Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK; the “Company” or “Chesapeake”) today announced increased financial results for the year and quarter ended December 31, 2009. The Company’s net income for the year ended December 31, 2009 was $15.9 million, or $2.15 per share (diluted), an increase of $2.3 million, or 17 percent, compared to $13.6 million, or $1.98 per share (diluted), for the year ended December 31, 2008. The Company’s increased results for 2009 included approximately $1.8 million in net income generated from Florida Public Utilities Company (“FPU”) since the consummation of the merger on October 28, 2009, and approximately $1.5 million in merger-related costs expensed during 2009. The Company’s results for 2008 included approximately $1.2 million in costs associated with initial merger discussions with FPU that were terminated in 2008. Absent the effects of the merger, the Company’s net income for 2009 would have been $15.3 million, or $2.20 per share (diluted), compared to $14.3 million, or $2.08 per share (diluted), for 2008, representing seven percent growth. Among the factors contributing to the strong performance in 2009 were additional margins generated by the natural gas transmission operations from service expansions, increased spot sale opportunities executed during 2009 by the natural gas marketing operation, and higher propane margins as a result of lower propane costs during the first half of 2009 and the absence of propane inventory and swap valuation adjustments of $1.8 million recorded in late 2008.
For the three months ended December 31, 2009, net income was $6.2 million, or $0.71 per share (diluted), an increase of $1.8 million, or 40 percent, compared to $4.4 million, or $0.64 per share (diluted), for the same period in 2008. Absent the effects of the merger described above, the Company’s net income for the fourth quarter of 2009 would have been $5.1 million, or $0.73 per share (diluted), compared to $4.4 million, or $0.64 per share (diluted), for the same period in 2008, representing 15 percent growth. The increased results were achieved from additional margins generated by the natural gas transmission operations from service expansions, increased spot sales by the natural gas marketing operation, and the absence of propane inventory and swap valuation adjustments.
“Our strong performance in 2009 reflects continued successful execution of our growth strategy. In addition to the positive initial results from the integration of Chesapeake and Florida Public Utilities, our regulated businesses continued to achieve growth by capturing new commercial and industrial customers, despite the challenging economic climates on the Delmarva Peninsula and in Florida, while our unregulated businesses increased earnings from sustained retail prices and spot sale opportunities we identified during the year,” stated John R. Schimkaitis, Vice Chairman and Chief Executive Officer of Chesapeake Utilities Corporation. “Looking ahead, we expect to see continued benefits from our integration of Chesapeake and Florida Public Utilities Company, the positive outcome of our two Florida rate proceedings in December 2009, and the expansion of Eastern Shore’s facilities that was completed in November 2009.”
The discussions of the results for the periods ended December 31, 2009 and 2008, 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 excludes for comparison purposes, results of operations of FPU for the period from the date of the merger (October 28, 2009) to December 31, 2009 and all merger-related transaction costs incurred in connection with the FPU merger. 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 exclude the merger-related impacts provide a helpful comparative basis for investors to understand Chesapeake’s performance.
Highlights for the quarter included:
- The merger between Chesapeake and FPU became effective on October 28, 2009. Total consideration paid by Chesapeake in the merger was valued at approximately $75.7 million, which resulted in a purchase premium of $33.4 million. All of the purchase premium is attributable to the regulated energy operations. The Company incurred approximately $3.0 million in costs during 2009 to consummate the merger and integrate the operations of the two companies. Approximately $1.5 million of these costs were deferred as a regulatory asset, as the Company intends to seek recovery of a portion of the purchase premium and merger-related costs through future rates in Florida. The Company expects to incur additional costs and receive additional benefits in 2010 as we continue our integration effort and execute on synergies and cost-saving opportunities.
- On December 15, 2009, the Florida Public Service Commission (“Florida PSC”) approved a permanent annual rate increase of approximately $2.5 million for Chesapeake’s Florida natural gas distribution operation. The Florida PSC also approved the settlement agreement for a permanent annual rate increase of approximately $8.0 million for FPU’s natural gas distribution operation. The new rates became effective on January 14, 2010. Chesapeake’s Florida natural gas distribution operation and FPU’s natural gas distribution operation continue to operate as separately regulated entities in Florida. The Florida PSC ordered the two entities to submit data, within 18 months after the completion of the merger, detailing all known benefits, synergies and cost savings resulting from the merger. The Company also intends to request the inclusion of the purchase premium and merger-related costs in its Florida natural gas rates at that time.
- On November 1, 2009, Eastern Shore Natural Gas Company (“ESNG”), the Company’s natural gas transmission operation, commenced new service related to the expansion of its facilities, which provide 3,976 Mcfs per day of additional firm service on the Delmarva Peninsula. This new expansion service provided $114,000 in additional gross margin for the fourth quarter of 2009 and is expected to provide additional annualized gross margin of approximately $1.0 million in the future. Previous service expansions implemented in late 2008 and new services in 2009 contributed $82,000 to the increase in gross margin for the quarter.
- The natural gas distribution operations in Delaware and Maryland experienced period-over-period growth in residential, commercial and industrial customers during the fourth quarter, contributing an additional $268,000 to gross margin, despite the continued slowdown in the new housing market and reduced industrial growth in the region.
- The Company’s advanced information services subsidiary, BravePoint, Inc. (“BravePoint”), returned to profitability during the fourth quarter of 2009. An increase in billable consulting hours, continued growth in its Managed Database Administration services and a reduction in costs from measures implemented during 2009 resulted in operating income of approximately $219,000 for the quarter.
- The Company recorded unfavorable inventory and swap valuation adjustments totaling approximately $1.3 million during the fourth quarter of 2008 as propane prices declined significantly in late 2008. The absence of similar adjustments in 2009 contributed to increased gross margin for the propane distribution operation in the fourth quarter.
As a result of the merger with FPU, the Company changed its operating segments to better align the various operations of the Company with how the chief operating decision maker (the Company’s Chief Executive Officer) views the business. The discussions of operating results below reflect the Company’s new segments. The regulated energy segment is composed of our natural gas distribution, electric distribution and natural gas transmission operations. The unregulated energy segment is composed of our natural gas marketing, propane distribution and propane wholesale marketing operations. The other segment is composed of our advanced information services operation, other subsidiaries that own property that is leased to other affiliates, unallocated corporate costs and eliminations.
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