EX-99.3 4 uil_exh99-3.htm UIL HOLDINGS CORPORATION EXHIBIT 99.3 PRO FORMA FINANCIAL INFORMATION (UNAUDITED) uil_exh99-3.htm
EXHIBIT 99.3

UIL HOLDINGS CORPORATION
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)

On November 16, 2010, UIL Holdings Corporation (the “Registrant” or “UIL Holdings”) completed its acquisition (the “Acquisition”) from Iberdrola USA, Inc. (“Iberdrola USA”) of (i) Connecticut Energy Corporation (“CEC”), the parent of The Southern Connecticut Gas Company, (ii) CTG Resources, Inc. (“CTG”), the parent of Connecticut Natural Gas Corporation, and (iii) Berkshire Energy Resources (“Berkshire”), the parent of The Berkshire Gas Company.  The approximately $1.296 billion purchase price less net debt of approximately $331.1 million and a preliminary working capital adjustment of approximately $47.0 million resulted in cash consideration at closing of approximately $917.9 million to Iberdrola USA.  The Registrant paid this cash consideration from a combination of approximately $501.5 million in net proceeds from the Registrant’s September 2010 issuance of 20,355,000 shares of its common stock and the approximately $442.9 million in net proceeds from the Registrant’s October 2010 issuance of $450 million aggregate principal amount of 4.625% Notes due 2020..  While the aggregate purchase price was unchanged, the cash consideration paid at closing was greater than the prior estimate of $885 million due to lower actual levels of net debt assumed, partially offset by the preliminary working capital adjustment.  The lower level of debt reflected prior principal payments of $43.8 million on long-term debt and $38.9 million of cash generated by the acquired entities.  The preliminary working capital adjustment resulted primarily from a seasonal decrease of $45.7 million in accounts receivable.  The financial indebtedness and preliminary working capital adjustments have been included in these pro forma financial statements based on the condensed combined financial statements of CEC and CTG as of and for the nine months ended September 30, 2010 (unaudited), however they remain subject to further adjustment.

The Acquisition will be accounted for in accordance with the acquisition method of accounting and the regulations of the SEC.

The Unaudited Pro Forma Condensed Combined Financial Statements (pro forma financial statements) have been derived from:

·  
the consolidated financial statements of UIL Holdings as of and for the year ended December 31, 2009 included in UIL Holdings’ Form 10-K for the fiscal year then ended;

·  
the consolidated financial statements of UIL Holdings as of and for the nine months ended September 30, 2010 (unaudited) included in UIL Holdings’ Form 10-Q for the quarterly period ended September 30, 2010;

·  
the combined financial statements of CEC and CTG as of and for the year ended December 31, 2009;

·  
the condensed combined financial statements of CEC and CTG as of and for the nine months ended September 30, 2010 (unaudited);

·  
the financial statements of Berkshire as of and for the year ended December 31, 2009; and

·  
the financial statements of Berkshire as of and for the nine months ended September 30, 2010 (unaudited).

 
 
 

The Unaudited Pro Forma Condensed Combined Statements of Income (pro forma statements of income) for the nine months ended September 30, 2010 and year ended December 31, 2009 give effect to the Acquisition as if it were completed on January 1, 2009. The Unaudited Pro Forma Condensed Combined Balance Sheet (pro forma balance sheet) as of September 30, 2010 gives effect to the Acquisition as if it were completed on September 30, 2010.  These unaudited pro forma financial statements should be read in conjunction with the accompanying notes.

The historical consolidated financial information has been adjusted in the pro forma financial statements to give effect to pro forma events that are: (1) directly attributable to the Acquisition; (2) factually supportable; and (3) with respect to the statements of income, expected to have a continuing impact on the combined results of UIL Holdings and CEC, CTG and Berkshire.

The pro forma financial statements do not reflect any cost savings (or associated costs to achieve such savings) from operating efficiencies or restructuring that could result from the Acquisition.

The pro forma statements of income for the nine months ended September 30, 2010 and year ended December 31, 2009 include certain nonrecurring charges.  The pro forma statement of income for the nine months ended September 30, 2010 includes an after-tax goodwill impairment charge of $271.2 million, and certain nonrecurring offsets to expenses totaling $2 million after-tax.  The pro forma statement of income for the year ended December 31, 2009 includes nonrecurring expenses totaling $12 million after-tax.

Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in connection with the pro forma financial statements. The final amounts recorded may differ materially from the information presented.  These estimates are subject to change pending further review of the assets acquired and liabilities assumed.

The pro forma financial statements have been presented for illustrative purposes only and are not necessarily indicative of results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or the future consolidated results of operations or financial position of the combined company.  The pro forma results of operations for the nine-month period ended September 30, 2010 do not necessarily represent 75% of the ultimate result for the full year 2010.  For example, electric and gas revenues vary by season, with the highest revenues typically in the third quarter for electric revenues and in the first quarter for gas revenues.

 
 
 

UIL HOLDINGS CORPORATION, CONNECTICUT ENERGY CORPORATION AND CTG RESOURCES, INC.,
  
AND THE BERKSHIRE GAS COMPANY
  
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
  
(In Thousands except per share amounts)
  
   
For the Nine Months Ended September 30, 2010
  
                                       
   
UIL
    
CEC and
          
Pro Forma Adjustments
      
Pro Forma
  
   
Holdings (a)
    
CTG (a)
    
Berkshire (a)
    
(b)
    
Other
      
Combined
  
                                       
                                       
Operating Revenues
   $ 663,673     $ 537,494     $ 48,823     $ (33,014 )   $ -       $ 1,216,976  
Operating Expenses
                                                  
Fuel and purchased power
     194,531       293,353       25,314       (1,745 )     -         511,453  
Other operating expenses
     238,780       111,958       9,400       (18,411 )     (13,171 )
(d)
     328,556  
Depreciation and amortization
     82,672       34,349       4,939       (4,017 )     -         117,943  
Goodwill impairment charge
     -       249,844       21,331       -       -         271,175  
Taxes - other than income taxes
     54,534       33,506       1,735       (2,309 )     -         87,466  
Total Operating Expenses
     570,517       723,010       62,719       (26,482 )     (13,171 )       1,316,593  
Operating Income (Loss)
     93,156       (185,516 )     (13,896 )     (6,532 )     13,171         (99,617 )
                                                   
Other Income and (Deductions), net
     14,551       1,359       1,333       3,127       -         20,370  
                                                   
Interest Charges, net
     32,627       22,149       2,507       (51 )     16,056  
(c)
     73,288  
                                                   
Income (Loss) Before Income Taxes and Equity Earnings
     75,080       (206,306 )     (15,070 )     (3,354 )     (2,885 )       (152,535 )
                                                   
Income Taxes
     32,089       (3,880 )     2,438       16,987       (1,558 )
(c)(d)
     46,076  
                                                   
Income (Loss) Before Equity Earnings
     42,991       (202,426 )     (17,508 )     (20,341 )     (1,327 )       (198,611 )
Income (Loss) from Equity Investments
     (544 )     (392 )     (4 )     353       -         (587 )
Net Income (Loss)
   $ 42,447     $ (202,818 )   $ (17,512 )   $ (19,988 )   $ (1,327 )     $ (199,198 )
                                                   
Average Number of Common Shares Outstanding - Basic
     30,743       N/A       N/A       N/A       19,684  
(e)
     50,427  
Average Number of Common Shares Outstanding - Diluted
     31,067       N/A       N/A       N/A       19,684  
(e)
     50,751  
                                                   
Earnings Per Share of Common Stock - Basic
   $ 1.38       N/A       N/A       N/A       N/A       $ (3.94 )
Earnings Per Share of Common Stock - Diluted
   $ 1.36       N/A       N/A       N/A       N/A       $ (3.94 )
                                                   
Cash Dividends Declared per share of Common Stock
   $ 1.296       N/A       N/A       N/A       N/A       $ 1.296  
                                                   
The accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
  
Statements are an integral part of the pro forma financial statements.
  
 

 
 
 

UIL HOLDINGS CORPORATION, CONNECTICUT ENERGY CORPORATION AND CTG RESOURCES, INC.,
  
AND THE BERKSHIRE GAS COMPANY
  
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
  
                                   
ASSETS
  
(In Thousands)
  
   
As of September 30, 2010
  
                                             
   
UIL
    
CEC and
          
Pro Forma Adjustments
      
Pro Forma
  
   
Holdings (a)
    
CTG (a)
    
Berkshire (a)
    
(b)
    
(f)
    
Other
      
Combined
  
                                             
Current Assets
                                            
Unrestricted cash, restricted cash, and temporary   
cash investments
   $ 545,023     $ 55,566     $ 6,274     $ 706     $ -     $ (488,735 )
(h)(i)(j)
   $ 118,834  
Accounts receivable and unbilled revenues
     156,291       86,621       3,573       (6,663 )     1,265       -         241,087  
Related party accounts receivable
     -       1,265       -       -       (1,265 )     -         -  
Related party notes receivable
     -       3,050       -       (3,050 )     -       -         -  
Natural gas in storage, at average cost
     -       132,345       5,698       (12,236 )     -       -         125,807  
Materials and supplies, at average cost
     5,019       1,682       505       -       -       -         7,206  
Other current assets
     72,088       22,936       2,330       (11,989 )     -       -         85,365  
Total Current Assets
     778,421       303,465       18,380       (33,232 )     -       (488,735 )       578,299  
                                                           
Other investments
     66,096       354,451       3,013       (340,452 )     -       -         83,108  
                                                           
                                                           
Property, Plant and Equipment
     1,662,076       1,338,223       155,619       (63,053 )     -       -         3,092,865  
Less, accumulated depreciation
     411,252       427,625       49,991       (34,851 )     -       -         854,017  
Net Property, Plant and Equipment
     1,250,824       910,598       105,628       (28,202 )     -       -         2,238,848  
                                                           
Other Assets
                                                          
Regulatory assets
     597,796       351,186       31,580       -       -       -         980,562  
Related party note receivable
     61,432       -       -       -       -       -         61,432  
Goodwill
     -       210,029       54,666       (3,784 )     -       (1,367 )
(g)(h)
     259,544  
Other
     38,378       13,646       1,936       (4,881 )     -       3,560  
(i)
     52,639  
Total Deferred Charges and Other Assets
     697,606       574,861       88,182       (8,665 )     -       2,193         1,354,177  
                                                           
Total Assets
   $ 2,792,947     $ 2,143,375     $ 215,203     $ (410,551 )   $ -     $ (486,542 )     $ 4,254,432  
                                                           
The accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
  
Statements are an integral part of the pro forma financial statements.
  


 
 
 

UIL HOLDINGS CORPORATION, CONNECTICUT ENERGY CORPORATION AND CTG RESOURCES, INC.,
  
AND THE BERKSHIRE GAS COMPANY
  
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
  
                                   
LIABILITIES
  
(In Thousands)
  
   
As of September 30, 2010
  
                                             
   
UIL
    
CEC and
          
Pro Forma Adjustments
      
Pro Forma
  
   
Holdings (a)
    
CTG (a)
    
Berkshire (a)
    
(b)
    
(f)
    
Other
      
Combined
  
Current Liabilities
                                            
Current portion of long-term debt
   $ 65,518     $ 30,000     $ 3,000     $ -     $ -     $ -       $ 98,518  
Related party note payable
     -       12,284       -       (12,284 )     -       -         -  
Accounts payable
     91,997       35,095       1,598       (3,514 )     4,851       -         130,027  
Related party accounts payable
     -       4,851       -       -       (4,851 )     -         -  
Dividends payable
     13,007       -       -       -       -       -         13,007  
Accrued liabilities
     36,700       -       -       (1,147 )     32,259       -         67,812  
Taxes accrued
     13,694       24,476       2,174       (5,262 )     -       (4,070 )
(j)
     31,012  
Other
     43,600       35,644       5,398       -       (32,259 )     -         52,383  
Total Current Liabilities
     264,516       142,350       12,170       (22,207 )     -       (4,070 )       392,759  
                                                           
Noncurrent Liabilities
                                                          
Pension accrued
     142,372       -       -       -       98,590       -         240,962  
Other post-retirement benefits accrued
     49,435       136,538       -       -       (98,324 )     -         87,649  
Derivative liabilities
     123,228       -       -       -       -       -         123,228  
Deferred income taxes
     296,206       292,675       18,719       (106,337 )     -       (186,338 )
(h)
     314,925  
Regulatory liabilities
     82,527       307,464       28,107       -       -       -         418,098  
Other
     35,070       41,022       14,037       (657 )     (266 )     -         89,206  
Total Noncurrent Liabilities
     728,838       777,699       60,863       (106,994 )     -       (186,338 )       1,274,068  
                                                           
Capitalization
                                                          
Long-term debt
     715,460       314,000       34,000       -       -       446,418  
(i)
     1,509,878  
                                                           
Preferred stock equity
     -       750       78       -       -       -         828  
                                                           
Common Stock Equity
                                                          
Common stock
     926,958       2       -       (2 )     -       -         926,958  
Paid-in capital
     16,340       1,117,678       128,108       (220,043 )     -       (1,025,743 )
(g)
     16,340  
Retained earnings
     140,835       (215,595 )     (20,016 )     (54,770 )     -       283,147  
(g)(j)
     133,601  
Accumulated other comprehensive loss
     -       (44 )     -       -       -       44  
(g)
     -  
Net Common Stock Equity
     1,084,133       902,041       108,092       (274,815 )     -       (742,552 )       1,076,899  
                                                           
Other Noncontrolling Interests
     -       6,535       -       (6,535 )     -       -         -  
                                                           
Total Capitalization
     1,799,593       1,223,326       142,170       (281,350 )     -       (296,134 )       2,587,605  
                                                           
Total Liabilities and Capitalization
   $ 2,792,947     $ 2,143,375     $ 215,203     $ (410,551 )   $ -     $ (486,542 )     $ 4,254,432  
                                                           
The accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
  
Statements are an integral part of the pro forma financial statements.
  


 
 
 

UIL HOLDINGS CORPORATION, CONNECTICUT ENERGY CORPORATION AND CTG RESOURCES, INC.,
  
AND THE BERKSHIRE GAS COMPANY
  
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
  
(In Thousands except per share amounts)
  
   
For the Year Ended December 31, 2009
  
                                       
   
UIL
    
CEC and
          
Pro Forma Adjustments
      
Pro Forma
  
   
Holdings (a)
    
CTG (a)
    
Berkshire (a)
    
(b)
    
Other
      
Combined
  
                                       
                                       
Operating Revenues
   $ 896,550     $ 713,701     $ 64,043     $ (45,515 )   $ -       $ 1,628,779  
Operating Expenses
                                                  
Fuel and purchased power
     333,339       381,375       30,251       (2,877 )     -         742,088  
Other operating expenses
     282,865       181,442       13,917       (26,170 )     -         452,054  
Depreciation and amortization
     98,116       51,061       5,947       (11,379 )     -         143,745  
Taxes - other than income taxes
     60,062       48,736       2,246       (3,050 )     -         107,994  
Total Operating Expenses
     774,382       662,614       52,361       (43,476 )     -         1,445,881  
Operating Income
     122,168       51,087       11,682       (2,039 )     -         182,898  
                                                   
Other Income and (Deductions), net
     5,586       6,204       1,054       (4,543 )     -         8,301  
                                                   
Interest Charges, net
     40,400       31,865       3,543       (394 )     21,385  
(c)
     96,799  
                                                   
Income Before Income Taxes and Equity Earnings
     87,354       25,426       9,193       (6,188 )     (21,385 )       94,400  
                                                   
Income Taxes
     33,096       (12,160 )     3,562       12,167       (8,400 )
(c)
     28,265  
                                                   
Income Before Equity Earnings
     54,258       37,586       5,631       (18,355 )     (12,985 )       66,135  
Income (Loss) from Equity Investments
     59       (666 )     (6 )     627       -         14  
Net Income
   $ 54,317     $ 36,920     $ 5,625     $ (17,728 )   $ (12,985 )     $ 66,149  
                                                   
Average Number of Common Shares Outstanding - Basic
     28,027       N/A       N/A       N/A       20,355  
(e)
     48,382  
Average Number of Common Shares Outstanding - Diluted
     28,273       N/A       N/A       N/A       20,355  
(e)
     48,628  
                                                   
Earnings Per Share of Common Stock - Basic
   $ 1.94       N/A       N/A       N/A       N/A       $ 1.36  
Earnings Per Share of Common Stock - Diluted
   $ 1.93       N/A       N/A       N/A       N/A       $ 1.36  
                                                   
Cash Dividends Declared per share of Common Stock
   $ 1.728       N/A       N/A       N/A       N/A       $ 1.728  
                                                   
The accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
  
Statements are an integral part of the pro forma financial statements.
  
 

 
 
 

 
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The pro forma adjustments included in the pro forma financial statements are as follows:

Adjustments to Pro Forma Financial Statements

(a) UIL Holdings, CEC, CTG, and Berkshire historical presentation – Based on UIL Holdings’ review of CEC, CTG and Berkshire’s summary of significant accounting policies disclosed in their financial statements and preliminary discussions with their management, the nature and amount of any adjustments to the historical financial statements of CEC, CTG and Berkshire to conform their accounting policies to those of UIL Holdings are not expected to be material.  Further review of CEC, CTG and Berkshire’s accounting policies and financial statements may result in revisions to their policies and classifications to conform to UIL Holdings.  Additionally, certain immaterial amounts reported in the consolidated financial statements of UIL Holdings as of and for the year ended December 31, 2009 have been reclassified to conform to the presentation in the consolidated financial statements of UIL Holdings as of and for the nine months ended September 30, 2010.

(b) CNE Energy Services Group, Inc. (CNE Energy) and TEN Companies, Inc. (TEN) – Represents the removal of CNE Energy and TEN from CEC and CTG.  These subsidiaries of CEC and CTG are involved in operations outside the regulatory gas distribution business and are not included in the Acquisition.

(c) Interest expense – Reflects an increase in interest expense related to the October 2010 issuance of $450 million of senior unsecured debt with a fixed interest rate of 4.625% and a 10 year maturity, amortization of the associated debt issuance costs, and accretion of the $3.6 million discount, calculated as follows (dollars in thousands):

 
   
Nine months ended
    
Year ended
  
   
September 30, 2010
    
December 31, 2009
  
October 2010 issuance of senior unsecured debt
   $ 450,000     $ 450,000  
Interest rate (includes amortization of debt issuance costs)
     4.625 %     4.625 %
    $ 15,609     $ 20,813  
Amortization of senior unsecured debt issuance costs
   $ 223     $ 285  
Accretion of senior unsecured debt discount
   $ 224     $ 287  
Total interest expense
   $ 16,056     $ 21,385  
Tax effect
   $ (6,300 )   $ (8,400 )


 
 
 

(d) Transaction Costs – Reflects the removal of transaction costs (primarily advisory, consulting, and legal expenses) as they reflect non-recurring charges directly related to the Acquisition (dollars in thousands).
 
   
Nine months ended
  
   
September 30, 2010
  
Pro forma transaction cost adjustment
   $ (13,171 )
Tax effect
   $ 4,742  
 
(e) Average Number of Common Shares Outstanding – Reflects the impact of the September 2010 issuance of 20,355,000 shares of common stock, which amounted to net proceeds of approximately $501.5 million after expenses and underwriting discounts, to provide funds to complete the Acquisition.  Basic and diluted earnings per share of common stock under the two-class method are as follows (dollars in thousands):
 
   
Nine months ended
    
Year ended
  
   
September 30, 2010
    
December 31, 2009
  
             
Numerator:
            
Pro forma net income (loss)
   $ (199,198 )   $ 66,149  
Less:  Pro forma net income (loss) allocated to unvested units
     (425 )     162  
Pro forma net income (loss) attributable to common shareholders
   $ (198,773 )   $ 65,987  
                 
Denominator:
                
Basic average number of shares outstanding
     30,743       28,027  
Pro forma adjustment
     19,684       20,355  
Pro forma basic average number of shares outstanding
     50,427       48,382  
Effect of dilutive securities
     324       246  
Pro forma diluted average number of shares outstanding
     50,751       48,628  
                 
Earnings per share:
                
Basic pro porma earnings per share of common stock
   $ (3.94 )   $ 1.36  
Diluted pro porma earnings per share of common stock
   $ (3.94 )   $ 1.36  
 
(f) Reclassification of Certain Historical Amounts – Represents certain asset and liability accounts included in CEC, CTG, and Berkshire’s historical presentations being reclassified to conform to UIL Holdings’ historical presentation.

(g) Equity and Goodwill – Reflects the removal of the historical common stock equity accounts and remaining historical goodwill of CEC and CTG, and Berkshire after adjustment (b).

(h) Purchase Price Allocation – Reflects the preliminary estimate of the excess of the purchase price paid over the fair value of CEC, CTG and Berkshire’s assets acquired and liabilities assumed based upon a closing date of September 30, 2010.  Under the purchase method of accounting, the total estimated purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values with the excess of the purchase price over the fair value recorded to goodwill.  UIL Holdings has assumed the historical book value of the assets and liabilities of CEC, CTG and Berkshire approximates their fair value

 
 
 

given the regulation they operate under in Connecticut and Massachusetts.  The following represents the excess of the purchase price over the fair value of the net assets acquired (dollars in thousands):
 
Purchase price, net
  
 $            885,000
Working capital adjustment to purchase price
  
                (56,429)
Financial indebtedness adjustment to purchase price
  
                 91,718
Less: book value of net assets of CEC, CTG and Berkshire
  
           (1,010,133)
Adjustments related to:
    
     Elimination of CNE Energy and TEN - adjustment (b)
  
               274,815
     Elimination of historical goodwill - adjustment (g)
  
               260,911
     Pro forma adjustment to deferred income tax liabilities*
  
              (186,338)
   
 $            259,544
 
*To remove the remaining deferred income tax liabilities of CEC and CTG after adjustment (b)
 
Pursuant to the authoritative guidance on goodwill and other intangible assets, goodwill is not amortized; rather, impairment tests are performed at least annually or more frequently if circumstances indicate an impairment may have occurred.  If an impairment exists, the goodwill is immediately written down to its fair value through a current charge to income.  Accordingly, the goodwill arising from the Acquisition will be subject to an impairment test at least annually.

(i) Debt – Reflects the October 2010 issuance of $450 million of senior unsecured debt with an interest rate of 4.625% and a 10-year maturity, offset by issuance costs of $3.6 million included in other assets and a discount of $3.6 million, to provide funds to complete the Acquisition.

(j) Transaction Costs – Reflects an estimated payment of the anticipated remaining transaction costs (primarily advisory, consulting, and legal expenses) (dollars in thousands).
 
   
As of
  
   
September 30, 2010
  
Pro forma transaction cost adjustment to cash
   $ (11,304 )
Tax effect
   $ 4,070  
 
 

 
 
 

Detail of adjustments to cash – The following details the adjustments to cash (dollars in thousands):
 
October 2010 debt issuance
   $ 446,418  
Purchase price, net
     (885,000 )
Working capital purchase price adjustment - adjustment (h)
     56,429  
Financial indebtedness purchase price adjustment - adjustment (h)
     (91,718 )
Debt issuance costs - adjustment (i)
     (3,560 )
Remaining anticipated transaction costs - adjustment (j)
     (11,304 )
         
    $ (488,735 )