Exhibit 99.1
FOR IMMEDIATE RELEASE
May 1, 2007
NYSE Symbol: CPK
CHESAPEAKE UTILITIES CORPORATION REPORTS 31 PERCENT INCREASE IN NET INCOME FOR THE FIRST QUARTER OF 2007
Dover, Delaware— Chesapeake Utilities Corporation (NYSE: CPK) today announced a 31 percent increase in net income for the quarter ended March 31, 2007 compared to the same period in 2006. Net income for the quarter was $8.0 million, or $1.18 per share (diluted), an increase of $1.9 million, or $0.17 per share (diluted), compared to 2006. The increase in earnings reflects higher operating income for the Company’s natural gas and propane segments from continued growth and colder temperatures on the Delmarva Peninsula, which increased volumes sold to customers. The Company estimates that the growth and colder weather contributed $2.0 million and $1.3 million, respectively, to gross margin during the first quarter of 2007.
Highlights during the quarter include:
§ | Customer growth in the natural gas and propane businesses remained strong, with the Delmarva and Florida natural gas distribution operations showing 8 and 7 percent increases in residential customers, respectively; and the Delmarva propane Community Gas Systems generating a 28 percent increase in customers. |
§ | Gross margin for the Company’s natural gas transmission operation increased by approximately $916,000 over the first quarter 2006 due to the implementation of additional firm transportation services in November 2006. |
§ | Continued capital investment to support customer growth resulted in an increase of $5.3 million to net property, plant and equipment during the quarter. The Company has budgeted $45.5 million of capital expenditures for 2007. |
§ | Strong cash flow resulted in a reduction of $1.0 million in long-term debt and a reduction of $7.3 million in short-term debt during the quarter. |
“First quarter results demonstrate the fundamental strengths of our natural gas transmission, natural gas distribution, and propane businesses,” said John R. Schimkaitis, President and Chief Executive Officer of Chesapeake Utilities Corporation. “Colder weather conditions on the Delmarva Peninsula further enhanced the solid operational performance and the benefits of the continued growth in the areas that we serve.”
The discussions of the results for the periods ended March 31, 2007 and 2006 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.
Comparative results for the quarters ended March 31, 2007 and 2006
Operating income was $14.6 million for the first quarter of 2007, compared to $11.4 million in the first quarter of 2006, representing an increase of $3.1 million, or 27 percent. Gross margin increased $4.6 million, or 18 percent, compared to 2006, primarily due to continued customer growth and the positive impact of the colder weather.
Natural Gas Operations
Natural Gas operating income for the quarter increased $1.6 million, or 20 percent, on gross margin growth of $2.3 million, compared to the first quarter of 2006. Items contributing to the year-over-year increase in gross margin include:
2006 Gross margin | $ | 16,412,000 | ||
Growth | 1,568,000 | |||
Weather | 533,000 | |||
Rate increase | 313,000 | |||
Other | (85,000 | ) | ||
2007 Gross margin | $ | 18,741,000 |
§ | The Natural Gas segment continues to experience strong customer growth as the Delmarva and Florida natural gas distribution operations experienced increases of 8 and 7 percent, respectively, in residential customers. The natural gas transmission operation also added $916,000 to gross margin from new transportation capacity contracts implemented in November 2006. |
§ | Weather significantly contributed to gross margin in the first quarter 2007 compared to the same period in 2006, as temperatures on the Delmarva Peninsula were 18 percent colder in 2007. The Company estimates that the colder temperatures led to an increase in gross margin of approximately $533,000 when compared to 2006. |
§ | In October 2006, the Maryland Public Service Commission granted the Company an increase in its base rates, which resulted in $313,000 year-over-year increase to gross margin in the first quarter of 2007. |
Other operating expenses for the Natural Gas segment increased $708,000, or 8 percent, for the first quarter of 2007 compared to the first quarter of 2006, due primarily to costs to support the customer growth, including higher payroll, benefits, depreciation, property taxes, allowance for uncollectible accounts, and merchant payment fees.
Propane Operations
Propane operating income for the quarter increased $1.4 million, or 42 percent, on gross margin growth of $2.1 million, compared to the first quarter of 2006. Items contributing to the year-over-year increase in gross margin include:
2006 Gross margin | $ | 7,455,000 | ||
Increase in margin per retail gallon | 781,000 | |||
Weather | 730,000 | |||
Growth from Community Gas Systems | 413,000 | |||
Other | 210,000 | |||
2007 Gross margin | $ | 9,590,000 |
§ | Gross margin increased by $781,000 in the first quarter of 2007 compared to the same period in 2006 because of improvements in the average gross margin per retail gallon. Gross margin per retail gallon increased as a result of market prices for propane, during the current quarter, rising greater than the Company’s inventory price per gallon. |
§ | Temperatures on the Delmarva Peninsula were 18 percent colder in the first quarter of 2007 compared the same period in 2006, which contributed to an increase of 1.5 million gallons, or 20 percent, sold during this period in 2007 when compared to the same period in 2006. The Company estimates that the colder weather increased gross margin by approximately $730,000 for the Delmarva propane distribution operation compared to the first quarter of 2006. |
§ | Continued customer growth for the Delmarva Community Gas Systems (“CGS”) contributed to the increase of $413,000 in gross margin for the first quarter 2007, compared to the same period in 2006. The average number of customers increased by approximately 1,000 to a total count of approximately 4,600, or a 28 percent increase, compared to the first quarter 2006. The Company expects the growth of its CGS operation to continue as the number of systems currently under construction or under contract is anticipated to provide an additional 7,700 customers. |
§ | Gross margin for the Company’s propane wholesale marketing operation increased by $214,000 in the first quarter of 2007 compared to the same period in 2006. The higher gross margin reflects the increase market opportunities that arose in 2007 due to price volatility in the propane wholesale market. |
Other operating expenses of the Propane unit increased for the quarter by $695,000, or 17 percent, compared to the first quarter of 2006, primarily from an increase in incentive compensation due to the higher operating results and the recovery of $300,000 in fixed costs in 2006 from one of our propane suppliers in response to a propane contamination incident in March 2006. The recovery of these costs resulted in lower expenses in 2006.
Advanced Information Services
The Advanced Information Services segment reported operating income of $49,000 for the first quarter of 2007, representing an increase of $33,000 compared to the same period in 2006. The improved results are attributed to an increase in consulting revenues as the number of billable hours increased 13 percent and the additional income from Managed Database Administration (“MDBA”) services. The Advanced Information Services segment began providing the MDBA service in 2006 to provide third parties with professional database monitoring and support solutions. The increased revenues were partially offset by higher other operating expenses as the Company incurred costs to support growth and improved earnings.
Interest Expense
Total interest expense for the first quarter of 2007 increased approximately $106,000, or 7 percent, compared to the same period in 2006. The higher interest expense was primarily due to the following:
§ | An increase in the average long-term debt balance in 2007 compared to 2006, partially offset by lower average interest rate on long-term debt; and |
§ | Higher average short-term interest rates, partially offset by a decrease in the average short-term debt balance. |
Condensed Consolidated Statements of Income | |||||||||||||
For the Periods Ended March 31, 2007 and 2006 | |||||||||||||
Dollars in Thousands Except Per Share Amounts | |||||||||||||
(Unaudited) | |||||||||||||
2007 | 2006 | Change | % Change | ||||||||||
Operating Revenues | $ | 93,527 | $ | 90,951 | $ | 2,576 | 2.83 | % | |||||
Operating Expenses | |||||||||||||
Cost of sales, excluding costs below | 63,936 | 65,925 | (1,989 | ) | -3.02 | % | |||||||
Operations | 10,560 | 9,602 | 958 | 9.98 | % | ||||||||
Maintenance | 580 | 444 | 136 | 30.63 | % | ||||||||
Depreciation and amortization | 2,316 | 1,977 | 339 | 17.15 | % | ||||||||
Other taxes | 1,553 | 1,566 | (13 | ) | -0.83 | % | |||||||
Total operating expenses | 78,945 | 79,514 | (569 | ) | -0.72 | % | |||||||
Operating Income | 14,582 | 11,437 | 3,145 | 27.50 | % | ||||||||
Other income, net of other expenses | 53 | 78 | (25 | ) | -32.05 | % | |||||||
Interest charges | 1,599 | 1,493 | 106 | 7.10 | % | ||||||||
Income Before Income Taxes | 13,036 | 10,022 | 3,014 | 30.07 | % | ||||||||
Income taxes | 5,045 | 3,926 | 1,119 | 28.50 | % | ||||||||
Net Income | $ | 7,991 | $ | 6,096 | $ | 1,895 | 31.09 | % | |||||
Earnings Per Share of Common Stock: | |||||||||||||
Basic | $ | 1.19 | $ | 1.03 | $ | 0.16 | 15.53 | % | |||||
Diluted | $ | 1.18 | $ | 1.01 | $ | 0.17 | 16.83 | % | |||||
Basic weighted average shares outstanding | 6,705,829 | 5,909,434 | 796,395 | 13.48 | % | ||||||||
Diluted weighted average shares outstanding | 6,820,462 | 6,052,985 | 767,477 | 12.68 | % |
Supplemental Income Statement Data | |||||||||||||
For the Periods Ended March 31, 2007 and 2006 | |||||||||||||
Dollars in Thousands | |||||||||||||
(Unaudited) | |||||||||||||
2007 | 2006 | Change | % Change | ||||||||||
Gross Margin (1) | |||||||||||||
Natural Gas | $ | 18,741 | $ | 16,412 | $ | 2,329 | 14.19 | % | |||||
Propane | 9,590 | 7,455 | 2,135 | 28.64 | % | ||||||||
Advanced Information Services | 1,471 | 1,222 | 249 | 20.38 | % | ||||||||
Other | (211 | ) | (63 | ) | (148 | ) | NMF | ||||||
Total Gross Margin | $ | 29,591 | $ | 25,026 | $ | 4,565 | 18.24 | % | |||||
Operating Income | |||||||||||||
Natural Gas | $ | 9,616 | $ | 7,995 | $ | 1,621 | 20.28 | % | |||||
Propane | 4,874 | 3,434 | 1,440 | 41.93 | % | ||||||||
Advanced Information Services | 49 | 16 | 33 | NMF | |||||||||
Other | 43 | (8 | ) | 51 | NMF | ||||||||
Total Operating Income | $ | 14,582 | $ | 11,437 | $ | 3,145 | 27.50 | % | |||||
Heating Degree-Days — Delmarva Peninsula | |||||||||||||
Actual | 2,439 | 2,069 | 370 | 17.88 | % | ||||||||
10-year average (normal) | 2,241 | 2,281 | (40 | ) | -1.75 | % |
(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, 2007 | December 31, 2006 | |||||
Property, Plant and Equipment | |||||||
Natural gas | $ | 273,761 | $ | 269,013 | |||
Propane | 45,455 | 44,792 | |||||
Advanced information services | 1,080 | 1,054 | |||||
Other plant | 9,072 | 9,147 | |||||
Total property, plant and equipment | 329,368 | 324,006 | |||||
Less: Accumulated depreciation and amortization | (87,432 | ) | (85,010 | ) | |||
Plus: Construction work in progress | 4,232 | 1,829 | |||||
Net property, plant and equipment | 246,168 | 240,825 | |||||
Investments | 2,071 | 2,016 | |||||
Current Assets | |||||||
Cash and cash equivalents | 4,276 | 4,488 | |||||
Accounts receivable (less allowance for uncollectible accounts of $716 and $662, respectively) | 45,391 | 44,969 | |||||
Accrued revenue | 4,783 | 4,325 | |||||
Propane inventory, at average cost | 5,045 | 7,187 | |||||
Other inventory, at average cost | 1,343 | 1,565 | |||||
Regulatory assets | 678 | 1,276 | |||||
Storage gas prepayments | 2,156 | 7,393 | |||||
Income taxes receivable | - | 1,079 | |||||
Deferred income taxes | 2,580 | 1,365 | |||||
Prepaid expenses | 1,244 | 2,281 | |||||
Other current assets | 2,457 | 1,554 | |||||
Total current assets | 69,953 | 77,482 | |||||
Deferred Charges and Other Assets | |||||||
Goodwill | 674 | 674 | |||||
Other intangible assets, net | 188 | 192 | |||||
Long-term receivables | 791 | 824 | |||||
Other regulatory assets | 1,671 | 1,765 | |||||
Other deferred charges | 1,906 | 1,216 | |||||
Total deferred charges and other assets | 5,230 | 4,671 | |||||
Total Assets | $ | 323,422 | $ | 324,994 |
Condensed Consolidated Balance Sheets | |||||||
Dollars and Share Amounts in Thousands | |||||||
(Unaudited) | |||||||
Capitalization and Liabilities | March 31, 2007 | December 31, 2006 | |||||
Capitalization | |||||||
Stockholders' equity | |||||||
Common stock, par value $0.4867 per share (authorized 12,000 shares) | $ | 3,270 | $ | 3,255 | |||
Additional paid-in capital | 63,160 | 61,960 | |||||
Retained earnings | 52,314 | 46,271 | |||||
Accumulated other comprehensive income | (335 | ) | (335 | ) | |||
Deferred compensation obligation | 1,312 | 1,119 | |||||
Treasury stock | (1,311 | ) | (1,118 | ) | |||
Total stockholders' equity | 118,410 | 111,152 | |||||
Long-term debt, net of current maturities | 69,984 | 71,050 | |||||
Total capitalization | 188,394 | 182,202 | |||||
Current Liabilities | |||||||
Current portion of long-term debt | 7,656 | 7,656 | |||||
Short-term borrowing | 21,525 | 27,554 | |||||
Accounts payable | 27,382 | 33,871 | |||||
Customer deposits and refunds | 6,377 | 7,502 | |||||
Accrued interest | 1,713 | 832 | |||||
Dividends payable | 1,948 | 1,939 | |||||
Income taxes payable | 2,616 | - | |||||
Accrued compensation | 1,508 | 2,901 | |||||
Regulatory liabilities | 6,795 | 4,199 | |||||
Other accrued liabilities | 4,729 | 4,007 | |||||
Total current liabilities | 82,249 | 90,461 | |||||
Deferred Credits and Other Liabilities | |||||||
Deferred income taxes | 26,775 | 26,517 | |||||
Deferred investment tax credits | 315 | 328 | |||||
Other regulatory liabilities | 1,078 | 1,236 | |||||
Environmental liabilities | 169 | 212 | |||||
Accrued pension costs | 1,610 | 1,608 | |||||
Accrued asset removal cost | 18,828 | 18,411 | |||||
Other liabilities | 4,004 | 4,019 | |||||
Total deferred credits and other liabilities | 52,779 | 52,331 | |||||
Total Capitalization and Liabilities | $ | 323,422 | $ | 324,994 |
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