Exhibit 4.9
ALTAGAS LTD.
Unaudited Pro Forma Consolidated Financial Statements
As at and for the periods ended March 31, 2018
and December 31, 2017
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated financial statements give effect to the proposed transaction between AltaGas Ltd. (“AltaGas” or the “Corporation”) and WGL Holdings, Inc. (“WGL”) under the acquisition method of accounting. The unaudited pro forma consolidated balance sheet gives effect to the proposed acquisition (the “Acquisition”) as if it had closed on March 31, 2018. The unaudited pro forma consolidated statements of income for the three months ended March 31, 2018 and for the year ended December 31, 2017 give effect to the Acquisition as if it had closed on January 1, 2017.
The unaudited pro forma consolidated financial statements are based on the unaudited and audited consolidated financial statements of AltaGas as at and for the three months ended March 31, 2018 and for the year ended December 31, 2017, respectively, the audited consolidated financial statements of WGL for the year ended September 30, 2017, the unaudited consolidated financial statements of WGL as at and for the six months ended March 31, 2018, and the unaudited consolidated financial statements of WGL for the three months ended December 31, 2017 and 2016.
As WGL’s financial year end differs from AltaGas’, the income statement of WGL for the year ended December 31, 2017 was constructed by taking the income statement for the year ended September 30, 2017 and subtracting the income statement for the three months ended December 31, 2016 and adding the income statement for the three months ended December 31, 2017. WGL’s income statement for the three months ended March 31, 2018 was included in the unaudited consolidated financial statements of WGL as at and for the six months ended March 31, 2018.
The unaudited pro forma consolidated financial statements are presented for informational purposes only. The pro forma adjustments are based upon available information and certain assumptions that the Corporation believes are reasonable in the circumstances, as described in the notes to the unaudited pro forma consolidated financial statements. The unaudited pro forma consolidated financial statements do not reflect the impact of permanent financing through subsequent offerings and selected AltaGas asset sales and do not give effect to any potential cost savings and operating synergies, if any, that may result from the Acquisition.
The unaudited pro forma information presented, including allocation of purchase price, is based on preliminary estimates of fair values of assets acquired and liabilities assumed, available information and assumptions and may be revised as additional information becomes available. The actual adjustments to the consolidated financial statements upon the closing of the Acquisition will depend on a number of factors, including additional information available and the net assets of WGL on the closing date of the Acquisition. Therefore, the actual adjustments will differ from the preliminary pro forma adjustments and the differences may be material. For example, the final purchase price allocation is dependent on, among other things, the finalization of asset and liability valuations. Any final adjustment may change the allocation of purchase price, which could affect the fair value assigned to the assets and liabilities and could result in a change to the unaudited pro forma consolidated financial statements, including a change to goodwill.
ALTAGAS LTD.
Pro Forma Consolidated Statement of Income
For the year ended December 31, 2017
(Unaudited)
($ millions except per share amounts) |
| AltaGas |
| WGL |
| Pro Forma |
| Note |
| Pro Forma |
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| Note 3(i) |
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REVENUE |
| $ | 2,556.2 |
| $ | 3,113.6 |
| $ | 34.3 |
| 3 | (j) | $ | 5,704.1 |
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EXPENSES |
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Cost of sales, exclusive of items shown separately |
| 1,357.1 |
| 1,683.7 |
| — |
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|
| 3,040.8 |
| ||||
Operating and administrative |
| 573.8 |
| 764.1 |
| (17.6 | ) | 3 | (j) | 1,254.6 |
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|
| (65.7 | ) | 3 | (j) |
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Accretion expenses |
| 10.9 |
| — |
| — |
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|
| 10.9 |
| ||||
Depreciation and amortization |
| 282.4 |
| 207.6 |
| 22.3 |
| 3 | (b) | 512.3 |
| ||||
Provision on assets |
| 139.6 |
| — |
| — |
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|
| 139.6 |
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|
| 2,363.8 |
| 2,655.4 |
| (61.0 | ) |
|
| 4,958.2 |
| ||||
Income from equity investments |
| 31.4 |
| 33.6 |
| — |
|
|
| 65.0 |
| ||||
Other Income |
| 11.2 |
| 0.7 |
| — |
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|
| 11.9 |
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Foreign exchange gains |
| 1.7 |
| — |
| — |
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| 1.7 |
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Interest expense |
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Short-term debt |
| (3.7 | ) | — |
| — |
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| (3.7 | ) | ||||
Long-term debt |
| (166.6 | ) | (101.3 | ) | (102.3 | ) | 3 | (d) | (338.4 | ) | ||||
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| 12.5 |
| 3 | (b) |
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| 19.3 |
| 3 | (j) |
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Income before income taxes |
| 66.4 |
| 391.2 |
| 24.8 |
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| 482.4 |
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Income tax expense (recovery) |
| (33.5 | ) | 60.5 |
| (27.7 | ) | 3 | (d) | 19.8 |
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| (6.3 | ) | 3 | (b) |
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| 3.5 |
| 3 | (b) |
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| 5.5 |
| 3 | (j) |
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| 17.8 |
| 3 | (j) |
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Net income after taxes |
| 99.9 |
| 330.7 |
| 32.0 |
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|
| 462.6 |
| ||||
Net income (loss) applicable to non-controlling interests |
| 8.3 |
| (25.1 | ) | — |
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| (16.8 | ) | ||||
Net income applicable to controlling interests |
| 91.6 |
| 355.8 |
| 32.0 |
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| 479.4 |
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Preferred share dividends |
| (61.3 | ) | (1.7 | ) | — |
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| (63.0 | ) | ||||
Net income applicable to common shares |
| $ | 30.3 |
| $ | 354.1 |
| $ | 32.0 |
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| $ | 416.4 |
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Weighted average number of common shares outstanding (millions) |
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Basic |
| 171.0 |
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|
| 84.5 |
| 3 | (h) | 255.5 |
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Diluted |
| 171.3 |
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| 84.5 |
| 3 | (h) | 255.8 |
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Net income per common share |
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Basic |
| $ | 0.18 |
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| 3 | (h) | $ | 1.63 |
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Diluted |
| $ | 0.18 |
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| 3 | (h) | $ | 1.63 |
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See accompanying notes to the unaudited pro forma consolidated financial statements.
ALTAGAS LTD.
Pro Forma Consolidated Statement of Income
For the three months ended March 31, 2018
(Unaudited)
($ millions except per share amounts) |
| AltaGas |
| WGL |
| Pro Forma |
| Note |
| Pro Forma |
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| Note 3(i) |
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REVENUE |
| $ | 878.4 |
| 1,121.1 |
| 1.2 |
| 3 | (j) | $ | 2,000.7 |
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EXPENSES |
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Cost of sales, exclusive of items shown separately |
| 538.0 |
| 612.1 |
| — |
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| 1,150.1 |
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Operating and administrative |
| 140.8 |
| 212.0 |
| (0.2 | ) | 3 | (j) | 342.7 |
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| (9.9 | ) | 3 | (j) |
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Accretion expenses |
| 2.7 |
| — |
| — |
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| 2.7 |
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Depreciation and amortization |
| 72.6 |
| 51.5 |
| 5.5 |
| 3 | (b) | 129.6 |
| ||||
Provision on assets |
| — |
| — |
| — |
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|
| — |
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|
| 754.1 |
| 875.6 |
| (4.6 | ) |
|
| 1,625.1 |
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Income (loss) from equity investments |
| 10.1 |
| (34.7 | ) | — |
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| (24.6 | ) | ||||
Other loss |
| (5.3 | ) | (0.5 | ) | — |
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| (5.8 | ) | ||||
Interest expense |
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Short-term debt |
| (0.8 | ) | — |
| — |
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| (0.8 | ) | ||||
Long-term debt |
| (42.3 | ) | (9.6 | ) | (29.6 | ) | 3 | (d) | (74.4 | ) | ||||
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| 3.0 |
| 3 | (b) |
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| 4.1 |
| 3 | (j) |
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Income before income taxes |
| 86.0 |
| 200.7 |
| (16.7 | ) |
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| 270.0 |
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Income tax expense |
| 18.5 |
| 34.4 |
| (8.0 | ) | 3 | (d) | 46.4 |
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| (1.6 | ) | 3 | (b) |
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| 0.9 |
| 3 | (b) |
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| 0.1 |
| 3 | (j) |
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| 2.1 |
| 3 | (j) |
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Net income after taxes |
| 67.5 |
| 166.3 |
| (10.2 | ) |
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| 223.6 |
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Net income (loss) applicable to non-controlling interests |
| 2.3 |
| (5.5 | ) | — |
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| (3.2 | ) | ||||
Net income applicable to controlling interests |
| 65.2 |
| 171.8 |
| (10.2 | ) |
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| 226.8 |
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Preferred share dividends |
| (16.4 | ) | (0.4 | ) | — |
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| (16.8 | ) | ||||
Net income applicable to common shares |
| $ | 48.8 |
| $ | 171.4 |
| $ | (10.2 | ) |
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| $ | 210.0 |
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Weighted average number of common shares outstanding (millions) |
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Basic |
| 176.5 |
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|
| 84.5 |
| 3 | (h) | 261.0 |
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Diluted |
| 176.6 |
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| 84.5 |
| 3 | (h) | 261.1 |
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Net income per common share |
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Basic |
| $ | 0.28 |
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| 3 | (h) | $ | 0.81 |
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Diluted |
| $ | 0.28 |
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| 3 | (h) | $ | 0.80 |
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See accompanying notes to the unaudited pro forma consolidated financial statements.
ALTAGAS LTD.
Pro Forma Consolidated Balance Sheet
As at March 31, 2018
(Unaudited)
($ millions) |
| AltaGas |
| WGL |
| Pro Forma |
| Note |
| Pro Forma |
| ||||
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| Note 3(i) |
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Assets |
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Current Assets |
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Cash and cash equivalents |
| $ | 100.1 |
| $ | 59.7 |
| $ | (5,834.4 | ) | 3 | (a) | $ | 261.8 |
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| 2,438.6 |
| 3 | (c) |
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| (98.2 | ) | 3 | (c) |
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|
| 3,839.1 |
| 3 | (d) |
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| (29.4 | ) | 3 | (d) |
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| (213.7 | ) | 3 | (e) |
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Accounts receivable, net of allowances |
| 354.7 |
| 930.7 |
| — |
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| 1,285.4 |
| ||||
Inventory |
| 138.7 |
| 122.2 |
| — |
|
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| 260.9 |
| ||||
Restricted cash holdings from customers |
| 5.2 |
| — |
| — |
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| 5.2 |
| ||||
Regulatory assets |
| 1.7 |
| 11.2 |
| — |
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| 12.9 |
| ||||
Risk management assets |
| 27.7 |
| 12.9 |
| — |
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| 40.6 |
| ||||
Prepaid expenses and other current assets |
| 37.1 |
| 179.7 |
| — |
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| 216.8 |
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Assets held for sale |
| — |
| — |
| — |
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|
| — |
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|
| $ | 665.2 |
| $ | 1,316.4 |
| $ | 102.0 |
|
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| $ | 2,083.6 |
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Property, plant and equipment |
| 6,767.4 |
| 5,992.7 |
| (225.6 | ) | 3 | (b) | 12,534.5 |
| ||||
Intangible assets |
| 587.3 |
| — |
| 206.3 |
| 3 | (b) | 793.6 |
| ||||
Goodwill |
| 832.5 |
| — |
| 3,280.1 |
| 3 | (b) | 4,112.6 |
| ||||
Regulatory assets |
| 326.5 |
| 405.4 |
| — |
|
|
| 731.9 |
| ||||
Risk management assets |
| 15.3 |
| 38.1 |
| — |
|
|
| 53.4 |
| ||||
Deferred income taxes |
| 2.8 |
| — |
| — |
|
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| 2.8 |
| ||||
Prepaid post-retirement benefits |
| — |
| 306.3 |
| — |
|
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| 306.3 |
| ||||
Restricted cash holdings from customers |
| 5.8 |
| — |
| — |
|
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| 5.8 |
| ||||
Long-term investments and other assets |
| 310.4 |
| 15.5 |
| (14.1 | ) | 3 | (d) | 311.8 |
| ||||
Investments accounted for by the equity method |
| 593.1 |
| 753.8 |
| 671.8 |
| 3 | (b) | 2,018.7 |
| ||||
|
| $ | 10,106.3 |
| $ | 8,828.2 |
| $ | 4,020.5 |
|
|
| $ | 22,955.0 |
|
ALTAGAS LTD.
Pro Forma Consolidated Balance Sheet (Continued)
As at March 31, 2018
(Unaudited)
($ millions) |
| AltaGas |
| WGL |
| Pro Forma |
| Note |
| Pro Forma |
| ||||
|
|
|
| Note 3(i) |
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Liabilities and shareholders’ equity |
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Current liabilities |
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Accounts payable and accrued liabilities |
| $ | 377.1 |
| $ | 549.9 |
| $ | (12.9 | ) | 3 | (d) | $ | 914.1 |
|
Dividends payable |
| 32.5 |
| 34.5 |
| — |
|
|
| 67.0 |
| ||||
Short-term debt |
| 4.9 |
| — |
| — |
|
|
| 4.9 |
| ||||
Current portion of long-term debt |
| 213.9 |
| 128.9 |
| — |
|
|
| 342.8 |
| ||||
Notes payable and project financing |
| — |
| 547.8 |
| — |
|
|
| 547.8 |
| ||||
Customer deposits |
| 20.7 |
| 61.8 |
| — |
|
|
| 82.5 |
| ||||
Regulatory liabilities |
| 8.3 |
| 69.6 |
| — |
|
|
| 77.9 |
| ||||
Risk management liabilities |
| 48.7 |
| 33.8 |
| — |
|
|
| 82.5 |
| ||||
Other current liabilities |
| 21.6 |
| 61.5 |
| — |
|
|
| 83.1 |
| ||||
Liabilities associated with assets held for sale |
| — |
| — |
| — |
|
|
| — |
| ||||
|
| $ | 727.7 |
| $ | 1,487.8 |
| $ | (12.9 | ) |
|
| $ | 2,202.6 |
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Long-term debt |
| 3,468.6 |
| 2,423.2 |
| 188.2 |
| 3 | (b) | 9,919.1 |
| ||||
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|
| 3,839.1 |
| 3 | (d) |
|
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Asset retirement obligations |
| 89.0 |
| 391.2 |
| — |
|
|
| 480.2 |
| ||||
Deferred income taxes |
| 448.2 |
| 718.0 |
| 129.9 |
| 3 | (b) | 1,208.2 |
| ||||
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| (26.6 | ) | 3 | (c) |
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| (8.2 | ) | 3 | (d) |
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| (53.1 | ) | 3 | (e) |
|
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Regulatory liabilities |
| 278.5 |
| 1,107.1 |
| — |
|
|
| 1,385.6 |
| ||||
Risk management liabilities |
| 13.6 |
| 134.1 |
| — |
|
|
| 147.7 |
| ||||
Other long-term liabilities |
| 206.4 |
| 60.6 |
| — |
|
|
| 267.0 |
| ||||
Future employee obligations |
| 126.4 |
| 241.1 |
| — |
|
|
| 367.5 |
| ||||
|
| $ | 5,358.4 |
| $ | 6,563.1 |
| $ | 4,056.4 |
|
|
| $ | 15,977.9 |
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Shareholders’ equity |
|
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| ||||
Common shares |
| 4,074.4 |
| 767.3 |
| (767.3 | ) | 3 | (g) | 6,441.4 |
| ||||
|
|
|
|
|
| 2,367.0 |
| 3 | (c) |
|
| ||||
Retained earnings (accumulated deficit) |
| (988.7 | ) | 1,470.8 |
| (1,470.8 | ) | 3 | (g) | (1,171.7 | ) | ||||
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|
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| (22.4 | ) | 3 | (d) |
|
| ||||
|
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|
|
| (160.6 | ) | 3 | (e) |
|
| ||||
Preferred shares |
| 1,277.7 |
| — |
| — |
|
|
| 1,277.7 |
| ||||
Preferred shares - WGL Holdings, Inc. |
| — |
| 36.3 |
| — |
|
|
| 36.3 |
| ||||
Contributed surplus |
| 22.5 |
| (11.0 | ) | 11.0 |
| 3 | (g) | 22.5 |
| ||||
Accumulated other comprehensive income (loss) |
| 280.9 |
| (7.2 | ) | 7.2 |
| 3 | (g) | 280.9 |
| ||||
Total shareholders’ equity |
| $ | 4,666.8 |
| $ | 2,256.2 |
| $ | (35.9 | ) |
|
| $ | 6,887.1 |
|
Non-controlling interests |
| 81.1 |
| 8.9 |
| — |
|
|
| 90.0 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total equity |
| 4,747.9 |
| 2,265.1 |
| (35.9 | ) |
|
| 6,977.1 |
| ||||
|
| $ | 10,106.3 |
| $ | 8,828.2 |
| $ | 4,020.5 |
|
|
| $ | 22,955.0 |
|
See accompanying notes to the unaudited pro forma consolidated financial statements.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended March 31, 2018 and for the year ended December 31, 2017
(in millions of Canadian dollars unless otherwise noted)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated financial statements give effect to the proposed acquisition (the “Acquisition”) by AltaGas Ltd. (“AltaGas” or the “Corporation”) of WGL Holdings, Inc. and its subsidiaries (collectively, “WGL”) as described in the prospectus supplement dated January 27, 2017 (the “Prospectus”). The accompanying unaudited pro forma consolidated financial statements have been prepared by management of AltaGas and are derived from the unaudited and audited consolidated financial statements of AltaGas as at and for the three months ended March 31, 2018 and for the year ended December 31, 2017, respectively, the audited consolidated financial statements of WGL for the year ended September 30, 2017, the unaudited consolidated financial statements of WGL as at and for the six months ended March 31, 2018, and the unaudited consolidated financial statements of WGL for the three months ended December 31, 2017 and 2016.
As WGL’s financial year end differs from AltaGas’, the income statement of WGL for the year ended December 31, 2017 was constructed by taking the income statement for the year ended September 30, 2017 and subtracting the income statement for the three months ended December 31, 2016 and adding the income statement for the three months ended December 31, 2017. WGL’s income statement for the three months ended March 31, 2018 was included in the unaudited consolidated financial statements of WGL as at and for the six months ended March 31, 2018.
The accompanying unaudited pro forma consolidated financial statements should be read in conjunction with the description of the Acquisition and the financing thereof provided in the Prospectus, the audited and unaudited consolidated financial statements of WGL, including the notes thereto, incorporated by reference in the Prospectus, and the audited and unaudited consolidated financial statements of AltaGas, including the notes thereto, incorporated by reference in the Prospectus.
Except for the new accounting standards AltaGas adopted as of January 1, 2018, the accompanying unaudited pro forma consolidated financial statements utilize accounting policies that are consistent with those disclosed in the audited consolidated financial statements of AltaGas as at and for the year ended December 31, 2017 and were prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”).
The Acquisition has been accounted for using the acquisition method. Based on the purchase price calculation as detailed in the merger agreement dated January 25, 2017 (the “Merger Agreement”), the estimated net purchase price for WGL is approximately $5.8 billion (see Note 3a).
The unaudited pro forma consolidated balance sheet and consolidated statements of income reflect the Acquisition as if it had closed on March 31, 2018 and January 1, 2017, respectively. The accompanying unaudited pro forma consolidated financial statements may not be indicative of the results that would have been achieved if the transactions reflected therein had been completed on the dates indicated or the results which may be obtained in the future. For instance, the actual purchase price allocation will reflect the fair value, at the purchase date, of consideration transferred and the assets acquired and liabilities assumed based upon the Corporation’s evaluation of such assets and liabilities following the closing of the Acquisition. Accordingly, the final purchase price allocation may differ materially from the preliminary allocation reflected herein.
The underlying assumptions for the pro forma adjustments provide a reasonable basis for presenting the significant financial effects directly attributable to the Acquisition. These pro forma adjustments are preliminary and are based on currently available financial information and certain estimates and assumptions. AltaGas has performed a preliminary valuation analysis of WGL’s assets to be acquired and liabilities to be assumed. This preliminary valuation has been used to prepare pro forma adjustments in the preliminary purchase price allocation presented in the unaudited pro forma consolidated financial statements. The final purchase price allocation will be determined when the Corporation has completed the
detailed valuations and necessary calculations. The actual adjustments to the unaudited pro forma consolidated financial statements will depend on a number of factors. Therefore, it is expected that the actual adjustments will differ from the preliminary pro forma adjustments, and the differences may be material.
2. DESCRIPTION OF TRANSACTION
Pursuant to the Merger Agreement, AltaGas will indirectly purchase all outstanding common shares of WGL for US$88.25 per share in an all cash transaction. The estimated purchase price, including payment for performance shares and performance units, will be approximately $5.8 billion. AltaGas will also assume WGL’s existing debt and preferred shares, which were approximately $3.3 billion and $36.3 million, respectively, as at March 31, 2018 (see Note 3a).
The accompanying unaudited pro forma consolidated financial statements assume that, at closing, the Acquisition will be financed through the net proceeds of (i) the $0.4 billion private placement of subscription receipts (see Note 3c), (ii) net proceeds from a bought subscription receipt public offering of $2.4 billion (see Note 3c), and (iii) a fully committed bridge financing facility (the “Acquisition Credit Facility”) with certain financial institutions in an aggregate principal amount of up to US$3.0 billion (see Note 3d). The unaudited pro forma consolidated financial statements assume that all cash from the issuance of subscription receipts has been received and immediately converted into common shares (see Note 3c). The Acquisition Credit Facility together with the equity issuance will fully fund the purchase price and thereby ensure sufficient liquidity to close the Acquisition.
3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
a) Purchase price and financing structure
The following is the estimated purchase price, estimated funding requirements and assumed financing structure for the Acquisition. These estimates have been reflected in the accompanying unaudited pro forma consolidated financial statements.
Estimated Purchase Price |
|
|
|
|
| |
Unadjusted purchase price |
|
|
| $ | 9,158.8 |
|
Assumed debt of WGL |
|
|
| (3,288.1 | ) | |
Assumed preferred shares of WGL |
|
|
| (36.3 | ) | |
Estimated purchase price |
| Note 3(b) |
| $ | 5,834.4 |
|
|
|
|
|
|
| |
Estimated Funding Requirements |
|
|
|
|
| |
Estimated purchase price |
|
|
| $ | 5,834.4 |
|
Subscription receipts issuance costs |
| Note 3(c) |
| 98.2 |
| |
Acquisition credit facility costs |
| Note 3(d) |
| 54.1 |
| |
Estimated acquisition costs |
| Note 3(e) |
| 291.0 |
| |
Estimated funding requirements |
|
|
| $ | 6,277.7 |
|
|
|
|
|
|
| |
Assumed Financing Structure |
|
|
|
|
| |
Subscription receipts |
| Note 3(c) |
| $ | 2,438.6 |
|
Acquisition credit facility |
| Note 3(d) |
| 3,839.1 |
| |
Total |
|
|
| $ | 6,277.7 |
|
b) Preliminary purchase price allocation
The estimated net purchase price has been allocated to the estimated fair values of WGL net assets and liabilities as at March 31, 2018 in accordance with the acquisition method, as follows:
|
| WGL Holdings, |
| Fair Value and |
| Fair Value |
| |||
|
| Note 3(i) |
|
|
|
|
| |||
Assets Acquired |
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 59.7 |
| $ | — |
| $ | 59.7 |
|
Accounts receivable |
| 930.7 |
| — |
| 930.7 |
| |||
Inventory |
| 122.2 |
| — |
| 122.2 |
| |||
Regulatory assets |
| 11.2 |
| — |
| 11.2 |
| |||
Risk management assets |
| 12.9 |
| — |
| 12.9 |
| |||
Prepaid and other current assets |
| $ | 179.7 |
| $ | — |
| $ | 179.7 |
|
Total current assets |
| 1,316.4 |
| — |
| 1,316.4 |
| |||
|
|
|
|
|
|
|
| |||
Property, plant and equipment |
| $ | 5,992.7 |
| $ | (225.6 | ) | $ | 5,767.1 |
|
Intangible assets |
| — |
| 206.3 |
| 206.3 |
| |||
Regulatory assets |
| 405.4 |
| — |
| 405.4 |
| |||
Risk management assets |
| 38.1 |
| — |
| 38.1 |
| |||
Prepaid post-retirement benefits |
| 306.3 |
| — |
| 306.3 |
| |||
Long-term investments and other assets |
| 15.5 |
| — |
| 15.5 |
| |||
Investments accounted for by the equity method |
| 753.8 |
| 671.8 |
| 1,425.6 |
| |||
|
| $ | 8,828.2 |
| $ | 652.5 |
| $ | 9,480.7 |
|
|
|
|
|
|
|
|
| |||
Liabilities Assumed |
|
|
|
|
|
|
| |||
Accounts payable and accrued liabilities |
| $ | 549.9 |
| $ | — |
| $ | 549.9 |
|
Current maturities of long-term debt |
| 128.9 |
| — |
| 128.9 |
| |||
Dividends payable |
| 34.5 |
| — |
| 34.5 |
| |||
Notes payable and project financing |
| 547.8 |
| — |
| 547.8 |
| |||
Customer deposits |
| 61.8 |
| — |
| 61.8 |
| |||
Regulatory liabilities |
| 69.6 |
| — |
| 69.6 |
| |||
Risk management liabilities |
| 33.8 |
| — |
| 33.8 |
| |||
Other current liabilities |
| 61.5 |
| — |
| 61.5 |
| |||
Total current liabilities |
| $ | 1,487.8 |
| $ | — |
| $ | 1,487.8 |
|
|
|
|
|
|
|
|
| |||
Long-term debt |
| $ | 2,423.2 |
| $ | 188.2 |
| $ | 2,611.4 |
|
Asset retirement obligations |
| 391.2 |
| — |
| 391.2 |
| |||
Deferred income taxes |
| 718.0 |
| 129.9 |
| 847.9 |
| |||
Regulatory liabilities |
| 1,107.1 |
| — |
| 1,107.1 |
| |||
Risk management liabilities |
| 134.1 |
| — |
| 134.1 |
| |||
Other long-term liabilities |
| 60.6 |
| — |
| 60.6 |
| |||
Future employee obligations |
| 241.1 |
| — |
| 241.1 |
| |||
|
| $ | 6,563.1 |
| $ | 318.1 |
| $ | 6,881.2 |
|
Preferred shares |
| $ | 36.3 |
| $ | — |
| $ | 36.3 |
|
Non-controlling interest |
| $ | 8.9 |
| $ | — |
| $ | 8.9 |
|
Net assets at fair value, as at March 31, 2018 |
|
|
|
|
| $ | 2,554.3 |
| ||
Estimated purchase price |
|
|
|
|
| $ | 5,834.4 |
| ||
Goodwill |
|
|
|
|
| $ | 3,280.1 |
| ||
Under the acquisition method, the acquired tangible and intangible assets and assumed liabilities of the acquired entity are primarily measured at their estimated fair value at the date of acquisition. The excess of the purchase price over the preliminary estimated fair value of net assets acquired is classified as goodwill on the accompanying unaudited pro forma consolidated balance sheet. Such goodwill is not amortized but will be evaluated for impairment on at least an annual basis. AltaGas has performed a preliminary valuation analysis of WGL’s assets to be acquired and liabilities to be assumed. This preliminary valuation has been used to prepare pro forma adjustments in the preliminary purchase price allocation presented in the unaudited pro forma consolidated financial statements. The estimated fair values and useful lives of assets acquired and liabilities assumed are subject to final valuation adjustments which may cause some of the amounts ultimately recorded as goodwill to be materially different from those shown on the unaudited pro forma consolidated balance sheet. The preliminary estimates used to prepare the pro forma information presented will be updated after the closing of the Acquisition based upon AltaGas’ final analysis.
In the preliminary valuation analysis, AltaGas identified fair value adjustments for property, plant and equipment, intangible assets, and investments accounted for by the equity method. The preliminary estimate of the fair value of WGL’s property, plant and equipment is approximately $225.6 less than the carrying value. This difference will be amortized over 30 years, the estimated useful life of the assets, resulting in an estimated reduction in depreciation expense for the year ended December 31, 2017 and three months ended March 31, 2018 of approximately $7.6 million ($5.5 million after-tax) and $1.8 million ($1.3 million after-tax), respectively.
The preliminary valuation analysis also identified approximately $206.3 million of intangible assets related to customer relationships and certain power purchase contracts. This difference will be amortized over 5-20 years, the estimated useful life of the assets, resulting in an estimated increase in depreciation expense for the year ended December 31, 2017 and three months ended March 31, 2018 of approximately $29.9 million ($21.5 million after-tax) and $7.3 million ($5.2 million after-tax), respectively.
The fair value of long-term debt was estimated based on the quoted market prices of the U.S. Treasury issues having a similar term to maturity, adjusted for the credit quality of the debt issuer, WGL or Washington Gas Light Company. The difference of $188.2 million between the fair value and carrying value will be amortized into income as a reduction of interest expense over the remaining term of the long-term debt resulting in an estimated reduction of interest expense for the year ended December 31, 2017 and three months ended March 31, 2018 of approximately $12.5 million ($9.0 million after-tax) and $3.0 million ($2.1 million after-tax), respectively.
The adjustments to the fair value of assets and long-term debt based on the preliminary purchase price allocation would result in an increase to the deferred income tax liability of approximately $129.9 million based on AltaGas’ U.S. statutory income tax rate of 28.0 percent.
c) Subscription receipts
In the first quarter of 2017, the Corporation completed the sale of 84.5 million subscription receipts in a private placement and on a bought deal basis for total gross proceeds of approximately $2.6 billion including the over-allotment option that was partially exercised. Each subscription receipt will entitle the holder thereof to receive, (i) automatically upon the closing of the Acquisition and without any further action on the part of the holder thereof, and without payment of additional consideration, one common share of the Corporation; and (ii) dividend equivalent payments in respect of any dividends on the common shares for which record dates occur during the period that the subscription receipts remain outstanding. The net proceeds from the sale of the subscription receipts are held by an escrow agent pending satisfaction of conditions precedent to the closing of the Acquisition. For the purpose of the unaudited pro forma consolidated financial statements, all cash from the issuance of subscription receipts has been received and immediately converted into common shares of the Corporation at the assumed
closing date of the Acquisition (see Note 1). Underwriting costs are estimated at approximately $98.2 million ($71.6 million after-tax) and will result in a corresponding deferred income tax asset of approximately $26.6 million based on AltaGas’ Canadian statutory income tax rate of approximately 27.1 percent.
For the purpose of determining the net proceeds from the subscription receipts as at March 31, 2018, actual dividend equivalent payments declared through March 31, 2018 of $209.6 million, net of interest earned on the escrowed proceeds from the subscription receipts of $28.3 million through March 31, 2018, have been deducted from the total gross proceeds of $2.6 billion, which yields net proceeds of approximately $2.4 billion as at March 31, 2018. The unaudited pro forma consolidated financial statements do not reflect any additional dividend equivalent payments that may be made subsequent to March 31, 2018 using a portion of the net proceeds from the sale of subscription receipts.
d) Acquisition credit facility
For the purpose of the unaudited pro forma consolidated financial statements, the closing of the Acquisition is assumed to be partially financed by a drawdown of $3.9 billion under the Acquisition Credit Facility. The Corporation currently expects that the Acquisition Credit Facility will be repaid through subsequent offerings of senior debt, hybrid securities, equity or equity-linked securities (including preferred shares or convertible debentures), and selected AltaGas asset sales. The subsequent offerings and asset sales have not been reflected in the unaudited pro forma consolidated financial statements.
The interest rate on the Acquisition Credit Facility for the year ended December 31, 2017 is estimated at 2.65 percent and would result in incremental interest expense of $102.3 million. Incremental interest expense resulted in a corresponding deferred income tax recovery for the year ended December 31, 2017 of approximately $27.7 million based on AltaGas’ Canadian statutory tax rate of 27.1 percent.
The interest rate on the Acquisition Credit Facility for the three months ended March 31, 2018 is estimated at 3.15 percent and would result in incremental interest expense of $29.6 million. This incremental interest expense would result in a corresponding deferred income tax recovery for the three months ended March 31, 2018 of approximately $8.0 million based on AltaGas’ Canadian statutory tax rate of 27.1 percent.
Estimated total Acquisition Credit Facility costs are approximately $54.0 million ($39.4 million after-tax). Actual Acquisition Credit Facility costs of $19.3 million ($14.0 million after-tax) and $4.1 million ($3.0 million after-tax) were expensed by the Corporation during the year ended December 31, 2017 and three months ended March 31, 2018, respectively, have been removed from interest expense as a pro forma adjustment as these costs are directly incremental to the Acquisition and non-recurring in nature (see Note 3j). The remaining $30.6 million ($22.4 million after-tax) of Acquisition Credit Facility costs have been included as a pro forma adjustment to retained earnings on the unaudited pro forma consolidated balance sheet as opposed to being reflected in the unaudited pro forma consolidated statements of income on the basis that these expenses are directly incremental to the Acquisition and are non-recurring in nature. The pro forma adjustment of $30.6 million ($22.4 million after-tax) to the unaudited pro forma consolidated balance sheet is comprised of the following:
|
| Pre-tax |
| Tax |
| After-tax |
| |||
Reduction in cash and cash equivalents |
| $ | (29.4 | ) | $ | 7.9 |
| $ | (21.5 | ) |
Reduction in long-term investments and other assets |
| (14.1 | ) | 3.8 |
| (10.3 | ) | |||
Reduction in accounts payable and accrued liabilities |
| 12.9 |
| (3.5 | ) | 9.4 |
| |||
Net adjustment to retained earnings |
| $ | (30.6 | ) | $ | 8.2 |
| $ | (22.4 | ) |
e) Acquisition costs
Acquisition costs are estimated at approximately $291.0 million ($223.9 million after-tax) of which $65.7 million ($53.2 million after-tax) were incurred in 2017 and $9.9 million ($8.9 million after-tax) were incurred during the three months ended March 31, 2018 (see Note 3j). Acquisition costs are comprised of estimated accounting, legal, tax, financial advisory, and other costs associated with the completion of the Acquisition as well as the estimated costs of certain commitments that have been offered in the regulatory applications. These costs have been included as a pro forma adjustment to retained earnings on the unaudited pro forma consolidated balance sheet as opposed to being reflected in the unaudited pro forma consolidated statements of income on the basis that these expenses are directly incremental to the Acquisition and are non-recurring in nature.
f) Income taxes
For the purpose of the accompanying unaudited pro forma consolidated financial statements including pro forma adjustments, average Canadian and U.S. deferred income tax rates of 27.1 percent and 28.0 percent, respectively, have been applied. The deferred income tax asset and liability is the cumulative amount of tax applicable to temporary differences between the accounting and tax values of assets and liabilities. Deferred income tax assets and liabilities are measured at the tax rates expected to apply when these differences reverse.
g) WGL historical shareholders’ equity
The historical shareholders’ equity of WGL, which includes retained earnings, accumulated other comprehensive loss, contributed surplus and common shares, has been eliminated on consolidation.
h) Net income per common share
Net income per common share is calculated by dividing the pro forma net income applicable to common shares by the weighted average number of common shares outstanding for the year ended December 31, 2017 and three months ended March 31, 2018 and reflects the assumed issuance of 84.5 million AltaGas common shares, as if the issuance had taken place on January 1, 2017.
i) Foreign exchange translation
The assets and liabilities of WGL, which has a U.S. dollar reporting and functional currency, are translated at the exchange rate in effect as at the unaudited pro forma consolidated balance sheet date of March 31, 2018. Revenues and expenses of WGL’s operations are translated at the average exchange rate in effect during the reporting period. The following exchange rates were utilized for the unaudited pro forma consolidated financial statements:
Balance Sheet (U.S. dollars to Canadian dollars)
Closing rate – March 31, 2018: 1.2894
Income Statement (U.S. dollars to Canadian dollars)
Average rate – January 1, 2017 to December 31, 2017: 1.2986
Average rate – January 1, 2018 to March 31, 2018: 1.2647
j) Adjustments for acquisition related costs
The mark-to-market loss of $34.3 million for the year ended December 31, 2017 and $1.2 million for the three months ended March 31, 2018 related to foreign exchange option contracts to hedge the cash purchase price of WGL has been removed from unrealized losses on risk management contracts in the unaudited pro forma
consolidated statement of income on the basis that the mark-to-market loss is directly incremental to the Acquisition and is non-recurring in nature.
Acquisition costs incurred by WGL of $17.6 million ($12.1 million after-tax) and $0.2 million ($0.1 million after-tax) during the year ended December 31, 2017 and three months ended March 31, 2018, respectively, have been removed from operating and administrative expense in the unaudited pro forma consolidated statement of income as these costs are directly incremental to the Acquisition and are non-recurring in nature.
Acquisition related costs incurred by AltaGas totaling $85.0 million ($67.2 million after-tax) and $14.0 million ($11.9 million after-tax) during the year ended December 31, 2017 and three months ended March 31, 2018, respectively, have been removed from the unaudited pro forma consolidated statements of income as these costs are directly incremental to the Acquisition and are non-recurring in nature.
Specifically, $19.3 million ($14.0 million after-tax) and $4.1 million ($3.0 million after-tax) of actual Acquisition Credit Facility costs incurred during the year ended December 31, 2017 and three months ended March 31, 2018, respectively, have been removed from interest expense and $65.7 million ($53.2 million after-tax) and $9.9 million ($8.9 million after-tax) of actual acquisition costs incurred during the year ended December 31, 2017 and three months ended March 31, 2018, respectively, have been removed from operating and administrative expense.
