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Chesapeake Utilities Corporation Reports Sixth Consecutive Year of Record Earnings

March 7, 2013

- 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(TM) and Application Evolution(TM) 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(TM) and Application Evolution(TM) 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:

                                                                                     (3,627)         (2,197)           (0.23)

         Weather impact

                                                                                     (2,354)         (1,426)           (0.15)

         Amortization of FPU acquisition premium and costs

                                                                                      1,299             787             0.08

         Severance and pension settlement charge in 2011

                                                                                     (1,049)           (636)           (0.07)

         Florida regulatory reserve and sales tax reserve reversal in 2011

                                                                                        684             414             0.04

         Amortization of FPU pre-merger deferred tax gain

                                                                                       (575)           (348)           (0.04)

         Litigation settlement with a major propane supplier in 2011

                                                                                       (553)           (335)           (0.03)

         Gain from the sale of Internet Protocol asset in 2011

                                                                                     (6,175)         (3,741)           (0.40)

    Increased Margins:

                                                                                      6,263           3,793             0.40

         Natural gas growth

                                                                                      2,724           1,650             0.17

         Higher propane retail margins per gallon

                                                                                      2,602           1,576             0.16

         BravePoint

                                                                                     11,589           7,019             0.73

    Increased Other Operating Expenses:

                                                                                     (1,523)           (923)           (0.10)

         BravePoint, primarily due to employee-related costs

                                                                                     (1,326)           (803)           (0.08)

         Higher depreciation, asset removal and facilities costs

                                                                                       (758)           (459)           (0.05)

         Acquisition-related costs and increased capacity for future growth

                                                                                     (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:

                                    1,223            729             0.08

         Weather impact

                                     (750)          (447)           (0.05)

         Florida
          regulatory
          reserve and
          sales tax
          reserve
          reversal in
          2011

                                      684            408             0.04

         Amortization of
          FPU pre-merger
          deferred tax
          gain

                                     (589)          (351)           (0.04)

         Amortization of
          FPU acquisition
          premium and
          costs

                                      568            339             0.03

    Increased
     Margins:

                                    1,482            883             0.09

         Natural gas
          growth

                                    1,364            813             0.08

         Higher propane
          retail margins
          per gallon

                                      752            448             0.05

         BravePoint

                                    3,598          2,144             0.22

    Increased Other
     Operating
     Expenses:

                                     (565)          (337)           (0.03)

         BravePoint,
          primarily due
          to employee-
          related costs

                                     (223)          (133)           (0.01)

         Higher natural
          gas
          transmission
          facilities
          costs

                                     (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                               Q4 2012                                YTD                      Estimated

                                                                                                                                         Service                                 Margin                              December                   Annualized

                                                                                                                                                                                                                    2012 Margin                   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                                                                   Estimated
                                                                                                                                                                                                                 Annualized Margin
                                                                                                                                         Service
    ---                                                                                                                                  -------

    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,           December 31,
                                                                                                                                  2012
                                                                                                                                                           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,                December 31,
                                                                         2012
                                                                                                     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                            Chesapeake                              FPU NG                           FPU Electric                                   Delmarva NG             Chesapeake                FPU NG               FPU Electric

                                                                                   Distribution                           Florida NG                           Distribution                        Distribution                                   Distribution            Florida NG             Distribution            Distribution

                                                                                                                           Division                                                                                                                                        Division
                                                                                                                                                                                                                                                                                     ---                                                       ---

    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                               Chesapeake                                  FPU NG                               FPU Electric                               Delmarva NG            Chesapeake              FPU NG              FPU Electric

                                                                                        Distribution                              Florida NG                               Distribution                            Distribution                               Distribution           Florida NG           Distribution           Distribution

                                                                                                                                   Division                                                                                                                                           Division
                                                                                                                                                                                                                                                                                        ---                                                            ---

    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


Source: PR Newswire