Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 2008
Commission File Number: 001-11590
Chesapeake Utilities Corporation
(Exact name of registrant as specified in its charter)
|
|
|
State of Delaware
|
|
51-0064146 |
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.) |
909 Silver Lake Boulevard, Dover, Delaware 19904
(Address of principal executive offices, including zip code)
302-734-6799
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of each class
|
|
Name of each exchange on which registered |
|
|
|
Common Stock par value per share $.4867
|
|
New York Stock Exchange, Inc. |
Securities registered pursuant to Section 12(g) of the Act:
8.25% Convertible Debentures Due 2014
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of accelerated filer,
large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller Reporting Company o |
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of the common shares held by non-affiliates of Chesapeake Utilities
Corporation as of June 30, 2008, the last business day of its most recently completed second fiscal
quarter, based on the last trade price on that date, as reported by the New York Stock Exchange,
was approximately $168.8 million.
As of
February 28, 2009, 6,833,066 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2009 Annual Meeting of Stockholders are incorporated by
reference in Part III.
CHESAPEAKE
UTILITIES CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 2008
TABLE OF CONTENTS
GLOSSARY OF KEY TERMS
Frequently used abbreviations, acronyms, or terms used in this report:
Subsidiaries of Chesapeake Utilities Corporation
|
|
|
BravePoint
|
|
BravePoint, Inc., a wholly-owned subsidiary of Chesapeake Services
Company, which is a wholly-owned subsidiary of Chesapeake Utilities
Corporation |
|
|
|
Chesapeake
|
|
The Registrant, the Registrant and its subsidiaries, or the Registrants
subsidiaries, as appropriate in the context of the disclosure |
|
|
|
Company
|
|
The Registrant, the Registrant and its subsidiaries or the Registrants
subsidiaries, as appropriate in the context of the disclosure |
|
|
|
ESNG
|
|
Eastern Shore Natural Gas Company, a wholly-owned subsidiary of Chesapeake |
|
|
|
OnSight
|
|
Chesapeake OnSight Services, LLC, a wholly-owned subsidiary of Chesapeake |
|
|
|
PESCO
|
|
Peninsula Energy Services Company, Inc., a wholly-owned subsidiary of
Chesapeake |
|
|
|
PIPECO
|
|
Peninsula Pipeline Company, Inc., a wholly-owned subsidiary of Chesapeake |
|
|
|
Sharp Energy
|
|
Sharp Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities
Corporation |
|
|
|
Sharpgas
|
|
Sharpgas, Inc., a wholly-owned subsidiary of Sharp Energy, Inc. |
|
|
|
Skipjack
|
|
Skipjack, Inc., a wholly-owned subsidiary of Chesapeake Service Company,
which is a wholly-owned subsidiary of Chesapeake Utilities Corporation |
|
|
|
Tri-County
|
|
Tri-County Gas Co., Inc. a wholly-owned subsidiary of Sharp Energy |
|
|
|
Xeron
|
|
Xeron, Inc., a wholly-owned subsidiary of Chesapeake |
Regulatory Agencies
|
|
|
APB
|
|
Accounting Principles Board |
|
|
|
Delaware PSC
|
|
Delaware Public Service Commission |
|
|
|
DOT
|
|
United States Department of Transportation |
|
|
|
EPA
|
|
United States Environmental Protection Agency |
|
|
|
FASB
|
|
Financial Accounting Standards Board |
|
|
|
FERC
|
|
Federal Energy Regulatory Commission |
|
|
|
FDEP
|
|
Florida Department of Environmental Protection |
|
|
|
Florida PSC
|
|
Florida Public Service Commission |
|
|
|
IRS
|
|
Internal Revenue Service |
|
|
|
Maryland PSC
|
|
Maryland Public Service Commission |
|
|
|
MDE
|
|
Maryland Department of Environment |
|
|
|
SEC
|
|
Securities and Exchange Commission |
Other
|
|
|
AOCI
|
|
Accumulated Other Comprehensive Income |
|
|
|
AS/SVE
|
|
Air Sparging and Soil/Vapor Extraction |
|
|
|
CGS
|
|
Community Gas Systems |
|
|
|
Columbia
|
|
Columbia Gas Transmission Corporation |
|
|
|
DSCP
|
|
Directors Stock Compensation Plan |
|
|
|
Dts
|
|
Dekatherms |
|
|
|
E3 Project
|
|
ESNG Energylink Expansion Project |
|
|
|
ER
|
|
Environmental rider |
|
|
|
EITF
|
|
Financial Accounting Standards Board Emerging Issues Task Force |
|
|
|
FIN
|
|
Financial Accounting Standards Board Interpretation Number |
|
|
|
FSP
|
|
Financial Accounting Standards Board Staff Position |
|
|
|
GAAP
|
|
Generally Accepted Accounting Principles |
|
|
|
GSR
|
|
Gas sales service rates |
Chesapeake Utilities Corporation 2008 Form 10-K Page 1
|
|
|
Gulf
|
|
Columbia Gulf Transmission Company |
|
|
|
Gulfstream
|
|
Gulfstream Natural Gas System, LLC |
|
|
|
HDD
|
|
Heating degree-days |
|
|
|
MMBtus
|
|
One million (1,000,000) British Thermal Units |
|
|
|
NYSE
|
|
New York Stock Exchange |
|
|
|
PIP
|
|
Performance Incentive Plan |
|
|
|
S&P 500 Index
|
|
Standard & Poors 500 |
|
|
|
SFAS
|
|
Statement of Financial Accounting Standards |
Accounting Standards
|
|
|
EITF 03-6-1
|
|
EITF 03-6-1, Determining Whether instruments Granted in Share-based
Payment Transactions are Participating Securities |
|
|
|
EITF 07-05
|
|
EITF 07-05, Determining Whether an Instrument (of an Embedded Feature)
is Indexed to an Entitys Own Stock |
|
|
|
EITF 08-03
|
|
EITF 08-03, Accounting for Maintenance Deposits Under Lease Arrangements |
|
|
|
EITF 08-05
|
|
EITF 08-05, Issuers Accounting for Liabilities Measured at Fair Value
with a Third-Party Credit Enhancement |
|
|
|
FIN 39-1
|
|
FIN 39-1, a modification to FIN 39, Offsetting of Amounts Related to
Certain Contracts |
|
|
|
FIN 47
|
|
FIN 47, Accounting for Conditional Asset Retirement Obligations, an
interpretation of FASB Statement No. 143 |
|
|
|
FIN 48
|
|
FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of
SFAS Statement No. 109 |
|
|
|
FSP APB 14-1
|
|
FSP APB 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements) |
|
|
|
FSP 142-3
|
|
FSP 142-3, Determining the Useful Life of Intangible Assets |
|
|
|
FSP 157-3
|
|
FSP 157-3, Determining the Fair Value of a Financial Asset When the
Market for that Asset is Not Active |
|
|
|
SFAS No. 71
|
|
Statement of Financial Accounting Standards No. 71, Accounting for the
Effects of Certain Types of Regulation |
|
|
|
SFAS No. 87
|
|
Statement of Financial Accounting Standards No. 87, Employers
Accounting for Pensions |
|
|
|
SFAS No. 88
|
|
Statement of Financial Accounting Standards No. 88, Employers
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits |
|
|
|
SFAS No. 106
|
|
Statement of Financial Accounting Standards No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions |
|
|
|
SFAS No. 109
|
|
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes |
|
|
|
SFAS No. 112
|
|
Statement of Financial Accounting Standards No. 112, Employers
Accounting for Postemployment Benefits |
|
|
|
SFAS No. 115
|
|
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities |
|
|
|
SFAS No. 123
|
|
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation |
|
|
|
SFAS No. 123R
|
|
Statement of Financial Accounting Standards No. 123R, Share-Based Payment |
|
|
|
SFAS No. 128
|
|
Statement of Financial Accounting Standards No. 128, Earnings Per Share |
|
|
|
SFAS No. 132R
|
|
Statement of Financial Accounting Standards No. 132R, Employers
Disclosures about Pensions and Other Postretirement Benefits |
|
|
|
SFAS No. 133
|
|
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities |
Page 2 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
SFAS No. 141R
|
|
Statement of Financial Accounting Standards No. 141R, Business
Combinations |
|
|
|
SFAS No. 142
|
|
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets |
|
|
|
SFAS No. 143
|
|
Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations |
|
|
|
SFAS No. 157
|
|
Statement of Financial Accounting Standards No. 157, Fair Value
Measurements |
|
|
|
SFAS No. 158
|
|
Statement of Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans,
an Amendment of SFAS Nos. 87, 88, 106, and 132R |
|
|
|
SFAS No. 159
|
|
Statement of Financial Accounting Standards No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities Including an
Amendment of SFAS No. 115 |
|
|
|
SFAS No. 160
|
|
Statement of Financial Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an Amendment of
Accounting Research Bulletin 51 |
|
|
|
SFAS No. 161
|
|
Statement of Financial Accounting Standards No. 161, Disclosures about
Derivative Instruments and Hedging Activities, an Amendment of SFAS No.
133 |
|
|
|
SFAS No. 162
|
|
Statement of Financial Accounting Standards No. 162, The Hierarchy of
Generally Accepted Accounting Principles |
Chesapeake Utilities Corporation 2008 Form 10-K Page 3
Part I
References in this document to Chesapeake, the Company, we, us and our mean Chesapeake
Utilities Corporation and/or its wholly-owned subsidiaries, as appropriate.
Safe Harbor for Forward-Looking Statements
Chesapeake Utilities Corporation has made statements in this Form 10-K that are considered to be
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are not matters of historical fact and are typically identified by words
such as, but not limited to, believes, expects, intends, plans, and similar expressions, or
future or conditional verbs such as may, will, should, would, and could. These statements
relate to matters such as customer growth, changes in revenues or gross margins, capital
expenditures, environmental remediation costs, regulatory trends and decisions, market risks, the
competitive position of the Company and other matters. It is important to understand that these
forward-looking statements are not guarantees but are subject to certain risks and uncertainties
and other important factors that could cause actual results to differ materially from those in the
forward-looking statements. The factors that could cause actual results to differ materially from
the Companys expectations include, but are not limited to, those discussed in Item 1A, Risk
Factors.
Item 1. Business.
(a) General
Chesapeake is a diversified utility company engaged directly, or through subsidiaries, in natural
gas distribution, transmission and marketing, propane distribution and wholesale marketing,
advanced information services and other related businesses. Chesapeake is a Delaware corporation
that was formed in 1947.
Chesapeake is composed of four operating segments:
|
|
|
Natural Gas. The natural gas segment includes regulated natural gas distribution and
transmission operations and also a non-regulated natural gas marketing operation. |
|
|
|
Propane. The propane segment includes non-regulated propane distribution and wholesale
marketing operations. |
|
|
|
Advanced Information Services. The advanced information services segment provides
domestic and international clients with information-technology-related business services
and solutions for both enterprise and e-business applications. |
|
|
|
Other. The other segment consists primarily of non-regulated operations that own real
estate leased to other Company subsidiaries. |
(b) Financial Information About Business Segments
Our natural gas segment accounts for approximately 91 percent of Chesapeakes consolidated
operating income and approximately 87 percent of the consolidated net property plant and
equipment. The following table shows the size of each of our operating segments based on
operating income and net property, plant and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Property, Plant |
|
(Thousands) |
|
Operating Income |
|
|
& Equipment |
|
Natural Gas |
|
$ |
25,846 |
|
|
|
91 |
% |
|
$ |
242,882 |
|
|
|
87 |
% |
Propane |
|
|
1,586 |
|
|
|
6 |
% |
|
|
30,180 |
|
|
|
11 |
% |
Advanced information services |
|
|
695 |
|
|
|
2 |
% |
|
|
915 |
|
|
|
<1 |
% |
Other & eliminations |
|
|
352 |
|
|
|
1 |
% |
|
|
6,694 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
28,479 |
|
|
|
100 |
% |
|
$ |
280,671 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 4 Chesapeake Utilities Corporation 2008 Form 10-K
Additional financial information by business segment is included in Item 8 under the heading
Notes to Consolidated Financial Statements Note C.
(c) Narrative Description of the Business
(i)(a) Natural Gas
Chesapeakes natural gas segment provides natural gas distribution, transmission and marketing
services for its customers. Chesapeake conducts its natural gas distribution operations under
three divisions: Delaware, Maryland, and Florida, which are based in their respective service
territories. These three divisions serve approximately 65,190 residential, commercial and
industrial customers in central and southern Delaware, Marylands Eastern Shore and parts of
Florida. The Companys natural gas transmission subsidiary, ESNG, operates a 379-mile interstate
pipeline system that transports gas from various points in Pennsylvania to the Companys
Delaware and Maryland distribution divisions, as well as to other utilities and industrial
customers in southern Pennsylvania, Delaware and on the Eastern Shore of Maryland. The Company,
through its subsidiary, PESCO, also provides natural gas supply and supply management services
in the States of Delaware, Florida and Maryland.
Natural Gas Distribution
Chesapeake distributes natural gas to residential, commercial and industrial customers in
central and southern Delaware, the Salisbury and Cambridge areas on Marylands Eastern Shore,
and parts of Florida. These activities are conducted through three utility divisions, one in
Delaware, another in Maryland and a third in Florida.
Delaware and Maryland. Chesapeakes Delaware and Maryland distribution divisions
serve approximately 50,670 customers, of which approximately 50,490 are residential and
commercial customers purchasing gas primarily for heating and cooking use. The remaining
180 customers are industrial. For the year 2008, operating revenues and deliveries by
customer class were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
|
Deliveries |
|
|
|
(Thousands) |
|
|
(MMcfs) |
|
Residential |
|
$ |
47,994 |
|
|
|
53 |
% |
|
|
2,590,425 |
|
|
|
39 |
% |
Commercial |
|
|
29,480 |
|
|
|
33 |
% |
|
|
2,312,644 |
|
|
|
34 |
% |
Industrial |
|
|
2,130 |
|
|
|
2 |
% |
|
|
812,224 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
79,604 |
|
|
|
88 |
% |
|
|
5,715,293 |
|
|
|
85 |
% |
Interruptible |
|
|
9,041 |
|
|
|
10 |
% |
|
|
1,035,540 |
|
|
|
15 |
% |
Other
(1) |
|
|
1,934 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
90,579 |
|
|
|
100 |
% |
|
|
6,750,833 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating revenues from Other sources include unbilled revenue, rental of
gas properties, and other miscellaneous charges. |
Florida. The Florida division distributes natural gas to approximately 13,370
residential and 1,150 commercial and industrial customers in the 14 Counties of Polk,
Osceola, Hillsborough, Gadsden, Gilchrist, Union, Holmes, Jackson, Desoto, Pasco,
Suwannee, Liberty, Washington and Citrus. For the year 2008, operating revenues and
deliveries by customer class were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
|
Deliveries |
|
|
|
(Thousands) |
|
|
(MMcfs) |
|
Residential |
|
$ |
3,725 |
|
|
|
28 |
% |
|
|
321,077 |
|
|
|
2 |
% |
Commercial |
|
|
3,108 |
|
|
|
24 |
% |
|
|
1,180,507 |
|
|
|
7 |
% |
Industrial |
|
|
4,684 |
|
|
|
36 |
% |
|
|
14,527,786 |
|
|
|
91 |
% |
Other (1) |
|
|
1,637 |
|
|
|
12 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,154 |
|
|
|
100 |
% |
|
|
16,029,370 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating revenues from Other sources include unbilled revenue,
conservation revenue, fees for billing services provided to third-parties, and other
miscellaneous charges. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 5
Natural Gas Transmission
ESNG owns and operates an interstate natural gas pipeline and provides open-access
transportation services for affiliated and non-affiliated local distribution companies and other
customers through an integrated gas pipeline system extending from southeastern Pennsylvania
through Delaware to its terminus on the Eastern Shore of Maryland. ESNG also provides swing
transportation service and contract storage services. For the year 2008, operating revenues and
deliveries by customer class were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
|
Deliveries |
|
|
|
(Thousands) |
|
|
(MMcfs) |
|
Local distribution companies |
|
$ |
19,280 |
|
|
|
81 |
% |
|
|
9,720,864 |
|
|
|
44 |
% |
Industrial |
|
|
3,523 |
|
|
|
15 |
% |
|
|
11,191,555 |
|
|
|
50 |
% |
Commercial |
|
|
968 |
|
|
|
4 |
% |
|
|
1,299,878 |
|
|
|
6 |
% |
Other (1) |
|
|
5 |
|
|
|
<1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
23,776 |
|
|
|
100 |
% |
|
|
22,212,297 |
|
|
|
100 |
% |
Less: affiliated local distribution companies |
|
|
11,521 |
|
|
|
48 |
% |
|
|
5,978,996 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-affiliated |
|
$ |
12,255 |
|
|
|
52 |
% |
|
|
16,233,301 |
|
|
|
73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating revenues from Other sources is from rental of gas properties. |
During 2005, Chesapeake formed PIPECO to provide industrial customers in the State of Florida
natural gas transportation service as an intrastate pipeline. PIPECO did not have any activity
in 2006. On December 4, 2007, the Florida Public Service Commission (Florida PSC) approved
PIPECOs natural gas transmission pipeline tariff, which established its operating rules and
regulations. PIPECO began marketing its services to potential industrial customers in 2008.
Natural Gas Marketing
PESCO competes with regulated utilities and other unregulated third-party marketers to sell
natural gas supplies directly to commercial and industrial customers in the States of Delaware,
Maryland, and Florida through competitively-priced contracts. PESCO does not own or operate any
natural gas transmission or distribution assets. The gas that PESCO sells is delivered to retail
customers through affiliated and non-affiliated local distribution company systems and
transmission pipelines. PESCO bills its customers through the billing services of the regulated
utilities that deliver the gas, or directly, through its own billing capabilities.
For the year 2008, PESCOs customers, operating revenues and deliveries were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
|
Deliveries |
|
State |
|
Customers |
|
|
(Thousands) |
|
|
(Dts) |
|
Florida |
|
|
1,922 |
|
|
|
99 |
% |
|
$ |
76,862 |
|
|
|
81 |
% |
|
|
6,275,717 |
|
|
|
79 |
% |
Delmarva |
|
|
12 |
|
|
|
1 |
% |
|
|
18,552 |
|
|
|
19 |
% |
|
|
1,683,695 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,934 |
|
|
|
100 |
% |
|
$ |
95,414 |
|
|
|
100 |
% |
|
|
7,959,412 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Supplies, Firm Transportation and Storage Capacity
The Company believes that the availability of gas supply and transportation to its Delaware,
Maryland and Florida natural gas distribution operations and to ESNG and PESCO is adequate under
existing arrangements to meet the anticipated needs of their customers. The following discussion
provides a summary of the gas supplies and pipeline transportation and storage capacities,
stated in dekatherms (Dts), available to each of the Companys natural gas operations.
Page 6 Chesapeake Utilities Corporation 2008 Form 10-K
The Companys Delaware and Maryland natural gas distribution divisions have both firm and
interruptible transportation service contracts with four interstate open access pipelines,
including ESNG. These divisions are directly interconnected with ESNG, and have contracts with
interstate pipelines upstream of ESNG. These interstate pipelines include Transcontinental Gas
Pipe Line Corporation (Transco), Columbia Gas Transmission Corporation (Columbia) and
Columbia Gulf Transmission Company (Gulf). Transco and Columbia are directly interconnected
with ESNG; Gulf is directly interconnected with Columbia and indirectly interconnected with
ESNG. None of the upstream pipelines is an affiliate of the Company. The divisions use their
firm transportation supply resources to meet a significant percentage of their projected demand
requirements. In order to meet the difference between firm supply and firm demand, the divisions
purchase natural gas supplies on the spot market from various suppliers. This gas is transported
by the upstream pipelines and delivered to their interconnections with ESNG. The divisions also
have the capability to use propane-air peak-shaving to supplement or displace the spot market
purchases.
Delaware.
The following table shows the firm transportation and storage capacity that the Delaware
division currently has under contract with ESNG and pipelines upstream of ESNG,
including the respective contract expiration dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm transportation |
|
|
|
|
|
|
|
|
capacity maximum |
|
|
Firm storage capacity |
|
|
|
|
|
peak-day daily |
|
|
maximum peak-day |
|
|
|
Pipeline |
|
deliverability (Dts) |
|
|
daily withdrawal (Dts) |
|
|
Expiration |
Transco
|
|
|
21,356 |
|
|
|
6,407 |
|
|
Various dates between 2012 and 2028 |
Columbia
|
|
|
3,460 |
|
|
|
8,224 |
|
|
Various dates between 2009 and 2020 |
Gulf
|
|
|
880 |
|
|
|
|
|
|
Expires in 2009 |
Eastern Shore
|
|
|
61,637 |
|
|
|
4,146 |
|
|
Various dates between 2009 and 2023 |
The Delaware division currently has contracts with several suppliers for the purchase of
firm natural gas supply in the amount of its capacity on the Transco and Columbia
pipelines. The Delaware division also has contracts for firm peaking gas supplies to be
delivered to its system in order to meet the differential between the Delaware
divisions capacity on ESNG and capacity on pipelines upstream of ESNG. These supply
contracts provide a maximum firm daily entitlement of 51,066 Dts, delivered on the
Transco, Columbia, and/or Gulf systems to ESNG for redelivery to the division under firm
transportation contracts. These gas supply contracts have various expiration dates, and
quantities may vary from day-to-day and month-to-month.
Maryland.
The following table shows the firm transportation and storage capacity that the Maryland
division currently has under contract with ESNG and pipelines upstream of ESNG,
including the respective contract expiration dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm transportation |
|
|
|
|
|
|
|
|
capacity maximum |
|
|
Firm storage capacity |
|
|
|
|
|
peak-day daily |
|
|
maximum peak-day |
|
|
|
Pipeline |
|
deliverability (Dts) |
|
|
daily withdrawal (Dts) |
|
|
Expiration |
Trancso
|
|
|
5,866 |
|
|
|
2,456 |
|
|
Various dates between 2012 and 2013 |
Columbia
|
|
|
1,700 |
|
|
|
3,663 |
|
|
Various dates between 2014 and 2018 |
Gulf
|
|
|
590 |
|
|
|
|
|
|
Expires in 2009 |
Eastern Shore
|
|
|
20,528 |
|
|
|
2,306 |
|
|
Various dates between 2009 and 2023 |
Chesapeake Utilities Corporation 2008 Form 10-K Page 7
The Maryland division currently has contracts with several suppliers for the purchase of
firm natural gas supply in the amount of its capacity on the Transco and Columbia
pipelines. The Maryland division also has contracts for firm peaking gas supplies to be
delivered to its system in order to meet the differential between the Maryland
divisions capacity on ESNG and capacity on pipelines upstream of ESNG. These supply
contracts provide a maximum firm daily entitlement of 16,316 Dts, delivered on the
Transco, Columbia, and/or Gulf systems to ESNG for redelivery to the division under firm
transportation contracts. These gas supply contracts have various expiration dates, and
quantities may vary from day-to-day and month-to-month.
Florida.
The Florida natural gas distribution division has firm transportation service contracts
with Florida Gas Transmission Company and Gulfstream Natural Gas System, LLC. Pursuant
to a program approved by the Florida PSC, all of the capacity under these agreements has
been released to various third parties, including PESCO. Under the terms of these
capacity release agreements, Chesapeake is contingently liable to Florida Gas
Transmission Company and Gulfstream Natural Gas System, LLC. should any party that
acquired the capacity through release fail to pay for the service.
Chesapeakes contracts with Florida Gas Transmission Company include: (a) a contract,
which expires in 2010, for daily firm transportation capacity of 23,519 Dts for the
months of November through April, capacity of 20,123 Dts for the months of May through
September, and capacity of 22,105 Dts for October; and (b) a contract for daily firm
transportation capacity of 1,000 Dts daily, which expires in 2015. Chesapeakes contract
with Gulfstream Natural Gas System, LLC. is for daily firm transportation capacity of
10,000 Dts and expires in 2022.
ESNG.
ESNG has three contracts with Transco for a total of 7,292 Dts of firm peak day storage
entitlements and total storage capacity of 288,003 Dts, which expire in 2013. ESNG has
retained these firm storage services in order to provide swing transportation service
and firm storage service to those customers that have requested such service.
PESCO.
PESCO currently has contracts with ConocoPhillips, British Petroleum Company, and Eagle
Energy Partners, LLP for the purchase of firm natural gas supplies. The ConocoPhillips
contract, which provides a maximum firm daily entitlement of 15,000 MMBtus, the British
Petroleum Company contract, which provides a maximum firm daily entitlement of 10,000
MMBtus, and the Eagles Energy Partners, LLP contract, which provides for a maximum firm
daily entitlement of 10,000 MMBtus expire in May 2009. PESCO is currently in the process
of obtaining and reviewing supply proposals from suppliers and anticipates executing
agreements prior to the expiration of the existing contracts.
Competition
See discussion of competition in Item 7 under the heading Managements Discussion and Analysis
of Financial Condition and Results of Operations Competition.
Rates and Regulation
Chesapeakes natural gas distribution divisions are subject to regulation by the Delaware,
Maryland and Florida PSCs with respect to various aspects of their business, including the rates
for sales and transportation to all customers in each respective jurisdiction. All of
Chesapeakes firm distribution sales rates are subject to gas cost recovery mechanisms, which
match revenues with gas supply and transportation costs and normally allow full recovery of such
costs. Adjustments under these mechanisms, which are limited to such costs, require periodic
filings and hearings with the state regulatory authority having jurisdiction.
Page 8 Chesapeake Utilities Corporation 2008 Form 10-K
ESNG is subject to regulation as an interstate pipeline by the Federal Energy Regulatory
Commission (FERC), which regulates the terms and conditions of service and the rates ESNG can
charge for its transportation and storage services.
Management monitors the achieved rates of return of its distribution divisions and ESNG in order
to ensure timely filing of rate cases.
Regulatory Proceedings
See discussion of regulatory activities in Item 7 under the heading Managements Discussion and
Analysis of Financial Condition and Results of Operations Regulatory Activities.
Seasonality of Natural Gas Revenues
Revenues from the Companys residential and commercial natural gas distribution activities are
affected by seasonal variations in weather conditions, which directly influence the volume of
natural gas sold and delivered. Specifically, customer demand substantially increases during the
winter months, when natural gas is used for heating. Accordingly, the volumes sold for this
purpose are directly affected by the severity of winter weather and can vary substantially from
year to year. Sustained warmer-than-normal temperatures will tend to result in reduced use of
natural gas, while sustained colder-than-normal temperatures will tend to result in greater use.
The Company measures the relative impact of weather by using an accepted degree-day methodology.
Degree-day data is used to estimate amounts of energy required to maintain comfortable indoor
temperature levels based on each days average temperature. A degree-day is the measure of the
variation in the weather based on the extent to which the average daily temperature (from 10:00
am to 10:00 am) falls below 65 degrees Fahrenheit. Each degree of temperature below 65 degrees
Fahrenheit is counted as one heating degree-day. Normal heating degree-days are based on the
most recent 10-year average.
In efforts to stabilize the level of net revenues collected from customers, the Company received
approval from the Maryland Public Service Commission (Maryland PSC) on September 26, 2006 to
implement a weather normalization adjustment for its residential heating and smaller commercial
heating customers. A weather normalization adjustment is a billing adjustment mechanism that is
designed to eliminate the effect of deviations from average seasonal temperatures on utility net
revenues.
(i)(b) Propane
Propane is a form of liquefied petroleum gas, which is typically extracted from natural gas or
separated during the crude oil refining process. Although propane is a gas at normal pressure,
it is easily compressed into liquid form for storage and transportation. Propane is a
clean-burning fuel, gaining increased recognition for its environmental superiority, safety,
efficiency, transportability and ease of use relative to alternative forms of fossil fuels.
Propane is sold primarily in suburban and rural areas, which are not served by natural gas
distributors.
Chesapeakes retail propane distribution group consists of: (1) Sharp Energy, Inc., (2)
Sharpgas, Inc., and (3) Tri-County Gas Co., Inc. The propane wholesale marketing operation
consists of Xeron, Inc.
Propane Distribution.
During 2008, our propane distribution operations served approximately 35,170 customers
throughout Delaware, the Eastern Shore of Maryland and Virginia, southeastern Pennsylvania
and parts of Florida and delivered approximately 27.9 million retail and wholesale gallons
of propane. The propane distribution business is affected by many factors, such as
seasonality, the absence of price regulation, and competition among local providers.
Chesapeake Utilities Corporation 2008 Form 10-K Page 9
For the year 2008, operating revenues, total gallons sold and number of customers for our
Delmarva and Florida propane distribution operations were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
|
Total Gallons Sold |
|
|
Average No. of |
|
|
|
(Thousands) |
|
|
(Thousands) |
|
|
Customers |
|
Delmarva |
|
$ |
59,173 |
|
|
|
95 |
% |
|
|
26,765 |
|
|
|
96 |
% |
|
|
32,889 |
|
|
|
94 |
% |
Florida |
|
|
3,412 |
|
|
|
5 |
% |
|
|
1,182 |
|
|
|
4 |
% |
|
|
2,280 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
62,585 |
|
|
|
100 |
% |
|
|
27,947 |
|
|
|
100 |
% |
|
|
35,169 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys propane distribution operations purchase propane primarily from suppliers,
including major oil companies, independent producers of natural gas liquids and from Xeron.
Supplies of propane from these and other sources are readily available for purchase by the
Company.
The Companys propane distribution operations use trucks and railroad cars to transport
propane from refineries, natural gas processing plants or pipeline terminals to its bulk
storage facilities. The Companys Delmarva-based propane distribution operation owns bulk
propane storage facilities with an aggregate capacity of approximately 2.4 million gallons
at 42 plant facilities in Delaware, Maryland, Pennsylvania and Virginia, located on real
estate that is either owned or leased. The Companys Florida-based propane distribution
operation owns three bulk propane storage facilities with a total capacity of 66,000
gallons. From these storage facilities, propane is delivered primarily by bobtail trucks,
owned and operated by the Company, to tanks located at the customers premises.
Propane Wholesale Marketing.
In May 1998, Chesapeake acquired Xeron, a natural gas liquids trading company located in
Houston, Texas. Xeron markets propane to large, independent petrochemical companies,
resellers and retail propane companies in the southeastern United States. For 2008, Xeron
had operating revenues totaling approximately $3.3 million. The propane wholesale marketing
business is affected by wholesale price volatility and supply levels. Additional information
on Xerons trading and wholesale marketing activities, market risks and the controls that
limit and monitor Xerons risks is included in Item 7 under the heading Managements
Discussion and Analysis Market Risk.
Xeron does not own physical storage facilities or equipment to transport propane; however,
it contracts for storage and pipeline capacity to facilitate the sale of propane on a
wholesale basis.
Competition
See discussion of competition in Item 7 under the heading Managements Discussion and Analysis
of Financial Condition and Results of Operations Competition.
Rates and Regulation
The propane distribution and wholesale marketing activities are not subject to any federal or
state pricing regulation. Transport operations are subject to regulations concerning the
transportation of hazardous materials promulgated by the Federal Motor Carrier Safety
Administration within the United States Department of Transportation (DOT) and enforced by the
various states in which such operations take place. Propane distribution operations are also
subject to state safety regulations relating to hook-up and placement of propane tanks.
The Companys propane operations are subject to operating hazards normally associated with the
handling, storage and transportation of combustible liquids, such as the risk of personal injury
and property damage caused by fire. The Company carries general liability insurance in the
amount of $35 million, but there is no assurance that such insurance will be adequate to cover
all potential liabilities.
Seasonality of Propane Revenues
Revenues from the Companys propane distribution sales activities are affected by seasonal
variations in weather conditions. Weather conditions directly influence the volume of propane
sold and delivered to customers; specifically, customers demand substantially increases during
the winter months when propane is used for heating. Accordingly, the propane volumes sold for
this purpose are directly affected by the severity of winter weather and can vary substantially
from year to year. Sustained warmer-than-normal temperatures will tend to result in reduced
propane use, while sustained colder-than-normal temperatures will tend to result in greater use.
Page 10 Chesapeake Utilities Corporation 2008 Form 10-K
(i)(c) Advanced Information Services
Chesapeakes advanced information services segment consists of BravePoint, Inc. headquartered in
Norcross, Georgia, which provides domestic and international clients with
information-technology-related business services and solutions for both enterprise and
e-business applications.
Competition
See discussion of competition in Item 7 under the heading Managements Discussion and Analysis
of Financial Condition and Results of Operations Competition.
(i)(d) Other Subsidiaries
Skipjack and Eastern Shore Real Estate, Inc. own and lease office buildings in Delaware and
Maryland to affiliates of Chesapeake. Chesapeake Investment Company is an affiliated investment
company registered in Delaware. During the quarter ended September 30, 2007, Chesapeake decided
to close its distributed energy services subsidiary, OnSight.
(ii) Capital Budget
A discussion of capital expenditures by business segment and capital expenditures for
environmental remediation facilities is included in Item 7 under the heading Managements
Discussion and Analysis of Financial Condition and Results of Operations Liquidity and
Capital Resources.
(iii) Employees
As of December 31, 2008, Chesapeake had 448 employees, including 180 in natural gas, 132 in
propane and 93 in advanced information services. The remaining 43 employees are considered
general and administrative and include officers of the Company, treasury, accounting, internal
audit, information technology, human resources and other administrative personnel.
(iv) Financial Information about Geographic Areas
All of the Companys material operations, customers, and assets occur and are located in the
United States.
(d) Available Information
As a public company, Chesapeake files annual, quarterly and other reports, as well as its annual
proxy statement and other information, with the Securities and Exchange Commission (SEC). The
public may read and copy any materials that the Company files with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Washington, DC 20549-5546; the public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports, proxy and information statements
and other information regarding the Company. The address of the SECs Internet website is
www.sec.gov. Chesapeake makes available, free of charge, on the Companys Internet website, its
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports, as soon as reasonably practicable after such reports are
electronically filed with or furnished to the SEC. The address of Chesapeakes Internet website
is www.chpk.com. The content of this website is not part of this report.
Chesapeake has a Business Code of Ethics and Conduct applicable to all employees, officers and
directors and a Code of Ethics for Financial Officers. Copies of the Business Code of Ethics and
Conduct and the Financial Officer Code of Ethics are available on our internet website.
Chesapeake also adopted Corporate Governance Guidelines and Charters for the Audit Committee,
Compensation Committee, and Corporate Governance Committee of the Board of Directors, each of
which satisfies the regulatory requirements established by the SEC and the New York Stock
Exchange (NYSE). The Board of Directors has also adopted Corporate Governance Guidelines on
Director Independence, which conform to the NYSE listing standards on director independence. Each
of these documents also is available on Chesapeakes Internet website or may be obtained by
writing to: Corporate Secretary; c/o Chesapeake Utilities Corporation; 909 Silver Lake Blvd.;
Dover, DE 19904.
Chesapeake Utilities Corporation 2008 Form 10-K Page 11
If Chesapeake makes any amendment to, or grants a waiver of, any provision of the Business Code
of Ethics and Conduct or the Code of Ethics for Financial Officers applicable to its principal
executive officer, principal financial officer, principal accounting officer or controller, the
amendment or waiver will be disclosed within five business days on the Companys Internet
website.
Our Chief Executive Officer certified to the NYSE on May 20, 2008 that, as of that date, he was
unaware of any violation by Chesapeake Utilities Corporation of the NYSEs corporate governance
listing standards.
Item 1A. Risk Factors.
The following is a discussion of the primary financial, operational, regulatory and legal, and
environmental risk factors that may affect the operations and/or financial performance of the
regulated and unregulated businesses of Chesapeake. Refer to the section entitled Managements
Discussion and Analysis of Financial Condition and Results of Operations under Item 7 of this
report for an additional discussion of these and other related factors that affect the Companys
operations and/or financial performance.
Financial Risks
Instability and volatility in the financial markets could have a negative impact on our growth strategy.
Our business strategy includes the continued pursuit of growth, both organically and through acquisitions. To the
extent that we do not generate sufficient cash from operations, we may incur additional indebtedness to finance our
growth. The turmoil experienced in the credit markets during 2008 and its potential impact on the liquidity of major
financial institutions may have an adverse effect on our ability to fund our business strategy through borrowings,
under either existing or newly created arrangements in the public or private markets on terms we believe to be
reasonable. Specifically, we rely on access to both short-term and longer-term capital markets as a significant source
of liquidity for capital requirements not satisfied by the cash flow from our operations. Currently, $45 million of the
total $100 million of short-term lines of credit utilized to satisfy our short-term financing requirements are
discretionary, uncommitted lines of credit. We utilize discretionary lines of credit to reduce the cost associated with
these short-term financing requirements. We are committed to maintaining a sound capital structure and strong credit
ratings to provide the financial flexibility needed to access the capital markets when required. However, if we are not
able to access capital at competitive rates, our ability to implement our strategic plan, undertake improvements and
make other investments required for our future growth may be limited.
Current levels of market volatility are unprecedented.
The capital and credit markets have been experiencing extreme volatility and disruption for more than twelve months. In
recent weeks, the volatility and disruption have reached unprecedented levels. In some cases, the markets have exerted
downward pressure on stock prices and credit capacity for certain issuers. There is no assurance that recent government
intervention to help stabilize credit markets and financial institutions and restore liquidity will have beneficial
effects in the credit markets, will address credit or liquidity issues of companies that participate in the programs or
will reduce volatility or uncertainty in the financial markets. If current levels of market disruption and volatility
continue or worsen, we would seek to meet our liquidity needs by drawing upon contractually committed lending
agreements primarily provided by banks and/or by seeking other funding sources. Under such extreme market conditions,
however, there can be no assurance that such agreements and other funding sources would be available or sufficient.
Page 12 Chesapeake Utilities Corporation 2008 Form 10-K
Difficult conditions in the financial services markets have materially and adversely affected the
business and results of operations of many financial institutions, and we do not know when and if
these conditions may improve in the near future.
Dramatic declines in the housing market during the past year, with falling home prices and
increasing foreclosures and unemployment, have resulted in significant write-downs of asset values
by financial institutions, including government-sponsored entities and major commercial and
investment banks. These write-downs, initially representing mortgage-backed securities but more
recently including credit default swaps and other derivative securities, have caused many financial
institutions to seek additional capital, to merge with larger and stronger institutions and, in
some cases, to fail. Many lenders and institutional investors have reduced and, in some cases,
ceased to provide funding to borrowers, including other financial institutions. This market turmoil
and tightening of credit have led to an increased level of commercial and consumer delinquencies,
lack of consumer confidence, increased market volatility and widespread reduction of business
activity generally.
The unsoundness of financial institutions could adversely affect the Company.
The Company has exposure to different industries and counterparties, and may periodically execute
transactions with counterparties in the financial services industry, including brokers and dealers,
commercial banks, investment banks and other institutional clients. These transactions may expose
the Company to credit risk in the event of default of a counterparty or client. There can be no
assurance that any such losses or impairments would not materially and adversely affect the
Companys business and results of operations.
A downgrade in our credit rating could adversely affect our access to capital markets.
Our ability to obtain adequate and cost-effective capital depends on our credit ratings, which are
greatly affected by our financial performance and the liquidity of financial markets. A downgrade
in our current credit ratings could adversely affect our access to capital markets, as well as our
cost of capital.
Debt covenant obligations, if triggered, may affect our financial condition.
Our long-term debt obligations and committed short-term lines of credit contain financial covenants
related to debt-to-capital ratios and interest-coverage ratios. Failure to comply with any of these
covenants could result in an event of default which, if not cured or waived, could result in the
acceleration of outstanding debt obligations or the inability to borrow under certain credit
agreements. Any such acceleration would cause a material adverse change in Chesapeakes financial
condition.
The continuation of recent economic conditions could adversely affect our customers and negatively
impact our financial results.
The slowdown in the U.S. economy, together with increased unemployment, mortgage and other credit
defaults and significant decreases in the values of homes and investment assets, have adversely
affected the financial resources of many domestic households. It is unclear whether governmental
responses to these conditions will be successful in lessening the severity or duration of the
current recession. As a result, our customers may use less gas or propane and/or it may become more
difficult for them to pay their gas or propane bills. This may slow collections and lead to higher
than normal levels of accounts receivable, which in turn, could increase our financing requirements
and result in higher bad debt expense.
Chesapeake Utilities Corporation 2008 Form 10-K Page 13
Further changes in economic conditions and interest rates may adversely affect our results of
operations and cash flows.
A continued downturn in the economies of the regions in which we operate might adversely affect our
ability to increase our customer base and cash flows at historical rates. Further, an increase in
interest rates, without the recovery of the higher cost of debt in the sales and/or transportation
rates we charge our utility customers, could adversely affect future earnings. An increase in
short-term interest rates would negatively affect our results of operations, which depend on
short-term lines of credit to finance accounts receivable and storage gas inventories, and to
temporarily finance capital expenditures.
Inflation may impact our results of operations, cash flows and financial position.
Inflation affects the cost of supply, labor, products and services required for operations,
maintenance and capital improvements. To help cope with the effects of inflation on our capital
investments and returns, we seek rate relief from regulatory commissions for regulated operations
and closely monitor the returns of our unregulated business operations. There can be no assurance
that we will be able to obtain adequate and timely rate relief to offset the effects of inflation.
To compensate for fluctuations in propane gas prices, we adjust our propane selling prices to the
extent allowed by the market. There can be no assurance, however, that we will be able to increase
propane sales prices sufficiently to compensate fully for such fluctuations in the cost of propane
gas to us.
Current
market conditions have had a negative impact on the return on plan
assets for our pension plan, which may require additional funding and negatively affect our cash flows.
We have a pension plan that has been closed to new employees since January 1, 1999. The
costs of providing benefits and related funding requirements of this plan are subject to changes in
the market value of the assets that fund the plan. As a result of the extreme volatility and
disruption in the domestic and international equity and bond markets, our pension plan
experienced a decline of $4.3 million in its asset values during the year. The funded status of the
plan and the related costs reflected in our financial statements are affected by various factors
that are subject to an inherent degree of uncertainty, particularly in the current economic
environment. Under the Pension Protection Act of 2006, continued losses of asset values may
necessitate accelerated funding of the plan in the future to meet minimum federal government
requirements. Continued downward pressure on the asset values of the
plan may require us
to fund obligations earlier than it had originally planned, which would have a negative impact on
our cash flows from operations, decrease borrowing capacity and increase interest expense.
Our operations are exposed to market risks, beyond our control, which could adversely affect our
financial results and capital requirements.
Our PESCO and Xeron operations are subject to market risks beyond our control, including market
liquidity and commodity price volatility. Although we maintain a risk management policy, we may not
be able to offset completely the price risk associated with volatile commodity prices, which could
lead to volatility in our earnings. Physical trading also has price risk on any net open positions
at the end of each trading day, as well as volatility resulting from: (i) intra-day fluctuations of
gas and/or propane prices, and (ii) daily price movements between the time natural gas and/or
propane is purchased or sold for future delivery and the time the related purchase or sale is
hedged. The determination of our net open position at the end of any trading day requires us to
make assumptions as to future circumstances, including the use of gas and/or propane by our
customers in relation to our anticipated market positions. Because the price risk associated with
any net open position at the end of such day may increase if the assumptions are not realized, we
review these assumptions daily. Net open positions may increase volatility in our financial
condition or results of operations if market prices move in a significantly favorable or
unfavorable manner, because the timing of the recognition of profits or losses on the hedges for
financial accounting purposes usually does not match up with the timing of the economic profits or
losses on the item being hedged. This volatility may occur, with a resulting increase or decrease
in earnings or losses, even though the expected profit margin is essentially unchanged from the
date the transactions were consummated.
Page 14 Chesapeake Utilities Corporation 2008 Form 10-K
Operational Risks
Fluctuations in weather may adversely affect our results of operations, cash flows and financial
condition.
Our natural gas and propane distribution operations are sensitive to fluctuations in weather
conditions, which directly influence the volume of natural gas and propane sold and delivered. A
significant portion of our natural gas and propane distribution revenues is derived from the sales
and deliveries of natural gas and propane to residential and commercial heating customers during
the five-month peak heating season (November through March). If the weather is warmer than normal,
we sell and deliver less natural gas and propane to customers, and earn less revenue. In addition,
hurricanes or other extreme weather conditions could damage production or transportation
facilities, which could result in decreased supplies of natural gas and propane, increased supply
costs and higher prices for customers.
The amount and availability of natural gas and propane supplies are difficult to predict; a
substantial reduction in available supplies could reduce our earnings in those segments.
Natural gas and propane production can be affected by factors beyond our control, such as weather
and refinery closings. If we are unable to obtain sufficient natural gas and propane supplies to
meet demand, results in those segments may be adversely affected.
We rely on having access to interstate natural gas pipelines transportation and storage capacity;
a substantial disruption or lack of growth in these services may impair our ability to meet
customers existing and future requirements.
In order to meet existing and future customer demands for natural gas, we must acquire both
sufficient natural gas supplies and interstate pipeline and storage capacity to serve such
requirements. We must contract for reliable and adequate delivery capacity for our distribution
systems while considering the dynamics of the interstate pipeline and storage capacity market, our
own on-system resources, as well as the characteristics of our markets. Chesapeake, along with
other local natural gas distribution companies and other participants in the industry, has voiced
concern regarding the future availability of additional upstream interstate pipeline and storage
capacity. This is a business issue which we must continue to manage as our customer base grows.
Natural gas and propane commodity price changes may affect the operating costs and competitive
positions of our natural gas and propane distribution operations, which may adversely affect our
results of operations, cash flows and financial condition.
Natural Gas. Higher natural gas prices can significantly increase the cost of gas billed to
our customers. Such cost increases generally have no immediate effect on our revenues and net
income because of our regulated gas recovery mechanisms. Our net income, however, may be reduced by
higher expenses that we may incur for uncollectible customer accounts and by lower volumes of
natural gas deliveries when customers reduce their consumption. Therefore, increases in the price
of natural gas can affect our operating cash flows and the competitiveness of natural gas as an
energy source.
Propane. Propane costs are subject to volatile changes as a result of product supply or
other market conditions, including economic and political factors affecting crude oil and natural
gas supply or pricing. Such cost changes can occur rapidly and can affect profitability. There is
no assurance that we will be able to pass on propane cost increases fully or immediately,
particularly when propane costs increase rapidly. Therefore, average retail sales prices can vary
significantly from year-to-year as product costs fluctuate in response to propane, fuel oil, crude
oil and natural gas commodity market conditions. In addition, in periods of sustained higher
commodity prices, declines in retail sales volumes due to reduced consumption and increased amounts
of uncollectible accounts may adversely affect net income.
Our propane inventory is subject to inventory risk, which may adversely affect our results of
operations and financial condition.
The Companys propane distribution operations own bulk propane storage facilities, with an
aggregate capacity of approximately 2.5 million gallons. We purchase and store propane based on
several factors, including inventory levels and the price outlook. We may purchase large volumes of
propane at current market prices during periods of low demand and low prices, which generally occur
during the summer months. Propane is a commodity, and, as such, its unit price is subject to
volatile fluctuations in response to changes in supply or other market conditions. We have no
control over these market conditions. Consequently, the unit price of the propane that we purchase
can change rapidly over a short period of time. The market price for propane could fall below the
price at which we made the purchases, which would adversely affect our profits or cause sales from
that inventory to be unprofitable. In addition, falling propane prices may result in inventory
write-downs as required by Generally Accepted Accounting Principles (GAAP) if the market price of
propane falls below our weighted average cost of inventory, and therefore, could adversely affect
net income.
Chesapeake Utilities Corporation 2008 Form 10-K Page 15
Operating events affecting public safety and the reliability of Chesapeakes natural gas
distribution system could adversely affect the results of operations, financial condition and cash
flows.
Chesapeakes business is exposed to operational events, such as major leaks, mechanical problems
and accidents, that could affect the public safety and reliability of its natural gas distribution
systems, significantly increase costs and cause loss of customer confidence. The occurrence of any
such operational events could adversely affect the results of operations, financial condition and
cash flows. If Chesapeake is unable to recover from customers, through the regulatory process, all
or some of these costs and its authorized rate of return on these costs, this also could adversely
affect the results of operations, financial condition and cash flows.
Because we operate in a competitive environment, we may lose customers to competitors.
PESCO competes with third-party suppliers to sell gas to commercial and industrial customers. In
our gas transportation and distribution operations, our competitors include interstate pipelines,
when our transmission and/or distribution customers are located close enough to a competing
pipeline to make direct connections economically feasible.
Our propane distribution operations compete with several other propane distributors, primarily on
the basis of service and price, emphasizing reliability of service and responsiveness. Some of our
competitors have significantly greater resources. The retail propane industry is mature, and we
foresee modest growth in total demand. Given this limited growth, we expect that year-to-year
industry volumes will be principally affected by weather patterns. Therefore, our ability to grow
the propane distribution business is contingent upon continued execution of our community gas
systems strategy to capture additional market share, successful penetration of new service
territories, and successful utilization of
pricing programs that retain and grow our customer base. Failure to retain and grow our customer
base would have an adverse effect on our results.
Xeron competes against various marketers, many of which have significantly greater resources and
are able to obtain price or volumetric advantages.
BravePoint faces significant competition from a number of larger competitors having substantially
greater resources available to them to compete on the basis of technological expertise, reputation
and price.
Changes in technology may adversely affect our advanced information services segments results of
operations, cash flows and financial condition.
BravePoint participates in a market that is characterized by rapidly changing technology and
accelerating product introduction cycles. The success of our advanced information services segment
depends upon our ability to address the rapidly changing needs of our customers by developing and
supplying high-quality, cost-effective products, product enhancements and services, on a timely
basis, and by keeping pace with technological developments and emerging industry standards. There
is no assurance that we will be able to keep up with technological advancements necessary to keep
our products and services competitive.
Our energy marketing subsidiaries have credit risk and credit requirements that may adversely
affect our results of operations, cash flows and financial condition.
Xeron and PESCO extend credit to counter-parties. While we believe Xeron and PESCO utilize prudent
credit policies, each of these subsidiaries is exposed to the risk that it may not be able to
collect amounts owed to it. If the counter-party to such a transaction fails to perform, and any
underlying collateral is inadequate, we could experience financial losses.
Page 16 Chesapeake Utilities Corporation 2008 Form 10-K
Xeron and PESCO are also dependent upon the availability of credit to buy propane and natural gas
for resale or to trade. If financial market conditions decline generally, or the financial
condition of these subsidiaries or of the Company, declines, then the cost of credit available to
these subsidiaries could increase. If credit is not available, or if credit is more costly, our
results of operations, cash flows and financial condition may be adversely affected.
Our use of derivative instruments may adversely affect our results of operations.
Fluctuating commodity prices may affect our earnings and financing costs because our propane
distribution and wholesale marketing segments use derivative instruments, including forwards, swaps
and puts, to hedge price risk. In addition, we have utilized in the past, and may decide, after
further evaluation, to continue to utilize derivative instruments to hedge price risk for our
Delaware and Maryland natural gas distribution divisions, as well as PESCO. While we have a risk
management policy and operating procedures in place to control our exposure to risk, if we purchase
derivative instruments that are not properly matched to our exposure, our results of operations,
cash flows, and financial conditions may be adversely affected.
Changes in customer growth may affect earnings and cash flows.
Chesapeakes ability to increase gross margins in its regulated and propane businesses is dependent
upon the residential construction market, adding new commercial and industrial customers and
conversion of customers to natural gas or propane from other fuel sources. Slowdowns in these
markets could adversely affect the Companys gross margin in its regulated or propane businesses,
its earnings and cash flows.
Chesapeakes businesses are capital intensive, and the costs of capital projects may be
significant.
Chesapeakes businesses are capital intensive and require significant investments in internal
infrastructure projects. Our results of operations and financial condition could be adversely
affected if we are unable to manage such capital projects effectively or if we do not receive full
recovery of such capital costs in future regulatory proceedings.
Chesapeakes facilities and operations could be targets of acts of terrorism.
Chesapeakes natural gas distribution, natural gas transmission and propane storage facilities may
be targets of terrorist activities that could result in a disruption of our ability to meet
customer requirements. Terrorist attacks may also disrupt capital markets and Chesapeakes ability
to raise capital. A terrorist attack on Chesapeakes facilities, or those of its suppliers or
customers, could result in a significant decrease in revenues or a significant increase in repair
costs, which could adversely affect our results of operations, financial position and cash flows.
The risk of terrorism and political unrest and the current hostilities in the Middle East may
adversely affect the economy and the price and availability of propane, refined fuels and natural
gas.
Terrorist attacks, political unrest and the current hostilities in the Middle East may adversely
affect the price and availability of propane, refined fuels and natural gas, as well as our results
of operations, our ability to raise capital and our future growth. The impact that the foregoing
may have on our industry in general, and on us in particular, is not known at this time. An act of
terror could result in disruptions of crude oil or natural gas supplies and markets (the sources of
propane), and our infrastructure facilities could be direct or indirect targets. Terrorist activity
may also hinder our ability to transport propane and natural gas if our means of supply
transportation, such as rail or pipeline, become damaged as a result of an attack. A lower level of
economic activity could result in a decline in energy consumption, which could adversely affect our
revenues or restrict our future growth. Instability in the financial markets as a result of
terrorism could also affect our ability to raise capital. Terrorist activity and hostilities in the
Middle East could likely lead to increased volatility in prices for propane, refined fuels and
natural gas. We maintain insurance policies with insurers in such amounts and with such coverage
and deductibles as we believe are reasonable and prudent. There can be no assurance, however, that
such insurance will be adequate to protect us from all material expenses related to potential
future claims for personal injury and property damage or that such levels of insurance will be
available in the future at economical prices.
Chesapeake Utilities Corporation 2008 Form 10-K Page 17
Operational interruptions to our gas transmission and distribution activities, caused by accidents,
malfunctions, severe weather (such as a major hurricane), a pandemic or acts of terrorism, could
adversely impact earnings.
Inherent in our gas transmission and distribution activities are a variety of hazards and
operational risks, such as leaks, ruptures and mechanical problems. If they are severe enough or if
they lead to operational interruptions, they could cause substantial financial losses. In addition,
these risks could result in loss of human life, significant damage to property, environmental
damage, impairment of our operations and substantial loss to us. The location of pipeline and
storage facilities near populated areas, including residential areas, commercial business centers,
industrial sites and other public gathering places, could increase the level of damages resulting
from these risks. The occurrence of any of these events could adversely affect our financial
position, results of operations and cash flows.
Unionization campaigns could adversely affect our results of operations.
The Company may become a target of unionization campaigns. Unions may attempt to pressure
Chesapeakes employees to choose union representation. Such campaigns could be materially
disruptive to our business and could have an adverse effect on our results of operations.
Regulatory and Legal Risks
Regulation of the Company, including changes in the regulatory environment, may adversely affect
our results of operations, cash flows and financial condition.
The Delaware, Maryland and Florida PSCs regulate our natural gas distribution operations in those
States; ESNG is regulated by the FERC. These commissions set the rates that we can charge customers
for services subject to their regulatory jurisdiction. Our ability to obtain timely future rate
increases and rate supplements to maintain current rates of return depends on regulatory approvals,
and there can be no assurance that our regulated operations will be able to obtain such approvals
or maintain currently authorized rates of return.
We are dependent upon construction of new facilities to support future growth in earnings in our
natural gas distribution and interstate pipeline operations.
Construction of new facilities required to support future growth is subject to various regulatory
and developmental risks, including but not limited to: (a) our ability to obtain necessary
approvals and permits by regulatory agencies on a timely basis and on terms that are acceptable to
us; (b) potential changes in federal, state and local statutes and regulations, including
environmental requirements, that prevent a project from proceeding or increase the anticipated cost
of the project; (c) inability to acquire rights-of-way or land rights on a timely basis on terms
that are acceptable to us; (d) lack of anticipated future growth in available natural gas supply;
and (e) insufficient customer throughput commitments.
We are subject to operating and litigation risks that may not be fully covered by insurance.
Our operations are subject to the operating hazards and risks normally incidental to handling,
storing, transporting and delivering natural gas and propane to end users. As a result, we are
sometimes a defendant in legal proceedings arising in the ordinary course of business. We maintain
insurance policies with insurers in such amounts and with such coverages and deductibles as we
believe are reasonable and prudent. There can be no assurance, however, that such insurance will be
adequate to protect us from all material expenses related to potential future claims for personal
injury and property damage or that such levels of insurance will be available in the future at
economical prices.
Environmental Risks
Costs of compliance with environmental laws may be significant.
We are subject to federal, state and local laws and regulations governing environmental quality and
pollution control. These evolving laws and regulations may require expenditures over a long period
of time to control environmental effects at current and former operating sites, including former
manufactured gas plant sites that we have acquired from third parties. Compliance with these legal
obligations requires us to commit capital. If we fail to comply with environmental laws and
regulations, even if such failure is caused by factors beyond our control, we may be assessed civil
or criminal penalties and fines.
Page 18 Chesapeake Utilities Corporation 2008 Form 10-K
To date, we have been able to recover, through regulatory rate mechanisms, the costs associated
with the remediation of former manufactured gas plant sites. However, there is no guarantee that we
will be able to recover future remediation costs in the same manner or at all. A change in our
approved rate mechanisms for recovery of environmental remediation costs at former manufactured gas
plant sites could adversely affect our results of operations, cash flows and financial condition.
Further, existing environmental laws and regulations may be revised, or new laws and regulations
seeking to protect the environment may be adopted and be applicable to us. Revised or additional
laws and regulations could result in additional operating restrictions on our facilities or
increased compliance costs, which may not be fully recoverable.
We may be exposed to certain regulatory and financial risks related to climate change.
Climate change is receiving ever increasing attention from scientists and legislators alike. The
debate is ongoing as to the extent to which our climate is changing, the potential causes of this
change and its potential impacts. Some attribute global warming to increased levels of greenhouse
gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to
limit greenhouse gas emissions.
There are a number of legislative and regulatory proposals to address greenhouse gas emissions,
which are in various phases of discussion or implementation. The outcome of federal and state
actions to address global climate change could result in a variety of regulatory programs,
including potential new regulations, additional charges to fund energy efficiency activities, or
other regulatory actions. These actions could:
|
|
|
result in increased costs associated with our operations; |
|
|
|
increase other costs to our business; |
|
|
|
affect the demand for natural gas and propane; and |
|
|
|
impact the prices we charge our customers. |
Any adoption by federal or state governments mandating a substantial reduction in greenhouse gas
emissions could have far-reaching and significant impacts on the energy industry. We cannot predict
the potential impact of such laws or regulations on our future consolidated financial condition,
results of operations or cash flows.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
(a) General
The Company owns offices and operates facilities in the following locations: Pocomoke, Salisbury,
Cambridge and Princess Anne, Maryland; Dover, Seaford, Laurel and Georgetown, Delaware; Lecato,
Virginia; and Winter Haven, Florida. The Company rents office space in Dover, Ocean View, and South
Bethany, Delaware; Jupiter and Lecanto, Florida; Chincoteague and Belle Haven, Virginia; Easton,
Maryland; Honey Brook and Allentown, Pennsylvania; Houston, Texas; and Norcross, Georgia. In
general, the Company believes that its offices and facilities are adequate for the uses for which
they are employed.
(b) Natural Gas Distribution
The Company owns over 1,076 miles of natural gas distribution mains (together with related service
lines, meters and regulators) located in its Delaware and Maryland service areas and 754 miles of
natural gas distribution mains (and related equipment) in its Florida service areas. The Company
also owns facilities in Delaware and Maryland, which it uses for propane-air injection during
periods of peak demand.
Chesapeake Utilities Corporation 2008 Form 10-K Page 19
(c) Natural Gas Transmission
ESNG owns and operates approximately 379 miles of transmission pipelines, extending from supply
interconnects at Parkesburg, Pennsylvania; Daleville, Pennsylvania; and Hockessin, Delaware, to
approximately 81 delivery points in southeastern Pennsylvania, Delaware and the Eastern Shore of
Maryland.
(d) Propane Distribution and Wholesale Marketing
The Companys Delmarva-based propane distribution operation owns bulk propane storage facilities,
with an aggregate capacity of approximately 2.4 million gallons, at 42 plant facilities in
Delaware, Maryland, Pennsylvania and Virginia, located on real estate that is either owned or
leased. The Companys Florida-based propane distribution operation owns three bulk propane storage
facilities with a total capacity of 66,000 gallons. Xeron does not own physical storage facilities
or equipment to transport propane; however, it leases propane storage and pipeline capacity.
Item 3. Legal Proceedings.
(a) General
The Company and its subsidiaries are currently involved in various legal actions and claims arising
in the normal course of business. The Company is also involved in certain administrative
proceedings before various governmental agencies concerning rates. In the opinion of management,
the ultimate disposition of these current proceedings will not have a material effect on the
Companys consolidated financial position.
(b) Environmental
See discussion of environmental commitments and contingencies in Item 8 under the heading Notes to
Consolidated Financial Statements Note N.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 4A. Executive Officers of the Registrant.
Set forth below are the names, ages, and positions of executive officers of the registrant at
December 31, 2008, with their recent business experience. The age of each officer is as of the
filing date of this report.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
John R. Schimkaitis
|
|
|
61 |
|
|
President and Chief Executive Officer |
Michael P. McMasters
|
|
|
50 |
|
|
Executive Vice President and Chief Operating Officer |
Beth W. Cooper
|
|
|
42 |
|
|
Senior Vice President and Chief Financial Officer |
Stephen C. Thompson
|
|
|
48 |
|
|
Senior Vice President and President, ESNG |
S. Robert Zola
|
|
|
56 |
|
|
President, Sharp Energy |
John R. Schimkaitis is President and Chief Executive Officer of Chesapeake and its
subsidiaries. Mr. Schimkaitis assumed the role of Chief Executive Officer on January 1, 1999. He
has served as President since 1997. Mr. Schimkaitis previously served as Chief Operating
Officer, Executive Vice President, Senior Vice President, Chief Financial Officer, Vice
President, Treasurer, Assistant Treasurer and Assistant Secretary of Chesapeake.
Michael P. McMasters was appointed as Executive Vice President and Chief Operating
Officer in September of 2008. Prior to this appointment, Mr. McMasters served as Senior Vice
President since 2004 and Chief Financial Officer of the Company since 1996. He has previously
held the positions of Vice President, Treasurer, Director of Accounting and Rates, and
Controller. From 1992 to May 1994, Mr. McMasters was employed as Director of Operations Planning
for Equitable Gas Company.
Page 20 Chesapeake Utilities Corporation 2008 Form 10-K
Beth W. Cooper was appointed as Senior Vice President and Chief Financial Officer in
September of 2008 in addition to her duties as Treasurer and Corporate Secretary. Prior to this
appointment, Ms. Cooper served as Vice President and Corporate Secretary of Chesapeake Utilities
Corporation since July 2005. She has served as Treasurer of the Company since 2003. She
previously served as Assistant Treasurer and Assistant Secretary, Director of Internal Audit,
Director of Strategic Planning, Planning Consultant, Accounting Manager for Non-regulated
Operations and Treasury Analyst. Prior to joining Chesapeake, she was employed as an auditor
with Ernst & Youngs Entrepreneurial Services Group.
Stephen C. Thompson is Senior Vice President of Chesapeake Utilities Corporation and
President of ESNG. Prior to becoming Senior Vice President in 2004, he served as Vice President
of Chesapeake. He has also served as Vice President, Director of Gas Supply and Marketing,
Superintendent of ESNG and Regional Manager for the Florida distribution operations.
S. Robert Zola joined Sharp Energy in August 2002 as President. Prior to joining Sharp
Energy, Mr. Zola most recently served as Northeast Regional Manager of Synergy Gas, now
Cornerstone MLP, in Philadelphia, PA. During his 27-year career in the propane industry, Mr.
Zola also started and successfully developed Bluestreak Propane, in Phoenix, AZ, which was
ultimately sold to Ferrellgas.
Chesapeake Utilities Corporation 2008 Form 10-K Page 21
Part II
|
|
Item 5. |
Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities. |
(a) Common Stock Price Ranges, Common Stock Dividends and Shareholder Information:
The Companys common stock is listed on the NYSE under the symbol CPK. The high, low and closing
prices of the Companys common stock and dividends declared per share for each calendar quarter
during the years 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared |
|
Quarter Ended |
|
High |
|
|
Low |
|
|
Close |
|
|
Per Share |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
$ |
33.60 |
|
|
$ |
27.21 |
|
|
$ |
29.64 |
|
|
$ |
0.295 |
|
|
|
June 30 |
|
|
31.88 |
|
|
|
25.02 |
|
|
|
25.72 |
|
|
|
0.305 |
|
|
|
September 30 |
|
|
34.84 |
|
|
|
24.65 |
|
|
|
33.21 |
|
|
|
0.305 |
|
|
|
December 31 |
|
|
34.66 |
|
|
|
21.93 |
|
|
|
31.48 |
|
|
|
0.305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
$ |
31.10 |
|
|
$ |
28.85 |
|
|
$ |
30.94 |
|
|
$ |
0.290 |
|
|
|
June 30 |
|
|
35.58 |
|
|
|
29.92 |
|
|
|
34.24 |
|
|
|
0.295 |
|
|
|
September 30 |
|
|
37.25 |
|
|
|
28.00 |
|
|
|
33.94 |
|
|
|
0.295 |
|
|
|
December 31 |
|
|
36.38 |
|
|
|
29.59 |
|
|
|
31.85 |
|
|
|
0.295 |
|
Holders
At December 31, 2008, there were 1,914 holders of record of Chesapeake Utilities Corporation common
stock.
Dividends
Chesapeake has paid a cash dividend to common stock shareholders for forty-eight consecutive years.
Dividends are payable at the discretion of our Board of Directors. Future payment of dividends, and
the amount of these dividends, will depend on our financial condition, results of operations,
capital requirements, and other factors. We sold no securities during the year 2008 that were not
registered under the Securities Act of 1933, as amended.
Indentures to the long-term debt of the Company contain various restrictions. In terms of
restrictions which limit the payment of dividends by the Company, each of the Companys Unsecured
Senior Notes contains a Restricted Payments covenant. The most restrictive covenants of this type
are included within the 7.83% Senior Notes, due January 1, 2015. The covenant provides that the
Company cannot pay or declare any dividends or make any other Restricted Payments (such as
dividends) in excess of the sum of $10.0 million plus consolidated net income of the Company
accrued on and after January 1, 2001. As of December 31, 2008, the Companys cumulative
consolidated net income base was $86.9 million, offset by Restricted Payments of $54.4 million,
leaving $32.5 million of cumulative net income free of restrictions.
Page 22 Chesapeake Utilities Corporation 2008 Form 10-K
(b) Purchases of Equity Securities by the Issuer
The following table sets forth information on purchases by or on behalf of Chesapeake of shares of
its common stock during the quarter ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total Number of Shares |
|
|
Maximum Number of |
|
|
|
Number of |
|
|
Average |
|
|
Purchased as Part of |
|
|
Shares That May Yet Be |
|
|
|
Shares |
|
|
Price Paid |
|
|
Publicly Announced Plans |
|
|
Purchased Under the |
|
Period |
|
Purchased |
|
|
Per Share |
|
|
or Programs (2) |
|
|
Plans or Programs (2) |
|
October 1, 2008
through October 31,
2008 (1) |
|
|
594 |
|
|
$ |
31.62 |
|
|
|
0 |
|
|
|
0 |
|
November 1, 2008
through November 30, 2008 |
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
0 |
|
December 1, 2008
through December 31, 2008 |
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
594 |
|
|
$ |
31.62 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Chesapeake purchased shares of stock on the open market for the purpose of
reinvesting the dividend on deferred stock units held in the Rabbi Trust accounts for certain
Senior Executives and Directors under the Deferred Compensation Plan. The Deferred Compensation
Plan is discussed in detail in Note K to the Consolidated Financial Statements. During the
quarter, 594 shares were purchased through the reinvestment of dividends on deferred stock
units. |
|
(2) |
|
Except for the purposes described in Footnote (1), Chesapeake has no
publicly announced plans or programs to repurchase its shares. |
Discussion of compensation plans of Chesapeake and its subsidiaries, for which shares of Chesapeake
common stock are authorized for issuance, included in the portion of the Proxy Statement captioned
Equity Compensation Plan Information to be filed not later than March 31, 2009, in connection
with the Companys Annual Meeting to be held on May 6, 2009, is incorporated herein by reference.
(c) Chesapeake Utilities Corporation Common Stock Performance Graph
The following stock Performance Graph compares cumulative total shareholder return on a
hypothetical investment in the Companys common stock during the five fiscal years ended December
31, 2008, with the cumulative total shareholder return on a hypothetical investment in both (i) the
Standard & Poors 500 (S&P 500 Index), and (ii) an industry index consisting of 13 companies in
the Edward Jones Natural Gas Distribution Group, a published listing of selected gas distribution
utilities results. The Companys Performance Graph for the previous year included all but one of
these same companies. The Companys Compensation Committee utilizes the Edward Jones Natural Gas
Distribution Group as its peer group to which the Companys performance is compared for purposes of
determining the level of long-term performance awards earned by the Companys named executives.
The thirteen companies in the Edward Jones Natural Gas Distribution Group industry index include:
AGL Resources, Inc., Atmos Energy Corporation, Chesapeake Utilities Corporation, Corning Natural
Gas Corporation, Delta Natural Gas Company, Inc., Energy West, Inc., The Laclede Group, Inc., New
Jersey Resources Corporation, Northwest Natural Gas Company, Piedmont Natural Gas Co., Inc., RGC
Resources, Inc., South Jersey Industries, Inc., and WGL Holdings, Inc. The Company excluded
EnergySouth, Inc. from its comparison due to its recent acquisition by Sempra Energy.
The comparison assumes $100 was invested on December 31, 2003 in the Companys common stock and in
each of the foregoing indices and assumes reinvested dividends. The comparisons in the graph below
are based on historical data and are not intended to forecast the possible future performance of
the Companys common stock.
Chesapeake Utilities Corporation 2008 Form 10-K Page 23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
Chesapeake |
|
$ |
100 |
|
|
$ |
107 |
|
|
$ |
128 |
|
|
$ |
133 |
|
|
$ |
143 |
|
|
$ |
147 |
|
Industry Index |
|
$ |
100 |
|
|
$ |
117 |
|
|
$ |
123 |
|
|
$ |
147 |
|
|
$ |
152 |
|
|
$ |
163 |
|
S&P 500 Index |
|
$ |
100 |
|
|
$ |
111 |
|
|
$ |
116 |
|
|
$ |
135 |
|
|
$ |
142 |
|
|
$ |
90 |
|
Page 24 Chesapeake Utilities Corporation 2008 Form 10-K
Item 6. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 (3) |
|
Operating
(in thousands of dollars)
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
211,402 |
|
|
$ |
181,202 |
|
|
$ |
170,374 |
|
Propane |
|
|
65,877 |
|
|
|
62,838 |
|
|
|
48,576 |
|
Advanced informations systems |
|
|
14,720 |
|
|
|
15,099 |
|
|
|
12,568 |
|
Other and eliminations |
|
|
(556 |
) |
|
|
(853 |
) |
|
|
(318 |
) |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
291,443 |
|
|
$ |
258,286 |
|
|
$ |
231,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
25,846 |
|
|
$ |
22,485 |
|
|
$ |
19,733 |
|
Propane |
|
|
1,586 |
|
|
|
4,498 |
|
|
|
2,534 |
|
Advanced informations systems |
|
|
695 |
|
|
|
836 |
|
|
|
767 |
|
Other and eliminations |
|
|
352 |
|
|
|
295 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
28,479 |
|
|
$ |
28,114 |
|
|
$ |
23,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
13,607 |
|
|
$ |
13,218 |
|
|
$ |
10,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment |
|
$ |
381,688 |
|
|
$ |
352,838 |
|
|
$ |
325,836 |
|
Net property, plant and equipment (2) |
|
$ |
280,671 |
|
|
$ |
260,423 |
|
|
$ |
240,825 |
|
Total assets (2) |
|
$ |
385,795 |
|
|
$ |
381,557 |
|
|
$ |
325,585 |
|
Capital expenditures (1) |
|
$ |
30,844 |
|
|
$ |
30,142 |
|
|
$ |
49,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization (in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
$ |
123,073 |
|
|
$ |
119,576 |
|
|
$ |
111,152 |
|
Long-term debt, net of current maturities |
|
|
86,422 |
|
|
|
63,256 |
|
|
|
71,050 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
209,495 |
|
|
$ |
182,832 |
|
|
$ |
182,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
6,657 |
|
|
|
7,656 |
|
|
|
7,656 |
|
Short-term debt |
|
|
33,000 |
|
|
|
45,664 |
|
|
|
27,554 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization and short-term financing |
|
$ |
249,152 |
|
|
$ |
236,152 |
|
|
$ |
217,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts exclude the results of distributed energy and water services due to
their reclassification to discontinued operations. The Company closed its distributed energy
operation in 2007. All assets of all of the water businesses were sold in 2004 and 2003. |
|
(2) |
|
SFAS No. 143 was adopted in the year 2001; therefore, SFAS No. 143 was not
applicable for the years prior to 2001. |
|
(3) |
|
SFAS No. 123R and SFAS No. 158 were adopted in the year 2006; therefore, they were
not applicable for the years prior to 2006. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
166,582 |
|
|
$ |
124,246 |
|
|
$ |
110,247 |
|
|
$ |
93,588 |
|
|
$ |
107,418 |
|
|
$ |
101,138 |
|
|
$ |
75,637 |
|
|
|
|
48,976 |
|
|
|
41,500 |
|
|
|
41,029 |
|
|
|
29,238 |
|
|
|
35,742 |
|
|
|
31,780 |
|
|
|
25,199 |
|
|
|
|
14,140 |
|
|
|
12,427 |
|
|
|
12,578 |
|
|
|
12,764 |
|
|
|
14,104 |
|
|
|
12,390 |
|
|
|
13,531 |
|
|
|
|
(213 |
) |
|
|
(218 |
) |
|
|
(286 |
) |
|
|
(334 |
) |
|
|
(113 |
) |
|
|
(131 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
229,485 |
|
|
$ |
177,955 |
|
|
$ |
163,568 |
|
|
$ |
135,256 |
|
|
$ |
157,151 |
|
|
$ |
145,177 |
|
|
$ |
114,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,236 |
|
|
$ |
17,091 |
|
|
$ |
16,653 |
|
|
$ |
14,973 |
|
|
$ |
14,405 |
|
|
$ |
12,798 |
|
|
$ |
10,388 |
|
|
|
|
3,209 |
|
|
|
2,364 |
|
|
|
3,875 |
|
|
|
1,052 |
|
|
|
913 |
|
|
|
2,135 |
|
|
|
2,622 |
|
|
|
|
1,197 |
|
|
|
387 |
|
|
|
692 |
|
|
|
343 |
|
|
|
517 |
|
|
|
336 |
|
|
|
1,470 |
|
|
|
|
279 |
|
|
|
335 |
|
|
|
359 |
|
|
|
237 |
|
|
|
386 |
|
|
|
816 |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
21,921 |
|
|
$ |
20,177 |
|
|
$ |
21,579 |
|
|
$ |
16,605 |
|
|
$ |
16,221 |
|
|
$ |
16,085 |
|
|
$ |
14,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,699 |
|
|
$ |
9,686 |
|
|
$ |
10,079 |
|
|
$ |
7,535 |
|
|
$ |
7,341 |
|
|
$ |
7,665 |
|
|
$ |
8,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
280,345 |
|
|
$ |
250,267 |
|
|
$ |
234,919 |
|
|
$ |
229,128 |
|
|
$ |
216,903 |
|
|
$ |
192,925 |
|
|
$ |
172,068 |
|
|
|
$ |
201,504 |
|
|
$ |
177,053 |
|
|
$ |
167,872 |
|
|
$ |
166,846 |
|
|
$ |
161,014 |
|
|
$ |
131,466 |
|
|
$ |
117,663 |
|
|
|
$ |
295,980 |
|
|
$ |
241,938 |
|
|
$ |
222,058 |
|
|
$ |
223,721 |
|
|
$ |
222,229 |
|
|
$ |
211,764 |
|
|
$ |
166,958 |
|
|
|
$ |
33,423 |
|
|
$ |
17,830 |
|
|
$ |
11,822 |
|
|
$ |
13,836 |
|
|
$ |
26,293 |
|
|
$ |
22,057 |
|
|
$ |
21,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
84,757 |
|
|
$ |
77,962 |
|
|
$ |
72,939 |
|
|
$ |
67,350 |
|
|
$ |
67,517 |
|
|
$ |
64,669 |
|
|
$ |
60,714 |
|
|
|
|
58,991 |
|
|
|
66,190 |
|
|
|
69,416 |
|
|
|
73,408 |
|
|
|
48,409 |
|
|
|
50,921 |
|
|
|
33,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
143,748 |
|
|
$ |
144,152 |
|
|
$ |
142,355 |
|
|
$ |
140,758 |
|
|
$ |
115,926 |
|
|
$ |
115,590 |
|
|
$ |
94,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,929 |
|
|
|
2,909 |
|
|
|
3,665 |
|
|
|
3,938 |
|
|
|
2,686 |
|
|
|
2,665 |
|
|
|
2,665 |
|
|
|
|
35,482 |
|
|
|
5,002 |
|
|
|
3,515 |
|
|
|
10,900 |
|
|
|
42,100 |
|
|
|
25,400 |
|
|
|
23,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
184,159 |
|
|
$ |
152,063 |
|
|
$ |
149,535 |
|
|
$ |
155,596 |
|
|
$ |
160,712 |
|
|
$ |
143,655 |
|
|
$ |
120,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 26 Chesapeake Utilities Corporation 2008 Form 10-K
Item 6. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006
(3) |
|
Common Stock Data and Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations (1) |
|
$ |
2.00 |
|
|
$ |
1.96 |
|
|
$ |
1.78 |
|
Diluted earnings per share from continuing operations (1) |
|
$ |
1.98 |
|
|
$ |
1.94 |
|
|
$ |
1.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity from continuing operations (1) |
|
|
11.2 |
% |
|
|
11.5 |
% |
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity / total capitalization |
|
|
58.7 |
% |
|
|
65.4 |
% |
|
|
61.0 |
% |
Common equity / total capitalization and short-term financing |
|
|
49.4 |
% |
|
|
50.6 |
% |
|
|
51.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share |
|
$ |
18.03 |
|
|
$ |
17.64 |
|
|
$ |
16.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price: |
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
34.840 |
|
|
$ |
37.250 |
|
|
$ |
35.650 |
|
Low |
|
$ |
21.930 |
|
|
$ |
28.000 |
|
|
$ |
27.900 |
|
Close |
|
$ |
31.480 |
|
|
$ |
31.850 |
|
|
$ |
30.650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding |
|
|
6,811,848 |
|
|
|
6,743,041 |
|
|
|
6,032,462 |
|
Shares outstanding at year-end |
|
|
6,827,121 |
|
|
|
6,777,410 |
|
|
|
6,688,084 |
|
Registered common shareholders |
|
|
1,914 |
|
|
|
1,920 |
|
|
|
1,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share |
|
$ |
1.21 |
|
|
$ |
1.18 |
|
|
$ |
1.16 |
|
Dividend yield (annualized) (2) |
|
|
3.9 |
% |
|
|
3.7 |
% |
|
|
3.8 |
% |
Payout ratio from continuing operations (1) (4) |
|
|
60.5 |
% |
|
|
60.2 |
% |
|
|
65.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Data |
|
|
|
|
|
|
|
|
|
|
|
|
Customers |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas distribution and transmission |
|
|
65,201 |
|
|
|
62,884 |
|
|
|
59,132 |
|
Propane distribution |
|
|
34,981 |
|
|
|
34,143 |
|
|
|
33,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volumes |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas deliveries (in MMCF) |
|
|
39,778 |
|
|
|
34,820 |
|
|
|
34,321 |
|
Propane distribution (in thousands of gallons) |
|
|
27,956 |
|
|
|
29,785 |
|
|
|
24,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree-days (Delmarva Peninsula) |
|
|
|
|
|
|
|
|
|
|
|
|
Actual HDD |
|
|
4,431 |
|
|
|
4,504 |
|
|
|
3,931 |
|
10 -year average HDD (normal) |
|
|
4,401 |
|
|
|
4,376 |
|
|
|
4,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Propane bulk storage capacity (in thousands of gallons) |
|
|
2,471 |
|
|
|
2,441 |
|
|
|
2,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees (1) |
|
|
448 |
|
|
|
445 |
|
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts exclude the results of distributed energy and water services due to
their reclassification to discontinued operations. The Company closed its distributed energy
operation in 2007. All assets of all of the water businesses were sold in 2004 and 2003. |
|
(2) |
|
Dividend yield (annualized) is calculated by multiplying the
fourth quarter dividend by four (4), then dividing that amount by the closing
common stock price at December 31. |
|
(3) |
|
SFAS No. 123R and SFAS No. 158 were adopted in the year 2006; therefore, they
were not applicable for the years prior to 2006. |
|
(4) |
|
The payout ratio from continuing operations is calculated by dividing cash
dividends declared per share (for the year) by basic earnings per share from continuing
operations. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
1999 |
|
|
|
$ |
1.83 |
|
|
$ |
1.68 |
|
|
$ |
1.80 |
|
|
$ |
1.37 |
|
|
$ |
1.37 |
|
|
$ |
1.46 |
|
|
$ |
1.63 |
|
|
|
$ |
1.81 |
|
|
$ |
1.64 |
|
|
$ |
1.76 |
|
|
$ |
1.37 |
|
|
$ |
1.35 |
|
|
$ |
1.43 |
|
|
$ |
1.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.2 |
% |
|
|
12.8 |
% |
|
|
14.4 |
% |
|
|
11.2 |
% |
|
|
11.1 |
% |
|
|
12.2 |
% |
|
|
14.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59.0 |
% |
|
|
54.1 |
% |
|
|
51.2 |
% |
|
|
47.8 |
% |
|
|
58.2 |
% |
|
|
55.9 |
% |
|
|
64.3 |
% |
|
|
|
46.0 |
% |
|
|
51.3 |
% |
|
|
48.8 |
% |
|
|
43.3 |
% |
|
|
42.0 |
% |
|
|
45.0 |
% |
|
|
50.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14.41 |
|
|
$ |
13.49 |
|
|
$ |
12.89 |
|
|
$ |
12.16 |
|
|
$ |
12.45 |
|
|
$ |
12.21 |
|
|
$ |
11.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35.780 |
|
|
$ |
27.550 |
|
|
$ |
26.700 |
|
|
$ |
21.990 |
|
|
$ |
19.900 |
|
|
$ |
18.875 |
|
|
$ |
19.813 |
|
|
|
$ |
23.600 |
|
|
$ |
20.420 |
|
|
$ |
18.400 |
|
|
$ |
16.500 |
|
|
$ |
17.375 |
|
|
$ |
16.250 |
|
|
$ |
14.875 |
|
|
|
$ |
30.800 |
|
|
$ |
26.700 |
|
|
$ |
26.050 |
|
|
$ |
18.300 |
|
|
$ |
19.800 |
|
|
$ |
18.625 |
|
|
$ |
18.375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,836,463 |
|
|
|
5,735,405 |
|
|
|
5,610,592 |
|
|
|
5,489,424 |
|
|
|
5,367,433 |
|
|
|
5,249,439 |
|
|
|
5,144,449 |
|
|
|
|
5,883,099 |
|
|
|
5,778,976 |
|
|
|
5,660,594 |
|
|
|
5,537,710 |
|
|
|
5,424,962 |
|
|
|
5,297,443 |
|
|
|
5,186,546 |
|
|
|
|
2,026 |
|
|
|
2,026 |
|
|
|
2,069 |
|
|
|
2,130 |
|
|
|
2,171 |
|
|
|
2,166 |
|
|
|
2,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.14 |
|
|
$ |
1.12 |
|
|
$ |
1.10 |
|
|
$ |
1.10 |
|
|
$ |
1.10 |
|
|
$ |
1.07 |
|
|
$ |
1.03 |
|
|
|
|
3.7 |
% |
|
|
4.2 |
% |
|
|
4.2 |
% |
|
|
6.0 |
% |
|
|
5.6 |
% |
|
|
5.8 |
% |
|
|
5.7 |
% |
|
|
|
62.3 |
% |
|
|
66.7 |
% |
|
|
61.1 |
% |
|
|
80.3 |
% |
|
|
80.3 |
% |
|
|
73.3 |
% |
|
|
63.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,786 |
|
|
|
50,878 |
|
|
|
47,649 |
|
|
|
45,133 |
|
|
|
42,741 |
|
|
|
40,854 |
|
|
|
39,029 |
|
|
|
|
32,117 |
|
|
|
34,888 |
|
|
|
34,894 |
|
|
|
34,566 |
|
|
|
35,530 |
|
|
|
35,563 |
|
|
|
35,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,981 |
|
|
|
31,430 |
|
|
|
29,375 |
|
|
|
27,935 |
|
|
|
27,264 |
|
|
|
30,830 |
|
|
|
27,383 |
|
|
|
|
26,178 |
|
|
|
24,979 |
|
|
|
25,147 |
|
|
|
21,185 |
|
|
|
23,080 |
|
|
|
28,469 |
|
|
|
27,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,792 |
|
|
|
4,553 |
|
|
|
4,715 |
|
|
|
4,161 |
|
|
|
4,368 |
|
|
|
4,730 |
|
|
|
4,082 |
|
|
|
|
4,436 |
|
|
|
4,389 |
|
|
|
4,409 |
|
|
|
4,393 |
|
|
|
4,446 |
|
|
|
4,356 |
|
|
|
4,409 |
|
|
|
|
|
2,315 |
|
|
|
2,045 |
|
|
|
2,195 |
|
|
|
2,151 |
|
|
|
1,958 |
|
|
|
1,928 |
|
|
|
1,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423 |
|
|
|
426 |
|
|
|
439 |
|
|
|
455 |
|
|
|
458 |
|
|
|
471 |
|
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 28 Chesapeake Utilities Corporation 2008 Form 10-K
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
INTRODUCTION
This section provides managements discussion of Chesapeake and its consolidated subsidiaries, with
specific information on results of operations and liquidity and capital resources. It includes
managements interpretation of our financial results, the factors affecting these results, the
major factors expected to affect future operating results and future investment and financing
plans. This discussion should be read in conjunction with our consolidated financial statements and
notes thereto.
Several factors exist that could influence our future financial performance, some of which are
described in Item 1A above, Risk Factors. They should be considered in connection with evaluating
forward-looking statements contained in this report, or otherwise made by or on behalf of us, since
these factors could cause actual results and conditions to differ materially from those set out in
such forward-looking statements.
EXECUTIVE OVERVIEW
Chesapeake is a diversified utility company engaged, directly or through subsidiaries in natural
gas distribution, transmission and marketing, propane distribution and wholesale marketing,
advanced information services and other related businesses.
The Companys strategy is focused on growing earnings from a stable utility foundation and
investing in related businesses and services that provide opportunities for returns greater than
traditional utility returns. The key elements of this strategy include:
|
|
|
executing a capital investment program in pursuit of organic growth opportunities that
generate returns equal to or greater than our cost of capital; |
|
|
|
expanding the natural gas distribution and transmission business through expansion into
new geographic areas in our current service territories; |
|
|
|
expanding the propane distribution business in existing and new markets through
leveraging our community gas system services and our bulk delivery capabilities; |
|
|
|
utilizing the Companys expertise across our various businesses to improve overall
performance; |
|
|
|
enhancing marketing channels to attract new customers; |
|
|
|
providing reliable and responsive customer service to retain existing customers; |
|
|
|
maintaining a capital structure that enables the Company to access capital as needed;
and |
|
|
|
maintaining a consistent and competitive dividend for shareholders. |
The following discussions and those later in the document on operating income and segment results
include use of the term gross margin. Gross margin is determined by deducting the cost of sales
from operating revenue. Cost of sales includes the purchased cost of natural gas and propane and
the cost of labor spent on direct revenue-producing activities. Gross margin should not be
considered an alternative to operating income or net income, which are determined in accordance
with GAAP. Chesapeake believes that gross margin, although a non-GAAP measure, is useful and
meaningful to investors as a basis for making investment decisions. It provides investors with
information that demonstrates the profitability achieved by the Company under its allowed rates for
regulated operations and under its competitive pricing structure for non-regulated segments.
Chesapeakes management uses gross margin in measuring its business units performance and has
historically analyzed and reported gross margin information publicly. Other companies may calculate
gross margin in a different manner.
Chesapeake Utilities Corporation 2008 Form 10-K Page 29
Managements Discussion and Analysis
Chesapeake had a successful 2008, in spite of the state of the global economic and financial
markets. For the year, net income increased by three percent as the Company earned $13.6 million in
net income, or $1.98 per share (diluted), compared to net income of $13.2 million, or $1.94 per
share (diluted), earned in 2007. We were able to achieve this
growth despite taking a charge of $1.2 million in other operating expenses for costs related to an
unconsummated acquisition. Absent this charge, the Company estimates that, compared to 2007, net
income would have increased to $14.3 million, or $2.08 per share (diluted).
The higher period-over-period net income was attributable primarily to our natural gas segment. Our
natural gas transmission and distribution operations continued to invest capital in current growth
initiatives that favorably positioned us for future growth as well. These operations invested $25.6
million in property, plant, and equipment during 2008, primarily to expand our transmission and
distribution systems. These expansions were undertaken pursuant to additional long-term firm
transportation service contracts for our transmission operation and continued customer growth for
the distribution operations. Collectively, these growth initiatives contributed $2.8 million to
gross margin in 2008.
As a result of market conditions in the housing industry, the Company continued to see a slowdown
in the number of new houses being constructed. Despite this slowdown, the average number of
residential customers served by our natural gas distribution
operations increased by four percent.
While this growth percentage is lower than that experienced in recent years, it is still
significantly above the national average.
PESCO experienced a record year as gross margin increased by 91 percent over 2007. This increase
was achieved through enhanced sales contract terms, margins on spot sales of approximately $600,000
and a 26-percent growth in its customer base. A 26-percent increase in its customer base
contributed to a 41-percent increase in volumes sold in 2008.
The successful completion of rate proceedings for the Companys natural gas transmission and
Delmarva distribution operations added $387,000 to gross margin in 2008. In addition, these rate
proceedings provided for lower depreciation allowances and lower asset removal cost allowances,
which contributed to the period-over-period decrease in depreciation expense and asset removal
costs of $2.3 million in 2008.
Propane price volatility during 2008 affected our wholesale marketing operation positively and our
propane distribution operation negatively. Xeron capitalized on the price volatility, seizing
opportunities to sell at prices above cost and to manage effectively the larger spreads between the
market (spot) prices and forward propane prices experienced in 2008, which contributed to the
operations 38-percent year-over-year growth in gross margin.
In contrast, the volatility of wholesale propane prices had a negative impact on our propane
distribution operations. Wholesale propane prices rose dramatically during the spring months of
2008, when they are traditionally falling. In efforts to protect the Company from the impact that
additional price increases would have on our Pro-Cap (propane price-cap) Plan that we offer to
customers, the propane distribution operation entered into a swap agreement. By December 31, 2008,
the market price of propane had plummeted well below the unit price in the swap agreement. As a
result, the Company marked the agreement relating to the January 2009 and February 2009 gallons to
market, which increased cost of sales by $939,000 for 2008 and resulted in the Company adjusting
the valuation of its propane inventory to current market prices in accordance with Accounting
Research Bulletin No. 43. Both of these adjustments reduced gross margin during 2008 by a total of
$2.3 million compared to 2007. The Company subsequently terminated the swap agreement in January
2009.
Adverse economic conditions severely affected the advanced information services segment. BravePoint
experienced lower consulting revenues as customers began to conserve their information technology
spending, resulting in a nine percent decline in billable hours in 2008 compared to 2007.
In response to the instability and volatility of the financial markets, we increased the amounts of
our committed short-term borrowing capacity from $15.0 million to $55.0 million, while maintaining
total short-term line-of-credit capacity of $100.0 million. In addition, on October 31, 2008, the
Company executed a $30.0 million long-term debt placement of 5.93 percent Unsecured Senior Notes,
maturing on October 31, 2023.
Page 30 Chesapeake Utilities Corporation 2008 Form 10-K
Operating Income
The year-over-year increase in operating income for 2008, driven by the strong performance of our
natural gas business segment, was partially offset by lower operating income from the propane and
advanced information services business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Change |
|
Natural gas |
|
$ |
25,846 |
|
|
$ |
22,485 |
|
|
$ |
3,361 |
|
|
|
15 |
% |
Propane |
|
|
1,586 |
|
|
|
4,498 |
|
|
|
(2,912 |
) |
|
|
-65 |
% |
Advanced information services |
|
|
695 |
|
|
|
836 |
|
|
|
(141 |
) |
|
|
-17 |
% |
Other & eliminations |
|
|
352 |
|
|
|
295 |
|
|
|
57 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
28,479 |
|
|
$ |
28,114 |
|
|
$ |
365 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys financial performance is discussed in greater detail below in Results of
Operations.
Critical Accounting Policies
Chesapeake prepares its financial statements in accordance with GAAP. Application of these
accounting principles requires the use of estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies
during the reporting period. Chesapeake bases its estimates on historical experience and on various
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Since most of Chesapeakes businesses are regulated and the
accounting methods used by these businesses must comply with the requirements of the regulatory
bodies, the choices available are limited by these regulatory requirements. In the normal course of
business, estimated amounts are subsequently adjusted to actual results that may differ from
estimates. Management believes that the following policies require significant estimates or other
judgments of matters that are inherently uncertain. These policies and their application have been
discussed with Chesapeakes Audit Committee.
Regulatory Assets and Liabilities
As a result of the ratemaking process, Chesapeake records certain assets and liabilities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the
Effects of Certain Types of Regulation; consequently, the accounting principles applied by our
regulated utilities differ in certain respects from those applied by the unregulated businesses.
Costs are deferred when there is a probable expectation that they will be recovered in future
revenues as a result of the regulatory process. As more fully described in Note A to the
Consolidated Financial Statements, Chesapeake had recorded regulatory assets of $3.6 million and
regulatory liabilities of $24.7 million, at December 31, 2008. If the Company were required to
terminate application of SFAS No. 71, it would be required to recognize all such deferred
amounts as a charge or a credit to earnings, net of applicable income taxes. Such an adjustment
could have a material effect on the Companys results of operations.
Valuation of Environmental Assets and Liabilities
As more fully described in Note N, Environmental Commitments and Contingencies, in the Notes
to the Consolidated Financial Statements, Chesapeake has completed its responsibilities related
to one environmental site and is currently participating in the investigation, assessment or
remediation of three other former manufactured gas plant sites. Amounts have been recorded as
environmental liabilities and associated environmental regulatory assets based on estimates of
future costs provided by independent consultants. There is uncertainty in these amounts, because
the United States Environmental Protection Agency (EPA) or other applicable state
environmental authority may not have selected the final remediation methods. In addition, there
is uncertainty with regard to amounts that may be recovered from other potentially responsible
parties.
Chesapeake Utilities Corporation 2008 Form 10-K Page 31
Managements Discussion and Analysis
Since the Companys management believes that recovery of these expenditures, including any
litigation costs, is probable through the regulatory process, the Company has recorded, in
accordance with SFAS No. 71, a regulatory
asset and corresponding regulatory liability. At December 31, 2008, Chesapeake had recorded an
environmental regulatory asset of $779,000 and a liability of $511,000 for environmental costs.
Derivatives
Chesapeake may use derivative instruments to manage the price risk of its natural gas and
propane purchasing activities. The Company continually monitors the use of these instruments to
ensure compliance with its risk management policies and accounts for them in accordance with
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, by recording their
fair value as assets and liabilities. If the derivative contracts meet the normal purchase and
normal sale scope exception of SFAS No. 133, the related activities and services are accounted
for on an accrual basis of accounting.
The following is a review of Chesapeakes use of derivative instruments at December 31, 2008 and
2007:
|
|
|
The natural gas distribution and marketing operations, during 2008 and 2007, entered
into physical contracts for the purchase and sale of natural gas, which qualified for the
normal purchases and normal sales scope exception under SFAS No. 133 in that they
provided for the purchase or sale of natural gas to be delivered in quantities expected to
be used or sold by the Company over a reasonable period of time in the normal course of
business. Accordingly, they were not subject to the accounting requirements of SFAS No.
133. |
|
|
|
During 2008 and 2007, Chesapeakes propane distribution operations entered into physical
contracts to buy propane supplies, which qualified for the normal purchases and normal
sales scope exception under SFAS No. 133 in that they provided for the purchase or sale of
propane to be delivered in quantities expected to be used or sold by the Company over a
reasonable period of time in the normal course of business. Accordingly, the related
liabilities incurred and assets acquired under these contracts were recorded when title to
the underlying commodity passed. |
|
|
|
During 2008, but not during 2007, the propane distribution operation entered into a swap
agreement to protect the Company from the impact of price increases on the Pro-Cap (propane
price-cap) Plan that we offer to customers. The Company considered this agreement to be an
economic hedge that did not qualify for hedge accounting as described in SFAS No. 133. At
the end of the period, the market price of propane dropped below the unit price in the swap
agreement. As a result of the price drop, the Company marked the agreement relating to the
January 2009 and February 2009 gallons to market, which increased cost of sales in 2008 by
approximately $939,000. In January 2009, the Company terminated this swap agreement. |
|
|
|
Chesapeakes propane wholesale marketing operation enters into forward and futures
contracts that are considered derivatives under SFAS No. 133. In accordance with SFAS No.
133, open positions are marked to market using prices at the end of each reporting period
and unrealized gains or losses are recorded in the Consolidated Statement of Income as
revenue or expense. The contracts mature within one year and are almost exclusively for
propane commodities, with delivery points at Mt. Belvieu, Texas; Conway, Kansas; and
Hattiesburg, Mississippi. Management estimates the market valuation based on references to
exchange-traded futures prices, historical differentials and actual trading activity at the
end of the reporting period. Commodity price volatility may have a significant impact on
the gain or loss in any given period. At December 31, 2008, these contracts had net
unrealized gains of $1.4 million that were recorded in the financial statements. At
December 31, 2007, these contracts had net unrealized gains of $179,000 that were recorded
in the financial statements. |
Operating Revenues
Revenues for the natural gas distribution operations of the Company are based on rates approved
by the PSCs of the jurisdictions in which we operate. The natural gas transmission operations
revenues are based on rates approved by the FERC. Customers base rates may not be changed
without formal approval by these commissions. The PSCs, however, have granted the Companys
regulated natural gas distribution operations the ability to negotiate rates, based on approved
methodologies, with customers that have competitive alternatives. In addition, the natural gas
transmission operation can negotiate rates above or below the FERC-approved tariff rates.
Page 32 Chesapeake Utilities Corporation 2008 Form 10-K
For regulated deliveries of natural gas, Chesapeake reads meters and bills customers on monthly
cycles that do not coincide with the accounting periods used for financial reporting purposes.
Chesapeake accrues unbilled revenues for gas that has been delivered, but not yet billed, at the
end of an accounting period to the extent that they do not coincide. In connection with this
accrual, Chesapeake must estimate the amount of gas that has not been accounted for on its
delivery system and must estimate the amount of the unbilled revenue by jurisdiction and
customer class. A similar computation is made to accrue unbilled revenues for propane customers
with meters, such as community gas system customers.
The propane wholesale marketing operation records trading activity for open contracts on a net
mark-to-market basis in the Companys income statement. The propane distribution, advanced
information services and other segments record revenue in the period the products are delivered
and/or services are rendered.
Chesapeakes natural gas distribution operations in Delaware and Maryland each have a purchased
gas cost recovery mechanism. This mechanism provides the Company with a method of adjusting the
billing rates with its customers for changes in the cost of purchased gas included in base
rates. The difference between the current cost of gas purchased and the cost of gas recovered in
billed rates is deferred and accounted for as either unrecovered purchased gas costs or amounts
payable to customers. Generally, these deferred amounts are recovered or refunded within one
year.
The Company charges flexible rates to its natural gas distribution industrial interruptible
customers to compete with alternative types of fuel. Based on pricing, these customers can
choose natural gas or alternative fuels. Neither the Company nor the interruptible customer is
contractually obligated to deliver or receive natural gas.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is recorded against amounts due to reduce the net receivable
balance to the amount we reasonably expect to collect based upon our collections experiences,
the condition of the overall economy and our assessment of our customers inability or
reluctance to pay. If circumstances change, however, our estimate of the recoverability of
accounts receivable may also change. Circumstances which could affect our estimates include, but
are not limited to, customer credit issues, the level of natural gas prices and general economic
conditions. Accounts are written off once they are deemed to be uncollectible.
Pension and other Postretirement Benefits
Pension and other postretirement plan costs and liabilities are determined on an actuarial basis
and are affected by numerous assumptions and estimates including the market value of plan
assets, estimates of the expected return on plan assets, assumed discount rates, the level of
contributions made to the plans, current demographic and actuarial mortality data. The assumed
discount rate and the expected return on plan assets are the assumptions that generally have the
most significant impact on the Companys pension costs and liabilities. The assumed discount
rate, the assumed health care cost trend rate and the assumed rates of retirement generally have
the most significant impact on our postretirement plan costs and liabilities. Additional
information is presented in Note L, Employee Benefit Plans, in the Notes to the Consolidated
Financial Statements, including plan asset investment allocation, estimated future benefit
payments, general descriptions of the plans, significant assumptions, the impact of certain
changes in assumptions, and significant changes in estimates.
The total pension and other postretirement benefit costs included in operating income were
$537,000, $370,000 and $387,000 in 2008, 2007 and 2006, respectively. The company expects to
record higher pension and postretirement benefit costs in the range of $400,000 to $600,000 for
2009. The increased costs for 2009 represents the significant market decline in the values of
the defined pension plan assets when compared to prior years. Actuarial assumptions affecting
2009 include an expected long-term rate of return on plan assets of 6.0 percent, consistent with
the prior year, and discount rates of 5.25 percent for each of the plans, compared with 5.5
percent for the plans a year earlier. The discount rates for each plan were determined by the
Company considering high quality corporate bond rates
based on Moodys Aa bond index, changes in those rates from the prior year, and other pertinent
factors, such as the expected life of the plan and the lump-sum-payment option.
Chesapeake Utilities Corporation 2008 Form 10-K Page 33
Managements Discussion and Analysis
Results of Operations
Net Income & Diluted Earnings Per Share Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
Net Income (Loss)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
13,607 |
|
|
$ |
13,218 |
|
|
$ |
389 |
|
|
$ |
13,218 |
|
|
$ |
10,748 |
|
|
$ |
2,470 |
|
Discontinued operations |
|
|
|
|
|
|
(20 |
) |
|
|
20 |
|
|
|
(20 |
) |
|
|
(241 |
) |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Income |
|
$ |
13,607 |
|
|
$ |
13,198 |
|
|
$ |
410 |
|
|
$ |
13,198 |
|
|
$ |
10,507 |
|
|
$ |
2,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.98 |
|
|
$ |
1.94 |
|
|
$ |
0.04 |
|
|
$ |
1.94 |
|
|
$ |
1.76 |
|
|
$ |
0.18 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.04 |
) |
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings Per Share |
|
$ |
1.98 |
|
|
$ |
1.94 |
|
|
$ |
0.04 |
|
|
$ |
1.94 |
|
|
$ |
1.72 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys net income from continuing operations increased by $389,000 in 2008 compared to 2007.
Net income from continuing operations was $13.6 million, or $1.98 per share (diluted), for 2008,
compared to net income from continuing operations of $13.2 million, or $1.94 per share (diluted) in
2007. Our 2008 results include a charge of $1.2 million to other operating expenses for costs
relating to an unconsummated acquisition. The Company initiated discussions in the third quarter of
2007 with a potential acquisition target. These discussions continued through the first part of the
second quarter of 2008, at which time, we determined that we would not be able to complete the
acquisition. In the course of these negotiations, the Company incurred certain accounting, legal
and other professional fees and expenses, which were expensed in the second quarter of 2008 in
accordance with SFAS No. 141, Business Combinations. Absent the charge for the unconsummated
acquisition, the Company estimates that period-over-period net income would have increased by $1.1
million in 2008 to $14.3 million, or $2.08 per share (diluted).
The Companys net income from continuing operations increased by $2.5 million in 2007 compared to
2006. Net income from continuing operations was $13.2 million, or $1.94 per share (diluted), for
2007, compared to net income from continuing operations of $10.8 million, or $1.76 per share
(diluted) in 2006.
During 2007, Chesapeake decided to close its distributed energy services company, OnSight, which
consistently experienced operating losses since 2004. The results of operations for OnSight have
been reclassified to discontinued operations and shown net of tax for all periods presented. The
discontinued operations experienced a net loss of $20,000 for 2007, compared to a net loss of
$241,000, or $0.04 per share (diluted) for 2006. The Company did not have any discontinued
operations in 2008.
Page 34 Chesapeake Utilities Corporation 2008 Form 10-K
Operating Income Summary (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
Business Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
25,846 |
|
|
$ |
22,485 |
|
|
$ |
3,361 |
|
|
$ |
22,485 |
|
|
$ |
19,733 |
|
|
$ |
2,752 |
|
Propane |
|
|
1,586 |
|
|
|
4,498 |
|
|
|
(2,912 |
) |
|
|
4,498 |
|
|
|
2,534 |
|
|
|
1,964 |
|
Advanced information services |
|
|
695 |
|
|
|
836 |
|
|
|
(141 |
) |
|
|
836 |
|
|
|
767 |
|
|
|
69 |
|
Other & eliminations |
|
|
352 |
|
|
|
295 |
|
|
|
57 |
|
|
|
295 |
|
|
|
298 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
28,479 |
|
|
$ |
28,114 |
|
|
$ |
365 |
|
|
$ |
28,114 |
|
|
$ |
23,332 |
|
|
$ |
4,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income |
|
|
103 |
|
|
|
291 |
|
|
|
(188 |
) |
|
|
291 |
|
|
|
189 |
|
|
|
102 |
|
Interest Charges |
|
|
6,158 |
|
|
|
6,590 |
|
|
|
(432 |
) |
|
|
6,590 |
|
|
|
5,774 |
|
|
|
816 |
|
Income Taxes |
|
|
8,817 |
|
|
|
8,597 |
|
|
|
220 |
|
|
|
8,597 |
|
|
|
6,999 |
|
|
|
1,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from Continuing Operations |
|
$ |
13,607 |
|
|
$ |
13,218 |
|
|
$ |
389 |
|
|
$ |
13,218 |
|
|
$ |
10,748 |
|
|
$ |
2,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Compared to 2007
Operating income in 2008 increased by approximately $365,000, or one percent, compared to 2007. The
financial, operational and other highlights or factors affecting the period-over-period change in
operating income included the following:
|
|
|
For the Companys
natural gas marketing operation, enhanced sales contract terms,
margins on spot sales of approximately $600,000 and a 26 percent growth in
its customer base produced a period-over-period
increase of $1.5 million, or 91 percent, in gross margin. |
|
|
|
New long-term, transportation capacity contracts implemented by ESNG in November 2007
provided for 8,300 Dts of additional firm transportation service per day, generating
$200,000 of gross margin in 2007 and $1.0 million in 2008 for an
annualized gross margin of $1.2 million. |
|
|
|
On January 7, 2008, ESNG received authorization from the FERC to commence construction
of a portion of the Phase III facilities (approximately 9.2 miles) of the 2006-2008 System
Expansion Project. These additional facilities, which were completed and placed in service
on November 1, 2008, provided for 5,650 Dts of additional firm transportation service per
day, generating $165,000 of gross margin in 2008 and annualized gross margin of $988,000. |
|
|
|
The results of rate proceedings for the Companys natural gas transmission and Delmarva
distribution operations added $387,000 to gross margin in 2008. These rate proceedings also
provided for lower depreciation allowances and lower asset removal cost allowances, which
contributed to the period-over-period decrease in depreciation expense and asset removal
costs of $2.3 million in 2008. |
|
|
|
Volatile wholesale propane prices in 2008 provided a gross margin increase of $901,000
for the Companys propane wholesale and marketing subsidiary. |
|
|
|
Despite the continued slowdown in new residential housing construction as a result of
unfavorable economic conditions, the Companys natural gas distribution operations continued
to experience strong customer growth with a four percent increase in 2008. |
|
|
|
Declining propane prices during the second half of 2008 had a negative impact on
operating income for the propane distribution operations as the Company adjusted the
valuation of its propane inventory to current market prices in accordance with Accounting
Research Bulletin No. 43. These adjustments reduced gross margin by $800,000 during 2008.
In addition, the Company recognized a charge of $939,000 to cost of sales as January 2009
and February 2009 gallons in its price swap agreement were
markedtomarket as of the end
2008. |
|
|
|
As previously discussed, a charge of $1.2 million for costs relating to an unconsummated
acquisition increased other operating expenses. |
|
|
|
Corporate overhead increased $519,000 in 2008 due to increased payroll and benefit costs
of $132,000 and $83,000, respectively, as several key corporate positions that were vacant
in 2007 were filled in 2008. In addition, outside services increased
$263,000 due
primarily to consulting costs relating to an independent third-party compensation survey,
strategic planning and growth initiatives. As a result of the compensation survey,
the Company implemented salary adjustments, effective January 1, 2009, that will increase
payroll related costs by approximately $754,000 in 2009. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 35
Managements Discussion and Analysis
|
|
|
The Company continued to invest in property, plant and equipment to support current and
future growth opportunities, expending $30.8 million in 2008 for such purposes. |
|
|
|
Even though banks were tightening their lending in response to the current financial
crisis, Chesapeake was able to firm up its credit lines during this volatile period by
increasing its total committed short-term borrowing capacity from $15.0 million to $55.0
million. In addition, on October 31, 2008, the Company executed a $30.0 million long-term
debt placement of 5.93 percent Unsecured Senior Notes. |
2007 Compared to 2006
Compared to 2006, operating income in 2007 increased by $4.8 million, or 20 percent. Factors
affecting this improvement included the following:
|
|
|
New transportation capacity contracts implemented for the natural gas transmission
operation in November 2006 and November 2007 provided for $3.3 million of additional gross
margin in 2007. |
|
|
|
Weather on the Delmarva Peninsula was 15 percent colder in 2007 than in 2006, which, the
Company estimates contributed approximately $2.0 million in additional gross margin for its
Delmarva natural gas and propane distribution operations. This amount differs from the $2.2
million of additional gross margin that the Company had expected the colder weather to
contribute, as a result of the season or month that the heating degree-day variance
occurred. |
|
|
|
Rate increases to customers of the natural gas transmission and distribution operations
in Delaware and Maryland added $1.4 million to gross margin in 2007. |
|
|
|
Strong period-over-period residential customer growth of seven percent and five percent,
respectively, was achieved for the Delmarva and Florida natural gas distribution operations
in 2007. |
|
|
|
The average gross margin per retail gallon sold to customers increased by $0.05 in 2007
for the Delmarva propane distribution operations, which contributed $1.1 million to gross
margin. |
|
|
|
The Delmarva Community Gas Systems continued to experience strong customer growth as the
number of customers increased by 22 percent in 2007. |
Natural Gas
The natural gas segment recognized operating income of $25.8 million for 2008, $22.5 million for
2007, and $19.7 million for 2006, representing increases of $3.4 million, or 15 percent for 2008,
and $2.8 million, or 14 percent for 2007.
Page 36 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
211,402 |
|
|
$ |
181,202 |
|
|
$ |
30,200 |
|
|
$ |
181,202 |
|
|
$ |
170,374 |
|
|
$ |
10,828 |
|
Cost of gas |
|
|
146,546 |
|
|
|
121,550 |
|
|
|
24,996 |
|
|
|
121,550 |
|
|
|
117,948 |
|
|
|
3,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
64,856 |
|
|
|
59,652 |
|
|
|
5,204 |
|
|
|
59,652 |
|
|
|
52,426 |
|
|
|
7,226 |
|
|
Operations & maintenance |
|
|
26,579 |
|
|
|
26,024 |
|
|
|
555 |
|
|
|
26,024 |
|
|
|
22,673 |
|
|
|
3,351 |
|
Unconsummated acquisition costs |
|
|
828 |
|
|
|
|
|
|
|
828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization |
|
|
6,694 |
|
|
|
6,918 |
|
|
|
(224 |
) |
|
|
6,918 |
|
|
|
6,312 |
|
|
|
606 |
|
Other taxes |
|
|
4,909 |
|
|
|
4,225 |
|
|
|
684 |
|
|
|
4,225 |
|
|
|
3,708 |
|
|
|
517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses |
|
|
39,010 |
|
|
|
37,167 |
|
|
|
1,843 |
|
|
|
37,167 |
|
|
|
32,693 |
|
|
|
4,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Income |
|
$ |
25,846 |
|
|
$ |
22,485 |
|
|
$ |
3,361 |
|
|
$ |
22,485 |
|
|
$ |
19,733 |
|
|
$ |
2,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating Degree-Day (HDD) and Customer Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
Heating degree-day data Delmarva |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual HDD |
|
|
4,431 |
|
|
|
4,504 |
|
|
|
(73 |
) |
|
|
4,504 |
|
|
|
3,931 |
|
|
|
573 |
|
10-year average HDD |
|
|
4,401 |
|
|
|
4,376 |
|
|
|
25 |
|
|
|
4,376 |
|
|
|
4,372 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated gross margin per HDD |
|
$ |
1,937 |
|
|
$ |
1,937 |
|
|
$ |
0 |
|
|
$ |
1,937 |
|
|
$ |
2,013 |
|
|
$ |
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated dollars per residential customer added: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
375 |
|
|
$ |
372 |
|
|
$ |
3 |
|
|
$ |
372 |
|
|
$ |
372 |
|
|
$ |
0 |
|
Other operating expenses |
|
$ |
103 |
|
|
$ |
106 |
|
|
$ |
(3 |
) |
|
$ |
106 |
|
|
$ |
111 |
|
|
$ |
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of residential customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delmarva |
|
|
45,570 |
|
|
|
43,485 |
|
|
|
2,085 |
|
|
|
43,485 |
|
|
|
40,535 |
|
|
|
2,950 |
|
Florida |
|
|
13,373 |
|
|
|
13,250 |
|
|
|
123 |
|
|
|
13,250 |
|
|
|
12,663 |
|
|
|
587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
58,943 |
|
|
|
56,735 |
|
|
|
2,208 |
|
|
|
56,735 |
|
|
|
53,198 |
|
|
|
3,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Compared to 2007
Gross margin for the Companys natural gas segment increased by $5.2 million, or nine percent, and
other operating expenses increased by $1.8 million, or five percent, for 2008. Of the total $5.2
million increase in gross margin, $1.7 million was generated from the natural gas transmission
operation, $2.0 million from the natural gas distribution operations and $1.5 million from the
natural gas marketing operation, as further explained below.
Natural Gas Transmission
The natural gas transmission operation achieved gross margin growth of $1.7 million, or eight
percent, in 2008. Of the $1.7 million increase, $1.2 million was attributable to new transportation
capacity contracts implemented in November 2007 and 2008. In 2009, the new transportation capacity
contracts implemented in November 2008 are expected to generate additional gross margin of
$823,000. In addition, the implementation of rate case settlement rates, effective September 1,
2007, contributed an additional $439,000 to gross margin in 2008. A further discussion of the FERC
rate proceeding is provided in detail within Rates and Other Regulatory Activities section of
Note O, Other Commitments and Contingencies, in the Notes to the Consolidated Financial
Statements. The remaining $61,000 increase to gross margin was primarily attributable to higher
interruptible sales revenue, net of required margin-sharing.
The 2009 gross margin for the natural gas transmission operation will be impacted by the following
construction projects:
|
|
|
The remaining facilities to be constructed under the operations multi-year system
expansion will be placed into service in November 2009. These services will provide for
7,200 dts of firm service capacity per day and will generate $1.0 million of annualized
gross margin. For the years 2009 and 2010, these facilities will contribute $169,300 and
$846,700, respectively, to gross margin. |
|
|
|
On February 5, 2009, ESNG entered into a firm transportation service agreement with an
industrial customer in Northern Delaware for the period of February 6, 2009 through October
31, 2009. Pursuant to this agreement,
ESNG will provide firm transportation service for a maximum of 7,200 Dts and will recognize
gross margin of approximately $573,000 for this service. Subsequent to execution of this
agreement, the two parties entered into a second Precedent Agreement for an additional
10,000 Dts of daily firm transportation service beginning November 1, 2009 and ending
October 31, 2012. In conjunction with providing this service, ESNG expects to earn
additional gross margin of approximately $1.1 million. For the years 2009 and 2010, these
two agreements will contribute $753,900 and $1.1 million, respectively, to gross margin. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 37
Managements Discussion and Analysis
An increase of $669,000 in other operating expenses partially offset the increased gross margin.
The factors contributing to the increase in other operating expenses included the following:
|
|
|
Corporate overhead increased approximately $420,000 due to the allocation of the
unconsummated acquisition costs and the higher costs previously discussed. |
|
|
|
The higher level of capital investment and adjusted property assessments by various
jurisdictions caused increased property taxes of $311,000. |
|
|
|
Rent and utility expenses increased by $176,000 and $52,000, respectively, as a result
of ESNG occupying new office facilities in January of 2008. |
|
|
|
Incentive compensation costs increased by $98,000 as a result of the improved operating
results in 2008. |
|
|
|
Costs for corporate services increased approximately $97,000 as a result of increased
information technology spending to improve the infrastructure, including system performance
and disaster recovery. In addition, the Company increased its information technology
support. |
|
|
|
Other operating expenses relating to various items increased by approximately $77,000. |
|
|
|
The Company experienced a decrease of $316,000 in pipeline integrity costs, compared to
those which the Company incurred in 2007 to comply with federal pipeline integrity
regulations, issued in May 2004. |
|
|
|
Depreciation expense and regulatory expense decreased by $110,000 and $136,000,
respectively, in 2008 as a result of the 2007 rate case. As part of the rate case
settlement that became effective September 1, 2007, the FERC approved a reduction in
depreciation rates for ESNG. The impact of the lower depreciation rates was partially
offset by the additional depreciation expense from higher plant balances produced by
capital investments in 2007 and 2008. Also, the Company incurred regulatory expenses in the
first nine months of 2007 associated with the FERC rate proceeding. |
Natural Gas Distribution
Gross margin for the Companys natural gas distribution operations increased by $2.0 million, or
five percent, for 2008 compared to 2007. Of the $2.0 million increase, $1.8 million was produced by
the Delmarva natural gas distribution operations and $200,000 by the Florida natural gas
distribution operations.
Contributing to the Delmarva distribution operations increase of $1.8 million, or seven percent,
in gross margin, were the following factors:
|
|
|
The average number of residential customers on the Delmarva Peninsula increased by
2,085, or five percent, for 2008, and the Company estimates that these additional
residential customers contributed approximately $850,000 to gross margin in 2008. The
Company continues to see a slowdown in the new housing market as a result of unfavorable
market conditions. |
|
|
|
Growth in commercial and industrial customers contributed $473,000 and $89,000,
respectively, to gross margin in 2008. |
|
|
|
Interruptible services revenue, net of required margin-sharing, increased by $307,000 as
customers took advantage of lower natural gas prices compared to prices for alternative
fuels. |
|
|
|
The Company estimates that weather contributed $122,000 to gross margin, despite
temperatures on the Delmarva Peninsula being two percent warmer in 2008. This amount
differs from the $141,000 reduction of
gross margin that the Company had expected from the warmer weather as a result of the month
in which the heating degree day variance occurred. |
Page 38 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
Partially offsetting these increases to gross margin was the negative impact of lower
consumption per customer in 2008 compared to 2007. The Company estimates that lower
consumption per customer reduced gross margin by $118,000. The lower consumption reflects
customer conservation efforts in light of higher energy costs, more energy-efficient
housing, and current economic conditions. |
|
|
|
The remaining $77,000 net increase to gross margin was attributable to various other
items. |
Gross margin for the Florida distribution operation increased by $200,000, or two percent, in 2008
compared to 2007. The higher gross margin for the period was attributable primarily to a
one-percent growth in residential customers, an increase in non-residential customer volumes, and
higher revenues from third-party natural gas marketers.
Other operating expenses for the natural gas distribution operations increased by $909,000 in 2008
compared to 2007. Among the key components producing this net increase were the following:
|
|
|
Corporate overhead increased approximately $777,000 due to the allocation of the
unconsummated acquisition costs and the higher costs previously discussed. |
|
|
|
Costs for corporate services increased approximately $420,000 as a result of increased
information technology spending to improve the infrastructure, including system performance
and disaster recovery. In addition, the Company increased its information technology
support. |
|
|
|
Property taxes increased by $298,000 as a result of the Companys continued capital
investments. |
|
|
|
Incentive compensation increased by $225,000 as the Delmarva and Florida operations
experienced improved earnings compared to the prior year. |
|
|
|
Costs relating to outside services, such as legal fees and consulting costs, increased
by $208,000 to support several new projects. |
|
|
|
Payroll and benefits costs for the Delmarva operations increased by $187,000 and
$97,000, respectively, from annual salary increases, as compared to the previous year. |
|
|
|
Regulatory expenses increased by $126,000 as the natural gas distribution operations
incurred costs associated with regulatory filings with their respective PSCs. |
|
|
|
Vehicle fuel and depreciation expense increased by $68,000 and $57,000, respectively,
compared to the prior year as a result of rising costs of gasoline and diesel fuel, and
higher depreciation rates for vehicles. |
|
|
|
Depreciation expense and asset removal costs decreased by $114,000 and $1.3 million,
respectively, primarily as a result of the Delmarva operations rate proceedings, which
provided for lower depreciation allowances and lower asset removal cost allowances. |
|
|
|
Maintenance costs for the Florida operation decreased by $66,000, compared to 2007, when
larger expenditures were required to comply with federal pipeline integrity regulations. |
|
|
|
Merchant payment fees decreased by $79,000, which resulted primarily from the Delmarva
operations outsourcing the processing of credit card payments in April 2007. |
|
|
|
In addition, other operating expenses relating to various other items increased by
approximately $5,000. |
Natural Gas Marketing
Gross margin for the natural gas marketing operation increased by $1.5 million, or 91 percent, for
2008 compared to 2007. The increase in gross margin was due to enhanced sales contract terms,
margins on spot sales of approximately $600,000 and a 26-percent growth in its customer base. The
increased customer base contributed to a 41-percent increase in volumes sold in 2008. Other
operating expenses increased by $264,000, which was attributable to higher incentive compensation
incurred as a result of the improved operating results and increases in the allowance for
uncollectible accounts that normally accompany customer growth; these expenses were offset slightly
by lower payroll-related and benefit costs.
Chesapeake Utilities Corporation 2008 Form 10-K Page 39
Managements Discussion and Analysis
2007 Compared to 2006
Gross margin for the Companys natural gas segment increased by $7.2 million, or 14 percent, and
other operating expenses increased by $4.5 million, or 14 percent, for 2007 compared to 2006. Of
the total gross margin increase of $7.2 million, $3.9 million was generated by the natural gas
transmission operation and $3.5 million was generated by the natural gas distribution operations.
These increases were partially offset by a lower gross margin of $207,000 for the natural gas
marketing operation, as further explained below.
Natural Gas Transmission
The natural gas transmission operation achieved gross margin growth of $3.9 million, or 22 percent,
in 2007 compared to 2006. Of the $3.9 million increase, $3.3 million was attributable to
transportation capacity contracts implemented in November 2006 and 2007. In addition, the
implementation of rate case settlement rates, effective September 1, 2007, contributed an
additional $563,000 to gross margin in 2007. The remaining $43,000 increase to gross margin in 2007
is attributable to other factors, such as higher interruptible sales. An increase of $2.3 million
in other operating expenses partially offset the increased gross margin. The factors contributing
to the increase in other operating expenses were as follows:
|
|
|
Payroll and benefit costs increased by $282,000 and $90,000, respectively, as the
operation increased staff to support compliance with new federal pipeline integrity
regulations and to serve the additional growth. The new pipeline integrity regulations
require the Company to assess at least 50 percent of the covered segments by December 17,
2007. |
|
|
|
ESNG also incurred an additional $385,000 of third-party costs to comply with the new
federal pipeline integrity regulations previously discussed. |
|
|
|
The increased level of capital investment caused higher depreciation and asset removal
costs of $371,000 and increased property taxes of $188,000. |
|
|
|
Corporate costs increased by $568,000 as the Company updated its annual corporate cost
allocations based on a methodology accepted by the FERC. |
|
|
|
The increase in operating expenses for 2007 was magnified by the FERCs authorization,
in July 2006, to defer certain pre-service costs of ESNGs Energylink Expansion Project
(E3 Project), allowing the Company to treat such costs as a regulatory asset. The
deferral of these costs resulted in the reduction of $190,000 in other operating expenses
in 2006 for expenses incurred in 2005. Please refer to the Rates and Other Regulatory
Activities section of Note O, Other Commitments and Contingencies, in the Notes to the
Consolidated Financial Statements further information on the E3 Project. |
|
|
|
Other operating expenses relating to various items increased collectively by
approximately $226,000. |
Natural Gas Distribution
Gross margin for the Companys natural gas distribution operations increased by $3.5 million, or
eleven percent, for 2007 compared to 2006. The gross margin increases for the Delmarva and Florida
natural gas distribution operations are further explained below.
The Delmarva distribution operations experienced an increase in gross margin of $3.4 million, or 16
percent. The significant items contributing to the increase in gross margin included the following:
|
|
|
Continued residential customer growth contributed to the increase in gross margin. The
average number of residential customers on the Delmarva Peninsula increased by 2,950, or
seven percent, for 2007 compared to 2006, and the Company estimates that these additional
residential customers contributed approximately $1.2 million to gross margin. |
|
|
|
Rate increases for both the Delaware and Maryland divisions generated an additional
$848,000 in gross margin in 2007 compared to 2006. In October 2006, the Maryland PSC
granted the Company a base rate increase, which resulted in a $693,000 period-over-period
increase to gross margin in 2007. The Delaware division
received approval from the Delaware Public Service Commission (Delaware PSC) to implement
temporary rates, subject to refund, which contributed an additional $155,000 to gross margin
in 2007. |
|
|
|
The Company estimates that weather contributed $819,000 to gross margin in 2007 compared
to 2006, as temperatures on the Delmarva Peninsula were 15 percent colder in 2007. This
amount differs from the $1.1 million of additional gross margin that the Company had
expected the colder weather to contribute as a result of the month in which the heating
degree day variance occurred. |
Page 40 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
The colder temperatures did not have a significant impact on the Maryland distribution
operations gross margin in 2007, because the operations approved rate structure included
a weather normalization adjustment mechanism. The weather normalization adjustment,
implemented in October 2006, was designed to reduce excessive revenue swings caused by
weather that is warmer or colder than normal. |
|
|
|
Growth in commercial and industrial customers contributed $224,000 and $102,000,
respectively, to gross margin in 2007. |
|
|
|
Increased sales volumes to interruptible customers contributed $224,000 to gross margin
in 2007. |
|
|
|
The remaining $31,000 increase in gross margin can be attributed to various other
factors. |
Gross margin for the Florida distribution operation increased by $88,000, or one percent, in 2007
compared to 2006. The higher gross margin, which resulted from an increase in residential
customers, was partially offset by lower volumes sold to industrial customers. The operation
experienced a five-percent growth in residential customers in 2007 compared to 2006, which provided
for an additional $142,000 in gross margin. The Florida distribution operation also experienced a
slowdown in the housing market in 2007.
Other operating expenses for the natural gas distribution operations increased by $2.0 million in
2007 compared to 2006. Among the key components of the increase were the following:
|
|
|
Payroll costs increased by $110,000 as vacant positions in 2006 were filled in 2007 and
new positions were added to serve the growth experienced by the operations. |
|
|
|
Health care costs increased by $177,000 as a result of additional personnel and a higher
cost of claims. |
|
|
|
Incentive compensation increased by $229,000 in 2007 as the Delmarva operations
experienced improved earnings and increased staffing levels. |
|
|
|
Depreciation and amortization expense, asset removal cost and property taxes increased
by $316,000, $121,000 and $156,000, respectively, as a result of continued capital
investments. |
|
|
|
The Florida distribution operation experienced increased expense of $227,000 in 2007 to
maintain compliance with the new federal pipeline integrity regulations. |
|
|
|
Sales and advertising costs increased by $129,000 in 2007, primarily to promote energy
conservation and customer awareness of the availability of natural gas service. |
|
|
|
Regulatory expenses increased by $113,000 as the Delaware and Maryland operations began
expensing costs associated with their respective rate cases. |
|
|
|
The allowance for uncollectible accounts increased by $183,000 in 2007 due to increased
revenues resulting from customer growth and colder temperatures. |
|
|
|
Merchant payment fees decreased by $116,000 as the Companys Delmarva operation
outsourced the processing of credit card payments in April 2007. |
|
|
|
Other operating expenses relating to various other items increased by approximately
$355,000. |
Natural Gas Marketing
Gross margin for the natural gas marketing operation decreased by $207,000, or 11 percent, for 2007
compared to 2006. The decline in gross margin was primarily the result of increases in natural gas
supply costs that PESCO was contractually unable to pass through to its customers. In addition, a
shift in the market prevented PESCO from selling as much of its available capacity in 2007 as was
sold during 2006. Other operating expenses for the marketing operation
increased by $258,000 due primarily to increases in payroll and benefit costs, allowance for
uncollectible accounts and corporate overhead costs, which were partially offset by lower expenses
for consulting services.
Chesapeake Utilities Corporation 2008 Form 10-K Page 41
Managements Discussion and Analysis
Propane
The propane segment earned operating income of $1.6 million for 2008, $4.5 million for 2007, and
$2.5 million for 2006, resulting in a decrease of $2.9 million, or 65 percent for 2008, and an
increase of $2.0 million, or 78 percent for 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
65,877 |
|
|
$ |
62,838 |
|
|
$ |
3,039 |
|
|
$ |
62,838 |
|
|
$ |
48,576 |
|
|
$ |
14,262 |
|
Cost of sales |
|
|
46,066 |
|
|
|
41,038 |
|
|
|
5,028 |
|
|
|
41,038 |
|
|
|
30,780 |
|
|
|
10,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
19,811 |
|
|
|
21,800 |
|
|
|
(1,989 |
) |
|
|
21,800 |
|
|
|
17,796 |
|
|
|
4,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations & maintenance |
|
|
15,111 |
|
|
|
14,594 |
|
|
|
517 |
|
|
|
14,594 |
|
|
|
12,823 |
|
|
|
1,771 |
|
Unconsummated acquisition costs |
|
|
254 |
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization |
|
|
2,024 |
|
|
|
1,842 |
|
|
|
182 |
|
|
|
1,842 |
|
|
|
1,659 |
|
|
|
183 |
|
Other taxes |
|
|
836 |
|
|
|
866 |
|
|
|
(30 |
) |
|
|
866 |
|
|
|
780 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses |
|
|
18,225 |
|
|
|
17,302 |
|
|
|
923 |
|
|
|
17,302 |
|
|
|
15,262 |
|
|
|
2,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Income |
|
$ |
1,586 |
|
|
$ |
4,498 |
|
|
$ |
(2,912 |
) |
|
$ |
4,498 |
|
|
$ |
2,534 |
|
|
$ |
1,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Propane Heating Degree-Day (HDD) Analysis Delmarva
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
Heating degree-days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
4,431 |
|
|
|
4,504 |
|
|
|
(73 |
) |
|
|
4,504 |
|
|
|
3,931 |
|
|
|
573 |
|
10-year average |
|
|
4,401 |
|
|
|
4,376 |
|
|
|
25 |
|
|
|
4,376 |
|
|
|
4,372 |
|
|
|
4 |
|
|
Estimated gross margin per HDD |
|
$ |
2,465 |
|
|
$ |
1,974 |
|
|
$ |
491 |
|
|
$ |
1,974 |
|
|
$ |
1,743 |
|
|
$ |
231 |
|
2008 Compared to 2007
The period-over-period decrease in operating income was due primarily to the Delmarva propane
distribution operation, which experienced a lower gross margin from inventory write-downs and
marking-to-market its swap agreement, warmer weather on the Delmarva Peninsula, and lower sales
volumes.
The gross margin decrease of $3.1 million for the Delmarva propane distribution operations was
partially offset by higher gross margin of $181,000 for the Florida propane distribution operations
and $901,000 for the propane wholesale and marketing operation, as further explained below:
Delmarva Propane Distribution
The Delmarva propane distribution operations decrease in gross margin of $3.1 million resulted
from the following:
|
|
|
Gross margin decreased by $1.1 million in 2008, compared to 2007, primarily because of a
$0.04 decrease in the average gross margin per retail gallon attributable to inventory
write-downs of approximately $800,000 during 2008 in response to market prices below the
Companys inventory price per gallon. This trend reverses when market prices of propane
exceed the Companys average inventory price per gallon. |
|
|
|
Wholesale propane prices rose dramatically during the spring months of 2008, when they
are traditionally falling. In efforts to protect the Company from the impact that
additional price increases would have on our Pro-Cap (propane price cap) Plan that we offer
to customers, the propane distribution operation entered into a swap agreement. By the end
of the period, the market price of propane had plummeted well below the unit price in the
swap agreement. As a result, the Company marked the agreement relating to the January 2009
and February
2009 gallons to market, which increased cost of sales by $939,000 in 2008. In January 2009,
the Company terminated this swap agreement. |
|
|
|
Non-weather-related volumes sold in 2008 decreased by 1.2 million gallons, or five
percent. This decrease in gallons sold reduced gross margin by approximately $867,000 for
the Delmarva propane distribution operation. Factors contributing to this decrease in
gallons sold included customer conservation and the timing of propane deliveries. |
Page 42 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
Margins per gallon on the Pro-Cap plan for the last four months of 2008 recovered to
prior years levels with the exception of $113,000, despite the Company realizing a charge
to cost of sales of $494,000 as the December gallons related to this plan were valued at
current market prices. |
|
|
|
Temperatures on the Delmarva Peninsula were two percent warmer in 2008 compared to 2007,
which contributed to a decrease of 248,000 gallons sold, or one percent. The Company
estimates that the warmer weather and decreased volumes sold had a negative impact of
approximately $180,000 on gross margin for the Delmarva propane distribution operation. |
|
|
|
Gross margin from miscellaneous fees, including items such as tank and meter rentals and
marketing pricing programs, increased by $271,000. |
|
|
|
The remaining $172,000 net decrease in gross margin can be attributed to various other
items. |
Total other operating expenses increased by $503,000 for the Delmarva propane operations in 2008,
compared to 2007. The significant items contributing to this increase are explained below:
|
|
|
Corporate overhead increased
by approximately $380,000 due to the allocation of the
unconsummated acquisition costs and the higher costs previously discussed. |
|
|
|
Vehicle fuel and maintenance costs increased by $235,000 as a result of higher gasoline
and diesel fuel costs and continued maintenance of our delivery vehicles. |
|
|
|
Costs for corporate services
increased by approximately $120,000 as a result of increased
information technology spending to improve the infrastructure, including system performance
and disaster recovery. In addition, the Company increased its information technology
support. |
|
|
|
Mains fees increased by $81,000 in 2008, compared to 2007, as a result of added
Community Gas Systems (CGS) customers. This expenditure will continue to increase as more
CGS customers are added. |
|
|
|
Depreciation and amortization expense increased by $81,000 as a result of an increase in
the Companys capital investments compared to the prior year. |
|
|
|
The allowance for uncollectible accounts increased by $65,000 due to increased revenues. |
|
|
|
Incentive compensation decreased by $387,000 as a result of the lower operating results
in 2008. |
|
|
|
Lower expenses of $199,000 were incurred in 2008 for propane tank recertifications and
maintenance as the Company incurred these costs in 2007 to maintain compliance with DOT
standards, which require propane tanks or cylinders to be recertified twelve years from
their date of manufacture and every five years thereafter. |
|
|
|
Other operating expenses relating to various items increased by approximately $127,000. |
Florida Propane Distribution
The Florida propane distribution operation experienced an increase in gross margin of $181,000, or
15 percent, in 2008 compared to 2007. The higher gross margin resulted from increases of four
percent and ten percent in the number of gallons sold to residential and commercial customers,
respectively, combined with a higher average gross margin per retail gallon. Other operating
expenses increased by $163,000 in 2008, compared to 2007, due primarily to increases in
depreciation expense and the allowance for uncollectible accounts.
Propane Wholesale and Marketing
Gross margin for the Companys propane wholesale marketing operation increased by $901,000, or 38
percent, in 2008 compared to 2007. This increase reflects the operation capitalizing on a larger
number of market opportunities that arose in 2008 due to price volatility in the propane wholesale
market. This volatility created an opportunity for the operation to
capture larger price-spreads between sales contracts and purchase contracts in addition to larger
spreads between the market (spot) prices and forward propane prices. The increase in gross margin
was partially offset by higher other operating expenses of $257,000, due primarily to higher
incentive compensation associated with increased earnings and increased corporate costs associated
with updating our annual corporate cost allocations.
Chesapeake Utilities Corporation 2008 Form 10-K Page 43
Managements Discussion and Analysis
2007 Compared to 2006
Operating income for the propane segment increased by $2.0 million to $4.5 million for 2007
compared to 2006. Gross margin in the Delmarva propane distribution operations increased by $3.2
million, compared to 2006, due primarily to increases in the average retail margin per gallon and
colder weather on the Delmarva Peninsula. Gross margin also increased in the Florida propane
distribution operation and the Companys wholesale propane marketing operation by $100,000 and
$677,000, respectively.
Delmarva Propane Distribution
The Delmarva propane distribution operations increase in gross margin of $3.2 million, or 22
percent, resulted from the following:
|
|
|
Gross margin increased by $1.1 million in 2007, compared to 2006, because of a $0.05
increase in the average gross margin per retail gallon. This increase occurs when market
prices of propane exceed the Companys average inventory price per gallon and reverses when
market prices move closer to the Companys average inventory price per gallon. Propane
gross margin is also affected by changes in the Companys pricing of sales to its
customers. |
|
|
|
Temperatures on the Delmarva Peninsula were 15 percent colder in 2007 compared to 2006,
which contributed to the increase of 1.7 million retail gallons, or nine percent, sold
during 2007. The Company estimates that the colder weather and increased volumes sold
contributed $1.1 million to gross margin for the Delmarva propane distribution operation in
2007 compared to 2006. |
|
|
|
Non-weather related retail volumes sold in 2007 increased by 1.0 million gallons, or six
percent. This increase in gallons sold contributed approximately $665,000 to gross margin
for the Delmarva propane distribution operation compared to 2006. Contributing to the
increase of gallons sold was the continued growth in the average number of CGS customers,
which increased by 972 to a total count of 5,330, or a 22-percent increase, compared to
2006. |
|
|
|
Wholesale volumes sold in 2007 increased by 2.9 million gallons, or 70 percent, which
contributed approximately $119,000 to gross margin for the Delmarva propane distribution
operation. |
|
|
|
The remaining $216,000 increase in gross margin can be attributed to various other
factors, including higher service sales and service fees. |
Total other operating expenses increased by $1.5 million for the Delmarva propane operations in
2007, compared to the same period in 2006. The significant items contributing to this increase
were:
|
|
|
Increased operating expenses for 2007 were magnified by the Companys one-time recovery
in 2006 of previously incurred costs of $387,000 from one of its propane suppliers in 2006.
This recovery reimbursed the Company for fixed costs incurred in the removal of
above-normal levels of petroleum by-products contained in approximately 75,000 gallons of
propane that it purchased from the supplier. The recovery of these costs reduced other
operating expenses in the first nine months of 2006. |
|
|
|
Incentive compensation increased by $361,000 as a result of the improved operating
results in 2007. |
|
|
|
Health care costs increased by $119,000 as the Company experienced a higher cost of
claims during the year. |
|
|
|
The operation incurred an additional $233,000 expense for propane tank recertifications
and maintenance to maintain compliance with DOT standards, which require propane tanks or
cylinders to be recertified twelve years from their date of manufacture and every five
years thereafter. |
|
|
|
Mains fees increased by $100,000 as a result of new CGS customers. |
|
|
|
Depreciation and amortization expense increased by $107,000 as a result of increased
capital investments. |
|
|
|
In addition, other operating expenses relating to various items increased by
approximately $193,000. |
Florida Propane Distribution
The Florida propane distribution operation experienced an increase in gross margin of $100,000, or
nine percent, in 2007 compared to 2006, primarily because of an increase in the average gross
margin per retail gallon and higher service margins. Other operating expenses in 2007, compared to
2006, increased by $223,000, primarily due to increases in payroll costs, insurance and
depreciation expense.
Page 44 Chesapeake Utilities Corporation 2008 Form 10-K
Propane Wholesale and Marketing
Gross margin for the Companys propane wholesale marketing operation increased by $677,000, or 40
percent, in 2007 compared to 2006. This increase reflects the larger number of market opportunities
that arose in 2007, due to price volatility in the propane wholesale market, which exceeded the
level of price fluctuations experienced in 2006. The increase in gross margin was partially offset
by higher other operating expenses of $318,000, due primarily to higher incentive compensation
based on the increased earnings in 2007.
Advanced Information Services
The advanced information services segment provides domestic and international clients with
information-technology-related business services and solutions for both enterprise and e-business
applications. The advanced information services business contributed operating income of $695,000
for 2008, $836,000 for 2007, and $767,000 for 2006 resulting in a decrease of $141,000, or 17
percent for 2008, and an increase of $69,000, or nine percent for 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
14,720 |
|
|
$ |
15,099 |
|
|
$ |
(379 |
) |
|
$ |
15,099 |
|
|
$ |
12,568 |
|
|
$ |
2,531 |
|
Cost of sales |
|
|
8,033 |
|
|
|
8,260 |
|
|
|
(227 |
) |
|
|
8,260 |
|
|
|
7,082 |
|
|
|
1,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
6,687 |
|
|
|
6,839 |
|
|
|
(152 |
) |
|
|
6,839 |
|
|
|
5,486 |
|
|
|
1,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations & maintenance |
|
|
5,091 |
|
|
|
5,225 |
|
|
|
(134 |
) |
|
|
5,225 |
|
|
|
4,119 |
|
|
|
1,106 |
|
Unconsummated acquisition costs |
|
|
60 |
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization |
|
|
175 |
|
|
|
144 |
|
|
|
31 |
|
|
|
144 |
|
|
|
113 |
|
|
|
31 |
|
Other taxes |
|
|
666 |
|
|
|
634 |
|
|
|
32 |
|
|
|
634 |
|
|
|
487 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses |
|
|
5,992 |
|
|
|
6,003 |
|
|
|
(11 |
) |
|
|
6,003 |
|
|
|
4,719 |
|
|
|
1,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Income |
|
$ |
695 |
|
|
$ |
836 |
|
|
$ |
(141 |
) |
|
$ |
836 |
|
|
$ |
767 |
|
|
$ |
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Compared to 2007
Gross margin for the advanced information services business declined by approximately $152,000, or
two percent, and contributed operating income of $695,000 for 2008, a decrease of $141,000, or 17
percent, compared to 2007.
The period-over-period decrease in gross margin was attributable to a decrease of $610,000 in
consulting revenues as higher average billing rates were not able to overcome a nine-percent
decrease in the number of billable hours. The reduction in the number of billable hours is a result
of current economic conditions in which information technology spending has broadly declined. The
decrease in consulting revenues was partially offset with increased product sales and training
revenues of $403,000 and $47,000, respectively. Given the current economic climate, BravePoint
does not expect customers information technology spending to return to historical levels in the
foreseeable future.
Other operating expenses remained relatively unchanged in 2008 compared to the prior year. Absent
the unconsummated acquisition costs of $60,000 allocated to the advanced information services
segment, other operating expenses in 2008 would have been $71,000, a difference of one percent.
2007 Compared to 2006
The advanced information services business experienced gross margin growth of approximately $1.4
million, or 25 percent, and contributed operating income of $836,000 for 2007, an increase of
$69,000, or nine percent, compared to 2006.
Chesapeake Utilities Corporation 2008 Form 10-K Page 45
Managements Discussion and Analysis
The period-over-period increase of gross margin resulted primarily from the following:
|
|
|
A strong demand for the segments consulting services in 2007 generated an increase of
$1.9 million in consulting revenues as the number of billable hours increased by 15
percent; and |
|
|
|
An increase of $276,000 from Managed Database Administration services, which provide
clients with professional database monitoring and support solutions during business hours
or around the clock. |
Other operating expenses increased by $1.3 million to $6.0 million in 2007, compared to $4.7
million for 2006. This increase in operating expenses in 2007 was attributable to the following:
|
|
|
Payroll, incentive compensation and commissions, payroll taxes, benefit claims, and
consulting expense accounted for $937,000 of the increase. These costs increased as a
result of improved earnings and increased staffing levels to support the growth and
customer demand experienced in 2007. |
|
|
|
An increase in the allowance for uncollectible accounts of $223,000 associated with a
customer in the mortgage-lending business that filed for bankruptcy in the third quarter of
2007. |
|
|
|
In addition, other operating expenses relating to various minor items increased by
approximately $140,000. |
Other Operations and Eliminations
Other operations consist primarily of subsidiaries that own real estate leased to other Company
subsidiaries. Eliminations are entries required to eliminate activities between business segments
from the consolidated results. Other operations and eliminating entries contributed operating
income of $352,000 for 2008, $295,000 for 2007, and $298,000 for 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
652 |
|
|
$ |
622 |
|
|
$ |
30 |
|
|
$ |
622 |
|
|
$ |
618 |
|
|
$ |
4 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
652 |
|
|
|
622 |
|
|
|
30 |
|
|
|
622 |
|
|
|
618 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations & maintenance |
|
|
116 |
|
|
|
109 |
|
|
|
7 |
|
|
|
109 |
|
|
|
96 |
|
|
|
13 |
|
Unconsummated acquisition costs |
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization |
|
|
114 |
|
|
|
160 |
|
|
|
(46 |
) |
|
|
160 |
|
|
|
163 |
|
|
|
(3 |
) |
Other taxes |
|
|
62 |
|
|
|
62 |
|
|
|
|
|
|
|
62 |
|
|
|
65 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses |
|
|
304 |
|
|
|
331 |
|
|
|
(27 |
) |
|
|
331 |
|
|
|
324 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income Other |
|
|
348 |
|
|
|
291 |
|
|
|
57 |
|
|
|
291 |
|
|
|
294 |
|
|
|
(3 |
) |
Operating Income Eliminations |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Income |
|
$ |
352 |
|
|
|
295 |
|
|
$ |
57 |
|
|
$ |
295 |
|
|
|
298 |
|
|
$ |
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
Other income for the years 2008, 2007, and 2006, respectively, was $103,000, $291,000, and
$189,000, which include interest income, late fees charged to customers and gains or losses from
the sale of assets.
Interest Expense
Total interest expense for 2008 decreased by approximately $432,000, or seven percent, compared to
2007. The lower interest expense is primarily the result of the following:
|
|
|
Interest on long-term debt decreased by $263,000 in 2008 compared to 2007 as the Company
reduced its average long-term debt balance and its weighted average interest rate. The
Companys average long-term debt balance during 2008 was $76.2 million, with a weighted
average interest rate of 6.40 percent, compared to $76.5 million, with a weighted average
interest rate of 6.71 percent, for the same period in 2007. |
|
|
|
Other interest charges
decreased by $127,000 as higher amounts of interest capitalized
were partially offset by interest accrued on pending customer refunds. |
Page 46 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
Interest on short-term borrowings decreased by $42,000 in 2008 compared to 2007, as the
weighted average interest rate was nearly 2.7 percentage points lower in 2008 offsetting a
$17.7 million increase in the Companys average short-term borrowing balance. The Companys
average short-term borrowing during 2008 was $38.3 million, with a weighted average
interest rate of 2.79 percent, compared to $20.6 million, with a weighted average interest
rate of 5.46 percent, for 2007. |
Total interest expense for 2007 increased approximately $816,000, or 14 percent, compared to 2006.
The higher interest expense was a result of the following developments:
|
|
|
As a result of fewer capital projects in 2007 compared to 2006, the Company capitalized
$469,000 less interest on debt in 2007 associated with ongoing capital projects. |
|
|
|
The Companys average long-term debt balance during 2007 was $76.5 million, with a
weighted average interest rate of 6.71 percent, compared to $67.2 million, with a weighted
average interest rate of 6.98 percent, for 2006. The large year-over-year increase in the
average long-term debt balance was the result of a debt placement of $20 million in Senior
Notes at 5.5 percent in October 2006 with three institutional investors (The Prudential
Insurance Company of America, Prudential Retirement Insurance and Annuity Company and
United Omaha Life Insurance Company). |
|
|
|
The average short-term borrowing balance in 2007 decreased by $6.3 million to $20.6
million compared to an average balance of $26.9 million in 2006. The weighted average
interest rates for short-term borrowing of 5.46 percent for 2007 and 5.47 percent for 2006
had minimum impact on the change in short-term borrowing expense. |
Income Taxes
Income tax expense was $8.8 million for 2008, $8.6 million for 2007, and $7.0 million for 2006. The
increases in income tax expense reflect the increased taxable income in each period. The effective
federal income tax rate for each of the three years 2008, 2007, and 2006 was 35 percent, and the
Company realized a benefit of $235,000, $226,000, and $220,000 in those years, respectively,
relating to tax deductions for dividends paid on Company stock held in the Employee Stock Ownership
Plan.
Discontinued Operations
During 2007, Chesapeake decided to close its distributed energy services subsidiary, OnSight, which
had experienced operating losses since its inception in 2004. OnSight was previously reported as
part of the Companys Other Business segment. The results of operations for OnSight have been
reclassified to discontinued operations and shown net of tax for all periods presented. The
discontinued operations experienced a net loss of $20,000 for 2007, compared to a net loss of
$241,000 for 2006. The Company did not have any discontinued operations in 2008.
Liquidity and Capital Resources
Chesapeakes capital requirements reflect the capital-intensive nature of its business and are
principally attributable to investment in new plant and equipment and retirement of outstanding
debt. The Company relies on cash generated from operations, short-term borrowing, and other sources
to meet normal working capital requirements and to finance capital expenditures. During 2008, net
cash provided by operating activities was $28.5 million, cash used by investing activities was
$31.2 million, and cash provided by financing activities was $1.7 million.
During 2007, net cash provided by operating activities was $25.7 million, cash used by investing
activities was $31.3 million, and cash provided by financing activities was $3.7 million.
Chesapeake Utilities Corporation 2008 Form 10-K Page 47
Managements Discussion and Analysis
On December 11, 2008, the Board of Directors authorized the Company to borrow up to $65.0 million
of short-term debt, as required, from various banks and trust companies under short-term lines of
credit. As of December 31, 2008, Chesapeake had five unsecured bank lines of credit with three
financial institutions, for a total of $100.0 million, none of which requires compensating
balances. These bank lines are available to provide funds for the Companys short-term cash needs
to meet seasonal working capital requirements and to fund temporarily portions of its capital
expenditures. In response to the instability and volatility of the financial markets during 2008,
the Company solidified its lines of credit by converting $40.0 million of available credit under
uncommitted lines to committed lines of credit. At December 31, 2008, two of the bank lines,
totaling $55.0 million, are committed. Advances offered under the uncommitted lines of credit are
subject to the discretion of the banks. The outstanding balance of short-term borrowing at December
31, 2008 and 2007 was $33.0 million and $45.7 million, respectively. The level of short-term debt
was reduced in 2008 with funds provided from the placement of $30 million of 5.93 percent Unsecured
Senior Notes in October 2008.
Chesapeake has budgeted $34.8 million for capital expenditures during 2009. This amount includes
$21.6 million for natural gas distribution, $8.8 million for natural gas transmission, $3.6 million
for propane distribution and wholesale marketing, $250,000 for advanced information services and
$507,000 for other operations. The natural gas distribution and transmission expenditures are for
expansion and improvement of facilities. The propane expenditures are to support customer growth
and to replace equipment. The advanced information services expenditures are for computer hardware,
software and related equipment. The other category includes general plant, computer software and
hardware. The Company expects to fund the 2009 capital expenditures program from short-term
borrowing, cash provided by operating activities, and other sources. The capital expenditure
program 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.
Capital Structure
The following presents our capitalization as of December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2008 |
|
|
2007 |
|
|
|
(In thousands, except percentages) |
|
Long-term debt, net of current maturities |
|
$ |
86,422 |
|
|
|
41 |
% |
|
$ |
63,256 |
|
|
|
35 |
% |
Stockholders equity |
|
$ |
123,073 |
|
|
|
59 |
% |
|
$ |
119,576 |
|
|
|
65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization, excluding short-term debt |
|
$ |
209,495 |
|
|
|
100 |
% |
|
$ |
182,832 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, common equity represented 59 percent of total capitalization, compared to
65 percent at December 31, 2007.
The following presents our capitalization as of December 31, 2008 and 2007, if short-term borrowing
and the current portion of long-term debt were included in capitalization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2008 |
|
|
2007 |
|
|
|
(In thousands, except percentages) |
|
Short-term debt |
|
$ |
33,000 |
|
|
|
13 |
% |
|
$ |
45,664 |
|
|
|
19 |
% |
Long-term debt, including current maturities |
|
$ |
93,079 |
|
|
|
38 |
% |
|
$ |
70,912 |
|
|
|
30 |
% |
Stockholders equity |
|
$ |
123,073 |
|
|
|
49 |
% |
|
$ |
119,576 |
|
|
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization, including short-term debt |
|
$ |
249,152 |
|
|
|
100 |
% |
|
$ |
236,152 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
If short-term borrowing and the current portion of long-term debt were included in capitalization,
total capitalization increased by $13.0 million in 2008. The increased capitalization was primarily
used to fund a portion of the $30.8 million of property, plant, and equipment added in 2008 and for
other general working capital. In addition, if short-term borrowing and the current portion of
long-term debt were included in total capitalization, the equity component of the Companys
capitalization would have been 49 percent at December 31, 2008, compared to 51 percent at December
31, 2007.
Page 48 Chesapeake Utilities Corporation 2008 Form 10-K
Chesapeake remains committed to maintaining a sound capital structure and strong credit ratings to
provide the financial flexibility needed to access capital markets when required. This commitment,
along with adequate and timely rate relief for the Companys regulated operations, is intended to
ensure that Chesapeake will be able to attract capital from outside sources at a reasonable cost.
The Company believes that the achievement of these objectives will provide benefits to customers
and creditors, as well as its investors.
Shelf Registration
In July 2006, the Company filed a registration statement on Form S-3 with the SEC to issue up to
$40.0 million in new common stock and/or debt securities. The registration statement was declared
effective by the SEC in November 2006. In November 2006, we sold 690,345 shares of common stock,
which included the underwriters exercise of an over-allotment option of 90,045 shares, under this
registration statement, generating net proceeds of $19.7 million. The net proceeds from the sale
were used for general corporate purposes, including financing of capital expenditures, repayment of
short-term debt, and funding working capital requirements. At December 31, 2008 and 2007, the
Company had approximately $20.0 million remaining under this registration statement.
In December 2008, the Company filed a registration statement on Form S-3 with the SEC relating to
the registration of 631,756 shares of our common stock under our Dividend Reinvestment and Direct
Stock Purchase Plan (the Plan). The registration statement was declared effective by the SEC in
January 2009 and replaces the prior registration in place for the Plan that had previously expired.
Cash Flows Provided by Operating Activities
Our
cash flows provided by (used in) operating activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
13,607,259 |
|
|
$ |
13,197,710 |
|
|
$ |
10,506,525 |
|
Non-cash adjustments to net income |
|
|
23,024,317 |
|
|
|
15,723,829 |
|
|
|
11,386,670 |
|
Changes in assets and liabilities |
|
|
(8,089,187 |
) |
|
|
(3,239,655 |
) |
|
|
8,255,699 |
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities |
|
$ |
28,542,389 |
|
|
$ |
25,681,884 |
|
|
$ |
30,148,894 |
|
|
|
|
|
|
|
|
|
|
|
Period-over-period changes in our cash flows from operating activities are attributable primarily
to changes in net income, depreciation, deferred taxes and working capital. Changes in working
capital are determined by a variety of factors, including weather, the prices of natural gas and
propane, the timing of customer collections, payments of natural gas and propane purchases, and
deferred gas cost recoveries.
The Company generates a large portion of its annual net income and subsequent increases in our
accounts receivable in the first and fourth quarters of each year due to significant volumes of
natural gas and propane delivered by our natural gas and propane distribution operations to
customers during the peak heating season. In addition, our natural gas and propane inventories,
which usually peak in the fall months, are largely drawn down in the heating season and provide a
source of cash as the inventory is used to satisfy winter sales demand.
Cash Flows From Operating Activities
In 2008, our net cash flow provided by operating activities was $28.5 million, an increase of $2.9
million compared to 2007. The increase was due primarily to the following:
|
|
|
Net cash flows from changes in accounts receivable and accounts payable were primarily
due to the timing of collections and payments of trading contracts entered into by the
Companys propane wholesale and marketing operation; |
|
|
|
Timing of payments for the purchase of propane inventory, natural gas purchases injected
into storage, and the relative decline in the unit price of these commodities; |
|
|
|
Reduction in regulatory liabilities, which resulted primarily from lower deferred gas
cost recoveries in our natural gas distribution operations as the price of natural gas
declined in the second half of 2008; |
Chesapeake Utilities Corporation 2008 Form 10-K Page 49
Managements Discussion and Analysis
|
|
|
Reduced payments for income taxes payable as a result of higher tax deductions provided
by the 2008 Economic Stimulus Act; and |
|
|
|
Cash flows provided by non-cash adjustments for deferred income taxes. The increase in
deferred income taxes is the result of higher book-to-tax timing differences during the
period that were generated by the Economic Stimulus Act, which authorized bonus
depreciation for certain assets. |
In 2007, net cash flow provided by operating activities was $25.7 million, a decrease of $4.4
million from 2006. The 2007 operating cash flows reflect the favorable timing of payments for
accounts payable and accrued liabilities, which increased operating cash flow by $22.1 million. In
addition, increased net income and favorable non-cash adjustments, primarily depreciation expense,
contributed to the increase in operating cash flow. Partially offsetting these increases in
operating cash flow was an increase in accounts receivable of $28.2 million associated with
increased revenues and the timing of invoicing by our propane wholesale and marketing operation.
Cash Flows Used in Investing Activities
Net cash flows used in investing activities totaled $31.2 million, $31.3 million, and $48.9 million
during fiscal years 2008, 2007, and 2006, respectively.
|
|
|
Cash utilized for capital expenditures was $30.8 million, $31.3 million, and $48.9
million for 2008, 2007, and 2006, respectively. Additions to property, plant and equipment
in 2008 were primarily for natural gas transmission ($10.5 million), natural gas
distribution ($15.1 million), propane distribution ($3.1 million), advanced information
services ($672,000) and other operations ($1.4 million). In both 2008 and 2007, the natural
gas distribution expenditures were used primarily to fund expansion and facilities
improvements; in both periods, the natural gas transmission capital expenditures related
primarily to expanding the Companys transmission system. |
|
|
|
The Companys environmental expenditures exceeded amounts recovered through rates
charged to customers in 2008, 2007 and 2006 by $480,000, $228,000 and $16,000,
respectively. |
|
|
|
Sales of property, plant, and equipment generated $205,000 of cash in 2007. |
Cash Flows Provided by Financing Activities
Cash flows provided by financing activities totaled $1.7 million during 2008, $3.7 million during
2007, and $20.7 million during 2006. Significant financing activities included the following:
|
|
|
In October 2008, the Company completed the placement of $30.0 million of 5.93 percent
Unsecured Senior Notes; in October 2006, the Company also completed the placement of $20.0
million of 5.5 percent Unsecured Senior Notes. |
|
|
|
During 2008 and 2006, the Company reduced its short-term debt by $12.0 million and $8.0
million, respectively. During 2007, net borrowing of short-term debt increased by $18.7
million, primarily to support our capital investments. |
|
|
|
The Company repaid $7.7 million of long-term debt during 2008 and 2007, compared with
$4.9 million during 2006. |
|
|
|
During 2008, the Company paid $8.0 million in cash dividends, compared with dividend
payments of $7.0 million in 2007, and $6.0 million for 2006. The increase in dividends paid
in 2008 compared to 2007 reflects the growth in the annualized dividend rate from $1.18 per
share in 2007 to $1.22 per share in 2008. The dividends paid in 2007, compared to 2006
reflects both growth in the annualized dividend rate, from $1.16 per
share during 2006 to $1.18 per share during 2007, and the increase in shares outstanding
following the issuance of additional shares of common stock in the fourth quarter of 2006. |
Page 50 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
In November 2006, the Company sold 690,345 shares of common stock, which included the
underwriters exercise of an over-allotment option of 90,045 shares, pursuant to a shelf
registration statement declared effective in November 2006, generating net proceeds of
$19.7 million. |
|
|
|
In August 2006, the Company paid cash of $435,000, in lieu of issuing shares of the
Companys common stock, for the 30,000 stock warrants outstanding at December 31, 2005. |
Contractual Obligations
We have the following contractual obligations and other commercial commitments as of December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
More than 5 |
|
|
|
|
Contractual Obligations |
|
year |
|
|
1
3 years |
|
|
3
5 years |
|
|
years |
|
|
Total |
|
Long-term debt (1) |
|
$ |
6,656,364 |
|
|
$ |
14,403,636 |
|
|
$ |
13,454,545 |
|
|
$ |
58,564,091 |
|
|
$ |
93,078,636 |
|
Operating leases (2) |
|
|
770,329 |
|
|
|
1,217,087 |
|
|
|
929,756 |
|
|
|
2,446,248 |
|
|
|
5,363,420 |
|
Purchase obligations (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission capacity |
|
|
8,881,750 |
|
|
|
22,168,145 |
|
|
|
10,162,156 |
|
|
|
48,665,180 |
|
|
|
89,877,231 |
|
Storage Natural Gas |
|
|
1,507,998 |
|
|
|
4,145,743 |
|
|
|
2,719,878 |
|
|
|
1,707,063 |
|
|
|
10,080,682 |
|
Commodities |
|
|
31,597,588 |
|
|
|
57,545 |
|
|
|
|
|
|
|
|
|
|
|
31,655,133 |
|
Forward purchase contracts Propane (4) |
|
|
10,181,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,181,630 |
|
Unfunded benefits (5) |
|
|
336,637 |
|
|
|
1,392,409 |
|
|
|
659,454 |
|
|
|
1,810,947 |
|
|
|
4,199,447 |
|
Funded benefits (6) |
|
|
519,319 |
|
|
|
120,615 |
|
|
|
60,308 |
|
|
|
1,396,143 |
|
|
|
2,096,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
60,451,615 |
|
|
$ |
43,505,180 |
|
|
$ |
27,986,097 |
|
|
$ |
114,589,672 |
|
|
$ |
246,532,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Principal payments on long-term debt, see Note H, Long-Term Debt, in the Notes to
the Consolidated Financial Statements for additional discussion of this item. The expected interest
payments on long-term debt are $5.7 million, $10.0 million, $8.0 million and $13.1 million,
respectively, for the periods indicated above. Expected interest payments for all periods total
$36.8 million. |
|
(2) |
|
See Note J, Lease Obligations, in the Notes to the Consolidated Financial
Statements for additional discussion of this item. |
|
(3) |
|
See Note N, Other Commitments and Contingencies, in the Notes to the Consolidated
Financial Statements for further information. |
|
(4) |
|
The Company has also entered into forward sale contracts. See Market Risk of
the Managements Discussion and Analysis for further information. |
|
(5) |
|
The Company has recorded long-term liabilities of $4.6 million at December 31, 2008
for unfunded post-retirement benefit plans. The amounts specified in the table are based on
expected payments to current retirees and assumes a retirement age of 62 for currently active
employees. There are many factors that would cause actual payments to differ from these amounts,
including early retirement, future health care costs that differ from past experience and discount
rates implicit in calculations. |
|
(6) |
|
The Company has recorded long-term liabilities of $6.5 million at December 31, 2008
for funded benefits. These liabilities have been funded using a Rabbi Trust and an asset in the
same amount is recorded under Investments on the Balance Sheet. The defined benefit pension plan
was closed to new participants on January 1, 1999 and participants in the plan on that date were
given the option to leave the plan. See Note K, Employee Benefit Plans, in the Notes to the
Consolidated Financial Statements for further information on the plan. The Company expects to
contribute $450,000 to the plan in 2009. Additional contributions may be required based on the
actual return earned by the plan assets and other actuarial assumptions, such as the discount rate
and long-term expected rate of return on plan assets. |
Off-Balance Sheet Arrangements
The Company has issued corporate guarantees to certain vendors of its subsidiaries, primarily its
propane wholesale marketing subsidiary and its natural gas supply management subsidiary. These
corporate guarantees provide for the payment of propane and natural gas purchases in the event of
the respective subsidiarys default. None of these subsidiaries has ever defaulted on its
obligations to pay its suppliers. The liabilities for these purchases are recorded in the
Consolidated Financial Statements when incurred. The aggregate amount guaranteed at December 31,
2008 was $22.2 million, with the guarantees expiring on various dates in 2009.
Chesapeake Utilities Corporation 2008 Form 10-K Page 51
Managements Discussion and Analysis
In addition to the corporate guarantees, the Company has issued a letter of credit to its primary
insurance company for $775,000, which expires on May 31, 2009. The letter of credit is provided as
security to satisfy the deductibles under the Companys various insurance policies. There have been
no draws on this letter of credit as of December 31, 2008.
Rate Filings and Other Regulatory Activities
The Companys natural gas distribution operations in Delaware, Maryland and Florida are subject to
regulation by their respective PSC; ESNG is subject to regulation by the FERC. At December 31,
2008, Chesapeake was involved in rate filings and/or regulatory matters in each of the
jurisdictions in which it operates. Each of these rate filings or regulatory matters is fully
described in Note O, Other Commitments and Contingencies, to the Consolidated Financial
Statements.
Environmental Matters
The Company continues to work with federal and state environmental agencies to assess the
environmental impact and explore corrective action at three environmental sites (see Note N to the
Consolidated Financial Statements). The Company believes that future costs associated with these
sites will be recoverable in rates or through sharing arrangements with, or contributions by, other
responsible parties.
Market Risk
Market risk represents the potential loss arising from adverse changes in market rates and prices.
Long-term debt is subject to potential losses based on changes in interest rates. The Companys
long-term debt consists of fixed-rate senior notes and convertible debentures (see Note I to the
Consolidated Financial Statements for annual maturities of consolidated long-term debt). All of the
Companys long-term debt is fixed-rate debt and was not entered into for trading purposes. The
carrying value of long-term debt, including current maturities, was $93.1 million at December 31,
2008, as compared to a fair value of $92.3 million, based on a discounted cash flow methodology
that incorporates a market interest rate that is based on published corporate borrowing rates for
debt instruments with similar terms and average maturities with adjustments for duration,
optionality, and risk profile. The Company evaluates whether to refinance existing debt or
permanently refinance existing short-term borrowing, based in part on the fluctuation in interest
rates.
The Companys propane distribution business is exposed to market risk as a result of propane
storage activities and entering into fixed price contracts for supply. The Company can store up to
approximately four million gallons (including leased storage and rail cars) of propane during the
winter season to meet its customers peak requirements and to serve metered customers. Decreases in
the wholesale price of propane may cause the value of stored propane to decline. To mitigate the
impact of price fluctuations, the Company has adopted a Risk Management Policy that allows the
propane distribution operation to enter into fair value hedges of its inventory. At December 31,
2008, the propane distribution operation had entered into a swap agreement to protect the Company
from the impact of price increases on the Pro-Cap Plan that we offer to customers. The Company
considered this agreement to be an economic hedge that did not qualify for hedge accounting as
described in SFAS No. 133. At the end of 2008, the market price of propane, valued using broker or
dealer quotations, or market transactions in either the listed or OTC markets, dropped below the
unit price in the swap agreement. As a result of the price drop, the Company marked the January and
February gallons in the agreement to market, which resulted in an increase to cost of sales of
$939,000. The Company subsequently terminated the swap agreement in January 2009. The Company did
not enter into a similar agreement in 2007.
The Companys propane wholesale marketing operation is a party to natural gas liquids forward
contracts, primarily propane contracts, with various third parties. These contracts require that
the propane wholesale marketing operation purchase or sell natural gas liquids at a fixed price at
fixed future dates. At expiration, the contracts are settled by the delivery of natural gas liquids
to the Company or the counter-party or booking out the transaction. Booking out is a procedure
for financially settling a contract in lieu of the physical delivery of energy. The propane
wholesale marketing operation also enters into futures contracts that are traded on the New York
Mercantile Exchange. In certain cases, the futures contracts are settled by the payment or receipt
of a net amount equal to the difference between the current market
price of the futures contract and the original contract price; however, they may also be settled by
physical receipt or delivery of propane.
Page 52 Chesapeake Utilities Corporation 2008 Form 10-K
The forward and futures contracts are entered into for trading and wholesale marketing purposes.
The propane wholesale marketing business is subject to commodity price risk on its open positions
to the extent that market prices for natural gas liquids deviate from fixed contract settlement
prices. Market risk associated with the trading of futures and forward contracts is monitored daily
for compliance with the Companys Risk Management Policy, which includes volumetric limits for open
positions. To manage exposures to changing market prices, open positions are marked up or down to
market prices and reviewed by the Companys oversight officials daily. In addition, the Risk
Management Committee reviews periodic reports on markets and the credit risk of counter-parties,
approves any exceptions to the Risk Management Policy (within limits established by the Board of
Directors) and authorizes the use of any new types of contracts. Quantitative information on
forward and futures contracts at December 31, 2008 and 2007 is presented in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity in |
|
|
Estimated Market |
|
Weighted Average |
|
At December 31, 2008 |
|
gallons |
|
|
Prices |
|
Contract Prices |
|
Forward Contracts |
|
|
|
|
|
|
|
|
|
|
Sale |
|
|
10,626,000 |
|
|
$0.5450 $1.9100 |
|
$ |
0.9984 |
|
Purchase |
|
|
9,949,800 |
|
|
$0.7000 $1.9600 |
|
$ |
1.0233 |
|
Estimated market prices and weighted average contract prices are in
dollars per gallon. All contracts expire the first quarter of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity in |
|
|
Estimated Market |
|
Weighted Average |
|
At December 31, 2007 |
|
gallons |
|
|
Prices |
|
Contract Prices |
|
Forward Contracts |
|
|
|
|
|
|
|
|
|
|
Sale |
|
|
30,941,400 |
|
|
$0.8925 $1.6025 |
|
$ |
1.3555 |
|
Purchase |
|
|
30,954,000 |
|
|
$0.8700 $1.6000 |
|
$ |
1.3498 |
|
Estimated market prices and weighted average contract prices are in
dollars per gallon. All contracts expire in 2008.
At December 31, 2008 and 2007, the Company marked these forward contracts to market, using broker
or dealer quotations, or market transactions in either the listed or OTC markets, which resulted in
the following assets and liabilities:
|
|
|
|
|
|
|
|
|
December
31, |
|
2008 |
|
|
2007 |
|
(in thousands) |
|
|
|
|
|
|
|
|
Marked-to-market energy assets |
|
$ |
4,482 |
|
|
$ |
7,812 |
|
Marked-to-market energy liabilities |
|
$ |
3,052 |
|
|
$ |
7,739 |
|
The Companys natural gas distribution and marketing operations have entered into agreements with
natural gas suppliers to purchase natural gas for resale to their customers. Purchases under these
contracts either do not meet the definition of derivatives in SFAS No. 133 or are considered
normal purchases and sales under SFAS No. 138 and are not marked to market.
Chesapeake Utilities Corporation 2008 Form 10-K Page 53
Managements Discussion and Analysis
Competition
The Companys natural gas operations compete with other forms of energy including electricity, oil
and propane. The principal competitive factors are price and, to a lesser extent, accessibility.
The Companys natural gas distribution operations have several large-volume industrial customers
that can use fuel oil as an alternative to natural gas. When oil prices decline, these
interruptible customers may convert to oil to satisfy their fuel requirements, and our
interruptible sales volumes may decline because oil prices are lower than the price of natural gas.
Oil prices, as well as the prices of electricity and other fuels, fluctuate for a variety of
reasons; therefore, future competitive conditions are not predictable. To address this uncertainty,
the Company uses flexible pricing arrangements on both the supply and sales sides of this business
to compete with alternative fuel price fluctuations. As a result of the transmission operations
conversion to open access and the Florida gas distribution divisions restructuring of its
services, these businesses have shifted from providing bundled transportation and sales service to
providing only transportation and contract storage services.
The Companys natural gas distribution operations in Delaware, Maryland and Florida offer unbundled
transportation services to certain commercial and industrial customers. In 2002, the Florida
operation extended such service to residential customers. With such transportation service
available on the Companys distribution systems, the Company is competing with third-party
suppliers to sell gas to industrial customers. With respect to unbundled transportation services,
the Companys competitors include interstate transmission companies, if the distribution customers
are located close enough to a transmission companys pipeline to make connections economically
feasible. The customers at risk are usually large volume commercial and industrial customers with
the financial resources and capability to bypass the Companys distribution operations in this
manner. In certain situations, the Companys distribution operations may adjust services and rates
for these customers to retain their business. The Company expects to continue to expand the
availability of unbundled transportation service to additional classes of distribution customers in
the future. The Company has also established a natural gas sales and supply management operation in
Florida, Delaware and Maryland to provide such service to customers eligible for unbundled
transportation services.
The Companys propane distribution operations compete with several other propane distributors in
their respective geographic markets, primarily on the basis of service and price, emphasizing
responsive and reliable service. Our competitors generally include local outlets of national
distributors and local independent distributors, whose proximity to customers entails lower costs
to provide service. Propane competes with electricity as an energy source, because it is typically
less expensive than electricity, based on equivalent BTU value. Propane also competes with home
heating oil as an energy source. Since natural gas has historically been less expensive than
propane, propane is generally not distributed in geographic areas served by natural gas pipeline or
distribution systems.
The propane wholesale marketing operation competes against various regional and national marketers,
many of which have significantly greater resources and are able to obtain price or volumetric
advantages.
The advanced information services business faces significant competition from a number of larger
competitors having substantially greater resources available to them than does the Company. In
addition, changes in the advanced information services business are occurring rapidly, and could
adversely affect the markets for the products and services offered by these businesses. This
segment competes on the basis of technological expertise, reputation and price.
Inflation
Inflation affects the cost of supply, labor, products and services required for operations,
maintenance and capital improvements. While the impact of inflation has remained low in recent
years, natural gas and propane prices are subject to rapid fluctuations. In the Companys regulated
natural gas distribution operations, fluctuations in natural gas prices are passed on to customers
through the gas cost recovery mechanism in the Companys tariffs. To help cope with the effects of
inflation on its capital investments and returns, the Company seeks rate relief from regulatory
commissions for its regulated operations and closely monitors the returns of its unregulated
business operations. To compensate for fluctuations in propane gas prices, the Company adjusts its
propane selling prices to the extent allowed by the market.
Page 54 Chesapeake Utilities Corporation 2008 Form 10-K
Cautionary Statement
Chesapeake Utilities Corporation has made statements in this Form 10-K that are considered to be
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are not matters of historical fact and are typically identified by words
such as, but not limited to, believes, expects, intends, plans, and similar expressions, or
future or conditional verbs such as may, will, should, would, and could. These statements
relate to matters such as customer growth, changes in revenues or gross margins, capital
expenditures, environmental remediation costs, regulatory trends and decisions, market risks
associated with our propane operations, the competitive position of the Company, inflation, and
other matters. It is important to understand that these forward-looking statements are not
guarantees; rather, they are subject to certain risks, uncertainties and other important factors
that could cause actual results to differ materially from those in the forward-looking statements.
Such factors include, but are not limited to:
|
|
|
the temperature sensitivity of the natural gas and propane businesses; |
|
|
|
the effects of spot, forward, futures market prices, and the Companys use of derivative
instruments on the Companys distribution, wholesale marketing and energy trading
businesses; |
|
|
|
the amount and availability of natural gas and propane supplies; |
|
|
|
the access to interstate pipelines transportation and storage capacity and the
construction of new facilities to support future growth; |
|
|
|
the effects of natural gas and propane commodity price changes on the operating costs
and competitive positions of our natural gas and propane distribution operations; |
|
|
|
the impact that declining propane prices may have on the valuation of our propane
inventory; |
|
|
|
third-party competition for the Companys unregulated and regulated businesses; |
|
|
|
changes in federal, state or local regulation and tax requirements, including
deregulation; |
|
|
|
changes in technology affecting the Companys advanced information services segment; |
|
|
|
changes in credit risk and credit requirements affecting the Companys energy marketing
subsidiaries; |
|
|
|
the effects of accounting changes; |
|
|
|
changes in benefit plan assumptions, return on plan assets, and funding requirements; |
|
|
|
cost of compliance with environmental regulations or the remediation of environmental
damage; |
|
|
|
the effects of general economic conditions, including interest rates, on the Company and
its customers; |
|
|
|
the impact of the volatility in the financial and credit markets on the Companys
ability to access credit; |
|
|
|
the ability of the Companys new and planned facilities and acquisitions to generate
expected revenues; |
|
|
|
the ability of the Company to construct facilities at or below estimated costs; |
|
|
|
the Companys ability to obtain the rate relief and cost recovery requested from utility
regulators and the timing of the requested regulatory actions; |
|
|
|
the Companys ability to obtain necessary approvals and permits from regulatory agencies
on a timely basis; |
|
|
|
the impact of inflation on the results of operations, cash flows, financial position and
on the Companys planned capital expenditures; |
|
|
|
inability to access the financial markets to a degree that may impair future growth; and |
|
|
|
operating and litigation risks that may not be covered by insurance. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 55
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information concerning quantitative and qualitative disclosure about market risk is included in
Item 7 under the heading Managements Discussion and Analysis Market Risk.
Item 8. Financial Statements and Supplementary Data.
Managements Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f). A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the companys assets that could have a material effect on the financial
statements.
Under the supervision and with the participation of management, including the principal executive
officer and principal financial officer, Chesapeakes management conducted an evaluation of the
effectiveness of its internal control over financial reporting based on the criteria established in
a report entitled Internal Control Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Chesapeakes management has evaluated and concluded that Chesapeakes
internal control over financial reporting was effective as of December 31, 2008.
Page 56 Chesapeake Utilities Corporation 2008 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Chesapeake Utilities Corporation
We have audited the accompanying consolidated balance sheets of Chesapeake Utilities Corporation as
of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders
equity, cash flows and income taxes for the years then ended. Chesapeake Utilities Corporations
management is responsible for these consolidated financial statements. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Chesapeake Utilities Corporation and subsidiaries as
of December 31, 2008 and 2007, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in the United States
of America.
We also have audited the adjustments to the 2006 consolidated financial statements to
retrospectively reflect the discontinued operations described in Note B. In our opinion, such
adjustments were appropriate and have been properly applied. We were not engaged to audit, review,
or apply any procedures to the 2006 consolidated financial statements of Chesapeake Utilities
Corporation other than with respect to the adjustments and, accordingly, we do not express an
opinion or any other form of assurance on the 2006 consolidated financial statements taken as a
whole.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Chesapeake Utilities Corporations internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 9, 2009 expressed an unqualified opinion.
/s/ Beard Miller Company LLP
Beard Miller Company LLP
Reading, Pennsylvania
March 9, 2009
Chesapeake Utilities Corporation 2008 Form 10-K Page 57
Consolidated Statements of Income
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Chesapeake Utilities Corporation
In our opinion, the consolidated statements of income, cash flows, stockholders equity and income
taxes for the year ended December 31, 2006, before the effects of the adjustments to
retrospectively reflect the discontinued operations described in Note B, present fairly, in all
material respects, the results of operations and cash flows of Chesapeake Utilities Corporation and
its subsidiaries for the year ended December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America (the 2006 financial statements before the
effects of the adjustments discussed in Note B are not presented herein). In addition, in our
opinion, the financial statement schedule for the year ended December 31, 2006, presents fairly, in
all material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements before the effects of the adjustments described above. These
financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements and financial
statement schedule based on our audit. We conducted our audit, before the effects of the
adjustments described above, of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note L to the consolidated financial statements, the Company changed the manner in
which it accounts for defined benefit pension and other postretirement plans, effective December
31, 2006.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively
reflect the discontinued operations described in Note B and accordingly, we do not express an
opinion or any other form of assurance about whether such adjustments are appropriate and have been
properly applied. Those adjustments were audited by other auditors.
|
|
|
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
|
|
|
Boston, MA |
|
|
March 13, 2007 |
|
|
The accompanying notes are an integral part of the financial statements.
Page 58 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
291,443,477 |
|
|
$ |
258,286,495 |
|
|
$ |
231,199,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding costs below |
|
|
200,643,518 |
|
|
|
170,848,211 |
|
|
|
155,809,747 |
|
Operations |
|
|
43,475,794 |
|
|
|
42,242,218 |
|
|
|
36,612,683 |
|
Unconsummated acquisition costs |
|
|
1,152,844 |
|
|
|
|
|
|
|
|
|
Maintenance |
|
|
2,215,123 |
|
|
|
2,235,605 |
|
|
|
2,161,177 |
|
Depreciation and
amortization |
|
|
9,004,911 |
|
|
|
9,060,185 |
|
|
|
8,243,715 |
|
Other taxes |
|
|
6,472,353 |
|
|
|
5,786,694 |
|
|
|
5,040,306 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
262,964,543 |
|
|
|
230,172,913 |
|
|
|
207,867,628 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
28,478,934 |
|
|
|
28,113,582 |
|
|
|
23,331,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net of other expenses |
|
|
103,039 |
|
|
|
291,305 |
|
|
|
189,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest charges |
|
|
6,157,552 |
|
|
|
6,589,639 |
|
|
|
5,773,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income
Taxes |
|
|
22,424,421 |
|
|
|
21,815,248 |
|
|
|
17,747,037 |
|
Income taxes |
|
|
8,817,162 |
|
|
|
8,597,461 |
|
|
|
6,999,072 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
13,607,259 |
|
|
|
13,217,787 |
|
|
|
10,747,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of
tax benefit of $0,$10,898
and $162,510 |
|
|
|
|
|
|
(20,077 |
) |
|
|
(241,440 |
) |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
13,607,259 |
|
|
$ |
13,197,710 |
|
|
$ |
10,506,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
6,811,848 |
|
|
|
6,743,041 |
|
|
|
6,032,462 |
|
Diluted |
|
|
6,927,483 |
|
|
|
6,854,716 |
|
|
|
6,155,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share of Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing
operations |
|
$ |
2.00 |
|
|
$ |
1.96 |
|
|
$ |
1.78 |
|
From
discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
2.00 |
|
|
$ |
1.96 |
|
|
$ |
1.74 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing
operations |
|
$ |
1.98 |
|
|
$ |
1.94 |
|
|
$ |
1.76 |
|
From
discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1.98 |
|
|
$ |
1.94 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends Declared Per Share of Common Stock: |
|
$ |
1.21 |
|
|
$ |
1.18 |
|
|
$ |
1.16 |
|
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2008 Form 10-K Page 59
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
13,607,259 |
|
|
$ |
13,197,710 |
|
|
$ |
10,506,525 |
|
Adjustments to reconcile net income to net operating cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,004,911 |
|
|
|
9,060,185 |
|
|
|
8,243,715 |
|
Depreciation and accretion included in other costs |
|
|
2,239,018 |
|
|
|
3,336,506 |
|
|
|
3,102,066 |
|
Deferred income taxes, net |
|
|
11,441,660 |
|
|
|
1,831,030 |
|
|
|
(408,533 |
) |
Gain on sale of assets |
|
|
|
|
|
|
(204,882 |
) |
|
|
|
|
Unrealized (gain) loss on commodity contracts |
|
|
(1,146,486 |
) |
|
|
(170,465 |
) |
|
|
37,110 |
|
Unrealized (gain) loss on investments |
|
|
509,084 |
|
|
|
(122,819 |
) |
|
|
(151,952 |
) |
Employee benefits and compensation |
|
|
151,910 |
|
|
|
1,004,273 |
|
|
|
(158,825 |
) |
Share based compensation |
|
|
820,175 |
|
|
|
989,945 |
|
|
|
709,789 |
|
Other, net |
|
|
4,045 |
|
|
|
56 |
|
|
|
13,300 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Sale (purchase) of investments |
|
|
(200,603 |
) |
|
|
229,125 |
|
|
|
(177,990 |
) |
Accounts receivable and accrued revenue |
|
|
19,410,552 |
|
|
|
(28,189,132 |
) |
|
|
9,705,860 |
|
Propane inventory, storage gas and other inventory |
|
|
(1,729,641 |
) |
|
|
1,193,336 |
|
|
|
354,764 |
|
Regulatory assets |
|
|
410,989 |
|
|
|
(344,680 |
) |
|
|
2,498,954 |
|
Prepaid expenses and other current assets |
|
|
(1,182,142 |
) |
|
|
(1,185,829 |
) |
|
|
(261,017 |
) |
Other deferred charges |
|
|
(153,005 |
) |
|
|
(2,477,879 |
) |
|
|
(231,822 |
) |
Long-term receivables |
|
|
207,324 |
|
|
|
83,653 |
|
|
|
137,101 |
|
Accounts payable and other accrued liabilities |
|
|
(15,139,134 |
) |
|
|
22,130,049 |
|
|
|
(11,434,370 |
) |
Income taxes receivable |
|
|
(6,155,239 |
) |
|
|
(158,556 |
) |
|
|
1,800,913 |
|
Accrued interest |
|
|
158,154 |
|
|
|
33,112 |
|
|
|
273,672 |
|
Customer deposits and refunds |
|
|
(502,479 |
) |
|
|
2,534,655 |
|
|
|
2,361,265 |
|
Accrued compensation |
|
|
(174,946 |
) |
|
|
946,099 |
|
|
|
(721,289 |
) |
Regulatory liabilities |
|
|
(3,107,401 |
) |
|
|
2,124,091 |
|
|
|
2,824,068 |
|
Other liabilities |
|
|
68,384 |
|
|
|
(157,699 |
) |
|
|
1,125,590 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
28,542,389 |
|
|
|
25,681,884 |
|
|
|
30,148,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment expenditures |
|
|
(30,755,845 |
) |
|
|
(31,277,390 |
) |
|
|
(48,845,828 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
204,882 |
|
|
|
|
|
Environmental expenditures |
|
|
(479,799 |
) |
|
|
(227,979 |
) |
|
|
(15,549 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(31,235,644 |
) |
|
|
(31,300,487 |
) |
|
|
(48,861,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
(7,956,843 |
) |
|
|
(7,029,821 |
) |
|
|
(5,982,531 |
) |
Issuance of stock for Dividend Reinvestment Plan |
|
|
28,541 |
|
|
|
299,436 |
|
|
|
321,865 |
|
Stock issuance |
|
|
|
|
|
|
|
|
|
|
19,698,509 |
|
Cash settlement of warrants |
|
|
|
|
|
|
|
|
|
|
(434,782 |
) |
Change in cash overdrafts due to outstanding checks |
|
|
(683,836 |
) |
|
|
(541,052 |
) |
|
|
49,047 |
|
Net borrowing (repayment) under line of credit agreements |
|
|
(11,980,108 |
) |
|
|
18,651,055 |
|
|
|
(7,977,347 |
) |
Proceeds from issuance of long-term debt |
|
|
29,960,518 |
|
|
|
|
|
|
|
19,968,104 |
|
Repayment of long-term debt |
|
|
(7,656,623 |
) |
|
|
(7,656,580 |
) |
|
|
(4,929,674 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,711,649 |
|
|
|
3,723,038 |
|
|
|
20,713,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
(981,606 |
) |
|
|
(1,895,565 |
) |
|
|
2,000,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents Beginning of Period |
|
|
2,592,801 |
|
|
|
4,488,366 |
|
|
|
2,487,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents End of Period |
|
$ |
1,611,195 |
|
|
$ |
2,592,801 |
|
|
$ |
4,488,366 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures (see Note D)
The accompanying notes are an integral part of the financial statements.
Page 60 Chesapeake Utilities Corporation 2008 Form 10-K
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
Assets |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment |
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
316,124,761 |
|
|
$ |
289,706,066 |
|
Propane |
|
|
51,827,293 |
|
|
|
48,506,231 |
|
Advanced information services |
|
|
1,439,390 |
|
|
|
1,157,808 |
|
Other plant |
|
|
10,815,345 |
|
|
|
8,567,833 |
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
380,206,789 |
|
|
|
347,937,938 |
|
|
Less: Accumulated depreciation and amortization |
|
|
(101,017,551 |
) |
|
|
(92,414,289 |
) |
Plus: Construction work in progress |
|
|
1,481,448 |
|
|
|
4,899,608 |
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
280,670,686 |
|
|
|
260,423,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
1,600,790 |
|
|
|
1,909,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,611,195 |
|
|
|
2,592,801 |
|
Accounts receivable (less
allowance for uncollectible
accounts of $1,159,014 and
$952,074, respectively) |
|
|
52,905,447 |
|
|
|
72,218,191 |
|
Accrued revenue |
|
|
5,167,666 |
|
|
|
5,265,474 |
|
Propane inventory, at average cost |
|
|
5,710,673 |
|
|
|
7,629,295 |
|
Other inventory, at average cost |
|
|
1,479,249 |
|
|
|
1,280,506 |
|
Regulatory assets |
|
|
826,009 |
|
|
|
1,575,072 |
|
Storage gas prepayments |
|
|
9,491,690 |
|
|
|
6,042,169 |
|
Income taxes receivable |
|
|
7,442,921 |
|
|
|
1,237,438 |
|
Deferred income taxes |
|
|
1,577,805 |
|
|
|
2,155,393 |
|
Prepaid expenses |
|
|
4,679,368 |
|
|
|
3,496,517 |
|
Mark-to-market energy assets |
|
|
4,482,473 |
|
|
|
7,812,456 |
|
Other current assets |
|
|
146,820 |
|
|
|
146,253 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
95,521,316 |
|
|
|
111,451,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Charges and Other Assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
674,451 |
|
|
|
674,451 |
|
Other intangible assets, net |
|
|
164,268 |
|
|
|
178,073 |
|
Long-term receivables |
|
|
533,356 |
|
|
|
740,680 |
|
Regulatory assets |
|
|
2,806,195 |
|
|
|
2,539,235 |
|
Other deferred charges |
|
|
3,823,448 |
|
|
|
3,640,480 |
|
|
|
|
|
|
|
|
|
Total deferred charges and other assets |
|
|
8,001,718 |
|
|
|
7,772,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
385,794,510 |
|
|
$ |
381,557,012 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2008 Form 10-K Page 61
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
Capitalization and Liabilities |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Capitalization |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common Stock, par value $0.4867 per share
(authorized 12,000,000 shares) |
|
$ |
3,322,668 |
|
|
$ |
3,298,473 |
|
Additional paid-in capital |
|
|
66,680,696 |
|
|
|
65,591,552 |
|
Retained earnings |
|
|
56,817,921 |
|
|
|
51,538,194 |
|
Accumulated other comprehensive loss |
|
|
(3,748,093 |
) |
|
|
(851,674 |
) |
Deferred compensation obligation |
|
|
1,548,507 |
|
|
|
1,403,922 |
|
Treasury stock |
|
|
(1,548,507 |
) |
|
|
(1,403,922 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
123,073,192 |
|
|
|
119,576,545 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities |
|
|
86,422,273 |
|
|
|
63,255,636 |
|
|
|
|
|
|
|
|
|
Total capitalization |
|
|
209,495,465 |
|
|
|
182,832,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
6,656,364 |
|
|
|
7,656,364 |
|
Short-term borrowing |
|
|
33,000,000 |
|
|
|
45,663,944 |
|
Accounts payable |
|
|
40,202,280 |
|
|
|
54,893,071 |
|
Customer deposits and refunds |
|
|
9,534,441 |
|
|
|
10,036,920 |
|
Accrued interest |
|
|
1,023,658 |
|
|
|
865,504 |
|
Dividends payable |
|
|
2,082,267 |
|
|
|
1,999,343 |
|
Accrued compensation |
|
|
3,304,736 |
|
|
|
3,400,112 |
|
Regulatory liabilities |
|
|
3,227,337 |
|
|
|
6,300,766 |
|
Mark-to-market energy liabilities |
|
|
3,052,440 |
|
|
|
7,739,261 |
|
Other accrued liabilities |
|
|
2,967,905 |
|
|
|
2,500,542 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
105,051,428 |
|
|
|
141,055,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
37,719,859 |
|
|
|
28,795,885 |
|
Deferred investment tax credits |
|
|
235,422 |
|
|
|
277,698 |
|
Regulatory liabilities |
|
|
875,106 |
|
|
|
1,136,071 |
|
Environmental liabilities |
|
|
511,223 |
|
|
|
835,143 |
|
Other pension and benefit costs |
|
|
7,335,116 |
|
|
|
2,513,030 |
|
Accrued asset removal cost |
|
|
20,641,279 |
|
|
|
20,249,948 |
|
Other liabilities |
|
|
3,929,612 |
|
|
|
3,861,229 |
|
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities |
|
|
71,247,617 |
|
|
|
57,669,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commitments and Contingencies (Note N) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization and Liabilities |
|
$ |
385,794,510 |
|
|
$ |
381,557,012 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
Page 62 Chesapeake Utilities Corporation 2008 Form 10-K
Consolidated Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
Deferred |
|
|
Treasury |
|
|
|
|
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Compensation |
|
|
Stock |
|
|
Total |
|
Balances at December 31, 2005 |
|
|
5,883,099 |
|
|
$ |
2,863,212 |
|
|
$ |
39,619,849 |
|
|
$ |
42,854,894 |
|
|
$ |
(578,151 |
) |
|
$ |
794,535 |
|
|
$ |
(797,156 |
) |
|
$ |
84,757,183 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,506,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,506,525 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability, net of tax (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,036 |
|
|
|
|
|
|
|
|
|
|
|
74,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,580,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply SFAS
No. 158, net of tax
(5) (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,565 |
|
|
|
|
|
|
|
|
|
|
|
169,565 |
|
Dividend Reinvestment Plan |
|
|
38,392 |
|
|
|
18,685 |
|
|
|
1,148,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,166,785 |
|
Retirement Savings Plan |
|
|
29,705 |
|
|
|
14,457 |
|
|
|
900,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
914,811 |
|
Conversion of debentures |
|
|
16,677 |
|
|
|
8,117 |
|
|
|
275,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283,417 |
|
Share based
compensation (2) (4) |
|
|
29,866 |
|
|
|
14,536 |
|
|
|
887,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
901,962 |
|
Stock warrants, net of tax |
|
|
|
|
|
|
|
|
|
|
(233,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(233,327 |
) |
Deferred Compensation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323,974 |
|
|
|
(323,974 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,572 |
) |
|
|
(51,572 |
) |
Sale and distribution of treasury stock |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,193 |
|
|
|
54,193 |
|
Stock issuance |
|
|
690,345 |
|
|
|
335,991 |
|
|
|
19,362,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,698,509 |
|
Cash
dividends
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,090,535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,090,535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006 |
|
|
6,688,084 |
|
|
|
3,254,998 |
|
|
|
61,960,220 |
|
|
|
46,270,884 |
|
|
|
(334,550 |
) |
|
|
1,118,509 |
|
|
|
(1,118,509 |
) |
|
|
111,151,552 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,197,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,197,710 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Benefit Plans, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of prior service costs
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,828 |
) |
|
|
|
|
|
|
|
|
|
|
(2,828 |
) |
Net loss (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(514,296 |
) |
|
|
|
|
|
|
|
|
|
|
(514,296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,680,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Reinvestment Plan |
|
|
35,333 |
|
|
|
17,197 |
|
|
|
1,121,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,138,387 |
|
Retirement Savings Plan |
|
|
29,563 |
|
|
|
14,388 |
|
|
|
934,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
948,683 |
|
Conversion of debentures |
|
|
8,106 |
|
|
|
3,945 |
|
|
|
133,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,784 |
|
Share based compensation (2) (4) |
|
|
16,324 |
|
|
|
7,945 |
|
|
|
1,442,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,449,953 |
|
Deferred Compensation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,413 |
|
|
|
(285,413 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
(971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,771 |
) |
|
|
(29,771 |
) |
Sale and distribution of treasury stock |
|
|
971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,771 |
|
|
|
29,771 |
|
Cash dividends (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,930,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,930,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007 |
|
|
6,777,410 |
|
|
|
3,298,473 |
|
|
|
65,591,552 |
|
|
|
51,538,194 |
|
|
|
(851,674 |
) |
|
|
1,403,922 |
|
|
|
(1,403,922 |
) |
|
|
119,576,545 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,607,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,607,259 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Benefit Plans, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,438 |
) |
|
|
|
|
|
|
|
|
|
|
(71,438 |
) |
Net loss(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,824,981 |
) |
|
|
|
|
|
|
|
|
|
|
(2,824,981 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,710,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Reinvestment Plan |
|
|
9,060 |
|
|
|
4,410 |
|
|
|
269,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
273,537 |
|
Retirement Savings Plan |
|
|
5,260 |
|
|
|
2,560 |
|
|
|
156,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,755 |
|
Conversion of debentures |
|
|
10,397 |
|
|
|
5,060 |
|
|
|
171,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,740 |
|
Share based compensation (2) (4) |
|
|
24,994 |
|
|
|
12,165 |
|
|
|
441,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
454,063 |
|
Tax benefit on stock warrants |
|
|
|
|
|
|
|
|
|
|
50,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,244 |
|
Deferred Compensation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,585 |
|
|
|
(144,585 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
(2,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,573 |
) |
|
|
(71,573 |
) |
Sale and distribution of treasury stock |
|
|
2,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,573 |
|
|
|
71,573 |
|
Dividends on stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,570 |
) |
Cash dividends (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,247,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,247,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008 |
|
|
6,827,121 |
|
|
$ |
3,322,668 |
|
|
$ |
66,680,696 |
|
|
$ |
56,817,921 |
|
|
$ |
(3,748,093 |
) |
|
$ |
1,548,507 |
|
|
$ |
(1,548,507 |
) |
|
$ |
123,073,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Tax expense recognized on the minimum pension liability adjustment for 2006 was $48,889. |
|
(2) |
|
Includes amounts for shares issued for Directors compensation. |
|
(3) |
|
Cash dividends per share for 2008, 2007 and 2006 were $1.22, $1.18 and
$1.16, respectively. |
|
(4) |
|
The shares issued under the PIP are net of shares withheld for employee taxes. For 2008, the Company withheld 12,511 shares for taxes, 2,420 shares for 2007 and 9,054
shares for 2006. |
|
(5) |
|
Tax expense (benefit) recognized on the prior service cost
component of employees benefit plans for 2008, 2007 and 2006 were ($51,841), ($1,871) and
$11,756, respectively. |
|
(6) |
|
Tax expense (benefit) recognized on the net gain (loss) component of
employees benefit plans for 2008, 2007 and 2006 were ($1.9 million), ($340,449) and $100,217,
respectively. |
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2008 Form 10-K Page 63
Consolidated Statements of Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Income Tax Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(2,551,138 |
) |
|
$ |
5,512,071 |
|
|
$ |
5,994,296 |
|
State |
|
|
|
|
|
|
1,223,145 |
|
|
|
1,424,485 |
|
Investment tax credit adjustments, net |
|
|
(42,276 |
) |
|
|
(50,579 |
) |
|
|
(54,816 |
) |
|
|
|
|
|
|
|
|
|
|
Total current income tax expense (benefit) |
|
|
(2,593,414 |
) |
|
|
6,684,637 |
|
|
|
7,363,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Tax Expense (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
10,347,035 |
|
|
|
2,958,758 |
|
|
|
1,697,024 |
|
Deferred gas costs |
|
|
781,635 |
|
|
|
(629,228 |
) |
|
|
(2,085,066 |
) |
Pensions and other employee benefits |
|
|
(174,365 |
) |
|
|
(9,154 |
) |
|
|
(97,436 |
) |
Environmental expenditures |
|
|
144,848 |
|
|
|
45,872 |
|
|
|
(5,580 |
) |
Other |
|
|
311,423 |
|
|
|
(464,322 |
) |
|
|
(36,345 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred income tax expense (benefit) |
|
|
11,410,576 |
|
|
|
1,901,926 |
|
|
|
(527,403 |
) |
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense |
|
$ |
8,817,162 |
|
|
$ |
8,586,563 |
|
|
$ |
6,836,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Effective Income Tax Rates |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax expense (2) |
|
$ |
7,862,760 |
|
|
$ |
7,635,336 |
|
|
$ |
6,212,237 |
|
State income taxes, net of federal benefit |
|
|
1,162,081 |
|
|
|
1,086,680 |
|
|
|
829,630 |
|
Other |
|
|
(207,679 |
) |
|
|
(124,555 |
) |
|
|
(42,795 |
) |
|
|
|
|
|
|
|
|
|
|
Total continuing operations |
|
|
8,817,162 |
|
|
|
8,597,461 |
|
|
|
6,999,072 |
|
Discontinued operations |
|
|
|
|
|
|
(10,898 |
) |
|
|
(162,510 |
) |
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
$ |
8,817,162 |
|
|
$ |
8,586,563 |
|
|
$ |
6,836,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
39.3 |
% |
|
|
39.4 |
% |
|
|
39.4 |
% |
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Deferred Income Taxes |
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
$ |
41,248,245 |
|
|
$ |
31,058,050 |
|
Environmental costs |
|
|
394,869 |
|
|
|
250,021 |
|
Other |
|
|
2,414,121 |
|
|
|
860,993 |
|
|
|
|
|
|
|
|
Total deferred income tax liabilities |
|
|
44,057,235 |
|
|
|
32,169,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Pension and other employee benefits |
|
|
4,679,075 |
|
|
|
2,581,853 |
|
Self insurance |
|
|
370,398 |
|
|
|
384,009 |
|
Deferred gas costs |
|
|
364,498 |
|
|
|
1,146,133 |
|
Other |
|
|
2,501,210 |
|
|
|
1,416,577 |
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
|
7,915,181 |
|
|
|
5,528,572 |
|
|
|
|
|
|
|
|
Deferred Income Taxes Per Consolidated Balance Sheet |
|
$ |
36,142,054 |
|
|
$ |
26,640,492 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $1,588,000,
$260,000 and ($60,000) of deferred state income taxes for the years
2008, 2007 and 2006, respectively. |
|
(2) |
|
Federal income taxes were recorded at 35% for each year represented. |
The accompanying notes are an integral part of the financial statements.
Page 64 Chesapeake Utilities Corporation 2008 Form 10-K
A. Summary of Accounting Policies
Nature of Business
Chesapeake is engaged in natural gas distribution to approximately 65,200 customers located in
central and southern Delaware, Marylands Eastern Shore and Florida. The Companys natural gas
transmission subsidiary operates an interstate pipeline from various points in Pennsylvania and
northern Delaware to the Companys Delaware and Maryland distribution divisions as well as to other
utility and industrial customers in Pennsylvania, Delaware and the Eastern Shore of Maryland. The
Companys natural gas marketing subsidiary sells natural gas supplies directly to commercial and
industrial customers in the States of Florida, Delaware and Maryland. The Companys propane
distribution and wholesale marketing segment provides distribution service to 35,200 customers in
Delaware, the Eastern Shore of Maryland, southeastern Pennsylvania, central Florida and the Eastern
Shore of Virginia and markets propane to wholesale customers including large independent oil and
petrochemical companies, resellers and propane distribution companies in the southeastern United
States. The advanced information services segment provides domestic and international clients with
information-technology-related business services and solutions for both enterprise and e-business
applications.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned
subsidiaries. The Company does not have any ownership interests in investments accounted for using
the equity method or any variable interests in a variable interest entity. All intercompany
transactions have been eliminated in consolidation.
System of Accounts
The natural gas distribution divisions of the Company located in Delaware, Maryland and Florida are
subject to regulation by their respective PSCs with respect to their rates for service, maintenance
of their accounting records and various other matters. ESNG is an open access pipeline and is
subject to regulation by the FERC. Our financial statements are prepared in accordance with GAAP,
which give appropriate recognition to the ratemaking and accounting practices and policies of the
various commissions. The propane, advanced information services and other business segments are not
subject to regulation with respect to rates or maintenance of accounting records.
Property, Plant, Equipment and Depreciation
Utility and non-utility property is stated at original cost. Costs include direct labor, materials
and third-party construction contractor costs, allowance for capitalized interest and certain
indirect costs related to equipment and employees engaged in construction. The costs of repairs and
minor replacements are charged against income as incurred, and the costs of major renewals and
betterments are capitalized. Upon retirement or disposition of non-utility property, the gain or
loss, net of salvage value, is charged to income. Upon retirement or disposition of utility
property, the gain or loss, net of salvage value, is charged to accumulated depreciation. The
provision for depreciation is computed using the straight-line method at rates that amortize the
unrecovered cost of depreciable property over the estimated remaining useful life of the asset.
Depreciation and amortization expenses are provided at an annual rate for each segment.
Chesapeake Utilities Corporation 2008 Form 10-K Page 65
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
|
Useful Life(1) |
Plant in service |
|
|
|
|
|
|
|
|
|
|
Mains |
|
$ |
184,124,950 |
|
|
$ |
166,202,413 |
|
|
27-65 years |
Services utility |
|
|
37,946,690 |
|
|
|
35,127,633 |
|
|
14-55 years |
Compressor station equipment |
|
|
24,980,668 |
|
|
|
24,959,330 |
|
|
44 years |
Liquefied petroleum gas equipment |
|
|
26,303,832 |
|
|
|
25,575,213 |
|
|
5-33 years |
Meters and meter installations |
|
|
19,479,360 |
|
|
|
18,111,466 |
|
|
Propane 10-33 years, Natural gas 25-49 years |
Measuring and regulating station equipment |
|
|
15,092,354 |
|
|
|
14,067,262 |
|
|
24-54 years |
Office furniture and equipment |
|
|
12,536,281 |
|
|
|
9,947,881 |
|
|
Non-regulated 3-10 years, Regulated 14-25 years |
Transportation equipment |
|
|
11,266,723 |
|
|
|
11,194,916 |
|
|
3-11 years |
Structures and improvements |
|
|
10,601,819 |
|
|
|
10,024,105 |
|
|
10-79 years (2) |
Land and land rights |
|
|
7,901,058 |
|
|
|
7,404,679 |
|
|
Not depreciable, except certain regulated assets |
Propane bulk plants and tanks |
|
|
6,296,155 |
|
|
|
5,313,061 |
|
|
15-40 years |
Various |
|
|
23,676,899 |
|
|
|
20,009,979 |
|
|
Various |
|
|
|
|
|
|
|
|
|
Total plant in service |
|
|
380,206,789 |
|
|
|
347,937,938 |
|
|
|
Plus construction work in progress |
|
|
1,481,448 |
|
|
|
4,899,608 |
|
|
|
Less accumulated depreciation |
|
|
(101,017,551 |
) |
|
|
(92,414,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
$ |
280,670,686 |
|
|
$ |
260,423,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain immaterial account balances may fall outside this range. |
|
|
|
The regulated operations compute depreciation in accordance with rates approved by either the
state Public Service Commission or the FERC. These rates are based on depreciation studies and
may change periodically upon receiving approval from the appropriate regulatory body. The
depreciation rates shown above are based on the remaining useful lives of the assets at the time
of the depreciation study, rather than their original lives. The depreciation rates are
composite, straight-line rates applied to the average investment for each class of depreciable
property and are adjusted for anticipated cost of removal less salvage value. |
|
|
|
The non-regulated operations compute depreciation using the straight-line method over the
estimated useful life of the asset. |
|
(2) |
|
Includes buildings, structures used in connection with natural gas and propane
operations, improvements to those facilities and leasehold improvements. |
Cash and Cash Equivalents
The Companys policy is to invest cash in excess of operating requirements in overnight
income-producing accounts. Such amounts are stated at cost, which approximates market value.
Investments with an original maturity of three months or less when purchased are considered cash
equivalents.
Inventories
The Company uses the average cost method to value propane and materials and supplies inventory. If
market prices drop below cost, inventory balances that are subject to price risk are adjusted to
market values.
Regulatory Assets, Liabilities and Expenditures
The Company accounts for its regulated operations in accordance with SFAS No. 71, Accounting for
the Effects of Certain Types of Regulation. This standard includes accounting principles for
companies whose rates are determined by independent third-party regulators. When setting rates,
regulators often make decisions, the economics of which require companies to defer costs or
revenues in different periods than may be appropriate for unregulated enterprises. When this
situation occurs, the regulated utility defers the associated costs as assets (regulatory assets)
on the balance sheet and records them as expense on the income statement as it collects revenues.
Further, regulators can also impose liabilities upon a company for amounts previously collected
from customers, and for recovery of costs that are expected to be incurred in the future
(regulatory liabilities).
Page 66 Chesapeake Utilities Corporation 2008 Form 10-K
At December 31, 2008 and 2007, the regulated utility operations had recorded the following
regulatory assets and liabilities on the Balance Sheets. These assets and liabilities will be
recognized as revenues and expenses in future periods as they are reflected in customers rates.
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
Regulatory Assets |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Underrecovered purchased gas costs |
|
$ |
650,820 |
|
|
$ |
1,389,454 |
|
Swing transportation imbalances |
|
|
2,059 |
|
|
|
|
|
PSC Assessment |
|
|
18,575 |
|
|
|
22,290 |
|
Flex rate asset |
|
|
107,943 |
|
|
|
107,394 |
|
Other |
|
|
46,612 |
|
|
|
55,934 |
|
|
|
|
|
|
|
|
Total current |
|
|
826,009 |
|
|
|
1,575,072 |
|
|
|
|
|
|
|
|
|
|
Non-Current |
|
|
|
|
|
|
|
|
Income tax related amounts due from customers |
|
|
1,284,552 |
|
|
|
1,115,638 |
|
Deferred regulatory and other expenses |
|
|
646,126 |
|
|
|
446,642 |
|
Deferred gas supply |
|
|
12,667 |
|
|
|
15,201 |
|
Deferred post retirement benefits |
|
|
83,370 |
|
|
|
111,159 |
|
Environmental regulatory assets and expenditures |
|
|
779,480 |
|
|
|
850,594 |
|
|
|
|
|
|
|
|
Total non-current |
|
|
2,806,195 |
|
|
|
2,539,234 |
|
|
|
|
|
|
|
|
|
Total Regulatory Assets |
|
$ |
3,632,204 |
|
|
$ |
4,114,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Liabilities |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Self insurance current |
|
$ |
162,616 |
|
|
$ |
191,004 |
|
Overrecovered purchased gas costs |
|
|
1,542,174 |
|
|
|
4,225,845 |
|
Shared interruptible margins |
|
|
231,919 |
|
|
|
11,202 |
|
Conservation cost recovery |
|
|
743,874 |
|
|
|
395,379 |
|
Swing transportation imbalances |
|
|
546,754 |
|
|
|
1,477,336 |
|
|
|
|
|
|
|
|
Total current |
|
|
3,227,337 |
|
|
|
6,300,766 |
|
|
|
|
|
|
|
|
|
|
Non-Current |
|
|
|
|
|
|
|
|
Self insurance long-term |
|
|
749,827 |
|
|
|
757,557 |
|
Income tax related amounts due to customers |
|
|
125,279 |
|
|
|
151,521 |
|
Environmental overcollections |
|
|
|
|
|
|
226,993 |
|
|
|
|
|
|
|
|
Total non-current |
|
|
875,106 |
|
|
|
1,136,071 |
|
|
|
|
|
|
|
|
|
|
Accrued asset removal cost |
|
|
20,641,279 |
|
|
|
20,249,948 |
|
|
|
|
|
|
|
|
|
Total Regulatory Liabilities |
|
$ |
24,743,722 |
|
|
$ |
27,686,785 |
|
|
|
|
|
|
|
|
Included in the current regulatory assets listed above is a flex rate asset of approximately
$108,000, which is accruing interest. Of the remaining regulatory assets, $1.7 million will be
collected in approximately one to two years, $623,000 will be collected within approximately three
to ten years, $83,000 will be collected within approximately 11 to 15 years, and $481,000 will be
collected within approximately 16-25 years. In addition, there is approximately $711,000 for which
the Company is awaiting regulatory approval for recovery; once approved, this amount is expected to
be collected over a period greater than 12 months.
As required by SFAS No. 71, the Company monitors its regulatory and competitive environment to
determine whether the recovery of its regulatory assets continues to be probable. If the Company
were to determine that recovery of these assets is no longer probable, it would write off the
assets against earnings. The Company believes that SFAS No. 71 continues to apply to its regulated
operations, and that the recovery of its regulatory assets is probable.
Chesapeake Utilities Corporation 2008 Form 10-K Page 67
Notes to the Consolidated Financial Statements
Goodwill and Other Intangible Assets
The Company accounts for its goodwill and other intangibles under SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). Under SFAS No. 142, goodwill is not amortized but is tested for
impairment at least annually. In addition, goodwill of a reporting unit is tested for impairment
between annual tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying value. Other intangible
assets are amortized on a straight-line basis over their estimated economic useful lives. Please
refer to Note G, Goodwill and Other Intangible Assets, for additional discussion of this subject.
Other Deferred Charges
Other deferred charges include discount, premium and issuance costs associated with long-term debt.
Debt costs are deferred and then are amortized to interest expense over the original lives of the
respective debt issuances.
Pension and Other Postretirement Plans
Pension and other postretirement plan costs and liabilities are determined on an actuarial basis
and are affected by numerous assumptions and estimates including the market value of plan assets,
estimates of the expected return on plan assets, assumed discount rates, the level of contributions
made to the plans, current demographic and actuarial mortality data. The Company annually reviews
the estimates and assumptions underlying our pension and other postretirement plan costs and
liabilities with the assistance of a third-party actuarial firm. The assumed discount rate and the
expected return on plan assets are the assumptions that generally have the most significant impact
on the Companys pension costs and liabilities. The assumed discount rate, the assumed health care
cost trend rate and the assumed rates of retirement generally have the most significant impact on
our postretirement plan costs and liabilities.
The discount rate is utilized principally in calculating the actuarial present value of our pension
and postretirement obligations and net pension and postretirement costs. When establishing its
discount rate, the Company considers high quality corporate bond rates based on Moodys Aa bond
index, changes in those rates from the prior year, and other pertinent factors, such as the
expected life of the plan and the lump-sum-payment option.
The expected long-term rate of return on assets is utilized in calculating the expected return on
plan assets component of our annual pension and postretirement plan costs. The Company estimates
the expected return on plan assets by evaluating expected bond returns, asset allocations, the
effects of active plan management, the impact of periodic plan asset rebalancing and historical
performance. The Company also considers the guidance from its investment advisors in making a final
determination of its expected rate of return on assets.
The Company estimates the assumed health care cost trend rate used in determining our
postretirement net expense based upon its actual health care cost experience, the effects of
recently enacted legislation and general economic conditions. The Companys assumed rate of
retirement is estimated based upon its annual review of its participant census information as of
the measurement date.
Actual changes in the fair market value of plan assets and differences between the actual return on
plan assets and the expected return on plan assets could have a material effect on the amount of
pension costs ultimately recognized. A 0.25 percent change in the Companys discount rate would
impact our defined pension cost by approximately $10,000, impact the Pension SERP costs by
approximately $2,000 and postretirement costs by approximately $7,000. A 0.25 percent change in the
Companys expected rate of return would impact our defined pension costs by approximately $16,000
and will not have an impact on either the Pension SERP or the other postretirement costs because
these plans are unfunded.
Page 68 Chesapeake Utilities Corporation 2008 Form 10-K
Income Taxes and Investment Tax Credit Adjustments
The Company files a consolidated federal income tax return. Income tax expense allocated to the
Companys subsidiaries is based upon their respective taxable incomes and tax credits.
Deferred tax assets and liabilities are recorded for the tax effect of temporary differences
between the financial statements bases and tax bases of assets and liabilities and are measured
using the enacted tax rates in effect in the years in which the differences are expected to
reverse. The portions of the Companys deferred tax liabilities applicable to utility operations,
which have not been reflected in current service rates, represent income taxes recoverable through
future rates. Deferred tax assets are recorded net of any valuation allowance when it is more
likely than not that such tax benefits will be realized. Investment tax credits on utility property
have been deferred and are allocated to income ratably over the lives of the subject property.
The Company adopted the provisions of FIN 48, Uncertain Tax Positions, (FIN 48) effective
January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a
Companys financial statements in accordance with SFAS No. 109. FIN 48 requires that an uncertain
tax position should be recognized only if it is more likely than not that the position is
sustainable based on technical merits. Recognizable tax positions should then be measured to
determine the amount of benefit recognized in the financial statements. The Companys adoption of
FIN 48 did not have an impact on its financial condition or results of operations.
Financial Instruments
Xeron, the Companys propane wholesale marketing operation, engages in trading activities using
forward and futures contracts, which have been accounted for using the mark-to-market method of
accounting. Under mark-to-market accounting, the Companys trading contracts are recorded at fair
value, net of future servicing costs. The changes in market price are recognized as gains or losses
in revenues on the income statement in the period of change. The resulting unrealized gains and
losses are recorded as assets or liabilities, respectively. There were unrealized gains of $1.4
million and $179,000 at December 31, 2008 and 2007, respectively. Trading liabilities are recorded
in mark-to-market energy liabilities. Trading assets are recorded in mark-to-market energy assets.
The Companys natural gas and propane distribution operations have entered into agreements with
suppliers to purchase natural gas and propane for resale to their customers. Purchases under these
contracts either do not meet the definition of derivatives under SFAS No. 133 or are considered
normal purchases and sales under SFAS No. 138 and are accounted for on an accrual basis.
The propane distribution operation may enter into a fair value hedge of its inventory in order to
mitigate the impact of wholesale price fluctuations. Wholesale propane prices rose dramatically
during the spring months of 2008, when they are traditionally at their lowest. In efforts to
protect the Company from the impact that additional price increases would have on the Pro-Cap
(propane price cap) Plan that we offer to customers, the propane distribution operation had entered
into a swap agreement. By December 31, 2008, the market price of propane declined well below the
unit price in the swap agreement. As a result, the Company marked the January 2009 and February
2009 gallons in the agreement to market, which increased 2008 cost of sales by $939,000. The
Company terminated this swap agreement in January 2009. At December 31, 2007, the Company had not
hedged any of its propane inventories.
Chesapeake Utilities Corporation 2008 Form 10-K Page 69
Notes to the Consolidated Financial Statements
Earnings Per Share
Chesapeake calculates earnings per share in accordance with SFAS No. 128. The calculations of both
basic and diluted earnings per share are presented in the following chart.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Periods Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
13,607,259 |
|
|
$ |
13,197,710 |
|
|
$ |
10,506,525 |
|
Weighted average shares outstanding |
|
|
6,811,848 |
|
|
|
6,743,041 |
|
|
|
6,032,462 |
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
|
$ |
2.00 |
|
|
$ |
1.96 |
|
|
$ |
1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
13,607,259 |
|
|
$ |
13,197,710 |
|
|
$ |
10,506,525 |
|
Effect of 8.25% Convertible debentures |
|
|
88,657 |
|
|
|
95,611 |
|
|
|
105,024 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted numerator Diluted |
|
$ |
13,695,916 |
|
|
$ |
13,293,321 |
|
|
$ |
10,611,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding Basic |
|
|
6,811,848 |
|
|
|
6,743,041 |
|
|
|
6,032,462 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based Compensation |
|
|
12,083 |
|
|
|
|
|
|
|
|
|
8.25% Convertible debentures |
|
|
103,552 |
|
|
|
111,675 |
|
|
|
122,669 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted denominator Diluted |
|
|
6,927,483 |
|
|
|
6,854,716 |
|
|
|
6,155,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share |
|
$ |
1.98 |
|
|
$ |
1.94 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
Revenues for the natural gas distribution operations of the Company are based on rates approved by
the PSCs in the jurisdictions in which the Company operates. The natural gas transmission
operations revenues are based on rates approved by the FERC. Customers base rates may not be
changed without formal approval by these commissions. The PSCs, however, have allowed the natural
gas distribution operations to negotiate rates, based on approved methodologies, with customers
that have competitive alternatives. The natural gas transmission operation can also negotiate rates
above or below the FERC-approved maximum rates, which customers can elect as recourse to negotiated
rates.
For regulated deliveries of natural gas, Chesapeake reads meters and bills customers on monthly
cycles that do not coincide with the accounting periods used for financial reporting purposes.
Chesapeake accrues unbilled revenues for gas that has been delivered but not yet billed at the end
of an accounting period to the extent that they do not coincide. In connection with this accrual,
Chesapeake must estimate the amount of gas that has not been accounted for on its delivery system
and must estimate the amount of the unbilled revenue by jurisdiction and customer class. A similar
computation is made to accrue unbilled revenues for propane customers with meters, such as
community gas system customers.
The propane wholesale marketing operation records trading activity for open contracts, on a net
mark-to-market basis in the Companys income statement. The propane distribution, advanced
information services and other segments record revenue in the period in which the products are
delivered and/or services are rendered.
Chesapeakes natural gas distribution operations in Delaware and Maryland have a PSC-approved
purchased gas cost recovery mechanism. This mechanism provides the Company with a method of
adjusting the billing rates with its customers for changes in the cost of purchased gas included in
base rates. The difference between the current cost of gas
purchased and the cost of gas recovered in billed rates is deferred and accounted for as either
unrecovered purchased gas costs or amounts payable to customers. Generally, these deferred amounts
are recovered or refunded within one year.
Page 70 Chesapeake Utilities Corporation 2008 Form 10-K
The Company charges flexible rates to its natural gas distributions industrial interruptible
customers to compete with alternative types of fuel. Based on pricing, these customers can choose
natural gas or alternative fuels. Neither the Company nor the interruptible customer is
contractually obligated to deliver or receive natural gas.
Cost of Sales
Cost of sales includes the direct costs attributable to the products sold or services provided by
the Company for its utility and non-utility operations. These costs primarily include the variable
cost of natural gas and propane commodities, pipeline capacity costs needed to transport and store
natural gas, transportation costs to transport propane purchases to our storage facilities, and the
direct cost of labor for our advanced information services segment.
Operations and Maintenance Expenses
Operations and maintenance expenses are costs associated with the operation and maintenance of the
Companys utility and non-utility operations. Major cost components include operation and
maintenance salaries and benefits, materials and supplies, usage of vehicles, tools and equipment,
payments to contractors, utility plant maintenance, customer service, professional fees and other
outside services, insurance expense, minor amounts of depreciation, accretion of cost of removal
for future retirements of utility assets, and other administrative expenses.
Depreciation and Accretion Included in Operations Expenses
Depreciation and accretion included in operations expenses consist of the accretion of the costs of
removal for future retirement of utility assets, vehicle depreciation, computer software and
hardware depreciation, and other minor amounts of depreciation expense.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is recorded against amounts due to reduce the net receivables
balance to the amount we reasonably expect to collect based upon the Companys collections
experiences and the Companys assessment of its customers inability or reluctance to pay. If
circumstances change, our estimates of recoverable accounts receivable may also change.
Circumstances which could affect such estimates include, but are not limited to, customer credit
issues, the level of natural gas prices and general economic conditions. Accounts are written off
when they are deemed to be uncollectible.
Certain Risks and Uncertainties
The Companys financial statements are prepared in conformity with GAAP that require management to
make estimates in measuring assets and liabilities and related revenues and expenses (see Notes N
and O to the Consolidated Financial Statements for significant estimates). These estimates involve
judgments with respect to, among other things, various future economic factors that are difficult
to predict and are beyond the control of the Company; therefore, actual results could differ from
those estimates.
The Company records certain assets and liabilities in accordance with SFAS No. 71. If the Company
were required to terminate application of SFAS No. 71 for its regulated operations, all amounts
deferred in accordance with SFAS No. 71 would be recognized in the income statement at that time.
This could result in a charge to earnings, net of applicable income taxes, which could be material.
Financial Accounting Standards Board (FASB) Statements and Other Authoritative Pronouncements
Recent accounting pronouncements:
In December 2007, the FASB issued SFAS No. 141(R), which retains the fundamental requirements of
the original pronouncement requiring that the acquisition method be used for all business
combinations. SFAS No.141(R): (a) defines the acquirer as the entity that obtains control of one or
more businesses in a business combination, (b) establishes the acquisition date as the date that
the acquirer achieves control and (c) requires the acquirer to recognize the assets acquired,
liabilities assumed and any non-controlling interests at their fair values as of the acquisition
date. SFAS No. 141(R) also requires that acquisition-related costs be expensed as incurred. SFAS
No. 141(R) is effective for fiscal years beginning after December 15, 2008. The Company does not
expect the adoption of SFAS No.141(R) to have a material impact on its current consolidated
financial position and results of operations. However, depending upon the size, nature and
complexity of future acquisition transactions, the adoption of SFAS No. 141(R) could materially
affect the Companys consolidated financial statements.
Chesapeake Utilities Corporation 2008 Form 10-K Page 71
Notes to the Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 160, an amendment of Accounting Research Bulletin
No. 51, which changes the accounting and reporting for minority interests by recharacterizing them
as noncontrolling interests and classifying them as a component of equity. This new consolidation
method significantly changes the accounting for transactions with minority interest holders. SFAS
No. 160 is effective for fiscal years beginning after December 15, 2008. No other entity has a
minority interest in any of the Companys subsidiaries; therefore, the Company does not expect the
adoption of SFAS No. 160 to have a material impact on its current consolidated financial position
and results of operations.
In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers
of financial statements prepared in accordance with International Financial Reporting Standards
(IFRS). IFRS is a comprehensive series of accounting standards published by the International
Accounting Standards Board (IASB). Under the proposed roadmap, the Company may be required to
prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a
determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing
the impact that this potential change would have on its consolidated financial statements, and it
will continue to monitor the development of the potential implementation of IFRS.
In March 2008, the FASB issued SFAS No. 161, an amendment of FASB Statement No. 133, which requires
enhanced disclosures for derivative instruments, including those used in hedging activities. It is
effective for fiscal years and interim periods beginning after November 15, 2008, and will be
applicable to the Company in the first quarter of fiscal 2009. The Company does not expect the
adoption of SFAS No. 161 to have a material impact on its current consolidated financial position
and results of operations.
In April 2008, the FASB issued FSP 142-3. This FSP amends the factors which should be considered
in developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS No.
142). The intent of this FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141R and other GAAP. This FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is prohibited. The Company does not expect the adoption of FSP
SFAS No. 142-3 to have a material impact on its current consolidated financial position and results
of operations.
In May 2008, the FASB issued SFAS No. 162 with the intent to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with GAAP in the United States for
non-governmental entities. SFAS No. 162 is effective 60 days following approval by the SEC of the
Public Company Accounting Oversight Boards amendments to AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect
the adoption of SFAS No. 162 to have a material impact on the preparation of its consolidated
financial statements.
In May 2008, the FASB issued FSP Accounting Principles Board (APB) APB 14-1, which clarifies that
convertible debt instruments that may be settled in cash upon either mandatory or optional
conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion
No. 14, Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants. In
addition, FSP APB 14-1 specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entitys nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective
for financial statements issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The Company does not expect the adoption of FSP APB 14-1 to have
a material impact on its current consolidated financial position and results of operations.
Page 72 Chesapeake Utilities Corporation 2008 Form 10-K
In June 2008, the FASB issued Emerging Issues Task force (EITF) 03-6-1 to clarify that all
outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders. Awards of this nature are
considered participating securities, and the two-class method of computing basic and diluted
earnings per share must be applied. This FSP is effective for fiscal years beginning after December
15, 2008. The Company does not expect the adoption of EITF 03-6-1 to have a material impact on its
current consolidated financial position and results of operations.
In June 2008, the FASB ratified EITF 07-5. EITF 07-5 provides that an entity should use a two-step
approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instruments contingent exercise and settlement
provisions. It also clarifies the impact of foreign-currency-denominated strike prices and
market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective
for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of
EITF 07-5 to have a material impact on its current consolidated financial position and results of
operations.
In June 2008, the FASB ratified EITF 08-3 to provide guidance for accounting for nonrefundable
maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF
08-3 is effective for fiscal years beginning after December 15, 2008. The Company does not expect
the adoption of EITF 08-3 to have a material impact on its current consolidated financial position
and results of operations.
In September 2008, the FASB ratified EITF 08-5 to provide guidance for measuring liabilities issued
with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer
of a liability with a third-party credit enhancement should not include the effect of the credit
enhancement in the fair value measurement of the liability. EITF 08-5 is effective for the first
reporting period beginning after December 15, 2008. The Company does not expect the adoption of
EITF 08-5 to have a material impact on its current consolidated financial position and results of
operations.
During 2008, the Company adopted the following accounting standards:
In September 2008, the FASB issued FSP 133-1 and FIN 45-4, Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and
Clarification of the Effective Date of FASB Statement No. 161 (FSP 133-1/FIN 45-4). FSP
133-1/FIN 45-4 amends and enhances disclosure requirements for sellers of credit derivatives and
financial guarantees. It also clarifies that the disclosure requirements of SFAS No. 161 are
effective for quarterly periods beginning after November 15, 2008, and fiscal years that include
those periods. FSP 133-1/FIN 45-4 is effective for reporting periods (annual or interim) ending
after November 15, 2008. The implementation of this standard did not have a material impact on the
Companys consolidated financial position and results of operations.
In October 2008, the FASB issued FSP 157-3 to clarify the application of the provisions of SFAS No.
157 in an inactive market and how an entity would determine fair value in an inactive market.
FSP 157-3 is effective immediately and applied to the Companys September 30, 2008 financial
statements. The application of the provisions of FSP 157-3 did
not materially affect the companys results of operations or financial condition as of and for the
period ended December 31, 2008.
Chesapeake Utilities Corporation 2008 Form 10-K Page 73
Notes to the Consolidated Financial Statements
Effective January 1, 2008, Chesapeake adopted FIN 39-1, which permits companies to offset cash
collateral receivables or payables with net derivative positions under certain circumstances. Based
on the derivative contracts entered into to date, adoption of this FSP has not materially affected
the Companys consolidated financial statements for the period ended December 31, 2008.
In September 2006, the FASB issued SFAS No. 157, which provides guidance for using fair value to
measure assets and liabilities. It also responds to investors requests for expanded information
about the extent to which companies measure assets and liabilities at fair value, the information
used to measure fair value, and the effect of fair value measurements on earnings. SFAS No. 157
applies whenever other standards require (or permit) assets or liabilities to be measured at fair
value and does not expand the use of fair value in any new circumstances. In February 2008, the
FASB issued FSP 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification
or Measurement under Statement No. 13 (FSP 157-1), and FSP 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2). FSP 157-1 amends SFAS No. 157 to remove certain leasing
transactions from its scope. FSP 157-2 delays the effective date of SFAS No. 157 until fiscal years
beginning after November 15, 2009 for all non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value in the financial statements on a
recurring basis. These non-financial items include assets and liabilities, such as reporting units
measured at fair value in a goodwill impairment test and non-financial assets acquired and
liabilities assumed in a business combination. SFAS No. 157 was effective for financial statements
issued for fiscal years beginning after November 15, 2007 and was adopted by the Company, as it
applies to its financial instruments, effective January 1, 2008. Adoption of SFAS No. 157 had no
financial impact on the Companys consolidated financial statements. The disclosures required by
SFAS No. 157 are discussed in Note E Fair Value of Financial Instruments of the Consolidated
Financial Statements.
In February 2007, the FASB issued SFAS No. 159, which permits entities to elect to measure at fair
value many financial instruments and certain other items that are not currently required to be
measured at fair value. This election is irrevocable. SFAS No. 159 became effective in the first
quarter of fiscal 2008. The Company has not elected to apply the fair value option to any of its
financial instruments.
Reclassification of Prior Years Amounts
The Company reclassified some previously reported amounts to conform to current period
classifications.
B. Business Dispositions and Discontinued Operations
During 2007, Chesapeake decided to close its distributed energy services subsidiary, OnSight, which
had experienced operating losses since its inception in 2004. OnSight was previously reported as
part of the Companys Other Business segment. The results of operations for OnSight have been
reclassified to discontinued operations and shown net of tax for all periods presented. The
discontinued operations experienced a net loss of $20,000 for 2007, compared to a net loss of
$241,000 for 2006. The Company did not have any discontinued operations in 2008.
Page 74 Chesapeake Utilities Corporation 2008 Form 10-K
C. Segment Information
The following table presents information about the Companys reportable segments. The table
excludes financial data related to its distributed energy company, which was reclassified to
discontinued operations for each year presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Operating Revenues, Unaffiliated Customers |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
210,957,687 |
|
|
$ |
180,842,699 |
|
|
$ |
170,114,512 |
|
Propane |
|
|
65,873,930 |
|
|
|
62,837,696 |
|
|
|
48,575,976 |
|
Advanced information services |
|
|
14,611,860 |
|
|
|
14,606,100 |
|
|
|
12,509,077 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues, unaffiliated customers |
|
$ |
291,443,477 |
|
|
$ |
258,286,495 |
|
|
$ |
231,199,565 |
|
|
|
|
|
|
|
|
|
|
|
Intersegment Revenues (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
444,083 |
|
|
$ |
359,235 |
|
|
$ |
259,970 |
|
Propane |
|
|
2,861 |
|
|
|
406 |
|
|
|
|
|
Advanced information services |
|
|
108,596 |
|
|
|
492,840 |
|
|
|
58,532 |
|
Other |
|
|
652,296 |
|
|
|
622,272 |
|
|
|
618,492 |
|
|
|
|
|
|
|
|
|
|
|
Total intersegment revenues |
|
$ |
1,207,836 |
|
|
$ |
1,474,753 |
|
|
$ |
936,994 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
25,846,346 |
|
|
$ |
22,485,266 |
|
|
$ |
19,733,487 |
|
Propane |
|
|
1,586,414 |
|
|
|
4,497,843 |
|
|
|
2,534,035 |
|
Advanced information services |
|
|
694,636 |
|
|
|
835,981 |
|
|
|
767,160 |
|
Other and eliminations |
|
|
351,538 |
|
|
|
294,492 |
|
|
|
297,255 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
28,478,934 |
|
|
|
28,113,582 |
|
|
|
23,331,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
103,039 |
|
|
|
291,305 |
|
|
|
189,093 |
|
Interest charges |
|
|
6,157,552 |
|
|
|
6,589,639 |
|
|
|
5,773,993 |
|
Income taxes |
|
|
8,817,162 |
|
|
|
8,597,461 |
|
|
|
6,999,072 |
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
13,607,259 |
|
|
$ |
13,217,787 |
|
|
$ |
10,747,965 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
6,694,037 |
|
|
$ |
6,917,609 |
|
|
$ |
6,312,277 |
|
Propane |
|
|
2,024,172 |
|
|
|
1,842,047 |
|
|
|
1,658,554 |
|
Advanced information services |
|
|
175,295 |
|
|
|
143,706 |
|
|
|
112,729 |
|
Other and eliminations |
|
|
111,407 |
|
|
|
156,823 |
|
|
|
160,155 |
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
9,004,911 |
|
|
$ |
9,060,185 |
|
|
$ |
8,243,715 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
25,386,046 |
|
|
$ |
23,086,713 |
|
|
$ |
43,894,614 |
|
Propane |
|
|
3,416,514 |
|
|
|
5,290,215 |
|
|
|
4,778,891 |
|
Advanced information services |
|
|
678,705 |
|
|
|
174,184 |
|
|
|
159,402 |
|
Other |
|
|
1,362,246 |
|
|
|
1,591,272 |
|
|
|
321,204 |
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
30,843,511 |
|
|
$ |
30,142,384 |
|
|
$ |
49,154,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All significant intersegment revenues are billed at market rates and have been
eliminated from consolidated revenues. |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
297,407,548 |
|
|
$ |
273,500,890 |
|
|
$ |
252,292,600 |
|
Propane |
|
|
72,954,861 |
|
|
|
94,966,212 |
|
|
|
60,170,200 |
|
Advanced information services |
|
|
3,544,847 |
|
|
|
2,507,910 |
|
|
|
2,573,810 |
|
Other |
|
|
11,849,010 |
|
|
|
10,533,511 |
|
|
|
10,503,804 |
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
385,756,266 |
|
|
$ |
381,508,523 |
|
|
$ |
325,540,414 |
|
|
|
|
|
|
|
|
|
|
|
Chesapeake Utilities Corporation 2008 Form 10-K Page 75
Notes to the Consolidated Financial Statements
Chesapeake uses the management approach to identify operating segments. Chesapeake organizes its
business around differences in products or services, and the operating results of each segment are
regularly reviewed by the Companys chief operating decision maker in order to make decisions about
resources and to assess performance. The segments are evaluated based on their pre-tax operating
income.
The Companys operations are primarily domestic. The advanced information services segment has
infrequent transactions with foreign companies, located primarily in Canada, which are denominated
and paid in U.S. dollars. These transactions are immaterial to the consolidated revenues.
D. Supplemental Cash Flow Disclosures
Cash paid for interest and income taxes during the years ended December 31, 2008, 2007, and 2006
was as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Cash paid for interest |
|
$ |
5,835,321 |
|
|
$ |
5,592,279 |
|
|
$ |
5,334,477 |
|
Cash paid for income taxes |
|
$ |
3,884,921 |
|
|
$ |
7,009,206 |
|
|
$ |
6,285,272 |
|
Non-cash investing and financing activities during the years ended December 31, 2008, 2007, and
2006 were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Capital property and equipment acquired on account,
but not paid as of December 31 |
|
$ |
696,268 |
|
|
$ |
365,890 |
|
|
$ |
1,490,890 |
|
Retirement Savings Plan |
|
$ |
158,756 |
|
|
$ |
948,683 |
|
|
$ |
914,811 |
|
Dividends Reinvestment Plan |
|
$ |
208,194 |
|
|
$ |
840,718 |
|
|
$ |
844,920 |
|
Conversion of Debentures |
|
$ |
176,740 |
|
|
$ |
137,784 |
|
|
$ |
283,417 |
|
Performance Incentive Plan |
|
$ |
568,361 |
|
|
$ |
435,309 |
|
|
$ |
715,494 |
|
Director Stock Compensation Plan |
|
$ |
181,312 |
|
|
$ |
183,573 |
|
|
$ |
175,617 |
|
Tax benefit on stock warrants |
|
$ |
50,244 |
|
|
|
|
|
|
$ |
201,455 |
|
E. Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted SFAS No. 157 for financial assets and liabilities
measured on a recurring basis. SFAS No. 157 applies to all financial assets and liabilities that
are measured and reported on a fair value basis. Adoption of SFAS No. 157 had no impact on the
Consolidated Balance Sheets and Statements of Income. The primary effect of SFAS No. 157 on the
Company was to expand the required disclosures pertaining to the methods used to determine fair
values.
SFAS No. 157 also establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy under SFAS No. 157 are the following:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either
directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques requiring inputs that are both significant to the fair
value measurement and unobservable (i.e. supported by little or no market activity).
Page 76 Chesapeake Utilities Corporation 2008 Form 10-K
The following table summarizes the Companys financial assets and liabilities that are measured at
fair value on a recurring basis and the fair value measurements, by level, within the fair value
hierarchy used at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Active Markets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
1,601 |
|
|
$ |
1,601 |
|
|
|
|
|
|
|
|
|
Mark-to-market energy assets |
|
$ |
4,482 |
|
|
|
|
|
|
$ |
4,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market energy liabilities |
|
$ |
3,052 |
|
|
|
|
|
|
$ |
3,052 |
|
|
|
|
|
Price swap agreement |
|
$ |
105 |
|
|
|
|
|
|
$ |
105 |
|
|
|
|
|
The following valuation techniques were used to measure fair value assets in the table above on a
recurring basis as of December 31, 2008:
Level 1 Fair Value Measurements:
Investments The fair values of these trading securities are recorded at fair value based
on unadjusted quoted prices in active markets for identical securities.
Level 2 Fair Value Measurements:
Mark-to-market energy assets and liabilities These forward contracts are valued using market
transactions in either the listed or OTC markets.
Propane price swap agreement The fair value of the propane price swap agreement is valued
using market transactions in either the listed or OTC markets.
In addition, various items within the balance sheet are considered to be financial instruments,
because they are cash or are to be settled in cash. The carrying values of these items generally
approximate their fair value. The fair value of the Companys long-term debt is estimated using a
discounted cash flow methodology that incorporates a market interest rate that is based on
published corporate borrowing rates for debt instruments with similar terms and average maturities
with adjustments for duration, optionality, and risk profile. The Companys long-term debt at
December 31, 2008, including current maturities, had an estimated fair value of $92.3 million
compared to a carrying value of $93.1 million. At December 31, 2007, the estimated fair value was
approximately $75.0 million compared to a carrying value of $70.9 million.
The Companys adoption of SFAS No. 157 applies only to its financial instruments and does not apply
to those non-financial assets and non-financial liabilities delayed under FSP No. 157-2, which will
be implemented for fiscal years beginning after November 15, 2009.
Chesapeake Utilities Corporation 2008 Form 10-K Page 77
Notes to the Consolidated Financial Statements
F. Investments
The investment balances at December 31, 2008 and 2007 represent a Rabbi Trust associated with the
Companys Supplemental Executive Retirement Savings Plan and a Rabbi Trust related to a stay bonus
agreement with a former executive. In accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, the Company classifies these investments as trading
securities. As a result of classifying them as trading securities, the
Company is required to report the securities at their fair value, with any unrealized gains and
losses included in other income. The Company also has an associated liability that is recorded and
adjusted each month for the gains and losses incurred by the Trust. At December 31, 2008 and 2007,
total investments had a fair value of $1.6 million and $1.9 million, respectively.
G. Goodwill and Other Intangible Assets
In accordance with SFAS No. 142, goodwill is tested for impairment at least annually. In addition,
goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying value. The propane segment reported $674,000 in goodwill for the two years ended
December 31, 2008 and 2007. Testing for 2008 and 2007 indicated that no impairment of the goodwill
has occurred.
The carrying value and accumulated amortization of intangible assets subject to amortization for
the years ended December 31, 2008 and 2007 are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
Customer lists |
|
$ |
115,333 |
|
|
$ |
89,481 |
|
|
$ |
115,333 |
|
|
$ |
82,269 |
|
Acquisition costs |
|
|
263,659 |
|
|
|
125,243 |
|
|
|
263,659 |
|
|
|
118,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
378,992 |
|
|
$ |
214,724 |
|
|
$ |
378,992 |
|
|
$ |
200,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets was $14,000 for the years ended December 31, 2008 and 2007. The
estimated annual amortization of intangibles is $14,000 per year for each of the years 2009 through
2013.
Page 78 Chesapeake Utilities Corporation 2008 Form 10-K
H. Stockholders Equity
Changes in common stock shares issued and outstanding are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock shares issued and outstanding (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued beginning of period balance |
|
|
6,777,410 |
|
|
|
6,688,084 |
|
|
|
5,883,099 |
|
Dividend Reinvestment Plan (2) |
|
|
9,060 |
|
|
|
35,333 |
|
|
|
38,392 |
|
Retirement Savings Plan |
|
|
5,260 |
|
|
|
29,563 |
|
|
|
29,705 |
|
Conversion of debentures |
|
|
10,397 |
|
|
|
8,106 |
|
|
|
16,677 |
|
Employee award plan |
|
|
250 |
|
|
|
350 |
|
|
|
350 |
|
Share-based compensation (3) |
|
|
24,744 |
|
|
|
15,974 |
|
|
|
29,516 |
|
Public offering |
|
|
|
|
|
|
|
|
|
|
690,345 |
|
|
|
|
|
|
|
|
|
|
|
Shares issued end of period balance (4) |
|
|
6,827,121 |
|
|
|
6,777,410 |
|
|
|
6,688,084 |
|
Treasury shares beginning of period balance |
|
|
|
|
|
|
|
|
|
|
(97 |
) |
Purchases |
|
|
(2,425 |
) |
|
|
(971 |
) |
|
|
|
|
Deferred Compensation Plan |
|
|
2,425 |
|
|
|
971 |
|
|
|
|
|
Other issuances |
|
|
|
|
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
Treasury Shares end of period balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding |
|
|
6,827,121 |
|
|
|
6,777,410 |
|
|
|
6,688,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
12,000,000 shares are authorized at a par value of $0.4867 per share. |
|
(2) |
|
Includes shares purchased with reinvested dividends and optional cash payments. |
|
(3) |
|
Includes shares issued for Directors compensation. |
|
(4) |
|
Includes 62,221, 57,309, and 48,187 shares at December 31, 2008,
2007 and 2006, respectively, held in a Rabbi Trust established by the Company
relating to the Deferred Compensation Plan. |
On November 21, 2006, the Company completed a public offering of 600,300 shares of its common stock
at a price per share of $30.10. On November 30, 2006, the Company completed the sale of 90,045
additional shares of its common stock, pursuant to the over-allotment option granted to the
underwriters by the Company. The net proceeds from the sale of common stock, after deducting
underwriting commissions and expenses, were approximately $19.7 million, which were added to the
Companys general funds and used primarily to repay a portion of the Companys short-term debt
under unsecured lines of credit.
Chesapeake Utilities Corporation 2008 Form 10-K Page 79
Notes to the Consolidated Financial Statements
I. Long-term Debt
The Companys outstanding long-term debt is as shown below.
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
Uncollateralized senior notes: |
|
|
|
|
|
|
|
|
7.97% note, due February 1, 2008 |
|
$ |
|
|
|
$ |
1,000,000 |
|
6.91% note, due October 1, 2010 |
|
|
1,818,182 |
|
|
|
2,727,273 |
|
6.85% note, due January 1, 2012 |
|
|
3,000,000 |
|
|
|
4,000,000 |
|
7.83% note, due January 1, 2015 |
|
|
12,000,000 |
|
|
|
14,000,000 |
|
6.64% note, due October 31, 2017 |
|
|
24,545,455 |
|
|
|
27,272,727 |
|
5.50% note, due October 12, 2020 |
|
|
20,000,000 |
|
|
|
20,000,000 |
|
5.93% note, due October 31, 2023 |
|
|
30,000,000 |
|
|
|
|
|
Convertible debentures: |
|
|
|
|
|
|
|
|
8.25% due March 1, 2014 |
|
|
1,655,000 |
|
|
|
1,832,000 |
|
Promissory note |
|
|
60,000 |
|
|
|
80,000 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
93,078,637 |
|
|
|
70,912,000 |
|
Less: current maturities |
|
|
(6,656,364 |
) |
|
|
(7,656,364 |
) |
|
|
|
|
|
|
|
Total long-term debt, net of current maturities |
|
$ |
86,422,273 |
|
|
$ |
63,255,636 |
|
|
|
|
|
|
|
|
Annual maturities of consolidated long-term debt are as follows: $6,656,364 for 2009, $6,656,364
for 2010, $7,747,273 for 2011, $6,727,273 for 2012, $6,727,273 for 2013, and $58,564,091
thereafter.
The convertible debentures may be converted, at the option of the holder, into shares of the
Companys common stock at a conversion price of $17.01 per share. During 2008 and 2007, debentures
totaling $177,000 and $138,000, respectively, were converted to stock. The debentures are also
redeemable for cash at the option of the holder, subject to an annual non-cumulative maximum
limitation of $200,000. In 2008 and 2007, no debentures were redeemed for cash. At the Companys
option, the debentures may be redeemed at stated amounts.
On October 31, 2008, the Company issued $30 million of 5.93 percent Unsecured Senior Notes to two
institutional investors (General American Life Insurance Company and New England Life Insurance
Company). The terms of the Senior Notes require principal repayments of $1.5 million on the
30th day of April and 31st day of October in each year, commencing on April 30, 2014.
The Senior Notes will mature on October 31, 2023. The proceeds of the sale of the Senior Notes were
used to refinance capital expenditures and for general corporate purposes.
Debt Covenants
Indentures to the long-term debt of the Company and its subsidiaries contain various restrictions.
The most stringent restrictions state that the Company must maintain equity of at least 40 percent
of total capitalization, and the pro-forma fixed charge coverage ratio must be 1.5 times. Failure
to comply with those covenants could result in accelerated due dates and/or termination of the
agreements. As of December 31, 2008, the Company is in compliance with all of its debt covenants.
In terms of restrictions which limit the payment of dividends by the Company, each of the Companys
Unsecured Senior Notes contains a Restricted Payments covenant. The most restrictive covenants of
this type are included within the 7.83% Senior Notes, due January 1, 2015. The covenant provides
that the Company cannot pay or declare any dividends or make any other Restricted Payments (such as
dividends) in excess of the sum of $10.0 million, plus consolidated net income of the Company
accrued on and after January 1, 2001. As of December 31, 2008, the Companys cumulative
consolidated net income base was $86.9 million, offset by Restricted Payments of $54.4 million,
leaving $32.5 million of cumulative net income free of restrictions.
In addition, the Companys subsidiaries are not restricted from transferring funds to the Company
in the form of loans, advances or cash dividends under the terms of the covenants of the Companys
various Unsecured Senior Notes.
Page 80 Chesapeake Utilities Corporation 2008 Form 10-K
J. Short-term Borrowing
At December 31, 2008 and 2007, we had $33.0 million and $45.7 million, respectively, of short-term
borrowing outstanding under our bank credit facilities. The annual weighted average interest rates
on our short-term borrowing were 2.79 percent and 5.46 percent for 2008 and 2007, respectively.
The Company also had a letter of credit outstanding with its primary insurance company in the
amount of $775,000 as security to satisfy the deductibles under the Companys various insurance
policies. This letter of credit reduced the amounts available under the Companys lines of credit
and is scheduled to expire on May 31, 2009. The Company does not anticipate that this letter of
credit will be drawn upon by the counterparty, and the Company expects that it will be renewed as
necessary.
Credit facilities
As of December 22, 2008, the Board of Directors has authorized the Company to borrow up to $65.0
million of short-term debt, as required, from various banks and trust companies under short-term
lines of credit. As of December 31, 2008, Chesapeake had five unsecured bank lines of credit with
three financial institutions, totaling $100.0 million, none of which requires compensating
balances. These bank lines are available to provide funds for the Companys short-term cash needs
to meet seasonal working capital requirements and to fund temporarily portions of its capital
expenditures. We maintain both committed and uncommitted credit facilities. Advances offered under
the uncommitted lines of credit are subject to the discretion of the banks.
Committed credit facilities
As of December 31, 2008, we had two committed revolving credit facilities totaling $55.0 million.
The first facility is an unsecured $30.0 million revolving line of credit that bears interest at
the respective LIBOR rate, plus 0.75 percent per annum. At December 31, 2008, there was $17.0
million available under this credit facility.
The second facility is a $25.0 million committed revolving line of credit that bears interest at a
base rate plus 125 basis points, if requested and advanced on the same day, or LIBOR for the
applicable period plus 125 basis points if requested three days prior to the advance date. At
December 31, 2008, the entire borrowing capacity of $25.0 million was available under this credit
facility.
The availability of funds under our credit facilities is subject to conditions specified in the
respective credit agreements, all of which we currently satisfy. These conditions include our
compliance with financial covenants and the continued accuracy of representations and warranties
contained in these agreements. We are required by the financial covenants in our revolving credit
facilities to maintain, at the end of each fiscal year:
|
|
|
a funded indebtedness ratio of no greater than 65 percent; and |
|
|
|
|
A fixed charge coverage ratio of at least 1.20 to 1.0. |
The Company is in compliance with all of its debt covenants.
Uncommitted credit facilities
As of December 31, 2008, we had three uncommitted lines of credit facilities totaling
$45.0 million. Advances offered under the uncommitted lines of credit are subject to the discretion
of the banks.
The first facility is an uncommitted $20.0 million line of credit that bears interest at a rate per
annum as offered by the bank for the applicable period. At December 31, 2008, the Company has
reached the $20.0 million borrowing capacity under this credit facility.
The second facility is a $10.0 million uncommitted revolving line of credit that bears interest at
either the Prime Rate or the daily LIBOR Rate for the applicable period. At December 31, 2008, the
entire borrowing capacity of $10.0 million was available under this credit facility.
Chesapeake Utilities Corporation 2008 Form 10-K Page 81
Notes to the Consolidated Financial Statements
The final facility is a $15.0 million uncommitted line of credit that bears interest at the banks
base rate or the respective LIBOR rate, plus 1.25 percent per annum. At December 31, 2008, there
was $14.2 million available under this credit facility, which was reduced by $775,000 for a
letter of credit issued to our primary insurance company. The letter of credit is provided as
security to satisfy the deductibles under the Companys various insurance policies and expires on
May 31, 2009. The Company does not anticipate that this letter of credit will be drawn upon by the
counter-party and it expects that it will be renewed as necessary.
K. Lease Obligations
The Company has entered into several operating lease arrangements for office space, equipment and
pipeline facilities. Rent expense related to these leases was $880,000, $736,000, and $680,000 for
2008, 2007, and 2006, respectively. Future minimum payments under the Companys current lease
agreements are $770,000, $612,000, $605,000, $560,000 and $369,000 for the years 2009 through 2013,
respectively; and $2.4 million thereafter, with an aggregate total of $5.4 million.
L. Employee Benefit Plans
Retirement Plans
Before 1999, Company employees generally participated in both a defined benefit pension plan
(Defined Pension Plan) and a Retirement Savings Plan. Effective January 1, 1999, the Company
restructured its retirement program to compete more effectively with similar businesses. As part of
this restructuring, the Company closed the Defined Pension Plan to new participants. Employees who
participated in the Defined Pension Plan at that time were given the option of remaining in (and
continuing to accrue benefits under) the Defined Pension Plan or receiving an enhanced matching
contribution in the Retirement Savings Plan.
Because the Defined Pension Plan was not open to new participants, the number of active
participants in that plan decreased and was approaching the minimum number needed for the Defined
Pension Plan to maintain its tax-qualified status. To avoid jeopardizing the tax-qualified status
of the Defined Pension Plan, the Companys Board of Directors amended the Defined Pension Plan on
September 24, 2004. To ensure that the Company would continue to provide appropriate levels of
benefits to the Companys employees, the Board amended the Defined Pension Plan and the Retirement
Savings Plan, effective January 1, 2005, so that Defined Pension Plan participants who were
actively employed by the Company on that date would: (1) receive two additional years of benefit
service credit to be used in calculating their Defined Pension Plan benefit (subject to the Defined
Pension Plans limit of 35 years of benefit service credit), (2) have the option to receive their
Defined Pension Plan benefit in the form of a lump sum at the time they retire, and (3) be eligible
to receive the enhanced matching contribution in the Retirement Savings Plan. In addition,
effective January 1, 2005, the Board amended the Defined Pension Plan so that participants would
not accrue any additional benefits under that plan. These changes were communicated to the
Companys employees during the first week of November 2004.
The Company also provides an unfunded pension supplemental executive retirement plan (Pension
SERP), formerly called the Executive Excess Retirement Plan. This plan was frozen with respect to
additional years of service and additional compensation as of December 31, 2004. Benefits under the
plan were based on each participants years of service and highest average compensation, prior to
the freeze. In December 2008, the Pension SERP was amended to allow participants to elect a lump
sum payment and to add the other optional forms of benefit payments currently available under the
Defined Pension Plan.
In addition to the Defined Pension Plan and the Pension SERP, the Company provides an unfunded
postretirement health care and life insurance plan that covers employees who have met certain age
and service requirements. The measurement date for each of the three plans was December 31, 2008
and 2007.
Page 82 Chesapeake Utilities Corporation 2008 Form 10-K
In September 2006, the FASB issued SFAS No. 158, which the Company adopted, prospectively, for the
Defined Pension, Pension SERP and Other Postretirement Benefits on December 31, 2006. SFAS No. 158
requires that we recognize all obligations related to defined benefit pensions and other
postretirement benefits and that we quantify the plans funded status as an asset or a liability on
our consolidated balance sheets.
SFAS No. 158 further requires that we measure the plans assets and obligations that determine our
funded status as of the end of the fiscal year. The Company is also required to recognize as a
component of accumulated other comprehensive income (AOCI) the changes in funded status that
occurred during the year that are not recognized as part of net periodic benefit cost, as explained
in SFAS No. 87 or SFAS No. 106.
At December 31, 2008, the funded status of the Companys Defined Pension Plan was a liability of
$4.9 million; at December 31, 2007, it was a liability of $275,000. In order to account for the
decrease in the funded status in accordance with SFAS No. 158, the Company recorded a charge of
$2.8 million, net of tax, to Comprehensive Income. In addition, the funded status of the
postretirement health and life insurance plan was a liability of $2.2 million at December 31, 2008
compared to $1.8 million at December 31, 2007. To adjust for the increased liability for the
postretirement health and life insurance plan, as required by SFAS No. 158, the Company took a
charge of $30,400, net of tax, to Comprehensive Income.
The amounts in AOCI for the respective retirement plans that are expected to be recognized as a
component of net benefit cost in 2009 are set forth in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined |
|
|
|
|
|
|
Other |
|
|
|
Benefit |
|
|
Pension |
|
|
Postretirement |
|
|
|
Pension |
|
|
SERP |
|
|
Benefit |
|
Prior service cost (credit) |
|
$ |
(4,699 |
) |
|
$ |
13,176 |
|
|
|
|
|
Net loss |
|
$ |
268,276 |
|
|
$ |
59,089 |
|
|
$ |
158,378 |
|
The following table presents the amounts not yet reflected in net periodic benefit cost and
included in AOCI as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined |
|
|
|
|
|
|
Other |
|
|
|
Benefit |
|
|
Pension |
|
|
Postretirement |
|
|
|
Pension |
|
|
SERP |
|
|
Benefit |
|
Prior service cost (credit) |
|
$ |
(20,162 |
) |
|
$ |
118,580 |
|
|
|
|
|
Net loss (gain) |
|
|
4,319,514 |
|
|
|
(175,725 |
) |
|
|
1,049,291 |
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
4,299,352 |
|
|
|
(57,145 |
) |
|
|
1,049,291 |
|
Tax expense (benefit) |
|
|
(1,721,460 |
) |
|
|
20,041 |
|
|
|
(420,136 |
) |
|
|
|
|
|
|
|
|
|
|
AOCI |
|
$ |
2,577,892 |
|
|
$ |
(37,104 |
) |
|
$ |
629,155 |
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plan
As previously described, effective January 1, 2005, the Defined Pension Plan was frozen with
respect to additional years of service or additional compensation. Benefits under the plan were
based on each participants years of service and highest average compensation, prior to the freeze.
The Companys funding policy provides that payments to the trustee
shall be equal to the minimum funding requirements of the Employee Retirement Income Security Act
of 1974. The Company was not required to make any funding payments to the Defined Pension Plan in
2008.
Chesapeake Utilities Corporation 2008 Form 10-K Page 83
Notes to the Consolidated Financial Statements
The following schedule summarizes the assets of the Defined Pension Plan, by investment type, at
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Asset Category |
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
48.70 |
% |
|
|
49.03 |
% |
|
|
77.34 |
% |
Debt securities |
|
|
51.24 |
% |
|
|
50.26 |
% |
|
|
18.59 |
% |
Other |
|
|
0.06 |
% |
|
|
0.71 |
% |
|
|
4.07 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
The asset listed as Other in the above table represents monies temporarily held in money market
funds. The money market fund invests at least 80 percent of its total assets in:
|
|
|
United States Government obligations; and |
|
|
|
|
Repurchase agreements that are fully collateralized by such obligations. |
The investment policy of the Plan calls for an allocation of assets between equity and debt
instruments, with equity being 30 percent and debt at 70 percent, but allowing for a variance of 20
percent in either direction. In addition, as changes are made to holdings, cash, money market funds
or United States Treasury Bills may be held temporarily by the fund. Investments in the following
are prohibited: options, guaranteed investment contracts, real estate, venture capital, private
placements, futures, commodities, limited partnerships and Chesapeake stock; short selling and
margin transactions are prohibited as well. During 2007, Chesapeake modified its investment policy
to allow the Employee Benefits Committee to reallocate investments to better match the expected
life of the plan.
The following schedule sets forth the funded status of the Defined Pension Plan at December 31,
2008 and 2007:
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation beginning of year |
|
$ |
11,073,520 |
|
|
$ |
11,449,725 |
|
Interest cost |
|
|
593,723 |
|
|
|
622,057 |
|
Change in assumptions |
|
|
267,953 |
|
|
|
|
|
Actuarial loss |
|
|
83,704 |
|
|
|
282,684 |
|
Benefits paid |
|
|
(426,652 |
) |
|
|
(1,280,946 |
) |
|
|
|
|
|
|
|
Benefit obligation end of year |
|
|
11,592,248 |
|
|
|
11,073,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets beginning of year |
|
|
10,798,781 |
|
|
|
12,040,287 |
|
Actual return on plan assets |
|
|
(3,683,183 |
) |
|
|
39,440 |
|
Benefits paid |
|
|
(426,652 |
) |
|
|
(1,280,946 |
) |
|
|
|
|
|
|
|
Fair value of plan assets end of year |
|
|
6,688,946 |
|
|
|
10,798,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation: |
|
|
|
|
|
|
|
|
Funded status |
|
|
(4,903,302 |
) |
|
|
(274,739 |
) |
|
|
|
|
|
|
|
Accrued pension cost |
|
$ |
(4,903,302 |
) |
|
$ |
(274,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions: |
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.25 |
% |
|
|
5.50 |
% |
Expected return on plan assets |
|
|
6.00 |
% |
|
|
6.00 |
% |
The Company reviewed the assumptions used for the discount rate to calculate the benefit obligation
of the plan and has elected a rate of 5.25 percent in 2008, reflecting a reduction of 25 basis
points in the interest rates of high-quality bonds in 2008, and reflecting the expected life of the
plan, in light of the lump-sum-payment option. In addition, the average expected return on plan
assets for the Defined Pension Plan remained constant at six percent due to the adoption of a
change in the investment policy that allows for a higher level of investment in bonds and a lower
level of equity investments. Since the Plan is frozen with respect to additional years of service
and compensation, the rate of assumed compensation rate increases is not applicable. The
accumulated benefit obligation was $11.6 million and $11.1 million at December 31, 2008 and 2007,
respectively.
Page 84 Chesapeake Utilities Corporation 2008 Form 10-K
Net periodic pension benefit for the Defined Pension Plan for 2008, 2007, and 2006 include the
components shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Components of net periodic pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
593,723 |
|
|
$ |
622,057 |
|
|
$ |
635,877 |
|
Expected return on assets |
|
|
(629,432 |
) |
|
|
(696,398 |
) |
|
|
(690,533 |
) |
Amortization of prior service cost |
|
|
(4,699 |
) |
|
|
(4,699 |
) |
|
|
(4,699 |
) |
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit |
|
$ |
(40,408 |
) |
|
$ |
(79,040 |
) |
|
$ |
(59,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.50 |
% |
|
|
5.50 |
% |
|
|
5.25 |
% |
Expected return on plan assets |
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
Pension Supplemental Executive Retirement Plan
As previously described, this plan was frozen with respect to additional years of service and
additional compensation as of December 31, 2004. Benefits under the plan were based on each
participants years of service and highest average compensation, prior to the freeze. The
accumulated benefit obligation for the Pension SERP, which is unfunded, was $2.5 million and $2.3
million at December 31, 2008 and 2007, respectively.
The following schedule sets forth the status of the Pension SERP:
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation beginning of year |
|
$ |
2,326,250 |
|
|
$ |
2,286,970 |
|
Interest cost |
|
|
124,771 |
|
|
|
123,361 |
|
Actuarial (gain) loss |
|
|
39,227 |
|
|
|
5,123 |
|
Amendments |
|
|
118,580 |
|
|
|
|
|
Benefits paid |
|
|
(89,204 |
) |
|
|
(89,204 |
) |
|
|
|
|
|
|
|
Benefit obligation end of year |
|
|
2,519,624 |
|
|
|
2,326,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets beginning of year |
|
|
|
|
|
|
|
|
Employer contributions |
|
|
89,204 |
|
|
|
89,204 |
|
Benefits paid |
|
|
(89,204 |
) |
|
|
(89,204 |
) |
|
|
|
|
|
|
|
Fair value of plan assets end of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation: |
|
|
|
|
|
|
|
|
Funded status |
|
|
(2,519,624 |
) |
|
|
(2,326,250 |
) |
|
|
|
|
|
|
|
Accrued pension costs |
|
$ |
(2,519,624 |
) |
|
$ |
(2,326,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions: |
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.25 |
% |
|
|
5.50 |
% |
The Company reviewed the assumptions used for the discount rate of the plan to calculate the
benefit obligation and has elected a rate of 5.25 percent, reflecting a reduction of 25 basis
points in the interest rates of high-quality bonds in 2008 and a reduction in the expected life of
the plan. Since the Plan is frozen in regard to additional years of service and compensation, the
rate of assumed pay-rate increases is not applicable. The measurement dates for the Pension SERP
were December 31, 2008 and 2007.
Chesapeake Utilities Corporation 2008 Form 10-K Page 85
Notes to the Consolidated Financial Statements
Net periodic pension costs for the Pension SERP for 2008, 2007, and 2006 include the components
shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Components of net periodic pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
124,771 |
|
|
$ |
123,361 |
|
|
$ |
119,588 |
|
Amortization of actuarial loss |
|
|
45,416 |
|
|
|
51,734 |
|
|
|
57,039 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
170,187 |
|
|
$ |
175,095 |
|
|
$ |
176,627 |
|
|
|
|
|
|
|
|
|
|
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.50 |
% |
|
|
5.50 |
% |
|
|
5.25 |
% |
Other Postretirement Benefits
The Company sponsors an unfunded postretirement health care and life insurance plan that covers
substantially all employees. The following schedule sets forth the status of the postretirement
health care and life insurance plan:
|
|
|
|
|
|
|
|
|
At December 31, |
|
2008 |
|
|
2007 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation beginning of year |
|
$ |
1,755,564 |
|
|
$ |
1,763,108 |
|
Retirees |
|
|
551,684 |
|
|
|
56,123 |
|
Fully-eligible active employees |
|
|
(19,329 |
) |
|
|
21,012 |
|
Other active |
|
|
(109,852 |
) |
|
|
(84,679 |
) |
|
|
|
|
|
|
|
Benefit obligation end of year |
|
$ |
2,178,067 |
|
|
$ |
1,755,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets beginnning of year |
|
|
|
|
|
|
|
|
Employer contributions |
|
|
39,598 |
|
|
|
243,660 |
|
Plan participants contributions |
|
|
103,572 |
|
|
|
100,863 |
|
Benefits paid |
|
|
(143,170 |
) |
|
|
(344,523 |
) |
|
|
|
|
|
|
|
Fair value of plan assets end of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation: |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(2,178,067 |
) |
|
$ |
(1,755,564 |
) |
|
|
|
|
|
|
|
Accrued OPRB costs |
|
$ |
(2,178,067 |
) |
|
$ |
(1,755,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions: |
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.25 |
% |
|
|
5.50 |
% |
Net periodic postretirement costs for 2008, 2007, and 2006 include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Components of net periodic postretirement cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
2,826 |
|
|
$ |
6,203 |
|
|
$ |
9,194 |
|
Interest cost |
|
|
114,282 |
|
|
|
101,776 |
|
|
|
93,924 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation |
|
|
|
|
|
|
|
|
|
|
22,282 |
|
Actuarial loss |
|
|
289,838 |
|
|
|
166,423 |
|
|
|
144,694 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement cost |
|
$ |
406,946 |
|
|
$ |
274,402 |
|
|
$ |
270,094 |
|
|
|
|
|
|
|
|
|
|
|
The health care inflation rate for 2008 used to calculate the benefit obligation is assumed to be
five percent for medical and six percent for prescription drugs. A one-percentage-point increase in
the health care inflation rate from the assumed rate would increase the accumulated postretirement
benefit obligation by approximately $347,300 as of January 1, 2009, and would increase the
aggregate of the service cost and interest cost components of the net periodic postretirement
benefit cost for 2009 by approximately $20,000. A one-percentage-point decrease in the health care
inflation rate from the assumed rate would decrease the accumulated postretirement benefit
obligation by approximately $282,500 as of January 1, 2009, and would decrease the aggregate of the
service cost and interest cost components of the net periodic
postretirement benefit cost for 2009 by approximately $16,000. The measurement dates were December
31, 2008 and 2007.
Page 86 Chesapeake Utilities Corporation 2008 Form 10-K
Estimated Future Benefit Payments
The schedule below shows the estimated future benefit payments for each of the years 2009 through
2013 and the aggregate of the next five years for each of the plans previously described.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined |
|
|
Pension |
|
|
Other Post- |
|
|
|
Benefit |
|
|
Supplemental |
|
|
Retirement |
|
|
|
Pension Plan(1) |
|
|
Executive Retirement(2) |
|
|
Benefits(2) |
|
2009 |
|
$ |
1,116,199 |
|
|
$ |
87,810 |
|
|
$ |
224,683 |
|
2010 |
|
|
936,064 |
|
|
|
805,978 |
|
|
|
237,850 |
|
2011 |
|
|
441,760 |
|
|
|
84,623 |
|
|
|
215,670 |
|
2012 |
|
|
1,351,260 |
|
|
|
82,833 |
|
|
|
226,548 |
|
2013 |
|
|
491,266 |
|
|
|
80,911 |
|
|
|
220,874 |
|
Years 2014 through 2018 |
|
|
3,643,521 |
|
|
|
585,796 |
|
|
|
1,201,769 |
|
|
|
|
(1) |
|
The pension plan is funded; therefore, benefit payments are expected to be paid out of the plan assets. |
|
(2) |
|
Benefit payments are expected to be paid out of the general funds of the Company. |
In
2009, the Company expects to contribute $450,000 to the Defined
Pension Plan and $87,810 to the
Pension SERP and $224,683 to the Other Postretirement Benefit Plan
for these two plans are unfunded.
Retirement Savings Plan
The Company sponsors a 401(k) Retirement Savings Plan, which provides participants a mechanism for
making contributions for retirement savings. Each participant may make pre-tax contributions of up
to 80 percent of eligible base compensation, subject to Internal Revenue Service limitations. These
participants were eligible for the enhanced matching described below, effective January 1, 2005.
Effective January 1, 1999, the Company began offering an enhanced 401(k) Plan to all new employees,
as well as existing employees who elected to no longer participate in the Defined Pension Plan. The
Company makes matching contributions on up to six percent of each employees eligible pre-tax
compensation for the year, except for the employees of our Advanced Information Services segment.
The match is between 100 percent and 200 percent of the employees contribution, based on the
employees age and years of service. The first 100 percent is matched with Chesapeake common stock;
the remaining match is invested in the Companys 401(k) Plan according to each employees election
options.
Effective July 1, 2006, the Companys contribution made on behalf of the Advanced Information
Services segment employees, is a 50 percent matching contribution, on up to six percent of the
employees annual compensation. The matching contribution is funded in Chesapeake common stock. The
Plan was also amended at the same time to enable it to receive discretionary profit-sharing
contributions in the form of employee pre-tax deferrals. The extent to which the Advanced
Information Services segment has any dollars available for profit-sharing is dependent upon the
extent to which the segments actual earnings exceed budgeted earnings. Any profit-sharing dollars
made available to employees can be deferred into the Plan and/or paid out in the form of a bonus.
On December 1, 2001, the Company converted the 401(k) fund holding Chesapeake stock to an Employee
Stock Ownership Plan.
Chesapeake Utilities Corporation 2008 Form 10-K Page 87
Notes to the Consolidated Financial Statements
Effective January 1, 1999, the Company began offering a non-qualified supplemental employee
retirement savings plan (401(k) SERP) open to Company executives over a specific income
threshold. Participants receive a cash-only matching contribution percentage equivalent to their
401(k) match level. All contributions and matched funds can be invested among the mutual funds
available for investment. These same funds are available for investment of employee contributions
within the Retirement Savings Plan. All obligations arising under the 401(k) SERP are payable from
the general assets of Chesapeake, although Chesapeake has established a Rabbi Trust for the 401(k)
SERP. As discussed
further in Note F Investments, to the Consolidated Financial Statements, the assets held in the
Rabbi Trust had a fair value of $1.6 million and $1.9 million at December 31, 2008 and 2007,
respectively. The assets of the Rabbi Trust are at all times subject to the claims of Chesapeakes
general creditors.
The Companys contributions to the 401(k) plans totaled $1.55 million, $1.48 million, and $1.61
million for the years ended December 31, 2008, 2007, and 2006, respectively. As of December 31,
2008, there are 42,656 shares reserved to fund future contributions to the Retirement Savings Plan.
Deferred Compensation Plan
On December 7, 2006, the Board of Directors approved the Chesapeake Utilities Corporation Deferred
Compensation Plan (Deferred Compensation Plan), as amended, effective January 1, 2007. The
Deferred Compensation Plan is a non-qualified, deferred compensation arrangement under which
certain executives and members of the Board of Directors are able to defer payment of part or all
of certain specified types of compensation, including executive cash bonuses, executive performance
shares, and directors retainer and fees. At December 31, 2008, the Deferred Compensation Plan
consists solely of shares of common stock related to the deferral of executive performance shares
and directors stock retainers.
Participants in the Deferred Compensation Plan are able to elect the payment of benefits to begin
on a specified future date after the election is made in the form of a lump sum or annual
installments. Deferrals of executive cash bonuses and directors cash retainers and fees are paid
in cash. All deferrals of executive performance shares and directors stock retainers are paid in
shares of the Companys common stock, except that cash shall be paid in lieu of fractional shares.
The Company established a Rabbi Trust in connection with the Deferred Compensation Plan. The value
of the Companys stock held in the Rabbi Trust is classified within the stockholders equity
section of the Balance Sheet and has been accounted for in a manner similar to treasury stock. The
amounts recorded under the Deferred Compensation Plan totaled $1.5 million and $1.4 million at
December 31, 2008 and 2007, respectively.
M. Share-Based Compensation Plans
The Company accounts for its share-based compensation arrangements under SFAS No. 123R, which
requires companies to record compensation costs for all share-based awards over the respective
service period for employee services received in exchange for an award of equity or equity-based
compensation. The compensation cost is based on the fair value of the grant on the date it was
awarded. The Company currently has two share-based compensation plans, the Directors Stock
Compensation Plan (DSCP) and the Performance Incentive Plan (PIP), that require accounting
under SFAS 123R.
The table below presents the amounts included in net income related to share-based compensation
expense, for the restricted stock awards issued under the DSCP and the PIP.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Directors Stock Compensation Plan |
|
$ |
180,037 |
|
|
$ |
180,920 |
|
|
$ |
165,340 |
|
Performance Incentive Plan |
|
|
640,138 |
|
|
|
809,030 |
|
|
|
544,450 |
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense |
|
|
820,175 |
|
|
|
989,950 |
|
|
|
709,790 |
|
Less: tax benefit |
|
|
326,585 |
|
|
|
386,080 |
|
|
|
276,820 |
|
|
|
|
|
|
|
|
|
|
|
Amounts included in net income |
|
$ |
493,590 |
|
|
$ |
603,870 |
|
|
$ |
432,970 |
|
|
|
|
|
|
|
|
|
|
|
Page 88 Chesapeake Utilities Corporation 2008 Form 10-K
Stock Options
The Company did not have any stock options outstanding at December 31, 2008 or December 31, 2007,
nor were any stock options issued during 2008 and 2007.
Directors Stock Compensation Plan
Under the DSCP, each non-employee director of the Company received in 2008 an annual retainer of
650 shares of common stock and additional shares of common stock to serve as a committee
chairperson. For 2008, the Corporate Governance and Compensation Committee Chairperson each
received 150 additional shares of common stock and the Audit Committee Chairperson received 250
additional shares of common stock. Shares granted under the DSCP are issued in advance of the
directors service period; therefore, these shares are fully vested as of the date of the grant.
The Company records a prepaid expense as of the date of the grant equal to the fair value of the
shares issued and amortizes the expense equally over a service period of one year.
A summary of stock activity under the DSCP is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average Grant |
|
|
|
Shares |
|
|
Date Fair Value |
|
Outstanding December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
5,850 |
|
|
$ |
31.38 |
|
Vested |
|
|
5,850 |
|
|
$ |
31.38 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted (a) |
|
|
6,161 |
|
|
$ |
29.43 |
|
Vested |
|
|
6,161 |
|
|
$ |
29.43 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On September 15, 2008, the Company added a new member to its Board of Directors. The number of shares issued to this Director for her annual retainer was prorated. |
Compensation expense related to DSCP awards recorded by the Company for the years 2008, 2007, and
2006 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Compensation expense for DSCP |
|
$ |
180,037 |
|
|
$ |
180,920 |
|
|
$ |
165,340 |
|
The weighted-average grant-date fair value of DSCP awards granted during fiscal 2008 and 2007 was
$29.43 and $31.38, respectively, per share. The intrinsic values of the DSCP awards are equal to
the fair market value of these awards on the date of grant. At December 31, 2008, there was $62,470
of unrecognized compensation expense related to DSCP awards that is expected to be recognized over
the first four months of 2009.
As of December 31, 2008, there were 51,289 shares reserved for issuance under the terms of the
Companys DSCP.
Performance Incentive Plan (PIP)
The Companys Compensation Committee of the Board of Directors is authorized to grant key employees
of the Company the right to receive awards of shares of the Companys common stock, contingent upon
the achievement of established performance goals. These awards granted under the PIP are subject to
certain post-vesting transfer restrictions.
Chesapeake Utilities Corporation 2008 Form 10-K Page 89
Notes to the Consolidated Financial Statements
In 2006 and 2007, the Board of Directors granted each executive officer equity incentive awards,
which entitled each to earn shares of common stock to the extent that pre-established performance
goals were achieved by the Company at the end of a one-year performance period. For 2008, the
Company adopted multi-year performance plans to be used in lieu of the one-year awards. Similar to
the one-year plans, the multi-year plans will provide incentives based upon the achievement of
long-term goals, development and success of the Company. The long-term goals have both market-based
and performance-based conditions or targets.
The shares granted under the PIP in 2006 and 2007 are fully vested, and the fair value of each
share is equal to the market price of the Companys common stock on the date of the grant. The
shares granted under the 2008 long-term plans are unvested at December 31, 2008, and the fair value
of each performance-based condition or target is equal to the market price of the Companys common
stock on the date of the grant. For the market-based conditions, we used the Black-Scholes pricing
model to estimate the fair value of each market-based award granted.
A summary of stock activity under the PIP is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average Fair |
|
|
|
Shares |
|
|
Value |
|
Outstanding December 31, 2006 |
|
|
31,140 |
|
|
$ |
31.00 |
|
|
|
|
|
|
|
|
Granted |
|
|
33,760 |
|
|
$ |
29.90 |
|
Vested |
|
|
12,544 |
|
|
$ |
31.00 |
|
Fortfeited |
|
|
6,820 |
|
|
$ |
31.00 |
|
Expired |
|
|
11,776 |
|
|
$ |
31.00 |
|
|
|
|
|
|
|
|
Outstanding December 31, 2007 |
|
|
33,760 |
|
|
$ |
29.90 |
|
|
|
|
|
|
|
|
Granted |
|
|
94,200 |
|
|
$ |
27.71 |
|
Vested |
|
|
31,094 |
|
|
$ |
29.90 |
|
Fortfeited |
|
|
|
|
|
|
|
|
Expired |
|
|
2,666 |
|
|
$ |
29.90 |
|
|
|
|
|
|
|
|
Outstanding December 31, 2008 |
|
|
94,200 |
|
|
$ |
27.71 |
|
|
|
|
|
|
|
|
For the years 2008 and 2007, the Company withheld shares with value equivalent to the employees
minimum statutory obligation for the applicable income and other employment taxes, and remitted the
cash to the appropriate taxing authorities with the executives receiving the net shares. The total
number of shares withheld (12,511) for 2008 was based on the value of the PIP shares on their
vesting date as determined by the average of the high and low of the Companys stock price. The
total number of shares withheld (2,420) for 2007 was based on the value of the PIP shares on their
vesting date as determined by the closing price of the Companys stock. Total payments for the
employees tax obligations to the taxing authorities were approximately $382,650 and $69,200 in
2008 and 2007, respectively.
Compensation expense related to the PIP recorded by the Company during 2008, 2007, and 2006 is
presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Compensation expense for PIP |
|
$ |
640,138 |
|
|
$ |
809,030 |
|
|
$ |
544,450 |
|
The weighted-average grant-date fair value of PIP awards granted during fiscal 2008, 2007 and 2006
was $27.71, $29.90 and $31.00, respectively, per share. The intrinsic value of the PIP awards was
$1,080,161 for 2008. The intrinsic values of the 2007 and 2006 PIP awards are equal to the fair
market value of these awards on the date of grant.
As of December 31, 2008, there were 371,293 shares reserved for issuance under the terms of the
Companys PIP.
Page 90 Chesapeake Utilities Corporation 2008 Form 10-K
N. Environmental Commitments and Contingencies
Chesapeake is subject to federal, state and local laws and regulations governing environmental
quality and pollution control. These laws and regulations require the Company to remove or remedy
the effect on the environment of the disposal or release of specified substances at current and
former operating sites.
Chesapeake has participated in the investigation, assessment or remediation, and has accrued
liabilities, at three former manufactured gas plant sites located in Delaware, Maryland and
Florida, referred to, respectively, as the Dover Gas Light Site, the Salisbury Town Gas Light Site
and the Winter Haven Coal Gas Site. The Company has also been in discussions with the Maryland
Department of Environmental (MDE) regarding a fourth former manufactured gas plant site located
in Cambridge, Maryland. The following discussion provides details on each site.
Dover Gas Light Site
The Dover Gas Light site is a former manufactured gas plant site located in Dover, Delaware. On
January 15, 2004, the Company received a Certificate of Completion of Work from the United States
EPA regarding this site. This concluded Chesapeakes remedial action obligation related to this
site and relieves Chesapeake from liability for future remediation at the site, unless previously
unknown conditions are discovered there, or information previously unknown to the EPA is received
which indicates that the remedial action that has been taken is not sufficiently protective. These
contingencies are standard and are required by the EPA in all liability settlements.
The Company has reviewed its remediation costs incurred to date for the Dover Gas Light site and
has concluded that all costs incurred have been paid and recovered through rates or other parties.
The Company does not expect any future environmental expenditure for this site. On February 5,
2008, the Delaware PSC granted final approval to cease the recovery of environmental costs through
the Companys Environmental Rider recovery mechanism, effective November 30, 2008. Any residual
balance shall be included in the Companys Gas Sales Service Rate application.
Salisbury Town Gas Light Site
In cooperation with the MDE, the Company has completed remediation of the Salisbury Town Gas Light
site, located in Salisbury, Maryland, where it was determined that a former manufactured gas plant
had caused localized ground-water contamination. During 1996, the Company completed construction of
an Air Sparging and Soil-Vapor Extraction (AS/SVE) system and began remediation procedures.
Chesapeake has reported the remediation and monitoring results to the MDE on an ongoing basis since
1996. In February 2002, the MDE granted permission to decommission permanently the AS/SVE system
and to discontinue all on-site and off-site well monitoring, except for one well which is being
maintained for continued product monitoring and recovery. Chesapeake has requested and is awaiting
a No Further Action determination from the MDE.
Through December 31, 2008, the Company has incurred and paid approximately $2.9 million for
remedial actions and environmental studies at the Salisbury Town Gas Light site. Of this amount,
approximately $2.03 million has been recovered through insurance proceeds or in rates. On September
26, 2006, the Company received approval from the Maryland PSC to recover, through its rates charged
to customers, $1.16 million of environmental remediation costs incurred as of that date. As of
December 31, 2008, a regulatory asset of approximately $899,000 has been recorded to represent the
portion of the clean-up costs not yet recovered.
Winter Haven Coal Gas Site
The Winter Haven Coal Gas site is located in Winter Haven, Florida. Chesapeake has been working
with the Florida Department of Environmental Protection (FDEP) in assessing this coal gas site.
In May 1996, the Company filed with the FDEP an AS/SVE Pilot Study Work Plan (the Work Plan) for
the Winter Haven Coal Gas site. After discussions with the FDEP, the Company filed a modified Work
Plan, which contained a description of the scope of work to complete the site assessment activities
and a report describing a limited sediment investigation performed in 1997. In December 1998, the
FDEP approved the modified Work Plan, which the Company completed during the third quarter of
1999. In February 2001, the Company filed a Remedial Action Plan (RAP) with the FDEP to address
the contamination of the subsurface soil and ground-water in a portion of the site. The FDEP
approved the RAP on May 4, 2001. Construction of the AS/SVE system was completed in the fourth
quarter of 2002, and the system remains fully operational.
Chesapeake Utilities Corporation 2008 Form 10-K Page 91
Notes to the Consolidated Financial Statements
Through December 31, 2008, the Company has incurred approximately $1.8 million of environmental
costs associated with this site. At December 31, 2008, the Company had recorded a liability
associated with this site of $511,000, which partially offsetting (a) approximately $268,000
collected through rates in excess of costs incurred and (b) a regulatory asset of $779,000,
representing the uncollected portion of the estimated clean-up costs related to this site.
The FDEP has indicated that the Company may be required to remediate sediments along the shoreline
of Lake Shipp, immediately west of the Winter Haven Coal Gas site. Based on studies performed to
date, the Company objects to the FDEPs suggestion that the sediments have been contaminated and
will require remediation. The Companys early estimates indicate that some of the corrective
measures discussed by the FDEP may cost as much as $1 million. Given the Companys view as to the
absence of ecological effects, the Company believes that cost expenditures of this magnitude are
unwarranted and intends to oppose any requirement that it undertake corrective measures in the
offshore sediments. Chesapeake anticipates that it will be several years before this issue is
resolved. At this time, the Company has not recorded a liability for sediment remediation. The
outcome of this matter cannot be predicted at this time.
Other
The Company is in discussions with the MDE regarding a manufactured gas plant site located in
Cambridge, Maryland. The outcome of this matter cannot be determined at this time; therefore, the
Company has not recorded an environmental liability for this location.
O. Other Commitments and Contingencies
Rates and Other Regulatory Activities
The Companys natural gas distribution operations in Delaware, Maryland and Florida are subject to
regulation by their respective PSCs; ESNG, the Companys natural gas transmission operation, is
subject to regulation by the FERC.
Delaware. On July 6, 2007, the Company filed with the Delaware PSC an application seeking
approval of the following: (i) participation by the Companys Delaware commercial and industrial
customers in gas supply buying pools served by third-party natural gas marketers; (ii) an annual
base rate adjustment of $1,896,000 that represented approximately a 3.25 percent rate increase on
average for the divisions firm customers; (iii) an alternative rate design for residential
customers in a defined expansion area in eastern Sussex County, Delaware; and (iv) a revenue
normalization mechanism that would have mitigated the price and revenue impacts of seasonal natural
gas consumption patterns on both customers and the Company. As part of that filing, the Company
also proposed that the Delaware division be permitted to earn a return on equity of up to fifteen
percent (15%) as an incentive to make significant capital investments to serve the growing areas of
eastern Sussex County, in support of Delawares Energy Policy, and to ensure that the Companys
investors are adequately compensated for the increased risk associated with the higher levels of
capital investment necessary to provide natural gas in those areas. On August 21, 2007, the
Delaware PSC authorized the Company to implement charges reflecting the proposed $1,896,000
increase, effective September 4, 2007, on a temporary basis and subject to refund, pending the
completion of full evidentiary hearings and a final decision by the Delaware PSC. The PSC Staff
filed testimony recommending a rate decrease of $693,245. The Delaware Public Advocate recommended
a rate decrease of $588,670. Neither party recommended approval of the Delaware divisions other
proposals mentioned above. The Delaware division disagreed with these positions in its rebuttal,
which was filed on February 7, 2008. At an evidentiary hearing on July 9, 2008, the parties
presented a joint proposed settlement agreement to resolve all issues in this docket, and the
Delaware PSC approved this settlement agreement on September 2, 2008. The major components of the
settlement include the following: (i) a rate increase for the division of $325,000, including
miscellaneous fees; (ii) an
overall rate of return of 8.91% and a return on equity of 10.25%; (iii) a change in depreciation
rates that will reduce depreciation expense by approximately $897,000; (iv) the division will
retain one hundred percent (100%) of margins on interruptible service over 10,000 Mcf per year;
interruptible customers will receive transportation service only; (v) the division will continue to
share with firm service customers, through its Gas Sales Service Rates (GSR) mechanism, eighty
percent (80%) of any margins received from its Asset Manager and any off-system sales; and (vi) the
residential service rate schedule will be divided into two separate schedules based on annual
volumetric levels.
Page 92 Chesapeake Utilities Corporation 2008 Form 10-K
On September 10, 2007, the Company filed with the Delaware PSC its annual GSR Application, seeking
approval to change its GSR rates, effective November 1, 2007. On October 2, 2007, the Delaware PSC
authorized the Company to implement the GSR charges on a temporary basis, subject to refund,
pending the completion of full evidentiary hearings and a final decision. The Company was required
by its natural gas tariff to file a revised application if its projected under-collection of gas
costs for the determination period of November through October exceeded six percent (6%) of total
firm gas costs. As a result of continued increases in the cost of natural gas, the Company filed
with the Delaware PSC, on July 1, 2008, a supplemental GSR Application, seeking approval to change
its GSR rates, effective August 1, 2008. On July 8, 2008, the Delaware PSC authorized the Company
to implement the supplemental GSR charges on a temporary basis, subject to refund, pending the
completion of full evidentiary hearings and a final decision. The Delaware PSC granted final
approval of both of the Delaware Divisions GSR rate filings on October 7, 2008.
On November 1, 2007, the Delaware division filed with the Delaware PSC its annual Environmental
Rider (ER) rate application, to become effective December 1, 2007. The Delaware PSC granted
approval of the ER rate at its regularly scheduled meeting on November 20, 2007, subject to full
evidentiary hearings and a final decision. On February 5, 2008, the Delaware PSC granted final
approval of the ER rates, as filed. Since all of the divisions environmental expenses subject to
recovery pursuant to the ER recovery mechanism will have been collected by the end of the
determination period, no additional ER rate applications will be filed, and ER charges ceased to
appear on customers bills as of November 30, 2008.
On September 1, 2008, the Delaware division filed with the Delaware PSC its annual GSR Application,
seeking approval to change its GSR rates, effective November 1, 2008. On September 16, 2008, the
Delaware PSC authorized the Company to implement the GSR charges on a temporary basis, subject to
refund, pending the completion of full evidentiary hearings and a final decision. The Company
anticipates a final decision by the Delaware PSC during the first half of 2009.
On September 29, 2008, the Delaware division filed an application with the Delaware PSC, requesting
approval for the issuance of $10,000,000 of debt securities. The PSC granted approval of the
issuance at its regularly scheduled meeting on October 23, 2008.
On December 2, 2008, the Delaware division filed two applications with the Delaware PSC requesting
approval for a Town of Milton Franchise Fee Rider and a City of Seaford Franchise Fee Rider. These
Riders will allow the division to charge all natural gas customers within the respective town and
city limits the franchise fee paid by the division to the Town of Milton and City of Seaford as a
condition to providing natural gas service. The PSC granted approval of both Franchise Fee Riders
on January 29, 2009.
Maryland. On September 26, 2006, the Maryland PSC approved a base rate increase for the
Maryland division based on an annual cost of service increase of approximately $780,000. As part
of a settlement agreement in that proceeding, however, the division was required to file a
depreciation study, and it did so on April 9, 2007. The division then filed formal testimony on
July 10, 2007, initiating a Phase II of this proceeding and proposing a rate decrease of
approximately $80,000 annually, based on lower depreciation expense. On November 29, 2007, the PSC
approved a settlement agreement for a rate decrease of $132,155 based on the Companys revised
approved depreciation rates, effective December 1, 2007. Under the settlement, the division reduced
its depreciation expense by approximately $119,000 and its asset removal costs by approximately
$167,000. The difference between the decrease in depreciation expense and the
decrease in delivery service rates is due to an increase in rate case expense amortization and an
increase in rates to offset the loss of margin from a large customer in Maryland.
Chesapeake Utilities Corporation 2008 Form 10-K Page 93
Notes to the Consolidated Financial Statements
On December 17, 2007, the Maryland PSC held an evidentiary hearing to determine the reasonableness
of the Maryland divisions four quarterly gas cost recovery filings during the twelve months ended
September 30, 2007. No issues were raised at the hearing, and on February 7, 2008, the Maryland PSC
approved, without exception, the divisions four quarterly gas cost recovery filings.
On December 16, 2008, the Maryland PSC held an evidentiary hearing to determine the reasonableness
of the Maryland divisions four quarterly gas cost recovery filings during the twelve months ended
September 30, 2008. No issues were raised at the hearing, and on December 19, 2008, the Hearing
Examiner in this proceeding issued a proposed Order approving the divisions four quarterly gas
cost recovery filings, which became a final Order of the Maryland PSC on January 21, 2009.
Florida. In compliance with state law, the Florida division filed its 2007 Depreciation
Study (Study) with the Florida PSC on May 17, 2007. This Study, which superseded the last study
performed in 2002, provided the PSC the opportunity to review and address changes in plant and
equipment lives, salvage values, reserves and resulting life depreciation rates. The division
responded to interrogatories regarding the Study on October 15, 2007, December 24, 2007, and
February 7, 2008. Based on the recommendation issued by the PSC Staff, the Commission, at its May
20, 2008 agenda conference, approved certain revisions to the divisions utility plant remaining
lives, net salvage values, depreciation reserves, and depreciation rates, effective January 1,
2008. The Florida PSC issued an order on June 27, 2008, which closed this docket.
On August 15, 2008, the Company filed with the Florida PSC a petition seeking a permanent waiver of
certain aspects of meter-reading rules that could prevent the Company and its customers from
realizing fully the accuracy and efficiency benefits of automatic meter-reading equipment, which
enables the Company to take daily meter readings remotely for every customer. Existing Commission
rules, established well before automatic meter-reading technology existed, can be read to require a
monthly visit to each customer to take a reading from a meter located on the customers premises.
The Commission, at its October 14, 2008 Agenda Conference, approved the Companys petition, with a
minor modification requiring the Company to read all meters physically once each year. The Florida
PSC issued an order on November 3, 2008 confirming its approval and a consummating order on
December 2, 2008, which closed this docket.
On August 18, 2008, the Company filed with the Florida PSC a petition seeking recovery of costs
incurred to implement Phase 2 of its experimental Transitional Transportation Service program. The
Company incurred certain incremental, non-recurring costs from May 2007 through June 2008 ($77,980)
and is projecting that it will incur additional non-recurring expenses through May 2009 ($100,000)
for a total of approximately $177,980. The Company is seeking recovery of these expenses, plus
applicable Regulatory Assessment Fees and interest, through a fixed monthly surcharge from the two
approved Transitional Transportation Service Shippers on the Companys system. The Florida PSC
approved the Companys petition at its October 14, 2008 Agenda Conference. The PSC issued an order
on November 3, 2008, and a consummating order on November 26, 2008, which closed this docket.
ESNG. ESNG had the following regulatory activity with the FERC regarding the expansion of
its transmission system:
System Expansion 2006 2008. On November 15, 2007, ESNG requested FERC authorization to
commence construction of facilities (approximately nine miles) included in the third phase of
the 2006-08 System Expansion. The FERC granted this authorization on January 7, 2008.
Construction began in January 2008, and the facilities were completed and have been placed in
service. The 2008 facilities provide 5,650 Dts of additional firm service capacity per day and
an annualized gross margin contribution of approximately $988,000. ESNG has until June 2009 to
construct the remaining facilities that were included in the 2006-08 System Expansion filing
with the FERC, that will
provide for the remaining 7,200 Dts of additional firm service capacity approved by the FERC,
and which will permit ESNG to earn additional annualized gross margin of approximately $1.
million.
Page 94 Chesapeake Utilities Corporation 2008 Form 10-K
E3 Project. In 2006, ESNG proposed to develop, construct and operate approximately 75
miles of new pipeline facilities to transport natural gas from the existing Cove Point Liquefied
Natural Gas terminal located in Calvert County, Maryland, crossing under the Chesapeake Bay into
Dorchester and Caroline Counties, Maryland, to points on the Delmarva Peninsula, where such
facilities would interconnect with ESNGs existing facilities in Sussex County, Delaware.
On May 31, 2006, ESNG entered into Precedent Agreements (the Precedent Agreements) with
Delmarva Power & Light Co. and Chesapeake, through its Delaware and Maryland divisions, to
provide additional firm transportation services upon completion of the E3 Project. Both
Chesapeake and Delmarva Power & Light Co. are parties to existing firm natural gas
transportation service agreements with ESNG, and each desired additional firm transportation
service under the E3 Project, as evidenced by the Precedent Agreements. Pursuant to the
Precedent Agreements, the parties agreed to proceed with the required initiatives to obtain the
governmental and regulatory authorizations necessary for ESNG to provide, and for Chesapeake and
Delmarva Power & Light Co. to utilize, additional firm transportation service under the E3
Project.
As part of the Precedent Agreements, ESNG, Chesapeake and Delmarva Power & Light Co. also
entered into Letter Agreements, which provide that, if the E3 Project is not certificated and
placed in service, Chesapeake and Delmarva Power & Light Co. will each pay its proportionate
share of certain pre-certification costs by means of a negotiated surcharge over a period of not
less than 20 years.
In furtherance of the E3 Project, ESNG submitted a petition to the FERC on June 27, 2006,
seeking approval of the pre-construction cost agreements as part of a rate-related Settlement
Agreement (the Settlement Agreement), which would provide benefits to ESNG and its customers,
including but not limited to: (1) advancement of a necessary infrastructure project to meet the
growing demand for natural gas on the Delmarva Peninsula; (2) sharing of project development
costs by the participating customers in the E3 Project; and (3) no development cost risk for
non-participating customers. On August 1, 2006, the FERC approved the Settlement Agreement. On
September 6, 2006, ESNG submitted to the FERC proposed tariff sheets to implement the provisions
of the Settlement Agreement. By Letter Order dated October 6, 2006, the FERC accepted the tariff
sheets, effective September 7, 2006.
On April 23, 2007, ESNG submitted to the FERC its request to commence a pre-filing process, and
on May 15, 2007, the FERC notified ESNG that its request had been approved. The pre-filing
process was intended to engage all interested and affected stakeholders early in the process
with the intention of resolving all environmental issues prior to the formal certificate
application being filed. As part of this process, ESNG performed environmental, engineering and
cultural surveys and studies in the interest of protecting the environment, minimizing any
potential impacts to landowners, and cultural resources. ESNG also held meetings with federal,
state and local permitting/regulatory agencies, non-governmental organizations, landowners, and
other interested stakeholders.
As part of an updated engineering study, ESNG received additional construction cost estimates
for the E3 Project, which indicated substantially higher costs than previously estimated. In an
effort to optimize the feasibility of the overall project development plan, ESNG explored all
potential construction methods, construction cost mitigation strategies, potential design
changes and project schedule changes. ESNG also held discussions and meetings with several
potential new customers, who expressed interest in the E3 Project, but elected not to
participate.
On December 20, 2007, ESNG withdrew from the pre-filing process as a result of insufficient
customer commitments for capacity to make the project economical. ESNG will continue to explore
potential construction methods, construction cost mitigation strategies, additional market
requests, and potential design changes in its efforts to improve the overall economics of the E3
project.
If ESNG decides to abandon the E3 Project, it will initiate billing of a pre-certification costs
surcharge in accordance with the terms of the above described Precedent Agreements and Letter
Agreements executed with two of its customers, which provide for these customers to reimburse
ESNG for pre-certification costs incurred in connection with the E3 Project, up to a maximum
amount of $2.0 million each, with interest, over a period of 20 years. As of December 31, 2008,
ESNG had incurred $3.17 million of pre-certification costs relating to the E3 Project.
Chesapeake Utilities Corporation 2008 Form 10-K Page 95
Notes to the Consolidated Financial Statements
ESNG also had developments in the following FERC rate and certificate matters:
Natural Gas Act Section 4 General Rate Proceeding. On June 6, 2007, ESNG and
interested parties reached a settlement agreement in principle on its base rate proceeding
filed with the FERC on October 31, 2006. The negotiated settlement provided for an annual
cost of service of $21,536,000, which reflected a pretax rate of return of 13.6 percent and
a rate increase of approximately $1.07 million on an annual basis. On September 10, 2007,
ESNG submitted its Settlement Offer to the Presiding Administrative Law Judge (ALJ) for
review and certification to the full Commission.
ESNG filed concurrently with its Settlement Agreement a Motion to place the settlement rates
into effect on September 1, 2007, in order to expedite the implementation of the reduced
settlement rates pending final approval of the settlement. The FERC issued an order on
September 25, 2007, authorizing ESNG to commence billing its settlement rates, effective
September 1, 2007.
On October 1, 2007, the Presiding ALJ forwarded to the full Commission an order certifying
the uncontested Settlement Agreement as fair, reasonable, and in the public interest. A
final FERC Order approving the settlement was issued on January 31, 2008. In compliance with
the Settlement Agreement, refunds, inclusive of interest, totaling $1.26 million, based on
the higher interim rates that were effective for the period from May 15, 2007 through August
31, 2007, were distributed to ESNGs customers on February 1, 2008.
Interruptible Revenue Sharing. On May 15, 2008, ESNG submitted its annual
Interruptible Revenue Sharing Report to the FERC. In this filing, ESNG reported that, since
its interruptible service revenue exceeded its annual threshold amount, it refunded a total
of $63,675 in the second quarter of 2008 to its eligible firm service customers in
accordance with the terms of its tariff and the rate case Settlement Agreement described
above.
Fuel Retention Percentage and Cash Out. On June 24, 2008, ESNG submitted its annual
Fuel Retention Percentage and Cash-Out Surcharge filings to the FERC. In these filings, ESNG
proposed to retain its current Fuel Retention Percentage rate of zero percent and also a
zero rate for its Cash-Out Surcharge. ESNG also proposed to refund a total of $412,013,
including interest, to its eligible customers in the third quarter of 2008 as a result of
netting its over-recovered Gas Required for Operations against its under-recovered Cash-Out
Cost. The FERC approved these proposals on July 11, 2008, and customer refunds were
distributed that same month.
Prior Notice Activity Blanket Certificate Authority. On July 2, 2008, ESNG
submitted to the FERC a Prior Notice filing under its Blanket Certificate Authority to add a
new delivery point to serve an industrial customer located in Seaford, Delaware. In
accordance with FERC regulations, a Prior Notice filing requires a 60-day window for
protests. No protests were received, and ESNG was authorized to construct and operate the
new delivery point. In mid-October and prior to the commencement of any construction, the
customer notified ESNG that, based on adverse developments affecting the market for its
products, it did not require the new delivery point. Pursuant to a pre-construction contract
between the parties, the customer reimbursed ESNG a total of $500,000 for pre-construction
costs incurred by ESNG as it pursued this project.
Natural Gas and Propane Supply
The Companys natural gas and propane distribution operations have entered into contractual
commitments to purchase gas from various suppliers. The contracts have various expiration dates. In
March 2008, the Company renewed its contract with an energy marketing and risk management company
to manage a portion of the Companys natural gas transportation and storage capacity. This contract
expires on March 31, 2009. PESCO is currently in the process of obtaining and reviewing proposals
from suppliers and anticipates executing agreements before the existing agreements expire in May
2009.
Page 96 Chesapeake Utilities Corporation 2008 Form 10-K
Corporate Guarantees
The Company has issued corporate guarantees to certain vendors of its subsidiaries, the largest
portion of which are for the Companys propane wholesale marketing subsidiary and its natural gas
supply management subsidiary. These corporate guarantees provide for the payment of propane and
natural gas purchases in the event of the respective subsidiarys default. None of these
subsidiaries has ever defaulted on its obligations to pay its suppliers. The liabilities for these
purchases are recorded in the Consolidated Financial Statements when incurred. The aggregate amount
guaranteed at December 31, 2008 was $22.2 million, with the guarantees expiring on various dates in
2009.
In addition to the corporate guarantees, the Company has issued a letter of credit to its primary
insurance company for $775,000, which expires on May 31, 2009. The letter of credit is provided as
security to satisfy the deductibles under the Companys various insurance policies. There have been
no draws on this letter of credit as of December 31, 2008.
Internal Revenue Service Examination
In November 2007, the Internal Revenue Service (IRS) initiated an examination of our consolidated
federal tax return for the year ended December 31, 2005. During the review, the IRS expanded its
examination to include our 2006 consolidated federal tax return as well.
In September 2008, the IRS completed its examination of our 2005 and 2006 consolidated federal tax
returns and issued its Examination Report. As a result of the examination, the Company reduced its
income tax receivable by $27,000 for the tax liability associated with disallowed expense
deductions included on the tax returns. The Company has amended its 2005 and 2006 federal and
state corporate income tax returns to reflect the disallowed expense deductions.
Other
The Company is involved in certain legal actions and claims arising in the normal course of
business. The Company is also involved in certain legal proceedings and administrative proceedings
before various governmental agencies concerning rates. In the opinion of management, the ultimate
disposition of these proceedings will not have a material effect on the consolidated financial
position, results of operations or cash flows of the Company.
Chesapeake Utilities Corporation 2008 Form 10-K Page 97
Notes to the Consolidated Financial Statements
P. Quarterly Financial Data (Unaudited)
In the opinion of the Company, the quarterly financial information shown below includes all
adjustments necessary for a fair presentation of the operations for such periods and to disclose
OnSight as a discontinued operation. The quarterly information shown has been adjusted to reflect
the reclassification of OnSights operations for all periods presented. Due to the seasonal nature
of the Companys business, there are substantial variations in operations reported on a quarterly
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenue |
|
$ |
100,273,502 |
|
|
$ |
69,056,959 |
|
|
$ |
49,698,013 |
|
|
$ |
72,415,004 |
|
Operating Income |
|
$ |
14,040,715 |
|
|
$ |
4,329,439 |
|
|
$ |
1,170,393 |
|
|
$ |
8,938,386 |
|
Net Income (Loss) |
|
$ |
7,574,343 |
|
|
$ |
1,818,924 |
|
|
$ |
(198,298 |
) |
|
$ |
4,412,291 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.11 |
|
|
$ |
0.27 |
|
|
$ |
(0.03 |
) |
|
$ |
0.65 |
|
Diluted |
|
$ |
1.10 |
|
|
$ |
0.27 |
|
|
$ |
(0.03 |
) |
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenue |
|
$ |
93,526,891 |
|
|
$ |
52,501,920 |
|
|
$ |
41,418,718 |
|
|
$ |
70,838,968 |
|
Operating Income |
|
$ |
14,613,572 |
|
|
$ |
3,698,066 |
|
|
$ |
985,634 |
|
|
$ |
8,816,310 |
|
Net Income (Loss) |
|
$ |
7,991,088 |
|
|
$ |
1,481,791 |
|
|
$ |
(355,898 |
) |
|
$ |
4,080,730 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.19 |
|
|
$ |
0.22 |
|
|
$ |
(0.05 |
) |
|
$ |
0.60 |
|
Diluted |
|
$ |
1.18 |
|
|
$ |
0.22 |
|
|
$ |
(0.05 |
) |
|
$ |
0.60 |
|
Page 98 Chesapeake Utilities Corporation 2008 Form 10-K
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Company, with the participation of
other Company officials, have evaluated the Companys disclosure controls and procedures (as such
term is defined under Rule 13a-15(e) and 15d 15(e) promulgated under the Securities Exchange Act
of 1934, as amended) as of December 31, 2008. Based upon their evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures
were effective as of December 31, 2008.
Changes in Internal Controls
There has been no change in internal control over financial reporting (as such term is defined in
Exchange Act Rule 13a-15(f)) that occurred during the quarter ended December 31, 2008, that
materially affected, or is reasonably likely to materially affect, internal control over financial
reporting.
CEO and CFO Certifications
The Companys Chief Executive Officer and Chief Financial Officer have filed with the SEC the
certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2
to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2008. In
addition, on May 20, 2008, the Companys Chief Executive Officer certified to the NYSE that he was
not aware of any violation by the Company of the NYSE corporate governance listing standards.
Managements Report on Internal Control Over Financial Reporting
The report of management required under this Item 9A is contained in Item 8 of this Form 10-K under
the caption Managements Report on Internal Control over Financial Reporting.
Our independent auditors, Beard Miller Company LLP, have audited and issued their report on
effectiveness of the Companys internal control over financial reporting. That report appears
below.
Chesapeake Utilities Corporation 2008 Form 10-K Page 99
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Chesapeake Utilities Corporation
We have audited Chesapeake Utilities Corporations internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Chesapeake Utilities
Corporations management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control Over Financial Reporting
appearing under Item 8. Our responsibility is to express an opinion on the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Chesapeake Utilities Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Chesapeake Utilities Corporation as of
December 31, 2008 and 2007, and the related consolidated statements of income, stockholders
equity, cash flows and income taxes for the years then ended, and our report dated March 9, 2009
expressed an unqualified opinion.
/s/ Beard Miller Company LLP
Beard Miller Company LLP
Reading, Pennsylvania
March 9, 2009
Page 100 Chesapeake Utilities Corporation 2008 Form 10-K
Item 9B. Other Information.
None
Part III
Item 10. Directors, Executive Officers of the Registrant and Corporate Governanace.
The information required by this Item is incorporated herein by reference to the portions of the
Proxy Statement, captioned Proposal I Election of Directors, Information Regarding the Board
of Directors and Nominees, Corporate Governance Practices and Stockholder Communications
Nomination of Directors, Committees of the Board Audit Committee and Section 16(a) Beneficial
Ownership Reporting Compliance, to be filed not later than March 31, 2009, in connection with the
Companys Annual Meeting to be held on May 6, 2009.
The information required by this Item with respect to executive officers is, pursuant to
instruction 3 of paragraph (b) of Item 401 of Regulation S-K, set forth in this report following
Item 4, as Item 4A, under the caption Executive Officers of the Company.
The Company has adopted a Code of Ethics for Financial Officers, which applies to its principal
executive officer, principal financial officer, principal accounting officer or controller, or
persons performing similar functions. The information set forth under Item 1 hereof concerning the
Code of Ethics for Financial Officers is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the portion of the
Proxy Statement, captioned Director Compensation, Executive Compensation and Compensation
Discussion and Analysis in the Proxy Statement to be filed not later than March 31, 2009, in
connection with the Companys Annual Meeting to be held on May 6, 2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this Item is incorporated herein by reference to the portion of the
Proxy Statement, captioned Beneficial Ownership of Chesapeakes Securities to be filed not later
than March 31, 2009, in connection with the Companys Annual Meeting to be held on May 6, 2009.
Chesapeake Utilities Corporation 2008 Form 10-K Page 101
The following table sets forth information, as of December 31, 2008, with respect to compensation
plans of Chesapeake and its subsidiaries, under which shares of Chesapeake common stock are
authorized for issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
(a) |
|
|
(b) |
|
|
remaining available for future |
|
|
|
Number of securities to |
|
|
Weighted-average |
|
|
issuance under equity |
|
|
|
be issued upon exercise |
|
|
exercise price |
|
|
compensation plans |
|
|
|
of outstanding options, |
|
|
of outstanding options, |
|
|
(excluding securities |
|
|
|
warrants and rights |
|
|
warrants and rights |
|
|
reflected in column (a)) |
|
Equity compensation
plans approved by
security holders |
|
|
|
|
|
|
|
|
|
|
446,632 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved by
security holders |
|
|
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
446,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 371,293 shares under the 2005 Performance Incentive Plan, 51,289 shares available under the 2005 Directors Stock Compensation Plan, and 24,050 shares available under the 2005 Employee Stock Awards Plan. |
|
(2) |
|
All warrants were exercised in 2006. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
None
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to the portion of the
Proxy Statement, captioned Fees and Services of the Independent Public Accounting Firm, to be
filed not later than March 31, 2009, in connection with the Companys Annual Meeting to be held on
May 6, 2009.
Page 102 Chesapeake Utilities Corporation 2008 Form 10-K
Part IV
Item 15. Exhibits, Financial Statement Schedules.
(a) |
|
The following documents are filed as part of this report: |
|
1. |
|
Financial Statements: |
|
|
|
|
Report of Independent Registered Public Accounting Firm; |
|
|
|
|
Consolidated Statements of Income for each of the three years ended December 31, 2008,
2007, and 2006; |
|
|
|
|
Consolidated Balance Sheets at December 31, 2008 and December 31, 2007; |
|
|
|
|
Consolidated Statements of Cash Flows for each of the three years ended December 31,
2008, 2007, and 2006; |
|
|
|
|
Consolidated Statements of Stockholders Equity for each of the three years ended
December 31, 2008, 2007, and 2006; |
|
|
|
|
Consolidated Statements of Income Taxes for each of the three years ended December
31,2008, 2007, and 2006; |
|
|
|
|
Notes to the Consolidated Financial Statements. |
|
|
2. |
|
Financial Statement Schedule: |
|
|
|
|
Report of Independent Registered Public Accounting Firm; and |
|
|
|
|
Schedule II Valuation and Qualifying Accounts. |
|
|
|
|
All other schedules are omitted, because they are not required, are inapplicable, or the
information is otherwise shown in the financial statements or notes thereto. |
|
|
3. |
|
Exhibits |
|
|
|
|
|
|
|
Exhibit 1.1
|
|
Underwriting Agreement entered into by Chesapeake Utilities Corporation and
Robert W. Baird & Co. Incorporated and A.G. Edwards & Sons, Inc., on November 15, 2007,
relating to the sale and issuance of 600,300 shares of the Companys common stock, is
incorporated herein by reference to Exhibit 1.1 of the Companys Current Report on Form
8-K, filed November 16, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 3.1
|
|
Restated Certificate of Incorporation of Chesapeake Utilities Corporation is
incorporated herein by reference to Exhibit 3.1 of the Companys Quarterly Report on Form
10-Q for the period ended June 30, 1998, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 3.2
|
|
Amended and Restated Bylaws of Chesapeake Utilities Corporation, effective
December 11, 2008, are filed herewith. |
|
|
|
|
|
|
|
Exhibit 4.1
|
|
Form of Indenture between the Company and Boatmens Trust Company, Trustee,
with respect to the 8 1/4% Convertible Debentures is incorporated herein by reference to
Exhibit 4.2 of the Companys Registration Statement on Form S-2, Reg. No. 33-26582, filed
on January 13, 1989. |
|
|
|
|
|
|
|
Exhibit 4.2
|
|
Note Purchase Agreement, entered into by the Company on October 2, 1995,
pursuant to which the Company privately placed $10 million of its 6.91% Senior Notes, due
in 2010, is not being filed herewith, in accordance with Item 601(b)(4)(iii) of Regulation
S-K. The Company hereby agrees to furnish a copy of that agreement to the SEC upon request. |
|
|
|
|
|
|
|
Exhibit 4.3
|
|
Note Purchase Agreement, entered into by the Company on December 15, 1997,
pursuant to which the Company privately placed $10 million of its 6.85% Senior Notes due in
2012, is not being filed herewith, in accordance with Item 601(b)(4)(iii) of Regulation
S-K. The Company hereby agrees to furnish a copy of that agreement to
the SEC upon request. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 103
|
|
|
|
|
|
|
Exhibit 4.4
|
|
Note Purchase Agreement entered into by the Company on December 27, 2000,
pursuant to which the Company privately placed $20 million of its 7.83% Senior Notes, due
in 2015, is not being filed herewith, in accordance with Item 601(b)(4)(iii) of Regulation
S-K. The Company hereby agrees to furnish a copy of that agreement to the SEC upon request. |
|
|
|
|
|
|
|
Exhibit 4.5
|
|
Note Agreement entered into by the Company on October 31, 2002, pursuant to
which the Company privately placed $30 million of its 6.64% Senior Notes, due in 2017, is
incorporated herein by reference to Exhibit 2 of the Companys Current Report on Form 8-K,
filed November 6, 2002, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 4.6
|
|
Note Agreement entered into by the Company on October 18, 2005, pursuant to
which the Company, on October 12, 2006, privately placed $20 million of its 5.5% Senior
Notes, due in 2020, with Prudential Investment Management, Inc., is incorporated herein by
reference to Exhibit 4.1 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2005, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 4.7
|
|
Note Agreement entered into by the Company on October 31, 2008, pursuant to
which the Company, on October 31, 2008, privately placed $30 million of its 5.93% Senior
Notes, due in 2023, with General American Life Insurance Company and New England Life
Insurance Company, is not being filed herewith, in accordance with Item 601(b)(4)(iii) of
Regulation S-K. The Company hereby agrees to furnish a copy of that agreement to the SEC
upon request. |
|
|
|
|
|
|
|
Exhibit 4.8
|
|
Form of Senior Debt Trust Indenture between Chesapeake Utilities Corporation
and the trustee for the debt securities is incorporated herein by reference to Exhibit
4.3.1 of the Companys Registration Statement on Form S-3A, Reg. No. 333-135602, dated
November 6, 2006. |
|
|
|
|
|
|
|
Exhibit 4.9
|
|
Form of Subordinated Debt Trust Indenture between Chesapeake Utilities
Corporation and the trustee for the debt securities is incorporated herein by reference to
Exhibit 4.3.2 of the Companys Registration Statement on Form S-3A, Reg. No. 333-135602,
dated November 6, 2006. |
|
|
|
|
|
|
|
Exhibit 4.10
|
|
Form of debt securities is incorporated herein by reference to Exhibit 4.4
of the Companys Registration Statement on Form S-3A, Reg. No. 333-135602, dated November
6, 2006. |
|
|
|
|
|
|
|
Exhibit 10.1*
|
|
Chesapeake Utilities Corporation Cash Bonus Incentive Plan, dated January
1, 2005, is incorporated herein by reference to Exhibit 10.3 of the Companys Annual Report
on Form 10-K for the year ended December 31, 2004, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.2*
|
|
Chesapeake Utilities Corporation Directors Stock Compensation Plan,
adopted in 2005, is incorporated herein by reference to the Companys Proxy Statement dated
March 28, 2005, in connection with the Companys Annual Meeting held on May 5, 2005, File
No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.3*
|
|
Chesapeake Utilities Corporation Employee Stock Award Plan, adopted in
2005, is incorporated herein by reference to the Companys Proxy Statement dated March 28,
2005, in connection with the Companys Annual Meeting held on May 5, 2005, File No.
001-11590. |
|
|
|
|
|
|
|
Exhibit 10.4*
|
|
Chesapeake Utilities Corporation Performance Incentive Plan, adopted in
2005, is incorporated herein by reference to the Companys Proxy Statement dated March 28,
2005, in connection with the Companys Annual Meeting held on May 5, 2005, File No.
001-11590. |
|
|
|
|
|
|
|
Exhibit 10.5*
|
|
Chesapeake Utilities Corporation Deferred Compensation Plan, as amended
and restated effective January 1, 2009, is filed herewith. |
Page 104 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
|
|
|
|
Exhibit 10.6*
|
|
Executive Employment Agreement dated December 29, 2006, by and between
Chesapeake Utilities Corporation and S. Robert Zola, is incorporated herein by reference to
Exhibit 10.7 of the Companys Annual Report on Form 10-K for the year ended December 31,
2006, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.7*
|
|
Amendment to Executive Employment Agreement, effective January 1, 2009, by
and between Chesapeake Utilities Corporation and S. Robert Zola, is
filed herewith. |
|
|
|
|
|
|
|
Exhibit 10.8*
|
|
Executive Employment Agreement dated December 29, 2006, by and between
Chesapeake Utilities Corporation and Stephen C. Thompson, is incorporated herein by
reference to Exhibit 10.8 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2006, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.9*
|
|
Amendment to Executive Employment Agreement, effective January 1, 2009, by
and between Chesapeake Utilities Corporation and Stephen C. Thompson, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 10.10*
|
|
Executive Employment Agreement dated December 29, 2006, by and between
Chesapeake Utilities Corporation and Beth W. Cooper, is incorporated herein by reference to
Exhibit 10.9 of the Companys Annual Report on Form 10-K for the year ended December 31,
2006, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.11*
|
|
Amendment to Executive Employment Agreement, effective January 1, 2009,
by and between Chesapeake Utilities Corporation and Beth W. Cooper, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 10.12*
|
|
Executive Employment Agreement dated December 29, 2006, by and between
Chesapeake Utilities Corporation and Michael P. McMasters, is incorporated herein by
reference to Exhibit 10.10 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2006, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.13*
|
|
Amendment to Executive Employment Agreement, effective January 1, 2009,
by and between Chesapeake Utilities Corporation and Michael P. McMasters, is filed
herewith. |
|
|
|
|
|
|
|
Exhibit 10.14*
|
|
Executive Employment Agreement dated December 29, 2006, by and between
Chesapeake Utilities Corporation and John R. Schimkaitis, is incorporated herein by
reference to Exhibit 10.11 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2006, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.15*
|
|
Amendment to Executive Employment Agreement, effective January 1, 2009,
by and between Chesapeake Utilities Corporation and John R. Schimkaitis, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 10.16*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2009, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and John R. Schimkaitis, is incorporated herein by
reference to Exhibit 10.11 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.17*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2010, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and John R. Schimkaitis, is incorporated herein by
reference to Exhibit 10.12 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.18*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2009, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and Michael P. McMasters, is incorporated herein
by reference to Exhibit 10.13 of the Companys Annual Report on Form 10-K for the year
ended December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.19*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2010, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and Michael P. McMasters, is incorporated herein
by reference to Exhibit 10.14 of the Companys Annual Report on Form 10-K for the year
ended December 31, 2007, File No. 001-11590. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 105
|
|
|
|
|
|
|
Exhibit 10.20*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2009, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and Stephen C. Thompson, is incorporated herein by
reference to Exhibit 10.15 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.21*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2010, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and Stephen C. Thompson, is incorporated herein by
reference to Exhibit 10.16 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.22*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2009, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and Beth W. Cooper, is incorporated herein by
reference to Exhibit 10.17 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.23*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2010, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and Beth W. Cooper, is incorporated herein by
reference to Exhibit 10.18 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.24*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2009, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and S. Robert Zola, is incorporated herein by
reference to Exhibit 10.19 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.25*
|
|
Performance Share Agreement dated January 23, 2008 for the period 2008 to
2010, pursuant to Chesapeake Utilities Corporation Performance Incentive Plan by and
between Chesapeake Utilities Corporation and S. Robert Zola, is incorporated herein by
reference to Exhibit 10.20 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 10.26*
|
|
Form of Performance Share Agreement effective January 7, 2009, pursuant
to Chesapeake Utilities Corporation Performance Incentive Plan by and between Chesapeake
Utilities Corporation and each of John R. Schimkaitis, Michael P. McMasters, Beth W.
Cooper, and Stephen C. Thompson, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 10.27*
|
|
Chesapeake Utilities Corporation Supplemental Executive Retirement Plan,
as amended and restated effective January 1, 2009, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 10.28*
|
|
Chesapeake Utilities Corporation Supplemental Executive Retirement
Savings Plan, as amended and restated effective January 1, 2009, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 12
|
|
Computation of
Ratio of Earning to Fixed Charges is filed herewith. |
Page 106 Chesapeake Utilities Corporation 2008 Form 10-K
|
|
|
|
|
|
|
Exhibit 14.1
|
|
Code of Ethics for Financial Officers is incorporated herein by reference
to Exhibit 14 of the Companys Annual Report on Form 10-K for the year ended December 31,
2006, File No. 001-11590. |
|
|
|
|
|
|
|
Exhibit 14.2
|
|
Business Code of Ethics and Conduct is filed herewith. |
|
|
|
|
|
|
|
Exhibit 21
|
|
Subsidiaries of the Registrant is filed herewith. |
|
|
|
|
|
|
|
Exhibit 23.1
|
|
Consent of Independent Registered Public Accounting Firm is filed herewith. |
|
|
|
|
|
|
|
Exhibit 23.2
|
|
Consent of Preceding Independent Registered Public Accounting Firm for the
year 2006 is filed herewith. |
|
|
|
|
|
|
|
Exhibit 31.1
|
|
Certificate of Chief Executive Office of Chesapeake Utilities Corporation
pursuant to Exchange Act Rule 13a-14(a), dated March 9, 2009, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 31.2
|
|
Certificate of Chief Financial Officer of Chesapeake Utilities Corporation
pursuant to Exchange Act Rule 13a-14(a), dated March 9, 2009, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 32.1
|
|
Certificate of Chief Executive Office of Chesapeake Utilities Corporation
pursuant to 18 U.S.C. Section 1350, dated March 9, 2009, is filed herewith. |
|
|
|
|
|
|
|
Exhibit 32.2
|
|
Certificate of Chief Financial Officer of Chesapeake Utilities Corporation
pursuant to 18 U.S.C. Section 1350, dated March 9, 2009, is
filed herewith. |
|
|
|
* |
|
Management contract or compensatory plan or agreement. |
Chesapeake Utilities Corporation 2008 Form 10-K Page 107
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934,
Chesapeake Utilities Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
Chesapeake Utilities Corporation |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ John R. Schimkaitis
John R. Schimkaitis
|
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
Date:
|
|
March 9, 2009 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
/s/ Ralph J. Adkins
Ralph J. Adkins, Chairman of the Board
|
|
|
|
/s/ John R. Schimkaitis
John R. Schimkaitis, President,
|
|
|
and Director
|
|
|
|
Chief Executive Officer and Director |
|
|
Date: March 9, 2009
|
|
|
|
Date: March 9, 2009 |
|
|
|
|
|
|
|
|
|
/s/ Beth W. Cooper
|
|
|
|
/s/ Eugene H. Bayard |
|
|
|
|
|
|
|
|
|
Beth W. Cooper, Senior Vice President
|
|
|
|
Eugene H. Bayard, Director |
|
|
and Chief Financial Officer
|
|
|
|
Date: February 24, 2009 |
|
|
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
Date: March 9, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Richard Bernstein
|
|
|
|
/s/ Thomas J. Bresnan |
|
|
|
|
|
|
|
|
|
Richard Bernstein, Director
|
|
|
|
Thomas J. Bresnan, Director |
|
|
Date: February 24, 2009
|
|
|
|
Date: March 9, 2009 |
|
|
|
|
|
|
|
|
|
/s/ Thomas P. Hill, Jr.
|
|
|
|
/s/ J. Peter Martin |
|
|
|
|
|
|
|
|
|
Thomas P. Hill, Jr., Director
|
|
|
|
J. Peter Martin, Director |
|
|
Date: February 24, 2009
|
|
|
|
Date: February 24, 2009 |
|
|
|
|
|
|
|
|
|
/s/ Joseph E. Moore, Esq
|
|
|
|
/s/ Calvert A. Morgan, Jr. |
|
|
|
|
|
|
|
|
|
Joseph E. Moore, Esq., Director
|
|
|
|
Calvert A. Morgan, Jr., Director |
|
|
Date: February 24, 2009
|
|
|
|
Date: February 24, 2009 |
|
|
|
|
|
|
|
|
|
/s/ Dianna F. Morgan
Dianna F. Morgan, Director
|
|
|
|
|
|
|
Date: February 24, 2009 |
|
|
|
|
|
|
Page 108 Chesapeake Utilities Corporation 2008 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Chesapeake Utilities Corporation
The audit referred to in our report dated March 9, 2009 relating to the consolidated financial
statements of Chesapeake Utilities Corporation as of December 31, 2008 and 2007 and for the years
then ended, which is contained in Item 8 of this Form 10-K also included the audits of the
financial statement schedule listed in Item 15. This financial statement schedule is the
responsibility of the Chesapeake Utilities Corporations management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Beard Miller Company LLP
Beard Miller Company LLP
Reading, Pennsylvania
March 9, 2009
Chesapeake Utilities Corporation and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
Beginning of |
|
|
Charged to |
|
|
Other |
|
|
|
|
|
|
Balance at End |
|
For the Year Ended December 31, |
|
Year |
|
|
Income |
|
|
Accounts(1) |
|
|
Deductions(2) |
|
|
of Year |
|
Reserve Deducted From Related Assets
Reserve for Uncollectible Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
952,075 |
|
|
$ |
1,185,906 |
|
|
$ |
241,153 |
|
|
$ |
(1,220,120 |
) |
|
$ |
1,159,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
661,597 |
|
|
$ |
818,561 |
|
|
$ |
26,190 |
|
|
$ |
(554,273 |
) |
|
$ |
952,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
861,378 |
|
|
$ |
381,424 |
|
|
$ |
65,519 |
|
|
$ |
(646,724 |
) |
|
$ |
661,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Recoveries. |
|
(2) |
|
Uncollectible accounts charged off. |
Upon written request,
Chesapeake will provide, free of
charge, a copy of any exhibit to
the 2008 Annual Report on
Form 10-K not included
in this document.
Exhibit 3.2
Exhibit 3.2
CHESAPEAKE UTILITIES CORPORATION
AMENDED AND RESTATED BYLAWS
December 11, 2008
ARTICLE I
OFFICES
1.1 Registered Office. The address of the Corporations registered office in the
State of Delaware is 1013 Centre Road in the City of Wilmington, in the County of New Castle,
Delaware 19805. The name of the Corporations registered agent at such address is Corporation
Service Company.
1.2 Other Offices. The Corporation may also have offices at such other places as the
Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS MEETINGS
2.1 Location of Meetings. Annual and special meetings of the stockholders shall be
held at such place within or without the State of Delaware, as the Directors may, from time to
time, fix. Whenever the Directors shall fail to fix such place, the meeting shall be held at the
principal office of the Corporation in the State of Delaware.
2.2 Annual Meeting. The annual meeting of stockholders shall be held each year at
such time and place, within or outside of the State of Delaware, as shall be designated by the
Board of Directors and stated in the notice of the meeting. At the annual meeting the stockholders
shall elect the Directors of the Corporation and may transact any other business that is properly
brought before the meeting.
2.3 Business at Annual Meetings; Advance Notice Provision. (i) No business may be
transacted at an annual meeting of stockholders, other than business that is of proper matter for
stockholder action and as shall be have been properly brought before the meeting. To be properly
brought before a meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought
before the meeting by or at the direction of the Board, or (c) otherwise properly brought before
the meeting by a stockholder who complies with the notice procedures set forth in Section 2.3(ii)
below as to any business submitted by a stockholder other than director nominations which shall be
governed exclusively by Section 3.3 below. This Section 2.3 shall be the exclusive means for a
stockholder to submit business other than director nominations before a meeting of the stockholders
(other than proposals brought under Rule 14a-8 of Regulation 14A of the Securities Exchange
Act of 1934, as amended, (the Exchange Act) and included in the Corporations notice of meeting,
which proposals are not governed by these Bylaws).
(ii) For any business (other than the nomination of directors) to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. This subsection (ii) shall constitute an advance
notice provision for annual meetings for purposes of Rule 14a-4(c)(1) under the Exchange Act. To
be timely, a stockholders notice must be received at the principal executive offices of the
Corporation not earlier than the close of business on the 90th day and not later than
the close of business on the 60th day prior to the first anniversary of the preceding
years annual meeting; provided however, that in the event the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the close of business on the 90th day
prior to the date of such annual meeting and not later than the close of business on the later of
the 60th day prior to the date of such annual meeting or, if notice of the meeting is
mailed or the first public announcement of the date of such annual meeting is made less than 75
days prior to the date of such annual meeting, the 15th day following the date on which
such notice is mailed or such public announcement of the date of such meeting is first made by the
Corporation, whichever occurs first. In no event shall any adjournment or postponement of an
annual meeting, or the announcement thereof, commence a new time period for the giving of a
stockholders notice as described above. A stockholders notice to the Secretary shall set forth
the following information, and shall include a representation as to the accuracy of the
information: (a) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b) the name and record
address of the stockholder proposing such business, (c) the class and number of shares of the
Corporation that are directly or indirectly, owned beneficially and/or of record by the
stockholder, (d) any option, warrant, convertible, security, stock appreciation right, or similar
right with an exercise or conversion privilege or a settlement payment or mechanism at a price
related to any class or series of shares of the Corporation or with a value derived in whole or in
part from the value of any class or series of shares of the Corporation, whether or not the
instrument or right shall be subject to settlement in the underlying class or series of capital
stock of the Corporation or otherwise (a Derivative Instrument) that is directly or indirectly
owned beneficially by the stockholder and any other direct or indirect opportunity to profit or
share in any profit derived from any increase or decrease in the value of shares of the
Corporation, (e) any proxy, contract, arrangement, understanding, or relationship pursuant to which
the stockholder has a right to vote or has granted a right to vote any shares of any security of
the Corporation, (f) any short interest in any security of the Corporation (for purposes of these
Bylaws a person shall be deemed to have a short interest in a security if the stockholder directly
or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the
opportunity to profit or share in any profit derived from any decrease in the value of the subject
security), (g) any rights to dividends on the shares of the Corporation owned beneficially by the
stockholder that are separated or separable from the underlying shares of the Corporation, (h) any
proportionate interest in shares of the Corporation or Derivative Instruments held, directly or
indirectly, by a general or limited partnership or limited liability company or
Page 2 of 15
similar entity in which the stockholder is a
general partner or, directly or indirectly, beneficially owns an interest in a general partner, is
the manager, managing member or directly or indirectly beneficially owns an interest in the manager
or managing member of a limited liability company or similar entity, (i) any performance-related
fees (other than an asset-based fee) that the stockholder is entitled to based on any increase or
decrease in the value of shares of the Corporation or Derivative Instruments, if any, (j) any
arrangement, rights or other interests described in subsections (c) through (i) held by members of
such stockholders immediate family sharing the same household, (k) any other information related
to the stockholder that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitation of proxies for the proposal pursuant to Section
14 of the Exchange Act and the rules and regulations thereunder, (l) any material interest of the
stockholder in such business (m) a description of any arrangements and understandings between such
stockholder and any other person or persons in connection with the proposal of such business by
such stockholder, and (n) any other information as reasonably requested by the Corporation. The
information described in subsections (c) through (j) is hereinafter collectively referred to as the
Ownership and Rights Information.
(iii) Notwithstanding the foregoing or any other provisions of these Bylaws, including Section
3.3 below, a stockholder also shall comply with all applicable laws, regulations and requirements,
including requirements of the Exchange Act and the rules and regulations thereunder, with respect
to the matters set forth in these Bylaws; provided, however, that any references in these Bylaws to
the Exchange Act or the rules and regulations thereunder are not intended to and shall not limit
the requirements applicable to proposals or nominations as to any other business to be considered
pursuant to this Section 2.3 or Section 3.3 below.
(iv) Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the
Exchange Act. Notice of stockholder proposals that are, or that the submitting stockholder intends
to be, governed by Rule 14a-8 under the Exchange Act are not governed by these Bylaws.
2.4 Notice of Annual Meeting. Written notice of the annual meeting shall be served
upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books
of the Corporation, at least ten but not more than sixty days prior to the meeting. Such notice
shall state the location, date and hour of the meeting, but the notice need not specify the
business to be transacted thereat.
2.5 Special Meetings. Special meetings of the stockholders for any purpose or
purposes, unless otherwise provided by law or by the Certificate of Incorporation, may be called by
the President and shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors, and not at the request of any other person or persons. Such
request must state the purpose or purposes of the proposed meeting.
Page 3 of 15
2.6 Notice of Special Meetings. Written notice of a special meeting shall be served
upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books
of the Corporation, at least ten but not more than sixty days prior to the meeting. Such notice
shall state the location, date and hour of the meeting and shall describe the order of business to
be addressed at the meeting. Business transacted at all special meetings shall be confined to the
objects stated in the notice.
2.7 Presiding Officer at Stockholder Meetings. The Chair of the Board shall preside
at all meetings of the stockholders, provided that the Chair may designate the President to preside
in the Chairs stead. In the Chairs absence, the President shall preside, and in the absence of
both, the Board shall appoint a person to preside.
2.8 Quorum; Adjournment. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by proxy, shall be
requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of
business, except as otherwise provided by law, the Certificate of Incorporation or these Amended
and Restated Bylaws (the Bylaws). If such quorum shall not be present or represented at any
meeting of the stockholders, the presiding officer of the meeting or the majority of the
stockholders entitled to vote thereat, present in person or represented by proxy, shall have the
power to adjourn the meeting from time to time until a quorum shall be present or represented.
Even if a quorum is present or represented at any meeting of the stockholders, the presiding
officer of the meeting, for good cause, or the majority of the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have the power to adjourn the meeting
from time to time. If the time and place of the adjourned meeting are announced at any meeting at
which an adjournment is taken, no further notice of the adjourned meeting need be given; provided,
however, that if the adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed by the Board of Directors, notice of the adjourned
meeting shall be given to each stockholder entitled to vote at the meeting. At the adjourned
meeting the corporation may transact any business which might have been transacted at the original
meeting.
2.9 Vote Required. In all matters other than the election of Directors, the
affirmative vote of the holders of a majority of the stock present in person or represented by
proxy and entitled to vote on the matter shall decide any question brought before a meeting unless
the question is one upon which by express provision of the Certificate of Incorporation or of these
Bylaws, or by law, a different vote is required in which case such express provision shall govern
and control the decision of such question. Directors shall be elected, by ballot, by a plurality
of the votes of the shares present in person or represented by proxy and entitled to vote at the
election of directors.
2.10 Voting; Proxies. At any meeting of the stockholders every holder of shares
entitled to vote thereat shall be entitled to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date not more than
three years prior to said meeting, unless said instrument provides for a longer period. Each
stockholder shall have one vote for each share of stock having voting power, registered in such
stockholders name on the books of the Corporation, and except where the transfer books of the
Corporation shall have been closed or a date shall have been fixed as a record date for the
determination of its stockholders entitled to vote, no share of stock shall be voted on at any
election of Directors which shall have been transferred on the books of the Corporation within
twenty days next preceding such election of Directors.
Page 4 of 15
2.11 Stockholder Lists. At least ten days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order,
with the residence of each and the number of voting shares held by each, shall be prepared by the
Secretary. Such list shall be open for said ten days to examination by any stockholder for any
purpose germane to the meeting during regular business hours at the place where the meeting is to
be held, or at such other place within the city in which the meeting is to be held as shall be
specified in the notice of the meeting, and also shall be produced and kept at the time and place
of the meeting, during the whole time thereof, and may be inspected by any stockholder who is
present.
2.12 Action Without Meeting. No action required to be taken or which may be taken at
any annual or special meeting of stockholders may be taken without a meeting, and the power of
stockholders to consent in writing to the taking of any action is specifically denied.
ARTICLE III
DIRECTORS
3.1 Powers. The property and business of the Corporation shall be managed by its
Board of Directors which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by law or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
3.2 Composition of the Board. The number of Directors which shall constitute
the Board shall be fixed from time to time by resolution of a majority of directors in office;
provided, that their number shall not be less than five nor more than fifteen. Directors shall be
divided into three classes, as specified in the Certificate of Incorporation. Directors shall be
elected at the annual meeting of the stockholders, and each Director shall be elected to serve
until such Directors successor shall be elected and shall qualify; provided, however, no person
who shall have attained the age of 72 years by the date of election shall be eligible for election
as a Director of the Corporation. Directors shall be stockholders. The Board of Directors, at its
first meeting after each annual meeting of stockholders, shall elect the Chair of the Board who
shall perform such duties as are specified in these Bylaws or are properly required of the Chair by
the Board of Directors.
Page 5 of 15
3.3 Nominations. Nominations for the election of Directors may be made by the Board
or by any stockholder entitled to vote for the election of Directors. Nominations proposed by the
Board shall be given by the Chair on behalf of the Board. Nominations by stockholders shall be in
writing, and in the form prescribed below, and shall be effective when delivered by hand or
received by registered first-class mail, postage prepaid, by the Secretary of the Corporation not
less than 14 days nor more than 80 days prior to any meeting of the stockholders called for the
election of Directors; provided, however, that if less than 21 days notice of the meeting is given
to stockholders, such writing shall be received by the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of the meeting was mailed to
stockholders. Nominations by stockholders shall be in the form of a notice which shall set forth
(a) as to each nominee (i) the name, age, business address and, if known, residence address of such
nominee, (ii) the principal occupation or employment of such nominee, (iii) the Ownership and
Rights Information as it relates to the nominee, (iv) the consent of the nominee to serve as a
Director of the Corporation if so elected, (v) a description of all arrangements or understandings
between the stockholder and the nominee, (vi) a description of all arrangements or understandings
between the stockholder and any other person or persons pursuant to which the nomination is to be
made by the stockholder, and (vii) any other information relating to the nominee required to be
disclosed in solicitations of proxies for election of Directors, or otherwise required pursuant to
Regulation 14A under the Exchange Act, and (b) as to the stockholder giving the notice (i) the name
and address, as they appear on the Corporations books, of such stockholder, (ii) the Ownership and
Rights Information, and (iii) and any other information as reasonably requested by the Corporation.
Such stockholder notice shall include a representation as to the accuracy of the information set
forth in the notice. In addition, each nominee must complete and sign a questionnaire, in a form
provided by the Corporation, to be submitted with the stockholders notice, that inquires as to,
among other things, the nominees independence and director eligibility.
Only those persons who are nominated in accordance with the procedures set forth in these
Bylaws shall be eligible to serve as directors. The presiding officer of the meeting may, if the
facts warrant, determine and declare to the meeting that a nomination was not made in accordance
with the foregoing procedure, and if the presiding officer should so determine, the presiding
officer shall so declare to the meeting and the defective nomination shall be disregarded. This
Section 3.3 shall be the exclusive means for a stockholder to submit business constituting director
nominations before a meeting of the stockholders (other than proposals brought under Rule 14a-8 of
Regulation 14A of the Exchange Act, which proposals are not governed by these Bylaws).
3.4 Vacancy. If the office of any Director becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office, or otherwise, a majority of the
remaining Directors, though less than a quorum, shall choose a successor, who shall hold office
until the next election of the class for which such Director shall have been chosen, and until such
Directors successor shall be elected and qualified.
3.5 Resignation. Any Director of the Corporation may resign from the Board of
Directors at any time by giving written notice to the President or to the Secretary of the
Corporation. The resignation shall be effective at the time stated therein, and unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it effective.
Page 6 of 15
3.6 Meetings Generally. The Board of Directors may hold meetings, both regular and
special, at such times and places either within or without the State of Delaware as shall from time
to time be determined by the Board.
3.7 Regular Meetings. Regular meetings of the Board of Directors shall be held at
such times and places as shall be fixed by resolution of the Board. No notice shall be required
for regular meetings held pursuant to such resolution, except that the Secretary of the Corporation
shall promptly provide a copy of such resolution to any Director who is absent when such resolution
is adopted. In case any scheduled meeting of the Board is not held on the day fixed therefore, the
Directors shall cause the meeting to be held as soon thereafter as is convenient. At such regular
meetings directors may transact such business as may be brought before the meeting.
3.8 Special Meetings. Special meetings of the Board may be called by the Chair of the
Board or by the President by twenty-four (24) hours notice to each Director, either personally, by
telephone, by mail, or by telegram; special meetings shall be called by the Chair of the Board, the
President or the Secretary in like manner and on like notice on the written request of two
Directors.
3.9 First Meeting. The first meeting of each newly elected Board shall be held
immediately after the annual meeting of stockholders and at the same place, and no notice of such
meeting to the newly elected Directors shall be necessary in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not held, the Directors
shall cause the meeting to be held as soon thereafter as is convenient.
3.10 Organization. The Chair of the Board shall preside at all meetings of the Board,
provided that the Chair may designate the President to preside in the Chairs stead. In the
Chairs absence the President shall preside, and in the absence of both, the Board shall appoint a
person to preside. The Secretary of the Corporation, or if the Secretary is not present, one of
the Assistant Secretaries, in the order determined by the Board, or if an Assistant Secretary is
not present, a person designated by the Board, shall take the minutes of the meeting.
3.11 Quorum; Adjournment. At all meetings of the Board a majority of the
number of directors fixed by the Board shall be necessary and sufficient to constitute a quorum for
the transaction of business and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by law or by the Certificate of Incorporation or these
Bylaws. Whether or not a quorum is present at any meeting of the Board, a majority of the
Directors present thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting.
Page 7 of 15
3.12 Participation by Telephone. Any one or more Directors may participate in a
meeting of the Board or any committee thereof by conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by such means shall be deemed attendance in person at that
meeting.
3.13 Action Without Meeting. Any action required to be taken or which may be taken at
any meeting of the Board or any committee thereof may be taken without a meeting if all members of
the Board or committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the records of the meetings of the Board or of the committee, as the case
may be. Any action taken pursuant to such consent shall be treated for all purposes as the act of
the Board or committee.
3.14 Appointment of Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more special or standing committees, each committee
to consist of two or more of the Directors of the Corporation. The Board of Directors may
designate one or more Directors as alternate members of any committee to replace any absent or
disqualified member at any meeting of the committee.
3.15 Meetings of Committees. Regular and special meetings of any committee
established pursuant to this Article may be called and held subject to the same requirements with
respect to time, place and notice as are specified in these Bylaws for regular and special meetings
of the Board of Directors. At all committee meetings, a majority of the members of the committee
shall be necessary to constitute a quorum for the transaction of any business, and the act of a
majority of committee members present at a meeting at which there is a quorum shall be the act of
the committee.
3.16 Powers of Committees. Committees of the Board of Directors, to the extent
provided in the Board resolution or permitted by law, shall have and may exercise the powers of the
Board of Directors, in the management of the business and affairs of the Corporation, and may have
power to authorize the Seal of the Corporation to be affixed to all papers which may require it.
Such committee or committees shall have such name or names as may be determined from time to time
by resolution of the Board. Except as the Board of Directors may otherwise determine, a committee
may make rules for its conduct, but unless otherwise provided by the Board or such rules, its
business shall be conducted as nearly as possible in the same manner as is provided in these Bylaws
for the conduct of business by the Board of Directors. Each committee shall keep regular minutes
of its proceedings and report the same to the Board of Directors when required.
3.17 Compensation of Directors. Directors shall be reimbursed for reasonable
expenses, if any, of attendance at each meeting of the Board of Directors and may be paid other
compensation in whatever form and amount the Board of Directors, by resolution, shall determine to
be reasonable. Members of special or standing committees may be allowed like compensation and
reimbursement for participation in committee meetings. Nothing contained in this section shall be
construed to preclude any Director from serving the Corporation in any other capacity, as officer,
agent, employee or otherwise, and being compensated for such service.
Page 8 of 15
ARTICLE IV
NOTICES
4.1 Generally. Whenever under the provisions of the Certificate of Incorporation or
these Bylaws, or by law, notice is required to be given to any Director or stockholder, it shall
not be construed to require personal notice, but such notice may be given in writing, by mail or by
courier service, by depositing the same in a post office or letter box, or with a courier service,
in a post-paid sealed wrapper, addressed to such Director or stockholder at such address as appears
on the books of the Corporation, or, in default of other address, to such Director or stockholder
at the last known address of such person, and notice shall be deemed to be given at the time when
the same shall be thus deposited.
4.2 Waiver of Notice. Whenever any notice is required to be given under the
provisions of the Certificate of Incorporation or these Bylaws, or by law, a waiver thereof in
writing signed by the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when such person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the transaction of any business
on the ground that the meeting is not lawfully convened.
ARTICLE V
OFFICERS
5.1 Officers. The Officers of the Corporation shall be chosen by the Board of
Directors and shall be a President, a Vice President, a Secretary, and a Treasurer, and, if the
Board has designated the Chair as the Chief Executive Officer of the Corporation pursuant to
Section 3.2 of these Bylaws, the Chair. The Board of Directors may also choose additional Vice
Presidents, and one or more Assistant Secretaries and Assistant Treasurers, and may appoint such
other Officers and agents as it shall deem necessary. Two or more offices may be held by the same
person, except that where the officer designated as the Chief Executive Officer and the Secretary
are the same person, such person shall not hold any other office.
5.2 Election; Term of Office; Removal. The Board of Directors at its first
meeting after each annual meeting of stockholders shall elect the President, one or more Vice
Presidents, the Secretary, the Treasurer, and such other Officers as it shall deem necessary, who
shall hold their offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board. The Officers of the Corporation shall hold
office until their successors are chosen and qualify in their stead, or until such time as they may
resign or be removed from office. Any Officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the whole Board of Directors. If
the office of any Officer becomes vacant for any reason, the vacancy shall be filled by the Board
of Directors. In the case of any office other than that of the Chair, President, Secretary or
Treasurer, the officer designated as the Chief Executive Officer may appoint a person to serve in
such office, on a temporary basis, until the vacancy is filled by the Board.
Page 9 of 15
5.3 Compensation. The salaries of all Officers and agents of the Corporation shall be
fixed by or in the manner prescribed by the Board of Directors.
5.4 The Chair, the President and the Chief Executive Officer. The Chair shall be the
Chief Executive Officer of the Corporation if, and only if, the Chair has been so designated
pursuant to Section 3.2 of these Bylaws. If the Chair has not been so designated, the President
shall hereby be designated as the Chief Executive Officer. The Chief Executive Officer shall
report directly to the Board of Directors, and shall perform such duties as are incident to the
office of the Chief Executive Officer or are properly specified and authorized by the Board of
Directors. If the Chair has been designated as the Chief Executive Officer, the President shall be
the Chief Operating Officer. In such case, the President shall report to the Chief Executive
Officer and shall perform such duties as are incident to the office of the Chief Operating Officer
or are properly specified and authorized by the Board of Directors; in the absence or disability of
the Chair, the President shall perform the duties and exercise the powers of the Chief Executive
Officer.
5.5 Vice Presidents. The Vice Presidents, in the order fixed by the Board of
Directors, shall, in the absence or disability of the President, perform the duties and exercise
the powers of the President, and shall perform such other duties as the Board of Directors shall
prescribe.
5.6 The Secretary. The Secretary shall attend all meetings of the Board and
all meetings of the stockholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose and shall perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform such other duties as
may be prescribed by the Board of Directors or the President, under whose supervision the Secretary
shall be. The Secretary shall keep in safe custody the Seal of
the Corporation and, when authorized by the Board, affix the same to any instrument requiring
it and, when so affixed, it shall be attested by the Secretarys signature or by the signature of
the Treasurer or an Assistant Secretary.
5.7 Assistant Secretaries. The Assistant Secretaries, in the order fixed by the Board
of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties as the Board of Directors shall
prescribe.
Page 10 of 15
5.8 The Treasurer. The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuables in the name and to
the credit of the Corporation in such depositories or other institutions as may be designated by
the Board of Directors. The Treasurer shall disburse the funds of the Corporation by check or by
electronic or wire transfer, as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the President and Directors, at the regular meetings of the
Board, or whenever they may require it, an account of all transactions as Treasurer and of the
financial condition of the Corporation.
5.9 Assistant Treasurers. The Assistant Treasurers, in the order fixed by the Board
of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties as the Board of Directors shall
prescribe.
ARTICLE VI
STOCK CERTIFICATES, TRANSFERS AND RECORD DATE
6.1 Certificates of Stock; Uncertificated Shares. Shares of capital stock of the
Corporation may be certificated or uncertificated, as provided under the Delaware General
Corporation Law. The certificates of stock of the Corporation shall be numbered and registered in
the stock ledger and transfer books of the Corporation as they are issued. The stock certificates
of the Corporation shall be signed by the Chief Executive Officer, the President or a Vice
President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
and shall bear the corporate seal, which may be a facsimile, engraved or printed. Any or all of
the signatures on the certificate may be facsimiles, engraved or printed. In the event that any
officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed
upon any share certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if such person were
such officer, transfer agent, or registrar at the date of issue. Stock certificates of the
Corporation shall be in such form as provided by statute and approved by the Board of Directors.
The stock record books and the blank stock certificates books shall be kept by the Secretary or by
any agency designated by the Board of Directors for that purpose.
6.2 Registration of Transfer. Upon surrender to the Corporation or the transfer agent
of the Corporation of a certificate for shares, if such shares are certificated, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate or to register the issuance of uncertificated
shares to the person entitled thereto, cancel the old certificate and record the transaction upon
its books. Upon the receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares shall be cancelled, issuance of new equivalent
uncertificated shares or certificated shares shall be recorded upon the books of the Corporation.
The Board of Directors shall have authority to make such rules and regulations not inconsistent
with law, the Certificate of Incorporation or these Bylaws, as it deems expedient concerning the
issuance, transfer and registration of certificates for shares and the shares represented thereby
and of uncertificated shares.
Page 11 of 15
6.3 Record Date for Stockholders. For the purpose of determining the
stockholders entitled to notice of or to vote at any annual or special meeting of stockholders or
any adjournment thereof, or for the purpose of determining stockholders entitled to receive payment
of any dividend or other distribution or the allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Directors may fix, in advance, a date as the record date for any such
determination of stockholders. Such date shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other action. If no record
date is fixed, the record date for the determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. When a determination of stockholders of record entitled to
notice of or to vote at any meeting of stockholders has been made as provided in this paragraph,
such determination shall apply to any adjournment thereof; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
6.4 Registered Stockholders. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or shares on the part
of any other person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
6.5 Lost Certificates. The Board of Directors may direct that (i) a new certificate
or certificates or (ii) uncertificated shares in place of any certificate or certificates
previously issued by the Corporation, be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of such (i) new certificate
or certificates or (ii) uncertificated shares, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or the owners legal representative, to advertise the same in such
manner as it shall require and/or give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Page 12 of 15
ARTICLE VII
DIVIDENDS
7.1 Power to Declare Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
7.2 Discretion of the Board. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as the Directors from
time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Directors shall think conducive to the interest of the Corporation,
and the Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Instruments. All checks, demands for money, notes, deeds, mortgages, bonds,
contracts and other instruments of the Corporation shall be signed by such Officer or Officers or
such other person or persons as the Board of Directors may from time to time designate.
8.2 Borrowing. No officer, agent or employee of the Corporation shall have any power
or authority to borrow money on behalf of the Corporation, to pledge the Corporations credit, or
to mortgage or pledge the Corporations real or personal property, except within the scope and to
the extent such authority has been delegated to such person by resolution of the Board of
Directors. Such authority may be given by the Board and may be general or limited to specific
instances.
8.3 Voting Securities of Other Corporations. Subject to any specific direction from
the Board of Directors, the officer designated as the Chief Executive Officer of the Corporation,
or any other person or persons who may from time to time be designated by the Board of Directors,
shall have the authority to vote on behalf of the Corporation the securities of any other
corporation which are owned or held by the Corporation and may attend meetings of stockholders or
execute and deliver proxies or written consents for such purpose.
8.4 Fiscal Year. The fiscal year shall begin the first day of January in each year.
Page 13 of 15
8.5 Seal. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words Corporate Seal, Delaware. Said seal may
be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
8.6 Books and Records of the Corporation. The books and records of the
Corporation shall be kept at such places as the Board may from time to time determine.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
9.1 Right To Indemnification. Each person who was or is made a party or is threatened
to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact such person is or was a Director or Officer of the Corporation
or is or was serving at the request of the Corporation as a Director or Officer of another
corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the Corporation to the fullest extent permitted by the Delaware General
Corporation Law against all expense, liability and loss (including attorneys fees, judgments,
fines or penalties and amounts paid in settlement) reasonably incurred or suffered by such person
in connection therewith, and such indemnification shall continue as to such person who has ceased
to be a Director or Officer and shall inure to the benefit of the persons heirs, executors and
administrators. For purposes of this section, persons serving as Director or Officer of the
Corporations direct or indirect wholly-owned subsidiaries shall be deemed to be serving at the
Corporations request.
9.2 Right To Advancement Of Expenses. The right to indemnification conferred in
Paragraph (a) of this section shall include the right to be paid by the Corporation the expenses
incurred in defending any action, suit, or proceeding in advance of its final disposition, subject
to the receipt by the Corporation of an undertaking by or on behalf of such person to repay all
amounts so advanced if it shall ultimately be determined that such person is not entitled to be
indemnified.
9.3 Nonexclusivity of Rights. The rights to indemnification and to the advancement of
expenses contained in this section shall not be exclusive of any other right which any person may
have or hereafter acquire under any law, provision of the Corporations Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested Directors or otherwise.
9.4 Employee Benefit Plans. For purposes of this section, references to other
enterprises shall include employee benefit plans; references to fines shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and references to serving at
the request of the Corporation shall include any service as a Director or Officer of the
Corporation which imposes duties on, or involves services by, such Director or Officer with respect
to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to
the best interests of the Corporation.
Page 14 of 15
ARTICLE X
AMENDMENTS
10.1 Amendment of Bylaws. These Bylaws may be altered or repealed at any regular
meeting of the stockholders or at any special meeting of the stockholders, provided notice of the
proposed alteration or repeal be contained in the notice of such special meeting, by the
affirmative vote of the holders of 75% or more of outstanding shares of capital stock entitled to
vote at such meeting and present or represented thereat. The Board of Directors may alter or
repeal the Bylaws by the affirmative vote of a majority of the entire Board at any regular meeting
of the Board or at any special meeting of the Board if notice of the proposed alteration or repeal
be contained in the notice of such special meeting.
Page 15 of 15
Exhibit 10.5
Exhibit 10.5
CHESAPEAKE UTILITIES CORPORATION
DEFERRED COMPENSATION PLAN
Amended and Restated as of January 1, 2009
Table of Contents
|
|
|
|
|
|
|
Page No. |
|
Section 1. Establishment and Purpose |
|
|
1 |
|
|
|
|
|
|
1.01. Establishment |
|
|
1 |
|
1.02. Purpose |
|
|
1 |
|
1.03. Effective Date |
|
|
1 |
|
Section 2. Definitions and Construction |
|
|
2 |
|
|
|
|
|
|
2.01. Definitions |
|
|
2 |
|
2.02. Construction |
|
|
8 |
|
Section 3. Participation |
|
|
9 |
|
|
|
|
|
|
3.01. Election of Benefits |
|
|
9 |
|
3.02. Election Requirements |
|
|
9 |
|
3.03. Form and Time of Payment |
|
|
10 |
|
3.04. Termination of Participation |
|
|
11 |
|
Section 4. Accounts |
|
|
12 |
|
|
|
|
|
|
4.01. Accounts |
|
|
12 |
|
4.02. Deferred Cash Subaccount |
|
|
12 |
|
4.03. DSU Subaccount |
|
|
12 |
|
4.04. Investment Return for Deferred Cash Subaccount |
|
|
12 |
|
4.05. Treatment of DSUs |
|
|
14 |
|
4.06. Vesting of Accounts |
|
|
15 |
|
Section 5. Distributions |
|
|
16 |
|
|
|
|
|
|
5.01. Exclusive Entitlement to Payment |
|
|
16 |
|
5.02. Payment |
|
|
16 |
|
5.03. Death Benefits |
|
|
17 |
|
5.04. Distributions Due to Unforeseeable Emergency |
|
|
17 |
|
5.05. Disability |
|
|
18 |
|
5.06. Change in Control |
|
|
18 |
|
5.07. Acceleration of Payment |
|
|
18 |
|
5.08. Delay of Payment |
|
|
19 |
|
5.09. Assignment and Assumption of Liabilities |
|
|
20 |
|
Table of Contents
|
|
|
|
|
|
|
Page No. |
|
Section 6. Nature of Participants Interest in Plan |
|
|
21 |
|
|
|
|
|
|
6.01. No Right to Assets |
|
|
21 |
|
6.02. No Right to Transfer Interest |
|
|
21 |
|
6.03. No Right to Employment or Service |
|
|
21 |
|
6.04. Withholding and Tax Liabilities |
|
|
22 |
|
Section 7. Administration |
|
|
23 |
|
|
|
|
|
|
7.01. Committee |
|
|
23 |
|
7.02. Meetings |
|
|
23 |
|
7.03. Quorum |
|
|
23 |
|
7.04. Expenses |
|
|
23 |
|
7.05. Responsibilities of the Committee |
|
|
23 |
|
7.06. Finality of Committee Determinations |
|
|
24 |
|
7.07. Benefit Claims Procedure |
|
|
25 |
|
7.08. Arbitration of Denied Claims |
|
|
25 |
|
Section 8. Amendment, Suspension, and Termination |
|
|
26 |
|
|
|
|
|
|
8.01. By the Compensation Committee |
|
|
26 |
|
8.02. By the Committee |
|
|
27 |
|
Section 9. Miscellaneous |
|
|
28 |
|
|
|
|
|
|
9.01. Participation by Affiliate |
|
|
28 |
|
9.02. Designation of Beneficiary |
|
|
28 |
|
9.03. Incapacity |
|
|
29 |
|
9.04. Required Information |
|
|
29 |
|
9.05. Inability to Locate Participants and Beneficiaries |
|
|
29 |
|
9.06. Headings |
|
|
29 |
|
9.07. Severability |
|
|
29 |
|
9.08. Governing Law |
|
|
30 |
|
9.09. Complete Statement of Plan |
|
|
30 |
|
EXHIBIT A |
|
|
31 |
|
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 1 |
SECTION 1. ESTABLISHMENT AND PURPOSE
1.01. Establishment.
Effective September 1, 1998, the Company established for the benefit of certain Eligible
Employees an unfunded plan of deferred compensation known as the Chesapeake Utilities
Corporation Executive Deferral Program, as the same has been amended from time to time.
Effective January 1, 2007, the Company amended and restated the Plan to provide members of
the Companys Board of Directors deferral opportunities and renamed the Plan the Chesapeake
Utilities Corporation Deferred Compensation Program. Effective January 1, 2009, the
Company hereby amends and restates the Plan to comply with the requirements of Section 409A
of the Internal Revenue Code of 1986, as amended, (the Code) and renames the Plan the
Chesapeake Utilities Corporation Deferred Compensation Plan.
1.02. Purpose.
The Plan is an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management and highly compensated employees, as well as
members of the Companys Board of Directors. The Plan permits Eligible Employees and
Directors to defer payment of part or all of certain specified types of compensation until
their Separation from Service with the Company and its Affiliates or until such other date
specified in accordance with the terms of the Plan.
1.03. Effective Date.
The Plan, as hereby amended and restated, is intended to meet the requirements of Code
Section 409A, and is effective with respect to amounts that were not deferred and vested
(within the meaning of Code Section 409A) before January 1, 2005, and any earnings on such
amounts. Except as otherwise specifically provided herein, amounts deferred and vested
(within the meaning of Code Section 409A) before January 1, 2005 (and earnings on such
amounts) remain subject to the terms of the September 1, 1998 Plan restatement, which are
set forth in Appendix A. For recordkeeping purposes, the Company established separate
accounts for each Participant for amounts deferred and vested before January 1, 2005, and
amounts deferred and vested on or after that date.
To the extent inconsistent with Code Section 409A or regulations issued thereunder, this
Plan shall be amended to conform to such requirements within applicable time limitations
established by the Internal Revenue Service.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 2 |
SECTION 2. DEFINITIONS AND CONSTRUCTION
2.01. Definitions.
The following words and phrases as used in the Plan have the following meanings:
|
(a) |
|
Account means the bookkeeping account established for each Participant under
Section 4. Each Account shall include a Deferred Cash Subaccount and a Deferred Stock
Unit Subaccount. Additional subaccounts shall be maintained as necessary for the
administration of the Plan. |
|
(b) |
|
Affiliate means any corporation included with Chesapeake Utilities
Corporation in a controlled group of corporations, as defined in Code Section 414(b),
or an unincorporated business included with Chesapeake Utilities Corporation in a group
of trades or business under common control, as defined by regulations prescribed by
the Secretary of the Treasury under Code Section 414(c). |
|
(c) |
|
Beneficiary means the person or persons (including a contingent beneficiary
except where the context indicates otherwise) designated by a Participant pursuant to
Section 9.02 to receive death benefits under the Plan. |
|
(d) |
|
Board means the Board of Directors of the Company. |
|
(e) |
|
Bonus Compensation means compensation received under the Bonus Plan or other
compensation designated by the Committee as Bonus Compensation eligible for deferral
under the Plan as Performance Based Compensation. |
|
(f) |
|
Bonus Plan means the Chesapeake Utilities Corporation Cash Bonus Incentive
Plan, as in effect and amended from time to time. |
|
(g) |
|
Change in Control means the first of the following events to occur: |
|
(1) |
|
Any one person, or group of owners of another corporation who
acting together through a merger, consolidation, purchase, acquisition of stock
or the like (a group), acquires ownership of stock of the Company (or a
majority-controlled subsidiary of the Company) that, together with the stock
held by such person or group, constitutes more than 50 percent of the total
fair market value or total voting power of the stock of the Company. However,
if such person or group is considered to own more than 50 percent of the total
fair market value or total voting power of the stock of the corporation before
this transfer of the Companys stock, the
acquisition of additional stock by the same person or persons shall not be
considered to cause a Change in Control of the Company; or |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 3 |
|
(2) |
|
Any one person or group (as described in Section 2.01(g)(1),
above) acquires (or has acquired during the
12-month period ending on the date
of the most recent acquisition by such person or persons) ownership of stock of
the Company (or a majority-owned subsidiary of the Company) possessing 35
percent or more of the total voting power of the stock of the Company where
such person or group is not merely acquiring additional control of the Company;
or |
|
(3) |
|
A majority of members of the Companys Board (other than the
Board of a majority-controlled subsidiary of the Company) is replaced during
any 12-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Companys Board prior to the date of the
appointment or election; or |
|
(4) |
|
Any one person or group (as described in 2.01(g)(1), above)
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or group) assets from the Company (or a
majority-controlled subsidiary of the Company) that have a total gross fair
market value equal to or more than 40 percent of the total gross fair market
value of all assets of the Company immediately prior to such acquisition or
acquisitions. For this purpose, gross fair market value means the value of the
assets of the Company, or the value of the assets being disposed of, determined
without regard to any liabilities associated with such assets. A transfer of
assets by the Company will not result in a Change in Control under this Section
2.01(g)(4), if the assets are transferred to: |
|
(A) |
|
a shareholder of the Company (immediately
before the asset transfer) in exchange for or with respect to its
stock; |
|
(B) |
|
an entity, 50 percent or more of the total
value or voting power of which is owned, directly or indirectly, by the
Company immediately after the transfer of assets; |
|
(C) |
|
a person, or more than one person acting as a
group (as described in 2.01(g)(1), above), that owns, directly or
indirectly, 50 percent or more of the total value or voting power of
all the outstanding stock of the Company; or |
|
(D) |
|
an entity, at least 50 percent of the total
value or voting power of which is owned directly or indirectly, by a
person described in Section 2.01(g)(4)(C), above. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 4 |
However, no Change in Control shall be deemed to have occurred with respect to a
Participant by reason of (i) any event involving a transaction in which the
Participant or a group of persons or entities with which the Participant acts in
concert, acquires, directly or indirectly, more than 30 percent of the common stock
or the business or assets of the Company; (ii) any event involving or arising out of
a proceeding under Title 11 of the United States Code (or the provisions of any
future United States bankruptcy law), an assignment for the benefit of creditors or
an insolvency proceeding under state or local law; or (iii) any event constituting
approval by the Companys stockholders of a merger or consolidation if a majority of
the group consisting of the president and vice presidents of the Company who are
parties to agreements conferring rights upon a Change in Control shall have agreed
in writing prior to the approval that the approval shall be deemed not to constitute
a Change in Control.
The term Change in Control is intended to comply with Code Section 409A and shall
be interpreted such that a Change in Control (1) shall occur for purposes of the
Plan in any circumstance that would constitute a Change in Control Event (within
the meaning of Treasury Regulations under Code Section 409A) and (2) shall not occur
for purposes of the Plan in any circumstance that would not constitute such a Change
in Control Event.
|
(h) |
|
Code means the Internal Revenue Code of 1986, as amended from time to time. |
|
(i) |
|
Committee means the Employee Benefits Committee of the Company or such other
committee as may be appointed by the Board to administer the Plan. |
|
(j) |
|
Common Stock means the common stock, $.4867 par value, of the Company,
including both treasury shares and authorized but unissued shares, or any security of
the Company issued in substitution, exchange, or in lieu thereof. |
|
(k) |
|
Company means Chesapeake Utilities Corporation, a Delaware corporation, and
any Affiliate that may be authorized by the Compensation Committee and by its own board
of directors to participate in the Plan with respect to its employees. |
|
(l) |
|
Compensation Committee means the Compensation Committee of the Board. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 5 |
|
(m) |
|
Deferred Cash Subaccount means the bookkeeping account to which Deferred Cash
Payments of a Participant and interest are credited pursuant to Section 4. |
|
(n) |
|
Deferred Cash Payment means any Director Compensation, otherwise payable in
cash, or Bonus Compensation that a Participant elects to defer under the Plan. |
|
(o) |
|
Deferred Stock Units or DSUs means hypothetical shares of Common Stock
(including hypothetical fractional shares). |
|
(p) |
|
Director means a member of the Board of Directors of the Company. |
|
(q) |
|
Director Compensation means amounts paid or payable by the Company to a
Director for a Plan Year which are includable in income for federal tax purposes,
including Directors fees of all types, whether paid in cash or Common Stock.
Notwithstanding the foregoing, non-cash compensation and expense reimbursements are
excluded from Director Compensation. |
|
(r) |
|
Disabled means a medically determinable physical or mental impairment that
can be expected to result in death or last for at least 12 months; and the impairment
either (1) prevents the Participant from engaging in any substantial gainful activity,
or (2) entitles the Participant to receive income replacement benefits for at least 3
months under an accident or health plan sponsored by the Company. The Company shall
determine whether a Participant is Disabled in its sole discretion (but in compliance
with Code Section 409A) and may require the Participant to submit to periodic medical
examinations at the Participants expense to confirm the existence and continuation of
the Participants disability. |
|
(s) |
|
DSU Subaccount means the bookkeeping account to which DSUs of a Participant
and dividend equivalents are credited pursuant to Section 4. |
|
(t) |
|
Eligible Employee means an employee of the Company who is designated by the
Compensation Committee, in its sole discretion, to be eligible to participate in the
Plan. |
|
(u) |
|
ERISA means the Employee Retirement Income Security Act of 1974, as amended. |
|
(v) |
|
Excessive Benefits means an amount credited to a Participants Account or
paid on a Participants behalf in excess of the amount that properly should have been
credited to the Participants Account or paid on the Participants behalf. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 6 |
|
(w) |
|
Fair Market Value means the average of the high and low sales price of the
Common Stock, as reported on the New York Stock Exchange (or any other reporting system
as shall be selected by the Committee) on the relevant date, or if no sale of Common
Stock is reported for a date, on the date or dates that the Committee determines, in
its sole discretion, to be appropriate for purposes of valuation. |
|
(x) |
|
Participant means an Eligible Employee or Director who becomes a participant
in the Plan in accordance with Section 3.01 and whose Account has a positive balance. |
|
(y) |
|
Performance Based Compensation means a bonus or other payment of compensation
for which the amount of the payment or the entitlement thereto is contingent on the
satisfaction of organizational or individual performance criteria relating to a
performance period of at least 12 consecutive months. The organizational or individual
performance criteria shall be established in writing no later than 90 days after the
beginning of the period of service to which the criteria relate, and the outcome must
be substantially uncertain at the time the criteria are established. Notwithstanding
the above, a performance-based bonus may be based on subjective performance criteria,
provided that: |
|
(1) |
|
the subjective performance criteria are bona fide and relate to
the performance of the Participant, a group of service providers that includes
the Participant, or a business unit for which the Participant provides services
(which may include the entire organization); and |
|
(2) |
|
the determination that any subjective performance criteria have
been met is not to be made by the Participant or a family member of the
Participant (as defined in Code Section 267(c)(4) applied as if the family of
an individual includes the spouse of any member of the family), or a person
under the effective control of the Participant or such a family member, and no
amount of the compensation of the person making such determination is
effectively controlled in whole or in part by the Participant or such a family
member. |
|
(z) |
|
Performance Share Award means a performance share award granted under the PIP
which qualifies as Performance Based Compensation. |
|
(aa) |
|
Performance Shares means shares of Common Stock awardable under a Performance
Share Award in accordance with the terms of the PIP. |
|
(bb) |
|
PIP means the Chesapeake Utilities Corporation Performance Incentive Plan,
as in effect and as amended from time to time. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 7 |
|
(cc) |
|
Plan means the Chesapeake Utilities Corporation Deferred Compensation
Program, as set forth herein and as amended from time to time. |
|
(dd) |
|
Plan Year means the calendar year. |
|
(ee) |
|
Separation from Service occurs when an Eligible Employee separates from
service with the Company if the Eligible Employee dies, retires or otherwise has a
termination of employment with the Company. Whether a termination of employment has
occurred is determined based on whether the facts and circumstances indicate that the
Company and the Eligible Employee reasonably anticipated that no further services would
be performed after a certain date or that the level of bona fide services the Eligible
Employee would perform after such date (as an employee or independent contractor) would
permanently decrease to no more than 20 percent of the average level of bona fide
services performed over the immediately preceding 36-month period (or the full period
in which the Eligible Employee provided services to the Company if the Eligible
Employee has been providing services for less than 36 months). An Eligible Employee
will not be deemed to have experienced a Separation from Service if such Eligible
Employee is on military leave, sick leave, or other bona fide leave of absence, to the
extent such leave does not exceed a period of six months or, if longer, such longer
period of time during which a right to re-employment is protected by either statute or
contract. If the period of leave exceeds six months and the individual does not retain
a right to re-employment under an applicable statute or by contract, the employment
relationship is deemed to terminate on the first date immediately following such
six-month period. In the case of a Director, a separation from service occurs upon
the termination of the Directors service on the Board, provided, however, that a
Director who is also providing services to the Company as an independent contractor,
does not have a Separation from Service until he has separated from service both as a
Director and as an independent contractor. If an Eligible Employee provides services
both as an employee and as a member of the Board, the services provided as a Director
are generally not taken into account in determining whether the Eligible Employee has a
Separation from Service as an employee for purposes of the Plan, in accordance with
final regulations under Code Section 409A. |
|
(ff) |
|
Valuation Date means the last business day of each calendar month. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 8 |
2.02. Construction.
For purposes of the Plan, unless the contrary is clearly indicated by the context,
|
(a) |
|
the use of the masculine gender shall also include within its meaning the
feminine and vice versa, |
|
(b) |
|
the use of the singular shall also include within its meaning the plural and
vice versa, and |
|
(c) |
|
the word include shall mean to include without limitation. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 9 |
SECTION 3. PARTICIPATION
3.01. Election of Benefits.
An Eligible Employee or Director shall become a Participant in the Plan by electing to
participate in the Plan in accordance with Section 3.02 and procedures established by the
Committee.
3.02. Election Requirements.
|
(a) |
|
Election Filing Deadline. Except as provided in subsection (b), below,
an election to defer an amount equal to all or part of an Eligible Employees Bonus
Compensation earned with respect to, or Performance Shares awarded during, a Plan Year
shall be filed by the Eligible Employee with the Committee at least six months before
the Plan Year ends (i.e., by June 30th), unless the Bonus Compensation or Performance
Shares do not qualify as Performance-Based Compensation, in which case an election with
respect to such compensation shall be filed by the Eligible Employee with the Committee
before the beginning of the Plan Year for which the compensation will be earned, or at
such other time that complies with the deferral election requirements of Code Section
409A. Except as provided in subsection (b) below, a Director shall file an election
with the Committee to defer an amount equal to all or part of his Director Compensation
before the beginning of the Plan Year for which the Director Compensation will be
earned. In all cases, a Participants election to defer Bonus Compensation, Director
Compensation or Performance Shares, as applicable, shall be made in accordance with the
deferral election timing requirements of Code Section 409A and procedures established
by the Committee from time to time. |
|
(b) |
|
Initial Election. A newly hired or otherwise newly Eligible Employee
may file the requisite election to defer Bonus Compensation or Performance Shares
earned thereafter before the expiration of 30 days either from, as applicable, (1) his
initial date of employment (if the Eligible Employee is a new hire) or (2) his initial
date of eligibility (if the Eligible Employee is newly eligible to participate in the
Plan). A newly eligible Director may file the requisite election to defer Director
Compensation earned thereafter before the expiration of 30 days from the Directors
initial date of eligibility to participate in the Plan. Initial elections shall apply
only to compensation (of whatever kind) to be earned after the date of the timely
initial election. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 10 |
|
(c) |
|
Irrevocable Election. Except as provided in Sections 5.03, 5.04, 5.05
and 5.06, a deferral election described in this Section 3.02, once filed, shall be
irrevocable and shall remain in effect until the end of the Plan Year to which it
pertains. Six months before the end of each subsequent Plan Year (or prior to the
beginning of each subsequent Plan Year if the Bonus Compensation or Performance Shares do not
qualify as Performance-Based Compensation), the Participant shall file a new
election with the Committee in accordance with the preceding provisions of this
Section 3.02. The new election shall apply only to deferrals for that Plan Year.
An Eligible Employee or Director who does not make a deferral election in one Plan
Year may make a deferral election for any subsequent Plan Year, provided he remains
an Eligible Employee or Director, by making a deferral election in accordance with
this Section 3.02. |
|
(d) |
|
Form and Content of Election. An election to make a deferral hereunder
shall be in writing, in a form acceptable to the Committee, and shall specify such
information as required by the Committee. A deferral election may designate any whole
percentage (from 1% to 100%) of the Bonus Compensation or Performance Shares awarded to
an Eligible Employee, or Director Compensation awarded to a Director, to be deferred
for a calendar year. |
|
(e) |
|
Treatment of Performance Shares and Common Stock. A Participant who
elects to defer Performance Shares or other compensation payable in the form of Common
Stock shall be credited with DSUs rather than with shares of Common Stock. Such DSUs
shall equal the number of shares of Common Stock that the Participant otherwise would
be entitled to receive as compensation or under the Performance Share Award
(irrespective of any taxes that would have otherwise been withheld on such compensation
or Performance Share Award). |
3.03. Form and Time of Payment.
|
(a) |
|
General. Except as provided in Sections 5.03, 5.04, 5.05, and 5.06, an
amount deferred under this Section 3 shall be paid in a lump sum as of the Valuation
Date coincident with or next following the date elected by the Participant. A
Participant may elect a different form or time of payment for his deferrals for each
Plan Year, but may not divide his deferrals for a single Plan Year among different
forms or times of payment. If, however, a Participant who is an Eligible Employee
elects to receive payment upon Separation from Service, no amount shall be distributed
earlier than six months after the Valuation Date coincident with or next following the
Participants Separation from Service. Such six month delay shall not apply to a
distribution made to a Participant who is a Director. A Participant may elect to
receive his distribution as of the earlier or later of two dates (including Separation
from Service), to the extent permitted by Code Section 409A. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 11 |
|
(b) |
|
Modification of Time and Form. After making his first election, a
Participant may file an election with the Committee, in a form satisfactory to the
Committee, to modify the payment date with respect to a deferral election or to irrevocably
specify that the amount credited to his Account is to be paid in the form of five or
ten annual installments; provided, however, that, to the extent required by Code
Section 409A, such election: |
|
(1) |
|
is filed with the Committee at least twelve months prior to the
date of the first scheduled payment; |
|
(2) |
|
is not effective until at least twelve months after the date on
which the election is made; |
|
(3) |
|
defers the lump sum payment or the first installment payment
with respect to which such election is made for a period of not less than five
years from the date such payment would otherwise have been made; |
|
(4) |
|
does not accelerate payment of the deferred amount; and |
|
|
(5) |
|
does not request other than five or ten annual installments. |
For purposes of the Plan, an election to receive benefits as five or ten annual
installments shall be treated as the entitlement to a single payment as further
described in Treas. Reg. Section 1.409A-2(b)(iii).
3.04. Termination of Participation.
Once an Eligible Employee or Director becomes a Participant, such individual shall continue
to be a Participant until such individual (a) ceases to be described as an Eligible Employee
or Director, as applicable, and (b) ceases to have any vested interest in the Plan (as a
result of distributions made to such Participant or his Beneficiary, if applicable, or
otherwise).
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 12 |
SECTION 4. ACCOUNTS
4.01. Accounts.
The Company shall maintain for bookkeeping purposes an Account in the name of each
Participant. Each Account shall have a Deferred Cash Subaccount and a DSU Subaccount, as
applicable, to which shall be credited amounts deferred under Section 3.
4.02. Deferred Cash Subaccount.
The Company shall maintain a Deferred Cash Subaccount in the name of each Participant.
During each Plan Year, each Deferred Cash Subaccount shall be credited with the
Participants Bonus Compensation or Director Compensation, otherwise payable in cash, as
applicable, deferred under Section 3.
4.03. DSU Subaccount.
The Company shall maintain a DSU Subaccount in the name of each Participant. During each
Plan Year, each DSU Subaccount shall be credited with the Participants Performance Shares
or Common Stock, as applicable, deferred under Section 3.
4.04. Investment Return for Deferred Cash Subaccount.
|
(a) |
|
Rate of Return Indices. The Compensation Committee shall select and
maintain one or more rate of return indices as specified on Exhibit A attached hereto
as amended from time to time. A Deferred Cash Payment shall be allocated among one or
more of the rate of return indices and shall be credited with the applicable investment
return (or loss) that such Deferred Cash Payment would have achieved if it were
invested in the specified index or indices. Allocations to one or more of the rate of
return indices may be modified during the Plan Year to the extent permitted by the
Committee, in its sole discretion. Amounts in the Deferred Cash Subaccount that were
deferred and vested as of January 1, 2005, may be allocated among one or more of the
rate of return indices on Exhibit A attached hereto to the extent the Committee so
provides and to the extent such provision is not a material modification (within the
meaning of Code Section 409A and Treasury Regulations issued thereunder) to the terms
of the September 1, 1998 Plan restatement, which are set forth in Appendix A. |
(b) Election of Rate of Return Indices.
|
(1) |
|
Each Participant shall specify in writing, at the time he
completes his election to participate under Section 3, and in a form acceptable
to the Committee, how any Deferred Cash Payment shall be allocated among the
indices specified on Exhibit A attached hereto. |
|
(2) |
|
The Committee may, in its discretion and from time to time,
permit a Participant to change any election previously made with respect to the
allocation of any Deferred Cash Payment, subject to such conditions and such
limitations as the Committee may prescribe. Any such change in election shall
be in writing and in a form acceptable to the Committee. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 13 |
|
(3) |
|
The Committee may, in its discretion and from time to time,
permit a Participant to elect to reallocate the amounts in such Participants
Deferred Cash Subaccount from one rate of return index to another, subject to
such conditions and such limitations as the Committee may prescribe; provided
that a Participant shall be permitted, at least once per calendar month, to
reallocate amounts previously allocated. Any such reallocation election shall
be in writing and in a form acceptable to the Committee. |
|
(4) |
|
The Committee may require that any election under this Section
4.04 apply to the entire amount to which it pertains (e.g., 100% of the
Participants future contributions) or to such percentage or percentages of
that amount as the Committee may specify (e.g., increments of 5%). |
|
(5) |
|
If a Participant fails to specify a rate of return index with
respect to his Deferred Cash Payments, the Participant shall be presumed to
have specified that his entire Deferred Cash Subaccount be allocated to the
index determined by the Committee to represent the lowest risk of principal
loss. |
|
(c) |
|
Crediting of Investment Return. The balance credited to the
Participants Deferred Cash Subaccount as of the last day of the prior month shall be
credited with the applicable investment return (or loss) as of the last day of the
month of crediting. All references herein to Deferred Cash Payments shall be deemed to
include such Deferred Cash Payments plus any investment return (or loss) credited
pursuant to this Section 4.04. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 14 |
4.05. Treatment of DSUs.
|
(a) |
|
Deemed Reinvestment of Dividends on DSUs. The DSUs credited to a
Participants DSU Subaccount pursuant to Section 3.02 shall be increased on each date
that a dividend is paid on Common Stock. The number of additional DSUs credited to a
Participants DSU Subaccount as a result of such increase shall be determined first by
multiplying the number of DSUs credited to the Participants DSU Subaccount on the
dividend record date by the amount of the dividend
declared per share of Common Stock on the dividend declaration date, and then by
dividing the product so determined by the Fair Market Value of the Common Stock on
the dividend payment date. |
|
(b) |
|
Conversion Out of DSUs. Amounts credited to the DSU Subaccount
generally will be paid in the corresponding number of shares of Common Stock. In the
event, however, that it becomes necessary to determine the dollar value of DSUs
credited to a Participants DSU Subaccount as of any date, the dollar value shall be
determined by multiplying the number of DSUs on that date by the Fair Market Value of
the Common Stock on that date. |
|
(c) |
|
Effect of Recapitalization. In the event of a transaction or event
described in this Section 4.05(c), the number of DSUs credited to a Participants DSU
Subaccount shall be adjusted in such manner as the Committee, in its sole discretion,
deems equitable. A transaction or event is described in this Section 4.05(c), if and
only if: |
|
(1) |
|
it is a dividend or other distribution (whether in the form of
cash, shares, other securities, or other property), extraordinary cash
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares or other securities, the issuance of warrants
or other rights to purchase shares or other securities, or other similar
corporate transaction or event; and |
|
(2) |
|
the Committee determines that such transaction or event affects
the Common Stock such that an adjustment pursuant to this Section 4.05(c) is
appropriate to prevent dilution or enlargement of the benefits made available
under the Plan. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 15 |
4.06. Vesting of Accounts.
|
(a) |
|
Deferred Cash Subaccount. A Participant shall at all times have a 100%
vested and nonforfeitable interest in the balance in his Deferred Cash Subaccount. |
|
(b) |
|
DSU Subaccount. Any Performance Share in a Participants DSU
Subaccount shall vest and become nonforfeitable only to the extent such Performance
Share would have vested and become nonforfeitable under the terms of the PIP had it not
been deferred. Any Common Stock in a Directors DSU Subaccount shall be 100% vested at
all times. |
|
(c) |
|
Dividend DSUs. A Participant shall have a vested and nonforfeitable
interest in any dividend DSUs only to the extent the Participant has a vested and
nonforfeitable interest in the underlying Performance Share or Common Stock to which
the dividend DSU relates. |
Notwithstanding the foregoing, a Participants Account shall be subject to the claims of the
Companys creditors as provided in Section 6.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 16 |
SECTION 5. DISTRIBUTIONS
5.01. Exclusive Entitlement to Payment
A Participants deferral election pursuant to Section 3 shall constitute a waiver of his
right to receive the amount deferred and an agreement to receive in lieu thereof the amounts
payable to him at the times and in the methods specified in this Section 5. No other
amounts shall be due under the Plan or otherwise as a result of a Participants deferral
election under Section 3.
5.02. Payment.
|
(a) |
|
Time of Payment. Subject to Sections 5.03, 5.04, 5.05, and 5.06, the
Participant shall receive an amount equal to the sum of the balances in his Account at
the time(s) and in the manner specified or elected by him in accordance with Section
3.03. If the deferred amounts are subject to more than one distribution election made
in accordance with Section 3.03, then the portion of the Participants Account that is
subject to each election shall be distributed in accordance with the applicable
election. The Participants Account shall be debited to reflect each distribution
pursuant to this Section 5. |
|
(b) |
|
Payment Medium. All amounts credited to the Deferred Cash Subaccount
shall be paid in cash. All amounts credited to the DSU Subaccount shall be paid solely
in shares of Common Stock, except that cash shall be paid in lieu of fractional shares.
Any reference in the Plan to a payment of DSUs shall refer to a distribution of shares
of Common Stock equal to the number of DSUs, except that it shall refer to a payment of
cash in lieu of a fractional share. For this purpose, the cash value of a fractional
share shall be determined in accordance with Section 4.05(b). |
|
(c) |
|
Installment Payments. If the Participant receives installments, the
amount of the first installment shall be equal to the value of the Participants
Deferred Cash Subaccount plus the value of the Participants DSU Subaccount (determined
in accordance with Section 4.05(b)) determined as of the Valuation Date as of which the
installments commence (the applicable Valuation Date) pursuant to Section 5.02(a),
divided by five (if five installments are elected) or ten (if ten installments are
elected). The amount of each succeeding installment shall be equal to the value of the
Participants Deferred Cash Subaccount and the value of the Participants DSU
Subaccount (determined in accordance with Section 4.05(b)) on the next succeeding
anniversary of the applicable Valuation Date, divided by the remaining number of
installments to be paid. The form of each installment payment shall be determined in
accordance with Section 5.02(b). |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 17 |
|
(d) |
|
Effect of Deferral on Restriction or Vesting Period. If a share of
Common Stock would have been subject to any restriction or vesting period upon transfer
to a Participant under a Performance Share Award in the absence of a deferral election,
such share shall be subject to such restriction or vesting period upon payment from the
Plan; provided however, that any period of deferral under the Plan shall be credited
toward the satisfaction of any such restriction or vesting period. |
5.03. Death Benefits.
|
(a) |
|
Amount and Form of Death Benefit. Any amount credited to a
Participants Account that is unpaid at the time of the Participants death shall be
paid in a single lump sum to the Beneficiary (or the contingent Beneficiary if the
Beneficiary predeceases the Participant) designated by the Participant pursuant to
Section 9.02. |
|
(b) |
|
Time of Payment. A distribution pursuant to this Section 5.03 shall be
paid to the Participants Beneficiary within 30 days after the Valuation Date that is
coincident with or next follows the date of the Participants death, together with any
additional information or documentation that the Committee determines to be necessary
or appropriate before it makes the distribution. |
5.04. Distributions Due to Unforeseeable Emergency.
Notwithstanding Sections 3.02 and 3.03, upon the occurrence of an unforeseeable emergency, a
Participant shall be eligible to receive payment of the amount necessary to satisfy such
emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the
distribution, after taking into account the extent to which such hardship is or may be
relieved through reimbursement or compensation by insurance or otherwise or by liquidation
of the Participants assets (to the extent such liquidation would not itself cause severe
financial hardship), or by cessation of deferrals under the Plan. The amount determined to
be properly distributable under this Section and applicable regulations under Code Section
409A shall be payable in a single lump sum only. For the purposes of this Section, the term
unforeseeable emergency means a severe financial hardship to the Participant resulting
from an illness or accident of the Participant, the Participants spouse, or a dependent of
the Participant (as defined in Code Section 152, without regard to Sections 152(b)(1),
(b)(2) and (d)(1)(B)); loss of the Participants property due to casualty, including the
need to rebuild a home following damage not otherwise covered by insurance, for example, not
as a result of a natural disaster; or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Participant, including
imminent foreclosure of or eviction from the Participants primary residence, the need to
pay for medical expenses, including non-refundable
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 18 |
deductibles, the cost of prescription drugs, and the need to pay for funeral
expenses of a spouse, Beneficiary, or dependent. It shall be the responsibility of the
Participant seeking to make a withdrawal under this Section to demonstrate to the Committee
that an unforeseeable emergency has occurred and to document the amount properly
distributable hereunder. After a distribution on account of an unforeseeable emergency, a
Participants deferral elections shall cease and such Participant will not be permitted to
participate in the Plan or elect additional deferrals until the next enrollment following
one full year from the date of the distribution on account of an unforeseeable emergency.
Such future deferral elections following a distribution on account of an unforeseeable
emergency will be treated as an initial deferral election and subject to the rules
applicable thereto under the Plan and Code Section 409A.
5.05. Disability.
Notwithstanding any election made pursuant to Sections 3.02 and 3.03, upon the written
application of the Participant in accordance with the requirements of Section 3, the
Committee shall accelerate and pay in a lump sum to the Participant all of the balance of
the Participants Account, if the Committee finds that such person has become Disabled
(within the meaning of Code Section 409A).
5.06. Change in Control.
Notwithstanding any election made pursuant to Sections 3.02 and 3.03, upon a Change in
Control, the Participant shall receive amounts credited to his Account in the form of a lump
sum payment. Such payment shall be made within 90 days after the date the Change in Control
occurred.
5.07. Acceleration of Payment.
The acceleration of the time and/or form of any payment determined in accordance with the
provisions of this Section 5 shall not be made except due to unforeseeable emergency, as
described above, or as set forth below and otherwise permitted by Code Section 409A and the
Treasury Regulations and other guidance issued thereunder:
|
(a) |
|
Domestic Relations Order. A payment of all or part of the
Participants Account may be made to a spouse, former spouse or other dependent under
the terms of a domestic relations order (as defined in Code Section 414(p)(1)(B)). The
Administrative Committee shall determine whether a payment should be made pursuant to
the terms of a domestic relations order and the time and form of such payment. |
|
(b) |
|
Employment Taxes. A payment of all or part of the Participants
Account may be made to the extent necessary to pay the Federal Insurance Contributions
Act (FICA) tax imposed under Code Sections 3101, 3121(a), and 3121(v)(2) on amounts
deferred under the Plan (the FICA Amount), income tax at source on wages imposed
under Code Section 3401 or the corresponding withholding provisions of applicable
state, local, or foreign tax laws as a result of the payment of the FICA Amount, and
to pay the additional income tax at source on wages attributable to the pyramiding
Code Section 3401 wages and taxes. The total payment under this Section shall not
exceed the aggregate of the FICA Amount and the income tax withholding related to
such FICA Amount. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 19 |
|
(c) |
|
Payment of State, Local or Foreign Taxes. Payment may be made to
reflect payment of state, local or foreign tax obligations arising from participation
in the Plan that apply to an amount deferred under the Plan before the amount is paid
or made available to the Participant, plus the income tax at source on wages imposed
under Code Section 3401 as a result of such payment; provided, however, that the
amount of the payment may not exceed the amount of the taxes due, and the income tax
withholding related to such state, local and foreign tax amount. |
|
(d) |
|
Income Inclusion under Code Section 409A. Payment may be made at any
time the Plan fails to meet the requirements of Code Section 409A and the Treasury
Regulations issued thereunder; provided, however, that payment cannot exceed the amount
required to be included in income as a result of the failure to comply. |
|
(e) |
|
Certain Offsets. Payment may be made as satisfaction of a debt of the
Participant to the Company where: (1) the debt is incurred in the ordinary course of
the employment relationship; (2) the entire amount of the offset in any of the
Participants taxable years does not exceed $5,000; and (3) the reduction is made at
the same time and in the same amount as the debt otherwise would have been due and
collected from the Participant. |
5.08. Delay of Payment.
A Participant who is a specified employee (as defined in Code Section 409A and the
regulations thereunder) and is entitled to a distribution due to a Separation from Service
may not receive a distribution under the Plan until a date that is at least six months after
the date of the Separation from Service. In addition, the Company may in its discretion
delay any payment due under the Plan to the extent permitted by Code Section 409A and the
regulations thereunder.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 20 |
5.09. Assignment and Assumption of Liabilities.
In the discretion of the Company, upon the cessation of participation in the Plan by any
Participant solely due to the employer of that Participant no longer qualifying as a member
of the controlled group of Chesapeake Utilities Corporation within the meaning
of Code Sections 414(b) and (c), all liabilities associated with the Account of such Participant
may be transferred to and assumed by the Participants employer under a deferred compensation plan
established by such employer that is substantially identical to this Plan and that preserves the
deferral and payment elections in effect for the Participant under this Plan to the extent required
by Code Section 409A. Any such Participant shall not be deemed to have incurred a Separation from
Service for purposes of the Plan by virtue of his employers ceasing to be a member of the
controlled group of Chesapeake Utilities Corporation The foregoing provision shall be interpreted
and administered in compliance with the requirements of Code Section 409A.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 21 |
SECTION 6. NATURE OF PARTICIPANTS INTEREST IN PLAN
6.01. No Right to Assets.
Participation in this Plan shall not create, in favor of any Participant or Beneficiary, any
interest in or lien against any of the assets of the Company. All payments hereunder shall
be paid from the general funds of the Company, and no special or separate fund shall be
established and no other segregation of assets shall be made to assure the payments of
benefits hereunder; provided, however, that in order to provide a source of payment for its
obligations under the Plan, the Company may establish a grantor trust commonly known as a
Rabbi trust. Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and a Participant or any other person, and the promise of
the Company to pay benefits hereunder shall, at all times, remain unfunded as to the
Participant or Beneficiary, whose rights hereunder shall be limited to those of a general
and unsecured creditor of the Company.
6.02. No Right to Transfer Interest.
A Participants or Beneficiarys rights to benefits payable under the Plan are not subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or
encumbrance. However, the Committee may permit a Participant or Beneficiary to enter into a
revocable arrangement to pay all or part of his benefits under the Plan to a revocable
grantor trust (a so-called living trust). In addition, the Committee may recognize the
right of an alternate payee named in a domestic relations order to receive all or part of a
Participants benefits under the Plan, but only if (a) the domestic relations order would be
a qualified domestic relations order (within the meaning of Code Section 414(p) (if Code
Section 414(p) applied to the Plan)), (b) the domestic relations order does not attempt to
give the alternate payee any right to any asset of the Company, (c) the domestic relations
order does not attempt to give the alternate payee any right to receive payments under the
Plan at a time or in an amount that the Participant could not receive under the Plan to the
extent such a payment would violate Code Section 409A, and (d) the amount of the
Participants benefits under the Plan are reduced to reflect any payments made or due the
alternate payee.
6.03. No Right to Employment or Service.
No provisions of the Plan and no action taken by the Company, the Board, the Compensation
Committee, or the Committee will give any person any right to be retained in the employ of
the Company or as a member of the Board. The Company specifically reserves the right and
power to dismiss or discharge any Eligible Employee.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 22 |
6.04. Withholding and Tax Liabilities.
The amount of any withholdings required to be made by any government or government agency
will be deducted from benefits paid under the Plan to the extent deemed necessary by the
Committee. In addition, the Participant or Beneficiary (as the case may be) will bear the
cost of any taxes not withheld on benefits provided under the Plan, regardless of whether
withholding is required. The income tax consequences to Participants of compensation
reductions under the Plan shall be determined under applicable federal, state and local tax
laws and regulations and neither the Company, the Committee, the Board, nor any officer or
employee of the Company makes any representations as to the tax consequences of
participation in the Plan.
In accordance with Code Section 409A and the regulations issued thereunder, the Plan shall permit
the withholding and payment of any amounts necessary to (a) satisfy federal and applicable state or
city employment tax withholding obligations that arise under the Plan prior to the date that
payment may otherwise be made under the Plan and/or (b) satisfy the excise tax or underpayment
penalties owed under Code Section 409A in the event of a violation of Code Section 409A under the
Plan.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 23 |
SECTION 7. ADMINISTRATION
7.01. Committee.
The Plan shall be administered by the Committee that shall serve at the pleasure of the
Board. The Committee may allocate its responsibilities for the administration of the Plan
among its members or among any subcommittee(s) it may appoint and may designate persons
other than its members to carry out its responsibilities under the Plan.
7.02. Meetings.
The Committee shall hold meetings upon such notice, at such place or places, and at such
intervals as are required to carry out its functions.
7.03. Quorum.
A majority of the members of the Committee at any time in office shall constitute a quorum
for the transaction of business. All resolutions or other actions taken by the Committee
shall be by vote of a majority of members present at a meeting of the Committee; or without
a meeting by an instrument in writing signed by all the members of the Committee at such
time in office.
7.04. Expenses.
The expenses incident to the operation of the Plan, including the compensation of attorneys,
advisors, actuaries, and such other persons providing technical and clerical assistance as
may be required, shall be paid directly by the Company.
7.05. Responsibilities of the Committee.
In addition to any implied authority and duties that may be needed to carry out the
provisions of the Plan, the Committee shall have the following specific discretionary powers
and duties:
|
(a) |
|
to make and enforce such rules and regulations as it shall deem necessary or
proper for the efficient administration of the Plan; |
|
(b) |
|
to interpret the Plan and to decide any and all matters arising hereunder,
including the right to remedy possible ambiguities, inconsistencies, or omissions;
provided that all such interpretations and decisions shall be applied in a uniform and
non-discriminatory manner to all persons similarly situated; |
|
(c) |
|
to compute the amount of benefits that shall be payable to any Participant or
Beneficiary in accordance with the provisions of the Plan, and in the event that
the Committee determines that Excessive Benefits have been paid to any person, the
Committee may suspend payment of future benefits to such person or his Beneficiary
or reduce the amount of such future benefits until the Excessive Benefits and any
interest thereon determined by the Committee have been recovered; |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 24 |
|
(d) |
|
to appoint other persons to carry out any ministerial responsibilities under
the Plan as it may determine consistent with applicable law; |
|
(e) |
|
to employ one or more persons to render advice with respect to any of its
responsibilities under the Plan; and |
|
(f) |
|
to amend the Plan from time to time by written resolution for the limited
purpose of meeting the requirements of Code Section 409A. |
The members of the Committee and the Company and its officers and Directors shall be
entitled to rely upon all valuations, certificates and reports furnished by any funding
agent or service provider, upon all certificates and reports made by an accountant, and upon
all opinions given by any legal counsel selected or approved by the Committee (who may be
counsel to the Company) and the members of the Committee and the Company and its officers
and Directors shall, except as otherwise provided by law, be fully protected with respect to
any action taken or suffered by them in good faith in reliance upon any such valuations,
certificates, reports, opinions or other advice of a funding agent, service provider,
accountant or counsel.
7.06. Finality of Committee Determinations.
Subject to the provisions of Section 7.08, determinations by the Committee and any
interpretation, rule, or decision adopted by the Committee under the Plan or in carrying out
or administering the Plan shall be final and binding for all purposes and upon all
interested persons, their heirs, and their personal representatives.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 25 |
7.07. Benefit Claims Procedure.
A claim for a benefit under the Plan by any person shall be filed in the manner and governed
by the procedures set forth below:
Upon Separation from Service, death, or any and all types of claims regarding benefits under
the Plan, the Participant or his representative may make application to the Committee
requesting payment of benefits due. If no application for benefits is made, the Committee
shall automatically pay any benefit due pursuant to Section 5. If an application for
benefits is made, the Committee shall accept, deny, or modify such
request and shall notify the Participant in writing setting forth the Committees response
and in the case of a denial or modification, the Committee shall:
|
(a) |
|
state the specific reason or reasons for the denial, |
|
(b) |
|
provide specific reference to pertinent Plan provisions on which the denial or
modification is based, |
|
(c) |
|
provide a description of any additional material or information necessary for
the Participant or his representative to perfect the claim and an explanation of why
such material or information is necessary, and |
|
(d) |
|
explain the Plans claim review procedure as contained in this Plan. |
In the event the request is rejected or modified, the Participant or his representative may
within 60 days following receipt by the Participant or representative of such rejection or
modification, submit a written request for review by the Committee of its initial decision.
Within 60 days following such request for review (120 days if extraordinary circumstances
exist), the Committee shall render its final decision in writing to the Participant or
representative stating specific reasons for such decision. If the Participant or
representative is not satisfied with the Committees final decision, the Participant or
representative can institute an action in a Federal court of competent jurisdiction; for
this purpose, process would be served on the Company.
7.08. Arbitration of Denied Claims.
Any controversy or claim arising out of or relating to a final decision, upon review pursuant to
the procedures set forth in Section 7.07, that denies a claim for benefits under the Plan may be
settled by arbitration under three arbitrators in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. Any such arbitration shall be subject to
the statute of limitations that would apply if the claim on which the arbitration is based were
brought as a suit in a United States district court under ERISA. The site of any such arbitration
shall be Delaware.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 26 |
SECTION 8. AMENDMENT, SUSPENSION, AND TERMINATION
8.01. By the Compensation Committee.
|
(a) |
|
Authority to Amend. The Compensation Committee of the Board may
modify, amend, suspend, or terminate the Plan at any time; provided that no such
modification, amendment, suspension, or termination shall reduce a Participants
accrued benefits under the Plan as of the date of such modification, amendment,
suspension, or termination, except to the extent that the affected Participants consent
in writing to the modification, amendment, suspension, or termination; and provided
further that the Plan may be amended at any time and without the consent of the
Participants to provide that DSUs shall be paid in cash rather than in shares of Common
Stock; and provided further that no such modification, amendment, suspension, or
termination shall eliminate, restrict, or modify any of the following provisions of the
Plan, except to the extent that the affected Participants consent in writing to the
modification, amendment, suspension, or termination: |
|
(1) |
|
the provision in Section 2.01(g) that defines Change in
Control; |
|
(2) |
|
the provision in Section 5.06 that provides for a lump sum
payment following a Change in Control; |
|
(3) |
|
the provision in Section 7.08 that permits submission of denied
claims for benefits to arbitration; and |
|
(4) |
|
the provisions of this Section 8 that protect accrued benefits
and limit modification, amendment, suspension, or termination of the Plan. |
Except as provided in the preceding sentence, any modification, amendment,
suspension, or termination of the Plan may reduce or eliminate a benefit under the
Plan. Although the Plan is not subject to ERISA Section 204(g), the accrued
benefits that are protected by this Section 8 shall include those accrued benefits
that would be protected by ERISA Section 204(g) if the Plan were subject to said
Section 204(g) and the rights specified in items (1) through (4), above.
|
(b) |
|
Authority to Delegate. The Board may, in its sole discretion, delegate
to any person or persons all or part of its authority and responsibility under the
Plan, including, without limitation, the authority to amend the Plan. |
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 27 |
8.02. By the Committee.
The Committee shall have the right by written resolution to amend the Plan from time to
time, for the limited purpose of meeting the requirements of Code Section 409A.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 28 |
SECTION 9. MISCELLANEOUS
9.01. Participation by Affiliate.
Subject to the consent of the Compensation Committee, an Affiliate may participate in the
Plan by delivering to the Compensation Committee a resolution of its board of directors
approving such action. Such Affiliate shall begin participating in the Plan as of an
effective date approved by the Compensation Committee and shall be subject to the provisions
of the Plan.
9.02. Designation of Beneficiary.
|
(a) |
|
Each Participant may designate a Beneficiary. Such designation shall be in
writing, shall be made in the form and manner prescribed by the Committee, and shall be
effective only if filed with the Committee prior to the Participants death. A
Participant may, at any time prior to his death, and without the consent of his
Beneficiary, change his designation of Beneficiary by filing a written notice of such
change with the Committee in the form and manner prescribed by the Committee. In the
absence of a designated Beneficiary, or if the designated Beneficiary and any
designated contingent Beneficiary predecease the Participant, the Beneficiary shall be
the Participants surviving spouse, or if the Participant has no surviving spouse, the
Participants estate. |
|
(b) |
|
If a Participant designates his spouse as his Beneficiary, that designation
shall not be revoked or otherwise altered or affected by any: |
|
(1) |
|
change in the marital status of the Participant and such
spouse, |
|
(2) |
|
agreement between the Participant and such spouse, or |
|
(3) |
|
judicial decree (such as a divorce decree) affecting any rights
that the Participant and such spouse might have as a result of their marriage
separation, or divorce, |
until and unless the Participant revokes and designates a Beneficiary in accordance
with this Section 9.02, it being the intent of the Plan that any change in the
designation of a Beneficiary under the Plan may be made by the Participant only in
accordance with the provision of this Section 9.02.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 29 |
9.03. Incapacity.
If the Committee determines that any person entitled to benefits under the Plan is unable to
care for his affairs because of illness or accident, any payment due (unless a duly
qualified guardian or other legal representative has been appointed) may be paid for the
benefit of such person to his spouse, parent, brother, sister, or other party deemed by the
Committee to have incurred expenses for such person. Any such payment or application of
benefits made in good faith in accordance with the provisions of this Section shall be a
complete discharge of any liability of the Committee and the Company with respect to such
payment or application of benefits.
9.04. Required Information.
Any person eligible to receive benefits under the Plan shall furnish to the Committee any
information or proof requested by the Committee and reasonably required for the proper
administration of the Plan. Failure on the part of any person to comply with any such
request within a reasonable period of time shall be sufficient grounds for delay in the
payment of any benefits that may be due under the Plan until such information or proof is
received by the Committee. If any person claiming benefits under the Plan makes a false
statement that is material to such persons claim for benefits, the Committee may offset
against future payments any amount paid to such person to which such person was not entitled
under the provisions of the Plan.
9.05. Inability to Locate Participants and Beneficiaries.
Each Participant and each Beneficiary entitled to receive a benefit under the Plan shall
keep the Committee advised of his current address. If the Committee is unable to locate a
Participant or Beneficiary to whom a benefit is payable under the Plan for a period of 36
months, commencing with the first day of the month as of which such benefit becomes payable,
the total amount payable to such Participant or Beneficiary shall be forfeited, subject to
being restored (without any intervening investment gains) only if the Participant and
Beneficiary provide evidence sufficient to satisfy the Committee that the Participant or
Beneficiary is entitled to such forfeited amount.
9.06. Headings.
Any headings used in this document are for convenience of reference only and may not be
given any weight in interpreting any provision of the Plan.
9.07. Severability.
If any provision of the Plan shall be held illegal or invalid for any reason, such
illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan
shall be construed and enforced as if such illegal or invalid provision had never been
included in the Plan. In addition, if any provision of the Plan shall be found to violate
Code Section 409A or otherwise result in any portion of a Participants or Beneficiarys
benefits under
the Plan being subject to income tax prior to distribution, such provision shall be void and
unenforceable, and the Plan shall be administered without regard to such provision.
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 30 |
9.08. Governing Law.
The Plan shall be construed, administered, and regulated in accordance with the laws of the
State of Delaware (not including its conflict of law rules), except to the extent that such
laws are preempted by Federal law.
9.09. Complete Statement of Plan.
This Plan contains a complete statement of its terms. The Plan may be amended, suspended,
or terminated only in writing and then only as provided in Section 8. A Participants right
to any benefit of a type provided under the Plan will be determined solely in accordance
with the terms of the Plan. No other evidence, whether written or oral, will be taken into
account in interpreting the provisions of the Plan.
|
|
|
|
|
|
CHESAPEAKE UTILITIES CORPORATION
|
|
|
By: |
|
|
|
|
Its: |
|
|
|
|
Date: |
|
|
|
|
|
|
Chesapeake
Utilities Corporation
Deferred Compensation Plan
|
|
Page 31 |
EXHIBIT A
Rate of Return Indices
Effective January 1, 2009
1. |
|
The Fidelity Spartan U.S. Equity Index Fund |
|
2. |
|
The BlackRock Total Return II Portfolio |
|
3. |
|
The BlackRock Money Market Portfolio |
APPENDIX A
GRANDFATHERED PROVISIONS
TO THE
CHESAPEAKE UTILITIES CORPORATION
DEFERRED COMPENSATION PROGRAM
APPENDIX A
The following Plan provisions apply only to amounts deferred and vested (within the meaning of Code
Section 409A) before January 1, 2005, and any earnings on such amounts, to the full extent
permitted by Code Section 409A. Amounts deferred or vested after December 31, 2004, and any
earnings thereon, are subject to the provisions of the Plan as amended and restated, effective
January 1, 2005, or any subsequent amendment and restatement of the Plan.
Section 1. Establishment and Purpose
1.1 Establishment.
Effective September 1, 1998, the Company established the Chesapeake Utilities
Corporation Executive Deferral Program (the Plan) for the benefit of the Participants.
1.2 Purpose.
The Plan is an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management and highly compensated employees. The Plan
permits Participants to elect to defer payment of part or all of certain specified types of
compensation until their termination of employment with the Company or until such other date
specified in accordance with the terms of the Plan.
Section 2. Definitions
2.1 Gender and Number.
In order to shorten and to improve the understandability of the Plan document by
eliminating the repeated usage of such phrases as his or her and Executive or
Executives, any masculine terminology herein shall also include the feminine and neuter,
and the definition of any term herein in the singular shall also include the plural, except
when otherwise indicated by the context.
2.2 Definitions.
The following words and phrases as used in the Plan have the following meanings:
Account means the bookkeeping account established for each Participant under Section
5.1 hereof. Each Account shall include a Deferred Cash Subaccount and a DSU Subaccount.
Additional subaccounts shall be maintained as necessary for the administration of the Plan.
Beneficiary means the person designated by a Participant to receive benefits under
the Plan after the Participants death. Such a designation shall be in writing in a
form acceptable to the Committee, and shall be effective as of the date the form is filed
with the Committee. If a Participant dies before receiving the entire amount due to him
under the Plan, and he has failed to designate a Beneficiary or his designated Beneficiary
fails to survive him, his Beneficiary will be the person to whom he is married at the time
of his death, or if he is not married at that time, his Beneficiary will be the executor of
his will or the administrator of his estate. A Participant may revoke a prior designation
of a Beneficiary at any time before the Participants death by filing a new form with the
Committee.
Blackout Period means the period prescribed by Section 3.3(b) hereof following a
deferral election during which an Option or SAR subject to the deferral election may not be
exercised.
Board means the Board of Directors of the Company.
Bonus Compensation means compensation received under the Bonus Plan.
Bonus Plan means the Chesapeake Utilities Corporation Cash Bonus Incentive Plan, as
in effect and amended from time to time.
Change in Control means the first of the following events occurs:
(a) The registration of the Companys voting securities under the
Securities Exchange Act of 1934, as amended (the 1934 Act), terminates or the
Company shall have fewer than 300 stockholders of record; or
(b) any person or group (within the meaning of Sections 13(d) and 14(d) of the
1934 Act), other than the Company, becomes the beneficial owner (within the meaning
of Rule 13d-3 under the 1934 Act) of 30 percent or more of the combined voting power
of the Companys then outstanding voting securities; or
(c) a tender offer or exchange offer, other than an offer by the Company,
pursuant to which 30 percent or more of the combined voting power of the Companys
then outstanding voting securities was purchased, expires; or
(d) the stockholders of the Company approve an agreement to merge or
consolidate with another corporation (other than a majority-controlled subsidiary of
the Company) unless the stockholders of the Company immediately before the merger or
consolidation are to own more than 70 percent of the combined voting power of the
resulting entitys voting securities; or
2
(e) the Companys stockholders approve an agreement (including, without
limitation, a plan of liquidation) to sell or otherwise dispose of all or
substantially all of the business or assets of the Company; or
(f) during any period of two consecutive years, individuals who, at the
beginning of the period, constituted the Board cease for any reason to constitute at
least a majority thereof, unless the election, or the nomination for election by the
Companys stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the beginning
of the period; or
(g) the acquisition of direct or indirect beneficial ownership of more than 15
percent of the Companys then outstanding voting securities by any person or group
is approved over the formal objection of the Company by the Securities and Exchange
Commission pursuant to Section 9 of the Public Utility Holding Company Act of 1935,
as amended.
However, no Change in Control shall be deemed to have occurred with respect to a
Participant by reason of any event involving a transaction in which (i) the Participant or a
group of persons or entities with which the Participant acts in concert, acquires, directly
or indirectly, more than 30 percent of the common stock or the business or assets of the
Company; (ii) any event involving or arising out of a proceeding under Title 11 of the
United States Code (or the provisions of any future United States bankruptcy law), an
assignment for the benefit of creditors or an insolvency proceeding under state or local
law; or (iii) any event constituting approval by the Companys stockholders of a merger or
consolidation if a majority of the group consisting of the present and vice presidents of
the Company who are parties to agreements conferring rights upon a Change in Control shall
have agreed in writing prior to the approval that the approval shall be deemed not to
constitute a Change in Control.
Code means the Internal Revenue Code of 1986, as amended from time to time.
Committee means the committee appointed by the Board to administer the Plan.
Common Stock means the common stock, $.4867 par value, of the Company, including both
treasury shares and authorized but unissued shares, or any security of the Company issued in
substitution, exchange, or in lieu thereof.
Company means Chesapeake Utilities Corporation or a Related Company.
Compensation Committee means the Compensation Committee of the Board.
Deferred Cash Subaccount means the subaccount within the Participants Account to
which amounts deferred under Section 3 hereof are credited as described in Section 5.1
hereof.
3
Deferred Cash Payment means an any Bonus Compensation or SAR Spread payable in cash
that a Participant elects to defer under the Plan.
Deferred Stock Units or DSUs means hypothetical shares of Common Stock (including
hypothetical fractional shares).
Disability means total and permanent disability as determined by the Committee in its
sole discretion.
DSU Subaccount means the subaccount within the Participants Account to which amounts
deferred under Section 3 hereof are credited as described in Section 5.3 hereof.
Effective Date means September 1, 1998.
Eligible Executive means an employee of the Company who is eligible to participate in
the Bonus Plan or the PIP and who is designated by the Compensation Committee in its sole
discretion; provided that, on and after a Change in Control, each employee of the Company
who was an Eligible Executive immediately before the Change in Control shall remain an
Eligible Executive as long as the employee is employed by the Company or any successor
thereto.
Fair Market Value means the average of the high and low sales price of the Common
Stock, as reported on the New York Stock Exchange (or any other reporting system as shall be
selected by the Committee) on the relevant date, or if no sale of Common Stock is reported
for a date, on the date or dates that the Committee determines, in its sole discretion, to
be appropriate for purposes of valuation.
Option means a stock option granted under the PIP, other than an incentive stock
option under Section 422 of the Code or such other stock option as the Committee may exclude
from the Plan.
Option Shares means shares of Common Stock issuable upon exercise of an Option in
accordance with the terms of the Option.
Participant means an Eligible Executive who becomes a participant in the Plan in
accordance with Section 3.1 hereof and whose Account hereunder has a positive balance.
Performance Share Award means a performance share award granted under the PIP.
Performance Shares means shares of Common Stock awardable under a Performance Share
Award in accordance with the terms of the Performance Share Award.
4
PIP means the Chesapeake Utilities Corporation Performance Incentive Plan, as in
effect and as amended from time to time.
Plan means the Chesapeake Utilities Corporation Executive Deferral Program,
as set forth herein and as amended from time to time.
Related Company means a corporation, partnership, joint venture, or other entity in
which Chesapeake Utilities Corporation has a direct or indirect ownership or other
proprietary interest of at least fifty percent.
Retirement means termination of employment with the Company at or after attaining age
65, or at such earlier age as accepted by the Committee in its sole discretion.
SAR means an award of stock appreciation rights granted under the PIP.
SAR Spread means the cash or shares of Common Stock payable to an Eligible Executive
or Beneficiary upon exercise of stock appreciation rights in accordance with the terms of
the applicable stock appreciation rights agreement, disregarding any withholding taxes due
with respect to said exercise.
5
Section 3. Participation by Eligible Executives
3.1 Election of Benefits.
An Eligible Executive may become a Participant in the Plan by electing to defer Bonus
Compensation, Performance Shares, SAR Spread, or Option Shares in accordance with this
Section 3.2 or 3.3, as applicable.
3.2 Election Requirements for Bonus Compensation and Performance Shares.
(a) Election Filing Deadline. Except as provided in subsection (b), below, an
election to defer receipt of Bonus Compensation or Performance Shares earned with respect to
a calendar year shall be filed with the Committee before the calendar year begins.
(b) Initial Elections. An Eligible Executive may file the requisite deferral
elections before the expiration of 30 days from the initial effective date of the Plan, and
a newly hired or otherwise newly eligible Eligible Executive may file the requisite
elections before the expiration of 30 days from either (i) his initial date of employment,
if the Eligible Executive is a new hire, or (ii) his initial date of eligibility, if the
Eligible Executive is newly eligible to participate in the Plan.
(c) Irrevocable Election. Except as provided in Section 6.4 hereof, a deferral
election described in this Section 3.2, once filed, shall be irrevocable and shall remain in
effect until the end of the calendar year to which it pertains. Elections under this
Section 3.2 shall automatically apply to each subsequent calendar year unless the
Participant, before the beginning of the calendar year, revokes his prior election, and in
that event, he may file a new election with the Committee before the beginning of the
calendar year in accordance with this Section 3. An Eligible Executive who does not make
deferral elections in one calendar year may make deferral elections for any subsequent
calendar year, provided he remains an Eligible Executive, by making a deferral election in
accordance with this Section 3.
(d) Form and Content of Election. An election to make a deferral hereunder
shall be in writing, in a form acceptable to the Committee, and shall specify such
information as required by the Committee. A deferral election with respect to Bonus
Compensation may specify any whole percentage of the Bonus Compensation (from 1% to 100%).
A deferral election with respect to Performance Shares must specify 100% of the Performance
Shares awarded for a calendar year.
(e) Treatment of Performance Shares. A Participant who elects to defer
Performance Shares shall be credited with DSUs rather than with shares of Common Stock.
Such DSUs shall be equal in number to the shares of Common Stock that the Participant
otherwise would be entitled to receive under the Performance Share Award without taking into
account any applicable withholding taxes that otherwise would have been due with respect to
the performance Share Award.
6
3.3 Election Requirements for Option Shares and for SAR Spread
(a) Election Filing Deadline. An election to defer receipt of Option Shares or
of the SAR Spread that would be received upon the exercise of an Option or an SAR may be
made only within the thirty-six (36) months immediately preceding the scheduled expiration
date of the Option or SAR and must be filed with the Committee at least twelve (12) months
before the exercise of the Option or the SAR.
(b) Form and Content of Election. An election to make a deferral hereunder
shall be in writing, in a form acceptable to the Committee, and shall specify such
information as required by the Committee. A deferral election with respect to an Option may
be made only with respect to 100% of the shares covered by the Option on the date the
deferral election is made. A deferral election with respect to an SAR may be made only
with respect to 100% of the shares on which the SAR gives stock appreciation rights on the
date the deferral election is made. A deferral election with respect to an Option or SAR
shall not have the effect of permitting the exercise of an Option or SAR that is not
otherwise exercisable under the terms of the PIP and the applicable stock option or stock
appreciation rights agreement. Except as provided in Sections 3.3(c), (d) and (e) hereof,
an Option or SAR subject to a deferral election shall not be exercisable during the 12
months immediately following the date on which the deferral election is made (the Blackout
Period).
(c) Hardship.
(i) A Participant who has made a deferral election with respect to an
Option or SAR may request that the Committee allow him to revoke all of his
outstanding Option and/or SAR deferral elections. The Committee may grant
such request in its discretion only if the Committee makes the determination
specified in Section 3.3(c)(ii) hereof.
(ii) If the Committee determines that a Participant who has made a
deferral election with respect to one or more Options and/or SARs has
incurred or will incur a severe financial hardship resulting from an
accident or illness with respect to the Participant, his spouse, or his
dependent (as defined in section 152 of the Code), or other event beyond the
Participants control, the Committee may grant the Participants request to
revoke all of his outstanding Option and/or SAR deferral elections.
(iii) If the Committee grants a Participants request to revoke his
outstanding Option and/or SAR deferral elections, all of the participants
then outstanding Option and/or SAR deferral elections shall be revoked, and
the Options and/or SARs to which such deferral elections applied shall be
thereafter governed by the applicable terms of the Options and/or SARs
without regard to the deferral elections.
7
(d) Termination of Employment.
(i) If the Participant makes a deferral election with respect to an
Option or SAR, and the Participants employment with the Company is
terminated before the Option or SAR governed by the deferral elections have
been exercised in full, such Option or SAR shall be subject to the
provisions of this Section 3.3(d).
(ii) If the Participant terminates employment with the Company by
reason of voluntary termination (for a reason other than Retirement),
Disability or death, the Participants deferral election shall be
automatically revoked and the Option or SAR to which the deferral election
applied shall thereafter be governed by the applicable terms of the Option
or SAR, determined without regard to the deferral election.
(iii) If the Participant terminates employment with the Company by
reason of Retirement, any Blackout Period then in effect shall be
immediately terminated and the Participants deferral election thereupon
become effective. Notwithstanding the previous sentence, after giving
notice to the Company of his intention to retire, a Participant may request
that the Committee allow him to revoke all of his then outstanding Option or
SAR deferral elections. The Committee may grant any such request in its
discretion. If such a request is made and granted, the Participants
Options and/or SARs subject to deferral elections shall not be exercisable
during the 60-day period beginning on the date of the request, and such
Options and/or SARs shall become exercisable after the end of the 60-day
period in accordance with the applicable terms of the Options and/or SARs,
determined without regard to the Participants deferral elections. If the
Participants request is not granted, the Participants deferral elections
shall remain in effect, and any Blackout period shall terminate upon the
Participants Retirement.
(iv) If the Participants employment with the Company is involuntarily
terminated by the Company, any Blackout Period then in effect shall be
immediately terminated, and the deferral elections shall thereupon become
effective. Notwithstanding the preceding sentence, after receiving notice
from the Company that his employment will be terminated, a Participant may
request that the Committee allow him to revoke all of his then outstanding
Option and/or SAR deferral elections. The Committee may grant any such
request in its discretion. If such a request is made and granted, the
Participants Options and/or SARs subject to the deferral elections shall
not be exercisable during the 60-day period beginning on the date of the
request, and such Options and/or SARs shall become exercisable after the end
of the 60-day period in accordance with the applicable terms of the Options
and/or SARs, determined without regard to the Participants deferral
elections. If the Participants request is
not granted, the Participants deferral elections shall remain in effect,
and any Blackout period shall terminate upon the termination of the
Participants employment.
8
(e) Change in Control. If a Change in Control occurs during a Blackout period,
the Blackout Period shall immediately terminate and the Participants deferral election
shall thereupon become effective. No elections to defer Option Shares or SAR Spreads under
this Section 3.3 may be made following a Change in Control.
3.4 Form and Time of Payment.
(a) General. An amount deferred under this Section 3 shall be paid in a lump
sum as of the date elected by the Participant. An election of the time of payment hereunder
shall be in writing in a form acceptable to the Committee, and shall be effective as of the
date the form is filed with the Committee, and, subject to Sections 3.3, 3.4(b) and 6.4
hereof, shall be irrevocable.
(b) Modification of Time . A Participant may submit a request at any time to
the Committee to modify the payment date with respect to a deferral election subject to the
following requirements:
(i) Only one such request may be made in any Plan Year.
(ii) A request must be made before any payment is made with respect to
the deferral election (except a hardship payment under Section 6.4 hereof).
(iii) The Committee may grant or deny the request in its sole
discretion.
(iv) A request to accelerate payment may not have an accelerated
payment date that is less than one year from the date the request is
submitted.
(v) A request to delay payment must be made at least 60 days before the
start of the calendar year in which payment otherwise would have been made.
9
Section 4. Exercise of Options and SARs Subject to Deferral Elections
4.1 General.
If, after a deferral election is made with respect to an Option or SAR and the
resulting Blackout Period terminates, the Participant exercises an Option or SAR to which
the deferral election applies, the exercise shall be governed by the provisions of this
Section 4.
4.2 Exercise of Option.
(a) General. When he exercises an Option, the Participant shall pay the
exercise price either by paying cash or by surrendering shares of previously owned Common
Stock which shares have been owned by the Participant for at least six months (including a
surrender that is effected by attestation).
(b) Payment in Shares. If the Participant pays the exercise price by
surrendering previously-owned shares of Common Stock, the Participant shall receive in
return shares of Common Stock equal in number to the shares of Common Stock he surrendered.
(c) Crediting with DSUs. Except for any shares the Participant receives in
accordance with Section 4.2(b) hereof, the Participant shall be credited with DSUs rather
than with shares of Common Stock. Such DSUs shall be equal in number to the shares of
Common Stock that the Participant otherwise would be entitled to receive upon the exercise
of the Option, less any shares described in Section 4.2(b) hereof, and without taking into
account any applicable withholding taxes that otherwise would have been due with respect to
said exercise.
4.3 Exercise of SAR.
(a) General. When a Participant exercises an SAR, the SAR Spread shall not be
paid to him. Instead, the SAR Spread shall be credited to the Participants Account as
provided in Section 4.3(b) or 4.3(c) hereof.
(b) Crediting of Deferred Cash Subaccount. If the applicable stock
appreciation rights agreement provides that the SAR Spread is due the Participant in cash,
the SAR Spread shall be credited to the Participants Deferred Cash Subaccount.
(c) Crediting of DSU Subaccount. If the applicable stock appreciation rights
agreement provides that the SAR Spread is due the Participant in shares of Common Stock, the
Participants DSU Subaccount shall be credited with DSUs equal in number to the shares of
Common Stock that the Participant would otherwise be entitled to receive upon exercise of
the SAR.
10
Section 5. Accounts
5.1 Accounts.
(a) General. The Company shall maintain for bookkeeping purposes an Account in
the name of each Participant. Each Account shall have a Deferred Cash Subaccount and a DSU
Subaccount, as applicable, to which shall be credited amounts deferred under Section 3
hereof.
(b) Deferred Cash Payments. All amounts of Bonus Compensation and SAR Spread
due in cash (as described in Section 4.3(b) hereof) deferred under the Plan shall be
credited to the Participants Deferred Cash Subaccount, as shall be any amounts provided
under Section 5.2 hereof.
(c) DSUs. All DSUs with which a Participant is credited pursuant to Sections
3.2, 4.2, and 4.3(c) hereof shall be credited to the Participants DSU Subaccount, as shall
any amounts provided under Section 5.3 hereof.
5.2 Investment Return for Deferred Cash Subaccount.
(a) Rate of Return Indices. The Committee shall select and maintain one or
more rate of return indices as specified on Exhibit A attached hereto as amended from time
to time. A Deferred Cash Payment shall be allocated to one or more of the rate of return
indices and shall be credited with the applicable investment return (or loss) that such
Deferred Cash Payment would have achieved if it were invested in the specified index or
indices.
(b) Election of Rate of Return Indices.
(i) Each Participant shall specify in writing, at the time he completes
his election to participate under Section 3 hereof, and in a form acceptable
to the Committee, how any Deferred Cash Payment shall be allocated among the
indices specified on Exhibit A attached hereto.
(ii) The Committee may, in its discretion and from time to time, permit
a Participant to change any election previously made with respect to the
allocation of any Deferred Cash Payment, subject to such conditions and such
limitations as the Committee may prescribe. Any such change in election
shall be in writing and in a form acceptable to the Committee.
(iii) The Committee may, in its discretion and from time to time,
permit a Participant to elect to reallocate the amounts in such
Participants Deferred Cash Subaccount from one rate of return index to
another, subject to such conditions and such limitations as the Committee
may prescribe; provided that a Participant shall be permitted, at least once
per calendar month, to reallocate amounts previously allocated. Any such
reallocation election shall be in writing and in a form acceptable to
the Committee.
11
(iv) The Committee may require that any election under this Section 5.2
apply to the entire amount to which it pertains (e.g., 100% of the
Participants future contributions) or to such percentage or percentages of
that amount as the Committee may specify (e.g., increments of 5%).
(v) If a Participant fails to specify a rate of return index with
respect to his Deferred Cash Payments, the Participant shall be presumed to
have specified that his entire Deferred Cash Subaccount be allocated to the
index determined by the Committee to represent the lowest risk of principal
loss.
(c) Crediting of Investment Return. The balance credited to the Participants
Deferred Cash Subaccount as of the last day of the prior month shall be credited with the
applicable investment return (or loss) as of the last day of the month of crediting. All
references herein to Deferred Cash Payments shall be deemed to include such Deferred Cash
Payments plus any investment return (or loss) credited pursuant to this Section 5.2.
5.3 Treatment of DSUs.
(a) Deemed Reinvestment of Dividends on DSUs. The DSUs credited to a
Participants DSU Subaccount pursuant to Sections 3.2, 4.2, and 4.3(c) hereof shall be
increased on each date that a dividend is paid on Common Stock. The number of additional
DSUs credited to a Participants DSU Subaccount as a result of such increase shall be
determined first by multiplying the number of DSUs credited to the Participants DSU
Subaccount on the dividend record date by the amount of the dividend declared per share of
Common Stock on the dividend declaration date, and then by dividing the product so
determined by the Fair Market Value of the Common Stock on the dividend declaration date.
(b) Conversion Out of DSUs. Amounts credited to the DSU Subaccount generally
will be paid in the corresponding number of shares of Common Stock. In the event, however,
that it becomes necessary to determine the dollar value of DSUs credited to a Participants
DSU Subaccount as of any date, the dollar value shall be determined by multiplying the
number of DSUs on that date by the Fair Market Value of the Common Stock on that date.
12
(c) Effect of Recapitalization. In the event of a transaction or event
described in this Section 5.3 (c), the number of DSUs credited to a Participants DSU
Subaccount shall be adjusted in such manner as the Committee, in its sole discretion, deems
equitable. A transaction or event is described in this Section 5.3 (c), if and only if
(i) it is a dividend or other distribution (whether in the form of
cash, shares, other securities, or other property), extraordinary cash
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares or other securities, the issuance of
warrants or other rights to purchase shares or other securities, or other
similar corporate transaction or event; and
(ii) the Committee determines that such transaction or event affects
the Common Stock such that an adjustment pursuant to this Section 5.3(c) is
appropriate to prevent dilution or enlargement of the benefits made
available under the Plan
5.4 Vesting of Accounts.
Subject to the limitations of Section 7 hereof, balances credited to Participants
Accounts shall be nonforfeitable.
13
Section 6. Distributions
6.1 Exclusive Entitlement to Payment.
A Participants deferral election pursuant to Section 3 hereof shall constitute a
waiver of his right to receive the amount deferred and an agreement to receive in lieu
thereof the amounts payable to him at the times and in the methods specified in this Section
6. No other amounts shall be due under the Plan or otherwise as a result of a Participants
deferral election under Section 3 hereof.
6.2 Payment.
(a) Time of Payment. The amount credited to a Participants Account pursuant
to Section 5 hereof shall be paid at the time(s) specified by the Participant. If the
deferred amounts are subject to more than one distribution election made in accordance with
Section 3.4 hereof, then the portion of the Account that is subject to each election shall
be distributed in accordance with the applicable election.
(b) Form of Payment. All amounts credited to the Deferred Cash Subaccount
shall be paid in cash. All amounts credited to the DSU Subaccount shall be paid solely in
shares of Common Stock, except that cash shall be paid in lieu of fractional shares. Any
reference in the Plan to a payment of DSUs shall refer to a distribution of shares of Common
Stock equal to the number of DSUs, except that it shall refer to a payment of cash in lieu
of a fractional share. For this purpose, the cash value of a fractional share shall be
determined in accordance with Section 5.3(b) hereof.
(c) Effect of Deferral on Restriction or Vesting Period. If a share of Common
Stock would have been subject to any restriction or vesting period upon transfer to a
Participant under an Option or Performance Share Award in the absence of a deferral
election, such share shall be subject to such restriction or vesting period upon payment
from the Plan; provided however, that any period of deferral under the Plan shall be
credited toward the satisfaction of any such restriction or vesting period.
6.3 Death of Participant.
(a) Amount of Death Benefit. Any amount credited to a Participants Account
hereunder that is unpaid at the time of the Participants death shall be paid in a single
lump sum to the Beneficiary designated by the Participant.
(b) Payment of Death Benefits. A distribution pursuant to this Section 6.3
shall be made to the Participants Beneficiary within 90 days after the Committee receives
written notification of the Participants death, together with any additional information or
documentation that the Committee determines to be necessary or appropriate before it makes
the distribution.
14
6.4 Hardship Distributions.
At any time, upon the written application of the Participant, the Committee may (i)
reduce or eliminate the Participants future deferrals of Bonus Compensation or Performance
Shares hereunder, (ii) revoke all of the Participants outstanding deferral elections with
respect to Options and/or SARs in accordance with Section 3.3(c) hereof, or (iii) accelerate
and pay in a lump sum to the Participant all or part of the balance of the Participants
Account hereunder, or all of the above, if the Committee finds, in its sole discretion, that
the Participant has incurred or will incur a severe financial hardship resulting from an
accident or illness with respect to the Participant, his spouse, or his dependent (as
defined in Section 152 of the Code), or other event beyond the Participants control. In
such circumstances, the Committee shall reduce or eliminate the future deferrals, revoke all
Option and/or SAR deferral elections and/or accelerate the payment only to the extent
reasonably necessary to eliminate or to avoid the severe financial hardship.
15
Section 7. Nature of Participants Interest in Plan
7.1 No Right to Assets.
Participation in the Plan does not create, in favor of any Participant or Beneficiary,
any right or lien in or against any asset of the Company. Nothing contained in the Plan,
and no action taken under its provisions, will create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Company and a Participant or any other
person. Each account and investment established under the Plan shall be hypothetical in
nature and shall be maintained for bookkeeping purposes only. The accounts established
under the Plan shall hold no actual funds or assets. The Companys promise to pay benefits
under the Plan will, at all times remain unfunded as to each Participant and Beneficiary,
whose rights under the Plan are limited to those of a general and unsecured creditor of the
Company.
7.2 No Right to Transfer Interest.
Rights to benefits payable under the Plan are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance. However, the
Committee may permit a Participant or Beneficiary to enter into a revocable arrangement to
pay all or part of his benefits under the Plan to a revocable grantor trust (a so-called
living trust) In addition, the Committee may recognize the right of an alternate payee
named in a domestic relations order to receive all or part of a Participants benefits under
the Plan, but only if (a) the domestic relations order would be a qualified domestic
relations order) within the meaning of Section 414(p) of the Code (if Section 414(p)
applied to the Plan), (b) the domestic relations order does not attempt to give the
alternate payee any right to any asset of the Company, (c) the domestic relations order does
not attempt to give the alternate payee any right to receive payments under the Plan at a
time or in an amount that the Participant could not receive under the Plan, and (d) the
amount of the Participants benefits under the Plan are reduced to reflect any payments made
or due the alternate payee.
7.3 No Employment Rights.
No provisions of the Plan and no action taken by the Company, the Board, the
Compensation Committee, or the Committee will give any person any right to be retained in
the employ of the Company, and the Company specifically reserves the right and power to
dismiss or discharge any Participant.
7.4 Withholding and Tax Liabilities.
The amount of any withholdings required to be made by any government or government
agency will be deducted from benefits paid under the Plan to the extent deemed necessary by
the Committee. In addition, the Participant or Beneficiary (as the case may be) will bear
the cost of any taxes not withheld on benefits provided under the Plan, regardless of
whether withholding is required.
16
Section 8. Administration, Interpretation, and Modification of Plan
8.1 Plan Administrator.
The Committee will administer the Plan.
8.2 Powers of Committee.
The Committees powers include, but are not limited to, the power to adopt rules
consistent with the Plan; the power to decide all questions relating to the interpretation
of the terms and provisions of the Plan; the power to determine the number and nature of the
rate of return indices specified on Exhibit A attached hereto; the power to compute the
amount of benefits that shall be payable to any Participant or Beneficiary in accordance
with the provisions of the Plan, and in the event that the Committee determines that
excessive benefits have been paid to any person, the Committee may suspend payment of future
benefits to such person or his Beneficiary or reduce the amount of such future benefits
until the excessive benefits and any interest thereon determined by the Committee have been
recovered; and the power to resolve all other questions arising under the Plan (including,
without limitation, the power to remedy possible ambiguities, inconsistencies, or omissions
by a general rule or particular decision). The Committee has discretionary authority to
exercise each of the foregoing powers.
8.3 Finality of Committee Determinations.
Determinations by the Committee and any interpretation, rule, or decision adopted by
the Committee under the Plan or in carrying out or administering the Plan will be final and
binding for all purposes and upon all interested persons, their heirs, and their personal
representatives.
8.4 Required Information.
Any person eligible to receive benefits hereunder shall furnish to the Committee any
information or proof requested by the Committee and reasonably required for the proper
administration of the Plan. Failure on the part of any person to comply with any such
request within a reasonable period of time shall be sufficient grounds for delay in the
payment of any benefits that may be due under the Plan until such information or proof is
received by the Committee. If any person claiming benefits under the Plan makes a false
statement that is material to such persons claim for benefits, the Committee may offset
against future payments any amount paid to such person to which such person was not entitled
under the provisions of the Plan.
8.5 Incapacity.
If the Committee determines that any person entitled to benefits under the Plan is
unable to care for his affairs because of illness or accident, any payment due (unless a
duly qualified guardian or other legal representative has been appointed) may be paid for
the benefit of such person to his spouse, parent, brother, sister, or other party
deemed by the Committee to have incurred expenses for such person.
17
8.6 Amendment, Suspension, and Termination.
(a) Board. The Board has the right by written resolution to amend, suspend, or
terminate the Plan at any time provided that no such amendment, suspension, or termination
of the Plan shall divest any Participant of the balance credited to his Account as of the
effective date of such amendment, suspension, or termination, except to the extent that an
affected Participant consents in writing to the amendment, suspension, or termination, and
provided further, however, that the Plan may be amended at any time and without the consent
of the Participants to provide that DSUs shall be paid in cash rather than in shares of
Common Stock.
(b) Committee. The Board delegates to the Committee the right by written
resolution to amend the Plan for the limited purpose of amending Exhibit A of the Plan.
8.7 Change in Control.
Notwithstanding Section 8.6 hereof, on or after the occurrence of a Change in Control,
no direct or indirect alteration, amendment, suspension, termination or discontinuance of
the Plan, no establishment or modification of rules, regulations or procedures under the
Plan, no interpretation of the Plan or determination under the Plan, and no exercise of
authority or discretion vested in the Committee under any provision of the Plan
(collectively or individually, a Change) shall be made if the Change (i) is not required
by applicable law or necessary to meet the requirements of Rule 16b-3, and (ii) would have
the effect of:
(a) eliminating, reducing or otherwise adversely affecting a Participants, former
Participants or beneficiarys rights with respect to any deferred amounts,
(b) altering the meaning or operation of the definition of Change in Control in
Section 2 hereof (and of the definition of all the defined terms that appear in the
definition of Change in Control), the provisions of Section 8.6 hereof or this Section
8.7, or any rule, regulation, procedure, provision or determination made or adopted prior to
the Change in Control pursuant to Section 8.6 hereof or any provision in any rule,
regulation, procedure, provision or determination made or adopted pursuant to the Plan that
becomes effective upon the occurrence of a Change in Control (collectively, the Change in
Control Provisions), or
(c) Undermining or frustrating the intent of the Change in Control Provisions to secure
for Participants, former Participants and beneficiaries the maximum rights and benefits that
can be provided under the Plan.
18
Upon and after the occurrence of a Change in Control, all rights of all Participants,
former Participants and Beneficiaries under the Plan (including, without limitation, any
rules, regulation or procedures promulgated under the Plan) shall be contractual rights
enforceable against the Company and any successor to all or substantially all of the
Companys business or assets. The Change in Control Provisions may be altered, amended or
suspended at any time before the date on which a Change in Control occurs provided that any
alteration, amendment or suspension of the Change in Control Provisions that is made before
the date on which a Change in Control occurs, and at the request of a person who effectuates
the Change in Control, shall be treated as though it occurred after the Change in Control
and shall be subject to the restrictions and limitations imposed by the preceding provisions
of the immediately preceding paragraph.
8.8 Power to Delegate Authority.
(a) Board. The Board may, in its sole discretion, delegate to any person or
persons all or part of its authority and responsibility under the Plan, including, without
limitation, the authority to amend the Plan.
(b) Administrative. The Committee may, in its sole discretion, delegate to any
person or persons all or part of its authority and responsibility under the Plan.
8.9 Inability to Locate Participants and Beneficiaries.
Each Participant or Beneficiary entitled to receive payment under the Plan shall keep
the Committee advised of his current address. If the Committee is unable for a period of
thirty-six (36) months to locate a Participant or Beneficiary to whom a payment is due, the
total amount payable shall be forfeited. Should the Participant or Beneficiary request
payment thereafter, the Committee shall, upon satisfaction of its requests for any
corroborating documentation, restore and pay the forfeited amount in a lump sum, the value
of which shall not be adjusted for any earnings or gains during the period of forfeiture.
8.10 Headings.
The headings used in this document are for convenience of reference only and may not be
given any weight in interpreting any provision of the Plan.
8.11 Severability.
If any provision of the Plan is held illegal or invalid for any reason, the illegality
or invalidity of that provision will not affect the remaining provisions of the Plan, and
the Plan will be construed and enforced as if the illegal or invalid provision had never
been included in the Plan.
19
8.12 Governing Law.
The Plan will be construed, administered, and regulated in accordance with the laws of
the State of Delaware, except to the extent that those laws are preempted by federal law.
8.13 Complete Statement of Plan.
This Plan contains a complete statement of its terms. This Plan and elections made
pursuant to this Plan supersede any conflicting terms of the Bonus Plan, the PIP, or any
agreement executed pursuant to the Bonus Plan or the PIP. The Plan may be amended,
suspended, or terminated only in writing and then only as provided in Section 8.6 hereof. A
Participants right to any benefit of a type provided under the Plan will be determined
solely in accordance with the terms of the Plan. No other evidence, whether written or
oral, will be taken into account in interpreting the provisions of the Plan.
20
Exhibit 10.7
Exhibit 10.7
S. Robert Zola
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This First Amendment to Executive Employment Agreement (this Amendment) is made effective as
of January 1, 2009, by and between Chesapeake Utilities Corporation, a Delaware corporation (the
Company), and S. Robert Zola (the Executive).
Background Information
The parties to this Amendment (the Parties) entered into an Executive Employment Agreement
as of December 29, 2006 (the Original Agreement), regarding the Executives employment
relationship with the Company. The Parties desire to amend the Original Agreement as set forth
below.
Agreement
1. Definitions. All capitalized terms used in this Amendment but which are not
otherwise defined herein, shall have the respective meanings given those terms in the Original
Agreement.
2. Amendments to Original Agreement.
(a) Compensation and Benefits. Subparagraphs 5(c)(i) and 5(c)(ii) of the Original
Agreement are hereby deleted in their entirety and, in lieu thereof, there is substituted the
following:
(i) Chesapeake Utilities Corporation Performance Incentive Plan.
Executive shall be eligible for an incentive compensation award equal to
3,200 shares of the Companys common stock granted on an annual basis at the
discretion of the Board during the Term of this Agreement.
(ii) Chesapeake Utilities Corporation Cash Bonus Incentive
Plan. Executive shall be eligible for a cash bonus award equal to 30
percent (30%) of Base Compensation, granted on an annual basis at the
discretion of the Board during the Term of this Agreement. At the
discretion of the Board, Executive shall also be eligible for an additional
cash bonus award equal to 10 percent (10%) of the excess of the Sharps
earnings before interest and taxes (EBIT) for the respective year over the
upper EBIT target for the same year.
(b) Expenses. Paragraph 5(g) of the Agreement is hereby amended by adding the
following to the end thereof:
If any reimbursements under this provision are taxable to the
Executive, such reimbursements shall be paid on or before the end of the
calendar year following the calendar year in which the reimbursable expense
was incurred, and the Company shall not be obligated to pay any such
reimbursement amount for which Executive fails to submit an invoice or other
documented reimbursement request at least 10 business days before the end of
the calendar year next following the calendar year in which the expense was
incurred. Such expenses shall be reimbursable
only to the extent they were incurred during the Term of the Agreement. In
addition, the amount of such reimbursements that the Company is obligated to
pay in any given calendar year shall not affect the amount the Company is
obligated to pay in any other calendar year. In addition, Executive may not
liquidate or exchange the right to reimbursement of such expenses for any
other benefits.
(c) Payment Upon Termination During Extended Term. Paragraph 6(c) of the Agreement is
hereby amended by adding the following to the end thereof:
In addition, and notwithstanding the foregoing provisions of this
Paragraph 6(c), if the Extended Termination Date occurs more than two (2)
years after the occurrence of a Change in Control, then the amount payable
in cash under this provision shall be payable in substantially equal
installments over the one (1) year period following the Executives
separation from service within the meaning of Section 409A of the Internal
Revenue Code of 1986, as amended (the Code). The number of substantially
equal installments shall be equal to the number of regular payroll periods
during said one (1) year period, with one installment payable on each such
payroll period. In addition, to the extent required in order to comply with
Code Section 409A, cash amounts that would otherwise be payable under this
Paragraph 6(c) during the six-month period immediately following the
Extended Termination Date (and which are not eligible for the exception
applicable to payments due to involuntary separation under Treas. Reg.
Section 1.409A-1(b)(9)(iii)) shall instead be paid, with interest on any
delayed payment at the applicable federal rate under Code Section
7872(f)(2)(A), on the first business day after the date that is six (6)
months following the Executives separation from service within the
meaning of Code Section 409A. Further, any taxable welfare benefits
provided to Executive pursuant to this Paragraph 6(c) that are not
disability pay or death benefits within the meaning of Treas. Reg.
Section 1.409A-1(a)(5) (collectively, the Applicable Benefits) shall be
subject to the following requirements in order to comply with Code Section
409A. The amount of any Applicable Benefits provided during one taxable
year shall not affect the amount of the Applicable Benefits provided in any
other taxable year, except that with respect to any Applicable Benefits that
consist of the reimbursement of expenses referred to in Code Section 105(b),
a limitation may be imposed on the amount of such reimbursements over some
or all of the Covered Period, as described in Treas. Reg. Section
1.409A-3(i)(1)iv)(B). To the extent that any Applicable Benefits consist of
the reimbursement of eligible expenses, such reimbursement must be made on
or before the last day of the calendar year following the calendar year in
which the expense was incurred. No Applicable Benefits may be liquidated or
exchanged for another benefit. During the period of six (6) months
immediately following Executives separation from service (within the
meaning of Code Section 409A), Executive shall be obligated to pay the
Company the full cost for any Applicable Benefits that do not constitute
health benefits of the type required to be provided under the health
continuation coverage requirements of Code Section 4980B, and the Company
shall reimburse Executive for any such payments on the first business day
that is more
than six (6) months after Executives separation from service, together with
interest on such amount from the date of separation from service through the
date of payment at the applicable federal rate under Code Section
7872(f)(2)(A).
(d) Maximum Payment Upon Termination. Paragraph 7(b) of the Agreement is hereby
amended by adding the following to the end thereof:
Notwithstanding the foregoing, if the exercise of discretion reserved
to the Executive in determining the Notice of Application would violate Code
Section 409A, then such discretion shall be eliminated and the amounts
payable under Paragraph 6(c) shall be reduced proportionately.
(e) Code Section 409A. Paragraph 20 of the Agreement is hereby deleted in its
entirety and, in lieu thereof, there is substituted the following:
Notwithstanding any provision of Paragraph 10 or 14 of this Agreement
to the contrary, any legal fees and expenses to be paid by the Company
pursuant to Paragraph 10 or 14 shall be subject to the following
requirements in order to comply with Code Section 409A. Such legal fees and
expenses shall be paid by the Company only to the extent incurred during the
Term of the Agreement or for a period of ten (10) years after the
Executives separation from service (as defined in Code Section 409A).
The Company shall pay such legal fees and expenses no later than the end of
the calendar year next following the calendar year in which such fees and
expenses were incurred, and the Company shall not be obligated to pay any
such fees and expenses for which the Executive fails to submit an invoice at
least ten (10) business days before the end of the calendar year next
following the calendar year in which such fees and expenses were incurred.
The amount of such legal fees and expenses that the Company is obligated to
pay in any given calendar year shall not affect the legal fees and expenses
that the Company is obligated to pay in any other calendar year, and the
Executives right to have the Company pay such legal fees and expenses may
not be liquidated or exchanged for any other benefit.
3. Captions. The captions of the various sections of this Amendment are not part of
the context of this Amendment, but are only labels to assist in locating those sections, and shall
be ignored in construing this Amendment.
4. Construction. This document is an amendment to the Original Agreement. As used in
the Original Agreement, the term Agreement shall mean the Original Agreement as amended by this
Amendment. In the event of any conflict with or inconsistency between the provisions of the
Original Agreement and this Amendment, the provisions of this Amendment shall control and supersede
to the extent of such conflict or inconsistency. Except as modified by this Amendment, the
Original Agreement shall continue in full force and effect without change. The Company and
Executive hereby ratify and confirm the Original Agreement, as amended hereby.
[Signatures on Following Page]
IN WITNESS WHEREOF, the parties have executed this First Amendment to Executive Employment
Agreement as of the day and year first above written.
|
|
|
|
THE EXECUTIVE: |
|
|
|
|
|
|
|
|
|
|
|
THE COMPANY: |
|
|
|
|
|
CHESAPEAKE UTILITIES CORPORATION |
|
|
|
|
|
By: |
|
|
|
|
|
|
Name: |
|
|
|
Its: |
|
|
Exhibit 10.9
Exhibit 10.9
Stephen C. Thompson
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (this Amendment) is made effective as of
January 1, 2009, by and between Chesapeake Utilities Corporation, a Delaware corporation (the
Company), and Stephen C. Thompson (the Executive).
Background Information
The parties to this Amendment (the Parties) entered into an Executive Employment Agreement
as of December 26, 2006 (the Employment Agreement), regarding the Executives employment
relationship with the Company. The Parties desire to amend the Employment Agreement pursuant to
Paragraphs 18 and 20 of the Employment Agreement in order to comply with the final Treasury
Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended (the
Code). The Employment Agreement, as amended by this Amendment, is hereinafter collectively
referred to as the Agreement.
Amendment of the Employment Agreement
The Parties hereby acknowledge the accuracy of the foregoing Background Information and hereby
agree as follows:
1. Definitions. All capitalized terms used in this Agreement but which are not
otherwise defined herein, shall have the respective meanings given those terms in the Employment
Agreement, as applicable.
2. Expenses. Paragraph 5(g) of the Agreement is hereby amended by adding the
following to the end thereof:
If any reimbursements under this provision are taxable to the Executive, such reimbursements
shall be paid on or before the end of the calendar year following the calendar year in which the
reimbursable expense was incurred, and the Company shall not be obligated to pay any such
reimbursement amount for which Executive fails to submit an invoice or other documented
reimbursement request at least 10 business days before the end of the calendar year next following
the calendar year in which the expense was incurred. Such expenses shall be reimbursable only to
the extent they were incurred during the term of the Agreement. In addition, the amount of such
reimbursements that the Company is obligated to pay in any given calendar year shall not affect the
amount the Company is obligated to pay in any other calendar year. In addition, Executive may not
liquidate or exchange the right to reimbursement of such expenses for any other benefits.
3. Payment Upon Termination During Extended Term. Paragraph 6(c) of the Agreement is
hereby amended by adding the following to the end thereof:
In addition, and notwithstanding the foregoing provisions of this Paragraph 6(c), if the
Extended Termination Date occurs more than two (2) years after the occurrence of a Change in
Control, then the amount payable in cash under this provision shall be payable in substantially
equal installments over the one (1) year period following the Executives separation from service
within the meaning of Code Section 409A. The number of substantially equal installments shall be
equal to the number of regular payroll periods during said one (1) year
period, with one installment payable on each such payroll period. In addition, to the extent
required in order to comply with Code Section 409A, cash amounts that would otherwise be payable
under this Paragraph 6(c) during the six-month period immediately following the Extended
Termination Date (and which are not eligible for the exception applicable to payments due to
involuntary separation under Treas. Reg. Section 1.409A-1(b)(9)(iii)) shall instead be paid, with
interest on any delayed payment at the applicable federal rate under Code Section 7872(f)(2)(A), on
the first business day after the date that is six (6) months following the Executives separation
from service within the meaning of Code Section 409A. Further, any taxable welfare benefits
provided to Executive pursuant to this Paragraph 6(c) that are not disability pay or death
benefits within the meaning of Treas. Reg. Section 1.409A-1(a)(5) (collectively, the Applicable
Benefits) shall be subject to the following requirements in order to comply with Code Section
409A. The amount of any Applicable Benefits provided during one taxable year shall not affect the
amount of the Applicable Benefits provided in any other taxable year, except that with respect to
any Applicable Benefits that consist of the reimbursement of expenses referred to in Code Section
105(b), a limitation may be imposed on the amount of such reimbursements over some or all of the
Covered Period, as described in Treas. Reg. Section 1.409A-3(i)(1)iv)(B). To the extent that any
Applicable Benefits consist of the reimbursement of eligible expenses, such reimbursement must be
made on or before the last day of the calendar year following the calendar year in which the
expense was incurred. No Applicable Benefits may be liquidated or exchanged for another benefit.
During the period of six (6) months immediately following Executives separation from service
(within the meaning of Code Section 409A), Executive shall be obligated to pay the Company the full
cost for any Applicable Benefits that do not constitute health benefits of the type required to be
provided under the health continuation coverage requirements of Code Section 4980B, and the Company
shall reimburse Executive for any such payments on the first business day that is more than six (6)
months after Executives separation from service, together with interest on such amount from the
date of separation from service through the date of payment at the applicable federal rate under
Code Section 7872(f)(2)(A).
4. Maximum Payment Upon Termination. Paragraph 7(b) of the Agreement is hereby
amended by adding the following to the end thereof:
Notwithstanding the foregoing, if the exercise of discretion reserved to the Executive in
determining the Notice of Application would violate Code Section 409A, then such discretion shall
be eliminated and the amounts payable under Paragraph 6(c) shall be reduced proportionately.
5. Code Section 409A. Paragraph 20 of the Agreement, the existing text of which is
redundant of Paragraph 18, shall be replaced with the following:
Notwithstanding any provision of Paragraph 10 or 14 of the Employment Agreement to the
contrary, any legal fees and expenses to be paid by the Company pursuant to Paragraph 10 or 14
shall be subject to the following requirements in order to comply with Code Section 409A. Such
legal fees and expenses shall be paid by the Company only to the extent incurred during the Term of
the Agreement or for a period of ten (10) years after the Executives separation from service (as
defined in Code Section 409A). The Company shall pay such legal fees and expenses no later than
the end of the calendar year next following the calendar year in which such fees and expenses were
incurred, and the Company shall not be obligated to pay any such fees and expenses for which the
Executive fails to submit an invoice at least ten (10) business days before the end of the calendar
year next following the calendar year in which such fees and expenses were incurred. The amount of
such legal fees and expenses that the
Company is obligated to pay in any given calendar year shall not affect the legal fees and expenses
that the Company is obligated to pay in any other calendar year, and the Executives right to have
the Company pay such legal fees and expenses may not be liquidated or exchanged for any other
benefit.
6. Captions. The captions of the various sections of this Amendment are not part of
the context of this Amendment, but are only labels to assist in locating those sections, and shall
be ignored in construing this Amendment.
7. Construction. This document is an amendment to the Employment Agreement. In the
event of any inconsistencies between the provisions of the Employment Agreement and this Amendment,
the provisions of this Amendment shall control. Except as modified by this Amendment, the
Employment Agreement shall continue in full force and effect without change.
|
|
|
|
|
|
EXECUTIVE: |
|
|
|
|
|
|
Date: |
|
|
|
|
|
Stephen C. Thompson
|
|
|
|
|
|
|
|
|
|
CHESAPEAKE UTILITIES CORPORATION |
|
|
|
|
|
|
|
|
|
By:
|
|
|
Date: |
|
|
|
|
|
|
|
Its: |
|
|
|
|
Exhibit 10.11
Exhibit 10.11
Beth W. Cooper
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (this Amendment) is made effective as of
January 1, 2009, by and between Chesapeake Utilities Corporation, a Delaware corporation (the
Company), and Beth W. Cooper (the Executive).
Background Information
The parties to this Amendment (the Parties) entered into an Executive Employment Agreement
as of December 29, 2006 (the Employment Agreement), regarding the Executives employment
relationship with the Company. The Parties desire to amend the Employment Agreement pursuant to
Paragraphs 18 and 20 of the Employment Agreement in order to comply with the final Treasury
Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended (the
Code). The Employment Agreement, as amended by this Amendment, is hereinafter collectively
referred to as the Agreement.
Amendment of the Employment Agreement
The Parties hereby acknowledge the accuracy of the foregoing Background Information and hereby
agree as follows:
1. Definitions. All capitalized terms used in this Agreement but which are not
otherwise defined herein, shall have the respective meanings given those terms in the Employment
Agreement, as applicable.
2. Expenses. Paragraph 5(g) of the Agreement is hereby amended by adding the
following to the end thereof:
If any reimbursements under this provision are taxable to the Executive, such reimbursements
shall be paid on or before the end of the calendar year following the calendar year in which the
reimbursable expense was incurred, and the Company shall not be obligated to pay any such
reimbursement amount for which Executive fails to submit an invoice or other documented
reimbursement request at least 10 business days before the end of the calendar year next following
the calendar year in which the expense was incurred. Such expenses shall be reimbursable only to
the extent they were incurred during the term of the Agreement. In addition, the amount of such
reimbursements that the Company is obligated to pay in any given calendar year shall not affect the
amount the Company is obligated to pay in any other calendar year. In addition, Executive may not
liquidate or exchange the right to reimbursement of such expenses for any other benefits.
3. Payment Upon Termination During Extended Term. Paragraph 6(c) of the Agreement is
hereby amended by adding the following to the end thereof:
In addition, and notwithstanding the foregoing provisions of this Paragraph 6(c), if the
Extended Termination Date occurs more than two (2) years after the occurrence of a Change in
Control, then the amount payable in cash under this provision shall be payable in substantially
equal installments over the one (1) year period following the Executives separation from
service within the meaning of Code Section 409A. The number of substantially equal installments
shall be equal to the number of regular payroll periods during said one (1) year period, with one
installment payable on each such payroll period. In addition, to the extent required in order to
comply with Code Section 409A, cash amounts that would otherwise be payable under this Paragraph
6(c) during the six-month period immediately following the Extended Termination Date (and which are
not eligible for the exception applicable to payments due to involuntary separation under Treas.
Reg. Section 1.409A-1(b)(9)(iii)) shall instead be paid, with interest on any delayed payment at
the applicable federal rate under Code Section 7872(f)(2)(A), on the first business day after the
date that is six (6) months following the Executives separation from service within the meaning
of Code Section 409A. Further, any taxable welfare benefits provided to Executive pursuant to this
Paragraph 6(c) that are not disability pay or death benefits within the meaning of Treas. Reg.
Section 1.409A-1(a)(5) (collectively, the Applicable Benefits) shall be subject to the following
requirements in order to comply with Code Section 409A. The amount of any Applicable Benefits
provided during one taxable year shall not affect the amount of the Applicable Benefits provided in
any other taxable year, except that with respect to any Applicable Benefits that consist of the
reimbursement of expenses referred to in Code Section 105(b), a limitation may be imposed on the
amount of such reimbursements over some or all of the Covered Period, as described in Treas. Reg.
Section 1.409A-3(i)(1)iv)(B). To the extent that any Applicable Benefits consist of the
reimbursement of eligible expenses, such reimbursement must be made on or before the last day of
the calendar year following the calendar year in which the expense was incurred. No Applicable
Benefits may be liquidated or exchanged for another benefit. During the period of six (6) months
immediately following Executives separation from service (within the meaning of Code Section
409A), Executive shall be obligated to pay the Company the full cost for any Applicable Benefits
that do not constitute health benefits of the type required to be provided under the health
continuation coverage requirements of Code Section 4980B, and the Company shall reimburse Executive
for any such payments on the first business day that is more than six (6) months after Executives
separation from service, together with interest on such amount from the date of separation from
service through the date of payment at the applicable federal rate under Code Section
7872(f)(2)(A).
4. Maximum Payment Upon Termination. Paragraph 7(b) of the Agreement is hereby
amended by adding the following to the end thereof:
Notwithstanding the foregoing, if the exercise of discretion reserved to the Executive in
determining the Notice of Application would violate Code Section 409A, then such discretion shall
be eliminated and the amounts payable under Paragraph 6(c) shall be reduced proportionately.
5. Code Section 409A. Paragraph 20 of the Agreement, the existing text of which is
redundant of Paragraph 18, shall be replaced with the following:
Notwithstanding any provision of Paragraph 10 or 14 of the Employment Agreement to the
contrary, any legal fees and expenses to be paid by the Company pursuant to Paragraph 10 or 14
shall be subject to the following requirements in order to comply with Code Section 409A. Such
legal fees and expenses shall be paid by the Company only to the extent incurred during the Term of
the Agreement or for a period of ten (10) years after the Executives separation from service (as
defined in Code Section 409A). The Company shall pay such legal fees and expenses no later than
the end of the calendar year next following the calendar year in which such fees and expenses were
incurred, and the Company shall not be obligated to pay any such fees and expenses for which the
Executive fails to submit an invoice at least ten (10)
business days before the end of the calendar year next following the calendar year in which such
fees and expenses were incurred. The amount of such legal fees and expenses that the Company is
obligated to pay in any given calendar year shall not affect the legal fees and expenses that the
Company is obligated to pay in any other calendar year, and the Executives right to have the
Company pay such legal fees and expenses may not be liquidated or exchanged for any other benefit.
6. Captions. The captions of the various sections of this Amendment are not part of
the context of this Amendment, but are only labels to assist in locating those sections, and shall
be ignored in construing this Amendment.
7. Construction. This document is an amendment to the Employment Agreement. In the
event of any inconsistencies between the provisions of the Employment Agreement and this Amendment,
the provisions of this Amendment shall control. Except as modified by this Amendment, the
Employment Agreement shall continue in full force and effect without change.
EXECUTIVE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beth W. Cooper |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHESAPEAKE UTILITIES CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 10.13
Exhibit 10.13
Michael P. McMasters
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (this Amendment) is made effective as of
January 1, 2009, by and between Chesapeake Utilities Corporation, a Delaware corporation (the
Company), and Michael P. McMasters (the Executive).
Background Information
The parties to this Amendment (the Parties) entered into an Executive Employment Agreement
as of December 29, 2006 (the Employment Agreement), regarding the Executives employment
relationship with the Company. The Parties desire to amend the Employment Agreement pursuant to
Paragraphs 18 and 20 of the Employment Agreement in order to comply with the final Treasury
Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended (the
Code). The Employment Agreement, as amended by this Amendment, is hereinafter collectively
referred to as the Agreement.
Amendment of the Employment Agreement
The Parties hereby acknowledge the accuracy of the foregoing Background Information and hereby
agree as follows:
1. Definitions. All capitalized terms used in this Agreement but which are not
otherwise defined herein, shall have the respective meanings given those terms in the Employment
Agreement, as applicable.
2. Expenses. Paragraph 5(g) of the Agreement is hereby amended by adding the
following to the end thereof:
If any reimbursements under this provision are taxable to the Executive, such reimbursements
shall be paid on or before the end of the calendar year following the calendar year in which the
reimbursable expense was incurred, and the Company shall not be obligated to pay any such
reimbursement amount for which Executive fails to submit an invoice or other documented
reimbursement request at least 10 business days before the end of the calendar year next following
the calendar year in which the expense was incurred. Such expenses shall be reimbursable only to
the extent they were incurred during the term of the Agreement. In addition, the amount of such
reimbursements that the Company is obligated to pay in any given calendar year shall not affect the
amount the Company is obligated to pay in any other calendar year. In addition, Executive may not
liquidate or exchange the right to reimbursement of such expenses for any other benefits.
3. Payment Upon Termination During Extended Term. Paragraph 6(c) of the Agreement is
hereby amended by adding the following to the end thereof:
In addition, and notwithstanding the foregoing provisions of this Paragraph 6(c), if the
Extended Termination Date occurs more than two (2) years after the occurrence of a Change in
Control, then the amount payable in cash under this provision shall be payable in substantially
equal installments over the one (1) year period following the Executives separation from
service within the meaning of Code Section 409A. The number of substantially equal installments
shall be equal to the number of regular payroll periods during said one (1) year period, with one
installment payable on each such payroll period. In addition, to the extent required in order to
comply with Code Section 409A, cash amounts that would otherwise be payable under this Paragraph
6(c) during the six-month period immediately following the Extended Termination Date (and which are
not eligible for the exception applicable to payments due to involuntary separation under Treas.
Reg. Section 1.409A-1(b)(9)(iii)) shall instead be paid, with interest on any delayed payment at
the applicable federal rate under Code Section 7872(f)(2)(A), on the first business day after the
date that is six (6) months following the Executives separation from service within the meaning
of Code Section 409A. Further, any taxable welfare benefits provided to Executive pursuant to this
Paragraph 6(c) that are not disability pay or death benefits within the meaning of Treas. Reg.
Section 1.409A-1(a)(5) (collectively, the Applicable Benefits) shall be subject to the following
requirements in order to comply with Code Section 409A. The amount of any Applicable Benefits
provided during one taxable year shall not affect the amount of the Applicable Benefits provided in
any other taxable year, except that with respect to any Applicable Benefits that consist of the
reimbursement of expenses referred to in Code Section 105(b), a limitation may be imposed on the
amount of such reimbursements over some or all of the Covered Period, as described in Treas. Reg.
Section 1.409A-3(i)(1)iv)(B). To the extent that any Applicable Benefits consist of the
reimbursement of eligible expenses, such reimbursement must be made on or before the last day of
the calendar year following the calendar year in which the expense was incurred. No Applicable
Benefits may be liquidated or exchanged for another benefit. During the period of six (6) months
immediately following Executives separation from service (within the meaning of Code Section
409A), Executive shall be obligated to pay the Company the full cost for any Applicable Benefits
that do not constitute health benefits of the type required to be provided under the health
continuation coverage requirements of Code Section 4980B, and the Company shall reimburse Executive
for any such payments on the first business day that is more than six (6) months after Executives
separation from service, together with interest on such amount from the date of separation from
service through the date of payment at the applicable federal rate under Code Section
7872(f)(2)(A).
4. Maximum Payment Upon Termination. Paragraph 7(b) of the Agreement is hereby
amended by adding the following to the end thereof:
Notwithstanding the foregoing, if the exercise of discretion reserved to the Executive in
determining the Notice of Application would violate Code Section 409A, then such discretion shall
be eliminated and the amounts payable under Paragraph 6(c) shall be reduced proportionately.
5. Code Section 409A. Paragraph 20 of the Agreement, the existing text of which is
redundant of Paragraph 18, shall be replaced with the following:
Notwithstanding any provision of Paragraph 10 or 14 of the Employment Agreement to the
contrary, any legal fees and expenses to be paid by the Company pursuant to Paragraph 10 or 14
shall be subject to the following requirements in order to comply with Code Section 409A. Such
legal fees and expenses shall be paid by the Company only to the extent incurred during the Term of
the Agreement or for a period of ten (10) years after the Executives separation from service (as
defined in Code Section 409A). The Company shall pay such legal fees and expenses no later than
the end of the calendar year next following the calendar year in which such fees and expenses were
incurred, and the Company shall not be obligated to pay any such fees and expenses for which the
Executive fails to submit an invoice at least ten (10)
business days before the end of the calendar year next following the calendar year in which such
fees and expenses were incurred. The amount of such legal fees and expenses that the Company is
obligated to pay in any given calendar year shall not affect the legal fees and expenses that the
Company is obligated to pay in any other calendar year, and the Executives right to have the
Company pay such legal fees and expenses may not be liquidated or exchanged for any other benefit.
6. Captions. The captions of the various sections of this Amendment are not part of
the context of this Amendment, but are only labels to assist in locating those sections, and shall
be ignored in construing this Amendment.
7. Construction. This document is an amendment to the Employment Agreement. In the
event of any inconsistencies between the provisions of the Employment Agreement and this Amendment,
the provisions of this Amendment shall control. Except as modified by this Amendment, the
Employment Agreement shall continue in full force and effect without change.
EXECUTIVE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael P. McMasters |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHESAPEAKE UTILITIES CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 10.15
Exhibit 10.15
John R. Schimkaitis
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment to Executive Employment Agreement (this Amendment) is made effective as of
January 1, 2009, by and between Chesapeake Utilities Corporation, a Delaware corporation (the
Company), and John R. Schimkaitis (the Executive).
Background Information
The parties to this Amendment (the Parties) entered into an Executive Employment Agreement
as of December 29, 2006 (the Employment Agreement), regarding the Executives employment
relationship with the Company. The Parties desire to amend the Employment Agreement pursuant to
Paragraphs 18 and 20 of the Employment Agreement in order to comply with the final Treasury
Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended (the
Code). The Employment Agreement, as amended by this Amendment, is hereinafter collectively
referred to as the Agreement.
Amendment of the Employment Agreement
The Parties hereby acknowledge the accuracy of the foregoing Background Information and hereby
agree as follows:
1. Definitions. All capitalized terms used in this Agreement but which are not
otherwise defined herein, shall have the respective meanings given those terms in the Employment
Agreement, as applicable.
2. Expenses. Paragraph 5(g) of the Agreement is hereby amended by adding the
following to the end thereof:
If any reimbursements under this provision are taxable to the Executive, such reimbursements
shall be paid on or before the end of the calendar year following the calendar year in which the
reimbursable expense was incurred, and the Company shall not be obligated to pay any such
reimbursement amount for which Executive fails to submit an invoice or other documented
reimbursement request at least 10 business days before the end of the calendar year next following
the calendar year in which the expense was incurred. Such expenses shall be reimbursable only to
the extent they were incurred during the term of the Agreement. In addition, the amount of such
reimbursements that the Company is obligated to pay in any given calendar year shall not affect the
amount the Company is obligated to pay in any other calendar year. In addition, Executive may not
liquidate or exchange the right to reimbursement of such expenses for any other benefits.
3. Payment Upon Termination During Extended Term. Paragraph 6(c) of the Agreement is
hereby amended by adding the following to the end thereof:
In addition, and notwithstanding the foregoing provisions of this Paragraph 6(c), if the
Extended Termination Date occurs more than two (2) years after the occurrence of a Change in
Control, then the amount payable in cash under this provision shall be payable in substantially
equal installments over the one (1) year period following the Executives separation from
service within the meaning of Code Section 409A. The number of substantially equal installments
shall be equal to the number of regular payroll periods during said one (1) year period, with one
installment payable on each such payroll period. In addition, to the extent required in order to
comply with Code Section 409A, cash amounts that would otherwise be payable under this Paragraph
6(c) during the six-month period immediately following the Extended Termination Date (and which are
not eligible for the exception applicable to payments due to involuntary separation under Treas.
Reg. Section 1.409A-1(b)(9)(iii)) shall instead be paid, with interest on any delayed payment at
the applicable federal rate under Code Section 7872(f)(2)(A), on the first business day after the
date that is six (6) months following the Executives separation from service within the meaning
of Code Section 409A. Further, any taxable welfare benefits provided to Executive pursuant to this
Paragraph 6(c) that are not disability pay or death benefits within the meaning of Treas. Reg.
Section 1.409A-1(a)(5) (collectively, the Applicable Benefits) shall be subject to the following
requirements in order to comply with Code Section 409A. The amount of any Applicable Benefits
provided during one taxable year shall not affect the amount of the Applicable Benefits provided in
any other taxable year, except that with respect to any Applicable Benefits that consist of the
reimbursement of expenses referred to in Code Section 105(b), a limitation may be imposed on the
amount of such reimbursements over some or all of the Covered Period, as described in Treas. Reg.
Section 1.409A-3(i)(1)iv)(B). To the extent that any Applicable Benefits consist of the
reimbursement of eligible expenses, such reimbursement must be made on or before the last day of
the calendar year following the calendar year in which the expense was incurred. No Applicable
Benefits may be liquidated or exchanged for another benefit. During the period of six (6) months
immediately following Executives separation from service (within the meaning of Code Section
409A), Executive shall be obligated to pay the Company the full cost for any Applicable Benefits
that do not constitute health benefits of the type required to be provided under the health
continuation coverage requirements of Code Section 4980B, and the Company shall reimburse Executive
for any such payments on the first business day that is more than six (6) months after Executives
separation from service, together with interest on such amount from the date of separation from
service through the date of payment at the applicable federal rate under Code Section
7872(f)(2)(A).
4. Maximum Payment Upon Termination. Paragraph 7(b) of the Agreement is hereby
amended by adding the following to the end thereof:
Notwithstanding the foregoing, if the exercise of discretion reserved to the Executive in
determining the Notice of Application would violate Code Section 409A, then such discretion shall
be eliminated and the amounts payable under Paragraph 6(c) shall be reduced proportionately.
5. Code Section 409A. Paragraph 20 of the Agreement, the existing text of which is
redundant of Paragraph 18, shall be replaced with the following:
Notwithstanding any provision of Paragraph 10 or 14 of the Employment Agreement to the
contrary, any legal fees and expenses to be paid by the Company pursuant to Paragraph 10 or 14
shall be subject to the following requirements in order to comply with Code Section 409A. Such
legal fees and expenses shall be paid by the Company only to the extent incurred during the Term of
the Agreement or for a period of ten (10) years after the Executives separation from service (as
defined in Code Section 409A). The Company shall pay such legal fees and expenses no later than
the end of the calendar year next following the calendar year in which such fees and expenses were
incurred, and the Company shall not be obligated to pay any such fees and expenses for which the
Executive fails to submit an invoice at least ten (10)
business days before the end of the calendar year next following the calendar year in which such
fees and expenses were incurred. The amount of such legal fees and expenses that the Company is
obligated to pay in any given calendar year shall not affect the legal fees and expenses that the
Company is obligated to pay in any other calendar year, and the Executives right to have the
Company pay such legal fees and expenses may not be liquidated or exchanged for any other benefit.
6. Captions. The captions of the various sections of this Amendment are not part of
the context of this Amendment, but are only labels to assist in locating those sections, and shall
be ignored in construing this Amendment.
7. Construction. This document is an amendment to the Employment Agreement. In the
event of any inconsistencies between the provisions of the Employment Agreement and this Amendment,
the provisions of this Amendment shall control. Except as modified by this Amendment, the
Employment Agreement shall continue in full force and effect without change.
EXECUTIVE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. Schimkaitis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHESAPEAKE UTILITIES CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 10.26
Exhibit 10.26
PERFORMANCE SHARE AGREEMENT
pursuant to the
CHESAPEAKE UTILITIES CORPORATION
PERFORMANCE INCENTIVE PLAN
On , 20 , (the Grant Date), Chesapeake Utilities Corporation, a Delaware corporation (the
Company), has granted to
(the Grantee), who resides at
, a
Performance Share Award on the terms and subject to the conditions of this Performance Share
Agreement.
Recitals
WHEREAS, the Chesapeake Utilities Corporation Performance Incentive Plan (the Plan) has been duly
adopted by action of the Companys Board of Directors (the Board) on February 24, 2005, and
approved by the Shareholders of the Company at a meeting held on May 5, 2005; and
WHEREAS, the Plan is effective January 1, 2006; and
WHEREAS, the Committee of the Board of Directors of the Company referred to in the Plan (the
Committee) has determined that it is in the best interests of the Company to grant the
Performance Share Award described herein pursuant to the Plan; and
WHEREAS, the shares of the Common Stock of the Company (Shares) that are subject to this
Agreement, when added to the other shares of Common Stock that are subject to awards granted under
the Plan, do not exceed the total number of shares of Common Stock with respect to which awards are
authorized to be granted under the Plan.
Agreement
It is hereby covenanted and agreed by and between the Company and the Grantee as follows:
Section 1. Performance Share Award and Performance Period
The Company hereby grants to the Grantee a Performance Share Award as of the Grant Date. As more
fully described herein, the Grantee may earn up to Shares upon the Companys achievement
of the performance criteria set forth in Section 2 (the Performance Shares) over the performance
period from January 1, to December 31, (the Performance Period). This Award
has been granted pursuant to the Plan; capitalized terms used in this agreement which are not
specifically defined herein shall have the meanings ascribed to such terms in the Plan.
Section 2. Performance Criteria and Terms of Share Award
(a) The Committee selected and established in writing performance criteria for the Performance
Period, which, if met, may entitle the Grantee to some or all of the Performance
Shares under this Award. If this Award is intended by the Committee to comply with the
exception from Code Section 162(m) for qualified performance-based compensation for Grantees who
are Covered Employees as defined in Code Section 162(m), the performance criteria established
shall be based on one or more Performance Goals selected by the Committee in writing within 90 days
following the first day of the Performance Period (or, if earlier, before 25% of that period has
elapsed), and at a time when the outcome relative to the attainment of the performance criteria is
not substantially certain. As soon as practicable after the Companys independent auditors have
certified the Companys financial statements for each fiscal year of the Company in the Performance
Period, the Committee shall determine for purposes of this Agreement the Companys (1) total
shareholder return, defined as the cumulative total return to shareholders (Shareholder Value),
(2) growth in long-term earnings, defined as the growth in total capital expenditures as a
percentage of total capitalization (Growth) and (3) earnings performance, defined as average
return on equity (RoE), in accordance with procedures established by the Committee. The
Shareholder Value, Growth and RoE (each a Performance Metric and collectively, the Performance
Metrics) shall be determined by the Committee in accordance with the terms of the Plan and this
Agreement based on financial results reported to shareholders in the Companys annual reports and
shall be subject to adjustment by the Committee for extraordinary events during the Performance
Period, as applicable. Both the Shareholder Value and the Growth Performance Metrics will be
compared to those of the peer group consisting of gas utility companies listed in the Edward Jones
Natural Gas Distribution Group (the Peer Group) for the Performance Period and Awards will be
determined according to the schedule in subsection (b) below. For the average RoE Performance
Metric, the Companys performance will be compared to pre-determined RoE thresholds established by
the Committee. At the end of the Performance Period, the Committee shall certify in writing the
extent to which the Performance Goals were met during the Performance Period for Awards for Covered
Employees. If the Performance Goals for the Performance Period are met, Covered Employees shall be
entitled to the Award, subject to the Committees exercise of discretion to reduce any Award to a
Covered Employee based on business objectives established for that Covered Employee or other
factors as determined by the Committee in its sole discretion. The Committee shall promptly notify
the Grantee of its determination.
(b) The Grantee may earn 50 percent or more of the target award of Performance Shares
(the Target Award) up to a maximum number of Performance Shares set forth in Section 1 above (the
Maximum Award) based upon achievement of threshold and target levels of performance against the
Performance Metrics established for the Performance Period . The Committee shall confirm the level
of Award attained for the Performance Period after the Companys independent auditors have
certified the Companys financial statements for each fiscal year of the Company in the Performance
Period.
(c) Once established, the performance criteria identified above normally shall not be changed
during the Performance Period. However, if the Committee determines that external changes or other
unanticipated business conditions have materially affected the fairness of the goals, or that a
change in the business, operations, corporate structure or capital structure of the Company, or the
manner in which it conducts its business, or acquisitions or divestitures of subsidiaries or
business units, or other events or circumstances materially affect the performance criteria or
render the performance criteria unsuitable, then the Committee may approve appropriate adjustments
to the performance criteria (either up or down) during the Performance Period. Notwithstanding the
foregoing, no changes shall be made to an Award intended to satisfy the requirements of Code
Section 162(m) if such changes would affect the
qualification of the Award as performance-based compensation within the meaning of Code
Section 162(m).
- 2 -
(d) Performance Shares that are earned by the Grantee pursuant to this Section 2 shall be
issued promptly, without payment of consideration by the Grantee, within 21/2 months of the end of
the Performance Period. The Grantee shall have the right to vote the Performance Shares and to
receive the dividends distributable with respect to such Shares on and after, but not before, the
date on which the Grantee is recorded on the Companys ledger as holder of record of the
Performance Shares (the Issue Date). If, however, the Grantee receives Shares as part of any
dividend or other distribution with respect to the Performance Shares, such Shares shall be treated
as if they are Performance Shares, and such Shares shall be subject to all of the terms and
conditions imposed by this Section 2. Notwithstanding the foregoing, the Grantee shall be entitled
to receive an amount in cash, equivalent to the dividends that would have been paid on the awarded
Performance Shares from the Grant Date to the Issue Date for those Performance Shares actually
earned by the Grantee during the applicable Performance Period. Such dividend equivalents shall be
payable at the time such Performance Shares are issued.
(e) The Performance Shares will not be registered for resale under the Securities Act of 1933
or the laws of any state except when and to the extent determined by the Board pursuant to a
resolution. Until a registration statement is filed and becomes effective, however, transfer of
the Performance Shares shall require the availability of an exemption from such registration, and
prior to the issuance of new certificates, the Company shall be entitled to take such measures as
it deems appropriate (including but not limited to obtaining from the Grantee an investment
representation letter and/or further legending the new certificates) to ensure that the Performance
Shares are not transferred in the absence of such exemption.
(f) In the event of a Change in Control, as defined in the Plan, during the Performance
Period, the Grantee shall earn the Maximum Award of Performance Shares set forth in this Section 2,
as if all performance criteria were satisfied, without any pro ration based on the proportion of
the Performance Period that has expired as of the date of such Change in Control.
(g) If, during the Performance Period, the Grantee is separated from employment, Performance
Shares shall be deemed earned or forfeited as follows:
(1) Upon voluntary termination by the Grantee or termination by the Company for failure
of job performance or other just cause as determined by the Committee, all unearned
Performance Shares shall be forfeited immediately;
(2) If the Grantee separates from employment by reason of death or total and permanent
disability (as determined by the Committee), the number of Performance Shares that would
otherwise have been earned at the end of the Performance Period shall be reduced by pro
rating such Performance Shares based on the proportion of the Performance Period during
which the Grantee was employed by the Company, unless the Committee determines that the
Performance Shares shall not be so reduced;
(3) Upon retirement by the Grantee at age 55 or thereafter, all unearned Performance
Shares shall be forfeited immediately.
- 3 -
(h) The Grantee shall be solely responsible for any federal, state and local taxes of any kind
imposed in connection with the vesting or delivery of the Performance Shares. Prior to the
transfer of any Performance Shares to the Grantee, the Grantee shall remit to the Company an amount
sufficient to satisfy any federal, state, local and other withholding tax requirements. The
Grantee may elect to have all or part of any withholding tax obligation satisfied by having the
Company withhold Shares otherwise deliverable to the Grantee as Performance Shares, unless the
Committee determines otherwise by resolution. If the Grantee fails to make such payments or
election, the Company and its subsidiaries shall, to the extent permitted by law, have the right to
deduct from any payments of any kind otherwise due to the Grantee any taxes required by law to be
withheld with respect to the Performance Shares. In the case of any amounts withheld for taxes
pursuant to this provision in the form of Shares, the amount withheld shall not exceed the minimum
required by applicable law and regulations.
(i) Notwithstanding any other provision of this Agreement, if any payment or distribution (a
Payment) by the Company or any other person or entity to or for the benefit of the Grantee is
determined to be an excess parachute payment (within the meaning of Code Section 280G(b)(1) or
any successor provision of similar effect), whether paid or payable or distributed or distributable
pursuant to this Agreement or otherwise, then the Grantees benefits under this Agreement may,
unless the Grantee elects otherwise pursuant to his employment agreement, be reduced by the amount
necessary so that the Grantees total parachute payment as defined in Code Section 280G(b)(2)(A)
under this and all other agreements will be $1.00 less than the amount that would be a parachute
payment. The payment of any excess parachute payment pursuant to this paragraph shall also
comply with the terms of the Grantees employment agreement.
Section 3. Additional Conditions to Issuance of Shares
Each transfer of Performance Shares shall be subject to the condition that if at any time the
Committee shall determine, in its sole discretion, that it is necessary or desirable as a condition
of, or in connection with, transfer of Performance Shares (i) to satisfy withholding tax or other
withholding liabilities, (ii) to effect the listing, registration or qualification on any
securities exchange or under any state or federal law of any Shares deliverable in connection with
such exercise, or (iii) to obtain the consent or approval of any regulatory body, then in any such
event such transfer shall not be effective unless such withholding, listing, registration,
qualification, consent or approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
Section 4. Adjustment of Shares
(a) If the Company shall become involved in a merger, consolidation or other reorganization,
whether or not the Company is the surviving corporation, any right to earn Performance Shares shall
be deemed a right to earn or to elect to receive the consideration into which the Shares
represented by the Performance Shares would have been converted under the terms of the merger,
consolidation or other reorganization. If the Company is not the surviving corporation, the
surviving corporation (the Successor) shall succeed to the rights and obligations of the Company
under this Agreement.
(b) If any subdivision or combination of Shares or any stock dividend, capital reorganization
or recapitalization occurs after the adoption of the Plan, the Committee shall make such
proportionate adjustments as are appropriate to the number of
Performance Shares to be earned in order to prevent the dilution or enlargement of the rights
of the Grantee.
- 4 -
Section 5. No Right to Employment
Nothing contained in this Agreement shall be deemed by implication or otherwise to confer upon the
Grantee any right to continued employment by the Company or any affiliate of the Company.
Section 6. Notice
Any notice to be given hereunder by the Grantee shall be sent by mail addressed to Chesapeake
Utilities Corporation, 909 Silver Lake Boulevard, Dover, Delaware 19904, for the attention of the
Committee, c/o the Corporate Secretary, and any notice by the Company to the Grantee shall be sent
by mail addressed to the Grantee at the address of the Grantee shown on the first page hereof.
Either party may, by notice given to the other in accordance with the provisions of this Section,
change the address to which subsequent notices shall be sent.
Section 7. Beneficiary Designation
Grantee may designate a beneficiary to receive any Performance Shares to which Grantee is entitled
which vest as a result of Grantees death. Grantee acknowledges that the Company may exercise all
rights under this Agreement and the Plan against Grantee and Grantees estate, heirs, lineal
descendants and personal representatives and shall not be limited to exercising its rights against
Grantees beneficiary.
Section 8. Assumption of Risk
It is expressly understood and agreed that the Grantee assumes all risks incident to any change
hereafter in the applicable laws or regulations or incident to any change in the market value of
the Performance Shares.
Section 9. Terms of Plan
This Agreement is entered into pursuant to the Plan (a copy of which has been delivered to the
Grantee). This Agreement is subject to all of the terms and provisions of the Plan, which are
incorporated into this Agreement by reference, and the actions taken by the Committee pursuant to
the Plan. In the event of a conflict between this Agreement and the Plan, the provisions of the
Plan shall govern. All determinations by the Committee shall be in its sole discretion and shall
be binding on the Company and the Grantee.
Section 10. Governing Law; Amendment
This Agreement shall be governed by, and shall be construed and administered in accordance with,
the laws of the State of Delaware (without regard to its choice of law rules) and the requirements
of any applicable federal law. This Agreement may be modified or amended only by a writing signed
by the parties hereto.
- 5 -
Section 11. Action by the Committee
The parties agree that the interpretation of this Agreement shall rest exclusively and completely
within the sole discretion of the Committee. The parties agree to be bound by the decisions of the
Committee with regard to the interpretation of this Agreement and with regard to any and all
matters set forth in this Agreement. The Committee may delegate its functions under this Agreement
to an officer of the Company designated by the Committee (hereinafter the Designee). In
fulfilling its responsibilities hereunder, the Committee or its Designee may rely upon documents,
written statements of the parties or such other material as the Committee or its Designee deems
appropriate. The parties agree that there is no right to be heard or to appear before the
Committee or its Designee and that any decision of the Committee or its Designee relating to this
Agreement shall be final and binding unless such decision is arbitrary and capricious.
Section 12. Terms of Agreement
This Agreement shall remain in full force and effect and shall be binding on the parties hereto for
so long as any Performance Shares issued to the Grantee under this Agreement continue to be held by
the Grantee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its corporate name, and
the Grantee has executed the same in evidence of the Grantees acceptance hereof, upon the terms
and conditions herein set forth, as of the day and year first above written.
|
|
|
|
|
|
|
|
|
CHESAPEAKE UTILITIES CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Its: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantee: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 6 -
Exhibit 10.27
Exhibit 10.27
CHESAPEAKE UTILITIES CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As amended and restated, effective January 1, 2009)
TABLE OF CONTENTS
|
|
|
|
|
|
|
PAGE NO. |
|
|
|
|
|
|
ARTICLE I ESTABLISHMENT AND PURPOSE |
|
|
1 |
|
|
|
|
|
|
ARTICLE
II DEFINITIONS |
|
|
2 |
|
|
|
|
|
|
2.1 Beneficiary |
|
|
2 |
|
|
|
|
|
|
2.2 Change in Control |
|
|
2 |
|
|
|
|
|
|
2.3 Committee |
|
|
3 |
|
|
|
|
|
|
2.4 Employer |
|
|
4 |
|
|
|
|
|
|
2.5 Excess Benefit |
|
|
4 |
|
|
|
|
|
|
2.6 Executive |
|
|
4 |
|
|
|
|
|
|
2.7 Maximum Benefit |
|
|
4 |
|
|
|
|
|
|
2.8 Pension Plan |
|
|
4 |
|
|
|
|
|
|
2.9 Plan |
|
|
4 |
|
|
|
|
|
|
2.10 Plan Year |
|
|
4 |
|
|
|
|
|
|
2.11 Related Company |
|
|
4 |
|
|
|
|
|
|
2.12 Unrestricted Benefit |
|
|
4 |
|
|
|
|
|
|
ARTICLE
III PAYMENT OF EXCESS BENEFITS |
|
|
5 |
|
|
|
|
|
|
3.1 Group A Participants |
|
|
5 |
|
|
|
|
|
|
3.2 Group B Participants |
|
|
5 |
|
|
|
|
|
|
ARTICLE
IV TERMINATION OF EMPLOYMENT |
|
|
8 |
|
|
|
|
|
|
4.1 Termination for Cause |
|
|
8 |
|
|
|
|
|
|
4.2 Conduct After Termination |
|
|
9 |
|
|
|
|
|
|
ARTICLE V NATURE OF INTEREST OF EXECUTIVE |
|
|
10 |
|
|
|
|
|
|
5.1 In General |
|
|
10 |
|
|
|
|
|
|
5.2 Funding of Plan Under Certain Circumstances |
|
|
10 |
|
|
|
|
|
|
ARTICLE
VI ADMINISTRATION |
|
|
11 |
|
|
|
|
|
|
6.1 Committee |
|
|
11 |
|
|
|
|
|
|
6.2 Expenses |
|
|
11 |
|
|
|
|
|
|
6.3 Powers of the Committee |
|
|
11 |
|
|
|
|
|
|
6.4 Finality |
|
|
12 |
|
|
|
|
|
|
6.5 Benefit Claims Procedure |
|
|
12 |
|
|
|
|
|
|
ARTICLE
VII AMENDMENTS |
|
|
13 |
|
|
|
|
|
|
ARTICLE
VIII MISCELLANEOUS |
|
|
14 |
|
|
|
|
|
|
8.1 Participation by Affiliated Company |
|
|
14 |
|
|
|
|
|
|
8.2 Incapacity |
|
|
14 |
|
|
|
|
|
|
8.3 Required Information |
|
|
14 |
|
i
|
|
|
|
|
|
|
PAGE NO. |
|
|
|
|
|
|
8.4 Inability to Locate Executives |
|
|
14 |
|
|
|
|
|
|
8.5 No Right to Employment |
|
|
15 |
|
|
|
|
|
|
8.6 Withholding Taxes |
|
|
15 |
|
|
|
|
|
|
8.7 Gender and Number |
|
|
15 |
|
|
|
|
|
|
8.8 Headings |
|
|
15 |
|
|
|
|
|
|
8.9 Severability |
|
|
16 |
|
|
|
|
|
|
8.10 Governing Law |
|
|
16 |
|
|
|
|
|
|
8.11 Effective Date |
|
|
16 |
|
|
|
|
|
|
SCHEDULE A Group A and B Participants |
|
|
17 |
|
|
|
|
|
|
ii
CHESAPEAKE UTILITIES CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
(a) The Employer established the Chesapeake Utilities Corporation Executive Excess Retirement
Benefit Plan (the Plan) effective January 1, 2000. The purpose of the Plan is to provide benefits
that would be provided under the Chesapeake Utilities Corporation Pension Plan (the Pension Plan)
but for certain limitations on the benefits that may be provided under a tax-qualified plan within
the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the Code). The
Plan consists of the Plan document as set forth herein and any amendments thereto.
(b) The Employer adopted a new retirement program effective January 1, 1999 (the New
Retirement Program). Under the New Retirement Program, participation in the Pension Plan was
frozen as of December 31, 1998. As part of the New Retirement Program, active participants in the
Pension Plan as of that date elected, among other things, either to continue accruing benefits
under the Pension Plan on and after January 1, 1999, or to cease accruing benefits under the
Pension Plan as of December 31, 1998.
(c) Effective December 31, 1998, the benefits under this Plan of an Executive who is
described as a Group A Participant in Schedule A shall not increase or decrease after December
31, 1998. Effective December 31, 2004, the benefits of an Executive who is described as a Group B
Participant in Schedule A shall not increase or decrease under this Plan after December 31, 2004.
(d) The purpose of this amendment and restatement of the Plan is to comply with the
requirements of Code Section 409A and final regulations and other rulings thereunder, and is
effective with respect to the Group B Participants only. Except as otherwise specifically provided
herein, Group A Participants and their benefits under the Plan remain subject to the terms of the
Plan as in effect on January 1, 2000. For the period from January 1, 2005 when Code Section 409A
became effective to January 1, 2009, the Plan has been operated in good faith compliance with such
Code Section and applicable transition rules
thereunder. As part of this amendment and restatement, the Employer also renames the Plan as
the Chesapeake Utilities Corporation Supplemental Executive Retirement Plan.
1
ARTICLE II
DEFINITIONS
The following words and phrases shall have the following meanings when used in this Plan. In
addition, except for the definitions of Committee, Employer, and Plan, which are set forth
below, the definitions in Article I of the Pension Plan as in effect on January 1, 2005, shall
apply for the purposes of this Plan.
2.1 Beneficiary means a person who is entitled to receive a benefit as a beneficiary
(including a contingent beneficiary) or Alternate Payee with respect to an Executive pursuant to
the provisions of the Pension Plan.
2.2 Change in Control shall be deemed to occur when and only when the first of the
following events occurs:
(a) the registration of the Companys voting securities under the Securities
Exchange Act of 1934, as amended (the 1934 Act), terminates or the Company shall
have fewer than 300 stockholders of record; or
(b) any person or group (within the meaning of Sections 13(d) and 14(d) of the 1934
Act), other than the Company, becomes the beneficial owner (within the meaning of
Rule 13d-3 under the 1934 Act) of 30 percent or more of the combined voting power
of the Companys then outstanding voting securities; or
(c) a tender offer or exchange offer, other than an offer by the Company, pursuant
to which 30 percent or more of the combined voting power of the Companys then
outstanding voting securities was purchased, expires; or
(d) the stockholders of the Company approve an agreement to merge or consolidate
with another corporation (other than a majority-controlled subsidiary of the
Company) unless the stockholders of the Company immediately before the merger or
consolidation are to own more than 70 percent of the combined voting power of the
resulting entitys voting securities; or
2
(e) the Companys stockholders approve an agreement (including, without limitation,
a plan of liquidation) to sell or otherwise dispose of all or substantially all of
the business or assets of the Company; or
(f) during any period of two consecutive years, individuals who, at the beginning
of the period, constituted the Board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by the
Companys stockholders, of each new director was approved by a vote of at least
two-thirds (2/3rds) of the directors then still in office who were directors at the
beginning of the period; or
(g) the acquisition of direct or indirect beneficial ownership of more than 15
percent of the Companys then outstanding voting securities by any person or group
is approved over the formal objection of the Company by the Securities and Exchange
Commission pursuant to Section 9 of the Public Utility Holding Company Act of 1935,
as amended. However, no Change in Control shall be deemed to have occurred with
respect to an Executive by reason of any event involving a transaction in which (i)
the Executive or a group of persons or entities with which the Executive acts in
concert, acquires, directly or indirectly, more than 30 percent of the common stock
or the business or assets of the Company, (ii) any event involving or arising out
of a proceeding under Title 1l of the United States Code (or the provisions of any
future United States bankruptcy law), an assignment for the benefit of creditors or
an insolvency proceeding under state or local law, or (iii) any event constituting
approval by the Companys stockholders of a merger or consolidation if a majority
of the group consisting of the president and vice presidents of the Company who are
parties to agreements conferring rights upon a Change in Control shall have agreed
in writing prior to the approval that the approval shall be deemed not to
constitute a Change in Control. For purposes of this Section 2.2, Company shall
mean the Employer or a Related Company.
2.3 Committee means the committee designated in Section 6.1 to administer the Plan.
3
2.4 Employer means Chesapeake Utilities Corporation and any subsidiary or affiliated
corporation of the foregoing that, with the consent of the Board, adopts the Plan; or any
corporation with which one or more of the foregoing might be consolidated by merger, by purchase of
assets, or by dissolution of a subsidiary corporation, that adopts the Plan; or any corporate
successor of one or more of the foregoing that adopts the Plan.
2.5 Excess Benefit means the excess (if any) of an Executives or Beneficiarys
Unrestricted Benefit over the Executives or Beneficiarys Maximum Benefit.
2.6 Executive means a person who is entitled to receive a benefit as a Member pursuant
to the provisions of the Pension Plan, and who has an Excess Benefit under the Plan. Executives
(and Beneficiaries) are further defined as either a Group A Participant or a Group B Participant.
2.7 Maximum Benefit means the benefit payable to an Executive or his Beneficiary
during any calendar month by the Pension Plan.
2.8 Pension Plan means the Chesapeake Utilities Corporation Pension Plan, as amended
from time to time.
2.9 Plan means the Chesapeake Utilities Corporation Supplemental Executive Retirement
Plan, as set forth herein and as amended from time to time.
2.10 Plan Year means the calendar year.
2.11 Related Company means the Employer, any Affiliated Company, and any other
employer the majority interest in which is held, directly or indirectly, by the Employer or an
Affiliated Company.
2.12 Unrestricted Benefit means the benefit that would be payable to an Executive or
his Beneficiary during any calendar month by the Pension Plan in the form elected by the
Participant under the Pension Plan if Code Sections 401(a)(17) and 415, and the provisions of the
Pension Plan that implement them, did not apply to the Executive and his Beneficiary.
4
ARTICLE III
PAYMENT OF EXCESS BENEFITS
3.1 Group A Participants. Subject to the provisions of Article IV, an Executive or
Beneficiary who is a Group A Participant, shall receive a monthly payment for each month for which
the Executive or Beneficiary is entitled to receive a benefit under the Pension Plan, in an amount
equal to the Executives or Beneficiarys Excess Benefit.
Notwithstanding the foregoing, if the value of the immediate lump-sum payment that is the
Actuarial Equivalent (within the meaning of Section 1.2 of the Pension Plan) of the Executives
(and his Beneficiarys) Excess Benefit on the date as of which the Executives employment with the
Employer and any Affiliated Company terminates does not exceed $3,500, the Committee shall direct
that such lump-sum payment be made to the Executive as soon as practicable after that date.
Similarly, if the Executive dies before commencing receipt of benefits under the Plan, and the
value of the immediate lump-sum payment that is the Actuarial Equivalent (within the meaning of
Section 1.2 of the Pension Plan) of his Beneficiarys Excess Benefit on the date of his death does
not exceed $3,500, the Committee shall direct that such lump-sum payment be made to his Beneficiary
as soon as practicable after that date.
3.2 Group B Participants. Subject to the provisions of Article IV, an Executive or
Beneficiary who is a Group B Participant, shall make an election no later than December 31, 2008,
regarding the form and timing of the payment of the Executives or Beneficiarys Excess Benefit.
Such election shall be in writing, in a form acceptable to the Committee, and shall specify such
information as required by the Committee and shall be irrevocable once made. If a Group B
Participant fails to make an election of a time and form of payment, his benefit shall be payable
at age 65 (Normal Retirement Age) in the form of a single life annuity for the Group B
Participants life (the default payment election).
5
(a) Time of Payment. A Group B Participant may elect to receive his Excess
Benefit from the Plan upon: (i) the later of Separation from Service (as defined
in Treasury Regulations Section 1.409A-1(h)(1) (without the application of any
elective changes to such definition) or attainment of age 55 (Early Retirement Age
under the Pension Plan); or (ii) upon attainment of Normal Retirement Age (age 65),
without regard to whether or not a
Separation from Service has yet occurred. Such payment shall be made, or commence
to be made, within 90 days of the selected distribution date. If, however, a Group
B Participant who is a specified employee (as defined in Code Section 409A)
elects to receive payment upon Separation from Service, no amount shall be
distributed earlier than the first business day that is at least six months after
the specified employees Separation from Service.
(b) Form of Payment. A Group B Participant may elect to receive his Excess
Benefit from the Plan in one of the following forms of payment, each of which shall
be the Actuarial Equivalent of payment in the form of a single life annuity for the
life of the Group B Participant:
(i) a life annuity, ceasing payments upon the death of the Group B
Participant;
(ii) a Qualified Joint and Survivor Annuity payable for the life of the
Group B Participant with a survivor annuity equal to 50% of the amount
payable during the joint annuity period continuing to his surviving spouse,
if applicable;
(iii) an annuity payable for the life of the Group B Participant with
payments guaranteed for a minimum of 10 years to the Group B Participant
and, if the Group B Participant dies before 10 years of payments, such
amount continuing to a Beneficiary until 10 years of payments have been
made;
(iv) a joint and survivor annuity payable for the life of the Group B
Participant and continued upon his death for the life of his surviving
designated beneficiary, with the designated beneficiarys benefit to be 50
percent, 66 2/3 percent or 100 percent (as elected by the Group B
Participant) of the benefit paid or payable for each month to the Group B
Participant during his lifetime; or
6
(vi) a single, lump sum that is the Present Value of the single life
annuity benefit. For this purpose, Present Value means the lump sum
actuarial equivalent of the Group B Participants Excess Benefit calculated
by using the interest rate and mortality table defined as
follows: (I) The interest rate shall be based on the interest rate used
to calculate lump sum distributions from the Pension Plan, which is the
interest rate under Code Section 417(e)(3) for the month of November
preceding the calendar year in which the payment date falls; and (II) The
mortality table shall be the mortality table prescribed by the Secretary of
the Treasury under the authority of Section 417(e)(3) of the Code based
upon the prevailing commissioners standard table used to determine the
minimum present value of a participants benefit in the Pension Plan on the
date as of which the Present Value is being determined. As of the
effective date of this amendment and restatement of the Plan, this
mortality table for 2008 is the table prescribed by Rev. Rul. 2007-67,
which shall be updated annually thereafter by the Internal Revenue Service.
(c) Death Benefit. The death benefit, if any, payable to a Group B
Participants Beneficiary shall be determined based on the form of payment elected
by such Group B Participant and, if no form is elected, the default payment shall
be a single life annuity under which no death benefit shall be payable. If a Group
B Participant dies after benefit payments have commenced, the Beneficiary of the
deceased Group B Participant shall receive the remaining payments due under the
form of payment selected, if any. If a Group B Participant dies before benefit
payments have commenced, the amount payable to the Beneficiary of the Group B
Participant shall be based on the method of payment elected, with a single life
annuity providing no death benefit, a joint and survivor or Qualified Joint and
Survivor Annuity providing the stated level of survivor annuity as though the Group
B Participant had Separated from Service on the date of his death (or as of the
actual date of Separation from Service if earlier), and a lump sum payment being
payable in full to the Beneficiary in lieu of the Group B Participant. In the case
of a Group B Participant who dies before benefit payments have commenced, the death
benefit shall be paid, or commence to be paid, as applicable, within 90 days after
the date of death and shall be the Actuarial
Equivalent of the benefit otherwise payable at the selected payment commencement
date if the Group B Participants death precedes when benefits otherwise would have
commenced. Notwithstanding the foregoing, if the Group B Participant was at least
age 55 at his death, the factors set forth in Section 5.3 of the Pension Plan (as
of December 31, 2004) shall be used to determine the reduction in the amount
payable due to death prior to the scheduled distribution date, if any.
7
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 Termination for Cause. No payments shall be made under the Plan to or in respect
of an Executive whose employment is terminated as a result of conduct determined by the Committee
in its sole discretion to have had an adverse effect on the Employer or a Related Company, provided
that:
(a) an Executives employment shall not be deemed to have terminated as a result of
conduct that had an adverse effect on the Employer or a Related Company unless the
Executive: (i) engaged in unlawful acts intended to result in the substantial
personal enrichment of the Executive at the expense of the Employer or a Related
Company; or (ii) engaged (except by reason of incapacity due to illness or injury)
in a material violation of his responsibilities to the Employer and the Related
Companies that resulted in a material injury to the Employer or a Related Company;
and
(b) the Executives employment shall not be deemed to have terminated as a result
of conduct that had an adverse effect on the Employer or a Related Company for
purposes of subsection (a) of this Section 4.1 unless and until there has been
delivered to him a Notice of Termination, consisting of a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths (3/4ths) of the
entire membership of the Board at a duly held meeting of the Board (with reasonable
notice to the Executive and an opportunity for the Executive, together counsel, to
be heard before the Board), finding that the Executive has engaged in the conduct
set forth above in this Section 4.1 and specifying the particulars thereof in
detail. The Board may not delegate or assign its duties under this Section 4.1.
8
4.2 Conduct after Termination.
(a) No additional payments shall be made under the Plan to or in respect of an
Executive who, before the second anniversary of the termination of his employment,
renders services for any organization or engages directly or indirectly in any
business that, in the judgment of the Committee, competes directly with, or that is
otherwise prejudicial to or conflicts with the interests
of, the Employer or a Related Company. The Executive may be required to certify to
the above condition in a format acceptable to the Committee from time to time
before receiving any subsequent payments under the Plan. The Executive shall be
free, however, to purchase, as an investment or otherwise, stock or other
securities of such organizations so long as they are listed upon a recognized
securities exchange or traded over-the-counter, and such investment does not
represent a substantial investment to the Executive or a greater than 10 percent
equity interest in the organization. The Committee shall direct that any remaining
payments to or in respect of the Executive be terminated and forfeited upon a
determination by the Committee that the Executive has engaged in conduct that
requires the forfeiture of payments to or in respect of the Executive pursuant to
this Section 4.2. Further, the Committee may pursue the return to the Employer of
any payments made under the Plan after the commencement of such conduct, together
with interest at a rate determined by the Committee in its sole discretion.
(b) After a Change in Control, subsection (a) of this Section 4.2 shall no longer
apply to any Executive unless, before the Change in Control, the Committee has
determined that the Executive has engaged in conduct that requires the forfeiture
of payments to or in respect of the Executive pursuant to that subsection.
9
ARTICLE V
NATURE OF INTEREST OF EXECUTIVE
5.1 In General. Participation in this Plan shall not create, in favor of any
Executive or Beneficiary, any interest in or lien against any of the assets of the Employer. An
Executives or Beneficiarys rights to benefits payable under the Plan are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance. Except to
the extent required by Section 5.2, nothing contained in the Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Employer and an Executive or any other person, and the promise of the
Employer to pay benefits hereunder shall at all times remain unfunded as to the Executive or
Beneficiary, whose rights hereunder shall be limited to those of a general and unsecured creditor
of the Employer.
5.2 Funding of Plan Under Certain Circumstances. In the event of a Change in Control,
the Committee shall fund fully all benefits accrued under the Plan through that date through the
purchase of fully-paid annuity or life insurance contracts or deposits to a rabbi trust, as
described below. In addition, the Committee may fund the benefits accrued under the Plan, in whole
or in part, in the same manner in its sole discretion under any other circumstances. The Committee
shall cause any annuity or life insurance contracts purchased pursuant to this Section 5.2 and any
other assets set aside or otherwise accumulated pursuant to this Section 5.2 to be held by a
rabbi trust that conforms to the standards prescribed by Internal Revenue Service Revenue
Procedures 92-64, as amended from time to time, or any successor thereto. Any annuity or life
insurance contracts purchased pursuant to this Section 5.2 and any other assets set aside or
otherwise accumulated pursuant to this Section 5.2 shall not be assets of the Plan. Executives and
Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any such
contracts or other assets, and such contracts or other assets shall be subject to the claims of the
Employers general creditors in the event of the insolvency of the Employer.
10
ARTICLE VI
ADMINISTRATION
6.1 Committee. The Plan shall be administered by the Employee Benefits Committee of
Chesapeake Utilities Corporation. The Committee shall serve at the pleasure of the Board. The
Committee may allocate its responsibilities for the administration of the Plan among its members or
among any subcommittee(s) it may appoint and may designate persons other than its members to carry
out its responsibilities under the Plan.
6.2 Expenses. The expenses incident to the operation of the Plan, including the
compensation of attorneys, advisors, actuaries, and such other persons providing technical and
clerical assistance as may be required, shall be paid directly by the Employer.
6.3 Powers of the Committee. In addition to any implied powers and duties that may be
needed to carry out the provisions of the Plan, the Committee shall have the following specific
discretionary powers and duties:
(a) to make and enforce such rules and regulations as it shall deem necessary or
proper for the efficient administration of the Plan;
(b) to interpret the Plan and to decide any and all matters arising hereunder,
including the right to remedy possible ambiguities, inconsistencies, or omissions;
provided that all such interpretations and decisions shall be applied in a uniform
and non-discriminatory manner to all persons similarly situated;
11
(c) to compute the amount of benefits that shall be payable to any Executive,
former Executive, or Beneficiary in accordance with the provisions of the Plan,
and, in the event that the Committee determines that excessive benefits have been
paid to any person, the Committee may suspend payment of future benefits to such
person or his Beneficiary or reduce the amount of such future benefits until the
excessive benefits and any interest thereon determined by the Committee have been
recovered;
(d) to appoint other persons to carry out such ministerial responsibilities under
the Plan as it may determine; and
(e) to employ one or more persons to render advice with respect to any of its
responsibilities under the Plan.
6.4 Finality. Subject to the provisions of Section 6.5, determinations by the
Committee and any interpretation, rule, or decision adopted by the Committee under the Plan or in
carrying out or administering the Plan shall be final and binding for all purposes and upon all
interested persons, their heirs, and personal representatives.
6.5 Benefit Claims Procedure. A claim for a benefit under the Plan by any person
shall be filed in the manner and governed by the procedures set forth in Section 12.13 of the
Pension P1an.
12
ARTICLE VII
AMENDMENTS
Chesapeake Utilities Corporation reserves the right to amend the Plan, retroactively or
prospectively, at any time; provided that no such amendment shall result in the reduction or
forfeiture of benefits already accrued under the Plan (including, without limitation, the right to
the funding of those benefits in the event of a Change in Control). The right to amend the Plan
shall be exercised by the Board pursuant to a written resolution adopted in accordance with the
by-laws of the Employer; provided that the Committee may amend the Plan to the extent necessary to
comply with the requirements of law or the purpose of the Plan as set forth in Article I. The
Committee shall have the right by written resolution to amend the Plan from time to time, for the
purpose of meeting the requirements of Code Section 409A.
13
ARTICLE VIII
MISCELLANEOUS
8.1 Participation by Affiliated Company. Subject to the consent of the Committee, an
Affiliated Company was permitted to become an Employer under the Plan by delivering to the
Committee a resolution of its board of directors approving such action. With the consent of the
Committee, such Affiliated Company became an Employer as of an effective date approved by the
Committee and is subject to the provisions of the Plan. No new participating Affiliated Companies
shall be permitted to join the Plan after December 31, 2008.
8.2 Incapacity. If the Committee determines that any person entitled to benefits
hereunder is unable to care for his affairs because of illness or accident, any payment due (unless
a duly qualified guardian or other legal representative has been appointed) may be paid for the
benefit of such person to his spouse, parent, sibling, or other party deemed by the Committee to
have incurred expenses for such person.
8.3 Required Information. Any person eligible to receive benefits hereunder shall
furnish to the Committee any information or proof requested by the Committee and reasonably
required for the proper administration of the Plan. Failure on the part of any person to comply
with any such request within a reasonable period of time shall be sufficient grounds for delay in
the payment of any benefits that may be due under the Plan until such information or proof is
received by the Committee. If any person claiming benefits under the Plan makes a false statement
that is material to such persons claim for benefits, the Committee may offset against future
payments any amount paid to such person to which such person was not entitled under the provisions
of the Plan.
8.4 Inability to Locate Executives. Each Executive and each Beneficiary entitled to
receive a benefit under the Plan shall keep the Committee advised of his current address. If the
Committee is unable to locate an Executive or Beneficiary to whom a benefit is payable under the
Plan for a period of thirty-six (36) months, commencing with the first day of the month as of which
such benefit becomes payable, the total amount payable to such Executive or Beneficiary shall be
forfeited.
14
8.5 No Right to Employment. Nothing herein contained shall be deemed to give any
employee the right to be retained in the service of the Employer or the Affiliated Companies or to
interfere with the right of the Employer and the Affiliated Companies to discharge any employee at
any time without regard to the effect that such discharge might have upon the employee under the
Plan.
8.6 Withholding Taxes. The Committee may make any appropriate arrangements for the
deduction of any taxes required to be withheld by any government or government agency, from all
amounts provided under the Plan or from cash compensation or other sources if the amounts provided
under the Plan are subject to tax before they are paid. The Executive and/or his Beneficiary shall
bear all taxes on amounts paid under the Plan to the extent that no taxes are withheld,
irrespective of whether withholding is required.
In addition to the foregoing and in accordance with Code Section 409A and the regulations
issued thereunder, the Plan shall permit the withholding from any payment of any amounts necessary
to (a) satisfy federal and applicable state or city employment tax withholding obligations that
arise under the Plan prior to the date that payment may otherwise be made under the Plan and/or (b)
satisfy the excise tax or underpayment penalties owed under Code Section 409A in the event of a
violation of Code Section 409A under the Plan.
8.7 Gender and Number. In order to shorten and to improve the understandability of
the Plan document by eliminating the repeated usage of such phrases as his or her, any masculine
terminology herein shall also include the feminine and neuter, except when otherwise indicated by
the context.
8.8 Headings. Any headings used in this instrument are for convenience of reference
only and are to be ignored in the construction of any provision hereof.
15
8.9 Severability. If any provision of the Plan shall be held illegal or invalid for
any reason, such illegality or invalidity shall not affect the remaining parts of the Plan and the
Plan shall be construed and enforced as if such illegal or invalid provision had never been
inserted herein.
8.10 Governing Law. The Plan shall be construed, administered, and regulated in
accordance with the laws of the State of Delaware, except to the extent that such laws are
preempted by Federal law.
8.11 Effective Date. The Plan, as hereby amended and restated, shall be effective as
of January 1, 2009.
|
|
|
|
|
|
|
|
|
Chesapeake Utilities Corporation |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
16
SCHEDULE A Group A and B Participants
GROUP A PARTICIPANTS:
Ralph Adkins
GROUP B PARTICIPANTS:
Mike McMasters
John Schimkaitis
Steve Thompson
17
Exhibit 10.28
Exhibit 10.28
CHESAPEAKE UTILITIES CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT
SAVINGS PLAN
Amended and Restated as of January 1, 2009
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Table of Contents |
TABLE OF CONTENTS
|
|
|
|
|
Section 1. Establishment and Purpose |
|
|
1 |
|
|
|
|
|
|
1.01. Establishment |
|
|
1 |
|
|
|
|
|
|
1.02. Purpose |
|
|
1 |
|
|
|
|
|
|
1.03. Effective Date |
|
|
1 |
|
|
|
|
|
|
Section 2. Definitions and Construction |
|
|
2 |
|
|
|
|
|
|
2.01. Definitions |
|
|
2 |
|
|
|
|
|
|
2.02. Construction |
|
|
7 |
|
|
|
|
|
|
Section 3. Participation |
|
|
8 |
|
|
|
|
|
|
3.01. Election of Benefits |
|
|
8 |
|
|
|
|
|
|
3.02. Election Requirements |
|
|
8 |
|
|
|
|
|
|
3.03. Form and Time of Payment |
|
|
9 |
|
|
|
|
|
|
Section 4. Accounts |
|
|
11 |
|
|
|
|
|
|
4.01. Accounts |
|
|
11 |
|
|
|
|
|
|
4.02. Participant Subaccount |
|
|
11 |
|
|
|
|
|
|
4.03. Employer Match Subaccount |
|
|
11 |
|
|
|
|
|
|
4.04. Investment Returns |
|
|
11 |
|
|
|
|
|
|
4.05. Vesting of Accounts |
|
|
13 |
|
|
|
|
|
|
Section 5. Distributions |
|
|
14 |
|
|
|
|
|
|
5.01. Exclusive Entitlement to Payment |
|
|
14 |
|
|
|
|
|
|
5.02. Payment |
|
|
14 |
|
|
|
|
|
|
5.03. Death Benefits |
|
|
14 |
|
|
|
|
|
|
5.04. Hardship Distributions |
|
|
15 |
|
|
|
|
|
|
5.05. Disability |
|
|
15 |
|
|
|
|
|
|
5.06. Change in Control |
|
|
16 |
|
|
|
|
|
|
5.07. Acceleration of Payment |
|
|
16 |
|
|
|
|
|
|
5.08. Delay of Payment |
|
|
17 |
|
|
|
|
|
|
5.09. Assignment and Assumption of Liabilities |
|
|
17 |
|
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Table of Contents |
|
|
|
|
|
Section 6. Nature of Participants Interest in Plan |
|
|
18 |
|
|
|
|
|
|
6.01. No Right to Assets |
|
|
18 |
|
|
|
|
|
|
6.02. No Right to Transfer Interest |
|
|
18 |
|
|
|
|
|
|
6.03. No Right to Employment |
|
|
19 |
|
|
|
|
|
|
6.04. Withholding and Tax Liabilities |
|
|
19 |
|
|
|
|
|
|
Section 7. Administration |
|
|
20 |
|
|
|
|
|
|
7.01. Committee |
|
|
20 |
|
|
|
|
|
|
7.02. Meetings |
|
|
20 |
|
|
|
|
|
|
7.03. Quorum |
|
|
20 |
|
|
|
|
|
|
7.04. Expenses |
|
|
20 |
|
|
|
|
|
|
7.05. Responsibilities of the Committee |
|
|
20 |
|
|
|
|
|
|
7.06. Finality of Committee Determinations |
|
|
21 |
|
|
|
|
|
|
7.07. Benefit Claims Procedure |
|
|
21 |
|
|
|
|
|
|
7.08. Arbitration of Denied Claims |
|
|
22 |
|
|
|
|
|
|
Section 8. Amendment, Suspension, and Termination |
|
|
23 |
|
|
|
|
|
|
8.01. By The Compensation Committee |
|
|
23 |
|
|
|
|
|
|
8.02. By the Committee |
|
|
23 |
|
|
|
|
|
|
Section 9. Miscellaneous |
|
|
24 |
|
|
|
|
|
|
9.01. Participation by Affiliate |
|
|
24 |
|
|
|
|
|
|
9.02. Designation of Beneficiary |
|
|
24 |
|
|
|
|
|
|
9.03. Incapacity |
|
|
24 |
|
|
|
|
|
|
9.04. Required Information |
|
|
25 |
|
|
|
|
|
|
9.05. Inability to Locate Participants and Beneficiaries |
|
|
25 |
|
|
|
|
|
|
9.06. Headings |
|
|
25 |
|
|
|
|
|
|
9.07. Severability |
|
|
25 |
|
|
|
|
|
|
9.08. Governing Law |
|
|
26 |
|
|
|
|
|
|
9.09. Complete Statement of Plan |
|
|
26 |
|
|
|
|
|
|
EXHIBIT A |
|
|
27 |
|
|
|
|
|
|
APPENDIX A |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 1 |
SECTION
1. ESTABLISHMENT AND PURPOSE
1.01. |
|
Establishment. |
|
|
|
Effective March 1, 1999, the Company established for the benefit of certain Eligible
Employees an unfunded plan of deferred compensation known as the Chesapeake Utilities
Corporation Supplemental Executive Retirement Savings Plan. |
|
1.02. |
|
Purpose. |
|
|
|
The Plan is an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management and highly compensated employees. The Plan
permits Eligible Employees to defer receipt of a portion of their Compensation earned above
an amount or after a date selected by the Eligible Employee before the start of each Plan
Year until their Separation from Service with the Company and its Affiliates or until such
other date specified in accordance with the terms of the Plan. |
|
1.03. |
|
Effective Date. |
|
|
|
The Plan, as hereby amended and restated, is intended to meet the requirements of Section
409A of the Internal Revenue Code of 1986, as amended (the Code) and is effective with
respect to amounts that were not deferred and vested (within the meaning of Section 409A of
the Code) before January 1, 2005, and any earnings on such amounts. Except as otherwise
specifically provided herein, amounts deferred and vested (within the meaning of Section
409A of the Code) before January 1, 2005 (and earnings on such amounts) are not affected by
this amendment and restatement of the Plan, and remain subject to the terms of the March 1,
1999 Plan restatement, which are set forth in Appendix A to this January 1, 2009, amendment
and restatement. For recordkeeping purposes, the Company will establish separate accounts
for each Participant for amounts deferred and vested before January 1, 2005 (Grandfathered
Amounts), and amounts deferred and vested on or after that date (409A Amounts). All
amounts that are subject to Code Section 409A for the period from January 1, 2005 through
December 31, 2008, shall be subject to the January 1, 2005 amendment and restatement of the
Plan and to a good faith interpretation of Code Section 409A, including the use of any
applicable transition rules in effect during such period. From and after January 1, 2009,
the terms of
this amended and restated Plan document shall govern all amounts that are subject to Code
Section 409A. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 2 |
SECTION 2. DEFINITIONS AND CONSTRUCTION
2.01. |
|
Definitions. |
|
|
|
The following words and phrases as used in the Plan have the following meanings: |
|
(a) |
|
Account means the bookkeeping account established for each Participant under
Section 4. Each Account shall include an Employer Match Subaccount and a Participant
Subaccount. Additional subaccounts shall be maintained as necessary for the
administration of the Plan. |
|
(b) |
|
Affiliate means any corporation included with Chesapeake Utilities
Corporation in a controlled group of corporations, as defined in Code Section 414(b),
or an unincorporated business included with Chesapeake Utilities Corporation in a group
of trades or business under common control, as defined by regulations prescribed by
the Secretary of the Treasury under Code Section 414(c). Participating Affiliates that
cease to be a member of the same controlled group as Chesapeake Utilities Corporation
within the meaning of Code Sections 414(b) and (c) are no longer eligible to
participate in the Plan effective as of the date that they cease to qualify as a
controlled group member. Participants of such an employer shall no longer be eligible
to participate effective as of the date that their employer becomes ineligible. |
|
(c) |
|
Beneficiary means the person or persons (including a contingent beneficiary
except where the context indicates otherwise) designated by a Participant pursuant to
Section 9.02 to receive death benefits under the Plan. |
|
(d) |
|
Board means the Board of Directors of the Company. |
|
|
(e) |
|
Change in Control means the first of the following events to occur: |
|
(1) |
|
Any one person, or group of owners of another corporation who
acting together through a merger, consolidation, purchase, acquisition of stock
or the like (a group), acquires ownership of stock of the Company (or a
majority-controlled subsidiary of the Company) that, together with the stock
held by such person or group, constitutes more than 50 percent of the total
fair market value or total voting power of the stock of the Company. However,
if such person or group is considered to own more than 50 percent of the total
fair market value or total voting power of the stock of the corporation before
this transfer of the Companys stock, the acquisition of additional stock by
the same person or persons shall not be considered to cause a Change in Control
of the Company; or |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 3 |
|
(2) |
|
Any one person or group (as described in Section 2.01(e)(1),
above) acquires (or has acquired during the
12-month period ending on the date
of the most recent acquisition by such person or persons) ownership of stock of
the Company (or a majority-owned subsidiary of the Company) possessing 35
percent or more of the total voting power of the stock of the Company where
such person or group is not merely acquiring additional control of the Company;
or |
|
(3) |
|
A majority of members of the Companys Board (other than the
Board of a majority-controlled subsidiary of the Company) is replaced during
any 12-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Companys Board prior to the date of the
appointment or election; or |
|
(4) |
|
Any one person or group (as described in 2.01(e)(1), above)
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or group) assets from the Company (or a
majority-controlled subsidiary of the Company) that have a total gross fair
market value equal to or more than 40 percent of the total fair market value of
all assets of the Company immediately prior to such acquisition or
acquisitions. For this purpose, gross fair market value means the value of the
assets of the Company, or the value of the assets being disposed of, determined
without regard to any liabilities associated with such assets. A transfer of
assets by the Company will not result in a Change in Control under this Section
2.01(e)(4), if the assets are transferred to: |
|
(A) |
|
A shareholder of the Company (immediately
before the asset transfer) in exchange for or with respect to its
stock; |
|
(B) |
|
An entity, 50 percent or more of the total
value or voting power of which is owned, directly or indirectly, by the
Company immediately after the transfer of assets; |
|
(C) |
|
A person, or more than one person acting as a
group (as described in 2.01(e)(1), above), that owns, directly or
indirectly, 50 percent or more of the total value or voting power of
all the outstanding stock of the Company; or |
|
(D) |
|
An entity, at least 50 percent of the total
value or voting power of which is owned directly or indirectly, by a
person described in Section 2.01(e)(4)(C), above. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 4 |
However, no Change in Control shall be deemed to have occurred with respect to a
Participant by reason of (i) any event involving a transaction in which the
Participant or a group of persons or entities with which the Participant acts in
concert, acquires, directly or indirectly, more than 30 percent of the common stock
or the business or assets of the Company; (ii) any event involving or arising out of
a proceeding under Title 11 of the United States Code (or the provisions of any
future United States bankruptcy law), an assignment for the benefit of creditors or
an insolvency proceeding under state or local law; or (iii) any event constituting
approval by the Companys stockholders of a merger or consolidation if a majority of
the group consisting of the president and vice presidents of the Company who are
parties to agreements conferring rights upon a Change in Control shall have agreed
in writing prior to the approval that the approval shall be deemed not to constitute
a Change in Control.
The term Change in Control is intended to comply with Section 409A of the Code and
shall be interpreted such that a Change in Control (1) shall occur for purposes of
the Plan in any circumstance that would constitute a Change in Control Event
(within the meaning of Treasury Regulations under Code Section 409A) and (2) shall
not occur for purposes of the Plan in any circumstance that would not constitute
such a Change in Control Event.
|
(f) |
|
Code means the Internal Revenue Code of 1986, as amended from time to time. |
|
|
(g) |
|
Committee means the Employee Benefits Committee of the Company or such other
committee as may be appointed by the Board to administer the Plan. |
|
|
(h) |
|
Company means Chesapeake Utilities Corporation, a Delaware corporation, and
any Affiliate that may be authorized by the Compensation Committee and by its own board
of directors to participate in the Plan with respect to its employees. |
|
|
(i) |
|
Compensation means an employees compensation as determined for purposes of
the Savings Plan, plus amounts deferred hereunder, except that any dollar limit imposed
on compensation under the Savings Plan shall be disregarded under the Plan. |
|
|
(j) |
|
Compensation Committee means the Compensation Committee of the Board. |
|
|
(k) |
|
Disabled means a medically determinable physical or mental impairment that
can be expected to result in death or last for a continuous period of at least 12
months; and the impairment either (1) prevents the Participant from engaging in any
substantial gainful activity, or (2) entitles the Participant to receive income
replacement benefits for at least 3 months under an accident or health plan sponsored
by the Company. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 5 |
|
(l) |
|
Eligible Employee means an employee of the Company who is designated by the
Compensation Committee, in its sole discretion, to be eligible to participate in the
Plan and who is among a select group of management or highly compensated employees
(within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA). |
|
(m) |
|
Employer Match means the amount accrued in accordance with Section 4.03 with
respect to a Participants Salary Reduction Contributions and Excess Contributions,
based on the rate or rates of Matching Contributions under the Savings Plan. |
|
(n) |
|
Employer Match Subaccount means the bookkeeping account to which the Employer
Match on behalf of a Participant and interest are credited pursuant to Section 4. |
|
|
(o) |
|
ERISA means the Employee Retirement Income Security Act of 1974, as amended. |
|
|
(p) |
|
Excess Contribution means that portion, if any, of the Compensation earned
above a selected dollar amount or after a fixed date during the year selected by the
Participant pursuant to Section 3, which the Participant elects to have deferred to the
Plan. |
|
|
(q) |
|
Excessive Benefits means an amount credited to a Participants Account or
paid on a Participants behalf in excess of the amount that properly should have been
credited to the Participants Account or paid on the Participants behalf. |
|
|
(r) |
|
Limitations mean |
|
(1) |
|
the limitation on contributions to defined contribution plans
under Sections 401(k), 401(m), 402(g), 414(v) and 415(c) of the Code; and |
|
(2) |
|
the limitations imposed by Sections 401(a)(4), 401(a)(17), and
415(e) of the Code and by any other provision of the Code to the extent that
such provision limits the amount of Salary Reduction Contributions and
Matching Contributions that otherwise would be made to the Savings Plan. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 6 |
|
(s) |
|
Matching Contributions mean the contributions to the Savings Plan made by the
Company as matching contributions for salary deferrals under the Savings Plan, as it
may be amended from time to time. |
|
|
(t) |
|
Participant means an Eligible Employee who becomes a participant in the Plan
in accordance with Section 3.01 and whose Account has a positive balance. |
|
|
(u) |
|
Participant Subaccount means the bookkeeping account to which the Excess
Contributions of a Participant and interest are credited pursuant to Section 4. |
|
|
(v) |
|
Performance-Based means a bonus or other payment of Compensation for which
the amount of the payment or the entitlement thereto is contingent on the satisfaction
of organizational or individual performance criteria relating to a performance period
of at least 12 consecutive months. The organizational or individual performance
criteria shall be established in writing no later than 90 days after the beginning of
the period of service to which the criteria relate, and the outcome must be
substantially uncertain at the time the criteria are established. Notwithstanding the
above, a Performance-Based Bonus may be based on subjective performance criteria,
provided that: |
|
(1) |
|
The subjective performance criteria are bona fide and relate to
the performance of the Participant, a group of service providers that includes
the Participant, or a business unit for which the Participant provides services
(which may include the entire organization); and |
|
(2) |
|
the determination that any subjective performance criteria have
been met is not to be made by the Participant or a family member of the
Participant (as defined in Code Section 267(c)(4) applied as if the family of
an individual includes the spouse of any member of the family), or a person
under the effective control of the Participant or such a family member, and no
amount of the Compensation of the person making such determination is
effectively controlled in whole or in part by the Participant or such a family
member. |
|
(w) |
|
Plan means the Chesapeake Utilities Corporation Supplemental Executive
Retirement Savings Plan as set forth herein and as amended from time to time. |
|
(x) |
|
Plan Year means the calendar year. |
|
(y) |
|
Salary Reduction Contribution means that portion of his or her Compensation
that a Participant elects to have deferred and contributed by the Company to the
Savings Plan without violating the Limitations. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 7 |
|
(z) |
|
Savings Plan means the Chesapeake Utilities Corporation Retirement Savings
Plan. |
|
(aa) |
|
Separation from Service means separation from service from the Company and
its Affiliates within the meaning of Section 409A of the Code. Whether a termination
of employment that is a separation from service has occurred is determined based on
whether the facts and circumstances indicate that the Company and the Eligible Employee
reasonably anticipated that no further services would be performed after a certain date
or that the level of bona fide services the Eligible Employee would perform after such
date (as an employee or independent contractor) would permanently decrease to no more
than 20 percent of the average level of bona fide services performed over the
immediately preceding 36-month period (or the full period in which the Eligible
Employee provided services to the Company if the Eligible Employee has been providing
services for less than 36 months). An Eligible Employee will not be deemed to have
experienced a Separation from Service if such Eligible Employee is on military leave,
sick leave, or other bona fide leave of absence, to the extent such leave does not
exceed a period of six months or, if longer, such longer period of time during which a
right to re-employment is protected by either statute or contract. If the period of
leave exceeds six months and the individual does not retain a right to re-employment
under an applicable statute or by contract, the employment relationship is deemed to
terminate on the first date immediately following such six-month period. If an
Eligible Employee provides services both as an employee and as a member of the Board,
the services provided as a Director are generally not taken into account in determining
whether the Eligible Employee has a Separation from Service as an employee for purposes
of the Plan, in accordance with final regulations under Code Section 409A. |
|
|
(bb) |
|
Valuation Date means the last business day of each calendar month. |
2.02. |
|
Construction. |
|
|
|
For purposes of the Plan, unless the contrary is clearly indicated by the context, |
|
(a) |
|
the use of the masculine gender shall also include within its meaning the
feminine and vice versa, |
|
|
(b) |
|
the use of the singular shall also include within its meaning the plural and
vice versa, and |
|
|
(c) |
|
the word include shall mean to include without limitation. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 8 |
SECTION 3. PARTICIPATION
3.01. |
|
Election of Benefits. |
|
|
|
An Eligible Employee shall become a Participant in the Plan by electing to participate in
the Plan in accordance with Section 3.02. |
|
3.02. |
|
Election Requirements. |
|
(a) |
|
Election Filing Deadline. Except as provided in subsections (b) and
(c), below, an election to defer an amount by an Eligible Employee as an Excess
Contribution earned with respect to a Plan Year shall be filed by the Eligible Employee
with the Committee prior to the beginning of that Plan Year. If an Eligible Employee
has ceased being eligible to participate in the Plan (other than the accrual of
earnings on his Account, if any), regardless of whether all amounts deferred under the
Plan have yet been paid, and subsequently becomes eligible to participate in the Plan
again, the Eligible Employee may be treated as being initially eligible to participate
in the Plan if he has not been eligible to participate in the Plan (other than the
accrual of earnings on his Account, if any) at any time during the 24-month period
ending on the date the employee again becomes an Eligible Employee under the Plan. |
|
(b) |
|
Initial Election. A newly hired or otherwise newly Eligible Employee
may file the requisite election to defer Compensation earned thereafter before the
expiration of 30 days either from, as applicable, (1) his initial date of employment
(if the Eligible Employee is a new hire who is immediately eligible for the Plan) or
(2) his initial date of eligibility (if the Eligible Employee is newly eligible to
participate in the Plan). If an initial election is not made within such 30 day
period, the Eligible Employee shall have to wait until the annual open enrollment for
the next Plan Year before participating. |
|
(c) |
|
Performance-Based Compensation. In the case of the deferral of any
Performance-Based Compensation, such election shall be made no later than six months
before the end of the performance period, provided that in no event may an election to
defer Performance-Based Compensation be made after such Compensation has become readily
ascertainable within the meaning of Code Section 409A. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 9 |
|
(d) |
|
Irrevocable Election. Except as provided in Sections 5.03, 5.04, 5.05,
and 5.06, a deferral election described in this Section 3.02, once filed, shall be
irrevocable and independent of the rate of Salary Reduction Contributions to the
Savings Plan; it shall remain in effect until the end of the Plan Year to which it
pertains. Before the beginning of a Plan Year, the Participant shall file a new
election with
the Committee in accordance with the preceding provisions of this Section 3.02. The
new election shall apply only to deferrals for that Plan Year. An Eligible Employee
who does not make a deferral election in one Plan Year may make a deferral election
for any subsequent Plan Year, provided he remains an Eligible Employee, by making a
deferral election in accordance with this Section 3.02. In all cases, a
Participants election to defer Compensation shall be made prior to the time any of
the Compensation covered by such election is to be earned by such Participant. |
|
(e) |
|
Form and Content of Election. An election to make a deferral hereunder
shall be in writing, in a form acceptable to the Committee, and shall specify such
information as required by the Committee. A deferral election may designate any whole
percentage (from 1% to 100%) of Compensation that is earned above any specified amount
or after any specified date to be deferred hereunder. The Company may, in its
discretion, establish and change from time to time the minimum and maximum amount that
may be so deferred. Elections shall be made in accordance with procedures established
by the Committee. In addition, special limitations may be established by the Committee
to apply to the deferral of any special bonus or other non-periodic Compensation that a
Participant is expected to receive. The Company will credit the deferred compensation
amount agreed to for each Plan Year to the Participants Account from time to time as
soon as administratively practicable after the deferred amounts otherwise would have
been earned and paid to the Participant. |
3.03. |
|
Form and Time of Payment. |
|
(a) |
|
General. Except as provided in Sections 5.03, 5.04, 5.05 and 5.06, an
amount deferred under this Section 3 shall be paid in a lump sum as of the Valuation
Date coincident with or next following the date elected by the Participant. A
Participant may elect a different form or time of payment for his 409A Amounts from the
time or form of payment for his Grandfathered Amounts, if any. If, however, the
Participant elects to receive payment upon Separation from Service, no amount shall be
distributed earlier than six months after the Valuation Date coincident with or next
following the Participants Separation from Service. A Participant may receive payment
of the amounts credited to his Account upon his Separation from Service, or due to
death, Disability, a Change in Control or upon a fixed date elected by the Participant.
A Participant may also elect to receive payment of the amounts credited to his Account
as of the earlier or later of a fixed date or Separation from Service or of two fixed
dates. The Committee may also permit a Participant to make a different election as to
the time and form of distribution of the amounts deferred and credited to his Account
in a particular Plan Year from the amounts deferred and credited to his Account in any
other
Plan Year, or may require that only one time and form of payment applies to a
Participants entire Account. A Participant may also elect a different time and
form of payment to apply to different permitted payment events, to the extent
permitted by the Committee. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 10 |
|
(b) |
|
Modification of Time and Form. After making his first election, a
Participant may file an election with the Committee, in a form satisfactory to the
Committee, to modify the payment date with respect to a deferral election or to
irrevocably specify that the amount credited to his Account is to be paid in the form
of five or ten annual installments; provided, however, that such election: |
|
(1) |
|
is filed with the Committee at least twelve months prior to the
date of the first scheduled payment; |
|
(2) |
|
is not effective until at least twelve months after the date on
which the election is made; |
|
(3) |
|
defers the lump sum payment or the first installment payment
with respect to which such election is made for a period of not less than five
years from the date such payment would otherwise have been made; |
(4) does not accelerate payment of the 409A Amount; and
|
(5) |
|
does not request other than five or ten annual installments.
If payment is to be made in annual installments, it shall commence on the
specified payment date with subsequent annual installments to occur on the same
date each year thereafter (or the next business day if the date falls on a
weekend or holiday) until the amount payable in installments is distributed in
full. |
For purposes of the Plan, an election to receive benefits as five or ten annual
installments shall be treated as the entitlement to a single payment as further
described in Treas. Reg. Section 1.409A-2(b)(iii).
|
(c) |
|
A Participant may not change a distribution option or a distribution date in a manner that does
not comply with Code Section 409A. If a distribution option election is made or changed and
distribution is triggered before 12 months have elapsed, the distribution will be made in
accordance with the distribution option election in effect prior to the change or, if none, as a
single lump sum. If an annual installment payment method is the selected distribution option, the
amount of the annual benefit shall equal the amount necessary to fully distribute the
Participants Account as an annual benefit payable over the installment period. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 11 |
SECTION 4. ACCOUNTS
4.01. |
|
Accounts. |
|
|
|
The Company shall maintain for bookkeeping purposes an Account in the name of each
Participant. Each Account shall have a Participant Subaccount and an Employer Match
Subaccount, as applicable, to which shall be credited amounts deferred under Section 3. |
|
4.02. |
|
Participant Subaccount. |
|
|
|
The Company shall maintain a Participant Subaccount in the name of each Participant. During
each Plan Year, each Participant Subaccount shall be credited with the Participants Excess
Contributions deferred under Section 3. |
|
4.03. |
|
Employer Match Subaccount. |
|
|
|
The Company shall maintain a separate Employer Match Subaccount in the name of each
Participant for purposes of accrual of the Employer Match. For each Plan Year, the Employer
Match shall begin to accrue monthly only after the Participant is no longer eligible to
receive a Matching Contribution under the Savings Plan for the Plan Year. The rate of
Employer Match in this Plan shall be the same rate in effect under the Savings Plan for the
applicable Plan Year. |
|
4.04. |
|
Investment Returns. |
|
(a) |
|
Rate of Return Indices. The Compensation Committee shall select and
maintain one or more rate of return indices as specified on Exhibit A attached hereto.
The Compensation Committee may amend the list of rate of return indices from time to
time in its sole discretion. Any Excess Contributions or any Employer Matching
Contribution shall be allocated among one or more of the rate of return indices and
shall be credited with the applicable investment return (or loss) that such Excess
Contribution or Employer Matching Contribution would have achieved if it were invested
in the specified index or indices. Allocations to one or more of the rate of return
indices may be modified from time to time during the Plan Year to the extent permitted
by the Committee, in its sole discretion. Any Excess Contributions or any Employer
Matching Contributions that were deferred and vested as of January 1, 2005, may also be
allocated among one or more of the rate of return indices on Exhibit A attached hereto
to the extent the Committee so provides. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 12 |
|
(b) |
|
Election of Rate of Return Indices. |
|
(1) |
|
Each Participant shall specify in writing, at the time he
completes his election to participate under Section 3, and in a form acceptable
to the Committee, how any Excess Contribution or Employer Match shall be
allocated among the indices specified on Exhibit A attached hereto. |
|
(2) |
|
The Committee may, in its discretion and from time to time,
permit a Participant to change any election previously made with respect to the
allocation of any Excess Contribution or Employer Match, subject to such
conditions and such limitations as the Committee may prescribe. Any such
change in election shall be in writing and in a form acceptable to the
Committee. |
|
(3) |
|
The Committee may, in its discretion and from time to time,
permit a Participant to elect to reallocate the amounts in such Participants
Participant Subaccount or Employer Match Subaccount from one rate of return
index to another, subject to such conditions and such limitations as the
Committee may prescribe; provided that a Participant shall be permitted, at
least once per calendar month, to reallocate amounts previously allocated. Any
such reallocation election shall be in writing and in a form acceptable to the
Committee. |
|
(4) |
|
The Committee may require that any election under this
Section 4.04 apply to the entire amount to which it pertains (e.g.,
100% of the Participants future contributions) or to such percentage or
percentages of that amount as the Committee may specify (e.g.,
increments of 5%). |
|
(5) |
|
If a Participant fails to specify a rate of return index with
respect to his Excess Contribution or Employer Match, the Participant shall be
presumed to have specified that his entire Participant Subaccount or Employer
Match Subaccount be allocated to the index determined by the Committee to
represent the lowest risk of principal loss.
|
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 13 |
|
(c) |
|
Crediting of Investment Return. The balance credited to the
Participants Participant Subaccount or Employer Match Subaccount as of the last day of
the prior month shall be credited with the applicable investment return (or loss) as of
the last day of the month of crediting. All references herein to Excess Contributions
or Employer Match shall be deemed to include such Excess Contributions or Employer
Match plus any investment return (or loss) credited pursuant to this Section 4.04. |
4.05. |
|
Vesting of Accounts. |
|
|
|
A Participant shall at all times be 100% vested in the balance in his Account; provided,
however, that all Accounts shall be subject to the claims of the Companys creditors as
provided in Section 6. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 14 |
SECTION 5. DISTRIBUTIONS
5.01. |
|
Exclusive Entitlement to Payment. |
|
|
|
A Participants deferral election pursuant to Section 3 shall constitute a waiver of his
right to receive the amount deferred and an agreement to receive in lieu thereof the amounts
payable to him at the times and in the methods specified in this Section 5. No other
amounts shall be due under the Plan or otherwise as a result of a Participants deferral
election under Section 3. |
|
5.02. |
|
Payment. |
|
(a) |
|
Time of Payment. Subject to Sections 5.03, 5.04, 5.05, and 5.06, the
Participant shall receive an amount equal to the sum of the balances in his Account at
the time(s) and in the manner specified or elected by him in accordance with Section
3.03. If the deferred amounts are subject to more than one distribution election made
in accordance with Section 3.03, then the portion of the Participants Account that is
subject to each election shall be distributed in accordance with the applicable
election. The Participants Account shall be debited to reflect each distribution
pursuant to this Section 5. |
|
(b) |
|
Payment Medium. All amounts credited to a Participants Account shall
be paid in cash. |
|
(c) |
|
Installment Payments. If the Participant receives installments, the
amount of the first installment shall be equal to the value of the Participants
Account determined as of the Valuation Date as of which the installments commence (the
applicable Valuation Date), divided by five (if five installments are elected) or ten
(if ten installments are elected). The amount of each succeeding installment shall be
equal to the value of the Participants Account on the next succeeding anniversary of
the applicable Valuation Date, divided by the remaining number of installments to be
paid. |
|
(a) |
|
Amount and Form of Death Benefit. Any amount credited to a
Participants Account that is unpaid at the time of the Participants death shall be
paid in a single lump sum to the Beneficiary (or the contingent Beneficiary if the
Beneficiary predeceases the Participant) designated by the Participant pursuant to
Section 9.02. |
|
(b) |
|
Time of Payment. A distribution pursuant to this Section 5.03 shall be
paid to the Participants Beneficiary within 30 days after the Valuation Date that is
coincident with or next follows the date of the Participants death. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 15 |
5.04. |
|
Hardship Distributions. |
|
|
|
Notwithstanding Sections 3.02 and 3.03, upon the occurrence of an unforeseeable emergency, a
Participant shall be eligible to receive payment of the amount necessary to satisfy such
emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the
distribution, after taking into account the extent to which such hardship is or may be
relieved through reimbursement or compensation by insurance or otherwise or by liquidation
of the Participants assets (to the extent such liquidation would not itself cause severe
financial hardship), or by cessation of deferrals under the Plan. The amount determined to
be properly distributable under this Section and applicable regulations under Code Section
409A shall be payable in a single lump sum only. For the purposes of this Section, the term
unforeseeable emergency means a severe financial hardship to the Participant resulting
from an illness or accident of the Participant, the Participants spouse, or a dependent of
the Participant (as defined in Code Section 152, without regard to Sections 152(b)(1),
(b)(2) and (d)(1)(B)); loss of the Participants property due to casualty, including the
need to rebuild a home following damage not otherwise covered by insurance, for example, not
as a result of a natural disaster; or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Participant, including
imminent foreclosure of or eviction from the Participants primary residence, the need to
pay for medical expenses, including non-refundable deductibles, the cost of prescription
drugs, and the need to pay for funeral expenses of a spouse, beneficiary, or dependent. It
shall be the responsibility of the Participant seeking to make a withdrawal under this
Section to demonstrate to the Committee that an unforeseeable emergency has occurred and to
document the amount properly distributable hereunder. After a distribution on account of an
unforeseeable emergency, a Participants deferral elections shall cease and such Participant
will not be permitted to participate in the Plan or elect additional deferrals until the
next enrollment following one full year from the date of the distribution on account of an
unforeseeable emergency. Such future deferral elections following a distribution on account
of an unforeseeable emergency will be treated as an initial deferral election and subject to
the rules applicable thereto under the Plan and Code Section 409A. |
|
5.05. |
|
Disability. |
|
|
|
Upon the Participants Disability, the Participant shall be eligible to receive payment of
the amounts credited to his Account commencing as soon as practicable but no more than 90
days after the Committee is satisfied of the determination of the existence of a Disability
with respect to such Participant. Benefits payable upon Disability shall be paid
in a single lump sum unless another distribution option (annual installments over a period
of 5 or 10 years) was timely elected by the Participant upon initial enrollment in the Plan
or at least 12 months prior to his Disability. The Committee may, in its discretion, permit
each Participant to elect a distribution option to apply to distributions made upon
Disability that is different from the distribution option applicable to other payment
events. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 16 |
5.06. |
|
Change in Control. |
|
|
|
Notwithstanding any election made pursuant to Sections 3.02 and 3.03 and subject to
obtaining written consent from affected Participants pursuant to Section 8, upon a Change in
Control, the Participant shall receive amounts credited to his Account in the form of a
single lump sum payment within 90 days of the event constituting the Change in Control. |
|
5.07. |
|
Acceleration of Payment. |
|
|
|
The acceleration of the time and/or form of any payment determined in accordance with the
provisions of this Section 5, above, shall not be made except due to unforeseeable
emergency, as described above, or as set forth below and otherwise permitted by Code Section
409A and the Treasury Regulations and other guidance issued thereunder: |
|
(a) |
|
Employment Taxes. A payment of all or part of the Participants
Account may be made to the extent necessary to pay the Federal Insurance Contributions
Act (FICA) tax imposed under Code Sections 3101, 3121(a), and 3121(v)(2) on amounts
deferred under the Plan (the FICA Amount), income tax at source on wages imposed
under Code Section 3401 or the corresponding withholding provisions of applicable
state, local, or foreign tax laws as a result of the payment of the FICA Amount, and to
pay the additional income tax at source on wages attributable to the pyramiding Code
Section 3401 wages and taxes. The total payment under this Section shall not exceed
the aggregate of the FICA Amount and the income tax withholding related to such FICA
Amount. |
|
(b) |
|
Payment of State, Local or Foreign Taxes. Payment may be made to
reflect payment of state, local or foreign tax obligations arising from participation
in the Plan that apply to an amount deferred under the Plan before the amount is paid
or made available to the Participant, plus the income tax at source on wages imposed
under Code Section 3401 as a result of such payment; provided, however, that the
amount of the payment may not exceed the amount of the taxes due, and the income tax
withholding related to such state, local and foreign tax amount. |
|
(c) |
|
Income Inclusion under Code Section 409A. Payment may be made at any
time the Plan fails to meet the requirements of Code Section 409A and the Treasury
Regulations issued thereunder; provided, however, that payment cannot exceed the
amount required to be included in income as a result of the failure to comply. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 17 |
|
(d) |
|
Certain Offsets. Payment may be made as satisfaction of a debt of the
Participant to the Company where: (1) the debt is incurred in the ordinary course of
the employment relationship; (2) the entire amount of the offset in any of the
Participants taxable years does not exceed $5,000; and (3) the reduction is made at
the same time and in the same amount as the debt otherwise would have been due and
collected from the Participant. |
5.08. |
|
Delay of Payment. |
|
|
|
A Participant who is a specified employee (as defined in Code Section 409A and the
regulations thereunder) and is entitled to a distribution due to a Separation from Service
may not receive a distribution under the Plan until a date that is at least six months after
the date of the Separation from Service. In addition, the Company may in its discretion
delay any payment due under the Plan to the extent permitted by Code Section 409A and the
regulations thereunder. |
|
5.09. |
|
Assignment and Assumption of Liabilities. |
|
|
|
In the discretion of the Company, upon the cessation of participation in the Plan by any
Participant solely due to the employer of that Participant no longer qualifying as a member
of the controlled group of Chesapeake Utilities Corporation within the meaning of Code
Sections 414(b) and (c), all liabilities associated with the Account of such Participant may
be transferred to and assumed by the Participants employer under a deferred compensation
plan established by such employer that is substantially identical to this Plan and that
preserves the deferral and payment elections in effect for the Participant under this Plan
to the extent required by Code Section 409A. Any such Participant shall not be deemed to
have incurred a Separation from Service for purposes of the Plan by virtue of his employers
ceasing to be a member of the controlled group of Chesapeake Utilities Corporation The
foregoing provision shall be interpreted and administered in compliance with the
requirements of Code Section 409A. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 18 |
SECTION 6. NATURE OF PARTICIPANTS INTEREST IN PLAN
6.01. |
|
No Right to Assets. |
|
|
|
Participation in this Plan shall not create, in favor of any Participant or Beneficiary, any
interest in or lien against any of the assets of the Company. All payments hereunder shall
be paid in cash from the general funds of the Company, and no special or separate fund shall
be established and no other segregation of assets shall be made to assure the payments of
benefits hereunder. Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and a Participant or any other person, and the promise of
the Company to pay benefits hereunder shall, at all times, remain unfunded as to the
Participant or Beneficiary, whose rights hereunder shall be limited to those of a general
and unsecured creditor of the Company. |
|
6.02. |
|
No Right to Transfer Interest. |
|
|
|
A Participants or Beneficiarys rights to benefits payable under the Plan are not subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or
encumbrance. However, the Committee may permit a Participant or Beneficiary to enter into a
revocable arrangement to pay all or part of his benefits under the Plan to a revocable
grantor trust (a so-called living trust). In addition, the Committee may recognize the
right of an alternate payee named in a domestic relations order to receive all or part of a
Participants benefits under the Plan, but only if (a) the domestic relations order would be
a qualified domestic relations order (within the meaning of Section 414(p) of the Code (if
Section 414(p) applied to the Plan)), (b) the domestic relations order does not attempt to
give the alternate payee any right to any asset of the Company, (c) the domestic relations
order does not attempt to give the alternate payee any right to receive payments under the
Plan at a time or in an amount that the Participant could not receive under the Plan, and
(d) the amount of the Participants benefits under the Plan are reduced to reflect any
payments made or due the alternate payee. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 19 |
6.03. |
|
No Right to Employment. |
|
|
|
No provisions of the Plan and no action taken by the Company, the Board, the Compensation
Committee, or the Committee will give any person any right to be retained in the employ of
the Company, and the Company specifically reserves the right and power to dismiss or
discharge any Participant. |
|
6.04. |
|
Withholding and Tax Liabilities. |
|
|
|
The amount of any withholdings required to be made by any government or government agency
will be deducted from benefits paid under the Plan to the extent deemed necessary
by the Committee. In addition, the Participant or Beneficiary (as the case may be) will
bear the cost of any taxes not withheld on benefits provided under the Plan, regardless of
whether withholding is required. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 20 |
SECTION 7. ADMINISTRATION
7.01. |
|
Committee. |
|
|
|
The Plan shall be administered by the Committee, the members of which shall serve at the
pleasure of the Board. The Committee may allocate its responsibilities for the
administration of the Plan among its members or among any subcommittee(s) it may appoint and
may designate persons other than its members to carry out its responsibilities under the
Plan. |
|
7.02. |
|
Meetings. |
|
|
|
The Committee shall hold meetings upon such notice, at such place or places, and at such
intervals as are required to carry out its functions. |
|
7.03. |
|
Quorum. |
|
|
|
A majority of the members of the Committee at any time in office shall constitute a quorum
for the transaction of business. All resolutions or other actions taken by the Committee
shall be by vote of a majority of members present at a meeting of the Committee; or without
a meeting by an instrument in writing signed by all the members of the Committee at such
time in office. |
|
7.04. |
|
Expenses. |
|
|
|
The expenses incident to the operation of the Plan, including the compensation of attorneys,
advisors, actuaries, and such other persons providing technical and clerical assistance as
may be required, shall be paid directly by the Company. |
|
7.05. |
|
Responsibilities of the Committee. |
|
|
|
In addition to any implied authority and duties that may be needed to carry out the
provisions of the Plan, the Committee shall have the following specific discretionary powers
and duties: |
|
(a) |
|
to make and enforce such rules and regulations as it shall deem necessary or
proper for the efficient administration of the Plan; |
|
(b) |
|
to interpret the Plan and to decide any and all matters arising hereunder,
including the right to remedy possible ambiguities, inconsistencies, or omissions;
provided that all such interpretations and decisions shall be applied in a uniform and
non-discriminatory manner to all persons similarly situated; |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 21 |
|
(c) |
|
to compute the amount of benefits that shall be payable to any Participant or
Beneficiary in accordance with the provisions of the Plan, and in the event that the
Committee determines that Excessive Benefits have been paid to any person, the
Committee may suspend payment of future benefits to such person or his Beneficiary or
reduce the amount of such future benefits until the Excessive Benefits and any interest
thereon determined by the Committee have been recovered; |
|
(d) |
|
to appoint other persons to carry out any ministerial responsibilities under
the Plan as it may determine consistent with applicable law; |
|
(e) |
|
to employ one or more persons to render advice with respect to any of its
responsibilities under the Plan; and |
|
(f) |
|
to amend the Plan from time to time by written resolution for the limited
purpose of meeting the requirements of Section 409A of the Code. |
7.06. |
|
Finality of Committee Determinations. |
|
|
|
Subject to the provisions of Section 7.08, determinations by the Committee and any
interpretation, rule, or decision adopted by the Committee under the Plan or in carrying out
or administering the Plan shall be final and binding for all purposes and upon all
interested persons, their heirs, and their personal representatives. |
|
7.07. |
|
Benefit Claims Procedure. |
|
|
|
A claim for a benefit under the Plan by any person shall be filed in the manner and governed
by the procedures set forth below: |
|
|
|
Upon Separation from Service, death, or any and all types of claims regarding benefits under
the Plan, the Participant or his representative may make application to the Company
requesting payment of benefits due. If no application for benefits is made, the Company
shall automatically pay any benefit due pursuant to Section 5. If an application for
benefits is made, the Company shall accept, deny, or modify such request and shall notify
the Participant in writing setting forth the response of the Company and in the case of a
denial or modification the Company shall: |
|
(a) |
|
state the specific reason or reasons for the denial, |
|
|
(b) |
|
provide specific reference to pertinent Plan provisions on which the denial or
modification is based, |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 22 |
|
(c) |
|
provide a description of any additional material or information necessary for
the Participant or his representative to perfect the claim and an explanation of why
such material or information is necessary, and |
|
|
(d) |
|
explain the Plans claim review procedure as contained in this Plan. |
In the event the request is rejected or modified, the Participant or his representative may
within 60 days following receipt by the Participant or representative of such rejection or
modification, submit a written request for review by the Company of its initial decision.
Within 60 days following such request for review (120 days if extraordinary circumstances
exist), the Company shall render its final decision in writing to the Participant or
representative stating specific reasons for such decision. If the Participant or
representative is not satisfied with the Companys final decision, the Participant or
representative can institute an action in a Federal court of competent jurisdiction; for
this purpose, process would be served on the Company.
7.08. |
|
Arbitration of Denied Claims. |
|
|
|
Any controversy or claim arising out of or relating to a final decision, upon review
pursuant to the procedures set forth in Section 7.07, that denies a claim for benefits under
the Plan may be settled by arbitration under three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having jurisdiction thereof.
Any such arbitration shall be subject to the statute of limitations that would apply if the
claim on which the arbitration is based were brought as a suit in a United States district
court under ERISA. The site of any such arbitration shall be Delaware. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 23 |
SECTION 8. AMENDMENT, SUSPENSION, AND TERMINATION
8.01. |
|
By The Compensation Committee. |
|
(a) |
|
Authority to Amend. The Compensation Committee of the Board may
modify, amend, suspend, or terminate the Plan at any time; provided that no such
modification, amendment, suspension, or termination shall reduce a Participants
accrued benefits under the Plan as of the date of such modification, amendment,
suspension, or termination, except to the extent that the affected Participants consent
in writing to the modification, amendment, suspension, or termination; and provided
further that no such modification, amendment, suspension, or termination shall
eliminate, restrict, or modify any of the following provisions of the Plan, except to
the extent that the affected Participants consent in writing to the modification,
amendment, suspension, or termination: |
|
(1) |
|
the provision in Section 2.01(e) that defines Change in
Control; |
|
(2) |
|
the provision in Section 5.06 that provides for a lump sum
payment following a Change in Control; |
|
(3) |
|
the provision in Section 7.08 that permits submission of denied
claims for benefits to arbitration; and |
|
(4) |
|
the provisions of this Section 8 that protect accrued benefits
and limit modification, amendment, suspension, or termination of the Plan. |
Except as provided in the preceding sentence, any modification, amendment,
suspension, or termination of the Plan may reduce or eliminate a benefit under the
Plan. Although the Plan is not subject to Section 204(g) of ERISA, the accrued
benefits that are protected by this Section 8 shall include those accrued benefits
that would be protected by Section 204(g) of ERISA if the Plan were subject to said
Section 204(g) and the rights specified in items (1) through (4), above.
|
(b) |
|
Authority to Delegate. The Board may, in its sole discretion, delegate
to any person or persons all or part of its authority and responsibility under the
Plan, including, without limitation, the authority to amend the Plan. |
8.02. |
|
By the Committee. |
|
|
|
The Committee shall have the right by written resolution to amend the Plan from time to
time, for the limited purpose of meeting the requirements of Section 409A of the Code. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 24 |
SECTION 9. MISCELLANEOUS
9.01. |
|
Participation by Affiliate. |
|
|
|
Subject to the consent of the Compensation Committee, an Affiliate may participate in the
Plan by delivering to the Compensation Committee a resolution of its board of directors
approving such action. Such Affiliate shall begin participating in the Plan as of an
effective date approved by the Compensation Committee and shall be subject to the provisions
of the Plan. |
|
9.02. |
|
Designation of Beneficiary. |
|
(a) |
|
Each Participant may designate a Beneficiary. Such designation shall be in
writing, shall be made in the form and manner prescribed by the Committee, and shall be
effective only if filed with the Committee prior the Participants death. A
Participant may, at any time prior to his death, and without the consent of his
Beneficiary, change his designation of Beneficiary by filing a written notice of such
change with the Committee in the form and manner prescribed by the Committee. In the
absence of a designated Beneficiary, or if the designated Beneficiary and any
designated contingent Beneficiary predecease the Participant, the Beneficiary shall be
the Participants surviving spouse, or if the Participant has no surviving spouse, the
Participants estate. |
|
(b) |
|
If a Participant designates his spouse as his Beneficiary, that designation
shall not be revoked or otherwise altered or affected by any |
|
(1) |
|
change in the marital status of the Participant and such
spouse, |
|
(2) |
|
agreement between the Participant and such spouse, or |
|
(3) |
|
judicial decree (such as a divorce decree) affecting any rights
that the Participant and such spouse might have as a result of their marriage
separation, or divorce, |
until and unless the Participant revokes and designates a Beneficiary in accordance
with this Section 9.02, it being the intent of the Plan that any change in the
designation of a Beneficiary under the Plan may be made by the Participant only in
accordance with the provision of this Section 9.02.
9.03. |
|
Incapacity. |
|
|
|
If the Committee determines that any person entitled to benefits under the Plan is unable to
care for his affairs because of illness or accident, any payment due (unless a duly
qualified guardian or other legal representative has been appointed) may be paid for the
benefit of such person to his spouse, parent, brother, sister, or other party deemed by the
Committee to have incurred expenses for such person. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 25 |
9.04. |
|
Required Information. |
|
|
|
Any person eligible to receive benefits under the Plan shall furnish to the Committee any
information or proof requested by the Committee and reasonably required for the proper
administration of the Plan. Failure on the part of any person to comply with any such
request within a reasonable period of time shall be sufficient grounds for delay in the
payment of any benefits that may be due under the Plan until such information or proof is
received by the Committee. If any person claiming benefits under the Plan makes a false
statement that is material to such persons claim for benefits, the Committee may offset
against future payments any amount paid to such person to which such person was not entitled
under the provisions of the Plan. |
|
9.05. |
|
Inability to Locate Participants and Beneficiaries. |
|
|
|
Each Participant and each Beneficiary entitled to receive a benefit under the Plan shall
keep the Committee advised of his current address. If the Committee is unable to locate a
Participant or Beneficiary to whom a benefit is payable under the Plan for a period of 36
months, commencing with the first day of the month as of which such benefit becomes payable,
the total amount payable to such Participant or Beneficiary shall be forfeited, subject to
being restored (without any intervening investment gains) only if the Participant and
Beneficiary provide evidence sufficient to satisfy the Committee that the Participant or
Beneficiary is entitled to such forfeited amount. |
|
9.06. |
|
Headings. |
|
|
|
Any headings used in this document are for convenience of reference only and may not be
given any weight in interpreting any provision of the Plan. |
|
9.07. |
|
Severability. |
|
|
|
If any provision of the Plan shall be held illegal or invalid for any reason, such
illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan
shall be construed and enforced as if such illegal or invalid provision had never been
included in the Plan. In addition, if any provision of the Plan shall be found to violate
Section 409A of the Code or otherwise result in any portion of a Participants or
Beneficiarys benefits under the Plan being subject to income tax prior to distribution,
such provision shall be void and unenforceable, and the Plan shall be administered without
regard to such provision. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 26 |
9.08. |
|
Governing Law. |
|
|
|
The Plan shall be construed, administered, and regulated in accordance with the laws of the
State of Delaware (not including its conflict of law rules), except to the extent that such
laws are pre-empted by Federal law. |
|
9.09. |
|
Complete Statement of Plan. |
|
|
|
This Plan contains a complete statement of its terms. The Plan may be amended, suspended,
or terminated only in writing and then only as provided in Section 8. A Participants right
to any benefit of a type provided under the Plan will be determined solely in accordance
with the terms of the Plan. No other evidence, whether written or oral, will be taken into
account in interpreting the provisions of the Plan. |
|
|
|
|
|
CHESAPEAKE UTILITIES CORPORATION |
|
|
|
ADOPTED:
|
|
ATTESTED: |
|
|
|
|
|
|
Executive Vice President and
|
|
Senior Vice President and CFO |
Chief Operating Officer |
|
|
|
|
|
DATE: December , 2008 |
|
|
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 27 |
EXHIBIT A
Rate of Return Indices
Effective January 1, 2009
1. BlackRock Money Market Portfolio (PINXX)
2. BlackRock Core Bond Total Return II Portfolio (CMCBX)
3. BlackRock Intermediate Government Bond Portfolio (PIGSX)
4. Calvert Income Fund (CFICX)
5. T. Rowe Price Retirement Income Fund (PARIX)
6. American Funds Balanced Fund (ABALX)
7. T. Rowe Price Retirement 2010 Fund (PARAX)
8. T. Rowe Price Retirement 2020 Fund (PARBX)
9. T. Rowe Price Retirement 2030 Fund (PARCX)
10. T. Rowe Price Retirement 2040 Fund (PARDX)
11. T. Rowe Price Retirement 2050 Fund (PARFX)
12. American Funds Growth Fund of America (AGTHX)
13. American Funds Investment Company of America (AIVSX)
14. T. Rowe Price Equity Income Fund (PAFDX)
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 28 |
15. Fidelity Spartan U.S. Equity Index Fund (FUSEX)
16. Federated Kaufmann Fund (KAUAX)
17. T. Rowe Price Mid Cap Value Fund (TAMVX)
18. Federated Mid-Cap Index Fund (FMDCX)
19. AIM Small Cap Growth Fund (GTSAX)
20. American Century Small Cap Value Fund (ASVIX)
21. American Funds EuroPacific Growth Fund (AEPGX)
22. American Funds Capital World Growth & Income Fund (CWGIX)
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 29 |
APPENDIX A
The following Plan provisions apply only to amounts deferred and vested (within the meaning of
Section 409A of the Code) before January 1, 2005, and any earnings on such amounts, to the full
extent permitted by Section 409A of the Code. Amounts deferred or vested after December 31, 2004,
and any earnings thereon, are subject to the provisions of the Plan as amended and restated,
effective January 1, 2005, or any subsequent amendment and restatement of the Plan.
Section 1. Establishment and Purpose
1.1 Establishment.
There is hereby established for the benefit of certain Eligible Employees an unfunded plan
of deferred compensation known as the Chesapeake Utilities Corporation Supplemental
Executive Retirement Savings Plan.
1.2 Purpose.
The Plan is an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management and highly compensated employees. The Plan
permits Eligible Employees to defer receipt of that portion of their Compensation that, but
for the Limitations, as defined herein, could be contributed to the Chesapeake Utilities
Corporation Retirement Savings Plan.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 30 |
Section 2. Definitions
The following words and phrases as used in the Plan have the following meanings:
Account means the Employer Match Account, the Participant Account, or both.
Affiliate means any employer that has not adopted the Plan and that is a corporation
included with Chesapeake Utilities Corporation in a controlled group of corporations, as
defined in Code Section 414(b), or an unincorporated business included with Chesapeake
Utilities Corporation in a group of trades or business under common control, as defined by
regulations prescribed by the Secretary of the Treasury under Code Section 414(c).
Beneficiary means the person or persons (including a contingent beneficiary except
where the context indicates otherwise) designated by a Participant pursuant to Section 9.2
hereof to receive death benefits under the Plan.
Board of Directors or Board means the Board of Directors of Chesapeake Utilities
Corporation.
Change in Control means the first of the following events occurs:
(a) the registration of the Companys voting securities under the Securities
Exchange Act of 1934, as amended (the 1934 Act), terminates or the Company shall
have fewer than 300 stockholders of record; or
(b) any person or group (within the meaning of Sections 13(d) and 14(d) of the
1934 Act), other than the Company or any of its majority-controlled subsidiaries,
becomes the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act)
of 30 percent or more of the combined voting power of the Companys then outstanding
voting securities; or
(c) a tender offer or exchange offer, other than an offer by the Company (or a
majority-controlled subsidiary) pursuant to which 30 percent or more of the combined
voting power of the Companys then outstanding voting securities was purchased,
expires; or
(d) the stockholders of the Company approve an agreement to merge or
consolidate with another corporation (other than a majority-controlled subsidiary of
the Company) unless the stockholders of the Company immediately
before the merger or consolidation are to own more than 70 percent of the
combined voting power of the resulting entitys voting securities; or
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 31 |
(e) the Companys stockholders approve an agreement (including, without
limitation, a plan of liquidation) to sell or otherwise dispose of all or
substantially all of the business or assets of the Company; or
(f) during any period of two consecutive years, individuals who, at the
beginning of the period, constituted the Board cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for election by the
Companys stockholders of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the beginning
of the period; or
(g) the acquisition of direct or indirect beneficial ownership of more than 15
percent of the Companys then outstanding voting securities by any person or group
is approved over the formal objection of the Company by the Securities and Exchange
Commission pursuant to Section 9 of the Public Utility Holding Company Act of 1935,
as amended.
However, no Change in Control shall be deemed to have occurred with respect to a
Participant by reason of any event involving a transaction in which (i) the
Participant or a group of persons or entities with which the Participant acts in
concert, acquires, directly or indirectly, more than 30 percent of the common stock
or the business or assets of the Company; (ii) any event involving or arising out of
a proceeding under Title 11 of the United States Code (or the provisions of any
future United States bankruptcy law), an assignment for the benefit of creditors or
an insolvency proceeding under state or local law; or (iii) any event constituting
approval by the Companys stockholders of a merger or consolidation if a majority of
the group consisting of the president and vice presidents of the Company who are
parties to agreements conferring rights upon a Change in Control shall have agreed
in writing prior to the approval that the approval shall be deemed not to constitute
a Change in Control.
Code means the Internal Revenue Code of 1986, as amended from time to time.
Committee means the Committee designated in Section 7.1 hereof to administer the
Plan.
Compensation means an employees compensation as determined for purposes of the
Chesapeake Utilities Corporation Retirement Savings Plan, plus amounts deferred
hereunder, except that any dollar limit that the Chesapeake Utilities Corporation Retirement
Savings Plan imposes on the compensation that is taken into account thereunder shall be
disregarded hereunder.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 32 |
Compensation Committee means the Compensation Committee of the Board of Directors.
Eligible Employee means an employee of an Employer who is designated by the
Compensation Committee to be eligible to participate in the Plan; provided that, on and
after a Change in Control, each employee of an Employer who was an Eligible Employee
immediately before the Change in Control shall remain an Eligible Employee as long as the
employee is employed by an Employer. For purposes of the Plan, any person whose
compensation is paid by an Employer shall be deemed to be an employee of the Employer,
notwithstanding that the person renders all or part of his services to a Related Company.
Employer means Chesapeake Utilities Corporation and any Affiliate that may be
authorized by the Compensation Committee and by its own board of directors to participate in
the Plan with respect to its employees.
Employer Match means the amount accrued in accordance with Section 4.2 hereof with
respect to a Participants Salary Reduction Contributions and Excess Contributions, based on
the rate or rates of Matching Contributions contributed for the Participant under the
Chesapeake Utilities Corporation Retirement Savings Plan.
Employer Match Account means the bookkeeping account to which the Employer Match on
behalf of a Participant and interest are credited pursuant to Section 4 hereof.
Excess Contribution means that portion of the total amount (up to a maximum of 15% or
such other percentage of Compensation as specified in Section 6(a) of the Adoption Agreement
to the Chesapeake Utilities Corporation Retirement Savings Plan) by which the Participant
elects to have his Compensation reduced that the Limitations prevent from being made to the
Chesapeake Utilities Corporation Retirement Savings Plan.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 33 |
Limitations mean
|
(a) |
|
the limitation on contributions to defined contribution plans
under Sections 401(k), 401(m), 402(g), and 415(c) of the Code; |
|
(b) |
|
the limitations imposed by Sections 401(a)(4), 401(a)(17), and
415(e) of the Code and by any other provision of the Code to the extent that
such provision limits the amount of Salary Reduction Contributions and Matching
Contributions that otherwise would be made to the Chesapeake Utilities
Corporation Retirement Savings Plan; and |
|
(c) |
|
the limitations contained in Section 4(a)(ii) of the Adoption
Agreement to the Chesapeake Utilities Corporation Retirement Savings Plan, as
it may be amended from time to time, that prevent an Eligible Employee from
participating in the Chesapeake Utilities Corporation Retirement Savings Plan
until he has satisfied a minimum service requirement. |
Matching Contributions mean the contributions made by the Employer pursuant to
Section 7(c) of the Adoption Agreement to the Chesapeake Utilities Corporation Retirement
Savings Plan, as it may be amended from time to time.
Participant means an Eligible Employee who becomes a participant in the Plan in
accordance with Section 3.1 hereof and whose Accounts hereunder have a positive balance.
Participant Account means the bookkeeping account to which the Excess Contributions
of a Participant and interest are credited pursuant to Section 4 hereof.
Plan means the Chesapeake Utilities Corporation Supplemental Executive Retirement
Savings Plan as set forth herein and as amended from time to time.
Plan Year means the calendar year, provided however that the first Plan Year shall be
the period from March 1, 1999 to December 31, 1999.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 34 |
Related Company means an Employer, any Affiliate, and any other employer the majority
interest in which is held, directly or indirectly, by an Employer or an Affiliate.
Salary Reduction Contribution means that portion of the total amount (up to a maximum
of 15% or such other percentage of Compensation as specified in Section 6(a) of the Adoption
Agreement to the Chesapeake Utilities Corporation Retirement Savings Plan) by which a
Participant elects to have his Compensation reduced
that may be contributed by his Employer to the Chesapeake Utilities Corporation Retirement
Savings Plan without violating the Limitations.
Valuation Date means the last business day of each calendar month.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 35 |
Section 3. Participation
3.1 Election of Excess Contributions.
An Eligible Employee shall participate in this plan if (a) he elects to participate in the
Plan and (b) the contributions made on his behalf under the Chesapeake Utilities Corporation
Retirement Savings Plan are reduced by the Limitations.
3.2 Election Filing Deadline.
An Eligible Employee may elect to participate in the Plan only if, prior to the beginning of
the first Plan Year in which he participates in the Plan, he files an election with the
Committee, in a form satisfactory to the Committee, irrevocably deferring receipt of an
amount equal to his Excess Contributions for the Plan Year (or partial Plan Year, if
applicable), which amount shall be designated as a percentage of his compensation.
Notwithstanding the foregoing sentence, (i) an Eligible Employee may file the requisite
election to defer Compensation earned thereafter before the expiration of 30 days from the
initial effective date of the Plan, and (ii) a newly hired or otherwise newly Eligible
Employee may file the requisite election to defer Compensation earned thereafter before the
expiration of 30 days either from his initial date of employment, if the Eligible Employee
is a new hire, or his initial date of eligibility, if the Eligible Employee is newly
eligible to participate in the Plan.
3.3 Irrevocable Election.
The designated percentage of Compensation shall be irrevocable, regardless of whether the
rate of Salary Reduction Contributions to the Chesapeake Utilities Corporation Retirement
Savings Plan is changed during the Plan Year. Such election shall automatically apply to
each subsequent Plan Year unless the Participant, before the beginning of a Plan Year,
revokes his prior election. In that event, he may file a new election with the Committee
before the beginning of the Plan Year in accordance with the preceding provisions of this
Section 3. No participant may elect to have his Compensation reduced hereunder by a greater
percentage than the percentage that, when added to the percentage of his Compensation that
is being contributed as Salary Reduction Contributions on his behalf to the Chesapeake
Utilities Corporation Retirement Savings Plan, will equal the maximum allowable rate at
which Salary Reduction Contributions may be made under the Chesapeake Utilities Corporation
Retirement Savings Plan (determined without regard to the Limitations and without regard to
the provisions of the Chesapeake Utilities Corporation Retirement Savings Plan that
implement the Limitations). If an Eligible Employee does not elect to become a Participant
before the first Plan Year (or partial Plan Year) in which he is eligible to
participant in the Plan, he may, if he remains an Eligible Employee, elect to participate in
the Plan before the beginning of any subsequent Plan Year.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 36 |
3.4 Form and Time of Payment.
Amounts credited to a Participants Account shall be paid in the form of annual installments
over a period of five years beginning as of the Valuation Date coincident with or next
following the date on which the Participants employment with the Employer and the Related
Companies terminates. At the time an Eligible Employee first elects to become a Participant
in accordance with Section 3.1 hereof, he may file an election with the Committee, in a form
satisfactory to the Committee, irrevocably specifying that the installments shall begin on
any subsequent Valuation Date that occurs not later than the last Valuation Date of the
calendar year in which the Participant attains age 70. At any time after making his first
election, a Participant may file an election with the Committee, in a form satisfactory to
the Committee, irrevocably specifying that the amount credited to his Account is to be paid
in a single lump sum as of the date specified for the first installment payment, provided
that such election is filed with the Committee at least one year (365 days) prior to the
payment date.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 37 |
Section 4. Accounts
4.1 Participant Account.
The Employer shall maintain a Participant Account in the name of each Participant. During
each Plan Year, each Participant Account shall be credited with the Participants Excess
Contributions.
4.2 Employer Match Account.
The Employer shall maintain a separate Employer Match Account in the name of each
Participant for purposes of accrual of the Employer Match. The Employer Match shall accrue
monthly, at a rate or rates with respect to the eligible portion of the Excess Contribution
(and any Salary Reduction Contributions for which the Limitations prohibit Matching
Contributions) equal to the rate or rates at which Matching Contributions are made with
respect to the Salary Reduction Contributions for the Participant under the Chesapeake
Utilities Corporation Retirement Savings Plan. The portion of a Participants Excess
Contributions eligible for the Employer Match shall be that portion that, when added to the
Participants Salary Reduction Contributions under the Chesapeake Utilities Corporation
Retirement Savings Plan, does not exceed six percent of the Participants Compensation, or
such higher or lower percentage as is provided in Section 7(c)(iii) of the Adoption
Agreement to the Chesapeake Utilities Corporation Retirement Savings Plan, as it may be
amended from time to time; provided that in no event shall any portion of a Participants
Excess Contribution be eligible for an Employer Match unless the Limitations prevent the
Participants Salary Reduction Contributions and related Matching Contributions from being
made to the Chesapeake Utilities Corporation Retirement Savings Plan.
4.3 Interest.
Each Participants Accounts shall be credited monthly with interest at a rate to be
determined by the Committee annually.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 38 |
Section 5. Distributions
5.1 Payment.
The Participant shall receive an amount equal to the sum of the balances in his Accounts at
the time(s) and in the manner specified or elected by him in accordance with Section 3.4
hereof. Subject to Section 5.3 hereof, no amount shall be distributed until a Participants
employment with the Employer and the Affiliates is terminated. The Participants Accounts
shall be debited to reflect each distribution pursuant to this Section 5. If the
Participant receives installments, the amount of the first installment shall be equal to the
value of the Participants Accounts determined as of the Valuation Date as of which the
installments commence (the applicable Valuation Date), multiplied by a fraction, the
numerator of which shall be one and the denominator of which shall be five; and the amount
of each succeeding installment shall be equal to the value of the Participants Accounts on
the next succeeding anniversary of the applicable Valuation Date, multiplied by a fraction,
the numerator of which shall be one and the denominator of which shall be the number of
installments remaining to be paid.
5.2 Death Benefits.
If a Participant dies before the balance credited to his Accounts has been distributed in
full, the Participants Beneficiary shall be entitled to receive the balance credited to the
Participants Accounts. If the Beneficiary dies before receiving the entire amount due, any
remaining amount shall be paid to the Beneficiarys estate. If the Beneficiary predeceases
the Participant, the contingent Beneficiary, if any, shall receive the entire amount due
under this Section 5.2. If the contingent Beneficiary dies before receiving the entire
amount due, any remaining amount shall be paid to the contingent Beneficiarys estate.
Distributions to a Participants Beneficiary pursuant to this Section 5.2 shall be paid in
annual installments over a five-year period. The amount of each installment distribution
shall be determined in the same manner that installment distributions are determined in
Section 5.1 hereof; provided that the applicable Valuation Date for purposes of this Section
5.2 shall be the Valuation Date that is coincident with or next follows the date on which
the Committee receives the written notification of the Participants death together with any
additional information or documentation that the Committee determines to be necessary or
appropriate before it makes a distribution. Distributions shall commence within 30 days of
the applicable Valuation Date.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 39 |
5.3 Committee Discretion to Accelerate Certain Payments.
At any time, upon the written application of the Participant (or, after his death, his
Beneficiary) the Committee may (a) reduce or eliminate the Participants future deferrals of
Compensation hereunder, or (b) accelerate and pay in a lump sum to the Participant (or,
after his death, to his Beneficiary) all or part of the balance of the Participants
Accounts, or both, if the Committee finds, in its sole discretion, that such person has
incurred or will incur a severe financial hardship resulting from an accident, illness or
other event beyond his control. In such event, the Committee shall reduce or eliminate
future deferrals and accelerate payments only to the extent reasonably necessary to
eliminate or avoid the severe financial hardship.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 40 |
Section 6. Nature of Interest of Participant
6.1 Plan Participation.
Participation in this Plan shall not create, in favor of any Participant or Beneficiary, any
interest in or lien against any of the assets of the Employer. A Participants or
Beneficiarys rights to benefits payable under Plan are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance. All payments
hereunder shall be paid in cash from the general funds of the Employer, and no special or
separate fund shall be established and no other segregation of assets shall be made to
assure the payments of benefits hereunder. Nothing contained in the Plan, and no action
taken pursuant to its provisions, shall create or be construed to create a trust of any
kind, or a fiduciary relationship, between the Employer and a Participant or any other
person, and the promise of the Employer to pay benefits hereunder shall at all times remain
unfunded as to the Participant or Beneficiary, whose rights hereunder shall be limited to
those of a general and unsecured creditor of the Employer.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 41 |
Section 7. Administration
7.1 Committee.
The Plan shall be administered by the Pension and Savings Plan Committee of Chesapeake
Utilities Corporation. The Committee shall serve at the pleasure of the Board. The
Committee may allocate its responsibilities for the administration of the Plan among its
members or among any subcommittee(s) it may appoint and may designate person other than its
members to carry out its responsibilities under the Plan.
7.2 Meetings.
The Committee shall hold meetings upon such notice, at such place or places, and at such
intervals as are required to carry out its functions.
7.3 Quorum.
A majority of the members of the Committee at any time in office shall constitute a quorum
for the transaction of business. All resolutions or other actions taken by the Committee
shall be by vote of a majority of those present at a meeting of the Committee; or without a
meeting by an instrument in writing signed by all the members of the Committee at such time
in office.
7.4 Expenses.
The expenses incident to the operation of the Plan, including the compensation of attorneys,
advisors, actuaries, and such other persons providing technical and clerical assistance as
may be required, shall be paid directly by the Employer.
7.5 Powers of the Committee.
In addition to any implied powers and duties that may be needed to carry out the provisions
of the Plan, the Committee shall have the following specific discretionary powers and
duties:
|
(a) |
|
To make and enforce such rules and regulations as it shall deem
necessary or proper for the efficient administration of the Plan; |
|
(b) |
|
To interpret the Plan and to decide any and all matters arising
hereunder, including the right to remedy possible ambiguities, inconsistencies,
or omissions; provided that all such interpretations and decisions shall be
applied in a uniform and non-discriminatory manner to all persons similarly
situated; |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 42 |
|
(c) |
|
To compute the amount of benefits that shall be payable to any
Participation or Beneficiary in accordance with the provisions of the Plan, and
in the event that the Committee determines that excessive benefits have been
paid to any person, the Committee may suspend payment of future benefits to
such person or his Beneficiary or reduce the amount of such future benefits
until the excessive benefits and any interest thereon determined by the
Committee have been recovered; |
|
(d) |
|
To appoint other persons to carry out such ministerial
responsibilities under the Plan as it may determine; and |
|
(e) |
|
To employ one or more persons to render advice with respect to
any of its responsibilities under the Plan. |
7.6 Finality.
Subject to the provisions of Section 7.8 hereof, determinations by the Committee and any
interpretation, rule, or decision adopted by the Committee under the Plan or in carrying out
or administering the Plan shall be final and binding for all purposes and upon all
interested persons, their heirs, and their personal representatives.
7.7 Benefit Claims Procedure.
A claim for a benefit under the Plan by any person shall be filed in the manner and governed
by the procedures set forth in Section 6.7 of the Chesapeake Utilities Corporation
Retirement Savings Plan, as it may be amended from time to time.
7.8 Arbitration of Denied Claims.
Any controversy or claim arising out of or relating to a final decision, upon review
pursuant to the procedures set forth in Section 6.7 of the Chesapeake Utilities Corporation
Retirement Savings Plan, as it may be amended from time to time, that denies a claim for
benefits under the Plan shall be settled by arbitration under three arbitrators in
accordance with the Commercial Arbitration Rules of the America Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any such arbitration shall be subject to the statute of limitations
that would apply if the claim on which the arbitration is based were brought as a suit in a
United States district court under the Employee Retirement Income Security Act of 1974, as
amended (ERISA). The site of any such arbitration shall be Delaware.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 43 |
Section 8. Amendment, Suspension and Termination
The Compensation Committee of the Board of Directors may modify, amend, suspend, or
terminate the Plan at any time; provided that no such modification, amendment, suspension,
or termination shall reduce a Participants accrued benefits under the Plan as of the date
of such modification, amendment, suspension, or termination, except to the extent that the
affected Participants (or, with respect to deceased Participants, the affected
Beneficiaries of the Participants) consent in writing to the modification, amendment,
suspension, or termination; and provided further that no such modification, amendment,
suspension, or termination shall eliminate, restrict, or modify any of the following
provisions of the Plan, except to the extent that the affected Participants (or, with
respect to deceased Participants, the affected Beneficiaries of the deceased Participants)
consent in writing to the modification, amendment, suspension, or termination:
|
(a) |
|
the provision in Section 2.5 hereof that defines Change in
Control; |
|
(a) |
|
the provision in Section 2.9 hereof that preserves the
eligibility under the Plan of certain Eligible Employees after a Change in
Control; |
|
(c) |
|
the provision in Section 7.8 hereof that permits submission of
denied claims for benefits to arbitration; and |
|
(d) |
|
the provisions of this Section 8 that protect accrued benefits
and limit modification, amendment, suspension, or termination of the Plan. |
Except as provided in the preceding sentence, any modification, amendment, suspension, or
termination of the Plan may reduce or eliminate a benefit under the Plan. Although the Plan
is not subject to Section 2.04(g) of ERISA, the accrued benefits that are protected by this
Section 8 shall include those accrued benefits that would be protected by Section 204(g) of
ERISA if the Plan were subject to said Section 204(g) and the rights specified in paragraphs
(a) through (d), above.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 44 |
Section 9. Miscellaneous
9.1 Participation by Affiliate.
Subject to the consent of the Compensation Committee, an Affiliate may become an Employer
under the Plan by delivering to the Compensation Committee a resolution of its board of
directors approving such action. Such Affiliate shall become an Employer as of an effective
date approved by the Compensation Committee and shall be subject to the provisions of the
Plan.
9.2 Designation of Beneficiary.
|
(a) |
|
Each Participant may designate a Beneficiary
hereunder. Such designation shall be in writing, shall be made in the
form and manner prescribed by the Committee, and shall be effective
only if filed with the Committee prior the Participants death. A
Participant may, at any time prior to his death, and without the
consent of his Beneficiary, change his designation of Beneficiary by
filing a written notice of such change with the Committee in the form
and manner prescribed by the Committee. In the absence of a designated
Beneficiary, or if the designated Beneficiary and any designated
contingent Beneficiary predecease the Participant, the Beneficiary
shall be the Participants surviving spouse, or if the Participant has
no surviving spouse, the Participants estate. If the surviving spouse
becomes the Beneficiary pursuant to this Section 9.2, but dies before
receiving the entire amount due under Section 5.2, the remaining amount
shall be paid to the surviving spouses estate. |
|
(b) |
|
If a Participant designates his spouse as his
Beneficiary, that designation shall not be revoked or otherwise altered
or affected by any |
|
(i) |
|
change in the marital status of
the Participant and such spouse, |
|
(ii) |
|
agreement between the Participant and such spouse, or |
|
(iii) |
|
judicial decree (such as a
divorce decree) affecting any rights that the Participant and
such spouse might have as a result of their marriage separation,
or divorce,
until and unless the Participant revokes and designates a Beneficiary
in accordance with this Section 9.2, it being the intent of the Plan
that any change in the designation of a Beneficiary hereunder may be
made by the Participant only in accordance with the provision of this
Section 9.2. |
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 45 |
9.3 Incapacity.
If the Committee determines that any person entitled to benefits hereunder is unable to care
for his affairs because of illness or accident, any payment due (unless a duly qualified
guardian or other legal representative has been appointed) may be paid for the benefit of
such person to his spouse, parent, brother, sister, or other party deemed by the Committee
to have incurred expenses for such person.
9.4 Required Information.
Any person eligible to receive benefits hereunder shall furnish to the Committee any
information or proof requested by the Committee and reasonably required for the proper
administration of the Plan. Failure on the part of any person to comply with any such
request within a reasonable period of time shall be sufficient grounds for delay in the
payment of any benefits that may be due under the Plan until such information or proof is
received by the Committee. If any person claiming benefits under the Plan makes a false
statement that is material to such persons claim for benefits, the Committee may offset
against future payments any amount paid to such person to which such person was entitled
under the provisions of the Plan.
9.5 Inability to Locate Participants.
Each Participant and each Beneficiary entitled to receive a benefit under the Plan shall
keep the Committee advised of his current address. If the Committee is unable to locate a
Participant or Beneficiary to whom a benefit is payable under the Plan for a period of 36
months, commencing with the first day of the month as of which such benefit becomes payable,
the total amount payable to such Participant or Beneficiary shall be forfeited.
9.6 No Right to Employment.
Nothing herein contained shall be deemed to give any person the right to be retained in the
service of the Employer and the Affiliates or to interfere with the right of the Employer
and the Affiliates to discharge any employee at any time without regard to the effect that
such discharge may have upon the employee under the Plan.
|
|
|
|
|
|
Chesapeake Utilities Corporation
Supplemental Executive Retirement Savings Plan
|
|
Page 46 |
9.7 Withholding Taxes.
The Committee may make any appropriate arrangements to deduct from all amounts paid under
the Plan any taxes required to be withheld by any government or government agency. The
Participant and/or his Beneficiary shall bear all taxes on amounts paid under the Plan to
the extent that no taxes are withheld, irrespective of whether withholding is required.
9.8 Gender and Number.
In order to shorten and to improve the understandability of the Plan document by eliminating
the repeated usage of such phrases as his or her and Employee or Employees, any
masculine terminology herein shall also include the feminine and neuter, and the definition
of any term herein in the singular shall also include the plural, except when otherwise
indicated by the context.
9.9 Heading.
Any headings used in this instrument are for convenience of reference only and are to be
ignored in the construction of any provision hereof.
9.10 Severability.
If any provision of the Plan shall be held illegal or invalid for any reasons, such
illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan
shall be construed and enforced as if such illegal or invalid provision had never been
inserted herein.
9.11 Governing Law.
The Plan shall be construed, administered, and regulated in accordance with the laws of the
State of Delaware, except to the extent that such laws are pre-empted by Federal law.
9.12 Effective Date.
The Plan shall be effective as of March 1, 1999. It shall not apply to any employee who
terminated employment with the Employer before that date.
Exhibit 12
Exhibit 12
Chesapeake Utilities Corporation
Ratio of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
13,607,259 |
|
|
$ |
13,217,787 |
|
|
$ |
10,747,965 |
|
|
$ |
10,698,811 |
|
|
$ |
9,686,449 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
8,817,162 |
|
|
|
8,597,461 |
|
|
|
6,999,072 |
|
|
|
6,472,220 |
|
|
|
5,771,333 |
|
Portion of rents representative of interest factor |
|
|
293,207 |
|
|
|
245,399 |
|
|
|
226,583 |
|
|
|
278,846 |
|
|
|
309,446 |
|
Interest on indebtedness |
|
|
6,110,331 |
|
|
|
6,539,004 |
|
|
|
5,721,912 |
|
|
|
5,076,666 |
|
|
|
5,145,243 |
|
Amortization of debt discount and expense |
|
|
47,221 |
|
|
|
50,635 |
|
|
|
52,081 |
|
|
|
55,792 |
|
|
|
61,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings as adjusted |
|
$ |
28,875,180 |
|
|
$ |
28,650,286 |
|
|
$ |
23,747,613 |
|
|
$ |
22,582,335 |
|
|
$ |
20,973,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion of rents representative of interest factor |
|
$ |
293,207 |
|
|
$ |
245,399 |
|
|
$ |
226,583 |
|
|
$ |
278,846 |
|
|
$ |
309,446 |
|
Interest on indebtedness |
|
|
6,110,331 |
|
|
|
6,539,004 |
|
|
|
5,721,912 |
|
|
|
5,076,666 |
|
|
|
5,145,243 |
|
Amortization of debt discount and expense |
|
|
47,221 |
|
|
|
50,635 |
|
|
|
52,081 |
|
|
|
55,792 |
|
|
|
61,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges |
|
$ |
6,450,759 |
|
|
$ |
6,835,038 |
|
|
$ |
6,000,576 |
|
|
$ |
5,411,304 |
|
|
$ |
5,516,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Earnings to Fixed Charges |
|
|
4.48 |
|
|
|
4.19 |
|
|
|
3.96 |
|
|
|
4.17 |
|
|
|
3.80 |
|
Exhibit 14.2
Exhibit 14.02
BUSINESS CODE OF ETHICS AND CONDUCT
Adopted December 11, 2008
Chesapeake Utilities Corporation (Chesapeake) is committed to conducting its business in
compliance with all applicable laws, rules and regulations and in accordance with the highest
ethical standards. In furtherance of this commitment, the Board of Directors of Chesapeake has
adopted this Business Code of Ethics and Conduct (the Code of Ethics) setting forth the
principles that govern the conduct of all employees, officers and directors of Chesapeake and its
subsidiaries (collectively, the Company).
As used herein, Company official shall mean any officer of the Company. Some provisions of
this Code of Ethics also extend to the family members of employees, officers, directors, or
nominees for director. For this purpose, the term family member shall mean any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
daughter-in-law, son-in-law, brother-in-law, or sister-in-law, and any person (other than a tenant
or employee) sharing the household of any director, nominee for director, or officer of the
Company. These associations include adoptive relationships.
I. Compliance with Laws, Rules, Regulations, Policies and Procedures
Each employee, officer and director is expected to understand and comply with both the letter
and intent of all governmental laws, rules and regulations and with all Company policies and
procedures that apply to matters for which he or she is responsible. All employees and officers
are expected to participate in compliance training and information sessions when offered by the
Company. Any employee or officer who is uncertain as to the meaning or interpretation of any law,
rule, regulation, policy or procedure, or its application to his or her responsibilities, is
expected to seek advice from a supervisor, manager or other appropriate Company official.
II. Conflicts of Interest
In carrying out their responsibilities, all employees, officers and directors have a duty
always to act in the best interests of the Company. The ability of an employee, officer or
director to fulfill this obligation can be compromised if a conflict exists between his or her
personal interests and the interests of the Company. In general, a conflict of interest can arise
whenever the personal interests of an employee, officer or director in a matter (financial or
otherwise) would make it difficult for the individual to perform his or her Company
responsibilities objectively. Even where the outcome of the matter is on terms that are entirely
fair to the Company, the existence of a conflict of interest can create an appearance of
impropriety.
While it is not possible to list all of the situations that could present a conflict of
interest, examples include:
|
|
|
Ownership of a financial interest (other than, in the case of a public company,
the ownership of less than a one percent equity interest) in any business or other
enterprise that does business (whether as a supplier, customer or otherwise), or is
seeking to do business, with the Company. |
|
|
|
Serving as a director, officer or partner of, or in any other managerial role with
respect to, or as a consultant to, any business or other enterprise that does business
(whether as a supplier, customer or otherwise), or is seeking to do business, with the
Company. |
|
|
|
|
Ownership of a financial interest in (other than, in the case of a public company,
the ownership of less than a one percent equity interest), or serving as a director,
officer or partner of, or in any other managerial role with respect to, or as a
consultant to, any competitor of the Company. |
|
|
|
|
Acting as a broker, finder or other intermediary for the benefit of a third party
in any transaction involving the Company. |
|
|
|
|
Any situation where the employee, officer or director will receive any payment of
money, services, loan, guarantee or any other personal benefits from a third party in
anticipation of or as a result of any transaction or business relationship between the
Company and the third party. |
|
|
|
|
Taking a public position or making public statements contrary to the best interests
of the Company or that could result in embarrassment to the Company. |
A conflict also can exist where the person doing business, or seeking to do business with the
Company is a family member of an employee, officer or director. However, the acquisition or use by
an employee, officer or director of the Company of products or services obtained from the Company
in the ordinary course of the Companys business will not represent a conflict of interest.
All employees and officers are encouraged to avoid relationships that have the potential for
creating an actual conflict of interest or a perception of a conflict of interest. Employees and
officers must be free of any conflict of interest whenever they act on behalf of the Company,
including engaging in negotiations or recommending or approving a transaction, arrangement or
relationship with an existing or potential customer, supplier, lender or investor. Any officer who
has a conflict of interest with respect to any matter is required to make prompt and full
disclosure of the matter to the Chief Executive Officer or, in the case of the Chief Executive
Officer, to the Audit Committee. All other employees are required to make prompt and full
disclosure of any conflict of interest to the Director of Internal Audit. No employee or officer
is permitted to participate in any matter in which he or she has a conflict of interest unless
authorized by an appropriate Company official and under circumstances that are designed to protect
the interests of the Company and to avoid any appearance of impropriety.
Any officer who has a question as to whether a given situation or relationship might represent
a conflict of interest is required to consult with the Chief Executive Officer. Any other employee
who has a question as to whether a situation or relationship might constitute a conflict is
required to consult with the Director of Internal Audit.
Directors are required to disclose any conflict of interest to the Chairman of the Board of
Directors and to refrain from voting on any matter(s) in which they have a conflict.
2 of 8
III. Corporate Opportunities
All business opportunities that are within the existing or reasonably foreseeable scope of the
Companys business, including planned business ventures, are the property of the Company. Without
the prior consent of the Board of Directors, employees, officers and directors are prohibited from:
|
|
|
Taking for themselves personally opportunities that they discovered through the use
of Company property or information or through their position with the Company; |
|
|
|
Using property or information of the Company or their position with the Company for
personal gain; or |
|
|
|
Engaging in any business in competition with the Company. |
IV. Confidentiality
Employees, officers, directors and director nominees are required to maintain the
confidentiality of, and not use for personal benefit, confidential information entrusted to them by
the Company, its customers or its suppliers, or otherwise acquired in the course of their
employment by or service to the Company. Disclosure or use of confidential information is permitted
only for a proper business purpose and when specifically authorized by an appropriate Company
official or as required by law or legal proceedings. Confidential information includes all
information protected by law or by an agreement between the Company and a third party, as well as
other non-public information that, if disclosed, might be harmful to the Company or useful to
competitors, including but not limited to:
|
|
|
Trade secrets and other proprietary technical information or data. |
|
|
|
Undisclosed financial and accounting information. |
|
|
|
Strategic information concerning current and future business plans. |
|
|
|
Employee personnel records (e.g., job applications, resumes, performance
evaluations and records, compensation information, notices regarding performance,
termination notices, etc.). |
|
|
|
Research information and records. |
All employees, officers and directors are required to sign a confidentiality statement.
These confidentiality and non-use restrictions continue beyond termination of service for
directors, and termination of employment for employees and officers. Upon termination, employees,
officers and directors are not permitted to take, copy or retain any records or documents of the
Company.
3 of 8
V. Proper Accounting for Company Transactions
The maintenance of accurate financial and accounting records is essential in order to enable
the Company to comply with the requirements of the federal securities laws and with its obligations
to its shareholders.
A. Maintenance of Accurate Records
All Company assets and liabilities and all items of revenue and expense shall be properly
recorded in the Companys regular books and records in accordance with generally accepted
accounting principles. All employees and officers who are responsible for the recording or
reporting of Company property, assets, liabilities, transactions and other activities are required
to provide full, fair, accurate, timely and understandable recording or reporting thereof. Without
limitation of the foregoing:
|
|
|
No undisclosed or unrecorded fund or asset of the Company shall be established or
maintained for any purpose. |
|
|
|
No employee or officer of the Company shall intentionally conceal or fail to record
or report any matter that is required to be recorded or reported. |
|
|
|
No employee or officer of the Company shall improperly record or report any matter,
or improperly alter any record or report of any matter. |
B. Documentation of Disbursement of Funds
No payment or other disbursement of Company funds shall be made without proper authorization.
No approval shall be granted for the payment or other disbursement of Company funds without
adequate supporting documentation. No payment on behalf of the Company shall be approved or made
with the intention or understanding that any part of such payment is to be used for a purpose other
than that described by the documents supporting the payment.
VI. Improper Payments and Gifts to Third Parties
A. Improper Payments and Gifts.
Except for permitted gifts (as described below), neither the Company nor any employee, officer
or director shall, either directly or indirectly, authorize or make any payment or gift of money or
any other thing of value (including materials, equipment, facilities or services) to any:
|
|
|
Current or prospective customer, supplier or competitor of the Company or to
government officials; or |
|
|
|
Any director, officer, employee, general partner, stockholder or owner of a current
or prospective customer, supplier or competitor, |
if the purpose of the payment or the gift is to induce the current or prospective customer,
supplier, competitor or government official improperly to grant or convey any benefit to, or forgo
any claim against, the Company or any of its employees, officers or directors, or otherwise to
influence a business or other decision of the current or prospective customer, supplier, competitor
or government official.
4 of 8
B. Permitted Gifts
An employee, officer or director may make gifts, generally in the form of meals, entertainment
or specialty advertising items, to Company customers, suppliers or other third parties engaged, or
that may become engaged, in business with the Company if the gift meets all of the following
criteria:
|
|
|
It is consistent with customary business practices; |
|
|
|
It is not for an improper purpose; |
|
|
|
It is not in contravention of any applicable laws, rules, regulations or ethical
standards; and |
|
|
|
Public disclosure of the full details of the gift would not cause embarrassment to
the Company. |
VII. Acceptance of Gifts or Other Personal Benefits
No employee, officer or director shall solicit from any supplier, customer or other person
doing business, or seeking to do business, with the Company any gift of money, products or
services, gratuity, loans or guarantees, or other personal benefits of any kind.
An employee, officer or director, including their family members, may accept an unsolicited
gift or gratuity of nominal value or reasonable business entertainment (including recreation and
attendance of sporting or cultural events) if the gift or gratuity meets all of the following
criteria:
|
|
|
It does not go beyond common courtesies usually associated with accepted business
practices; |
|
|
|
It does not interfere with the recipients independence or judgment in carrying out
his or her responsibilities on behalf of the Company; and |
|
|
|
Public disclosure of the full details of the gift or gratuity would not cause
embarrassment to the Company. |
Any gifts or gratuity that do not meet these requirements must to the extent possible
be returned.
5 of 8
VIII. Relationships with Customers
When dealing with customers, the Company is committed to:
|
|
|
Providing all customers with exceptional service; |
|
|
|
Dealing fairly and ethically with all customers and treating customers with respect; |
|
|
|
Providing customers with accurate and clear information regarding the services
offered by the Company; and |
|
|
|
Investigating promptly and resolving on fair terms all customer complaints and
inquiries. |
Each employee, officer and director has a responsibility to use his or her best efforts to
ensure that these objectives are attained. The Company prohibits manipulation, misrepresentation of
facts, and other forms of unfair dealing with customers.
IX. Relationships with Suppliers
When dealing with suppliers of products and services to the Company, all employees, officers
and directors are required at all times to act in the best interests of the Company, while at the
same time adhering to the highest standards of ethical conduct. All unlawful behavior,
manipulation, misrepresentation of facts, or any other forms of unfair dealing are prohibited.
X. Fair Competition
The Company is committed to fair and honest competition. The Company seeks to achieve its
competitive advantage through competitive prices, products and services, and not through illegal or
unethical business practices. All employees, officers and directors are required to adhere to all
laws and regulations regarding fair competition, including antitrust laws. Misappropriation of
trade secrets or other proprietary information, manipulation, misrepresentation of facts and all
other forms of unfair dealing are prohibited.
XI. Relationships with Employees
All employees and officers are entitled to work in an environment free of discrimination and
harassment, therefore the Company strives to provide each employee and officer with a workplace
that is free from unlawful discrimination or harassment. It is the policy of the Company to
provide equal employment opportunity to qualified individuals regardless of race, religion, gender,
national origin, age, or their status as disabled veterans or as disabled individuals. Equal
opportunity applies to all aspects of the employment relationship, including initial employment,
promotion, training, wage and salary administration, seniority, retirement, and employee benefits.
6 of 8
XII. Protection and Proper Use of Company Assets
Proper protection and proper use of Company assets is the responsibility of each employee,
officer and director. Employees, officers and directors are required to promote the efficient use
of Company assets and to take appropriate security measures to safeguard physical property and
other assets against unauthorized use or removal, as well as against loss by wrongful acts or
negligence. Employees, officers and directors may use Company property only for legitimate
business purposes and strictly in accordance with established Company policies and guidelines.
XIII. Insider Trading
All employees, officers and directors are required to adhere to the Companys policy entitled
Securities Trades by Company Personnel, which governs trading by employees, officers and
directors in Chesapeake stock.
XIV. Political Activities
Employees, officers and directors are free to participate in lawful political activities on
their own time and at their own expense, and to make personal contributions to political parties,
committees or candidates of their choice. However, under no circumstances shall an employee,
officer or director use Company facilities or assets, or be compensated or reimbursed by the
Company, for their personal political activities or contributions.
While employees and officers are encouraged to participate in civic and community activities
during their non-work hours, an employees or officers determination to seek elected or appointed
public office, including membership on a public board or commission (public office), raises
special concerns. Because the Companys business frequently interfaces with many government
branches, employees, officers and directors would have a responsibility to disqualify themselves
from any action in which they know the Company has an interest. In addition, care must be taken
that campaigning for office or fulfilling public responsibilities is not done during work hours.
Accordingly, any employee or officer who wishes to seek or accept public office must provide the
Director of Internal Audit with reasonable advance notice of that intent. In certain cases,
depending on the nature of the office and other surrounding circumstances, the Company may decide
that the employee or officer should not seek or accept such office while remaining in the Companys
employment without a determination by the Companys Chief Executive Officer (or in the case of the
Chief Executive Officer, the Board of Directors) that such activities will be consistent with
Company policies and applicable laws and standards.
XV. Compliance Procedures
A. Distribution of this Code of Ethics
A copy of this Code of Ethics shall be furnished to each employee, officer and director of the
Company and shall be posted on the Companys website. Company officers are required to ensure that
all Company personnel in the departments for which they are responsible receive a copy.
7 of 8
Any employee who has a question concerning the interpretation or application of any provision
of this Code of Ethics should consult his or her immediate manager, who may, if necessary, refer
the question to the Director of Internal Audit or an appropriate Company official. Alternatively,
any employee, officer or director may contact the Director of Internal Audit directly.
B. Reporting Violations
Any employee or officer who has knowledge of a violation by the Company or any employee,
officer or director of any law, rule or regulation or this Code of Ethics, or suspects that such a
violation has occurred, is required to report the matter to an independent third party via a
dedicated toll-free hotline or a secure website, or in written form directly to the Director of
Internal Audit in accordance with the process set forth on the
Companys website (www.chpk.com).
All valid concerns will be investigated under the direction of the Chairman of the Audit Committee.
The Company will make every effort, within the limits allowed by law, to keep confidential the
identity of anyone requesting guidance or reporting a violation or suspected violation. However, it
may not be possible to maintain the confidentiality of the reported person or the reported
information if (i) disclosure is necessary to enable the Company or law enforcement officials to
investigate the matter, (ii) disclosure is required by law or (iii) the person accused of a
violation is entitled to the information as a matter of legal right. All employees, officers and
directors are expected to cooperate, to the extent requested, in any investigation of any violation
of any law, rule or regulation or this Code of Ethics.
No adverse action will be taken against any person who in good faith reports a violation, or a
suspected violation, by the Company, or any employee, officer or director of any law, rule or
regulation or this Code of Ethics. Any such retaliation is also a violation of this Code of Ethics
and will be grounds for disciplinary action against the person or persons who engage in
retaliation. Any employee, officer or director who believes that he or she has been retaliated
against may file a complaint with the Director of Internal Audit, who shall be responsible for the
investigation of the matter.
C. Violations
Any employee, officer or director who fails to comply with any applicable law, rule, or
regulation or with this Code of Ethics is subject to disciplinary action, which could include,
without limitation, a reprimand, probation, suspension, reduction in salary, demotion or dismissal
depending upon the seriousness of the offense.
XVI. Amendments and Waivers
The Board of Directors must approve any amendment to this Code of Ethics. No waivers or exceptions
to this Code of Ethics are anticipated; however, any waiver of any provision to this Code of Ethics
for employees, other than executive officers, requires the approval of the Chief Executive Officer.
Any waiver involving an executive officer or director requires the approval of the Board of
Directors or a designated Board Committee and must be promptly disclosed to shareholders in the
manner determined appropriate by the Board of Directors or as otherwise required by law or the
rules of the New York Stock Exchange.
8 of 8
Exhibit 21
Exhibit 21
Chesapeake Utilities Corporation
Subsidiaries of the Registrant
|
|
|
Subsidiaries
|
|
State Incorporated |
Eastern Shore Natural Gas Company
|
|
Delaware |
Sharp Energy, Inc.
|
|
Delaware |
Chesapeake Service Company
|
|
Delaware |
Xeron, Inc.
|
|
Mississippi |
Chesapeake OnSight Services LLC
|
|
Delaware |
Peninsula Energy Services Company, Inc.
|
|
Delaware |
Peninsula Pipeline Company, Inc.
|
|
Delaware |
|
|
|
Subsidiaries of Sharp Energy, Inc.
|
|
State Incorporated |
Sharpgas, Inc.
|
|
Delaware |
|
|
|
Subsidiaries of Chesapeake Service Company
|
|
State Incorporated |
Skipjack, Inc.
|
|
Delaware |
BravePoint, Inc.
|
|
Georgia |
Chesapeake Investment Company
|
|
Delaware |
Eastern Shore Real Estate, Inc.
|
|
Delaware |
Exhibit 23.1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
Chesapeake Utilities Corporation
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3
(Nos. 333-156192, 333-63381 and 333-121524) and Form S-8 (Nos. 333-01175, 333-94159, 333-124646,
333-124694 and 333-124717) of Chesapeake Utilities Corporation of our reports dated March 9, 2009,
relating to the consolidated financial statements, the effectiveness of internal control over
financial reporting, and financial statement schedule of Chesapeake Utilities Corporation appearing
in the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
/s/
Beard Miller Company LLP
Beard Miller Company LLP
Reading, Pennsylvania
March 9, 2009
Exhibit 23.2
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
Chesapeake Utilities Corporation
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3
(Nos. 333-156192, 333-63381 and 333-121524) and Form S-8 (Nos. 333-01175, 333-94159, 333-124646,
333-124694 and 333-124717) of Chesapeake Utilities Corporation of our report dated March 13, 2007
relating to the consolidated financial statements and financial statement schedule which appears in
this Form 10-K.
/s/
PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2009
Exhibit 31.1
Exhibit 31.1
CERTIFICATE PURSUANT TO RULE 13A-14(A) AND 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John R. Schimkaitis, certify that:
I have reviewed this annual report on Form 10-K of Chesapeake Utilities Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
The registrants other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and we have:
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
b) |
|
designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluations; and |
|
d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant s
internal control over financial reporting; and |
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
b) |
|
any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: March 9, 2009
|
|
|
/s/ John R. Schimkaitis
John R. Schimkaitis
|
|
|
President and Chief Executive Officer |
|
|
Exhibit 31.2
Exhibit 31.2
CERTIFICATE PURSUANT TO RULE 13A-14(A) AND 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Beth W. Cooper, certify that:
I have reviewed this annual report on Form 10-K of Chesapeake Utilities Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
The registrants other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and we have:
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
b) |
|
designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluations; and |
|
d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant s
internal control over financial reporting; and |
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
b) |
|
any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: March 9, 2009
|
|
|
/s/ Beth W. Cooper
Beth W. Cooper
|
|
|
Senior
Vice President and Chief Financial Officer |
|
|
Exhbiit 32.1
Exhibit 32.1
CERTIFICATED OF CHIEF EXECUTIVE OFFICER
OF CHESAPEAKE UTLITIES CORPORATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PUSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, John R. Schimkaitis, President and Chief Executive Officer of Chesapeake Utilities
Corporation, certify that, to the best of my knowledge, the Annual Report on Form 10-K of
Chesapeake Utilities Corporation (Chesapeake) for the year ended December 31, 2008, filed with
the Securities and Exchange Commission on the date hereof (i) fully complies with the requirements
of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the
information contained therein fairly presents, in all material respects, the financial condition
and results of operations of Chesapeake.
|
|
|
|
|
|
/s/ John R. Schimkaitis
|
|
|
John R. Schimkaitis |
|
|
March 9, 2009 |
|
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of
2002, or other document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement required by Section
906, has been provided to Chesapeake Utilities Corporation and will be retained by Chesapeake
Utilities Corporation and furnished to the Securities and Exchange Commission or its staff upon
request.
Exhibit 32.2
Exhibit 32.2
CERTIFICATED OF CHIEF FINANCIAL OFFICER
OF CHESAPEAKE UTLITIES CORPORATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PUSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Beth W. Cooper, Senior Vice President and Chief Financial Officer of Chesapeake Utilities
Corporation, certify that, to the best of my knowledge, the Annual Report on Form 10-K of
Chesapeake Utilities Corporation (Chesapeake) for the year ended December 31, 2008, filed with
the Securities and Exchange Commission on the date hereof (i) fully complies with the requirements
of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the
information contained therein fairly presents, in all material respects, the financial condition
and results of operations of Chesapeake.
|
|
|
|
|
|
/s/ Beth W. Cooper
|
|
|
Beth W. Cooper |
|
|
March 9, 2009 |
|
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of
2002, or other document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement required by Section
906, has been provided to Chesapeake Utilities Corporation and will be retained by Chesapeake
Utilities Corporation and furnished to the Securities and Exchange Commission or its staff upon
request.