•Net income of $4.4 million or $0.45 per share
•Higher retail propane margins per gallon generated $1.2 million in additional gross margin
•Growth from the natural gas businesses generated $1.1 million in additional gross margin

Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today reported second quarter financial results. The Company’s net income for the quarter ended June 30, 2013 was $4.4 million, or $0.45 per share. This represents a decrease of $704,000, or $0.07 per share, compared to the same quarter in 2012.

For the six months ended June 30, 2013, the Company reported net income of $19.2 million, or $1.99 per share. This represents an increase of $3.4 million or $0.36 per share, compared to the same period in 2012.

The decrease in net income in the second quarter of 2013, compared to the same quarter in 2012, was due primarily to the impact of two non-recurring adjustments: (a) a one-time sales tax expense of $759,000 related to the acquisition of assets in Maryland, as further explained in the Financial Summary Highlights section, and (b) a non-recurring increase in gross margin of $568,000 in the second quarter of 2012, related to prior period accrued revenues. Absent these non-recurring adjustments, net income for the current quarter would have increased by $99,000 compared to the same period in 2012.

“Our financial results for the second quarter reflect both continued growth and continued investment in our businesses,” stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation. “In 2012, we extended natural gas transmission service to Worcester County, Maryland, and in May 2013, we completed the purchase of the operating assets of Eastern Shore Gas Company (“ESG”) and its affiliates in Maryland. Through our new wholly-owned subsidiary, Sandpiper Energy, Inc. (“Sandpiper”), we began serving approximately 11,000 residential and commercial underground propane system customers acquired in this transaction using new tariff rates approved by the Maryland Public Service Commission,” Mr. McMasters noted.

“In May 2013, Eastern Shore Natural Gas Company (“Eastern Shore”), our interstate pipeline subsidiary, commenced new services to a Dover electric generation plant owned by NRG Energy Center Dover LLC (“NRG”) and additional services to the PBF Energy Inc. (“PBF Energy”) refinery in Delaware City. Additionally, although there is no financial impact in the current quarterly results, in June 2013, Eastern Shore filed an application with the Federal Energy Regulatory Commission (“FERC”) seeking approval to construct a pipeline lateral to the electric generation plant owned by Calpine Energy Services, L.P. (“Calpine”) and currently under construction in Dover. Our second quarter’s results include additional gross margin generated from recent investments we have made to grow our business as well as increased costs associated with strengthening various corporate functions that support our continued growth. We are continuing to identify future opportunities like those described previously and believe these investments in corporate resources are important to further develop our capability to capitalize on future growth opportunities both within and beyond our existing footprint. We expect to incur additional costs as we continue to expand this capability,” Mr. McMasters added.

A more detailed discussion and analysis of the Company’s results for each segment are provided in the following pages.

Comparative Results for the Quarters Ended June 30, 2013 and 2012

The Company’s operating income for the three months ended June 30, 2013 was $9.2 million, a decrease of $1.3 million, compared to the same quarter in 2012. Gross margin increased by $2.7 million in the second quarter of 2013, compared to the same quarter in 2012. The quarter-over-quarter increase in gross margin was negatively impacted by a non-recurring increase of $568,000 in the second quarter of 2012 related to prior period accrued revenues. Other operating expenses increased by $4.0 million in the second quarter of 2013, compared to the same quarter in 2012. Included in other operating expenses in the second quarter of 2013 was a one-time sales tax expense of $759,000 related to the purchase of the operating assets of ESG.

Regulated Energy

Operating income for the regulated energy segment decreased by $1.9 million to $8.6 million for the quarter ended June 30, 2013, compared to the same quarter in 2012. An increase in gross margin of $981,000 was offset by an increase of $2.9 million in other operating expenses. The significant components of the gross margin increase included:

•$1.1 million of increased gross margin due to natural gas growth from: (a) major service expansions initiated in 2012 and 2013, including $474,000 in additional gross margin generated from the new and additional transmission services commenced in May 2013 to the NRG Dover electric generation plant and the PBF Energy refinery in Delaware City; and (b) additional residential, commercial and industrial customer growth on the Delmarva Peninsula and in Florida;
•$538,000 in additional gross margin generated from approximately 11,000 customers acquired from ESG in late May, which are now served by the Company’s new subsidiary, Sandpiper; and
•$568,000 of a non-recurring increase in gross margin in the second quarter of 2012 to adjust prior period accrued revenues, which offset the above increases.

Included in other operating expenses for the second quarter of 2013 were: (a) a one-time sales tax expense of $759,000 related to the purchase of the ESG operating assets, (b) $463,000 in other operating expenses associated with Sandpiper’s operation, (c) an increase of $685,000 in the accrual for incentive bonuses as a result of the timing of bonus recognition, increased participation in the bonus program, and the Company’s financial performance on a year-to-date-basis, (d) $395,000 in increased administrative costs, such as accounting, information technology and insurance costs, and (e) $301,000 in additional investments in corporate resources to further develop the Company’s capability to capitalize on future growth opportunities.

Unregulated Energy

Operating income for the unregulated energy segment for the quarter ended June 30, 2013 was $447,000, an increase of $848,000 over the operating loss of $401,000 for the same quarter in 2012. An increase in gross margin of $1.8 million was partially offset by an increase in other operating expenses of $954,000. The significant components of the gross margin increase included:

•$1.2 million in increased gross margin generated from higher retail propane margins as a significant decrease in the average wholesale market price of propane, which lowered the Company’s cost of propane sales and resulted in an increase in retail margins per gallon (retail margins remained strong through the second quarter of 2013, as a decline in the Company’s propane costs from lower propane wholesale prices outpaced the decline in retail prices);
•$816,000 in increased gross margin generated from additional gallons sold, including $341,000 in additional gross margin generated from service to approximately 3,000 residential and commercial propane distribution customers in Florida obtained in the acquisition of the operating assets of Glades Gas Co., Inc. (“Glades”) in February 2013; and
•$770,000 in lower gross margin generated by Xeron, Inc. (“Xeron”), the Company’s propane wholesale marketing subsidiary, as lower volatility in wholesale propane prices resulted in fewer opportunities for trading activity.

The increase in other operating expenses was due primarily to additional expenses associated with serving the customers acquired from Glades as well as higher costs related to propane tank and vehicle maintenance activities.

Other

The “other” segment, which consists primarily of BravePoint®, Inc. (“BravePoint”), the Company’s advanced information services subsidiary, reported an operating income decline of $265,000 to $86,000 for the quarter ended June 30, 2013, compared to the same quarter in 2012. Gross margin was $2.1 million and $2.2 million for the second quarters of 2013 and 2012, respectively. Other operating expenses increased by $137,000.

Comparative Results for the Six Months Ended June 30, 2013 and 2012

The Company’s operating income for the six months ended June 30, 2013 was $35.7 million, an increase of $5.2 million, compared to the same period in 2012. Gross margin increased by $11.0 million in the six months ended June 30, 2013, compared to the same period in 2012. Approximately $3.7 million of the gross margin increase was the result of colder weather during 2013 on the Delmarva Peninsula and in Florida, compared to 2012. Other operating expenses increased by $5.9 million in the six months ended June 30, 2013, compared to the same period in 2012.

Regulated Energy

Operating income for the regulated energy segment increased by $622,000 to $25.9 million for the six months ended June 30, 2013, compared to the same period in 2012. An increase in gross margin of $4.3 million was partially offset by an increase in other operating expenses of $3.7 million. The significant components of the gross margin increase included:

•$2.7 million due to natural gas growth resulting from: (a) major service expansions initiated in 2012 and 2013; and (b) additional residential, commercial and industrial customer growth on the Delmarva Peninsula and in Florida;
•$1.0 million as a result of higher consumption by natural gas and electric customers due to temperatures in 2013 that returned to more normal levels (primarily during the first quarter); and
•$538,000 in gross margin generated from approximately 11,000 customers acquired from ESG in late May, which are now served by Sandpiper.

Included in other operating expenses for the six months ended June 30, 2013 were (a) a one-time sales tax expense of $759,000 related to the purchase of the ESG operating assets, (b) $463,000 in other operating expenses associated with Sandpiper’s operation, (c) an increase of $917,000 in the accrual for incentive bonuses as a result of the timing of bonus recognition, increased participation in the bonus program, and the Company’s financial performance on a year-to-date-basis, (d) $616,000 in increased administrative costs, such as accounting, information technology and insurance costs, and (e) $699,000 in additional investments in corporate resources to further develop the Company’s capability to capitalize on future growth opportunities.

Unregulated Energy

Operating income for the unregulated energy segment increased by $5.1 million to $9.8 million for the six months ended June 30, 2013, compared to the same period in 2012. An increase in gross margin of $6.8 million was partially offset by an increase in other operating expenses of $1.8 million. The significant components of the gross margin increase included:

•$3.3 million in increased gross margin generated from higher retail propane margins from a significant decrease in the average wholesale market price of propane, which lowered the Company’s cost of propane sales;
•$2.7 million in additional gross margin due to temperatures that returned to more normal levels causing higher consumption by propane customers (primarily during the first quarter);
•$967,000 in increased gross margins generated from higher propane sales volume, including $561,000 in additional gross margin generated from serving the customers acquired from Glades; and
•$936,000 in lower gross margin generated by Xeron, as lower volatility in wholesale propane prices resulted in fewer opportunities for trading activity.

The increase in other operating expenses was due primarily to additional expenses associated with serving the new Glades customers, an increase in the accrual for incentive bonuses as a result of the strong 2013 year-to-date financial performance of the unregulated business segment and increased costs related to propane tank and vehicle maintenance activities.

Other

The”other” segment, which consists primarily of BravePoint, reported an operating loss of $39,000 for the six months ended June 30, 2013, compared to operating income of $472,000 in the same period in 2012. Gross margin was $4.0 million and $4.1 million for the six months ended June 30, 2013 and 2012, respectively. Other operating expenses increased by $408,000 to $4.0 million in the six months ended June 30, 2013 due primarily to higher payroll and related costs associated with BravePoint.

Matters discussed in this release may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements. Please refer to the Safe Harbor for Forward-Looking Statements in the Company’s most recent report on Form 10-K for further information on the risks and uncertainties related to the Company’s forward-looking statements.

The discussions of the results use the term “gross margin,” a non-Generally Accepted Accounting Principles (“GAAP”) financial measure, which management uses to evaluate the performance of the Company’s business segments. For an explanation of the calculation of “gross margin,” see the footnote to the Financial Summary.

Unless otherwise noted, earnings per share information is presented on a diluted basis.

Conference Call

Chesapeake Utilities Corporation will host a conference call on August 12, 2013, at 10:30 a.m. Eastern Time to discuss the Company’s financial results for the quarter ended June 30, 2013. To participate in this call, dial 866.821.5457 and reference Chesapeake Utilities Corporation’s second quarter 2013 Financial Results Conference Call. To access the replay recording of this call, please visit the Company’s website at https://chpk.com/investors/events-presentations/.

About Chesapeake Utilities Corporation

Chesapeake Utilities Corporation is a diversified utility company engaged in natural gas distribution, transmission and marketing, electric distribution, propane gas distribution and wholesale marketing, advanced information services and other related services. Information about Chesapeake’s businesses is available at www.chpk.com.

For more information, contact:

Beth W. Cooper
Senior Vice President & Chief Financial Officer
302.734.6799

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