KeySpan Energy
Unaudited Pro Forma Consolidated Condensed Income Statement
Year Ended December 31, 1999
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Eastern Transaction Pro Transaction
KeySpan Enterprises Adjustments Forma EnergyNorth Adjustments Pro Forma
----------- ------------- -------------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Gas Distribution 1,753,132 690,809 2,443,941 124,863 2,568,804
Marine Services - 267,269 267,269 - 267,269
Electric Services 861,582 - 861,582 - 861,582
Gas Exploration and Production 150,581 - 150,581 - 150,581
Energy Related Services and Other 189,318 20,624 209,942 - 209,942
----------- ------------- ---------- ----------- --------- --------- ----------
Total Revenues 2,954,613 978,702 - 3,933,315 124,863 - 4,058,178
----------- ------------- ---------- ----------- --------- --------- ----------
OPERATING EXPENSES
Purchased gas 744,432 339,274 1,083,706 73,961 1,157,667
Purchased fuel 17,252 - 17,252 - 17,252
Operations and maintenance 1,091,166 403,465 1,494,631 27,086 1,521,717
Depreciation, depletion and
amortization 253,440 81,373 26,318 (5) 361,131 7,845 4,053 (11) 373,029
Operating taxes 366,154 41,151 407,305 3,812 411,117
----------- ------------- ---------- ----------- --------- --------- ----------
Total Operating Expenses 2,472,444 865,263 26,318 3,364,025 112,704 4,053 3,480,782
----------- ------------- ---------- ----------- --------- --------- ----------
OPERATING INCOME 482,169 113,439 (26,318) 569,290 12,159 (4,053) 577,396
----------- ------------- ---------- ----------- --------- --------- ----------
OTHER INCOME AND (DEDUCTIONS)
Income from equity investments 15,347 - 15,347 - 15,347
Interest income 26,993 7,964 34,957 - 34,957
Minority interest (11,141) - (11,141) - (11,141)
Other 6,297 8,980 15,277 525 15,802
----------- ------------- ---------- ----------- --------- --------- ----------
Total Other Income 37,496 16,944 - 54,440 525 - 54,965
----------- ------------- ---------- ----------- --------- --------- ----------
INCOME BEFORE INTEREST CHARGES
AND INCOME TAXES 519,665 130,383 (26,318) 623,730 12,684 (4,053) 632,361
INTEREST CHARGES 124,692 37,274 139,077 (4) 301,043 4,915 16,250 (10) 322,208
INCOME TAXES 136,362 36,154 (48,677) (6) 123,839 3,740 (5,688) (12) 121,891
----------- ------------- ---------- ----------- --------- --------- ----------
NET INCOME 258,611 56,955 (116,718) 198,848 4,029 (14,615) 188,262
Preferred stock dividend requirements 34,752 1,862 - 36,614 - - 36,614
----------- ------------ ---------- ----------- --------- --------- ----------
EARNINGS FOR COMMON STOCK 223,859 55,093 (116,718) 162,234 4,029 (14,615) 151,648
=========== ============= ========== =========== ========= ========= ==========
Average shares outstanding (000) 138,526 138,526 138,526
BASIC AND DILUTED EARNINGS PER
COMMON SHARE 1.62 1.17 1.09
=========== ============ ==========
</TABLE>
<PAGE>
EX-99.2
KeySpan Energy
Unaudited Pro Forma Consolidated Condensed Balance Sheet
March 31, 2000
(In Thousands of Dollars)
<TABLE>
<CAPTION>
KeySpan Eastern Transaction Transaction
Energy Enterprises Adjustments Pro Forma EnergyNorth Adjustments Pro Forma
----------- ---------------- ---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary cash investments 219,338 31,722 251,060 2,098 253,158
Customer accounts receivable, net 940,527 194,208 1,134,735 26,505 1,161,240
Other 251,454 69,395 320,849 8,478 329,327
----------- ----------- ---------- ---------- -------- --------- --------------
1,411,319 295,325 - 1,706,644 37,081 - 1,743,725
----------- ----------- ---------- ---------- -------- --------- --------------
EQUITY INVESTMENTS AND OTHERS 444,542 13,444 - 457,986 - - 457,986
----------- ----------- ---------- ---------- -------- --------- --------------
PROPERTY
Electric 1,355,217 - 1,355,217 - 1,355,217
Gas 3,473,376 1,504,786 4,978,162 174,195 5,152,357
Other 389,685 698,069 1,087,754 8,435 1,096,189
Accumulated depreciation (1,624,278) (929,594) (2,553,872) (58,610) (2,612,482)
Gas exploration and production 1,231,840 - 1,231,840 - 1,231,840
Accumulated depletion (541,517) - (541,517) - (541,517)
----------- ----------- ---------- ---------- -------- --------- --------------
4,284,323 1,273,261 - 5,557,584 124,020 - 5,681,604
----------- ----------- ---------- ---------- -------- --------- --------------
DEFERRED CHARGES
Goodwill, net of amortization 332,043 245,613 1,052,718 (1) 1,630,374 - 162,117 (7) 1,792,491
Regulatory assets and other 693,958 143,280 837,238 16,806 854,044
----------- ----------- ---------- ---------- -------- --------- --------------
1,026,001 388,893 1,052,718 2,467,612 16,806 162,117 2,646,535
----------- ----------- ---------- ---------- -------- --------- --------------
TOTAL ASSETS 7,166,185 1,970,923 1,052,718 10,189,826 177,907 162,117 10,529,850
=========== =========== ========== ========== ======== ========= ==============
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Current maturities of long-term debt - 71,551 71,551 875 72,426
Current redemption of preferred stock 363,000 - 363,000 - 363,000
Accounts payable and accrued expenses 893,917 175,646 8,100 (2) 1,152,272 25,421 2,100 (8) 1,192,663
74,609 (3) 12,870 (9)
Notes payable - - - 16,948 16,948
----------- ----------- ---------- ---------- -------- --------- --------------
1,256,917 247,197 82,709 1,586,823 43,244 14,970 1,645,037
----------- ----------- ---------- ---------- -------- --------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 187,512 176,372 363,884 21,268 385,152
Reserves and other liabilities 619,757 199,847 819,604 5,867 825,471
----------- ----------- ---------- ---------- -------- --------- --------------
807,269 376,219 - 1,183,488 27,135 - 1,210,623
----------- ----------- ---------- ---------- -------- --------- --------------
GAS INVENTORY FINANCING - 22,202 - 22,202 3,647 - 25,849
----------- ----------- ---------- ---------- -------- --------- --------------
CAPITALIZATION
Common stock 2,973,388 272,884 (272,884)(1) 2,989,775 35,966 (35,966) (7) 2,992,293
16,387 (3) 2,518 (9)
Retained earnings 558,055 513,120 (513,120)(1) 558,055 22,534 (22,534) (7) 558,055
Accumulated comprehensive income 7,366 (575) 575 (1) 7,366 - 7,366
Treasury stock purchased (722,660) (583) 583 (1) (722,660) - (722,660)
----------- ----------- ---------- ---------- -------- --------- --------------
Total common shareholders equity 2,816,149 784,846 (768,459) 2,832,536 58,500 (55,982) 2,835,054
Preferred stock 84,339 26,462 110,801 - 110,801
Long-term debt 2,109,120 513,997 1,738,468 (1) 4,361,585 45,381 203,129 (7) 4,610,095
----------- ----------- ---------- ---------- -------- --------- --------------
Total Capitalization 5,009,608 1,325,305 970,009 7,304,922 103,881 147,147 7,555,950
----------- ----------- ---------- ---------- -------- --------- --------------
MINORITY INTEREST 92,391 - - 92,391 - - 92,391
----------- ----------- ---------- ---------- -------- --------- --------------
TOTAL LIABILITIES AND CAPITALIZATION 7,166,185 1,970,923 1,052,718 10,189,826 177,907 162,117 10,529,850
=========== =========== ========== ========== ======== ========= ==============
</TABLE>
<PAGE>
KeySpan Energy
Unaudited Pro Forma Consolidated Condensed Income Statement
Three Months Ended March 31, 2000
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Eastern Transaction Pro Transaction
KeySpan Enterprises Adjustments Forma EnergyNorth Adjustments Pro Forma
------------ ----------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C><C> <C> <C> <C> <C>
REVENUES
Gas Distribution 804,703 355,782 1,160,485 62,972 1,223,457
Marine Services - 71,270 71,270 - 71,270
Electric Services 334,404 - 334,404 - 334,404
Gas Exploration and Production 49,376 - 49,376 - 49,376
Energy Related Services and Other 128,130 6,643 134,773 - 134,773
------------ ----------- ------------ ---------- ------------ ------------ ------------
Total Revenues 1,316,613 433,695 - 1,750,308 62,972 - 1,813,280
------------ ----------- ------------ ---------- ------------ ------------ ------------
OPERATING EXPENSES
Purchased gas 412,005 181,404 593,409 39,421 632,830
Purchased fuel 68,493 - 68,493 - 68,493
Operations and maintenance 354,605 121,481 476,086 7,589 483,675
Depreciation, depletion and
amortization 69,581 33,077 6,579 (5) 109,237 2,429 1,013 (11) 112,679
Operating taxes 115,423 15,617 131,040 983 132,023
------------ ----------- ------------ ---------- ------------ ------------ ------------
Total Operating Expenses 1,020,107 351,579 6,579 1,378,265 50,422 1,013 1,429,700
------------ ----------- ------------ ---------- ------------ ------------ ------------
OPERATING INCOME 296,506 82,116 (6,579) 372,043 12,550 (1,013) 383,580
------------ ----------- ------------ ---------- ------------ ------------ ------------
OTHER INCOME AND (DEDUCTIONS)
Income from equity investments 7,245 - 7,245 - 7,245
Interest income 2,591 634 3,225 - 3,225
Minority interest (3,029) - (3,029) - (3,029)
Other 5,128 203 5,331 468 5,799
------------ ----------- ------------ ---------- ------------ ------------ ------------
Total Other Income 11,935 837 - 12,772 468 - 13,240
------------ ----------- ------------ ---------- ------------ ------------ ------------
INCOME BEFORE INTEREST CHARGES
AND INCOME TAXES 308,441 82,953 (6,579) 384,815 13,018 (1,013) 396,820
INTEREST CHARGES 44,125 11,691 34,769 (4) 90,585 1,348 4,063 (10) 95,996
INCOME TAXES 92,072 29,790 (12,169) (6) 109,693 4,638 (1,422) (12) 112,909
------------ ----------- ------------ ---------- ------------ ------------ ------------
NET INCOME 172,244 41,472 (29,179) 184,537 7,032 (3,654) 187,915
Preferred stock dividend requirements 8,691 433 - 9,124 - - 9,124
------------ ----------- ------------ ---------- ------------ ------------ ------------
EARNINGS FOR COMMON STOCK 163,553 41,039 (29,179) 175,413 7,032 (3,654) 178,791
============ =========== ============ ========== ============ ============ ============
Average shares outstanding (000) 133,873 133,873 133,873
BASIC AND DILUTED EARNINGS PER
COMMON SHARE 1.22 1.31 1.34
============ ========== ============
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
KEYSPAN ENERGY / EASTERN ENTERPRISES / ENERGYNORTH MERGERS
The unaudited pro forma consolidated condensed balance sheet as of March 31,
2000 and the unaudited pro forma consolidated condensed income statement for the
three months ended March 31, 2000 and the year ended December 31, 1999 combine
the historical information of KeySpan Corporation d/b/a KeySpan Energy ("KeySpan
Energy"), Eastern Enterprises ("Eastern") and EnergyNorth Inc. ("EnergyNorth").
The unaudited pro forma consolidated condensed financial statements have been
prepared to reflect the mergers under the purchase method of accounting (KeySpan
Energy will acquire Eastern and EnergyNorth). Under the purchase method of
accounting, assets acquired and liabilities assumed are recorded at their
estimated fair values. The excess of the purchase price, including estimated
fees and expenses directly related to the merger, in excess of the fair value of
the net assets acquired is classified as goodwill on the accompanying unaudited
pro forma consolidated condensed balance sheet. The estimated fair values and
useful lives of assets acquired and liabilities assumed and any resulting
goodwill, are subject to final valuation adjustments in accordance with
generally accepted accounting principles.
The pro forma adjustments reflected in the unaudited pro forma consolidated
condensed balance sheet are as if the transactions had occurred on March 31,
2000. The unaudited pro forma consolidated condensed income statement for the
three months ended March 31, 2000 assumes that these transactions were completed
on January 1, 2000. The unaudited pro forma consolidated condensed income
statement for the year ended December 31, 1999 assumes that these transactions
were completed on January 1, 1999. The unaudited pro forma consolidated
condensed financial statements assume that KeySpan Energy will purchase all of
the outstanding common stock of Eastern for $64.00 in cash and will purchase all
of the outstanding common stock of EnergyNorth for $61.13 in cash. The proposed
transactions are expected to close contemporaneously in the fourth quarter of
calendar year 2000.
On August 31, 1999, Eastern completed a merger with Colonial Gas Company
("Colonial") which was accounted for using the purchase method of accounting;
Eastern was the acquiring company for financial reporting purposes. The
unaudited pro forma consolidated condensed income statement for the year ended
December 31, 1999, therefore, reflects the results of operations of Colonial for
the four month period September 1, 1999 through December 31, 1999.
The unaudited pro forma consolidated condensed financial statements do not
reflect the anticipated cost savings that may be obtained from the elimination
of duplicate corporate and administrative programs in connection with the
mergers or operating efficiencies that may result. KeySpan has identified
before-tax synergy savings to be approximately $40 million annually.
The following unaudited pro forma consolidated condensed financial statements
should be read in conjunction with the historical consolidated financial
statements and related notes thereto of KeySpan Energy, Eastern and EnergyNorth.
The following statements are not necessarily indicative of the financial
position or operating results that would have occurred had the proposed
transactions been consummated on the date, or at the beginning of the period,
for which the proposed transactions are being given effect nor are they
necessarily indicative of future operating results or financial position.
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. CASH CONSIDERATION AND ESTIMATED GOODWILL RELATED TO THE
EASTERN ENTERPRISES MERGER
Cash consideration to be paid to Eastern shareholders will be paid from the
proceeds of long-term debt issuances. KeySpan Energy will issue approximately
$1.7 billion of acquisition financing at an estimated annual interest rate of
8.0% to finance the merger. KeySpan Energy will acquire all of the outstanding
common stock of Eastern for $64.00 per share. If the closing of the merger does
not occur by August 6, 2000, the cash consideration of $64.00 per share will be
increased by $0.006 per share for each day after August 6, 2000 through the day
prior to the closing date. This aggregate additional amount will be reduced by
the aggregate amount of any per share increase in any dividend actually paid
that is attributable to any period in which the additional amount accrues.
The estimated goodwill reflects the recognition of the excess amount of the
purchase price over the fair value of the net assets to be acquired including
costs to be incurred directly related to the consummation. The following
represents the estimated goodwill calculation:
Common shares outstanding
at March 31, 2000 27,163,570
Share price $ 64.00
------------------
Purchase price $ 1,738,468,480
Common equity of Eastern (784,846,000)
------------------
$ 953,622,480
Estimated transaction costs (See Note 2) 8,100,000
Estimated restructuring and other
costs (See Note 3) 90,996,000
------------------
Estimated Goodwill $ 1,052,718,480
==================
Amortization period 40
Estimated yearly amortization $ 26,317,962
==================
Estimated quarterly amortization $ 6,579,491
==================
A final determination of goodwill may reflect certain purchase accounting
adjustments based on actuarial valuations related to employee benefit plans,
estimates with respect to the effect of consolidation of certain corporate and
administrative functions, completion of studies related to environmental issues,
possible contract and asset impairment charges, possible asset sales, and other
adjustments.
2
<PAGE>
NOTE 2. ESTIMATED TRANSACTION COSTS ASSOCIATED WITH THE EASTERN ENTERPRISES
MERGER
KeySpan Energy will incur direct expenses related to the merger, including
accounting, investment banking, legal and consulting fees. The pro forma
adjustments include an estimate for KeySpan's merger-related costs of $8.1
million, which is included in goodwill.
NOTE 3. ESTIMATED RESTRUCTURING AND OTHER COSTS
Eastern expects to incur direct expenses related to the merger, including
accounting, investment banking, legal and consulting fees of approximately $13.9
million. In addition, Eastern expects to incur expenses of approximately $60.7
million for certain contractual obligations (e.g. "change in control" payments)
and nonqualified stock options that will be "cashed out". These costs will be
expensed as incurred by Eastern and have been included in the calculation of
estimated goodwill. Further, certain Eastern options will be converted to
options to purchase KeySpan Energy stock. The estimated value of such options,
which are primarily fully vested, approximate $16.4 million and will be recorded
as additional purchase price consideration by KeySpan Energy at the time of the
merger.
NOTE 4. INTEREST EXPENSE
Interest expense reflects the issuance of approximately $1.7 billion of
acquisition financing at an estimated annual interest rate of 8.0%. As discussed
in Note 1 "Cash Consideration and Estimated Goodwill Related to the Eastern
Enterprises Merger", KeySpan Energy will issue debt to finance the merger with
Eastern. A change in the actual interest rate of .125%, as compared to the
estimated interest rate, will have approximately a $1.4 million annual and $0.4
million quarterly effect on net income.
NOTE 5. AMORTIZATION OF GOODWILL ASSOCIATED WITH THE EASTERN ENTERPRISES MERGER
Goodwill, which is not tax deductible, will be amortized over a 40 year period.
NOTE 6. INCOME TAXES
Income taxes on the unaudited pro forma consolidated condensed income statement
have been adjusted to reflect the tax deduction of interest expense at a rate of
35%. A tax benefit has not been provided for goodwill since it is not tax
deductible.
3
<PAGE>
NOTE 7. CASH CONSIDERATION AND ESTIMATED GOODWILL RELATED TO THE ENERGYNORTH
MERGER
Cash consideration to be paid to EnergyNorth shareholders will be paid from the
proceeds of long- term debt issuances. KeySpan Energy will issue approximately
$203.1 million in acquisition financing at an estimated annual interest rate of
8.0% to finance the merger. KeySpan Energy will acquire all of the outstanding
common stock of EnergyNorth for $61.13 per share. The cash consideration to be
paid to EnergyNorth shareholders is subject to a per share increase of .589
times the per share increase amount above $64.00 per share paid to Eastern
shareholders. The estimated goodwill reflects the recognition of the excess
amount of the purchase price over the fair value of the net assets acquired
including adjustments for costs to be incurred directly related to the
consummation. The following represents the estimated goodwill calculation:
Common shares outstanding
at March 31, 2000 3,322,903
Share price $ 61.13
-------------------
Purchase price $ 203,129,060
Common equity of EnergyNorth (58,500,000)
-------------------
$ 144,629,060
Estimated transaction costs (See Note 8) 2,100,000
Estimated restructuring and other
costs (See Note 9) 15,388,000
-------------------
Estimated Goodwill $ 162,117,060
===================
Amortization period 40
Estimated yearly amortization $ 4,052,927
===================
Estimated quarterly amortization $ 1,013,232
===================
A final determination of goodwill may reflect certain purchase accounting
adjustments based on actuarial valuations related to employee benefit plans,
estimates with respect to the effect of consolidation of certain corporate and
administrative functions, completion of studies related to environmental issues,
possible contract and asset impairment charges, possible asset sales, and other
adjustments.
NOTE 8. ESTIMATED TRANSACTION COSTS ASSOCIATED WITH THE ENERGYNORTH MERGER
KeySpan Energy and Eastern will incur direct expenses related to the merger,
including accounting, investment banking, legal and consulting fees. The pro
forma adjustments include an estimate for these costs of $2.1 million, which is
included in goodwill.
4
<PAGE>
NOTE 9. ESTIMATED RESTRUCTURING AND OTHER COSTS
EnergyNorth expects to incur direct expenses related to the merger, including
accounting, investment banking, legal and consulting fees of approximately $4.7
million. In addition, EnergyNorth expects to incur expenses of approximately
$8.2 million for certain contractual obligations (e.g. "change in control"
payments). These costs will be expensed as incurred by EnergyNorth and have been
included in the calculation of estimated goodwill. Further, EnergyNorth options
will be converted to options to purchase KeySpan Energy stock. The estimated
value of such options, which are primarily fully vested, approximates $2.5
million and will be recorded as additional purchase price consideration by
KeySpan Energy at the time of the merger.
NOTE 10. INTEREST EXPENSE
Interest expense reflects the issuance of approximately $203.1 million of
acquisition financing at an estimated annual interest rate of 8.0%. As discussed
in Note 7 "Cash Consideration and Estimated Goodwill Related to the EnergyNorth
Merger", KeySpan Energy will issue debt to finance the merger with EnergyNorth.
A change in the actual interest rate of .125%, as compared to the estimated
interest rate, will have approximately a $0.2 million annual and an immaterial
quarterly effect on net income.
NOTE 11. AMORTIZATION OF GOODWILL ASSOCIATED WITH THE ENERGYNORTH MERGER
Goodwill, which is not tax deductible, will be amortized over a 40 year period.
NOTE 12. INCOME TAXES
Income taxes on the unaudited pro forma consolidated condensed income statement
have been adjusted to reflect the tax deduction of interest expense at a rate of
35%. A tax benefit has not been provided for goodwill since it is not tax
deductible.
5
