Exhibit 13
South Jersey Industries, Inc.
Racing Into The Future
1999 Annual Report to Shareholders
Company Profile
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South Jersey Industries, Inc. is an energy services holding company for South
Jersey Gas Company and South Jersey Energy Company. South Jersey Gas Company
provides natural gas utility service to residential, commercial and industrial
customers in the seven southern counties of New Jersey. SJG also sells natural
gas to wholesale customers in the interstate market. SJG provides residential
HVAC and appliance repair service and warranty programs, and sells natural gas
appliances and equipment at its retail Natural Gas Advantage Stores. South
Jersey Energy Company is a licensed natural gas and electricity supplier for
residential, commercial and industrial customers; provides energy consultation
services to help commercial and industrial facilities reduce their overall
energy costs; and provides companies with a new real-time environmental air
monitoring system used during environmental cleanups. To learn more about SJI
and its subsidiaries please visit http://www.sjindustries.com.
Table of Cotents
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2 Financial Highlights
4 Where the Rubber Meets the Road:
Chairman's Letter to Shareholders
6 Pedal to the Metal:
South Jersey Gas Company
10 Start Your Engines:
South Jersey Energy Company
12 Under the Hood:
Management's Discussion
16 Consolidated Financial Statements
20 Notes to Consolidated Financial Statements
26 Quarterly Financial Data
27 Comparative Operating Statistics
28 SJI Directors and Officers
- 1 -
1999 Highlights
Five-Year Summary of Selected Financial Data
(in Thousands Where Applicable)
South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Operating Results:
Operating Revenues $392,477 $333,010 $348,567 $355,458 $304,163
======== ======== ======== ======== ========
Operating Income $45,887 $35,713 $38,642 $38,559 $35,218
======== ======== ======== ======== ========
Income Applicable to Common Stock:
Continuing Operations $21,977 $13,444 $18,429 $18,265 $14,874
Discontinued Operations - Net (1) (289) (2,458) (2,633) 12,233 2,769
-------- -------- -------- -------- --------
Net Income Applicable to Common Stock $21,688 $10,986 $15,796 $30,498 $17,643
======== ======== ======== ======== ========
Total Assets $766,925 $748,095 $670,601 $658,381 $604,309
======== ======== ======== ======== ========
Capitalization:
Common Equity $185,275 $169,234 $173,499 $172,731 $157,297
Preferred Stock and Securities of Subsidiary 37,044 37,134 37,224 2,314 2,404
Long-Term Debt 183,561 194,710 176,360 149,736 168,721
-------- -------- -------- -------- --------
Total Capitalization $405,880 $401,078 $387,083 $324,781 $328,422
======== ======== ======== ======== ========
Ratio of Income from Continuing Operations to
Fixed Charges (Before Income Taxes) 2.61 2.13 2.44 2.40 2.16
======== ======== ======== ======== ========
Earnings Applicable to Common Stock
(Based on Average Shares):
Continuing Operations $2.01 $1.25 $1.71 $1.70 $1.39
Discontinued Operations - Net (1) (0.02) (0.23) (0.24) 1.14 0.26
-------- -------- -------- -------- --------
Earnings per Common Share $1.99 $1.02 $1.47 $2.84 $1.65
======== ======== ======== ======== ========
Return on Average Common Equity (2) 12.40% 7.85% 10.65% 11.07% 9.53%
======== ======== ======== ======== ========
Share Data:
Number of Shareholders 9.7 10.4 11.4 12.1 12.9
Average Common Shares 10,922 10,776 10,763 10,732 10,720
Common Shares Outstanding at Year End 11,152 10,779 10,771 10,757 10,722
Dividend Reinvestment Plan:
Number of Shareholders 5.4 5.5 6.0 6.1 6.5
Number of Participating Shares 2,518 1,371 1,440 2,845 2,932
Book Value at Year End $16.61 $15.70 $16.11 $16.06 $14.67
Dividends Declared $1.44 $1.44 $1.44 $1.44 $1.44
Market Price at Year End $28 7/16 $26 3/16 $30 5/16 $24 3/8 $23 1/8
Dividend Payout:
From Continuing Operations 71.0% 115.4% 84.1% 84.6% 103.8%
From Total Net Income 71.9% 141.2% 98.1% 50.7% 87.5%
Market Price to Book Value 171.2% 166.8% 188.2% 151.8% 157.6%
Price Earnings Ratio (2) 14.13 20.99 17.73 14.34 16.64
<FN>
(1) Represents discontinued business segments: wholesale electric operations discontinued in 1999,
construction operations sold in 1997, sand mining and distribution operations sold in 1996
and fuel oil operations with related environmental liabilities in 1986 (See Note 5 to
Consolidated Financial Statements).
(2) Calculated based on Income from Continuing Operations.
</FN>
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Where The Rubber Meets The Road
Dear Fellow Shareholders,
What an exciting, dynamic year it was for SJI. We stayed on track,
pursuing a well-defined set of objectives. Building upon each success, we found
new and creative ways to distinguish ourselves from our competitors. And, when
the checkered flag came down on 1999, we delivered a winning year for our
shareholders.
The Winner's Circle -- Best Performance In Our History
We fulfilled our promise of higher performance in 1999 as SJI set new
record earnings from continuing operations of $22 million and record earnings
per share of $2.01 -- a 63 percent and 61 percent improvement over 1998,
respectively. Better financial results throughout the year also moved our stock
price and trading volumes in the right direction. As a result of the efforts of
all our employees, our shareholders realized a total return on their investment
of over 14 percent. Our ability to sustain and improve our performance enabled
our board of directors to raise the annual dividend to $1.46 per share at its
January 2000 meeting. This move demonstrates our commitment to improving total
shareholder value.
Our employees rallied behind SJI like a skilled, experienced pit crew as
we raced toward our record earnings goal. Today, it is clear that we truly are
a different company with more horsepower and far greater potential, focused
upon improving your in vestment.
The Power Train -- Pursuing Our Vision
SJI's subsidiaries drive the pursuit of our vision to be the energy
company of choice for consumers and investors. In 1999, South Jersey Gas put
the pedal to the metal, crossing the finish line with record earnings, new
customers and expanded revenue opportunities.
A thriving regional economy and target marketing helped us add 6,834
customers, the largest number of new natural gas consumers since 1990. We also
enjoyed sustained growth in terms of the natural gas we deliver to our largest
commercial and industrial users, increasing throughput to this group by nearly
17 percent over 1998.
Regional economic indicators forecast strong growth as new Atlantic City
casinos and ancillary businesses multiply in the eastern portion of our service
area. The business boom in our western service area also shows no sign of
slowing as the New Jersey-Philadelphia corridor grows and new companies appear
to provide services to new housing communities. The benefits of natural gas and
aggressive pursuit of customers in new properties constructed with access to
our mains helps us maintain a 90 percent connection rate.
Sometimes with a helpful nudge from SJI, once dormant industrial areas are
now slowly awakening. By securing new customers in several industrial parks,
this sector is strengthening and overwhelmingly prefers South Jersey Gas as its
energy provider of choice.
Our Service Sentry heating, cooling and appliance warranty program and our
time and materials repair service rapidly accelerated in terms of revenue
growth. In 2000, we plan to lap our competition as the best value consumers can
find in this very competitive field.
In January 2000, a long-term effort to secure the recovery of carrying
costs incurred in our environmental remediation program ended with a positive
outcome. Our attention to this responsibility has fostered highly efficient and
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technically advanced approaches to the cleanup of former manufactured gas
sites, which will continue to move forward.
South Jersey Energy fired up its engine, bringing $1 million to bottom
line, its best year ever. Energy deregulation has fueled South Jersey Energy as
it continues to dominate other regional energy marketers. The company serves
32,300 natural gas customers and 83 percent of those who chose a non-utility
supplier in South Jersey Gas Company's service territory. New Jersey's retail
electricity market opened in November 1999, and less than 60 days later, South
Jersey Energy had received 2,000 applications. In 2000, we plan to expand
offers in other New Jersey areas where our brand is recognized and where we can
profit and provide energy savings to consumers.
In 1999, South Jersey Energy also hit the track with a real-time air
monitoring system targeted for utilities with environmental cleanup projects.
Interest in this patent-pending system is strong with leading industry and
environmental publications touting its release. We secured profitable contracts
from gas and electric utilities and respond regularly to inquiries from
interested prospects. Although in its early stages, the outlook for this
cutting-edge product is bright.
South Jersey Energy is structured as a growth-oriented, agile company --
one that can predict, identify and, in certain instances, create market
opportunities and capitalize upon them. While presently contributing about 5
percent to SJI's bottom line, our plans call for earnings to represent
approximately 15 percent within 5 years.
The Races Ahead
Over the last several years we rebuilt and refined SJI's engine and in
1999, won our first Grand Prix in a very long racing season. Each race pits us
against our competitors' and your expectations. We intend to keep our
expectations high, strive for excellence and deliver results by continuing to
align our goals with yours.
We expect you, to expect us, to be among the top performers at the end of
every racing season and fiscal year. As shareholders, you are an integral part
of our race team and we want you there with us in the winner's circle.
Sincerely,
Charles Biscieglia
Chairman & CEO
South Jersey Industries, Inc.
February 16, 2000
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Pedal To The Metal
South Jersey Gas Company crossed 1999's finish line with record earnings
of $20.4 million. Changes made to our Temperature Adjustment Clause helped
stabilize earnings in 1999. The changes enabled us to achieve record earnings
while temperatures in our region were 4.2 percent above seasonal norms.
As we enter our 90th year in the energy business, the Year 2000 marks the
start of a new era for natural gas utilities in New Jersey. Beginning in 2000,
state residents may choose which company supplies their natural gas commodity
under the New Jersey Electric Discount and Energy Competition Act. Like a
high-performance engine, South Jersey Gas Company has its pedal to the metal
and is ready for the competition.
Deregulation will improve our bottom line. How? South Jersey Gas profits
by distributing the natural gas, not on selling the commodity. Plus, the more
affordable gas becomes, the more consumers are likely to choose it over other
fuels. Moreover, SJI will profit as our affiliate, South Jersey Energy Company,
sells the commodity to its customers.
Growth Drives Profits
South Jersey Gas had a head start on residential energy choice with nearly
36,000 customers already participating in our pilot choice program which began
in 1997. In the first quarter of 2000, we will aggressively promote customer
choice through advertising and public relations outreach activities.
Economy Fuels Growth
South Jersey Gas sets a fast pace in adding customers in a rapidly growing
region. In 1999, we increased our customer base by 6,834 compared with 6,498 in
1998. At year end, we served 273,899 natural gas customers compared with
267,065 in 1998, a 2.6 percent increase. We attribute our increase to targeted
marketing of a superior product and a surge of new housing construction in the
western and eastern portions of our territory.
According to the Builders League of South Jersey, in the first nine months
of 1999 new home permits increased by 19 percent in Atlantic and Cape May
counties and by almost 15 percent in Gloucester County. Growth drives our
profitability because virtually all new properties constructed along our mains
choose natural gas as their primary heating fuel.
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Thanks to rapid residential, industrial, and commercial development, our
current growth rate of 2.6 percent is roughly twice the industry average. One
area in which we stand to reap substantial revenues is in Atlantic City with
increased gas load for new casino projects. The city's revitalization also
ensures a fast-track to profits with the outgrowth of new casinos which are
expected to add an estimated 1.0 to 1.5 percent to our current growth rate over
the next 3 to 5 years. As new casinos open, more housing developments,
businesses, and people will populate the area with most using natural gas as
their fuel of choice.
Shifting Gears
Unique public/private partnerships also paved the way for us to expand our
industrial customer base in 1999. In October, we partnered with the South
Jersey Economic Development District to extend gas service to the 51-acre Egg
Harbor City Industrial Park. The industrial park is expected to increase
profits and create 300 to 500 local jobs.
We also entered into a similar partnership with the City of Vineland to
extend gas service to its 155-acre, 25-lot Vineland Industrial Park. With only
five lots vacant as of January, this partnership will increase gas throughput
and profits for South Jersey Gas while also supporting economic development in
our region.
Another avenue for significant growth is in small commercial and
residential conversions to natural gas from other fuel sources. In 1999, 2,024
residential consumers switched to natural gas primarily from oil and
electricity. We identified about 50,000 homes located on or near our gas mains
and, early in 2000, we will launch a year-round marketing effort encouraging
those homeowners to switch to natural gas. Over the last decade, the small
commercial market has grown by 1 percent annually in our service area. In 1999,
we added resources and a dedicated sales force to capture a larger share of
this market.
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We also penetrated unique niche markets in 1999, such as selling natural
gas for gas-powered Zambonis and gas-fired dehumidification systems to large
ice rinks in our service area.
Service Business Accelerates
Another of our success stories in 1999 is the appliance repair service
business. In 1998, we began aggressively marketing our Service Sentry appliance
warranty plan which covers parts and labor. Heightened consumer awareness of
our repair services through Service Sentry has generated a great deal of
interest as contract sales jumped by 35 percent over 1998. By marketing Service
Sentry we also benefited by a 28.2 percent increase in revenues from non-
warranty appliance service calls. In 1999, these calls contributed $1.8 million
in revenues.
Another factor leading to our success in appliance repair service is our
entry into the electric air conditioning repair business. In 1999, we completed
over 6,100 air conditioning repairs. Customer trust in our good name backed by
90 years of reliable service and a highly skilled workforce helps this business
unit prosper.
To further penetrate the appliance service market, we developed new
offerings to add to our Service Sentry program. Upon approval from the New
Jersey Board of Public Utilities, we will begin marketing those plans which
include several non-gas appliances. In 2000, we will launch a new program
covering exposed gas piping in the home. Additionally, we changed the way we
market our warranty program and are now reaching out to specific audiences with
very targeted messages. With these improvements we will build on the success we
currently enjoy.
Revving Operational Engines
South Jersey Gas continues controlling expenditures with process
improvements throughout our operations. We are able to do more with less and
continue to reduce our operating and maintenance costs per customer.
Comparatively, our 1999 operating and maintenance costs per customer decreased
1.6 percent following a 4.4 percent decrease last year. We plan to further
reduce these costs with continued training, efficient equipment and constant
evaluation of operational practices.
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Our in-house computer expertise paved the way for a smooth transition into
Y2K. By completing all of our Y2K reprogramming with in-house staff, our
expenditures were considerably less than many other comparable companies.
Thanks to the hard work of our entire team, customers enjoyed a comfortable new
year with uninterrupted gas service.
January 1999 ushered in another milestone with the full activation of the
New Sentury Pipeline, which is the largest pipeline project in company history.
The 24-inch diameter pipeline runs some 20 miles in Gloucester County and is
vital in bringing additional capacity to our entire system, giving us the
ability to support future growth.
We completed our transition of the meter reading function into Millennium
Account Services, LLC, an unregulated company created through a joint venture
with Conectiv Solutions, LLC. Today, this company reads both gas and electric
meters in South Jersey bringing greater meter reading efficiency, cost savings
to the utility, and a first-year profit to SJI.
Exciting growth opportunities, higher profitability, new services and
revenue streams keep South Jersey Gas Company a leader. As we race into our
bright future, we will use our innovation, adaptability and competitive spirit
to help put your investment in SJI in the winner's circle again and again.
- 9 -
Start Your Engines
South Jersey Energy Company started its engines and roared across the
finish line with its most profitable year ever, adding $1 million to SJI's
bottom line. Our goal is to become a single point of contact for energy and
related services while partnering with others to satisfy our clients' needs.
The deregulated choice for electricity and natural gas is now available to
everyone in New Jersey. During 1999, many energy marketers came to our area,
then turned around and drove home. Why? South Jersey Energy does it better. Our
hometown approach and community involvement puts a real face on the complex
process of choosing a new gas or electricity supplier.
Today, we lap all other local gas marketers. In 1999, South Jersey
Energy's residential enrollment more than tripled. Our regional brand is strong
and we are using it to sell retail electricity to residential, commercial and
industrial customers. It is still quite early, but initial interest is strong
as we already received 2,000 applications for electricity supplies. In 2000, we
will grow this business by offering electricity and natural gas savings where
it is profitable for us, yet competitively priced for consumers. We also expect
to profit from retail electricity sales via South Jersey Energy Solutions, LLC,
a partnership we formed with Energy East Solutions, Inc., a subsidiary of New
York-based Energy East.
Counties in New Jersey are now pooling to buy their gas and electricity
supplies in bulk to increase energy savings for schools, large buildings and
offices. Last year, we won every bid we entered for natural gas supply
contracts in Atlantic, Cape May, Cumberland, Gloucester, Camden, and Salem
counties. These contracts are for 1-year terms and prove we can win against our
competitors. We are now bidding on similar contracts for electricity supplies
to those same counties as they become available.
High Performance Service
South Jersey Energy does more than just provide savings on energy
commodities. Did you know we also managed wholesale natural gas supply
portfolios, storage, and assets for five of the East Coast's largest utilities?
We have done so successfully for several years through our partnership with UPR
Energy Marketing, Inc.
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South Jersey Energy offered commercial and industrial customers new ways
to save money in 1999. We now provide energy management services from design to
installation, energy-efficient lighting retrofits, and the construction of on-
site cogeneration facilities with in-house expertise and other partners.
In 1999, we completed several lighting retrofit contracts and will begin a
significant project for a major regional hospital in the first quarter of 2000.
We feel this is a highly valuable service to offer customers as they seek the
best ways to improve their overall energy efficiency.
Air Monitoring Boosts Horsepower
Last year, South Jersey Energy and its partner GZA GeoEnvironmental, Inc.
broke away from the pack with a new, real-time air monitoring technology
solution for utilities with environmental cleanup sites. This jointly
developed, patent-pending system protects public health and limits corporate
liability by monitoring the air for potentially hazardous substances released
during an environmental cleanup. Last year, we locked-in profitable contracts
with major utility companies in the mid-Atlantic region and another utility in
Wisconsin. In the first quarter of 2000, five environmental sites will be
using our system.
To effectively market this system, South Jersey Energy and GZA partnered
with the Institute of Gas Technology, a premier utility research and
development organization. This relationship provides an additional marketing
arm and access to utilities nationwide, backed with IGT's long-standing
credibility. Our system is highly adaptable and may be marketed for other types
of air monitoring at industrial facilities or landfills in the near future.
This system shows great promise and offers additional profits to South Jersey
Energy and, ultimately, SJI.
South Jersey Energy Company is a racing prototype for the energy future.
Evolving markets, competition and dynamic energy products and services put
extra horsepower behind your investment in SJI now and into tomorrow.
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Under The Hood
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Overview -- South Jersey Industries, Inc. (SJI) has two operating
subsidiaries, South Jersey Gas Company (SJG) and South Jersey Energy Company
(SJE). SJG is a regulated natural gas distribution company serving 273,899
customers at December 31, 1999, compared with 267,065 customers at December 31,
1998. SJG also makes off-system sales of natural gas on a wholesale basis to
various customers on the interstate pipeline system. In addition, SJG
transports natural gas purchased directly from producers or suppliers for our
own sales and for some of our customers. SJE provides services for the
acquisition and transportation of natural gas for retail end users and markets
total energy management services. SJE also markets an air quality monitoring
system that provides around-the-clock, real-time monitoring for hazardous
airborne substances around a site or facility. SJE began marketing retail
electricity in New Jersey in November 1999 through South Jersey Energy
Solutions, a limited liability company equally owned with Energy East
Solutions, Inc. SJE has one subsidiary, SJEnerTrade (EnerTrade). EnerTrade,
formed in October 1997, provides services for the sale of natural gas to energy
marketers, electric and gas utilities, and other wholesale users in
mid-Atlantic and southern states. These activities are conducted by EnerTrade
and South Jersey Resources Group, LLC (SJRG), a joint venture with UPR Energy
Marketing, Inc. SJI also invested in a joint venture with Conectiv Solutions,
LLC, forming Millennium Account Services, LLC (Millennium). Millennium provides
meter reading services to SJG and Conectiv Power Delivery in southern New
Jersey.
Forward-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 SJI 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 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, federal, state and local level;
weather conditions in our marketing areas; regulatory and court decisions;
competition in our regulated and deregulated activities; the availability and
cost of capital; our ability to maintain existing and/or establish successful
new alliances and joint ventures to take advantage of marketing opportunities;
costs and effects of unanticipated legal proceedings, environmental liabilities
and Year 2000-related costs or operating problems; and changes in business
strategies.
Competition -- SJG's franchises are non-exclusive. Currently, no other
utility provides retail gas distribution services within our territory. We do
not expect any other utilities to do so in the foreseeable future because of
the extensive investment required for utility plant and related costs. SJG
competes with oil, propane and electricity suppliers for residential,
commercial and industrial users. The market for natural gas sales is subject to
competition as a result of deregulation. We enhanced SJG's competitive position
while maintaining margins by using an unbundled tariff. This tariff allows full
cost of service recovery, except for the variable cost of the gas commodity,
when transporting gas for our customers. Under this tariff, SJG profits from
transporting, rather than selling, the commodity. SJG's residential, commercial
and industrial customers can choose their supplier while we recover the cost of
service through transportation service (See Customer Choice Legislation). We
believe SJG is a leader in addressing the changing marketplace, while focusing
on being a low-cost provider of natural gas and energy services. SJE and
EnerTrade actively arrange energy services, providing low-cost energy supplies
in a highly competitive marketplace.
Customer Choice Legislation -- Effective January 1, 2000, all residential
natural gas customers in New Jersey are able to choose their gas supplier under
the terms of the Electric Discount and Energy Competition Act of February 1999.
Commercial and industrial customers have had the ability to choose gas
suppliers since 1987. SJG's residential customers have been able to choose a
gas supplier since April of 1997 under a pilot program. As of December 31,
1999, 35,683 SJG residential customers participated in the program. Customers'
bills are reduced for cost of gas charges and applicable taxes. The resulting
decrease in SJG's revenues is offset by a corresponding decrease in gas costs
and taxes under a BPU-approved fuel clause. While customer choice can reduce
utility revenues, it does not negatively affect SJG's net income, financial
condition or margins.
Energy Adjustment Clauses -- SJG's tariff includes a Levelized Gas
Adjustment Clause (LGAC), a Temperature Adjustment Clause (TAC), a Remediation
Adjustment Clause (RAC) and a Demand Side Management Clause (DSMC). These
clauses permit us to: adjust customer bills for changes in gas supply costs;
reduce the impact of temperature fluctuations on SJG and its customers; recover
remediation costs for former gas manufacturing plants; and recover conservation
plan costs. The BPU-approved LGAC, RAC and DSMC adjustments match revenues
with expenses. TAC adjustments affect revenue, income and cash flows since
colder-than-normal weather can generate credits to customers, while warmer-
than-normal weather can result in additional billings to customers.
The BPU approved a revised TAC for SJG, effective October 1998. TAC
adjustments had the following impacts on 1999 and 1998 fourth quarter and 12-
month net earnings:
1999 1998
------ ------
TAC Adjustment Increase to Net Income
($ in thousands)
Quarter Ended 12/31 $ 642 $361
12 Months Ended 12/31 $1,980 $607
While the revenue and income impacts of TAC adjustments are recorded as
incurred, cash inflows or outflows directly attributable to TAC adjustments do
not begin until the next TAC year. Each TAC year begins October 1.
Status of Year 2000 Impact -- As of February 16, 2000, we were not aware
of any material Y2K-related event affecting either the operational or financial
performance of SJI. We continue to regularly monitor the output and performance
of our information and operating systems and our suppliers, but do not
anticipate any material residual Y2K problems. Total Y2K related costs were
$0.53 million.
Operating Revenues - Utility -- Revenues increased $47.7 million in 1999
compared with 1998. The primary reasons for the increase were higher off-
system sales and 6,834 additional customers at SJG. Results also benefited
significantly from the revised TAC. These factors more than offset revenue
reductions due to the continued migration of firm gas sales to firm
transportation. Note, however, that SJG's tariffs are structured so profits
are derived from gas transportation, not commodity sales. Consequently, the
switch to firm transportation reduced revenues but did not impact
profitability. In 1998, revenues decreased $29.4 million primarily due to
weather that was 14.9% warmer than 1997. State tax reform and increased firm
transportation in lieu of firm gas sales also reduced revenues.
Weather in 1999 was 8.7% colder than in 1998, but was 4.2% warmer than the
20-year average. Previously, changes in temperatures were typically the single
most important factor in explaining revenue fluctuations for comparative
periods in SJI's utility operations. Revisions to SJG's TAC significantly
reduced the weather-related volatility in SJI's utility revenues. However,
comparisons for the first two quarters of 1999 to the prior year's periods
continued to show volatility as 1998 revenues were heavily influenced by
weather. Weather during the third quarter of the year historically has minimal
impact on SJG's earnings as heating requirements are at their seasonal low
point. The fourth quarter of 1999 and 1998 operated under the same TAC.
Revenues for 1999 were closely tied to 20-year normal temperatures and not
actual weather conditions.
Total gas throughput increased 16.6% to 125,818 MMcf in 1999. Throughput
in 1998 declined 1.9% to 107,840 MMcf compared with 1997. The majority of the
1999 increase was due to increased off-system sales. The 1998 decline was due
to weather-related reductions in residential and commercial usage.
Operating Revenues - Nonutility -- Nonutility operating revenues increased
$11.8 million in 1999 and $13.9 million in 1998 almost entirely due to
increased retail gas sales to residential customers and casinos in Atlantic
City.
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Gas Purchased for Resale -- Gas purchased for resale increased $33.2
million in 1999 compared with 1998 due mostly to increased sales volumes,
particularly to off-system customers. SJG's gas costs also accounted for a
portion of the increase, averaging $2.38/dt in 1999 compared with $2.35/dt in
1998. A $7.3 million decline in 1998 compared with 1997 was due principally to
warmer weather and customers switching from gas sales to firm transportation.
Gas supply sources include contract and open-market purchases. SJG secures and
maintains its own gas supplies to serve its customers. The next contract
expirations are in February and October 2000. We do not anticipate any
difficulty renewing or replacing expiring contracts under substantially
similar terms and conditions. SJG's cumulative obligation for demand charges
and reservation fees paid to suppliers for these services is approximately $4.8
million per month, recovered on a current basis through the LGAC.
Utility Operations -- A summary of net changes in Utility Operations
(in thousands):
1999 vs. 1998 1998 vs. 1997
------------- -------------
Production $ 9 $ 12
Transmission (47) 110
Distribution (238) 66
Customer Accounts and Services (343) 438
Sales (72) (147)
Administration and General (487) (1,256)
Other 23 9
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Total Net Change $(1,155) $ (768)
======= =======
Distribution expenses declined due to improvements in operating practices.
These improvements included the implementation of an automated dispatch system
and home-based reporting of service personnel. Customer Accounts and Services
costs decreased in 1999 principally due to lower bad debt expenses and a
corresponding downward adjustment in reserves for uncollectible accounts.
Administrative and General costs decreased from 1998 levels principally due to
a decline in regulatory expense amortization.
Other Operating Expenses -- Summary of principal changes in other
consolidated operating expenses (in thousands):
1999 vs. 1998 1998 vs. 1997
------------- -------------
Nonutility Operations $9,161 $13,522
Maintenance 782 (205)
Depreciation 1,828 1,162
Income Taxes 4,769 920
Other Taxes 685 (19,966)
Increases in Nonutility Operations expenses almost entirely reflected
increased retail gas sales to residential customers and Atlantic City casinos.
Higher Maintenance costs in 1999 were due primarily to higher levels of
amortization of previously deferred environmental remediation expenses. These
expenses did not negatively impact net income as they were offset by higher
revenue recovery through the RAC (See Notes 7 and 13). Depreciation is higher
due to increased investment in property, plant and equipment by SJG. Income Tax
changes reflect the impact of changes in pre-tax income. Other Taxes decreased
in 1998 due to the Energy Tax Reform Act implemented January 1998.
Interest Charges -- Interest charges increased in 1999 due to higher
average levels of short- and long-term debt outstanding, partially offset by
lower average interest rates on debt outstanding during the year. The debt was
incurred primarily to support working capital needs and improvements to SJG's
gas transmission and distribution system.
Discontinued Operations -- SJI sold the assets of certain R&T Group, Inc.
(R&T) subsidiaries in early 1997 for approximately $3.5 million. Assets were
sold for their approximate net book value. Based on a plan to discontinue or
sell the R&T companies, we reduced their recorded value in 1996 to estimated
net realizable value (net of income taxes). Also, in 1997, we recorded
additional costs of approximately $2.6 million for environmental remediation
expenditures for the previously operated fuel oil business of South Jersey
Fuel, Inc. (SJF) and for The Morie Company, Inc. (Morie) (See Note 5).
The 1998 loss from discontinued operations was principally due to a
product liability settlement and increased environmental cleanup costs. The
1999 loss was due primarily to environmental cleanup expenses.
In 1998, SJE actively traded electricity in the wholesale market, but
ceased its trading activities later in that same year. Upon expiration of its
last wholesale electric contract in December 1999, SJE formally exited
wholesale electric operations.
Net Income Applicable to Common Stock -- Net income (in thousands) and
earnings per common share reflect the following changes:
1999 vs. 1998 1998 vs. 1997
------------- -------------
Income from Continuing Operations $ 8,533 $(4,985)
Loss from Discontinued
Operations - Net 2,169 175
------- -------
Net Income Increase (Decrease) $10,702 $(4,810)
======= =======
Earnings per Common Share:
Continuing Operations $ 0.76 $ (0.46)
Discontinued Operations - Net 0.21 0.01
------- -------
Earnings per Share Increase
(Decrease) $ 0.97 $ (0.45)
======= =======
The details affecting the changes in net income and earnings per share are
discussed under the appropriate captions above.
Liquidity -- The seasonal nature of gas operations; the timing of
construction and remediation expenditures and related permanent financing; as
well as mandated tax and sinking fund payment dates create large, short-term
cash requirements. These requirements are generally met by cash from operations
and short-term lines of credit. We maintain short-term lines of credit with a
number of banks, totaling $144.0 million, of which $24.1 million was available
at December 31, 1999. The credit lines are uncommitted and unsecured with
interest rates typically available based upon the Federal Funds Rate or London
Interbank Offered Rates (LIBOR).
The changes in cash flows from operating activities (in thousands):
1999 vs. 1998 1998 vs. 1997
------------- -------------
Increases/(Decreases):
Net Income Applicable to Common Stock $10,702 $(4,810)
Depreciation and Amortization 2,702 951
Provision for Losses on Accounts
Receivable (525) 126
Revenues and Fuel Costs Deferred - Net (5,163) 101
Deferred and Non-Current Income Taxes and
Credits - Net (613) 2,367
Net Pre-Tax Loss on Disposal of
Discontinued Operations - (845)
Environmental Remediation Costs - Net 7,256 (2,210)
Accounts Receivable 6,116 (12,716)
Inventories 3,803 (1,650)
Prepayments and Other Current Assets 257 695
Prepaid and Accrued Taxes - Net 21,920 (17,462)
Accounts Payable and Other Accrued
Liabilities (16,301) 4,125
Other - Net 4,165 (619)
-------- --------
Net Cash Provided by Operating
Activities $34,319 $(31,947)
======== ========
Depreciation and Amortization are non-cash charges to income and do not
impact cash flow. Changes in depreciation cost reflect the effect of additions
and reductions to fixed assets.
Decreases in Revenues and Fuel Costs Deferred - Net reflect
undercollection of fuel costs resulting from increases in natural gas costs and
payments or credits to customers for amounts previously overcollected.
Increases reflect overcollection of fuel costs or the recovery of previously
deferred fuel costs.
Changes in Deferred and Non-Current Income Taxes and Credits - Net
represent the differences between taxes accrued and amounts paid. Generally,
deferred income taxes related to deferred fuel costs will be paid in the next
year.
Changes in Environmental Remediation Costs - Net represent the differences
between amounts expended for environmental remediation compared with amounts
collected under the RAC and insurance recoveries.
Changes in Accounts Receivable are primarily due to the cessation of
wholesale electricity sales by SJE, which represented a $7.1 million receivable
balance at December 31, 1998. This cash source was partially offset by higher
- 13 -
receivable balances due to off-system sales and the impact of colder weather on
SJG's sales volumes. Commodity prices also impact this line item. Changes
impact cash flows when receivables are collected in subsequent periods.
Changes in Inventories reflect the impact of seasonal requirements,
temperatures and commodity price changes.
Changes in Prepaid and Accrued Taxes - Net reflect the impact of
differences between taxes paid and accrued. Significant timing differences
exist in cash flows during the year. Approximately 50% of SJG's taxes are paid
in installments during the first half of the year and the remaining 50% are
paid May 15 of each year. SJG uses short-term borrowings to pay taxes,
resulting in a temporary increase in short-term debt levels. The carrying costs
of timing differences are recognized in base utility rates.
Changes in Accounts Payable and Other Current Liabilities reflect the
impact of timing differences between the accrual and payment of costs.
Changes in Other - Net reflect numerous changes in non-current assets and
liabilities, including accrued deferred income taxes. The majority of the
change in 1999 relates to the reclassification of previously deferred costs to
Utility Plant.
Cash flow from nonutility operations is generally retained by those
companies with amounts in excess of cash requirements passed up to SJI either
as dividends or as temporary short-term loans. Nonutility operations are
service oriented and have not required significant investment in capital
facilities, inventories or personnel.
Regulatory Matters --
Rate Actions
In February, 1999, the Electric Discount and Energy Competition Act (the
Act) was signed into law in New Jersey. This bill created the framework and
necessary time schedules for the restructuring of the state's electric and
natural gas utilities. The Act established unbundling, where redesigned
utility rate structures allow natural gas and electric consumers to choose
their energy supplier. It also established time frames for instituting
competitive services for customer accounting functions and to determine
whether basic gas supply services should become competitive.
SJG received BPU approval of its unbundling proposal in January 2000. In
addition to allowing all customers to select their own gas supplier, the
approval incented customers to choose a supplier other than SJG with a Market
Development Credit (MDC). This credit is available to customers through
December 2001. The credit, approximately $2.5 million plus carrying costs,
appears on SJG's books as a Deferred Credit. Therefore, the MDC will not
materially impact future periods.
The unbundling proposal also provided SJG with the ability to recover
carrying costs on unrecovered remediation costs under the RAC, while holding
the current RAC rate in effect through October 2002. Our RAC rate last changed
in September 1999. SJG's LGAC was also modified by the unbundling process.
Under-recovered gas costs of $11.9 million as of October 31, 1999, and related
carrying costs, will be recovered over 3 years. The LGAC for the period
starting November 1999, continues to operate as it has in the past.
The Act also contains numerous provisions requiring the BPU to promulgate
and adopt a variety of standards related to implementing the Act. These
required standards address fair competition, affiliate relations, accounting,
competitive services, supplier licensing, consumer protection and aggregation.
In March 1999, the BPU issued Draft Interim Standards in response to the Act.
In its Order, the BPU stated that the Draft Interim Standards "...do not
necessarily represent the final views of the Board on these matters...." As
such, the BPU has undertaken an extensive comment and meeting process to
address the concerns of all impacted parties. SJG has actively participated in
this process, and we believe the final standards will not have a material
adverse effect on the company.
In January 1997, the BPU granted SJG a total rate increase of $10.3
million. The $6 million base rate portion of the increase was based on a 9.62%
rate of return on rate base, which included an 11.25% return on common equity.
The majority of this increase comes from residential and small commercial
customers. We recover the increase from new miscellaneous service fees that
charge specific customers for costs they cause us to incur. Additionally, our
starting point for sharing pre-tax margins generated by interruptible and off-
system sales and transportation (Sharing Formula) increased from $4 million to
$5 million. SJG was permitted to keep 100% of pre-tax margins up to the
threshold level and 20% of margins above that level. The $5 million threshold
increased by $500,000 later in 1997, and in December 1998, the threshold
increased an additional $2 million. The increases resulted from completion of
major construction projects. In October 1998, the BPU approved a revision to
the Sharing Formula as part of an agreement to modify SJG's TAC. The revision
credits the first $750,000 above the applicable threshold level to the LGAC
customers. Thereafter, SJG keeps 20% of the pre-tax margins as it has
historically.
SJG calculates rates of return by weighting individual capital cost rates
by the proportion of each prospective type of capital. This requires selecting
appropriate capital structure ratios and determining the cost rate for each
capital component as determined in each rate proceeding. In setting a rate of
return, the BPU must provide a utility and its investors with a return on
invested capital matching the risk so the utility can access capital required
to meet its public service responsibility.
In June 1998, we filed a petition with the BPU requesting a change to the
TAC. The request was granted in October 1998. As a result, SJG experiences
reduced fluctuations in income when weather is warmer or colder than normal.
In April 1999, the BPU approved an increase in our appliance service
rates, which SJG implemented that month. In June 1999, the BPU authorized SJG
to offer additional appliance service contract plans. The new rates and plans
are competitive with those of other service providers in New Jersey and are
designed to increase earnings and cash flows.
Environmental Remediation
SJI incurred and recorded costs for environmental cleanup of sites where
SJG or its predecessors operated gas manufacturing plants. SJG stopped
manufacturing gas in the 1950s. SJI and some of its nonutility subsidiaries
also recorded costs for environmental cleanup of sites where SJF previously
operated a fuel oil business and Morie maintained equipment, fueling stations
and storage.
Since the early 1980s, SJI recorded environmental remediation costs of
$116.3 million. We spent $60.9 million as of December 31, 1999. With the
assistance of an outside consulting firm, we estimate that future costs to
clean up the sites will range from $51 million to $161.3 million. We recorded
the lower end of this range as a liability. It is reflected on the consolidated
balance sheet under the captions, Current Liabilities and Deferred Credits and
Other Non-Current Liabilities. SJG did not adjust the accrued liability for
future insurance recoveries, which we have been successful in pursuing. We used
these proceeds to offset related legal fees and to reduce the balance of
deferred environmental remediation costs. 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 technology, government regulations,
and site-specific requirements.
The major portion of recorded environmental remediation costs relate to
the cleanup of SJG's former gas manufacturing sites. SJG recorded $109.6
million for the remediation of these sites and spent $58.5 million through
December 31, 1999.
SJG has two regulatory assets associated with environmental costs. The
first asset is titled Environmental Remediation Cost: Expended - Net. These
expenditures represent what was actually spent to clean up former gas
manufacturing plant sites. These costs meet the requirements of FASB No. 71,
"Accounting for the Effects of Certain Types of Regulation."
In September 1999, the BPU approved SJG's request to recover remediation
costs at former manufactured gas plant sites as permitted under the RAC. SJG's
RAC level increased from $0.0032 per therm to $0.0107 per therm to include all
RAC-related expenditures made between 1993 and 1998. Consequently, SJG expects
to recover an additional $4.5 million per year for the next 7 years.
The other asset titled Environmental Remediation Cost: Liability for
Future Expenditures relates to estimated future expenditures determined under
FASB No. 5. This amount, which relates to former manufactured gas plant sites,
was recorded as a deferred debit with the corresponding amount reflected on the
consolidated balance sheet under the captions, Current Liabilities and Deferred
Credits and Other Non-Current Liabilities. The deferred debit is a regulatory
asset under FASB No. 71. The BPU's intent, evidenced by its current practice,
is to allow SJG to recover the deferred costs after they are spent.
SJG files with the BPU to recover these costs in rates through its RAC.
The BPU has consistently allowed the full recovery over 7-year periods, and SJG
believes this will continue. As of December 31, 1999, SJG's unamortized
remediation costs of $25.7 million are reflected on the consolidated balance
sheet under the caption, Regulatory and Other Non-Current Assets. Since
implementing the RAC in 1992, SJG recovered $21.6 million through rates as of
December 31, 1999.
With Morie's sale, EMI assumed responsibility for environmental
liabilities estimated between $2.8 million and $9 million. The information
available on these sites is sufficient only to establish a range of probable
liability, and no point within the range is more likely than any other.
Therefore, EMI continues to accrue the lower end of the range.
- 14 -
SJI and SJF estimated their potential exposure for the future remediation
of four sites where fuel oil operations existed years ago. Estimates for SJI's
site range between $0.1 million and $0.2 million while SJF's estimated
liability ranges from $1.2 million to $4.5 million for its three sites.
Amounts sufficient to cover the lower ends of these ranges were recorded and
are reflected on the consolidated balance sheet under Current Liabilities and
Deferred Credits and Other Non-Current Liabilities as of December 31, 1999.
Other Regulatory Asset Recovery
Adopting FASB No. 109, "Accounting for Income Taxes," in 1993 primarily
resulted in creating a $17.6 million regulatory asset. SJG is recovering the
amortization of this asset through rates over 18 years which began in December
1994. Also, SJI adopted FASB No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," in 1993. The BPU provided for
partial recovery of costs associated with FASB No. 106 and prescribed continued
deferral of unrecovered costs until 1998. Beginning January 1998, the BPU
approved full recovery of the net periodic benefit cost as well as recovery of
the regulatory asset, amounting to $4.9 million at December 31, 1999, over 15
years.
Other
SJI is subject to claims arising in the ordinary course of business and
other legal proceedings. We set up reserves when these claims become apparent.
SJI also maintains insurance and records probable insurance recoveries relating
to outstanding claims.
In November 1999, Goldin Associates LLC, Trustee for the Power Company of
America Liquidating Trust (PCA), filed a complaint in bankruptcy court against
SJE seeking damages of $11 million plus interest and attorneys' fees. PCA was a
wholesale electricity trading company with whom SJE did business. PCA filed
for bankruptcy protection under Chapter 11 of the Bankruptcy Code. We believe
SJE acted prudently, responsibly and in accordance with contractual obligations
in its transactions with PCA. We believe the ultimate impact of these actions
will not materially affect SJI's financial position, results of operations or
liquidity.
Financial Risk Management -- SJI's regulated and unregulated natural gas
businesses are subject to market risk due to fluctuations in natural gas
prices. To hedge against fluctuations, SJI and its subsidiaries have at times
entered into forward contracts. SJG recovers gas costs through the LGAC, and
hedges against price fluctuations by using forward contracts. SJE and EnerTrade
enter fixed-price contracts to sell natural gas to customers, but hedge risks
on these transactions through matching forward physical purchases. SJE engaged
in wholesale electric trading activities during 1998, but ceased actively
trading and fully hedged all remaining open positions as of December 31, 1998.
The net profits realized from those activities are reflected on SJI's financial
statements as Discontinued Operations. The last wholesale electric trading
contract expired in the fourth quarter of 1999. SJRG enters into forward
transactions to hedge storage management and fixed-price sales transactions.
To manage these transactions, SJI has a well-defined risk management
policy that includes volumetric and monetary limits. All derivative activities
described above are entered into for hedging, not trading, purposes.
Capital Resources -- SJI 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 1999 amounted to $47.2 million. The costs for 2000, 2001 and
2002 are estimated at approximately $51.6 million, $46.7 million and $53.1
million, respectively. We will fund these expenditures from several sources,
which may include cash generated by operations, temporary use of short-term
debt, sale of medium-term notes, capital leases, RAC recoveries and equity
issuance.
Effective June 1999, SJI changed the way that shares were purchased by
participants in its Dividend Reinvestment Plan (DRP). Since 1994, our DRP
purchased shares for participants on the open market. Now plan participants are
receiving newly issued shares. DRP participants received a total 367,622 newly
issued shares in 1999. We offer a 2% discount on DRP investments because it is
the most cost-effective way for us to raise equity capital in the quantities
that we are seeking. The revised DRP provided SJI with $10 million of equity
capital in 1999; and we expect to raise an additional $8 million to $12 million
via this method in 2000.
In March 1997, SJG sold $35 million of First Mortgage Bonds, 7.7% Series
due 2027.
In May 1997, SJG's Delaware statutory trust subsidiary, SJG Capital Trust
(Trust), sold $35 million of 8.35% SJG-Guaranteed Mandatorily Redeemable
Preferred Securities. The Trust's only assets are the 8.35% Deferrable
Interest Subordinated Debentures issued by SJG maturing April 2037. The
Debentures and Preferred Securities are redeemable at SJG's option at a price
equal to 100% of the principal amount at any time on or after April 30, 2002.
In October 1998, SJG issued $30 million of debt under a $100 million
Medium-Term Note Program. Notes totaling $10 million were issued at 6.12%,
maturing in 2010, and $20 million of notes were issued at 7.125%, maturing in
2018. The net proceeds of these note issuances were used to retire short-term
debt and to fund capital expenditures. The Medium-Term Note program had $70
million of availability remaining at December 31, 1999 and remains effective
through December 31, 2001.
Other Events -- In June 1999, SJE and Energy East Solutions, Inc. formed
South Jersey Energy Solutions, LLC (SJES), to market retail electricity and
energy management services. SJES is intended to create significant efficiencies
and expand service capabilities for both companies with the advent of electric
utility restructuring legislation. The new venture also completed SJI's efforts
to shift its focus away from the wholesale electric trading business and toward
the retail sector. SJES began soliciting retail electricity customers in
November 1999.
In August 1999, SJG completed the transition of all meter reading
activities to Millennium. Millennium began providing meter reading services in
southern New Jersey in January 1999. The new venture allows both companies to
capitalize on synergies that exist because of overlapping territories.
Customers should benefit from reduced meter reading costs.
Inflation -- In the ratemaking process, only the original cost of utility
plant is recoverable in revenues as depreciation. The excess cost of utility
plant, stated in terms of current cost over the original cost of utility plant,
is not presently recoverable. While the ratemaking process gives no recognition
to the current cost of replacing utility plant, SJG believes it will be allowed
to earn a return on the increased cost of its investment as facilities are
replaced.
Summary -- We are confident SJI will have sufficient cash flow to meet its
operating, capital and dividend needs and is taking, and will take, such
actions necessary to employ its resources effectively.
Independent Auditors' Report
To the Shareholders and
Board of Directors of
South Jersey Industries, Inc.:
We have audited the consolidated balance sheets and statements of
consolidated capitalization of South Jersey Industries, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the related statements of consolidated
income, consolidated retained earnings and consolidated cash flows for each of
the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of South Jersey Industries, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 16, 2000
- 15 -
Statements of Consolidated Income
(in Thousands Except for Per Share Data)
South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Operating Revenues:
Utility (Notes 1 & 9) $345,710 $298,038 $327,477
Nonutility 46,767 34,972 21,090
-------- -------- --------
Total Operating Revenues 392,477 333,010 348,567
-------- -------- --------
Operating Expenses:
Gas Purchased for Resale 207,047 173,824 181,117
Utility Operations 41,114 42,269 43,037
Nonutility Operations 45,819 36,658 23,136
Maintenance 6,077 5,295 5,500
Depreciation (Note 1) 18,968 17,140 15,978
Income Taxes (Notes 1, 7 & 8) 16,428 11,659 10,739
Other Taxes (Notes 1 & 8) 11,137 10,452 30,418
-------- -------- --------
Total Operating Expenses 346,590 297,297 309,925
-------- -------- --------
Operating Income 45,887 35,713 38,642
-------- -------- --------
Interest Charges:
Long-Term Debt 15,721 15,246 15,197
Short-Term Debt and Other 5,105 3,935 2,914
-------- -------- --------
Total Interest Charges 20,826 19,181 18,111
-------- -------- --------
Preferred Dividend Requirements of Subsidiary (Note 2) 3,084 3,088 2,102
-------- -------- --------
Income from Continuing Operations 21,977 13,444 18,429
Discontinued Operations: (Note 5)
Loss from Discontinued Operations - Net (289) (2,458) (1,866)
Net Loss on Disposal of Discontinued Operations - - (767)
-------- -------- --------
Net Income Applicable to Common Stock $ 21,688 $ 10,986 $ 15,796
======== ======== ========
Average Shares of Common Stock Outstanding (Note 6) 10,922 10,776 10,763
======== ======== ========
Earnings Per Common Share: (Notes 5 & 6)
Continuing Operations $ 2.01 $ 1.25 $ 1.71
Discontinued Operations - Net (0.02) (0.23) (0.24)
-------- -------- --------
Earnings Per Common Share $ 1.99 $ 1.02 $ 1.47
======== ======== ========
Dividends Declared Per Common Share $ 1.44 $ 1.44 $ 1.44
======== ======== ========
Statements of Consolidated Retained Earnings
(in Thousands)
South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Balance at Beginning of Year $ 44,507 $ 49,038 $ 48,743
Net Income Applicable to Common Stock 21,688 10,986 15,796
Dividends Declared - Common Stock (15,728) (15,517) (15,501)
-------- -------- --------
Balance at End of Year (Note 12) $ 50,467 $ 44,507 $ 49,038
======== ======== ========
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
- 16 -
Statements of Consolidated Cash Flows
(in Thousands)
South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 21,688 $ 10,986 $ 15,796
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 21,765 19,063 18,112
Provision for Losses on Accounts Receivable 952 1,477 1,351
Revenues and Fuel Costs Deferred - Net (7,665) (2,502) (2,603)
Deferred and Non-Current Income Taxes and
Credits - Net 7,112 7,725 5,358
Net Pre-Tax Loss on Disposal of Discontinued
Operations - - 845
Environmental Remediation Costs - Net* 1,496 (5,760) (3,550)
Changes in:
Accounts Receivable (4,487) (10,603) 2,113
Inventories 519 (3,284) (1,634)
Prepayments and Other Current Assets 216 (41) (736)
Prepaid and Accrued Taxes - Net 8,813 (13,107) 4,355
Accounts Payable and Other Accrued Liabilities (11,775) 4,526 401
Other - Net 3,044 (1,121) (502)
-------- -------- --------
Net Cash Provided by Operating Activities 41,678 7,359 39,306
-------- -------- --------
Cash Flows from Investing Activities:
Investment in Affiliates (811) (591) -
Loan to Affiliates 1,700 211 (1,761)
Proceeds from the Sale of Assets - Net 594 - 3,488
Taxes Paid on the Sale of Assets - Net - - (9,807)
Purchase of Available-for-Sale Securities (776) (889) -
Capital Expenditures, Cost of Removal and Salvage (48,736) (65,869) (49,604)
-------- -------- --------
Net Cash Used in Investing Activities (48,029) (67,138) (57,684)
-------- -------- --------
Cash Flows from Financing Activities:
Net Borrowings from (Repayments of) Lines of Credit 22,950 51,100 (62,400)
Proceeds from Issuance of Long-Term Debt - 30,000 35,618
Principal Repayments of Long-Term Debt (11,149) (11,768) (6,603)
Dividends on Common Stock (15,728) (15,517) (15,501)
Proceeds from Sale of Common Stock 10,011 160 320
Proceeds from the Issuance of Preferred Securities - - 35,000
Repurchase of Preferred Stock (90) (90) (90)
Payments for Issuance of Long-Term Debt and
Preferred Securities - (557) (2,429)
-------- -------- --------
Net Cash Provided by (Used In) Financing Activities 5,994 53,328 (16,085)
-------- -------- --------
Net Decrease in Cash and Cash Equivalents (357) (6,451) (34,463)
Cash and Cash Equivalents at Beginning of Year 5,991 12,442 46,905
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 5,634 $ 5,991 $ 12,442
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (Net of Amounts Capitalized) $ 25,264 $ 21,651 $ 18,303
Income Taxes (Net of Refunds) $ 4,423 $ 11,099 $ 10,235
<FN>
* Notes 9 and 13 contain additional information relating to environmental
remediation costs.
The accompanying footnotes are an integral part of the financial statements.
</FN>
- 17 -
Consolidated Balance Sheets
(in Thousands)
South Jersey Industries, Inc.
and Subsidiaries
December 31,
1999 1998
---------- ----------
Assets
Property, Plant and Equipment: (Note 1)
Utility Plant, at original cost $ 721,338 $ 679,997
Accumulated Depreciation (192,240) (179,605)
Gas Plant Acquisition Adjustment - Net 1,776 1,851
Nonutility Property and Equipment, at cost 3,423 2,981
Accumulated Depreciation (951) (965)
--------- ---------
Property, Plant and Equipment - Net 533,346 504,259
--------- ---------
Investments:
Available-for-Sale Securities (Note 3) 1,707 931
Investments in Affiliates (Note 5) 2,251 1,440
--------- ---------
Total Investments 3,958 2,371
--------- ---------
Current Assets:
Cash and Cash Equivalents (Notes 1 & 4) 5,634 5,991
Notes Receivable - Affiliates 2,650 4,350
Accounts Receivable 43,130 42,600
Unbilled Revenues (Note 1) 22,328 19,489
Provision for Uncollectibles (1,117) (1,283)
Natural Gas in Storage, average cost 27,066 27,619
Materials and Supplies, average cost 4,085 4,051
Prepaid Taxes (Note 1) 4,069 13,850
Prepayments and Other Current Assets 3,203 3,419
--------- ---------
Total Current Assets 111,048 120,086
--------- ---------
Accounts Receivable - Merchandise 1,108 1,554
--------- ---------
Regulatory and Other Non-Current Assets: (Note 1)
Environmental Remediation Costs: (Notes 9 & 13)
Expended - Net 25,702 27,500
Liability for Future Expenditures 51,029 52,939
Gross Receipts & Franchise Taxes (Note 7) 3,141 3,585
Income Taxes - Flowthrough Depreciation (Note 7) 11,531 13,021
Deferred Fuel Costs - Net (Note 9) 13,174 5,509
Deferred Postretirement Benefit Costs (Note 11) 4,914 5,522
Other 7,974 11,749
--------- ---------
Total Regulatory and Other Non-Current Assets 117,465 119,825
--------- ---------
Total Assets $ 766,925 $ 748,095
========= =========
Capitalization and Liabilities
Capitalization:
Common Equity (Notes 6 & 12) $ 185,275 $ 169,234
Preferred Stock and Securities of Subsidiary (Note 2) 37,044 37,134
Long-Term Debt (Note 3) 183,561 194,710
--------- ---------
Total Capitalization 405,880 401,078
--------- ---------
Current Liabilities:
Notes Payable (Note 4) 119,950 97,000
Current Maturities of Long-Term Debt (Note 3) 8,876 8,876
Accounts Payable 40,273 51,960
Customer Deposits 5,386 5,576
Environmental Remediation Costs (Note 13) 14,027 9,668
Taxes Accrued 563 1,531
Interest Accrued and Other Current Liabilities 14,112 14,010
--------- ---------
Total Current Liabilities 203,187 188,621
--------- ---------
Deferred Credits and Other Non-Current
Liabilities: (Note 1)
Deferred Income Taxes - Net (Note 8) 91,167 84,827
Investment Tax Credits (Note 7) 4,849 5,239
Pension and Other Postretirement Benefits (Note 11) 13,342 14,227
Environmental Remediation Costs (Note 13) 41,354 47,925
Other 7,146 6,178
--------- ---------
Total Deferred Credits and Other Non-Current
Liabilities 157,858 158,396
--------- ---------
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities $ 766,925 $ 748,095
========= =========
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
- 18 -
Statements of Consolidated Capitalization
(in Thousands Except for Share Data)
South Jersey Industries, Inc.
and Subsidiaries
December 31,
1999 1998
---------- ----------
Common Equity: (Notes 6 & 12)
Common Stock: Par Value $1.25 per share; Authorized 20,000,000 shares;
Outstanding Shares: 11,152,175 (1999) and 10,778,990 (1998)
Balance at Beginning of Year $ 13,474 $ 13,464
Stock Plans 466 10
-------- --------
Balance at End of Year 13,940 13,474
Premium on Common Stock 120,868 111,253
Retained Earnings 50,467 44,507
-------- --------
Total Common Equity 185,275 169,234
-------- --------
Preferred Stock and Securities of Subsidiary: (Note 2)
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value $100 per share
Authorized Shares: 45,504 (1999) and 46,404 (1998)
Outstanding Shares: Series A, 4.7% - 1,200 (1999) and 2,100 (1998) 120 210
Series B, 8.0% - 19,242 1,924 1,924
South Jersey Gas Company-Guaranteed Manditorily Redeemable
Preferred Securities of Subsidiary Trust:
Par Value $25 per share, 1,400,000 shares Authorized and Outstanding 35,000 35,000
-------- --------
Total Preferred Stock and Securities of Subsidiary 37,044 37,134
-------- --------
Long-Term Debt: (A)
South Jersey Gas Company:
First Mortgage Bonds (B):
8.19% Series due 2007 18,181 20,454
10.25% Series due 2008 15,908 20,454
9% Series due 2010 24,062 26,250
6.12% Series due 2010 (C) 10,000 10,000
6.95% Series due 2013 35,000 35,000
7.125% Series due 2018 (C) 20,000 20,000
7.7% Series due 2027 35,000 35,000
Unsecured Notes:
Term Note, 8.47% due 2001 4,286 6,428
Debenture Notes, 8.6% due 2010 30,000 30,000
-------- --------
Total Long-Term Debt Outstanding 192,437 203,586
Less Current Maturities 8,876 8,876
-------- --------
Total Long-Term Debt 183,561 194,710
-------- --------
Total Capitalization $405,880 $401,078
======== ========
<FN>
(A) The long-term debt maturities and sinking fund requirements
for the succeeding 5 years are as follows:
2000, $8,876; 2001, $11,876; 2002, $9,734; 2003, $12,884; and 2004, $12,884.
(B) SJG's First Mortgage dated October 1, 1947, as supplemented, securing the
First Mortgage Bonds constitutes a direct first mortgage lien on
substantially all utility plant.
(C) On October 21, 1998, SJG issued $30 million of debt under a Medium-Term Note
Program established October 5, 1998. A total of $100 million is authorized
to be issued under this program through December 2001.
The accompanying footnotes are an integral part of the financial statements.
</FN>
- 19 -
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
Consolidation - The consolidated financial statements include the accounts
of South Jersey Industries, Inc. (SJI) and its subsidiaries. We were not
required to eliminate certain intercompany transactions, amounting to
approximately $1.9 million in 1997. We capitalized those amounts to utility
plant or environmental remediation costs on South Jersey Gas Company's (SJG)
books of account. SJG recovers those amounts through the rate-making process
(See Notes 9 & 13). All other significant intercompany accounts and
transactions were eliminated. SJI reclassified some previously reported amounts
to conform with current year classifications.
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 - SJG 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 Note 9).
Revenues - SJG and South Jersey Energy Company (SJE) bill customers
monthly. For customers not billed at the end of each month, an accrual is made
to recognize unbilled revenues from the date of the last bill to the end of the
month.
The BPU allows SJG to recover the excess cost of gas sold over the cost
included in base rates through the Levelized Gas Adjustment Clause (LGAC). We
collect these costs on a forecasted basis upon BPU order. SJG defers under- or
over-recoveries of gas costs and includes them in the following year's LGAC.
We pay interest on overcollected LGAC balances based on SJG's return on rate
base determined in base rate proceedings (See Note 9).
SJG's tariff also includes a Temperature Adjustment Clause (TAC), a
Remediation Adjustment Clause (RAC) and a Demand Side Management Clause (DSMC).
Our TAC reduces the impact of temperature fluctuations on SJG and its
customers. The RAC recovers remediation costs of former gas manufacturing
plants and the DSMC recovers costs associated with our conservation plan. TAC
adjustments affect revenue, income and cash flows since colder-than-normal
weather can generate credits to customers, while warmer-than-normal weather
during the winter season can result in additional billings. RAC adjustments do
not directly affect earnings because we defer and recover these costs through
rates over 7-year amortization periods (See Notes 9 & 13). DSMC adjustments are
not significant and do not affect earnings.
Property, Plant & Equipment - For regulatory purposes, utility plant is
stated at original cost. Nonutility plant is stated at cost. The cost of
adding, replacing and renewing property is charged to the appropriate plant
account.
Depreciation and Amortization - We depreciate utility plant on a straight-
line basis over the estimated remaining lives of the various property classes.
These estimates are periodically reviewed and adjusted as required after BPU
approval. The composite annual rate for all depreciable utility property was
approximately 2.8% in 1999, 1998 and 1997. Except for extraordinary
retirements, accumulated depreciation is charged with the cost of depreciable
utility property retired, and removal costs less salvage. The gas plant
acquisition adjustment is amortized on a straight-line basis over 40 years. The
unamortized balance of $1.8 million at December 31, 1999, is not included in
rate base. Nonutility property depreciation is computed on a straight-line
basis over the estimated useful lives of the property, ranging up to 35 years.
Gain or loss on the disposition of nonutility property is recognized in net
income.
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for our fiscal year
ending December 31, 2001. This statement establishes accounting and reporting
standards for derivative instruments, including those embedded in other
contracts, and for hedging activities. It requires recognizing derivatives as
assets or liabilities at fair value on the balance sheet. We are currently
evaluating the effects of FASB No. 133 on SJI's financial condition and results
of operations, which will vary based on our use of derivative instruments at
the time of adoption.
Income and Other Taxes - Deferred Income Taxes are provided for all
significant temporary differences between book and taxable income (See Notes 7
& 8).
New Jersey adopted legislation reforming energy taxation in 1997. The law
eliminated the Gross Receipts & Franchise Tax (GRAFT) of approximately 13% of
utility revenue, replacing it with a combination of taxes. Beginning January
1, 1998, retail sales and transportation of natural gas, electricity and
utility services are subject to the 6% State Sales and Use Tax (SUT). Gas and
electric utilities are also subject to the 9% State Corporation Business Tax
(CBT). To bridge the revenue gap the law created, the State imposed a
Transitional Energy Facilities Assessment (TEFA) on gas volumes sold and
transported. The TEFA is being phased out over 5 years beginning January 1,
1999. The revised tax policy is expected to eliminate tax differences between
utility and nonutility suppliers, providing fair competition and lower energy
costs for consumers. The legislation requires SJG to prepay taxes which,
depending on weather, may not materialize as expense during that same year.
Any remaining balance of these payments is settled up in the subsequent year.
Additionally, the SUT is not included in reported utility revenues or tax
expense, as GRAFT was previously. Therefore, there are equal reductions in
these line items on the statements of consolidated income (See Note 8).
Statements of Consoliated Cash Flows - For purposes of reporting cash
flows, highly liquid investments with original maturities of 3 months or less
are considered cash equivalents.
2. Preferred Stock and Securities of Subsidiary:
Redeemable Cumulative Preferred Stock - Annually, SJG is required to offer
to purchase 900 and 1,500 shares of its Cumulative Preferred Stock, Series A
and Series B, respectively, at par value, plus accrued dividends.
If preferred stock dividends are in arrears, SJG may not declare or pay
dividends or make distributions on its common stock. Preferred shareholders may
elect a majority of SJG's directors if four or more quarterly dividends are in
arrears.
Mandatorily Redeemable Preferred Securities - In May 1997, SJG's statutory
trust subsidiary, SJG Capital Trust (Trust), sold $35 million of 8.35% SJG-
Guaranteed Mandatorily Redeemable Preferred Securities. The Trust's only assets
are the 8.35% Deferrable Interest Subordinated Debentures issued by SJG
maturing April 2037. This is also the maturity date of the Preferred
Securities. The Debentures and Preferred Securities are redeemable at SJG's
option at a price equal to 100% of the principal amount at any time on or
after April 30, 2002.
SJI has 2,500,000 authorized shares of Preference Stock, no par value,
which has not been issued. SJI has registered and reserved for issuance 15,000
shares of Series A Junior Participating Cumulative Preferred Stock (Series A
Preferred Stock) connected with adopting its Shareholder Rights Plan (See Note
6).
3. Financial Instruments:
Long-Term Debt - The fair values of SJI's long-term debt, including
current maturities, as of December 31, 1999 and 1998, are estimated to be
$190.1 million and $227.0 million, respectively. Carrying amounts are $192.4
million and $203.6 million, respectively. The estimates are based on the
- 20 -
interest rates available to SJI at the end of each year for debt with similar
terms and maturities. SJI retires debt when it is cost effective as permitted
by the debt agreements.
Other Financial Instruments - The carrying amounts of SJI's other
financial instruments approximate their fair values at December 31, 1999 and
1998.
4. Unused Lines of Credit and Compensating Balances:
Unused lines of credit available at December 31, 1999, were $24.1 million.
Borrowings under these lines of credit are at market rates. The weighted
borrowing cost, which changes daily, was 6.45% and 5.81% at December 31, 1999
and 1998, respectively. Demand deposits are maintained with lending banks on
an informal basis and do not constitute compensating balances.
5. Divestitures and Affiliations:
Divestitures - In 1996, Energy & Minerals, Inc. (EMI), an SJI subsidiary,
sold the common stock of The Morie Company, Inc. (Morie), its sand mining and
processing subsidiary. We transferred cash, certain real estate and other
assets, along with certain liabilities remaining after the sale, to EMI's
books (See Note 13).
In 1997, R&T Group, Inc. (R&T), SJI's construction subsidiary, sold all of
its operating assets, except some real estate.
Annually, SJI conducts tests to estimate the environmental remediation
costs for properties owned by South Jersey Fuel, Inc. (SJF), a subsidiary of
EMI, from its previously operated fuel oil business. SJI reports the
environmental remediation activity related to these properties as discontinued
operations. This reporting is consistent with previous years (See Note 13).
In 1998, SJE actively traded electricity in the wholesale market, but
ceased its trading activities later that same year. Upon expiration of SJE's
last wholesale electric contract in December 1999, SJE formally exited
wholesale electric operations. Summarized operating results of the
discontinued operations were:
Thousands of Dollars
1999 1998 1997
---------- ---------- ----------
Operating Revenues:
Construction $ - $ - $ 4,928
Wholesale Electric - 117,236 -
-------- -------- --------
Total Operating Revenues $ - $117,236 $ 4,928
======== ======== ========
(Loss) Income before Income Taxes:
Sand Mining $ (216) $ (3,697) $ (1,257)
Construction (195) (587) 39
Fuel Oil (89) (72) (1,725)
Wholesale Electric (8) 573 -
Income Tax Credits 219 1,325 1,077
-------- -------- --------
Loss from Discontinued Operations - Net $ (289) $ (2,458) $ (1,866)
======== ======== ========
Earnings per Common Share
from Discontinued Operations $ (0.02) $ (0.23) $ (0.17)
======== ======== ========
Affiliations - SJI, through its wholly-owned subsidiary, SJ EnerTrade
(EnerTrade), and UPR Energy Marketing, Inc., jointly own South Jersey Resources
Group, LLC (SJRG). SJRG provides natural gas storage, peaking services and
transportation capacity for wholesale customers in New Jersey and surrounding
states.
In January 1999, SJI and Conectiv Solutions, LLC, formed Millennium
Account Services, LLC, to provide meter reading services in southern New
Jersey. Customers should benefit from reduced meter reading costs resulting
from synergies that exist because of overlapping territories.
In June 1999, SJE and Energy East Solutions, Inc. formed South Jersey
Energy Solutions, LLC (SJES) to market retail electricity and energy management
services. SJES is scheduled to begin supplying retail electricity during the
first quarter of 2000.
SJE and GZA GeoEnvironmental, Inc. (GZA) market a jointly developed air
monitoring system designed to assist companies involved in environmental
cleanup activities. This system is currently in use as a joint venture between
the two companies on a contract-by-contract basis.
SJI, through its wholly-owned subsidiaries, currently holds a 50% non-
controlling interest in these affiliations and accounts for the investments
under the equity method. The operations of SJRG, Millennium, SJES and air
monitoring are not material to the accompanying consolidated financial
statements.
6. Common Stock:
SJI has 20,000,000 shares of authorized Common Stock. The following shares
were issued and outstanding:
1999 1998 1997
---------- ---------- ----------
Beginning of Year 10,778,990 10,771,413 10,756,679
New Issues During Year:
Dividend Reinvestment Plan 367,622 - -
Employees' Stock Ownership Plan 4,144 3,875 4,770
Stock Option, Stock Appreciation
Rights, and Restricted Stock
Award Plan 31 1,952 9,514
Directors' Restricted Stock Plan 1,388 1,750 450
---------- ---------- ----------
End of Year 11,152,175 10,778,990 10,771,413
========== ========== ==========
The par value ($1.25 per share) of stock issued in 1999, 1998 and 1997 was
credited to Common Stock. Net excess over par value of approximately $9.6
million, $0.3 million, and $0.5 million, respectively, was credited to Premium
on Common Stock.
Effective 1996, SJI adopted FASB No. 123, "Accounting for Stock-Based
Compensation." This statement defines a fair value based method of accounting
for stock-based compensation. As permitted by the statement, we elect to
continue measuring compensation costs using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." The pro forma effect of adopting the fair value based
method of accounting on net income and Earnings per Share (EPS) is immaterial
for the 1999, 1998, and 1997 fiscal years.
Dividend Reinvestment Plan (DRP) and Employees' Stock Ownership Plan
(ESOP) - Effective June 1999, newly issued shares of common stock offered
through the DRP are issued directly by SJI. Prior to this date, these shares
were purchased in the open market. All shares offered through the ESOP continue
to be issued directly by SJI. As of December 31, 1999, SJI reserved 694,461 and
27,352 shares of authorized, but unissued, common stock for future issuance to
the DRP and ESOP, respectively.
Stock Option, Stock Appreciation Rights, and Restricted Stock Award
Plan - Under this plan, no more than 306,000 shares of common stock in the
aggregate may be issued to SJI's officers and other key employees. No options
or stock appreciation rights may be granted under the Plan after November 22,
2006. At December 31, 1999, 1998, and 1997, SJI had 4,500, 5,000 and 13,060
options outstanding, respectively, all exercisable at prices from $17.89 to
$24.69 per share. During 1997, 4,311 options were exercised at prices from
$17.16 to $17.89 per share. In addition, during 1999, 1998 and 1997; 500, 8,060
and 17,619 options were surrendered for the issuance of 31, 1,952 and 5,203
shares of common stock, respectively. No options were granted in 1999, 1998, or
1997. No stock appreciation rights were issued under the Plan. In 1999, the
Plan was amended to include restricted stock awards. As of December 31, 1999,
no awards were granted. Stock options outstanding at December 31, 1999, 1998,
and 1997, had no effect on EPS.
- 21 -
Directors' Restricted Stock Plan - Under this Plan, SJI granted an initial
award of 13,800 shares to outside directors in December 1996, at a market value
of $24.00 per share. The Plan also provides for annual awards and, in December
1999, 1998, and 1997, we granted 1,388, 1,750, and 450 additional shares,
respectively. Initial awards vest over 5 years, with 20% of those awards
vesting annually. Annual awards vest on their third anniversary. SJI holds
shares issued as restricted stock until the attached restrictions lapse. The
stock's market value on the grant date is recorded as compensation expense over
the applicable vesting period.
Shareholder Rights Plan - In September 1996, the board of directors
adopted a shareholder rights plan providing for the distribution of one right
for each share of common stock outstanding on and after October 11, 1996. Each
right entitles its holder to purchase 1/1000 of one share of Series A Preferred
Stock at an exercise price of $90 (See Note 2).
The rights will not be exercisable until after a person or group acquires
10% or more of SJI's common stock. Each of the rights (except for those held by
the 10% holder) entitles the holder to purchase that number of shares of SJI's
common stock, or common stock of the acquiring company, at a market value equal
to two times the exercise price.
SJI may redeem the rights in whole, but not in part, for $.001 per right
at any time until 10 days following the time the acquiring person or group
reached the 10% threshold. The rights expire if not exercised or redeemed by
September 20, 2006.
7. Regulatory Assets and Deferred Credits - Federal and Other Taxes:
The primary asset created by adopting FASB No. 109, "Accounting for Income
Taxes," was Income Taxes - Flowthrough Depreciation in the amount of $17.6
million as of January 1, 1993. This amount represented excess tax depreciation
over book depreciation on utility plant because of temporary differences for
which, prior to FASB No. 109, deferred taxes previously were not provided. SJG
previously flowed these tax benefits through to ratepayers. SJG is recovering
the amortization of the regulatory as set through rates over 18 years which
began in December 1994.
The Investment Tax Credit (ITC) attributable to SJG was deferred and
continues to be amortized at the annual rate of 3%, which approximates the life
of related assets.
SJG deferred $11.8 million resulting from a change in the basis for
accruing GRAFT in 1978, and is amortizing it on a straight-line basis to
operations over 30 years beginning that same year.
8. Income and Other Taxes:
Total income taxes applicable to operations differs from the tax that
would have resulted by applying the statutory Federal Income Tax rate to
pre-tax income for the following reasons:
Thousands of Dollars
1999 1998 1997
---------- ---------- ----------
Tax at Statutory Rate $ 12,090 $ 7,676 $ 10,260
Increase (Decrease) Resulting from:
State Income Taxes 3,895 3,170 23
Amortization of ITC (390) (393) (393)
Tax Depreciation Under Book
Depreciation on Utility Plant 664 664 664
Other - Net 169 542 185
-------- -------- --------
Income Taxes - Continuing Operations 16,428 11,659 10,739
Income Taxes - Discontinued Operations (219) (1,325) (1,424)
-------- -------- --------
Net Income Taxes $ 16,209 $ 10,334 $ 9,315
======== ======== ========
The provision for Income Taxes is comprised of the following:
Thousands of Dollars
1999 1998 1997
---------- ---------- ----------
Current:
Federal $ 6,151 $ 2,024 $ 4,964
State 3,218 2,227 97
-------- -------- --------
Total Current 9,369 4,251 5,061
-------- -------- --------
Deferred:
Federal
Excess of Tax Depreciation Over
Book Depreciation - Net 5,496 5,308 4,162
Deferred Fuel Costs 1,909 1,397 349
Environmental Remediation Costs - Net (1,058) 1,990 1,903
Alternative Minimum Tax 676 (1,750) (304)
Other - Net (15) (87) 35
State 441 943 (74)
-------- -------- --------
Total Deferred 7,449 7,801 6,071
-------- -------- --------
ITC (390) (393) (393)
-------- -------- --------
Income Taxes - Continuing Operations 16,428 11,659 10,739
Income Taxes - Discontinued Operations (219) (1,325) (1,424)
-------- -------- --------
Net Income Taxes $ 16,209 $ 10,334 $ 9,315
======== ======== ========
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Significant components of SJI's net deferred tax
liability at December 31 are:
Thousands of Dollars
1999 1998
---------- ----------
Deferred Tax Liabilities:
Tax Depreciation Over Book Depreciation $ 70,362 $ 67,150
Difference Between Book and Tax Basis of Property 6,478 6,041
Deferred Fuel Costs 9,235 6,835
Deferred Regulatory Costs 1,301 727
Environmental Remediation Costs 7,295 8,430
Excess Protected 3,355 3,421
GRAFT 1,022 1,215
Other 929 227
-------- --------
Total Deferred Tax Liabilities 99,977 94,046
-------- --------
Deferred Tax Assets:
Alternative Minimum Tax 2,327 3,135
ITC Basis Gross Up 2,601 2,802
Deferred State Tax 674 167
Other 3,208 3,115
-------- --------
Total Deferred Tax Assets 8,810 9,219
-------- --------
Net Deferred Tax Liability $ 91,167 $ 84,827
======== ========
The significant components of Other Taxes are:
Thousands of Dollars
1999 1998 1997
---------- ---------- ----------
TEFA $ 7,637 $ 7,378 $ -
GRAFT 197 123 27,361
Other 3,303 2,951 3,057
-------- -------- --------
Total Other Taxes $ 11,137 $ 10,452 $ 30,418
======== ======== ========
During 1999 and 1998, SJG recorded an additional $13.4 and $12.0 million,
respectively, for SUT on utility services through its consolidated balance
sheet. As an agent for the collection of SUT, we exclude these amounts from
reported revenues and tax expense (See Note 1).
- 22 -
9. Recent Regulatory Actions:
In January 1997, the BPU granted SJG a total rate increase of $10.3
million. The $6.0 million base rate portion of the increase was based on 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 from $4.0 million to $5.0 million. With the completion of major
construction projects, this $5.0 million threshold increased by $500,000 in
1997 and by another $2.0 million in 1998. SJG keeps 100% of pre-tax margins up
to the threshold level and 20% of such margins above that level. In October
1998, the BPU approved a revision to the Sharing Formula as part of an
agreement to modify SJG's TAC. The revision credits the first $750,000 above
the current threshold level to the LGAC customers. Thereafter, SJG keeps 20% of
the pre-tax margins as it has historically.
As part of the tariff changes approved in the rate case, SJG began its
pilot program in April 1997, giving residential customers a choice of gas
supplier. During the initial enrollment period, nearly 13,000 residential
customers applied for this service. The BPU subsequently expanded the number of
potential participants to 50,000 and, as of December 31, 1999, enrollment
totaled 35,683. Effective January 10, 2000, the BPU approved full unbundling of
SJG's system. This allows all natural gas consumers to select their supplier,
lifting the previously existing cap of 50,000 residential customers.
Participants' bills are reduced for cost of gas charges and applicable taxes.
The resulting decrease in revenues is offset by a corresponding decrease in gas
costs and taxes under SJG's BPU-approved fuel clause. While the program reduces
utility revenues, it does not affect SJI's net income, financial condition or
margins.
In June 1998, SJG filed a petition with the BPU requesting a change to the
TAC. The request was granted in October 1998. As a result, SJG experiences
reduced fluctuations in income when weather is warmer or colder than normal.
In August 1998, SJG filed with the BPU to recover increased remediation
costs expended from August 1995 through July 1998. In September 1999, the BPU
approved the requested annual recovery level of $6.5 million. This represents
an annual increase of approximately $4.5 million over the recovery previously
included in rates. In July 1999, SJG filed its annual RAC with the BPU
requesting recovery of carrying costs on unrecovered remediation costs and
proposed no change in the current RAC rate for the next 3 years. In January
2000, the BPU approved the recovery of carrying costs on unrecovered
remediation costs and SJG's proposal to keep its current RAC rate in effect
through October, 2002.
In September 1998, SJG filed its annual LGAC, TAC and DSMC with the BPU.
The LGAC and DSMC cover the period November 1 through October 31 of each year.
The TAC period runs from October 1 through May 31. In May 1999, the BPU
approved a $7.1 million increase in rates as part of this filing, which
included the results of the previous two annual filings. We are currently in
the process of preparing the 1999 annual filing which should be made with the
BPU during the first quarter of 2000.
In February 1999, the Electric Discount and Energy Competition Act became
law. This law established unbundling, where redesigned utility rate structures
allow natural gas and electric consumers to choose their energy supplier. SJG
filed its unbundling proposal in April 1999 and received final BPU approval in
January 2000.
In addition to allowing all customers to select their own supplier, the
unbundling approval also created an incentive to customers to select a
supplier, other than SJG, in the form of a Market Development Credit (MDC).
This credit will be provided to customers over the next two years and will
approximate $2.5 million plus carrying costs through December 2001. The
majority of this credit was provided for on SJG's books as a Deferred Credit.
Therefore, the impact of the MDC will not materially impact future periods.
Also included in the proposal was the approved recovery of carrying costs
on the RAC, as previously discussed, and a modification to SJG's LGAC. Under-
recovered gas costs of $11.9 million as of October 31, 1999, and carrying costs
thereon, will be recovered over 3 years. The LGAC for the period starting
November 1999, continues to operate as it has in the past (See Note 1).
10. Segments of Business:
Information about SJI's operations in different industry segments is
presented below:
Thousands of Dollars
1999 1998 1997
---------- ---------- ----------
Operating Revenues:
Gas Utility Operations $350,921 $299,070 $327,548
Other Industries 49,651 35,955 22,083
-------- -------- --------
Subtotal 400,572 335,025 349,631
Intersegment Sales (8,095) (2,015) (1,064)
-------- -------- --------
Total Operating Revenues $392,477 $333,010 $348,567
======== ======== ========
Operating Income:
Gas Utility Operations $ 59,480 $ 49,234 $ 51,555
Other Industries 1,911 67 (1,009)
-------- -------- --------
Subtotal 61,391 49,301 50,546
Income Taxes (16,428) (11,659) (10,739)
General Corporate 924 (1,929) (1,165)
-------- -------- --------
Total Operating Income $ 45,887 $ 35,713 $ 38,642
======== ======== ========
Depreciation and Amortization:
Gas Utility Operations $ 21,676 $ 19,014 $ 17,867
Other Industries 59 26 18
Discontinued Operations 30 23 227
-------- -------- --------
Total Depreciation and Amortization $ 21,765 $ 19,063 $ 18,112
======== ======== ========
Property Additions:
Gas Utility Operations $ 47,390 $ 64,862 $ 48,533
Other Industries 390 67 141
Discontinued Operations - - 1
-------- -------- --------
Total Property Additions $ 47,780 $ 64,929 $ 48,675
======== ======== ========
Identifiable Assets:
Gas Utility Operations $750,239 $720,137 $649,113
Other Industries 14,049 14,185 11,322
Discontinued Operations 2,326 9,562 2,993
-------- -------- --------
Subtotal 766,614 743,884 663,428
Corporate Assets 15,744 25,251 23,664
Intersegment Assets (15,433) (21,040) (16,491)
-------- -------- --------
Total Identifiable Assets $766,925 $748,095 $670,601
======== ======== ========
Gas Utility Operations consist primarily of natural gas distribution to
residential, commercial and industrial customers. Other Industries include the
natural gas and electric acquisition and transportation service companies (See
Note 5).
SJI's interest expense relates primarily to SJG's borrowing and financing
activities. These amounts are included in our statements of consolidated income
and not shown above. Interest income is essentially derived from borrowings
between the subsidiaries and is eliminated during consolidation.
11. Pensions & Other Postretirement Benefits:
SJI has several defined benefit pension plans and other postretirement
benefit plans. The pension plans provide annuity payments to substantially all
full-time, regular employees upon retirement. The other postretirement benefit
plans provide health care and life insurance benefits to some retirees.
The BPU authorized SJG to recover costs related to postretirement benefits
other than pensions under the accrual method of accounting consistent with FASB
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Amounts accrued prior to that authorization were deferred and are
being amortized as allowed by the BPU. The unamortized balance amounting to
- 23 -
$4.9 million at December 31, 1999, is recoverable in rates. We are amortizing
this amount over 15 years which started in January 1998.
Net periodic benefit cost related to the pension and other postretirement
benefit insurance plans, consisted of the following components:
Thousands of Dollars
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
------------------------- -------------------------
Service cost $ 2,245 $ 1,912 $ 1,960 $ 1,098 $ 903 $ 994
Interest cost 4,211 3,973 3,820 1,593 1,494 1,579
Expected return on
plan assets (4,280) (3,894) (3,358) (675) (417) (272)
Amortization of
transition
obligation 72 72 72 772 796 796
Amortization of loss
(gain) and other 436 292 340 - (14) -
------- ------- ------- ------- ------- -------
Net periodic
benefit cost $ 2,684 $ 2,355 $ 2,834 $ 2,788 $ 2,762 $ 3,097
------- ------- ------- ------- ------- -------
A reconciliation of the Plans' benefit obligations, fair value of plan
assets, funded status and amounts recognized in SJI's consolidated balance
sheets follows:
Thousands of Dollars
Pension Benefits Other Benefits
1999 1998 1999 1998
-------- -------- -------- --------
Change in Benefit Obligation:
Benefit obligation at beginning
of year $ 64,035 $ 56,753 $ 24,248 $ 24,024
Service cost 2,245 1,912 1,098 903
Interest cost 4,211 3,973 1,593 1,494
Actuarial (gain) loss and other (8,260) 3,783 (3,405) (1,436)
Benefits paid (2,701) (2,386) (693) (737)
-------- -------- -------- --------
Benefit obligation at end of year $ 59,530 $ 64,035 $ 22,841 $ 24,248
-------- -------- -------- --------
Change in Plan Assets:
Fair value of plan assets
at beginning of year $ 47,976 $ 46,875 $ 6,972 $ 4,403
Actual return on plan assets 5,541 1,887 392 568
Employer contributions 2,504 1,600 2,801 2,738
Benefits paid (2,701) (2,386) (693) (737)
-------- -------- -------- --------
Fair value of plan assets at end
of year $ 53,320 $ 47,976 $ 9,472 $ 6,972
-------- -------- -------- --------
Funded status $ (6,210) $(16,059) $(13,368) $(17,276)
Unrecognized prior service cost 2,930 3,222 - -
Unrecognized net obligation assets
from transition 287 359 10,033 10,805
Unrecognized net (gain) loss
and other (564) 9,101 (3,649) (527)
-------- -------- -------- --------
Accrued net benefit cost at end
of year $ (3,557) $ (3,377) $ (6,984) $ (6,998)
-------- -------- -------- --------
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets as of December 31, 1998, were $35.2 million, $28.4
million, and $26.2 million, respectively. As of December 31, 1999, the
accumulated benefit obligations did not exceed plan assets.
Assumptions used in the accounting for these plans were:
Pension Benefits Other Benefits
1999 1998 1999 1998
-------- -------- -------- --------
Discount rate 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase 4.60% 4.10% - -
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation as of December 31, 1999, are: Medical and
Drug - 6.0% in 1999 for participants age 65 or older, grading to 5.5% in 2001,
and 7.5% in 1999 for participants under age 65, grading to 5.5% in 2005.
Dental - 7.0% in 1999, grading to 5.5% in 2005.
A 1% change in the assumed health care cost trend rates for SJI's
postretirement health care plans in 1999 would have the following effects:
Thousands of Dollars
1% Increase 1% Decrease
----------- -----------
Effect on the aggregate of the service
and interest cost components $ 456 $ (366)
Effect on the postretirement benefit obligation $2,898 $(2,660)
12. Retained Earnings:
Restrictions exist under various loan agreements regarding the amount of
cash dividends or other distributions that we may pay on SJG's common stock.
SJI's total equity in its subsidiaries' retained earnings, which is free of
these restrictions, was approximately $48.6 million as of December 31, 1999.
13. Commitments and Contingencies:
Construction and Environmental - SJI's estimated net cost of construction
and environmental remediation programs for 2000 totals $51.6 million.
Commitments were made regarding some of these programs.
Gas Supply Contracts - SJG, in the normal course of conducting business,
has entered into long-term contracts for natural gas supplies, firm
transportation and gas storage service. The earliest that any of these
contracts expires is 2000. The transportation and storage service agreements
between SJG and its interstate pipeline suppliers were made under Federal
Energy Regulatory Commission approved tariffs. SJG's cumulative obligation for
demand charges and reservation fees paid to suppliers for these services is
approximately $4.8 million per month, recovered on a current basis through the
LGAC.
Pending Litigation - SJI is subject to claims arising from the ordinary
course of business and other legal proceedings. In November 1999, Goldin
Associates LLC, Trustee for the Power Company of America Liquidating Trust
(PCA), filed a complaint in bankruptcy court against SJE seeking damages of $11
million plus interest and attorneys' fees. PCA was a wholesale electricity
trading company with whom SJE did business. PCA filed for bankruptcy protection
under Chapter 11 of the Bankruptcy Code. We believe SJE acted prudently,
responsibly and in accordance with contractual obligations in its transactions
with PCA. We believe the ultimate impact of these actions will not materially
affect SJI's financial position, results of operations or liquidity.
Environmental Remediation Costs - SJI incurred and recorded costs for
environmental cleanup of sites where SJG or its predecessors operated gas
manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and some
of its nonutility subsidiaries also recorded costs for environmental cleanup
of sites where SJF previously operated a fuel oil business and Morie maintained
equipment, fueling stations and storage.
Since the early 1980s, SJI recorded environmental remediation costs of
$116.3 million, of which $60.9 million was spent as of December 31, 1999. With
the assistance of an outside consulting firm, we estimate that future costs to
clean up SJG's sites will range from $51.0 million to $161.3 million. We
recorded the lower end of this range as a liability. It is reflected on the
1999 consolidated balance sheet under the captions Current Liabilities and
Deferred Credits and Other Non-Current Liabilities (See Note 1). SJG did not
adjust the accrued liability for future insurance recoveries, which we have
- 24 -
been successful in pursuing. We used these proceeds to offset related legal
fees and to reduce the balance of deferred environmental remediation costs.
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
technology, government regulations and site-specific requirements.
The major portion of recorded environmental costs relate to the cleanup of
SJG's former gas manufacturing sites. SJG recorded $109.6 million for the
remediation of these sites and spent $58.5 million through December 31, 1999.
SJG has two regulatory assets associated with environmental cost. The
first asset is titled Environmental Remediation Cost: Expended - Net. These
expenditures represent what was actually spent to clean up former gas
manufacturing plant sites. These costs meet the requirements of FASB No. 71,
"Accounting for the Effects of Certain Types of Regulation." The BPU allows SJG
to recover expenditures through July 1998 and petitions to recover costs
through July 1999 are pending (See Note 9).
The other asset titled Environmental Remediation Cost: Liability for
Future Expenditures relates to estimated future expenditures determined under
the guidance of FASB No. 5, "Accounting for Contingencies." This amount, which
relates to former manufactured gas plant sites, was recorded as a deferred
debit with the corresponding amount reflected on the consolidated balance sheet
under the captions, Current Liabilities and Deferred Credits and Other Non-
Current Liabilities. The deferred debit is a regulatory asset under FASB No.
71. The BPU's intent, evidenced by current practice, is to allow SJG to recover
the deferred costs after they are spent.
SJG files with the BPU to recover these costs in rates through its RAC.
The BPU has consistently allowed the full recovery over 7-year periods, and SJG
believes this will continue. As of December 31, 1999, SJG's unamortized
remediation costs of $25.7 million are reflected on the consolidated balance
sheet under the caption, Regulatory and Other Non-Current Assets. Since
implementing the RAC in 1992, SJG recovered $21.6 million through rates as of
December 31, 1999 (See Note 9).
With Morie's sale, EMI assumed responsibility for environmental
liabilities estimated between $2.8 million and $9.0 million. The information
available on these sites is sufficient only to establish a range of probable
liability, and no point within the range is more likely than any other.
Therefore, EMI continues to accrue the lower end of the range. Changes in the
accrual are included in the statements of consolidated income under the
caption, Loss from Discontinued Operations - Net.
SJI and SJF estimated their potential exposure for the future remediation
of four sites where fuel oil operations existed years ago. Estimates for SJI's
site range between $0.1 million and $0.2 million, while SJF's estimated
liability ranges from $1.2 million to $4.5 million for its three sites.
Amounts sufficient to cover the lower ends of these ranges were recorded and
are reflected on the 1999 consolidated balance sheet under Current Liabilities
and Deferred Credits and Other Non-Current Liabilities as of December 31,
1999.
Management's Responsibilities to Financial Statements
South Jersey Industries, Inc.'s management is responsible for the
integrity and objectivity of SJI's financial statements and related
disclosures. These statements and disclosures were prepared using management's
best judgment and conform with generally accepted accounting principles.
The board of directors, acting through its audit committee, which is
composed of outside directors, oversees management's responsibilities for
accounting, internal control and financial reporting. The audit committee meets
periodically with management and the internal and independent auditors to
discuss auditing and financial matters, and to assure that each is carrying out
its responsibilities. The internal auditors and independent auditors have
access to the members of the audit committee at any time.
- 25 -
Quarterly Financial Data (Unaudited)
Summarized quarterly results of SJI's operations, in thousands except for per share amounts:
1999 Quarter Ended 1998 Quarter Ended
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- -------- -------- -------- -------- --------
Operating Revenues $146,732 $ 76,697 $ 59,165 $109,883 $116,790 $ 60,019 $ 51,021 $105,180
-------- -------- -------- -------- -------- -------- -------- --------
Operating Expenses:
Operation and Maintenance
Including Fixed Charges 111,631 74,357 64,332 92,615 90,933 59,856 55,735 90,931
Income Taxes 12,701 470 (2,544) 5,801 9,489 (409) (2,357) 4,936
Other Taxes 4,497 1,872 1,531 3,237 3,914 2,027 1,601 2,910
-------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) from
Continuing Operations 17,903 (2) (4,154) 8,230 12,454 (1,455) (3,958) 6,403
Discontinued Operations - Net (64) (59) (37) (129) (326) (2,467) 893 (558)
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (Loss) Applicable
to Common Stock $ 17,839 $ (61) $ (4,191) $ 8,101 $ 12,128 $ (3,922) $ (3,065) $ 5,845
======== ======== ======== ======== ======== ======== ======== ========
Earnings Per Common Share
(Based on Average
Shares Outstanding): (1)
Continuing Operations $ 1.66 $ 0.00 $ (0.38) $ 0.74 $ 1.16 $ (0.14) $ (0.36) $ 0.59
Discontinued Operations - Net 0.00 (0.01) 0.00 (0.01) (0.03) (0.22) 0.08 (0.05)
-------- -------- -------- -------- -------- -------- -------- --------
Earnings Per Common Share $ 1.66 $ (0.01) $ (0.38) $ 0.73 $ 1.13 $ (0.36) $ (0.28) $ 0.54
======== ======== ======== ======== ======== ======== ======== ========
Average Shares Outstanding 10,780 10,781 10,975 11,151 10,774 10,775 10,776 10,778
<FN>
(1) The sum of the quarters for 1999 and 1998 does not equal the year's
total due to rounding.
NOTE: Because of the seasonal nature of the business, statements
for the 3-month periods are not indicative of the results
for a full year.
</FN>
Market Price of Common Stock and Related Information
Market Price Dividends Market Price Dividends
Quarter Ended Per Share Declared Quarter Ended Per Share Declared
1999 High Low Per Share 1998 High Low Per Share
- ------------- --------- ------- --------- ------------- --------- ------- ---------
March 31 $26 11/16 $21 1/2 $0.36 March 31 $30 3/4 $28 3/4 $0.36
June 30 $30 $21 5/8 $0.36 June 30 $30 $26 1/2 $0.36
Sept. 30 $30 3/4 $26 1/16 $0.36 Sept. 30 $27 7/8 $22 $0.36
Dec. 31 $30 1/4 $25 1/2 $0.36 Dec. 31 $27 $25 $0.36
<FN>
These quotations are based on the list of composite transactions of the New
York Stock Exchange. Our stock is traded on the New York and Philadelphia stock
exchanges under the symbol SJI. We have declared and expect to continue to
declare regular quarterly cash dividends. As of December 10, 1999, the latest
available date, our stock records indicate that there were 9,725 shareholders.
</FN>
- 26 -
South Jersey Gas Company Comparative Operating Statistics
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Operating Revenues (Thousands):
Firm
Residential $152,946 $147,274 $176,717 $177,673 $151,720
Commercial 35,064 36,328 60,418 70,755 58,135
Industrial 4,879 4,175 5,535 7,540 6,014
Cogeneration & Electric Generation 8,496 8,119 5,249 16,173 15,725
Firm Transportation 33,125 24,893 15,966 10,473 13,930
-------- -------- -------- -------- --------
Total Firm Revenues 234,510 220,789 263,885 282,614 246,524
Interruptible 1,645 2,506 6,085 7,256 6,786
Interruptible Transportation 1,724 2,598 3,507 2,630 2,778
Off-System 104,142 62,578 39,403 28,236 20,360
Capacity Release & Storage 4,193 6,031 8,533 4,349 3,374
Other 4,707 4,568 6,135 5,249 3,897
-------- -------- -------- -------- --------
Intercompany Sales (5,211) (1,032) (71) (1,039) (2,486)
Total Operating Revenues $345,710 $298,038 $327,477 $329,295 $280,233
======== ======== ======== ======== ========
Throughput (MMcf):
Firm
Residential 17,741 16,979 19,955 21,699 19,573
Commercial 4,634 4,826 8,067 10,117 8,945
Industrial 246 348 733 1,238 1,016
Cogeneration & Electric Generation 2,316 2,373 1,230 5,180 4,860
Firm Transportation 25,143 22,336 20,196 12,969 14,417
-------- -------- -------- -------- --------
Total Firm Throughput 50,080 46,862 50,181 51,203 48,811
-------- -------- -------- -------- --------
Interruptible 383 694 1,345 1,618 1,843
Interruptible Transportation 3,628 6,049 7,586 5,422 5,888
Off-System 42,480 26,916 14,462 8,571 9,590
Capacity Release & Storage 29,247 27,319 36,382 25,460 25,915
-------- -------- -------- -------- --------
Total Throughput 125,818 107,840 109,956 92,274 92,047
======== ======== ======== ======== ========
Number of Customers at Year End:
Residential 254,601 248,210 242,132 236,008 230,446
Commercial 18,894 18,457 18,037 17,469 17,179
Industrial 404 398 398 397 397
-------- -------- -------- -------- --------
Total Customers 273,899 267,065 260,567 253,874 248,022
======== ======== ======== ======== ========
Maximum Daily Sendout (MMcf) 324 314 355 325 335
======== ======== ======== ======== ========
Annual Degree Days 4,468 4,110 4,829 5,175 4,865
======== ======== ======== ======== ========
Normal Degree Days* 4,664 4,708 4,728 4,689 4,709
======== ======== ======== ======== ========
<FN>
* Average degree days recorded in SJG service territory during 20-year period
ended June 30 of prior year.
</FN>
- 27 -
South Jersey Industries, Inc.
Board of Directors
Shirli M. Billings, Ph.D.
Director since 1983, Age 59 1, 4, 5*
President, Leadership Learning Academy, Lakeland, Fla.
Charles Biscieglia
Director since 1998, Age 55 3+, 4*, 5+
Chairman, President and CEO of South Jersey Industries, Inc. and
President and CEO of South Jersey Gas Company
Sheila H. Coco
Director since 1999, Age 41 1, 2
Executive Vice President of Fiduciary Trust Company International, New York,
N.Y.
Richard L. Dunham
Director since 1984, Age 70 3+, 4, 5+
Former Chairman of the Board, now retired
Former Chairman of the Federal PowerCommission (now the Federal Energy
Regulatory Commission), Washington, D.C.
W. Cary Edwards
Director from April 1990 to January 1993 and September
1993 to present, Age 55 2, 3, 4
Managing Partner, law firm of Edwards & Caldwell, Hawthorne, N.J.
Thomas L. Glenn, Jr.
Director since 1986, Age 65 1, 3*, 4
Chairman, Glenn Insurance, Inc., Absecon, N.J.
Herman D. James, Ph.D.
Director since 1990, Age 56 1*, 2, 5
Distinguished Professor, Rowan University, Glassboro, N.J.
Clarence D. McCormick
Director since 1979, Age 70 2*, 4, 5
Retired Chairman and CEO of The Farmers and Merchants National Bank of
Bridgeton, N.J. and Retired Chairman and President of Southern Jersey Bancorp
of Delaware, Bridgeton, N.J.
Frederick R. Raring
Director since 1995, Age 62 1, 3, 5
President, Seashore Supply Company, Atlantic City, N.J.
1 Audit Committee
2 Compensation/Pension Committee
3 Environmental Committee
4 Executive Committee
5 Nominating Committee
* Committee Chair
+ Ex Officio
South Jersey Industries, Inc.
Officers
Charles Biscieglia
Chairman, President and CEO
George L. Baulig
Vice President & Corporate Secretary
Edward J. Graham
Vice President
David A. Kindlick
Vice President
Albert V. Ruggiero
Vice President
William J. Smethurst, Jr.
Treasurer
Julius J. Bodrog
Assistant Vice President & Assistant Treasurer
Richard H. Walker, Jr.
Assistant Secretary
- 28 -
SJI Corporate Headquarters
1 South Jersey Plaza
Folsom, NJ 08037-9917
(609) 561-9000
TDD only 1-800-547-9085
www.sjindustries.com
Transfer Agent and Registrar
First Union National Bank
Corporate Trust Client Services NC 1153
1525 West W. T. Harris Blvd. 3C3
Charlotte, NC 28288-1153
Dividend, Dividend Reinvestment and Other Shareholder Inquiries
South Jersey Industries, Inc.
Shareholder Records Department
Call toll-free: 1-888-SJI-3100
Investor Relations
Stephen H. Clark, Director
(609) 561-9000 ext. 4260
Annual Meeting Information
The Annual Meeting of Shareholders will be held Wednesday, April 19, 2000
at 10 a.m. at the company's corporate headquarters.
Dividend Reinvestment Plan
SJI's Dividend Reinvestment Plan provides record shareholders of SJI's
common stock with a way to increase their investment in the company without
payment of any brokerage commission or service charge.
Shareholders who participate in the Plan may purchase shares of common
stock by the automatic reinvestment of dividends. The Plan is now available to
any person who, upon enrollment, agrees to become a shareholder by purchasing
at least $100 of SJI common stock. Optional purchases are permitted each
quarter up to a maximum of $100,000 in any calendar year as prescribed in the
Plan.
Shares of common stock offered through the Plan are newly issued or
treasury common stock that the Plan acquires directly from SJI. The price of
these shares will be 98 percent of the average of the high and low sale prices
for SJI's common stock for each of the last 12 days on which the common stock
was traded prior to the purchase date, as published in The Wall Street Journal
report of New York Stock Exchange composite transactions. The offer and sale
of shares under the Plan will be made only through a Prospectus, which may be
obtained by contacting the Shareholder Records Department.
Direct Deposit of Dividends (Electronic Funds Transfer)
Stockholders of record can have immediate access to dividend funds. Your
dividend funds can be deposited directly into your checking or savings account.
Confirmation of dividend receipts will appear on your monthly bank statements.
South Jersey Industries, Inc.'s stock is traded on the New York and
Philadelphia stock exchanges under the trading symbol, SJI. The information
contained herein is not given in connection with any sale or offer of, or
solicitation of an offer to buy, any securities.
- 29 -