Exhibit 99.2
ONEOK PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The pro forma combined financial statements are based upon the combined historical financial position and results of operations of ONEOK Partners, L.P. (ONEOK Partners) and the ONEOK Energy Assets. The pro forma combined financial statements give effect to the following transactions (collectively the “Transaction”).
ONEOK Transactions
In April 2006, under the terms of a Contribution Agreement, ONEOK Partners acquired all of ONEOK, Inc.’s (ONEOK’s) gathering and processing and pipelines and storage assets for approximately 36.5 million Class B units. The Class B limited partner units and the related general partner interest contribution were valued at approximately $1.65 billion. Under the terms of the ONEOK Purchase and Sale Agreement, ONEOK Partners purchased all of ONEOK’s natural gas liquids assets for $1.35 billion in cash. ONEOK Partners used $1.05 billion drawn under the Bridge Facility, coupled with the proceeds from the sale of 20 percent of its partnership interest in Northern Border Pipeline Company, to finance the transaction. The transactions were recorded at historical cost rather than at fair value since these transactions were between affiliates under common control.
The units issued to ONEOK are a newly created Class B limited partner unit with the same distribution rights as the outstanding common units, but have limited voting rights and are subordinated related to cash distributions to the common units. Distributions on the Class B units will be prorated from the date of issuance. ONEOK Partners will hold a special election for holders of common units as soon as practical, but within 12 months of issuing the Class B units, to approve the conversion of the Class B units into common units and to approve certain amendments to the partnership agreement. The proposed amendments grant voting rights for common units held by the general partner if a vote is held to remove the general partner and require fair market value compensation for the general partner interest if the general partner is removed. If the common unit holders do not approve the conversion and amendments, the Class B unit distribution rights would increase to 115 percent of the distributions paid on the common units. If the common unit holders vote to remove ONEOK or its affiliates as the general partner of ONEOK Partners at any time prior to the approval of the conversion and certain amendments to ONEOK Partners partnership agreement, the Class B units distribution rights would continue to be subordinated in the manner described above unless and until the conversion described above has been approved, and the amount payable on such Class B units would increase to 125 percent of the distributions payable with respect to the common units.
Disposition of 20 percent Interest in Northern Border Pipeline Company
In April 2006, under the terms of a Partnership Interest Purchase and Sale Agreement dated as of December 31, 2005, ONEOK Partners completed the sale of a 20 percent partnership interest in Northern Border Pipeline Company (Northern Border Pipeline) to TC PipeLines Intermediate Limited Partnership (TC PipeLines) for approximately $297 million. ONEOK Partners and TC PipeLines each now own a 50 percent interest in Northern Border Pipeline and ONEOK Partners will no longer consolidate Northern Border Pipeline in its financial statements. Instead, ONEOK Partners’ ownership of Northern Border Pipeline will be reported as an investment in unconsolidated affiliates on its balance sheet. ONEOK Partners’ share of Northern Border Pipeline’s operating results is reported as equity earnings in unconsolidated affiliates on the pro forma combined statements of income. ONEOK Partners recorded a gain on sale of approximately $113.9 million. For purposes of the pro forma statements of income, the gain on sale has been excluded from the presentation, but is reflected in the pro forma combined balance sheet.
Bridge Facility
On April 6, 2006, ONEOK Partners entered into a $1.1 billion 364-day credit agreement with a syndicate of banks and borrowed $1.05 billion to complete the Transaction. The interest rate applied to amounts outstanding under the Bridge Facility may, at our option, be the lender’s base rate or an adjusted London Interbank Offered Rate plus a spread that is based upon our long-term unsecured debt ratings.
Basis of Presentation
The unaudited pro forma combined balance sheet of ONEOK Partners as of March 31, 2006 combines the balance sheets of ONEOK Partners as of March 31, 2006, and the ONEOK Energy Assets as of March 31, 2006, after giving effect to the deconsolidation of Northern Border Pipeline and the pro forma adjustments, and has been prepared as if the Transaction had occurred on March 31, 2006. The unaudited pro forma combined statements of income for the year ended December 31, 2005, combines the statements of income for ONEOK Partners for the year ended December 31, 2005, and the ONEOK Energy Assets for the year ended December 31, 2005, after giving effect to the deconsolidation of Northern Border Pipeline and the pro forma adjustments, and has been prepared as if the Transaction had occurred on January 1, 2005. The unaudited pro forma combined statements of income for the three month period ended March 31, 2006, combines the statements of income for ONEOK Partners for the three month period ended March 31, 2006, and the ONEOK Energy Assets for the three month period ended March 31, 2006, after giving effect to the deconsolidation of Northern Border Pipeline and the pro forma adjustments, and has been prepared as if the Transaction had occurred on January 1, 2005.
The unaudited pro forma financial information is provided for informational purposes only and is not necessarily indicative of the consolidated results of operations of ONEOK Partners in future periods or as it would have been had the acquisition occurred on January 1, 2005. The unaudited pro forma financial information should be read in conjunction with the historical financial statements of ONEOK Partners and the notes thereto included in the ONEOK Partners annual report on Form 10-K for the year ended December 31, 2005, and the ONEOK Partners quarterly report on Form 10-Q for the quarter ended March 31, 2006, as well as the ONEOK Energy Assets historical financial statements and the related notes thereto, which are included in this Current Report on Form 8-K as Exhibit 99.1.
2
ONEOK PARTNERS, L.P. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
(Unaudited)
Quarter Ended March 31, 2006 | |||||||||||||||||
| ONEOK Partners, L.P. Historical | ONEOK Energy Assets Historical | Northern Border Pipeline Historical | Pro Forma Adjustments | As Adjusted | |||||||||||||
| (In thousands except per unit amounts) | |||||||||||||||||
Operating revenue | $ | 170,799 | $ | 1,162,571 | $ | (79,827 | ) | $ | — | $ | 1,253,543 | ||||||
Cost of sales and fuel | 44,021 | 1,013,851 | — | — | 1,057,872 | ||||||||||||
Net margin | 126,778 | 148,720 | (79,827 | ) | — | 195,671 | |||||||||||
Operating expenses: | |||||||||||||||||
Operations and maintenance | 31,643 | 47,530 | (9,458 | ) | — | 69,715 | |||||||||||
Depreciation and amortization | 21,294 | 19,277 | (14,566 | ) | — | 26,005 | |||||||||||
Taxes other than income | 10,178 | 4,407 | (8,106 | ) | — | 6,479 | |||||||||||
Operating expenses | 63,115 | 71,214 | (32,130 | ) | — | 102,199 | |||||||||||
Operating income | 63,663 | 77,506 | (47,697 | ) | — | 93,472 | |||||||||||
Interest expense | 22,704 | 21,281 | (10,689 | ) | 13,388 | f | 25,403 | ||||||||||
| (21,281 | )h | ||||||||||||||||
Other income (expense) | 6,951 | 1,760 | (345 | ) | 18,677 | i | 27,043 | ||||||||||
Minority interest in net income | 11,206 | — | — | (11,206 | )j | — | |||||||||||
Income from continuing operations before income taxes | 36,704 | 57,985 | (37,353 | ) | 37,776 | 95,112 | |||||||||||
Income taxes | 2,027 | 22,167 | — | (22,167 | )k | 2,027 | |||||||||||
Income from continuing operations | $ | 34,677 | $ | 35,818 | $ | (37,353 | ) | $ | 59,943 | $ | 93,085 | ||||||
Calculation of limited partners’ interest in income from continuing operations: | |||||||||||||||||
Income from continuing operations | $ | 34,677 | $ | 93,085 | |||||||||||||
Less: General partners’ interest in income from continuing operations | 3,822 | 8,095 | l | 11,917 | |||||||||||||
Limited partners’ interest in income from continuing operations | $ | 30,855 | $ | 81,168 | |||||||||||||
Limited partners’ per unit income: | |||||||||||||||||
Income from continuing operations | $ | 0.67 | $ | 0.98 | |||||||||||||
Number of units used in computation | 46,397 | 82,891 | |||||||||||||||
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
3
ONEOK PARTNERS, L.P. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
(Unaudited)
Year Ended December 31, 2005 | ||||||||||||||||||
| ONEOK Partners, L.P. Historical | ONEOK Energy Assets Historical | Northern Border Pipeline Historical | Pro Forma Adjustments | As adjusted | ||||||||||||||
| (In thousands except per unit amounts) | ||||||||||||||||||
Operating revenue | $ | 678,560 | $ | 3,423,775 | $ | (321,651 | ) | $ | — | $ | 3,780,684 | |||||||
Cost of sales and fuel | 167,257 | 2,956,917 | — | — | 3,124,174 | |||||||||||||
Net margin | 511,303 | 466,858 | (321,651 | ) | — | 656,510 | ||||||||||||
Operating expenses: | ||||||||||||||||||
Operations and maintenance | 129,950 | 170,761 | (39,506 | ) | — | 261,205 | ||||||||||||
Depreciation and amortization | 86,010 | 59,104 | (58,052 | ) | — | 87,062 | ||||||||||||
Taxes other than income | 38,575 | 20,987 | (31,345 | ) | — | 28,217 | ||||||||||||
Operating expenses | 254,535 | 250,852 | (128,903 | ) | — | 376,484 | ||||||||||||
Operating income | 256,768 | 216,006 | (192,748 | ) | — | 280,026 | ||||||||||||
Interest expense | 86,903 | 33,684 | (42,635 | ) | 40,215 | g | 84,483 | |||||||||||
| (33,684 | )h | |||||||||||||||||
Other income (expense) | 28,108 | (7,827 | ) | (2,133 | ) | 76,123 | i | 94,271 | ||||||||||
Minority interest in net income | 45,674 | — | — | (45,674 | )j | — | ||||||||||||
Income from continuing operations before income taxes | 152,299 | 174,495 | (152,246 | ) | 115,266 | 289,814 | ||||||||||||
Income taxes | 5,792 | 66,959 | — | (66,959 | )k | 5,792 | ||||||||||||
Income from continuing operations | $ | 146,507 | $ | 107,536 | $ | (152,246 | ) | $ | 182,225 | $ | 284,022 | |||||||
Calculation of limited partners’ interest in income from continuing operations: | ||||||||||||||||||
Income from continuing operations | $ | 146,507 | $ | 284,022 | ||||||||||||||
Less: General partners’ interest in income from continuing operations | 10,890 | 6,074 | l | 16,964 | ||||||||||||||
Limited partners’ interest in income from continuing operations | $ | 135,617 | $ | 267,058 | ||||||||||||||
Limited partners’ per unit income: | ||||||||||||||||||
Income from continuing operations | $ | 2.92 | $ | 3.22 | ||||||||||||||
Number of units used in computation | 46,397 | 82,891 | ||||||||||||||||
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
4
ONEOK PARTNERS, L.P. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
(Unaudited)
| March 31, 2006 | ||||||||||||||||||
| ONEOK Partners, L.P. Historical | ONEOK Energy Assets Historical | Northern Border Pipeline Historical | Pro Forma Adjustments | As Adjusted | ||||||||||||||
| (In thousands) | ||||||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 18,730 | $ | 5,190 | $ | (15,065 | ) | $ | 1,050,000 | a | $ | 5,812 | ||||||
| (1,350,000 | )b | |||||||||||||||||
| 296,957 | c | |||||||||||||||||
Accounts receivable, net | 64,832 | 254,458 | (29,883 | ) | — | 289,407 | ||||||||||||
Gas and natural gas liquids in storage | — | 186,549 | — | — | 186,549 | |||||||||||||
Commodity exchanges | — | 39,704 | — | — | 39,704 | |||||||||||||
Other current assets | 14,784 | 36,270 | (4,513 | ) | — | 46,541 | ||||||||||||
Total current assets | 98,346 | 522,171 | (49,461 | ) | (3,043 | ) | 568,013 | |||||||||||
Property, plant and equipment, net | 1,915,844 | 2,009,316 | (1,511,488 | ) | — | 2,413,672 | ||||||||||||
Investment in unconsolidated affiliates and other | 321,386 | 65,714 | (22,595 | ) | 458,636 | e | 823,141 | |||||||||||
Goodwill and intangibles | 152,782 | 515,192 | — | — | 667,974 | |||||||||||||
Total assets | $ | 2,488,358 | $ | 3,112,393 | $ | (1,583,544 | ) | $ | 455,593 | $ | 4,472,800 | |||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Current maturities of long-term debt | $ | 238,000 | $ | — | $ | (7,000 | ) | $ | 1,050,000 | a | $ | 1,281,000 | ||||||
Accounts payable | 34,326 | 363,182 | (11,417 | ) | — | 386,091 | ||||||||||||
Commodity exchanges | — | 140,228 | — | — | 140,228 | |||||||||||||
Other | 55,008 | 51,908 | (41,343 | ) | (22,266 | )d | 43,307 | |||||||||||
Total current liabilities | 327,334 | 555,318 | (59,760 | ) | 1,027,734 | 1,850,626 | ||||||||||||
Due to Parent | — | 864,093 | — | (864,093 | )d | — | ||||||||||||
Long-term debt, net of current maturities | 1,090,905 | — | (601,448 | ) | — | 489,457 | ||||||||||||
Minority interests in partners’ equity | 275,196 | 5,284 | — | (275,182 | )e | 5,298 | ||||||||||||
Deferred credits and other liabilities | 29,558 | 398,340 | (5,064 | ) | (374,476 | )d | 48,358 | |||||||||||
Partners capital | 762,322 | — | (915,399 | ) | 1,200,231 | b | 2,076,431 | |||||||||||
| 915,399 | e | |||||||||||||||||
| 113,878 | e | |||||||||||||||||
Shareholder’s equity | — | 1,289,396 | — | (2,550,231 | )b | — | ||||||||||||
| 1,260,835 | d | |||||||||||||||||
Accumulated other comprehensive income (loss) | 3,043 | (38 | ) | (1,873 | ) | 1,498 | e | 2,630 | ||||||||||
Total partners’ equity | 765,365 | 1,289,358 | (917,272 | ) | 941,610 | 2,079,061 | ||||||||||||
Total liabilities and partners’ equity | $ | 2,488,358 | $ | 3,112,393 | $ | (1,583,544 | ) | $ | 455,593 | $ | 4,472,800 | |||||||
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
5
ONEOK PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements do not give effect to any restructuring cost, potential cost savings, or other operating efficiencies that are expected to result from the Transaction. The unaudited pro forma combined financial statements are based on certain assumptions and do not purport to be indicative of the results which would have been achieved if the Transaction had been consummated on the dates indicated or which may be achieved in the future.
The pro forma financial statements give effect to the Transaction:
ONEOK Transactions
In April 2006, under the Contribution Agreement, ONEOK Partners acquired all of ONEOK’s gathering and processing and pipelines and storage assets for approximately 36.5 million Class B units. The Class B limited partner units and the related general partner interest contribution were valued at approximately $1.65 billion. Under the ONEOK Purchase and Sale Agreement, ONEOK Partners purchased all of ONEOK’s natural gas liquids assets for $1.35 billion in cash. ONEOK Partners used $1.05 billion drawn under the Bridge Facility, coupled with the proceeds from the sale of the 20 percent partnership interest in Northern Border Pipeline Company, to finance the transaction. The transactions are recorded at historical cost rather than at fair value since these transactions were between affiliates under common control.
Disposition of 20 Percent Interest in Northern Border Pipeline
In April 2006, under the Partnership Interest Purchase and Sale Agreement dated as of December 31, 2005, ONEOK Partners completed the sale of a 20 percent partnership interest in Northern Border Pipeline to TC PipeLines for approximately $297 million. ONEOK Partners and TC PipeLines each now own a 50 percent interest in Northern Border Pipeline and ONEOK Partners will no longer consolidate Northern Border Pipeline. Instead, ONEOK Partners’ ownership of Northern Border Pipeline will be reported as an investment in unconsolidated affiliates on the balance sheet. ONEOK Partners’ share of Northern Border Pipeline’s operating results is reported as other income (expense) in the pro forma combined statements of income. ONEOK Partners recorded a gain on sale of approximately $113.9 million. For purposes of the pro forma statements of income, the gain on sale has been excluded from the presentation, but is reflected in the pro forma combined balance sheet.
The unaudited pro forma combined balance sheet of ONEOK Partners as of March 31, 2006, combines the balance sheets of ONEOK Partners as of March 31, 2006 and ONEOK Energy Assets as of March 31, 2006, after giving effect to the deconsolidation of Northern Border Pipeline and the pro forma adjustments, and has been prepared as if the Transaction had occurred on March 31, 2006. The unaudited pro forma combined statements of income for the year ended December 31, 2005, combines the statements of income for ONEOK Partners for the year ended December 31, 2005, and ONEOK Energy Assets for the year ended December 31, 2005, after giving effect to the deconsolidation of Northern Border Pipeline and the pro forma adjustments, and has been prepared as if the Transaction had occurred on January 1, 2005. The unaudited pro forma combined statements of income for the three month period ended March 31, 2006, combines the statements of income for ONEOK Partners for the three month period ended March 31, 2006, and ONEOK Energy Assets for the three month period ended March 31, 2006, after giving effect to the deconsolidation of Northern Border Pipeline and the pro forma adjustments, and has been prepared as if the Transaction had occurred on January 1, 2005.
2. PRO FORMA ADJUSTMENTS
| (a) | Reflects the proceeds from borrowings under the Bridge Facility. |
| (b) | Reflects purchase of the ONEOK Energy Assets from ONEOK for cash of $1.35 billion and 36.5 million Class B Common Units. The ONEOK Transactions are accounted for at historical cost rather than at fair value since these transactions were between affiliates under common control. Accordingly, the value assigned to the Class B Common Units is based on historical cost of the assets and liabilities |
6
of ONEOK Energy Assets and is calculated as follows.
Historical book value of ONEOK Energy Assets, net of liabilities retained by ONEOK, at March 31, 2006 | $ | 2,550,231 | |
Less – Cash paid | 1,350,000 | ||
Carryover basis assigned to Class B Common Units | $ | 1,200,231 | |
| (c) | Reflects proceeds of $297.0 million from the sale of a 20 percent interest in Northern Border Pipeline. |
| (d) | Reflects the elimination of assets and liabilities retained by ONEOK, including deferred income taxes, income taxes payable and amounts due to parent. |
| (e) | Reflects ONEOK Partners’ investment in Northern Border Pipeline, eliminates minority interest in partners capital related to Northern Border Pipeline and records gain of $113.9 million related to sale of 20 percent interest in Northern Border Pipeline. |
| (f) | Reflects interest expense related to borrowings under the Bridge Facility at an interest rate of 5.10 percent. A 1/8 percent change in the interest rate on the $1.05 billion of borrowings under the Bridge Facility would change interest expense by approximately $.3 million. |
| (g) | Reflects interest expense related to borrowings under the Bridge Facility at an interest rate of 3.83 percent. A 1/8 percent change in the interest rate on the $1.05 billion of borrowings under the Bridge Facility would change interest expense by approximately $1.3 million. |
| (h) | Reflects elimination of interest expense for the ONEOK Energy Assets related to debt retained by ONEOK. |
| (i) | Reflects equity earnings from 50 percent ownership interest of Northern Border Pipeline. |
| (j) | Reflects elimination of minority interest in net income related to the deconsolidation of Northern Border Pipeline. |
| (k) | Reflects elimination of income taxes for the ONEOK Energy Assets. |
| (l) | Reflects calculation of general partner earnings, including incentive distribution rights as allowed under the ONEOK Partners partnership agreement, as if all earnings for the period were distributed. This assumption is for purposes of the unaudited pro forma combined statements of income only and may not be reflective of actual distributions made by ONEOK Partners if the Transaction had occurred on January 1, 2005, or distributions that may be made in future periods. |
7
