<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
January 25, 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 Agreement and Plan of Merger, dated
December 14, 1998, 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
23.a Consent of Arthur Andersen LLP
99.a Included herein - Unaudited Pro Forma
Combined Condensed Financial Statements
99.b Incorporated by Reference - Southwest Gas
Corporation Form 10-K for the year ended
December 31, 1997, filed March 31, 1998
99.c Incorporated by Reference - Southwest Gas
Corporation Form 10-Q for the Quarter ended
March 31, 1998, filed May 6, 1998
99.d Incorporated by Reference - Southwest Gas
Corporation Form 10-Q for the Quarter ended
June 30, 1998, filed August 14, 1998
99.e Incorporated by Reference - Southwest Gas
Corporation Form 10-Q for the Quarter Ended
September 30, 1998, filed November 16, 1998
<PAGE> 3
99.f Incorporated by Reference - Reports on Form
8-K filed by Southwest Gas Corporation
8-K filed February 11, 1998
8-K filed April 15, 1998
8-K filed April 29, 1998
8-K filed July 17, 1998
8-K filed July 17, 1998
8-K filed July 27, 1998
8-K filed August 7, 1998
8-K filed September 25, 1998
8-K filed October 29, 1998
8-K filed December 14, 1998
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 25th of January, 1999.
ONEOK, Inc.
By: /s/ JERRY D. NEAL
----------------------------------
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
23.a Consent of Arthur Andersen LLP
99.a Unaudited Pro Forma Combined Condensed Financial Statements
</TABLE>
<PAGE> 1
EXHIBIT (12)
ONEOK, Inc.
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements
<TABLE>
<CAPTION>
Quarter Years Ended August 31,
Ended -----------------------------------------------------------
Nov. 30, 1998 1998 1997 1996 1995 1994
------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 9,770 $ 30,846 $ 31,354 $ 31,748 $ 32,345 $ 32,979
Other Interest 1,432 3,723 3,376 3,184 4,934 1,855
Amortization of debt issue costs 153 506 518 530 512 525
Interest on lease agreements 581 2,325 2,266 2,266 2,266 2,266
-------- ------------------------------------------------------------
Total fixed charges 11,936 37,400 37,514 37,728 40,057 37,625
Preferred dividend requirements 15,285 44,228 285 428 428 428
-------- ------------------------------------------------------------
Total fixed charges and preferred
dividend requirements $ 27,221 $ 81,628 $ 37,799 $ 38,156 $ 40,485 $ 38,053
======== ============================================================
Earnings before income taxes $ 23,637 $168,380 $ 94,107 $ 85,873 $ 68,146 $ 57,276
Total fixed charges 11,936 37,400 37,514 37,728 40,057 37,625
-------- ------------------------------------------------------------
Earnings available for combined
fixed charges and preferred
dividend requirements $ 35,573 $205,780 $131,621 $123,601 $108,203 $ 94,901
======== ============================================================
Ratio of earnings to combined
fixed charges and preferred
dividend requirements 1.31X 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>
Quarter Year Ended
Ended August 31,
Nov. 30, 1998 1998
------------- ----
<S> <C> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 35,955 $137,334
Other Interest 1,432 3,723
Amortization of debt issue costs 346 1,275
Preferred securities distributions
of subsidiary 6,368 25,475
Interest on lease agreements 581 2,325
-------- --------
Total fixed charges 44,682 170,132
Preferred dividend requirements 15,285 44,228
-------- --------
Total fixed charges and preferred
dividend requirements $ 59,967 $214,360
======== ========
Earnings before income taxes ($12,721) $156,152
Total fixed charges 44,682 170,132
-------- -------- (a) On a pro forma basis giving effect to 1) the annual
interest requirement of the long-term debt and 2)
Earnings available for combined the annual preferred securities distribution of the
fixed charges and preferred trust preferred securities expected to be issued in
dividend requirements $ 31,961 $326,284 the Proposed Merger, earnings would have been
======== ======== insufficient to cover combined fixed charges and
preferred dividend requirements by approximately
Ratio of earnings to combined $28.0 million for the three months ended
fixed charges and preferred November 30, 1998.
dividend requirements(a) -- 1.52X
======== ========
</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>
Quarter Years Ended August 31,
Ended -----------------------------------------------------------
Nov. 30, 1998 1998 1997 1996 1995 1994
------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 9,770 $ 30,846 $ 31,354 $ 31,748 $ 32,345 $ 32,979
Other Interest 1,432 3,723 3,376 3,184 4,934 1,855
Amortization of debt issue costs 153 506 518 530 512 525
Interest on lease agreements 581 2,325 2,266 2,266 2,266 2,266
-------- ------------------------------------------------------------
Total fixed charges 11,936 37,400 37,514 37,728 40,057 37,625
Earnings before income taxes 23,637 168,380 94,107 85,873 68,146 57,276
Earnings available for fixed charges $ 35,573 $205,780 $131,621 $123,601 $108,203 $ 94,901
======== ============================================================
Ratio of earnings to fixed charges 2.98X 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>
Quarter Year Ended
Ended August 31,
Nov. 30, 1998 1998
------------- ----
<S> <C> <C>
Fixed charges, as defined
Interest on long-term debt $ 35,955 $137,334
Other Interest 1,432 3,723
Amortization of debt issue costs 346 1,275
Preferred securities distributions
of subsidiary 6,368 25,475
Interest on lease agreements 581 2,325
-------- --------
Total fixed charges 44,682 170,132
Earnings before income taxes (12,721) 156,152
-------- --------
Earnings available for fixed charges $ 31,961 $326,284
======== ========
Ratio of earnings to fixed charges (a) -- 1.92X
======== ========
</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.
(a) On a pro forma basis giving effect to 1) the annual interest requirement of
the long-term debt and 2) the annual preferred securities distribution of
the trust preferred securities expected to be issued in the Proposed
Merger, earnings would have been insufficient to cover fixed charges by
approximately $12.7 million for the three months ended November 30, 1998.
<PAGE> 1
EXHIBIT 23.a
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, dated February 6, 1998, included in Southwest Gas Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997, incorporated by
reference in this Form 8-K into ONEOK, Inc.'s previously filed Registration File
No.'s 333-41265, 333-41267, 333-41263, 333-41269, 333-44915, 333-57433, and
333-62279.
Las Vegas, Nevada
January 19, 1999
<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 Proposed
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. The merger
is expected to close 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
November 30, 1998, is presented as if the Proposed Merger had occurred on that
date using the Southwest balance sheet at September 30, 1998. The unaudited pro
forma combined condensed statements of income (loss) for the fiscal year ended
August 31, 1998, and the three and twelve month periods ended November 30,
1998, 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 three and twelve month periods ended September 30, 1998, respectively,
for Southwest. The pro forma condensed statement of income for the twelve
months ended November 30, 1998, 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 three months ended November 30, 1998, 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 $28.50 per share for Southwest common
stock outstanding, including associated stock purchase rights. The transaction
is subject to customary conditions including approval from Southwest
shareholders and state regulators in Arizona, California, and Nevada.
Financing 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 6.35
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
NOVEMBER 30, 1998
(THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
ONEOK SOUTHWEST ADJUSTMENTS TOTAL
----- --------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Property $ 2,592,911 $ 2,100,386 $ $ 4,693,297
Accumulated depreciation, depletion, & amortization 926,029 599,751 1,525,780
----------- ----------- ----------- -----------
Net property 1,666,882 1,500,635 -- 3,167,517
----------- ----------- ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents 40 7,018 7,058
Accounts and notes receivable 216,837 75,224 292,061
Inventories 173,142 -- 173,142
Other 14,339 101,409 115,748
----------- ----------- ----------- -----------
Total current assets 404,358 183,651 -- 588,009
----------- ----------- ----------- -----------
DEFERRED CHARGES AND OTHER ASSETS:
Regulatory assets, net 226,166 38,322 264,488
Goodwill 82,651 9,011 (9,011) (b) 82,651
Excess costs to be allocated -- -- 453,703 (b) 453,703
Other 116,098 4,022 7,710 (a) 127,830
----------- ----------- ----------- -----------
Total deferred charges and other assets 424,915 51,355 452,402 928,672
----------- ----------- ----------- -----------
TOTAL ASSETS $ 2,496,155 $ 1,735,641 $ 452,402 $ 4,684,198
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
COMMON SHAREHOLDERS' EQUITY:
Common stock $ 315 $ 31,915 $ (31,915) (b) $ 315
Premium on capital stock 328,138 421,631 (421,631) (b) 328,138
Retained earnings 265,959 720 (720) (b) 265,959
----------- ----------- ----------- -----------
Total common shareholders' equity 594,412 454,266 (454,266) 594,412
Convertible preferred stock: series A 199 -- 199
Convertible preferred stock: series B 1 -- 1
Premium on preferred stock 569,409 -- 569,409
----------- ----------- ----------- -----------
Total shareholders' equity 1,164,021 454,266 (454,266) 1,164,021
----------- ----------- ----------- -----------
Long-term debt, excluding current portion 512,355 808,807 656,668 (a) 1,977,830
Trust preferred securities of ONEOK subsidiary -- -- 250,000 (a) 250,000
Redeemable preferred securities of Southwest Gas Capital I -- 60,000 60,000
----------- ----------- ----------- -----------
Total capitalization 1,676,376 1,323,073 452,402 3,451,851
----------- ----------- ----------- -----------
CURRENT LIABILITIES:
Long-term debt 16,909 5,128 22,037
Notes payable 68,000 33,325 101,325
Accounts payable 154,642 36,878 191,520
Accrued taxes 33,810 23,923 57,733
Accrued interest 8,051 13,494 21,545
Other 57,054 75,165 132,219
----------- ----------- ----------- -----------
Total current liabilities 338,466 187,913 -- 526,379
----------- ----------- ----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 310,072 172,275 482,347
Other deferred credits 171,241 52,380 223,621
----------- ----------- ----------- -----------
Total deferred credits and other liabilities 481,313 224,655 -- 705,968
----------- ----------- ----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 2,496,155 $ 1,735,641 $ 452,402 $ 4,684,198
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
<PAGE> 4
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (LOSS)
THREE MONTHS ENDED NOVEMBER 30, 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 $ 186,242 $ 128,229 $ $ 314,471
Nonregulated 201,229 34,279 235,508
--------- --------- --------- ---------
Total operating revenues 387,471 162,508 -- 549,979
--------- --------- --------- ---------
OPERATING EXPENSES
Cost of gas 239,836 51,499 291,335
Operations and maintenance 72,131 81,059 153,190
Depreciation, depletion, and amortization 31,138 22,780 2,779 (b) 56,697
Other expense, net -- 304 304
General taxes 9,374 7,699 17,073
Income taxes 9,387 (7,016) (6,091)(g) (3,720)
--------- --------- --------- ---------
Total operating expenses 361,866 156,325 (3,312) 514,879
--------- --------- --------- ---------
Income before interest and preferred
securities distribution 25,605 6,183 3,312 35,100
Interest 11,355 15,760 10,425 (c) 37,715
175 (e)
Preferred securities distribution -- 1,368 5,000 (d) 6,386
18 (f)
--------- --------- --------- ---------
NET INCOME (LOSS) 14,250 (10,945) (12,306) (9,001)
Preferred stock dividends 9,324 -- -- 9,324
--------- --------- --------- ---------
Income (loss) available for common stock $ 4,926 $ (10,945) $ (12,306) $ (18,325)
========= ========= ========= =========
Weighted average shares outstanding - basic 31,535 31,535
========= ========= ========= =========
Weighted average shares outstanding - diluted 31,578 (43)(h) 31,535
========= ========= ========= =========
Earnings per share of common stock - basic $ 0.16 $ (0.58)
========= ========= ========= =========
Earnings per share of common stock - diluted $ 0.16 $ (0.58)
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
<PAGE> 5
UNAUDITED PRO FORMA COMBINED CONDENSED 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 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 11,117 (b) 199,546
Other expense, net -- 11,560 11,560
General taxes 33,217 30,099 63,316
Income taxes 66,585 20,268 (24,362)(g) 62,491
----------- ----------- ----------- -----------
Total operating expenses 1,698,532 733,986 (13,245) 2,419,273
----------- ----------- ----------- -----------
Income before interest and preferred
securities distribution 136,870 111,353 13,245 261,468
Interest 35,075 64,790 41,698 (c) 142,261
698 (e)
Preferred securities distribution -- 5,475 20,000 (d) 25,546
71 (f)
----------- ----------- ----------- -----------
NET INCOME (LOSS) 101,795 41,088 (49,222) 93,661
Preferred stock dividends 26,979 -- -- 26,979
----------- ----------- ----------- -----------
Income (loss) available for common stock $ 74,816 $ 41,088 $ (49,222) $ 66,682
=========== =========== =========== ===========
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 $ 2.17
=========== =========== =========== ===========
Earnings per share of common stock - diluted $ 2.23 $ 2.05
=========== =========== =========== ===========
</TABLE>
During the three months ended December 31, 1997, Southwest recognized
nonrecurring charges to income related to cost overruns on two separate
construction projects. Theses 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 CONDENSED STATEMENT OF INCOME
TWELVE MONTHS ENDED NOVEMBER 30, 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 $ 1,039,510 $ 767,961 $ $ 1,807,471
Nonregulated 869,203 111,188 980,391
----------- ----------- ----------- -----------
Total operating revenues 1,908,713 879,149 -- 2,787,862
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of gas 1,250,572 305,762 1,556,334
Operations and maintenance 295,437 305,140 600,577
Depreciation, depletion, and amortization 115,597 87,920 11,117 (b) 214,634
Other expense, net -- 11,397 11,397
General taxes 37,146 30,427 67,573
Income taxes 68,534 22,764 (24,362) (g) 66,936
----------- ----------- ----------- -----------
Total operating expenses 1,767,286 763,410 (13,245) 2,517,451
----------- ----------- ----------- -----------
Income before interest and preferred
securities distribution 141,427 115,739 13,245 270,411
Interest 37,902 64,435 41,698 (c) 144,733
698 (e)
Preferred securities distribution -- 5,475 20,000 (d) 25,546
71 (f)
---------- ----------- ----------- -----------
NET INCOME (LOSS) 103,525 45,829 (49,222) 100,132
Preferred stock dividends 36,303 -- -- 36,303
----------- ----------- ----------- -----------
Income (loss) available for common stock $ 67,222 $ 45,829 $ (49,222) $ 63,829
=========== =========== =========== ===========
Weighted average shares outstanding - basic 31,531 31,531
=========== =========== =========== ===========
Weighted average shares outstanding - diluted 51,596 51,596
=========== =========== =========== ===========
Earnings per share of common stock - basic $ 2.13 $ 2.02
=========== =========== =========== ===========
Earnings per share of common stock - diluted $ 2.01 $ 1.94
=========== =========== =========== ===========
</TABLE>
During the three months ended December 31, 1997, Southwest recognized
nonrecurring charges to income related to cost overruns on two separate
construction projects. Theses 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> 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 $28.50 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 30,285
Per share consideration $ 28.50
---------
Total consideration $ 863,123
Plus:
Financing costs 7,710
Transaction costs 35,835
---------
Total acquisition financing required $ 906,668
Less trust preferred securities 250,000
---------
Anticipated debt $ 656,668
=========
</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 $ 863,123
Transaction Costs 35,835
---------
Total purchase price 898,958
Estimated net tangible asset book value at November 30, 1998 445,255
---------
Excess costs to be allocated related to Proposed Merger 453,703
Southwest historical goodwill (9,011)
---------
Excess costs to be allocated (pro forma adjustment) $ 444,692
=========
Amortization of excess costs (assumes a 40 year life):
Adjustment to amortization expense for the fiscal year 1998
and the twelve months ended November 30, 1998 $ 11,117
Adjustment to amortization expense for the three months
ended November 30, 1998 $ 2,779
</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) $ 656,668
Assumed weighted average interest rate on debt 6.35%
---------
Interest expense adjustment for fiscal 1998 and the twelve months
ended November 30, 1998 $ 41,698
=========
Interest expense adjustment for the three months ended
November 30, 1998 $ 10,425
=========
</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 November 30, 1998, and the three months ended November
30, 1998, would change by $821 thousand, $821 thousand, and $205 thousand,
respectively.
<PAGE> 8
(d) Preferred securities distribution adjustments as a result of the trust
preferred securities are follows (thousands):
<TABLE>
<S> <C>
Total trust preferred securities--see note (a) $ 250,000
Assumed distribution rate 8.0%
---------
Preferred securities distribution adjustment for fiscal 1998 and the
twelve months ended November 30, 1998 $ 20,000
=========
Preferred securities distribution adjustment for the three months ended
November 30, 1998 $ 5.000
=========
</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, distribution expense for the fiscal year 1998, for the
twelve months ended November 30, 1998, and for the three months ended November
30, 1998, would change by $313 thousand, $313 thousand, and $78 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 November 30, 1998, and
the three months ended November 30, 1998, would be $698 thousand, $698
thousand, and $175 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
November 30, 1998, and the three months ended November 30, 1998, would
be $71 thousand, $71 thousand, and $18 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 option securities in historical EPS
computation. On a pro forma basis, because of the loss available for
common stock, such options are antidilutive. Additionally, the effect
of 20,072,274 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.