Exhibit 13

SJI today
2002 Annual Report to Shareholders

Defining SJI's
Family of Companies
page 5

What's Ahead for SJI
page 6

Still Rock Solid.

South Jersey Industries
Where we put all of our energy

- Cover -

SJI Corporate Headquarters
1 South Jersey Plaza
Folsom, NJ 08037-9917
609-561-9000
TDD only 1-800-547-9085
www.sjindustries.com

Transfer Agent and Registrar
Wachovia Equity Services Group
Corporate Trust Client Services NC 1153
1525 West W. T. Harris Blvd. 3C3
Charlotte, NC 28288-1153

Dividend, Dividend
Reinvestment and Other
Shareholder Inquiries
South Jersey Industries
Shareholder Records Department
Toll-free 1-888-SJI-3100
sharehld@sjindustries.com

Investor Relations
Stephen H. Clark, Director
609-561-9000 ext. 4260
investorrelations@sjindustries.com

Annual Meeting Information
The Annual Meeting of
Shareholders will be held
Thursday, April 17, 2003
at 10:00 a.m. at Renault Winery,
72 North Bremen Avenue,
Egg Harbor/Galloway, NJ.

Table of Contents

1 Financial Highlights
2 Chairman's Letter to Shareholders
12 Management's Discussion
18 Consolidated Financial Statements
22 Notes to Consolidated Financial Statements
30 Quarterly Financial Data
31 Comparative Operating Statistics
32 SJI Directors and Officers

- Inside Cover -

2002 Highlights

Five-Year Summary of Selected Financial Data
(In Thousands Where Applicable)

South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,

2002 2001 2000 1999 1998
---------- ---------- ---------- --------- ----------

Operating Results:
Operating Revenues $ 505,126 $ 545,986 $ 512,616 $ 389,454 $ 330,649
========== ========== ========== ========= ==========
Operating Income $ 69,075 $ 68,544 $ 65,464 $ 60,228 $ 46,634
========== ========== ========== ========= ==========
Income Applicable to Common Stock:
Continuing Operations $ 29,412 $ 26,869 $ 24,741 $ 21,962 $ 13,506
Discontinued Operations-- Net (1) (424) (455) (557) (274) (2,520)
Cumulative Effect of a Change in
Accounting Principle-- Net -- 148 -- -- --
---------- ---------- ---------- --------- ----------
Net Income Applicable to Common Stock $ 28,988 $ 26,562 $ 24,184 $ 21,688 $ 10,986
========== ========== ========== ========= ==========
Total Assets $1,011,760 $ 989,429 $ 869,979 $ 766,925 $ 748,095
========== ========== ========== ========= ==========
Capitalization:
Common Equity $ 237,792 $ 220,286 $ 201,739 $ 185,275 $ 169,234
Preferred Stock and Securities of
Subsidiary 36,690 36,690 36,804 37,044 37,134
Long-Term Debt 238,016 259,247 204,981 183,561 194,710
---------- ---------- ---------- --------- ----------
Total Capitalization $ 512,498 $ 516,223 $ 443,524 $ 405,880 $ 401,078
========== ========== ========== ========= ==========
Ratio of Operating Income to Fixed Charges 3.3 2.9 2.7 2.5 2.0
========== ========== ========== ========= ==========
Earnings Applicable to Common Stock -- Basic
(Based on Average Shares):
Continuing Operations $ 2.44 $ 2.29 $ 2.17 $ 2.01 $ 1.25
Discontinued Operations-- Net (1) (0.03) (0.03) (0.05) (0.02) (0.23)
Cumulative Effect of a Change
in Accounting Principle -- Net -- 0.01 -- -- --
---------- ---------- ---------- --------- ----------
Basic Earnings per Common Share $ 2.41 $ 2.27 $ 2.12 $ 1.99 $ 1.02
========== ========== ========== ========= ==========
Return on Average Common Equity (2) 12.8% 12.7% 12.8% 12.4% 7.9%
========== ========== ========== ========= ==========
Share Data:
Number of Shareholders of Record 8.4 8.7 9.1 9.7 10.4
Average Common Shares 12,038 11,716 11,401 10,922 10,776
Common Shares Outstanding at Year End 12,206 11,861 11,500 11,152 10,779
Dividend Reinvestment Plan:
Number of Shareholders 5.1 5.0 5.0 5.4 5.5
Number of Participating Shares 1,304 1,280 1,273 2,518 1,371
Book Value at Year End $ 19.48 $ 18.57 $ 17.54 $ 16.61 $ 15.70
Dividends Declared $ 1.51 $ 1.48 $ 1.46 $ 1.44 $ 1.44
Market Price at Year End $ 33.02 $ 32.60 $ 29.75 $ 28.44 $ 26.19
Dividend Payout (3):
From Continuing Operations 60.9% 63.9% 66.6% 71.0% 114.9%
From Total Net Income 61.8% 64.6% 68.1% 71.9% 141.2%
Market-to-Book 1.7 1.8 1.7 1.7 1.7
Price Earnings Ratio (2) 13.5 14.2 13.7 14.1 20.9

<FN>
(1) Represents discontinued business segments: appliance merchandising operations discontinued in 2001, wholesale electric
operations discontinued in 1999, construction operations sold in 1997, sand mining and distribution operations sold in
1996 and fuel oil operations with related environmental liabilities in 1986 (See Note 3 to Consolidated Financial Statements).
(2) Calculated based on Income from Continuing Operations.
(3) Dividends declared for the fourth quarter are typically paid in early January of the following year. However, in 2002, the
dividend declared for the fourth quarter was paid in December, resulting in five quarterly dividends paid in 2002. For
comparability, the payout ratios for 2002 are based on the first four quarterly dividends paid in 2002.
</FN>

- 1 -

Dear Shareholders,

"SJI is a small investment gem. With a combination of strong management,
a well-run utility and a thoughtful and effective mix of unregulated
businesses, it fits our portfolio very well. The company also understands
the importance of the dividend and appears committed to an annual increase.
This enhances its ability to provide total return to its investors."

Kathleen Vuchetich, Vice President, W. H. Reaves & Company, Inc.

We are strong.

We're extremely pleased to report that South Jersey Industries achieved
record net income and earnings per share from continuing operations for the
fourth consecutive year. Consolidated net income from continuing operations
reached $29.4 million compared with $26.9 million in 2001, a 9.5 percent
increase. Earnings per share from continuing operations rose to $2.44 from $2.29
in 2001, delivering 6.6 percent EPS growth.

Exceptional performance by our utility and non-regulated businesses made
our success possible. South Jersey Gas surpassed its 2001 earnings, contributing
79 percent to SJI's net income. Our non-regulated businesses outperformed our
expectations exceeding last year's performance by 16 percent, contributing 21
percent to SJI's bottom line.

The key drivers for our utility's earnings improvement -- customer growth,
off-system natural gas sales and strong performance by our appliance service
business line -- propelled SJG to exceed last year's earnings despite a weak
national economy and a year that was warmer than normal. Lower interest expense
and cost savings initiatives also positively impacted SJG's net income.

On the non-regulated side, South Jersey Energy continued to dominate the
competition in residential retail natural gas sales adding 40,581 customers in
2002 for a total of 72,902 customers, which is a remarkable 125 percent increase
in the 12-month period. Wholesale natural gas sales continued to be strong for
South Jersey Resources Group and increased meter reads at a lower cost enabled
Millennium Account Services to excel this year.

Return on Investment

On top of our earnings achievements, the underlying strength of SJI's
stock price was confirmed amidst the unnerving turmoil in the stock market.
With the Dow Jones Industrial Average suffering through its third year of
decline in another down year for equities, SJI's stock held its own
finishing at $33.02. This was our fifth consecutive year of improvement
in year-end price. SJI remained a highly preferred investment for shareholders
seeking stable income with an element of proven and consistent growth.
Thanks to the creativity and work ethic of our employees and strict
adherence to our strategy, shareholders realized a total return of 6 percent
in 2002 that exceeded both the Standard & Poors utility average, which
lost 30 percent, and the S&P 500 average, which lost 22 percent. For the past
five years, SJI's compounded total return of 7 percent compared favorably
with the loss on the S&P utility average of 4 percent and the loss on
the S&P 500 average of 1 percent.

Shareholders and analysts stress the importance of SJI's dividend
and we clearly hear this message. We're proud to report that 2002 was
SJI's 51st consecutive year of paying dividends and the fourth consecutive
year of increasing the dividend. At the same time, we reduced our dividend
payout ratio. Based on our confidence in our future performance, in
November, we increased the dividend by 4 cents per share. The dividend
increase not only underscores our strong performance over the past few
years and our confidence in our potential, but also reinforces our future
expectations of 6 to 7 percent annualized earnings per share growth.

Our Strategy at Work

During the American Gas Association's financial forum held in the spring,
industry analysts praised SJI's management for our strategy -- to focus on
delivery of complementary energy-related products and services within
acceptable risk parameters, to customers and prospects. When we adopted this
strategy in 1998, we envisioned a steadily growing company from core utility
operations with complementary non-utility earnings streams to enhance profits
and create value for you, our shareholders.

We attribute our success over the past four years to:

* Following a consistent strategy that relies on SJI's intrinsic
strengths;
* Conducting business in markets we understand;
* Targeting areas where we have broad name recognition;

- 2 -

* Strengthening customer relationships;
* Reassessing business lines and introducing products and services
our customers want while maintaining a moderate risk profile;
* Revising the Temperature Adjustment Clause to ensure earnings
stability regardless of weather conditions;
* Using demonstrated in-house expertise or obtaining that expertise
very cost effectively through long-established business relationships
for every product or service we offer; and
* Contributing to our communities.

After four years of record earnings and four dividend increases, it's
clear we're a different company, our strategy is working, and we have great
potential to continue growing the company using a strategy that will
ensure SJI remains a rock solid investment you can count on.

What's Ahead

We realize many of you rely on SJI for stable income and we will continue
protecting your investment by maintaining the delicate balance we've achieved
between the stable, low-risk utility and our moderate risk non-regulated
businesses. We accept a moderate level of risk because we can control it
through the types of investments we make. It's important to note that we
invest in tangible assets and facilities and those investments are predicated
upon long-term contracts with secure long-term returns -- that is what
distinguishes us from many other companies.

No project better illustrates our strategy than the Marina Energy thermal
facility in Atlantic City, which is providing hot and chilled water for The
Borgata Resort's heating, cooling and domestic hot water needs. The thermal
plant affords four of SJI's subsidiaries an opportunity to fulfill the casino's
energy needs for the next 20 years. Marina owns and operates the facility, SJE
provides the commodity, SJG delivers the natural gas and SJRG provides the risk
management services for the commodity purchase and delivery.

We want to ensure you understand that when it comes to taking on and
managing risk our corporate philosophy remains unchanged. This past year,
investor confidence in public corporations was affected by a few visible
large companies that engaged in clearly unethical behavior causing billions
of dollars in investor losses. With SJI's 10-member board being comprised
of nine independent directors in addition to me, you can be confident in the
board's oversight of your company. Rest assured that SJI's management conducts
its business guided by the highest set of principles with honesty and
integrity at the forefront of every decision we make, and that the information
being presented to you is correct and accurately represents the company's
financial position.

We know who we are; we know what we do well. Our strategy is focused on the
goal of maximizing shareholder returns from a low to moderate risk platform. We
believe we achieve this through the dedication of our resources in our region,
southern New Jersey, and by staying within our field of expertise and competency
- -- energy. We see no reason to change this strategy.

We thank you for your continued faith in our ability to grow your company
and our employees for their innovative thinking and willingness to embrace the
changes necessary to continue being a Rock Solid investment for many years to
come.

On behalf of the SJI family, we wish to express our sadness at the passing
of Thomas L. Glenn, Jr., who for nearly 16 years served on SJI's board of
directors with true compassion and endless enthusiasm. We're deeply grateful for
Tom's expert guidance. Selfless in his giving, untiring in his spirit, Tom will
forever be remembered as a leader, a friend and a gentleman.

Sincerely,

Charles Biscieglia
Chairman, President and CEO,
South Jersey Industries
February 19, 2003

- 3 -

South Jersey Gas

South Jersey South Jersey
Resources Group Energy

Marina Energy Millennium
Account Services

- 4 -

Defining SJI

Consistent with our strategy, each of SJI's companies continues to be
a positive contributor to earnings while providing superior products and
services to customers. Each company successfully markets to customers who
recognize and value our brand; and each seeks to identify profitable
opportunities where customers can benefit from our total energy management
approach. Before we describe their achievements and outlook for the future,
we want to provide a glimpse of the broad array of high quality,
energy-related services that make SJI the energy company of first choice for
consumers, shareholders and employees.

We are dependable.

South Jersey Gas

The regulated utility remains the core and foundation of SJI's business.
SJG safely and reliably delivers natural gas to an ever-expanding customer base
that reached nearly 300,000 residential, commercial and industrial customers in
N.J.'s seven southern counties in 2002. Through its Gas Supply and Off-System
Sales functions, SJG sells natural gas to wholesale customers in the interstate
market and manages our pipeline and storage assets. SJG and its core utility
customers share the earnings from off-system sales.

A growing business line within SJG, the Appliance Service Business provides
quality repair work on household and commercial appliances at competitive prices
and also offers warranty and preventive maintenance programs under the Service
Sentry brand. This year, the ASB established relationships with several
reputable vendors with whom we can now offer duct cleaning and water heater
replacements to a growing list of valued customers.

South Jersey Energy

SJE is a licensed, deregulated energy supplier for residential, commercial
and industrial customers. Through N.J.'s Energy Choice Program, SJE markets
retail gas supplies at a savings versus the utility's price. To enhance SJE's
marketing efforts, its Community Rewards Program enables community organizations
to earn money to support their projects in exchange for providing SJE with
profitable retail customers.

A full service energy consultant, SJE offers energy management services,
energy efficiency audits, lighting upgrades and retrofits, and
energy-efficient HVAC design and construction. This helps businesses save
money and focus their valuable time and resources on their own customers.
SJE also sells natural gas to Atlantic City casinos and owns a 50 percent
interest in AirLogics, LLC, which provides companies with a patented real-time
environmental air monitoring system.

South Jersey Resources Group

SJRG is a wholly owned non-utility subsidiary of SJI. Formed in 1996, SJRG
provides wholesale natural gas trading, sales, storage management, peaking
services, transportation capacity and natural gas portfolio management. SJRG
also provides commodity risk management services to other SJI subsidiaries.

Energy marketers, electric and gas utilities and natural gas producers are
included in an extensive customer base. SJRG competes with other
marketers/brokers in the sale of wholesale natural gas services mainly in the
mid-Atlantic and southern regions of the country.

Marina Energy

Marina is in the business of developing energy-related projects in southern
N.J. To date, Marina's largest project is the development and operation of a
thermal facility to provide cooling, heating, hot water and electricity to The
Borgata Resort in Atlantic City. The resort, scheduled to open in summer 2003,
has contracted with Marina for the next 20 years. The thermal facility is
capable of supporting future development in the Renaissance Pointe area of
Atlantic City, which remains the most attractive area in the city for future
casino resort development. Having many of the same attributes as a utility,
Marina's investments are in tangible assets and facilities, with revenue streams
supported by long-term contracts with secured returns. Other Marina projects
include a cogeneration facility in southern N.J. and the ownership and operation
of a heating and cooling plant within an existing commercial facility.

Millennium Account Services

SJI has a joint venture investment with Conectiv Solutions, LLC in
Millennium Account Services, LLC. Millennium provides meter-reading services to
SJG and Conectiv Power Delivery, the electricity provider in much of southern
N.J. Economies of scale derived from this venture have resulted in significant
cost savings to the utilities while at the same time improving productivity,
accuracy and customer satisfaction.

- 5 -

SJI In-depth

In describing our strategy, it's important to recognize our utility,
SJG, as our core line of business. SJG represents the basis of our experience
and expertise, and generates nearly 80 percent of our earnings. As we've
embarked upon new businesses, offered new services and created new sources
for earnings growth, we've effectively drawn upon that experience to add
value, year after year, for our shareholders.

We are rock solid.

For each product or service we provide, we either possess an internal,
demonstrated expertise or have carefully established relationships with
businesses that have a proven track record of superior products or services.
Importantly, our principal markets are geographically located in an area where
our name is recognized and valued. We've kept South Jersey in our name for a
reason -- it's the area we know and the area where we're known and respected.

Market Growth

Growth Potential in Region is Our Greatest Asset

Bolstered by a strong regional economy, consistent increases in
employment opportunities and available land for development, the seven-county
area in southern N.J. continues to be our most valuable corporate asset.
While many parts of the country and many industries felt the economic crunch
during 2002, the relative strength of our regional economy set the stage for
our companies to add customers and expand our businesses.

Geographically, South Jersey benefits considerably from its proximity
to the metropolitan centers of Philadelphia and Atlantic City. Portions of
our western region, considered part of the Greater Philadelphia Metropolitan
area, are targeted growth areas for housing developments and new businesses.
Manufacturers or purveyors of sand, glass, farm products, paints, chemicals
and petroleum products are prevalent in the western and southern sectors
of the service territory. New commercial establishments and high technology
industrial parks and complexes are part of this area's economic growth as
well. A modest increase in housing was also experienced in the western
region of our service area in 2002.

The ongoing construction of new homes in the eastern corridor of our region
continues to be fueled by the Atlantic City casino industry. In the same way
that Gloucester County in the west benefits from its proximity to Philadelphia,
Atlantic and Cape May Counties directly benefit from the employment, housing,
business and commercial ventures fostered by the gaming industry. In 2002,
housing starts in the eastern portion of our service area increased by 3
percent. With several casino expansions underway and more slated for 2003 and
beyond, gaming presents a strong and steady catalyst for growth and development
in our eastern region for the foreseeable future.

Our utility business is preparing for future growth by investing in new
underground assets and improving the existing natural gas infrastructure.
Ongoing improvements to these natural gas facilities, needed for safe and
adequate service to SJG's customers, will provide SJI's companies with future
projects and prospects in southern N.J.

Beyond this extremely attractive South Jersey market, northern N.J., Pa.
and Del. offer tremendous opportunities for future wholesale and retail gas
sales and energy services.

SJI's Market Segments

Residential and Small Commercial -- Cultivating Growth, Promoting Synergy

The residential and small commercial market represents about 83 percent
of SJG's sales margins and 78 percent of SJE's sales margins. New construction
represents 81 percent of residential customer growth for SJG and each new
gas customer is a new prospect for SJE as well as for SJI's other companies.

- 6 -

Using this strategy we've found an effective way to increase SJI's revenue.
Overall, in areas where natural gas facilities were available, about 95
percent of new homes constructed in 2002 selected natural gas for heating
and other residential applications. This obvious preference for natural gas
translated into customer additions of 8,366 this year, a growth rate of
2.9 percent, which exceeds the national average and made SJG the fastest
growing gas utility in N.J.

Beyond new construction, the conversion market continues to represent a
meaningful growth opportunity. This year, about 19 percent of SJG's growth
came from conversions from other fuels. Propelled by a re-engineered sales
function, an aggressive no-money-down financing campaign and successful
alliances with independent HVAC contractors, SJG added 1,802 conversion
customers in 2002. Capitalizing on these strengths we're prepared to reach
our target of 2,500 new conversion customers in 2003.

New and conversion customers together increased SJG's customer base to
296,374 at year-end. In a region of 550,000 households, SJG has a saturation
rate of 54 percent, placing us in an enviable position to capture a greater
market share. SJG will also reach an important milestone in 2003, when we add
our 300,000th natural gas customer.

The strong and steady residential growth in our service area provides a
platform for growth in the small commercial market sector. Construction of
residential housing promotes the development of many new commercial
enterprises serving those consumers. In 2002, we exceeded our expectations
for new commercial sales volumes, adding approximately 683,700 decatherms to
annual throughput.

SJE, our state's first and most successful non-utility energy marketer,
significantly increased its residential customer base capturing a record
40,581 new customers in 2002, an extraordinary 125 percent increase over 2001.
At year-end, nearly 73,000 residential customers had chosen SJE as their
natural gas supplier. SJE's success resulted from a broad strategy including
mass marketing techniques for the residential and small commercial markets;
several direct marketing networks selling face-to-face; and telemarketing.
Successfully applying these varied approaches, SJE more than quadrupled its
commercial customer base during 2002. With more homes and businesses using
natural gas as their fuel of choice and a yet-to-be captured market of over
200,000 homes, SJE has ample opportunity to grow for years to come.

Large Commercial and Industrial -- Building Relationships, Fostering
Opportunities

Following the re-engineering of our sales function, we witnessed
substantial returns on our investment in 2002. The sales force renewed its
focus on forging new relationships and bolstering existing alliances. In doing
so, we made significant inroads into the large commercial and industrial
sectors.

Casinos

With deregulation, advancing technologies, new market entrants and a
myriad of energy services from which to choose, the energy industry is
increasingly complex. To navigate through these choices many companies and,
in some cases, entire industries are hiring specialists to evaluate and design
optimal energy solutions. SJI's approach to total energy management, coupled
with our expertise and reputation, places us in a unique position to fill this
role in our region. No better example of this trend exists than the Atlantic
City casino industry. With nearly $1.4 billion in expansion or new
construction projects planned or currently underway, the casino industry is
fueling growth in all sectors of our regional economy. As the industry
continues to make substantial investments in bricks and mortar, it fuels
broader economic development, creating new opportunities for SJI. The
casinos themselves are valued clients of one or more of SJI's companies,

- 7 -

and several are looking to us as their energy specialists and partners.
The following projects highlight the products and services we provide and
the relationships we have with key players in the Atlantic City gaming
industry.

Marina provided a new and different investment opportunity for
SJI in supplying The Borgata Resort with a comprehensive solution to meet its
energy needs. Reliability, efficiency and The Borgata's desire to use every
square foot of its facility advantageously were critical elements as we
considered their needs. Our solution was an off-site thermal plant fueled by
natural gas that would also house back-up electric generation to be built and
managed by Marina. This facility is already providing heat to The Borgata as
the interiors of the resort are well underway to meeting a scheduled grand
opening in the summer of 2003. Joining Marina to deliver the total energy
management solution needed by this important customer are three other SJI
companies, all dedicated to serving the customer's needs in a well-integrated
and transparent manner.

The Marina thermal facility, designed for expansion, will be able to serve
the expected development at Atlantic City's Renaissance Pointe. Marina has been
in discussions with MGM for a new casino resort facility planned in the
Renaissance Pointe area. Preliminary designs announced by MGM indicate a
facility at least equal in size to The Borgata. Beyond MGM, an additional parcel
of land zoned for casino development is available to support a new gaming house
or the expansion of an existing property.

Resorts International, Inc. is a new energy services client for Marina.
Under a 20-year agreement, we provide heating, cooling, and customer comfort
systems for its Atlantic City-based casino hotel. Marina now operates the
steam and chilled water production facilities at Resorts after upgrading the
production facilities and equipment to improve their efficiency.
At Resorts, SJE also has a 5-year commodity contract and SJRG provides the
risk-management of the facility's long-term natural gas supplies. Engaging
SJI as its energy partner enables customers like Resorts to better apply
their human resources to their primary business activities while we deliver
the best energy solutions and value to them.

Expansion projects at the Tropicana, Resorts and Showboat casinos are
valued at $440 million. Each translates directly into additional natural gas
load and potential new business for SJI's companies. This growth leads
indirectly to new jobs, new employees, new housing and new commercial services
- -- an economic multiplier effect we've previously experienced.

Cogeneration

An 8-megawatt plant constructed by floor-covering giant Mannington Mills
became the fifth cogeneration facility being served by SJI. The unit doubles the
natural gas used by the flooring manufacturer and provides an efficient energy
solution to meet its needs. SJE, with commodity management support from SJRG, is
supplying the gas needed to operate the plant, which generated $1.1 million in
revenue in 2002.

Pharmaceutical materials manufacturer Johnson Matthey finalized plans with
Marina for the design and construction of a $9 million cogeneration facility at
its West Deptford, N.J. plant. The cogen unit will produce six megawatts of
electricity and 10,000 lbs. per hour of steam. In addition, a 1,200-horsepower
boiler will be installed to meet the plant's growing needs. Marina will also
manage this facility, which is expected to be fully operational in 2003.

Hospitals

An example of our successful conversion efforts includes South Jersey
Health System's planned regional medical center. SJHS, a long-time user of oil
as its primary fuel source, was impressed with our commitment to help them save
money. By using natural gas, SJHS will realize substantial long-term savings.
Our assistance in securing a N.J. energy rebate on their behalf, which exceeded
$150,000 for an 850-ton natural gas absorption chiller, helped finalize the
negotiation of a 6-year contract with SJG. The building project, currently under
construction in Cumberland County, is slated for a 2004 opening. The entire
health-care sector remains a fertile market for SJE's services as well in 2003
and beyond. As we capitalize on those opportunities, the new projects that
emerge will add long-term value to SJI.

- 8 -

Educational Facilities

Successful relationship building is evident in the number of educational
facilities choosing natural gas as their preferred fuel and SJI as their energy
partner. In 2002, four schools in our service area switched from electric air
conditioning systems to natural gas-fired cooling equipment. Another, located
in an oil-dominated section of Cumberland County, converted to natural gas to
satisfy its energy needs. These conversions translated into significant energy
savings for the schools and substantial rebates, which exceeded $234,000, from
the statewide N.J. Clean Energy Program.

In September 2002, Richard Stockton College of New Jersey awarded SJE with
a $1.3 million contract to install a 200-kilowatt fuel cell at its campus. When
completed, this exciting and innovative technology will save the college
approximately $80,000 annually. As an added bonus, Stockton received a $710,000
rebate under N.J.'s Customer Sited Clean Generation Program, a statewide
energy-efficiency program approved by the N.J. Board of Public Utilities.
Educational facilities such as these and numerous others to be constructed,
renovated or expanded in our region will generate increased natural gas demand
for SJG and opportunities for SJE to provide lighting retrofit and other energy
services.

Food Processing

We continue to make inroads into the food processing industry.
Representing a key targeted growth market for both SJG and SJE, food-processing
plants are recognizing the value and cost savings realized with natural gas.
Zelke Greenhouses and Cumberland Dairy are two new gas customers in this viable
market.

As our family of companies solidifies already strong alliances with
targeted industries and customers, our broad portfolio of products and services
continues to help them manage their energy needs and control their energy costs.
With the opportunity to grow our business lines in energy supply and delivery,
energy consulting and long-term energy management services, SJI's forecast of
annual earnings growth of 6 to 7 percent is achievable.

- 9 -

Other Accomplishments

Off-System Sales

In 2002, Off-System Sales produced earnings of $6.2 million. Since 1993,
OSS has operated in the highly competitive wholesale natural gas market and,
year after year, has provided shareholders with consistent quality earnings.
Through a formula approved by the N.J. Board of Public Utilities, SJG's
customers have shared in this success with a credit against gas costs of over
$50 million.

Cost Control

While we strongly focus on growing revenues, we also recognize the need
to continually increase efficiency and productivity in all of our businesses
to control costs. In 2002, many U.S. companies experienced significant
increases in pension, health care and insurance costs. To mitigate these
increases we continue to evaluate and change methods, processes and policy in
ways that reduce or contain operating costs. A recent example is the
installation of service lines to new customers. During 2002, our SJG
employee-crews began to install services that previously were performed by
outside contractors, saving the company almost $2 million. We accomplished this
by applying our existing human resources more effectively while ensuring that
we are completing other required services. Our future success in managing costs
will continue to hinge on a healthy balance of improved systems and technology;
workforce learning and development; labor-management understanding and
cooperation; and clear and achievable cost control objectives.

Customer Service Improvements

According to a Customer Care Satisfaction Survey conducted in May 2002 by
an independent agency, the great majority of surveyed SJG customers indicated
they're completely satisfied with their experience with our Customer Care
Center.

The report found that CCC's experience and commitment to high quality
customer service clearly resulted in positive perceptions of our professionalism
and service. The research produced high marks for SJG across all the measured
variables.

The survey's purpose was twofold. First, we wanted to measure the overall
satisfaction of the call center experience. Second, we wanted feedback on the
automated systems currently in use and those we're reviewing for the future.

Although the survey found our customers comfortable with current wait
times, we continue to work at further reducing these times. To further improve
response rates, SJG assessed the desirability and prospective impact of offering
new customer self-service options via telephone and Internet. By April 2003, an
Interactive Voice Response system will enable customers to access account
information and perform transactions by telephone 24 hours a day, seven days a
week. This customer self-service option will yield fast and accurate responses
to many of the basic informational-type inquiries. We can then more effectively
address the complex customer service and billing issues requiring a live agent.
We anticipate measurable productivity gains by implementing this system.

This new system represents another piece of a planned e-commerce solution
designed to meet the needs of and match our customers' changing communication
habits. As envisioned, the solution will enable customer access via the Internet
for account information, electronic bill payment and other transactions.

Air Monitoring

AirLogics was born of a partnership with GZA GeoEnvironmental to market an
innovative, real-time perimeter air monitoring system. SJI and GZA professionals
initially developed the system for use at former coal gasification cleanup
sites. At year-end, three major N.J. utilities were using our air monitoring
system, along with eight other utilities and/or corporations from N.Y. to Wis.
These contracts represent nearly $2 million in revenues. AirLogics already has
commitments to operate our system at six environmental remediation sites

- 10 -

throughout the country in 2003. With interest in environmental protection
growing, the opportunities for customized applications are expanding.

Meter Reading

For Millennium, increased earnings, impressive read rates and cutting-edge
technology marked 2002. A consistent contributor to SJI since its formation in
1999, Millennium achieved its fourth straight year of improved earnings in 2002.

Millennium consistently exceeded a total read rate of 97 percent for gas
and electric in 2002. We expect to maintain these high performance standards, in
part, through new technology that we purchased and installed during the year.
Using Itron Inc.'s most current technology, Millennium will have the capability
to electronically collect gas, electric and, prospectively, water meter data via
improved handheld devices.

Appliance Service Business

A targeted marketing strategy, increased productivity and additional
service offerings catapulted the Appliance Service Business into its best year
for customer growth and financial results.

To accommodate the growing needs of consumers, we altered promotional
offers, further revamped operations and introduced diversified services in 2002.
We saw the results, in part, in the number of appliances under Service Sentry
warranty, which increased by 28 percent, from 104,492 in 2001 to 134,193 in
2002. These numbers include 8,346 preventive maintenance contracts, a new
service in 2002. Warranty contracts, time and materials work and other services
produced net income of $956,000 for 2002 compared with net income of $89,000 in
2001.

Formed to satisfy the needs of SJG's customers, the appliance service
business line has grown and evolved beyond its original intent and purpose.
These services are not part of SJG's core utility function and we've managed
and accounted for them as a separate business for several years. Consistent
with the intent of N.J. law, the company has petitioned the N.J. Board of Public
Utilities requesting that this business be setup as a separate entity. That
petition is currently pending before the BPU.

For 2003, we predict strong growth for this business segment. Continued
demand for customized warranty coverage, preventive maintenance service work
and specialized services translate into greater profitability for the ASB.

The Value of Cultivating Change

In late 2001, SJI began a culture change initiative to advance our
competitive position in the complex and changing energy market. A year later,
the initiative's results are unmistakable -- higher productivity, improved
customer service and cost savings.

One clear-cut example stems from a newfound collaboration between labor
and management. Working together, representatives from each side set out
specific goals to address and satisfy both parties' needs. The union wanted to
preserve jobs; management wanted increased efficiency and productivity. The
alliance uncovered and implemented dozens of improvements that preserved work
for the bargaining units and delivered enhanced productivity to SJI.

Each success serves as a springboard for future projects requiring
cooperation between labor and management as well as between individual
departments and divisions. This open, results-oriented approach is helping to
transform a workforce steeped in tradition to one that is both receptive to,
and supportive of, nontraditional solutions. Our goal remains the creation of
informed and empowered employees focused on a single vision of solid performance
and long-term success. We commend our employees for their openness, innovative
thinking, demonstrated flexibility and commitment to this ongoing process.

Community Involvement

As a company that serves a large region of N.J., our obligation to the
community goes well beyond simply providing energy services. SJI's involvement
in community activities is as diverse as the people who make up the region where
our employees live and work. We believe that it's important to be both a partner
and a catalyst for positive change whenever possible. That's why we will
continue to strongly support both corporate involvement and employee
participation in charitable, social and business organizations throughout the
region.

Proudly, our efforts and the selfless work of our employees were honored
by the Family Service Association with the presentation of the 2002 Henry West
Leeds Corporate Award for strengthening the community. The award honors a
southern N.J. corporation whose employees donate their time, talents and
leadership abilities to nonprofit agencies in our region. The FSA advocates that
the efforts of good corporate citizens, like SJI, strengthen the community and
inspire others to make a difference. We couldn't agree more.

As the SJI family of companies enters into 2003, we approach the future
with a confidence, strength and wisdom born of experience. We know who we are,
we know where we're going and we know we will remain a Rock Solid investment for
the investors of today and tomorrow.

- 11 -

Management's Discussion and Analysis of Financial Condition
and Results of Operations

Overview -- South Jersey Industries, Inc. (SJI) is an energy services holding
company that provides a variety of products and services through the following
wholly owned subsidiaries:

1) South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG
distributed natural gas in the seven southernmost counties of New Jersey to
296,374 customers at December 31, 2002 compared with 288,008 customers at
December 31, 2001. SJG also:

* sells natural gas and pipeline transportation capacity (off-system sales) on
a wholesale basis to various customers on the interstate pipeline system;

* transports natural gas purchased directly from producers or suppliers for its
own sales and for some of its customers; and

* services appliances via the sale of appliance warranty programs, as well as
on a time and materials basis.

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 natural gas sales to the casino industry in
Atlantic City, N.J. SJE also markets an air quality monitoring system through
AirLogics, LLC. SJE and GZA GeoEnvironmental, Inc., an environmental consulting
firm, each have a 50% equity interest in AirLogics.

3) South Jersey Resources Group, LLC (SJRG) markets wholesale gas storage,
commodity and transportation in the mid-Atlantic and southern states. SJRG also
conducts price-risk management activities.

4) Marina Energy LLC (Marina) develops and operates energy-related projects
in southern New Jersey. Marina's largest project, the development of a facility
to provide cooling, heating and hot water to The Borgata Resort in Atlantic
City, is scheduled to be fully operational by the summer of 2003.

SJI also has a joint venture investment with Conectiv Solutions, LLC in
Millennium Account Services, LLC (Millennium). Millennium provides meter reading
services to SJG and Conectiv Power Delivery in southern New Jersey.

Estimates and Assumptions -- As described in the footnotes to our
consolidated financial statements, management must make estimates and
assumptions that affect the amounts reported in the financial statements and
related disclosures. Actual results could differ from those estimates. Three
types of transactions presented in our consolidated financial statements require
a significant amount of judgment and estimation. These relate to regulatory
assets, energy trading activities and environmental remediation costs.

The New Jersey Board of Public Utilities (BPU) has reviewed and approved
most of the items shown as regulatory assets through specific orders. Other
items represent costs that were not yet approved by the BPU for recovery, but
are the subject of current or future filings. In recording these costs as
regulatory assets, management believes the costs will be allowable under
existing rate-making concepts that are embodied in current rate orders received
by SJG. However, ultimate recovery is subject to BPU approval.

Beginning January 1, 2001, SJI recognizes assets or liabilities for the
energy-related contracts entered into by its non-regulated subsidiary, SJRG,
when the contracts are executed. We record contracts at their fair value in
accordance with either Emerging Issues Task Force Issue Number 98-10 or FASB
Statement No. 133. We adjust the fair value of the contracts each reporting
period for changes in the market. We derive the fair value for most of the
energy-related contracts from markets where the contracts are actively traded
and quoted. For other contracts, SJI uses published market surveys and in
certain cases, independent parties to obtain quotes concerning the contracts'
current value. Market quotes tend to be more plentiful for contracts maturing
in two years or less. Very few of our contracts extend beyond two years.

An outside consulting firm assists us in estimating future costs for
environmental remediation activities. We estimate future costs based on
projected investigation and work plans using existing technologies. Developing
a single reliable estimation point is not feasible because of the amount of
uncertainty involved in the nature of projected remediation efforts and the long
period over which remediation efforts will continue. Therefore, we estimate the
range of future costs at $52.1 million to $157.9 million. In preparing financial
statements, SJI records liabilities for future costs using the lower end of the
range. We update estimates each year to take into account past efforts, changes
in work plans and remediation technologies.

Revenue Recognition -- SJG, SJE and SJRG bill customers monthly for gas
delivered and recognize those revenues during the month. For SJG and SJE retail
customers we do not bill at the end of each month; we make an accrual to
recognize revenues for gas delivered from the date of the last bill to the end
of the month. We bill SJG customers at rates approved by the BPU. SJE and SJRG
customers are billed at rates negotiated between the parties.

We defer and recognize revenues related to SJG's appliance warranty
contracts over the full 12-month term of the contract as earned.

The BPU allows SJG to recover the excess cost of gas sold over the cost
included in base rates through the Levelized Gas Adjustment Clause (LGAC). SJG
defers over/under-recoveries of gas costs and includes them in the following
year's LGAC rate or other similar rate recovery mechanism. As a result of these
deferrals, utility revenue recognition does not directly translate to
profitability. While we realize profits on gas sales during the month of
providing the utility service, significant shifts in revenue recognition may
result from the various recovery clauses approved by the BPU (See Regulatory
Matters) without shifting profits between periods.

New Accounting Pronouncements -- In June 2001, the FASB issued Statement
No. 142, "Goodwill and Other Intangible Assets" and Statement No. 143,
"Accounting for Asset Retirement Obligations."

Statement No. 143, which will be adopted in 2003, establishes accounting
and reporting standards for legal obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SJG has
certain easements and right-of-way agreements that qualify as legal obligations
under Statement No. 143. However, we intend to maintain these agreements in
perpetuity; therefore, no change in SJG's current accounting practices is
required at this time.

SJG recovers certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. When we retire
depreciable properties, we charge the original cost thereof, plus cost of
removal less salvage, to accumulated depreciation. As of December 31, 2002, SJG
had accrued amounts in excess of actual removal costs incurred totaling $41.4
million which is included in utility plant accumulated depreciation. We do not
expect the adoption of this statement to materially affect SJI's financial
condition or results of operations.

- 12 -

discontinued operations. The adoption of this statement did not affect SJI's
financial condition or results of operations, nor do we expect its ongoing
application to materially affect SJI's financial statements.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which is effective for exit or
disposal activities initiated after December 31, 2002. We do not expect the
adoption of this statement to materially affect SJI's financial condition or
results of operations.

In November 2002, the FASB released Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." For a detailed discussion, see the
section on Parental Guarantees under Note 14 to the consolidated financial
statements included in this report.

In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure," which is effective for
SJI's 2002 annual financial statements and subsequent interim financial
reporting. This statement provides alternate methods of transitioning for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, it requires prominent disclosures about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The provisions for this statement currently
have no impact on SJI's financial statements.

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, national, state and local level;
weather conditions in our marketing areas; changes in commodity costs;
regulatory and court decisions; competition in our utility and nonutility
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.

Competition -- SJG's franchises are non-exclusive. Currently, no other
utility provides retail gas distribution services within our territory. We do
not expect any other utilities to do so in the foreseeable future because of the
extensive investment required for utility plant and related costs. SJG competes
with oil, propane and electricity suppliers for residential, commercial and
industrial users. The market for natural gas sales is subject to competition due
to deregulation. We enhanced SJG's competitive position while maintaining
margins by using an unbundled tariff. This tariff allows full cost-of-service
recovery, except for the variable cost of the gas commodity, when transporting
gas for our customers. Under this tariff, SJG profits from transporting, rather
than selling, the commodity. SJG's residential, commercial and industrial
customers can choose their supplier while we recover the cost of service through
transportation service (see Customer Choice Legislation). SJE, EnerTrade, SJRG
and Marina actively arrange energy services and provide low-cost energy supplies
in a highly competitive marketplace. Competitors of SJI's nonutility businesses
are often much larger companies with substantially greater resources. SJI's
subsidiaries successfully compete by focusing on providing services where we
have a high level of expertise in geographic areas with which we are very
familiar.

Mandatorily Redeemable Preferred Securities -- SJG's statutory trust
subsidiary, SJG Capital Trust, currently has $35 million of 8.35% SJG-Guaranteed
Mandatorily Redeemable Preferred Securities outstanding. SJG may redeem these
securities at a price equal to 100% of the principal amount at any time. The
securities currently trade on the New York Stock Exchange under the symbol
SJI.T.

Customer Choice Legislation -- All residential natural gas customers in New
Jersey can choose their gas supplier under the terms of the Electric Discount
and Energy Competition Act of 1999. As of December 31, 2002, 88,219 SJG
residential customers chose a natural gas supplier other than the utility. This
number increased from 39,998 at December 31, 2001 as marketers were able to
offer natural gas at prices competitive with those available under regulated
utility tariffs. Customers purchasing natural gas from providers other than the
utility are charged for gas costs by the marketer, not the utility. The
resulting decrease in SJG's revenues is offset by a corresponding decrease in
gas costs. While customer choice can reduce utility revenues, it does not
negatively affect SJG's net income or financial condition. The BPU continues to
allow for full recovery of natural gas costs through the LGAC as well as other
costs of service including deferred costs, through tariffs. SJI has benefited
from customer choice legislation as SJE has successfully competed for and
profited from its gas commodity customers.

Temperature Adjustment Clause -- A BPU-approved Temperature Adjustment
Clause (TAC) increased SJG's net earnings by $2.3 million in 2002. In 2001, the
TAC increased net income by $2.0 million and in 2000, the TAC decreased net
earnings by $0.9 million. The clause is designed to mitigate the effect of
variations in heating season temperatures from historical norms. While we record
the revenue and income impacts of TAC adjustments as incurred, cash inflows or
outflows directly attributable to TAC adjustments generally do not begin until
the next clause year. Each TAC year begins October 1.

Operating Revenues - Utility -- Revenues decreased $59.1 million in 2002
compared with the prior year. The decrease was primarily due to the migration of
residential customers from firm gas sales to transportation, lower revenue from
off-system sales and weather that was 2.6% warmer than last year. These factors
more than offset the revenue increase derived from adding 8,366 customers in
2002, the largest increase in more than a decade. During 2002, the number of
residential customers who purchased natural gas from gas marketers increased by
121% as those marketers were able to offer competitive gas prices in 2002
compared with SJG's prices. The corresponding decline in customers who purchased
their natural gas from the utility directly impacted utility revenues. However,
since gas costs are passed on directly to customers without any profit margin
added by New Jersey utilities, the increased customer usage of gas marketers did
not impact SJG's profitability. SJG also experienced a significant decrease in
off-system revenues due to lower average prices for gas sold in 2002. The volume
of gas sold off-system was slightly lower in 2002; however, due to the higher
margins per unit sold, off-system sales activity contributed more to earnings
this year compared with 2001.

Revenues increased $14.0 million in 2001 compared with the prior year. The
increase was primarily due to higher rates resulting from an increase in the
LGAC that reflected higher gas costs, the return of residential customers to
firm gas sales from transportation and 6,658 additional customers. Early in
2001, a large number of residential customers who purchased natural gas from
other providers resumed purchasing natural gas from SJG as marketers were unable
to offer competitive prices. These increases offset a decrease in off-system
revenues. The decrease was due to lower average prices for natural gas sold
during 2001 compared with 2000. The volume of gas sold off-system was also lower
in 2001 than in 2000.

- 13 -

As a result of SJG's TAC, revenues from utility ratepayers are closely tied
to 20-year normal temperatures calculated under the clause and not actual
temperatures. While the clause significantly reduces fluctuations in revenues
related to temperature, as a general rule, revenues continue to be positively
impacted by colder weather and negatively impacted by warmer weather. Weather in
2002 was 2.6% warmer than in 2001 and 7.8% warmer for the year than the 20-year
TAC average. Revenues in 2001 were also negatively impacted by the weather.
Weather in 2001 was 9.0% warmer than in 2000 and was also 5.3% warmer in 2001
than the 20-year TAC average.

Total gas throughput increased 11.0% to 120.9 billion cubic feet (Bcf) in
2002. The higher throughput was almost entirely due to increased capacity
release throughput. Warm weather resulted in reduced demand for natural gas and
the need for pipeline capacity to transport that gas. Consequently, SJG had more
capacity available to sell in 2002 than 2001. In 2001, total gas throughput
decreased 17.8% to 108.9 Bcf. Results in 2001 were due to decreased capacity
release, off-system sales, transportation and residential activity. Off-system
and capacity release throughput declined primarily because we canceled a
high-volume, low-margin supply and storage contract.

Operating Revenues - Nonutility -- Nonutility operating revenues increased
by $18.2 million in 2002 compared with 2001. Most of the increase was due to the
significant customer growth experienced by SJE, which included the addition of
over 45,000 residential and 2,100 commercial natural gas customers during 2002.
Revenues increased by $19.3 million in 2001 compared with 2000. This increase
was mainly due to higher gas prices on increased volumes experienced by SJE and
the inclusion of SJRG as a wholly owned subsidiary of SJI as of January 1, 2001.
As of that date, we are consolidating SJRG's results into SJI. Prior to 2001,
SJI recorded only its share of SJRG's net income under the equity method of
accounting. SJI has presented SJRG's revenues and expenses from trading in
energy related contracts on a net basis (see Note 1 from Notes to Consolidated
Financial Statements).

Cost of Gas Sold - Utility -- Cost of gas sold - utility decreased $62.2
million in 2002 compared with 2001. Lower gas costs and sales volumes for both
local distribution and off-system sales were responsible for the decrease. SJG's
gas cost during 2002 averaged $4.29 per decatherm (dt) compared with $4.78/dt in
2001 and $4.18/dt in 2000. SJG passed lower gas costs on to local distribution
customers through a $17.6 million refund in 2002. Warmer weather and the
migration of customer gas purchases from the utility to gas marketers were the
main causes of lower sales volumes. In 2001, cost of gas sold - utility
increased $17.6 million compared with 2000 as a result of higher gas costs for
both local distribution and off-system sales, partially offset by lower volumes
sold. Unlike gas costs associated with off-system sales, changes in the unit
cost of gas sold to utility ratepayers do not directly affect cost of gas sold -
utility. We defer and address fluctuations in gas costs to ratepayers not
reflected in current rates in future periods under a BPU-approved Levelized Gas
Adjustment Clause. Gas supply sources include contract and open-market
purchases. SJG secures and maintains its own gas supplies to serve its sales
customers. We do not anticipate any difficulty renewing or replacing expiring
contracts under substantially similar terms and conditions.

Cost of Sales - Nonutility -- Cost of sales - nonutility increased $17.1
million in 2002 compared with 2001 due mainly to SJE's customer growth,
described in the Operating Revenues - Nonutility section. Cost of sales -
nonutility increased by $12.6 million in 2001 compared with 2000. This increase
was due mainly to higher natural gas prices as also described in the Operating
Revenues - Nonutility section.

Operations -- A summary of net changes in operations (in thousands):

2002 vs. 2001 2001 vs. 2000
Utility:
Other Production Expense $ 47 $ (9)
Transmission 30 30
Distribution 590 283
Customer Accounts and Services 1,889 492
Sales 90 18
Administration and General 398 (2,345)

Nonutility 945 1,697
------- -------
Total Operations $ 3,989 $ 166
======= =======

Distribution expenses increased in 2002 as the cost to maintain the utility
distribution system, inclusive of implementation of new federally mandated
training programs, continues to increase. Customer Accounts and Services expense
increased significantly in 2002 primarily due to higher bad debt expense as
customer account write-offs rose and SJG increased its reserve for bad debts.
The higher level of write-offs was attributable to the unusually cold 2000-2001
winter season. In addition, the colder start to the 2002-2003 winter season
resulted in the need to increase the reserve for future uncollectible account
balances. The increase in Customer Accounts and Services in 2001 compared with
2000 resulted from the absence of almost two months of payroll expense in 2000
due to a work stoppage in that year.

Administrative and General (A&G) expenses increased in 2002 primarily
because of increasing healthcare and pension costs. Approximately two-thirds of
the A&G decline in 2001 was work-stoppage related. The remainder was due to a
reallocation of benefits to individual cost centers mandated by the BPU as part
of New Jersey's energy deregulation process.

Nonutility expenses in 2002 rose primarily due to higher customer
acquisition costs resulting from substantial growth in SJE's customer base. The
2001 increase resulted from recognition of SJRG's activities on a consolidated
basis beginning in 2001. Prior to 2001, we recognized these activities under the
equity method of accounting.

Other Operating Expenses -- A summary of principal changes in other
consolidated operating expenses (in thousands):

2002 vs. 2001 2001 vs. 2000

Maintenance $ (1,670) $ (50)
Depreciation 1,242 1,041
Energy and Other Taxes 201 (1,009)

Maintenance expense decreased in 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
was higher due to SJG's increased investment in property, plant and equipment.
Changes in Energy and Other Taxes relate primarily to changes in volumes of gas
sold and transported by SJG.

Interest Charges -- Interest charges decreased in both 2002 and 2001
compared with the prior year due primarily to reductions in short-term rates on
line of credit borrowings and recoveries of carrying costs associated with
unrecovered RAC and purchased gas costs. We incurred debt primarily to expand
and upgrade SJG's gas transmission and distribution system, to construct the
Marina Energy thermal plant, and to support seasonal working capital needs
related to gas inventories and customer receivables. We are capitalizing
interest incurred on the construction debt of the thermal plant during the
construction period. Capitalized interest will be amortized and we will expense
current interest when the project becomes fully operational in mid-2003.

Discontinued Operations -- Loss from discontinued operations decreased in
2002 and 2001. In 2002, these losses were primarily comprised of environmental

- 14 -

remediation and product liability litigation associated with previously disposed
of businesses. The 2001 loss was primarily due to the settlement of a complaint
in bankruptcy court against SJE filed by Power Company of America Liquidating
Trust (PCA). PCA was a wholesale electricity trading company with which SJE did
business. This was offset by the settlement of a lawsuit with an insurance
carrier to recover previously incurred costs at an operation we sold in 1996.

Net Income Applicable to Common Stock -- Net income for 2002 was $29.0
million, or $2.41 per share, compared with $26.6 million, or $2.27 per share and
$24.2 million, or $2.12 per share in 2001 and 2000, respectively. Reasons for
the increases in net income are detailed above.

Regulatory Matters --

Rate Actions: In January 1997, the 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 increased. Currently, SJG keeps 100% of
pre-tax margins up to the threshold level of $7.8 million. The next $750,000 is
credited to the Levelized Gas Adjustment Clause (LGAC). Thereafter, SJG keeps
20% of the pre-tax margins as it has historically.

In November 2001, SJG filed for a $2.7 million rate increase to recover the
cash related to a 3-year net deficiency in the TAC. Additionally, in September
2002, SJG filed for an $8.6 million rate increase to recover the cash related to
a TAC deficiency resulting from warmer-than-normal weather for the 2001-2002
winter.

Also in November 2001, SJG filed for a $17.6 million reduction to its LGAC.
The BPU approved the LGAC reduction effective December 1, 2001 and concurrently
approved recovery of SJG's October 31, 2001 underrecovered gas cost balance. As
a result, SJG is recovering $48.9 million over three years plus interest accrued
since April 1, 2001. SJG is also recovering interest for the 3-year amortization
period at a rate of 5.75%. In May 2002, SJG received approval from the BPU to
reduce its overcollected LGAC balance by another $17.6 million through a
customer refund. This refund did not affect SJG's net income or financial
condition. In September 2002, SJG filed with the BPU to maintain its current
LGAC rate through October 2003.

During 2002, the BPU convened a gas policy group to address Basic Gas
Supply Service (BGSS), which is the gas supply service being provided by the
natural gas utility. In December 2002, the BPU approved the proposed BGSS price
structure which was submitted by the gas policy group. When implemented in 2003,
customers will be able to make more informed decisions about choosing an
alternate supplier by having a utility price structure that more currently
reflects market conditions. Further, BGSS will provide SJG with more pricing
flexibility, through automatic rate changes, resulting in the reduction of
over/under-recoveries. The BGSS-approved price structure will replace the
current LGAC pricing structure. However, other LGAC related mechanisms, such as
deferred accounting treatment, the sharing of pre-tax margins generated by
interruptible and off-system sales and transportation, and the allowance for
full recovery of natural gas costs, will remain in place under BGSS.

In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU-mandated programs, including
environmental remediation costs that are recovered through its Remediation
Adjustment Clause (RAC); energy efficiency and renewable energy program costs
that are recovered through its Comprehensive Resource Analysis Clause (renamed
in December 2002 as the New Jersey Clean Energy Programs); consumer education
program costs; and low income program costs. If approved, the rate increase
filed would provide for annual recovery of $13.7 million, representing an annual
increase of approximately $7.0 million over the $6.7 million recovery currently
included in rates.

Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by expanding
and modifying its service offerings in an unregulated environment.

Filings and petitions described above are still pending unless otherwise
indicated.

Environmental Remediation: SJI incurred and recorded costs for
environmental clean up of sites where SJG or its predecessors operated
manufactured gas plants (MGP). SJG stopped manufacturing gas in the 1950s. SJI
and some of its nonutility subsidiaries also recorded costs for environmental
clean up of sites where we previously operated a fuel oil business and also
where we maintained equipment, fueling stations and storage. We successfully
entered into settlements with all of SJG's historic comprehensive general
liability carriers regarding environmental remediation expenditures at former
MGP sites. As part of these settlements, SJG purchased an insurance policy that
caps its remediation expenditures at 11 of these sites. The insurance policy is
in force until 2024 at 10 sites and until 2029 at one site.

We believe that all costs incurred net of insurance recoveries relating to
SJG's MGP sites will be recovered through rates under SJG's RAC. The RAC
currently permits SJG to recover incurred costs in equal installments over
7-year periods with carrying costs. As of December 31, 2002, SJG has $6.5
million of remediation costs not yet recovered through rates.

Other matters are incorporated by reference to Note 14 to the consolidated
financial statements included in this report.

Liquidity and Capital Resources -- Liquidity needs at SJI are driven by
factors that include natural gas commodity prices; the impact of weather on
customer bills; lags in fully collecting gas costs from customers under the
LGAC; working capital needs of our energy trading activities; the timing of
construction and remediation expenditures and related permanent financings;
mandated tax payment dates; and both discretionary and required repayments of
long-term debt.

We first seek to meet liquidity needs with net cash provided by operating
activities. Net cash provided by operating activities totaled $79.5 million,
$10.7 million and $37.7 million in 2002, 2001 and 2000, respectively. The wide
swing in our net cash provided by operating activities between 2002 and 2001 was
primarily due to the impact of cold weather in November and December of 2002
compared with warm weather experienced at the same time in 2001. Consequently,
inventories were lower than at December 31, 2001 due to high levels of gas
consumption by customers in late 2002. The majority of the 2001 change resulted
from significantly higher-cost gas placed into inventory during the year. Very
high gas prices combined with cold weather experienced during November and
December of 2000 resulted in much higher receivables and payables and much lower
inventories at year end 2000 compared with December 31, 2001 when weather
conditions at year end were warmer than normal. We use short-term borrowings
under lines of credit from commercial banks to supplement cash from operations
where necessary.

Lines of credit available to SJI totaled $197.0 million at December 31,
2002, of which $166.5 million was used. All but $10 million of these lines are
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. $172 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 used 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. SJG's registration of a new $150

- 15 -

million MTN program with the Securities and Exchange Commission became effective
in December 2002. This program replaces a previous $100 million, 3-year MTN
program that was fully used in 2001. Current maturities on long-term debt over
the next five years are as follows: $10.7 million per year in 2003 through 2005;
$9.0 million in 2006; and $8.4 million in 2007.

Since September 2001, Marina issued $20 million of tax-exempt and $25
million of taxable variable rate demand bonds through the New Jersey Economic
Development Authority, the last $6 million of which was issued in January 2003.
The tax-exempt and taxable bonds mature in 2031 and 2021, respectively.
Investors in the bonds receive liquidity and credit support via a letter of
credit provided by a syndicate of commercial banks. 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.

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
seeking. Through the DRP, SJI raised $10.7 million of equity capital by issuing
338,518 shares in 2002 and $9.6 million of equity capital by issuing 354,809
shares in 2001. We anticipate raising approximately $16 million of equity
capital through the DRP in 2003.

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 2002 amounted to $78.4 million. We estimate the net costs for
2003, 2004 and 2005 at approximately $57.8 million, $50.4 million and $50.3
million, respectively. Decreases in expenditure estimates in 2003 through 2005
reflect the anticipated completion of the Marina Energy Thermal Plant in 2003.

Commitments and Contingencies: SJI made certain commitments to The Borgata
Resort relating to the development of Marina's thermal energy project. In the
event that certain construction milestones are not met, SJI is obligated to make
specific payments to The Borgata, per the construction contract. As of December
31, 2002, SJI's financial obligation to The Borgata under this contract was
reduced to $12.9 million from a total of $31.4 million at the beginning of the
project. Half of that financial obligation was supported by a standby letter of
credit. To date, construction is proceeding ahead of schedule as outlined in the
contract and we do not anticipate problems in meeting any scheduled construction
milestones. In fact, on November 1, 2002, the thermal plant began providing The
Borgata with heat and hot water for use during the completion of the resort's
construction. SJI's obligation under the contract is projected to total $5
million by mid-2003 and reduce to zero by mid-2004.

SJI is obligated on the letters of credit supporting the variable rate
demand bonds issued through the New Jersey Economic Development Authority by
Marina. A syndicate of commercial banks issued $46 million of annually renewing
letters of credit to support the development of Marina's thermal plant project.
The letter of credit agreement contains certain financial covenants measured on
a quarterly basis. SJI was in compliance with these covenants as of December 31,
2002.

SJG has certain commitments for both pipeline capacity and gas supply for
which it pays fees regardless of usage. Those commitments as of December 31,
2002 average $44.1 million annually and total $293.5 million over the contracts'
lives. Approximately 15% of the financial commitment under these contracts
expires during the next five years. We expect to renew each of these contracts
under renewal provisions provided in each contract. SJG recovers all prudently
incurred fees through rates via the LGAC.

Occasionally, SJI enters into operating leases to finance the use of a
variety of assets, including vehicles, telecommunications equipment and copiers.
SJI's operating lease obligations for the next five years are: $502,000 in 2003;
$356,000 in 2004; $190,000 in 2005; $35,000 in 2006; and a total of $62,000 in
2007 and beyond.

SJI provides credit support for SJRG in relation to establishing contracts
to purchase natural gas on a physical or a financial basis.

SJI is subject to claims arising in the ordinary course of business and
other legal proceedings. We accrue liabilities related to claims when we can
determine the amount or range of amounts of likely settlement costs for those
claims. Among other actions, SJI was named in certain product liability claims
related to our former sand mining subsidiary. Management does not currently
anticipate the disposition of any known claims to have a material adverse effect
on SJI's financial position, results of operations or liquidity.

Market Risks --

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. 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 includes volumetric and monetary limits. Management
reviews reports detailing trading activity daily. Generally, we enter into
derivative activities described above for risk management, not trading,
purposes.

SJG and SJE transact commodities on a physical basis only and do not enter
into 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 practical,
within predetermined risk management policy guidelines, to have limited
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 December 31, 2002, SJRG had $15.7 million of accounts receivable under sales
contracts. Of that total, 88% were with companies rated investment-grade, or
were guaranteed by an investment-grade-rated parent or were with companies where
we have a collateral arrangement.

SJRG and SJE entered into certain contracts to purchase, sell, store and
transport natural gas. The net unrealized pre-tax gain on these contracts on
January 1, 2001 was $250,742. We derive the net unrealized pre-tax (loss) gain
on the energy trading contracts of $(0.5) million and $3.4 million at December
31, 2002 and 2001, respectively, primarily from contracts entered into during
2002 and 2001 and it is included as a component of revenues - nonutility. SJRG's
and SJE's contracts are typically less than 12 months long. The fair value of
these contracts determined under the mark-to-market method as of December 31,
2002 is as follows (in thousands):

Assets
Maturity Maturity
Source of Fair Value < 1 Year 1-3 Years Total
Prices Actively Quoted NYMEX $ 19,025 $ 835 $ 19,860
Other External Sources Basis 7,075 1,870 8,945
Other Methods Gas Inventory 2,989 62 3,051
-------- ------- --------
Total $ 29,089 $ 2,767 $ 31,856
======== ======= ========

Liabilities
Maturity Maturity
Source of Fair Value < 1 Year 1-3 Years Total
Prices Actively Quoted NYMEX $ 9,296 $ 798 $ 10,094
Other External Sources Basis 4,280 1,238 5,518
Other Methods Gas Inventory 1,989 59 2,048
-------- ------- --------
Total $ 15,565 $ 2,095 $ 17,660
======== ======= ========

- 16 -

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 $0.9 million.

A reconciliation of SJI's estimated net fair value of energy trading
contracts follows (in thousands):

Net Energy Trading Assets, January 1, 2002 $ 8,803
Contracts Settled During 2002, Net (3,527)
Other Changes in Fair Value from Continuing and
New Contracts, Net 8,921
-------
Net Energy Trading Assets, December 31, 2002 $14,197
=======

Interest Rate Risk: Our exposure to interest rate risk relates primarily to
short-term, variable rate borrowings. Our short-term, variable rate debt
outstanding at December 31, 2002 was $166.5 million and averaged $125.2 million
for the entire year. The months where average outstanding variable rate debt was
at its highest and lowest points were November at $166.1 million and May at
$86.8 million, respectively. A hypothetical 100 basis point (1%) increase in
interest rates on our average variable rate debt outstanding would result in a
$739,000 increase in our interest expense net of tax on an annual basis. We
chose the 100 basis point increase for illustrative purposes, as it provides a
simple basis for calculating the impact of interest rate changes under a variety
of interest rate scenarios. Over the past five years, the change in basis points
(b.p.) of our average monthly interest rates from the beginning to end of each
year was as follows: 2002 -- 74 b.p. decrease; 2001 -- 383 b.p. decrease; 2000
- -- 83 b.p. increase; 1999 -- 81b.p. increase; and 1998 -- 38 b.p. decrease. For
December 2002, our average interest rate on variable rate debt was 2.22%.
Consequently, the interest rate reduction experienced since the beginning of
2001 cannot be duplicated.

To reduce exposure to an interest rate increase on our variable rate debt,
SJG entered into two interest rate swap agreements. The swaps fixed the rate on
$40 million of variable rate debt from April 2002 to March 2003 at 3.57%. SJG
primarily issues long-term debt at fixed rates and, consequently, interest
expense is not significantly impacted by changes in market interest rates. SJG
prepaid $17.5 million of 9% first mortgage bonds in October 2002. SJG paid a
premium of $566,000 to bondholders in conjunction with that redemption. Given
current interest rate levels, we anticipate redeeming an additional $8.1 million
of first mortgage bonds prior to scheduled maturity during the next 12 months.
The only long-term debt outstanding other than that issued by the utility
consists of the New Jersey Economic Development Authority bonds used to finance
the construction of Marina's thermal plant. They were issued at floating rates
that reset weekly. Subsequent to issuance, we entered into interest rate swap
contracts that effectively fixed the rate on $20 million of tax-exempt debt at
4.08% through 2011 and $19 million of taxable debt at 4.59% through 2007. The
amount of the swap on the taxable debt reduces annually commencing December
2003.

Independent Auditors' Report

To the Shareholders and
Board of Directors of
South Jersey Industries, Inc.:

We have audited the consolidated balance sheets of South Jersey Industries,
Inc. and subsidiaries as of December 31, 2002 and 2001, and the related
statements of consolidated income, consolidated retained earnings and
consolidated cash flows for each of the three years in the period ended December
31, 2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of South Jersey Industries, Inc.
and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of presenting revenues and expenses from trading in
physical power contracts.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 19, 2003

- 17 -

Statements of Consolidated Income
(In Thousands Except for Per Share Data)

South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
2002 2001 2000
--------- --------- ---------

Operating Revenues:
Utility (Notes 1 & 9) $ 386,120 $ 445,204 $ 431,156
Nonutility (Notes 1 & 3) 119,006 100,782 81,460
--------- --------- ---------
Total Operating Revenues 505,126 545,986 512,616
--------- --------- ---------
Operating Expenses:
Cost of Gas Sold -- Utility 243,341 305,587 288,002
Cost of Sales -- Nonutility (Notes 1 & 3) 105,242 88,149 75,592
Operations 48,110 44,121 43,955
Maintenance 6,101 7,771 7,821
Depreciation (Note 1) 22,451 21,209 20,168
Energy and Other Taxes 10,806 10,605 11,614
--------- --------- ---------
Total Operating Expenses 436,051 477,442 447,152
--------- --------- ---------
Operating Income 69,075 68,544 65,464

Other Income and Expense:
Equity in Affiliated Companies (Notes 1 & 3) 941 704 1,336
Other 534 517 1,016
--------- --------- ---------
Total Other Income and Expense 1,475 1,221 2,352
--------- --------- ---------
Interest Charges 17,676 20,539 21,292
Preferred Dividend Requirements of Subsidiary (Note 2) 3,058 3,062 3,074
--------- --------- ---------
Income Before Income Taxes 49,816 46,164 43,450
Income Taxes (Notes 1, 5 & 13) 20,404 19,295 18,709
--------- --------- ---------
Income from Continuing Operations 29,412 26,869 24,741

Loss from Discontinued Operations -- Net (Note 3) (424) (455) (557)
Cumulative Effect of a Change in Accounting
Principle -- Net (Note 1) -- 148 --
--------- --------- ---------
Net Income Applicable to Common Stock $ 28,988 $ 26,562 $ 24,184
========= ========= =========

Basic Earnings Per Common Share: (Note 4)
Continuing Operations $ 2.44 $ 2.29 $ 2.17
Discontinued Operations (0.03) (0.03) (0.05)
Cumulative Effect of a Change in Accounting
Principle -- Net -- 0.01 --
--------- --------- ---------
Basic Earnings Per Common Share $ 2.41 $ 2.27 $ 2.12
========= ========= =========

Average Shares of Common Stock Outstanding -- Basic 12,038 11,716 11,401

Diluted Earnings Per Common Share: (Note 4)
Continuing Operations $ 2.43 $ 2.29 $ 2.17
Discontinued Operations (0.04) (0.04) (0.05)
Cumulative Effect of a Change in Accounting
Principle -- Net -- 0.01 --
--------- --------- ---------
Diluted Earnings Per Common Share $ 2.39 $ 2.26 $ 2.12
========= ========= =========

Average Shares of Common Stock Outstanding -- Diluted 12,116 11,750 11,411

Dividends Declared Per Common Share $ 1.51 $ 1.48 $ 1.46
========= ========= =========

Statements of Consolidated Retained Earnings
(In Thousands)

South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,

2002 2001 2000
--------- --------- ---------

Balance at Beginning of Year $ 67,218 $ 58,004 $ 50,467
Net Income Applicable to Common Stock 28,988 26,562 24,184
Dividends Declared-- Common Stock (18,204) (17,348) (16,647)
--------- --------- ---------
Balance at End of Year (Note 12) $ 78,002 $ 67,218 $ 58,004
========= ========= =========

<FN>

The accompanying footnotes are an integral part of the financial statements.

</FN>

- 18 -

Statements of Consolidated Cash Flows
(In Thousands)

South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,

2002 2001 2000
-------- -------- --------

Cash Flows from Operating Activities:

Net Income Applicable to Common Stock $ 28,988 $ 26,562 $ 24,184
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 24,864 23,446 23,104
Unrealized Loss (Gain) on Energy Trading Contracts 514 (3,429) --
Provision for Losses on Accounts Receivable 3,706 2,667 2,280
Revenues and Fuel Costs Deferred -- Net 6,787 (9,202) (16,006)
Deferred and Non-Current Income Taxes and Credits -- Net 14,343 7,310 13,845
Environmental Remediation Costs -- Net* 6,354 5,452 7,019
Additional Pension Contributions (17,091) (327) (336)
Changes in:
Accounts Receivable (29,139) 22,427 (60,995)
Inventories 17,950 (27,602) (4,843)
Prepayments and Other Current Assets (3,145) (233) 75
Prepaid and Accrued Taxes -- Net 359 574 1,025
Accounts Payable and Other Accrued Liabilities 24,546 (36,817) 45,415
Other -- Net 426 (99) 2,922
-------- -------- --------
Net Cash Provided by Operating Activities 79,462 10,729 37,689
-------- -------- --------
Cash Flows from Investing Activities:

(Investment in) Return of Investment in Affiliates (481) 164 (2,201)
Repayment of Loan to Affiliate 120 800 1,595
Purchase of Available-for-Sale Securities (693) (766) (832)
Proceeds from Sale (Purchase) of Restricted Investments 20,882 (22,962) --
Capital Expenditures, Cost of Removal and Salvage (84,740) (66,859) (50,834)
-------- -------- --------
Net Cash Used in Investing Activities (64,912) (89,623) (52,272)
-------- -------- --------
Cash Flows from Financing Activities:

Net Borrowings from Lines of Credit 14,140 31,160 1,250
Proceeds from Issuance of Long-Term Debt 10,000 64,000 35,000
Principal Repayments of Long-Term Debt (30,268) (11,877) (10,580)
Dividends on Common Stock (18,204) (17,348) (16,647)
Proceeds from Sale of Common Stock 10,926 10,953 8,857
Repurchase of Preferred Stock -- (114) (240)
Premium for Early Retirement of Debt (617) -- --
Payments for Issuance of Long-Term Debt (201) (1,142) (1,464)
-------- -------- --------
Net Cash (Used in) Provided by Financing Activities (14,224) 75,632 16,176
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 326 (3,262) 1,593
Cash and Cash Equivalents at Beginning of Year 3,965 7,227 5,634
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 4,291 $ 3,965 $ 7,227
======== ======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest (Net of Amounts Capitalized) $ 17,811 $ 20,662 $ 24,219
Income Taxes (Net of Refunds) $ 8,433 $ 6,480 $ 4,838

<FN>

* Notes 9 and 14 contain additional information relating to environmental
remediation costs.

The accompanying footnotes are an integral part of the financial statements.

</FN>

- 19 -

Consolidated Balance Sheets
(In Thousands)

South Jersey Industries, Inc.
and Subsidiaries
Year Ended December 31,

2002 2001
----------- -----------

Assets
Property, Plant and Equipment: (Note 1)
Utility Plant, at original cost $ 846,865 $ 805,440
Accumulated Depreciation (236,813) (221,457)
Nonutility Property and Equipment, at cost 57,950 24,118
Accumulated Depreciation (1,428) (1,058)
----------- -----------
Property, Plant and Equipment -- Net 666,574 607,043
----------- -----------
Investments:
Available-for-Sale Securities (Notes 1 & 6) 3,462 3,139
Restricted (Note 6) 2,080 22,962
Investments in Affiliates (Notes 1 & 3) 1,849 1,369
----------- -----------
Total Investments 7,391 27,470
----------- -----------
Current Assets:
Cash and Cash Equivalents (Notes 1 & 10) 4,291 3,965
Accounts Receivable 94,105 66,719
Unbilled Revenues (Note 1) 33,537 34,981
Provision for Uncollectibles (3,170) (2,661)
Natural Gas in Storage, average cost 41,490 59,778
Materials and Supplies, average cost 4,156 3,818
Energy Trading Assets (Note 1) 29,089 47,187
Prepaid Taxes 2,440 4,650
Prepayments and Other Current Assets 6,761 3,616
----------- -----------
Total Current Assets 212,699 222,053
----------- -----------
Regulatory and Other Non-Current Assets: (Note 1)
Deferred Fuel Costs -- Net (Note 9) 31,594 38,381
Other Regulatory Assets 73,710 79,994
Energy Trading Assets 2,767 3,554
Derivatives -- 509
Unamortized Debt Discount and Expense 7,086 6,636
Other 9,939 3,789
----------- -----------
Total Regulatory and Other Non-Current Assets 125,096 132,863
----------- -----------
Total Assets $ 1,011,760 $ 989,429
=========== ===========

Capitalization and Liabilities
Capitalization:
Common Equity (Notes 4 & 12) $ 237,792 $ 220,286
Preferred Stock and Securities of Subsidiary (Note 2) 36,690 36,690
Long-Term Debt (Note 6) 238,016 259,247
----------- -----------
Total Capitalization 512,498 516,223
----------- -----------
Current Liabilities:
Notes Payable (Note 10) 166,500 152,360
Current Maturities of Long-Term Debt (Note 6) 10,696 9,733
Accounts Payable 76,657 48,239
Customer Deposits 6,924 5,976
Environmental Remediation Costs (Note 14) 5,104 11,319
Taxes Accrued 892 2,743
Energy Trading Liabilities (Note 1) 15,565 38,991
Derivatives (Note 1) 142 --
Deferred Income Taxes -- Net (Note 13) 24,818 26,629
Interest Accrued and Other Current Liabilities 9,334 14,154
----------- -----------
Total Current Liabilities 316,632 310,144
----------- -----------
Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes -- Net (Note 13) 97,890 84,717
Investment Tax Credits (Note 5) 3,819 4,166
Pension and Other Postretirement Benefits (Note 11) 15,828 19,313
Environmental Remediation Costs (Note 14) 47,051 41,423
Energy Trading Liabilities (Note 1) 2,095 2,947
Derivatives (Note 1) 2,431 --
Other 13,516 10,496
----------- -----------
Total Deferred Credits and Other Non-Current Liabilities 182,630 163,062
----------- -----------
Commitments and Contingencies (Note 14)
Total Capitalization and Liabilities $ 1,011,760 $ 989,429
=========== ===========

<FN>

The accompanying footnotes are an integral part of the financial statements.

</FN>

- 20 -

Schedules of Consolidated Capitalization
(In Thousands Except for Per Share Data)

South Jersey Industries, Inc.
and Subsidiaries
Year Ended December 31,

2002 2001
---------- ----------

Common Equity: (Notes 4 & 12)
Common Stock: Par Value $1.25 per share; Authorized 20,000,000 shares;
Outstanding Shares: 12,206,474 (2002) and 11,860,990 (2001)
Balance at Beginning of Year $ 14,826 $ 14,375
Stock Plans 432 451
---------- ----------
Balance at End of Year 15,258 14,826
Premium on Common Stock 150,434 139,929
Accumulated Other Comprehensive Loss (Note 8) (5,902) (1,687)
Retained Earnings 78,002 67,218
---------- ----------
Total Common Equity 237,792 220,286
---------- ----------
Preferred Stock and Securities of Subsidiary: (Note 2)
South Jersey Gas Company -- Redeemable Cumulative Preferred Stock:
Par Value $100 per share, 41,966 Shares Authorized
Outstanding Shares: Series 8% -- 16,904 1,690 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
---------- ----------
Total Preferred Stock and Securities of Subsidiary 36,690 36,690
---------- ----------
Long-Term Debt: (A)
South Jersey Gas Company:
First Mortgage Bonds: (B)
8.19% Series due 2007 11,362 13,635
10.25% Series due 2008 7,385 9,658
9% Series due 2010 (C) -- 19,687
6.12% Series due 2010 10,000 10,000
6.74% Series due 2011 10,000 10,000
6.57% Series due 2011 15,000 15,000
6.95% Series due 2013 35,000 35,000
7.7% Series due 2015 15,000 15,000
6.5% Series due 2016 9,965 10,000
7.97% Series due 2018 10,000 10,000
7.125% Series due 2018 20,000 20,000
7.7% Series due 2027 35,000 35,000
7.9% Series due 2030 10,000 10,000
Unsecured Notes:
Debenture Notes, 8.6% due 2010 21,000 27,000
Marina Energy LLC: (D)
Series A Bonds at variable rates due 2031 20,000 20,000
Series B Bonds at variable rates due 2021 19,000 9,000
---------- ----------
Total Long-Term Debt Outstanding 248,712 268,980
Less Current Maturities 10,696 9,733
---------- ----------
Total Long-Term Debt 238,016 259,247
---------- ----------
Total Capitalization $ 512,498 $ 516,223
========== ==========

<FN>

(A) The long-term debt maturities and sinking fund requirements for the
succeeding 5 years are as follows: 2003, $10,696; 2004, $10,696; 2005, $10,696;
2006, $8,989; and 2007, $8,420.

(B) SJG's First Mortgage dated October 1, 1947, as supplemented, securing
the First Mortgage Bonds constitutes a direct first mortgage lien on
substantially all utility plant.

(C) On October 7, 2002, SJG redeemed its 9% Series First Mortgage Bonds due
2010. The premium associated with the redemption was approximately $0.6 million.
SJG will seek BPU approval to amortize the premium over the remaining term of
this bond issue in accordance with the BPU's uniform system of accounts.

(D) In September 2001 and January 2002, Marina issued $29 million and $10
million, respectively, of variable rate revenue bonds through the New Jersey
Economic Development Authority. The variable rates at December 31, 2002 for the
Series A and Series B bonds were both 1.55%. In January 2003, Marina issued an
additional $6.0 million of taxable Series B variable rate bonds.

The accompanying footnotes are an integral part of the financial statements.

</FN>

- 21 -

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies:

Consolidation -- The consolidated financial statements include the accounts
of South Jersey Industries, Inc. (SJI) and its subsidiaries. We eliminated all
significant intercompany accounts and transactions. SJI reclassified some
previously reported amounts to conform with current year classifications.

Equity Investments -- We classify equity investments purchased as long-term
investments as Available-for-Sale Securities on our consolidated balance sheets
and/or carry them at their estimated fair value with any changes in unrealized
gains or losses included in Other Comprehensive Income (See Note 8). 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. We include the operations of these
affiliated companies in the statements of consolidated income under the caption,
Equity in Affiliated Companies (See Note 3).

Estimates and Assumptions -- We prepare our financial statements to conform
with generally accepted accounting principles. Management makes estimates and
assumptions that affect the amounts reported in the financial statements and
related disclosures. Therefore, actual results could differ from those
estimates.

Regulation -- South Jersey Gas Company (SJG) is subject to the rules and
regulations of the New Jersey Board of Public Utilities (BPU). We maintain our
accounts according to the BPU's prescribed Uniform System of Accounts (See Note
9). SJG follows the accounting for regulated enterprises prescribed by the
Financial Accounting Standards Board (FASB) Statement No. 71, "Accounting for
the Effects of Certain Types of Regulation." In general, Statement No. 71 allows
deferral of certain costs and creation of certain obligations when it is
probable that these items will be recovered from or refunded to customers in
future periods.

Revenues -- SJG, South Jersey Energy Company (SJE) and South Jersey
Resources Group, LLC (SJRG) bill customers monthly for gas deliveries. For SJG
and SJE retail customers not billed at the end of each month, we make an accrual
to recognize unbilled revenues from the date of the last bill to the end of the
month. We defer and recognize revenues related to SJG's appliance warranty
contracts over the full 12-month term of the contract as earned.

The BPU allows SJG to recover the excess cost of gas sold over the cost
included in base rates through the Levelized Gas Adjustment Clause (LGAC). We
collect these costs on a forecasted basis upon BPU order. SJG defers
over/under-recoveries of gas costs and includes them in the following year's
LGAC or other similar recovery mechanism. We pay interest on overcollected LGAC
balances based on SJG's approved return on rate base (See Note 9).

SJG's tariff also includes a Temperature Adjustment Clause (TAC), a
Remediation Adjustment Clause (RAC) and a Comprehensive Resource Analysis Clause
(CRA). Our TAC reduces the impact of temperature fluctuations on SJG and its
customers. The RAC recovers remediation costs of former gas manufacturing plants
and the CRA recovers costs associated with our conservation plan. TAC
adjustments affect revenue, income and cash flows since colder-than-normal
weather can generate credits to customers, while warmer-than-normal weather can
result in additional billings. RAC adjustments do not directly affect earnings
because we defer and recover these costs through rates over 7-year amortization
periods (See Notes 9 & 14). CRA adjustments are also deferred and do not affect
earnings, as these costs are recovered through rates on an ongoing basis.

Property, Plant and Equipment -- For regulatory purposes, utility plant is
stated at original cost. Nonutility plant is stated at cost. The cost of adding,
replacing and renewing property is charged to the appropriate plant account.

Depreciation and Amortization -- We depreciate utility plant on a
straight-line basis over the estimated remaining lives of the various property
classes. We periodically review and adjust these estimates as required after BPU
approval. The composite annual rate for all depreciable utility property was
approximately 2.9% in 2002 and 2.8% in 2001 and 2000. Except for extraordinary
retirements, accumulated depreciation is charged with the cost of depreciable
utility property retired and removal costs less salvage. We compute nonutility
property depreciation on a straight-line basis over the estimated useful lives
of the property, ranging up to 20 years. We recognize gain or loss on the
disposition of nonutility property in net income.

Impairment of Long-Lived Assets -- We review the carrying amount of an
asset for possible impairment whenever events or changes in circumstances
indicate that such amount may not be recoverable. For the years ended 2002, 2001
and 2000, no such circumstances were identified.

Energy Trading Activities and Derivative Instruments -- SJI's regulated and
unregulated subsidiaries are involved in buying, selling, transporting and
storing natural gas and buying and selling retail electricity for their own
accounts as well as managing these activities for others. These subsidiaries are
subject to market risk due to price fluctuations. To manage this risk, our
companies enter into a variety of physical and financial transactions including
forward contracts, swap agreements, option contracts and futures contracts.

SJI structured its subsidiaries so that SJG and SJE transact commodities on
a physical basis only and do not directly enter into financially settling
positions. SJRG performs this risk management function for these entities and
enters into the types of transactions noted above. Management takes an active
role in the risk management process and has developed policies and procedures
that require specific administrative and business functions to assist in
identifying, assessing and controlling various risks. Management reviews any
open positions in accordance with strict policies to limit exposure to market
risk.

Effective January 1, 2001, SJI adopted FASB Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended. We must record
all derivatives, whether designated in hedging relationships or not, on the
balance sheet at fair value. If the derivative is designated as a fair value
hedge, we recognize the changes in the fair value of the derivative and of the
hedged item attributable to the hedged risk in earnings. If the derivative is
designated as a cash flow hedge, we record the effective portion of changes in
the fair value of the derivative in other comprehensive income and recognize it
in the income statement when the hedged item affects earnings. We recognize
ineffective portions of changes in the fair value of cash flow hedges in
earnings. As permitted under Statement No. 133, SJI has elected to designate
certain energy-related derivative instruments as cash flow hedges.

SJRG manages its portfolio of 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, SJRG accounts for these contracts at
fair value under Emerging Issues Task Force (EITF) Issue No. 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities" or

- 22 -

Statement No. 133. 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 consolidated
balance sheets. For the years ended December 31, 2002 and 2001, we included the
net unrealized pre-tax (loss) gain of $(0.5) million and $3.4 million,
respectively, on energy trading contracts determined under the mark-to-market
method, in Operating Revenues -- Nonutility. 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.

Beginning in 2002, SJI has presented revenues and expenses from trading in
physical power contracts on a net basis in our consolidated statements of income
consistent with recent changes in EITF Issue No. 02-03. Consequently, we
reclassified Operating Revenues -- Nonutility and Cost of Sales -- Nonutility
for the year ended December 31, 2001 to conform with this presentation. Because
of the difficulty in obtaining certain information, we determined this
presentation by netting the energy contract related revenue and expense
transactions of SJRG. As a result, we based certain nonutility costs of sales on
the transfer prices between SJRG and SJE. Management believes these transfer
prices are generally at market, but has had no policy that they be at market.
There is no effect on operating income or net income from the above changes in
presentation.

On October 25, 2002, the EITF rescinded its consensus in Issue No. 98-10
effective for transactions entered into after that date, with a cumulative
effect adjustment for previously existing transactions to be recognized in the
quarter beginning January 1, 2003. As a result of the recision, SJI will only
mark-to-market those energy-related contracts that meet the definition of a
derivative in Statement No. 133. Energy-related contracts that do not meet the
definition of a derivative would be accounted for using the accrual basis of
accounting. The effect of this change in accounting will result in a net charge
of $426,338 shown as a cumulative effect adjustment effective January 1, 2003.
Furthermore, management will designate any contract entered into after December
31, 2002 to hedge physical gas in storage as a cash flow hedge and will account
for them accordingly.

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 4-year period. The notional amount of this swap decreases to $8.0 million
in December 2003, then to $3.9 million in December 2004, and terminates in
December 2005.

Also in April 2002, SJG entered into two interest rate swap contracts that
effectively fix the interest rate at 3.57% through March 15, 2003 on $40.0
million of SJG's debt outstanding under its bank lines.

We entered into interest rate swap agreements to hedge the exposure to
increasing 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 is recognized as an adjustment to interest expense. We account
for these interest rate swaps as cash flow hedges. As of December 31, 2002 and
2001, the market value of these swaps was $(2.6) and $0.5 million, respectively,
which represents the amount we would have to pay/be paid by the counterparty to
terminate these contracts as of those dates. We include these balances on the
2002 and 2001 consolidated balance sheets under the caption Derivatives. As of
December 31, 2002 and 2001, we calculated the swaps to be highly effective;
therefore, we record the offset to the hedge asset, net of taxes, in Accumulated
Other Comprehensive Loss (See Note 8).

We determined the fair value of derivative instruments 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. 142, "Goodwill and Other Intangible Assets" and Statement No. 143,
"Accounting for Asset Retirement Obligations."

Statement No. 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. It
provides that intangible assets with finite useful lives be amortized and that
goodwill and intangible assets with indefinite lives not be amortized, but
rather be tested at least annually for impairment. In 1983, SJG acquired certain
gas distribution and operating facilities with an excess of purchase price over
net book value of $2.9 million, which was being amortized over 40 years. This
acquisition adjustment is deemed to have an indefinite useful life. Accordingly,
SJG ceased amortizing the premium on January 1, 2002 upon adoption of Statement
No. 142, leaving a carrying amount of $1.6 million, which we reflect in the
caption Utility Plant on the consolidated balance sheets. The premium
amortization approximated $75,000 in 2001 and 2000.

Statement No. 143, which we will adopt in 2003, establishes accounting and
reporting standards for legal obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SJG has
certain easements and right-of-way agreements that qualify as legal obligations
under Statement No. 143. However, it is our intent to maintain these agreements
in perpetuity; therefore, no change in SJG's current accounting practices is
required at this time.

SJG recovers certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. When we retire
depreciable properties, we charge the original cost thereof, plus cost of
removal less salvage, to accumulated depreciation. As of December 31, 2002, SJG
accrued amounts in excess of actual removal costs incurred totaling $41.4
million which is included in utility plant accumulated depreciation. We do not
expect the adoption of this statement to materially affect SJI's financial
condition or results of operations.

In August 2001, the FASB also issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which became effective in 2002.
This statement prescribes that a single accounting model be used for valuing
long-lived assets to be disposed of and broadens the presentation of
discontinued operations. The adoption of this statement did not affect SJI's
financial condition or results of operations nor do we expect its ongoing
application to materially affect SJI's financial statements.

In November 2002, the FASB released Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." See section on Parental Guarantees under
Note 14, Commitments and Contingencies, for discussion.

- 23 -

method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The provisions of this statement currently have
no impact on SJI's financial statements (See Note 4).

Income Taxes -- Deferred income taxes are provided for all significant
temporary differences between book and taxable income (See Notes 5 & 13).

Other Regulatory Assets -- Other Regulatory Assets at December 31, 2002 and
2001 consisted of the following items:

Years Thousands of Dollars
Remaining 2002 2001
Environmental Remediation Costs:
(Notes 9 & 14)
Expended -- Net 7 $ 6,470 $ 12,831
Liability for Future Expenditures -- 48,211 48,790
Income Taxes -- Flowthrough
Depreciation (Note 5) 9 8,597 9,575
Postretirement Benefit Costs
(Note 11) 10 3,780 4,158
Gross Receipts and Franchise Taxes
(Note 5) 4 1,811 2,254
Other -- 4,841 2,386
--------- ---------
Total Other Regulatory Assets $ 73,710 $ 79,994
========= =========

Each item separately identified is being recovered through utility rate
charges without a return on investment over the period indicated. The majority
of the assets reflected above under the caption "Other" is currently subject to
filings with the BPU requesting recovery. Management believes that all such
deferred costs will be permitted to be recovered from ratepayers through future
utility rates.

In addition, SJG has one significant regulatory liability for overcollected
taxes totaling $2.8 million and $1.6 million, including interest, as of December
31, 2002 and 2001, respectively. We include these amounts in the caption "Other"
under the heading Deferred Credits and Other Non-Current Liabilities and they
are subject to being returned to ratepayers in future rate proceedings.

Statements of Consolidated Cash Flows -- For purposes of reporting cash
flows, highly liquid investments with original maturities of three months or
less are considered cash equivalents.

2. Preferred Stock and Securities of Subsidiary:

Redeemable Cumulative Preferred Stock -- Annually, SJG is required to offer
to purchase 1,500 shares of its Cumulative Preferred Stock, Series B at par
value, plus accrued dividends. SJG may not declare or pay dividends or make
distributions on its common stock if preferred stock dividends are in arrears.
Preferred shareholders may elect a majority of SJG's directors if four or more
quarterly dividends are in arrears.

Mandatorily Redeemable Preferred Securities -- In 1997, SJG's statutory
trust subsidiary, SJG Capital Trust (Trust), sold $35 million of 8.35%
SJG-Guaranteed Mandatorily Redeemable Preferred Securities. The Trust's only
assets are the 8.35% Deferrable Interest Subordinated Debentures issued by SJG
maturing April 2037. This is also the maturity date of the Preferred Securities.
The Debentures and Preferred Securities are redeemable at SJG's option at a
price equal to 100% of the principal amount.

SJI has 2,500,000 authorized shares of Preferred Stock, no par value, which
has not been issued. SJI has registered and reserved for issuance 15,000 shares
of Series A Junior Participating Cumulative Preferred Stock (Series A Preferred
Stock) connected with its Shareholder Rights Plan (See Note 4).

3. Divestitures and Affiliations:

Divestitures -- In 1996, Energy & Minerals, Inc. (EMI), an SJI subsidiary,
sold the common stock of The Morie Company, Inc. (Morie), its sand mining and
processing subsidiary (See Note 14).

In 1997, R&T Group, Inc., SJI's construction subsidiary, sold all its
operating assets, except some real estate.

SJI conducts tests annually to estimate the environmental remediation costs
for properties owned by South Jersey Fuel, Inc. (SJF), an EMI subsidiary, from
its previously operated fuel oil business. SJI reports the environmental
remediation activity related to these properties as discontinued operations.
This reporting is consistent with previous years (See Note 14).

In 1998, SJE actively traded electricity in the wholesale market, but
ceased this activity later that same year and formally exited this segment in
1999.

SJG operated two retail stores which sold natural gas appliances. The
stores were intended to provide gas customers with access to and choice among
natural gas appliances. In 2001, SJG formally discontinued this merchandising
segment of its operations as those appliances are readily available from other
retailers.

Summarized operating results of the discontinued operations were:

Thousands of Dollars
2002 2001 2000

Operating Revenues -- Merchandising $ 26 $ 1,016 $ 1,193
======= ======= =======
(Loss) Income before Income Taxes:
Sand Mining $ (467) $ 719 $ (155)
Construction (17) 78 8
Fuel Oil (122) (113) (123)
Electric -- (1,150) (488)
Merchandising (50) (351) (128)
Income Taxes 232 362 329
------- ------- -------
Loss from Discontinued
Operations -- Net $ (424) $ (455) $ (557)
======= ======= =======
Earnings Per Common Share from Discontinued
Operations -- Net $ (0.03) $ (0.03) $ (0.05)
======= ======= =======

Losses from sand mining are mainly comprised of environmental remediation
and product liability litigation associated with Morie's prior activities.
Positive results from sand mining operations in 2001 reflect a settlement with
our insurance carrier for previously incurred costs. Wholesale Electric losses
increased in 2001 due to the settlement of a creditor claim in bankruptcy.

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., an
SJE subsidiary, and UPR Energy Marketing, Inc. (UPR) each held a 50%
non-controlling interest in SJRG. In January 2001, SJRG became a wholly owned
SJI subsidiary when UPR redeemed its 50% interest in SJRG for the book value of
its investment of $2.9 million. In 2001, we included SJRG's operations on a
consolidated basis. Prior to January 1, 2001, we accounted for SJI's investment
in SJRG on the equity method.

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. (EES) formed South Jersey
Energy Solutions, LLC (SJES) to market retail electricity and energy management

- 24 -

services. SJES began supplying retail electricity during 2000, and ceased active
operations in May 2002.

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 $56.6 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.

4. Common Stock:

SJI has 20,000,000 shares of authorized Common Stock. The following shares
were issued and outstanding:

2002 2001 2000

Beginning of Year 11,860,990 11,499,701 11,152,175

New Issues During Year:
Dividend Reinvestment Plan 338,518 354,809 335,427
Employees' Stock Ownership Plan 4,162 3,707 3,917
Stock Option, Stock Appreciation Rights
and Restricted Stock Award Plan 590 604 5,545
Directors' Restricted Stock 2,214 2,169 2,637
---------- ---------- ----------
End of Year 12,206,474 11,860,990 11,499,701
========== ========== ==========

We credited the par value ($1.25 per share) of stock issued in 2002, 2001
and 2000 to Common Stock. We credited the net excess over par value of
approximately $10.5 million, $10.6 million and $8.5 million, respectively, to
Premium on Common Stock.

Earnings Per Common Share -- We present basic EPS based on the
weighted-average number of common shares outstanding. EPS are presented in
accordance with FASB Statement No. 128, "Earnings Per Share," which establishes
standards for computing and presenting basic and diluted EPS. The incremental
shares required for inclusion in the denominator for the diluted EPS calculation
were 77,866, 34,254 and 9,664 shares for the years ended December 31, 2002, 2001
and 2000, respectively. These shares relate to restricted stock and stock
options and were calculated using the treasury stock method.

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 December 31, 2002,
2001 and 2000, SJI had -0-, 2,000 and 4,500 options outstanding, respectively,
all exercisable at $24.69 per share. No options were granted in 2002, 2001 or
2000. When granted, SJI values stock options to employees using the intrinsic
value method. No stock appreciation rights were issued under the Plan. In 1999,
we amended the Plan to include restricted stock awards. In 2002, 2001 and 2000,
we granted 26,034, 44,384 and 10,267 restricted shares, respectively. These
restricted shares vest over a 3-year period and, with the exception of the 2000
award, are subject to SJI achieving certain performance targets. The annual
expense associated with these awards was $579,900 in 2002 and $61,300 in both
2001 and 2000.

Dividend Reinvestment Plan (DRP) and Employees' Stock Ownership Plan
(ESOP) -- Newly issued shares of common stock offered through the DRP are issued
directly by SJI. All shares offered through the ESOP are also issued directly by
SJI. As of December 31, 2002, SJI reserved 1,165,707 and 15,566 shares of
authorized, but unissued, common stock for future issuance to the DRP and ESOP,
respectively.

Directors' Restricted Stock Plan -- Under this Plan, SJI grants annual
awards to outside directors which vest over three years. SJI holds shares issued
as restricted stock until the attached restrictions lapse. We record the stock's
market value on the grant date as compensation expense over the applicable
vesting period. The annual expense associated with this plan was approximately
$67,000 for each of the past three years.

Shareholder Rights Plan -- In 1996, the board of directors adopted a
shareholder rights plan providing for the distribution of one right for each
share of common stock outstanding on and after October 11, 1996. Each right
entitles its holder to purchase 1/1000 of one share of Series A Preferred Stock
at an exercise price of $90 (See Note 2). The rights will not be exercisable
until after a person or group acquires 10% or more of SJI's common stock and
will expire if not exercised or redeemed by September 20, 2006.

5. Federal and Other Regulatory Tax Assets and Deferred Credits:

The primary asset created by adopting FASB Statement No. 109, "Accounting
for Income Taxes," was Income Taxes -- Flowthrough Depreciation in the amount of
$17.6 million as of January 1, 1993. This amount represented excess tax
depreciation over book depreciation on utility plant because of temporary
differences for which, prior to Statement No. 109, deferred taxes previously
were not provided. SJG previously passed these tax benefits through to
ratepayers. SJG is recovering the amortization of the regulatory asset through
rates over 18 years which began in December 1994.

The Investment Tax Credit attributable to SJG was deferred and continues to
be amortized at the annual rate of 3%, which approximates the life of related
assets.

SJG deferred $11.8 million resulting from a change in the basis for
accruing the Gross Receipts & Franchise Tax in 1978 and is amortizing it on a
straight-line basis to operations over 30 years beginning that same year.

6. 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 December
31, 2002 and 2001, these residual proceeds totaled $2.1 and $14.4 million,
respectively.

SJRG maintains a margin account with a national investment firm to support
its energy trading activities. As of December 31, 2002, the account reflected a
$2.4 million balance due to changes in the market value of outstanding
contracts. The balance approximated $8.6 million as of December 31, 2001.

Long-Term Debt -- We estimate the fair values of SJI's long-term debt,
including current maturities, as of December 31, 2002 and 2001, to be $291.4 and
$288.0 million, respectively. Carrying amounts are $248.7 and $269.0 million,
respectively. We base the estimates on interest rates available to SJI at the
end of each year for debt with similar terms and maturities. SJI retires debt
when it is cost effective as permitted by the debt agreements.

Other Financial Instruments -- The carrying amounts of SJI's other
financial instruments approximate their fair values at December 31, 2002 and
2001.

- 25 -

7. Segments of Business:

Information about SJI's operations in different industry segments is
presented below:

Thousands of Dollars
2002 2001 2000

Operating Revenues:
Gas Utility Operations $ 417,262 $ 475,462 $ 445,818
Wholesale Gas Operations 4,998 6,144 --
Retail Gas and Other Operations 114,706 96,752 82,761
On-Site Energy Production 852 -- --
----------- ----------- -----------
Subtotal 537,818 578,358 528,579
Intersegment Sales (32,692) (32,372) (15,963)
----------- ----------- -----------
Total Operating Revenues $ 505,126 $ 545,986 $ 512,616
=========== =========== ===========

Operating Income:
Gas Utility Operations $ 60,874 $ 60,463 $ 62,618
Wholesale Gas Operations 4,280 4,628 --
Retail Gas and Other Operations 4,159 3,824 3,352
On-Site Energy Production 416 -- --
General Corporate (654) (371) (506)
----------- ----------- -----------
Total Operating Income $ 69,075 $ 68,544 $ 65,464
=========== =========== ===========

Depreciation and Amortization:
Gas Utility Operations $ 24,730 $ 23,332 $ 22,986
Wholesale Gas Operations 12 8 --
Retail Gas and Other Operations 84 78 99
On-Site Energy Production 10 -- --
Discontinued Operations 28 28 19
----------- ----------- -----------
Total Depreciation and Amortization $ 24,864 $ 23,446 $ 23,104
=========== =========== ===========

Property Additions:
Gas Utility Operations $ 49,646 $ 47,799 $ 47,116
Wholesale Gas Operations -- 61 --
Retail Gas and Other Operations 138 163 275
On-Site Energy Production 33,925 17,915 2,985
----------- ----------- -----------
Total Property Additions $ 83,709 $ 65,938 $ 50,376
=========== =========== ===========

Identifiable Assets
Gas Utility Operations $ 872,716 $ 859,586 $ 842,082
Wholesale Gas Operations 62,569 82,596 --
Retail Gas and Other Operations 44,732 19,092 22,138
On-Site Energy Production 60,916 35,672 2,985
Discontinued Operations 2,335 2,182 2,243
----------- ----------- -----------
Subtotal 1,043,268 999,128 869,448
Corporate Assets 40,783 33,505 20,338
Intersegment Assets (72,291) (43,204) (19,807)
----------- ----------- -----------
Total Identifiable Assets $ 1,011,760 $ 989,429 $ 869,979
=========== =========== ===========

Gas Utility Operations consists 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. On-Site Energy
Production consists of Marina's construction and related financing activities
(See Note 3).

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.

8. Comprehensive Income:

The components of comprehensive income are as follows:

Thousands of Dollars
2002 2001 2000

Net Income Applicable to Common Stock $ 28,988 $ 26,562 $ 24,184
======== ======== ========
Other Comprehensive (Loss) Income:
Minimum Pension Liability
Adjustment -- Net* (7,271) (1,988) --
Change in Fair Value of
Investments -- Net* (149) -- --
Change in Fair Value of Energy Trading
Assets/Liabilities -- Net* 5,027 -- --
Change in Fair Value of Other
Derivatives -- Net* (1,822) 301 --
-------- -------- --------
Total Other Comprehensive Loss (4,215) (1,687) --
-------- -------- --------
Comprehensive Income $ 24,773 $ 24,875 $ 24,184
======== ======== ========

* Determined using an effective tax rate of 40.85%

9. Regulatory Actions:

In January 1997, the 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 increased. Currently, SJG keeps 100% of pre-tax margins up to the
threshold level of $7.8 million. The next $750,000 is credited to the LGAC.
Thereafter, SJG keeps 20% of the pre-tax margins as it has historically.

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 December 31, 2002, 92,543 of SJG's customers were purchasing
their gas commodity from someone other than SJG. Customers choosing to purchase
natural gas from providers other than the utility are charged for the cost of
gas by the marketer, not the utility. The resulting decrease in SJG's revenues
is offset by a corresponding decrease in gas costs. While customer choice can
reduce utility revenues, it does not negatively affect SJG's net income or
financial condition. The BPU continues to allow for full recovery of natural gas
costs through the LGAC as well as other costs of service, including deferred
costs, through tariffs.

Also in November 2001, SJG filed for a $17.6 million reduction to its LGAC.
The BPU approved the LGAC reduction effective December 1, 2001 and concurrently
approved recovery of SJG's October 31, 2001 underrecovered gas cost balance. As
a result, SJG will recover $48.9 million over three years plus interest accrued
since April 1, 2001. SJG will also recover interest for the 3-year amortization
period at a rate of 5.75%. In May 2002, SJG received approval from the BPU to
reduce its overcollected LGAC balance by another $17.6 million through a
customer refund. This refund did not affect SJG's net income or financial
condition. In September 2002, SJG filed with the BPU to maintain its current
LGAC rate through October 2003.

During 2002, the BPU convened a gas policy group to address Basic Gas
Supply Service (BGSS), which is the gas supply service being provided by the
natural gas utility. On December 18, 2002, the BPU approved the proposed BGSS
price structure which was submitted by the gas policy group. When the BGSS is

- 26 -

implemented in 2003, customers will be able to make more informed decisions
about choosing an alternate supplier by having a utility price structure that
more currently reflects market conditions. Further, BGSS will provide SJG with
more pricing flexibility, through automatic rate changes, resulting in the
reduction of over/under-recoveries. The BGSS-approved price structure will
replace the current LGAC pricing structure. However, other LGAC-related
mechanisms, such as deferred accounting treatment, the sharing of pre-tax
margins generated by interruptible and off-system sales and transportation, and
the allowance for full recovery of natural gas costs, will remain in place under
BGSS.

In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate
increase. The SBC recovers costs related to BPU-mandated programs, including
environmental remediation costs that are recovered through its RAC; energy
efficiency and renewable energy program costs recovered through its CRA clause
(renamed in December 2002 as the New Jersey Clean Energy Programs); consumer
education program costs; and low income program costs. If approved, the rate
increase filed would provide an annual recovery of $13.7 million, representing
an annual increase of approximately $7.0 million over the $6.7 million recovery
currently included in rates.

10. Unused Lines of Credit and Compensating Balances:

Unused lines of credit available at December 31, 2002 were $30.5 million.
Borrowings under these lines of credit are at market rates. The weighted
borrowing cost, which changes daily, was 2.28% and 3.08% at December 31, 2002
and 2001, respectively. We maintain demand deposits with lending banks on an
informal basis and they do not constitute compensating balances.

11. Pensions & Other Postretirement Benefits:

SJI has several defined benefit pension plans and other postretirement
benefit plans. The pension plans provide annuity payments to substantially all
full-time, regular employees upon retirement. The other postretirement benefit
plans provide health care and life insurance benefits to some retirees.

In 2002, we changed the actuarial valuation measurement date for our
pension plans from September 30 to December 31 to conform to the measurement
date used for our postretirement health care plans and to better reflect the
actual pension balances as of SJI's balance sheet dates. This change had no
significant effect on 2002 or prior years' pension expense.

The BPU authorized SJG to recover costs related to postretirement benefits
other than pensions under the accrual method of accounting consistent with FASB
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." We deferred amounts accrued prior to that authorization and are
amortizing them as allowed by the BPU. The unamortized balance of $3.8 million
at December 31, 2002 is recoverable in rates. We are amortizing this amount over
15 years which started January 1998.

Net periodic benefit cost related to the pension and other postretirement
benefit insurance plans consisted of the following components:

Thousands of Dollars
Pension Benefits Other Benefits
2002 2001 2000 2002 2001 2000

Service Cost $ 2,237 $ 2,120 $ 1,988 $ 1,131 $ 1,063 $ 996
Interest Cost 5,029 4,923 4,577 2,355 1,898 1,746
Expected Return on
Plan Assets (4,567) (5,314) (4,790) (1,046) (895) (726)
Amortization of
Transition Obligation 72 72 72 772 772 772
Amortization of Loss
(Gain) and Other 838 372 320 73 (3) (78)
------- ------- ------- ------- ------- -------
Net Periodic
Benefit Cost $ 3,609 $ 2,173 $ 2,167 $ 3,285 $ 2,835 $ 2,710
======= ======= ======= ======= ======= =======

A reconciliation of the plans' benefit obligations, fair value of plan
assets, funded status and amounts recognized in SJI's consolidated balance
sheets follows:

Thousands of Dollars
Pension Benefits Other Benefits
2002 2001 2002 2001

Change in Benefit Obligations:
Benefit Obligation at Beginning
of Year $ 72,540 $ 64,086 $ 28,629 $ 24,807
Service Cost 2,237 2,120 1,131 1,063
Interest Cost 5,029 4,923 2,355 1,898
Actuarial Loss (Gain) and Other 5,738 4,606 (103) 1,606
Benefits Paid (4,438) (3,195) (1,039) (745)
-------- -------- -------- --------
Benefit Obligation at End of Year $ 81,106 $ 72,540 $ 30,973 $ 28,629
======== ======== ======== ========

Change in Plan Assets:
Fair Value of Plan Assets at Beginning
of Year $ 50,358 $ 60,084 $ 13,465 $ 11,970
Actual Return on Plan Assets (3,508) (9,031) (1,529) (619)
Employer Contributions 20,700 2,500 2,939 2,859
Benefits Paid (4,438) (3,195) (1,040) (745)
-------- -------- -------- --------
Fair Value of Plan Assets at
End of Year $ 63,112 $ 50,358 $ 13,835 $ 13,465
======== ======== ======== ========

Funded Status: $(17,994) $(22,182) $(17,138) $(15,164)
Unrecognized Prior Service Cost 3,165 3,536 -- --
Unrecognized Net Transition
Obligation 72 143 7,718 8,489
Unrecognized Net Loss (Gain)
and Other 28,955 15,609 2,337 (63)
-------- -------- -------- --------
Accrued Net Benefit Cost at
End of Year $ 14,198 $ (2,894) $ (7,083) $ (6,738)
======== ======== ======== ========

Amounts Recognized in the
Statement of Financial Position
Consist of:
Accrued Benefit Liability $ (4,693) $ (8,785) $ (7,083) $ (6,738)
Intangible Asset 3,237 2,521 -- --
Accumulated Other
Comprehensive Income 15,654 3,370 -- --
-------- -------- -------- --------
Net Amount Recognized
at End of Year $ 14,198 $ (2,894) $ (7,083) $ (6,738)
======== ======== ======== ========

The accumulated benefit obligation of SJI's pension plans at December 31,
2002 and 2001 was $67.8 million and $59.1 million, respectively.

- 27 -

At December 31, 2002 and 2001, SJI recorded additional minimum pension
liabilities of $18.9 million and $5.9 million, respectively, which we reflected
in the consolidated balance sheets under the caption Pension and Other
Postretirement Benefits. These liability adjustments resulted from decreases in
the fair value of plan assets, which were due to the declining stock market, and
decreases in the discount rates over the past two years.

SJI also has unqualified pension plans provided to certain officers and
outside directors which are unfunded. The aggregate accrued net benefit
obligation of such plans as of December 31, 2002 and 2001 was $3.9 million and
$3.7 million, respectively.

Assumptions used in the accounting for these plans were:

Pension Benefits Other Benefits
2002 2001 2002 2001

Discount Rate 6.75% 7.25% 6.75% 7.25%
Expected Return on Plan Assets 9.00% 9.00% 7.50% 7.50%
Rate of Compensation Increase 3.60% 4.10% -- --

The assumed health-care cost trend rates used in measuring the accumulated
postretirement benefit obligation as of December 31, 2002 are: Medical and Drug
- -- 7.5% in 2002 for participants age 65 or older; and 12.0% in 2002 for
participants under age 65; Dental -- 7.5% in 2002. All three of these rates
grade to 5.0% in 2016 and remain level thereafter.

A 1% change in the assumed health-care cost trend rates for SJI's
postretirement health care plans in 2002 would have the following effects:

Thousands of Dollars
1% Increase 1% Decrease

Effect on the aggregate of the service
and interest cost components $ 515 $ (423)
Effect on the postretirement benefit obligation $ 4,670 $ (4,836)

12. 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 $76.2 million as of December 31, 2002.

13. Income Taxes:

Total income taxes applicable to operations differ from the tax that would
have resulted by applying the statutory Federal Income Tax rate to pre-tax
income for the following reasons:

Thousands of Dollars
2002 2001 2000

Tax at Statutory Rate $ 17,436 $ 16,157 $ 15,208
Increase (Decrease) Resulting from:
State Income Taxes 3,143 2,857 3,167
ESOP (489) -- --
Amortization of Investment Tax Credit (347) (347) (335)
Tax Depreciation Under Book
Depreciation on Utility Plant 664 664 664
Other -- Net (3) (36) 5
-------- -------- --------
Income Taxes:
Continuing Operations 20,404 19,295 18,709
Discontinued Operations (232) (362) (329)
Cumulative Effect of a Change
in Accounting Principle -- 103 --
-------- -------- --------
Net Income Taxes $ 20,172 $ 19,036 $ 18,380
======== ======== ========

The provision for Income Taxes is comprised of the following:

Thousands of Dollars
2002 2001 2000

Current:
Federal $ 3,044 $ 8,306 $ 2,801
State 3,017 3,678 2,052
-------- -------- --------
Total Current 6,061 11,984 4,853
-------- -------- --------
Deferred:
Federal:
Excess of Tax Depreciation Over
Book Depreciation -- Net 10,960 4,668 5,220
Deferred Fuel Costs (3,728) 794 12,157
Environmental Costs -- Net (1,490) (1,850) (2,504)
Alternative Minimum Tax (495) 2,851 (1,694)
Benefit of State Tax 636 251 (984)
Prepaid Pension 5,743 -- --
Deferred Regulatory Costs 1,543 175 69
Other -- Net (297) 51 (894)
State 1,818 718 2,821
-------- -------- --------
Total Deferred 14,690 7,658 14,191
-------- -------- --------
Investment Tax Credit (347) (347) (335)
-------- -------- --------
Income Taxes:
Continuing Operations 20,404 19,295 18,709
Discontinued Operations (232) (362) (329)
Cumulative Effect of a Change
in Accounting Principle -- 103 --
-------- -------- --------
Net Income Taxes $ 20,172 $ 19,036 $ 18,380
======== ======== ========

The net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting and income tax purposes resulted
in the following deferred tax liabilities at December 31:

Thousands of Dollars
2002 2001

Current:
Deferred Fuel Costs $ 20,368 $ 25,054
Derivatives / Unrealized Gain 3,595 1,435
Other 855 140
-------- --------
Current Deferred Tax Liability -- Net $ 24,818 $ 26,629
======== ========
Non-Current:
Book versus Tax Basis of Property 98,839 85,569
Prepaid Pension 7,117 --
Environmental 878 2,761
Excess Protected 3,160 3,225
Deferred Regulatory Costs 3,873 1,660
Minimum Pension Liability (6,395) (1,382)
Deferred State Tax (2,678) (2,126)
Investment Tax Credit Basis Gross Up (2,070) (2,249)
Alternative Minimum Tax (2,089) (1,080)
Other (2,745) (1,661)
-------- --------
Non-Current Deferred Tax Liability -- Net $ 97,890 $ 84,717
======== ========

14. Commitments and Contingencies:

Construction and Environmental -- SJI's estimated net cost of construction
and environmental remediation programs for 2003 totals $57.8 million.
Commitments were made regarding some of these programs.

Gas Supply Contracts -- SJG, in the normal course of business, has entered
into long-term contracts for natural gas supplies, firm transportation and gas

- 28 -

storage service. The earliest that any of these contracts expires is 2003. The
transportation and storage service agreements between SJG and its interstate
pipeline suppliers were made under Federal Energy Regulatory Commission approved
tariffs. SJG's cumulative obligation for demand charges and reservation fees
paid to suppliers for these services is approximately $4.0 million per month,
recovered on a current basis through the LGAC.

Pending Litigation -- SJI is subject to claims arising in the ordinary
course of business and other legal proceedings. We accrue liabilities related to
these claims when we can determine the amount or range of amounts of likely
settlement costs for those claims. Among other actions, SJI was named in certain
product liability claims related to our former sand mining subsidiary.
Management does not currently anticipate the disposition of any known claims to
have a material adverse effect on SJI's financial position, results of
operations or liquidity.

Parental Guarantees -- In 2002, the FASB released Interpretation No. 45
(FIN 45) "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
companies to disclose the nature of its guarantees or indemnification agreements
for interim and year-end financial statements ending after December 15, 2002. As
of December 31, 2002, SJI had issued $96.6 million of parental guarantees on
behalf of its subsidiaries. Nearly two-thirds of these guarantees expire within
one year with the remainder having no expiration date. The vast majority of
these guarantees was issued as a guarantee of payment to third parties with whom
our subsidiaries have commodity supply contracts. As of December 31, 2002, these
guarantees support $13.5 million of the Accounts Payable recorded on our
consolidated balance sheet. As part of our risk management policy, we also
require parental guarantees from trading counterparties as applicable. These
arrangements are typical in our industry. SJI has also issued two parental
guarantees totaling $7.1 million related to Marina's construction activity.

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 $6.4 million as of December 31, 2002.

As of December 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. Commercial banks have committed
to issue 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 clean up 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 until 2024 at 10 sites
and until 2029 at one site.

Since the early 1980s, SJI accrued environmental remediation costs of
$137.2 million, of which $85.1 million has been spent as of December 31, 2002.
With the assistance of a consulting firm, we estimate that future costs to clean
up SJG's sites will range from $48.2 million to $143.9 million. We recorded the
lower end of this range as a liability. It is reflected on the 2002 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 (See Note
1). 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 Statement No.
71. The BPU allows SJG to recover expenditures through the RAC (See Note 9).

The other asset titled Environmental Remediation Cost: Liability for Future
Expenditures relates to estimated future expenditures determined under the
guidance of FASB 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 consolidated balance sheets
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 December 31, 2002, we reflected SJG's unamortized remediation costs
of $6.5 million on the consolidated balance sheet under the caption Regulatory
Assets. Since implementing the RAC in 1992, SJG has recovered $34.8 million
through rates (See Note 9).

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 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 $0.3 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 consolidated balance sheet under
Current Liabilities and Deferred Credits and Other Non-Current Liabilities as of
December 31, 2002.

- 29 -

Quarterly Financial Data (Unaudited)
Summarized quarterly results of SJI's operations, in thousands except for per share amounts:

2002 Quarter Ended 2001 Quarter Ended
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
--------- --------- --------- --------- --------- --------- --------- ---------

Operating Revenues $ 177,031 $ 84,200 $ 69,066 $ 174,829 $ 239,725 $ 101,409 $ 74,985 $ 129,867
--------- --------- --------- --------- --------- --------- --------- ---------
Expenses:
Operation and Maintenance
Including Fixed Charges 139,512 81,911 73,138 151,418 198,918 99,987 79,707 111,826
Income Taxes 14,049 334 (2,063) 8,084 15,482 127 (2,387) 6,073
Energy and Other Taxes 3,842 2,120 1,446 3,398 4,476 1,908 1,446 2,775
--------- --------- --------- --------- --------- --------- --------- ---------
Total Expenses 157,403 84,365 72,521 162,900 218,876 102,022 78,766 120,674
--------- --------- --------- --------- --------- --------- --------- ---------
Other Income and Expense 90 886 233 266 885 457 5 (126)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (Loss) from
Continuing Operations 19,718 721 (3,222) 12,195 21,734 (156) (3,776) 9,067

Discontinued Operations -- Net (32) (118) (18) (256) (200) (84) (36) (135)
Cumulative Effect of a Change in
Accounting Principle -- Net -- -- -- -- 148 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Applicable
to Common Stock $ 19,686 $ 603 $ (3,240) $ 11,939 $ 21,682 $ (240) (3,812) $ 8,932
========= ========= ========= ========= ========= ========= ========= =========

Basic Earnings Per Common Share (1)
(Based on Average Shares Outstanding):
Continuing Operations $ 1.65 $ 0.06 $ (0.27) $ 1.00 & 1.88 $ (0.01) $ (0.32) $ 0.76
Discontinued Operations -- Net -- (0.01) -- (0.02) (0.02) (0.01) -- (0.01)
Cumulative Effect of a Change in
Accounting Principle -- Net -- -- -- -- 0.01 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Basic Earnings Per Common Share $ 1.65 $ 0.05 $ (0.27) $ 0.98 $ 1.87 $ (0.02) $ (0.32) $ 0.75
========= ========= ========= ========= ========= ========= ========= =========
Average Shares Outstanding 11,914 11,990 12,084 12,165 11,583 11,670 11,769 11,841

<FN>

(1) The sum of the quarters for 2001 does not equal the year's total due to rounding.
NOTE: Because of the seasonal nature of the business, statements for the 3-month
periods are not indicative of the results for a full year.
</FN>

Market Price of Common Stock and Related Information

Quarter Ended Market Price Per Share Dividends Declared Quarter Ended Market Price Per Share Dividends Declared
2002 High Low Per Share 2001 High Low Per Share

March 31 $ 32.79 $ 29.95 $ 0.375 March 31 $ 32.25 $ 27.60 $ 0.370
June 30 $ 36.65 $ 31.70 $ 0.375 June 30 $ 31.55 $ 29.05 $ 0.370
September 30 $ 36.05 $ 28.20 $ 0.375 September 30 $ 32.96 $ 29.30 $ 0.370
December 31 $ 33.65 $ 31.40 $ 0.385 December 31 $ 34.10 $ 30.41 $ 0.370

<FN>

These quotations are based on the list of composite transactions of the New York Stock Exchange.
Our stock is traded on the New York Stock Exchange under the symbol SJI. We have declared
and expect to continue to declare regular quarterly cash dividends. As of December 31, 2002,
the latest available date, our records indicate that there were 8,399 shareholders.
</FN>

- 30 -

South Jersey Gas Company Comparative Operating Statistics

2002 2001 2000 1999 1998

Operating Revenues (Thousands):
Firm
Residential $ 174,252 $ 201,531 $ 172,418 $ 152,946 $ 147,274
Commercial 52,300 76,416 49,669 35,064 36,328
Industrial 4,512 4,250 5,265 4,879 4,175
Cogeneration & Electric Generation 9,363 7,405 11,016 8,496 8,119
Firm Transportation 49,436 29,565 38,213 33,125 24,893
--------- --------- --------- --------- ---------
Total Firm Revenues 289,863 319,167 276,581 234,510 220,789

Interruptible 1,142 1,485 1,695 1,645 2,506
Interruptible Transportation 1,567 1,268 1,531 1,724 2,598
Off-System 115,714 145,530 160,208 104,142 62,578
Capacity Release & Storage 5,365 5,596 4,411 4,193 6,031
Other 3,611 2,415 1,392 1,860 2,998
Intercompany Sales (31,142) (30,257) (14,662) (5,211) (1,032)
--------- --------- --------- --------- ---------
Total Operating Revenues $ 386,120 $ 445,204 $ 431,156 $ 342,863 $ 296,468
========= ========= ========= ========= =========

Throughput (MMcf):
Firm
Residential 15,519 17,390 19,124 17,741 16,979
Commercial 5,273 7,544 6,191 4,634 4,826
Industrial 202 248 282 246 348
Cogeneration & Electric Generation 1,986 1,519 2,046 2,316 2,373
Firm Transportation 26,470 22,085 26,114 25,143 22,336
--------- --------- --------- --------- ---------
Total Firm Throughput 49,450 48,786 53,757 50,080 46,862
--------- --------- --------- --------- ---------
Interruptible 198 207 207 383 694
Interruptible Transportation 3,189 2,638 3,022 3,628 6,049
Off-System 29,980 30,117 38,097 42,480 26,916
Capacity Release & Storage 38,048 27,187 37,445 29,247 27,319
--------- --------- --------- --------- ---------
Total Throughput 120,865 108,935 132,528 125,818 107,840
========= ========= ========= ========= =========

Number of Customers at Year End:
Residential 275,979 268,046 261,621 254,601 248,210
Commercial 19,966 19,542 19,319 18,894 18,457
Industrial 429 420 410 404 398
--------- --------- --------- --------- ---------
Total Customers 296,374 288,008 281,350 73,899 267,065
========= ========= ========= ========= =========

Maximum Daily Sendout (MMcf) 344 326 375 324 314
========= ========= ========= ========= =========

Annual Degree Days 4,380 4,495 4,942 4,468 4,110
========= ========= ========= ========= =========

Normal Degree Days * 4,625 4,625 4,639 4,664 4,708
========= ========= ========= ========= =========

<FN>

* Average degree days recorded in SJG's service territory during 20-year
period ended June 30 of prior year.

</FN>

- 31 -

South Jersey Industries
Board of Directors

Shirli M. Billings, Ph.D.
Director since 1983, Age 62, 2, 4, 5*, 6
President, Billings-Vioni Management Associates, Lakeland, Fla.

Charles Biscieglia
Director since 1998, Age 58, 3+, 4*, 5+, 6
Chairman, President and CEO of South Jersey Industries and President and CEO
of South Jersey Gas

Keith S. Campbell
Director since 2000, Age 48, 3, 5, 6
Chairman, Mannington Mills, Salem, N.J.

W. Cary Edwards
Director from April 1990 to January 1993 and September 1993 to present, Age 58,
2, 3, 4, 6
Managing Partner, law firm of Edwards & Caldwell, Hawthorne, N.J.

Thomas L. Glenn, Jr.
Director since 1986, Age 68, 1, 3*, 4
Co-Chairman and Treasurer, Glenn Insurance, Inc., Absecon, N.J.

Sheila Hartnett-Devlin
Director since 1999, Age 44, 1, 2, 5
Executive Vice President of Fiduciary Trust Company International,
New York, N.Y.

William J. Hughes
Director since 2001, Age 70, 1, 5
Of Counsel, law firm of Riker, Danzig, Scherer, Hyland & Perretti,
Trenton, N.J.; Former Ambassador to Panama and former member of the
United States House of Representatives

Herman D. James, Ph.D.
Director since 1990, Age 59, 1*, 2, 4, 6
Distinguished Professor, Rowan University, Glassboro, N.J.

Clarence D. McCormick
Director since 1979, Age 73, 2*, 4, 5
Retired Chairman and CEO of The Farmers and Merchants National Bank of
Bridgeton, N.J. and Retired Chairman and President of Southern Jersey
Bancorp of Delaware, Bridgeton, N.J.

Frederick R. Raring
Director since 1995, Age 65, 1, 3, 5
President, Seashore Supply Company, Ocean City, N.J.

1 Audit Committee
2 Compensation/Pension Committee
3 Environmental Committee
4 Executive Committee
5 Nominating Committee
6 Management Development Committee
* Committee Chair
+ Ex Officio

South Jersey Industries
Officers

Charles Biscieglia
Chairman, President and Chief Executive Officer

Edward J. Graham
Executive Vice President and Chief Operating Officer

David A. Kindlick
Vice President, Treasurer and Chief Financial Officer

Albert V. Ruggiero
Vice President

Richard H. Walker, Jr., Esq.
Corporate Secretary and Corporate Counsel

Michael J. Renna
Assistant Vice President

Jane F. Kelly, Esq.
Assistant Corporate Secretary and Assistant Counsel

- 32 -

South Jersey Gas
Officers

Charles Biscieglia
President and Chief Executive Officer

Richard J. Jackson
Executive Vice President and Chief Operating Officer

David A. Kindlick
Executive Vice President and Chief Financial Officer

Albert V. Ruggiero
Executive Vice President and Chief Administrative Officer

Janet T. Nickels
Senior Vice President, Customer Services and External Affairs

Richard H. Walker, Jr. Esq.
Corporate Secretary and Corporate Counsel

Charles F. Dippo
Vice President, Engineering Services

Patrick T. Finnigan
Vice President, Information Systems

Samuel A. Pignatelli
Vice President, Rates and Regulatory Affairs

Stephen H. Clark
Treasurer

Thomas S. Kavanaugh
Controller

Bonnie J. Bornstein
Assistant Vice President, Customer Services

Jeffrey E. DuBois
Assistant Vice President, Gas Supply and Off System Sales

Anthony M. Tetto
Assistant Vice President, Distribution Operations

South Jersey Energy
Officers

Edward J. Graham
President

Michael J. Renna
Vice President

Jane F. Kelly, Esq.
Corporate Secretary

David Robbins, Jr.
Treasurer

Joseph A. Rodio
Assistant Vice President

Dividend Reinvestment Plan

SJI's Dividend Reinvestment Plan provides record shareholders of SJI's
common stock with a way to increase their investment in the company without
payment of any brokerage commission or service charge.

Shareholders participating in the Plan may purchase shares of common stock
by the automatic reinvestment of dividends and optional purchases. The Plan is
now available to any person who, upon enrollment, agrees to become a shareholder
by purchasing at least $100 of SJI common stock. Optional purchases may be made
up to a maximum of $100,000 in any calendar year, as prescribed in the Plan.

Shares of common stock offered through the Plan are newly issued or
treasury common stock that the Plan acquires directly from SJI currently at a 2
percent discount. The price will be 98 percent of the average of the closing
sale prices for SJI's common stock for each of the last 12 days the common stock
was traded prior to the purchase date, as published in The Wall Street Journal.
The offer and sale of shares under the Plan will be made only through a
Prospectus, obtainable by contacting the Shareholder Records Department.

Direct Deposit of Dividends (Electronic Funds Transfer)

Stockholders of record can have immediate access to dividend funds. Your
dividend funds can be deposited directly into your checking or savings account.
Confirmation of dividend receipts will appear on your monthly bank statements.

South Jersey Industries stock is traded on the New York Stock Exchange
under the trading symbol SJI. The information contained herein is not given in
connection with any sale or offer of, or solicitation of an offer to buy, any
securities.

- Inside Back Cover -

South Jersey Industries

1 South Jersey Plaza
Folsom, NJ 08037-9917
www.sjindustries.com
609-561-9000

- Back Cover -