<PAGE>
EXHIBIT 99.b
ONEOK
BUSINESSES ACQUIRED FROM KINDER MORGAN, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
(In Thousands) December 31, 1999
------------------------------------------------------------------
<S> <C>
Operating Revenues:
Natural Gas Sales $3,549,544
Natural Gas Liquids 130,964
Natural Gas Transportation and Storage 43,965
Other 59,680
------------------------------------------------------------------
Total Operating Revenues 3,784,153
------------------------------------------------------------------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales 3,675,867
Operations and Maintenance 120,661
Depreciation and Amortization 31,920
Taxes, Other Than Income Taxes 9,109
------------------------------------------------------------------
Total Operating Costs and Expenses 3,837,557
------------------------------------------------------------------
Operating Loss (53,404)
------------------------------------------------------------------
Other Income and (Deductions):
Minority Interests 146
Other, Net (2,507)
------------------------------------------------------------------
Total Other Income and (Deductions) (2,361)
------------------------------------------------------------------
Loss Before Income Taxes (55,765)
Income Taxes (21,273)
------------------------------------------------------------------
Net Loss $ (34,492)
==================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
(In Thousands) December 31, 1999
----------------------------------------------------------------------------
<S> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 269
Restricted Deposits 9,969
Accounts Receivable 177,723
Receivable for Trade Receivables Sold (Note 2) 277,815
Receivable from Kinder Morgan, Inc. and Subsidiaries 34,172
Inventories 87,286
Other 18,548
----------------------------------------------------------------------------
Total Current Assets 605,782
----------------------------------------------------------------------------
Property, Plant and Equipment 779,232
Less Accumulated Depreciation and Amortization 236,165
----------------------------------------------------------------------------
Net Property 543,067
----------------------------------------------------------------------------
Deferred Charges and Other Assets 8,677
----------------------------------------------------------------------------
Total Assets $1,157,526
============================================================================
LIABILITIES AND OWNERS' EQUITY:
Current Liabilities:
Accounts Payable $ 346,959
Accrued Taxes 23,567
Other 11,941
----------------------------------------------------------------------------
Total Current Liabilities 382,467
----------------------------------------------------------------------------
Other Liabilities and Deferred Credits:
Deferred income taxes 22,845
Other 17,455
----------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 40,300
----------------------------------------------------------------------------
Minority Interests in Equity of Subsidiaries 1,880
----------------------------------------------------------------------------
Owners' Equity 732,879
----------------------------------------------------------------------------
Total Liabilities and Owners' Equity $1,157,526
============================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COMBINED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended
(In Thousands) December 31, 1999
--------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from Operations $(34,492)
Adjustments to Reconcile Loss from Operations to Net Cash Flows
from Operating Activities:
Depreciation and Amortization 31,920
Deferred Income Taxes (40,733)
Loss on Sales of Facilities 765
Change in Gas in Underground Storage 22,035
Change in Accounts Receivable 12,246
Change in Materials and Supplies (198)
Change in Other Current Assets (8,151)
Change in Accounts Payable 111,373
Change in Other Current Liabilities (8,883)
Other, Net (6,125)
--------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 79,757
--------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (20,482)
Acquisitions (1,306)
Cost of Removal of Other Assets (113)
--------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (21,901)
--------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Payable and Receivables from Kinder Morgan, Inc. (57,939)
Minority Interests, Net (123)
--------------------------------------------------------------------------------------
NET CASH FLOWS USED IN FINANCING ACTIVITIES (58,062)
--------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (206)
Cash and Cash Equivalents at Beginning of Period 475
--------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 269
======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
(A) Nature of Operations
In April 2000, ONEOK, Inc. acquired a number of entities and assets from Kinder
Morgan, Inc. consisting of the following: (1) KN Processing, Inc., principally
representing the operatorship of the Bushton natural gas processing facility in
Ellsworth County, Kansas, which facility is subject to operating leases (see
Note 8), (2) American Oil and Gas Corporation and Subsidiaries, entities which
conduct natural gas processing, natural gas marketing and intrastate pipeline
operations in Oklahoma and Texas, (3) certain Hugoton Basin natural gas
gathering assets in Kansas and Oklahoma, (4) the Scott City natural gas
processing facility in Scott County, Kansas and (4) Palo Duro Pipeline Company
and MidCon Gas Products Corp., former affiliates of MidCon Corp. Collectively,
these operations are referred to herein as "the Company".
(B) Basis of Presentation
The accompanying combined financial statements include the accounts and
transactions of the Company. Transactions and balances with affiliates of Kinder
Morgan, Inc. (the owner of these entities and assets until their acquisition by
ONEOK) have not been eliminated, but have been separately identified. The
residual representing the difference between the identifiable assets and
liabilities as of December 31, 1999 constitutes the former owner's investment in
these operations and has been presented as "Owner's Equity" in the accompanying
Combined Balance Sheet (see Note 3). Transactions and balances between the
businesses included in these financial statements have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
these estimates.
2. Acquisition
AOG Gas Transmission, LP, a subsidiary of American Oil & Gas Corporation, paid
$59.8 million on March 3, 2000 to terminate an operating lease on certain
intrastate transmission assets in connection with the sale of these assets to
ONEOK.
(C) Revenue Recognition Policies
Revenues are recognized as services are rendered or goods are delivered
(D) Restricted Deposits
Restricted Deposits consist of monies on deposit with brokers that are
restricted to meet exchange or trading requirements (see Note 7).
(E) Inventories
<TABLE>
<CAPTION>
December 31,
1999
--------------------------------------------------------
(In Thousands)
<S> <C>
Gas in Underground Storage (Current) $ 78,545
Materials and Supplies 8,741
</TABLE>
Inventories are accounted for using the average cost method. All inventories
held for resale are valued at the lower of cost or market
<PAGE>
(F) Property, Plant and Equipment
Property, plant and equipment is stated at historical cost which, for
constructed plant, includes indirect costs such as payroll taxes, fringe
benefits, administrative and general costs. Expenditures that increase
capacities, improve efficiencies or extend useful lives are capitalized. Routine
maintenance, repairs and renewal costs are expensed as incurred.
In accordance with the provisions of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
reviews the carrying values of its long-lived assets whenever events or changes
in circumstances indicate that such carrying values may not be recoverable. As
yet, no asset or group of assets has been identified for which the sum of
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset(s) and, accordingly, no impairment losses
have been recorded. However, currently unforeseen events and changes in
circumstances could require the recognition of impairment losses at some future
date.
(G) Depreciation and Amortization
Depreciation is computed based on the straight-line method over the estimated
useful lives of assets. The range of estimated useful lives of assets used in
depreciating assets are as follows:
<TABLE>
<CAPTION>
ASSET RANGE OF ESTIMATED
CATEGORY USEFUL LIVES (IN YEARS)
---------------------------- --------------------------
<S> <C>
Gathering and Processing 4 - 33
Transmission and Storage 4 - 40
Leased to Others 25
Other 3 - 40
</TABLE>
(H) Cash Flow Information
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. "Other, Net," presented
as a component of "Net Cash Flows From Operating Activities" in the accompanying
Consolidated Statements of Cash Flows includes non-cash charges and credits to
income. The Company made no cash payments for income taxes, which are paid at
the Kinder Morgan, Inc. level (see Note 6), or interest (see Note 3).
(I) Accounts Receivable
The caption "Accounts Receivable" in the accompanying Combined Balance Sheet is
presented net of allowances for doubtful accounts of $10.7 million at
December 31, 1999.
2. Accounts Receivable Sales Facility
In September 1999, certain affiliates of Kinder Morgan, including the Company,
entered into a five-year agreement to sell certain of their eligible accounts
receivable, on a revolving basis, to K N Receivables Corporation, a wholly owned
subsidiary of Kinder Morgan. K N Receivables was formed prior to the execution
of that receivables agreement for the purpose of buying and selling accounts
receivable and has been determined to be bankruptcy remote. Also in September
1999, K N Receivables entered into a five-year agreement with a financial
institution whereby K N Receivables could sell, on a revolving basis, an
undivided percentage ownership interest in certain eligible accounts receivable,
as defined, up to a maximum of $150 million. This transaction was accounted for
as a sale of receivables in accordance with Statement of Financial Accounting
Standards No. 125, "Accounting for Transfer and Servicing of Financial Assets
and Extinguishment of Liabilities," in Kinder Morgan's financial statements. The
Company's accompanying Combined Balance Sheet reflects the portion of
receivables transferred to K N Receivables as a reduction of trade receivables,
with an offsetting increase in "Receivable for Trade Receivables Sold". Cash
flows associated with this program are included with "Net (Increase)
<PAGE>
Decrease in Receivables" under "Net Cash Flow from Operating Activities" in the
accompanying Combined Statement of Cash Flows. In February 2000, Kinder Morgan
reduced its participation in this receivables sale program. In April 2000,
Kinder Morgan repaid the residual balance and, with certain wholly owned
subsidiaries, including the Company, terminated the agreement.
3. Associated Company Transactions
Kinder Morgan employs a centralized cash management process. Receivables and
payables resulting from transactions with Kinder Morgan, Inc. and its affiliates
are not settled in cash, but rather, are combined in a net balance representing
inter-corporate investments which is reflected in the accompanying Combined
Balance Sheet as "Owner's Equity". Accordingly, the Combined Income Statement
does not include any interest expense allocation.
Kinder Morgan was the employer of the employees who operated the Company's
assets. Accordingly, Kinder Morgan billed the Company for the labor of these
employees based on actual time worked for the benefit of the Company. The labor
charged includes all employee benefits provided to these employees, the
accounting for which benefits plans is done at the Kinder Morgan, Inc. level.
Principal transactions with affiliates of Kinder Morgan, Inc. were as follows
for the year ended December 31, 1999.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
------------------------------------------------------------------
(In Millions)
<S> <C>
Sales, transportation and storage of
natural gas and other revenues $795.4
Purchases and transportation of natural gas $794.3
Corporate charges $ 10.9
</TABLE>
4. Environmental and Legal Matters
(A) Environmental Matters
Certain of the Company's properties were owned by Cabot Corporation prior to
their acquisition by Kinder Morgan, Inc., and certain of these properties had
associated environmental liabilities. Kinder Morgan was indemnified by Cabot for
certain of these liabilities and issues arose with respect to Cabot's
indemnification obligations. These issues were settled between Cabot and Kinder
Morgan through binding arbitration, with the result that past obligations were
settled and future obligations were split between the parties. In conjunction
with ONEOK's acquisition of the Company's properties, Kinder Morgan agreed to
indemnify ONEOK against environmental liabilities arising from any acts,
omissions, events, conditions or circumstances occurring on or before the
closing date of the acquisition, including liabilities associated with the
properties previously owned by Cabot. Taking into account the creditworthiness
of the indemnifying party, the Company does not expect to incur any material
costs associated with any environmental liabilities existing at the date of the
sale by Kinder Morgan to ONEOK.
On June 17, 1999, the Environmental Protection Agency published a final rule
creating a standard to limit emissions of hazardous air pollutants from oil and
natural gas production as well as from natural gas transmission and storage
facilities. The standard requires that the affected facilities reduce emissions
of hazardous air pollutants. This standard will require the Company to achieve
this reduction either by process modifications or by installing new emissions
control technology. The standard will affect the Company and its competitors in
a like manner. The rule allows most affected sources three years from the
publication date to come into compliance. The Company is conducting a detailed
analysis of the final rule to determine its overall effect. While additional
capital costs are likely to result from this rule, the Company believes that the
rule will not have a material adverse effect on the Company's business, cash
flows, financial position or results of operations.
<PAGE>
The Company does not believe that compliance with federal, state and local
environmental laws and regulations will have a material adverse effect on the
Company's business, cash flows, financial position or results of operations. In
addition, the clean-up programs in which the Company is engaged are not expected
to interrupt or diminish the Company's operational ability to gather or
transport natural gas. However, there can be no assurances that future events,
such as changes in existing laws, the promulgation of new laws, or the
development of new facts or conditions will not cause the Company to incur
significant costs.
(B) Litigation Matters
Chesapeake Panhandle Limited Partnership and Chesapeake Marketing, Inc. v.
MidCon Gas Products Corp., et al., Case No. CIV-00-00397-L. On February 25,
2000, Chesapeake filed a complaint against MidCon Gas Products Corp. and other
defendants for declaratory judgment alleging that a July 1, 1997 Gas Purchase
Agreement was invalid and unenforceable. On April 5, 2000, Chesapeake filed its
First Amended Complaint adding claims for breach of contract. MidCon Gas
Products Corp. filed its answer April 17, 2000. Discovery in the case is
ongoing.
J.M. Huber Corporation v. MidCon Gas Products Corp., et al., Case No. 2000-
21043. On April 25, 2000, J.M. Huber filed a complaint against MidCon Gas
Products Corp. and other defendants in the District Court of Harris County,
Texas, alleging an historical gas purchase contract had expired. MidCon's answer
is due on July 5, 2000.
The Company believes it has meritorious defenses to all lawsuits and legal
proceedings in which it is a defendant and will vigorously defend against them.
Based on its evaluation of such matters, the Company believes that the
resolution of such matters will not have a material adverse effect on the
Company's business, financial position or results of operations.
5. Property, Plant and Equipment
Investments in property, plant and equipment, at cost, and accumulated
depreciation and amortization ("Accumulated D&A"), detailed by business segment,
are as follows:
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------------
Property
Plant and Accumulated
Equipment D&A Net
---------- ------------ ----------
(In Thousands)
<S> <C> <C> <C>
Gathering and Processing $ 417,356 $ 94,968 $ 322,388
Transmission and Storage 247,594 91,636 155,958
Leased to Others 58,452 35,830 22,622
Other 55,830 13,731 42,099
---------- ------------- ----------
$ 779,232 $ 236,165 $ 543,067
========== ============= ==========
</TABLE>
6. Income Taxes
During 1999, the Company was included in the consolidated federal and state tax
returns of Kinder Morgan, Inc. The following tax information represents an
allocation of Kinder Morgan's consolidated tax amounts to the Company utilizing
the "stand alone" method. Under this method, tax attributes which would have
been recorded by the Company had it been a separate filing entity are
recognized, whether or not such attributes were recognizable in Kinder Morgan's
consolidated returns. Deferred income tax assets and liabilities are recognized
for temporary differences between the basis of assets and liabilities for
financial reporting and tax purposes. Changes in tax legislation are included in
the relevant computations in the period in which such changes are effective.
Deferred tax assets are reduced by a valuation allowance for the amount of any
tax benefit not expected to be realized.
<PAGE>
Components of the income tax benefit for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------
(Dollars In
Thousands)
<S> <C>
Taxes Currently Payable:
Federal $ 23,149
State (3,689)
----------
Total 19,460
----------
Taxes Deferred:
Federal (44,117)
State 3,384
----------
Total (40,733)
----------
Total Tax Benefit $ (21,273)
==========
</TABLE>
The difference between the statutory federal income tax rate and the Company's
effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,1999
---------------------------------------------------------------
<S> <C> <C>
Federal Statutory Income Tax Rate 35.0%
Increase as a Result of:
State Income Tax, Net of Federal Benefit 2.6%
Other 0.5%
----------
Effective Tax Rate 38.1%
==========
</TABLE>
Deferred tax assets and liabilities result from the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1999
(Dollars In Thousands)
<S> <C>
Deferred Tax Assets:
State Taxes $ 6,889
Operating Reserves 6,945
Uniform Capitalization Adjustment 180
Federal Net Operating Loss Carryforward 78,390
Investments 3,349
Unclaimed Checks 121
---------------
Total Deferred Tax Assets 95,874
---------------
Deferred Tax Liabilities:
Property, Plant and Equipment 97,954
Amortization of Intercompany Gains 1,604
Inventory Adjustment 11,575
Other 7,586
---------------
Total Deferred Tax Liabilities 118,719
---------------
Net Deferred Tax Liabilities $ 22,845
===============
</TABLE>
<PAGE>
7. Risk Management
The Company uses energy financial instruments to reduce its risk of price
changes in the spot and fixed price natural gas and natural gas liquids markets
as discussed following. The Company is exposed to credit-related losses in the
event of nonperformance by counterparties to these financial instruments but,
given their existing credit ratings, does not expect any counterparties to fail
to meet their obligations.
The fair value of these risk management instruments reflects the estimated
amounts that the Company would receive or pay to terminate the contracts at the
reporting date, thereby taking into account the current unrealized gains or
losses on open contracts. Market quotes are available for substantially all
financial instruments used by the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (the "Statement").
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivatives fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. If the derivatives meet these criteria, the
Statement allows a derivative's gains and losses to offset related results on
the hedged item in the income statement, and requires that a company formally
designate a derivative as a hedge and document and assess the effectiveness of
derivatives associated with transactions that receive hedge accounting.
The Statement is effective for fiscal years beginning after June 15, 2000. The
Statement cannot be applied retroactively. The Statement must be applied to (i)
derivative instruments and (ii) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the Company's election, before January 1, 1998). The
Company has not yet quantified the impacts of adopting the Statement on its
financial position or results of operations and has not determined the timing of
or method of adoption of the Statement.
In December 1998, the Emerging Issues Task Force ("EITF") issued EITF 98-10,
Accounting for Energy Trading and Risk Management Activities. This consensus
establishes accounting for energy trading activities prior to the adoption of
the Statement. EITF 98-10 requires that energy contracts associated with trading
activities be recorded at fair value on the balance sheet, with the changes in
fair value included in earnings. The effects of initial application of EITF 98-
10 are required to be reported as a cumulative effect of a change in accounting
principle. Financial statements for periods prior to initial adoption of EITF
98-10 may not be restated. EITF 98-10 is effective for fiscal years beginning
after December 15, 1998. Given the Company's restrictive policy with respect to
the use of energy derivatives as discussed following, the Company had no
material impact from the application of EITF 98-10 to its operations.
Energy risk management products used by the Company include commodity futures
and options contracts, fixed-price swaps and basis swaps. Pursuant to its
approved policy, the Company engages in these activities only as a hedging
mechanism against price volatility associated with pre-existing or anticipated
physical gas and condensate sales, gas purchases, system use and storage in
order to protect profit margins, and is prohibited from engaging in speculative
trading. Commodity-related activities of the risk management group are monitored
by a Risk Management Committee, which is charged with the review and enforcement
of the risk management policy. Changes in fair value for trading activities are
recognized currently in earnings within the caption "Other, Net" under the
heading "Other Income and (Deductions)" in the Consolidated Statements of
Income. All energy futures, swaps and options are recorded at fair value. Gains
and losses on hedging positions are deferred and recognized as gas purchases
expense in the periods which the underlying physical transactions occur.
Purchases of commodity contracts and over-the-counter swaps and options require
75 percent of the contract amount to be placed in margin accounts. At December
31, 1999, the Company had $10.0 million in such margin accounts, which amounts
are shown as "Restricted Deposits" in the accompanying Combined Balance Sheet.
The differences between the current market value and the original physical
contracts' value, associated with hedging activities, are reflected, depending
on maturity, as deferred charges or credits and other current assets or
liabilities in the accompanying Combined Balance Sheet. These deferrals are
offset by the corresponding value of the underlying
<PAGE>
physical transactions. In the event energy financial instruments do not meet the
criteria for hedge accounting, the deferred gains or losses associated with the
corresponding financial instruments would be included in the results of
operations in the current period. In the event energy financial instruments are
terminated prior to the period of physical delivery of the items being hedged,
the gains or losses on the energy financial instruments at the time of
termination remain deferred until the period of physical delivery unless both
the energy financial instruments and the items being hedged result in a loss. If
this occurs, the loss is recorded immediately.
Following is selected information concerning the Company's risk management
activities:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------------------------------------------
COMMODITY OVER-THE-COUNTER
CONTRACTS SWAPS AND OPTIONS TOTAL
--------- ----------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Deferred Net Loss $ (2,341) $ (6,589) $ (8,930)
Contract Amounts $ (319,599) $ (99,034) $ (418,633)
Credit Exposure of Loss - $ 1,518 $ 1,518
(Billions of Cubic Feet)
Notional Volumetric Positions: Long 74.3 1,268.3 1,342.6
Notional Volumetric Positions: Short 52.0 1,237.5 1,289.5
Net Notional Totals to Occur in 2000 22.2 33.7 55.9
Net Notional Totals to Occur in 2001 & Beyond 0.2 (2.9) (2.7)
</TABLE>
Deferred net losses are reflected in "Deferred Charges and Other Assets" in the
accompanying Combined Balance Sheet and will be matched with the corresponding
underlying physical transactions.
8. Commitments and Contingent Liabilities
The Company's Bushton natural gas processing facility is subject to operating
leases requiring semi-annual payments averaging $23.1 million per year. Under
the terms of the leases, the Company has the option of terminating the leases
and/or buying the underlying assets at any time after November 2003 and
extending the leases beyond May 2012, the scheduled termination date. In
addition, the Company may purchase the processing facilities upon termination of
the leases. Certain assets of AOG Gas Transmission, LP, a subsidiary of American
Oil & Gas Corporation, were subject to an operating lease which was terminated
during 2000 in conjunction with the sale of these assets to ONEOK. The amounts
shown in the following table for 2000 to 2004 and thereafter include $5.3
million, $5.3 million, $5.3 million, $5.3 million, $5.3 million and $1.3
million, respectively, attributable to this lease.
<TABLE>
<CAPTION>
Year Amount
---------------------------
(In Thousands)
<S> <C>
2000 $ 29,727
2001 31,596
2002 27,208
2003 22,049
2004 26,244
Thereafter 190,439
------------
Total $ 327,263
============
</TABLE>
9. Fair Value
The fair values of the Company's financial instruments (principally swaps and
options) was approximately $8.9 million at December 31, 1999. This fair value
represents the estimated amount that the Company would receive or pay to
terminate the instruments at December 31, 1999, thereby taking into account the
current unrealized gains or losses on open contracts.
<PAGE>
ONEOK
BUSINESS ACQUIRED FROM KINDER MORGAN, INC.
COMBINED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
(In Thousands) 2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues:
Natural Gas Sales $ 888,271 $ 627,017
Natural Gas Liquids 39,636 20,429
Natural Gas Transportation and Storage 10,779 12,095
Other 15,123 13,116
------------------------------------------------------------------------
Total Operating Revenues 953,809 672,657
------------------------------------------------------------------------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales 920,686 656,179
Operations and Maintenance 25,004 28,362
Depreciation and Amortization 7,734 7,813
Taxes, Other Than Income Taxes 2,007 2,264
------------------------------------------------------------------------
Total Operating Costs and Expenses 955,431 694,618
------------------------------------------------------------------------
Operating Loss (1,622) (21,961)
------------------------------------------------------------------------
Other Income and (Deductions):
Minority Interests 50 59
Other, Net (702) 129
------------------------------------------------------------------------
Total Other Income and (Deductions) (652) 188
------------------------------------------------------------------------
Loss Before Income Taxes (2,274) (21,773)
Income Taxes (903) (8,296)
------------------------------------------------------------------------
Net Loss $ (1,371) $ (13,477)
========================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
(In Thousands) March 31, 2000
-------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 264
Restricted Deposits 9,983
Accounts Receivable 391,550
Receivable from Kinder Morgan, Inc. and Subsidiaries 28,900
Inventories 50,104
Other 4,895
-------------------------------------------------------------------------------------------------
Total Current Assets 485,696
-------------------------------------------------------------------------------------------------
Property, Plant and Equipment 851,881
Less Accumulated Depreciation and Amortization 241,859
-------------------------------------------------------------------------------------------------
Net Property 610,022
-------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets 11,049
-------------------------------------------------------------------------------------------------
Total Assets $1,106,767
=================================================================================================
LIABILITIES AND OWNERS' EQUITY:
Current Liabilities:
Accounts Payable $ 337,469
Accrued Taxes 7,190
Other 21,084
-------------------------------------------------------------------------------------------------
Total Current Liabilities 365,743
-------------------------------------------------------------------------------------------------
Other Liabilities and Deferred Credits:
Deferred income taxes 22,949
Other 19,686
-------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 42,635
-------------------------------------------------------------------------------------------------
Minority Interests in Equity of Subsidiaries 1,831
-------------------------------------------------------------------------------------------------
Owners' Equity 696,558
-------------------------------------------------------------------------------------------------
Total Liabilities and Owners' Equity $1,106,767
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
COMBINED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In Thousands) 2000 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from Operations $ (1,371) $ (13,477)
Adjustments to Reconcile Loss from Operations to Net Cash Flows
from Operating Activities:
Depreciation and Amortization 7,734 7,813
Deferred Income Taxes 104 (14,769)
Loss on Sales of Facilities - 25
Change in Gas in Underground Storage 27,351 54,253
Change in Accounts Receivable 63,974 57,680
Change in Materials and Supplies 85 (21)
Change in Other Current Assets 18,925 (5,086)
Change in Accounts Payable (9,490) (22,962)
Change in Other Current Liabilities 11,519 15,387
Other, Net (15,765) (13,315)
-------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 103,066 65,528
-------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (1,182) (5,532)
Acquisitions (59,880) (24)
Cost of Removal of Other Assets 167 (214)
-------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (60,895) (5,770)
-------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Payable and Receivables from Kinder Morgan, Inc. (42,176) (59,893)
NET CASH FLOWS USED IN FINANCING ACTIVITIES (42,176) (59,893)
-------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (5) (135)
Cash and Cash Equivalents at Beginning of Period 269 475
-------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 264 $ 340
===========================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS (Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
(A) Nature of Operations
Effective February 29, 2000, ONEOK, Inc. acquired a number of entities and
assets from Kinder Morgan, Inc. consisting of the following: (1) KN Processing,
Inc., principally representing the operatorship of the Bushton natural gas
processing facility in Ellsworth County, Kansas, which facility is subject to
operating leases (see Note 8), (2) American Oil and Gas Corporation and
Subsidiaries, entities which conduct natural gas processing, natural gas
marketing and intrastate pipeline operations in Oklahoma and Texas, (3) certain
Hugoton Basin natural gas gathering assets in Kansas and Oklahoma, (4) the Scott
City natural gas processing facility in Scott County, Kansas and (4) Palo Duro
Pipeline Company and MidCon Gas Products Corp., former affiliates of MidCon
Corp. Collectively, these operations are referred to herein as "the Company".
(B) Basis of Presentation
The accompanying combined financial statements include the accounts and
transactions of the Company. In the opinion of Management, all adjustments
necessary for a fair presentation of the results for the unaudited interim
periods, consisting of normal recurring accruals except as discussed following,
have been made. Certain amounts for prior periods have been reclassified to
conform to the current presentation.
Transactions and balances with affiliates of Kinder Morgan, Inc. (the owner of
these entities and assets until their acquisition by ONEOK) have not been
eliminated, but have been separately identified. The residual representing the
difference between the identifiable assets and liabilities as of each balance
sheet date constitutes the owner's investment in these operations and has been
presented as "Owner's Equity" in the accompanying Combined Balance Sheets.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
these estimates.1
<PAGE>
Report of Independent Accountants
To the Board of Directors of ONEOK, Inc.:
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations and of cash flows, present fairly, in all material
respects, the financial position of the Businesses Acquired from Kinder Morgan,
Inc. (the "Company") at December 31, 1999, and the results of their operations
and their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Denver, Colorado
June 16, 2000
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (Nos. 333-36928 and 333-82717) of ONEOK, Inc. of our
report dated June 16, 2000 relating to the financial statements of the
Businesses Acquired from Kinder Morgan, Inc., which appears in the Current
Report on Form 8-K/A of ONEOK, Inc. dated June 19, 2000.
PricewaterhouseCoopers LLP
Denver, Colorado
June 19, 2000
