SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 8-K
CURRENT REPORT
-----------------------------------
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
DATE OF REPORT (Date of earliest event reported):
April 24, 1998
LONG ISLAND LIGHTING COMPANY
(Exact name of registrant as specified in charter)
New York 1-3571 11-1019782
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
175 East Old Country Road, Hicksville, New York 11801
516-755-6650
(Address and telephone number of Principal Executive Offices)
<PAGE>
Item 5. Other Events
The Company is filing this Current Report on Form 8-K to provide unaudited pro
forma consolidated condensed financial information for Long Island Lighting
Company ("LILCO") and KeySpan Energy Company ("KeySpan") at December 31, 1997
and for the twelve months ended December 31, 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, LILCO and KeySpan 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
LILCO and KeySpan would qualify for the pooling of interests method of
accounting.
The unaudited pro forma consolidated condensed financial information set forth
in Exhibit 99.1 to this Current Report on Form 8-K reflects the condensed
consolidated financial information of LILCO contained in its Quarterly Report on
Form 10-Q filed on February 17, 1998 and of KeySpan contained in its Quarterly
Report on Form 10-Q filed on February 13, 1998. Exhibit 99.1 is hereby
incorporated by reference in response to this Item 5.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
The unaudited pro forma consolidated condensed financial information referred to
above in Item 5 and incorporated herein by reference, is attached hereto as the
following Exhibit:
Exhibit
Number
99.1 Unaudited pro forma consolidated condensed financial information for LILCO
and KeySpan at December 31, 1997 and for the twelve months ended December
31, 1997.
99.2 LILCO's Quarterly Report on Form 10-Q for the quarter ended December 31,
1997, incorporated herein by reference and available on the SEC's EDGAR
system.
99.3 The Joint Proxy Statement/Prospectus dated June 27, 1997, incorporated
herein by reference and available on the SEC's EDGAR system.
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<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.
Dated: April 24, 1998
LONG ISLAND LIGHTING COMPANY
Registrant
By: /S/ THEODORE A. BABCOCK
---------------------------
THEODORE A. BABCOCK
Vice President and Treasurer
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<PAGE>
Exhibit Index
Exhibit
Number
99.1 Unaudited pro forma consolidated condensed financial information for LILCO
and KeySpan at December 31, 1997 and for the twelve months ended December
31, 1997.
99.2 LILCO's Quarterly Report on Form 10-Q for the quarter ended December 31,
1997, incorporated herein by reference and available on the SEC's EDGAR
system.
99.3 The Joint Proxy Statement/Prospectus dated June 27, 1997, incorporated
herein by reference and available on the SEC's EDGAR system.
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UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
KEYSPAN ENERGY CORP\LILCO COMBINATION AND LIPA TRANSACTION
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 December 31, 1997 gives effect to
the proposed LIPA Transaction and the Combination as if they had occurred at
December 31, 1997. The unaudited pro forma consolidated condensed statement of
income for the 12-month period ended December 31, 1997 gives effect to the
proposed LIPA Transaction and the Combination as if they had occurred at January
1, 1997. 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 LIPA Agreement (Annex D to the Joint Proxy
dated June 27, 1997), and 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.
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<PAGE>
<TABLE>
<CAPTION>
KEYSPAN/LILCO HOLDING CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
12/31/97
(In Millions)
Sale
LILCO Adjustments Adjusted to Pro Forma
(Historical) LILCO LIPA (1) Adjustments
----------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Property
Utility Plant 0.0
Electric $4,005.9 4,005.9 2,911.4
Gas 1,218.7 1,218.7 0.0
Common 286.4 286.4 0.0
Construction work in progress 116.1 116.1 42.0
Nuclear fuel in process and in reactor 16.2 16.2 16.2
Less - Accumulated depreciation 0.0 0.0 0.0
and amortization (1,847.8) (1,847.8) (933.3)
----------- ----------- ----------- ------------- --------------
Total Net Utility Plant 3,795.5 3,795.5 2,036.3 0.0
Gas exploration and production, at cost 0.0 0.0 0.0
Less - Accumulated depletion 0.0 0.0 0.0
----------- ----------- ----------- ------------- --------------
Total Net Plant 3,795.5 3,795.5 2,036.3 0.0
----------- ----------- ----------- ------------- --------------
Cost In Excess of Net Assets Acquired 0.0 0.0 0.0 0.0
----------- ----------- ----------- ------------- --------------
Regulatory Assets
Base financial component (less accumulated
amortization of $858.2 ) 3,180.6 3,180.6 3,180.6
Rate moderation component 385.5 385.5 385.5
Shoreham post-settlement costs 1,003.6 1,003.6 1,003.6
Regulatory tax asset 1,746.9 1,746.9 1,724.4
Postretirement benefits other than pensions 346.1 346.1 0.0 (292.2) (2)
Other 422.1 422.1 347.8
----------- ----------- ----------- ------------- --------------
Total Regulatory Assets 7,084.8 7,084.8 6,641.9 (292.2)
----------- ----------- ----------- ------------- --------------
Nonutility Property and Other Investments 49.9 49.9 17.7 0.0
----------- ----------- ----------- ------------- --------------
Current Assets
Cash and cash equivalents 180.0 75.0(10) 255.0 75.0 2,477.6 (3)
Deferred tax asset 11.3 11.3 0.0 119.0 (4)
Accounts receivable and accrued revenues 463.4 463.4 314.0 19.4 (2)
Other Current Assets 252.6 252.6 55.1
----------- ----------- ----------- ------------- --------------
Total Current Assets 907.3 75.0 982.3 444.1 2,616.0
Deferred Charges 70.2 70.2 46.8 0.0
----------- ----------- ----------- ------------- --------------
Contractual recievable from LIPA 0.0 0.0 0.0 0.0 272.8 (2)
----------- ----------- ----------- ------------- --------------
Total Assets 11,907.7 75.0 11,982.7 9,186.8 2,596.6
=========== =========== =========== ============= ==============
CAPITALIZATION AND LIABILITIES
Capitalization
Common Shareowners' Equity 2,608.5 2,608.5 2,500.8 2,464.6 (3)
Long-term debt, includes current maturities 4,482.7 4,482.7 3,434.1
Preferred stock 701.0 75.0(10) 776.0 338.0
----------- ----------- ----------- ------------- --------------
Total Capitalization 7,792.2 75.0 7,867.2 6,272.9 2,464.6
----------- ----------- ----------- ------------- --------------
Regulatory Liabilities 407.0 0.0 407.0 385.8 0.0
----------- ----------- ----------- ------------- --------------
Current Liabilities
Accounts payable and accrued expenses 288.6 288.6 101.7 13.0 (3)
Accrued taxes (including Federal income tax) 54.5 54.5 399.0 (4)
Other current liabilities 336.6 336.6 54.0
----------- ----------- ----------- ------------- --------------
679.7 0.0 679.7 155.7 412.0
----------- ----------- ----------- ------------- --------------
Deferred Credits
Deferred federal income tax 2,506.9 2,506.9 2,355.9 (280.0) (4)
Other 77.4 77.4 18.6
----------- ----------- ----------- ------------- --------------
Total Deferred Credits 2,584.3 0.0 2,584.3 2,374.5 (280.0)
----------- ----------- ----------- ------------- --------------
Operating Reserves 444.5 0.0 444.5 (2.1) 0.0
----------- ----------- ----------- ------------- --------------
Commitments and Contingencies 0.0 0.0 0.0 0.0 0.0
----------- ----------- ----------- ------------- --------------
Minority Interest in Subsidiary Company 0.0 0.0 0.0 0.0 0.0
----------- ----------- ----------- ------------- --------------
Total Capitalization and Liabilities 11,907.7 75.0 11,982.7 9,186.8 2,596.6
=========== =========== =========== ============= ==============
See accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
KEYSPAN/LILCO HOLDING CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
12/31/97
(In Millions)
NEWCO Keyspan Pro Forma
before Keyspan (Historical) Adjustments NEWCO
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
ASSETS
PROPERTY
Utility Plant
Electric 1,094.5 0.0 0.0 1,094.5
Gas 1,218.7 1,855.7 0.0 3,074.4
Common 286.4 0.0 0.0 286.4
Construction work in progress 74.1 0.0 0.0 74.1
Nuclear fuel in process and in reactor 0.0 0.0 0.0 0.0
Less - Accumulated depreciation 0.0 0.0 0.0 0.0
and amortization (914.5) (461.6) 0.0 (1,376.1)
-------------- ------------- ------------- --------------
Total Net Utility Plant 1,759.2 1,394.1 0.0 3,153.3
Gas exploration and production, at cost 0.0 684.0 0.0 684.0
Less - Accumulated depletion 0.0 (237.1) 0.0 (237.1)
-------------- -------------- -------------- --------------
Total Net Plant 1,759.2 1,841.0 0.0 3,600.2
-------------- ------------- ------------- --------------
Cost In Excess of Net Assets Acquired 0.0 0.0 241.0 (6) 241.0
-------------- ------------- ------------- --------------
REGULATORY ASSETS
Base financial component (less accumulated
amortization of $858.2 ) 0.0 0.0 0.0 0.0
Rate moderation component 0.0 0.0 0.0 0.0
Shoreham post-settlement costs 0.0 0.0 0.0 0.0
Regulatory tax asset 22.5 0.0 68.7 (5) 91.2
Postretirement benefits other than pensions 53.9 0.0 0.0 53.9
Other 74.3 0.0 29.4 (6) 103.7
-------------- ------------- ------------- --------------
Total Regulatory Assets 150.7 0.0 98.1 248.8
-------------- ------------- ------------- --------------
NONUTILITY PROPERTY AND OTHER INVESTMENTS 32.2 98.6 0.0 130.8
-------------- ------------- ------------- --------------
CURRENT ASSETS 0.0
Cash and cash equivalents 2,657.6 39.8 0.0 2,697.4
Deferred tax asset 130.3 0.0 0.0 130.3
Accounts receivable and accrued revenues 168.8 318.7 0.0 487.5
Other Current Assets 197.5 165.2 0.0 362.7
-------------- ------------- ------------- --------------
TOTAL CURRENT ASSETS 3,154.2 523.7 0.0 3,677.9
DEFERRED CHARGES 23.4 154.3 (76.9)(5) (6) 100.8
-------------- ------------- ------------- --------------
CONTRACTUAL RECIEVABLE FROM LIPA 272.8 0.0 0.0 272.8
-------------- ------------- -------------
TOTAL ASSETS 5,392.5 2,617.6 262.2 8,272.3
============== ============= ============= --------------
0.0
CAPITALIZATION AND LIABILITIES 0.0
CAPITALIZATION 0.0
Common Shareowners' Equity 2,572.3 1,014.1 200.4 (6) 3,786.8
Long-term debt, includes current maturities 1,048.6 760.1 0.0 1,808.7
Preferred stock 438.0 0.0 0.0 438.0
-------------- ------------- ------------- --------------
Total Capitalization 4,058.9 1,774.2 200.4 6,033.5
-------------- ------------- ------------- --------------
REGULATORY LIABILITIES 21.2 0.0 0.0 21.2
-------------- ------------- ------------- --------------
CURRENT LIABILITIES 0.0
Accounts payable and accrued expenses 199.9 177.6 61.8 (6) 439.3
Acrued taxes (including Federal income tax) 453.5 37.9 0.0 491.4
Other current liabilites 282.6 152.7 0.0 435.3
-------------- ------------- ------------- --------------
936.0 368.2 61.8 1,366.0
-------------- ------------- ------------- --------------
DEFERRED CREDITS 0.0
Deferred federal income tax (129.0) 291.9 0.0 162.9
Other 58.8 94.8 0.0 153.6
-------------- ------------- ------------- --------------
Total Deferred Credits (70.2) 386.7 0.0 316.5
-------------- ------------- ------------- --------------
OPERATING RESERVES 446.6 0.0 0.0 446.6
-------------- ------------- ------------- --------------
COMMITMENTS AND CONTINGENCIES 0.0 0.0 0.0 0.0
-------------- ------------- ------------- --------------
MINORITY INTEREST IN SUBSIDIARY COMPANY 0.0 88.5 0.0 88.5
-------------- ------------- ------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES 5,392.5 2,617.6 262.2 8,272.3
============== ============= ============= ==============
See Accompanying Notes To Unaudited Pro Forma Consolidated Condensed Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
(KEYSPAN/LILCO) HOLDING CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(In Millions Except Per Share Amounts)
Sale Pro NEWCO
LILCO to Forma before KeySpan Pro Forma
(Historical) LIPA (1) Adjustments KeySpan (Historical) Adjustments NEWCO
----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Electric $2,480.5 $2,118.4 $11.5(7) $373.6 $0.0 $0.0 $373.6
Gas - Utility sales 667.2 0.0 0.0 667.2 1,356.9 0.0 2,024.1
Gas production and other 0.0 0.0 0.0 0.0 126.6 0.0 126.6
----------- ----------- --------- ------- ----------- -------- -----------
Total Revenues 3,147.7 2,118.4 11.5 1,040.8 1,483.5 0.0 2,524.3
OPERATING EXPENSES
Operations - fuel and purchased power 965.2 657.4 0.0 307.8 579.9 0.0 887.7
Operations - other 390.4 235.0 0.0 155.4 363.0 0.0 518.4
Maintenance 113.6 63.2 0.0 50.4 58.4 0.0 108.8
Depreciation, depletion and amortization 156.6 94.7 0.0 61.9 119.8 6.0(6) 187.7
Base financial component amortization 101.0 101.0 0.0 0.0 0.0 0.0 0.0
Rate moderation component amortization 13.5 13.5 0.0 0.0 0.0 0.0 0.0
Regulatory liability component amortization (88.5) (88.5) 0.0 0.0 0.0 0.0 0.0
Other regulatory amortization 56.1 46.5 0.0 9.6 0.0 0.0 9.6
Operating taxes 466.7 261.6 0.0 205.1 154.4 0.0 359.5
Federal income taxes 224.5 165.0 4.0(8) 63.5 58.6 0.0 122.1
----------- ----------- --------- ------- ----------- -------- -----------
Total Operating Expenses 2,399.1 1,549.4 4.0 853.7 1,334.1 6.0 2,193.8
----------- ----------- --------- ------- ----------- -------- -----------
Operating Income 748.6 569.0 7.5 187.1 149.4 (6.0) 330.5
OTHER INCOME AND (DEDUCTIONS) (4.3) 15.3 0.0 (19.6) 21.6 0.0 2.0
----------- ----------- --------- ------- ----------- -------- -----------
INCOME BEFORE INTEREST CHARGES 744.3 584.3 7.5 167.5 171.0 (6.0) 332.5
INTEREST CHARGES 410.3 314.7 0.0 95.6 44.5 0.0 140.1
----------- ----------- --------- ------- ----------- -------- -----------
NET INCOME 334.0 269.6 7.5 71.9 126.5 (6.0) 192.4
----------- ----------- --------- ------- ----------- -------- -----------
Preferred stock dividend requirements 51.8 23.1 6.0(10) 34.7 0.2 0.0 34.9
----------- ----------- --------- ------- ----------- -------- -----------
EARNINGS FOR COMMON STOCK $282.2 $246.5 $1.5 $37.2 $126.3 ($6.0) $157.5
=========== ========== ========= ======= =========== ======== ===========
AVERAGE COMMON SHARES OUTSTANDING 121.2 121.2 121.2 121.2 50.4 (14.5)(12) 157.1
=========== =========== ========= ======= =========== ======== ===========
EARNINGS PER COMMON AND EQUIVALENT SHARES $2.33 $2.03 $0.01 $0.31 $2.50 ($0.04) $1.00(9)
=========== =========== ========= ======= =========== ======== ===========
See Accompanying Notes To Unaudited Pro Forma Consolidated Condensed Financial Statements.
</TABLE>
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<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. 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 and to pay call premiums totaling $4.9 million on preferred
stock series to be redeemed by LIPA. Transaction costs are currently estimated
to be $26 million, $13 million of which has been incurred to date, leaving a
balance of $13 million as a pro forma adjustment to accrued expenses. Assuming
the LIPA Transaction was completed on December 31, 1997, the net cash to be
received by the Holding Company would amount to:
Cash Purchase Price $2,497.5
Cash paid to LIPA (15.0)
Call premiums ( 4.9)
--------
Net Cash $2,477.6
========
4. The transfer of the Transferred Assets from LILCO to the Holding Company
(which will then transfer the assets to its subsidiaries) will result in the
imposition of federal income taxes on LILCO. Pursuant to the LIPA Agreement, the
subsidiaries created by the Holding Company will receive the benefit of the
increased tax basis of the Transferred Assets and will receive the Transferred
Assets net of the tax imposed on LILCO. The tax is derived from the difference
between the fair market value of the Transferred Assets and their existing tax
basis. There are many different ways of valuing assets which may result in
substantially different values. The Company has retained professional appraisers
to assist it in determining the fair market value of the Transferred Assets.
However, the valuation determined by the Company and its appraisers is not
binding on the Internal Revenue Service, which may assert a higher value and a
correspondingly greater tax liability. Thus, the actual tax liability and the
amount of cash that will be available to the Company net of such liability
cannot be determined at this time. The unaudited pro forma consolidated balance
sheet as of December 31, 1997, reflects an estimated tax liability of
approximately $399 million based upon an estimate of the value of the
Transferred Assets made at the time the Company entered into the LIPA Agreement.
For financial reporting purposes, the subsidiaries reversed the existing
deferred tax liability of $280 million relating to the Transferred Assets and
recorded a $119 deferred tax asset, reflecting the estimated 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 December
31, 1997 reflects the reclassification of $68.7 million of KeySpan regulatory
tax assets from deferred charges to regulatory assets in order to consistently
present the regulatory assets of KeySpan with LILCO.
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<PAGE>
6. The purchase price for KeySpan, which amounts to approximately $1.255 billion
including $40.6 million of direct 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
non-utility assets approximate their carrying values. Both KeySpan and LILCO
will seek PSC approval for recovery of transaction costs.
At December 31, 1997, the purchase price exceeded the fair value of the net
assets acquired by $241.0 million, which will be amortized to income over 40
years. The actual amount of goodwill to be recorded will be based on the net
assets acquired as of the closing date.
An additional $29.4 million in direct transaction costs will be recovered
through rates of Holding Company's regulated subsidiaries and as a result, these
costs have been recorded as a regulatory asset.
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 net pro forma charge of $4.0 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).
9. No adjustments have been made to earnings for 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). If these funds were invested at 5.92%
(the 30 year US Treasury Bond yield based on recent prices), the Holding Company
would have realized additional interest income, net of taxes, of approximately
$65.3 million, or approximately $.42 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%.
10. As more fully described in the section entitled "The LIPA
Transaction-Agreement and Plan of Merger," as described in the Joint Proxy
Statement/Prospectus dated June 27, 1997, 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 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 place Preferred Stock will
be 7.95%, which is equal to the Company's highest cost preferred Stock.
11. KeySpan earnings for the 12 month period ended December 31, 1997 include
gains of 15.2 million, or $0.30 per share resulting from the sale of various
cogeneration investments as well as the sale of residual interests in certain
Canadian assets.
12. These pro-forma financial statements reflect the exchange of each
outstanding share of LILCO Common Stock into 0.880 shares of Holding Company
Common Stock and the exchange of each outstanding share of KeySpan Common Stock
into one share of Holding Company Common Stock, as provided in the proposed
KeySpan/LILCO transaction.
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