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 ....................................June 30, 2002
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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of the close of business on August 1, 2002, (i) CH Energy Group, Inc.
had outstanding 16,362,087 shares of Common Stock ($.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).
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements 1
CH ENERGY GROUP, INC.
Consolidated Statement of Income -
Three Months Ended June 30, 2002 and 2001 1
Consolidated Statement of Income -
Six Months Ended June 30, 2002 and 2001 2
Consolidated Statement of Comprehensive Income
Three Months Ended June 30, 2002 and 2001 3
Consolidated Statement of Comprehensive Income
Six Months Ended June 30, 2002 and 2001 4
Consolidated Balance Sheet - June 30, 2002
and December 31, 2001 5
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 2002 and 2001 7
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Consolidated Statement of Income -
Three Months Ended June 30, 2002 and 2001 8
Consolidated Statement of Income -
Six Months Ended June 30, 2002 and 2001 9
Consolidated Statement of Comprehensive Income
Three Months Ended June 30, 2002 and 2001 10
Consolidated Statement of Comprehensive Income
Six Months Ended June 30, 2002 and 2001 11
Consolidated Balance Sheet - June 30, 2002
and December 31, 2001 12
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 2002 and 2001 14
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements (Cont'd)
Notes to Consolidated Financial Statements 15
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 25
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk 34
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 34
Item 5 - Other Information 35
Item 6 - Exhibits and Reports on Form 8-K 36
Signatures 36
Certifications 37
Exhibit Index
----------
Filing Format
This Quarterly Report on Form 10-Q is a combined quarterly report being
filed by two different registrants: CH Energy Group, Inc. and Central Hudson Gas
& Electric Corporation. CH Energy Group, Inc. became the holding company for
Central Hudson Gas & Electric Corporation on December 15, 1999. Except where the
content clearly indicates otherwise, any reference in this report to CH Energy
Group, Inc. includes all subsidiaries of CH Energy Group, Inc., including
Central Hudson Gas & Electric Corporation. Central Hudson Gas & Electric
Corporation makes no representation as to the information contained in this
report in relation to CH Energy Group, Inc. and its subsidiaries other than
Central Hudson Gas & Electric Corporation.
PART I - FINANCIAL INFORMATION
Item I - Consolidated Financial Statements
CH ENERGY GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the 3 Months Ended June 30,
2002 2001
--------- ---------
(Thousands of Dollars)
Operating Revenues
Electric ........................................................................ $ 98,542 $ 104,297
Gas ............................................................................. 24,503 25,318
Unregulated affiliate ........................................................... 29,871 36,803
--------- ---------
Total Operating Revenues .................................................... 152,916 166,418
--------- ---------
Operating Expenses
Operation:
Fuel used in electric generation and
purchased electricity ...................................................... 61,737 64,316
Purchased natural gas ......................................................... 16,746 14,868
Purchased petroleum ........................................................... 17,091 17,087
Other expenses of operation - regulated activities ............................ 21,920 29,828
Other expenses of operation - unregulated affiliate activities ................ 12,605 13,328
Depreciation and amortization ................................................... 7,704 8,558
Taxes, other than income tax .................................................... 9,680 12,394
Federal/State income tax ........................................................ 1,621 711
--------- ---------
149,104 161,090
--------- ---------
Operating Income .................................................................. 3,812 5,328
--------- ---------
Other Income and (Deductions)
Allowance for equity funds used during construction ............................. 120 96
Federal/State income tax ........................................................ 203 (704)
Interest income ................................................................. 3,354 6,393
Other - net ..................................................................... 1,099 1,332
--------- ---------
4,776 7,117
--------- ---------
Income before Interest Charges .................................................... 8,588 12,445
--------- ---------
Interest Charges
Interest on mortgage bonds ...................................................... 670 1,302
Interest on other long-term debt ................................................ 2,725 3,138
Other interest .................................................................. 3,231 4,050
Allowance for borrowed funds used during construction ........................... (64) (76)
--------- ---------
6,562 8,414
Net income from continuing operations ............................................. 2,026 4,031
Net loss from discontinued operations, net of income tax benefit of $1,439 (Note 3) (2,175) --
Gain on disposal of discontinued operations, net of income tax of $(6,671) (Note 3) 5,698 --
Cumulative Preferred Stock Dividends of Central Hudson ............................ 451 807
--------- ---------
Net Income ........................................................................ 5,098 3,224
Dividends Declared on Common Stock ................................................ 8,835 8,835
--------- ---------
Balance Retained in the Business .................................................. ($ 3,737) ($ 5,611)
========= =========
Common Stock:
Average Shares Outstanding (000s) ............................................. 16,362 16,362
Earnings Per Share (Basic and Diluted) ........................................ $ 0.31 $ 0.20
Dividends Declared ............................................................ $ 0.54 $ 0.54
See Notes to Consolidated Financial Statements
-1-
PART I - FINANCIAL INFORMATION
Item I - Consolidated Financial Statements
CH ENERGY GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the 6 Months Ended June 30,
2002 2001
--------- ---------
(Thousands of Dollars)
Operating Revenues
Electric ........................................................................ $ 200,028 $ 219,551
Gas ............................................................................. 66,365 78,931
Unregulated affiliate ........................................................... 83,662 110,445
--------- ---------
Total Operating Revenues .................................................... 350,055 408,927
--------- ---------
Operating Expenses
Operation:
Fuel used in electric generation and
purchased electricity ...................................................... 120,063 122,138
Purchased natural gas ......................................................... 46,132 52,790
Purchased petroluem ........................................................... 45,839 56,861
Other expenses of operation - regulated activities ............................ 42,701 61,135
Other expenses of operation - unregulated affiliate activities ................ 25,516 27,695
Depreciation and amortization ................................................... 15,386 18,907
Taxes, other than income tax .................................................... 18,570 27,332
Federal/State income tax ........................................................ 13,917 12,394
--------- ---------
328,124 379,252
--------- ---------
Operating Income .................................................................. 21,931 29,675
--------- ---------
Other Income and (Deductions)
Allowance for equity funds used during construction ............................. 227 177
Federal/State income tax ........................................................ (911) (2,056)
Interest income ................................................................. 6,609 12,670
Other - net ..................................................................... 6,658 1,486
--------- ---------
12,583 12,277
--------- ---------
Income before Interest Charges .................................................... 34,514 41,952
--------- ---------
Interest Charges
Interest on mortgage bonds ...................................................... 1,339 3,872
Interest on other long-term debt ................................................ 4,388 6,487
Other interest .................................................................. 6,631 8,584
Allowance for borrowed funds used during construction ........................... (120) (140)
--------- ---------
12,238 18,803
Net income from continuing operations ............................................. 22,276 23,149
Net loss from discontinued operations, net of income tax benefit of $1,439 (Note 3) (2,175) --
Gain on disposal of discontinued operations, net of income tax of $(6,671) (Note 3) 5,698 --
Cumulative Preferred Stock Dividends of Central Hudson ............................ 1,259 1,615
--------- ---------
Net Income ........................................................................ 24,540 21,534
Dividends Declared on Common Stock ................................................ 17,671 17,671
--------- ---------
Balance Retained in the Business .................................................. $ 6,869 $ 3,863
========= =========
Common Stock:
Average Shares Outstanding (000s) ............................................. 16,362 16,362
Earnings Per Share (Basic and Diluted) ........................................ $ 1.50 $ 1.32
Dividends Declared ............................................................ $ 1.08 $ 1.08
See Notes to Consolidated Financial Statements
-2-
CH ENERGY GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
For the 3 Months Ended June 30,
2002 2001
------- -------
(Thousands of Dollars)
Net Income .............................................................. $ 5,098 $ 3,224
Other comprehensive income:
FAS 133 transition adjustment - balance at April 1, 2001 of cumulative
effect of unrealized gains (losses) at implementation date of
January 1, 2001 ..................................................... -- (778)
Less: reclassification adjustment for gains (losses)
realized in net income ................................. -- (257)
Plus: change in fair value for transition adjustment amounts .... 1,316
------- -------
Balance of FAS 133 transition adjustment amounts ....... -- 795
Reclassification adjustment for gain on investments included in net
income, net of tax of $26 ........................................ (38) --
------- -------
Other comprehensive income (loss) ....................................... (38) 795
------- -------
Comprehensive Income .................................................... $ 5,060 $ 4,019
======= =======
See Notes to Consolidated Financial Statements
-3-
CH ENERGY GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
For the 6 Months Ended June 30,
2002 2001
------- --------
(Thousands of Dollars)
Net Income ................................................................. $24,540 $ 21,534
Other comprehensive income:
FAS 133 transition adjustment - balance at April 1, 2001 of cumulative
effect of unrealized gains (losses) at implementation date of
January 1, 2001 ........................................................ -- (1,896)
Less: reclassification adjustment for gains (losses)
realized in net income .................................... -- (792)
Plus: change in fair value for transition adjustment amounts ....... 1,899
------- --------
Balance of FAS 133 transition adjustment amounts .......... -- 795
Net unrealized gains on investments:
Unrealized gain arising during period, net of tax of $(26) ......... 38
Less: reclassification adjustment for gain included in net
income, net of tax of $26 ............................... (38) -- --
------- ------- --------
Other comprehensive income (loss) .......................................... -- 795
------- --------
Comprehensive Income ....................................................... $24,540 $ 22,329
======= ========
See Notes to Consolidated Financial Statements
-4-
CH ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2002 2001
ASSETS (Unaudited)
---------- ----------
(Thousands of Dollars)
Utility Plant
Electric ........................................ $ 591,548 $ 584,831
Gas ............................................. 185,598 180,673
Common .......................................... 102,587 97,124
---------- ----------
879,733 862,628
Less: Accumulated depreciation ................. 365,466 354,010
---------- ----------
514,267 508,618
Construction work in progress ................... 60,358 53,139
---------- ----------
Net Utility Plant ....................... 574,625 561,757
---------- ----------
Other Property and Plant ............................... 16,135 48,202
---------- ----------
Prefunded Pension Costs and Other Investments
Prefunded pension costs ........................ 77,493 78,743
Other investments .............................. 7,010 6,300
---------- ----------
Total Prefunded Pension Costs and Other Investments .... 84,503 85,043
---------- ----------
Current Assets
Cash and cash equivalents ....................... 264,816 132,395
Accounts receivable from customers - net of
allowance for doubtful accounts ........... 55,745 61,540
Accrued unbilled utility revenues ............... 5,861 11,765
Other receivables ............................... 3,182 8,968
Fuel, materials and supplies - at average cost .. 13,840 18,402
Fair value of derivative instruments - current .. 935 16,661
Special deposits and prepayments ................ 40,778 51,918
---------- ----------
Total Current Assets ................... 385,157 301,649
---------- ----------
Deferred Charges and Other Assets
Goodwill and other intangible assets ............ 78,163 79,587
Regulatory assets ............................... 40,500 35,094
Unamortized debt expense ........................ 4,015 3,545
Fair value of derivative instruments ............ -- 17,548
Bond defeasance escrow .......................... 10,691 18,612
Other assets .................................... 14,754 37,605
---------- ----------
Total Deferred Charges and Other Assets 148,123 191,991
---------- ----------
Total Assets ................. $1,208,543 $1,188,642
---------- ----------
See Notes to Consolidated Financial Statements
-5-
CH ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2002 2001
CAPITALIZATION AND LIABILITIES (Unaudited)
----------- -----------
(Thousands of Dollars)
Capitalization
Common Stock Equity:
Common stock, 30,000,000 shares authorized;
16,862,087 shares issued ($.10 par value) $ 1,686 $ 1,686
Paid-in capital ................................. 351,230 351,230
Retained earnings ............................... 170,186 163,317
Reacquired capital stock (500,000 shares) ....... (18,765) (18,765)
Capital stock expense ........................... (664) (1,159)
----------- -----------
Total Common Stock Equity ............... 503,673 496,309
----------- -----------
Cumulative Preferred Stock
Not subject to mandatory redemption ........ 21,030 21,030
Subject to mandatory redemption ............ 12,500 35,000
----------- -----------
Total Cumulative Preferred Stock ........ 33,530 56,030
----------- -----------
Long-term Debt .................................. 279,375 216,124
----------- -----------
Total Capitalization ....................... 816,578 768,463
----------- -----------
Current Liabilities
Current maturities of long-term debt ............ 25,500 20,000
Notes payable ................................... -- 250
Accounts payable ................................ 35,543 41,061
Accrued interest ................................ 3,728 2,538
Dividends payable ............................... 9,287 9,643
Accrued vacation ................................ 3,671 3,900
Customer deposits ............................... 5,146 5,032
Other ........................................... 29,414 28,782
----------- -----------
Total Current Liabilities .................. 112,289 111,206
----------- -----------
Deferred Credits and Other Liabilities
Regulatory liabilities .......................... 199,024 235,960
Operating reserves .............................. 4,508 4,853
Deferred gain - sale of plants .................. 22,171 24,568
Accrued environmental remediation costs ......... 8,374 6,059
Other ........................................... 17,094 16,173
----------- -----------
Total Deferred Credits and Other Liabilities 251,171 287,613
----------- -----------
Accumulated Deferred Income Tax (Net) ................... 28,505 21,360
----------- -----------
Total Capitalization and Liabilities ... $ 1,208,543 $ 1,188,642
----------- -----------
See Notes to Consolidated Financial Statements
-6-
CH ENERGY GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the 6 Months Ended
June 30,
2002 2001
--------- ---------
Operating Activities: (Thousands of Dollars)
Net Income ............................................................. $ 24,540 $ 21,534
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation, amortization & nuclear fuel amortization ........ 16,770 20,915
Deferred income taxes - net ................................... 2,858 (304)
Gain on disposal of subsidiary ................................ (17,633) --
Nine Mile 2 Plant deferred finance charges - net .............. -- 1,311
Provision for uncollectibles .................................. 1,661 1,250
Accrued/deferred pension costs ................................ (8,147) (7,492)
Other - net ................................................... (760) (3,595)
Changes in current assets and liabilities, net:
Accounts receivable, unbilled revenues and other receivables .. 15,719 44,088
Fuel, materials and supplies .................................. 1,372 910
Special deposits and prepayments .............................. 4,935 5,363
Accounts payable .............................................. (4,887) (10,668)
Accrued taxes and interest .................................... 15,081 82,870
Deferred taxes related to sale of plants and Nine Mile 2 Plant
write-off .................................................. -- (233,876)
Deferred gas costs ............................................ 9,319 1,778
Customer benefit .............................................. (9,014) 10,080
Other - net ................................................... (1,009) (3,142)
--------- ---------
Net Cash Provided by (Used In) Operating Activities ................. 50,805 (68,978)
--------- ---------
Investing Activities:
Proceeds from sale of subsidiary .................................... 58,227 --
Mortgage receivable - sale of Nine Mile 2 Plant ..................... 22,733 --
Proceeds from sale of fossil generation plants ...................... -- 713,202
Additions to plant .................................................. (28,681) (29,357)
Acquisitions made by unregulated affiliate .......................... -- (6,905)
Nine Mile 2 Plant decommissioning trust fund ........................ -- (434)
Other - net ......................................................... 696 4,176
--------- ---------
Net Cash Provided by Investing Activities ........................... 52,975 680,682
--------- ---------
Financing Activities:
Proceeds from issuance of long-term debt ............................ 69,000 --
Retirement of preferred stock ....................................... (22,500) --
Repayments of short-term debt ....................................... -- (164,500)
Repayments of long-term debt ........................................ -- (125,130)
Dividends paid on common stock ...................................... (17,671) (17,671)
Issuance and redemption costs ....................................... (188) (14)
--------- ---------
Net Cash Provided by (Used in) Financing Activities ................. 28,641 (307,315)
--------- ---------
Net Change in Cash and Cash Equivalents .................................... 132,421 304,389
Cash and Cash Equivalents - Beginning of Year .............................. 132,395 28,318
--------- ---------
Cash and Cash Equivalents - End of Period .................................. $ 264,816 $ 332,707
========= =========
Supplemental Disclosure of Cash Flow Information
Interest paid........................................................ $ 5,893 $ 15,470
Federal and State income tax paid ................................... $ 3,500 $ 122,500
See Notes to Consolidated Financial Statements
-7-
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the 3 Months
Ended June 30,
2002 2001
--------- ---------
(Thousands of Dollars)
Operating Revenues
Electric ............................................. $ 96,680 $ 104,196
Gas .................................................. 22,934 25,292
--------- ---------
Total - own territory .............................. 119,614 129,488
Electric sales to other utilities .................... 1,862 100
Gas sales to other utilities ......................... 1,569 26
--------- ---------
123,045 129,614
--------- ---------
Operating Expenses
Operation:
Fuel used in electric generation ................... 104 574
Purchased electricity .............................. 61,254 57,295
Purchased natural gas .............................. 15,032 13,361
Other expenses of operation ........................ 21,920 29,878
Depreciation and amortization ........................ 6,265 6,248
Taxes, other than income tax ......................... 9,608 12,328
Federal/State income tax ............................. 2,466 1,263
--------- ---------
116,649 120,947
--------- ---------
Operating Income ....................................... 6,396 8,667
--------- ---------
Other Income and (Deductions)
Allowance for equity funds used during construction .. 120 96
Federal/State income tax ............................. 226 (553)
Interest income ...................................... 1,951 3,178
Other - net .......................................... 1,157 (71)
--------- ---------
3,454 2,650
--------- ---------
Income before Interest Charges ......................... 9,850 11,317
--------- ---------
Interest Charges
Interest on mortgage bonds ........................... 670 1,302
Interest on other long-term debt ..................... 2,725 3,138
Other interest ....................................... 3,296 4,028
Allowance for borrowed funds used during construction (64) (76)
--------- ---------
6,627 8,392
--------- ---------
Net Income ............................................. 3,223 2,925
Dividends Declared on Cumulative Preferred Stock ....... 451 807
--------- ---------
Income Available for Common Stock ...................... $ 2,772 $ 2,118
========= =========
See Notes to Consolidated Financial Statements
-8-
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the 6 Months
Ended June 30,
2002 2001
--------- ---------
(Thousands of Dollars)
Operating Revenues
Electric ............................................. $ 196,354 $ 210,312
Gas .................................................. 64,018 78,879
--------- ---------
Total - own territory .............................. 260,372 289,191
Electric sales to other utilities .................... 3,674 9,239
Gas sales to other utilities ......................... 2,347 52
--------- ---------
266,393 298,482
--------- ---------
Operating Expenses
Operation:
Fuel used in electric generation ................... 258 13,658
Purchased electricity .............................. 118,404 97,893
Purchased natural gas .............................. 40,910 46,702
Other expenses of operation ........................ 42,613 61,197
Depreciation and amortization ........................ 12,529 14,445
Taxes, other than income tax ......................... 18,391 27,211
Federal/State income tax ............................. 11,490 9,258
--------- ---------
244,595 270,364
--------- ---------
Operating Income ....................................... 21,798 28,118
--------- ---------
Other Income and (Deductions)
Allowance for equity funds used during construction .. 227 177
Federal/State income tax ............................. (844) (1,814)
Interest income ...................................... 4,231 7,282
Other - net .......................................... 5,445 (385)
--------- ---------
9,059 5,260
--------- ---------
Income before Interest Charges ......................... 30,857 33,378
--------- ---------
Interest Charges
Interest on mortgage bonds ........................... 1,339 3,872
Interest on other long-term debt ..................... 4,388 6,487
Other interest ....................................... 6,771 7,619
Allowance for borrowed funds used during construction (120) (140)
--------- ---------
12,378 17,838
--------- ---------
Net Income ............................................. 18,479 15,540
Dividends Declared on Cumulative Preferred Stock ....... 1,259 1,615
--------- ---------
Income Available for Common Stock ...................... $ 17,220 $ 13,925
========= =========
See Notes to Consolidated Financial Statements
-9-
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
For the 3 Months Ended June 30,
2002 2001
------- ------
(Thousands of Dollars)
Net Income .......................................................... $ 3,223 $2,925
Other comprehensive income:
Reclassification adjustment for gain on investments included in net
income, net of tax of $26 ....................................... (38) --
------- ------
Other comprehensive income .......................................... (38) --
------- ------
Comprehensive Income ................................................ $ 3,185 $2,925
======= ======
See Notes to Consolidated Financial Statements
-10-
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
For the 6 Months Ended June 30,
2002 2001
------- -------
(Thousands of Dollars)
Net Income ............................................. $18,479 $15,540
Other comprehensive income:
Net unrealized gains on investments:
Unrealized gain arising during period,
net of tax of $(26) .............................. 38
Less: reclassification adjustment for gain included
in net income, net of tax of $26 ......... (38) -- --
------- ------- -------
Other comprehensive income ............................. -- --
------- -------
Comprehensive Income ................................... $18,479 $15,540
======= =======
See Notes to Consolidated Financial Statements
-11-
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2002 2001
ASSETS (Unaudited)
--------- --------
(Thousands of Dollars)
Utility Plant
Electric ....................................... $591,548 $584,831
Gas ............................................ 185,598 180,673
Common ......................................... 102,587 97,124
-------- --------
879,733 862,628
Less: Accumulated depreciation ................ 365,466 354,010
-------- --------
514,267 508,618
Construction work in progress .................. 60,358 53,139
-------- --------
Net Utility Plant ...................... 574,625 561,757
-------- --------
Other Property and Plant .............................. 969 970
-------- --------
Prefunded Pension Costs and Other Investments
Prefunded pension costs ....................... 77,493 78,743
Other investments ............................. 2,420 1,893
-------- --------
Total Prefunded Pension Costs and Other Investments ... 79,913 80,636
-------- --------
Current Assets
Cash and cash equivalents ...................... 115,848 47,864
Accounts receivable from customers - net of
allowance for doubtful accounts .......... 39,155 37,356
Accrued unbilled utility revenues .............. 5,861 11,765
Other receivables .............................. 4,163 9,145
Fuel, materials and supplies - at average cost . 10,886 13,867
Fair value of derivative instruments - current . 914 13,072
Special deposits and prepayments ............... 36,567 32,207
-------- --------
Total Current Assets .................. 213,394 165,276
-------- --------
Deferred Charges and Other Assets
Regulatory assets .............................. 40,500 35,094
Unamortized debt expense ....................... 4,015 3,545
Fair value of derivative instruments ........... -- 12,570
Bond defeasance escrow ......................... 10,691 18,612
Other assets ................................... 6,196 26,793
-------- --------
Total Deferred Charges and Other Assets 61,402 96,614
-------- --------
Total Assets ................ $930,303 $905,253
======== ========
See Notes to Consolidated Financial Statements
-12-
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2002 2001
CAPITALIZATION AND LIABILITIES (Unaudited)
--------- ---------
(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
Paid-in capital ...................................... 174,980 174,980
Retained earnings .................................... 8,998 9,777
Capital stock expense ................................ (5,297) (5,791)
--------- ---------
Total Common Stock Equity .................... 262,992 263,277
--------- ---------
Cumulative Preferred Stock
Not subject to mandatory redemption ............. 21,030 21,030
Subject to mandatory redemption ................. 12,500 35,000
--------- ---------
Total Cumulative Preferred Stock ............. 33,530 56,030
--------- ---------
Long-term Debt ....................................... 279,375 215,874
--------- ---------
Total Capitalization ......................... 575,897 535,181
--------- ---------
Current Liabilities
Current maturities of long-term debt ................. 25,500 20,000
Accounts payable ..................................... 30,226 32,125
Accrued interest ..................................... 3,785 2,538
Dividends payable .................................... 451 807
Accrued vacation ..................................... 3,671 3,900
Customer deposits .................................... 5,146 5,032
Other ................................................ 10,388 2,095
--------- ---------
Total Current Liabilities .................... 79,167 66,497
--------- ---------
Deferred Credits and Other Liabilities
Regulatory liabilities ............................... 199,024 235,960
Operating reserves ................................... 4,508 4,853
Deferred gain - sale of plants ....................... 22,171 24,568
Accrued environmental remediation costs .............. 8,374 6,059
Other ................................................ 12,912 11,936
--------- ---------
Total Deferred Credits and Other Liabilities . 246,989 283,376
--------- ---------
Accumulated Deferred Income Tax (Net) ........................ 28,250 20,199
--------- ---------
Total Capitalization and Liabilities ......... $ 930,303 $ 905,253
========= =========
See Notes to Consolidated Financial Statements
-13-
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the 6 Months Ended
June 30,
2002 2001
--------- ---------
Operating Activities: (Thousands of Dollars)
Net Income ............................................................. $ 18,479 $ 15,540
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation, amortization & nuclear fuel amortization ........ 13,913 16,453
Deferred income taxes - net ................................... 3,763 (375)
Nine Mile 2 Plant deferred finance charges - net .............. -- 1,311
Provision for uncollectibles .................................. 1,393 1,250
Accrued/deferred pension costs ................................ (8,147) (7,492)
Deferred revenues per 1998 Settlement Agreement ............... -- 10,080
Other - net ................................................... (5,098) 802
Changes in current assets and liabilities - net:
Accounts receivable, unbilled revenues and other receivables .. 7,694 24,068
Fuel, materials and supplies .................................. 2,981 932
Special deposits and prepayments .............................. 4,360 2,479
Accounts payable .............................................. (1,899) (7,405)
Accrued taxes and interest .................................... 11,949 (31,212)
Deferred taxes related to sale of plants and Nine Mile 2
Plant write-off ............................................. -- (233,876)
Deferred gas costs ............................................ 9,319 1,778
Customer benefit and carrying charge - net .................... (9,014) --
Other - net ................................................... (2,880) (2,842)
--------- ---------
Net Cash Provided by (Used In) Operating Activities ................. 46,813 (208,509)
--------- ---------
Investing Activities:
Proceeds from sale of fossil generation plants ...................... -- 713,202
Mortgage receivable - sale of Nine Mile 2 Plant ..................... 22,733 --
Additions to Plant .................................................. (26,153) (29,357)
Nine Mile 2 Plant decommissioning trust fund ........................ -- (434)
Other - net ......................................................... (2,914) 4,101
--------- ---------
Net Cash (Used in) Provided by Investing Activities ................. (6,334) 687,512
--------- ---------
Financing Activities:
Proceeds from issuance of long-term debt ............................ 69,000 --
Retirement of preferred stock ....................................... (22,500) --
Repayments of short-term debt ....................................... -- (25,000)
Repayments of long-term debt ........................................ -- (125,130)
Dividends paid on cumulative preferred and common stock ............. (18,807) (15,515)
Special dividend to parent .......................................... -- (212,000)
Issuance and redemption costs ....................................... (188) (14)
--------- ---------
Net Cash Provided by (Used in) Financing Activities ................. 27,505 (377,659)
--------- ---------
Net Change in Cash and Cash Equivalents .................................... 67,984 101,344
Cash and Cash Equivalents - Beginning of Year .............................. 47,864 17,279
--------- ---------
Cash and Cash Equivalents - End of Period .................................. $ 115,848 $ 118,623
========= =========
Supplemental Disclosure of Cash Flow Information
Interest paid ....................................................... $ 4,808 $ 13,617
Federal and State income tax paid ................................... -- $ 260,208
See Notes to Consolidated Financial Statements
-14-
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. and its regulated electric and gas subsidiary, Central Hudson Gas &
Electric Corporation. The Notes to Financial Statements apply to both CH Energy
Group, Inc. and Central Hudson Gas & Electric Corporation. CH Energy Group,
Inc.'s Consolidated Financial Statements include the accounts of CH Energy
Group, Inc. and its wholly owned subsidiaries, including Central Hudson Gas &
Electric Corporation and its non-utility subsidiary, Central Hudson Energy
Services, Inc.
Unaudited Consolidated Financial Statements
The accompanying Consolidated Financial Statements of CH Energy Group,
Inc. and Central Hudson Gas & Electric Corporation 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 CH Energy Group, Inc./Central Hudson Gas
& Electric Corporation Annual Report, on Forms 10-K and 10-K/A, for the year
ended December 31, 2001 ("Corporations' 10-K Report").
Due to the seasonal nature of CH Energy Group, Inc.'s and Central Hudson
Gas & Electric Corporation's operations, financial results for interim periods
are not necessarily indicative of trends for a twelve-month period.
NOTE 2 - SEGMENTS AND RELATED INFORMATION
Reference is made to Note 11 - "Segments and Related Information" to the
Consolidated Financial Statements included in the Corporations' 10-K Report.
CH Energy Group, Inc.'s reportable operating segments are the regulated
electric and gas operations of Central Hudson Gas & Electric Corporation and the
activities of the competitive business subsidiaries of Central Hudson Energy
Services, Inc. covered under the "Unregulated" segment for CH Energy Group, Inc.
Also included in the "Unregulated" segment is the investment activity of CH
Energy Group, Inc. The segments currently operate in the Northeast and
Mid-Atlantic regions of the United States.
-15-
Certain additional information regarding these segments is set forth in
the following table. General corporate expenses, property common to both
electric and gas segments and depreciation of the common property have been
allocated to the segments in accordance with practice established for regulatory
purposes.
CH Energy Group, Inc. Segment Disclosure - FAS 131
Quarter Ended June 30, 2002 Six Months Ended June 30, 2002
--------------------------- ------------------------------
Regulated Unreg. Total Regulated Unreg. Total
Electric Gas Electric Gas
-------- -------- -------- -------- -------- -------- -------- --------
Revenues from external customers $ 98,530 $ 24,404 $ 29,871 $152,805 $200,002 $ 66,136 $ 83,662 $349,800
Intersegment revenues 12 99 -- 111 26 229 -- 255
Total Revenues $ 98,542 $ 24,503 $ 29,871 $152,916 $200,028 $ 66,365 $ 83,662 $350,055
Earnings before income taxes -
continuing operations $ 3,229 $ 1,783 $ (2,019) $ 2,993 $ 18,505 $ 11,048 $ 6,292 $ 35,845
Net Income:
from continuing operations $ 1,937 $ 835 $ (1,197) $ 1,575 $ 11,064 $ 6,156 $ 3,797 $ 21,017
from discont'd operations -- -- 3,523 3,523 -- -- 3,523 3,523
Total Net Income $ 1,937 $ 835 $ 2,326 $ 5,098 $ 11,064 $ 6,156 $ 7,320 $ 24,540
Earnings Per Share:
from continuing operations $ 0.12 $ 0.04 $ (0.06) $ 0.10 $ 0.68 $ 0.37 $ 0.24 $ 1.29
from discont'd operations -- -- 0.21 0.21 -- -- 0.21 0.21
Total Earnings Per Share $ 0.12 $ 0.04 $ 0.15 $ 0.31 $ 0.68 $ 0.37 $ 0.45 $ 1.50
-16-
CH Energy Group, Inc. Segment Disclosure - FAS 131 (cont'd)
Quarter Ended June 30, 2001 Six Months Ended June 30, 2001
--------------------------- ------------------------------
Regulated Unreg. Total Regulated Unreg. Total
Electric Gas Electric Gas
--------- --------- --------- --------- --------- --------- --------- ---------
Revenues from external customers $ 104,285 $ 25,241 $ 36,803 $ 166,329 $ 219,513 $ 78,686 $ 110,445 $ 408,644
Intersegment revenues 12 77 -- 89 38 245 -- 283
Total Revenues $ 104,297 $ 25,318 $ 36,803 $ 166,418 $ 219,551 $ 78,931 $ 110,445 $ 408,927
Earnings before income taxes $ (215) $ 4,149 $ 705 $ 4,639 $ 9,502 $ 15,495 $ 10,987 $ 35,984
Net Income $ (425) $ 2,543 $ 1,106 $ 3,224 $ 4,758 $ 9,167 $ 7,609 $ 21,534
Earnings Per Share $ (0.03) $ 0.16 $ 0.07 $ 0.20 $ 0.29 $ 0.56 $ 0.47 $ 1.32
-17-
Central Hudson Gas & Electric Corporation Segment Disclosure - FAS 131
Quarter Ended June 30, 2002 Six Months Ended June 30, 2002
--------------------------- ------------------------------
Electric Gas Electric Gas Total
--------- --------- --------- --------- --------- ---------
Revenues from external customers $ 98,530 $ 24,404 $ 122,934 $ 200,002 $ 66,136 $ 266,138
Intersegment revenues 12 99 111 26 229 255
Total Revenues $ 98,542 $ 24,503 $ 123,045 $ 200,028 $ 66,365 $ 266,393
Earnings before income taxes $ 3,573 $ 1,890 $ 5,463 $ 19,466 $ 11,347 $ 30,813
Net Income $ 2,280 $ 943 $ 3,223 $ 12,022 $ 6,457 $ 18,479
Income Available for Common Stock $ 1,937 $ 835 $ 2,772 $ 11,064 $ 6,156 $ 17,220
Quarter Ended June 30, 2001 Six Months Ended June 30, 2001
--------------------------- ------------------------------
Electric Gas Total Electric Gas Total
--------- --------- --------- --------- --------- ---------
Revenues from external customers $ 104,284 $ 25,241 $ 129,525 $ 219,513 $ 78,686 $ 298,199
Intersegment revenues 12 77 89 38 245 283
Total Revenues $ 104,296 $ 25,318 $ 129,614 $ 219,551 $ 78,931 $ 298,482
Earnings before income taxes $ 450 $ 4,291 $ 4,741 $ 10,848 $ 15,764 $ 26,612
Net Income $ 240 $ 2,685 $ 2,925 $ 6,104 $ 9,436 $ 15,540
Income Available for Common Stock $ (425) $ 2,543 $ 2,118 $ 4,758 $ 9,167 $ 13,925
-18-
NOTE 3 - DISCONTINUED OPERATIONS
On May 31, 2002, Central Hudson Energy Services, Inc. sold all of its
stock ownership in its subsidiary, CH Resources, Inc., to WPS Power Development,
Inc., a Wisconsin corporation, for $58.2 million in cash. The principal assets
of CH Resources, Inc. were three electric generating facilities. In accordance
with Accounting Principles Board Opinion No. 30, the financial results for this
subsidiary are reported as "Discontinued Operations."
The net loss from discontinued operations, net of an income tax benefit of
$1.4 million, was $2.2 million. The gain on disposal of discontinued operations,
net of income taxes of $6.7 million, was $5.7 million. Therefore, the net income
from discontinued operations was $3.5 million.
The total assets of these operations of $42.6 million at the sale closing
date of May 31, 2002, consisted primarily of fixed assets of $32.3 million,
inventory of $3.2 million and other assets of $7.1 million. The revenues
applicable to these discontinued operations for the period January 1 through May
31, 2002 were $3.6 million.
NOTE 4 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -
STATEMENT OF FINANCIAL ACCOUNTING STANDARD ("SFAS") 133
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 Central Hudson Gas & Electric Corporation
derivatives at June 30, 2002 was $914,000 (net unrealized gain), which compared
to a fair value gain at March 31, 2002 of $36.2 million. The reduction in fair
value of $35.3 million resulted from the conversion of Central Hudson Gas &
Electric Corporation's multi-year, transition purchase power agreement ("TPA")
back to its original physical delivery arrangement, effective June 1, 2002. For
the quarter ended June 30, 2002, Central Hudson Gas & Electric Corporation
realized an actual net gain of $299,000 and, for the six months ended June 30,
2002, an actual net loss of $588,000 related to derivative transactions. In
accordance with the provisions of SFAS 71, gains and losses which either
increase or decrease actual energy costs are deferred for pass-back to or
recovery from customers under Central Hudson Gas & Electric Corporation's
electric and gas energy cost adjustment clauses.
The total fair value of derivatives for Central Hudson Energy Services,
Inc. at June 30, 2002 was $21,000, as compared to an unrealized fair value gain
of $5.2 million at March 31, 2002. The reduction in fair value resulted from the
sale of transmission congestion contracts as part of the sale of CH Resources,
Inc. on May 31, 2002. Derivatives outstanding at quarter-end included a minimal
number of oil put options designated as fair value hedges for the 2002/2003
heating season. The future value of these put options is not expected to be
material. For the six months ended
-19-
June 30, 2002, actual gains related to oil put options settled were $170,000,
which served to reduce the cost of fuel oil during the heating season just
ended. Fair value hedges settled through June 30, 2002 were highly effective.
In addition to the above, CH Energy Group, Inc. and certain of its
subsidiaries entered into weather derivative contracts to hedge the effect on
earnings due to significant variations in heating degree days from normal. The
contracts for CH Energy Group, Inc. covered the November 2001 through March 2002
heating season. A total gain of $3.75 million was realized under these
contracts, of which $987,000 was recorded in the six months ended June 30, 2002.
Central Hudson Gas & Electric Corporation entered into a weather derivative
contract to hedge the effect on earnings due to significant variations in
cooling degree days for the cooling season from June 2002 through August 2002.
The estimated unrealized gain for the month of June 2002 was not material to its
results of operations.
NOTE 5 - NEW ACCOUNTING STANDARDS AND OTHER FASB PROJECTS
Rescission of Previous FASB Statements - SFAS 145
On April 30, 2002, the Financial Accounting Standards Board ("FASB")
issued Statement No. 145 ("SFAS 145"), Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This
Statement updates, clarifies and simplifies existing accounting pronouncements
related to extinguishments of debt, provisions of the Motor Carrier Act of 1980
and lease transactions.
It is expected that the rescission of Statements 4, 44 and 64 and the
amendment to Statement 13 will have no material impact on CH Energy Group,
Inc.'s or Central Hudson Gas & Electric Corporation's financial condition,
results of operations or cash flows.
Accounting for Costs Associated with Exit or Disposal Activities - SFAS 146
On July 30, 2002, FASB issued Statement No. 146 ("SFAS 146"), Accounting
for Costs Associated with Exit or Disposal Activities. The standard requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a restructuring,
discontinued operations, plant closing, or other exit or disposal activities.
Previous accounting guidance was provided by the Emerging Issues Task
Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." Statement 146 replaces Issue 94-3.
-20-
Statement 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002.
It is expected that the new accounting standard will have no significant
impact on CH Energy Group, Inc.'s and Central Hudson Gas & Electric
Corporation's results of operations at implementation.
FASB Exposure Drafts
On May 1, 2002, FASB issued an Exposure Draft, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. The Exposure Draft would amend
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, to
clarify the definition of a derivative in paragraph 6(b) of SFAS 133 and for
various decisions made as part of the Derivatives Implementation Group process.
This proposed Amendment would be effective as of the first day of the first
fiscal quarter beginning after November 15, 2002, which for calendar year
companies is January 1, 2003. The comment period for this Exposure Draft
concluded on July 1, 2002.
On May 22, 2002, FASB issued an Exposure Draft, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No.5, 57 and 107.
The exposure draft intends to clarify and expand on existing disclosure
requirements for guarantees, including loan guarantees. It would also require
that at the time a company issues a guarantee, it must recognize a liability for
the fair value or market value of its obligations under the guarantee. The
comment period for this Exposure Draft concluded on June 21, 2002.
On June 28, 2002, FASB issued an Exposure Draft, Consolidation of Certain
Special-Purpose Entities, an interpretation of Accounting Research Bulletin
("ARB") No. 51. The exposure draft intends to address consolidation by business
enterprises of special-purpose entities ("SPEs") to which the usual condition
for consolidation described in ARB No. 51, Consolidated Financial Statements,
does not apply because SPEs have no voting interests or otherwise are not
subject to control through ownership of voting interests. The comment period for
this Exposure Draft concludes on August 30, 2002.
CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation will
continue to monitor these exposure drafts but can make no prediction at this
time as to the ultimate form of the proposed accounting and reporting changes,
assuming these Amendments are adopted, or as to their ultimate effect(s) on the
financial condition, results of operations and cash flows of CH Energy Group,
Inc. or Central Hudson Gas & Electric Corporation.
-21-
Goodwill and Other Intangible Assets - SFAS 142
Reference is made to the subcaption "Business Combinations and Intangible
Assets - Accounting for Goodwill" under 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.
SFAS 142 requires that goodwill and other intangible assets that have
indefinite useful lives no longer be amortized to earnings, but instead be
periodically reviewed for impairment. The amortization of goodwill related to
all acquisitions made by Central Hudson Energy Services, Inc. ceased upon
adoption of SFAS 142 by CH Energy Group, Inc. on January 1, 2002, which
favorably impacted CH Energy Group, Inc.'s results of operations by $393,000 for
the three months ended June 30, 2002, and by $799,000 for the six months ended
June 30, 2002. SFAS 142 does not currently affect Central Hudson Gas & Electric
Corporation.
Included in intangible assets are separate identifiable intangible assets,
such as customer lists and covenants not to compete. In accordance with SFAS
142, intangible assets with finite useful lives continue to be amortized over
their useful lives. The useful life assumed for customer lists is 15 years, and
the useful life for covenants 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 Central Hudson Energy Services, Inc.'s intangible assets
are the result of business combinations. Upon implementation of SFAS 142,
Central Hudson Energy Services, Inc. tested the goodwill remaining on the
balance sheet for impairment by measuring future expected cash flows using
historical profit margins of the companies acquired by Central Hudson Energy
Services, Inc. and confirmed that there is no impairment.
The components of amortizable intangible assets of CH Energy Group, Inc.
are summarized as follows (thousands of dollars):
June 30, 2002 December 31, 2001
------------- -----------------
Accumulated Accumulated
Gross Carrying Amount Amortization Gross Carrying Amount Amortization
--------------------- ------------ --------------------- ------------
Customer Lists $35,656 $4,527 $35,656 $3,248
Covenants Not to Compete $ 1,379 $ 414 $ 1,379 $ 328
Total Amortizable
Intangibles $37,035 $4,941 $37,035 $3,576
-22-
Amortization expense was $1,365,000 and $2,534,000 for the six months
ended June 30, 2002 and 2001, respectively. Amortization expense was $682,000
and $1,279,000 for the three months ended June 30, 2002 and June 30, 2001,
respectively. The estimated amortization expense for each of the next five
years, assuming no new acquisitions, is as follows:
2002 $2,698,886
2003 $2,682,243
2004 $2,490,203
2005 $2,422,229
2006 $2,417,481
The carrying amount for goodwill, not subject to amortization effective
January 1, 2002, was $46.1 million as of June 30, 2002. During the six months
ended June 30, 2002, the unregulated business segment recognized an impairment
loss of goodwill of $76,000 associated with the assets purchased from an energy
services company specializing in energy efficiency projects and the loss is
included in Other Expense. The causes of the loss were negative cash flows and
staffing reductions relating to the assets acquired.
Proforma earnings of CH Energy Group, Inc. as a result of the changes
associated with SFAS 142 were as follows:
For the 3 Months For the 6 Months
Ended 6/30 Ended 6/30
------------- -------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(Thousands of Dollars)
Net Income:
Reported net income $ 5,098 $ 3,224 $ 24,540 $ 21,534
Add back goodwill amortization -- 393 -- 799
---------- ---------- ---------- ----------
Adjusted net income $ 5,098 $ 3,617 $ 24,540 $ 22,333
Earnings per share (basic and diluted):
Reported net income $ .31 $ .20 $ 1.50 $ 1.32
Add back goodwill amortization -- .02 -- .05
---------- ---------- ---------- ----------
Adjusted net income $ .31 $ .22 $ 1.50 $ 1.37
Long-Lived Assets - SFAS 144
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.
Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
144") requires that long-lived assets be measured at the lower of carrying
amount or fair
-23-
value less cost to sell. Whether reported in continuing or in discontinued
operations, an impairment loss is the amount by which the carrying amount of the
long-lived assets exceeds its fair value. SFAS 144 also contains specific
accounting and financial reporting criteria for the disposal of a long-lived
asset either by sale or other than by sale. SFAS 144 is effective for CH Energy
Group, Inc.'s 2002 fiscal year.
Both CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation
have reviewed their assets under these impairment standards and presently have
no impaired assets.
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.
In the 10-K Report it was stated that the FASB exposure draft regarding
Property, Plant and Equipment was to be effective for annual and interim
financial statements for fiscal years beginning after June 15, 2002, with
earlier adoption encouraged. However, the American Institute of Certified Public
Accountants is not anticipated to release the final pronouncement until the
fourth quarter of 2002. At that time, a revised effective date will be
disclosed.
NOTE 6 - STOCK-BASED COMPENSATION INCENTIVE PLANS
Reference is made to Note 9 - "Stock-Based Compensation Incentive Plans"
to the Consolidated Financial Statements of the Corporations' 10-K Report and to
the description of CH Energy Group, Inc.'s Long-Term Performance-Based Incentive
Plan ("Plan") referred to therein.
6,380 performance shares were granted, in aggregate, to executives covered
under the Plan on January 1, 2000 and 7,570 performance shares were granted, in
aggregate, to executives covered under the Plan on January 1, 2001. The ultimate
number of shares awarded will be based on the performance of CH Energy Group,
Inc.'s common stock over the three years following the date of grant, but shall
not exceed 150% of the number of shares granted.
-24-
A summary of the status of Options awarded to executive officers and
Non-Employee Directors of CH Energy Group, Inc. and its subsidiaries under the
Plan as of June 30, 2002 is as follows:
Weighted Weighted
Average Average
Exercise Remaining
Shares Price Contractual Life
Outstanding at 1/1/02 89,400 $ 39.95 --
Granted -- -- --
Exercised -- -- --
Forfeited (800) 44.06 --
------- ------- -------
Outstanding at 6/30/02 88,600 $ 39.92 8.15 years
======= ======= =======
NOTE 7 - COMMITMENTS AND CONTINGENCIES
CH Energy Group, Inc. and Central Hudson Gas & Electric Corporation face a
number of contingencies which arise during the normal course of business and
which have been discussed in Note 10 - "Commitments and Contingencies" to the
Consolidated Financial Statements included in the Corporations' 10-K Report.
Except for that which is disclosed in Part II of this Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002, and all documents previously
filed with the Securities and Exchange Commission ("SEC") in 2002, there have
been no material changes in the subject matters discussed in said Note 10.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The growth of CH Energy Group, Inc.'s retained earnings in the first six
months of 2002 contributed to the increase in the per share book value of its
common stock from $30.33 at December 31, 2001, to $30.78 at June 30, 2002, and
the issuance of Central Hudson Gas & Electric Corporation's Medium-Term Notes
(described below) contributed to the decrease in the common equity ratio from
62.9% at December 31, 2001, to 59.8% at June 30, 2002.
On July 25, 2002, the Board of Directors of CH Energy Group, Inc.
authorized a Common Stock Repurchase Program ("Program") to repurchase up to
four million shares, or approximately 25 percent of its outstanding common stock
over the five years beginning August 1, 2002. The Board of Directors has
targeted 800,000 shares for repurchase in the first year of the Program, but has
authorized repurchase of up to 1.2 million shares during the first year. CH
Energy Group, Inc. intends to set repurchase targets each year based on
circumstances then prevailing. CH Energy Group, Inc. reserves the right to
modify, suspend or terminate the Program at any time without notice.
-25-
CH Energy Group, Inc. intends to invest approximately $100 million of its
corporate cash reserves in marketable securities and/or liquid mutual funds
pending use of the cash reserves to make capital expenditures, fund
acquisitions, or to repurchase its common stock. The cash reserves may be placed
in vehicles that include, but are not limited to: common stock of utility
companies, investment grade preferred stock, fixed income securities such as
U.S. Treasury and Agency bonds, mortgages, corporate bonds, asset-backed
securities, real estate limited partnerships, master limited partnerships,
mutual funds, and leases.
CH Energy Group, Inc. expects that the total after-tax return on
investment realized through this investment plan will exceed that available
through money market instruments, but no assurances can be given. The investment
plan may also increase volatility of net income due to gains and losses realized
upon the sale of the investments. Quarterly "mark to market" ("MTM") accounting
will record the change in the market value of the investments on the
Consolidated Statement of Comprehensive Income. When the investments are sold,
the gain or loss will be recorded on the Income Statement.
The right to issue up to $100 million of Central Hudson Gas & Electric
Corporation's Medium-Term Notes over a three-year period has been authorized by
the New York State Public Service Commission ("PSC"). On March 28, 2002, $33
million of five-year Notes at 5.87%, Series D, and $36 million of ten-year Notes
at 6.64%, Series D, were issued.
In May 2002, Central Hudson Gas & Electric Corporation repurchased $17.5
million of its 6.20% cumulative preferred stock and $5.0 million of its 6.80%
cumulative preferred stock in order to recalibrate its capital structure as a
result of Central Hudson Gas & Electric Corporation's reducing its asset base by
divesting interests in certain generating facilities.
Central Hudson Gas & Electric Corporation has $1.5 million of committed
short-term credit facilities available and has also entered into a $75 million
revolving credit agreement with several commercial banks. Authorization from the
PSC limits the short-term borrowing amount Central Hudson Gas & Electric
Corporation may have outstanding at any time to $77 million in the aggregate. As
of June 30, 2002, there was no outstanding balance.
Central Hudson Energy Services, Inc. has a $12.5 million line of credit
with a commercial bank and, as of June 30, 2002, there was no outstanding
balance.
At June 30, 2002, CH Energy Group, Inc. had no short-term debt
outstanding. Cash and cash equivalents for CH Energy Group, Inc., including
investments in short-term securities, were $264.8 million at the end of June
2002.
At June 30, 2002, Central Hudson Gas & Electric Corporation had no
short-term debt outstanding. Cash and cash equivalents, including investments in
short-term securities, were $115.8 million at the end of June 2002.
-26-
EARNINGS PER SHARE
Three Months Ended June 30, 2002
Earnings per share of CH Energy Group, Inc. common stock were $.31 for the
second quarter of 2002, as compared to $.20 for the second quarter of 2001, an
increase of 55%. Earnings per share of common stock were $1.50 for the six
months ended June 30, 2002, as compared to $1.32 for the first six months of
2001, an increase of 14%.
Earnings per share for the second quarter of 2002 included $.21 from
discontinued operations, specifically, the net gain realized from the May 31,
2002 sale of Central Hudson Energy Services, Inc.'s stock ownership in CH
Resources, Inc. which included operating losses of the discontinued operations
previously deferred in accordance with applicable accounting principles. The net
gain was partially offset by operating losses incurred by Central Hudson Energy
Services, Inc.'s fuel distribution subsidiaries, SCASCO, Inc. and Griffith
Energy Services, Inc., which typically incur losses during the non-heating
season.
Earnings per share from CH Energy Group, Inc. also increased for the three
months ended June 30, 2002, due to the amortization of previously deferred
shareholder benefits under a prior regulatory agreement relating to the sale of
Central Hudson Gas & Electric Corporation's interests in certain fossil
generation plants, and also due to a reduction in other operating costs,
primarily a reduction in labor costs resulting from efficiency gains and
increased labor resources devoted to capital improvements. Also enhancing
earnings was the net effect of various other items, including a reduction in
income taxes and increased property taxes.
Partially offsetting these increases was a decrease in net interest income
largely due to lower cash balances and lower interest rates. The reduction in
interest income was partially offset by reductions in interest charges and
preferred stock dividends. The decrease in interest charges resulted from the
redemption and repurchase of a number of long-term debt obligations of Central
Hudson Gas & Electric Corporation from May through September of 2001. Preferred
stock dividends decreased due to the partial repurchase by Central Hudson Gas &
Electric Corporation of two issues of its cumulative preferred stock in May
2002. Proceeds from the sale of Central Hudson Gas & Electric Corporation's
interests in certain fossil generation plants and its interest in the Unit No. 2
of the Nine Mile Point Nuclear Generating Station ("Nine Mile 2 Plant") were
used to fund the redemptions and repurchases. For a discussion on such sales see
Note 2, "Regulatory Matters," under the caption "Sales of Principal Generating
Facilities," in the Corporations' 10-K Report.
Also reducing earnings was a decrease in Central Hudson Gas & Electric
Corporation's gas net operating revenues (net of the cost of gas and revenue
taxes) due to a reduction in own territory firm sales. The reduction largely
reflects a reduction in heating sales to residential and commercial customers
due to warmer weather,
-27-
largely in April 2002 (heating billing degree-days for the second quarter were
6% lower than those of the same period in 2001). Earnings were also down due to
a decrease in Central Hudson Gas & Electric Corporation's electric net operating
revenues (net of the cost of fuel, purchased electricity and revenue taxes),
primarily due to the elimination of rate moderation credits effective July 1,
2001 (the effective date of the current PSC rate order). This change was
partially offset by an increase in net revenues from sales. Central Hudson Gas &
Electric Corporation also deferred revenues in accordance with its PSC-approved
excess earnings provision (as described in the Corporations' 10-K Report in Note
2, "Regulatory Matters," under the caption, "Rate Proceedings Electric and
Gas"); however, this decrease was offset by a reduction in operations expenses
for its interest in the Nine Mile 2 Plant, sold in November 2001.
Six Months Ended June 30, 2002
CH Energy Group, Inc.'s earnings per share for the first six months of
2002, as compared to the same period in 2001, increased $.18. The enhancement in
earnings largely reflects the net result from discontinued operations of CH
Resources, Inc., which was sold on May 31, 2002; the recording of income for the
receipt of stock related to the demutualization of certain insurance companies;
an increase in electric net operating revenues primarily due to a smaller
revenue deferral under Central Hudson Gas & Electric Corporation's excess
earnings provision and a reduction in Central Hudson Gas & Electric
Corporation's operating expenses, primarily labor costs. The increase in
earnings was partially offset by a reduction in gas net operating revenues due
to lower sales resulting from warmer weather, a reduction in interest income due
primarily to lower cash balances and lower interest rates and a reduction in
earnings from Central Hudson Energy Services, Inc. also reflecting lower sales
by its fuel distribution subsidiaries due to the warmer weather.
Reference is made to the caption "Earnings" of Part II, Item 7 of the
Corporations' 10-K Report for a discussion of CH Energy Group, Inc.'s projection
of earnings for calendar year 2002 as stated in the Corporations' 10-Q Report
for the period ended March 31, 2002. Based on the impact of the warm weather and
loss of interest income resulting from the prepayment of the five-year
promissory note by Constellation, Inc., arising out of the sale of Central
Hudson Gas & Electric Corporation's interest in the Nine Mile 2 Plant (see
caption "Proceeds from Sales of Principal Generating Facilities" of Part II,
Item 7 of the Corporations' 10-K Report), CH Energy Group, Inc. continues to
expect its 2002 earnings per share will be in the range of $2.50 - $2.65 per
share versus its original projection of $2.70 - $2.85 per share.
RESULTS OF OPERATIONS
The following financial review identifies the causes of significant
changes in the amounts of revenues and expenses for CH Energy Group, Inc. and
its subsidiaries (regulated and unregulated), comparing the six-month period
ended June 30, 2002 to the six-month period ended June 30, 2001. The operating
results of the regulated subsidiary reflect Central Hudson Gas & Electric
Corporation's electric and gas sales
-28-
and revenues, and the operating results of the unregulated subsidiary reflect
Central Hudson Energy Services, Inc.'s operations.
OPERATING REVENUES
CH Energy Group, Inc.'s operating revenues decreased $13.5 million (8%)
for the second quarter of 2002, and decreased $58.9 million (14%) for the first
six months as compared to the comparable periods of 2001. Details of these
revenue changes by electric, gas and unregulated subsidiaries are as follows:
2002/2001 INCREASE (DECREASE)
THREE MONTHS ENDED JUNE 30, 2002
Electric Gas Unregulated Total
-------- -------- -------- ---------
(Thousands of Dollars)
Customer Sales(a) ........ $(11,691) $ (6,632)(b) $ (6,932) $ (25,255)
Sales to Other Utilities . 1,762 1,543 -- 3,305
Fuel & Gas Cost Adjustment 3,974 4,746 -- 8,720
Deferred Revenues ........ 99(c) (413) -- (314)
Miscellaneous ............ 101 (59) -- 42
-------- -------- -------- ---------
Total ............... $ (5,755) $ (815) $ (6,932) $ (13,502)
======== ======== ======== =========
2002/2001 INCREASE (DECREASE)
SIX MONTHS ENDED JUNE 30, 2002
Electric Gas Unregulated Total
-------- -------- -------- ---------
(Thousands of Dollars)
Customer Sales(a) ........ $(63,194) $(24,907)(b) $(26,783) $(114,884)
Sales to Other Utilities . (5,565) 2,295 -- (3,270)
Fuel & Gas Cost Adjustment 32,684 11,969 -- 44,653
Deferred Revenues ........ 16,436(c) (1,756) -- 14,680
Miscellaneous ............ 116 (167) -- (51)
-------- -------- -------- ---------
Total ............... $(19,523) $(12,566) $(26,783) $ (58,872)
======== ======== ======== =========
(a) Includes delivery of electricity and gas supplied by others.
(b) Both firm and interruptible revenues.
(c) Includes the deferral and restoration of revenues related to Central
Hudson Gas & Electric Corporation'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 included in the Corporations' 10-K Report) and earnings in
excess of the rate of return allowance in accordance with the provisions
of Central Hudson Gas & Electric Corporation's current rate order
(described in said Note 2) and its prior Settlement Agreement.
Central Hudson Gas & Electric Corporation's electric and gas operating
revenues in the second quarter decreased $6.6 million (5%), from $129.6 million
in the second quarter of 2001 to $123.0 million in the second quarter of 2002.
Electric revenues decreased $5.8 million (6%) and gas revenues decreased
$815,000 (3%). The
-29-
reduction in total electric revenues was due primarily to a change in rates,
effective November 1, 2001, from Central Hudson Gas & Electric Corporation's
most recent rate order and the deferral of revenues under Central Hudson Gas &
Electric Corporation's excess earnings provisions as described in the
Corporations' 10-K Report, in Note 2 - "Regulatory Matters," under the caption
"Rate Proceedings Electric and Gas." The decrease in electric revenues was
partially offset by an increase in revenues from sales, an increase in electric
supply cost adjustment revenues and an increase in sales for resale revenues.
The reduction in gas revenues was due largely to a decrease in sales from warmer
weather, partially offset by an increase in sales for resale revenues.
In the first half of the year 2002, as compared to the first half of 2001,
Central Hudson Gas & Electric Corporation's electric and gas operating revenues
decreased $32.1 million (11%). Electric revenues decreased $19.5 million and gas
revenues decreased $12.6 million. The reduction in electric revenues was due
primarily to the change in rates resulting from the sale in 2001 of Central
Hudson Gas & Electric Corporation's interests in its fossil and nuclear
generating plants, a decrease in sales for resale revenues, and a reduction in
sales to residential and commercial customers due to milder weather. The
reduction in Central Hudson Gas & Electric Corporation's gas revenues was due
largely to decreased sales to residential, commercial and industrial customers,
also resulting from warmer weather.
Central Hudson Energy Services, Inc.'s second quarter revenues decreased
$6.9 million (19%), from $36.8 million in 2001 to $29.9 million in 2002. The
reduction in revenues primarily reflects the impact ($7.2 million) related to
discontinued operations for Central Hudson Energy Services, Inc.'s electric
generating facilities owned by CH Resources, Inc., which sale was concluded on
May 31, 2002. In accordance with current accounting principles, revenues and
expenses have been eliminated from the results of continuing operations since
December 2001. The cumulative net loss and the gain on that sale are reported
separately from the results of continuing operations in the consolidated income
statement.
During the first six months of 2002, as compared with the first six months
of 2001, Central Hudson Energy Services, Inc.'s revenues decreased $26.8 million
(24%), from $110.5 million in 2001 to $83.7 million in 2002. The reduction is
primarily attributable to the discontinued operations of CH Resources, Inc., and
also a decrease in sales by the fuel distribution subsidiaries due to warmer
weather.
SALES
Central Hudson Gas & Electric Corporation's sales vary seasonally in
response to weather conditions. Generally, electric sales peak in the summer and
gas sales peak in the winter.
Total kilowatthour sales of electricity within Central Hudson Gas &
Electric Corporation's service territory increased 2% and firm sales of natural
gas (MCF) decreased 5% in the second quarter of 2002 as compared to the second
quarter of 2001. For the six
-30-
months ended June 30, 2002, as compared to the same period last year, sales of
electricity within Central Hudson Gas & Electric Corporation's service territory
decreased 1% and firm sales of natural gas decreased 14%. Changes in Central
Hudson Gas & Electric Corporation's electric deliveries from last year by major
customer classifications are set forth below.
INCREASE (DECREASE) FROM 2001
3 MOS ENDED JUNE 30 6 MOS ENDED JUNE 30
Electric Gas Electric Gas
Residential......... 1% (8)% (4)% (15)%
Commercial.......... 1 (3) (1) (13)
Industrial.......... 2 (19) -- (18)
Interruptible....... N/A 88 N/A 72
Central Hudson Gas & Electric Corporation's billing heating degree days
were 6% lower for the three months and 16% lower for the six months ended June
30, 2002, when compared to the respective periods in 2001. Central Hudson Gas &
Electric Corporation's electric sales to residential and commercial customers
both increased 1% for the three months ended June 30, 2002 as compared to the
comparable period in 2001. These sales, however, decreased 4% and 1%,
respectively, for the six months ended June 30, 2002, due to the warmer weather
as compared to the comparable period in 2001.
Central Hudson Gas & Electric Corporation's natural gas residential and
commercial sales, largely space heating sales, decreased 8% and 3%,
respectively, for the three months ended June 30, 2002, and decreased 15% and
13%, respectively, for the six months ended June 30, 2002, and industrial sales
decreased by 19% and 18%, respectively, for these three and six month periods,
all as compared to the corresponding periods in 2001. The reduction in sales was
due primarily to the milder weather experienced in 2002. Central Hudson Gas &
Electric Corporation's interruptible gas sales increased 88% and 72%,
respectively, for the three and six month periods ended June 30, 2002, as
compared with the same periods ended June 30, 2001. The increase for the
three-month period ended June 30, 2002, was primarily due to an increase in the
volume transported for a large industrial customer and the increase for the six
months ended June 30, 2002, was mainly due to increased usage by commercial and
industrial customers choosing to burn natural gas for economic reasons.
Central Hudson Energy Services, Inc.'s sales by its fuel distribution
subsidiaries, SCASCO and Griffith, also vary seasonally in response to weather
conditions. The warmer weather also depressed sales by the fuel distribution
companies for the six months ended June 30, 2002 as compared to the same period
in 2001.
-31-
OPERATING EXPENSES
CH Energy Group, Inc.'s total operating expenses for the second quarter of
2002 decreased $12.0 million (7%) from the comparable period in 2001. Total
operating expenses decreased $51.1 million (14%) from the first six months of
2001.
For the second quarter of 2002, Central Hudson Gas & Electric
Corporation's total operating expenses decreased $4.3 million (4.0%) from $120.9
million in 2001 to $116.6 million in 2002. This decrease in expense primarily
reflected the elimination of operational costs for Central Hudson Gas & Electric
Corporation's interest in the Nine Mile 2 Plant, due to its sale. The decrease
in expense also included a reduction in labor costs due to increased labor
resources devoted to capital improvements. Partially offsetting the reduction
was an increase of $4.0 million in purchased electricity costs due to increased
sales and an increase of $1.7 million in purchased natural gas costs largely
relating to gas costs reconciled under Central Hudson Gas & Electric
Corporation's Gas Supply Charge mechanism.
For the first six months of 2002, Central Hudson Gas & Electric
Corporation's total operating expenses decreased $25.8 million (10%), from
$270.4 million in 2001 to $244.6 in 2002. The decrease in expense primarily
reflected the effect of the sale of Central Hudson Gas & Electric Corporation's
interests in certain fossil generation plants and its interest in the Nine Mile
2 Plant. The decrease in expenses also reflected a reduction in purchased
natural gas costs and labor costs charged to operations. The cost of natural gas
was down due to lower prices and a decrease in gas sales due to the warmer
weather, while labor costs were reduced due to efficiency gains and increased
labor resources devoted to capital improvements. Largely offsetting the
reduction was a $20.5 million increase in the cost of purchased electricity,
which was partially offset by a reduction of $13.4 million for fuel used in
electric generation. The shift in costs reflected the change from own generation
to market supply generation to satisfy load requirements due to the sale of
Central Hudson Gas & Electric Corporation's interests in certain of its
generating plants. Although electric sales were down because of milder weather,
the net cost of purchased electricity and fuel used in electric generation
increased because the cost of purchased electricity also includes the fixed and
variable production costs of the generating plants supplying the power.
For the second quarter of 2002, operating expenses for Central Hudson
Energy Services, Inc. decreased $7.7 million, from $39.5 million in 2001 to
$31.8 million in 2002, primarily related to the sale of CH Resources, Inc.
Central Hudson Energy Services, Inc.'s most significant costs are the cost of
its petroleum products and natural gas at its oil distribution companies. These
costs remained relatively flat.
For the six months ended June 30, 2002, as compared to the same period
from 2001, operating expenses for Central Hudson Energy Services, Inc. decreased
$25.3 million, from $107.2 million in 2001 to $81.9 million in 2002. Energy
supply costs, of which the cost of petroleum is the most significant cost,
decreased $21.1 million due largely to the sale of CH Resources, Inc. and the
lower sales resulting from the warmer
-32-
weather. Depreciation and amortization expense decreased $1.6 million primarily
related to a change in accounting rules regarding goodwill. Other expenses of
operation, including income taxes, decreased $2.6 million also due largely to
the sale of CH Resources, Inc.
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 CH
Energy Group, Inc.'s dividend payments. On June 28, 2002, the Board of Directors
of CH Energy Group, Inc. declared a quarterly dividend of $.54 per share,
payable August 1, 2002, to shareholders of record as of July 10, 2002.
OTHER MATTERS
EXECUTIVE OFFICERS
Reference is made to the caption "Executive Officers, Part I, Item 1,
Business, of the Corporations' 10-K Report.
Allan R. Page, President of Central Hudson Energy Services, retired on
August 1, 2002, after 32 years with CH Energy Group, Inc. and its principal
subsidiaries, Central Hudson Gas & Electric Corporation and Central Hudson
Energy Services, Inc.
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, as amended and within the meaning of the Securities Litigation
Reform Act of 1995. Forward-looking statements may be identified by words
including "anticipated," "believe," "projects," "intends," "estimates,"
"expect," "plans" and similar expressions. Registrants caution readers that
forward-looking statements, including without limitation, those relating to
Registrants' 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 Registrants' reports filed with the SEC. All
forward-looking statements are intended to be subject to the safe harbor
protections provided by such Section 21E. A number of important factors
affecting Registrants' business and financial results could cause actual results
to differ materially from those stated 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 and market risks; electric
and gas industry
-33-
restructuring and cost recovery; the ability to obtain adequate and timely rate
relief; changes in fuel supply or costs and the success of strategies to satisfy
power requirements now that Central Hudson Gas & Electric Corporation's electric
generation has been sold; future market prices for energy, capacity and
ancillary services; the outcome of pending litigation; and certain environmental
matters, particularly industrial waste site remediation requirements; and
certain presently unknown or unforeseen factors, including, but not limited to,
acts of terrorism. Registrants undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Given these uncertainties, undue reliance should not be placed on these
forward-looking statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A of Corporations' 10-K Report for a
discussion of market risk. There is no material change in that discussion of
market risks and the practices employed by CH Energy Group, Inc. and Central
Hudson Gas & Electric Corporation to mitigate these risks. See Note 3 -
"Accounting for Derivative Instruments and Hedging Activities - SFAS 133" for
related discussion on this activity.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Asbestos Litigation. For a discussion of lawsuits against Central Hudson
Gas & Electric Corporation involving asbestos, see Note 10 - "Commitments and
Contingencies," under the caption "Asbestos Litigation," in Part II, Item 8 of
the Corporations' 10-K Report.
As of July 31, 2002, a total of 2,957 cases involving asbestos have been
brought against Central Hudson Gas & Electric Corporation of the type described
under the caption, of which 1,396 remain pending. Of the 1,561 cases no longer
pending against Central Hudson Gas & Electric Corporation, 1,424 have been
dismissed or discontinued, and Central Hudson Gas & Electric Corporation has
settled 137 cases. CH Energy Group, Inc. and Central Hudson Gas & Electric
Corporation are presently unable to assess the validity of the remaining
asbestos lawsuits; accordingly, they cannot determine the ultimate liability
relating to these cases. Based on information known to CH Energy Group, Inc. and
Central Hudson Gas & Electric Corporation at this time, including Central Hudson
Gas & Electric Corporation's experience in settling and in obtaining dismissals
of asbestos cases, CH Energy Group, Inc. and Central Hudson Gas & Electric
Corporation believe that the cost to be incurred in connection with the
remaining lawsuits will not have a material adverse effect on CH Energy Group,
Inc.'s and/or its subsidiaries' financial position or results of operations.
-34-
Item 5. Other Information
Environmental Matters - For a discussion of Central Hudson Gas & Electric
Corporation's environmental remediation, see Note 10 - "Commitments and
Contingencies," to the Consolidated Financial Statements under the caption,
"Former Manufactured Gas Plant Facilities," of the Corporations' 10-K Report.
As discussed in the above-referenced Note 10 in the Corporations' 10-K
Report, the New York State Department of Environmental Conservation ("NYS DEC")
had approved a conceptual remedial plan prepared by Central Hudson Gas &
Electric Corporation that addressed soil contamination at its Laurel Street
site. The NYS DEC has not approved the final agreement. In June 2002, Central
Hudson Gas & Electric Corporation recorded a $2.5 million liability for
remediation at the Laurel Street site and deferred the expense. Central Hudson
Gas & Electric Corporation's petition to defer the incremental costs of the
investigation and remediation of this site is still under review by the PSC.
Business Relationship - Central Hudson Gas & Electric Corporation has a
certain contractual and tariff-based business relationship with Dynegy, Inc. and
its affiliated companies. This relationship includes a transition power
agreement, certain facility rental and service arrangements and indemnification
for certain environmental and litigation exposures. Recently, Dynegy, Inc.'s
financial condition has deteriorated and if such deterioration were to continue,
this business relationship could be affected. However, CH Energy Group, Inc. and
Central Hudson Gas & Electric Corporation can make no prediction at this time as
to the impact of further deterioration of Dynegy, Inc.'s financial position.
Griffith - Reference is made to the above-referenced Note 10 in the
Corporations' 10-K Report and to the caption thereunder "CH Services:" for a
discussion of the possibility of a post-closing adjustment relating to the
November 2000 acquisition by Central Hudson Enterprises Corporation from NEES
Energy, Inc. ("NEES") of the assets and business of Griffith Consumer Company,
Inc. ("Griffith"). On August 8, 2002, CH Energy Group, Inc. received an Earnings
Dispute Notice (the "Notice") from NEES concerning the earnout provisions in the
related Asset Purchase Agreement, dated August 30, 2000. The Notice states that
NEES disputes the earnings information provided to it regarding Griffith's
earnings in 2001 and contends that costs were unreasonably incurred and/or
improperly allocated to Griffith, thus reducing the amount of earnings on which
NEES contends it is entitled to receive an earnout payment under the provisions
of the Asset Purchase Agreement. The Notice requests additional information and
suggests that discussions concerning the Notice be deferred until NEES has
received more information regarding the operating results of Griffith for 2001.
CH Energy Group, Inc. is presently unable to estimate the scope of the
discussions NEES wishes to have concerning Griffith's earnings for 2001, or to
predict the outcome of the discussions.
-35-
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.
Exhibit No.
Regulation S-K
Item 601
Designation Exhibit Description
----------- -------------------
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.
(b) Reports on Form 8-K. During the period covered by this Report on Form
10-Q, CH Energy Group, Inc. filed the following Current Reports on Form 8-K:
(i) A Report, dated June 11, 2002, which reports the sale, on May
31, 2002, of CH Resources, Inc., Inc., by Central Hudson Energy Services, Inc.
to WPS Power Development Inc., a Wisconsin corporation, for $58 million.
(ii) A Report, dated June 13, 2002, which reports the retirement of
Mr. Allan Page as President of Central Hudson Energy Services, Inc. and as
Executive Vice President of CH Energy Group, Inc., effective August 1, 2002.
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
-36-
CERTIFICATIONS
I, Paul J. Ganci, 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
June 30, 2002 (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.
CH ENERGY GROUP, INC.
(Registrant)
By: /s/ Paul J. Ganci
-----------------------------------------
Paul J. Ganci
Chairman of the Board, President and
Chief Executive Officer
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Co-Registrant)
By: /s/ Paul J. Ganci
-----------------------------------------
Paul J. Ganci
Chairman of the Board and
Chief Executive Officer
-37-
I, Steven V. Lant, Chief Operating Officer and 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
June 30, 2002 (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.
CH ENERGY GROUP, INC.
(Registrant)
By: /s/ Steven V. Lant
-----------------------------------------
Steven V. Lant
Chief Operating Officer and
Chief Financial Officer
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Co-Registrant)
By: /s/ Steven V. Lant
-----------------------------------------
Steven V. Lant
Chief Financial Officer
Dated: August 12, 2002
-38-
EXHIBIT INDEX
Following is the list of Exhibits, as required by Item 601 of Regulation
S-K, filed as part of this Report on Form 10-Q:
Exhibit No.
Regulation S-K
Item 601
Designation Exhibit Description
----------- -------------------
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.