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Page 1 of 21
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 orOR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended Junequarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 000-22211
SOUTH JERSEY GAS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 21-0398330
(State of incorporation) (IRS employer
identification no.)
1 South Jersey Plaza, Folsom, NJ 08037
(Address of principal executive offices, including zip code)
(609) 561-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrantregistrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of AugustNovember 1, 2002 there were 2,339,139 shares of the registrant's common
stock outstanding. All common shares are owned by South Jersey Industries, Inc.,
the parent company of South Jersey Gas Company.
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements--Statements -- See Pages 3 through 1113
SJG-2
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except for Per Share Data)
Three Months Ended
JuneSeptember 30,
--------------------------------------
2002 2001
----------------- -----------------
Operating Revenues $ 65,00751,764 $ 81,07157,592
----------------- -----------------
Operating Expenses:
Gas Purchased for Resale 41,093 58,56034,397 40,007
Utility Operations 10,460 9,4589,802 9,952
Maintenance 1,673 1,7881,537 1,554
Depreciation 5,559 5,2515,622 5,313
Energy and Other Taxes 2,039 1,8641,398 1,415
----------------- -----------------
Total Operating Expenses 60,824 76,92152,756 58,241
----------------- -----------------
Operating Income 4,183 4,150Loss (992) (649)
Other Income and Expense - Net 569 21(89) (117)
Interest Charges 4,383 4,6874,397 5,129
Preferred Dividend Requirements 764 767764
----------------- -----------------
Loss Before Income Taxes (395) (1,283)Tax Benefit (6,242) (6,659)
Income Taxes (Benefit) (70) (377)Tax Benefit (2,454) (2,593)
----------------- -----------------
Loss from Continuing Operations (325) (906)(3,788) (4,066)
Loss from Discontinued Operations - Net - (46)(8)
----------------- -----------------
Net Loss Applicable to Common Stock $ (325)(3,788) $ (952)(4,074)
================= =================
Average Shares of Common Stock Outstanding 2,339 2,339
================= =================
Earnings Per Common Share
Continuing Operations $ (0.14)(1.62) $ (0.39)(1.74)
Discontinued Operations - Net 0.00 (0.02)0.00
----------------- -----------------
Earnings Per Common Share $ (0.14)(1.62) $ (0.41)(1.74)
================= =================
Dividends Declared Per Common Share $ 0.870.88 $ 1.87
================= =================
The accompanying footnotes are an integral part of the financial statements.
SJG-3
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except for Per Share Data)
SixNine Months Ended
JuneSeptember 30,
--------------------------------------
2002 2001
----------------- -----------------
Operating Revenues $ 219,190270,954 $ 300,210357,802
----------------- -----------------
Operating Expenses:
Gas Purchased for Resale 140,526 219,900174,923 259,907
Utility Operations 20,081 18,97729,883 28,929
Maintenance 3,090 4,6734,627 6,227
Depreciation 11,036 10,43416,658 15,747
Energy and Other Taxes 5,822 6,2807,220 7,695
----------------- -----------------
Total Operating Expenses 180,555 260,264233,311 318,505
----------------- -----------------
Operating Income 38,635 39,94637,643 39,297
Other Income and Expense - Net 454 70365 (47)
Interest Charges 8,887 10,25313,284 15,382
Preferred Dividend Requirements 1,529 1,5332,293 2,297
----------------- -----------------
Income Before Income Taxes 28,673 28,23022,431 21,571
Income Taxes 12,059 11,9539,605 9,360
----------------- -----------------
Income from Continuing Operations 16,614 16,27712,826 12,211
Loss from Discontinued Operations - Net - (97)(105)
----------------- -----------------
Net Income Applicable to Common Stock $ 16,61412,826 $ 16,18012,106
================= =================
Average Shares of Common Stock Outstanding 2,339 2,339
================= =================
Earnings Per Common Share
Continuing Operations $ 7.105.48 $ 6.965.22
Discontinued Operations - Net 0.00 (0.04)
----------------- -----------------
Earnings Per Common Share $ 7.105.48 $ 6.925.18
================= =================
Dividends Declared Per Common Share $ 2.823.70 $ 3.745.61
================= =================
The accompanying footnotes are an integral part of the financial statements.
SJG-4
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
JuneSeptember 30, December 31,
-----------------------------------------------------------------------------------------------------------
2002 2001 2001
---------------- --------------- ---------------- ------------------
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $ 822,053833,060 $ 783,349793,471 $ 805,440
Accumulated Depreciation (229,078) (215,429)(232,685) (218,422) (221,457)
---------------- --------------- ---------------- ------------------
Property, Plant and Equipment - Net 592,975 567,920600,375 575,049 583,983
---------------- --------------- ----------------
------------------
Available-for-Sale Securities 3,249 2,6893,394 2,962 3,093
---------------- --------------- ---------------- ------------------
Current Assets:
Cash and Cash Equivalents 4,129 3,9624,223 3,311 3,276
Accounts Receivable 41,258 58,47131,675 33,244 39,243
Unbilled Revenues 8,482 10,9536,328 7,100 32,398
Provision for Uncollectibles (1,877) (1,732)(1,872) (1,931) (1,916)
Natural Gas in Storage, average cost 39,047 41,48753,739 63,758 59,778
Materials and Supplies, average cost 3,755 4,0613,737 4,033 3,818
Prepaid Taxes 11,621 13,87213,938 13,355 4,650
Prepayments and Other Current Assets 3,941 3,0723,824 2,837 2,799
---------------- --------------- ---------------- ------------------
Total Current Assets 110,356 134,146115,592 125,707 144,046
---------------- --------------- ---------------- ------------------
Regulatory Assets:
Environmental Remediation Costs:
Expended - Net 7,016 11,2876,891 12,309 12,831
Liability for Future Expenditures 48,790 51,029 48,790
Gross Receipts and Franchise Taxes 2,032 2,4761,922 2,365 2,254
Income Taxes - Flowthrough Depreciation 9,086 10,0648,841 9,819 9,575
Deferred Fuel Cost - Net 37,414 37,48044,967 44,452 36,798
Deferred Postretirement Benefit Costs 3,969 4,3473,875 4,252 4,158
Other Regulatory Assets 5,476 2,2576,153 2,307 2,386
---------------- --------------- ---------------- ------------------
Total Regulatory Assets 113,783 118,940121,439 126,533 116,792
---------------- --------------- ---------------- ------------------
Other Non-Current Assets:
Unamortized Debt Discount and Expense 5,709 5,0245,646 5,948 5,957
Other 3,080 1,6062,713 1,154 3,935
---------------- --------------- ----------------
------------------
Total Regulatory and Other Non-Current Assets 8,789 6,6308,359 7,102 9,892
---------------- --------------- ---------------- ------------------
Total Assets $ 829,152849,159 $ 830,325837,353 $ 857,806
================ =============== ================ ==================
The accompanying footnotes are an integral part of the financial statements.
SJG-5
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
JuneSeptember 30, December 31,
-----------------------------------------------------------------------------------------------------------
2002 2001 2001
---------------- --------------- ---------------- ------------------
Capitalization and Liabilities
Common Equity:
Common Stock, Par Value $2.50 per share:
Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares $ 5,848 $ 5,848 $ 5,848
Other Paid-In Capital and Premium on Common Stock 135,317 125,817 132,817
Accumulated Other Comprehensive Loss (2,083)(2,080) - (1,939)
Retained Earnings 79,269 72,86673,431 64,416 69,256
---------------- --------------- ---------------- ------------------
Total Common Equity 218,351 204,531212,516 196,081 205,982
---------------- --------------- ---------------- ------------------
Preferred Stock and Securities:
Redeemable Cumulative Preferred - Par Value $100 per share,
Authorized 41,966 shares, respectively
Outstanding:
Series B, 8% -Outstanding 16,904 shares 8% Series 1,690 1,690 1,690
Company-Guaranteed Mandatorily Redeemable Preferred
Securities of Subsidiary Trust, Par Value $25 per share,
1,400,000 shares Authorized and Outstanding 35,000 35,000 35,000
---------------- --------------- ---------------- ------------------
Total Preferred Stock and Securities 36,690 36,690 36,690
---------------- --------------- ----------------
------------------
Long-Term Debt 217,514 195,247214,364 230,247 230,247
---------------- --------------- ----------------
------------------
Total Capitalization 472,555 436,468463,570 463,018 472,919
---------------- --------------- ---------------- ------------------
Current Liabilities:
Notes Payable 102,900 138,600127,000 125,500 135,500
Current Maturities of Long-Term Debt 9,73312,883 11,876 9,733
Accounts Payable 29,705 35,85628,351 27,697 32,391
Deferred Income Taxes - Net 25,074 29,59224,912 26,172 25,503
Customer Deposits 6,484 5,5166,575 5,646 5,976
Environmental Remediation Costs 11,052 15,872 11,052
Taxes Accrued 2,823 4831,016 971 2,904
Derivatives 243238 - -
Interest Accrued and Other Current Liabilities 10,189 11,0178,780 12,514 7,752
---------------- --------------- ---------------- ------------------
Total Current Liabilities 198,203 248,812220,807 226,248 230,811
---------------- --------------- ---------------- ------------------
Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes - Net 92,882 86,68296,237 88,223 86,172
Environmental Remediation Costs 37,738 35,157 37,738
Pension and Other Postretirement Benefits 15,022 11,14816,033 11,795 17,736
Investment Tax Credits 3,992 4,3403,906 4,253 4,166
Other 8,760 7,71810,868 8,659 8,264
---------------- --------------- ---------------- ------------------
Total Deferred Credits and Other Non-Current Liabilities 158,394 145,045164,782 148,087 154,076
---------------- --------------- ---------------- ------------------
Commitments and Contingencies (Note 5)6)
Total Capitalization and Liabilities $ 829,152849,159 $ 830,325837,353 $ 857,806
================ =============== ================ ==================
The accompanying footnotes are an integral part of the financial statements.
SJG-6
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
SixNine Months Ended
JuneSeptember 30,
-------------------------------------
2002 2001
---------------- ----------------
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 16,61412,826 $ 16,18012,106
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 12,204 11,58618,366 17,464
Provision for Losses on Accounts Receivable 860 6801,469 1,046
Revenues and Fuel Costs Deferred - Net (616) (8,670)(8,169) (15,642)
Deferred and Non-Current Income Taxes and Credits - Net 6,606 8,5549,910 6,787
Environmental Remediation Costs - Net 5,815 7,1875,940 6,165
Changes in:
Accounts Receivable 21,002 41,61432,125 70,416
Inventories 20,794 (9,742)6,120 (31,985)
Prepayments and Other Current Assets (1,141) (432)(1,025) (197)
Prepaid and Accrued Taxes - Net (7,052) (9,871)(11,176) (8,866)
Accounts Payable and Other Accrued Liabilities 259 (40,876)(2,413) (51,783)
Other - Net (3,062) (1,252)(169) 939
---------------- ----------------
Net Cash Provided by Operating Activities 72,283 14,95863,804 6,450
---------------- ----------------
Cash Flows from Investing Activities:
Capital Expenditures, Cost of Removal and Salvage (21,773) (21,561)(35,010) (34,244)
Purchase of Available-for-Sale Securities (194) (252)(405) (571)
---------------- ----------------
Net Cash Used in Investing Activities (21,967) (21,813)(35,415) (34,815)
---------------- ----------------
Cash Flows from Financing Activities:
Net (Repayments of) Borrowings from Lines of Credit (32,600) 24,700(8,500) 11,600
Proceeds from Sale of Long-Term Debt - 35,000
Principal Repayments of Long-Term Debt (12,733) (9,734)
Dividends on Common Stock (6,600)(8,650) (8,750)
Proceeds fromRepurchase of Preferred Stock - (114)
Payments for Issuance of Long-Term Debt (30) (114)(59) (1,041)
Additional Investment by Shareholder 2,500 -
---------------- ----------------
Net Cash (Used in) Provided by Financing Activities (49,463) 6,102(27,442) 26,961
---------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents 853 (753)947 (1,404)
Cash and Cash Equivalents at Beginning of Period 3,276 4,715
---------------- ----------------
Cash and Cash Equivalents at End of Period $ 4,1294,223 $ 3,9623,311
================ ================
The accompanying footnotes are an integral part of the financial statements.
SJG-7
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Significant Accounting Practices:
Consolidation -- The consolidated financial statements include the accounts
of South Jersey Gas Company (SJG) and its wholly-owned statutory trust
subsidiary, SJG Capital Trust. All significant intercompany accounts and
transactions were eliminated. We reclassified some previously reported amounts
to conform with current year classifications. In our opinion, the condensed
consolidated financial statements reflect all adjustments needed to fairly
present SJG's financial position and operating results at the dates and for the
periods presented. Our businesses are subject to seasonal fluctuations and,
accordingly, this interim financial information should not be the basis for
estimating the full year's operating results. The financial statements should be
read in conjunction with SJG's 2001 Form 10K.
South Jersey Industries, Inc. (SJI) owns all of the outstanding common
stock of SJG.
Estimates and Assumptions -- Our financial statements are prepared to
conform with generally accepted accounting principles. Management makes
estimates and assumptions that affect the amounts reported in the financial
statements and related disclosures. Therefore, actual results could differ from
those estimates.
Regulation -- South Jersey Gas Company is subject to the rules and
regulations of the New Jersey Board of Public Utilities (BPU). We maintain our
accounts according to the BPU's prescribed Uniform System of Accounts (See Notes
2 and 3). SJG follows the accounting for regulated enterprises prescribed by the
Financial Accounting Standards Board (FASB) Statement No. 71, "Accounting for
the Effects of Certain Types of Regulation." In general, Statement No. 71 allows
deferral of certain costs and obligations when it is probable that such items
will be recovered from or refunded to customers in future periods.
Derivative Instruments -- In April 2002, we executed an interest rate swap
that effectively fixes the interest rate on $40 million of bank debt at 3.57%
through March 15, 2003.
We entered into this interest rate swap agreement to hedge the exposure to
an increase in interest rates with respect to our variable rate debt. The
differential to be paid or received as a result of this swap agreement is
accrued as interest rates change and recognized as an adjustment to interest
expense. This interest rate swap is accounted for as a cash flow hedge pursuant
to Financial Accounting Standards Board (FASB)FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" adopted January 1, 2001. As of JuneSeptember 30, 2002, the market value
of this swap was ($242,891)238,053), which represents the amount we would pay to
terminate this contract as of that date. This balance is included on the 2002
condensed consolidated balance sheet under the caption Derivatives. As of
JuneSeptember 30, 2002, we calculated the swap to be highly effective; therefore,
the offset to the hedge liability is recorded, net of taxes, in Accumulated
Other Comprehensive Loss.
SJG-8
Fair value of the derivative investments is determined by reference
quotations from independent parties.
New Accounting Pronouncements -- In June 2001, the FASB issued Statement
No. 141, "Business Combinations," and Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 141 applies to all business combinations
initiated after June 30, 2001 and has no impact on the Company at this time.
Statement No. 142 provides that intangible assets with finite useful lives
should be amortized and that goodwill and intangible assets with indefinite
lives should not be amortized but will be tested at least annually for
impairment. In 1983, the Company acquired certain gas distribution and operating
facilities with an excess of purchase price over net book value of $2.9 million,
which was being amortized over 40 years. This acquisition adjustment is deemed
to have an indefinite useful life because the associated plant is expected to
generate sufficient cash flow indefinitely. Accordingly, the Company ceased
amortizing the premium on January 1, 2002, leaving a carrying amount of $1.6
million, which is reflected in the caption Utility Plant on the condensed
consolidated balance sheets. In 2001, the premium amortization approximated
$75,000.
Also in June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." Statement No. 143 establishes accounting and reporting
standards for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SJG expects to adopt Statement
No. 143 in 2003. SJG-8We are currently evaluating the effects of Statement No. 143;
however, it is not expected to materially impact SJG's financial condition or
results of operations.
In August 2001, the FASB also issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which iswas effective in 2003.2002. This
statement prescribes that a single accounting model be used for valuing
long-lived assets to be disposed of and broadens the presentation of
discontinued operations. We are currently evaluating the effectsThe adoption of Statement Nos. 143 and 144;
however,No. 144 had no impact on SJG
as there were no long-lived assets associated with its discontinued
merchandising operations (See Note 5).
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with the exit or disposal activities when they are
not expectedincurred rather than at the date of a commitment to materially impact SJG's financial conditionan exit or results of operations.disposal plan.
This statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002.
Note 2. Regulatory Actions:
In January 1997, the New Jersey Board of Public Utilities (BPU) granted SJG
a 9.62% rate of return on rate base, which included an 11.25% return on common
equity. Additionally, SJG's threshold for sharing pre-tax margins generated by
interruptible and off-system sales and transportation (Sharing
Formula) increased. Currently, SJG
keeps 100% of pre-tax margins up to the threshold level of $7.8 million and 20% of margins above that level. In 1998, the BPU revised
the Sharing Formula to credit the firstmillion. The
SJG-9
next $750,000 above the current threshold
levelis credited to the Levelized Gas Adjustment Clause (LGAC) customers..
Thereafter, SJG keeps 20% of the pre-tax margins as it has historically. In September 1999, the
BPU approved an annual recovery level of $6.5 million for remediation costs
expended from August 1995 through July 1998. This represents an annual increase
of approximately $4.5 million over the recovery previously included in rates. In
January 2000, the BPU approved the recovery of carrying costs on unrecovered
remediation costs and a proposal by SJG to keep its current Remediation
Adjustment Clause (RAC) rate in effect through October 2002. However, due to
substantial RAC insurance recoveries, in October 2001, SJG filed for a RAC rate
decrease. This proposal would reduce the annual recovery level to $4.2 million,
if approved.
Effective January 10, 2000, the BPU approved full unbundling of SJG's
system. This allows all natural gas consumers to select their natural gas
supplier. As of JuneSeptember 30, , 2002, 66,75879,969 of SJG's customers were purchasing
their gas commodity from someone other than SJG. The bills of those using aCustomers choosing to purchase
natural gas supplierfrom providers other than SJGthe utility are reducedcharged for the cost of
gas charges and applicable
taxes.by the marketer, not the utility. The resulting decrease in SJG's revenues
is offset by a corresponding decrease in gas costs. While customer choice can
reduce utility revenues, it does not negatively affect SJG's net income or
financial conditioncondition. The BPU continues to allow for full recovery of natural gas
costs through the LGAC as well as other costs of service, including deferred
costs, through tariffs.
In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU mandated programs, including
environmental remediation costs that are recovered through its Remediation
Adjustment Clause (RAC), energy efficiency and marginsrenewable energy program costs
that are not affected as a
resultrecovered through its Comprehensive Resource Analysis (CRA) clause,
consumer education program costs and low income program costs. The rate increase
filed would provide for an annual recovery level of $13.7 million which would
represent an annual increase of approximately $7.0 million over the unbundling.$6.7 million
recovery currently included in rates. As approved by the BPU, SJG is allowed
recovery of interest on any SBC underrecovered balance.
On November 15, 2001, SJG filed for a $17.6 million reduction to its LGAC and for recovery of a 3-year net deficiency in the Temperature Adjustment
Clause (TAC) amounting to $2.7 million.LGAC.
The BPU approved the LGAC reduction effective December 1, 2001, but has yet to approve the TAC adjustment.2001. Also on December
1, 2001, SJG implemented recovery of its October 31, 2001 underrecovered gas
costs through its new GCUA clause. Wecosts. SJG will recover $48.9 million over three years includingplus interest accrued
since April 1, 2001. WeSJG will also recover interest for the 3-year amortization
period at a rate of 5.75%. In May 2002, SJG received approval from the BPU of
SJG's request to reduce its overcollected LGAC balance by $17.6 million. The BPU order approved the
company's request to issue credits on customer bills proportionate with each
customer's contribution to the overcollection. This
refund did not affect SJG's net income or financial condition. SJG-9In September
2002, SJG filed with the BPU to maintain its current LGAC rate through October
2003.
On November 15, 2001, SJG filed for a $2.7 million rate increase to recover
the cash related to a 3-year net deficiency in the Temperature Adjustment Clause
(TAC). Additionally, in September 2002, SJG filed for an $8.6 million rate
increase to recover the cash related to a TAC deficiency representing warmer
than normal weather for the 2001-2002 winter.
In August 2002, SJG filed a petition with the BPU seeking to transfer its
appliance service business from the regulated utility into a newly created
unregulated, limited liability company. The newly created company will then have
the flexibility to be more responsive to competition and its customers and
further its service offerings in an unregulated environment.
SJG-10
Note 3. Regulatory Assets and Liabilities:
All significant regulatory assets are separately identified on the
condensed consolidated balance sheet under the caption Regulatory Assets. Each
item that is separately identified is being recovered through utility rate
charges without a return on investments over the following periods:
Years Remaining
Regulatory Asset as of September 30, 2002
---------------- ------------------------
Environmental Remediation Costs (See Note 6):
Expanded - Net 7
Liability for Future Expenditures Not Applicable
Gross Receipts and Franchise Taxes 4.3
Income Taxes - Flowthrough Depreciation 9
Deferred Fuel Costs - Net Various
Deferred Postretirement Benefit Costs 10.3
The majority of the assets reflected under the caption "Other Regulatory
Assets" are currently subject to filings with the BPU requesting recovery.
Management believes that all such deferred costs will be permitted to be
recovered from ratepayers through future utility rates.
In addition, SJG has one significant regulatory liability for overcollected
taxes totaling $2.4 million, including interest, as of September 30, 2002. This
amount is included in the caption "Other" under the heading Deferred Credits and
Other Non-Current Liabilities and is subject to being returned to ratepayers in
future rate proceedings.
Note 4. Common Equity:
Restrictions exist under various loan agreements regarding the amount of
cash dividends or other distributions that we may pay on our common stock. SJG's
retained earnings, which are free of these restrictions, were approximately
$77.5$71.7 million as of JuneSeptember 30, 2002.
SJG received an equity infusion of $2.5 million from SJI on April 22, 2002.
Contributions of capital are credited to Other Paid-In Capital and Premium on
Common Stock. Future equity contributions will occur on an as needed basis.
Note 4.5. Discontinued Operations:
InSJG operated retail stores from which it sold natural gas appliances. The
stores were intended to provide gas customers with access to and choice among
natural gas appliances. SJG closed the stores in 2001 SJG formally discontinuedand exited the merchandising segmentline of
business because such gas appliances had become readily available to its
operations.customers from other retailers.. Summarized operating results of the
discontinued operations were (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------------------------------------
Operating Revenues $ 26 $ 383 $ 26 $ 556
===========================================
Loss before Income Taxes $ - $ (78) $ - $ (164)
Income Tax - 32 - 67
-------------------------------------------
Loss from Discontinued Operations $ - $ (46) $ - $ (97)
===========================================
Loss Per Common Share from
Discontinued Operations - Net $ 0.00 $(0.02) $ 0.00 $(0.04)
===========================================SJG-11
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
-------------------------------------------------
Operating Revenues $ - $ 217 $ 26 $ 773
=================================================
Loss before Income Taxes $ - $ (14) $ - $ (178)
Income Tax - 6 - 73
-------------------------------------------------
Loss from Discontinued Operations $ - $ (8) $ - $ (105)
=================================================
Loss Per Common Share from
Discontinued Operations - Net $ 0.00 $ 0.00 $ 0.00 $ (0.04)
=================================================
Note 5.6. Commitments and Contingencies:
Construction and Environmental Commitments -- SJG's estimated cost of
construction and environmental remediation programs for 2002 totals $60.1$57.2
million. Commitments were made regarding these programs.
Pending Litigation -- SJG is subject to claims arising in the ordinary
course of business and other legal proceedings. We set up reserves when these
claims become apparent. We also maintain insurance and record probable insurance
recoveries relating to outstanding claims. In Management's opinion, the ultimate
disposition of these claims will not have a material adverse effect on SJG's
financial position, results of operations or liquidity.
Environmental Remediation Costs -- SJG incurred and recorded costs for
environmental clean up of sites where SJG or its predecessors operated gas
manufacturing plants. SJG stopped manufacturing gas in the 1950s.
SJG-10
SJG successfully entered into settlements with all of its historic
comprehensive general liability carriers regarding the environmental remediation
expenditures at our sites. Also, we have purchased a Cleanup Cost Cap Insurance
Policy limiting the amount of remediation expenditures that we will be required
to make at 11 of our sites. This policy will be in force until 2024 at 10 sites
and until 2029 at one site. The following future cost estimates were reduced by
projected insurance recoveries from the Cleanup Cost Cap Insurance Policy.
Since the early 1980s, SJG accrued estimated environmental remediation
costs of $128.5$130.1 million, of which $79.7$81.3 million was spent as of JuneSeptember 30,
2002. With the assistance of a consulting firm, we estimate that future costs to
clean up SJG's sites will range from $48.8 million to $143.5 million. We
recorded the lower end of this range as a liability. It is reflected on the 2002
condensed consolidated balance sheet under the captions Current Liabilities and
Deferred Credits and Other Non-Current Liabilities. Recorded amounts include
estimated costs based on projected investigation and remediation work plans
using existing technologies. Actual costs could differ from the estimates due to
the long-term nature of the projects, changing remediation technology,
government regulations and site-specific requirements.
SJG-12
SJG has two regulatory assets associated with environmental cost (see
Note 1 under Other Regulatory Assets).cost. The first
asset is titled Environmental Remediation Cost: Expended - Net. This asset
represents what was actually spent to clean up former gas manufacturing plant
sites, net of recoveries. These costs meet the requirements of FASB Statement
No. 71, "Accounting for the Effects of Certain Types of Regulation." The BPUNew
Jersey Board of Public Utilities (BPU) allows SJG to recover expenditures
through the RAC.its Remediation Adjustment Clause (RAC).
The other asset titled Environmental Remediation Cost: Liability for Future
Expenditures relates to estimated future expenditures determined under the
guidance of FASB Statement No. 5, "Accounting for Contingencies." We recorded
this amount, which relates to former manufactured gas plant sites, as a deferred
debit with the corresponding amount reflected on the condensed consolidatingconsolidated
balance sheet under the captions, Current Liabilities and Deferred Credits and
Other Non-Current Liabilities. The deferred debit is a regulatory asset under
Statement No. 71. The BPU's intent, evidenced by current practice, is to allow
SJG to recover the deferred costs after they are spent over 7-year periods.
As of JuneSeptember 30, 2002, we reflected SJG's unamortized remediation costs
of $7.0$6.9 million on the condensed consolidated balance sheet under the caption
Regulatory and Other Non-Current Assets. Since implementing the RAC in 1992, SJG recovered $32.4$33.3
million through rates as of JuneSeptember 30, 2002.
SJG-11Note 7. Subsequent Event:
On October 7, 2002, SJG made total redemption of its 9% Series First
Mortgage Bonds due 2010 in the amount of $17.5 million. The premium associated
with the redemption was approximately $0.6 million. SJG will seek BPU approval
to amortize the premium over the remaining term of this bond issue in accordance
with the BPU's uniform system of accounts.
SJG-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG
distributes natural gas to 291,691291,733 customers in the seven southernmost counties
of New Jersey. SJG also:
- makes off-system sales of* sells natural gas and pipeline transportation capacity (off-system
sales) on a wholesale basis to various customers on the interstate
pipeline system;
-* transports natural gas purchased directly from producers or suppliers
for its own sales and for some of its customers; and
-* services appliances via the sale of appliance warranty programs, as well
as on a time and materials basis.
South Jersey Industries, Inc. (SJI) owns all of the common stock of SJG.
Forward LookingForward-Looking Statements
This report contains certain forward-looking statements concerning
projected financial and operating performance, future plans and courses of
action and future economic conditions. All statements in this report other than
statements of historical fact are forward-looking statements. These
forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the company and involve a number of
risks and uncertainties. We caution that forward-looking statements are not
guarantees and actual results could differ materially from those expressed or
implied in the forward-looking statements. Also, in making forward-looking
statements, we assume no duty to update these statements should expectations
change or actual results and events differ from current expectations.
A number of factors could cause our actual results to differ materially
from those anticipated, including, but not limited to the following: general
economic conditions on an international, national, state and local level;
weather conditions in our marketing areas; changes in commodity costs;
regulatory and court decisions; competition in our utility activities; the
availability and cost of capital; costs and effects of legal proceedings and
environmental liabilities; the failure of customers or suppliers to fulfill
their contractual obligations; and changes in business strategies.
Mandatorily Redeemable Preferred Securities
SJG's statutory trust subsidiary, SJG Capital Trust, currently has $35
million of 8.35% SJG-Guaranteed Mandatorily Redeemable Preferred Securities
outstanding. These securities are redeemable by SJG at a price equal to 100% of
the principal amount at any time. The securities currently trade on the New York
Stock Exchange under the symbol SJI.T.
SJG-14
Customer Choice Legislation
All natural gas customers in New Jersey are able to choose their gas
supplier. As of JuneSeptember 30, 2002, 66,75879,969 SJG customers chose a natural gas
supplier other than the utility. This number increased from 33,52036,393 at JuneSeptember
30, 2001 as third party marketers were able to offer natural gas at prices
competitive with those available to consumers under regulated utility tariffs.
The bills of
SJG-12
customersCustomers choosing to purchase natural gas from providers other than the utility
are reducedcharged for the cost of gas charges and applicable taxes.by the marketer, not the utility. The resulting
decrease in SJG's revenues is offset by a corresponding decrease in gas costs and taxes.costs.
While customer choice can reduce utility revenues, it does not negatively affect
SJG's net income or financial condition. The New Jersey Board of Public
Utilities continues to allow for full recovery of natural gas costs through a
Levelized Gas Adjustment Clause, as well as other costs of service, including
deferred costs, through tariffs.
Temperature Adjustment Clause
SJG's Board of Public Utilities approved Temperature Adjustment Clause
(TAC) had the following impacts on 2002 and 2001 secondthird quarter and sixnine month
net earnings:
2002 2001
----------------------------------- ---------
TAC Adjustment Increase (Decrease) to
Net Income ($ in thousands)
Quarter Ended 6/9/30 $ 247- $ 272
Six-
Nine Months Ended 6/9/30 $ 3,249 $ 132
The clause is designed to mitigate the effect on utility revenues of
variations in heating season temperatures from historical norms. While the
revenue and income impacts of TAC adjustments made under this clause are recorded as
incurred, cash inflows or outflows directly attributable to TACthe adjustments
generally do not begin until the next TACclause year. Each TACTemperature Adjustment
Clause year begins October 1.
Results of Operations - Three and SixNine Months Ended JuneSeptember 30, 2002
Compared to Three and SixNine Months Ended JuneSeptember 30, 2001
Operating Revenues
Revenues decreased $16.1$5.8 million and $81.0$86.8 million in the secondthird quarter and
first sixnine months of 2002, respectively, compared with the prior year periods.
The decreases were primarily due to three factors. First, weather in the second
quarter 2002 was 1.4% warmer and 14.5%16.5%
warmer for the first sixnine months than the prior year periods. Weather was not a
material factor on third quarter performance as heating needs of our customers
are typically minimal for that period. Second, a significantly higher number of
residential customers utilized a third party marketer instead of SJG as their
gas supplier. Third, off-system sales revenues decreased for the secondthird quarter
and the first sixnine months of 2002 primarily due to lower prices for natural gas
sold. Lowersold and lower off-system sales volumes in the second quarter 2002 contributed to the decrease
in sales revenues over last year, however, sales volumes year-to-date are
slightly higher.volumes. Partially offsetting the effect of
these factors was an additional 7,7117,493 customers compared to same time last year.
SJG-15
As a result of SJG's TAC,Temperature Adjustment Clause, revenues from utility
ratepayers are closely tied to 20-year normal temperatures calculated under the
TACclause and not actual temperatures. While the TACclause significantly reduces
fluctuations in revenues related to temperature, as a general rule, revenues
continue to be positively impacted by colder weather and negatively impacted by
warmer weather. Weather was 9.2% warmer and 15.5%16.5% warmer for the second quarter and first sixnine months of 2002 respectively, than
the 20-year average. In comparison, weather for the SJG-13
second quarter and first sixnine months of 2001
was 7.9% warmer and 1.2% warmer,
respectively, thanapproximately the same as the 20-year average.
The following is a comparison of operating revenue and throughput for the
three and sixnine month periods ended JuneSeptember 30, 2002 vs.compared with the same
periods ended JuneSeptember 30, 2001.
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
2002 2001 2002 2001
-----------------------------------------------------------
Utility Operating Revenues (Thousands):
Firm
Residential $ 25,13313,612 $ 28,46418,243 $ 101,232114,844 $ 124,823143,067
Commercial 6,111 11,692 28,655 51,5255,560 6,922 34,215 58,447
Industrial 838 555 2,547 2,503535 497 3,081 2,999
Cogeneration & Electric Generation 2,963 2,009 3,579 2,6574,136 3,929 7,715 6,586
Firm Transportation 8,394 5,027 22,658 14,4597,274 5,363 29,933 19,822
-----------------------------------------------------------
Total Firm Utility Operating Revenues 43,439 47,747 158,671 195,96731,117 34,954 189,788 230,921
Interruptible 307 251 546 937207 236 753 1,173
Interruptible Transportation 327 285 802 597298 284 1,100 881
Off-System 18,908 31,478 54,661 98,67318,131 20,530 72,792 119,203
Capacity Release & Storage 1,136 1,022 2,830 2,8481,213 1,130 4,043 3,978
Other 890 288 1,680 1,188798 458 2,478 1,646
-----------------------------------------------------------
Total Utility Operating Revenues $ 65,00751,764 $ 81,07157,592 $ 219,190270,954 $ 300,210357,802
===========================================================
Throughput (MMcf):
Firm
Residential 2,229 2,215 9,371 11,372891 1,259 10,262 12,631
Commercial 684 1,091 3,018 5,305478 617 3,496 5,922
Industrial 24 25 115 17317 13 132 186
Cogeneration & Electric Generation 635 352 722 3761,000 1,021 1,722 1,397
Firm Transportation 5,311 4,802 12,794 10,586
----------------------------------------------------------5,138 5,353 17,932 15,939
-----------------------------------------------------------
Total Firm Throughput 8,883 8,485 26,020 27,8127,524 8,263 33,544 36,075
Interruptible 55 57 103 11637 41 140 157
Interruptible Transportation 683 609 1,640 1,230619 611 2,259 1,841
Off-System 4,940 6,153 16,243 15,6235,227 6,257 21,470 21,880
Capacity Release and Other 10,498 5,673 17,144 11,727
----------------------------------------------------------12,640 7,321 29,784 19,048
-----------------------------------------------------------
Total Throughput 25,059 20,977 61,150 56,508
==========================================================26,047 22,493 87,197 79,001
===========================================================
SJG-14SJG-16
Gas Purchased for Resale
Gas purchased for resale decreased $17.5$5.6 million and $79.4$85.0 million for the
secondthird quarter and first sixnine months of 2002, respectively, compared with the
same periods in 2001. The second quarter decrease was due principally to lower gas costs for
off-system sales. The first six months decrease was alsodecreases were due to lower gas costs for off-system
sales, as well as lower firm gas sales volume. Warmer weather and the migration
of firm gas sales customers to transportation service were the main causes of
the decrease in firm gas sales volume. SJG's gas cost during the first sixnine
months of 2002 averaged $4.60/dt$4.59dt compared with $5.91/$6.14/dt in 2001. Unlike gas costs
associated with off-system sales, changes in the cost of gas sold to utility
ratepayers are not reflected in Gas Purchased for Resale as incurred.
Fluctuations in gas costs to ratepayers not reflected in current rates are
deferred and addressed in future periods under the Levelized Gas Adjustment
Clause (LGAC) embedded in the utility rate structure. Gas supply sources include
contract and open-market purchases. SJG secures and maintains its own gas
supplies to serve its customers. We do not anticipate any difficulty renewing or
replacing expiring contracts under substantially similar terms and conditions.
Operations
A summary of net changes in Utility Operations (in thousands):
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
2002 vs. 2001 2002 vs. 2001
---------------------------------------------------------------------------
Other Production Expense $ 43 $ 2932
Transmission 3 116 17
Distribution (71) 18(339) (321)
Customer Accounts and Services 496 786(149) 637
Sales 23 1150 61
Administration and General 547 249
------------------------------279 528
---------------------------------
$ 1,002(150) $ 1,104
==============================954
=================================
Distribution Costs decreased as a result of higher cost recovery levels
experienced through appliance repair services. Customer Accounts and Services
Costs increased during the nine months ended September 30, 2002 as compared to
the same period in 2001 primarily due to higher bad debt expense as accounts
previously shut off for nonpayment were determined to be uncollectible.
Administration and General Costs were higher due to increases in pension and
employee welfare expenses primarily resulting from effects of the continuing
poor performance of financial markets on retirement plan assets and increasing
health care costs.
SJG-15SJG-17
Other Operating Expenses
A summary of principal changes in other consolidated operating expenses (in
thousands):
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
2002 vs. 2001 2002 vs. 2001
-------------------------------------------------------------------------------
Maintenance $ (115)(17) $ (1,583)(1,600)
Depreciation $ 308309 $ 602911
Energy and Other Taxes $ 175(17) $ (458)(475)
Maintenance expense decreased in the first sixnine months of 2002 primarily
due to lower levels of Remediation Adjustment Clause (RAC) amortization
recognized during the first quarter. RAC-related expenses do not affect earnings
as an offsetting amount is recognized in revenues. Depreciation is higher due to
increased investment in property, plant and equipment by SJG. Changes in Energy
and Other Taxes relate primarily to changes in SJG's firm and interruptible
throughput of gas.
Other Income and Expense
Other income and expense was higher in the second quarter and the first sixnine months of 2002
compared with the prior year periodsperiod due to a pre-tax gain of $639,300 on the
sale of stock received as a result of the demutualization of Prudential's mutual
life insurance company.
Interest Charges
Interest charges were lower in the secondthird quarter and the first sixnine months
of 2002 compared with the prior year periods due primarily to reductions in
short-term rates on line of credit borrowings. The effect of lower short-term
rates was partially offset by the interest expense associated with higher levels
of long-term debt outstanding in the first sixnine months of 2002. The long-term
debt was incurred in the third quarter of 2001 primarily to support the
expansion and upgrade of SJG's gas transmission and distribution system.
Net Income Applicable to Common Stock
The details affecting the changes in net income and earnings per share are
discussed under the appropriate captions above.
Liquidity and Capital Resources
Liquidity needs at SJG are driven by factors that include natural gas
commodity prices; the impact of weather on customer bills and inventory levels;
lags in fully collecting gas costs from customers under the LGAC clause;Levelized Gas
Adjustment Clause; the timing of construction and remediation expenditures and
related permanent financings; mandated tax payment dates; and requirements to
repay long-term debt. SJG-16The wide swing in our net cash provided by operating
activities between the nine months ended September 30, 2002 and the
SJG-18
same period in 2001 was primarily due to the impact of very cold weather, which
resulted in high levels of gas consumption by customers, and very high gas
prices experienced during November and December of 2000. Consequently,
receivables and payables were much higher and inventories were much lower at
year end 2000 as compared to December 31, 2001 when weather conditions had been
warmer than normal. Receivable, payable and inventory levels for SJG at
September 30, 2001 and 2002 were much more comparable as the impact of weather
on customer gas usage is minimal at that point in time.
We first seek to meet liquidity needs with cash from operations. We utilize
short-term borrowings under lines of credit from commercial banks to supplement
cash from operations where necessary.
Lines of credit available to SJG totaled $120.0$137.0 million at JuneSeptember 30,
2002, of which $102.9$127.0 million was utilized. All but $10 million of these lines
are made available through five commercial banks on an uncommitted basis. The
banks and SJI review and renew the lines annually. The $10 million line is
extended on a committed basis, maturing May 2003, by a sixth commercial bank.
SJG has long-standing relationships with all of these banks and we believe,
based upon ongoing dialogue, that there will continue to be sufficient credit
available to meet our business' future liquidity needs.
SJG supplements its operating cash flow and credit lines with both debt and
equity capital. Over the years, SJG has utilized long-term debt, primarily in
the form of First Mortgage Bonds, to finance its long-term needs. These needs
are primarily capital expenditures for property, plant and equipment. Since
1998, SJG has financed these needs via a Medium Term Note (MTN) program, secured
in similar fashion to the First Mortgage Bonds. In July 2001, SJG issued the
final $35 million of notes available under that program in three transactions:
$10 million at 6.74% maturing 2011; $15 million at 6.57% maturing 2011; and $10
million at 6.50% maturing 2016. We used note proceeds to retire short-term debt.
We anticipate establishingcompleting the establishment of a new MTN program during the
thirdfourth quarter of 2002. Current maturities on long-term debt over the next five
years are as follows: $9.7 million in 2002; $12.9 million per year in 2003
through 2005; and $11.2 million in 2006.
SJI contributed $2.5 million of capital to SJG during April 2002.
Contributions of capital are credited to Other Paid-in Capital and Premium on
Common Stock. SJG's capital position was further enhanced in 2002 by reducing
the amount of cash dividended from SJG to SJI from $4.6 million in April to $2.1
million in both July and October.
Capital Expenditures, Commitments and Contingencies
Capital Expenditures
SJG has a continuing need for cash resources and capital, primarily to
invest in new and replacement facilities and equipment and for environmental
remediation costs. Net construction and remediation expenditures for the first
sixnine months of 2002 amounted to $16.0$41.0 million. We estimate the net costs for
2002, 2003 and 2004 at approximately $60.1$57.2 million, $62.4$56.4 million and $56.3 million,
respectively.
SJG-19
Commitments and Contingencies
SJG has certain commitments for both pipeline capacity and gas supply for
which it pays fees regardless of usage. Those commitments average $51.2$45.7 million
annually and total $335.7$278.5 million over the contracts' lives. Approximately 70%
of the financial commitment under these contracts expires during the next five
years. However, we expect to renew each of these contracts under renewal
provisions as provided in each contract. SJG recovers all prudently incurred
fees through rates via the LGAC.
SJG-17Levelized Gas Adjustment Clause.
Regulatory Matters
Rate Actions
In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU mandated programs, including
environmental remediation costs that are recovered through its Remediation
Adjustment Clause (RAC), energy efficiency and renewable energy program costs
that are recovered through its Comprehensive Resource Analysis (CRA) clause,
consumer education program costs and low income program costs. The requested
rate increase will provide for an annual recovery level of $13.7 million. This
represents an annual increase of approximately $7.0 million over the $6.7
million recovery currently included in rates. As approved by the Board, SJG is
allowed recovery of interest on any SBC underrecovered balance.
On November 15, 2001, SJG filed for a $17.6 million rate reduction to its
LGAC and for recovery of a 3-year net deficiency in its TAC amounting to $2.7
million.Levelized Gas Adjustment Clause (LGAC). The BPU approved the LGAC rate reduction
effective December 1, 2001 but
has yet to approve the TAC adjustment.2001. Also on December 1, 2001, SJG implemented recovery
of its October 31, 2001 underrecovered gas costs. SJG was authorized to
recovercosts of $48.9 million over three
years includingplus interest accrued since April 1, 2001. SJG has recovered $9.8 million as of June 30, 2002.to date $10
million. SJG will also recover interest for the 3-year amortization period at a
rate of 5.75%. In May 2002, SJG received approval from the BPU of SJG's request
to reduce its overcollected LGAC balance by $17.6 million. The BPU order approved the
company's request to issue credits on customer bills coincident with each
customer's contribution to the overcollection. This refund did not
affect SJG's net income or financial condition. In September 2002, SJG filed
with the BPU to maintain its current LGAC rate through October 2003.
On November 15, 2001, SJG filed for a $2.7 million rate increase to recover
the cash related to a 3-year net deficiency in the Temperature Adjustment Clause
(TAC). Additionally, in September 2002, SJG filed for an $8.6 million rate
increase to recover the cash related to a TAC deficiency representing warmer
than normal weather for the 2001-2002 winter.
In August 2002, SJG filed a petition with the BPU seeking to transfer its
appliance service business from the regulated utility into a newly created
unregulated, limited liability company. The newly created company will then have
the flexibility to be more responsive to competition and its customers and
further its service offerings in an unregulated environment.
Other matters are incorporated by reference to Note 2 to the condensed
consolidated financial statements included as part of this report.
SJG-20
Ratio of Earnings to Fixed Charges
The company's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
Twelve Months
Ended
Years Ended December 31, JuneSeptember 30,
------------------------ ---------------------
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ------------------------------------------------- ----
2.6x 2.2x 2.5x 2.6x 2.6x 2.7x
The ratio of earnings to fixed charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income, to
which has been added fixed charges and taxes based on income of the company.
Fixed charges consist of interest charges and preferred securities dividend
requirements and an interest factor in rentals.
SJG-18SJG-21
Item 3. Quantitative and Qualitative Disclosures About
Market Risks of the Company
Commodity Market Risks
SJG is subject to market risk due to fluctuations in natural gas prices. To
limit exposure to fluctuations, SJG has at times entered into forward contracts.
SJG recovers natural gas costs from ratepayers through the LGAC.Levelized Gas
Adjustment Clause.
Interest Rate Risk
Our exposure to interest rate risk relates primarily to short-term,
variable rate borrowings. A hypothetical 100 basis point increase in interest
rates on $102.9$127.0 million of variable rate debt outstanding at JuneSeptember 30, 2002
would result in an $607,000$749,000 increase in our interest expense net of tax on an
annual basis. In order to reduce exposure to an increase in interest rates on
our variable rate debt, SJG entered into two interest rate swap agreements. The
swaps effectively fixed the rate on $40 million of variable rate debt from April
2002 to March of 2003 at 3.57%. Our long-term debt is primarily issued at fixed
rates and, consequently, interest expense is not significantly impacted by
changes in market interest rates. SJG hasprepaid $17.5 million of 9% first mortgage
bonds that are prepayable atin October 2002. SJG paid a premium beginningof $566,000 to bondholders in
September 2002. It is likelyconjunction with that theseredemption. Given current interest rate levels, we
anticipate redeeming an additional $8.1 million of first mortgage bonds will be prepaid and replaced with a debt issuance under a new
medium term note program. Otherwise, our debt was issued with provisions that do
not permit usprior to
pre-pay a material amount of such debtscheduled maturity during the next 12 monthsmonths.
Item 4. Controls and Procedures
SJG management, including the Chief Executive Officer and Chief Financial
Officer, have conducted an evaluation of the effectiveness of disclosure
controls and procedures pursuant to take advantage ofExchange Act Rule 13a-14. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective in ensuring that all
material information required to be filed in this quarterly report has been made
known to them in a timely fashion. There have been no significant changes in
interest rates.
SJG-19internal controls, or in factors that could significantly affect internal
controls, subsequent to the date the Chief Executive Officer and Chief Financial
Officer completed their evaluation.
SJG-22
PART II -- OTHER INFORMATION
Item l. Legal Proceedings
Information required by this Item is incorporated by reference to Part I,
Item 1, Note 5,6, beginning on page 10.12.
Item 6. Exhibits and Reports on Form 8-K
None
SJG-20(a) Exhibits
Exhibit No. Description
----------- -----------
99.1 Certification pursuant to 18 U.S.C.
99.2 Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Form 8-K
None.
SJG-23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTH JERSEY GAS COMPANY
(Registrant)
Dated: AugustNovember 13, 2002 By: /s/ Charles Biscieglia
------------------------------------------------------------------------------------------
Charles Biscieglia
President & Chief Executive Officer
Dated: AugustNovember 13, 2002 By: /s/ David A. Kindlick
------------------------------------------------------------------------------------------
David A. Kindlick
Executive Vice President & Chief Financial
Officer
SJG-21CERTIFICATIONS
I, Charles Biscieglia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of South Jersey Gas
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
SJG-24
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Charles Biscieglia
-----------------------------------------
Charles Biscieglia
President and Chief Executive Officer
I, David A. Kindlick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of South Jersey Gas
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
SJG-25
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ David A. Kindlick
-----------------------------------------
David A. Kindlick
Executive Vice President and Chief
Financial Officer
SJG-26