Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today announced increased financial results for the quarter ended June 30, 2010. The Company’s net income for the quarter ended June 30, 2010 was $3.3 million, or $0.35 per share (diluted), an increase of $2.5 million, or $0.23 per share (diluted), compared to $806,000, or $0.12 per share (diluted), for the quarter ended June 30, 2009. The increased results for the second quarter of 2010 included $1.8 million of net income recorded by the Company’s new subsidiary, Florida Public Utilities Company (“FPU”), as a result of the merger on October 28, 2009. Additionally, the results for the second quarter of 2010 reflected a decrease in merger-related costs of $1.0 million ($599,000 net of tax), compared to the second quarter of 2009. Quarterly results for Chesapeake’s legacy businesses reflect continued growth and expansion of the natural gas distribution and transmission operations on the Delmarva Peninsula, a rate increase in Chesapeake’s Florida division and improved results from the advanced information services business. These increases were partially offset by a decline in volumes and margins from the propane businesses.
The Company’s net income for the six months ended June 30, 2010 was $17.3 million, or $1.82 per share (diluted), an increase of $7.9 million, or $0.46 per share (diluted), compared to $9.4 million, or $1.36 per share (diluted), for the same period in 2009. The increased results for the six months ended June 30, 2010 included $6.2 million of net income recorded by FPU. Also, the results for the six months ended June 30, 2010 reflected a decrease in merger-related costs of $1.1 million ($655,000 net of tax), compared to the same period in 2009. The year-to-date results from Chesapeake’s legacy businesses reflect the strong performance by the regulated energy businesses as a result of continued growth and expansion on the Delmarva Peninsula, the benefits of the Florida division rate increase and improved results from the advanced information services business.
“Our strong results in the second quarter and year-to-date reflect both the success of our team in integrating the Chesapeake-FPU merger, as well as the significant growth in our Delmarva natural gas distribution and transmission businesses,” stated John R. Schimkaitis, Vice Chairman and Chief Executive Officer of Chesapeake Utilities Corporation. “We remain optimistic about achieving and exceeding our goal of accretion from the merger in the first year after closing. Additionally, we remain excited about the potential for future growth given the continued integration and the opportunities for growth across our lines of business.”
The discussions of the results for the periods ended June 30, 2010 and 2009, use the term “gross margin,” a non-Generally Accepted Accounting Principles (“GAAP”) financial measure, which 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. In addition, certain information is presented, which, for comparison purposes, includes only FPU’s results of operations for the periods ended June 30, 2010 and, in some cases, FPU’s results for the same periods in 2009, which was prior to the merger. Certain other information is presented, which, for comparison purposes, excludes results of operations of FPU from the consolidated results of operations and all merger-related costs incurred in connection with the FPU merger for the periods presented. Although non-GAAP measures are not intended to replace the GAAP measures for evaluation of Chesapeake’s performance, Chesapeake believes that the portions of the presentation which include only the FPU results, or which exclude the FPU results for the post-merger period and merger-related costs, provide helpful comparisons for an investor’s evaluation purposes.
Highlights for the second quarter of 2010 included:
- Successful integration between Chesapeake and FPU continued during the quarter, and the merger is expected to be accretive in 2010 – the first year of operation after the merger. During the second quarter, the Company completed the integration of the Florida propane operations and the billing and customer service functions.
- In June 2010, Jeff Householder joined FPU as president, bringing his extensive knowledge and experience of the Florida energy market to FPU.
- The rate increase for Chesapeake’s Florida division approved in December 2009 contributed approximately $574,000 to gross margin for the quarter ended June 30, 2010.
- The rate increase for FPU’s natural gas distribution operation contributed approximately $1.3 million to gross margin for the quarter ended June 30, 2010.
- Eastern Shore Natural Gas Company (“ESNG”), the Company’s natural gas transmission subsidiary, generated additional gross margin of $370,000 from new transportation services.
- Growth in residential, commercial and industrial customers for the Delmarva natural gas distribution operations contributed to a period-over-period increase in gross margin of $256,000.
- The Delmarva natural gas distribution operations entered into agreements to provide natural gas service to two industrial customers located in southern Delaware. The anticipated annual margin from these services equates to approximately 1,575 average residential heating customers once the services begin in the fourth quarter of 2010 and early 2011. These services further extend the Delmarva natural gas distribution and transmission infrastructure, bringing cost-effective and environmentally friendly natural gas to new areas on the Delmarva Peninsula and creating additional opportunities for growth.
- The Company’s advanced information services subsidiary, BravePoint, generated operating income of $230,000 in the second quarter of 2010, compared to an operating loss of $240,000 in the same period in 2009, due to increased billable consulting hours and lower operating costs.
- A lower retail margin per gallon during the second quarter of 2010 compared to the same period in 2009 decreased the gross margin of the Delmarva propane distribution operation by $290,000. Retail margins for the first half of 2009 benefited from the $939,000 loss recorded in late 2008 on a swap agreement for the 2008/2009 winter Pro-Cap (propane price cap) program. This loss lowered the propane inventory costs and, therefore, increased retail margins during the first half of 2009. Retail margins for the first half of 2010 returned to more normal levels.
- Xeron, the Company’s propane wholesale marketing subsidiary, experienced a quarter-over-quarter decrease in its gross margin of $225,000 as a result of decreased trading activity. Lower trading volumes from lower demand in the wholesale propane market have led to greater uncertainty in propane wholesale prices, reducing Xeron’s trading activity.
- ESNG received the American Gas Association’s Safety Achievement Award for the seventh consecutive year.
As a result of the merger with FPU, the Company changed its operating segments in the fourth quarter of 2009 to better reflect how the chief operating decision maker (the Company’s Chief Executive Officer) reviews the various operations of the Company. The discussions of operating results below reflect the Company’s revised segments. The regulated energy segment is composed of the Company’s natural gas distribution, electric distribution and natural gas transmission operations. The unregulated energy segment is composed of the Company’s natural gas marketing, propane distribution and propane wholesale marketing operations. The “other” segment is composed of the Company’s advanced information services operation, other subsidiaries that own property which is leased to other affiliates, unallocated corporate costs and eliminations.
Comparative results for the quarters ended June 30, 2010 and 2009
Operating income increased by $4.9 million, or 172 percent, from $2.9 million to $7.8 million for the current quarter. Operating income for the Company included $3.7 million in operating income from FPU for the period.
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