EX-99.1 2 pressrelease.htm CHESAPEAKE UTILTIES CORPORATION 1ST QUARTER EARNINGS pressrelease.htm
 
Exhibit 99.1
[Chesapeake Utilities
Corporation Logo]


FOR IMMEDIATE RELEASE
May 5, 2008
NYSE Symbol: CPK

CHESAPEAKE UTILITIES CORPORATION ANNOUNCES
RESULTS FOR THE QUARTER ENDED MARCH 31, 2008


Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today announced a five-percent decrease in net income for the quarter ended March 31, 2008 compared to the same period in 2007. Net income for the quarter was $7.6 million, or $1.10 per share (diluted), a decrease of $417,000, or $0.08 per share (diluted), compared to 2007.  The period-over-period decrease was due primarily to the impact of warmer weather on the Company’s natural gas and propane segments.  The Company estimates that the warmer weather, which was nine percent warmer than in previous year, reduced gross margins by $1.2 million in the first quarter of 2008.  This reduction in gross margin was substantially offset by the contributions to gross margin of $786,000 and $359,000 from the natural gas segment’s continued growth and increased rates, respectively.

“Warm weather negatively impacted earnings in both the propane and natural gas segments during the quarter.  However, we continued to benefit from strong growth in the natural gas transmission and distribution operations, and this growth more than offset the impact of weather on the natural gas segment,” stated John R. Schimkaitis, President and Chief Executive Officer of Chesapeake Utilities Corporation. 

Highlights for the first quarter of 2008 included:

·  
Period-over-period customer growth in the Delmarva natural gas distribution operations remained strong with a six-percent increase in residential customers over the first quarter of 2007.  Although a slowdown in customer growth has begun as a result of the housing market, the Delmarva natural gas distribution operations have been able to offset partially this slowdown with growth in their commercial margins.  Overall, these growth factors contributed $464,000 to the increase in gross margins for the Delmarva natural gas distribution operations in the first quarter of 2008.

·  
The Delmarva natural gas distribution operations were able to offset completely an estimated $617,000 negative impact on gross margin from the warmer weather and deliver an $84,000 increase in gross margin.

·  
Gross margin for the Company’s natural gas transmission operation, Eastern Shore Natural Gas Company (“Eastern Shore”), increased by approximately $299,000 over the first quarter of 2007 due to the commencement of additional firm transportation services in November 2007.

  ·  
Continued capital investment to support customer growth resulted in an increase of $2.3 million in net property, plant and equipment during the quarter.
 
The discussions of the results for the periods ended March 31, 2008 and 2007 use the terms “gross margin.” “Gross margin” is a non-GAAP financial measure that management uses to evaluate the performance of its business segments. For an explanation of the calculation of “gross margin,” see the footnote to the Supplemental Income Statement Data chart below.

 
 

 
Comparative results for the quarters ended March 31, 2008 and 2007
 
Operating income decreased by $573,000, or four percent, to $14.0 million for the first quarter of 2008, compared to $14.6 million for the same period in 2007, as gross margin decreased $298,000, or one percent, compared to the first quarter of 2007.  The decreases in operating income and gross margin were driven primarily by warmer weather on the Delmarva Peninsula and lower non-weather-related sales volumes and margin per gallon for our propane segment, partially offset by continued customer growth, increased transportation services, and increased rates for our natural gas segment.
 
Natural Gas Operations
 
Natural gas operating income for the quarter increased by $853,000, or nine percent, on gross margin growth of $870,000, compared to the first quarter of 2007. Factors contributing to the period-over-period increase in gross margin include:

 
(in thousands)
      
Gross margin for the three months ended March 31, 2007
   $ 18,741  
         
Increased transportation services and customer growth
     786  
Rate increases
     359  
Increased interruptible sales, net of margin sharing
     214  
Natural gas marketing
     159  
Weather
     (617 )
Other
     (31 )
         
Gross margin for the three months ended March 31, 2008
   $ 19,611  
         
 
·  
The natural gas segment benefited from strong customer growth and additional firm transportation services, which added $786,000 to gross margin during the first quarter of 2008 compared to the first quarter of 2007.  This growth was due, in part, to an increase in the number of residential and commercial customers for the Delmarva natural gas distribution operations, which contributed $335,000 and $127,000, respectively, to gross margin in the first quarter of 2008 compared to the first quarter of 2007. The natural gas transmission operations experienced growth of $299,000 in gross margin due to additional transportation services that commenced in November of 2007.

·  
Rate increases for the Company’s Delmarva natural gas distribution operations and for the natural gas transmission operation contributed an additional $359,000 to gross margin in the first quarter of 2008 compared to the first quarter of 2007.
 
·  
Interruptible sales revenue, net of required margin-sharing, increased $214,000 for the Delmarva natural gas distribution operations in the first quarter of 2008 compared to the same period in 2007 as customers took advantage of lower natural gas prices in comparison to prices for alternative fuels.
 
·  
The natural gas marketing operation experienced an increase of $159,000 in gross margin for the first quarter of 2008 compared to the same period in 2007 due in part to a higher number of customers to which it provides supply management services and improved gas supply management.
 
·  
Warmer temperatures on the Delmarva Peninsula in the first quarter of 2008 reduced gross margins as temperatures were nine percent warmer than in 2007. The Company estimates that the warmer temperatures reduced gross margin by $617,000 when compared to 2007.
 
The natural gas segment experienced a modest increase of $17,000 in other operating expenses in the first quarter of 2008 compared to the same period in 2007, due primarily to increases in incentive compensation, property taxes, and costs to comply with the new federal pipeline integrity regulations, which were partially offset by lower depreciation expense as the natural gas transmission and Delmarva distribution operations reduced their depreciation rates in their respective rate proceedings.


 
 
 
Propane Operations

The propane segment’s operating income for the quarter decreased by $1.4 million, or 29 percent, and gross margin declined by $1.5 million, compared to the first quarter of 2007. Factors contributing to the period-over-period reduction in gross margin include:

(in thousands)
      
Gross margin for the three months ended March 31, 2007
   $ 9,590  
         
Lower volumes
     (1,002 )
Decreases in margin per retail gallon
     (512 )
Other
     (66 )
Service Sales
     73  
Wholesale marketing and sales
     4  
         
Gross margin for the three months ended March 31, 2008
   $ 8,087  
         
 
·  
The Company’s Delmarva propane distribution operation experienced lower volumes sold, partially due to weather, during the first quarter of 2008, which resulted in a decrease of $1.0 million in gross margin for the Delmarva propane distribution operation compared to the first quarter of 2007.  Temperatures on the Delmarva Peninsula were nine percent warmer during the first quarter of 2008 compared to the same period in 2007.  Contributing to the remaining decrease in gallons sold was customer conservation, the timing of propane deliveries and customer attrition.
 
·  
Decreases in the margin per retail gallon of propane sold led to a $512,000 decrease in gross margin in the first quarter of 2008 compared to the same period in 2007.  Gross margin per retail gallon decreased as wholesale prices during the current quarter approached the Company’s average inventory price per gallon.
 
Operating expenses for the propane unit decreased by $74,000, or two percent, for the first quarter of 2008 when compared to the first quarter of 2007.  The lower expenses were primarily a result of a decrease in incentive compensation, partially offset by increases in vehicle fuel, allowance for uncollectible accounts and depreciation expense.
 
Advanced Information Services
 
The advanced information services segment experienced gross margin growth of approximately $239,000, or five percent, and generated $38,000 in operating income for the first quarter of 2008.  The improved gross margin reflects an increase in consulting revenues, as the number of billable hours increased by five percent, as well as additional income from Managed Database Administration (“MDBA”) services. The advanced information services segment introduced the MDBA services in 2006 to provide third parties with professional database monitoring and support solutions.  The period-over-period increases in revenue and gross margin were offset by increases in other operating expenses.  The higher operating expenses are due primarily to costs of adding non-billable employees to support and maintain the segment’s growth.

Interest Expense
 
Although the Company’s average long-term and short-term borrowings had a net increase of approximately $10.1 million during the quarter, interest expense was comparable to the prior period due primarily to lower interest rates.
 
 
Condensed Consolidated Statements of Income
  
For the Periods Ended March 31, 2008 and 2007
  
Dollars in Thousands Except Per Share Amounts
  
(Unaudited)
             
             
   
2008
    
2007
  
Operating Revenues
   $ 100,274     $ 93,527  
                 
Operating Expenses
                
   Cost of sales, excluding costs below
     70,981       63,936  
   Operations
     11,223       10,529  
   Maintenance
     479       580  
   Depreciation and amortization
     1,755       2,316  
   Other taxes
     1,795       1,552  
 Total operating expenses
     86,233       78,913  
Operating Income
     14,041       14,614  
Other income, net of other expenses
     17       56  
Interest charges
     1,593       1,599  
Income Before Income Taxes
     12,465       13,071  
Income taxes
     4,891       5,060  
Income from Continuing Operations
     7,574       8,011  
Loss from discontinued
                
operations, net of income tax benefit
     -       (20 )
Net Income
   $ 7,574     $ 7,991  
                 
Weighted Average Shares Outstanding:
  
Basic
     6,795       6,706  
Diluted
     6,907       6,820  
                 
Earnings Per Share - Basic
                
From continuing operations
   $ 1.11     $ 1.19  
From discontinued operations
     -       -  
Net Income
   $ 1.11     $ 1.19  
                 
Earnings Per Share - Diluted
          
From continuing operations
   $ 1.10     $ 1.18  
From discontinued operations
     -       -  
Net Income
   $ 1.10     $ 1.18  
                 
 
 
 
Supplemental Income Statement Data
  
For the Periods Ended March 31, 2008 and 2007
  
Dollars in Thousands
(Unaudited)
             
             
   
2008
    
2007
  
Gross Margin (1)
            
   Natural Gas
   $ 19,611     $ 18,741  
   Propane
     8,087       9,590  
   Advanced Information Services
     1,710       1,471  
   Other
     (115 )     (211 )
 Total Gross Margin
   $ 29,293     $ 29,591  
                 
Operating Income
                
   Natural Gas
   $ 10,469     $ 9,616  
   Propane
     3,444       4,874  
   Advanced Information Services
     38       49  
   Other
     90       75  
 Total Operating Income
   $ 14,041     $ 14,614  
                 
Heating Degree-Days — Delmarva Peninsula
  
Actual
     2,222       2,439  
10-year average (normal)
     2,270       2,241  
                 
 
(1) “Gross margin” is determined by deducting the cost of sales from operating revenue. Cost of sales includes the purchased gas cost for natural gas and propane and the cost of labor spent on direct revenue-producing activities. Gross margin should not be considered an alternative to operating income or net income, which is determined in accordance with Generally Accepted Accounting Principles (“GAAP”). Chesapeake believes that gross margin, although a non-GAAP measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates the profitability achieved by the Company under its allowed rates for regulated operations and under its competitive pricing structure for non-regulated segments. Chesapeake’s management uses gross margin in measuring its business units’ performance and has historically analyzed and reported gross margin information publicly. Other companies may calculate gross margin in a different manner.

 
   
Condensed Consolidated Balance Sheets
  
Dollars and Share Amounts in Thousands
  
(Unaudited)
  
             
 Assets
  
March 31,
2008
    
December 31, 2007
  
             
Property, Plant and Equipment
        
 Natural gas
   $ 292,502     $ 289,706  
 Propane
     49,368       48,506  
 Advanced information services
     1,175       1,158  
 Other plant
     9,325       8,568  
 Total property, plant and equipment
     352,370       347,938  
 Less:  Accumulated depreciation and amortization
     (94,287 )     (92,414 )
 Plus:  Construction work in progress
     4,682       4,899  
 Net property, plant and equipment
     262,765       260,423  
                 
 Investments
     1,848       1,909  
                 
 Current Assets
                
 Cash and cash equivalents
     2,889       2,593  
Accounts receivable (less allowance for uncollectible
  
    accounts of $901 and $952, respectively)
     72,478       72,218  
 Accrued revenue
     4,876       5,265  
 Propane inventory, at average cost
     5,664       7,629  
 Other inventory, at average cost
     1,220       1,281  
 Regulatory assets
     1,355       1,575  
 Storage gas prepayments
     1,376       6,042  
 Income taxes receivable
     -       1,237  
 Deferred income taxes
     2,397       2,155  
 Prepaid expenses
     2,495       3,497  
 Mark-to-market energy assets
     323       7,812  
 Other current assets
     147       148  
 Total current assets
     95,220       111,452  
                 
Deferred Charges and Other Assets
  
 Goodwill
     674       674  
 Other intangible assets, net
     175       178  
 Long-term receivables
     647       741  
 Other regulatory assets
     2,728       2,539  
 Other deferred charges
     3,928       3,641  
 Total deferred charges and other assets
     8,152       7,773  
                 
                 
                 
                 
                 
                 
                 
 Total Assets
   $ 367,985     $ 381,557  
                 
 
 
 
             
Condensed Consolidated Balance Sheets
  
Dollars and Share Amounts in Thousands
  
(Unaudited)
  
             
 Capitalization and Liabilities
  
March 31,
2008
    
December 31, 2007
  
             
 Capitalization
            
 Stockholders' equity
            
Common Stock, par value $0.4867 per share
  
(authorized 12,000 shares)
   $ 3,313     $ 3,298  
 Additional paid-in capital
     65,702       65,592  
 Retained earnings
     57,103       51,538  
 Accumulated other comprehensive income
     (851 )     (851 )
 Deferred compensation obligation
     1,448       1,404  
 Treasury stock
     (1,448 )     (1,404 )
 Total stockholders' equity
     125,267       119,577  
                 
 Long-term debt, net of current maturities
     63,223       63,255  
 Total capitalization
     188,490       182,832  
                 
 Current Liabilities
                
 Current portion of long-term debt
     6,656       7,656  
 Short-term borrowing
     46,186       45,664  
 Accounts payable
     41,701       54,893  
 Customer deposits and refunds
     8,523       10,037  
 Accrued interest
     1,547       866  
 Dividends payable
     2,008       1,999  
 Income taxes payable
     2,874       -  
 Accrued compensation
     1,709       3,400  
 Regulatory liabilities
     6,461       6,301  
 Mark-to-market energy liabilities
     318       7,739  
 Other accrued liabilities
     2,711       2,501  
 Total current liabilities
     120,694       141,056  
                 
Deferred Credits and Other Liabilities
  
 Deferred income taxes
     29,550       28,796  
 Deferred investment tax credits
     267       278  
 Other regulatory liabilities
     1,026       1,136  
 Environmental liabilities
     792       835  
 Accrued pension costs
     2,525       2,513  
 Accrued asset removal cost
     20,773       20,250  
 Other liabilities
     3,868       3,861  
 Total deferred credits and other liabilities
     58,801       57,669  
                 
                 
                 
                 
 Total Capitalization and Liabilities
   $ 367,985     $ 381,557  
                 
 
 
Matters discussed in this release may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements. Please refer to the Cautionary Statement in the Company’s report on Form 10-K for further information on the risks and uncertainties related to the Company’s forward-looking statements.

Chesapeake Utilities Corporation is a diversified utility company engaged in natural gas distribution, transmission and marketing, propane gas distribution and wholesale marketing, advanced information services and other related services. Information about Chesapeake's businesses is available on the World Wide Web at www.chpk.com.

For more information, contact:
Michael P. McMasters
Senior Vice President & Chief Financial Officer
302.734.6799