SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER: 0-593
CHESAPEAKE UTILITIES CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0064146
------------------------------ ---------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
909 SILVER LAKE BOULEVARD, DOVER, DELAWARE 19904
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(302) 734-6754
---------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ].
Common Stock, par value $.4867 - 3,773,099 shares issued as of June 30, 1996.
<PAGE>
PART I
FINANCIAL INFORMATION
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31
1996 1995
ASSETS (UNAUDITED)
----------- ----------
PROPERTY, PLANT AND EQUIPMENT
Natural gas distribution $67,061,099 $64,785,616
Natural gas transmission 27,532,190 25,651,558
Propane distribution 20,053,108 19,645,973
Advanced information services 966,323 841,661
Other plant 3,795,507 3,563,247
Gas plant acquisition adjustment 795,004 795,004
--------------------------
Total property, plant and equipment 120,203,231 115,283,059
Less: Accumulated depreciation and amortization (35,709,036) (33,567,446)
--------------------------
Net property, plant and equipment 84,494,195 81,715,613
--------------------------
INVESTMENTS 2,074,722 1,957,218
--------------------------
CURRENT ASSETS
Cash and cash equivalents 968,125 977,407
Accounts receivable, less allowance for uncollectibles 7,781,483 12,701,256
Materials and supplies, at average cost 1,152,291 844,786
Propane inventory, at average cost 975,591 1,442,633
Storage gas prepayments 1,657,367 2,663,721
Underrecovered purchased gas costs 214,082 0
Income taxes receivable 0 193,916
Prepaid expenses 729,525 842,460
Deferred income taxes 1,257,178 1,362,289
--------------------------
Total current assets 14,735,642 21,028,468
--------------------------
DEFERRED CHARGES AND OTHER ASSETS
Environmental cost 8,456,718 8,618,712
Order 636 transition cost 1,199,625 1,463,157
Other deferred charges and intangible assets 3,487,644 4,010,812
--------------------------
Total deferred charges and other assets 13,143,987 14,092,681
--------------------------
TOTAL ASSETS $114,448,546 $118,793,980
==========================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31
1996 1995
CAPITALIZATION AND LIABILITIES (UNAUDITED)
----------- ----------
CAPITALIZATION
Stockholders' equity
Common Stock, par value $.4867 per share;
(authorized 12,000,000 shares; issued 3,773,099
and 3,721,589 shares, respectively) $1,836,197 $1,811,211
Additional paid-in capital 18,404,270 17,592,242
Retained earnings 27,115,563 23,385,097
Less:
Unearned compensation-restricted stock awards (532,001) (415,107)
Net unrealized loss on marketable securities (10,537) (72,839)
--------------------------
Total stockholders' equity 46,813,492 42,300,604
Long-term debt, net of current portion 29,412,368 29,794,639
--------------------------
Total capitalization 76,225,860 72,095,243
--------------------------
CURRENT LIABILITIES
Current portion of long-term debt 783,271 864,849
Short-term borrowings 0 4,800,000
Accounts payable 7,022,719 11,162,775
Refunds payable to customers 744,969 966,940
Income taxes payable 1,405,538 0
Accrued interest 708,853 742,701
Overrecovered purchased gas costs 0 53,374
Dividends payable 877,246 837,358
Other accrued expenses 2,941,513 3,123,191
--------------------------
Total current liabilities 14,484,109 22,551,188
--------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 8,946,129 9,136,808
Deferred investment tax credits 908,720 931,247
Environmental liability 6,949,696 7,113,572
Accrued pension costs 2,336,645 2,118,545
Order 636 transition liability 1,199,625 1,463,157
Other liabilities 3,397,762 3,384,220
--------------------------
Total deferred credits and other liabilities 23,738,577 24,147,549
--------------------------
TOTAL CAPITALIZATION AND LIABILITIES $114,448,546 $118,793,980
==========================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
FOR THE QUARTER ENDED
JUNE 30,
1996 1995
--------------------------
OPERATING REVENUES $23,850,551 $22,074,663
--------------------------
OPERATING EXPENSES
Purchased gas costs 13,974,083 12,926,940
Operations 5,376,266 4,771,005
Maintenance 482,025 506,894
Depreciation and amortization 1,312,439 1,335,653
Other taxes 825,754 706,523
Income taxes 478,902 458,306
--------------------------
Total operating expenses 22,449,469 20,705,321
--------------------------
OPERATING INCOME 1,401,082 1,369,342
OTHER INCOME AND DEDUCTIONS 56,747 87,418
--------------------------
INCOME BEFORE INTEREST CHARGES 1,457,829 1,456,760
INTEREST CHARGES 625,372 692,675
--------------------------
NET INCOME $832,457 $764,085
==========================
EARNINGS PER SHARE OF COMMON STOCK (1):
Primary:
Earnings per share $0.22 $0.21
--------------------------
Average shares outstanding 3,790,533 3,693,016
Fully diluted:
Earnings per share $0.22 $0.21
--------------------------
Average shares outstanding 4,033,294 3,941,261
The accompanying notes are an integral part of these financial statements.
(1) See Exhibit 11-Computation of Primary and Fully Diluted Earnings Per Share
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
1996 1995
--------------------------
OPERATING REVENUES $68,120,815 $52,971,460
--------------------------
OPERATING EXPENSES
Purchased gas costs 41,533,203 29,899,031
Operations 11,190,699 9,724,209
Maintenance 963,362 918,392
Depreciation and amortization 2,620,197 2,666,927
Other taxes 1,876,715 1,573,440
Income taxes 3,257,877 2,489,157
--------------------------
Total operating expenses 61,442,053 47,271,156
--------------------------
OPERATING INCOME 6,678,762 5,700,304
OTHER INCOME AND DEDUCTIONS 116,843 131,679
--------------------------
INCOME BEFORE INTEREST CHARGES 6,795,605 5,831,983
INTEREST CHARGES 1,314,139 1,409,466
--------------------------
NET INCOME $5,481,466 $4,422,517
==========================
EARNINGS PER SHARE OF COMMON STOCK (1):
Primary:
Earnings per share $1.45 $1.20
--------------------------
Average shares outstanding 3,774,356 3,682,586
Fully diluted:
Earnings per share $1.39 $1.15
--------------------------
Average shares outstanding 4,019,764 3,933,193
The accompanying notes are an integral part of these financial statements.
(1) See Exhibit 11-Computation of Primary and Fully Diluted Earnings Per Share
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
1996 1995
--------------------------
OPERATING ACTIVITIES
Net Income $5,481,466 $4,422,516
Adjustments to reconcile net income to net operating cash
Depreciation and amortization 2,891,454 2,827,420
Deferred income taxes, net (44,468) (788,893)
Investment tax credit adjustments (22,527) (22,527)
Employee benefits 181,177 70,813
Employee compensation from lapsing stock restrictions 204,785 216,885
Allowance for refund 0 282,240
Other (164,239) (609,401)
Changes in assets and liabilities:
Accounts receivable 4,919,773 1,046,177
Inventory, materials, supplies and storage gas 1,165,891 1,606,637
Prepaid expenses 112,935 (47,224)
Other deferred charges 563,961 389,950
Accounts payable (4,140,056) (1,148,674)
Refunds payable to customers (221,971) 90,427
(Under)Overrecovered purchased gas costs (267,456) 1,425,658
Other current liabilities 1,383,926 2,270,661
--------------------------
Net cash provided by operating activities 12,044,651 12,032,665
--------------------------
INVESTING ACTIVITIES
Property, plant and equipment expenditures, net (5,416,309) (5,856,261)
Purchases of investments, net (15,230) (38,836)
--------------------------
Net cash used by investing activities (5,431,539) (5,895,097)
--------------------------
FINANCING ACTIVITIES
Common stock dividends net of amounts reinvested of
$291,367 and $225,484, respectively (1,389,005) (1,406,342)
Net repayments under line of credit agreements (4,800,000) (4,500,000)
Proceeds from issuance of treasury stock 0 147,608
Repayments of long-term debt (463,849) (518,580)
--------------------------
Net cash used by financing activities (6,652,854) (6,277,314)
--------------------------
NET DECREASE IN CASH (39,742) (139,746)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 977,407 398,751
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $937,665 $259,005
==========================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. QUARTERLY FINANCIAL DATA
The financial information included herein is unaudited; however, the
financial information reflects normal recurring adjustments, which are, in
the opinion of management, necessary for a fair presentation of the
Company's interim results. Due to the seasonal nature of the Company's
business, there are substantial variations in the results of operations
reported on a quarterly basis. Certain amounts in 1995 have been
reclassified to conform with the 1996 presentation.
2. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
Dover Gas Light Site
In 1984, the State of Delaware notified the Company that a parcel of land
it purchased in 1949 from Dover Gas Light Company, a predecessor gas
company, contains hazardous substances. The State also asserted that the
Company is responsible for any clean-up and prospective environmental
monitoring of the site. The Delaware Department of Natural Resources and
Environmental Control ("DNREC") investigated the site and surroundings,
finding coal tar residue and some ground-water contamination.
In October 1989, the Environmental Protection Agency Region III ("EPA")
listed the Dover Site on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund"). At this time under CERCLA, both the State of
Delaware and the Company were named as potentially responsible parties
("PRP") for clean-up of the site.
The EPA issued the site Record of Decision ("ROD") dated August 16, 1994.
The remedial action selected by the EPA in the ROD addresses the ground-
water contamination with a combination of hydraulic containment and natural
attenuation. Remediation selected for the soil at the site is to meet
stringent clean-up standards for the first two feet of soil and less
stringent standards for the soil below two feet. The ROD estimates the
costs of selected remediation of ground-water and soil at $2.7 million and
$3.3 million, respectively.
On November 18, 1994, EPA issued a "Special Notice Letter" (the "Letter")
to Chesapeake and three other PRPs. The Letter includes, inter alia, (1) a
demand for payment by the PRPs of EPA's past costs (currently estimated to
be approximately $300,000) and future costs incurred overseeing Site work;
(2) notice of EPA's commencement of a 60-day moratorium on certain EPA
response activities at the Site; (3) a request by EPA that Chesapeake and
the other PRPs submit a "good faith proposal" to conduct or finance the
work identified in the ROD; and (4) proposed consent orders by which
Chesapeake and other parties may agree to perform the good faith proposal.
In January 1995, Chesapeake submitted to the EPA a good faith proposal to
perform a substantial portion of the work set forth in the ROD, which was
subsequently rejected. The Company and the EPA each attempted to secure
voluntary performance of part of the remediation by other parties. These
parties include the State of Delaware, which is the owner of the property
and was identified in the ROD as a PRP, and a business identified in the
ROD as a PRP for having contributed to ground-water contamination.
On May 17, 1995, EPA issued an order to the Company under section 106 of
CERCLA (the "Order"), which requires the Company to fund or implement the
ROD. The Order was also issued to General Public Utilities Corporation,
Inc. ("GPU"), which both EPA and the Company believe is liable under
CERCLA. Other PRPs, such as the State of Delaware, were not ordered to
perform the ROD. EPA may seek judicial enforcement of its Order, as well
as significant financial penalties for failure to comply. Although
notifying EPA of objections to the Order, the Company agreed to comply.
GPU has informed EPA that it does not intend to comply with the Order. The
Company has commenced the design phase of the ROD, on-site pre-design and
investigation began in July.
On March 6, 1995, the Company commenced litigation against the State of
Delaware for contribution to the remedial costs being incurred to carry out
the ROD. In December of 1995, this case was dismissed without prejudice
based on a settlement agreement (the "Settlement") between the parties.
Under the Settlement, the State agreed to support the Company s proposal to
reduce the soil remedy for the site, described below, to contribute
$600,000 toward the cost of implementing the ROD, and to reimburse the EPA
for $400,000 in oversight costs. The Settlement is contingent upon a
formal settlement agreement between EPA and the State of Delaware being
reached within the next two years. Upon satisfaction of all conditions of
the Settlement, the litigation will be dismissed with prejudice.
On July 7, 1995, the Company submitted to EPA a study proposing to reduce
the level and cost of soil remediation from that identified in the ROD.
Although this proposal was supported by the State of Delaware, as required
by the Settlement, it was rejected by the EPA on January 30, 1996.
On June 25, 1996, the Company initiated litigation against GPU for
contribution to the remedial costs incurred by Chesapeake in connection
with complying with the ROD. At this time, management cannot predict the
outcome of the litigation or the amount, if any of proceeds to be received.
The Company is currently engaged in investigations related to additional
parties who may be PRPs. Based upon these investigations, the Company will
consider suit against other PRPs. The Company expects continued
negotiations with PRPs in an attempt to resolve these matters.
In the third quarter of 1994, the Company increased its accrued liability
recorded with respect to the Dover Site to $6.0 million. This amount
reflects the EPA's estimate, as stated in the ROD for remediation of the
site according to the ROD. The recorded liability may be adjusted upward
or downward as the design phase progresses and the Company obtains
construction bids for performance of the work. The Company has also
recorded a regulatory asset of $6.0 million, corresponding to the recorded
liability. Management believes that in addition to the $600,000 expected
to be contributed by the State of Delaware under the Settlement, the
Company will be equitably entitled to contribution from other responsible
parties for a portion of the expenses to be incurred in connection with the
remedies selected in the ROD. Management also believes that the amounts
not so contributed will be recoverable in the Company's rates.
As of June 30, 1996, the Company has incurred approximately $3.8 million in
costs relating to environmental testing and remedial action studies. In
1990, the Company entered into settlement agreements with a number of
insurance companies resulting in proceeds to fund actual environmental
costs incurred over a five to seven-year period beginning in 1990. In
December 1995, the Delaware Public Service Commission, authorized recovery
of all unrecovered environmental cost incurred through September 30, 1995.
This amount totaled $564,514. The recovery was authorized by a means of a
rider (supplement) to base rates, applicable to all firm service customers.
The costs would be recovered through a five-year amortization offset by the
deferred tax benefit associated with those environmental costs. The
deferred tax benefit equals the projected cashflow savings realized by the
Company in connection with a reduced income tax liability due to the
possibility of accelerated deduction allowed on certain environmental costs
when incurred. Each year a new rider rate will be calculated to become
effective December 1. Each year the rider rate will be based on the
amortization of actual expenditures through September of the filing year
plus amortization of expenses from previous years. The advantage of the
rider, which was effective January 1, 1996, is that it is not necessary to
file a rate case every year to recover expenses incurred. As of June 30,
1996, the unamortized balance and amount of environmental cost not included
in the rider, were $746,000 and $366,000, respectively. With the rider
mechanism established, it is management's opinion that these costs and any
future cost, net of the deferred income tax benefit, will be recoverable in
rates.
Salisbury Town Gas Light Site
In cooperation with the Maryland Department of the Environment ("MDE"), the
Company has completed an assessment of the Salisbury manufactured gas plant
site. The assessment determined that there was localized contamination of
ground-water. A remedial design report was submitted to MDE in November
1990 and included a proposal to monitor, pump and treat any contaminated
ground-water on-site. Through negotiations with the MDE, the remedial
action workplan was revised with final approval from MDE obtained in early
1995. The remediation process for ground-water was revised from pump-and-
treat to Air Sparging and Soil-Vapor Extraction, resulting in a substantial
reduction in overall costs. The Company hopes to have the remediation
facilities for ground-water designed and constructed by mid-year 1996, with
operations starting in the third quarter.
The cost of remediation is estimated to be approximately $380,000 in
capital costs with yearly operating expenses ranging from $136,000 to
$195,000 per year. Based on these estimated costs, the Company recorded
both a liability and a deferred regulatory asset of $1,113,572 as of
December 31, 1995, to cover the Company's projected remediation costs for
this site. The liability payout for this site is expected to be over a
five-year period. As of June 30, 1996 the Company has incurred
approximately $2.0 million for remedial actions and environmental studies
and has charged such costs to accumulated depreciation. In January 1990,
the Company entered into settlement agreements with a number of insurance
companies resulting in proceeds to fund actual environmental costs incurred
over a three to five-year period beginning in 1990. The final insurance
proceeds were requested and received in 1992. In December 1995, the
Maryland Public Service Commission approved recovery of all environmental
cost incurred through September 30, 1995 less amounts previously amortized
and insurance proceeds. The amount approved for a 10-year amortization was
$964,251. Of the $1.9 million in costs reported above, approximately
$164,000 has not been recovered through insurance proceeds or received
ratemaking treatment. It is management's opinion that these costs incurred
and future costs incurred, if any, will be recoverable in rates.
Winter Haven Coal Gas Site
The Company is currently conducting investigations of a site in Winter
Haven, Florida, where the Company's predecessors manufactured coal gas
earlier this century. A Contamination Assessment Report ("CAR") was
submitted to the Florida Department of Environmental Protection ("FDEP") in
July 1990. The CAR contained the results of additional investigations of
conditions at the site. These investigations confirmed limited soil and
ground-water impacts to the site. In March 1991, FDEP directed the Company
to conduct additional investigations on-site to fully delineate the
vertical and horizontal extent of soil and ground-water impacts.
Additional contamination assessment activities were conducted at the site
in late 1992 and early 1993. In March 1993, a Contamination Assessment
Report Addendum ("CAR Addendum") was delivered to FDEP. The CAR Addendum
concluded that soil and ground-water impacts have been adequately
delineated as a result of the additional field work. The FDEP approved the
CAR and CAR Addendum in March of 1994. The next step is a Risk Assessment
("RA") and a Feasibility Study ("FS") on the site. Drafts of the RA and FS
were filed with the FDEP during 1995; however, until the RA and FS are
complete and accepted as filed by the FDEP, it is not possible to determine
whether remedial action will be required by FDEP and, if so, the cost of
such remediation. The Company has also submitted a request to the FDEP to
conduct a pilot program for ground water treatment. The program would
remediate the ground-water using an air-sparging process. The Company is
awaiting FDEP's response.
The Company has spent approximately $660,000, as of June 30, 1996, on these
investigations, and expects to recover these expenses, as well as any
future expenses, through base rates. These costs have been accounted for
as charges to accumulated depreciation. The Company requested and received
from the Florida Public Service Commission ("FPSC") approval to amortize
through base rates $359,659 of clean-up and removal costs incurred as of
December 31, 1986. As of December 31, 1992, these costs were fully
amortized. In January 1993, the Company received approval to recover
through base rates approximately $217,000 in additional costs related to
the former manufactured gas plant. This amount represents recovery of
$173,000 of costs incurred from January 1987 through December 1992, as well
as prospective recovery of estimated future costs which had not yet been
incurred at that time. The FPSC has allowed for amortization of these
costs over a three-year period and provided for rate base treatment for the
unamortized balance. In a separate docket before the FPSC, the Company has
requested and received approval to apply a refund of 1991 overearnings of
approximately $118,000 against the balance of unamortized environmental
charges incurred as of December 31, 1992. As a result, these environmental
charges were fully amortized as of June 1994. Of the $660,000 in costs
reported above, all costs have received ratemaking treatment. The FPSC has
allowed the Company to continue to accrue for future environmental costs.
At June 30, 1996, the Company has $69,000 accrued. It is management's
opinion that future costs, if any, will be recoverable in rates.
Smyrna Coal Gas Site
On August 29, 1989 and August 4, 1993, representatives of DNREC conducted
sampling on property owned by the Company in Smyrna, Delaware. This
property is believed to be the location of a former manufactured gas plant.
Analysis of the samples taken by DNREC show a limited area of soil
contamination.
On November 2, 1993, DNREC advised the Company that it would require a
remediation of the soil contamination under the state's Hazardous Substance
Cleanup Act and submitted a draft Consent Decree to the Company for its
review. The Company met with DNREC personnel in December 1993 to discuss
the scope of any remediation of the site and, in January 1994, submitted a
proposed workplan, together with comments on the proposed Consent Decree.
The final Work Plan was submitted on September 27, 1994. DNREC has
approved the Work Plan and the Consent Decree. Remediation based on the
Work Plan was completed in 1995, at a cost of approximately $268,000. In
June 1996, the Company received the certificate of completion from DNREC.
It is management's opinion that these costs will be recoverable in rates.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE
QUARTER ENDED JUNE 30, 1996
The Company recognized net income of $832,457 for the three months ended June
30, 1996, representing an increase in net income of $68,372 as compared to the
corresponding period in 1995. As indicated in the table below, the increase
in earnings before interest and taxes ("EBIT") is due to higher earnings or a
reduction in loss before interest and taxes ("LBIT") by all segments of the
Company, except the transmission segment.
FOR THE QUARTER ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Earnings Before Interest and Taxes
Natural Gas Distribution $1,126,234 $ 662,986 $ 463,248
Natural Gas Transmission 641,989 1,416,056 (774,067)
Propane Distribution (286,315) (362,243) 75,928
Advanced Information Services
and Other 313,418 184,649 128,769
Eliminations & Corporate 84,657 (73,800) 158,457
--------- --------- --------
Total EBIT 1,879,983 1,827,648 52,335
Operating Income Taxes 478,902 458,306 20,596
Interest 625,372 692,675 (67,303)
Non-Operating Income, Net 56,748 87,418 (30,670)
--------- --------- --------
Net Income $ 832,457 $ 764,085 $ 68,372
========= ========= ========
NATURAL GAS DISTRIBUTION
The natural gas distribution segment reported EBIT of $1,126,234 for the
second quarter 1996 as compared to EBIT of $662,986 for the corresponding
period last year, an increase of $463,248. The increase in EBIT is due to an
increase in gross margin in all of our service territories, partially offset
by an increase in operating expenses.
FOR THE QUARTER ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Revenue $15,602,300 $10,708,140 $4,894,160
Cost of Gas 10,727,790 6,839,884 3,887,906
---------- ---------- ---------
Gross Margin 4,874,510 3,868,256 1,006,254
Operations & Maintenance 2,426,999 2,149,102 277,897
Depreciation & Amortization 744,453 594,255 150,198
Other Taxes 576,824 461,913 114,911
---------- ---------- ---------
EBIT $ 1,126,234 $ 662,986 $ 463,248
========== ========== =========
The increase in revenue and cost is primarily due to rate increases that went
into effect during the second half of 1995, 4% colder than normal second
quarter temperatures in our northern service territories and increased sales
to interruptible industrial customers. Gross margin also increased due to the
inclusion of revenue related taxes now required to be shown as revenue and
corresponding other tax expense.
The increase in operations expense is primarily due to an increase in
compensation, pension and benefits. Depreciation and amortization expense
increased due to plant placed in service during the past year. Other taxes
were higher due to the inclusion of taxes in revenue mentioned above.
NATURAL GAS TRANSMISSION
The natural gas transmission segment reported EBIT of $641,989 for the second
quarter of 1996 as compared to EBIT of $1,416,056 for the corresponding period
last year, a decrease of $774,067. The decrease in EBIT is primarily due to a
decrease in gross margin.
FOR THE QUARTER ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Revenue $7,660,939 $10,256,182 $(2,595,243)
Cost of Gas 6,016,536 7,887,217 (1,870,681)
--------- ---------- ---------
Gross Margin 1,644,403 2,368,965 (724,562)
Operations & Maintenance 707,824 684,852 22,972
Depreciation & Amortization 191,332 174,239 17,093
Other Taxes 103,258 93,818 9,440
--------- ---------- ---------
EBIT $ 641,989 $ 1,416,056 $ (774,067)
========= ========== =========
The reduction in gross margin is primarily related to the decrease in volumes
of natural gas delivered to two industrial interruptible customers a municipal
power plant and the methanol plant. The methanol plant shut down operations
on April 1, 1996. The management of the methanol plant has stated that they
will continue to monitor methanol prices and will re-evaluate their position
as to reopening or permanently closing on or about October 1, 1996. For the
same period in 1995, the methanol plant contributed approximately 34% of the
segment's net income.
As previously reported, Eastern Shore Natural Gas Company filed with FERC an
abbreviated application for a blanket certificate of public convenience to
provide open access transportation service. It was originally expected that
open access transportation service would be implemented in the second half of
1996. It appears that such implementation may not occur until the first half
of 1997.
PROPANE DISTRIBUTION
For the second quarter of 1996, the propane distribution segment experienced a
LBIT of $286,315. These results were more favorable than those achieved for
the corresponding quarter of 1995, with the segment recognizing a decrease in
LBIT of $75,928, or 21%, over the second quarter 1995 LBIT of $362,243. The
decrease in LBIT was attributable to an increased gross margin, offset by
increased operations and maintenance expense.
FOR THE QUARTER ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Revenue $3,021,758 $2,503,533 $ 518,225
Cost of Gas 1,441,688 1,248,735 192,953
--------- --------- -------
Gross Margin 1,580,070 1,254,798 325,272
Operations & Maintenance 1,459,827 1,215,342 244,485
Depreciation & Amortization 332,640 325,485 7,155
Other Taxes 73,918 76,214 (2,296)
--------- --------- -------
EBIT $ (286,315) $ (362,243) $ 75,928
========= ========= =======
The increase in gross margin is due primarily to a 16% increase in sales
volumes due to 9% colder temperatures than the same period last year and an
increase in the average margin per gallon.
Operations and maintenance expense rose due to increases in compensation,
pension, benefits and delivery related expenses.
ADVANCED INFORMATION SERVICES AND OTHER
The advanced information services and other segment recognized an EBIT of
$313,418 and $184,649 for the second quarters ended June 30, 1996 and 1995,
respectively. This increase in EBIT of $128,769 is attributable to lower
operating expenses.
FOR THE QUARTER ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Revenue $1,894,832 $1,070,528 $(175,696)
Operations & Maintenance 1,440,428 1,578,630 (138,202)
Depreciation & Amortization 69,234 232,671 (163,437)
Other Taxes 71,752 74,578 (2,826)
--------- --------- -------
EBIT $ 313,418 $ 184,649 $ 128,769
========= ========= =======
The decrease in revenue is due primarily to the decision to no longer provide
facilities management services at Capital Data Systems ("CDS") as previously
reported, partially offset by an increase in consulting and resource services
revenue at United Systems, Inc. ("USI").
Operations and maintenance expense decreased due to the reduction in expenses
associated with no longer providing facilities management services at CDS,
partially offset by increase in payroll and outside services expense at USI.
Depreciation and amortization decreased, in part, due to the write-off of the
Page-IT billing software product in 1995 in conjunction with the termination
of CDS' largest facilities management customer.
INTEREST
The decrease in interest expense is associated with lower short-term borrowing
balances, as compared to the same period last year, coupled with a lower
interest rate on the 1996 balances.
NON-OPERATING INCOME
Non-operating income decreased approximately $31,000 as compared to the same
period in 1995, primarily due to the 1995 level for allowance of funds used
during construction recorded on construction projects that were subsequently
closed during that year.
RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1996
The Company recognized net income of $5,481,466 for the six months ended June
30, 1996, representing an increase in net income of $1,058,950 as compared to
the corresponding period in 1995. As indicated in the table below, the
increase in EBIT is due to a higher earnings by all segments of the Company,
excluding the transmission segment.
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Earnings Before Interest and Taxes
Natural Gas Distribution $5,882,954 $3,965,237 $1,917,717
Natural Gas Transmission 1,197,085 2,264,064 (1,066,979)
Propane Distribution 2,065,907 1,642,844 423,063
Advanced Information Services
and Other 680,775 474,950 205,825
Eliminations & Corporate 109,918 (157,634) 267,552
--------- --------- ---------
Total EBIT 9,936,639 8,189,461 1,747,178
Operating Income Taxes 3,257,877 2,489,157 768,720
Interest 1,314,139 1,409,466 (95,327)
Non-Operating Income, Net 116,843 131,678 (14,835)
--------- --------- ---------
Net Income $5,481,466 $4,422,516 $1,058,950
========= ========= =========
NATURAL GAS DISTRIBUTION
The natural gas distribution segment reported EBIT of $5,882,954 for the first
six months of 1996 as compared to EBIT of $3,965,237 for the corresponding
period last year, an increase of $1,917,717. The increase in EBIT is due to
an increase in gross margin in our service territories, partially offset by an
increase in operating expenses.
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Revenue $43,318,721 $28,424,317 $14,894,404
Cost of Gas 29,791,577 18,027,540 11,764,037
---------- ---------- ----------
Gross Margin 13,527,144 10,396,777 3,130,367
Operations & Maintenance 4,852,158 4,231,057 621,101
Depreciation & Amortization 1,486,506 1,181,538 304,968
Other Taxes 1,305,526 1,018,945 286,581
---------- ---------- ----------
EBIT $ 5,882,954 $ 3,965,237 $ 1,917,717
========== ========== ==========
The increase in gross margin primarily occurred in the Company s operating
divisions located in the northern service territory due to increased
deliveries of natural gas coupled with rate increases that went into effect
during the second half of 1995. The increased deliveries resulted from
temperatures which were 8% colder than the same period in 1995. Gross margin
also increased due to inclusion of revenue related taxes now required to be
shown as revenue and corresponding other tax expense.
Operations expense increased in the areas of compensation, pension, benefits
and customer service expenses. Depreciation and amortization expense
increased due to plant placed in service during the past year. Other taxes
were higher due to the inclusion of taxes in revenue shown above.
NATURAL GAS TRANSMISSION
The natural gas transmission segment reported EBIT of $1,197,085 for the first
six months of 1996 as compared to EBIT of $2,264,064 for the corresponding
period last year, a decrease of $1,066,979. The decrease in EBIT is due to a
decrease in gross margin and an increase in operating expenses. During 1995,
the transmission segment accrued monthly for a potential refund to customers
in conjunction with the purchased gas adjustment clause. The transmission
segment subsequently settled the issue with the Federal Energy Regulatory
Commission in August 1995. These accruals in 1995 resulted in reducing EBIT
$325,000 for the first six months of 1995. Exclusive of these accruals in
1995, EBIT decreased $1,392,000 when comparing the first six months of 1996 to
the same period in 1995.
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Revenue $19,370,231 $19,978,867 $ (608,636)
Cost of Gas 16,020,684 15,879,530 141,154
---------- ---------- ---------
Gross Margin 3,349,547 4,099,337 (749,790)
Operations & Maintenance 1,558,368 1,292,462 265,906
Depreciation & Amortization 382,663 348,478 34,185
Other Taxes 211,431 194,333 17,098
---------- ---------- ---------
EBIT $ 1,197,085 $ 2,264,064 $(1,066,979)
========== ========== =========
The reduction in gross margin is primarily related to the decrease in volumes
of natural gas delivered to two industrial interruptible customers as
discussed previously in the second quarter results of operations.
Operations and maintenance expense was higher due to increases in
compensation, pension, benefits and maintenance of mains partially offset by a
reduction in outside service expenses. Depreciation and amortization expense
increased due to plant placed in service during the past year.
PROPANE DISTRIBUTION
The propane distribution segment recognized EBIT of $2,065,907 for the first
six months of 1996. As compared to EBIT for the six months ended June 30,
1995, these results represent an increase in earnings of $423,063 or 26%.
Producing this increase in EBIT was a higher gross margin, offset by increased
operating expenses.
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Revenue $13,048,554 $9,837,432 $3,211,122
Cost of Gas 7,002,700 4,755,577 2,247,123
---------- --------- ---------
Gross Margin 6,045,854 5,081,855 963,999
Operations & Maintenance 3,127,321 2,597,542 529,779
Depreciation & Amortization 664,356 649,011 15,345
Other Taxes 188,270 192,458 (4,188)
---------- --------- ---------
EBIT $ 2,065,907 $1,642,844 $ 423,063
========== ========= =========
The increase in gross margin of $963,999 is due primarily to a 19% increase in
sales volumes resulting from the 8% colder temperatures experienced during the
first six months of 1996 when compared to the same period in 1995.
Operations and maintenance expense rose primarily due to increases in
compensation, pension, benefits, outside services and delivery related
expenses.
ADVANCED INFORMATION SERVICES AND OTHER
For the six months ended June 30, the advanced information services and other
segment recognized an EBIT of $680,775 and $474,950 for 1996 and 1995,
respectively. This increase in EBIT of $205,825 is the outcome of lower
operating and depreciation expenses.
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995 CHANGE
---- ---- ------
Revenue $4,010,841 $4,363,042 $(352,201)
Operations & Maintenance 3,020,663 3,250,574 (229,911)
Depreciation & Amortization 137,913 469,813 (331,900)
Other Taxes 171,490 167,705 3,785
--------- --------- -------
EBIT $ 680,775 $ 474,950 $ 205,825
========= ========= =======
The decrease in revenue is due primarily to the decision to no longer provide
facilities management services at CDS, partially offset by an increase in
consulting and resource services revenues at USI.
Operations and maintenance expense decreased due to the reduction in expenses
associated with no longer providing facilities management services at CDS,
partially offset by an increase in compensation and outside services at USI.
Depreciation and amortization expense decreased, in part, due to the write-off
of the Page-IT billing software product in 1995 in conjunction with the
termination of CDS' largest facilities management customer.
INTEREST
The decrease in interest expense is associated with lower short-term borrowing
balances, as compared to the same period last year, and lower interest rates
on the 1996 balances.
NON-OPERATING INCOME
Non-operating income decreased approximately $15,000 as compared to the same
period in 1995 for the same reason as previously described in the quarterly
results, partially offset by an increase in interest income.
OPERATING INCOME TAXES
Income taxes increased due to higher earnings for the six months ended June
30, 1996 when compared to the corresponding period in 1995.
ENVIRONMENTAL MATTERS
The Company continued to work with federal and state environmental agencies to
assess the environmental impacts and explore corrective actions at several
former gas manufacturing plant sites (see Note 2 to the Consolidated Financial
Statements). The Company believes that any future costs associated with these
sites will be recoverable in future rates.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements reflect the capital intensive nature of its
business and are attributable principally to its construction program and the
retirement of its outstanding debt. The Company relies on funds provided by
operations and short-term borrowings to meet normal working capital
requirements and temporarily finance capital expenditures. During the first
six months of 1996, the Company s net cash flow provided by operating
activities, net cash used by investing activities and net cash used by
financing activities were approximately $12.0 million, $5.4 million and $6.7
million, respectively. Due to the seasonal nature of the Company s business,
there are substantial variations in the results of operations reported on a
quarterly basis.
The Board of Directors has authorized the Company to borrow up to $14 million
from banks and trust companies. As of June 30, 1996, the Company had four $8
million unsecured bank lines of credit. Funds provided from these lines of
credit are used for short-term cash needs to meet seasonal working capital
requirements and to fund portions of its capital expenditures. The
outstanding balances of short-term borrowings at June 30, 1996 and 1995 were
$0 and $3.5 million, respectively.
During the six months ended June 30, 1996 and 1995, net property, plant and
equipment expenditures were approximately $5.4 million and $5.9 million,
respectively. For 1996, the Company has budgeted $16.8 million for capital
expenditures. The components of this amount include $8.8 million for natural
gas distribution, $6.1 million for natural gas transmission, $1.6 million for
propane distribution, with the remaining $300,000 for computer, office
equipment and general plant. The natural gas and propane expenditures are for
expansion and improvement of their existing service territories. Natural gas
transmission expenditures are to improve the pipeline system by adding a
compressor station. Financing of the 1996 construction will be provided
primarily by short-term borrowings and cash from operations. The construction
program is subject to continuous review and modification by management.
Actual construction expenditures may vary from the above estimates due to a
number of factors including inflation, changing economic conditions,
regulation, load growth and the cost and availability of capital.
The Company expects to incur environmental related expenditures in the future
(see Note 2 to the Consolidated Financial Statements), a portion of which may
need to be financed through external sources. Management does not expect such
financing to have a material adverse effect on the financial position or
capital resources of the Company.
As of June 30, 1996, common equity represented 61.4% of permanent
capitalization, compared to 58.7% as of December 31, 1995. The Company
remains committed to maintaining a sound capital structure and strong credit
ratings in order to provide the financial flexibility needed to access the
capital markets when required. This commitment, along with adequate and
timely rate relief for the Company s regulated operations, helps to ensure
that the Company will be able to attract capital from outside sources at a
reasonable cost. The achievement of these objectives will provide benefits to
customers and creditors, as well as the Company's investors.
<PAGE>
PART II
OTHER INFORMATION
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
Item 1: Legal Proceedings
See Note 2 to the Consolidated Financial Statements
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 21, 1996.
Proposals as submitted in the proxy statement were voted on as
follows:
1. All Board of Director nominees were elected to the classes
indicated in the proxy statement.
2. Ratification of the selection of the Company s independent
auditors through the fiscal year ending December 31, 1996 was
approved.
Item 5: Other Information
None
Item 6(a): Exhibits
Exhibit 11 - Computation of Primary and Fully Diluted Earnings Per
Share is submitted herewith.
Item 6 (b): Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHESAPEAKE UTILITIES CORPORATION
/s/ John R. Schimkaitis
- ----------------------------
John R. Schimkaitis
Executive Vice President and Assistant Treasurer
(Chief Operating and Chief Financial Officer)
Date: August 13, 1996
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, (1) ENDED JUNE 30,
------------------------ ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary earnings per share calculation:
Weighted average number of shares assuming
primary dilution 3,790,533 3,693,016 3,774,356 3,682,586
======================== ========================
Consolidated net income $832,457 $764,085 $5,481,466 $4,422,516
======================== ========================
Total primary earnings per share $0.22 $0.21 $1.45 $1.20
======================== ========================
Fully diluted earings per share calculation (1):
Weighted average number of shares assuming
primary dilution 3,790,533 3,693,016 3,774,356 3,682,586
Contingent shares 242,761 248,245 245,408 250,607
------------------------ ------------------------
Weighted average number of shares assuming
full dilution 4,033,294 3,941,261 4,019,764 3,933,193
======================== ========================
Consolidated net income $832,457 $764,085 $5,481,466 $4,422,516
Interest on convertible debt 84,948 86,867 170,803 174,423
Less: Applicable federal income taxes 33,130 33,878 66,613 68,025
------------------------ ------------------------
Adjusted net income $884,275 $817,074 $5,585,656 $4,528,914
======================== ========================
Fully diluted earnings per share $0.22 $0.21 $1.39 $1.15
======================== ========================
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11).
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 84494195
<OTHER-PROPERTY-AND-INVEST> 2074722
<TOTAL-CURRENT-ASSETS> 14735642
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<OTHER-ASSETS> 0
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<COMMON> 1836197
<CAPITAL-SURPLUS-PAID-IN> 18404270
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0
0
<LONG-TERM-DEBT-NET> 29412368
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<GROSS-OPERATING-REVENUE> 23850551
<INCOME-TAX-EXPENSE> 478902
<OTHER-OPERATING-EXPENSES> 21970567
<TOTAL-OPERATING-EXPENSES> 22449469
<OPERATING-INCOME-LOSS> 1401082
<OTHER-INCOME-NET> 56747
<INCOME-BEFORE-INTEREST-EXPEN> 1457829
<TOTAL-INTEREST-EXPENSE> 625372
<NET-INCOME> 832457
0
<EARNINGS-AVAILABLE-FOR-COMM> 832457
<COMMON-STOCK-DIVIDENDS> 1389005
<TOTAL-INTEREST-ON-BONDS> 2362538
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<EPS-PRIMARY> .22
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