Exhibit 99.1
[Chesapeake Utilities
Corporation Logo]
FOR IMMEDIATE RELEASE
August 07, 2007
NYSE Symbol: CPK
CHESAPEAKE UTILITIES CORPORATION REPORTS 31 PERCENT INCREASE IN NET INCOME FOR THE SECOND QUARTER OF 2007
Dover, Delaware— Chesapeake Utilities Corporation (NYSE: CPK) today announced a $349,000, or 31 percent, increase in net income for the quarter ended June 30, 2007 compared to the same period in 2006. Net income for the second quarter was $1.5 million, or $0.22 per share (diluted), compared to a net income of $1.1 million, or $0.19 per share (diluted), for the second quarter in 2006. Net income increased $2.2 million, or 31 percent, for the first six months in 2007 when compared to the same period in 2006. Net income for the first six months in 2007 was $9.5 million, or $1.39 per share (diluted), compared to a net income of $7.2 million, or $1.20 per share (diluted), for the same period in 2006. The increase in the quarterly and year to date 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 $3.4 million and $1.7 million, respectively, to gross margin during the first six months of 2007.
Highlights during the quarter included:
· | 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 over the second quarter of 2006; and the Delmarva propane Community Gas Systems generating a 27 percent increase in customers over the second quarter of 2006. |
· | Gross margin for the Company’s natural gas transmission operation increased by approximately $918,000 over the second quarter 2006 due to the implementation of additional firm transportation services in November of 2006. |
· | Continued capital investment to support customer growth resulted in an increase of $4.9 million to net property, plant and equipment during the quarter. |
· | On May 2, 2007, the Board of Directors of Chesapeake Utilities Corporation raised the annualized dividend two cents per share from $1.16 to $1.18 per share. The quarterly dividend of $0.295 per share was paid July 5, 2007 to all shareholders of record at the close of business on June 13, 2007. |
“Strong customer growth continues to create opportunities for the Company, and our employees continue to take advantage of these opportunities to produce higher levels of earnings,” stated John R. Schimkaitis, President and Chief Executive Officer of Chesapeake Utilities Corporation. “We are pleased with the operational performance at each of our business segments and are excited about the potential for additional growth and what that can mean for our shareholders.”
The discussions of the results for the periods ended June 30, 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 quarter ended June 30, 2007 and 2006
Operating income was $3.7 million for the second quarter of 2007, compared to $3.2 million for the same period in 2006, representing an increase of $483,000, or 15 percent. Gross margin increased $2.5 million, or 16 percent, compared to 2006, primarily due to continued customer growth and the positive impact of colder weather in the second quarter of 2007.
Natural Gas Operations
Natural gas operating income for the quarter increased $492,000, or 14 percent, on gross margin growth of $1.8 million, compared to the second quarter of 2006. Items contributing to the period-over-period increase in gross margin include:
Gross margin for the three months ended June 30, 2006 | $ 11,445,000 | ||
Growth | 1,330,000 | ||
Rate increase | 295,000 | ||
Weather | 224,000 | ||
Other | (59,000) | ||
Gross margin for the three months ended June 30, 2007 | $ | 13,235,000 |
§ | 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 $918,000 to gross margin during this period from new transportation capacity contracts implemented in November of 2006. |
§ | Rate increases for the Company’s Maryland natural gas distribution and its natural gas transmission operations contributed $295,000 additionally to gross margin in the second quarter of 2007 as compared to the second quarter of 2006. In October of 2006, the Maryland Public Service Commission granted the Company an increase in its base rates, which resulted in an $183,000 period-over-period increase to gross margin in the second quarter of 2007. The natural gas transmission operation implemented temporary rates, subject to refund, in May of 2007 which represented $112,000 of additional gross margin. |
§ | Weather contributed to the increase in gross margin in the second quarter 2007 compared to the same period in 2006, as temperatures on the Delmarva Peninsula were 36 percent colder in 2007. The Company estimates that the colder temperatures led to an increase in gross margin during the quarter of approximately $224,000 when compared to 2006. |
Other operating expenses for the natural gas segment increased $1.3 million, or 16 percent, for the second quarter of 2007 compared to the second quarter of 2006, due primarily to costs of supporting the continued customer growth, including higher payroll and incentive compensation, benefits, depreciation, and property taxes, as well as, the Company’s receipt of approval from the Federal Energy Regulatory Commission in the second quarter of 2006 to defer $310,000 of pre-service costs related its Energylink Expansion Project. The deferral of these costs resulted in lower expenses in the second quarter of 2006. The Energylink Expansion Project proposes the construction of approximately 63 miles of new pipeline facilities to transport natural gas from Calvert County, Maryland, crossing under the Chesapeake Bay into Dorchester and Caroline Counties, Maryland, to points on the Delmarva Peninsula where such facilities would interconnect with the Company’s existing facilities in Sussex County, Delaware.
Propane Operations
The propane segment incurred an operating loss of $546,000, representing an increased loss of $104,000, or 24 percent, for the second quarter of 2007 compared to the same period in 2006. The gross margin growth of $408,000 was offset by an increase in other operating expenses of $512,000. Items contributing to the period-over-period increase in gross margin include:
Gross margin for the three months ended June 30, 2006 | $ 3,156,000 | ||
Weather | 201,000 | ||
Growth from Community Gas Systems | 116,000 | ||
Propane wholesale & marketing | 153,000 | ||
Decrease in margin per retail gallon | (159,000) | ||
Other | 97,000 | ||
Gross margin for the three months ended June 30, 2007 | $ | 3,564,000 |
§ | Temperatures on the Delmarva Peninsula were 36 percent colder in the second quarter of 2007 compared the same period in 2006, which contributed to an increase of 365,000 gallons, or 13 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 $201,000 for the Delmarva propane distribution operation compared to the second quarter of 2006. |
§ | Continued customer growth for the Delmarva Community Gas Systems (“CGS”) accounted for an $116,000 increase in gross margin for the first quarter 2007, compared to the same period in 2006. The average number of customers increased by approximately 1,020 to a total count of approximately 4,800, or a 27 percent increase, compared to the second quarter of 2006. |
§ | Increased market opportunities that arose in the second quarter of 2007 due to price volatility in the propane wholesale market resulted in $153,000 in additional gross margin from the wholesale marketing operation. |
§ | Gross margin decreased by $159,000 in the second quarter of 2007 compared to the same period in 2006 because of reductions in the average gross margin per retail gallon. Gross margin per retail gallon decreased as a result of market prices for propane, during the current quarter, being reduced to levels closer to the Company’s inventory price per gallon. |
Other operating expenses of the propane unit increased for the quarter by $512,000, or 14 percent, compared to the second quarter of 2006, primarily from an increase in health care costs, propane tank maintenance and recertifications, depreciation expense, as well as, the recovery of $87,000 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 experienced gross margin growth of approximately $376,000, or 30 percent, and contributed operating income of $179,000 for the second quarter of 2007. Increases in revenue and gross margin were almost completely offset by increases in other operating expenses, consequently operating income increased by only $7,000 compared to the same period in 2006. The improved gross margin reflects an increase in consulting revenues, as the number of billable hours increased 20 percent, and additional income from Managed Database Administration (“MDBA”) services. The advanced information services segment began the MDBA service in 2006 to provide third parties with professional database monitoring and support solutions.
Interest Expense
Total interest expense for the second quarter of 2007 increased approximately $93,000, or six percent, compared to the same period in 2006. The higher interest expense was primarily due to:
§ | An increase in the average long-term debt balance in 2007 compared to 2006, partially offset by a 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. |
Comparative results for the six months ended June 30, 2007 and 2006
Operating income was $18.3 million for the first six months of 2007, compared to $14.6 million for the same period in 2006, representing an increase of $3.6 million, or 25 percent. Gross margin increased $7.0 million, or 17 percent, compared to 2006, primarily due to continued customer growth and the positive impact of colder weather experienced in the first six months of 2007.
Natural Gas Operations
Natural gas operating income for the first six months of 2007 increased $2.1 million, or 18 percent, on gross margin growth of $4.1 million, compared to the same period in 2006. Items contributing to the period-over-period increase in gross margin include:
Gross margin for the six months ended June 30, 2006 | $ 27,858,000 | ||
Growth | 2,899,000 | ||
Weather | 756,000 | ||
Rate increase | 607,000 | ||
Other | (144,000) | ||
Gross margin for the six months ended June 30, 2007 | $ | 31,976,000 |
§ | 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 $1.8 million to gross margin from the new transportation capacity contracts implemented in November of 2006. |
§ | Weather contributed to the increase in gross margin in the first six months of 2007 compared to the same period in 2006, as temperatures on the Delmarva Peninsula were 21 percent colder in 2007. The Company estimates that the colder temperatures contributed approximately $756,000 to gross margin when compared to the same period in 2006. |
§ | Rate increases for the Company’s Maryland natural gas distribution and its natural gas transmission operations contributed $607,000 in additional gross margin in the first six months of 2007. In October 2006, the Maryland Public Service Commission granted the Company an increase in its base rates, which resulted in a $495,000 period-over-period increase to gross margin. The natural gas transmission operation implemented temporary rates, subject to refund, in May 2007, which contributed $112,000 of additional gross margin. |
Other operating expenses for the natural gas segment increased $2.0 million, or 12 percent, for the first six months of 2007 compared to the second quarter of 2006, due primarily to costs to support the customer growth, including higher payroll and incentive compensation, benefits, depreciation, property taxes, and regulatory expenses, as well as, a deferral of pre-service costs related to the Energylink Expansion Project, which was approved in the second quarter of 2006, and resulted in a $310,000 decrease in expenses for the second quarter and first six months of 2006.
Propane Operations
Propane operating income for the first six months increased $1.3 million, or 45 percent, on gross margin growth of $2.5 million, compared to the same period in 2006. Items contributing to the period-over-period increase in gross margin include:
Gross margin for the six months ended June 30, 2006 | $ 10,611,000 | ||
Weather | 931,000 | ||
Increase in margin per retail gallon | 622,000 | ||
Growth from Community Gas Systems | 529,000 | ||
Propane wholesale & marketing | 367,000 | ||
Other | 94,000 | ||
Gross margin for the six months ended June 30, 2007 | $ | 13,154,000 |
§ | Temperatures on the Delmarva Peninsula were 21 percent colder in the first six months of 2007 compared the same period in 2006, which contributed to the increase of 1.9 million gallons, or 13 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 $931,000 for the Delmarva propane distribution operation compared to the first six months of 2006. |
§ | Gross margin increased by $622,000 in the first six months 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 rising to levels greater than the Company’s inventory price per gallon. |
§ | Continued customer growth for the Delmarva CGS contributed to the increase of $529,000 in gross margin for the first six months of 2007, compared to the same period in 2006. The average number of customers increased by approximately 1,000 to a total count of approximately 4,680, or a 27 percent increase, compared to the same period in 2006. |
§ | Gross margin for the Company’s propane wholesale marketing operation increased by $367,000 for the first six months of 2007 compared to the same period in 2006. The higher gross margin reflects the increased 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 first six months of 2007 by $1.2 million, or 16 percent, compared to the first six months of 2006, primarily due to an increase in costs to support customer growth and improved operating results, including higher payroll and incentive compensation, benefits, depreciation, and tank maintenance and recertifications, as well as, the recovery of $387,000 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 $228,000 for the first six months of 2007, representing an increase of $39,000 compared to the same period in 2006. The improved results are attributable primarily to an increase in consulting revenues, as the number of billable hours increased 17 percent, and additional income from Managed Database Administration (“MDBA”) services. 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 six months of 2007 increased approximately $199,000, or seven percent, compared to the same period in 2006. The higher interest expense was primarily due to:
§ | 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 June 30, 2007 and 2006 | |||||||||||||
Dollars in Thousands Except Per Share Amounts | |||||||||||||
(Unaudited) | |||||||||||||
Second Quarter | Year to Date | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Operating Revenues | $ | 52,502 | $ | 44,304 | $ | 146,029 | $ | 135,254 | |||||
Operating Expenses | |||||||||||||
Cost of sales, excluding costs below | 34,233 | 28,506 | 98,169 | 94,430 | |||||||||
Operations | 10,316 | 8,852 | 20,876 | 18,453 | |||||||||
Maintenance | 565 | 584 | 1,145 | 1,028 | |||||||||
Depreciation and amortization | 2,368 | 2,037 | 4,683 | 4,014 | |||||||||
Other taxes | 1,332 | 1,120 | 2,886 | 2,686 | |||||||||
Total operating expenses | 48,814 | 41,099 | 127,759 | 120,611 | |||||||||
Operating Income | 3,688 | 3,205 | 18,270 | 14,643 | |||||||||
Other income, net of other expenses | 235 | 64 | 288 | 142 | |||||||||
Interest charges | 1,595 | 1,501 | 3,194 | 2,995 | |||||||||
Income Before Income Taxes | 2,328 | 1,768 | 15,364 | 11,790 | |||||||||
Income taxes | 846 | 635 | 5,891 | 4,561 | |||||||||
Net Income | $ | 1,482 | $ | 1,133 | $ | 9,473 | $ | 7,229 | |||||
Earnings Per Share of Common Stock: | |||||||||||||
Basic | $ | 0.22 | $ | 0.19 | $ | 1.41 | $ | 1.22 | |||||
Diluted | $ | 0.22 | $ | 0.19 | $ | 1.39 | $ | 1.20 | |||||
Basic weighted average shares outstanding | 6,737 | 5,952 | 6,722 | 5,931 | |||||||||
Diluted weighted average shares outstanding | 6,850 | 5,964 | 6,835 | 6,070 |
Supplemental Income Statement Data | |||||||||||||
For the Periods Ended June 30, 2007 and 2006 | |||||||||||||
Dollars in Thousands | |||||||||||||
(Unaudited) | |||||||||||||
Second Quarter | Year to Date | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Gross Margin (1) | |||||||||||||
Natural Gas | $ | 13,235 | $ | 11,445 | $ | 31,976 | $ | 27,858 | |||||
Propane | 3,564 | 3,156 | 13,154 | 10,611 | |||||||||
Advanced Information Services | 1,649 | 1,273 | 3,120 | 2,495 | |||||||||
Other | (179 | ) | (76 | ) | (390 | ) | (140) | ||||||
Total Gross Margin | $ | 18,269 | $ | 15,798 | $ | 47,860 | $ | 40,824 | |||||
Operating Income | |||||||||||||
Natural Gas | $ | 3,992 | $ | 3,501 | $ | 13,608 | $ | 11,496 | |||||
Propane | (546 | ) | (442 | ) | 4,328 | 2,992 | |||||||
Advanced Information Services | 179 | 172 | 228 | 188 | |||||||||
Other | 63 | (26 | ) | 106 | (33) | ||||||||
Total Operating Income | $ | 3,688 | $ | 3,205 | $ | 18,270 | $ | 14,643 | |||||
Heating Degree-Days — Delmarva Peninsula | |||||||||||||
Actual | 527 | 388 | 2,966 | 2,457 | |||||||||
10-year average (normal) | 496 | 512 | 2,737 | 2,793 |
(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 | June 30, 2007 | December 31, 2006 | |||||
Property, Plant and Equipment | |||||||
Natural gas | $ | 277,240 | $ | 269,013 | |||
Propane | 46,362 | 44,792 | |||||
Advanced information services | 1,098 | 1,054 | |||||
Other plant | 9,140 | 9,147 | |||||
Total property, plant and equipment | 333,840 | 324,006 | |||||
Less: Accumulated depreciation and amortization | (89,485 | ) | (85,010) | ||||
Plus: Construction work in progress | 6,740 | 1,829 | |||||
Net property, plant and equipment | 251,095 | 240,825 | |||||
Investments | 2,132 | 2,016 | |||||
Current Assets | |||||||
Cash and cash equivalents | 909 | 4,488 | |||||
Accounts receivable (less allowance for uncollectible | |||||||
accounts of $720 and $662, respectively) | 40,939 | 44,969 | |||||
Accrued revenue | 1,394 | 4,325 | |||||
Propane inventory, at average cost | 6,875 | 7,187 | |||||
Other inventory, at average cost | 1,369 | 1,565 | |||||
Regulatory assets | 650 | 1,276 | |||||
Storage gas prepayments | 5,120 | 7,393 | |||||
Income taxes receivable | 1,218 | 1,079 | |||||
Deferred income taxes | 412 | 1,365 | |||||
Prepaid expenses | 2,996 | 2,281 | |||||
Other current assets | 3,642 | 1,555 | |||||
Total current assets | 65,524 | 77,483 | |||||
Deferred Charges and Other Assets | |||||||
Goodwill | 674 | 674 | |||||
Other intangible assets, net | 185 | 192 | |||||
Pension | 630 | 591 | |||||
Long-term receivables | 773 | 824 | |||||
Other regulatory assets | 1,758 | 1,765 | |||||
Other deferred charges | 2,593 | 1,215 | |||||
Total deferred charges and other assets | 6,613 | 5,261 | |||||
Total Assets | $ | 325,364 | $ | 325,585 |
Condensed Consolidated Balance Sheets | |||||||
Dollars and Share Amounts in Thousands | |||||||
(Unaudited) | |||||||
Capitalization and Liabilities | June 30, 2007 | December 31, 2006 | |||||
Capitalization | |||||||
Stockholders' equity | |||||||
Common Stock, par value $0.4867 per share | |||||||
(authorized 12,000 shares) | $ | 3,282 | $ | 3,255 | |||
Additional paid-in capital | 64,129 | 61,960 | |||||
Retained earnings | 51,807 | 46,271 | |||||
Accumulated other comprehensive income | (335 | ) | (335) | ||||
Deferred compensation obligation | 1,371 | 1,119 | |||||
Treasury stock | (1,371 | ) | (1,118) | ||||
Total stockholders' equity | 118,883 | 111,152 | |||||
Long-term debt, net of current maturities | 69,965 | 71,050 | |||||
Total capitalization | 188,848 | 182,202 | |||||
Current Liabilities | |||||||
Current portion of long-term debt | 7,656 | 7,656 | |||||
Short-term borrowing | 23,569 | 27,554 | |||||
Accounts payable | 26,645 | 33,871 | |||||
Customer deposits and refunds | 7,863 | 7,502 | |||||
Accrued interest | 811 | 832 | |||||
Dividends payable | 1,989 | 1,939 | |||||
Accrued compensation | 1,881 | 2,901 | |||||
Regulatory liabilities | 6,118 | 4,199 | |||||
Other accrued liabilities | 5,740 | 4,007 | |||||
Total current liabilities | 82,272 | 90,461 | |||||
Deferred Credits and Other Liabilities | |||||||
Deferred income taxes | 27,155 | 26,517 | |||||
Deferred investment tax credits | 301 | 328 | |||||
Other regulatory liabilities | 1,053 | 1,236 | |||||
Environmental liabilities | 103 | 212 | |||||
Accrued pension costs | 2,242 | 2,199 | |||||
Accrued asset removal cost | 19,355 | 18,411 | |||||
Other liabilities | 4,035 | 4,019 | |||||
Total deferred credits and other liabilities | 54,244 | 52,922 | |||||
Total Capitalization and Liabilities | $ | 325,364 | $ | 325,585 |
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