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Form 8-K CHESAPEAKE UTILITIES For: Nov 06

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November 6, 2014 2:45 PM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
�
�
FORM 8-K
�
�
CURRENT REPORT
Pursuant to Section�13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November�6, 2014
��
CHESAPEAKE UTILITIES CORPORATION
(Exact name of registrant as specified in its charter)
�
�
�
�
�
�
�
Delaware
�
001-11590
�
51-0064146
(State or other jurisdiction of
�
(Commission
�
(I.R.S. Employer
incorporation or organization)
�
File Number)
�
Identification No.)
909 Silver Lake Boulevard, Dover, Delaware 19904
(Address of principal executive offices, including Zip Code)
(302) 734-6799
(Registrant's Telephone Number, including Area Code)
�
(Former name, former address and former fiscal year, if changed since last report.)
�
�
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
�
�
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
�
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
�
�
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
�
�
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
�







Item�2.02. Results of Operations and Financial Condition.
On November�6, 2014, Chesapeake Utilities Corporation issued a press release announcing its financial results for the quarter ended September�30, 2014. A copy of the press release is attached as Exhibit 99.1 hereto and is incorporated by reference herein.
Item�9.01. Financial Statements and Exhibits.
(d)�� Exhibit 99.1 - Press Release of Chesapeake Utilities Corporation, dated November�6, 2014.

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
�
�
CHESAPEAKE�UTILITIES�CORPORATION
�
/s/ Beth W. Cooper
Beth W. Cooper
Senior Vice President and Chief Financial Officer
�
Date: November 6, 2014




��������������������������������������������������������

����������������

FOR IMMEDIATE RELEASE
November�6, 2014
NYSE Symbol: CPK

CHESAPEAKE UTILITIES CORPORATION REPORTS
THIRD QUARTER EARNINGS

"
Third quarter net income totaled $3.2 million, or $0.22 per share
"
Quarter-over-quarter earnings per share remained unchanged, excluding non-recurring items
"
Natural gas system expansions and other customer growth generated $1.9 million in additional gross margin during the quarter
"
Year-to-date net income increased by $2.9 million to $26.0 million, representing $0.19 incremental earnings per share


Dover, Delaware  Chesapeake Utilities Corporation (NYSE: CPK) today reported third quarter and nine months financial results. The Company's net income for the three months ended September�30, 2014 was $3.2 million, or $0.22 per share. This represents a decrease of $699,000, or $0.05 per share, over the same quarter in 2013, due principally to the net impact of two non-recurring items in the third quarter of 2013. These two non-recurring items related to recovery of previously expensed litigation costs of $1.9 million, which was offset by an accrual of additional taxes other than income of $698,000. The net of these two items contributed $697,000 of net income, or $0.05 per share, to last year's third quarter. Absent these non-recurring items, the Company's net income remained unchanged quarter-over-quarter.

For the nine months ended September 30, 2014, the Company reported net income of $26.0 million, or $1.78 per share. This represents an increase of $2.9 million, or $0.19 per share, compared to the same period in 2013.

Our results for the most recent quarter and the first nine months of 2014 continue to reflect the profitable growth opportunities that we have successfully cultivated in our regulated and unregulated energy businesses," stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation. "In addition to the positive results, we have recently announced the construction of a combined heat and power plant in Florida and a $3.75 million electric rate increase in Florida, which are expected to contribute additional earnings in 2015 and future years. We also consummated the sale of BravePoint on October 1, 2014. Our employees' creativity and hard work continue to transform new opportunities into initiatives that will contribute to meeting our earnings growth objectives."

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



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2-2-2-2

Comparative Results for the Quarters Ended September�30, 2014 and 2013

The Companys operating income for the three months ended September�30, 2014 was $7.8 million, a decrease of $928,000 over the same quarter in 2013. Gross margin increased by $3.5 million, which was more than offset by an increase of $4.4 million in other operating expenses. The decrease in operating income is due primarily to two non-recurring items recorded in other operating expenses in the third quarter of 2013. These items related to recovery of previously expensed litigation costs of approximately $1.9 million ($376,000 of $1.9 million was incurred during 2013), which was partially offset by an accrual of additional taxes other than income of $698,000. Additional details on key variances in gross margin and other operating expenses are provided in the Financial Summary Highlights section later in this release.

Regulated Energy

Operating income for the regulated energy segment decreased by $1.0 million to $9.2 million for the quarter ended September�30, 2014, compared to the same quarter in 2013. Additional gross margin of $3.2 million was more than offset by a $4.3 million increase in other operating expenses. The significant components of the gross margin increase included:
"
$1.2 million of new gross margin generated from major natural gas service expansions completed in 2013 and 2014;
"
$690,000 generated as a result of other customer growth in natural gas distribution and transmission services;
"
$671,000 generated by the Florida Gas Reliability Infrastructure Program ("GRIP"); and
"
$348,000 generated by the Florida Public Utilities Company ("FPU") electric operation as a result of implementing interim rates as part of its base rate case filing.
The increase in other operating expenses was due primarily to: (a) the absence of a one-time credit of $1.9 million associated with the City of Marianna litigation cost recovery in the third quarter of 2013 ($376,000 of $1.9 million was incurred during 2013); (b) $634,000 in higher depreciation, amortization, asset removal and property tax costs associated with capital investments to support growth and maintain system integrity; (c) $558,000 in higher payroll costs incurred primarily to support recent growth and expand the Company's capabilities to cultivate future growth; (d) $362,000 in higher safety and related customer communications activities; (e) $257,000 in increased accruals for incentive bonuses as a result of strong year-to-date financial performance; and (f) $246,000 in higher costs associated with facility maintenance.

Unregulated Energy

The unregulated energy segment reported an operating loss of $2.0 million for the quarter ended September�30, 2014, compared to an operating loss of $1.8 million in the same quarter of 2013. Due to the seasonal nature of the propane distribution operations, the unregulated energy segment typically reports an operating loss in the third quarter. Gross margin decreased by $330,000 due primarily to lower profit from Xeron, Inc. ("Xeron"), the Company's propane wholesale marketing subsidiary, as a result of low volatility in wholesale propane prices during the current quarter. Other operating expenses decreased by $161,000, due to the non-recurrence of an accrual of $698,000 recorded in 2013 related to a contingency for taxes other than income; this decrease was partially offset by $375,000 of higher payroll costs principally attributable to resources added to support growth.

Other

The Other segment, which consisted primarily of BravePoint, reported operating income of $562,000 for the quarter ended September�30, 2014, compared to $280,000 in the same quarter in 2013. A gross margin increase of $588,000 due to higher consulting and product sale revenues was partially offset by a $306,000 increase in other operating expenses due primarily to the addition of sales resources. As indicated in the

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3-3-3-3

Financial Summary Highlights section in this release, the sale of BravePoint was completed on October 1, 2014.


Comparative Results for the Nine Months Ended September 30, 2014 and 2013

The Companys operating income for the nine months ended September 30, 2014 was $49.9 million, an increase of $5.5 million over the same period in 2013. Gross margin increased by $19.3 million, which was partially offset by an increase of $13.8 million in other operating expenses. Acquisitions completed in 2013 generated $2.6 million in additional operating income ($5.7 million of additional gross margin, partially offset by $3.1 million of additional other operating expenses) during the nine months ended September 30, 2014. Higher natural gas and propane usage due to colder temperatures on the Delmarva Peninsula generated $2.3 million of additional gross margin. Additional details on key variances in gross margin and other operating expenses are provided in the Financial Summary Highlights section later in this release.

Regulated Energy

Operating income for the regulated energy segment increased by $4.8 million to $41.0 million for the nine months ended September�30, 2014, compared to the same period in 2013. A gross margin increase of $15.0 million was partially offset by a $10.2 million increase in other operating expenses. The significant components of the gross margin increase included:
"
$5.4 million generated by Sandpiper as a result of the May 2013 acquisition of the operating assets of Eastern Shore Gas and its affiliates ("ESG"), which are not related to, or affiliated with, the Company's interstate natural gas transmission subsidiary, Eastern Shore Natural Gas Company ("Eastern Shore");
"
$4.2 million generated from major natural gas service expansions completed in 2013 and 2014;
"
$2.0 million generated by the Florida GRIP;
"
$1.8 million from other customer growth in natural gas distribution and transmission services; and
"
$669,000 from higher customer consumption due to colder temperatures.

The increase in other operating expenses was due primarily to: (a) $2.2 million in higher depreciation, amortization, asset removal and property tax costs associated with capital investments to support growth and maintain system integrity; (b) $2.2 million in other operating expenses associated with Sandpiper's operations; (c) $2.0 million in higher payroll costs to support recent and future growth and from a change in vacation policy in 2013; (d) the absence of a one-time credit of $1.5 million associated with the City of Marianna litigation cost recovery in 2013; (e) $1.1 million in higher benefits costs as a result of healthcare costs and other employee-related expenses; (f) $748,000 in higher costs associated with facilities maintenance; and (g) $727,000 in increased accruals for incentive bonuses as a result of strong year-to-date financial performance. These increases in other operating expenses were partially offset by the non-recurrence of a sales tax expense of $726,000 in 2013 directly related to the ESG acquisition.

Unregulated Energy

Operating income for the unregulated energy segment increased by $830,000 to $8.8 million for the nine months ended September�30, 2014, compared to the same period in 2013. A $3.5 million increase in gross margin was partially offset by a $2.7 million increase in other operating expenses. The significant components of the gross margin increase included:
"
$1.7 million in higher margin as a result of higher consumption by retail propane customers due to colder temperatures;
"
$1.4 million in increased wholesale propane sales, primarily to an affiliate of ESG; and
"
$572,000 in higher profit from Xeron, as higher volatility in wholesale propane prices resulted in higher profit on trading activity.

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4-4-4-4

The increase in other operating expenses was due primarily to: (a) $1.2 million in higher payroll expense due to increased seasonal overtime and additional resources to support growth; (b) $728,000 in additional expenses incurred by the entities acquired in 2013; and (c) the non-recurrence of an accrual of $698,000 recorded in 2013 related to a contingency for taxes other than income.

Other

The Other segment reported operating income of $25,000 and $240,000 for the nine months ended September�30, 2014 and 2013, respectively. BravePoints gross margin increased by $821,000 as a result of higher consulting revenues, while its other operating expenses increased by $1.0 million as a result of higher payroll due primarily to the addition of sales resources and benefits 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 Companys most recent report on Form 10-K for further information on the risks and uncertainties related to the Companys 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 Companys business segments. For an explanation of the calculation of gross margin, see the footnote to the Financial Summary.

Share and per share amounts for all periods presented reflect the three-for-two stock split declared on July 2, 2014, effected in the form of a stock dividend, and distributed on September 8, 2014. Unless otherwise noted, earnings per share information is presented on a diluted basis.

Conference Call

Chesapeake Utilities Corporation will host a conference call on November 7, 2014 at 10:00 a.m. Eastern Time to discuss the Companys financial results for the quarter ended September�30, 2014. To participate in this call, dial 866.821.5457 and reference Chesapeake Utilities Corporations 2014 Third Quarter Financial Results Conference Call. To access the replay recording of this call, please visit the Companys website at http://investor.chpk.com/results.cfm or download the replay on your mobile device by accessing the Audiocast section of the Company's IR App.

About Chesapeake Utilities Corporation

Chesapeake Utilities Corporation is a diversified energy company engaged in natural gas distribution, transmission and marketing, electricity distribution, propane gas distribution and wholesale marketing, and other related services. Information about Chesapeake Utilities Corporation and the Chesapeake family of businesses is available at http://www.chpk.com or through its IR App.

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

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5-5-5-5


Financial Summary
(in thousands, except per share)
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
Gross Margin�(1)
�
�
�
�
�
�
�
��Regulated Energy
$
36,316

�
$
33,089

�
$
121,148

�
$
106,142

��Unregulated Energy
6,448

�
6,778

�
35,563

�
32,054

��Other
2,880

�
2,292

�
7,021

�
6,246

�Total Gross Margin
$
45,644

�
$
42,159

�
$
163,732

�
$
144,442

�
�
�
�
�
�
�
�
Operating Income (Loss)
�
�
�
�
�
�
�
���Regulated Energy
$
9,202

�
$
10,243

�
$
41,004

�
$
36,169

���Unregulated Energy
(1,972
)
�
(1,803
)
�
8,843

�
8,013

���Other
562

�
280

�
25

�
240

�Total Operating Income
7,792

�
8,720

�
49,872

�
44,422

�
�
�
�
�
�
�
�
Other Income (loss), net of other expenses
(32
)
�
101

�
380

�
413

Interest Charges
2,495

�
2,026

�
6,954

�
6,114

Pre-tax Income
5,265

�
6,795

�
43,298

�
38,721

Income Taxes
2,085

�
2,916

�
17,303

�
15,617

�Net Income
$
3,180

�
$
3,879

�
$
25,995

�
$
23,104

�
�
�
�
�
�
�
�
Earnings Per Share of Common Stock
�
�
�
�
�
�
�
Basic
$
0.22

�
$
0.27

�
$
1.79

�
$
1.60

Diluted
$
0.22

�
$
0.27

�
$
1.78

�
$
1.59


(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 are 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. Chesapeakes 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.



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6-6-6-6

Financial Summary Highlights

Key variances for the three months ended September 30, 2014 included:

(in thousands, except per share)
�
Pre-tax
Income
�
Net
Income
�
Earnings
Per�Share
�Third Quarter of 2013 Reported Results
�
$
6,795

�
$
3,879

�
$
0.27

Adjusting for Unusual Items:
�
�
�
�
�
�
Regulatory recovery of litigation-related costs in 2013
�
(1,870
)
�
(1,112
)
�
(0.08
)
Accrual for additional taxes other than income in 2013
�
698

�
415

�
0.03

�
�
(1,172
)
�
(697
)
�
(0.05
)
Increased (Decreased) Gross Margins:
�
�
�
�
�
�
Major Projects (See Major Projects Highlights table)
�
�
�
�
�
�
Service expansions
�
1,213

�
721

�
0.05

�����Contribution from Sandpiper
�
141

�
84

�
0.01

Other natural gas growth
�
690

�
410

�
0.03

GRIP
�
671

�
399

�
0.03

Higher consulting and product revenues from BravePoint
�
581

�
346

�
0.02

Propane wholesale marketing
�
(357
)
�
(212
)
�
(0.01
)
FPU electric interim rates
�
348

�
207

�
0.01

�
�
3,287

�
1,955

�
0.14

Increased Other Operating Expenses:
�
�
�
�
�
�
Higher payroll costs
�
(1,184
)
�
(704
)
�
(0.05
)
Higher depreciation, amortization, asset removal and property tax costs due to new capital investments
�
(719
)
�
(428
)
�
(0.03
)
Higher facility maintenance costs
�
(380
)
�
(226
)
�
(0.02
)
Higher safety and related customer communications activities
�
(308
)
�
(183
)
�
(0.01
)
Higher accrual for incentive bonuses
�
(301
)
�
(179
)
�
(0.01
)
�
�
(2,892
)
�
(1,720
)
�
(0.12
)
Interest Charges
�
(469
)
�
(279
)
�
(0.02
)
Net Other Changes
�
(284
)
�
42

�


Third Quarter of 2014 Reported Results
�
$
5,265

�
$
3,180

�
$
0.22

















--more--

7-7-7-7



Key variances for the nine months ended September 30, 2014 included:
�
(in thousands, except per share)
�
Pre-tax
Income
�
Net
Income
�
Earnings
Per�Share
Nine Months Ended September 30, 2013 Reported Results
�
$
38,721

�
$
23,104

�
$
1.59

Adjusting for unusual items:
�
�
�
�
�
�
Weather impact (due primarily to colder temperatures in 2014)
�
2,346

�
1,400

�
0.10

Regulatory recovery of litigation-related costs in 2013
�
(1,494
)
�
(891
)
�
(0.06
)
One-time sales tax expensed by Sandpiper associated with the acquisition of ESG in 2013
�
726

�
433

�
0.03

Accrual for additional taxes other than income in 2013
�
698

�
416

�
0.03

�
�
2,276

�
1,358

�
0.10

Increased Gross Margins:
�
�
�
�
�
�
Major Projects (See Major Projects Highlights table)
�
�
�
�
�
�
Contribution from Sandpiper
�
5,396

�
3,220

�
0.22

Service expansions
�
4,182

�
2,495

�
0.17

GRIP
�
1,981

�
1,182

�
0.08

Other natural gas growth
�
1,806

�
1,078

�
0.07

Increased wholesale propane sales
�
1,357

�
810

�
0.06

Higher consulting and product revenues from BravePoint
�
821

�
490

�
0.03

�
�
15,543

�
9,275

�
0.63

Increased Other Operating Expenses:
�
�
�
�
�
�
Higher payroll costs
�
(3,849
)
�
(2,297
)
�
(0.16
)
Expenses from acquisitions
�
(3,068
)
�
(1,831
)
�
(0.13
)
Higher depreciation, amortization, asset removal costs and property tax costs due to new capital investments
�
(2,381
)
�
(1,421
)
�
(0.10
)
Higher benefits costs
�
(1,768
)
�
(1,055
)
�
(0.07
)
Higher facility maintenance
�
(1,079
)
�
(644
)
�
(0.04
)
Larger accrual for incentive bonuses
�
(971
)
�
(579
)
�
(0.04
)
�
�
(13,116
)
�
(7,827
)
�
(0.54
)
Interest Charges
�
(839
)
�
(501
)
�
(0.03
)
Net Other Changes
�
713

�
586

�
0.03

Nine Months ended September 30, 2014 Reported Results
�
$
43,298

�
$
25,995

�
$
1.78


The following information highlights certain key factors contributing to the Companys results for the quarter and nine months ended September�30, 2014:

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 Public Service Commission (PSC). The Company has begun to convert some of the former ESG customers to natural gas distribution

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8-8-8-8

service and is evaluating the potential conversion of others. This acquisition was accretive to earnings per share in the first full year of operations, generating $0.15 in additional earnings per share to the Company. The Company generated $141,000 and $5.4 million, in additional gross margin from Sandpiper for the three and nine months ended September 30, 2014, respectively, and incurred $22,000 and $2.2 million in additional other operating expenses for the same periods, respectively. Additionally, in the second quarter of 2013, the Company recorded $726,000 in a one-time sales tax expense associated with the acquisition of ESG.

Service Expansions
During 2013, Eastern Shore commenced new natural gas transmission services to local distribution utilities and industrial customers in Delaware and Maryland. These new services generated additional gross margin of $504,000 and $2.5 million for the three and nine months ended September 30, 2014, respectively, compared to the same periods in 2013.

Eastern Shore also executed a one-year contract with another industrial customer to provide 50,000 dekatherms per day ("Dts/d") of additional transmission service from April 2014 to April 2015. This short-term contract generated $657,000 and $1.3 million for the three and nine months ended September�30, 2014, and is expected to generate $1.9 million and $767,000 of gross margin in 2014 and 2015, respectively.

In August 2013, Peninsula Pipeline Company, Inc., the Company's intrastate natural gas transmission subsidiary, commenced a new firm transportation service in Florida for an unaffiliated utility. This new service generated $70,000 and $490,000 in gross margin for the three and nine months ended September 30, 2014, respectively, compared to the same periods in 2013.

On October 1, 2014, Eastern Shore commenced a new service to an industrial customer facility in Kent County, Delaware. This new service is expected to generate annual gross margin of approximately $1.2 million to $1.8 million. During the fourth quarter of 2014, the Company expects to generate $463,000 in additional gross margin from this new service, which required construction of new facilities, including approximately 5.5 miles of pipeline lateral and metering facilities, extending from Eastern Shore's mainline to the new industrial customer facility.

Future New Service
Eight Flags Energy, LLC (Eight Flags), one of the Company's unregulated energy subsidiaries, is engaged in the development and construction of a combined heat and power ("CHP'') plant in Nassau County, Florida. This CHP plant, which will consist of a natural-gas-fired turbine and associated electric generator, is designed to generate approximately 20 megawatts of base load power and will include a heat recovery system generator capable of providing approximately 75,000 pounds per hour of unfired steam. Eight Flags will sell the power generated from the CHP plant to FPU for distribution to its retail electric customers pursuant to a 20-year power purchase agreement. It will also sell the steam to an industrial customer pursuant to a separate 20-year contract. FPU and Peninsula Pipeline Company, the Companys intrastate pipeline subsidiary, will transport natural gas through their distribution and transmission systems, respectively, to Eight Flags plant to produce power and steam. On a consolidated basis, this project is expected to generate approximately $7.3 million in annual gross margin, which could fluctuate based upon various factors, including, but not limited to, the quantity of steam delivered and the CHP plants hours of operations. Construction of the CHP plant and associated transactions are subject to various conditions, including obtaining necessary governmental approvals, environmental and regulatory permits and completion and execution of various agreements. If all conditions are satisfied, construction of the CHP plant is currently scheduled to commence in early 2015 with commercial operation expected to commence in July 2016.


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9-9-9-9

GRIP
In August 2012, the Florida PSC approved the GRIP, which is designed to recover capital and other program-related-costs, inclusive of a return on investment, to replace older pipes in the Company's Florida service territories. The Company received approval to invest $75.0 million to replace qualifying distribution mains and services (any material other than coated steel or plastic). Since the program's inception in August 2012, the Company has invested $35.9 million. During the first nine months of 2014, the Company invested $16.1 million and expects to invest an additional $5.4 million during the remainder of 2014. These investments generated additional gross margin of $671,000 and $2.0 million for the three and nine months ended September 30, 2014, respectively, compared to the same periods in 2013.

Investing in Growth
The Company has continued to expand its resources and capabilities to support growth. The Company's Delmarva natural gas distribution operation has initiated natural gas distribution expansions in Sussex County, Delaware, and Worcester and Cecil Counties in Maryland, which require the construction and conversion of distribution facilities, as well as the conversion of residential customers appliances and equipment. To support this growth as well as future expansions, our Delmarva natural gas distribution operation has increased staffing. Resources have also been added in the Company's corporate shared services departments to increase the Companys overall capabilities to support sustained future growth. The additional staffing to support growth increased payroll expenses of the Company's Regulated Energy segment by $484,000 and $1.3 million for the three and nine months ended September 30, 2014, respectively, compared to the same periods in 2013. The Company expects to make additional investments in personnel, as needed, to further develop our capability to capitalize on future growth opportunities.
Weather and Consumption

Weather was not a significant factor in the third quarter. However, temperatures on the Delmarva Peninsula and in Florida during the first quarter of 2014 were significantly colder than the first quarter of 2013, which positively affected the Company's year-to-date results in 2014. The following tables highlight the heating degree-day ("HDD") and cooling degree-day ("CDD") information for the three and nine months ended September 30, 2014 and 2013 and the gross margin variance resulting from weather fluctuations in those periods.

--more--

10-10-10-10

HDD and CDD Information
�
Three Months Ended
�
�
�
Nine Months Ended
�
�
�
September 30,
�
�
�
September 30,
�
�
�
2014
�
2013
�
Variance
�
2014
�
2013
�
Variance
Delmarva
�
�
�
�
�
�
�
�
�
�
�
Actual HDD
89

�
129

�
(40
)
�
3,262

�
3,026

�
236

10-Year Average HDD ("Normal")
61

�
46

�
15

�
2,893

�
2,867

�
26

Variance from Normal
28

�
83

�
�
�
369

�
159

�
�
�
�
�
�
�
�
�
�
�
�
�
�
Florida
�
�
�
�
�
�
�
�
�
�
�
Actual HDD


�


�


�
574

�
487

�
87

10-Year Average HDD ("Normal")


�


�


�
555

�
570

�
(15
)
Variance from Normal


�


�
�
�
19

�
(83
)
�
�
�
�
�
�
�
�
�
�
�
�
�
�
Florida
�
�
�
�
�
�
�
�
�
�
�
Actual CDD
1,528

�
1,475

�
53

�
2,498

�
2,421

�
77

10-Year Average CDD ("Normal")
1,519

�
1,504

�
15

�
2,501

�
2,490

�
11

Variance from Normal
9

�
(29
)
�
�
�
(3
)
�
(69
)
�
�

Gross Margin Variance attributed to Weather
(in thousands)
Q3 2014 vs. Q3 2013
�
Q3 2014 vs. Normal
�
YTD 2014 vs. YTD 2013
�
YTD 2014 vs. Normal
Delmarva
�
�
�
�
�
�
�
Regulated Energy
$
13

�
$
167

�
$
268

�
$
803

Unregulated Energy
101

�
(13
)
�
1,629

�
1,037

Florida
�
�
�
�
�
�
�
Regulated Energy
132

�
38

�
401

�
(284
)
Unregulated Energy


�


�
48

�
81

Total
$
246

�
$
192

�
$
2,346

�
$
1,637




--more--

11-11-11-11

Propane

During 2014, retail propane margins on the Delmarva Peninsula began to decline to more normal levels as a significant increase in wholesale prices in late 2013 and early 2014 increased our average propane inventory cost. This reduced our Delmarva gross margin by $292,000 and $1.2 million for the three and nine months ended September�30, 2014, respectively. In Florida, higher retail propane margins as a result of local market conditions increased gross margin by $514,000 and $1.2 million for the three and nine months ended September�30, 2014.

Wholesale propane sales increased, generating additional gross margin of $71,000 and $1.4 million, for the three and nine months ended September 30, 2014, respectively, due primarily to sales to an affiliate of ESG.
Xeron, which benefits from wholesale price volatility by entering into trading transactions, experienced a quarter-over-quarter gross margin decrease of $357,000 for the three months ended September 30, 2014 due to lower wholesale price volatility. On a year-to-date basis, Xeron generated an increase in gross margin of $572,000, compared to the same period in 2013. This increase was due to higher wholesale price volatility, primarily during the winter heating season, which resulted in increased trading activity and higher profits on executed trades.
Florida Electric Rate Case
On September 15, 2014, the Florida PSC approved a settlement agreement between FPU and the Florida Office of Public Counsel in FPU's base rate case filing, which provides, among other things, an increase in FPU's annual revenue requirement of approximately $3.8 million and a rate of common equity return of 10.25 percent for FPUs electric distribution operation. The new rates will be effective for all meter reads on or after November 1, 2014. Previously, the Florida PSC approved interim rate relief, effective for meter readings on or after August 10, 2014, which generated $348,000 in additional gross margin for FPUs electric operation for the quarter and nine months ended September 30, 2014.
Other Developments

Subsequent to the end of the third quarter of 2014, the Company completed the sale of BravePoint for approximately $12.0 million in cash. The Company expects to record a gain of approximately $6.5 million to $7.0 million (approximately $4.0 million after-tax) from this sale in the fourth quarter of 2014. The Company plans to reinvest the proceeds from this sale in its regulated and unregulated energy businesses.

The Company has been working on implementation of a new customer billing system for its natural gas and electric distribution operations. As of September 30, 2014, approximately $6.4 million of the cost associated with this implementation project has been capitalized. The Company is currently reviewing the status of this project to determine its future strategy and implementation plan, which include the allocation of future capital and resources, evaluation of strategic alternatives and assessment of regulatory recovery with respect to this project.



--more--

12-12-12-12


Chesapeake Utilities Corporation and Subsidiaries
Major Projects Highlights (Unaudited)

�
Gross Margin for the Period
�
Three Months Ended
�
Nine Months Ended
�
Estimate
�
September 30,
�
September 30,
�
for
�
2014
�
2013
�
2014
�
2013
�
2014
Acquisition:
�
�
�
�
�
�
�
�
�
ESG acquisition being served by Sandpiper in Worcester County, Maryland (1)
$
1,800

�
$
1,659

�
$
7,594

�
$
2,198

�
$
9,817

Service Expansions
�
�
�
�
�
�
�
�
�
Natural Gas Distribution:
�
�
�
�
�
�
�
�
�
Long-term
�
�
�
�
�
�
�
�
�
Sussex County, Delaware
$
121

�
$
136

�
$
480

�
$
491

�
$
694

Natural Gas Transmission:
�
�
�
�
�
�
�
�
�
Short-term
�
�
�
�
�
�
�
�
�
New Castle County, Delaware (2)
$
657

�
$
173

�
$
1,256

�
$
341

�
$
1,862

Kent County, Delaware


�
579

�


�
965

�


Total Short-term
$
657

�
$
752

�
$
1,256

�
$
1,306

�
$
1,862

Long-term
�
�
�
�
�
�
�
�
�
Sussex County, Delaware
$
431

�
$
345

�
$
1,294

�
$
1,035

�
$
1,725

New Castle County, Delaware (3)
741

�
343

�
2,229

�
1,035

�
2,964

Nassau County, Florida
326

�
328

�
981

�
993

�
1,300

Worcester County, Maryland
137

�
98

�
411

�
293

�
547

Cecil County, Maryland
287

�
220

�
860

�
661

�
1,147

Indian River County, Florida
210

�
140

�
630

�
140

�
840

Kent County, Delaware
665

�


�
1,995

�


�
3,123

Total Long-term
$
2,797

�
$
1,474

�
$
8,400

�
$
4,157

�
$
11,646

�
�
�
�
�
�
�
�
�
�
Total Service Expansions
$
3,575

�
$
2,362

�
$
10,136

�
$
5,954

�
$
14,202

�
�
�
�
�
�
�
�
�
�
Total Major Projects
$
5,375

�
$
4,021

�
$
17,730

�
$
8,152

�
$
24,019



(1) During the three months and nine months ended September 30, 2014, we incurred $22,000 and $2.2 million, respectively, in other operating expenses related to Sandpiper's operations. We expect to incur a total of $6.3 million in other operating expenses during 2014.
(2) Expected gross margin in 2014 includes $1.9 million from a new short-term contract for 50,000 Dts/d for one year, which began in April 2014.
(3) 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.

The following table summarizes our future major expansion initiatives and opportunities with executed contracts (dollars in thousands):
Project
�
Estimated�Date�of�New Service
�
Estimated
Annualized
Margin
Eight Flags CHP plant in Nassau County, Florida
�
Third quarter of 2016
�
$7.3 million


--more--

13-13-13-13

Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except shares and per share data)
�
Three Months Ended
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013
�
2014
�
2013
Operating Revenues
�
�
�
�
�
�
�
Regulated Energy
$
59,356

�
$
55,680

�
$
223,168

�
$
192,463

Unregulated Energy
27,071

�
28,262

�
141,365

�
119,278

Other
5,192

�
2,603

�
13,921

�
9,678

Total Operating Revenues
91,619

�
86,545

�
378,454

�
321,419

Operating Expenses
�
�
�
�
�
�
�
Regulated energy cost of sales
23,040

�
22,591

�
102,020

�
86,321

Unregulated energy and other cost of sales
22,935

�
21,795

�
112,702

�
90,656

���Operations
25,365

�
21,300

�
76,604

�
65,878

���Maintenance
2,562

�
2,146

�
7,168

�
5,688

���Depreciation and amortization
6,774

�
6,274

�
20,146

�
18,071

���Other taxes
3,151

�
3,719

�
9,942

�
10,383

Total operating expenses
83,827

�
77,825

�
328,582

�
276,997

Operating Income
7,792

�
8,720

�
49,872

�
44,422

Other income (loss), net of other expenses
(32
)
�
101

�
380

�
413

Interest charges
2,495

�
2,026

�
6,954

�
6,114

Income Before Income Taxes
5,265

�
6,795

�
43,298

�
38,721

Income taxes
2,085

�
2,916

�
17,303

�
15,617

Net Income
$
3,180

�
$
3,879

�
$
25,995

�
$
23,104

�
�
�
�
�
�
�
�
Weighted Average Common Shares Outstanding:
�
�
�
�
�
�
�
Basic
14,574,678

�
14,438,152

�
14,539,841

�
14,424,404

Diluted
14,616,665

�
14,553,501

�
14,588,130

�
14,538,467

�
�
�
�
�
�
�
�
Earnings Per Share of Common Stock:
�
�
�
�
�
�
�
Basic
$
0.22

�
$
0.27

�
$
1.79

�
$
1.60

Diluted
$
0.22

�
$
0.27

�
$
1.78

�
$
1.59


--more--

14-14-14-14


Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)
Assets
�
September�30, 2014
�
December�31, 2013
(in thousands, except shares)
�
�
�
�
�Property, Plant and Equipment
�
�
�
�
�Regulated energy
�
$
730,879

�
$
691,522

�Unregulated energy
�
80,500

�
76,267

�Other
�
21,974

�
21,002

�Total property, plant and equipment
�
833,353

�
788,791

�Less: Accumulated depreciation and amortization
�
(192,515
)
�
(174,148
)
�Plus: Construction work in progress
�
38,611

�
16,603

�Net property, plant and equipment
�
679,449

�
631,246

�Current Assets
�
�
�
�
�Cash and cash equivalents
�
2,285

�
3,356

Accounts receivable (less allowance for uncollectible accounts of $1,282 and $1,635, respectively)
�
43,270

�
75,293

�Accrued revenue
�
7,629

�
13,910

�Propane inventory, at average cost
�
7,303

�
10,456

�Other inventory, at average cost
�
2,991

�
4,880

�Storage gas prepayments
�
4,990

�
4,318

�Prepaid expenses
�
7,887

�
6,910

�Income taxes receivable
�
2,100

�
2,609

�Mark-to-market energy assets
�
187

�
385

�Regulatory assets
�
7,790

�
2,436

�Deferred income taxes
�
1,700

�
1,696

�Other current assets
�
201

�
160

�Total current assets
�
88,333

�
126,409

�Deferred Charges and Other Assets
�
�
�
�
�Investments, at fair value
�
3,481

�
3,098

�Regulatory assets
�
66,241

�
66,584

�Goodwill
�
4,625

�
4,354

�Other intangible assets, net
�
2,675

�
2,975

�Receivables and other deferred charges
�
2,746

�
2,856

�Total deferred charges and other assets
�
79,768

�
79,867

Total Assets
�
$
847,550

�
$
837,522





--more--

15-15-15-15

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities
�
September�30, 2014
�
December�31, 2013
(in thousands, except shares and per share data)
�
�
�
�
�Capitalization
�
�
�
�
�Stockholders' equity
�
�
�
�
�Common stock, par value $0.4867 per share
�
�
�
�
(authorized 25,000,000 shares)
�
$
7,095

�
$
4,691

�Additional paid-in capital
�
155,407

�
152,341

�Retained earnings
�
136,188

�
124,274

�Accumulated other comprehensive loss
�
(2,469
)
�
(2,533
)
�Deferred compensation obligation
�
1,217

�
1,124

�Treasury stock
�
(1,217
)
�
(1,124
)
�Total stockholders' equity
�
296,221

�
278,773

�Long-term debt, net of current maturities
�
165,044

�
117,592

�Total capitalization
�
461,265

�
396,365

�Current Liabilities
�
�
�
�
�Current portion of long-term debt
�
11,113

�
11,353

�Short-term borrowing
�
71,169

�
105,666

�Accounts payable
�
33,371

�
53,482

�Accrued compensation
�
7,269

�
8,394

�Accrued interest
�
3,347

�
1,235

�Dividends payable
�
3,936

�
3,710

�Mark-to-market energy liabilities
�
141

�
127

�Regulatory liabilities
�
2,797

�
4,157

�Customer deposits and refunds
�
24,970

�
26,140

�Other accrued liabilities
�
10,950

�
7,678

�Total current liabilities
�
169,063

�
221,942

�Deferred Credits and Other Liabilities
�
�
�
�
�Deferred income taxes
�
142,507

�
142,597

�Deferred investment tax credits
�
49

�
74

�Regulatory liabilities
�
3,772

�
4,402

�Accrued asset removal cost - Regulatory liability
�
39,851

�
39,510

�Environmental liabilities
�
9,022

�
9,155

�Other pension and benefit costs
�
18,246

�
21,000

�Other liabilities
�
3,775

�
2,477

�Total deferred credits and other liabilities
�
217,222

�
219,215

Total Capitalization and Liabilities
�
$
847,550

�
$
837,522



--more--

16-16-16-16

Chesapeake Utilities Corporation and Subsidiaries
Distribution Utility Statistical Data (Unaudited)
�
For the Three Months Ended September 30, 2014
�
For the Three Months Ended September 30, 2013
�
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
$
5,175

$
1,036

$
4,537

$
13,093

�
$
4,886

$
1,009

$
4,041

$
12,748

��Commercial
5,553

1,010

6,952

10,896

�
5,001

1,002

6,456

11,154

��Industrial
1,672

1,233

2,567

478

�
1,527

1,181

2,565

914

��Other (1)
559

788

(358
)
(2,582
)
�
602

621

(638
)
(2,845
)
Total Operating Revenues
$
12,959

$
4,067

$
13,698

$
21,885

�
$
12,016

$
3,813

$
12,424

$
21,971

�
�
�
�
�
�
�
�
�
�
Volume (in Dts/MWHs)
�
�
�
�
�
�
�
�
��Residential
174,962

44,996

192,663

95,041

�
171,171

53,804

189,199

90,415

��Commercial
470,647

290,901

518,360

92,455

�
452,402

292,554

534,252

91,484

��Industrial
991,396

2,830,265

784,824

7,090

�
972,620

2,818,902

725,964

6,400

��Other
31,036



(15,200
)
1,707

�
27,223



(25,547
)
2,520

Total
1,668,041

3,166,162

1,480,647

196,293

�
1,623,416

3,165,260

1,423,868

190,819

�
�
�
�
�
�
�
�
�
�
Average Customers
�
�
�
�
�
�
�
�
��Residential
61,326

14,356

50,691

23,894

�
59,884

13,917

49,363

23,771

��Commercial
6,453

1,380

4,343

7,411

�
6,374

1,303

4,440

7,414

��Industrial
110

59

1,347

2

�
114

60

1,075

2

��Other
7







�
6







Total
67,896

15,795

56,381

31,307

�
66,378

15,280

54,878

31,187

�
�
�
�
�
�
�
�
�
�


�
For the Nine Months Ended September 30, 2014
�
For the Nine Months Ended September 30, 2013
�
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
$
51,016

$
3,617

$
18,399

$
33,607

�
$
38,049

$
3,457

$
16,820

$
32,312

��Commercial
28,304

3,312

24,982

28,362

�
20,337

3,242

24,654

29,158

��Industrial
4,677

3,794

9,354

2,911

�
4,565

3,696

8,457

3,304

��Other (1)
(3,122
)
2,362

(1,746
)
(6,152
)
�
(2,136
)
1,758

(3,839
)
(6,979
)
Total Operating Revenues
$
80,875

$
13,085

$
50,989

$
58,728

�
$
60,815

$
12,153

$
46,092

$
57,795

�
�
�
�
�
�
�
�
�
�
Volume (in Dts/MWHs)
�
�
�
�
�
�
�
�
��Residential
2,953,300

254,612

957,430

244,631

�
2,375,274

252,510

932,222

227,046

��Commercial
2,851,167

1,019,970

1,939,673

238,878

�
2,442,563

1,023,376

2,071,004

235,608

��Industrial
3,163,735

9,861,224

2,930,761

23,960

�
2,987,008

10,455,389

2,786,936

23,180

��Other
57,088



(97,953
)
(4,309
)
�
49,972



(178,441
)
13,809

Total
9,025,290

11,135,806

5,729,911

503,160

�
7,854,817

11,731,275

5,611,721

499,643

�
�
�
�
�
�
�
�
�
�
Average Customers
�
�
�
�
�
�
�
�
��Residential
62,028

14,364

50,781

23,868

�
60,519

13,950

49,366

23,757

��Commercial
6,531

1,363

4,383

7,413

�
6,449

1,291

4,514

7,407

��Industrial
109

60

1,280

2

�
112

58

998

2

��Other
7







�
5







Total
68,675

15,787

56,444

31,283

�
67,085

15,299

54,878

31,166

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



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