Dover, DE, August 6, 2009 — Chesapeake Utilities Corporation (NYSE: CPK) today announced net income of $806,000 for the second quarter of 2009, or $0.12 per share (diluted), compared to $1.8 million, or $0.27 per share (diluted), for the second quarter of 2008. The Company’s pre-tax operating income for the second quarter of 2009 decreased by $1.5 million compared to the same period in 2008 as the natural gas segment experienced a decline in pre-tax operating income of $978,000. The quarterly results from the natural gas segment were negatively affected by the decline in operating income for the Florida division by $455,000 and $396,000 of unfavorable non-recurring operating expense variances in the quarter shared among the other natural gas operations. The Company’s advanced information services segment also contributed $442,000 to the decline in the second quarter’s pre-tax operating income as it was affected by adverse market conditions. Earnings for the second quarters of 2009 and 2008 included $1.1 million and $1.2 million in merger-and-acquisition-related transaction costs, respectively.
On a year-to-date basis, the Company reported net income of $9.4 million for the six months ended June 30, 2009, or $1.36 per share (diluted), which equaled net income for the same period in 2008. The Company’s pre-tax operating income for the six months ended June 30, 2009 increased by $452,000. The propane segment experienced an increase in pre-tax operating income of $1.8 million as it benefited from higher margins per gallon and increased gallons sold during the first half of 2009. The natural gas segment reported a decrease in pre-tax operating income of $844,000 largely due to the decline in the Florida division of $539,000 and the previously mentioned unfavorable non-recurring operating expense variances within the other natural gas operations in the second quarter. The advanced information services segment experienced a decrease in pre-tax operating income of $584,000 due to adverse market conditions. Earnings for both periods reflected the effect of $1.2 million in merger-and-acquisition-related transaction costs.
“I am very pleased with our accomplishments during the second quarter. While our earnings were disappointing, our business is strong and on a year to date basis we have achieved the same net income for the first six months of this year compared to last year. We have been able to maintain earnings in spite of a decline in the results from the Florida natural gas distribution unit and the advanced information services segment,” stated John R. Schimkaitis, President and Chief Executive Officer of Chesapeake Utilities Corporation. “We have taken the appropriate steps to improve our earnings looking forward. Our Florida unit filed its petition for a rate increase and the advanced information services segment implemented cost-containment actions to offset the effects of the operating revenue decline. We will continue to monitor our advanced information services performance and will make further adjustments if necessary. Finally, we expect our continued growth and the steps taken by the Florida division and the advanced information services segment will further improve our results in the second half of the year.”
Highlights for the quarter and the subsequent period included:
- The natural gas transmission operations recognized increased gross margin of $508,000 as a result of new transportation service contracts that became effective in late 2008 and 2009. These new contracts and the completion of an expansion project in the fourth quarter of 2009, less amounts from other transportation contracts that are expiring, are expected to contribute $1.4 million to gross margin in the second-half of 2009.
- The natural gas distribution operations in Delaware and Maryland experienced growth in residential, commercial and industrial customers, contributing an additional $212,000 to gross margin, in spite of the continued slowdown in the new housing market and industrial growth in the region.
- The Company’s Florida division filed its petition for a rate increase, which includes an interim annual rate increase of $418,000 and a permanent annual rate increase of $2.97 million. The Florida division anticipates the interim rate decision in October 2009 and final rate decisions by the end of 2009.
- Margins from the propane distribution operations increased by $355,000 as a result of higher retail unit margins due to sustained retail prices, coupled with lower propane costs.
- On April 20, 2009, the Company announced a definitive merger agreement with Florida Public Utilities Company (“FPU”). The closing of the merger is subject to various conditions, including obtaining certain regulatory approvals and approval by the shareholders of both the Company and FPU. The Company has now received all of the necessary Public Service Commission approvals from the Delaware, Maryland and Florida Public Service Commissions. On July 24, 2009, the Company and FPU filed a preliminary joint proxy statement/prospectus with the Securities and Exchange Commission.
- On May 6, 2009, the Company’s Board of Directors raised the annualized dividend per share by $0.04 from $1.22 to $1.26 per share. The 3.28 percent increase in the dividend is expected to be supported by earnings growth, allowing the Company to maintain its payout in the range of 60 percent of earnings.
- Chesapeake Utilities, Central Florida Gas and Eastern Shore Natural Gas Company all received the American Gas Association’s 2008 Industry Leader Accident Prevention Award for excellent safety records.
Operating expenses, excluding the costs included in gross margin and merger-and-acquisition-related transaction costs, increased by $1.5 million. This increase includes the effects of the following unfavorable variances that are not expected to recur in the second-half of 2009: $251,000 in increased costs related to uncollectible customer accounts from the heating season, a one-time reduction in depreciation expense in the second quarter of 2008 of $77,000 related to the Delaware negotiated rate settlement that did not occur in 2009, and $185,000 in the true-up of certain corporate accrual estimates in the second quarter of 2009.
The discussions of the results for the periods ended June 30, 2009 and 2008, use the term “gross margin,” which is a non-Generally Accepted Accounting Principle financial measure that management uses to evaluate the performance of the Company’s business segments. For an explanation of the calculation of “gross margin,” see the footnote to the Supplemental Income Statement Data chart below.
Comparative results for the quarters ended June 30, 2009 and 2008
Operating income decreased by $1.5 million, or 34 percent, to $2.9 million for the second quarter of 2009, compared to $4.3 million for the same period in 2008. The decrease in operating income reflected a lower gross margin coupled with increased operating expenses for the second quarter of 2009 compared to the same period in 2008.
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For more information
Contact:
Beth W. Cooper
Senior Vice President & Chief Financial Officer
302.734.6799
