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 unaudited pro forma combined financial statements for Interstate
Energy Corporation (Merged Company) combine the historical consolidated
balance sheets and statements of income of IES Industries Inc. (IES),
Interstate Power Company (IPC) and WPL Holdings, Inc. (WPLH) as adjusted
by various pro forma adjustments identified in Note 1. All material
adjustments known at this time which impact the reporting periods shown
have been included. The combination of WPLH, IES and IPC is referred to
herein as the "Merger."
These pro forma combined financial statements set forth the restated
combined financial data that will be presented for future comparative
financial data for the Merged Company. The pro forma balance sheet that
will be filed with the Securities and Exchange Commission following
consummation of the Merger will also include an additional pro forma
adjustment for certain merger-related costs to be recorded upon completion
of the Merger.
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. 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 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 periods, 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 Adjustments Pro Forma
(As Reported) IES IPC (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 1,065,726 1,115,261 450,595 - 2,631,582
depreciation
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 18,857 10,579 11,220 - 40,656
cost
Materials and supplies, at average 19,274 24,274 6,297 - 49,845
cost
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. - 326,582 1,440 - 328,022
DEFERRED CHARGES AND OTHER 192,087 199,814 75,456 (15,442) 451,915
--------- -------- ------- -------- -------
TOTAL ASSETS $1,861,807 $2,457,219 $638,749 ($6,054) $4,951,721
========= ======== ======= ======== =========
CAPITALIZATION
Common Stock Equity:
Common stock $308 $- $34,163 ($33,706) $765
Other stockholders' equity 607,275 818,133 181,457 38,404 1,645,269
-------- --------- -------- -------- ---------
Total common stock equity 607,583 818,133 215,620 4,698 1,646,034
Preferred stock not mandatorily redeemable 59,963 18,320 10,819 - 89,102
Preferred stock mandatory sinking fund - - 24,267 - 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 4,698 3,227,306
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 (2,468) 133,138
--------- -------- -------- -------- --------
Total current liabilities 339,172 221,992 81,481 7,146 649,791
OTHER LIABILITIES
Deferred income taxes 253,519 372,837 104,670 - 731,026
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 (17,898) 1,074,624
-------- -------- -------- ------- --------
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)
Pro Forma
WPLH Adjustments Pro Forma
(As Reported) IES IPC (See Note 1) Combined
Operating Revenues
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 116,812 108,344 55,402 - 280,558
fuels
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, 4,432 1,850 6,772 856 13,910
net --------- ------- -------- -------- ---------
Total other income 7,207 4,159 6,962 856 19,184
(expense)
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 Adjustments Pro Forma
(As Reported) IES IPC (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 114,470 84,579 57,560 - 256,609
fuels
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 Adjustments Pro Forma
(As Reported) IES IPC (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
-------- ------- -------- --------- --------
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
Merged
Consolidation Eliminations Company IPC IES
of for Common Stock Unbilled Pension Total
IEA-HES LLC IEA-HES LLC Adjustment Revenue Liability Pro Forma
December 31, 1997 BALANCE SHEET (Note 1(a)) (Note 1(b)) (Note 1(c)) (Note 1(d) (Note 1(e)) Adjustments
ASSETS
OTHER PROPERTY, PLANT AND EQUIP $3,458 ($3,583) $ - $ - $ - ($125)
-- NET AND OTHER INVESTMENTS
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 - 38,404
------- ------- ------- -------- ------ --------
Total common stock equity 3,583 (3,583) - 4,698 - 4,698
CURRENT LIABILITIES
Accounts payable and accruals 11,514 (1,965) - - - 9,549
Taxes accrued 65 - - - - 65
Other accrued liabilities 538 (3,006) - - - (2,468)
------- ------- ------- -------- ------ --------
Total current liabilities 12,117 (4,971) - - - 7,146
OTHER LIABILITIES
Other liabilities and deferred - - - - (17,898) (17,898)
credits
------- ------- ------- -------- ------- -------
Total other liabilities - - - - (17,898) (17,898)
------- ------- ------- -------- ------- -------
TOTAL CAPITALIZATION AND LIAB. $15,700 ($8,554) $ - ($4,698) $17,898 ($6,054)
======= ======= ======= ======== ======= =======
Merged
Consolidation Eliminations Company
of for Common Stock Total
IEA-HES LLC IEA-HES LLC Adjustment Pro Forma
1997 INCOME STATEMENT (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.
Exchange As reported Pro forma As reported Pro forma As 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.
Exchange As 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.
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, or costs to be incurred subsequent to December
31, 1997 to achieve such savings, have been reflected in the unaudited 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.
