##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended: December 31, 2010
 Commission File Number: 001-11590
 
 Chesapeake Utilities Corporation
 (Exact name of registrant as specified in its charter)
 State of Delaware
    
    51-0064146(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 909 Silver Lake Boulevard, Dover, Delaware 19904  (Address of principal executive offices, including zip code)
 302-734-6799  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock  par value per share $0.4867
    
    New York Stock Exchange, Inc.
 
 Securities
registered pursuant to Section 12(g) of the
Act:  8.25%
Convertible Debentures Due 2014  (Title of class)
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Chesapeake Utilities Corporation
 Form 10-K
 YEAR ENDED DECEMBER 31, 2010
 TABLE OF CONTENTS
 PagePart I
    
    
    1Item 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    22Item 2. Properties
    
    
    22Item 3. Legal Proceedings
    
    
    23Item 4. Removed and Reserved
    
    
    23Item 4A. Executive Officers of the Registrant
    
    
    23Part II
    
    
    24Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    24Item 6. Selected Financial Data
    
    
    27Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    31Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    60Item 8. Financial Statements and Supplementary Data
    
    
    60Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    114Item 9A. Controls and Procedures
    
    
    114Item 9B. Other Information
    
    
    116Part III
    
    
    116Item 10. Directors, Executive Officers of the Registrant and Corporate Governanace
    
    
    116Item 11. Executive Compensation
    
    
    116Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    116Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    117Item 14. Principal Accounting Fees and Services
    
    
    117Part IV
    
    
    118Item 15. Exhibits, Financial Statement Schedules
    
    
    118Signatures
    
    
    124Exhibit 4.9Exhibit 10.6Exhibit 10.8Exhibit 10.13Exhibit 10.28Exhibit 10.30Exhibit 10.41Exhibit 10.43Exhibit 12Exhibit 14.1Exhibit 14.2Exhibit 21Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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GLOSSARY OF KEY TERMS
 Frequently used abbreviations, acronyms, or terms used in this report:
 Subsidiaries of Chesapeake Utilities Corporation
 BravePoint
    
    BravePoint®, Inc., a wholly-owned subsidiary of Chesapeake Services Company,
which is a wholly-owned subsidiary of ChesapeakeChesapeake
    
    The Registrant, the Registrant and its subsidiaries, or the Registrants
subsidiaries, as appropriate in the context of the disclosureCompany
    
    The Registrant, the Registrant and its subsidiaries or the Registrants
subsidiaries, as appropriate in the context of the disclosureESNG
    
    Eastern Shore Natural Gas Company, a wholly-owned subsidiary of ChesapeakeFPU
    
    Florida Public Utilities Company, a wholly-owned subsidiary of Chesapeake,
effective October 28, 2009PESCO
    
    Peninsula Energy Services Company, Inc., a wholly-owned subsidiary of ChesapeakePIPECO
    
    Peninsula Pipeline Company, Inc., a wholly-owned subsidiary of ChesapeakeSharp
    
    Sharp Energy, Inc., a wholly-owned subsidiary of Chesapeakes and Sharps
subsidiary, Sharpgas, Inc.Xeron
    
    Xeron, Inc., a wholly-owned subsidiary of Chesapeake
 Regulatory Agencies
 Delaware PSC
    
    Delaware Public Service CommissionDOT
    
    United States Department of TransportationEPA
    
    United States Environmental Protection AgencyFASB
    
    Financial Accounting Standards BoardFERC
    
    Federal Energy Regulatory CommissionFDEP
    
    Florida Department of Environmental ProtectionFlorida PSC
    
    Florida Public Service CommissionIASB
    
    International Accounting Standards BoardIRS
    
    Internal Revenue ServiceMaryland PSC
    
    Maryland Public Service CommissionMDE
    
    Maryland Department of the EnvironmentPSC
    
    Public Service CommissionSEC
    
    Securities and Exchange Commission
 Accounting Standards Related
 ASC
    
    FASB Accounting Standards Codification TMASU
    
    FASB Accounting Standards UpdateGAAP
    
    Generally Accepted Accounting PrinciplesIFRS
    
    International Financial Reporting StandardsFASB
    
    Financial Accounting Standards Board




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Other
 AS/SVE
    
    Air Sparging and Soil/Vapor ExtractionBS/SVE
    
    Bio-Sparging and Soil/Vapor ExtractionCDD
    
    Cooling Degree-DaysColumbia
    
    Columbia Gas Transmission, LLCDSCP
    
    Directors Stock Compensation PlanDts
    
    DekathermsDts/d
    
    Dekatherms per DayFCG
    
    Florida City GasFGT
    
    Florida Gas Transmission CompanyFRP
    
    Fuel Retention PercentageGSR
    
    Gas Sales Service RatesGulf
    
    Columbia Gulf Transmission CompanyGulf Power
    
    Gulf Power CompanyGulfstream
    
    Gulfstream Natural Gas System, LLCHDD
    
    Heating Degree-DaysIGC
    
    Indiantown Gas CompanyMcf
    
    Thousand Cubic FeetMGP
    
    Manufactured Gas PlantMWH
    
    Megawatt HourNYSE
    
    New York Stock ExchangePIP
    
    Performance Incentive PlanRAP
    
    Remedial Action PlanS&P 500 Index
    
    Standard & Poors 500 IndexSanford Group
    
    FPU and Other Responsible Parties involved with the Sanford Environmental SiteTETLP
    
    Texas Eastern Transmission, LPTransco
    
    Transcontinental Gas Pipe Line Company, LLC




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##### Table of Contents



Part I
  Safe Harbor for Forward-Looking Statements
  
    
    state and federal legislative and regulatory initiatives that affect cost and
investment recovery, have an impact on rate structures, and affect the speed at and degree
to which competition enters the electric and natural gas industries (including
deregulation);
 
    
    the outcomes of regulatory, tax, environmental and legal matters, including whether
pending matters are resolved within current estimates;
 
    
    industrial, commercial and residential growth or contraction in our service
territories;
 
    
    the weather and other natural phenomena, including the economic, operational and other
effects of hurricanes and ice storms;
 
    
    the timing and extent of changes in commodity prices and interest rates;
 
    
    general economic conditions, including any potential effects arising from terrorist
attacks and any consequential hostilities, other hostilities or other external factors
over which we have no control;
 
    
    changes in environmental and other laws and regulations to which we are subject;
 
    
    the results of financing efforts, including our ability to obtain financing on
favorable terms, which can be affected by various factors, including credit ratings and
general economic conditions;
 
    
    declines in the market prices of equity securities and resultant cash funding
requirements for our defined benefit pension plans;
 
    
    the creditworthiness of counterparties with which we are engaged in transactions;
 
    
    growth in opportunities for our business units;
 
    
    the extent of success in connecting natural gas and electric supplies to transmission
systems and in expanding natural gas and electric markets;
 
    
    the effect of accounting pronouncements issued periodically by accounting
standard-setting bodies;
 
    
    conditions of the capital markets and equity markets during the periods covered by the
forward-looking statements;
 
    
    the ability to successfully execute, manage and integrate merger, acquisition or
divestiture plans, regulatory or other limitations imposed as a result of a merger,
acquisition or divestiture, and the success of the business following a merger,
acquisition or divestiture;
 
    
    the ability to manage and maintain key customer relationships;
 
    
    the ability to maintain key supply sources;
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 1




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##### Table of Contents




    
    the effect of spot, forward and future market prices on our distribution, wholesale
marketing and energy trading businesses;
 
    
    the effect of competition on our businesses;
 
    
    the ability to construct facilities at or below estimated costs;
 
    
    changes in technology affecting our advanced information services business; and
 
    
    operational and litigation risks that may not be covered by insurance.
 
 Item 1. Business.
 (a)
    
    OverviewWe are a diversified utility company engaged in various energy and other businesses. Chesapeake
is a Delaware corporation that was formed in 1947. On October 28, 2009, we completed a merger
with Florida Public Utilities Company (FPU), pursuant to which FPU became a wholly-owned
subsidiary of Chesapeake. We operate regulated energy businesses through our natural gas
distribution divisions in Delaware, Maryland and Florida, natural gas and electric distribution
operations in Florida through FPU, and natural gas transmission operations on the Delmarva
Peninsula and Florida through our subsidiaries, Eastern Shore Natural Gas Company (ESNG) and
Peninsula Pipeline Company, Inc. (PIPECO), respectively. Our unregulated businesses include
our natural gas marketing operation through Peninsula Energy Services Company, Inc. (PESCO);
propane distribution operations through Sharp Energy, Inc. and its subsidiary Sharpgas, Inc.
(collectively Sharp) and FPUs propane distribution subsidiary, Flo-Gas Corporation; and our
propane wholesale marketing operation through Xeron, Inc. (Xeron). We also have an advanced
information services subsidiary, BravePoint®, Inc. (BravePoint).
 (b)
    
    Operating SegmentsWe are composed of three operating segments:
 
    
    Regulated Energy. The regulated energy segment includes natural gas distribution,
electric distribution and natural gas transmission operations. All operations in this
segment are regulated, as to their rates and services, by the Public Service Commission
(PSC) having jurisdiction in each operating territory or by the Federal Energy Regulatory
Commission (FERC) in the case of ESNG.
 
    
    Unregulated Energy.The unregulated energy segment includes natural gas marketing,
propane distribution and propane wholesale marketing operations, which are unregulated as to
their rates and services.
 
    
    Other.The other segment consists primarily of the advanced information services
operation, unregulated subsidiaries that own real estate leased to Chesapeake and certain
corporate costs not allocated to other operations.
  Net Property, Plant(in thousands)
    
    Operating Income
    
    
    & EquipmentRegulated Energy
    
    $
    43,509
    
    
    
    84
    %
    
    $
    414,622
    
    
    
    90
    %Unregulated Energy
    
    
    7,908
    
    
    
    15
    %
    
    
    35,658
    
    
    
    8
    %Other
    
    
    513
    
    
    
    1
    %
    
    
    12,477
    
    
    
    2
    %Total
    
    $
    51,930
    
    
    
    100
    %
    
    $
    462,757
    
    
    
    100
    %
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 2




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##### Table of Contents



(i)
    
    Regulated EnergyOur regulated energy segment provides natural gas distribution services in Delaware, Maryland
and Florida, electric distribution services in Florida and natural gas transmission services in
Delaware, Maryland, Pennsylvania and Florida.Natural Gas DistributionNatural gas supplies nearly one-fourth of the energy used in the United States. Due to its
efficiency, cleanliness and reliability, natural gas is growing increasingly popular. With 99
percent of the natural gas consumed in the United States coming from North America, supplies
of natural gas are abundant. Natural gas is delivered to customers through a safe and
efficient underground pipeline system. As the cleanest-burning fossil fuel, increased use of
natural gas can help address various environmental concerns today.Our Delaware and Maryland natural gas distribution divisions serve 52,686 residential and
commercial customers and 177 industrial customers in central and southern Delaware and
Marylands Eastern Shore. For the year ended December 31, 2010, operating revenues and
deliveries by customer class for our Delaware and Maryland distribution divisions were as
follows:
 Operating Revenues
    
    
    Deliveries(in thousands)
    
    
    (Mcfs)Residential
    
    $
    46,041
    
    
    
    57
    %
    
    
    2,881,073
    
    
    
    35
    %Commercial
    
    
    27,896
    
    
    
    34
    %
    
    
    2,145,143
    
    
    
    26
    %Industrial
    
    
    3,766
    
    
    
    5
    %
    
    
    3,020,907
    
    
    
    36
    %Subtotal
    
    
    77,703
    
    
    
    96
    %
    
    
    8,047,123
    
    
    
    97
    %Interruptible
    
    
    655
    
    
    
    1
    %
    
    
    232,653
    
    
    
    3
    %Other(1)
    
    
    2,507
    
    
    
    3
    %
    
    
    
    
    
    
    Total
    
    $
    80,865
    
    
    
    100
    %
    
    
    8,279,776
    
    
    
    100
    %
 (1)
    
    Operating revenues from other include unbilled revenue, rental of gas
properties, and other miscellaneous charges.
  Operating Revenues
    
    
    Deliveries(in thousands)
    
    
    (Mcfs)Residential
    
    $
    27,742
    
    
    
    35
    %
    
    
    1,716,934
    
    
    
    8
    %Commercial
    
    
    39,006
    
    
    
    48
    %
    
    
    4,451,414
    
    
    
    20
    %Industrial
    
    
    13,043
    
    
    
    16
    %
    
    
    15,582,234
    
    
    
    72
    %Other(1)
    
    
    607
    
    
    
    1
    %
    
    
    12,723
    
    
    
    Total
    
    $
    80,398
    
    
    
    100
    %
    
    
    21,763,305
    
    
    
    100
    %
 (1)
    
    Operating revenues from other include unbilled revenue, conservation
revenue, fees for billing services provided to third parties and other miscellaneous
charges.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 3




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Electric Distribution
  Operating Revenues
    
    
    Deliveries(in thousands)
    
    
    (MWHs)Residential
    
    $
    51,498
    
    
    
    55
    %
    
    
    347,040
    
    
    
    47
    %Commercial
    
    
    45,332
    
    
    
    48
    %
    
    
    332,322
    
    
    
    45
    %Industrial
    
    
    7,705
    
    
    
    8
    %
    
    
    66,580
    
    
    
    9
    %Subtotal
    
    
    104,535
    
    
    
    111
    %
    
    
    745,942
    
    
    
    101
    %Other (1)
    
    
    (10,452
    )
    
    
    (11
    %)
    
    
    (6,286
    )
    
    
    (1
    %)Total
    
    $
    94,083
    
    
    
    100
    %
    
    
    739,656
    
    
    
    100
    %
 (1)
    
    Operating revenues from other include unbilled revenue, under
(over) recoveries of fuel cost, conservation revenue, other miscellaneous charges and
adjustments for pass-through taxes.
 Natural Gas Transmission
  Operating Revenues
    
    
    Deliveries(in thousands)
    
    
    (Mcfs)Local distribution companies
    
    $
    20,441
    
    
    
    76
    %
    
    
    10,848,108
    
    
    
    62
    %Industrial
    
    
    4,864
    
    
    
    18
    %
    
    
    4,794,442
    
    
    
    27
    %Commercial
    
    
    1,571
    
    
    
    6
    %
    
    
    1,962,890
    
    
    
    11
    %Other (1)
    
    
    41
    
    
    
    0
    %
    
    
    
    
    
    
    Subtotal
    
    
    26,917
    
    
    
    100
    %
    
    
    17,605,440
    
    
    
    100
    %Less: affiliated local distribution companies
    
    
    (12,903
    )
    
    
    (48
    %)
    
    
    (5,853,083
    )
    
    
    (33
    %)Total non-affiliated
    
    $
    14,014
    
    
    
    52
    %
    
    
    11,752,357
    
    
    
    67
    %
 (1)
    
    Operating revenues from other sources are from rental of gas properties.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 4




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Supplies, Transmission and Storage
  Natural Gas Distribution- Delaware and Maryland
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 5




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Delaware
 Firm transportation
    
    
    Firm storage capacitycapacity maximum
    
    
    maximum peak-daypeak-day daily
    
    
    daily withdrawalPipeline
    
    deliverability (Mcfs)
    
    
    (Mcfs)
    
    
    ExpirationTransco
    
    
    20,699
    
    
    
    6,190
    
    
    Various dates between 2012 and 2028Columbia
    
    
    17,836
    
    
    
    7,946
    
    
    Various dates between 2011 and 2020Gulf
    
    
    850
    
    
    
    
    
    
    Expires in 2014TETLP
    
    
    14,493
    
    
    
    
    
    
    Expires in 2012ESNG
    
    
    64,602
    
    
    
    4,006
    
    
    Various dates between 2011 and 2027
 Maryland
 Firm transportation
    
    
    Firm storage capacitycapacity maximum
    
    
    maximum peak-daypeak-day daily
    
    
    daily withdrawalPipeline
    
    deliverability (Mcfs)
    
    
    (Mcfs)
    
    
    ExpirationTransco
    
    
    5,921
    
    
    
    2,909
    
    
    Various dates between 2012 and 2013Columbia
    
    
    6,473
    
    
    
    3,539
    
    
    Various dates between 2011 and 2018Gulf
    
    
    570
    
    
    
    
    
    
    Expires in 2014TETLP
    
    
    4,831
    
    
    
    
    
    
    Expires in 2012ESNG
    
    
    21,380
    
    
    
    2,228
    
    
    Various dates between 2011 and 2027
  Natural Gas Distribution- Florida
    Chesapeake Utilities Corporation 2010 Form 10-K     Page 6




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Daily FirmTransportation Capacity(in Mcfs)January  March
    
    
    28,647April
    
    
    24,156May  September
    
    
    9,681October
    
    
    10,210November  December
    
    
    28,647
  Daily FirmTransportation Capacity(in Mcfs)January  April
    
    
    10,286May  October
    
    
    4,360November  December
    
    
    10,286
    Natural Gas Transmission
  Electric Distribution
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 7




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Competition
  Rates and Regulation
    Regulatory
    
    Effective Date of
    
    AllowedRegulated Business
    
    Jurisdiction
    
    the Currrent Rates
    
    ReturnChesapeake  Delaware Division
    
    Delaware PSC
    
    9/3/2008
    
    
    10.25% (1)Chesapeake  Maryland Division
    
    Maryland PSC
    
    12/1/2007
    
    
    10.75% (1)Chesapeake  Florida Division
    
    Florida PSC
    
    1/14/2010
    
    
    10.80% (1)FPU  Natural Gas
    
    Florida PSC
    
    1/14/2010 (3)
    
    
    10.85% (1)FPU  Electric
    
    Florida PSC
    
    5/22/2008
    
    
    11.00% (1)ESNG
    
    FERC
    
    9/1/2007
    
    
    13.60% (2)
 (1)
    
    Allowed return on equity(2)
    
    Allowed overall pre-tax, pre-interest rate of return(3)
    
    Effective date of the Order approving settlement agreement, which adjusted rates
originally approved on June 4, 2009.
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 8




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Regulatory Proceedings
  Seasonality of Natural Gas and Electric Distribution Revenues
     (ii)
    
    Unregulated Energy
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 9




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Natural Gas Marketing
  Operating Revenues
    
    
    DeliveriesState
    
    (in thousands)
    
    
    (Mcfs)Florida
    
    $
    47,441
    
    
    
    86
    %
    
    
    8,236,014
    
    
    
    84
    %Delmarva
    
    
    8,006
    
    
    
    14
    %
    
    
    1,538,895
    
    
    
    16
    %Total
    
    $
    55,447
    
    
    
    100
    %
    
    
    9,774,909
    
    
    
    100
    %
  Propane Distribution
   Operating Revenues
    
    
    Total Gallons SoldState
    
    (in thousands)
    
    
    (in thousands)Delmarva
    
    $
    68,558
    
    
    
    79
    %
    
    
    32,617
    
    
    
    82
    %Florida
    
    
    18,725
    
    
    
    21
    %
    
    
    6,995
    
    
    
    18
    %Total
    
    $
    87,283
    
    
    
    100
    %
    
    
    39,612
    
    
    
    100
    %
 Propane Wholesale Marketing
    Chesapeake Utilities Corporation 2010 Form 10-K     Page 10




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Supplies, Transportation and Storage
   Competition
  Rates and Regulation
  Seasonality of Propane Revenues
  (iii)
    
    Other
  Advanced Information Services
  Other Subsidiaries
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 11




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(c)
    
    Additional information about the Business
 (i)
    
    Capital Budget
  (ii)
    
    Employees
  (iii)
    
    Financial Information about Geographic Areas
  (d)
    
    Available Information
       Chesapeake Utilities Corporation 2010 Form 10-K     Page 12




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Item 1A. Risk Factors.
  Financial Risks
 The anticipated benefits of the merger with FPU may not be realized.
   Instability and volatility in the financial markets could have a negative impact on our growth
strategy.
  A downgrade in our credit rating could adversely affect our access to capital markets and our cost
of capital.
  Debt covenant obligations, if triggered, may affect our financial condition.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 13




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The continuation of recent economic conditions could adversely affect our customers and
negatively impact our financial results.
  An increase in interest rates may adversely affect our results of operations and cash flows.
  Inflation may impact our results of operations, cash flows and financial position.
  Our operations are exposed to market risks, beyond our control, which could adversely affect our
financial results and capital requirements.
  Our energy marketing subsidiaries have credit risk and credit requirements that may adversely
affect our results of operations, cash flows and financial condition.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 14




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Current market conditions have had an adverse impact on the return on plan assets for our
pension plans, which may require significant additional funding and adversely affect our cash
flows.
  Operational Risks
 We may be unable to successfully integrate operations after the merger.
  Fluctuations in weather may adversely affect our results of operations, cash flows and financial
condition.
   The amount and availability of natural gas, electricity and propane supplies are difficult to
predict; a substantial reduction in available supplies could reduce our earnings in those segments.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 15




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##### Table of Contents



We rely on a limited number of natural gas, electric and propane suppliers, the loss of which
could have a materially adverse effect on our financial condition and results of operations.
  We rely on having access to interstate natural gas pipelines transmission and storage capacity and
electric transmission capacity; a substantial disruption or lack of growth in these services may
impair our ability to meet customers existing and future requirements.
  Commodity price changes may affect the operating costs and competitive positions of our natural
gas, electric and propane distribution operations, which may adversely affect our results of
operations, cash flows and financial condition.
 Natural Gas/Electric.
 Propane
 Our propane inventory is subject to inventory risk, which may adversely affect our results of
operations and financial condition.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 16




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Operating events affecting public safety and the reliability our natural gas and electric
distribution systems could adversely affect the results of operations, cash flows and financial
condition.
   Because we operate in a competitive environment, we may lose customers to competitors which could
adversely affect our results of operations, cash flows and financial condition.
 Natural Gas
 Electric
 Propane .
  Changes in technology may adversely affect our advanced information services subsidiarys results
of operations, cash flows and financial condition.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 17




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Our use of derivative instruments may adversely affect our results of operations.
  Changes in customer growth may affect earnings and cash flows.
  Our businesses are capital intensive, and the costs of capital projects may be significant.
  The risk of terrorism and political unrest and the current hostilities in the Middle East may
adversely affect the economy and the price and availability of propane, refined fuels, electricity
and natural gas.
  Operational interruptions to our natural gas transmission and natural gas and electric distribution
activities, caused by accidents, malfunctions, severe weather (such as a major hurricane), a
pandemic or acts of terrorism, could adversely impact earnings.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 18




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Our regulated energy business will be at risk if franchise agreements are not renewed.
  A strike, work stoppage or a labor dispute could adversely affect our results of operation.
  Regulatory and Legal Risks
 Regulation of our Company, including changes in the regulatory environment, may adversely affect
our results of operations, cash flows and financial condition.
   We are dependent upon construction of new facilities to support future growth in earnings in our
natural gas and electric distribution and natural gas transmission operations.
  We are subject to operating and litigation risks that may not be fully covered by insurance.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 19




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##### Table of Contents



We have recorded significant amounts of goodwill and regulatory assets prior to obtaining a
rate order. An adverse outcome could result in an impairment of those assets.
  We may face certain regulatory and financial risks related to climate change legislation.
  
    
    increase our costs related to operations, energy efficiency activities and compliance;
 
    
    affect the demand for natural gas, electricity and propane; and
 
    
    increase the prices we charge our energy customers.
  We may face certain regulatory and financial risks related to pipeline safety legislation.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 20




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##### Table of Contents



Environmental Risks
 Costs of compliance with environmental laws may be significant .
    Pending environmental matters, particularly with respect to FPUs site in West Palm Beach, Florida,
may have a materially adverse effect on our Company and our results of operations.
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 21




---



##### Table of Contents



Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
 (a) General
  (b) Natural Gas Distribution
  (c) Natural Gas Transmission
   (d) Electric Distribution
  (e) Propane Distribution and Wholesale Marketing
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 22




---



##### Table of Contents



(f) Lien
  
 Item 3. Legal Proceedings.
 (a) General
  (b) Environmental
  
 Item 4. Removed and Reserved
 
 Item 4A. Executive Officers of the Registrant.
  Name
    
    
    Age
    
    
    PositionMichael P. McMasters
    
    
    52
    
    
    President and Chief Executive OfficerBeth W. Cooper
    
    
    44
    
    
    Senior Vice President and Chief Financial OfficerStephen C. Thompson
    
    
    50
    
    
    Senior Vice President and President, ESNGJoseph Cummiskey
    
    
    39
    
    
    Vice President and President, PESCOElaine B. Bittner
    
    
    41
    
    
    Vice President of Strategic Development
 Michael P. McMasters
 Beth W. Cooper
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 23




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##### Table of Contents



Stephen C. Thompson
 Joseph Cummiskey
 Elaine B. Bittner
 
 Part II
 
 Item 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
 (a) Common Stock Price Ranges, Common Stock Dividends and Shareholder Information:
  DividendsDeclaredQuarter Ended
    
    High
    
    
    Low
    
    
    Close
    
    
    Per Share2010March 31
    
    $
    32.25
    
    
    $
    28.22
    
    
    $
    29.80
    
    
    $
    0.315June 30
    
    
    32.20
    
    
    
    28.01
    
    
    
    31.40
    
    
    
    0.330September 30
    
    
    36.93
    
    
    
    30.24
    
    
    
    36.22
    
    
    
    0.330December 31
    
    
    42.20
    
    
    
    35.00
    
    
    
    41.52
    
    
    
    0.3302009March 31
    
    $
    32.36
    
    
    $
    22.02
    
    
    $
    30.48
    
    
    $
    0.305June 30
    
    
    34.55
    
    
    
    27.62
    
    
    
    32.53
    
    
    
    0.315September 30
    
    
    35.00
    
    
    
    29.24
    
    
    
    30.99
    
    
    
    0.315December 31
    
    
    32.67
    
    
    
    29.53
    
    
    
    32.05
    
    
    
    0.315
 Holders
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 24




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##### Table of Contents



Dividends
    Recent Sales of Unregistered Securities
  (b) Purchases of Equity Securities by the Issuer
  Total
    
    
    
    
    
    
    Total Number of Shares
    
    
    Maximum Number ofNumber
    
    
    Average
    
    
    Purchased as Part of
    
    
    Shares That May Yet Beof Shares
    
    
    Price Paid
    
    
    Publicly Announced Plans
    
    
    Purchased Under the PlansPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs(2)
    
    
    or Programs(2)October 1, 2010
through October 31, 2010 (1)
    
    
    258
    
    
    $
    37.58
    
    
    
    
    
    
    
    November 1, 2010
through November 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 1, 2010 through December 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    258
    
    
    $
    37.58
    
    
    
    
    
    
    
    
 (1)
    
    Chesapeake purchased shares of stock on the open market for the purpose of
reinvesting the dividend on deferred stock units held in the Rabbi Trust accounts for certain
Directors and Senior Executives under the Deferred Compensation Plan. The Deferred
Compensation Plan is discussed in detail in Note N to the Consolidated Financial Statements.
During the quarter, 258 shares were purchased through the reinvestment of dividends on
deferred stock units.(2)
    
    Except for the purpose described in Footnote (1), Chesapeake has no publicly
announced plans or programs to repurchase its shares.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 25




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##### Table of Contents



(c) Chesapeake Utilities Corporation Common Stock Performance Graph
    
 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Chesapeake
    
    $
    100
    
    
    $
    103
    
    
    $
    111
    
    
    $
    114
    
    
    $
    121
    
    
    $
    161Industry Index
    
    $
    100
    
    
    $
    119
    
    
    $
    123
    
    
    $
    132
    
    
    $
    136
    
    
    $
    155S&P 500 Index
    
    $
    100
    
    
    $
    116
    
    
    $
    122
    
    
    $
    77
    
    
    $
    97
    
    
    $
    112
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 26




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##### Table of Contents



Item 6. Selected Financial Data
 For the Years Ended December 31,
    
    2010
    
    
    2009(2)
    
    
    2008Operating(1)(in thousands)RevenuesRegulated Energy
    
    $
    269,934
    
    
    $
    139,099
    
    
    $
    116,468Unregulated Energy
    
    
    146,793
    
    
    
    119,973
    
    
    
    161,290Other
    
    
    10,819
    
    
    
    9,713
    
    
    
    13,685Total revenues
    
    $
    427,546
    
    
    $
    268,785
    
    
    $
    291,443Operating incomeRegulated Energy
    
    $
    43,509
    
    
    $
    26,900
    
    
    $
    24,733Unregulated Energy
    
    
    7,908
    
    
    
    8,158
    
    
    
    3,781Other
    
    
    513
    
    
    
    (1,322
    )
    
    
    (35
    )Total operating income
    
    $
    51,930
    
    
    $
    33,736
    
    
    $
    28,479Net income from continuing operations
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607Assets(in thousands)Gross property, plant and equipment
    
    $
    584,385
    
    
    $
    543,905
    
    
    $
    381,689Net property, plant and equipment
    
    $
    462,757
    
    
    $
    436,587
    
    
    $
    280,671Total assets
    
    $
    670,993
    
    
    $
    615,811
    
    
    $
    385,795Capital expenditures (1)
    
    $
    46,955
    
    
    $
    26,294
    
    
    $
    30,844Capitalization(in thousands)Stockholders equity
    
    $
    226,239
    
    
    $
    209,781
    
    
    $
    123,073Long-term debt, net of current maturities
    
    
    89,642
    
    
    
    98,814
    
    
    
    86,422Total capitalization
    
    $
    315,881
    
    
    $
    308,595
    
    
    $
    209,495Current portion of long-term debt
    
    
    9,216
    
    
    
    35,299
    
    
    
    6,656Short-term debt
    
    
    63,958
    
    
    
    30,023
    
    
    
    33,000Total capitalization and short-term financing
    
    $
    389,055
    
    
    $
    373,917
    
    
    $
    249,151
 (1)
    
    These amounts exclude the results of distributed energy and water services due
to their reclassification to discontinued operations. The Company closed its distributed
energy operation in 2007. All assets of all of the water businesses were sold in 2004 and
2003.(2)
    
    These amounts include the financial position and results of operation of FPU for the
period from the merger (October 28, 2009) to December 31, 2009. These amounts also include
the effects of acquisition accounting and issuance of Chesapeake common shares as a result of
the merger. These amounts may not be indicative of future results due to the inclusion of
merger effects. See Item 8 under the heading Notes to the Consolidated Financial Statements -
Note B, Acquisitions and Dispositions for additional discussions and presentation of pro
forma results.(3)
    
    SFAS No. 123R (now codified within FASB ASC 718, 505 and 260 ) and SFAS No. 158
(codified within FASB ASC 715) were adopted in the year 2006; therefore, they were not
applicable for the years prior to 2006.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 27




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##### Table of Contents



2007
    
    
    2006 (3)
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001$
    128,850
    
    
    $
    124,631
    
    
    $
    124,563
    
    
    $
    98,139
    
    
    $
    92,079
    
    
    $
    82,098
    
    
    $
    87,444115,190
    
    
    
    94,320
    
    
    
    90,995
    
    
    
    67,607
    
    
    
    59,197
    
    
    
    40,728
    
    
    
    56,97014,246
    
    
    
    12,249
    
    
    
    13,927
    
    
    
    12,209
    
    
    
    12,292
    
    
    
    12,430
    
    
    
    13,992$
    258,286
    
    
    $
    231,200
    
    
    $
    229,485
    
    
    $
    177,955
    
    
    $
    163,568
    
    
    $
    135,256
    
    
    $
    158,406$
    21,809
    
    
    $
    18,593
    
    
    $
    16,248
    
    
    $
    16,258
    
    
    $
    16,219
    
    
    $
    14,867
    
    
    $
    14,0605,174
    
    
    
    3,675
    
    
    
    4,197
    
    
    
    3,197
    
    
    
    4,310
    
    
    
    1,158
    
    
    
    1,2591,131
    
    
    
    1,064
    
    
    
    1,476
    
    
    
    722
    
    
    
    1,050
    
    
    
    580
    
    
    
    902$
    28,114
    
    
    $
    23,332
    
    
    $
    21,921
    
    
    $
    20,177
    
    
    $
    21,579
    
    
    $
    16,605
    
    
    $
    16,221$
    13,218
    
    
    $
    10,748
    
    
    $
    10,699
    
    
    $
    9,686
    
    
    $
    10,079
    
    
    $
    7,535
    
    
    $
    7,341$
    352,838
    
    
    $
    325,836
    
    
    $
    280,345
    
    
    $
    250,267
    
    
    $
    234,919
    
    
    $
    229,128
    
    
    $
    216,903$
    260,423
    
    
    $
    240,825
    
    
    $
    201,504
    
    
    $
    177,053
    
    
    $
    167,872
    
    
    $
    166,846
    
    
    $
    161,014$
    381,557
    
    
    $
    325,585
    
    
    $
    295,980
    
    
    $
    241,938
    
    
    $
    222,058
    
    
    $
    223,721
    
    
    $
    222,229$
    30,142
    
    
    $
    49,154
    
    
    $
    33,423
    
    
    $
    17,830
    
    
    $
    11,822
    
    
    $
    13,836
    
    
    $
    26,293$
    119,576
    
    
    $
    111,152
    
    
    $
    84,757
    
    
    $
    77,962
    
    
    $
    72,939
    
    
    $
    67,350
    
    
    $
    67,51763,256
    
    
    
    71,050
    
    
    
    58,991
    
    
    
    66,190
    
    
    
    69,416
    
    
    
    73,408
    
    
    
    48,409$
    182,832
    
    
    $
    182,202
    
    
    $
    143,748
    
    
    $
    144,152
    
    
    $
    142,355
    
    
    $
    140,758
    
    
    $
    115,9267,656
    
    
    
    7,656
    
    
    
    4,929
    
    
    
    2,909
    
    
    
    3,665
    
    
    
    3,938
    
    
    
    2,68645,664
    
    
    
    27,554
    
    
    
    35,482
    
    
    
    5,002
    
    
    
    3,515
    
    
    
    10,900
    
    
    
    42,100$
    236,152
    
    
    $
    217,412
    
    
    $
    184,159
    
    
    $
    152,063
    
    
    $
    149,535
    
    
    $
    155,596
    
    
    $
    160,712
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 28




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##### Table of Contents



For the Years Ended December 31,
    
    2010
    
    
    2009(3)
    
    
    2008Common Stock Data and RatiosBasic earnings per share from continuing operations (1)
    
    $
    2.75
    
    
    $
    2.17
    
    
    $
    2.00Diluted earnings per share from continuing operations (1)
    
    $
    2.73
    
    
    $
    2.15
    
    
    $
    1.98Return on average equity from continuing operations (1)
    
    
    11.6
    %
    
    
    11.2
    %
    
    
    11.2
    %Common equity / total capitalization
    
    
    71.6
    %
    
    
    68.0
    %
    
    
    58.7
    %Common equity / total capitalization and short-term financing
    
    
    58.2
    %
    
    
    56.1
    %
    
    
    49.4
    %Book value per share
    
    $
    23.75
    
    
    $
    22.33
    
    
    $
    18.03Market price:High
    
    $
    42.200
    
    
    $
    35.000
    
    
    $
    34.840Low
    
    $
    28.010
    
    
    $
    22.020
    
    
    $
    21.930Close
    
    $
    41.520
    
    
    $
    32.050
    
    
    $
    31.480Average number of shares outstanding
    
    
    9,474,554
    
    
    
    7,313,320
    
    
    
    6,811,848Shares outstanding at year-end
    
    
    9,524,195
    
    
    
    9,394,314
    
    
    
    6,827,121Registered common shareholders
    
    
    2,482
    
    
    
    2,670
    
    
    
    1,914Cash dividends declared per share
    
    $
    1.31
    
    
    $
    1.25
    
    
    $
    1.21Dividend yield (annualized) (2)
    
    
    3.2
    %
    
    
    3.9
    %
    
    
    3.9
    %Payout ratio from continuing operations (1) (4)
    
    
    47.6
    %
    
    
    57.6
    %
    
    
    60.5
    %Additional DataCustomers(5)Natural gas distribution
    
    
    120,230
    
    
    
    117,887
    
    
    
    65,201Electric distribution
    
    
    30,966
    
    
    
    31,030
    
    
    
    Propane distribution
    
    
    48,100
    
    
    
    48,680
    
    
    
    34,981Volumes(6)Natural gas deliveries (in Mcfs)
    
    
    41,795,438
    
    
    
    44,586,158
    
    
    
    39,778,067Electric Distribution (in MWHs)
    
    
    739,656
    
    
    
    105,739
    
    
    
    Propane distribution (in thousands of gallons)
    
    
    39,612
    
    
    
    32,546
    
    
    
    27,956Heating degree-days (Delmarva Peninsula)Actual HDD
    
    
    4,831
    
    
    
    4,729
    
    
    
    4,43110-year average HDD (normal)
    
    
    4,528
    
    
    
    4,462
    
    
    
    4,401Propane bulk storage capacity (in thousands of gallons)
    
    
    3,041
    
    
    
    3,042
    
    
    
    2,471Total employees (1) (7)
    
    
    734
    
    
    
    757
    
    
    
    448
 (1)
    
    These amounts exclude the results of distributed energy and water services due to
their reclassification to discontinued operations. The Company closed its distributed energy
operation in 2007. All assets of all of the water businesses were sold in 2004 and 2003.(2)
    
    Dividend yield (annualized) is calculated by multiplying the fourth quarter dividend
by four (4), then dividing that amount by the closing common stock price at December 31.(3)
    
    These amounts include the financial position and results of operation of FPU for the
period from the merger closing (October 28, 2009) to December 31, 2009. These amounts also
include the effects of acquisition accounting and issuance of Chesapeake common shares as a
result of the merger. These amounts may not be indicative of future results due to the
inclusion of merger effects. See Item 8 under the heading Notes to the Consolidated Financial
Statements  Note B, Acquisitions and Dispositions for additional discussions and
presentation of pro forma results.(4)
    
    The payout ratio from continuing operations is calculated by dividing cash dividends
declared per share (for the year) by basic earnings per share from continuing operations.(5)
    
    Customer data for 2009 includes 51,536, 31,030 and 13,651 of natural gas
distribution, electric distribution and propane distribution customers, respectively, from
FPU.(6)
    
    Volumes data for 2009 includes 1,109,177 Mcfs, 105,739 MWHs and 1.1 million gallons
for natural gas distribution, electric distribution and propane distribution, respectively,
delivered by FPU from October 28, 2009 through December 31, 2009(7)
    
    Total employees for 2009 include 332 FPU employees added to the Company upon the
merger, effective October 28, 2009.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 29




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##### Table of Contents



2007
    
    
    2006(8)
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001$
    1.96
    
    
    $
    1.78
    
    
    $
    1.83
    
    
    $
    1.68
    
    
    $
    1.80
    
    
    $
    1.37
    
    
    $
    1.37$
    1.94
    
    
    $
    1.76
    
    
    $
    1.81
    
    
    $
    1.64
    
    
    $
    1.76
    
    
    $
    1.37
    
    
    $
    1.3511.5
    %
    
    
    11.0
    %
    
    
    13.2
    %
    
    
    12.8
    %
    
    
    14.4
    %
    
    
    11.2
    %
    
    
    11.1
    %65.4
    %
    
    
    61.0
    %
    
    
    59.0
    %
    
    
    54.1
    %
    
    
    51.2
    %
    
    
    47.8
    %
    
    
    58.2
    %50.6
    %
    
    
    51.1
    %
    
    
    46.0
    %
    
    
    51.3
    %
    
    
    48.8
    %
    
    
    43.3
    %
    
    
    42.0
    %$
    17.64
    
    
    $
    16.62
    
    
    $
    14.41
    
    
    $
    13.49
    
    
    $
    12.89
    
    
    $
    12.16
    
    
    $
    12.45$
    37.250
    
    
    $
    35.650
    
    
    $
    35.780
    
    
    $
    27.550
    
    
    $
    26.700
    
    
    $
    21.990
    
    
    $
    19.900$
    28.000
    
    
    $
    27.900
    
    
    $
    23.600
    
    
    $
    20.420
    
    
    $
    18.400
    
    
    $
    16.500
    
    
    $
    17.375$
    31.850
    
    
    $
    30.650
    
    
    $
    30.800
    
    
    $
    26.700
    
    
    $
    26.050
    
    
    $
    18.300
    
    
    $
    19.8006,743,041
    
    
    
    6,032,462
    
    
    
    5,836,463
    
    
    
    5,735,405
    
    
    
    5,610,592
    
    
    
    5,489,424
    
    
    
    5,367,4336,777,410
    
    
    
    6,688,084
    
    
    
    5,883,099
    
    
    
    5,778,976
    
    
    
    5,660,594
    
    
    
    5,537,710
    
    
    
    5,424,9621,920
    
    
    
    1,978
    
    
    
    2,026
    
    
    
    2,026
    
    
    
    2,069
    
    
    
    2,130
    
    
    
    2,171$
    1.18
    
    
    $
    1.16
    
    
    $
    1.14
    
    
    $
    1.12
    
    
    $
    1.10
    
    
    $
    1.10
    
    
    $
    1.103.7
    %
    
    
    3.8
    %
    
    
    3.7
    %
    
    
    4.2
    %
    
    
    4.2
    %
    
    
    6.0
    %
    
    
    5.6
    %60.2
    %
    
    
    65.2
    %
    
    
    62.3
    %
    
    
    66.7
    %
    
    
    61.1
    %
    
    
    80.3
    %
    
    
    80.3
    %62,884
    
    
    
    59,132
    
    
    
    54,786
    
    
    
    50,878
    
    
    
    47,649
    
    
    
    45,133
    
    
    
    42,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,143
    
    
    
    33,282
    
    
    
    32,117
    
    
    
    34,888
    
    
    
    34,894
    
    
    
    34,566
    
    
    
    35,53034,820,050
    
    
    
    34,321,160
    
    
    
    34,980,939
    
    
    
    31,429,494
    
    
    
    29,374,818
    
    
    
    27,934,715
    
    
    
    27,263,542
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,785
    
    
    
    24,243
    
    
    
    26,178
    
    
    
    24,979
    
    
    
    25,147
    
    
    
    21,185
    
    
    
    23,0804,504
    
    
    
    3,931
    
    
    
    4,792
    
    
    
    4,553
    
    
    
    4,715
    
    
    
    4,161
    
    
    
    4,3684,376
    
    
    
    4,372
    
    
    
    4,436
    
    
    
    4,389
    
    
    
    4,409
    
    
    
    4,393
    
    
    
    4,4462,441
    
    
    
    2,315
    
    
    
    2,315
    
    
    
    2,045
    
    
    
    2,195
    
    
    
    2,151
    
    
    
    1,958445
    
    
    
    437
    
    
    
    423
    
    
    
    426
    
    
    
    439
    
    
    
    455
    
    
    
    458
 (8)
    
    SFAS No. 123R (now codified within FASB ASC 718, 505 and 260 ) and SFAS No.
158 (codified within FASB ASC 715) were adopted in the year 2006; therefore, they were not
applicable for the years prior to 2006.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 30




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##### Table of Contents



Managements Discussion and Analysis
 
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
   The following discussions and those later in the document on operating income and segment results
include use of the term gross margin. Gross margin is determined by deducting the cost of sales
from operating revenue. Cost of sales includes the purchased cost of natural gas, electricity and
propane and the cost of labor spent on direct revenue-producing activities. Gross margin should
not be considered an alternative to operating income or net income, which are determined in
accordance with GAAP. We believe that gross margin, although a non-GAAP measure, is useful and
meaningful to investors as a basis for making investment decisions. It provides investors with
information that demonstrates the profitability achieved by the Company under its allowed rates for
regulated energy operations and under its competitive pricing structure for unregulated natural gas
marketing, and propane distribution operations. Chesapeakes management uses gross margin in
measuring its business units performance and has historically analyzed and reported gross margin
information publicly. Other companies may calculate gross margin in a different manner.
 In addition, certain information is presented, which, for comparison purposes, includes only FPUs
results of operations or exclude FPUs results from the consolidated results of operations for the
periods from the merger closing (October 28, 2009) to December 31, 2009 and in 2010. Certain other
information is presented, which, for comparison purposes, excludes all merger-related costs
incurred in connection with the FPU merger. Although the non-GAAP measures are not intended to
replace the GAAP measures for evaluation of Chesapeakes performance, we believe that the portions
of the presentation which include only the FPU results, or which exclude FPUs financial results
for the post-merger period and merger-related costs provide a helpful comparative basis for
investors to understand Chesapeakes performance.
 The
following discussion sometimes refers to legacy
Chesapeake and words of similar import. Such terms and phrases
mean our results, excluding the impacts from the FPU merger and
merger-related costs
 (a) Introduction
   
    
    executing a capital investment program in pursuit of organic growth opportunities that
generate returns equal to or greater than our cost of capital;
    
    expanding the regulated energy distribution and transmission businesses into new
geographic areas and providing new services in our current service territories;
    
    expanding the propane distribution business in existing and new markets through
leveraging our community gas system services and our bulk delivery capabilities;
    
    utilizing our expertise across our various businesses to improve overall performance;
    
    enhancing marketing channels to attract new customers;
    
    providing reliable and responsive customer service to retain existing customers;
    
    maintaining a capital structure that enables us to access capital as needed;
    
    maintaining a consistent and competitive dividend for shareholders; and
    
    creating and maintaining a diversified customer base, energy portfolio and utility
foundation.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 31




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##### Table of Contents



Managements Discussion and Analysis
 (b) Highlights and Recent Developments
 (in thousands except per share)
 Increase
    
    
    
    
    
    
    
    
    
    
    IncreaseFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)Net income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    10,159
    
    
    $
    15,897
    
    
    $
    13,607
    
    
    $
    2,290Earnings per common stock  diluted
    
    $
    2.73
    
    
    $
    2.15
    
    
    $
    0.58
    
    
    $
    2.15
    
    
    $
    1.98
    
    
    $
    0.17Components of net income:Legacy Cheapeake
    
    $
    17,192
    
    
    $
    15,303
    
    
    $
    1,889
    
    
    $
    15,303
    
    
    $
    14,299
    
    
    $
    1,004FPU
    
    
    9,339
    
    
    
    1,829
    
    
    
    7,510
    
    
    
    1,829
    
    
    
    
    
    
    
    1,829Merger-related costs
    
    
    (475
    )
    
    
    (1,235
    )
    
    
    760
    
    
    
    (1,235
    )
    
    
    (692
    )
    
    
    (543
    )Total
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    10,159
    
    
    $
    15,897
    
    
    $
    13,607
    
    
    $
    2,290Components of EPS  dilutedLegacy Chesapeake(1)
    
    $
    2.44
    
    
    $
    2.20
    
    
    $
    0.24
    
    
    $
    2.20
    
    
    $
    2.08
    
    
    $
    0.12FPU(2)
    
    $
    0.34
    
    
    $
    0.12
    
    
    $
    0.22
    
    
    $
    0.12
    
    
    $
    0.00
    
    
    $
    0.12Merger-related costs
    
    $
    (0.05
    )
    
    $
    (0.17
    )
    
    $
    0.12
    
    
    $
    (0.17
    )
    
    $
    (0.10
    )
    
    $
    (0.07
    )Total
    
    $
    2.73
    
    
    $
    2.15
    
    
    $
    0.58
    
    
    $
    2.15
    
    
    $
    1.98
    
    
    $
    0.17
 (1)
    
    Calculated based on weighted average common shares outstanding for the period,
which excludes the shares issued in the FPU merger.(2)
    
    Represents the additional EPS generated by FPUs results since the merger.    
    
    Weather. We measure weather based on the number of heating degree-days (HDD) for the
natural gas and propane distribution operations and the number of HDD and the number of
cooling degree-days (CDD) for the electric distribution operation. We use historical averages as the normal weather for this analysis.HDD on the Delmarva Peninsula in 2010 increased by 102, or two percent, compared to 2009,
and by 303, or seven percent, compared to normal. HDD on the Delmarva Peninsula in 2009
increased by 298, or seven percent, compared to 2008, and by 267, or six percent, compared
to normal. We estimate that colder weather contributed approximately $679,000 and $1.6
million in additional gross margin for our Delmarva natural gas and propane distribution
operations in 2010 and 2009, respectively, compared to the respective prior year. We also
estimate that the effect of the colder-than-normal temperatures on the Delmarva Peninsula in
2010 was increased gross margin of $1.6 million for our Delmarva natural gas and propane
distribution operations.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 32




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##### Table of Contents



Managements Discussion and Analysis
 The colder temperatures in 2010 in Florida produced average HDD that were 590, or 65
percent, higher than 2009 and 582, or 63 percent, higher than normal. The average HDD in
2009 and 2008 were fairly consistent and did not fluctuate significantly from the normal
weather. The warmer temperatures in the summer of 2010 also produced average CDD for the
year that were 89, or three percent, higher than the prior year and 141, or five percent,
higher than normal. We estimate that colder weather in the winter months and warmer weather
in the summer months contributed approximately $1.4 million in additional gross margin for
our Florida natural gas and electric distribution operations in 2010, compared to 2009.
    
    Growth. Despite the continued slowdown in growth and overall economic conditions on the
Delmarva Peninsula, our Delmarva natural gas distribution operations achieved two percent
growth in average residential customers in both 2010 and 2009, compared to the respective
prior year. These growth rates exceeded the industrys growth rates. In addition to the
residential growth, in 2010, our Delmarva natural gas distribution operations added 10
large commercial and industrial customers with total expected annual margin of
$748,000, as they were able to convert these customers to natural gas from other energy
sources due to the pricing advantage of natural gas and its environmentally-friendly
features. In total, customer growth for the Delmarva natural gas distribution operations
generated additional margin of $1.1 million and $1.2 million in 2010 and 2009,
respectively, compared to the respective prior year. The addition of certain industrial
customers in 2010 also positioned us to further extend our natural gas distribution and
transmission infrastructure in southern Delaware to serve other potential customers in the
same area.ESNG continued to expand its infrastructure and add new transportation services. The
additional margin generated from the continued expansions and new services, net of the
expired services, was $1.1 million and $1.8 million in 2010 and 2009, respectively, compared
to the respective prior year. Although not affecting our results in 2010, ESNG completed
the eight-mile mainline extension in December 2010 to interconnect with the TETLP pipeline.
ESNG commenced its new transportation services to Chesapeakes Delaware and Maryland
divisions in January 2011. The new transportation services have a three-year phase-in from
19,324 Mcfs per day to 38,647 Mcfs per day, providing estimated annualized margin of $2.4
million in 2011, $3.9 million in 2012 and $4.3 million thereafter.FPUs natural gas distribution operation experienced growth in commercial and industrial
customers in 2010, which contributed $196,000 in additional margin in 2010. Chesapeakes
Florida natural gas distribution division experienced a slight growth in customers in 2010
after experiencing a net customer loss in 2009, including a loss of three large industrial
customers, in Florida in late 2008 and 2009, which decreased its margin by $190,000 in 2009
compared to 2008. Customer growth in the Florida electric and propane distribution
operations was flat.
    
    Rates and Regulatory Matters. On January 14, 2010, new rates for Chesapeakes Florida
natural gas distribution division became effective. The new rates for Chesapeakes Florida
natural gas distribution division represented an annual rate increase of approximately $2.5
million and generated $2.3 million in increased margin in 2010, net of the impact from the
interim rates in 2009, compared to 2009. An annual rate increase of approximately $8.0
million for FPUs natural gas distribution operation pursuant to the settlement agreement
also became effective on January 14, 2010. The Florida PSC previously issued an Order in
May 2009, approving a rate increase for FPUs natural gas distribution operation. The
subsequent protest by the Office of Public Counsel of Florida led to this settlement
agreement between the Office of Public Counsel and FPU, which the Florida PSC approved in
December 2009.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 33




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##### Table of Contents



Managements Discussion and Analysis
 The merger with FPU and the purchase of the operating assets of IGC resulted in
approximately $34.9 million in purchase premium, which we intend to seek the recovery
through rates. We also intend to seek the recovery of approximately $2.2 million in
merger-related costs attributed to the natural gas operations.
Our Florida natural gas distribution operations are required to submit to the Florida PSC by
April 29, 2011 data that details benefits, synergies, cost savings and cost increases
resulting from the merger. We are currently in the process of discussing with the Office of
Public Counsel and the Florida PSC staff the benefits and cost savings resulted from the merger, current and expected
operating results of the regulated operations in Florida, and recovery of the purchase
premium and merger-related costs. Our results in 2010 reflect an accrual of $750,000 by
FPUs natural gas distribution operation for the regulatory risk associated
with its earnings, merger benefits and recovery of purchase premium
and merger-related costs. Also reflected in our 2010 results were approximately $75,000 of
the costs associated with these discussions, which were expensed in 2010.Although not affecting our results in 2010, ESNG filed a proposed rate increase with the
FERC on December 30, 2010. ESNG expects this base rate proceeding to be completed in 2011.
ESNG expensed approximately $147,000 in costs associated with this filing in 2010.
    
    Propane Prices. A sharp decline in propane prices in the winter months when our
propane inventory is at its highest level exposes us to inventory valuation risk as GAAP
requires us to re-value the propane inventory using the lower-of-cost-or-market approach.
We have implemented various propane supply and inventory strategies to hedge such risk.
In late 2008, a sharp decline in propane prices resulted in inventory and swap valuation
adjustments of $1.8 million in 2008, which lowered the propane inventory cost of our
Delmarva propane distribution operation during the first half of 2009. The absence of
similar inventory valuation adjustments in 2009 and increased margin generated from the low
propane cost during the first half of 2009, coupled with sustained retail prices,
contributed to increased gross margin of $3.5 million in 2009 compared to 2008 for the
Delmarva propane distribution operation. Retail margins returned to more normal levels in
2010.Continued lack of volatility in wholesale propane prices reduced the opportunities for our
propane wholesale marketing subsidiary, Xeron, and decreased its trading volume by 13
percent and 57 percent in 2010 and 2009, respectively, compared to the respective prior
year. The lower volumes reduced gross margin by approximately $441,000 and $1.0 million for
2010 and 2009, respectively, over the prior year.
    
    Natural Gas Spot Sale Opportunities. Our unregulated natural gas marketing subsidiary,
PESCO, entered into spot sales in 2009 with a refinery on the Delmarva Peninsula, which
contributed significantly to PESCOs gross margin increase of $1.0 million in 2009. The
absence of spot sales opportunities to the same customer in 2010 reduced PESCOs margin in
2010, compared to 2010. Spot sales are not predictable, and, therefore, are not included
in our long-term financial plans or forecasts.
    
    Interest Rates. We continued to experience low short-term interest rates throughout
2010 and 2009 as our short-term weighted average interest rate approximated 1.77 percent in
2010, 1.28 percent in 2009, and 2.79 percent in 2008. The level of our short-term
borrowings in 2010 increased over 2009 as we used a new short-term term loan facility to
finance the redemption of $29.1 million of FPUs 6.85 percent and 4.90 percent secured
first mortgage bonds prior to their respective maturities. The level of our short-term
borrowings in 2009 was reduced by the placement of $30.0 million of 5.93 percent unsecured
senior notes in October 2008 and a decline in working capital requirements due to lower
commodity prices, lower trading volume by the propane wholesale marketing subsidiary, lower
income tax payments from bonus depreciation and the timing of our capital expenditures.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 34




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##### Table of Contents



Managements Discussion and Analysis
 
    
    Advanced Information Services. Our advanced information services subsidiary, BravePoint,
generated $759,000 in operating income in 2010, compared to an operating loss of $229,000
in 2009. Increased billable consulting hours in 2010 and cost containment actions
implemented throughout 2009 contributed to the increased operating results.
 (c) Critical Accounting Policies
  Regulatory Assets and Liabilities
  Valuation of Environmental Assets and Liabilities
    Chesapeake Utilities Corporation 2010 Form 10-K     Page 35




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##### Table of Contents



Managements Discussion and Analysis
 Derivatives
   
    
    During 2010 and 2009, our natural gas distribution, electric distribution, propane
distribution and natural gas marketing operations entered into physical contracts for the
purchase or sale of natural gas, electricity and propane. These contracts either did not
meet the definition of derivatives as they did not have a minimum requirement to
purchase/sell or were considered normal purchases and sales as they provided for the
purchase or sale of natural gas, electricity or propane to be delivered in quantities
expected to be used and sold by our operations over a reasonable period of time in the
normal course of business. Accordingly, these contracts were accounted for on an accrual
basis of accounting.
    
    During 2010 and 2009, the propane distribution operation entered into a put option to
protect it from the impact of price decreases on the Pro-Cap (propane price-cap) Plan that
we offer to customers. We accounted for the put option on a mark-to-market basis and
recorded a loss of $168,000 and $41,000, at December 31, 2010 and 2009, respectively.
    
    Xeron, our propane wholesale marketing subsidiary, enters into forward, futures and
other contracts that are considered derivatives. These contracts are marked-to-market,
using prices at the end of each reporting period, and unrealized gains or losses are
recorded in the Consolidated Statement of Income as revenue or expense. These contracts
generally mature within one year and are almost exclusively for propane commodities. For
the years ended December 31, 2010 and 2009, these contracts had net unrealized gains of
$284,000 and net unrealized losses of $1.6 million, respectively.
 Operating Revenues
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 36




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##### Table of Contents



Managements Discussion and Analysis
   Allowance for Doubtful Accounts
  Pension and Other Postretirement Benefits
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 37




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##### Table of Contents



Managements Discussion and Analysis
 Acquisition Accounting
   (d)
    
    Results of Operations
 (in thousands except per share)
 Increase
    
    
    
    
    
    
    
    
    
    
    IncreaseFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)Business Segment:Regulated Energy
    
    $
    43,509
    
    
    $
    26,900
    
    
    $
    16,609
    
    
    $
    26,900
    
    
    $
    24,733
    
    
    $
    2,167Unregulated Energy
    
    
    7,908
    
    
    
    8,158
    
    
    
    (250
    )
    
    
    8,158
    
    
    
    3,781
    
    
    
    4,377Other
    
    
    513
    
    
    
    (1,322
    )
    
    
    1,835
    
    
    
    (1,322
    )
    
    
    (35
    )
    
    
    (1,287
    )Operating Income
    
    
    51,930
    
    
    
    33,736
    
    
    
    18,194
    
    
    
    33,736
    
    
    
    28,479
    
    
    
    5,257Other Income
    
    
    195
    
    
    
    165
    
    
    
    30
    
    
    
    165
    
    
    
    103
    
    
    
    62Interest Charges
    
    
    9,146
    
    
    
    7,086
    
    
    
    2,060
    
    
    
    7,086
    
    
    
    6,158
    
    
    
    928Income Taxes
    
    
    16,923
    
    
    
    10,918
    
    
    
    6,005
    
    
    
    10,918
    
    
    
    8,817
    
    
    
    2,101Net Income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    10,159
    
    
    $
    15,897
    
    
    $
    13,607
    
    
    $
    2,290Earnings Per Share of Common StockBasic
    
    $
    2.75
    
    
    $
    2.17
    
    
    $
    0.58
    
    
    $
    2.17
    
    
    $
    2.00
    
    
    $
    0.17Diluted
    
    $
    2.73
    
    
    $
    2.15
    
    
    $
    0.58
    
    
    $
    2.15
    
    
    $
    1.98
    
    
    $
    0.17
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 38




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##### Table of Contents



Managements Discussion and Analysis
 2010 compared to 2009
   2010
    
    
    2009Chesapeake,
    
    
    
    
    
    
    Chesapeake
    
    
    Chesapeake,
    
    
    
    
    
    
    ChesapeakeFor the Years Ended December 31,
    
    excluding FPU
    
    
    FPU
    
    
    Total
    
    
    excluding FPU
    
    
    FPU(1)
    
    
    Total(in thousands)Operating Income (Loss)Regulated Energy
    
    $
    26,711
    
    
    $
    16,798
    
    
    $
    43,509
    
    
    $
    23,908
    
    
    $
    2,992
    
    
    $
    26,900Unregulated Energy
    
    
    6,335
    
    
    
    1,573
    
    
    
    7,908
    
    
    
    7,605
    
    
    
    553
    
    
    
    8,158Other, including merger-related costs
    
    
    513
    
    
    
    
    
    
    
    513
    
    
    
    (1,322
    )
    
    
    
    
    
    
    (1,322
    )Operating Income
    
    
    33,559
    
    
    
    18,371
    
    
    
    51,930
    
    
    
    30,191
    
    
    
    3,545
    
    
    
    33,736Other Income, net of expenses
    
    
    48
    
    
    
    147
    
    
    
    195
    
    
    
    58
    
    
    
    107
    
    
    
    165Interest Charges
    
    
    5,752
    
    
    
    3,394
    
    
    
    9,146
    
    
    
    6,345
    
    
    
    741
    
    
    
    7,086Income Taxes
    
    
    11,138
    
    
    
    5,785
    
    
    
    16,923
    
    
    
    9,836
    
    
    
    1,082
    
    
    
    10,918Net Income
    
    $
    16,717
    
    
    $
    9,339
    
    
    $
    26,056
    
    
    $
    14,068
    
    
    $
    1,829
    
    
    $
    15,897
 (1)
    
    FPU operating results are for the period from the merger closing (October 28,
2009) to December 31, 2009 2009 compared to 2008
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 39




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##### Table of Contents



Managements Discussion and Analysis
  2009
    
    
    2008Chesapeake,
    
    
    
    
    
    
    Chesapeake
    
    
    Chesapeake,
    
    
    
    
    
    
    ChesapeakeFor the Years Ended December 31,
    
    excluding FPU
    
    
    FPU(1)
    
    
    Total
    
    
    excluding FPU
    
    
    FPU
    
    
    Total(in thousands)Operating Income (Loss)Regulated Energy
    
    $
    23,908
    
    
    $
    2,992
    
    
    $
    26,900
    
    
    $
    24,733
    
    
    $
    0
    
    
    $
    24,733Unregulated Energy
    
    
    7,605
    
    
    
    553
    
    
    
    8,158
    
    
    
    3,781
    
    
    
    
    
    
    
    3,781Other
    
    
    (1,322
    )
    
    
    
    
    
    
    (1,322
    )
    
    
    (35
    )
    
    
    
    
    
    
    (35
    )Operating Income
    
    
    30,191
    
    
    
    3,545
    
    
    
    33,736
    
    
    
    28,479
    
    
    
    0
    
    
    
    28,479Other Income, net of expenses
    
    
    58
    
    
    
    107
    
    
    
    165
    
    
    
    103
    
    
    
    
    
    
    
    103Interest Charges
    
    
    6,345
    
    
    
    741
    
    
    
    7,086
    
    
    
    6,158
    
    
    
    
    
    
    
    6,158Income Taxes
    
    
    9,836
    
    
    
    1,082
    
    
    
    10,918
    
    
    
    8,817
    
    
    
    
    
    
    
    8,817Net Income
    
    $
    14,068
    
    
    $
    1,829
    
    
    $
    15,897
    
    
    $
    13,607
    
    
    $
    0
    
    
    $
    13,607
 (1)
    
    FPU operating results are for the period from the merger closing (October 28, 2009)
to December 31, 2009  Chesapeake Utilities Corporation 2010 Form 10-K     Page 40




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##### Table of Contents



Managements Discussion and Analysis
 Regulated Energy
 Increase
    
    
    
    
    
    
    
    
    
    
    IncreaseFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)(in thousands)Revenue
    
    $
    269,934
    
    
    $
    139,099
    
    
    $
    130,835
    
    
    $
    139,099
    
    
    $
    116,468
    
    
    $
    22,631Cost of sales
    
    
    144,217
    
    
    
    64,803
    
    
    
    79,414
    
    
    
    64,803
    
    
    
    54,789
    
    
    
    10,014Gross margin
    
    
    125,717
    
    
    
    74,296
    
    
    
    51,421
    
    
    
    74,296
    
    
    
    61,679
    
    
    
    12,617Operations & maintenance
    
    
    56,338
    
    
    
    32,569
    
    
    
    23,769
    
    
    
    32,569
    
    
    
    25,369
    
    
    
    7,200Depreciation & amortization
    
    
    17,038
    
    
    
    8,866
    
    
    
    8,172
    
    
    
    8,866
    
    
    
    6,694
    
    
    
    2,172Other taxes
    
    
    8,832
    
    
    
    5,961
    
    
    
    2,871
    
    
    
    5,961
    
    
    
    4,883
    
    
    
    1,078Other operating expenses
    
    
    82,208
    
    
    
    47,396
    
    
    
    34,812
    
    
    
    47,396
    
    
    
    36,946
    
    
    
    10,450Operating Income
    
    $
    43,509
    
    
    $
    26,900
    
    
    $
    16,609
    
    
    $
    26,900
    
    
    $
    24,733
    
    
    $
    2,167
 Weather and Customer Analysis
 Increase
    
    
    
    
    
    
    
    
    
    
    IncreaseFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)Delmarva PeninsulaActual HDD
    
    
    4,831
    
    
    
    4,729
    
    
    
    102
    
    
    
    4,729
    
    
    
    4,431
    
    
    
    29810-year average HDD
    
    
    4,528
    
    
    
    4,462
    
    
    
    66
    
    
    
    4,462
    
    
    
    4,401
    
    
    
    61Estimated gross margin per HDD
    
    $
    1,995
    
    
    $
    2,429
    
    
    $
    (434
    )
    
    $
    2,429
    
    
    $
    1,937
    
    
    $
    492FloridaActual HDD
    
    
    1,501
    
    
    
    911
    
    
    
    590
    
    
    
    911
    
    
    
    851
    
    
    
    6010-year average HDD
    
    
    919
    
    
    
    863
    
    
    
    56
    
    
    
    863
    
    
    
    848
    
    
    
    15Actual CDD
    
    
    2,859
    
    
    
    2,770
    
    
    
    89
    
    
    
    2,770
    
    
    
    2,553
    
    
    
    21710-year average CDD
    
    
    2,718
    
    
    
    2,694
    
    
    
    24
    
    
    
    2,694
    
    
    
    2,687
    
    
    
    7Average number of residential customersDelmarva natural gas distribution
    
    
    47,638
    
    
    
    46,717
    
    
    
    921
    
    
    
    46,717
    
    
    
    45,570
    
    
    
    1,147Florida natural gas distribution(1)
    
    
    61,053
    
    
    
    60,048
    
    
    
    1,005
    
    
    
    60,048
    
    
    
    13,373
    
    
    
    46,675Florida electric distribution (1)
    
    
    23,589
    
    
    
    23,679
    
    
    
    (90
    )
    
    
    23,679
    
    
    
    
    
    
    
    23,679Total
    
    
    132,280
    
    
    
    130,444
    
    
    
    1,836
    
    
    
    130,444
    
    
    
    58,943
    
    
    
    71,501
 (1)
    
    Average number of residential customers for FPU are included in 2010 and
2009. 2010 Compared to 2009
  Gross Margin
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 41




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##### Table of Contents



Managements Discussion and Analysis
  
    
    $1.1 million of the gross margin increase was a result of a
two-percent increase in residential customers as well as additional growth
in commercial and industrial customers on the Delmarva Peninsula.
Residential, commercial and industrial growth by our Delaware division
generated $525,000, $163,000 and $313,000, respectively, of the gross margin
increase, and the customer growth by our Maryland division contributed
$97,000 to the gross margin increase. In 2010, our Delmarva natural gas
distribution operations also added 10 large commercial and industrial
customers with total expected annualized margin of $748,000, of which
$196,000 has been reflected in 2010s results. The addition of certain
industrial customers in 2010 also positioned us to further extend our
natural gas distribution and transmission infrastructure in southern
Delaware to serve other potential customers in the same area.
    
    Colder weather on the Delmarva Peninsula generated an
additional $365,000 to gross margin as heating
degree-days increased by 102, or two percent, in
2010, compared to 2009. This increased gross margin
is primarily related to our Delaware division, as
residential heating rates for our Maryland division
are weather-normalized, and we typically do not
experience an impact on gross margin from the weather
for our residential customers in Maryland.
    
    A decline in non-weather-related customer consumption, primarily by
residential customers of our Delaware division, decreased gross margin
by $111,000.
  
    
    FPUs natural gas distribution operation generated $37.1 million in gross
margin for 2010, which includes $148,000 of gross margin generated by
the purchase of operating assets from IGC whose operating assets were purchased by FPU on August 9, 2010. Included in gross
margin from FPUs natural gas distribution operation in 2009 was $6.4 million. Gross
margin from FPUs natural gas distribution operation in 2010 was positively affected by an
annual rate increase of approximately $8.0 million, effective January 14, 2010, colder
temperatures in Florida and growth in commercial and industrial customers. Included in
gross margin from FPUs natural gas distribution operation was the impact of a $750,000
accrual related to the regulatory risk associated with its earnings, merger
benefits and recovery of purchase premium. FPU is required to detail known
benefits, synergies, cost savings and cost increases resulting from the merger and present
the information in the come-back filing to the Florida PSC by April 29, 2011 (within 18
months of the merger). We are currently in discussions with the Office of Public Counsel
and the Florida PSC staff regarding the benefits and cost savings of the merger, current and expected earnings levels
as well as the recovery of approximately $34.9 million in purchase premium and $2.2 million
in merger-related costs. We recorded this accrual based on our assessment of FPUs current
earnings, the regulatory environment in Florida and progress of the current discussions.
    
    Gross margin from Chesapeakes Florida division increased by $2.9 million,
primarily as a result of an annual rate increase of approximately $2.5 million, which
became effective on January 14, 2010. The colder temperatures in 2010 also generated an
additional $247,000 in gross margin in 2010, compared to 2009.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 42




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##### Table of Contents



Managements Discussion and Analysis
  
    
    New transportation services implemented by ESNG in November 2009, May 2010 and
November 2010 as a result of its system expansion projects generated an additional $1.1
million to gross margin in 2010, compared to 2009. These expansion projects added 9,623
Mcfs of service per day with estimated annual gross margin of $1.6 million, of which $1.2
million has been reflected in 2010s results.
    
    New firm transportation service for an industrial customer for the period from
November 2009 to October 2012 provided an additional 9,662 Mcfs per day for the period
January 1, 2010 through February 5, 2010, and an additional 2,705 Mcfs per day for the
period February 6, 2010 through October 31, 2010. These new services added $329,000 to
gross margin for 2010. Partially offsetting the additional gross margin generated by this
new firm transportation service was the margin of $232,000 in 2009 from the temporary
interruptible service provided to the same customer. This temporary increase in service
did not occur in 2010.
    
    ESNG changed its rates effective April 2009 to recover specific project costs
in accordance with the terms of precedent agreements with certain customers. These rates
generated $508,000 and $381,000 in gross margin in 2010 and 2009, respectively. ESNG and
the customers agreed to shorten the recovery period, starting in March 2011.
    
    Offsetting the foregoing increases to gross margin, ESNG received notices from
two customers of their intentions not to renew their firm transportation service contracts,
which expired in November 2009 and April 2010, decreasing gross margin by $341,000 for
2010.
    
    Although not affecting our results in 2010, ESNG completed the eight-mile
mainline extension in December 2010 to interconnect with the TETLP pipeline. ESNG
commenced its new transportation services to Chesapeakes Delaware and Maryland divisions
in January 2011. These new services have a three-year phase-in from 19,324 Mcfs per day to
38,647 Mcfs per day, providing estimated gross margin of $2.4 million in 2011, $3.9 million
in 2012 and $4.3 million thereafter.
  Other Operating Expenses
  
    
    Payroll and benefits increased by $705,000 due primarily to annual salary
increases and incentive pay as a result of improved performance.
    
    Depreciation and asset removal costs increased by $518,000 as a result of our
increased capital investments made in 2010 and 2009 to support growth.
    
    Regulatory expenses increased by $349,000 due primarily to costs associated with
ESNGs recent rate case filing and ongoing regulatory discussions involving the merger
impact and recovery of the purchase premium in Florida.
    
    Non-income-taxes increased by $63,000 due primarily to increased gross receipt
tax.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 43




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##### Table of Contents



Managements Discussion and Analysis
 2009 Compared to 2008
  Gross Margin
   
    
    The Delmarva natural gas distribution operations experienced growth in residential,
commercial, and industrial customers, which contributed $471,000, $149,000 and $589,000,
respectively, to the gross margin increase, in spite of the continued slowdown in the new
housing construction and industrial growth in the region. A two-percent residential
customer growth experienced by the Delmarva natural gas distribution operation in 2009 was
lower than the growth experienced in recent years.
    
    Colder weather on the Delmarva Peninsula contributed $449,000 to the increased gross
margin, as  HDD increased by 298, or seven percent, compared to 2008.
    
    The Delaware divisions new rate structure allows collection of miscellaneous service
fees of $256,000, which, although not representing additional revenue, were previously
offset against other operating expenses.
    
    Interruptible sales to industrial customers decreased in 2009 due to a reduction in the
price of alternative fuels, which reduced gross margin by $355,000.
    
    Non-weather related customer consumption decreased in 2009, which reduced gross margin
by $187,000.
   
    
    New long-term transmission services implemented by ESNG in November of 2008 and 2009,
which provided for an additional 5,459 Mcfs per day and 3,976 Mcfs per day, respectively,
added $939,000 to gross margin in 2009.
    
    New firm transmission services provided to an industrial customer for the period of
February 6, 2009 through October 31, 2009, provided for an additional 6,957 Mcfs per day
and added $574,000 to gross margin. In addition, ESNG entered into two additional firm
transmission service agreements with this customer for: (1) 6,006 Mcfs per day from
November 1, 2009 through November 30, 2009, which added $56,000 to gross margin for 2009;
and (2) 9,662 Mcfs per day from November 1, 2009 through October 31, 2012, which added
$181,000 to gross margin in 2009. These services generate annual gross margin of $1.1
million.
    
    In April 2009, ESNG changed its rates to recover specific project costs in accordance
with the terms of precedent agreements with certain customers. These new rates generated
$381,000 in gross margin for 2009 and will contribute $516,000 annually thereafter for a
period of 20 years.
    
    During January 2009, PIPECO, our intrastate pipeline subsidiary in Florida, began to
provide natural gas transmission service to a customer under a 20-year contract. This
agreement contributed $264,000 to gross margin in 2009.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 44




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##### Table of Contents



Managements Discussion and Analysis
 Other Operating Expenses
  
    
    Depreciation expense, asset removal costs and property taxes, collectively, increased by
approximately $1.4 million as a result of our continued capital investments to support
customer growth. Depreciation expense for 2008 also includes a $305,000 depreciation
credit as a result of the Delaware negotiated rate settlement agreement in the third
quarter of 2008, of which $295,000 was related to depreciation for the months of October
through December 2007.
    
    Salaries and incentive compensation increased by $803,000, due primarily to compensation
adjustments implemented on January 1, 2009 for non-executive employees, based on a
compensation survey completed in the fourth quarter of 2008, and annual salary increases,
coupled with a slight increase in the accrual for incentive compensation.
    
    The allowance for uncollectible accounts in the natural gas operation increased by
$176,000 due to growth in customers and the general economic climate.
    
    Benefit costs increased by $373,000, due primarily to higher pension costs as a result
of the decline in the value of pension assets in 2008 and other benefit costs relating to
increased payroll costs.
    
    Increased information technology spending to continuously enhance our information
technology infrastructure and level of support generated increased costs of $285,000.
    
    Corporate overhead allocated to the regulated energy segment increased by approximately
$722,000 due to the overall increase in corporate overhead costs. This increase was
related primarily to increased payroll and benefits and increased costs associated with
investor relations and financial reporting activities.
 Unregulated Energy
 Increase
    
    
    
    
    
    
    
    
    
    
    IncreaseFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)(in thousands)Revenue
    
    $
    146,793
    
    
    $
    119,973
    
    
    $
    26,820
    
    
    $
    119,973
    
    
    $
    161,290
    
    
    $
    (41,317
    )Cost of sales
    
    
    110,680
    
    
    
    90,408
    
    
    
    20,272
    
    
    
    90,408
    
    
    
    138,302
    
    
    
    (47,894
    )Gross margin
    
    
    36,113
    
    
    
    29,565
    
    
    
    6,548
    
    
    
    29,565
    
    
    
    22,988
    
    
    
    6,577Operations & maintenance
    
    
    23,140
    
    
    
    18,016
    
    
    
    5,124
    
    
    
    18,016
    
    
    
    16,322
    
    
    
    1,694Depreciation & amortization
    
    
    3,433
    
    
    
    2,415
    
    
    
    1,018
    
    
    
    2,415
    
    
    
    2,024
    
    
    
    391Other taxes
    
    
    1,632
    
    
    
    976
    
    
    
    656
    
    
    
    976
    
    
    
    861
    
    
    
    115Other operating expenses
    
    
    28,205
    
    
    
    21,407
    
    
    
    6,798
    
    
    
    21,407
    
    
    
    19,207
    
    
    
    2,200Operating Income
    
    $
    7,908
    
    
    $
    8,158
    
    
    $
    (250
    )
    
    $
    8,158
    
    
    $
    3,781
    
    
    $
    4,377
 Weather Analysis  Delmarva
 Increase
    
    
    
    
    
    
    
    
    
    
    IncreaseFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)Actual HDD
    
    
    4,831
    
    
    
    4,729
    
    
    
    102
    
    
    
    4,729
    
    
    
    4,431
    
    
    
    29810-year average HDD
    
    
    4,528
    
    
    
    4,462
    
    
    
    66
    
    
    
    4,462
    
    
    
    4,401
    
    
    
    61Estimated gross margin per HDD
    
    $
    2,415
    
    
    $
    3,083
    
    
    $
    (668
    )
    
    $
    3,083
    
    
    $
    2,465
    
    
    $
    618
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 45




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##### Table of Contents



Managements Discussion and Analysis
 2010 Compared to 2009
  Gross Margin
   
    
    Retail volumes sold increased by 1.6 million gallons, or seven percent, in 2010, which
generated additional gross margin of $1.1 million. The addition of 436 community gas
system customers and 1,000 other customers acquired in February 2010 as part of the
purchase of the operating assets of a propane distributor serving Northampton and Accomack
Counties in Virginia contributed approximately 38% of this increase.
The two-percent colder weather in 2010, compared to 2009, generated additional margin of
$314,000. Timing of propane deliveries to our bulk customers contributed to the remaining
increase in gross margin due to an increase in retail volumes.
    
    Other fees increased by
$340,000 in 2010 driven by increased customer participation
in various customer pricing programs.
    
    Retail margin per gallon decreased in 2010, compared to 2009, and decreased gross margin
by $399,000. Retail margin during the first half of 2009 benefited from the inventory
valuation adjustment recorded in late 2008 which lowered the propane inventory costs and,
therefore, increased retail margins during the first half of 2009. Retail margins for the
second half of 2010 returned to more normal levels. Retail margins in the second half of
2010 increased from the same period in 2009, partially offsetting the impact of the
decrease in the first half of the year.
    Other Operating Expenses
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 46




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##### Table of Contents



Managements Discussion and Analysis
 2009 compared to 2008
  Gross Margin
     Other Operating Expenses
  
    
    Payroll costs increased by $301,000 in 2009 compared to 2008 due to annual salary
increases.
    
    Benefit costs increased by $167,000, due primarily to increased pension costs in 2009 as
a result of the decline in the value of pension plan assets.
    
    Depreciation expense increased by $249,000 as we continued to make capital investments
in the propane distribution operations.
    
    Additional costs of approximately $115,000 were incurred in 2009 to maintain propane
tanks.
    
    Corporate overhead costs allocated to the unregulated energy segment increased by
approximately $568,000 due to the overall increase in administrative payroll and benefits
and increased costs associated with investor relations and financial reporting activities.
    
    These increases were partially offset by lower vehicle-related costs of $176,000, due
primarily to a decrease in the cost of fuel.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 47




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##### Table of Contents



Managements Discussion and Analysis
 Other
 Increase
    
    
    
    
    
    
    
    
    
    
    IncreaseFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)(in thousands)Revenue
    
    $
    13,142
    
    
    $
    11,998
    
    
    $
    1,144
    
    
    $
    11,998
    
    
    $
    15,373
    
    
    $
    (3,375
    )Cost of sales
    
    
    6,316
    
    
    
    6,036
    
    
    
    280
    
    
    
    6,036
    
    
    
    8,034
    
    
    
    (1,998
    )Gross margin
    
    
    6,826
    
    
    
    5,962
    
    
    
    864
    
    
    
    5,962
    
    
    
    7,339
    
    
    
    (1,377
    )Operations & maintenance
    
    
    4,766
    
    
    
    4,859
    
    
    
    (93
    )
    
    
    4,859
    
    
    
    5,206
    
    
    
    (347
    )Transaction-related costs
    
    
    660
    
    
    
    1,478
    
    
    
    (818
    )
    
    
    1,478
    
    
    
    1,153
    
    
    
    325Depreciation & amortization
    
    
    289
    
    
    
    310
    
    
    
    (21
    )
    
    
    310
    
    
    
    290
    
    
    
    20Other taxes
    
    
    600
    
    
    
    640
    
    
    
    (40
    )
    
    
    640
    
    
    
    728
    
    
    
    (88
    )Other operating expenses
    
    
    6,315
    
    
    
    7,287
    
    
    
    (972
    )
    
    
    7,287
    
    
    
    7,377
    
    
    
    (90
    )Operating Income  Other
    
    
    511
    
    
    
    (1,325
    )
    
    
    1,836
    
    
    
    (1,325
    )
    
    
    (38
    )
    
    
    (1,287
    )Operating Income  Eliminations
    
    
    2
    
    
    
    3
    
    
    
    (1
    )
    
    
    3
    
    
    
    3
    
    
    
    Operating Income
    
    $
    513
    
    
    $
    (1,322
    )
    
    
    1,835
    
    
    $
    (1,322
    )
    
    $
    (35
    )
    
    $
    (1,287
    )
 2010 Compared to 2009
  Gross margin
  Operating expenses
  2009 compared to 2008
  Gross margin
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 48




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##### Table of Contents



Managements Discussion and Analysis
 Operating expenses
  Other Income
  Interest Expense
 2010 Compared to 2009
  
    
    An increase in long-term interest expense of $1.3 million was related to interest on
FPUs first mortgage bonds.
    
    Interest expense from a new term loan credit facility during 2010 was $491,000. In
January 2010, we redeemed two series of FPU bonds, the 4.9 percent and 6.85 percent series,
to achieve interest savings and to maintain compliance with the covenants in our unsecured
senior notes. We used $29.1 million of the new term loan facility for the redemptions.
    
    Additional interest expense of $730,000 is related to interest on deposits from FPUs
customers.
  2009 Compared to 2008
   
    
    Excluding FPUs long-term debt, interest expense on long-term debt increased by $990,000
as our average long-term debt balance increased to $92.1 million in 2009 from $76.2 million
in 2008. This increase was primarily related to the placement of $30.0 million of 5.93
percent Unsecured Senior Notes in October 2008. The weighted average interest rate on our
long-term debt remained fairly constant at 6.37 percent in 2009, compared to 6.40 percent
in 2008.
    
    Interest expense on short-term borrowings decreased by $852,000 in 2009, compared to
2008, as our average short-term borrowing balance decreased to $13.0 million in 2009 from
$38.3 million in 2008. The $30.0 million long-term placement in October 2008 contributed
to this decrease in addition to a decline in working capital requirements in 2009, due to
lower capital expenditures, lower income tax payments from bonus depreciation, net tax
operating losses carried forward from 2008 and lower commodity costs. The impact from
these factors was offset slightly by increased working capital needs as a result of the FPU
merger. Also contributing to the decrease in interest expense in short-term borrowings was
a decrease in the weighted average short-term interest rate to 1.28 percent in 2009 from
2.79 percent in 2008 as we continued to experience low interest rates throughout 2009.
    
    Other interest charges increased by $49,000.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 49




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##### Table of Contents



Managements Discussion and Analysis
 Income Taxes
 2010 Compared to 2009
  2009 Compared to 2008
  (e) Liquidity and Capital Resources
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 50




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##### Table of Contents



Managements Discussion and Analysis
 Capital Structure
  December 31,
    
    
    
    
    
    
    December 31,(in thousands)
    
    2010
    
    
    
    
    
    
    2009Long-term debt, net of current maturities
    
    $
    89,642
    
    
    
    28
    %
    
    $
    98,814
    
    
    
    32
    %Stockholders equity
    
    
    226,239
    
    
    
    72
    %
    
    
    209,781
    
    
    
    68
    %Total capitalization, excluding short-term debt
    
    $
    315,881
    
    
    
    100
    %
    
    $
    308,595
    
    
    
    100
    %
 December 31,
    
    
    
    
    
    
    December 31,(in thousands)
    
    2010
    
    
    
    
    
    
    2009Short-term debt
    
    $
    63,958
    
    
    
    17
    %
    
    $
    30,023
    
    
    
    8
    %Long-term debt, including current maturities
    
    
    98,858
    
    
    
    25
    %
    
    
    134,113
    
    
    
    36
    %Stockholders equity
    
    
    226,239
    
    
    
    58
    %
    
    
    209,781
    
    
    
    56
    %Total capitalization, including short-term debt
    
    $
    389,055
    
    
    
    100
    %
    
    $
    373,917
    
    
    
    100
    %
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 51




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##### Table of Contents



Managements Discussion and Analysis
 Short-term Borrowings
      Cash Flows Provided by Operating Activities
  For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008Net income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607Non-cash adjustments to net income
    
    
    37,364
    
    
    
    28,319
    
    
    
    22,919Changes in assets and liabilities
    
    
    (2,415
    )
    
    
    1,583
    
    
    
    (7,982
    )Net cash from operating activities
    
    $
    61,005
    
    
    $
    45,799
    
    
    $
    28,544
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 52




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##### Table of Contents



Managements Discussion and Analysis
   
    
    Net cash flows from changes in accounts receivable and accounts payable were due
primarily to the inclusion of FPU and timing of collections and payments of trading
contracts entered into by our propane wholesale and marketing operation;
    
    Net income increased by $10.2 million. A full years results for FPU and organic growth
within Chesapeakes legacy businesses contributed to this increase;
    
    Non-cash adjustments to net income increased by $12.4 million due primarily to higher
depreciation and amortization, changes in deferred income taxes, higher employee benefits
and compensation and an increase in share based compensation. Higher depreciation and
amortization was due to the inclusion of FPU and an increase in capital investments. The
increase in deferred income taxes was a result of bonus depreciation in 2010, which
significantly reduced our income tax payment obligations in 2010; and
    
    The decrease in income tax receivables was due primarily to the receipt of large refunds
in 2009 due to higher tax deductions in 2009 and 2008 and a decrease in taxes payable due
to bonus depreciation in 2010.
  
    
    Net cash flows from changes in accounts receivable and accounts payable, due primarily
to the timing of collections and payments of trading contracts entered into by our propane
wholesale and marketing operation;
    
    Timing of payments for the purchase of propane inventory, natural gas purchases injected
into storage, and the relative decline in the unit price of these commodities;
    
    Reduction in regulatory liabilities, which resulted primarily from lower deferred gas
cost recoveries in our natural gas distribution operations as the price of natural gas
declined in the second half of 2008;
    
    Reduced payments for income taxes payable as a result of higher tax deductions provided
by the 2008 Economic Stimulus Act; and
    
    Cash flows provided by non-cash adjustments for deferred income taxes. The increase in
deferred income taxes was the result of higher book-to-tax timing differences during the
period that were generated by the Economic Stimulus Act, which authorized bonus
depreciation for certain assets.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 53




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##### Table of Contents



Managements Discussion and Analysis
 Cash Flows Used in Investing Activities
  
    
    Cash utilized for capital expenditures was $45.4 million, $26.6 million and $30.8
million for 2010, 2009, and 2008, respectively.
    
    We invested $1.6 million in equity securities and paid $1.2 million and $310,000 for the
acquisition of Indiantown Gas Company and Virginia LP, respectively, in 2010.
    
    In 2009, we received $3.5 million in proceeds from an investment account related to
future environmental costs, as we transferred the amount to our general account that
invests in overnight income-producing securities. We also acquired $359,000 in cash, net
of cash paid, in the FPU merger in 2009.
    
    Environmental expenditures exceeded amounts recovered through rates charged to customers
in 2010, 2009 and 2008 by $290,000, $418,000 and $480,000, respectively.
 Cash Flows Provided by/Used in Financing Activities
  
    
    During 2010 we entered into a new term loan with an existing lender and we borrowed
$29.1 million under this facility in order to temporarily finance the early redemption of
the 6.85 percent and 4.90 percent series of FPUs secured first mortgage bonds prior to
their respective maturity.
    
    During 2010 we increased our short-term borrowing by $1.6 million primarily to support
our capital expenditures. During 2009 and 2008, we reduced our short-term debt by $3.8
million and $12.0 million, respectively.
    
    We repaid $36.9 million, $10.9 million and $7.7 million of long-term debt during 2010,
2009 and 2008 respectively.
    
    We paid $11.0 million,
$8.0 million and $7.8 million in cash dividends in 2010, 2009
and 2008, respectively. An increase in cash dividends paid in each year reflects the
growth in the annualized dividend rate. 2010 also reflects dividends on a larger number of
shares outstanding, from the FPU shares that were exchanged for Chesapeake shares in the
merger.
    
    In October 2008, we completed the placement of $30.0 million of 5.93 percent Unsecured
Senior Notes.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 54




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##### Table of Contents



Managements Discussion and Analysis
 Contractual Obligations
  Payments Due by PeriodContractual Obligations
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5(in thousands)
    
    year
    
    
    1 - 3 years
    
    
    3 - 5 years
    
    
    years
    
    
    TotalLong-term debt (1)
    
    $
    9,216
    
    
    $
    16,393
    
    
    $
    21,656
    
    
    $
    51,682
    
    
    $
    98,947Operating leases (2)
    
    
    803
    
    
    
    1,234
    
    
    
    470
    
    
    
    2,017
    
    
    
    4,524Purchase obligations (3)Transmission capacity
    
    
    35,051
    
    
    
    59,761
    
    
    
    37,949
    
    
    
    70,293
    
    
    
    203,054Storage  Natural Gas
    
    
    2,615
    
    
    
    4,687
    
    
    
    1,525
    
    
    
    2,063
    
    
    
    10,890Commodities
    
    
    37,179
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    37,279Electric supply
    
    
    1,626
    
    
    
    26,498
    
    
    
    26,498
    
    
    
    39,173
    
    
    
    93,795Forward purchase contracts  Propane (4)
    
    
    15,618
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,618Other
    
    
    144
    
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    253Unfunded benefits (5)
    
    
    1,132
    
    
    
    731
    
    
    
    870
    
    
    
    5,706
    
    
    
    8,439Funded benefits (6)
    
    
    2,400
    
    
    
    150
    
    
    
    108
    
    
    
    1,228
    
    
    
    3,886Total Contractual Obligations
    
    $
    105,784
    
    
    $
    109,663
    
    
    $
    89,076
    
    
    $
    172,162
    
    
    $
    476,685
 (1)
    
    Principal payments on long-term debt, see Item 8 under the heading Notes to the
Consolidated Financial Statements  Note J, Long-Term Debt, for additional discussion of this
item. The expected interest payments on long-term debt are $6.6 million, $11.4 million, $8.6
million and $13.3 million, respectively, for the periods indicated above. Expected interest
payments for all periods total $40.0 million.(2)
    
    See Item 8 under the heading Notes to the Consolidated Financial Statements  Note
L, Lease Obligations, for additional discussion of this item.(3)
    
    See Item 8 under the heading Notes to the Consolidated Financial statement  Note
Q, Other Commitments and Contingencies, in the Notes to the Consolidated Financial Statements
for further information.(4)
    
    We have also entered into forward sale contracts. See Market Risk of Managements
Discussion and Analysis for further information.(5)
    
    We have recorded long-term liabilities of $8.4 million at December 31, 2010 for
unfunded post-employment and post-retirement benefit plans. The amounts specified in the table
are based on expected payments to current retirees and assume a retirement age of 62 for
currently active employees. There are many factors that would cause actual payments to differ
from these amounts, including early retirement, future health care costs that differ from past
experience and discount rates implicit in calculations.(6)
    
    We have recorded long-term liabilities of $16.3 million at December 31, 2010 for two
qualified, defined benefit pension plans. The assets funding these plans are in a separate
trust and are not considered assets of the Company or included in the Companys balance
sheets. The Contractual Obligations table above includes $1.5 million, reflecting the expected
payments the Company will make to the trust funds in 2011. Additional contributions may be
required in future years based on the actual return earned by the plan assets and other
actuarial assumptions, such as the discount rate and long-term expected rate of return on plan
assets. See Item 8 under the heading Notes to the Consolidated Financial Statements  Note
M, Employee Benefit Plans, for further information on the plans. Additionally, the
Contractual Obligations table includes deferred compensation obligations totaling $2.4
million, funded with Rabbi Trust assets in the same amount. The Rabbi Trust assets are
recorded under Investments on the Balance Sheet. We assume a retirement age of 65 for purposes
of distribution from this account. Off-Balance Sheet Arrangements
    Chesapeake Utilities Corporation 2010 Form 10-K     Page 55




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##### Table of Contents



Managements Discussion and Analysis
   (f) Rate Filings and Other Regulatory Activities
  (g) Environmental Matters
  (h) Market Risk
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 56




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##### Table of Contents



Managements Discussion and Analysis
  Quantity in
    
    
    Estimated Market
    
    
    Weighted AverageAt December 31, 2010
    
    Gallons
    
    
    Prices
    
    
    Contract PricesForward ContractsSale
    
    
    13,523,496
    
    
    $1.0350  $1.4100
    
    
    $
    1.2192Purchase
    
    
    12,914,496
    
    
    $1.0150  $1.3779
    
    
    $
    1.2093Other ContractPut option
    
    
    1,470,000
    
    
    $
    
    
    $
    0.1150
 Estimated market prices and weighted average contract prices are in dollars per gallon.
 All contracts expire by the end of the second quarter of 2011.
 Quantity in
    
    
    Estimated Market
    
    
    Weighted AverageAt December 31, 2009
    
    gallons
    
    
    Prices
    
    
    Contract PricesForward ContractsSale
    
    
    11,944,800
    
    
    $0.6900  $1.3350
    
    
    $
    1.1264Purchase
    
    
    11,256,000
    
    
    $0.7275  $1.3350
    
    
    $
    1.1367Other ContractPut option
    
    
    1,260,000
    
    

    $
    
    
    $
    0.1500
 Estimated market prices and weighted average contract prices are in dollars per gallon.
 All contracts expire in the first quarter of 2010.
  December 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Mark-to-market energy assets
    
    $
    1,642
    
    
    $
    2,379Mark-to-market energy liabilities
    
    $
    1,492
    
    
    $
    2,514
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 57




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##### Table of Contents



Managements Discussion and Analysis
 (i) Competition
       Chesapeake Utilities Corporation 2010 Form 10-K     Page 58




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##### Table of Contents



Managements Discussion and Analysis
 (j) Inflation
  (k) Marianna Franchise
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 59




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##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 8.
    
    Financial Statements and Supplementary Data.
 Managements Report on Internal Control Over Financial Reporting
      Chesapeake Utilities Corporation 2010 Form 10-K     Page 60




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
 /s/ ParenteBeard LLC

ParenteBeard LLCMalvern, PennsylvaniaMarch 8, 2011
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 61




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##### Table of Contents



Consolidated Statements of Income
 For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands, except shares and per share data)Operating RevenuesRegulated Energy
    
    $
    269,934
    
    
    $
    139,099
    
    
    $
    116,468Unregulated Energy
    
    
    146,793
    
    
    
    119,973
    
    
    
    161,290Other
    
    
    10,819
    
    
    
    9,713
    
    
    
    13,685Total operating revenues
    
    
    427,546
    
    
    
    268,785
    
    
    
    291,443Operating ExpensesRegulated energy cost of sales
    
    
    144,217
    
    
    
    64,803
    
    
    
    54,789Unregulated energy and other cost of sales
    
    
    116,098
    
    
    
    95,467
    
    
    
    145,854Operations
    
    
    75,335
    
    
    
    50,706
    
    
    
    43,476Transaction-related costs
    
    
    660
    
    
    
    1,478
    
    
    
    1,153Maintenance
    
    
    7,484
    
    
    
    3,430
    
    
    
    2,215Depreciation and amortization
    
    
    20,758
    
    
    
    11,588
    
    
    
    9,005Other taxes
    
    
    11,064
    
    
    
    7,577
    
    
    
    6,472Total operating expenses
    
    
    375,616
    
    
    
    235,049
    
    
    
    262,964Operating Income
    
    
    51,930
    
    
    
    33,736
    
    
    
    28,479Other income, net of other expenses
    
    
    195
    
    
    
    165
    
    
    
    103Interest charges
    
    
    9,146
    
    
    
    7,086
    
    
    
    6,158Income Before Income Taxes
    
    
    42,979
    
    
    
    26,815
    
    
    
    22,424Income taxes
    
    
    16,923
    
    
    
    10,918
    
    
    
    8,817Net Income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607Weighted Average Common Shares Outstanding:Basic
    
    
    9,474,554
    
    
    
    7,313,320
    
    
    
    6,811,848Diluted
    
    
    9,582,374
    
    
    
    7,440,201
    
    
    
    6,927,483Earnings Per Share of Common Stock:Basic
    
    $
    2.75
    
    
    $
    2.17
    
    
    $
    2.00Diluted
    
    $
    2.73
    
    
    $
    2.15
    
    
    $
    1.98Cash Dividends Declared Per Share of Common Stock
    
    $
    1.305
    
    
    $
    1.250
    
    
    $
    1.210
 The accompanying notes are an integral part of the financial statements.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 62




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##### Table of Contents



Consolidated Statements of Cash Flows
 For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Operating ActivitiesNet Income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607Adjustments to reconcile net income to net operating cash:Depreciation and amortization
    
    
    20,758
    
    
    
    11,588
    
    
    
    9,005Depreciation and accretion included in other costs
    
    
    3,133
    
    
    
    2,789
    
    
    
    2,239Deferred income taxes, net
    
    
    13,389
    
    
    
    10,065
    
    
    
    11,442Unrealized (gain) loss on commodity contracts
    
    
    (116
    )
    
    
    1,606
    
    
    
    (1,252
    )Unrealized (gain) loss on investments
    
    
    (181
    )
    
    
    (212
    )
    
    
    509Employee benefits and compensation
    
    
    (757
    )
    
    
    1,217
    
    
    
    152Share based compensation
    
    
    1,155
    
    
    
    1,306
    
    
    
    820Other, net
    
    
    (17
    )
    
    
    (40
    )
    
    
    4Changes in assets and liabilities:Purchase of investments
    
    
    (297
    )
    
    
    (146
    )
    
    
    (201
    )Accounts receivable and accrued revenue
    
    
    (20,467
    )
    
    
    (13,652
    )
    
    
    19,411Propane inventory, storage gas and other inventory
    
    
    151
    
    
    
    2,597
    
    
    
    (1,730
    )Regulatory assets
    
    
    687
    
    
    
    (1,842
    )
    
    
    411Prepaid expenses and other current assets
    
    
    1,157
    
    
    
    (757
    )
    
    
    (1,182
    )Other deferred charges
    
    
    (156
    )
    
    
    (83
    )
    
    
    (153
    )Long-term receivables
    
    
    286
    
    
    
    191
    
    
    
    207Accounts payable and other accrued liabilities
    
    
    15,853
    
    
    
    10,185
    
    
    
    (15,033
    )Income taxes receivable
    
    
    (3,761
    )
    
    
    5,020
    
    
    
    (6,155
    )Accrued interest
    
    
    (97
    )
    
    
    66
    
    
    
    158Customer deposits and refunds
    
    
    2,038
    
    
    
    (75
    )
    
    
    (502
    )Accrued compensation
    
    
    1,339
    
    
    
    (2,066
    )
    
    
    (175
    )Regulatory liabilities
    
    
    665
    
    
    
    1,071
    
    
    
    (3,107
    )Other liabilities
    
    
    187
    
    
    
    1,074
    
    
    
    69Net cash provided by operating activities
    
    
    61,005
    
    
    
    45,799
    
    
    
    28,544Investing ActivitiesProperty, plant and equipment expenditures
    
    
    (45,411
    )
    
    
    (26,603
    )
    
    
    (30,756
    )Cash acquired in the merger, net of cash paid
    
    
    
    
    
    
    359
    
    
    
    (Purchases of) proceeds from investments
    
    
    (3,108
    )
    
    
    3,519
    
    
    
    Environmental expenditures
    
    
    (290
    )
    
    
    (418
    )
    
    
    (480
    )Net cash used by investing activities
    
    
    (48,809
    )
    
    
    (23,143
    )
    
    
    (31,236
    )Financing ActivitiesCommon stock dividends
    
    
    (11,013
    )
    
    
    (7,957
    )
    
    
    (7,810
    )Issuance of stock for Dividend Reinvestment Plan
    
    
    568
    
    
    
    392
    
    
    
    (118
    )Change in cash overdrafts due to outstanding checks
    
    
    3,255
    
    
    
    835
    
    
    
    (684
    )Net borrowing (repayment) under line of credit agreements
    
    
    1,579
    
    
    
    (3,812
    )
    
    
    (11,980
    )Other short-term borrowing
    
    
    29,100
    
    
    
    
    
    
    
    29,961Repayment of long-term debt
    
    
    (36,860
    )
    
    
    (10,907
    )
    
    
    (7,658
    )Net cash provided by (used in) financing activities
    
    
    (13,371
    )
    
    
    (21,449
    )
    
    
    1,711Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (1,175
    )
    
    
    1,207
    
    
    
    (981
    )Cash and Cash Equivalents  Beginning of Period
    
    
    2,818
    
    
    
    1,611
    
    
    
    2,592Cash and Cash Equivalents  End of Period
    
    $
    1,643
    
    
    $
    2,818
    
    
    $
    1,611
 Supplemental Cash Flow Disclosures (see Note D)
 The accompanying notes are an integral part of the financial statements.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 63




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##### Table of Contents



Consolidated Balance Sheets
 December 31,
    
    
    December 31,Assets
    
    2010
    
    
    2009(in thousands, except shares and per share data)Property, Plant and EquipmentRegulated energy
    
    $
    500,689
    
    
    $
    462,061Unregulated energy
    
    
    61,313
    
    
    
    61,334Other
    
    
    16,989
    
    
    
    16,049Total property, plant and equipment
    
    
    578,991
    
    
    
    539,444Less: Accumulated depreciation and amortization
    
    
    (121,628
    )
    
    
    (107,318
    )Plus: Construction work in progress
    
    
    5,394
    
    
    
    4,461Net property, plant and equipment
    
    
    462,757
    
    
    
    436,587Investments, at fair value
    
    
    4,036
    
    
    
    1,959Current AssetsCash and cash equivalents
    
    
    1,643
    
    
    
    2,818Accounts receivable (less allowance for uncollectible
accounts of $1,194 and $1,609, respectively)
    
    
    88,074
    
    
    
    69,773Accrued revenue
    
    
    14,978
    
    
    
    12,838Propane inventory, at average cost
    
    
    8,876
    
    
    
    7,901Other inventory, at average cost
    
    
    3,084
    
    
    
    3,149Regulatory assets
    
    
    51
    
    
    
    448Storage gas prepayments
    
    
    5,084
    
    
    
    6,144Income taxes receivable
    
    
    6,748
    
    
    
    2,614Deferred income taxes
    
    
    2,191
    
    
    
    724Prepaid expenses
    
    
    4,613
    
    
    
    5,853Mark-to-market energy assets
    
    
    1,642
    
    
    
    2,379Other current assets
    
    
    245
    
    
    
    147Total current assets
    
    
    137,229
    
    
    
    114,788Deferred Charges and Other AssetsGoodwill
    
    
    35,613
    
    
    
    34,095Other intangible assets, net
    
    
    3,459
    
    
    
    3,951Long-term receivables
    
    
    155
    
    
    
    440Regulatory assets
    
    
    23,884
    
    
    
    20,100Other deferred charges
    
    
    3,860
    
    
    
    3,891Total deferred charges and other assets
    
    
    66,971
    
    
    
    62,477Total Assets
    
    $
    670,993
    
    
    $
    615,811
 The accompanying notes are an integral part of the financial statements.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 64




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##### Table of Contents



Consolidated Balance Sheets
 December 31,
    
    
    December 31,Capitalization and Liabilities
    
    2010
    
    
    2009(in thousands, except shares and per share data)CapitalizationStockholders equityCommon stock, par value $0.4867 per share
(authorized 25,000,000 and 12,000,000 shares, respectively)
    
    $
    4,635
    
    
    $
    4,572Additional paid-in capital
    
    
    148,159
    
    
    
    144,502Retained earnings
    
    
    76,805
    
    
    
    63,231Accumulated other comprehensive loss
    
    
    (3,360
    )
    
    
    (2,524
    )Deferred compensation obligation
    
    
    777
    
    
    
    739Treasury stock
    
    
    (777
    )
    
    
    (739
    )Total stockholders equity
    
    
    226,239
    
    
    
    209,781Long-term debt, net of current maturities
    
    
    89,642
    
    
    
    98,814Total capitalization
    
    
    315,881
    
    
    
    308,595Current LiabilitiesCurrent portion of long-term debt
    
    
    9,216
    
    
    
    35,299Short-term borrowing
    
    
    63,958
    
    
    
    30,023Accounts payable
    
    
    65,541
    
    
    
    51,462Customer deposits and refunds
    
    
    26,317
    
    
    
    25,046Accrued interest
    
    
    1,789
    
    
    
    1,887Dividends payable
    
    
    3,143
    
    
    
    2,959Accrued compensation
    
    
    6,784
    
    
    
    5,341Regulatory liabilities
    
    
    9,009
    
    
    
    8,295Mark-to-market energy liabilities
    
    
    1,492
    
    
    
    2,514Other accrued liabilities
    
    
    10,393
    
    
    
    7,017Total current liabilities
    
    
    197,642
    
    
    
    169,843Deferred Credits and Other LiabilitiesDeferred income taxes
    
    
    80,031
    
    
    
    66,008Deferred investment tax credits
    
    
    243
    
    
    
    335Regulatory liabilities
    
    
    3,734
    
    
    
    4,393Environmental liabilities
    
    
    10,587
    
    
    
    11,104Other pension and benefit costs
    
    
    18,199
    
    
    
    15,088Accrued asset removal cost  Regulatory liability
    
    
    35,092
    
    
    
    33,214Other liabilities
    
    
    9,584
    
    
    
    7,231Total deferred credits and other liabilities
    
    
    157,470
    
    
    
    137,373Other commitments and contingencies (Note P and Q)Total Capitalization and Liabilities
    
    $
    670,993
    
    
    $
    615,811
 The accompanying notes are an integral part of the financial statements.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 65




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##### Table of Contents



Consolidated Stockholders Equity
 Common Stock
    
    
    
    
    
    
    
    
    
    
    Accumulated OtherNumber of
    
    
    
    
    
    
    Additional Paid-In
    
    
    
    
    
    
    Comprehensive
    
    
    Deferred(in thousands, except shares and per share data)
    
    Shares(7)
    
    
    Par Value
    
    
    Capital
    
    
    Retained Earnings
    
    
    Loss
    
    
    Compensation
    
    
    Treasury Stock
    
    
    TotalBalances at December 31, 2007
    
    
    6,777,410
    
    
    $
    3,298
    
    
    $
    65,593
    
    
    $
    51,538
    
    
    $
    (852
    )
    
    $
    1,404
    
    
    $
    (1,404
    )
    
    $
    119,577Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,607Other comprehensive income, net of tax:Employee Benefit Plans, net of tax:Amortization of prior service costs (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    
    
    
    
    
    
    
    
    (71
    )Net loss (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,825
    )
    
    
    
    
    
    
    
    
    
    
    (2,825
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,711Dividend Reinvestment Plan
    
    
    9,060
    
    
    
    5
    
    
    
    269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274Retirement Savings Plan
    
    
    5,260
    
    
    
    3
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159Conversion of debentures
    
    
    10,397
    
    
    
    5
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176Share based compensation (1) (3)
    
    
    24,994
    
    
    
    12
    
    
    
    442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    454Tax benefit on stock warrants
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Deferred Compensation Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145
    
    
    
    (145
    )
    
    
    Purchase of treasury stock
    
    
    (2,425
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    (72
    )Sale and distribution of treasury stock
    
    
    2,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    72Dividends on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )Cash dividends (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,247
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,247
    )Balances at December 31, 2008
    
    
    6,827,121
    
    
    
    3,323
    
    
    
    66,681
    
    
    
    56,817
    
    
    
    (3,748
    )
    
    
    1,549
    
    
    
    (1,549
    )
    
    
    123,073Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,897Other comprehensive income, net of tax:Employee Benefit Plans, net of tax:Amortization of prior service costs (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Net Gain (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,217
    
    
    
    
    
    
    
    
    
    
    
    1,217Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,121Dividend Reinvestment Plan
    
    
    31,607
    
    
    
    15
    
    
    
    921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    936Retirement Savings Plan
    
    
    32,375
    
    
    
    16
    
    
    
    966
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    982Conversion of debentures
    
    
    7,927
    
    
    
    4
    
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135Share based compensation (1) (3)
    
    
    7,374
    
    
    
    3
    
    
    
    1,332
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,335Deferred Compensation Plan (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (810
    )
    
    
    810
    
    
    
    Purchase of treasury stock
    
    
    (2,411
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    (73
    )Sale and distribution of treasury stock
    
    
    2,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    73Common stock issued in the merger
    
    
    2,487,910
    
    
    
    1,211
    
    
    
    74,471
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,682Dividends on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104
    )Cash dividends (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,379
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,379
    )Balances at December 31, 2009
    
    
    9,394,314
    
    
    
    4,572
    
    
    
    144,502
    
    
    
    63,231
    
    
    
    (2,524
    )
    
    
    739
    
    
    
    (739
    )
    
    
    209,781Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,056Other comprehensive income, net of tax:Employee Benefit Plans, net of tax:Amortization of prior service costs (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Net loss (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (844
    )
    
    
    
    
    
    
    
    
    
    
    (844
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,220Dividend Reinvestment Plan
    
    
    53,806
    
    
    
    26
    
    
    
    1,699
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,725Retirement Savings Plan
    
    
    27,795
    
    
    
    14
    
    
    
    889
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    903Conversion of debentures
    
    
    11,865
    
    
    
    6
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202Tax benefit on share based compensation
    
    
    
    
    
    
    
    
    
    
    253
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    253Share based compensation (1) (3)
    
    
    36,415
    
    
    
    17
    
    
    
    620
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    637Deferred Compensation Plan (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    (38
    )
    
    
    Purchase of treasury stock
    
    
    1,144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    (38
    )Sale and distribution of treasury stock
    
    
    (1,144
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    38Dividends on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103
    )Cash dividends (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,379
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,379
    )Balances at December 31, 2010
    
    
    9,524,195
    
    
    $
    4,635
    
    
    $
    148,159
    
    
    $
    76,805
    
    
    $
    (3,360
    )
    
    $
    777
    
    
    $
    (777
    )
    
    $
    226,239
 (1)
    
    Includes amounts for shares issued for Directors compensation.(2)
    
    Cash dividends declared per share for the periods ended December 31, 2010, 2009 and
2008 were $1.305, $1.250 and $1.210 respectively.(3)
    
    The shares issued under the Performance Incentive Plan (PIP) are net of shares
withheld for employee taxes. For 2010 and 2008, the Company withheld 17,695 and 12,511
respectively shares for taxes. The Company did not issue any shares for the PIP in 2009.(4)
    
    Tax expense (benefit) recognized on the prior service cost component of employees
benefit plans for the periods ended December 31, 2010, 2009 and 2008 were approximately $5,
$5 and ($52) respectively.(5)
    
    Tax expense (benefit) recognized on the net gain (loss) component of employees
benefit plans for the periods ended December 31, 2010, 2009 and
2008 were ($541), $794 and
($1,900) respectively.(6)
    
    In May and November 2009, certain participants of the Deferred Compensation Plan
received distributions totaling $883. There were no distributions in 2010 and 2008.(7)
    
    Includes 29,600, 28,452, and 62,221 shares at December 31, 2010, 2009 and 2008,
respectively, held in a Rabbi Trust established by the Company relating to the Deferred
Compensation Plan. The accompanying notes are an integral part of the financial statements.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 66




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##### Table of Contents



Notes to the Consolidated Financial Statements
 A. Summary of Accounting Policies
 Nature of Business
    Principles of Consolidation
  System of Accounts
  Reclassifications
  Use of Estimates
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 67




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Property, Plant, Equipment and Depreciation
  December 31,
    
    
    December 31,2010
    
    
    2009
    
    
    Useful Life(1)(in thousands)Plant in serviceMains
    
    $
    259,672
    
    
    $
    236,352
    
    
    27-62 yearsServices  utility
    
    
    68,349
    
    
    
    65,070
    
    
    12-48 yearsCompressor station equipment
    
    
    24,952
    
    
    
    24,981
    
    
    42 yearsLiquified petroleum gas equipment
    
    
    27,623
    
    
    
    28,240
    
    
    5-31 yearsMeters and meter installations
    
    
    32,850
    
    
    
    28,419
    
    
    Unregulated energy 3-33 years, regulatedenergy 14-49 yearsMeasuring and regulating station equipment
    
    
    22,332
    
    
    
    17,708
    
    
    14-54 yearsOffice furniture and equipment
    
    
    15,796
    
    
    
    15,532
    
    
    Unregulated energy 4-7 years, regulated energy 14-25 yearsTransportation equipment
    
    
    17,046
    
    
    
    16,613
    
    
    1-20 yearsStructures and improvements
    
    
    16,290
    
    
    
    15,184
    
    
    3-44 years (2)Land and land rights
    
    
    15,052
    
    
    
    12,789
    
    
    Not depreciable, except certain regulated assetsPropane bulk plants and tanks
    
    
    7,967
    
    
    
    7,275
    
    
    12-40 yearsElectric transmission lines and transformers
    
    
    30,669
    
    
    
    29,024
    
    
    10-41 yearsPoles and towers
    
    
    9,259
    
    
    
    8,434
    
    
    21-40 yearsOther equipment
    
    
    9,189
    
    
    
    11,147
    
    
    10-61 yearsVarious
    
    
    21,945
    
    
    
    22,676
    
    
    VariousTotal plant in service
    
    
    578,991
    
    
    
    539,444Plus construction work in progress
    
    
    5,394
    
    
    
    4,461Less accumulated depreciation
    
    
    (121,628
    )
    
    
    (107,318
    )Net property, plant and equipment
    
    $
    462,757
    
    
    $
    436,587
 (1)
    
    Certain immaterial account balances may fall outside this range.The regulated operations compute depreciation in accordance with rates approved by either the
state PSC or the FERC. These rates are based on depreciation studies and may change
periodically upon receiving approval from the appropriate regulatory body. The depreciation
rates shown above are based on the remaining useful lives of the assets at the time of the
depreciation study, rather than their original lives. The depreciation rates are composite,
straight-line rates applied to the average investment for each class of depreciable property
and are adjusted for anticipated cost of removal less salvage value.The non-regulated operations compute depreciation using the straight-line method over the
estimated useful life of the asset.(2)
    
    Includes buildings, structures used in connection with natural gas, electric and propane operations, improvements to those facilities and leasehold improvements.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 68




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##### Table of Contents



Notes to the Consolidated Financial Statements
  Cash and Cash Equivalents
  Inventories
  Regulatory Assets, Liabilities and Expenditures
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 69




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##### Table of Contents



Notes to the Consolidated Financial Statements
  December 31,
    
    
    December 31,2010
    
    
    2009(in thousands)Regulatory AssetsUnderrecovered purchased fuel costs
    
    $
    
    
    
    $
    368Income tax related amounts due from customers
    
    
    1,897
    
    
    
    2,022Deferred post retirement benefits
    
    
    8,304
    
    
    
    3,636Deferred transaction and transition costs
    
    
    1,264
    
    
    
    1,486Deferred conversion and development costs
    
    
    2,069
    
    
    
    2,720Environmental regulatory assets and expenditures
    
    
    6,826
    
    
    
    7,510Acquisition adjustment (1)
    
    
    764
    
    
    
    795Loss on reacquired debt(3)
    
    
    1,668
    
    
    
    154Other
    
    
    1,143
    
    
    
    1,857Total Regulatory Assets
    
    $
    23,935
    
    
    $
    20,548Regulatory LiabilitiesSelf insurance
    
    $
    1,265
    
    
    $
    1,152Overrecovered purchased fuel costs
    
    
    8,159
    
    
    
    6,523Shared interruptible margins
    
    
    
    
    
    
    84Conservation cost recovery
    
    
    320
    
    
    
    1,060Rate refund(2)
    
    
    
    
    
    
    258Income tax related amounts due to customers
    
    
    48
    
    
    
    74Storm reserve
    
    
    2,682
    
    
    
    2,554Accrued asset removal cost
    
    
    35,092
    
    
    
    33,214Other
    
    
    269
    
    
    
    983Total Regulatory Liabilities
    
    $
    47,835
    
    
    $
    45,902
 (1)
    
    Net carrying value of goodwill from FPUs previous acquisition that is allowed to be amortized pursuant to a rate order.(2)
    
    Refunded to FPU natural gas customers in February 2010.(3)
    
    Gains and losses resulting from the reacquisition of long-term debt, which are
amortized over future periods as adjustments to interest expense in accordance with established regulatory practice.
    Chesapeake Utilities Corporation 2010 Form 10-K     Page 70




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Goodwill and Other Intangible Assets
  Other Deferred Charges
  Pension and Other Postretirement Plans
       Chesapeake Utilities Corporation 2010 Form 10-K     Page 71




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Income Taxes and Investment Tax Credit Adjustments
   Financial Instruments
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 72




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Earnings Per Share
  For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands, except shares and per share data)Calculation of Basic Earnings Per Share:Net Income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607Weighted average shares outstanding
    
    
    9,474,554
    
    
    
    7,313,320
    
    
    
    6,811,848Basic Earnings Per Share
    
    $
    2.75
    
    
    $
    2.17
    
    
    $
    2.00Calculation of Diluted Earnings Per Share:Reconciliation of Numerator:Net Income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607Effect of 8.25% Convertible debentures
    
    
    73
    
    
    
    79
    
    
    
    89Adjusted numerator  Diluted
    
    $
    26,129
    
    
    $
    15,976
    
    
    $
    13,696Reconciliation of Denominator:Weighted shares outstanding  Basic
    
    
    9,474,554
    
    
    
    7,313,320
    
    
    
    6,811,848Effect of dilutive securities:Share-based Compensation
    
    
    22,550
    
    
    
    34,229
    
    
    
    12,0838.25% Convertible debentures
    
    
    85,270
    
    
    
    92,652
    
    
    
    103,552Adjusted denominator  Diluted
    
    
    9,582,374
    
    
    
    7,440,201
    
    
    
    6,927,483Diluted Earnings Per Share
    
    $
    2.73
    
    
    $
    2.15
    
    
    $
    1.98
  Operating Revenues
    Chesapeake Utilities Corporation 2010 Form 10-K     Page 73




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##### Table of Contents



Notes to the Consolidated Financial Statements
     Cost of Sales
  Operations and Maintenance Expenses
  Depreciation and Accretion Included in Operations Expenses
  Allowance for Doubtful Accounts
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 74




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Acquisition Accounting
   Subsequent Events
   FASB Statements and Other Authoritative Pronouncements
 Recent Accounting Amendments Yet to be Adopted by the Company
  Other Accounting Amendments Adopted by the Company in 2010
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 75




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##### Table of Contents



Notes to the Consolidated Financial Statements
  B. Acquisitions
 FPU
      Chesapeake Utilities Corporation 2010 Form 10-K     Page 76




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##### Table of Contents



Notes to the Consolidated Financial Statements
  October 28, 2009(in thousands)Purchase price
    
    $
    75,699Current assets
    
    
    26,761Property, plant and equipment
    
    
    139,709Regulatory assets
    
    
    19,899Investments and other deferred charges
    
    
    3,659Intangible assets
    
    
    4,019Total assets acquired
    
    
    194,047Long term debt
    
    
    47,812Borrowings from line of credit
    
    
    4,249Other current liabilities
    
    
    17,427Pre-merger contingencies
    
    
    923Other regulatory liabilities
    
    
    19,414Pension and post retirement obligations
    
    
    14,276Environmental liabilities
    
    
    12,414Deferred income taxes
    
    
    20,559Customer deposits and other liabilities
    
    
    15,467Total liabilities assumed
    
    
    152,541Net identifiable assets acquired
    
    
    41,506Goodwill
    
    $
    34,193
 During 2010, we adjusted the allocation of the purchase price based on additional information
available. The adjustments are related to certain accruals, regulatory assets, deferred and
current income tax assets and liabilities, and pre-merger contingencies (see discussion below).
These adjustments also resulted in a change in fair value of the propane property, plant and
equipment. Goodwill from the merger increased to $34.2 million after incorporating these
adjustments, compared to $33.4 million as previously disclosed at December 31, 2009.
 None of the $34.2 million in goodwill recorded in connection with the merger is deductible for
tax purposes. All of the goodwill recorded in connection with the merger is related to the
regulated energy segment. We believe the goodwill recognized is attributable to the synergies
and opportunities primarily related to FPUs regulated energy businesses. The intangible assets
acquired in connection with the merger are related to propane customer list ($3.5 million) and
favorable propane supply contracts ($519,000). The intangible value assigned to FPUs existing
propane customer list is being amortized over a 12-year period based on the expected duration of
the benefit arising from the list. The intangible value assigned to FPUs favorable propane
contracts is being amortized over a period ranging from one to 14 months based on contractual
terms.
 Current assets of $26.8 million acquired during the merger included notes receivable of
approximately $5.8 million, for which we received full payment in March 2010, and accounts
receivable of approximately $3.1 million, $6.0 million and $891,000 for FPUs natural gas,
electric and propane distribution businesses, respectively.
 The pre-merger contingencies of $923,000 included in the final allocation of the purchase price
are primarily related to a pending settlement agreement for a class action complaint against
FPU from a propane customer, which is further discussed in Note Q, Other Commitments and
Contingencies to the Consolidated Financial Statements. The proposed settlement addresses a
particular charge by FPU to its propane customers during the period from May 27, 2006 to
September 24, 2010, which encompasses both pre-merger and post-merger periods. We used the
ratio of the charges assessed to customers during the pre-merger period to the charges assessed
to customers during the total settlement period to estimate that $835,000 of the total
contingency was related to FPUs operations prior to the merger with Chesapeake. The portion of
the liability related to FPUs operations after the merger with Chesapeake and any increases to
the liability after the measurement date, which totaled to $370,000, was expensed in 2010. Also
included in the pre-merger contingencies are liabilities related to FPUs income taxes for
periods prior to the merger.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 77




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##### Table of Contents



Notes to the Consolidated Financial Statements
 The financial position and results of operations and cash flows of FPU from the effective
date of the merger are included in our consolidated financial statements. The revenue from FPU
for the years December 31, 2010 and 2009, included in our consolidated statements of income,
were $180.2 million and $26.4 million, respectively, and the net income from FPU for the years
ended December 31, 2010 and 2009, included in our consolidated statements of income, were $9.3
million and $1.8 million, respectively.
 The following table shows the actual results of combined operations for the year ended December
31, 2010 and pro forma results of combined operations for the year ended December 31, 2009, as
if the merger had been completed at January 1, 2009. Since the effects of the merger for the
year ended December 31, 2010 were already included in the actual results of our consolidated
operations, there is no pro forma adjustment for the year ended December 31, 2010.
 For the Years Ended December 31,
    
    2010
    
    
    2009(in thousands, except per share data)Operating revenues
    
    $
    427,546
    
    
    $
    394,772Operating Income
    
    $
    51,930
    
    
    $
    44,382Net Income
    
    $
    26,056
    
    
    $
    20,872Earnings per share  basic
    
    $
    2.75
    
    
    $
    2.23Earnings per
share  diluted
    
    $
    2.73
    
    
    $
    2.20
    Virginia LP Gas
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 78




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Indiantown Gas Company
  C. Segment Information
  
    
    Regulated Energy. The regulated energy segment includes natural gas distribution,
electric distribution and natural gas transmission operations. All operations in this
segment are regulated, as to their rates and services, by the PSC having jurisdiction in
each operating territory or by the FERC in the case of ESNG.
 
    
    Unregulated Energy.The unregulated energy segment includes natural gas marketing,
propane distribution and propane wholesale marketing operations, which are unregulated as to
their rates and services.
 
    
    Other. The Other segment consists primarily of the advanced information services
subsidiary, unregulated subsidiaries that own real estate leased to Chesapeake and certain
corporate costs not allocated to other operations.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 79




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Notes to the Consolidated Financial Statements
  For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Operating Revenues, Unaffiliated CustomersRegulated Energy
    
    $
    268,830
    
    
    $
    137,847
    
    
    $
    115,544Unregulated Energy
    
    
    146,430
    
    
    
    119,719
    
    
    
    161,287Other
    
    
    12,286
    
    
    
    11,219
    
    
    
    14,612Total operating revenues, unaffiliated customers
    
    $
    427,546
    
    
    $
    268,785
    
    
    $
    291,443Intersegment Revenues(1)Regulated Energy
    
    $
    1,104
    
    
    $
    1,252
    
    
    $
    924Unregulated Energy
    
    
    363
    
    
    
    254
    
    
    
    3Other
    
    
    856
    
    
    
    779
    
    
    
    761Total intersegment revenues
    
    $
    2,323
    
    
    $
    2,285
    
    
    $
    1,688Operating IncomeRegulated Energy
    
    $
    43,509
    
    
    $
    26,900
    
    
    $
    24,733Unregulated Energy
    
    
    7,908
    
    
    
    8,158
    
    
    
    3,781Other
    
    
    513
    
    
    
    (1,322
    )
    
    
    (35
    )Operating Income
    
    
    51,930
    
    
    
    33,736
    
    
    
    28,479Other income
    
    
    195
    
    
    
    165
    
    
    
    103Interest charges
    
    
    9,146
    
    
    
    7,086
    
    
    
    6,158Income taxes
    
    
    16,923
    
    
    
    10,918
    
    
    
    8,817Net income from continuing operations
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607Depreciation and AmortizationRegulated Energy
    
    $
    17,038
    
    
    $
    8,866
    
    
    $
    6,694Unregulated Energy
    
    
    3,433
    
    
    
    2,415
    
    
    
    2,024Other and eliminations
    
    
    287
    
    
    
    307
    
    
    
    287Total depreciation and amortization
    
    $
    20,758
    
    
    $
    11,588
    
    
    $
    9,005Capital ExpendituresRegulated Energy
    
    $
    41,898
    
    
    $
    22,917
    
    
    $
    25,386Unregulated Energy
    
    
    2,764
    
    
    
    1,873
    
    
    
    3,417Other
    
    
    2,293
    
    
    
    1,504
    
    
    
    2,041Total capital expenditures
    
    $
    46,955
    
    
    $
    26,294
    
    
    $
    30,844
 (1)
    
    All significant intersegment revenues are billed at market rates and have been eliminated from consolidated revenues.
 At December 31,
    
    2010
    
    
    2009(in thousands)Identifiable AssetsRegulated Energy
    
    $
    520,192
    
    
    $
    481,606Unregulated Energy
    
    
    113,039
    
    
    
    99,642Other
    
    
    37,762
    
    
    
    34,286Total identifiable assets
    
    $
    670,993
    
    
    $
    615,534
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 80




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Notes to the Consolidated Financial Statements
  D. Supplemental Cash Flow Disclosures
  For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Cash paid for interest
    
    $
    8,751
    
    
    $
    6,703
    
    
    $
    5,835Cash paid for income taxes
    
    $
    10,168
    
    
    $
    1,111
    
    
    $
    3,885
  For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Capital property and equipment acquired on account,
but not paid as of December 31
    
    $
    1,064
    
    
    $
    1,151
    
    
    $
    696Merger/acquisitions
    
    $
    300
    
    
    $
    75,682
    
    
    $
    Retirement Savings Plan
    
    $
    902
    
    
    $
    982
    
    
    $
    159Dividend Reinvestment Plan
    
    $
    1,182
    
    
    $
    692
    
    
    $
    208Conversion of Debentures
    
    $
    202
    
    
    $
    135
    
    
    $
    177Performance Incentive Plan
    
    $
    719
    
    
    $
    
    
    
    $
    568Director Stock Compensation Plan
    
    $
    297
    
    
    $
    214
    
    
    $
    181Tax benefit on stock warrants and share-based compensation
    
    $
    253
    
    
    $
    
    
    
    $
    50
 E. Derivative Instruments
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 81




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Notes to the Consolidated Financial Statements
  Quantity in
    
    
    Estimated Market
    
    
    Weighted AverageAt December 31, 2010
    
    Gallons
    
    
    Prices
    
    
    Contract PricesForward ContractsSale
    
    
    13,523,496
    
    

    $1.0350  $1.4100
    
    
    $
    1.2192Purchase
    
    
    12,914,496
    
    

    $1.0150  $1.3779
    
    
    $
    1.2093Other ContractPut option
    
    
    1,470,000
    
    

    $
    
    
    $
    0.1150
 Estimated market prices and weighted average contract prices are in dollars per gallon.
 All contracts expire by the end of the second quarter of 2011.
   Asset DerivativesFair ValueDecember 31,
    
    
    December 31,(in thousands)
    
    Balance Sheet Location
    
    2010
    
    
    2009Derivatives not designated
as hedging instruments:Forward contracts
    
    Mark-to-market energy assets
    
    $
    1,642
    
    
    $
    2,379Put Option(1) (2)
    
    Mark-to-market energy assets
    
    
    
    
    
    
    Total asset derivatives
    
    
    
    
    
    $
    1,642
    
    
    $
    2,379
 Liability DerivativesFair ValueDecember 31,
    
    
    December 31,(in thousands)
    
    Balance Sheet Location
    
    2010
    
    
    2009Derivatives not designated
as hedging instruments:Forward contracts
    
    Mark-to-market energy liabilities
    
    $
    1,492
    
    
    $
    2,514Total liability derivatives
    
    
    
    
    
    $
    1,492
    
    
    $
    2,514
 (1)
    
    We purchased a put option for the Pro-Cap (propane price cap)
Plan in October 2010. The put option which expires in January and February
2011 had a fair value of $0 at December 31, 2010.(2)
    
    We purchased a put option for the Pro-Cap Plan in September 2009.
The put option, which expired on March 31, 2010, had a fair value of $0 at
December 31, 2009.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 82




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Notes to the Consolidated Financial Statements
  Amount of Gain (Loss) on Derivatives:Location of Gain
    
    For the Years Ended December 31,(in thousands)
    
    (Loss) on Derivatives
    
    2010
    
    
    2009
    
    
    2008Derivatives designated a
fair value hedges:Propane swap agreement(1)
    
    Cost of Sales
    
    $
    
    
    
    $
    (42
    )
    
    $
    1,476Derivatives not designated as
hedging instruments:Put Option(2)
    
    Cost of Sales
    
    
    (168
    )
    
    
    
    
    
    
    Put Option(3)
    
    Revenue
    
    
    
    
    
    
    (41
    )
    
    
    Unrealized gain (loss) on forward contracts
    
    Revenue
    
    
    284
    
    
    
    (1,565
    )
    
    
    1,357Total
    
    
    
    $
    116
    
    
    $
    (1,648
    )
    
    $
    2,833
 (1)
    
    Our propane distribution operation entered into a propane swap
agreement to protect it from the impact that wholesale propane price increases
would have on the Pro-Cap (propane price cap) Plan that was offered to
customers. We terminated this swap agreement in January 2009.(2)
    
    We purchased a put option for the Pro-Cap Plan in October 2010. The
put option, which expires in January and February 2011, had a fair value of $0
at December 31, 2010.(3)
    
    We purchased a put option for the Pro-Cap Plan in September 2009.
The put option, which expired on March 31, 2010, had a fair value of $0 at
December 31, 2009.
  Amount of Trading RevenueLocation of Gain
    
    
    For the Years Ended December 31,(in thousands)
    
    (Loss) on Derivatives
    
    
    2010
    
    
    2009
    
    
    2008Realized gain on forward contracts/put option
    
    Revenue
    
    $
    1,540
    
    
    $
    3,830
    
    
    $
    1,935Unrealized gain (loss) on forward contracts
    
    Revenue
    
    
    284
    
    
    
    (1,565
    )
    
    
    1,357Total
    
    
    
    
    
    $
    1,824
    
    
    $
    2,265
    
    
    $
    3,292
 F. Fair Value of Financial Instruments
  Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities;
 Level 2: Quoted prices in markets that are not active, or inputs which are observable, either
directly or indirectly, for substantially the full term of the asset or liability; and
 Level 3: Prices or valuation techniques requiring inputs that are both significant to the fair
value measurement and unobservable (i.e. supported by little or no market activity).
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 83




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Notes to the Consolidated Financial Statements
  Fair Value Measurements Using:SignificantOther
    
    
    SignificantQuoted Prices in
    
    
    Observable
    
    
    UnobservableActive Markets
    
    
    Inputs
    
    
    Inputs(in thousands)
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Investments
    
    $
    4,036
    
    
    $
    4,036
    
    
    $
    
    
    
    $
    Mark-to-market energy assets
    
    $
    1,642
    
    
    $
    
    
    
    $
    1,642
    
    
    $
    Liabilities:Mark-to-market energy liabilities
    
    $
    1,492
    
    
    $
    
    
    
    $
    1,492
    
    
    $
    
  Fair Value Measurements Using:SignificantOther
    
    
    SignificantQuoted Prices in
    
    
    Observable
    
    
    UnobservableActive Markets
    
    
    Inputs
    
    
    Inputs(in thousands)
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Investments
    
    $
    1,959
    
    
    $
    1,959
    
    
    
    
    
    
    $
    Mark-to-market energy assets
    
    $
    2,379
    
    
    $
    
    
    
    $
    2,379
    
    
    $
    Liabilities:Mark-to-market energy liabilities
    
    $
    2,514
    
    
    $
    
    
    
    $
    2,514
    
    
    $
    
  Level 1 Fair Value Measurements:
 Investments The fair values of these trading securities are recorded at fair
value based on unadjusted quoted prices in active markets for identical securities.
 Level 2 Fair Value Measurements:
 Mark-to-market energy assets and liabilities These forward contracts are valued using market
transactions in either the listed or OTC markets.
 Propane price swap agreement and put option The fair value of the propane price swap
agreement and put option is valued using market transactions for similar assets and liabilities
in either the listed or OTC markets.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 84




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Notes to the Consolidated Financial Statements
 Other Financial Assets and Liabilities
   G. Investments
  H. Goodwill and Other Intangible Assets
  December 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Regulated Energy
    
    $
    34,939
    
    
    $
    33,421Unregulated Energy
    
    
    674
    
    
    
    674Total
    
    $
    35,613
    
    
    $
    34,095
    Chesapeake Utilities Corporation 2010 Form 10-K     Page 85




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Notes to the Consolidated Financial Statements
  December 31, 2010
    
    
    December 31, 2009Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(in thousands)Favorable propane contracts
    
    $
    0
    
    
    $
    0
    
    
    $
    519
    
    
    $
    169Customer list
    
    
    3,500
    
    
    
    340
    
    
    
    3,500
    
    
    
    49Other
    
    
    566
    
    
    
    267
    
    
    
    379
    
    
    
    229$
    4,066
    
    
    $
    607
    
    
    $
    4,398
    
    
    $
    447
   I. Income Taxes
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 86




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Notes to the Consolidated Financial Statements
  For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Current Income Tax ExpenseFederal
    
    $
    1,566
    
    
    $
    
    
    
    $
    (2,551
    )State
    
    
    2,116
    
    
    
    878
    
    
    
    Investment tax credit adjustments, net
    
    
    (91
    )
    
    
    (69
    )
    
    
    (42
    )Total current income tax expense (benefit)
    
    
    3,591
    
    
    
    809
    
    
    
    (2,593
    )Deferred Income Tax Expense (1)Property, plant and equipment
    
    
    16,964
    
    
    
    7,098
    
    
    
    10,272Deferred gas costs
    
    
    (2,505
    )
    
    
    (786
    )
    
    
    781Pensions and other employee benefits
    
    
    (402
    )
    
    
    (612
    )
    
    
    (174
    )Amortization of intangibles
    
    
    (211
    )
    
    
    5
    
    
    
    75Environmental expenditures
    
    
    32
    
    
    
    7
    
    
    
    145Net operating loss carryforwards
    
    
    99
    
    
    
    4,106
    
    
    
    Merger related costs
    
    
    (13
    )
    
    
    967
    
    
    
    Reserve for insurance deductibles
    
    
    (419
    )
    
    
    518
    
    
    
    462Other
    
    
    (213
    )
    
    
    (1,194
    )
    
    
    (151
    )Total deferred income tax expense (benefit)
    
    
    13,332
    
    
    
    10,109
    
    
    
    11,410Total Income Tax Expense
    
    $
    16,923
    
    
    $
    10,918
    
    
    $
    8,817Reconciliation of Effective Income Tax RatesContinuing OperationsFederal income tax expense (2)
    
    $
    15,053
    
    
    $
    9,171
    
    
    $
    7,863State income taxes, net of federal
benefit
    
    
    2,083
    
    
    
    1,490
    
    
    
    1,162Merger related costs
    
    
    70
    
    
    
    299
    
    
    
    ESOP dividend deduction
    
    
    (266
    )
    
    
    (213
    )
    
    
    (205
    )Other
    
    
    (17
    )
    
    
    171
    
    
    
    (3
    )Total income tax expense
    
    $
    16,923
    
    
    $
    10,918
    
    
    $
    8,817Effective income tax rate
    
    
    39.38
    %
    
    
    40.72
    %
    
    
    39.32
    %
 At December 31,
    
    2010
    
    
    2009(in thousands)Deferred Income TaxesDeferred income tax liabilities:Property, plant and equipment
    
    $
    89,544
    
    
    $
    75,863Deferred gas costs
    
    
    
    
    
    
    848Loss on reacquired debt
    
    
    643
    
    
    
    59Other
    
    
    2,891
    
    
    
    2,884Total deferred income tax liabilities
    
    
    93,078
    
    
    
    79,654Deferred income tax assets:Pension and other employee
benefits
    
    
    7,849
    
    
    
    7,972Environmental costs
    
    
    1,770
    
    
    
    1,803Net operating loss carryforwards
    
    
    1,300
    
    
    
    305Self insurance
    
    
    419
    
    
    
    464Storm reserve liability
    
    
    1,034
    
    
    
    985Other
    
    
    2,866
    
    
    
    2,841Total deferred income tax assets
    
    
    15,238
    
    
    
    14,370Deferred Income Taxes Per Consolidated Balance Sheet
    
    $
    77,840
    
    
    $
    65,284
 (1)
    
    Includes $1,963,000, $1,588,000 and $260,000 of deferred state income taxes for the years
2010, 2009 and 2008, respectively.(2)
    
    Federal income taxes were recorded at 35% for each year represented.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 87




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Notes to the Consolidated Financial Statements
 J. Long-term Debt
  December 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009FPU secured first mortgage bonds:9.57% bond, due May 1, 2018
    
    $
    7,248
    
    
    $
    8,15610.03% bond, due May 1, 2018
    
    
    3,986
    
    
    
    4,4869.08% bond, due June 1, 2022
    
    
    7,950
    
    
    
    7,9506.85% bond, due October 1, 2031
    
    
    
    
    
    
    14,0124.90% bond, due November 1, 2031
    
    
    
    
    
    
    13,222Uncollateralized senior notes:6.91% note, due October 1, 2010
    
    
    
    
    
    
    9096.85% note, due January 1, 2012
    
    
    1,000
    
    
    
    2,0007.83% note, due January 1, 2015
    
    
    8,000
    
    
    
    10,0006.64% note, due October 31, 2017
    
    
    19,091
    
    
    
    21,8185.50% note, due October 12, 2020
    
    
    20,000
    
    
    
    20,0005.93% note, due October 31, 2023
    
    
    30,000
    
    
    
    30,000Convertible debentures:8.25% due March 1, 2014
    
    
    1,318
    
    
    
    1,520Promissory note
    
    
    265
    
    
    
    40Total long-term debt
    
    
    98,858
    
    
    
    134,113Less: current maturities
    
    
    (9,216
    )
    
    
    (35,299
    )Total long-term debt, net of current maturities
    
    $
    89,642
    
    
    $
    98,814
 Annual maturities of consolidated long-term debt are as follows: $9,216 for 2011; $8,196 for
2012; $8,196 for 2013; $12,514 for 2014; $9,141 for 2015 and $51,685 thereafter.
 Secured First Mortgage Bonds
   Uncollateralized Senior Notes
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 88




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Notes to the Consolidated Financial Statements
 Convertible Debentures
  Debt Covenants
    K. Short-term Borrowing
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 89




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Notes to the Consolidated Financial Statements
 Committed credit facilities
    
    
    a funded indebtedness ratio of no greater than 65 percent; and
 
    
    a fixed charge coverage ratio of at least 1.20 to 1.0.
  Uncommitted credit facilities
       Chesapeake Utilities Corporation 2010 Form 10-K     Page 90




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Notes to the Consolidated Financial Statements
 L. Lease Obligations
  M. Employee Benefit Plans
 Retirement Plans
    Chesapeake
    
    
    FPU
    
    
    
    
    
    
    Chesapeake
    
    
    FPUPension
    
    
    Pension
    
    
    Chesapeake
    
    
    Postretirement
    
    
    Medical(in thousands)
    
    Plan
    
    
    Plan
    
    
    SERP
    
    
    Plan
    
    
    Plan
    
    
    TotalPrior service cost (credit)
    
    $
    (11
    )
    
    $
    
    
    
    $
    83
    
    
    $
    
    
    
    $
    
    
    
    $
    72Net loss
    
    
    3,221
    
    
    
    1,409
    
    
    
    793
    
    
    
    1,145
    
    
    
    531
    
    
    
    7,099Total unrecognized cost
    
    $
    3,210
    
    
    $
    1,409
    
    
    $
    876
    
    
    $
    1,145
    
    
    $
    531
    
    
    $
    7,171Accumulated other
comprehesive loss
pre-tax(1)
    
    $
    3,210
    
    
    $
    268
    
    
    $
    876
    
    
    $
    1,145
    
    
    $
    101
    
    
    $
    5,600Regulatory asset post merger
    
    
    
    
    
    
    1,141
    
    
    
    
    
    
    
    
    
    
    
    430
    
    
    
    1,571Subtotal
    
    
    3,210
    
    
    
    1,409
    
    
    
    876
    
    
    
    1,145
    
    
    
    531
    
    
    
    7,171Regulatory asset pre-merger
    
    
    
    
    
    
    6,631
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    6,709Total
    
    $
    3,210
    
    
    $
    8,040
    
    
    $
    876
    
    
    $
    1,145
    
    
    $
    609
    
    
    $
    13,880
 (1)
    
    The total amount of accumulated other comprehensive loss recorded on our
consolidated balance sheets as of December 31, 2010 is net of income tax benefits of $2.2 million.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 91




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##### Table of Contents



Notes to the Consolidated Financial Statements
  Chesapeake
    
    
    FPU
    
    
    
    
    
    
    Chesapeake
    
    
    FPUPension
    
    
    Pension
    
    
    Chesapeake
    
    
    Postretirement
    
    
    Medical(in thousands)
    
    Plan
    
    
    Plan
    
    
    SERP
    
    
    Plan
    
    
    Plan
    
    
    TotalPrior service cost (credit)
    
    $
    (5
    )
    
    $
    
    
    
    $
    19
    
    
    $
    
    
    
    $
    
    
    
    $
    14Net (gain) loss
    
    $
    173
    
    
    $
    
    
    
    $
    43
    
    
    $
    58
    
    
    $
    22
    
    
    $
    296Amortization of pre-merger
regulatory asset
    
    $
    
    
    
    $
    761
    
    
    $
    
    
    
    $
    
    
    
    $
    8
    
    
    $
    769
  Defined Benefit Pension Plans
     Chesapeake
    
    
    FPUPension Plan
    
    
    Pension PlanAt December 31,
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009Asset CategoryEquity securities
    
    
    64.33
    %
    
    
    66.22
    %
    
    
    48.70
    %
    
    
    60.00
    %
    
    
    63.00
    %Debt securities
    
    
    30.60
    %
    
    
    33.76
    %
    
    
    51.24
    %
    
    
    35.00
    %
    
    
    29.00
    %Other
    
    
    5.07
    %
    
    
    0.02
    %
    
    
    0.06
    %
    
    
    5.00
    %
    
    
    8.00
    %Total
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 92




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##### Table of Contents



Notes to the Consolidated Financial Statements
  
    
    United States government obligations; and
 
    
    Repurchase agreements that are fully collateralized by such obligations.
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 93




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##### Table of Contents



Notes to the Consolidated Financial Statements
  Chesapeake
    
    
    FPUPension Plan
    
    
    Pension PlanAt December 31,
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Change in benefit obligation:Benefit obligation  beginning of year (1)
    
    $
    11,127
    
    
    $
    11,593
    
    
    $
    45,420
    
    
    $
    46,851Interest cost
    
    
    570
    
    
    
    547
    
    
    
    2,729
    
    
    
    418Change in assumptions
    
    
    (5
    )
    
    
    (188
    )
    
    
    
    
    
    
    Actuarial loss
    
    
    776
    
    
    
    (307
    )
    
    
    6,326
    
    
    
    (1,544
    )Benefits paid
    
    
    (708
    )
    
    
    (518
    )
    
    
    (1,997
    )
    
    
    (305
    )Benefit obligation  end of year
    
    
    11,760
    
    
    
    11,127
    
    
    
    52,478
    
    
    
    45,420Change in plan assets:Fair value of plan assets  beginning of year (1)
    
    
    7,449
    
    
    
    6,689
    
    
    
    36,427
    
    
    
    35,037Actual return on plan assets
    
    
    490
    
    
    
    1,278
    
    
    
    4,605
    
    
    
    1,695Employer contributions
    
    
    556
    
    
    
    
    
    
    
    1,166Benefits paid
    
    
    (708
    )
    
    
    (518
    )
    
    
    (1,997
    )
    
    
    (305
    )Fair value of plan assets  end of year
    
    
    7,787
    
    
    
    7,449
    
    
    
    40,201
    
    
    
    36,427Reconciliation:Funded status
    
    
    (3,973
    )
    
    
    (3,678
    )
    
    
    (12,277
    )
    
    
    (8,993
    )Accrued pension cost
    
    $
    (3,973
    )
    
    $
    (3,678
    )
    
    $
    (12,277
    )
    
    $
    (8,993
    )Assumptions:Discount rate
    
    
    5.00
    %
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.75
    %Expected return on plan assets
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    7.00
    %
    
    
    7.00
    %
 (1)
    
    FPU Pension Plans beginning balance for 2009 reflects the benefit obligations as of
the merger date of October 28, 2009.
  Chesapeake
    
    
    FPUFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009(1)(In thousands)Components of net periodic pension
cost:Interest cost
    
    $
    570
    
    
    $
    547
    
    
    $
    594
    
    
    $
    2,729
    
    
    $
    418Expected return on assets
    
    
    (423
    )
    
    
    (362
    )
    
    
    (629
    )
    
    
    (2,532
    )
    
    
    (396
    )Amortization of prior service cost
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    155
    
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension benefit
    
    $
    297
    
    
    $
    417
    
    
    $
    (40
    )
    
    $
    197
    
    
    $
    22Assumptions:Discount rate
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %Expected return on plan assets
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    7.00
    %
    
    
    7.00
    %
 (1)
    
    FPUs net periodic pension cost is from the merger date (October 28, 2009) through December 31, 2009.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 94




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Pension Supplemental Executive Retirement Plan
  At December 31,
    
    2010
    
    
    2009(in thousands)Change in benefit obligation:Benefit obligation  beginning of year
    
    $
    2,505
    
    
    $
    2,520Interest cost
    
    
    136
    
    
    
    129Actuarial (gain) loss
    
    
    179
    
    
    
    (55
    )Amendments
    
    
    
    
    
    
    Benefits paid
    
    
    (89
    )
    
    
    (89
    )Benefit obligation  end of year
    
    
    2,731
    
    
    
    2,505Change in plan assets:Fair value of plan assets  beginning of year
    
    
    
    
    
    
    Employer contributions
    
    
    89
    
    
    
    89Benefits paid
    
    
    (89
    )
    
    
    (89
    )Fair value of plan assets  end of year
    
    
    
    
    
    
    Reconciliation:Funded status
    
    
    (2,731
    )
    
    
    (2,505
    )Accrued pension cost
    
    $
    (2,731
    )
    
    $
    (2,505
    )Assumptions:Discount rate
    
    
    5.00
    %
    
    
    5.25
    %
  For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Components of net periodic pension cost:Interest cost
    
    $
    136
    
    
    $
    130
    
    
    $
    125Amortization of prior service cost
    
    
    18
    
    
    
    18
    
    
    
    Amortization of actuarial loss
    
    
    59
    
    
    
    54
    
    
    
    45Net periodic pension cost
    
    $
    213
    
    
    $
    202
    
    
    $
    170Assumptions:Discount rate
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.50
    %
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 95




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Other Postretirement Benefits Plans
  Chesapeake
    
    
    FPUPostretirement Plan
    
    
    Medical PlanAt December 31,
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Change in benefit obligation:Benefit obligation  beginning of year (1)
    
    $
    2,585
    
    
    $
    2,179
    
    
    $
    2,417
    
    
    $
    2,457Service cost
    
    
    
    
    
    
    3
    
    
    
    76
    
    
    
    18Interest cost
    
    
    121
    
    
    
    131
    
    
    
    122
    
    
    
    23Plan participants contributions
    
    
    100
    
    
    
    90
    
    
    
    
    
    
    
    6Actuarial (gain) loss
    
    
    (149
    )
    
    
    378
    
    
    
    595
    
    
    
    (71
    )Benefits paid
    
    
    (183
    )
    
    
    (196
    )
    
    
    (112
    )
    
    
    (16
    )Benefit obligation  end of year
    
    
    2,474
    
    
    
    2,585
    
    
    
    3,098
    
    
    
    2,417Change in plan assets:Fair value of plan assets  beginning of year (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employer contributions(2)
    
    
    83
    
    
    
    106
    
    
    
    112
    
    
    
    10Plan participants contributions
    
    
    100
    
    
    
    90
    
    
    
    
    
    
    
    6Benefits paid
    
    
    (183
    )
    
    
    (196
    )
    
    
    (112
    )
    
    
    (16
    )Fair value of plan assets  end of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reconciliation:Funded status
    
    
    (2,474
    )
    
    
    (2,585
    )
    
    
    (3,098
    )
    
    
    (2,417
    )Accrued postretirement cost
    
    $
    (2,474
    )
    
    $
    (2,585
    )
    
    $
    (3,098
    )
    
    $
    (2,417
    )Assumptions:Discount rate
    
    
    5.00
    %
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.75
    %
 (1)
    
    FPU Medical Plans beginning balance for 2009 reflects the benefit obligation as of the merger date of October 28, 2009.(2)
    
    Chesapeakes Postretirement Plan does not receive a Medicare Part-D subsidy. The
FPU Medical Plan did not receive a significant subsidy for the post-merger period.
  Chesapeake
    
    
    FPUPostretirement Plan
    
    
    Medical PlanFor the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009(1)(in thousands)Components of net periodic postretirement cost:Service cost
    
    $
    
    
    
    $
    3
    
    
    $
    3
    
    
    $
    76
    
    
    $
    18Interest cost
    
    
    122
    
    
    
    131
    
    
    
    114
    
    
    
    123
    
    
    
    23Amortization of:Actuarial (gain) loss
    
    
    57
    
    
    
    76
    
    
    
    290
    
    
    
    (6
    )
    
    
    Net periodic postretirement cost
    
    $
    179
    
    
    $
    210
    
    
    $
    407
    
    
    $
    193
    
    
    $
    41AssumptionsDiscount rate
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %
 (1)
    
    FPU Medical Plans net periodic cost includes only the cost from the merger date (October 28, 2009) through December 31, 2009.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 96




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##### Table of Contents



Notes to the Consolidated Financial Statements
  Assumptions
   Estimated Future Benefit Payments
  Chesapeake
    
    
    FPU
    
    
    
    
    
    Chesapeake
    
    
    FPUPension
    
    
    Pension
    
    
    Chesapeake
    
    
    Postretirement
    
    
    Medical(in thousands)
    
    Plan(1)
    
    
    Plan(1)
    
    
    SERP(2)
    
    
    Plan(2)
    
    
    Plan(2)(3)2011
    
    $
    1,315
    
    
    $
    2,324
    
    
    $
    853
    
    
    $
    96
    
    
    $
    1582012
    
    $
    465
    
    
    $
    2,484
    
    
    $
    87
    
    
    $
    104
    
    
    $
    1512013
    
    $
    533
    
    
    $
    2,662
    
    
    $
    86
    
    
    $
    111
    
    
    $
    1442014
    
    $
    556
    
    
    $
    2,815
    
    
    $
    84
    
    
    $
    119
    
    
    $
    1692015
    
    $
    686
    
    
    $
    2,939
    
    
    $
    133
    
    
    $
    128
    
    
    $
    189Years 2016 through
2020
    
    $
    3,932
    
    
    $
    15,974
    
    
    $
    672
    
    
    $
    703
    
    
    $
    1,040
 (1)
    
    The pension plan is funded; therefore, benefit payments are expected to be paid
out of the plan assets.(2)
    
    Benefit payments are expected to be paid out of our general funds.(3)
    
    These amounts are shown net of estimated Medicare Part-D reimbursements of $9,000,
$10,000, $11,000, $12,000 and $13,000 for the years 2011 to 2015, respectively, and $78,000 for the years 2015 through 2019.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 97




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##### Table of Contents



Notes to the Consolidated Financial Statements
  Retirement Savings Plan
       Chesapeake Utilities Corporation 2010 Form 10-K     Page 98




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##### Table of Contents



Notes to the Consolidated Financial Statements
  401(k) 401(k)
  Deferred Compensation Plan
     Chesapeake Utilities Corporation 2010 Form 10-K     Page 99




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##### Table of Contents



Notes to the Consolidated Financial Statements
 N. Share-Based Compensation Plans
   For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Directors Stock Compensation Plan
    
    $
    283
    
    
    $
    191
    
    
    $
    180Performance Incentive Plan
    
    
    872
    
    
    
    1,115
    
    
    
    640Total compensation expense
    
    
    1,155
    
    
    
    1,306
    
    
    
    820Less: tax benefit
    
    
    463
    
    
    
    523
    
    
    
    327Share-Based Compensation amounts included in net income
    
    $
    692
    
    
    $
    783
    
    
    $
    493
 Stock Options
  Directors Stock Compensation Plan
   Number of
    
    
    Weighted AverageShares
    
    
    Grant Date Fair ValueOutstanding  December 31, 2008
    
    
    
    
    
    
    Granted(1)
    
    
    7,174
    
    
    $
    29.83Vested
    
    
    7,174
    
    
    $
    29.83Forfeited
    
    
    
    
    
    
    Outstanding  December 31, 2009
    
    
    
    
    
    
    Granted
    
    
    9,900
    
    
    $
    29.99Vested
    
    
    9,900
    
    
    $
    29.99Forfeited
    
    
    
    
    
    
    Outstanding  December 31, 2010
    
    
    
    
    
    
    
 (1)
    
    On October 28, 2009, we added two new members to our Board of Directors; each new
member was awarded 337 shares of common stock for the prorated portion of their service period.
    Chesapeake Utilities Corporation 2010 Form 10-K     Page 100




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##### Table of Contents



Notes to the Consolidated Financial Statements
   Performance Incentive Plan (PIP)
     Number of
    
    
    Weighted AverageShares
    
    
    Fair ValueOutstanding  December 31, 2008
    
    
    94,200
    
    
    $
    27.84Granted
    
    
    28,875
    
    
    $
    29.19Vested
    
    
    
    
    
    
    Fortfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding  December 31, 2009
    
    
    123,075
    
    
    $
    28.15Granted
    
    
    40,875
    
    
    
    29.38Vested
    
    
    43,960
    
    
    
    27.94Fortfeited
    
    
    
    
    
    
    Expired
    
    
    18,840
    
    
    
    27.94Outstanding  December 31, 2010
    
    
    101,150
    
    
    $
    28.78
   Chesapeake Utilities Corporation 2010 Form 10-K      Page 101




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##### Table of Contents



Notes to the Consolidated Financial Statements
    O. Rates and other regulatory activities
  Delaware
    Chesapeake Utilities Corporation 2010 Form 10-K      Page 102




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##### Table of Contents



Notes to the Consolidated Financial Statements
    Maryland
   Florida
   Chesapeake Utilities Corporation 2010 Form 10-K      Page 103




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##### Table of Contents



Notes to the Consolidated Financial Statements
          Chesapeake Utilities Corporation 2010 Form 10-K      Page 104




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##### Table of Contents



Notes to the Consolidated Financial Statements
      Chesapeake Utilities Corporation 2010 Form 10-K      Page 105




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##### Table of Contents



Notes to the Consolidated Financial Statements
 ESNG
  Energylink Expansion Project:
 Mainline Extension Project:
 Mainline Extension and Interconnect Project
 Rate Case Filing:
     Chesapeake Utilities Corporation 2010 Form 10-K      Page 106




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##### Table of Contents



Notes to the Consolidated Financial Statements
   P. Environmental Commitments and Contingencies
     Salisbury, Maryland
   Chesapeake Utilities Corporation 2010 Form 10-K      Page 107




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##### Table of Contents



Notes to the Consolidated Financial Statements
  Winter Haven, Florida
     Key West, Florida
   Chesapeake Utilities Corporation 2010 Form 10-K      Page 108




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##### Table of Contents



Notes to the Consolidated Financial Statements
 Pensacola, Florida
  Sanford, Florida
       Chesapeake Utilities Corporation 2010 Form 10-K      Page 109




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##### Table of Contents



Notes to the Consolidated Financial Statements
 West Palm Beach, Florida
     Other
  Q. Other Commitments and Contingencies
 Litigation
   Chesapeake Utilities Corporation 2010 Form 10-K      Page 110




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##### Table of Contents



Notes to the Consolidated Financial Statements
  Natural Gas, Electric and Propane Supply
     Corporate Guarantees
     Chesapeake Utilities Corporation 2010 Form 10-K      Page 111




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##### Table of Contents



Notes to the Consolidated Financial Statements
  Agreements for Access to New Natural Gas Supplies
        Chesapeake Utilities Corporation 2010 Form 10-K      Page 112




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##### Table of Contents



Notes to the Consolidated Financial Statements
   Non-income-based Taxes
  Other
Contingency
  R. Quarterly Financial Data

 (Unaudited)
  For the Quarters Ended
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(in thousands except per share amounts)2010Operating Revenue
    
    $
    153,260
    
    
    $
    80,061
    
    
    $
    76,466
    
    
    $
    117,759Operating Income
    
    $
    25,398
    
    
    $
    7,761
    
    
    $
    4,583
    
    
    $
    14,188Net Income
    
    $
    13,974
    
    
    $
    3,340
    
    
    $
    1,628
    
    
    $
    7,113Earnings per share:Basic
    
    $
    1.48
    
    
    $
    0.35
    
    
    $
    0.17
    
    
    $
    0.75Diluted
    
    $
    1.47
    
    
    $
    0.35
    
    
    $
    0.17
    
    
    $
    0.742009(1)Operating Revenue
    
    $
    104,479
    
    
    $
    40,834
    
    
    $
    31,758
    
    
    $
    91,715Operating Income
    
    $
    15,966
    
    
    $
    2,856
    
    
    $
    2,257
    
    
    $
    12,658Net Income
    
    $
    8,593
    
    
    $
    806
    
    
    $
    308
    
    
    $
    6,191Earnings per share:Basic
    
    $
    1.26
    
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    0.71Diluted
    
    $
    1.24
    
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    0.71
 (1)
    
    The quarterly results prior to the completion of the merger with FPU exclude
the result from FPU. The merger became effective on October 28, 2009.(2)
    
    The sum of the four quarters does not equal the total year due to rounding.  Chesapeake Utilities Corporation 2010 Form 10-K      Page 113




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##### Table of Contents



Item 9.
    
    Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.
  
 Item 9A.
    
    Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
   CEO and CFO Certifications
  Managements Report on Internal Control Over Financial Reporting
    Chesapeake
Utilities Corporation 2010 Form 10-K     Page 114




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
    Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
  /s/ ParenteBeard LLC

ParenteBeard LLCMalvern, PennsylvaniaMarch 8, 2011
  Chesapeake
Utilities Corporation 2010 Form 10-K     Page 115




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##### Table of Contents



Item 9B.
    
    Other Information.
  
 Part III
 
 Item 10.
    
    Directors, Executive Officers of the Registrant and Corporate Governanace.
    
 Item 11.
    
    Executive Compensation.
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
   Chesapeake
Utilities Corporation 2010 Form 10-K     Page 116




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##### Table of Contents



(a)
    
    
    (b)
    
    
    (c)Number of securitiesremaining available for futureNumber of securities to
    
    
    Weighted-average
    
    
    issuance under equitybe issued upon exercise
    
    
    exercise price
    
    
    compensation plansof outstanding options,
    
    
    of outstanding options,
    
    
    (excluding securitieswarrants, and rights
    
    
    warrants, and rights
    
    
    reflected in column (a))Equity compensation
plans approved by
security holders
    
    
    
    
    
    
    
    
    
    
    402,843
    (1)Equity compensation
plans not approved by
security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    402,843
 (1)
    
    Includes 345,028 shares under the 2005 Performance Incentive Plan, 34,215 shares
available under the 2005 Directors Stock Compensation Plan, and 23,600 shares available
under the 2005 Employee Stock Awards Plan.
 
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14.
    
    Principal Accounting Fees and Services.
   Chesapeake Utilities Corporation 2010 Form 10-K     Page 117




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##### Table of Contents



Part IV
 
 Item 15.
    
    Exhibits, Financial Statement Schedules.
 (a)
    
    The following documents are filed as part of this report:
 1.
    
    Financial Statements:
    
    Report of Independent Registered Public Accounting Firm;
    
    Consolidated Statements of Income for each of the three years ended December 31, 2010,
2009, and 2008;
    
    Consolidated Balance Sheets at December 31, 2010 and December 31, 2009;
    
    Consolidated Statements of Cash Flows for each of the three years ended December 31,
2010, 2009, and 2008;
    
    Consolidated Statements of Stockholders Equity for each of the three years ended
December 31, 2010, 2009, and 2008; and
    
    Notes to the Consolidated Financial Statements.2.
    
    Financial Statement Schedules:
    
    Report of Independent Registered Public Accounting Firm;
    
    Schedule I  Parent Company Condensed Financial Statements; and
    
    Schedule II  Valuation and Qualifying Accounts.All other schedules are omitted, because they are not required, are inapplicable, or the
information is otherwise shown in the financial statements or notes thereto.
 3.
    
    Exhibits
  Exhibit 1.1
    
    Underwriting Agreement entered into by Chesapeake Utilities Corporation and Robert W. Baird & Co.
Incorporated and A.G. Edwards & Sons, Inc., on November 15, 2006 relating to the sale and issuance of
600,300 shares of Chesapeakes common stock, is incorporated herein by reference to Exhibit 1.1 of our
Current Report on Form 8-K, filed November 16, 2006, File No. 001-11590. Exhibit 2.1
    
    Agreement and Plan of Merger between Chesapeake Utilities Corporation and Florida Public Utilities Company
dated April 17, 2009, is incorporated herein by reference to Exhibit 2.1 of our Current Report on Form 8-K,
filed April 20, 2009, File No. 001-11590. Exhibit 3.1
    
    Amended and Restated Certificate of Incorporation of Chesapeake Utilities Corporation is incorporated
herein by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q for the period ended June 30, 2010,
File No. 001-11590. Exhibit 3.2
    
    Amended and Restated Bylaws of Chesapeake Utilities Corporation, effective April 7, 2010, are incorporated
herein by reference to Exhibit 3 of the Companys Current Report on Form 8-K, filed April 13, 2010, File
No. 001-11590. Exhibit 4.1
    
    Form of Indenture between Chesapeake and Boatmens Trust Company, Trustee, with respect to the 8 1/4%
Convertible Debentures is incorporated herein by reference to Exhibit 4.2 of our Registration Statement on
Form S-2, Reg. No. 33-26582, filed on January 13, 1989. Exhibit 4.2
    
    Note Purchase Agreement, entered into by the Company on October 2, 1995, pursuant to which Chesapeake
privately placed $10 million of its 6.91% Senior Notes, paid off in 2010, is not being filed herewith, in
accordance with Item 601(b)(4)(iii) of Regulation S-K. We hereby agree to furnish a copy of that agreement
to the SEC upon request.
  Chesapeake Utilities Corporation 2010 Form 10-K     Page 118




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##### Table of Contents



 Exhibit 4.3
    
    Note Purchase Agreement, entered into by Chesapeake on December 15, 1997, pursuant to which Chesapeake
privately placed $10 million of its 6.85% Senior Notes due in 2012, is incorporated by reference to Exhibit
4.3 of our Annual Report on Form 10-K for the year ended December 31, 2009, File No. 001-11590. Exhibit 4.4
    
    Note Purchase Agreement entered into by Chesapeake on December 27, 2000, pursuant to which Chesapeake
privately placed $20 million of its 7.83% Senior Notes, due in 2015, is incorporated by reference to
Exhibit 4.4 of our Annual Report on Form 10-K for the year ended December 31, 2009, File No. 001-11590. Exhibit 4.5
    
    Note Agreement entered into by Chesapeake on October 31, 2002, pursuant to which Chesapeake privately
placed $30 million of its 6.64% Senior Notes, due in 2017, is incorporated herein by reference to Exhibit 2
of our Current Report on Form 8-K, filed November 6, 2002, File No. 001-11590. Exhibit 4.6
    
    Note Agreement entered into by Chesapeake on October 18, 2005, pursuant to which Chesapeake, on October 12,
2006, privately placed $20 million of its 5.5% Senior Notes, due in 2020, with Prudential Investment
Management, Inc., is incorporated herein by reference to Exhibit 4.1 of our Annual Report on Form 10-K for
the year ended December 31, 2005, File No. 001-11590. Exhibit 4.7
    
    Note Agreement entered into by Chesapeake on October 31, 2008, pursuant to which Chesapeake, on October 31,
2008, privately placed $30 million of its 5.93% Senior Notes, due in 2023, with General American Life
Insurance Company and New England Life Insurance Company, is incorporated by reference to Exhibit 4.7 of
our Annual Report on Form 10-K for the year ended December 31, 2009, File No. 001-11590. Exhibit 4.8
    
    Form of Indenture of Mortgage and Deed of Trust between Florida Public Utilities Company and the trustee,
dated September 1, 1942 for the First Mortgage Bonds, is incorporated herein by reference to Exhibit 7-A of
Florida Public Utilities Companys Registration No. 2-6087. Exhibit 4.9
    
    Sixteenth Supplemental Indenture entered into by Chesapeake Utilities Corporation and Florida Public
Utilities Company, on December 1, 2009, pursuant to which Chesapeake Utilities Corporation, on December 1,
2009 guaranteed the secured First Mortgage Bonds of Florida Public Utilities Company under the Merger
Agreement, is filed herewith. Exhibit 4.10
    
    Fifteenth Supplemental Indenture entered into by Florida Public Utilities Company on November 1, 2001,
pursuant to which Florida Public Utilities Company, on November 1, 2001, privately placed $14,000,000 of
its 4.90% First Mortgage Bonds, is incorporated herein by reference to Exhibit 4(c) of Florida Public
Utilities Companys Annual Report on Form 10-K for the year ended December 31, 2001, File No. 001-10608. Exhibit 4.11
    
    Fourteenth Supplemental Indenture entered into by Florida Public Utilities Company on September 1, 2001,
pursuant to which Florida Public Utilities Company, on September 1, 2001, privately placed $15,000,000 of
its 6.85% First Mortgage Bonds, is incorporated herein by reference to Exhibit 4(b) of Florida Public
Utilities Companys Annual Report on Form 10-K for the year ended December 31, 2001, File No. 001-10608. Exhibit 4.12
    
    Thirteenth Supplemental Indenture entered into by Florida Public Utilities Company on June 1, 1992,
pursuant to which Florida Public Utilities, on May 1, 1992, privately placed $8,000,000 of its 9.08% First
Mortgage Bonds, is incorporated herein by reference to Exhibit 4 to Florida Public Utilities Companys
Quarterly Report on Form 10-Q for the period ended June 30, 1992. Exhibit 4.13
    
    Twelfth Supplemental Indenture entered into by Florida Public Utilities on May 1, 1988, pursuant to which
Florida Public Utilities Company, on May 1, 1988, privately placed $10,000,000 and $5,000,000 of its 9.57%
First Mortgage Bonds and 10.03% First Mortgage Bonds, respectively, are incorporated herein by reference to
Exhibit 4 to Florida Public Utilities Companys Quarterly Report on Form 10-Q for the period ended June 30,
1988.
  Chesapeake
Utilities Corporation 2010 Form 10-K     
Page 119




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##### Table of Contents



 Exhibit 10.1*
    
    Chesapeake Utilities Corporation Cash Bonus Incentive Plan, dated January 1, 2005, is incorporated herein
by reference to Exhibit 10.3 of our Annual Report on Form 10-K for the year ended December 31, 2004, File
No. 001-11590. Exhibit 10.2*
    
    Chesapeake Utilities Corporation Directors Stock Compensation Plan, adopted in 2005, is incorporated herein
by reference to our Proxy Statement dated March 28, 2005, in connection with our Annual Meeting held on May
5, 2005, File No. 001-11590. Exhibit 10.3*
    
    Chesapeake Utilities Corporation Employee Stock Award Plan, adopted in 2005, is incorporated herein by
reference to our Proxy Statement dated March 28, 2005, in connection with our Annual Meeting held on May 5,
2005, File No. 001-11590. Exhibit 10.4*
    
    Chesapeake Utilities Corporation Performance Incentive Plan, adopted in 2005, is incorporated herein by
reference to our Proxy Statement dated March 28, 2005, in connection with our Annual Meeting held on May 5,
2005, File No. 001-11590. Exhibit 10.5*
    
    Chesapeake Utilities Corporation Deferred Compensation Plan, amended and restated as of January 1, 2009, is
incorporated herein by reference to Exhibit 10.5 of our Annual Report on Form 10-K for the year ended
December 31, 2008, File No. 001-11590. Exhibit 10.6
    
    First Amendment to the Chesapeake Utilities Corporation Deferred Compensation Plan, dated December 28,
2010, is filed herewith. Exhibit 10.7*
    
    Executive Employment Agreement dated December 31, 2009, by and between Chesapeake Utilities Corporation and
John R. Schimkaitis, is incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K,
filed January 7, 2010, File No. 001-11590. Exhibit 10.8*
    
    Consulting Agreement dated January 3, 2011, by and between Chesapeake Utilities Corporation and John R.
Schimkaitis, is filed herewith. Exhibit 10.9*
    
    Executive Employment Agreement dated January 14, 2011, by and between Chesapeake Utilities Corporation and
Michael P. McMasters, is incorporated herein by reference to Exhibit 10.1 of our Current Report on Form
8-K, filed January 21, 2011, File No. 001-11590. Exhibit 10.10*
    
    Executive Employment Agreement dated December 31, 2009, by and between Chesapeake Utilities Corporation and
Stephen C. Thompson, is incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K,
filed January 7, 2010, File No. 001-11590. Exhibit 10.11*
    
    Executive Employment Agreement dated December 31, 2009, by and between Chesapeake Utilities Corporation and
Beth W. Cooper, is incorporated herein by reference to Exhibit 10.4 of our Current Report on Form 8-K,
filed January 7, 2010, File No. 001-11590. Exhibit 10.12*
    
    Executive Employment Agreement dated December 31, 2009, by and between Chesapeake Utilities Corporation and
Joseph Cummiskey, is incorporated herein by reference to Exhibit 10.5 of our Current Report on Form 8-K,
filed January 7, 2010, File No. 001-11590. Exhibit 10.13*
    

Executive
Employment Agreement dated March 3, 2011, by and between Chesapeake Utilities Corporation and Elaine B.
Bittner, is filed herewith. Exhibit 10.14*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2009, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and John
R. Schimkaitis, is incorporated herein by reference to Exhibit 10.11 of our Annual Report on Form 10-K for
the year ended December 31, 2007, File No. 001-11590.
  Chesapeake
Utilities Corporation 2010 Form 10-K     
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##### Table of Contents



 Exhibit 10.15*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2010, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and John
R. Schimkaitis, is incorporated herein by reference to Exhibit 10.12 of our Annual Report on Form 10-K for
the year ended December 31, 2007, File No. 001-11590. Exhibit 10.16*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2009, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and
Michael P. McMasters, is incorporated herein by reference to Exhibit 10.13 of our Annual Report on Form
10-K for the year ended December 31, 2007, File No. 001-11590. Exhibit 10.17*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2010, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and
Michael P. McMasters, is incorporated herein by reference to Exhibit 10.14 of our Annual Report on Form
10-K for the year ended December 31, 2007, File No. 001-11590. Exhibit 10.18*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2009, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and
Stephen C. Thompson, is incorporated herein by reference to Exhibit 10.15 of our Annual Report on Form 10-K
for the year ended December 31, 2007, File No. 001-11590. Exhibit 10.19*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2010, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and
Stephen C. Thompson, is incorporated herein by reference to Exhibit 10.16 of our Annual Report on Form 10-K
for the year ended December 31, 2007, File No. 001-11590. Exhibit 10.20*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2009, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and Beth
W. Cooper, is incorporated herein by reference to Exhibit 10.17 of our Annual Report on Form 10-K for the
year ended December 31, 2007, File No. 001-11590. Exhibit 10.21*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2010, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and Beth
W. Cooper, is incorporated herein by reference to Exhibit 10.18 of our Annual Report on Form 10-K for the
year ended December 31, 2007, File No. 001-11590. Exhibit 10.22*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2009, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and S.
Robert Zola, is incorporated herein by reference to Exhibit 10.19 of our Annual Report on Form 10-K for the
year ended December 31, 2007, File No. 001-11590. Exhibit 10.23*
    
    Performance Share Agreement dated January 23, 2008 for the period 2008 to 2010, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and S.
Robert Zola, is incorporated herein by reference to Exhibit 10.20 of our Annual Report on Form 10-K for the
year ended December 31, 2007, File No. 001-11590. Exhibit 10.24*
    
    Form of Performance Share Agreement effective January 7, 2009 for the period 2009 to 2011, pursuant to
Chesapeake Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation
and each of John R. Schimkaitis, Michael P. McMasters, Beth W. Cooper and Stephen C. Thompson, is
incorporated herein by reference to Exhibit 10.26 on Form 10-K for the year ended December 31, 2008, File
No. 001-11590.
  Chesapeake
Utilities Corporation 2010 Form 10-K     
Page 121




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##### Table of Contents



 Exhibit 10.25*
    
    Form of Performance Share Agreement effective January 6, 2010 for the period 2010 to 2012, pursuant to
Chesapeake Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation
and each of John R. Schimkaitis, Michael P. McMasters, Beth W. Cooper, Stephen C. Thompson, and Joseph
Cummiskey is incorporated herein by reference to Exhibit 10.24 on Form 10-K for the year ended December 31,
2009, File No. 001-11590 Exhibit 10.26*
    
    Performance Share Agreement dated January 20, 2010 for the period 2010 to 2011, pursuant to Chesapeake
Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation and Joseph
Cummiskey is incorporated herein by reference to Exhibit 10.24 on Form 10-K for the year ended December 31,
2009, File No. 001-11590. Exhibit 10.27*
    
    Form of Performance Share Agreement effective January 14, 2011 for the period 2011 to 2013, pursuant to
Chesapeake Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation
and each of Michael P. McMasters, Beth W. Cooper, Stephen C. Thompson, Joseph Cummiskey, and Elaine B.
Bittner, is incorporated herein by reference to Exhibit 10.2 of our Current Report on Form 8-K, filed
January 21, 2011, File No. 001-11590. Exhibit 10.28*
    
    Form of Performance Share Agreement effective January 14, 2011 for the period 2011 to 2012, pursuant to
Chesapeake Utilities Corporation Performance Incentive Plan by and between Chesapeake Utilities Corporation
and each of Michael P. McMasters and Elaine B. Bittner, is filed herewith. Exhibit 10.29*
    
    Chesapeake Utilities Corporation Supplemental Executive Retirement Plan, as amended and restated effective
January 1, 2009, is incorporated herein by reference to Exhibit 10.27 of our Annual Report on Form 10-K for
the year ended December 31, 2008, File No. 001-11590. Exhibit 10.30*
    
    First Amendment to the Chesapeake Utilities Corporation Supplemental Executive Retirement Plan as amended
and restated effective January 1, 2009, is filed herewith. Exhibit 10.31*
    
    Chesapeake Utilities Corporation Supplemental Executive Retirement Savings Plan, as amended and restated
effective January 1, 2009, is incorporated herein by reference to Exhibit 10.28 of our Annual Report on
Form 10-K for the year ended December 31, 2008, File No. 001-11590. Exhibit 10.32*
    
    First Amendment to the Chesapeake Utilities Corporation Supplemental Executive Retirement Savings Plan,
dated October 28, 2010, is incorporated herein by reference to Exhibit 10.1 of our Quarterly Report on Form
10-Q for the period ended September 30, 2010, File No. 001-11590. Exhibit 10.33
    
    Amended and Restated Electric Service Contract between Florida Public Utilities Company and JEA dated
November 6, 2008, is incorporated herein by reference to Exhibit 10.1 of Florida Public Utilities Companys
Current Report on Form 8-K, filed on November 6, 2008, File No. 001-10908. Exhibit 10.34
    
    Networking Operating Agreement between Florida Public Utilities Company and Southern Company Services, Inc.
dated December 27, 2007 and amended on June 3, 2008, is incorporated herein by reference to Exhibit 10.3 of
Florida Public Utilities Companys Quarterly Report on Form 10-Q for the period ended June 30, 2008, File
No. 001-10608. Exhibit 10.35
    
    Network Integration Transmission Service Agreement between Florida Public Utilities Company and Southern
Company Services, Inc. dated December 27, 2007 and amended on June 3, 2008, is incorporated herein by
reference to Exhibit 10.4 of Florida Public Utilities Companys Quarterly Report on Form 10-Q for the
period ended June 30, 2008, File No. 001-10608.
  Chesapeake
Utilities Corporation 2010 Form 10-K     
Page 122




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##### Table of Contents



 Exhibit 10.36
    
    Form of Service Agreement for Firm Transportation Service between Florida Public Utilities Company and
Florida Gas Transmission Company, LLC dated November 1, 2007 for the period November 2007 to February 2016
(Contract No. 107033), is incorporated herein by reference to Exhibit 10.1 of Florida Public Utilities
Companys Quarterly Report on Form 10-Q for the period ended September 30, 2007, File No. 001-10608. Exhibit 10.37
    
    Form of Service Agreement for Firm Transportation Service between Florida Public Utilities Company and
Florida Gas Transmission Company, LLC dated November 1, 2007 for the period November 2007 to March 2022
(Contract No. 107034), is incorporated herein by reference to Exhibit 10.2 of Florida Public Utilities
Companys Quarterly Report on Form 10-Q for the period ended September 30, 2007, File No. 001-10608. Exhibit 10.38
    
    Form of Service Agreement for Firm Transportation Service between Florida Public Utilities Company and
Florida Gas Transmission Company, LLC dated November 1, 2007 for the period November 2007 to February 2022
(Contract No. 107035), is incorporated herein by reference to Exhibit 10.3 of Florida Public Utilities
Companys Quarterly Report on Form 10-Q for the period ended September 30, 2007, File No. 001-10608. Exhibit 10.39
    
    Term Note Agreement entered into by Chesapeake Utilities Corporation on March 16, 2010, pursuant to the $29
million credit facility with PNC Bank, N.A., is incorporated herein by reference to Exhibit 10.1 of our
Quarterly Report on Form 10-Q for the period ended March 31, 2010, File No. 001-11590. Exhibit 10.40
    
    Precedent Agreement between Chesapeake Utilities Corporation and Texas Eastern Transmission LP, dated April
8, 2010 is incorporated herein by reference to Exhibit 10.2 of our
Quarterly Report on Form 10-Q for the period ended March 31, 2010, File No. 001-11590. Exhibit 10.41
    

Form
of Franchise Agreement between Florida Public Utilities Company and
the city of Marianna, effective February 1, 2010, is filed herewith. Exhibit 10.42
    

Form
of Service Agreement for Generation Services entered into by Florida
Public Utilities Company and Gulf Power Company, dated December 28,
2006, effective January 1, 2008 is hereby incorporated by reference
as Exhibit 10(s) on Florida Public Utilities Companys Annual
Report on Form 10-K for the year ended December 31, 2006, file No.
001-10608. Exhibit 10.43
    

Amendment
to Form of Service Agreement for Generation Services entered into by
Florida Public Utilities Company and Gulf Power Company, effective
January 25, 2011, is filed herewith. Exhibit 12
    
    Computation of Ratio of Earning to Fixed Charges is filed herewith. Exhibit 14.1
    
    Code of Ethics for Financial Officers is filed herewith. Exhibit 14.2
    
    Business Code of Ethics and Conduct is filed herewith. Exhibit 21
    
    Subsidiaries of the Registrant is filed herewith. Exhibit 23.1
    
    Consent of Independent Registered Public Accounting Firm is filed herewith. Exhibit 31.1
    
    Certificate of Chief Executive Officer of Chesapeake Utilities Corporation pursuant to Exchange Act Rule
13a-14(a) and 15d  14(a), dated March 8, 2011, is filed herewith. Exhibit 31.2
    
    Certificate of Chief Financial Officer of Chesapeake Utilities Corporation pursuant to Exchange Act Rule
13a-14(a) and 15d  14(a), dated March 8, 2011, is filed herewith. Exhibit 32.1
    
    Certificate of Chief Executive Officer of Chesapeake Utilities Corporation pursuant to 18 U.S.C. Section
1350, dated March 8, 2011, is filed herewith. Exhibit 32.2
    
    Certificate of Chief Financial Officer of Chesapeake Utilities Corporation pursuant to 18 U.S.C. Section
1350, dated March 8, 2011, is filed herewith.
 *
    
    Management contract or compensatory plan or agreement.
  Chesapeake
Utilities Corporation 2010 Form 10-K     
Page 123




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##### Table of Contents



Signatures
  Chesapeake Utilities CorporationBy:
    /s/ Michael P. McmastersMichael P. McMasters,President and Chief Executive Officer Date: March 8, 2011  /s/ Ralph J. Adkins

Ralph J. Adkins,
    

/s/ Michael P. McMasters

Michael P. McMasters,Chairman of the Board and Director
    
    President, Chief Executive Officer and DirectorDate: March 2, 2011
    
    Date: March 8, 2011/s/ Beth W. Cooper

Beth W. Cooper, Senior Vice President
    

/s/ Eugene H. Bayard

Eugene H. Bayard, Directorand Chief Financial Officer
    
    Date: March 2, 2011(Principal Financial and Accounting Officer)Date: March 8, 2011/s/ Richard Bernstein

Richard Bernstein, Director
    
    /s/ Thomas J. Bresnan

Thomas J. Bresnan, DirectorDate: March 2, 2011
    
    Date: March 7, 2011/s/ Thomas P. Hill, Jr.

Thomas P. Hill, Jr., Director
    
    /s/ Dennis S, Hudson, III

Dennis S. Hudson, III, DirectorDate: March 2, 2011
    
    Date: March 2, 2011/s/ Paul L. Maddock, Jr.

Paul L. Maddock, Jr., Director
    
    /s/ J. Peter Martin

J. Peter Martin, DirectorDate: March 2, 2011
    
    Date: March 2, 2011/s/ Joseph E. Moore, Esq

Joseph E. Moore, Esq., Director
    

/s/
Calvert A. Morgan, Jr

Calvert A. Morgan, Jr., DirectorDate: March 2, 2011
    
    Date: March 2, 2011/s/ Dianna F. Morgan

Dianna F. Morgan, Director
    

/s/
John Schimkaitis

John R. SchimkaitisDate: March 2, 2011
    
    Vice Chairman of the Board and Director
Date: March 2, 2011
  Chesapeake
Utilities Corporation 2010 Form 10-K     
Page 124




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
   /s/ ParenteBeard LLC

ParenteBeard LLCMalvern, PennsylvaniaMarch 8, 2011




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##### Table of Contents



Chesapeake Utilities Corporation and Subsidiaries
Schedule I

Parent Company Condensed Financial Statements

Chesapeake Utilities Corporation (Parent)
Condensed Balance Sheets
 December 31,
    
    
    December 31,Assets
    
    2010
    
    
    2009(in thousands)Total property, plant and equipment
    
    $
    202,807
    
    
    $
    191,440Less: Accumulated depreciation and amortization
    
    
    (49,223
    )
    
    
    (46,297
    )Plus: Construction work in progress
    
    
    1,492
    
    
    
    1,338Net property, plant and equipment
    
    
    155,076
    
    
    
    146,481Investments, at fair value
    
    
    2,368
    
    
    
    1,959Investments in subsidiaries
    
    
    179,580
    
    
    
    160,150Current AssetsCash and cash equivalents
    
    
    4,229
    
    
    
    973Accounts receivable (less allowance for uncollectible
accounts of $432 and $458, respectively)
    
    
    11,623
    
    
    
    9,356Accrued revenue
    
    
    6,458
    
    
    
    4,936Accounts receivable from affiliates
    
    
    74,663
    
    
    
    56,587Propane inventory, at average cost
    
    
    635
    
    
    
    624Other inventory, at average cost
    
    
    970
    
    
    
    971Regulatory assets
    
    
    51
    
    
    
    1,205Storage gas prepayments
    
    
    5,084
    
    
    
    6,144Income taxes receivable
    
    
    4,003
    
    
    
    822Deferred income taxes
    
    
    369
    
    
    
    1,909Prepaid expenses
    
    
    2,310
    
    
    
    3,047Other current assets
    
    
    176
    
    
    
    79Total current assets
    
    
    110,571
    
    
    
    86,653Deferred Charges and Other AssetsLong-term receivables
    
    
    133
    
    
    
    331Regulatory assets
    
    
    2,820
    
    
    
    3,610Other deferred charges
    
    
    603
    
    
    
    479Total deferred charges and other assets
    
    
    3,556
    
    
    
    4,420Total Assets
    
    $
    451,151
    
    
    $
    399,663




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##### Table of Contents



Chesapeake Utilities Corporation and Subsidiaries
Schedule I
Parent Company Condensed Financial Statements
Chesapeake Utilities Corporation (Parent)
Condensed Balance Sheets
 December 31,
    
    
    December 31,Capitalization and Liabilities
    
    2010
    
    
    2009(in thousands)CapitalizationStockholders equityCommon stock, par value $0.4867 per share
(authorized 25,000,000 and 12,000,000 shares, respectively)
    
    $
    4,635
    
    
    $
    4,572Additional paid-in capital
    
    
    148,159
    
    
    
    144,502Retained earnings
    
    
    76,805
    
    
    
    63,231Accumulated other comprehensive loss
    
    
    (3,134
    )
    
    
    (2,865
    )Deferred compensation obligation
    
    
    777
    
    
    
    739Treasury stock
    
    
    (777
    )
    
    
    (739
    )Total stockholders equity
    
    
    226,465
    
    
    
    209,440Long-term debt, net of current maturities
    
    
    71,682
    
    
    
    79,611Total capitalization
    
    
    298,147
    
    
    
    289,051Current LiabilitiesCurrent portion of long-term debt
    
    
    7,727
    
    
    
    6,636Short-term borrowing
    
    
    63,958
    
    
    
    30,023Accounts payable
    
    
    10,401
    
    
    
    9,157Customer deposits and refunds
    
    
    7,619
    
    
    
    4,410Accrued interest
    
    
    1,015
    
    
    
    1,003Dividends payable
    
    
    3,143
    
    
    
    2,959Accrued compensation
    
    
    3,377
    
    
    
    2,450Regulatory liabilities
    
    
    2,432
    
    
    
    5,934Other accrued liabilities
    
    
    2,635
    
    
    
    1,647Total current liabilities
    
    
    102,307
    
    
    
    64,219Deferred Credits and Other LiabilitiesDeferred income taxes
    
    
    20,999
    
    
    
    16,494Deferred investment tax credits
    
    
    122
    
    
    
    157Regulatory liabilities
    
    
    709
    
    
    
    695Environmental liabilities
    
    
    358
    
    
    
    531Other pension and benefit costs
    
    
    5,045
    
    
    
    5,674Accrued asset removal cost  Regulatory liability
    
    
    18,805
    
    
    
    18,248Other liabilities
    
    
    4,659
    
    
    
    4,594Total deferred credits and other liabilities
    
    
    50,697
    
    
    
    46,393Other commitments and contingenciesTotal Capitalization and Liabilities
    
    $
    451,151
    
    
    $
    399,663




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##### Table of Contents



Chesapeake Utilities Corporation and Subsidiaries
Schedule I
Parent Company Condensed Financial Statements
Chesapeake Utilities Corporation (Parent)
Condensed Statements of Income
 For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Operating Revenues
    
    $
    95,764
    
    
    $
    101,577
    
    
    $
    103,733Operating ExpensesCost of sales
    
    
    52,295
    
    
    
    62,339
    
    
    
    65,446Operations
    
    
    19,919
    
    
    
    18,487
    
    
    
    16,039Transaction-related costs
    
    
    660
    
    
    
    1,478
    
    
    
    1,153Maintenance
    
    
    1,165
    
    
    
    1,535
    
    
    
    1,303Depreciation and amortization
    
    
    4,365
    
    
    
    4,194
    
    
    
    3,918Other taxes
    
    
    3,788
    
    
    
    3,564
    
    
    
    3,380Total operating expenses
    
    
    82,192
    
    
    
    91,597
    
    
    
    91,239Operating Income
    
    
    13,572
    
    
    
    9,980
    
    
    
    12,494Income from equity investments
    
    
    19,430
    
    
    
    12,042
    
    
    
    7,781Other loss, net of other expenses
    
    
    (30
    )
    
    
    (30
    )
    
    
    (106
    )Interest charges
    
    
    2,837
    
    
    
    3,066
    
    
    
    3,026Income Before Income Taxes
    
    
    30,135
    
    
    
    18,926
    
    
    
    17,143Income taxes
    
    
    4,079
    
    
    
    3,029
    
    
    
    3,536Net Income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607




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##### Table of Contents



Chesapeake Utilities Corporation and subsidiaries
Schedule I
Parent Company Condensed financial statements
Chesapeake Utilities Corporation (Parent)
Condensed Statement of Cash Flows
 For the Years Ended December 31,
    
    2010
    
    
    2009
    
    
    2008(in thousands)Operating ActivitiesNet Income
    
    $
    26,056
    
    
    $
    15,897
    
    
    $
    13,607Adjustments to reconcile net income to net operating cash:Equity earnings in subsidiaries
    
    
    (19,382
    )
    
    
    (12,042
    )
    
    
    (7,781
    )Depreciation and amortization
    
    
    4,366
    
    
    
    4,190
    
    
    
    3,918Depreciation and accretion included in other costs
    
    
    1,878
    
    
    
    1,773
    
    
    
    1,389Deferred income taxes, net
    
    
    6,901
    
    
    
    2,821
    
    
    
    5,147Unrealized (gain) loss on investments
    
    
    (113
    )
    
    
    (212
    )
    
    
    509Employee benefits and compensation
    
    
    (169
    )
    
    
    1,217
    
    
    
    152Share based compensation
    
    
    1,155
    
    
    
    1,306
    
    
    
    820Other, net
    
    
    (46
    )
    
    
    8
    
    
    
    11Changes in assets and liabilities:Purchase of investments
    
    
    (297
    )
    
    
    (146
    )
    
    
    (201
    )Accounts receivable and accrued revenue
    
    
    (3,814
    )
    
    
    (16,770
    )
    
    
    (3,016
    )Propane inventory, storage gas and other inventory
    
    
    1,050
    
    
    
    3,383
    
    
    
    (3,854
    )Regulatory assets
    
    
    1,716
    
    
    
    (1,825
    )
    
    
    606Prepaid expenses and other current assets
    
    
    653
    
    
    
    (1,050
    )
    
    
    (516
    )Other deferred charges
    
    
    (180
    )
    
    
    (72
    )
    
    
    (8
    )Long-term receivables
    
    
    198
    
    
    
    181
    
    
    
    199Accounts payable and other accrued liabilities
    
    
    1,636
    
    
    
    9,832
    
    
    
    3,323Income taxes receivable
    
    
    (3,858
    )
    
    
    2,791
    
    
    
    (3,113
    )Accrued interest
    
    
    12
    
    
    
    (20
    )
    
    
    158Customer deposits and refunds
    
    
    3,208
    
    
    
    (1,147
    )
    
    
    34Accrued compensation
    
    
    823
    
    
    
    352
    
    
    
    377Regulatory liabilities
    
    
    (3,488
    )
    
    
    3,603
    
    
    
    (2,379
    )Other liabilities
    
    
    64
    
    
    
    886
    
    
    
    (23
    )Net cash provided by operating activities
    
    
    18,369
    
    
    
    14,956
    
    
    
    9,359Investing ActivitiesProperty, plant and equipment expenditures
    
    
    (13,969
    )
    
    
    (12,615
    )
    
    
    (16,328
    )Proceeds from investments
    
    
    
    
    
    
    1,000
    
    
    
    500Cash acquired in the merger, net of cash paid
    
    
    
    
    
    
    (16
    )
    
    
    Environmental expenditures
    
    
    54
    
    
    
    (86
    )
    
    
    (480
    )Net cash used in investing activities
    
    
    (13,915
    )
    
    
    (11,717
    )
    
    
    (16,308
    )Financing ActivitiesChange in receivable/payable with affiliates
    
    
    (18,051
    )
    
    
    13,379
    
    
    
    4,302Common stock dividends
    
    
    (11,013
    )
    
    
    (7,957
    )
    
    
    (7,810
    )Issuance of stock for Dividend Reinvestment Plan
    
    
    568
    
    
    
    392
    
    
    
    (118
    )Change in cash overdrafts due to outstanding checks
    
    
    3,256
    
    
    
    835
    
    
    
    (684
    )Net borrowing (repayment) under line of credit agreements
    
    
    1,579
    
    
    
    (3,812
    )
    
    
    (11,980
    )Other short-term borrowing
    
    
    29,100
    
    
    
    
    
    
    
    Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    29,961Repayment of long-term debt
    
    
    (6,637
    )
    
    
    (6,637
    )
    
    
    (7,637
    )Net cash provided by (used in) financing activities
    
    
    (1,198
    )
    
    
    (3,800
    )
    
    
    6,034Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    3,256
    
    
    
    (561
    )
    
    
    (915
    )Cash and Cash Equivalents  Beginning of Period
    
    
    973
    
    
    
    1,534
    
    
    
    2,449Cash and Cash Equivalents  End of Period
    
    $
    4,229
    
    
    $
    973
    
    
    $
    1,534




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##### Table of Contents



Chesapeake Utilities Corporation and Subsidiaries
Schedule I
Parent Company Condensed Financial Statements
 Notes to Financial Information




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##### Table of Contents



Chesapeake Utilities Corporation and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
 Balance at
    
    

AdditionsBeginning of
    
    
    Charged to
    
    
    Other
    
    
    
    
    
    
    Balance at EndFor the Year Ended December 31,
    
    Year
    
    
    Income
    
    
    Accounts (1)
    
    
    Deductions (2)
    
    
    of YearReserve Deducted From Related AssetsReserve for Uncollectible Accounts(In thousands)2010
    
    $
    1,609
    
    
    $
    1,129
    
    
    $
    181
    
    
    $
    (1,725
    )
    
    $
    1,1942009
    
    $
    1,159
    
    
    $
    1,138
    
    
    $
    616
    
    
    $
    (1,304
    )
    
    $
    1,6092008
    
    $
    952
    
    
    $
    1,186
    
    
    $
    241
    
    
    $
    (1,220
    )
    
    $
    1,159
 (1)
    
    Recoveries.(2)
    
    Uncollectible accounts charged off.