<PAGE> 1
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
For the quarterly period ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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, 1995, was 119,382,943.
<PAGE> 2
LONG ISLAND LIGHTING COMPANY
Page No.
--------
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income 3
Balance Sheet 5
Statement of Cash Flows 7
Notes to Financial Statements 8
Item 2. Management's Discussion and 12
Analysis of Financial Condition and
Results of Operations
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 23
of Security Holders
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
-2-
<PAGE> 3
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(Thousands of Dollars - except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30
-----------------------------
1995 1994
-----------------------------
<S> <C> <C>
Revenues
Electric $815,342 $861,052
Gas 60,452 52,388
-------- --------
Total Revenues 875,794 913,440
-------- --------
Expenses
Operations - fuel and purchased power 177,934 179,449
Operations - other 88,595 93,814
Maintenance 25,896 32,086
Depreciation and amortization 36,577 32,691
Base financial component amortization 25,243 25,243
Rate moderation component amortization 28,126 61,222
Regulatory liability component amortization (22,143) (22,143)
Other regulatory amortization 74,636 36,092
Operating taxes 119,268 106,066
Federal income tax - current 4,081 3,772
Federal income tax - deferred and other 78,020 88,183
-------- --------
Total Expenses 636,233 636,475
-------- --------
Operating Income 239,561 276,965
-------- --------
Other Income and (Deductions)
Rate moderation component carrying charges 5,989 7,869
Class Settlement (5,466) (5,787)
Other income and deductions, net 5,295 10,874
Allowance for other funds used during construction 757 720
Federal income tax credit - deferred and other 1,866 283
-------- --------
Total Other Income and (Deductions) 8,441 13,959
-------- --------
Income Before Interest Charges 248,002 290,924
-------- --------
Interest Charges and (Credits)
Interest on long-term debt 103,072 107,473
Other interest 14,727 15,686
Allowance for borrowed funds used during construction (1,018) (1,107)
-------- --------
Total Interest Charges and (Credits) 116,781 122,052
-------- --------
Net Income 131,221 168,872
Preferred stock dividend requirements 13,152 13,252
-------- --------
Earnings for Common Stock $118,069 $155,620
======== ========
Average Common Shares Outstanding (000) 119,370 118,112
Earnings per Common Share $0.99 $1.32
Dividends Declared per Common Share $0.445 $0.445
</TABLE>
See Notes to Financial Statements.
- 3 -
<PAGE> 4
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(Thousands of Dollars - except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------------
1995 1994
-------------------------------
<S> <C> <C>
Revenues
Electric $1,922,514 $1,980,033
Gas 398,292 431,860
---------- ----------
Total Revenues 2,320,806 2,411,893
---------- ----------
Expenses
Operations - fuel and purchased power 610,236 657,330
Operations - other 281,267 305,116
Maintenance 95,799 93,641
Depreciation and amortization 108,401 96,595
Base financial component amortization 75,728 75,728
Rate moderation component amortization 17,369 157,379
Regulatory liability component amortization (66,429) (66,429)
Other regulatory amortization 134,986 25,986
Operating taxes 336,017 308,414
Federal income tax - current 10,309 8,289
Federal income tax - deferred and other 153,440 149,532
---------- ----------
Total Expenses 1,757,123 1,811,581
---------- ----------
Operating Income 563,683 600,312
---------- ----------
Other Income and (Deductions)
Rate moderation component carrying charges 19,461 25,333
Class Settlement (16,366) (17,153)
Other income and deductions, net 26,084 27,124
Allowance for other funds used during construction 2,146 1,922
Federal income tax credit - deferred and other 1,807 3,927
---------- ----------
Total Other Income and (Deductions) 33,132 41,153
---------- ----------
Income Before Interest Charges 596,815 641,465
---------- ----------
Interest Charges and (Credits)
Interest on long-term debt 309,709 332,519
Other interest 47,145 48,778
Allowance for borrowed funds used during construction (2,951) (3,116)
---------- ----------
Total Interest Charges and (Credits) 353,903 378,181
---------- ----------
Net Income 242,912 263,284
Preferred stock dividend requirements 39,495 39,795
---------- ----------
Earnings for Common Stock $ 203,417 $ 223,489
========== ==========
Average Common Shares Outstanding (000) 119,042 115,035
Earnings per Common Share $1.71 $1.94
Dividends Declared per Common Share $1.335 $1.335
</TABLE>
See Notes to Financial Statements.
- 4 -
<PAGE> 5
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
ASSETS (unaudited) (audited)
------------ -----------
<S> <C> <C>
Utility Plant
Electric $ 3,754,224 $ 3,657,178
Gas 1,060,713 994,742
Common 240,323 232,346
Construction work in progress 103,302 129,824
Nuclear fuel in process and in reactor 16,679 23,251
----------- -----------
5,175,241 5,037,341
----------- -----------
Less - Accumulated depreciation and
amortization 1,619,228 1,538,995
----------- -----------
Total Net Utility Plant 3,556,013 3,498,346
----------- -----------
Regulatory Assets
Base financial component (less accumulated
amortization of $631,068 and $555,340) 3,407,762 3,483,490
Rate moderation component 398,205 463,229
Shoreham post settlement costs 961,068 922,580
Shoreham nuclear fuel 71,776 73,371
Postretirement benefits other than pensions 403,344 412,727
Regulatory tax asset 1,810,643 1,831,689
Other 269,186 354,524
----------- -----------
Total Regulatory Assets 7,321,984 7,541,610
----------- -----------
Nonutility Property and Other Investments 15,462 24,043
----------- -----------
Current Assets
Cash and cash equivalents 244,517 185,451
Special deposits 61,805 27,614
Customer accounts receivable (less allowance
for doubtful accounts of $23,295 and $23,365) 340,607 245,125
Other accounts receivable 94,376 14,030
Accrued unbilled revenues 135,874 164,379
Materials and supplies at average cost 67,439 74,777
Fuel oil at average cost 34,450 37,723
Gas in storage at average cost 70,677 68,447
Prepayments and other current assets 39,069 33,878
----------- -----------
Total Current Assets 1,088,814 851,424
----------- -----------
Deferred Charges
Deferred federal income tax 790,598 951,766
Unamortized cost of issuing securities 284,564 313,207
Other 5,867 36,284
----------- -----------
Total Deferred Charges 1,081,029 1,301,257
----------- -----------
Total Assets $13,063,302 $13,216,680
=========== ===========
</TABLE>
See Notes to Financial Statements.
- 5 -
<PAGE> 6
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
CAPITALIZATION AND LIABILITIES (unaudited) (audited)
----------- -----------
<S> <C> <C>
Capitalization
Long-term debt $ 4,722,675 $ 5,162,675
Unamortized discount on debt (16,385) (17,278)
----------- -----------
4,706,290 5,145,397
----------- -----------
Preferred stock - redemption required 643,300 644,350
Preferred stock - no redemption required 63,943 63,957
----------- -----------
Total Preferred Stock 707,243 708,307
----------- -----------
Common stock 596,915 592,083
Premium on capital stock 1,110,994 1,101,240
Capital stock expense (51,126) (52,175)
Retained earnings 796,970 752,480
----------- -----------
Total Common Shareowners' Equity 2,453,753 2,393,628
----------- -----------
Total Capitalization 7,867,286 8,247,332
----------- -----------
Regulatory Liabilities
Regulatory liability component 297,597 357,117
1989 Settlement credits 138,958 145,868
Regulatory tax liability 116,552 111,218
Other 147,599 143,611
----------- -----------
Total Regulatory Liabilities 700,706 757,814
----------- -----------
Current Liabilities
Current maturities of long-term debt 415,000 25,000
Current redemption requirements of preferred stock 4,800 4,800
Accounts payable and accrued expenses 215,232 241,775
Accrued taxes (including federal income tax of $27,549 and $28,340) 47,052 58,133
Accrued interest 148,726 149,929
Dividends payable 57,770 57,367
Class Settlement 43,333 35,833
Customer deposits 29,369 28,474
----------- -----------
Total Current Liabilities 961,282 601,311
----------- -----------
Deferred Credits
Deferred federal income tax 2,905,826 2,941,793
Class Settlement 135,018 151,604
Other 12,284 13,204
----------- -----------
Total Deferred Credits 3,053,128 3,106,601
----------- -----------
Operating Reserves
Pension and other postretirements benefits 421,541 453,016
Claims and damages 59,359 50,606
----------- -----------
Total Operating Reserves 480,900 503,622
----------- -----------
Commitments and Contingencies - -
----------- -----------
Total Capitalization and Liabilities $13,063,302 $13,216,680
=========== ===========
</TABLE>
See Notes to Financial Statements.
- 6 -
<PAGE> 7
LONG ISLAND LIGHTING COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------------
1995 1994
---------------------------
<S> <C> <C>
Operating Activities
Net Income $242,912 $263,284
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for doubtful accounts 13,420 15,072
Depreciation and amortization 108,401 96,595
Base financial component amortization 75,728 75,728
Rate moderation component amortization 17,369 157,379
Regulatory liability component amortization (66,429) (66,429)
Other regulatory amortization 134,986 25,986
Rate moderation component carrying charges (19,461) (25,333)
Class Settlement 16,366 17,153
Amortization of cost of issuing and redeeming securities 30,078 35,727
Federal income tax - deferred and other 151,633 145,605
Allowance for other funds used during construction (2,146) (1,922)
Gas Cost Adjustment 14,701 16,070
Other 4,642 33,258
Changes in operating assets and liabilities
Accounts receivable (109,125) (89,047)
Accrued unbilled revenues 28,505 (5,847)
Materials and supplies, fuel oil and gas in storage 8,381 (25,228)
Prepayments and other current assets (5,191) (404)
Accounts payable and accrued expenses (26,543) (76,534)
Accrued taxes (11,081) (16,742)
Special Deposits (34,191) 6,501
Class Settlement (28,785) (23,672)
Other (30,329) (9,091)
-------- --------
Net Cash Provided by Operating Activities 513,841 548,109
-------- --------
Investing Activities
Construction and nuclear fuel expenditures (170,214) (161,785)
Shoreham post settlement costs (58,544) (139,649)
Other 8,625 (1,120)
-------- --------
Net Cash Used in Investing Activities (220,133) (302,554)
-------- --------
Financing Activities
Proceeds from sale of common stock 14,572 113,293
Proceeds from issuance of long-term debt 49,287 281,992
Redemption of long-term debt (100,000) (460,058)
Redemption of preferred stock (1,050) (1,050)
Preferred stock dividends paid (39,515) (39,676)
Common stock dividends paid (158,505) (152,520)
Cost of issuing and redeeming securities (133) (5,871)
Other 702 818
-------- --------
Net Cash Used in Financing Activities (234,642) (263,072)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents $59,066 ($17,517)
======== ========
Cash and cash equivalents at January 1 $185,451 $248,532
Net increase (decrease) in cash and cash equivalents 59,066 (17,517)
-------- --------
Cash and Cash Equivalents at September 30 $244,517 $231,015
======== ========
Supplementary Information
Interest paid, before reduction for the allowance
for borrowed funds used during construction $327,980 $342,332
Federal income tax - paid $11,100 $8,700
Federal income tax - refunded - -
</TABLE>
See Notes to Financial Statements.
- 7 -
<PAGE> 8
Notes to Financial Statements
For the Quarter Ended September 30, 1995
(Unaudited)
Note 1. BASIS OF PRESENTATION
These Notes to Financial Statements reflect events subsequent to February 3,
1995, the date of the most recent Report of Independent Auditors, through the
date of this Quarterly Report on Form 10-Q for the quarter ended September 30,
1995. 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 nine months ended September 30, 1995, and Part II, Item 6b,
of this report, the Company's quarterly reports on Form 10-Q for the quarters
ended March 31, 1995 and June 30, 1995, and the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
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 interim
periods presented. Operating results for these interim periods are not
necessarily indicative of results to be expected for the entire year, due to
seasonal, operating and other factors.
Certain prior year amounts have been reclassified to be consistent with current
year presentations.
8
<PAGE> 9
Note 2. CAPITALIZATION
In August 1995, the Company received the proceeds from the sale of $50 million
of Electric Facilities Revenue Bonds issued by the New York State Energy
Research and Development Authority. The proceeds from this offering were used to
reimburse the treasury for electric projects previously completed.
In September 1995, the Company redeemed the remaining two series of First
Mortgage Bonds: $40 million aggregate principal amount Series P, 5 1/4% due
March 1, 1996 and $35 million aggregate principal amount Series Q, 5 1/2% due
April 1, 1997. With the retirement of the First Mortgage Bonds, the lien of the
First Mortgage is in the process of being discharged. When the First Mortgage is
discharged, the Company's outstanding General and Refunding Bonds will become
its only outstanding secured debt.
9
<PAGE> 10
Note 3. LONG ISLAND/NEW YORK STATE ENERGY ISSUES
Pursuant to statutory amendment effective September 1, 1995, the Board of
Trustees of the Long Island Power Authority (LIPA) was expanded from nine to
fifteen members and new trustees were subsequently appointed. Responding to the
New York State Governor's request that LIPA develop a plan that, in addition to
replacing the Company, produces double digit rate reductions, provides a
framework for long-term competition and protects property-tax payers, the newly
reconstituted Board has established a committee (Evaluation Committee) to
analyze various plans involving the Company's business operations and assets,
including the full takeover plan proffered by the prior LIPA Board in June 1995.
On September 28, 1995 LIPA issued a Request For Information (Request) in which
it sought information and indications of interest from qualified parties in
connection with a State authority-facilitated financial restructuring/
acquisition of the Company. In the Request, LIPA stated it seeks to achieve
several objectives including: (i) a substantial and sustainable reduction in
electric rates throughout the Company's service area; (ii) the maintenance of
reliable power; (iii) a framework for competition on Long Island over the
long-term; and (iv) participation of the private sector to the maximum extent
possible. LIPA also stated that while its preference is to implement a
consensual, negotiated transaction with the Company, it will consider acting
unilaterally (either via a tender offer or condemnation of the Company's assets
or securities) and that it reserves the right to acquire the Company's equity
securities below current trading prices. However, the Company is not aware of
any statutory right or authority, or other constitutionally sound basis, that
would enable LIPA to acquire the Company's securities below their market value.
The Evaluation Committee is currently expected to issue a recommendation to the
full LIPA Board before the end of the year.
The Company has indicated to LIPA that it is willing to cooperate in developing
a plan that is beneficial to the Company's shareholders, ratepayers and
employees. In addition, the Company continuously assesses various other
strategies in an effort to provide the greatest possible value to its
shareholders and ratepayers in light of the changing economic, regulatory and
political circumstances affecting it. Such strategies may include a review and
modification of its operations to best meet the challenges of a competitive
environment, a possible reorganization of the Company, possible joint ventures
and possible business combinations with other entities.
The implementation of certain plans involving the Company's business operations
and assets would be subject to, among other things, shareholder and regulatory
approvals and could impact the
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<PAGE> 11
Company's future financial results and operations. Accordingly, the Company is
unable to determine what plan, if any, will be pursued by it and/or LIPA or
whether any related transaction will be consummated.
In addition to the foregoing, the Public Service Commission of the State of New
York (PSC) has been conducting a generic competitive opportunities proceeding
(Proceeding) to address the potential benefits of competition to electric
customers throughout the State. The overall objective of the Proceeding is to
identify regulatory and ratemaking practices that will aid in the transition to
a more competitive electric industry and the PSC has issued an Order adopting
principles to serve as a guide for this transition. These principles provide,
among other things, that (i) the current industry structure, in which most
power plants are vertically integrated with natural monopoly transmission and
distribution, must be thoroughly examined to ensure that it does not adversely
affect wholesale or retail competition; (ii) safe and reliable electric service
must not be jeopardized; and (iii) utilities should have a reasonable
opportunity to recover prudent expenditures and commitments made pursuant to
their legal obligations. It is currently expected that the administrative law
judge presiding over the Proceeding will issue a recommended decision by the
end of the year.
Similarly, the Federal Energy Regulatory Commission (FERC) has previously issued
a Notice of Proposed Rulemaking (NOPR) that would require investor-owned
electric utilities to provide open access to the Nation's interstate
transmission network. Under this proposal, utilities would be required to file
non-discriminatory open access transmission tariffs, which would be generally
available to wholesale buyers and sellers of electric energy. The NOPR also
provided that utilities be permitted recovery of legitimate and verifiable
wholesale expenditures and commitments and expressed the expectation that state
regulatory agencies would likewise provide for the full recovery of legitimate
and verifiable retail expenditures and commitments. While FERC has expressed a
strong expectation that states will provide procedures for, and the full
recovery of, such expenditures and commitments, the Company is unable to predict
the final outcome of the State and federal proceedings, or what effect, if any,
either will have on the Company's future financial results and operations.
Notwithstanding the outcome of the State or Federal regulatory or rate
proceedings, or any other State action, the Company believes that, among other
obligations, the State has a contractual obligation to allow the Company to
recover its Shoreham-related assets.
11
<PAGE> 12
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 1995
RESULTS OF OPERATIONS
EARNINGS
Earnings for common stock for the three months ended
September 30, 1995 were $118.1 million or $.99 per common share. This compares
with $155.6 million or $1.32 per common share for the same period last year. For
the nine months ended September 30, 1995, earnings amounted to $203.4 million or
$1.71 per common share, compared with $223.5 million or $1.94 per common share
for the same period last year.
Electric earnings for the three and nine months ended
September 30, 1995 decreased primarily as a result of a refinement in the
Company's procedure used to estimate electric revenues not yet billed. This
accounting refinement, which more closely matches sales and energy requirements,
has no impact on annual earnings but has the effect of decreasing earnings for
the three and nine month periods ended September 30, 1995, and increasing
earnings for the fourth quarter.
Also contributing to the decrease in electric earnings for the three and nine
month periods ended September 30, 1995 is the New York State Public Service
Commission's (PSC) electric rate order, effective December 1, 1994, which
lowered the Company's allowed return on common equity and eliminated certain
performance-based incentives.
For the nine months ended September 30, 1995, gas earnings increased as a result
of cost containment in 1995 and the write-off in 1994 of previously deferred
storm costs.
The Company anticipates that its 1995 annual earnings will be somewhat lower
than 1994 earnings as a result of the lower allowed return on common equity and
the elimination of certain performance-based incentives, discussed above. The
Company will continue its cost containment efforts in an attempt to mitigate the
impact of the rate order on annual earnings.
12
<PAGE> 13
REVENUES
Total revenues for the three months ended September 30, 1995 were $875.8
million, a decrease of $37.6 million or 4.1% compared to the same period last
year. Electric revenues were down $45.7 million, while gas revenues increased by
$8.1 million compared with the same period last year.
For the nine months ended September 30, 1995, revenues totaled $2.3 billion, a
decline of $91.1 million or 3.8% compared with the same period last year.
Electric and gas revenues were lower by $57.5 million and $33.6 million
respectively, when compared with revenues in the same period in 1994.
Electric
The decrease in electric revenues for the three and nine months ended September
30, 1995, when compared to the same periods in 1994, was the result of a
refinement in the Company's method for estimating the accrual for unbilled sales
which became effective January 1, 1995. This refinement will have no impact on
annual revenues and earnings. In addition, for the nine months ended September
30, 1995, the Company experienced lower sales volumes as a result of the mild
1995 heating season when compared to the unusually cold 1994 heating season.
Gas
For the three months ended September 30, 1995, the increase in gas revenues was
attributable to a rate increase of 3.8% effective December 1, 1994 and to
additional customers.
For the nine months ended September 30, 1995, the decline in gas revenues, when
compared to the same period in 1994, was primarily the result of lower sales
volumes accompanied by lower fuel expense recoveries caused by the unusually
mild heating season. Partially offsetting this decrease was the rate increase
and to additional customers.
13
<PAGE> 14
FUELS AND PURCHASED POWER
Fuels and purchased power expenses for the three and nine months ended September
30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
(In Millions)
<S> <C> <C> <C> <C>
Fuels for Electric Operations
Oil $ 25 $ 38 $ 82 $128
Gas 43 36 106 71
Nuclear 4 4 10 11
Purchased Power 82 81 233 230
---- ---- ---- ----
Total for Electric Operations 154 159 431 440
Fuels for Gas Operations 24 20 179 217
---- ---- ---- ----
Total $178 $179 $610 $657
==== ==== ==== ====
</TABLE>
The mix of fuels and purchases of power for providing the Company's electric
system energy requirements during the three and nine months ended September 30,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Oil 16% 22% 20% 29%
Gas 41 31 34 21
Nuclear 7 8 6 8
Purchases 36 39 40 42
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
</TABLE>
For the three and nine months ended September 30, 1995, electric fuel costs were
lower when compared to the same period of the prior year primarily as a result
of the increased use of natural gas to displace more costly energy purchases and
energy generated on the Company's system with oil. The use of natural gas
increased as the Company completed the conversion of an oil fired generator
(Northport Unit No. 2) to a dual-fuel unit earlier this year and the continuing
decline of the cost of natural gas. Partially offsetting the effects of lower
per unit generation costs was an increase in the per unit cost of purchased
power. The per unit cost of purchased power increased as a result of extended
outages at certain upstate nuclear generating facilities which ordinarily supply
power at more economical rates.
Gas fuel costs for operating the gas business increased for the three months
ended September 30, 1995 when compared to the same period last year due to
higher sales volumes, and decreased for the nine months ended September 30, 1995
when compared to the
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<PAGE> 15
same period last year primarily as a result of lower gas prices, and lower sales
levels during the abnormally warm winter in 1995.
OPERATIONS AND MAINTENANCE EXPENSES
For the three months ended September 30, 1995, total operations and maintenance
(O&M) expenses, excluding fuels and purchased power, amounted to $114.5 million,
a decrease of $11.4 million or 9.1% over the comparable period last year. For
the nine months ended September 30, 1995, these expenses totaled $377.1 million,
a decrease of $21.7 million or 5.4% when compared to the same period last year.
The decrease for the three month period reflects the continuation of the
Company's cost containment efforts, while for the nine month period the decrease
is the result of cost containment and the recognition in 1994 of $6.6 million of
previously deferred storm costs associated with gas operations.
RATE MODERATION COMPONENT(RMC)
The RMC reflects the difference between the Company's revenue requirements under
conventional ratemaking and the revenues resulting from the implementation of
the rate moderation plan provided for in the Rate Moderation Agreement (RMA).
For a further discussion of the RMC and RMA, see Note 2 of Notes to Financial
Statements for the year ended December 31, 1994 on Form 10-K.
During 1995 the Company has credited to the RMC approximately $69 million of
deferred ratepayer benefits. The deferred ratepayer benefits consist primarily
of the overrecovery of certain production O&M costs, litigation proceeds related
to the construction of the Shoreham Nuclear Power Station and proceeds from the
sale of sulfur dioxide emissions credits. At September 30, 1995 and December 31,
1994, the unamortized RMC balance was $398 million and $463 million,
respectively.
Under the Company's current electric rate structure, it is permitted to collect
the higher of base electric fuel costs or actual electric fuel costs. When base
electric fuel costs exceed actual fuel costs, any difference is credited to the
RMC. For a further discussion of the Fuel Cost Adjustments (FCA) see Note 1 of
the Notes to Financial Statements for the year ended December 31, 1994 on Form
10-K. For the nine months ended September 30, 1995 and 1994, the amounts
credited to the RMC as a result of the FCA totaled $66.0 million and $60.7
million, respectively.
Under the assumptions included in the current electric rate order, the RMC
balance was expected to have increased above the 1994 balance which would result
in a credit to income. However, as a result of amounts credited to the RMC
balance through the
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<PAGE> 16
operation of the Company's FCA, discussed above, the RMC balance was lower than
the balance at December 31, 1994 resulting in a charge to income of $17.4
million for the nine months ended September 30, 1995. For the nine months ended
September 30, 1994, the Company was amortizing the RMC balance, which has
resulted in a charge to income of $157.4 million.
OTHER REGULATORY AMORTIZATION
For the three months ended September 30, 1995, other regulatory amortization
amounted to a charge of $74.6 million, compared with $36.1 million for the same
period in 1994. This increase has no impact on earnings as the Company collects
an equivalent amount of revenue under its current electric rate structure.
Included are the effects of an electric ratemaking mechanism which provides for
a revenue reconciliation adjustment to eliminate the impact on earnings of
experiencing sales that are above or below adjudicated levels. As a result of
actual sales for the third quarter of 1995 above the adjudicated level, the
Company recorded a non-cash charge to income of $47.7 million, compared to a
$27.3 million charge to income for the same period last year. Also contributing
to the change was the amortization of the deferrals recorded under the Long
Island Lighting Company Ratemaking and Performance Plan (LRPP), as more fully
discussed in Note 3 of Notes to Financial Statements for the year ended December
31, 1994 on Form 10-K, which reduced income by $12.0 million for the three
months ended September 30, 1995, compared with $2.7 million for the same period
last year.
For the nine months ended September 30, 1995, other regulatory amortization
resulted in a charge to income of $135.0 million compared with $26.0 million for
the same period last year. The revenue reconciliation adjustment resulted in a
non-cash charge to income of $61.8 million this year compared with a $20.0
million credit to income last year. The amortization of the LRPP deferral
reduced income by $40.1 million this year, compared with $18.7 million last
year.
OPERATING TAXES
For the three months ended September 30, 1995, operating taxes totaled $119.3
million, an increase of $13.2 million or 12.4% over the comparable period last
year. For the nine months ended September 30, 1995, these taxes amounted to
$336.0 million, an increase of $27.6 million or 8.9% over the same period in
1994.
For the three months ended September 30, 1995, the increase was attributable to
higher property and revenue taxes, while the increase for the nine months ended
September 30, 1995, was primarily due to higher property taxes.
16
<PAGE> 17
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1995 was $117.8
million, a decrease of $5.4 million or 4.4% when compared to the same quarter in
1994. For the nine months ended September 30, 1995, this expense amounted to
$356.9 million, a decrease of $24.4 million or 6.4% compared with the same
period last year. These decreases are due to lower debt levels and lower average
borrowing costs this year when compared with 1994.
17
<PAGE> 18
FINANCIAL CONDITION
LIQUIDITY
For the nine months ended September 30, 1995 the Company generated sufficient
cash from operations to meet all of its operating, construction and dividend
requirements.
At September 30, 1995, the Company's cash and cash equivalents amounted to
approximately $245 million, compared to $185 million at December 31, 1994. The
increase in cash and cash equivalents is the result of reduced O&M costs, lower
fuel costs, lower costs attributable to Shoreham, lower interest payments
resulting from lower debt levels and the collection of previously deferred
revenues.
The Company has available for its use a $300 million revolving line of credit
through October 1, 1996, provided by its 1989 Revolving Credit Agreement (RCA).
At September 30, 1995, no amounts were outstanding under the 1989 RCA. This line
of credit is secured by a first lien upon the Company's accounts receivable and
fuel oil inventories.
FINANCING PROGRAMS
In August 1995, the Company received the proceeds from the sale of $50 million
of Electric Facilities Revenue Bonds through the New York State Energy Research
and Development Authority (NYSERDA). The proceeds from this offering were used
to reimburse the treasury for electric projects previously completed.
The Company used cash on hand to satisfy the early redemption of $75 million of
First Mortgage Bonds on September 1, 1995. With the retirement of the First
Mortgage Bonds, the lien of the First Mortgage is in the process of being
discharged. When the First Mortgage is discharged, the Company's outstanding
General and Refunding Bonds will become its only outstanding secured debt.
In 1996, 1997 and 1998, the Company has maturing debt of $415 million, $251
million and $101 million, respectively. The Company believes that cash generated
from operations and, if necessary, use of the RCA, will be sufficient to retire
the debt maturing in 1996. For 1997 and 1998, the Company intends to use cash
generated from operations to the maximum extent practicable, and any balance to
be satisfied through the issuance of debt and/or equity securities.
18
<PAGE> 19
CAPITAL REQUIREMENTS AND CAPITAL PROVIDED
Capital requirements and capital provided for the three and nine months ended
September 30, 1995 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Capital Requirements Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
- --------------------------------------------------------------------------------
(In Millions of Dollars)
<S> <C> <C>
Total Construction $ 64 $170
- --------------------------------------------------------------------------------
Refundings
Long-term debt 75 100
Preferred stock 1 1
Dividends
Preferred Stock 14 40
Common stock 53 159
- --------------------------------------------------------------------------------
Total Refundings and Dividends 143 300
- --------------------------------------------------------------------------------
Shoreham post settlement costs 14 59
- --------------------------------------------------------------------------------
Total Capital Requirements $221 $529
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Capital Provided Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
- --------------------------------------------------------------------------------
(In Millions of Dollars)
<S> <C> <C>
Cash generated from
operations $ 219 $ 514
Common stock issued 6 15
Long-term debt issued 50 50
Other financing activities (1) 9
Increase in cash (53) (59)
- --------------------------------------------------------------------------------
Total Capital Provided $ 221 $ 529
================================================================================
</TABLE>
For further information, see the Statement of Cash Flows.
19
<PAGE> 20
LONG ISLAND/NEW YORK STATE ENERGY ISSUES
Pursuant to statutory amendment effective September 1, 1995, the Board of
Trustees of the Long Island Power Authority (LIPA) was expanded from nine to
fifteen members and new trustees were subsequently appointed. Responding to the
New York State Governor's request that LIPA develop a plan that, in addition to
replacing the Company, produces double digit rate reductions, provides a
framework for long-term competition and protects property-tax payers, the newly
reconstituted Board has established a committee (Evaluation Committee) to
analyze various plans involving the Company's business operations and assets,
including the full takeover plan proffered by the prior LIPA Board in June 1995.
On September 28, 1995 LIPA issued a Request For Information (Request) in which
it sought information and indications of interest from qualified parties in
connection with a State authority-facilitated financial restructuring/
acquisition of the Company. In the Request, LIPA stated it seeks
to achieve several objectives including: (i) a substantial and sustainable
reduction in electric rates throughout the Company's service area; (ii) the
maintenance of reliable power; (iii) a framework for competition on Long Island
over the long-term; and (iv) participation of the private sector to the maximum
extent possible. LIPA also stated that while its preference is to implement a
consensual, negotiated transaction with the Company, it will consider acting
unilaterally (either via a tender offer or condemnation of the Company's assets
or securities) and that it reserves the right to acquire the Company's equity
securities below current trading prices. However, the Company is not aware of
any statutory right or authority, or other constitutionally sound basis, that
would enable LIPA to acquire the Company's securities below their market value.
The Evaluation Committee is currently expected to issue a recommendation to the
full LIPA Board before the end of the year.
The Company has indicated to LIPA that it is willing to cooperate in developing
a plan that is beneficial to the Company's shareholders, ratepayers and
employees. In addition, the Company continuously assesses various other
strategies in an effort to provide the greatest possible value to its
shareholders and ratepayers in light of the changing economic, regulatory and
political circumstances affecting it. Such strategies may include a review and
modification of its operations to best meet the challenges of a competitive
environment, a possible reorganization of the Company, possible joint ventures
and possible business combinations with other entities.
The implementation of certain plans involving the Company's business operations
and assets would be subject to, among other things, shareholder and regulatory
approvals and could impact the Company's future financial results and
operations. Accordingly, the Company is unable to determine what plan, if any,
will be pursued by it and/or LIPA or whether any related transaction will be
consummated.
20
<PAGE> 21
In addition to the foregoing, the PSC has been conducting a generic competitive
opportunities proceeding (Proceeding) to address the potential benefits of
competition to electric customers throughout the State. The overall objective of
the Proceeding is to identify regulatory and ratemaking practices that will aid
in the transition to a more competitive electric industry and the PSC has issued
an Order adopting principles to serve as a guide for this transition. These
principles provide, among other things, that (i) the current industry structure,
in which most power plants are vertically integrated with natural monopoly
transmission and distribution, must be thoroughly examined to ensure that it
does not adversely affect wholesale or retail competition; (ii) safe and
reliable electric service must not be jeopardized; and (iii) utilities should
have a reasonable opportunity to recover prudent expenditures and commitments
made pursuant to their legal obligations. It is currently expected that the
administrative law judge presiding over the Proceeding will issue a recommended
decision by the end of the year.
Similarly, the Federal Energy Regulatory Commission (FERC) has previously issued
a Notice of Proposed Rulemaking (NOPR) that would require investor-owned
electric utilities to provide open access to the Nation's interstate
transmission network. Under this proposal, utilities would be required to file
non-discriminatory open access transmission tariffs, which would be generally
available to wholesale buyers and sellers of electric energy. The NOPR also
provided that utilities be permitted recovery of legitimate and verifiable
wholesale expenditures and commitments and expressed the expectation that state
regulatory agencies would likewise provide for the full recovery of legitimate
and verifiable retail expenditures and commitments. While FERC has expressed a
strong expectation that states will provide procedures for, and the full
recovery of, such expenditures and commitments, the Company is unable to predict
the final outcome of the State and federal proceedings, or what effect, if any,
either will have on the Company's future financial results and operations.
Notwithstanding the outcome of the State or federal regulatory or rate
proceedings, or any other State action, the Company believes that, among other
obligations, the State has a contractual obligation to allow the Company to
recover its Shoreham-related assets.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
a. To date, the Company has not received the refund awarded to it by
the Suffolk County Supreme Court in a 1992 decision that found that the
Shoreham property was overvalued for property tax purposes between 1976
and 1983, excluding 1979 which had been settled. (Long Island
Lighting Company v. The Assessor of the Town of Brookhaven, et
al.). The Company is pursuing various other means in an attempt to
collect the approximately $80 million, including interest, to which it
is entitled to as a result of this overpayment of taxes.
For the years to which the initial lawsuit relates, the Company paid
approximately $190 million in taxes on the Shoreham plant. The Company
is also currently seeking recovery for the overpayment of taxes for the
years 1984 - 1992 in a separate proceeding. In this proceeding, the
taking of evidence has been completed and briefs are expected to be
filed by the parties by year end.
b. Pursuant to the 1989 Settlement, the Company agreed to fund the
payments in-lieu-of-taxes (PILOTS) that the Long Island Power Authority
(LIPA) is required to make to the municipalities that impose real
property taxes on Shoreham. As previously reported in the Company's
Form 10-K for the year ended December 31, 1994, in litigation initially
brought in Nassau County Supreme Court entitled LIPA, et al. v.
Shoreham-Wading River Central School District, et al., the courts have
considered the timing and duration of the PILOTS.
On October 19, 1995, in response to resubmitted motions by all the
parties following their agreement to withdraw certain unresolved
claims, the New York State Court of Appeals granted leave to appeal to
the Court of Appeals.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
22
<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Executive Employment Agreement dated as of August 4, 1995 by and
between William J. Catacosinos and the Company, and amendments dated as
of May 31, 1995 and August 4, 1995, to the Executive Employment
Agreement by and between William J. Catacosinos and the Company dated
January 30, 1984, (filed as an Exhibit to the Company's Form 10-K for
the Year Ended December 31, 1986) (Exhibit 10(a)).
Supplemental Death and Retirement Benefits Plan effective
May 1, 1995. (Exhibit 10(b)).
Financial Data Schedule (Exhibit 27).
b. REPORTS ON FORM 8-K
In its Report on Form 8-K dated August 18, 1995, the Company reported
the appointment of the new LIPA Board and their intention to evaluate a
variety of options involving the Company's business operations and
assets.
No other reports on Form 8-K were filed in the third quarter of 1995.
23
<PAGE> 24
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: October 27, 1995
24
<PAGE> 25
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.(a) Executive Employment Agreement dated as of August 4, 1995 by and
between William J. Catacosinos and the Company, and amendments dated as
of May 31, 1995 and August 4, 1995, to the Executive Employment
Agreement by and between William J. Catacosinos and the Company dated
January 30, 1984, (filed as an Exhibit to the Company's Form 10-K for
the Year Ended December 31, 1986) (Exhibit 10(a)).
10.(b) Supplemental Death and Retirement Benefits Plan effective
May 1, 1995. (Exhibit 10(b)).
27 Financial Data Schedule (Exhibit 27).
<PAGE> 1
EXHIBIT 10(a)
LONG ISLAND LIGHTING COMPANY EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 4th day of
August 1995, by and between LONG ISLAND LIGHTING COMPANY, a New York
corporation (hereinafter referred to as the "Company"), and William J.
Catacosinos (hereinafter referred to as "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is employed by the Company as its Chief
Executive Officer;
WHEREAS, the Executive is entitled to post-employment benefits
under his employment agreement dated as of January 30, 1984 (the "Employment
Agreement") as amended from time to time; and
WHEREAS, the Company desires to provide Executive with
incentives for continuation of his current services as Chief Executive Officer
with respect to a possible Change of Control (as defined herein); and
WHEREAS, it is necessary to coordinate the provisions of
various agreements between the Company and Executive with respect to a Change
of Control;
WHEREAS, the Board desires to ensure that the Company will
have the benefit of Executives's advice, counsel and management expertise,
while a Change in Control transaction is pending and until its completion; and
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto
mutually covenant and agree as follows:
(A) Base Salary means the Executive's highest base salary,
including the annual base salary in effect on January 1, 1995.
(B) Cause. "Cause" for termination by the Company of the
Executive's employment shall mean "for cause" as defined in Section 1(e) of the
Employment Agreement.
(C) Change of Control. The term "Change of Control" means an
event which shall be deemed to have occurred if:
(i) any "person" as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the
<PAGE> 2
Company in substantially the same proportions as their ownership of
stock of the Company) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 40% or more of the combined
voting power of the Company's then outstanding securities;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in clause (iii) or (iv) herein) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 80% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquires
more than 25% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change of Control;
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of, or the Company sells or disposes of,
all or substantially all of the Company's assets or all or
substantially all of the assets of the Company acquired for or used in
the electric utility business of the Company, or any such sale or
disposition is effected through condemnation proceedings; or
(v) the Board of Directors shall approve an agreement to
effect a Change of Control, and in connection therewith, the Board of
Directors approves the Executive's termination of his employment as
Chief Executive Officer and the commencement of his employment as a
consultant pursuant to section 6 of his Employment Agreement.
The Chief Legal Officer shall notify the parties to this Agreement as
to whether and when a Change of Control has occurred. The preceding sentence
shall not preclude any other party to this Agreement from giving such notice.
(D) Company. Upon the occurrence of any merger or
consolidation described in Section 1(B)(iii) in which the Company is not the
surviving entity and which is not a Change of
- 2 -
<PAGE> 3
Control, "Company" shall thereafter for all purposes hereof be deemed to mean
such surviving entity and in such event "Company" for purposes of Section
1(B)(ii) shall mean Long Island Lighting Company prior to such event and such
surviving entity thereafter.
(E) Notice of Termination. "Notice of Termination" shall
mean a notice delivered by the Company or the Executive, as the case may be,
and stating that the Executive's employment with the Company is terminated.
(F) Limited Waiver. The waiver by the Company of a
violation of any provisions of this Agreement, whether express or implied,
shall not operate or be construed as a waiver of any subsequent violation of
any such provision.
(G) Code. For purposes of this Agreement, the term
"Code" means the Internal Revenue Code of 1986, including any amendments
thereto or successor tax codes thereof. References to any section of the Code
shall include any amended or successor section of comparable import.
(H) Covered Termination. For purposes of this Agreement,
the term "Covered Termination" means any termination of the Executive's
employment where the Termination Date is any date prior to the end of the
Employment Period.
(I) Employment Period. For purposes of this Agreement,
the term "Employment Period" means a period commencing on the date of a Change
of Control of the Company, and ending at 11:59 p.m. Eastern Time on the third
anniversary of such date.
(J) Good Reason. For purposes of this Agreement, the
Executive shall have a "Good Reason" for termination of employment after a
Change of Control of the Company in the event of:
(i) a termination of the Executive's employment by the
Company, including a termination described in Section 1(B)(v), for any
reason other than Cause;
(ii) a good faith determination by the Executive that
there has been a significant adverse change, without the Executive's
written consent, in the Executive's working conditions or status with
the Company from such working conditions or status in effect
immediately prior to the Change of Control of the Company, including
but not limited to (A) a significant change in the nature or scope of
the Executive's authority, powers, functions, duties or
responsibilities, or (B) a significant reduction in the level of
support services, staff, secretarial and other assistance, office
space and accoutrements (regardless of whether such reduction is part
of a general reduction applicable to such items at the Company); or
- 3 -
<PAGE> 4
(iii) other than with respect to a Change of Control
described in Section 1(B)(v), any voluntary termination of employment
by the Executive for any reason other than Cause where the Notice of
Termination is given more than three months after the date on which
there is a Change of Control of the Company, but not after the date
which is the third anniversary of such Change of Control of the
Company.
(K) Person. For purposes of this Agreement, the term
"Person" shall mean any individual, firm, partnership, corporation or other
entity, including any successor (by merger or otherwise) of such entity, or a
group of any of the foregoing acting in concert.
(L) Termination Date.
(i) For purposes of this Agreement, the term "Termination
Date" means (a) if the Executive's employment is terminated by the
Executive's death, the date of death; (b) if the Executive's
employment is terminated by reason of voluntary early retirement, as
agreed in writing by the Company and the Executive, the date of such
early retirement which is set forth in such written agreement; (c) if
the Executive's employment is terminated for purposes of this
Agreement by reason of disability, as defined in the Retirement Income
Plan of the Company (as in effect on the date hereof), the earlier of
thirty days after the Notice of Termination is given or one day prior
to the end of the Employment Period; (d) if the Executive's employment
is terminated by the Executive voluntarily (other than for Good
Reason), the date the Notice of Termination is given; and (e) if the
Executive's employment is terminated by the Company (other than by
reason of disability) or by the Executive for Good Reason, the earlier
of thirty days after the Notice of Termination is given or one day
prior to the end of the Employment Period, except that if the Notice
of Termination is given on or prior to the third anniversary of the
date of the Change of Control of the Company, the Termination Date
shall be deemed to have occurred no later than the third anniversary
of the date of the Change of Control of the Company. Notwithstanding
the foregoing:
(ii) If termination is "for Cause" pursuant to Section
1(A) and if the Executive has "cured the conduct" constituting such
Cause as described by the Company in its Notice of Termination within
such thirty day or shorter period, then the Executive's employment
hereunder shall continue as if the Company had not delivered its
Notice of Termination.
(iii) If the party receiving the Notice of Termination
notifies the other party that a dispute exists concerning the
termination and it is finally determined that the reason asserted in
such Notice of Termination did not exist, then (a) if such Notice was
delivered by the Executive, the Executive will be deemed to have
voluntarily terminated his employment and the Termination Date shall
be the earlier of the date fifteen days after the Notice of
Termination is given or one day prior to the end of the Employment
Period and
- 4 -
<PAGE> 5
(b) if delivered by the Company, the Company will be deemed to have
terminated the Executive other than by reason of death, disability or
Cause.
1. Termination or Cancellation Prior to Change of
Control. In the event (A) the Executive's employment is terminated prior to a
Change of Control of the Company, or (B) no Change of Control of the Company
occurs prior to December 31, 1999, this Agreement shall be terminated and
canceled and of no further force and effect, and any and all rights and
obligations of the parties hereunder shall cease. The termination of this
Agreement shall have no effect on the rights and obligations of the Company and
Executive under his Employment Agreement or any other Agreement between the
parties.
2. Benefits. If there is a Covered Termination, the
Executive shall be entitled to the following benefits:
(A) Accrued Benefits. The Executive shall be paid the
amount of the Executive's Accrued Benefits. For purposes of this Agreement,
the Executive's "Accrued Benefits" shall include the following amounts, payable
as described herein: (i) all Base Salary, and accrued vacation pay determined
on the basis of Base Salary, for the time period ending with the Termination
Date; (ii) reimbursement for any and all monies or other reimbursable costs
advanced in connection with the Executive's employment for reasonable and
necessary expenses incurred by the Executive on behalf of the Company for the
time period ending with the Termination Date; (iii) any and all other cash
earned through the Termination Date and deferred at the election of the
Executive or pursuant to any deferred compensation plan then in effect, and any
increments thereon as determined under such plan; and (iv) a lump sum payment
of the bonus or incentive compensation otherwise payable to the Executive with
respect to the year in which termination occurs, or for the prior year, under
all bonus or incentive compensation plans in which the Executive is a
participant. Payment of Accrued Benefits shall be made promptly in accordance
with the Company's prevailing practice and shall not in any way affect
Executive's rights under the Employment Agreement.
(B) Welfare Benefits. Until the expiration of the
Consulting Term (as described in the Employment Agreement), the Executive shall
continue to be covered, at the expense of the Company, by the same or
equivalent welfare benefits, including life insurance, hospitalization,
medical, dental, disability and travel accident benefits, as were provided to
the Executive immediately prior to the commencement of such Consulting Term.
The amount of such benefits shall be determined on the basis of the Executive's
highest rate of pay in effect at any time, prior to the start of the Consulting
Term. The term "rate of pay" means (i) Executive's Base Salary and (ii)
benefits paid or due pursuant to the Executive Incentive Compensation Plan of
Long Island Lighting Company otherwise payable to the Executive with respect to
the year in which termination occurs, or for the prior year.
(C) Contractual Retirement Benefits. During the period in
which Executive provides the consulting services referred to in his Employment
Agreement, the Company shall
- 5 -
<PAGE> 6
make the periodic payments of Retirement Benefits provided under the Employment
Agreement until such time as a Change in Control (as defined in the Employment
Agreement) takes place. Furthermore, at the time a Change in Control (as
defined in the Employment Agreement) takes place, the Company or the Trustee of
the Deferred Compensation Trust shall make the payment of the Actuarial
Equivalent lump-sum payment, required by the provisions of Section 6.7 of the
Deferred Compensation Trust, dated January 7, 1987, without regard to whether
the Executive's employment terminated prior to, or subsequent to, a Change of
Control.
(D) Termination of Consulting Services. In the event
that the Board of Directors determines, for any reason, that Executive's
consulting services during the Consulting Term are not required because of the
circumstances leading to a Change of Control, (i) the Company or the Trustee of
the Original Term and Consulting Term Compensation Trust shall pay the dollar
amount of the compensation payable for such services in a lump sum without any
adjustment for early payment, and (ii) the Company shall continue to provide
the welfare benefits described in (B) above. In such event, the Executive
shall be discharged of any obligation to provide consulting services during the
Consulting Term.
(E) Supplemental Death and Retirement Benefit Plans.
Executive qualifies by reason of age and service for the benefit provided under
the Supplemental Death and Retirement benefit Plan. Payment of the benefit
elected under such plan shall commence at the time that the supplemental death
benefit provided pursuant to paragraph B. above terminates.
(F) Severance Payment. The Executive will be entitled to
cash compensation equal to three (3) years pay, calculated as described below,
payable in equal monthly installments. The aggregate cash compensation will be
calculated as the greater of three (3) times (i) the Executive's current rate
of Base Salary at the Termination Date or (ii) the Executive's highest annual
rate of Base Salary within three (3) years prior to the Change of Control.
Cash compensation paid pursuant to this provision shall be subject to
appropriate payroll deductions.
(G) Tax Gross-Up.
(i) In the event that the Executive becomes entitled to
payments in connection with a Change in Control or his termination of
employment (the "Payments"), if any of the Payments will be subject to
the tax imposed by Section 4999 of the Code (or any similar tax that
may hereafter be imposed) (the "Excise Tax"), the Company shall pay to
Executive an additional amount (the "Gross-Up Payment") such that the
net amount retained by him, after deduction of any Excise Tax on the
Payments and any federal, state and local income tax and Excise Tax
upon the payment provided for by this paragraph, shall be equal to the
Payments. For purposes of determining whether any of the Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(a) any other payments or benefits received or to be received by
Executive in connection with a Change of Control or his termination of
employment (whether pursuant to the terms of this Agreement or any
plan, arrangement or agreement with the Company or any person
- 6 -
<PAGE> 7
whose actions result in a Change of Control or any person affiliated
with the Company or such person) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in
the opinion of tax counsel selected by the Company's independent
auditors, and consented to in writing by the Executive, which consent
shall not be unreasonably withheld, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered before the date of the
change within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax, (b) the amount
of the Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (1) the total amount of the Payments
or (2) the amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (a), above), and c the value
of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal, state and local
income taxes at the highest marginal rate of federal, state and local
income taxation in the calendar year in which the Gross-Up Payment is
to be made. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at
the time of termination of Executive's employment, he shall repay to
the Company at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid by Executive
if such repayment results in a reduction in Excise Tax and/or a
federal, state and local tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code, applied by treating the period between initial payment of the
Gross-Up Payment and the repayment in respect thereof as the term of
the debt instrument referred to in section 1274(d)(1)(A) of the Code.
In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
(ii) A Gross-Up Payment shall be made not later than the
fifth day, or as soon thereafter as the Company in good faith deems
practicable, following the date Executive becomes subject to payment
of excise tax; provided, however, that if the amounts of such payment
cannot be finally determined on or before such day, the Company shall
pay to
- 7 -
<PAGE> 8
Executive on such day an estimate, as determined in good faith by the
Company, of the minimum amount of such payments and shall pay the
remainder of such payment (together with interest at the rate provided
under Section 1274(b)(2)(B) of the Code) as soon as the amount can be
determined but no later than the thirtieth day after the date
Executive becomes subject to the payment of excise tax. In the event
the amount of the estimated payment exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
3. Further Obligations of the Executive. The Executive
agrees that, in the event of any Covered Termination where the Executive is
entitled to Accrued Benefits and the Termination Payment, the Executive shall
hold in confidence and not directly or indirectly disclose or use or copy or
make lists of any confidential information or proprietary data of the Company,
except to the extent authorized in writing pursuant to authorization by the
Board of Directors of the Company or required by any court or administrative
agency, other than to an employee of the Company or a person to whom disclosure
is reasonably necessary or appropriate in connection with the performance by
the Executive of duties as an executive of the Company. Confidential
information shall not include any information known generally to the public or
any information of a type not otherwise considered confidential by persons
engaged in the same business or a business similar to that of the Company. All
records, files, documents and materials, or copies thereof, relating to the
business of the Company which the Executive shall prepare, or use, or come into
contact with, shall be and remain the sole property of the Company and shall be
promptly returned to the Company upon termination of employment with the
Company.
4. Expenses and Interest. If, after a Change of Control
of the Company, (A) a dispute arises with respect to the enforcement of the
Executive's rights under this Agreement or (B) any legal or arbitration
proceeding shall be brought to enforce or interpret any provision contained
herein or to recover damages for breach hereof, the Executive shall recover
from the Company any reasonable attorneys' fees and necessary costs and
disbursements, including without limitation expert witness fees, incurred as a
result of such dispute, legal or arbitration proceeding ("Expenses"), and
prejudgment interest on any money judgment or arbitration award obtained by the
Executive calculated at the rate of interest announced by Morgan Guaranty Trust
Company of New York from time to time as its prime or base lending rate from
the date that payments to him should have been made under this Agreement.
Within ten days after the Executive's written request therefor (which, without
limitation, may be made periodically or from time to time based on the date or
dates at which the Executive is billed for services and related expenses which
are reimbursable as "Expenses" hereunder), the Company shall pay to the
Executive, or such other person or entity as the Executive may designate in
writing to the Company, the Executive's reasonable Expenses in advance of the
final disposition or conclusion of any such dispute, legal or arbitration
proceeding.
- 8 -
<PAGE> 9
5. Payment Obligations Absolute. The Company's
obligation during and after the Employment Period to pay the Executive the
amounts and to make the benefit and other arrangements provided herein shall be
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any setoff, counterclaim, recoupment, defense or
other right which the Company may have against him or anyone else. All amounts
payable by the Company hereunder shall be paid without notice or demand. Each
and every payment made hereunder by the Company shall be final, and the Company
will not seek to recover all or any part of such payment from the Executive, or
from whomsoever may be entitled thereto, for any reason whatsoever.
6. Successors.
(A) If the Company sells, assigns or transfers all or
substantially all of its business and assets to any Person or if the Company
merges into or consolidates or otherwise combines (where the Company does not
survive such combination) with any Person (any such event, a "Sale of
Business"), then the Company shall assign all of its right, title and interest
in this Agreement as of the date of such event to such Person, and the Company
shall cause such Person, by written agreement in form and substance reasonably
satisfactory to the Executive, to expressly assume and agree to perform from
and after the date of such assignment all of the terms, conditions and
provisions imposed by this Agreement upon the Company. In case of such
assignment by the Company and of assumption and agreement by such Person, as
used in this Agreement, "Company" shall thereafter mean such Person which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law, and this Agreement shall inure to the benefit of, and be
enforceable by, such Person. The Executive shall, in his discretion, be
entitled to proceed against any or all of such Persons, any Person which
theretofore was such a successor to the Company (as defined in the first
paragraph of this Agreement) and the Company (as so defined) in any action to
enforce any rights of the Executive hereunder. Except as provided in this
Subsection, this Agreement shall not be assignable by the Company. This
Agreement shall not be terminated by the voluntary or involuntary dissolution
of the Company.
(B) This Agreement and all rights of the Executive shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, heirs and beneficiaries. All
amounts payable to the Executive under this Agreement, if the Executive had
lived shall be paid, in the event of the Executive's death, to the Executive's
estate, heirs and representatives; provided, however, that the foregoing shall
not be construed to modify any terms of any benefit plan of the Company or of
any agreement or arrangement of the Company with respect to benefits, as such
terms are in effect on the date of the Change of Control of the Company, that
expressly govern benefits under such plan, agreement or arrangement in the
event of the Executive's death.
7. Severability. The provisions of this Agreement shall
be regarded as divisible, and if any of said provisions or any part hereto are
declared invalid or unenforceable by
- 9 -
<PAGE> 10
a court of competent jurisdiction, the validity and enforceability of the
remainder of such provisions or parts hereof and the applicability thereof
shall not be affected thereby.
8. Amendment. This Agreement may not be amended or
modified at any time except by written instrument executed by the Company and
the Executive.
9. Withholding. The Company shall be entitled to
withhold from amounts to be paid to the Executive hereunder any federal, state
or local withholding or other taxes or charges which it is from time to time
required to withhold; provided, that the amount so withheld shall not exceed
the minimum amount required to be withheld by law. The Company shall be
entitled to rely on an opinion of nationally recognized tax counsel if any
question as to the amount or requirement of any such withholding shall arise.
10. Governing Law; Resolution of Disputes. This
Agreement and the rights and obligations hereunder shall be governed and
construed in accordance with the laws of the State of New York. Any dispute
arising out of this Agreement shall, at the Executive's election, be determined
by arbitration under the rules of the American Arbitration Association then in
effect (in which case both parties shall be bound by the arbitration award) or
by litigation. Whether the dispute is to be settled by arbitration or
litigation, the venue for the arbitration or litigation shall be New York or,
at the Executive's election, if the Executive is no longer residing or working
in the New York metropolitan area, in the judicial district encompassing the
city in which the Executive resides; provided, that, if the Executive is not
then residing in the United States, the election of the Executive with respect
to such venue shall be either in New York, New York or in the judicial district
encompassing that city in the United States among the thirty cities having the
largest population (as determined by the most recent United States Census data
available at the Termination Date) which is closest to the Executive's
residence. The parties consent to personal jurisdiction in each trial court in
the selected venue having subject matter jurisdiction notwithstanding their
residence or situs, and each party irrevocably consents to service of process
in the manner provided hereunder for the giving of notices.
11. Payment from Trust Funds. The Company has
established various Trust Funds in order to assure payment by the Company of
obligations under the Employment Agreement, its various benefit programs and
pursuant to this Agreement. In the event that the Company or its successors or
assigns shall not make a payment required by this Agreement or pursuant to any
employment arrangement or agreement with respect to which a Trust has been
established, the Trustee of such Trust, consistent with the terms and
conditions of the Trust, shall make the payment required of the Company without
any need to inquire into the obligations of the Executive to the Company under
this Agreement.
- 10 -
<PAGE> 11
12. Notices. All notices hereunder shall be in writing
and deemed properly given if delivered by hand and receipted or if mailed by
registered mail, return receipt requested. Notices to the Company shall be
directed to the Corporate Secretary at the Company's headquarters offices.
Notices to the Executive shall be directed to his last known home address.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement dated this 4th day of August, 1995.
LONG ISLAND LIGHTING COMPANY
BY: /s/ LEONARD P. NOVELLO
---------------------------
Leonard P. Novello
General Counsel
/s/ WILLIAM J. CATACOSINOS
----------------------------
William J. Catacosinos
- 11 -
<PAGE> 12
Agreement made and entered into as of 31st day of May, 1995,
by and between LONG ISLAND LIGHTING CO., a New York corporation ("Company") and
WILLIAM J. CATACOSINOS, a resident of the State of New York ("Executive")
amending the Agreement dated January 30, 1984, as heretofore amended.
WHEREAS, the Company and Executive entered into an Agreement
on January 30, 1984 with regard to the employment and post-termination Contract
Benefits of Executive;
WHEREAS, the amount of such Contract Benefits was increased by
an Amendment dated December 22, 1989;
NOW, THEREFORE, the Board, having reviewed the compensation
and benefits payable to the Executive, desires to recognize the continuing
value to the Company of Executive's leadership, advice, counsel and management
expertise, and the increased demands on Executive occasioned by recent
developments, by causing the Company to enter into the following amendment to
the above described Agreement:
1) The definition of "Considered Compensation" in Section 4(b)(i)
of the Agreement dated 30 January 1984, as amended by the Agreement dated as of
22 December 1989, is amended to read as follows:
"Considered Compensation" shall be an amount equal to sixty-five
percent (65%) of the highest annual rate of
<PAGE> 13
Base Salary (including, but not limited to, the Base Salary in effect
on January 1, 1995) payable to Executive pursuant to Section 3 above
at any time prior to the commencement of the Consulting Term.
2) The parties agree that, for the purpose of the foregoing, the
highest annual rate of base salary as of the date hereof, is $633,809.
3) This amendment shall be taken into account as if it had been
contained in the original Agreement.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and
pursuant to the authorization of the Board of Directors, Company has caused
these presents to be executed in its name and for and on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
LONG ISLAND LIGHTING COMPANY
175 East Old Country Road
Hicksville, New York 11801
By: /s/ LEONARD P. NOVELLO
------------------------
Name: Leonard P. Novello
Title: General Counsel
Attest:
/s/ HERBERT M. LEIMAN
- ------------------------
Herbert M. Leiman
Assistant Secretary
/s/ WILLIAM J. CATACOSINOS
----------------------------
William J. Catacosinos
Cleft Road, Laurell Hill
Mill Neck, N. Y. 11765
<PAGE> 14
Amendment, Dated August 4, 1995, to the Agreement dated January 30, 1984
between LONG ISLAND LIGHTING COMPANY, a New York
Corporation (the "Company") and William J. Catacosinos (the "Executive")
WHEREAS, the Company and the Executive entered into an agreement on
the 30th day of January 1984 with regard to the employment of the Executive
(the "Agreement");
WHEREAS, the Agreement has been previously amended from time to time;
WHEREAS, the Board at its May 31, 1995 meeting determined that,
because shareowners will benefit from the Executive's current and future
service, Executive's benefits should be based on Executive's highest salary
during the term of his employment; and
WHEREAS, the Company and the Executive by this agreement desire to
make additional amendments to certain provisions of the Agreement regarding
remuneration and the benefits paid pursuant to the Agreement (the "Amendment");
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Section 3c will be amended to insert the following paragraph
at the end of the last sentence:
For purpose of this Agreement except as identified below, each
of the Executive's benefits shall be calculated utilizing the
Executive's highest rate of annual pay in effect at any time during
the term of this Agreement, including his annual salary in effect on
January 1, 1995. The benefits provided under the Retirement Income
Plan of Long Island Lighting Company and the Long Island Lighting
Company 401(k) Capital Accumulation Plan for Non-Union Employees,
which depends in whole, or in part, upon the Executive's base salary,
will be determined in accordance with the provision of each plan.
Additionally, Section 3c will be amended to insert the words:
"vacation pay plan" after the words: "deferred compensation." For example, if
30 vacation days are not used by the Executive, he will be entitled to
compensation for those 30 days at his highest rate of annual pay in effect at
any time during the term of this Agreement, including his annual salary in
effect on January 1, 1995.
2. The definition of "Considered Compensation" in Section 4(b)(i)
shall be amended and restated to read as follows:
"Considered Compensation" shall be an amount equal to sixty-five
percent (65%) of the Executive's highest rate of annual pay in effect
at any time during the term of this Agreement, including his rate of
pay in effect on January 1, 1995.
<PAGE> 15
3. Section 4(c)(i) will be amended to substitute "Retirement
Income Plan of Long Island Lighting Company" for "Long Island Lighting Company
Retirement Income Plan."
4. The first paragraph of Section 6(f) will be deleted and the
following paragraph will be inserted:
During the Consulting Term, whether or not the Company avails
itself of Executive's consulting services pursuant to Section 6c above
and regardless of the amount of compensation received by Executive in
pursuing an outside business career, Company shall pay Executive a
consulting fee equal to the following percentages of Executive's
highest rate of pay in effect at any time during the term of this
Agreement including his annual rate of pay in effect on January 1,
1995:
These Amendments shall taken into account as if they had been
contained in the original Agreement.
IN WITNESS WHEREOF, Executive has hereunto set his hand, and pursuant
to the authorization from the Board of Directors, Company has caused these
present to be executed in its name and for and on its behalf and its corporate
seal to be hereunto affixed and attested by its Secretary, all as of the day
and year first above written.
LONG ISLAND LIGHTING COMPANY
175 Old Country Road
Hicksville, N.Y. 11801
By: /s/ LEONARD P. NOVELLO
---------------------------------
Name: Leonard P. Novello
Title: General Counsel
Attest:
/s/ HERBERT M. LEIMAN
- ------------------------
Secretary
/s/ WILLIAM J. CATACOSINOS
-------------------------------
William J. Catacosinos
Cleft Road, Laurel Hill
Mill Neck, N.Y. 11765
<PAGE> 1
EXHIBIT 10(b)
SUPPLEMENTAL DEATH AND RETIREMENT BENEFITS PLAN
OF LONG ISLAND LIGHTING COMPANY
As Amended and Restated Effective May 1, 1995
<PAGE> 2
ARTICLE I
PURPOSE OF PLAN
This Supplemental Death and Retirement Benefits Plan of Long
Island Lighting Company (The "Plan") provides death benefits
and unfunded retirement benefits for Officers and other
Principal Executives of LILCO who are subject to
disproportionate amounts of income tax as a result of
protecting their Beneficiaries during their active employment.
This plan also mitigates the more severe cost of living
erosion such executives experience after retirement. The
Company believes that this additional compensation will make
LILCO's Executive Compensation Program sufficiently
competitive so that the Company will continue to attract,
retain, and motivate highly qualified executives.
ARTICLE II
DEFINITIONS
Wherever used in the Plan, the masculine pronoun shall be
deemed to include the feminine. Words used in the singular or
plural shall be construed as if plural or singular,
respectively, where they would so apply.
* * * * * * * * * * * *
Wherever used herein:
2.1 "Beneficiary" means the person or persons (including the
Participant's spouse) whom the Participant designated to
receive the benefits payable under the Plan. For the
retirement benefits provided under Section 5.5, each
Participant must name the Beneficiary on a form furnished by
and filed with the Plan Administrator. Each Participant may
change the Beneficiary by filing with the Plan Administrator
written notice to that effect on a form furnished by the Plan
Administrator. The change will take effect
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<PAGE> 3
when the Plan Administrator receives notice. For the death
benefits provided under Article V, the Beneficiary means the
person or persons whom the Participant designated in the
manner prescribed by the insurer or in the manner described in
Section 5.3 or 5.4. With respect to both retirement and death
benefits, if no Beneficiary is selected, payment will be made
to the Participant's estate.
2.2 "Company" or "LILCO" means Long Island Lighting Company, a New
York Corporation.
2.3 "Compensation" means the Participant's highest annual rate of
pay consisting of (i) the Participant's highest rate of base
pay in effect at any time, and (ii) an incentive benefit
payment pursuant to the Executive Incentive Compensation Plan
of Long Island Lighting Company.
2.4 "Effective Date" means April 1, 1981.
2.5 "Executive Officer" means the Chief Executive Officer and the
President of the Company. Each Executive Officer will have
five Units of Compensation.
2.6 "Disability Leave Plan" means the Disability Leave Plan of
Long Island Lighting Company in effect as of January 1, 1993.
2.7 "Long Term Disability Plan" means the Long Term Disability
Plan for Management and Management Support Employees of Long
Island Lighting Company in effect as of January 1, 1993.
2.8 "Normal Retirement Date" means the first day of the month
nearest the Participant's 65th birthday.
2.9 "Officer" means an employee who, on or after January 1, 1993,
is either (a) a Company Officer, or (b) an Assistant Vice
President. Each Officer will have three Units of
Compensation.
2.10 "Participant" means an Executive Officer, an Officer, or a
Principal Executive during the period of his eligibility in
the Plan.
2.11 "Plan" means the plan set forth herein, known as the
"Supplemental Death And Retirement Benefits Plan of Long
Island Lighting Company," as it may be amended
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<PAGE> 4
from time to time.
2.12 "Plan Administrator" means an appointed or duly elected
Officer of the Company designated by the Board of Directors.
2.13 "Principal Executive" means an employee of the Company who
meets the conditions set forth in (a) or (b) below and has
been provided with notice of his status as a Participant in
the Plan.
(a) Before the date on which any designations are made in
accordance with the provisions of section 2.13(b), an
employee who was a Principal Executive between April
1, 1981 and November 30, 1986.
Principal Executives satisfying this condition will
have two Units of Compensation for calculating Death
Benefits under Article V and three Units of
Compensation for calculating Retirement Benefits
under Section 5.5(2).
(b) Subsequent to December 31, 1992, an employee who has
been designated by the Board of Directors to be a
Principal Executive for purposes of the Plan.
Principal Executives satisfying this condition will
have two Units of Compensation.
2.14 "Years of Participation" means the period measured in
years and months from the date the Participant is
included in the Plan until the Participant's status
in the Plan is terminated. Years of Participation
include periods during which the employee would have
been in active employment with LILCO as a Participant
except if the Participant was on a leave of absence
from active employment authorized solely by LILCO.
2.15 "Years of Employment" means the sum of the period or
periods, measured in years and months, whether or not
continuous, that the Participant worked at LILCO.
2.16 "Unit of Compensation" means the Participant's
Compensation.
ARTICLE III
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<PAGE> 5
ELIGIBILITY
3.1 Executive Officers and Officers are eligible to participate in
the Plan and continue to participate in the Plan during the
period of their employment either as an Executive Officer or
as an Officer.
3.2 Employees who were Principal Executives as defined in Section
2.13(a) between April 1, 1981 and November 30, 1986 are
eligible to participate in the Plan during the period of their
employment.
3.3 An employee who has been designated by the Board of Directors
to be a Principal Executive is eligible to participate in the
Plan and will continue to participate in the Plan only during
the period fixed by the Board of Directors at the time of
designation as a Principal Executive or for such longer period
as the Board of Directors shall subsequently determine.
ARTICLE IV
VESTING
A Participant who has reached the earlier of (1) age 60 and 10
years of service or (2) his or her Normal Retirement Date will
be vested in the benefits described herein. A nonvested
Participant whose employment is terminated is not entitled to
any benefits under this Plan.
ARTICLE V
BENEFITS UNDER THE PLAN
5.1 Pre-retirement Death Benefit
Upon the death of a Participant before retirement, the
Participant's Beneficiary will be entitled to receive a lump
sum in an amount equal to the product, rounded up to the
nearest $1,000 of (1) the Participant's Unit of Compensation
and (2) the multiple indicated below:
(a) if the Participant is an Executive
-5-
<PAGE> 6
Officer, five,
(b) if the Participant is an Officer, three.
(c) if the Participant is a Principal Executive, two.
5.2 Insured Death Benefit
If the Company chooses to enter into an insurance contract or
contracts in order to provide the death benefits described in
the Plan, the Participant must apply for insurance. In order
to obtain coverage under the Plan, the Participant must comply
with the necessary administrative requirements of the
insurance company. If the Participant applies for insurance
but is found to be ineligible by the insurance company, the
Participant will be covered under the Plan on an uninsured
basis and will receive from the Company the dollar amount of
death benefit described in Section 5.1. If, for any reason,
the insurer after issuing a policy should successfully contest
the Participant's right to receive insurance proceeds in an
amount equal to the death benefit described in Section 5.1,
the Participant will receive from LILCO the difference between
the amount, if any, the insurer paid and the dollar amount of
death benefit described in Section 5.1.
If LILCO enters into an insurance contract or contracts in
order to provide the death benefits described in the Plan, the
Participant will not be eligible to receive any annuity
payment pursuant to section 5.5 of the Plan until the
insurance policy is terminated or the Participant has
designated LILCO as Beneficiary of the policy. To the extent
that the terms of the insurance policy permit assignment of
the right to designate the Beneficiary, the Participant will
be permitted to assign such right. However, if the
Participant does not reserve the right to redesignate the
Company as the Beneficiary of the policy, the Participant will
not have the right to receive an annuity under Section 5.5 of
the Plan. No portion of any uninsured death benefit is
subject to assignment or anticipation.
5.3 Pre-retirement Insured Death Benefit
-6-
<PAGE> 7
To the extent an insurance policy funds the death benefits and
the Participant designates a Beneficiary to receive the
proceeds payable under the policy, the payment terms under the
insurance contract the Participant has elected will control in
the event of the Participant's death.
5.4 Pre-retirement Uninsured Death Benefit
Any pre-retirement death benefit not payable by an insurer at
the direction of the insured shall only be a general LILCO
obligation. A Participant eligible for insurance protection
under an insurance policy maintained by LILCO may elect to
name LILCO as the Beneficiary under the policy. In that
event, the death benefit will be deemed uninsured and payment
of the amount described in Section 5.1 will only be a general
LILCO obligation and the Participant will have no rights in
any insurance policy maintained by LILCO on the Participant's
life. LILCO will pay any actual or deemed uninsured death
benefit to the Beneficiary designated in writing on the form
furnished by and filed with the Plan Administrator. If no
Beneficiary is selected, payment will be made to the
Participant's estate. For a discussion of the federal income
tax consequences if LILCO is designated as the Beneficiary,
see Article XIII.
If a Participant has not designated a Beneficiary for any
increased amount of death benefit payable after January 1,
1993, payment will be made to the same Beneficiary whom the
Participant designated under the existing group term life
insurance contract in the same proportions as the proceeds
payable to each Beneficiary under that insurance contract.
5.5 Post-Retirement Benefit
Not later than December 31 in the year preceding the
Participant's Normal Retirement Date, the Participant must
make an election for each Unit of Compensation, up to a total
of five units for an Executive Officer; up to a total of three
units for an Officer; and up to a total of two units for a
Principal Executive, except for those who were Principal
Executives in the Plan between April 1, 1981 and November 30,
1986 who are entitled to two Units of Compensation if they
elect the death benefits under subsection (1) hereof, or three
-7-
<PAGE> 8
Units of Compensation if they elect the retirement benefits
under subsection (2) hereof. The election will be to have
either:
(1) the Company continue to pay (to the Participant, or
at his election, to the insurer) an amount equal to
the premiums due under the life insurance policy on
the Participant's life described in Section 5.1 (or,
if payment of the Participant's death benefit is an
obligation of LILCO and not the insurer, have the
Company continue to provide the amount of death
benefit to which the Participant is entitled under
Section 5.1), or
(2) the Company pay a retirement benefit, in the form
described below in subparagraph (a) or a combination
of (a) and (b):
(a) A basic supplemental retirement benefit
payable monthly for 180 months certain,
beginning on the first day of the month
following the date of retirement, equal to
five percent of each Unit of Compensation.
The Participant's election under this option
may provide for the benefit to be received in
one of several different equivalent actuarial
forms that are set forth in the Appendix to
this Plan.
(b) A lump sum amount payable on the first day of
the month following the date of retirement
equal to no more than 50 percent of the
present value of the basic supplemental
retirement benefit that would otherwise be
payable under (a) above.
If the Participant elects a combination of (a) and (b), the
annuity described in option (a) will be reduced so that its
present value is equal to the present value of the annuity
initially described in (a) reduced by the amount paid pursuant
to option (b).
If a Participant does not make an election pursuant to this
section, the form of the pre-retirement death benefit
previously in effect will be continued.
-8-
<PAGE> 9
5.6 Earliest Pension Commencement Date
Notwithstanding any other provision of this Plan, the earliest
date that monthly retirement payments may commence or that the
lump sum amount may be paid to any Participant as described
under Section 5.5(2)(a) and (2)(b), respectively, will be the
first day of the first month coincident with or next following
the fifth anniversary of the Participant's date of entry into
the Plan, with that date being the Participant's "Earliest
Pension Commencement Date." A vested Participant who retires
before his Earliest Pension Commencement Date will receive at
the Earliest Pension Commencement Date the benefit to which he
was entitled at his Normal Retirement Date.
If a Participant should die during the period beginning with
the date of actual retirement and ending on his Earliest
Pension Commencement Date, the Participant will be deemed to
have retired on the day before his date of death and to have
commenced receipt of the pension benefit, if any, which he
elected to receive.
5.7 Late Retirement
If the Participant continues his employment with the Company
beyond his Normal Retirement Date, the Participant may change
the election he previously made pursuant to Section 5.5,
provided any such changed election is made no later than
December 31 in the year preceding his actual retirement.
5.8 Early Retirement
A Participant may retire before his Normal Retirement Date on
the first day of any month coincident with or next following
the date on which he has both attained age 60 and completed 10
years of employment. Upon such early retirement, the death
benefit or post-retirement annuity or any combination thereof
will be reduced. The amount of the reduced death benefit or
reduced post-retirement annuity or any combination thereof
shall be equal to the product of (1) and (2) where (1) is
equal to the ratio of the Participant's Years of Participation
at his early retirement date to the Years of Participation the
Participant would have had at his Normal Retirement Date if
his participation had continued until that date and (2) is
equal to the
-9-
<PAGE> 10
amount determined under the option the Participant elected
under Section 5.5 as though the Participant's early retirement
date were his Normal Retirement Date. The Participant must
make the Section 5.5 elections not later than December 31 in
the year preceding retirement.
5.9 Disability
If a Participant becomes disabled as determined under either
the Disability Leave Plan or the Long Term Disability Plan,
the Participant will be considered disabled under this Plan.
A disabled Participant will continue to be a Participant in
this Plan during the period of disability for purposes of
vesting and Plan participation until the Earliest Pension
Commencement Date, as referred to in Section 5.6, at which
time the Participant will be deemed to have retired for
purposes of this Plan.
ARTICLE VI
ADMINISTRATION
6.1 Plan Administrator and Powers
The Plan Administrator shall administer this Plan. On all
matters and questions of interpreting or administering the
Plan, the decisions of the Plan Administrator shall govern and
control and shall be conclusive and binding on the persons at
any time having or claiming to have any interest whatsoever
under this Plan. For example, the Plan Administrator will
establish the factors, methods and assumptions utilized to
determine the actuarial equivalent value of any benefit under
this Plan or he may provide for additional times at which
benefit elections under this Plan may be made. The Plan
Administrator may employ attorneys, accountants, actuaries and
other consultants or advisors to render advice to or otherwise
to assist him in carrying out his responsibilities under the
Plan including participation in the Claims Review Procedure.
ARTICLE VII
CLAIMS REVIEW PROCEDURE
-10-
<PAGE> 11
Any Participant, former Participant, or Beneficiary of either,
who has been denied a benefit by a decision of the Plan
Administrator may request that the Plan Administrator give
further consideration to his claim by filing with the Plan
Administrator a request for a hearing. That request, together
with a written statement of the reasons why the claimant
believes his claim should be allowed, must be filed with the
Plan Administrator no later than 60 days after the claimant
receives written notice that his initial claim in whole or in
part was denied.
Upon receiving a request for review, the Plan Administrator
will conduct a hearing within the next 60 days, at which the
claimant may be present and may be represented by an attorney
or other representative of his choosing. At the hearing, the
claimant will have the opportunity to submit written and oral
evidence and arguments in support of his claim. At the
hearing (or before the hearing date upon five business days'
written notice to the Plan Administrator), the claimant or his
representative will be given the opportunity to review all
documents in the Plan Administrator's possession that relate
to the claim and its disallowance.
Either the claimant or the Plan Administrator may cause a
court reporter to attend the hearing and record the
proceedings. In such event, the reporter will furnish both
parties with a complete written transcript of the proceedings.
The full expense of any such reporter and transcript will be
borne by the party causing the reporter to attend the hearing.
The Plan Administrator will make the final decision as to the
allowance of the claim within 60 days of receiving the appeal
(unless there has been an extension of up to 60 days due to
special circumstances, provided the delay and the
circumstances occasioning it are communicated to the claimant
within the 60-day period). Such communication must be written
in a manner calculated to be understood by the claimant and
must include specific reasons for the decision and specific
references to the Plan provisions on which the decision is
based.
ARTICLE VIII
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<PAGE> 12
EFFECT OF DESIGNATION OF LILCO AS BENEFICIARY
In general, to the extent that any death benefit is not funded
by an insurance policy or is paid under a policy pursuant to
which LILCO has been designated as the Beneficiary of the
proceeds, the premium payments made on the policy will not be
includable in the Participant's income for federal income tax
purposes. However, the death benefits payable under the
policy will be subject to federal income tax.
On the other hand, to the extent that any death benefit is
funded by an insurance policy and the Participant designates a
Beneficiary other than LILCO, the premiums paid by LILCO will
be included in the Participant's income for federal income tax
purposes. However, the death benefits payable under the
policy will not be subject to federal income tax.
This is not intended to be general tax advice but merely to
inform Participants regarding the effect of exercising the
option now available to designate LILCO as a Beneficiary under
the policy. In making the determination as to the appropriate
Beneficiary designation, the Participant should consider all
the aspects of his family financial planning objectives.
ARTICLE IX
MISCELLANEOUS
Payment of premiums, death benefits not payable by the
insurer, and annuity benefits under this Plan will be paid out
of the Company's general assets. A trust currently exists to
accumulate the funds necessary to pay the benefits under the
Plan. The Company may, from time to time, establish an
additional trust for this purpose. The Participant's right to
receive benefits under the Plan will be no greater than the
right of any unsecured general creditor, and no amount payable
by the Company under this Plan, in whole or in part, will be
subject in any manner to anticipation, alienation, or
assignment by the Participant or the Participant's
Beneficiary.
Nothing in this Plan may be construed as a contract of
employment between the Company and the Participant nor
-12-
<PAGE> 13
may any provision of the Plan interfere with the right of the
Company to discharge any employee.
ARTICLE X
AMENDMENT OR TERMINATION
The Company intends to continue the Plan indefinitely.
Nevertheless, in order to protect against unforeseen
conditions, the Company reserves the right at any time and
from time to time, by resolution of its Board of Directors, to
amend or terminate this Plan, provided, however, that no such
amendment or termination adversely affects the vested benefit
that had accrued to any Participant or Beneficiary before the
date that the Plan was amended or terminated.
APPENDIX 1
OPTIONAL FORMS OF BENEFIT
A.1 Form of Monthly Retirement Income Payments
A Participant who elects to receive all or a portion of his
benefits in the form of a monthly retirement income payment
under Section 5.5(2)(a) may further elect to receive that
income payment in one of the following optional forms of
monthly payment, which, in each case, is determined by
multiplying the basic supplemental retirement benefit
described in the first sentence of Section 5.5(2)(a) by the
applicable conversion factor.
(1) An increasing rate of payment for 180 months certain
with the amount of payment for each of the first 12
months being equal to 78.95% of the amount that would
otherwise be payable and with the rate of monthly
payments for each subsequent 12 months increased by
4%, compounded annually. During the 15th year, the
last year of payments under the option, the rate of
monthly payment will be $1.73 for each $1.00 of
monthly payments in the first year.
-13-
<PAGE> 14
(2) A reduced annuity for the lifetime of the
Participant, with 180 months certain where each such
monthly payment will be determined by reference to
the applicable conversion factor.
(3) A 50% joint and survivor annuity under which the
monthly payment for the lifetime of the Participant
will be determined by reference to the applicable
conversion factor and, upon the Participant's death,
continued for the lifetime of the Participant's
beneficiary at 50% of the monthly payment that has
been made by the Participant. This option has no
certain period.
(4) A combination of Options (1) and (2) above under
which payments will be made for the lifetime of the
Participant for 180 monthly certain payments. The
amount of payment for each of the first twelve months
will be determined by reference to the applicable
conversion factor with the rate of monthly payment
for each subsequent twelve months increasing by 4%,
compounded annually for the remainder of the
Participant's lifetime.
(5) A combination of Options (1) and (3) as described
above with the amount of payment for each of the
first twelve months being determined by reference to
the applicable conversion factor with the rate of
monthly payment for each subsequent twelve months
increased by 4% compounded annually for the remainder
of the Participant's lifetime and, upon the
Participant's death, continued for the lifetime of
the Participant's Beneficiary at 50% of the monthly
payment that had been made to the Participant. This
option has no certain period.
(6) A 100% joint and survivor annuity under which each
monthly payment during the lifetime of the
Participant will be determined by reference to the
applicable conversion factor and, upon the
Participant's death, continued for the lifetime of
the Participant's Beneficiary at 100% of the monthly
payment that had been made to the Participant. This
option has no certain period.
A.2 Election Period
If a Participant elects to receive the post-retirement benefit
described in Section 5.5 and the form of
-14-
<PAGE> 15
monthly income payments as described in Section A.1 of this
Appendix, the Participant must make the election in the time
prescribed in Sections 5.5, 5.7 or 5.8, whichever is
applicable.
If circumstances preclude the Participant from making an
election before January 1 of the year in which the date of
retirement falls, this requirement may be waived in the sole
discretion of the Plan Administrator.
A.3 Manner of Election
All elections must be made in writing on forms provided by the
Plan Administrator.
-15-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,556,013
<OTHER-PROPERTY-AND-INVEST> 15,462
<TOTAL-CURRENT-ASSETS> 1,088,814
<TOTAL-DEFERRED-CHARGES> 1,081,029
<OTHER-ASSETS> 7,321,984
<TOTAL-ASSETS> 13,063,302
<COMMON> 596,915
<CAPITAL-SURPLUS-PAID-IN> 1,059,868
<RETAINED-EARNINGS> 796,970
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,453,753
643,300
63,943
<LONG-TERM-DEBT-NET> 4,722,675
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 415,000
4,800
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,759,831
<TOT-CAPITALIZATION-AND-LIAB> 13,063,302
<GROSS-OPERATING-REVENUE> 2,320,806
<INCOME-TAX-EXPENSE> 163,749
<OTHER-OPERATING-EXPENSES> 1,593,374
<TOTAL-OPERATING-EXPENSES> 1,757,123
<OPERATING-INCOME-LOSS> 563,683
<OTHER-INCOME-NET> 33,132
<INCOME-BEFORE-INTEREST-EXPEN> 596,815
<TOTAL-INTEREST-EXPENSE> 353,903
<NET-INCOME> 242,912
39,495
<EARNINGS-AVAILABLE-FOR-COMM> 203,417
<COMMON-STOCK-DIVIDENDS> 158,505
<TOTAL-INTEREST-ON-BONDS> 309,706
<CASH-FLOW-OPERATIONS> 513,841
<EPS-PRIMARY> $1.71
<EPS-DILUTED> $1.71
</TABLE>
