SEC Form 10-Q filed by Chesapeake Utilities Corporation

5/8/24 4:46:14 PM ET

$CPK

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cpk-20240331

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: March 31, 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

☐



PART I—FINANCIAL INFORMATION		1

ITEM 1.	FINANCIAL STATEMENTS	1

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51

ITEM 4.	CONTROLS AND PROCEDURES	52

PART II—OTHER INFORMATION		53

ITEM 1.	LEGAL PROCEEDINGS	53

ITEM 1A.	RISK FACTORS	53

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	53

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	53

ITEM 5.	OTHER INFORMATION	53

ITEM 6.	EXHIBITS	54

SIGNATURES		55


	Three Months Ended
	March 31,
	2024		2023
(in thousands, except per share data)
Operating Revenues
Regulated Energy	$	168,426	$	142,270
Unregulated Energy	83,103		83,166
Other businesses and eliminations	(5,785)		(7,307)
Total Operating Revenues	245,744		218,129
Operating Expenses
Natural gas and electric costs	49,918		55,288
Propane and natural gas costs	31,299		33,301
Operations	51,560		44,767
FCG transaction and transition-related expenses	921		—
Maintenance	5,903		5,104
Depreciation and amortization	17,016		17,183
Other taxes	9,542		7,571
Total Operating Expenses	166,159		163,214
Operating Income	79,585		54,915
Other income, net	195		276
Interest charges	17,026		7,232
Income Before Income Taxes	62,754		47,959
Income taxes	16,586		11,615
Net Income	$	46,168	$	36,344

Weighted Average Common Shares Outstanding:
Basic	22,250		17,760
Diluted	22,306		17,832
Earnings Per Share of Common Stock:
Basic	$	2.07	$	2.05




Diluted	$	2.07	$	2.04


Assets	March 31, 2024		December 31, 2023
(in thousands, except per share data)
Property, Plant and Equipment
Regulated Energy	$	2,470,135	$	2,418,494
Unregulated Energy	416,833		410,807
Other businesses and eliminations	31,606		30,310
Total property, plant and equipment	2,918,574		2,859,611
Less: Accumulated depreciation and amortization	(530,832)		(516,429)
Plus: Construction work in progress	123,338		113,192
Net property, plant and equipment	2,511,080		2,456,374
Current Assets
Cash and cash equivalents	1,695		4,904
Trade and other receivables	70,750		74,485
Less: Allowance for credit losses	(2,450)		(2,699)
Trade and other receivables, net	68,300		71,786
Accrued revenue	28,308		32,597
Propane inventory, at average cost	8,367		9,313
Other inventory, at average cost	19,638		19,912
Regulatory assets	24,289		19,506
Storage gas prepayments	1,147		4,695
Income taxes receivable	—		3,829
Prepaid expenses	13,681		15,407
Derivative assets, at fair value	1,012		1,027
Other current assets	3,228		2,723
Total current assets	169,665		185,699
Deferred Charges and Other Assets
Goodwill	507,573		508,174
Other intangible assets, net	16,414		16,865
Investments, at fair value	13,221		12,282
Derivative assets, at fair value	126		40
Operating lease right-of-use assets	11,719		12,426
Regulatory assets	86,039		96,396
Receivables and other deferred charges	16,047		16,448
Total deferred charges and other assets	651,139		662,631
Total Assets	$	3,331,884	$	3,304,704


Capitalization and Liabilities	March 31, 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)	10,838		10,823
Additional paid-in capital	750,162		749,356
Retained earnings	521,689		488,663
Accumulated other comprehensive income (loss)	(1,786)		(2,738)
Deferred compensation obligation	9,562		9,050
Treasury stock	(9,562)		(9,050)
Total stockholders’ equity	1,280,903		1,246,104
Long-term debt, net of current maturities	1,185,166		1,187,075
Total capitalization	2,466,069		2,433,179
Current Liabilities
Current portion of long-term debt	18,511		18,505
Short-term borrowing	170,355		179,853
Accounts payable	63,058		77,481
Customer deposits and refunds	43,682		46,427
Accrued interest	17,148		7,020
Dividends payable	13,138		13,119
Accrued compensation	7,066		16,544
Regulatory liabilities	21,328		13,719
Income taxes payable	818		—
Derivative liabilities, at fair value	31		354
Other accrued liabilities	16,520		13,362
Total current liabilities	371,655		386,384
Deferred Credits and Other Liabilities
Deferred income taxes	271,335		259,082
Regulatory liabilities	193,030		195,279
Environmental liabilities	2,546		2,607
Other pension and benefit costs	16,010		15,330
Derivative liabilities, at fair value	43		927
Operating lease - liabilities	9,832		10,550
Deferred investment tax credits and other liabilities	1,364		1,366
Total deferred credits and other liabilities	494,160		485,141
Environmental and other commitments and contingencies (Notes 6 and 7)
Total Capitalization and Liabilities	$	3,331,884	$	3,304,704


	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 December 31, 2022	17,741	$	8,635	$	380,036	$	445,509	$	(1,379)	$	7,060	$	(7,060)	$	832,801
Net income	—	—		—		36,344		—		—		—		36,344
Other comprehensive loss	—	—		—		—		(604)		—		—		(604)
Dividends declared ($0.535 per share)	—	—		—		(9,644)		—		—		—		(9,644)
Issuance under various plans (3)	—	—		(11)		—		—		—		—		(11)
Share-based compensation and tax benefit (4) (5)	48	24		(322)		—		—		—		—		(298)
Treasury stock activities (2)	—	—		—		—		—		1,756		(1,756)		—
Balance at March 31, 2023	17,789	$	8,659	$	379,703	$	472,209	$	(1,983)	$	8,816	$	(8,816)	$	858,588










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	—	—		—		46,168		—		—		—		46,168
Other comprehensive income	—	—		—		—		952		—		—		952
Dividends declared ($0.590 per share)	—	—		—		(13,142)		—		—		—		(13,142)
Issuance under various plans (3)	3	1		272		—		—		—		—		273
Share-based compensation and tax benefit (4) (5)	29	14		534		—		—		—		—		548
Treasury stock activities (2)	—	—		—		—		—		512		(512)		—
Balance at March 31, 2024	22,267	$	10,838	$	750,162	$	521,689	$	(1,786)	$	9,562	$	(9,562)	$	1,280,903


(in thousands)
Assets acquired:	Acquisition Date Fair Value
Cash	$	2,270
Accounts receivable, net	14,456
Regulatory assets - current	2,983
Other current assets	2,082
Property, plant and equipment	454,410
Goodwill	460,592
Regulatory assets - non-current	3,381
Other deferred charges and other assets	18,309
Total assets acquired	958,483

Liabilities assumed:
Current liabilities	(20,978)
Regulatory liabilities	(14,137)
Other deferred credits and other liabilities	(548)
Total liabilities assumed	(35,663)

Net purchase price	$	922,820


	Three Months Ended March 31, 2024								Three Months Ended March 31, 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	$	31,917	$	—	$	—	$	31,917	$	36,907	$	—	$	—	$	36,907
Florida natural gas distribution	47,956		—		—		47,956		46,358		—		—		46,358
Florida City Gas	35,877		—		—		35,877		—		—		—		—
FPU electric distribution	19,964		—		—		19,964		22,737		—		—		22,737
Maryland natural gas division	9,855		—		—		9,855		12,263		—		—		12,263
Sandpiper natural gas/propane operations	7,057		—		—		7,057		7,082		—		—		7,082
Elkton Gas	2,859		—		—		2,859		4,141		—		—		4,141
Total energy distribution	155,485		—		—		155,485		129,488		—		—		129,488
Energy transmission
Aspire Energy	—		13,608		—		13,608		—		13,954		—		13,954
Aspire Energy Express	369		—		—		369		364		—		—		364
Eastern Shore	21,266		—		—		21,266		20,670		—		—		20,670
Peninsula Pipeline	7,992		—		—		7,992		6,911		—		—		6,911
Total energy transmission	29,627		13,608		—		43,235		27,945		13,954		—		41,899
Energy generation
Eight Flags	—		4,555		—		4,555		—		5,300		—		5,300
Propane operations
Propane delivery operations	—		61,572		—		61,572		—		59,980		—		59,980
Compressed Natural Gas Services
Marlin Gas Services	—		3,428		—		3,428		—		4,001		—		4,001
Other and eliminations
Eliminations	(16,686)		(60)		(5,830)		(22,576)		(15,163)		(69)		(7,352)		(22,584)
Other	—				45		45		—		—		45		45
Total other and eliminations	(16,686)		(60)		(5,785)		(22,531)		(15,163)		(69)		(7,307)		(22,539)

Total operating revenues (1)	$	168,426	$	83,103	$	(5,785)	$	245,744	$	142,270	$	83,166	$	(7,307)	$	218,129


	Trade Receivables		Contract Assets (Current)		Contract Assets (Non-current)		Contract Liabilities (Current)
(in thousands)
Balance at 12/31/2023	$	67,741	$	18	$	3,524	$	1,022
Balance at 3/31/2024	61,497		18		3,370		710
Increase (Decrease)	$	(6,244)	$	—	$	(154)	$	(312)


(in thousands)	2024		2025		2026		2027		2028		2029		2030 and thereafter
Eastern Shore and Peninsula Pipeline	$	27,404	$	30,520	$	26,668	$	23,535	$	22,657	$	20,733	$	128,891
Natural gas distribution operations	7,284		9,310		8,596		6,567		5,346		4,802		23,744
FPU electric distribution	562		749		364		364		364		—		—
Total revenue contracts with remaining performance obligations	$	35,250	$	40,579	$	35,628	$	30,466	$	28,367	$	25,535	$	152,635


(in thousands)	March 31, 2024		December 31, 2023
Identifiable Assets
Regulated Energy segment	$	2,830,632	$	2,781,581
Unregulated Energy segment	459,825		477,402
Other businesses and eliminations	41,427		45,721
Total Identifiable Assets	$	3,331,884	$	3,304,704


	Three Months Ended
	March 31,
	2024		2023
(in thousands)
Net Income	$	46,168	$	36,344
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 $4 and $3, respectively	13		10

Cash Flow Hedges, net of tax:
Net gain on commodity contract cash flow hedges, net of tax of $534 and $7, respectively	1,441		22
Reclassifications of net gain on commodity contract cash flow hedges, net of tax $(293) and $(166), respectively	(791)		(440)
Net gain (loss) on interest rate swap cash flow hedges, net of tax of $143 and $(52), respectively	417		(148)
Reclassifications of net (gain) on interest rate swap cash flow hedges, net of tax of $(44) and $(17), respectively	(128)		(48)
Total Other Comprehensive Income (Loss), net of tax	952		(604)
Comprehensive Income	$	47,120	$	35,740


	Defined Benefit		Commodity		Interest Rate
	Pension and		Contract		Swap
	Postretirement		Cash Flow		Cash Flow
	Plan Items		Hedges		Hedges		Total
(in thousands)
As of December 31, 2023	$	(2,584)	$	(274)	$	120	$	(2,738)
Other comprehensive income before reclassifications	—		1,441		417		1,858
Amounts reclassified from accumulated other comprehensive income (loss)	13		(791)		(128)		(906)
Net current-period other comprehensive income (loss)	13		650		289		952

As of March 31, 2024	$	(2,571)	$	376	$	409	$	(1,786)


	Three Months Ended
	March 31,
	2024		2023
(in thousands)
Awards to key employees	$	1,899	$	2,156
Awards to non-employee directors	214		252
Total compensation expense	2,113		2,408
Less: tax benefit	(540)		(622)
Share-based compensation amounts included in net income	$	1,573	$	1,786


		Amount of Gain (Loss) on Derivatives
	Location of Gain	For the Three Months Ended March 31,
(in thousands)	(Loss) on Derivatives	2024		2023




Derivatives designated as cash flow hedges
Propane swap agreements	Revenues	$	(307)	$	733
Propane swap agreements	Unregulated propane and natural gas costs	1,391		(127)

Interest rate swap agreements	Interest expense	172		65



Total		$	1,256	$	671



As of December 31, 2022	$	(2,506)	$	1,092	$	35	$	(1,379)
Other comprehensive income (loss) before reclassifications	—		22		(148)		(126)
Amounts reclassified from accumulated other comprehensive income (loss)	10		(440)		(48)		(478)
Net prior-period other comprehensive income (loss)	10		(418)		(196)		(604)
As of March 31, 2023	$	(2,496)	$	674	$	(161)	$	(1,983)


(in thousands, except per share data)	Number of Shares	Weighted Average Fair Value
Outstanding—December 31, 2023	213	$	117.74
Granted	110	$	105.02
Vested	(43)	$	103.95
Expired	(27)	$	86.24
Forfeited	—	$	—
Outstanding—March 31, 2024	253	$	117.89


	Derivative Assets
		Fair Value As Of
(in thousands)	Balance Sheet Location	March 31, 2024		December 31, 2023




Derivatives designated as cash flow hedges
Propane swap agreements	Derivative assets, at fair value	$	589	$	702
Interest rate swap agreements	Derivative assets, at fair value	549		365
Total Derivative Assets (1)		$	1,138	$	1,067


	Derivative Liabilities
		Fair Value As Of
(in thousands)	Balance Sheet Location	March 31, 2024		December 31, 2023


Derivatives designated as cash flow hedges
Propane swap agreements	Derivative liabilities, at fair value	$	74	$	1,078
Interest rate swap agreements	Derivative liabilities, at fair value	—		203
Total Derivative Liabilities (1)		$	74	$	1,281


Fair Value Hierarchy	Description of Fair Value Level	Fair Value Technique Utilized
Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.	Investments - equity securities - The fair values of these trading securities are recorded at fair value based on unadjusted quoted prices in active markets for identical securities. Investments - mutual funds and other - The fair values of these investments, comprised of money market and mutual funds, are recorded at fair value based on quoted net asset values of the shares.
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.	Derivative assets and liabilities - The fair value of the propane put/call options, propane and interest rate swap agreements are measured using market transactions for similar assets and liabilities in either the listed or over-the-counter markets.
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).	Investments - guaranteed income fund - The fair values of these investments are recorded at the contract value, which approximates their fair value.


			Fair Value Measurements Using:
As of March 31, 2024	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Assets:
Investments—equity securities	$	20	$	20	$	—	$	—
Investments—guaranteed income fund	1,415		—		—		1,415
Investments—mutual funds and other	11,786		11,786		—		—
Total investments	13,221		11,806		—		1,415
Derivative assets	1,138		—		1,138		—
Total assets	$	14,359	$	11,806	$	1,138	$	1,415
Liabilities:
Derivative liabilities	$	74	$	—	$	74	$	—


	March 31,		December 31,
(in thousands)	2024		2023
Uncollateralized senior notes:
5.68% notes, due June 30, 2026	$	8,700	$	8,700
6.43% notes, due May 2, 2028	3,500		3,500
3.73% notes, due December 16, 2028	10,000		10,000
3.88% notes, due May 15, 2029	30,000		30,000
3.25% notes, due April 30, 2032	57,750		59,500
3.48% notes, due May 31, 2038	50,000		50,000
3.58% notes, due November 30, 2038	50,000		50,000
3.98% notes, due August 20, 2039	100,000		100,000
2.98% notes, due December 20, 2034	70,000		70,000
3.00% notes, due July 15, 2035	50,000		50,000
2.96% notes, due August 15, 2035	40,000		40,000
2.49% notes, due January 25, 2037	50,000		50,000
2.95% notes, due March 15, 2042	50,000		50,000
5.43% notes, due March 14, 2038	80,000		80,000
6.39% notes, due December 2026	100,000		100,000
6.44% notes, due December 2027	100,000		100,000
6.45% notes, due December 2028	100,000		100,000
6.62% notes, due December 2030	100,000		100,000
6.71% notes, due December 2033	100,000		100,000
6.73% notes, due December 2038	50,000		50,000
Equipment security note
2.46% note, due September 24, 2031	7,409		7,633
Less: debt issuance costs	(3,682)		(3,753)
Total long-term debt	1,203,677		1,205,580
Less: current maturities	(18,511)		(18,505)
Total long-term debt, net of current maturities	$	1,185,166	$	1,187,075


(in thousands)	Balance sheet classification	March 31, 2024		December 31, 2023
Assets
Operating lease assets	Operating lease right-of-use assets	$	11,719	$	12,426
Liabilities
Current
Operating lease liabilities	Other accrued liabilities	$	2,479	$	2,454
Noncurrent
Operating lease liabilities	Operating lease - liabilities	9,832		10,550
Total lease liabilities		$	12,311	$	13,004


	March 31, 2024		December 31, 2023
Weighted-average remaining lease term (in years)
Operating leases	8.0		8.1

Weighted-average discount rate
Operating leases	3.5	%	3.5	%


(in thousands)	Operating Leases (1)
Remainder of 2024	$	2,128
2025	2,302
2026	1,767
2027	1,531
2028	1,152
2029	1,092
Thereafter	4,066
Total lease payments	14,038
Less: Interest	(1,727)
Present value of lease liabilities	$	12,311

SEC Form 10-Q filed by Chesapeake Utilities Corporation

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