Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today announced higher financial results for the quarter ended March 31, 2010. The first quarter’s performance reflects strong earnings growth in Chesapeake’s legacy business coupled with earnings from our acquisition of Florida Public Utilities Company (“FPU”). The Company’s net income for the quarter ended March 31, 2010 was $14.0 million, or $1.47 per share (diluted), an increase of $5.4 million, or 63 percent, compared to $8.6 million, or $1.24 per share (diluted), for the quarter ended March 31, 2009. The increased results for the first quarter of 2010 included $8.1 million and $4.5 million of operating income and net income, respectively, contributed from FPU, each representing approximately 32 percent of the Company’s consolidated operating income and net income for the period. The quarter ended March 31, 2010 was the first full quarter to include the FPU results after the merger, which was consummated on October 28, 2009.

The Company’s net income for the quarter ended March 31, 2010, excluding FPU, was $9.5 million, an increase of $919,000, or 11 percent, over the quarter ended March 31, 2009, which reflected strong performance by the regulated energy operations, due to a rate increase in Chesapeake’s Florida division from the December rate proceeding; growth in natural gas distribution customers on the Delmarva Peninsula; new natural gas transmission services; and colder weather on the Delmarva Peninsula and in Florida resulting in increased gross margins.

“The earnings contribution from FPU, coupled with organic growth in other Chesapeake operations and colder temperatures on the Delmarva Peninsula and in Florida, produced very strong results for the first quarter,” stated John R. Schimkaitis, Vice Chairman and Chief Executive Officer of Chesapeake Utilities Corporation. “We are excited to start the year with a strong first quarter performance for the second year in a row and are very pleased with the Chesapeake and FPU integration to date. As we continue to implement our post-merger integration plan, we expect to see additional benefits in the remainder of 2010 and beyond. At the time of the Chesapeake and FPU merger, we thought the transaction would generate earnings per share for 2010 that were neutral or slightly accretive. Given the strong performance during the first quarter, we now expect earnings per share to exceed our original projections and are confident that it will result in accretion in 2010.”

The discussions of the results for the periods ended March 31, 2010 and 2009, use the term “gross margin,” a non-Generally Accepted Accounting Principle (“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 first quarter of 2010 and, in some cases, FPU’s results for the same period 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 for the first quarter of 2010. 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 excludes the FPU results for the post-merger period, provide helpful comparisons for an investor’s evaluation purposes.

Highlights for the quarter and year-to-date 2010 included:

  • On January 14, 2010, the new rates for Chesapeake’s Florida division, representing a permanent annual rate increase of approximately $2.5 million, became effective. These new rates contributed approximately $600,000 to gross margin for the quarter ended March 31, 2010.
  • Temperatures on the Delmarva Peninsula were four percent colder in the first quarter of 2010 compared to the same period in 2009, generating an additional $300,000 in gross margin. The colder weather throughout Florida in the first quarter of 2010 also positively affected gross margin from the Florida operations in the period.
  • The natural gas distribution operations in Delaware and Maryland experienced period-over-period growth in residential, commercial and industrial customers in the first quarter, contributing an additional $443,000 to gross margin, despite the soft economy in the region.
  • The Company redeemed the 6.85 percent and 4.90 percent series of FPU’s secured first mortgage bonds in January 2010 for $29.1 million prior to their respective maturities. These redemptions reduce the amount of FPU secured debt and therefore, in the longer-term, ensure ongoing compliance with the Chesapeake unsecured senior note covenants. The bonds were redeemed using a new short-term loan facility that will mature in December 2010. For the first quarter, refinancing of these bonds under the new term loan facility generated $200,000 in interest expense savings. The Company is currently in discussions with an existing noteholder for the long-term financing of the redeemed bonds.
  • On March 15, 2010, the Company announced the signing of an agreement with a large industrial customer on the Delmarva Peninsula to provide natural gas service to its poultry plant. The anticipated annual margin from this agreement equates to approximately 850 average residential heating customers. The service is expected to begin in mid-2010. This agreement also provides an opportunity for the Company to extend its natural gas distribution and transmission infrastructures and expand its services to provide cost-effective and environmentally friendly natural gas to new areas on the Delmarva Peninsula.

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 new 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.

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