-----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, F59xF7FYoyPBF2OD22NO3ohAJ8hwsDTWeXynLRTxif/Sqh7t5IIq3nHA26STsPJl pbUjuS1nCWY6yHhf2A9KzA== 0000950123-95-003047.txt : 19951030 0000950123-95-003047.hdr.sgml : 19951030 ACCESSION NUMBER: 0000950123-95-003047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951027 SROS: NYSE 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: 95584912 BUSINESS ADDRESS: STREET 1: 175 E OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 BUSINESS PHONE: 5169334590 10-Q 1 FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1995 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. 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- 3 LONG ISLAND LIGHTING COMPANY STATEMENT OF INCOME (UNAUDITED) (Thousands of Dollars - except per share amounts)
Three Months Ended September 30 ----------------------------- 1995 1994 ----------------------------- 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
See Notes to Financial Statements. - 3 - 4 LONG ISLAND LIGHTING COMPANY STATEMENT OF INCOME (UNAUDITED) (Thousands of Dollars - except per share amounts)
Nine Months Ended September 30 ------------------------------- 1995 1994 ------------------------------- 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
See Notes to Financial Statements. - 4 - 5 LONG ISLAND LIGHTING COMPANY BALANCE SHEET (Thousands of Dollars)
September 30 December 31 1995 1994 ASSETS (unaudited) (audited) ------------ ----------- 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 =========== ===========
See Notes to Financial Statements. - 5 - 6 LONG ISLAND LIGHTING COMPANY BALANCE SHEET (Thousands of Dollars)
September 30 December 31 1995 1994 CAPITALIZATION AND LIABILITIES (unaudited) (audited) ----------- ----------- 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 =========== ===========
See Notes to Financial Statements. - 6 - 7 LONG ISLAND LIGHTING COMPANY STATEMENT OF CASH FLOWS (UNAUDITED) (Thousands of Dollars)
Nine Months Ended September 30 --------------------------- 1995 1994 --------------------------- 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 - -
See Notes to Financial Statements. - 7 - 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 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 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 10 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 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 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 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:
Three Months Ended Nine Months Ended 9/30/95 9/30/94 9/30/95 9/30/94 ------- ------- ------- ------- (In Millions) 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 ==== ==== ==== ====
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:
Three Months Ended Nine Months Ended 9/30/95 9/30/94 9/30/95 9/30/94 ------- ------- ------- ------- 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% === === === ===
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 14 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 15 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 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 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 19 CAPITAL REQUIREMENTS AND CAPITAL PROVIDED Capital requirements and capital provided for the three and nine months ended September 30, 1995 were as follows:
- -------------------------------------------------------------------------------- Capital Requirements Three Months Ended Nine Months Ended September 30, 1995 September 30, 1995 - -------------------------------------------------------------------------------- (In Millions of Dollars) 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 ================================================================================
- -------------------------------------------------------------------------------- Capital Provided Three Months Ended Nine Months Ended September 30, 1995 September 30, 1995 - -------------------------------------------------------------------------------- (In Millions of Dollars) 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 ================================================================================
For further information, see the Statement of Cash Flows. 19 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 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 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 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 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 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). EX-10.A 2 EXECUTIVE EMPLOYMENT DATED AS OF AUGUST 14, 1995 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 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 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 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. 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 EX-10.B 3 SUPPLEMENTAL DEATH AND RETIREMENT BENEFITS PLAN 1 EXHIBIT 10(b) SUPPLEMENTAL DEATH AND RETIREMENT BENEFITS PLAN OF LONG ISLAND LIGHTING COMPANY As Amended and Restated Effective May 1, 1995 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 -2- 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 -3- 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 -4- 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- 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- 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- 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- 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- 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- 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 -11- 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- 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- 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- 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- EX-27 4 FINANCIAL DATA SCHEDULE
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. 1,000 9-MOS DEC-31-1995 SEP-30-1995 PER-BOOK 3,556,013 15,462 1,088,814 1,081,029 7,321,984 13,063,302 596,915 1,059,868 796,970 2,453,753 643,300 63,943 4,722,675 0 0 0 415,000 4,800 0 0 4,759,831 13,063,302 2,320,806 163,749 1,593,374 1,757,123 563,683 33,132 596,815 353,903 242,912 39,495 203,417 158,505 309,706 513,841 $1.71 $1.71
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