<PAGE>
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 MARCH 31, 1996
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 MARCH 31, 1996, WAS 119,955,799.
<PAGE>
LONG ISLAND LIGHTING COMPANY
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF INCOME 3
BALANCE SHEET 4
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE 19
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURE 20
<PAGE>
LONG ISLAND LIGHTING COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(Thousands of Dollars - except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
REVENUES
Electric $559,268 $545,887
Gas 304,946 245,301
------------- -------------
Total Revenues 864,214 791,188
------------- -------------
EXPENSES
Operations - fuel and purchased power 310,269 256,695
Operations - other 103,869 96,010
Maintenance 30,488 34,256
Depreciation and amortization 37,565 35,634
Base financial component amortization 25,243 25,243
Rate moderation component amortization (15,326) 11,487
Regulatory liability component amortization (22,143) (22,143)
Other regulatory amortization 27,212 13,659
Operating taxes 120,028 111,607
Federal income tax - current 12,838 2,613
Federal income tax - deferred and other 43,750 45,252
------------- -------------
Total Expenses 673,793 610,313
------------- -------------
OPERATING INCOME 190,421 180,875
------------- -------------
OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges 5,900 6,842
Class Settlement (5,372) (5,467)
Other income and deductions, net 5,920 3,504
Allowance for other funds used during construction 719 714
Federal income tax credit - deferred and other 2,451 2,209
------------- -------------
Total Other Income and (Deductions) 9,618 7,802
------------- -------------
INCOME BEFORE INTEREST CHARGES 200,039 188,677
------------- -------------
INTEREST CHARGES AND (CREDITS)
Interest on long-term debt 102,256 103,060
Other interest 16,971 16,344
Allowance for borrowed funds used during construction (941) (1,026)
------------- -------------
Total Interest Charges and (Credits) 118,286 118,378
------------- -------------
NET INCOME 81,753 70,299
Preferred stock dividend requirements 13,071 13,172
------------- -------------
EARNINGS FOR COMMON STOCK $68,682 $57,127
============= =============
AVERAGE COMMON SHARES OUTSTANDING (000) 119,944 118,712
EARNINGS PER COMMON SHARE $0.57 $0.48
DIVIDENDS DECLARED PER COMMON SHARE $0.445 $0.445
</TABLE>
See Notes to Financial Statements.
<PAGE>
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
ASSETS (unaudited) (audited)
------------ -----------
<S> <C> <C>
UTILITY PLANT
Electric $3,814,192 $3,786,540
Gas 1,101,162 1,086,145
Common 251,033 244,828
Construction work in progress 89,375 100,521
Nuclear fuel in process and in reactor 17,378 16,456
------------ -----------
5,273,140 5,234,490
------------ -----------
Less - Accumulated depreciation and
amortization 1,670,015 1,639,492
------------ -----------
Total Net Utility Plant 3,603,125 3,594,998
------------ -----------
REGULATORY ASSETS
Base financial component (less accumulated
amortization of $681,554 and $656,311) 3,357,276 3,382,519
Rate moderation component 420,298 383,086
Shoreham post-settlement costs 977,565 968,999
Shoreham nuclear fuel 70,712 71,244
Unamortized cost of issuing securities 214,938 222,567
Postretirement benefits other than pensions 380,089 383,642
Regulatory tax asset 1,795,430 1,802,383
Other 199,705 230,663
------------ -----------
Total Regulatory Assets 7,416,013 7,445,103
------------ -----------
------------ -----------
NONUTILITY PROPERTY AND OTHER INVESTMENTS 16,961 16,030
------------ -----------
CURRENT ASSETS
Cash and cash equivalents 467,285 351,453
Special deposits 64,427 63,412
Customer accounts receivable (less allowance
for doubtful accounts of $22,392 and $24,676) 349,029 282,218
LRPP receivable 28,801 69,558
Other accounts receivable 39,741 107,387
Accrued unbilled revenues 148,668 184,440
Materials and supplies at average cost 63,733 63,595
Fuel oil at average cost 34,294 32,090
Gas in storage at average cost 7,032 53,076
Deferred tax asset 191,000 191,000
Prepayments and other current assets 10,176 8,986
------------ -----------
Total Current Assets 1,404,186 1,407,215
------------ -----------
------------ -----------
DEFERRED CHARGES 29,017 21,023
------------ -----------
TOTAL ASSETS $12,469,302 $12,484,369
============ ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
LONG ISLAND LIGHTING COMPANY
BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
CAPITALIZATION AND LIABILITIES (unaudited) (audited)
------------ -----------
<S> <C> <C>
CAPITALIZATION
Long-term debt $4,472,675 $4,722,675
Unamortized discount on debt (15,765) (16,075)
------------ -----------
4,456,910 4,706,600
------------ -----------
Preferred stock - redemption required 639,550 639,550
Preferred stock - no redemption required 63,881 63,934
------------ -----------
Total Preferred Stock 703,431 703,484
------------ -----------
Common stock 599,779 598,277
Premium on capital stock 1,117,731 1,114,508
Capital stock expense (50,382) (50,751)
Retained earnings 806,227 790,919
------------ -----------
Total Common Shareowners' Equity 2,473,355 2,452,953
------------ -----------
------------ -----------
Total Capitalization 7,633,696 7,863,037
------------ -----------
REGULATORY LIABILITIES
Regulatory liability component 257,918 277,757
1989 Settlement credits 134,352 136,655
Regulatory tax liability 115,560 116,060
Other 142,892 133,098
------------ -----------
Total Regulatory Liabilities 650,722 663,570
------------ -----------
CURRENT LIABILITIES
Current maturities of long-term debt 665,000 415,000
Current redemption requirements of preferred stock 4,800 4,800
Accounts payable and accrued expenses 228,882 260,879
Accrued taxes (including federal income tax
of $41,524 and $28,738) 50,249 60,498
Accrued interest 152,356 158,325
Dividends payable 58,025 57,899
Class Settlement 48,333 45,833
Customer deposits 29,236 29,547
------------ -----------
Total Current Liabilities 1,236,881 1,032,781
------------ -----------
DEFERRED CREDITS
Deferred income tax 2,372,540 2,337,732
Class Settlement 127,315 129,809
Other 9,651 8,304
------------ -----------
Total Deferred Credits 2,509,506 2,475,845
------------ -----------
OPERATING RESERVES
Pension and other postretirements benefits 389,253 396,490
Claims and damages 49,244 52,646
------------ -----------
Total Operating Reserves 438,497 449,136
------------ -----------
COMMITMENTS AND CONTINGENCIES - -
------------ -----------
TOTAL CAPITALIZATION AND LIABILITIES $12,469,302 $12,484,369
============ ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
LONG ISLAND LIGHTING COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------------
1996 1995
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $81,753 $70,299
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Provision for doubtful accounts 4,828 4,701
Depreciation and amortization 37,565 35,634
Base financial component amortization 25,243 25,243
Rate moderation component amortization (15,326) 11,487
Regulatory liability component amortization (22,143) (22,143)
Other regulatory amortization 27,212 13,659
Rate moderation component carrying charges (5,900) (6,842)
Class Settlement 5,372 5,467
Amortization of cost of issuing and redeeming securities 9,486 10,366
Federal income tax - deferred and other 41,299 43,043
Allowance for other funds used during construction (719) (714)
Gas Cost Adjustment 19,190 12,750
Other 15,542 10,438
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable (3,992) (37,929)
Accrued unbilled revenues 35,772 14,707
Materials and supplies, fuel oil and gas in storage 43,702 60,714
Accounts payable and accrued expenses (31,997) (44,577)
Accrued taxes (10,249) (23,372)
Class Settlement (5,366) (6,773)
Other (12,241) (14,191)
-------------- ---------------
Net Cash Provided by Operating Activities 239,031 161,967
-------------- ---------------
INVESTING ACTIVITIES
Construction and nuclear fuel expenditures (44,189) (37,549)
Shoreham post-settlement costs (15,798) (24,335)
Other (1,206) (717)
-------------- ---------------
Net Cash Used in Investing Activities (61,193) (62,601)
-------------- ---------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 4,672 4,619
Preferred stock dividends paid (13,072) (13,232)
Common stock dividends paid (53,247) (52,636)
Other (359) 182
-------------- ---------------
Net Cash Used in Financing Activities (62,006) (61,067)
-------------- ---------------
Net Increase in Cash and Cash Equivalents $115,832 $38,299
============== ===============
Cash and cash equivalents at January 1 $351,453 $185,451
Net increase in Cash and Cash Equivalents 115,832 38,299
-------------- ---------------
Cash and Cash Equivalents at March 31 $467,285 $223,750
============== ===============
SUPPLEMENTARY INFORMATION
Interest paid, before reduction for the allowance
for borrowed funds used during construction $115,711 $113,672
Federal income tax - paid $50 -
</TABLE>
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1996
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
These Notes to Financial Statements reflect events subsequent to February 7,
1996, the date of the most recent Report of Independent Auditors, through the
date of this Quarterly Report on Form 10-Q for the three months ended March 31,
1996. These Notes to Financial Statements should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three months ended March 31, 1996, and the Company's Annual
Report on Form 10-K, as amended, for the Year Ended December 31, 1995,
incorporated herein by reference.
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
period presented. Operating results for this interim period 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 presentation.
NOTE 2. RATE MATTERS
ELECTRIC
In 1995, the Company requested that the Public Service Commission of the State
of New York (PSC) extend the provisions of its 1995 electric rate order through
November 30, 1996. The 1995 rate order, which became effective December 1, 1994,
froze electric rates, reduced the Company's allowed return on common equity from
11.6% to 11.0% and modified or eliminated certain performance-based incentives.
In early 1996, the PSC issued an Order to Show Cause and instituted a proceeding
to examine various opportunities to reduce the Company's current electric rates.
Specifically, the Company was directed to address the following: (i) should all
or a part of the $81 million Suffolk County property tax recovery that the
Company received in January 1996, pursuant to a final judgment that the Shoreham
property was overvalued for property tax purposes between 1976 and 1983
(excluding 1979 which had previously been settled), be used to reduce current
rates; (ii) should the Company accelerate the schedule to return to customers
the $26 million 1995 rate year net reconciliation credit; (iii) whether any
adjustments to the Company's previously filed 1996
<PAGE>
rate year cost of service forecast could be made and used to reduce rates; and
(iv) to revisit the mechanics of the Fuel Cost Adjustment (FCA) clause to
determine whether all or a portion of any fuel cost savings could be reflected
in current customer bills rather than being applied to reduce the Rate
Moderation Component (RMC) balance. For a further discussion of the RMC and the
FCA see Notes 1, 2 and 3 of Notes to Financial Statements included in the
Company's Annual Report on Form 10-K, as amended, for the Year Ended December
31, 1995.
In its March 8, 1996 response to the Order to Show Cause, the Company stated
that it shared the PSC's concern regarding electric rate levels and is prepared
to assist the PSC in pursuing every reasonable opportunity to reduce electric
rates. Consistent with the Rate Moderation Agreement (RMA), one of the
constituent documents of the 1989 Settlement, the Company favors long-term rate
stabilization and opposes short-term rate reduction followed by a period of rate
increases. The Company also addressed, as discussed below, the negative effects
that the adoption, in whole or in part, of any or all of the items set forth in
the Order to Show Cause, would have on long-term rates and on the Company's
financial condition.
Specifically, the Company's position is that, in accordance with the RMA, the
$81 million Suffolk County property tax recovery, net of $5 million of
litigation expenses, should be utilized as a component of a long-range plan to
eliminate or ameliorate future rate increases. It should not be used for a
temporary rate reduction. The Company believes that this can be accomplished by
crediting the tax recovery to the RMC. The Company believes that not applying
this recovery to the RMC could be interpreted by the financial community as a
diminishing of regulatory support for the 1989 Settlement, thereby seriously
undermining the Company's financial ratings resulting in higher borrowing costs
for the Company and higher rates for ratepayers. The Company also believes that
any acceleration of ratepayer credits, including the $26 million net
reconciliation credit, should be accompanied by an acceleration of known
increases in the Company's cost of service. In addition, the Company believes
that no adjustments to the Company's updated cost of service estimates are
warranted and that rates for 1996 should remain at their current level. In fact,
revenues under the current rate structure are less than the amount the Company
would be entitled to under conventional ratemaking justifying a rate increase,
not a rate decrease.
As to altering the FCA mechanics, the Company believes that such adjustments
would lead to short-term rate reductions but cause an increase in the RMC
balance which would in turn, be accompanied by future rate increases in order to
fully amortize the RMC balance by the year 2000, as called for in the 1989
Settlement. Furthermore, the Company believes that any change to the FCA
mechanism, which was established by the RMA, would be viewed by
<PAGE>
the financial community as a diminishing of the PSC's support for the 1989
Settlement.
In April 1996, the PSC Staff (Staff) and other intervenors submitted their
responses to the Company's filing in the Order to Show Cause proceeding. Staff
recommended that the Company's rates be decreased by 2%, or approximately $50
million, on a temporary basis effective July 1, 1996. Staff's recommendation
proposed maintaining rates at this reduced level for a three-year period. To
achieve a sustained 2% revenue reduction Staff proposes that: (i) the Company's
allowed return on common equity be reduced from 11.0% to 10.5%; (ii) the
Company's projected non-fuel O&M expenses be reduced from the updated cost of
service estimate by $10 million through 1998, by $12 million in 1999, and by $14
million in 2000; (iii) $30 million of the Shoreham property tax recovery be
returned to customers over a three-year period beginning July 1, 1996 at the
rate of $10 million per year with the remaining balance, net of litigation
costs, credited to the RMC; and (iv) the 1995 net reconciliation credit of $26
million be returned to ratepayers over a three-year period beginning July 1,
1996. Additionally, Staff recommended that no change be made to the Company's
FCA mechanism citing its importance as a means for reducing the RMC balance and
stabilizing rates.
At the April 17, 1996, PSC Open Session, the PSC's Chairman, after review of the
Company's response and the replies of the Staff and other intervenors, stated
that the PSC will expand the boundaries of the Order to Show Cause in an effort
to provide "immediate and substantial rate relief". The PSC's Chairman did not
address either the Staff's suggested 2% temporary rate reduction, or any Order
to Show Cause issues.
On April 25, 1996, the Commission issued its Order expanding the scope of the
Show Cause proceeding. The Order directs the Company to file, within 60 days,
financial and other information, of rate case quality, sufficient to provide a
basis for setting new rates for the Company's electric service. According to the
Order, the Company's filing shall encompass both a single rate year beginning
January 1, 1997 and a three-year rate plan for the period 1997-1999. Although
the PSC indicated that the proceeding will be conducted in an expeditious
manner, the Company is unable to determine when a decision in this proceeding
will be reached and what effect, if any, such decision will have on its
financial condition and results of operations.
<PAGE>
NOTE 3. CAPITALIZATION
On May 1, 1996, the Company retired $415 million of General and Refunding (G&R)
Bonds at maturity. The Company satisfied this obligation without the need for
external financing, utilizing cash on hand and cash previously deposited with
the G&R Trustee.
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
RESULTS OF OPERATIONS
EARNINGS
Earnings for common stock for the three months ended March 31, 1996 were $68.7
million or $0.57 per common share compared with $57.1 million or $0.48 per share
for the same period last year.
Gas business earnings increased for the three month period ended March 31, 1996,
when compared to the same period in the prior year as a result of a 3.2% gas
rate increase which became effective December 1, 1995, an increase in off-system
sales, and additional sales volumes from space heating customers due to the
colder winter weather and an increase in the total number of space heating
customers.
Electric business earnings increased for the three month period ended March 31,
1996, when compared to the same period in the prior year, due to the growth in
the common equity component of the Company's earnings base and the fact that the
Company was able to earn close to its allowed return on common equity on this
increased amount.
REVENUES
Total revenues for the three months ended March 31, 1996 were $864.2 million,
representing an increase of $73.0 million over total revenues for the three
months ended March 31, 1995. Gas revenues increased by $59.6 million and
electric revenues increased by $13.4 million when compared to the same period in
1995.
The increase in gas revenues for the three months ended March 31, 1996, compared
with the same period in 1995, is primarily the result of higher sales volumes
resulting from a colder winter and an increase in the number of gas heating
customers resulting from the Company's gas expansion program. Also contributing
to higher gas revenues were higher fuel expense recoveries, a gas rate increase
of 3.2% which was effective December 1, 1995 and higher off-system gas sales.
The increase in electric revenues during the three months ended March 31, 1996,
when compared to the same period in 1995, was primarily due to higher sales
volumes caused by the colder weather experienced in the region. The higher sales
volumes however, will have no effect on 1996 earnings due to the Company's
current electric rate structure which provides for a
<PAGE>
revenue reconciliation mechanism that eliminates the impact on earnings of sales
volumes that are above or below adjudicated levels.
FUELS AND PURCHASED POWER
Fuels and purchased power expenses for the three months ended March 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
3/31/96 3/31/95
------- -------
(In Millions)
<S> <C> <C>
ELECTRIC SYSTEM
Oil $ 67 $ 37
Gas 7 28
Nuclear 4 3
Purchased Power 81 75
---- ----
Total Electric Fuel Costs 159 143
GAS SYSTEM 151 114
---- ----
Total $310 $257
==== ====
</TABLE>
For the three months ended March 31, 1996, electric fuel costs were higher when
compared to the same period last year primarily as a result of increased sales
volumes resulting from the colder weather. Also contributing to the higher fuel
cost was higher prices for oil, gas and purchased power.
Gas fuel costs for operating the gas business increased for the three months
ended March 31, 1996, when compared to the same period last year due to an
increase in sales volumes coupled with higher gas prices.
The percentages of total electric energy available by type of fuel for electric
operations for the three months ended March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
3/31/96 3/31/95
------- -------
<S> <C> <C>
Oil 42% 27%
Gas 8 24
Nuclear 10 9
Purchases 40 40
---- ----
Total 100% 100%
==== ====
</TABLE>
Electric generation with oil increased in 1996 as it became more economical than
generation with gas given the increase in the price of gas resulting from high
demand associated with the
<PAGE>
colder winter. In fact, the Company found it beneficial to sell a portion of its
gas supply acquired for electric generation to off-system entities. Profits made
from these electric gas sales more than offset the incremental costs of
generating with oil. Profits from these sales were used to offset the cost of
fuel for electric generation, thereby providing electric energy to customers at
the lowest cost possible.
OPERATIONS AND MAINTENANCE EXPENSES
Operations and maintenance (O&M) expenses, excluding fuel and purchased power,
amounted to $134.4 million for the three months ended March 31, 1996, compared
to $130.3 million for the three months ended March 31, 1995. This increase of
$4.1 million or 3.1%, for the three months ended March 31, 1996, when compared
to the same period in 1995, is primarily attributable to an increase in storm
restoration costs during the period which are included in the maintenance of
overhead lines.
RATE MODERATION COMPONENT
The Rate Moderation Component (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 in the
Rate Moderation Agreement (RMA) and subsequent rate case decisions.
For the three months ended March 31, 1996, the Company recorded a non-cash
credit to income of approximately $15.3 million representing an amount, net of
offsets generated by the Fuel Moderation Component (FMC) mechanism, by which
adjudicated revenues were below revenues that would have been earned under
conventional ratemaking. For the three months ended March 31, 1995, the Company
recorded a non-cash charge to income of approximately $11.5 million as amounts
resulting from the operation of the FMC, combined with a PSC mandated cost of
service adjustment and the collection of an amount equal to the 1992 Long Island
Lighting Company Ratemaking and Performance Plan (LRPP) amortization, as more
fully discussed under Other Regulatory Amortization, more than offset the
non-cash credits that were recorded because adjudicated revenues were below
revenues that would have been earned under conventional ratemaking.
In recent years, the operation of the FMC has been a significant contributor to
the reduction of the RMC balance. However, recent increases in the cost of fuel
have resulted in a reduction in the FMC credit to a level below what the Company
has experienced over the past several years. As a result, the amortization of
the RMC balance may be less than what it has been in recent years. However, the
Company continues to believe that the full amortization of the RMC balance will
take place within the time frame established by the RMA.
<PAGE>
For a further discussion of the RMC, RMA and FMC see Notes 1, 2 and 3 of
Notes to Financial Statements included in the Company's Annual Report on Form
10-K, as amended, for the Year Ended December 31, 1995.
OTHER REGULATORY AMORTIZATION
For the three months ended March 31, 1996, and 1995, other regulatory
amortization was a non-cash charge to income of $27.2 million and $13.7,
million, respectively. This increase has no impact on earnings, as the Company
recovers an equivalent amount of revenue under its current electric rate
structure.
Included in other regulatory amortization for the three months ended March 31,
1996 is $16.3 million of amortization expense related to deferrals recorded
under the LRPP for the rate year ended November 31, 1994, as more fully
discussed in Note 3 of Notes to Financial Statements included in the Company's
Annual Report on Form 10-K, as amended, for the Year Ended December 31, 1995. No
LRPP amortization was recorded in other regulatory amortization for the three
months ended March 31, 1995, as the PSC did not approve the amortization of the
1993 LRPP balance until June 1995. The PSC did, however, authorize the Company
to continue its monthly collection of an amount equal to the 1992 LRPP
deferrals. Approximately $8 million collected for the three months ended March
31, 1995, via the fuel adjustment clause, was applied to reduce the RMC balance
and therefore was not included in other regulatory amortization.
Partially offsetting the above items was 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 three months ended March 31, 1996 being lower
than the adjudicated level, the Company recorded a non-cash credit to income of
$1.3 million, net of tax. For the three months ended March 31, 1995 the Company
recorded a $4.9 million, net of tax charge to income because actual sales were
higher than the adjudicated level during this period.
OPERATING TAXES
For the three months ended March 31, 1996, operating taxes totaled $120.0
million, an increase of $8.4 million or 7.5% over the comparable period last
year. The increase in operating taxes was attributable to higher property and
revenue taxes.
FEDERAL INCOME TAXES
For the three months ended March 31, 1996, federal income tax totalled $54.1
million, an increase of $8.4 million or 18.4% over the comparable period last
year. The increase in federal income
<PAGE>
tax was primarily the result of an increase in pre-tax book income.
The Alternative Minimum Tax (AMT) liability for the three months ended March 31,
1996 totaled $12.8 million, an increase of $10.2 million over the comparable
period last year. The higher AMT liability is a result of the full utilization
of the AMT Net Operating Loss (NOL) carryforward for the three months ended
March 31, 1996. The Company anticipates an AMT liability for 1996 of
approximately $80 million.
<PAGE>
FINANCIAL CONDITION
LIQUIDITY
At March 31, 1996, the Company's cash and cash equivalents amounted to
approximately $467 million, compared to $351 million at December 31, 1995. The
cash balance at March 31, 1996 includes the proceeds of the $81 million Suffolk
County property tax recovery that the Company received in January 1996. For a
further discussion of the Suffolk County property tax recovery see Note 2 and
Note 3 of Notes to Financial Statements included in the Company's Annual Report
on Form 10-K, as amended, for the Year Ended December 31, 1995.
On May 1, 1996, $415 million of the Company's General and Refunding (G&R) Bonds
matured. The Company satisfied this obligation without the need to obtain
additional financing, utilizing cash on hand and cash previously deposited with
the G&R Trustee. In addition, the Company currently estimates that it will need
to make Federal Income Tax payments totaling approximately $80 million during
1996 as a result of exhausting the Alternative Minimum Tax Net Operating Loss
carryforward during 1996.
In 1997 and 1998, the Company has debt maturities of $250 million and $100
million, respectively. The Company intends to use cash generated from operations
to the maximum extent practicable to satisfy these obligations.
The Company also has available for its use a $300 million revolving line of
credit through October 1, 1996, provided by its 1989 Revolving Credit Agreement
(1989 RCA). At March 31, 1996, 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.
Although the Company has no current plans for accessing the public markets to
raise capital for the next several years, the Company would take advantage of
any tax-exempt financing made available to it.
<PAGE>
CAPITAL REQUIREMENTS AND CAPITAL PROVIDED
Capital requirements and capital provided for the three months ended March 31,
1996 were as follows:
<TABLE>
<CAPTION>
(In Millions of Dollars)
- --------------------------------------------------------------------------------
Three Months Ended
March 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
CAPITAL REQUIREMENTS
Total Construction $ 44
- --------------------------------------------------------------------------------
Preferred stock dividends 13
Common stock dividends 53
- --------------------------------------------------------------------------------
Total Dividends 66
- --------------------------------------------------------------------------------
Shoreham post-settlement costs 16
- --------------------------------------------------------------------------------
Total Capital Requirements $ 126
================================================================================
CAPITAL PROVIDED
Cash generation from operations $ 239
(Increase) in cash (116)
Common stock issued 5
Other investing and financing activities (2)
- --------------------------------------------------------------------------------
Total Capital Provided $ 126
================================================================================
</TABLE>
For further information, see the Statement of Cash Flows.
Given the Company's current electric load forecast and considering the
availability of electricity provided by the Company's generating facilities and
firm purchases of power from others, the Company believes it will need
additional capacity in 1997, which it plans to satisfy through a firm purchase
contract. The Company anticipates it will need an additional generating facility
in the 1999-2000 time frame. This facility will most likely be constructed on
behalf of the Company by an outside party and as such, will not be financed by
the Company. The Company estimates that cash generated from operations will be
sufficient to meet total capital expenditures for the remainder of 1996.
<PAGE>
INVESTMENT RATING
The Company's securities are rated by Standard and Poor's Corporation (S&P),
Moody's Investors Service (Moody's), Fitch Investors Service, L.P.(Fitch) and
Duff and Phelps, Inc. (D&P). The credit ratings for each of the Company's
principal securities remain unchanged since December 31, 1995.
As a result of the PSC's recent decision to institute a comprehensive
examination of the Company's rate structure and financial condition, several of
the rating agencies have been reexamining the Company's ratings. Moody's revised
its review from "direction uncertain" to "review for possible downgrade" and
Fitch placed the Company's securities from FitchAlert with "evolving
implications" to FitchAlert with "negative implications". D&P and S&P's outlook
remain unchanged from December 31, 1995.
For a further discussion of the Company's credit ratings see Investment
Rating in the Company's Annual Report on Form 10-K, as amended, for the Year
Ended December 31, 1995.
RATE MATTERS
For a discussion of recent rate matters see Note 2 of Notes to Financial
Statements and Note 3 of Notes to Financial Statements included in the Company's
Annual Report on Form 10-K, as amended, for the Year Ended December 31, 1995.
LONG ISLAND POWER AUTHORITY PROPOSED PLAN
On February 28, 1996, the Board of Trustees of the Long Island Power Authority
(LIPA) approved a resolution which, among other things, authorized the LIPA
chairman and his designees to enter into negotiations with the Company regarding
the disposition of the Company's assets and/or stock, in a manner consistent
with the framework set forth in a plan previously proposed by a committee of the
LIPA Board (Proposed Plan).
Shortly after approval of the resolution by the LIPA Board, the Company's Board
of Directors authorized representatives of the Company to meet with
representatives of LIPA to discuss this matter. Although discussions between the
Company and LIPA are ongoing, 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.
For additional information regarding the Proposed Plan, see Note 10 of
Notes to Financial Statements in the Company's Annual Report on Form 10-K, as
amended, for the Year Ended December 31, 1995.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
None.
B. REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LONG ISLAND LIGHTING COMPANY
(Registrant)
By /S/ ANTHONY NOZZOLILLO
-------------------------
ANTHONY NOZZOLILLO
Senior Vice President and
Principal Financial Officer
Dated: May 14, 1996
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
DESCRIPTION NO.
- ----------- ---
Financial Data Schedule (Exhibit 27). 27
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,603,125
<OTHER-PROPERTY-AND-INVEST> 16,961
<TOTAL-CURRENT-ASSETS> 1,404,186
<TOTAL-DEFERRED-CHARGES> 29,017
<OTHER-ASSETS> 7,416,013
<TOTAL-ASSETS> 12,469,302
<COMMON> 599,779
<CAPITAL-SURPLUS-PAID-IN> 1,067,349
<RETAINED-EARNINGS> 806,227
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,473,355
639,550
63,881
<LONG-TERM-DEBT-NET> 4,472,675
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 665,000
4,800
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,150,041
<TOT-CAPITALIZATION-AND-LIAB> 12,469,302
<GROSS-OPERATING-REVENUE> 864,214
<INCOME-TAX-EXPENSE> 56,588
<OTHER-OPERATING-EXPENSES> 617,205
<TOTAL-OPERATING-EXPENSES> 673,793
<OPERATING-INCOME-LOSS> 190,421
<OTHER-INCOME-NET> 9,618
<INCOME-BEFORE-INTEREST-EXPEN> 200,039
<TOTAL-INTEREST-EXPENSE> 118,286
<NET-INCOME> 81,753
13,071
<EARNINGS-AVAILABLE-FOR-COMM> 68,682
<COMMON-STOCK-DIVIDENDS> 53,247
<TOTAL-INTEREST-ON-BONDS> 102,256
<CASH-FLOW-OPERATIONS> 239,031
<EPS-PRIMARY> $0.57
<EPS-DILUTED> $0.57
</TABLE>
