unsatisfied performance obligations | $ | 1,891.8 |
The table above excludes variable consideration allocated entirely to wholly unsatisfied performance obligations, wholly unsatisfied promises to transfer distinct goods or services that are part of a single performance obligation and consideration we determine to be fully constrained. Information on the nature of the variable consideration excluded and the nature of the performance obligations to which the variable consideration relates can be found in the description of the major contract types discussed in Note A. The amounts we determined to be fully constrained relate to future sales obligations under long-term sales contracts where the transaction price is not known and minimum volume agreements, which we consider to be fully constrained until invoiced.
| P. | SEGMENTS |
Segment Descriptions - Our operations are divided into three reportable business segments, as follows:
| • | our Natural Gas Gathering and Processing segment gathers, treats and processes natural gas; |
| • | our Natural Gas Liquids segment gathers, treats, fractionates and transports NGLs and stores, markets and distributes NGL products; and |
| • | our Natural Gas Pipelines segment operates regulated interstate and intrastate natural gas transmission pipelines and natural gas storage facilities. |
Other and eliminations consist of corporate costs, the operating and leasing activities of our headquarters building and related parking facility and eliminations necessary to reconcile our reportable segments to our Consolidated Financial Statements.
Accounting Policies - The accounting policies of the segments are described in Note A.
For each of the years ended December 31, 2018, 2017 and 2016, we had no single customer from which we received 10 percent or more of our consolidated revenues.
Operating Segment Information - The following tables set forth certain selected financial information for our operating segments for the periods indicated:
| Year Ended December 31, 2018 | Natural Gas Gathering and Processing | Natural Gas Liquids (a) | Natural Gas Pipelines (b) | Total Segments | ||||||||||||
| (Thousands of dollars) | ||||||||||||||||
| NGL and condensate sales | $ | 1,775,991 | $ | 10,319,847 | $ | — | $ | 12,095,838 | ||||||||
| Residue natural gas sales | 1,084,162 | — | 9,772 | 1,093,934 | ||||||||||||
| Gathering, processing and exchange services revenue | 163,194 | 404,897 | — | 568,091 | ||||||||||||
| Transportation and storage revenue | — | 199,018 | 394,014 | 593,032 | ||||||||||||
| Other | 11,230 | 10,816 | 27,949 | 49,995 | ||||||||||||
| Total revenues (c) | 3,034,577 | 10,934,578 | 431,735 | 14,400,890 | ||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | (2,041,448 | ) | (9,176,813 | ) | (15,984 | ) | (11,234,245 | ) | ||||||||
| Operating costs | (368,939 | ) | (394,115 | ) | (144,259 | ) | (907,313 | ) | ||||||||
| Equity in net earnings from investments | 410 | 67,126 | 90,847 | 158,383 | ||||||||||||
| Noncash compensation expense and other | 7,007 | 9,829 | 3,912 | 20,748 | ||||||||||||
| Segment adjusted EBITDA | $ | 631,607 | $ | 1,440,605 | $ | 366,251 | $ | 2,438,463 | ||||||||
| Depreciation and amortization | $ | (196,090 | ) | $ | (174,007 | ) | $ | (55,118 | ) | $ | (425,215 | ) | ||||
| Total assets | $ | 6,078,473 | $ | 9,663,640 | $ | 2,131,669 | $ | 17,873,782 | ||||||||
| Capital expenditures | $ | 694,611 | $ | 1,306,341 | $ | 119,185 | $ | 2,120,137 |
(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $1.2 billion, of which $1.1 billion related to sales within the segment, and cost of sales and fuel of $506.0 million.
(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $266.6 million and cost of sales and fuel of $26.0 million.
(c) - Intersegment revenues for the Natural Gas Gathering and Processing, Natural Gas Liquids and Natural Gas Pipelines segments totaled $1,768.8 million, $28.7 million and $12.6 million, respectively.
| Year Ended December 31, 2018 | Total Segments | Other and Eliminations | Total | |||||||||
| (Thousands of dollars) | ||||||||||||
| Reconciliations of total segments to consolidated | ||||||||||||
| NGL and condensate sales | $ | 12,095,838 | $ | (1,794,342 | ) | $ | 10,301,496 | |||||
| Residue natural gas sales | 1,093,934 | (2,832 | ) | 1,091,102 | ||||||||
| Gathering, processing and exchange services revenue | 568,091 | (21 | ) | 568,070 | ||||||||
| Transportation and storage revenue | 593,032 | (9,606 | ) | 583,426 | ||||||||
| Other | 49,995 | (893 | ) | 49,102 | ||||||||
| Total revenues (a) | $ | 14,400,890 | $ | (1,807,694 | ) | $ | 12,593,196 | |||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | $ | (11,234,245 | ) | $ | 1,811,537 | $ | (9,422,708 | ) | ||||
| Operating costs | $ | (907,313 | ) | $ | 245 | $ | (907,068 | ) | ||||
| Depreciation and amortization | $ | (425,215 | ) | $ | (3,342 | ) | $ | (428,557 | ) | |||
| Equity in net earnings from investments | $ | 158,383 | $ | — | $ | 158,383 | ||||||
| Total assets | $ | 17,873,782 | $ | 357,889 | $ | 18,231,671 | ||||||
| Capital expenditures | $ | 2,120,137 | $ | 21,338 | $ | 2,141,475 |
(a) - Noncustomer revenue for the year ended December 31, 2018, totaled $(16.2) million related primarily to losses reclassified from accumulated other comprehensive income from derivatives on commodity contracts.
| Year Ended December 31, 2017 | Natural Gas Gathering and Processing | Natural Gas Liquids (a) | Natural Gas Pipelines (b) | Total Segments | ||||||||||||
| (Thousands of dollars) | ||||||||||||||||
| Sales to unaffiliated customers | $ | 1,750,655 | $ | 10,009,576 | $ | 411,490 | $ | 12,171,721 | ||||||||
| Intersegment revenues | 1,275,919 | 616,628 | 8,442 | 1,900,989 | ||||||||||||
| Total revenues | 3,026,574 | 10,626,204 | 419,932 | 14,072,710 | ||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | (2,216,355 | ) | (9,176,494 | ) | (43,424 | ) | (11,436,273 | ) | ||||||||
| Operating costs | (307,376 | ) | (358,278 | ) | (125,308 | ) | (790,962 | ) | ||||||||
| Equity in net earnings from investments | 12,098 | 59,876 | 87,304 | 159,278 | ||||||||||||
| Other | 3,531 | 3,631 | 1,314 | 8,476 | ||||||||||||
| Segment adjusted EBITDA | $ | 518,472 | $ | 1,154,939 | $ | 339,818 | $ | 2,013,229 | ||||||||
| Depreciation and amortization | $ | (184,923 | ) | $ | (167,277 | ) | $ | (51,025 | ) | $ | (403,225 | ) | ||||
| Impairment of long-lived assets and equity investments | $ | (20,240 | ) | $ | — | $ | — | $ | (20,240 | ) | ||||||
| Total assets | $ | 5,495,163 | $ | 8,782,700 | $ | 2,055,020 | $ | 16,332,883 | ||||||||
| Capital expenditures | $ | 284,205 | $ | 114,267 | $ | 95,564 | $ | 494,036 |
(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $1.2 billion, of which $1.0 billion related to sales within the segment, and cost of sales and fuel of $497.4 million.
(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $264.9 million and cost of sales and fuel of $44.0 million.
| Year Ended December 31, 2017 | Total Segments | Other and Eliminations | Total | |||||||||
| (Thousands of dollars) | ||||||||||||
| Reconciliations of total segments to consolidated | ||||||||||||
| Sales to unaffiliated customers | $ | 12,171,721 | $ | 2,186 | $ | 12,173,907 | ||||||
| Intersegment revenues | 1,900,989 | (1,900,989 | ) | — | ||||||||
| Total revenues | $ | 14,072,710 | $ | (1,898,803 | ) | $ | 12,173,907 | |||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | $ | (11,436,273 | ) | $ | 1,898,228 | $ | (9,538,045 | ) | ||||
| Operating costs | $ | (790,962 | ) | $ | (31,748 | ) | $ | (822,710 | ) | |||
| Depreciation and amortization | $ | (403,225 | ) | $ | (3,110 | ) | $ | (406,335 | ) | |||
| Impairment of long-lived assets and equity investments | $ | (20,240 | ) | $ | — | $ | (20,240 | ) | ||||
| Equity in net earnings from investments | $ | 159,278 | $ | — | $ | 159,278 | ||||||
| Total assets | $ | 16,332,883 | $ | 513,054 | $ | 16,845,937 | ||||||
| Capital expenditures | $ | 494,036 | $ | 18,357 | $ | 512,393 |
| Year Ended December 31, 2016 | Natural Gas Gathering and Processing | Natural Gas Liquids (a) | Natural Gas Pipelines (b) | Total Segments | ||||||||||||
| (Thousands of dollars) | ||||||||||||||||
| Sales to unaffiliated customers | $ | 1,375,738 | $ | 7,168,983 | $ | 373,738 | $ | 8,918,459 | ||||||||
| Intersegment revenues | 675,839 | 506,671 | 5,623 | 1,188,133 | ||||||||||||
| Total revenues | 2,051,577 | 7,675,654 | 379,361 | 10,106,592 | ||||||||||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | (1,331,542 | ) | (6,321,377 | ) | (30,561 | ) | (7,683,480 | ) | ||||||||
| Operating costs | (283,395 | ) | (326,056 | ) | (114,658 | ) | (724,109 | ) | ||||||||
| Equity in net earnings from investments | 10,742 | 54,513 | 74,435 | 139,690 | ||||||||||||
| Other | (604 | ) | (3,115 | ) | 4,560 | 841 | ||||||||||
| Segment adjusted EBITDA | $ | 446,778 | $ | 1,079,619 | $ | 313,137 | $ | 1,839,534 | ||||||||
| Depreciation and amortization | $ | (178,548 | ) | $ | (163,303 | ) | $ | (46,718 | ) | $ | (388,569 | ) | ||||
| Total assets | $ | 5,320,666 | $ | 8,347,961 | $ | 1,946,318 | $ | 15,614,945 | ||||||||
| Capital expenditures | $ | 410,485 | $ | 105,861 | $ | 96,274 | $ | 612,620 |
(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $1.2 billion, of which $992.8 million related to sales within the segment, and cost of sales and fuel of $458.7 million.
(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $238.7 million and cost of sales and fuel of $30.0 million.
| Year Ended December 31, 2016 | Total Segments | Other and Eliminations | Total | |||||||||
| (Thousands of dollars) | ||||||||||||
| Reconciliations of total segments to consolidated | ||||||||||||
| Sales to unaffiliated customers | $ | 8,918,459 | $ | 2,475 | $ | 8,920,934 | ||||||
| Intersegment revenues | 1,188,133 | (1,188,133 | ) | — | ||||||||
| Total revenues | $ | 10,106,592 | $ | (1,185,658 | ) | $ | 8,920,934 | |||||
| Cost of sales and fuel (exclusive of depreciation and operating costs) | $ | (7,683,480 | ) | $ | 1,187,356 | $ | (6,496,124 | ) | ||||
| Operating costs | $ | (724,109 | ) | $ | (22,973 | ) | $ | (747,082 | ) | |||
| Depreciation and amortization | $ | (388,569 | ) | $ | (3,016 | ) | $ | (391,585 | ) | |||
| Equity in net earnings from investments | $ | 139,690 | $ | — | $ | 139,690 | ||||||
| Total assets | $ | 15,614,945 | $ | 523,806 | $ | 16,138,751 | ||||||
| Capital expenditures | $ | 612,620 | $ | 12,014 | $ | 624,634 |
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Reconciliation of net income to total segment adjusted EBITDA | (Thousands of dollars) | |||||||||||
| Net income | $ | 1,155,032 | $ | 593,519 | $ | 743,499 | ||||||
| Add: | ||||||||||||
| Interest expense, net of capitalized interest | 469,620 | 485,658 | 469,651 | |||||||||
| Depreciation and amortization | 428,557 | 406,335 | 391,585 | |||||||||
| Income taxes | 362,903 | 447,282 | 212,406 | |||||||||
| Impairment charges | — | 20,240 | — | |||||||||
| Noncash compensation expense | 37,954 | 13,421 | 31,981 | |||||||||
| Other corporate costs and noncash items (a) | (15,603 | ) | 46,774 | (9,588 | ) | |||||||
| Total segment adjusted EBITDA | $ | 2,438,463 | $ | 2,013,229 | $ | 1,839,534 |
(a) - The year ended December 31, 2017, includes our April 2017 $20.0 million contribution of Series E Preferred Stock to the Foundation and costs related to the Merger Transaction of $30.0 million.
| Q. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
| Year Ended December 31, 2018 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| (Thousands of dollars, except per share amounts) | ||||||||||||||||
| Total revenues | $ | 3,102,077 | $ | 2,960,529 | $ | 3,393,890 | $ | 3,136,700 | ||||||||
| Net income | $ | 266,049 | $ | 282,179 | $ | 313,916 | $ | 292,888 | ||||||||
| Net income attributable to ONEOK | $ | 264,508 | $ | 281,048 | $ | 313,259 | $ | 292,888 | ||||||||
| Net income attributable to common shareholders | $ | 264,233 | $ | 280,773 | $ | 312,984 | $ | 292,613 | ||||||||
| Earnings per share total | ||||||||||||||||
| Basic | $ | 0.65 | $ | 0.68 | $ | 0.76 | $ | 0.71 | ||||||||
| Diluted | $ | 0.64 | $ | 0.68 | $ | 0.75 | $ | 0.70 |
In the third quarter 2018, we acquired the remaining 20 percent interest in WTLPG for $195 million with cash on hand. We are now the sole owner of the West Texas LPG pipeline system.
| Year Ended December 31, 2017 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| (Thousands of dollars except per share amounts) | ||||||||||||||||
| Total revenues | $ | 2,749,611 | $ | 2,725,772 | $ | 2,906,366 | $ | 3,792,158 | ||||||||
| Net income | $ | 186,185 | $ | 175,991 | $ | 166,531 | $ | 64,812 | ||||||||
| Net income attributable to ONEOK | $ | 87,361 | $ | 71,693 | $ | 165,742 | $ | 63,045 | ||||||||
| Net income attributable to common shareholders | $ | 87,361 | $ | 71,476 | $ | 165,466 | $ | 62,771 | ||||||||
| Earnings per share total | ||||||||||||||||
| Basic | $ | 0.41 | $ | 0.34 | $ | 0.43 | $ | 0.16 | ||||||||
| Diluted | $ | 0.41 | $ | 0.33 | $ | 0.43 | $ | 0.16 |
The fourth quarter 2017 includes a one-time noncash charge of $141.3 million related to revaluation of our deferred tax balances and a valuation allowance on certain state net operating loss and tax credit carryforwards resulting from the enactment of the Tax Cuts and Jobs Act, as described in Note L.
The third quarter 2017 includes noncash impairment charges of $20.2 million related to Natural Gas Gathering and Processing assets and equity investments.
The second quarter 2017 includes a $20.0 million noncash expense related to our Series E Preferred Stock contribution to the Foundation and operating costs related to the Merger Transaction of $30.0 million.
| R. | SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION |
ONEOK and ONEOK Partners are issuers of certain public debt securities. We, ONEOK Partners and the Intermediate Partnership have cross guarantees in place for the indebtedness of ONEOK and ONEOK Partners. The Intermediate Partnership holds all of ONEOK Partners’ interests and equity in its subsidiaries, as well as a 50 percent interest in Northern Border Pipeline. In lieu of providing separate financial statements for each subsidiary issuer and guarantor, we have included the accompanying condensed consolidating financial statements based on Rule 3-10 of the SEC’s Regulation S-X. We have presented each of the parent and subsidiary issuers in separate columns in this single set of condensed consolidating financial statements.
For purposes of the following footnote:
| • | we are referred to as “Parent Issuer and Guarantor”; |
| • | ONEOK Partners is referred to as “Subsidiary Issuer and Guarantor”; |
| • | the Intermediate Partnership is referred to as “Guarantor Subsidiary”; and |
| • | the “Non-Guarantor Subsidiaries” are all subsidiaries other than the Guarantor Subsidiary and Subsidiary Issuer and Guarantor. |
The following supplemental condensed consolidating financial information is presented on an equity-method basis reflecting the separate accounts of ONEOK, ONEOK Partners and the Intermediate Partnership, the combined accounts of the Non-Guarantor Subsidiaries, the combined consolidating adjustments and eliminations, and our consolidated amounts for the periods indicated.
Condensed Consolidating Statements of Income
| Year Ended December 31, 2018 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Commodity sales | $ | — | $ | — | $ | — | $ | 11,395.6 | $ | — | $ | 11,395.6 | |||||||||||
| Services | — | — | — | 1,199.7 | (2.1 | ) | 1,197.6 | ||||||||||||||||
| Total revenues | — | — | — | 12,595.3 | (2.1 | ) | 12,593.2 | ||||||||||||||||
| Cost of sales and fuel (exclusive of items shown separately below) | — | — | — | 9,422.7 | — | 9,422.7 | |||||||||||||||||
| Operating expenses | (0.6 | ) | — | — | 1,338.3 | (2.1 | ) | 1,335.6 | |||||||||||||||
| Gain on sale of assets | — | — | — | (0.6 | ) | — | (0.6 | ) | |||||||||||||||
| Operating income | 0.6 | — | — | 1,834.9 | — | 1,835.5 | |||||||||||||||||
| Equity in net earnings from investments | 1,655.6 | 1,660.5 | 1,660.5 | 116.3 | (4,934.5 | ) | 158.4 | ||||||||||||||||
| Other income (expense), net | 29.6 | 315.1 | 315.1 | (36.0 | ) | (630.2 | ) | (6.4 | ) | ||||||||||||||
| Interest expense, net | (179.4 | ) | (315.1 | ) | (315.1 | ) | (290.2 | ) | 630.2 | (469.6 | ) | ||||||||||||
| Income before income taxes | 1,506.4 | 1,660.5 | 1,660.5 | 1,625.0 | (4,934.5 | ) | 1,517.9 | ||||||||||||||||
| Income taxes | (354.7 | ) | — | — | (8.2 | ) | — | (362.9 | ) | ||||||||||||||
| Net income | 1,151.7 | 1,660.5 | 1,660.5 | 1,616.8 | (4,934.5 | ) | 1,155.0 | ||||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | — | — | 3.3 | — | 3.3 | |||||||||||||||||
| Net income attributable to ONEOK | 1,151.7 | 1,660.5 | 1,660.5 | 1,613.5 | (4,934.5 | ) | 1,151.7 | ||||||||||||||||
| Less: Preferred stock dividends | 1.1 | — | — | — | — | 1.1 | |||||||||||||||||
| Net income available to common shareholders | $ | 1,150.6 | $ | 1,660.5 | $ | 1,660.5 | $ | 1,613.5 | $ | (4,934.5 | ) | $ | 1,150.6 |
| Year Ending December 31, 2017 | ||||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | |||||||||||||||||||
| (Millions of dollars) | ||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| Commodity sales | $ | — | $ | — | $ | — | $ | 9,862.7 | $ | — | $ | 9,862.7 | ||||||||||||
| Services | — | — | — | 2,313.2 | (2.0 | ) | 2,311.2 | |||||||||||||||||
| Total revenues | — | — | — | 12,175.9 | (2.0 | ) | 12,173.9 | |||||||||||||||||
| Cost of sales and fuel (exclusive of items shown separately below) | — | — | — | 9,538.0 | — | 9,538.0 | ||||||||||||||||||
| Operating expenses | 17.8 | — | 9.2 | 1,204.0 | (2.0 | ) | 1,229.0 | |||||||||||||||||
| Impairment of long-lived assets | — | — | — | 16.0 | — | 16.0 | ||||||||||||||||||
| Gain on sale of assets | — | — | — | (0.9 | ) | — | (0.9 | ) | ||||||||||||||||
| Operating income | (17.8 | ) | — | (9.2 | ) | 1,418.8 | — | 1,391.8 | ||||||||||||||||
| Equity in net earnings from investments | 1,236.6 | 1,215.7 | 1,224.9 | 100.7 | (3,618.6 | ) | 159.3 | |||||||||||||||||
| Impairment of equity investments | — | — | — | (4.3 | ) | — | (4.3 | ) | ||||||||||||||||
| Other income (expense), net | (12.3 | ) | 353.1 | 353.1 | (8.0 | ) | (706.2 | ) | (20.3 | ) | ||||||||||||||
| Interest expense, net | (137.1 | ) | (353.1 | ) | (353.1 | ) | (348.6 | ) | 706.2 | (485.7 | ) | |||||||||||||
| Income before income taxes | 1,069.4 | 1,215.7 | 1,215.7 | — | 1,158.6 | (3,618.6 | ) | 1,040.8 | ||||||||||||||||
| Income taxes | (480.2 | ) | — | — | 32.9 | — | (447.3 | ) | ||||||||||||||||
| Net income | 589.2 | 1,215.7 | 1,215.7 | 1,191.5 | (3,618.6 | ) | 593.5 | |||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 201.4 | — | — | 4.3 | — | 205.7 | ||||||||||||||||||
| Net income attributable to ONEOK | 387.8 | 1,215.7 | 1,215.7 | 1,187.2 | (3,618.6 | ) | 387.8 | |||||||||||||||||
| Less: Preferred stock dividends | 0.8 | — | — | — | — | 0.8 | ||||||||||||||||||
| Net income available to common shareholders | $ | 387.0 | $ | 1,215.7 | $ | 1,215.7 | $ | 1,187.2 | $ | (3,618.6 | ) | $ | 387.0 |
| Year Ending December 31, 2016 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Commodity sales | $ | — | $ | — | $ | — | $ | 6,858.5 | $ | — | $ | 6,858.5 | |||||||||||
| Services | — | — | — | 2,064.3 | (1.8 | ) | 2,062.5 | ||||||||||||||||
| Total revenues | — | — | — | 8,922.8 | (1.8 | ) | 8,921.0 | ||||||||||||||||
| Cost of sales and fuel (exclusive of items shown separately below) | — | — | — | 6,496.1 | — | 6,496.1 | |||||||||||||||||
| Operating expenses | 18.7 | — | — | 1,121.8 | (1.8 | ) | 1,138.7 | ||||||||||||||||
| (Gain) loss on sale of assets | 0.3 | — | — | (9.9 | ) | — | (9.6 | ) | |||||||||||||||
| Operating income | (19.0 | ) | — | — | 1,314.8 | — | 1,295.8 | ||||||||||||||||
| Equity in net earnings from investments | 1,063.9 | 1,066.8 | 1,066.8 | 69.7 | (3,127.5 | ) | 139.7 | ||||||||||||||||
| Other income (expense), net | (5.0 | ) | 373.5 | 373.5 | (2.8 | ) | (747.0 | ) | (7.8 | ) | |||||||||||||
| Interest expense, net | (102.9 | ) | (373.5 | ) | (373.5 | ) | (366.8 | ) | 747.0 | (469.7 | ) | ||||||||||||
| Income before income taxes | 937.0 | 1,066.8 | 1,066.8 | 1,014.9 | (3,127.5 | ) | 958.0 | ||||||||||||||||
| Income taxes | (199.0 | ) | — | — | (13.4 | ) | — | (212.4 | ) | ||||||||||||||
| Income from continuing operations | 738.0 | 1,066.8 | 1,066.8 | 1,001.5 | (3,127.5 | ) | 745.6 | ||||||||||||||||
| Income (loss) from discontinued operations, net of tax | — | — | — | (2.1 | ) | — | (2.1 | ) | |||||||||||||||
| Net income | 738.0 | 1,066.8 | 1,066.8 | 999.4 | (3,127.5 | ) | 743.5 | ||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 386.0 | — | — | 5.5 | — | 391.5 | |||||||||||||||||
| Net income attributable to ONEOK | $ | 352.0 | $ | 1,066.8 | $ | 1,066.8 | $ | 993.9 | $ | (3,127.5 | ) | $ | 352.0 |
Condensed Consolidating Statements of Comprehensive Income
| Year Ended December 31, 2018 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Net income | $ | 1,151.7 | $ | 1,660.5 | $ | 1,660.5 | $ | 1,616.8 | $ | (4,934.5 | ) | $ | 1,155.0 | ||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Unrealized gains (losses) on derivatives, net of tax | (46.7 | ) | 53.2 | 53.2 | 41.0 | (106.4 | ) | (5.7 | ) | ||||||||||||||
| Realized (gains) losses on derivatives recognized in net income, net of tax | 1.9 | 45.5 | 29.6 | 19.1 | (59.2 | ) | 36.9 | ||||||||||||||||
| Change in pension and postretirement benefit plan liability, net of tax | 5.3 | (0.7 | ) | — | 0.2 | — | 4.8 | ||||||||||||||||
| Other comprehensive income (loss) on investments in unconsolidated affiliates, net of tax | — | 3.1 | 3.1 | 2.3 | (6.1 | ) | 2.4 | ||||||||||||||||
| Total other comprehensive income (loss), net of tax | (39.5 | ) | 101.1 | 85.9 | 62.6 | (171.7 | ) | 38.4 | |||||||||||||||
| Comprehensive income | 1,112.2 | 1,761.6 | 1,746.4 | 1,679.4 | (5,106.2 | ) | 1,193.4 | ||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | — | — | — | 3.3 | — | 3.3 | |||||||||||||||||
| Comprehensive income attributable to ONEOK | $ | 1,112.2 | $ | 1,761.6 | $ | 1,746.4 | $ | 1,676.1 | $ | (5,106.2 | ) | $ | 1,190.1 |
| Year Ending December 31, 2017 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Net income | $ | 589.2 | $ | 1,215.7 | $ | 1,215.7 | $ | 1,191.5 | $ | (3,618.6 | ) | $ | 593.5 | ||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Unrealized gains (losses) on derivatives, net of tax | 19.1 | (72.2 | ) | (40.6 | ) | (8.8 | ) | 81.1 | (21.4 | ) | |||||||||||||
| Realized (gains) losses on derivatives recognized in net income, net of tax | 2.5 | 86.5 | 69.6 | 44.3 | (139.2 | ) | 63.7 | ||||||||||||||||
| Change in pension and postretirement benefit plan liability, net of tax | (4.2 | ) | — | — | — | — | (4.2 | ) | |||||||||||||||
| Other comprehensive income (loss) on investments in unconsolidated affiliates, net of tax | — | (1.1 | ) | (1.1 | ) | (1.0 | ) | 2.2 | (1.0 | ) | |||||||||||||
| Total other comprehensive income (loss), net of tax | 17.4 | 13.2 | 27.9 | 34.5 | (55.9 | ) | 37.1 | ||||||||||||||||
| Comprehensive income | 606.6 | 1,228.9 | 1,243.6 | 1,226.0 | (3,674.5 | ) | 630.6 | ||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 232.4 | — | — | 4.3 | — | 236.7 | |||||||||||||||||
| Comprehensive income attributable to ONEOK | $ | 374.2 | $ | 1,228.9 | $ | 1,243.6 | $ | 1,221.7 | $ | (3,674.5 | ) | $ | 393.9 |
| Year Ending December 31, 2016 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Net income | $ | 738.0 | $ | 1,066.8 | $ | 1,066.8 | $ | 999.4 | $ | (3,127.5 | ) | $ | 743.5 | ||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Unrealized gains (losses) on derivatives, net of tax | — | (35.8 | ) | (78.5 | ) | (108.8 | ) | 192.8 | (30.3 | ) | |||||||||||||
| Realized (gains) losses on derivatives recognized in net income, net of tax | 2.1 | (10.7 | ) | (26.4 | ) | (33.4 | ) | 61.4 | (7.0 | ) | |||||||||||||
| Change in pension and postretirement benefit plan liability, net of tax | (16.7 | ) | — | — | — | — | (16.7 | ) | |||||||||||||||
| Other comprehensive income (loss) on investments in unconsolidated affiliates, net of tax | — | (1.8 | ) | (1.8 | ) | (3.3 | ) | 5.4 | (1.5 | ) | |||||||||||||
| Total other comprehensive income (loss), net of tax | (14.6 | ) | (48.3 | ) | (106.7 | ) | (145.5 | ) | 259.6 | (55.5 | ) | ||||||||||||
| Comprehensive income | 723.4 | 1,018.5 | 960.1 | 853.9 | (2,867.9 | ) | 688.0 | ||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 357.6 | — | — | 5.5 | — | 363.1 | |||||||||||||||||
| Comprehensive income attributable to ONEOK | $ | 365.8 | $ | 1,018.5 | $ | 960.1 | $ | 848.4 | $ | (2,867.9 | ) | $ | 324.9 |
Condensed Consolidating Balance Sheets
| December 31, 2018 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| Assets | (Millions of dollars) | ||||||||||||||||||||||
| Current assets | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 12.0 | $ | — | $ | — | $ | — | $ | — | $ | 12.0 | |||||||||||
| Accounts receivable, net | — | — | — | 819.0 | — | 819.0 | |||||||||||||||||
| Materials and supplies | — | — | — | 141.2 | — | 141.2 | |||||||||||||||||
| Natural gas and natural gas liquids in storage | — | — | — | 296.7 | — | 296.7 | |||||||||||||||||
| Other current assets | 29.1 | — | — | 100.6 | — | 129.7 | |||||||||||||||||
| Total current assets | 41.1 | — | — | 1,357.5 | — | 1,398.6 | |||||||||||||||||
| Property, plant and equipment | |||||||||||||||||||||||
| Property, plant and equipment | 145.5 | — | — | 17,885.5 | — | 18,031.0 | |||||||||||||||||
| Accumulated depreciation and amortization | 92.0 | — | — | 3,172.3 | — | 3,264.3 | |||||||||||||||||
| Net property, plant and equipment | 53.5 | — | — | 14,713.2 | — | 14,766.7 | |||||||||||||||||
| Investments and other assets | |||||||||||||||||||||||
| Investments | 6,153.5 | 3,548.1 | 9,721.6 | 791.1 | (19,245.1 | ) | 969.2 | ||||||||||||||||
| Intercompany notes receivable | 5,308.6 | 7,701.5 | 1,528.0 | — | (14,538.1 | ) | — | ||||||||||||||||
| Other assets | 115.9 | — | — | 982.3 | (1.0 | ) | 1,097.2 | ||||||||||||||||
| Total investments and other assets | 11,578.0 | 11,249.6 | 11,249.6 | 1,773.4 | (33,784.2 | ) | 2,066.4 | ||||||||||||||||
| Total assets | $ | 11,672.6 | $ | 11,249.6 | $ | 11,249.6 | $ | 17,844.1 | $ | (33,784.2 | ) | $ | 18,231.7 | ||||||||||
| Liabilities and equity | |||||||||||||||||||||||
| Current liabilities | |||||||||||||||||||||||
| Current maturities of long-term debt | $ | — | $ | 500.0 | $ | — | $ | 7.7 | $ | — | $ | 507.7 | |||||||||||
| Accounts payable | 31.3 | — | — | 1,086.8 | — | 1,118.1 | |||||||||||||||||
| Other current liabilities | 123.2 | 81.0 | — | 278.4 | — | 482.6 | |||||||||||||||||
| Total current liabilities | 154.5 | 581.0 | — | 1,372.9 | — | 2,108.4 | |||||||||||||||||
| Intercompany debt | — | — | 7,701.5 | 6,836.6 | (14,538.1 | ) | — | ||||||||||||||||
| Long-term debt, excluding current maturities | 4,510.7 | 4,341.4 | — | 21.2 | — | 8,873.3 | |||||||||||||||||
| Deferred credits and other liabilities | |||||||||||||||||||||||
| Deferred income taxes | 112.3 | — | — | 108.4 | (1.0 | ) | 219.7 | ||||||||||||||||
| Other deferred credits | 315.6 | — | — | 135.2 | — | 450.8 | |||||||||||||||||
| Total deferred credits and other liabilities | 427.9 | — | — | 243.6 | (1.0 | ) | 670.5 | ||||||||||||||||
| Commitments and contingencies | |||||||||||||||||||||||
| Equity | 6,579.5 | 6,327.2 | 3,548.1 | 9,369.8 | (19,245.1 | ) | 6,579.5 | ||||||||||||||||
| Total liabilities and equity | $ | 11,672.6 | $ | 11,249.6 | $ | 11,249.6 | $ | 17,844.1 | $ | (33,784.2 | ) | $ | 18,231.7 |
| December 31, 2017 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| Assets | (Millions of dollars) | ||||||||||||||||||||||
| Current assets | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 37.2 | $ | — | $ | — | $ | — | $ | — | $ | 37.2 | |||||||||||
| Accounts receivable, net | — | — | — | 1,203.0 | — | 1,203.0 | |||||||||||||||||
| Materials and supplies | — | — | — | 90.3 | — | 90.3 | |||||||||||||||||
| Natural gas and natural gas liquids in storage | — | — | — | 342.3 | — | 342.3 | |||||||||||||||||
| Other current assets | 9.8 | 1.3 | — | 80.6 | — | 91.7 | |||||||||||||||||
| Total current assets | 47.0 | 1.3 | — | 1,716.2 | — | 1,764.5 | |||||||||||||||||
| Property, plant and equipment | |||||||||||||||||||||||
| Property, plant and equipment | 128.3 | — | — | 15,431.3 | — | 15,559.6 | |||||||||||||||||
| Accumulated depreciation and amortization | 86.4 | — | — | 2,775.1 | — | 2,861.5 | |||||||||||||||||
| Net property, plant and equipment | 41.9 | — | — | 12,656.2 | — | 12,698.1 | |||||||||||||||||
| Investments and other assets | |||||||||||||||||||||||
| Investments | 5,752.1 | 3,133.7 | 8,058.4 | 803.0 | (16,744.0 | ) | 1,003.2 | ||||||||||||||||
| Intercompany notes receivable | 2,926.9 | 8,627.8 | 3,703.1 | — | (15,257.8 | ) | — | ||||||||||||||||
| Other assets | 416.9 | 0.2 | — | 1,007.4 | (44.4 | ) | 1,380.1 | ||||||||||||||||
| Total investments and other assets | 9,095.9 | 11,761.7 | 11,761.5 | 1,810.4 | (32,046.2 | ) | 2,383.3 | ||||||||||||||||
| Total assets | $ | 9,184.8 | $ | 11,763.0 | $ | 11,761.5 | $ | 16,182.8 | $ | (32,046.2 | ) | $ | 16,845.9 | ||||||||||
| Liabilities and equity | |||||||||||||||||||||||
| Current liabilities | |||||||||||||||||||||||
| Current maturities of long-term debt | $ | — | $ | 425.0 | $ | — | $ | 7.7 | $ | — | $ | 432.7 | |||||||||||
| Short-term borrowings | 614.7 | — | — | — | — | 614.7 | |||||||||||||||||
| Accounts payable | 12.0 | — | — | 1,128.6 | — | 1,140.6 | |||||||||||||||||
| Other current liabilities | 65.9 | 85.0 | — | 328.4 | — | 479.3 | |||||||||||||||||
| Total current liabilities | 692.6 | 510.0 | — | 1,464.7 | — | 2,667.3 | |||||||||||||||||
| Intercompany debt | — | — | 8,627.8 | 6,630.0 | (15,257.8 | ) | — | ||||||||||||||||
| Long-term debt, excluding current maturities | 2,726.4 | 5,336.4 | — | 28.8 | — | 8,091.6 | |||||||||||||||||
| Deferred credits and other liabilities | |||||||||||||||||||||||
| Deferred income taxes | — | — | — | 97.1 | (44.4 | ) | 52.7 | ||||||||||||||||
| Other deferred credits | 237.9 | — | — | 111.0 | — | 348.9 | |||||||||||||||||
| Total deferred credits and other liabilities | 237.9 | — | — | 208.1 | (44.4 | ) | 401.6 | ||||||||||||||||
| Commitments and contingencies | |||||||||||||||||||||||
| Equity | |||||||||||||||||||||||
| Equity excluding noncontrolling interests in consolidated subsidiaries | 5,527.9 | 5,916.6 | 3,133.7 | 7,693.7 | (16,744.0 | ) | 5,527.9 | ||||||||||||||||
| Noncontrolling interests in consolidated subsidiaries | — | — | — | 157.5 | — | 157.5 | |||||||||||||||||
| Total equity | 5,527.9 | 5,916.6 | 3,133.7 | 7,851.2 | (16,744.0 | ) | 5,685.4 | ||||||||||||||||
| Total liabilities and equity | $ | 9,184.8 | $ | 11,763.0 | $ | 11,761.5 | $ | 16,182.8 | $ | (32,046.2 | ) | $ | 16,845.9 |
Condensed Consolidating Statements of Cash Flows
| Year Ended December 31, 2018 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||
| Cash provided by operating activities | $ | 1,325.1 | $ | 1,344.7 | $ | 67.9 | $ | 2,113.0 | $ | (2,664.0 | ) | $ | 2,186.7 | ||||||||||
| Investing activities | |||||||||||||||||||||||
| Capital expenditures | (18.8 | ) | — | — | (2,122.7 | ) | — | (2,141.5 | ) | ||||||||||||||
| Other investing activities | — | — | 15.3 | 11.3 | — | 26.6 | |||||||||||||||||
| Cash used in investing activities | (18.8 | ) | — | 15.3 | (2,111.4 | ) | — | (2,114.9 | ) | ||||||||||||||
| Financing activities | |||||||||||||||||||||||
| Dividends paid | (1,335.1 | ) | (1,332.0 | ) | (1,332.0 | ) | — | 2,664.0 | (1,335.1 | ) | |||||||||||||
| Distributions to noncontrolling interests | — | — | — | (3.5 | ) | — | (3.5 | ) | |||||||||||||||
| Intercompany borrowings (advances), net | (2,154.4 | ) | 912.3 | 1,248.8 | (6.7 | ) | — | — | |||||||||||||||
| Repayment of short-term borrowings, net | (614.7 | ) | — | — | — | — | (614.7 | ) | |||||||||||||||
| Issuance of long-term debt, net of discounts | 1,795.8 | — | — | — | — | 1,795.8 | |||||||||||||||||
| Repayment of long-term debt | — | (925.0 | ) | — | (7.7 | ) | — | (932.7 | ) | ||||||||||||||
| Issuance of common stock | 1,204.0 | — | — | — | — | 1,204.0 | |||||||||||||||||
| Acquisition of noncontrolling interests | (195.0 | ) | — | — | — | — | (195.0 | ) | |||||||||||||||
| Other, net | (32.1 | ) | — | — | 16.3 | — | (15.8 | ) | |||||||||||||||
| Cash used in financing activities | (1,331.5 | ) | (1,344.7 | ) | (83.2 | ) | (1.6 | ) | 2,664.0 | (97.0 | ) | ||||||||||||
| Change in cash and cash equivalents | (25.2 | ) | — | — | — | — | (25.2 | ) | |||||||||||||||
| Cash and cash equivalents at beginning of period | 37.2 | — | — | — | — | 37.2 | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | 12.0 | $ | — | $ | — | $ | — | $ | — | $ | 12.0 |
| Year Ending December 31, 2017 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||
| Cash provided by operating activities | $ | 947.4 | $ | 1,348.3 | $ | 59.0 | $ | 1,353.7 | $ | (2,393.0 | ) | $ | 1,315.4 | ||||||||||
| Investing activities | |||||||||||||||||||||||
| Capital expenditures | — | — | — | (512.4 | ) | — | (512.4 | ) | |||||||||||||||
| Contributions to unconsolidated affiliates | — | — | (83.0 | ) | (4.9 | ) | — | (87.9 | ) | ||||||||||||||
| Other investing activities | — | — | 14.8 | 17.9 | — | 32.7 | |||||||||||||||||
| Cash used in investing activities | — | — | (68.2 | ) | (499.4 | ) | — | (567.6 | ) | ||||||||||||||
| Financing activities | |||||||||||||||||||||||
| Dividends paid | (829.4 | ) | (1,332.0 | ) | (1,332.0 | ) | — | 2,664.0 | (829.4 | ) | |||||||||||||
| Distributions to noncontrolling interests | — | — | — | (5.3 | ) | (271.0 | ) | (276.3 | ) | ||||||||||||||
| Intercompany borrowings (advances), net | (2,500.7 | ) | 2,001.2 | 1,340.8 | (841.3 | ) | — | — | |||||||||||||||
| Borrowing (repayment) of short-term borrowings, net | 614.7 | (1,110.3 | ) | — | — | — | (495.6 | ) | |||||||||||||||
| Issuance of long-term debt, net of discounts | 1,190.5 | — | — | — | — | 1,190.5 | |||||||||||||||||
| Repayment of long-term debt | (87.1 | ) | (900.0 | ) | — | (7.7 | ) | — | (994.8 | ) | |||||||||||||
| Issuance of common stock | 471.4 | — | — | — | — | 471.4 | |||||||||||||||||
| Other, net | (18.1 | ) | (7.2 | ) | — | — | — | (25.3 | ) | ||||||||||||||
| Cash provided by (used in) financing activities | (1,158.7 | ) | (1,348.3 | ) | 8.8 | (854.3 | ) | 2,393.0 | (959.5 | ) | |||||||||||||
| Change in cash and cash equivalents | (211.3 | ) | — | (0.4 | ) | — | — | (211.7 | ) | ||||||||||||||
| Cash and cash equivalents at beginning of period | 248.5 | — | 0.4 | — | — | 248.9 | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | 37.2 | $ | — | $ | — | $ | — | $ | — | $ | 37.2 |
| Year Ending December 31, 2016 | |||||||||||||||||||||||
| Parent Issuer & Guarantor | Subsidiary Issuer & Guarantor | Guarantor Subsidiary | Combined Non-Guarantor Subsidiaries | Consolidating Entries | Total | ||||||||||||||||||
| (Millions of dollars) | |||||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||
| Cash provided by operating activities | $ | 717.0 | $ | 1,334.5 | $ | 70.0 | $ | 1,353.9 | $ | (2,122.1 | ) | $ | 1,353.3 | ||||||||||
| Investing activities | |||||||||||||||||||||||
| Capital expenditures | (0.2 | ) | — | — | (624.4 | ) | — | (624.6 | ) | ||||||||||||||
| Other investing activities | — | — | 34.9 | (25.7 | ) | — | 9.2 | ||||||||||||||||
| Cash provided by (used in) investing activities | (0.2 | ) | — | 34.9 | (650.1 | ) | — | (615.4 | ) | ||||||||||||||
| Financing activities | |||||||||||||||||||||||
| Dividends paid | (517.6 | ) | (1,332.0 | ) | (1,332.0 | ) | — | 2,664.0 | (517.6 | ) | |||||||||||||
| Distributions to noncontrolling interests | — | — | — | (7.5 | ) | (541.9 | ) | (549.4 | ) | ||||||||||||||
| Intercompany borrowings (advances), net | (63.1 | ) | (470.8 | ) | 1,222.4 | (688.5 | ) | — | — | ||||||||||||||
| Borrowing of short-term borrowings, net | — | 563.9 | — | — | — | 563.9 | |||||||||||||||||
| Issuance of long-term debt, net of discounts | — | 1,000.0 | — | — | — | 1,000.0 | |||||||||||||||||
| Debt financing costs | — | (2.8 | ) | — | — | — | (2.8 | ) | |||||||||||||||
| Repayment of long-term debt | (0.3 | ) | (1,100.0 | ) | — | (7.7 | ) | — | (1,108.0 | ) | |||||||||||||
| Issuance of common stock | 22.0 | — | — | — | — | 22.0 | |||||||||||||||||
| Other, net | (1.7 | ) | 7.2 | — | (0.1 | ) | — | 5.4 | |||||||||||||||
| Cash used in financing activities | (560.7 | ) | (1,334.5 | ) | (109.6 | ) | (703.8 | ) | 2,122.1 | (586.5 | ) | ||||||||||||
| Change in cash and cash equivalents | 156.1 | — | (4.7 | ) | — | — | 151.4 | ||||||||||||||||
| Change in cash and cash equivalents included in discontinued operations | (0.1 | ) | — | — | — | — | (0.1 | ) | |||||||||||||||
| Change in cash and cash equivalents included in continuing operations | 156.0 | — | (4.7 | ) | — | — | 151.3 | ||||||||||||||||
| Cash and cash equivalents at beginning of period | 92.5 | — | 5.1 | — | — | 97.6 | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | 248.5 | $ | — | $ | 0.4 | $ | — | $ | — | $ | 248.9 |
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