<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
July 12, 1999
(Date of earliest event reported)
ONEOK, Inc.
(Exact name of registrant as specified in its charter)
Oklahoma 1-2572 73-1520922
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
100 West Fifth Street; Tulsa, OK
(Address of principal executive offices)
74103
(Zip code)
(918) 588-7000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Items 1-4 Not applicable.
Item 5 Other Events:
Pursuant to the terms and conditions of a certain Amendment
No. 1 to Agreement and Plan of Merger, dated April 25, 1999,
among ONEOK, Inc., an Oklahoma corporation ("ONEOK"), Oasis
Acquisition Corporation, a California corporation and newly
formed subsidiary of ONEOK ("OAC"), and Southwest Gas
Corporation, a California corporation ("Southwest"),
Southwest will be merged into OAC with OAC as the surviving
corporation. Immediately after that, OAC will be merged into
ONEOK with ONEOK as the surviving corporation. The mergers
are subject to approval by Southwest's shareholders, state
regulatory agencies, and typical closing conditions. It is
anticipated that the transactions can be closed later in
1999.
In order for ONEOK to issue certain securities during the
interim period, ONEOK must comply with Rule 3-05 and Rule
11-01(a)(8) of Regulation S-X of the Securities and Exchange
Commission with respect to disclosure of certain financial
statements of the business acquired or to be acquired and
pro forma financial information relating to the probable
merger transactions. Therefore, ONEOK is filing as exhibits
hereto certain financial information relating to Southwest
and required pro forma financial information.
Item 6 Not applicable.
Item 7 Financial Statements, Pro Forma Financial Information and
Exhibits
Exhibit No.: Description.
12 Included herein - Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividend
Requirements
12.a Included herein - Computation of Ratio of Earnings to Fixed
Charges
99.a Included herein - Unaudited Pro Forma Combined Condensed
Financial Statements
99.b Incorporated by Reference - Reports on Form 10-Q for the
period ended March 31, 1999 filed by Southwest Gas
Corporation
99.c Incorporated by Reference - Reports on Form 8-K filed by
ONEOK, Inc.
8-K filed April 26, 1999 related to the amendment to the
merger agreement with Southwest Gas Corporation
8-K filed April 15, 1999, which incorporates by reference
Southwest's 10-K
Item 8 Not applicable.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized, on this 12th of July, 1999.
ONEOK, Inc.
By: /s/ Jim Kneale
-------------------------------
Vice President, Chief Financial
Officer, and Treasurer
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.: Description.
<S> <C>
12 Included herein - Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividend
Requirements
12.a Included herein - Computation of Ratio of Earnings to Fixed
Charges
99.a Included herein - Unaudited Pro Forma Combined Condensed
Financial Statements
99.b Incorporated by Reference - Reports on Form 8-K filed by
Southwest Gas Corporation
8-K filed May 4, 1999 releasing summary financial
information regarding Southwest's operating performance and
financial position for the quarter ended March 31, 1999
99.c Incorporated by Reference - Reports on Form 8-K filed by
ONEOK, Inc.
</TABLE>
<PAGE> 1
Exhibit (12)
ONEOK, Inc.
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements
<TABLE>
<CAPTION>
Nine Months Years Ended August 31,
Ended ----------------------------------------------------
(Dollars in thousands) May 31, 1999 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 26,665 $ 30,846 $ 31,354 $ 31,748 $ 32,345 $ 32,979
Other interest 8,854 3,723 3,376 3,184 4,934 1,855
Amortization of debt issue costs 830 506 518 530 512 525
Interest on lease agreements 1,743 2,325 2,266 2,266 2,266 2,266
-------- -------- -------- -------- -------- --------
Total fixed charges 38,092 37,400 37,514 37,728 40,057 37,625
Preferred dividend requirements 45,856 44,228 285 428 428 428
-------- -------- -------- -------- -------- --------
Total fixed charges and preferred
dividend requirements $ 83,948 $ 81,628 $ 37,799 $ 38,156 $ 40,485 $ 38,053
======== ======== ======== ======== ======== ========
Earnings before income taxes $168,946 $168,380 $ 94,107 $ 85,873 $ 68,146 $ 57,276
Total fixed charges 38,092 37,400 37,514 37,728 40,057 37,625
-------- -------- -------- -------- -------- --------
Earnings available for combined
fixed charges and preferred
dividend requirements $207,038 $205,780 $131,621 $123,601 $108,203 $ 94,901
======== ======== ======== ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred
dividend requirements 2.47X 2.52X 3.48X 3.24X 2.67X 2.49X
======== ======== ======== ======== ======== ========
</TABLE>
Pro Forma Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements Giving Effect to the
Proposed Merger as Described Herein
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended August 31,
(Dollars in thousands) May 31, 1999 1998
------------ ----------
<S> <C> <C>
Fixed charges, as defined
Interest on long-term debt $100,445 $132,136
Other interest 28,958 30,529
Amortization of debt issue costs 1,720 1,693
Preferred securities distributions
of subsidiary 4,106 5,475
Interest on lease agreements 1,743 2,325
-------- --------
Total fixed charges 136,972 172,158
Preferred dividend requirements 45,856 44,228
-------- --------
Total fixed charges and preferred
dividend requirements $182,828 $216,386
======== ========
Earnings before income taxes $188,086 $153,549
Total fixed charges 136,972 172,158
-------- --------
Earnings available for combined
fixed charges and preferred
dividend requirements $325,058 $325,707
======== ========
Ratio of earnings to combined
fixed charges and preferred
dividend requirements 1.78X 1.50X
======== ========
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges and
preferred dividend requirements, "earnings" consists of net income plus fixed
charges and income taxes. "Fixed charges" consists of interest charges, the
amortization of debt issue costs, preferred securities distributions of
subsidiary, and the representative interest portion of operating leases.
"Preferred dividend requirements" consists of the pre-tax preferred dividend
requirement.
<PAGE> 1
EXHIBIT (12)(a)
ONEOK, Inc.
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Nine Months Years Ended August 31,
Ended ------------------------------------------------------------
(Dollars in thousands) May 31, 1999 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 26,665 $ 30,846 $ 31,354 $ 31,748 $ 32,345 $ 32,979
Other interest 8,854 3,723 3,376 3,184 4,934 1,855
Amortization of debt issue costs 830 506 518 530 512 525
Interest on lease agreements 1,743 2,325 2,266 2,266 2,266 2,266
-------- -------- -------- -------- -------- --------
Total fixed charges 38,092 37,400 37,514 37,728 40,057 37,625
Earnings before income taxes $168,946 $168,380 $ 94,107 $ 85,873 $ 68,146 $ 57,276
-------- -------- -------- -------- -------- --------
Earnings available for fixed charges $207,038 $205,780 $131,621 $123,601 $108,203 $ 94,901
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 5.44X 5.50X 3.51X 3.28X 2.70X 2.52X
======== ======== ======== ======== ======== ========
</TABLE>
Pro Forma Computation of Ratio of Earnings to Fixed Charges
Giving Effect to the Proposed Merger as Described Herein
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended August 31,
(Dollars in thousands) May 31, 1999 1998
------------ ---------
<S> <C> <C>
Fixed charges, as defined
Interest on long-term debt $100,445 $132,136
Other interest 28,958 30,529
Amortization of debt issue costs 1,720 1,693
Preferred securities distributions
of subsidiary 4,106 5,475
Interest on lease agreements 1,743 2,325
-------- --------
Total fixed charges 136,972 172,158
Earnings before income taxes $188,086 $153,549
-------- --------
Earnings available for fixed charges $325,058 $325,707
======== ========
Ratio of earnings to fixed charges 2.37X 1.89X
======== ========
</TABLE>
For purposes of computing the ratio of earnings to fixed charges "earnings"
consists of net income plus fixed charges and income taxes. "Fixed charges"
consists of interest charges, the amortization of debt issue costs, preferred
securities distributions of subsidiary, and the representative interest portion
of operating leases.
<PAGE> 1
EXHIBIT 99.a
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
proposed merger of Southwest Gas Corporation (Southwest) into ONEOK, Inc.
(ONEOK) (the Proposed Merger) as described in the Agreement and
Plan of Merger as amended by Amendment No. 1 (the Agreement) incorporated by
reference herein. The Proposed Merger will be treated as a purchase for
accounting purposes. The assets acquired and the liabilities assumed will be
recorded at their fair values. The Proposed Merger is subject to customary
conditions including approval from Southwest shareholders and state regulators
in Arizona, California, and Nevada. It is anticipated that the transaction can
be closed later in 1999.
The fiscal year of ONEOK and Southwest ends on August 31 and December 31,
respectively, and, accordingly, the accompanying unaudited pro forma combined
condensed financial statements have been prepared using previously filed
financial statements of ONEOK combined with comparable financial statement
periods of Southwest. The unaudited pro forma condensed balance sheet as of May
31, 1999, is presented as if the Proposed Merger had occurred on that date using
the Southwest balance sheet at March 31, 1999. The unaudited pro forma combined
condensed statements of income for the fiscal year ended August 31, 1998, and
the nine and twelve month periods ended May 31, 1999, assume that the Proposed
Merger occurred at the beginning of the earliest period presented and include
the comparable twelve months ended June 30, 1998, and the nine and twelve month
periods ended March 31, 1999, respectively, for Southwest. The unaudited pro
forma combined condensed financial statement of income for the fiscal year
ended August 31, 1998, has been reclassified to conform to ONEOK's presentation
adopted in the period ended May 31, 1999. The pro forma condensed statement of
income for the twelve months ended May 31, 1999, has been presented as
management believes that it is more representative of normal operations given
the significance of the general rate increase granted to Southwest effective
September 1997 in Arizona and the inclusion for a full twelve month period of
the gas business of Western Resources, Inc., which was acquired by ONEOK
effective December 1, 1997.
The unaudited pro forma combined condensed financial statements should be read
in conjunction with the historical financial statements of ONEOK and Southwest
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of ONEOK and Southwest. The unaudited pro forma combined condensed
financial statements do not purport to represent what ONEOK's financial position
or results of operations would actually have been if the Proposed Merger had
been consummated on the indicated dates, nor are they necessarily indicative of
ONEOK's financial position or results of operations for any future period. The
results of operations for the nine months ended May 31, 1999, are not
necessarily indicative of the results to be expected for the entire fiscal year
or any other interim period.
The pro forma adjustments are based on preliminary assumptions and estimates
made by ONEOK management. The information necessary to account for the Proposed
Merger in accordance with generally accepted accounting principles is incomplete
at this time. In addition, the outcome of regulatory approvals may impact the
allocation of the consideration to be paid for Southwest in the Proposed Merger.
Accordingly, the pro forma combined condensed financial statements assume that
the recorded amounts of Southwest's assets and liabilities approximate their
fair values. The actual allocation of the consideration paid for Southwest may
differ from that reflected in the unaudited pro forma combined condensed
financial statements after a more extensive review of the fair values of the
assets acquired and liabilities assumed has been completed. Accordingly, the
allocation of the purchase price and the resultant amortization of the excess
cost, which are based on preliminary estimates, may differ from the final
purchase price allocation and amortization periods.
<PAGE> 2
THE PROPOSED MERGER
The Agreement provides that ONEOK will pay $30.00 per share for each issued and
outstanding share of Southwest common stock outstanding, including associated
stock purchase rights. The transaction has been approved by the Boards of
Directors of both Southwest and ONEOK and will be voted on by the Southwest
shareholders on August 10, 1999. The transaction has been approved by the Public
Utilities Commission of Nevada and by the Arizona Corporation Commission staff
and the Residential Utility Consumers Office in Arizona. A hearing before a
hearing officer is set for July 22, 1999 in Arizona and a similar hearing is set
in California for July 26, 1999. No other regulatory approvals are required.
On April 27, 1999, Southern Union Company (Southern Union) announced that it was
increasing its unsolicited proposal to acquire Southwest from $30.00 to $33.50
per share. Southwest rejected the Southern Union proposal, saying it believed
ONEOK is stronger financially and can obtain regulatory approval more quickly.
A complaint was filed in the Superior Court of the State of California on
December 16, 1998 and amended on March 22, 1999, May 5, 1999 and June 25, 1999
seeking, among other things, to enjoin the Proposed Merger, to rescind the
Agreement or portions thereof, to implement an auction of Southwest or similar
process, to void the $30 million termination fee which is payable in certain
events, and unspecified damages. Southern Union has intervened in this case and
is seeking, among other things, a temporary restraining order and preliminary
injunction to maintain the status quo. On June 9, 1999, Southwest signed a
Memorandum of Understanding with the shareholders' plaintiffs' counsel to settle
this action as to all plaintiffs, other than Southern Union. It is anticipated
that the amount of the settlement would be recoverable through insurance.
Financing for ONEOK's proposed acquisition of Southwest is expected to be
provided through long-term notes and a short-term bridge loan. The long-term
notes with an average term of eight years and a weighted average interest rate
of 7.3 percent are expected to provide $500 million while the bridge loan is
expected to provide the remainder of the financing with a weighted average
interest rate of 5.75 percent. Financing costs related to the long-term notes to
be amortized are expected to be $5.5 million. Financing cost related to the
bridge loan are expected to be $500 thousand.
SOUTHWEST GAS CORPORATION
In August 1997, the Arizona Corporation Commission (ACC) approved a settlement
of a general rate application submitted by Southwest in November 1996 providing
Southwest with a $32 million general rate increase effective September 1997. The
settlement achieved a number of favorable rate design improvements and tariff
restructuring changes including consolidation of the southern and central
Arizona rate jurisdictions for ratemaking purposes and better matching of rates
with the costs of serving various customer classes.
During the three months ended December 31, 1997, Southwest recognized
nonrecurring charges to income related to cost overruns on two separate
construction projects. These charges are reflected in Other Expense. An $8
million pretax charge resulted from cost overruns experienced during expansion
of the northern California service territory. A second pretax charge, for $5
million, related to cost overruns on a nonutility construction project.
Partially offsetting these charges was the recognition of a $3.4 million income
tax benefit related to the successful settlement in November 1997 of open tax
issues dating back as far as 1988. The combined impact of these events was a
$4.1 million reduction to earnings.
<PAGE> 3
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MAY 31, 1999
(THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
ONEOK SOUTHWEST ADJUSTMENTS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Property $ 3,010,539 $ 2,182,825 $ 5,193,364
Accumulated depreciation, depletion & amortization 966,719 627,650 1,594,369
----------- ----------- ----------- -----------
Net property 2,043,820 1,555,175 3,598,995
----------- ----------- ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents 6,759 14,183 20,942
Accounts and notes receivable 222,287 83,424 305,711
Inventories 102,209 102,209
Other 42,913 84,338 127,251
----------- ----------- ----------- -----------
Total current assets 374,168 181,945 556,113
----------- ----------- ----------- -----------
Deferred Charges and Other Assets:
Regulatory assets, net 246,404 35,815 282,219
Goodwill 75,180 8,812 (8,812)(b) 75,180
Excess charges to be allocated 467,776 (b) 467,776
Other 195,591 4,572 5,994 (a) 206,157
----------- ----------- ----------- -----------
Total deferred charges and other assets 517,175 49,199 464,958 1,031,332
----------- ----------- ----------- -----------
TOTAL ASSETS $ 2,935,163 $ 1,786,319 $ 464,958 $ 5,186,440
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
COMMON SHAREHOLDERS' EQUITY
Common stock $ 317 $ 32,185 ($32,185)(b) 317
Premium on capital stock 331,825 427,541 (427,541)(b) 331,825
Treasury stock at cost (1,012) (1,012)
Retained earnings 317,425 41,505 (41,505)(b) 317,425
----------- ----------- ----------- -----------
Total common shareholders' equity 648,555 501,231 (501,231) 648,555
Convertible preferred stock: series A 199 199
Convertible preferred stock: series B 1 1
Premium on preferred stock 568,870 568,870
----------- ----------- ----------- -----------
Total shareholders' equity 1,217,625 501,231 (501,231) 1,217,625
Long-term debt, excluding current portion 524,558 779,599 500,000 (a) 1,804,157
Redeemable preferred securities of Southwest Gas Capital I 60,000 60,000
----------- ----------- ----------- -----------
Total capitalization 1,742,183 1,340,830 (1,231) 3,081,782
----------- ----------- ----------- -----------
CURRENT LIABILITIES:
Long-term debt 16,817 5,049 21,866
Notes payable 397,000 720 466,189 (a) 863,909
Accounts payable 166,791 55,591 222,382
Accrued taxes 30,144 66,774 96,918
Accrued interest 11,304 14,034 25,338
Other 65,235 74,572 139,807
----------- ----------- ----------- -----------
Total current liabilities 687,291 216,740 466,189 1,370,220
----------- ----------- ----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 333,069 176,503 509,572
Other deferred credits 172,620 52,246 224,866
----------- ----------- ----------- -----------
Total deferred credits and other liabilities 505,689 228,749 734,438
----------- ----------- ----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 2,935,163 $ 1,786,319 $ 464,958 $ 5,186,440
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
<PAGE> 4
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED MAY 31, 1999
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
ONEOK SOUTHWEST ADJUSTMENTS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Regulated $ 805,058 $ 639,327 $ 1,444,385
Nonregulated 580,660 100,509 681,169
----------- ----------- ----------- -----------
Total operating revenues 1,385,718 739,836 2,125,554
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of gas 862,397 270,980 1,133,377
Operations and maintenance 197,438 247,444 444,882
Depreciation, depletion and amortization 96,542 69,929 8,771 (b) 175,242
General taxes 29,039 23,041 52,080
----------- ----------- ----------- -----------
Total operating expenses 1,185,416 611,394 8,771 1,805,581
----------- ----------- ----------- -----------
Operating income 200,302 128,442 (8,771) 319,973
Other income (expense) 4,993 (1,651) 3,342
Income taxes expense 64,968 33,916 (18,864)(g) 80,020
Interest expense 36,349 46,405 27,375 (c) 131,123
20,104 (d)
515 (e)
375 (f)
Preferred securities distribution expense 4,106 4,106
----------- ----------- ----------- -----------
NET INCOME 103,978 42,364 (38,276) 108,066
Preferred stock dividends 27,972 27,972
----------- ----------- ----------- -----------
Income available for common stock $ 76,006 $ 42,364 $(38,276) $ 80,094
=========== =========== =========== ===========
Weighted average shares outstanding - basic 31,588 31,588
=========== =========== =========== ===========
Weighted average shares outstanding - diluted 51,679 51,679
=========== =========== =========== ===========
Earnings per share of common stock - basic $ 2.41 $ 2.54
=========== =========== =========== ===========
Earnings per share of common stock - diluted $ 2.01 $ 2.09
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
<PAGE> 5
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED AUGUST 31, 1998
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
ONEOK SOUTHWEST ADJUSTMENTS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Regulated $ 971,905 $ 734,741 $ 1,706,646
Nonregulated 848,853 110,598 959,451
----------- ----------- -------- -----------
Total operating revenues 1,820,758 845,339 2,666,097
----------- ----------- -------- -----------
OPERATING EXPENSES
Cost of gas 1,220,009 282,771 1,502,780
Operations and maintenance 277,068 302,512 579,580
Depreciation, depletion and amortization 101,653 86,776 11,694 (b) 200,123
General taxes 33,217 30,099 63,316
----------- ----------- -------- -----------
Total operating expenses 1,631,947 702,158 11,694 2,345,799
----------- ----------- -------- -----------
Operating income 188,811 143,181 (11,694) 320,298
Other income(expense) 14,644 (11,560) 3,084
Income taxes expense 66,585 20,268 (25,152) (h) 61,701
Interest expense 35,075 64,790 36,500 (c) 164,358
26,806 (d)
687 (e)
500 (f)
Preferred securities distribution expense 5,475 5,475
----------- ----------- -------- -----------
NET INCOME 101,795 41,088 (51,035) 91,848
Preferred stock dividends 26,979 26,979
----------- ----------- -------- -----------
Income available for common stock $ 74,816 $ 41,088 ($51,035) $ 64,869
=========== =========== ======== ===========
Weighted average shares outstanding - basic 30,674 30,674
=========== =========== ======== ===========
Weighted average shares outstanding - diluted 45,729 45,729
=========== =========== ======== ===========
Earnings per share of common stock - basic $ 2.44 $ 2.11
=========== =========== ======== ===========
Earnings per share of common stock - diluted $ 2.23 $ 2.01
=========== =========== ======== ===========
</TABLE>
During the three months ended December 31, 1997, Southwest recognized
nonrecurring charges to income related to cost overruns on two separate
construction projects. These charges are reflected in Other Expense. An $8
million pretax charge resulted from cost overruns experienced during expansion
of the northern California service territory. A second pretax charge, for $5
million, related to cost overruns on a nonutility construction project.
Partially offsetting these charges was the recognition of a $3.4 million income
tax benefit related to the successful settlement in November 1997 of open tax
issues dating back as far as 1988. The combined impact of these events was a
$4.1 million reduction to earnings.
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
<PAGE> 6
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED MAY 31, 1999
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
ONEOK SOUTHWEST ADJUSTMENTS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Regulated $ 931,578 $ 804,344 $ 1,735,922
Nonregulated 809,280 128,389 937,669
----------- ----------- ----------- -----------
Total operating revenues 1,740,858 932,733 2,673,591
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of gas 1,110,796 344,748 1,455,544
Operations and maintenance 272,073 324,119 596,192
Depreciation, depletion and amortization 126,937 91,587 11,694 (b) 230,218
General taxes 37,080 30,886 67,966
----------- ----------- ----------- -----------
Total operating expenses 1,546,886 791,340 11,694 2,349,920
----------- ----------- ----------- -----------
Operating income 193,972 141,393 (11,694) 323,671
Other income (expense) 4,993 (1,715) 3,278
Income taxes expense 60,234 32,409 (25,152) (g) 67,491
Interest expense 46,250 61,944 36,500 (c) 172,687
26,806 (d)
687 (e)
500 (f)
Preferred securities distribution expense 5,475 5,475
----------- ----------- ----------- -----------
NET INCOME 92,481 39,850 (51,035) 81,296
Preferred stock dividends 36,992 36,992
----------- ----------- ----------- -----------
Income available for common stock $ 55,489 $ 39,850 ($51,035) $ 44,304
=========== =========== =========== ===========
Weighted average shares outstanding - basic 31,587 31,587
=========== =========== =========== ===========
Weighted average shares outstanding - diluted (h) 31,612 31,612
=========== =========== =========== ===========
Earnings per share of common stock - basic $ 1.76 $ 1.40
=========== =========== =========== ===========
Earnings per share of common stock - diluted $ 1.76 $ 1.40
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The pro forma adjustments have been made to the Unaudited Pro Forma Combined
Condensed Financial Statements to reflect the following:
(a) To record the financing required to pay the $30.00 per share cash
consideration to Southwest shareholders pursuant to the Agreement and
related costs (thousands, except per share data)
Total Consideration:
<TABLE>
<S> <C>
Shares of common stock of Southwest outstanding 30,555
Per share consideration $ 30
--------
Total consideration $916,650
Plus:
Financing costs - long-term notes 5,494
Financing costs - short-term bridge loan 500
Transaction costs 43,545
--------
Total acquisition financing required $966,189
Long-term notes $500,000
Short-term bridge loan 466,189
--------
Total anticipated debt $966,189
========
</TABLE>
(b) The excess of the total purchase price over the allocation of fair
value to the net assets is the excess costs to be allocated. The
calculation of excess costs to be allocated is based on the following
assumptions and calculations (thousands):
<TABLE>
<S> <C>
Total Consideration $916,650
Transaction Costs 43,545
--------
Total purchase price 960,195
Estimated net tangible asset book value at May 31, 1999 492,419
--------
Excess costs to be allocated related to proposed merger $467,776
========
Amortization of excess costs (assumes a 40 year life):
Adjustment to amortization expense for the fiscal year 1998
and the twelve months ended May 31, 1999 $ 11,694
Adjustment to amortization expense for the nine months
ended May 31, 1999 $ 8,771
(c) Interest expense adjustments as a result of the anticipated long-term debt
are as follows (thousands):
Total anticipated long-term debt--see note (a) $500,000
Assumed weighted average interest rate on debt 7.3%
--------
Interest expense adjustment for fiscal 1998 and the twelve months
ended May 31, 1999 $ 36,500
========
Interest expense adjustment for the nine months ended
May 31, 1999 $ 27,375
========
</TABLE>
<PAGE> 8
The assumed weighted-average interest rate reflects current market rates;
however, actual rates will reflect interest rates at or about closing of the
Proposed Merger and, thus, are subject to change prior to closing. For every 1/8
percent change in the interest rate, interest expense for the fiscal year 1998,
the twelve months ended May 31, 1999, and the nine months ended May 31, 1999,
would change by $625 thousand, $625 thousand, and $469 thousand, respectively.
(d) Interest expense adjustments as a result of the anticipated short-term debt
are as follows (thousands):
<TABLE>
<S> <C>
Total anticipated short-term bridge loan--see note (a) $466,189
Assumed interest rate on debt 5.75%
--------
Interest expense adjustment for fiscal 1998 and the
twelve months ended May 31, 1999 $ 26,806
========
Interest expense adjustment for the nine months ended
May 31, 1999 $ 20,104
========
</TABLE>
The assumed interest rate reflects current market rates; however, actual rates
will reflect interest rates at or about closing of the Proposed Merger and,
thus, are subject to change prior to closing. For every 1/8 percent change in
the interest rate, the interest expense for the fiscal year 1998, for the twelve
months ended May 31, 1999 and for the nine months ended May 31, 1999, would
change by $583 thousand, $583 thousand, and $437 thousand, respectively. ONEOK
will need to refinance the short-term bridge loan on a permanent basis
subsequent to the Proposed Merger. If long term-debt is used to refinance the
bridge loan, it is probable that the interest rate theron will be higher than
the assumed rate above.
(e) To record amortization expense of the debt issuance costs of the notes
over the 8-year average life of the notes. Amortization expense for
fiscal year 1998, the twelve months ended May 31, 1999, and the nine
months ended May 31, 1999, would be $687 thousand, $687 thousand, and
$515 thousand respectively.
(f) To record amortization expense of the debt issuance costs of the
short-term bridge loan. Expense for fiscal year 1998, the twelve months
ended May 31, 1999, and the nine months ended May 31, 1999 would be
$500 thousand, $500 thousand, and $375 thousand respectively.
(g) Represents the tax effect at the statutory rate of all pre-tax pro
forma adjustments after excluding nondeductible goodwill amortization.
(h) The effect of 19,207,854 shares of preferred stock convertible into
common stock have not been considered in the historical or pro forma
diluted computation because the effect is antidilutive.
