Chesapeake Utilities Corporation - Form 10-Q - March 31, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_______________________________
FORM
10-Q
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended: March
31, 2006
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)
|
|
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)
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 [X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer [ ] Accelerated
filer [X] Non-accelerated
filer [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
Common
Stock, par value $0.4867 — 5,947,180
shares outstanding as of April 30, 2006.
|
Page
|
Part I -- Financial Information |
1
|
Item
1. Financial Statements
|
1
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
1.
Basis of Presentation
|
6
|
2.
Comprehensive Income (Loss)
|
6
|
3.
Calculation of Earnings Per Share
|
6
|
4.
Commitments and Contingencies
|
6
|
Environmental
Matters
|
6
|
Other
Commitments and Contingencies
|
8
|
5.
Recent Authoritative Pronouncements on Financial Reporting
and
Accounting
|
9
|
6.
Segment Information
|
10
|
7.
Employee Benefit Plans
|
11
|
8.
Investments
|
11
|
9.
Share-Based Compensation
|
11
|
10.
Stockholders' Equity
|
13
|
11.
Other Event
|
13
|
Item
2. Management's Discussion and Analysis of Financial Condition
and Results
of Operations
|
14
|
Business
Description
|
14
|
Results
of Operations for the Quarter Ended March 31, 2006
|
15
|
Consolidated
Overview
|
15
|
Natural
Gas
|
16
|
Propane
|
17
|
Advanced
Information Services
|
19
|
Other
Business Operations and Eliminations
|
20
|
Income
Taxes
|
20
|
Interest
Expense
|
20
|
Financial
Position, Liquidity and Capital Resources
|
21
|
Capital
Structure
|
21
|
Cash
Flows from Operating Activities
|
22
|
Cash
Flows Used in Investing Activities
|
22
|
Cash
Flows Used in Financing Activities
|
22
|
Off-Balance
Sheet Arrangements
|
23
|
Contractual
Obligations
|
23
|
Environmental
Matters
|
23
|
Other
Matters
|
24
|
Regulatory
Matters
|
24
|
Competition
|
26
|
Recent
Pronouncements
|
26
|
Inflation
|
27
|
Cautionary
Statement
|
27
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
27
|
Item
4. Controls and Procedures
|
29
|
Evaluation
of Disclosure Controls and Procedures
|
29
|
Changes
in Internal Control Over Financial Reporting
|
29
|
Part II -- Other Information |
30
|
Signatures |
31
|
PART
I — FINANCIAL INFORMATION
Item
1. Financial
Statements
Chesapeake
Utilities Corporation and Subsidiaries
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income (Unaudited)
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Operating
Revenues
|
|
$
|
90,950,673
|
|
$
|
77,845,249
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
Cost
of sales, excluding costs below
|
|
|
65,924,761
|
|
|
52,572,676
|
|
Operations
|
|
|
9,601,281
|
|
|
10,087,769
|
|
Maintenance
|
|
|
443,968
|
|
|
329,575
|
|
Depreciation
and amortization
|
|
|
1,977,347
|
|
|
1,900,971
|
|
Other
taxes
|
|
|
1,566,088
|
|
|
1,449,915
|
|
Total
operating expenses
|
|
|
79,513,445
|
|
|
66,340,906
|
|
Operating
Income
|
|
|
11,437,228
|
|
|
11,504,343
|
|
Other
income net of other expenses
|
|
|
78,583
|
|
|
82,381
|
|
Interest
charges
|
|
|
1,493,337
|
|
|
1,277,778
|
|
Income
Before Income Taxes
|
|
|
10,022,474
|
|
|
10,308,946
|
|
Income
taxes
|
|
|
3,926,059
|
|
|
4,076,150
|
|
Net
Income
|
|
$
|
6,096,415
|
|
$
|
6,232,796
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share of Common Stock:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.03
|
|
$
|
1.08
|
|
Diluted
|
|
$
|
1.01
|
|
$
|
1.05
|
|
Basic
weighted average shares outstanding
|
|
|
5,904,434
|
|
|
5,793,825
|
|
Diluted
weighted average shares outstanding
|
|
|
6,047,985
|
|
|
5,959,055
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Declared Per Share of Common Stock:
|
|
$
|
0.285
|
|
$
|
0.280
|
|
The
accompanying notes are an integral part of these financial
statements.
Chesapeake
Utilities Corporation and Subsidiaries
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Operating
Activities
|
|
|
|
|
|
Net
Income
|
|
$
|
6,096,415
|
|
$
|
6,232,796
|
|
Adjustments
to reconcile net income to net operating cash:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,977,347
|
|
|
1,900,971
|
|
Depreciation
and accretion included in other costs
|
|
|
741,846
|
|
|
658,244
|
|
Deferred
income taxes, net
|
|
|
(1,934,479
|
)
|
|
(1,110,870
|
)
|
Unrealized
loss on commodity contracts
|
|
|
(56,091
|
)
|
|
(334,668
|
)
|
Unrealized
gain (loss) on investments
|
|
|
(69,450
|
)
|
|
5,982
|
|
Employee
benefits and compensation
|
|
|
412,921
|
|
|
426,451
|
|
Other,
net
|
|
|
(528
|
)
|
|
614
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Purchase
of investments
|
|
|
(44,183
|
)
|
|
-
|
|
Accounts
receivable and accrued revenue
|
|
|
10,974,718
|
|
|
2,044,547
|
|
Propane
inventory, storage gas and other inventory
|
|
|
7,327,791
|
|
|
5,781,964
|
|
Regulatory
assets
|
|
|
3,388,281
|
|
|
1,105,725
|
|
Prepaid
expenses and other current assets
|
|
|
882,231
|
|
|
58,893
|
|
Other
deferred charges
|
|
|
26,941
|
|
|
(2,861
|
)
|
Long-term
receivables
|
|
|
57,641
|
|
|
71,812
|
|
Accounts
payable and other accrued liabilities
|
|
|
(15,503,460
|
)
|
|
(8,125,481
|
)
|
Income
taxes receivable
|
|
|
4,691,299
|
|
|
5,079,522
|
|
Accrued
interest
|
|
|
967,277
|
|
|
976,494
|
|
Customer
deposits and refunds
|
|
|
(238,955
|
)
|
|
(1,265,284
|
)
|
Accrued
compensation
|
|
|
(1,921,627
|
)
|
|
(653,247
|
)
|
Regulatory
liabilities
|
|
|
1,839,084
|
|
|
3,083,871
|
|
Environmental
and other liabilities
|
|
|
128,825
|
|
|
124,170
|
|
Net
cash provided by operating activities
|
|
|
19,743,844
|
|
|
16,059,645
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
Property,
plant and equipment expenditures
|
|
|
(6,956,380
|
)
|
|
(3,535,317
|
)
|
Environmental
recoveries
|
|
|
40,390
|
|
|
126,362
|
|
Net
cash used by investing activities
|
|
|
(6,915,990
|
)
|
|
(3,408,955
|
)
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
Common
stock dividends
|
|
|
(1,466,009
|
)
|
|
(1,474,662
|
)
|
Issuance
of stock for Dividend Reinvestment Plan
|
|
|
112,494
|
|
|
26,253
|
|
Change
in cash overdrafts due to outstanding checks
|
|
|
335,059
|
|
|
(301,758
|
)
|
Net
repayment of line of credit agreements
|
|
|
(10,509,392
|
)
|
|
(4,443,417
|
)
|
Repayment
of long-term debt
|
|
|
(1,020,244
|
)
|
|
(1,005,139
|
)
|
Net
cash used by financing activities
|
|
|
(12,548,092
|
)
|
|
(7,198,723
|
)
|
|
|
|
|
|
|
|
|
Net
Increase in Cash and Cash Equivalents
|
|
|
279,762
|
|
|
5,451,967
|
|
Cash
and Cash Equivalents — Beginning of Period
|
|
|
2,487,658
|
|
|
1,611,761
|
|
Cash
and Cash Equivalents — End of Period
|
|
$
|
2,767,420
|
|
$
|
7,063,728
|
|
The
accompanying notes are an integral part of these financial
statements.
Chesapeake
Utilities Corporation and Subsidiaries
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Stockholders' Equity (Unaudited)
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, 2006
|
|
For
the Twelve Months Ended December 31, 2005
|
|
Common
Stock
|
|
|
|
|
|
Balance
— beginning of period
|
|
$
|
2,863,212
|
|
$
|
2,812,538
|
|
Dividend
Reinvestment Plan
|
|
|
5,085
|
|
|
20,038
|
|
Retirement
Savings Plan
|
|
|
4,144
|
|
|
10,255
|
|
Conversion
of debentures
|
|
|
2,600
|
|
|
11,004
|
|
Performance
shares and options exercised
|
|
|
11,689
|
|
|
9,377
|
|
Balance
— end of period
|
|
$
|
2,886,730
|
|
$
|
2,863,212
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in Capital
|
|
|
|
|
|
|
|
Balance
— beginning of period
|
|
$
|
39,619,849
|
|
$
|
36,854,717
|
|
Dividend
Reinvestment Plan
|
|
|
317,796
|
|
|
1,224,874
|
|
Retirement
Savings Plan
|
|
|
259,999
|
|
|
682,829
|
|
Conversion
of debentures
|
|
|
88,156
|
|
|
373,259
|
|
Performance
shares and options exercised
|
|
|
718,605
|
|
|
484,170
|
|
Balance
— end of period
|
|
$
|
41,004,405
|
|
$
|
39,619,849
|
|
|
|
|
|
|
|
|
|
Retained
Earnings
|
|
|
|
|
|
|
|
Balance
— beginning of period
|
|
$
|
42,854,894
|
|
$
|
39,015,087
|
|
Net
income
|
|
|
6,096,415
|
|
|
10,467,614
|
|
Cash
dividends declared
|
|
|
(1,690,056
|
)
|
|
(6,627,807
|
)
|
Balance
— end of period
|
|
$
|
47,261,253
|
|
$
|
42,854,894
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
|
|
|
|
|
Balance
— beginning of period
|
|
|
($578,151
|
)
|
|
(527,246
|
)
|
Minimum
pension liability adjustment, net of tax
|
|
|
-
|
|
|
(50,905
|
)
|
Balance
— end of period
|
|
|
($578,151
|
)
|
|
($578,151
|
)
|
|
|
|
|
|
|
|
|
Deferred
Compensation Obligation
|
|
|
|
|
|
|
|
Balance
— beginning of period
|
|
$
|
794,535
|
|
$
|
816,044
|
|
New
deferrals
|
|
|
272,383
|
|
|
130,426
|
|
Payout
of deferred compensation
|
|
|
-
|
|
|
(151,935
|
)
|
Balance
— end of period
|
|
$
|
1,066,918
|
|
$
|
794,535
|
|
|
|
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
Balance
— beginning of period
|
|
|
($797,156
|
)
|
|
($1,008,696
|
)
|
New
deferrals related to compensation obligation
|
|
|
(272,383
|
)
|
|
(130,426
|
)
|
Purchase
of treasury stock (1)
|
|
|
(10,682
|
)
|
|
(182,292
|
)
|
Sale
and distribution of treasury stock (2)
|
|
|
10,682
|
|
|
524,258
|
|
Balance
— end of period
|
|
|
($1,069,539
|
)
|
|
($797,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
$
|
90,571,616
|
|
$
|
84,757,183
|
|
|
|
|
|
|
|
|
|
(1)
Amount includes shares purchased in the open market for the Company's
Rabbi Trust to secure its obligations
under the Company's Supplemental Executive Retirement Savings
Plan ("SERP
plan").
|
|
(2)
Amount includes shares issued to the Company's Rabbi Trust as
obligation
under the SERP plan.
|
|
Chesapeake
Utilities Corporation and Subsidiaries
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Comprehensive Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended March 31, 2006
|
|
For
the Twelve Months Ended December 31, 2005
|
|
Net
income
|
|
$
|
6,096,415
|
|
$
|
10,467,614
|
|
Minimum
pension liability adjustment, net of tax benefit of
$33,615
|
|
|
-
|
|
|
(50,905
|
)
|
Comprehensive
Income
|
|
$
|
6,096,415
|
|
$
|
10,416,709
|
|
The
accompanying notes are an integral part of these financial
statements.
Chesapeake
Utilities Corporation and Subsidiaries
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
Assets
|
|
March
31, 2006
|
|
December
31, 2005
|
|
Property,
Plant and Equipment
|
|
|
|
|
|
Natural
gas distribution and transmission
|
|
$
|
231,483,576
|
|
$
|
220,685,461
|
|
Propane
|
|
|
42,182,774
|
|
|
41,563,810
|
|
Advanced
information services
|
|
|
933,075
|
|
|
1,221,177
|
|
Other
plant
|
|
|
8,988,063
|
|
|
9,275,729
|
|
Total
property, plant and equipment
|
|
|
283,587,488
|
|
|
272,746,177
|
|
Less:
Accumulated depreciation and amortization
|
|
|
(80,233,659
|
)
|
|
(78,840,413
|
)
|
Plus:
Construction work in progress
|
|
|
2,845,592
|
|
|
7,598,531
|
|
Net
property, plant and equipment
|
|
|
206,199,421
|
|
|
201,504,295
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
1,799,268
|
|
|
1,685,635
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
2,767,420
|
|
|
2,487,658
|
|
Accounts
receivable (less allowance for uncollectible accounts of $788,759
and
$861,378, respectively)
|
|
|
43,382,793
|
|
|
54,284,011
|
|
Accrued
revenue
|
|
|
4,642,883
|
|
|
4,716,383
|
|
Propane
inventory, at average cost
|
|
|
3,258,328
|
|
|
6,332,956
|
|
Other
inventory, at average cost
|
|
|
1,550,927
|
|
|
1,538,936
|
|
Regulatory
assets
|
|
|
1,058,363
|
|
|
4,434,828
|
|
Storage
gas prepayments
|
|
|
4,363,025
|
|
|
8,628,179
|
|
Income
taxes receivable
|
|
|
-
|
|
|
2,725,840
|
|
Accumulated
deferred income tax asset
|
|
|
852,632
|
|
|
-
|
|
Prepaid
expenses
|
|
|
1,138,586
|
|
|
2,021,164
|
|
Other
current assets
|
|
|
517,412
|
|
|
1,596,797
|
|
Total
current assets
|
|
|
63,532,369
|
|
|
88,766,752
|
|
|
|
|
|
|
|
|
|
Deferred
Charges and Other Assets
|
|
|
|
|
|
|
|
Goodwill
|
|
|
674,451
|
|
|
674,451
|
|
Other
intangible assets, net
|
|
|
202,232
|
|
|
205,683
|
|
Long-term
receivables
|
|
|
903,793
|
|
|
961,434
|
|
Other
regulatory assets
|
|
|
1,148,639
|
|
|
1,178,232
|
|
Other
deferred charges
|
|
|
963,276
|
|
|
1,003,393
|
|
Total
deferred charges and other assets
|
|
|
3,892,391
|
|
|
4,023,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
275,423,449
|
|
$
|
295,979,875
|
|
The
accompanying notes are an integral part of these financial
statements.
Chesapeake
Utilities Corporation and Subsidiaries
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
Capitalization
and Liabilities
|
|
March
31, 2006
|
|
December
31, 2005
|
|
Capitalization
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
Common
Stock, par value $0.4867 per share (authorized 12,000,000 shares)
(1)
|
|
$
|
2,886,730
|
|
$
|
2,863,212
|
|
Additional
paid-in capital
|
|
|
41,004,405
|
|
|
39,619,849
|
|
Retained
earnings
|
|
|
47,261,253
|
|
|
42,854,894
|
|
Accumulated
other comprehensive income
|
|
|
(578,151
|
)
|
|
(578,151
|
)
|
Deferred
compensation obligation
|
|
|
1,066,918
|
|
|
794,535
|
|
Treasury
stock
|
|
|
(1,069,539
|
)
|
|
(797,156
|
)
|
Total
stockholders' equity
|
|
|
90,571,616
|
|
|
84,757,183
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current maturities
|
|
|
57,879,363
|
|
|
58,990,363
|
|
Total
capitalization
|
|
|
148,450,979
|
|
|
143,747,546
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
|
4,929,091
|
|
|
4,929,091
|
|
Short-term
borrowing
|
|
|
25,307,908
|
|
|
35,482,241
|
|
Accounts
payable
|
|
|
29,771,045
|
|
|
45,645,228
|
|
Customer
deposits and refunds
|
|
|
4,902,045
|
|
|
5,140,999
|
|
Accrued
interest
|
|
|
1,525,997
|
|
|
558,719
|
|
Dividends
payable
|
|
|
1,690,056
|
|
|
1,676,398
|
|
Income
taxes payable
|
|
|
1,965,457
|
|
|
-
|
|
Accumulated
deferred income tax liability
|
|
|
-
|
|
|
1,150,828
|
|
Accrued
compensation
|
|
|
1,278,426
|
|
|
3,793,244
|
|
Regulatory
liabilities
|
|
|
2,455,459
|
|
|
550,546
|
|
Other
accrued liabilities
|
|
|
2,794,964
|
|
|
3,560,055
|
|
Total
current liabilities
|
|
|
76,620,448
|
|
|
102,487,349
|
|
|
|
|
|
|
|
|
|
Deferred
Credits and Other Liabilities
|
|
|
|
|
|
|
|
Deferred
income taxes payable
|
|
|
24,317,604
|
|
|
24,248,624
|
|
Deferred
investment tax credits
|
|
|
353,381
|
|
|
367,085
|
|
Other
regulatory liabilities
|
|
|
1,982,494
|
|
|
2,008,779
|
|
Environmental
liabilities
|
|
|
335,569
|
|
|
352,504
|
|
Accrued
pension costs
|
|
|
3,111,556
|
|
|
3,099,882
|
|
Accrued
asset removal cost
|
|
|
17,181,756
|
|
|
16,727,268
|
|
Other
liabilities
|
|
|
3,069,662
|
|
|
2,940,838
|
|
Total
deferred credits and other liabilities
|
|
|
50,352,022
|
|
|
49,744,980
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
(Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capitalization and Liabilities
|
|
$
|
275,423,449
|
|
$
|
295,979,875
|
|
|
|
|
|
|
|
|
|
(1)
Shares issued were 5,931,487 and 5,883,099 for 2006 and 2005,
respectively.
|
|
Shares
outstanding were 5,931,395 and 5,883,002 for 2006 and 2005,
respectively.
|
|
The
accompanying notes are an integral part of these financial
statements.
Notes
to Condensed Consolidated Financial Statements
References
in this document to “the Company,” “Chesapeake,” “we,” “us” and “our” are
intended to mean Chesapeake Utilities Corporation and its
subsidiaries.
The
accompanying unaudited consolidated financial statements have been prepared
in
compliance with the rules and regulations of the Securities and Exchange
Commission (“SEC”) and United States of America Generally Accepted Accounting
Principles (“GAAP”). In accordance with these rules and regulations, certain
information and disclosures normally required for audited financial statements
has been condensed or omitted. These financial statements should be read
in
conjunction with the consolidated financial statements and notes thereto,
included in the Company’s latest Annual Report on Form 10-K filed on March 7,
2006. In the opinion of management, these statements reflect normal recurring
adjustments that are necessary for a fair presentation of the Company’s results
of operations, financial position and cash flows for the interim periods
presented.
2. |
Comprehensive
Income (Loss)
|
Comprehensive
income contains items that are excluded from “net income (loss)” and recorded
directly to stockholders’ equity. Chesapeake did not have any adjustments to the
components of comprehensive income that are required to be reported by Financial
Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
(“SFAS”) No. 130, “Reporting Comprehensive Income,” for the first quarters of
2006 and 2005. Accumulated other comprehensive income was ($578,151) at March
31, 2006 and December 31, 2005 and ($527,246) at March 31, 2005 and December
31,
2004.
3. |
Calculation
of Earnings Per Share
|
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Calculation
of Basic Earnings Per Share:
|
|
|
|
|
|
Net
Income
|
|
$
|
6,096,415
|
|
$
|
6,232,796
|
|
Weighted
average shares outstanding
|
|
|
5,904,434
|
|
|
5,793,825
|
|
Basic
Earnings Per Share
|
|
$
|
1.03
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
Calculation
of Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
Reconciliation
of Numerator:
|
|
|
|
|
|
|
|
Net
Income before cumulative effect of change — Basic
|
|
$
|
6,096,415
|
|
$
|
6,232,796
|
|
Effect
of 8.25% Convertible debentures *
|
|
|
27,473
|
|
|
32,407
|
|
Adjusted
numerator — Diluted
|
|
$
|
6,123,888
|
|
$
|
6,265,203
|
|
|
|
|
|
|
|
|
|
Reconciliation
of Denominator:
|
|
|
|
|
|
|
|
Weighted
shares outstanding — Basic
|
|
|
5,904,434
|
|
|
5,793,825
|
|
Effect
of dilutive securities *
|
|
|
|
|
|
|
|
Stock
options
|
|
|
-
|
|
|
1,547
|
|
Warrants
|
|
|
12,485
|
|
|
9,646
|
|
8.25%
Convertible debentures
|
|
|
131,066
|
|
|
154,037
|
|
Adjusted
denominator — Diluted
|
|
|
6,047,985
|
|
|
5,959,055
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings per Share
|
|
$
|
1.01
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
*
Amounts associated with securities resulting in an anti-dilutive
effect on
earnings per share are not included in this calculation.
|
|
4. |
Commitments
and Contingencies
|
Environmental
Matters
Chesapeake
is subject to federal, state and local laws and regulations governing
environmental quality and pollution control. These laws and regulations require
the Company to remove or remedy the effect on the environment of the disposal
or
release of specified substances at current and former operating
sites.
Chesapeake
received a Certificate of Completion for the remedial work performed at a
former
gas manufacturing plant site located in Dover, Delaware. Chesapeake is also
currently participating in the investigation, assessment or remediation of
two
former gas manufacturing plant sites. These sites are located in Maryland
and
Florida. In addition, The Company has accrued liabilities for the three sites
referred to respectively as the Dover Gas Light, Salisbury Town Gas Light
and
the Winter Haven Coal Gas sites. The Company is currently in discussions
with
the Maryland Department of the Environment (“MDE”) regarding the possible
responsibilities of the Company with respect to a former gas manufacturing
plant
site in Cambridge, Maryland.
Dover
Gas Light Site
The
Dover
Gas Light site is a former manufactured gas plant site located in Dover,
Delaware. On January 15, 2004, the Company received a Certificate of Completion
of Work from the United States Environmental Protection Agency (“EPA”) regarding
this site. This concluded Chesapeake’s remedial action obligation related to
this site and relieves Chesapeake from liability for future remediation at
the
site, unless previously unknown conditions are discovered at the site, or
information previously unknown to the EPA is received that indicates the
remedial action that has been taken is not sufficiently protective. These
contingencies are standard and are required by the United States in all
liability settlements.
The
Company has reviewed its remediation costs incurred to date for the Dover
Gas
Light site and has concluded that all costs incurred have been paid. The
Company
does not expect any future environmental expenditures for this site. Through
March 31, 2006, the Company has incurred approximately $9.7 million in costs
related to environmental testing and remedial action studies at the site.
Approximately $9.9 million has been recovered through March 2006 from other
parties or through rates. As of March 31, 2006, a regulatory liability of
approximately $274,000, representing the over-recovery portion of the clean-up
costs, has been recorded. The over-recovery is temporary and will be refunded
by
the Company to customers in future rates.
Salisbury
Town Gas Light Site
In
cooperation with the MDE, the Company has completed remediation of the Salisbury
Town Gas Light site, located in Salisbury, Maryland, where it was determined
that a former manufactured gas plant had caused localized ground-water
contamination. During 1996, the Company completed construction and began
Air
Sparging and Soil-Vapor Extraction (“AS/SVE”) remediation procedures. Chesapeake
has been reporting the remediation and monitoring results to the MDE on an
ongoing basis since 1996. In February 2002, the MDE granted permission to
permanently decommission the AS/SVE system and to discontinue all on-site
and
off-site well monitoring, except for one well that is being maintained for
continued product monitoring and recovery. In November 2002, Chesapeake
submitted a letter to the MDE requesting a No Further Action (“NFA”)
determination. The Company has been in discussions with the MDE regarding
such
request and is waiting on a determination from the MDE.
The
Company has a liability of $2,300 with respect to the Salisbury Town Gas
Light
site at March 31, 2006. This amount is based on the estimated costs to perform
limited product monitoring and recovery efforts and fulfill ongoing reporting
requirements. A corresponding regulatory asset has been recorded, reflecting
the
Company’s belief that costs incurred will be recoverable in base rates.
Through
March 31, 2006, the Company has incurred approximately $2.9 million for remedial
actions and environmental studies at the Salisbury Town Gas Light site. Of
this
amount, approximately $1.8 million has been recovered through insurance proceeds
or in rates. The Company expects to recover the remaining costs through
rates.
Winter
Haven Coal Gas Site
The
Winter Haven Coal Gas site is located in Winter Haven, Florida. Chesapeake
has
been working with the Florida Department of Environmental Protection (“FDEP”) in
assessing this coal gas site. In May 1996, the Company filed an Air Sparging
and
Soil Vapor Extraction Pilot Study Work Plan (the “Work Plan”) for the Winter
Haven site with the FDEP. The Work Plan described the Company’s proposal to
undertake an AS/SVE pilot study to evaluate the site. After discussions with
the
FDEP, the Company filed a modified AS/SVE Pilot Study Work Plan, the description
of the scope of work to complete the site assessment activities and a report
describing a limited sediment investigation performed in 1997. In December
1998,
the FDEP approved the AS/SVE Pilot Study Work Plan, which the Company completed
during the third quarter of 1999. In February 2001, the Company filed a Remedial
Action Plan (“RAP”) with the FDEP to address the contamination of the subsurface
soil and ground-water in a portion of the site. The FDEP approved the RAP
on May
4, 2001. Construction of the AS/SVE system was completed in the fourth quarter
of 2002 and the system is fully operational.
The
Company has accrued a liability of $333,000 as of March 31, 2006 for the
Winter
Haven site. Through March 31, 2006, the Company has incurred approximately
$1.5
million of environmental costs associated with this site. At March 31, 2006
the
Company had collected through rates $158,000 in excess of costs incurred.
A
regulatory asset of approximately $175,000, representing the uncollected
portion
of the estimated clean-up costs, has also been recorded. The Company expects
to
recover the remaining costs through rates.
The
FDEP
has indicated that the Company may be required to remediate sediments along
the
shoreline of Lake Shipp, immediately west of the Winter Haven site. Based
on
studies performed to date, the Company objects to the FDEP’s suggestion that the
sediments have been contaminated and require remediation. Early estimates
by the
Company’s environmental consultant indicate that some of the corrective measures
discussed by the FDEP may cost as much as $1 million. Given the Company’s view
as to the absence of ecological effects, the Company believes that cost
expenditures of this magnitude are unwarranted and plans to oppose any
requirements that it undertake corrective measures in the offshore sediments.
Chesapeake anticipates that it will be several years before this issue is
resolved. At this time, the Company has not recorded a liability for sediment
remediation. The outcome of this matter cannot be predicted at this
time.
Other
The
Company is in discussions with the MDE regarding the possible responsibilities
of the Company for remediation of a gas manufacturing plant site located
in
Cambridge, Maryland. The outcome of this matter cannot be determined at this
time.
Natural
Gas and Propane Supply
The
Company’s natural gas and propane distribution operations have entered into
contractual commitments to purchase gas from various suppliers. The contracts
have various expiration dates. In November 2004, the Company renewed its
contract with an energy marketing and risk management company to manage a
portion of the Company’s natural gas transportation and storage capacity. The
contract expires March 31, 2007.
Corporate
Guarantees
The
Company has issued corporate guarantees to certain vendors of its propane
wholesale marketing subsidiary, its advanced information services subsidiary,
and its Florida natural gas marketing subsidiary. These corporate guarantees
provide for the payment of propane and natural gas purchases and office rent
in
the event of the subsidiaries’ default. The liabilities for these purchases are
recorded in the Consolidated Financial Statements. The aggregate amount
guaranteed at March 31, 2006, totaled $10.6 million, with the guarantees
expiring on various dates in 2006.
In
addition to the corporate guarantees, the Company has issued a letter of
credit
to its primary insurance company for $694,000, which expires May 31, 2006.
The
letter of credit was provided as security for claims amounts to satisfy the
deductibles on the Company’s policies.
Application
of SFAS No. 71
Certain
assets and liabilities of the Company are accounted for in accordance with
SFAS
No. 71 ¾“Accounting
for the Effects of Certain Types of Regulation.” SFAS No. 71 provides guidance
for public utilities and other regulated operations where the rates (prices)
charged to customers are subject to regulatory review and approval. Regulators
sometimes include allowable costs in a period other than the period in which
the
costs would be charged to expense by an unregulated enterprise. That procedure
can create assets, reduce assets, or create liabilities for the regulated
enterprise. For financial reporting, an incurred cost for which a regulator
permits recovery in a future period is accounted for like an incurred cost
that
is reimbursable under a cost-reimbursement type contract. The Company believes
that all regulatory assets as of March 31, 2006 are probable of recovery
through
rates. If the Company were required to terminate the application of SFAS
No. 71
to its regulated operations, all such deferred amounts would be recognized
in
the income statement at that time. This would result in a charge to earnings,
net of applicable income taxes that could be material.
Other
The
Company is involved in certain legal actions and claims arising in the normal
course of business. The Company is also involved in certain legal and
administrative proceedings before various governmental agencies concerning
rates. In the opinion of management, the ultimate disposition of these
proceedings will not have a material effect on the consolidated financial
position, results of operations or cash flows of the Company.
5. |
Recent
Authoritative Pronouncements on Financial Reporting and
Accounting
|
In
December 2004, the FASB released a revision (“Share-Based Payment”) to SFAS No.
123 “Accounting for Stock-Based Compensation,” referred to as SFAS No. 123R. In
April 2005, the SEC approved a new rule that delayed the effective date for
SFAS
No. 123R until the first annual period beginning after June 15, 2005. This
Statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. Those plans include all arrangements
by
which employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts based
on the
price of the employer’s stock. Examples are stock purchase plans, stock options,
restricted stock and stock appreciation rights. As disclosed in Note 9, the
Company’s adoption of this pronouncement during the first quarter of 2006 did
not have a material impact on the financial statements.
Chesapeake
uses the management approach to identify operating segments. Chesapeake
organizes its business around differences in products or services and the
operating results of each segment are regularly reviewed by the Company’s chief
operating decision maker in order to make decisions about resources and to
assess performance. The following table presents information about the Company’s
reportable segments. Results exclude discontinued operations.
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Operating
Revenues, Unaffiliated Customers
|
|
|
|
|
|
Natural
gas
|
|
$
|
67,578,658
|
|
$
|
54,454,811
|
|
Propane
|
|
|
20,550,937
|
|
|
20,191,111
|
|
Advanced
information services
|
|
|
2,820,566
|
|
|
3,161,358
|
|
Other
|
|
|
512
|
|
|
37,969
|
|
Total
operating revenues, unaffiliated customers
|
|
$
|
90,950,673
|
|
$
|
77,845,249
|
|
|
|
|
|
|
|
|
|
Intersegment
Revenues (1)
|
|
|
|
|
|
|
|
Natural
gas
|
|
$
|
58,949
|
|
$
|
44,876
|
|
Propane
|
|
|
-
|
|
|
634
|
|
Advanced
information services
|
|
|
4,638
|
|
|
8,928
|
|
Other
|
|
|
154,623
|
|
|
154,623
|
|
Total
intersegment revenues
|
|
$
|
218,210
|
|
$
|
209,061
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
|
|
|
|
|
Natural
gas
|
|
$
|
7,995,205
|
|
$
|
7,792,386
|
|
Propane
|
|
|
3,433,733
|
|
|
4,001,848
|
|
Advanced
information services
|
|
|
16,309
|
|
|
(232,861
|
)
|
Other
and eliminations
|
|
|
(8,019
|
)
|
|
(57,030
|
)
|
Total
operating income
|
|
$
|
11,437,228
|
|
$
|
11,504,343
|
|
|
|
(1)
All significant intersegment revenues are billed at market rates
and have
been eliminated from consolidated revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2006
|
|
|
December
31, 2005
|
|
Identifiable
Assets
|
|
|
|
|
|
|
|
Natural
gas
|
|
$
|
211,989,997
|
|
$
|
225,667,049
|
|
Propane
|
|
|
51,080,534
|
|
|
57,344,859
|
|
Advanced
information services
|
|
|
2,648,687
|
|
|
2,062,902
|
|
Other
|
|
|
9,704,231
|
|
|
10,905,065
|
|
Total
identifiable assets
|
|
$
|
275,423,449
|
|
$
|
295,979,875
|
|
The
Company’s operations are all domestic. The advanced information services segment
has infrequent transactions with foreign companies, located primarily in
Canada,
which are denominated and paid in U.S. dollars. These transactions are
immaterial to the consolidated revenues.
7. |
Employee
Benefit Plans
|
Net
periodic benefit costs for the defined benefit pension plan, the executive
excess benefit plan and other post-retirement benefits are shown
below:
|
|
Defined
Benefit Pension Plan
|
|
Executive
Excess Retirement Benefit Plan
|
|
Other
Post-Retirement Benefits
|
|
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Service
Cost
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
1,564
|
|
$
|
1,564
|
|
Interest
Cost
|
|
|
156,726
|
|
|
161,435
|
|
|
29,897
|
|
|
29,915
|
|
|
19,468
|
|
|
19,468
|
|
Expected
return on plan assets
|
|
|
(171,076
|
)
|
|
(175,821
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of transition amount
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,965
|
|
|
6,965
|
|
Amortization
of prior service cost
|
|
|
(1,175
|
)
|
|
(1,175
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of net loss (gain)
|
|
|
-
|
|
|
-
|
|
|
14,260
|
|
|
12,330
|
|
|
22,073
|
|
|
22,073
|
|
Net
periodic cost (benefit)
|
|
|
($15,525
|
)
|
|
($15,561
|
)
|
$
|
44,157
|
|
$
|
42,245
|
|
$
|
50,070
|
|
$
|
50,070
|
|
As
disclosed in the December 31, 2005 financial statements, no contributions
are
expected to be required in 2006 for the defined benefit pension plan. The
cost
of the executive excess retirement benefit plan is fully funded; however,
the
other post-retirement benefit plans are unfunded. Cash benefits paid under
the
executive excess retirement benefit plan for the first three months of 2006
were
$25,000, and for the year 2006, benefits paid are expected to be $100,000.
Net
benefits paid for other post-retirement benefits are primarily for medical
claims and were $54,000 for the first three months of 2006. For the year
2006,
the Company’s actuary has estimated that the benefits to be paid are
$215,000.
The
Company maintains investments in Rabbi Trusts to cover the cost of the Company’s
Supplemental Executive Retirement Savings Plan. In accordance with SFAS No.
115,
“Accounting for Certain Investments in Debt and Equity Securities,” and based on
the Company’s intentions regarding these instruments, the Company classifies all
investments in equity securities as trading securities. As a result of
classifying them as trading securities, the Company is required to report
the
securities at their fair value, with any unrealized gains and losses included
in
earnings. At the end of March 2006, total investments had a fair value of
$1.8
million.
9. |
Share-Based
Compensation
|
Effective
January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment”
which establishes accounting for equity instruments exchanged for employee
services. Prior to January 1, 2006, the Company accounted for share-based
compensation to employees in accordance with Accounting Principles Board
Opinion
(“APB”) No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company also followed the disclosure requirements of
SFAS
No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148,
“Accounting for Stock-Based Compensation — Transition and Disclosure”. The
Company elected to adopt the modified prospective method as provided by SFAS
No.
123(R) and, accordingly, financial statement amounts for the prior periods
presented in this Form 10-Q have not been restated to reflect the fair value
of
expensing stock-based compensation. For the three months ended March 31,
2006
and 2005, included in net income are amounts of $104,000 and $186,000,
after-tax, respectively, related to stock-based compensation expense, in
respect
of restricted stock awards issued under the Company’s Director’s Stock
Compensation and Performance Incentive Plans.
The
Company did not have any stock options outstanding as at March 31, 2006 or
December 31, 2005, nor were any stock options issued during the three months
ended March 31, 2006.
Director’s
Stock Compensation Plan
Under
the
Company’s Director’s Stock Compensation Plan (“DSCP”), each non-employee
director received in 2005 an annual retainer of 600 shares of common stock
and
an additional 150 shares of common stock for services as a committee chairman,
subject to adjustment in future years consistent with the terms of the DSCP.
Shares issued under the DSCP are fully vested as of the date of grant. At
the
date of grant, the Company records a prepaid expense equal to the fair value
of
the shares issued and amortizes the expense equally over the service period
of
one year. Compensation
expense recorded by the Company related to the DSCP awards was $36,000 and
$33,000 for the three-month periods ended March 31, 2006 and 2005,
respectively.
Performance
Incentive Plans
In
general, the
Company’s Compensation Committee of the Board of Directors is authorized to
grant to key employees of the Company the rights to receive awards of shares
of
the Company’s common stock, contingent upon the achievement of established
performance goals. These awards
are
subject to certain post-vesting transfer restrictions. In the first quarter
of
2006, the
Company granted 23,666 and 10,130 restricted stock awards for the three months
ended March 31, 2006 and 2005, respectively, to key employees from the Company’s
2005 Performance Incentive Plan (“PIP”). The shares granted under the PIP are
fully vested and the fair value of each share is equal to the market price
of
the Company’s common stock on the date of grant. The fair value of these
restricted stock grants, based on the fair value of the Company’s stock on
the grant date, was $30.3999 and $27.00, for the three months ended March
31,
2006 and 2005, respectively. Compensation expense recorded by the Company
related to the restricted stock awards was $137,000 and $439,000 for the
three-month periods ended March 31, 2006 and 2005, respectively.
A
summary
of restricted stock activity as of March 31, 2006, and changes during the
three
months then ended, is presented below:
|
|
Number
of Restricted Shares
|
|
Weighted
Average Grant Date Fair Value
|
|
Outstanding
- December 31, 2005
|
|
|
0
|
|
|
|
|
Issued
|
|
|
23,666
|
|
$
|
30.3999
|
|
Vested
|
|
|
23,666
|
|
|
|
|
Outstanding
- March 31, 2006
|
|
|
0
|
|
|
|
|
The
changes in common stock shares issued and outstanding are shown
below:
|
|
For
the Three Months Ended March 31, 2006
|
|
For
the Twelve Months Ended December 31, 2005
|
|
Common
Stock shares issued and outstanding (1)
|
|
|
|
|
|
Shares
issued — beginning of period balance
|
|
|
5,883,099
|
|
|
5,778,976
|
|
Dividend
Reinvestment Plan (2)
|
|
|
10,515
|
|
|
41,175
|
|
Retirement
Savings Plan
|
|
|
8,515
|
|
|
21,071
|
|
Conversion
of debentures
|
|
|
5,342
|
|
|
22,609
|
|
Employee
award plan
|
|
|
350
|
|
|
-
|
|
Performance
shares and options exercised (3)
|
|
|
23,666
|
|
|
19,268
|
|
Shares
issued — end of period balance (4)
|
|
|
5,931,487
|
|
|
5,883,099
|
|
|
|
|
|
|
|
|
|
Treasury
shares — beginning of period balance
|
|
|
(97
|
)
|
|
(9,418
|
)
|
Purchases
|
|
|
-
|
|
|
(4,852
|
)
|
Dividend
Reinvestment Plan
|
|
|
-
|
|
|
2,142
|
|
Retirement
Savings Plan
|
|
|
-
|
|
|
12,031
|
|
Other
issuances
|
|
|
5
|
|
|
-
|
|
Treasury
Shares — end of period balance
|
|
|
(92
|
)
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
Total
Shares Outstanding
|
|
|
5,931,395
|
|
|
5,883,002
|
|
|
|
|
|
|
|
|
|
(1)
12,000,000 shares are authorized at a par value of $0.4867 per
share.
|
|
(2)
Includes shares purchased with reinvested dividends and optional
cash
payments.
|
|
(3)
Includes shares issued for Directors' compensation.
|
|
(4)
Includes 46,835 and 37,528 shares at March 31, 2006 and December
31, 2005,
respectively, held in a Rabbi Trust established by the Company
relating to
the Supplemental Executive Retirement Savings Plan.
|
|
The
Company’s propane distribution subsidiary (“Sharp”) identified that
approximately 75,000 gallons of propane that it purchased in the first half
of
March 2006 contained above normal levels of petroleum byproducts. The supplier’s
testing identified above normal concentration levels of the petroleum byproduct
benzene. Benzene, which may be found in trace amounts in propane, is used
to
make plastics, resins, nylon, synthetic fibers, detergents, lubricants, drugs,
dyes and pesticides. It is also routinely found in crude oil and gasoline.
The
supplier has conducted modeling and testing of the propane in combustion
situations and has stated that they have found no health or safety concerns.
Sharp
replaced the propane at each of the approximately 600 impacted customers
at no
cost to the customers. Sharp also replaced any remaining propane contained
at
its storage facilities. The propane that the Company retrieved from customers
and Sharp’s storage facilities was returned to the supplier.
The
supplier has indicated that it will reimburse Sharp for all damages, costs
and
expenses incurred by Sharp or the Company in connection with this matter.
The
Company does not believe that the event will ultimately have a material adverse
effect on the Company or its business, results of operations or long-term
financial condition.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is designed to provide a reader of the financial statements with a
narrative on the Company’s financial condition, results of operations and
liquidity. The Company’s MD&A is presented in nine sections: Overview,
Results of Operations, Liquidity and Capital Resources, Off-Balance Sheet
Arrangements, Contractual Obligations, Environmental Matters, Other Matters,
Competition, and Recent Accounting Pronouncements. This discussion and analysis
should be read in conjunction with the attached unaudited consolidated financial
statements and notes thereto and Chesapeake’s Annual Report on Form 10-K for the
year ended December 31, 2005, including the audited consolidated financial
statements and notes contained in the Form 10-K.
Overview
Chesapeake
Utilities Corporation (the “Company” or “Chesapeake”) is a diversified utility
company engaged in natural gas distribution, transmission and marketing,
propane
distribution and wholesale marketing, advanced information services and other
related businesses. For additional information regarding segments, refer
to Note
6, Segment Information, of the Notes to the Condensed Consolidated Financial
Statements in this Quarterly Report on Form 10-Q.
The
Company’s strategy is to grow earnings from a stable utility foundation by
investing in related businesses and services that provide opportunities for
higher, unregulated returns. This growth strategy includes acquisitions and
investments in unregulated businesses as well as the continued investment
and
expansion of the Company’s utility operations that provide the stable base of
earnings. The Company continually reevaluates its investments to ensure that
they are consistent with its strategy and the goal of enhancing shareholder
value. The Company’s unregulated businesses and services currently include
propane distribution and wholesale marketing, advanced information services
and
other related businesses.
Due
to
the seasonality of the Company’s business, results for interim periods are not
necessarily indicative of results for the entire fiscal year. Revenue and
earnings are typically greater during the Company’s first and fourth quarters,
when natural gas and propane consumption is highest due to colder
temperatures.
The
principal business, economic and other factors that affect the operations
and/or
financial performance of the Company include:
· |
weather
conditions and weather patterns;
|
· |
regulatory
environment and regulatory decisions;
|
· |
availability
of natural gas and propane supplies;
|
· |
natural
gas and propane production levels;
|
· |
interstate
pipeline transportation and storage
capacity;
|
· |
natural
gas and propane prices and the prices of competing fuels, such as
oil and
electricity;
|
· |
changes
in natural gas and propane usage resulting from customer conservation,
including improved appliance
efficiencies;
|
· |
the
level of capital expenditures for adding new customers and replacing
facilities worn beyond economic repair;
|
· |
use
of derivative instruments;
|
· |
changes
in credit risk;
|
· |
competitive
environment;
|
· |
economic
conditions and interest rates;
|
· |
changes
in technology; and
|
· |
changes
in accounting principles.
|
Results
of Operations for the Quarter Ended March 31, 2006
Consolidated
Overview
The
Company’s net income for the first quarter ended March 31, 2006 decreased
$136,000, or 2 percent, compared to the same period in 2005. Net income
for the
first quarter was $6.1 million, or $1.01 per share (diluted), a decrease
of
$0.04 per share compared to 2005. The decrease in earnings principally
reflects
a decline in the operating income at the Company’s Delmarva propane distribution
operation. The decline was caused by warmer temperatures on the Delmarva
Peninsula, which reduced volumes sold to both natural gas and propane
distribution heating customers to heat their homes. The Company estimates
that
if weather had been normal during the first quarter of 2006, net income
and
earnings per share (diluted) would have been higher by $510,000 and $0.08,
respectively. The warmer weather offsets the Company’s strong customer growth
and cost containment efforts.
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Change
|
|
Operating
Income
|
|
|
|
|
|
|
|
Natural
Gas
|
|
$
|
7,995,205
|
|
$
|
7,792,386
|
|
$
|
202,819
|
|
Propane
|
|
|
3,433,733
|
|
|
4,001,848
|
|
|
(568,115
|
)
|
Advanced
Information Services
|
|
|
16,309
|
|
|
(232,861
|
)
|
|
249,170
|
|
Other
& eliminations
|
|
|
(8,019
|
)
|
|
(57,030
|
)
|
|
49,011
|
|
Operating
Income
|
|
|
11,437,228
|
|
|
11,504,343
|
|
|
(67,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
78,583
|
|
|
82,381
|
|
|
(3,798
|
)
|
Interest
Charges
|
|
|
1,493,337
|
|
|
1,277,778
|
|
|
215,559
|
|
Income
Taxes
|
|
|
3,926,059
|
|
|
4,076,150
|
|
|
(150,091
|
)
|
Net
Income
|
|
$
|
6,096,415
|
|
$
|
6,232,796
|
|
|
($136,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share
|
|
$
|
1.01
|
|
$
|
1.05
|
|
|
($0.04
|
)
|
The
following discussions of segment results include use of the terms “gross margin”
and “normal weather”. Gross margin is determined by deducting the cost of sales
from operating revenue. Cost of sales includes the purchased gas cost for
the
natural gas and propane and the cost of labor spent on direct revenue-producing
activities. Gross margin should not be considered an alternative to operating
income or net income, which are determined in accordance with Generally Accepted
Accounting Principles (“GAAP”). Chesapeake believes that gross margin, although
a non-GAAP measure, is useful and meaningful to investors as a basis for
making
investment decisions. It provides investors with information that demonstrates
the profitability achieved by the Company under its allowed rates for regulated
operations and under its competitive pricing structure for unregulated segments.
Chesapeake’s management uses gross margin in measuring its business units’
performance and has historically analyzed and reported gross margin information
publicly. Other companies may calculate gross margin in a different manner.
Normal weather is a term used by the Company to describe the 10-year average
temperatures on the Delmarva Peninsula. Normal weather is used by management
to
adjust earnings for the purposes of evaluating the performance of its natural
gas and propane businesses under average conditions. The Company’s natural gas
utility rates are set based upon estimated sales using average temperatures
over
ten to thirty-year periods depending upon the rate jurisdiction. The Company
uses average temperatures over a ten-year period as an assumption in its
planning and budgeting processes to forecast sales, gross margin, operating
income, net income and earnings per share.
Natural
Gas
The
natural gas segment earned operating income of $8.0 million for the first
quarter of 2006 compared to $7.8 million for the corresponding period in
2005,
an increase of $203,000, or 3 percent. Revenue and cost of gas increased
in the
first quarter of 2006 compared to 2005, primarily due to changes in natural
gas
commodity prices. Commodity cost changes are passed on to the ratepayers
through
a gas cost recovery or purchased gas cost adjustment in all jurisdictions;
therefore, these changes in cost have limited impact on the
Company.
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Change
|
|
Revenue
|
|
$
|
67,637,607
|
|
$
|
54,499,687
|
|
$
|
13,137,920
|
|
Cost
of gas
|
|
|
51,225,173
|
|
|
38,478,015
|
|
|
12,747,158
|
|
Gross
margin
|
|
|
16,412,434
|
|
|
16,021,672
|
|
|
390,762
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
& maintenance
|
|
|
5,804,448
|
|
|
5,835,439
|
|
|
(30,991
|
)
|
Depreciation
& amortization
|
|
|
1,487,088
|
|
|
1,414,894
|
|
|
72,194
|
|
Other
taxes
|
|
|
1,125,693
|
|
|
978,953
|
|
|
146,740
|
|
Other
operating expenses
|
|
|
8,417,229
|
|
|
8,229,286
|
|
|
187,943
|
|
Total
Operating Income
|
|
$
|
7,995,205
|
|
$
|
7,792,386
|
|
$
|
202,819
|
|
|
|
|
|
|
|
|
|
|
|
|
Statistical
Data — Delmarva Peninsula
|
|
|
|
|
|
|
|
|
|
|
Heating
degree-days (“HDD”)
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
2,069
|
|
|
2,535
|
|
|
(466
|
)
|
10-year
average (normal)
|
|
|
2,281
|
|
|
2,259
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
gross margin per HDD
|
|
$
|
2,234
|
|
$
|
1,800
|
|
$
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Customer Information
|
|
|
|
|
|
|
|
|
|
|
Average
number of customers
|
|
|
|
|
|
|
|
|
|
|
Delmarva
|
|
|
40,213
|
|
|
37,135
|
|
|
3,078
|
|
Florida
|
|
|
12,429
|
|
|
11,669
|
|
|
760
|
|
Total
|
|
|
52,642
|
|
|
48,804
|
|
|
3,838
|
|
The
Company’s natural gas segment experienced an increase of approximately $391,000
in gross margin in the first quarter of 2006 compared to the same period
in
2005. Gross margin in the Delmarva natural gas distribution operations was
lower
when compared to the same period in 2005 by $349,000, primarily due to warmer
weather; however, this decline was offset by increased gross margin in the
natural gas marketing operation of $345,000, increased gross margin in the
natural gas transmission operation of $333,000 and increased gross margin
for
the Florida natural gas distribution operation of $61,000.
· |
The
Delaware and Maryland distribution operations experienced a decrease
of
$349,000 in gross margin. Temperatures on the Delmarva Peninsula
were 18
percent warmer during the first quarter of 2006 compared to 2005
and 9
percent warmer than normal. The Company estimates that the warmer
temperatures resulted in a decrease in gross margin of approximately
$1.0
million when compared to 2005. This decrease was partially offset
by
residential customer growth, which contributed approximately $462,000
to
gross margin as the number of customers increased by 8 percent. The
Company has estimated that in normal weather conditions, gross margin
for
the first quarter 2006 would have increased by approximately $474,000
and
gross margin for the first quarter of 2005 would have decreased by
approximately $497,000, as temperatures in 2005 were actually colder
than
normal.
|
· |
Gross
margin for the natural gas marketing operation increased $345,000,
or 86
percent. The increase was attained primarily from a 94 percent increase
in
the number of customers to which the operation provides supply management
services and the operation’s ability to sell excess
capacity.
|
· |
The
natural gas transmission operation achieved gross margin growth of
$333,000, or 8 percent. The increase was attributed to additional
transportation capacity contracts executed in November 2005. These
additional contracts are expected to continue to contribute approximately
$110,000 to gross margin for each month in 2006, or $1.3 million
annually.
|
· |
Gross
margin for the Florida distribution operation increased by $61,000.
The
effect of 7 percent growth in residential customers offset decreased
gross
margin from lower volumes sold.
|
Other
operating expenses for the natural gas operations increased $188,000 in the
first quarter of 2006 compared to the same period in 2005. Items contributing
to
the increase include:
· |
The
Delaware Public Service Commission (“Delaware PSC”) increased its Annual
Gross Revenue Tax from 0.2 percent to 0.3 percent, resulting in an
increase of $74,000 in other taxes. The Company plans to include
this
increase in tax expense in a future rate filing with the Delaware
PSC.
|
· |
Due
to the additional capital investments, depreciation and amortization
expense, asset removal cost, and property taxes increased $72,000,
$54,000, and $43,000, respectively.
|
· |
Payroll
and health care benefit costs increased $124,000 as the Company increased
its staff to support strong customer growth. Also, incentive compensation
decreased $41,000 to reflect lower than expected earnings due to
weather
being warmer than normal.
|
· |
Legal
fees decreased $87,000 as the Company incurred charges in the first
quarter of 2005 related to a review of the Company’s 401(k), pension plan
and deferred compensation plans as a result of a change in the tax
code.
|
Propane
Operating
income for the propane segment decreased $568,000, or 14 percent, to $3.4
million for the first quarter of 2006 compared to the same period in 2005.
This
decrease was due primarily to warmer weather in the first quarter of 2006,
resulting in reduced customer consumption. The increases in revenues and
cost of
sales in the first quarter of 2006 compared to 2005 were primarily caused
by
increases in the commodity prices of propane. Commodity price changes are
generally passed on to the customer, subject to competitive market conditions.
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Change
|
|
Revenue
|
|
$
|
20,550,937
|
|
$
|
20,191,745
|
|
$
|
359,192
|
|
Cost
of sales
|
|
|
13,095,992
|
|
|
12,086,274
|
|
|
1,009,718
|
|
Gross
margin
|
|
|
7,454,945
|
|
|
8,105,471
|
|
|
(650,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operations
& maintenance
|
|
|
3,340,475
|
|
|
3,426,692
|
|
|
(86,217
|
)
|
Depreciation
& amortization
|
|
|
416,709
|
|
|
411,559
|
|
|
5,150
|
|
Other
taxes
|
|
|
264,028
|
|
|
265,372
|
|
|
(1,344
|
)
|
Other
operating expenses
|
|
|
4,021,212
|
|
|
4,103,623
|
|
|
(82,411
|
)
|
Total
Operating Income
|
|
$
|
3,433,733
|
|
$
|
4,001,848
|
|
|
($568,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Statistical
Data — Delmarva Peninsula
|
|
|
|
|
|
|
|
|
|
|
Heating
degree-days
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
2,069
|
|
|
2,535
|
|
|
(466
|
)
|
10-year
average (normal)
|
|
|
2,281
|
|
|
2,259
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
gross margin per HDD
|
|
$
|
1,743
|
|
$
|
1,691
|
|
$
|
52
|
|
The
Company’s propane segment experienced a decrease of approximately $651,000 in
gross margin in the first quarter of 2006 compared to the same period in
2005.
Gross margin in the Delmarva propane distribution operation was lower when
compared to the same period in 2005 by $648,000, primarily due to warmer
weather, and gross margin also decreased in the Florida propane operations
by
$74,000. The negative weather impact experienced by the Delmarva propane
distribution operation was partially offset by increased gross margin from
new
start-ups in Pennsylvania of $186,000, increased gross margin from Community
Gas
Systems (“CGS”) of $96,000 and increased gross margin from the Company’s
wholesale propane marketing operation of $71,000.
· |
The
Delmarva propane distribution operation experienced a decrease in
gross
margin of $648,000. Volumes sold in 2006 decreased 2.1 million gallons
or
23 percent. Temperatures on the Delmarva Peninsula were 18 percent
warmer
during the first quarter of 2006 compared to 2005 and 9 percent warmer
than normal. The Company estimates that the warmer temperatures resulted
in a decrease in gross margin of approximately $812,000 when compared
to
2005. Partially offsetting the weather impact is an increase in the
gross
margin per retail gallon. The gross margin per retail gallon increased
by
$0.0188 in 2006 compared to 2005.The Company has estimated that in
normal
weather conditions gross margin for the first quarter of 2006 would
have
increased by approximately $370,000, and gross margin for the first
quarter of 2005 would have decreased by approximately $467,000, as
temperatures in 2005 were actually colder than normal.
|
· |
Gross
margin for the CGS’ increased $96,000 when compared to the prior period,
primarily from an increase in the number of customers. The average
number
of customers increased 997, or 37percent, to 3,660 in the first quarter
2006, compared to the same period in 2005. The Company expects the
growth
of its CGS operation to continue in the future as the number of systems
currently under construction is anticipated to provide for an additional
5,300 customers.
|
· |
The
Pennsylvania start-ups contributed $186,000 in gross margin. These
start-ups are the result of acquiring the assets of J.O. Fenstermacher
& Son, LLC in November 2004 and Spectrum Propane in July 2005.
|
· |
The
Florida propane distribution operation experienced a decrease in
gross
margin and operating income of $74,000 and $53,000, respectively,
when
compared to the same period in 2005. The lower gross margin reflects
a
decrease of in-house piping sales as the operation begins to exit
the
house piping service. The decrease in gross margin was partially
offset by
lower other operating expenses of $21,000. This decrease is attributed
to
lower payroll and benefit costs.
|
· |
Gross
margin for the Company’s propane wholesale marketing operation increased
by $71,000 in the first quarter of 2006 compared to the same period
in
2005. The increase is primarily due to the increase in volatility
of
wholesale propane prices that occurred during the quarter.
|
Other
operating expenses for the Delmarva propane distribution operation decreased
$97,000 for the quarter ended March 31, 2006 compared to the same period
in
2005.
On
March
16, 2006, the Company had disclosed in a Form 8-K filed with the Securities
and
Exchange Commission (“SEC”) that it had received approximately 75,000 gallons of
propane containing above normal levels of petroleum byproducts. Please refer
to
Note 11, “Other Event”, for a further discussion of the event. The propane
supplier has indicated that it will reimburse the Company for all damages,
costs
and expenses incurred by the Company in connection with this matter. As a
result
of the supplier’s commitment to reimburse the Company, fixed costs of $300,000
relating to this incident have been placed on the balance sheet as accounts
receivable instead of the income statement as period costs. If these fixed
costs
were listed as expenses on the income statement, other operating costs for
the
Delmarva propane distribution operation would have increased $203,000, when
compared to the prior year.
Higher
operating costs for the period are attributable to one of the Pennsylvania
start-ups, Spectrum Propane, with higher costs of $93,000 and higher costs
associated with vehicle fuel and maintenance.
Advanced
Information Services
The
advanced information services business had operating income of $16,000 for
the
first quarter 2006, representing an increase of $249,000 compared to the
same
period in 2005. The increase in operating income is directly related to the
elimination in 2006 of the operating loss incurred by the LAMPSTM
product
in the first quarter of 2005.
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Change
|
|
Revenue
|
|
$
|
2,825,204
|
|
$
|
3,170,286
|
|
|
($345,082
|
)
|
Cost
of sales
|
|
|
1,603,159
|
|
|
1,978,475
|
|
|
(375,316
|
)
|
Gross
margin
|
|
|
1,222,045
|
|
|
1,191,811
|
|
|
30,234
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
& maintenance
|
|
|
1,014,448
|
|
|
1,218,298
|
|
|
(203,850
|
)
|
Depreciation
& amortization
|
|
|
33,664
|
|
|
31,295
|
|
|
2,369
|
|
Other
taxes
|
|
|
157,624
|
|
|
175,079
|
|
|
(17,455
|
)
|
Other
operating expenses
|
|
|
1,205,736
|
|
|
1,424,672
|
|
|
(218,936
|
)
|
Total
Operating Income (Loss)
|
|
$
|
16,309
|
|
|
($232,861
|
)
|
$
|
249,170
|
|
The
Company’s advanced information services segment increased gross margin by
approximately $30,000 to $1.2 million, compared to gross margin for the same
period in 2005. Revenues for the period were approximately $345,000 lower
compared to 2005, including decreases in consulting revenues for the eBusiness
group of $233,000, MfgPro group of $147,000, and a decrease of $111,000 relating
to the LAMPSTM
product.
The eBusiness and MfgPro groups offer consulting, web-based services, and other
products and services for companies running the Progress® and MfgPro software
packages. These revenue losses were partially offset by an increase in
consulting revenues of $124,000 for the Progress software group. The Progress
software group offers consulting and provides other products and services to
companies who run the Progress software package.
Cost
of
sales for the first quarter of 2006 decreased approximately $375,000 compared
to
2005, of which $150,000 relating to the LAMPSTM
product
that has been sold, and to reductions in costs as a result of the reduced
consulting revenue.
Other
operating expenses decreased $219,000 in the first quarter 2006 to $1.2 million,
compared to $1.4 million for the same period of 2005. The 2005 expenses include
$218,000 of costs associated with the LAMPSTM
product
that has now been sold.
Other
Business Operations and Eliminations
Other
operations consist primarily of subsidiaries that own real estate leased
to
other Company subsidiaries and the results of operations for OnSight Energy,
LLC
(“OnSight”). Eliminations are entries required to eliminate activities between
business segments from the consolidated results. Other operations and
eliminating entries resulted in an operating loss of $8,000 for the first
quarter of 2006 compared to an operating loss of $57,000 for the same period
in
2005. The losses in 2006 and 2005 are primarily attributed to the OnSight
operation.
The
Company formed OnSight in 2004 to provide distributed energy services.
Distributed energy refers to a variety of small, modular power generating
technologies that may be combined with heating and/or cooling systems. For
the
first quarter of 2006, OnSight had an operating loss of $98,000 compared
to an
operating loss of $133,000 for the same period in 2005.
For
the Three Months Ended March 31,
|
|
2006
|
|
2005
|
|
Change
|
|
Revenue
|
|
$
|
155,135
|
|
$
|
192,592
|
|
|
($37,457
|
)
|
Cost
of sales
|
|
|
437
|
|
|
29,911
|
|
|
(29,474
|
)
|
Gross
margin
|
|
|
154,698
|
|
|
162,681
|
|
|
(7,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operations
& maintenance
|
|
|
104,089
|
|
|
145,976
|
|
|
(41,887
|
)
|
Depreciation
& amortization
|
|
|
40,656
|
|
|
51,263
|
|
|
(10,607
|
)
|
Other
taxes
|
|
|
18,743
|
|
|
30,511
|
|
|
(11,768
|
)
|
Other
operating expenses
|
|
|
163,488
|
|
|
227,750
|
|
|
(64,262
|
)
|
Operating
Loss - Other
|
|
|
(8,790
|
)
|
|
(65,069
|
)
|
|
56,279
|
|
Operating
Income - Eliminations
|
|
|
771
|
|
|
8,039
|
|
|
(7,268
|
)
|
Total
Operating Loss
|
|
|
($8,019
|
)
|
|
($57,030
|
)
|
$
|
49,011
|
|
Income
Taxes
Income
tax expense for the three months ended March 31, 2006 was $3.9 million compared
to $4.1 million for the three months ended March 31, 2005. The decrease in
income tax expense primarily reflects lower earnings. The effective tax rate
for
the first quarter of 2006 is 39.1% compared to an effective tax rate of 39.5%
for the same period in 2005.
Interest
Expense
Interest
expense for the first quarter of 2006 increased approximately $216,000,
or 17
percent, versus the same period in 2005. The higher interest expense is
attributed to:
· |
The
Company’s short-term borrowing increased from $257,000 at March 31, 2005
to $25.3 million at the end of the first quarter of 2006. The increased
borrowing, resulting in higher interest expense, is related to
the
Company’s capital investments made in 2005 and higher working capital due
to the rising costs of natural gas and
propane.
|
· |
The
average interest rate on short-term borrowing increased from 3.57%
in the
first quarter of 2005 to 4.99% for the same period in
2006.
|
· |
The
increase in interest expense from short-term borrowing was partially
offset by a decrease in interest expense on long-term debt. The
Company’s
average long-term debt balance declined from $68.1 million in the
first
quarter of 2005 to $62.8 million for the first quarter of 2006,
which
lowered interest expense for the period by
$98,000.
|
Financial
Position, Liquidity and Capital Resources
Chesapeake’s
capital requirements reflect the capital-intensive nature of its business
and
are principally attributable to its investment in new plant and equipment
and
the retirement of outstanding debt. The Company relies on cash generated
from
operations and short-term borrowing to meet normal working capital requirements
and to temporarily finance capital expenditures. During the first three months
of 2006, net cash provided by operating activities was $19.7 million, cash
used
by investing activities was $6.9 million and cash used by financing activities
was $12.5 million.
During
the first three months of 2005, net cash provided by operating activities
was
$16.1 million, cash used by investing activities was $3.4 million and cash
used
by financing activities was $7.2 million.
The
Board
of Directors has authorized the Company to borrow up to $60.0 million of
short-term debt from various banks and trust companies. As of March 31, 2006,
Chesapeake had five unsecured bank lines of credit with three financial
institutions, totaling $75.0 million. These bank lines will provide funds
for
the Company’s short-term cash needs to meet seasonal working capital
requirements and to temporarily fund portions of its capital expenditures.
Two
of the bank lines, totaling $15.0 million, are committed. The other three
lines
are subject to the banks’ availability of funds. The outstanding balances of
short-term borrowing at March 31, 2006 and 2005 were $25.3 million and $257,000,
respectively.
In
addition, on October 18, 2005, the Company executed a note agreement with
three
institutional investors (The Prudential Insurance Company of America, Prudential
Retirement Insurance and Annuity Company and United Omaha Life Insurance
Company), pursuant to which the investors agreed, subject to certain conditions,
to purchase from the Company $20 million in principal of 5.5 percent Senior
Notes (the “Notes”) issued by the Company; provided, that the Company elects to
effect the sale of the Notes at any time prior to January 15, 2007. The terms
of
the Notes will require annual principal repayments of $2 million beginning
on
the fifth anniversary of the issuance of the Notes.
Chesapeake
has budgeted $54.4 million for capital expenditures during 2006. This amount
includes $20.8 million for natural gas distribution, $26.7 million for natural
gas transmission, $5.7 million for propane distribution and wholesale marketing,
$178,000 for advanced information services and $1.0 million for other
operations. The natural gas distribution and transmission expenditures are
for
expansion and improvement of facilities. The propane expenditures are to
support
customer growth and for the replacement of equipment. The advanced information
services expenditures are for computer hardware, software and related equipment.
The other operations category includes general plant, computer software and
hardware. Financing for the 2006 capital expenditure program is expected
to be
provided from short-term borrowing, cash provided by operating activities
and
other sources. The capital expenditure program is subject to continuous review
and modification. Actual capital requirements may vary from the above estimates
due to a number of factors, including acquisition opportunities, changing
economic conditions, customer growth in existing areas, regulation, new growth
opportunities and availability of capital.
Chesapeake
expects to incur approximately $300,000 in 2006 and $25,000 in 2007 for
environmental-related expenditures. Additional expenditures may be required
in
future years. Management does not expect financing of future
environmental-related expenditures to have a material adverse effect on the
financial position or capital resources of the Company.
Capital
Structure
As
of
March 31, 2006, common equity represented 61.0 percent of total capitalization,
compared to 56.1 percent in 2005. If short-term borrowing and the current
portion of long-term debt were included in total capitalization, the equity
component of the Company’s capitalization would have been 50.7 percent and 55.0
percent at March 31, 2006 and March 31, 2005, respectively. Chesapeake remains
committed to maintaining a sound capital structure and strong credit ratings
to
provide the financial flexibility needed to access the capital markets when
required. This commitment, along with adequate and timely rate relief for
the
Company’s regulated operations, is intended to ensure that Chesapeake will be
able to attract capital from outside sources at a reasonable cost. The Company
believes that the achievement of these objectives will provide benefits to
customers and creditors, as well as to the Company’s investors.
Cash
Flows from Operating Activities
The
primary drivers for the Company’s operating cash flows are cash payments
received from gas customers, offset by payments made by the Company for gas
costs, operation and maintenance expenses, taxes and interest
costs.
Net
cash
provided by operating activities totaled $19.7 million and $16.1 million
for the
three months ended March 31, 2006 and 2005, respectively. Certain material
changes in working capital are listed below for the first three months of
2006:
· |
Accounts
receivable and accrued revenue decreased $11.0 million, which generated
an
increase of cash. The
decrease in accounts receivable primarily resulted from lower revenues
and
lower cost of natural gas in March 2006 compared with December
2005.
|
· |
Propane
inventory, storage gas and other inventory decreased $7.3 million,
which
generated an increase of cash. Decreased
propane inventory and storage gas resulted from a seasonal reduction
of
inventory levels at March 31 compared with December 31 due to
withdrawals.
|
· |
Accounts
payable and other accrued liabilities decreased $15.5 million, which
resulted in a decrease of cash.
The decreases in accounts payable and accrued liabilities primarily
resulted from lower revenues and lower cost of natural gas in March
2006
compared with December 2005. In addition, the payment of invoices
for
capital expenditures in the first quarter of 2006 contributed to
the
decrease.
|
Certain
material changes in working capital are listed below for the first three
months
of 2005:
· |
Accounts
receivable and accrued revenue decreased $2.0
million.
|
· |
Propane
inventory, storage gas and other inventory decreased $5.8
million.
|
· |
Accounts
payable and other accrued liabilities decreased
$8.1.
|
Cash
Flows Used in Investing Activities
Net
cash
flows used in investing activities totaled $6.9 million and $3.4 million
during
the three months ended March 31, 2006 and 2005, respectively. Cash utilized
for
capital expenditures was $7.0 million and $3.5 million for the first three
months of 2006 and 2005, respectively. Additions to property, plant and
equipment in the first quarters of 2006 and 2005 were primarily for natural
gas
transmission, natural gas distribution and propane distribution. In both
periods
in 2006 and 2005, the natural gas distribution expenditures were used primarily
to fund expansion and facilities improvements. In both periods, the natural
gas
transmission capital expenditures related primarily to expanding the Company’s
transmission system. Additionally, cash of $40,000 and $126,000 was received
during the three months ended March 31, 2006 and 2005, respectively, for
recovery of environmental costs through rates charged to customers.
Cash
Flows Used in Financing Activities
Cash
flows used in financing activities totaled $12.5 million and $7.2 million
for
the three months ended March 31, 2006 and 2005, respectively. During the
first
three months of 2006, the Company repaid $10.5 million of cash borrowed under
its short-term line of credit agreements. Additionally, the Company paid
common
stock dividends totaling $1.5 million and reduced its outstanding long-term
notes payable balance by $1.0 million.
During
the first three months of 2005, the Company repaid $4.4 million of cash borrowed
under its short-term line of credit agreements. Additionally, the Company
paid
common stock dividends totaling $1.5 million and reduced its outstanding
long-term notes payable balance by $1.0 million.
Off-Balance
Sheet Arrangements
As
noted
in the Company’s 2005 Annual Report on Form 10-K, the Company has issued
corporate guarantees to certain vendors of its propane wholesale marketing
subsidiary, its advanced information services subsidiary, and its Florida
natural gas marketing subsidiary. These corporate guarantees provide for
the
payment of propane and natural gas purchases and office rent in the event
of the
subsidiaries’ default. The liabilities for these purchases are included in our
Consolidated Financial Statements. The guarantees at March 31, 2006, totaled
$10.6 million and expire on various dates in 2006.
In
addition to the corporate guarantees, the Company has issued a letter of
credit
to its primary insurance company for $694,000, which expires May 31, 2006.
The
letter of credit was provided as security for claims amounts to satisfy the
deductibles on the Company’s policies.
Contractual
Obligations
There
have been no material changes in the contractual obligations presented in
the
Company’s 2005 Annual Report on Form 10-K, except for commodity purchase
obligations and forward contracts entered into in the ordinary course of
the
Company’s business. Below is a summary of the commodity and forward contract
obligations at March 31, 2006.
|
|
Payments
Due by Period
|
|
Purchase
Obligations
|
|
Less
than 1 year
|
|
1
- 3 years
|
|
3
- 5 years
|
|
More
than 5 years
|
|
Total
|
|
Commodities
(1)
|
|
$
|
14,206,887
|
|
$
|
3,294,063
|
|
|
-
|
|
|
-
|
|
$
|
17,500,950
|
|
Propane
(2)
|
|
|
5,847,146
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,847,146
|
|
Total
Purchase Obligations
|
|
$
|
20,054,033
|
|
$
|
3,294,063
|
|
$
|
0
|
|
$
|
0
|
|
$
|
23,348,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
In addition to the obligations noted above, the natural gas distribution
and propane distribution operations have agreements with commodity
suppliers that have provisions that allow the Company to reduce
or
eliminate the quantities purchased. There are no monetary penalties
for
reducing the amounts purchased; however, the propane contracts
allow the
suppliers to reduce the amounts available in the winter season
if the
Company does not purchase specified amounts during the summer season.
Under these contracts, the commodity prices will fluctuate as market
prices fluctuate.
|
|
(2)
The Company has also entered into forward sale contracts in the
aggregate
amount of $5.8 million. See Part I, Item 3, “Quantitative and Qualitative
Disclosures about Market Risk,” below for further
information.
|
|
Environmental
Matters
As
more
fully described in Note 4 to the Condensed Consolidated Financial Statements,
Chesapeake has incurred costs relating to the completed or ongoing environmental
remediation at three former gas manufacturing plant sites. In addition,
Chesapeake is currently participating in discussions regarding the possible
responsibilities of the Company for remediation of a fourth former gas
manufacturing plant site located in Cambridge, Maryland. Chesapeake believes
that future costs associated with these sites will be recoverable in rates
or
through sharing arrangements with, or contributions by, other responsible
parties.
Other
Matters
Regulatory
Matters
The
Company’s natural gas distribution operations are subject to regulation by the
Delaware, Maryland and Florida Public Service Commissions. Eastern Shore
Natural
Gas Company (“Eastern Shore”), the Company’s natural gas transmission operation,
is subject to regulation by the Federal Energy Regulatory Commission
(“FERC”).
Eastern
Shore.
During
October 2002, Eastern Shore filed for recovery of gas supply realignment
costs,
which totaled $196,000 (including interest), associated with the implementation
of FERC Order No. 636. At that time, the FERC deferred review of the filing
pending settlement of a related matter concerning another transmission company.
Chesapeake understands that the other matter has now been resolved. Eastern
Shore has updated its gas supply realignment filing and entered into pre-filing
discussions with customers potentially impacted by the filing before re-filing
its application with the FERC. Discussions with customers were completed
during
the first quarter of 2006 and Eastern Shore intends to resubmit its gas supply
realignment filing to the FERC during second quarter of 2006.
On
January 20, 2006, Eastern Shore filed an application for a Certificate of
Public
Convenience and Necessity for its 2006-2008 system expansion project. The
proposed expansion application requests authority to construct and operate
approximately 55 miles of new pipeline facilities and two new metering and
regulating station facilities to provide an additional 47,350 dekatherms
per day
(“dt/d”) of firm transportation service in accordance with the phased-in
customer requests of 26,200 dt/d in 2006, 10,300 dt/d in 2007, and 10,850
dt/d
in 2008, at a total estimated cost of approximately $33.6 million. The following
table provides a breakdown for the additional amounts of firm capacity per
day,
the estimated capital investment required, and the estimated annual gross
margin contribution for the new services that will become effective November
1st
for each
of the respective years of the project:
|
|
Year
|
|
|
|
2006
|
|
2007
|
|
2008
|
|
Additional
firm capacity per day
|
|
|
26,200
|
|
|
10,300
|
|
|
10,850
|
|
Capital
investment
|
|
$
|
17
million
|
|
$
|
8
million
|
|
$
|
8
million
|
|
Annualized
Gross Margin contribution
|
|
$
|
3,670,256
|
|
$
|
1,484,146
|
|
$
|
1,594,785
|
|
A
Scoping
Meeting was held on March 29, 2006 at which the public and all other interested
stakeholders were invited to attend to review the project. No opposition
to the
project has been received. Eastern Shore expects to commence construction
of
Phase I of the proposed new facilities following receipt of approval by the
FERC
and receipt of all other necessary permits and approvals. Eastern Shore
presently anticipates a November 1, 2006 in-service date for the Phase I
facilities.
On
December 9, 2005, Eastern Shore filed revised tariff sheets to replace its
existing fixed price penalties with penalties that are the higher of a fixed
price or a multiple of a daily index price. The revised penalties are applicable
to customers who violate Operational Flow Orders and customers who take
unauthorized overrun quantities that could threaten the operational integrity
of
the pipeline, or to Eastern Shore’s ability to render reliable service. By
letter order dated January 6, 2006, the FERC accepted Eastern Shore’s proposed
changes, effective December 21, 2005.
Delaware.
On
October 3, 2005, the Delaware division filed its annual Gas Sales Service
Rates
(“GSR”) application that was effective for service rendered on and after
November 1, 2005 with the Delaware Public Service Commission (“Delaware PSC”).
On October 11, 2005, the Delaware PSC approved the GSR charges, subject to
full
evidentiary hearings and a final decision. On February 23, 2006, the Delaware
division filed a supplemental GSR application with the Delaware PSC that
was
consolidated with the previously filed application. In its supplemental
application, the Delaware division proposed reduced GSR charges to be effective
March 15, 2006. On February 28, 2006, the Delaware PSC approved the reduced
GSR
charges subject to full evidentiary hearings and a final decision. The Delaware
division expects a final decision on both of these applications during the
third
quarter of 2006.
On
November 1, 2005, the Delaware division filed with the Delaware PSC its annual
Environmental Rider (“ER”) Rate application to become effective for service
rendered on and after December 1, 2005. The Delaware PSC granted approval
of the
ER rate at its regularly scheduled meeting on November 8, 2005, subject to
full
evidentiary hearings and a final decision. An evidentiary hearing was held
on
April 5, 2006, which was uncontested, and the Delaware division anticipates
a
final decision by the Delaware PSC during the second quarter of 2006 approving
its application, as filed.
On
September 2, 2005, the Delaware division filed an application with the Delaware
PSC requesting approval of an alternative rate design and rate structure
in
order to provide natural gas service to prospective customers in eastern
Sussex
County. While Chesapeake does provide natural gas service to residents and
businesses in portions of Sussex County, under the Company’s current tariff and
traditional ratemaking processes, natural gas has not been extended to the
State
of Delaware’s recently targeted growth areas in eastern Sussex County. In April
2002, Governor Ruth Ann Minner established the Delaware Energy Task Force
(“Task
Force”), whose mission was to address the State of Delaware’s long-term and
short-term energy challenges. In September 2003, the Task Force issued its
final
report to the Governor that included a strategy related to enhancing the
availability of natural gas within the State by evaluating possible incentives
for expanding residential and commercial natural gas service. Chesapeake
believes its current proposal to implement a rate design that will enable
the
Company to provide natural gas as a viable energy choice to a broad number
of
prospective customers within eastern Sussex County is consistent with the
Task
Force recommendation. While the Company cannot predict the outcome of its
application at this time, the Company anticipates a final decision from the
Delaware PSC regarding its application during the first half of
2006.
Maryland.
On April
28, 2006, the Maryland division filed a base rate application with the Maryland
Public Service Commission (“Maryland PSC”) requesting an overall increase in
base rates of approximately $1,137,000 annually, based on a proposed overall
rate of return of 9.7 percent and a return on equity of 11.5 percent. The
proposed increase, if approved, would represent an increase in total annual
revenues of the Maryland division of approximately 6 percent. The Company
cannot predict the outcome of this application; however, a final decision
by the
Maryland PSC is expected during the third or fourth quarter of 2006.
On
December 8, 2005, the Maryland Public Service Commission (“Maryland PSC”) held
an evidentiary hearing to determine the reasonableness of the Maryland
division’s four quarterly gas cost recovery filings during the twelve months
ended September 30, 2005. On January 12, 2006, the Hearing Examiner issued
proposed findings approving the quarterly gas cost recovery rates as filed
by
the Maryland division, permitting complete recovery of its purchased gas
costs
for the period under review. No appeals or written exceptions to the proposed
findings were made and a final order approving the quarterly gas cost recovery
rates as filed was issued by the Maryland PSC on February 14, 2006.
Florida.
On May
16, 2005, the Florida division filed a request with the Florida Public Service
Commission (“Florida PSC”) for approval of a Special Contract with the
Department of Management Services, an agency of the State of Florida, for
service to the Washington Correction Institution (“WCI”). The Florida PSC
approved the Company’s request on July 19, 2005, and service to the existing WCI
facility began in February 2006. WCI is located in Washington County in the
Florida panhandle and is the thirteenth county served by the Company’s Florida
division.
On
September 2, 2005, the Florida division filed a petition for a Declaratory
Statement with the Florida PSC for a determination that Peninsula Pipeline
Company, Inc. (“PPC”), a wholly owned subsidiary of the Company, qualifies as a
natural gas transmission company under the Natural Gas Transmission Pipeline
Intrastate Regulatory Act. The Florida PSC approved this Petition at its
December 20, 2005 agenda conference, and a final order was issued on January
9,
2006. This determination that PPC qualifies as a natural gas transmission
company provides opportunities for investment by PPC to deliver natural gas
transmission service to industrial customers in Florida by an intra-state
pipeline.
Competition
The
Company’s natural gas operations compete with other forms of energy including
electricity, oil and propane. The principal competitive factors are price
and,
to a lesser extent, accessibility. The Company’s natural gas distribution
operations have several large-volume industrial customers that have the capacity
to use fuel oil as an alternative to natural gas. When oil prices decline,
these
interruptible customers convert to oil to satisfy their fuel requirements.
Lower
levels in interruptible sales occur when oil prices are lower relative to
the
price of natural gas. Oil prices, as well as the prices of electricity and
other
fuels are subject to fluctuation for a variety of reasons; therefore, future
competitive conditions are not predictable. To address this uncertainty,
the
Company uses flexible pricing arrangements on both the supply and sales sides
of
its business to maximize sales volumes. As a result of the transmission
business’ conversion to open access, this business has shifted from providing
competitive sales service to providing transportation and contract storage
services.
The
Company’s natural gas distribution operations located in Delaware, Maryland and
Florida offer transportation services to certain industrial customers. The
Florida operation extended transportation service to commercial customers
in
2001 and to residential customers in 2002. With transportation service available
on the Company’s distribution systems, the Company is competing with third party
suppliers to sell gas to certain customers. As it relates to transportation
services, the Company’s competitors include interstate transmission companies
that are in close proximity to the Company’s pipeline. The customers at risk are
usually large-volume commercial and industrial customers with the financial
resources and capability to bypass the Company’s distribution operations. In
certain situations, the Company’s distribution operations may adjust services
and rates for these customers to retain their business. The Company expects
to
continue to expand the availability of transportation service to additional
classes of distribution customers in the future. The Company operates a natural
gas marketing operation in Florida to compete for customers eligible for
transportation services.
The
Company’s propane distribution operations compete with several other propane
distributors in their service territories, primarily on the basis of service
and
price, emphasizing reliability of service and responsiveness. Competition
is
generally from local outlets of national distribution companies and local
businesses, because distributors located in close proximity to customers
incur
lower costs of providing service. Propane competes primarily with electricity
and heating oil as energy sources. Since natural gas has historically been
less
expensive than propane, propane is generally not distributed in geographic
areas
serviced by natural gas pipeline or distribution systems.
The
propane wholesale marketing operation competes against various marketers,
many
of which have significantly greater resources and are able to obtain price
or
volumetric advantages.
The
advanced information services business faces significant competition from
a
number of larger competitors having substantially greater resources available
to
them than does the Company. In addition, changes in the advanced information
services business are occurring rapidly, which could adversely impact the
markets for the products and services offered by these businesses. This segment
competes on the basis of technological expertise, reputation and
price.
Recent
Pronouncements
In
December 2004, the FASB released a revision (“Share-Based Payment”) to SFAS No.
123 “Accounting for Stock-Based Compensation,” referred to as SFAS No. 123R. In
April 2005, the SEC approved a new rule that delayed the effective date for
SFAS
No. 123R until the first annual period beginning after June 15, 2005. This
Statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. Those plans include all arrangements
by
which employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts based
on the
price of the employer’s stock. Examples are stock purchase plans, stock options,
restricted stock and stock appreciation rights. The Company’s adoption of this
pronouncement did not have a material impact on the financial statements.
Inflation
Inflation
affects the cost of supply, labor, products and services required for
operations, maintenance and capital improvements. While the impact of inflation
has remained low in recent years, natural gas and propane prices are subject
to
rapid fluctuations. Fluctuations in natural gas prices are passed on to
customers through the gas cost recovery mechanism in the Company’s tariffs. To
help cope with the effects of inflation on its capital investments and returns,
the Company seeks rate relief from regulatory commissions for regulated
operations while monitoring the returns of its unregulated business operations.
To compensate for fluctuations in propane gas prices, the Company adjusts
its
propane selling prices to the extent allowed by the market.
Cautionary
Statement
Chesapeake
has made statements in this report that are considered to be forward-looking
statements. These statements are not matters of historical fact. Sometimes
they
contain words such as “believes,” “expects,” “intends,” “plans,” “will,” or
“may,” and other similar words of a predictive nature. These statements relate
to matters such as customer growth, changes in revenues or gross margins,
capital expenditures, environmental remediation costs, regulatory approvals,
market risks associated with the Company’s propane wholesale marketing
operation, competition, inflation and other matters. It is important to
understand that these forward-looking statements are not guarantees, but
are
subject to certain risks and uncertainties and other important factors that
could cause actual results to differ materially from those in the
forward-looking statements. These factors include, among other
things:
o |
the
temperature sensitivity of the natural gas and propane
businesses;
|
o |
the
effect of spot, forward and futures market prices on the Company’s
distribution, wholesale marketing and energy trading
businesses;
|
o |
the
effects of competition on the Company’s unregulated and regulated
businesses;
|
o |
the
effect of changes in federal, state or local regulatory and tax
requirements, including deregulation;
|
o |
the
effect of accounting changes;
|
o |
the
effect of compliance with environmental regulations or the remediation
of
environmental damage;
|
o |
the
effects of general economic conditions on the Company and its
customers;
|
o |
the
ability of the Company’s new and planned facilities and acquisitions to
generate expected revenues; and
|
o |
the
Company’s ability to obtain the rate relief and cost recovery requested
from utility regulators and the timing of the requested regulatory
actions.
|
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
Market
risk represents the potential loss arising from adverse changes in market
rates
and prices. Long-term debt is subject to potential losses based on the change
in
interest rates. The Company’s long-term debt consists of first mortgage bonds,
fixed rate senior notes and convertible debentures. All of the Company’s
long-term debt is fixed-rate debt and was not entered into for trading purposes.
The carrying value of long-term debt, including current maturities, was $62.8
million at March 31, 2006, as compared to a fair value of $65.6 million,
based
mainly on current market prices or discounted cash flows using current rates
for
similar issues with similar terms and remaining maturities. The Company
evaluates whether to refinance existing debt or permanently refinance existing
short-term borrowing in part on the fluctuation in interest rates.
The
Company’s propane distribution business is exposed to market risk as a result of
propane storage activities and entering into fixed price contracts for supply.
The Company can store up to approximately four million gallons (including
leased storage and rail cars) of propane during the winter season to meet
its
customers’ peak requirements and to serve metered customers. Decreases in the
wholesale price of propane may cause the value of stored propane to decline.
To
mitigate the impact of price fluctuations, the Company has adopted a Risk
Management Policy that allows the propane distribution operation to enter
into
fair value hedges of its inventory. At of March 31, 2006 management reviewed
the
Company’s storage position and several hedging strategies and elected not to
hedge any of its inventories.
The
Company’s propane wholesale marketing operation is a party to natural gas
liquids (“NGL”) forward contracts, primarily propane contracts, with various
third parties. These contracts require that the propane wholesale marketing
operation purchase or sell NGL at a fixed price at fixed future dates. At
expiration, the contracts are settled by the delivery of NGL to the Company
or
the counter party or booking out the transaction. (Booking out is a procedure
for financially settling a contract in lieu of the physical delivery of energy.)
The propane wholesale marketing operation also enters into futures contracts
that are traded on the New York Mercantile Exchange. In certain cases, the
futures contracts are settled by the payment or receipt of a net amount equal
to
the difference between the current market price of the futures contract and
the
original contract price; however, they may also be settled for physical receipt
or delivery of propane.
The
forward and futures contracts are entered into for trading and wholesale
marketing purposes. The propane wholesale marketing business is subject to
commodity price risk on its open positions to the extent that market prices
for
NGL deviate from fixed contract settlement prices. Market risk associated
with
the trading of futures and forward contracts are monitored daily for compliance
with the Company’s Risk Management Policy, which includes volumetric limits for
open positions. To manage exposures to changing market prices, open positions
are marked up or down to market prices and reviewed by oversight officials
on a
daily basis. Additionally, the Risk Management Committee reviews periodic
reports on market and the credit risk of counter-parties, approves any
exceptions to the Risk Management Policy (within limits established by the
Board
of Directors) and authorizes the use of any new types of contracts. Quantitative
information on forward and futures contracts at March 31, 2006 is presented
in
the following table.
At
March 31, 2006
|
|
Quantity
in gallons
|
|
Estimated
Market Prices
|
|
Weighted
Average Contract Prices
|
|
Forward
Contracts
|
|
|
|
|
|
|
|
Sale
|
|
|
6,178,200
|
|
$0.9650
— $0.9950
|
|
$0.9350
|
|
Purchase
|
|
|
6,304,200
|
|
$0.9600
— $0.9713
|
|
$0.9275
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
market prices and weighted average contract prices are in dollars
per
gallon.
|
|
All
contracts expire in 2006.
|
|
Item
4. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
The
Chief
Executive Officer and Chief Financial Officer of the Company, with the
participation of other Company officials, have evaluated the Company’s
“disclosure controls and procedures” (as such term is defined under Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934,
as amended) as of March 31, 2006. Based upon their evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures are effective.
Changes
in Internal Control
Over Financial Reporting
During
the quarter ended March 31, 2006, there was no change in the Company’s internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
PART
II — OTHER INFORMATION
Item
1. Legal
Proceedings
The
Company is involved in certain legal actions and claims arising in the normal
course of business. The Company is also involved in certain legal and
administrative proceedings before various government agencies concerning
rates.
In the opinion of management, the ultimate disposition of these proceedings
and
claims will not have a material effect on the consolidated financial position,
results of operations or cash flows of the Company.
Item
1A. Risk
Factors
None.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
Period
|
|
Total
Number of Shares Purchased
|
|
Average
Price Paid per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
(2)
|
|
Maximum
Number of Shares That May Yet Be Purchased Under the Plans or Programs
(2)
|
|
January
1, 2006 through January 31, 2006 (1)
|
|
|
341
|
|
$
|
31.32
|
|
|
0
|
|
|
0
|
|
February
1, 2006 through February 28, 2006
|
|
|
0
|
|
$
|
0.00
|
|
|
0
|
|
|
0
|
|
March
1, 2006 through March 31, 2006
|
|
|
0
|
|
$
|
0.00
|
|
|
0
|
|
|
0
|
|
Total
|
|
|
341
|
|
$
|
31.32
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Chesapeake purchased shares of stock on the open market to add
to shares
held in a Rabbi Trust to adjust the balance to the contractual
value. 341
shares were purchased through executive dividend
deferrals.
|
|
(2)
Chesapeake has no publicly announced plans or programs to repurchase
its
shares.
|
|
Item
3. Defaults
upon Senior Securities
None
Item
4. Submission
of Matters to a Vote of Security Holders
None
Item
5. Other
Information
None
Item
6. Exhibits
and Reports on Form 8-K
· |
Exhibit
31.1 — Certificate of Chief Executive Officer of Chesapeake Utilities
Corporation pursuant to Rule 13a-14(a) under the Securities Exchange
Act
of 1934, dated May 10, 2006.
|
· |
Exhibit
31.2 — Certificate of Chief Financial Officer of Chesapeake Utilities
Corporation pursuant to Rule 13a-14(a) under the Securities Exchange
Act
of 1934, dated May 10, 2006.
|
· |
Exhibit
32.1 — Certificate of Chief Executive Officer of Chesapeake Utilities
Corporation pursuant to 18 U.S.C. Section 1350, dated May 10, 2006
|
· |
Exhibit
32.2 — Certificate of Chief Financial Officer of Chesapeake Utilities
Corporation pursuant to 18 U.S.C. Section 1350, dated May 10, 2006.
|
· |
March
11, 2006, Other Event (Item
8.01).
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Chesapeake
Utilities Corporation
/s/
Michael P. McMasters
Michael
P. McMasters
Senior
Vice President and Chief Financial Officer
Date:
May
10, 2006