<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 29, 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:
This amends Item 7 - Exhibits 12,12.a, and 99.a of the
8-K filed on April 15, 1999.
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 8-K filed by
Southwest Gas Corporation
8-K filed April 28, 1999
99.c Incorporated by Reference - Reports on Form 8-K filed by
ONEOK, Inc.
<PAGE> 3
8-K filed April 26, 1999 related to the amendment to the
merger agreement with Southwest Gas Corporation
Item 8 Not applicable.
<PAGE> 4
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 28th of April, 1999.
ONEOK, Inc.
By: Jim Kneale
-------------------------------------
Vice President, Chief Financial
Officer, and Treasurer
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER 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 April 28, 1999
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
</TABLE>
<PAGE> 1
Exhibit (12)
ONEOK, Inc.
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements
<TABLE>
<CAPTION>
Six Months Years Ended August 31,
Ended ---------------------------------------------------------
Feb. 28, 1999 1998 1997 1996 1995 1994
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 17,354 $ 30,846 $ 31,354 $ 31,748 $ 32,345 $ 32,979
Other interest 5,506 3,723 3,376 3,184 4,934 1,855
Amortization of debt issue costs 504 506 518 530 512 525
Interest on lease agreements 1,162 2,325 2,266 2,266 2,266 2,266
--------- --------- --------- --------- --------- ---------
Total fixed charges 24,526 37,400 37,514 37,728 40,057 37,625
Preferred dividend requirements 30,570 44,228 285 428 428 428
--------- --------- --------- --------- --------- ---------
Total fixed charges and preferred
dividend requirements $ 55,096 $ 81,628 $ 37,799 $ 38,156 $ 40,485 $ 38,053
========= ========= ========= ========= ========= =========
Earnings before income taxes $ 136,765 $ 168,380 $ 94,107 $ 85,873 $ 68,146 $ 57,276
Total fixed charges 24,526 37,400 37,514 37,728 40,057 37,625
--------- --------- --------- --------- --------- ---------
Earnings available for combined
fixed charges and preferred
dividend requirements $ 161,291 $ 205,780 $ 131,621 $ 123,601 $ 108,203 $ 94,901
========= ========= ========= ========= ========= =========
Ratio of earnings to combined
fixed charges and preferred
dividend requirements 2.93X 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 Discussed Herein
<TABLE>
<CAPTION>
Six Months Year Ended
Ended August 31,
Feb. 28, 1999 1998
-------------- --------------
<S> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 72,187 $ 142,231
Other interest 5,506 3,723
Amortization of debt issue costs 889 1,275
Preferred securities distributions
of subsidiary 12,112 24,225
Interest on lease agreements 1,162 2,325
-------------- --------------
Total fixed charges 91,856 173,779
Preferred dividend requirements 30,570 44,228
-------------- --------------
Total fixed charges and preferred
dividend requirements $ 122,426 $ 218,007
============== ==============
Earnings before income taxes $ 127,120 $ 151,413
Total fixed charges 91,856 173,779
-------------- --------------
Earnings available for combined
fixed charges and preferred
dividend requirements $ 218,976 $ 325,192
============== ==============
Ratio of earnings to combined
fixed charges and preferred
dividend requirements 1.79X 1.49X
============== ==============
</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>
Six Months Years Ended August 31,
Ended --------------------------------------------------------------
Feb. 28, 1999 1998 1997 1996 1995 1994
------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 17,354 $ 30,846 $ 31,354 $ 31,748 $ 32,345 $ 32,979
Other interest 5,506 3,723 3,376 3,184 4,934 1,855
Amortization of debt issue costs 504 506 518 530 512 525
Interest on lease agreements 1,162 2,325 2,266 2,266 2,266 2,266
---------- ---------- ---------- ---------- ---------- ----------
Total fixed charges 24,526 37,400 37,514 37,728 40,057 37,625
Earnings before income taxes $ 136,765 $ 168,380 $ 94,107 $ 85,873 $ 68,146 $ 57,276
---------- ---------- ---------- ---------- ---------- ----------
Earnings available for fixed charges $ 161,291 $ 205,780 $ 131,621 $ 123,601 $ 108,203 $ 94,901
========== ========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 6.58X 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 Discussed Herein
<TABLE>
<CAPTION>
Six Months Year Ended
Ended August 31,
Feb. 28, 1999 1998
-------------- --------------
<S> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 72,187 $ 142,231
Other interest 5,506 3,723
Amortization of debt issue costs 889 1,275
Preferred securities distributions
of subsidiary 12,112 24,225
Interest on lease agreements 1,162 2,325
-------------- --------------
Total fixed charges 91,856 173,779
Earnings before income taxes $ 127,120 $ 151,413
-------------- --------------
Earnings available for fixed charges $ 218,976 $ 325,192
============== ==============
Ratio of earnings to fixed charges(a) 2.38X 1.87X
============== ==============
</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 Amendment No. 1 to Agreement and
Plan of Merger (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 transactions 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
February 28, 1999, is presented as if the Proposed Merger had occurred on that
date using the Southwest balance sheet at December 31, 1998. The unaudited pro
forma combined condensed statements of income for the fiscal year ended August
31, 1998, and the six and twelve month periods ended February 28, 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
six and twelve month periods ended December 31, 1998, respectively, for
Southwest. The pro forma condensed statement of income for the twelve months
ended February 28, 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 six months ended February 28, 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 approval 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, including associated stock purchase
rights. The transaction has been approved by the Boards of Directors of both
Southwest and ONEOK. The transaction is subject to customary conditions
including approval from Southwest shareholders and state regulators in Arizona,
California, and Nevada. 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 confirmed that it had
received the competing proposal and that its Board would review the revised
offer, including the increase in price and other proposed revisions to the terms
and conditions of Southern Union's proposal. The agreement with ONEOK remains in
full force and effect.
Financing for ONEOK's proposed acquisition of Southwest is expected to be
provided through notes and trust preferred securities. The trust preferred
securities are expected to provide $250 million while the notes are expected to
provide the remainder of the financing with an average term of eight years and a
weighted average interest rate of 6.53 percent. Financing costs to be amortized
are expected to be $7.7 million.
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
FEBRUARY 28, 1999
(THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
ONEOK SOUTHWEST ADJUSTMENTS TOTAL
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Property $ 2,680,361 $ 2,145,426 $ 4,825,787
Accumulated depreciation, depletion & amortization 945,461 612,138 1,557,599
------------- ------------- ------------- -------------
Net property 1,734,900 1,533,288 3,268,188
------------- ------------- ------------- -------------
CURRENT ASSETS:
Cash and cash equivalents 18,357 18,535 36,892
Accounts and notes receivable 332,214 88,037 420,251
Inventories 84,016 0 84,016
Other 22,907 140,814 163,721
------------- ------------- ------------- -------------
Total current assets 457,494 247,386 704,880
------------- ------------- ------------- -------------
Deferred Charges and Other Assets:
Regulatory assets, net 250,318 37,299 287,617
Goodwill 78,106 8,911 (8,911)(b) 78,106
Excess costs to be allocated 0 488,356 (b) 488,356
Other 175,968 3,810 7,710 (a) 187,488
------------- ------------- ------------- -------------
Total deferred charges and other assets 504,392 50,020 487,155 1,041,567
------------- ------------- ------------- -------------
TOTAL ASSETS $ 2,696,786 $ 1,830,694 $ 487,155 $ 5,014,635
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
COMMON SHAREHOLDERS' EQUITY
Common stock $ 317 $ 32,040 $ (32,040)(b) 317
Premium on capital stock 331,820 424,840 (424,840)(b) 331,820
Retained earnings 315,360 19,520 (19,520)(b) 315,360
------------- ------------- ------------- -------------
Total common shareholders' equity 647,497 476,400 (476,400) 647,497
Convertible preferred stock: series A 199 199
Convertible preferred stock: series B 1 1
Premium on preferred stock 568,869 568,869
------------- ------------- ------------- -------------
Total shareholders' equity 1,216,566 476,400 (476,400) 1,216,566
Long-term debt, excluding current portion 529,720 812,906 713,555(a) 2,056,181
Trust preferred securities of ONEOK subsidiary 0 0 250,000(a) 250,000
Redeemable preferred securities of Southwest Gas Capital I 0 60,000 60,000
------------- ------------- ------------- -------------
Total capitalization 1,746,286 1,349,306 487,155 3,582,747
------------- ------------- ------------- -------------
CURRENT LIABILITIES:
Long-term debt 19,817 5,270 25,087
Notes payable 160,000 52,000 212,000
Accounts payable 178,170 64,295 242,465
Accrued taxes 38,084 33,480 71,564
Accrued interest 8,624 13,872 22,496
Other 56,735 81,877 138,612
------------- ------------- ------------- -------------
Total current liabilities 461,430 250,794 712,224
------------- ------------- ------------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 310,136 179,666 489,802
Other deferred credits 178,934 50,928 229,862
------------- ------------- ------------- -------------
Total deferred credits and other liabilities 489,070 230,594 719,664
------------- ------------- ------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 2,696,786 $ 1,830,694 $ 487,155 $ 5,014,635
============= ============= ============= =============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements
<PAGE> 4
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED FEBRUARY 28, 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 $ 583,716 $ 360,217 $ 943,933
Nonregulated 388,877 71,594 460,471
-------------- -------------- -------------- --------------
Total operating revenues 972,593 431,811 1,404,404
-------------- -------------- -------------- --------------
OPERATING EXPENSES
Cost of gas 603,124 135,094 738,218
Operations and maintenance 126,860 169,409 296,269
Depreciation, depletion and amortization 62,935 45,762 6,104 (b) 114,801
Other expense, net 0 1,928 1,928
General taxes 19,545 15,829 35,374
-------------- -------------- -------------- --------------
Total operating expenses 812,464 368,022 6,104 1,186,590
-------------- -------------- -------------- --------------
Income before interest, income taxes and preferred
securities distributions 160,129 63,789 (6,104) 217,814
Income taxes 53,983 15,419 (12,893)(g) 56,509
Interest 23,364 31,535 23,298 (c) 78,546
349 (e)
Preferred securities distribution 2,737 9,375 (d) 12,148
36 (f)
-------------- -------------- -------------- --------------
NET INCOME 82,782 14,098 (26,269) 70,611
Preferred stock dividends 18,648 18,648
-------------- -------------- -------------- --------------
Income available for common stock $ 64,134 $ 14,098 $ (26,269) $ 51,963
============== ============== ============== ==============
Weighted average shares outstanding - basic 31,564 31,564
============== ============== ============== ==============
Weighted average shares outstanding - diluted 51,667 51,667
============== ============== ============== ==============
Earnings per share of common stock - basic $ 2.03 $ 1.65
============== ============== ============== ==============
Earnings per share of common stock - diluted $ 1.60 $ 1.37
============== ============== ============== ==============
</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
-------------- -------------- -------------- --------------
OPERATING REVENUES
<S> <C> <C> <C> <C>
Regulated $ 971,905 $ 734,741 $ 1,706,646
Nonregulated 863,497 110,598 974,095
-------------- -------------- -------------- --------------
Total operating revenues 1,835,402 845,339 2,680,741
-------------- -------------- -------------- --------------
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 12,209 (b) 200,638
Other expense, net 0 11,560 11,560
General taxes 33,217 30,099 63,316
-------------- -------------- -------------- --------------
Total operating expenses 1,631,947 713,718 12,209 2,357,874
-------------- -------------- -------------- --------------
Income before interest, income taxes and preferred
securities distributions 203,455 131,621 (12,209) 322,867
Income taxes 66,585 20,268 (25,784)(g) 61,069
Interest 35,075 64,790 46,595 (c) 147,158
698 (e)
Preferred securities distribution 0 5,475 18,750 (d) 24,296
71 (f)
-------------- -------------- -------------- --------------
NET INCOME 101,795 41,088 (52,539) 90,344
Preferred stock dividends 26,979 0 26,979
-------------- -------------- -------------- --------------
Income available for common stock $ 74,816 $ 41,088 $ (52,539) $ 63,365
============== ============== ============== ==============
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 $ 2.07
============== ============== ============== ==============
Earnings per share of common stock - diluted $ 2.23 $ 1.98
============== ============== ============== ==============
</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 FEBRUARY 28, 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 $ 966,670 $ 799,597 $ 1,766,267
Nonregulated 805,111 117,712 922,823
-------------- -------------- -------------- --------------
Total operating revenues 1,771,781 917,309 2,689,090
-------------- -------------- -------------- --------------
OPERATING EXPENSES
Cost of gas 1,139,156 329,849 1,469,005
Operations and maintenance 271,293 312,840 584,133
Depreciation, depletion and amortization 120,129 88,804 12,209 (b) 221,142
Other expense, net 1,390 1,390
General taxes 37,354 31,646 69,000
-------------- -------------- -------------- --------------
Total operating expenses 1,567,932 764,529 12,209 2,344,670
-------------- -------------- -------------- --------------
Income before interest, income taxes and preferred
securities distributions 203,849 152,780 (12,209) 344,420
Income taxes 66,519 36,414 (25,784)(g) 77,149
Interest 39,109 63,354 46,595 (c) 149,756
698 (e)
Preferred securities distribution 5,475 18,750 (d) 24,296
71 (f)
-------------- -------------- -------------- --------------
NET INCOME 98,221 47,537 (52,539) 93,219
Preferred stock dividends 36,651 36,651
-------------- -------------- -------------- --------------
Income available for common stock $ 61,570 $ 47,537 $ (52,539) $ 56,568
============== ============== ============== ==============
Weighted average shares outstanding - basic 31,562 31,562
============== ============== ============== ==============
Weighted average shares outstanding - diluted 50,798 (19,236)(h) 31,562
============== ============== ============== ==============
Earnings per share of common stock - basic $ 1.95 $ 1.79
============== ============== ============== ==============
Earnings per share of common stock - diluted $ 1.93 $ 1.79
============== ============== ============== ==============
</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)
<TABLE>
<S> <C>
Total Consideration:
Shares of common stock of Southwest outstanding 30,410
Per share consideration $ 30
---------
Total consideration $ 912,300
Plus:
Financing costs 7,710
Transaction costs 43,545
---------
Total acquisition financing required $ 963,555
Less trust preferred securities 250,000
---------
Anticipated debt $ 713,555
=========
</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 $ 912,300
Transaction Costs 43,545
---------
Total purchase price 955,845
Estimated net tangible asset book value at February 28, 1999 467,489
---------
Excess costs to be allocated related to proposed merger $ 488,356
=========
Amortization of excess costs (assumes a 40 year life):
Adjustment to amortization expense for the fiscal year 1998
and the twelve months ended February 28, 1999 $ 12,209
Adjustment to amortization expense for the six months
ended February 28, 1999 $ 6,104
</TABLE>
(c) Interest expense adjustments as a result of the anticipated debt are as
follows (thousands):
<TABLE>
<S> <C>
Total anticipated debt--see note (a) $ 713,555
Assumed weighted average interest rate on debt 6.53%
---------
Interest expense adjustment for fiscal 1998 and the twelve months
ended February 28, 1999 $ 46,595
=========
Interest expense adjustment for the six months ended
February 28, 1999 $ 23,298
=========
</TABLE>
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 February 28, 1999, and the six months ended February 28,
1999, would change by $892 thousand, $892 thousand, and $446 thousand,
respectively.
<PAGE> 8
(d) Preferred securities distribution adjustments as a result of the trust
preferred securities are as follows (thousands):
<TABLE>
<S> <C>
Total trust preferred securities--see note (a) $ 250,000
Assumed distribution rate 7.5%
---------
Preferred securities distribution adjustment for fiscal 1998 and the
twelve months ended February 28, 1999 $ 18,750
=========
Preferred securities distribution adjustment for the six months ended
February 28, 1999 $ 9,375
=========
</TABLE>
The assumed distribution rate reflects current market rates; however, actual
rates will reflect distribution 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 distribution rate, the preferred securities distribution for the fiscal
year 1998, for the twelve months ended February 28, 1999 and for the six months
ended February 28, 1999, would change by $313 thousand, $313 thousand, and $156
thousand, respectively.
(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 February 28, 1999, and the
six months ended February 28, 1999, would be $698 thousand, $698
thousand, and $349 thousand respectively.
(f) To record amortization expense of the issuance costs of the trust
preferred securities over the 30- year life of the securities.
Amortization expense for fiscal year 1998, the twelve months ended
February 28, 1999, and the six months ended February 28, 1999 would be
$71 thousand, $71 thousand, and $36 thousand respectively.
(g) Represents the tax effect at the statutory rate of all pre-tax pro
forma adjustments after excluding nondeductible goodwill amortization.
The Company intends to structure the trust preferred securities to
allow the Company to take the position that the trust preferred
securities should be classified for United States federal income tax
purposes as indebtedness. No assurance can be given that such position
will not be challenged by the Internal Revenue Service or, if
challenged, that such a challenge will not be successful.
(h) Represents elimination of dilutive securities included in the
historical EPS computation. On a pro forma basis, such securities are
antidilutive.
