Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today announced increased financial results for both the quarter ended and the nine months ended September 30, 2010. The Company’s results for both periods reflect strong growth in the Company’s legacy businesses, as well as the results of Florida Public Utilities Company (“FPU”), which Chesapeake acquired in October of 2009.
The Company’s net income for the quarter ended September 30, 2010 was $1.6 million, or $0.17 per share (diluted), an increase of $1.3 million, or $0.13 per share (diluted), compared to $308,000, or $0.04 per share (diluted), for the quarter ended September 30, 2009. Chesapeake’s legacy businesses continued to experience strong earnings growth, generating $0.04 per share (diluted) of the increase, a 100 percent increase over the prior year’s earnings per share (diluted) of $0.04. Historically, the third quarter’s results have the greatest seasonal decline. Chesapeake’s legacy business results reflect the impact of the rate increase for the Company’s Central Florida Gas division, strong customer growth on the Delmarva Peninsula (both in the form of residential growth and growth from service to new large commercial/industrial customers), additional margin from continued expansion of natural gas transportation services and improved performance from the advanced information services business. These increases were partially offset by a decline in earnings from the unregulated energy businesses. FPU’s results added $0.09 per share (diluted) to the Company’s overall consolidated results in the current quarter, which is calculated based on the additional shares issued in the merger. With the addition of FPU and its electric business, Chesapeake is now less sensitive to a seasonal decline in the third quarter.
The Company’s net income for the nine months ended September 30, 2010 was $18.9 million, or $1.98 per share (diluted), an increase of $9.2 million, or $0.58 per share (diluted), compared to $9.7 million, or $1.40 per share (diluted), for the same period in 2009. Chesapeake’s legacy businesses generated $1.9 million of additional net income for the nine months ended September 30, 2010, representing increased growth of 20 percent. Earnings per share for the nine months ended September 30, 2010 increased by $0.24 per share (diluted) based upon the performance of the legacy businesses, or approximately 17 percent. Similar to the quarterly results, the strong performance of Chesapeake’s legacy businesses was a direct result of the increased earnings generated by the regulated energy businesses and improved results from the advanced information services business, partially offset by a decline in earnings from the unregulated energy businesses. The results for the nine months ended September 30, 2010 included $7.3 million of net income generated by FPU, or $0.34 per share (diluted) calculated based on the additional shares issued in the merger.
“Our third quarter results reflect strong performance by the regulated energy businesses, both on the Delmarva Peninsula and in Florida. Continued growth and expansion by our Delmarva natural gas distribution and transmission businesses and successful integration of the Florida operations have provided us with an excellent opportunity to achieve and exceed our goal of earnings accretion in the first year after the merger,” stated John R. Schimkaitis, Vice Chairman and Chief Executive Officer of Chesapeake Utilities Corporation. “We are very pleased to report the third consecutive quarter of strong performance. We continue to focus on the integration of our Florida operations to generate benefits from the merger for our customers and shareholders and are excited about the opportunities for growth across our lines of business.”
The discussions of the results for the periods ended September 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. In addition, certain information is presented, which, for comparison purposes, includes only FPU’s results of operations for the periods ended September 30, 2010 and, in some cases, FPU’s results for the same periods in 2009, which were 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 third quarter of 2010 included:
- The rate increase for Chesapeake’s Florida division, effective in January 2010, contributed approximately $554,000 to gross margin for the quarter ended September 30, 2010.
- Eastern Shore Natural Gas Company (“ESNG”), the Company’s natural gas transmission subsidiary, generated additional gross margin of $390,000 from new transportation services commencing in late 2009 and during 2010.
- ESNG received approval from the Federal Energy Regulatory Commission to begin construction of an eight-mile mainline extension to interconnect ESNG’s system with Texas Eastern Transmission LP’s mainline facilities in Lancaster County, Pennsylvania. Currently, ESNG has executed Precedent Agreements with two divisions of the Company that will result in 17 years of transportation services associated with this project. The Precedent Agreements allow a three-year phase-in of service, from 20,000 dekatherms per day in the first year of service to 40,000 dekatherms per day by the third year of service, at ESNG’s current tariff rate for service in that area. Estimated annual margin from this project is $2.2 million based on 20,000 dekatherms per day and $4.3 million based on 40,000 dekatherms per day. ESNG’s service under this project is expected to begin no later than January 2011.
- Two-percent growth in residential customers and an increase in the number of commercial and industrial customers for the Delmarva natural gas distribution operations contributed to a period-over-period increase in gross margin of $138,000. This increase includes $24,000 in additional gross margin generated from service to a new industrial customer in southern Delaware, which began in the third quarter of 2010. In addition, service to another industrial customer is expected to commence in late 2010 or early 2011. Services to these new industrial customers in southern Delaware are expected to add annual margin equivalent to 1,575 average residential heating customers. In further extending the Delmarva natural gas distribution and transmission infrastructure, the Company is 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 $258,000 in the third quarter of 2010, compared to an operating loss of $103,000 in the same period in 2009, due to increased billable consulting hours and lower operating costs. In September 2010, BravePoint also announced the launch of a new fully-integrated profit management system designed specifically for companies specializing in the fire suppression business.
- FPU reported $2.4 million of operating income and $1.1 million of net income in the third quarter of 2010, which represent 53 percent and 66 percent, respectively, of the Company’s overall consolidated results for the current quarter. With the addition of FPU, whose entire operations are located in Florida, the Company’s earnings became less sensitive to a seasonal decline in the third quarter. FPU’s earnings for the quarter include $49,000 in gross margin generated from approximately two months of operations of Indiantown Gas Company, whose operating assets were purchased by FPU on August 9, 2010 and which added approximately 700 customers including two large industrial customers.
- Xeron, the Company’s propane wholesale marketing subsidiary, experienced a decline in gross margin as the absence of significant fluctuations in propane prices and lower wholesale trading volumes reduced the opportunities for Xeron and decreased its trading volume by 13 percent.
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 business, other subsidiaries that own property which is leased to other affiliates, unallocated corporate costs and eliminations.
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