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 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (302) 734-6799 -------------------------------------------------- (Registrant's Telephone Number, Including Area Code) -------------------------------------------------- (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. PART I FINANCIAL INFORMATION CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31, 1998 1997 ASSETS (Unaudited) (Restated) ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- 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. 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. CHESAPEAKE UTILITIES CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Restated FOR THE THREE MONTHS ENDED JUNE 30, 1998 1997 ----------------------------------------------------------------------- OPERATING REVENUES $43,594,944 $44,918,820 COST OF SALES 33,309,758 34,415,711 ----------------------------------------------------------------------- GROSS MARGIN 10,285,186 10,503,109 ----------------------------------------------------------------------- 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 ----------------------------------------------------------------------- INCOME BEFORE INTEREST CHARGES 1,051,289 1,515,933 INTEREST CHARGES 787,538 790,278 ----------------------------------------------------------------------- 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. 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 ----------------------------------------------------------------------- GROSS MARGIN 26,588,845 25,962,558 ----------------------------------------------------------------------- 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. 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 ----------------------------------------------------------------------- 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. 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. 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. 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. 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. 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