CHESAPEAKE UTILITIES CORP [CPK] Filings

10-Q 1 cpk-20240630.htm 10-Q cpk-20240630

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: June 30, 2024


☐			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.)

500 Energy Lane, Dover, Delaware 19901

(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

☐

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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 $0.4867 — 22,449,929 shares outstanding as of August 5, 2024.

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PART I—FINANCIAL INFORMATION		1

ITEM 1.	FINANCIAL STATEMENTS	1

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	61

ITEM 4.	CONTROLS AND PROCEDURES	62

PART II—OTHER INFORMATION		63

ITEM 1.	LEGAL PROCEEDINGS	63

ITEM 1A.	RISK FACTORS	63

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	63

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	63

ITEM 5.	OTHER INFORMATION	63

ITEM 6.	EXHIBITS	64

SIGNATURES		65

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GLOSSARY OF DEFINITIONS

ASC: Accounting Standards Codification issued by the FASB

Adjusted Gross Margin: A non-GAAP measure calculated by deducting the purchased cost of natural gas, propane and electricity and the cost of labor spent on direct revenue-producing activities from operating revenues. The costs included in Adjusted Gross Margin exclude depreciation and amortization and certain costs presented in operations and maintenance expenses in accordance with regulatory requirements

Aspire Energy: Aspire Energy of Ohio, LLC, a wholly-owned subsidiary of Chesapeake Utilities

Aspire Energy Express: Aspire Energy Express, LLC, a wholly-owned subsidiary of Chesapeake Utilities

ASU: Accounting Standards Update issued by the FASB

ATM: At-the-market

CDD: Cooling Degree-Day

Chesapeake or Chesapeake Utilities: Chesapeake Utilities Corporation, its divisions and subsidiaries, as appropriate in the context of the disclosure

CHP: Combined Heat and Power Plant

Company: Chesapeake Utilities Corporation, and its divisions and subsidiaries, as appropriate in the context of the disclosure

CNG: Compressed natural gas

Degree-day: 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. comprised of Delaware and portions of Maryland and Virginia

Diversified Energy: An entity from whom we acquired certain propane operating assets in North Carolina, South Carolina, Virginia, and Pennsylvania

DRIP: Dividend Reinvestment and Direct Stock Purchase Plan

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 wholly-owned subsidiary of Chesapeake Utilities

Elkton Gas: Elkton Gas Company, a wholly-owned subsidiary of Chesapeake Utilities

FASB: Financial Accounting Standards Board

FCG or Florida City Gas: Pivotal Utility Holdings, Inc, doing business as Florida City Gas, a wholly-owned subsidiary of Chesapeake Utilities that was acquired from Florida Power & Light Company on November 30, 2023

FERC: Federal Energy Regulatory Commission

FGT: Florida Gas Transmission Company

Florida Natural Gas: Refers to the Company's legacy Florida natural gas distribution operations (excluding FCG) that were consolidated under FPU, for both rate-making and operations purposes

Florida OPC: The Office of Public Counsel, an agency established by the Florida legislature who advocates on behalf of Florida's utility consumers prior to actions or rule changes

FPU: Florida Public Utilities Company, a wholly-owned subsidiary of Chesapeake Utilities

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GAAP: Generally Accepted Accounting Principles

Gross Margin: a term under U.S. GAAP which is the excess of sales over costs of goods sold

GUARD: Gas Utility Access and Replacement Directive a program to enhance the safety, reliability and accessibility of portions of the Company’s natural gas distribution system in Florida

Gulfstream: Gulfstream Natural Gas System, LLC, an unaffiliated pipeline network that supplies natural gas to FPU

HDD: Heating Degree-Day

LNG: Liquefied natural gas

Marlin Gas Services: Marlin Gas Services, LLC, a wholly-owned subsidiary of Chesapeake Utilities

MetLife: MetLife Investment Advisors, an institutional debt investment management firm, with which we have previously issued Senior Notes and which is a party to the current MetLife Shelf Agreement, as amended

MGP: Manufactured gas plant, which is a site where coal was previously used to manufacture gaseous fuel for industrial, commercial and residential use

Peninsula Pipeline: Peninsula Pipeline Company, Inc., a wholly-owned subsidiary of Chesapeake Utilities

Prudential: Prudential Investment Management Inc., an institutional investment management firm, with which we have previously issued Senior Notes and which is a party to the current Prudential Shelf Agreement, as amended

PSC: Public Service Commission, which is the state agency that regulates utility rates and/or services in certain of our jurisdictions

Revolver: Our $375.0 million unsecured revolving credit facility with certain lenders

RNG: Renewable natural gas

RSAM: Reserve surplus amortization mechanism which has been approved by the Florida PSC and is applicable to FCG

Sandpiper Energy: Sandpiper Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities

SAFE: Safety, Access, and Facility Enhancement, a program to enhance the safety, reliability and accessibility of portions of the FCG's natural gas distribution system

SEC: 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: Stock and Incentive Compensation Plan pursuant to which we grant stock-based compensation awards

SOFR: Secured Overnight Financing Rate, a secured interbank overnight interest rate established as an alternative to LIBOR

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

Uncollateralized Senior Notes: Our unsecured long-term debt issued primarily to insurance companies on various dates

U.S.: The United States of America

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
(in thousands, except per share data)
Operating Revenues
Regulated Energy	$	130,625	$	101,141	$	299,051	$	243,411
Unregulated Energy	41,419		40,751		124,522		123,916
Other businesses and eliminations	(5,772)		(6,299)		(11,557)		(13,605)
Total Operating Revenues	166,272		135,593		412,016		353,722
Operating Expenses
Natural gas and electric costs	27,378		23,886		77,296		79,174
Propane and natural gas costs	12,262		11,907		43,561		45,208
Operations	52,339		42,163		103,899		86,930
FCG transaction and transition-related expenses	1,374		—		2,295		—
Maintenance	5,561		5,258		11,464		10,362
Depreciation and amortization	17,877		17,303		34,893		34,486
Other taxes	8,691		6,730		18,233		14,301
Total Operating Expenses	125,482		107,247		291,641		270,461
Operating Income	40,790		28,346		120,375		83,261
Other income, net	1,110		831		1,305		1,107
Interest charges	16,813		6,964		33,839		14,196
Income Before Income Taxes	25,087		22,213		87,841		70,172
Income taxes	6,816		6,080		23,402		17,695
Net Income	$	18,271	$	16,133	$	64,439	$	52,477

Weighted Average Common Shares Outstanding:
Basic	22,284		17,794		22,267		17,777
Diluted	22,335		17,852		22,320		17,842
Earnings Per Share of Common Stock:
Basic	$	0.82	$	0.91	$	2.89	$	2.95




Diluted	$	0.82	$	0.90	$	2.89	$	2.94

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
(in thousands)
Net Income	$	18,271	$	16,133	$	64,439	$	52,477
Other Comprehensive Income (Loss), net of tax:
Employee Benefits, net of tax:
Reclassifications of amortization of prior service credit and actuarial loss, net of tax of $5, $3, $9 and $5, respectively	14		12		27		21

Cash Flow Hedges, net of tax:
Net gain (loss) on commodity contract cash flow hedges, net of tax of $72, $(784), $606 and $(775), respectively	199		(2,065)		1,640		(2,045)
Reclassifications of net (gain) loss on commodity contract cash flow hedges, net of tax $11, $119, $(282) and $(48), respectively	30		313		(761)		(126)
Net gain on interest rate swap cash flow hedges, net of tax of $32, $267, $175 and $213, respectively	94		758		511		612
Reclassifications of net (gain) on interest rate swap cash flow hedges, net of tax of $(43), $(33), $(87) and $(50), respectively	(127)		(94)		(255)		(142)
Total Other Comprehensive Income (Loss), net of tax	210		(1,076)		1,162		(1,680)
Comprehensive Income	$	18,481	$	15,057	$	65,601	$	50,797

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


Assets	June 30, 2024		December 31, 2023
(in thousands, except per share data)
Property, Plant and Equipment
Regulated Energy	$	2,515,712	$	2,418,494
Unregulated Energy	420,074		410,807
Other businesses and eliminations	32,645		30,310
Total property, plant and equipment	2,968,431		2,859,611
Less: Accumulated depreciation and amortization	(546,598)		(516,429)
Plus: Construction work in progress	157,347		113,192
Net property, plant and equipment	2,579,180		2,456,374
Current Assets
Cash and cash equivalents	6,430		4,904
Trade and other receivables	56,362		74,485
Less: Allowance for credit losses	(2,195)		(2,699)
Trade and other receivables, net	54,167		71,786
Accrued revenue	20,177		32,597
Propane inventory, at average cost	6,511		9,313
Other inventory, at average cost	19,715		19,912
Regulatory assets	19,646		19,506
Storage gas prepayments	2,801		4,695
Income taxes receivable	9,865		3,829
Prepaid expenses	12,549		15,407
Derivative assets, at fair value	1,180		1,027
Other current assets	3,236		2,723
Total current assets	156,277		185,699
Deferred Charges and Other Assets
Goodwill	507,856		508,174
Other intangible assets, net	15,910		16,865
Investments, at fair value	13,620		12,282
Derivative assets, at fair value	192		40
Operating lease right-of-use assets	11,201		12,426
Regulatory assets	83,594		96,396
Receivables and other deferred charges	12,923		16,448
Total deferred charges and other assets	645,296		662,631
Total Assets	$	3,380,753	$	3,304,704

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


Capitalization and Liabilities	June 30, 2024		December 31, 2023
(in thousands, except per share data)
Capitalization
Stockholders’ equity
Preferred stock, par value $0.01 per share (authorized 2,000 shares), no shares issued and outstanding	$	—	$	—
Common stock, par value $0.4867 per share (authorized 50,000 shares)	10,854		10,823
Additional paid-in capital	755,751		749,356
Retained earnings	525,525		488,663
Accumulated other comprehensive loss	(1,576)		(2,738)
Deferred compensation obligation	9,703		9,050
Treasury stock	(9,703)		(9,050)
Total stockholders’ equity	1,290,554		1,246,104
Long-term debt, net of current maturities	1,174,762		1,187,075
Total capitalization	2,465,316		2,433,179
Current Liabilities
Current portion of long-term debt	18,592		18,505
Short-term borrowing	207,091		179,853
Accounts payable	69,041		77,481
Customer deposits and refunds	44,775		46,427
Accrued interest	3,652		7,020
Dividends payable	14,272		13,119
Accrued compensation	12,519		16,544
Regulatory liabilities	19,677		13,719

Derivative liabilities, at fair value	27		354
Other accrued liabilities	20,547		13,362
Total current liabilities	410,193		386,384
Deferred Credits and Other Liabilities
Deferred income taxes	283,322		259,082
Regulatory liabilities	192,710		195,279
Environmental liabilities	2,402		2,607
Other pension and benefit costs	16,102		15,330
Derivative liabilities, at fair value	12		927
Operating lease - liabilities	9,341		10,550
Deferred investment tax credits and other liabilities	1,355		1,366
Total deferred credits and other liabilities	505,244		485,141
Environmental and other commitments and contingencies (Notes 6 and 7)
Total Capitalization and Liabilities	$	3,380,753	$	3,304,704

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended
	June 30,
	2024		2023
(in thousands)
Operating Activities
Net income	$	64,439	$	52,477
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	34,787		34,486
Depreciation and accretion included in other costs	8,196		5,714
Deferred income taxes	23,810		5,695

Realized loss on commodity contracts and sale of assets	(3,056)		(1,032)
Unrealized gain on investments and commodity contracts	(1,006)		(1,131)
Employee benefits and compensation	(48)		218
Share-based compensation	4,512		2,919
Other, net	(229)		—
Changes in assets and liabilities:
Accounts receivable and accrued revenue	30,070		30,812
Propane inventory, storage gas and other inventory	4,894		5,052
Regulatory assets and liabilities, net	12,221		28,796
Prepaid expenses and other current assets	4,319		2,953
Accounts payable and other accrued liabilities	(4,624)		(18,273)
Income taxes receivable/payable	(6,036)		1,265
Customer deposits and refunds	(1,652)		1,316
Accrued compensation	(4,192)		(5,061)
Accrued interest	(3,368)		80
Other assets and liabilities, net	4,341		2,697
Net cash provided by operating activities	167,378		148,983
Investing Activities
Property, plant and equipment expenditures	(157,960)		(90,265)
Proceeds from sale of assets	1,767		2,034
Acquisitions, net of cash acquired	603		—

Environmental expenditures	(205)		(760)
Net cash used in investing activities	(155,795)		(88,991)
Financing Activities
Common stock dividends	(25,827)		(19,009)
Issuance of stock under the Dividend Reinvestment Plan, net of offering fees	2,471		(14)
Tax withholding payments related to net settled stock compensation	(1,466)		(2,455)
Change in cash overdrafts due to outstanding checks	235		(2,157)
Net borrowings (repayments) under line of credit agreements	27,003		(104,194)
Proceeds from long-term debt, net of offering fees	—		79,840
Repayment of long-term debt	(12,473)		(14,038)
Net cash used in financing activities	(10,057)		(62,027)
Net Increase (Decrease) in Cash and Cash Equivalents	1,526		(2,035)
Cash and Cash Equivalents—Beginning of Period	4,904		6,204
Cash and Cash Equivalents—End of Period	$	6,430	$	4,169

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)


	Common Stock (1)
(in thousands, except per share data)	Number of Shares(2)	Par Value		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Deferred Compensation		Treasury Stock		Total
Balance at March 31, 2023	17,790	$	8,659	$	379,703	$	472,209	$	(1,983)	$	8,816	$	(8,816)	$	858,588
Net income	—	—		—		16,133		—		—		—		16,133
Other comprehensive loss	—	—		—		—		(1,076)		—		—		(1,076)
Dividend declared ($0.590 per share)	—	—		—		(10,547)		—		—		—		(10,547)
Issuance under various plans (3)	—	—		(8)		—		—		—		—		(8)
Share-based compensation and tax benefit (4) (5)	7	3		1,135		—		—		—		—		1,138
Treasury stock activities	—	—		—		—		—		185		(185)		—
Balance at June 30, 2023	17,797	$	8,662	$	380,830	$	477,795	$	(3,059)	$	9,001	$	(9,001)	$	864,228

Balance at December 31, 2022	17,741	$	8,635	$	380,036	$	445,509	$	(1,379)	$	7,060	$	(7,060)	$	832,801
Net income	—	—		—		52,477		—		—		—		52,477
Other comprehensive loss	—	—		—		—		(1,680)		—		—		(1,680)
Dividends declared ($1.125 per share)	—	—		—		(20,191)		—		—		—		(20,191)
Issuance under various plans (3)	—	—		(19)		—		—		—		—		(19)
Share-based compensation and tax benefit (4) (5)	56	27		813		—		—		—		—		840
Treasury stock activities (2)	—	—		—		—		—		1,941		(1,941)		—
Balance at June 30, 2023	17,797	$	8,662	$	380,830	$	477,795	$	(3,059)	$	9,001	$	(9,001)	$	864,228

Balance at March 31, 2024	22,267	$	10,838	$	750,162	$	521,689	$	(1,786)	$	9,562	$	(9,562)	$	1,280,903
Net income	—	—		—		18,271		—		—		—		18,271
Other comprehensive income	—	—		—		—		210		—		—		210
Dividend declared ($0.640 per share)	—	—		—		(14,435)		—		—		—		(14,435)
Issuance under various plans (3)	25	12		2,607		—		—		—		—		2,619
Share-based compensation and tax benefit (4) (5)	7	4		2,982		—		—		—		—		2,986
Treasury stock activities	—	—		—		—		—		141		(141)		—
Balance at June 30, 2024	22,299	$	10,854	$	755,751	$	525,525	$	(1,576)	$	9,703	$	(9,703)	$	1,290,554

Balance at December 31, 2023 (6)	22,235	$	10,823	$	749,356	$	488,663	$	(2,738)	$	9,050	$	(9,050)	$	1,246,104
Net income	—	—		—		64,439		—		—		—		64,439
Other comprehensive income	—	—		—		—		1,162		—		—		1,162
Dividends declared ($1.230 per share)	—	—		—		(27,577)		—		—		—		(27,577)
Issuance under various plans (3)	28	13		2,879		—		—		—		—		2,892
Share-based compensation and tax benefit (4) (5)	36	18		3,516		—		—		—		—		3,534
Treasury stock activities (2)	—	—		—		—		—		653		(653)		—
Balance at June 30, 2024	22,299	$	10,854	$	755,751	$	525,525	$	(1,576)	$	9,703	$	(9,703)	$	1,290,554

(1)2.0 million shares of preferred stock at $0.01 par value have been authorized. No shares have been issued or are outstanding; accordingly, no information has been included in the Condensed Consolidated Statements of Stockholders’ Equity.

(2)Includes 113 thousand, 108 thousand, 110 thousand, and 108 thousand shares at June 30, 2024, December 31, 2023, June 30, 2023 and December 31, 2022, respectively, held in a Rabbi Trust related to our Non-Qualified Deferred Compensation Plan.

(3)Includes shares issued under the Retirement Savings Plan and DRIP and/or ATM as applicable.

(4)Includes amounts for shares issued for directors’ compensation.

(5)The shares issued under the SICP are net of shares withheld for employee taxes. For the six months ended June 30, 2024 and 2023, we withheld 14 thousand and 20 thousand shares, respectively, for employee taxes.

(6)Includes 4.4 million shares issued during 2023 related to the acquisition of FCG. See Notes 3 and 9 for details associated with the FCG acquisition and related financing.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Summary of Accounting Policies

Basis of Presentation

References in this document to the “Company,” “Chesapeake Utilities,” “we,” “us” and “our” are intended to mean Chesapeake Utilities Corporation, its divisions and/or its subsidiaries, as appropriate in the context of the disclosure.

The accompanying unaudited condensed consolidated financial statements have been prepared in compliance with the rules and regulations of the SEC and GAAP. In accordance with these rules and regulations, certain information and disclosures normally required for audited financial statements have been condensed or omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in our latest Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of our results of operations, financial position and cash flows for the interim periods presented.

Where necessary to improve comparability, prior period amounts have been reclassified to conform to current period presentation.

Due to the seasonality of our business, results for interim periods are not necessarily indicative of results for the entire fiscal year. Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is highest due to colder temperatures.

Recent Accounting Standards Yet to be Adopted

FASB

Segment Reporting (ASC 280) - In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures, which modifies required disclosures about a public entity’s reportable segments and addresses requests from investors for more detailed information about a reportable segment’s expenses and a more comprehensive reconciliation of each segment's reported profit or loss. ASU 2023-07 will be effective for our annual financial statements beginning January 1, 2024 and our interim financial statements beginning January 1, 2025. ASU 2023-07 only impacts disclosures, and as a result, will not have a material impact on our financial position or results of operations.

Income Taxes (ASC 740) - In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which modifies required income tax disclosures primarily related to an entity's rate reconciliation and information pertaining to income taxes paid. These enhancements have been made to address requests from investors related to transparency and usefulness of income tax disclosures. ASU 2023-09 will be effective for our annual financial statements beginning January 1, 2024. ASU 2023-09 only impacts disclosures, and as a result, will not have a material impact on our financial position or results of operations.

SEC

Climate-Related Disclosures - In March 2024, the SEC issued a final rule that requires a public entity to provide disclosures surrounding material Scope 1 and Scope 2 emissions, climate-related risks and the material impact of those risks and material climate targets and goals. In April 2024, the SEC issued a stay on the final rule as a result of various petitions being filed and that sought review of the final ruling in multiple courts of appeals. At this time, it is uncertain when the review will be completed, the final outcome of the review, and the ultimate disclosure requirements.

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2. Calculation of Earnings Per Share


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
(in thousands, except per share data)
Calculation of Basic Earnings Per Share:


Net Income	$	18,271	$	16,133	$	64,439	$	52,477
Weighted average shares outstanding (1)	22,284		17,794		22,267		17,777


Basic Earnings Per Share	$	0.82	$	0.91	$	2.89	$	2.95

Calculation of Diluted Earnings Per Share:
Net Income	$	18,271	$	16,133	$	64,439	$	52,477
Reconciliation of Denominator:
Weighted shares outstanding—Basic (1)	22,284		17,794		22,267		17,777
Effect of dilutive securities—Share-based compensation	51		58		53		65
Adjusted denominator—Diluted	22,335		17,852		22,320		17,842


Diluted Earnings Per Share	$	0.82	$	0.90	$	2.89	$	2.94

(1) Weighted average shares for the three and six months ended June 30, 2024 reflect the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG. See Notes 3 and 9 for additional details on the acquisition and related equity offering.

3. Acquisitions

Acquisition of Florida City Gas

On November 30, 2023, we completed the acquisition of FCG for $922.8 million in cash, which included working capital adjustments as defined in the agreement that were settled during the first quarter of 2024, pursuant to the stock purchase agreement with Florida Power & Light Company. Upon completion of the acquisition, FCG became a wholly-owned subsidiary of the Company and is included within our Regulated Energy segment.

FCG serves approximately 120,000 residential and commercial natural gas customers across eight counties in Florida, including Miami-Dade, Broward, Brevard, Palm Beach, Hendry, Martin, St. Lucie and Indian River. Its natural gas system includes approximately 3,800 miles of distribution main and 80 miles of transmission pipe.

The purchase price of the acquisition was funded with $366.4 million of net proceeds from the issuance of 4.4 million shares of our common stock, the issuance of approximately $550.0 million principal amount of uncollateralized senior notes, and borrowings under the Company's Revolver. See Note 14, Long-Term Debt, and Note 9, Stockholders' Equity, for additional details on these financing activities.

We accounted for the acquisition of FCG using the acquisition method. As FCG is a regulated utility, the measurement of the fair value of most of the assets acquired and liabilities assumed were determined using the predecessor’s carrying value. In certain other instances where assets and liabilities are not subject to regulation, we determined the fair value in accordance with the principles of ASC Topic 820, Fair Value Measurements.

The excess of the purchase price for FCG over the fair value of the assets acquired and liabilities assumed has been reflected as goodwill within the Regulated Energy segment. Goodwill resulting from the acquisition is largely attributable to expansion opportunities provided within our existing regulated operations in Florida, including planned customer growth and growth in rate base through continued investment in our utility infrastructure, as well as natural gas transmission infrastructure supporting the distribution operations. The goodwill recognized in connection with the acquisition of FCG is deductible for income tax purposes.

The components of the preliminary purchase price allocation are as follows:

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(in thousands)
Assets acquired:	Acquisition Date Fair Value
Cash	$	2,261
Accounts receivable, net	14,138
Regulatory assets - current	2,983
Other current assets	2,082
Property, plant and equipment	454,410
Goodwill	460,875
Regulatory assets - non-current	3,381
Other deferred charges and other assets	18,309
Total assets acquired	958,439

Liabilities assumed:
Current liabilities	(20,934)
Regulatory liabilities	(14,137)
Other deferred credits and other liabilities	(548)
Total liabilities assumed	(35,619)

Net purchase price	$	922,820

Direct transaction costs of $10.4 million associated with the FCG acquisition were reflected in “FCG transaction-related expenses” on our consolidated statement of income for the year ended December 31, 2023. In addition, interest charges included $4.1 million related to fees and expenses associated with the Bridge Facility, which was terminated without any funds drawn, for the year ended December 31, 2023. Other transaction costs of $15.9 million, related primarily to the debt and equity financings executed in connection with the acquisition, were deferred on the consolidated balance sheet or recorded in equity as an offset to proceeds received, as appropriate, as of December 31, 2023.

For the three and six months ended June 30, 2024, the Company’s consolidated results include $32.5 million and $68.4 million of operating revenue, respectively, and $1.9 million and $6.0 million of net income, respectively, attributable to FCG. These results include $1.4 million and $2.3 million of transaction and transition-related expenses, respectively, for the three and six months ended June 30, 2024.

Acquisition of J.T. Lee and Son's

In December 2023, Sharp acquired the propane operating assets of J.T. Lee and Son's in Cape Fear, North Carolina for $3.9 million. In connection with this acquisition, we recorded a $0.3 million liability which is subject to the seller's adherence to various provisions contained in the purchase agreement through the first anniversary of the transaction closing. Through this acquisition, we expanded our operating footprint in North Carolina, where customers are served by Diversified Energy. Sharp added approximately 3,000 customers and distribution of approximately 800,000 gallons of propane annually. The transaction also included a bulk plant with 60,000 gallons of propane storage, enabling the Company to realize efficiencies with additional storage capacity and overlapping delivery territories.

In connection with this acquisition, we recorded $2.7 million in property plant and equipment, $0.9 million in goodwill, $0.2 million in working capital, and less than $0.1 million in intangible assets associated primarily with non-compete agreements, all of which are deductible for income tax purposes. The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment based on contractual provisions and finalization prior to the first anniversary of the transaction closing. The financial results associated with this acquisition are included within our propane distribution operations within our Unregulated Energy segment. The operating revenues and net income of this acquisition were not material to our consolidated results for the three and six months ended June 30, 2024.

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4. Revenue Recognition

We recognize revenue when our performance obligations under contracts with customers have been satisfied, which generally occurs when our businesses have delivered or transported natural gas, electricity or propane to customers. We exclude sales taxes and other similar taxes from the transaction price. Typically, our customers pay for the goods and/or services we provide in the month following the satisfaction of our performance obligation. The following tables display our revenue by major source based on product and service type for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30, 2024								Three Months Ended June 30, 2023
(in thousands)	Regulated Energy		Unregulated Energy		Other and Eliminations		Total		Regulated Energy		Unregulated Energy		Other and Eliminations		Total
Energy distribution
Delaware natural gas division	$	13,404	$	—	$	—	$	13,404	$	14,109	$	—	$	—	$	14,109
Florida natural gas distribution	39,917		—		—		39,917		40,766		—		—		40,766
Florida City Gas	32,494		—		—		32,494		—		—		—		—
FPU electric distribution	22,546		—		—		22,546		23,034		—		—		23,034
Maryland natural gas division	4,681		—		—		4,681		4,622		—		—		4,622
Sandpiper natural gas/propane operations	3,898		—		—		3,898		4,079		—		—		4,079
Elkton Gas	1,308		—		—		1,308		1,303		—		—		1,303
Total energy distribution	118,248		—		—		118,248		87,913		—		—		87,913
Energy transmission
Aspire Energy	—		5,331		—		5,331		—		5,726		—		5,726
Aspire Energy Express	368		—		—		368		369		—		—		369
Eastern Shore	19,860		—		—		19,860		19,632		—		—		19,632
Peninsula Pipeline	8,069		—		—		8,069		7,593		—		—		7,593
Total energy transmission	28,297		5,331		—		33,628		27,594		5,726		—		33,320
Energy generation
Eight Flags	—		4,464		—		4,464		—		4,532		—		4,532
Propane operations
Propane delivery operations	—		28,040		—		28,040		—		27,315		—		27,315
Compressed Natural Gas Services
Marlin Gas Services	—		3,647		—		3,647		—		3,238		—		3,238
Other and eliminations
Eliminations	(15,920)		(63)		(5,818)		(21,801)		(14,366)		(60)		(6,344)		(20,770)
Other	—				46		46		—		—		45		45
Total other and eliminations	(15,920)		(63)		(5,772)		(21,755)