<PAGE>
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: December 19, 1997
KEYSPAN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 1-14508 11-3344628
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or File Number) Identification No.)
organization)
One MetroTech Center,Brooklyn, New York 11201-3850
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 403-1000
<PAGE>
Item 5. Other Events
The Company is filing this Current Report on Form 8-K to provide
unaudited pro forma combined condensed financial information for
KeySpan and Long Island Lighting Company (LILCO) at September 30,
1997 and for the twelve months ended September 30, 1997 in order to
give effect under the purchase method of accounting to the
transactions summarized in Exhibit 99.1 hereto and in the
assumptions set forth in the notes thereto.
Based on current facts and circumstances, KeySpan and LILCO believe
that the applicability of the purchase method of accounting is
probable. If the LIPA Transaction is not consummated, it is
possible that the combination between KeySpan and LILCO would
qualify for the pooling of interests method of accounting.
The unaudited pro forma combined condensed financial information
set forth in Exhibit 99.1 to this Current Report on Form 8-K
reflects the condensed consolidated financial information of
KeySpan and LILCO contained in KeySpan's Form 10-K Report filed
December 19, 1997 and LILCO's Form 10-Q Report filed on November
11, 1997, which Quarterly Report of LILCO is attached hereto as
Exhibit 99.2. Exhibits 99.1 and 99.2 are hereby incorporated by
reference in response to this Item 5.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
The unaudited pro forma combined condensed financial information
and LILCO's Quarterly Report on Form 10-Q filed on November 11,
1997, referred to above in Item 5 and incorporated herein by
reference, are attached hereto as the following Exhibits:
Exhibit
Number
99.1 Unaudited pro forma combined condensed financial
information for KeySpan and LILCO at September 30, 1997
and for the twelve months ended September 30, 1997.
99.2 LILCO 10-Q Report for the quarter ended September 30,
1997.
2
<PAGE>
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.
Dated: December 19, 1997
KEYSPAN ENERGY CORPORATION
By: /s/ Vincent D. Enright
-----------------------------
Vincent D. Enright
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
3
<PAGE>
Exhibit Index
Exhibit
Number
99.1 Unaudited pro forma combined condensed financial
information for KeySpan and LILCO at September 30, 1997
and for the twelve months ended September 30, 1997,
begins on page 5.
99.2 LILCO 10-Q Report for the quarter ended September 30,
1997 begins on page 14.
4
Exhibit 99.1
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
KEYSPAN ENERGY CORP/LILCO COMBINATION AND LIPA TRANSACTION
(PURCHASE)
The following unaudited pro forma financial information reflects
adjustments to the historical financial statements of LILCO to give
effect to the proposed transfer of LILCO's gas and generation
business to subsidiaries of the newly formed Holding Company
(Holding Company), the proposed stock acquisition of LILCO by a
wholly owned subsidiary of LIPA and the proposed Combination
between KeySpan Energy Corporation (KeySpan) and LILCO
(Combination). The unaudited pro forma consolidated condensed
balance sheet at September 30, 1997 gives effect to the proposed
LIPA Transaction and the Combination as if they had occurred at
September 30, 1997. The unaudited pro forma consolidated condensed
statement of income for the twelve month period ended September 30,
1997 gives effect to the proposed LIPA Transaction and the
Combination as if they had occurred at October 1, 1996. These
statements are prepared on the basis of accounting for the
Combination under the purchase method of accounting and are based
on the assumptions set forth in the notes thereto. In April 1997
LILCO changed its year-end from December 31 to March 31.
The following pro forma financial information has been prepared
from, and should be read in conjunction with the historical
consolidated financial statements and related notes thereto of
KeySpan and LILCO. The following information is not necessarily
indicative of the financial position or operating results that
would have occurred had the proposed LIPA Transaction and the
Combination been consummated on the date, or at the beginning of
the period, for which the proposed LIPA Transaction and the
Combination are being given effect nor is it necessarily indicative
of future operating results or financial position.
5
<PAGE>
<TABLE>
KEYSPAN/LILCO HOLDING CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1997
(In Millions)
<CAPTION>
KeySpan/LILCO
LIPA Transactions As Adjusted Combination
----------------------- ------------------------------------
Holding
LILCO Sale to Pro Forma LILCO KeySpan Pro Forma Company
(Historical) LIPA (1) Adjustments As Adjusted (Historical) Adjustments Pro Forma
---------- --------- ---------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Property
Utility plant
Electric $ 3,969.6 $ 2,880.2 $ - $ 1,089.4 $ - $ - $ 1,089.4
Gas 1,192.5 - - 1,192.5 1,848.8 - 3,041.3
Common 268.5 - - 268.5 - - 268.5
Construction work in progress 119.5 38.6 - 80.9 - - 80.9
Nuclear fuel in process and - 0.0
in reactor 15.5 15.5 - 0.0 - - 0.0
Less - Accumulated depreciation
and amortization (1,823.9) (891.1) - (932.8) (458.1) - (1,390.9)
Gas exploration and production, at cost - - - 0.0 636.3 - 636.3
Less - Accumulated depletion - - - 0.0 (216.4) - (216.4)
---------- --------- ---------- ---------- ------------ --------- ---------
Total Property 3,741.7 2,043.2 0.0 1,698.5 1,810.6 0.0 3,509.1
---------- --------- ---------- ---------- ------------ --------- ---------
Cost in excess of net assets
acquired (Goodwill) - - - 0.0 - 308.0 (6) 308.0
---------- --------- ---------- ---------- ------------ --------- ---------
Regulatory Assets
Base financial component(less accum.
amortization of $808 ) 3,205.8 3,205.8 - 0.0 - - 0.0
Rate moderation component 402.8 402.8 - 0.0 - - 0.0
Shoreham post-settlement costs 1,004.1 1,004.1 - 0.0 - - 0.0
Regulatory tax asset 1,754.4 1,754.4 - 0.0 - 70.5 (5) 70.5
Postretirement benefits
other than pensions 350.5 - (295.7)(2) 54.8 - - 54.8
Other 431.5 330.6 - 100.9 - - 100.9
---------- --------- ---------- ---------- ------------ --------- ---------
Total Regulatory Assets 7,149.1 6,697.7 (295.7) 155.7 0.0 70.5 226.2
---------- --------- ---------- ---------- ------------ --------- ---------
Nonutility Property
and Other Investments 50.6 17.1 - 33.5 166.9 - 200.4
---------- --------- ---------- ---------- ------------ --------- ---------
Current Assets
Cash and cash equivalents 121.5 - 2,487.6 (3) 2,609.1 36.9 - 2,646.0
Accounts receivable-net 479.1 333.3 14.4 (2) 160.2 159.9 - 320.1
Deferred tax asset 25.2 25.2 119.0 (4) 119.0 - - 119.0
Other current assets 250.6 1.7 - 248.9 151.3 - 400.2
---------- --------- ---------- ---------- ------------ --------- ---------
Total Current Assets 876.4 360.2 2,621.0 3,137.2 348.1 0.0 3,485.3
---------- --------- ---------- ---------- ------------ --------- ---------
Deferred Charges 80.2 47.4 - 32.8 171.6 (70.5)(5) 133.9
Contractual receivable from LIPA - - 281.3 (2) 281.3 - - 281.3
---------- --------- ---------- ---------- ------------ --------- ---------
Total Assets $ 11,898.0 $ 9,165.6 $ 2,606.6 $ 5,339.0 $ 2,497.2 $ 308.0 $ 8,144.2
========== ========= ========== ========== ============ ========= =========
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
</TABLE>
6
<PAGE>
<TABLE>
KEYSPAN/LILCO HOLDING CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1997
(In Millions)
<CAPTION>
KeySpan/LILCO
LIPA Transactions As Adjusted Combination
----------------------- ------------------------------------
Holding
LILCO Sale to Pro Forma LILCO KeySpan Pro Forma Company
(Historical) LIPA (1) Adjustments As Adjusted (Historical) Adjustments Pro Forma
---------------------- ---------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareholders' Equity 2,614.1 2,520.6 2,487.6 (3) 2,581.1 969.0 253.9 (6) 3,804.0
Long-term debt 4,458.5 3,293.6 (75.0)(14) 1,089.9 745.1 - 1,835.0
Preferred stock 701.0 338.0 75.0 (14) 438.0 0.0 0.0 438.0
---------- --------- ---------- ---------- ------------ --------- ---------
Total Capitalization 7,773.6 6,152.2 2,487.6 4,109.0 1,714.1 253.9 6,077.0
---------- --------- ---------- ---------- ------------ --------- ---------
Regulatory Liabilities 526.3 493.2 - 33.1 - - 33.1
---------- --------- ---------- ---------- ------------ --------- ---------
Current Liabilities
Accounts payable
and accrued liabilities 242.9 121.0 - 121.9 161.3 54.1 (6) 337.3
Accrued taxes 57.2 - 399.0 (4) 456.2 4.6 - 460.8
Other current liabilities 336.5 64.5 - 272.0 153.6 - 425.6
---------- --------- ---------- ---------- ------------ --------- ---------
Total Current Liabilities 636.6 185.5 399.0 850.1 319.5 54.1 1,223.7
---------- --------- ---------- ---------- ------------ --------- ---------
Deferred Credits
Deferred federal income tax 2,422.0 2,312.2 (280.0)(4) (170.2) 290.4 - 120.2
Other 100.9 29.6 - 71.3 88.0 - 159.3
---------- --------- ---------- ---------- ------------ --------- ---------
Total Deferred Credits 2,522.9 2,341.8 (280.0) (98.9) 378.4 0.0 279.5
---------- --------- ---------- ---------- ------------ --------- ---------
Operating Reserves 438.6 (7.1) - 445.7 - - 445.7
---------- --------- ---------- ---------- ------------ --------- ---------
Commitments and Contingencies - - - 0.0 - - 0.0
Minority Interest in
Subsidiary Company - - - 0.0 85.2 - 85.2
---------- --------- ---------- ---------- ------------ --------- ---------
Total Capitalization and Liabilities $ 11,898.0 $ 9,165.6 $ 2,606.6 $ 5,339.0 $ 2,497.2 $ 308.0 $ 8,144.2
========== ========= ========== ========== ============ ========= =========
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
</TABLE>
7
<PAGE>
<TABLE>
KEYSPAN/LILCO HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
For the Twelve Months Ended September 30, 1997
(In Millions, Except Per Share Amounts)
<CAPTION>
Holding
LILCO Sale to Pro Forma LILCO KeySpan Pro Forma Company
(Historical) LIPA Adjustments As Adjusted (Historical) Adjustments Pro Forma
---------- --------- ---------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Electric $ 2,458.3 $ 1,485.0 (9)$ 11.5 (7)$ 984.8 $ - $ - $ 984.8
Gas-utility sales 651.9 - - 651.9 1,363.7 - 2,015.6
Gas production and other - - - - 114.5 - 114.5
---------- --------- ---------- ---------- ------------ --------- ---------
Total Revenues 3,110.2 1,485.0 11.5 1,636.7 1,478.2 - 3,114.9
---------- --------- ---------- ---------- ------------ --------- ---------
Operating Expenses
Operations-fuel & purchased power 946.1 14.4 - 931.7 594.1 - 1,525.8
Operations-other 366.1 216.4 - 149.7 363.2 - 512.9
Maintenance 114.6 65.0 - 49.6 56.6 - 106.2
Depreciation,depletion and amortization 156.8 95.2 - 61.6 111.0 6.3 (6) 178.9
Base financial component amortization 101.0 101.0 - 0.0 - - 0.0
Rate moderation component amortization 33.9 33.9 - 0.0 - - 0.0
Regulatory liability component amortization (88.6) (88.6) - 0.0 - - 0.0
Other regulatory amortization 46.6 28.4 - 18.2 - - 18.2
Operating taxes 468.4 266.2 - 202.2 153.5 - 355.7
Federal income taxes 218.9 188.6 6.3 (8) 36.6 57.2 - 93.8
---------- --------- ---------- ---------- ------------ --------- ---------
Total Operating Expenses 2,363.8 920.5 6.3 1,449.6 1,335.6 6.3 2,791.5
---------- --------- ---------- ---------- ------------ --------- ---------
Operating Income 746.4 564.5 5.2 187.1 142.6 (6.3) 323.4
Other Income 14.3 26.7 - (12.4) 16.7 - 4.3
---------- --------- ---------- ---------- ------------ --------- ---------
Income Before Interest Charges 760.7 591.2 5.2 174.7 159.3 (6.3) 327.7
Interest Charges 419.3 325.1 (1.9)(8) 92.3 44.6 - 136.9
---------- --------- ---------- ---------- ------------ --------- ---------
Net Income 341.4 266.1 7.1 82.4 114.7 (15) (6.3) 190.8
Preferred stock dividend requirements 51.9 23.1 23.7 (14) 52.5 0.3 52.8
---------- --------- ---------- ---------- ------------ --------- ---------
Earnings for Common Stock $ 289.5 $ 243.0 $ (16.6) $ 29.9 $ 114.4 $ (6.3) $ 138.0
========== ========= ========== ========== ============ ========= =========
Average Common Shares Outstanding 121.1 121.1 121.1 121.1 50.2 (14.5)(3) 156.8
========== ========= ========== ========== ============ ========= =========
Earnings per Common and
Equivalent Shares $ 2.39 $ 2.01 $ (0.14) $ 0.25 $ 2.27 $ 0.43 $ 0.88
========== ========= ========== ========== ============ ========= =========
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
</TABLE>
8
<PAGE>
Notes to Unaudited Pro Forma Consolidated Condensed Financial
Statements
1. The historical financial statements of LILCO have been
adjusted to give effect to the proposed transaction with LIPA,
pursuant to which LILCO will distribute certain of its net
assets relating to its gas and generation business
("Transferred Assets") to subsidiaries of the Holding Company.
LIPA will then acquire LILCO in a stock sale. The adjustments
are based upon a disaggregation of LILCO's balance sheet and
operations as estimated by the management of LILCO, and are
subject to adjustment pursuant to the terms of the LIPA
agreement.
In connection with this transaction, the principal assets to
be acquired by LIPA through its stock acquisition of LILCO
include the electric transmission and distribution system
("The LIPA Transmission and Distribution System"), LILCO's 18%
interest in Nine Mile Point 2 nuclear power station, certain
of LILCO's regulatory assets associated with its electric
business and an allocation of accounts receivable and other
assets. The principal liabilities to be assumed by LIPA
include LILCO's regulatory liabilities associated with its
electric business, a portion of LILCO's long-term debt and an
allocation of accounts payable, accrued expenses, customer
deposits, other deferred credits and claims.
2. In connection with the LIPA Transaction, LIPA is contractually
responsible for reimbursing the Holding Company for
postretirement benefits other than pension costs, related to
employees of LILCO's electric business. A pro forma
adjustment has been reflected to reclassify the associated
regulatory asset for postretirement benefits other than
pensions to current and non-current accounts receivable
pursuant to LIPA's obligation to a subsidiary of the Holding
Company.
3. The Cash Purchase Price to be paid by LIPA in connection with
its stock acquisition of LILCO will be $2,497.5 million. The
Cash Purchase Price was determined based upon the estimated
net book value of the LILCO Retained Assets of $2,500.8
million as estimated by LILCO in a projected balance sheet as
of December 31, 1997. Based upon the balance sheet as of
September 30, 1997, the net book value of the LILCO Retained
Assets amounted to $2,520.6 million. In addition, the LIPA
Transaction obligates the Holding Company upon the closing of
the transaction to remit to LIPA $15 million associated with
the recovery through litigation of certain real estate taxes
previously paid. Transaction costs are currently estimated to
be $18 million. Assuming the LIPA Transaction was completed
on September 30, 1997, the net cash to be received by the
Holding Company would amount to:
9
<PAGE>
Cash Purchase Price ........................... $2,520.6
Cash Paid to LIPA ............................. (15.0)
Transaction Costs ............................. (18.0)
---------
Net Cash....................................... $2,487.6
=========
4. The distribution of Transferred Assets from LILCO to
subsidiaries of the Holding Company will result in the
imposition of federal income taxes on LILCO. Pursuant to the
LIPA Agreement, the subsidiaries created by the Holding
Company to receive the Transferred Assets will receive the
benefit of the increased tax basis of the Transferred Assets
and will pay the LILCO tax. If the LIPA Transaction were to
have occurred at September 30, 1997, the tax would have
amounted to approximately $399 million. The tax is derived
from the difference between the estimated fair value of the
distributed assets and their existing tax basis. For
financial reporting purposes, the subsidiaries reversed the
existing deferred tax liability of $280 million relating to
the Transferred Assets and recorded a $119 million deferred
tax asset reflecting the income tax effect by which the tax
basis of the Transferred Assets exceeded their book basis.
5. The unaudited pro forma condensed consolidated balance sheet
as of September 30, 1997 reflects the reclassification of
$70.5 million of KeySpan regulatory tax assets from deferred
charges to regulatory assets in order to consistently present
the regulatory assets of Keyspan and LILCO Consolidated.
6. The purchase price for Keyspan at September 30, 1997, which
amounted to approximately $1.245 billion including
approximately $54.1 million of transaction costs, has been
determined based upon an average of LILCO's opening and
closing stock prices for the two trading days before and three
trading days after December 29, 1996. The purchase price has
been allocated to assets acquired and liabilities assumed
based upon their estimated fair values. It is anticipated
that the fair value of the utility assets acquired is
represented by their book value, which approximates the value
of these assets recognized by the New York State Public
Service Commission (PSC) in establishing rates which are
designed to, among other things, provide for a return on the
book value of these assets and the recovery of costs included
as depreciation and amortization charges. The estimated fair
values of KeySpan's non-utility assets approximate their
carrying values. Both KeySpan and LILCO will seek PSC
approval for recovery of transaction costs.
10
<PAGE>
At December 29, 1996, the purchase price, including merger
related transaction costs, exceeded the fair value of the net
assets acquired by $308.0 million, which will be amortized to
income over 40 years.
7. The agreement with LIPA includes a provision for the Holding
Company to earn in the aggregate approximately $11.5 million
in annual management service fees from LIPA for the management
of the LIPA Transmission and Distribution System and the
management of all aspects of fuel and power supply. These
agreements also contain certain incentive and penalty
provisions which could materially impact earnings from such
agreements.
8. The pro forma charge of $6.3 million represents the income tax
effect associated with the recording of the pro forma
adjustments for the $11.5 million management fee (see Note 7),
and a reduction in interest expense of approximately $1.9
million associated with the recapitalization of the subsidiary
which contains the gas and generation businesses.
9. Revenues for both the assets acquired by LIPA and the
Transferred Assets were determined based upon a revenue
requirements model which considered the cost of service for
these assets and a return on capitalization based upon an
imputed allowed rate of return.
10. No adjustments have been made to earnings on common stock to
reflect earnings on net available proceeds of approximately
$1.7 billion to be received, after remittances to the Holding
Company's gas and generation subsidiaries for working capital
purposes (see Notes 3 and 11). If these funds were invested
at 6.40% (the 30 year US Treasury Bond yield based on average
prices), the Holding Company would have realized additional
interest income, net of taxes, of approximately $70.7 million,
or approximately $.45 per share, on a pro forma consolidated
basis. Each one percent change in the assumed interest rate,
would increase/decrease interest income, net of taxes, by
$11.0 million. LILCO's allowed rate of return on its common
equity for its electric business is currently 11%.
11. Subsequent to the sale of LIPA, a portion of the proceeds to
be received by the Holding Company will be remitted to LILCO's
gas and generation subsidiaries in order to meet the
subsidiaries working capital needs. Such proposed transaction
has been eliminated in the consolidation process.
12. The allocation between KeySpan and LILCO and their customers
of the estimated cost savings resulting from the Combination,
net of the costs incurred to achieve such savings, will be
subject to regulatory review and approval. None of the
estimated cost savings, have been reflected in the unaudited
pro forma consolidated condensed financial statements.
11
<PAGE>
13. The unaudited pro forma consolidated condensed financial
statements reflect the exchange of each share of LILCO Common
Stock outstanding into 0.880 shares of Holding Company Common
Stock and each share of KeySpan Common Stock outstanding into
one share of Holding Company Common Stock, as provided in the
KeySpan/LILCO Agreement.
14. In connection with the LIPA Transaction, LILCO will
transfer the Transferred Assets to subsidiaries of the Holding
Company in exchange for shares of the Holding Company Common
Stock and up to $75 million face amount of Holding Company
Preferred Stock. The privately placed Preferred Stock will be
non-voting, non-convertible and have a five-year term. For
purposes of these pro forma financial statements, it is
assumed that the Holding Company will issue $75 million of
Preferred Stock, LILCO will sell the Preferred Stock for $75
million in proceeds and will retain the proceeds (i.e., a
Retained Asset).
With a $75 million increase in the Retained Assets, the LIPA
Agreement provides that the Retained Debt will increase by a
corresponding amount. The LIPA Agreement also provides that
if the Holding Company were to issue an amount other than $75
million of Preferred Stock, the incremental difference between
the amount actually issued and $75 million, will result in a
corresponding increase or decrease in the amount of accounts
payable retained by LILCO. These pro forma financial
statements reflect a reduction in interest expense for the
reduced level of subsidiary debt, and to reflect an increase
in preferred stock dividend requirements. Finally, for
purposes of these pro forma financial statements, it is
assumed that the dividend rate on this privately placed
Preferred Stock will be 7.95%, which is equal to the Company's
highest cost preferred stock.
15. KeySpan earnings for the 12 month period ended September 30,
1997, include non-recurring income aggregating to
approximately $7.8 million, net of taxes, or $0.16 per share,
relating to gains on the sale of certain Canadian gas
processing properties and on the sales of a fuel management
operation.
12
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 1-3571
LONG ISLAND LIGHTING COMPANY
INCORPORATED PURSUANT TO THE LAWS OF NEW YORK STATE
INTERNAL REVENUE SERVICE - EMPLOYER IDENTIFICATION NO. 11-1019782
175 EAST OLD COUNTRY ROAD, HICKSVILLE, NEW YORK 11801
(516) 755-6650
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
THE TOTAL NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, $5 PAR VALUE,
OUTSTANDING ON SEPTEMBER 30, 1997, WAS 121,355,976.
<PAGE>
LONG ISLAND LIGHTING COMPANY
PAGE NO.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENT OF INCOME 3
BALANCE SHEET 6
STATEMENT OF CASH FLOWS 8
NOTES TO FINANCIAL STATEMENTS 9
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 22
ITEM 2. CHANGES IN SECURITIES 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURE 23
-2-
<PAGE>
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS - EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
---------------------------
1997 1996
---------------------------
<S> <C> <C>
REVENUES
Electric $790,331 $780,158
Gas 62,078 69,617
------------ -------------
Total Revenues 852,409 849,775
------------ -------------
EXPENSES
Operations - fuel and purchased power 206,666 203,305
Operations - other 87,502 98,547
Maintenance 26,885 27,173
Depreciation and amortization 39,268 38,305
Base financial component amortization 25,243 25,243
Rate moderation component amortization 9,126 (7,992)
Regulatory liability component amortization (22,143) (22,143)
Other regulatory amortization 28,559 49,301
Operating taxes 122,337 121,550
Federal income tax - current 21,103 8,292
Federal income tax - deferred and other 65,251 72,792
------------ -------------
Total Expenses 609,797 614,373
------------ -------------
OPERATING INCOME 242,612 235,402
------------ -------------
OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges 5,933 6,513
Class Settlement (4,167) (4,930)
Other income and deductions, net 727 372
Allowance for other funds used during construction 964 798
Federal income tax - current (946) -
Federal income tax - deferred and other (250) 856
------------ -------------
Total Other Income and (Deductions) 2,261 3,609
------------ -------------
INCOME BEFORE INTEREST CHARGES 244,873 239,011
------------ -------------
INTEREST CHARGES AND (CREDITS)
Interest on long-term debt 87,746 92,892
Other interest 13,995 17,098
Allowance for borrowed funds used during construction (1,252) (1,002)
------------ -------------
Total Interest Charges and (Credits) 100,489 108,988
------------ -------------
NET INCOME 144,384 130,023
Preferred stock dividend requirements 12,948 13,051
------------ -------------
EARNINGS FOR COMMON STOCK $131,436 $116,972
============ =============
AVERAGE COMMON SHARES OUTSTANDING (000) 121,341 120,493
EARNINGS PER COMMON SHARE $1.09 $0.97
DIVIDENDS DECLARED PER COMMON SHARE $0.445 $0.445
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-3-
<PAGE>
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS - EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30
---------------------------
1997 1996
---------------------------
<S> <C> <C>
REVENUES
Electric $1,350,417 $1,357,121
Gas 166,480 187,256
------------ -------------
Total Revenues 1,516,897 1,544,377
------------ -------------
EXPENSES
Operations - fuel and purchased power 398,443 407,196
Operations - other 181,808 188,526
Maintenance 54,667 57,124
Depreciation and amortization 78,162 76,257
Base financial component amortization 50,485 50,485
Rate moderation component amortization 18,324 (18,596)
Regulatory liability component amortization (44,286) (44,286)
Other regulatory amortization 41,611 107,291
Operating taxes 231,660 232,845
Federal income tax - current 43,718 18,454
Federal income tax - deferred and other 75,614 92,611
------------ -------------
Total Expenses 1,130,206 1,167,907
------------ -------------
OPERATING INCOME 386,691 376,470
------------ -------------
OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges 11,914 12,788
Class Settlement (8,366) (9,939)
Other income and deductions, net 3,097 10,558
Allowance for other funds used during construction 1,923 1,415
Federal income tax - current (1,647) -
Federal income tax - deferred and other (438) (1,243)
------------ -------------
Total Other Income and (Deductions) 6,483 13,579
------------ -------------
INCOME BEFORE INTEREST CHARGES 393,174 390,049
------------ -------------
INTEREST CHARGES AND (CREDITS)
Interest on long-term debt 175,662 188,917
Other interest 30,269 32,398
Allowance for borrowed funds used during construction (2,303) (1,818)
------------ -------------
Total Interest Charges and (Credits) 203,628 219,497
------------ -------------
NET INCOME 189,546 170,552
Preferred stock dividend requirements 25,917 26,122
------------ -------------
EARNINGS FOR COMMON STOCK $163,629 $144,430
============ =============
AVERAGE COMMON SHARES OUTSTANDING (000) 121,244 120,357
EARNINGS PER COMMON SHARE $1.35 $1.20
DIVIDENDS DECLARED PER COMMON SHARE $0.89 $0.89
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-4-
<PAGE>
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS - EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1997 1996
--------------------------
<S> <C> <C>
REVENUES
Electric $1,908,207 $1,916,389
Gas 459,871 492,203
----------- -------------
Total Revenues 2,368,078 2,408,592
----------- -------------
EXPENSES
Operations - fuel and purchased power 700,309 717,465
Operations - other 277,481 292,395
Maintenance 84,008 87,612
Depreciation and amortization 116,722 113,822
Base financial component amortization 75,728 75,728
Rate moderation component amortization 24,231 (33,922)
Regulatory liability component amortization (66,429) (66,429)
Other regulatory amortization 53,830 134,503
Operating taxes 349,174 352,873
Federal income tax - current 67,096 31,292
Federal income tax - deferred and other 109,237 136,361
----------- -------------
Total Expenses 1,791,387 1,841,700
----------- -------------
OPERATING INCOME 576,691 566,892
----------- -------------
OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges 17,834 18,688
Class Settlement (12,862) (15,311)
Other income and deductions, net 3,742 16,478
Allowance for other funds used during construction 2,640 2,134
Federal income tax - current (1,647) -
Federal income tax - deferred and other 350 1,208
----------- -------------
Total Other Income and (Deductions) 10,057 23,197
----------- -------------
INCOME BEFORE INTEREST CHARGES 586,748 590,089
----------- -------------
INTEREST CHARGES AND (CREDITS)
Interest on long-term debt 265,830 291,174
Other interest 46,928 49,370
Allowance for borrowed funds used during construction (3,252) (2,759)
----------- -------------
Total Interest Charges and (Credits) 309,506 337,785
----------- -------------
NET INCOME 277,242 252,304
Preferred stock dividend requirements 38,885 39,194
----------- -------------
EARNINGS FOR COMMON STOCK $238,357 $213,110
=========== =============
AVERAGE COMMON SHARES OUTSTANDING (000) 121,158 120,219
EARNINGS PER COMMON SHARE $1.97 $1.77
DIVIDENDS DECLARED PER COMMON SHARE $1.335 $1.335
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-5-
<PAGE>
<TABLE>
<CAPTION>
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(THOUSANDS OF DOLLARS)
SEPTEMBER 30 MARCH 31 DECEMBER 31
1997 1997 1996
ASSETS (UNAUDITED) (UNAUDITED) (AUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
UTILITY PLANT
Electric $3,969,609 $3,900,264 $3,882,297
Gas 1,192,451 1,171,183 1,154,543
Common 268,467 263,267 260,268
Construction work in progress 119,520 108,850 112,184
Nuclear fuel in process and in reactor 15,529 15,503 15,454
-------------- -------------- --------------
5,565,576 5,459,067 5,424,746
-------------- -------------- --------------
Less - Accumulated depreciation and
amortization 1,823,933 1,759,110 1,729,576
-------------- -------------- --------------
Total Net Utility Plant 3,741,643 3,699,957 3,695,170
-------------- -------------- --------------
REGULATORY ASSETS
Base financial component (less accumulated
amortization of $833,010, $782,525 and $757,282) 3,205,820 3,256,305 3,281,548
Rate moderation component 402,815 409,512 402,213
Shoreham post-settlement costs 1,004,104 996,270 991,795
Shoreham nuclear fuel 67,518 68,581 69,113
Unamortized cost of issuing securities 173,625 187,309 194,151
Postretirement benefits other than pensions 350,485 357,668 360,842
Regulatory tax asset 1,754,413 1,767,164 1,772,778
Other 190,362 200,137 199,879
-------------- -------------- --------------
Total Regulatory Assets 7,149,142 7,242,946 7,272,319
-------------- -------------- --------------
-------------- -------------- --------------
NONUTILITY PROPERTY AND OTHER INVESTMENTS 50,584 18,870 18,597
-------------- -------------- --------------
CURRENT ASSETS
Cash and cash equivalents 121,485 64,539 279,993
Special deposits 66,949 37,631 38,266
Customer accounts receivable (less allowance for
doubtful accounts of $24,350, $23,675 and $25,000 315,392 305,436 255,801
Other accounts receivable 44,769 42,946 65,764
Accrued unbilled revenues 118,926 141,389 169,712
Materials and supplies at average cost 53,219 55,454 55,789
Fuel oil at average cost 37,171 49,703 53,941
Gas in storage at average cost 81,250 10,893 73,562
Deferred tax asset 25,176 93,349 145,205
Prepayments and other current assets 12,074 8,805 8,569
-------------- -------------- --------------
Total Current Assets 876,411 810,145 1,146,602
-------------- -------------- --------------
-------------- -------------- --------------
DEFERRED CHARGES 80,212 77,656 76,991
-------------- -------------- --------------
TOTAL ASSETS $11,897,992 $11,849,574 $12,209,679
============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-6-
<PAGE>
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30 MARCH 31 DECEMBER 31
1997 1997 1996
CAPITALIZATION AND LIABILITIES (UNAUDITED) (UNAUDITED) (AUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
CAPITALIZATION
Long-term debt $4,371,675 $4,471,675 $4,471,675
Unamortized discount on debt (14,117) (14,628) (14,903)
------------ -------------- --------------
4,357,558 4,457,047 4,456,772
------------ -------------- --------------
Preferred stock - redemption required 637,450 638,500 638,500
Preferred stock - no redemption required 63,565 63,598 63,664
------------ -------------- --------------
Total Preferred Stock 701,015 702,098 702,164
------------ -------------- --------------
Common stock 606,973 605,022 603,921
Premium on capital stock 1,138,693 1,131,576 1,127,971
Capital stock expense (48,189) (48,915) (49,330)
Retained earnings 917,477 861,751 840,867
Treasury stock, at cost (902) (385) (60)
------------ -------------- --------------
Total Common Shareowners' Equity 2,614,052 2,549,049 2,523,369
------------ -------------- --------------
------------ -------------- --------------
Total Capitalization 7,672,625 7,708,194 7,682,305
------------ -------------- --------------
REGULATORY LIABILITIES
Regulatory liability component 138,879 178,558 198,398
1989 Settlement credits 120,532 125,138 127,442
Regulatory tax liability 93,891 100,377 102,887
Other 173,039 158,660 139,510
------------ -------------- --------------
Total Regulatory Liabilities 526,341 562,733 568,237
------------ -------------- --------------
CURRENT LIABILITIES
Current maturities of long-term debt 101,000 1,000 251,000
Current redemption requirements of preferred stock 1,050 1,050 1,050
Accounts payable and accrued expenses 242,883 230,189 289,141
LRPP payable 40,499 40,499 40,499
Accrued taxes (including federal income tax
of $44,960, $49,262 and $25,884) 57,140 51,157 63,640
Accrued interest 147,305 143,983 160,615
Dividends payable 58,600 58,474 58,378
Class Settlement 60,000 58,333 55,833
Customer deposits 29,045 29,173 29,471
------------ -------------- --------------
Total Current Liabilities 737,522 613,858 949,627
------------ -------------- --------------
DEFERRED CREDITS
Deferred federal income tax 2,422,020 2,420,443 2,442,606
Class Settlement 65,730 89,487 98,497
Other 35,141 20,889 39,447
------------ -------------- --------------
Total Deferred Credits 2,522,891 2,530,819 2,580,550
------------ -------------- --------------
OPERATING RESERVES
Pensions and other postretirement benefits 392,700 387,048 381,996
Claims and damages 45,913 46,922 46,964
------------ -------------- --------------
Total Operating Reserves 438,613 433,970 428,960
------------ -------------- --------------
COMMITMENTS AND CONTINGENCIES - - -
------------ -------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $11,897,992 $11,849,574 $12,209,679
============ ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-7-
<PAGE>
LONG ISLAND LIGHTING COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996 1997 1996
----------- ----------- ---------- ---------- ----------- -----------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C> <C>
Net Income $144,384 $130,023 $189,546 $170,552 $277,242 $252,304
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Provision for doubtful accounts 4,984 9,974 8,854 13,821 13,675 18,649
Depreciation and amortization 39,268 38,305 78,162 76,257 116,722 113,822
Base financial component amortization 25,243 25,243 50,485 50,485 75,728 75,728
Rate moderation component amortization 9,126 (7,992) 18,324 (18,596) 24,231 (33,922)
Regulatory liability component amortization (22,143) (22,143) (44,286) (44,286) (66,429) (66,429)
Other regulatory amortization 28,559 49,301 41,611 107,291 53,830 134,503
Rate moderation component carrying charges (5,933) (6,513) (11,914) (12,788) (17,834) (18,688)
Class Settlement 4,167 4,930 8,366 9,939 12,862 15,311
Amortization of cost of issuing and redeeming securities 7,014 8,280 14,948 16,962 23,035 26,448
Federal income tax - deferred and other 65,428 71,936 76,052 93,854 108,887 135,153
Allowance for other funds used during construction (964) (798) (1,923) (1,415) (2,640) (2,134)
Pensions and Other Post Retirement Benefits 11,872 3,246 13,265 10,604 26,761 10,735
Gas Cost Adjustment (4,007) (9,094) (1,495) (2,221) (9,386) 16,969
Other 25,796 20,976 47,396 29,356 58,387 44,767
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable (73,038) (35,684) (18,383) 24,879 (50,021) 20,887
Accrued unbilled revenues 24,043 4,347 22,463 2,888 50,786 38,660
Materials and supplies, fuel oil and gas in storage (24,416) (32,402) (55,590) (80,604) 11,652 (36,902)
Accounts payable and accrued expenses (20,790) (23,409) 12,695 (415) (46,257) (32,412)
Accrued taxes 14,070 32,067 5,983 (16,881) (6,500) (27,130)
Accrued interest (11,072) (13,971) 3,322 (10,045) (13,310) (16,014)
Class Settlement (19,817) (14,910) (30,456) (26,129) (41,462) (31,495)
Special deposits 967 351 (28,683) 27,510 (28,683) 27,510
Other (3,277) 4,319 (45,595) (17,781) (58,562) (24,052)
----------- ----------- ---------- ---------- ----------- -----------
Net Cash Provided by Operating Activities 219,464 236,382 353,147 403,237 512,714 642,268
----------- ----------- ---------- ---------- ----------- -----------
INVESTING ACTIVITIES
Construction and nuclear fuel expenditures (49,207) (69,769) (117,468) (132,363) (167,843) (176,552)
Shoreham post-settlement costs (8,954) (10,439) (20,936) (24,746) (33,040) (40,544)
Investment in subsidiary (30,000) - (30,000) - (30,000) -
Other (556) (910) (1,293) (906) (1,133) (2,112)
----------- ----------- ---------- ---------- ----------- -----------
Net Cash Used in Investing Activities (88,717) (81,118) (169,697) (158,015) (232,016) (219,208)
----------- ----------- ---------- ---------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of common stock 4,724 4,658 9,034 9,411 13,674 14,083
Redemption of long-term debt - - - (415,000) (250,000) (415,000)
Redemption of preferred stock (1,050) (1,050) (1,050) (1,050) (1,050) (1,050)
Preferred stock dividends paid (12,968) (13,072) (25,937) (26,143) (38,906) (39,215)
Common stock dividends paid (53,910) (53,499) (107,754) (106,880) (161,503) (160,127)
Other (68) (87) (797) 46 (1,421) (313)
----------- ----------- ---------- ---------- ----------- -----------
Net Cash Used in Financing Activities (63,272) (63,050) (126,504) (539,616) (439,206) (601,622)
----------- ----------- ---------- ---------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents $67,475 $92,214 $56,946 ($294,394) ($158,508) ($178,562)
=========== =========== ========== ========== =========== ===========
Cash and cash equivalents at beginning of period $54,010 $80,677 $64,539 $467,285 $279,993 $351,453
Net increase (decrease) in cash and cash equivalents 67,475 92,214 56,946 (294,394) (158,508) (178,562)
=========== =========== ========== ========== =========== ===========
Cash and Cash Equivalents at end of period $121,485 $172,891 $121,485 $172,891 $121,485 $172,891
=========== =========== ========== ========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-8-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
These Notes to Financial Statements reflect events subsequent to January 31,
1997, the date of the most recent Report of Independent Auditors, through the
date of this Report on Form 10-Q for the three months ended September 30, 1997.
These Notes to Financial Statements should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three, six and nine months ended September 30, 1997, the
Company's Transition Report for the three months ended March 31, 1997 and
Quarterly Report on Form 10-Q for the three months ended June 30, 1997 and the
Company's Annual Report on Form 10-K/A filed June 30, 1997, for the year ended
December 31, 1996, and the Company's Joint Proxy Statement/Prospectus filed June
30, 1997.
The financial statements furnished are unaudited. However, in the opinion of
management, the financial statements include all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the financial
statements for the three month period presented. Operating results for the three
month period are not necessarily indicative of results to be expected for an
entire year due to seasonal, operating and other factors.
On April 11, 1997, the Company changed its year-end to March 31. Accordingly,
the Company's financial statements have been presented on the new basis, as well
as its historical basis for comparative purposes.
Certain prior year amounts have been reclassified to be consistent with current
year presentation.
NOTE 2. BROOKLYN UNION/LONG ISLAND POWER AUTHORITY PROPOSED TRANSACTION
BROOKLYN UNION TRANSACTION
Effective September 29, 1997, The Brooklyn Union Gas Company (Brooklyn Union)
reorganized into a holding company structure, with KeySpan Energy Corporation
(KeySpan) becoming its parent holding company. As contemplated in the Amended
and Restated Agreement and Plan of Exchange and Merger, dated as of June 26,
1997, by and between the Company and Brooklyn Union (Share Exchange Agreement),
the parties entered into an Amendment, Assignment and Assumption Agreement,
dated as of September 29, 1997, which, among other things, amended the Share
Exchange Agreement and related stock option agreements to reflect the
- 9 -
<PAGE>
assignment by Brooklyn Union to KeySpan and the assumption by KeySpan of all
Brooklyn Union's rights and obligations under such agreements.
LONG ISLAND POWER AUTHORITY TRANSACTION
In July 1997, the Company filed an application with the Federal Energy
Regulatory Commission (FERC) seeking approval of the transfer of the Company's
electric transmission and distribution system to the Long Island Power Authority
(LIPA) in connection with LIPA's purchase of the stock of the Company. The
Company's application explained how the proposed LIPA transaction meets the
three major concerns of the FERC which are that the transfer must have no
adverse effect on rates, competition and regulation.
On October 1, 1997, the Company filed with the FERC its proposed rates for the
sale of capacity and energy to LIPA as contemplated in the LIPA transaction
agreements. The Company proposed a rate that is to be frozen for five years with
the exception that certain rate components, such as property taxes, could be
adjusted for experienced changes. The filing also contemplates that either party
may seek to adjust the allowed return on common equity if long-term interest
rates vary from present rates by 200 basis points or more. On November 4, 1997,
LIPA, the Public Service Commission (PSC) and an organization known as the
"Consumers and Potential Competitors of LILCO and LIPA" filed motions to
intervene and protest the Company's filing. LIPA's motion requests (i) summary
rejection of the Company's filing, and, in the alternative, summary disposition
in LIPA's favor on particular issues; or (ii) that FERC set evidentiary hearings
on the Company's proposed rates to be charged to LIPA, subject to refund. The
PSC's motion questions several of the cost projections contained in the
Company's filing and requests the opportunity to explore these and any other
issues that may affect the Company's ratepayers. The Consumers and Potential
Competitors allege that the Company's proposal would diminish potential
competition on Long Island and result in excessive rates.
The Company is unable to determine the outcome of the proceedings discussed
above or when or if the approval of the FERC will be obtained in such
proceedings.
In July 1997, the Company and the Brooklyn Union Gas Company formed a limited
partnership and each invested $30 million in order to purchase an interest rate
swap option instrument to protect LIPA against market risk associated with the
municipal bond financing contemplated by the LIPA transaction agreements. Upon
the closing of the LIPA transaction, each limited partner will receive from LIPA
$30 million plus interest thereon, based on each partners' average weighted cost
of capital. In the event that the LIPA transaction is not consummated, the
maximum
- 10 -
<PAGE>
potential loss to the Company is the amount originally invested plus the
interest accrued thereon. In the event of a loss, the Company plans to defer
such amount and petition the PSC to allow recovery of such loss from electric
ratepayers.
NOTE 3. RATE MATTERS
In May 1997, the Company filed a petition with the PSC, seeking among other
things, to: (a) re-institute the gas excess earnings mechanism for the gas rate
year ending November 30, 1997 whereby earnings in excess of a return on common
equity of 11.0% would be allocated equally between ratepayers and shareowners,
with the ratepayers' share of these earnings credited to the costs associated
with manufactured gas plant site investigation and remediation; and (b) continue
I) the Rate Moderation Component (RMC); II) the Long Island Ratemaking and
Performance Plan (LRPP) mechanisms (as discussed in the Company's Annual Report
on Form 10-K/A, filed June 30, 1997 for the year ended December 31, 1996); and
III) the performance incentive programs for the electric rate year ending
November 30, 1997. As of the date of this report, the PSC has not rendered a
decision with respect to this filing.
- 11 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EARNINGS
Earnings for common stock for the three months ended September 30, 1997 were
$131.4 million or $1.09 per common share compared with $117.0 million or $0.97
per common share for the same period in 1996.
Earnings for common stock for the six months ended September 30, 1997, were
$163.6 million or $1.35 per common share compared with $144.4 million or $1.20
per common share for the same period in 1996.
Earnings for common stock for the nine months ended September 30, 1997 were
$238.4 million or $1.97 per common share compared with $213.1 million or $1.77
per common share for the same period in 1996.
Electric business earnings increased for the three, six and nine month periods
ended September 30, 1997, when compared to the same periods last year. Factors
contributing to these increases included the Company's continuing efforts to
control operations and maintenance expenses and the efficient use of cash
generated by operations to retire maturing debt.
Gas business earnings increased for the three month period ended September 30,
1997, when compared to the same period last year, primarily as a result of lower
operations and maintenance expenses. For the six month period ended September
30, 1997, earnings for the gas business were comparable to the same period last
year. Gas business earnings also increased for the nine month period ended
September 30, 1997, when compared to the same period last year, as a result of a
one-time revenue enhancement (recorded in March 1997) relating to an Independent
Power Production (IPP) contract and lower operation and maintenance expenses.
REVENUES
Electric
The increase in electric revenues of approximately $10.2 million for the three
months ended September 30, 1997, when compared to the same period in 1996, was
due to higher sales volumes resulting from warmer weather experienced in the
region during July 1997. The decrease in electric revenues of approximately $6.7
million and $8.2 million for the six and nine months ended September 30, 1997,
respectively, when compared to the same
- 12 -
<PAGE>
periods in 1996, was due to lower sales volumes resulting from the milder
weather experienced in the region relative to the same periods last year. The
decrease for the nine months ended September 30, 1997 was mitigated by the
increased sales volumes experienced during July 1997, as noted above. The
increase or decrease in revenues resulting from these variations in sales
volumes, however, had no effect on earnings due to the Company's current
electric rate structure which includes a revenue reconciliation mechanism that
eliminates the impact on earnings of sales volumes that are above or below
adjudicated levels.
Gas
The decrease in gas revenues of approximately $7.5 million, $20.8 million and
$32.3 million for the three, six and nine months ended September 30, 1997,
respectively, when compared to the same periods in 1996, was primarily the
result of lower fuel expense recoveries driven by lower sales volumes in the
Company's service territory during 1997. Variations in weather have a limited
impact on net revenues (revenues net of fuel expenses), however, as the
Company's gas rate structure includes a weather normalization mechanism which
mitigates the impact on net revenues of experiencing weather that is warmer or
colder than normal.
FUEL AND PURCHASED POWER
Fuel and purchased power expenses for the three, six and nine months ended
September 30, 1997 and 1996 were as follows:
Three Months Ended Six Months Ended Nine Months Ended
9/30/97 9/30/96 9/30/97 9/30/96 9/30/97 9/30/96
(In Millions) (In Millions) (In Millions)
------------- ------------- -------------
ELECTRIC SYSTEM
Oil $ 32 $ 35 $ 50 $ 61 $ 87 $127
Gas 67 50 119 87 157 94
Nuclear 4 4 7 8 11 12
Purchases 78 85 153 166 239 248
-- -- --- --- --- ---
Total
Electric 181 174 329 322 494 481
GAS SYSTEM 26 29 69 85 206 236
---- ---- ---- ---- ---- ----
Total $207 $203 $398 $407 $700 $717
==== ==== ==== ==== ==== ====
Electric
For the three, six and nine month periods ended September 30, 1997, electric
fuel costs increased, when compared to the same periods in 1996. The increase
for the three month period ended September 30, 1997, is primarily the result of
higher sales
- 13 -
<PAGE>
volumes coupled with higher fuel oil and purchased power prices. This increase
in electric fuel costs was mitigated, however, as the Company was able to reduce
purchases and oil fired generation by increasing production with more economical
gas as a result of the completion in May 1997 of the conversion of an oil fired
steam generating unit at Port Jefferson to dual-fuel capability.
For the six and nine months ended September 30, 1997, electric fuel costs were
higher, when compared to the same periods in 1996, despite lower sales volumes,
as a result of higher fuel oil and purchased power prices. In addition, the
increase for the nine months ended September 30, 1997, when compared to the same
period in the prior year was exaggerated by the absence of profits generated by
the sale of electric business unit gas supplies to non-traditional customers
(off-system sales). Off-system gas sales decreased when compared to the same
period last year as a result of low demand for gas brought about by the mild
winter weather. Profits from such gas sales are used to offset the cost of fuel
for electric generation, supporting the Company's goal of providing electric
energy to customers at the lowest cost possible.
Of the Company's 11 steam generation units, nine burn natural gas; seven of
which can also burn oil. This dual-fuel capability provides the Company with the
ability to burn the most cost efficient fuel available, consistent with seasonal
environmental requirements. In an effort to maximize the Company's operating
flexibility, the Company is in the process of adding natural gas firing
capability to one of its two remaining oil only steam generating units.
Completion is scheduled for the spring of 1998.
Electric Energy Available
The percentages of total electric energy available by type of fuel for electric
operations for the three, six and nine months ended September 30, 1997 and 1996
were as follows:
Three Months Ended Six Months Ended Nine Months Ended
9/30/97 9/30/96 9/30/97 9/30/96 9/30/97 9/30/96
------- ------- ------- ------- ------- -------
Oil 16% 18% 14% 17% 16% 25%
Gas 47 33 46 31 41 23
Nuclear 8 9 8 10 9 10
Purchases 29 40 32 42 34 42
---- ---- ---- ---- ---- ---
Total 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
The use of gas for electric generation increased for the three, six and nine
months ended September 30, 1997, as gas was more economical than fuel oil and
purchased power.
- 14 -
<PAGE>
Gas
For the three months ended September 30, 1997, gas fuel costs decreased for
operating the gas business, when compared to the same period in 1996, as a
result of a decrease in sales volumes partially offset by an increase in average
gas prices. For the six and nine months ended September 30, 1997, gas fuel costs
were also lower than the prior year as a result of a decrease in sales volumes
and lower average gas prices. Also contributing to the decrease in the gas fuel
costs is the operation of the Gas Cost Adjustment (GCA) mechanism which requires
the Company to increase or decrease the current year fuel expenses for
differences between amounts collected in rates and amounts actually spent for
fuel during the previous year. For the three, six and nine months ended
September 30, 1997, the amounts being refunded, via the GCA, were greater than
that for the same periods in 1996.
OPERATIONS AND MAINTENANCE EXPENSES
For the three, six and nine months ended September 30, 1997, operations and
maintenance (O&M) expenses, excluding fuel and purchased power, decreased by
$11.3 million, $9.2 million and $18.5 million, respectively, when compared to
the same periods in 1996. These decreases are primarily attributable to the
Company's cost containment programs.
RATE MODERATION COMPONENT
The Rate Moderation Component (RMC) reflects the difference between the
Company's electric revenue requirements under conventional ratemaking and the
revenues provided by its electric rate structure. The RMC is adjusted monthly
for the operation of the Company's Fuel Moderation Component (FMC) mechanism and
the difference between the Company's share of actual operating costs at Nine
Mile Point 2 Nuclear Power Station (NMP2) and amounts provided for in electric
rates.
For the three, six and nine months ended September 30, 1997, the Company
recorded non-cash charges to income of approximately $9.1 million, $18.3 million
and $24.2 million, respectively, as operating income generated by the Company's
electric rate structure exceeded that required under a conventional ratemaking
calculation. For the three, six and nine months ended September 30, 1996, the
Company recorded non-cash credits to income of approximately $8.0 million, $18.6
million and $33.9 million, respectively, as operating income generated by the
Company's electric rate structure was below that required under a conventional
ratemaking calculation.
The Company continues to believe that the full amortization and recovery of the
RMC balance, which at September 30, 1997 was approximately $403 million, will
take place within the time frame
- 15 -
<PAGE>
established by the Rate Moderation Agreement (RMA), in accordance with the rate
plans submitted to the Public Service Commission (PSC) for the single rate year
1997 and the three year rate period 1997 through 1999. In the event that the
Long Island Power Authority (LIPA) transaction is terminated, the Company
expects that the PSC will issue an order providing for, among other things, the
continuing recovery, through rates, of the RMC balance, one of the
Shoreham-related regulatory assets. If such an electric rate order is not
obtained or does not provide for the continuing recovery of the RMC balance, the
Company may be required to write-off the amount not expected to be provided for
in rates. For a further discussion of the LIPA transaction, see the Joint Proxy
Statement/Prospectus filed June 30, 1997.
For a further discussion of the RMC, RMA and FMC, see the Company's Annual
Report on Form 10-K/A filed June 30, 1997, for the year ended December 31, 1996.
OTHER REGULATORY AMORTIZATION
For the three months ended September 30, 1997 and 1996, other regulatory
amortization was a non-cash charge to income of $28.6 million and $49.3 million,
respectively. For the six months ended September 30, 1997 and 1996, other
regulatory amortization was a non-cash charge to income of $41.6 million and
$107.3 million, respectively. For the nine months ended September 30, 1997 and
1996, other regulatory amortization was a non-cash charge to income of $53.8
million and $134.5 million, respectively. These variances are due to regulatory
mechanisms discussed below, and have no impact on earnings since they reflect
the net deferral of income and expense resulting from the Company's ratemaking
mechanisms.
The components of other regulatory amortization for the three, six and nine
months ended September 30, 1997 and 1996 were as follows:
(In millions of dollars)
- --------------------------------------------------------------------------------
Three Months Six Months Nine Months
1997 1996 1997 1996 1997 1996
- --------------------------------------------------------------------------------
Net Margin 12 20 12 49 2 47
Amortization of LRPP Deferral - 15 - 32 - 48
Excess Earnings - Electric 8 - 2 - 13 -
Excess Earnings - Gas 1 3 10 6 12 8
Other 8 11 18 20 27 32
- -------------------------------------------------------------------------------
29 49 42 107 54 135
===============================================================================
NET MARGIN- An electric business unit revenue reconciliation mechanism,
established under the LILCO Ratemaking and Performance Plan (LRPP), which
eliminates the impact on earnings of experiencing sales that are above or below
adjudicated levels by providing a fixed annual net margin level (defined as
sales
- 16 -
<PAGE>
revenue, net of fuel and gross receipts taxes). Variations in electric revenue
resulting from differences between actual and adjudicated net margin sales
levels are deferred on a monthly basis during the rate year through a charge or
credit to other regulatory amortization. These deferrals are then refunded to or
recovered from ratepayers as explained below under "LRPP Amortization."
For the three, six and nine months ended September 30, 1997, the Company
recorded non-cash charges to income of $12.2 million, $12.2 million and $2.0
million, respectively. For the three, six and nine months ended September 30,
1996, the Company recorded non-cash charges to income of $19.8 million, $48.6
million and $46.6 million, respectively.
LRPP AMORTIZATION- As established under the LRPP, deferred balances resulting
from the net margin, electric property tax reconciliation, earned performance
incentives, and associated carrying charges are accumulated during each rate
year. The first $15 million of the total deferral is recovered from or credited
to electric ratepayers by increasing or decreasing the RMC balance. Amounts
deferred in excess of $15 million, upon approval by the PSC, are refunded to or
recovered from ratepayers through the FCA mechanism over a subsequent 12-month
period, with the offset being recorded in other regulatory amortization.
For the three, six and nine months ended September 30, 1997, the amortization of
the deferred LRPP balance in excess of $15 million related to the rate year
ended November 30, 1995, has not begun as the Company has yet to receive
approval from the PSC to begin refunding the amount owed to its electric
ratepayers. For the three, six and nine months ended September 30, 1996, the
Company recognized $15.9 million, $31.8 million and $48.1 million, respectively,
of non-cash charges to income representing the amortization of the deferred LRPP
balance related to the rate year ended November 30, 1994. For a further
discussion of the LRPP, see Note 3 of Notes to Financial Statements included in
the Company's Annual Report on Form 10-K/A filed June 30, 1997, for the year
ended December 31, 1996.
EXCESS EARNINGS- Also recorded in other regulatory amortization, if applicable,
are non-cash charges representing: (a) 100% of electric earnings generated by
the Company in excess of amounts provided for in electric rates, which is
returned to the electric customer through a reduction to the RMC balance; and
(b) 50% of the gas earnings generated by the Company in excess of amounts
provided for in gas rates, which will be returned to the gas customer through a
reduction in the amount due from gas ratepayers related to manufactured gas
plant site (MGP) clean-up costs. These rate year excess earnings are calculated
and recorded on the Company's books on a quarterly basis to reflect the
Company's best estimate of amounts earned in excess of the
- 17 -
<PAGE>
Company's 11% allowed return on common equity. The Company's 11% allowed return
on common equity has been approved by the PSC for the electric business unit.
The Company expects approval of the same rate for the gas business unit prior to
November 30, 1997.
For the three, six and nine months ended September 30, 1997, the Company
recorded non-cash charges of approximately $7.5 million, $1.9 million and $12.5
million, respectively, of electric excess earnings. The Company did not earn in
excess of its allowed return on common equity for its electric business for the
three, six and nine months ended September 30, 1996.
For the three months ended September 30, 1997, the Company recorded non-cash
charges of approximately $1.1 million of gas excess earnings bringing the six
and nine month totals of gas excess earnings to $9.8 million and $11.6 million,
respectively. The Company recorded approximately $3.0 million, $5.8 million and
$8.2 million of gas excess earnings for the three, six and nine months ended
September 30, 1996.
FEDERAL INCOME TAX
For the three, six and nine months ended September 30, 1997, federal income tax
(FIT) expense increased as a result of increases in pre-tax book income.
The current operating portion of the FIT liability for the three months ended
September 30, 1997 totaled $21.1 million, of which $9.8 million was Alternative
Minimum Tax (AMT). The operating FIT liability for the six months ended
September 30, 1997 totaled $43.7 million, of which $20.9 million was AMT. The
operating FIT liability for the nine months ended September 30, 1997 totaled
$67.1 million, of which $52.1 million was AMT. The increase in the FIT liability
over the comparable periods last year was primarily attributable to the
Company's full utilization of the AMT net operating loss during 1996.
OTHER INCOME AND DEDUCTIONS
Other income and deductions decreased for the three, six and nine months ended
September 30, 1997, when compared to the same periods in 1996, primarily as a
result of lower interest income from short term investments caused by lower cash
balances. In addition, for the six and nine months ended September 30, 1997, the
Company recognized less income under its fuel incentive program, than during the
same periods in the prior year due to higher electric fuel costs.
INTEREST EXPENSE
Interest expense decreased for the three, six and nine months ended September
30, 1997, when compared to the same periods in 1996, as a result of lower debt
levels.
- 18 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's cash and cash equivalents amounted to
approximately $121 million, compared to $65 million at March 31, 1997. This
increase in cash and cash equivalents was primarily attributable to funds
provided by operating activities, as revenues from the summer sales period were
converted to cash.
At September 30, 1997, March 31, 1997 and December 31, 1996, the Company's
capitalization and ratios were as follows:
(In millions of dollars)
- --------------------------------------------------------------------------------
9/30/97 3/31/97 12/31/96
Amount Percent Amount Percent Amount Percent
- --------------------------------------------------------------------------------
% % %
- --------------------------------------------------------------------------------
Long-term debt $4,459 57.4 $4,458 57.8 $4,708 59.3
Preferred stock 702 9.0 703 9.1 703 8.9
Common shareowners'
equity 2,614 33.6 2,549 33.1 2,523 31.8
- --------------------------------------------------------------------------------
$7,775 100.0 $7,710 100.0 $7,934 100.0
================================================================================
The Company has no current plans to access the capital markets for permanent
financing as cash from operations should be sufficient to meet operating
requirements and debt maturities through 1998, including $100 million of General
and Refunding Bonds and $1 million of Pollution Control Revenue Bonds maturing
in 1998. The Company may, from time to time, access such markets, should
economic conditions prove favorable, to refinance existing high cost debt or
preferred stock, subject to any restrictions contained in the agreements, as
amended, with KeySpan Energy Corporation, the parent holding company of The
Brooklyn Union Gas Company, or LIPA.
A $250 million line of credit, secured by a first lien upon the Company's
accounts receivable and fuel oil inventories, is available to the Company under
its Revolving Credit Agreement (RCA). The lending banks participating in the RCA
have agreed to extend their commitments through October 1, 1998. In February
1997, the Company utilized $30 million in interim financing under the RCA, which
was repaid in March 1997, and $40 million in July 1997, which was repaid in
August 1997. The Company will, in order to satisfy short-term cash requirements,
continue to avail itself of such interim financing through its RCA as necessary.
- 19 -
<PAGE>
CAPITAL REQUIREMENTS AND CAPITAL PROVIDED
Capital requirements and capital provided for the three, six and nine months
ended September 30, 1997 were as follows:
(In millions of dollars)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended Nine Months Ended
September 30, 1997 September 30, 1997 September 30, 1997
- --------------------------------------------------------------------------------
Capital Requirements
Construction $ 49 $118 $168
- --------------------------------------------------------------------------------
Redemptions and Dividends
Long-term debt - - 250
Preferred stock 1 1 1
Preferred stock dividends 13 26 39
Common stock dividends 54 108 162
- --------------------------------------------------------------------------------
Total Redemptions and
Dividends 68 135 452
- --------------------------------------------------------------------------------
Shoreham post-settlement
Costs 9 21 33
- --------------------------------------------------------------------------------
Total Capital Requirements $126 $274 $653
================================================================================
Capital Provided
Cash generation from
operations $220 $353 $513
Decrease (Increase) in cash
balances (68) (57) 158
Common stock issued 5 9 14
Hedge funding (30) (30) (30)
Other investing and financing
Activities (1) (1) (2)
- --------------------------------------------------------------------------------
Total Capital Provided $126 $274 $653
================================================================================
For further information, see the Statement of Cash Flows.
INVESTMENT RATING
The Company's securities are rated by Standard and Poor's Corporation (S&P),
Moody's Investors Service (Moody's), Fitch Investors Service, L.P. (Fitch) and
Duff and Phelps, Inc. (D&P).
In October 1997, as part of an overall revision of its ratings of the utility
industry's senior secured debt, S&P announced that it raised the rating on the
Company's senior secured debt to BBB from BBB-. S&P indicated that it now
incorporates into its ratings of corporate issues a more vigorous analysis of a
utility's underlying collateral assets and the amount of securities that could
be issued under its mortgage indenture. The ratings on the Company's unsecured
debt and preferred stock remain unchanged.
For a further discussion of the Company's credit ratings see Investment Rating
in the Company's Annual Report Form 10-K/A filed June 30, 1997, for the Year
Ended December 31, 1996.
- 20 -
<PAGE>
RATE MATTERS
For a discussion of Rate Matters, see Note 3 of Notes to Financial Statements.
BROOKLYN UNION TRANSACTION
For a further discussion on the Brooklyn Union Transaction, see Note 2 of Notes
to Financial Statements.
LONG ISLAND POWER AUTHORITY TRANSACTION
For a further discussion on the Long Island Power Authority Transaction, see
Note 2 of Notes to Financial Statements.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements which, to the extent they are not recitations of
historical fact, constitute "forward-looking statements" within the meaning of
the Securities Litigation Reform Act of 1995. In this respect, the words
"estimate," "project," "anticipate," "expect," "intend," "believe" and similar
expressions are intended to identify forward-looking statements. All such
forward-looking statements are intended to be subject to the safe harbor
protection provided by the Reform Act. A number of important factors affecting
the Company's business and financial results could cause actual results to
differ materially from those stated in the forward-looking statements. Those
factors include the proposed transactions with The Brooklyn Union Gas Company
and LIPA as discussed under the heading "Brooklyn Union Transaction" and "Long
Island Power Authority Proposed Transactions", state and federal regulatory rate
proceedings, competition, and certain environmental matters each as discussed
herein, in the Company's Annual Report on Form 10-K/A, filed June 30, 1997, for
the year ended December 31, 1996, the Joint Proxy Statement/Prospectus filed
June 30, 1997 or in other reports filed by the Company with the Securities and
Exchange Commission.
- 21 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
The Company has been notified that it is one of several
potentially responsible parties (PRP) that may be liable for
the cost to remediate the Port Refinery Superfund site
located in Westchester County, New York. Port Refinery was
engaged in the business of purchasing, selling, refining and
processing mercury and the Company may have shipped waste
products containing mercury to this site. Tests conducted by
the Environmental Protection Agency (EPA) indicated that the
site and certain adjacent properties were contaminated with
mercury. As a result, the EPA has performed a response
action at the site and seeks to recover its costs, currently
totaling approximately $4.4 million, plus interest from the
PRP's. The Company is currently unable to determine its
share, if any, of the costs to remediate this site.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBIT 27
*(1) Financial Data Schedule UT for the six-month period ended
September 30, 1997.
B. REPORTS ON FORM 8-K
In its current report on Form 8-K dated September 19, 1997,
the Company filed unaudited pro forma combined condensed
financial statements for LILCO and Brooklyn Union at June 30,
1997 and for the twelve months ended June 30, 1997, as well as
Brooklyn Union's quarterly report on Form 10-Q for the quarter
ended June 30, 1997.
- ----------------------
* Filed herewith
- 22 -
<PAGE>
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.
LONG ISLAND LIGHTING COMPANY
(Registrant)
By /s/ Anthony Nozzolillo
-------------------------
ANTHONY NOZZOLILLO
Senior Vice President and
Principal Financial Officer
Dated: November 14, 1997
- 23 -
This schedule contains summary financial information extracted from the
Statement of Income, Balance Sheet and Statement of Cash Flows, and is
qualified in its entirety by reference to such financial statements.
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] MAR-31-1998
[PERIOD-END] SEP-30-1997
[BOOK-VALUE] PER-BOOK
[TOTAL-NET-UTILITY-PLANT] 3,741,643
[OTHER-PROPERTY-AND-INVEST] 50,584
[TOTAL-CURRENT-ASSETS] 876,411
[TOTAL-DEFERRED-CHARGES] 80,212
[OTHER-ASSETS] 7,149,142
[TOTAL-ASSETS] 11,897,992
[COMMON] 606,973
[CAPITAL-SURPLUS-PAID-IN] 1,089,602
[RETAINED-EARNINGS] 917,477
[TOTAL-COMMON-STOCKHOLDERS-EQ] 2,614,052
[PREFERRED-MANDATORY] 637,450
[PREFERRED] 63,565
[LONG-TERM-DEBT-NET] 4,371,675
[SHORT-TERM-NOTES] 0
[LONG-TERM-NOTES-PAYABLE] 0
[COMMERCIAL-PAPER-OBLIGATIONS] 0
[LONG-TERM-DEBT-CURRENT-PORT] 101,000
[PREFERRED-STOCK-CURRENT] 1,050
[CAPITAL-LEASE-OBLIGATIONS] 0
[LEASES-CURRENT] 0
[OTHER-ITEMS-CAPITAL-AND-LIAB] 4,109,200
[TOT-CAPITALIZATION-AND-LIAB] 11,897,992
[GROSS-OPERATING-REVENUE] 1,516,897
[INCOME-TAX-EXPENSE] 119,332
[OTHER-OPERATING-EXPENSES] 1,010,874
[TOTAL-OPERATING-EXPENSES] 1,130,206
[OPERATING-INCOME-LOSS] 386,691
[OTHER-INCOME-NET] 6,483
[INCOME-BEFORE-INTEREST-EXPEN] 393,174
[TOTAL-INTEREST-EXPENSE] 203,628
[NET-INCOME] 189,546
[PREFERRED-STOCK-DIVIDENDS] 25,917
[EARNINGS-AVAILABLE-FOR-COMM] 163,629
[COMMON-STOCK-DIVIDENDS] 107,754
[TOTAL-INTEREST-ON-BONDS] 175,662
[CASH-FLOW-OPERATIONS] 353,147
[EPS-PRIMARY] $1.35
[EPS-DILUTED] $1.35
</TABLE>
