Exhibit 99.1
KEYSPAN ACQUIRES EASTERN ENTERPRISES AND ENERGYNORTH
-- NATION'S FIFTH LARGEST NATURAL-GAS COMPANY CREATED --
NEW YORK (NOVEMBER 9, 2000) - KeySpan Corporation [NYSE: KSE] yesterday created
the largest natural gas-distribution company in the Northeast with the
acquisition of Eastern Enterprises [NYSE:EFU] of Weston, MA, and EnergyNorth
[NYSE:EI] of Manchester, NH. The last day of trading for Eastern or EnergyNorth
common stock was yesterday, November 8, 2000. All former Eastern utilities
(Boston Gas, Colonial Gas and Essex Gas) and the EnergyNorth utility
(EnergyNorth Natural Gas) are now identified as KeySpan Energy Delivery.
"Today we celebrate the culmination of an ambitious effort that has
forged great companies into the largest gas-distribution company in the
Northeast and the fifth largest in the United States," said Robert B. Catell,
chairman and chief executive officer of KeySpan. "This expansion is a milestone
in our company's history, and is a major step in implementing our strategy of
growth and our vision of becoming the premier energy and services company in the
Northeast. KeySpan anticipates tremendous growth for regulated and unregulated
sales of natural gas and energy-related products and services throughout the
region."
This acquisition increases the customer base of KeySpan's regulated
utilities from 1.6 to 2.4 million natural gas customers, and creates the market
potential for KeySpan to expand to more than 5 million customers for energy and
services. With market saturation for natural gas in the Northeast averaging only
35%, the area provides opportunities for significant growth in KeySpan's
regulated gas business.
The purchase is valued at approximately $2.5 billion -- $1.96 billion in equity
and the assumption of $550 million in debt. KeySpan will ultimately finance the
purchase of the equity of Eastern and EnergyNorth by issuing $1.65 billion in
long-term debt and the balance with commercial paper. Following a review of the
transaction, S&P has upgraded its rating of KeySpan to "A" and Moody's has
affirmed its "A3" rating.
KeySpan now has assets of more than $10 billion and projected annual revenues of
$5 billion, resulting primarily from the consolidation of six utilities in New
York and New England. With the closing, KeySpan becomes a registered holding
company subject to regulation by the Securities and Exchange Commission under
the Public Utility Holding Company Act of 1935. KeySpan expects the acquisition
to yield pre-tax annual savings of approximately $40 million. These savings will
result primarily from the elimination of duplicate corporate and administrative
programs, greater efficiencies in operations and business processes, increased
purchasing efficiencies, and consolidation of information systems. KeySpan
expects to achieve personnel reductions through a variety of programs, including
hiring freezes, attrition, and voluntary separation programs, including early
retirement. All union contracts will be honored.
THE CHANGE OF COMMAND
"The sale of Eastern to KeySpan is the result of our efforts to maximize
shareholder value," said J. Atwood Ives, chairman and CEO of Eastern
Enterprises. "On behalf of management, I would like to thank all of our
employees for their hard work and professionalism in our efforts to integrate
our operations with KeySpan. Together, we have created an organization that is
well-positioned to capitalize on the tremendous opportunities ahead of us." His
sentiments were echoed by Robert R. Giordano, recently retired president and CEO
of EnergyNorth. "The acquisition is exciting news for EnergyNorth," he said.
"KeySpan's size and strength will provide unprecedented services to energy
customers in New England." Catell remains chairman and CEO of the combined
company. Ives and Giordano have retired from active management, and Ives has
been appointed to KeySpan's board of directors. KeySpan's corporate headquarters
will remain in New York, while Boston will serve as headquarters for the
company's New England operations. "We have great respect for the excellent
service Eastern and EnergyNorth employees have always provided their customers,
and we welcome them to the KeySpan family of nearly 14,000 employees," said
Catell. "We each have a proud history of more than 100 years of active community
involvement -- a tradition we intend to continue."
SHAREHOLDER TRANSACTIONS
EASTERN ENTERPRISES SHAREHOLDERS.
Eastern Enterprises shareholders will receive an acquisition price of $64.558
per share, paid in cash. This acquisition price reflects the original $64.00
price, plus a "ticking fee" of $0.558 per share ($0.006 per day for 93 days,
August 7 through November 7, 2000).
In addition, Eastern Enterprises shareholders will receive a portion of the
fourth quarter dividend equal to $0.1692 per share. It will be paid on November
22 to shareholders of record as of November 8, 2000. The dividend calculation
reflects the 36-day period from October 4 through November 8, 2000, at a rate of
$0.0047 per day.
Eastern Enterprises shareholders will receive instructions from the exchange
agent, EquiServe Trust Company, shortly after November 8, 2000. Those holding
shares with a broker (or "street name") should contact the broker about
receiving payment directly from that broker.
ENERGYNORTH SHAREHOLDERS.
EnergyNorth shareholders will receive an acquisition price of $61.4587 per
share, paid in cash. This acquisition price reflects the original $61.13 price,
plus a "ticking fee" of $0.3287 per share (the Eastern Enterprises "ticking fee'
of $0.558 multiplied by a pre-determined factor of .589).
In addition, a prorated dividend of $0.2683 per share will be paid on November
22 to shareholders of record as of November 8, 2000. The prorated dividend
calculation reflects the 69-day period from September 1 through November 8,
2000, at a rate of $0.35 per quarter ($0.35 multiplied by 69/90).
EnergyNorth shareholders will receive instructions from the exchange agent,
EquiServe Trust Company, shortly after November 8, 2000. Those holding shares
with a broker (or "street name") should contact the broker about receiving
payment directly from that broker.
KEYSPAN SHAREHOLDERS.
This transaction does not affect existing KeySpan shareholders. Therefore, no
action is required by KeySpan shareholders.
For more information, shareholders of Eastern Enterprises and EnergyNorth can
contact EquiServe Trust Co., the exchange agent, at (800)736-3001, call the
Eastern/EnergyNorth shareholder hotline at (781)647-2357, or visit the Investor
Relations section of KeySpan's website: www.keyspanenergy.com.
----------------------
KEYSPAN'S ENERGY AND SERVICE COMPANIES
KEYSPAN ENERGY DELIVERY NEW YORK (formerly Brooklyn Union) is a regulated
utility that sells and delivers natural gas to homes and businesses in the New
York City boroughs of Brooklyn, Queens and Staten Island. KEYSPAN ENERGY
DELIVERY LONG ISLAND (formerly Brooklyn Union of Long Island) is a regulated
utility that sells and delivers natural gas to homes and businesses in Nassau
and Suffolk Counties, as well as the Rockaway Peninsula of Queens County, NY.
KEYSPAN ENERGY DELIVERY NEW ENGLAND (formerly Boston Gas, Essex Gas,
Colonial Gas and EnergyNorth Natural Gas) is a regulated utility that sells and
delivers natural gas to homes and businesses in Massachusetts and New Hampshire.
KEYSPAN HOME ENERGY SERVICES companies provide a full range of energy
products and services for customers' homes, including heating, air conditioning
and water heating equipment installation, service and repair. In addition, the
company sells natural gas and electricity to residential customers through
energy supply contracts. Eastern Enterprises' ServiceEdge, the largest
unregulated provider of residential HVAC equipment installation and services in
New England, will hereafter be identified as KeySpan Home Energy Services.
KEYSPAN BUSINESS SOLUTIONS companies provide a full range of energy
products and services to businesses, ranging from the installation of HVAC
systems to providing practical energy management solutions for commercial and
industrial facilities. The company also offers integrated architectural,
engineering, construction and O&M services, as well as financing. In addition,
the company sells and manages the delivery of natural gas and electricity to its
business customers through energy supply contracts. EnergyNorth's non-utility
subsidiary, ENI Mechanicals (which provides mechanical contracting and HVAC
services to commercial and industrial customers through its Northern Peabody and
Granite State Plumbing and Heating subsidiaries), will hereafter be identified
as KeySpan Business Solutions.
KEYSPAN COMMUNICATIONS owns and operates a fiber optic
telecommunications network that provides capacity for internet service providers
(ISP's), carriers, competitive local exchange carriers (CLEC's), businesses and
educational facilities. Cooperative arrangements extend the network throughout
the New York City market, with fiber access to Europe through cable landing
sites on Long Island.
KEYSPAN MYHOMEKEY is an Internet-based home-management business that
allows customers to manage home repairs and maintenance, shop online, tailor
their energy use, and customize their home security systems, among other
services. The myHomeKey.com site also keeps consumers abreast of community
events by allowing the sharing of information.
In addition, EnergyNorth Propane and Eastern Enterprises' AMR Data
Corporation and Midland Enterprises will be managed by KeySpan Energy
Development Corporation.
A member of the S&P 500, KeySpan is the largest distributor of natural gas
in the Northeast, with 2.4 million gas customers. KeySpan is also the largest
investor-owned electric generator in New York State and operates Long Island's
electric system. In addition, KeySpan markets energy and Internet services,
processes gas in Canada, and has investments in fiber-optic cable, natural-gas
exploration, production, pipeline transportation, distribution and storage. For
more information, visit KeySpan's web site at www.keyspanenergy.com
Certain statements contained herein are forward-looking statements, which
reflect numerous assumptions and involve a number of risks and uncertainties.
Actual results may differ materially from those discussed in such statements.
Among the factors that could cause actual results to differ materially are:
general economic trends; fluctuations in gas and electric prices; available
sources and cost of fuel; State and Federal regulatory initiatives that increase
competition, threaten cost and investment recovery, and impact rate structures;
the ability of the Company to successfully reduce its cost structure; the
ability of the Company to successfully integrate acquired operations; the degree
to which the Company develops non-regulated business ventures; the effect of
inflationary trends and increases in interest rates; and risks detailed from
time to time in reports and other documents filed by the Company with the
Securities and Exchange Commission.
Exhibit 99.2
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated condensed balance sheet as of
September 30, 2000 and the unaudited pro forma consolidated condensed income
statements for the nine months ended September 30, 2000 and the year ended
December 31, 1999 combine the historical information of KeySpan, Eastern and
EnergyNorth. The unaudited pro forma consolidated condensed financial statements
have been prepared to reflect our acquisitions of Eastern and EnergyNorth under
the purchase method of accounting. 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 acquisition, 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
September 30, 2000. The unaudited pro forma consolidated condensed income
statement for the nine months ended September 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 reflect our purchase of
all of the outstanding common stock of Eastern for $64.56 per share in cash and
all of the outstanding common stock of EnergyNorth for $61.46 per share in cash
on November 8, 2000.
On August 31, 1999, Eastern completed a merger with Colonial Gas
Company 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 acquisitions or operating efficiencies that may result. We have
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, 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.
KEYSPAN
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2000
Transaction Transaction
KeySpan Eastern Adjustments Pro Forma EnergyNorth Adjustments Pro Forma
------------ ------------ -------------- ------------ -------------- ------------- ----------
(in thousands)
ASSETS
- ------
CURRENT ASSETS
Cash and temporary cash
investments $ 63,618 $ 39,122 $ (53,747)(4) $ 48,993 $ 175 $ (6,253) (11) $ 42,915
Customer accounts receivable, net 806,087 74,397 - 880,484 14,478 - 894,962
Other 486,856 195,025 - 681,881 15,916 - 697,797
----------- ---------- ---------- ------------ --------- -------- -------------
1,356,561 308,544 (53,747) 1,611,358 30,569 (6,253) 1,635,674
----------- ---------- ---------- ------------ --------- -------- -------------
EQUITY INVESTMENTS AND OTHERS 427,557 14,265 - 441,822 - - 441,822
----------- ---------- ---------- ------------ --------- -------- -------------
PROPERTY
Electric 1,386,206 - - 1,386,206 - - 1,386,206
Gas 3,584,690 1,538,249 - 5,122,939 179,838 - 5,302,777
Other 393,252 684,401 - 1,077,653 8,016 - 1,085,669
Accumulated depreciation (1,688,283) (943,081) - (2,631,364) (60,445) - (2,691,809)
Gas exploration and production 1,346,357 - - 1,346,357 - - 1,346,357
Accumulated depletion (582,912) - - (582,912) - - (582,912)
----------- ---------- ---------- ------------ --------- -------- -------------
4,439,310 1,279,569 - 5,718,879 127,409 - 5,846,288
----------- ---------- ---------- ------------ --------- -------- -------------
DEFERRED CHARGES
Goodwill, net of amortization 350,552 242,497 1,126,767(1) 1,719,816 - 174,870(8) 1,894,686
Regulatory assets and other 678,541 138,778 53,747(4) 881,815 15,164 6,253(11) 904,483
- - 10,749(2) - - 1,251(9) -
----------- ---------- ---------- ------------ --------- -------- -------------
1,029,093 381,275 1,191,263 2,601,631 15,164 182,374 2,799,169
----------- ---------- ---------- ------------ --------- -------- -------------
TOTAL ASSETS $ 7,252,521 $1,983,653 $1,137,516 $ 10,373,690 $ 173,142 $176,121 $ 10,722,953
=========== ========== ========== ============ ========= ======== =============
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Current maturities of
long-term debt $ - $ 6,072 $ - $ 6,072 $ 777 - $ 6,849
Accounts payable and accrued
expenses 876,771 154,747 - 1,031,518 21,094 - 1,052,612
Commercial paper 382,090 121,990 276,907(1) 899,033 21,503 32,224(8) 970,847
- - 8,100(2) - - 2,100(9) -
- - 99,197(3) - - 14,736(10) -
- - 10,749(2) - - 1,251(9) -
---------- ---------- --------- ---------- -------- --------- -------------
1,258,861 282,809 394,953 1,936,623 43,374 50,311 2,030,308
---------- ---------- --------- ---------- -------- --------- -------------
DEFERRED CREDITS AND OTHER
LIABILITIES
Deferred income taxes 238,748 183,728 - 422,476 21,698 - 444,174
Reserves and other liabilities 681,964 198,673 - 880,637 5,217 - 885,854
---------- ---------- --------- ---------- -------- --------- -------------
920,712 382,401 - 1,303,113 26,915 - 1,330,028
---------- ---------- --------- ---------- -------- --------- -------------
GAS INVENTORY FINANCING - 59,657 - 59,657 11,455 - 71,112
---------- ---------- --------- ---------- -------- --------- -------------
CAPITALIZATION
Long-term debt 2,120,752 501,937 1,478,003(1) 4,100,692 45,211 171,997(8) 4,317,900
---------- ---------- --------- ---------- -------- --------- -------------
Preferred stock 84,323 16,737 - 101,060 - - 101,060
---------- ---------- --------- ---------- -------- --------- -------------
Common stock 2,987,242 274,028 (274,028)(1) 2,991,914 35,966 (35,966)(8) 2,991,914
- - 4,672(3) - - - -
---------- ------------ --------- --------- ---------- -------- -------------
Retained earnings 481,658 466,512 (466,512)(1) 481,658 10,221 (10,221)(8) 481,658
Accumulated comprehensive income (6,476) 155 (155)(1) (6,476) - - (6,476)
Treasury stock purchased (702,435) (583) 583(1) (702,435) - - (702,435)
---------- ---------- --------- ---------- -------- --------- -------------
Total common shareholders
equity 2,759,989 740,112 (735,440) 2,764,661 46,187 (46,187) 2,764,661
---------- ---------- -------- ---------- -------- -------- -------------
Total capitalization 4,965,064 1,258,786 742,563 6,966,413 91,398 125,810 7,183,621
---------- ---------- --------- ---------- -------- --------- -------------
MINORITY INTEREST 107,884 - - 107,884 - - 107,884
---------- ---------- --------- ---------- -------- --------- -------------
TOTAL LIABILITIES AND CAPITALIZATION $7,252,521 $1,983,653 $1,137,516 $10,373,690 $173,142 $ 176,121 $ 10,722,953
========== ========== ========= ========== ======== ========== =============
KEYSPAN
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1999
Transaction Pro Transaction
KeySpan Eastern Adjustments Forma EnergyNorth Adjustments Pro Forma
----------- ----------- ---------- ------------ ---------- ------- ------------
(dollars in thousands)
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 28,169(6) 362,982 7,845 4,372 (13) 375,199
Operating taxes 366,154 41,151 - 407,305 3,812 - 411,117
---------- ----------- --------- ----------- ---------- --------- -------------
Total Operating Expenses 2,472,444 865,263 28,169 3,365,876 112,704 4,372 3,482,952
---------- ----------- --------- ----------- ---------- --------- -------------
OPERATING INCOME 482,169 113,439 (28,169) 567,439 12,159 (4,372) 575,226
---------- ----------- --------- ----------- ---------- --------- -------------
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 (28,169) 621,879 12,684 (4,372) 630,191
INTEREST CHARGES 124,692 37,274 147,220(5) 309,186 4,915 17,427 (12) 331,528
INCOME TAXES 136,362 36,154 (51,527(7) 120,989 3,740 (6,099)(14) 118,630
NET INCOME 258,611 56,955 (123,862) 191,704 4,029 (15,700) 180,033
Preferred stock dividend requirements 34,752 1,862 - 36,614 - - 36,614
Earnings for common stock $ 223,859 $ 55,093 $(123,862) $ 155,090 $ 4,029 $ (15,700) $ 143,419
========== =========== ========= =========== ========== ========= =============
Averages shares outstanding (000) 138,526 - - 138,526 - - 138,526
BASIC AND DILUTED EARNINGS PER
COMMON SHARE $ 1.62 - - $ 1.12 - - $ 1.04
========== =========== =============
KEYSPAN
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2000
Transaction Transaction
KeySpan Eastern Adjustments Pro Forma EnergyNorth Adjustments Pro Forma
----------- ---------- ------------ ---------- ----------- ----------- -----------
(in thousands)
REVENUES
Gas Distribution $ 1,458,595 $ 576,084 - $ 2,034,679 $ 149,148 - $ 2,183,827
Marine Services - 211,751 - 211,751 - - 211,751
Electric Services 1,097,616 - - 1,097,616 - - 1,097,616
Gas Exploration and Production 169,966 - - 169,966 - - 169,966
Energy Related Services and Other 485,161 19,713 - 504,874 - - 504,874
--------- ------- --------- --------- -------- -------- ------------
Total Revenues 3,211,338 807,548 - 4,018,886 149,148 - 4,168,034
--------- ------- --------- --------- -------- -------- ------------
OPERATING EXPENSES
Purchased gas 717,140 280,469 - 997,609 94,884 - 1,092,493
Purchased fuel 301,361 - - 301,361 - - 301,361
Operations and maintenance 1,156,355 357,955 - 1,514,310 33,334 - 1,547,644
Depreciation, depletion and
amortization 216,364 73,051 21,127(6) 310,542 8,408 3,279(13) 322,229
Operating taxes 298,010 34,424 - 332,434 4,154 - 336,588
--------- ------- --------- --------- -------- -------- ------------
Total Operating Expenses 2,689,230 745,899 21,127 3,456,256 140,780 3,279 3,600,315
--------- ------- --------- --------- -------- -------- ------------
OPERATING INCOME 522,108 61,649 (21,127) 562,630 8,368 (3,279) 567,719
--------- ------- --------- --------- -------- -------- ------------
OTHER INCOME AND (DEDUCTIONS)
Income from equity investments 16,333 - - 16,333 - - 16,333
Minority interest (13,747) - - (13,747) - - (13,747)
Other 6,510 5,225 - 11,735 243 - 11,978
--------- ------- --------- --------- -------- -------- ------------
Total Other Income 9,096 5,225 - 14,321 243 - 14,564
--------- ------- --------- --------- -------- -------- ------------
INCOME BEFORE INTEREST CHARGES
AND INCOME TAXES 531,204 66,874 (21,127) 576,951 8,611 (3,279) 582,283
INTEREST CHARGES 120,106 34,139 110,415(5) 264,660 5,332 13,070 (12) 283,062
INCOME TAXES 170,858 13,828 (38,645)(7) 146,041 3,137 (4,575)(14) 144,603
NET INCOME 240,240 18,907 (92,897) 166,250 142 (11,774) 154,618
Preferred stock dividend requirements 16,453 1,082 - 17,535 - - 17,535
Earnings for common stock $ 223,787 $17,825 $(92,897) $ 148,715 $ 142 $(11,774) $ 137,083
========= ======= ========= ========= ======== ========= ============
Averages shares outstanding (000) 133,965 - - 133,965 - - 133,965
BASIC AND DILUTED EARNINGS PER
COMMON SHARE $ 1.67 - - $ 1.11 - - $ 1.02
========= ========= ============
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
NOTE 1. CASH CONSIDERATION AND ESTIMATED GOODWILL RELATED TO THE EASTERN
ACQUISITION
Cash consideration paid to Eastern shareholders will be refinanced
from the proceeds of the Notes and commercial paper issuances. We will issue
approximately $1.478 billion of Notes at an estimated annual effective interest
rate of 8.149% and approximately $277 million of commercial paper at an
estimated annual interest rate of 6.78%. We acquired all of the outstanding
common stock of Eastern for $64.56 per share, in cash.
The estimated goodwill reflects the recognition of the excess
amount of the purchase price over the fair value of the net assets acquired,
including costs incurred directly related to the consummation. The following
represents the estimated goodwill calculation:
Estimated Eastern common shares outstanding at date of closing 27,183,454
Share price $ 64.558
--------------
Purchase price $ 1,754,909,423
Common equity of Eastern (740,112,000)
--------------
$ 1,014,797,423
Estimated transaction costs (see note 2) 8,100,000
Estimated restructuring and other costs (see note 3) 103,870,000
--------------
Estimated goodwill $ 1,126,767,423
==============
Amortization period 40
Estimated yearly amortization $ 28,169,186
Estimated nine months amortization $ 21,126,889
A final determination of goodwill will reflect purchase accounting
adjustments based on the fair value of assets and liabilities acquired,
actuarial valuations related to employee benefit plans, estimates with respect
to the effect of consolidation of 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 ACQUISITION
We have incurred direct expenses related to the acquisition,
including accounting, investment banking, legal and consulting fees. The pro
forma adjustments include an estimate for these costs of $8.1 million, which is
included in goodwill. These costs will be refinanced through the issuance of
commercial paper. We will also incur underwriting fees of approximately $10.7
million. These costs will be amortized to interest expense over the life of the
related debt and will be financed through the issuance of commercial paper.
NOTE 3. ESTIMATED RESTRUCTURING AND OTHER COSTS ASSOCIATED WITH THE EASTERN
ACQUISITION
Eastern has incurred direct expenses related to the acquisition,
including accounting, investment banking, legal and consulting fees, of
approximately $13.9 million. In addition, Eastern incurred expenses of
approximately $76.3 million for contractual obligations, such as "change in
control" payments and non-qualified stock options, that were "cashed out." These
costs have been expensed as incurred by Eastern and have been included in the
calculation of estimated goodwill. These costs will be refinanced through the
issuance of commercial paper. Eastern has also incurred costs of approximately
$9 million associated with a severance program. These costs have also been
included in the calculation of estimated goodwill and will be financed through
the issuance of commercial paper. Further, some Eastern options were converted
to options to purchase KeySpan stock. The estimated value of such options, which
were primarily fully vested, approximated $4.7 million and were recorded as
additional purchase price consideration by us.
NOTE 4. FORWARD STARTING SWAP AGREEMENT
In anticipation of issuing long-term debt, we entered into forward
starting swap agreements to hedge a portion of the risk that the cost of the
issuance of the Notes would be adversely affected by changes in interest rates.
Through September 30, 2000, we entered into $1.35 billion of forward starting
swap agreements with interest rates that ranged from 6.86% to 7.78%. The
maturities on these instruments range from 5 to 30 years. Based on interest
rates effective as of October 30, 2000, we estimate that we may be obligated to
pay counterparties approximately $54 million at the time of the issuance of the
Notes. This amount will be amortized to interest expense over the life of the
Notes and reflects the significant decrease in interest rates since we entered
into the forward starting swap lock agreements.
NOTE 5. INTEREST EXPENSE ASSOCIATED WITH THE EASTERN ACQUISITION
Interest expense reflects the issuance of approximately $1.478
billion of Notes and approximately $277 million of commercial paper to refinance
a portion of the Bridge Financing and other commercial paper, which was issued
to finance a portion of the acquisition price of Eastern at estimated annual
effective interest rates of 8.149% and 6.78%, respectively. The long-term debt
interest rate is an all-inclusive rate that reflects the rates associated with
our forward starting swap agreements, as well as our estimated credit spread and
an estimate for the amortization of underwriting fees. Interest expense also
reflects the issuance of commercial paper to finance transaction costs of
approximately $118 million at an estimated annual interest rate of 6.78%. A
change in the actual interest rate of 0.125%, as compared to the estimated
interest rates, will change net income by approximately $1.5 million annually
and by $1.1 million for nine months.
NOTE 6. AMORTIZATION OF GOODWILL ASSOCIATED WITH THE EASTERN ACQUISITION
Goodwill, which is not tax deductible, will be amortized over a 40
year period.
NOTE 7. INCOME TAXES ASSOCIATED WITH THE EASTERN ACQUISITION
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 8. CASH CONSIDERATION AND ESTIMATED GOODWILL ASSOCIATED WITH THE
ENERGYNORTH ACQUISITION
Cash consideration paid to EnergyNorth shareholders will be
refinanced from the proceeds of the Notes and commercial paper issuances. We
will issue approximately $172 million of Notes at an estimated annual effective
interest rate of 8.149% and approximately $32 million of commercial paper at an
estimated annual interest rate of 6.78%. We acquired all of the outstanding
common stock of EnergyNorth for $61.46 per share, in cash.
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 incurred directly related to the consummation. The
following represents the estimated goodwill calculation:
Estimated EnergyNorth common shares outstanding at date of closing 3,322,903
Share price $ 61.4587
-------------
Purchase price $ 204,221,299
Common equity of EnergyNorth (46,187,000)
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$ 158,034,299
Estimated transaction costs (see note 9) 2,100,000
Estimated restructuring and other costs (see note 10) 14,736,000
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Estimated goodwill $ 174,870,299
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Amortization period 40
Estimated yearly amortization $ 4,371,757
Estimated nine month amortization $ 3,278,818
A final determination of goodwill will reflect purchase accounting
adjustments based on the fair value of assets and liabilities acquired,
actuarial valuations related to employee benefit plans, estimates with respect
to the effect of consolidation of corporate and administrative functions,
completion of studies related to environmental issues, possible contract and
asset impairment charges, possible asset sales, and other adjustments.
NOTE 9. ESTIMATED TRANSACTION COSTS ASSOCIATED WITH THE ENERGYNORTH
ACQUISITION
Together, we and Eastern have incurred direct expenses related to
the EnergyNorth acquisition, 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 refinanced
through the issuance of commercial paper. We and Eastern will incur underwriting
fees of approximately $1.3 million. These costs will be amortized to interest
expense over the life of the related debt and will be financed through the
issuance of commercial paper.
NOTE 10. ESTIMATED RESTRUCTURING AND OTHER COSTS ASSOCIATED WITH THE
ENERGYNORTH ACQUISITION
EnergyNorth has incurred direct expenses related to the
acquisition, including accounting, investment banking, legal and consulting
fees, of approximately $4.7 million. In addition, EnergyNorth incurred expenses
of approximately $10 million for contractual obligations, such as "change in
control" payments. These costs were expensed as incurred by EnergyNorth and have
been included in the calculation of estimated goodwill. These costs will be
refinanced through the issuance of commercial paper.
NOTE 11. FORWARD STARTING SWAP AGREEMENT
In anticipation of issuing long-term debt, we entered into forward
starting swap agreements to hedge a portion of the risk that the cost of
issuance of the Notes would be adversely affected by changes in interest rates.
Through September 30, 2000, we entered into $150 million of forward starting
swap agreements with interest rates that ranged from 6.86% to 7.78%. The
maturities on these instruments range from 5 to 30 years. Based on interest
rates effective as of October 30, 2000, we estimate that we may be obligated to
pay counterparties approximately $6 million at the time of the issuance of the
Notes. This amount will be amortized to interest expense over the life of the
Notes and reflects the significant decrease in interest rates since we entered
into the forward starting swap lock agreements.
NOTE 12. INTEREST EXPENSE ASSOCIATED WITH THE ENERGYNORTH ACQUISITION
Interest expense reflects the issuance of approximately $172
million of Notes and approximately $32 million of commercial paper to refinance
the Bridge Financing and other commercial paper, which was issued to finance a
portion of the acquisition price of EnergyNorth at estimated effective annual
interest rates of 8.149% and 6.78%, respectively. The long-term debt interest
rate is an all-inclusive rate that reflects the rates associated with our
forward starting swap agreements, as well as our estimated credit spread and an
estimate for the amortization of underwriting fees. Interest expense also
reflects the issuance of commercial paper to finance transaction costs of
approximately $18.1 million at an estimated annual interest rate of 6.78%. A
change in the actual interest rate of 0.125%, as compared to the estimated
interest rates, will change net income by approximately $0.2 million annually
and have an immaterial effect on net income for the nine month period.
NOTE 13. AMORTIZATION OF GOODWILL ASSOCIATED WITH THE ENERGYNORTH ACQUISITION
Goodwill, which is not tax deductible, will be amortized over a 40
year period.
NOTE 14. INCOME TAXES ASSOCIATED WITH THE ENERGYNORTH ACQUISITION
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.