ONEOK INC /NEW/
8-K/A, 1999-01-26
NATURAL GAS TRANSMISISON & DISTRIBUTION
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<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.




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