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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended.................March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............to...................
Commission file number...................................1-3268
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 14-0555980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
284 SOUTH AVENUE, POUGHKEEPSIE NEW YORK 12601-4879
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (914) 452-2000
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable
date. Common stock, par value $5.00 per share; 17,143,487 shares
outstanding as of March 31, 1998.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Statement of Income -
Three Months Ended March 31, 1998 and 1997 1-2
Consolidated Balance Sheet - March 31, 1998
and December 31, 1997 3-5
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1998 and 1997 6-8
Notes to Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 4 - Submission of Matters to a Vote of
Security Holders 21
Item 6 - Exhibits and Reports on Form 8-K 22
Signatures 24
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PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the 3 Months Ended
March 31,
1998 1997
(Thousands of Dollars)
Operating Revenues
Electric.............................. $ 101,312 $ 104,919
Gas................................... 35,490 42,529
Total - own territory................ 136,802 147,448
Electric sales to other utilities..... 6,854 4,361
Gas sales to other utilities.......... 226 66
Total Operating Revenues..... 143,882 151,875
Operating Expenses
Operation:
Fuel used in electric generation..... 20,233 14,932
Purchased electricity................ 11,364 14,958
Purchased natural gas................ 19,147 25,367
Other expenses of operation.......... 24,297 24,254
Maintenance........................... 5,543 5,795
Depreciation and amortization......... 11,248 10,905
Taxes, other than income tax.......... 17,208 17,699
Federal income tax.................... 10,839 12,163
Total Operating Expenses..... 119,879 126,073
Operating Income....................... 24,003 25,802
Other Income
Allowance for equity funds
used during construction............. 106 100
Federal income tax.................... 280 190
Other - net........................... 1,405 1,866
Total Other Income .......... 1,791 2,156
Income Before Interest Charges......... 25,794 27,958
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the 3 Months Ended
March 31,
1998 1997
(Thousands, Except for Per Share Amounts)
Interest Charges
Interest on mortgage bonds............ 3,559 3,559
Interest on other long-term debt...... 2,082 2,082
Interest on short-term debt........... - 93
Other interest........................ 889 576
Allowance for borrowed funds
used during construction............. (129) (63)
Amortization of expense on debt....... 226 226
Total Interest Charges....... 6,627 6,473
Net Income............................. 19,167 21,485
Dividends Declared on Cumulative
Preferred Stock....................... 807 807
Income Available for Common Stock...... 18,360 20,678
Dividends Declared on
Common Stock.......................... 9,161 9,275
Balance Retained in the Business....... $ 9,199 $ 11,403
Common Stock:
Average Shares Outstanding (000s)..... 17,232 17,534
Earnings Per Share.................... $1.06 $1.18
Dividends Declared.................... $.535 $ .53
See Notes to Consolidated Financial Statements.
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1998 1997
(Unaudited) (Audited)
(Thousands of Dollars)
ASSETS
Utility Plant
Electric....................... $1,196,598 $1,193,735
Gas............................ 151,808 151,222
Common......................... 92,525 91,522
Nuclear fuel................... 38,233 37,262
1,479,164 1,473,741
Less: Accumulated depreciation. 572,029 560,304
Nuclear fuel amortization 33,684 33,059
873,451 880,378
Construction work in progress.. 55,193 52,413
Net Utility Plant............ 928,644 932,791
Investments and Other Assets
Prefunded Pension Costs........ 27,707 23,536
Other.......................... 16,025 14,958
Total Investments and
Other Assets................ 43,732 38,494
Current Assets
Cash and cash equivalents...... 20,059 9,054
Accounts receivable from
customers-net of allowance for
doubtful accounts............. 51,697 49,643
Accrued unbilled utility
revenues...................... 13,658 16,229
Other receivables.............. 2,213 2,073
Fuel, materials and supplies,
at average cost............... 22,006 24,100
Special deposits and
prepayments................... 19,069 14,210
Total Current Assets......... 128,702 115,309
Deferred Charges
Regulatory assets.............. 125,764 139,236
Unamortized debt expense....... 4,904 5,002
Other.......................... 19,637 21,258
Total Deferred Charges....... 150,305 165,496
Total Assets.................... $1,251,383 $1,252,090
See Notes to Consolidated Financial Statements.
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1998 1997
(Unaudited) (Audited)
(Thousands of Dollars)
LIABILITIES
Capitalization
Common Stock Equity
Common stock, 30,000,000 shares
authorized; shares issued
($5 par value):
1998 - 17,554,987
1997 - 17,554,987............ $ 87,775 $ 87,775
Paid-in capital............... 284,465 284,465
Retained earnings............. 129,739 120,540
Reacquired capital stock...... (15,079) (9,398)
Capital stock expense......... (6,259) (6,278)
Total Common Stock Equity... 480,641 477,104
Cumulative Preferred Stock
Not subject to mandatory
redemption.................. 21,030 21,030
Subject to mandatory
redemption.................. 35,000 35,000
Total Cumulative Preferred
Stock..................... 56,030 56,030
Long-term Debt................ 361,244 361,829
Total Capitalization....... 897,915 894,963
Current Liabilities
Current maturities
of long-term debt............ 1,544 1,317
Accounts payable.............. 17,705 24,368
Accrued taxes and interest.... 22,019 3,240
Dividends payable............. 9,974 10,052
Accrued vacation.............. 4,400 4,339
Customer deposits............. 4,069 4,001
Other......................... 4,873 6,545
Total Current Liabilities... 64,584 53,862
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1998 1997
(Unaudited) (Audited)
(Thousands of Dollars)
LIABILITIES
Deferred Credits and Other
Liabilities
Regulatory liabilities........ 70,824 81,271
Operating reserves............ 7,173 6,582
Other......................... 10,058 10,019
Total Deferred Credits and
Other Liabilities.......... 88,055 97,872
Accumulated Deferred Income Tax 200,829 205,393
Total Capitalization and
Liabilities................... $1,251,383 $1,252,090
See Notes to Consolidated Financial Statements.
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the 3 Months Ended
March 31,
1998 1997
(Thousands of Dollars)
Operating Activities
Net Income.......................... $ 19,167 $ 21,485
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and
nuclear fuel amortization....... 12,148 12,120
Deferred income taxes, net........ (2,081) (364)
Allowance for equity funds used
during construction............. (106) (101)
Nine Mile 2 Plant deferred
finance charges, net............ (1,214) (1,214)
Provision for uncollectibles...... 825 825
Accrued pension costs............. (3,181) (2,336)
Deferred gas costs................ 4,620 6,151
Deferred gas refunds.............. (1,010) (141)
Other - net....................... (465) 5,469
Changes in current assets and
liabilities, net:
Accounts receivable and unbilled
utility revenues................. (448) (11,057)
Fuel, materials and supplies...... 2,094 3,731
Special deposits and prepayments.. (4,859) (5,713)
Accounts payable.................. (6,663) (9,328)
Accrued taxes and interest........ 18,779 18,208
Other current liabilities......... (1,544) (1,753)
Net cash provided by operating
activities......................... 36,062 35,982
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the 3 Months Ended
March 31,
1998 1997
(Thousands of Dollars)
Investing Activities
Additions to plant.................. (8,751) (8,352)
Allowance for equity funds used
during construction................ 106 101
Net additions to plant.............. (8,645) (8,251)
Nine Mile 2 Plant decommissioning
trust fund......................... (967) (170)
Other - net......................... 647 (229)
Net cash used in investing
activities......................... (8,965) (8,650)
Financing Activities
Proceeds from issuance of
Long-term debt................... - 1,650
Repayments of short-term debt...... - (13,900)
Retirement and redemption of
long-term debt.................... (364) (718)
Dividends paid on cumulative
preferred and common stock........ (10,047) (10,111)
Reacquired capital stock........... (5,681) (1,548)
Net cash used in financing
activities........................ (16,092) (24,627)
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the 3 Months Ended
March 31,
1998 1997
(Thousands of Dollars)
Net Change in Cash and Cash
Equivalents.......................... 11,005 2,705
Cash and Cash Equivalents -
Beginning Year....................... 9,054 4,235
Cash and Cash Equivalents -
End of Period........................ $ 20,059 $ 6,940
Supplemental Disclosure of
Cash Flow Information
Interest paid (net of amounts
capitalized)...................... $ 1,212 $ 1,282
Federal income tax paid............ - -
See Notes to Consolidated Financial Statements.
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CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - GENERAL
The accompanying consolidated financial statements of Central
Hudson Gas & Electric Corporation (herein the Company) 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 Company's Annual Report, on Form 10-K, for the
year ended December 31, 1997 (Company's 10-K Report).
Due to the seasonal nature of the Company's operations, financial
results for interim periods are not necessarily indicative of
trends for a twelve-month period.
NOTE 2 - REGULATORY MATTERS
Amended Settlement Agreement Order
The Amended and Restated Settlement Agreement, as described in
Item 7 under the caption "Competition/Deregulation" and Note 1 -
"Regulatory Matters" of the Company's 10-K Report, is the
Company's plan for transition to a competitive generation and
energy services market (Amended Settlement Agreement). The
Company received an Order, issued and effective February 19,
1998 (Order), from the Public Service Commission of the State of
New York (PSC) approving the Amended Settlement Agreement
reflecting action taken by the PSC on February 4, 1998. In the
Order, the PSC adopted the terms of the Amended Settlement
Agreement, subject to certain modifications and conditions.
These modifications and conditions include the following: a) the
PSC reserves its authority to require an auction and transfer of
the Company's fossil-fueled electric generating assets prior to
June 30, 2001, if such accelerated auction and transfer is found
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by the PSC to be in the public interest (at March 31, 1998, the
net book value of the Company's fossil generating assets
represented approximately 19% of net utility plant); b) the PSC
directed the PSC Staff to provide assurance that the Company
does not incur imprudent generation costs which could be avoided
by divestiture of fossil-fueled electric generating assets prior
to June 30, 2001; c) "Strandable costs" of the Company, as
defined in the Amended Settlement Agreement, have been clarified
to be those "production expenditures of the Company made in
fulfilling its obligation to serve and provide safe, reliable
electric service to customers within its franchise territory
which are not expected to be recoverable in a competitive
electricity market"; d) the PSC added a provision dealing with
mergers and acquisitions; namely, pursuant to a petition filed
jointly or individually by the Company, the Company will have
the flexibility to retain, on a cumulative basis, all savings
associated with an acquisition or merger with another utility
for a period of five years from the date of closing of any
merger or acquisition up to the amount of the acquisition
premium paid over the lesser of book value or fair market value
of assets merged or acquired, and savings in excess of the
recovery will be disposed of by order of the PSC.
The modifications and conditions contained in the Order were
unconditionally agreed to by the Company by letter dated
February 26, 1998.
Impact of Amended Settlement Agreement on Accounting Policies
The Amended Settlement Agreement creates certain changes to the
Company's accounting policies. The Company's accounting
policies conform to generally accepted accounting principles,
which, for regulated public utilities, include Statement of
Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71). Under SFAS
71, regulated companies defer costs and credits on the balance
sheet as regulatory assets and liabilities when it is probable
that those costs and credits will be allowed in the rate-making
process in a period different from when they otherwise would
have been reflected in income. These deferred regulatory assets
and liabilities are then reflected in the income statement in
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the period in which the same amounts are reflected in rates. If
some portion of an enterprise's operations are regulated and
meet the appropriate criteria, SFAS 71 is applied only to the
regulated portion of the enterprise's operations.
Upon approval of the Amended Settlement Agreement by the PSC,
the Company applied the provisions of Statement of Financial
Accounting Standards No. 101, "Regulated Enterprises -
Accounting for the Discontinuation of Application of FASB
Statement No. 71" (SFAS 101) to the fossil-fueled generating
portion of its business. Therefore, on February 4, 1998 the
Company discontinued application of SFAS 71 to its fossil-fueled
generating portion of its business. Because the Amended
Settlement Agreement includes a provision for future recovery
of costs, the application of SFAS 101 to the fossil-fueled
generating portion of the Company's business did not have a
significant effect on the Company's financial position or
results of operations as of such discontinuance.
Certain regulatory assets and liabilities have been created as a
result of transactions relating to the Company's fossil-fueled
generating assets. At March 31, 1998, net regulatory assets
associated with the fossil-fueled generating assets totaled $7.9
million. The Company did not charge against income any of these
net regulatory assets because recovery of such assets is
considered probable under the Amended Settlement Agreement.
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121), requires that long-lived
assets be reviewed for impairment if the carrying value of the
asset may not be recoverable. SFAS 121 also requires that long-lived
assets to be disposed of be carried at the lower of net
book value or fair value, and amends SFAS 71 to require that
regulatory assets be charged against earnings if recovery of
such assets is no longer probable. The Company will not
recognize an impairment of its fossil-fueled generating assets
because the estimated cash flows from operations, the sale of
such generating assets, and stranded cost recovery provisions of
the Amended Settlement Agreement are not expected to be less
than the net carrying amount of such generating assets.
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Formation of Holding Company
Reference is made to the Company's Current Report, on Form 8-K,
dated January 7,1998, in which a proposed new holding company
structure for the Company was disclosed in the context of the
PSC's Competitive Opportunities Proceeding. Pursuant to the
Amended Settlement Agreement, the Company has begun efforts to
form a holding company. Effective April 24, 1998, the Company
formed a wholly-owned subsidiary named CH Energy Group, Inc.,
which, upon shareholder and certain regulatory approvals will
become the holding company owner of Central Hudson Gas &
Electric Corporation. Initially, the holding company will be
comprised of Central Hudson Gas & Electric Corporation and its
existing subsidiaries. The holding company may also establish
other subsidiaries over time.
NOTE 3 - NEW ACCOUNTING STANDARDS - SEGMENT DISCLOSURES
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). This Statement establishes
standards for reporting information about operating segments in
annual and interim financial statements. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. In compliance with the
requirements of this Statement, the Company will adopt SFAS 131
in its financial statements for the year ended December 31,
1998. The Company does not expect that the adoption of SFAS 131
will have a significant impact on the reporting requirements of
the Company.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company faces a number of contingencies which arise during the normal
course of business and which have been discussed in
Note 9 (entitled "Commitments and Contingencies") to the
Consolidated Financial Statements included in the Company's 10-K
Report. Except what is disclosed in Part II of this Quarterly
Report, on Form 10-Q, for the quarterly period ended March 31,
1998, and all documents previously filed with the Securities and
Exchange Commission in 1998, there have been no material changes
in the subject matters discussed in said Note 9.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
For the three months ended March 31, 1998, cash expenditures
related to the construction program of the Company amounted to
$8.5 million. The amount shown on the Consolidated Statement of
Cash Flows for "Net additions to plant" of $8.6 million includes
the debt portion of $129,000 of the Allowance for Funds Used
During Construction ("AFDC", as such term is described in Note
1, entitled "Regulatory Matters", to the Consolidated Financial
Statements included in the Company's 10-K Report). The cash
requirements for such expenditures were funded from internal
sources.
The growth of retained earnings in the first three months of 1998
contributed to the increase in the book value of common stock
from $27.61 at December 31, 1997 to $28.04 at March 31, 1998
and the increase in the common equity ratio from 53.2% at
December 31, 1997 to 53.4% at March 31, 1998.
The Company has $52 million of committed short-term credit
facilities available. In order to diversify its sources of
short-term financing, the Company has also entered into short-term credit
facilities with several commercial banks. At March
31, 1998, the Company had no short-term debt outstanding.
Authorization from the PSC limits the short-term borrowing
amount the Company may have outstanding, at any time, to $52
million in the aggregate. Investments in short-term securities
were $17.3 million at the end of March 1998.
For the three months ended March 31, 1998, the Company
repurchased 136,300 shares of its common stock for $5.7 million
under its stock repurchase program (See Note 6 to the
Consolidated Financial Statements included in the Company's 10-K
Report).
Pursuant to Article XXI of the Company's First Mortgage Bond
Indenture, the Company deposited $722,226 on March 24, 1998 with
the Indenture Trustee. Such Article requires the deposit of the
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amount by which depreciation exceeds property additions in each
calendar year, less property additions made in the subsequent
calendar year, up to the date of deposit which must be made no
later than March 31 of each year. Such deposit may be withdrawn
at a subsequent date to fund redemptions of outstanding mortgage
bonds.
As described in Note 7 - "Capitalization-Long-Term Debt" of the
Company's 10-K Report, the Company's interest rate cap agreement
expired in April 1998. On April 1, 1998 the Company entered
into an interest rate cap agreement with a bank which agreement
expires March 31, 2000. Under this agreement, in the event a
nationally recognized tax-exempt bond interest rate index
exceeds 5%, the Company will receive a payment from such bank
equal to the amount by which the actual interest costs on such
Bonds exceeds 5% per annum. This agreement has the effect of
limiting the interest rate the Company must pay on such bonds
(on a $115.9 million notional amount) to the lesser of their
actual rate or 5% per annum.
On May 5, 1998, Moody's Investor Service, Inc. upgraded the
Company's senior debt rating from "A3" to "A2". The Company's
other service debt ratings are "A" from Standard and Poor's
Corporation, Duff & Phelps Credit Rating Co. and Fitch/IBCA.
EARNINGS PER SHARE
Earnings per share of common stock were $1.06 for the first quarter of 1998,
as compared to $1.18 for the first quarter of
1997, a decrease of 10%.
The decrease in earnings per share for the quarter ended
March 31, 1998, as compared to the same period in 1997,
resulted primarily from decreased electric net operating
revenues resulting primarily from decreased sales. The decrease
in sales is due largely to milder winter weather conditions
experienced in the first quarter of 1998 compared to the same
period in 1997. Also contributing to this decrease was
increased depreciation expense on the Company's plant and
equipment and the recognition of a royalty payment pursuant to
the Amended Settlement Agreement with the PSC. These decreases
were partially offset by the positive earnings effect of a
decrease in the number of outstanding shares of common stock.
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RESULTS OF OPERATIONS
The following table reports the variation in the results of
operations for the three months ended March 31, 1998 compared to
the same period for 1997:
3 MONTHS ENDED MARCH 31,
INCREASE
1998 1997 (DECREASE)
(Thousands of Dollars)
Operating Revenues............... $143,882 $151,875 $ (7,993)
Operating Expenses............... 119,879 126,073 (6,194)
Operating Income................. 24,003 25,802 (1,799)
Other Income..................... 1,791 2,156 (365)
Income before Interest Charges... 25,794 27,958 (2,164)
Interest Charges................. 6,627 6,473 154
Net Income....................... 19,167 21,485 (2,318)
Dividends Declared on Cumulative
Preferred Stock................. 807 807 -
Income Available for Common Stock $ 18,360 $ 20,678 $ (2,318)
OPERATING REVENUES
Operating revenues decreased $8.0 million (5%) for the first
quarter of 1998 as compared to the first quarter of 1997.
Details of these revenue changes by electric and gas departments
are as follows:
INCREASE (DECREASE) FROM PRIOR PERIOD
FIRST QUARTER
Electric Gas
(Thousands of Dollars)
Customer Sales............. $(2,653) $(1,697)*
Sales to Other Utilities... 2,493 160
Fuel and Gas Cost
Adjustment................ 138 (5,948)
Deferred Revenues.......... (747) 645
Miscellaneous.............. (345)** (39)**
$(1,114) $(6,879)
*Both firm and interruptible revenues.
**Includes revenues from delivery service of electric for retail
access customers and transportation of customer-owned gas.
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Revenues collected from or credited to customers under the
electric fuel and gas cost adjustment clauses do not affect
earnings since they are offset in fuel costs, with the exception
of revenues collected pursuant to incentive mechanisms.
SALES
The Company's sales vary seasonally in response to weather
conditions. Generally electric sales peak in the summer and gas
sales peak in the winter.
Total kilowatt-hour sales of electricity within the Company's
service territory decreased 3% and firm sales of natural gas
decreased 8% in the first quarter of 1998 as compared to the
first quarter of 1997. Changes in sales from last year by major
customer classifications, including interruptible gas sales, are
set forth below. Also indicated is the change related to
transportation of customer-owned gas:
INCREASE (DECREASE) FROM PRIOR PERIOD
FIRST QUARTER
Electric Gas
Residential............. (3)% (7)%
Commercial.............. (1) (7)
Industrial.............. (6) (13)
Interruptible........... N/A 63
Transportation of
Customer-owned Gas..... N/A 1
Delivery service of electric retail access customers occurred for the first
time in the quarter ended March 31, 1998. The related volume is .1% of
total own territory sales.
Billing heating degree days were 5% lower for the three months
ended March 31, 1998 when compared to the same period in 1997.
Sales of electricity to residential customers in the first quarter
of 1998 decreased 3% from the comparable prior year period resulting
from a decrease in usage per customer.
Commercial sales in the first quarter of 1998 decreased 1% as
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compared to last year due to the net effect of a 3% decrease in
usage per customer and a 2% increase in the number of
customers. Electric sales to industrial customers decreased 6%
in the first quarter of 1998 due primarily to a decrease in
usage by a large industrial customer. Sales of gas to
residential customers for the first quarter of 1998 decreased
7% due to a decrease in usage per customer. Sales of gas to
commercial customers for the first quarter of 1998 decreased 7%
due to the net effect of a 9% decrease in usage per customer
and a 2% increase in the number of customers. Firm gas sales to
industrial customers decreased 13% for the first quarter of
1998 when compared to the same period in 1997 due primarily to
decreased usage by two large industrial customers.
Interruptible gas sales increased 63% in the first quarter of
1998 due primarily to an increase in natural gas sold to the
other cotenant owners of the 1,200 MW Roseton Steam Electric
Generating Plant for use as boiler fuel at that plant.
OPERATING EXPENSES
The following table reports the variation in the operating
expenses for the three months ended March 31, 1998 compared to
the same period for the prior year:
INCREASE (DECREASE) FROM PRIOR PERIOD
FIRST QUARTER
Amount Percent
(Dollars in Thousands)
Operating Expenses
Fuel and Purchased
Electricity.................... $ 1,707 6 %
Purchased Natural Gas........... (6,220) (25)
Other Expenses of Operation..... 43 -
Maintenance..................... (252) (4)
Depreciation and Amortization... 343 3
Taxes, Other than Income Tax.... (491) (3)
Federal Income Tax.............. (1,324) (11)
Total...................... $(6,194) (5)%
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<PAGE>
The cost of fuel and purchased electricity increased $1.7 million
(6%) for the first quarter ended March 31, 1998 resulting from
an increase in total system output due to an increase in sales
to other utilities.
Purchased natural gas costs decreased $6.2 million (25%) for the
first quarter of 1998 resulting from the combined effect of a
decrease in the cost of gas and a decrease in gas sales.
Federal income taxes decreased $1.3 million (11%) for the three
months ended March 31, 1998 resulting primarily from decreased
pre-tax operating income when compared to the same period of
1997.
COMMON STOCK DIVIDENDS
Reference is made to the subcaption "Common Stock Dividends and
Price Ranges" on Page 37 of Item 7 to the Company's 10-K
Report, and which is incorporated by reference in Part II, Item
5 of said Report, for a discussion of the Company's dividend
policies. On March 27, 1998, the Board of Directors of the
Company declared a quarterly dividend of $.535 per share,
payable May 1, 1998 to shareholders of record as of April 10,
1998.
- 19 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(a) Asbestos Litigation. For a discussion of lawsuits
against the Company involving asbestos, see Note 9 - "Commitments
and Contingencies", under the caption "Asbestos Litigation" in
Item 8, Part II of the Company's 10-K Report.
Since 1987, the Company has been involved as a defendant in
the "mass tort" asbestos litigation in the United States District
Courts for the Southern and Eastern Districts of New York and the
New York State Supreme Court, County of New York. This
litigation involves thousands of plaintiffs who seek large
amounts of compensatory and punitive damages from numerous
defendants for deaths and injuries allegedly caused by exposure
to asbestos. As of April 30, 1998, the Company has been a
defendant in approximately 1,300 such individual lawsuits. Many
of these lawsuits have been disposed of without any payment by
the Company, or for immaterial amounts. While the amounts
demanded in all the remaining lawsuits total several billions of
dollars, it is the Company's opinion, based on its experience in
such litigation and on information and relevant circumstances
known to it at this time, that these lawsuits will not have a
material adverse effect on the Company's financial position.
However, if the Company were ultimately held liable under these
lawsuits and insurance coverage were not available, the cost
thereof could have a material adverse effect (a reasonable
estimate of which cannot be made at this time) on the financial
condition of the Company if the Company could not recover all or
a substantial portion thereof in rates. The Company's insurance
does not extend to punitive damages.
(b) Citizens' Suit Notification Letter. On March 5, 1998,
the Company received what purported to be a notice from Pace
Environmental Litigation Clinic, Inc. that Riverkeeper, Inc.,
John Cronin, its Executive Director, and Robert H. Boyle, its
President, have filed an action under Section 11 of the Federal
Endangered Species Act (ESA) alleging that the Company is in
- 20 -
violation of Section 9 (a) of the ESA. This violation allegedly
stems from the taking of shortnose sturgeon as a result of the
operation of the cooling water intake structures of the Roseton
Steam Electric Generating Station, located on the Hudson River.
The letter alleges that the Company is required to have a permit
to take shortnose sturgeon, which are a listed endangered
species, and that the Company does not have such a permit. The
letter indicates that Riverkeeper Inc. intends to bring a civil
suit pursuant to the ESA against the Company on this basis.
The Company cannot predict at this time whether such suit
will, in fact, be brought, and if so brought, what the ultimate
resolution of the matter will be.
(c) Competition. For a discussion of the PSC's Competitive
Opportunities Proceeding, see the caption
"Competition/Deregulation - Competitive Opportunities Proceeding"
in Item 7, Part II of the Company's 10-K Report, and Note 2 -
"Regulatory Matters" contained in Part I hereof.
On March 20, 1998, by an "Opinion and Order Instituting
Further Inquiry," the PSC commenced a proceeding that will
examine the treatment of nuclear generation following the
transition to a competitive electric market including, among
other issues, the possibility of the auction of nuclear power
plants, alternatives or supplements to divestiture, the formation
of an operating company to operate the state's nuclear power
plants and the decommissioning of nuclear power plants. The PSC
has set a target date of the second quarter of 1999 for reaching
a final decision and resolving all issues raised in the
proceeding.
The Company cannot predict at this time as to what effect
this proceeding will have on its ownership interest in Unit No. 2
of the Nine Mile Point Nuclear Generation Station, described in
the Company's 10-K Report under the caption "Properties -
Electric - Nine Mile 2 Plant" in Item 2 thereof.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Shareholders. The Company's Annual
Meeting of Shareholders was held on April 7, 1998. The following
matters were voted upon at such meeting:
- 21 -
(a) Election of Directors. All of the nominees proposed as
directors by the Board of Directors were elected, and no other
nominees were proposed. The number of shares voted for each such
director, and the number of shares withheld for each such
director, out of a total number of shares voted of 14,947,901,
are as follows:
Name of Director Shares For Shares Withheld
Jack Effron 14,804,462 143,439
Frances D. Fergusson 14,779,494 168,407
Heinz K. Fridrich 14,798,549 149,352
Edward F.X. Gallagher 14,803,840 144,061
Paul J. Ganci 14,804,222 143,679
Charles LaForge 14,792,396 155,505
John E. Mack III 14,806,651 141,250
Edward P. Swyer 14,806,790 141,111
(b) Independent Accountants. The appointment by the Board
of Directors of Price Waterhouse LLP as the Company's Independent
Accountants for the year 1998 was ratified by a vote of the
shareholders as follows:
Shares for Shares Against Shares Abstaining
14,780,325 53,534 114,042
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.
- 22 -
(27) -- Financial Data Schedule, pursuant to
Item 601(c) of Regulation S-K.
(b) Reports on Form 8-K. During the period covered by this
Report on Form 10-Q, the Company filed the following Current
Reports on Form 8-K:
(i) A Report dated January 7, 1998 which described the Amended
and Restated Settlement Agreement reached among the Company, the
Staff of the PSC and other parties, relating to the Competitive
Opportunities Proceeding, and which filed such Agreement; and
(ii) A Report dated February 10, 1998, which (1) described the
Order of the PSC adopting a modified version of the Amended and
Restated Settlement Agreement, and which filed such Order and a
document setting forth the modifications; (2) included the
consent of the Company's independent accountants relating to the
incorporation of the independent accountant's report as contained
in the Company's 10-K Report to the Company's Registration
Statement, on Form S-3 (Registration No. 333-11521) for the
Company's Stock Purchase Plan.
- 23 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned hereunder duly authorized.
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Registrant)
By: (SGD.) DONNA S. DOYLE
Donna S. Doyle
Controller
Authorized Officer and Chief
Accounting Officer
Dated: May 6, 1998
- 24 -
</PAGE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOR THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $928,644
<OTHER-PROPERTY-AND-INVEST> $43,732
<TOTAL-CURRENT-ASSETS> $128,702
<TOTAL-DEFERRED-CHARGES> $150,305
<OTHER-ASSETS> $0
<TOTAL-ASSETS> $1,251,383
<COMMON> $87,775
<CAPITAL-SURPLUS-PAID-IN> $263,127
<RETAINED-EARNINGS> $129,739
<TOTAL-COMMON-STOCKHOLDERS-EQ> $480,641
$35,000
$21,030
<LONG-TERM-DEBT-NET> $361,244
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $1,544
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $351,924
<TOT-CAPITALIZATION-AND-LIAB> $1,251,383
<GROSS-OPERATING-REVENUE> $143,882
<INCOME-TAX-EXPENSE> $10,839
<OTHER-OPERATING-EXPENSES> $109,040
<TOTAL-OPERATING-EXPENSES> $119,879
<OPERATING-INCOME-LOSS> $24,003
<OTHER-INCOME-NET> $1,791
<INCOME-BEFORE-INTEREST-EXPEN> $25,794
<TOTAL-INTEREST-EXPENSE> $6,627
<NET-INCOME> $19,167
$807
<EARNINGS-AVAILABLE-FOR-COMM> $18,360
<COMMON-STOCK-DIVIDENDS> $9,161
<TOTAL-INTEREST-ON-BONDS> $0
<CASH-FLOW-OPERATIONS> $36,062
<EPS-PRIMARY> $1.06
<EPS-DILUTED> $0
</TABLE>
<PAGE>
<TABLE> EXHIBIT 12
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
<CAPTION> 1998 Year Ended December 31,
<C> <C> <C> <C> <C> <C>
3 Months 12 Months 1997 1996 1995 1994
Ended Ended
<S> March 31 March 31
Earnings:
A. Net Income $ 19,167 $ 52,768 $ 55,086 $ 56,082 $ 52,722 $ 50,929
B. Federal Income Tax 10,559 24,822 26,237 31,068 28,687 26,806
C. Earnings before Income Taxes $ 29,726 $ 77,590 $ 81,323 $ 87,150 $ 81,409 $ 77,735
D. Total Fixed Charges<FN1> 6,749 27,222 27,148 27,231 30,433 32,679
E. Total Earnings $ 36,475 $104,812 $108,471 $114,381 $111,842 $110,414
Preferred Dividend Requirements:
F. Allowance for Preferred Stock
Dividends Under IRC Sec 247 $ 807 $ 3,230 $ 3,230 $ 3,230 $ 4,903 $ 5,127
G. Less Allowable Dividend Deduction 32 127 127 127 528 528
H. Net Subject to Gross-up 775 3,103 3,103 3,103 4,375 4,599
I. Ratio of Earnings before Income
Taxes to Net Income (C/A) 1.551 1.470 1.476 1.554 1.544 1.526
J. Pref. Dividend (Pre-tax) (HxI) 1,202 4,561 4,580 4,822 6,755 7,018
K. Plus Allowable Dividend Deduction 32 127 127 127 528 528
L. Preferred Dividend Factor 1,234 4,688 4,707 4,949 7,283 7,546
M. Fixed Charges (D) 6,749 27,222 27,148 27,231 30,433 32,679
N. Total Fixed Charges
and Preferred Dividends $ 7,983 $ 31,910 $ 31,855 $ 32,180 $ 37,716 $ 40,225
O. Ratio of Earnings to Fixed
Charges (E/D) 5.40 3.85 4.00 4.20 3.68 3.38
P. Ratio of Earnings to Fixed Charges
and Preferred Dividends (E/N) 4.57 3.28 3.41 3.55 2.97 2.74
<FN1>Includes a portion of rent expense deemed to be representative of the interest factor.
</TABLE>
</PAGE>
