DOVER, Del., May 5 /PRNewswire-FirstCall/ -- Chesapeake Utilities Corporation (NYSE:CPK) today announced a five-percent decrease in net income for the quarter ended March 31, 2008 compared to the same period in 2007. Net income for the quarter was $7.6 million, or $1.10 per share (diluted), a decrease of $417,000, or $0.08 per share (diluted), compared to 2007. The period-over-period decrease was due primarily to the impact of warmer weather on the Company's natural gas and propane segments. The Company estimates that the warmer weather, which was nine percent warmer than in previous year, reduced gross margins by $1.2 million in the first quarter of 2008. This reduction in gross margin was substantially offset by the contributions to gross margin of $786,000 and $359,000 from the natural gas segment's continued growth and increased rates, respectively.
"Warm weather negatively impacted earnings in both the propane and natural gas segments during the quarter. However, we continued to benefit from strong growth in the natural gas transmission and distribution operations, and this growth more than offset the impact of weather on the natural gas segment," stated John R. Schimkaitis, President and Chief Executive Officer of Chesapeake Utilities Corporation.
Highlights for the first quarter of 2008 included:
-- Period-over-period customer growth in the Delmarva natural gas
distribution operations remained strong with a six-percent increase in
residential customers over the first quarter of 2007. Although a
slowdown in customer growth has begun as a result of the housing
market, the Delmarva natural gas distribution operations have been able
to offset partially this slowdown with growth in their commercial
margins. Overall, these growth factors contributed $464,000 to the
increase in gross margins for the Delmarva natural gas distribution
operations in the first quarter of 2008. -- The Delmarva natural gas distribution operations were able to offset
completely an estimated $617,000 negative impact on gross margin from
the warmer weather and deliver an $84,000 increase in gross margin. -- Gross margin for the Company's natural gas transmission operation,
Eastern Shore Natural Gas Company ("Eastern Shore"), increased by
approximately $299,000 over the first quarter of 2007 due to the
commencement of additional firm transportation services in November
2007. -- Continued capital investment to support customer growth resulted in an
increase of $2.3 million in net property, plant and equipment during
the quarter. The discussions of the results for the periods ended March 31, 2008 and 2007 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 March 31, 2008 and 2007 Operating income decreased by $573,000, or four percent, to $14.0 million for the first quarter of 2008, compared to $14.6 million for the same period in 2007, as gross margin decreased $298,000, or one percent, compared to the first quarter of 2007. The decreases in operating income and gross margin were driven primarily by warmer weather on the Delmarva Peninsula and lower non-weather-related sales volumes and margin per gallon for our propane segment, partially offset by continued customer growth, increased transportation services, and increased rates for our natural gas segment.
Natural Gas Operations Natural gas operating income for the quarter increased by $853,000, or nine percent, on gross margin growth of $870,000, compared to the first quarter of 2007. Factors contributing to the period-over-period increase in gross margin include: (in thousands)
Gross margin for the three months ended March 31, 2007 $18,741 Increased transportation services and customer growth 786
Rate increases 359
Increased interruptible sales, net of margin sharing 214
Natural gas marketing 159
Weather (617)
Other (31) Gross margin for the three months ended March 31, 2008 $19,611
-- The natural gas segment benefited from strong customer growth and
additional firm transportation services, which added $786,000 to gross
margin during the first quarter of 2008 compared to the first quarter
of 2007. This growth was due, in part, to an increase in the number of
residential and commercial customers for the Delmarva natural gas
distribution operations, which contributed $335,000 and $127,000,
respectively, to gross margin in the first quarter of 2008 compared to
the first quarter of 2007. The natural gas transmission operations
experienced growth of $299,000 in gross margin due to additional
transportation services that commenced in November of 2007. -- Rate increases for the Company's Delmarva natural gas distribution
operations and for the natural gas transmission operation contributed
an additional $359,000 to gross margin in the first quarter of 2008
compared to the first quarter of 2007. -- Interruptible sales revenue, net of required margin-sharing, increased
$214,000 for the Delmarva natural gas distribution operations in the
first quarter of 2008 compared to the same period in 2007 as customers
took advantage of lower natural gas prices in comparison to prices for
alternative fuels. -- The natural gas marketing operation experienced an increase of $159,000
in gross margin for the first quarter of 2008 compared to the same
period in 2007 due in part to a higher number of customers to which it
provides supply management services and improved gas supply management. -- Warmer temperatures on the Delmarva Peninsula in the first quarter of
2008 reduced gross margins as temperatures were nine percent warmer
than in 2007. The Company estimates that the warmer temperatures
reduced gross margin by $617,000 when compared to 2007. The natural gas segment experienced a modest increase of $17,000 in other operating expenses in the first quarter of 2008 compared to the same period in 2007, due primarily to increases in incentive compensation, property taxes, and costs to comply with the new federal pipeline integrity regulations, which were partially offset by lower depreciation expense as the natural gas transmission and Delmarva distribution operations reduced their depreciation rates in their respective rate proceedings.
Propane Operations The propane segment's operating income for the quarter decreased by $1.4 million, or 29 percent, and gross margin declined by $1.5 million, compared to the first quarter of 2007. Factors contributing to the period-over-period reduction in gross margin include: (in thousands)
Gross margin for the three months ended March 31, 2007 $9,590 Lower volumes (1,002)
Decreases in margin per retail gallon (512)
Other (66)
Service Sales 73
Wholesale marketing and sales 4 Gross margin for the three months ended March 31, 2008 $8,087
-- The Company's Delmarva propane distribution operation experienced lower
volumes sold, partially due to weather, during the first quarter of
2008, which resulted in a decrease of $1.0 million in gross margin for
the Delmarva propane distribution operation compared to the first
quarter of 2007. Temperatures on the Delmarva Peninsula were nine
percent warmer during the first quarter of 2008 compared to the same
period in 2007. Contributing to the remaining decrease in gallons sold
was customer conservation, the timing of propane deliveries and
customer attrition. -- Decreases in the margin per retail gallon of propane sold led to a
$512,000 decrease in gross margin in the first quarter of 2008 compared
to the same period in 2007. Gross margin per retail gallon decreased
as wholesale prices during the current quarter approached the Company's
average inventory price per gallon. Operating expenses for the propane unit decreased by $74,000, or two percent, for the first quarter of 2008 when compared to the first quarter of 2007. The lower expenses were primarily a result of a decrease in incentive compensation, partially offset by increases in vehicle fuel, allowance for uncollectible accounts and depreciation expense.
Advanced Information Services The advanced information services segment experienced gross margin growth of approximately $239,000, or five percent, and generated $38,000 in operating income for the first quarter of 2008. The improved gross margin reflects an increase in consulting revenues, as the number of billable hours increased by five percent, as well as additional income from Managed Database Administration ("MDBA") services. The advanced information services segment introduced the MDBA services in 2006 to provide third parties with professional database monitoring and support solutions. The period-over-period increases in revenue and gross margin were offset by increases in other operating expenses. The higher operating expenses are due primarily to costs of adding non-billable employees to support and maintain the segment's growth.
Interest Expense Although the Company's average long-term and short-term borrowings had a net increase of approximately $10.1 million during the quarter, interest expense was comparable to the prior period due primarily to lower interest rates.
Condensed Consolidated Statements of Income
For the Periods Ended March 31, 2008 and 2007
Dollars in Thousands Except Per Share Amounts
(Unaudited) 2008 2007
Operating Revenues $100,274 $93,527 Operating Expenses
Cost of sales, excluding costs below 70,981 63,936
Operations 11,223 10,529
Maintenance 479 580
Depreciation and amortization 1,755 2,316
Other taxes 1,795 1,552
Total operating expenses 86,233 78,913
Operating Income 14,041 14,614
Other income, net of other expenses 17 56
Interest charges 1,593 1,599
Income Before Income Taxes 12,465 13,071
Income taxes 4,891 5,060
Income from Continuing Operations 7,574 8,011
Loss from discontinued
operations, net of income tax benefit - (20)
Net Income $7,574 $7,991 Weighted Average Shares Outstanding:
Basic 6,795 6,706
Diluted 6,907 6,820 Earnings Per Share - Basic
From continuing operations $1.11 $1.19
From discontinued operations - -
Net Income $1.11 $1.19 Earnings Per Share - Diluted
From continuing operations $1.10 $1.18
From discontinued operations - -
Net Income $1.10 $1.18 Supplemental Income Statement Data
For the Periods Ended March 31, 2008 and 2007
Dollars in Thousands
(Unaudited) 2008 2007
Gross Margin(1)
Natural Gas $19,611 $18,741
Propane 8,087 9,590
Advanced Information Services 1,710 1,471
Other (115) (211)
Total Gross Margin $29,293 $29,591 Operating Income
Natural Gas $10,469 $9,616
Propane 3,444 4,874
Advanced Information Services 38 49
Other 90 75
Total Operating Income $14,041 $14,614 Heating Degree-Days - Delmarva Peninsula
Actual 2,222 2,439
10-year average(normal) 2,270 2,241 (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 March 31, December 31,
2008 2007 Property, Plant and Equipment
Natural gas $292,502 $289,706
Propane 49,368 48,506
Advanced information services 1,175 1,158
Other plant 9,325 8,568
Total property, plant and equipment 352,370 347,938
Less: Accumulated depreciation and
amortization (94,287) (92,414)
Plus: Construction work in progress 4,682 4,899
Net property, plant and equipment 262,765 260,423 Investments 1,848 1,909 Current Assets
Cash and cash equivalents 2,889 2,593
Accounts receivable (less allowance
for uncollectible accounts of $901
and $952, respectively) 72,478 72,218
Accrued revenue 4,876 5,265
Propane inventory, at average cost 5,664 7,629
Other inventory, at average cost 1,220 1,281
Regulatory assets 1,355 1,575
Storage gas prepayments 1,376 6,042
Income taxes receivable - 1,237
Deferred income taxes 2,397 2,155
Prepaid expenses 2,495 3,497
Mark-to-market energy assets 323 7,812
Other current assets 147 148
Total current assets 95,220 111,452 Deferred Charges and Other Assets
Goodwill 674 674
Other intangible assets, net 175 178
Pension - 0
Long-term receivables 647 741
Other regulatory assets 2,728 2,539
Other deferred charges 3,928 3,641
Total deferred charges and other assets 8,152 7,773 Total Assets $367,985 $381,557 Condensed Consolidated Balance Sheets
Dollars and Share Amounts in Thousands
(Unaudited) March 31, December 31,
Capitalization and Liabilities 2008 2007 Capitalization
Stockholders' equity
Common Stock, par value $0.4867 per
share (authorized 12,000 shares) $3,313 $3,298
Additional paid-in capital 65,702 65,592
Retained earnings 57,103 51,538
Accumulated other comprehensive income (851) (851)
Deferred compensation obligation 1,448 1,404
Treasury stock (1,448) (1,404)
Total stockholders' equity 125,267 119,577 Long-term debt, net of current maturities 63,223 63,255
Total capitalization 188,490 182,832 Current Liabilities
Current portion of long-term debt 6,656 7,656
Short-term borrowing 46,186 45,664
Accounts payable 41,701 54,893
Customer deposits and refunds 8,523 10,037
Accrued interest 1,547 866
Dividends payable 2,008 1,999
Income taxes payable 2,874 -
Deferred income taxes - -
Accrued compensation 1,709 3,400
Regulatory liabilities 6,461 6,301
Mark-to-market energy liabilities 318 7,739
Other accrued liabilities 2,711 2,501
Total current liabilities 120,694 141,056 Deferred Credits and Other Liabilities
Deferred income taxes 29,550 28,796
Deferred investment tax credits 267 278
Other regulatory liabilities 1,026 1,136
Environmental liabilities 792 835
Accrued pension costs 2,525 2,513
Accrued asset removal cost 20,773 20,250
Other liabilities 3,868 3,861
Total deferred credits and other
liabilities 58,801 57,669 Total Capitalization and Liabilities $367,985 $381,557
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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