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: June 30, 1998
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 of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
909 Silver Lake Boulevard, Dover, Delaware 19904
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(Address of principal executive offices) (Zip Code)
(302) 734-6799
--------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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(Former name, former address and former fiscal year,
if changed since last report.)
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 [ ]
Common Stock, par value $.4867 - 5,059,373 shares issued as of June 30, 1998.
<PAGE>
PART I
FINANCIAL INFORMATION
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
ASSETS (Unaudited) (Restated)
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PROPERTY, PLANT AND EQUIPMENT
Natural gas distribution $ 77,921,682 $ 74,769,458
Natural gas transmission 34,207,410 33,856,873
Propane distribution and marketing 26,645,447 27,091,102
Advanced information services 899,901 841,757
Other plant 7,650,012 6,896,899
Gas plant acquisition adjustment 795,004 795,004
-------------------------------------------------------------------------
Total property, plant and equipment 148,119,456 144,251,093
Less: Accumulated depreciation and
amortization (46,941,185) (44,371,890)
-------------------------------------------------------------------------
Net property, plant and equipment 101,178,271 99,879,203
-------------------------------------------------------------------------
INVESTMENTS 3,348,994 2,721,443
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CURRENT ASSETS
Cash and cash equivalents 2,702,957 4,829,176
Accounts receivable, less
for uncollectibles 12,431,881 15,598,777
Materials and supplies,
at average cost 1,697,201 1,424,312
Propane inventory, at average cost 1,153,476 2,436,200
Storage gas prepayments 1,630,408 2,926,618
Underrecovered purchased gas costs - 1,673,389
Income taxes receivable - 787,034
Prepaid expenses 1,139,663 1,107,825
Deferred income taxes 755,481 247,487
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Total current assets 21,511,067 31,030,818
-------------------------------------------------------------------------
DEFERRED CHARGES AND OTHER ASSETS
Environmental regulatory assets 4,773,638 4,865,073
Environmental expenditures, net 2,557,923 2,372,929
Other deferred charges and
intangible assets 4,244,335 4,053,068
-------------------------------------------------------------------------
Total deferred charges and other assets 11,575,896 11,291,070
-------------------------------------------------------------------------
TOTAL ASSETS $137,614,228 $144,922,534
=========================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, December 31,
1998 1997
CAPITALIZATION AND LIABILITIES (Unaudited) (Restated)
-------------------------------------------------------------------------
CAPITALIZATION
Stockholders' equity
Common Stock, par value $.4867 per share;
(authorized 12,000,000 shares; issued
5,059,373 and 5,004,078 shares,
respectively) $ 2,462,270 $ 2,435,142
Additional paid-in capital 23,601,702 22,581,463
Retained earnings 31,709,187 28,554,001
Accumulated other comprehensive
income 679,956 296,872
Less:
Unearned compensation -
restricted stock awards (130,964) (190,886)
-------------------------------------------------------------------------
Total stockholders' equity 58,322,151 53,676,592
Long-term debt, net of current portion 37,892,000 38,694,741
-------------------------------------------------------------------------
Total capitalization 96,214,151 92,371,333
-------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt 520,000 582,500
Short-term borrowing 2,100,000 7,600,010
Accounts payable 9,301,448 16,164,032
Refunds payable to customers 256,708 357,041
Income taxes payable 2,378,705 -
Accrued interest 1,173,290 784,533
Dividends payable - 1,092,168
Overrecovered purchased gas costs 188,337 -
Other accrued expenses 3,362,835 3,829,497
-------------------------------------------------------------------------
Total current liabilities 19,281,323 30,409,781
-------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 11,337,417 11,490,358
Deferred investment tax credits 799,091 821,617
Environmental liability 4,773,638 4,865,073
Accrued pension costs 1,972,792 1,754,715
Other liabilities 3,235,816 3,209,657
-------------------------------------------------------------------------
Total deferred credits and
other liabilities 22,118,754 22,141,420
-------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $137,614,228 $144,922,534
=========================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Restated
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997
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OPERATING REVENUES $43,594,944 $44,918,820
COST OF SALES 33,309,758 34,415,711
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GROSS MARGIN 10,285,186 10,503,109
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OPERATING EXPENSES
Operations 6,203,139 5,729,758
Maintenance 532,539 602,836
Depreciation and amortization 1,521,802 1,363,140
Other taxes 963,097 980,795
Income taxes 102,507 415,558
-----------------------------------------------------------------------
Total operating expenses 9,323,084 9,092,087
-----------------------------------------------------------------------
OPERATING INCOME 962,102 1,411,022
OTHER INCOME, NET 89,187 104,911
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INCOME BEFORE INTEREST CHARGES 1,051,289 1,515,933
INTEREST CHARGES 787,538 790,278
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NET INCOME $ 263,751 $ 725,655
=======================================================================
EARNINGS PER SHARE OF COMMON STOCK:
Basic: $ 0.05 $ 0.15
=======================================================================
Diluted: $ 0.05 $ 0.15
=======================================================================
COMPREHENSIVE INCOME STATEMENTS
(Unaudited)
Restated
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997
-----------------------------------------------------------------------
NET INCOME $ 263,751 $ 725,655
COMPONENTS OF COMPREHENSIVE INCOME,
NET OF INCOME TAXES
Unrealized Gain / (Loss) on Marketable 198,696 -
-----------------------------------------------------------------------
COMPREHENSIVE INCOME $ 462,447 $ 725,655
=======================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Restated
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
-----------------------------------------------------------------------
OPERATING REVENUES $103,764,046 $121,221,105
COST OF SALES 77,175,201 95,258,547
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GROSS MARGIN 26,588,845 25,962,558
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OPERATING EXPENSES
Operations 12,173,257 11,776,176
Maintenance 1,011,651 1,101,418
Depreciation and amortization 3,034,375 2,726,218
Other taxes 2,133,944 2,129,775
Income taxes 2,503,381 2,662,434
-----------------------------------------------------------------------
Total operating expenses 20,856,608 20,396,021
-----------------------------------------------------------------------
OPERATING INCOME 5,732,237 5,566,537
OTHER INCOME, NET 200,417 199,594
-----------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES 5,932,654 5,766,131
INTEREST CHARGES 1,641,544 1,600,068
-----------------------------------------------------------------------
NET INCOME $ 4,291,110 $ 4,166,063
=======================================================================
EARNINGS PER SHARE OF COMMON STOCK:
Basic: $ 0.85 $ 0.84
=======================================================================
Diluted: $ 0.83 $ 0.82
=======================================================================
COMPREHENSIVE INCOME STATEMENTS
(Unaudited)
Restated
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
-----------------------------------------------------------------------
NET INCOME $ 4,291,110 $ 4,166,063
COMPONENTS OF COMPREHENSIVE INCOME,
NET OF INCOME TAXES
Unrealized Gain / (Loss) on Marketable 383,084 (7,654)
-----------------------------------------------------------------------
COMPREHENSIVE INCOME $ 4,674,194 $ 4,158,409
=======================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Restated
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
-----------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 4,291,110 $ 4,166,063
Adjustments to reconcile net income
to net operating cash:
Depreciation and amortization 3,339,205 2,934,011
Deferred income taxes, net (905,402) (176,775)
Investment tax credit adjustments (22,526) (22,527)
Employee benefits 218,076 249,872
Employee compensation from
lapsing stock restrictions 59,922 86,719
Other 26,160 (149,555)
Changes in assets and liabilities:
Accounts receivable 2,841,198 18,966,757
Inventory, materials, supplies
and storage gas 2,306,045 3,008,600
Assets and liabilities from
trading activities 325,699 (1,077,710)
Prepaid expenses (31,838) 277,959
Other deferred charges (268,559) (89,852)
Accounts payable (6,862,583) (18,621,206)
Refunds payable to customers (100,333) (112,685)
Overrecovered purchased gas costs 1,861,725 1,750,116
Income taxes payable 3,165,740 2,153,081
Compensation accruals - (1,636,190)
Other current liabilities 391,141 (391,238)
-----------------------------------------------------------------------
Net cash provided by
operating activities 10,634,780 11,315,440
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INVESTING ACTIVITIES
Property, plant and equipment
expenditures, net (4,745,976) (6,075,251)
-----------------------------------------------------------------------
Net cash used by investing activities (4,745,976) (6,075,251)
-----------------------------------------------------------------------
FINANCING ACTIVITIES
Common stock dividends net of
amounts reinvested of $296,457
and $272,738, respectively (1,931,637) (1,772,944)
Net repayments under line of
credit agreements (5,500,010) (2,834,990)
Converted debenture bonds 73,915 -
Proceeds from issuance of stock
to Company 401(k) plan 207,950 193,017
Repayments of long-term debt (865,241) (2,685,626)
-----------------------------------------------------------------------
Net cash used by financing activities (8,015,023) (7,100,543)
-----------------------------------------------------------------------
NET DECREASE IN CASH $ (2,126,219) $ (1,860,354)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,829,176 7,139,838
-----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,702,957 $ 5,279,484
=======================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. QUARTERLY FINANCIAL DATA
The financial information included herein is unaudited;
however, the financial information reflects normal recurring
adjustments, which are, in the opinion of management,
necessary for a fair presentation of the Company's interim
results. Due to the seasonal nature of the Company's business,
there are substantial variations in the results of operations
reported on a quarterly basis. Certain amounts in 1997 have
been reclassified to conform with the 1998 presentation.
2. ACQUISITIONS
On March 31, 1998, Chesapeake acquired Sam Shannahan Well
Company, Inc., operating as Tolan Water Service, in exchange
for 25,000 shares of the Company's common stock. Tolan
provides water treatment services to 3,000 residential,
commercial and industrial customers on the Delmarva Peninsula.
On May 29, 1998, the Company acquired all of the outstanding
shares of Xeron, Inc. ("Xeron"), a privately held company
headquartered in Houston, Texas, engaged in the wholesale
marketing of natural gas liquids, primarily propane, to both
major and large independent oil and petrochemical companies,
wholesale gas resellers and southeastern propane companies.
The transaction was effected through the exchange of 475,000
shares of the Company's common stock and was accounted for as
a pooling of interests. Xeron will continue to operate as a
subsidiary of Chesapeake. Due to the acquisition, the Company
is in the process of establishing a policy to account for
derivatives.
The results of operations for the separate companies and the
combined amounts are presented in the following table.
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
--------------------------------------------------------------------------
Operating Revenues
Chesapeake $ 21,170,929 $ 24,805,428 $ 60,428,921 $ 68,450,539
Xeron 21,872,431 19,725,971 42,466,757 52,065,912
Tolan 551,584 387,421 868,368 704,654
--------------------------------------------------------------------------
Combined $ 43,594,944 $ 44,918,820 $103,764,046 $121,221,105
==========================================================================
Net Income
Chesapeake $ 126,340 $ 692,841 $ 4,080,178 $ 4,058,953
Xeron 95,566 (15,150) 170,641 42,506
Tolan 41,845 47,964 40,291 64,604
--------------------------------------------------------------------------
Combined $ 263,751 $ 725,655 $ 4,291,110 $ 4,166,063
==========================================================================
3. CALCULATION OF DILUTED EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997
----------------------------------------------------------------------
RECONCILIATION OF NUMERATOR:
Net Income -- basic $ 263,751 $ 725,655
Effect of 8.25% Convertible debentures * - -
----------------------------------------------------------------------
Adjusted numerator -- diluted $ 263,751 $ 725,655
----------------------------------------------------------------------
RECONCILIATION OF DENOMINATOR
Weighted Shares Outstanding -- basic 5,055,237 4,963,212
Effect of Dilutive Securities
8.25% Convertible debentures * - -
Stock options and performance shares 11,860 29,416
----------------------------------------------------------------------
Adjusted denominator -- diluted 5,067,097 4,992,628
----------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 0.05 $ 0.15
======================================================================
* Inclusion of the convertible debentures produces an anti-dilutive
effect of less than $0.01 per share in the calculation of dilutive
earnings per share for the three months ended June 30, 1998 and
1997; therefore, they are not shown in this calculation although
they could have a dilutive effect in the future or in other periods.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
----------------------------------------------------------------------
RECONCILIATION OF NUMERATOR:
Net Income -- basic $4,291,110 $4,166,063
Effect of 8.25% Convertible debentures 96,412 102,038
----------------------------------------------------------------------
Adjusted numerator -- diluted $4,387,522 $4,268,101
----------------------------------------------------------------------
RECONCILIATION OF DENOMINATOR
Weighted Shares Outstanding -- basic 5,040,043 4,956,317
Effect of Dilutive Securities
8.25% Convertible debentures 227,087 240,338
Stock options and performance shares 13,034 30,149
----------------------------------------------------------------------
Adjusted denominator -- diluted 5,280,164 5,226,804
----------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 0.83 $ 0.82
======================================================================
4. COMMITMENTS AND CONTINGENCIES - ENVIRONMENTAL MATTERS
The Company is currently participating in the investigation,
assessment and remediation of three former gas manufacturing
plant sites located in different jurisdictions, including the
exploration of corrective action options to remove
environmental contaminants. The Company has accrued
liabilities for two of these sites, the Dover Gas Light and
Salisbury Town Gas Light sites.
(a) Dover Gas Light Site
The Dover site has been listed by the Environmental Protection
Agency Region III ("EPA") on the Superfund National Priorities
List under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). On August 19, 1994,
the EPA issued the site Record of Decision ("ROD"), which
selected a remedial plan and estimated the costs of the
selected remedy at $2.7 million for ground-water remediation
and $3.3 million for soil remediation. In May 1995, EPA issued
an order to the Company under Section 106 of CERCLA (the
"Order"), requiring the Company to fund or implement the ROD.
The Order was also issued to General Public Utilities
Corporation, Inc. ("GPU"), which both the EPA and the Company
believe is liable under CERCLA. Other potentially responsible
parties ("PRPs") such as the State of Delaware were not
ordered to perform the ROD. Although notifying EPA of
objections to the Order, the Company agreed to comply. GPU
informed EPA that it did not intend to comply with the Order.
EPA may seek judicial enforcement of its Order, as well as
significant financial penalties for failure to comply.
Additional information pertaining to remediation costs,
investigations related to additional parties who may be PRPs
and/or litigation initiated by the Company can be found in the
Company's annual report on Form 10-K for the year ended
December 31, 1997 (see the "Environmental - Dover Gas Light
Site" section, beginning on page 11).
In conjunction with the commencement of the design phase of
the ROD, a pre-design investigation report ("the report") was
filed in October 1996 with the EPA. The report, which required
EPA approval, provided an up to date status on the site, which
the EPA used to determine if the remedial design selected in
the ROD was still the appropriate remedy.
In the report, the Company proposed a modification to the soil
cleanup remedy selected in the ROD to take into account an
existing land use restriction banning future development at
the site. In April of 1997, the EPA issued a fact sheet
stating that the EPA was considering the proposed
modification. The fact sheet included an overall cost estimate
of $5.7 million for the proposed modified remedy and a new
overall cost estimate of $13.2 million for the remedy selected
in the ROD. On August 28, 1997, the EPA issued a Proposed Plan
to modify the current clean-up plan that would involve: (1)
excavation of off-site thermal treatment of the contents of
the former subsurface gas holders; (2) implementation of soil
vaporization extraction; (3) pavement of the parking lot; and
(4) use of institutional controls that would restrict future
development of the Site. The overall estimated clean-up cost
of the Site under the proposed plan was $4.2 million, as
compared to EPA's estimate of the previous clean-up plan at
$13.2 million. In January 1998, the EPA issued a revised ROD,
which modified the soil remediation to conform to the proposed
plan and included the estimated clean-up costs of $4.2
million.
Chesapeake is complying with the ROD as amended in the
Proposed Plan, as listed above, and is currently seeking EPA
approval for the ground-water remediation design. Soil
vaporization extraction is now in the design phase and soil
remediation pertaining to the former subsurface gas holders is
scheduled to begin in the third quarter.
The Company adjusted its accrued liability recorded with
respect to the Dover Site to $4.2 million at December 31,
1997. This amount reflects the EPA's estimate, as stated in
the ROD issued in January 1998, for remediation of the site
according to the ROD. The recorded liability may be adjusted
upward or downward as the design phase progresses and the
Company obtains construction bids for performance of the work.
The Company has also recorded a regulatory asset of $4.2
million, corresponding to the recorded liability. Management
believes that in addition to the $600,000 expected to be
contributed by the State of Delaware pursuant to a settlement
agreement between the parties, the Company will be equitably
entitled to contribution from other responsible parties for a
portion of the expenses to be incurred in connection with the
remedies selected in the ROD. Management also believes that
the amounts not so contributed will be recoverable in the
Company's rates.
As of June 30, 1998, the Company has incurred approximately
$5.5 million in costs relating to environmental testing and
remedial action studies. In 1990, the Company entered into
settlement agreements with a number of insurance companies
resulting in proceeds to fund actual environmental costs
incurred over a five to seven-year period beginning in 1990.
The final insurance proceeds were requested and received in
1992. In December 1995, the Delaware Public Service Commission
authorized a process to review and provide recovery of all
current and future unrecovered environmental costs incurred by
a means of a rider (supplement) to base rates, applicable to
all firm service customers. As of June 30, 1998, $630,000 of
environmental costs are not included in the rider, effective
December 1, 1997. With the rider mechanism established, it is
management's opinion that these costs and any future costs,
net of the deferred income tax benefit, will be recoverable in
rates. For additional information pertaining to the rider,
refer to the "Environmental - Dover Gas Light Site" section of
the Company's annual report on Form 10-K for the year ended
December 31, 1997, beginning on page 11.
(b) Salisbury Town Gas Light Site
In cooperation with the Maryland Department of the Environment
("MDE"), in 1996 the Company completed construction and began
remediation procedures at the Salisbury site. In addition, the
Company began quarterly reporting of the remediation and
monitoring results to the MDE.
The cost of remediation is estimated to range from $140,000 to
$190,000 per year for operating expenses. Based on these
estimated costs, the Company recorded both a liability and a
deferred regulatory asset of $665,000 on December 31, 1997, to
cover the Company's projected remediation costs for this site.
The liability payout for this site is expected to be over a
five-year period. As of June 30, 1998, the Company has
incurred approximately $2.5 million for remedial actions and
environmental studies. In January 1990, the Company entered
into settlement agreements with a number of insurance
companies resulting in proceeds to fund actual environmental
costs incurred over a three to five-year period beginning in
1990. The final insurance proceeds were requested and received
in 1992. In December 1995, the Maryland Public Service
Commission approved recovery of all environmental costs
incurred through September 30, 1995 less amounts previously
amortized and insurance proceeds. The amount approved for a
10-year amortization period was $964,251. Of the $2.5 million
in costs reported above, approximately $689,000 has not been
recovered through insurance proceeds or received ratemaking
treatment. It is management's opinion that these and any
future costs incurred will be recoverable in rates.
(c) Winter Haven Coal Gas Site
In May 1996, the company filed an Air Sparging and Soil Vapor
Extraction Pilot Study Work Plan for the Winter Haven site
with the Florida Department of Environmental Protection
("FDEP"). The Work Plan described the Company's proposal to
undertake an Air Sparging and Soil Vapor Extraction ("AS/SVE")
pilot study to evaluate at the site. After discussions with
the FDEP, the Company filed a modified AS/SVE Pilot Study Work
Plan, scope of work to complete the site assessment activities
and a report describing a limited sediment investigation
performed recently. The Company will be awaiting FDEP's
comments to the modified Work Plan. It is not possible to
determine whether remedial action will be required by FDEP
and, if so, the cost of such remediation.
The Company has spent and received recovery through rates
charged to customers of approximately $696,000 on these
investigations as of June 30, 1998. The Florida Public Service
Commission has allowed the Company to continue to accrue for
future environmental costs. At June 30, 1998, Chesapeake had
$466,000 accrued. It is management's opinion that these and
future costs, if any, will be recoverable in rates.
5. RECENT ACCOUNTING PRONOUNCEMENTS
(a) Comprehensive Income - As of January 1, 1998, the Company
adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, Reporting Comprehensive Income, which requires
additional disclosures with respect to certain changes in
assets and liabilities that previously were not reported as
results of operations for the period.
(b) Segment Information - The Financial Accounting Standards
Board has issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which became effective
for periods beginning after December 15, 1997. Interim
reporting is not required under SFAS No. 131 prior to its
adoption. SFAS No. 131 requires financial and descriptive
information with respect to "operating segments" of an entity
based on the way management disaggregates the entity for
making internal operating decisions. The Company will begin
making the disclosures required by SFAS No. 131 with financial
statements for the period ending December 31, 1998. The impact
of SFAS No. 131 will only effect disclosure, as results are
disaggregated. There will be no financial impact from the
adoption.
(c) Pensions and Other Post-retirement Benefits - The FASB has
issued SFAS No. 132, Employers' Disclosures about Pensions and
Other Post-retirement Benefits, for periods beginning after
December 15, 1997. Interim reporting is not required prior to
its adoption. This statement standardizes the disclosure
requirements for pensions and other post-retirement benefits,
requires additional information on changes in the benefit
obligations and fair values of plan assets and eliminates
certain disclosures that are no longer useful. The Company
will begin making the disclosures required by SFAS No. 132
with financial statements for the period ending December 31,
1998. The impact of SFAS No. 132 will only effect disclosure.
There will be no financial impact from the adoption.
(d) Derivatives - SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, establishes accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those
instruments at fair value. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Management is currently assessing any financial impact the
adoption may have.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE
QUARTER ENDED JUNE 30, 1998
The Company recognized net income of $263,751 for the second
quarter of 1998, representing a decrease in net income of
$461,904 as compared to the corresponding period in 1997. As
indicated in the following table, the decrease in income is
primarily due to lower contributions to Earnings Before Interest
and Taxes ("EBIT") from the natural gas distribution and propane
segments. These were partially offset by increased EBIT
contributions from the remaining segments.
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997 Change
------------------------------------------------------------------------------
Earnings Before Interest & Taxes
Natural Gas Distribution $ 498,140 $ 998,202 $ (500,062)
Natural Gas Transmission 813,222 696,878 116,344
Propane Distribution & Marketing (781,021) (332,700) (448,321)
Advanced Information Services 337,016 310,217 26,799
Other & Eliminations 197,252 153,983 43,269
------------------------------------------------------------------------------
EBIT 1,064,609 1,826,580 (761,971)
Operating Income Taxes 102,507 415,558 (313,051)
Interest 787,538 790,278 (2,740)
Non-Operating Income, net 89,187 104,911 (15,724)
------------------------------------------------------------------------------
Net Income $ 263,751 $ 725,655 $ (461,904)
==============================================================================
NATURAL GAS DISTRIBUTION
The natural gas distribution segment reported EBIT of $498,140
for the second quarter of 1998 as compared to $998,202 for the
corresponding period last year - a decrease of $500,062. The
decrease in EBIT is due to lower margins combined with higher
operating expenses.
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997 Change
------------------------------------------------------------------------------
Revenue $14,015,180 $15,810,312 $(1,795,132)
Cost of Gas 9,106,036 10,669,854 (1,563,818)
------------------------------------------------------------------------------
Gross Margin 4,909,144 5,140,458 (231,314)
Operations & Maintenance 2,950,064 2,735,615 214,449
Depreciation & Amortization 849,383 789,003 60,380
Other Taxes 611,557 617,638 (6,081)
------------------------------------------------------------------------------
EBIT $ 498,140 $ 998,202 $ (500,062)
==============================================================================
Gross margin is down due to decreased deliveries to both
interruptible and firm customers. Interruptible volumes were
primarily effected by lower sales to our Florida division's
interruptible industrial customers primarily engaged in the
phosphate industry. Firm customer growth from 1997 to 1998 helped
to offset the impact of the unseasonably warmer weather on
volumes. Temperatures during the second quarter of 1998 were 28%
warmer than the same period last year and 18% warmer than the 10-
year average. Increased operating expenses are partially related
to an aggressive marketing campaign designed to build awareness
of the Company's services and continue building customer growth.
In addition compensation and customer installation expenses
increased. These are partially offset by decreased legal fees,
data processing costs, pensions and benefits. Depreciation and
amortization expense increased due to plant placed in service
during the past year.
NATURAL GAS TRANSMISSION
The natural gas transmission segment reported EBIT of $813,222
for the second quarter of 1998 as compared to EBIT of $696,878
for the corresponding period last year - an increase of $116,344.
The increase in EBIT is primarily due to an increase in gross
margin.
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997 Change
------------------------------------------------------------------------------
Revenue $ 2,469,478 $ 6,673,540 $(4,204,062)
Cost of Gas 561,317 4,877,330 (4,316,013)
------------------------------------------------------------------------------
Gross Margin 1,908,161 1,796,210 111,951
Operations & Maintenance 728,796 774,055 (45,259)
Depreciation & Amortization 267,774 222,688 45,086
Other Taxes 98,369 102,589 (4,220)
------------------------------------------------------------------------------
EBIT $ 813,222 $ 696,878 $ 116,344
==============================================================================
Revenues and cost of gas have declined in 1998 as a result of
Eastern Shore Natural Gas Company becoming an open access
pipeline on November 1, 1997. The rise in EBIT is partially
attributable to a rate increase and an increase in firm services
implemented in 1997. Additional revenues generated by the
increase in transportation services, effective with the
implementation of open access, also contributed to the increase
in EBIT. For additional information related to open access and
its impact on gross margin, see the Results of Operations for the
Six Months Ended June 30, 1998 for Natural Gas Transmission.
Compensation expenditures as well as lower costs associated with
the maintenance of communication equipment and the pipeline
system were offset by the increase in depreciation and
amortization due to capital additions placed in service during
the past year.
PROPANE DISTRIBUTION AND MARKETING
The business of Xeron, Inc., the propane wholesale marketing
company acquired in May 1998, has been combined with Chesapeake's
propane distribution operation for financial statement reporting.
Due to the high volume, low margin nature of the wholesale
propane business, Xeron's revenues are strongly influenced by the
wholesale cost of propane. See Note 2 to the Consolidated
Financial Statements for further disclosure of Xeron's revenues
and net income for the periods shown.
For the second quarter of 1998, the propane segment reported a
loss before interest and taxes of $781,021, as compared to
$332,700 for the same period last year. The decrease in earnings
is primarily the result of lower margins.
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997 Change
------------------------------------------------------------------------------
Revenue $25,774,384 $24,176,789 $ 1,597,595
Cost of Sales 23,825,736 21,775,543 2,050,193
------------------------------------------------------------------------------
Gross Margin 1,948,648 2,401,246 (452,598)
Operations & Maintenance 2,269,042 2,262,831 6,211
Depreciation & Amortization 322,038 301,817 20,221
Other Taxes 138,589 169,298 (30,709)
------------------------------------------------------------------------------
EBIT $ (781,021) $ (332,700) $ (448,321)
==============================================================================
The decrease in gross margin is due primarily to a 16% reduction
in distribution margins combined with a 29% reduction in margins
for the wholesale marketing operation. Although the distribution
margin per gallon sold is up, 22% lower volumes more than offset
this increase. The decreased volume is the result of the
unseasonably warm weather, partially offset by customer growth.
Wholesale margins are down due to a reduction in the margin
earned per gallon, somewhat offset by an increase in the number
of gallons marketed. Although operations and maintenance expenses
remain basically unchanged, increased expenses related to the
Company's marketing initiatives are being offset by lower
incentive compensation related to lower earnings for the
wholesale marketing operation. Depreciation and amortization
increased due to plant additions placed in service during the
past year.
ADVANCED INFORMATION SERVICES
The advanced information services segment recognized an EBIT of
$337,016 and $310,217 for the quarters ended June 30, 1998 and
1997, respectively. This increase in EBIT of $26,799 is
attributable an increase in margin earned offset by higher
expenses.
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997 Change
------------------------------------------------------------------------------
Revenue $ 2,470,655 $ 1,911,836 $ 558,819
Cost of Sales 1,191,276 907,968 283,308
------------------------------------------------------------------------------
Gross Margin 1,279,379 1,003,868 275,511
Operations & Maintenance 804,839 594,918 209,921
Depreciation & Amortization 42,116 24,480 17,636
Other Taxes 95,408 74,253 21,155
------------------------------------------------------------------------------
EBIT $ 337,016 $ 310,217 $ 26,799
==============================================================================
Higher revenues are primarily due to increased consulting
services, partially offset by a reduction in placement service
revenues. Increased compensation and training expenses due to
associated increases in staffing levels partially offset the
additional revenue. To improve service to our customers, the
Company opened a new office in Detroit, Michigan and increased
both billable and management staffing during the second half of 1997.
OPERATING INCOME TAXES
Operating income taxes decreased due to the decrease in operating
income.
<PAGE>
RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1998
The Company recognized net income of $4,291,110 for the first six
months of 1998, representing an increase in net income of
$125,047 as compared to the corresponding period in 1997.
Included in 1997's results is a one-time charge of $318,000 to
establish deferred income taxes associated with the acquisition
of Tri-County Gas Company, Inc. Exclusive of this one-time
charge, earnings decreased $192,953. As indicated in the
following table, the increase in income is due to greater
Earnings Before Interest and Taxes contributed by the natural gas
transmission, offset by reduced contributions to EBIT from the
remaining segments, primarily natural gas distribution and
propane.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997 Change
-------------------------------------------------------------------------------
Earnings Before Interest & Taxes
Natural Gas Distribution $ 3,657,752 $ 4,419,765 $ (762,013)
Natural Gas Transmission 2,334,390 1,314,290 1,020,100
Propane Distribution & Marketing 1,325,144 1,370,509 (45,365)
Advanced Information Services 604,930 721,300 (116,370)
Other & Eliminations 313,402 403,107 (89,705)
-------------------------------------------------------------------------------
EBIT 8,235,618 8,228,971 6,647
Operating Income Taxes 2,503,381 2,662,434 (159,053)
Interest 1,641,544 1,600,068 41,476
Non-Operating Income, net 200,417 199,594 823
-------------------------------------------------------------------------------
Net Income $ 4,291,110 $ 4,166,063 $ 125,047
===============================================================================
NATURAL GAS DISTRIBUTION
The natural gas distribution segment reported EBIT of $3,657,752
for the first six months of 1998 as compared to $4,419,765 for
the corresponding period last year - a decrease of $762,013. The
decrease in EBIT is due lower margins, coupled with higher
operating expenses.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997 Change
-------------------------------------------------------------------------------
Revenue $40,197,989 $42,288,127 $ (2,090,138)
Cost of Gas 27,778,286 29,639,265 (1,860,979)
-------------------------------------------------------------------------------
Gross Margin 12,419,703 12,648,862 (229,159)
Operations & Maintenance 5,715,315 5,306,164 409,151
Depreciation & Amortization 1,694,054 1,576,489 117,565
Other Taxes 1,352,582 1,346,444 6,138
-------------------------------------------------------------------------------
EBIT $ 3,657,752 $ 4,419,765 $ (762,013)
===============================================================================
Gross margin is down due to decreased deliveries to our Florida
division's interruptible industrial customers primarily engaged
in the phosphate industry. Firm customer growth from 1997 to 1998
helped to offset the impact of the unseasonably warmer weather on
volumes. Temperatures during the first six months of 1998 were
17% warmer than the same period last year and 18% warmer than the
10-year average. The Company estimates that 1998 gross margin
would have been approximately $700,000 higher under normal
weather conditions (i.e. the 10-year average). Increased expenses
are partially due to an aggressive marketing campaign designed to
build awareness of the Company's services and continue building
customer growth. In addition, compensation, customer installation
and rent expenses increased. These are partially offset by
decreased data processing costs, legal fees, pensions and
benefits. Depreciation and amortization expense increased due to
plant placed in service during the past year.
NATURAL GAS TRANSMISSION
The natural gas transmission segment reported EBIT of $2,334,390
for the first six months of 1998 as compared to EBIT of
$1,314,290 for the corresponding period last year - an increase
of $1,020,100. The increase in EBIT is primarily due to an
increase in gross margin.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997 Change
-------------------------------------------------------------------------------
Revenue $ 5,632,135 $18,733,593 $(13,101,458)
Cost of Gas 1,139,829 15,254,182 (14,114,353)
-------------------------------------------------------------------------------
Gross Margin 4,492,306 3,479,411 1,012,895
Operations & Maintenance 1,418,633 1,510,372 (91,739)
Depreciation & Amortization 535,548 445,376 90,172
Other Taxes 203,735 209,373 (5,638)
-------------------------------------------------------------------------------
EBIT $ 2,334,390 $ 1,314,290 $ 1,020,100
===============================================================================
Revenues and cost of gas have declined in 1998 as a result of
Eastern Shore Natural Gas Company becoming an open access
pipeline on November 1, 1997. On an annual basis, the additional
services will generate revenue of approximately $1.3 million.
Taking into account the 1997 rate increase, revenues associated
with additional capacity and lower margins on services provided
to industrial customers, the Company expects gross margin during
1998 to be between $7.9 and $8.2 million (see Cautionary
Statement). Comparatively, gross margin for the past two years
has been $7.9 and $6.7 million for 1997 and 1996, respectively.
Compensation expenditures as well as lower costs associated with
the maintenance of communication equipment and the pipeline
system were offset by the increase in depreciation and
amortization due to capital additions placed in service during
the past year.
PROPANE DISTRIBUTION AND MARKETING
As previously stated, Xeron has been combined with Chesapeake's
propane distribution operation for financial statement reporting.
Due to the high volume, low margin nature of the wholesale
propane business, Xeron's revenues are strongly influenced by the
wholesale cost of propane. See Note 2 to the Consolidated
Financial Statements for further disclosure of Xeron's revenues
and net income for the periods shown.
For the first six months of 1998, the propane segment reported
EBIT of $1,325,144, as compared to $1,370,509 for the same period
last year. The decrease in EBIT is due to lower margins, mostly
offset by lower operating expenses.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997 Change
-------------------------------------------------------------------------------
Revenue $56,270,628 $67,694,282 $(11,423,654)
Cost of Sales 49,438,683 60,429,061 (10,990,378)
-------------------------------------------------------------------------------
Gross Margin 6,831,945 7,265,221 (433,276)
Operations & Maintenance 4,532,201 4,946,810 (414,609)
Depreciation & Amortization 649,681 594,820 54,861
Other Taxes 324,919 353,082 (28,163)
-------------------------------------------------------------------------------
EBIT $ 1,325,144 $ 1,370,509 $ (45,365)
===============================================================================
The decrease in gross margin is primarily due to a 37% reduction
in wholesale marketing margins combined with a one-percent
reduction in margins from the distribution operation. Wholesale
margins are down due to a reduction in the margin earned per
gallon, somewhat offset by an increase in gallons marketed.
Although the distribution margins are down slightly due to the
unseasonably warmer weather, customer growth has helped to offset
the decrease. The Company estimates that distribution margins
would have been $950,000 higher under normal weather conditions
(i.e. the 10-year average). Operations and maintenance expenses
are down due to lower incentive compensation related to lower
earnings from the wholesale marketing operation partially offset
by expenses related to the Company's marketing plan. Depreciation
and amortization increased due to plant additions placed in
service during the past year.
ADVANCED INFORMATION SERVICES
The advanced information services segment recognized an EBIT of
$604,930 and $721,300 for the six months ended June 30, 1998 and
1997, respectively. This decrease in EBIT of $116,370 is
attributable to a reduction on margin earned during the first
quarter coupled with a second quarter rise in expenses. Gross
margin for the second quarter increased, helping to offset the
first quarter results.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997 Change
-------------------------------------------------------------------------------
Revenue $ 4,748,914 $ 3,903,552 $ 845,362
Cost of Sales 2,308,662 1,627,180 681,482
-------------------------------------------------------------------------------
Gross Margin 2,440,252 2,276,372 163,880
Operations & Maintenance 1,538,056 1,328,787 209,269
Depreciation & Amortization 83,773 50,763 33,010
Other Taxes 213,493 175,522 37,971
-------------------------------------------------------------------------------
EBIT $ 604,930 $ 721,300 $ (116,370)
===============================================================================
Higher revenues are primarily due to increased sales of
consulting services. Increased compensation and training expenses
due to associated increases in staffing levels partially offset
the additional revenue. To improve service to our customers, the
Company opened a new office in Detroit, Michigan and increased
both billable and management staffing during the second half of
1997. The additional expenses associated with the new office and
management infrastructure, coupled with increased marketing
activity, is having a negative impact on 1998 earnings.
OPERATING INCOME TAXES
During the first quarter of 1997, the Company recorded $318,000
as a one-time expense to establish deferred income taxes due to
the acquisition of Tri-County Gas Company, Inc. Exclusive of this
expense, operating income taxes increased approximately $169,000.
ENVIRONMENTAL MATTERS
The Company continues to work with federal and state
environmental agencies to assess the environmental impacts and
explore corrective action at several former gas manufacturing
plant sites (see Note 4 to the Consolidated Financial
Statements). The Company believes that any future costs
associated with these sites will be recoverable in future rates.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements reflect the capital-intensive
nature of its business and are attributable principally to its
construction program and the retirement of its outstanding debt.
The Company relies on funds provided by operations and short-term
borrowings to meet normal working capital requirements and
temporarily finance capital expenditures. During the first six
months of 1998, the Company's net cash flow provided by operating
activities, net cash used by investing activities and net cash
used by financing activities were approximately $10.6 million,
$4.7 million and $8.0 million, respectively. Due to the seasonal
nature of the Company's business, there are substantial
variations in the results of operations reported on a quarterly
basis.
The Board of Directors has authorized the Company to borrow up to
$20 million from various banks and trust companies. As of June
30, 1998, the Company had four unsecured bank lines of credit,
totaling $34 million. Funds provided from these lines of credit
are used for short-term cash needs to meet seasonal working
capital requirements and to fund portions of its capital
expenditures. The outstanding balances of short-term borrowings
at June 30, 1998 and 1997 were $2.1 and $9.9 million,
respectively.
During the six months ended June 30, 1998 and 1997, net property,
plant and equipment expenditures were approximately $4.7 and $6.1
million, respectively. Chesapeake has budgeted $15.5 million for
capital expenditures during 1998. This amount includes $9.1
million and $2.0 million for natural gas and propane
distribution, respectively; $3.1 million for natural gas
transmission, $395,000 for advanced information services and
$987,000 for general plant. The natural gas and propane
distribution expenditures are for expansion and improvement of
facilities in existing service territories. Natural gas
transmission expenditures are for improvement and expansion of
the pipeline system. The advanced information services
expenditures are for computer hardware, software and related
equipment. Financing for the 1998 construction program is
expected to be provided from short-term borrowing and cash from
operations. The construction program is subject to continuous
review and modification. Actual construction expenditures may
vary from the above estimates due to a number of factors
including inflation, changing economic conditions, regulation,
sales growth and the cost and availability of capital.
Chesapeake has budgeted $2.8 million for environmental related
expenditures during 1998 and expects to incur additional
expenditures in future years (see Note 4 to the Consolidated
Financial Statements), a portion of which may need to be financed
through external sources. Management does not expect such
financing to have a material adverse effect on the financial
position or capital resources of the Company.
The Company is continually evaluating new business opportunities
and acquisitions, some of which may require the Company to obtain
financing. Management will consider the impact of any such
financing on the Company's financial position in its evaluation
of the business opportunity or acquisition. Such financings are
not expected to have a material adverse effect on the financial
position or capital resources of the Company.
As of June 30, 1998, common equity represented 60.6% of permanent
capitalization, compared to 58.1% as of December 31, 1997. The
Company remains committed to maintaining a sound capital
structure and strong credit ratings in order 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, helps to ensure
that the Company will be able to attract capital from outside
sources at a reasonable cost.
OTHER MATTERS
THE YEAR 2000
Chesapeake is dependent upon a variety of information systems to
operate efficiently and effectively. In order to address the
impact of the year 2000 on its many information systems,
Chesapeake is in the process of evaluating and remediating any
deficiencies. The Company has segregated the evaluation of its
readiness and the potential impact of the year 2000 on its
systems into two components: primary internal applications and
other applications. Chesapeake's primary applications include
systems for its financial information; natural gas customer
information and billing; and propane customer information,
billing and delivery. Other applications include systems for
services such as telephone, system control and data acquisition
for the pipeline, as well as other vendors' systems. Chesapeake
has updated its propane customer information, billing and
delivery system to a year 2000 compliant version. This system
will be tested further during 1998 to insure compliance. The
Company's has recently completed testing of its other two primary
applications and has deemed them year 2000 compliant. Chesapeake
has developed an inventory of other applications and is in the
process contacting vendors and testing applications. Remediation
will be done to the extent necessary.
CAUTIONARY STATEMENT
Statements made herein and elsewhere in this Form 10-Q that are
not historical fact are forward-looking statements. In connection
with the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Chesapeake is providing the
following cautionary statement to identify important factors that
could cause actual results to differ materially from those
anticipated in forward-looking statements made herein or
otherwise by or on behalf of the Company.
A number of factors and uncertainties make it difficult to
predict the effect on future operating results, relative to
historical results, of Eastern Shore operating as an open access
pipeline. While open access eliminates industrial interruptible
sales margins, such sales have varied widely from year to year
and, in future years, might have made a less significant
contribution to earnings even in the absence of open access.
In addition, a number of factors and uncertainties affecting
other aspects of Chesapeake's business could have a material
impact on earnings. These include: the seasonality and
temperature sensitivity of the natural gas and propane
businesses; the relative price of alternative energy sources; the
effects of competition on both unregulated and natural gas sales,
now that the Company operates in an open access environment; and
with respect to the acquisition of Xeron, Inc., the price
volatility in wholesale propane transactions. There are also
uncertainties relative to the impact of the year 2000 on the
information systems of the Company, its vendors and other third
parties.
RECENT ACCOUNTING PRONOUNCEMENTS
Comprehensive Income - As of January 1, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income, which requires additional
disclosures with respect to certain changes in assets and
liabilities that previously were not reported as results of
operations for the period.
Segment Information - The Financial Accounting Standards Board
has issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which became effective for
periods beginning after December 15, 1997. Interim reporting is
not required under SFAS No. 131 prior to its adoption. SFAS No.
131 requires financial and descriptive information with respect
to "operating segments" of an entity based on the way management
disaggregates the entity for making internal operating decisions.
The Company will begin making the disclosures required by SFAS
No. 131 with financial statements for the period ending December
31, 1998. The impact of SFAS No. 131 will only effect disclosure,
as results are disaggregated. There will be no financial impact
from the adoption.
Pensions and Other Post-retirement Benefits - The FASB has issued
SFAS No. 132, Employers' Disclosures about Pensions and Other
Post-retirement Benefits, for periods beginning after December
15, 1997. Interim reporting is not required prior to its
adoption. This statement standardizes the disclosure requirements
for pensions and other post-retirement benefits, requires
additional information on changes in the benefit obligations and
fair values of plan assets and eliminates certain disclosures
that are no longer useful. The Company will begin making the
disclosures required by SFAS No. 132 with financial statements
for the period ending December 31, 1998. The impact of SFAS No.
132 will only effect disclosure. There will be no financial
impact from the adoption.
Derivatives - SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management is currently
assessing any financial impact the adoption may have.
<PAGE>
PART II
OTHER INFORMATION
CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES
Item 1: Legal Proceedings
See Note 4 to the Consolidated Financial Statements
Item 2(c): Changes in Securities
Previously reported by the Company on Form 8-K, filed with
the Securities and Exchange Commission on June 11, 1998.
Item 3: Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
The annual Meeting of Stockholders was held on May 19,
1998. Proposals as submitted in the proxy statement were
voted on as follows:
(1) All nominees to the Board of Director were elected
to the classes indicated in the proxy statement.
(2) Ratification of amendments to the Company's
Performance Incentive Plan for the purposes of:
(a) increasing the aggregate number of shares of
common stock subject to awards;
(b) extending the term of the Plan for five years
through December 31, 2006; and
(c) permitting the Board of Directors greater
flexibility to amend, modify or terminate the Plan,
subject to shareholder approval requirements imposed
by applicable law.
(3) Ratification of amendments to the Company's
Certificate of Incorporation to change the number of
directors constituting the full Board, with the
precise number determined by the Board, and to make a
corresponding change in the number of directors
required for a quorum.
(4) Ratification of the selection of the Company's
independent auditors through the fiscal year ending
December 31, 1998 was approved.
Item 5: Other Information
None
Item 6(a): Exhibits
(3.1) Restated Certificate of Incorporation of Chesapeake
Utilities Corporation is filed herewith.
(3.2) Amended Bylaws of Chesapeake Utilities Corporation
are filed herewith.
Item 6(b): Reports on Form 8-K
(1) On April 29, 1998, the Company filed under Item 5
that the Company had agreed to purchase all of the
outstanding shares of Xeron, Inc.
(2) On June 11, 1998, the Company filed under Item 2
that the company had acquired all of the outstanding
stock of Xeron, Inc. on May 29, 1998.
<PAGE>
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
Vice President, Treasurer and Chief Financial Officer
Date: August 14, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from
the Balance Sheet, Income Statement and Statement of Cash Flows
of Chesapeake Utilities Corporation and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 78824511
<OTHER-PROPERTY-AND-INVEST> 25702754
<TOTAL-CURRENT-ASSETS> 21511067
<TOTAL-DEFERRED-CHARGES> 11575896
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 137614228
<COMMON> 2462270
<CAPITAL-SURPLUS-PAID-IN> 23601702
<RETAINED-EARNINGS> 31709187
<TOTAL-COMMON-STOCKHOLDERS-EQ> 58322151
0
0
<LONG-TERM-DEBT-NET> 37892000
<SHORT-TERM-NOTES> 2100000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 520000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 38780077
<TOT-CAPITALIZATION-AND-LIAB> 137614228
<GROSS-OPERATING-REVENUE> 103764046
<INCOME-TAX-EXPENSE> 2503381
<OTHER-OPERATING-EXPENSES> 18353227
<TOTAL-OPERATING-EXPENSES> 20856608
<OPERATING-INCOME-LOSS> 5732237
<OTHER-INCOME-NET> 200417
<INCOME-BEFORE-INTEREST-EXPEN> 5932654
<TOTAL-INTEREST-EXPENSE> 1641544
<NET-INCOME> 4291110
0
<EARNINGS-AVAILABLE-FOR-COMM> 4291110
<COMMON-STOCK-DIVIDENDS> 2228094
<TOTAL-INTEREST-ON-BONDS> 1487016
<CASH-FLOW-OPERATIONS> 10634780
<EPS-PRIMARY> .85
<EPS-DILUTED> .83
</TABLE>
RESTATED CERTIFICATE OF INCORPORATION
OF
CHESAPEAKE UTILITIES CORPORATION
EIGHTH: The number of directors which shall
constitute the whole Board of Directors of the Corporation shall be
fixed from time to time by resolution of a majority of directors in
office; provided that there shall be not fewer than five or more
than fifteen directors. The Board shall be divided into three
classes, Class I, Class II and Class III. The number of directors
in each class shall be the whole number contained in the quotient
arrived at by dividing the number of directors fixed by the Board
by three and if a fraction is also contained in such quotient, and
if such fraction is one-third (1/3) the extra director shall be a
member of Class III and if the fraction is two-thirds (2/3) one of
the directors shall be a member of Class III and the other shall be
a member of Class II. Each director shall serve for a term ending
on the third annual meeting following the annual meeting at which
such director was elected. The foregoing notwithstanding, each
director shall serve until such director's successor shall have
been duly elected and qualified, unless such director shall resign,
become disqualified, disabled or shall otherwise be removed.
At each annual election, the directors chosen to
succeed those whose terms then expire shall be identified as being
of the same class as the directors they succeed. If for any reason
the number of directors in the various classes shall not conform
with the formula set forth in the preceding paragraph, the Board of
Directors may redesignate any director into a different class in
order that the balance of directors in such classes shall conform
thereto.
The Board of Directors, at its first meeting after
each annual meeting of stockholders, shall choose such officers
with such titles and duties as shall be stated in the Bylaws of the
Corporation, who shall hold office until their successors are
chosen and qualify in their stead.
A majority of the number of directors fixed by
the Board shall constitute a quorum for the transaction of
business, and if at any meeting of the Board of Directors there
shall be less than a quorum, a majority of those present may
adjourn the meeting from time to time. Every act or decision done
or made by a majority of the directors present at a meeting duly
held at which a quorum is present shall be regarded as the act of
the Board of Directors unless a greater number be required by law
or by the Certificate of Incorporation.
No director of the Corporation shall be removed from
office as a director by vote or other action of stockholders or
otherwise unless the director to be removed is physically or
mentally disabled or incapacitated to such an extent that such
director is unable to perform the duties of a director, or unless
the director has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct
appeal, or unless the director to be removed has been adjudged to
be liable for misconduct in the performance of such director's duty
to the Corporation by a court of competent jurisdiction and such
adjudication is no longer subject to direct appeal.
IN WITNESS WHEREOF, said CHESAPEAKE UTILITIES CORPORATION
has caused its corporate seal to be hereunto affixed and this
Restated Certificate of Incorporation to be signed by John R.
Schimkaitis, its President, and attested by William C. Boyles, its
Assistant Secretary, this 19th day of May, 1998.
Chesapeake Utilities Corporation
By /s/ John R. Schimkaitis
-------------------------------
John R. Schimkaitis, President
(Corporate Seal)
Attest:
By /s/ William C. Boyles
---------------------------------------
William C. Boyles, Assistant Secretary
CHESAPEAKE UTILITIES CORPORATION
BYLAWS
(Including revisions through July 11, 1997)
ARTICLE III
DIRECTORS
3.2 Composition of the Board. The number of Directors
which shall constitute the Board shall be fixed from time to time
by resolution of a majority of directors in office; provided, that
their number shall not be less than five nor more than fifteen.
Directors shall be divided into three classes , as specified in
the Certificate of Incorporation. Directors shall be elected at
the annual meeting of the stockholders, and each Director shall be
elected to serve until such Director's successor shall be elected
and shall qualify; provided, however, no person who shall have
attained the age of 75 years by the date of election shall be
eligible for election as a Director of the Corporation.
Directors shall be stockholders. The Board of Directors at
its first meeting after each annual meeting of stockholders shall
elect the Chair of the Board who shall perform such duties as are
specified in these Bylaws or are properly required of the Chair by
the Board of Directors.
3.11 Quorum; Adjournment. At all meetings of the Board a
majority of the number of directors fixed by the Board shall be
necessary and sufficient to constitute a quorum for the transaction
of business and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the
Board of Directors, except as may be otherwise specifically
provided by law or by the Certificate of Incorporation or these
Bylaws. Whether or not a quorum is present at any meeting of
the Board, a majority of the Directors present thereat may adjourn
the meeting from time to time, without notice other than
announcement at the meeting.
