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 June 30, 2000
and the unaudited pro forma consolidated condensed income statements for the six
months ended June 30, 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 June 30,
2000. The unaudited pro forma consolidated condensed income statement for the
six months ended June 30, 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.
<PAGE>
Exhibit FS-1
------------
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>
Exhibit FS-1
------------
KeySpan Energy
Unaudited Pro Forma Consolidated Condensed Balance Sheet
June 30, 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>
ASSETS
Current Assets
Cash and temporary cash investments 92,127 30,898 123,025 726 123,751
Customer accounts receivable, net 861,441 112,786 974,227 15,886 990,113
Other 365,860 124,431 490,291 11,663 501,954
-------------------------------------- -------------------------------------- ---------
1,319,428 268,115 - 1,587,543 28,275 - 1,615,818
-------------------------------------- -------------------------------------- ---------
Equity Investments and Others 428,828 14,064 - 442,892 - - 442,892
-------------------------------------- -------------------------------------- ---------
Property
Electric 1,367,512 - 1,367,512 - 1,367,512
Gas 3,522,284 1,523,747 5,046,031 177,753 5,223,784
Other 387,523 691,209 1,078,732 8,349 1,087,081
Accumulated depreciation (1,655,540) (936,958) (2,592,498) (59,481) (2,651,979)
Gas exploration and production 1,278,786 - 1,278,786 - 1,278,786
Accumulated depletion (561,966) - (561,966) - (561,966)
-------------------------------------- -------------------------------------- -----------
4,338,599 1,277,998 - 5,616,597 126,621 - 5,743,218
-------------------------------------- -------------------------------------- -----------
Deferred Charges
Goodwill, net of amortization 328,510 243,960 1,067,348 (1) 1,639,818 - 166,546(7) 1,806,364
Regulatory assets and other 704,787 141,194 845,981 16,168 862,149
-------------------------------------- -------------------------------------- -----------
1,033,297 385,154 1,067,348 2,485,799 16,168 166,546 2,668,513
-------------------------------------- -------------------------------------- -----------
Total Assets 7,120,152 1,945,331 1,067,348 10,132,831 171,064 166,546 10,470,441
====================================== ====================================== ===========
LIABILITIES AND CAPITALIZATION
Current Liabilities
Current maturities of long-term debt - 6,746 6,746 849 7,595
Accounts payable and accrued
expenses 884,919 156,782 1,041,701 25,463 1,067,164
Commercial paper 262,481 73,707 261,659 (1) 680,556 14,130 30,562(7) 740,218
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
8,100 (2) 2,10 (8)
74,609 (3) 12,870(9)
-------------------------------------- ------------------------------------ -----------
1,147,400 237,235 344,368 1,729,003 40,442 45,532 1,814,977
-------------------------------------- ------------------------------------ -----------
Deferred Credits and Other Liabilities
Deferred income taxes 223,551 179,591 403,142 21,126 424,268
Reserves and other liabilities 666,897 199,491 866,388 5,738 872,126
-------------------------------------- ------------------------------------ -----------
890,448 379,082 - 1,269,530 26,864 - 1,296,394
-------------------------------------- ------------------------------------ -----------
Gas Inventory Financing - 33,567 - 33,567 4,413 - 37,980
-------------------------------------- ------------------------------------ -----------
Capitalization
Common stock 2,985,936 273,555 (273,555) (1) 3,002,324 35,966 (35,966)(7) 3,004,842
16,388 (3) 2,518 (9)
Retained earnings 528,082 497,942 (497,942) (1) 528,082 18,105 (18,105)(7) 528,082
Accumulated comprehensive income (1,716) (73) 73 (1) (1,716) - (1,716)
Treasury stock purchased (722,080) (583) 583 (1) (722,080) - (722,080)
-------------------------------------- ------------------------------------ -----------
Total common shareholders equity 2,790,222 770,841 (754,453) 2,806,610 54,071 (51,553) 2,809,128
Preferred stock 84,339 21,438 105,777 - 105,777
Long-term debt 2,112,377 503,168 1,477,433 (1) 4,092,978 45,274 172,567(7) 4,310,819
-------------------------------------- ----------------------------------- -----------
Total Capitalization 4,986,938 1,295,447 722,980 7,005,365 99,345 121,014 7,225,724
-------------------------------------- ----------------------------------- -----------
Minority Interest 95,366 - - 95,366 - - 95,366
-------------------------------------- ----------------------------------- -----------
Total Liabilities and Capitalization 7,120,152 1,945,331 1,067,348 10,132,831 171,064 166,546 10,470,441
====================================== =================================== ===========
</TABLE>
<PAGE>
KeySpan Energy
Unaudited Pro Forma Consolidated Condensed Income Statement
Six Months Ended June 30, 2000
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Eastern Transaction Transaction
KeySpan Enterprises Adjustments Pro Forma EnergyNorth Adjustments Pro Forma
----------------------------------- ------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Gas Distribution 1,166,243 483,658 1,649,901 91,401 1,741,302
Marine Services - 141,675 141,675 - 141,675
Electric Services 723,099 - 723,099 - 723,099
Gas Exploration and Production 107,218 - 107,218 - 107,218
Energy Related Services and
Other 267,641 13,150 280,791 - 280,791
----------------------------------- ------------------------------------- ------------
Total Revenues 2,264,201 638,483 - 2,902,684 91,401 - 2,994,085
----------------------------------- ------------------------------------- ------------
Operating Expenses
Purchased gas 609,125 236,154 845,279 59,531 904,810
Purchased fuel 140,649 - 140,649 - 140,649
Operations and maintenance 734,465 236,148 970,613 14,955 985,568
Depreciation, depletion and
amortization 143,391 54,809 13,342(5) 211,542 4,462 2,082 (11) 218,086
Operating taxes 206,541 25,725 232,266 2,022 234,288
----------------------------------- ------------------------------------- ------------
Total Operating Expenses 1,834,171 552,836 13,342 2,400,349 80,970 2,082 2,483,401
----------------------------------- ------------------------------------- ------------
Operating Income 430,030 85,647 (13,342) 502,335 10,431 (2,082) 510,684
----------------------------------- ------------------------------------- ------------
Other Income and (Deductions)
Income from equity investments 11,928 - 11,928 - 11,928
Interest income 6,881 2,423 9,304 - 9,304
Minority interest (7,795) - (7,795) - (7,795)
Other (112) 2,256 2,144 54 2,198
----------------------------------- ------------------------------------- ------------
Total Other Income 10,902 4,679 - 15,581 54 - 15,635
----------------------------------- ------------------------------------- ------------
Income Before Interest Charges
and Income Taxes 440,932 90,326 (13,342) 517,916 10,485 (2,082) 526,319
Interest Charges 77,325 23,930 71,150(4) 172,405 2,561 8,496 (10) 183,462
Income Taxes 137,997 28,061 (24,903)(6) 141,155 3,771 (2,974)(12) 141,952
----------------------------------- ------------------------------------- ------------
Net Income 225,610 38,335 (59,589) 204,356 4,153 (7,604) 200,905
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred stock dividend
requirements 14,977 757 - 15,734 - - 15,734
----------------------------------- ------------------------------------- ------------
Earnings for Common Stock 210,633 37,578 (59,589) 188,622 4,153 (7,604) 185,171
=================================== ===================================== ============
Average shares outstanding (000) 133,881 133,881 133,881
Basic and Diluted Earnings Per
Common Share 1.57 1.41 1.38
========== =========== ============
</TABLE>
<PAGE>
KeySpan Energy
Unaudited Pro Forma Consolidated Condensed Income Statement
Year Ended December 31, 1999
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Eastern Transaction Transaction
KeySpan Enterprises Adjustments Pro Forma EnergyNorth Adjustments Pro 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 26,684 (5) 361,497 7,845 4,164(11) 373,506
Operating taxes 366,154 41,151 407,305 3,812 411,117
------------------------------------ ------------------------------------ -------------
Total Operating Expenses 2,472,444 865,263 26,684 3,364,391 112,704 4,164 3,481,259
------------------------------------ ------------------------------------ -------------
Operating Income 482,169 113,439 (26,684) 568,924 12,159 (4,164) 576,919
------------------------------------ ------------------------------------ -------------
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 (26,684) 623,364 12,684 (4,164) 631,884
Interest Charges 124,692 37,274 142,300 (4) 304,266 4,915 16,993 (10) 326,174
Income Taxes 136,362 36,154 (49,805)(6) 122,711 3,740 (5,947)(12) 120,504
Net Income 258,611 56,955 (119,179) 196,387 4,029 (15,210) 185,206
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred stock dividend
requirements 34,752 1,862 - 36,614 - - 36,614
------------------------------------ ------------------------------------ -------------
Earnings for Common Stock 223,859 55,093 (119,179) 159,773 4,029 (15,210) 148,592
==================================== ==================================== =============
Average shares outstanding (000) 138,526 138,526 138,526
Basic and Diluted Earnings Per
Common Share 1.62 1.15 1.07
=========== =========== =============
</TABLE>
<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 and commercial paper issuances. KeySpan Energy will
issue approximately $1.477 billion of long-term debt at an estimated annual
interest rate of 8.0% and approximately $262 million of commercial paper at an
estimated annual interest rate of 7.0% to finance the merger. KeySpan Energy
will acquire all of the outstanding common stock of Eastern for $64.00 per
share, subject to adjustment. 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 June 30, 2000 27,173,322
Share price $ 64.00
---------------------
Purchase price $ 1,739,092,608
Common equity of Eastern (770,841,000)
---------------------
$ 968,251,608
Estimated transaction costs (See Note 2) 8,100,000
Estimated restructuring and other
costs (See Note 3) 90,996,000
---------------------
Estimated Goodwill $ 1,067,347,608
=====================
Amortization period 40
Estimated yearly amortization $ 26,683,690
=====================
Estimated six months amortization $ 13,341,845
=====================
A final determination of goodwill may reflect certain purchase accounting
adjustments based on actuarial valuations related to employee benefit plans,
estimates with respect to
<PAGE>
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 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. These costs will be financed through the
issuance of commercial paper.
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. These costs will be financed through the issuance of
commercial paper. 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 $1.477 billion of
long-term debt and approximately $262 million of commercial paper to finance the
acquisition of Eastern at estimated annual interest rates of 8.0% and 7.0%,
respectively. Interest expense also reflects the issuance of commercial paper to
finance transaction costs at an estimated annual interest rate of 7.0%. A change
in the actual interest rate of .125%, as compared to the estimated interest
rates, will change net income by approximately $1.5 million annually and by $0.7
million for six months.
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
<PAGE>
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.
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 and commercial paper issuances. KeySpan Energy will
issue approximately $173 million in long-term debt at an estimated annual
interest rate of 8.0% and approximately $30 million of commercial paper at an
estimated annual interest rate of 7.0% to finance the merger. KeySpan Energy
will acquire all of the outstanding common stock of EnergyNorth for $61.13 per
share, subject to adjustment. 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 June 30, 2000 3,322,903
Share price
$ 61.13
------------------------
Purchase price $ 203,129,060
Common equity of EnergyNorth (54,071,000)
------------------------
$ 149,058,060
Estimated transaction costs (See Note 8) 2,100,000
Estimated restructuring and other
costs (See Note 9) 15,388,000
------------------------
Estimated Goodwill $ 166,546,060
========================
Amortization period 40
Estimated yearly amortization $ 4,163,652
========================
Estimated six month amortization $ 2,081,826
========================
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.
<PAGE>
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. These costs will be financed through the issuance of
commercial paper.
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. These costs will be financed
through the issuance of commercial paper. 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 $173 million of
long-term debt and approximately $30 million of commercial paper to finance the
acquisition of EnergyNorth at estimated annual interest rates of 8.0% and 7.0%,
respectively. Interest expense also reflects the issuance of commercial paper to
finance transaction costs at an estimated annual interest rate of 7.0%. A change
in the actual interest rate of .125%, as compared to the estimated interest
rates, will have approximately a $0.2 million annual and an immaterial six month
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.
