Chesapeake Utilities Corporation Reports Seventh Consecutive Year of Record Earnings

-- Net income increased to $32.8 million, or $3.39 per share

-- Growth in the natural gas businesses generated $5.5 million in additional gross margin

-- Acquisitions completed in 2013 generated a positive contribution to earnings

-- Colder temperatures added $3.4 million to gross margin

-- Higher propane margins produced $3.2 million in additional gross margin

06 Mar, 2014, 06:30 ET from Chesapeake Utilities Corporation

DOVER, Del., March 6, 2014 /PRNewswire/ -- Chesapeake Utilities Corporation (NYSE: CPK) today announced financial results for both the year and the fourth quarter ended December 31, 2013.  The Company's net income for the year ended December 31, 2013 was $32.8 million, or $3.39 per share.  This represents an increase of $3.9 million, or $0.40 per share, compared to 2012.

For the fourth quarter of 2013, the Company reported net income of $9.7 million, or $1.00 per share.  This represents a decrease of $174,000, or $0.02 per share, compared to the same quarter in 2012. 

"I am pleased to report that 2013 was the seventh consecutive year of record earnings for the Company," stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation.  "Our employees continue to work tirelessly to transform opportunities into profitable growth for the Company, including increased natural gas service for existing customers, new service to residential, commercial and industrial customers and several acquisitions that have further expanded our service offerings and footprint.  All of these factors continued to drive our growth in 2013 and position our Company for continued growth in the future," Mr. McMasters noted.

"The combination of growth from our service expansions and acquisitions, weather that was closer to normal and our propane operations' strong performance generated significantly improved financial results.  We are continuing our efforts to provide excellent service to our customers and communities while seeking out and transforming opportunities into profitable growth.  Toward that end, we made significant investments in 2013 in resources that have already strengthened our capabilities company-wide to identify, screen and develop new opportunities within and beyond our existing geographical and energy footprints," Mr. McMasters continued.

"The combination of our employees' continued efforts, increased organizational capabilities and unwavering commitment to deliver increased shareholder value have set the stage for 2014 to be another successful year," Mr. McMasters added.

A more detailed discussion and analysis of the Company's results for each segment are provided in the following pages.

Operating Results for the Year Ended December 31, 2013 and 2012

The Company reported operating income of $62.7 million for 2013, an increase of $6.1 million over the prior year. Gross margin increased by $20.3 million, which was partially offset by an increase of $14.2 million in other operating expenses.  Acquisitions completed in 2013 contributed $6.4 million and $5.3 million of gross margin and other operating expenses, respectively, to the 2013 operating results.  The remaining increase in gross margin was due primarily to: (a) $3.7 million in natural gas service expansions; (b) $3.4 million from more normal seasonal temperatures on the Delmarva Peninsula in 2013; (c) $3.2 million in higher propane margins; and (d) $1.8 million in other natural gas growth.  The remaining increase in other operating expenses was due primarily to: (a) $2.4 million in higher payroll and benefits cost to support recent growth and expand the Company's capabilities for future growth; (b) $2.0 million in increased incentive bonuses as a result of the Company's 2013 financial performance and broader participation, which was extended during 2013 to cover substantially all employees; and (c) $1.6 million in increased depreciation and property tax costs associated with new capital investments. 

Regulated Energy

Operating income for the regulated energy segment increased by $3.1 million to $50.1 million for 2013, compared to 2012.  An increase in gross margin of $11.0 million was partially offset by an increase in other operating expenses of $7.9 million. The significant components of the gross margin increase included:

  • $4.4 million generated by Sandpiper Energy, Inc. ("Sandpiper") after the acquisition of the operating assets of Eastern Shore Gas Company and its affiliates ("ESG") in late May 2013;
  • $3.7 million due to natural gas service expansions initiated in 2012 and 2013;
  • $1.8 million in other natural gas growth due to increases in the number of residential, commercial and industrial customers served on the Delmarva Peninsula and in Florida; and
  • $413,000 as a result of increased consumption by natural gas customers, due primarily to temperatures in 2013 on the Delmarva Peninsula returning to more normal levels.

The increase in other operating expenses was due primarily to: (a) $3.1 million in other operating expenses associated with Sandpiper's operations; (b) $1.7 million in higher payroll and benefits costs to support recent growth and expand the Company's capabilities for future growth; (c) $1.3 million of increased incentive bonuses as a result of broader participation in the bonus program, which was extended during 2013 to cover substantially all employees, and the strong financial performance in 2013; (d) $1.4 million in higher depreciation, amortization, asset removal costs and property taxes associated with capital expenditures to support growth and maintain system integrity; (e) a one-time sales tax of $726,000 expensed by Sandpiper related to the acquisition in May 2013; and (f) $342,000 in increased bad debt expense.  These increases were partially offset by a $1.5 million recovery of previously expensed litigation costs related to the Company's franchise in the City of Marianna, Florida

Unregulated Energy

Operating income for the unregulated energy segment increased by $4.0 million to $12.4 million for 2013, compared to 2012.  An increase in gross margin of $9.5 million was partially offset by an increase in other operating expenses of $5.5 million.  The significant components of the gross margin increase included:

  • $3.2 million in higher retail propane margins as the execution of the Company's propane supply plan on the Delmarva Peninsula resulted in a decrease in the average cost of propane inventory during 2013 despite an increase in average wholesale prices in local markets;
  • $2.9 million in higher propane sales due primarily to temperatures on the Delmarva Peninsula returning to more normal levels and, therefore, resulting in higher consumption by propane customers, compared to the prior year;
  • $2.0 million in additional gross margin generated from acquisitions completed in 2013; and
  • $1.1 million in lower gross margin generated by Xeron, Inc. ("Xeron"), the Company's propane wholesale marketing subsidiary, as lower volatility in wholesale propane prices resulted in lower profit on trading activity during the first nine months of the year.

The increase in other operating expenses was due primarily to: (a) $2.2 million in additional expenses associated with serving newly acquired customers, (b) an accrual of $990,000 as a contingency for taxes other than income, and (c) increased incentive bonuses of $706,000 as a result of the strong financial performance in 2013.  

Other

The "other" segment, which consists primarily of BravePoint, Inc ("BravePoint"), the Company's advanced information services subsidiary, reported operating income of $297,000 for 2013, compared to $1.3 million in 2012.  Gross margin decreased slightly to $8.3 million for 2013 from $8.4 million in 2012. Other operating expenses increased by $835,000 to $8.0 million in 2013, due primarily to BravePoint's higher payroll and related costs.

Operating Results for the Quarters Ended December 31, 2013 and 2012

The Company's operating income for the quarter ended December 31, 2013 was $18.3 million, a decrease of $231,000, compared to the same quarter in 2012.  Gross margin increased by $5.6 million in the fourth quarter of 2013, compared to the same quarter in 2012, $2.7 million of which was related to gross margin generated by acquisitions completed in 2013. Natural gas growth generated $1.5 million of additional gross margin.  Other operating expenses increased by $5.8 million in the fourth quarter of 2013, compared to the same quarter in 2012.  Included in other operating expenses in the fourth quarter of 2013 was $2.1 million of additional operating expenses related to acquisitions completed earlier in the year as well as the increased costs associated with new capital investments and increased resources to support recent growth and expand the Company's capabilities for future growth.     

Regulated Energy

Operating income for the regulated energy segment increased by $68,000 to $13.9 million for the fourth quarter of 2013, compared to the same quarter in 2012.  An increase in gross margin of $3.7 million was offset by an increase of $3.6 million in other operating expenses. The significant components of the gross margin increase included:

  • $2.2 million generated by Sandpiper, due to the acquisition in May 2013; and
  • $1.2 million due to natural gas service expansions initiated in late 2012 and 2013.

The increase in other operating expenses was due primarily to: (a) $1.3 million in other operating expenses associated with Sandpiper's operations; (b) $1.0 million in higher payroll and benefits costs to support recent growth and expand the Company's capabilities for future growth; and (c) $881,000 in higher depreciation expense, amortization, asset removal and property tax costs associated with capital investments to support growth and maintain system integrity. 

Unregulated Energy

Operating income for the unregulated energy segment for the fourth quarter of 2013 remained unchanged at $4.3 million, compared to operating income for the same quarter in 2012.  An increase in gross margin of $2.1 million was offset by an increase in other operating expenses of $2.1 million.  The significant components of the gross margin increase included:

  • $907,000 from increased propane retail and wholesale sales;
  • $434,000 in additional gross margin generated from acquisitions completed earlier in 2013; and
  • $316,000 in higher gross margin generated by Xeron due to higher profit on trading activity.

The increase in other operating expenses was due primarily to: (a) $760,000 in additional expenses related to acquisitions completed in 2013; (b) $337,000 in increased incentive bonuses as a result of higher year-to-date financial performance; and (c) $292,000 in additional taxes other than income accrued during the quarter.

Other

The "other" segment, which consists primarily of BravePoint, reported operating income of $56,000 for the fourth quarter of 2013, as compared to $384,000 in the same quarter in 2012.  This decline reflected an $185,000 decrease in gross margin and a $143,000 increase in operating expenses.

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 Safe Harbor for Forward-Looking Statements in the Company's most recent report on Form 10-K for further information on the risks and uncertainties related to the Company's forward-looking statements.

The discussions of the results 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 Financial Summary.

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

Conference Call

Chesapeake Utilities Corporation will host a conference call on March 7, 2014 at 10:30 a.m. Eastern Time to discuss the Company's financial results for the quarter and year ended December 31, 2013. To participate in this call, dial 866.821.5457 and reference Chesapeake Utilities Corporation's 2013 Financial Results Conference Call. To access the replay recording of this call, please visit the Company's website at http://investor.chpk.com/results.cfm.

About Chesapeake Utilities Corporation

Chesapeake Utilities Corporation is a diversified energy company engaged in natural gas distribution, transmission and marketing, electric distribution, propane gas distribution and wholesale marketing, advanced information services and other related services. Information about Chesapeake's businesses is available at www.chpk.com.

For more information, contact: Beth W. Cooper Senior Vice President & Chief Financial Officer 302.734.6799

Financial Summary (in thousands, except per-share data)

Year to Date

Fourth Quarter

For the Periods Ended December 31,

2013

2012

2013

2012

Gross Margin (1)

  Regulated Energy

$

145,820

$

134,806

$

39,678

$

35,968

  Unregulated Energy

45,375

35,912

13,321

11,235

  Other

8,276

8,425

2,031

2,216

 Total Gross Margin

$

199,471

$

179,143

$

55,030

$

49,419

Operating Income

   Regulated Energy

$

50,084

$

46,999

$

13,916

$

13,848

   Unregulated Energy

12,353

8,355

4,340

4,311

   Other

297

1,281

56

384

 Total Operating Income

62,734

56,635

18,312

18,543

Other Income (loss), net of other expenses

372

271

(41)

59

Interest Charges

8,234

8,747

2,120

2,090

Income Taxes

22,085

19,296

6,468

6,655

 Net Income

$

32,787

$

28,863

$

9,683

$

9,857

Earnings Per Share of Common Stock

Basic

$

3.41

$

3.01

$

1.01

$

1.03

Diluted

$

3.39

$

2.99

$

1.00

$

1.02

 

(1) "Gross margin" is determined by deducting the cost of sales from operating revenue. Cost of sales includes the purchased fuel cost for natural gas, electricity 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 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.

Financial Summary Highlights

Key variances for the year ended December 31, 2013 included:

(in thousands, except per share)

Pre-tax

Income

Net

Income

Earnings

Per Share

Year ended December 31, 2012 Reported Results

$

48,159

$

28,863

$

2.99

Adjusting for unusual items:

Weather impact (due primarily to significantly warmer-than-normal weather

in 2012)

3,399

2,037

0.21

Regulatory recovery of litigation-related costs

1,494

895

0.09

Accrual for additional taxes other than income

(990)

(593)

(0.06)

One-time sales tax expensed by Sandpiper associated with the acquisition

(726)

(435)

(0.04)

3,177

1,904

0.20

Increased (Decreased) Gross Margins:

Major projects (see Major Project Highlights table)

Contribution from Sandpiper

4,432

2,656

0.27

Service expansions

3,710

2,223

0.23

Higher propane margins

3,163

1,896

0.20

Contribution from other new acquisitions

2,016

1,208

0.12

Other natural gas growth

1,824

1,094

0.11

Propane wholesale marketing

(1,137)

(681)

(0.07)

14,008

8,396

0.86

Increased Other Operating Expenses:

Expenses from acquisitions

(5,309)

(3,182)

(0.33)

Higher payroll and benefits costs

(2,407)

(1,443)

(0.15)

Increased incentive bonuses

(2,002)

(1,200)

(0.12)

Higher depreciation, asset removal and property tax costs due to new capital

investments

(1,555)

(932)

(0.10)

(11,273)

(6,757)

(0.70)

Net Other Changes

801

381

0.04

Year ended December 31, 2013 Reported Results

$

54,872

$

32,787

$

3.39

Key variances for the quarter ended December 31, 2013 included:

(in thousands, except per share)

Pre-tax Income

Net Income

Earnings Per Share

Fourth Quarter of 2012 Reported Results

$

16,512

$

9,857

$

1.02

Adjusting for unusual items:

Accrual for additional taxes other than income

(292)

(174)

(0.02)

Weather impact (due primarily to significantly warmer-than-normal weather

in 2012)

(128)

(77)

(0.01)

(420)

(251)

(0.03)

Increased Gross Margins:

Major projects (see Major Project Highlights table)

    Contribution from Sandpiper

2,234

1,334

0.14

    Service expansions

1,210

722

0.07

Contribution from other new acquisitions

461

275

0.03

Other natural gas growth

380

227

0.02

Propane wholesale marketing

316

189

0.02

4,601

2,747

0.28

Increased Other Operating Expenses:

Expenses from acquisitions

(2,123)

(1,267)

(0.13)

Higher payroll and benefits costs

(1,016)

(606)

(0.06)

Increased incentive bonuses

(739)

(441)

(0.05)

Higher depreciation, asset removal and property tax costs due to new capital

investments

(844)

(503)

(0.05)

(4,722)

(2,817)

(0.29)

Net Other Changes

180

147

0.02

Fourth Quarter of 2013 Reported Results

$

16,151

$

9,683

$

1.00

The following information highlights certain key factors contributing to the Company's results for the quarter and year ended December 31, 2013:

Major Projects

Acquisition

In May 2013, the Company completed the purchase of the operating assets of ESG.  Approximately 11,000 residential and commercial underground propane distribution system customers acquired in this transaction are now being served by Sandpiper under the tariff approved by the Maryland PSC.  The Company is evaluating the potential conversion of some of these propane systems to natural gas.  This acquisition is expected to be accretive to earnings per share in the first full year of operations.  The Company generated $2.2 million in additional gross margin and incurred $1.3 million in other operating expenses in the fourth quarter of 2013.  For the year ended December 31, 2013, the Company generated $4.4 million in additional gross margin and incurred $3.1 million in other operating expenses.

Service Expansions

The Company expanded its natural gas transmission and distribution services in Sussex County, Delaware; Cecil and Worcester Counties, Maryland; and Nassau and Indian River Counties, Florida during 2012 and 2013, which generated additional gross margin of $1.5 million in 2013.  The same service expansions generated additional gross margin of $284,000 in the fourth quarter of 2013, compared to the same quarter in 2012.     

In May 2013, Eastern Shore Natural Gas Company ("Eastern Shore"), the Company's interstate natural gas transmission subsidiary, commenced new short-term transmission services to industrial customers located in New Castle and Kent Counties, Delaware.  Eastern Shore provided these services from May to October 2013 using existing system capacity under short-term contracts and generated additional gross margin of $1.4 million in 2013 ($237,000 in the fourth quarter of 2013). Eastern Shore also provided increased interruptible service to one of these industrial customers during 2013, which generated $333,000 of additional gross margin.  In November 2013, Eastern Shore completed construction of new facilities and replaced these short-term contracts with long-term service contracts, which generated additional gross margin of $702,000 in 2013.  The Company expects these long-term services will generate $4.3 million of annual gross margin.  These long-term contracts displace the gross margin generated from short-term contracts, increased interruptible service and an annualized gross margin of $1.1 million from an older contract, which expired in November 2012.

Other Natural Gas Growth

In addition to these service expansions, the natural gas distribution operations on the Delmarva Peninsula and in Florida generated $556,000 and $2.0 million in additional gross margin in the quarter and year ended December 31, 2013, respectively, compared to the same periods in 2012, due to increases in the number of residential, commercial and industrial customers served. These increases are due primarily to a two-percent increase in residential customers on the Delmarva Peninsula, excluding customers added as a part of the Sandpiper acquisition, and an increase in commercial and industrial customers in Florida.

Future Service Expansion Initiatives

In June 2013, Eastern Shore filed an application with the Federal Energy Regulatory Commission ("FERC"), seeking approval to construct a pipeline lateral to an industrial customer facility under construction in Kent County, Delaware.  Upon completion of construction of the required facilities, this new service is expected to generate annual gross margin of approximately $1.2 million to $1.8 million.  The new facilities include approximately 5.5 miles of lateral pipeline and metering facilities and extend from Eastern Shore's mainline to this new industrial customer facility.  The construction of this lateral will not increase the overall capacity of Eastern Shore's mainline system.  Service is projected to commence in January 2015.

Eastern Shore also executed a one-year contract with another industrial customer to provide additional 50,000 Dts/d of capacity from April 2014 to April 2015.  This short-term contract is expected to generate $1.9 million and $767,000 of gross margin in 2014 and 2015, respectively.

Investing in Growth

The Company continues to expand its resources and capabilities to support growth. The Company's Delmarva natural gas distribution operation is in the early stages of natural gas distribution expansions in Sussex County, Delaware, and Worcester and Cecil Counties, Maryland. These expansions will require not only the construction or conversion of distribution facilities, but also the conversion of residential customers' appliances or equipment.  The Company has begun the process of reorganizing our Delmarva natural gas distribution operation and expects to increase staffing to support future expansions. Eastern Shore recently completed construction of new facilities to provide additional services to industrial customers on the Delmarva Peninsula and is working on constructing a new lateral pipeline to provide service to a new industrial customer facility in Kent County, Delaware. Eastern Shore is also developing other opportunities to further expand its transmission system, and it also expects to increase its staffing as it continues to expand its facilities and service. Finally, to increase the Company's overall capabilities to move growth initiatives forward and to assist in developing additional strategic initiatives for sustained future growth, resources have been added in the Company's corporate shared services departments.  During 2013, the Company's payroll and benefits expense increased by $2.4 million, or six percent, compared to 2012 (an increase of $1.0 million, or nine percent, in the fourth quarter of 2013, compared to the same quarter in 2012). The Company expects to make additional investments in human resources, as needed, to further develop its capability to capitalize on future growth opportunities. 

Weather and Consumption

Weather was a significant factor in 2013 as temperatures on the Delmarva Peninsula returned to more normal levels from historically warm weather in 2012.  The temperatures in Florida continued to be significantly warmer in 2013.  The following tables highlight the heating degree-day ("HDD") and cooling degree-day ("CDD") information for the quarter and year ended December 31, 2013 and 2012 and the gross margin variance resulting from weather fluctuations in those periods.

Year to Date

Fourth Quarter

For the Periods Ended December 31,

2013

2012

Variance

from prior

year

Q4 2013

Q4 2012

Variance

from prior

year

Delmarva

Actual HDD

4,638

3,936

702

1,612

1,561

51

10-Year Average HDD ("Normal")

4,454

4,491

(37)

1,582

1,594

(12)

Variance from Normal

184

(555)

30

(33)

Florida

Actual HDD

671

633

38

184

286

(102)

10-Year Average HDD ("Normal")

885

915

(30)

316

327

(11)

Variance from Normal

(214)

(282)

(132)

(41)

Florida

Actual CDD

2,750

2,871

(121)

329

249

80

10-Year Average CDD ("Normal")

2,750

2,756

(6)

260

270

(10)

Variance from Normal

115

69

(21)

 

Gross Margin Variance attributed to Weather

(in thousands)

Year to Date

Fourth Quarter

For the Periods Ended December 31,

2013 vs. 2012

2013 vs. Normal

2013 vs. 2012

2013 vs. Normal

Delmarva

Regulated Energy

$

984

$

493

$

143

$

151

Unregulated Energy

3,069

260

390

230

Florida

Regulated Energy

(571)

(1,204)

(323)

(167)

Unregulated Energy

(83)

(316)

(338)

(316)

Total

$

3,399

$

(767)

$

(128)

$

(102)

Propane Prices

Strong retail propane margins throughout 2013 on the Delmarva Peninsula generated $3.2 million in additional gross margin.  During the first three quarters of 2013, the Company's average propane inventory costs decreased by 25 percent as a result of lower propane wholesale prices in late 2012 and early 2013, coupled with the execution of the Company's supply plan. This decline in propane costs considerably outpaced a slight decline in retail prices, which were influenced by propane wholesale prices in the local area and other market conditions.  The combination of declining costs and sustaining retail prices resulted in higher retail margins during the first three quarters of 2013, compared to the same period in 2012.  During the fourth quarter of 2013, average propane wholesale prices in the local area increased by $0.49 per gallon, or 38 percent, as demand for propane significantly increased.  In executing its supply plan, the Company benefited from supply diversity and was able to: (a) reduce the impact of this price increase on its average propane inventory cost, and (b) limit the increase in retail prices to its customers, charging considerably less than the wholesale price increase in the local area.  As a result, the Company's retail margins did not increase during the fourth quarter of 2013 and did not result in a significant gross margin variance, compared to last year's fourth quarter.  Propane retail sales prices are subject to various market conditions, including competition with other propane suppliers as well as the availability and price of alternative energy sources, and may fluctuate based on changes in demand, supply and other energy commodity prices.  The level of retail margins sustained during 2013 is not typical and, therefore, is not included in the Company's long-term financial plans or forecasts.

Xeron benefits from price volatility in the propane wholesale market by entering into trading transactions.  Xeron experienced a decrease in gross margin of $1.1 million for the year ended December 31, 2013,  compared to the same period in 2012, as lower propane wholesale price volatility during the current period resulted in lower profit on executed trades.  For the quarter ended December 31, 2013, Xeron's gross margin increased by $316,000, compared to the same quarter in 2012, as higher price volatility in the wholesale market provided opportunities to profit in the fourth quarter of 2013.

Chesapeake Utilities Corporation and Subsidiaries

Major Project Highlights (Unaudited)

Major Projects Initiated (dollars in thousands):

Annual Gross Margin

Quarterly Gross Margin

Project

2012

2013

2014 (1)

Q4 2012

Q4 2013

Acquisition:

ESG acquisition being served by Sandpiper in

Worcester County, Maryland (2)

$

$

4,432

$

9,817

$

$

2,234

Service Expansions

Natural Gas Distribution:

Long-term

Sussex County, Delaware

$

590

$

670

$

694

$

193

$

179

Natural Gas Transmission:

Short-term

New Castle County, Delaware (3) (4) (5)

$

868

$

398

$

1,862

$

111

$

58

Kent County, Delaware (3)

1,158

193

Total Short-term

$

868

$

1,556

$

1,862

$

111

$

251

Long-term

Sussex County, Delaware

$

1,269

$

1,437

$

1,725

$

345

$

402

New Castle County, Delaware (6)

530

1,637

2,964

259

608

Nassau County, Florida

1,540

1,314

1,300

481

321

Worcester County, Maryland

90

417

547

51

124

Cecil County, Maryland

147

926

1,147

147

265

Indian River, Florida

350

840

210

Kent County, Delaware

437

2,660

437

Total Long-term

$

3,576

$

6,518

$

11,183

$

1,283

$

2,367

Total Service Expansions

$

5,034

$

8,744

$

13,739

$

1,587

$

2,797

Total Major Projects

$

5,034

$

13,176

$

23,556

$

1,587

$

5,031

(1) The figures provided represent the estimated annual gross margin.

(2) During 2013, we incurred $3.1 million in other operating expenses related to Sandpiper's operation. We expect to incur $6.3 million in other operating expenses in 2014.

(3) Prior to commencing new long-term service using new facilities, we provided a short-term service utilizing the existing system capacity. The short-term service was displaced by the new long-term service.

(4) In addition to providing a short-term service, we also provided interruptible service during 2013, which generated $989,000. Gross margin generated from interruptible service is expected to be displaced by the long-term service starting in November 2013.

(5) Expected gross margin in 2014 includes $1.9 million from a new short-term contract for 50,000 Dts/d for one year, which is expected to begin in April 2014.

(6) Gross margin generated from this service expansion replaces the 10,000 Dts/d contract, which expired in November 2012.  This expired contract had annualized gross margin of $1.1 million.

Upcoming Major Projects with Executed Contracts (dollars in thousands):

Project

Estimated Date of New

Service

Estimated

2014 Margin

Estimated Annualized

Margin

Short-term Natural Gas Transmission Service in New Castle

County, Delaware

From Apr-14 to Apr-15

$1,860

$2,629

Long-term Natural Gas Transmission Service in Kent

County, Delaware (1)

Starting in Jan-15

$—

$1,200 to $1,800

(1) The estimated gross margin is based upon the precedent agreement entered into by the parties for these services. A firm transportation service agreement will be entered into by the parties upon satisfying certain conditions.  The construction of this lateral will not increase the overall capacity of the Company's mainline system.

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the Periods Ended December 31, 2013 and 2012

(in thousands, except shares and per share data)

Year to Date

Fourth Quarter

2013

2012

2013

2012

Operating Revenues

  Regulated Energy

$

264,637

$

246,208

$

72,174

$

66,163

  Unregulated Energy

166,723

133,049

47,445

39,726

  Other

12,946

13,245

3,268

3,627

Total Operating Revenues

444,306

392,502

122,887

109,516

Operating Expenses

Regulated energy cost of sales

118,818

111,402

32,497

30,195

Unregulated energy and other cost of sales

126,017

101,957

35,360

29,902

   Operations

91,452

82,387

25,576

21,555

   Maintenance

7,509

7,423

1,821

1,788

   Depreciation and amortization

23,965

22,510

5,894

5,098

   Other taxes

13,811

10,188

3,427

2,435

 Total operating expenses

381,572

335,867

104,575

90,973

Operating Income

62,734

56,635

18,312

18,543

Other income (loss), net of other expenses

372

271

(41)

59

Interest charges

8,234

8,747

2,120

2,090

Income Before Income Taxes

54,872

48,159

16,151

16,512

Income taxes

22,085

19,296

6,468

6,655

Net Income

$

32,787

$

28,863

$

9,683

$

9,857

Weighted Average Common Shares Outstanding:

Basic

9,620,641

9,586,144

9,633,615

9,594,567

Diluted

9,695,630

9,671,507

9,705,420

9,678,771

Earnings Per Share of Common Stock:

Basic

$

3.41

$

3.01

$

1.01

$

1.03

Diluted

$

3.39

$

2.99

$

1.00

$

1.02

 

Chesapeake Utilities Corporation and Subsidiaries

 

Consolidated Balance Sheets (Unaudited)

As of December 31,

Assets

2013

2012

(in thousands, except shares and per share data)

 Property, Plant and Equipment

 Regulated energy

$

691,522

$

585,429

 Unregulated energy

76,267

70,218

 Other

21,002

20,067

 Total property, plant and equipment

788,791

675,714

Less:  Accumulated depreciation and amortization

(174,148)

(155,378)

 Plus:  Construction work in progress

16,603

21,445

 Net property, plant and equipment

631,246

541,781

 Current Assets

 Cash and cash equivalents

3,356

3,361

Accounts receivable (less allowance for uncollectible

accounts of $1,635 and $826, respectively)

75,293

53,787

 Accrued revenue

13,910

11,688

 Propane inventory, at average cost

10,456

7,612

 Other inventory, at average cost

4,880

5,841

 Regulatory assets

2,436

2,736

 Storage gas prepayments

4,318

3,716

 Income taxes receivable

2,609

4,703

 Deferred income taxes

1,696

791

 Prepaid expenses

6,910

6,020

 Mark-to-market energy assets

385

210

 Other current assets

160

132

 Total current assets

126,409

100,597

 Deferred Charges and Other Assets

 Goodwill

4,354

4,090

 Other intangible assets, net

2,975

2,798

 Investments, at fair value

3,098

4,168

 Regulatory assets

66,584

77,408

 Receivables and other deferred charges

2,856

2,904

 Total deferred charges and other assets

79,867

91,368

Total Assets

$

837,522

$

733,746

 

Chesapeake Utilities Corporation and Subsidiaries

 

 Consolidated Balance Sheets (Unaudited)

As of December 31,

Capitalization and Liabilities

2013

2012

(in thousands, except shares and per share data)

 Capitalization

 Stockholders' equity

 Common stock, par value $0.4867 per share

(authorized 25,000,000 shares)

$

4,691

$

4,671

 Additional paid-in capital

152,341

150,750

 Retained earnings

124,274

106,239

 Accumulated other comprehensive loss

(2,533)

(5,062)

 Deferred compensation obligation

1,124

982

 Treasury stock

(1,124)

(982)

 Total stockholders' equity

278,773

256,598

 Long-term debt, net of current maturities

117,592

101,907

 Total capitalization

396,365

358,505

 Current Liabilities

 Current portion of long-term debt

11,353

8,196

 Short-term borrowing

105,666

61,199

 Accounts payable

53,482

41,992

 Customer deposits and refunds

26,140

29,271

 Accrued interest

1,235

1,437

 Dividends payable

3,710

3,502

 Accrued compensation

8,394

7,435

 Regulatory liabilities

4,157

1,577

 Mark-to-market energy liabilities

127

331

 Other accrued liabilities

7,678

7,226

 Total current liabilities

221,942

162,166

 Deferred Credits and Other Liabilities

 Deferred income taxes

142,597

125,205

 Deferred investment tax credits

74

113

 Regulatory liabilities

4,402

5,454

 Environmental liabilities

9,155

9,114

 Other pension and benefit costs

21,000

33,535

 Accrued asset removal cost - Regulatory liability

39,510

38,096

 Other liabilities

2,477

1,558

 Total deferred credits and other liabilities

219,215

213,075

Total Capitalization and Liabilities

$

837,522

$

733,746

 

Chesapeake Utilities Corporation and Subsidiaries

Distribution Utility Statistical Data (Unaudited)

For the Three Months Ended December 31, 2013

For the Three Months Ended December 31, 2012

Delmarva

NG Distribution(2)

Chesapeake

Florida NG

Division

FPU NG

Distribution

FPU Electric

Distribution

Delmarva NG

Distribution

Chesapeake

Florida NG

Division

FPU NG

Distribution

FPU Electric

Distribution

Operating Revenues

(in thousands)

  Residential

$

14,545

$

1,119

$

5,147

$

9,037

$

11,455

$

1,137

$

5,335

$

9,682

  Commercial

8,108

1,090

7,605

9,271

5,180

1,050

7,031

9,689

  Industrial

1,785

1,223

2,822

785

1,613

1,184

3,182

909

  Other (1)

4,004

417

1,109

(1,938)

2,936

602

1,712

(1,676)

Total Operating

Revenues

$

28,442

$

3,849

$

16,683

$

17,155

$

21,184

$

3,973

$

17,260

$

18,604

Volume (in Dts for natural gas and MWHs for electric)

  Residential

813,727

72,363

285,637

62,699

706,773

83,800

323,942

69,390

  Commercial

936,143

347,032

672,818

74,205

811,306

362,627

738,894

80,379

  Industrial

1,182,605

2,999,359

920,811

7,940

1,106,856

3,434,638

1,023,992

7,930

  Other

19,119

96,718

4,538

32,696

120,331

(10,855)

Total

2,951,594

3,418,754

1,975,984

149,382

2,657,631

3,881,065

2,207,159

146,844

Average Customers

  Residential

61,170

14,027

50,114

23,697

50,009

13,813

48,782

23,690

  Commercial

6,451

1,323

4,544

7,405

5,230

1,265

4,510

7,391

  Industrial

108

60

1,047

2

102

60

898

2

  Other

6

4

Total

67,735

15,410

55,705

31,104

55,345

15,138

54,190

31,083

 

For the Year Ended December 31, 2013

For the Year Ended December 31, 2012

Delmarva

NG Distribution(2)

Chesapeake

Florida NG

Division

FPU NG

Distribution

FPU Electric

Distribution

Delmarva NG

Distribution

Chesapeake

Florida NG

Division

FPU NG

Distribution

FPU Electric

Distribution

Operating Revenues

(in thousands)

  Residential

$

52,594

$

4,576

$

21,967

$

41,349

$

42,452

$

4,453

$

20,125

$

40,814

  Commercial

28,445

4,332

32,259

38,430

19,250

3,955

27,376

38,079

  Industrial

6,349

4,919

11,278

4,088

5,648

4,834

11,063

7,513

  Other (1)

1,869

2,175

(2,730)

(8,917)

886

2,446

1,115

(3,845)

Total Operating

Revenues

$

89,257

$

16,002

$

62,774

$

74,950

$

68,236

$

15,688

$

59,679

$

82,561

Volume (in Dts for natural gas and MWHs for electric)

  Residential

3,189,000

324,873

1,217,859

289,745

2,511,444

313,695

1,218,539

292,981

  Commercial

3,378,707

1,370,408

2,762,780

309,813

2,717,673

1,334,229

2,806,208

310,004

  Industrial

4,169,615

13,454,749

3,688,787

31,120

3,876,693

14,123,510

3,487,931

58,640

  Other

69,090

(81,723)

18,347

124,063

181,566

9,373

Total

10,806,412

15,150,030

7,587,703

649,025

9,229,873

15,771,434

7,694,244

670,998

Average Customers

  Residential

60,685

13,970

50,086

23,742

49,639

13,783

48,603

23,670

  Commercial

6,445

1,299

4,605

7,407

5,212

1,253

4,528

7,394

  Industrial

110

58

947

2

103

56

833

2

  Other

5

5

Total

67,245

15,327

55,638

31,151

54,959

15,092

53,964

31,066

(1) Operating Revenues from "Other" sources include unbilled revenue, under (over) recoveries of fuel cost, conservation revenue, other miscellaneous charges, fees for billing services provided to third parties and adjustments for pass-through taxes.

(2) Worcester County NG Distribution (Sandpiper) is now included within the Delmarva NG Distribution results, which also includes the Delaware and Maryland Divisions.

SOURCE Chesapeake Utilities Corporation



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