SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER: 0-593
CHESAPEAKE UTILITIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0064146
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
909 SILVER LAKE BOULEVARD, DOVER, DELAWARE 19904
(Address of principal executive offices) (Zip Code)
(302) 734-6754
(Registrant's Telephone Number, Including Area Code)
__________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Common Stock, par value $.4867 - 3,758,082 shares issued as of March 31, 1996.
PART I
FINANCIAL INFORMATION
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
ASSETS (Unaudited)
----------- ------------
PROPERTY, PLANT AND EQUIPMENT
Natural gas distribution $65,790,831 $64,785,616
Natural gas transmission 26,458,427 25,651,558
Propane distribution 19,767,275 19,645,973
Advanced information services and other 4,879,351 4,404,908
Gas plant acquisition adjustment 795,004 795,004
--------------------------
Total property, plant and equipment 117,690,888 115,283,059
Less: Accumulated depreciation and amortization (34,597,330) (33,567,446)
--------------------------
Net property, plant and equipment 83,093,558 81,715,613
--------------------------
INVESTMENTS 2,046,545 1,957,218
--------------------------
CURRENT ASSETS
Cash and cash equivalents 857,388 977,407
Accounts receivable, less allowance for uncollectibles 14,516,510 12,701,256
Materials and supplies, at average cost 961,693 844,786
Propane inventory, at average cost 1,099,053 1,442,633
Storage gas prepayments 645,805 2,663,721
Underrecovered purchased gas costs 791,866 0
Income taxes receivable 0 193,916
Prepaid expenses 353,505 842,460
Deferred income taxes, net 1,145,940 1,362,289
--------------------------
Total current assets 20,371,760 21,028,468
--------------------------
DEFERRED CHARGES AND OTHER ASSETS
Environmental cost 8,471,527 8,618,712
Order 636 transition cost 1,320,504 1,463,157
Other deferred charges and intangible assets 3,512,826 4,010,812
--------------------------
Total deferred charges and other assets 13,304,857 14,092,681
--------------------------
TOTAL ASSETS $118,816,720 $118,793,980
==========================
The accompanying notes are an integral part of these financial statements.
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
CAPITALIZATION AND LIABILITIES (Unaudited)
----------- ------------
CAPITALIZATION
Stockholders' equity
Common Stock, par value $.4867 per share;
(authorized 12,000,000 shares; issued 3,758,082
and 3,721,589 shares, respectively) $1,828,972 $1,811,211
Additional paid-in capital 18,154,820 17,592,242
Retained earnings 27,160,352 23,385,097
Unearned compensation - restricted stock awards (615,737) (415,107)
Net unrealized loss on marketable securities (18,648) (72,839)
--------------------------
Total stockholders' equity 46,509,759 42,300,604
Long-term debt, net of current portion 29,734,868 29,794,639
--------------------------
Total capitalization 76,244,627 72,095,243
--------------------------
CURRENT LIABILITIES
Current portion of long-term debt 783,271 864,849
Short-term borrowings 1,700,000 4,800,000
Accounts payable 9,591,606 11,162,775
Refunds payable to customers 906,934 966,940
Income taxes payable 1,611,019 0
Accrued interest 570,418 742,701
Overrecovered purchased gas costs 0 53,374
Dividends payable 873,754 837,358
Other accrued expenses 2,942,861 3,123,191
--------------------------
Total current liabilities 18,979,863 22,551,188
--------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net 8,787,690 9,136,808
Deferred investment tax credits 922,424 931,247
Environmental liability 7,012,567 7,113,572
Accrued pension costs 2,233,375 2,118,545
Order 636 transition liability 1,320,504 1,463,157
Other liabilities 3,315,670 3,384,220
--------------------------
Total deferred credits and other liabilities 23,592,230 24,147,549
--------------------------
TOTAL CAPITALIZATION AND LIABILITIES $118,816,720 $118,793,980
==========================
The accompanying notes are an integral part of these financial statements.
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
For the Quarter Ended
March 31,
1996 1995
--------------------------
OPERATING REVENUES $44,270,265 $30,896,798
--------------------------
OPERATING EXPENSES
Purchased gas costs 27,559,120 16,972,091
Operations 5,814,433 4,953,206
Maintenance 481,336 411,497
Depreciation and amortization 1,307,758 1,331,274
Other taxes 1,050,962 866,917
Income taxes 2,778,975 2,030,851
--------------------------
Total operating expenses 38,992,584 26,565,836
--------------------------
OPERATING INCOME 5,277,681 4,330,962
OTHER INCOME AND DEDUCTIONS 60,096 44,260
--------------------------
INCOME BEFORE INTEREST CHARGES 5,337,777 4,375,222
INTEREST CHARGES 688,768 716,791
--------------------------
NET INCOME $4,649,009 $3,658,431
==========================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 3,741,534 3,671,041
==========================
EARNINGS PER SHARE OF COMMON STOCK (1):
Net Income $1.24 $1.00
==========================
FULLY DILUTED EARNINGS PER SHARE OF COMMON STOCK (1):
Net Income $1.17 $0.95
==========================
The accompanying notes are an integral part of these financial statements.
(1) See Exhibit 11 - Computation of Primary and Fully Diluted Earnings Per
Share
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
March 31,
1996 1995
--------------------------
OPERATING ACTIVITIES
Net Income $4,649,009 $3,658,431
Adjustments to reconcile net income to net operating cash
Depreciation and amortization 1,437,135 1,408,387
Deferred income taxes, net (132,769) (440,967)
Investment tax credit adjustments (8,823) (8,823)
Employee benefits 95,148 99,030
Employee compensation from lapsing stock restrictions 89,732 103,508
Reserve for refund 0 219,611
Other (3,426) (646,012)
Changes in assets and liabilities:
Accounts receivable (1,815,254) (362,791)
Inventory, materials, supplies and storage gas 2,244,589 2,547,028
Prepaid expenses 488,955 378,859
Other deferred charges 401,572 257,759
Accounts payable (1,571,169) (2,206,759)
Refunds payable to customers (60,006) 264,518
(Under)Overrecovered purchased gas costs (845,240) 673,148
Other current liabilities 1,452,322 2,405,044
--------------------------
Net cash provided by operating activities 6,421,775 8,349,971
INVESTING ACTIVITIES
Property, plant and equipment expenditures, net (2,688,219) (2,348,040)
Purchases of investments, net 0 (38,826)
--------------------------
Net cash used by investing activities (2,688,219) (2,386,866)
FINANCING ACTIVITIES
Common stock dividends net of amounts reinvested of
$141,371 and $100,931, respectively (695,961) (702,764)
Net repayments under line of credit agreements (3,100,000) (5,000,000)
Proceeds from issuance of treasury stock 0 69,843
Proceeds from issuance of stock 83,735 0
Repayments of long-term debt (141,349) (186,080)
--------------------------
Net cash used by financing activities (3,853,575) (5,819,001)
NET (DECREASE) INCREASE IN CASH (120,019) 144,104
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 977,407 398,751
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $857,388 $542,855
==========================
The accompanying notes are an integral part of these financial statements.
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. QUARTERLY FINANCIAL DATA
The financial information included herein is unaudited; however, the
financial information reflects normal recurring adjustments, which are, in
the opinion of management, necessary for a fair presentation of the Company's
interim results. Due to the seasonal nature of the Company's business, there
are substantial variations in the results of operations reported on a
quarterly basis. Certain amounts in 1995 have been reclassified to conform
with the 1996 presentation.
2. COMMITMENTS AND CONTINGENCIES
Environmental Matters
Dover Gas Light Site
In 1984, the State of Delaware notified the Company that a parcel of land it
purchased in 1949 from Dover Gas Light Company, a predecessor gas company,
contains hazardous substances. The State also asserted that the Company is
responsible for any clean-up and prospective environmental monitoring of the
site. The Delaware Department of Natural Resources and Environmental Control
("DNREC") investigated the site and surroundings, finding coal tar residue
and some ground-water contamination.
In October 1989, the Environmental Protection Agency Region III ("EPA")
listed the Dover Site on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or
"Superfund"). At this time under CERCLA, both the State of Delaware and the
Company were named as potentially responsible parties ( PRP ) for clean-up of
the site.
The EPA issued the site Record of Decision ("ROD") dated August 16, 1994.
The remedial action selected by the EPA in the ROD addresses the ground-water
contamination with a combination of hydraulic containment and natural
attenuation. Remediation selected for the soil at the site is to meet
stringent cleanup standards for the first two feet of soil and less stringent
standards for the soil below two feet. The ROD estimates the costs of
selected remediation of ground-water and soil at $2.7 million and $3.3
million, respectively.
On November 18, 1994, EPA issued a "Special Notice Letter" (the "Letter") to
Chesapeake and three other PRPs. The Letter includes, inter alia, (1) a
demand for payment by the PRPs of EPA's past costs (currently estimated to be
approximately $300,000) and future costs incurred overseeing Site work; (2)
notice of EPA's commencement of a 60- day moratorium on certain EPA response
activities at the Site; (3) a request by EPA that Chesapeake and the other
PRPs submit a "good faith proposal" to conduct or finance the work identified
in the ROD; and (4) proposed consent orders by which Chesapeake and other
parties may agree to perform the good faith proposal.
In January 1995, Chesapeake submitted to the EPA a good faith proposal to
perform a substantial portion of the work set forth in the ROD, which was
subsequently rejected. The Company and the EPA each attempted to secure
voluntary performance of part of the remediation by other parties. These
parties include the State of Delaware, which is the owner of the property and
was identified in the ROD as a PRP, and a business identified in the ROD as
a PRP for having contributed to ground-water contamination.
On May 17, 1995, EPA issued an order to the Company under section 106 of
CERCLA (the Order ), which requires the Company to fund or implement the ROD.
The Order was also issued to General Public Utilities Corporation, Inc.
( GPU ), which both EPA and the Company believe is liable under CERCLA. Other
PRPs, such as the State of Delaware, were not ordered to perform the ROD.
EPA may seek judicial enforcement of its Order, as well as significant
financial penalties for failure to comply. Although notifying EPA of
objections to the Order, the Company agreed to comply. GPU has informed EPA
that it does not intend to comply with the Order. The Company has commenced
the design phase of the ROD.
On March 6, 1995, the Company commenced litigation against the State of
Delaware for contribution to the remedial costs being incurred to carry out
the ROD. In December of 1995, this case was dismissed without prejudice
based on a settlement agreement (the Settlement ) between the parties. Under
the Settlement, the State agreed to support the Company's proposal to reduce
the soil remedy for the site, described below, to contribute $600,000 toward
the cost of implementing the ROD, and to reimburse the EPA for $400,000 in
oversight costs. The Settlement is contingent upon a formal settlement
agreement between EPA and the State of Delaware being reached within the next
two years. Upon satisfaction of all conditions of the Settlement, the
litigation will be dismissed with prejudice.
On July 7, 1995, the Company submitted to EPA a study proposing to reduce the
level and cost of soil remediation from that identified in the ROD. Although
this proposal was supported by the State of Delaware, as required by the
Settlement, it was rejected by the EPA on January 30, 1996.
The Company is currently engaged in investigations related to additional
parties who may be PRPs. Based upon these investigations, the Company will
consider suit against other PRPs. The Company expects continued negotiations
with PRPs in an attempt to resolve these matters.
In the third quarter of 1994, the Company increased its accrued liability
recorded with respect to the Dover Site to $6.0 million. This amount
reflects the EPA's estimate, as stated in the ROD for remediation of the site
according to the ROD. The recorded liability may be adjusted upward or
downward as the design phase progresses and the Company obtains construction
bids for performance of the work. The Company has also recorded a regulatory
asset of $6.0 million, corresponding to the recorded liability. Management
believes that in addition to the $600,000 expected to be contributed by the
State of Delaware under the Settlement, the Company will be equitably
entitled to contribution from other responsible parties for a portion of the
expenses to be incurred in connection with the remedies selected in the ROD.
Management also believes that the amounts not so contributed will be
recoverable in the Company's rates.
As of March 31, 1996, the Company has incurred approximately $3.7 million in
costs relating to environmental testing and remedial action studies. In
1990, the Company entered into settlement agreements with a number of
insurance companies resulting in proceeds to fund actual environmental costs
incurred over a five to seven-year period beginning in 1990. In December
1995, the Delaware Public Service Commission, authorized recovery of all
unrecovered environmental cost incurred through September 30, 1995. This
amount totaled $564,514. The recovery was authorized by a means of a rider
(supplement) to base rates, applicable to all firm service customers. The
costs would be recovered through a five-year amortization offset by the
deferred tax benefit associated with those environmental costs. The deferred
tax benefit equals the projected cashflow savings realized by the Company in
connection with a reduced income tax liability due to the possibility of
accelerated deduction allowed on certain environmental costs when incurred.
Each year a new rider rate will be calculated to become effective December 1.
Each year the rider rate will be based on the amortization of actual
expenditures through September of the filing year plus amortization of
expenses from previous years. The advantage of the rider, which was
effective January 1, 1996, is that it is not necessary to file a rate case
every year to recover expenses incurred. As of March 31, 1996, the
unamortized balance and amount of environmental cost not included in the
rider, were $913,000 and $280,000, respectively. With the rider mechanism
established, it is management s opinion that these costs and any future cost,
net of the deferred income tax benefit, will be recoverable in rates.
Salisbury Town Gas Light Site
In cooperation with the Maryland Department of the Environment ("MDE"), the
Company has completed an assessment of the Salisbury manufactured gas plant
site. The assessment determined that there was localized contamination of
ground-water. A remedial design report was submitted to MDE in November 1990
and included a proposal to monitor, pump and treat any contaminated ground-
water on-site. Through negotiations with the MDE, the remedial action
workplan was revised with final approval from MDE obtained in early 1995.
The remediation process for ground-water was revised from pump-and-treat to
Air Sparging and Soil-Vapor Extraction, resulting in a substantial reduction
in overall costs. The Company hopes to have the remediation facilities for
ground-water designed and constructed by mid-year 1996.
The cost of remediation is estimated to be approximately $380,000 in capital
costs with yearly operating expenses ranging from $136,000 to $195,000 per
year. Based on these estimated costs, the Company recorded both a liability
and a deferred regulatory asset of $1,113,572 as of December 31, 1995, to
cover the Company's projected remediation costs for this site. The liability
payout for this site is expected to be over a five-year period. As of March
31, 1996 the Company has incurred approximately $1.9 million for remedial
actions and environmental studies and has charged such costs to accumulated
depreciation. In January 1990, the Company entered into settlement
agreements with a number of insurance companies resulting in proceeds to fund
actual environmental costs incurred over a three to five-year period
beginning in 1990. The final insurance proceeds were requested and received
in 1992. In December 1995, the Maryland Public Service Commission approved
recovery of all environmental cost incurred through September 30, 1995 less
amounts previously amortized and insurance proceeds. The amount approved for
a 10-year amortization was $964,251. Of the $1.9 million in costs reported
above, approximately $135,000 has not been recovered through insurance
proceeds or received ratemaking treatment. It is management's opinion that
these costs incurred and future costs incurred, if any, will be recoverable
in rates.
Winter Haven Coal Gas Site
The Company is currently conducting investigations of a site in Winter Haven,
Florida, where the Company's predecessors manufactured coal gas earlier this
century. A Contamination Assessment Report ("CAR") was submitted to the
Florida Department of Environmental Protection ("FDEP") in July 1990. The
CAR contained the results of additional investigations of conditions at the
site. These investigations confirmed limited soil and ground-water impacts
to the site. In March 1991, FDEP directed the Company to conduct additional
investigations on-site to fully delineate the vertical and horizontal extent
of soil and ground-water impacts.
Additional contamination assessment activities were conducted at the site in
late 1992 and early 1993. In March 1993, a Contamination Assessment Report
Addendum ("CAR Addendum") was delivered to FDEP. The CAR Addendum concluded
that soil and ground-water impacts have been adequately delineated as a
result of the additional field work. The FDEP approved the CAR and CAR
Addendum in March of 1994. The next step is a Risk Assessment ("RA") and a
Feasibility Study ("FS") on the site. Drafts of the RA and FS were filed
with the FDEP during 1995; however, until the RA and FS are complete and
accepted as filed by the FDEP, then it is not possible to determine whether
remedial action will be required by FDEP and, if so, the cost of such
remediation.
The Company has spent approximately $634,000, as of March 31, 1996, on these
investigations, and expects to recover these expenses, as well as any future
expenses, through base rates. These costs have been accounted for as charges
to accumulated depreciation. The Company requested and received from the
Florida Public Service Commission ("FPSC") approval to amortize through base
rates $359,659 of clean-up and removal costs incurred as of December 31,
1986. As of December 31, 1992, these costs were fully amortized. In January
1993, the Company received approval to recover through base rates
approximately $217,000 in additional costs related to the former manufactured
gas plant. This amount represents recovery of $173,000 of costs incurred
from January 1987 through December 1992, as well as prospective recovery of
estimated future costs which had not yet been incurred at that time. The
FPSC has allowed for amortization of these costs over a three-year period and
provided for rate base treatment for the unamortized balance. In a separate
docket before the FPSC, the Company has requested and received approval to
apply a refund of 1991 overearnings of approximately $118,000 against the
balance of unamortized environmental charges incurred as of December 31,
1992. As a result, these environmental charges were fully amortized as of
June 1994. Of the $634,000 in costs reported above, all costs have received
ratemaking treatment. The FPSC has allowed the Company to continue to accrue
for future environmental costs. At March 31, 1996, the Company has $71,000
accrued. It is management's opinion that future costs, if any, will be
recoverable in rates.
Smyrna Coal Gas Site
On August 29, 1989 and August 4, 1993, representatives of DNREC conducted
sampling on property owned by the Company in Smyrna, Delaware. This property
is believed to be the location of a former manufactured gas plant. Analysis
of the samples taken by DNREC show a limited area of soil contamination.
On November 2, 1993, DNREC advised the Company that it would require a
remediation of the soil contamination under the state's Hazardous Substance
Cleanup Act and submitted a draft Consent Decree to the Company for its
review. The Company met with DNREC personnel in December 1993 to discuss the
scope of any remediation of the site and, in January 1994, submitted a
proposed workplan, together with comments on the proposed Consent Decree.
The final Work Plan was submitted on September 27, 1994. DNREC has approved
the Work Plan and the Consent Decree. Remediation based on the Work Plan was
completed in 1995, at a cost of approximately $263,000. All soil and debris
were removed in the third quarter, restoration is complete and DNREC has
initiated site closure procedures. It is management's opinion that these
costs will be recoverable in rates.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE
QUARTER ENDED MARCH 31, 1996
The Company recognized net income of $4,649,009 for the three months ended March
31, 1996, representing an increase in net income of $990,578 as compared to the
corresponding period in 1995. As indicated in the table below, the increase in
earnings before interest and taxes ("EBIT") is primarily due to the higher
earnings of the natural gas distribution, propane distribution and advanced
information service segments slightly offset by the lower earnings of the
natural gas transmission segment.
FOR THE QUARTER ENDED MARCH 31,
1996 1995 Change
---- ---- ------
Earnings Before Interest and Taxes
Natural Gas Distribution $4,756,720 $3,302,252 $1,454,468
Natural Gas Transmission 555,096 848,008 (292,912)
Propane Distribution 2,352,220 2,005,087 347,133
Advanced Information
Services and Other 367,357 290,301 77,056
Eliminations & Corporate 25,263 (83,835) 109,098
--------- --------- ---------
Total EBIT 8,056,656 6,361,813 1,694,843
Operating Income Taxes 2,778,975 2,030,851 748,124
Interest 688,768 716,791 (28,023)
Non-Operating Income, Net 60,096 44,260 15,836
--------- --------- ---------
Net Income $4,649,009 $3,658,431 $990,578
========= ========= =========
Natural Gas Distribution
The natural gas distribution segment reported EBIT of $4,756,720 for the first
quarter 1996 as compared to EBIT of $3,302,252 for the corresponding period last
year, an increase of $1,454,468. The increase in EBIT is due to an increase in
gross margin, partially offset by an increase in operating expenses.
FOR THE QUARTER ENDED MARCH 31,
1996 1995 Change
---- ---- ------
Revenue $27,716,421 $17,716,177 $10,000,244
Cost of Gas 19,063,787 11,187,655 7,876,132
---------- ---------- ----------
Gross Margin 8,652,634 6,528,522 2,124,112
Operations & Maintenance 2,425,159 2,081,955 343,204
Depreciation & Amortization 742,053 587,283 154,770
Other Taxes 728,702 557,032 171,670
--------- --------- ---------
EBIT $4,756,720 $3,302,252 $1,454,468
========= ========= =========
The increase in revenue and cost of gas is primarily due to colder than normal
first quarter temperatures in our northern service territories, rate increases
that went into effect during the second half of 1995 and sales to interruptible
industrial customers.
The increase in operations and maintenance expenses of $343,204 is due to an
increase in customer accounting and administrative payroll. Depreciation and
amortization expenses increased $154,770 due to plant placed in service during
the past year. Increased revenue in our northern service territory caused other
taxes to rise due to an increase in revenue related taxes.
Natural Gas Transmission
The natural gas transmission segment reported EBIT of $555,096 for the first
quarter of 1996 as compared to EBIT of $848,008 for the corresponding period
last year, a decrease of $292,912. The decrease in EBIT is primarily due to an
increase in operating expenses.
FOR THE QUARTER ENDED MARCH 31,
1996 1995 Change
---- ---- ------
Revenue $11,709,292 $9,722,685 $1,986,607
Cost of Gas 10,004,149 7,992,312 2,011,837
---------- --------- ---------
Gross Margin 1,705,143 1,730,373 (25,230)
Operations & Maintenance 850,543 607,611 242,932
Depreciation & Amortization 191,332 174,239 17,093
Other Taxes 108,172 100,515 7,657
--------- --------- ---------
EBIT $555,096 $848,008 $(292,912)
========= ========= =========
The cost of gas increase is due to the increase in the commodity price, which is
primarily attributable to the colder weather during the 1995 - 1996 winter
season. One of the transmission segment's largest customers, the methanol
plant, informed the Company that effective April 1, it will shut down for six
months. During the first quarter of 1996, the methanol plant contributed
aproximately 13.7% of the transmission segment's net income. For the six-month
period April 1 through September 30, 1995, the methanol plant contributed
approximately 18% of the segment's net income. The methanol plant has stated it
will continue to monitor methanol prices and will re-evaluate its position as to
reopening or permanently closing on or about October 1 of this year.
The increase in operations and maintenance expenses of $242,932 is due to an
increase in payroll, data processing services and maintenance of mains,
partially offset by a reduction in outside services expenses. Depreciation and
amortization increased $17,093 due to plant placed in service during the past
year.
Propane Distribution
For the first quarter of 1996, the propane distribution segment recognized an
increase in EBIT of $347,133, or 17%. Generating the additional earnings was an
increase in gross margin, somewhat offset with higher operations and maintenance
expenses.
FOR THE QUARTER ENDED MARCH 31,
1996 1995 Change
---- ---- ------
Revenue $10,026,796 $7,333,899 $2,692,897
Cost of Gas 5,561,013 3,506,842 2,054,171
---------- --------- ---------
Gross Margin 4,465,783 3,827,057 638,726
Operations & Maintenance 1,667,495 1,382,201 285,294
Depreciation & Amortization 331,717 323,525 8,192
Other Taxes 114,351 116,244 (1,893)
--------- --------- ---------
EBIT $2,352,220 $2,005,087 $347,133
========= ========= =========
The increase in gross margin of $638,726 is due primarily to a 20% increase in
sales volumes due to 7.9% colder temperatures than the same period last year,
slightly offset by a decrease in the margin per gallon.
Operations and maintenance expenses rose $285,294, or 21%, due to increases in
salaries and related benefits, delivery expenses due to the severity of the
winter season and outside services.
Advanced Information Services and Other
The advanced information services and other segment recognized EBIT of $367,357
and $290,301 for the quarters ended March 31, 1996 and 1995, respectively. This
increase in EBIT of $77,056 resulted from lower operating expenses and reduced
depreciation and amortization expenses.
FOR THE QUARTER ENDED MARCH 31,
1996 1995 Change
---- ---- ------
Revenue $2,116,008 $2,292,514 $(176,506)
Operations & Maintenance 1,580,234 1,671,944 (91,710)
Depreciation & Amortization 68,680 237,142 (168,462)
Other Taxes 99,737 93,127 6,610
--------- --------- -------
EBIT $367,357 $290,301 $77,056
========= ========= =======
The decrease in revenue is due primarily to the downsizing efforts at Capital
Data Systems ( CDS ), partially offset by an increase in consulting and resource
services revenue at United Systems, Inc. ( USI ).
Operations and maintenance expenses decreased $91,710 due to the scaled back
operations at CDS, partially offset by increase in payroll and outside services
expense at USI. Depreciation and amortization decreased $168,462 due to in part
the write-off of the Page-IT billing software product in 1995 in conjunction
with the termination of CDS largest facilities management customer.
Operating Income Taxes
Income taxes increased due to higher first quarter EBIT, as compared to last
year.
Environmental Matters
The Company continues to work with federal and state environmental agencies to
assess the environmental impacts and explore corrective action at several former
gas manufacturing plant sites (see Note 2 to the Consolidated Financial
Statements). The Company believes that any future costs associated with these
sites will be recoverable in future rates.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements reflect the capital intensive nature of its
business and are attributable principally to its construction program and the
retirement of its outstanding debt. The Company relies on funds provided by
operations and short-term borrowings to meet normal working capital requirements
and temporarily finance capital expenditures. During the first three months of
1996, the Company's net cash flow provided by operating activities, net cash
used by investing activities and net cash used by financing activities were
approximately $6,422,000, $2,688,000 and $3,854,000, respectively. Due to the
seasonal nature of the Company's business, there are substantial variations in
the results of operations reported on a quarterly basis.
The Board of Directors has authorized the Company to borrow up to $14 million
from banks and trust companies. As of March 31, 1996, the Company had four $8
million unsecured bank lines of credit. Funds provided from these lines of
credit are used for short-term cash needs to meet seasonal working capital
requirements and to fund portions of its capital expenditures. The outstanding
balances of short-term borrowings at March 31, 1996 and 1995 were $1.7 million
and $3.0 million, respectively.
During the three months ended March 31, 1996 and 1995, net property, plant and
equipment expenditures were approximately $2,688,000 and $2,348,000,
respectively. For 1996, the Company has budgeted $16.8 million for capital
expenditures. The components of this amount include $8.8 million for natural
gas distribution, $6.1 million for natural gas transmission, $1.6 million for
propane distribution, with the remaining $300,000 for computer, office equipment
and general plant. The natural gas and propane expenditures are for expansion
and improvement of their existing service territories. Natural gas transmission
expenditures are to improve the pipeline system by adding a compressor station.
Financing of the 1996 construction will be provided primarily by short-term
borrowings and cash from operations. The construction program is subject to
continuous review and modification by management. Actual construction
expenditures may vary from the above estimates due to a number of factors
including inflation, changing economic conditions, regulation, load growth and
the cost and availability of capital.
The Company expects to incur environmental related expenditures in the future
(see Note 2 to the Consolidated Financial Statements), a portion of which may
need to be financed through external sources. Management does not expect such
financing to have a material adverse effect on the financial position or capital
resources of the Company.
As of March 31, 1996, common equity represented 61.0% of permanent
capitalization, compared to 58.7% as of December 31, 1995. The Company remains
committed to maintaining a sound capital structure and strong credit ratings in
order to provide the financial flexibility needed to access the capital markets
when required. This commitment, along with adequate and timely rate relief for
the Company's regulated operations, helps to ensure that the Company will be
able to attract capital from outside sources at a reasonable cost. The
achievement of these objectives will provide benefits to customers and
creditors, as well as the Company's investors.
PART II
OTHER INFORMATION
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
Item 1: Legal Proceedings
See Note 2 to the Consolidated Financial Statements
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6(a): Exhibits
Exhibit 11 - Computation of Primary and Fully Diluted Earnings Per
Share is submitted herewith.
Item 6 (b): Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHESAPEAKE UTILITIES CORPORATION
/s/ John R. Schimkaitis
- ------------------------
John R. Schimkaitis
Executive Vice President and Assistant Treasurer
(Chief Operating and Chief Financial Officer)
Date: May 3, 1996