EXHIBIT FS-1
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
KEYSPAN ENERGY / EASTERN ENTERPRISES / ENERGYNORTH MERGERS
The unaudited pro forma consolidated condensed balance sheet as of December 31,
1999 and the unaudited pro forma consolidated condensed income statement for 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 December 31,
1999. The unaudited pro forma consolidated condensed income statement 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 third or 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, 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.
Colonial, Essex Gas Company ("Essex") and Midland Enterprises Inc. ("Midland")
each have first mortgage obligations outstanding that limit the amount of first
mortgage debt that can be issued. Colonial's indenture restricts first mortgage
debt to 60% of bondable additions, as defined. At December 31, 1999 Colonial
could issue approximately $74 million of additional first mortgage debt based on
this restriction. Essex's indenture restricts first mortgage debt to 60% of
aggregate net additions unfunded, as defined. At December 31, 1999 Essex could
issue approximately $14 million of additional first mortgage debt based on this
restriction. Midland's indenture restricts first preferred ship mortgage debt to
75% of the net book value of unmortgaged equipment. At December
<PAGE>
31, 1999 Midland could issue approximately $59 million of additional first
preferred ship mortgage debt based on this restriction.
The following unaudited pro forma consolidated condensed financial statements
have been prepared from, and 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.
2
<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 December 31, 1999 27,131,090
Share price $ 64.00
----------------------
Purchase price $ 1,736,389,760
Common equity of Eastern (754,630,000)
--------------------
$ 981,759,760
Estimated transaction costs (See Note 2) 8,100,000
Estimated restructuring and other
costs (See Note 3) 90,500,000
-------------------
Estimated Goodwill $ 1,080,359,760
======================
Amortization period 40
Estimated yearly amortization $ 27,008,994
======================
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.
3
<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 $60.2
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.
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.
4
<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 December 31, 1999 3,322,903
Share price $ 61.13
--------------------------
Purchase price $ 203,129,060
Common equity of EnergyNorth (52,631,000)
------------------------
$ 150,498,060
Estimated transaction costs (See Note 8) 2,100,000
Estimated restructuring and other
costs (See Note 9) 15,400,000
-----------------------
Estimated Goodwill $ 167,998,060
======================
Amortization period 40
Estimated yearly amortization $ 4,199,952
======================
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.
5
<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.
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.
6
<PAGE>
<TABLE>
<CAPTION>
KeySpan Energy
Unaudited Pro Forma Consolidated Condensed Balance Sheet
December 31, 1999
(In Thousands of Dollars)
KeySpan Eastern Transaction Transaction Pro
Energy Enterprises Adjustments Pro Forma EnergyNorth Adjustments Forma
------------ -------------- ------------- ------------- -------------- -------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and temporary cash investments 128,602 44,332 172,934 372 173,306
Customer accounts receivable, net 640,505 135,409 775,914 20,578 796,492
Other 388,846 144,066 532,912 18,728 551,640
------------ ---------- ------------- ------------- ----------- -------- ----------
1,157,953 323,807 - 1,481,760 39,678 - 1,521,438
------------ ---------- ------------- ------------- ----------- -------- ----------
EQUITY INVESTMENTS AND OTHERS 391,731 14,671 - 406,402 - - 406,402
------------ ---------- ------------- ------------- ----------- -------- ----------
PROPERTY
Electric 1,346,851 - 1,346,851 - 1,346,851
Gas 3,449,384 1,490,967 4,940,351 172,707 5,113,058
Other 375,657 706,189 1,081,846 8,539 1,090,385
Accumulated depreciation (1,589,287) (906,953) (2,496,240) (57,347) (2,553,587)
Gas exploration and production 1,177,916 - 1,177,916 - 1,177,916
Accumulated depletion (520,509) - (520,509) - (520,509)
------------ ---------- ------------- ------------- ----------- -------- ----------
4,240,012 1,290,203 - 5,530,215 123,899 - 5,654,114
------------ ---------- ------------- ------------- ----------- -------- ----------
DEFERRED CHARGES
Goodwill, net of amortization 255,778 247,137 1,080,360(1) 1,583,275 - 167,998(7) 1,751,273
Regulatory assets and other 685,217 143,939 829,156 17,524 846,680
---------- ---------- ---------- ------------- ----------- -------- ------------
940,995 391,076 1,080,360 2,412,431 17,524 167,998 2,597,953
------------ ---------- ----------- ------------- ----------- -------- ------------
TOTAL ASSETS 6,730,691 2,019,757 1,080,360 9,830,808 181,101 167,998 10,179,907
============ ========== ============= ============= =========== ======== ============
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Current maturities of long-term debt - 123,251 123,251 848 124,099
Current redemption of preferred stock 363,000 - 363,000 - 363,000
Accounts payable and accrued expenses 816,952 163,520 8,100(2) 1,062,716 20,665 2,100 (8) 1,098,363
74,144(3) 12,882 (9)
Notes payable 208,300 - 208,300 22,780 231,080
------------ ---------- --------- ---------- -------------- -------------- ----------
1,388,252 286,771 82,244 1,757,267 44,293 14,982 1,816,542
------------ ---------- --------- ---------- -------------- -------------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 186,230 179,426 365,656 23,161 388,817
Reserves and other liabilities 594,421 203,224 797,645 5,244 802,889
------------ ---------- --------- ---------- -------------- -------------- ----------
780,651 382,650 - 1,163,301 28,405 - 1,191,706
------------ ---------- --------- ---------- -------------- ------------- -----------
GAS INVENTORY FINANCING - 54,020 - 54,020 10,139 - 64,159
------------ ---------- --------- ---------- -------------- -------------- -----------
CAPITALIZATION
Common stock 2,973,388 271,580 (271,580)(1) 2,989,744 35,966 (35,966)(7) 2,992,262
16,356 (3) 2,518(9)
Retained earnings 456,882 483,710 (483,710)(1) 456,882 16,665 (16,665)(7) 456,882
Accumulated comprehensive income 7,714 (77) 77 (1) 7,714 - 7,714
Treasury stock purchased (722,959) (583) 583 (1) (722,959) - (722,959)
------------ ---------- --------- ---------- -------------- ----------- ----------
Total common shareholders equity 2,715,025 754,630 (738,274) 2,731,381 52,631 (50,113) 2,733,899
Preferred stock 84,339 26,454 110,793 - 110,793
Long-term debt 1,682,702 515,232 1,736,390 (1) 3,934,324 45,633 203,129(7) 4,183,086
------------ ---------- --------- ---------- -------------- ----------- ----------
Total Capitalization 4,482,066 1,296,316 998,116 6,776,498 98,264 153,016 7,027,778
------------ ---------- --------- ---------- -------------- ----------- -----------
MINORITY INTEREST 79,722 - - 79,722 - - 79,722
------------ ---------- --------- ---------- -------------- ----------- ------------
TOTAL LIABILITIES AND CAPITALIZATION 6,730,691 2,019,757 1,080,360 9,830,808 181,101 167,998 10,179,907
============ ========== ========= ========== ============== =========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KeySpan Energy
Unaudited Pro Forma Consolidated Condensed Income Statement
Twelve Months Ended December 31, 1999
(In Thousands of Dollars)
Eastern Transaction Pro Transaction Pro
KeySpan Enterprises Adjustments Forma EnergyNorth Adjustments Forma
------------ ----------- ----------- ---------- ------------ -------- ----
<S> <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 27,009(5) 361,822 7,845 4,200(11) 373,867
Operating taxes 366,154 41,151 407,305 3,812 411,117
------------ ----------- ---------- ---------- ------------ -------- ---------
Total Operating Expenses 2,472,444 865,263 27,009 3,364,716 112,704 4,200 3,481,620
------------ ----------- ---------- ---------- ------------ -------- ---------
OPERATING INCOME 482,169 113,439 (27,009) 568,599 12,159 (4,200) 576,558
------------ ----------- ---------- ---------- ------------ -------- ---------
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 (27,009) 623,039 12,684 (4,200) 631,523
INTEREST CHARGES 124,692 37,274 138,911(4) 300,877 4,915 16,250(10) 322,042
INCOME TAXES 136,362 36,154 (48,619)(6) 123,897 3,740 (5,688)(12) 121,949
------------ ----------- ---------- ---------- ------------ -------- ---------
NET INCOME 258,611 56,955 (117,301) 198,265 4,029 (14,762) 187,532
Preferred stock dividend requirements 34,752 1,862 36,614 - - 36,614
-------- ---------- --------- ---------- ------------ -------- -------
EARNINGS FOR COMMON STOCK 223,859 55,093 (117,301) 161,651 4,029 (14,762) 150,918
============ =========== ========== ========== ============ ======== =========
Average shares outstanding (000) 138,526 138,526 138,526
BASIC AND DILUTED EARNINGS PER
COMMON SHARE 1.62 1.17 1.09
============ ========== ==========
</TABLE>
