Chesapeake country land-field

2015 ANNUAL REPORT

PRESIDENT'S LETTER

President's Photo
Michael P. McMasters

My Fellow Shareholders:

How good it is to report that 2015 was another record year for Chesapeake Utilities Corporation. We posted record earnings for the ninth consecutive year. Our earnings per share reached $2.72 (diluted), surpassing 2014’s record by 10.1 percent. Total shareholder return, including stock price and dividends, was 16.7 percent in 2015, bringing our compound annual shareholder return to 14.4 percent for the past 10 years. Remarkably, over the same period, our total shareholder return has been in the 85th percentile of the more than 2,000 companies listed on the New York Stock Exchange (“NYSE”).

FOUNDATION FOR GROWTH

Our approach to growth is relatively simple. It starts with persistent effort by our employees. They aspire to excel in everything they do, serving our customers, communities and investors with personal care and commitment. Every day, I grow prouder of their efforts and accomplishments as they continuously embody our shared values of Aspiring and Caring.

We have a plan for growth that challenges all of us to excel, and it is the spirited discipline and drive of our employees that makes our strategic planning process and the resulting plan work. Contrary to the old adage that too many cooks spoil the broth, we involve all of our business units in our strategic planning process and in identifying and developing new growth opportunities. Our strategic planning process requires that all of our business units look ahead together as one Company to develop a five-year plan, which we update every year, or more often if market forces dictate. This concerted effort produces a dynamic plan that challenges all of us to focus on investment opportunities that can sustain the growth required to achieve our aggressive targets over the long term.

As part of the process, our Growth Council oversees the evaluation and development of large and strategically significant projects. The Growth Council includes executives with operations, engineering, business development, regulatory, financial and legal backgrounds. The Council weighs the benefits and risks associated with each project, including its strategic and operational fit before it is presented for Board approval. After approval, the Council monitors further development until the project is fully launched and executed. This process supports sound resource allocation decisions and provides the discipline to develop and execute large and strategically significant growth projects. We’re proud of our growth process and our record of successful execution.

COMPAUND ANNUAL SHAREHOLDER: Total shareholder return for 2015 was 16.7 percent. In addition, our shareholders have earned more than 14 percent returns during each of the periods shown on a compound annual basis.

"We have achieved 8.4 percent cumulative annual growth rate!"

CONTINUED GROWTH

We grew in 2015 by nearly every measure, as you will see throughout our annual report. Looking forward, we currently have several opportunities under development that we expect to start generating earnings and growth in 2016 and 2017. The foundation for this growth has already been laid. We are currently in the process of laying the foundation for more growth that we would expect to materialize in 2018, 2019 and 2020. Rest assured that we will continue our relentless efforts to drive growth by focusing on long-term, sustainable growth opportunities. We will remain both aggressive and disciplined, aspiring and careful, in our quest for growth with enduring value. These values are ingrained in our culture, strategic planning and our growth process.

RALPH ADKINS, CHAIR EMERITUS, RETIRING AFTER 54 YEARS OF SERVICE

After 54 years of service with Chesapeake Utilities Corporation, Ralph Adkins, former CEO and Chair of the Board and currently Chair Emeritus, is retiring. Over the years, Ralph has been involved in initiatives such as the Central Florida Gas Company and Plant City Natural Gas Company acquisitions in the mid to late 1980s, our acquisitions of propane distribution assets, our acquisition of Florida Public Utilities in 2009 and our acquisition of Gatherco, Inc., which was merged into our subsidiary, Aspire Energy of Ohio, in 2015.

In 1962, when Ralph joined the Company, we had $3.1 million in revenue and net income of $247,000. Net plant was less than $6 million in 1962; today, it is more than $850 million, 140 times larger than it was when Ralph joined the Company.

Needless to say, a lot changed during Ralph’s tenure. This year, our net income was $41 million, 165 times 1962’s earnings. Ralph was with the Company in the 1970s, when the country was experiencing shortages of natural gas and our supplies were curtailed by 61 percent. Today, there is an abundance of domestically-produced natural gas. In 1962, we served Delaware and the Eastern Shore of Maryland. Today, we are also serving customers in Pennsylvania, Virginia, Florida and Ohio. In the early 1980s, Forbes Magazine recognized us as an up-and-coming company. Today, we are continuing that tradition by achieving top quartile performance in many of the key metrics that we monitor. In 1993, while Ralph was our CEO, Chesapeake Utilities Corporation was first listed on the NYSE as “CPK.” On March 9, 2016, we celebrated with Ralph and his family by ringing The Closing Bell® at the NYSE. Many thanks, Ralph, for your faithful service over 54 years. Thanks also to John Schimkaitis, who succeeded Ralph as Chair of the Board, and thanks to all of our Board members for supporting the stretch goals we set each year and cheering us on as we cross those goal lines. Thanks to our employees for all they do every day. And to all of you, our profound thanks for your abiding trust and confidence in us.

Sincerely,

President's signature
Michael P. McMasters
President and Chief Executive Officer

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SERVICE TERRITORY

Company Board Executives
2015 was another year of opportunities and growth for Chesapeake Utilities Corporation. We continue to live our brand of Aspiring and Caring in all that we do. This is how we make business decisions and ensure we are disciplined in focusing on strategic growth that reinforces our brand and delivers superior shareholder value.
FINANCIAL HIGHLIGHTS
* dollars in thousands, except per share amounts 2015 2014 2015/2014 & CHANGE 2013 2014/2013 & CHANGE
OPERATING REVENUES $459,244 $498,834 -8% $444,306 12%
OPERATING INCOME $77,758 $62,279 25% $62,734 -1%
NET INCOME $41,140 $36,092 14% $32,787 10%
BASIC $2.73 $2.48 10% $2.27 9%
DILUTED $2.72 $2.47 10% $2.26 9%
ANNUALIZED DIVIDENDS PER SHARE* $1.15 $1.08 6% $1.03 5%
TOTAL ASSETS $1,068,586 $904,469 18% $837,522 8%
STOCKHOLDERS’ EQUITY $358,138 $300,322 19% $278,773 8%
LONG-TERM DEBT, NET OF CURRENT MATURITIES $149,340 $158,486 -6% $117,592 35%
AVERAGE RETURN ON EQUITY 12.1% 12.2% N/M 12.2% N/M
OTHER
SHARES OUTSTANDING AT YEAR-END* 15,270,659 14,588,711 5% 14,457,345 1%
REGISTERED STOCKHOLDERS 2,396 2,329 3% 2,345 -1%
AVERAGE TOTAL NATURAL GAS DISTRIBUTION CUSTOMERS 144,872 141,227 3% 138,210 2%
AVERAGE TOTAL ELECTRIC DISTRIBUTION CUSTOMERS 31,430 31,272 3% 31,151 N/M
AVERAGE TOTAL PROPANE DISTRIBUTION CUSTOMERS 53,682 53,272 1% 51,988 2%
Florida Map

ENERGY SERVICE TERRITORY

Our Florida propane distribution subsidiary, Flo-Gas, Inc., provides propane distribution service to approximately 16,000 customers in various areas of Florida. Peninsula Pipeline Company, Inc., Chesapeake’s intrastate pipeline subsidiary, provides natural gas transportation services to customers in Florida. Our Florida energy presence has grown over the past 15 years from three counties in central Florida to 39 counties throughout the state.


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ONE COMPANY

Company Board Executives
Pictured from left: Jeff Householder, President of Florida Public Utilities Company; Steve Thompson, Senior Vice President; Elaine Bittner, Senior Vice President of Strategic Development; Michael P. McMasters, President and Chief Executive Officer; Ralph Adkins, Chair Emeritus; John Schimkaitis, Chair of the Board of Directors; Beth Cooper, Senior Vice President and Chief Financial Officer; Jim Moriarty, Vice President and General Counsel; and Vikrant Gadgil, Vice President and Chief Information Officer.

ASPIRING AND CARING IN ALL THAT WE DO

2015 was another year of opportunities and growth for Chesapeake Utilities Corporation. We continue to live our brand of Aspiring and Caring in all that we do. This is how we make business decisions and ensure we are disciplined in focusing on strategic growth that reinforces our brand and delivers superior shareholder value.

As we continued to grow this past year, it became clear that our strength comes from all of us working together as One Company. Regardless of each individual’s role, business unit, or geographic location within the Company, our brand unifies our Company. To help communicate our brand throughout our family of businesses, we created a new family of logos. The new logo design embodies both the unity and individuality of each member of our family of businesses. The name of each business, cast in the same strong, bold font, leans forward, led by the soaring bird that symbolizes our shared core values: Aspiring and Caring. Our brand icon represents our strong culture and unwavering commitment to reach new heights as one Company.

In the spirit of living our brand, we had the opportunity to honor Ralph J. Adkins, Chair Emeritus, for his 54 years of service and contributions to our Company and our shareholders with a celebratory day at the NYSE. Ralph was joined by his family and the Company’s leadership team on the podium at the NYSE to ring The Closing Bell®.

EMPOWERING OUR EMPLOYEES

At Chesapeake, our employees are the heart of our Company. Everyone plays an important role in helping us accomplish our goals. Our internal programs encourage both professional and personal development, as well as opportunities for community engagement.

As our employees aspire to grow, our Company grows, becomes more resilient, and thrives. For the fourth consecutive year in 2015, Chesapeake was recognized as a Top Workplace in Delaware. The survey results surpassed industry benchmarks in nearly every category.

We express gratitude to our employees through several continuing programs. For example, our monthly Chesapeake Cares program celebrates employee milestones, Company accomplishments and growth plans. We also honor employees through our recognition program, which empowers employees to acknowledge team members who have exemplified our brand values in their interactions with one another and customers.

To successfully plan our Chesapeake Cares events, we have a team of more than 40 Brand Champions, who organize these events for their colleagues at business locations. Our Brand Champions are essential in ensuring that our brand is embraced across the Company. Recently, the Brand Champions were recognized for the roles they play at the first Annual Brand Champion Workshop.

Employee male Employee female photo Employee male

Through our Chesapeake Aspiring Scholars program, the Company annually supports the educational aspirations of employees’ children. In 2015, we awarded students of employees across our Company with scholarship grants to support their continuing education at an accredited college or university, or post-secondary technical school.

We continue to recognize employees for making safety a high priority in everything they do. We strengthen our expertise and employee involvement to encourage a culture dedicated to promoting safer working environments and communities. In its fourth year, our ACEs in Safety Awards Program honors our employees who go above and beyond the norm to achieve excellence in safety. Employees are recognized for their exceptional safety practices in caring about colleagues, customers and the communities we serve.

We also provide opportunities to help our employees lead a healthier lifestyle. Our Chesapeake Wellness Program promotes health awareness and encourages our employees to enhance their health. Annually, we host health fairs at various business locations for employees and family members, offering biometric screenings and resources for inspiring healthier lifestyles. As we look to the future, we will continue to create programs that showcase how we care for our employees and help them reach new aspirations.

SERVING OUR CUSTOMERS TOGETHER

At Chesapeake, we see our communities as an extension of our Chesapeake family. We all live in the communities we serve and strive to create meaningful connections with our customers. We feel privileged to have the opportunity to serve our customers and provide energy resources in a safe and reliable manner – and we take this responsibility seriously.

As a team, we strive to deliver an exceptional customer experience. In 2015, Chesapeake Utilities Corporation was honored with the “Excellence in Business Award for Corporation of the Year.” This achievement is based on significant contributions to the business community and the positive influence Chesapeake has had on making Delaware a better place to live and work.

“I am honored that we have been recognized as a leader in the Delaware business community,” said Michael P. McMasters, President and CEO. “We take special pride in our communities. The teamwork, innovation and drive of our employees enhance the image of business in Delaware. Chesapeake has continued to grow, creating jobs for Delaware, successfully serving its customers and making a positive impact on local communities.”

ENGAGING WITH OUR COMMUNITIES AND GOVERNMENTS

50 employess group photo

Our performance as a strong community partner stems from our passion to help people reach their aspirations and make a meaningful impact on the lives of others. Beyond the energy services which we provide, we take pride in being a true partner in our communities and delivering value to our communities and society as a whole.

Our corporate citizenship aligns with our culture of Aspiring and Caring. Engaging with our communities is an integral part of our culture. We don’t just talk about it, but create programs and opportunities for our employees to participate in community initiatives. We serve as volunteers, leaders on boards and committees, and at times in direct service to those in need.

In 2015, Chesapeake partnered with the American Heart Association as a Legacy Sponsor for the 13th Southern Delaware Go Red for Women® Event in celebrating “The Power of a Woman’s Heart.”

In 2015, we also contributed more than $235,000 to approximately 100 organizations nominated by employees throughout the Company. A few highlights included partnerships with the following organizations: Our approach to community engagement is driven by our strong leadership, dedicated employees and our collaboration with nonprofit partners and other organizations – all working toward a common goal of changing lives for the better.

We continue to invest in our brand, employees, customers and communities, fostering growth opportunities in existing and new markets throughout our service territories and into new geographic areas.

three women working
In 2015, Chesapeake partnered with the American Heart Association as a Legacy Sponsor for the 13th Southern Delaware Go Red for Women® Event in celebrating “The Power of a Woman’s Heart.”

Elaine Bittner, Senior Vice President of Strategic Development, was the Event Chair for the second consecutive year. She led a team of caring employee volunteers from our Delaware and Florida locations to help raise over $250,000 during two years of events, and to plan another gala event this year to promote national awareness of heart disease and stroke in women. This year’s event included a fashion show featuring Chesapeake women, who showcased the latest fashions and their energy in red-carpet style while supporting a great cause. These efforts resulted in another record-breaking event for the Delaware Chapter of the American Heart Association.

Our annual United Way® campaign is also a major focus of our community outreach. Companywide, employees pledged over $65,000. Our subsidiary, FPU, was named the “Small Business of the Year for United Way” of northeast Florida for the third consecutive year. Additionally, FPU was recognized with the United Way’s top honor, the “Circle of Honor Platinum Award,” for best practices exhibited in a campaign.

In November 2015, we introduced our Cares with a Cause program. Through this companywide program we harness the power of our collective efforts to create a larger impact. Each quarter, we select a charitable cause to support through volunteering time or contributing goods. Our first Cares with a Cause event was a holiday toy and gift drive. Each business unit office partnered with a local charity, such as Toys for Tots or local shelters, to distribute employee donations of toys and gifts for children. Overall, employees throughout Delaware, Florida, Maryland and Ohio donated more than 1,350 items.

Through our SHARING Program, we partner with nonprofit organizations in Delaware and Maryland to provide financial assistance during the cold winter months to our customers who are elderly, ill and less fortunate. In 2015, we awarded grants through our SHARING Program totaling approximately $43,000 to assist those in need.


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TOGETHER WE GROW

Company Board Executives
“For the fourth consecutive year, our Company was honored with a Top Workplace Award. I treasure this because it is a reflection of our culture and the quality of our employees and management team. Across the Company, our teams are working together to provide solutions to our customers’ needs and generate superior shareholder value. I am proud to say: Together we aspire, together we grow.” - Michael P. McMasters, President and CEO

In 2015, Chesapeake expanded its Holiday Cares program to include all of our business regions. As part of our companywide Holiday Cares Volunteer Event, “Thanksgiving for All,” Chesapeake donated approximately $30,000 to the local food banks and other nonprofit organizations sponsoring food drives in Delaware, Florida, Maryland and Ohio. Nearly 200 enthusiastic employee volunteers dedicated approximately 1,000 hours to package and distribute over 3,300 holiday meal boxes to families across our service areas.

Throughout the year, Chesapeake finds other ways to partner with local community organizations. In May 2015, Chesapeake employees joined Delaware Governor Jack Markell and the Food Bank of Delaware with many other volunteers at Legislative Hall in Dover, Delaware. This event raised awareness about statewide food insecurities and hunger issues. Volunteers assembled 5,200 “backpack” meals – one week of food delivered to less fortunate children in Delaware.

In July 2015, we hosted our annual Summer Chesapeake Cares Volunteer Event, working with the Food Bank of Delaware in support of its Summer Nutrition Program. For two days, volunteers from our Delaware and Maryland business offices sorted more than 10,000 pounds of donated fresh produce and food and packaged approximately 3,500 meals for children in Delaware.

"This was our fourth year partnering with the Food Bank of Delaware to provide Thanksgiving meals for local families," said Elaine Bittner, Senior Vice President of Strategic Development. "Our employees look forward to volunteering for this event every year, and helping those in communities we serve. This is just another way we connect with our communities."

In honor of our continuous commitment to community initiatives, the Food Bank of Delaware named Chesapeake Utilities Corporation “Donor of the Year.” In 2015, Chesapeake Utilities Corporation also received the “Tourism Partner of the Year” award for its work within the Kent County, Delaware community. This recognition exemplified our support of events and programs that benefited tourism in the county, including the Dover Days Festival and the Amish Country Bike Tour.

INVESTING IN GROWTH
We have invested approximately $545 million, while generating returns equal or greater than our cost of capital.

Our Chesapeake Cares Mentor Program is another initiative to connect with our local communities with a specific focus on helping our youth. We successfully partnered with Connecting Generations to develop and launch our mentor program in Delaware. The program focuses on in-school mentoring at all grade levels and provides opportunities for our employees to volunteer approximately one hour per week with a student. With the success of our initial launch, we expanded our program companywide with the addition of our new partner, Junior Achievement. Employees commit to a five to 12-week curriculum working with a teacher in the classroom. This additional mentoring option provides our employees an opportunity to make a positive impact on the lives of local students.

In 2015, FPU contributed $25,000 to Step Up for Students, Inc., which provides scholarships for underprivileged children to attend school through a tax credit program offered throughout the state of Florida. Care for our environment is another focus of service by our Company and its employees. We have partnered with The Nature Conservancy for many years in support of raising funds for conservation in Delaware through the annual Dogfish Dash for the Delaware Chapter of The Nature Conservancy. Our Company participation includes sponsorships, participating runners and event volunteers from all of our business locations.

Additionally, employees participated in a project at the Milford Neck Preserve in Milford, Delaware, where they had an opportunity to show their support by mulching and performing other activities to help protect the plants from the summer heat and winter cold. The work of our employees will help make a difference to the Milford Neck landscape, including beaches and dunes, tidal marshlands, freshwater wetlands, swamp and upland forests and farmlands.

As One Company, we continue to develop strong partnerships with community organizations and our local governments. As a result, our employees are proud to be part of the Chesapeake family and look forward to working together to help improve the lives of others and build strong communities.

FPU Contribution


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