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Last updated on April 16, 2014 at 13:13 EDT

Chesapeake Utilities Corporation Reports Higher Earnings for the Third Quarter

November 7, 2013

- Third quarter net income increased to $3.9 million, or $0.40 per share

DOVER, Del., Nov. 7, 2013 /PRNewswire/ — Chesapeake Utilities Corporation (NYSE: CPK) today reported third quarter financial results. The Company’s net income for the quarter ended September 30, 2013 was $3.9 million, or $0.40 per share. This represents an increase of $660,000, or $0.07 per share, compared to the same quarter in 2012.

For the nine months ended September 30, 2013, the Company reported net income of $23.1 million, or $2.39 per share. This represents an increase of $4.1 million, or $0.42 per share, compared to the same period in 2012.

Third quarter 2013 results included the impact of two non-recurring adjustments: (a) a reduction in operating expenses of $1.9 million to establish a regulatory asset, resulting from approval by the Florida Public Service Commission of recovery of previously expensed costs associated with the City of Marianna, Florida franchise litigation, which was partially offset by (b) an accrual of $698,000 due to a contingency for taxes other than income.

“I am pleased with both our third quarter and year-to-date financial performance,” stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation. “Several items highlight our performance, including higher earnings generated from continued growth in our regulated businesses and the contribution from recent acquisitions. We have also, as planned, invested in strengthening various internal functions that support our strategic plan and continued growth. We recorded additional gross margin from firm transmission services initiated in May 2013 by Eastern Shore Natural Gas Company (“Eastern Shore”), our interstate pipeline subsidiary, and new transmission services, which commenced in August 2013 by Peninsula Pipeline Company, Inc. (“Peninsula Pipeline”), our intrastate pipeline subsidiary in Florida. Finally, Sandpiper Energy, Inc. (“Sandpiper”), our new wholly-owned subsidiary serving approximately 11,000 residential and commercial underground propane system customers acquired in May 2013, also made a positive contribution to our earnings in the third quarter,” Mr. McMasters noted.

“We continue to identify and develop new and innovative growth opportunities both within and beyond our existing geographical and energy footprint. For example, Eastern Shore has requested regulatory approval to construct a pipeline lateral to an electric generation plant that Calpine Energy Services, L.P. (“Calpine”) is building in Dover, Delaware. We have several other opportunities in the pipeline that we are evaluating. With the sustained natural gas price advantage and increasing price advantage of propane gas over fuel oil, we are investing in additional resources not only to support recent and future growth in our existing businesses but also to increase our capacity and capabilities to identify, screen and develop new opportunities to grow in our existing and new markets. We expect to incur additional costs as we continue to expand this capability,” Mr. McMasters added.

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

Comparative Results for the Quarters Ended September 30, 2013 and 2012

The Company’s operating income for the three months ended September 30, 2013 was $8.7 million, an increase of $1.2 million, compared to the same quarter in 2012. Gross margin increased by $3.7 million in the third quarter of 2013, compared to the same quarter in 2012, $2.4 million of which was related to gross margin generated by acquisitions completed in 2013. Other operating expenses increased by $2.5 million in the third quarter of 2013, compared to the same quarter in 2012. Included in other operating expenses in the third quarter of 2013 was $2.1 million of additional operating expenses related to acquisitions completed earlier in the year as well as an increase in other taxes, both of which were partially offset by the reduction in operations expense associated with the City of Marianna litigation cost recovery.

Regulated Energy

Operating income for the regulated energy segment increased by $2.4 million to $10.2 million for the quarter ended September 30, 2013, compared to the same quarter in 2012. An increase in gross margin of $3.0 million was offset by an increase of $600,000 in other operating expenses. The significant components of the gross margin increase included:

    --  $1.7 million in additional gross margin generated by Sandpiper, due to
        the acquisition in late May 2013; and
    --  $1.2 million of increased gross margin due to: (a) natural gas growth
        from major service expansions initiated in 2012 and 2013, and (b)
        additional residential, commercial and industrial customer growth on the
        Delmarva Peninsula and in Florida.

The increase in other operating expenses was due primarily to: (a) $1.3 million in other operating expenses associated with Sandpiper’s operations, (b) $411,000 in higher depreciation expense, amortization, asset removal and property tax costs associated with capital investments to support growth and maintain system integrity, (c) $319,000 in increased administrative costs, such as accounting, information technology and insurance costs, and (d) $298,000 in additional investments in corporate resources to further develop the Company’s capability to capitalize on future growth opportunities. These increases were partially offset by a reduction of $1.9 million in operations expense to establish a regulatory asset for the recovery of previously expensed City of Marianna franchise litigation costs.

Unregulated Energy

Operating loss for the unregulated energy segment for the quarter ended September 30, 2013 was $1.8 million, compared to an operating loss of $709,000 for the same quarter in 2012. An increase in gross margin of $552,000 was offset by an increase in other operating expenses of $1.6 million. The significant components of the gross margin increase included:

    --  $757,000 in additional gross margin generated from acquisitions
        completed earlier in 2013; and
    --  $517,000 in lower gross margin generated by Xeron, Inc. ("Xeron"), the
        Company's propane wholesale marketing subsidiary, as lower volatility in
        wholesale propane prices resulted in lower profit on trading activity.

The increase in other operating expenses was due primarily to $754,000 in additional expenses incurred by the 2013 acquisitions and $698,000 in additional taxes other than income accrued during the quarter.

Other

The “other” segment, which consists primarily of BravePoint(®), Inc. (“BravePoint”), the Company’s advanced information services subsidiary, reported an operating income of $280,000 for the quarter ended September 30, 2013, down from $425,000 in the same quarter in 2012. This decline reflected a $286,000 increase in operating expenses, which was partially offset by a slight increase in gross margin to $2.3 million in the third quarter of 2013 from $2.2 million in the third quarter of 2012.

Comparative Results for the Nine Months Ended September 30, 2013 and 2012

Operating income for the nine months ended September 30, 2013 was $44.4 million, an increase of $6.3 million, compared to the same period in 2012. Gross margin increased by $14.7 million in the nine months ended September 30, 2013, compared to the same period in 2012, $3.9 million of which related to additional gross margin generated by colder weather in 2013 and $3.8 million of which related to acquisitions completed earlier in 2013. Other operating expenses increased by $8.4 million for the nine months ended September 30, 2013, compared to the same period in 2012, $3.2 million of which related to additional operating expenses associated with the ongoing operations of the acquisitions completed earlier in 2013. Also included in other operating expenses in 2013 were the following non-recurring items: (a) $726,000 of one-time sales tax expensed by Sandpiper related to the acquisition in May, and (b) an accrual of $698,000 due to a contingency for taxes other than income, partially offset by (c) a $1.5 million reduction in expense related to regulatory recovery of the City of Marianna franchise litigation costs expensed in 2011 and 2012.

Regulated Energy

Operating income for the regulated energy segment increased by $3.0 million to $36.2 million for the nine months ended September 30, 2013, compared to the same period in 2012. An increase in gross margin of $7.3 million was partially offset by an increase in other operating expenses of $4.3 million. The significant components of the gross margin increase included:

    --  $3.9 million due to natural gas business growth resulting from: (a)
        major service expansions initiated in 2012 and 2013; and (b) additional
        residential, commercial and industrial customer growth on the Delmarva
        Peninsula and in Florida;
    --  $1.1 million as a result of increased consumption by natural gas and
        electric customers due to temperatures in 2013 that returned to more
        normal levels (primarily during the first quarter); and
    --  $2.2 million generated by Sandpiper due to the acquisition completed in
        late May 2013.

The increase in other operating expenses was due primarily to (a) $1.8 million in other operating expenses associated with Sandpiper’s operations, (b) an increase of $989,000 in the accrual for incentive bonuses as a result of increased participation in the bonus program and the Company’s financial performance on a year-to-date basis, (c) $942,000 in increased administrative costs, such as accounting, information technology and insurance costs, (d) $824,000 in additional investments in corporate resources to further develop the Company’s capability to capitalize on future growth opportunities, (e) a one-time sales tax of $726,000 expensed by Sandpiper related to the acquisition in May 2013, and (f) $560,000 in higher depreciation, amortization, asset removal costs and property taxes associated with capital expenditures to support growth and maintain system integrity. These increases were partially offset by a reduction of $1.5 million for recovery of previously expensed litigation costs.

Unregulated Energy

Operating income for the unregulated energy segment increased by $4.0 million to $8.0 million for the nine months ended September 30, 2013, compared to the same period in 2012. An increase in gross margin of $7.4 million was partially offset by an increase in other operating expenses of $3.4 million. The significant components of the gross margin increase included:

    --  $3.3 million in increased gross margin generated from higher retail
        propane margins due to a significant decrease in the average wholesale
        market price of propane, which lowered the Company's cost of propane
        sales;
    --  $2.8 million in additional gross margin from higher propane sales due to
        temperatures returning to more normal levels and therefore, resulting in
        higher consumption by propane customers (primarily during the first
        quarter);
    --  $1.6 million in additional gross margin generated from acquisitions
        completed earlier in 2013; and $1.5 million in lower gross margin
        generated by Xeron, as lower volatility in wholesale propane prices
        resulted in lower profit on trading activity.

The increase in other operating expenses was due primarily to (a) $1.4 million in additional expenses associated with serving newly acquired customers, (b) an accrual of $698,000 due to a contingency for taxes other than income, and (c) $371,000 in the increased accrual for incentive bonuses as a result of the strong 2013 year-to-date financial performance of the unregulated energy segment.

Other

The “other” segment, which consists primarily of BravePoint, reported operating income of $240,000 for the nine months ended September 30, 2013, compared to $897,000 in the same period in 2012. Gross margin remained unchanged at $6.2 million for both the nine months ended September 30, 2013 and 2012. Other operating expenses increased by $694,000 to $6.0 million in the nine months ended September 30, 2013 due primarily to BravePoint’s higher payroll and related costs.

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.

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)

                                                                            ---

                                          Third Quarter                       Year to Date
                                                                          ------------

    For the Periods
     Ended September
     30,                             2013       2012       2013        2012
    ----------------                 ----       ----       ----        ----

    Gross Margin (1)

      Regulated Energy                       $33,089                           $30,094                        $106,142  $98,838

      Unregulated
       Energy                       6,778                 6,226                 32,054                 24,677

      Other                         2,292                 2,151                  6,246                  6,209
      -----                         -----                 -----                  -----                  -----

     Total Gross
      Margin                                 $42,159                           $38,471                        $144,442 $129,724
     ===========                             =======                           =======                        ======== ========

    Operating Income (Loss)

       Regulated Energy                      $10,243                            $7,848                         $36,169  $33,151

       Unregulated
        Energy                     (1,803)                 (709)                 8,013                  4,044

       Other                          280                   425                    240                    897
       -----

    Total Operating
     Income                         8,720                 7,564                 44,422                 38,092
    ---------------                 -----                 -----                 ------                 ------

    Other Income
     (loss), net of
     other expenses                   101                  (136)                   413                    212

    Interest Charges                2,026                 2,126                  6,114                  6,657

    Income Taxes                    2,916                 2,083                 15,617                 12,641
    ------------                    -----

     Net Income                               $3,879                            $3,219                         $23,104  $19,006
     ==========                               ======                            ======                         =======  =======

    Earnings Per Share of Common
     Stock

    Basic                                      $0.40                             $0.34                           $2.40    $1.98

    Diluted                                    $0.40                             $0.33                           $2.39    $1.97

    Heating Degree-Days - Delmarva
     Peninsula

    Actual                            129                    79                  3,026                  2,375

    10-year average
     (normal)                          46                    47                  2,867                  2,899

    Heating Degree-Days - Florida

    Actual                              -                     -                    487                    347

    10-year average
     (normal)                           -                     -                    570                    587

    Cooling Degree-Days - Florida

    Actual                          1,475                 1,475                  2,421                  2,622

    10-year average
     (normal)                       1,504                 1,505                  2,490                  2,486

    (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 three months ended September 30, 2013 included:

    (in thousands, except per share)                         Pre-tax             Net            Earnings

                                                             Income             Income         Per Share
                                                             ------             ------         ---------

    Third Quarter of 2012 Reported Results                               $5,302                          $3,219        $0.33

    Adjusting for unusual items:

    Regulatory recovery of litigation-
     related costs                                              1,870                   1,135                    0.11

    Accrual for additional taxes other
     than income                                                 (698)                   (424)                  (0.04)
                                                                 ----

                                                                1,172                     711                    0.07
                                                                -----                     ---                    ----

    Increased (Decreased) Gross Margins:

    Contribution from new acquisitions                          2,416                   1,467                    0.15

    Natural gas growth                                          1,213                     738                    0.07

    Propane wholesale marketing                                  (517)                   (314)                  (0.04)

                                                                3,112                   1,891                    0.18
                                                                -----                   -----                    ----

    Increased Other Operating Expenses:

    Operating the acquisitions                                 (2,057)                 (1,249)                  (0.12)

    Additional investments in corporate
     resources to capitalize on future
     growth opportunities                                        (389)                   (236)                  (0.02)

    Increased administrative costs
     (accounting, information technology
     and insurance)                                              (156)                    (95)                  (0.01)
                                                                 ----

                                                               (2,602)                 (1,580)                  (0.15)
                                                               ------                  ------                   -----

    Net Other Changes                                            (189)                   (362)                  (0.03)
                                                                 ----                    ----                   -----

    Third Quarter of 2013 Reported Results                               $6,795                          $3,879        $0.40
                                                                         ======                          ======        =====

The Company’s results in the third quarter of 2013 reflected: (a) a reduction in operations expense of $1.9 million due to establishing a regulatory asset for the recovery of previously expensed City of Marianna Florida franchise litigation costs, and (b) an accrual of $698,000 due to a contingency for taxes other than income. These two items resulted in a quarter-over-quarter increase in pre-tax income of $1.2 million ($711,000 in net income, or $0.07 per share).

The Company’s results also reflected additional gross margin generated by:


    (a)             serving new customers acquired
                    in 2013 through acquisitions;

    (b)             new and additional transmission
                    services, which commenced in
                    May 2013, to the NRG Energy
                    Center Dover LLC ("NRG")
                    electric generation plant and
                    the PBF Energy Inc. ("PBF
                    Energy") refinery in Delaware
                    City, Delaware; and

    (c)             growth in residential,
                    commercial and industrial
                    natural gas distribution
                    customers on the Delmarva
                    Peninsula and in Florida.

These increases were partially offset by lower gross margin generated by Xeron as lower volatility in wholesale propane prices resulted in lower margins in executed trades and increased other operating expenses as a result of:


    (a)             additional costs incurred to serve
                    new customers acquired in 2013;

    (b)             additional investments in corporate
                    resources to further develop the
                    Company's capability to capitalize
                    on future growth opportunities;
                    and

    (c)             increased costs associated with
                    administrative functions, such as
                    accounting, information technology
                    and insurance.

Key variances for the nine months ended September 30, 2013 included:


    (in thousands, except per
     share)                       Pre-tax            Net            Earnings

                                  Income            Income         Per Share
                                  ------            ------         ---------

    Nine months ended September
     30, 2012 Reported Results              $31,647                          $19,006        $1.97

    Adjusting for unusual items:

    Weather impact (due primarily
     to significantly warmer-
     than-normal weather in
     2012)                           3,891                  2,337                     0.24

    Regulatory recovery of
     litigation-related costs        1,494                    897                     0.09

    One-time sales tax expensed
     by Sandpiper associated with
     the acquisition                  (726)                  (436)                   (0.05)

    Accrual for additional taxes
     other than income                (698)                  (419)                   (0.04)
                                      ----                   ----                    -----

                                     3,961                  2,379                     0.24
                                     -----                  -----                     ----

    Increased (Decreased) Gross
     Margins:

    Natural gas growth               3,942                  2,369                     0.25

    Contribution from new
     acquisitions                    3,753                  2,254                     0.23

    Higher propane retail margins
     per gallon                      3,265                  1,961                     0.20

    Propane wholesale marketing     (1,453)                  (873)                   (0.09)
                                    ------                   ----                    -----

                                     9,507                  5,711                     0.59
                                     -----                  -----                     ----

    Increased Other Operating
     Expenses:

    Operating the acquisitions      (3,186)                (1,913)                   (0.19)

    Larger accrual for incentive
     bonuses                        (1,374)                  (825)                   (0.09)

    Additional investments in
     corporate resources to
     capitalize on future growth
     opportunities                    (969)                  (582)                   (0.06)

    Increased administrative
     costs (accounting,
     information technology and
     insurance)                       (668)                  (401)                   (0.04)
                                      ----                   ----                    -----

                                    (6,197)                (3,721)                   (0.38)
                                    ------                 ------                    -----

    Net Other Changes                 (197)                  (271)                   (0.03)
                                      ----                   ----                    -----

    Nine months ended September
     30, 2013 Reported Results              $38,721                          $23,104        $2.39
                                            =======                          =======        =====

The Company’s results in the first nine months of 2013 reflected additional gross margin generated by:


    (a)             new services and customer growth
                    in the natural gas transmission
                    and distribution operations as a
                    result of major expansion
                    initiatives completed in 2012
                    and 2013;

    (b)             new and additional transmission
                    services, which commenced in May
                    2013, to the NRG electric
                    generation plant in Dover,
                    Delaware and the PBF Energy
                    refinery in Delaware City,
                    Delaware;

    (c)             temperatures on the Delmarva
                    Peninsula returning to more
                    normal levels during the first
                    nine months of 2013 (primarily
                    during the heating season),
                    compared to the same period in
                    2012;

    (d)             serving new customers acquired in
                    2013 through acquisitions;

    (e)             strong retail propane margins per
                    gallon through the first nine
                    months of 2013 due to the
                    significant decrease in the
                    average wholesale market price
                    of propane, which lowered the
                    Company's cost of propane sales.

A reduction in operating expense due to establishing a regulatory asset for the recovery of previously expensed City of Marianna franchise litigation costs also contributed to the increased financial results. These increases were partially offset by decreased gross margins for Xeron, as lower price volatility during the current period resulted in lower-than-usual profit on trading activity, and increased other operating expenses as a result of:


    (a)             additional costs incurred to serve
                    new customers acquired in 2013;

    (b)             increased accruals for incentive
                    bonuses due to the Company's
                    financial performance on a year-
                    to-date basis, the timing of
                    bonus recognition and increased
                    participation in the bonus
                    program;

    (c)             additional investments in corporate
                    resources to further develop the
                    Company's capability to capitalize
                    on future growth opportunities;

    (d)             a one-time sales tax expensed by
                    Sandpiper related to the
                    acquisition;

    (e)             an accrual due to a contingency for
                    taxes other than income; and

    (f)             increased costs associated with
                    administrative functions, such as
                    accounting, information technology
                    and insurance.

The following information highlights certain key factors contributing to the Company’s results for the quarter and nine months ended September 30, 2013:

Growth

New natural gas transmission services and growth in natural gas distribution customers generated $1.2 million and $3.9 million, respectively, in additional gross margin during the three and nine months ended September 30, 2013. These growth initiatives are further explained in the following section.

Major Service Expansions and Customer Growth Reflected in Results

Expansion of natural gas transmission and distribution services in Sussex County, Delaware, Cecil and Worcester Counties, Maryland, and Nassau County, Florida, which commenced during the period from March 2012 to January 2013, generated additional gross margin of $119,000 and $1.1 million in the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012.

In May 2013, Eastern Shore commenced new transmission service to the NRG electric generation plant in Dover, Delaware, which generated $579,000 and $965,000 in additional gross margin in the three and nine months ended September 30, 2013. Eastern Shore began providing the service in May 2013 using existing system capacity under a short-term contract. Once new facilities are constructed for the NRG Dover plant, a long-term firm service contract will replace the short-term contract and generate $2.4 million to $2.8 million of annual gross margin.

Also in May 2013, Eastern Shore commenced additional interim services to the PBF Energy refinery located in Delaware City, Delaware. These new services, which generated $133,000 and $221,000 in gross margin in the three and nine months ended September 30, 2013, respectively, are part of Eastern Shore’s system expansion to provide 15,000 Dts/d of firm transportation service to this existing customer and will replace the 10,000 Dts/d contract that expired in November 2012. Once additional facilities are constructed by November 2013, the incremental service is expected to generate annual gross margin of $1.6 million. Eastern Shore provided additional interruptible service for the three and nine months ended September 30, 2013, which generated $43,000 and $487,000, respectively, of additional gross margin. This interruptible service was partially displaced by 5,000 Dts/d of short-term firm service under a contract for the period from May to October 2013, which will generate $265,000 of gross margin, and then ultimately by a new long-term firm service contract for 15,000 Dts/d, commencing in December 2013.

In August 2013, Peninsula Pipeline commenced a new firm transportation service in Florida with an unaffiliated utility. This new service generated $140,000 in gross margin in the three and nine months ended September 30, 2013.

In addition to these service expansions, the natural gas distribution operations on the Delmarva Peninsula and in Florida have generated $329,000 and $1.5 million in additional gross margin in the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012, due to increases in the number of residential, commercial and industrial customers served. These increases are due primarily to a two-percent increase in residential customers on the Delmarva Peninsula, excluding the impact of the acquisition, and increases in commercial and industrial customers in Florida.

Future Major Expansion Initiatives and Opportunities

In June 2013, Eastern Shore filed an application with the FERC, seeking approval to construct a pipeline lateral to the Calpine electric power plant under construction in Dover, Delaware. Upon obtaining approval from the FERC and completing construction of the required facilities, this new service is expected to generate annual gross margin of approximately $1.2 million to $1.8 million. The new facilities include approximately 5.5 miles of lateral pipeline and metering facilities and extend from Eastern Shore’s mainline to the new Calpine plant. The construction of this lateral will not increase the overall capacity of Eastern Shore’s mainline system. Service is projected to commence in January 2015, although this is dependent on the timing of the receipt of the necessary regulatory approval.

As the Company expands its natural gas service to new areas, initially through transmission and distribution service to large industrial customers, the 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 Delaware service areas, the Company’s Delaware natural gas distribution division filed an application with the Delaware 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, including areas of southeastern Sussex County. On November 5, 2013, the Delaware PSC approved the Company’s application.

Acquisition

In late May 2013, the Company completed the purchase of the operating assets of Eastern Shore Gas Company and its affiliates. Approximately 11,000 residential and commercial underground propane distribution system customers acquired in this transaction are now being served by Sandpiper under the tariff approved by the Maryland PSC. The Company is evaluating the potential conversion of some of these systems to natural gas and will pursue such conversion where it is both feasible and economical. This acquisition is expected to be accretive to earnings per share in the first full year of operations. The Company generated $1.7 million in additional gross margin and incurred $1.3 million in other operating expenses for the three months ended September 30, 2013. For the nine months ended September 30, 2013, the Company generated $2.2 million in additional gross margin and incurred $1.8 million in other operating expenses.

Investing in Growth

The Company continues to expand its resources and capabilities to support growth. The Company’s Delmarva natural gas distribution operation is in the early stages of natural gas distribution expansions in Sussex County, Delaware, and Worcester and Cecil Counties, Maryland. These expansions will require not only the construction or conversion of distribution facilities, but also the conversion of residential customers’ appliances or equipment. The Company has begun the process of reorganizing our Delmarva natural gas distribution operation and expects to increase staffing to support future expansions. Eastern Shore is currently constructing new facilities to provide additional services to NRG and the PBF Energy Delaware City refinery as well as developing other opportunities to further expand its transmission system. As Eastern Shore continues to expand its facilities and service, it also expects to increase its staffing. Finally, to increase our overall capabilities to move growth initiatives forward and to assist in developing additional strategic initiatives for sustained 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. The Company expects to make additional investments in corporate resources to further develop its capability to capitalize on future growth opportunities.

Weather and Consumption

Although weather was not a significant factor in the second and third quarters, temperatures on the Delmarva Peninsula and in Florida returned to more normal levels during the first three months of 2013 and had a significant impact on the Company’s earnings. The Company generated $3.9 million of additional gross margin due to higher energy consumption as temperatures on the Delmarva Peninsula and in Florida in the first nine months of 2013 were 27-percent (651 heating degree-days) and 40-percent (140 heating degree-days), respectively, colder than the same period in 2012.

Propane Prices

Although retail propane margins returned to more normal levels in the third quarter, retail margins remained strong through the heating season in early 2013, as a 25-percent decline in propane costs from lower propane wholesale prices in late 2012 and early 2013 outpaced a slight decline in retail prices. The Company’s propane distribution operation generated additional gross margin of $3.3 million in the nine months ended September 30, 2013, compared to the same period in 2012, due to higher retail margins per gallon. 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.

Xeron, the Company’s propane wholesale marketing subsidiary, benefits from price volatility in the propane wholesale market by entering into trading transactions. Xeron experienced a decrease in gross margin of $517,000 and $1.5 million for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012. Lower propane wholesale price volatility during the current periods resulted in lower-than-usual profit on executed trades.



                                                                                                                       Chesapeake Utilities Corporation and Subsidiaries

                                                                                                                       Major Expansion Initiative Highlights (Unaudited)

    Major Service Expansions Initiated in 2012 and 2013 (dollars in thousands):

    Project                                                                                               Date of New Service                       Q3 2013 Margin          YTD 2013       Estimated 2013     Estimated Annualized
                                                                                                                                                                             Margin             Margin               Margin
    -------                                                                                                           -------------------           --------------          --------         --------------  --------------------

    Sussex County, DE expansion

    Transmission (for southeastern part) 1,550 Dts/d(1)                                                    Mar-12 to May-12                                            $111                             $334                                           $446                      $446

       Distribution - Two facilities of an existing customer in the southeastern part of Sussex County(2)  Mar-12 to Aug-12                                     49                     149                                      151                                      154

                                                                                                                                                                       $160                             $483                                           $597                      $600

    Cecil County, MD expansion

    Transmission - 4,070 Dts/d(3)                                                                               Nov-12                                                 $220                             $661                                           $882                      $882

    Worcester County, MD expansion

    Transmission - 1,450 Dts/d(4)                                                                          Jun-12 to Jan-13                                             $98                             $293                                           $391                      $391

    Nassau County, FL expansion

    Transmission - A new fixed annual rate service(5)                                                           Apr-12                                                 $328                             $993                                         $1,300                    $1,300

    Unaffiliated FL utility, FL expansion

    Service to unaffiliated utility                                                                             Aug-13                                                 $140                             $140                                           $350                      $840

    Service to NRG's Dover, DE electric generation plant

    Short-term contract - 13,440 Dts/d(6)                                                                  May-13 to Oct-13                                            $579                             $965                                         $1,158                  $      -

    Transmission - 13,440 Dts/d (7)                                                                       Starting in Nov-13                                     $        -                       $        -                            $400 to $467        $2,400 to $2,800

    PBF Energy's Delaware City, DE refinery expansion

    Short-term contract - 5,000 Dts/d(6)                                                                   May-13 to Oct-13                                            $133                             $221                                           $265                  $      -

    Transmission - 15,000 Dts/d (6) (7) (8)                                                               Starting in Nov-13                                     $        -                       $        -                                           $265                    $1,600

                                                                                                                                                                     $1,658                           $3,756                        $5,608 to $5,675        $8,013 to $8,413
                                                                                                                                                                     ======                           ======                        ================        ================

    2012 margin                                                                                                                                                        $687                           $1,356                                         $2,198

    Incremental margin in 2013 over 2012                                                                                                                               $971                           $2,400                        $3,410 to $3,477
                                                                                                                                                                       ====                           ======                        ================

    Total by Geographic Location of the Project:

    Delmarva Natural Gas Distribution                                                                                                                                   $49                             $149                                           $151                      $154

    Delmarva Natural Gas Transmission                                                                                                                        1,141                   2,474                          3,807 to 3,874                          5,719 to 6,119

    Florida Natural Gas Transmission                                                                                                                           468                   1,133                                    1,650                                    2,140
                                                                                                                                                                                     -----                                    -----                                    -----

                                                                                                                                                                     $1,658                           $3,756                        $5,608 to $5,675        $8,013 to $8,413
                                                                                                                                                                     ======                           ======                        ================        ================

    (1) These services generated
     $111,000 and $223,000 in gross
     margin for the three and nine
     months ended September 30,  2012,
     respectively. These services also
     generated $334,000 in gross
     margin for the year ended
     December 31, 2012.

    (2) These services generated
     $19,000  and $39,000  in gross
     margin for the three and nine
     months ended September 30, 2012,
     respectively.  These services
     also generated $89,000 in gross
     margin for the year ended
     December 31, 2012.

    (3) These services generated
     $147,000 in gross margin for the
     year ended December 31, 2012.

    (4) These services generated
     $29,000 and $39,000 in gross
     margin for the three and nine
     months ended September 30, 2012,
     respectively. These services also
     generated $90,000 in gross margin
     for the year ended December 31,
     2012.

    (5) These services generated
     $527,000 and $1.1 million   in
     gross margin for the three and
     nine months ended September 30,
     2012, respectively. These
     services also generated $1.5
     million in gross margin for the
     year ended December 31, 2012.

    (6) Prior to commencing the new
     service using new facilities,
     Eastern Shore agreed to provide a
     short-term service utilizing the
     existing system capacity from
     May 2013 to October 2013. During
     the three and nine months ended
     September 30, 2013, Eastern Shore
     provided interruptible service to
     the Delaware City Refinery that
     generated $43,000 and $487,000,
     respectively, in additional gross
     margin.

    (7) 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, which will specify the
     final terms and conditions, will
     be entered into by the parties
     upon satisfying certain
     conditions.

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


                                                                      Chesapeake Utilities Corporation and Subsidiaries

                                                                      Major Expansion Initiative Highlights (Unaudited)

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

    Project                                            Estimated Date of New Service                     Estimated 2013 Margin    Estimated Annualized Margin
    -------                                            -----------------------------                     ---------------------    ---------------------------

    Service to Calpine's Dover,
     DE proposed electric
     generation plant

    Transmission -55,200 Dts/
     d (1)                                                   Starting in Jan-15                                                $-                   $1,200 to $1,800

                                                                                                                               $-                   $1,200 to $1,800
                                                                                                                              ===                   ================

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



                                                                 Chesapeake Utilities Corporation and Subsidiaries

                                                              Condensed Consolidated Statements of Income (Unaudited)

                                                                 For the Periods Ended September 30, 2013 and 2012

                                                                 (in thousands, except shares and per share data)

                                                       Third Quarter                                    Year to Date

                                                     2013                 2012                   2013                  2012
                                                     ----                 ----                   ----                  ----

    Operating Revenues

    Regulated Energy                                        $55,680                                      $52,196             $192,463 $180,045

    Unregulated Energy                             28,262                          23,259                           119,278    93,323

    Other                                           2,603                           2,720                             9,678     9,619

    Total Operating Revenues                       86,545                          78,175                           321,419   282,987
    ------------------------                       ------                          ------                           -------   -------

    Operating Expenses

    Regulated energy cost of sales                 22,591                          22,102                            86,321    81,207

    Unregulated energy and other cost of sales     21,795                          17,602                            90,656    72,056

       Operations                                  21,300                          20,804                            65,878    60,831

       Maintenance                                  2,146                           1,801                             5,688     5,635

       Depreciation and amortization                6,274                           5,767                            18,071    17,413

       Other taxes                                  3,719                           2,535                            10,383     7,753

     Total operating expenses                      77,825                          70,611                           276,997   244,895
     ------------------------                      ------                          ------                           -------   -------

    Operating Income                                8,720                           7,564                            44,422    38,092

    Other income (loss), net of other expenses        101                            (136)                              413       212

    Interest charges                                2,026                           2,126                             6,114     6,657
    ----------------                                -----                           -----                             -----     -----

    Income Before Income Taxes                      6,795                           5,302                            38,721    31,647

    Income taxes                                    2,916                           2,083                            15,617    12,641

    Net Income                                               $3,879                                       $3,219              $23,104  $19,006
    ==========                                               ======                                       ======              =======  =======

    Weighted Average Common Shares Outstanding:

    Basic                                       9,625,435                       9,592,417                         9,616,269 9,583,316

    Diluted                                     9,702,334                       9,676,658                         9,692,311 9,673,681

    Earnings Per Share of Common Stock:

    Basic                                                     $0.40                                        $0.34                $2.40    $1.98

    Diluted                                                   $0.40                                        $0.33                $2.39    $1.97
    -------                                                   -----                                        -----                -----    -----


                                   Chesapeake Utilities Corporation and Subsidiaries

                                   Condensed Consolidated Balance Sheets (Unaudited)

    Assets                                     September 30,              December 31,

                                                        2013                      2012
    ---                                                 ----                      ----

    (in thousands, except shares
     and per share data)

     Property, Plant and Equipment

     Regulated energy                                           $635,859                         $585,429

     Unregulated energy                               73,816                              70,218

     Other                                            21,048                              20,067

     Total property, plant and
      equipment                                      730,723                             675,714

     Less:  Accumulated
      depreciation and
      amortization                                  (171,060)                          (155,378)

     Plus:  Construction work in
      progress                                        50,256                              21,445

     Net property, plant and
      equipment                                      609,919                             541,781
     -----------------------                         -------                             -------

     Current Assets

     Cash and cash equivalents                         1,792                               3,361

     Accounts receivable (less
      allowance for uncollectible                     60,578                              53,787

     accounts of $1,215 and $826,
      respectively)

     Accrued revenue                                   7,948                              11,688

     Propane inventory, at average
      cost                                             7,383                               7,612

     Other inventory, at average
      cost                                             3,452                               5,841

     Regulatory assets                                 2,063                               2,736

     Storage gas prepayments                           5,309                               3,716

     Income taxes receivable                             724                               4,703

     Deferred income taxes                               837                                 791

     Prepaid expenses                                  7,357                               6,020

     Mark-to-market energy assets                        379                                 210

     Other current assets                                160                                 132
     --------------------

     Total current assets                             97,982                             100,597
     --------------------                             ------                             -------

     Deferred Charges and Other
      Assets

     Goodwill                                          4,716                               4,090

     Other intangible assets, net                      3,075                               2,798

     Investments, at fair value                        2,788                               4,168

     Regulatory assets                                76,179                              77,408

     Receivables and other
      deferred charges                                 2,898                               2,904

     Total deferred charges and
      other assets                                    89,656                              91,368
     --------------------------                       ------                              ------

    Total Assets                                                $797,557                         $733,746
    ============                                                ========                         ========


                                       Chesapeake Utilities Corporation and Subsidiaries

                                       Condensed Consolidated Balance Sheets (Unaudited)

    Capitalization and Liabilities                    September 30,              December 31,

                                                               2013                      2012
    ---                                                        ----                      ----

    (in thousands, except shares and
     per share data)

     Capitalization

     Stockholders' equity

     Common stock, par value $0.4867
      per share

    (authorized 25,000,000 shares)                                       $4,685                          $4,671

     Additional paid-in capital                             151,676                           150,750

     Retained earnings                                      118,330                           106,239

     Accumulated other comprehensive
      loss                                                   (4,903)                           (5,062)

     Deferred compensation obligation                         1,110                               982

     Treasury stock                                          (1,110)                             (982)
     --------------                                          ------                              ----

     Total stockholders' equity                             269,788                           256,598

     Long-term debt, net of current
      maturities                                            107,344                           101,907

     Total capitalization                                   377,132                           358,505
     --------------------                                   -------                           -------

     Current Liabilities

     Current portion of long-term debt                        8,234                             8,196

     Short-term borrowing                                    91,297                            61,199

     Accounts payable                                        41,013                            41,992

     Customer deposits and refunds                           26,943                            29,271

     Accrued interest                                         2,581                             1,437

     Dividends payable                                        3,706                             3,502

     Accrued compensation                                     6,467                             7,435

     Regulatory liabilities                                   4,397                             1,577

     Mark-to-market energy liabilities                          124                               331

     Other accrued liabilities                               10,252                             7,226

     Total current liabilities                              195,014                           162,166
     -------------------------                              -------                           -------

     Deferred Credits and Other
      Liabilities

     Deferred income taxes                                  135,305                           125,205

     Deferred investment tax credits                             84                               113

     Regulatory liabilities                                   6,808                             5,454

     Environmental liabilities                                8,838                             9,114

     Other pension and benefit costs                         33,118                            33,535

     Accrued asset removal cost -
      Regulatory liability                                   39,156                            38,096

     Other liabilities                                        2,102                             1,558

     Total deferred credits and other
      liabilities                                           225,411                           213,075
     --------------------------------                       -------                           -------

    Total Capitalization and
     Liabilities                                                       $797,557                        $733,746
    ========================                                           ========                        ========



                                                                                                         Chesapeake Utilities Corporation and Subsidiaries

                                                                                                         Distribution Utility Statistical Data (Unaudited)

                                            For the Three Months Ended September 30, 2013                                        For the Three Months Ended September 30, 2012
                                            ---------------------------------------------                                        ---------------------------------------------

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

                                    NG
                             Distribution(2)  Florida NG  Distribution  Distribution             Distribution  Florida NG  Distribution  Distribution

                                              Division                                                          Division
                                                                                                                                                        ---                             ---

    Operating Revenues

    (in thousands)
    -------------

      Residential                                 $4,886                                 $1,009                                  $4,041                              $12,748                           $4,206            $989  $3,436 $12,999

      Commercial                       5,001                     1,002                    6,749                    11,154                                   2,413                   956         4,882          11,012

      Industrial                       1,527                     1,181                    2,272                       914                                   1,292                 1,151         2,713           1,525

      Other (1)                          602                       621                     (638)                   (2,845)                                    357                   535         1,271          (2,453)
      --------                           ---                       ---                     ----                    ------                                     ---                   ---         -----          ------

    Total Operating Revenues                     $12,016                                 $3,813                                 $12,424                              $21,971                           $8,268          $3,631 $12,302 $23,083

    Volume (in Dts/MWHs)
    --------------------

      Residential                    171,171                    53,804                  189,199                    90,415                                 145,891                46,450       194,057          95,028

      Commercial                     452,402                   292,554                  538,888                    91,484                                 339,876               307,770       559,436          92,965

      Industrial                     972,620                 2,818,902                  721,327                     6,400                                 910,081             2,921,809       787,939          14,020

      Other                           27,223                         -                  (40,696)                    9,146                                  41,780                     -       (10,306)         (1,848)
      -----                           ------                       ---                  -------                     -----                                  ------                   ---       -------          ------

    Total                          1,623,416                 3,165,260                1,408,718                   197,445                               1,437,628             3,276,029     1,531,126         200,165

    Average Customers
    -----------------

      Residential                     59,886                    13,917                   49,363                    23,771                                  48,927                13,676        48,539          23,703

      Commercial                       6,374                     1,303                    4,528                     7,414                                   5,100                 1,257         4,470           7,410

      Industrial                         114                        60                      987                         2                                     101                    53           894               2

      Other                                6                         -                        -                         -                                       6                     -             -               -
      -----                              ---                       ---                      ---                       ---                                     ---                   ---           ---             ---

    Total                             66,380                    15,280                   54,878                    31,187                                  54,134                14,986        53,903          31,115
    -----                             ------                    ------                   ------                    ------                                  ------                ------        ------          ------



                                         For the Nine Months Ended September 30, 2013                                              For the Nine Months Ended September 30, 2012
                                         --------------------------------------------                                              --------------------------------------------

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

                                NG
                         Distribution(2)  Florida NG  Distribution  Distribution             Distribution Florida NG  Distribution  Distribution

                                          Division                                                         Division
                                                                                                                    ---                                     ---

    Operating Revenues

    (in thousands)
    -------------

      Residential                            $38,049                                 $3,457                                $16,820                              $32,312                        $30,998           $3,315 $14,790 $31,132

      Commercial                  20,337                     3,242                   24,654                   29,158                                  14,070                  2,905    20,346           28,390

      Industrial                   4,565                     3,696                    8,457                    3,304                                   4,035                  3,650     7,881            6,604

      Other (1)                   (2,136)                    1,758                   (3,839)                  (6,979)                                 (2,051)                 1,845      (598)          (2,169)
      --------                    ------                     -----                   ------                   ------                                  ------                  -----      ----           ------

    Total Operating
     Revenues                                $60,815                                $12,153                                $46,092                              $57,795                        $47,052          $11,715 $42,419 $63,957

    Volume (in Dts/MWHs)
    --------------------

      Residential              2,375,274                   252,510                  932,222                  227,046                               1,804,671                229,895   894,597          223,591

      Commercial               2,442,563                 1,023,376                2,089,962                  235,608                               1,906,368                971,601 2,067,314          229,625

      Industrial               2,987,008                10,455,389                2,767,976                   23,180                               2,769,837             10,688,873 2,463,939           50,710

      Other                       49,972                         -                (193,591)                   20,435                                  91,367                      -    61,235           20,228
      -----                       ------                       ---                 --------                   ------                                  ------                    ---    ------           ------

    Total                      7,854,817                11,731,275                5,596,569                  506,269                               6,572,243             11,890,369 5,487,085          524,154

    Average Customers
    -----------------

      Residential                 60,519                    13,950                   49,366                   23,757                                  49,516                 13,773    48,543           23,663

      Commercial                   6,449                     1,291                    4,596                    7,407                                   5,206                  1,249     4,534            7,396

      Industrial                     112                        58                      916                        2                                     103                     55       811                2

      Other                            5                         -                        -                        -                                       5                      -         -                -
      -----                          ---                       ---                      ---                      ---                                     ---                    ---       ---              ---

    Total                         67,085                    15,299                   54,878                   31,166                                  54,830                 15,077    53,888           31,061
    -----                         ------                    ------                   ------                   ------                                  ------                 ------    ------           ------

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

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

SOURCE Chesapeake Utilities Corporation


Source: PR Newswire