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
twelve months ended June 30, 2000 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
twelve months ended June 30, 2000 assumes that these transactions were completed
on July 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 therefore, reflects
the results of operations of Colonial for the period September 1, 1999 through
June 30, 2000.
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>
Exhibit FS-1
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. 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 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
========================
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>
Exhibit FS-1
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
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.
<PAGE>
Exhibit FS-1
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. 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
======================
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. These costs will be financed through the issuance of
commercial paper.
<PAGE>
Exhibit FS-1
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.
<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 Temp. Cash investments 92,127 30,989 123,025 726 123,751
Customer accts. 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 0 1,078,732 8,349 1,087,081
Accumulated Depreciation (1,655,540) (936,958) (2,592,498) (59,481) (2,651,979)
Gas explorat. And production, at co 1,278,786 --- 1,278,786 --- 1,278,786
Accumulated depletion (561,966) --- (561,966) --- (561,966)
------------------------ ----------- --------- ---------- ---------- ----------
4,338,599 1,277,998 0 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
======================== ========= ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
CAPITALIZATION
Current Liabilities
Current matur. of long-term debt -- 6,746 6,746 849 7,595
Accts. payable and accrued expense 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
8,100(2) 2,100(8)
74,609(3) 2,870(9)
------------------------ ----------- ------------ ---------- ---------- -----------
1,147,400 237,235 344,368 1,729,003 40,442 45,532 1,814,977
------------------------ ----------- ------------ ---------- ---------- -----------
Deferred Credits and other Liab.
Deferred income taxes 223,551 179,591 0 403,142 21,126 424,268
Reserves and other long-term liab. 666,897 199,491 866,388 5,738 872,126
------------------------ ----------- ------------ ---------- ---------- -----------
890,448 379,082 0 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) 3,002,323 35,966 (35,966)(7) 3,004,841
16,387(3) 2,518 (9)
Retained Earnings 528,082 497,942 (497,942)(1) 528,082 18,105 (18,105)(7) 528,082
Accum. Comprehensive income (1,716) (73) 73(1) (1,716) -- (1,716)
Treasury stock purchased. (722,080) (583) 583(1) (722,080) -- (722,080)
------------------------ ----------- ------------ ---------- ---------- -----------
Tot. comm. shareh. equity 2,790,222 770,841 (754,454) 2,806,609 54,071 (51,553) 2,809,127
Preferred stocks 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 7,225,723
------------------------ ----------- ------------ ---------- ---------- -----------
Minority Interest 95,366 -- -- 95,366 -- -- 95,366
------------------------ ----------- ------------ ---------- ---------- -----------
Total Liab. and Capitalization 7,120,152 1,945,331 1,067,348 10,132,831 171,064 166,546 10,470,441
======================== ========= ========== ======= ======= ===========
</TABLE>
2
<PAGE>
KeySpan Energy
Unaudited Pro-forma Consolidated Condensed Income Statement
Twelve Months Ended 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>
Revenues
Gas Distribution 1,919,693 792,816 2,712,509 146,624 2,859,133
Marine Services --- 281,835 281,835 --- 281,835
Electric Services 1,219,388 --- 1,219,388 --- 1,219,388
Gas Exploration and Production 196,258 --- 196,258 --- 196,258
Energy Related Services and Other 378,841 27,185 406,026 --- 406,026
------------------------- ---------- --------- ------- --------- ----------
Total Revenues 3,714,180 1,101,836 --- 4,816,016 146,624 --- 4,962,640
------------------------- ---------- --------- ------- --------- ----------
Operating Expenses
Purchased gas 923,143 318,584 1,241,727 92,702 1,334,429
Purchased fuel 157,901 --- 157,901 --- 157,901
Operations and maintenance 1,353,454 496,304 1,849,758 29,535 1,879,293
Depreciation, depletion and amortiz 279,263 92,533 26,684(5) 398,480 8,299 4,164(11) 410,942
Operating taxes 391,657 54,972 446,629 3,717 450,346
------------------------- ---------- --------- ------- --------- ----------
Total Operating Expenses 3,105,418 962,393 26,684 4,094,495 134,253 4,164 4,232,911
------------------------- ---------- --------- ------- --------- ----------
Operating Income 608,762 139,443 (26,684) 721,521 12,371 (4,164) 729,729
------------------------- ---------- --------- ------- --------- ----------
Other Income and Deductions
Income from equity investments 21,794 --- 21,794 --- 21,794
Interest Income 15,085 5,517 20,602 --- 20,602
Minority interest (16,745) --- (16,745) --- (16,745)
Other 1,880 10,133 12,013 (30) 11,983
------------------------- ---------- --------- ------- --------- ----------
Total Other Income 22,014 15,650 --- 37,664 (30) --- 37,634
------------------------- ---------- --------- ------- --------- ----------
Income Before Interest Charges
and Income Taxes 630,776 155,093 (26,684) 759,185 12,341 (4,164) 767,363
Interest Charges 131,238 44,721 142,300(4) 318,259 5,086 16,993(10) 340,338
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Income Taxes 181,527 45,741 (49,805)(6) 177,463 4,367 (5,947)(12) 767,363
------------------------- ---------- --------- ------- --------- ----------
Net Income 318,011 64,631 (119,179) 263,463 2,888 (15,209) 251,142
Preferred Stock Dividend
requirements 32,350 1,688 --- 34,038 --- --- 34,038
------------------------- ---------- --------- ------- --------- ----------
Earnings for Common Stock 285,661 62,943 (119,179) 229,425 2,888 (15,209) 217,142
========================= ========== ========= ======= ========= ==========
Average Shares outstanding (000) 134,534 134,534 134,534
Basic and Diluted Earnings
Per Common Share 2.12 1.71 1.61
========= ========= ==========
</TABLE>
4
