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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2022
OR
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☐ | 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
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CHESAPEAKE UTILITIES CORPORATION (Exact name of registrant as specified in its charter) |
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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:
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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.
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Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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| | | | 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 $0.4867 — 17,741,034 shares outstanding as of October 28, 2022.
Table of Contents
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ITEM 1. | | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 4. | | |
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ITEM 1. | | |
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ITEM 1A. | | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 5. | | |
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ITEM 6. | | |
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GLOSSARY OF DEFINITIONS
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
CARES Act: Coronavirus Aid, Relief, and Economic Security Act
CDC: U.S. Centers for Disease Control and Prevention
CDD: Cooling Degree-Day
CFG: Central Florida Gas Company, a division of Chesapeake Utilities
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, its divisions and subsidiaries, as appropriate in the context of the disclosure
COVID-19: An infectious disease caused by a coronavirus
CNG: Compressed natural gas
Davenport Energy: An entity from whom we acquired certain propane operating assets in North Carolina.
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. occupied by Delaware and portions of Maryland and Virginia
Diversified Energy: Diversified Energy Company 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
Escambia Meter Station: A natural gas metering station owned by Peninsula Pipeline Company located in Escambia County,
Florida
ESG: Environmental, Social and Governance
FASB: Financial Accounting Standards Board
FERC: Federal Energy Regulatory Commission
FGT: Florida Gas Transmission Company
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
GAAP: Generally Accepted Accounting Principles
Guernsey Power Station: Guernsey Power Station, LLC, a partner with Aspire Energy Express in the construction of a power generation facility in Ohio
GRIP: Gas Reliability Infrastructure Program
Gross Margin: a term under U.S. GAAP which is the excess of sales over costs of goods sold
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
Peoples Gas: Peoples Gas System, an Emera Incorporated subsidiary
Prudential: Prudential Investment Management Inc., an institutional investment management firm, with which Chesapeake Utilities entered into a previous 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
Revolver: Our $400.0 million unsecured revolving credit facility with certain lenders
RNG: Renewable natural gas
Sandpiper Energy: Sandpiper Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities
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: 2013 Stock and Incentive Compensation Plan
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
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, |
| | 2022 | | 2021 | | 2022 | | 2021 |
(in thousands, except shares and per share data) | | | | | | | | |
Operating Revenues | | | | | | | | |
Regulated Energy | | $ | 90,980 | | | $ | 80,396 | | | $ | 311,064 | | | $ | 282,503 | |
Unregulated Energy and other | | 40,073 | | | 26,939 | | | 182,339 | | | 127,101 | |
Total Operating Revenues | | 131,053 | | | 107,335 | | | 493,403 | | | 409,604 | |
Operating Expenses | | | | | | | | |
Regulated natural gas and electric costs | | 21,248 | | | 15,294 | | | 88,264 | | | 72,785 | |
Unregulated propane and natural gas costs | | 22,958 | | | 12,072 | | | 100,236 | | | 55,578 | |
Operations | | 40,182 | | | 34,075 | | | 120,981 | | | 109,886 | |
Maintenance | | 4,501 | | | 4,267 | | | 13,273 | | | 12,568 | |
Depreciation and amortization | | 17,339 | | | 15,798 | | | 51,532 | | | 46,460 | |
Other taxes | | 6,177 | | | 5,716 | | | 19,136 | | | 18,039 | |
Total Operating Expenses | | 112,405 | | | 87,222 | | | 393,422 | | | 315,316 | |
Operating Income | | 18,648 | | | 20,113 | | | 99,981 | | | 94,288 | |
Other income, net | | 957 | | | 327 | | | 4,454 | | | 2,155 | |
Interest charges | | 6,240 | | | 4,975 | | | 17,404 | | | 15,134 | |
Income Before Income Taxes | | 13,365 | | | 15,465 | | | 87,031 | | | 81,309 | |
Income Taxes | | 3,703 | | | 2,990 | | | 23,385 | | | 20,555 | |
Net Income | | $ | 9,662 | | | $ | 12,475 | | | $ | 63,646 | | | $ | 60,754 | |
| | | | | | | | |
Weighted Average Common Shares Outstanding: | | | | | | | | |
Basic | | 17,737,984 | | | 17,582,115 | | | 17,715,845 | | | 17,538,461 | |
Diluted | | 17,819,373 | | | 17,659,643 | | | 17,797,001 | | | 17,610,158 | |
Earnings Per Share of Common Stock: | | | | | | | | |
Basic | | $ | 0.54 | | | $ | 0.71 | | | $ | 3.59 | | | $ | 3.46 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Diluted | | $ | 0.54 | | | $ | 0.71 | | | $ | 3.58 | | | $ | 3.45 | |
| | | | | | | | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
(in thousands) | | | | | | | | |
Net Income | | $ | 9,662 | | | $ | 12,475 | | | $ | 63,646 | | | $ | 60,754 | |
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 $(15), respectively | | (14) | | | (14) | | | (42) | | | (42) | |
Net gain, net of tax of $11, $28, $34 and $83, respectively | | 32 | | | 78 | | | 95 | | | 234 | |
Cash Flow Hedges, net of tax: | | | | | | | | |
Unrealized gain (loss) on commodity contract cash flow hedges, net of tax of $(1,111), $688, $(1,115) and $1,945, respectively | | (2,939) | | | 1,803 | | | (2,907) | | | 5,094 | |
Unrealized gain on interest rate swap cash flow hedges, net of tax of $54, $5, $54 and $6, respectively | | 153 | | | 14 | | | 153 | | | 18 | |
Total Other Comprehensive Income (Loss), net of tax | | (2,768) | | | 1,881 | | | (2,701) | | | 5,304 | |
Comprehensive Income | | $ | 6,894 | | | $ | 14,356 | | | $ | 60,945 | | | $ | 66,058 | |
The accompanying notes are an integral part of these financial statements.
Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
| | | | | | | | | | | | | | |
Assets | | September 30, 2022 | | December 31, 2021 |
(in thousands, except shares and per share data) | | | | |
Property, Plant and Equipment | | | | |
Regulated Energy | | $ | 1,784,939 | | | $ | 1,720,287 | |
Unregulated Energy | | 385,067 | | | 357,259 | |
Other businesses and eliminations | | 30,701 | | | 35,418 | |
Total property, plant and equipment | | 2,200,707 | | | 2,112,964 | |
Less: Accumulated depreciation and amortization | | (449,026) | | | (417,479) | |
Plus: Construction work in progress | | 42,359 | | | 49,393 | |
Net property, plant and equipment | | 1,794,040 | | | 1,744,878 | |
Current Assets | | | | |
Cash and cash equivalents | | 2,480 | | | 4,976 | |
Trade and other receivables | | 37,278 | | | 61,623 | |
Less: Allowance for credit losses | | (2,953) | | | (3,141) | |
Trade and other receivables, net | | 34,325 | | | 58,482 | |
Accrued revenue | | 15,883 | | | 22,513 | |
Propane inventory, at average cost | | 8,797 | | | 11,644 | |
Other inventory, at average cost | | 11,828 | | | 9,345 | |
Regulatory assets | | 45,624 | | | 19,794 | |
Storage gas prepayments | | 7,443 | | | 3,691 | |
Income taxes receivable | | 18,859 | | | 17,460 | |
Prepaid expenses | | 17,823 | | | 17,121 | |
Derivative assets, at fair value | | 4,552 | | | 7,076 | |
Other current assets | | 1,589 | | | 1,033 | |
Total current assets | | 169,203 | | | 173,135 | |
Deferred Charges and Other Assets | | | | |
Goodwill | | 45,158 | | | 44,708 | |
Other intangible assets, net | | 13,751 | | | 13,192 | |
Investments, at fair value | | 9,895 | | | 12,095 | |
Operating lease right-of-use assets | | 14,916 | | | 10,139 | |
Regulatory assets | | 97,283 | | | 104,173 | |
Receivables and other deferred charges | | 13,176 | | | 12,549 | |
Total deferred charges and other assets | | 194,179 | | | 196,856 | |
Total Assets | | $ | 2,157,422 | | | $ | 2,114,869 | |
The accompanying notes are an integral part of these financial statements.
Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
| | | | | | | | | | | | | | |
Capitalization and Liabilities | | September 30, 2022 | | December 31, 2021 |
(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) | | 8,634 | | | 8,593 | |
Additional paid-in capital | | 378,261 | | | 371,162 | |
Retained earnings | | 428,941 | | | 393,072 | |
Accumulated other comprehensive income | | (1,398) | | | 1,303 | |
Deferred compensation obligation | | 7,003 | | | 7,240 | |
Treasury stock | | (7,003) | | | (7,240) | |
Total stockholders’ equity | | 814,438 | | | 774,130 | |
Long-term debt, net of current maturities | | 583,833 | | | 549,903 | |
Total capitalization | | 1,398,271 | | | 1,324,033 | |
Current Liabilities | | | | |
Current portion of long-term debt | | 21,478 | | | 17,962 | |
Short-term borrowing | | 167,332 | | | 221,634 | |
Accounts payable | | 46,811 | | | 52,628 | |
Customer deposits and refunds | | 37,825 | | | 36,488 | |
Accrued interest | | 4,898 | | | 2,775 | |
Dividends payable | | 9,490 | | | 8,466 | |
Accrued compensation | | 10,355 | | | 15,505 | |
Regulatory liabilities | | 3,506 | | | 2,312 | |
Derivative liabilities, at fair value | | 2,051 | | | 743 | |
Other accrued liabilities | | 25,105 | | | 17,920 | |
Total current liabilities | | 328,851 | | | 376,433 | |
Deferred Credits and Other Liabilities | | | | |
Deferred income taxes | | 248,702 | | | 233,550 | |
Regulatory liabilities | | 143,645 | | | 142,488 | |
Environmental liabilities | | 2,901 | | | 3,538 | |
Other pension and benefit costs | | 20,228 | | | 24,120 | |
Operating lease - liabilities | | 12,975 | | | 8,571 | |
Deferred investment tax credits and other liabilities | | 1,849 | | | 2,136 | |
Total deferred credits and other liabilities | | 430,300 | | | 414,403 | |
Environmental and other commitments and contingencies (Notes 6 and 7) | | | | |
Total Capitalization and Liabilities | | $ | 2,157,422 | | | $ | 2,114,869 | |
The accompanying notes are an integral part of these financial statements.
Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2022 | | 2021 |
(in thousands) | | | | |
Operating Activities | | | | |
Net income | | $ | 63,646 | | | $ | 60,754 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 51,532 | | | 46,460 | |
Depreciation and accretion included in other costs | | 8,280 | | | 7,668 | |
Deferred income taxes | | 16,216 | | | 18,059 | |
| | | | |
Realized gain on commodity contracts and sale of assets | | (7,247) | | | (6,255) | |
Unrealized loss (gain) on investments/commodity contracts | | 2,358 | | | (949) | |
Employee benefits and compensation | | (780) | | | (519) | |
Share-based compensation | | 4,705 | | | 4,620 | |
| | | | |
Changes in assets and liabilities: | | | | |
Accounts receivable and accrued revenue | | 30,692 | | | 22,439 | |
Propane inventory, storage gas and other inventory | | (3,338) | | | (4,396) | |
Regulatory assets/liabilities, net | | (27,454) | | | (6,562) | |
Prepaid expenses and other current assets | | 5,528 | | | (6,813) | |
Accounts payable and other accrued liabilities | | (809) | | | 18,325 | |
Income taxes receivable | | (1,399) | | | 183 | |
Customer deposits and refunds | | 1,337 | | | 2,480 | |
Accrued compensation | | (5,445) | | | (740) | |
Other assets and liabilities, net | | (1,812) | | | (1,970) | |
Net cash provided by operating activities | | 136,010 | | | 152,784 | |
Investing Activities | | | | |
Property, plant and equipment expenditures | | (98,028) | | | (148,213) | |
Proceeds from sale of assets | | 3,544 | | | 727 | |
Acquisitions, net of cash acquired | | (2,006) | | | — | |
| | | | |
Environmental expenditures | | (637) | | | (590) | |
Net cash used in investing activities | | (97,127) | | | (148,076) | |
Financing Activities | | | | |
Common stock dividends | | (25,867) | | | (23,287) | |
Issuance of stock under the Dividend Reinvestment Plan, net of offering fees | | 4,438 | | | 7,069 | |
Tax withholding payments related to net settled stock compensation | | (2,838) | | | (1,478) | |
Change in cash overdrafts due to outstanding checks | | (189) | | | (508) | |
Net advances (repayments) under line of credit agreements | | (54,289) | | | 16,392 | |
Proceeds from long-term debt, net of offering fees | | 49,859 | | | 9,590 | |
Repayment of long-term debt | | (12,493) | | | (10,099) | |
Net cash used in financing activities | | (41,379) | | | (2,321) | |
Net Increase (Decrease) in Cash and Cash Equivalents | | (2,496) | | | 2,387 | |
Cash and Cash Equivalents—Beginning of Period | | 4,976 | | | 3,499 | |
Cash and Cash Equivalents—End of Period | | $ | 2,480 | | | $ | 5,886 | |
The accompanying notes are an integral part of these financial statements.
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 Income/(Loss) | | Deferred Compensation | | Treasury Stock | | Total |
Balance at June 30, 2021 | 17,567,928 | | | $ | 8,550 | | | $ | 357,520 | | | $ | 374,936 | | | $ | 558 | | | $ | 7,203 | | | $ | (7,203) | | | $ | 741,564 | |
Net income | — | | | — | | | — | | | 12,475 | | | — | | | — | | | — | | | 12,475 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1,881 | | | — | | | — | | | 1,881 | |
Dividend declared ($0.480 per share) | — | | | — | | | — | | | (8,514) | | | — | | | — | | | — | | | (8,514) | |
Dividend reinvestment plan | 19,906 | | | 10 | | | 2,441 | | | — | | | — | | | — | | | — | | | 2,451 | |
Share-based compensation and tax benefit (3)(4) | — | | | — | | | 1,105 | | | — | | | — | | | — | | | — | | | 1,105 | |
Treasury stock activities | — | | | — | | | — | | | — | | | — | | | (17) | | | 17 | | | — | |
Balance at September 30, 2021 | 17,587,834 | | | $ | 8,560 | | | $ | 361,066 | | | $ | 378,897 | | | $ | 2,439 | | | $ | 7,186 | | | $ | (7,186) | | | $ | 750,962 | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2020 | 17,461,841 | | | $ | 8,499 | | | $ | 348,482 | | | $ | 342,969 | | | $ | (2,865) | | | $ | 5,679 | | | $ | (5,679) | | | $ | 697,085 | |
Net income | — | | | — | | | — | | | 60,754 | | | — | | | — | | | — | | | 60,754 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 5,304 | | | — | | | — | | | 5,304 | |
Dividends declared ($1.400 per share) | — | | | — | | | — | | | (24,826) | | | — | | | — | | | — | | | (24,826) | |
Dividend reinvestment plan | 80,022 | | | 39 | | | 9,247 | | | — | | | — | | | — | | | — | | | 9,286 | |
Share-based compensation and tax benefit (3) (4) | 45,971 | | | 22 | | | 3,337 | | | — | | | — | | | — | | | — | | | 3,359 | |
Treasury stock activities | — | | | — | | | — | | | — | | | — | | | 1,507 | | | (1,507) | | | — | |
| | | | | | | | | | | | | | | |
Balance at September 30, 2021 | 17,587,834 | | | $ | 8,560 | | | $ | 361,066 | | | $ | 378,897 | | | $ | 2,439 | | | $ | 7,186 | | | $ | (7,186) | | | $ | 750,962 | |
| | | | | | | | | | | | | | | |
Balance at June 30, 2022 | 17,734,794 | | | $ | 8,632 | | | $ | 376,866 | | | $ | 428,833 | | | $ | |