EX-99.1
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
WPL Holdings, Inc. (WPLH), IES Industries Inc. (IES), Interstate Power
Company (IPC), and certain related parties have entered into an Agreement
and Plan of Merger, dated as of November 10, 1995, as amended (the Merger
Agreement), providing for (a) the merger of IES with and into WPLH and (b)
the merger of IPC with a subsidiary of WPLH pursuant to which IPC will
become a subsidiary of WPLH (the above referenced mergers are collectively
referred herein to as the Mergers). In connection with the consummation
of the Mergers, WPLH will change its name to Interstate Energy
Corporation. Detailed information with respect to the Merger Agreement
and the proposed Mergers is contained in the Joint Proxy
Statement/Prospectus, dated July 11, 1996, as supplemented by the
Supplement to Joint Proxy Statement/Prospectus, dated August 21, 1996,
contained in IPC's Registration Statements on Form S-4, Registration Nos.
333-07931 and 333-10401 relating to the meetings of shareowners of WPLH,
IES and IPC to vote on the Merger Agreement and related matters.
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of WPLH,
IES and IPC, including their respective subsidiaries, after giving effect
to the Mergers. The historical data for WPLH have been adjusted to
reflect the restatement of such data to account for certain discontinued
operations discussed in the notes hereto. The unaudited pro forma
combined balance sheet at December 31, 1996, gives effect to the Mergers
as if they had occurred at December 31, 1996. The unaudited pro forma
combined statements of income for each of the three years in the period
ended December 31, 1996, give effect to the Mergers as if they had
occurred at January 1, 1994. These statements are prepared on the basis
of accounting for the Mergers as a pooling of interests and are based on
the assumptions set forth in the notes thereto. In addition, the pro
forma financial information does not give effect to the expected synergies
or the cost to be incurred to achieve such synergies. The pro forma
financial information, however, does reflect the transaction costs to
effect the Mergers.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of WPLH, IES and IPC. The following
information is not necessarily indicative of the financial position or
operating results that would have occurred had the Mergers been
consummated on the date, or at the beginning of the periods, for which the
Mergers are being given effect nor is it necessarily indicative of future
operating results or financial position.
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1996
(In thousands)
ASSETS WPLH IES IPC Pro Pro
(As (As (As Forma Forma
Reported) Reported) Reported) Adj. Combined
UTILITY PLANT
Electric $1,729,311 $2,007,839 $853,007 $--- $4,590,157
Gas 227,809 175,472 68,047 --- 471,328
Other 175,998 126,850 --- --- 302,848
Total 2,133,118 2,310,161 921,054 --- 5,364,333
Accumulated provision
for depreciation 967,436 1,030,390 426,471 --- 2,424,297
Construction work
in progress 55,519 43,719 3,129 --- 102,367
Nuclear fuel--net 19,368 34,725 --- --- 54,093
Net utility plant 1,240,569 1,358,215 497,712 --- 3,096,496
OTHER PROPERTY, PLANT
AND EQUIPMENT--NET AND
INVESTMENTS (NOTE 8) 144,671 314,071 453 --- 459,195
CURRENT ASSETS
Cash and cash
equivalents 11,070 8,675 3,072 --- 22,817
Accounts receivable--
net 88,798 62,861 28,227 --- 179,886
Fossil fuel inventories,
at average cost 15,841 13,323 16,623 --- 45,787
Materials and supplies,
at average cost 29,907 22,842 6,214 --- 58,963
Prepayments and other 26,786 70,350 13,497 --- 110,633
Total current assets 172,402 178,051 67,633 --- 418,086
EXTERNAL DECOMMISSIONING
FUND 90,671 59,325 --- --- 149,996
DEFERRED CHARGES AND
OTHER 252,218 215,900 73,402 --- 541,520
TOTAL ASSETS $1,900,531 $2,125,562 $639,200 $--- $4,665,293
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (Continued)
December 31, 1996
(In thousands)
WPLH IES IPC Pro Pro
(As (As (As Forma Forma
Reported) Reported) Reported) Adj. Combined
LIABILITIES AND EQUITY
CAPITALIZATION
Common Stock Equity:
Common Stock
(Note 1) $308 $407,635 $33,848 ($441,033) $758
Other stockholders'
equity (Note 1) 607,047 219,246 172,210 430,033 1,428,536
Total common stock
equity 607,355 626,881 206,058 (11,000) 1,429,294
Preferred stock not
mandatorily redeemable 59,963 18,320 10,819 --- 89,102
Preferred stock
mandatory sinking fund --- --- 24,147 --- 24,147
Long-term debt--net 362,564 701,100 171,731 --- 1,235,395
Total
capitalization 1,029,882 1,346,301 412,755 (11,000) 2,777,938
CURRENT LIABILITIES
Current maturities,
sinking funds, and
capital lease
obligations 67,626 23,598 17,000 --- 108,224
Commercial paper, notes
payable and other 102,779 135,000 28,700 --- 266,479
Variable rate demand
bonds 56,975 --- --- --- 56,975
Accounts payable and
accruals 120,986 99,861 14,013 --- 234,860
Taxes accrued 4,669 43,926 16,953 --- 65,548
Other accrued
liabilities 54,303 54,498 11,785 11,000 131,586
Total current
liabilities 407,338 356,883 88,451 11,000 863,672
OTHER LIABILITIES
Deferred income taxes 245,686 262,675 99,303 --- 607,664
Deferred investment
tax credits 36,931 34,470 17,013 --- 88,414
Accrued environmental
remediation costs 74,075 47,502 7,234 --- 128,811
Capital lease
obligations --- 19,600 --- --- 19,600
Other liabilities and
deferred credits 106,619 58,131 14,444 --- 179,194
Total other
liabilities 463,311 422,378 137,994 --- 1,023,683
TOTAL CAPITALIZATION
AND LIABILITIES $1,900,531 $2,125,562 $639,200 $ --- $4,665,293
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share amounts)
WPLH IES IPC Pro Pro
(As (As (As Forma Forma
Reported) Reported) Reported) Adj. Combined
Operating Revenues
Electric $589,482 $574,273 $276,620 $--- $1,440,375
Gas 165,627 273,979 49,464 --- 489,070
Other 177,735 125,660 --- --- 303,395
Total operating revenues 932,844 973,912 326,084 --- 2,232,840
Operating Expenses
Electric production fuels 114,470 84,579 57,560 --- 256,609
Purchased power 81,108 88,350 61,556 --- 231,014
Cost of gas sold 104,830 217,351 31,617 --- 353,798
Other operation 319,154 214,759 53,134 --- 587,047
Maintenance 46,492 49,001 16,164 --- 111,657
Depreciation and amortization 90,683 107,393 31,087 --- 229,163
Taxes other than income taxes 34,603 48,171 16,064 --- 98,838
Total operating expenses 791,340 809,604 267,182 --- 1,868,126
Operating Income 141,504 164,308 58,902 --- 364,714
Other Income (Expense)
Allowance for equity funds
used during construction 2,270 (100) 13 --- 2,183
Other income and
deductions---net 15,644 (2,333) 3,763 --- 17,074
Total other income (expense) 17,914 (2,433) 3,776 --- 19,257
Interest Charges 41,089 52,619 16,222 --- 109,930
Income from continuing
operations before income taxes
and preferred dividends 118,329 109,256 46,456 --- 274,041
Income Taxes 41,814 47,435 18,133 --- 107,382
Preferred dividends of
subsidiaries (Note 2) 3,310 914 2,463 --- 6,687
Income from continuing
Operations (Notes 3 and 6) $73,205 $60,907 $25,860 $--- $159,972
Average Common Shares
Outstanding (Note 1) 30,790 29,861 9,594 5,236 75,481
Earnings per share of Common
Stock from continuing
operations 2.38 2.04 2.69 $--- 2.12
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share amounts)
WPLH IES IPC Pro Pro
(As (As (As Forma Forma
Reported) Reported) Reported) Adj. Combined
Operating Revenues
Electric $546,324 $560,471 $274,873 $--- $1,381,668
Gas 139,165 190,339 43,669 --- 373,173
Other 121,766 100,200 --- --- 221,966
Total operating revenues 807,255 851,010 318,542 --- 1,976,807
Operating Expenses
Electric production fuels 116,488 96,256 62,164 --- 274,908
Purchased power 44,940 66,874 57,566 --- 169,380
Cost of gas sold 84,002 141,716 25,888 --- 251,606
Other operation 253,277 201,390 45,717 --- 500,384
Maintenance 42,043 46,093 14,881 --- 103,017
Depreciation and amortization 86,319 97,958 29,560 --- 213,837
Taxes other than income taxes 34,188 49,011 15,990 --- 99,189
Total operating expenses 661,257 699,298 251,766 --- 1,612,321
Operating Income 145,998 151,712 66,776 --- 364,486
Other Income (Expense)
Allowance for equity funds
used during construction 1,425 386 --- --- 1,811
Other income and
deductions---net 6,509 3,170 (2,872) --- 6,807
Total other income (expense) 7,934 3,556 (2,872) --- 8,618
Interest Charges 42,896 47,689 16,795 --- 107,380
Income from continuing
operations before income taxes
and preferred dividends 111,036 107,579 47,109 --- 265,724
Income Taxes 36,108 42,489 19,453 --- 98,050
Preferred dividends of
subsidiaries (Note 2) 3,310 914 2,458 --- 6,682
Income from continuing
Operations (Notes 3 and 6) $71,618 $64,176 $25,198 $--- $160,992
Average Common Shares
Outstanding (Note 1) 30,774 29,202 9,564 5,140 74,680
Earnings per share of Common
Stock from continuing
operations $2.33 $2.20 $2.63 $--- $2.16
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share amounts)
WPLH IES IPC Pro Pro
(As (As (As Forma Forma
Reported) Reported) Reported) Adj. Combined
Operating Revenues
Electric $531,747 $537,327 $261,730 $--- $1,330,804
Gas 151,931 165,569 45,920 --- 363,420
Other 112,039 82,968 --- --- 195,007
Total operating revenues 795,717 785,864 307,650 --- 1,889,231
Operating Expenses
Electric production fuels 123,469 85,952 61,384 --- 270,805
Purchased power 37,913 68,794 58,339 --- 165,046
Cost of gas sold 100,942 120,795 30,905 --- 252,642
Other operation 248,847 176,863 51,917 --- 477,627
Maintenance 41,227 52,841 17,160 --- 111,228
Depreciation and amortization 80,351 86,378 28,212 --- 194,941
Taxes other than income taxes 33,788 46,308 16,298 --- 96,394
Total operating expenses 666,537 637,931 264,215 --- 1,568,683
Operating Income 129,180 147,933 43,435 --- 320,548
Other Income (Expense)
Allowance for equity funds
used during construction 3,009 2,299 166 --- 5,474
Other income and
deductions---net 10,245 3,472 3,100 --- 16,817
Total other income (expense) 13,254 5,771 3,266 --- 22,291
Interest Charges 36,657 44,399 16,845 --- 97,901
Income from continuing
operations before income taxes
and preferred dividends 105,777 109,305 29,856 --- 244,938
Income Taxes 36,043 41,573 9,189 --- 86,805
Preferred dividends of
subsidiaries (Note 2) 3,310 914 2,454 --- 6,678
Income from continuing
Operations (Notes 3 and 6) $66,424 $66,818 $ 18,213 $--- $ 151,455
Average Common Shares
Outstanding (Note 1) 30,671 28,560 9,479 5,041 73,751
Earnings per share of Common
Stock from continuing
operations $2.17 $2.34 $1.92 $--- $2.05
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. The pro forma combined financial statements reflect the conversion of
each share of IES Common Stock (no par value) outstanding into 1.14
shares of WPLH Common Stock ($.01 par value) and the conversion of
each share of IPC Common Stock ($3.50 par value) into 1.11 shares of
WPLH Common Stock ($.01 par value), and the continuation of each
share of WPLH Common Stock ($.01 par value) outstanding as one share
of Interstate Energy Common Stock, as provided in the Merger
Agreement. The pro forma adjustment to common stock equity restates
the common stock account to equal par value for all shares to be
issued ($.01 par value per share of Interstate Energy Common Stock)
and reclassifies the excess to other stockholders' equity. The pro
forma combined statements of income are presented as if the companies
were combined on January 1, 1994. The pro forma combined balance
sheet gives effect to the Mergers as if they occurred at December 31,
1996.
The number of shares of common stock used for calculating per share
amounts is based on the exchange ratio shown below.
As Pro As Pro As Pro
Exchange reported forma reported forma reported forma
Ratio 12/31/96 12/31/96 12/31/95 12/31/95 12/31/94 12/31/94
IES 1.14 29,861 34,042 29,202 33,290 28,560 32,558
IPC 1.11 9,594 10,649 9,564 10,616 9,479 10,522
WPLH N/A 30,790 30,790 30,774 30,774 30,671 30,671
2. The Preferred Stock of IPC has been reclassified in the pro forma
statements as preferred stock of subsidiary companies and deducted in
the determination of income from continuing operations which reflects
the holding company structure of the entity formed through the
Mergers.
3. IES's income from continuing operations for the year ended December
31, 1996, included costs incurred relating to its successful defense
of a hostile takeover attempt mounted by MidAmerican Energy Company.
The after-tax impact on income from continuing operations was a
decrease of $4.6 million.
Nonrecurring items affecting WPLH's performance for the year ended
December 31, 1996, included the impact of the sale of a combustion
turbine and the sale of WPLH's assisted-living real estate
investments. The after-tax impact of these items on continuing
operations was an increase of $5.9 million. Nonrecurring items
affecting WPLH's 1994 performance included the impact of early
retirement and severance programs and the reversal of a coal contract
penalty assessed by the Wisconsin Public Service Commission which was
charged to income in 1989. The net after-tax impact of these items
on income from continuing operations for the year ended December 31,
1994, was a decrease of $8.3 million related to the early retirement
and severance programs offset by an increase of $4.9 million related
to the coal contract penalty reversal.
4. The allocation between WPLH, IES and IPC and their customers of the
estimated cost savings of approximately $749 million over ten years
resulting from the Mergers, net of the costs incurred to achieve such
savings, will be subject to regulatory review and approval. Costs
arising from the proposed Mergers are currently estimated to be
approximately $78 million (including transaction costs of $11 million
related to fees for financial advisors, attorneys, accountants and
consultants). The estimate of potential cost savings constitutes a
forward-looking statement and actual results may differ materially
from this estimate. The estimate is necessarily based upon various
assumptions that involve judgments with respect to, among other
things, future national and regional economic and competitive
conditions, technological developments, inflation rates, regulatory
treatments, weather conditions, financial market conditions, future
business decisions and other uncertainties. No assurance can be
given that the estimated cost savings will actually be realized.
In addition to the $11 million remaining transaction costs, since the
announcement of the Merger Agreement on November 11, 1995, IES, IPC
and WPLH have collectively incurred $6 million of merger-related
transaction costs through December 31, 1996, which have been expensed
and are reflected in the combined income statements as presented.
The remaining merger-related $11 million of transaction costs have
been reflected in the pro forma balance sheet at December 31, 1996,
such that shareowners' equity has been reduced by $11 million and
accrued liabilities have been increased by $11 million. None of the
estimated cost savings, or costs to achieve such savings, have been
reflected in the pro forma combined financial statements.
5. Intercompany transactions (including purchased and exchange power
transactions) between WPLH, IES and IPC during the periods presented
were included in the determination of regulated rates and were not
material. Accordingly, no pro forma adjustments were made to
eliminate such transactions.
6. The financial statements of WPLH reflect the discontinuance of
operations of its utility energy and marketing consulting business in
1995. The discontinuance of this business resulted in a pre-tax loss
in the fourth quarter of 1995 of $7.7 million. The after-tax loss on
disposition was $11.0 million reflecting the associated tax expense
on disposition due to the non-deductibility of the carrying value of
goodwill at sale. During 1996, WPLH recognized an additional loss of
$1.3 million, net of applicable income tax benefit, associated with
the final disposition of the business. Operating revenues, operating
expenses, other income and expense and income taxes for the
discontinued operations for the time periods presented have been
excluded from income from continuing operations. Interest expense
has been adjusted for the amounts associated with direct obligations
of the discontinued operations.
Operating revenues, related losses, and income tax benefits
associated with the discontinued operations for the years ending
December 31 were are follows:
1995 1994
Operating revenues $24,979 $34,798
Loss from discontinued operations before
income tax $ 3,663 $ 1,806
Income tax benefit 1,451 632
Loss from discontinued operations $ 2,212 $ 1,174
7. Accounting principles have been consistently applied in the financial
statement presentations for WPLH, IES and IPC with one exception.
IPC does not include unbilled electric and gas revenues in its
calculation of total revenues. The utility subsidiaries of WPLH and
IES accrue unbilled revenues. The impact of this difference in
accounting principles among the companies does not have a material
impact on the unaudited pro forma combined financial statements as
presented and, accordingly, no adjustments have been made to conform
to accounting principles.
8. At December 31, 1996, IES had a $20.0 million investment in Class A
common stock of McLeod, Inc. (McLeod), a $9.2 million investment in
Class B common stock and vested options that, if exercised, would
represent an additional investment of approximately $2.3 million.
McLeod provides local, long-distance and other telecommunications
services.
McLeod completed an Initial Public Offering (IPO) of its Class A
common stock in June 1996 and a secondary offering in November 1996.
As of December 31, 1996, IES is the beneficial owner of approximately
10.6 million total shares on a fully diluted basis. Class B shares
are convertible at the option of IES into Class A shares at any time
on a one-for-one basis. The rights of McLeod Class A common stock
and Class B common stock are substantially identical except that
Class A common stock has 1 vote per share and Class B common stock
has 0.40 vote per share. IES currently accounts for this investment
under the cost method.
IES has entered into an agreement with McLeod which provides that for
two years commencing on June 10, 1996, IES cannot sell or otherwise
dispose of any of its securities of McLeod without the consent of the
McLeod Board of Directors. This contractual sale restriction results
in restricted stock under the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), Accounting for Certain
Investments in Debt and Equity Securities, until such time as the
restrictions lapse and such shares become qualified for sale within a
one year period. As a result, IES currently carries this investment
at cost.
The closing price of the McLeod Class A common stock on December 31,
1996, on the Nasdaq National Market was $25.50 per share. The
current market value of the shares IES beneficially owns
(approximately 10.6 million shares) is currently impacted by, among
other things, the fact that the shares cannot be sold for a period of
time and it is not possible to estimate what the market value of the
shares will be at the point in time such sale restrictions are
lifted. In addition, any gain upon an eventual sale of this
investment would likely be subject to a tax.
Under the provisions of SFAS No. 115, the carrying value of the
McLeod investment will be adjusted to estimated fair value at the
time such shares become qualified for sale within a one year period;
this will occur on June 10, 1997, which is one year before the
contractual restrictions on sale are lifted. At that time, the
adjustment to reflect the estimated fair value of this investment
will be reflected as an increase in the investment carrying value
with the unrealized gain reported as a net of tax amount in other
common shareholders' equity until realized (i.e. until the shares are
sold by IES).