ENERGY EAST CORP
8-K, 2000-09-01
ELECTRIC SERVICES
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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): September 1, 2000

_____________________

 

Energy East Corporation
(Exact name of registrant as specified in its charter)

New York

1-14766

14-1798693

(State or other jurisdiction
of incorporation)

(Commission File Number)

(IRS Employer
Identification No.)

 

P.O. Box 12904
Albany, NY 12212-2904

 


(518) 434-3049

(Address of principal
executive offices)

 

(Registrant's telephone number,
including area code)

 

Not Applicable

(Former name or former address, if changed since last report.)

 

Item 2.  Acquisition or Disposition of Assets.

     On September 1, 2000, pursuant to the Agreement and Plan of Merger dated as of June 14, 1999, Energy East Corporation completed its merger with CMP Group, Inc. Energy East acquired all of the common stock of CMP Group for $29.50 per share in cash. The transaction had an equity market value of approximately $957 million, and will be accounted for using the purchase method. Central Maine Power Company, CMP Group's principal subsidiary, will continue to operate as a regulated electric utility, serving customers in central and southern Maine.

     On September 1, 2000, pursuant to the Agreement and Plan of Merger dated as of June 29, 1999, Energy East completed its merger with CTG Resources, Inc. As a result of the merger, approximately 45% of the common stock of CTG Resources became exchangeable for 1.7320 of Energy East common stock, and approximately 55% was convertible into $41.00 in cash per CTG Resources share, subject to the terms of the merger agreement. The transaction had an equity market value of approximately $350 million, and will be accounted for using the purchase method. Connecticut Natural Gas Corporation, CTG Resources' principal subsidiary, will continue to operate as a regulated natural gas utility, serving customers in Greenwich, Hartford and 21 other cities and towns in central Connecticut.

     On September 1, 2000, pursuant to the Agreement and Plan of Merger dated November 9, 1999, Energy East completed its merger with Berkshire Energy Resources. Energy East acquired all of the common shares of Berkshire Energy Resources for $38.00 per share in cash. The transaction had an equity market value of approximately $96 million, and will be accounted for using the purchase method. The Berkshire Gas Company, Berkshire Energy Resources' principal subsidiary, will continue to operate as a regulated natural gas utility, serving customers in 19 communities in the western portion of the Commonwealth of Massachusetts.

     Energy East's sources of funds for the consideration for the CMP Group, CTG Resources and Berkshire Energy Resources merger transactions include proceeds from the sale of generation assets, a $500 million bank facility by the Union Bank of Switzerland, and a drawing on its $300 million revolving credit agreement with Chase Manhattan Bank acting as administrative agent. The bank facility will be replaced by a long-term public offering of debentures by Energy East.

     With the completion of these transactions, Energy East becomes one of the largest energy providers in the Northeast, serving 2 million customers (1.4 million electricity and 600,000 natural gas), double that of a year ago. Its combined service area stretches across upstate New York and New England incorporating 32,000 square miles.

Item 7.  Financial Statements and Exhibits.

(a)  Financial statements of business acquired

     The following audited financial statements of CMP Group, Inc. and Subsidiaries, together with the report of independent accountants, are incorporated by reference: consolidated balance sheet, consolidated statement of earnings and consolidated statement of cash flows, and the notes related thereto, included in CMP Group's Annual Report on Form 10-K for the year ended December 31, 1999. The following unaudited financial statements of CMP Group, Inc. and Subsidiaries are incorporated by reference: consolidated balance sheet, consolidated statement of earnings and consolidated statement of cash flows, and the notes related thereto, included in CMP Group's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

 

(b)  Pro forma financial information

Energy East Corporation
Combined Condensed Balance Sheet
Giving Effect to the CMP Group, CTG Resources
and Berkshire Energy Resources Mergers
At June 30, 2000
Actual and Pro Forma
(Unaudited)

 


Energy
East
Actual


CMP
Group
Actual


CTG
Resources
Actual

Berkshire
Energy
Resources
Actual


Merger
Pro Forma
Adjustments

 


Pro Forma
Energy
East

Assets

 

 

 

(thousands)

 

 

 

Current Assets
  Cash and cash equivalents
  Special deposits
  Temporary investments
  Accounts receivable, net
  Other
        Total Current Assets


$25,449
427
459,378
169,388
       76,527
731,169


$226,491
-   
-   
109,763
       15,311
351,565


$34,507
-   
2,467
39,608
    22,891
99,473


$554
-   
-   
6,294
      6,981
13,829


($185,500)
-    
(450,000)
-    
           -    
(635,500)


(4,9)

(4)


$101,501
427
11,845
325,053
     121,710
560,536


Utility Plant, at Original Cost
  Less accumulated depreciation
    Net utility plant in service
  Construction work in progress
        Total Utility Plant


4,582,976
  2,232,112
2,350,864
       36,511
2,387,375


1,356,051
     561,039
795,012
       33,092
828,104


541,005
  204,229
336,776
      4,301
341,077


133,083
    43,343
89,740
         568
90,308


-    
           -    
-    
           -    
-    


6,613,115
  3,040,723
3,572,392
       74,472
3,646,864


Other Property and Investments, Net


148,462


58,637


11,221


-   


161,378 


(2)


379,698

Regulatory Assets

Other Assets

Goodwill

295,915

283,126

     302,601

389,668

138,809

             -   

13,282

21,944

           -   

6,494

1,416

      1,952

-    

55,285 

  563,163 

(5)

(6,7)

705,359

500,580

     867,716

        Total Assets

$4,148,648

$1,766,783

$486,997

$113,999

$144,326 

 

$6,660,753

The notes on pages 6 to 8 are an integral part of the pro forma combined condensed financial statements.

 

Energy East Corporation
Combined Condensed Balance Sheet
Giving Effect to the CMP Group, CTG Resources
and Berkshire Energy Resources Mergers
At June 30, 2000
Actual and Pro Forma
(Unaudited)

 


Energy
East
Actual


CMP
Group
Actual


CTG
Resources
Actual

Berkshire Energy
Resources
Actual


Merger
Pro Forma
Adjustments

 


Pro Forma
Energy
East

Liabilities

 

 

 

(thousands)

 

 

 

Current Liabilities
  Current portion of long-term debt
     and sinking fund requirements
  Notes payable and interim financing
  Taxes accrued
  Other
        Total Current Liabilities



$7,355 
167,426 
54,471 
     272,349 
501,601 



$20,538 
750 
1,020 
     123,159 
145,467 



$3,287 
-    
(2,903)
    39,505 
39,889 



-    
$14,595 
-    
      5,016 
19,611 



-    
$110,000 
-    
    18,500 
128,500 






(7)



$31,180 
292,771 
52,588 
     458,529 
835,068 

Regulatory Liabilities
  Gain on sale of generation assets
  Other
        Total Regulatory Liabilities


-    
     125,123 
125,123 


244,312 
       62,333 
306,645 


-    
    86,604 
86,604 


-    
    10,260 
10,260 


-    
    32,806 
32,806 



(5)


244,312 
     317,126 
561,438 

Deferred Income Taxes and
  Unamortized Investment
  Tax credits
Other
Long-term debt
        Total Liabilities
Commitments
Preferred stock redeemable solely
  at the option of subsidiary
Preferred stock subject to mandatory
  redemption requirements



240,875 
381,736 
  1,304,157 
2,553,492 
-    

10,159 

-    



68,870 
438,123 
     186,057 
1,145,162 
-    

35,528 

910 



2,376 
-    
  216,530 
345,399 
-    

850 

-    



1,001 
5,624 
    40,000 
76,496 
-    

310 

-    



88,644 
-    
  500,000 
749,950 
-    

-    

-    



(5)

(9)







401,766 
825,483 
  2,246,744 
4,870,499 
-    

46,847 

910 

Common Stock Equity
  Common stock Energy East
   ($.01 par value, 300,000 shares
   authorized and 112,208 shares
   outstanding as of June 30, 2000)
  Common stock CMP Group
   ($5 par value, 80,000 shares
   authorized and 32,443 shares
   outstanding as of June 30, 2000)
  Common stock CTG Resources
   (No par value, 20,000 shares
   authorized and 8,620 shares
   outstanding as of June 30, 2000)
  Common stock Berkshire Energy
   Resources (No par value, 10,000
   shares authorized and 2,529
   shares outstanding as of
   June 30, 2000)
Capital in excess of par value
Retained earnings
Accumulated other
  comprehensive income
Unearned compensation - restricted
  stock awards
Treasury stock, at cost (1,500 shares
  at June 30, 2000)
        Total Common Stock Equity





1,137 













740,240 
883,329 

(712)

-    

     (38,997)
  1,584,997 









162,213 









284,462 
138,508 

-    

-    

             -    
     585,183 



















67,386 
73,687 

-    

(325)

           -    
  140,748 



















29,029 
8,164 

-    

-    

           -    
    37,193 





70 



(162,213)









(223,447)
(220,359)

-    

325 

           -    
 (605,624)





(10)













(10)





1,207 



-    









897,670 
883,329 

(712)

-    

      (38,997)
  1,742,497 

        Total Liabilities and
         Shareholders' Equity


$4,148,648
 


$1,766,783
 


$486,997
 


$113,999
 


 $144,326
 

 


$6,660,753
 

The notes on pages 6 to 8 are an integral part of the pro forma combined condensed financial statements.

 

 

 

 

 

 

Energy East Corporation
Combined Condensed Statement of Income
Giving Effect to the Connecticut Energy, CMP Group,
CTG Resources and Berkshire Energy Resources Mergers
Twelve Months Ended December 31, 1999
Actual and Pro Forma
(Unaudited)

 


Energy
East
Actual


Connecticut
Energy
Actual


CMP
Group
Actual


CTG
Resources
Actual

Berkshire
Energy
Resources
Actual


Merger
Pro Forma
Adjustments

 


Pro Forma
Energy
East

 

 

(in thousands, except per share amounts)

 

 

Operating Revenues
  Sales and services

Operating Expenses
  Electricity purchased and fuel
    used in generation
  Natural gas purchased
  Other operating expenses
  Maintenance
  Depreciation and amortization
  Other taxes
  Gain on sale of
    generation assets
  Writeoff of Nine Mile Point 2
        Total Operating Expenses


$2,278,608 



905,367 
186,722 
312,129 
85,849 
648,587 
194,783 

(674,572)
     72,532 
1,731,397 


$235,633 




103,980 
49,529 
3,759 
18,330 
15,323 

-    
         -    
190,921 


$992,656 



515,591 

238,703 
33,180 
50,593 
22,374 

-    
         -    
860,441 


$292,179 




145,860 
55,450 
7,702 
20,352 
19,993 

-    
         -    
249,357 


$51,775 




23,612 
13,729 
617 
4,631 
2,211 

-    
       -    
44,800 


-    



-    
-    
-    
-    
$21,136 
-    

-    
          -    
   21,136 







(11)





$3,850,851 



1,420,958 
460,174 
669,540 
131,107 
763,629 
254,684 

(674,572)
     72,532 
3,098,052 


Operating Income
Other (Income) and Deductions
Merger Related Expenses
Interest Charges, Net
Preferred Stock Dividends
  of Subsidiary
Income Before Federal
  Income Taxes
Federal Income Taxes
Income Before
  Extraordinary Item
Extraordinary Loss on Early
  Extinguishment of Debt, Net
  of Income Tax Benefit
  of $9,458
Net Income


547,211 
(39,214)
-    
132,908 

       2,706 

450,811 
   214,494 

236,317 



     17,566 
 $218,751 


44,712 
2,874 
3,736 
13,354 

         -    

24,748 
     8,370 

16,378 



         -    
$16,378 


132,215 
(37,902)
4,385 
53,471 

    3,315 

108,946 
  54,092 

54,854 



         -    
$54,854 


42,822 
(3,621)
3,698 
15,578 

         61 

27,106 
  13,292 

13,814 



         -    
$13,814 


6,975 
(2,171)
438 
4,313 

       15 

4,380 
  1,816 

2,564 



       -    
$2,564 


(21,136)
-    
-    
47,700 

         -    

(68,836)
  (19,080)

(49,756)



          -    
($49,756)





(9)




(8)







752,799 
(80,034)
12,257 
267,324 

       6,097 

547,155 
   272,984 

274,171 



     17,566 
 $256,605 


Earnings per share,
  basic and diluted

Average Common
  Shares Outstanding



$1.88 


116,316 

 

 

 

 






16,441 






(3)



$1.93 


132,757 

The notes on pages 6 to 8 are an integral part of the pro forma combined condensed financial statements.

 

 

 

 

 

 

Energy East Corporation
Combined Condensed Statement of Income
Giving Effect to the CMP Group, CTG Resources
and Berkshire Energy Resources Mergers
Six Months Ended June 30, 2000
Actual and Pro Forma
(Unaudited)

 


Energy
East
Actual


CMP
Group
Actual


CTG
Resources
Actual

Berkshire
Energy
Resources
Actual


Merger
Pro Forma
Adjustments

 


Pro Forma
Energy
East

 

 

(in thousands, except per share amounts)

 

 

Operating Revenues
  Sales and services

Operating Expenses
  Electricity purchased and fuel
    used in generation
  Natural gas purchased
  Other operating expenses
  Maintenance
  Depreciation and amortization
  Other taxes
        Total Operating Expenses


$1,256,345 



449,129 
180,900 
163,239 
47,321 
67,378 
     82,900 
   990,867 


$471,081 



256,887 

121,553 
18,067 
19,394 
    9,941 
425,842 


$193,138 



-    
103,630 
28,506 
4,463 
10,779 
  13,497 
160,875 


$36,607 



-    
17,401 
8,781 
379 
2,688 
  1,392 
30,641 


-    



-    
-    
-    
-    
$7,040 
          -    
     7,040 










(11)


$1,957,171 



706,016 
301,931 
322,079 
70,230 
107,279 
   107,730 
1,615,265 


Operating Income
Other (Income) and Deductions
Merger Related Expenses
Interest Charges, Net
Preferred Stock Dividends
  of Subsidiary
Income Before Federal
  Income Taxes
Federal Income Taxes
Net Income


265,478 
(15,010)
-    
57,576 

          198 

222,714 
     72,916 
 $149,798 


45,239 
(130,888)
325 
27,055 

    1,118 

147,629 
  91,425 
$56,204 


32,263 
(1,710)
155 
8,028 

         30 

25,760 
  12,304 
$13,456 


5,966 
(1,033)
269 
2,297 

         8 

4,425 
  1,648 
$2,777 


(7,040)
-    
-    
23,850 

          -    

(30,890)
    (9,540)
($21,350)





(9)




(8)


341,906 
(148,641)
749 
118,806 

       1,354 

369,638 
   168,753 
 $200,885 

 
Earnings per share,
  basic and diluted

Average Common
  Shares Outstanding



$1.32 


113,087 

 

 

 






7,000 






(12)



$1.67 


120,087 

The notes on pages 6 to 8 are an integral part of the pro forma combined condensed financial statements.

 

 

Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
Giving Effect to the Connecticut Energy, CMP Group,
CTG Resources and Berkshire Energy Resources Mergers

Note 1.  Unaudited Pro Forma Combined Condensed Financial Statements.

     The unaudited pro forma combined condensed financial statements as of and for the six months ended June 30, 2000, have been adjusted to give effect to the CMP Group, CTG Resources and Berkshire Energy Resources mergers. The unaudited pro forma combined condensed income statement as of December 31, 1999, has been adjusted to give effect to the Connecticut Energy merger, which was completed in February 2000, and the CMP Group, CTG Resources and Berkshire Energy Resources mergers. The unaudited pro forma combined condensed financial statements reflect preliminary purchase accounting adjustments in accordance with generally accepted accounting principles. Estimates relating to the fair value of some assets, liabilities and other events have been made as more fully described below. Actual adjustments will be made on the basis of actual assets, liabilities and other items as of the closing date of the mergers on the basis of appraisals and evaluations. Therefore, actual amounts may differ from those reflected below.

     The unaudited pro forma combined condensed balance sheet assumes that the mergers occurred on June 30, 2000. The unaudited pro forma combined condensed statement of income for the 12 months ended December 31, 1999, assumes that the mergers were completed on January 1, 1999, reflects the effect of the sales of Energy East's coal-fired generation assets and CMP Group's steam and hydro generation assets when they occurred in March and May 1999 and April 1999, respectively, has not been adjusted to reflect the effect of those transactions as of January 1, 1999, and does not give effect to the pending sale of Energy East's interest in nuclear generation assets. The unaudited pro forma combined condensed statement of income for the six months ended June 30, 2000, assumes that the mergers were completed on January 1, 2000, and does not give effect to the pending sale of Energy East's interest in nuclear generation assets.

     The pro forma combined condensed financial statements should be read in conjunction with the consolidated historical financial statements and the related notes of Energy East and CMP Group, which are incorporated by reference. The pro forma statements are for illustrative purposes only. They are not necessarily indicative of the financial position or operating results that would have occurred had the sales and the mergers been completed on January 1, 1999, January 1, 2000, or June 30, 2000, as assumed above; nor is the information necessarily indicative of future financial position or operating results.

Note 2.  Accounting Method.

     The CMP Group, CTG Resources and Berkshire Energy Resources mergers will be accounted for as an acquisition of CMP Group, CTG Resources and Berkshire Energy Resources by Energy East under the purchase method in accordance with generally accepted accounting principles. The amount of goodwill recorded will reflect the excess of the purchase prices over the estimated net fair value of assets and liabilities of CMP Group's, CTG Resources' and Berkshire Energy Resources' utility and nonutility businesses at the time of closing, plus Energy East's estimated transaction costs related to the mergers. The assets and liabilities of CMP Group's, CTG Resources' and Berkshire Energy Resources unregulated subsidiaries will be revalued to fair value, including an allocation of goodwill to the subsidiaries, if appropriate. The remaining goodwill will be allocated to Central Maine Power, Connecticut Natural Gas, and Berkshire Gas Company and will be recorded as an acquisition adjustment.

 

Note 3.  Earnings Per Share and Average Shares Outstanding.

     The pro forma earnings per share and number of average shares outstanding for the 12 months ended December 31, 1999, have been restated to reflect Energy East's two-for-one common stock split, effective April 1, 1999, the number of shares, 9.4 million, that were issued to Connecticut Energy shareholders upon completion of that merger in February 2000 and the average number of shares that would have been outstanding if the CTG Resources merger occurred at the beginning of the period presented assuming a conversion of approximately 45% CTG Resources shares into 1.7320 Energy East shares per CTG Resources share.

     The pro forma earnings per share and number of average shares outstanding for the six months ended June 30, 2000, have been restated to reflect the average number of shares that would have been outstanding if the CTG Resources merger occurred at the beginning of the period presented assuming a conversion of approximately 45% CTG Resources shares into 1.7320 Energy East shares per CTG Resources share.

     The following table presents the range of shares that could be issued based on various potential conversion ratios under the CTG Resources merger agreement:

Conversion ratio

1.36

1.57

1.73

Number of shares (thousands)

5,296

6,107

7,000

Note 4.  Cash Consideration.

     This amount reflects the cash consideration paid to CMP Group's shareholders based on a purchase price per share of $29.50 for all of the CMP Group shares outstanding, the cash consideration paid to CTG Resources shareholders based on a purchase price per share of $41.00 for approximately 55% of the CTG Resources shares outstanding and the cash consideration paid to Berkshire Energy shareholders based on a purchase price per share of $38.00 for all of the Berkshire Energy Resources shares outstanding.

Note 5.  Other Asset and Related Regulatory Liability.

     This amount reflects the recognition of an other asset and related regulatory liability for the estimated difference between CMP Group's, CTG Resources' and Berkshire Energy Resources' net pension and other postretirement benefit obligations and the previously recognized asset or liability.

Note 6.  Goodwill.

     This amount reflects the recognition of an amount of goodwill that is equal to the combined excess of the estimated purchase price over the estimated net fair value of the assets and liabilities acquired, plus estimated transaction costs related to the mergers, as presented in the following table:



Estimated -


CMP     
Group    


CTG     
Resources

Berkshire 
Energy   
Resources 


Purchase price

Net fair value of
  assets and
  liabilities acquired

Transaction costs


$957 million



$680.4 million

$11 million


$350 million



$140.7 million

$6.5 million


$96 million



$37.2 million

$1 million

 

Note 7.  Merger-Related Costs.

     Energy East, CMP Group, CTG Resources and Berkshire Energy Resources will incur direct expenses related to the merger, including financial advisory, legal and accounting fees. The pro forma adjustments include an estimate for Energy East's merger-related costs of $11 million for the CMP Group merger, $6.5 million for the CTG Resources merger, and $1 million for the Berkshire Energy Resources merger, which are included in goodwill. CMP Group, CTG Resources and Berkshire Energy Resources expect to incur approximately $7.5 million, $5.5 million and $2 million, of merger-related costs, respectively, which they will expense as incurred. The actual amount of merger-related costs may differ from the amounts reflected in the unaudited pro forma combined condensed financial statements.

Note 8.  Income Taxes.

     Income taxes on the pro forma combined condensed income statement have been based on the statutory rate and adjusted for goodwill, which is not tax deductible.

Note 9.  Notes Payable.

     This amount reflects the issuance of $500 million principal amount of notes payable with an assumed interest rate of 8%, the proceeds of which will be used to fund the consideration paid. A one-eighth of 1% change in the interest rate will increase or decrease interest expense $.6 million.

Note 10.  Common Stock.

     This amount reflects the Energy East shares to be issued to CTG Resources shareholders in exchange for approximately 45% of their CTG Resources shares, assuming a conversion ratio of 1.7320 Energy East shares per CTG Resources share, and the purchase of approximately 55% of their CTG Resources shares for cash.

Note 11.  Amortization of Goodwill.

     This amount represents the amortization of goodwill, for financial accounting purposes, over a 40-year period. The goodwill is not amortizable for tax purposes.

Note 12.  Energy East Shares Issued.

     This reflects the number of Energy East shares to be issued on the merger with CTG Resources assuming a conversion of approximately 45% of the CTG Resources shares into 1.7320 Energy East shares per CTG Resources share.

 

(c)  Exhibits

1-1

Agreement and Plan of Merger between Energy East and CMP Group (filed as Appendix A to CMP Group's definitive Proxy Statement dated August 30, 1999, filed with the Securities and Exchange Commission on September 1, 1999, and incorporated herein by reference).

 

 

Forward-looking Statements

This Form 8-K contains certain forward-looking statements that are based on management's current expectations and information that is currently available. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances. Whenever used in this report, the words "estimate," "expect," "believe," "anticipate," or similar expressions are intended to identify such forward-looking statements.

In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the deregulation and unbundling of energy services; the company's ability to compete in the rapidly changing and increasingly competitive electricity and natural gas utility markets; its ability to control non-utility generator and other costs; changes in fuel supply or cost and the success of its strategies to satisfy its power requirements now that all of its coal-fired generation assets have been sold; its ability to expand its products and services, including its energy infrastructure in the Northeast; its ability to integrate the operations of CNE, CMP Group, CTG Resources and Berkshire Energy with its operations; market risk; the ability to obtain adequate and timely rate relief; nuclear or environmental incidents; legal or administrative proceedings; changes in the cost or availability of capital; growth in the areas in which it is doing business; weather variations affecting customer energy usage; and other considerations that may be disclosed from time to time in its publicly disseminated documents and filings. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

 

 

SIGNATURE

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.

 

 

ENERGY EAST CORPORATION
              (Registrant)

 

 

By  /s/   Kenneth M. Jasinski                              

 

           Kenneth M. Jasinski
           Executive Vice President,
           General Counsel & Secretary

Date:  September 1, 2000



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