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Page 1 of 28
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 March 31, 2002 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 May 1, 2002, there were 11,983,368 shares of the registrant's common stock
outstanding.
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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
March 31,
---------------------------------------
2002 2001
------------------ ------------------
Operating Revenues:
Utility $142,210 $202,268
Nonutility 71,177 139,671
------------------ ------------------
Total Operating Revenues 213,387 341,939
------------------ ------------------
Operating Expenses:
Cost of Gas Sold - Utility 87,443 144,340
Cost of Sales - Nonutility 65,633 131,721
Operations 10,537 10,168
Maintenance 1,417 2,885
Depreciation 5,499 5,202
Energy and Other Taxes 3,842 4,476
------------------ ------------------
Total Operating Expenses 174,371 298,792
------------------ ------------------
Operating Income 39,016 43,147
------------------ ------------------
Equity in Affiliated Companies 164 513
Interest Charges 4,648 5,679
Preferred Dividend Requirements of Subsidiary 765 765
------------------ ------------------
Income Before Income Taxes 33,767 37,216
------------------ ------------------
Income Taxes 14,049 15,482
------------------ ------------------
Income from Continuing Operations 19,718 21,734
Discontinued Operations - Net (32) (200)
Cumulative Effect of a Change in Accounting Principle - Net - 148
------------------ ------------------
Net Income Applicable to Common Stock $19,686 $21,682
================== ==================
Average Shares of Common Stock Outstanding 11,914 11,583
Earnings Per Common Share:
Continuing Operations $1.65 $1.88
Discontinued Operations - Net 0.00 (0.02)
Cumulative Effect of a Change in Accounting Principle - Net 0.00 0.01
------------------ ------------------
Earnings Per Common Share $1.65 $1.87
================== ==================
Dividends Declared per Common Share $0.370 $0.375
================== ==================
<FN>
The accompanying footnotes are an integral part of the financial statements
</FN>
SJI-3
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31, December 31,
---------------------------- --------------
2002 2001 2001
------------- ------------ --------------
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $812,198 $773,229 $805,440
Accumulated Depreciation (225,476) (211,993) (221,457)
Nonutility Property and Equipment, at cost 31,645 6,898 24,118
Accumulated Depreciation (1,086) (1,008) (1,058)
------------- ------------ ------------
Property, Plant and Equipment - Net 617,281 567,126 607,043
------------- ------------ ------------
Investments:
Available-for-Sale Securities 3,119 2,528 3,139
Restricted 9,129 - 22,962
Investment in Affiliate 1,573 1,447 1,369
------------- ------------ ------------
Total Investments 13,821 3,975 27,470
------------- ------------ ------------
Current Assets:
Cash and Cash Equivalents 12,315 5,097 3,965
Accounts Receivable 100,224 109,063 66,750
Unbilled Revenues 25,637 35,598 34,981
Provision for Uncollectibles (2,651) (2,031) (2,661)
Natural Gas in Storage, average cost 34,885 10,960 59,778
Materials and Supplies, average cost 3,442 3,894 3,818
Prepaid Taxes - - 4,650
Energy Trading Assets 23,575 27,880 47,187
Prepayments and Other Current Assets 3,848 5,684 3,616
------------- ------------ ------------
Total Current Assets 201,275 196,145 222,084
------------- ------------ ------------
Regulatory and Other Non-Current Assets:
Deferred Fuel Costs - Net 17,363 30,949 36,798
Other Regulatory Assets 79,213 80,369 79,994
Energy Trading Assets 4,129 1,068 3,554
Derivatives 731 - 509
Other 11,331 6,874 10,393
------------- ------------ ------------
Total Regulatory and Other Non-Current Assets 112,767 119,260 131,248
------------- ------------ ------------
Total Assets $945,144 $886,506 $987,845
============= ============ ============
<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)
March 31, December 31,
---------------------------- --------------
2002 2001 2001
------------- ------------ --------------
Capitalization and Liabilities
Common Equity:
Common Stock $14,902 $14,479 $14,826
Premium on Common Stock 141,776 132,108 139,929
Accumulated Other Comprehensive Loss (1,556) - (1,687)
Retained Earnings 82,433 75,399 67,218
------------- ------------ ------------
Total Common Equity 237,555 221,986 220,286
------------- ------------ ------------
Preferred Stock and Securities of Subsidiary:
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value $100 per share
Authorized - 11,922 and 11,583 shares
Outstanding Shares:
Series A, 4.7% -- 0, 300 and 0 shares - 30 -
Series B, 8% -- 16,904, 17,742 and 16,904 shares 1,690 1,774 1,690
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 36,690 36,804 36,690
------------- ------------ ------------
Long-Term Debt 261,060 199,793 259,247
------------- ------------ ------------
Total Capitalization 535,305 458,583 516,223
------------- ------------ ------------
Current Liabilities:
Notes Payable 93,200 99,850 152,360
Current Maturities of Long-Term Debt 9,733 11,876 9,733
Accounts Payable 50,038 62,033 48,239
Customer Deposits 6,363 5,455 5,976
Environmental Remediation Costs 11,308 17,266 11,319
Taxes Accrued 19,878 17,424 2,743
Energy Trading Liabilties 16,289 25,680 38,991
Deferred Income Taxes - Net 24,280 22,590 26,629
Interest Accrued and Other Current Liabilities 13,682 13,931 14,154
------------- ------------ ------------
Total Current Liabilities 244,771 276,105 310,144
------------- ------------ ------------
Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes - Net 87,100 87,871 84,717
Investment Tax Credits 4,079 4,427 4,166
Pension and Other Postretirement Benefits 20,014 13,828 19,313
Environmental Remediation Costs 41,423 37,886 41,423
Energy Trading Liabilties 3,294 196 2,947
Other 9,158 7,610 8,912
------------- ------------ ------------
Total Deferred Credits
and Other Non-Current Liabilities 165,068 151,818 161,478
------------- ------------ ------------
Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities $945,144 $886,506 $987,845
============= ============ ============
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJI-5
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Three Months Ended
March 31,
--------------------------------
2002 2001
-------------- -------------
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $19,686 $21,682
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 6,117 5,791
Unrealized Gain on Energy Trading (1,658) (2,821)
Provision for Losses on Accounts Receivable 662 519
Revenues and Fuel Costs Deferred - Net 19,435 (2,139)
Deferred and Non-Current Income Taxes and Credits - Net 2,532 5,186
Environmental Remediation Costs - Net 1,561 8,601
Changes in:
Accounts Receivable (24,802) (18,985)
Inventories 25,269 21,140
Prepayments and Other Current Assets 192 314
Prepaid and Accrued Taxes - Net 21,785 19,905
Accounts Payable and Other Accrued Liabilities 1,714 (23,767)
Other - Net (661) (496)
-------------- -------------
Net Cash Provided by Operating Activities 71,832 34,930
-------------- -------------
Cash Flows from Investing Activities:
(Investment in) Return of Investment in Affiliate (204) 3,004
Repayment of Loan from (Loan to) Affiliate 100 (1,815)
Proceeds from Sale of Restricted Investments 13,833 -
Capital Expenditures, Cost of Removal and Salvage (17,273) (10,262)
-------------- -------------
Net Cash Used in Investing Activities (3,544) (9,073)
-------------- -------------
Cash Flows from Financing Activities:
Net Repayments of Lines of Credit (59,160) (21,350)
Proceeds from Issuance of Long-Term Debt 10,000 -
Principal Repayments of Long-Term Debt (8,187) (5,188)
Dividends on Common Stock (4,471) (4,286)
Proceeds from Sale of Common Stock 1,906 2,837
Payments for Issuance of Long-Term Debt (26) -
-------------- -------------
Net Cash Used in Financing Activities (59,938) (27,987)
-------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 8,350 (2,130)
Cash and Cash Equivalents at Beginning of Period 3,965 7,227
-------------- -------------
Cash and Cash Equivalents at End of Period $12,315 $5,097
============== =============
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
SJI-6
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies:
Consolidation - The condensed consolidated financial
statements include the accounts of South Jersey Industries, Inc. (SJI)
and its subsidiaries. All significant intercompany accounts and
transactions were eliminated. SJI 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. These financial statements should be read in
conjunction with SJI's 2001 Form 10K and annual report.
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 included in the statements of condensed
consolidated income under the caption, Equity in Affiliated Companies.
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.
Energy Trading Activities & Derivative Instruments
South Jersey Resources Group, LLC (SJRG) manages its portfolio
purchases and sales, as well as natural gas in storage, using a variety
of instruments that include forward contracts, swap agreements, option
contracts and futures contracts. Because SJRG's transactions will not
necessarily settle physically, Statement No. 133 requires that such
transactions be accounted for pursuant to the mark-to-market method of
accounting. Under this method of accounting, SJRG measures the
difference between the contract price and the fair value of the
contracts and records these as Energy Trading Assets or Energy Trading
Liabilities on our condensed consolidated balance sheets. As of March
31, 2002 and 2001, the net unrealized pre-tax gain of $1.7 million and
$3.4 million on energy trading contracts, determined under the
mark-to-market method, is included in Cost of Sales - Nonutility,
respectively. The Cumulative Effect of a Change in Accounting Principle
- Net of $148,000 relates to the adoption of Statement No. 133 on
January 1, 2001.
SJI-7
SJI's approach to transacting various aspects of its
unregulated energy business is to offset purchases and sales and have
minimal open positions at any one time. Consistent with this approach,
SJI will designate certain energy related contracts as cash flow or
fair value hedges.
In November 2001, we entered into two interest rate swap
contracts. The first swap effectively provides us with a fixed interest
rate of 4.08% on Marina Energy LLC's (Marina) tax-exempt Series A
variable rate bonds for a 10-year period. The second swap effectively
fixes the interest rate of Marina's taxable Series B variable rate
bonds at 4.55% for a 6-year period. The notional amount of this second
swap decreases by $3.0 million per year beginning in December 2005.
In January 2002, Marina issued an additional $10.0 million of
taxable Series B variable rate bonds. In April 2002, we entered into an
interest rate swap contract that effectively fixes the interest rate on
these bonds at 4.62% for a four-year period. The notional amount of
this swap decreases to $8 million in December 2003, then to $3.9
million in December 2004, and terminates in December 2005.
We entered into interest rate swap agreements to hedge the
exposure to an increase in interest rates with respect to our variable
rate debt. The differential to be paid or received as a result of these
swap agreements is accrued as interest rates change and recognized as
an adjustment to interest expense. These interest rate swaps are
accounted for as cash flow hedges. As of March 31, 2002, the market
value of these swaps was $731,416, which represents the amount we would
be paid by a counterparty to terminate these contracts as of that date.
This balance is included on the 2002 condensed consolidated balance
sheet under the caption Derivatives. As of March 31, 2002, we
calculated the swaps to be highly effective; therefore, the offset to
the hedge asset is recorded, net of taxes, in Accumulated Other
Comprehensive Loss.
Fair value of the derivative investments is determined by
reference to quoted market prices of listed contracts, published
quotations or quotations from independent parties.
New Accounting Pronouncements - In June 2001, the FASB issued
Statement No. 143, "Accounting for Asset Retirement Obligations."
Statement No. 143 establishes accounting and reporting standards for
obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SJI expects to adopt
Statement No. 143 in 2003.
In August 2001, the FASB also issued Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", which
is effective in 2003. This statement prescribes that a single
accounting model be used for valuing long-lived assets to be disposed
of and broadens the presentation of discontinued operations.
SJI-8
We are currently evaluating the effects of Statement Nos. 143
and 144; however, they are not expected to materially impact SJI's
financial condition or results of operations.
Other Regulatory Assets - Other Regulatory Assets consisted of
the following items (in thousands):
March 31, December 31,
2002 2001 2001
-------------------- ------------
Environmental Remediation Costs:
Expended - Net $11,259 $ 9,853 $12,831
Liability for Future Expenditures 48,790 51,029 48,790
Income Taxes - Flowthrough Depreciation 9,330 10,308 9,575
Postretirement Benefit Costs 4,064 4,441 4,158
Gross Receipts and Franchise Taxes 2,143 2,587 2,254
Other 3,627 2,151 2,386
-------------------- -----------
Total Regulatory Assets $79,213 $80,369 $79,994
==================== ===========
Note 2. Discontinued Operations and Affiliations:
Discontinued Operations - Summarized operating results of
discontinued operations for the three months ending March 31 (in
thousands):
2002 2001
---------------------------
Operating Revenues - Merchandising $ - $ 173
===========================
Income (Loss) before Income Taxes:
Sand Mining $ (31) $ 944
Construction (6) 3
Fuel Oil (15) (20)
Wholesale Electric - (1,177)
Merchandising - (86)
Income Tax Credits 20 136
---------------------------
Loss from Discontinued Operations - Net $ (32) $ (200)
===========================
Earnings Per Common Share from
Discontinued Operations - Net $ (0.00) $ (0.02)
===========================
Affiliations - In 1996, we formed SJRG to provide natural gas
storage, peaking services and transportation capacity for wholesale
customers in New Jersey and surrounding states. Prior to January 1,
2001, SJ EnerTrade, Inc., a wholly owned subsidiary of SJE, and UPR
Energy Marketing, Inc. (UPR) each held a 50% non-controlling interest
in SJRG. In January 2001, SJRG became a wholly owned subsidiary of SJI
when UPR redeemed its 50% interest in SJRG for the book value of its
investment of $2.9 million.
SJI-9
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, South Jersey Energy Company (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 during the first quarter of 2000.
In April 2000, SJE and GZA GeoEnvironmental, Inc. formed Air
Logics, LLC to market a jointly developed air monitoring system
designed to assist companies involved in environmental cleanup
activities.
In October 2000, SJI formed Marina, a wholly owned subsidiary,
to develop, construct and operate a $51 million thermal energy plant.
In December 2000, Marina entered into a 20-year contract with Marina
District Development Corporation to supply heat, hot water and cooling
to The Borgata Resort. The plant is scheduled for completion in July
2003.
Note 3. Common Stock:
SJI has 20,000,000 shares of authorized Common Stock. The
following shares were issued and outstanding:
2002 2001
----------------------------
Beginning, January 1 11,860,990 11,499,701
New Issues During Year:
Dividend Reinvestment Plan 59,716 82,757
Employees' Stock Ownership Plan 857 948
----------------------------
Ending Balance, March 31 11,921,563 11,583,406
============================
We credited the par value ($1.25 per share) of stock issued in
2002 and 2001 to Common Stock. We credited the net excess over par
value of approximately $1.8 million and $2.7 million, respectively, to
Premium on Common Stock.
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 March 31, 2002, SJI reserved 1,444,509 and 18,871 shares of
authorized, but unissued, common stock for future issuance to the DRP
and ESOP, respectively.
SJI-10
Stock Option, Stock Appreciation Rights and Restricted Stock
Award Plan - Under this plan, no more than 306,000 shares 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 March 31, 2002 and 2001, SJI had 2,000 and
4,500 options outstanding, respectively, all exercisable at $24.69 per
share. No options were granted in 2002 or 2001. No stock appreciation
rights were issued under the Plan. In 1999, we amended the Plan to
include restricted stock awards. As of March 31, 2002, 79,113
restricted shares were granted.
Earnings Per Common Share - We present basic EPS based on the
weighted-average number of common shares outstanding. Our stock options
and restricted stock outstanding at March 31, 2002 and 2001 do not
dilute our EPS as calculated in accordance with FASB No. 128, "Earnings
Per Share."
Note 4. Financial Instruments:
Restricted Investments - In accordance with the terms of
Marina's bond agreements, we are required to invest unused proceeds in
high-quality, highly-liquid investments pending approved construction
expenditures. As of March 31, 2002, the net proceeds remaining totaled
$9.1 million.
SJRG maintains a margin account with a national investment
firm to support its energy trading activities. As of March 31, 2002,
SJRG's margin account had a $244,000 credit balance due to changes in
the market value of outstanding contracts.
Note 5. Comprehensive Income:
The components of comprehensive income for the three months
ended March 31 are as follows (in thousands):
2002 2001
-----------------------
Net Income Applicable to Common Stock $19,686 $21,682
Other Comprehensive Income:
Change in Fair Value of Derivatives - Net 132 -
-----------------------
Comprehensive Income $19,818 $21,682
=======================
SJI-11
Note 6. Segments of Business:
Information about SJI's operations in different industry
segments for the three months ended March 31 is presented below (in
thousands):
2002 2001
---------------------------
Operating Revenues:
Gas Utility Operations $154,212 $219,283
Wholesale Gas Operations 63,275 130,407
Retail Gas and Other Operations 32,448 34,638
---------------------------
Subtotal 249,935 384,328
Intersegment Sales (36,548) (42,389)
---------------------------
Total Operating Revenues $213,387 $341,939
===========================
Operating Income:
Gas Utility Operations $ 34,337 $ 35,845
Wholesale Gas Operations 2,759 3,628
Retail Gas and Other Operations 1,835 3,473
General Corporate 85 201
---------------------------
Total Operating Income $ 39,016 $ 43,147
===========================
Depreciation and Amortization:
Gas Utility Operations $ 6,087 $ 5,769
Wholesale Gas Operations 3 -
Retail Gas and Other Operations 20 15
Discontinued Operations 7 7
---------------------------
Total Depreciation and Amortization $ 6,117 $ 5,791
===========================
Property Additions:
Gas Utility Operations $ 9,570 $ 9,275
Wholesale Gas Operations - -
Retail Gas and Other Operations 3 48
Thermal Energy Operations 7,523 828
---------------------------
Total Property Additions $ 17,096 $ 10,151
===========================
Identifiable Assets:
Gas Utility Operations $834,592 $825,962
Wholesale Gas Operations 52,551 40,575
Retail Gas and Other Operations 26,211 23,931
Thermal Energy Operations 41,870 4,110
Discontinued Operations 2,369 2,220
---------------------------
Subtotal 957,593 896,798
Corporate Assets 26,225 22,550
Intersegment Assets (38,674) (32,842)
---------------------------
Total Identifiable Assets $945,144 $886,506
===========================
SJI-12
Gas Utility Operations consist primarily of natural gas
distribution to residential, commercial and industrial customers.
Wholesale Gas Operations include SJRG's activities. Retail Gas and
Other Operations include natural gas and electricity acquisition and
transportation service companies. Thermal Energy Operations consist of
Marina's construction and related financing activities.
SJI's interest expense relates primarily to SJG's borrowing
and financing activities. Interest income is essentially derived from
borrowings between the subsidiaries and is eliminated during
consolidation.
Note 7. Regulatory Actions:
In January 1997, the New Jersey Board of Public Utilities
(BPU) granted SJG a 9.62% rate of return on rate base, which included
an 11.25% return on common equity. Additionally, SJG's threshold for
sharing pre-tax margins generated by interruptible and off-system sales
and transportation (Sharing Formula) increased. SJG keeps 100% of
pre-tax margins up to the threshold level of $7.8 million and 20% of
margins above that level. In 1998, the BPU revised the Sharing Formula
to credit the 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 September 1999,
the BPU approved an annual recovery level of $6.5 million for
remediation costs expended from August 1995 through July 1998. This
represents an annual increase of approximately $4.5 million over the
recovery previously included in rates. In January 2000, the BPU
approved the recovery of carrying costs on unrecovered remediation
costs and a proposal by SJG to keep its current Remediation Adjustment
Clause (RAC) rate in effect through October 2002. However, due to
substantial RAC insurance recoveries, in October 2001, SJG filed for a
RAC rate decrease. This proposal would reduce the annual recovery level
to $4.2 million, if approved.
Effective January 10, 2000, the BPU approved full unbundling
of SJG's system. This allows all natural gas consumers to select their
natural gas supplier. As of March 31, 2002, 52,802 of SJG's residential
customers were purchasing 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. SJG's net income,
financial condition and margins are not affected as a result of the
unbundling.
On November 15, 2001, SJG filed for a $17.6 million rate
reduction to its LGAC and for recovery of a 3-year net deficiency in
the Temperature Adjustment Clause (TAC) amounting to $2.7 million. The
BPU approved the LGAC rate reduction effective December 1, 2001. Also
on December 1, 2001, SJG implemented recovery of its October 31, 2001
underrecovered gas costs. We will recover $48.9 million over three
years including interest accrued since April 1, 2001. We will also
recover interest for the 3-year amortization period at a rate of 5.75%.
SJI-13
Note 8. 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 $80.7 million as of
March 31, 2002.
Note 9. Commitments and Contingencies:
Construction and Environmental - SJI's estimated net cost of
construction and environmental remediation programs for 2002 totals
$91.5 million. Commitments were made regarding some of these programs.
Pending Litigation - SJI is subject to claims arising in the
ordinary course of business and other legal proceedings. We accrue
liabilities when these claims become apparent for amounts we believe
these claims may be settled. We also maintain insurance and record
probable insurance recoveries relating to outstanding claims. In
management's opinion, the ultimate disposition of these claims will not
have a material adverse effect on SJI's financial position, results of
operations or liquidity.
Standby Letters of Credit - SJI provided a $17 million standby
letter of credit to Marina District Development Corporation in support
of Marina's contractual obligations to construct the thermal energy
plant and to supply heat, hot water and cooling to The Borgata Resort.
This letter of credit was reduced to $14.3 million as of March 31,
2002.
As of March 31, 2002, SJI also provided $39 million of standby
letters of credit supporting the variable rate demand bonds issued
through the New Jersey Economic Development Authority by Marina. A
commercial bank has committed to issuing up to $46 million of annually
renewing letters of credit to support development of Marina's thermal
plant project.
Environmental Remediation Costs - SJI incurred and recorded
costs for environmental clean up of sites where SJG or its predecessors
operated gas manufacturing plants. SJG stopped manufacturing gas in the
1950s. 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.
SJI successfully entered into settlements with all of its
historic comprehensive general liability carriers regarding the
environmental remediation expenditures at the SJG sites. Also, SJG
purchased a Cleanup Cost Cap Insurance Policy limiting the amount of
remediation expenditures that SJG will be required to make at 11 of its
sites. This Policy will be in force for a 25-year period at 10 sites
and for a 30-year period at one site. The following future cost
estimates were reduced by projected insurance recoveries from the
Cleanup Cost Cap Insurance Policy.
SJI-14
Since the early 1980s, SJI accrued environmental remediation
costs of $133.8 million, of which $81.1 million was spent as of March
31, 2002. With the assistance of a consulting firm, we estimate that
future costs to clean up SJG's sites will range from $48.8 million to
$143.5 million. We recorded the lower end of this range as a liability.
It is reflected on the 2002 condensed consolidated balance sheet under
the captions Current Liabilities and Deferred Credits and Other
Non-Current Liabilities. Recorded amounts include estimated costs based
on projected investigation and remediation work plans using existing
technologies. Actual costs could differ from the estimates due to the
long-term nature of the projects, changing technology, government
regulations and site-specific requirements. The major portion of
accrued environmental costs relate to the clean up of SJG's former gas
manufacturing sites.
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 Statement No. 71, "Accounting for the Effects of
Certain Types of Regulation." The BPU allows SJG to recover
expenditures through the RAC.
The other asset titled Environmental Remediation Cost:
Liability for Future Expenditures relates to estimated future
expenditures determined under the guidance of FASB Statement No. 5,
"Accounting for Contingencies." We recorded this amount, which relates
to former manufactured gas plant sites, as a deferred debit with the
corresponding amount reflected on the condensed consolidated balance
sheet under the captions Current Liabilities and Deferred Credits and
Other Non-Current Liabilities. The deferred debit is a regulatory asset
under Statement No. 71. The BPU's intent, evidenced by current
practice, is to allow SJG to recover the deferred costs after they are
spent over 7-year periods.
As of March 31, 2002, we reflected SJG's unamortized
remediation costs of $11.3 million on the condensed consolidated
balance sheet under the caption Regulatory Assets. Since implementing
the RAC in 1992, SJG recovered $31.2 million through rates.
With Morie's sale, EMI assumed responsibility for
environmental liabilities estimated between $2.7 million and $8.8
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 condensed 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 $0.4 million,
while SJF's estimated liability ranges from $1.1 million to $4.9
million for its three sites. We recorded the lower ends of these ranges
on the 2002 condensed consolidated balance sheet under Current
Liabilities and Deferred Credits and Other Non-Current Liabilities as
of March 31, 2002.
SJI-15
Note 10. Subsequent Event:
On May 2, 2002, the BPU approved SJG's petition to credit
$17.6 million to its LGAC customers during the month of May 2002.
Current projections show that residential customers will receive an
average credit of approximately $58, while commercial and cogeneration
customers will receive an average credit of approximately $269.
SJI-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
South Jersey Industries (SJI) is an energy services holding company which
provides a variety of products and services through the following subsidiaries:
1) South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG
distributes natural gas to 290,604 customers in the seven southernmost counties
of New Jersey. SJG also:
- makes off-system sales of natural gas on a wholesale basis to various
customers on the interstate pipeline system;
- transports natural gas purchased directly from producers or suppliers
for our own sales and for some of our customers;
- services appliances via the sale of appliance warranty programs, as
well as on a time and materials basis.
2) South Jersey Energy Company (SJE) acquires and markets natural gas to
retail end users and provides total energy management services to commercial and
industrial customers. SJE has one subsidiary, SJ EnerTrade (EnerTrade), that
primarily provides services for the sale of natural gas to the casino industry
in Atlantic City, New Jersey. SJE operates South Jersey Energy Solutions, a
limited liability corporation equally owned with Energy East Solutions, Inc.,
which markets retail electricity in New Jersey. SJE also markets an air quality
monitoring system through AirLogics, LLC. SJE has a 50% equity interest in
AirLogics. GZA GeoEnvironmental, Inc., an environmental consulting firm, also
has a 50% equity interest in AirLogics.
3) South Jersey Resources Group, LLC (SJRG) is a marketer of natural gas
storage, commodity and transportation in the mid-Atlantic and southern states.
4) Marina Energy LLC (Marina Energy) is a wholly owned subsidiary
established in 2000 to develop energy related projects in southern New Jersey.
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
SJI-17
guarantees and actual results could differ materially from those expressed or
implied in the forward-looking statements. Also, in making forward-looking
statements, we assume no duty to update these statements should expectations
change or actual results and events differ from current expectations.
A number of factors could cause our actual results to differ materially
from those anticipated, including, but not limited to the following: general
economic conditions on an international, national, state and local level;
weather conditions in our marketing areas; changes in commodity costs;
regulatory and court decisions; competition in our utility and non-utility
activities; the availability and cost of capital; our ability to maintain
existing joint ventures to take advantage of marketing opportunities; costs and
effects of legal proceedings and environmental liabilities; the failure of
customers or suppliers to fulfill their contractual obligations; and changes in
business strategies.
Customer Choice Legislation
Effective January 10, 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 1999. Commercial and industrial customers
have had the ability to choose gas suppliers since 1987. As of March 31, 2002,
52,802 SJG residential customers chose a natural gas supplier other than the
utility. This number increased from 33,156 at March 31, 2001 as third party
marketers were able to offer natural gas at prices competitive with those
available to consumers under regulated utility tariffs. The bills of customers
choosing to purchase natural gas from providers other than the utility 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 or financial condition. SJI has benefited from Customer Choice
Legislation as SJE has successfully competed for, and profited from, gas
commodity customers it has obtained.
Temperature Adjustment Clause
SJG's Board of Public Utilities approved Temperature Adjustment Clause
(TAC) had the following impacts on 2002 and 2001 first quarter net earnings:
2002 2001
-------- --------
TAC Adjustment (Decrease) Increase to
Net Income ($ in thousands)
Quarter Ended 3/31 $3,002 $(140)
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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 Months Ended March 31, 2002
Compared to Three Months Ended March 31, 2001
Operating Revenues - Utility
Revenues decreased $60.1 million in the first quarter of 2002 compared with
the prior year period. The decrease was primarily due to three factors. First,
weather in the first quarter 2002 was 17% warmer than the prior year period.
Second, a significantly higher number of residential customers utilized a third
party marketer as their gas supplier. Third, off-system sales revenues decreased
due to lower prices for natural gas sold, despite higher unit sales volume in
2002 than in the prior year. Partially offsetting the effect of these factors
was an additional 6,660 customers compared to same time last year.
As a result of SJG's TAC, revenues from utility ratepayers are closely tied
to 20-year normal temperatures calculated under the TAC and not actual weather
conditions. However, as a general rule, revenues continue to be positively
impacted by colder weather and negatively impacted by warmer weather. In the
first quarter 2002, weather was 16.8% warmer than the 20-year average as
compared to .2% colder for the same period last year.
The following is a comparison of operating revenue and throughput for the
three month period ended March 31, 2002 vs. the same period ended March 31,
2001.
SJI-19
1st Quarter
2002 2001
--------- ---------
Utility Operating Revenues (Thousands):
Firm
Residential $ 76,099 $ 96,359
Commercial 22,544 39,833
Industrial 1,709 1,948
Cogeneration & Electric Generation 616 648
Firm Transportation 14,264 9,432
--------- ---------
Total Firm Utility Operating Revenues 115,232 148,220
Interruptible 239 686
Interruptible Transportation 475 312
Off-System 35,753 67,195
Capacity Release & Storage 1,694 1,826
Other 819 1,217
Intercompany Sales (12,002) (17,188)
--------- ---------
Total Utility Operating Revenues $142,210 $202,268
========= =========
Throughput (MMcf):
Firm
Residential 7,142 9,157
Commercial 2,334 4,214
Industrial 91 148
Cogeneration & Electric Generation 87 24
Firm Transportation 7,483 5,784
--------- ---------
Total Firm Throughput 17,137 19,327
Interruptible 48 59
Interruptible Transportation 957 621
Off-System 11,303 9,470
Capacity Release & Storage 6,646 6,054
--------- ---------
Total Throughput 36,091 35,531
========= =========
Operating Revenues - Nonutility
Nonutility operating revenues decreased by $68.5 million for the first
quarter of 2002. The decrease was due to lower natural gas prices experienced by
SJE and SJRG, and warmer weather which reduced actual gas volumes sold.
SJI-20
Cost of Gas Sold - Utility
Cost of gas sold - utility decreased $56.9 million for the first quarter of
2002 compared with the same period in 2001 due principally to decreased gas
costs for off-system sales and lower firm gas sales volume. Warmer weather and
the migration of firm gas sales customers to transportation service were the
main cause of the decrease in firm gas sales volume. SJG's gas cost during the
first quarter of 2002 averaged $4.56/dt compared with $6.87/dt in 2001. Unlike
gas costs associated with off-system sales, changes in the cost of gas sold to
utility ratepayers are not reflected in Cost of Gas Sold - Utility as incurred.
Fluctuations in gas costs to ratepayers not reflected in current rates are
deferred and addressed in future periods under the LGAC. 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 decreased $66.1 million for the first quarter of
2002 due to warmer weather which reduced actual volumes purchased and lower
natural gas costs.
Operations
A summary of net changes in Operations (in thousands):
Three Months Ended
March 31,
2002 vs. 2001
------------------
Utility:
Other Production Expense $ 25
Transmission 8
Distribution 89
Customer Accounts and Services 290
Sales (12)
Administration and General (298)
Other 49
Nonutility 218
--------
Total Operations $ 369
========
Costs related to our unionized workforce, that were avoided during the
first quarter of 2001 as a result of the work stoppage that ended on January 17,
2001, were primarily responsible for the increase in Customer Accounts and
Services costs in the first quarter 2002 as compared with first quarter 2001.
Conversely, additional costs associated with administrative personnel performing
the operational functions of the unionized labor workforce during the work
stoppage in the first quarter of 2001 were recognized as Administration and
General expenses. These costs were not duplicated in the first quarter of 2002.
SJI-21
Other Operating Expenses
A summary of principal changes in other consolidated operating expenses (in
thousands):
Three Months Ended
March 31,
2002 vs. 2001
------------------
Maintenance $(1,468)
Depreciation 297
Energy and Other Taxes (634)
Maintenance expense decreased in the first quarter 2002 primarily due to
lower levels of Remediation Adjustment Clause (RAC) amortization. RAC-related
expenses do not affect earnings as an offsetting amount is recognized in
revenues. Depreciation is higher due to increased investment in property, plant
and equipment by SJG. Changes in Energy and Other Taxes relate primarily to
changes in volumes of gas sold and transported by SJG.
Interest Charges
Interest charges were lower in the first quarter of 2002 compared with the
prior year period due primarily to reductions in short-term rates on line of
credit borrowings. The effect of lower rates was partially offset by an
increased level of average total debt outstanding during the first quarter 2002.
The debt was incurred primarily to support the expansion and upgrade of SJG's
gas transmission and distribution system, as well as higher levels of
unrecovered gas costs.
Net Income Applicable to Common Stock
Net income (in thousands) and earnings per common share reflect the
following changes:
Three Months Ended
March 31,
2002 vs. 2001
------------------
Income from Continuing Operations $(2,016)
Loss from Discontinued Operations - Net 168
Cumulative Effect of Accounting Change - Net (148)
-------
Net Income Decrease $(1,996)
=======
Earnings per Common Share:
Continuing Operations $ (0.23)
Discontinued Operations - Net 0.02
Cumulative Effect of Accounting Change - Net (0.01)
-------
Earnings per Share Decrease $ (0.22)
=======
SJI-22
The details affecting the changes in net income and earnings per share are
discussed under the appropriate captions above.
Liquidity and Capital Resources
Liquidity needs at SJI are driven by factors that include natural gas
commodity prices; lags in fully collecting gas costs from customers under the
LGAC clause; working capital needs of our energy trading activities; the timing
of construction and remediation expenditures and related permanent financings;
mandated tax payment dates; and requirements to repay long-term debt.
We first seek to meet liquidity needs with cash from operations. We utilize
short-term borrowings under lines of credit from commercial banks to supplement
cash from operations where necessary.
Lines of credit available to SJI totaled $172.0 million at March 31, 2002,
of which $93.2 million was utilized. All but $10 million of these lines are made
available through five commercial banks on an uncommitted basis. The banks and
SJI review and renew the lines annually. The $10 million line is extended on a
committed basis, maturing May 2003, by a sixth commercial bank. $145 million of
these lines were exclusively for SJG's use. SJI has long-standing relationships
with all of these banks and we believe, based upon ongoing dialogue, that there
will continue to be sufficient credit available to meet our business' future
liquidity needs.
SJI supplements its operating cash flow and credit lines with both debt and
equity capital. Over the years, SJG has utilized long-term debt, primarily in
the form of First Mortgage Bonds, to finance its long-term needs. These needs
are primarily capital expenditures for property, plant and equipment. Since
1998, SJG has financed these needs via a Medium Term Note (MTN) program, secured
in similar fashion to the First Mortgage Bonds. We anticipate establishing a new
MTN program during 2002. Current maturities on long-term debt over the next five
years are as follows: $9.7 million in 2002; $12.9 million per year in 2003
through 2005; and $11.2 million in 2006.
Since September 2001, Marina issued $20 million of tax-exempt and $19
million of taxable variable rate demand bonds through the New Jersey Economic
Development Authority (EDA). The tax-exempt and taxable bonds mature in 2031 and
2021, respectively. Marina has EDA approval to issue up to an additional $6
million of taxable bonds. Investors in the bonds receive liquidity and credit
support via a letter of credit provided by a commercial bank. We are using the
proceeds of this bond issuance to fund project development and construction
costs for the thermal energy plant being constructed by Marina to serve The
Borgata Resort which is scheduled to open in Summer 2003. Construction of the
thermal plant is currently ahead of schedule.
SJI has raised equity capital over the past three years through its
Dividend Reinvestment Plan (DRP). Participants in SJI's DRP receive newly issued
shares. 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 we are
SJI-23
seeking. Through the DRP, SJI raised $2 million of equity capital by issuing
59,716 shares in the first quarter of 2002 as compared to $2.4 million of equity
capital by issuing 82,757 shares in the first quarter of 2001. We anticipate
raising approximately $10 million of equity capital through the DRP in 2002.
Capital Expenditures, Commitments and Contingencies
Capital Expenditures
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
quarter of 2002 amounted to $15.7 million. We estimate the costs for 2002, 2003
and 2004 at approximately $91.5 million, $70.2 million and $59.2 million,
respectively. Increases in expenditure estimates in 2002 and 2003, compared with
2001 and 2004, reflect construction costs associated with the Marina Energy
Thermal Plant.
Commitments and Contingencies
SJG has certain commitments for both pipeline capacity and gas supply for
which it pays fees regardless of usage. Those commitments average $51.2 million
annually and total $335.7 million over the contracts' lives. Approximately 70%
of the financial commitment under these contracts expires during the next five
years. SJG recovers all prudently incurred fees through rates via the LGAC.
Regulatory Matters
Rate Actions
In November 2001, SJG filed for a $17.6 million rate reduction to its LGAC
and for recovery of a 3-year net deficiency in its TAC amounting to $2.7
million. The BPU approved the LGAC rate reduction effective December 1, 2001.
Also on December 1, 2001, SJG implemented recovery of its October 31, 2001
underrecovered gas costs. SJG will recover $48.9 million over three years
including interest accrued since April 1, 2001. SJG will also recover interest
for the 3-year amortization period at a rate of 5.75%.
On April 10, 2002, SJG petitioned the BPU for approval of a $17.6 million
refund to its LGAC customers. On May 2, 2002, the Board approved SJG's petition.
Beginning in the month of May, residential and commercial LGAC customers will
receive a credit to their bill reflecting this refund.
Other matters are incorporated by reference to Note 7 to the condensed
consolidated financial statements included as part of this report.
SJI-24
Item 3. Quantitative and Qualitative Disclosures About
Market Risks of the Company
Commodity Market Risks - Certain regulated and unregulated SJI subsidiaries
are involved in buying, selling, transporting and storing natural gas for their
own accounts as well as managing these activities for others. As such, these
subsidiaries are subject to market risk due to price fluctuations. To hedge
against this risk, we enter into a variety of physical and financial
transactions including forward contracts, swaps, futures, and options
agreements. To manage these transactions, SJI has a well-defined risk management
policy approved by our board of directors that include volumetric and monetary
limits. Management reviews reports detailing trading activity daily. All
derivative activities described above are entered into for risk management, not
trading, purposes.
SJI's subsidiaries are structured so that SJG and SJE transact commodities
on a physical basis only and enter into no financial derivative positions
directly. SJRG manages risk for these entities as well as for its own portfolio
by entering into the types of transactions noted above. It is management's
policy, to the extent that it is practical, to have no unmatched positions on a
deal or portfolio basis while conducting these activities. As a result of
holding open positions to a minimal level, the financial impact to SJRG of
changes in value of a particular transaction is substantially offset by an
opposite change in the related hedge transaction. As of March 31, 2002, 61% of
the counterparties with which SJRG has unsettled sales contracts carry
investment grade ratings. The remaining counterparties carried no external
ratings, however, half had corporate parents with investment grade ratings.
SJRG has entered into certain contracts for the purchase, sale, storage and
transportation of natural gas. The net unrealized pre-tax gain on energy trading
contracts of $1.7 million at March 31, 2002 primarily is derived from contracts
entered into during the preceding 12 months and it is included as a reduction to
cost of gas - nonutility. SJRG's contracts are typically less than 12 months
long. The fair value of these contracts determined under the mark-to-market
method as of March 31, 2002 is as follows:
SJI-25
Assets
Maturity Maturity
Source of Fair Value < 1 Year 1-3 Years Total
- ------------------------------------------------------------------------------------------------------------
Prices Actively Quoted NYMEX $10,583,240 $2,522,970 $13,106,210
Other External Sources Basis 8,422,561 1,605,974 10,028,535
Other Methods Inventory 4,569,217 4,569,217
------------------------------------------------
Total $23,575,018 $4,128,944 $27,703,962
================================================
Liabilities
Maturity Maturity
Source of Fair Value < 1 Year 1-3 Years Total
- ------------------------------------------------------------------------------------------------------------
Prices Actively Quoted NYMEX ($10,086,232) ($2,627,677) ($12,713,909)
Other External Sources Basis (4,518,036) (666,448) (5,184,484)
Other Methods Inventory (1,684,707) (1,684,707)
------------------------------------------------
Total ($16,288,975) ($3,294,125) ($19,583,100)
================================================
NYMEX (New York Mercantile Exchange) is the primary national commodities
exchange on which natural gas is traded. Basis represents the price of a NYMEX
natural gas futures contract adjusted for the difference in price for delivering
the gas at another location. Inventory represents the market value of natural
gas held in storage determined through a combination of the NYMEX and Basis
methods. Contracts valued under the inventory method in the preceding chart
include gas inventory with a cost of $2.9 million.
Interest Rate Risk - Our exposure to interest rate risk relates primarily
to short-term, variable rate borrowings. A hypothetical 100 basis point increase
in interest rates on $93.2 million of variable rate debt outstanding at March
31, 2002 would result in a $550,000 increase in our interest expense net of tax
on an annual basis. In order to reduce exposure to an increase in interest rates
on our variable rate debt, SJG entered into two interest rate swap agreements.
The swaps effectively fixed the rate on $40 million of variable rate debt from
April 2002 to March of 2003 at 3.57%. Our long-term debt at SJG is issued at
fixed rates and, consequently, interest expense to the company is not
significantly impacted by changes in market interest rates. Long-term debt
issued to finance the construction of Marina Energy's thermal plant was
initially issued as floating rate debt and subsequently swapped to a blended
fixed rate of 4.59%. Other than the newly issued Marina bonds, our debt was
issued with provisions that do not permit us to prepay a material amount of such
debt during the next 12 months to take advantage of changes in interest rates.
SJI-26
PART II -- OTHER INFORMATION
Information required by this Item is incorporated by reference to Part I,
Item 1, Note 9, beginning on page 14.
Item 6. Exhibits and Reports on Form 8-K
None
SJI-27
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: May 13, 2002 By: /s/ David A. Kindlick
----------------------------------------
David A. Kindlick
Vice President, Treasurer &
Chief Financial Officer
Dated: May 13, 2002 By: /s/ Richard H. Walker, Jr.
----------------------------------------
Richard H. Walker, Jr., Esquire
Corporate Secretary & Corporate Counsel
SJI-28