DOVER, Del., March 5 /PRNewswire-FirstCall/ -- Chesapeake Utilities Corporation (NYSE:CPK) today announced a 26 percent increase in net income for the year ended December 31, 2007. For the year ended December 31, 2007, the Company reported net income of $13.2 million, or $1.94 per share (diluted), compared to net income of $10.5 million, or $1.72 per share (diluted) for 2006. The increase in earnings for the year reflects higher gross margin and operating income for the Company's natural gas and propane segments resulting from continued customer growth, rate increases, and colder temperatures on the Delmarva Peninsula, which resulted in increased volumes sold to customers. The Company estimates that customer growth, rate increases, and colder weather contributed $5.6 million, $2.6 million, and $2.0 million, respectively, to gross margin during 2007.
"2007 was an excellent year for the Company, and the financial results demonstrate the fundamental strength of our core business activities," stated John R. Schimkaitis, President and Chief Executive Officer of Chesapeake Utilities Corporation. "The growth in our transmission and distribution operations continues to drive strong financial results as we benefited from a 12.7 percent increase in earnings per share in 2007. While we are not immune from the state of the national economy, we expect that the capital investment and customer growth opportunities in our service territories will continue to provide attractive opportunities for earnings and dividend growth." For the fourth quarter of 2007, the Company's net income was $4.1 million, or $0.60 per share (diluted), compared to net income of $3.9 million, or $0.62 per share (diluted), for the fourth quarter of 2006. While net income grew by approximately 4 percent, earnings per share declined due to an increase of approximately 473,000 in the weighted average shares outstanding at December 31, 2007.
Highlights for the fourth quarter of 2007 included: -- Gross margin for the Company's natural gas transmission operation,
Eastern Shore Natural Gas Company ("Eastern Shore"), increased by
approximately $500,000 over the fourth quarter 2006 due to the
implementation of additional firm transportation services in November
of 2006 and 2007.
-- On November 1, 2007, Eastern Shore completed construction and placed
into service the Phase II facilities (approximately 4 miles) of its
2006-2008 Expansion Project. These additional facilities provide for
8,300 dekatherms of additional firm capacity per day and an annualized
gross margin contribution of $1.2 million.
-- Period-over-period customer growth in the natural gas and propane
businesses remained strong, although a slowdown has begun as a result
of the slumping housing market. The Delmarva natural gas distribution
operations delivered a six percent increase in residential customers
over the fourth quarter of 2006, and the Delmarva propane Community
Gas Systems ("CGS") generated a 22 percent increase in customers over
the fourth quarter of 2006.
-- Continued capital investment to support customer growth resulted in an
increase of $5.7 million in net property, plant and equipment during
the quarter. The discussions of the results for the periods ended December 31, 2007 and 2006 use the terms "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 the footnote to the Supplemental Income Statement Data chart below.
Comparative results for the quarters ended December 31, 2007 and 2006 Operating income rose by eight percent to $8.8 million for the fourth quarter of 2007, compared to $8.2 million for the same period in 2006, while gross margin increased $2.8 million, or 13 percent, compared to the fourth quarter of 2006. The increases in operating income and gross margin were primarily driven by continued customer growth and increased rates charged to our natural gas and propane customers.
Natural Gas Operations Natural gas operating income for the quarter increased by $281,000, or four percent, on higher gross margin of $1.8 million, compared to the fourth quarter of 2006. Factors contributing to the period-over-period increase in gross margin include: Gross margin for the three months ended December 31, 2006 $14,535,000 Increased capacity and customer growth 968,000
Rate increases 592,000
Weather 89,000
Other 120,000 Gross margin for the three months ended December 31, 2007 $16,304,000
-- The natural gas segment benefited from additional firm transportation
capacity and strong customer growth as it added $968,000 to gross
margin during the fourth quarter of 2007 compared to the fourth quarter
of 2006. This growth is primarily due to the natural gas transmission
operations as the new transportation capacity contracts implemented in
November of 2006 and 2007 contributed $500,000 of additional gross
margin. The Delmarva natural gas distribution operations also
experienced growth, primarily in residential and commercial customers,
which contributed $468,000 to gross margin in the fourth quarter of
2007 compared to the fourth quarter of 2006.
-- Rate increases for the Company's Delaware and Maryland natural gas
distribution operations and for the natural gas transmission operation
contributed an additional $592,000 to gross margin in the fourth
quarter of 2007 compared to the fourth quarter of 2006.
-- Weather contributed to the increase in gross margin in the fourth
quarter of 2007 compared to the prior year, as temperatures on the
Delmarva Peninsula were six percent colder in 2007. The Company
estimates that the colder temperatures contributed approximately
$89,000 to gross margin when compared to 2006. Other operating expenses for the natural gas segment increased by $1.5 million, or 18 percent in the fourth quarter of 2007 compared to the same period in 2006, primarily due to higher costs to support the continued customer growth and to comply with the new federal pipeline integrity regulations. The costs associated with customer growth include higher payroll and incentive compensation, benefits, depreciation, and property taxes.
Propane Operations The propane segment's operating income for the quarter increased by $247,000, or 18 percent, on gross margin growth of $804,000, compared to the fourth quarter of 2006. Factors contributing to the period-over-period increase in gross margin include: Gross margin for the three months ended December 31, 2006 $5,303,000 Increase in margins 245,000
Increases in wholesale marketing 181,000
Weather 166,000
Other 212,000 Gross margin for the three months ended December 31, 2007 $6,107,000
-- Higher margin per retail gallon of propane sold led to a $245,000
increase in gross margin in the fourth quarter of 2007 compared to the
same period in 2006. Gross margin per retail gallon increased as a
result of market prices for propane, during the current quarter, rising
to levels above the Company's inventory price per gallon.
-- Price volatility in the wholesale propane market created increased
market opportunities for the Company's wholesale marketing operation,
which led to a $181,000 gross margin increase from these activities
during the fourth quarter of 2007.
-- Colder weather increased volumes sold during the fourth quarter of
2007, which contributed an additional $166,000 in gross margin for the
Delmarva propane distribution operation compared to the fourth quarter
of 2006. Temperatures on the Delmarva Peninsula were six percent
colder during the fourth quarter of 2007 compared to the same period in
2006. Operating expenses for the propane unit increased by $557,000, or 14 percent, for the fourth quarter of 2007 when compared to the fourth quarter of 2006. Higher expenses were primarily a result of increases in payroll and incentive compensation, health care costs, propane tank maintenance and recertifications, and depreciation expense.
Advanced Information Services The advanced information services segment experienced gross margin growth of approximately $376,000, or 26 percent, and generated an additional $112,000 in operating income for the fourth quarter of 2007. The improved gross margin reflects an increase in consulting revenues, as the number of billable hours increased by eight percent, as well as additional income from Managed Database Administration ("MDBA") services. The advanced information services segment began the MDBA service in 2006 to provide third parties with professional database monitoring and support solutions. The period-over-period increases in revenue and gross margin were partially offset by increases in other operating expenses. The higher operating expenses are primarily due to costs to support the segment's growth.
Interest Expense Interest expense for the fourth quarter of 2007 increased by approximately $260,000, or 18 percent, compared to the same period in 2006. The higher interest expense was primarily due to a higher amount of interest capitalized, rather than expensed, in the fourth quarter of 2006 for debt that was incurred on capital projects. This is the result of fewer capital projects in the fourth quarter of 2007 compared to the same period in 2006, which resulted in lower average outstanding debt of $1.2 million during the period.
Comparative results for the year ended December 31, 2007 and 2006 Operating income for 2007 rose to $28.1 million from $23.3 million in 2006, an increase of $4.8 million, or 20 percent, while gross margin increased $12.0 million, or 16 percent, compared to 2006. The improvements in operating income and gross margin were primarily due to continued customer growth, increased rates, and the positive impact of colder weather experienced in 2007.
Natural Gas Operations Natural gas operating income increased $2.8 million, or 14 percent, on higher gross margin of $7.2 million, compared to 2006. Factors contributing to the period-over-period increase in gross margin include: Gross margin for the year ended December 31, 2006 $52,426,000 Increased capacity and customer growth 4,969,000
Rate increases 1,411,000
Weather 819,000
Other 27,000 Gross margin for the year ended December 31, 2007 $59,652,000
-- The natural gas segment continues to benefit from additional firm
transportation capacity and strong customer growth. The natural gas
transmission operation contributed an additional $3.3 million in gross
margin during the period from new transportation capacity contracts
implemented in November of 2006 and 2007. Customer growth for the
Delmarva and Florida natural gas distribution operations also
contributed an additional $1.7 million to gross margin in 2007 compared
to the prior year.
-- Rate increases for the Company's Maryland and Delaware natural gas
distribution operations and its natural gas transmission operation
contributed $1.4 million in additional gross margin in 2007.
-- Weather contributed to the increase in gross margin in 2007 compared to
the prior year, as temperatures on the Delmarva Peninsula were 15
percent colder in 2007. The Company estimates that the colder
temperatures contributed approximately $819,000 to gross margin when
compared to 2006. Other operating expenses for the natural gas segment increased $4.5 million, or 14 percent, for 2007 compared to the prior year, due primarily to costs to support customer growth and new federal pipeline integrity regulations, including higher payroll and incentive compensation, benefits, outside services, depreciation, property taxes, and regulatory expenses.
Propane Operations Propane operating income for 2007 increased by $2.0 million, or 78 percent, on gross margin growth of $4.0 million, compared to 2006. Factors contributing to the period-over-period increase in gross margin include: Gross margin for the year ended December 31, 2006 $17,796,000 Increase in margins 1,184,000
Weather 1,147,000
Increases in wholesale marketing 677,000
Growth 665,000
Other 331,000 Gross margin for the year ended December 31, 2007 $21,800,000
-- Gross margin increased by $1.2 million in 2007 compared to the prior
year because of improvements in the average gross margin per retail
gallon. Gross margin per retail gallon increased as a result of market
prices for propane rising to levels greater than the Company's average
inventory price per gallon.
-- Temperatures on the Delmarva Peninsula were 15 percent colder during
2007 compared to 2006, which contributed to increased sales of 1.7
million gallons, or nine percent, in 2007 compared to the prior year. The Company estimates that the colder weather and increased volumes
sold contributed $1.1 million to gross margin for the Delmarva propane
distribution operation compared to 2006.
-- Gross margin for the Company's propane wholesale marketing operation
increased by $677,000 for 2007 compared to 2006. The higher gross
margin reflects increased market opportunities that arose in 2007 due
to price volatility in the propane wholesale market.
-- The propane segment also experienced growth as the volumes sold in 2007
increased by 1.0 million gallons, or six percent. This increase in
gallons sold contributed approximately $665,000 to gross margin
compared to 2006. Contributing to the increase in gallons sold is the
continued customer growth for the Delmarva CGS. The average number of
CGS customers increased by 972 to a total count of approximately 5,330,
or a 22 percent increase, compared to 2006. Other operating expenses of the propane segment increased for 2007 by $2.0 million, or 13 percent, compared to 2006, primarily due to an increase in costs to support customer growth, including higher payroll and incentive compensation, benefits, depreciation, mains rental fees, and tank maintenance and recertifications. This expense variation was magnified by the one-time recovery of $387,000 in fixed costs in 2006 from one of our propane suppliers in response to a propane contamination incident in March 2006, which resulted in lower expenses in 2006.
Advanced Information Services The advanced information services segment experienced gross margin growth of approximately $1.4 million, or 25 percent. Period-over-period increases in revenue and gross margin were partially offset by increases in other operating expenses. Consequently, operating income increased by $69,000 compared to 2006. The improved gross margin reflects an increase in consulting revenues, as the number of billable hours increased by 15 percent, as well as additional income from MDBA services. The higher operating expenses are due primarily to an increase in costs as a result of higher sales and increased staffing levels to support the growth and an increase of $228,000 in allowance for an uncollectible account associated with one customer in the mortgage lending industry that filed for bankruptcy in the third quarter of 2007.
Interest Expense Interest expense for 2007 increased approximately $816,000, or 14 percent, compared to the prior year. The higher interest expense was primarily due to the following: -- As a result of fewer capital projects during 2007, the amount of
interest expense capitalized for debt incurred on capital projects in
2006 was $469,000 higher than the amount capitalized in 2007.
-- An increase in average long-term debt in 2007 compared to 2006,
partially offset by lower average interest rates on long-term debt. The increase in the long-term debt is related to the placement of $20
million of 5.5 percent Senior Notes in October 2006.
-- Other interest costs increased by $229,000 in 2007 compared to 2006 as
the Company accounted for interest on temporary rates with customers
and over-collected purchase gas costs.
-- Partially offsetting the previously stated increases to interest
expense was the decrease of interest on short-term borrowings as the
average borrowing balance decreased by $6.3 million in 2007 compared to
2006.
Condensed Consolidated Statements of Income
For the Periods Ended December 31, 2007 and 2006
Dollars in Thousands Except Per Share Amounts
(Unaudited) Fourth Quarter Year to Date
2007 2006 2007 2006 Operating Revenues $70,839 $60,805 $258,286 $231,200 Operating Expenses
Cost of sales, excluding costs
below 46,857 39,622 170,848 155,810
Operations 10,903 9,111 42,273 36,670
Maintenance 547 563 2,204 2,104
Depreciation and amortization 2,232 2,185 9,060 8,244
Other taxes 1,484 1,153 5,787 5,040
Total operating expenses 62,023 52,634 230,172 207,868
Operating Income 8,816 8,171 28,114 23,332
Other income (loss), net of other
expenses 14 58 291 189
Interest charges 1,700 1,440 6,590 5,774
Income Before Income Taxes 7,130 6,789 21,815 17,747
Income taxes 3,051 2,824 8,597 6,999
Income from Continuing Operations 4,079 3,965 13,218 10,748
Gain (loss) from discontinued
operations, net of income taxes 2 (31) (20) (241)
Net Income $4,081 $3,934 $13,198 $10,507 Weighted Average Shares Outstanding:
Basic 6,773 6,292 6,743 6,032
Diluted 6,881 6,408 6,855 6,155 Earnings (Loss) Per Share - Basic
From continuing operations $0.60 $0.63 $1.96 $1.78
From discontinued operations - - - (0.04)
Net Income $0.60 $0.63 $1.96 $1.74 Earnings (Loss) Per Share - Diluted
From continuing operations $0.60 $0.62 $1.94 $1.76
From discontinued operations - - - (0.04)
Net Income $0.60 $0.62 $1.94 $1.72 Supplemental Income Statement Data
For the Periods Ended December 31, 2007 and 2006
Dollars in Thousands
(Unaudited) Fourth Quarter Year to Date
2007 2006 2007 2006
Gross Margin (1)
Natural Gas $16,304 $14,535 $59,652 $52,426
Propane 6,106 5,303 21,800 17,796
Advanced Information Services 1,821 1,445 6,839 5,486
Other (249) (100) (853) (318)
Total Gross Margin $23,982 $21,183 $87,438 $75,390 Operating Income
Natural Gas $6,758 $6,477 $22,485 $19,733
Propane 1,615 1,368 4,498 2,534
Advanced Information Services 370 257 836 767
Other 73 69 295 298
Total Operating Income $8,816 $8,171 $28,114 $23,332 Heating Degree-Days - Delmarva Peninsula
Actual 1,513 1,429 4,504 3,931
10-year average (normal) 1,557 1,575 4,376 4,372
(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 is 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 and Share Amounts in Thousands
(Unaudited) Assets December 31, 2007 December 31, 2006 Property, Plant and Equipment
Natural gas $289,706 $269,013
Propane 48,506 44,792
Advanced information services 1,158 1,054
Other plant 8,568 9,147
Total property, plant and equipment 347,938 324,006
Less: Accumulated depreciation and
amortization (92,414) (85,010)
Plus: Construction work in progress 4,899 1,829
Net property, plant and equipment 260,423 240,825 Investments 1,909 2,016 Current Assets
Cash and cash equivalents 2,593 4,488
Accounts receivable (less allowance for
uncollectible accounts of $952 and $662,
respectively) 72,218 44,969
Accrued revenue 5,265 4,325
Propane inventory, at average cost 7,629 7,187
Other inventory, at average cost 1,281 1,565
Regulatory assets 1,575 1,276
Storage gas prepayments 6,042 7,393
Income taxes receivable 1,237 1,079
Deferred income taxes 2,155 1,365
Prepaid expenses 3,497 2,281
Mark-to-market energy assets 7,812 1,380
Other current assets 148 174
Total current assets 111,452 77,482 Deferred Charges and Other Assets
Goodwill 674 674
Other intangible assets, net 178 192
Long-term receivables 741 824
Other regulatory assets 2,539 1,765
Other deferred charges 3,641 1,216
Total deferred charges and other assets 7,773 4,671 Total Assets $381,557 $324,994 Capitalization and Liabilities December 31, 2007 December 31, 2006 Capitalization
Stockholders' equity
Common Stock, par value $0.4867 per share
(authorized 12,000 shares) $3,298 $3,255
Additional paid-in capital 65,592 61,960
Retained earnings 51,538 46,271
Accumulated other comprehensive income (851) (334)
Deferred compensation obligation 1,404 1,119
Treasury stock (1,404) (1,119)
Total stockholders' equity 119,577 111,152 Long-term debt, net of current maturities 63,255 71,050
Total capitalization 182,832 182,202 Current Liabilities
Current portion of long-term debt 7,656 7,656
Short-term borrowing 45,664 27,554
Accounts payable 54,893 33,871
Customer deposits and refunds 10,037 7,502
Accrued interest 866 832
Dividends payable 1,999 1,939
Accrued compensation 3,400 2,901
Regulatory liabilities 6,301 4,199
Mark-to-market energy liabilities 7,739 1,371
Other accrued liabilities 2,501 2,636
Total current liabilities 141,056 90,461 Deferred Credits and Other Liabilities
Deferred income taxes 28,796 26,517
Deferred investment tax credits 278 328
Other regulatory liabilities 1,136 1,236
Environmental liabilities 835 212
Accrued pension costs 2,513 1,608
Accrued asset removal cost 20,250 18,411
Other liabilities 3,861 4,019
Total deferred credits and other liabilities 57,669 52,331 Total Capitalization and Liabilities $381,557 $324,994 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 gas distribution and wholesale marketing, advanced information services and other related services. Information about Chesapeake's businesses is available on the World Wide Web at http://www.chpk.com/.
For more information, contact:
Michael P. McMasters
Senior Vice President & Chief Financial Officer
302.734.6799
DATASOURCE: Chesapeake Utilities Corporation CONTACT: Michael P. McMasters, Senior Vice President & Chief Financial Officer of Chesapeake Utilities Corporation, +1-302-734-6799 Web site: http://www.chpk.com/
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