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): August 31, 1999
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EASTERN ENTERPRISES
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(Exact name of registrant as specified in its charter)
Massachusetts 1-2297 04-1270730
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
9 Riverside Road, Weston, Massachusetts 02493
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 647-2300
None
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(Former name or former address, if changed since last report)
Item 1, 3 through 6, 8 and 9. Not Applicable.
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Item 2. Acquisition or Disposition of Assets.
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Eastern Enterprises ("Eastern") consummated the acquisition of
Colonial Gas Company ("Colonial Gas") on August 31, 1999 by
merging Colonial Gas into a wholly-owned subsidiary of Eastern
pursuant to the
terms of an Agreement and Plan of Reorganization (the "Merger
Agreement"), dated as of October 17, 1998, by and between Eastern and
Colonial Gas. Eastern paid $150 million in cash and issued
approximately 4,220,000 shares of its common stock as consideration in
the transaction. Eastern used approximately $135 million of its cash
reserves and borrowed under existing credit facilities approximately
$15 million from a group of banks consisting of BankBoston, N.A., The
Bank of Nova Scotia, Fifth Third Bank, Mellon Bank, N.A., Morgan
Guaranty Trust Company of New York and Fleet National Bank for the cash
portion of the consideration. A copy of the Merger Agreement and the
press release made by Eastern announcing the closing of this
acquisition are attached hereto as Exhibit 2.1 and Exhibit 99.1,
respectively, and are incorporated herein by reference.
Colonial Gas is a regulated utility that distributes natural
gas on Cape Cod and eastern Massachusetts. Transgas Inc., a
wholly-owned subsidiary of Colonial Gas, is an unregulated energy
trucking company, which provides over-the-road transportation of
liquefied natural gas, propane and other commodities. Both of these
entities will continue to operate in these fields.
Item 7. Financial Statements and Exhibits.
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(a) Financial statements of business acquired.
(1) Audited Consolidated Statement of Income, Balance
Sheets, Statements of Cash Flows and Statement
of
Common Equity of Colonial Gas Company for the year
ended December 31, 1998, together with Notes and
Report of Independent Certified Public Accountants
(incorporated by reference to Annual Report of
Colonial Gas Company on Form 10-K for the year ended
December 31, 1998 (File No. 0-10007)).
(2) Unaudited Consolidated Condensed Statements of
Operations, Balance Sheets and Statements of Cash
Flows
of Colonial Gas Company for the six months ended June
30, 1999, together with Notes (incorporated by
reference to Quarterly Report of Colonial Gas Company
on Forms 10-Q and 10-Q/A for the quarter ended June
30, 1999 (File No. 0-10007)).
(b) Pro forma financial information.
(1) Combined Unaudited Pro Forma Balance Sheet of Eastern Enterprises
as of June 30, 1999, including Notes.
(2) Combined Unaudited Pro Forma Statement of Operations of Eastern
Enterprises for the six months and year ended June 30, 1999, and
December 31, 1998, respectively, including Notes.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization, dated as of October
17, 1998, by and between Eastern and Colonial Gas
(incorporated by reference to Exhibit 2.1 to Current
Report on Form 8-K of Colonial Gas dated October 17, 1998
(File No.
0-10007)).
99.1 Press Release.
99.2 Audited Consolidated Statement of Income, Balance
Sheets, Statements of Cash Flows and Statements of
Common Equity of Colonial Gas Company for the year ended
December 31, 1998, together with Notes and Report of
Independent Certified Public Accountants.
99.3 Unaudited Consolidated Statements of Operations, Balance
Sheets and Statements of Cash Flows of Colonial Gas
Company for the six months ended June 30, 1999, together
with Notes.
99.4 Consent of Grant Thornton LLP.
Item 7(b) Pro forma Financial Information
EASTERN COMBINED UNAUDITED PRO FORMA
FINANCIAL INFORMATION
Eastern completed its acquisition of Colonial Gas on August 31, 1999 and is
accounting for this transaction under the purchase method of accounting for
business combinations.
The Eastern unaudited adjusted historical balance sheet as of June 30,
1999 includes the effect of this acquisition as if the acquisition had
occurred on June 30, 1999.
The Eastern unaudited adjusted historical statements of operations for the six
months and year ended June 30, 1999 and December 31, 1998 include the effect of
this acquisition, as if the acquisition had occurred on January 1, 1998.
The Eastern unaudited adjusted historical financial information is not
necessarily indicative of the results of operations which would have been
reported if the acquisition had occurred on the indicated dates nor is it
necessarily indicative of the future operating results of the combined company.
Furthermore, the adjusted historical financial information does not give effect
to (a) the efficiencies that may be obtained by combining the operations of
Eastern and Colonial Gas, (b) the costs incurred for restructuring, integrating
and consolidating the operations of Eastern and Colonial Gas preliminarily
estimated at $5.0 million, net of tax of $3.4 million which will be charged to
income as incurred, (c) the
impact of the discontinuation of regulatory accounting, which is expected to
result in no purchase price allocated to regulatory assets and a corresponding
increase in goodwill of approximately $11.5 million or (d) the impact of
recording certain liabilities for severance, enhanced benefits and a contract
cancellation all totaling $10.0 million expected to be incurred as a result of
the merger. In the opinion of management, all adjustments necessary to present
fairly such adjusted historical statement of operations have been made.
The Eastern unaudited historical financial information should be read in
conjunction with the historical consolidated financial statements of Eastern
which are incorporated by reference into this proxy statement/prospectus and the
historical consolidated financial statements of Colonial Gas.
EASTERN COMBINED UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1999
(in thousands)
EASTERN COLONIAL
AS AS PRO FORMA PRO FORMA
REPORTED(2) RECLASSIFIED(2) ADJUSTMENTS BALANCES(1)
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ASSETS
CURRENT ASSETS
Cash and short-term investments $ 179,851 $ 2,491 $(154,919)(5) $27,423
Receivables, less reserves of
$17,850 99,308 12,887 -------- 112,195
Inventories 44,158 12,358 -------- 56,516
Deferred gas costs --------- (4,484) -------- (4,484)
Other current assets 7,646 6,207 -------- 13,853
----------- ---------- --------- -----------
Total current assets 330,963 29,459 (154,919) 205,503
PROPERTY AND EQUIPMENT,
AT COST 1,751,233 417,850 ------- 2,169,083
Less - accumulated depreciation 788,852 115,463 ------- 904,315
----------- ---------- --------- -----------
Net property and equipment 962,381 302,387 ------- 1,264,768
OTHER ASSETS
Deferred post-retirement health
care costs 75,888 3,307 ------- 79,195
Investments 15,708 ----- ------- 15,708
Deferred charges and other costs,
Less amortization 70,013 27,905 205,586(3) ------
----------- ---------- --------- -----------
Total other assets 161,609 31,212 205,586 398,407
----------- ---------- --------- -----------
TOTAL ASSETS $ 1,454,953 $ 363,058 $ 50,667 $ 1,868,678
=========== ========== ========= ===========
EASTERN COMBINED UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1999
(in thousands)
EASTERN COLONIAL
AS AS PRO FORMA PRO FORMA
REPORTED(2) RECLASSIFIED(2) ADJUSTMENTS BALANCES(1)
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LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Current debt $5,632 $9,161 $--------- $ 14,793
Accounts payable 37,793 16,830 --------- 54,623
Accrued expenses 38,547 6,743 --------- 45,290
Other current liabilities 44,675 4,400 --------- 49,075
----------- --------- ---------- ----------
Total current liabilities 126,647 37,134 --------- 163,781
GAS INVENTORY FINANCING 31,438 8,269 --------- 39,707
LONG-TERM DEBT 383,173 121,021 --------- 504,194
RESERVES AND OTHER LIABILITIES
Deferred income taxes 135,306 56,346 --------- 191,652
Post-retirement health care 96,750 4,495 --------- 101,245
Preferred stock of subsidiary 29,377 ------- --------- 29,377
Other reserves 92,716 808 --------- 93,524
----------- ---------- ---------- ----------
Total reserves and other liabilities 354,149 61,649 --------- 415,798
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, authorized;
Eastern -- 50 million,
Colonial Gas -- 15 million
issued and outstanding;
Eastern -- 22.7 million
27.0 million pro forma 22,649 ------- 4,220(4) 26,869
Colonial Gas -- 9.0 million ------- 29,806 (29,806)(4) ------
Capital in excess of par 56,004 64,342 117,090(4) 237,436
Retained earnings 481,315 40,837 (40,837)(4) 481,315
Accumulated other comprehensive
earnings (loss) (63) ------ ------ (63)
Treasury stock (359) ------ ------ (359)
----------- ---------- ---------- ----------
Total stockholders' equity 559,546 134,985 50,667 745,198
----------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,454,953 $ 363,058 $ 50,667 $1,868,678
=========== ========== ========== ==========
See accompanying notes to Combined Unaudited Pro Forma Financial Information
EASTERN COMBINED UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(in thousands, except per share data)
EASTERN COLONIAL
AS AS PRO FORMA PRO FORMA
REPORTED(2) RECLASSIFIED(2) ADJUSTMENTS BALANCES
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Revenues $515,349 $120,132 $------- $635,481
Operating costs and expenses:
Operating costs 353,008 72,663 ------- 425,671
Selling, general and
administrative expenses 59,049 16,375 (673)(3) 74,751
Depreciation and amortization 43,649 8,281 2,570 (3) 54,500
------- ------- ------- -------
Operating earnings 59,643 22,813 (1,897) 80,559
Other income (expense):
Interest income 4,870 821 1,431
(4,260)(6)
Interest expense (17,414) (5,185) (22,599)
------- (6)
Other, net 1,103 137 ------- 1,240
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Earnings from continuing
operations before income taxes 48,202 18,586 (6,157) 60,631
Provision for income taxes 18,474 7,671 (1,309)(7) 24,836
------- ------- ------- -------
Net earnings from continuing
operations before extraordinary
items $29,728 $10,915 $(4,848) $35,795
======= ======= ======= =======
Basic earnings per share from
continuing operations (4): $1.31 $ 1.22 $1.33
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Diluted earnings per share from
continuing operations (4): $ 1.31 $ 1.22 $1.33
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Weighted average number of
common shares outstanding:
Basic 22,618 8,936 26,838
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Diluted 22,725 8,936 26,945
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See accompanying notes to Combined Unaudited Pro Forma Financial Information
EASTERN COMBINED UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share data)
EASTERN COLONIAL
AS AS PRO FORMA PRO FORMA
REPORTED(2) RECLASSIFIED(2) ADJUSTMENTS BALANCES
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Revenues $935,264 $ 183,093 $------- $1,118,357
Operating costs and expenses:
Operating costs 640,792 111,705 ------- 752,497
Selling, general and
administrative expenses 118,546 28,795 (1,808) (3) 145,533
Depreciation and amortization 75,521 14,727 5,140 95,388
-------- --------- -------- -------
Operating earnings 100,405 27,866 (3,332) 124,939
Other income (expense):
Interest income 7,582 2,360 (8,521)(6) 1,421
Interest expense (33,584) (10,861) ------- (44,445)
Other, net 5,591 847 ------- 6,438
-------- --------- -------- -------
Earnings from continuing
operations before income taxes 79,994 20,212 (11,853) 88,353
Provision for income taxes 29,166 7,910 (2,300)(7) 34,776
-------- --------- -------- -------
Net earnings from continuing
operations before extraordinary
items $ 50,828 $ 12,302 $ (9,553) $53,577
======== ======== ======== =======
Basic earnings per share from
continuing operations
before extraordinary items (4): $ 2.26 $ 1.40 $ 2.01
======= ======== ========
Diluted earnings per share from
continuing operations
before extraordinary items (4): $ 2.24 $ 1.40 $ 1.99
======= ======== =======
Weighted average number of
common shares outstanding:
Basic 22,474 8,781 26,694
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Diluted 22,680 8,781 26,900
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See accompanying notes to Combined Unaudited Pro Forma Financial Information
NOTES TO EASTERN COMBINED UNAUDITED PRO FORMA
FINANCIAL INFORMATION
(1) The Acquisition
The acquisition will be accounted for under the purchase method of accounting
for business combinations. The adjusted historical financial information does
not give effect to (a) the efficiencies that may be obtained by combining the
operations of Eastern and Colonial Gas, (b) the costs incurred for
restructuring, integrating and consolidating the operations of Eastern and
Colonial Gas preliminarily estimated at $5.0 million, net of tax of $3.4
million which will be charged to
income as incurred, (c) the impact of the discontinuation of regulatory
accounting, which is expected to result in no purchase price allocated to
regulatory assets and a corresponding increase in goodwill of approximately
$11.5 million or (d) the impact of recording certain liabilities for severance,
enhanced benefits and a contract cancellation all totaling $10.0 million
expected to be incurred as a result of the merger. There were no intercompany
transactions between Eastern and Colonial Gas during the periods presented that
require elimination.
On September 30, 1998, Eastern completed a merger with Essex Gas which was
accounted for as a pooling of interests. Accordingly, the accompanying unaudited
pro forma combined financial data include in Eastern the accounts of Essex Gas
for all periods presented.
(2) Reclassifications
These columns represent historical results of operations and financial position
of the respective companies. Certain reclassifications have been made to the
historical balance sheet and statements of operations of Colonial Gas to conform
with Eastern's historical financial statement presentation.
(3) Purchase Price Allocation
The fair value of the consideration exchanged to acquire Colonial Gas common
stock, determined as of August 31, 1999, will be allocated to the assets and
liabilities of Colonial Gas based on their estimated fair value. A preliminary
allocation of the purchase price has been presented in the unaudited adjusted
historical financial information in which the fair value of the identifiable net
tangible assets of Colonial Gas is assumed to equal the net book value of such
assets. The excess of consideration over the fair value of the identifiable net
tangible assets for Colonial Gas has been preliminarily allocated to goodwill as
follows (in thousands, except price per share):
Shares of Colonial Gas common stock outstanding on
August 31, 1999 8,951
Consideration per Colonial Gas share (a) $ 37.50
---------
Consideration exchanged for Colonial Gas common stock $ 335,652
Plus: estimated transaction costs (b) 4,919
---------
Total estimated purchase price 340,571
Less: estimated fair value of Colonial Gas identifiable net
assets (net book value) on June 30, 1999 134,985
---------
Total estimated goodwill due to acquisition $ 205,586
=========
(a) The estimated consideration and purchase price allocation used for pro
forma purposes are based on a value of $37.50 per share of Colonial Gas common
stock.
(b) Transaction costs primarily include investment banking fees and other
professional fees. Transaction costs related to the Colonial Gas acquisition are
estimated to be $7.4 million but are presented herein net of $2.481 million of
costs previously expensed by Colonial Gas in the accompanying historical
statements of operations.
(c) A pro forma adjustment has been made for the six months ended June 30, 1999
and the twelve months ended December 31, 1998 to reflect incremental
amortization expense on the goodwill created by the acquisition. Goodwill is
amortized over a 40-year life.
(d) A pro forma adjustment has been made to reverse previously expensed
transaction costs for the six months ended June 30, 1999 and the twelve months
ended December 31, 1998. These costs are non-recurring and relate directly to
the acquisition.
(4) Stock Consideration
(a) Colonial Gas - The acquisition consideration consisted of $150 million in
cash and the balance in Eastern Gas common stock. 4,000,000 shares of Colonial
common stock were exchanged for cash consideration in an amount equal to $37.50
per share. Shares of Colonial common stock which were not exchanged for cash
consideration were converted into a number of shares of Eastern common stock
based on the exchange ratio of 0.852. As provided in the merger agreement, the
exchange ratio was computed based on the average closing price of Eastern common
stock on the New York Stock Exchange for the ten trading day period ended on
August 26, 1999 ($43.99). Eastern issued approximately 4.220 million shares in
the transaction. The unaudited pro forma net earnings per share reflect the
weighted average number of Eastern common shares that would have been
outstanding if the acquisition occurred at the beginning of the periods
presented upon the conversion of each outstanding share of Colonial common stock
not exchanged for cash into 0.852 shares of Eastern common stock, as provided in
the merger agreement.
(b) Pro forma adjustments have been made as of June 30, 1999 to reflect the
issuance of approximately 4.220 million shares of Eastern common stock ($1.00
par value per share) exchanged together with cash of $150 million for all of the
outstanding shares of Colonial common stock and to eliminate the shareholders'
equity accounts of Colonial Gas.
(5) Cash Consideration
A pro forma adjustment has been made to reflect the use of available on-hand
cash and short-term investments to fund the cash portion of the purchase price
of a portion of the Colonial Gas common stock (fixed at $150 million cash
consideration) plus an additional $4.919 million for estimated transaction costs
to be incurred for the acquisition. (See 3(b) above.) The remaining acquisition
consideration will be comprised of Eastern common stock.
(6) Interest Income
A pro forma adjustment has been made to reflect reduced interest income
resulting from the use of cash more fully described in 5a. above as if such
funding had occurred on January 1, 1998, assuming a weighted average annual
interest rate of 5.5%.
(7) Income Taxes
A pro forma adjustment has been made for the six months ended June 30, 1999 and
the twelve months ended December 31, 1998 to reflect the tax effect of the pro
forma adjustments using Eastern's incremental tax rate of 35%. Goodwill created
by the acquisition is nondeductible for tax purposes because the transaction is
tax-free.
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 hereunto duly authorized.
EASTERN ENTERPRISES
Date: September 15, 1999 By: /s/ James J. Harper
---------------------- ------------------------
James J. Harper
Vice President and Controller
EXHIBIT INDEX
Exhibits
99.1 --Press Release.
99.2 --Audited Consolidated Statements of Income, Balance
Sheets, Statements of Cash Flows and Statements of
Common Equity of Colonial Gas Company for the year ended
December 31, 1998, together with Notes and Report of
Independent Certified Public Accountants.
99.3 --Unaudited Consolidated Statements of Operations,
Balance Sheets and Statements of Cash Flows of Colonial
Gas Company for the six months ended June 30, 1999,
together with Notes.
99.4 --Consent of Grant Thornton LLP.