Exhibit 13
Front Cover - Outside
SouthJersey Industries, Inc.
1995
Annual Report
Front Cover - Inside
Company Profile
South Jersey Industries, Inc. is a diversified holding company with investments
in natural gas distribution and marketing, sand mining and distribution, utility
construction, general contracting and environmental consulting and remediation.
South Jersey Gas Company is a natural gas distribution utility supplying natural
gas and transportation services to residential, commercial and industrial
customers in southern New Jersey. Gas Company also makes wholesale sales in the
interstate market. South Jersey Energy Company provides services for the
acquisition and transportation of natural gas for retail end users. Energy &
Minerals, Inc. manages the operations of The Morie Company, Inc., a sand mining
and distribution company; and South Jersey Fuel, Inc., a wholesale natural gas
marketing company. R & T Group, Inc. manages the interests of five companies
involved in construction and environmental services.
About Our Cover
SJI's subsidiaries work together much like smaller gears interconnecting to turn
a larger wheel. Our success over the competition depends on all of the gears
working together to create shareholder value, cost control, employee
productivity, quality, customer satisfaction, business growth and teamwork.
INSERT: Map of South Jersey Gas Company Service Area
Shows location of Main Office, SJG Divisions, and
SJG Gas Advantage Stores
1995 HIGHLIGHTS
Five-Year Summary of Selected Financial Data South Jersey Industries, Inc. and Subsidiaries
(In Thousands Where Applicable) Year Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Operating Results:
Operating Revenues $353,808 $373,959 $333,941 $316,666 $278,921
========= ========= ========= ========= =========
Operating Income $ 38,857 $ 30,865 $ 30,746 $ 31,170 $ 27,215
========= ========= ========= ========= =========
Income before Cumulative Effect
of a Change in Accounting Principle (1) $ 17,643 $ 12,379 $ 14,971 $ 15,127 $ 11,702
========= ========= ========= ========= =========
Net Income Applicable to Common Stock (1)(2) $ 17,643 $ 12,379 $ 15,353 $ 15,127 $ 11,702
========= ========= ========= ========= =========
Total Assets $604,309 $571,095 $531,778 $471,274 $446,424
========= ========= ========= ========= =========
Capitalization:
Long-Term Obligations and
Redeemable Preferred Stock $171,125 $155,580 $146,889 $121,537 $109,429
Common Equity 157,297 154,972 140,526 132,053 125,006
--------- --------- --------- --------- ---------
Total Capitalization $328,422 $310,552 $287,415 $253,590 $234,435
========= ========= ========= ========= =========
Ratio of Income from Operations to Fixed
Charges (Before Federal Income Taxes) 2.27 2.11 2.40 2.38 2.11
========= ========= ========= ========= =========
Earnings Applicable to Common Stock
(Based on Average Shares) (1)(3):
Before Cumulative Effect of a Change in Accounting Principle $ 1.65 $ 1.21 $ 1.55 $ 1.61 $ 1.28
Cumulative Effect of a Change in Accounting Principle - - 0.04 - -
--------- --------- --------- --------- ---------
Earnings per Common Share $ 1.65 $ 1.21 $ 1.59 $ 1.61 $ 1.28
========= ========= ========= ========= =========
Return on Average Common Equity 11.30% 8.38% 11.27% 11.77% 9.45%
========= ========= ========= ========= =========
Share Data (3):
Number of Shareholders 12.9 14.0 13.1 12.5 11.6
Average Common Shares 10,720 10,258 9,680 9,394 9,159
Common Shares Outstanding at Year End 10,722 10,715 9,805 9,498 9,239
Dividend Reinvestment and Stock Purchase Plan:
Number of Shareholders 6.5 6.6 5.7 5.0 4.0
Number of Participating Shares 2,932 2,941 2,716 2,483 2,190
Book Value at Year End $ 14.67 $ 14.46 $ 14.33 $ 13.90 $ 13.53
Cash Dividends Declared $ 1.440 $ 1.440 $ 1.433 $ 1.412 $ 1.412
Market Price at Year End 23 1/8 18 1/8 23 3/4 23 19 7/8
Dividend Payout:
Gross 87.5% 116.7% 89.2% 87.1% 109.9%
Net (4) 86.8% 82.9% 64.6% 63.4% 82.8%
Market Price to Book Value 157.6% 125.3% 165.7% 165.5% 146.9%
Price Earnings Ratio 14.02 14.98 14.94 14.29 15.53
<FN>
Certain reclassifications have been made of previously reported amounts to conform with classifications used in
the current year.
(1) Included in 1994 is the negative impact of a $3.5 million Customer Refund Obligation ordered by
the BPU which reduced 1994 earnings by $2.3 million, or $0.22 per share (See Note 2 to Consolidated
Financial Statements).
(2) Included in 1993 is the Cumulative Effect of a Change in Accounting Principle for Income Taxes.
(3) Per share data has been restated to reflect the 2 percent Stock Dividend declared on January 22, 1993.
(4) Net Dividend Payout Ratio determined using dividends paid less dividends reinvested in new issue
shares through the Company's various stock purchse plans.
</FN>
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To Our Shareholders
Aggressive efforts to control costs, achieve greater efficiencies and capitalize
upon new and expanding markets are hallmarks of improved earnings for South
Jersey Industries, Inc. Our success in these areas sets a solid foundation from
which to grow and benefit from a challenging, exciting marketplace. With this
foundation firmly established, we are pleased to report record net income which
reflects the dramatic impact of colder weather at the end of 1995. SJI's
consolidated earnings rose to $17.6 million in 1995 from $12.4 million last
year. Consolidated earnings per share reached $1.65 compared with $1.21 in 1994
based on 10.7 million and 10.3 million average shares outstanding, respectively.
The favorable weather conditions at the end of the year complemented the
improved returns from South Jersey Gas Company's rate case settlement in
December 1994, a growing customer base and higher margins from retail sales.
Also, net income from sales and service to wholesale customers increased by over
50 percent compared with last year.
Gas Company's cost consciousness has produced a record that is notable both
regionally and nationally. For the calendar year 1994, we had the lowest
operating and maintenance expenses per unit of gas sold of 24 regional natural
gas companies and nationally we were selected as one of the 16 best local
distribution companies for below average cost and above average service. When
these statistics become available for 1995, we expect to maintain the same
national and regional rankings.
The Morie Company, Inc.'s focus on service, quality and price resulted in record
sales revenues and improved earnings this year. R & T Group, Inc.'s growing
expertise helped to significantly reduce the level of their loss this year
compared with last year's results.
Our emphasis on enhancing quality and reducing the costs of goods and services
ensures a continuing solid earnings stream. This will help us maintain the
dividend to shareholders while providing a springboard to further increase
shareholder value. Our management is in the forefront of market and industry
shifts within our respective areas of interest. Our structured, strategic
planning process anticipates competitive challenges producing an investment for
our shareholders which takes full advantage of changes in our operating
environment.
Our goal is a simple one - to be the lowest cost provider of products and
services in each of our lines of business while maintaining our high level of
service. Cost control is not something we turn on and off. Rather, it is an
integral part of past and future corporate philosophy. For example, Gas Company
has not rested on its achievements; it is further streamlining its workforce
through attrition, early retirement programs and using external contractors
where lower expenses or improved efficiencies may result.
Future productivity gains will take full advantage of technology by automating,
wherever practical, labor-intensive tasks. During 1995, Gas Company automated
several critical processes in our operations and gas supply areas. In January
1996, we initiated a pilot project to electronically dispatch work to service
vehicles, creating a more efficient communication network with field employees.
With the restructuring of the natural gas industry, we are re-engineering our
natural gas distribution company. Working closely with State regulators, we are
developing creative initiatives and meaningful regulatory reform that will allow
Gas Company to operate in the competitive environment and benefit customers.
Competition requires us to ensure that each customer class pays fairly for the
services we provide on its behalf. Also, we will address the cost of mandated
social programs embedded in our rates by making sure that all energy providers
bear a fair share of these programs that are now borne only by utilities.
Sales of Morie's golf course products continued their strong growth this year
and expectations for 1996 are high as Morie expands its marketing efforts into
New York and Pennsylvania. Where appropriate, Morie has withdrawn from shrinking
niche markets and we are reviewing other product lines to improve efficiency and
bottom line results.
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INSERT: Passage on left side of page 3 --
Aggressive efforts to control costs, achieve greater efficiencies and
capitalize upon new and expanding markets are hallmarks of improved
earnings for South Jersey Industries, Inc. SJI's consolidated earnings
rose to $17.6 million in 1995 from $12.4 million last year.
INSERT: Photograph - William F. Ryan
R & T Group has a continuous quality control program in place which focuses on
identifying innovative approaches to perform jobs more efficiently and at lower
costs. We have invested in additional equipment for directional drilling so we
can obtain more work in Maryland and Virginia, market areas where we continue to
expand.
Meanwhile, Gas Company and two of our non-regulated subsidiaries, South Jersey
Energy Company and South Jersey Fuel, Inc., are actively involved in capturing
various components of the deregulated natural gas marketplace. Our objective is
clear - to take full advantage of every possible opportunity to profit from the
deregulated marketplace. At Energy Company, we are using our expertise to
increase our market share of large-volume retail customers who are inexperienced
at purchasing and transporting natural gas. We reorganized South Jersey Fuel in
November 1995 to market energy on a wholesale basis. Initially, we are acquiring
and transporting natural gas supplies, capacity and storage for large wholesale
customers in the mid-Atlantic region. Both Energy Company and Gas Company, as
buyers in the wholesale market, are potential customers of South Jersey Fuel. As
opportunities arise, our energy service companies will evaluate and pursue joint
ventures to provide a total energy package to new and existing customers.
As you read further, you'll find highlights of our subsidiaries' accomplishments
and a discussion of how certain scenarios may impact our future. We view the
changing marketplace as an opportunity to improve our business practices to be a
better, stronger company than we are today.
As always, we appreciate the loyalty and support of our shareholders and
employees. We are counting on our dedicated workforce to help bring our goals to
fruition and are confident that their talent and experience will make our vision
a reality.
William F. Ryan
Chairman
February 15, 1996
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1995 OPERATING HIGHLIGHTS
South Jersey Industries, Inc.
. Increased investor relations activities. Enhanced efforts will concentrate
on expanding retail and institutional interest in SJI and augmenting
ownership by these investors.
. Reorganized South Jersey Fuel, Inc. to market natural gas and natural gas
services. The company will focus its sales efforts on natural gas marketers,
local distribution companies and other large, wholesale customers in the
mid-Atlantic region.
South Jersey Gas Company
. Prepared to file rate case in January 1996. The company is requesting $26.5
million in rate relief and a return on equity of 13 percent. We are also
seeking tariff changes to enhance services for customers, improve our
competitive position in the current open-access market and enhance our
potential for profit.
. Maintained the lowest, annual per customer operating and maintenance costs
of New Jersey's natural gas utilities based on the most current statistics
available. Further reduced staffing levels and associated salary and wage
costs in 1995, in excess of $1.2 million annually.
INSERT: Photograph - Two men doing environmental clean-up
INSERT: Passage under photograph --
R&T Group's growing reputation in environmental services has led to new
opportunities in the mid-Atlantic region.
. Added over 6,600 customers, bringing total customers to approximately
248,000. To serve existing and new customers and allow for future expansion,
$40.1 million in system improvements were completed.
. Increased pre-tax profits from off-system and interruptible sales, as well
as transportation services. This increase of approximately $8.7 million, or
42 percent, over last year resulted in lower gas costs for residential and
commercial customers.
. Received a commendation from the New Jersey Board of Public Utilities for
our efforts in refunding $17.6 million to customers through the Levelized
Gas Adjustment Clause and Temperature Adjustment Clause. This refund
primarily resulted from our ability to purchase secure natural gas supplies
at costs significantly lower than originally projected.
. Issued $30 million of debenture notes to reduce short-term debt and improve
composition of our debt. This debt funded working capital requirements
caused by accelerated payment of Gross Receipts and Franchise Taxes.
. Extended agreement with Atlantic Electric for one year for firm supplies of
natural gas for electric generation. The original agreement, signed in 1990,
was the first firm electric generation tariff approved by the New Jersey
Board of Public Utilities.
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South Jersey Energy Company
. Received approval to trade as SJ Energy and Mid-Atlantic Energy in market
areas outside of New Jersey. Energy Company has more than tripled its
clientele, serving approximately 370 customers in 1995 compared with about
100 customers in 1994.
The Morie Company, Inc.
. Experienced growth of over 100 percent in recreational product sales,
especially golf course maintenance and construction products. Supplied sand
products for several high profile accounts including the New York Giants
football practice field and the new, prestigious Hudson National Golf Club
in New York State.
. Recognized as a leading corporate philanthropist in the area of health and
the environment by the Community Foundation of New Jersey. For its
outstanding commitment to going beyond State environmental reclamation
requirements, the company received a grant which it donated to environmental
groups.
INSERT: Three bar charts listing the following information:
SJI - Consolidated Net Income Applicable to Common Shareholders
($ millions)
SJI - Earnings Per Share Applicable to Common Shareholders and
Dividends Declared (Dollars)
SJG - Number of Customers at Year End (Thousands)
R&T Group, Inc.
. Invested in equipment for directional drilling. This method of installing
underground utility systems is preferred over traditional installation
because it doesn't require extensive open trenching, cleanup and
reclamation.
. Completed our first project to capture methane gas escaping from a closed,
sealed landfill. The methane can be used as an alternate source of energy.
. Continued to expand pipeline installation activities in the Washington, DC,
Virginia and Maryland markets.
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FUTURE OPPORTUNITIES
Through our strategic planning process, our management has identified many
industry changes that may become a reality within the next five years. Using
management's talent and ability to foresee what may lie ahead will enable us to
make the course corrections required to succeed over our competitors. In this
section, we would like you to join us as we look at future opportunities to
offer new services, serve new markets and ensure protection for our basic
business.
Choices for Residential Customers
Deregulation in the natural gas industry has changed how both local utilities
and large gas customers purchase natural gas supplies. Presently, throughout the
country, residential customers lack the purchasing choices available to large
customers. However, some utilities are implementing pilot projects to allow
residential and small commercial customers to choose their natural gas supplier
rather than buying natural gas directly from the local utility. By having this
choice, residential customers will be able to shop for the best price and
quality of service available while the local utility continues to deliver that
gas and other complementary services.
As part of our rate case filed in January 1996, Gas Company proposed a
residential pilot program. Our proposal would allow up to 2,500 residential
customers located in contiguous groups such as residential developments,
condominium associations, townhouses or high rise apartment buildings to choose
their natural gas supplier. Because our primary concern in implementing a pilot
project is protecting our residential customers, our proposal includes a
condition that the marketing companies providing services be financially
responsible. We will ensure their responsibility by billing them for services
provided by Gas Company, rather than billing our residential customers directly.
While implementing choices for the residential group will create heightened
competition, we believe that competition will only make us stronger by providing
greater opportunities for new revenue sources.
Total Energy Suppliers
The eventual deregulation of the entire energy industry will open new doors for
our company in the area of energy services management. In other words, utility
companies and energy marketers will be able to sell natural gas, electricity and
other energy-related services. Companies will provide complete energy services
by taking responsibility for every aspect of energy consumption including
management, delivery, and billing. Our companies will have opportunities to
supply total energy services to residential, commercial and industrial
customers.
Energy Company and South Jersey Fuel already sell natural gas in the deregulated
marketplace. To be a player in the total energy market, we will purchase
electricity for resale or form alliances with companies having expertise and
access to sources of electricity.
As the days of residential choice draw near, Gas Company is looking at ways to
position itself ahead of the competition and will test the waters in 1996. For
example, we may propose a residential program that includes upgrading electric
equipment to natural gas at our expense. As savings are realized, we will share
the savings with the customers during the payback period
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on the new equipment. Once we have recovered our investment, the customer would
receive a larger percentage of the savings. Based on our expertise, we would
offer services for financing and purchasing decisions which complement the
concept of total energy management.
We look forward to competing in an environment where we can be a complete energy
supplier. The successful companies in this market will deliver total comfort,
excellent service and significant savings.
INSERT: Photograph toward right top of page 7 - Professional Office Building
INSERT: Passage --
SJI's subsidiaries will have opportunities to supply total energy
services to commercial customers as well as residential and industrial
users.
Electric Industry Deregulation
The changes in the electric industry resulting from pending restructuring and
deregulation are certain to impact the natural gas industry significantly. The
electric industry is following the activities of local gas utilities and the gas
industry as a whole. Because of their size, the volume of electricity they sell
and their access to energy markets, electric companies will become major
participants in the total energy services market. Due to increased competition,
electric utilities are marketing much more aggressively, are focusing on selling
energy services rather than just kilowatt hours and are shifting services from
regulated companies to their unregulated subsidiaries. In the next five to ten
years, if certain outstanding issues relating to deregulation are resolved
within the electric industry at state and federal levels, electric rates may
begin to fall in some market sectors, making them more competitive with natural
gas rates.
To increase our competitive advantage over electricity we are reducing costs,
improving productivity and are promoting new advances in equipment technology.
We are actively promoting the York Triathlon TM gas-fired heating and cooling
system. Its high efficiency reduces overall natural gas consumption for our
customers and enables us to compete with potentially lower electricity costs and
more effective electric heat pump technology. The Triathlon TM assists us in
developing our year-round business by helping increase natural gas use for
cooling in the summer months.
INSERT: Photograph lower right of page 7 - Condominiums
INSERT: Passage --
Residential customers who live in condominiums, townhouses and
developments will soon be able to choose their natural gas supplier.
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In the next few years, other gas heating equipment manufacturers will introduce
new total comfort heating and cooling products. While these products will employ
different technology than the Triathlon TM, we anticipate they will also be
effective in competing with electric heat pumps.
Increased Burner Tip Competition
When Gas Company delivers natural gas to a residential customer's home, we send
one bill to the customer each month. This bill includes charges for the cost of
gas and associated services and for transportation and service to their homes.
The way our rates are now designed, our income is a function of rate base which
is the investment required to provide service. Our rates recover our return on
rate base and all of our operating and maintenance expenses such as billing;
maintenance of plant, equipment and facilities; and salaries and benefits. We do
not make a profit on the sale of the commodity itself, natural gas.
In the future, residential customers will have choices for purchasing natural
gas supplies. We will always deliver supplies through our system once they reach
our service area, but we will face competition from marketing companies for the
purchase and transportation of supplies to our city gate stations.
INSERT: Photograph -- Lower left-hand corner of page 8.
Person seated in chair near a natural gas fireplace.
INSERT: Successful energy companies in the competitive environment will deliver
total comfort, excellent service and significant savings.
INSERT: Passage -- Top right-hand corner of page 8.
In the new era, natural gas companies who already compete on price and
quality of service with electric companies, fuel oil dealers and
marketers for industrial and commercial customers will soon compete for
residential customers as well.
To keep the non-gas portion of our rates as low as possible and effectively
compete in the new environment, we are continuing our efforts to reduce costs
and improve productivity. On the commodity side, we remain diligent in our
efforts to reduce gas costs by structuring our gas supply portfolio so we can
buy natural gas at the lowest cost. In the future, when we compete against other
companies for residential customers, we may restructure our rates so we earn a
profit on the sale of natural gas itself.
Competing on a Level Playing Field
In the new era, natural gas companies who already compete on price and quality
of service with electric companies, fuel oil dealers and marketers for
industrial and commercial customers will soon compete for residential customers
as well. Gas Company welcomes that challenge; however, we believe that all
participants in the marketplace must play by the same rules and compete on a
level playing field.
The marketing companies we compete with are not utilities, and as a result,
under current law they are not subject to New Jersey's Gross Receipts and
Franchise Taxes and can pass tax savings on to their customers or profit from
that differential. Unless the State finds an alternate way to tax, it will lose
a significant amount of revenue when residential choice occurs while placing
utilities at a competitive disadvantage. We expect the State to address this tax
issue during 1996.
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INSERT: Photograph at top of page 9
Sand mining plant
INSERT: Passage --
Morie's top quality product lines, customer service and
competitive pricing give them a clear advantage over their competitors.
As a public utility, we provide certain social service programs for our
residential customers, which were created and required by State regulators.
Conservation programs, assistance for low income customers and continued service
during the winter for those unable to pay are some key examples. We bear the
cost of these social programs within our rates; however, our unregulated
competitors are not subject to similar regulations or costs. Recovering the
cost of these mandated services clearly places us at a competitive disadvantage.
We wish to continue providing these services to our customers and are working
with New Jersey's regulators and other energy providers to develop an equitable
way to spread these costs among all energy providers.
Increased Competition in the Sand Mining Industry
Competition is not a new concept in the sand mining industry. This industry has
always been competitive and Morie has participated successfully in the
marketplace for several reasons. Our top-quality product lines, customer service
and competitive pricing structure distinguish us from our peers, giving us a
clear advantage. We also maintain close working relationships with our key
accounts.
Due to the intense competition, we have taken a strategic approach to assure our
continued survival. We have seen significant consolidation among similar
companies, and the outcome is generally shrinking markets for the remaining
companies. In this mature industry, competition forces us to strengthen our
business practices, further reduce expenses, increase productivity and enhance
the quality of our products.
Our consumers are undergoing changes, too. There are indications that a major
customer may sell its glass manufacturing facility in Tennessee. Currently, the
plant is running at two-thirds of its capacity. A new owner may want to run this
facility at full capacity to supply glass to several auto manufacturers located
in the region or produce glass for other uses. Because we have remained a
competitive, quality supplier to that plant, we could potentially benefit from
the sale.
Morie, like our other subsidiaries, understands the need to stay competitive to
succeed in the current business environment. We will continue to provide our
customers with quality products at reasonable prices.
-9-
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of Operations - 1995 Compared with 1994 - Utility revenues decreased in
1995 principally due to lower off-system sales, firm transportation and electric
utility gas sales. In 1995, 66.1 billion cubic feet (Bcf) of natural gas were
sold and transported compared with 74.0 Bcf in 1994. While weather was colder in
November and December of 1995, warmer weather earlier in the year offset the
impact of this colder weather. On an annual basis, weather in 1995 was slightly
colder than 1994. Gross margin increased in 1995 principally due to the rate
increase effective December 14, 1994, an increase of approximately 6,600
customers, revised transportation tariffs and a capacity release program. The
transportation of customer owned gas and the capacity release program result in
lower reported utility revenues; however, such transactions do not reduce the
Company's profit margin. The average cost of natural gas purchased was lower in
1995, also resulting in lower utility revenue.
Nonutility revenues include record revenues in 1995 by The Morie Company, Inc.
(Morie) and higher revenues by R & T Group, Inc. (R&T), SJI's sand mining and
processing and general construction subsidiaries, respectively. Such revenue
increases were more than offset by lower sales by South Jersey Energy Company
(SJE), SJI's energy service subsidiary. Lower SJE sales did not significantly
impact net income.
The cost of gas purchased for resale decreased in 1995, principally reflecting
lower unit sales volumes. Nonutility operating expense is lower in 1995 due to
lower SJE gas acquisition costs.
Depreciation is higher in 1995 due to increased investment in property, plant
and equipment.
The increase in Federal Income Taxes in 1995 is a result of higher net income.
Interest charges increased in 1995 due to higher levels of long-term debt
outstanding, an increase in short-term borrowing rates and higher interest on
overcollection of gas costs.
Net income increased in 1995 principally due to higher utility operating income,
partially offset by greater interest expense. Improved nonutility operating
results also contributed to higher net income. Also, in 1995, income per share
of common stock reflects a higher average number of common shares outstanding.
Net income and earnings per share were negatively impacted in 1994 due to the
customer refund obligation ($2,275,000 and $0.22 per share, respectively).
Results of Operations - 1994 Compared with 1993 - Utility revenues increased in
1994 due to increased volumes of gas sold and transported. In 1994, 74.0 Bcf of
natural gas were sold and transported compared with 59.1 Bcf in 1993. The major
portion of the increase in volumes sold and transported in 1994 was due to off-
system sales. Residential and commercial sales also increased; however, such
increases were partially offset by lower firm industrial and cogeneration sales,
and lower interruptible sales. SJG added approximately 6,300 customers in 1994
compared with 5,900 customers in 1993. The increased revenues in 1994 were
partially offset by temperature adjustment clause credits passed back to
customers. This clause insulates SJG from the earnings impact of extremely warm
weather and insulates customers from the effects of extremely cold weather. A
4.4 percent increase in utility revenue was approved by the New Jersey Board of
Public Utilities (BPU), effective December 14, 1994. As part of the approved
tariff changes, larger industrial and commercial customers have been given more
flexibility to manage their gas supplies. This is being done through rates for
the delivery of gas which will not negatively impact SJG's net income.
Nonutility revenues increased in 1994 due to increases in sales volumes by Morie
and SJE.
Gas purchased for resale increased in 1994 principally due to higher volume gas
sales, partially offset by lower unit prices for natural gas. Utility operating
expenses are higher primarily due to higher payroll related and insurance costs.
Nonutility operating expenses are higher due to costs associated with increased
sales. Maintenance expense increased in 1994 principally due to increases in
nonutility costs.
Depreciation was higher in 1994 due to increased investment in property, plant
and equipment.
Gross receipts and franchise taxes were lower in 1994 due to an increase in the
transportation of natural gas which was subject to lower unit tax rates.
Customer refund obligation - net reflected a charge related to a global
settlement resolving several issues before the BPU, including the rate case
discussed above and SJG's 1993-1994 Levelized Gas Adjustment Clause (LGAC). The
BPU's decision found no fault or imprudency, and SJG accepted this settlement to
avoid exposure and protracted litigation cost.
Interest charges increased in 1994 principally due to the effects of higher
levels of long-term debt outstanding; an increase in the level of short-term
debt outstanding and increases in short-term interest rates; partially offset by
the deferral of carrying costs related to the accelerated payment of gross
receipts and franchise taxes.
Net income applicable to common stock and earnings per share decreased in 1994
principally due to increases in utility operating expenses and interest costs
and the customer refund obligation ($0.22 per share) described above. The
decrease was partially offset by increased revenues and earnings from nonutility
operations. The decrease in earnings per share was also impacted by the effect
of a higher average number of common shares outstanding.
Liquidity - Management anticipates that future operations will continue to
generate sufficient cash flows to meet its operating needs, pay dividends, repay
current portions of long-term debt and finance a portion of the Company's
planned capital expenditures. Cash flow and the level of short-term debt had
been impacted by the acceleration of gross receipts and franchise tax payments.
In January 1995, SJG issued $30.0 million of debenture notes, the proceeds of
which were principally used to reduce the level of short-term debt related to
accelerated tax payments.
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Management's Discussion, Continued
Seasonal aspects of the Company's subsidiary operations affect cash flows,
revenues and operating expenses and, generally, the level of current assets and
current liabilities. Utility operations are usually greater during the first and
fourth quarters, reflecting the impact of higher sales resulting from colder
weather. Sand mining and construction operations are usually greater during the
second and third quarters, reflecting higher demand for sand products and
construction services during warmer weather. The increase in accounts receivable
at December 31, 1995, principally reflects increased utility sales in November
and December of 1995. The levels of cash, gas inventory, and accounts payable at
December 31, 1995, reflect the impact of increased utility sales in December
1995.
Cash flows from operations are affected by amounts collected in excess of, or
undercollections from, tariffs established under SJG's LGAC and its Temperature
Adjustment Clause. Overcollections represent increases in cash flow while
undercollections reflect decreases in cash flow. In 1995, refunds to customers
of overcollections aggregated $17.6 million, some of which were applied directly
to balances due from utility customers. The balances of any overcollections or
undercollections are subject to recovery by SJG's customers in the 1995-1996
LGAC recovery period.
Short-term bank lines of credit aggregate $151.0 million of which $74.7 million
was unused at December 31, 1995. The credit lines are uncommitted and unsecured,
with borrowings thereunder being effected for various terms of less than one
year, at interest rates less than the prime rate in effect at the time of
borrowing.
Cash flow from nonutility operations is generally retained in the nonutility
companies with amounts in excess of cash requirements being passed up to the
Company either as a dividend or as temporary short-term loans. Such activities
are not considered material in relation to the financial statements taken as a
whole.
The adoption of FASB No. 109, "Accounting for Income Taxes" in 1993 resulted in
the creation of a regulatory asset and a deferred income tax liability. As the
amortization of the asset occurs, it will be recovered through rates over an 18-
year period . Also, FASB No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", adopted by the Company in 1993, requires an
accrual basis of accounting for retiree benefit payments during the years of
employment. The actuarially computed unfunded transition obligation, as measured
in accordance with the statement, is estimated at $15.9 million. The Company has
elected to recognize the unfunded transition obligation over a 20-year period
which began in 1993. The majority of the postretirement benefit costs apply to
SJG, which had previously recovered these costs through rates on a pay-as-you-go
basis. The BPU order of December 1994 provides for partial recovery of costs
associated with FASB No. 106 and prescribes continued deferral of unrecovered
costs amounting to $4.7 million at December 31, 1995. Any remaining balance is
being addressed in SJG's pending rate case (See Note 13). Also, beginning in
1995, an external trust was established for the purpose of contributing costs
recovered from ratepayers resulting from the settlement with the BPU. Gross
contributions to the trust were $2.1 million as of December 31, 1995.
SJG is responsible for securing and maintaining its own gas supplies from
producers and other suppliers. SJG has entered into several contracts which,
when combined, replaced 100 percent of long-term gas supplies previously
purchased from interstate pipelines.
SJG, in the normal course of conducting business, has entered into long-term
contracts for the supply of natural gas, firm transportation, and long-term firm
gas storage service. The earliest expiration of any of these contracts is 1998.
All of the transportation and storage service agreements between SJG and its
interstate pipeline suppliers are provided under tariffs approved by the Federal
Energy Regulatory Commission. Gas Company's cumulative obligations for demand
charges for all of these services is approximately $4.9 million per month which
is recovered on a current basis through its LGAC.
Certain supply agreements are entered into with third parties under which SJG
has no responsibility except to store natural gas and permit withdrawals by such
third parties. A fee is charged for this service by SJG; however, SJG may, at
its option, withdraw such gas for its own use at pre-defined unit rates.
Since the early 1980s, the Company has recorded environmental remediation costs
of $48.4 million, of which $23.6 million has been expended as of December 31,
1995. The remaining liability of approximately $24.8 million is reflected in the
balance sheet under the captions "Current Liabilities" and "Deferred Credits and
Other Non-Current Liabilities". Such amounts have not been adjusted for future
insurance recoveries, which management is pursuing. SJG has realized insurance
recoveries of $4.2 million which were offset against legal costs and deferred
remediation costs. Recorded amounts include estimated costs to be incurred over
the next three years based on projected investigation and remediation work plans
using existing technologies. Estimates beyond this time cannot be made on a
reliable basis due to changing technology, government regulations and site-
specific requirements and, therefore, have not been recorded; however, the total
costs to be incurred may be substantial. The major portion of such costs relate
to the remediation of former gas manufacturing sites of SJG, which has recorded
and expended amounts of $47.3 million and $22.9 million, respectively, through
December 31, 1995. SJG has established a regulatory asset for these costs and is
recovering such costs over seven-year amortization periods, as authorized by the
BPU. SJG has recovered $6.9 million through rates as of December 31, 1995.
The Company's LGAC filing for 1994-1995 remains open. The parties for this
proceeding continue to question the Company's gas purchasing practices (See Note
2). The Company believes that such practices were proper and that it will
prevail in this proceeding.
A group of Atlantic City casinos filed a petition with the BPU on January 16,
1996 alleging overcharges of over $10 million including interest. Management
believes its charges were made in accordance with its approved tariff and, as
such, it will prevail in this litigation.
-11-
Management's Discussion, Continued
Capital Resources - The Company has a continuing need for cash resources and
capital, primarily to invest in new and replacement equipment and facilities for
its utility subsidiary. Total construction expenditures for 1996 are estimated
at $48.9 million. Construction expenditures for 1997 and 1998 are estimated at
approximately $53.5 million and $50.3 million, respectively. Such investments
are expected to be funded from several sources, including cash generated by
operations, temporary use of short-term debt, sale of first mortgage bonds, sale
of common stock and capital leases.
On January 16, 1996, SJG petitioned the BPU for a general base rate increase of
approximately $26.5 million based on an overall rate of return of 10.4 percent
and a 13.0 percent return on equity. As part of this petition, SJG is seeking
recovery of its increased expenditures for construction and the additional cost
of providing postretirement benefits other than pensions.
Beginning in November 1994, the Company began to purchase common shares in the
open market to satisfy the requirements of its Dividend Reinvestment and Stock
Purchase Plan. This action reduces the dilutive effect resulting from the
issuance of new common shares. Prior to such date, proceeds of the Company's
Dividend Reinvestment and Stock Purchase Plan resulting from the sale of new
issue common stock were available for general corporate purposes. In 1994, SJI
issued 910,635 shares of common stock through its various plans, including a
Stock Option and Stock Appreciation Rights Plan, its Dividend Reinvestment and
Stock Purchase Plan and Employees' Stock Ownership Plan, for approximately $16.8
million (See Note 8).
In January 1995, SJG issued $30.0 million of 8.6% Debenture Notes maturing
February 1, 2010. In 1994, SJG entered into a bank credit facility consisting of
a $15.0 million unsecured term note and a $5.0 million revolving credit
facility. The term note matures December 31, 2001, and is payable in seven
consecutive year-end installments beginning in 1995.
Inflation - The impact of inflation on nonutility operations tends to follow the
movement of general price changes. The nonutility operations respond to this by
implementing cost control measures and increasing prices in an attempt to
maintain or improve each company's financial results.
As to utility operations, the ratemaking process provides that only the original
cost of utility plant is recoverable in revenues as depreciation. Therefore, the
excess cost of utility plant, stated in terms of current cost over the original
cost of utility plant, is not presently recoverable. While the ratemaking
process gives no recognition to the current cost of replacing utility plant,
based on past practices, the Company believes it will be allowed to earn on the
increased cost of its net investment as replacement of facilities actually
occurs.
Summary - The Company is confident it will have sufficient cash flow to meet its
operating, capital and dividend needs and is taking and will take such actions
necessary to employ its resources effectively.
Independent Auditors' Report
To the Shareholders and
Board of Directors of
South Jersey Industries, Inc.:
We have audited the consolidated balance sheet of South Jersey Industries, Inc.
and subsidiaries as of December 31, 1995 and 1994, 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, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 11 to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective January 1,
1993, to conform with Statement of Financial Accounting Standards No. 109 and
its method of accounting for postretirement benefits other than pensions
effective January 1, 1993, to conform with Statement of Financial Accounting
Standards No. 106.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 15, 1996
-12-
Statements of Consolidated Income South Jersey Industries, Inc. and Subsidiaries
(In Thousands Except for Per Share Data) Year Ended December 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
Operating Revenues:
Utility (Notes 1 & 2) $280,177 $297,950 $268,541
Nonutility 73,631 76,009 65,400
--------- --------- ---------
Total Operating Revenues 353,808 373,959 333,941
--------- --------- ---------
Operating Expenses:
Gas Purchased for Resale 143,733 174,354 145,786
Operation and Maintenance - Utility 46,378 42,832 39,977
Nonutility 63,946 67,616 59,603
Depreciation and Depletion (Note 1) 17,781 16,561 15,379
Federal Income Taxes (Notes 1 & 5) 9,374 6,809 7,055
Gross Receipts & Franchise Taxes and Other Taxes (Note 6) 33,739 34,922 35,395
--------- --------- ---------
Total Operating Expenses 314,951 343,094 303,195
--------- --------- ---------
Operating Income 38,857 30,865 30,746
--------- --------- ---------
Interest and Other Charges:
Long-Term Debt 15,790 12,889 12,400
Short-Term Debt 3,582 2,859 2,603
Other (Note 4) 1,842 463 772
--------- --------- ---------
Total Interest and Other Charges 21,214 16,211 15,775
--------- --------- ---------
Customer Refund Obligation - Net (Notes 2 & 5) - 2,275 -
--------- --------- ---------
Income Before Cumulative Effect of a Change in Accounting Principle 17,643 12,379 14,971
Cumulative Effect of a Change in Accounting Principle (Note 1) - - 382
--------- --------- ---------
Net Income Applicable to Common Stock $ 17,643 $ 12,379 $ 15,353
========= ========= =========
Average Shares of Common Stock Outstanding (Note 8) 10,720 10,258 9,680
========= ========= =========
Earnings Per Common Share: (Note 8)
Before Cumulative Effect of a Change in Accounting Principle $ 1.65 $ 1.21 $ 1.55
Cumulative Effect of a Change in Accounting Principle - - 0.04
--------- --------- ---------
Earnings Per Common Share $ 1.65 $ 1.21 $ 1.59
========= ========= =========
Cash Dividends Declared Per Common Share $ 1.440 $ 1.440 $ 1.433
========= ========= =========
Statements of Consolidated Retained Earnings (In Thousands) Year Ended December 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
Balance at Beginning of Year $ 31,497 $ 33,889 $ 32,409
Net Income Applicable to Common Stock 17,643 12,379 15,353
Cash Dividends Declared - Common Stock (15,435) (14,771) (13,873)
--------- --------- ---------
Balance at End of Year (Note 10) $ 33,705 $ 31,497 $ 33,889
========= ========= =========
<FN>
The accompanying schedule and footnotes are an integral part of the financial statements.
</FN>
-13-
Statements of Consolidated Cash Flows South Jersey Industries, Inc. and Subsidiaries
(In Thousands) Year Ended December 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 17,643 $ 12,379 $ 15,353
Adjustments to Reconcile Net Income to Cash Flows:
Depreciation, Depletion and Amortization 20,722 19,142 18,204
Provision for Losses on Accounts Receivable 1,265 1,293 913
Revenues and Fuel Costs Deferred - Net (5,523) 18,183 (18,306)
Deferred and Non-Current Federal Income Taxes
and Credits - Net 4,326 (928) 4,665
Cumulative Effect of a Change in Accounting Principle - - (382)
Environmental Remediation Costs - Net 1,544 1,029 990
Changes in:
Accounts Receivable (16,676) (2,167) (6,615)
Inventories 2,297 (6,093) (1,439)
Prepayments and Other Current Assets (483) 200 (268)
Prepaid Gross Receipts & Franchise Taxes - Net (3,845) (13,276) (15,940)
Accounts Payable and Other Accrued Liabilities 8,451 9,859 (4,246)
Other - Net 5,073 (1,846) 1,238
--------- --------- ---------
Net Cash Provided by (Used In) Operating Activities 34,794 37,775 (5,833)
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from the Sale of Available-for-Sale Securities - 128 -
Capital Expenditures, Cost of Removal and Salvage (44,607) (41,750) (36,253)
--------- --------- ---------
Net Cash Used in Investing Activities (44,607) (41,622) (36,253)
--------- --------- ---------
Cash Flows from Financing Activities:
Net (Repayments of) Borrowings from Lines of Credit (3,900) (2,550) 21,650
Principal Repayments of Long-Term Debt (9,500) (8,307) (9,845)
Dividends on Common Stock (15,435) (14,771) (13,873)
Repurchase of Preferred Stock (90) (90) (90)
Proceeds from Sale of Long-Term Debt 30,000 17,000 35,000
Proceeds from Sale of Common Stock 117 16,838 6,993
--------- --------- ---------
Net Cash Provided by Financing Activities 1,192 8,120 39,835
--------- --------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (8,621) 4,273 (2,251)
Cash and Cash Equivalents at Beginning of Year 14,208 9,935 12,186
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 5,587 $ 14,208 $ 9,935
========= ========= =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest (Net of Amounts Applicable to LGAC
Overcollections and Amounts Capitalized) $ 18,409 $ 16,941 $ 14,086
Income Taxes (Net of Refunds) $ 6,907 $ 4,660 $ 4,728
<FN>
Supplemental Disclosures of Noncash Investing and Financing Activities:
During 1995, 1994, and 1993, capital lease obligations of $212, $1,313 and $457, respectively, were incurred by
R & T Group, Inc. in connection with its Master Lease Agreement for various items of construction equipment.
The accompanying schedule and footnotes are an integral part of the financial statements.
</FN>
-14-
Consolidated Balance Sheet South Jersey Industries, Inc. and Subsidiaries
(In Thousands) December 31,
-----------------------
1995 1994
---------- ----------
Assets
Property, Plant and Equipment: (Note 1)
Utility Plant, at original cost $ 540,649 $ 504,259
Accumulated Depreciation (145,954) (136,112)
Gas Plant Acquisition Adjustment - Net 2,075 2,150
Nonutility Property and Equipment, at cost 60,665 63,951
Accumulated Depreciation and Depletion (34,736) (31,810)
---------- ----------
Property, Plant and Equipment - Net 422,699 402,438
---------- ----------
Available-for-Sale Securities (Note 7) 830 830
---------- ----------
Current Assets:
Cash and Cash Equivalents (Notes 1 & 9) 5,587 14,208
Accounts Receivable 44,909 35,213
Unbilled Revenues (Note 1) 20,860 15,154
Provision for Uncollectibles (982) (991)
Natural Gas in Storage, average cost 14,763 17,082
Materials and Supplies, average cost 12,017 11,995
Prepaid Gross Receipts & Franchise Taxes 3,649 -
Prepayments and Other 3,054 2,571
---------- ----------
Total Current Assets 103,857 95,232
---------- ----------
Accounts Receivable - Merchandise 2,305 2,015
---------- ----------
Deferred Debits: (Note 1)
Environmental Remediation Costs: (Note 12)
Expended - Net 11,773 13,361
Liability for Future Expenditures 24,823 17,026
Gross Receipts & Franchise Taxes (Note 6) 4,868 5,268
Income Taxes - Flowthrough Depreciation (Notes 1 & 5) 15,955 16,933
Deferred Postretirement Benefit Costs (Notes 2 & 13) 4,726 6,567
Other 12,473 11,425
---------- ----------
Total Deferred Debits 74,618 70,580
---------- ----------
Total Assets $ 604,309 $ 571,095
========== ==========
Capitalization and Liabilities
Capitalization: (see Schedule)
Common Equity (Notes 8 & 10) $ 157,297 $ 154,972
Redeemable Cumulative Preferred Stock (Note 4) 2,404 2,494
Long-Term Debt 168,721 153,086
---------- ----------
Total Capitalization 328,422 310,552
---------- ----------
Current Liabilities:
Notes Payable (Note 9) 76,300 80,200
Current Maturities of Long-Term Debt 14,532 9,455
Accounts Payable 44,472 35,237
Customer Deposits 5,707 5,895
Gross Receipts & Franchise Taxes Accrued - 196
Environmental Remediation Costs (Note 12) 7,032 5,175
Interest Accrued and Other Current Liabilities 11,433 12,029
---------- ----------
Total Current Liabilities 159,476 148,187
---------- ----------
Deferred Credits and Other Non-Current Liabilities: (Note 1)
Accumulated Deferred Income Taxes - Net (Note 5) 68,353 63,425
Investment Tax Credits 6,417 6,807
Deferred Revenues:
Customer Refund Obligation (Note 2) - 3,500
Other Deferred Revenues 7,315 9,338
Pension and Other Postretirement Benefits (Note 11) 9,293 10,329
Environmental Remediation Costs (Note 12) 17,798 11,902
Other 7,235 7,055
---------- ----------
Total Deferred Credits and Other Non-Current Liabilities 116,411 112,356
---------- ----------
Commitments and Contingencies (Note 12)
Total Capitalization and Liabilities $ 604,309 $ 571,095
========== ==========
<FN>
The accompanying schedule and footnotes are an integral part of the financial statements.
</FN>
-15-
Schedule of Consolidated Capitalization South Jersey Industries, Inc.
(In Thousands Except for Share Data) and Subsidiaries
December 31,
---------------------
1995 1994
--------- ---------
Common Equity: (Notes 8 & 10)
Common Stock: Par Value $1.25 per share; Authorized 20,000,000 shares;
Outstanding Shares: 10,722,171 (1995) and 10,715,211 (1994)
Balance at Beginning of Year $ 13,394 $ 12,256
Dividend Reinvestment and Stock Purchase Plan & Employee Stock Option Plan 9 1,138
--------- ---------
Balance at End of Year 13,403 13,394
Premium on Common Stock 110,189 110,081
Retained Earnings 33,705 31,497
--------- ---------
Total Common Equity 157,297 154,972
--------- ---------
Redeemable Cumulative Preferred Stock: (Note 4)
South Jersey Gas Company, Par Value $100 per share
Authorized Shares: 49,104 (1995) and 50,004 (1994)
Outstanding Shares: Series A, 4.70% - 4,800 (1995) and 5,700 (1994) 480 570
Series B, 8.00% - 19,242 1,924 1,924
--------- ---------
Total Redeemable Cumulative Preferred Stock 2,404 2,494
--------- ---------
Long-Term Debt: (A)
South Jersey Gas Company:
First Mortgage Bonds (B):
8% Series due 1995 - 71
8 1/4% Series due 1996 1,998 2,089
8 1/4% Series due 1998 3,260 3,397
9.2% Series due 1998 2,667 4,889
8.19% Series due 2007 25,000 25,000
10 1/4% Series due 2008 25,000 25,000
9% Series due 2010 32,813 35,000
6.95% Series due 2013 35,000 35,000
Term Note, 8.47% due 2001 (C) 12,857 15,000
Debenture Notes, 8.6% due 2010 (D) 30,000 -
Energy & Minerals, Inc.:
Senior Notes, 9.66% due 2000 (E) 4,375 5,250
Note, 7% due 2001 (F) 2,000 2,000
R & T Group, Inc.:
Senior Notes, 9.66% due 2000 (E) 6,875 8,250
Master Lease Agreement 1,408 1,595
--------- ---------
Total Long-Term Debt Outstanding 183,253 162,541
Less Current Maturities 14,532 9,455
--------- ---------
Total Long-Term Debt 168,721 153,086
--------- ---------
Total Capitalization $328,422 $310,552
========= =========
<FN>
(A) The long-term debt maturities and sinking fund requirements for the succeeding five years are as follows:
1996, $14,531,577; 1997, $10,061,940; 1998, $11,923,204; 1999, $11,723,765; and 2000, $11,565,184.
(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 December 2, 1994, SJG entered into an unsecured Long-Term Debt Agreement consisting of a $15,000,000
term loan, 8.47% due 2001 and a $5,000,000 revolving credit facility.
(D) On January 31, 1995, SJG sold privately $30,000,000 of unsecured Debenture Notes, 8.6% due 2010.
(E) These notes are the subject of a support agreement by SJI.
(F) On October 13, 1994, EMI entered into an unsecured long-term financing agreement for $2,000,000, 7% due 2001,
as part of an acquisition of sand reserves and various construction equipment.
</FN>
-16-
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Practices:
Consolidation - The consolidated financial statements include the accounts of
South Jersey Industries, Inc. (the Company) and all of its subsidiaries. Certain
intercompany transactions, amounting to approximately $6.9 million, $6.2 million
and $6.1 million, respectively, in 1995, 1994 and 1993, were not required to be
eliminated. Such amounts were capitalized to utility plant or environmental
remediation costs on the South Jersey Gas Company (SJG) books of account and are
recoverable by SJG through the rate-making process (See Note 12). All other
significant intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made of previously reported amounts to conform with
classifications used in the current year.
Estimates and Assumptions - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and related disclosures and, therefore, actual results could differ
from those estimates.
Regulation - The Company's principal subsidiary, SJG, is subject to the rules
and regulations of the New Jersey Board of Public Utilities (BPU) and maintains
its accounts in accordance with the prescribed Uniform System of Accounts of
that Board (See Notes 2 & 13).
Utility Revenues - SJG bills most of its customers on a monthly cycle basis,
although certain large industrial customers are billed at or near the end of
each month. An accrual is made to recognize the unbilled revenues from the date
of the last bill to the end of period.
In accordance with a BPU order, SJG is allowed to recover the excess cost of gas
sold over the cost thereof included in base rates through the Levelized Gas
Adjustment Clause (LGAC). Such collection is made on a forecasted basis, after a
hearing, upon BPU order. Under-recoveries and over-recoveries of gas costs are
deferred and included in the determination of the following year's LGAC.
Interest is paid on overcollected LGAC balances based on SJG's return on rate
base as determined in its base rate proceedings.
Property, Plant & Equipment - Utility plant is stated at original cost as
defined for regulatory purposes; nonutility plant is stated at cost. The cost of
additions, replacements and renewals of property is charged to the appropriate
plant account.
New Accounting Pronouncements - In March 1995, the Financial Accounting
Standards Board (FASB) issued FASB No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which will
become effective in 1996. This statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The resultant
impairment, if any, would be measured based on the fair value of the asset. The
Company believes that the adoption of FASB No. 121 will not have a material
effect on the Company's results of operations or financial position. See Note
8 for discussion of FASB No. 123.
Depreciation and Amortization - Depreciation of utility plant is provided on a
straight-line basis over the estimated remaining lives of the various classes of
property. These estimates are periodically reviewed and adjustments are made as
required after approval by the BPU. The composite rate per annum for all
depreciable utility property was approximately 2.8 percent in 1995, 1994 and
1993. Generally, with the exception of extraordinary retirements, accumulated
depreciation is charged with the cost of depreciable utility property retired,
together with removal costs less salvage. The gas plant acquisition adjustment
is being amortized on a straight-line basis over a 40-year period. The
unamortized balance amounting to $2.1 million at December 31, 1995, is not
included in rate base. Depreciation of nonutility property is computed generally
on a straight-line basis over the estimated useful lives of the property,
ranging up to 45 years. Any gain or loss realized upon the disposition of
nonutility property is recognized in determining net income.
Federal Income and Other Taxes - Deferred Federal Income Taxes are provided for
all significant temporary differences between book and taxable income (See Note
5). The Company adopted FASB No. 109, "Accounting for Income Taxes", in 1993.
Its adoption resulted in the recording on the balance sheet of additional assets
and liabilities, with the difference being credited to earnings as a cumulative
effect of a change in accounting principle. The cumulative effect of this
change, as of January 1, 1993, was to increase income by $382,000, or $0.04 per
share.
Statements of Cash Flows - For purposes of reporting cash flows, all highly
liquid investments with original maturities of three months or less are
considered cash equivalents.
2. Recent Regulatory Actions:
On December 14, 1994, the BPU granted SJG a rate increase of $12.1 million based
on a 9.51 percent overall rate of return on rate base, which included an 11.5
percent return on equity. Nearly the entire amount of the increase comes from
the residential, commercial and small industrial customer classes. In addition,
SJG is allowed to retain the first $4.0 million of pre-tax interruptible and
off-system margins combined and 20 percent of such margins above that level.
In addition to the rate increase, the BPU approved a change in SJG's Temperature
Adjustment Clause (TAC), a mechanism designed to reduce the impact of extreme
fluctuations in temperature on SJG and its customers, which will require colder
weather before an adjustment is required to customer billings. The BPU order
also provides partial recovery of the costs associated with SJG's adoption of
FASB No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", and the continued deferral of all unrecovered costs. The recovery of
these additional costs is being addressed in SJG's current rate petition filed
in January 1996; and it is expected that recovery will be included in future
base rates (See Note 13). In addition, SJG is recovering from ratepayers the
carrying costs associated with the accelerated Gross Receipts and Franchise Tax
payment in April 1994, which resulted from legislation adopted in 1991. As part
of the tariff changes approved, SJG also implemented tariffs which give large
industrial and commercial customers more opportunities to manage their own gas
supplies. These changes do not have a negative impact on SJG's net income.
In December 1994, the BPU ordered a $3.5 million customer refund which resulted
in an unfavorable impact of $2.3 million (net of taxes), or $0.22 per share, in
1994 consolidated net income. This refund was part of a global settlement which
expedited the resolution of a series of matters pending before the BPU including
the rate case discussed above and SJG's 1993-1994 LGAC. Customers received the
$3.5 million refund through the 1994-1995 LGAC.
-17-
Notes to Consolidated Financial Statements, Continued
3. Segments of Business:
Information about the Company's operations in different industry segments is
presented below:
Thousands of Dollars
1995 1994 1993
-------- -------- --------
Operating Revenues:
Gas Utility Operations $282,719 $311,459 $277,581
Sand Mining Operations 32,249 30,951 28,600
Other Industries 41,593 45,347 37,085
-------- -------- --------
Total 356,561 387,757 343,266
Intersegment Sales (2,753) (13,798) (9,325)
-------- -------- --------
Consolidated Operating Revenues $353,808 $373,959 $333,941
======== ======== ========
Operating Income:
Gas Utility Operations $ 44,716 $ 35,109 $ 37,388
Sand Mining Operations 4,061 3,844 2,517
Other Industries 1,229 953 204
-------- -------- --------
Total 50,006 39,906 40,109
Federal Income Taxes (9,374) (6,809) (7,055)
General Corporate Expense (1,775) (2,232) (2,308)
-------- -------- --------
Total Operating Income $ 38,857 $ 30,865 $ 30,746
======== ======== ========
Depreciation, Depletion and Amortization:
Gas Utility Operations $ 16,672 $ 14,741 $ 13,881
Sand Mining Operations 2,630 2,756 2,713
Other Industries 1,420 1,645 1,610
-------- -------- --------
Total $ 20,722 $ 19,142 $ 18,204
======== ======== ========
Property Additions:
Gas Utility Operations $ 40,078 $ 35,633 $ 33,260
Sand Mining Operations 2,111 4,231 1,732
Other Industries 1,518 1,062 671
-------- -------- --------
Total $ 43,707 $ 40,926 $ 35,663
======== ======== ========
Identifiable Assets:
Gas Utility Operations $549,458 $509,828 $479,204
Sand Mining Operations 33,797 34,049 30,841
Other Industries 18,871 18,299 15,727
-------- -------- --------
Total 602,126 562,176 525,772
Corporate Assets 17,837 19,270 20,495
Intersegment Assets (15,654) (10,351) (14,489)
-------- -------- --------
Consolidated Identifiable Assets $604,309 $571,095 $531,778
======== ======== ========
Gas utility operations consist primarily of natural gas distribution to
residential, commercial and industrial customers. Sand mining operations consist
primarily of mining and processing sand, gravel and clay. Other industries
include the utility construction, environmental services and general
contracting, and the natural gas acquisition and transportation service
companies.
Total operating revenues by industry segment include both sales to unaffiliated
customers, as reported in the Company's statements of consolidated income, and
intercompany sales, which are accounted for generally at the fair market value
of the goods or services rendered.
Operating income is total revenues less operating expenses, Federal Income
Taxes, and general corporate expenses, as shown on the statements of
consolidated income.
Identifiable assets are those assets that are used in each segment of the
Company's operations. Corporate assets are principally cash and cash items, and
land, buildings and equipment held for corporate use.
4. Redeemable Cumulative Preferred Stock:
SJG is required to offer annually to purchase 900 and 1,500 shares of its
Cumulative Preferred Stock, Series A and Series B, respectively, at par value
thereof, plus accrued dividends.
The preferred stock dividend requirements of SJG amounting to approximately $0.2
million for the years 1995, 1994 and 1993 have been included in the Company's
statements of consolidated income under the caption "Interest and Other
Charges".
If preferred stock dividends are in arrears, no dividends may be declared or
paid, or other distribution made on the SJG Common Stock; and, if four or more
quarterly dividends are in arrears, the Preferred Shareholders may elect a
majority of the SJG directors.
The Company has 2,500,000 authorized shares of Preference Stock, no par value,
none of which has been issued.
5. Federal Income Taxes:
Income tax expense applicable to operations is lower than the tax that would
have resulted by applying the statutory rate to income from operations before
Federal Income Tax for 1995, 1994 and 1993. The reasons for the differences are
as follows:
Thousands of Dollars
1995 1994 1993
------ ------ ------
Tax at Statutory Rate $ 9,520 $7,581 $7,775
Increase (Decrease) Resulting from:
Additional Statutory Depletion Allowance (592) (606) (405)
Amortization of Investment Tax Credits (ITC) (390) (377) (389)
Liberalized Depreciation Under Book
Depreciation on Utility Plant 664 264 222
Other - Net 172 (53) (148)
------- ------ ------
Federal Income Taxes as reported
on the Statements of
Consolidated Income 9,374 6,809 7,055
------- ------ ------
Tax on Customer Refund Obligation - (1,225) -
------ ------ ------
Net Federal Income Taxes $ 9,374 $5,584 $7,055
======= ====== ======
The provision for Federal Income Taxes is composed of the following:
Thousands of Dollars
1995 1994 1993
------ ------ ------
Current $5,048 $7,737 $2,390
------ ------ ------
Deferred:
Excess of Tax Depreciation Over
Book Depreciation - Net 3,912 3,500 2,870
Deferred Fuel Costs 1,380 (5,536) 5,536
Environmental Remediation Costs - Net (556) (207) (287)
Amortization of Gross Receipts Taxes (136) (136) (136)
BPU Order - Flow Back of Excess
Deferred Taxes (39) (55) (67)
Premium on Bond Redemption (61) (59) (58)
Alternative Minimum Tax - 1,525 (2,042)
Other - Net 216 417 (762)
------ ------ ------
Total Deferred 4,716 (551) 5,054
------ ------ ------
ITC (390) (377) (389)
------ ------ ------
Federal Income Taxes as reported
on the Statements of
Consolidated Income 9,374 6,809 7,055
------ ------ ------
Tax on Customer Refund Obligation - (1,225) -
------ ------ ------
Net Federal Income Taxes $9,374 $5,584 $7,055
====== ====== ======
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
-18-
Notes to Consolidated Financial Statements, Continued
Significant components of the Company's net deferred tax liability at December
31, 1995 and 1994 are as follows:
Thousands of Dollars
1995 1994
------- -------
Deferred Tax Liabilities:
Tax Depreciation Over Book Depreciation $59,793 $55,195
Difference Between Book and Tax Basis of Property 4,756 4,417
Deferred Fuel Costs 1,380 -
Environmental Remediation Costs 4,118 4,539
Excess Protected 3,632 3,671
Gross Receipts Taxes 1,704 1,791
Other 1,851 2,407
------- -------
Total Deferred Tax Liabilities 77,234 72,020
------- -------
Deferred Tax Assets:
Alternative Minimum Tax 5,472 5,089
ITC Basis Gross Up 3,409 3,506
------- -------
Total Deferred Tax Assets 8,881 8,595
------- -------
Net Deferred Tax Liability $68,353 $63,425
======= =======
6. Deferred Debits and Credits - Federal and Other Taxes
The primary asset created as a result of adopting FASB No. 109 was income taxes
- - flowthrough depreciation in the amount of $17.6 million as of January 1, 1993.
This amount represented the recording of the net tax effect of excess
liberalized depreciation over book depreciation on utility plant because of
temporary differences for which, prior to FASB No. 109, deferred taxes had not
previously been provided. These tax benefits were previously flowed through in
rates and, as a result of positions taken in the 1994 rate case, the
amortization of the asset is being recovered through rates over an 18-year
period which began in December 1994.
The ITC attributable to SJG were deferred and continue to be amortized at the
annual rate of 3 percent, which approximates the life of the related assets.
Effective March 1, 1978, SJG began accruing Gross Receipts and Franchise Taxes
(GRAFT) on current revenues, the basis for such taxes through 1991, rather than
on the previous basis of taxes paid. The one-time increase resulting from this
change has been deferred and is being amortized on a straight-line basis to
operations over a 30-year period. In June 1991, GRAFT legislation was adopted in
New Jersey accelerating tax payments. The legislation also changed the basis to
gas volumes rather than percentage of revenue.
7. Financial Instruments:
Long-Term Debt - The fair values of the Company's long-term debt, including
current maturities, as of December 31, 1995 and 1994, are estimated to be $204.6
million and $160.9 million, respectively (carrying amounts $183.3 million and
$162.5 million, respectively) and are estimated based on the interest rates
available to the Company at each respective year end for debt with similar terms
and remaining maturities. The Company retires higher cost debt whenever it is
cost effective to do so within the constraints of the respective debt covenants
(See Note 13).
Other Financial Instruments - The carrying amounts of the Company's other
financial instruments approximate their fair values at December 31, 1995 and
1994.
In 1994, the Company adopted FASB No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", which requires the Company, among other things,
to account for certain of its investments at fair market value. Adoption of
this statement did not have a material effect on the Company's results of
operations or financial position.
8. Common Stock:
The Company has 20,000,000 shares of Common Stock authorized of which the
following shares were issued and outstanding:
1995 1994 1993
---------- --------- ---------
Beginning of Year 10,715,211 9,804,576 9,497,700
New Issues During Year:
Dividend Reinvestment and
Stock Purchase Plan - 899,649 281,295
Employees' Stock Ownership Plan 6,960 7,926 4,941
Stock Option & Stock Appreciation
Rights Plan - 3,060 20,640
---------- ---------- ---------
End of Year 10,722,171 10,715,211 9,804,576
========== ========== =========
The average shares of Common Stock outstanding for 1995, 1994, and 1993 were
10,719,609, 10,257,848 and 9,680,035, respectively.
The par value ($1.25 per share) of the stock issued in 1995, 1994 and 1993 has
been credited to common stock and the net excess over par value of approximately
$0.1 million, $15.7 million and $6.6 million, respectively, has been credited to
Premium on Common Stock.
The Company has a Stock Option and Stock Appreciation Rights Plan under which
not more than 306,000 shares in the aggregate may be issued to officers and
other key employees of the Company and its subsidiaries. No options or stock
appreciation rights may be granted under the Plan after January 23, 1997. At
December 31, 1995 and 1994, the Company had 50,560 options outstanding,
exercisable at prices from $17.16 to $24.69 per share. During 1994 and 1993,
3,060 and 20,640 options were exercised, respectively, at prices ranging from
$17.16 to $17.89 per share. No options were exercised in 1995. On September 16,
1993, the Company granted options on 10,000 shares exercisable at $24.69. No
options were granted in 1995 or 1994. No stock appreciation rights have been
issued under the plan. The stock options outstanding at December 31, 1995, 1994,
and 1993 did not have a material effect on the earnings per share calculations.
FASB No. 123, "Accounting for Stock-Based Compensation" which will be adopted by
the Company in 1996, includes certain elective provisions which, if followed,
would significantly change the way the Company measures compensation under its
stock based compensation plans. However, the Company has elected to continue to
measure compensation using the method prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees". FASB No. 123, when adopted, will
not have a significant effect on the Company's financial position or results of
operations, but will require expanded disclosure regarding the Company's stock
based compensation plans.
The Company also has a Dividend Reinvestment and Stock Purchase Plan (DRP) and
Employees' Stock Ownership Plan (ESOP). Shares of common stock offered through
the Plan are currently purchased in the open market. Prior to 1995, shares
offered pursuant to the Plan were purchased directly from the Company. As of
December 31, 1995, 633,121 and 46,086 shares of authorized but unissued Common
Stock were reserved for future issuance to the DRP and ESOP, respectively.
9. Unused Lines of Credit and Compensating Balances:
Unused lines of credit available at December 31, 1995, were approximately $74.7
million. Borrowings under these lines of credit are at market rates which
approximated 6.0 percent at December 31, 1995 and 1994. Demand deposits are
maintained with lending banks on an informal basis and do not constitute
compensating balances.
-19-
Notes to Consolidated Financial Statements, Continued
10. Retained Earnings:
There are certain restrictions under various loan agreements as to the amount of
cash dividends or other distributions that may be paid on the Common Stock of
certain subsidiaries. The Company's aggregate equity in its subsidiaries'
retained earnings that are free of these restrictions was approximately $33.7
million at December 31, 1995.
11. Retirement Benefit Plans:
Pensions - The Company and its subsidiaries have several defined benefit
retirement plans that provide annuity payments to substantially all full-time
regular employees upon retirement. Additionally, the companies pay the entire
cost of the plans. Approximately 75 percent of the plans' assets are invested in
securities which, under their terms, provide for fixed income and a return of
principal. The remaining assets of the plans are invested in professionally
managed common stock portfolios. Net periodic pension cost for 1995, 1994 and
1993, including the amortization of the cost of past service benefits over a
period of approximately 30 years, included the following components:
Thousands of Dollars
1995 1994 1993
------ ------ ------
Service cost - benefits earned during the period $1,736 $1,738 $1,351
Interest cost on projected benefit obligation 3,183 2,932 2,723
Actual return on plan assets (3,245) (1,169) (3,184)
Net amortization and deferral 730 (1,292) 903
------ ------ ------
Net periodic pension cost $2,404 $2,209 $1,793
====== ====== ======
Assumptions as of December 31 were:
Discount rate 7.25%-7.50% 7.25%-7.50% 7.25%
Rate of increase in compensation levels 4.6% 4.6% 4.6%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%-9.5%
The following table sets forth the plans' funded status at December 31, 1995 and
1994.
Actuarial present value of benefit obligations:
Thousands of Dollars
1995 1994
-------- --------
Vested benefit obligation $(37,608) $(34,018)
======== ========
Accumulated benefit obligation $(37,899) $(34,167)
======== ========
Projected benefit obligation $(48,198) $(43,415)
Plan assets at fair value 37,831 34,003
-------- --------
Projected benefit obligation in excess of plan assets (10,367) (9,412)
Unrecognized net loss 4,903 3,544
Prior service cost not yet recognized
in net periodic pension cost 2,415 2,725
Unrecognized net obligation at January 1 958 1,013
-------- --------
Pension liability recognized in
the consolidated balance sheet $ (2,091) $ (2,130)
======== ========
Postretirement Benefits Other Than Pensions - The Company and its subsidiaries
provide postretirement health care and life insurance benefits to certain
retired employees. Effective January 1, 1993, the Company adopted FASB No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions". This
statement requires the Company to accrue the estimated cost of retiree benefit
payments during the years the employee provides services. The Company previously
expensed the cost of these benefits, which are principally health care, on a
pay-as-you-go (PAYGO) basis. The Company has elected to recognize the unfunded
transition obligation over a period of 20 years.
The majority of the Company's costs apply to its utility subsidiary, SJG, which
has previously recovered these costs on a PAYGO basis through its rates. As part
of SJG's 1994 base rate case settlement, SJG was granted full recovery of the
current service cost component of the annual cost in addition to continued
recovery of PAYGO costs. The BPU also approved recovery of previously deferred
1993 and 1994 service costs over a 5-year period beginning in December 1994.
Beginning in 1995, an external trust was established for the purpose of
contributing costs recovered from the ratepayers as a result of the settlement
with the BPU. Gross contributions to this trust totaled $2.1 million as of
December 31, 1995; however, due to the timing of contributions to the trust, the
return stated in the table below does not reflect a full year's return. SJG is
also authorized to continue recording a regulatory asset for the amount by which
the cost exceeds the current level recovered in rates. The recovery of this
regulatory asset, which amounted to approximately $4.7 million at December 31,
1995, is being addressed in SJG's current base rate case proceeding and it is
expected that the recovery will be included in base rates (See Note 13). Net
postretirement benefit cost for 1995, 1994 and 1993 consisted of the following
components:
Thousands of Dollars
1995 1994 1993
------ ------ ------
Service cost - benefits earned during the period $ 878 $ 834 $ 778
Actual return on plan assets (26) - -
Interest cost on accumulated
postretirement benefit obligation 1,320 1,219 1,129
Amortization of transition obligation 796 796 796
------ ------ ------
Subtotal 2,968 2,849 2,703
Other Adjustments (2,690) 662 2,028
------ ------ ------
Net postretirement benefit costs as reported
in the Consolidated Financial Statements $ 278 $3,511 $4,731
====== ======= ======
A majority of the postretirement benefit cost has been capitalized and the
amount of such cost expensed in 1995, 1994 and 1993 was $1.7 million, $0.5
million, and $0.6 million, respectively.
The following table sets forth the life and health care plans' funded status at
December 31, 1995 and 1994.
Actuarial present value of accumulated postretirement benefit obligations:
Thousands of Dollars
1995 1994
-------- --------
Retirees $ (4,606) $ (4,768)
Other active plan participants (15,322) (13,182)
-------- --------
Accumulated postretirement benefit obligation (19,928) (17,950)
Fair value of plan assets 1,433 -
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets (18,495) (17,950)
Unrecognized net gain (56) (615)
Unrecognized transition obligation 13,540 14,336
-------- --------
Subtotal (5,011) (4,229)
Other Adjustments - (2,690)
-------- --------
Postretirement benefit liability recognized
in the consolidated balance sheet $ (5,011) $ (6,919)
======== ========
During 1995, the Company discovered that data underlying its assumption for
health care costs for 1994 and 1993 was inappropriate. The Company recalculated
the net postretirement benefit cost and present value of accumulated
postretirement benefit for the years 1994 and 1993 utilizing assumptions based
on appropriate data. The Company has determined that the impact would not have
materially changed previously
-20-
Notes to Consolidated Financial Statements, Continued
reported net income or retained earnings. Therefore, effects of the above data
revision were recorded in 1995. The above tables have been revised to provide
information based upon the recalculated amounts and are reconciled to amounts
recorded on the books of SJI under the caption "Other Adjustments".
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation as of December 31, 1995 are as follows:
Medical and Drug - 7.7 percent for participants age 65 or older and 10.95
percent for participants under age 65 in 1995, both grading to 5.75 percent in
2008. Dental - 7.97 percent in 1995, grading to 5.75 percent in 2003. If the
health care cost trend rate assumptions were increased by 1 percent, the
accumulated postretirement benefit obligation as of December 31, 1995, would be
increased by $2.7 million. The effect of this change on the sum of the service
cost and interest cost would be an increase of $0.4 million. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation as of December 31, 1995 and 1994, was 7.5 percent.
12. Commitments and Contingencies:
Construction Commitments - The estimated cost of construction and environmental
remediation programs of the Company and its subsidiaries for the year 1996
aggregates $55.9 million and, in connection therewith, certain commitments have
been made.
Gas Supply Contracts - SJG, in the normal course of conducting business, has
entered into long-term contracts for the supply of natural gas, firm
transportation, and long-term firm gas storage service. The earliest expiration
of any of the gas supply contracts is 1998. All of the transportation and
storage service agreements between SJG and its interstate pipeline suppliers are
provided under Federal Energy Regulatory Commission (FERC) approved tariffs.
SJG's cumulative obligation for demand charges paid to its suppliers for all of
these services is approximately $4.9 million per month which is recovered on a
current basis through the LGAC.
Levelized Gas Adjustment Clause filed August 31, 1994 - The Company's LGAC
filing for 1994-1995 remains open. The parties for this proceeding continue to
question the Company's gas purchasing practices (See Note 2). The Company
believes that such practices were proper and that it will prevail in this
proceeding.
Pending Litigation - The Company is subject to claims which arise in the
ordinary course of its business and other legal proceedings. Included
therewith, a group of Atlantic City casinos filed a petition with the BPU on
January 16, 1996 alleging overcharges of over $10 million including interest.
Management believes that the ultimate liability with respect to these actions,
including the situation set forth above, will not materially affect the
financial position or results of operations of the Company.
Environmental Remediation Costs - The Company has incurred and recorded certain
costs for environmental remediation of sites where SJG or predecessor companies
operated gas manufacturing plants or a nonutility subsidiary previously operated
a fuel oil business. Manufactured gas operations were terminated at all SJG
sites more than 30 years ago.
Since the early 1980s, the Company has recorded environmental remediation
costs of $48.4 million, of which $23.6 million has been expended as of December
31, 1995. Management's estimate of the remaining liability of approximately
$24.8 million is reflected on the consolidated balance sheet under the captions
"Current Liabilities" and "Deferred Credits and Other Non-Current Liabilities".
Such amounts have not been adjusted for future insurance recoveries, which
management is pursuing. Insurance recoveries amounting to $2.7 million and $1.5
million were received in 1995 and 1994, respectively. These proceeds were first
used to offset legal fees incurred in connection with such recoveries and the
excess was used to reduce the balance of deferred environmental remediation
costs. Recorded amounts include estimated costs to be incurred over the next
three years based on projected investigation and remediation work plans using
existing technologies. Estimates beyond this time cannot be made on a reliable
basis due to changing technology, government regulations and site specific
requirements and, therefore, have not been recorded. The total costs to be
incurred after this 3-year period may be substantial.
The major portion of the recorded environmental remediation costs relate to the
remediation of former gas manufacturing sites of SJG, which has recorded and
expended amounts of $47.3 million and $22.9 million, respectively, through
December 31, 1995. SJG has established a regulatory asset for these costs and is
recovering its costs as expended over 7-year amortization periods, as authorized
by the BPU. SJG has recovered $6.9 million through rates as of December 31,
1995.
13. Subsequent Events:
On January 16, 1996, SJG petitioned the BPU for a general base rate increase of
approximately $26.5 million based on a proposed rate of return of 10.4 percent,
including a 13.0 percent return on equity. As part of this petition, SJG is
seeking recovery of its increased expenditures for construction and the
additional cost of providing postretirement benefits other than pensions. SJG is
also seeking to modify the existing sharing formula for pre-tax interruptible
and off-system margins.
On January 31, 1996, SJG redeemed $1,998,000 of the 8 1/4% Series due 1996,
without premium, and $3,260,000 of the 8 1/4% Series due 1998, with a premium of
$22,168.
Management's Responsibilities for Financial Statements
The management of South Jersey Industries, Inc. is responsible for the integrity
and objectivity of the financial statements and related disclosures of the
Company. These statements and disclosures have been prepared using management's
best judgment and are in conformity with generally accepted accounting
principles.
The Board of Directors, acting through its Audit Committee, which is composed of
outside directors, oversees management's responsibilities for accounting,
internal control and financial reporting. The Audit Committee meets periodically
with management and the internal and independent auditors to discuss auditing
and financial matters, and to assure that each is carrying out its
responsibilities. The internal auditors and independent auditors have access to
the members of the Audit Committee at any time.
-21-
Quarterly Financial Data
The summarized quarterly results of operations of the Company, in thousands except for per share
amounts, for 1995 and 1994 are presented below:
1995 Quarter Ended 1994 Quarter Ended
------------------------------------------ ------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
--------- --------- --------- --------- --------- --------- --------- ---------
Operating Revenues $110,456 $ 68,849 $ 60,326 $114,177 $138,943 $ 67,345 $ 68,060 $ 99,611
--------- --------- --------- --------- --------- --------- --------- ---------
Operating Expenses:
Operation and Maintenance
Including Fixed Charges 76,329 63,551 60,962 92,210 107,894 61,051 66,437 82,192
Federal Income Taxes 7,234 (246) (1,566) 3,952 5,372 125 (1,067) 2,379
Gross Receipts & Franchise
and Other Taxes 13,676 5,703 3,779 10,581 15,914 5,670 4,268 9,070
Customer Refund Obligation - Net - - - - - - - 2,275
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Applicable
to Common Stock $ 13,217 $ (159) $ (2,849) $ 7,434 $ 9,763 $ 499 $ (1,578) $ 3,695
========= ========= ========= ========= ========= ========= ========= =========
Earnings (Loss) Per Common
Share (Based on Average
Shares Outstanding)(1)(2) $ 1.23 $ (0.01) $ (0.27) $ 0.69 $ 0.99 $ 0.05 $ (0.15) $ 0.34
========= ========= ========= ========= ========= ========= ========= =========
Average Shares Outstanding 10,718 10,719 10,720 10,722 9,887 9,974 10,456 10,715
<FN>
(1) The sum of the quarters for 1995 does not equal the total due to rounding.
(2) The sum of the quarters for 1994 does not equal the total due to the dilution resulting from
the number of shares issued during the year.
NOTE: Because of the seasonal nature of the business, statements for the three-month periods are not
indicative of the results for a full year.
</FN>
Market Price of Common Stock and Related Information
Market Price Market Price
Quarter Ended Per Share Dividends Quarter Ended Per Share Dividends
------------- ------------------ Declared ------------- ------------------ Declared
1995 High Low Per Share 1994 High Low Per Share
------------- -------- -------- --------- ------------- -------- -------- ---------
March 31 20 1/8 17 7/8 $0.36 March 31 24 21 1/4 $0.36
June 30 21 1/8 19 3/8 $0.36 June 30 22 1/8 17 3/4 $0.36
Sept. 30 21 3/8 18 3/4 $0.36 Sept. 30 19 1/4 16 5/8 $0.36
Dec. 31 23 1/2 19 7/8 $0.36 Dec. 31 18 1/8 16 5/8 $0.36
<FN>
These quotations are based on the list of composite transactions of the New York Stock Exchange. The Company's
stock is traded on the New York and Philadelphia stock exchanges and the ticker symbol is SJI. The Company
has declared and expects to continue to declare regular quarterly cash dividends. As of December 11, 1995,
the latest available date, the stock records indicate that there were 12,936 shareholders.
</FN>
-22-
South Jersey Industries, Inc. and Subsidiaries Comparative Operating Statistics
1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- ---------
South Jersey Gas Company
Operating Revenues (Thousands):
Firm
Residential $151,720 $151,857 $142,409 $131,749 $117,904 $112,362
Commercial 58,135 61,848 57,392 56,774 51,833 51,102
Industrial 6,014 8,349 13,609 16,195 11,474 15,148
Cogeneration & Electric Generation 15,725 19,301 23,726 24,110 12,899 2,213
Firm Transportation 13,930 18,092 13,746 11,120 10,252 8,578
--------- --------- --------- --------- --------- ---------
Total Firm 245,524 259,447 250,882 239,948 204,362 189,403
Interruptible 6,786 6,610 11,299 8,283 9,425 14,375
Interruptible Transportation 2,778 2,985 2,412 2,837 2,891 2,896
Off-System 23,734 38,163 8,788 - - -
Other 3,897 4,254 4,200 4,190 3,618 3,862
--------- --------- -------- -------- -------- --------
Total Operating Revenues $282,719 $311,459 $277,581 $255,258 $220,296 $210,536
========= ========= ========= ========= ========= =========
Gas Sales & Transportation (MMcf):
Firm
Residential 19,573 19,543 19,368 18,748 16,442 15,439
Commercial 8,945 9,276 9,182 9,686 8,812 8,514
Industrial 1,016 1,364 2,599 3,341 2,412 2,911
Cogeneration & Electric Generation 4,860 5,384 6,741 8,629 4,593 693
Firm Transportation 14,417 14,401 10,194 8,739 6,858 4,965
--------- --------- --------- --------- --------- ---------
Total Firm Sales 48,811 49,968 48,084 49,143 39,117 32,522
--------- --------- --------- --------- --------- ---------
Interruptible 1,843 1,810 3,105 2,333 2,613 4,158
Interruptible Transportation 5,888 5,424 4,328 5,455 5,519 5,429
Off-System 9,590 16,840 3,563 - - -
--------- --------- --------- --------- --------- ---------
Total Gas Sales & Transportation 66,132 74,042 59,080 56,931 47,249 42,109
========= ========= ========= ========= ========= =========
Number of Customers at Year End:
Residential 230,446 224,394 218,484 212,939 207,366 201,962
Commercial 17,179 16,615 16,206 15,849 15,629 15,275
Industrial 397 397 377 394 393 399
--------- --------- --------- --------- --------- ---------
Total Customers 248,022 241,406 235,067 229,182 223,388 217,636
========= ========= ========= ========= ========= =========
Maximum Daily Sendout (MMcf) 335 370 318 290 277 270
========= ========= ========= ========= ========= =========
Annual Degree Days 4,865 4,820 4,953 4,916 4,195 3,597
========= ========= ========= ========= ========= =========
Normal Degree Days * 4,559 4,453 4,445 4,409 4,557 4,559
========= ========= ========= ========= ========= =========
The Morie Company, Inc.
Operating Revenues (Thousands):
New Jersey $ 19,110 $ 17,980 $ 16,298 $ 15,115 $ 16,621 $ 18,272
Other 13,139 12,971 12,302 12,528 10,856 10,693
--------- --------- --------- --------- --------- ---------
Total Operating Revenues $ 32,249 $ 30,951 $ 28,600 $ 27,643 $ 27,477 $ 28,965
========= ========= ========= ========= ========= =========
Sand & Gravel Sales (Thousands of Tons):
New Jersey 1,653 1,847 1,634 1,359 1,749 1,942
Other 1,012 1,027 914 969 850 880
--------- --------- --------- --------- --------- ---------
Total Sales 2,665 2,874 2,548 2,328 2,599 2,822
========= ========= ========= ========= ========= =========
<FN>
* Average degree days recorded in SJG service territory during 5-year period ended June 30 of prior year.
</FN>
-23-
South Jersey Industries, Inc.
Board of Directors
Frank L. Bradley, Jr.
Director since 1986, Age 71 1, 2
Retired; former Chairman of the Board, President and CEO of Stone & Webster
Management Consultants, Inc., New York, N.Y.
Anthony G. Dickson
Director since 1995, Age 47 3, 4
President, New Jersey Manufacturers Insurance Company and New Jersey Re-
Insurance Company, West Trenton, N.J.
Richard L. Dunham
Director since 1984, Age 66 1, 2*
Retired; former Chairman of Zinder Companies, Inc., an economic and regulatory
consulting firm, Washington, D.C.
W. Cary Edwards
Director from April 1990 to January 1993 and September 1993 to present, Age 51
2, 3
Partner, law firm of Edwards, Caldwell and Poff, Fairlawn, N.J.
Thomas L. Glenn, Jr.
Director since 1986, Age 61 1, 3*
Chairman, Glenn Insurance, Inc., Absecon, N.J.
Vincent E. Hoyer
Director since 1990, Age 71 2, 4
Consultant; formerly President (now retired) of New Jersey Manufacturers
Insurance Company, West Trenton, N.J.
Herman D. James, Ph.D.
Director since 1990, Age 52 3, 4
President, Rowan College of New Jersey, Glassboro, N.J.
Marilyn Ware Lewis
Director since 1990, Age 52 2, 3
Chairman of the Board, American Water Works Company, Inc., Voorhees, N.J.
Clarence D. McCormick
Director since 1979, Age 65 1, 2
Chairman, and CEO of The Farmers and Merchants National Bank of Bridgeton, NJ
and Chairman and President of Southern Jersey Bancorp of Delaware, Bridgeton,
N.J.
Peter M. Mitchell, Ph.D.
Director since 1981, Age 61 1, 2, 4
President, Massachusetts Maritime Academy, Buzzards Bay, Mass.
Jackson Neall
Director since 1990, Age 71 3, 4
Retired; former real estate appraiser and registered builder
Frederick R. Raring
Director since 1995, Age 58 3, 4
President, Seashore Supply Company, Atlantic City, N. J.
William F. Ryan
Director since 1977, Age 61 1*, 4 (Ex Officio)
Chairman, President and Chief Executive Officer of South Jersey Industries, Inc.
and South Jersey Gas Company; Chairman of the Board and Chief Executive Officer
of Energy & Minerals, Inc. and R & T Group, Inc.
Shirli M. Vioni, Ph.D.
Director since 1983, Age 55 3, 4*
Superintendent, Oberlin, Ohio City Schools, Oberlin, Ohio
1 Executive Committee
2 Compensation/Pension Committee
3 Audit Committee
4 Management Development Committee
* Committee Chairperson
South Jersey Industries, Inc.
Officers
William F. Ryan
Chairman, President and Chief Executive Officer
Gerald S. Levitt
Vice President and Chief Financial Officer
George L. Baulig
Secretary and Assistant Treasurer
Richard B. Tonielli
Treasurer
William J. Smethurst, Jr.
Assistant Secretary and Assistant Treasurer
-24-
Back Cover - Inside
SJI Corporate Headquarters
Number One South Jersey Plaza, Route 54
Folsom, NJ 08037-9917
(609) 561-9000
TDD only 1-800-547-9085
Transfer Agent and Registrar
First Union National Bank
Shareholder Services Group
230 South Tryon Street
Charlotte, NC 28288-1153
Dividend, Dividend Reinvestment and Other Shareholder Inquiries
South Jersey Industries, Inc.
Shareholder Records Department
(Address and phone listed above)
Annual Meeting Information
The Annual Meeting of Shareholders will be held on Thursday, April 18, 1996 at
10:00 a.m. at the company's corporate headquarters.
South Jersey Industries, Inc. stock is traded on the New York and Philadelphia
stock exchanges under the trading symbol, SJI.
The information contained herein is not given in connection with any sale or
offer of, or solicitation of an offer to buy, any securities.
Dividend Reinvestment and Stock Purchase Plan
SJI's Dividend Reinvestment and Stock Purchase Plan provides record shareholders
of the company's common stock with a way to increase their investment in the
company without payment of any brokerage commission or service charge.
Shareholders who participate in the Plan may purchase shares of common stock by
the automatic reinvestment of dividends. Optional purchases are permitted each
quarter up to a maximum of $100,000 in any calendar year as prescribed in the
Plan. Shares of common stock offered through the Plan are currently purchased in
the open market. The price of shares purchased under the Plan will be determined
by dividing the total cost of all shares purchased during the investment period
by the number of shares purchased. The offer and sale of shares under the Plan
will be made only through a Prospectus, which may be obtained by contacting the
Shareholder Records Department (address and phone listed above).
This report is printed on recycled paper.
Back Cover - Outside
South Jersey
Industries, Inc.
Number One South Jersey Plaza
Route 54
Folsom
New Jersey 08037