SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
_______________________
Date of Report
(Date of earliest
event reported): April 21, 1998
Interstate Energy Corporation
(Exact name of registrant as specified in its charter)
Wisconsin 1-9894 39-1380265
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
222 West Washington Avenue, Madison, Wisconsin 53703
(Address of principal executive offices, including zip code)
(608) 252-3311
(Registrant's telephone number)
WPL Holdings, Inc.
(Former name or former address, if
changed since last report)
Item 2. Acquisition or Disposition of Assets.
On April 21, 1998, following receipt of final regulatory approval,
the three-way business combination (the "Merger") between WPL Holdings,
Inc., a holding company incorporated under the laws of the State of
Wisconsin ("WPLH"), IES Industries Inc., a holding company incorporated
under the laws of the State of Iowa ("IES"), and Interstate Power Company,
an operating public utility incorporated under the laws of the State of
Delaware ("IPC"), was consummated in accordance with the terms of an
Agreement and Plan of Merger, dated as of November 10, 1995 (as amended on
May 22, 1996 and August 16, 1996) by and among WPLH, IES and IPC, among
others (the "Merger Agreement"). In the Merger, WPLH, as the surviving
holding company, changed its name to Interstate Energy Corporation (the
"Company") and is currently doing business as Alliant Corporation.
Pursuant to the terms of the Merger Agreement, IES was merged with
and into the Company and each outstanding share of IES common stock was
converted into the right to receive 1.14 shares of Company common stock.
Similarly, an acquisition subsidiary of the Company was merged with and
into IPC (with IPC as the surviving corporation) and each outstanding
share of IPC common stock was converted into the right to receive 1.11
shares of Company common stock. At the effective time of the Merger,
there were 30,761,923 and 9,768,907 shares of IES common stock and IPC
common stock outstanding, respectively. All outstanding shares of WPLH
common stock remain unchanged and outstanding as shares of Company common
stock following the Merger. In this Current Report on Form 8-K, unless
the context otherwise requires, all references to the Company's common
stock include the rights to purchase shares of such common stock pursuant
to the terms of the Rights Agreement between the Company and Morgan
Shareholders Services Trust Company, as Rights Agent thereunder, dated as
of February 22, 1989.
As a result of the Merger, IES Utilities Inc. and IPC joined
Wisconsin Power and Light Company as the operating public utility
subsidiaries of the Company. The outstanding shares of preferred stock of
IES Utilities Inc., IPC and Wisconsin Power and Light Company were
unaffected by the Merger. In connection with the Merger, the Company
filed an application to become and is now a registered public utility
holding company under the Public Utility Holding Company Act of 1935, as
amended. The Merger will be accounted for as a pooling of interests for
accounting purposes.
Following consummation of the Merger, the holding companies for the
nonregulated businesses of the Company and IES were merged. The resulting
company, known as Alliant Industries Inc., is now the parent holding
company of substantially all of the Company's nonregulated businesses.
The Merger Agreement and the amendments thereto are filed as
exhibits to this Current Report on Form 8-K and are incorporated herein by
reference. The discussion above is qualified in its entirety by reference
to that agreement and the amendments thereto.
In connection with the Merger, the Company entered into employment
agreements (the "Employment Agreements") with (i) Lee Liu, who will serve
as Chairman of the Board of the Company; and (ii) Erroll B. Davis, Jr.,
who will serve as President and Chief Executive Officer of the Company and
as Chief Executive Officer of the Company's subsidiaries. It is
anticipated that the Company will also enter into a consulting agreement
with Wayne H. Stoppelmoor, who will serve as Vice Chairman of the Company.
In addition, IPC entered into an employment agreement with Michael R.
Chase, who will serve as President of IPC. The Employment Agreements are
filed as exhibits to this Current Report on Form 8-K and are incorporated
herein by reference.
Pursuant to the terms of the Merger Agreement, the Board of
Directors of the Company was reconstituted. The current directors of the
Company are:
Alan B. Arends Milton E. Neshek
Erroll B. Davis, Jr. Jack R. Newman
Rockne G. Flowers Judith D. Pyle
Joyce L. Hanes Robert D. Ray
Lee Liu David Q. Reed
Katharine C. Lyall Robert W. Schlutz
Arnold M. Nemirow Wayne H. Stoppelmoor
Anthony R. Weiler
The current executive officers of the Company are:
Erroll B. Davis, Jr. - President and Chief Executive Officer
William D. Harvey - Executive Vice President-Generation
Thomas M. Walker - Executive Vice President and
Chief Financial Officer
Michael R. Chase - Executive Vice President-
Corporate Services
James E. Hoffman - Executive Vice President-
Business Development
Eliot G. Protsch - Executive Vice President-Energy Delivery
John E. Ebright - Vice President-Controller
Edward M. Gleason - Vice President, Treasurer and
Corporate Secretary
Donald D. Jannette - Assistant Corporate Secretary
John E. Kratchmer - Assistant Controller
Susan J. Kosmo - Assistant Controller
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
(1) IES Industries Inc.
Audited Consolidated Financial Statements (incorporated by
reference to IES Industries Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (Commission File
No. 1-9187)):
Report of Independent Public Accountants
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Interstate Power Company
Audited Financial Statements (incorporated by reference to
Interstate Power Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (Commission File No. 1-3632)):
Report of Independent Auditors
Statements of Income for the years ended
December 31, 1997, 1996 and 1995
Balance Sheets as of December 31, 1997 and 1996
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements
(b) Pro Forma Financial Information
The unaudited pro forma financial information included herein
relates to the three-way business combination (the "Merger")
between WPL Holdings, Inc., a holding company incorporated under
the laws of the State of Wisconsin ("WPLH"), IES Industries Inc., a
holding company incorporated under the laws of the State of Iowa
("IES"), and Interstate Power Company, an operating public utility
incorporated under the laws of the State of Delaware ("IPC"), which
was consummated on April 21, 1998. In the Merger, WPLH, as the
surviving holding company, changed its name to Interstate Energy
Corporation (the "Merged Company") and is currently doing business
as Alliant Corporation.
The unaudited pro forma combined balance sheet at December 31, 1997
gives effect to the Merger as if it had occurred on December 31,
1997. The unaudited pro forma combined statements of income for
each of the three years in the period ended December 31, 1997 gives
effect to the Merger as if it had occurred on January 1, 1995.
These statements are prepared on the basis of accounting for the
Merger 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 resulting from the Merger or the costs to be incurred to
achieve such synergies. The pro forma financial information,
however, does reflect the transition costs to effect the Merger.
The historical data for WPLH have been adjusted to reflect the
restatement of such data to account for certain discontinued
operations as discussed in Note 6.
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 Merger been consummated on the date, or
at the beginning of the period, for which the Merger is being given
effect nor is it necessarily indicative of future operating results
or financial position.
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
12/31/97
(In thousands)
Pro Forma
ASSETS WPLH IES IPC Adjustments Pro Forma
(As Reported) (As Reported) (As Reported) (See Note 1) Combined
UTILITY PLANT
Electric $1,790,641 $2,072,866 $869,715 $- $4,733,222
Gas 237,856 187,098 70,201 - 495,155
Other 220,679 145,716 - - 366,395
----------- --------- -------- -------- ----------
Total 2,249,176 2,405,680 939,916 - 5,594,772
Less: Accumulated
provision for
depreciation 1,065,726 1,115,261 450,595 - 2,631,582
Construction work in
progress 42,312 38,923 5,276 - 86,511
Nuclear fuel--net 19,046 36,731 - - 55,777
---------- -------- -------- --------- ----------
Net utility plant 1,244,808 1,366,073 494,597 - 3,105,478
OTHER PROPERTY, PLANT
AND EQUIPMENT
---NET AND OTHER
INVESTMENTS 139,548 319,657 4,746 (125) 463,826
CURRENT ASSETS
Cash and cash equivalents 13,987 10,143 2,897 302 27,329
Accounts receivable ---
net 78,082 52,295 27,061 12,489 169,927
Fossil fuel inventories,
at average cost 18,857 10,579 11,220 - 40,656
Materials and supplies,
at average cost 19,274 24,274 6,297 - 49,845
Prepayments and other 42,808 69,920 15,035 (3,278) 124,485
--------- ---------- -------- ------- --------
Total current assets 173,008 167,211 62,510 9,513 412,242
EXTERNAL DECOMMISSIONING
FUND 112,356 77,882 - - 190,238
INVESTMENT IN MCLEODUSA INC. 0 326,582 1,440 - 328,022
DEFERRED CHARGES AND OTHER 192,087 199,814 75,456 (15,442) 451,915
---------- --------- -------- ------- ---------
TOTAL ASSET $1,861,807 $2,457,219 $638,749 ($6,054) $4,951,721
========== ========= ======== ======= =========
CAPITALIZATION AND
LIABILITIES
CAPITALIZATION
Common Stock Equity:
Common stock $308 $- $34,163 ($33,706) $765
Other stockholders'
equity 607,275 818,133 181,457 23,204 1,630,069
---------- -------- -------- -------- ---------
Total common stock
equity 607,583 818,133 215,620 (10,502) 1,630,834
Preferred stock not
mandatorily redeemable 59,963 18,320 10,819 - 89,102
Preferred stock mandatory
sinking fund - - - - 24,267
Long-term debt---net 457,520 845,189 165,194 - 1,467,903
---------- -------- -------- -------- ----------
Total capitalization 1,125,066 1,681,642 415,900 (10,502) 3,212,106
CURRENT LIABILITIES
Current maturities,
sinking funds, and
capital lease
obligations 11,528 13,684 6,314 - 31,526
Commercial paper, notes
payable and other 123,095 - 33,500 - 156,595
Variable rate demand bonds 56,975 - - - 56,975
Accounts payable and
accruals 91,175 78,702 13,208 9,549 192,634
Taxes accrued 412 62,432 16,014 65 78,923
Other accrued liabilities 55,987 67,174 12,445 15,532 151,138
--------- -------- -------- --------- ----------
Total current
liabilities 339,172 221,992 81,481 25,146 667,791
OTHER LIABILITIES
Deferred income taxes 253,519 372,837 104,670 (2,800) 728,226
Deferred investment tax
credits 35,039 31,838 15,985 - 82,862
Accrued environmental
remediation costs 9,238 46,989 5,794 - 62,021
Capital lease obligations - 23,548 86 - 23,634
Other liabilities and
deferred credits 99,773 78,373 14,833 (17,898) 175,081
--------- --------- -------- --------- ---------
Total other liabilities 397,569 553,585 141,368 (20,698) 1,071,824
--------- --------- -------- --------- ----------
TOTAL CAPITALIZATION AND
LIABILITIES $1,861,807 $2,457,219 $638,749 ($6,054) $4,951,721
========== ========== ======== ========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share amounts)
Operating Revenues Pro Forma
WPLH IES IPC Adjustments Pro Forma
(As Reported) (As Reported) (As Reported) (See Note 1) Combined
Electric utility $634,143 $604,270 $277,340 $- $1,515,753
Gas utility 155,883 183,517 54,507 - 393,907
Other 129,229 142,912 - 118,826 390,967
--------- --------- -------- -------- ---------
Total operating revenues 919,255 930,699 331,847 118,826 2,300,627
Operating Expenses
Electric and steam production fuels 116,812 108,344 55,402 - 280,558
Purchased power 125,438 74,098 56,770 - 256,306
Cost of gas sold 99,267 126,631 33,324 - 259,222
Other operation 254,796 231,481 64,685 119,306 670,268
Maintenance 48,058 57,185 17,782 96 123,121
Depreciation and amortization 111,289 114,122 31,676 245 257,332
Taxes other than income taxes 34,988 51,701 16,708 - 103,397
--------- --------- -------- -------- ---------
Total operating expenses 790,648 763,562 276,347 119,647 1,950,204
--------- --------- -------- -------- ---------
Operating Income 128,607 167,137 55,500 (821) 350,423
Other Income (Expense)
Allowance for funds used
during construction 2,775 2,309 190 - 5,274
Other income and deductions, net 4,432 1,850 6,772 856 13,910
--------- -------- -------- -------- ---------
Total other income (expense) 7,207 4,159 6,962 856 19,184
Interest Charges 42,535 64,383 15,610 35 122,563
Income from Continuing Operations
before Income Taxes and
Preferred Dividends 93,279 106,913 46,852 - 247,044
Income Taxes 28,715 39,662 17,684 - 86,061
Preferred Dividends of
Subsidiaries (Note 2) 3,310 914 2,469 - 6,693
--------- -------- -------- --------- ---------
Income from Continuing
Operations $61,254 $66,337 $26,699 $- $154,290
========= ======== ======== ========= =========
Average Common Shares
Outstanding 30,782 30,380 9,725 5,323 76,210
Earnings per Share of Common
Stock from Continuing
Operations (Basic and diluted) $1.99 $2.18 $2.74 N/A $2.02
========= ======== ======== ========= ========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share amounts)
Pro Forma
WPLH IES IPC Adjustments Pro Forma
(As Reported) (As Reported) (As Reported) (See Note 1) Combined
Operating Revenues
Electric utility $589,482 $574,273 $276,620 $- $1,440,375
Gas utility 165,627 273,979 49,464 (113,115) 375,955
Other 177,735 125,660 - 113,115 416,510
--------- --------- --------- -------- ----------
Total operating revenues 932,844 973,912 326,084 - 2,232,840
Operating Expenses
Electric and steam 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 (113,474) 240,324
Other operation 317,608 212,501 51,707 113,474 695,290
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 789,794 807,346 265,755 - 1,862,895
--------- -------- --------- -------- ---------
Operating Income 143,050 166,566 60,329 - 369,945
Other Income (Expense)
Allowance for funds used
during construction 3,208 2,103 263 - 5,574
Other income and deductions, net 14,098 (4,591) 2,336 - 11,843
--------- -------- --------- -------- ---------
Total other income (expense) 17,306 (2,488) 2,599 - 17,417
Interest Charges 42,027 54,822 16,472 - 113,321
--------- -------- --------- --------- ---------
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 30,790 29,861 9,594 5,236 75,481
Earnings per Share of Common
Stock from Continuing
Operations (Basic and diluted) $2.38 $2.04 $2.69 N/A $2.12
========= ======== ========= ========= =========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share amounts)
Pro Forma
WPLH IES IPC Adjustments Pro Forma
(As Reported) (As Reported) (As Reported) (See Note 1) Combined
Operating Revenues
Electric utility $546,324 $560,471 $274,873 $- $1,381,668
Gas utility 139,165 190,339 43,669 (53,047) 320,126
Other 121,766 100,200 - 53,047 275,013
-------- -------- -------- -------- ----------
Total operating revenues 807,255 851,010 318,542 - 1,976,807
Operating Expenses
Electric and steam 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 (50,519) 201,087
Other operation 252,722 199,768 44,581 50,519 547,590
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 660,702 697,676 250,630 - 1,609,008
-------- -------- -------- -------- ---------
Operating Income 146,553 153,334 67,912 - 367,799
Other Income (Expense)
Allowance for funds used
during construction 2,088 3,424 341 - 5,853
Other income and deductions, net 5,954 1,548 (4,008) - 3,494
-------- ------- ------- -------- ---------
Total other income (expense) 8,042 4,972 (3,667) - 9,347
Interest Charges 43,559 50,727 17,136 - 111,422
-------- ------- ------- -------- ---------
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 (Note 6) $71,618 $64,176 $25,198 $- $160,992
======== ======= ======= ======== ========
Average Common Shares
Outstanding 30,774 29,202 9,564 5,140 74,680
Earnings per Share of Common
Stock from Continuing
Operations (Basic and diluted) $2.33 $2.20 $2.63 N/A $2.16
======== ======= ======= ======== ========
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. Pro Forma Adjustments
December 31, 1997
BALANCE SHEET Merged
Company
Consolidation Eliminations Common IPC IES Merger
of for Stock Unbilled Pension Transaction Total
IEA-HES LLC IEA-HES LLC Adjustment Revenues Liability Costs Pro Forma
(Note 1 (a)) (Note 1 (b)) (Note 1 (c)) (Note 1 (d)) (Note 1 (e)) (Note 1 (g)) Adjustments
ASSETS
OTHER PROPERTY,
PLANT AND EQUIP
---NET AND OTHER
INVESTMENTS $3,458 ($3,583) $ - $ - $ - $ - ($125)
CURRENT ASSETS
Cash and cash
equivalents 3,308 (3,006) - - - - 302
Accounts receivable
---net 8,932 (1,965) - 5,522 - - 12,489
Prepayments and
other 2 - - (3,280) - - (3,278)
-------- -------- -------- -------- -------- -------- --------
Total current
assets 12,242 (4,971) - 2,242 - - 9,513
DEFERRED CHARGES AND
OTHER - - - 2,456 (17,898) - (15,442)
-------- -------- -------- -------- -------- -------- --------
TOTAL ASSETS $15,700 ($8,554) $ - $4,698 ($17,898) $ - ($6,054)
======== ======== ======== ======== ======== ======== ========
CAPITALIZATION AND
LIABILITIES
CAPITALIZATION
Common Stock
Equity:
Common stock $ - $ - ($33,706) $ - $ - $ - ($33,706)
Other
stockholders'
equity 3,583 (3,583) 33,706 4,698 - (15,200) 23,204
-------- -------- -------- -------- -------- --------- --------
Total common
stock equity 3,583 (3,583) - 4,698 - (15,200) (10,502)
CURRENT LIABILITIES
Accounts payable
and accruals 11,514 (1,965) - - - - 9,549
Taxes accrued 65 - - - - - 65
Other accrued
liabilities 538 (3,006) - - - 18,000 15,532
-------- -------- -------- -------- -------- -------- --------
Total current
liabilities 12,117 (4,971) - - - 18,000 25,146
OTHER LIABILITIES
Deferred income
taxes - - - - - (2,800) (2,800)
Other liabilities
and deferred
credits - - - - (17,898) - (17,898)
-------- -------- -------- -------- -------- -------- --------
Total other
liabilities - - - - (17,898) (2,800) (20,698)
-------- -------- -------- -------- -------- -------- --------
TOTAL
CAPITALIZATION AND
LIAB. $15,700 ($8,554) $ - $4,698 ($17,898) $ - ($6,054)
======== ======== ======== ======== ======== ======== ========
Merged
1997 INCOME STATEMENT Consolidation Eliminations Company
of for Common Stock Total
IEA-HES LLC IEA-HES LLC Adjustment Pro Forma
(Note 1 (a)) (Note 1 (b)) (Note 1 (c)) Adjustments
OPERATING REVENUES:
Gas utility $ - $ - $ - $ -
Other 118,826 - - 118,826
------- ------- -------- -------
Total operating
revenues 118,826 - - 118,826
OPERATING EXPENSES:
Cost of gas sold - - - -
Other operation 119,306 - - 119,306
Maintenance 96 - - 96
Depreciation and
amortization 245 - - 245
------- -------- -------- -------
Total operating
expenses 119,647 - - 119,647
OPERATING INCOME (821) - - (821)
OTHER INCOME (EXPENSE)
Other income and
deductions, net 61 795 - 856
------- -------- -------- --------
Total other income
(expense) 61 795 - 856
INTEREST CHARGES 35 - - 35
------- -------- -------- --------
INCOME FROM CONTINUING
OPER. ($795) $795 $ - $ -
======= ======== ======== ========
AVERAGE COMMON SHARES - - 5,323 5,323
1996 INCOME STATEMENT Merged
Company
Common Stock IEA Total
Adjustment Gas Activity Pro Forma
(Note 1 (c)) (Note 1 (f)) Adjustments
OPERATING REVENUES:
Gas utility $ - ($113,115) ($113,115)
Other - 113,115 113,115
------- --------- ---------
Total operating revenues - - -
OPERATING EXPENSES:
Cost of gas sold - (113,474) (113,474)
Other operation - 113,474 113,474
-------- -------- ---------
Total operating expenses - - -
-------- -------- ---------
INCOME FROM CONTINUING OPERATIONS $ - $ - $ -
======== ======== =========
AVERAGE COMMON SHARES 5,236 - 5,236
1995 INCOME STATEMENT Merged
Company
Common Stock IEA Total
Adjustment Gas Activity Pro Forma
(Note 1 (c)) (Note 1 (f)) Adjustments
OPERATING REVENUES:
Gas utility $ - ($53,047) ($53,047)
Other - 53,047 53,047
-------- -------- ---------
Total operating revenues - - -
OPERATING EXPENSES:
Cost of gas sold - (50,519) (50,519)
Other operation - 50,519 50,519
-------- -------- ---------
Total operating expenses - - -
-------- -------- ---------
INCOME FROM CONTINUING OPERATIONS $ - $ - $ -
======== ======== =========
AVERAGE COMMON SHARES 5,140 - 5,140
(a) Consolidation of IEA-HES L.L.C.
In January 1997, IES and WPLH formed a gas marketing joint venture named
IEA-HES L.L.C. Pursuant to the applicable accounting rules, IES and WPLH
each accounted for this joint venture in 1997 under the equity method of
accounting with their investment recorded on the balance sheet in "Other
Property, Plant and Equipment -- Net and Other Investments" and their
allocated portion of earnings on the income statement in "Other Income and
Deductions, Net". This pro forma adjustment reflects the financial
results of IEA-HES L.L.C. as a consolidated subsidiary.
(b) Eliminations for IEA-HES L.L.C.
This pro forma adjustment reflects the elimination of intercompany
balances of IEA-HES L.L.C. and also eliminates the equity investments of
IES and WPLH and their allocated portion of revenues and expenses.
(c) Merged Company Common Stock Adjustment
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
Merged Company Common Stock ($.01 par value) and the conversion of each
share of IPC Common Stock ($3.50 par value) into 1.11 shares of Merged
Company Common Stock ($.01 par value), and the continuation of each share
of WPLH Common Stock ($.01 par value) outstanding as one share of Merged
Company Common Stock, as provided in the Merger Agreement. The pro forma
adjustment to common stock equity restates the common stock account to
equal par value for all shares to be issued ($.01 par value per share of
Merged Company Common Stock) and reclassifies the excess to other
stockholders' equity. The average number of shares of common stock used
for calculating per share amounts is based on the exchange ratios shown
below.
As As
Exchange reported Pro forma As Reported Pro forma reported Pro forma
Ratio 12/31/97 12/31/97 12/31/96 12/31/96 12/31/95 12/31/95
WPLH N/A 30,782 30,782 30,790 30,790 30,774 30,774
IES 1.14 30,380 34,633 29,861 34,042 29,202 33,290
IPC 1.11 9,725 10,795 9,594 10,649 9,564 10,616
The number of shares of common stock at December 31, 1997 used for
calculating the par value of common stock is based on the exchange ratios
shown below.
As
Exchange reported Pro forma
Ratio 12/31/97 12/31/97
WPLH N/A 30,789 30,789
IES 1.14 30,577 34,858
IPC 1.11 9,761 10,835
(d) IPC Unbilled Revenues
The financial results of IPC do not include accrued revenues for services
rendered but unbilled at month-end. The pro forma adjustment reflects the
impact of adopting unbilled revenues, including the tax impact of the
adoption. The change is being implemented to conform to the method
currently utilized by WPLH and IES.
(e) IES Pension Liability
The accrued pension liability (and offsetting regulatory asset), included
in the financial results of IES, was calculated using a five-year smoothed
method of recognizing deferred asset gains. The pro forma adjustment
reflects a change to the straight market value method which recognizes
deferred asset gains sooner. The change is being implemented to conform
to the method currently utilized by WPLH and IPC.
(f) IEA Gas Activity
The gas revenues and cost of gas sold of Industrial Energy Applications,
Inc. (IEA), a subsidiary of IES, for 1996 and 1995 have been reclassed
into "Other" operating revenues and "Other operation" expenses,
respectively, consistent with the 1997 presentation.
(g) Merger Transaction Costs
The merger partners estimate they will incur an additional $18 million of
merger-related transaction costs in the first six months of 1998. These
costs include fees for financial advisors, attorneys and accountants as
well as separation costs relating to various officers of the merger
partners who have left the company under the terms of their respective
change of control agreements. These costs have been reflected in the pro
forma balance sheet at December 31, 1997 such that accrued liabilities
have been increased by $18 million, other stockholders' equity has been
reduced by the net of tax amount and the applicable income tax deduction
has been recorded in deferred income taxes.
2. Preferred Stock Dividends of IPC
The Preferred Stock Dividends of IPC have been reclassified in the
unaudited pro forma combined statements as "Preferred Dividends of
Subsidiaries" and deducted in the determination of income from continuing
operations which reflects the holding company structure of the Merged
Company.
3. Nonrecurring Material Items Included in Historical Financial Results
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.
4. Estimated Costs and Cost Savings of Proposed Merger
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 Merger, net of the costs incurred to achieve such
savings, will be subject to regulatory review and approval. Costs arising
from the Merger are currently estimated to be approximately $78 million.
Approximately $22 million of these costs had been incurred through
December 31, 1997 and are reflected in results of operations. 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 treatment, 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. None of
the estimated cost savings have been reflected in the unaudited pro forma
combined financial statements. The only merger-related costs that have
been reflected in the pro forma combined financial statements are the $22
million of costs incurred through December 31, 1997 and the $18 million of
transaction costs discussed in Note 1(g). The remaining costs to be
incurred to achieve the cost savings have not been included in the pro
forma combined financial statements.
5. Intercompany Transactions
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/or were not material.
Accordingly, no pro forma adjustments were made to eliminate such
transactions.
6. Discontinued Operations
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.
(c) Exhibits.
The exhibits listed in the accompanying Exhibit Index are filed as
part of this Current Report on Form 8-K.
SIGNATURES
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 thereunto duly authorized.
INTERSTATE ENERGY CORPORATION
Date: May 5, 1998. By: /s/ Thomas M. Walker
Thomas M. Walker
Executive Vice President and
Chief Financial Officer
INTERSTATE ENERGY CORPORATION
EXHIBIT INDEX TO FORM 8-K
Dated April 21, 1998
Exhibit
(2.1) Agreement and Plan of Merger, dated as of November 10,
1995, by and among WPL Holdings, Inc., IES Industries
Inc., Interstate Power Company and AMW Acquisition,
Inc. [Incorporated by reference to Exhibit (2.1) to
WPL Holdings, Inc.'s Current Report on Form 8-K, dated
November 10, 1995]
(2.2) Amendment No. 1 to Agreement and Plan of Merger and
Stock Option Agreements, dated as of May 22, 1996, by
and among WPL Holdings, Inc., IES Industries Inc.,
Interstate Power Company, a Delaware corporation, AMW
Acquisition, Inc., WPLH Acquisition Co. and Interstate
Power Company, a Wisconsin corporation [Incorporated by
reference to Exhibit (2.1) to WPL Holdings, Inc.'s
Current Report on Form 8-K, dated May 22, 1996]
(2.3) Amendment No. 2 to Agreement and Plan of Merger, dated
as of August 16, 1996, by and among WPL Holdings, Inc.,
IES Industries Inc., Interstate Power Company, a
Delaware corporation, WPLH Acquisition Co. and
Interstate Power Company, a Wisconsin corporation
[Incorporated by reference to Exhibit (2.1) to WPL
Holdings, Inc.'s Current Report on Form 8-K, dated
August 16, 1996.]
(3.1) Amendments to the Restated Articles of Incorporation of
Interstate Energy Corporation
(3.2) Restated Articles of Incorporation of Interstate Energy
Corporation, as amended
(3.3) By-laws of Interstate Energy Corporation
(10.1) Employment Agreement, dated as of April 21, 1998, by
and between Interstate Energy Corporation and Erroll B.
Davis, Jr.
(10.2) Employment Agreement, dated as of April 21, 1998, by
and between Interstate Energy Corporation and Lee Liu
(10.3) Employment Agreement, dated as of April 21, 1998, by
and between Interstate Power Company and Michael R.
Chase
(23.1) Consent of Arthur Andersen LLP, IES Industries Inc.'s
independent public accountants
(23.2) Consent of Deloitte & Touche, Interstate Power
Company's independent public accountants