Chesapeake Utilities(CPK) - 2023 Q4 - Annual Report

Part I Business Chesapeake Utilities is a diversified energy company with Regulated and Unregulated segments, focusing on growth through strategic acquisitions and sustainable energy investments - The company's growth strategy focuses on optimizing existing businesses, pursuing pipeline expansions, growing transport services, and investing in sustainable energy[19][23] - On November 30, 2023, Chesapeake completed the acquisition of Florida City Gas (FCG) for $923.4 million, adding approximately 120,000 natural gas customers[22] - As of December 31, 2023, the company had 1,281 employees, with 196 represented by two labor unions[65] Regulated Energy Regulated Energy Segment Financials (2023) | Operations | Areas Served | Net Income (Loss) (in thousands) | Total Assets (in thousands) | | :--- | :--- | :--- | :--- | | Natural Gas Distribution | | | | | Delmarva Natural Gas | Delaware/Maryland | $9,256 | $407,089 | | Florida Natural Gas | Florida | $23,840 | $545,952 | | Florida City Gas | Florida | $(3,256) | $1,010,998 | | Natural Gas Transmission | | | | | Eastern Shore | Delaware/Maryland/Pennsylvania | $23,284 | $480,147 | | Peninsula Pipeline | Florida | $12,195 | $154,301 | | Aspire Energy Express | Ohio | $417 | $6,746 | | Electric Distribution | | | | | FPU | Florida | $3,727 | $176,348 | | Total Regulated Energy | | $69,463 | $2,781,581 | - The Florida PSC approved a permanent rate relief of approximately $17.2 million annually for the company's legacy natural gas distribution businesses[32] - In June 2023, the Florida PSC approved a $23.3 million total base revenue increase for FCG, with new rates effective May 1, 2023[33] Unregulated Energy Unregulated Energy Segment Financials (2023) | Operations | Area Served | Net Income (Loss) (in thousands) | Total Assets (in thousands) | | :--- | :--- | :--- | :--- | | Propane Operations | DE, MD, VA, PA, NC, SC, FL | $13,587 | $191,164 | | Energy Transmission (Aspire Energy) | Ohio | $3,080 | $145,183 | | Energy Generation (Eight Flags) | Florida | $2,235 | $37,805 | | Marlin Gas Services | The Entire U.S. | $432 | $54,256 | | Sustainable investments and other | Various | $(1,697) | $48,994 | | Total | | $17,637 | $477,402 | - The propane operations sold 71.3 million gallons in 2023 to approximately 84,886 customers across multiple states[50] - Sustainable investments include renewable natural gas (RNG) projects, with a new dairy manure facility expected to begin injection in the first half of 2024[59] Risk Factors The company faces material financial, operational, and regulatory risks, including market instability, competition, cybersecurity threats, and challenges in integrating acquisitions - Financial risks include instability in financial markets impacting access to capital, fluctuations in propane prices, and increases in interest rates affecting debt costs[81][82][84] - Operational risks are significant, including dependence on new construction, competition, earnings volatility due to weather, and cybersecurity threats[89][91][94][100] - The company faces risks in integrating acquisitions, such as the recent FCG purchase, which could involve failing to realize anticipated benefits or difficulties in integrating systems[120][121] - Regulatory, legal, and environmental risks include adverse decisions from regulatory bodies, compliance costs with safety and environmental laws, and potential impacts from climate change policies[123][124][127][130] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[133] Cybersecurity The company manages cybersecurity risks through a comprehensive program aligned with NIST frameworks, with no material incidents reported to date - The company's cybersecurity risk management program is based on frameworks established by the National Institute of Standards and Technology (NIST)[136] - Oversight is provided by the Board and its Audit Committee, with the Chief Information Officer leading the information security program[139] - As of the filing date, the company states there have not been any cybersecurity incidents that have materially affected its business, operations, or financial condition[137] Properties The company's assets include over 10,700 miles of regulated energy pipelines and lines, and unregulated assets like 8.9 million gallons of propane storage Miles of Assets Operated by Regulated Energy Segment (as of Dec 31, 2023) | Operations | Miles | | :--- | :--- | | Natural Gas Distribution | | | Delmarva Natural Gas (Natural gas pipelines) | 2,075 | | FPU (Natural gas pipelines) | 3,154 | | Florida City Gas (Natural gas pipelines) | 3,860 | | Natural Gas Transmission | | | Eastern Shore | 517 | | Florida City Gas | 79 | | Peninsula Pipeline | 177 | | Electric Distribution | | | FPU | 906 | | Total | 10,785 | Key Assets of Unregulated Energy Segment (as of Dec 31, 2023) | Operations | Gallons or miles | | :--- | :--- | | Propane distribution | | | Propane storage capacity (gallons in millions) | 8.9 | | Underground propane distribution mains (miles) | 153 | | Unregulated Energy Transmission (Aspire Energy) | | | Natural gas pipelines (miles) | 2,800 | Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 20 of the Consolidated Financial Statements - For information on legal proceedings, the company refers to Note 20, Other Commitments and Contingencies, in the Consolidated Financial Statements[145] Mine Safety Disclosures This item is not applicable to the company - Not applicable[146] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock (CPK) trades on the NYSE, with 63 consecutive years of dividend payments and a five-year total stockholder return of 42% - The company's common stock (CPK) is traded on the New York Stock Exchange, with 1,974 holders of record as of February 16, 2024[147] - The company has paid cash dividends for 63 consecutive years, declaring a total of $2.305 per share in 2023[147] Five-Year Cumulative Total Stockholder Return | Year | Chesapeake Utilities | Industry Index | S&P 500 Index | | :--- | :--- | :--- | :--- | | 2018 | $100 | $100 | $100 | | 2019 | $120 | $119 | $131 | | 2020 | $138 | $99 | $156 | | 2021 | $189 | $114 | $200 | | 2022 | $156 | $122 | $164 | | 2023 | $142 | $121 | $207 | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations The FCG acquisition significantly impacted financials, with GAAP net income decreasing due to transaction costs, though adjusted net income grew 9% - The acquisition of Florida City Gas (FCG) for $923.4 million was a key event, adding approximately 120,000 customers and significantly impacting financial results[157][159] - Key drivers for 2023 performance included positive contributions from rate cases and the FCG acquisition, offset by a $13.6 million negative impact from warmer weather[173] - Total capital expenditures were $1.1 billion in 2023, including $926.7 million for the FCG acquisition, with a 2024 forecast between $300 million and $360 million[236][237] GAAP vs. Non-GAAP Earnings Per Share (Diluted) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Earnings Per Share - Diluted (GAAP) | $4.73 | $5.04 | | FCG transaction-related expenses, net | $0.58 | — | | Adjusted Earnings Per Share - Diluted (Non-GAAP) | $5.31 | $5.04 | Quantitative and Qualitative Disclosures About Market Risk The company manages market risks including interest rate, commodity price, and credit risk through various mitigation strategies like hedging and fuel cost recovery mechanisms - The company is exposed to interest rate risk, which can increase the cost of future debt, and uses interest rate swaps to mitigate this risk[274] - Commodity price risk is limited for regulated operations due to fuel cost recovery mechanisms but is managed in unregulated propane operations through storage and derivative contracts[275][276][277] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2021-2023, along with an unqualified opinion from the independent auditor Consolidated Statement of Income Highlights | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total operating revenues | $670,604 | $680,704 | $569,968 | | Operating Income | $150,803 | $142,933 | $131,112 | | Net Income | $87,212 | $89,796 | $83,466 | Consolidated Balance Sheet Highlights | (in thousands) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $3,304,704 | $2,215,037 | | Net property, plant and equipment | $2,456,374 | $1,810,473 | | Goodwill | $508,174 | $46,213 | | Total Liabilities | $2,058,600 | $1,382,236 | | Long-term debt, net | $1,187,075 | $578,388 | | Total stockholders' equity | $1,246,104 | $832,801 | Consolidated Statement of Cash Flows Highlights | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $203,482 | $158,882 | $150,504 | | Net cash used in investing activities | $(1,111,391) | $(136,448) | $(223,023) | | Net cash provided by (used in) financing activities | $906,609 | $(21,206) | $73,996 | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[540] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective, excluding the recently acquired Florida City Gas from the assessment - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2023[541] - Management's report on internal control over financial reporting concluded that controls were effective, excluding the recently acquired Florida City Gas, which represented approximately 31% of total assets[543][546] Other Information The company reports no other information - None[549] Disclosure Regarding Foreign Jurisdictions that Prevent Inspection This item is not applicable to the company - None[550] Part III Directors, Executive Officers of the Registrant and Corporate Governance This section incorporates information by reference from the company's upcoming Proxy Statement regarding governance and its Code of Ethics - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement[552] - The company has adopted a Code of Ethics applicable to its principal executive and financial officers, which is available on its website[551] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's upcoming Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[552] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the company's upcoming Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[553] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's upcoming Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[553] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's upcoming Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[554] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Annual Report, including financial statements, schedules, and various exhibits - This section lists the financial statements, Schedule II (Valuation and Qualifying Accounts), and all exhibits filed with the Form 10-K[555][556] Form 10-K Summary The company provides no summary for its Form 10-K - None[563]