DOVER, Del., Nov. 10 /PRNewswire-FirstCall/ -- Chesapeake Utilities Corporation today announced results for the quarter ended September 30, 2006. The Company's operating income increased by $261,000 for the quarter compared to the same period in 2005. The Company experienced a seasonal net loss of $657,000, or $0.11 per share (diluted), compared to a seasonal net loss for the third quarter of 2005 of $694,000, or $0.12 per share (diluted). Chesapeake's Delmarva natural gas distribution and propane distribution operations typically experience seasonal losses during the third quarter, because heating customers do not require gas in the summer months.
For the nine months ended September 30, 2006, net income increased $237,000, or 4 percent, to $6.6 million, or $1.10 per share (diluted), compared to $6.3 million, or $1.07 per share (diluted) for the same period in 2005. Weather on the Delmarva Peninsula had a significant impact on the year- to-date results as temperatures were 20 percent warmer in the first nine months of 2006 compared to the respective period in 2005. The Company estimates that the warmer weather reduced net income by $1.5 million, or $0.25 per share, year-to-date. The negative impact of the warmer weather was more than offset by the Company's continued strong customer growth, improved results by the advanced information services segment and the Company's continued cost management efforts.
Highlights during the third quarter include:
- Customer growth in the natural gas and propane businesses remained
strong, with the Delmarva and Florida natural gas distribution
operations each showing 9 percent increases in residential customers,
respectively; and the Delmarva propane Community Gas Systems ("CGS")
generating a 35 percent increase in customers.
- Continued capital investment to support customer growth resulted in an
increase of $12.8 million to net property, plant and equipment during
the quarter.
- On September 26, 2006, the Company received approval for a base rate
increase from the Maryland Public Service Commission ("PSC") for the
Company's Maryland natural gas operations, with the new base rates
effective October 1, 2006. The base rate adjustment results in an
increase in base rates of approximately $780,000, which would result in
an average increase in revenues of approximately 4.5 percent for the
Company's firm residential, commercial and industrial customers in
Maryland. The PSC granted a 9.03 percent overall rate of return and a
10.75 percent return on common equity, as compared to the Company's
request for a 9.7 percent overall rate of return and a 11.50 return on
common equity. This base rate increase translates into less than a one
percent annual increase since the Company's last filing 11 years ago.
The PSC also approved the Company's proposal to implement a revenue
normalization mechanism for its residential heating and smaller
commercial heating customers, reducing the Company's future risk due to
weather and usage changes.
"We are pleased to see continued growth in our natural gas and community gas systems. This growth, in combination with improvements in the information services business, more than offset the extreme warm temperatures we experienced during the year," said John R. Schimkaitis, President and Chief Executive Officer of Chesapeake Utilities Corporation.
The discussions of the results for each of the periods ended September 30, 2006 and 2005 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 (1) to the Supplemental Income Statement Data which follows. The discussions also refer to "other operating expenses." Other operating expenses refer to the following expense categories: operations, maintenance, depreciation and amortization, and other taxes.
Results for the quarter ended September 30, 2006
Operating income was $162,000 for the third quarter of 2006, an increase of $261,000, compared to an operating loss of $99,000 in the third quarter of 2005. Gross margin increased $186,000, or 1 percent, for the third quarter of 2006 compared to 2005, primarily due to the growth from natural gas distribution and transmission operations and improved results from advanced information services.
Natural Gas Operations
- Natural Gas operating income for the quarter increased by $630,000, or
56 percent, on gross margin growth of $706,000, or 8 percent, compared
to the third quarter of 2005.
- Gross margin for the Delaware and Maryland distribution operations
increased by $121,000, primarily from continued growth in residential
customers on the Delmarva Peninsula.
- Gross margin for the Florida operations increased $99,000 for the
quarter, primarily due to a 9 percent increase in the average number of
residential customers and growth in unregulated natural gas supply
management services.
- The natural gas transmission operation achieved gross margin growth of
$486,000, or 14 percent, primarily due to additional transportation
services provided to its firm customers, which were implemented in
November 2005.
- Other operating expenses for the Natural Gas segment increased $76,000,
or 1 percent, for the third quarter of 2006 compared to the third
quarter of 2005, due primarily to an increase in costs to support
customer growth, including higher payroll, depreciation and property
taxes, partially offset by lower health care costs. The Company has
been experiencing lower health care costs since it changed health care
service providers in November 2005.
Propane Operations
- Propane's seasonal operating loss for the third quarter of 2006
increased by $401,000, or 28 percent, compared to the third quarter of
2005. Gross margin for the Propane segment decreased $603,000 in the
third quarter of 2006 compared to the same period in 2005.
- Gross margin for the Delmarva propane distribution operation decreased
by $357,000, primarily attributed to a $244,000 decrease in the average
gross margin per retail gallon of propane sold and lower service
installation revenue. Contributing to the decrease in average gross
margin per retail gallon is a $175,000 write-down of our propane
inventory to reflect the lower of cost or market.
- The propane wholesale and marketing operation experienced a decrease of
$206,000 in gross margin for the quarter compared to the third quarter
in 2005. The decrease is attributed to the decrease of wholesale
propane prices during the third quarter of 2006, in contrast to the
rising prices experienced in the third quarter of 2005.
- Other operating expenses of the Propane segment decreased $201,000 for
the quarter, compared to the third quarter of 2005. Lower payroll costs
and health care costs were the primary contributors to the lower
expenses.
Advanced Information Services
The Advanced Information Services segment reported operating income of $322,000 for the third quarter 2006, representing an improvement of $135,000 compared to the same period in 2005. The improvement in operating income is primarily related to the elimination of the operating loss incurred by the LAMPS(TM) product during the third quarter of 2005 and increased consulting revenues. The LAMPS(TM) product was sold in October 2005. For the third quarter of 2005, the LAMPS(TM) product had an operating loss of $111,000.
Interest Expense
Interest expense for the third quarter of 2006 increased $69,000, or 5 percent, to $1.34 million compared to $1.27 million for the third quarter of 2005. The increase was primarily due to an increase in short-term borrowing to fund the Company's capital investments made in late 2005 and the first nine months of 2006. The Company's average short-term borrowing was $28.5 million higher during the third quarter of 2006 when compared to the third quarter of 2005. The Company expects that interest expense will remain above 2005 levels due to the large capital expenditures in late 2005 and the planned capital expenditures in 2006 for growth and expansion.
Results for the nine months ended September 30, 2006
Operating income increased $1.1 million, or 8 percent, to $14.8 million for the first nine months of 2006, compared to $13.7 million for the same period in 2005. Operating income increased as customer growth, improved results from advanced information services and cost management efforts more than offset the negative impact warmer weather had on gross margin.
Natural Gas Operations
- Natural Gas operating income for the nine months ended September 30,
2006 increased by $1.1 million, or 9 percent, on gross margin growth of
$1.2 million, compared to the same period in 2005.
- Gross margin for the Delaware and Maryland distribution operations
decreased by $516,000, as temperatures on the Delmarva Peninsula were
20 percent warmer during the first nine months of 2006 compared to
2005. The Company estimates that the warmer temperatures resulted in a
decrease in gross margin of approximately $1.4 million compared to
2005, which was partially offset by gross margin from new customers.
Continued growth in residential customers on the Delmarva Peninsula
generated approximately $885,000 of increased gross margin for the nine
months ended September 30, 2006, compared to the same period in 2005.
- Gross margin for the Florida operations increased $614,000 for the nine
months ended September 30, 2006, compared to 2005, primarily due to a 9
percent increase in residential customers and growth in unregulated
natural gas supply management services.
- The natural gas transmission operation achieved gross margin growth of
$1.1 million, or 10 percent, primarily due to additional transportation
services provided to its firm customers, which were implemented in
November 2005. The Company estimates that its annual gross margin for
its natural gas transmission operation will be $1.7 million higher in
2006 than 2005 due to continued implementation of new transportation
services.
- Other operating expenses for the Natural Gas segment increased slightly
by $104,000 for the first nine months of 2006 compared to the same
period in 2005, due primarily to costs to support customer growth,
including higher payroll, depreciation and property taxes, which were
partially offset by pre-service costs for a future pipeline project
that were deferred in the second quarter of 2006 and decreases in
health care benefit costs and accruals for incentive compensation.
Propane Operations
- Propane operating income for the nine months ended September 30, 2006
decreased $648,000, or 36 percent, compared to the same period in 2005,
due primarily to the negative impact of warmer weather. Total gross
margin for the Propane operations decreased $938,000 when compared to
the same period in 2005.
- Gross margin for the Delmarva propane distribution operation decreased
by $933,000. Weather that was 20 percent warmer during the first nine
months of 2006 compared to 2005, reduced gross margin by approximately
$1.1 million. However, the negative impact of weather was partially
offset by a $434,000 increase from the average gross margin per retail
gallon sold. The remaining gross margin decrease of $267,000 can be
attributed to such items as customer conservation and changes in the
timing of deliveries to customers.
- Gross margin for CGS increased $60,000 when compared to the prior
period, primarily from an increase in the average number of customers.
The average number of customers increased 1,038, or 35 percent, to
4,010 in the first nine months of 2006, compared to the same period in
2005. The Company expects the growth of its CGS operation to continue
due to the number of systems currently under construction.
- The Florida propane distribution operation experienced a decrease in
gross margin of $151,000 when compared to the same period in 2005. The
lower gross margin reflects a decrease of $321,000 for in-house piping
sales as the Florida operation exits the house piping service.
- Other operating expenses of the Propane unit decreased for the first
nine months of 2006 by $290,000, compared to the same period in 2005.
The decrease is primarily attributed to a decrease of $267,000 in other
operating expenses for the Delmarva propane distribution operation,
including CGS. The decreased costs for the Delmarva operations were due
to $387,000 in fixed costs being recovered in the first and second
quarters of 2006 from a propane supplier as a result of the delivery of
propane to the Company that contained above normal levels of petroleum
by-products, as well as, a decrease in health insurance costs. These
lower costs were partially offset by the costs for one of the
Pennsylvania start-ups which began operation in July 2005 and higher
costs for payroll and vehicle fuel.
Advanced Information Services
The Advanced Information Services segment reported operating income of $510,000 for the nine months ended September 30, 2006, representing an improvement of $587,000 compared to the same period in 2005. The improvement in operating income is primarily related to the elimination of the operating loss incurred by the LAMPS(TM) product during the first nine months of 2005 and increased consulting revenues. The LAMPS(TM) product was sold in October 2005. For the first nine months of 2005, the LAMPS(TM) product had an operating loss of $461,000.
Interest Expense
Interest expense increased from $3.8 million in the first nine months of 2005 to $4.3 million for the same period in 2006. The 13 percent increase was primarily due to an increase in short-term borrowing to fund the Company's capital investments made in late 2005 and the first nine months of 2006. The Company's average short-term borrowing was $26.5 million higher during the first nine months of 2006 when compared to the first nine months of 2005. The Company expects that interest expense will remain above the 2005 levels due to the capital expenditures in late 2005 and the continuing level of capital expenditures expected to be made in 2006 for growth and expansion.
Condensed Consolidated Statements of Income
For the Periods Ended September 30, 2006 and 2005
Dollars in Thousands Except Per Share Amounts
(Unaudited)
Third Quarter Year to Date
2006 2005 2006 2005
Operating Revenues $35,142 $35,155 $170,396 $155,221
Operating Expenses
Cost of sales, excluding
costs below 21,759 21,958 116,189 101,453
Operations 9,447 9,815 27,899 29,326
Maintenance 513 462 1,541 1,280
Depreciation and
amortization 2,044 1,889 6,059 5,701
Other taxes 1,217 1,130 3,903 3,731
Total operating expenses 34,980 35,254 155,591 141,491
Operating Income (Loss) 162 (99) 14,805 13,730
Other income (loss) net of
other expenses (12) 19 130 330
Interest charges 1,341 1,272 4,336 3,823
Income (Loss) Before Income
Taxes (1,191) (1,352) 10,599 10,237
Income taxes (534) (658) 4,027 3,902
Net Income (Loss) $(657) $(694) $6,572 $6,335
Earnings Per Share of Common
Stock:
Basic ($0.11) ($0.12) $1.11 $1.09
Diluted ($0.11) ($0.12) $1.10 $1.07
Basic weighted average
shares outstanding 5,973,149 5,851,926 5,945,119 5,823,144
Diluted weighted average
shares outstanding 5,973,149 5,851,926 6,069,893 5,982,303
Supplemental Income Statement Data
For the Periods Ended September 30, 2006 and 2005
Dollars in Thousands
(Unaudited)
Third Quarter Year to Date
2006 2005 2006 2005
Gross Margin (1)
Natural Gas $10,033 $9,326 $37,890 $36,647
Propane 1,883 2,486 12,494 13,432
Advanced Information Services 1,546 1,444 4,041 3,816
Other (79) (59) (218) (127)
Total Gross Margin $13,383 $13,197 $54,207 $53,768
Operating Income
Natural Gas $1,761 $1,131 $13,256 $12,117
Propane (1,826) (1,425) 1,166 1,814
Advanced Information Services 322 186 510 (77)
Other (95) 9 (127) (124)
Total Operating Income $162 $(99) $14,805 $13,730
Heating Degree-Days - Delmarva
Peninsula
Actual 45 31 2,502 3,138
10-year average (normal) 60 60 2,797 2,853
(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 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 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 in Thousands
(Unaudited)
September December
Assets 30, 2006 31, 2005
Property, Plant and Equipment
Natural gas distribution and
transmission $238,608 $220,685
Propane 43,174 41,564
Advanced information services 952 1,221
Other plant 9,110 9,276
Total property, plant and equipment 291,844 272,746
Less: Accumulated depreciation and
amortization (83,605) (78,840)
Plus: Construction work in progress 17,711 7,598
Net property, plant and equipment 225,950 201,504
Investments 1,872 1,686
Current Assets
Cash and cash equivalents 2,351 2,488
Accounts receivable (less allowance
for uncollectible accounts of $849
and $861, respectively) 39,639 54,284
Accrued revenue 2,078 4,716
Propane inventory, at average cost 7,462 6,333
Other inventory, at average cost 1,581 1,539
Regulatory assets 634 4,435
Storage gas prepayments 8,935 8,628
Income taxes receivable - 2,726
Deferred income taxes 1,643 -
Prepaid expenses 2,780 2,021
Other current assets 3,189 1,597
Total current assets 70,292 88,767
Deferred Charges and Other Assets
Goodwill 674 674
Other intangible assets, net 195 206
Long-term receivables 853 961
Other regulatory assets 1,194 1,178
Other deferred charges 931 1,004
Total deferred charges and other
assets 3,847 4,023
Total Assets $301,961 $295,980
Condensed Consolidated Balance Sheets
Dollars in Thousands
(Unaudited)
September December
Capitalization and Liabilities 30, 2006 31, 2005
Capitalization
Stockholders' equity
Common Stock, par value $0.4867 per
share (authorized 12,000,000
shares) (1) $2,910 $2,863
Additional paid-in capital 41,928 39,620
Retained earnings 44,276 42,855
Accumulated other comprehensive
income (578) (578)
Deferred compensation obligation 1,105 795
Treasury stock (1,105) (798)
Total stockholders' equity 88,536 84,757
Long-term debt, net of current
maturities 56,792 58,991
Total capitalization 145,328 143,748
Current Liabilities
Current portion of long-term debt 4,929 4,929
Short-term borrowing 51,314 35,482
Accounts payable 27,994 45,645
Customer deposits and refunds 5,908 5,141
Accrued interest 1,584 559
Dividends payable 1,733 1,676
Income taxes payable 398 -
Deferred income taxes - 1,151
Accrued compensation 2,653 3,793
Regulatory liabilities 3,801 551
Other accrued liabilities 5,432 3,560
Total current liabilities 105,746 102,487
Deferred Credits and Other
Liabilities
Deferred income taxes 24,739 24,249
Deferred investment tax credits 326 367
Other regulatory liabilities 1,590 2,009
Environmental liabilities 242 353
Accrued pension costs 3,126 3,100
Accrued asset removal cost 18,057 16,727
Other liabilities 2,807 2,940
Total deferred credits and other
liabilities 50,887 49,745
Total Capitalization and Liabilities $301,961 $295,980
(1) Shares issued were 5,979,769 and 5,883,099 for 2006 and 2005,
respectively.
Shares outstanding were 5,979,769 and 5,883,002 for 2006 and 2005,
respectively.
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 distribution and wholesale marketing, advanced information services and other related businesses. Information about Chesapeake's businesses is available at http://www.chpk.com/.
For more information, contact:
Michael P. McMasters
Senior Vice President & Chief Financial Officer
302.734.6799
