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2019-01-01 2019-09-30 0000019745 cpk:UncollateralizedSeniorNoteDueOnMay2TwoThousandTwentyEightMember 2019-01-01 2019-09-30 0000019745 cpk:UncollateralizedSeniorNoteDueDecemberTwoThousandThirtyFourMember 2019-01-01 2019-09-30 0000019745 cpk:UncollateralizedSeniorNoteDueOnTwoThousandTwentyThreeMember 2019-01-01 2019-09-30 0000019745 cpk:UncollateralizedSeniorNoteDueonTwoThousandThirtyEightMember 2019-09-30 0000019745 cpk:UncollateralizedSeniorNoteDueOnTwoThousandTwentyMember 2019-01-01 2019-09-30 0000019745 cpk:UncollateralizedSeniorNoteDueonTwoThousandThirtyTwoMember 2019-09-30 0000019745 cpk:TermNoteDueJanuaryTwoThousandTwentyMember 2019-01-01 2019-09-30 0000019745 cpk:UncollateralizedSeniorNoteDueOnTwoThousandTwentySixMember 2019-01-01 2019-09-30 0000019745 cpk:UncollateralizedSeniorNoteDueonTwoThousandThirtyTwoMember 2019-01-01 2019-09-30 0000019745 cpk:FirstMortgageBondDueOnTwoThousandTwentyTwoMember 2019-01-01 2019-09-30 0000019745 cpk:ShelfNotesMember cpk:MetLifeMember us-gaap:NotesPayableOtherPayablesMember 2019-01-01 2019-09-30 0000019745 cpk:ShelfNotesMember cpk:PrudentialMember us-gaap:NotesPayableOtherPayablesMember 2019-01-01 2019-09-30 0000019745 cpk:ShelfNotesMember cpk:NewYorkLifeMember us-gaap:NotesPayableOtherPayablesMember 2019-01-01 2019-09-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure utreg:kWh utreg:gal utreg:Y cpk:site utreg:mi cpk:customer cpk:Dekatherm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                       to                      
Commission File Number: 001-11590 
 
 
 
CHESAPEAKE UTILITIES CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 

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
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock - par value per share $0.4867
CPK
New York Stock Exchange, Inc.
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      No   

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Common Stock, par value $0.486716,403,776 shares outstanding as of October 31, 2019.



Table of Contents
 




GLOSSARY OF DEFINITIONS
ASC: Accounting Standards Codification issued by the FASB
Aspire Energy: Aspire Energy of Ohio, LLC
ASU: Accounting Standards Update issued by the FASB
CDD: Cooling Degree-Day
CGS: Community Gas Systems
Chesapeake or Chesapeake Utilities: Chesapeake Utilities Corporation, and its direct and indirect subsidiaries, as appropriate in the context of the disclosure
CHP: Combined heat and power plant
Company: Chesapeake Utilities Corporation, and its direct and indirect subsidiaries, as appropriate in the context of the disclosure
Degree-Day: 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 above (CDD) or below (HDD) 65 degrees Fahrenheit
Delmarva Peninsula: A peninsula on the east coast of the U. S. occupied by Delaware and portions of Maryland and Virginia
Dt(s): Dekatherm(s), which is a natural gas unit of measurement that includes a standard measure for heating value
Dts/d: Dekatherms per day
Eastern Shore: Eastern Shore Natural Gas Company, a wholly-owned subsidiary of Chesapeake Utilities
Eight Flags: Eight Flags Energy, LLC, a subsidiary of Chesapeake OnSight Services, LLC
FASB: Financial Accounting Standards Board
FERC: Federal Energy Regulatory Commission
FPU: Florida Public Utilities Company, a wholly-owned subsidiary of Chesapeake Utilities
Gas South: Gas South, LLC, a subsidiary of Cobb Electric Membership Corporation
GAAP: Accounting principles generally accepted in the United States of America
GRIP: Gas Reliability Infrastructure Program
Gross Margin: a non-GAAP measure defined as operating revenues less the cost of sales. The Company's cost of sales includes purchased fuel cost for natural gas, electricity and propane and the cost of labor spent on direct revenue-producing activities and excludes depreciation, amortization and accretion
Gulfstream: Gulfstream Natural Gas System, LLC, an unaffiliated pipeline network that supplies natural gas to FPU
HDD: Heating Degree-Day
LIBOR: The London Inter-Bank Offered Rate
Marlin Gas Services: Marlin Gas Services, LLC, a wholly-owned subsidiary of Chesapeake Utilities that acquired certain operating assets of Marlin Gas Transport, Inc.
Marlin Gas Transport: Marlin Gas Transport, Inc., a former supplier of mobile compressed natural gas distribution and pipeline solutions
MetLife: MetLife Investment Advisors, an institutional debt investment management firm, with which we entered into the MetLife Shelf Agreement
MGP: Manufactured gas plant, which is a site where coal was previously used to manufacture gaseous fuel for industrial, commercial and residential use



MTM: Mark-to-Market (fair value accounting)
NJRES: New Jersey Resource Energy Services Company a subsidiary of New Jersey Resources Inc.
NYL: New York Life Investors LLC, an institutional debt investment management firm, with which Chesapeake Utilities entered into a Shelf Agreement and issued Shelf Notes
Peninsula Pipeline: Peninsula Pipeline Company, Inc., a wholly-owned subsidiary of Chesapeake Utilities
PESCO: Peninsula Energy Services Company, Inc., a wholly-owned subsidiary of Chesapeake Utilities
Prudential: Prudential Investment Management Inc., an institutional investment management firm, with which Chesapeake Utilities has entered into a Shelf Agreement and issued Shelf Notes
PSC: Public Service Commission, which is the state agency that regulates utility rates and/or services in certain of our jurisdictions
Retirement Savings Plan: A qualified 401(k) retirement savings plan sponsored by Chesapeake Utilities
Revolver: Our unsecured revolving credit facility with certain lenders
Sandpiper: Sandpiper Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities
SEC: U.S. Securities and Exchange Commission
Senior Notes: Our unsecured long-term debt issued primarily to insurance companies on various dates
Sharp: Sharp Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities
Shelf Agreement: An agreement entered into by Chesapeake Utilities and a counterparty pursuant to which Chesapeake Utilities may request that the counterparty purchase our unsecured senior debt with a fixed interest rate and a maturity date not to exceed 20 years from the date of issuance
Shelf Notes: Unsecured senior promissory notes issuable under the Shelf Agreement executed with various counterparties
SICP: 2013 Stock and Incentive Compensation Plan
TCJA: Tax Cuts and Jobs Act enacted on December 22, 2017
TETLP: Texas Eastern Transmission, LP, an interstate pipeline interconnected with Eastern Shore's pipeline
UET: United Energy Trading, LLC a subsidiary of United Energy Corporation



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
(in thousands, except shares and per share data)
 
 
 
 
 
 
 
 
Operating Revenues
 
 
 
 
 
 
 
 
Regulated Energy
 
$
74,580

 
$
72,770

 
$
251,601

 
$
252,667

Unregulated Energy and other
 
18,046

 
20,630

 
96,029

 
103,435

Total Operating Revenues
 
92,626

 
93,400

 
347,630

 
356,102

Operating Expenses
 
 
 
 
 
 
 
 
Regulated Energy cost of sales
 
19,619

 
21,501

 
74,452

 
89,741

Unregulated Energy and other cost of sales
 
5,709

 
9,512

 
36,975

 
49,196

Operations
 
32,623

 
31,449

 
99,596

 
97,723

Maintenance
 
3,920

 
3,208

 
11,199

 
10,419

Gain from a settlement
 

 

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

 
10,487

 
33,612

 
29,739

Other taxes
 
5,178

 
4,364

 
15,282

 
13,446

Total Operating Expenses
 
78,268

 
80,521

 
270,986

 
290,134

Operating Income
 
14,358

 
12,879

 
76,644

 
65,968

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

 
4,357

 
16,583

 
11,764

Income from Continuing Operations Before Income Taxes
 
8,605

 
8,518

 
59,332


54,036

Income Taxes on Continuing Operations
 
2,360

 
2,428

 
15,355

 
14,918

Income from Continuing Operations
 
6,245

 
6,090

 
43,977


39,118

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

 
$
5,538

 
$
42,589

 
$
38,779

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

 
16,378,545

 
16,396,646

 
16,366,608

Diluted
 
16,453,867

 
16,428,439

 
16,444,231

 
16,416,255

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

 
$
0.37

 
$
2.68

 
$
2.39

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

 
$
0.34

 
$
2.60

 
$
2.37

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

 
$
0.37

 
$
2.67

 
$
2.38

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

 
$
0.34

 
$
2.59

 
$
2.36

The accompanying notes are an integral part of these financial statements.



- 1



Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
(in thousands)
 
 
 
 
 
 
 
 
Net Income
 
$
5,621

 
$
5,538

 
$
42,589

 
$
38,779

Other Comprehensive Income (Loss), net of tax:
 
 
 
 
 
 
 
 
Employee Benefits, net of tax:
 
 
 
 
 
 
 
 
Amortization of prior service cost, net of tax of $(5), $(5), $(15) and $(16), respectively
 
(14
)
 
(14
)
 
(43
)
 
(42
)
Net gain, net of tax of $39, $38, $125 and $118, respectively
 
114

 
100

 
355

 
317

Cash Flow Hedges, net of tax:
 
 
 
 
 
 
 
 
Unrealized gain (loss) on commodity contract cash flow hedges, net of tax of $152, $257, $496 and $(70), respectively
 
324

 
644

 
1,193

 
(83
)
Total Other Comprehensive Income, net of tax
 
424

 
730

 
1,505

 
192

Comprehensive Income
 
$
6,045

 
$
6,268

 
$
44,094

 
$
38,971

The accompanying notes are an integral part of these financial statements.


- 2


Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
 
Assets
 
September 30,
2019
 
December 31,
2018
(in thousands, except shares and per share data)
 
 
 
 
Property, Plant and Equipment
 
 
 
 
Regulated Energy
 
$
1,407,371

 
$
1,297,416

Unregulated Energy
 
250,826

 
236,440

Other businesses and eliminations
 
30,596

 
34,585

Total property, plant and equipment
 
1,688,793

 
1,568,441

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

 
108,584

Net property, plant and equipment
 
1,460,954

 
1,382,936

Current Assets
 
 
 
 
Cash and cash equivalents
 
4,320

 
6,089

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

 
53,837

Accrued revenue
 
11,538

 
22,640

Propane inventory, at average cost
 
4,370

 
9,791

Other inventory, at average cost
 
6,037

 
7,127

Regulatory assets
 
6,633

 
4,796

Storage gas prepayments
 
2,158

 
3,433

Income taxes receivable
 
11,100

 
15,300

Prepaid expenses
 
10,571

 
10,079

Derivative assets, at fair value
 

 
82

Other current assets
 
2,489

 
5,682

Current assets held for sale
 
21,155

 
52,681

Total current assets
 
114,875

 
191,537

Deferred Charges and Other Assets
 
 
 
 
Goodwill
 
21,516

 
21,568

Other intangible assets, net
 
3,272

 
3,850

Investments, at fair value
 
8,536

 
6,711

Operating lease right-of-use assets (refer to Note 16)
 
12,004

 

Regulatory assets
 
77,030

 
72,422

Other assets
 
8,874

 
6,985

Noncurrent assets held for sale
 
7,179

 
7,662

Total deferred charges and other assets
 
138,411

 
119,198

Total Assets
 
$
1,714,240

 
$
1,693,671

 
The accompanying notes are an integral part of these financial statements.

- 3


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

 
$

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

 
7,971

Additional paid-in capital
 
257,436

 
255,651

Retained earnings
 
284,694

 
261,530

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

 
3,854

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

 
518,439

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

 
316,020

Total capitalization
 
920,521

 
834,459

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

 
11,935

Short-term borrowing
 
224,744

 
294,458

Accounts payable
 
53,150

 
98,681

Customer deposits and refunds
 
29,629

 
32,620

Accrued interest
 
4,891

 
2,317

Dividends payable
 
6,644

 
6,060

Accrued compensation
 
10,362

 
13,923

Regulatory liabilities
 
5,691

 
7,883

Derivative liabilities, at fair value
 
2,216

 
1,604

Other accrued liabilities
 
15,210

 
10,081

Current liabilities held for sale
 
18,110

 
48,672

Total current liabilities
 
446,247

 
528,234

Deferred Credits and Other Liabilities
 
 
 
 
Deferred income taxes
 
165,492

 
156,820

Regulatory liabilities
 
133,966

 
135,039

Environmental liabilities
 
6,713

 
7,638

Other pension and benefit costs
 
27,890

 
28,513

Operating lease - liabilities (refer to Note 16)
 
10,392

 

Deferred investment tax credits and other liabilities
 
3,019

 
2,968

Total deferred credits and other liabilities
 
347,472

 
330,978

Environmental and other commitments and contingencies (Notes 6 and 7)
 

 

Total Capitalization and Liabilities
 
$
1,714,240

 
$
1,693,671

The accompanying notes are an integral part of these financial statements.


- 4


Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
Nine Months Ended
 
 
September 30,
 
 
2019
 
2018
(in thousands)
 
 
 
 
Operating Activities
 
 
 
 
Net income
 
$
42,589

 
$
38,779

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
34,049

 
30,176

Depreciation and accretion included in other costs
 
6,380

 
6,464

Deferred income taxes
 
8,789

 
11,047

Realized (gain) loss on commodity contracts/sale of assets/investments
 
(1,087
)
 
4,015

Unrealized gain on investments/commodity contracts
 
(1,025
)
 
(427
)
Employee benefits and compensation
 
1,163

 
456

Share-based compensation
 
2,305

 
2,535

Other, net
 

 
(35
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable and accrued revenue
 
51,997

 
32,988

Propane inventory, storage gas and other inventory
 
7,996

 
6,379

Regulatory assets/liabilities, net
 
(7,160
)
 
3,899

Prepaid expenses and other current assets
 
13,959

 
(1,533
)
Accounts payable and other accrued liabilities
 
(51,550
)
 
(9,590
)
Income taxes receivable
 
4,200

 
6,053

Customer deposits and refunds
 
(2,992
)
 
136

Accrued compensation
 
(3,747
)
 
(2,804
)
Other assets and liabilities, net
 
(1,927
)
 
(542
)
Net cash provided by operating activities
 
103,939

 
127,996

Investing Activities
 
 
 
 
Property, plant and equipment expenditures
 
(139,315
)
 
(171,410
)
Proceeds from sale of assets
 
327

 
565

Environmental expenditures
 
(925
)
 
(322
)
Net cash used in investing activities
 
(139,913
)
 
(171,167
)
Financing Activities
 
 
 
 
Common stock dividends
 
(18,235
)
 
(16,171
)
Issuance of stock under the Dividend Reinvestment Plan
 
(536
)
 
(518
)
Tax withholding payments related to net settled stock compensation
 
(692
)
 
(1,210
)
Change in cash overdrafts due to outstanding checks
 
(2,855
)
 
712

Net borrowings (repayments) under line of credit agreements
 
(66,859
)
 
16,612

Proceeds from long-term debt
 
129,817

 
74,901

Repayment of long-term debt, long-term borrowing under the Revolver and capital lease obligation
 
(6,435
)
 
(30,554
)
Net cash provided by financing activities
 
34,205

 
43,772

Net Increase (Decrease) in Cash and Cash Equivalents
 
(1,769
)
 
601

Cash and Cash Equivalents—Beginning of Period
 
6,089

 
5,614

Cash and Cash Equivalents—End of Period
 
$
4,320

 
$
6,215

The accompanying notes are an integral part of these financial statements.

- 5


Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
 
 
Common Stock (1)
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands, except shares and per share data)
Number  of
Shares(2)
 
Par
Value
 
Additional  Paid-In
Capital
 
Retained
Earnings
 
Accumulated  Other Comprehensive
Loss
 
Deferred
Compensation
 
Treasury
Stock
 
Total
Balance at June 30, 2018
16,378,545

 
$
7,971

 
$
255,356

 
$
250,377

 
$
(5,717
)
 
$
3,782

 
$
(3,782
)
 
$
507,987

Net income

 

 

 
5,538

 

 

 

 
5,538

Other comprehensive income

 

 

 

 
730

 

 

 
730

Dividend declared ($0.3700 per share)

 

 

 
(6,110
)
 

 

 

 
(6,110
)
Dividend reinvestment plan

 

 

 

 

 

 

 

Share-based compensation and tax benefit (3)(4)

 

 
153

 

 

 

 

 
153

Treasury stock activities

 

 

 

 

 
36

 
(36
)
 

Balance at September 30, 2018
16,378,545

 
$
7,971

 
$
255,509

 
$
249,805

 
$
(4,987
)
 
$
3,818

 
$
(3,818
)
 
$
508,298

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
16,344,442

 
$
7,955

 
$
253,470

 
$
229,141

 
$
(4,272
)
 
$
3,395

 
$
(3,395
)
 
$
486,294

Net income

 

 

 
38,779

 

 

 

 
38,779

Cumulative effect of the adoption of ASU 2014-09

 

 

 
(1,498
)
 

 

 

 
(1,498
)
Reclassification upon the adoption of ASU 2018-02

 

 

 
907

 
(907
)
 

 

 

Other comprehensive loss

 

 

 

 
192

 

 

 
192

Dividend declared ($1.065 per share)

 

 

 
(17,524
)
 

 

 

 
(17,524
)
Dividend reinvestment plan

 

 
(2
)
 

 

 

 

 
(2
)
Share-based compensation and tax benefit (3)(4)
34,103

 
16

 
2,041

 

 

 

 

 
2,057

Treasury stock activities

 

 

 

 

</