EXHIBIT 99.1
[Chesapeake Utilities
Corporation Logo]
FOR IMMEDIATE RELEASE
NOVEMBER 5, 2004
NYSE SYMBOL: CPK
CHESAPEAKE UTILITIES CORPORATION REPORTS EARNINGS
FOR THE PERIODS ENDED SEPTEMBER 30, 2004
Dover, Delaware - Chesapeake Utilities Corporation (NYSE: CPK) today announced
improved results for the quarter ended September 30, 2004. Chesapeake
experienced a seasonal net loss of $656,000 or $0.11 per share (fully diluted),
compared to a seasonal net loss for the third quarter of 2003 of $860,000, or
$0.15 per share (fully diluted). Chesapeake's Delmarva natural gas distribution
and propane distribution operations typically experience losses during the third
quarter, because heating customers do not require gas in the summer months. For
the nine months ended September 30, 2004, net income was $5.7 million or $0.99
per share (fully diluted) compared to $6.5 million, or $1.15 per share (fully
diluted) for the same period in 2003. The decrease in earnings for the nine
months primarily reflects a decline in gross margin and operating income for the
Company's Delmarva natural gas and propane distribution operations due to warmer
temperatures on the Delmarva Peninsula. The Company estimates that the warmer
weather reduced gross margin by $1.1 million for the nine months ended September
30, 2004 compared to the same period in 2003.
"While warm weather has impacted our year-to-date results compared to last year,
we remain optimistic about our future given the fundamental strength of our
service territory," stated John R. Schimkaitis, President and Chief Executive
Officer of Chesapeake Utilities Corporation. "Improving business conditions and
expectations for continued new construction in Delaware, Maryland and Florida,
should provide ongoing potential for profitable growth in our core business."
The discussions of the results for each of the periods ended September 30, 2004,
use the term "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 Footnote (2) to the
Supplemental Income Statement Data below.
RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2004
Natural gas gross margin increased $555,000 for the third quarter of 2004
compared to 2003. The increase resulted from residential customer growth of 8
percent for Delmarva and Florida, as well as increases in Florida's industrial
customer gross margin and the natural gas transmission operations' firm
transportation and interruptible services. Higher margin was partially offset by
increased operating expenses, which were higher as a result of the customer
growth. Additionally, depreciation increased as a result of continued investment
in plant assets.
The operating loss from propane operations narrowed by $49,000 during the
quarter. The slight improvement was due to a $371,000 increase in propane gross
margin during the quarter, which was largely offset by a $322,000 increase in
other operating expenses. Advanced information services experienced a decline in
operating income of $54,000, as increased revenues of $341,000 were more than
offset by an increase of $452,000 in the cost of sales. Other operating expenses
were lower as a result of lower incentive compensation costs.
Results for the quarter also reflect a non-recurring gain of approximately
$130,000 (after tax) associated with a restructuring of retirement benefits.
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
Net income for the nine months ended September 30, 2004 was $5.7 million, or
$0.99 per share (fully diluted), compared to $6.5 million, or $1.15 per share
(fully diluted), for the same period in 2003. The decline in earnings for the
nine months primarily reflects weather (measured in heating degree-days) that
was 9 percent warmer than the same period in the prior year. The Company
estimates that warmer temperatures on the Delmarva Peninsula resulted in a
reduction of $1.1 million in gross margin, compared to the nine months ended
September 30, 2003, for the natural gas and propane distribution operations
combined.
Natural gas gross margin increased $1.5 million, or 5 percent, for the nine
months. Gross margin for Delaware and Maryland increased $158,000 as residential
customer growth of 7 percent offset the negative impact of warmer weather. The
warmer weather is estimated to have reduced Delaware and Maryland margins by
$545,000 compared to the prior year. Gross margin for the Florida operations for
the nine-month period was $798,000 higher than the prior year due to expansion
of unregulated gas supply management operations and to residential customer
growth of 6.7 percent. Transmission operations increased gross margin by
$517,000 as a result of increased levels of firm and interruptible
transportation services. Operating expenses were higher due to the increase in
the number of customers served.
Like the Delmarva natural gas distribution operations, the propane distribution
operations on the Delmarva Peninsula were affected by temperatures, measured in
heating degree-days, that were 9 percent warmer than the first nine months of
2003. The total decrease in Delmarva propane operations gross margin was
$993,000. The Company estimates that the warmer temperatures represented
$512,000 of the decrease in propane gross margin. In addition, volumes sold to
poultry industry customers declined, partially due to the 2003 closing of a
poultry processing plant in our service territory. The plant is not expected to
reopen. The Delmarva Peninsula also experienced an outbreak of avian influenza
during the first quarter of 2004 that has since been contained. Gross margins
per gallon sold were also lower.
Florida propane distribution gross margin declined by $54,000. This was
primarily due to the impact of a one-time service project that increased 2003
gross margin by $192,000. Additionally, propane wholesale marketing operations
experienced a drop of $761,000 in gross margin, partially offset by a decrease
of $241,000 in operating expenses. The decrease reflects more conservative
wholesale marketing practices caused by the relatively high level of energy
prices.
Gross margin for the advanced information services segment grew by $82,000 for
the nine months ended September 30, 2004. The increase in gross margin was
partially offset by increased costs related to enhancements to the Lightweight
Association Management Processing System (LAMPS), resulting in a $51,000
increase in operating income for the nine-month period. Version 2.0 of LAMPS was
released on October 7, 2004.
Losses from discontinued operations decreased by $226,000 during the first nine
months of 2004, reflecting the sale of the majority of the water businesses
during the second half of 2003.
RESULTS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2004
Net income for the twelve months ended September 30, 2004 was $8.5 million, or
$1.46 per share (fully diluted), compared to $8.1 million, or $1.44 per share
(fully diluted), in 2003. Net income from continuing operations for the twelve
months ended September 30, 2004 was $9.0 million or $1.56 per share (fully
diluted) compared to net income for the twelve months ended September 30, 2003
of $9.9 million or $1.74 per share (fully diluted).
The natural gas segment benefited from residential customer growth of 7 percent
on the Delmarva Peninsula and 6 percent in Florida. Additionally, Florida added
two new industrial customers in the first quarter of 2003 and the transmission
operation provided increased levels of firm transportation services requested by
its customers. This growth offset temperatures on the Delmarva Peninsula that
were 10 percent warmer, measured in heating degree-days, than the prior twelve
month period. The Company estimates that the warmer temperatures had a negative
impact of $889,000 on gross margin. The net effect was an increase in gross
margin of $1.7 million. Higher operating expenses were the result of customer
growth and an increase in depreciation expense related to increased plant
investment. Those higher operating costs offset the gross margin increase.
The Delmarva propane distribution operation's operating income decreased by $1.3
million primarily as a result of lower margins due to warmer weather. The
Company estimates that warmer weather for the Delmarva Peninsula had a negative
impact of $835,000 on margins for the twelve months ended September 30, 2004
compared to the prior twelve-month period. The Florida propane distribution
operations experienced a decline in operating income of $280,000. A decrease of
$192,000 was related to a non-recurring service project that was completed in
the first quarter of 2003. Additionally, service revenues in Florida declined
during the twelve months ended September 30, 2004. Propane wholesale marketing
operating income decreased by $443,000 due to fewer trading opportunities.
Operating income for the advanced information services segment increased
$358,000 for the twelve months ended September 30, 2004 compared to the twelve
months ended September 30, 2003. An increase in gross margin, coupled with
cost-cutting initiatives led to higher operating income.
Losses from discontinued operations decreased $1.2 million for the twelve months
ended September 30, 2004 compared to the twelve months ended September 30, 2003.
This improvement relates primarily to a charge for goodwill impairment recorded
in the fourth quarter of 2002 for $1.5 million pre-tax ($973,000 after tax).
On December 31, 2003, the Company restated its financial statements in order to
reflect a change in the revenue recognition method of its Delaware and Maryland
natural gas divisions from the "as billed" method to the "accrual" method. The
Company's Florida division has historically used the "accrual" method in
accordance with Florida Public Service Commission requirements. The Delaware and
Maryland divisions have historically used the "as billed" method to recognize
revenues consistent with the rate-setting processes in those states. This
change, which had an insignificant effect on the Company's annual results,
reflects gas consumed by the Company's customers through the last day of the
accounting period as revenue. Please see the Company's report on Form 10-K for
December 31, 2003 for further information.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 2004 AND 2003
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------
----- 3RD QUARTER ----- ----- YEAR TO DATE ----- --- 12 MONTHS ENDED ---
-- 2004 -- -- 2003 -- -- 2004 -- -- 2003 -- -- 2004 -- -- 2003 --
RESTATED (1) RESTATED (1) RESTATED (1)
- ------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES . . . . . . . . . $ 26,613 $ 23,449 $ 124,669 $ 117,193 $ 169,773 $ 158,655
OPERATING EXPENSES
Cost of sales, excluding
costs below. . . . . . . . . . 14,792 12,433 75,431 67,750 102,420 91,318
Operations. . . . . . . . . . . . 8,215 7,716 26,010 24,350 34,424 32,647
Maintenance . . . . . . . . . . . 460 440 1,256 1,291 1,703 1,821
Depreciation and amortization . . 1,842 1,767 5,464 5,294 7,260 7,085
Other taxes . . . . . . . . . . . 1,021 940 3,363 3,183 4,567 4,220
- ------------------------------------------------------------------------------------------------------------------
Total operating expenses. . . . . . 26,330 23,296 111,524 101,868 150,374 137,091
- ------------------------------------------------------------------------------------------------------------------
OPERATING INCOME . . . . . . . . . . 283 153 13,145 15,325 19,399 21,564
OTHER INCOME NET OF OTHER EXPENSES . 38 (25) 214 64 391 192
INTEREST CHARGES . . . . . . . . . . 1,325 1,420 3,980 4,315 5,372 5,750
- ------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES. . (1,004) (1,292) 9,379 11,074 14,418 16,006
INCOME TAX (BENEFIT) COST. . . . . . (420) (582) 3,578 4,212 5,399 6,131
- ------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME FROM
CONTINUING OPERATIONS. . . . . . . (584) (710) 5,801 6,862 9,019 9,875
NET LOSS FROM DISCONTINUED
OPERATIONS, NET OF TAX
Discontinued operations. . . . . (42) (44) (57) (279) (579) (1,695)
(Loss) gain on sale. . . . . . . (30) (106) (30) (34) 17 (34)
- ------------------------------------------------------------------------------------------------------------------
Total net loss from
discontinued operations . . . . . (72) (150) (87) (313) (562) (1,729)
- ------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME. . . . . . . . . . $ (656) $ (860) $ 5,714 $ 6,549 $ 8,457 $ 8,146
==================================================================================================================
Average Shares Outstanding . . . . . 5,752,623 5,626,202 5,723,178 5,595,981 5,705,777 5,579,496
(Loss) Earnings Per Share - Basic
- ---------------------------------
From continuing operations . . . . . $ (0.10) $ (0.13) $ 1.01 $ 1.23 $ 1.58 $ 1.77
From discontinued operations . . . . (0.01) (0.02) (0.01) (0.06) (0.10) (0.31)
- ------------------------------------------------------------------------------------------------------------------
Net (Loss) Income. . . . . . . . . . $ (0.11) $ (0.15) $ 1.00 $ 1.17 $ 1.48 $ 1.46
==================================================================================================================
(Loss) Earnings Per Share - Diluted
- -----------------------------------
From continuing operations . . . . . $ (0.10) $ (0.13) $ 1.00 $ 1.21 $ 1.56 $ 1.74
From discontinued operations . . . . (0.01) (0.02) (0.01) (0.06) (0.10) (0.30)
- ------------------------------------------------------------------------------------------------------------------
Net (Loss) Income. . . . . . . . . . $ (0.11) $ (0.15) $ .99 $ 1.15 $ 1.46 $ 1.44
==================================================================================================================
<FN>
(1) The impact of the restatement on the third quarter of 2003 was a increase
of $275 thousand to Operating Revenue, an increase of $9 thousand to
Operating Income, an increase of $5 thousand in Net Income, and no impact
to basic and fully diluted Earnings Per Share. The impact of the
restatement for the nine months ended September 30, 2003 was a decrease of
$2,142 thousand to Operating Revenue, a decrease of $653 thousand to
Operating Income, a decrease of $390 thousand in Net Income and a decrease
of $0.07 to basic and fully diluted Earnings Per Share. The impact for the
twelve months ended September 30, 2003, was an increase of $320 thousand to
Operating Revenue, an increase of $60 thousand to Operating Income, an
increase of $36 thousand in Net Income and an increase of $0.01 to basic
and fully diluted Earnings Per Share.
</FN>
SUPPLEMENTAL INCOME STATEMENT DATA
FOR THE PERIODS ENDED SEPTEMBER 30, 2004 AND 2003
DOLLARS IN THOUSANDS
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------
----- 3RD QUARTER ----- ----- YEAR TO DATE ----- --- 12 MONTHS ENDED ---
-- 2004 -- -- 2003 -- -- 2004 -- -- 2003 -- -- 2004 -- -- 2003 --
RESTATED (1) RESTATED (1) RESTATED (1)
- ------------------------------------------------------------------------------------------------------------------
GROSS MARGIN (2)
Natural Gas . . . . . . . . . . . $ 8,877 $ 8,322 $ 33,845 $ 32,357 $ 46,240 $ 44,552
Propane . . . . . . . . . . . . . 1,727 1,356 11,377 13,184 15,696 17,561
Advanced Information Services . . 1,270 1,380 4,187 4,105 5,642 5,542
Other . . . . . . . . . . . . . . (53) (42) (171) (203) (225) (318)
- ------------------------------------------------------------------------------------------------------------------
TOTAL GROSS MARGIN. . . . . . . . . $ 11,821 $ 11,016 $ 49,238 $ 49,443 $ 67,353 $ 67,337
==================================================================================================================
OPERATING (LOSS) INCOME
Natural Gas . . . . . . . . . . . $ 1,760 $ 1,555 $ 11,674 $ 11,829 $ 16,498 $ 16,952
Propane . . . . . . . . . . . . . (1,548) (1,597) 892 2,899 1,869 3,920
Advanced Information Services . . 45 99 377 326 742 384
Other . . . . . . . . . . . . . . 26 96 202 271 290 308
- ------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME. . . . . . . $ 283 $ 153 $ 13,145 $ 15,325 $ 19,399 $ 21,564
==================================================================================================================
HEATING DEGREE-DAYS
Actual. . . . . . . . . . . . . . 43 39 2,928 3,231 4,412 4,906
10-Year Average . . . . . . . . . 63 64 2,825 2,835 4,383 4,409
- ------------------------------------------------------------------------------------------------------------------
<FN>
(1) The impact of the restatement was an increase to both Gross Margin and
Operating Income of $9 thousand for the third quarter of 2003, a decrease
to both Gross Margin and Operating Income of $653 thousand for the nine
months ended September 30, 2003 and an increase to both Gross Margin and
Operating Income of $60 thousand for the twelve months ended September 30,
2003.
(2) "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
for advanced information services. This should not be considered an
alternative to operating income or net income, which are 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 certain
performance goals and has historically analyzed and reported gross margin
information publicly. Other companies may calculate gross margin in a
different manner.
</FN>
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 the year ended December 31, 2003 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 and transmission, 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