Delaware | 001-11590 | 51-0064146 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
909 Silver Lake Boulevard, Dover, Delaware |
19904 |
|
(Address of principal executive offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
/s/ Beth W. Cooper |
||
Senior Vice President and Chief Financial Officer |
| Net income was $13.7 million, or $1.43 per share, for the quarter ended March 31,
2011, compared to $14.0 million, or $1.47 per share, for the quarter ended March 31, 2010. |
| Growth in
Chesapeakes Delmarva natural gas distribution and transmission businesses generated $1.1 million of
additional gross margin. |
| Propane margins per gallon increased to normal levels, adding increased gross margin of $1.0 million. |
| Warmer temperatures on the Delmarva Peninsula and in Florida during the quarter ended
March 31, 2011, compared to last year, resulted in lower gross margin of $2.1 million. |
| Warmer temperatures on the Delmarva Peninsula and in Florida during the first quarter of
2011, compared to the same periods in 2010, decreased gross margin of the natural gas,
electric and propane distribution operations by approximately $2.1 million. The largest
portion of this decline was attributable to significantly warmer weather in Florida.
Heating degree-days decreased by
four percent, or 98 heating degree-days, on the Delmarva Peninsula and by 44 percent, or 413
heating degree-days, in Florida during the first quarter of 2011, compared to the same
quarter in 2010. |
Compared to the 10-year historical average of heating degree-days, which the Company uses as
the measure of normal weather for this analysis, the weather on the Delmarva Peninsula in
the first quarter of 2011 was three percent colder than normal (69 more heating degree-days)
while the weather in Florida was eight percent warmer than normal (44 fewer heating
degree-days). The Company estimates that approximately $369,000 in lower gross
margin was recognized in the first quarter of 2011 due to the
weather, which overall was warmer than normal. |
| In January 2011, Eastern
Shore (Eastern Shore), the Companys natural gas
transmission subsidiary, commenced new transportation services on the eight-mile
mainline extension to interconnect with the Texas Eastern Transmission pipeline, which
generated gross margin of $542,000 in the first quarter of 2011. These new services have a three-year
phase-in from 19,324 Mcfs per day to 38,647 Mcfs per day, providing estimated gross margin of $2.4 million
in 2011, $3.9 million in 2012 and $4.3 million thereafter. |
| The addition of 12 large commercial and industrial customers on the Delmarva
Peninsula since the second half of 2010 generated $249,000 in additional gross margin during the first quarter
of 2011, compared to the same quarter in 2010. These new customers are expected to generate annual margin of $1.0 million in 2011, as compared
to $196,000 of gross margin generated from these customers in 2010. Also generating additional gross margin of $166,000
for the first quarter of 2011 was growth in residential customers of two percent for the Delmarva natural gas
distribution operation.
|
|
In March 2011, the Company signed new agreements to serve Beebe
Medical Center and SPI Pharma, both located in Lewes, Delaware. Gross margin from these
customers is expected to equate to approximately 1,000 residential heating customers with
service expected to begin in the fall of 2011. Providing natural gas distribution service
in Lewes requires the Company to extend its natural gas distribution infrastructure by
approximately 12 miles, which will provide the foundation to serve new customers in and
around the Lewes area and to extend its service further to other nearby beach areas. The Company
is also pursuing the extension of natural gas service to Worcester County, Maryland, in
response to increasing community interest in clean-burning, environmentally friendly
natural gas. Pending receipt of the necessary approvals, natural gas could be available
in Worcester County as early as the end of this year. As a first
step toward obtaining these approvals, on April 19, 2011, Worcester County approved a non-exclusive
natural gas franchise for the Maryland division.
|
| Customer growth of two percent in the Florida natural gas distribution operation
generated additional gross margin of $200,000 in the first quarter of 2011, compared to the
same quarter in 2010. |
| Operating income from the Delmarva propane distribution operation for the first quarter
of 2011 increased by $823,000, compared to the same quarter in 2010, due primarily to
increased margins per gallon and a one-time gain of $575,000 from proceeds received pursuant to
an antitrust litigation settlement with a major propane supplier. |
| Eastern Shores base rate proceeding with the Federal Regulatory Energy Commission,
which was filed on December 30, 2010, is still underway. Eastern Shore expects this
proceeding to be completed in 2011. |
2
| As part of its rate case settlement in Florida in 2010,
the Florida Public Service Commission (Florida PSC) required the Company to submit a Come-Back
filing, detailing known benefits, synergies, cost savings and cost increases resulting from the merger with Florida Public Utilities
Company (FPU). The Company submitted this filing on April 29, 2011. The Company is requesting
the recovery, through rates, of approximately $34.2 million in acquisition adjustment
(the price paid in excess of the book value) and $2.2 million in merger-related costs.
The Company did not request any change to the existing rates previously approved by the Florida
PSC. The Company continues to maintain a $750,000 accrual. This
accrual was recorded in 2010
based on managements assessment of FPUs current earnings and regulatory risk to its earnings
associated with the possible Florida PSC action related to the Companys requested recovery
and the matters set forth in this filing. More details about this filing are included at the end of this press
release.
|
(in thousands) | ||||
Gross margin for the three months ended March 31, 2010 |
$ | 37,363 | ||
Factors
contributing to the gross margin increase for the three months ended March 31, 2011: |
||||
Warmer weather |
(1,899 | ) | ||
Net customer growth |
655 | |||
New transportation services |
645 | |||
Other |
248 | |||
Gross margin for the three months ended March 31, 2011 |
$ | 37,012 | ||
| Heating degree-days decreased by four percent, or 98 heating degree-days, on the
Delmarva Peninsula and by 44 percent, or 413 heating degree-days, in Florida during the
first quarter of 2011, compared to the same quarter in 2010. The warmer weather decreased
gross margin of the natural gas and electric distribution operations on the Delmarva
Peninsula and in Florida by $1.9 million in the first quarter of 2011, compared to the same
quarter in 2010. |
3
| Gross margin from commercial and industrial customers for the Delmarva natural gas
distribution operation increased by $289,000 in the first quarter of 2011, due primarily to
the addition of 12 large commercial and industrial customers since the second half of 2010.
These 12 new customers are expected to generate annual margin of $1.0 million in 2011, of
which $249,000 has been reflected in the first quarter results, compared to $196,000 of
gross margin generated from these customers in 2010. Also contributing to this increase is
the additional gross margin of $200,000 generated by the Florida natural gas distribution
operations from two-percent customer growth and $166,000 of additional gross margin
generated by the Delmarva natural gas distribution operation from two percent growth in
residential customers. |
| In January 2011, Eastern Shore commenced new transportation services on the
eight-mile mainline extension to interconnect with the Texas Eastern
Transmission pipeline system, which
generated gross margin of $542,000 in the first quarter of 2011. These new services have a three-year
phase-in from 19,324 Mcfs per day to 38,647 Mcfs per day, providing estimated gross margin of
$2.4 million in 2011, $3.9 million in 2012 and $4.3 million thereafter. |
Also generating additional gross margin of $143,000 in the first quarter
of 2011 were new transportation services commencing in May 2010 and November 2010, as a result of Eastern
Shores system expansion projects. These expansion projects added 2,666 Mcfs of capacity per day
with estimated annual gross margin of $574,000 in 2011. These projects generated $216,000 of gross
margin in 2010. |
Partially offsetting these margin increases were decreased margins of $40,000 from
transportation service contracts, which expired in April 2010. |
| Also affecting gross margin in the first quarter of 2011 were $182,000 in additional
gross margin generated from 700 new customers added as a result of the purchase of the
operating assets of Indiantown Gas Company in August 2010, and an increase of $66,000 from
other miscellaneous margin increases. |
4
(in thousands) | ||||
Gross margin for the three months ended March 31, 2010 |
$ | 15,311 | ||
Factors contributing to the gross margin increase for the three months ended March 31, 2011: |
||||
Increase in margin per gallon |
969 | |||
Volume decrease weather and other |
(903 | ) | ||
Gain from litigation settlement |
575 | |||
Propane wholesale marketing |
97 | |||
Miscellaneous fees and other |
(65 | ) | ||
Natural gas marketing |
11 | |||
Gross margin for the three months ended March 31, 2011 |
$ | 15,995 | ||
| The propane distribution operations generated additional gross margin of $969,000
due to higher margins per gallon in the first quarter of 2011, compared to the same quarter in
2010, as margins per gallons returned to more normal levels. Significantly colder temperatures during the first quarter of 2010 increased
customer consumption and led to the propane distribution operations having to purchase
additional propane supply at increased costs, resulting in a higher propane inventory cost and lower margins per gallons
during that period. The absence of much colder than normal temperatures during the first
quarter of 2011 and fewer spot purchases during the peak heating season resulted in margins per gallons returning to more normal levels in 2011. |
| A decrease in heating degree-days in the first quarter of 2011, compared to the same
quarter in
2010, and a decrease in propane deliveries to bulk customers due to the timing of deliveries
resulted in decreased gross margin of $903,000. |
| The Company recorded a one-time gain of $575,000 in the first quarter of 2011 related to
the Companys share of proceeds received from an antitrust litigation settlement with a
major propane supplier. |
| Xeron, the Companys propane wholesale marketing subsidiary, generated a $97,000
increase in gross margin during the first quarter of 2011, compared to the same quarter in
2010, due primarily to increased trading activities. |
| The decrease in miscellaneous fees and other is due primarily to lower gross margin of
$83,000 from merchandise sales in Florida, offset partially by higher fees from
continued growth and increased customer participation in various customer pricing programs
offered by the Delmarva propane distribution operation. |
| Gross margin generated by PESCO, the Companys natural gas marketing subsidiary,
remained substantially unchanged in the first quarter of 2011, compared to the same quarter
in 2010. |
5
| In January 2010, the Company redeemed two series of First Mortgage Bonds, the 4.90
percent and 6.85 percent series, by using a new lower cost short-term loan facility.
These redemptions reduced the amount of FPU secured long-term debt. Borrowing under the short-term facility lowered interest expense by $57,000 in the first quarter of 2011, compared
to the same period in 2010. |
| Other long-term interest expense decreased by $165,000 in the first quarter of 2011,
compared to the same period in 2010, due to scheduled repayments. |
| Other short-term interest expense remained
substantially unchanged. Higher short-term borrowing rates during the first quarter of
2011 were offset by lower working capital requirements. |
6
7
For the Three Months Ended March 31, | 2011 | 2010 | ||||||
Operating Revenues |
||||||||
Regulated Energy |
$ | 85,002 | $ | 91,626 | ||||
Unregulated Energy |
58,750 | 59,269 | ||||||
Other |
2,845 | 2,365 | ||||||
Total Operating Revenues |
146,597 | 153,260 | ||||||
Operating Expenses |
||||||||
Regulated energy cost of sales |
47,990 | 54,263 | ||||||
Unregulated energy and other cost of sales |
44,289 | 45,091 | ||||||
Operations |
19,837 | 18,714 | ||||||
Maintenance |
1,702 | 1,700 | ||||||
Depreciation and amortization |
5,021 | 5,128 | ||||||
Other taxes |
2,919 | 2,966 | ||||||
Total operating expenses |
121,758 | 127,862 | ||||||
Operating Income |
24,839 | 25,398 | ||||||
Other income, net of expenses |
22 | 115 | ||||||
Interest charges |
2,150 | 2,363 | ||||||
Income Before Income Taxes |
22,711 | 23,150 | ||||||
Income tax expense |
8,964 | 9,176 | ||||||
Net Income |
$ | 13,747 | $ | 13,974 | ||||
Weighted Average Shares Outstanding: |
||||||||
Basic |
9,535,381 | 9,419,932 | ||||||
Diluted |
9,633,796 | 9,524,298 | ||||||
Earnings Per Share of Common Stock: |
||||||||
Basic |
$ | 1.44 | $ | 1.48 | ||||
Diluted |
$ | 1.43 | $ | 1.47 |
8
First Quarter | ||||||||
Chesapeake and Subsidiaries | 2011 | 2010 | ||||||
Gross Margin (1) |
||||||||
Regulated Energy |
$ | 37,012 | $ | 37,363 | ||||
Unregulated Energy |
15,995 | 15,311 | ||||||
Other |
1,311 | 1,232 | ||||||
Total Gross Margin |
$ | 54,318 | $ | 53,906 | ||||
Operating Income |
||||||||
Regulated Energy |
$ | 16,309 | $ | 17,516 | ||||
Unregulated Energy |
8,515 | 7,760 | ||||||
Other |
15 | 122 | ||||||
Total Operating Income |
$ | 24,839 | $ | 25,398 | ||||
Heating Degree-Days Delmarva Peninsula |
||||||||
Actual |
2,445 | 2,543 | ||||||
10-year average (normal) |
2,376 | 2,336 | ||||||
Heating Degree-Days Florida |
||||||||
Actual |
520 | 933 | ||||||
10-year average (normal) |
564 | 514 | ||||||
Cooling Degree-Days Florida |
||||||||
Actual |
80 | 3 | ||||||
10-year average (normal) |
67 | 72 |
(1) | Gross margin is determined by deducting the cost of sales from operating
revenue. Cost of sales includes the purchased fuel cost for natural gas, electricity 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
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. Chesapeakes
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. |
9
For the Three Months Ended March 31, 2011 | For the Three Months Ended March 31, 2010 | |||||||||||||||||||||||||||||||
Chesapeake | Chesapeake | |||||||||||||||||||||||||||||||
Delmarva NG | Florida NG | FPU NG | FPU Electric | Delmarva NG | Florida NG | FPU NG | FPU Electric | |||||||||||||||||||||||||
Distribution | Division | Distribution | Distribution | Distribution | Division | Distribution | Distribution | |||||||||||||||||||||||||
Operating Revenues
(in thousands) |
||||||||||||||||||||||||||||||||
Residential |
$ | 24,064 | $ | 1,322 | $ | 7,554 | $ | 12,902 | $ | 23,144 | $ | 1,525 | $ | 9,066 | $ | 14,407 | ||||||||||||||||
Commercial |
13,048 | 1,009 | 10,263 | 9,953 | 12,782 | 1,029 | 12,066 | 10,399 | ||||||||||||||||||||||||
Industrial |
1,356 | 1,204 | 2,579 | 1,805 | 1,076 | 1,224 | 2,271 | 1,990 | ||||||||||||||||||||||||
Other (1) |
(2,310 | ) | 617 | (1,618 | ) | (2,702 | ) | (736 | ) | 530 | (240 | ) | (2,541 | ) | ||||||||||||||||||
Total Operating Revenues |
$ | 36,158 | $ | 4,152 | $ | 18,778 | $ | 21,958 | $ | 36,266 | $ | 4,308 | $ | 23,163 | $ | 24,255 | ||||||||||||||||
Volumes (in Mcfs/MWHs) |
||||||||||||||||||||||||||||||||
Residential |
1,681,676 | 132,774 | 489,246 | 87,373 | 1,686,414 | 179,161 | 569,879 | 97,028 | ||||||||||||||||||||||||
Commercial |
1,368,455 | 349,593 | 933,440 | 73,898 | 1,292,865 | 382,918 | 1,082,909 | 74,991 | ||||||||||||||||||||||||
Industrial |
805,603 | 3,465,543 | 779,638 | 15,670 | 571,342 | 3,588,027 | 557,825 | 18,870 | ||||||||||||||||||||||||
Other |
11,487 | | (98,267 | ) | (12,226 | ) | 81,071 | | 26,998 | (6,253 | ) | |||||||||||||||||||||
Total |
3,867,221 | 3,947,910 | 2,104,057 | 164,715 | 3,631,692 | 4,150,106 | 2,237,611 | 184,636 | ||||||||||||||||||||||||
Average customers |
||||||||||||||||||||||||||||||||
Residential |
49,312 | 13,689 | 47,858 | 23,589 | 48,183 | 13,465 | 47,017 | 23,531 | ||||||||||||||||||||||||
Commercial |
5,308 | 1,162 | 4,527 | 7,380 | 5,265 | 1,121 | 4,481 | 7,382 | ||||||||||||||||||||||||
Industrial |
96 | 61 | 666 | 2 | 81 | 59 | 574 | 2 | ||||||||||||||||||||||||
Other |
5 | | | | 5 | | | | ||||||||||||||||||||||||
Total |
54,721 | 14,912 | 53,051 | 30,971 | 53,534 | 14,645 | 52,072 | 30,915 | ||||||||||||||||||||||||
(1) | Operating revenues from Other sources include unbilled revenue, under (over)
recoveries of fuel cost, conservation revenue, other miscellaneous charges, fees for billing
services provided to third-parties and adjustments for pass-through taxes . |
10
March 31, | December 31, | |||||||
Assets | 2011 | 2010 | ||||||
(in thousands, except shares and per share data) |
||||||||
Property, Plant and Equipment |
||||||||
Regulated energy |
$ | 505,448 | $ | 500,689 | ||||
Unregulated energy |
61,595 | 61,313 | ||||||
Other |
18,326 | 16,989 | ||||||
Total property, plant and equipment |
585,369 | 578,991 | ||||||
Less: Accumulated depreciation and amortization |
(125,437 | ) | (121,628 | ) | ||||
Plus: Construction work in progress |
4,941 | 5,394 | ||||||
Net property, plant and equipment |
464,873 | 462,757 | ||||||
Investments, at fair value |
3,835 | 4,036 | ||||||
Current Assets |
||||||||
Cash and cash equivalents |
1,984 | 1,643 | ||||||
Accounts receivable (less allowance for uncollectible
accounts of $1,122 and $1,194, respectively) |
85,699 | 88,074 | ||||||
Accrued revenue |
9,888 | 14,978 | ||||||
Propane inventory, at average cost |
6,553 | 8,876 | ||||||
Other inventory, at average cost |
3,103 | 3,084 | ||||||
Regulatory assets |
227 | 51 | ||||||
Storage gas prepayments |
1,610 | 5,084 | ||||||
Income taxes receivable |
7,018 | 6,748 | ||||||
Deferred income taxes |
2,138 | 2,191 | ||||||
Prepaid expenses |
3,077 | 4,613 | ||||||
Mark-to-market energy assets |
339 | 1,642 | ||||||
Other current assets |
182 | 245 | ||||||
Total current assets |
121,818 | 137,229 | ||||||
Deferred Charges and Other Assets |
||||||||
Goodwill |
35,613 | 35,613 | ||||||
Other intangible assets, net |
3,376 | 3,459 | ||||||
Long-term receivables |
77 | 155 | ||||||
Regulatory assets |
22,857 | 23,884 | ||||||
Other deferred charges |
3,853 | 3,860 | ||||||
Total deferred charges and other assets |
65,776 | 66,971 | ||||||
Total Assets |
$ | 656,302 | $ | 670,993 | ||||
11
March 31, | December 31, | |||||||
Capitalization and Liabilities | 2011 | 2010 | ||||||
(in thousands, except shares and per share data) |
||||||||
Capitalization |
||||||||
Stockholders equity |
||||||||
Common stock, par value $0.4867 per share
(authorized 25,000,000 shares) |
$ | 4,648 | $ | 4,635 | ||||
Additional paid-in capital |
148,055 | 148,159 | ||||||
Retained earnings |
87,355 | 76,805 | ||||||
Accumulated other comprehensive loss |
(3,043 | ) | (3,360 | ) | ||||
Deferred compensation obligation |
786 | 777 | ||||||
Treasury stock |
(786 | ) | (777 | ) | ||||
Total stockholders equity |
237,015 | 226,239 | ||||||
Long-term debt, net of current maturities |
89,565 | 89,642 | ||||||
Total capitalization |
326,580 | 315,881 | ||||||
Current Liabilities |
||||||||
Current portion of long-term debt |
9,196 | 9,216 | ||||||
Short-term borrowing |
41,427 | 63,958 | ||||||
Accounts payable |
53,307 | 65,541 | ||||||
Customer deposits and refunds |
24,221 | 26,317 | ||||||
Accrued interest |
2,633 | 1,789 | ||||||
Dividends payable |
3,151 | 3,143 | ||||||
Accrued compensation |
4,821 | 6,784 | ||||||
Regulatory liabilities |
13,440 | 9,009 | ||||||
Mark-to-market energy liabilities |
107 | 1,492 | ||||||
Other accrued liabilities |
12,527 | 10,393 | ||||||
Total current liabilities |
164,830 | 197,642 | ||||||
Deferred Credits and Other Liabilities |
||||||||
Deferred income taxes |
89,079 | 80,031 | ||||||
Deferred investment tax credits |
223 | 243 | ||||||
Regulatory liabilities |
3,675 | 3,734 | ||||||
Environmental liabilities |
9,205 | 10,587 | ||||||
Other pension and benefit costs |
18,077 | 18,199 | ||||||
Accrued asset removal cost Regulatory liability |
35,593 | 35,092 | ||||||
Other liabilities |
9,040 | 9,584 | ||||||
Total deferred credits and other liabilities |
164,892 | 157,470 | ||||||
Total Capitalization and Liabilities |
$ | 656,302 | $ | 670,993 | ||||
12
13
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