EX-99.1 2 pressrelease.htm CHESAPEAKE UTILITIES CORPORATION 1ST QUARTER EARNINGS RELEASE Chesapeake Utilities Corporation 1st Quarter Earnings Release

Exhibit 99.1
Chesapeake Utilities Corporation logo

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