Page 1 of 27
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000 Commission File Number 1-6364
SOUTH JERSEY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1901645
(State of incorporation) (IRS employer identification no.)
1 South Jersey Plaza, Folsom, NJ 08037
(Address of principal executive offices, including zip code)
(609) 561-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 24, 2000, there were 11,496,344 shares of the registrant's common
stock outstanding.
Exhibit Index on page 27
- Cover Page -
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements -- See Pages 3 through 16
SJI-2
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except for Per Share Data)
Three Months Ended
September 30,
----------------------
2000 1999
---------- ----------
Operating Revenues:
Utility $58,885 $49,287
Nonutility 16,877 9,878
---------- ----------
Total Operating Revenues 75,762 59,165
---------- ----------
Operating Expenses:
Cost of Gas Sold - Utility 41,404 32,421
Cost of Sales - Nonutility 15,925 9,361
Operations 10,711 10,528
Maintenance 1,355 1,289
Depreciation 5,074 4,781
Income Taxes (2,560) (2,544)
Other Taxes 1,700 1,531
---------- ----------
Total Operating Expenses 73,609 57,367
---------- ----------
Operating Income 2,153 1,798
---------- ----------
Interest Charges:
Long-Term Debt 4,268 3,802
Short-Term Debt and Other 1,127 1,381
---------- ----------
Total Interest Charges 5,395 5,183
---------- ----------
Preferred Dividend Requirements of Subsidiary 766 769
---------- ----------
Loss from Continuing Operations (4,008) (4,154)
Loss from Discontinued Operations - Net (110) (37)
---------- ----------
Net Loss Applicable to Common Stock ($4,118) ($4,191)
========== ==========
Average Shares of Common Stock Outstanding 11,462 10,975
========== ==========
Earnings Per Common Share:
Continuing Operations ($0.35) ($0.38)
Discontinued Operations - Net (0.01) 0.00
---------- ----------
Earnings Per Common Share ($0.36) ($0.38)
========== ==========
Dividends Declared Per Common Share $0.365 $0.360
========== ==========
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJI-3
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except for Per Share Data)
Nine Months Ended
September 30,
----------------------
2000 1999
---------- ----------
Operating Revenues:
Utility $278,202 $249,878
Nonutility 54,306 32,716
---------- ----------
Total Operating Revenues 332,508 282,594
---------- ----------
Operating Expenses:
Cost of Gas Sold - Utility 178,816 153,146
Cost of Sales - Nonutility 48,478 30,213
Operations 32,139 31,508
Maintenance 5,857 3,890
Depreciation 15,042 14,102
Income Taxes 11,314 10,627
Other Taxes 8,161 7,900
---------- ----------
Total Operating Expenses 299,807 251,386
---------- ----------
Operating Income 32,701 31,208
---------- ----------
Interest Charges:
Long-Term Debt 11,787 11,826
Short-Term Debt and Other 3,553 3,322
---------- ----------
Total Interest Charges 15,340 15,148
---------- ----------
Preferred Dividend Requirements of Subsidiary 2,307 2,313
---------- ----------
Income from Continuing Operations 15,054 13,747
Loss from Discontinued Operations - Net (327) (160)
---------- ----------
Net Income Applicable to Common Stock $14,727 $13,587
========== ==========
Average Shares of Common Stock Outstanding 11,369 10,846
========== ==========
Earnings Per Common Share:
Continuing Operations $1.32 $1.27
Discontinued Operations - Net (0.03) (0.02)
---------- ----------
Earnings Per Common Share $1.29 $1.25
========== ==========
Dividends Declared Per Common Share $1.095 $1.080
========== ==========
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJI-4
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
September 30, December 31,
------------------------ ------------
2000 1999 1999
----------- ----------- ------------
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $752,218 $713,117 $723,114
Accumulated Depreciation (203,969) (188,898) (192,240)
Nonutility Property and Equipment, at cost 3,203 3,118 3,423
Accumulated Depreciation (965) (906) (951)
----------- ----------- ------------
Property, Plant and Equipment - Net 550,487 526,431 533,346
----------- ----------- ------------
Investments:
Available-for-Sale Securities 2,341 1,392 1,707
Investment in Affiliate 4,451 2,087 2,251
----------- ----------- ------------
Total Investments 6,792 3,479 3,958
----------- ----------- ------------
Current Assets:
Cash and Cash Equivalents 7,668 3,060 5,634
Notes Receivable - Affiliate 205 4,550 2,650
Accounts Receivable 38,211 24,975 43,130
Unbilled Revenues 7,733 5,112 22,328
Provision for Uncollectibles (1,033) (1,187) (1,117)
Natural Gas in Storage, average cost 55,777 30,662 27,066
Materials and Supplies, average cost 3,807 4,006 4,085
Prepaid Taxes 8,665 8,845 4,069
Prepayments and Other Current Assets 3,453 4,272 3,203
----------- ----------- ------------
Total Current Assets 124,486 84,295 111,048
----------- ----------- ------------
Accounts Receivable - Merchandise 869 1,133 1,108
----------- ----------- ------------
Regulatory and Other Non-Current Assets:
Environmental Remediation Costs:
Expended - Net 14,527 25,818 25,702
Liability for Future Expenditures 51,029 52,939 51,029
Gross Receipts & Franchise Taxes 2,809 3,252 3,141
Income Taxes - Flowthrough Depreciation 10,797 11,775 11,531
Deferred Fuel Costs - Net 23,811 7,953 13,174
Deferred Postretirement Benefit Costs 4,630 5,050 4,914
Other 8,474 8,019 7,974
----------- ----------- ------------
Total Regulatory and Other Non-Current Assets 116,077 114,806 117,465
----------- ----------- ------------
Total Assets $798,711 $730,144 $766,925
=========== =========== ============
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJI-5
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
September 30, December 31,
------------------------ ------------
2000 1999 1999
----------- ----------- ------------
Capitalization and Liabilities
Common Equity:
Common Stock $14,328 $13,937 $13,940
Premium on Common Stock 128,898 120,887 120,868
Retained Earnings 52,744 46,381 50,467
----------- ----------- ------------
Total Common Equity 195,970 181,205 185,275
----------- ----------- ------------
Preferred Stock and Securities of Subsidiary:
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value $100 per share
Authorized - 43,104, 45,504 and 45,504 shares
Outstanding Shares:
Series A, 4.70% -- 300, 1,200 and 1,200 shares 30 120 120
Series B, 8.00% -- 17,742, 19,242 and 19,242 shares 1,774 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 35,000
----------- ----------- ------------
Total Preferred Stock and Securities of Subsidiary 36,804 37,044 37,044
----------- ----------- ------------
Long-Term Debt 207,123 185,704 183,561
----------- ----------- ------------
Total Capitalization 439,897 403,953 405,880
----------- ----------- ------------
Current Liabilities:
Notes Payable 93,800 95,375 119,950
Current Maturities of Long-Term Debt 11,876 8,876 8,876
Accounts Payable 55,620 39,332 40,273
Customer Deposits 5,284 5,305 5,386
Environmental Remediation Costs 13,818 10,110 14,027
Taxes Accrued 3,367 1,424 563
Interest Accrued and Other Current Liabilities 13,618 8,343 14,112
----------- ----------- ------------
Total Current Liabilities 197,383 168,765 203,187
----------- ----------- ------------
Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes - Net 93,927 84,521 91,167
Investment Tax Credits 4,595 4,946 4,849
Pension and Other Postretirement Benefits 12,577 14,413 13,342
Environmental Remediation Costs 41,354 47,263 41,354
Other 8,978 6,283 7,146
----------- ----------- ------------
Total Deferred Credits and Other Non-Current
Liabilities 161,431 157,426 157,858
----------- ----------- ------------
Commitments and Contingencies (See Note 8)
Total Capitalization and Liabilities $798,711 $730,144 $766,925
=========== =========== ============
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJI-6
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Nine Months Ended
September 30,
---------------------------
2000 1999
------------ ------------
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $14,727 $13,587
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 17,286 16,256
Provision for Losses on Accounts Receivable 729 678
Revenues and Fuel Costs Deferred - Net (10,637) (2,444)
Deferred and Non-Current Income Taxes and Credits - Net 3,107 291
Environmental Remediation Costs - Net 10,966 1,462
Changes in:
Accounts Receivable 18,701 31,228
Inventories (28,433) (2,998)
Prepayments and Other Current Assets (250) (888)
Prepaid and Accrued Taxes - Net (1,792) 4,898
Accounts Payable and Other Accrued Liabilities 14,751 (18,566)
Other - Net 2,202 4,158
------------ ------------
Net Cash Provided by Operating Activities 41,357 47,662
------------ ------------
Cash Flows from Investing Activities:
Investment in Affiliate (2,201) (647)
Repayment of Loan to Affiliate 2,445 (200)
Purchase of Available-For-Sale Securities (633) (461)
Capital Expenditures, Cost of Removal and Salvage (33,643) (36,899)
------------ ------------
Net Cash Used in Investing Activities (34,032) (38,207)
------------ ------------
Cash Flows from Financing Activities:
Net Repayments of Lines of Credit (26,150) (1,625)
Proceeds from Issuance of Long-Term Debt 35,000 -
Principal Repayments of Long-Term Debt (8,438) (9,006)
Dividends on Common Stock (12,450) (11,713)
Proceeds from Sale of Common Stock 8,377 10,048
Repurchase of Preferred Stock (240) (90)
Payments for Issuance of Long-Term Debt and Preferred Securities (1,390) -
------------ ------------
Net Cash Used in Financing Activities (5,291) (12,386)
------------ ------------
Net Increase(Decrease) in Cash and Cash Equivalents 2,034 (2,931)
Cash and Cash Equivalents at Beginning of Period 5,634 5,991
------------ ------------
Cash and Cash Equivalents at End of Period $7,668 $3,060
============ ============
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJI-7
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies:
Consolidation - The consolidated financial statements include the accounts
of South Jersey Industries, Inc. (SJI) and its subsidiaries. All significant
intercompany accounts and transactions were eliminated. We reclassified some
previously reported amounts to conform with current year classifications. In
our opinion, the condensed consolidated financial statements reflect all
adjustments needed to fairly present SJI's financial position and operating
results at the dates and for the periods presented. Our businesses are subject
to seasonal fluctuations and, accordingly, this interim financial information
should not be the basis for estimating the full year's operating results.
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.
Equity-Based Investments in Affiliates - SJI, either directly or through
its wholly-owned subsidiaries, currently holds a 50% non-controlling interest
in several affiliated companies and accounts for the investments under the
equity method. The operations of these affiliated companies are not material
to the accompanying condensed consolidated financial statements.
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 our financial condition and results
of operations, which may vary based on our use of derivative instruments at the
time of adoption.
Note 2. Discontinued Operations and Affiliations:
Discontinued Operations - Summarized operating results of the discontinued
operations were (in thousands):
SJI-8
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
(Loss)Income before Income Taxes:
Sand Mining $ (63) $ (40) $ (126) $ (181)
Construction 5 (4) 7 (27)
Fuel Oil (20) (17) (68) (55)
Wholesale Electric (99) - (347) -
Income Tax Credits 67 24 207 103
------ ------ ------ ------
Loss from Discontinued
Operations - Net $ (110) $ (37) $ (327) $ (160)
====== ====== ====== ======
Earnings per Common Share
from Discontinued Operations $(0.01) $ 0.00 $(0.03) $(0.02)
====== ====== ====== ======
Affiliations - SJI, through its wholly-owned subsidiary SJEnerTrade
(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.
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 began supplying retail electric in March of 2000.
SJE and GZA GeoEnvironmental, Inc. (GZA) market a jointly-developed air
monitoring system designed to assist companies involved in environmental
cleanup activities. In April 2000, SJE and GZA formed AirLogics, LLC to
continue the marketing of this air monitoring system which had previously been
managed as a joint venture between the two companies on a contract-by-contract
basis.
Note 3. Common Stock:
SJI has 20,000,000 shares of authorized Common Stock. The following
shares were issued and outstanding:
SJI-9
2000 1999
---------- ----------
Beginning Balance, January 1 11,152,175 10,778,990
New Issues During Year:
Dividend Reinvestment Plan 298,775 366,610
Employees' Stock Ownership Plan 5,625 4,144
Stock Option, Stock Appreciation
Rights, and Restricted Stock
Award Plan 5,545 31
Directors' Restricted Stock Plan 180 -
---------- ----------
Ending Balance, September 30 11,462,300 11,149,775
========== ==========
The par value ($1.25 per share) of stock issued in 2000 and 1999 was
credited to Common Stock. Net excess over par value of approximately $8.1
million, and $9.7 million, respectively, was credited to Premium on Common
Stock for the nine months ended September 30, 2000 and 1999, respectively.
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 September 30, 2000, SJI reserved
393,010 and 24,403 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, up to an aggregate of 306,000 shares of common stock may be
issued to SJI's officers and other key employees. No options or stock
appreciation rights may be granted under the Plan after January 23, 2007. At
September 30, 2000 and 1999, SJI had 4,500 options outstanding, all exercisable
at $24.69 per share. During the nine months ended September 30, 1999, 500
options were surrendered for the issuance of 31 shares of common stock. No
options and no stock appreciation rights were granted or issued in 2000 and
1999. In 1999, the Plan was amended to include restricted stock awards. In
January 2000, a total of 35,070 shares of common stock were granted under the
provisions of the restricted stock award plan at a market value of $28.4375 per
share. An aggregate of 29,525 shares vest over 3 years beginning January 2000.
The stock's market value on the grant date is recorded as compensation over the
vesting period. There were no vesting restrictions placed on the remaining
5,545 shares which were issued in March 2000. Stock options outstanding and
unvested restricted stock awards at September 30, 2000 and 1999 had no effect
on EPS.
SJI-10
Note 4. Income Taxes:
The significant components of federal and state income taxes reflected in
the condensed consolidated statements of income are as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
Current:
Federal $(2,945) $(2,147) $ 5,750 $ 7,237
State (654) (494) 2,457 3,099
------ ------ ------ ------
Total Current (3,599) (2,641) 8,207 10,336
Deferred:
Federal 984 326 2,952 977
State 136 (131) 409 (393)
------ ------ ------ ------
Total Deferred 1,120 195 3,361 584
------ ------ ------ ------
Investment Tax Credit (81) (98) (254) (293)
------ ------ ------ ------
Income Taxes -
Continuing Operations (2,560) (2,544) 11,314 10,627
Income Taxes -
Discontinued Operations (67) (24) (207) (103)
------ ------ ------ ------
Net Income Taxes $(2,627) $(2,568) $11,107 $10,524
====== ====== ====== ======
Note 5. Recent Regulatory Actions:
In January 1997, the Board of Public Utilities (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 $2.8 million to a total of $7.8 million. 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 Temperature Adjustment Clause (TAC). The
revision credits the first $750,000 above the current threshold level to the
Levelized Gas Adjustment Clause (LGAC) customers. Thereafter, SJG keeps 20% of
the pre-tax margins as it has historically.
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
SJI-11
included in rates. In July 1999, SJG filed its annual Remediation Adjustment
Clause (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 Demand Side
Management Clause (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.
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.
Effective January 10, 2000, the BPU approved full unbundling of SJG's
system. This allows all natural gas consumers to select their natural gas
supplier. As of September 30, 2000, 44,863 of SJG's residential customers had
elected to purchase their gas commodity from someone other than SJG. The bills
of those using a gas supplier other than SJG 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. SJI's net income, financial condition and margins are not affected as
a result of the unbundling.
In addition to allowing all customers to select their own supplier, the
unbundling settlement also created an incentive to customers to select a
supplier, other than SJG, in the form of a Market Development Credit (MDC).
This credit is being provided to customers over a two-year period beginning
January 2000 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 approved was the 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, are being
recovered over a three-year period beginning January 2000.
In April 2000, the BPU approved an appliance service filing to modify
SJG's existing service sentry plans, implement three new service sentry plans
and to implement flat rate pricing for its appliance service business.
SJI-12
Effective June 2000, SJG implemented price increases for its appliance
service business. The new rates are competitive with those of other service
providers in New Jersey.
In August 2000, SJG filed its annual LGAC and TAC for 2000-2001. The
filing requested a $35.0 million increase to its LGAC. Also included in the
proposal was the recovery of projected under-recovered gas costs of $26.5
million as of October 31, 2000 and carrying costs thereon, over a three-year
period. SJG also requested recovery of $6.3 million under its TAC resulting
from warmer weather during the last two winter seasons.
Note 6. Segments of Business:
Information about SJI's operations in different industry segments is
presented below (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Operating Revenues:
Gas Utility Operations $ 63,835 $ 51,694 $287,498 $253,425
Other Industries 17,221 11,654 55,521 35,138
-------- -------- -------- --------
Subtotal 81,056 63,348 343,019 288,563
Intersegment Sales (5,294) (4,183) (10,511) (5,969)
-------- -------- -------- --------
Total Operating Revenues $ 75,762 $ 59,165 $332,508 $282,594
======== ======== ======== ========
Operating Income:
Gas Utility Operations $ (550) $ (2,104) $ 40,077 $ 39,770
Other Industries 290 134 3,875 1,482
-------- -------- -------- --------
Subtotal (260) (1,970) 43,952 41,252
Income Taxes 2,560 2,544 (11,314) (10,627)
General Corporate (147) 1,224 63 583
-------- -------- -------- --------
Total Operating Income $ 2,153 $ 1,798 $ 32,701 $ 31,208
======== ======== ======== ========
Depreciation and Amortization:
Gas Utility Operations $ 5,677 $ 5,454 $ 17,192 $ 16,194
Other Industries 19 18 80 39
Discontinued Operations 4 8 14 23
-------- -------- -------- --------
Total $ 5,700 $ 5,480 $ 17,286 $ 16,256
======== ======== ======== ========
SJI-13
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Property Additions:
Gas Utility Operations $ 11,611 $ 10,958 $ 32,822 $ 35,992
Other Industries 111 181 420 229
-------- -------- -------- --------
Total $ 11,722 $ 11,139 $ 33,242 $ 36,221
======== ======== ======== ========
Identifiable Assets:
Gas Utility Operations $780,674 $712,814
Other Industries 11,847 13,316
Discontinued Operations 2,370 2,376
-------- -------
Subtotal 794,891 728,506
Corporate Assets 13,431 14,090
Intersegment Assets (9,611) (12,452)
-------- --------
Total Assets $798,711 $730,144
======== ========
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.
SJI's interest expense relates primarily to SJG's borrowing and financing
activities. These amounts are included in our condensed consolidated
statements of income and not shown above.
Note 7. Retained Earnings:
Restrictions exist under various loan agreements regarding the amount of
cash dividends or other distributions that SJG may pay on its common stock.
SJI's total equity in its subsidiaries' retained earnings, which is free of
these restrictions, was approximately $50.9 million as of September 30, 2000.
Note 8. Commitments and Contingencies:
Construction and Environmental - SJI's estimated net cost of construction
and environmental remediation programs for 2000 totals $47.0 million.
Commitments were made regarding some of these programs.
SJI-14
Pending Litigation - SJI is subject to claims arising from the ordinary
course of business and other legal proceedings. In November 1999, 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 equipment maintenance, fueling and storage occurred and
a fuel oil business was operated.
Since the early 1980s, SJI accrued environmental remediation costs of
$120.6 million, of which $65.4 million was spent as of September 30, 2000.
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
2000 condensed 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 accrued environmental costs relate to the cleanup of
SJG's former gas manufacturing sites. SJG recorded $113.9 million for the
remediation of these sites and spent $62.9 million through September 30, 2000.
SJG has two regulatory assets associated with environmental remediation
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 such expenditures through the RAC. SJG's current
recovery level includes remediation costs expended through July 1998 and
petitions to recover costs through July 1999 are pending.
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 condensed consolidated
SJI-15
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 seven-year periods, and
SJG believes this will continue. As of September 30, 2000, SJG's unamortized
remediation costs of $14.5 million are reflected on the condensed consolidated
balance sheets under the caption, Regulatory and Other Non-Current Assets.
Since implementing the RAC in 1992, SJG recovered $24.4 million through rates
as of September 30, 2000.
With the sale of The Morie Company, Energy & Minerals, Inc. (EMI) has
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
condensed consolidated statements of income under the caption Loss from
Discontinued Operations - Net.
SJI and South Jersey Fuel Company (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 2000 condensed consolidated
balance sheets under Current Liabilities and Deferred Credits and Other
Non-Current Liabilities as of September 30, 2000.
Note 9. Long-Term Debt:
In July 2000, SJG issued $35 million of debt under a Medium Term Note
Program established October 1998. Notes totaling $15 million were issued at
7.70%, maturing in 2015; notes totaling $10 million were issued at 7.97%,
maturing in 2018; and notes totaling $10 million were issued at 7.90%,
maturing in 2030. A remainder of $35 million is authorized to be issued under
this program through December 2001.
SJI-16
Item 2. 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 278,495 customers at
September 30, 2000, compared with 270,692 customers at September 30, 1999.
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. The monitoring system is marketed
through AirLogics, LLC, of which SJE has a 50% equity interest. 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 the company and involve a number of
risks and uncertainties. We caution that forward-looking statements are not
guarantees and actual results could differ materially from those expressed or
implied in the forward-looking statements. Also, in making forward-looking
statements, we assume no duty to update these statements should expectations
change or actual results and events differ from current expectations.
A number of factors could cause our actual results to differ materially
from those anticipated, including, but not limited to the following: general
economic conditions on an international, 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 legal proceedings and environmental liabilities; and
changes in business strategies.
SJI-17
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 September 30, 2000, 44,863 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.
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 BPU approved Temperature Adjustment Clause (TAC) had the
following impacts on 2000 and 1999 third quarter and nine month net earnings:
2000 1999
------ ------
TAC Adjustment Increase to Net Income
($ in thousands)
Quarter Ended 9/30 $0 $106
Nine Months Ended 9/30 $1,349 $1,338
While the revenue and income impacts of TAC adjustments are recorded as
incurred, cash inflows or outflows directly attributable to TAC adjustments
generally do not begin until the next TAC year. Each TAC year begins
October 1.
Results of Operations - Three and Nine Months Ended September 30, 2000
Compared to Three and Nine Months Ended September 30, 1999
Operating Revenues - Utility
Revenues increased $9.6 million and $28.3 million in the third quarter
and first nine months of 2000 compared with the prior year periods. The
primary reasons for the increases were increased off-system sales, 7,803
additional customers and increased rates resulting from an increase in the
Levelized Gas Adjustment Clause (LGAC) to recover increased gas costs at SJG.
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 that profits are derived from the transportation of
gas, not the sale of the commodity. Consequently, the switch to firm
transportation reduced revenues but did not impact profitability.
SJI-18
Because customer heating needs are minimal in the third quarter,
weather is not material to SJI's operating results. Weather for the nine month
period was 1.8% colder than the prior year. Weather was also 3.6% warmer for
the first nine months than the 20-year average. As a result of the TAC,
revenues for 2000 will be closely tied to the 20-year normal temperatures and
not actual weather conditions.
The following is a comparison of operating revenue and throughput for
the three and nine month periods ended September 30, 2000 vs. the same periods
ended September 30, 1999.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ------------------
2000 1999 2000 1999
------- ------- -------- --------
Operating Revenues (Thousands):
Firm
Residential $14,911 $12,986 $107,808 $110,547
Commercial 4,404 3,306 25,895 24,507
Industrial 559 921 3,576 3,645
Cogeneration & Electric Generation 3,894 4,259 10,093 7,062
Firm Transportation 6,077 5,209 27,952 22,171
------- ------- -------- --------
Total Firm Operating Revenues 29,845 26,681 175,324 167,932
Interruptible 308 277 1,140 1,270
Interruptible Transportation 309 305 1,154 1,200
Off-System 32,015 22,704 104,290 77,747
Capacity Release & Storage 568 870 2,996 2,600
Other 790 856 2,594 2,676
Intercompany Sales (4,950) (2,406) (9,296) (3,547)
------- ------- -------- --------
Total Operating Revenues $58,885 $49,287 $278,202 $249,878
======= ======= ======== ========
Throughput (MMcf):
Firm
Residential 1,331 1,260 12,114 12,839
Commercial 514 403 3,314 3,240
Industrial 25 26 181 185
Cogeneration & Electric Generation 707 1,297 1,958 2,047
Firm Transportation 5,135 5,704 19,949 18,368
------- ------- -------- --------
Total Firm Throughput 7,712 8,690 37,516 36,679
Interruptible 29 63 134 307
Interruptible Transportation 661 711 2,238 2,645
Off-System 6,948 8,277 28,375 33,052
Capacity Release & Storage 9,627 8,149 29,561 19,508
------- ------- -------- --------
Total Throughput 24,977 25,890 97,824 92,191
======= ======= ======== ========
SJI-19
Operating Revenues - Nonutility
Nonutility operating revenues increased by $7.0 million and $21.6
million for the third quarter and first nine months of 2000 due to increased
levels of retail gas sales to residential customers and casinos in Atlantic
City, wholesale gas sales and sales of our air monitoring products and
services.
Cost of Gas Sold - Utility
Cost of gas sold - utility increased $9.0 million and $25.7 million for
the third quarter and first nine months of 2000 compared with the same periods
in 1999 due principally to increased gas costs on off-system sales. SJG's gas
cost during the first nine months of 2000 averaged $3.61/dt compared with
$2.28/dt in 1999. Unlike gas costs associated with off-system sales, changes
in the cost of gas sold to utility ratepayers do not directly affect Cost of
Gas Sold - Utility. Fluctuations in gas costs to ratepayers not reflected in
current rates are deferred and addressed in future periods under a BPU approved
Levelized Gas Adjustment Clause (LGAC). Under the LGAC, fluctuations in gas
costs not covered currently are reflected in future customer rates. Gas
supply sources include contract and open-market purchases. SJG secures and
maintains its own gas supplies to serve its customers.
Cost of Sales - Nonutility
Cost of sales - nonutility increased $6.6 million and $18.3 million for
the third quarter and first nine months of 2000 due to increased costs
attributable to higher sales of retail gas and air monitoring products and
services.
Operations
A summary of net changes in Operations (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 vs. 1999 2000 vs. 1999
------------- -------------
Utility:
Other Production Expense $5 $10
Transmission 1 20
Distribution (87) 82
Appliance Service - Net 550 835
Customer Accounts and Services (103) 348
Sales (29) (34)
Administration and General (457) (1,066)
Other 17 (58)
Nonutility 286 494
------ ------
Total Operations $183 $631
====== ======
SJI-20
Appliance Service - Net increased primarily due to service activity on
new warranty plans sold in the second and third quarters of 2000. The BPU
mandated reallocation of costs between utility and non-utility operations as
part of the energy deregulation process in New Jersey also contributed to this
increase.
Customer Accounts and Services costs increased in the first nine months
of 2000 due to increased meter reading expenses resulting from increasing meter
reading frequency to monthly from bimonthly. Costs were additionally impacted
by temporarily increased staffing costs necessary to handle high call volumes
related to the deregulation process in New Jersey and higher bad debt expense.
Administrative and General costs decreased from 1999 levels principally
due to lower employee welfare and pension costs.
Other Operating Expenses
A summary of principal changes in other consolidated operating expenses
(in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 vs. 1999 2000 vs. 1999
------------- -------------
Maintenance $66 $1,967
Depreciation 293 940
Income Taxes (16) 687
Other Taxes 169 261
Maintenance was higher due to higher levels of Remediation Adjustment
Clause (RAC) amortization during the first half of the year. This additional
amortization expense is recovered during the current period through rates (See
Note 8 to the Condensed Consolidated Financial Statements). Depreciation was
higher due to increased investment in property, plant and equipment by SJG.
Income Tax changes reflect the impact of changes in pre-tax income.
Interest Charges
Interest charges were higher in the first nine months of 2000 compared
with the prior year period. Increased debt outstanding and higher interest
rates in 2000 were mostly offset by recoveries of carrying costs associated
with unrecovered RAC and purchased gas costs. The debt was incurred primarily
to support the expansion and upgrade of SJG's gas transmission and distribution
system.
SJI-21
Discontinued Operations
Loss from discontinued operations increased for the three and nine
month periods primarily due to legal expenses incurred in relation to a
complaint in bankruptcy court against SJE filed by Power Company of America
Liquidating Trust (PCA). PCA was a wholesale electricity trading company with
whom SJE did business. PCA filed for bankruptcy protection under Chapter 11 of
the Bankruptcy Code.
Net Income Applicable to Common Stock
Net income (in thousands) and earnings per common share reflect the
following changes:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 vs. 1999 2000 vs. 1999
------------- -------------
Income from Continuing Operations $146 $1,307
Loss from Discontinued Operations - Net (73) (167)
------ ------
Net Income Increase $73 $1,140
====== ======
Earnings per Common Share:
Continuing Operations $0.03 $0.05
Discontinued Operations - Net (0.01) (0.01)
------ ------
Earnings per Share Increase $0.02 $0.04
====== ======
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 require 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 $155.0 million, of which $61.2 million was available at
September 30, 2000. The credit lines are uncommitted and unsecured with
interest rates typically available based upon the Federal Funds Rates or London
Interbank Offered Rates (LIBOR).
SJI-22
The changes in cash flows from operating activities (in thousands):
Nine Months Ended
September 30,
2000 vs. 1999
-------------
Increases/(Decreases):
Net Income Applicable to Common Stock $1,140
Depreciation and Amortization 1,030
Provision for Losses on Accounts Receivable 51
Revenues and Fuel Costs Deferred - Net (8,193)
Deferred and Non-Current Income Taxes and
Credits - Net 2,816
Environmental Remediation Costs - Net 9,504
Accounts Receivable (12,527)
Inventories (25,435)
Prepayments and Other Current Assets 638
Prepaid and Accrued Taxes - Net (6,690)
Accounts Payable and Other Accrued Liabilities 33,317
Other - Net (1,956)
-------
Net Cash Provided by Operating Activities ($6,305)
=======
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 the impact
of payments or credits to customers for amounts previously overcollected and
the undercollection of fuel costs resulting from increases in natural gas
costs. Increases reflect the impact of 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 changes in
off-system sales activity and sales volumes of SJG and SJE. Weather and
commodity prices are the variables that impact these sales. Changes impact
cash flows when receivables are collected in subsequent periods.
SJI-23
Changes in Inventories reflect the impact of seasonal requirements,
temperatures and price changes.
Changes in Prepaid and Accrued Taxes - Net reflect the impact of
differences between taxes paid and taxes 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 on May 15 of each year. SJG uses short-term borrowings
to pay taxes, resulting in a temporary increase in the short-term debt level.
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 noncurrent assets
and liabilities, including accrued deferred income taxes.
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.
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 the
first nine months of 2000 amounted to $22.7 million. The net costs for 2000,
2001 and 2002 are estimated at approximately $47.0 million, $45.6 million and
$53.2 million, respectively. We expect to 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,
insurance recoveries and the issuance of equity.
In July 2000, SJG issued a total of $35 million of senior secured debt
under its Medium Term Note program (MTN). Notes totaling $15 million were
issued at 7.70%, maturing in 2015; notes totaling $10 million were issued at
7.97%, maturing in 2018; and notes totaling $10 million were issued at 7.90%,
maturing in 2030. The net proceeds of these note issuances were used to retire
short-term debt.
SJI raised $0.9 million of equity capital via the issuance of 33,076
shares under our Dividend Reinvestment Plan (DRP) in October 2000.
SJI-24
Item 3. Quantitative and Qualitative Disclosures About
Market Risks of the Company
We have interest rate risk exposure related to short-term debt.
Additionally, our subsidiary, SJE, has commodity price risk exposure related to
gas marketing activities. For information regarding our exposure related to
these risks, see Item 7A in our Form 10-K for the year ended December 31,
1999. Our risk associated with interest rates and commodity prices has not
materially changed from December 31, 1999.
PART II -- OTHER INFORMATION
Item l. Legal Proceedings
Information required by this Item is incorporated by reference to
Part I, Item 1, Note 8, beginning on page 14.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule (submitted only in
electronic format to the Securities and
Exchange Commission).
SJI-25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTH JERSEY INDUSTRIES, INC.
(Registrant)
Dated: November 6, 2000 By: /s/ David A. Kindlick
David A. Kindlick
Vice President, Financial Operations
Dated: November 6, 2000 By: /s/ William J. Smethurst, Jr.
William J. Smethurst, Jr.
Treasurer
SJI-26
SOUTH JERSEY INDUSTRIES, INC.
Index to Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(Submitted only in electronic format to the
Securities and Exchange Commission).
SJI-27