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

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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