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Chesapeake Utilities Corporation Reports Sixth Consecutive Year of Record Earnings

- Net income of $28.9 million, or $2.99 per share

DOVER, Del., March 7, 2013 /PRNewswire/ -- Chesapeake Utilities Corporation (NYSE: CPK) today announced financial results for both the year and the fourth quarter ended December 31, 2012.  The Company's net income for 2012 was $28.9 million, or $2.99 per share.  This represents an increase of $1.2 million, or $0.12 per share, compared to 2011.  

For the fourth quarter of 2012, the Company reported net income of $9.9 million, or $1.02 per share.  This represents an increase of $1.9 million, or $0.19 per share, compared to the same quarter in 2011. 

"We are very pleased to announce another year of strong financial results, our sixth consecutive year of record earnings," stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation.  "Our employees' continuous efforts to deliver value to our customers through great service and innovative solutions with a personal touch are driving our financial results year after year.  In addition to overcoming a sluggish economy and warmer weather during 2012, we delivered growth that more than offset the amortization of the Florida Public Utilities acquisition premium and costs to generate record earnings for the sixth consecutive year.  Our employees' tireless efforts in pursuit of operational excellence, combined with our focus on identifying and transforming business opportunities into reality and our financial stability, continue to position us well to generate value for our customers and shareholders."

Operating Results for the Year Ended December 31, 2012

The Company's operating income for 2012 was $56.6 million, an increase of $2.9 million, compared to 2011.  Gross margin increased by $8.0 million, or five percent, in 2012, compared to 2011.  The Company increased gross margin in 2012 even with significantly warmer temperatures, which reduced gross margin by $3.6 million.  Other operating expenses increased by $5.1 million, or four percent, in 2012, compared to 2011. 

Regulated Energy

Operating income for the regulated energy segment for 2012 was $47.0 million, an increase of $3.1 million, or seven percent, compared to 2011.  An increase in gross margin of $6.7 million was partially offset by an increase in other operating expenses of $3.6 million.  The significant components of the gross margin variance included:

  • An increase of $6.3 million due to natural gas growth resulting from: (a) major expansion initiatives in Sussex County, Delaware; Worcester and Cecil Counties, Maryland; and Nassau County, Florida; (b) additional residential, commercial and industrial customer growth on the Delmarva Peninsula and in Florida; and (c) additional transmission services provided to an existing industrial customer on the Delmarva Peninsula;
  • A decrease of $750,000 from the reversal in 2011 of a Florida natural gas regulatory reserve;
  • An increase of $737,000 as a result of new rates for Eastern Shore Natural Gas Company ("Eastern Shore"), the Company's interstate natural gas transmission subsidiary, that became effective July 2011; and
  • A decrease of $926,000 as a result of lower consumption by natural gas and electric customers, due to warmer temperatures primarily during the first quarter, which was partially offset by $696,000 in increased non-weather-related natural gas consumption primarily in Florida.

The increase in other operating expenses is due primarily to: (a) $2.4 million in amortization expense associated with the recovery of the Florida Public Utilities Company ("FPU") acquisition adjustment and merger-related costs, partially offset by an amortization credit of $684,000 associated with FPU's pre-merger deferred income tax gain; and (b) $1.3 million in higher depreciation expense, asset removal and facilities costs associated with capital investments to support growth and system integrity.

Unregulated Energy

Operating income for the unregulated energy segment for 2012 was $8.4 million, a decrease of $1.3 million, or 13 percent, compared to 2011, due primarily to a decrease in gross margin of $1.3 million.  Other operating expenses for 2012 remained unchanged from 2011.  The significant components of the gross margin variance included:

  • Decreases of $2.7 million as a result of lower consumption by propane customers due to warmer weather primarily during the first quarter and $515,000 in lower propane sales due to the timing of deliveries to bulk-delivery customers, energy conservation and other factors;
  • An increase of $2.7 million due to higher propane retail margins per gallon as a result of sustained retail pricing in response to local market conditions and lower average propane inventory costs; and
  • A decrease of $575,000 as a result of a non-recurring gain recorded in 2011 related to the Company's share of proceeds received from an antitrust litigation settlement with a major supplier.

Other

Operating income for the other segment for 2012 was $1.3 million, an increase of $1.1 million, compared to 2011.  The increase in operating income was attributable to improved results from BravePoint®, Inc. ("BravePoint"), the Company's advanced information services subsidiary.  BravePoint, which reported operating income of $828,000 in 2012, compared to an operating loss of $270,000 in 2011, generated increased gross margin of $2.6 million, $852,000 of which represents increased gross margin from ProfitZoom™ and Application Evolution™ sales and related services.  The remaining increase in gross margin was generated from higher consulting revenues and other product sales.  This increase in gross margin was partially offset by an increase of $1.5 million in other operating expenses as a result of resources added to support these sales and services.

Operating Results for the Fourth Quarter Ended December 31, 2012

The Company's operating income for the fourth quarter of 2012 was $18.5 million, an increase of $3.0 million, compared to the same quarter in 2011.  Gross margin increased by $4.6 million, or 10 percent, in the fourth quarter of 2012, compared to the same quarter in 2011.  Other operating expenses for the fourth quarter of 2012 increased by $1.6 million, or five percent, in 2012, compared to the same quarter in 2011. 

Regulated Energy

Operating income for the regulated energy segment for the fourth quarter of 2012 was $13.8 million, an increase of $901,000, or seven percent, compared to the same quarter in 2011.  An increase in gross margin of $1.8 million was partially offset by an increase in operating expenses of $982,000.  The significant components of the gross margin variance included:

  • An increase of $1.5 million due to natural gas growth resulting from: (a) major expansion initiatives in Sussex County, Delaware; Worcester and Cecil Counties, Maryland; and Nassau County, Florida; and (b) additional residential, commercial and industrial customer growth on the Delmarva Peninsula and in Florida;
  • A decrease of $750,000 as a result of the reversal in the fourth quarter of 2011 of a Florida natural gas regulatory reserve; and
  • An increase of $572,000 as a result of higher consumption by natural gas and electric customers, due primarily to colder temperatures in the fourth quarter of 2012, compared to the same quarter in 2011.

The increase in other operating expenses is due primarily to: (a) $589,000 in increased amortization expense associated with the recovery of the FPU acquisition adjustment and merger-related costs, offset by an amortization credit of $684,000 associated with FPU's pre-merger deferred tax gain; (b) $254,000 in an increased accrual for general liability claims; and (c) $315,000 in higher depreciation expense, asset removal and facilities costs associated with capital investments to support growth and system integrity. 

Unregulated Energy

Operating income for the unregulated energy segment for the fourth quarter of 2012 was $4.3 million, representing an increase of $2.0 million, or 84 percent, compared to the same quarter in 2011, due primarily to an increase in gross margin of $2.0 million.  Operating expenses for the fourth quarter of 2012 remained unchanged from the same quarter in 2011.  The significant components of the gross margin variance included:

  • An increase of $1.4 million due to higher retail margins per gallon in the Delmarva and Florida propane distribution operations as a result of sustained retail pricing in response to local market conditions and lower average propane inventory cost; and
  • An increase of $509,000 in propane sales due primarily to colder temperatures on the Delmarva Peninsula, which increased consumption by propane customers and deliveries to bulk customers.

Other

Operating income for the other segment for the fourth quarter of 2012 was $384,000, an increase of $179,000 from the same quarter in 2011.  The increase in operating income was attributable to improved results from BravePoint.  BravePoint, which reported operating income of $270,000 in the fourth quarter of 2012, compared to $87,000 in the same quarter in 2011, generated increased gross margin of $752,000, $388,000 of which represents increased gross margin from ProfitZoom™ and Application Evolution™ sales and related services.  The remaining increase was generated from higher consulting revenues and other product sales.  This increase in gross margin was partially offset by an increase of $568,000 in operating expenses as a result of resources added to support these sales and services. 

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 8, 2013, at 10:00 a.m. Eastern Time to discuss the Company's financial results for the year ended December 31, 2012.  To participate in this call, dial 866.821.5457 and reference Chesapeake Utilities Corporation's 2012 Annual and Fourth Quarter 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 utility 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 and degree-day data)







Year to Date


Fourth Quarter








Chesapeake and Subsidiaries

2012

2011


2012

2011

Gross Margin (1)






  Regulated Energy

$134,806

$128,115


$35,968

$34,085

  Unregulated Energy

35,912

37,171


11,235

9,234

  Other


8,425

5,843


2,216

1,471

 Total Gross Margin

$179,143

$171,129


$49,419

$44,790








Operating Income






   Regulated Energy

$46,999

$43,911


$13,848

$12,947

   Unregulated Energy

8,355

9,619


4,311

2,343

   Other


1,281

175


384

205

 Total Operating Income

56,635

53,705


18,543

15,495








Other Income, net of other expenses

271

906


59

205

Interest Charges

8,747

9,000


2,090

2,345

Pre-tax Income


48,159

45,611


16,512

13,355








Income Taxes

19,296

17,989


6,655

5,398

 Net Income

$28,863

$27,622


$9,857

$7,957








Earnings Per Share of Common Stock






Basic


$3.01

$2.89


$1.03

$0.83

Diluted


$2.99

$2.87


$1.02

$0.83








Heating Degree-Days — Delmarva Peninsula






   Actual


3,936

4,221


1,561

1,345

   10-year average (normal)

4,491

4,499


1,594

1,594








Heating Degree-Days — Florida






   Actual


633

753


286

219

   10-year average (normal)

915

920


327

325








Cooling Degree-Days — Florida






   Actual


2,871

2,858


249

182

   10-year average (normal)

2,756

2,718


270

275








 (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, 2012 included:

 

(in thousands, except per share amounts)

Pre-tax


Net


Earnings



Income


Income


Per Share









2011 Reported Results

$   45,611


$  27,622


$     2.87









Adjusting for unusual items:







     Weather impact

(3,627)


(2,197)


(0.23)


     Amortization of FPU acquisition premium and costs

(2,354)


(1,426)


(0.15)


     Severance and pension settlement charge in 2011

1,299


787


0.08


     Florida regulatory reserve and sales tax reserve reversal in 2011

(1,049)


(636)


(0.07)


     Amortization of FPU pre-merger deferred tax gain 

684


414


0.04


     Litigation settlement with a major propane supplier in 2011

(575)


(348)


(0.04)


     Gain from the sale of Internet Protocol asset in 2011

(553)


(335)


(0.03)



(6,175)


(3,741)


(0.40)


Increased Margins:







     Natural gas growth

6,263


3,793


0.40


     Higher propane retail margins per gallon

2,724


1,650


0.17


     BravePoint

2,602


1,576


0.16



11,589


7,019


0.73


Increased Other Operating Expenses:







     BravePoint, primarily due to employee-related costs

(1,523)


(923)


(0.10)


     Higher depreciation, asset removal and facilities costs

(1,326)


(803)


(0.08)


     Acquisition-related costs and increased capacity for future growth

(758)


(459)


(0.05)



(3,607)


(2,185)


(0.23)









Net other changes

741


148


0.02









2012 Reported Results

$   48,159


$  28,863


$     2.99









The Company's results for 2012 reflected additional gross margin generated by: (a) the natural gas transmission and distribution operations as a result of major expansion initiatives in Sussex County, Delaware; Worcester and Cecil Counties, Maryland; and Nassau County, Florida; (b) additional customer growth; and (c) additional transmission services provided to an existing industrial customer.  Higher retail propane margins per gallon, as a result of sustained retail prices and favorable supply costs, and increased product sales and consulting revenues from BravePoint also generated additional gross margin.  These increases in gross margin more than offset a reduction of $3.6 million in gross margin due to significantly warmer temperatures in 2012, particularly during the first three months of the year.  Also included in the 2012 results is amortization expense of $2.4 million related to the recovery of the FPU acquisition adjustment and merger-related costs, partially offset by an amortization credit of $684,000 associated with FPU's pre-merger deferred income tax gain.  Higher expenses associated with growth initiatives and capital investments to support growth and system integrity also offset the gross margin increases.

Key variances for the three months ended December 31, 2012 included:

 

(in thousands, except per share amounts)

Pre-tax


Net


Earnings



Income


Income


Per Share









Fourth quarter of 2011 Reported Results

$ 13,355


$   7,957


$    0.83









Adjusting for Unusual Items:







     Weather impact

1,223


729


0.08


     Florida regulatory reserve and sales tax reserve reversal in 2011

(750)


(447)


(0.05)


     Amortization of FPU pre-merger deferred tax gain 

684


408


0.04


     Amortization of FPU acquisition premium and costs

(589)


(351)


(0.04)



568


339


0.03


Increased Margins:







     Natural gas growth

1,482


883


0.09


     Higher propane retail margins per gallon

1,364


813


0.08


     BravePoint

752


448


0.05



3,598


2,144


0.22


Increased Other Operating Expenses:







     BravePoint, primarily due to employee-related costs

(565)


(337)


(0.03)


     Higher natural gas transmission facilities costs

(223)


(133)


(0.01)



(788)


(470)


(0.04)









Net other changes

(221)


(113)


(0.02)









Fourth quarter of 2012 Reported Results

$ 16,512


$   9,857


$    1.02









The Company's results for the fourth quarter of 2012 reflected additional gross margin generated by: (a) major expansion initiatives on the Delmarva Peninsula and in Florida; (b) additional customer growth; and (c) additional transmission services provided to an existing industrial customer.  Higher retail propane margins per gallon, as a result of sustained retail prices and favorable supply costs, also generated additional gross margin.  Colder temperatures in the fourth quarter of 2012, compared to the same quarter in 2011, generated additional gross margin, which more than offset the negative quarter-over-quarter impact in gross margin from the reversal in 2011 of a $750,000 regulatory reserve recorded in the prior year.  Increased product sales and consulting revenues by BravePoint more than offset increased expenses to support its growth. 

The following information highlights certain key factors contributing to the Company's results for the year and quarter ended December 31, 2012:

Growth

New natural gas transmission services and growth in natural gas distribution customers generated $3.6 million and $2.7 million, respectively, in additional gross margin for 2012, compared to 2011, and $822,000 and $660,000, respectively, in additional gross margin for the fourth quarter of 2012, compared to the same quarter in 2011.  These increases in gross margin were related primarily to the continued execution of the Company's strategic plan, including expansion of natural gas service to new areas and conversion of several large commercial and industrial customers to natural gas. In addition, new services are being initiated by the Company's natural gas transmission subsidiaries in response to increased demand for natural gas service on the Delmarva Peninsula and in Florida, both from the Company's natural gas distribution operations and other unaffiliated customers directly connected to the transmission systems. 

Major Expansion Initiatives and Customer Growth Reflected in Results 
In late 2011 and during 2012, the Company expanded natural gas transmission and distribution services to Sussex County, Delaware and Nassau County, Florida and also initiated natural gas transmission service  in  Worcester and  Cecil  Counties, Maryland.   These major  expansion initiatives increased the Company's natural gas footprint, delivering natural gas service to areas where it was not previously available.  These initiatives generated $2.9 million of additional gross margin for the natural gas transmission operations in 2012.  Natural gas distribution service to two large industrial customers in Lewes, Delaware and two industrial facilities of an existing customer in southeastern Sussex County, Delaware generated $588,000 of additional gross margin for 2012.  For the fourth quarter of 2012, these natural gas transmission and distribution initiatives generated $869,000 and $192,000, respectively, of additional gross margin, compared to the same quarter in 2011.

In addition to the recent expansion initiatives, the Delmarva natural gas distribution operation has added 12 new large industrial and commercial customers since the beginning of 2011, which generated $574,000 in additional gross margin in 2012, compared to 2011, and $108,000 in the fourth quarter of 2012, compared to the same quarter in 2011.  Growth in residential and other commercial customers on the Delmarva Peninsula generated $513,000 and $22,000 in additional gross margin in 2012 and in the fourth quarter of 2012, respectively.  Customer growth in Florida, primarily from commercial and industrial customers, generated $986,000 and $338,000 in additional gross margin in 2012 and in the fourth quarter of 2012, respectively. 

Future Major Expansion Initiatives and Opportunities 
Although not affecting results in 2012, Eastern Shore entered into precedent agreements with NRG Energy Center Dover LLC ("NRG") and PBF Energy Inc. ("Delaware City Refinery") to further expand its transmission system in order to provide additional services to these customers.  Eastern Shore expects to enter into firm transportation service agreements with NRG and Delaware City Refinery upon satisfaction of certain conditions pursuant to the respective precedent agreements.  These additional services are expected to be initiated in late 2013. A delay in obtaining the regulatory approval from the Federal Energy Regulatory Commission for construction of these new facilities could delay the service initiation.

In Florida, Peninsula Pipeline Company, Inc. ("Peninsula Pipeline"), the Company's intrastate natural gas transmission subsidiary, entered into a firm transportation agreement with an unaffiliated utility, which will generate an estimated annual gross margin of approximately $840,000.  This service is expected to be initiated in the second quarter of 2013 upon completion of construction of the new facility.

As the Company expands its natural gas service to new areas, first through transmission and distribution service to large industrial customers, its natural gas distribution operations continue to pursue additional opportunities to provide service to residential and other commercial and industrial customers in those areas.  In an effort to increase the availability of natural gas within the Company's Delaware service areas, the Company's Delaware natural gas distribution division filed an application with the Delaware Public Service Commission ("PSC") in June 2012 to add several natural gas expansion service offerings.  These offerings include a monthly fixed charge in lieu of upfront contributions from customers to extend the distribution system and optional service offerings to assist customers in the process of converting to natural gas.  The goal of these new offerings is to meet the energy needs of residents, communities and businesses throughout the Company's service territory, specifically in areas of southeastern Sussex County, where natural gas will now be available.  The Delaware PSC is currently reviewing this application. 

Additional information highlighting the major expansion initiatives is provided in the "Major Expansion Initiative Highlights (Unaudited)" table later in this release.

Acquisition 
In June 2012, the Company entered into an agreement with Eastern Shore Gas Company and its affiliates (collectively "ESG," which is unrelated to the Company's interstate natural gas transmission subsidiary) to purchase their operating assets for approximately $16.5 million.  These assets are currently used to provide propane distribution service to approximately 11,000 residential and commercial customers in Worcester County, Maryland, primarily through underground propane gas distribution systems.  The Company is evaluating the potential conversion of some of these underground propane distribution systems to natural gas where it is economical and feasible.  The Company filed an application with the Maryland PSC for approval of the transaction in August 2012.  The transaction, which is also subject to obtaining consents from certain local jurisdictions to the assignment of certain franchise agreements and the satisfaction of other closing conditions, is expected to be completed in 2013.  The Company expects to finance the acquisition using unsecured short-term debt.  The acquisition is expected to be accretive to earnings per share in 2013 and thereafter.

Investing in Growth 
To continue its growth, the Company is expanding its resources and capabilities.  The Company is in the early stages of several natural gas distribution expansions on the Delmarva Peninsula including expansions into Sussex County, Delaware, and Worcester and Cecil Counties in Maryland.  These expansions will require not only the construction or conversion of distribution facilities, but also the conversion of customers' appliances or equipment inside their homes.  The Company has begun the process of reorganizing its Delmarva natural gas distribution operation and expects to increase its staffing to support these expansions.  Secondly, as a result of BravePoint's growth over the last several quarters, BravePoint is continuing to add new team members.  During 2012 and the fourth quarter of 2012, BravePoint's other operating expenses increased by $1.5 million and $568,000, respectively, compared to the same periods in 2011, due primarily to increased staffing.  Finally, to increase the Company's capacity to appropriately manage future growth, resources have been, and continue to be, added in several key functional areas, including, but not limited to, Human Resources, Communications and Strategic Business Development. During 2012, the Company incurred $312,000 in additional acquisition-related costs, compared to 2011 and $446,000 in new costs associated with increased capacity for future growth.  The Company expects to incur additional costs to successfully position the Company for future growth.

Weather and Consumption

Significantly warmer temperatures in 2012, particularly during the first three months of the year when the demand for natural gas and propane are at their highest, had a large negative impact on the Company's earnings. Lower customer energy consumption directly attributable to warmer temperatures in 2012 reduced gross margin by $3.6 million, compared to 2011.  Temperatures in 2012 on the Delmarva Peninsula and in Florida were seven percent (285 heating degree-days ("HDD")) and 16 percent (120 HDD), respectively, warmer than 2011.  Compared to normal temperatures, which are based on the 10-year historic average of HDD, temperatures in 2012 on the Delmarva Peninsula and in Florida were 12 percent (555 HDD) and 31 percent (282 HDD), respectively, warmer and reduced gross margin for 2012 by approximately $5.1 million, compared to gross margin that the Company would have generated under normal temperatures.

Temperatures in the fourth quarter of 2012 were colder when compared to the same quarter in 2011; however, it was still warmer than normal.   Temperatures in the fourth quarter of 2012 on the Delmarva Peninsula and in Florida were 16 percent (216 HDD) and 31 percent (67 HDD), respectively, colder than the same quarter in 2011 and increased gross margin by $1.4 million in the fourth quarter of 2012, compared to the same quarter in 2011.  However, temperatures in the fourth quarter of 2012 on the Delmarva Peninsula and in Florida were two percent (33 HDD) and 13 percent (41 HDD), respectively, warmer than normal and reduced gross margin by approximately $475,000, compared to gross margin that the Company would have generated under normal temperatures.

Propane Retail Margins per Gallon

During 2012, the Company's propane distribution operations generated additional gross margin of $2.7 million due to higher retail margins per gallon, compared to 2011. Sustained retail pricing in response to local market conditions, combined with lower propane inventory costs as a result of declining wholesale prices, contributed to this increase.  The propane retail price per gallon is subject to various market conditions, including competition with other propane suppliers and the availability and price of alternative energy sources, and may fluctuate based on changes in demand, supply and other energy commodity prices.

Recovery of Acquisition Premium and Merger-related Costs

In January 2012, the Florida PSC issued an order approving the recovery of $34.2 million as an acquisition adjustment and $2.2 million in merger-related costs in connection with the Company's acquisition of FPU in 2009. Inclusion of the acquisition adjustment and merger-related costs in the Company's rate base and the recovery of these assets through amortization expense will increase the Company's earnings and cash flows above what it would have achieved absent the regulatory approval.  The acquisition adjustment and merger-related costs are to be amortized over 30 years and five years, respectively, beginning in November 2009.  Based upon the effective date and outcome of the order, the Company recorded the amortization as an expense beginning in 2012, which resulted in an increase in amortization expense of $2.4 million and $589,000 in 2012 and the fourth quarter of 2012, respectively.  The Company expects to record $2.4 million ($1.4 million, net of tax) in amortization expense in 2013, $2.3 million ($1.4 million, net of tax) in 2014, and $1.8 million ($1.1 million, net of tax) annually thereafter until 2039.   

In November 2012, the Florida PSC issued an order approving the recognition of a $1.9 million regulatory liability for FPU for a one-time tax contingency gain, including income tax gross-up, to be amortized over a period from January 2012 to October 2014.  This tax contingency gain is related to an income tax liability recorded by FPU prior to the merger with Chesapeake.  As the liability no longer exists, upon receiving the Florida PSC order, the Company recorded an amortization credit of $684,000 in 2012, which was recorded in the fourth quarter. 

 

Chesapeake Utilities Corporation and Subsidiaries


Major Expansion Initiative Highlights (Unaudited)




























Major Expansion Initiatives That Have Already Commenced (dollars in thousands):



















Project


Date of New

Service


 Q4 2012

Margin 


 YTD

December

2012 Margin 



 Estimated

Annualized

Margin 
















Sussex County, DE expansion












Transmission (for Lewes, DE) - 3,250 Dts/d (1)

Nov-11


$         234


$         935



$         935




Distribution - Two large industrial customers













   in Lewes, DE (2)

Dec-11


143


500



391




Transmission (for southeastern part) 1,550 Dts/d

Mar-12 to May-12


111


334



446




Distribution - Two facilities of an existing customer













   in the southeastern part of Sussex County

Mar-12 to Aug-12


50


89



154








$         538


$      1,858



$      1,926



Cecil County, MD expansion













Transmission - 4,070 Dts/d


Nov-12


$         147


$         147



$         882
















Worcester County, MD expansion












Transmission - 1,450 Dts/d

Jun-12 to Jan-13


$           51


$           90



$         391



Nassau County, FL expansion













Transmission - A new fixed annual rate service (4)


Apr-12


$         482


$      1,537



$      2,100





















$      1,218


$      3,632



$      5,299
















Total by Geographic Location of the Project:












Delmarva Natural Gas Distribution



$         193


$         589



$         545




Delmarva Natural Gas Transmission



543


1,506



2,654




Florida Natural Gas Transmission



482


1,537



2,100








$      1,218


$      3,632



$      5,299
















Upcoming Major Expansion Initiatives with Executed Contracts (dollars in thousands):














Project


Date of New

Service




 Estimated
Annualized Margin 
















Service to an unaffiliated Florida utility (5)

Apr-13




$840



Service to NRG's Dover, DE electric generation plant









Transmission - 13,440 Dts/d (3)

Nov-13




 $2,400 to $2,800 



Delaware City refinery expansion












Transmission - 15,000 Dts/d (3) (6) 

Dec-13




$1,600























 $4,840 to $5,240 

















(1)These services generated $156,000 in gross margin in 2011 (all in the fourth quarter).




(2)These services generated $1,000 in gross margin in 2011 (all in the fourth quarter).




(3)A precedent agreement has been entered into by the parties for these services.  The figures provided represent the estimated gross margin pursuant to the respective precedent agreement.  A firm transportation service agreement will be entered into by the parties upon satisfying certain conditions.




(4)Peninsula Pipeline commenced its service in April 2012, using compressed natural gas while a new pipeline was being constructed.  The new pipeline was completed and placed in service in December 2012. Peninsula Pipeline is expected to incur approximately $800,000 in annual transportation costs upon the completion of the new pipeline, which will reduce this gross margin.




(5)Estimated annual margin is based on a fixed monthly reservation charge agreed to by the customer.



(6)This contract is expected to replace the 10,000 Dts/d contract with annualized gross margin of $1.1 million, which expired in November 2012.



























 

Chesapeake Utilities Corporation and Subsidiaries


Condensed Consolidated Statements of Income (Unaudited)


For the Periods Ended December 31, 2012 and 2011


(in thousands, except shares and per share data)














Year to Date


Fourth Quarter














2012

2011


2012

2011


Operating Revenues









Regulated Energy



$246,208

$256,226


$66,163

$63,513


Unregulated Energy



133,049

149,586


39,726

37,423


Other



13,245

12,215


3,627

3,052


Total Operating Revenues



392,502

418,027


109,516

103,988











Operating Expenses









   Regulated energy cost of sales



111,402

128,111


30,195

29,428


   Unregulated energy and other cost of sales



101,957

118,787


29,902

29,770


   Operations



82,387

79,810


21,555

20,013


   Maintenance



7,423

7,449


1,788

1,825


   Depreciation and amortization



22,510

20,153


5,098

5,218


   Other taxes



10,188

10,012


2,435

2,239


 Total operating expenses



335,867

364,322


90,973

88,493


Operating Income



56,635

53,705


18,543

15,495


Other income, net of other expenses



271

906


59

205


Interest charges



8,747

9,000


2,090

2,345


Income Before Income Taxes



48,159

45,611


16,512

13,355


Income taxes



19,296

17,989


6,655

5,398


Net Income



$28,863

$27,622


$9,857

$7,957











Weighted Average Shares Outstanding:









   Basic 



9,586,144

9,555,799


9,594,567

9,565,674


   Diluted 



9,671,507

9,651,058


9,678,771

9,661,176











Earnings Per Share of Common Stock:









   Basic



$3.01

$2.89


$1.03

$0.83


   Diluted



$2.99

$2.87


$1.02

$0.83











 

 

 Chesapeake Utilities Corporation and Subsidiaries 




 Condensed Consolidated Balance Sheets  (Unaudited) 


 Assets 

December 31,
2012

December 31,

2011

 (in thousands, except shares and per share data) 




 Property, Plant and Equipment 



    Regulated energy 

$585,429

$528,790

    Unregulated energy 

70,218

67,327

    Other  

20,067

19,988

 Total property, plant and equipment 

675,714

616,105

 Less:  Accumulated depreciation and amortization 

(155,378)

(137,784)

 Plus:  Construction work in progress 

21,445

9,383

 Net property, plant and equipment 

541,781

487,704







 Current Assets 



    Cash and cash equivalents 

3,361

2,637

    Accounts receivable (less allowance for uncollectible 



      accounts of $826 and $1,090, respectively) 

53,787

76,605

    Accrued revenue 

11,688

10,403

    Propane inventory, at average cost 

7,612

9,726

    Other inventory, at average cost 

5,841

4,785

    Regulatory assets 

2,736

1,846

    Storage gas prepayments 

3,716

5,003

    Income taxes receivable 

4,703

6,998

    Deferred income taxes 

791

2,712

    Prepaid expenses 

6,020

5,072

    Mark-to-market energy assets 

210

1,754

    Other current assets 

132

219

 Total current assets 

100,597

127,760




 Deferred Charges and Other Assets 



    Goodwill 

4,090

4,090

    Other intangible assets, net 

2,798

3,127

    Investments, at fair value 

4,168

3,918

    Regulatory assets 

77,408

79,256

    Receivables and other deferred charges 

2,904

3,211

 Total deferred charges and other assets 

91,368

93,602




 Total Assets 

$733,746

$709,066










 




 Chesapeake Utilities Corporation and Subsidiaries 




 Condensed Consolidated Balance Sheets  (Unaudited) 




 Capitalization and Liabilities 

December 31,
2012

December 31,

2011

 (in thousands, except shares and per share data) 




 Capitalization 



 Stockholders' equity 



 Common stock, par value $0.4867 per share 



(authorized 25,000,000 shares)  

$4,671

$4,656

 Additional paid-in capital 

150,750

149,403

 Retained earnings 

106,239

91,248

 Accumulated other comprehensive loss 

(5,062)

(4,527)

 Deferred compensation obligation 

982

817

 Treasury stock 

(982)

(817)

 Total stockholders' equity 

256,598

240,780




 Long-term debt, net of current maturities 

101,907

110,285

 Total capitalization 

358,505

351,065




 Current Liabilities 



    Current portion of long-term debt 

8,196

8,196

    Short-term borrowing 

61,199

34,707

    Accounts payable 

41,992

55,581

    Customer deposits and refunds 

29,271

30,918

    Accrued interest 

1,437

1,637

    Dividends payable 

3,502

3,300

    Accrued compensation 

7,435

6,932

    Regulatory liabilities 

1,577

6,653

    Mark-to-market energy liabilities 

331

1,496

    Other accrued liabilities 

7,226

8,079

 Total current liabilities 

162,166

157,499




 Deferred Credits and Other Liabilities 



    Deferred income taxes  

125,205

115,624

    Deferred investment tax credits 

113

171

    Regulatory liabilities 

5,454

3,564

    Environmental liabilities 

9,114

9,492

    Other pension and benefit costs 

33,535

33,798

    Accrued asset removal cost - Regulatory liability 

38,096

36,584

    Other liabilities 

1,558

1,269

 Total deferred credits and other liabilities 

213,075

200,502




 Total Capitalization and Liabilities 

$733,746

$709,066







Chesapeake Utilities Corporation and Subsidiaries

Distribution Utility Statistical Data (Unaudited)




For the Year Ended December 31, 2012


For the Year Ended December 31, 2011


Delmarva NG

Distribution 

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

$42,452

$4,453

$20,125

$40,814


$46,688

$4,471

$18,040

$45,945

  Commercial

19,250

3,955

27,376

38,079


24,317

3,797

31,641

41,525

  Industrial

5,648

4,834

11,063

7,513


5,044

4,794

9,258

7,414

  Other (1)

886

2,446

1,115

(3,845)


(1,732)

2,325

2,036

(5,813)

Total Operating Revenues

$68,236

$15,688

$59,679

$82,561


$74,317

$15,387

$60,975

$89,071











Volume (in Dts/MWHs)










  Residential

2,511,444

313,695

1,218,539

292,981


2,895,956

313,591

1,189,544

318,065

  Commercial

2,717,673

1,334,229

2,806,208

310,004


3,070,983

1,233,298

3,006,030

326,704

  Industrial

3,876,693

14,123,510

3,487,931

58,640


3,124,765

14,127,513

2,945,544

52,440

  Other

124,063

-

181,566

9,373


104,137

-

(170,316)

(2,556)

Total 

9,229,873

15,771,434

7,694,244

670,998


9,195,841

15,674,402

6,970,802

694,653











Average Customers










  Residential

49,639

13,783

48,603

23,670


48,680

13,584

47,941

23,598

  Commercial

5,212

1,253

4,528

7,394


5,171

1,185

4,531

7,386

  Industrial

103

56

833

2


93

59

686

2

  Other

5

-

-

-


4

-

-

-

Total 

54,959

15,092

53,964

31,066


53,948

14,828

53,158

30,986











(1)Operating revenues from "Other" sources include accrued 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.

 

 

Chesapeake Utilities Corporation and Subsidiaries

Distribution Utility Statistical Data (Unaudited)



For the Three Months Ended December 31, 2012


For the Three Months Ended December 31, 2011


Delmarva NG

Distribution 

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

$11,455

$1,137

$5,335

$9,682


$9,914

$1,100

$2,734

$9,151

  Commercial

5,180

1,050

7,031

9,689


4,818

1,012

8,427

9,601

  Industrial

1,613

1,184

3,182

909


1,452

1,209

2,478

1,796

  Other (1)

2,936

602

1,712

(1,676)


2,770

617

3,529

(1,817)

Total Operating Revenues

$21,184

$3,973

$17,260

$18,604


$18,954

$3,938

$17,168

$18,731











Volume (in Dts/MWHs)










  Residential

706,773

83,800

323,942

69,390


550,431

71,610

274,590

63,950

  Commercial

811,306

362,627

738,894

80,379


706,355

337,270

771,236

80,715

  Industrial

1,106,856

3,434,638

1,023,992

7,930


862,175

3,333,467

900,648

11,220

  Other

32,696

-

120,331

(10,855)


24,736

-

56,549

(10,505)

Total 

2,657,631

3,881,065

2,207,159

146,844


2,143,697

3,742,347

2,003,023

145,380











Average Customers










  Residential

50,009

13,813

48,782

23,690


48,936

13,569

48,066

23,625

  Commercial

5,230

1,265

4,510

7,391


5,144

1,220

4,553

7,388

  Industrial

102

60

898

2


97

59

705

2

  Other

4

-

-

-


4

-

-

-

Total 

55,345

15,138

54,190

31,083


54,181

14,848

53,324

31,015











(1)Operating revenues from "Other" sources include accrued 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 .

 

 

SOURCE Chesapeake Utilities Corporation

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