SECURITIES AND EXCHANGE COMMISSION
_____________________
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): June 28, 2002
_____________________
Energy East Corporation
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New York (State or other jurisdiction of incorporation) |
1-14766 (Commission File Number) |
14-1798693 (IRS Employer Identification No.) |
|
P.O. Box 12904 (Address of principal executive offices) |
(Registrant's telephone number, including area code) |
Not Applicable
(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
On June 28, 2002, pursuant to the Agreement and Plan of Merger dated as of February 16, 2001, Energy East Corporation completed its merger with RGS Energy Group, Inc. As a result of the merger, approximately 45% of the common stock of RGS Energy became exchangeable for 1.7626 shares of Energy East common stock, and approximately 55% was convertible into $39.50 in cash per RGS Energy share, subject to the terms of the merger agreement. The transaction had an equity market value of approximately $1.4 billion, and will be accounted for using the purchase method. Rochester Gas & Electric Corporation, RGS Energy's principal subsidiary, will continue to operate as a regulated electric and natural gas utility, serving customers in parts of nine counties including and surrounding the city of Rochester.
Energy East's sources of funds for the consideration for the RGS Energy merger transaction include proceeds from the issuance in July 2001 of $345 million of a business trust subsidiary's preferred securities, with a dividend rate of 8 1/4%; the issuance in November 2001 of $250 million of 5.75% notes payable; and the issuance in June 2002 of $400 million of 6.75% notes payable.
With the completion of this transaction, Energy East becomes one of the largest energy providers in the Northeast, serving nearly 3 million customers including 1.8 million electricity customers, 1 million natural gas customers and 200,000 other retail energy customers. Its combined service area stretches across half of upstate New York and into New England.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired
The following audited financial statements of RGS Energy Group, Inc. and its subsidiaries, together with the report of independent accountants, are incorporated by reference: consolidated balance sheet, consolidated statement of earnings and consolidated statement of cash flows, and the notes related thereto, included in RGS Energy's Annual Report on Form 10-K for the year ended December 31, 2001. The following unaudited financial statements of RGS Energy and its subsidiaries are incorporated by reference: consolidated balance sheet, consolidated statement of earnings and consolidated statement of cash flows, and the notes related thereto, included in RGS Energy's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.
(b) Pro forma financial information
Energy East Corporation
Combined Condensed Balance Sheet
Giving Effect to the RGS Energy Merger
At March 31, 2002
Actual and Pro Forma
(Unaudited)
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Merger |
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(Thousands) |
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Assets |
||||
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Current Assets |
||||
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Cash and cash equivalents |
$533,824 |
$13,557 |
$(303,352)(4) |
$244,029 |
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Special deposits |
1,939 |
1,939 |
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Accounts receivable, net |
589,337 |
176,289 |
765,626 |
|
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Other |
196,199 |
130,630 |
326,829 |
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Total Current Assets |
1,321,299 |
320,476 |
(303,352) |
1,338,423 |
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Utility Plant, at Original Cost |
5,879,901 |
2,574,659 |
8,454,560 |
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|
Less accumulated depreciation |
2,302,563 |
1,494,734 |
3,797,297 |
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Net Utility Plant in Service |
3,577,338 |
1,079,925 |
4,657,263 |
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Construction work in progress |
26,058 |
150,182 |
176,240 |
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Total Utility Plant |
3,603,396 |
1,230,107 |
4,833,503 |
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Other Property and Investments, Net |
201,030 |
229,367 |
430,397 |
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Regulatory Assets |
670,824 |
644,048 |
30,447(5) |
1,345,319 |
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Other Assets |
567,709 |
73,842 |
133,976(6) |
775,527 |
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Goodwill, net |
897,841 |
18,468 |
587,406(7)(8) |
1,503,715 |
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Total Assets |
$7,262,099 |
$2,516,308 |
$448,477 |
$10,226,884 |
The notes on pages 6 through 8 are an integral part of the pro forma combined condensed financial statements.
Energy East Corporation
Combined Condensed Balance Sheet
Giving Effect to the RGS Energy Merger
At March 31, 2002
Actual and Pro Forma
(Unaudited)
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Merger |
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|
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(Thousands) |
||||
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Liabilities |
||||
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Current Liabilities |
||||
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Current portion of long-term debt |
$406,451 |
$12,337 |
$418,788 |
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Notes payable |
88,700 |
59,500 |
$50,000(9) |
198,200 |
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Other |
456,480 |
196,609 |
9,500(7)(8) |
662,589 |
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Total Current Liabilities |
951,631 |
268,446 |
59,500 |
1,279,577 |
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Regulatory Liabilities |
||||
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Gain on sale of generation assets |
197,100 |
197,100 |
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Other |
255,718 |
26,117 |
133,976(6) |
415,811 |
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Total Regulatory Liabilities |
452,818 |
26,117 |
133,976 |
612,911 |
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Deferred income taxes |
495,487 |
265,378 |
760,865 |
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|
Nuclear waste disposal |
101,562 |
101,562 |
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Other |
794,815 |
206,612 |
30,447(5) |
1,031,874 |
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Long-term debt |
2,287,824 |
788,769 |
400,000(10) |
3,476,593 |
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Total Liabilities |
4,982,575 |
1,656,884 |
623,923 |
7,263,382 |
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Commitments |
- |
- |
- |
- |
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Company-obligated mandatorily redeemable trust preferred securities of subsidiary holding solely parent debentures |
|
|
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Preferred stock redeemable solely at the option of subsidiaries |
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Preferred stock subject to mandatory redemption requirements |
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Common Stock Equity |
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Energy East common stock ($.01 par value, 300,000 shares authorized,116,822 shares outstanding at March 31, 2002) |
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|
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RGS Energy common stock ($.01 par value, 100,000 shares authorized and 34,677 shares outstanding at March 31, 2002) |
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|
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Capital in excess of par value |
840,198 |
708,365 |
(96,662)(11) |
1,451,901 |
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Retained earnings |
1,075,848 |
195,906 |
(195,906)(11) |
1,075,848 |
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Accumulated other comprehensive income |
7,850 |
- |
7,850 |
|
|
Treasury stock, at cost (1,230 Energy East shares and 4,379 RGS Energy shares outstanding at March 31, 2002) |
|
|
|
|
|
Total Common Stock Equity |
1,891,104 |
787,424 |
(175,446) |
2,503,082 |
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Total Liabilities and Stockholders' Equity |
$7,262,099 |
$2,516,308 |
$448,477 |
$10,226,884 |
The notes on pages 6 through 8 are an integral part of the pro forma combined condensed financial statements.
Energy East Corporation
Combined Condensed Statement of Income
Giving Effect to the RGS Energy Merger
12 Months Ended December 31, 2001
Actual and Pro Forma
(Unaudited)
|
|
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Merger |
|
|
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(Thousands, except per share amounts) |
||||
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Operating Revenues |
||||
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Sales and services |
$3,759,787 |
$1,530,492 |
$5,290,279 |
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Operating Expenses |
||||
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Electricity purchased and fuel used |
|
|
|
|
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Natural gas purchased |
694,038 |
230,507 |
924,545 |
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Gasoline, propane and oil purchased |
384,320 |
384,320 |
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Other operating expenses |
570,186 |
309,645 |
879,831 |
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Maintenance |
139,395 |
50,524 |
189,919 |
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Depreciation and amortization |
204,281 |
120,547 |
324,828 |
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Other taxes |
192,772 |
90,885 |
283,657 |
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|
Gain on sale of generation assets |
(84,083) |
(84,083) |
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Deferral of asset sale gain |
71,803 |
71,803 |
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Total Operating Expenses |
3,122,899 |
1,337,774 |
4,460,673 |
|
|
Operating Income |
636,888 |
192,718 |
829,606 |
|
|
Writedown of Investment |
78,422 |
78,422 |
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Other (Income) |
(15,003) |
(1,253) |
(16,256) |
|
|
Interest Charges, Net |
217,028 |
65,541 |
$31,286(9)(10) |
313,855 |
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Preferred Stock Dividends of Subsidiaries |
14,455 |
3,700 |
15,923(12) |
34,078 |
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Income Before Income Taxes |
341,986 |
124,730 |
(47,209) |
419,507 |
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Income Taxes |
154,379 |
55,390 |
(18,884)(13) |
190,885 |
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Net Income |
$187,607 |
$69,340 |
$(28,325) |
$228,622 |
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Earnings Per Share, basic and diluted |
$1.61 |
$1.59 |
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|
Average Common Shares Outstanding |
116,708 |
27,505(14) |
144,213 |
The notes on pages 6 through 8 are an integral part of the pro forma combined condensed financial statements.
Energy East Corporation
Combined Condensed Statement of Income
Giving Effect to the RGS Energy Merger
Three Months Ended March 31, 2002
Actual and Pro Forma
(Unaudited)
|
|
|
Merger |
|
|
|
(Thousands, except per share amounts) |
||||
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Operating Revenues |
||||
|
Sales and services |
$1,028,578 |
$379,133 |
$1,407,711 |
|
|
Operating Expenses |
||||
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Electricity purchased and fuel used |
|
|
|
|
|
Natural gas purchased |
209,730 |
77,287 |
287,017 |
|
|
Gasoline, propane and oil purchased |
65,742 |
65,742 |
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Other operating expenses |
142,452 |
67,690 |
210,142 |
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|
Maintenance |
34,825 |
16,281 |
51,106 |
|
|
Depreciation and amortization |
46,143 |
26,866 |
73,009 |
|
|
Other taxes |
50,606 |
27,079 |
77,685 |
|
|
Total Operating Expenses |
789,709 |
325,462 |
1,115,171 |
|
|
Operating Income |
238,869 |
53,671 |
292,540 |
|
|
Writedown of Investment |
10,115 |
10,115 |
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|
Other (Income) |
(5,434) |
(2,203) |
(7,637) |
|
|
Interest Charges, Net |
55,910 |
14,869 |
$7,125(9)(10) |
77,904 |
|
Preferred Stock Dividends of Subsidiaries |
7,592 |
925 |
8,517 |
|
|
Income Before Income Taxes |
170,686 |
40,080 |
(7,125) |
203,641 |
|
Income Taxes |
65,116 |
15,972 |
(2,850)(13) |
78,238 |
|
Net Income |
$105,570 |
$24,108 |
$(4,275) |
$125,403 |
|
Earnings Per Share, basic and diluted |
$.90 |
$.87 |
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|
Average Common Shares Outstanding |
116,720 |
27,505(14) |
144,225 |
The notes on pages 6 through 8 are an integral part of the pro forma combined condensed financial statements.
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
Giving Effect to the RGS Energy Merger
Note 1. Unaudited Pro Forma Combined Condensed Financial Statements.
The unaudited pro forma combined condensed financial statements as of and for the three months ended March 31, 2002, have been adjusted to give effect to the RGS Energy merger. The unaudited pro forma combined condensed income statement as of December 31, 2001, has been adjusted to give effect to the RGS Energy merger. The unaudited pro forma combined condensed financial statements reflect preliminary purchase accounting adjustments in accordance with generally accepted accounting principles. Estimates relating to the fair value of some assets, liabilities and other events have been made as more fully described below. Actual adjustments will be made on the basis of actual assets, liabilities and other items as of the closing date of the merger on the basis of appraisals and evaluations. Therefore, actual amounts may differ from those reflected in the pro forma financial statements.
The unaudited pro forma combined condensed balance sheet gives effect to the merger as if it occurred on March 31, 2002. The unaudited pro forma combined condensed statement of income for the 12 months ended December 31, 2001, and for the three months ended March 31, 2002, give effect to the merger as if the merger was completed on January 1, 2001.
The unaudited pro forma combined condensed financial statements should be read in conjunction with the consolidated historical financial statements and the related notes of RGS Energy, which are incorporated by reference. The pro forma statements are for illustrative purposes only. They are not necessarily indicative of the financial position or operating results that would have occurred had the merger been completed on January 1, 2001, or March 31, 2002, as assumed above; nor is the information necessarily indicative of future financial position or operating results.
Note 2. Accounting Method.
The RGS Energy merger will be accounted for as an acquisition of RGS Energy by Energy East under the purchase method of accounting in accordance with generally accepted accounting principles. The amount of goodwill recorded will reflect the excess of the purchase price over the estimated net fair value of assets and liabilities of RGS Energy's utility and nonutility businesses at the time of closing, plus Energy East's estimated transaction costs related to the merger. The assets and liabilities of RGS Energy's nonutility businesses will be revalued to fair value, including an allocation of goodwill, if appropriate.
Note 3. Earnings Per Share and Average Shares Outstanding.
The pro forma earnings per share and number of average shares outstanding have been restated to reflect the average number of shares that would have been outstanding if the merger occurred at the beginning of the periods presented assuming a conversion of 45% of the RGS Energy shares into 1.7626 Energy East shares per RGS Energy share. The exchange ratio of 1.7626 is based on a value of $39.50 per RGS Energy share and an average market price of $22.51 per Energy East share.
Note 4. Cash Consideration.
This amount reflects the cash consideration paid to RGS Energy's shareholders based on a purchase price per share of $39.50 for 55% of the RGS Energy shares outstanding at March 31, 2002, and the cash received from the issuance of the long-term debt and notes payable.
Note 5. Regulatory Asset and Related Liability
This amount reflects the recognition of a regulatory asset and a liability for the estimated difference between RGS Energy's net other postretirement benefit obligation and the previously recognized liability.
Note 6. Other Asset and Related Regulatory Liability.
This amount reflects the recognition of an other asset and a regulatory liability for the estimated difference between RGS Energy's net pension benefit and the previously recognized liability.
Note 7. Goodwill.
This amount reflects the recognition of goodwill equal to the excess of the estimated purchase price of $1,365.3 million over the estimated net fair value of the assets and liabilities of RGS Energy acquired of $787.4 million, plus estimated transaction costs of $9.5 million related to the merger.
Since the acquisition of RGS Energy occurred after June 30, 2001, the resulting goodwill will not be amortized as prescribed by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Goodwill will be tested at least annually for impairment.
Note 8. Merger-Related Costs.
Energy East and RGS Energy will incur direct expenses related to the merger, including financial advisor, legal and accounting fees. The pro forma adjustments include an estimate for Energy East's merger-related costs of $9.5 million, which is included in goodwill. RGS Energy expects to incur approximately $18 million of merger-related costs, which it will expense as incurred. The actual amount of merger-related costs may differ from the amounts reflected in the unaudited pro forma combined condensed financial statements.
Note 9. Notes Payable
This amount reflects the issuance of $50 million of notes payable with an assumed average interest rate of 3%, the proceeds of which will be used for general corporate purposes.
Note 10. Long-term Debt.
This amount reflects the issuance of $400 million principal amount of notes payable with a fixed interest rate of 6.75%, the proceeds of which were used to fund the consideration paid to RGS Energy shareholders. Interest expense for the 12 months ended December 31, 2001, was adjusted for the effect of the issuance of $250 million of notes payable in 2001 and the effect of $327 million of debt redeemed in 2001.
Note 11. Common Stock.
This amount reflects the Energy East shares to be issued to RGS Energy shareholders in exchange for 45% of their RGS Energy shares, using a conversion ratio of 1.7626 Energy East shares per RGS Energy share, and the exchange of 55% of their RGS Energy shares for cash.
Note 12. Trust Preferred Securities.
This amount adjusts dividends of subsidiaries for the 12-month period to reflect dividends related to $345 million of a business trust subsidiary's preferred securities, with a dividend rate of 81¤ 4%, that were sold in July 2001. The proceeds were used by the Trust to purchase Energy East's 81¤ 4% junior subordinated debt securities issued in July 2001.
Note 13. Income Taxes.
Income taxes on the pro forma combined condensed income statements have been based on the statutory rate.
Note 14. Energy East Shares Issued.
This amount reflects the number of Energy East shares to be issued in the merger using a conversion of 45% of the RGS Energy shares into 1.7626 Energy East shares per RGS Energy share.
(c) Exhibits
|
1-1 |
Agreement and Plan of Merger between Energy East and RGS Energy (filed as Appendix A to RGS Energy's definitive Proxy Statement dated April 27, 2001, filed with the Securities and Exchange Commission on April 27, 2001, and incorporated herein by reference). |
Forward-looking Statements
This Form 8-K contains certain forward-looking statements that are based on management's current expectations and information that is currently available. Whenever used in this report, the words "estimate," "expect," "believe," "anticipate," or similar expressions are intended to identify such forward-looking statements.
In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that involve risks and uncertainties and that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others: the deregulation and continued regulatory unbundling of a vertically integrated industry; the company's ability to compete in the rapidly changing and increasingly competitive electricity and natural gas utility markets; regulatory uncertainty in a politically-charged environment of rising energy prices; the operation of the New York Independent System Operator and ISO New England, Inc.; the operation of a Northeast Regional Transmission Organization; the ability to control nonutility generator and other costs; changes in fuel supply or cost and the success of strategies to satisfy power requirements now that all coal-fired generation assets have been sold; the company's ability to expand its products and services, including its energy infrastructure in the Northeast; the company's ability to integrate the operations of Connecticut Energy Corporation, CMP Group, CTG Resources, Inc., Berkshire Energy Resources and RGS Energy with its operations; market risk; the ability to obtain adequate and timely rate relief; nuclear, terrorist or environmental incidents; legal or administrative proceedings; changes in the cost or availability of capital; growth in the areas in which the company is doing business; weather variations affecting customer energy usage; and other considerations that may be disclosed from time to time in the company's publicly disseminated documents and filings. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
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 thereunto duly authorized.
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ENERGY EAST CORPORATION |
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Date: June 28, 2002 |
By /s/Robert D. Kump |