-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JPa+K9fbsBbtbW12QMLh8yhi1i3D3IX6Mr8lVAzLKQoroY5SRIV+wQVagSnJq60b 9WC2/59BIyIuQ7B+fI/dtw== 0000060251-97-000026.txt : 19970815 0000060251-97-000026.hdr.sgml : 19970815 ACCESSION NUMBER: 0000060251-97-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LONG ISLAND LIGHTING CO CENTRAL INDEX KEY: 0000060251 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 111019782 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03571 FILM NUMBER: 97662785 BUSINESS ADDRESS: STREET 1: 175 E OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 BUSINESS PHONE: 5165455184 MAIL ADDRESS: STREET 1: 175 E. OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 10-Q 1 LILCO FORM 10-Q FOR PERIOD ENDED 6/30/97 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 June 30, 1997 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 June 30, 1997, was 121,146,042. LONG ISLAND LIGHTING COMPANY Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Financial Statements Statement of Income 3 Balance Sheet 5 Statement of Cash Flows 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II - OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23 Signature 25 - 2 - LONG ISLAND LIGHTING STATEMENT OF INCOME (UNAUDITED) (Thousands of Dollars - except per share amounts) Three Months Ended ------------------ June 30 ------- 1997 1996 ---- ---- Revenues Electric $ 560,086 $ 576,963 Gas 104,402 117,639 ------- ------- Total Revenues 664,488 694,602 ------- ------- Expenses Operations - fuel and purchased power 191,776 203,891 Operations - other 94,306 89,979 Maintenance 27,782 29,952 Depreciation and amortization 38,893 37,952 Base financial component amortization 25,243 25,243 Rate moderation component amortization 9,198 (10,604) Regulatory liability component amortization (22,143) (22,143) Other regulatory amortization 13,052 57,990 Operating taxes 109,324 111,295 Federal income tax - current 22,615 10,162 Federal income tax - deferred and other 10,363 19,820 ------ ------ Total Expenses 520,409 553,537 ------- ------- Operating Income 144,079 141,065 ------- ------- Other Income and (Deductions) Rate moderation component carrying charges 5,981 6,274 Class Settlement (4,199) (5,009) Other income and deductions, net 2,370 10,186 Allowance for other funds used during construction 958 617 Federal income tax - current (701) - Federal income tax - deferred and other (188) (2,099) ---- ------ Total Other Income and (Deductions) 4,221 9,969 ----- ----- Income Before Interest Charges 148,300 151,034 ------- ------- Interest Charges and (Credits) Interest on long-term debt 87,916 96,024 Other interest 16,274 15,301 Allowance for borrowed funds used during construction (1,051) (815) ------ ---- Total Interest Charges and (Credits) 103,139 110,510 ------- ------- Net Income 45,161 40,524 Preferred stock dividend requirements 12,968 13,071 ------ ------ Earnings for Common Stock $ 32,193 $ 27,453 ========= ========= Average Common Shares Outstanding (000) 121,146 120,221 Earnings per Common Share $ 0.26 $ 0.23 Dividends Declared per Common Share $ 0.445 $ 0.445 See Notes to Financial Statements. - 3 - LONG ISLAND LIGHTING COMPANY STATEMENT OF INCOME (UNAUDITED) (Thousands of Dollars - except per share amounts) Six Months Ended ---------------- June 30 ------- 1997 1996 ---- ---- Revenues Electric $1,117,876 $1,136,231 Gas 397,793 422,586 ------- ------- Total Revenues 1,515,669 1,558,817 --------- --------- Expenses Operations - fuel and purchased power 493,643 514,160 Operations - other 189,979 193,848 Maintenance 57,123 60,439 Depreciation and amortization 77,454 75,517 Base financial component amortization 50,485 50,485 Rate moderation component amortization 15,105 (25,930) Regulatory liability component amortization (44,286) (44,286) Other regulatory amortization 25,271 85,202 Operating taxes 226,837 231,323 Federal income tax - current 45,993 23,000 Federal income tax - deferred and other 43,986 63,569 ------ ------ Total Expenses 1,181,590 1,227,327 --------- --------- Operating Income 334,079 331,490 ------- ------- Other Income and (Deductions) Rate moderation component carrying charges 11,901 12,175 Class Settlement (8,695) (10,381) Other income and deductions, net 3,015 16,106 Allowance for other funds used during construction 1,676 1,336 Federal income tax - current (701) - Federal income tax - deferred and other 600 352 --- --- Total Other Income and (Deductions) 7,796 19,588 ----- ------ Income Before Interest Charges 341,875 351,078 ------- ------- Interest Charges and (Credits) Interest on long-term debt 178,084 198,282 Other interest 32,933 32,272 Allowance for borrowed funds used during construction (2,000) (1,757) ------ ------ Total Interest Charges and (Credits) 209,017 228,797 ------- ------- Net Income 132,858 122,281 Preferred stock dividend requirements 25,937 26,143 ------ ------ Earnings for Common Stock $ 106,921 $ 96,138 ========== ========== Average Common Shares Outstanding (000) 121,066 120,082 Earnings per Common Share $ 0.88 $ 0.80 Dividends Declared per Common Share $ 0.89 $ 0.89 See Notes to Financial Statements. - 4 - LONG ISLAND LIGHTING COMPANY BALANCE SHEET (Thousands of Dollars) June 30 March 31 December 31 1997 1997 1996 ASSETS (unaudited) (unaudited) (audited) ----------- ----------- --------- Utility Plant Electric $ 3,939,163 $ 3,900,264 $ 3,882,297 Gas 1,180,860 1,171,183 1,154,543 Common 265,111 263,267 260,268 Construction work in progress 119,435 108,850 112,184 Nuclear fuel in process and in reactor 15,512 15,503 15,454 ------ ------ ------ 5,520,081 5,459,067 5,424,746 --------- --------- --------- Less - Accumulated depreciation and amortization 1,790,662 1,759,110 1,729,576 --------- --------- --------- Total Net Utility Plant 3,729,419 3,699,957 3,695,170 --------- --------- --------- Regulatory Assets Base financial component (less accumulated amortization of $807,768, $782,525 and $757,282) 3,231,062 3,256,305 3,281,548 Rate moderation component 406,148 409,512 402,213 Shoreham post-settlement costs 1,000,623 996,270 991,795 Shoreham nuclear fuel 68,050 68,581 69,113 Unamortized cost of issuing securities 180,467 187,309 194,151 Postretirement benefits other than pensions 353,851 357,668 360,842 Regulatory tax asset 1,760,486 1,767,164 1,772,778 Other 191,131 200,137 199,879 ------- ------- ------- Total Regulatory Assets 7,191,818 7,242,946 7,272,319 --------- --------- --------- Nonutility Property and Other Investments 19,235 18,870 18,597 ------ ------ ------ Current Assets Cash and cash equivalents 54,010 64,539 279,993 Special deposits 67,916 37,631 38,266 Customer accounts receivable (less allowance for doubtful accounts of $22,853, $23,675 and $25,000) 255,126 305,436 255,801 Other accounts receivable 36,981 42,946 65,764 Accrued unbilled revenues 142,969 141,389 169,712 Materials and supplies at average cost 55,053 55,454 55,789 Fuel oil at average cost 48,940 49,703 53,941 Gas in storage at average cost 43,231 10,893 73,562 Deferred tax asset 86,447 93,349 145,205 Prepayments and other current assets 39,595 8,805 8,569 ------ ----- ----- Total Current Assets 830,268 810,145 1,146,602 ------- ------- --------- Deferred Charges 81,133 77,656 76,991 ------ ------ ------ Total Assets $11,851,873 $11,849,574 $12,209,679 =========== =========== =========== See Notes to Financial Statements. - 5 - LONG ISLAND LIGHTING COMPANY BALANCE SHEET (Thousands of Dollars) June 30 March 31 December 31 1997 1997 1996 CAPITALIZATION AND LIABILITIES (unaudited) (unaudited) (audited) ----------- ----------- --------- Capitalization Long-term debt $ 4,371,675 $ 4,471,675 $ 4,471,675 Unamortized discount on debt (14,372) (14,628) (14,903) ------- ------- ------- 4,357,303 4,457,047 4,456,772 --------- --------- --------- Preferred stock - redemption required 638,500 638,500 638,500 Preferred stock - no redemption required 63,584 63,598 63,664 ------ ------ ------ Total Preferred Stock 702,084 702,098 702,164 ------- ------- ------- Common stock 605,923 605,022 603,921 Premium on capital stock 1,134,998 1,131,576 1,127,971 Capital stock expense (48,588) (48,915) (49,330) Retained earnings 840,034 861,751 840,867 Treasury stock, at cost (902) (385) (60) ---- ---- --- Total Common Shareowners' Equity 2,531,465 2,549,049 2,523,369 --------- --------- --------- Total Capitalization 7,590,852 7,708,194 7,682,305 --------- --------- --------- Regulatory Liabilities Regulatory liability component 158,718 178,558 198,398 1989 Settlement credits 122,835 125,138 127,442 Regulatory tax liability 96,771 100,377 102,887 Other 162,406 158,660 139,510 ------- ------- ------- Total Regulatory Liabilities 540,730 562,733 568,237 ------- ------- ------- Current Liabilities Current maturities of long-term debt 101,000 1,000 251,000 Current redemption requirements of preferred stock 1,050 1,050 1,050 Accounts payable and accrued expenses 263,674 230,189 289,141 LRPP payable 40,499 40,499 40,499 Accrued taxes (including federal income tax of $49,561, $49,262 and $25,884) 43,070 51,157 63,640 Accrued interest 158,377 143,983 160,615 Dividends payable 58,538 58,474 58,378 Class Settlement 60,000 58,333 55,833 Customer deposits 29,051 29,173 29,471 ------ ------ ------ Total Current Liabilities 755,259 613,858 949,627 ------- ------- ------- Deferred Credits Deferred federal income tax 2,421,021 2,420,443 2,442,606 Class Settlement 81,380 89,487 98,497 Other 27,705 20,889 39,447 ------ ------ ------ Total Deferred Credits 2,530,106 2,530,819 2,580,550 --------- --------- --------- Operating Reserves Pensions and other postretirement benefits 388,830 387,048 381,996 Claims and damages 46,096 46,922 46,964 ------ ------ ------ Total Operating Reserves 434,926 433,970 428,960 ------- ------- ------- Commitments and Contingencies - - - ------- ------- ------- Total Capitalization and Liabilities $11,851,873 $11,849,574 $12,209,679 =========== =========== =========== See Notes to Financial Statements. - 6 - LONG ISLAND LIGHTING COMPANY STATEMENT OF CASH FLOWS (UNAUDITED) (Thousands of Dollars)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Operating Activities Net Income $ 45,161 $ 40,524 $ 132,858 $ 122,281 Adjustments to reconcile net income to net cash provided by operating activities Provision for doubtful accounts 3,870 3,847 8,691 8,675 Depreciation and amortization 38,893 37,952 77,454 75,517 Base financial component amortization 25,243 25,243 50,485 50,485 Rate moderation component amortization 9,198 (10,604) 15,105 (25,930) Regulatory liability component amortization (22,143) (22,143) (44,286) (44,286) Other regulatory amortization 13,052 57,990 25,271 85,202 Rate moderation component carrying charges (5,981) (6,274) (11,901) (12,175) Class Settlement 4,199 5,009 8,695 10,381 Amortization of cost of issuing and redeeming securities 7,934 8,682 16,021 18,168 Federal income tax - deferred and other 10,551 21,918 43,386 63,217 Allowance for other funds used during construction (958) (617) (1,676) (1,336) Gas Cost Adjustment 2,512 6,873 (5,379) 26,063 Other 23,066 15,738 47,551 31,280 Changes in operating assets and liabilities Accounts receivable 54,655 60,563 23,017 56,571 Accrued unbilled revenues (1,580) (1,459) 26,743 34,313 Materials and supplies, fuel oil and gas in storage (31,174) (48,202) 36,068 (4,500) Accounts payable and accrued expenses 33,485 22,994 (25,467) (9,003) Accrued taxes (8,087) (48,948) (20,570) (59,197) Class Settlement (10,639) (11,219) (21,645) (16,585) Special deposits (30,285) 27,159 (29,650) 27,159 Other (27,288) (18,171) (57,522) (30,414) ------- ------- ------- ------- Net Cash Provided by Operating Activities 133,684 166,855 293,249 405,886 ------- ------- ------- ------- Investing Activities Construction and nuclear fuel expenditures (69,219) (62,594) (118,634) (106,783) Shoreham post-settlement costs (11,983) (14,307) (24,087) (30,105) Other 221 4 (577) (1,202) --- - ---- ------ Net Cash Used in Investing Activities (80,981) (76,897) (143,298) (138,090) ------- ------- -------- -------- Financing Activities Proceeds from sale of common stock 4,309 4,753 8,950 9,425 Redemption of long-term debt - (415,000) (250,000) (415,000) Preferred stock dividends paid (12,968) (13,071) (25,938) (26,143) Common stock dividends paid (53,844) (53,381) (107,593) (106,628) Other (729) 133 (1,353) (226) ---- --- ------ ---- Net Cash Used in Financing Activities (63,232) (476,566) (375,934) (538,572) ------- -------- -------- -------- Net (decrease) in cash and cash equivalents ($10,529) ($386,608) ($225,983) ($270,776) ======== ========= ========= ========= Cash and cash equivalents at beginning of period $ 64,539 $ 467,285 $ 279,993 $ 351,453 Net (decrease) in cash and cash equivalents (10,529) (386,608) (225,983) (270,776) ------- -------- -------- -------- Cash and cash equivalents at end of period $ 54,010 $ 80,677 $ 54,010 $ 80,677 ========= ========= ========= =========
See Notes to Financial Statements. - 7 - NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION These Notes to Financial Statements reflect events subsequent to January 31, 1997, the date of the most recent Report of Independent Auditors, through the date of this Report on Form 10-Q for the three months ended June 30, 1997. These Notes to Financial Statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 1997, the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1997, the Company's Annual Report on Form 10-K/A filed June 30, 1997, for the Year Ended December 31, 1996, and the Company's Joint Proxy Statement/Prospectus filed June 30, 1997. The financial statements furnished are unaudited. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial statements for the interim periods presented. Operating results for the interim periods are not necessarily indicative of results to be expected for an entire year, due to seasonal, operating and other factors. On April 11, 1997 the Company changed its year end to March 31. Accordingly, the Company's financial statements have been presented on the new basis as well as its historical basis for comparative purposes. Certain prior year amounts have been reclassified to be consistent with current year presentation. NOTE 2. BROOKLYN UNION/LIPA TRANSACTIONS BROOKLYN UNION TRANSACTION On December 29, 1996, the Company and Brooklyn Union entered into an Agreement and Plan of Exchange (Share Exchange Agreement or Brooklyn Union Transaction), pursuant to which the outstanding common stock of the companies will be exchanged for common stock of a new holding company, yet to be named. The Share Exchange Agreement, filed as an exhibit to a Form 8-K filed December 30, 1996, was amended and restated to reflect certain technical changes as of February 7, 1997 and again as of June 26, 1997. The Brooklyn Union Transaction has been approved by both companies' boards of directors; the common stock shareholders of both companies approved the transaction at separate meetings held - 8 - on August 7, 1997. The Brooklyn Union Transaction is conditioned upon, among other things, the receipt of all required regulatory approvals. On July 17, 1997, the Federal Energy Regulatory Commission (FERC) approved the Brooklyn Union Transaction. The Company is unable to determine when, or if, all other required regulatory approvals will be obtained. LONG ISLAND POWER AUTHORITY TRANSACTION On June 26, 1997, LILCO and the Long Island Power Authority (LIPA) entered into definitive agreements pursuant to which, after the transfer of LILCO's gas assets, non-nuclear electric generating facility assets and certain other assets and liabilities to one or more newly-formed subsidiaries of the new holding company, LILCO's stock will be sold to LIPA for $2.4975 billion in cash. Upon completion of the LIPA transaction, it is anticipated that LIPA will own LILCO's electric transmission and distribution system, its 18% interest in the Nine Mile Point 2 Nuclear Power Station, and its electric regulatory assets and liabilities, and will assume or refinance approximately $339 million in preferred stock and approximately $3.6 billion in long term debt. As part of the LIPA Transaction, the definitive agreements contemplate that one or more subsidiaries of the newly formed holding company will enter into agreements with LIPA, pursuant to which such subsidiaries will provide management and operations services to LIPA with respect to the transmission and distribution system, sell power generated by the non-nuclear power plants to LIPA, and manage LIPA's fuel and electric purchases and any off-system electric sales. In addition, three years after the LIPA Transaction is consummated, LIPA will have the right for a one year period to acquire the non-nuclear generating assets. The purchase price for such assets would be the fair market value at the time of the exercise of the right, which value will be determined by independent appraisers. On July 16, 1997, the New York State Public Authorities Control Board unanimously approved the definitive agreements related to the LIPA Transaction subject to the following conditions: (1) within one year, LIPA must establish a plan for open access to the electric distribution system; (2) LIPA may not purchase the generating facilities, as contemplated in the generation purchase right agreement, at a price greater than book value; (3) the holding company formed in connection with the LIPA Transaction (or the Brooklyn Union Transaction) must agree to invest, over a ten year period, at least $1.3 billion in energy-related and economic development projects, and natural gas infrastructure projects on Long Island; (4) LIPA will guarantee that, over a ten year period, average electric rates will be reduced by no less - 9 - than fourteen percent when measured against the Company's rates today. As part of this guarantee, no less than 2% cost savings to LIPA customers must result from the savings attributable to the Brooklyn Union transaction; and (5) LIPA will not increase average customer rates by more than 2 1/2% over a twelve month period without approval from the PSC. In addition, the holders of common and preferred stock of the Company eligible to vote approved the LIPA Transaction at the meeting held on August 7, 1997. RELATED FILINGS On June 30, 1997, a Registration Statement on Form S-4 was filed with the Securities and Exchange Commission in conjunction with the filing of a Joint Proxy Statement on the proposed transactions affecting the Company. In July 1997, the Company, Brooklyn Union and LIPA filed requests for private letter rulings with the Internal Revenue Service regarding certain federal income tax issues which require favorable rulings in order for the LIPA Transaction to close. NOTE 3. RATE MATTERS In May 1997, the Company filed a petition with the PSC, seeking among other things to: 1) re-institute the gas excess earnings mechanism for the gas rate year ending November 30, 1997 whereby earnings in excess of a return on common equity of 11.0% would be allocated equally between ratepayers and shareowners, with the ratepayers' portion being applied to manufactured gas plant site remediation costs; and 2) continue a) the Rate Moderation Component (RMC) and b) the Long Island Ratemaking and Performance Plan (LRPP) ratemaking mechanisms and c) the performance incentive programs for the electric rate year ending November 30, 1997. NOTE 4. CAPITALIZATION In February 1997, the Company retired $250 million of General and Refunding Bonds at maturity. The Company satisfied this obligation with cash on hand and by utilizing interim financing of $30 million obtained through its Revolving Credit Agreement (RCA). The Company repaid this short-term RCA borrowing of $30 million in March 1997. At the August 7, 1997 meeting the holders of common stock approved an amendment to the Company's certificate of incorporation to increase the total amount of authorized common stock to 160,000,000 common shares. - 10 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS Earnings for common stock for the three months ended June 30, 1997, were $32.2 million or $0.26 per common share compared with $27.5 million or $0.23 per share for the same period last year. For the six months ended June 30, 1997, earnings for common stock amounted to $106.9 million or $.88 per common share compared to $96.1 million or $.80 per common share for the same period last year. Electric business earnings increased for the three and six month periods ended June 30, 1997, compared to the same periods last year. Factors contributing to these increases included the Company's continuing efforts to control operations and maintenance expenses and the efficient use of cash generated by operations to retire maturing debt. Gas business earnings for the three month period ended June 30, 1997 decreased when compared to the prior year as a result of lower sales volumes. For the six month period ended June 30, 1997, earnings were equal to those of the same period last year, despite lower sales volumes resulting from warmer weather. Contributing to earnings for the six months ended June 30, 1997 were a one-time revenue enhancement relating to an Independent Power Producer (IPP) contract and lower operations and maintenance expenses. REVENUES Electric The decrease in electric revenues of approximately $16.9 and $18.4 million for the three and six months ended June 30, 1997, respectively, when compared to the same periods in 1996, was primarily due to lower sales volumes resulting from milder weather experienced in the region during the three months ended June 30, 1997. The decrease in revenues resulting from these lower sales volumes, however, had no effect on earnings due to the Company's current electric rate structure which includes a revenue reconciliation mechanism that eliminates the impact on earnings of sales volumes that are above or below adjudicated levels. Gas The decrease in gas revenues of approximately $13.2 and $24.8 million for the three and six months ended June 30, 1997, respectively, when compared to the same periods in 1996, was primarily the result of lower fuel expense recoveries driven by - 11 - lower sales volumes associated with the milder weather experienced in the Company's service territory during 1997. Variations in weather have a limited impact on revenues as the Company's gas rate structure includes a weather normalization clause which mitigates the impact on revenues of experiencing weather that is warmer or colder than normal. FUEL AND PURCHASED POWER Fuel and purchased power expenses for the three and six months ended June 30, 1997 and 1996 were as follows: Three Months Ended Six Months Ended 6/30/97 6/30/96 6/30/97 6/30/96 ------- ------- ------- ------- (In Millions) (In Millions) Electric System Oil $ 18 $ 26 $ 55 $ 92 Gas 52 37 91 45 Nuclear 4 4 8 8 Purchased Power 75 81 160 162 -- -- --- --- Total Electric Fuel Costs 149 148 314 307 Gas System 43 56 180 207 -- -- --- --- Total $192 $204 $494 $514 ==== ==== ==== ==== Electric For the three months ended June 30, 1997, electric fuel expense increased slightly despite lower sales volumes as oil and purchased power prices increased. This increase in electric fuel costs was mitigated as the Company was able to generate increased amounts of energy with more economical gas. Of the Company's eleven steam generation units, nine are capable of burning natural gas, while seven are dual-fired. This provides the Company with the ability to burn the most cost efficient fuel available, consistent with seasonal environmental requirements. In an effort to maximize the Company's operating flexibility, the Company has plans to convert its two remaining oil-fired steam generating units to dual fired units within the next two years. For the six months ended June 30, 1997, electric fuel costs were higher when compared to the same period last year, primarily as a result of a reduction in profits generated by electric off-system gas sales. Profits from such gas sales are used to offset the cost of fuel for electric generation, supporting the Company's goal of providing electric energy to customers at the lowest cost possible. Also contributing to the increase in this period were higher fuel oil and purchased power prices. - 12 - Electric Energy Available The percentages of total electric energy available by type of fuel for electric operations for the three months ended and the six months ended June 30, 1997 and 1996 were as follows: Three Months Ended Six Months Ended 6/30/97 6/30/96 6/30/97 6/30/96 ------- ------- ------- ------- Oil 8% 16% 16% 29% Gas 43 25 38 18 Nuclear 11 11 10 10 Purchases 38 48 36 43 -- -- -- -- Total 100% 100% 100% 100% === === === === The use of gas for electric generation increased for the three and six months ended June 30, 1997 as gas became more economical than fuel oil and purchased power. The Company also experienced lower electric off-system gas sales for the six months ended June 30, 1997, making more gas available for use in generating electricity. Gas Gas fuel costs for operating the gas business decreased for the three and six months ended June 30, 1997, when compared to the same period last year, due to lower gas prices coupled with a decrease in sales volumes. Also contributing to the decrease in the gas fuel costs is the operation of the Gas Cost Adjustment (GCA) mechanism which requires the Company to increase or decrease current year fuel expense for differences between amounts collected and amounts actually spent for fuel during the previous rate year. For the three and six months ended June 30, 1997, the amount being refunded, via the GCA, is greater than that of the same three and six month periods of the prior year. OPERATIONS AND MAINTENANCE EXPENSES Operations and maintenance (O&M) expenses, excluding fuel and purchased power, amounted to $122.1 million for the three months ended June 30, 1997, compared to $119.9 million for the three months ended June 30, 1996. This increase is primarily due to the timing of the recognition of costs related to certain employee benefits. For the six months ended June 30, 1997, O&M expenses amounted to $247.1 million, compared to $254.3 million for the six months ended June 30, 1996. This decrease, partially offset by the employee benefit costs noted above, is primarily attributable to the Company's cost containment programs. - 13 - RATE MODERATION COMPONENT The Rate Moderation Component (RMC) reflects the difference between the Company's electric revenue requirements under conventional ratemaking and the revenues provided by its electric rate structure. The RMC is adjusted monthly for the operation of the Company's Fuel Moderation Component (FMC) mechanism and the difference between the Company's share of actual operating costs at Nine Mile Point 2 Nuclear Power Station (NMP2) and amounts provided for in electric rates. For the three and six months ended June 30, 1997, the Company recorded non-cash charges to income of approximately $9.2 million and $15.1 million, respectively, as operating income generated by the Company's electric rate structure exceeded that required under a conventional ratemaking calculation. For the three and six months ended June 30, 1996, the Company recorded non-cash credits to income of approximately $10.6 million and $25.9 million, respectively, as operating income generated by the Company's electric rate structure was below that required under a conventional ratemaking calculation. The Company continues to believe that the full amortization and recovery of the RMC balance, which at June 30, 1997, was approximately $406 million, will take place within the time frame established by the Rate Moderation Agreement (RMA), in accordance with the rate plans submitted to the PSC for the single rate year (1997) and the three year rate period 1997 through 1999. In the event that the Long Island Power Authority (LIPA) Transaction is terminated, the Company expects that the PSC will issue an order providing for, among other things, the continuing recovery, through rates, of the RMC balance. If such an electric rate order is not obtained or does not provide for the continuing recovery of the RMC balance, the Company may be required to write-off the amount not expected to be provided for in rates. For a further discussion of the LIPA Transaction, see the Joint Proxy Statement/Prospectus filed June 30, 1997. For a further discussion of the RMC, RMA and FMC, see the Company's Annual Report on Form 10-K/A filed June 30, 1997, for the Year Ended December 31, 1996. OTHER REGULATORY AMORTIZATION For the three months ended June 30, 1997 and 1996, other regulatory amortization was a non-cash charge to income of $13.1 million and $58.0 million, respectively. For the six months ended June 30, 1997, and 1996, other regulatory amortization was a non-cash charge to income of $25.3 million and $85.2 million, respectively. These variances are primarily due to changes in the items discussed below. Such variances have no impact on earnings since they reflect the net deferral of income and - 14 - expense resulting from the Company's ratemaking mechanisms. The changes in Other Regulatory Amortizations for the three and six months ended June 30, 1997 are as follows: Three Months Six Months - -------------------------------------------------------------------------------- (In thousands of dollars) - -------------------------------------------------------------------------------- (Income) (Income) Expense Expense - -------------------------------------------------------------------------------- Net Margin $(28,794) $(36,985) Amortization of LRPP Deferral (15,899) (32,189) Excess Earnings - Electric (5,586) 5,066 Excess Earnings - Gas 5,909 5,313 Other (568) (1,136) - -------------------------------------------------------------------------------- $(44,938) $(59,931) ================================================================================ Net Margin- An electric revenue reconciliation mechanism, established under the LILCO Ratemaking and Performance Plan (LRPP), which eliminates the impact on earnings of experiencing sales that are above or below adjudicated levels by providing a fixed annual net margin level (defined as sales revenue, net of fuel and gross receipts taxes). Variations in electric revenue resulting from differences between actual and adjudicated net margin sales levels are deferred on a monthly basis during the rate year through a charge or credit to other regulatory amortization. These deferrals are either refunded to or recovered from ratepayers as explained below under "LRPP Amortization." For the three months ended June 30, 1997, actual and adjudicated sales levels approximated the target levels. For the three months ended June 30, 1996, the Company recorded a non-cash charge to income of $28.7 million. Actual sales levels for six months ended June 30, 1997 were lower than the adjudicated amount and the Company recorded a non-cash credit to income of $10.3 million, whereas for the six months ended June 30, 1996, actual levels were higher than the adjudicated net margin and the Company recorded a non-cash charge to income of $26.7 million. LRPP Amortization- As established under the LRPP, deferred balances resulting from the electric business net margin, electric property tax reconciliation, earned performance incentives, and associated carrying charges are accumulated until the end of each rate year. The first $15 million of the total deferral is recovered from or credited to electric ratepayers by increasing or decreasing the RMC balance. Amounts deferred in excess of $15 million, upon approval by the PSC, are refunded to or recovered from ratepayers through the FCA mechanism over a subsequent 12-month period, with the offset being recorded in other regulatory amortization. For the three and six months ended June 30, 1997, the Company has - 15 - not refunded the deferred LRPP balance in excess of $15 million, related to the rate year ended November 30, 1995, as the PSC has yet to grant the Company permission to do so. For the three and six months ended June 30, 1996, the Company recognized $15.9 million and $32.2 million, respectively, of non-cash charges to income representing the amortization of the deferred LRPP balance for the rate year ended November 30, 1994. For a further discussion of the LRPP, see Note 3 of Notes to Financial Statements included in the Company's Annual Report on Form 10-K/A filed June 30, 1997, for the Year Ended December 31, 1996. Excess Earnings- Also recorded in other regulatory amortization, if applicable are, non-cash charges representing: a) 100% of electric earnings generated by the Company in excess of amounts provided for in electric rates, which is returned to the electric ratepayer through a reduction to the RMC balance; and b) 50% of the gas earnings generated by the Company in excess of amounts provided for in gas rates, which is returned to the customer in the form of a reduction in the amount due from gas ratepayers related to manufactured gas plant site (MGP) clean-up costs and certain employee benefit expenses, in accordance with PSC mandates. These excess earnings calculations are updated quarterly to reflect the Company's best estimate of amounts that it may earn in excess of a return on common equity of 11%, and as a result, non-cash charges or credits may be recorded in the period. For the three months ended June 30, 1997, the Company recorded non-cash charges of approximately $8.7 million bringing the six month total of gas excess earnings to $10.5 million, including $1.6 million related to the 1994, 1995 and 1996 rate years that were not previously recognized. The Company recognized approximately $2.8 million of gas excess earnings for the three months ended June 30, 1996, for a six month total at June 30, 1996, of approximately $5.2 million. For the three months ended June 30, 1997, the Company recorded a non-cash credit of approximately $5.6 million to adjust previously recorded electric excess earnings. As a result, electric excess earnings for the six months ended June 30, 1997 totaled approximately $5.0 million. The Company did not earn any electric excess earnings for either the three or six months ended June 30, 1996. OPERATING TAXES For the three and six months ended June 30, 1997, operating taxes decreased compared to the same periods in the prior year as a result of lower revenue. - 16 - FEDERAL INCOME TAX For the three months and six months ended June 30, 1997, federal income tax (FIT) expense increased as a result of an increase in pre-tax book income. The current portion of FIT liability for the three months ended June 30, 1997 totaled $22.6 million, of which $11.1 million was Alternative Minimum Tax. The FIT liability for the six months ended June 30, 1997 totaled $46.0 million, of which $34.5 million was Alternative Minimum Tax. The increase in FIT liability over the comparable periods last year is primarily attributable to the Company's full utilization of the Alternative Minimum Tax Net Operating Loss during 1996. OTHER INCOME AND DEDUCTIONS Other income and deductions for the three and six months ended June 30, 1997, decreased when compared to the same periods in 1996 as a result of the Company recognizing less income associated with its fuel incentive program, due to the increased cost of electric fuel. In addition, interest income from short term investments was lower than the prior year due to lower cash balances. INTEREST EXPENSE Interest expense decreased for the three and six months ended June 30, 1997 when compared to the same period of 1996 as a result of lower debt levels. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company's cash and cash equivalents amounted to approximately $54 million, compared to $65 million at March 31, 1997. At June 30, 1997, March 31, 1997 and December 31, 1996, the Company's capitalization ratios were as follows: - -------------------------------------------------------------------------------- 6/30/97 3/31/97 12/31/96 Amount Percent Amount Percent Amount Percent - -------------------------------------------------------------------------------- (000's) % (000's) % (000's) % - -------------------------------------------------------------------------------- Long-term debt $4,458 58.0 $4,458 57.8 $4,708 59.3 Preferred stock 703 9.1 703 9.1 703 8.9 Common shareowners' equity 2,531 32.9 2,549 33.1 2,523 31.8 - -------------------------------------------------------------------------------- $7,692 100.0 $7,710 100.0 $7,934 100.0 ================================================================================ The Company has no current plans to access the public markets for permanent financing as cash from operations should be sufficient - 17 - to meet operating requirements and debt maturities through 1998. The Company however, would access the public securities market, should market conditions prove favorable, to refinance existing debt or preferred stock, subject to any restrictions contained in the agreements with Brooklyn Union or LIPA. The Company would also take advantage of any tax-exempt financing made available by the New York State Energy Research and Development Authority. A $250 million line of credit, secured by a first lien upon the Company's accounts receivable and fuel oil inventories, is available to the Company under its Revolving Credit Agreement (RCA). The lending banks participating in the RCA have agreed to extend their commitments through October 1, 1998. In February 1997, the Company utilized $30 million in interim financing under the RCA, which was repaid in March 1997. In July 1997, the Company borrowed $40 million pursuant to the RCA, which was repaid on August 7, 1997. The Company will, in order to satisfy short-term cash requirements, continue to avail itself of such interim financing through its RCA if necessary. LIPA Transaction In July 1997, the Company and the Brooklyn Union Gas Company formed a limited partnership and each invested $30 million in order to purchase an interest rate swap option instrument to protect LIPA against market risk associated with the municipal bond financing contemplated by the LIPA Transaction agreements. Upon the closing of the LIPA Transaction, each limited partner will receive from LIPA $30 million plus interest thereon, based on each partners' average weighted cost of capital. In the event that the LIPA transaction is not consummated, the maximum potential loss to the Company is the amount originally invested. In the event of a loss, the Company plans to defer the amount and petition the PSC to allow recovery from the ratepayers. - 18 - CAPITAL REQUIREMENTS AND CAPITAL PROVIDED Capital requirements and capital provided for the three and six months ended June 30, 1997 were as follows: (In Millions of Dollars) - -------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, 1997 June 30, 1997 - -------------------------------------------------------------------------------- CAPITAL REQUIREMENTS Construction $ 69 $119 - -------------------------------------------------------------------------------- Redemptions and Dividends Long-term debt - 250 Preferred stock dividends 13 26 Common stock dividends 54 108 - -------------------------------------------------------------------------------- Total Redemptions and Dividends 67 384 - -------------------------------------------------------------------------------- Shoreham post-settlement costs 12 24 - -------------------------------------------------------------------------------- Total Capital Requirements $148 $527 ================================================================================ CAPITAL PROVIDED Cash generation from operations $134 $293 Decrease in cash balances 11 226 Common stock issued 4 9 Other investing and financing activities (1) (1) - -------------------------------------------------------------------------------- Total Capital Provided $148 $527 ================================================================================ For further information, see the Statement of Cash Flows. Rate Matters For a discussion of Rate Matters see, Note 3 of Notes to Financial Statements. ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). This statement supersedes APB Opinion No. 15, "Earnings per Share" and simplifies the computation of earnings per share (EPS). SFAS No. 128 will be effective for financial statements for both interim and annual periods ending after December 15, 1997. The Company will adopt this statement March 31, 1998. The adoption of SFAS 128 is not expected to have any impact on the Company's EPS calculations. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains statements which, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995. In this respect, the words "estimate," - 19 - "project," "anticipate," "expect," "intend," "believe" and similar expressions are intended to identify forward-looking statements. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. A number of important factors affecting the Company's business and financial results could cause actual results to differ materially from those stated in the forward-looking statements. Those factors include the proposed transactions with Brooklyn Union and Long Island Power Authority, state and federal regulatory rate proceedings, competition, and certain environmental matters each as discussed herein, in the Company's Annual Report on Form 10-K/A, filed June 30, 1997, for the Year Ended December 31, 1996 or in other reports filed by the Company with the Securities and Exchange Commission. - 20 - 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 The Company's Annual Meeting of Shareholders was held on August 7, 1997 (Annual Meeting). The persons named below were elected as Directors by holders of the Company's Common Stock, voting cumulatively, casting votes in favor or withholding votes as indicated: IN FAVOR WITHHELD -------- -------- William J. Catacosinos 104,373,735 2,004,424 John H. Talmage 104,564,755 1,813,404 Basil A. Paterson 104,436,584 1,888,575 George Bugliarello 104,436,584 1,941,575 George J. Sideris 104,536,484 1,814,675 A. James Barnes 104,606,012 1,772,147 Richard L. Schmalensee 104,567,530 1,810,629 Renso L. Caporali 104,564,969 1,813,190 Peter O. Crisp 104,474,835 1,903,324 Katherine D. Ortega 104,571,459 1,806,700 Vicki L. Fuller 104,601,593 1,776,566 James T. Flynn 104,573,020 1,805,139 The voting results of the other items that were approved by shareholders at the Annual Meeting are as follows: - 21 - 1. Adoption of the Amended and Restated Agreement and Plan of Exchange and Merger, dated as of June 26, 1997, between the Brooklyn Union Gas Company and the Long Island Lighting Company. BROKER FOR AGAINST ABSTAIN NON-VOTES --- ------- ------- --------- Common Shares 92,515,320 1,093,241 744,289 11,755,305 2. Adoption of the Agreement and Plan of Merger, dated as of June 26, 1997, between the Long Island Power Authority, LIPA Acquisition Corp., and Long Island Lighting Company. BROKER FOR AGAINST ABSTAIN NON-VOTES --- ------- ------- --------- Common Shares 92,107,780 1,414,065 830,801 11,755,509 Preferred Shares: Series CC, par $100 448,296 0 0 Not Applicable Series AA, par $ 25 2,759,463 16,456 14,982 Not Applicable Series GG, par $ 25 169,048 150 50 Not Applicable Series UU, par $ 25 452,677 220 75 Not Applicable Series QQ, par $ 25 710,530 646 22,130 Not Applicable 3. Ratification of the appointment of Ernst & Young LLP as independent auditors for the period January 1, 1997 to March 31, 1998. BROKER FOR AGAINST ABSTAIN NON-VOTES --- ------- ------- --------- Common Shares 104,526,680 516,040 1,065,435 Not Applicable 4. Approval of the LILCO Annual Stock Incentive Plan. BROKER FOR AGAINST ABSTAIN NON-VOTES --- ------- ------- --------- Common Shares 97,030,196 6,396,441 2,681,516 Not Applicable 5. Approval of the LILCO Employee Stock Purchase Plan. FOR AGAINST ABSTAIN --- ------- ------- Common Shares 100,056,842 3,738,119 2,307,194 - 22 - 6. Approval of an amendment to the Company's certificate of incorporation to increase the total number of authorized shares of of common stock. FOR AGAINST ABSTAIN --- ------- ------- Common Shares 96,256,646 4,864,511 1,977,998 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT 10 (1) Executive Employment Agreement by and between the Company and Jane E. Fernandez dated as of November 21, 1994 which agreement is substantially the same as Executive Employment Agreement by and between the Company and certain officers dated as of November 21, 1994 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1994). (2) Indemnification Agreement by and between the Company and Jane E. Fernandez dated as of September 19, 1994 which agreement is substantially the same as Indemnification Agreement by and between the Company and certain officers dated as of February 23, 1994 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1994). (3) Executive Employment Agreement by and between the Company and Howard A. Kosel dated as of April 1, 1997, which agreement is substantially the same as Executive Employment Agreement by and between the Company and certain officers dated as of November 21, 1994 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1994). (4) Indemnification Agreement by and between the Company and Howard A. Kosel dated as of April 1, 1997, which agreement is substantially the same as Indemnification Agreement by and between the Company and certain officers dated as of February 23, 1994 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1994). *(5) Amendment by and between the Company and William J. Catacosinos dated as of December 29, 1996, which amends the Executive Employment Agreement by and between the Company and William J. - 23 - Catacosinos dated as of January 30, 1984, as amended. EXHIBIT 27 *(1) Financial Data Schedule UT for the three-month period ended June 30, 1997. b. Reports on Form 8-K (1) In its current report on Form 8-K dated April 11, 1997, the Company reported that it changed its fiscal year-end to March 31. (2) In its current report on Form 8-K dated June 26, 1997, the Company reported that the Company, BL Holding Corp., Long Island Power Authority and LIPA Acquisition Corp. executed an Agreement and Plan of Merger dated as of June 26, 1997. - ---------------------- * Filed herewith - 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: August 14, 1997 - 25 - EX-10 2 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10 Amendment, dated December 29, 1996, 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 Company and the Executive by this agreement wish to make additional amendments to certain provisions of the Agreement regarding the Term of the Agreement (the "Amendment"); NOW, THEREFORE, the Company and the Executive agree as follows: 1. Section 1(a) of the Agreement is amended to delete the following: "For all purposes of this Agreement, "Original Term" shall mean and include such First Renewal Term and such Second Renewal Term to the extent the Original Term is extended as provided in the immediately preceding sentence." 2. Section 1(a) of the Agreement is amended and restated by adding the following paragraph to Subsection 1(a) as follows: The Original Term shall be further extended for an additional period beginning on February 1, 1997 and ending on January 31, 2002 (the "Extension"), if, with respect to this further Extension, the Executive notifies the Company after September 1, 1996 and before January 15, 1997 of Executive's desire to further extend the Original Term, and if the Company does not within fifteen (15) days after receipt of such notice inform Executive that it does not wish to extend the Original Term. For all purposes of this Agreement, "Original Term" shall continue to mean and include the Renewal Term and the Extension to the extent the Original Term is extended as provided in this Section 1(a). 2. This Amendment shall become effective immediately. 3. Upon the effectiveness of this Amendment, any reference to the Agreement in the Agreement and in any of the amendments thereto shall mean and be a reference to the Agreement as amended by each of the amendments thereto. 4. Except as amended previously and by this amendment, the Agreement shall remain in full force and effect and is in all respects ratified and confirmed. IN WITNESS WHEREOF, as of the date hereof, the Company has caused this Amendment to be executed pursuant to authorization of the Board of Directors by an officer in its name and for and on its behalf and the Executive has set his hand. LONG ISLAND LIGHTING COMPANY Attest: By: /s/ Leonard P. Novello --------------------------- Name: Leonard P. Novello Title: General Counsel Date: May 13, 1997 /s/ Kathleen A. Marion - ------------------------ Secretary (Corporate Seal) /s/ William J. Catacosinos -------------------------- WILLIAM J. CATACOSINOS Cleft Road Laurel Hill Mill Neck, New York 11765 Date: May 13, 1997 EX-27 3 FDS UT
UT 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. 1000 3-MOS MAR-31-1998 JUN-30-1997 PER-BOOK 3,729,419 19,235 830,268 81,133 7,191,818 11,851,873 605,923 1,085,508 840,034 2,531,465 638,500 63,584 4,371,675 0 0 0 101,000 1,050 0 0 4,144,599 11,851,873 664,488 32,978 487,431 520,409 144,079 4,221 148,300 103,139 45,161 12,968 32,193 53,844 87,916 133,684 $0.26 $0.26
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