• Net income was $3.5 million, or $0.37 per share, for the quarter ended June 30, 2011, compared to $3.3 million, or $0.35 per share, for the quarter ended June 30, 2010.
  • Customer growth in the natural gas distribution operations and continued expansion of its transmission system generated $1.6 million of additional gross margin.
  • Improved margins from the propane distribution and wholesale marketing operations added $972,000 to gross margin.

Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today announced increased financial results for the quarter ended June 30, 2011. The Company’s net income for the quarter ended June 30, 2011 was $3.5 million, or $0.37 per share, an increase in net income of $200,000, or $0.02 per share, over net income of $3.3 million, or $0.35 per share, for the quarter ended June 30, 2010. The higher earnings for the second quarter of 2011 reflect additional margins generated from continued growth of the Company’s natural gas distribution and transmission operations on the Delmarva Peninsula and in Florida and increased margins in its propane distribution and wholesale marketing operations. These increases more than offset one-time charges associated with a voluntary workforce reduction in Florida of $549,000 and $341,000 in additional costs related to the roll-out and initial implementations of a new product, ProfitZoomTM, by the Company’s advanced information services subsidiary.

On a year-to-date basis, the Company reported net income of $17.3 million for the six months ended June 30, 2011, or $1.79 per share. The year-to-date net income in 2011 decreased slightly by $47,000, compared to the same period in 2010, and earnings per share declined by $0.03 per share due to additional shares outstanding in 2011. The combined effect of continued growth and expansion of the Company’s natural gas business, increased margins per gallon in its propane distribution operations, a one-time gain related to proceeds from a propane supply litigation settlement, and lower interest expense largely offset the effects of warmer temperatures during the recent heating season both on the Delmarva Peninsula and in Florida. These warmer temperatures reduced customer consumption of natural gas and propane, as compared to the previous heating season.

“Our strong performance in the second quarter of 2011 reflects our ongoing commitment to serve new markets safely, reliably and cost effectively while maintaining operational excellence in our regulated operations and successfully executing our business plans in our unregulated energy segment,” stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation. “Our continuing commitment to further extend our natural gas systems to customers and communities seeking such service has positioned us well for future growth in spite of the challenging economic conditions we face. We are moving forward on the Delmarva Peninsula to extend our services to southern Delaware and Cecil and Worcester Counties in Maryland. We are also pursuing multiple growth opportunities throughout our Florida energy operations and are working diligently to transform these opportunities into value added services. We have taken steps to further integrate our Florida operations and expect to see additional cost savings there in the second half of the year. We have substantially completed the development of the ProfitZoomTM product and are excited about its sales prospects. All of these opportunities position our Company for continued long-term growth.”

The discussions of the results for the periods ended June 30, 2011 and 2010, 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.

Unless otherwise noted, earnings per share information is presented on a diluted basis.

Highlights for the second quarter of 2011 included:

  • Eastern Shore Natural Gas Company (“Eastern Shore”), the Company’s natural gas transmission subsidiary, generated gross margin of $542,000 in the second quarter of 2011 from new transportation services associated with its eight-mile mainline extension to interconnect with Texas Eastern Transmission’s pipeline system. These services commenced in January 2011 and have a three-year phase-in from 19,324 Mcfs per day to 38,647 Mcfs per day, and an estimated gross margin of $2.4 million in 2011, $3.9 million in 2012 and $4.3 million annually thereafter.
  • 14 large commercial and industrial customers added by the Delmarva natural gas distribution operation since July 2010 generated $261,000 in additional gross margin during the second quarter of 2011. These new customers are expected to generate annual margin of $1.1 million in 2011, compared to $196,000 of gross margin generated from these customers in 2010.
  • Three percent growth in Delmarva natural gas distribution residential customers generated additional gross margin of $105,000 for the second quarter of 2011.
  • The Florida natural gas distribution operation generated additional gross margin of $376,000 from one-percent growth in residential customers and three-percent growth in commercial customers in the second quarter of 2011, compared to the same quarter in 2010. In addition, 700 new customers, added as a result of the purchase of the operating assets of Indiantown Gas Company in August 2010, generated $142,000 of additional gross margin during the current quarter.
  • Gross margin from the propane distribution operations for the second quarter of 2011 increased by $658,000 compared to the same quarter in 2010, due primarily to margins per gallon returning to more normal levels on the Delmarva Peninsula and improved margins per gallon in Florida as the Florida propane distribution operation continued to adjust its retail pricing in response to market opportunities.
  • The Company recorded $549,000 in one-time charges in May 2011 associated with the voluntary workforce reduction of 31 employees in Florida, which is expected to generate approximately $500,000 in cost savings in 2011 and $800,000 in annual savings thereafter.
  • In July 2011, BravePoint, Inc. (“BravePoint”), the Company’s advanced information services subsidiary, completed the first successful implementation of its new product, ProfitZoomTM. At present, BravePoint has three customers, which have implemented, or are in the process of implementing, this new product and has several outstanding sales proposals under consideration by other potential customers.

Comparative results for the quarters ended June 30, 2011 and 2010

Operating income for each of the quarters ended June 30, 2011 and 2010 was $7.8 million. An increase in gross margin of $2.5 million for the quarter ended June 30, 2011 was almost fully offset by an increase in other operating expenses. The Company’s operating results for the current quarter included non-recurring costs of $549,000 in one-time charges associated with the voluntary workforce reduction in Florida and $341,000 in additional costs related to the roll-out and initial implementations of ProfitZoomTM. Also contributing to the increase in other operating expenses were increased regulatory, legal and other costs for the regulated energy businesses, including $316,000 of additional costs associated with the electric franchise dispute in Marianna, Florida and $83,000 in costs with respect to the “Come-Back” filing in Florida and the rate case proceeding for Eastern Shore. Both the “Come-Back” filing and the Eastern Shore rate case proceeding are expected to be resolved in 2011.

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