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CHESAPEAKE UTILITIES CORPORATION REPORTS EIGHTH CONSECUTIVE YEAR OF RECORD EARNINGS

DOVER, Del., March 5, 2015 /PRNewswire/ --  

  • Earnings per share increased by 9.3 percent to $2.47 per share
  • Net income increased by $3.3 million to $36.1 million
  • Growth in the natural gas businesses generated $8.3 million in additional gross margin
  • Acquisitions completed in 2013 generated $2.4 million in additional operating income
  • Colder temperatures added $2.8 million to gross margin

Chesapeake Utilities Corporation (NYSE: CPK) today announced financial results for both the year and the fourth quarter ended December 31, 2014.  The Company's net income for the year ended December 31, 2014 was $36.1 million, or $2.47 per share, which represents an increase of $3.3 million, or $0.21 per share, compared to 2013.  Included in the Company's 2014 results were two non-recurring items -- an after-tax gain of $4.0 million from the sale of BravePoint, Inc. ("BravePoint"), the Company's advanced information services subsidiary, and a non-cash, after-tax impairment charge of $3.9 million related to uncertainty around the implementation of a customer billing system. Both of these items were recorded in the fourth quarter of 2014. 

For the fourth quarter of 2014, the Company reported net income of $10.1 million, or $0.69 per share.  This represents an increase of $414,000, or $0.02 per share, compared to the same quarter in 2013. 

"In 2014, our Company generated record earnings for the eighth consecutive year," stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation.  "Thanks to our employees' continued efforts to transform opportunities into profitable growth, we achieved top quartile performance in 16 of 20 financial benchmarks compared to our peers.  We also met key 2014 objectives in our strategic plan and advanced several projects described in this release, such as Eight Flags Energy's combined heat and power plant ("CHP") to provide new services in Nassau County, Florida and our interstate pipeline's development of new services on the Delmarva Peninsula."

"We are starting 2015 strong as well," continued Mr. McMasters.  "In February 2015, we announced the acquisition of Gatherco, Inc. ("Gatherco"), a natural gas infrastructure company providing midstream services in Eastern Ohio.  We expect to close this transaction in the second quarter of 2015, and believe that in addition to being accretive during its first full year of operation, this acquisition and our subsequent capital investments will generate increased earnings growth."

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

Operating Results for the Years Ended December 31, 2014 and 2013

The Company reported operating income of $62.3 million for 2014, compared to $62.7 million in 2013.  During 2014, the Company recorded a non-cash, pre-tax impairment charge of $6.5 million related to uncertainty around the implementation of a customer billing system.  The impairment charge recorded represents all of the capitalized costs associated with this project.  The Company is considering several options to recover these costs, but the outcome of such efforts cannot be predicted at this time.  The Company also recorded a non-cash, pre-tax impairment charge of $412,000 related to the assessment of goodwill and intangible assets associated with the 2013 acquisition of certain assets by Austin Cox Home Services, Inc. ("Austin Cox").  Both of these impairment charges decreased the Company's operating income for the year.  

Excluding the impact of the impairment charges, the Company's operating income increased by $6.4 million in 2014, compared to 2013, as the Regulated Energy and Unregulated Energy segments generated $22.6 million in higher gross margin, which was partially offset by an increase of $14.8 million in other operating expenses.  Additional details on key variances in gross margin and other operating expenses are provided in the Financial Summary Highlights section later in this release.

Regulated Energy

Operating income for the Regulated Energy segment increased by $367,000 to $50.5 million for 2014, compared to 2013.  The increase in gross margin of $20.1 million was partially offset by the $6.4 million asset impairment charge in 2014 associated with uncertainty around the implementation of a customer billing system and an increase in other operating expenses of $13.3 million. Excluding the impairment charge, operating income increased by $6.8 million.  The significant components of the gross margin increase included:

  • $5.5 million from Sandpiper Energy, Inc. ("Sandpiper") due to the inclusion of a full year of operations in 2014 (the acquisition of the operating assets of Eastern Shore Gas Company and its affiliates ("ESG") by Sandpiper occurred in late May 2013);
  • $5.6 million due to natural gas service expansions initiated in 2013 and 2014;
  • $2.9 million generated by the Florida Gas Reliability Infrastructure Program ("GRIP");
  • $2.7 million in other growth in natural gas distribution and transmission services;
  • $1.3 million generated by the FPU electric distribution operation as a result of a base rate increase; and
  • $1.1 million from increased energy consumption, due primarily to colder temperatures in 2014, compared to the prior year. 

The increase in other operating expenses, excluding impairment charges, was due primarily to: (a) $3.3 million in higher payroll and benefits costs to support growth, and a change in vacation policy in 2013; (b) $2.5 million in other operating expenses associated with Sandpiper's operations; (c) $2.6 million in higher depreciation, amortization, asset removal costs and property taxes associated with capital investments to support growth and maintain system integrity; (d) $2.2 million in higher costs associated with facilities maintenance and service contractors; (e) the absence in 2014 of a one-time credit of $1.5 million in 2013 associated with the City of Marianna litigation cost recovery; and (f) $1.0 million of increased accruals for incentive bonuses as a result of strong financial performance.  These increases in other operating expenses were partially offset by the non-recurrence of a sales tax expense of $726,000 in 2013 recorded in conjunction with the ESG acquisition.

Unregulated Energy

Operating income for the Unregulated Energy segment was $11.7 million, a decrease of $630,000 compared to 2013.  An increase in gross margin of $2.5 million was more than offset by $432,000 in asset impairment charges for goodwill and intangible assets related to the 2013 acquisition by Austin Cox and an increase in other operating expenses of $2.7 million.  The significant components of the gross margin increase included: (a) $1.7 million in higher propane sales, compared to the prior year, due primarily to higher consumption caused by colder temperatures and (b) $1.4 million generated by an increase in wholesale propane sales due primarily to a supply agreement entered into in May 2013 in conjunction with an acquisition.  These increases were partially offset by $356,000 in lower retail propane margins due primarily to a decline in retail margins on the Delmarva Peninsula

The increase in other operating expenses, excluding impairment charges, was due primarily to: (a) $1.9 million in higher payroll and benefits costs due to increased seasonal overtime and additional resources to support growth; (b) $897,000 in additional expenses associated with serving newly acquired customers; and (c) $540,000 in higher costs associated with facilities maintenance.  These increases were partially offset by the non-recurrence of an accrual of $990,000 in 2013 related to taxes other than income.  

Other

The "Other" segment, reported operating income of $105,000 for 2014, compared to $297,000 in 2013.  The decrease in operating income is due to BravePoint's lower operating results prior to the sale on October 1, 2014.  The sale of BravePoint produced a pre-tax gain of $6.7 million, which has been reflected as non-operating income.

Operating Results for the Quarters Ended December 31, 2014 and 2013

The Company's operating income for the quarter ended December 31, 2014 was $12.4 million, a decrease of $5.9 million, compared to the same quarter in 2013. The decrease in operating income is due primarily to the aforementioned two non-cash, pre-tax asset impairment charges totaling $6.9 million recorded in other operating expenses in the fourth quarter of 2014. Additional details on key variances in gross margin and other operating expenses are provided in the Financial Summary Highlights section later in this release.

Regulated Energy

Operating income for the Regulated Energy segment decreased by $4.5 million to $9.4 million for the fourth quarter of 2014, compared to the same quarter in 2013. An increase in gross margin of $5.1 million was more than offset by the $6.4 million asset impairment charge and an increase of $3.1 million in other operating expenses. Excluding the impairment charge, operating income increased by $2.0 million quarter-over-quarter.  The significant components of the gross margin increase included:

  • $1.4 million due to natural gas service expansions;
  • $933,000 in other growth in natural gas distribution and transmission services;
  • $922,000 generated by the FPU electric distribution operation as a result of a base rate increase;
  • $882,000 generated by the Florida GRIP; and
  • $441,000 in increased consumption by natural gas customers, due primarily to colder temperatures in Florida during the quarter, compared to the same quarter in 2013.

The increase in other operating expenses, excluding impairment charges, was due primarily to: (a) $1.1 million in higher costs associated with facilities maintenance and service contractors; (b) $922,000 in higher payroll costs to support growth; (c) $656,000 in transaction costs allocated to this segment; (d) $145,000 in increased accruals for incentive bonuses as a result of strong financial performance; and (e) $403,000 in higher depreciation expense, amortization, asset removal and property tax costs associated with capital investments to support growth and maintain system integrity.  These increases were partially offset by $431,000 in lower benefits costs due primarily to lower health benefits claims during the fourth quarter of 2014.

Unregulated Energy

Operating income for the Unregulated Energy segment for the fourth quarter of 2014 was $2.9 million, a decrease of $1.5 million compared to operating income for the same quarter in 2013.  Gross margin decreased by $1.0 million due primarily to $437,000 in lower profit from Xeron, Inc. ("Xeron"), the Company's propane wholesale marketing subsidiary, as a result of low volatility in wholesale propane prices during the quarter, and $325,000 in lower retail propane margins per gallon in the Company's propane distribution businesses.  Other operating expenses increased by $458,000, due primarily to $432,000 in asset impairment charges related to the Austin Cox acquisition recorded in the current quarter.

Other

The "Other" segment, reported operating income of $81,000 for the fourth quarter of 2014, as compared to $56,000 in the same quarter in 2013.  As a result of the sale of BravePoint on October 1, 2014, the other segment no longer includes results from BravePoint.

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 Annual 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.

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

Conference Call

Chesapeake Utilities Corporation will host a conference call on March 6, 2015 at 10:30 a.m. Eastern Time to discuss the Company's financial results for the quarter and year ended December 31, 2014. To participate in this call, dial 866.821.5457 and reference Chesapeake Utilities Corporation's 2014 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 or download the replay on your mobile device by accessing the Audiocast section of the Company's IR App.

About Chesapeake Utilities Corporation

Chesapeake Utilities Corporation is a diversified energy company engaged in natural gas distribution, transmission and marketing, electricity distribution, propane gas distribution and wholesale marketing, and other related services. Information about Chesapeake's businesses is available at www.chpk.com.

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

 

 

 

Financial Summary

(in thousands, except per-share data)

 
   

Year to Date

 

Fourth Quarter

For the Periods Ended December 31,

 

2014

   

2013

   

2014

   

2013

 

Gross Margin (1)

                       

  Regulated Energy

 

$

165,882

   

$

145,820

   

$

44,734

   

$

39,678

 

  Unregulated Energy

 

47,880

   

45,375

   

12,317

   

13,321

 

  Other

 

6,956

   

8,276

   

(64)

   

2,031

 

 Total Gross Margin

 

$

220,718

   

$

199,471

   

$

56,987

   

$

55,030

 
                         

Operating Income

                       

   Regulated Energy

 

$

50,451

   

$

50,084

   

$

9,448

   

$

13,916

 

   Unregulated Energy

 

11,723

   

12,353

   

2,879

   

4,340

 

   Other

 

105

   

297

   

81

   

56

 

 Total Operating Income

 

62,279

   

62,734

   

12,408

   

18,312

 
                         

Gains from sale of businesses

 

7,139

   

   

6,742

   

 

Other Income (loss), net of other expenses

 

101

   

372

   

117

   

(41)

 

Interest Charges

 

9,482

   

8,234

   

2,528

   

2,120

 

Income Taxes

 

23,945

   

22,085

   

6,642

   

6,468

 

 Net Income

 

$

36,092

   

$

32,787

   

$

10,097

   

$

9,683

 
                         

Earnings Per Share of Common Stock

                       

Basic

 

$

2.48

   

$

2.27

   

$

0.69

   

$

0.67

 

Diluted

 

$

2.47

   

$

2.26

   

$

0.69

   

$

0.67

 
 

(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, 2014 included:

 

(in thousands, except per share)

 

Pre-tax

Income

 

Net

Income

 

Earnings

Per Share

Year ended December 31, 2013 Reported Results

 

$

54,872

   

$

32,787

   

$

2.26

 

Adjusting for unusual items:

                 

Gains on sale of businesses

 

7,139

   

4,266

   

0.29

 

Asset impairment charges

 

(6,880)

   

(4,111)

   

(0.28)

 

Weather impact

 

2,799

   

1,672

   

0.11

 

Regulatory recovery of litigation-related costs in 2013

 

(1,494)

   

(893)

   

(0.06)

 

Accrual for additional taxes other than income in 2013

 

990

   

592

   

0.04

 

One-time sales tax expense recorded by Sandpiper in conjunction with the 2013 ESG acquisition

 

726

   

434

   

0.03

 
   

3,280

   

1,960

   

0.13

 

Increased (Decreased) Gross Margins:

                 

Major projects (see Major Project Highlights table)

                 

Service expansions

 

5,591

   

3,341

   

0.23

 

Contribution from Sandpiper

 

5,544

   

3,313

   

0.23

 

GRIP

 

2,862

   

1,710

   

0.12

 

Other natural gas growth

 

2,671

   

1,596

   

0.11

 

Increased wholesale propane sales

 

1,391

   

831

   

0.06

 

FPU electric base rate increase

 

1,269

   

758

   

0.05

 
   

19,328

   

11,549

   

0.80

 

Increased Other Operating Expenses:

                 

Higher payroll and benefits costs

 

(5,164)

   

(3,085)

   

(0.21)

 

Expenses from acquisitions

 

(3,526)

   

(2,107)

   

(0.14)

 

Higher depreciation, asset removal and property tax costs due to new capital investments

 

(2,842)

   

(1,698)

   

(0.12)

 

Higher facility maintenance and service contractor costs

 

(2,735)

   

(1,634)

   

(0.11)

 

Larger accruals for incentive bonuses

 

(1,356)

   

(810)

   

(0.06)

 

Transaction costs

 

(760)

   

(454)

   

(0.03)

 
   

(16,383)

   

(9,788)

   

(0.67)

 

Interest Charges

 

(1,247)

   

(745)

   

(0.05)

 

Net Other Changes

 

187

   

329

   

 

Year ended December 31, 2014 Reported Results

 

$

60,037

   

$

36,092

   

$

2.47

 

 

 

Key variances for the quarter ended December 31, 2014 included:

   

(in thousands, except per share)

 

Pre-tax
Income

 

Net
Income

 

Earnings
Per Share

Fourth Quarter of 2013 Reported Results

 

$

16,151

   

$

9,683

   

$

0.67

 

Adjusting for unusual items:

                 

Asset impairment charges

 

(6,880)

   

(4,125)

   

(0.28)

 

Gains on sale of businesses

 

6,742

   

4,043

   

0.28

 

Weather impact

 

562

   

337

   

0.02

 

Accrual for additional taxes other than income in 2013

 

292

   

175

   

0.01

 
   

716

   

430

   

0.03

 

Increased Gross Margins:

                 

Service expansions

 

1,411

   

846

   

0.06

 

Other natural gas growth

 

933

   

559

   

0.04

 

FPU Electric base rate increase

 

922

   

553

   

0.04

 

GRIP

 

882

   

529

   

0.04

 

Propane wholesale marketing

 

(437)

   

(262)

   

(0.02)

 

Lower retail propane margins

 

(325)

   

(195)

   

(0.01)

 
   

3,386

   

2,030

   

0.15

 

Increased Other Operating Expenses:

                 

Higher facility maintenance and service contractor costs

 

(1,424)

   

(854)

   

(0.06)

 

Higher payroll costs

 

(1,197)

   

(718)

   

(0.05)

 

Transaction costs

 

(732)

   

(439)

   

(0.03)

 

Lower benefits costs

 

554

   

332

   

0.02

 

Higher depreciation, asset removal and property tax costs due to new capital investments

 

(529)

   

(317)

   

(0.02)

 
   

(3,328)

   

(1,996)

   

(0.14)

 

Interest Charges

 

(408)

   

(245)

   

(0.02)

 

Net Other Changes

 

222

   

195

   

 

Fourth Quarter of 2014 Reported Results

 

$

16,739

   

$

10,097

   

$

0.69

 

 

The following information highlights certain key factors contributing to the Company's results for the quarter and year ended December 31, 2014:

Major Projects

Acquisition
In May 2013, the Company completed the purchase of the operating assets of ESG.  Approximately 11,000 residential and commercial underground propane distribution system customers acquired in this transaction are now being served by Sandpiper under the tariff approved by the Maryland Public Service Commission ("PSC"). The Company has begun to convert some of the former ESG customers to natural gas distribution service and is evaluating the potential conversion of others.  This acquisition was accretive to earnings per share in the first full year of operations, generating $0.20 in additional earnings per share to the Company.  The Company generated $5.5 million in additional gross margin from Sandpiper for the year ended December 31, 2014 and incurred $2.5 million in additional other operating expenses for the same period. Additionally, in the second quarter of 2013, the Company recorded $726,000 in a one-time sales tax expense associated with the acquisition of ESG.

Service Expansions
During 2013, Eastern Shore, the Company's interstate pipeline subsidiary, commenced new natural gas transmission services to local distribution utilities and industrial customers in Delaware and Maryland. These new services generated additional gross margin of $2.7 million and $288,000 for the year and three months ended December 31, 2014, respectively, compared to the same periods in 2013.

On October 1, 2014, Eastern Shore commenced a new lateral service to an industrial customer facility in Kent County, Delaware.  This service commenced after construction of new facilities, including approximately 5.5 miles of pipeline lateral and metering facilities, extending from Eastern Shore's mainline to the new industrial customer facility. This new service, which generated $463,000 of gross margin for the year and three months ended December 31, 2014, is expected to generate $1.8 million of gross margin in 2015 and annual gross margin of approximately $1.2 million to $1.8 million during the 37-year service period.

During 2014, Eastern Shore executed a one-year contract with another industrial customer in New Castle County, Delaware to provide 50,000 dekatherms per day ("Dts/d") of additional transmission service from April 2014 to April 2015, which was subsequently amended to provide 55,580 Dts/d of service to August 2017.  This contract generated gross margin of $1.9 million and $657,000 for the year and three months ended December 31, 2014, and is expected to generate $2.2 million of gross margin in 2015.

In August 2013, Peninsula Pipeline Company, Inc., the Company's intrastate natural gas transmission subsidiary, commenced a new firm transportation service in Indian River County, Florida for an unaffiliated utility. This new service generated $490,000 of additional gross margin for the year ended December 31, 2014, compared to 2013.

Other Natural Gas Growth
In addition to these service expansions, the natural gas distribution operations on the Delmarva Peninsula and in Florida generated $2.8 million and $808,000 in additional gross margin in the year  and three months ended December 31, 2014, respectively, compared to the same periods in 2013, due to increases in the number of residential, commercial and industrial customers served. These increases are due primarily to a three-percent increase in residential customers on the Delmarva Peninsula, excluding customers added as a part of the Sandpiper acquisition, and an increase in commercial and industrial customers in Florida.

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

In December 2014, Eastern Shore entered into a precedent agreement with an industrial customer in Kent County, Delaware, whereby the customer is committed to enter into a 20-year natural gas transmission service for 45,000 Dts/d for its new facility, upon the satisfaction of certain conditions.  This new service will be provided as Off Peak ≤90 Firm Transportation ("OPT") service and is expected to generate at least $5.8 million of annual gross margin.  In November 2014, Eastern Shore requested Federal Energy Regulatory Commission ("FERC") authorization to construct 7.2 miles of 16-inch pipeline looping and 3,550 horsepower of new compression in Delaware, which are estimated to cost approximately $30 million, to provide this new service.  Eastern Shore anticipates receiving FERC's authorization in 2015, with the service targeted to commence in the fourth quarter of 2015, following construction of the new facilities.

GRIP
In August 2012, the Florida PSC approved the GRIP, which is designed to recover capital and other program-related-costs, inclusive of a return on investment, related to the replacement of older pipes in the Company's Florida service territories. The Company received approval to invest $75.0 million to replace qualifying distribution mains and services (any material other than coated steel or plastic). Since the program's inception in August 2012, the Company has invested $42.8 million, $24.3 million of which was invested during 2014. These investments generated additional gross margin of $2.9 million and $882,000 for the year and three months ended December 31, 2014, respectively, compared to the same periods in 2013. The Company expects to invest an additional $20.0 million through the GRIP in 2015.

Investing in Growth
The Company has continued to expand its resources and capabilities to support growth. The Company's Delmarva natural gas distribution operation has initiated natural gas distribution expansions in Sussex County, Delaware, and Worcester and Cecil Counties in Maryland, which require the construction and conversion of distribution facilities, as well as the conversion of residential customers' appliances and equipment. To support this growth as well as future expansions, our Delmarva natural gas distribution operation has increased staffing. Resources have also been added in the Company's corporate shared services departments to increase the Company's overall capabilities to support sustained future growth. The additional staffing to support growth increased payroll expenses of the Company's Regulated Energy segment by $2.0 million and $480,000 for the year and three months ended December 31, 2014, respectively, compared to the same periods in 2013.  The Company expects to make additional investments in personnel, as needed, to further develop our capability to capitalize on future growth opportunities. 

Weather and Consumption

Temperatures on the Delmarva Peninsula and in Florida during 2014 were colder than 2013, which positively affected the Company's results in 2014. Temperatures in Florida during the fourth quarter of 2014 were colder than 2013, while temperatures on the Delmarva Peninsula did not have a significant variance from the same quarter in 2013. The following tables highlight the heating degree-day ("HDD") and cooling degree-day ("CDD") information for the quarters and years ended December 31, 2014 and 2013 and the gross margin variance resulting from weather fluctuations in those periods.

 

 

Year to Date

 

Fourth Quarter

For the Periods Ended December 31,

2014

   

2013

   

Variance
from prior
year

 

Q4 2014

 

Q4 2013

 

Variance
from prior
year

Delmarva

                                 

Actual HDD

4,826

   

4,638

   

188

   

1,564

   

1,612

   

(48)

 

10-Year Average HDD ("Normal")

4,483

   

4,454

   

29

   

1,590

   

1,582

   

8

 

Variance from Normal

343

   

184

         

(26)

   

30

       
                                   

Florida

                                 

Actual HDD

888

   

671

   

217

   

314

   

184

   

130

 

10-Year Average HDD ("Normal")

856

   

885

   

(29)

   

301

   

316

   

(15)

 

Variance from Normal

32

   

(214)

         

13

   

(132)

       
                                   

Florida

                                 

Actual CDD

2,705

   

2,750

   

(45)

   

207

   

329

   

(122)

 

10-Year Average CDD ("Normal")

2,768

   

2,750

   

18

   

267

   

260

   

7

 

Variance from Normal

(63)

   

         

(60)

   

69

       

 

Gross Margin Variance attributed to Weather

 

(in thousands)

Year to Date

 

Fourth Quarter

For the Periods Ended December 31,

2014 vs. 2013

 

2014 vs. Normal

 

2014 vs. 2013

 

2014 vs. Normal

Delmarva

                     

Regulated Energy

$

232

   

$

765

   

$

(35)

   

$

(38)

 

Unregulated Energy

1,398

   

1,344

   

(125)

   

344

 

Florida

                     

Regulated Energy

877

   

145

   

477

   

42

 

Unregulated Energy

292

   

485

   

245

   

404

 

Total

$

2,799

   

$

2,739

   

$

562

   

$

752

 

 

Propane Prices

During 2014, lower retail propane margins on the Delmarva Peninsula decreased gross margin by $2.3 million compared to 2013.  A significant increase in wholesale prices in late 2013 and early 2014 increased the Delmarva average propane inventory cost in 2014.  Retail propane margins on the Delmarva Peninsula reverted to more normal levels during the first three quarters of 2014, compared to unusually high margins experienced in 2013. In addition, a rapid decline in wholesale prices in late 2014 resulted in lower margins as the Company recorded a lower-of-cost-or-market propane inventory valuation adjustment.  The Company discontinued hedge accounting on swap agreements to recognize the expected losses of those hedges in current year's earnings. Both the propane inventory valuation adjustment and discontinuation of hedge accounting were designed to reflect the value of the Company's inventory and future purchase commitments at the current market value at year-end in order to avoid any expected losses in future periods.  For the three months ended December 31, 2014, retail propane margins on the Delmarva Peninsula decreased by $1.4 million, compared to the same quarter in 2013, due primarily to these two adjustments.

Retail propane margins in Florida continued to increase during 2014 as local market conditions enabled the Florida propane distribution operation to maintain strong margins on its sales despite volatility in propane supply costs.  Higher retail propane margins in Florida generated $1.9 million and $792,000 of additional gross margin for the year and three months ended December 31, 2014, compared to the same periods in 2013.

Wholesale propane sales increased, generating additional gross margin of $1.4 million for the year ended December 31, 2014, compared to 2013, due primarily to sales to an affiliate of ESG. Wholesale propane sales did not result in a significant variance for the fourth quarter.

The trading profit from Xeron, which benefits from wholesale price volatility by entering into trading transactions, remained unchanged in 2014, compared to 2013.  Xeron reported higher trading profit in early 2014, as a result of higher wholesale price volatility during the winter heating season, which increased trading activity and generated higher profits on executed trades.  This was offset by lower profit during the second half of 2014 as a result of less price volatility. For the three months ended December 31, 2014, Xeron's trading profit decreased by $437,000, compared to the same quarter in 2013 due to this decline in volatility.

Florida Electric Rate Case

On September 15, 2014, the Florida PSC approved a settlement agreement between FPU and the Florida Office of Public Counsel in FPU's base rate case filing, which provides, among other things, an increase in FPU's annual revenue requirement of $3.75 million and a rate of common equity return of 10.25 percent for FPU's electric distribution operation. The new rates are effective for all meter readings on or after November 1, 2014.  Previously, the Florida PSC approved interim rate relief, effective for meter readings on or after August 10, 2014.  The higher base rates in FPU's electric operation generated $1.3 million and $922,000 of additional gross margin for the year and three months ended December 31, 2014, respectively.

Other Developments

On October 1, 2014, the Company completed the sale of BravePoint for approximately $12.0 million in cash.  The Company recorded a pre-tax gain of approximately $6.7 million ($4.0 million after-tax) from this sale in the fourth quarter of 2014.  The Company plans to reinvest the proceeds from this sale in its regulated and unregulated energy businesses. 

At December 31, 2014, the Company recorded a non-cash, pre-tax impairment charge of $6.5 million related to uncertainty around the implementation of a customer billing system.  This impairment charge represents the entire amount of the capitalized costs associated with this project. The Company is engaged in negotiations with the system vendor regarding the implementation, and is considering several options to recover these costs including regulatory proceedings.  The outcome cannot be predicted at this time. The Company will record a gain contingency if and when any recovery from the vendor is realizable or establish a regulatory asset when future recovery through rates is probable.  The Company also recorded non-cash pre-tax impairment charges of $412,000 related to the impairment of goodwill and intangible assets associated with the 2013 acquisition by Austin Cox.

Subsequent Event

On January 30, 2015, the Company entered into a merger agreement to acquire Gatherco.  Upon consummation of the transaction, Gatherco will merge into Aspire Energy of Ohio, LLC, a newly formed, wholly-owned subsidiary of Chesapeake.  At closing, the Company expects to issue 593,005 shares of its common stock, valued at $29.9 million, pay $27.6 million in cash and assume Gatherco's debt estimated to be $1.7 million.  The Company expects to pay off this debt shortly after closing.  Gatherco is a natural gas infrastructure company providing natural gas midstream services. Gatherco's assets include 16 gathering systems and over 2,000 miles of pipelines in Central and Eastern Ohio. Gatherco provides natural gas gathering services and natural gas liquid processing services to over 300 producers and supplies natural gas to over 6,000 customers in Ohio through the Consumers Gas Cooperative, an independent entity which Gatherco manages under an operating agreement.  The transaction is subject to approval by Gatherco's shareholders and is expected to close in the second quarter of 2015.

 

 

 

Chesapeake Utilities Corporation and Subsidiaries

Major Project Highlights (Unaudited)

Major Projects Initiated (dollars in thousands):

         
       

Gross Margin for the Period

   
   

Year Ended

   

Estimate for

 

Three Months Ended

   

December 31,

   

for

 

December 31,

   

2014

 

2013

   

2015

 

2014

 

2013

 

Acquisition:

                         

ESG acquisition being served by Sandpiper in Worcester County, Maryland (1)

 

$

9,976

 

$

4,432

   

$

10,402

   

$

2,382

 

$

2,234

 

Service Expansions

                         

Natural Gas Distribution:

                         

Long-term

                         

Sussex County, Delaware

 

$

656

 

$

670

   

$

674

   

$

176

 

$

179

 

Natural Gas Transmission:

                         

Short-term

                         

New Castle County, Delaware

 

$

2,026

 

$

398

   

$

2,418

   

$

770

 

$

58

 

Kent County, Delaware

 

 

1,158

   

   

 

193

 

Total Short-term

 

$

2,026

 

$

1,556

   

$

2,418

   

$

770

 

$

251

 

Long-term

                         

Sussex County, Delaware

 

$

1,725

 

$

1,437

   

$

1,725

   

$

431

 

$

402

 

New Castle County, Delaware

 

2,964

 

1,637

   

2,964

   

741

 

608

 

Nassau County, Florida

 

1,308

 

1,314

   

1,310

   

326

 

321

 

Worcester County, Maryland

 

547

 

417

   

547

   

137

 

124

 

Cecil County, Maryland

 

1,147

 

926

   

1,147

   

287

 

265

 

Indian River, Florida

 

840

 

350

   

840

   

210

 

210

 

Kent County, Delaware

 

3,122

 

437

   

4,504

   

1,128

 

437

 

Total Long-term

 

$

11,653

 

$

6,518

   

$

13,037

   

$

3,260

 

$

2,367

 
                           

Total Service Expansions

 

$

14,335

 

$

8,744

   

$

16,129

   

$

4,206

 

$

2,797

 
                           

Total Major Projects

 

$

24,311

 

$

13,176

   

$

26,531

   

$

6,588

 

$

5,031

 
 

(1) During the year and three months ended December 31, 2014, the Company incurred $5.6 million and $1.6 million, respectively, in other operating expenses related to Sandpiper. During the year and three months ended December 31, 2013, the Company incurred $3.1 million and $1.3 million, respectively, in other operating expenses related to Sandpiper.

 

 

The following table summarizes our estimated annualized margin from two future major expansion initiatives with executed contracts:

 

Project

 

Estimated Date of New
Service

 

Estimated

Annualized

Margin

20-year OPT natural gas transmission service to an industrial customer in Kent County, Delaware

 

Fourth quarter of 2015

 

$5.8 million

Eight Flags CHP plant in Nassau County, Florida

 

Third quarter of 2016

 

$7.3 million

 

 

 

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the Periods Ended December 31, 2014 and 2013

(in thousands, except shares and per share data)

 
   

Year to Date

Fourth Quarter

   

2014

   

2013

 

2014

   

2013

 

Operating Revenues

                     

  Regulated Energy

 

$

300,442

   

$

264,637

 

$

77,274

   

$

72,174

 

  Unregulated Energy

 

184,961

   

166,723

 

43,596

   

47,445

 

  Other

 

13,431

   

12,946

 

(490)

   

3,268

 

Total Operating Revenues

 

498,834

   

444,306

 

120,380

   

122,887

 

Operating Expenses

                     

Regulated energy cost of sales

 

134,560

   

118,818

 

32,540

   

32,497

 

Unregulated energy and other cost of sales

 

143,556

   

126,017

 

30,854

   

35,360

 

   Operations

 

102,197

   

91,452

 

25,590

   

25,576

 

   Maintenance

 

9,706

   

7,509

 

2,539

   

1,821

 

Asset impairment charges

 

6,881

   

 

6,881

   

 

   Depreciation and amortization

 

26,316

   

23,965

 

6,171

   

5,894

 

   Other taxes

 

13,339

   

13,811

 

3,397

   

3,427

 

 Total operating expenses

 

436,555

   

381,572

 

107,972

   

104,575

 

Operating Income

 

62,279

   

62,734

 

12,408

   

18,312

 

Gains from sale of businesses

 

7,139

   

 

6,742

   

 

Other income (loss), net of other expenses

 

101

   

372

 

117

   

(41)

 

Interest charges

 

9,482

   

8,234

 

2,528

   

2,120

 

Income Before Income Taxes

 

60,037

   

54,872

 

16,739

   

16,151

 

Income taxes

 

23,945

   

22,085

 

6,642

   

6,468

 

Net Income

 

$

36,092

   

$

32,787

 

$

10,097

   

$

9,683

 
                       

Weighted Average Common Shares Outstanding:

                     

Basic

 

14,551,308

   

14,430,962

 

14,585,336

   

14,450,423

 

Diluted

 

14,604,944

   

14,543,446

 

14,643,069

   

14,558,131

 
                       

Earnings Per Share of Common Stock:

                     

Basic

 

$

2.48

   

$

2.27

 

$

0.69

   

$

0.67

 

Diluted

 

$

2.47

   

$

2.26

 

$

0.69

   

$

0.67

 

 

 

Chesapeake Utilities Corporation and Subsidiaries

 

Consolidated Balance Sheets (Unaudited)

   

As of December 31,

Assets

 

2014

   

2013

 

(in thousands, except shares and per share data)

           

 Property, Plant and Equipment

           

 Regulated energy

 

$

766,855

   

$

691,522

 

 Unregulated energy

 

84,773

   

76,267

 

 Other

 

18,497

   

21,002

 

 Total property, plant and equipment

 

870,125

   

788,791

 

Less:  Accumulated depreciation and amortization

 

(193,369)

   

(174,148)

 

 Plus:  Construction work in progress

 

13,006

   

16,603

 

 Net property, plant and equipment

 

689,762

   

631,246

 

 Current Assets

           

 Cash and cash equivalents

 

4,574

   

3,356

 

Accounts receivable (less allowance for uncollectible accounts of $1,120 and $1,635, respectively)

 

53,300

   

75,293

 

 Accrued revenue

 

13,617

   

13,910

 

 Propane inventory, at average cost

 

7,250

   

10,456

 

 Other inventory, at average cost

 

3,699

   

4,880

 

 Regulatory assets

 

8,967

   

2,436

 

 Storage gas prepayments

 

4,258

   

4,318

 

 Income taxes receivable

 

18,806

   

2,609

 

 Deferred income taxes

 

   

1,696

 

 Prepaid expenses

 

6,652

   

6,910

 

 Mark-to-market energy assets

 

1,055

   

385

 

 Other current assets

 

195

   

160

 

 Total current assets

 

122,373

   

126,409

 

 Deferred Charges and Other Assets

           

 Goodwill

 

4,952

   

4,354

 

 Other intangible assets, net

 

2,404

   

2,975

 

 Investments, at fair value

 

3,678

   

3,098

 

 Regulatory assets

 

78,136

   

66,584

 

 Receivables and other deferred charges

 

3,164

   

2,856

 

 Total deferred charges and other assets

 

92,334

   

79,867

 

Total Assets

 

$

904,469

   

$

837,522

 

 

 

Chesapeake Utilities Corporation and Subsidiaries

 

 Consolidated Balance Sheets (Unaudited)

   

As of December 31,

Capitalization and Liabilities

 

2014

   

2013

 

(in thousands, except shares and per share data)

           

 Capitalization

           

 Stockholders' equity

           

 Common stock, par value $0.4867 per share

           

(authorized 25,000,000 shares)

 

$

7,100

   

$

4,691

 

 Additional paid-in capital

 

156,581

   

152,341

 

 Retained earnings

 

142,317

   

124,274

 

 Accumulated other comprehensive loss

 

(5,676)

   

(2,533)

 

 Deferred compensation obligation

 

1,258

   

1,124

 

 Treasury stock

 

(1,258)

   

(1,124)

 

 Total stockholders' equity

 

300,322

   

278,773

 

 Long-term debt, net of current maturities

 

158,486

   

117,592

 

 Total capitalization

 

458,808

   

396,365

 

 Current Liabilities

           

 Current portion of long-term debt

 

9,109

   

11,353

 

 Short-term borrowing

 

88,231

   

105,666

 

 Accounts payable

 

44,610

   

53,482

 

 Customer deposits and refunds

 

25,197

   

26,140

 

 Accrued interest

 

1,352

   

1,235

 

 Dividends payable

 

3,939

   

3,710

 

 Deferred income taxes

 

832

   

 

 Accrued compensation

 

10,076

   

8,394

 

 Regulatory liabilities

 

3,268

   

4,157

 

 Mark-to-market energy liabilities

 

1,018

   

127

 

 Other accrued liabilities

 

6,603

   

7,678

 

 Total current liabilities

 

194,235

   

221,942

 

 Deferred Credits and Other Liabilities

           

Deferred income taxes

 

160,232

   

142,597

 

Regulatory liabilities

 

43,419

   

43,912

 

Environmental liabilities

 

8,923

   

9,155

 

Other pension and benefit costs

 

35,027

   

21,000

 

Deferred investment tax credits and Other liabilities

 

3,825

   

2,551

 

 Total deferred credits and other liabilities

 

251,426

   

219,215

 

Total Capitalization and Liabilities

 

$

904,469

   

$

837,522

 

 

 

 

Chesapeake Utilities Corporation and Subsidiaries

Distribution Utility Statistical Data (Unaudited)

 

For the Three Months Ended December 31, 2014

 

For the Three Months Ended December 31, 2013

 

Delmarva

NG Distribution(2)

Chesapeake
Florida NG
Division

FPU NG
Distribution

FPU Electric
Distribution

 

Delmarva NG
Distribution

Chesapeake
Florida NG
Division

FPU NG
Distribution

FPU Electric
Distribution

Operating Revenues

(in thousands)

                             

  Residential

$

14,941

 

$

1,227

 

$

6,103

 

$

9,416

   

$

14,545

 

$

1,119

 

$

5,147

 

$

9,037

 

  Commercial

8,148

 

1,192

 

8,082

 

9,191

   

8,108

 

1,090

 

7,605

 

9,271

 

  Industrial

2,235

 

1,278

 

3,454

 

658

   

1,785

 

1,223

 

2,822

 

785

 

  Other (1)

4,367

 

970

 

994

 

(2,460)

   

4,004

 

417

 

1,109

 

(1,938)

 

Total Operating
Revenues

$

29,691

 

$

4,667

 

$

18,633

 

$

16,805

   

$

28,442

 

$

3,849

 

$

16,683

 

$

17,155

 
                                   

Volume (in Dts for natural gas and MWHs for electric)

                   

  Residential

807,734

 

88,072

 

324,189

 

65,587

   

813,727

 

72,363

 

285,637

 

62,699

 

  Commercial

932,574

 

697,141

 

656,874

 

73,680

   

936,143

 

347,032

 

664,851

 

74,205

 

  Industrial

1,289,318

 

2,757,284

 

911,174

 

5,130

   

1,182,605

 

2,999,359

 

928,778

 

7,940

 

  Other

18,029

 

 

132,403

 

(4,224)

   

19,119

 

 

96,718

 

4,538

 

Total

3,047,655

 

3,542,497

 

2,024,640

 

140,173

   

2,951,594

 

3,418,754

 

1,975,984

 

149,382

 
                                   

Average Customers

                             

  Residential

62,780

 

14,555

 

50,997

 

23,856

   

61,170

 

14,027

 

50,114

 

23,697

 

  Commercial

6,542

 

1,362

 

4,322

 

7,382

   

6,451

 

1,323

 

4,407

 

7,405

 

  Industrial

115

 

63

 

1,443

 

2

   

108

 

60

 

1,173

 

2

 

  Other

8

 

 

 

   

6

 

 

 

 

Total

69,445

 

15,980

 

56,762

 

31,240

   

67,735

 

15,410

 

55,694

 

31,104

 
                                   

 

 

 

 
 

For the Year Ended December 31, 2014

 

For the Year Ended December 31, 2013

 

Delmarva

NG Distribution(2)

Chesapeake
Florida NG
Division

FPU NG
Distribution

FPU Electric
Distribution

 

Delmarva NG
Distribution

Chesapeake
Florida NG
Division

FPU NG
Distribution

FPU Electric
Distribution

Operating Revenues

(in thousands)

                             

  Residential

$

65,958

 

$

4,844

 

$

24,502

 

$

43,023

   

$

52,594

 

$

4,576

 

$

21,967

 

$

41,349

 

  Commercial

36,452

 

4,504

 

33,063

 

37,553

   

28,445

 

4,332

 

32,259

 

38,430

 

  Industrial

6,912

 

5,072

 

12,808

 

3,569

   

6,349

 

4,919

 

11,278

 

4,088

 

  Other (1)

1,244

 

3,331

 

(753)

 

(8,611)

   

1,869

 

2,175

 

(2,730)

 

(8,917)

 

Total Operating
Revenues

$

110,566

 

$

17,751

 

$

69,620

 

$

75,534

   

$

89,257

 

$

16,002

 

$

62,774

 

$

74,950

 
                                   

Volume (in Dts for natural gas and MWHs for electric)

                       

  Residential

3,761,034

 

342,684

 

1,281,619

 

310,218

   

3,189,000

 

324,873

 

1,217,859

 

289,745

 

  Commercial

3,783,741

 

1,717,111

 

2,596,547

 

312,557

   

3,378,707

 

1,370,408

 

2,762,780

 

309,813

 

  Industrial

4,453,053

 

12,618,508

 

3,841,935

 

29,090

   

4,169,615

 

13,454,749

 

3,688,787

 

31,120

 

  Other

75,117

 

 

34,450

 

(8,533)

   

69,090

 

 

(81,723)

 

18,347

 

Total

12,072,945

 

14,678,303

 

7,754,551

 

643,332

   

10,806,412

 

15,150,030

 

7,587,703

 

649,025

 
                                   

Average Customers

                             

  Residential

62,216

 

14,412

 

50,835

 

23,865

   

60,685

 

13,970

 

50,086

 

23,742

 

  Commercial

6,534

 

1,363

 

4,368

 

7,405

   

6,445

 

1,299

 

4,605

 

7,407

 

  Industrial

111

 

60

 

1,321

 

2

   

110

 

58

 

947

 

2

 

  Other

7

 

 

 

   

5

 

 

 

 

Total

68,868

 

15,835

 

56,524

 

31,272

   

67,245

 

15,327

 

55,638

 

31,151

 
                                   

(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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/chesapeake-utilities-corporation-reports-eighth-consecutive-year-of-record-earnings-300045957.html

SOURCE Chesapeake Utilities Corporation

 

 

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