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)
May 28, 1998
LONG ISLAND LIGHTING COMPANY
(Exact name of registrant as specified in its charter)
NEW YORK 1-3571 11-1019782
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
333 EARLE OVINGTON BOULEVARD, SUITE 403,
UNIONDALE, NEW YORK 11553
(Address of principal executive offices)
(516)-222-7700
Registrant's telephone number, including area code
175 EAST OLD COUNTRY ROAD, HICKSVILLE, NEW YORK 11801
Former Name or Former Address, if Changed Since Last Report
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On May 28, 1998, LIPA Acquisition Corp., a wholly-owned subsidiary of
Long Island Power Authority ("LIPA"), was merged with and into Long Island
Lighting Company (the "Merger") pursuant to the Agreement and Plan of Merger,
dated as of June 26, 1997, by and among MarketSpan Corporation (formerly known
as BL Holding Corp., "MarketSpan"), Long Island Lighting Company (the
"Company"), LIPA and LIPA Acquisition Corp., (the "Merger Agreement"). As a
result of the Merger, LIPA became the holder of 100 shares of the Company's
common stock, representing 100% of the outstanding voting securities of the
Company. The former holders of the Company's common stock, which was widely held
by the public, became entitled to receive a pro-rata share of (i) cash
consideration of $2,497,500,000 and (ii) 3,440,625 shares of the common stock of
MarketSpan, which were received by the Company in exchange for certain assets of
the Company transferred to subsidiaries of MarketSpan. Pursuant to the Merger
Agreement, the former holders of the Company's common stock (other than holders
of dissenting shares) were deemed to have subscribed for additional shares of
the common stock of MarketSpan, with an aggregate purchase price equal to the
cash consideration. In order to effect the Merger, it was necessary to (i)
retire all shares of the Company's preferred stock, whether by conversion,
redemption or cancellation, and (ii) redeem certain of the Company's bonds, for
an additional cost to LIPA of approximately $1,556,900,000. The cash
consideration required for the Merger was obtained by LIPA from the proceeds of
the issuance and sale of its Electric System General Revenue Bonds, Series 1998A
and Electric System Subordinated Revenue Bonds, Series 1 through Series 6.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the Merger Agreement, on May 28, 1998, immediately prior
to the Merger, all of the assets of the Company employed in the conduct of its
gas distribution business and its non-nuclear electric generation business, and
all common assets used by the Company in the operation and management of its
electric transmission and distribution business and its gas distribution
business and/or its non-nuclear electric generation business (the "Transferred
Assets") were sold to MarketSpan and transferred to the following wholly-owned
subsidiaries of MarketSpan (the "Transferee Subsidiaries") at MarketSpan's
direction: MarketSpan Gas Corporation (d/b/a Brooklyn Union), MarketSpan Trading
Services LLC, MarketSpan Generation LLC, MarketSpan Corporate Services LLC,
MarketSpan Utility Services LLC, and MarketSpan Electric Services LLC, each a
New York corporation or limited liability company, and MarketSpan Finance
Corporation, a Vermont corporation (the "Transfer"). The consideration for the
Transferred Assets consisted of (i) 3,440,625 shares of the common stock of
MarketSpan Corporation, (ii) 553,000 shares of the Series B Preferred Stock of
MarketSpan and (iii) 197,000 shares of the Series C Preferred Stock of
MarketSpan. The value of the consideration was determined by MarketSpan and the
Company to be equal to the net fair market value of the Transferred Assets. The
Transfer was effected by a Bill of Sale, dated as of May 28, 1998, made and
executed by the Company and acknowledged by MarketSpan. At the time of the
Transfer, William J. Catacosinos was a director of both the Company and
MarketSpan, and the following individuals held the respective offices set forth
opposite their names at both the Company and MarketSpan:
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Name Office
- ---- -------
Leonard P. Novello Senior Vice President and General Counsel
Joseph E. Fontana Vice President, Controller and Chief Accounting Officer
Kathleen A. Marion Vice President and Secretary
In addition, at the time of the Transfer, James T. Flynn was Chief Operating
Officer and President of the Company and Executive Vice President of MarketSpan.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Pro Forma Financial Information.
Pro forma financial information reflecting the
disposition of the Transferred Assets and the
acquisition by LIPA of 100% of the common stock
of the Company.
(c) Exhibits.
2.1 Agreement and Plan of Merger, dated as of June
26, 1997, by and among MarketSpan Corporation
(formerly known as BL Holding Corp.), the
Company, Long Island Power Authority and LIPA
Acquisition Corp. (incorporated herein by
reference to the Form 8-K filed by the Company on
July 3, 1997).
<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.
LONG ISLAND LIGHTING COMPANY
By: /s/ David P. Warren
------------------------------
Name: David P. Warren
Title: Chief Financial Officer
Dated: June 12, 1998
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information reflects adjustments to
the historical financial statements of the Long Island Lighting Company (LILCO
or Company) to give effect to the sale on May 28, 1998 of the gas, fossil
generation and common net assets of LILCO to MarketSpan (the Disposal) and the
subsequent purchase of 100% of the common stock of LILCO by the Long Island
Power Authority (LIPA) (the Acquisition). In connection with this transaction,
the principal assets acquired by LIPA through its stock acquisition of LILCO
include the electric 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 assumed by LIPA include LILCO's
regulatory liabilities associated with its electric business, LILCO's long-term
debt and an allocation of accounts payable, accrued expenses, customer deposits,
other deferred credits and claims.
The unaudited pro forma balance sheet at March 31, 1998 gives effect to the
Disposal as if it had occurred at March 31, 1998. The unaudited pro forma income
statements for the years ended December 31, 1995 and 1996 and three months ended
March 31, 1997 give retroactive effect to the discontinuance of the gas business
segment in accordance with the provisions of Accounting Principles Board Opinion
No. 30, "Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APB
30) . The unaudited consolidated income statement for the year ended March 31,
1998 gives effect to the Disposal as if it had occurred on April 1, 1997.
The unaudited pro forma financial statements as of and for the year ended March
31, 1998 gives effect to the Acquisition and the change in the regulatory
oversight of LILCO from the New York State Public Service Commission (NYPSC) to
LIPA as if it had occurred at March 31, 1998 and at the beginning of the period
presented, respectively. These statements are prepared on the basis of
accounting for the Acquisition under the purchase method of accounting
reflecting the push down of LIPA's basis in the net assets to LILCO and are
based on the assumptions set forth in the notes thereto.
The following pro forma financial information has been prepared from and should
be read in conjunction with the historical financial statements and related
notes thereto of the Company. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Disposal and Acquisition been consummated on the date or at the
beginning of the period for which the Disposal and Acquisition are being given
effect nor is it necessarily indicative of future operating results or financial
position.
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<TABLE>
<CAPTION>
Long Island Lighting Company
Pro Forma Statements of Income
(in millions)
For the For the For the
three months twelve months twelve months
ended ended ended
March 31, 1997 December 31, 1996 December 31, 1995
-------------- ----------------- -----------------
<S> <C> <C> <C>
-----------------------------------------------------
Electric Revenues $557.8 $2,466.4 $2,484.0
-----------------------------------------------------
Operating Expenses
Operations-fuel and purchased power 165.2 640.6 570.8
Operations- other 66.0 287.1 290.4
Maintenance 24.9 99.2 108.7
Depreciation and amortization 32.0 128.5 122.0
Base financial component amortization 25.2 101.0 101.0
Rate moderation component amortization 5.9 (24.2) 21.9
Regulatory liability component amortization (19.8) (79.3) (79.4)
1989 Settlement credits amortization (2.3) (9.2) (9.2)
Other regulatory amortization 10.1 109.5 155.6
Operating taxes 92.4 390.9 375.2
Federal income tax- current 23.4 42.2 14.6
Federal income tax- deferred and other 6.5 138.3 168.3
-----------------------------------------------------
Total Operating Expenses 429.5 1,824.6 1,839.9
-----------------------------------------------------
Operating Income 128.3 641.8 644.1
-----------------------------------------------------
Other Income and (Deductions)
Rate moderation component carrying charges 5.9 25.3 25.3
Other income and deductions, net (0.2) 14.2 30.8
Class Settlement (4.5) (20.8) (21.7)
Allowance for other funds used during construction 0.6 1.6 1.6
Federal income tax- deferred and other 1.1 1.4 2.7
-----------------------------------------------------
Total Other Income and (Deductions) 2.9 21.7 38.7
-----------------------------------------------------
Income From Continuing Operations Before Interest Charges 131.2 663.5 682.8
-----------------------------------------------------
Interest Charges
Interest on long-term debt and other interest 93.0 395.7 420.6
Allowance for borrowed funds used during construction (0.9) (3.3) (3.7)
-----------------------------------------------------
Total Interest Charges 92.1 392.4 416.9
-----------------------------------------------------
Income from Continuing Operations 39.1 271.1 265.9
Income from Discontinued Operations 48.6 45.3 37.3
-----------------------------------------------------
Net Income 87.7 316.4 303.2
Preferred stock dividend requirements 13.0 52.2 52.6
-----------------------------------------------------
Earnings for Common Stock $74.7 $264.2 $250.6
=====================================================
See Accompanying Notes to Unaudited Pro Forma Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
Long Island Lighting Company
Pro Forma Statement of Operations
For the Twelve Months Ended March 31, 1998
(in millions)
Restated Disposition Pro-forma Pro-forma
LILCO Adjustments(1) Adjustments LILCO
-----------------------------------------------------
<S> <C> <C> <C>
Electric Revenues $2,478.4 ($518.0)(3) $1,960.4
-----------------------------------------------------
Operating Expenses
Operations-fuel and purchased power 658.3 1.5 (11) 659.8
Operations- Other 310.5 27.9 (11) 338.4
Maintenance 93.3 93.3
Depreciation and Amortization 131.1 119.0 (5) 250.1
Base financial component amortization 101.0 (101.0)(3)
Rate moderation component amortization (35.1) 35.1 (3)
Regulatory liability component amortization (79.3) 79.3 (3)
1989 Settlement credits amortization (9.2) 9.2 (3)
Other regulatory amortization 36.1 (36.1)(3)
Operating taxes 388.6 (22.1)(3) 366.5
Federal income tax- current 76.9 (76.9)(4)
Federal income tax- deferred and other 133.5 (133.5)(4)
-----------------------------------------------------
Total Operating Expenses 1,805.7 (97.6) 1,708.1
-----------------------------------------------------
Operating Income 672.7 (420.4) 252.3
-----------------------------------------------------
Other Income and (Deductions)
Rate Moderation component carrying charges 23.6 (23.6)(3)
Other income and deductions, net (13.7)(13) (13.7)
Class Settlement (15.6) 15.6
Allowance for other funds used during construction 2.7 2.7
Interest Income 67.1 (9) 67.1
Federal income tax- current 0.6 (0.6)(4)
Federal income tax- deferred and other 3.3 (3.3)(4)
-----------------------------------------------------
Total Other Income and (Deductions) 0.9 15.6 39.6 56.1
-----------------------------------------------------
Income From Continuing Operations Before
Interest Charges 673.6 15.6 (380.8) 308.4
-----------------------------------------------------
Interest Charges
Interest on long-term debt and other interest 409.1 191.4 (10) 600.5
Allowance for borrowed funds used during construction (3.8) (3.8)
-----------------------------------------------------
Total Interest Charges 405.3 191.4 596.7
-----------------------------------------------------
Income from continuing operations 268.3 15.6 (572.2) (288.3)
Income from Discontinued Operations 93.9 (93.9)(1)
-----------------------------------------------------
Net Income (Loss) 362.2 15.6 (666.1) (288.3)
Preferred stock dividend requirements 51.8 (51.8)(8)
-----------------------------------------------------
Earnings (Loss) for Common Stock $310.4 $15.6 ($614.3) ($288.3)
See Accompanying Notes to Unaudited Pro Forma Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
Long Island Lighting Company
Unaudited Pro Forma Condensed Balance Sheet
March 31, 1998
(in millions)
Historical Disposition NEW Pro-forma Pro-forma
LILCO Adjustments (2) LILCO adjustments LILCO
---------- --------------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Utility Plant:
Electric
Generation $1,965.1 ($1,077.3) $887.8 $887.8
Nuclear & Nuclear Fuel 18.1 18.1 18.1
Transmission & Distribution 2,066.5 (24.9) 2,041.6 2,041.6
Gas 1,233.3 (1,233.3)
Common & General 290.2 (290.2)
Construction Work in Progress 118.7 (77.6) 41.1 41.1
---------- --------------- -------- ----------- ---------
5,691.9 (2,703.3) 2,988.6 2,988.6
Less: Accumulated Depreciation (1,877.8) 925.5 (952.3) (952.3)
---------- --------------- -------- ----------- ---------
Total Net Utility Plant 3,814.1 (1,777.8) 2,036.3 2,036.3
---------- --------------- -------- ----------- ---------
Regulatory Assets
Base Financial Component 3,155.3 3,155.3 ($3,155.3)(3)
Rate Moderation Component 434.0 434.0 (434.0)(3)
Shoreham - post settlement costs 1,005.3 1,005.3 (1,005.3)(3)
Shoreham nuclear fuel 66.5 66.5 (66.5)(3)
Unamortized cost of issuing securities 160.0 (2.9) 157.1 (157.1)(3)
Post-retirement benefits other than pensions 340.1 (340.1)
Regulatory tax assets 1,737.9 (21.0) 1,716.9 (1,716.9)(3)
Other 192.8 (87.1) 105.7 (105.7)(3)
---------- --------------- -------- ----------- ---------
Total Regulatory Assets 7,091.9 (451.1) 6,640.8 (6,640.8)
---------- --------------- -------- ----------- ---------
Other Long-term Investments
Non Utility Property and Other Investments 50.8 (32.9) 17.9 17.9
Investment in MarketSpan 236.6 236.6 (236.6)(6)(7)
Promissory Notes 1,087.0 1,087.0 (100.0)(12) 987.0
---------- --------------- -------- ----------- ---------
Total Long-term Investments 50.8 1,290.7 1,341.5 (336.6) 1,004.9
---------- --------------- -------- ----------- ---------
Current Assets
Cash and cash equivalents 180.9 (180.9) 110.2(7)(8) 110.2
Special Deposits 95.8 (95.5) 0.3 0.3
Accounts receivable & accrued revenues 466.1 (137.5) 328.6 328.6
Material & supplies at average cost 54.9 (54.9)
Fuel oil at average cost 32.1 (32.1)
Gas in Storage at average cost 14.6 (14.6)
Pre-payments and other current assets 13.8 (10.8) 3.0 3.0
---------- --------------- -------- ----------- ---------
Total Current Assets 858.2 (526.3) 331.9 110.2 442.1
---------- --------------- -------- ----------- ---------
---------- --------------- -------- ----------- ---------
Designated Funds 318.5 (8) 318.5
---------- --------------- -------- ----------- ---------
Deferred Charges
Unamortized cost of issuing securities 42.7 (9.0) 33.7 22.7(5)(8) 56.4
Other 43.0 (29.0) 14.0 14.0
---------- --------------- -------- ----------- ---------
Total Deferred Charges 85.7 (38.0) 47.7 22.7 70.4
---------- --------------- -------- ----------- ---------
Acquisition Adjustment 4,164.3 (5) 4,164.3
----------- ---------
---------- --------------- -------- ----------- ---------
Total Assets $11,900.7 ($1,502.5) $10,398.2 ($2,361.7) $8,036.5
========== =============== ======== =========== =========
See Accompanying Notes to Unaudited Pro Forma Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Long Island Lighting Company
Unaudited Pro Forma Condensed Balance Sheet
March 31, 1998
(in millions)
Historical Disposition NEW Pro-forma Pro-forma
LILCO Adjustments (2) LILCO adjustments LILCO
---------- --------------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Capitalization & Liabilities
Capitalization
Long term debt including current maturities $4,483.0 $4,483.0 ($1,553.0)(5)(8)(12) $2,930.0
Parent Company Debt 4,949.5 (8) 4,949.5
Preferred Stock 702.0 ($362.9) 339.1 (339.1)(8)
Common shareholder's equity 2,662.4 2,662.4 (2,662.4)(6)
---------- --------------- -------- ----------- ---------
Total Capitalization 7,847.4 (362.9) 7,484.5 395.0 7,879.5
---------- --------------- -------- ----------- ---------
Regulatory Liabilities
Regulatory liability component 99.2 99.2 (99.2)(3)
1989 Settlement credits 59.4 59.4 (59.4)(3)
Regulatory tax liability 78.9 0.6 79.5 (79.5)(3)
Other 151.9 (24.9) 127.0 (127.0)(3)
---------- --------------- -------- ----------- ---------
Total Regulatory Liabilities 389.4 (24.3) 365 (365.1)
---------- --------------- -------- ----------- ---------
Current Liabilities
Accounts payable and accrued expenses 228.6 (126.9) 101.7 13.0 (8) 114.7
LRPP payable 30.1 30.1 (30.1)(3)
Accrued taxes 34.8 (34.8)
Accrued interest 146.6 (146.6)
Dividends payable 58.7 (58.7)
Class settlement 60.0 (60.0)
Customer deposits 28.6 (6.0) 22.6 22.6
---------- --------------- -------- ----------- ---------
Total Current Liabilities 587.4 (433.0) 154.4 (17.1) 137.3
---------- --------------- -------- ----------- ---------
Deferred Credits
Class settlement 46.9 (46.9)
Deferred federal income taxes 2,539.4 (162.3) 2,377.1 (2,377.1)(4)
Other 22.5 (2.8) 19.7 19.7
---------- --------------- -------- ----------- ---------
Total Deferred Credits 2,608.8 (212.0) 2,396.8 (2,377.1) 19.7
---------- --------------- -------- ----------- ---------
Operating Reseves
Pensions and other postretirement benefits 401.4 (401.4)
Claims and damages 66.3 (68.9) (2.6) 2.6 (3)
---------- --------------- -------- ----------- ---------
Total Operating Reserves 467.7 (470.3) (2.6) 2.6
---------- --------------- -------- ----------- ---------
Total Capitalization & Liabilities $11,900.7 ($1,502.5) $10,398.2 ($2,361.7) $8,036.5
---------- --------------- -------- ----------- ---------
See Accompanying Notes to Unaudited Pro Forma Financial Statements
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. The historical income statements have been restated to reflect the gas
business as a discontinued operation in accordance with the provisions of
APB 30. In fiscal 1998, interest expense has not been allocated to
discontinued operations. A pro forma adjustment was recorded in the
unaudited pro forma income statement for the twelve months ended March 31,
1998 to eliminate the discontinued operations.
2. The "Disposition Adjustments" column in the unaudited pro forma balance
sheet represent the adjustments necessary to reflect the Disposal of the
gas, fossil generation and common net assets in exchange for the
Promissory Note and Common and Preferred Stock of MarketSpan. The
adjustments are based upon an estimated disaggregation of LILCO's balance
sheet, and are subject to adjustment pursuant to the terms of the
Agreement and Plan of Merger. No adjustments were made to Depreciation and
Operating Taxes to reflect the disposition of the fossil generation and
common assets because these costs will be replaced with costs to be
incurred under contracts for the use of such assets.
3. As a result of the transaction, the NYPSC will no longer have regulatory
oversight of LILCO with respect to the determination of its rates and
charges. Rates and charges for LILCO will be determined by LIPA. Pro forma
adjustments have been made to eliminate the regulatory assets and
liabilities and the related amortization established by the NYPSC and give
effect to the 20.9% average system wide rate reduction approved and
implemented by LIPA effective May 29, 1998 on revenues and revenue related
taxes.
4. As a wholly owned subsidiary of LIPA, a tax-exempt state authority, LILCO
will be exempt from Federal income tax. Pro forma adjustments have been
made to eliminate deferred federal income tax assets and liabilities and
federal income tax expense.
5. To reflect the push down of LIPA's basis in the assets acquired and
liabilities assumed. Because of the manner in which LILCO's rate and
charges are established by LIPA, the original net book value of the
transmission and distribution and nuclear assets is considered to be their
fair value. The excess of the acquisition costs over the fair value of the
net assets acquired is recognized as an intangible asset titled
"acquisition adjustment." The acquisition adjustment is assumed to be
amortized over 35 years.
6. To reflect the use of a portion of the MarketSpan stock as a portion of
the consideration paid by LIPA to LILCO shareholders for the common stock
of LILCO.
7. To reflect the private placement of $75 million of the MarketSpan
Preferred Stock on May 28, 1998.
8. To reflect the contribution by LIPA to LILCO of cash of $2,318.1 million
to a) redeem LILCO preferred stock , b) establish certain restricted
funds, c) refinance certain LILCO debt of $1,625.3 million and d) use for
general funds in exchange for a Note to Parent of $4,949.5 million.
9. To recognize interest income on the Promissory Note of $1,087.0 million
received from MarketSpan in exchange for the gas, fossil generation and
common net assets.
10 To recognize interest expense on the $4,949.5 million Note to Parent.
11. To give effect to the allocation of Parent company employee and overhead
costs to LILCO, together with the incremental costs of certain contracts
entered into by LILCO for the operation of its assets.
12. To give effect to the redemption on April 15, 1998 of $100 million of
Debentures.
13. Other Income and (Deductions) for the twelve months ended March 31, 1998
includes non-recurring charges of $31 million with respect to certain
benefits earned by LILCO's officers.
<PAGE>
