Document
false2019-11-070000019745falseNYSE 0000019745 2019-11-07 2019-11-07


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 7, 2019
  
CHESAPEAKE UTILITIES CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
DE
 
001-11590
 
51-0064146
(State or other jurisdiction of
 
(Commission
 
(I.R.S. Employer
incorporation or organization)
 
File Number)
 
Identification No.)
909 Silver Lake Boulevard, Dover, DE 19904
(Address of principal executive offices, including Zip Code)
(302) 734-6799
(Registrant's Telephone Number, including Area Code)
 
(Former name, former address and former fiscal year, if changed since last report.)
 
 Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock - par value per share $0.4867
CPK
New York Stock Exchange, Inc.

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 





Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Item 2.02. Results of Operations and Financial Condition.
On November 7, 2019, Chesapeake Utilities Corporation issued a press release announcing its financial results for the quarter and nine months ended September 30, 2019. A copy of the press release is attached as Exhibit 99.1 hereto and is incorporated by reference herein.
Item 9.01. Financial Statements and Exhibits.
(d)   Exhibit 99.1 - Press Release of Chesapeake Utilities Corporation, dated November 7, 2019.


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
CHESAPEAKE UTILITIES CORPORATION
 
/s/ Beth W. Cooper
Beth W. Cooper
Executive Vice President, Chief Financial Officer, and Assistant Corporate Secretary
 
Date: November 7, 2019




Exhibit

1-1-1-1

https://cdn.kscope.io/4f49dca0dd407e869c61a18abe55723e-chesapeakelogova22.jpg            
FOR IMMEDIATE RELEASE
November 7, 2019
NYSE Symbol: CPK

CHESAPEAKE UTILITIES CORPORATION REPORTS
THIRD QUARTER 2019 RESULTS

GAAP earnings per share* were $0.34 for the third quarter 2019 and $2.59 for the nine months ended September 30, 2019
GAAP earnings from continuing operations increased $0.01 per share for the third quarter 2019 and $0.29 per share year-to-date compared to the same periods in 2018
Eastern Shore and Peninsula Pipeline expansion projects generated $2.3 million and $10.5 million in additional gross margin** during the third quarter and year-to-date
December 2018 asset acquisitions of Marlin Gas Transport and Ohl contributed $1.1 million and $5.0 million in gross margin for the third quarter and year-to-date
The Company has entered into agreements to sell a majority of its natural gas marketing business
In October 2019, the Company reached commercial terms on the anticipated issuance of $70.0 million of 2.98 percent uncollateralized senior notes in December 2019
Eastern Shore filed an application to include renewable natural gas, supporting safe, reliable and cleaner energy transportation

Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) (“Chesapeake Utilities” or the “Company”) today announced third quarter financial results. The Company's net income for the quarter ended September 30, 2019 was $5.6 million, compared to $5.5 million for the same quarter of 2018. Consolidated earnings per share ("EPS") for both quarters ended September 30, 2019 and 2018 was $0.34 per share. Net income for the nine months ended September 30, 2019 was $42.6 million, or $2.59 per share, compared to $38.8 million, or $2.36 per share, for the same period in 2018.
On October 9, 2019, the Company announced its exit from the natural gas marketing business through the sale of the majority of the assets of Peninsula Energy Services Company, Inc. (PESCO), the Company’s natural gas marketing subsidiary. As a result of this decision and announcement, PESCO’s results for all periods presented have been separately reported as discontinued operations and its assets and liabilities have been reclassified as held for sale. Additional details on the transactions to sell PESCO’s assets and contracts are included on page 8 of this press release.
The Company's income from continuing operations for the quarter ended September 30, 2019 was $6.2 million, compared to $6.1 million for the same quarter of 2018. EPS from continuing operations for the quarter ended September 30, 2019 increased $0.01 to $0.38 per share compared to the same quarter of 2018. Higher earnings for the third quarter primarily reflect increased gross margin from recently completed and ongoing pipeline expansion projects, organic growth in the natural gas distribution operations and higher retail propane margins per gallon. These increases were largely offset by an increase in operating expenses and higher interest expense associated with financing the Company's expansion projects.
For the nine months ended September 30, 2019, the Company reported income from continuing operations of $44.0 million, or $2.67 per share. This represents an increase of $4.9 million or $0.29 per share compared to the same period in 2018. Year-to-date earnings were impacted by the factors noted above, along with strong contributions from incremental margin from the acquisition of certain assets of the Marlin Gas Transport, Inc. (“Marlin Gas Transport”) and R. F. Ohl Fuel Oil, Inc. ("Ohl") asset acquisitions, a Florida Public

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Service Commission ("PSC") regulatory order that enabled the Company to retain tax savings associated with lower federal tax rates resulting from the United States Tax Cuts and Jobs Act ("TCJA") in several natural gas distribution operations and continued growth in gross margin from Aspire Energy of Ohio ("Aspire Energy"). These increases were partially offset by higher interest expense. A detailed discussion of operating results begins on page 4.
“For the first nine months of 2019, we have delivered strong financial performance largely driven by new pipeline expansions, organic growth, key regulatory initiatives and contributions from the Marlin Gas Transport and Ohl acquisitions," stated Jeffrey Householder, President and Chief Executive Officer of Chesapeake Utilities Corporation. "As previously disclosed, as part of our ongoing strategic planning process, we decided to exit the natural gas marketing business and announced the sale of the PESCO assets. These actions will improve our earnings outlook, reduce the volatility of future earnings and recover our investment in the business. While the exit of any business is never easy, the same conviction, drive and determination to do what is right for the Company and our constituents guided our decision and remains at the forefront of each and every employee. I am proud of our employees who are driving the growth of the Company in so many different ways.”

Significant Items Impacting Earnings from Continuing Operations
There were no significant items impacting earnings from continuing operations during the third quarter of 2019 compared to the same period in 2018, however, results for the nine months ended September 30, 2019 and 2018 were impacted by the following significant items:
For the Nine Months Ended September 30,
2019
 
2018
(in thousands, except per share data)
Net Income
 
EPS
 
Net Income
 
EPS
Reported (GAAP) Earnings from Continuing Operations
$
43,977

 
$
2.67

 
$
39,118

 
$
2.38

2018 portion of the retained tax savings for certain Florida natural gas distribution operations associated with the TCJA income tax rate reduction
(990
)
 
(0.06
)
 

 

Nonrecurring separation expenses associated with a former executive

 

 
1,421

 
0.09

Adjusted (Non-GAAP) Earnings from Continuing Operations
$
42,987

 
$
2.61

 
$
40,539

 
$
2.47

For the nine months ended September 30, 2019, adjusted earnings from continuing operations were $43.0 million, or $2.61 per share, an increase of 5.7 percent compared to $40.5 million, or $2.47 per share, for the nine months ended September 30, 2018.
*Unless otherwise noted, earnings per share information is presented for continuing operations on a diluted basis.
**This press release includes references to non-Generally Accepted Accounting Principles ("GAAP") financial measures, including gross margin, adjusted earnings and adjusted EPS from continuing operations. A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that includes or excludes amounts, or that is subject to adjustments, so as to be different from the most directly comparable measure calculated or presented in accordance with GAAP. Our management believes certain non-GAAP financial measures, when considered together with GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period.
The Company calculates "gross margin" 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 and excludes depreciation, amortization and accretion. Other companies may calculate gross margin in a different manner. Gross margin should not be considered an alternative to operating income or net income, both of which are determined in accordance with GAAP. The

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Company 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 structures for unregulated businesses. The Company's management uses gross margin in measuring its business units' performance. The Company calculates "adjusted earnings” by adjusting reported (GAAP) earnings from continuing operations to exclude the impact of certain significant non-cash items, including the impact of one-time charges, such as severance charges, and any prior year tax savings retained by our regulated businesses as a result of current year regulatory authorizations. The Company calculates “adjusted EPS” from continuing operations by dividing adjusted earnings from continuing operations by the weighted average common shares outstanding.

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Operating Results for the Quarters Ended September 30, 2019 and 2018

Consolidated Results
 
Three Months Ended 
 September 30,
 
 
 
 
(in thousands)
2019
 
2018
 
Change
 
Percent Change
Gross margin
$
67,298

 
$
62,387

 
$
4,911

 
7.9
%
Depreciation, amortization and property taxes
16,010

 
14,548

 
1,462

 
10.0
%
Other operating expenses
36,930


34,960


1,970

 
5.6
%
Operating income (1)
$
14,358

 
$
12,879

 
$
1,479

 
11.5
%
(1) These results exclude operating results from PESCO that are now reflected as discontinued operations.
Operating income during the third quarter of 2019 increased by $1.5 million, or 11.5 percent, compared to the same period in 2018. The increase in operating income was driven by gross margin growth of $4.9 million, or 7.9 percent, primarily in the Company's natural gas transmission and distribution operations. These increases were partially offset by higher operating expenses associated with growth.
Regulated Energy Segment
 
Three Months Ended 
 September 30,
 
 
 
 
(in thousands)
2019
 
2018
 
Change
 
Percent Change
Gross margin
$
54,961

 
$
51,269

 
$
3,692

 
7.2
%
Depreciation, amortization and property taxes
13,076

 
12,085

 
991

 
8.2
%
Other operating expenses
24,345

 
23,269

 
1,076

 
4.6
%
Operating income
$
17,540

 
$
15,915

 
$
1,625

 
10.2
%
Operating income for the Regulated Energy segment for the three months ended September 30, 2019 was $17.5 million, a 10.2 percent increase over the same period in 2018. The growth in operating income resulted primarily from increased gross margin of $3.7 million partially offset by $1.0 million in higher depreciation, amortization and property taxes, and $1.1 million in higher other operating expenses associated with growth.
The key components of the increase in gross margin are shown below:
(in thousands)
 
Eastern Shore Natural Gas Company ("Eastern Shore") and Peninsula Pipeline Company ("Peninsula Pipeline") service expansions (including related Florida natural gas distribution operation expansions)
$
2,312

Natural gas distribution growth (excluding service expansions)
791

Sandpiper Energy, Inc.'s ("Sandpiper") margin primarily from natural gas conversions
224

Increased margin primarily from the storm recovery surcharge for Florida electric distribution operations
169

TCJA impact from the 2019 retained tax savings for certain Florida natural gas operations
109

Florida GRIP (1)
(144
)
Other variances
231

Quarter-over-quarter increase in gross margin
$
3,692

(1) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded

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$0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019.

The major components of the increase in other operating expenses are as follows:
(in thousands)
 
Insurance expense - both insured and self-insured components
$
718

Payroll, benefits and other employee-related expenses
345

Other variances
13

Quarter-over-quarter increase in other operating expenses
$
1,076

Unregulated Energy Segment

 
Three Months Ended
September 30,
 
 
 
 
(in thousands)
2019
 
2018
 
Change
 
Percent Change
Gross margin
$
12,418

 
$
11,202

 
$
1,216

 
10.9
%
Depreciation, amortization and property taxes
2,901

 
2,425

 
476

 
19.6
%
Other operating expenses
12,685

 
11,867

 
818

 
6.9
%
Operating loss (1)
$
(3,168
)
 
$
(3,090
)
 
$
(78
)
 
2.5
%
(1) These results exclude operating results from PESCO that are now reflected as discontinued operations.
Operating loss for the Unregulated Energy segment remained largely unchanged for the three months ended September 30, 2019 compared to 2018, as higher gross margin was offset by higher expenses to support growth. Due to the seasonality of the Company's business, results for interim periods are not necessarily indicative of results for the entire fiscal year. Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is highest due to colder temperatures. The third quarter has historically contributed the smallest amount of a full year's results.

The major components of the increase in gross margin are shown below:
(in thousands)
 
 
Marlin Gas Services (assets acquired in December 2018)
 
$
993

Propane Operations
 
 
Increased retail propane margins per gallon driven by favorable market conditions and supply management
 
470

Ohl acquisition (assets acquired in December 2018)
 
95

Aspire Energy
 
 
Higher gas supply costs
 
(233
)
Other variances
 
(109
)
Quarter-over-quarter increase in gross margin
 
$
1,216


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The major components of the increase in other operating expenses are as follows:
(in thousands)
 
Operating expenses for Marlin Gas Services and Ohl (Assets acquired in December 2018) including costs to expand the future growth prospects for the businesses
$
746

Insurance expense - both insured and self-insured components
179

Other variances
(107
)
Quarter-over-quarter increase in other operating expenses
$
818


Operating Results for the Nine Months Ended September 30, 2019 and 2018

Consolidated Results
 
Nine Months Ended September 30,
 
 
 
 
(in thousands)
2019
 
2018
 
Change
 
Percent Change
Gross margin
$
236,203

 
$
217,165

 
$
19,038

 
8.8
%
Depreciation, amortization and property taxes
47,337

 
41,694

 
5,643

 
13.5
%
Other operating expenses
112,222

 
109,503

 
2,719

 
2.5
%
Operating income (1)
$
76,644

 
$
65,968

 
$
10,676

 
16.2
%
(1) These results exclude operating results from PESCO that are now reflected as discontinued operations.
Operating income for the nine months ended September 30, 2019 increased by $10.7 million, or 16.2 percent, compared to the same period in 2018. The increase in operating income reflects continued growth across the Company, generated by organic growth within existing businesses, recent expansion investments, regulatory initiatives and rate/pricing mechanisms, the successful integration of the Ohl acquisition, higher retail propane margins per gallon and the strong performance of Marlin Gas Services. The impact of warmer weather on 2019 results was offset by the positive impact of the absence of a one-time non-recurring severance charge recorded in 2018.
Regulated Energy Segment
 
Nine Months Ended September 30,
 
 
 
 
(in thousands)
2019
 
2018
 
Change
 
Percent Change
Gross margin
$
177,149

 
$
162,926

 
$
14,223

 
8.7
%
Depreciation, amortization and property taxes
38,694

 
34,402

 
4,292

 
12.5
%
Other operating expenses
73,145

 
71,594

 
1,551

 
2.2
%
Operating income
$
65,310

 
$
56,930

 
$
8,380

 
14.7
%
Operating income for the Regulated Energy segment for the nine months ended September 30, 2019 was $65.3 million, an increase of $8.4 million or 14.7 percent, compared to the same period in 2018. The increase in operating income resulted from $14.2 million in additional gross margin, offset by $4.3 million in higher depreciation, amortization and property taxes and a $1.5 million increase in other operating expenses. On February 25, 2019, the Florida PSC issued a final order regarding the treatment of the TCJA, allowing us to retain the savings associated with lower federal tax rates for certain of our natural gas distribution operations. As a result, $1.3 million in reserves for customer refunds, recorded in 2018, were reversed in the first quarter

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of 2019. Excluding the impact of the reversal, gross margin and operating income for the nine months ended September 30, 2019 increased by $12.9 million and $7.1 million, or 7.9 percent and 12.4 percent, respectively.

The key components of the increase in gross margin are shown below:
(in thousands)
 
 
Eastern Shore and Peninsula Pipeline service expansions (including related Florida natural gas distribution operation expansions)
 
$
10,452

Natural gas distribution - customer growth (excluding service expansions)
 
3,446

2018 retained tax savings for certain Florida natural gas distribution operations
 
1,321

TCJA impact from the 2019 retained tax savings for certain Florida natural gas operations
 
1,117

Sandpiper's margin primarily from natural gas conversions
 
837

Florida GRIP (1)
 
391

Decreased customer consumption - primarily due to warmer weather
 
(3,248
)
Other variances
 
(93
)
Period-over-period increase in gross margin
 
$
14,223

(1) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019.


The major components of the increase in other operating expenses are as follows:
(in thousands)
 
Payroll, benefits and other employee-related expenses
$
2,299

Insurance expense - both insured and self-insured components
975

Vehicle expenses due to additional fleet to support growth
168

Facilities and maintenance costs due to the consolidation of facilities
(1,194
)
Outside services and regulatory costs due to lower consulting fees and timing of expense
(1,062
)
Other variances
365

Period-over-period increase in other operating expenses
$
1,551


Unregulated Energy Segment
 
Nine Months Ended September 30,
 
 
 
 
(in thousands)
2019
 
2018
 
Change
 
Percent Change
Gross margin
$
59,340

 
$
54,636

 
$
4,704

 
8.6
%
Depreciation, amortization and property taxes
8,543

 
7,182

 
1,361

 
19.0
%
Other operating expenses
39,481

 
36,935

 
2,546

 
6.9
%
Operating income (1)
$
11,316

 
$
10,519

 
$
797

 
7.6
%
(1) These results exclude operating results from PESCO that are now reflected as discontinued operations.

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Operating income for the Unregulated Energy segment increased by $0.8 million for the nine months ended September 30, 2019, compared to the same period in 2018. The increase in operating income was driven by $4.7 million in additional gross margin, partially offset by $1.4 million in higher depreciation, amortization and property taxes and $2.5 million in higher other operating expenses.

The major components of the $4.7 million increase in gross margin are shown below:
(in thousands)
 
 
Marlin Gas Services (acquired assets of Marlin Gas Transport in December 2018)
 
$
4,353

Propane Operations
 
 
Increased retail propane margins per gallon driven by favorable market conditions and supply management
 
1,689

Ohl acquisition (assets acquired in December 2018)
 
683

Decrease in customer consumption due primarily to the absence of the 2018 Bomb Cyclone
 
(1,559
)
Decrease in wholesale propane margins due primarily to the absence of the 2018 Bomb Cyclone
 
(785
)
Aspire Energy
 
 
Rate increases
 
858

Customer consumption growth
 
296

Higher gas supply costs
 
(429
)
Other variances
 
(402
)
Period-over-period increase in gross margin
 
$
4,704

The major components of the increase in other operating expenses are as follows:
(in thousands)
 
Operating expenses for Marlin Gas Services and Ohl (Asset acquisitions in December 2018) including costs to expand the future growth prospects for the businesses 
$
2,435

Insurance expense - both insured and self-insured components
244

Facilities and maintenance costs primarily due to lower level of tank refurbishments for propane operations
(380
)
Other variances
247

Period-over-period increase in other operating expenses
$
2,546



Discontinued Operations - Natural Gas Marketing Business
On October 9, 2019, the Company announced that it was exiting the natural gas marketing business with the sale of a majority of the assets of PESCO, the Company’s natural gas marketing subsidiary. To date, the Company has executed the following three separate transactions to sell PESCO’s assets and contracts:

PESCO’s Florida retail operations were sold to Gas South LLC. The initial closing for the transaction was completed in November 2019 with subsequent closings expected in December 2019 and January 2020.
  
PESCO’s other non-Florida retail operations and contracts were sold to United Energy Trading, LLC in October 2019.


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PESCO’s Mid-Atlantic wholesale contracts and Chesapeake Utilities’ Delaware division, Maryland division and Sandpiper Energy Asset Management agreements were sold to NJR Energy Services Company in October 2019.

In addition to these transactions, the Company is actively marketing PESCO’s producer services portfolio and is targeting a sale by the end of 2019. The Company expects to recognize a pre-tax gain ranging from $5.0 million to $7.0 million in connection with the closing of the three transactions during the fourth quarter of 2019. The expected gain on the sale of the assets will be included as a component of discontinued operations in the fourth quarter of 2019.

As a result of the sales agreements, the Company began to report PESCO as discontinued operations during the third quarter and has excluded PESCO’s performance from continuing operations and segment results for all periods presented. The assets and liabilities of PESCO presented have also been classified as assets and liabilities held for sale for all periods shown.
 
Forward-Looking Statements
Matters included 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 2018 Annual Report on Form 10-K for further information on the risks and uncertainties related to the Company’s forward-looking statements.
Conference Call

Chesapeake Utilities will host a conference call on Friday, November 8, 2019 at 10:30 a.m. Eastern Time to discuss the Company’s financial results for the three and nine months ended September 30, 2019.  To participate in this call, dial 855.801.6270 and reference Chesapeake Utilities’ 2019 Third Quarter Results Conference Call.  To access the replay recording of this call, the accompanying transcript, and other pertinent quarterly information, use the link CPK - Conference Call Audio Replay, or visit the Investors/Events and Presentations section of Company’s website at www.chpk.com.

About Chesapeake Utilities Corporation

Chesapeake Utilities is a diversified energy company engaged in natural gas distribution and transmission; electricity generation and distribution; propane gas distribution; and other businesses. Information about Chesapeake Utilities and its family of businesses is available at http://www.chpk.com or through its Investor Relations (IR) App.

Please note that Chesapeake Utilities Corporation is not affiliated with Chesapeake Energy, an oil and natural gas exploration company headquartered in Oklahoma City, Oklahoma.

For more information, contact:

Beth W. Cooper
Executive Vice President, Chief Financial Officer and Assistant Corporate Secretary
302.734.6799

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Financial Summary
(in thousands, except per share data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
Gross Margin
 
 
 
 
 
 
 
  Regulated Energy segment
$
54,961

 
$
51,269

 
$
177,149

 
$
162,926

  Unregulated Energy segment
12,418

 
11,202

 
59,340

 
54,636

  Other businesses and eliminations
(81
)
 
(84
)
 
(286
)
 
(397
)
Total Gross Margin
$
67,298

 
$
62,387

 
$
236,203

 
$
217,165

 
 
 
 
 
 
 
 
Operating Income
 
 
 
 
 
 
 
   Regulated Energy segment
$
17,540

 
$
15,915

 
$
65,310

 
$
56,930

   Unregulated Energy segment
(3,168
)
 
(3,090
)
 
11,316

 
10,519

   Other businesses and eliminations
(14
)
 
54

 
18

 
(1,481
)
Total Operating Income
14,358

 
12,879

 
76,644

 
65,968

Other expense, net
(350
)
 
(4
)
 
(729
)
 
(168
)
Interest Charges
5,403

 
4,357

 
16,583

 
11,764

Income from Continuing Operations Before Income Taxes
8,605


8,518


59,332


54,036

Income Taxes on Continuing Operations
2,360

 
2,428

 
15,355

 
14,918

Income from Continuing Operations
6,245


6,090


43,977

 
39,118

Loss from Discontinued Operations
(624
)
 
(552
)
 
(1,388
)
 
(339
)
Net Income
$
5,621


$
5,538


$
42,589


$
38,779

 
 
 
 
 
 
 
 
Basic Earnings Per Share of Common Stock
 
 
 
 
 
 
 
Earnings from Continuing Operations
$
0.38

 
$
0.37

 
$
2.68

 
$
2.39

Earnings from Discontinued Operations
(0.04
)
 
(0.03
)
 
(0.08
)
 
(0.02
)
Basic Earnings Per Share of Common Stock
$
0.34

 
$
0.34

 
$
2.60

 
$
2.37

 
 
 
 
 
 
 
 
Diluted Earnings Per Share of Common Stock
 
 
 
 
 
 
 
Earnings from Continuing Operations
$
0.38

 
$
0.37

 
$
2.67

 
$
2.38

Earnings from Discontinued Operations
(0.04
)
 
(0.03
)
 
(0.08
)
 
(0.02
)
Diluted Earnings Per Share of Common Stock
$
0.34

 
$
0.34

 
$
2.59

 
$
2.36




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Financial Summary Highlights

Key variances in continuing operations, between the three months ended September 30, 2018 and 2019, included:
(in thousands, except per share data)
 
Pre-tax
Income
 
Net
Income
 
Earnings
Per Share
Third Quarter of 2018 Reported Results from Continuing Operations
 
$
8,518

 
$
6,090

 
$
0.37

 
 
 
 
 
 
 
Increased (Decreased) Gross Margins:
 
 
 
 
 
 
Eastern Shore and Peninsula Pipeline service expansions (including related Florida natural gas distribution operation expansions)*
 
2,312

 
1,678

 
0.10

Margin contribution from Marlin Gas Services and Ohl*
 
1,088

 
790

 
0.05

Natural gas distribution growth (excluding service expansions)
 
791

 
574

 
0.04

Increased retail propane margins per gallon
 
470

 
341

 
0.02

Sandpiper's margin from natural gas conversions
 
224

 
162

 
0.01

Increased margin primarily from the storm recovery surcharge for Florida electric distribution operations
 
169

 
122

 
0.01

TCJA impact from the 2019 retained tax savings for certain Florida natural gas operations*
 
109

 
79

 
0.01

Aspire Energy higher gas supply costs
 
(233
)
 
(169
)
 
(0.01
)
Florida GRIP* (1)
 
(144
)
 
(104
)
 
(0.01
)
 
 
4,786

 
3,473

 
0.22

 
 
 
 
 
 
 
 (Increased) Decreased Operating Expenses (Excluding Cost of Sales):
 
 
 
 
 
 
Depreciation, amortization and property tax costs due to growth investments
 
(1,152
)
 
(836
)
 
(0.05
)
Operating expenses for Marlin Gas Services and Ohl including costs to expand the future growth prospects for the businesses
 
(1,055
)
 
(766
)
 
(0.05
)
Insurance - both insured and self-insured components
 
(790
)
 
(573
)
 
(0.03
)
Payroll, benefits and other employee-related expenses
 
(392
)
 
(285
)
 
(0.02
)
 
 
(3,389
)
 
(2,460
)
 
(0.15
)
 
 
 
 
 
 
 
Change in effective tax rate
 

 
23

 

Interest charges
 
(1,046
)
 
(759
)
 
(0.05
)
Net other changes
 
(264
)
 
(122
)
 
(0.01
)
 
 
(1,310
)
 
(858
)
 
(0.06
)
 
 
 
 
 
 
 
Third Quarter of 2019 Reported Results from Continuing Operations
 
$
8,605

 
$
6,245

 
$
0.38

*See the Major Projects and Initiatives table later in this press release.
(1) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019.








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12-12-12-12

Key variances in continuing operations, between the nine months ended September 30, 2018 and 2019, included:
(in thousands, except per share data)
 
Pre-tax
Income
 
Net
Income
 
Earnings
Per Share
Nine Months Ended September 30, 2018 Reported Results from Continuing Operations
 
$
54,036

 
$
39,118

 
$
2.38

 
 
 
 
 
 
 
Adjusting for Unusual Items:
 
 
 
 
 
 
Decreased customer consumption - primarily due to warmer weather
 
(4,511
)
 
(3,344
)
 
(0.20
)
Nonrecurring separation expenses associated with a former executive
 
1,548

 
1,421

 
0.09

2018 retained tax savings for certain Florida natural gas operations*
 
1,321

 
990

 
0.06

 
 
(1,642
)
 
(933
)
 
(0.05
)
Increased (Decreased) Gross Margins:
 
 
 
 
 
 
Eastern Shore and Peninsula Pipeline service expansions (including new service in Northwest Florida for related Florida natural gas distribution operations)*
 
10,452

 
7,747

 
0.47

Margin contribution from Marlin Gas Services and Ohl*
 
5,036

 
3,733

 
0.23

Natural gas distribution growth (excluding service expansions)
 
3,446

 
2,554

 
0.16

Increased retail propane margins per gallon
 
1,689

 
1,252

 
0.08

TCJA impact from the 2019 retained tax savings for certain Florida natural gas operations*
 
1,117

 
828

 
0.05

Aspire Energy rate increases
 
858

 
636

 
0.04

Sandpiper's margin from natural gas conversions
 
837

 
621

 
0.04

Florida GRIP* (1)
 
391

 
290

 
0.02

Absence of Bomb Cyclone impact on wholesale propane margins
 
(785
)
 
(582
)
 
(0.04
)
Aspire Energy higher gas supply costs
 
(429
)
 
(318
)
 
(0.02
)
 
 
22,612

 
16,761

 
1.03

(Increased) Decreased Other Operating Expenses (Excluding Cost of Sales):
 
 
 
 
 
 
Depreciation, amortization and property tax costs due to new capital investments
 
(4,711
)
 
(3,492
)
 
(0.21
)
Operating expenses for Marlin Gas Services and Ohl including costs to expand the future growth prospects for the businesses
 
(3,367
)
 
(2,496
)
 
(0.15
)
Payroll, benefits and other employee-related expenses
 
(2,471
)
 
(1,832
)
 
(0.11
)
Insurance - both insured and self-insured components
 
(1,223
)
 
(907
)
 
(0.06
)
Vehicle expenses due to additional fleet to support growth
 
(331
)
 
(246
)
 
(0.01
)
Facilities and maintenance costs due to consolidation of facilities and lower levels of tank refurbishments
 
1,425

 
1,056

 
0.06

Outside services and regulatory costs due to lower consulting costs, absence of Eastern Shore rate case and the timing of expenses
 
865

 
641

 
0.04

 
 
(9,813
)
 
(7,276
)
 
(0.44
)
 
 
 
 
 
 
 
Change in effective tax rate

 
556

 
0.03

Interest Charges
 
(4,819
)
 
(3,572
)
 
(0.22
)
Net other changes
 
(1,042
)
 
(677
)
 
(0.06
)
 
 
(5,861
)
 
(3,693
)
 
(0.25
)
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019 Reported Results from Continuing Operations
 
$
59,332

 
$
43,977

 
$
2.67

*See the Major Projects and Initiatives table later in this press release.
(1) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019.





--more--


13-13-13-13

Recently Completed and Ongoing Major Projects and Initiatives
The Company constantly pursues and develops additional projects and initiatives to serve existing and new customers, and to further grow its businesses and earnings, with the intention to increase shareholder value. The following represent the major projects/initiatives recently completed and currently underway. In the future, the Company will add new projects and initiatives to this table once negotiations are substantially final and the associated earnings can be estimated.
 
 
Gross Margin for the Period
 
 
Three Months Ended
 
Nine Months Ended
 
Year Ended
 
Estimate for
Project/Initiative
 
September 30,
 
September 30,
 
December 31,
 
Fiscal
in thousands
 
2019
 
2018
 
2019
 
2018
 
2018
 
2019
 
2020
Expansions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017 Eastern Shore System Expansion - including interim services
 
$
3,671

 
$
2,409

 
$
12,116

 
$
5,527

 
$
9,103

 
$
16,209

 
$
15,799

Northwest Florida Expansion (including related natural gas distribution services)
 
1,592

 
1,589

 
4,881

 
2,741

 
4,350

 
6,500

 
6,500

Western Palm Beach County, Florida Expansion
 
745

 

 
1,068

 

 
54

 
2,254

 
5,047

Del-Mar Energy Pathway - including interim services
 
189

 

 
542

 

 

 
725

 
3,039

Auburndale
 
113

 

 
113

 

 

 
283

 
679

Callahan Intrastate Pipeline
 

 

 

 

 

 

 
3,219

Total Expansions
 
6,310


3,998


18,720


8,268


13,507


25,971


34,283

Acquisitions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marlin Gas Services
 
993

 

 
4,353

 

 
110

 
5,500

 
6,400

Ohl Propane Acquisition
 
95

 

 
683

 

 

 
1,200

 
1,236

Total Acquisitions
 
1,088

 

 
5,036

 

 
110

 
6,700

 
7,636

Regulatory Initiatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Florida GRIP (1) (2)
 
3,145

 
3,289

 
10,050

 
9,659

 
13,323

 
13,587

 
14,854

Tax benefit retained by certain Florida entities(3)
 
109

 

 
2,438

 

 

 
2,980

 
1,879

Total Regulatory Initiatives
 
3,254

 
3,289

 
12,488

 
9,659

 
13,323

 
16,567

 
16,733

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
10,652

 
$
7,287

 
$
36,244

 
$
17,927

 
$
26,940

 
$
49,238

 
$
58,652

(1) All periods shown have been adjusted to reflect the lower customer rates as a result of the TCJA. Lower customer rates are offset by the corresponding decrease in federal income tax expense and have no negative impact on net income.
(2) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019.
(3) The amount disclosed for the nine months ended September 30, 2019 includes tax savings of $1.3 million for the year ended December 31, 2018. The tax savings were recorded in the first quarter of 2019 due to an order by the Florida PSC allowing reversal of a TCJA refund reserve, recorded in 2018, which increased gross margin for the nine months ended by that amount.

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14-14-14-14

Detailed Discussion of Major Projects and Initiatives
Expansions

2017 Eastern Shore System Expansion
Eastern Shore has completed the construction of a system expansion project that increased its capacity by 26 percent. The project generated $1.3 million and $6.6 million in incremental gross margin during the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The project is expected to produce gross margin of approximately $16.2 million in 2019; $15.8 million annually from 2020 through 2022 and $13.2 million annually thereafter based on current customer capacity commitments.

Northwest Florida Expansion
In May 2018, Peninsula Pipeline completed construction of transmission lines, and our Florida natural gas division completed construction of lateral distribution lines, to serve customers in Northwest Florida. The project generated incremental gross margin of $2.1 million for the nine months ended September 30, 2019, compared to the same periods in 2018. The estimated annual gross margin from this project is $6.5 million for 2019 and beyond, with the opportunity for additional margin as the remaining capacity is sold.

Western Palm Beach County, Florida Expansion
Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to the Company's distribution system in West Palm Beach, Florida. The first phase of this project was placed into service in December 2018 and generated $0.7 million and $1.1 million in additional gross margin for the three and nine months ended September 30, 2019, respectively. The Company expects to complete the remainder of the project in phases through early 2020, and estimates that it will generate gross margin of $2.3 million in 2019, $5.0 million in 2020 and $5.2 million annually thereafter.

Del-Mar Energy Pathway
In September 2018, Eastern Shore filed for FERC authorization to construct the Del-Mar Energy Pathway project to provide an additional 14,300 dekatherms per day of capacity to four customers. The project will provide additional natural gas transmission pipeline infrastructure in eastern Sussex County, Delaware, and it will represent the first extension of Eastern Shore’s pipeline system into Somerset County, Maryland. Interim services in advance of this project generated $0.2 million and $0.5 million for the three and nine months ended September 30, 2019, respectively. The estimated annual gross margin from this project is approximately $0.7 million in 2019, $3.0 million in 2020, $4.1 million in 2021 and $5.1 million annually thereafter. Eastern Shore anticipates that this project will be fully in-service by the beginning of the fourth quarter of 2021, contingent upon FERC issuing authorization for the project in the fourth quarter of 2019.
Auburndale
In August 2019, the Florida PSC approved Peninsula Pipeline's Transportation Service Agreement with the Florida Division of Chesapeake Utilities. Peninsula Pipeline will purchase existing pipeline owned by the Florida Division of Chesapeake Utilities and Calpine and construct pipeline facilities in Polk County, Florida, increasing both delivery capacity and introducing a secondary source of natural gas for the Company’s distribution system. Peninsula Pipeline generated gross margin of $0.1 million in the three and nine months ended September 30, 2019 from this project. This project is expected to generate $0.3 million in 2019 and $0.7 million annually thereafter.

Callahan Intrastate Pipeline
In May 2018, Peninsula Pipeline announced a plan to construct a jointly owned intrastate transmission pipeline in Nassau County, Florida with Seacoast Gas Transmission.  The 26-mile pipeline, having an initial capacity of 148,000 dekatherms per day, will serve growing demand in both Nassau and Duval counties, Florida.  The project is expected to be placed in-service during the third quarter of 2020 and is expected to generate gross margin of $3.2 million in 2020 and $6.4 million annually thereafter.

Guernsey Power Station
In December 2017, Guernsey Power Station, LLC, ("Guernsey Power Station") and a Chesapeake Utilities affiliate, Aspire Energy Express, LLC, ("Aspire Energy Express") entered into a precedent firm transportation capacity agreement whereby Guernsey Power Station will construct a power generation facility and Aspire Energy Express will provide natural gas transportation service to this facility.  Aspire Energy Express will construct gas transmission facilities connecting to a third party natural gas supplier to provide the firm transportation service to the power generation facility.  The Aspire Energy Express facilities are expected to be placed in service during the first quarter of 2021. This project is expected to produce gross margin of approximately $1.4 million annually once placed into service in 2021. 

--more--


15-15-15-15

Acquisitions

Marlin Gas Services
In December 2018, the Company acquired certain operating assets of Marlin Gas Transport, a supplier of mobile compressed natural gas distribution and pipeline solutions, and created Marlin Gas Services, a new subsidiary which offers compressed natural gas solutions to supply interruption scenarios and provides other unique applications where pipeline supplies are unavailable or inadequate to meet customer requirements. Marlin Gas Services generated $1.0 million and $4.4 million of gross margin for the three and nine months ended September 30, 2019, respectively. The Company estimates that Marlin Gas Services will generate gross margin of approximately $5.5 million in 2019 and $6.4 million in 2020, and we expect gross margin to continue to grow beyond 2020 as Marlin Gas Services continues to actively expand the territories it serves as well as leverages its patented technology to potentially serve liquefied natural gas transportation needs.
Ohl Propane Acquisition
In December 2018, Sharp Energy, Inc.'s ("Sharp") acquired certain propane customers and operating assets of Ohl. Located between two of Sharp's existing districts, Ohl provided propane distribution service to approximately 2,500 residential and commercial customers in Pennsylvania. The customers and assets acquired from Ohl have been assimilated into Sharp. The operations acquired from Ohl generated $0.1 million and $0.7 million of incremental gross margin for the three and nine months ended September 30, 2019, respectively. The Company estimates that this acquisition will generate additional gross margin of approximately $1.2 million for Sharp in 2019, with the potential for additional growth in future years.
Regulatory Initiatives

Florida GRIP
Florida GRIP is a natural gas pipe replacement program approved by the Florida PSC that allows automatic recovery, through rates, of costs associated with the replacement of mains and services. Since the program's inception in August 2012, the Company has invested $139.8 million of capital expenditures to replace 299 miles of qualifying distribution mains, including $12.5 million of new pipes during the first nine months of 2019. GRIP generated additional gross margin of $0.4 million for the nine months ended September 30, 2019, compared to the same period in 2018.

In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019.

Florida Tax Savings Related to TCJA
In February 2019, the Florida PSC issued orders authorizing certain of the Company's natural gas distribution operations to retain a portion of the tax savings associated with the lower federal tax rates resulting from the TCJA. In accordance with the PSC orders, the Company recognized $1.3 million in margin during the first quarter of 2019, reflecting the reversal of reserves recorded during 2018. The Company expects the annual savings beginning in 2019 to continue in future years, and recognized additional margin of $0.1 million and $1.1 million during the three and nine months ended September 30, 2019, respectively.

Hurricane Michael
In October 2018, Hurricane Michael passed through Florida Public Utilities Company's ("FPU") electric distribution service territory in Northwest Florida. The hurricane caused widespread and severe damage to FPU's infrastructure resulting in 100 percent of its customers in the Northwest Florida service territory losing electrical service. FPU, after exerting extraordinary hurricane restoration efforts, restored service to those customers who were able to accept it. FPU expended more than $65.0 million to restore service, which has been recorded as new plant and equipment, charged against FPU’s accumulated depreciation or charged against FPU’s storm reserve. In conjunction with the hurricane-related expenditures, the Company executed two 13-month unsecured term loans as temporary financing, each in the amount of $30 million. The interest cost associated with these loans is the one-month LIBOR rate plus 75 points. One of the term loans was executed in December 2018; the other was executed in January 2019.
In August 2019, FPU filed a limited proceeding requesting recovery of storm-related costs associated with Hurricane Michael (capital and expenses) through a change in base rates. FPU also requested treatment and recovery of certain storm-related costs as regulatory asset for items currently not allowed to be recovered through the storm reserve as well as the recovery of capital replaced as a result of the storm. Recovery of these costs includes a component of an overall

--more--


16-16-16-16

return on capital additions and regulatory assets. In the fourth quarter of 2019, FPU along with the Office of Public Counsel in Florida, filed a joint motion with the Florida PSC to approve an interim rate increase, subject to refund, pending the final ruling on the recovery of the restoration costs incurred. The petition was approved by the Florida PSC on November 5, 2019 and interim rate increases will be effective January 2, 2020. While there is a short-term negative impact, the storm is not expected to have a significant impact on our financial results going forward, assuming permanent recovery is granted through the regulatory process.
Other major factors influencing gross margin

Weather and Consumption
Weather was not a factor during the third quarter of 2019, compared to the same period in 2018. For the nine months ended September 30, 2019, compared to the same period in 2018, weather conditions accounted for a $4.5 million decrease in gross margin. Lower period-over-period heating degree days ("HDD") in all of the Company's service territories and extreme conditions due to the absence of the impact of the "Bomb Cyclone" in early 2018 reduced consumption in the first nine months of 2019 compared to the same period in 2018 and impacted both Regulated and Unregulated Energy segments. In terms of normal temperatures, the Company’s results for the first nine months of 2019 were negatively impacted by $2.6 million due to warmer temperatures.

The following table summarizes HDD and cooling degree day (“CDD”) variances from the 10-year average HDD/CDD ("Normal") for the three and nine months ended September 30, 2019 and 2018.

 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
September 30,
 
 
 
September 30,
 
 
 
2019
 
2018
 
Variance
 
2019
 
2018
 
Variance
Delmarva
 
 
 
 
 
 
 
 
 
 
 
Actual HDD
7

 
10

 
(3
)
 
2,576

 
2,729

 
(153
)
10-Year Average HDD ("Normal")
55

 
61

 
(6
)
 
2,803

 
2,846

 
(43
)
Variance from Normal
(48
)
 
(51
)
 
 
 
(227
)
 
(117
)
 
 
Florida
 
 
 
 
 
 
 
 
 
 
 
Actual HDD

 

 

 
379

 
507

 
(128
)
10-Year Average HDD ("Normal")

 

 

 
532

 
533

 
(1
)
Variance from Normal

 

 

 
(153
)
 
(26
)
 
 
Ohio
 
 
 
 

 
 
 
 
 
 
Actual HDD
2

 
55

 
(53
)
 
3,533

 
3,707

 
(174
)
10-Year Average HDD ("Normal")
90

 
91

 
(1
)
 
3,742

 
3,774

 
(32
)
Variance from Normal
(88
)
 
(36
)
 

 
(209
)
 
(67
)
 
 
Florida
 
 
 
 
 
 
 
 
 
 
 
Actual CDD
1,620

 
1,613

 
7

 
2,840

 
2,704

 
136

10-Year Average CDD ("Normal")
1,553

 
1,535

 
18

 
2,625

 
2,593

 
32

Variance from Normal
67

 
78

 
 
 
215

 
111

 
 

--more--


17-17-17-17

Natural Gas Distribution Margin Growth
New customer growth in the Company's natural gas distribution operations generated $0.8 million and $3.4 million of additional margin for the three and nine months ended September 30, 2019, respectively. The details for the three and nine months ended September 30, 2019 are provided in the following table:

 
 
Three Months Ended
 
Nine Months Ended
(in thousands)
 
September 30, 2019
 
September 30, 2019
Customer Growth:
 
 
 
 
Residential
 
$
358

 
$
1,450

Commercial and industrial
 
433

 
1,996

Total Customer Growth
 
$
791

 
$
3,446


The additional margin from new customers reflects an increase of approximately 3.8 percent in the average number of residential customers served on the Delmarva Peninsula for both the three and nine months ended September 30, 2019, and approximately 4.3 percent and 3.8 percent growth in new residential customers served in Florida. Additional gross margin was also generated by growth in commercial and industrial customers in Florida.


Capital Investment Growth and Associated Financing Plans

--more--


18-18-18-18

The Company's capital expenditures were $124.2 million for the nine months ended September 30, 2019. The following table shows a range of the expected 2019 capital expenditures by segment and by business line:
 
2019
(dollars in thousands)
Low
 
High
Regulated Energy:
 
 
 
Natural gas distribution
$
63,000

 
$
65,000

Natural gas transmission
62,000

 
64,000

Electric distribution
4,000

 
6,000

Total Regulated Energy
129,000

 
135,000

Unregulated Energy:
 
 
 
Propane distribution
12,000

 
13,000

Energy transmission
11,000

 
12,000

Other unregulated energy
8,000

 
14,000

Total Unregulated Energy
31,000

 
39,000

Other:
 
 
 
Corporate and other businesses
10,000

 
11,000

Total Other
10,000

 
11,000

Total 2019 Expected Capital Expenditures
$
170,000

 
$
185,000


Beginning in this press release, the Company is providing a range of capital expenditures for 2019 rather than a definitive number to reflect the impact in timing of the approval of several projects. The capital expenditure projection is subject to continuous review and modification. Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital. Historically, actual capital expenditures have typically lagged behind the budgeted amounts.

The Company's target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent. The Company's equity to total capitalization ratio, including short term borrowings, was 45 percent as of September 30, 2019. Excluding the funds expended for Hurricane Michael restoration activities, the Company's equity to total capitalization ratio, including short-term borrowings, would have been approximately 47 percent.
The Company seeks to align permanent financing with the in-service dates of its capital projects. The Company may utilize more temporary short-term debt, when the financing cost is attractive, as a bridge to the permanent long-term financing. In October 2019, the Company reached commercial terms with four financial institutions with respect to the anticipated issuance of $70.0 million of 2.98% uncollateralized senior notes.  The note issuance to these institutions is subject to the negotiation and execution of a note purchase agreement and satisfaction of customary conditions included therein.  The Company expects to issue the notes in December 2019, with the notes having a maturity date of December 2034.  If issued, the Company anticipates using the proceeds to refinance the term notes used as temporary financing for Hurricane Michael restoration activities.


--more--


19-19-19-19

Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except shares and per share data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
Operating Revenues
 
 
 
 
 
 
 
Regulated Energy
$
74,580

 
$
72,770

 
$
251,601

 
$
252,667

Unregulated Energy and other
18,046

 
20,630

 
96,029

 
103,435

Total Operating Revenues
92,626

 
93,400

 
347,630

 
356,102

Operating Expenses
 
 
 
 
 
 
 
Regulated Energy cost of sales
19,619

 
21,501

 
74,452

 
89,741

Unregulated Energy and other cost of sales
5,709

 
9,512

 
36,975

 
49,196

Operations
32,623

 
31,449

 
99,596

 
97,723

Maintenance
3,920

 
3,208

 
11,199

 
10,419

Gain from a settlement

 

 
(130
)
 
(130
)
Depreciation and amortization
11,219

 
10,487

 
33,612

 
29,739

Other taxes
5,178

 
4,364

 
15,282

 
13,446

Total operating expenses
78,268

 
80,521

 
270,986

 
290,134

Operating Income
14,358

 
12,879

 
76,644

 
65,968

Other expense, net
(350
)
 
(4
)
 
(729
)
 
(168
)
Interest charges
5,403

 
4,357

 
16,583

 
11,764

Income from Continuing Operations Before Income Taxes
8,605


8,518


59,332


54,036

Income Taxes on Continuing Operations
2,360

 
2,428

 
15,355

 
14,918

Income from Continuing Operations
6,245


6,090


43,977


39,118

Loss from Discontinued Operations, Net of Tax
(624
)
 
(552
)
 
(1,388
)
 
(339
)
Net Income
$
5,621


$
5,538


$
42,589


$
38,779

Weighted Average Common Shares Outstanding:
 
 
 
 
 
 
 
Basic
16,403,776

 
16,378,545

 
16,396,646

 
16,366,608

Diluted
16,453,867

 
16,428,439

 
16,444,231

 
16,416,255

Basic Earnings Per Share of Common Stock:
 
 
 
 
 
 
 
Earnings from Continuing Operations
$
0.38

 
$
0.37

 
$
2.68

 
$
2.39

Earnings from Discontinued Operations
(0.04
)
 
(0.03
)
 
(0.08
)
 
(0.02
)
Basic Earnings Per Share of Common Stock
$
0.34

 
$
0.34

 
$
2.60

 
$
2.37

 
 
 
 
 
 
 
 
Diluted Earnings Per Share of Common Stock:
 
 
 
 
 
 
 
Earnings from Continuing Operations
$
0.38

 
$
0.37

 
$
2.67

 
$
2.38

Earnings from Discontinued Operations
(0.04
)
 
(0.03
)
 
(0.08
)
 
(0.02
)
Diluted Earnings Per Share of Common Stock
$
0.34

 
$
0.34

 
$
2.59

 
$
2.36


--more--


20-20-20-20


Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

Assets
 
September 30, 2019
 
December 31, 2018
(in thousands, except shares and per share data)
 
 
 
 
 Property, Plant and Equipment
 
 
 
 
Regulated Energy
 
$
1,407,371

 
$
1,297,416

Unregulated Energy
 
250,826

 
236,440

Other businesses and eliminations
 
30,596

 
34,585

 Total property, plant and equipment
 
1,688,793

 
1,568,441

 Less: Accumulated depreciation and amortization
 
(330,479
)
 
(294,089
)
 Plus: Construction work in progress
 
102,640

 
108,584

 Net property, plant and equipment
 
1,460,954

 
1,382,936

 Current Assets
 
 
 
 
Cash and cash equivalents
 
4,320

 
6,089

Trade and other receivables (less allowance for uncollectible accounts of $1,350 and $1,058, respectively)
 
34,504

 
53,837

Accrued revenue
 
11,538

 
22,640

Propane inventory, at average cost
 
4,370

 
9,791

Other inventory, at average cost
 
6,037

 
7,127

Regulatory assets
 
6,633

 
4,796

Storage gas prepayments
 
2,158

 
3,433

Income taxes receivable
 
11,100

 
15,300

Prepaid expenses
 
10,571

 
10,079

Derivative assets, at fair value
 

 
82

Other current assets
 
2,489

 
5,682

Current assets held for sale
 
21,155

 
52,681

 Total current assets
 
114,875

 
191,537

 Deferred Charges and Other Assets
 
 
 
 
Goodwill
 
21,516

 
21,568

Other intangible assets, net
 
3,272

 
3,850

Investments, at fair value
 
8,536

 
6,711

Operating lease right-of-use assets (1)
 
12,004

 

Regulatory assets
 
77,030

 
72,422

Other assets
 
8,874

 
6,985

Noncurrent assets held for sale
 
7,179

 
7,662

 Total deferred charges and other assets
 
138,411

 
119,198

Total Assets
 
$
1,714,240

 
$
1,693,671

(1) During the first quarter of 2019, the Company adopted a new lease accounting standard, resulting in additional assets and liabilities (both current and non-current portions) which total $12.0 million at September 30, 2019.


--more--


21-21-21-21

Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities
 
September 30, 2019
 
December 31, 2018
(in thousands, except shares and per share data)
 
 
 
 
 Capitalization
 
 
 
 
 Stockholders' equity
 
 
 
 
Preferred stock, par value $0.01 per share (authorized 2,000,000 shares), no shares issued and outstanding
 
$

 
$

Common stock, par value $0.4867 per share (authorized 50,000,000 shares)
 
7,984

 
7,971

 Additional paid-in capital
 
257,436

 
255,651

 Retained earnings
 
284,694

 
261,530

 Accumulated other comprehensive loss
 
(5,403
)
 
(6,713
)
 Deferred compensation obligation
 
4,505

 
3,854

 Treasury stock
 
(4,505
)
 
(3,854
)
 Total stockholders' equity
 
544,711

 
518,439

 Long-term debt, net of current maturities
 
375,810

 
316,020

 Total capitalization
 
920,521

 
834,459

 Current Liabilities
 
 
 
 
Current portion of long-term debt
 
75,600

 
11,935

Short-term borrowing
 
224,744

 
294,458

Accounts payable
 
53,150

 
98,681

Customer deposits and refunds
 
29,629

 
32,620

Accrued interest
 
4,891

 
2,317

Dividends payable
 
6,644

 
6,060

Accrued compensation
 
10,362

 
13,923

Regulatory liabilities
 
5,691

 
7,883

Derivative liabilities, at fair value
 
2,216

 
1,604

Other accrued liabilities (1)
 
15,210

 
10,081

Current liabilities held for sale
 
18,110

 
48,672

 Total current liabilities
 
446,247

 
528,234

 Deferred Credits and Other Liabilities
 
 
 
 
Deferred income taxes
 
165,492

 
156,820

Regulatory liabilities
 
133,966

 
135,039

Environmental liabilities
 
6,713

 
7,638

Other pension and benefit costs
 
27,890

 
28,513

Operating lease - liabilities (1)
 
10,392

 

Deferred investment tax credits and other liabilities
 
3,019

 
2,968

 Total deferred credits and other liabilities
 
347,472

 
330,978

Total Capitalization and Liabilities
 
$
1,714,240

 
$
1,693,671

(1) During the first quarter of 2019, the Company adopted a new lease accounting standard, resulting in additional assets and liabilities (both current and non-current portions) which total $12.0 million at September 30, 2019.

--more--


22-22-22-22

Chesapeake Utilities Corporation and Subsidiaries
Distribution Utility Statistical Data (Unaudited)
 
 
For the Three Months Ended September 30, 2019
 
For the Three Months Ended September 30, 2018
 
 
Delmarva NG Distribution
 
Chesapeake Utilities Florida NG Division
 
FPU NG Distribution
 
FPU Electric Distribution
 
Delmarva NG Distribution
 
Chesapeake Utilities Florida NG Division
 
FPU NG Distribution
 
FPU Electric Distribution
Operating Revenues
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Residential
 
$
7,314

 
$
1,349

 
$
5,671

 
$
14,460

 
$
5,497

 
$
1,290

 
$
5,601

 
$
13,991

  Commercial
 
3,812

 
1,471

 
5,588

 
11,216

 
4,961

 
1,424

 
5,354

 
11,245

  Industrial
 
1,678

 
3,063

 
5,707

 
591

 
1,722

 
3,068

 
4,723

 
361

  Other (1)
 
456

 
827

 
942

 
(2,093
)
 
854

 
500

 
1,712

 
(1,767
)
Total Operating Revenues
 
$
13,260

 
$
6,710

 
$
17,908

 
$
24,174

 
$
13,034

 
$
6,282

 
$
17,390

 
$
23,830

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Volume (in Dts for natural gas and KWHs for electric)
 
 
 
 
 
 
 
 
 
 
 
 
  Residential
 
183,998

 
52,805

 
214,521

 
97,537

 
180,396

 
53,051

 
214,213

 
96,218

  Commercial
 
483,382

 
1,045,666

 
344,727

 
92,571

 
427,173

 
1,158,545

 
337,091

 
92,416

  Industrial
 
1,233,019

 
7,019,573

 
1,114,359

 
7,460

 
1,213,527

 
6,511,997

 
1,130,299

 
3,180

  Other
 
59,635

 

 
583,267

 

 
26,648

 

 
434,976

 
1,913

Total
 
1,960,034

 
8,118,044

 
2,256,874

 
197,568

 
1,847,744

 
7,723,593

 
2,116,579

 
193,727

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Residential
 
73,454

 
17,342

 
57,999

 
24,624

 
70,795

 
16,484

 
55,763

 
24,811

  Commercial(2)
 
7,040

 
1,555

 
3,934

 
7,240

 
6,907

 
1,509

 
3,912

 
7,507

  Industrial(2)
 
168

 
17

 
2,440

 
2

 
161

 
17

 
2,329

 
2

  Other
 
18

 

 
12

 

 
5

 

 
12

 

Total
 
80,680

 
18,914

 
64,385

 
31,866

 
77,868

 
18,010

 
62,016

 
32,320

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2019
 
For the Nine Months Ended September 30, 2018
 
 
Delmarva NG Distribution
 
Chesapeake Utilities Florida NG Division
 
FPU NG Distribution
 
FPU Electric Distribution
 
Delmarva NG Distribution
 
Chesapeake Utilities Florida NG Division
 
FPU NG Distribution
 
FPU Electric Distribution
Operating Revenues
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Residential
 
$
47,729

 
$
4,645

 
$
23,848

 
$
35,121

 
$
54,819

 
$
4,510

 
$
24,488

 
$
35,338

  Commercial
 
23,307

 
4,796

 
19,924

 
28,838

 
28,655

 
4,669

 
20,489

 
28,879

  Industrial
 
5,839

 
9,450

 
17,767

 
1,617

 
6,015

 
7,794

 
16,314

 
1,131

  Other (1)
 
(4,013
)
 
2,734

 
(1,182
)
 
(6,560
)
 
(4,498
)
 
1,489

 
(2,406
)
 
(4,415
)
Total Operating Revenues
 
$
72,862

 
$
21,625

 
$
60,357

 
$
59,016

 
$
84,991

 
$
18,462

 
$
58,885

 
$
60,933

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Volume (in Dts for natural gas and KWHs for electric)
 
 
 
 
 
 
 
 
 
 
 
 
  Residential
 
2,962,532

 
268,993

 
1,036,872

 
235,406

 
3,180,160

 
278,976

 
1,066,559

 
241,428

  Commercial
 
2,810,391

 
3,348,307

 
1,275,328

 
233,940

 
2,844,296

 
3,526,943

 
1,304,827

 
233,223

  Industrial
 
3,960,447

 
21,419,122

 
3,688,370

 
18,383

 
4,030,716

 
13,278,643

 
3,680,779

 
11,810

  Other
 
138,009

 

 
1,771,243

 

 
56,941

 

 
1,419,623

 
5,716

Total
 
9,871,379

 
25,036,422

 
7,771,813

 
487,729

 
10,112,113

 
17,084,562

 
7,471,788

 
492,177

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Residential
 
73,698

 
17,178

 
57,444

 
24,511

 
71,022

 
16,366

 
55,541

 
24,723

  Commercial(2)
 
7,090

 
1,543

 
3,923

 
7,233

 
6,975

 
1,509

 
3,923

 
7,494

  Industrial(2)
 
168

 
17

 
2,430

 
2

 
155

 
16

 
2,289

 
2

  Other
 
14

 

 
12

 

 
5

 

 
11

 

Total
 
80,970

 
18,738

 
63,809

 
31,746

 
78,157

 
17,891

 
61,764

 
32,219

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 or changes in taxes, such as the TCJA, which are passed through to customers. This amount also includes the reserve for estimated customer refunds associated with the TCJA.
(2) 
Certain volumes and customers have been reclassified when compared to the prior year for consistency with current year presentation.