-----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, PPK9erxxQ7/Q52w+FAPe6V+aIGUNikaaLUqXPve6pDjzSWbwFJtpERn4HCj02KhA zAOoUOrbre/pVJbuB5ao/Q== 0001169232-04-002656.txt : 20040507 0001169232-04-002656.hdr.sgml : 20040507 20040507060713 ACCESSION NUMBER: 0001169232-04-002656 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL HUDSON GAS & ELECTRIC CORP CENTRAL INDEX KEY: 0000018647 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 140555980 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03268 FILM NUMBER: 04786811 BUSINESS ADDRESS: STREET 1: 284 SOUTH AVE CITY: POUGHKEEPSIE STATE: NY ZIP: 12601 BUSINESS PHONE: 9144522000 MAIL ADDRESS: STREET 1: 284 SOUTH AVENUE CITY: POUGHKEEPSIE STATE: NY ZIP: 12601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CH ENERGY GROUP INC CENTRAL INDEX KEY: 0001061393 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 141804460 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-52797 FILM NUMBER: 04786812 BUSINESS ADDRESS: STREET 1: 284 SOUTH AVE CITY: POUGHKEEPSIE STATE: NY ZIP: 12601 BUSINESS PHONE: 9144522000 MAIL ADDRESS: STREET 1: 284 SOUTH AVENUE CITY: POUGHKEEPSIE STATE: NY ZIP: 12601 10-Q 1 d59481_10-q.txt FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended....................................March 31, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.......................to....................... Commission Registrant, State of Incorporation IRS Employer File Number Address and Telephone Number Identification No. - ----------- ---------------------------- ------------------ 0-30512 CH Energy Group, Inc. 14-1804460 (Incorporated in New York) 284 South Avenue Poughkeepsie, New York 12601-4879 (845) 452-2000 1-3268 Central Hudson Gas & Electric Corporation 14-0555980 (Incorporated in New York) 284 South Avenue Poughkeepsie, New York 12601-4879 (845) 452-2000 Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether CH Energy Group, Inc. is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes |X| No |_| Indicate by check mark whether Central Hudson Gas & Electric Corporation is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes |_| No |X| As of the close of business on May 3, 2004, (i) CH Energy Group, Inc. had outstanding 15,762,000 shares of Common Stock ($0.10 per share par value) and (ii) all of the outstanding 16,862,087 shares of Common Stock ($5 per share par value) of Central Hudson Gas & Electric Corporation were held by CH Energy Group, Inc. CENTRAL HUDSON GAS & ELECTRIC CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTIONS (H)(2)(a), (b) AND (c). FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004 INDEX PART I - FINANCIAL INFORMATION PAGE ---- Item 1 - Consolidated Financial Statements CH ENERGY GROUP, INC. Consolidated Statement of Income - Three Months Ended March 31, 2004, and 2003 1 Consolidated Statement of Comprehensive Income - Three Months Ended March 31, 2004, and 2003 2 Consolidated Balance Sheet - March 31, 2004, December 31, 2003, and March 31, 2003 3 Consolidated Statement of Cash Flows - Three Months Ended March 31, 2004, and 2003 5 CENTRAL HUDSON GAS & ELECTRIC CORPORATION Consolidated Statement of Income - Three Months Ended March 31, 2004, and 2003 6 Consolidated Statement of Comprehensive Income - Three Months Ended March 31, 2004, and 2003 7 Consolidated Balance Sheet - March 31, 2004, December 31, 2003, and March 31, 2003 8 Consolidated Statement of Cash Flows - Three Months Ended March 31, 2004, and 2003 10 INDEX PART I - FINANCIAL INFORMATION PAGE ---- Item 1 - Consolidated Financial Statements (Cont'd) Notes to Consolidated Financial Statements 11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3 - Quantitative and Qualitative Disclosure about Market Risk 35 Item 4 - Controls and Procedures 35 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 35 Item 4 - Submission of Matters to a Vote of Security Holders 36 Item 5 - Other Information 37 Item 6 - Exhibits and Reports on Form 8-K 38 Signatures 39 Exhibit Index 40 Certifications 41 ---------- Filing Format This Quarterly Report on Form 10-Q is a combined quarterly report being filed by two different registrants: CH Energy Group, Inc. ("Energy Group") and Central Hudson Gas & Electric Corporation ("Central Hudson"), a wholly-owned subsidiary of Energy Group. Except where the content clearly indicates otherwise, any reference in this report to Energy Group includes all subsidiaries of Energy Group, including Central Hudson. Central Hudson makes no representation as to the information contained in this report in relation to Energy Group and its subsidiaries other than Central Hudson. PART I - FINANCIAL INFORMATION Item I - Consolidated Financial Statements CH ENERGY GROUP, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
For the 3 Months Ended March 31, 2004 2003 --------- --------- (Thousands of Dollars) Operating Revenues Electric ............................................................ $ 119,269 $ 114,506 Natural gas ......................................................... 58,704 56,438 Competitive business subsidiaries ................................... 85,020 94,199 --------- --------- Total Operating Revenues ........................................ 262,993 265,143 --------- --------- Operating Expenses Operation: Purchased electricity and fuel used in electric generation ............................................ 72,153 67,524 Purchased natural gas ............................................. 39,484 45,414 Purchased petroleum ............................................... 57,840 61,038 Other expenses of operation - regulated activities ................ 23,254 24,299 Other expenses of operation - competitive business subsidiaries ... 15,007 15,396 Depreciation and amortization ....................................... 8,601 8,264 Taxes - other than income tax ....................................... 7,189 7,226 --------- --------- Total Operating Expense ......................................... 223,528 229,161 --------- --------- Operating Income ...................................................... 39,465 35,982 --------- --------- Other Income Allowance for equity funds used during construction ................. 88 125 Interest on regulatory assets and investment income ................. 2,924 1,755 Other - net ......................................................... 2,033 2,279 --------- --------- Total Other Income .............................................. 5,045 4,159 --------- --------- Income Before Interest and Other Charges and Income Taxes ............. 44,510 40,141 --------- --------- Interest and Other Charges Interest on mortgage bonds .......................................... -- 263 Interest on other long-term debt .................................... 2,831 2,625 Other interest ...................................................... 2,234 2,824 Allowance for borrowed funds used during construction ............... (59) (108) Cumulative Preferred Stock Dividends of Central Hudson .............. 242 451 --------- --------- Total Interest and Other Charges ................................ 5,248 6,055 --------- --------- Income Before Income Taxes ............................................ 39,262 34,086 Income Taxes .......................................................... 16,273 13,893 --------- --------- Net Income ............................................................ 22,989 20,193 Dividends Declared on Common Stock .................................... 8,512 8,550 --------- --------- Balance Retained in the Business ...................................... $ 14,477 $ 11,643 ========= ========= Common Stock: Average Shares Outstanding - Basic ................................ 15,762 15,969 - Diluted .............................. 15,775 15,974 Earnings Per Share - Basic ........................................ $ 1.46 $ 1.26 - Diluted ...................................... $ 1.45 $ 1.26 Dividends Declared Per Share ...................................... $ 0.54 $ 0.54
See Notes to Consolidated Financial Statements - 1 - CH ENERGY GROUP, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the 3 Months Ended March 31, 2004 2003 -------- -------- (Thousands of Dollars) Net Income ............................................................. $ 22,989 $ 20,193 Other comprehensive income: Net unrealized gains (losses) net of tax and net income realization: FAS 133 Designated Cash Flow Hedges, net of tax of $45 and $13 ... (69) (19) Investments, net of tax of $46 and $(492) ........................ (69) 822 -------- -------- Other comprehensive income (loss) ...................................... (138) 803 -------- -------- Comprehensive Income ................................................... $ 22,851 $ 20,996 ======== ========
See Notes to Consolidated Financial Statements - 2 - CH ENERGY GROUP, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31, March 31, ASSETS 2004 2003 2003 ---------- ------------ ---------- (Thousands of Dollars) Utility Plant Electric ............................................... $ 658,153 $ 656,192 $ 608,409 Natural gas ............................................ 202,293 199,221 190,457 Common ................................................. 105,196 104,532 103,885 ---------- ---------- ---------- 965,642 959,945 902,751 Less: Accumulated depreciation ........................ 306,947 309,208 301,341 ---------- ---------- ---------- 658,695 650,737 601,410 Construction work in progress .......................... 64,273 56,764 80,636 ---------- ---------- ---------- Net Utility Plant .............................. 722,968 707,501 682,046 ---------- ---------- ---------- Other Property and Plant, net ................................. 21,211 21,589 18,895 ---------- ---------- ---------- Current Assets Cash and cash equivalents .............................. 126,631 125,834 54,615 Accounts receivable - net of allowance for doubtful accounts of $4.8 million, $4.6 million, and $4.2 million, respectively ..................................... 83,002 61,223 99,902 Accrued unbilled utility revenues ...................... 7,549 7,618 7,446 Other receivables ...................................... 3,881 12,216 2,022 Fuel and materials and supplies - at average cost ...... 14,291 19,847 14,182 Fair value of derivative instruments ................... 942 869 611 Bond defeasance escrow ................................. -- -- 16,296 Special deposits and prepayments ....................... 17,281 23,315 24,533 ---------- ---------- ---------- Total Current Assets .......................... 253,577 250,922 219,607 ---------- ---------- ---------- Investments ................................................... -- -- 83,110 ---------- ---------- ---------- Deferred Charges and Other Assets Prefunded pension costs ................................ -- -- 104,433 Regulatory assets - pension plan ....................... 131,344 124,210 22,716 Intangible asset - pension plan ........................ 24,447 24,447 -- Goodwill ............................................... 50,462 50,462 50,462 Other intangible assets - net .......................... 30,834 31,518 33,749 Regulatory assets ...................................... 65,122 67,474 58,796 Unamortized debt expense ............................... 3,954 3,901 3,556 Other .................................................. 19,663 18,468 11,850 ---------- ---------- ---------- Total Deferred Charges and Other Assets ....... 325,826 320,480 285,562 ---------- ---------- ---------- Total Assets ........................ $1,323,582 $1,300,492 $1,289,220 ========== ========== ==========
See Notes to Consolidated Financial Statements - 3 - CH ENERGY GROUP, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31, March 31, CAPITALIZATION AND LIABILITIES 2004 2003 2003 ----------- ------------ ----------- (Thousands of Dollars) Capitalization Common Stock Equity: Common stock, 30,000,000 shares authorized; 16,862,087 shares issued ($0.10 par value) .................... $ 1,686 $ 1,686 $ 1,686 Paid-in capital ...................................................... 351,230 351,230 351,230 Retained earnings .................................................... 193,872 179,395 181,146 Treasury stock ....................................................... (46,252) (46,252) (42,322) (1,100,087 shares at March 31, 2004, and at December 31, 2003; 1,028,487 shares at March 31, 2003 Accumulated comprehensive income ..................................... (445) (307) (929) Capital stock expense ................................................ (328) (328) (650) ----------- ----------- ----------- Total Common Stock Equity .................................... 499,763 485,424 490,161 ----------- ----------- ----------- Cumulative Preferred Stock of a Consolidated Subsidiary Not subject to mandatory redemption ............................. 21,030 21,030 21,030 Subject to mandatory redemption ................................. -- -- 12,500 ----------- ----------- ----------- Total Cumulative Preferred Stock ............................. 21,030 21,030 33,530 ----------- ----------- ----------- Long-term Debt ....................................................... 285,880 278,880 269,877 ----------- ----------- ----------- Total Capitalization ......................................... 806,673 785,334 793,568 ----------- ----------- ----------- Current Liabilities Current maturities of long-term debt ................................. 15,000 15,000 15,000 Notes payable ........................................................ -- 16,000 10,000 Accounts payable ..................................................... 37,801 40,602 48,620 Accrued interest ..................................................... 2,867 4,274 3,195 Dividends payable .................................................... 8,512 8,512 8,550 Accrued vacation and payroll ......................................... 5,202 5,289 3,904 Customer deposits .................................................... 6,130 5,813 5,439 Accrued taxes payable ................................................ 11,278 -- -- Deferred revenues .................................................... 5,049 8,197 4,386 Other ................................................................ 13,829 16,333 19,292 ----------- ----------- ----------- Total Current Liabilities .................................... 105,668 120,020 118,386 ----------- ----------- ----------- Deferred Credits and Other Liabilities Regulatory liabilities ............................................... 237,942 228,058 253,625 Operating reserves ................................................... 5,425 5,043 5,031 Deferred gain - sale of major generating assets ...................... 7,415 9,887 17,302 Accrued environmental remediation costs .............................. 19,460 19,500 19,500 Accrued other post-employment benefit costs .......................... 12,850 10,561 6,042 Accrued pension costs ................................................ 14,057 9,775 -- Other ................................................................ 19,498 16,266 13,661 ----------- ----------- ----------- Total Deferred Credits and Other Liabilities ................. 316,647 299,090 315,161 ----------- ----------- ----------- Accumulated Deferred Income Tax (Net) ........................................ 94,594 96,048 62,105 ----------- ----------- ----------- Total Capitalization and Liabilities ................ $ 1,323,582 $ 1,300,492 $ 1,289,220 =========== =========== ===========
See Notes to Consolidated Financial Statements - 4 - CH ENERGY GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the 3 Months Ended March 31 2004 2003 --------- --------- Operating Activities: (Thousands of Dollars) Net Income ................................................................... $ 22,989 $ 20,193 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ................................. 8,601 8,264 Deferred income taxes - net ................................... 2,796 5,373 Loss on sale of investments ................................... -- 1,769 Provision for uncollectibles .................................. 1,061 842 Accrued/deferred pension costs ................................ (5,547) (5,114) Amortization of fossil plant incentive ........................ (2,472) (2,472) Other - net ................................................... (81) (6,342) Changes in operating assets and liabilities, net: Accounts receivable, unbilled revenues and other receivables .. (14,437) (39,342) Fuel, materials and supplies .................................. 5,556 1,851 Special deposits and prepayments .............................. (7) (3,156) Fair value of derivative instruments .......................... (73) -- Accounts payable .............................................. (2,801) 2,316 Accrued taxes and interest .................................... 15,912 5,990 Deferred natural gas and electric costs ....................... 7,887 5,190 Customer benefit and carrying charge - net .................... (6,474) (9,317) Proceeds from sale of emissions allowances .................... 4,040 -- Other - net ................................................... (2,273) 1,494 --------- --------- Net Cash Provided By (Used in) Operating Activities ..................... 34,677 (12,461) --------- --------- Investing Activities: Purchase of investments ................................................. -- (20,896) Proceeds from sale of investments ....................................... -- 33,085 Additions to utility plant and other property and plant ................. (15,273) (13,189) Acquisitions made by unregulated subsidiary ............................. -- (7,626) Other - net ............................................................. (958) 46 --------- --------- Net Cash Used in Investing Activities ................................... (16,231) (8,580) --------- --------- Financing Activities: Proceeds from issuance of long-term debt ................................ 7,000 -- Net (repayments) borrowings of short-term debt .......................... (16,000) 10,000 Repurchase of common stock .............................................. -- (9,205) Dividends paid on common stock .......................................... (8,512) (8,662) Debt issuance costs ..................................................... (137) -- --------- --------- Net Cash Used in Financing Activities ................................... (17,649) (7,867) --------- --------- Net Change in Cash and Cash Equivalents ............................................ 797 (28,908) Cash and Cash Equivalents - Beginning of Year ...................................... 125,834 83,523 --------- --------- Cash and Cash Equivalents - End of Period .......................................... $ 126,631 $ 54,615 ========= ========= Supplemental Disclosure of Cash Flow Information Interest paid ........................................................... $ 4,924 $ 4,631 Federal and State income tax paid ....................................... $ 90 --
See Notes to Consolidated Financial Statements - 5 - CENTRAL HUDSON GAS & ELECTRIC CORPORATION CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
For the 3 Months Ended March 31, 2004 2003 --------- --------- (Thousands of Dollars) Operating Revenues Electric ................................................... $ 117,899 $ 113,211 Natural gas ................................................ 58,636 56,414 --------- --------- Total - own territory .................................... 176,535 169,625 Electric sales to other utilities .......................... 1,370 1,295 Natural gas sales to other utilities ....................... 68 24 --------- --------- Total Operating Revenues ............................... 177,973 170,944 --------- --------- Operating Expenses Operation: Purchased electricity .................................... 72,105 67,500 Fuel used in electric generation ......................... 48 24 Purchased natural gas .................................... 39,484 38,424 Other expenses of operation .............................. 23,254 24,299 Depreciation and amortization .............................. 7,064 6,711 Taxes, other than income tax ............................... 7,129 7,163 --------- --------- Total Operating Expenses ............................... 149,084 144,121 --------- --------- Operating Income ............................................. 28,889 26,823 --------- --------- Other Income Allowance for equity funds used during construction ........ 88 125 Interest on regulatory assets and other interest income .... 2,703 2,372 Other - net ................................................ 1,693 1,895 --------- --------- Total Other Income ..................................... 4,484 4,392 --------- --------- Income Before Interest Charges and Income Taxes .............. 33,373 31,215 --------- --------- Interest Charges Interest on mortgage bonds ................................. -- 263 Interest on other long-term debt ........................... 2,831 2,625 Interest on regulatory liabilities and other interest ...... 2,259 2,824 Allowance for borrowed funds used during construction ...... (59) (108) --------- --------- Total Interest Charges ................................. 5,031 5,604 --------- --------- Income Before Income Taxes ................................... 28,342 25,611 Income Taxes ................................................. 11,854 10,453 --------- --------- Net Income ................................................... 16,488 15,158 Dividends Declared on Cumulative Preferred Stock ............. 242 451 --------- --------- Income Available for Common Stock ............................ $ 16,246 $ 14,707 ========= =========
See Notes to Consolidated Financial Statements - 6 - CENTRAL HUDSON GAS & ELECTRIC CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) For the 3 Months Ended March 31, 2004 2003 ------- ------- (Thousands of Dollars) Net Income ................................... $16,488 $15,158 Other comprehensive income ................... -- -- ------- ------- Comprehensive Income ......................... $16,488 $15,158 ======= ======= See Notes to Consolidated Financial Statements - 7 - CENTRAL HUDSON GAS & ELECTRIC CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31, March 31, ASSETS 2004 2003 2003 ---------- ------------ ---------- (Thousands of Dollars) Utility Plant Electric ......................................................... $ 658,153 $ 656,192 $ 608,409 Natural Gas ...................................................... 202,293 199,221 190,457 Common ........................................................... 105,196 104,532 103,885 ---------- ---------- ---------- 965,642 959,945 902,751 Less: Accumulated depreciation ................................... 306,947 309,208 301,341 ---------- ---------- ---------- 658,695 650,737 601,410 Construction work in progress .................................... 64,273 56,764 80,636 ---------- ---------- ---------- Net Utility Plant ........................................ 722,968 707,501 682,046 ---------- ---------- ---------- Other Property and Plant, net ........................................... 964 968 968 ---------- ---------- ---------- Current Assets Cash and cash equivalents ........................................ 12,949 12,720 38,976 Accounts receivable - net of allowance for doubtful accounts of $3.2 million, $3.0 million, and $2.9 million, respectively ............... 53,613 37,487 58,610 Accrued unbilled utility revenues ................................ 7,549 7,618 7,446 Other receivables ................................................ 1,334 9,566 2,014 Fuel and materials and supplies - at average cost ................ 10,645 16,158 9,338 Fair value of derivative instruments ............................. 909 722 611 Bond defeasance escrow ........................................... -- -- 16,296 Special deposits and prepayments ................................. 14,565 22,503 15,297 ---------- ---------- ---------- Total Current Assets .................................... 101,564 106,774 148,588 ---------- ---------- ---------- Deferred Charges and Other Assets Prefunded pension costs .......................................... -- -- 104,433 Regulatory assets - pension plan ................................. 131,344 124,210 22,716 Intangible asset - pension plan .................................. 24,447 24,447 -- Regulatory assets ................................................ 65,122 67,474 58,796 Unamortized debt expense ......................................... 3,954 3,901 3,556 Other assets ..................................................... 9,646 8,100 8,663 ---------- ---------- ---------- Total Deferred Charges and Other Assets ................. 234,513 228,132 198,164 ---------- ---------- ---------- Total Assets .................................. $1,060,009 $1,043,375 $1,029,766 ========== ========== ==========
See Notes to Consolidated Financial Statements - 8 - CENTRAL HUDSON GAS & ELECTRIC CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31, March 31, CAPITALIZATION AND LIABILITIES 2004 2003 2003 ----------- ------------ ----------- (Thousands of Dollars) Capitalization Common Stock Equity: Common stock, 30,000,000 shares authorized; 16,862,087 shares issued ($5 par value) .......... $ 84,311 $ 84,311 $ 84,311 Paid-in capital ......................................... 174,980 174,980 174,980 Retained earnings ....................................... 21,211 13,466 16,185 Capital stock expense ................................... (4,961) (4,961) (5,283) ----------- ----------- ----------- Total Common Stock Equity ....................... 275,541 267,796 270,193 ----------- ----------- ----------- Cumulative Preferred Stock Not subject to mandatory redemption ................ 21,030 21,030 21,030 Subject to mandatory redemption .................... -- -- 12,500 ----------- ----------- ----------- Total Cumulative Preferred Stock ................ 21,030 21,030 33,530 ----------- ----------- ----------- Long-term Debt .......................................... 285,880 278,880 269,877 ----------- ----------- ----------- Total Capitalization ............................ 582,451 567,706 573,600 ----------- ----------- ----------- Current Liabilities Current maturities of long-term debt .................... 15,000 15,000 15,000 Notes Payable ........................................... -- 16,000 10,000 Accounts payable ........................................ 32,656 33,084 38,321 Accrued interest ........................................ 2,867 4,274 3,195 Dividends payable ....................................... 242 242 451 Accrued vacation and payroll ............................ 5,202 5,289 4,894 Customer deposits ....................................... 5,992 5,690 5,333 Accrued taxes payable ................................... 5,737 -- -- Other ................................................... 5,967 6,622 7,342 ----------- ----------- ----------- Total Current Liabilities ....................... 73,663 86,201 84,536 ----------- ----------- ----------- Deferred Credits and Other Liabilities Regulatory liabilities .................................. 237,942 228,058 253,625 Operating reserves ...................................... 5,425 5,043 5,031 Deferred gain - sale of major generating assets ......... 7,415 9,887 17,302 Accrued environmental remediation costs ................. 19,460 19,500 19,500 Accrued other post-employment benefit costs ............. 12,850 10,561 6,042 Accrued pension costs ................................... 14,057 9,775 -- Other ................................................... 13,994 12,524 9,320 ----------- ----------- ----------- Total Deferred Credits and Other Liabilities .... 311,143 295,348 310,820 ----------- ----------- ----------- Accumulated Deferred Income Tax (Net) ........................... 92,752 94,120 60,810 ----------- ----------- ----------- Total Capitalization and Liabilities ............ $ 1,060,009 $ 1,043,375 $ 1,029,766 =========== =========== ===========
See Notes to Consolidated Financial Statements - 9 - CENTRAL HUDSON GAS & ELECTRIC CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the 3 Months Ended March 31, 2004 2003 -------- -------- Operating Activities: (Thousands of Dollars) Net Income ..................................................................... $ 16,488 $ 15,158 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ................................... 7,064 6,711 Deferred income taxes - net ..................................... 2,881 4,893 Provision for uncollectibles .................................... 800 800 Accrued/deferred pension costs .................................. (5,547) (5,114) Amortization of fossil plant incentive .......................... (2,472) (2,472) Other - net ..................................................... 547 (3,039) Changes in operating assets and liabilities - net: Accounts receivable, unbilled revenues and other receivables .... (8,626) (23,353) Fuel, materials and supplies .................................... 5,513 3,121 Special deposits and prepayments ................................ 45 (2,242) Fair value of derivative instruments ............................ (187) 2,104 Accounts payable ................................................ (428) 1,255 Accrued taxes and interest ...................................... 12,224 3,502 Deferred natural gas and electric costs ......................... 7,887 5,190 Customer benefit and carrying charge - net ...................... (6,474) (9,317) Proceeds from sales of emissions allowances ..................... 4,040 -- Other - net ..................................................... (440) (1,278) -------- -------- Net Cash Provided by (Used In) Operating Activities ....................... 33,315 (4,081) -------- -------- Investing Activities: Additions to plant ........................................................ (14,578) (12,463) Other - net ............................................................... (629) (356) -------- -------- Net Cash Used in Investing Activities ..................................... (15,207) (12,819) -------- -------- Financing Activities: Proceeds from issuance of long-term debt .................................. 7,000 -- Net (repayments) borrowings of short-term debt ............................ (16,000) 10,000 Dividends paid on cumulative preferred and common stock ................... (8,742) (9,113) Debt issuance costs ....................................................... (137) -- -------- -------- Net Cash (Used In) Provided by Financing Activities ....................... (17,879) 887 -------- -------- Net Change in Cash and Cash Equivalents ............................................... 229 (16,013) Cash and Cash Equivalents - Beginning of Year ......................................... 12,720 54,989 -------- -------- Cash and Cash Equivalents - End of Period ............................................. $ 12,949 $ 38,976 ======== ======== Supplemental Disclosure of Cash Flow Information Interest paid ............................................................. $ 4,336 $ 4,132 Federal and State income tax paid ......................................... -- --
See Notes to Consolidated Financial Statements - 10 - CH ENERGY GROUP, INC. CENTRAL HUDSON GAS & ELECTRIC CORPORATION Notes to Consolidated Financial Statements NOTE 1 - GENERAL Basis of Presentation This Quarterly Report on Form 10-Q is a combined report of CH Energy Group, Inc. ("Energy Group") and its regulated electric and natural gas subsidiary, Central Hudson Gas & Electric Corporation ("Central Hudson"). The Notes to the Consolidated Financial Statements apply to both Energy Group and Central Hudson. Energy Group's Consolidated Financial Statements include the accounts of Energy Group and its wholly owned subsidiaries, which include Central Hudson and Energy Group's non-utility subsidiary, Central Hudson Enterprises Corporation ("CHEC" and, together with its subsidiaries, the "competitive business subsidiaries"). Unaudited Consolidated Financial Statements The accompanying Consolidated Financial Statements of Energy Group and Central Hudson are unaudited but, in the opinion of Management, reflect adjustments (which include normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented. These condensed, unaudited, quarterly Consolidated Financial Statements do not contain the detail or footnote disclosures concerning accounting policies and other matters which would be included in annual Consolidated Financial Statements and, accordingly, should be read in conjunction with the audited Consolidated Financial Statements (including the Notes thereto) included in the combined Energy Group/Central Hudson Annual Report on Form 10-K for the year ended December 31, 2003 (the "Corporations' 10-K Report"). Central Hudson's and CHEC's operations are seasonal in nature and weather- sensitive and, as a result, financial results for interim periods are not necessarily indicative of trends for a twelve-month period. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents For purposes of the Consolidated Statement of Cash Flows, Energy Group and Central Hudson consider temporary cash investments with a maturity, when purchased, of three months or less to be cash equivalents. - 11 - Accounting for Derivative Instruments and Hedging Activities Reference is made to the caption "Accounting for Derivative Instruments and Hedging Activities" of Note 1 - "Summary of Significant Accounting Policies" to the Consolidated Financial Statements of the Corporations' 10-K Report. The total fair value of open Central Hudson derivatives, which hedge electric and natural gas commodity purchases, at March 31, 2004, was $909,000 (net unrealized gain), which compares to a fair value at December 31, 2003, of $722,000 (net unrealized gain). For the quarter ended March 31, 2004, Central Hudson realized an actual net loss of $155,000, which compares to a net gain of $4.7 million for the same period in 2003. These gains and losses, which either decrease or increase actual energy costs, were deferred for pass-back to or recovery from customers under Central Hudson's electric and natural gas energy cost adjustment clauses as authorized by the New York State Public Service Commission ("PSC") and in accordance with the provisions of Statement of Financial Accounting Standard ("SFAS") 71. Additionally, Central Hudson entered into weather derivative contracts for the three months ended March 31, 2004, and March 31, 2003. Payments of $187,000 and $1.8 million, respectively, were made to counter-parties due to the colder than normal weather experienced during each of those periods. In addition, in February and March of 2004, Central Hudson entered into derivatives known as costless collars, which consisted of over-the-counter put and call options to hedge the prices of a portion of sulfur dioxide emission allowances retained when Central Hudson sold its major generating assets in January 2001. At March 31, 2004, both the put and call options were out of the money and accordingly, no fair market value is reflected on the Balance Sheet. Due to favorable market conditions, a number of allowances were sold during the first quarter of 2004; however, the proceeds of approximately $4.0 million were deferred for the future benefit of customers in accordance with a PSC order issued in 1993. Proceeds from any future sales and/or option settlement amounts will also be deferred. The fair value of open derivative instruments for CHEC at March 31, 2004, and at December 31, 2003, was not material. Derivatives outstanding at March 31, 2004, included a number of put and call options designated as fair value and cash flow hedges, respectively, for fuel oil purchases during the 2003/2004 heating season. Actual net gains recorded during the comparative quarters for put and call options hedging fuel oil purchase transactions were also not material. CHEC also entered into costless collars to hedge the effect of weather on its fuel oil distribution subsidiaries for the three months ended March 31, 2004, and March 31, 2003, which resulted in no payment to counter-parties for 2004 and a $2.1 million payment to counter-parties for 2003. No payment to counter-parties was required in 2004 due primarily to more favorable settlement terms. In addition to the above, Energy Group sold covered call options on stock held in its Alternate Investment Program portfolio during the quarter ended March 31, 2003. These covered call options expired in July 2003 and the final gain realized for these 12 derivatives was not material. The Alternate Investment Program was liquidated by July 2003. Goodwill and Other Intangible Assets Reference is made to the subcaption "Goodwill and Other Intangible Assets" under Note 1 - "Summary of Significant Accounting Policies" to the Consolidated Financial Statements of the Corporations' 10-K Report. Intangible assets include separate, identifiable, intangible assets, such as customer lists and covenants not to compete. Intangible assets with finite lives are amortized over their useful lives. The estimated useful life for customer lists is 15 years, which is believed to be appropriate in view of currently experienced customer turnover. However, if customer turnover were to substantially increase, a shorter amortization period would be used, resulting in an increase in amortization expense. For example, if a ten-year amortization period were used, annual amortization expense would increase by approximately $1,360,000. The useful life for a covenant not to compete is based on the expiration date of the covenant. Intangible assets with indefinite useful lives and goodwill are no longer amortized, but instead are periodically reviewed for impairment. Substantially all of CHEC's intangible assets are the result of business combinations. Goodwill balances are retested on an annual basis. The components of amortizable intangible assets of Energy Group are summarized as follows:
- ------------------------------------------------------------------------------------------- March 31, 2004 December 31, 2003 - ------------------------------------------------------------------------------------------- Gross Carrying Accumulated Gross Carrying Accumulated ($000) Amount Amortization Amount Amortization - ------------------------------------------------------------------------------------------- Customer Lists $38,371 $ 8,249 $38,371 $ 7,609 - ------------------------------------------------------------------------------------------- Covenants Not to Compete 1,439 727 1,439 683 - ------------------------------------------------------------------------------------------- Total Amortizable Intangibles $39,810 $ 8,976 $39,810 $ 8,292 - -------------------------------------------------------------------------------------------
Amortization expense was $684,000 and $735,000 for the three months ended March 31, 2004, and 2003, respectively. The estimated annual amortization expense for each of the next five years, assuming no new acquisitions, is as follows: 2004 $ 2,730,000 2005 $ 2,688,000 2006 $ 2,670,000 2007 $ 2,656,000 2008 $ 2,641,000 The carrying amount for goodwill not subject to amortization was $50.5 million as of both March 31, 2004, and December 31, 2003. 13 Depreciation and Amortization Reference is made to "Depreciation and Amortization" of Note 1 - "Summary of Significant Accounting Policies" to the Consolidated Financial Statements of the Corporations' 10-K Report. For financial statement purposes, Central Hudson's depreciation provisions are computed on the straight-line method using rates based on studies of the estimated useful lives and estimated net salvage value of properties. The anticipated costs of removing assets upon retirement are provided for over the life of those assets as a component of depreciation expense. This depreciation method is consistent with industry practice and the depreciation rates are approved by the PSC. In 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 143, Accounting for Asset Retirement Obligations ("SFAS 143"). One of the provisions of SFAS 143 precludes the recognition of expected future retirement obligations as a component of depreciation expense or accumulated depreciation. Central Hudson, however, is required to use depreciation methods and rates approved by the PSC under regulatory accounting. In accordance with SFAS 71, Central Hudson continues to accrue for the future cost of removal for its natural gas and electric assets. For financial reporting purposes, Central Hudson reclassified $87 million, $79.3 million, and $74.7 million of net cost of removal from accumulated depreciation to a regulatory liability as of March 31, 2004, December 31, 2003, and March 31, 2003, respectively. For financial statement purposes, the competitive business subsidiaries' depreciation provisions are computed on the straight-line method using depreciation rates based on the estimated useful lives of depreciable property and equipment. Expenditures for major renewals and betterments, which extend the useful lives of property and equipment, are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. Retirements, sales, and disposals of assets are recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in earnings. Amortization of intangibles (other than goodwill) is computed on the straight-line method over an asset's expected useful life. See "Goodwill and Other Intangible Assets" for further discussion. 14 Earnings Per Share In the calculation of earnings per share (basic and diluted), earnings for Energy Group reflect the inclusion of preferred stock dividends of Central Hudson as part of Interest and Other Charges. The average dilutive effect of stock options and performance shares was 13,636 shares and 4,663 shares for the quarters ended March 31, 2004, and 2003, respectively. Certain stock options are excluded from the computation of diluted earnings per share because the exercise prices of those options were greater than the average market price per share of Common Stock for each of the years presented. The number of shares of Common Stock represented by the options excluded from the calculation was 36,900 and 94,400 shares for 2004 and 2003, respectively. For additional information regarding stock options and performance shares, see Note 5 - "Stock-Based Incentive Plans." Stock-Based Compensation At March 31, 2004, Energy Group had a stock-based employee compensation plan that is described more fully in Note 5 - "Stock-Based Compensation Incentive Plans." Effective January 1, 2003, Energy Group adopted the fair value recognition provisions of FASB 123, utilizing the modified prospective methods under the provisions of SFAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure. Compensation cost recorded in the first quarters of 2004 and of 2003 was not material. Reclassification Certain amounts in the 2003 Consolidated Financial Statements have been reclassified to conform to the 2004 presentation. NOTE 3 - SEGMENTS AND RELATED INFORMATION Reference is made to Note 14 - "Segments and Related Information" to the Consolidated Financial Statements of the Corporations' 10-K Report. Energy Group's reportable operating segments are the regulated electric and natural gas operations of Central Hudson and the unregulated fuel oil distribution activities of CHEC. The "Unregulated - Other" segment is comprised of the investment activity of Energy Group and the energy efficiency and investment activities of CHEC. The fuel oil distribution segments currently operate in the Northeast and Mid-Atlantic regions of the United States. Certain additional information regarding these segments is set forth in the following table. General corporate expenses, property common to both electric and natural gas segments, and depreciation of common property have been allocated to the segments in accordance with practices established for regulatory purposes. 15 CH Energy Group, Inc. Segment Disclosure - 2004
- --------------------------------------------------------------------------------------------------------------------------- Quarter Ended March 31, 2004 ($000s Except ------------------------------------------------------------------------------------- Earnings Per Share) Regulated Unregulated Eliminations Total - --------------------------------------------------------------------------------------------------------------------------- Natural Fuel Oil Electric Gas Distribution Other - --------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $119,269 $ 58,704 $ 84,782 $ 238 $ -- $262,993 - --------------------------------------------------------------------------------------------------------------------------- Intersegment revenues 3 150 -- -- (153) -- - --------------------------------------------------------------------------------------------------------------------------- Total revenues $119,272 $ 58,854 $ 84,782 $ 238 $ (153) $262,993 - --------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes $ 16,131 $ 11,969 $ 10,116 $ 1,046 $ -- $ 39,262 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 9,364 $ 6,882 $ 6,070 $ 673 $ -- $ 22,989 - --------------------------------------------------------------------------------------------------------------------------- Earnings Per Share - Basic $ 0.59 $ 0.44 $ 0.39 $ 0.04(1) $ -- $ 1.46 - ---------------------------------------------------------------------------------------------------------------------------
(1) The amount attributable to CHEC's other business activities was $0.01; the balance of $0.03 was related to Energy Group's investment activities. CH Energy Group, Inc. Segment Disclosure - 2003
- --------------------------------------------------------------------------------------------------------------------------- Quarter Ended March 31, 2003 ($000s Except ------------------------------------------------------------------------------------- Earnings Per Share) Regulated Unregulated Eliminations Total - --------------------------------------------------------------------------------------------------------------------------- Natural Fuel Oil Electric Gas Distribution Other - --------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $114,506 $ 56,438 $ 93,887(1) $ 312 $ -- $265,143 - --------------------------------------------------------------------------------------------------------------------------- Intersegment revenues 3 159 -- -- (162) -- - --------------------------------------------------------------------------------------------------------------------------- Total revenues $114,509 $ 56,597 $ 93,887 $ 312 $ (162) $265,143 - --------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes $ 13,952 $ 11,208 $ 8,605 $ 321 $ -- $ 34,086 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 8,145 $ 6,562 $ 5,179 $ 307 $ -- $ 20,193 - --------------------------------------------------------------------------------------------------------------------------- Earnings Per Share - Basic $ 0.51 $ 0.41 $ 0.32 $ 0.02(2) $ -- $ 1.26 - ---------------------------------------------------------------------------------------------------------------------------
(1) Reflects weather hedging contract settlements of $(2,107). (2) The amount attributable to CHEC's other business activities was $0.01; the balance of $0.01 was related to Energy Group's investment activities. 16 Central Hudson Gas & Electric Corporation Segment Disclosure
- ------------------------------------------------------------------------------------------ (000s) Quarter Ended March 31, 2004 - ------------------------------------------------------------------------------------------ Natural Electric Gas Eliminations Total - ------------------------------------------------------------------------------------------ Revenues from external customers $119,269 $ 58,704 $ -- $177,973 - ------------------------------------------------------------------------------------------ Intersegment revenues 3 150 (153) -- - ------------------------------------------------------------------------------------------ Total Revenues $119,272 $ 58,854 $ (153) $177,973 - ------------------------------------------------------------------------------------------ Earnings before income taxes $ 16,313 $ 12,029 $ -- $ 28,342 - ------------------------------------------------------------------------------------------ Net Income $ 9,546 $ 6,942 $ -- $ 16,488 - ------------------------------------------------------------------------------------------ Income Available for Common Stock $ 9,364 $ 6,882 $ -- $ 16,246 - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ (000s) Quarter Ended March 31, 2003 - ------------------------------------------------------------------------------------------ Natural Electric Gas Eliminations Total - ------------------------------------------------------------------------------------------ Revenues from external customers $114,506 $ 56,438 $ -- $170,944 - ------------------------------------------------------------------------------------------ Intersegment revenues 3 159 (162) -- - ------------------------------------------------------------------------------------------ Total Revenues $114,509 $ 56,597 $ (162) $170,944 - ------------------------------------------------------------------------------------------ Earnings before income taxes $ 14,291 $ 11,320 $ -- $ 25,611 - ------------------------------------------------------------------------------------------ Net Income $ 8,484 $ 6,674 $ -- $ 15,158 - ------------------------------------------------------------------------------------------ Income Available for Common Stock $ 8,145 $ 6,562 $ -- $ 14,707 - ------------------------------------------------------------------------------------------
NOTE 4 - NEW ACCOUNTING STANDARDS AND OTHER FASB PROJECTS Property, Plant and Equipment Reference is made to the caption "New Accounting Standards and Other FASB Projects" of Note 1 - "Summary of Significant Accounting Policies" to the Consolidated Financial Statements of the Corporations' 10-K Report. During the second quarter of 2001, the FASB issued an Exposure Draft entitled Accounting in Interim and Annual Financial Statements for Certain Costs and Activities Related to Property, Plant, and Equipment. This Exposure Draft would amend certain APB Opinions and FASB Statements to incorporate changes resulting from the issuance of a proposed American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") - Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment. This would amend certain APB Opinions and FASB Statements to incorporate changes that would result from the final issuance of the proposed AICPA SOP - Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment. This also would amend APB Opinion No. 28, Interim Financial Reporting so that the provision of the proposed SOP that would require certain costs to be charged to expense as incurred also would apply to interim periods. The Accounting Standards Executive Committee ("AcSEC"), at its September 2003 meeting, approved for final issuance the SOP, Accounting for Certain Costs and Activities Related to 17 Property, Plant, and Equipment, subject to the FASB's positive clearance. AcSEC was expected to issue the proposed SOP in the first quarter of 2004. However, on April 14, 2004, the FASB voted not to clear the proposed SOP, and the draft SOP was not sent back to AcSEC for revision. The FASB requested that AcSEC discontinue work on this issue, and the FASB has removed it from its agenda. Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 In December 2003, the President of the United States signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Medicare Act"). In March 2004, FASB issued FSP No. FAS 106-1b, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." The FSP gives plan sponsors an option to defer recognizing the effects of the Medicare Act in the accounting for its plan under SFAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. Energy Group has elected to defer recognizing any effects for the quarter period ended March 31, 2004. The comment period for this FSP ended April 12, 2004. If this FSP is adopted, credits may be available to reduce Other Post-Employment Benefits; however, Energy Group is currently unable to determine the amount of those credits. Because Central Hudson defers expenses associated with providing Other Post-Employment Benefits under applicable regulatory policies, the adoption of the proposed FSP would not be expected to have a material impact on the financial condition, results of operations, or cash flows of Energy Group or its subsidiaries at this time. Equity-Based Compensation On March 31, 2004, the FASB issued a proposed Statement, Share-Based Payment, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require instead that such transactions be accounted for using a fair-value-based method. The comment period for this exposure draft ends June 30, 2004. The proposed Statement covers a wide range of equity-based compensation arrangements. Under the proposed Statement, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost on the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance allows that the expense relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. 18 Energy Group adopted fair-value accounting for stock-based compensation in the first quarter of 2003, therefore it is not anticipated that this proposed Statement will impact the financial condition, results of operations, or cash flows of Energy Group or its subsidiaries at this time. FIN 46 - Consolidation of Variable Interest Entities In December 2003, the FASB issued a revised Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46R"), which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, as it relates to the consolidation of a variable interest entity ("VIE"). The original interpretation was issued in January 2003 and its application was required for periods ending after December 15, 2003, for companies that had interests in special-purpose entities. The application of FIN 46R for all other types of VIE is required for periods ending after March 15, 2004. A VIE is an entity that is not controllable through voting interests where the equity investment at risk is not sufficient to permit the VIE to finance its activities without additional subordinated financial support provided by any party, including the equity holders. Variable interests are the investments or other interests that will absorb portions of a VIE's expected losses or receive portions of a VIE's expected residual returns. The objective of FIN46R is to provide guidance on the identification of a variable interest and a VIE to determine when the assets, liabilities, and results of operations should be consolidated in a company's financial statements. A company that holds a variable interest in an entity is required to consolidate the entity if the company's interest in the VIE is such that the company will absorb a majority of the VIE's expected losses and/or receive a majority of the VIE's expected residual returns. Energy Group and its subsidiaries do not have any interests in special purpose entities and are not affiliated with any VIEs that require consolidation under the provisions of FIN 46R. In arriving at this determination, long-term power purchase contracts currently in effect for Central Hudson were reviewed, including contracts with a number of independent power producers ("IPP"). Central Hudson does not have a controlling financial interest in or operational control of these IPPs. Under federal and New York State laws and regulations, Central Hudson is required to purchase the electrical output of these IPPs, which meet certain criteria for Qualifying Facilities as such term is defined in the applicable legislation. Payments are made under these contracts at rates often higher than those prevailing in the wholesale market; however, these costs are fully recoverable through Central Hudson's electric energy adjustment mechanism, which provides for the recovery of purchased electricity costs. In 2003, Central Hudson had contracts with IPPs which represented approximately 1.7% of Central Hudson's electricity purchases. CHEC has a number of limited partnership interests that are presently accounted for under the equity method. These were also reviewed relative to FIN 46R and it was 19 determined that consolidation is not required. CHEC has limited partnership interests in two cogeneration facilities and a limited partnership interest in a venture capital fund. Neither of the two cogeneration partnerships are considered VIEs because neither meet any of the criteria for classification as a VIE. CHEC has only a 4% limited partnership interest in the venture capital fund and therefore is not a primary beneficiary. CHEC's total investment in these limited partnerships comprises less than 1% of Energy Group's total assets. Pension Discount Rate In April 2004, federal legislation was enacted that changes the way required pension plan obligations are calculated; this in turn impacts the amount of a company's required pension plan contributions. The legislation ends a requirement that pension obligations be tied to interest rates on 30-year Treasury bonds; instead it substitutes a rate based on a composite of long-term corporate bonds for 2004 and 2005. As discussed in Note 10 - "Post-Employment Benefits" to the Consolidated Financial Statements of the Corporations' 10-K Report, Central Hudson does not expect to make a contribution to its pension plan in 2004 and therefore this change is not expected to impact the financial condition, results of operations, or cash flows of Energy Group or its subsidiaries at this time. NOTE 5 - STOCK-BASED COMPENSATION INCENTIVE PLANS Reference is made to Note 11 - "Stock-Based Compensation Incentive Plans" to the Consolidated Financial Statements of the Corporations' 10-K Report and to the description of Energy Group's Long-Term Performance-Based Incentive Plan ("Plan") referred to therein. On January 1, 2003, the number of performance shares granted was 14,800, in aggregate, to executives covered under the Plan. On January 1, 2004, the number of performance shares granted was 29,300, in aggregate, to executives covered under the Plan. As of March 31, 2004, the number of these performance shares that remain outstanding were 14,800 and 29,300, respectively. The ultimate number of shares awarded is based on the performance of Energy Group's Common Stock over the three years following the date of the relevant grant, but shall not exceed 150% of the number of shares granted. Compensation expense is recorded as performance shares are earned over the three-year life of the relevant performance share grant prior to its award. The amounts recorded were not material for the quarter-ended March 31, 2004, or the quarter ended March 31, 2003. 20 A summary of the status of stock options awarded to executives and Non-Employee Directors of Energy Group and its subsidiaries under the Plan as of March 31, 2004, is as follows: Weighted Weighted Average Average Exercise Remaining Shares Price Contract Life ------------------------------------- Outstanding at 1/1/04 107,360 $44.16 7.57 Granted -- -- -- Exercised (12,980) 39.56 6.63 Forfeited -- -- -- -------- ------ ---- Outstanding at 3/31/04 94,380 $44.80 7.45 years ======== ====== ==== A total of 12,980 non-qualified stock options were exercised during the quarter ended March 31, 2004. These options had exercise prices of $31.94 and $44.06 and the resulting compensation expense was not material. In addition, effective January 1, 2003, Energy Group adopted the fair value method of recording stock-based compensation utilizing the "modified prospective" approach, whereby existing options are expensed prospectively over their respective vesting periods. Under the fair value method, employee stock option grants and other stock-based compensation will be expensed over their respective vesting periods based on the fair value at the date the stock-based compensation is granted. Compensation expense recorded for the quarters ended March 31, 2004, and 2003, resulting from the implementation of fair value accounting for stock options was not material. NOTE 6 - INVENTORY Inventory is valued at average cost and is comprised of the following: - -------------------------------------------------------------------------------- Energy Group - -------------------------------------------------------------------------------- March 31, December 31, March 31, 2004 2003 2003 - -------------------------------------------------------------------------------- (In Thousands) - -------------------------------------------------------------------------------- Natural Gas $ 4,269 $ 9,802 $ 2,968 - -------------------------------------------------------------------------------- Petroleum Products and Propane 2,720 2,779 2,441 - -------------------------------------------------------------------------------- Materials and Supplies 7,302 7,266 8,773 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total $14,291 $19,847 $14,182 - -------------------------------------------------------------------------------- 21 - -------------------------------------------------------------------------------- Central Hudson - -------------------------------------------------------------------------------- March 31, December 31, March 31, 2004 2003 2003 - -------------------------------------------------------------------------------- (In Thousands) Natural Gas $ 4,269 $ 9,802 $ 2,968 - -------------------------------------------------------------------------------- Petroleum Products and Propane 446 505 341 - -------------------------------------------------------------------------------- Materials and Supplies 5,930 5,851 6,029 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total $10,645 $16,158 $ 9,338 - -------------------------------------------------------------------------------- NOTE 7 - POST-EMPLOYMENT BENEFITS The following are the components of Central Hudson's net periodic benefits costs for its Pension and Other Post-Employment Benefit plans. The amounts reflected relate to the amounts recorded for the quarters ended March 31, 2004, and 2003.
Other Post-Employment Pension Benefits Benefits ------------------------------------------------- 2004 2003 2004 2003 (In Thousands) (In Thousands) ------------------------------------------------- Service cost $ 1,739 $ 1,486 $ 931 $ 715 Interest cost 5,378 5,240 2,313 2,161 Expected return on plan assets (5,510) (5,352) (1,234) (1,149) Amortization of: Prior service cost 538 427 (2) (2) Transitional (asset) or obligation -- -- 642 642 Recognized actuarial (gain) or loss 2,209 2,195 786 673 ------- ------- ------- ------- Net periodic benefit cost $ 4,354 $ 3,996 $ 3,436 $ 3,040 ======= ======= ======= =======
No contributions were made to Central Hudson's pension plan during the quarter ended March 31, 2004, nor are contributions currently anticipated in subsequent quarters. However, an actuarial assessment will be made by the end of the quarter ending September 30, 2004, to determine if an additional contribution will be required in 2004. Employer contributions paid in the quarter ended March 31, 2004, for Other 22 Post-Employment Benefits totaled $1.4 million. The total amount expected to be paid for 2004 is expected to approximate the 2003 level of $5.7 million. For additional information related to Pensions and Other Post-Employment Benefits, please see Note 10 - "Post-Employment Benefits" to the Consolidated Financial Statements of the Corporations' 10-K Annual Report. NOTE 8 - COMMITMENTS AND CONTINGENCIES Energy Group and Central Hudson face a number of contingencies which arise during the normal course of business and which have been discussed in Note 13 - "Commitments and Contingencies" to the Consolidated Financial Statements of the Corporations' 10-K Report. Except for that which is disclosed in Part II of this Quarterly Report on Form 10-Q and all documents previously filed with the Securities and Exchange Commission ("SEC") in 2004, there have been no material changes in the matters discussed in said Note 13. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE SUMMARY Energy Group posted earnings of $1.46 per share of Common Stock in the first quarter of 2004. This represents a 16% increase over the $1.26 per share earned in the first quarter of 2003. Many factors contributed to this gain, including continued growth within Central Hudson's service territory, the benefits of improved operational efficiencies, and lower expenses associated with the restoration of electric service following storms. Energy Group Energy Group contributed $0.03 per share, as a result of earnings on investments in money market instruments. This compares to the $0.01 per share earned in the first quarter of 2003. Central Hudson Central Hudson earned $1.03 per share in the first quarter of 2004, compared to $0.92 per share in the first quarter of 2003, a 12% increase. Electric and natural gas revenues increased by $7 million to $178 million for the first quarter of 2004, and expenses increased by $6.4 million to approximately $161 million for the first quarter of 2004, in each case as compared to the first quarter of 2003, primarily as a result of increases in the cost of purchased electricity and natural gas. Customer growth continued at a healthy pace during the period, with the number of electric and natural gas customers each rising 1%. Despite slightly warmer winter weather in 2004 as compared to 2003, sales to electric customers increased by 3% and 23 sales to natural gas customers decreased by less than 1%, in each case due to customer growth. CHEC CHEC earned $0.40 per share in the first quarter of 2004, as compared to last year's first-quarter results of $0.33, an increase per share of 21% despite this year's moderately warmer weather. Improved earnings resulted from customer growth, better margins, and reduced expenses in 2004 as compared to last year. REGULATORY MATTERS At a session on March 16, 2004, Central Hudson's petition to enter into short-term financing arrangements and issue and sell medium-term notes was adopted (as amended) by the PSC in Case 03-M-1510. Central Hudson was granted authority to extend or replace its current $75 million revolving credit agreement with a new revolving credit agreement with a term not to exceed five years. Also, Central Hudson may issue up to $85 million of medium-term notes from the effective date of Case 03-M-1510, April 6, 2004, through December 31, 2006. On March 29, 2004, Central Hudson and Staff of the PSC filed with the PSC a Joint Proposal for Rate Plan Modification ("Joint Proposal") as a result of a series of meetings directed by the PSC, as previously reported in Note 2 to the Consolidated Financial Statements of the Corporations' 10-K Report. The Joint Proposal addresses natural gas and electric rates and is subject to PSC review and approval. It (i) continues the rate levels, rate designs, and related accounting provisions (including deferrals) previously established by the PSC; (ii) provides for an additional $5 million refund from the Customer Benefit Fund for certain classes of electric customers; (iii) continues funding from the Customer Benefit Fund for other purposes such as economic development and retail access rate credits previously approved by the PSC; (iv) continues or enhances programs to promote retail competition and service quality; (v) provides for the use of the Customer Benefit Fund to offset deferred under-collections of pension and OPEB costs subject to specified limitations; and (vi) lowers the threshold for sharing of earnings with customers (from an 11.3 % to a 10.5% return on equity ("ROE")), while decreasing the relative portions to be received by customers up to a 14% ROE. The Joint Proposal also permits Central Hudson to file with the PSC for new rates. Central Hudson cannot predict what action the PSC will take concerning the Joint Proposal. CAPITAL RESOURCES AND LIQUIDITY The growth of Energy Group's retained earnings in the first three months of 2004 contributed to the increase in the book value per share of its Common Stock from $30.80 at December 31, 2003, to $31.71 at March 31, 2004; the common equity ratio increased from 59.5% at December 31, 2003, to 60.8% at March 31, 2004. 24 Both Energy Group's and Central Hudson's liquidity reflect cash flows from operating, investing, and financing activities, as shown on their respective Consolidated Statement of Cash Flows and as discussed below. The principal factors affecting Energy Group's liquidity are the dividends it pays to its shareholders and, as it relates to both Central Hudson and CHEC, cash flows generated from operations, construction expenditures, and dividends paid to Energy Group. The principal factors affecting Central Hudson's liquidity are the cash flows generated from operations, construction expenditures, dividends paid to Energy Group, and maturities of debt securities. Central Hudson's cash flows from operating activities reflect principally its energy sales and deliveries and costs of operations. The volume of energy sales and deliveries is dependent primarily on factors external to Central Hudson, such as weather and economic conditions. Prices at which Central Hudson provides energy to its customers are determined in accordance with rate plans approved by the PSC. In general, changes in the cost of purchased electricity, fuel, and natural gas may affect the timing of cash flows but not net income because these costs are fully recovered through its electric and natural gas cost adjustment mechanisms. On March 29, 2004, Central Hudson and PSC Staff filed a Joint Proposal to extend, and modify in some respects, the electric and natural gas rate plan previously adopted by the PSC in October 2001 and scheduled to expire June 30, 2004, as more fully described in Item 2 - "Regulatory Matters." On March 16, 2004, Central Hudson was permitted to enter into short-term financing arrangements by the PSC, as more fully described in Item 2 - "Regulatory Matters." Each of Energy Group and Central Hudson believes that it will be able to meet its reasonably likely short-term and long-term cash requirements, assuming that Central Hudson's rate plans reflect the costs of service, including a return on invested capital. Changes in Energy Group's and Central Hudson's cash and temporary cash investments resulting from operating, investing, and financing activities for the quarters ended March 31, 2004, and March 31, 2003, are summarized as follows: 25 - -------------------------------------------------------------------------------- Variance Energy Group 2004 2003 2004 vs. 2003 - -------------------------------------------------------------------------------- (Millions of Dollars) - -------------------------------------------------------------------------------- Operating Activities $ 34.7 $(12.5) $ 47.2 - -------------------------------------------------------------------------------- Investing Activities (16.2) (8.6) (7.6) - -------------------------------------------------------------------------------- Financing Activities (17.7) (7.8) (9.9) - -------------------------------------------------------------------------------- Net change for the period 0.8 (28.9) 29.7 ------ ------ ------ - -------------------------------------------------------------------------------- Balance at beginning of period 125.8 83.5 42.3 ------ ------ ------ - -------------------------------------------------------------------------------- Balance at end of period $126.6 $ 54.6 $ 72.0 ====== ====== ====== - -------------------------------------------------------------------------------- Energy Group's net cash flows provided by operating activities in the first quarter of 2004 were $47.2 million higher as compared to the first quarter of 2003 due primarily to the impact of higher accounts receivable recorded in the first quarter of 2003 and an increase in accrued income taxes, higher net income in the first quarter of 2004, and the recording of proceeds from the sale of emissions allowances by Central Hudson in the first quarter of 2004. Net cash flows used in investing activities were $7.6 million higher in the first quarter of 2004 as compared to the first quarter of 2003 because of slightly higher additions to plant, property, and equipment as well as the absence of proceeds from the sale of investments that were reflected in the first quarter of 2003. Net cash flows used in financing activities were $9.9 million higher in the first quarter of 2004 as compared to the first quarter of 2003, due primarily to the repayment of short-term debt. At March 31, 2004, Energy Group had $15 million of current maturities of long-term debt and no short-term debt outstanding. Cash and cash equivalents for Energy Group were $126.6 million at March 31, 2004. - -------------------------------------------------------------------------------- Variance Central Hudson 2004 2003 2004 vs. 2003 - -------------------------------------------------------------------------------- (Millions of Dollars) - -------------------------------------------------------------------------------- Operating Activities $ 33.3 $ (4.1) $ 37.4 - -------------------------------------------------------------------------------- Investing Activities (15.2) (12.8) (2.4) - -------------------------------------------------------------------------------- Financing Activities (17.9) 0.9 (18.8) - -------------------------------------------------------------------------------- Net change for the period 0.2 (16.0) 16.2 ------ ------ ------ - -------------------------------------------------------------------------------- Balance at beginning of period 12.7 55.0 (42.3) ------ ------ ------ - -------------------------------------------------------------------------------- Balance at end of period $ 12.9 $ 39.0 $(26.1) ====== ====== ====== - -------------------------------------------------------------------------------- Central Hudson's net cash flows provided by operating activities in the first quarter of 2004 were $37.4 million higher as compared to the first quarter of 2003 primarily due to higher accounts receivable recorded in the first quarter of 2003 as well as increases in accrued taxes and the recording of proceeds from the sale of emissions allowances in the first quarter of 2004. 26 Net cash flows used in investing activities were $2.4 million higher in the first quarter of 2004 as compared to the first quarter of 2003, due to increased expenditures related to property, plant, and equipment. Net cash flows used in financing activities were $18.8 million higher in the first quarter of 2004 as compared to the first quarter of 2003 due to the repayment of short-term debt during that period. In February 2004, Central Hudson issued $7.0 million of 4.73% medium-term notes due February 27, 2014. A portion of the cash balances held by Central Hudson resulting from the divestiture of its interests in its major generating assets are earmarked to be disbursed for refunds to Central Hudson's customers and for economic development initiatives in 2004 as contemplated under Central Hudson's regulatory agreement approved by the PSC on October 25, 2001. On March 29, 2004, Central Hudson and PSC Staff filed a Joint Proposal to extend, and modify in some respects, the electric and natural gas rate plan previously adopted by the PSC in October 2001 and portions of which would expire June 30, 2004, as more fully described in Item 2 - "Regulatory Matters." Central Hudson has committed short-term credit facilities totaling $1.0 million with a regional bank and a $75 million revolving credit agreement with a group of commercial banks. The PSC limits the amount of short-term borrowing Central Hudson may have outstanding at any time to $77 million in the aggregate. As of March 31, 2004, Central Hudson had $15 million of current maturities of long-term debt, no short-term debt outstanding, and cash and cash equivalents of $12.9 million. On March 16, 2004, Central Hudson was permitted to enter into short-term financing arrangements by the PSC, as more fully described in Item 2 - "Regulatory Matters." CHEC has a $25 million line of credit with a commercial bank and, as of March 31, 2004, there was no outstanding balance. Energy Group and certain of its subsidiaries have issued guarantees that provide financial or performance assurance to third parties on behalf of Energy Group subsidiaries under certain commodity, derivative, and stock sale contracts. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiary's intended commercial purposes. Guarantees have been provided to counter-parties to guarantee the payment, when due, of obligations incurred by the Energy Group subsidiaries in physical and financial transactions related to natural gas, fuel oil, propane, weather hedges, and certain obligations related to the sale of former subsidiary CH Resources, Inc. in 2002. 27 At March 31, 2004, the aggregate amount of actual liabilities covered by these guarantees was $3.1 million. The related liabilities are reflected in the Consolidated Balance Sheet, and each such guarantee is not considered to be material. It is Management's belief that the possibility that Energy Group would be required to perform or incur any material losses associated with any of the above guarantees is remote. On July 25, 2002, the Board of Directors of Energy Group authorized a Common Stock Repurchase Program ("Repurchase Program") to repurchase up to 4 million shares, or approximately 25%, of its then-outstanding Common Stock over the five years beginning August 1, 2002. The Board of Directors had targeted 800,000 shares for repurchase in the first year of the Repurchase Program, but had authorized the repurchase of up to 1.2 million shares during the first year. Between August 1, 2002, and December 31, 2003, 600,087 shares were repurchased under the Repurchase Program at a cost of $27.5 million. No shares were repurchased during the quarter ended March 31, 2004. Energy Group intends to set repurchase targets, if any, each year based on circumstances then prevailing. Repurchases have been temporarily suspended while Energy Group assesses opportunities to redeploy its cash reserves in energy-related investments. Energy Group reserves the right to modify, suspend, or terminate the Repurchase Program at any time without notice. Energy Group will continue to investigate opportunities to invest its cash reserves in energy-related investments that provide diversification and offer attractive returns with acceptable risks. Such opportunities may include, but are not limited to, currently operating assets that use proven technology and have a relatively stable customer base such as electric, natural gas, fuel oil, or propane delivery companies, electric generating plants, and natural gas pipelines and storage facilities. EARNINGS PER SHARE Energy Group's earnings per share (basic) for the first quarter of 2004 were $1.46 versus $1.26 for the first quarter of 2003, an increase of $0.20 per share. Energy Group contributed $0.02 of this $0.20 per share increase, due primarily to the recording of a net loss in 2003 from the Alternate Investment Program, which was fully liquidated by July 2003. The approximately $100 million of proceeds from the liquidation were reinvested in lower yield money market instruments. Of the $0.20 per share increase, Central Hudson contributed $0.11 per share largely due to an increase in electric net operating revenues, net of the cost of purchased electricity, fuel, and revenue taxes. The increase in net revenues results primarily from an increase in sales to all customer classes and the amortization of revenues deferred in a prior year; the impact of the latter was $0.03 per share for the quarter. Sales increased due to a larger average number of residential and commercial customers and increased usage by all customer classes. Weather reduced earnings from electric sales by approximately $0.02 per share, reflecting a 4% reduction 28 in billing heating-degree days as compared to last year; however, this was more than offset by the results of weather hedging contracts. The increase in net revenues was also partially offset by an increase in shared electric earnings. The increase also resulted from an increase in natural gas net operating revenues, net of the cost of natural gas and revenue taxes. Overall, sales decreased by less than 1% due to weather that was not as cold as last year with net revenues from sales remaining relatively unchanged. The 4% reduction in billing heating degree-days reduced earnings by $0.01 per share; however, this reduction was more than offset by the enhancement in earnings from sales due to customer growth and also by the results of weather hedging contracts. The increase in natural gas net revenues also reflects the amortization of previously deferred natural gas revenues and was partially offset by an increase in shared natural gas earnings. The financial results also include a $0.07 per share increase from CHEC. This increase was primarily due to an increase in net revenues (net of fuel and other related expenses) from its fuel oil distribution subsidiaries due primarily to the effect of weather hedging contracts with more favorable terms for 2004 than 2003 and to increased margins on its fuel oil products. A reduction in CHEC's operating expenses, mostly related to lower fuel oil distribution costs as a result of warmer weather in the first quarter of 2004 as compared to the same quarter last year, also contributed to the increase in earnings. In addition, the net effect of various other items including increased income from investments in partnerships and the effect of a lower number of shares outstanding contributed to the increase. RESULTS OF OPERATIONS The following financial review identifies the causes of significant changes in the amounts of revenues and expenses for Energy Group and its subsidiaries, comparing the three-month period ended March 31, 2004, to the three-month period ended March 31, 2003. The operating results of the regulated subsidiary reflect Central Hudson's electric and natural gas sales and revenues, and the operating results of the unregulated subsidiary reflect CHEC's operations. 29 OPERATING REVENUES Energy Group's operating revenues decreased $2.2 million, or less than 1%, for the first quarter of 2004. Details of these revenue changes by electric, natural gas, and unregulated subsidiaries are as follows: (thousands of dollars)
- -------------------------------------------------------------------------------------- 2004/2003 INCREASE (DECREASE) THREE MONTHS ENDED MARCH 31, 2004 - -------------------------------------------------------------------------------------- Natural Electric Gas Unregulated Total - -------------------------------------------------------------------------------------- Customer Sales(a) $ 365 $ 44(b) $(9,179) $(8,770) - -------------------------------------------------------------------------------------- Sales to Other Utilities 75 44 -- 119 - -------------------------------------------------------------------------------------- Energy Cost Adjustment 4,429 1,428 -- 5,857 - -------------------------------------------------------------------------------------- Deferred Revenues (1,170)(c) (143) -- (1,313) - -------------------------------------------------------------------------------------- Miscellaneous 1,064 893 -- 1,957 - -------------------------------------------------------------------------------------- Total $ 4,763 $ 2,266 $(9,179) $(2,150) - --------------------------------------------------------------------------------------
(a) Includes delivery of electricity and natural gas supplied by others and an offsetting restoration of amounts deferred to Central Hudson's Customer Benefit Fund (described under the caption "Summary of Regulatory Assets and Liabilities" and "Rate Proceedings Electric and Gas" in Note 2 to the Consolidated Financial Statements of the Corporations' 10-K Report) for customer refunds to all customers and back-out credits for retail access customers. (b) Includes both firm and interruptible revenues. (c) Includes the restoration of other revenues from Central Hudson's Customer Benefit Fund for other authorized programs and the restoration of previously deferred delivery revenues, and the deferral of electric and natural gas shared earnings in accordance with the provisions of Central Hudson's current rate agreement with the PSC (described in Note 2 of the Corporations' 10-K Annual Report). Central Hudson's electric and natural gas operating revenues increased $7.0 million from $170.9 million in 2003 to $177.9 million in 2004. Electric revenues increased $4.8 million, or 4.2%, and natural gas revenues increased $2.2 million, or 4%, due primarily to an increase in revenues collected through Central Hudson's energy cost adjustment clauses to recover its cost of purchased electricity and natural gas supply. The increase in electric and natural gas revenues also reflects increases from sales, including the impact of weather hedging contracts, and the recording of previously deferred revenues in accordance with Central Hudson's current settlement agreement. The increase in electric revenues was partially offset by a reduction in Customer Benefit Fund revenues offsetting the cost of various programs authorized by Central Hudson's current rate agreement with the PSC and an increase in shared earnings. The increase in natural gas revenues was also partially offset by an increase in shared earnings. Operating revenues for CHEC decreased $9.2 million from $94.2 million for the quarter ended March 31, 2003, to $85.0 million for the quarter ended March 31, 2004. The decrease in revenues primarily reflects a decrease in sales by CHEC's fuel oil distribution companies due to the impact of the sale by one of those subsidiaries, SCASCO, Inc., of its natural gas business in October 2003 and due to warmer weather. 30 SALES Central Hudson's sales vary in response to weather conditions. Electric sales peak in the summer, and natural gas sales peak in the winter. Total kilowatthour sales of electricity within Central Hudson's service territory increased 3% and firm sales of natural gas decreased less than 1% in the first quarter of 2004 as compared to the first quarter of 2003. Changes in Central Hudson's electric and natural gas deliveries from last year by major customer classifications are set forth below. INCREASE (DECREASE) FROM 2003 ----------------------------- 3 MONTHS ENDED MARCH 31 ----------------------- Electric Natural Gas -------- ----------- Residential ................................... 3% (1)% Commercial .................................... 2 2 Industrial .................................... 4 (11) Interruptible ................................. N/A 5 Central Hudson's sales of electricity to full service customers within its service territory, plus delivery of electricity supplied by others, increased 3% in the first quarter of 2004 as compared to the first quarter of 2003. Despite warmer winter weather, sales to residential and commercial customers increased 3% and 2%, respectively, due to customer growth and increased usage by these customers. Industrial sales increased 4% due primarily to increased usage by a large industrial customer. Sales of natural gas to firm Central Hudson customers, plus transportation of natural gas supplied by others, decreased less than 1% in the first quarter of 2004 as compared to the first quarter of 2003. Due to warmer winter weather, sales to residential customers, primarily related to space heating, decreased 1% due to a reduction in usage which was partially offset by an increase in sales due to customer growth. Sales to commercial customers increased 2% also due to customer growth. Industrial sales, which represent less than 5% of total firm sales, decreased 11% and interruptible sales increased 5%. CHEC's sales of petroleum products decreased by 400,000 gallons, or 1%, to 59.1 million gallons in the first quarter of 2004 from 59.5 million gallons in the first quarter of 2003. This decrease was primarily due to warmer weather, as evidenced by a 6% decrease in heating degree-days in the first quarter of 2004 as compared to the first quarter of 2003, partially offset by increased volume from acquisitions made in the first quarter of 2003. CHEC's sales of natural gas decreased from 930,000 Mcf in the first quarter of 2003 to zero Mcf in the first quarter of 2004 as a result of the sale of SCASCO Inc.'s natural gas business in the fourth quarter of 2003. 31 OPERATING EXPENSES Energy Group's total operating expenses, including income taxes, decreased $3.3 million, or 1.3%, in the first quarter of 2004 from the comparable period in 2003. Central Hudson's total operating expenses increased $4.9 million from $144.1 million in the first quarter of 2003 to $149 million in the first quarter of 2004. The increase in operating expenses largely resulted from an increase in purchased electricity and natural gas expense. Purchased electricity increased $4.6 million due largely to the recording of amounts related to the recovery of electric supply costs through Central Hudson's cost recovery mechanism and purchased natural gas expense increased $1.1 million due to an increase in the wholesale cost of natural gas. Other operating expenses decreased $726,000 primarily due to a decrease in expense related to Central Hudson's electric reliability program, which is funded by the Customer Benefit Fund. Income taxes increased $1.4 million due to higher taxable income. Operating expenses for CHEC, including income taxes, decreased $9.9 million from $88.6 million in the first quarter of 2003 to $78.7 million in the first quarter of 2004. Natural gas costs decreased $7.0 million due to the sale of SCASCO, Inc.'s natural gas business and the cost of petroleum decreased $3.2 million due primarily to lower sales resulting from the milder winter in 2004 as compared to 2003. An increase in income taxes of $706,000 was largely offset by a reduction in other operating expenses, primarily lower distribution costs resulting from the decrease in sales of petroleum products. COMMON STOCK DIVIDENDS Reference is made to the caption "Common Stock Dividends and Price Ranges" of Part II, Item 7 of the Corporations' 10-K Report for a discussion of Energy Group's dividend payments. On March 26, 2004, the Board of Directors of Energy Group declared a quarterly dividend of $0.54 per share, payable May 3, 2004, to shareholders of record as of April 9, 2004. 32 FORWARD-LOOKING STATEMENTS Statements included in this Quarterly Report on Form 10-Q and the documents incorporated by reference which are not historical in nature are intended to be and are hereby identified as, "forward-looking statements" for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"), as amended. Forward-looking statements may be identified by words including "anticipates," "believes," "projects," "intends," "estimates," "expects," "plans," "assumes," "seeks," and similar expressions. Forward-looking statements including, without limitation, those relating to Energy Group's and Central Hudson's future business prospects, revenues, proceeds, working capital, liquidity, income and margins, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to several important factors including those identified from time to time in the forward-looking statements. Those factors include, but are not limited to, weather; energy supply and demand; fuel prices; interest rates; potential future acquisitions; developments in the legislative, regulatory and competitive environment; market risks; electric and natural gas industry restructuring and cost recovery; the ability to obtain adequate and timely rate relief; changes in fuel supply or costs, the success of strategies to satisfy electricity requirements following the sale of Central Hudson's major generating assets; future market prices for energy, capacity and ancillary services; the outcome of pending litigation and certain environmental matters, particularly the status of inactive hazardous waste disposal sites and waste site remediation requirements; and certain presently unknown or unforeseen factors, including, but not limited to, acts of terrorism. Energy Group and Central Hudson undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, such statements are subject to the risks and uncertainties discussed in the "Risk Factors" section and elsewhere in this document. Given these uncertainties, undue reliance should not be placed on these forward-looking statements. RISK FACTORS Central Hudson must comply with numerous regulatory requirements in managing its business, which affect costs and responsiveness to changing events and opportunities. Central Hudson is subject to regulation at the state and Federal levels. Central Hudson is regulated by the PSC, which regulates the rates, terms and conditions of service; various business practices and transactions; financing; and transactions between Central Hudson and its affiliates. Central Hudson is also subject to regulation by the Federal Energy Regulatory Commission ("FERC"), which regulates transmission rates, certain other aspects of Central Hudson's business and interstate natural gas pipelines. The regulations adopted by these state and Federal agencies affect the manner in which Central Hudson does business, its ability to undertake specified actions, and the costs of its operations. Central Hudson cannot predict the ways in which changes in the regulation by state and Federal governmental authorities 33 could affect its business and operations, and Central Hudson cannot be assured of timely rate relief. Central Hudson's current rate plan with the PSC ends on June 30, 2004, but may be extended for up to two additional years at Central Hudson's option. Under a prior PSC regulatory settlement related to the sales of Central Hudson's interests in its major generating assets, a portion of the gain recognized on the sales is being recorded as net income over a four-year period which ends in 2004. Energy Group is actively seeking new energy-related investments to produce new earnings intended to replace, in whole or in part, the income from the sale of the major generating assets. However, if these investments are not made timely or are insufficient to replace the expiring income, Energy Group's results of operations and financial condition could be adversely affected. Energy Group's financial condition and results of operations could be materially adversely affected if it is unable to successfully manage the risks inherent to the industries in which it operates. Central Hudson owns and operate transmission and distribution facilities for electricity and natural gas that are interconnected to other systems. The competitive business subsidiaries own and operate fuel distribution facilities and equipment that are somewhat dependent on other market participants. The operation of these facilities and the facilities and equipment of third parties on which Energy Group, Central Hudson, and the competitive business subsidiaries rely involves numerous risks, including: --operating limitations that may be imposed by environmental or other regulatory requirements; --imposition of stringent operational performance standards by agencies with regulatory oversight of Central Hudson's and the competitive business subsidiaries' facilities and equipment; --environmental and personal injury liabilities; --fuel interruptions; --inadequate energy supply or inability to recover energy costs; --blackouts; --labor disputes; --with respect to the competitive business subsidiaries, customer migration to other fuel oil distributors; --inability to control the actions of third parties; and --third party credit risk. Energy Group's revenues and results of operations are subject to factors that are beyond its control. The cost of repairing damage to facilities and equipment and the potential disruption of operations due to storms, natural disasters, wars, terrorist acts and other 34 catastrophic events may adversely affect results of operations, financial condition and cash flows. Demand for electricity, natural gas, and petroleum products is influenced by changes in the weather which can also affect the price of energy commodities. The occurrence of any of these events could result in lost revenues or increased expenses, or both, that may not be fully recovered through insurance, rates, sales margins, or other means in a timely manner, or at all. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A of the Corporations' 10-K Report for a discussion of market risk. There has been no material change in either the market risks or the practices employed by Energy Group and Central Hudson to mitigate these risks discussed in the Corporations' 10-K Report. For related discussion on this activity, see Note 2 - "Summary of Significant Accounting Policies" under the caption "Accounting for Derivative Instruments and Hedging Activities" and Item 2 - "Capital Resources and Liquidity." ITEM 4 - CONTROLS AND PROCEDURES The Chief Executive Officer and Chief Financial Officer of Energy Group and Central Hudson evaluated the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q and based on that evaluation, concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, Energy Group's and Central Hudson's controls and procedures are effective for recording, processing, summarizing, and reporting information required to be disclosed in their reports under the Securities Exchange Act of 1934, as amended, within the time periods specified in the SEC's rules and forms. There have not been any changes to the Registrants' internal control over financial reporting that occurred during the Registrants' last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrants' internal control over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Proceedings Asbestos Litigation. For a discussion of lawsuits against Central Hudson involving asbestos, see Note 13 - "Commitments and Contingencies" under the caption "Asbestos Litigation" in Part II, Item 8 of the Corporations' 10-K Report. As of April 21, 2004, a total of 3,190 cases involving asbestos have been brought against Central Hudson of the type described under the caption, of which 1,504 35 remain pending. Of the 1,686 cases no longer pending against Central Hudson, 1,548 have been dismissed or discontinued, and Central Hudson has settled 138 cases. Energy Group and Central Hudson are presently unable to assess the validity of the remaining asbestos lawsuits; accordingly, Energy Group and Central Hudson cannot determine the ultimate liability relating to these cases. Based on information known to Energy Group and Central Hudson at this time, including Central Hudson's experience in settling and in obtaining dismissals of asbestos cases, Energy Group and Central Hudson believe that the cost to be incurred in connection with the remaining lawsuits will not have a material adverse effect on Energy Group's and/or its subsidiaries' financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Shareholders of Energy Group was held on April 27, 2004. The only matter voted upon at such meeting was the election of three nominees proposed as directors by the Board of Directors as Class I directors with terms expiring at the Annual Meeting of Shareholders to be held in 2007. No other nominees were proposed and these three nominees were elected. The total number of shares voted was 13,314,899. The number of shares voted for each of these directors and the number of shares withheld were as follows: -------------------------------------------------------------------------- Name of Director Shares For Shares Withheld -------------------------------------------------------------------------- Edward F. X. Gallagher 13,003,750 311,149 -------------------------------------------------------------------------- Steven V. Lant 13,083,632 231,267 -------------------------------------------------------------------------- Jeffrey D. Tranen 13,057,915 256,984 -------------------------------------------------------------------------- Immediately following Energy Group's Annual Meeting of Shareholders, the Board of Directors elected Steven V. Lant as Chairman of the Board, President and Chief Executive Officer and Heinz K. Fridrich as Vice Chairman of the Board. The Board of Directors also made the following appointments: Christopher M. Capone, Chief Financial Officer and Treasurer; Carl E. Meyer, Executive Vice President; Joseph J. DeVirgilio, Jr., Senior Vice President; Arthur R. Upright, Senior Vice President; Donna S. Doyle, Vice President - Accounting and Controller; Lincoln E. Bleveans, Secretary and Assistant Treasurer; Denise D. VanBuren, Vice President - Corporate Communications and Community Relations; and John E. Gould, Assistant Secretary. The Annual Meeting of the Shareholder of Central Hudson was held on March 12, 2004. All of the nominees proposed as directors by the Board of Directors were elected, and no other nominees were proposed. The sole shareholder of Central Hudson, Energy Group, voted all of its shares of Common Stock for the nominees. The directors are: Jack Effron, Paul J. Ganci, Steven V. Lant, Carl E. Meyer, and Arthur R. Upright. 36 Immediately following Central Hudson's Annual Meeting of the Shareholder, Central Hudson's Board of Directors made the following appointments: Paul J. Ganci as Chairman of the Board; Steven V. Lant as Chief Executive Officer; Carl E. Meyer, President and Chief Operating Officer; Christopher M. Capone, Chief Financial Officer and Treasurer; Arthur R. Upright, Senior Vice President - Regulatory Affairs, Financial Planning and Accounting; Joseph J. DeVirgilio, Jr., Senior Vice President - Corporate Services and Administration; Donna S. Doyle, Vice President - Accounting and Controller; Charles A. Freni, Vice President - Customer Services; James P. Lovette, Vice President - Engineering and Environmental Affairs; Lincoln E. Bleveans, Secretary and Assistant Treasurer; Denise D. Van Buren, Vice President - Corporate Communications and Community Relations; Thomas C. Brocks, Assistant Vice President - Human Resources; and John E. Gould, Assistant Secretary. On May 5, 2004, Paul J. Ganci resigned from his position as Chairman of the Board of Central Hudson and from his position as a director of Central Hudson. After nearly fifty years of service, Mr. Ganci retired from his employment with Energy Group on April 30, 2004. Mr. Ganci remains on the Board of Directors of Energy Group. The Board of Central Hudson has appointed Steven V. Lant as Chairman of the Board and Chief Executive Officer of Central Hudson, effective May 5. Item 5. Other Information Environmental Matters - For a discussion of Central Hudson's environmental matters see Note 13 - "Commitments and Contingencies" to the Consolidated Financial Statements under the caption "Environmental Matters" of the Corporations' 10-K Annual Report. Central Hudson - Orange County Landfill. Reference is made to the discussion under the subcaption "Orange County Landfill" in Note 13 to the Consolidated Financial Statements of the Corporations' 10-K Annual Report. The Tolling Agreement dated September 7, 2001, whereby Central Hudson agreed to toll the applicable statute of limitations by certain state agencies against Central Hudson for certain alleged causes of action, was extended to September 30, 2004. Central Hudson - Neversink Agreement. Central Hudson and the City of New York ("City") have entered into an agreement which delays by up to one year the transfer to the City of Central Hudson's ownership interest in the Neversink Hydroelectric Station, which transfer was anticipated to occur on December 31, 2003, pursuant to an agreement between Central Hudson and the City dated April 21, 1948. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K. 37 Exhibit No. Regulation S-K Item 601 Designation Exhibit Description 10(iii)31 First Amendment to the Central Hudson Gas & Electric Corporation Savings Incentive Plan, dated February 6, 2004. 12 Statement Showing Computation of the Ratio of Earnings to Fixed Charges and the Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 31.1 Rule 13a-14(a)/15d-14(a) Certification by Mr. Lant. 31.2 Rule 13a-14(a)/15d-14(a) Certification by Mr. Capone. 32.1 Section 1350 Certification by Mr. Lant. 32.2 Section 1350 Certification by Mr. Capone. (b) Reports on Form 8-K. During the period covered by this Quarterly Report on Form 10-Q, Energy Group filed the following Current Reports on Form 8-K: (i) A Report, dated January 30, 2004, which reports an executive succession plan and the expected appointment, effective April 27, 2004, of Steven V. Lant as Chairman of the Board to succeed Paul J. Ganci, who will be retiring as Chairman of the Board following the Annual Meeting of Shareholders on April 27, 2004. (ii) A Report, dated February 3, 2004, which reports 2003 earnings and 2004 earnings guidance for Energy Group. (iii) A Report, dated February 23, 2004, which reports the appointment of Jeffrey D. Tranen to Energy Group's Board of Directors. 38 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunder duly authorized. CH ENERGY GROUP, INC. (Registrant) By: /s/ Donna S. Doyle --------------------------------- Donna S. Doyle Vice President - Accounting and Controller CENTRAL HUDSON GAS & ELECTRIC CORPORATION (Co-Registrant) By: /s/ Donna S. Doyle --------------------------------- Donna S. Doyle Vice President - Accounting and Controller Dated: May 7, 2004 39 EXHIBIT INDEX Following is the list of Exhibits, as required by Item 601 of Regulation S-K, filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Regulation S-K Item 601 Designation Exhibit Description 10(iii)31 First Amendment to the Central Hudson Gas & Electric Corporation Savings Incentive Plan, dated February 6, 2004. 12 Statement Showing Computation of the Ratio of Earnings to Fixed Charges and the Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 31.1 Rule 13a-14(a)/15d-14(a) Certification by Mr. Lant. 31.2 Rule 13a-14(a)/15d-14(a) Certification by Mr. Capone. 32.1 Section 1350 Certification by Mr. Lant. 32.2 Section 1350 Certification by Mr. Capone. 40 EX-10.(III)31 2 d59481_ex-10iii31.txt FIRST AMENDMENT TO SAVINGS INCENTIVE PLAN Exhibit 10(iii)31 FIRST AMENDMENT TO THE CENTRAL HUDSON GAS & ELECTRIC CORPORATION SAVINGS INCENTIVE PLAN WHEREAS, Central Hudson Gas & Electric Corporation (the "Sponsor") adopted the Central Hudson Gas & Electric Corporation Savings Incentive Plan (the "Plan"), most recently restated effective January 1, 2004; and WHEREAS, the Sponsor desires to amend the Plan; NOW, THEREFORE, the Sponsor amends the Plan as follows: 1. Effective for each payroll period beginning on or after February 15, 2004, Section 6.6 of the Plan is hereby amended by replacing subsection (c) thereof with the following paragraphs: (c) Griffith Employees. The amount of any such Regular Matching Contribution made to Griffith Employees shall be equal to 100% of the Tax-Deferred Contributions made for the Contribution Period on behalf of such Eligible Employee up to, but not exceeding, the "match level". For purposes of this paragraph, the "match level" means 4% of the Eligible Employee's Compensation for the Contribution Period, excluding any Compensation earned by the Eligible Employee during the Contribution Period, but prior to the date on which he first became an Eligible Employee. (d) SCASCO Employees. The amount of any such Regular Matching Contribution made to SCASCO Employees shall be equal to 50% of the Tax-Deferred Contributions made for the Contribution Period on behalf of such Eligible Employee up to, but not exceeding, the "match level". For purposes of this paragraph, the "match level" means 8% of the Eligible Employee's Compensation for the Contribution Period, excluding any Compensation earned by the Eligible Employee during the Contribution Period, but prior to the date on which he first became an Eligible Employee. IN WITNESS WHEREOF, the Sponsor has executed this instrument this 6th day of February, 2004. CENTRAL HUDSON GAS & ELECTRIC CORPORATION By: /s/_________________________ Name: Paul J. Ganci Title: Chairman of the Board EX-12 3 d59481_ex-12.txt RATIO OF EARNINGS COMPUTATION CH ENERGY GROUP, INC. Computation of Ratio of Earnings to Fixed Charges EXHIBIT (12) (i)
2004 ------------------------ 3 Months 12 Months Ended Ended Mar. 31 Mar. 31 --------- --------- Earnings: ($000) A. Net Income from Continuing Operations (2) $ 22,989 $ 46,780 B. Federal and State Income Tax 16,273 32,815 --------- --------- C. Earnings before Income Taxes $ 39,262 $ 79,595 ========= ========= D. Fixed Charges Interest on Mortgage Bonds -- 307 Interest on Other Long-Term Debt 2,831 10,905 Other Interest (3) 1,963 9,290 Interest Portion of Rents 259 1,043 Amortization of Premium & Expense on Debt 271 1,106 Preferred Stock Dividends of Central Hudson 391 1,917 --------- --------- Total Fixed Charges $ 5,715 $ 24,568 ========= ========= E. Total Earnings $ 44,977 $ 104,163 ========= ========= Preferred Dividend Requirements: F. Allowance for Preferred Stock Dividends Under IRC Sec 247 (3) $ 242 $ 1,179 G. Less Allowable Dividend Deduction (32) (127) --------- --------- H. Net Subject to Gross-up 210 1,052 I. Ratio of Earnings before Income Taxes to Net Income (C/A) 1.708 1.701 --------- --------- J. Preferred Dividend (Pre-tax) (H x I) 359 1,790 K. Plus Allowable Dividend Deduction 32 127 --------- --------- L. Preferred Dividend Factor 391 1,917 ========= ========= M. Ratio of Earnings to Fixed Charges (E/D) 7.87 4.24 ========= ========= Year Ended December 31, --------------------------------------------------------------------- 2003 2002 2001 (1) 2000 1999 --------- --------- --------- --------- --------- Earnings: ($000) A. Net Income from Continuing Operations (2) $ 43,985 $ 41,281 $ 50,835 $ 50,973 $ 48,573 B. Federal and State Income Tax 30,435 22,294 (3,338) 38,215 28,925 --------- --------- --------- --------- --------- C. Earnings before Income Taxes $ 74,420 $ 63,575 $ 47,497 $ 89,188 $ 77,498 ========= ========= ========= ========= ========= D. Fixed Charges Interest on Mortgage Bonds 570 2,136 5,211 11,342 13,057 Interest on Other Long-Term Debt 10,699 9,819 10,446 12,864 11,094 Other Interest (3) 9,828 11,659 12,837 9,303 5,640 Interest Portion of Rents 1,040 749 801 962 993 Amortization of Premium & Expense on Debt 1,159 1,249 1,350 1,170 993 Preferred Stock Dividends of Central Hudson 2,259 3,259 3,026 5,556 5,078 --------- --------- --------- --------- --------- Total Fixed Charges $ 25,555 $ 28,871 $ 33,671 $ 41,197 $ 36,855 ========= ========= ========= ========= ========= E. Total Earnings $ 99,975 $ 92,446 $ 81,168 $ 130,385 $ 114,353 ========= ========= ========= ========= ========= Preferred Dividend Requirements: F. Allowance for Preferred Stock Dividends Under IRC Sec 247 (3) $ 1,387 $ 2,161 $ 3,230 $ 3,230 $ 3,230 G. Less Allowable Dividend Deduction (127) (127) (127) (127) (127) --------- --------- --------- --------- --------- H. Net Subject to Gross-up 1,260 2,034 3,103 3,103 3,103 I. Ratio of Earnings before Income Taxes to Net Income (C/A) 1.692 1.540 0.934 1.750 1.595 --------- --------- --------- --------- --------- J. Preferred Dividend (Pre-tax) (H x I) 2,132 3,132 2,899 5,429 4,951 K. Plus Allowable Dividend Deduction 127 127 127 127 127 --------- --------- --------- --------- --------- L. Preferred Dividend Factor 2,259 3,259 3,026 5,556 5,078 ========= ========= ========= ========= ========= M. Ratio of Earnings to Fixed Charges (E/D) 3.91 3.20 2.41 3.16 3.10 ========= ========= ========= ========= =========
(1) The reduction in the ratio reflects the net effect of regulatory actions in 2001 associated with the sale of Central Hudson's interests in its major generating assets, including the recording of a significant amount of federal investment income tax credits. (2) Net Income reflects preferred stock dividends paid by Central Hudson. (3) Reflects SFAS 150 reclassification of $208,750 in preferred stock dividends to interest expense for the quarter ended September 30, 2003. CENTRAL HUDSON GAS & ELECTRIC CORPORATION Computation of Ratio of Earnings to Fixed Charges Exhibit (12) (i)(i) and Ratio of Earnings to Fixed Charges and Preferred Dividends
2004 ------------------------ 3 Months 12 Months Ended Ended Mar. 31 Mar. 31 --------- --------- Earnings: ($000) A. Net Income $ 16,488 $ 40,205 B. Federal & State Income Tax 11,854 28,382 --------- --------- C. Earnings before Income Taxes $ 28,342 $ 68,587 ========= ========= D. Fixed Charges Interest on Mortgage Bonds -- 307 Interest on Other Long-Term Debt 2,831 10,905 Other Interest (2) 1,988 9,316 Interest Portion of Rents 192 772 Amortization of Premium & Expense on Debt 271 1,106 --------- --------- Total Fixed Charges $ 5,282 $ 22,406 ========= ========= E. Total Earnings $ 33,624 $ 90,993 ========= ========= Preferred Dividend Requirements: F. Allowance for Preferred Stock Dividends Under IRC Sec 247 (2) $ 242 $ 1,179 G. Less Allowable Dividend Deduction (32) (127) --------- --------- H. Net Subject to Gross-up 210 1,052 I. Ratio of Earnings before Income Taxes to Net Income (C/A) 1.719 1.706 --------- --------- J. Pref. Dividend (Pre-tax) (H x L) 361 1,795 K. Plus Allowable Dividend Deduction 32 127 --------- --------- L. Preferred Dividend Factor 393 1,922 M. Fixed Charges (D) 5,282 22,406 --------- --------- N. Total Fixed Charges and Preferred Dividends $ 5,675 $ 24,328 ========= ========= O. Ratio of Earnings to Fixed Charges (E/D) 6.37 4.06 ========= ========= P. Ratio of Earnings to Fixed Charges and Preferred Dividends (E/N) 5.92 3.74 ========= ========= Year Ended December 31, --------------------------------------------------------------------- 2003 2002 2001 (1) 2000 1999 --------- --------- --------- --------- --------- Earnings: ($000) A. Net Income $ 38,875 $ 32,524 $ 44,178 $ 52,595 $ 51,881 B. Federal & State Income Tax 26,981 21,690 (7,637) 37,150 28,144 --------- --------- --------- --------- --------- C. Earnings before Income Taxes $ 65,856 $ 54,214 $ 36,541 $ 89,745 $ 80,025 ========= ========= ========= ========= ========= D. Fixed Charges Interest on Mortgage Bonds 570 2,136 5,211 11,342 13,057 Interest on Other Long-Term Debt 10,699 9,819 10,446 12,864 11,094 Other Interest (2) 9,828 11,772 11,820 6,251 4,860 Interest Portion of Rents 768 749 801 962 993 Amortization of Premium & Expense on Debt 1,159 1,249 1,350 1,170 993 --------- --------- --------- --------- --------- Total Fixed Charges $ 23,024 $ 25,725 $ 29,628 $ 32,589 $ 30,997 ========= ========= ========= ========= ========= E. Total Earnings $ 88,880 $ 79,939 $ 66,169 $ 122,334 $ 111,022 ========= ========= ========= ========= ========= Preferred Dividend Requirements: F. Allowance for Preferred Stock Dividends Under IRC Sec 247 (2) $ 1,387 $ 2,161 $ 3,230 $ 3,230 $ 3,230 G. Less Allowable Dividend Deduction (127) (127) (127) (127) (127) --------- --------- --------- --------- --------- H. Net Subject to Gross-up 1,260 2,034 3,103 3,103 3,103 I. Ratio of Earnings before Income Taxes to Net Income (C/A) 1.694 1.667 0.827 1.706 1.542 --------- --------- --------- --------- --------- J. Pref. Dividend (Pre-tax) (H x L) 2,134 3,391 2,566 5,294 4,785 K. Plus Allowable Dividend Deduction 127 127 127 127 127 --------- --------- --------- --------- --------- L. Preferred Dividend Factor 2,261 3,518 2,693 5,421 4,912 M. Fixed Charges (D) 23,024 25,725 29,628 32,589 30,997 --------- --------- --------- --------- --------- N. Total Fixed Charges and Preferred Dividends $ 25,285 $ 29,243 $ 32,321 $ 38,010 $ 35,909 ========= ========= ========= ========= ========= O. Ratio of Earnings to Fixed Charges (E/D) 3.86 3.11 2.23 3.75 3.58 ========= ========= ========= ========= ========= P. Ratio of Earnings to Fixed Charges and Preferred Dividends (E/N) 3.52 2.73 2.05 3.22 3.09 ========= ========= ========= ========= =========
(1) The reduction in the ratios reflects the net effect of regulatory actions in 2001 associated with the sale of Central Hudson's interests in its major generating assets, including the recording of a significant amount of federal investment income tax credits. (2) Reflects SFAS 150 reclassification of $208,750 in preferred stock dividends to interest expense for the quarter ended September 30, 2003. EX-31.1 4 d59481_ex31-1.txt CEO CERTIFICATION Exhibit 31.1 I, Steven V. Lant, Chairman of the Board, President and Chief Executive Officer of CH Energy Group, Inc. and Chairman of the Board and Chief Executive Officer of Central Hudson Gas & Electric Corporation (collectively the "Registrants"), certify for each of the Registrants that: 1. I have reviewed this quarterly report on Form 10-Q of the Registrants; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrants as of, and for, the periods presented in this report; 4. The Registrants' other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrants and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Registrants' disclosure controls and procedures and prescribed in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of period covered by this report based on such evaluation; and c) disclosed in this report any change in the Registrants' internal control over financial reporting that occurred during the Registrants' most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrants' internal control over financial reporting. 5. The Registrants' other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants' auditors and the audit committee of Registrants' boards of directors (or persons performing the equivalent functions): 41 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants' ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants' internal control over financial reporting. CH ENERGY GROUP, INC. (Registrant) By: /s/ Steven V. Lant -------------------------------------------------- Steven V. Lant Chairman of the Board, President and Chief Executive Officer CENTRAL HUDSON GAS & ELECTRIC CORPORATION (Co-Registrant) By: /s/ Steven V. Lant -------------------------------------------------- Steven V. Lant Chairman of the Board and Chief Executive Officer Dated: May 7, 2004 42 EX-31.2 5 d59481_ex31-2.txt CFO CERTIFICATION Exhibit 31.2 I, Christopher M. Capone, Chief Financial Officer of CH Energy Group, Inc. and Chief Financial Officer of Central Hudson Gas & Electric Corporation (collectively the "Registrants"), certify for each of the Registrants that: 1. I have reviewed this quarterly report on Form 10-Q of the Registrants; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrants as of, and for, the periods presented in this report; 4. The Registrants' other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrants and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; c) evaluated the effectiveness of the Registrants' disclosure controls and procedures and prescribed in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of period covered by this report based on such evaluation; and c) disclosed in this report any change in the Registrants' internal control over financial reporting that occurred during the Registrants' most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrants' internal control over financial reporting. 5. The Registrants' other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants' auditors and the audit committee of Registrants' boards of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are 43 reasonably likely to adversely affect the Registrants' ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants' internal control over financial reporting. CH ENERGY GROUP, INC. (Registrant) By: /s/ Christopher M. Capone -------------------------------------------------- Christopher M. Capone Chief Financial Officer CENTRAL HUDSON GAS & ELECTRIC CORPORATION (Co-Registrant) By: /s/ Christopher M. Capone -------------------------------------------------- Christopher M. Capone Chief Financial Officer Dated: May 7, 2004 44 EX-32.1 6 d59481_ex32-1.txt CEO CERTIFICATION Exhibit 32.1 I, Steven V. Lant, Chairman of the Board, President and Chief Executive Officer of CH Energy Group, Inc. and Chairman of the Board and Chief Executive Officer of Central Hudson Gas & Electric Corporation (the "Companies"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Quarterly Report on Form 10-Q of the Companies for the period ending March 31, 2004 (the "Periodic Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and 2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. A signed original of this written statement required by Section 906 has been provided to CH Energy Group, Inc. and to Central Hudson Gas & Electric Corporation and will be retained by CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation and furnished to the Securities and Exchange Commission or its staff upon request. CH ENERGY GROUP, INC. (Registrant) By: /s/ Steven V. Lant -------------------------------------------------- Steven V. Lant Chairman of the Board, President and Chief Executive Officer CENTRAL HUDSON GAS & ELECTRIC CORPORATION (Co-Registrant) By: /s/ Steven V. Lant -------------------------------------------------- Steven V. Lant Chairman of the Board and Chief Executive Officer Dated: May 7, 2004 45 EX-32.2 7 d59481_ex32-2.txt CFO CERTIFICATION Exhibit 32.2 I, Christopher M. Capone, Chief Financial Officer of CH Energy Group, Inc. and Chief Financial Officer of Central Hudson Gas & Electric Corporation (the "Companies"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Quarterly Report on Form 10-Q of the Companies for the period ending March 31, 2004 (the "Periodic Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and 2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. A signed original of this written statement required by Section 906 has been provided to CH Energy Group, Inc. and to Central Hudson Gas & Electric Corporation and will be retained by CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation and furnished to the Securities and Exchange Commission or its staff upon request. CH ENERGY GROUP, INC. (Registrant) By: /s/ Christopher M. Capone -------------------------------------------------- Christopher M. Capone Chief Financial Officer CENTRAL HUDSON GAS & ELECTRIC CORPORATION (Co-Registrant) By: /s/ Christopher M. Capone -------------------------------------------------- Christopher M. Capone Chief Financial Officer Dated: May 7, 2004 46 -----END PRIVACY-ENHANCED MESSAGE-----