Exhibit 13
Front Cover
Several pictures overlaying each other of various ways to chart a
course.
SJI LOGO
South Jersey Industries, Inc.
1996 Annual Report
Inside Front Cover
Company Profile
South Jersey Industries, Inc. is a holding company with
investments in natural gas distribution and marketing, and
utility construction. 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 sells natural gas to wholesale customers in the
interstate market. South Jersey Energy Company provides
services for the acquisition and transportation of natural
gas for retail end users. The company also markets total
energy management services. Energy & Minerals, Inc. manages
the operations of South Jersey Fuel, Inc., a wholesale
natural gas marketing company. R & T Group, Inc. manages
companies involved in utility construction.
About Our Cover
Just as you would chart a course to reach your destination on
a journey, SJI is charting a steady course to successfully
navigate the rapidly evolving energy marketplace. The collage
on this year's cover depicts the tools needed to plot our
course for success and reach our destination--maximizing
shareholder value. They include vision, time, information,
technology and raw materials.
INSERT: Located on the right side of the page is a map of
New Jersey with South Jersey Gas Company's service
area highlighted.
Title -- South Jersey Gas Company Service Area
* South Jersey Gas Company - Main Office
. SJG Divisions
<> SJG Gas Advantage Stores
1996 HIGHLIGHTS
Five-Year Summary of Selected Financial Data South Jersey Industries, Inc. and Subsidiaries
(In Thousands Where Applicable) Year Ended December 31,
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
Operating Results:
Operating Revenues $355,458 $304,163 $329,722 $293,492 $275,255
========= ========= ========= ========= =========
Operating Income $ 38,559 $ 35,218 $ 27,766 $ 29,170 $ 29,443
========= ========= ========= ========= =========
Income Applicable to Common Stock:
Continuing Operations (1) $ 18,265 $ 14,874 $ 10,209 $ 14,455 $ 14,607
Discontinued Operations - Net (2) 12,233 2,769 2,170 516 520
Cumulative Effect of a Change in Accounting Principle (3) - - - 382 -
--------- --------- --------- --------- ---------
Net Income Applicable to Common Stock $ 30,498 $ 17,643 $ 12,379 $ 15,353 $ 15,127
========= ========= ========= ========= =========
Total Assets $658,381 $604,309 $571,095 $531,778 $471,274
========= ========= ========= ========= =========
Capitalization:
Long-Term Obligations and
Redeemable Preferred Stock $152,050 $171,125 $155,580 $146,889 $121,537
Common Equity 172,731 157,297 154,972 140,526 132,053
--------- --------- --------- --------- ---------
Total Capitalization $324,781 $328,422 $310,552 $287,415 $253,590
========= ========= ========= ========= =========
Ratio of Income from Continuing Operations to
Fixed Charges (Before Federal Income Taxes) 2.40 2.16 2.02 2.48 2.48
========= ========= ========= ========= =========
Earnings Applicable to Common Stock
(Based on Average Shares):
Continuing Operations (1) $ 1.70 $ 1.39 $ 1.00 $ 1.50 $ 1.55
Discontinued Operations - Net (2) 1.14 0.26 0.21 0.05 0.06
Cumulative Effect of a Change in Accounting Principle (3) - - - 0.04 -
--------- --------- --------- --------- ---------
Earnings per Common Share $ 2.84 $ 1.65 $ 1.21 $ 1.59 $ 1.61
========= ========= ========= ========= =========
Return on Average Common Equity (4) 11.07% 9.53% 6.91% 10.61% 11.36%
========= ========= ========= ========= =========
Share Data:
Number of Shareholders 12.1 12.9 14.0 13.1 12.5
Average Common Shares 10,732 10,720 10,258 9,680 9,394
Common Shares Outstanding at Year End 10,757 10,722 10,715 9,805 9,498
Dividend Reinvestment and Stock Purchase Plan:
Number of Shareholders 6.1 6.5 6.6 5.7 5.0
Number of Participating Shares 2,845 2,932 2,941 2,716 2,483
Book Value at Year End $ 16.06 $ 14.67 $ 14.46 $ 14.33 $ 13.90
Cash Dividends Declared $ 1.440 $ 1.440 $ 1.440 $ 1.433 $ 1.412
Market Price at Year End 24 3/8 23 1/8 18 1/8 23 3/4 23
Dividend Payout:
From Continuing Operations 84.6% 103.8% 141.5 94.8% 90.2%
From Total Net Income 50.7% 87.5% 116.7% 89.2% 87.1%
Market Price to Book Value 151.8% 157.6% 125.3% 165.7% 165.5%
Price Earnings Ratio (4) 14.34 16.64 18.13 15.83 14.84
Certain restatements of previously reported amounts were required as a result of discontinued
business segments during the current year.
<FN>
(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 4 to Consolidated
Financial Statements).
(2) Represents discontinued business segments: sand mining and distribution operations which were sold in 1996 and
construction operations which are under a plan of disposal (See Note 2 to Consolidated Financial Statements).
(3) Included in 1993 is the Cumulative Effect of a Change in Accounting Principle for Income Taxes.
(4) Calculated based on Income from Continuing Operations.
</FN>
-1-
To Our Shareholders
South Jersey Industries, Inc. achieved exceptional, record-setting
financial performance in 1996. Earnings from continuing operations
were $18.3 million for 1996, compared with $14.9 million for 1995.
Our consolidated net income reached approximately $30.5 million in
1996, which includes the sale of The Morie Company, Inc. and
discontinued operations. This compares with $17.6 million in 1995.
Earnings per share from continuing operations rose 22 percent to $1.70
in 1996, from $1.39 in 1995. Consolidated earnings per share reached
$2.84 in 1996 from $1.65 in 1995. Per share earnings are based on 10.7
million average shares outstanding.
Our financial results reflect record earnings from South Jersey
Gas Company, our natural gas distribution company, which has focused
on profitable growth and stringent cost control. Higher sales margins
from an expanding customer base, improved earnings from colder weather
and sales in non-traditional markets outside of our franchise area
contributed to a very successful year.
Charting Our Course for Success
In terms of our strategy for the future, SJI is moving in new and
exciting directions, departing somewhat from the course we charted
over the last quarter century. Movement to an open energy marketplace
has created different demands and new targets for profit in our core
energy businesses. To succeed in this new arena, we have engaged in
intense long-range planning which has yielded a modified vision, a
reshaped corporate structure and strategic goals focused on energy
delivery and related services. We are entering into ventures that we
believe are prudent and continue to evaluate the long-term thrust of
deregulation.
We are now aggressively pursuing new opportunities in energy
marketing, distribution, wholesale and retail sales, and total energy
management services. This complements our core objectives to maintain
natural gas' position as the fuel of choice, capitalize on its
inherent assets, increase our market share, and provide reliable and
safe delivery to our customers.
As increased numbers of energy consumers begin to choose their own
natural gas and electric providers, more occasions will exist for Gas
Company to compete in the deregulated environment. During the year,
Gas Company formed a planning and development group to anticipate and
evaluate those opportunities. The knowledge gained through their
efforts is invaluable in keeping us at the forefront of the energy
industry.
We maintain a strong interest in selling the commodity, natural
gas. Gas Company has profited by re-marketing available gas supplies
and pipeline capacity to wholesale customers outside of our
traditional service area. Our non-regulated energy subsidiaries
continue to mature in this area, anticipating each phase of
deregulation to remain ahead of our competition.
In 1996, our energy marketing companies formed important alliances
to offer expanded services and enhance revenue. South Jersey Fuel,
Inc. entered into a joint venture with a subsidiary of Union Pacific
Resources, one of the nation's largest oil and gas exploration and
production companies. Through a newly created limited liability
company, Fuel Company and Union Pacific completed numerous, profitable
transactions by acquiring gas supplies and pipeline capacity
throughout the eastern United States and Canada, and re-packaging the
components in an attractive bundled service to wholesale buyers.
INSERT: Wave Chart located at lower right-hand corner of page 2.
Title - South Jersey Industries, Inc.
Consolidated Net Income Applicable to Common
Shareholders
($ Millions)
Range of Net Income from $15.1 Million to $30.5
million for years 1992 - 1996. Elements of net
income include:
* Cumulative Effect of a Change in Accounting
Principle
** Discontinued Operations
*** Continuing Operations
-2-
Our retail marketing company, South Jersey Energy Company, formed
an alliance with Keyspan Energy Management Systems, a Brooklyn Union
Gas Company subsidiary. They offer energy delivery, management and
services for large retail businesses in the mid-Atlantic Region.
Energy Company's marketing experience combined with Brooklyn Union's
technical expertise provides us access and acceptance as credible
energy advisors and positions us to reduce our customer's commodity
costs, opening the door to expanded business relationships.
INSERT: Photograph of two men in van (located at upper right corner
of page 3) --
Title -- Dale Toney, a Gas Company serviceperson first
class, demonstrates the new Automated Dispatch
System for William F. Ryan, SJI's chairman,
president and CEO.
While our venture into sand mining was very successful,
consolidation in the sand industry gave us an opportunity to sell
Morie for approximately $55.3 million, representing a substantial
premium. We are supplanting Morie's earnings through the return earned
by an investment in Gas Company. This was timed to ensure its
recognition in our rate case settlement. Morie's sale will also enable
us to seek low risk, equity positions in non-regulated energy projects
where the potential for attractive returns exists.
Early in 1996, we streamlined R&T Group, Inc., our general
contracting company, phasing out the environmental and crane leasing
activities. In January 1997, we sold the company's southern
operations and assets. In February 1997, we signed a non-binding
letter of intent to sell nearly all the remaining assets of the
company's operating subsidiaries.
The changing natural gas industry has prompted a reshaping of
SJI's financial policy to help us meet the new challenges. We have
taken definitive steps to improve our financial profile and increase
our attractiveness to existing and potential investors. We are working
hard at improving shareholder value through a higher market price and
a competitive dividend. To accomplish this we will pursue stringent
cost control, incremental revenue in all business segments and
regulatory recognition of our efficiencies and entrepreneurial
efforts. We improved our payout ratio and achieved a capital structure
with lower debt and greater equity. We will continue to evaluate our
dividend policy consistent with today's competitive environment and
our realized earnings. However, we remain confident that our current
dividend level is both sustainable and competitive.
As changes take place in our industry and our companies, our
dedicated employees, much like a ship's crew, will navigate us safely
into each new harbor. During the course of our journey we will
constantly assess the impacts and opportunities of deregulation,
making course corrections as necessary, while keeping sight of our
destination--maximizing value for our shareholders and customers.
In April 1997, Vincent Hoyer, Frank Bradley and Jackson Neall will
retire from our Board of Directors. We have benefitted greatly from
their valuable expertise and wish them a happy, healthy retirement.
William F. Ryan
Chairman
February 19, 1997
-3-
1996 Highlights
South Jersey Gas Company
* Achieved record net income for 1996 of $19.2 million. This was a
22 percent increase over 1995 net income of $15.8 million.
* Added approximately 5,900 customers, bringing total customers to
approximately 254,000 and completed $39.4 million in system
expansion and upgrades. To improve service for existing customers
and provide for Atlantic City's forecasted growth, we completed a
major, $4 million transmission system construction project.
* Formed a Planning and Development Group to study energy-related
issues to take advantage of emerging opportunities resulting from
electric and natural gas industry deregulation.
* Filed a rate case in January 1996. Settlement of this base rate
case in January 1997 allows the company to serve its customers
more effectively in light of increased competition from
deregulation and also address new markets. We estimate the final
value of the settlement to be approximately $10.3 million in
increased revenue. The major components include:
- $6 million base rate relief and an 11.25 percent return on
equity; - A pilot program allowing 10,000 residential
customers to purchase gas from a provider other than Gas
Company;
- Improvement in the sharing formula for off-system sales and
transportation; additional profits will be retained upon
completion of major capital improvement projects during 1997-
98;
- Increasing some existing fees for customer services and
creating others;
- A new transportation rate structure to meet the needs of
large, commercial customers, such as casinos.
* Received approval to return $2.5 million to customers through the
Temperature Adjustment Clause due to extremely cold winter weather
in 1995-96. This partially offsets the impact of the $6 million
rate increase on customers.
* Increased the Levelized Gas Adjustment Clause by approximately $8
million to recover gas costs from customers.
* Increased pre-tax profits from off-system and interruptible sales
and transportation services by $6.4 million, or 73 percent over
1995. As a result, residential and commercial customers will
benefit from lower gas costs, while shareholders will benefit from
increased income.
* Tested new Automated Dispatch System to allow the company to
dispatch crews via a computer network. We will invest $1.3 million
to install ADS company-wide and expect to save roughly $500,000
annually from increased productivity and lower labor costs.
* Completed the strategic planning process resulting in a $2.9
million savings in operating and maintenance expenses. For 1997,
operating and maintenance expense levels per average customer are
projected to be less than in 1996 and 1995.
INSERT: Radar Chart - ranging from 229,182 to 253,874 customers for
the years 1992 - 1996 (located at lower right corner of page
4)
Title -- South Jersey Gas Company
Number of Customers at Year End
(Thousands)
-4-
South Jersey Fuel, Inc.
* Entered into an agreement with Union Pacific Fuels, Inc. in April
1996 to form South Jersey Resources Group, LLC, which markets
natural gas, storage and pipeline capacity to large-volume,
wholesale customers in the Northeast.
* Fuel Company generated $5.7 million in revenues from direct sales
during its first full year operating as a wholesale energy
marketer. South Jersey Resources Group generated approximately
$32.9 million in revenues in 1996.
South Jersey Energy Company
* Formed an alliance with Keyspan Energy Management Systems, a
subsidiary of Brooklyn Union Gas Company, to market new natural
gas-related products and total energy management services to large
commercial and industrial customers. The company expects its first
total energy management project to begin in early 1997.
* Began marketing conversion to natural gas from electricity, as
well as total energy management services, to small commercial
accounts emphasizing long-term agreements.
INSERT: Photograph of plastic pipe
(located at center right of page 5)
Title -- In 1996, Gas Company completed $39.4 million in
major, system expansion and improvement projects
to better serve existing customers and prepare for
future growth.
The Morie Company, Inc.
* Sold to Unimin Corporation of New Canaan, Connecticut for
approximately $55.3 million in December 1996, after receiving
unsolicited inquiries about the company and assessing its value.
Several sand mining companies expressed an interest in acquiring
Morie due to its operating success and extensive sand reserves.
R&T Group, Inc.
* Extended contract for an additional year with South Jersey Gas
Company for utility construction work.
* Streamlined R&T Group and refocused attention on utility
construction in southern New Jersey. Phased out environmental and
crane leasing activities. Sold the company's southern operations
and assets in January 1997. Signed a non-binding letter of intent
in February 1997 to sell nearly all the remaining assets of R & T
Group's operating subsidiaries.
-5-
Charting Our Course for Success
This is an exciting time in our industry, and we are eager to
vigorously accept the challenges facing our companies. We are
enthusiastic and confident in our ability to succeed in the energy
industry of the coming century. Our strategy for success is to focus
on energy delivery and related services and to increase gas volumes
consumed by adding customers, offering new services and promoting
natural gas as "America's Best Energy Value."
South Jersey Gas Company
The rapidly evolving natural gas industry has dramatically
affected acquisition, transportation and delivery systems -- fostering
competition and challenging us to effectively manage new risks.
Utilities must move from traditional regulation and develop new
market-based rate strategies. South Jersey Gas Company is, and has
been, fully engaged in this transition. Our emphasis is on cultivating
new markets to increase earnings and using the inherent strengths of
our utility assets.
Historically, studies identify Gas Company as a low-cost natural
gas provider, both regionally and nationally. We emphasize cost
control as an integral part of our corporate philosophy and culture to
maintain this status as other companies streamline their operations.
Workforce reduction through attrition, early retirement programs,
outsourcing and work simplification through automation help to
strengthen our position. For example, in 1996, in our Cape May
Division, we began testing an automated dispatching system, which was
largely designed by our own personnel. When fully installed, this
system will save an estimated $500,000 annually through improved
productivity and reduced labor costs. We reduced operating and
maintenance expenses, excluding gas costs, by $2.9 million annually
and are constantly seeking additional savings. We project that our
1997 operating and maintenance expense levels per average customer
will be less than in 1996 and 1995. And, we accomplished these savings
without compromising the quality of service we provide to customers or
negatively impacting our highly skilled and valued employees.
Service Area Growth
Atlantic City is engaged in unparalleled development and
expansion, forecasted to exceed $8.0 billion by the turn of the
century. Estimates indicate that the number of casino hotel rooms
will triple; and six additional casinos are planned. The number of
tourists and visitors could double and casino-related jobs will
increase from 47,000 to 70,000. This growth includes a new convention
center, scheduled to open in the spring of 1997, new family oriented
attractions, affordable housing, and major transportation
improvements.
The expansion in Atlantic City, while exciting and significant to
us, represents only part of the development in our market area. We
project 70 percent of our normal growth will occur in 17 different
municipalities. Over the next five years, as the Atlantic City
expansion unfolds, our forecasted growth rate of 2.5 to 3.0 percent
could reach 4.0 to 5.0 percent. Adding customers at double the
national average makes Gas Company one of the fastest growing natural
gas utilities in the country.
-6-
Increased Throughput
In general, Gas Company earns profits by distributing natural gas
through its facilities to our customers--not by selling the commodity.
Therefore, we evaluate every opportunity to extend natural gas service
to residential, commercial and large-volume customers to assure a
favorable relationship of revenues generated and capital invested.
When appropriate, customers and developers contribute to the capital
requirements ensuring an attractive return on our investment. We
formed a Transportation Department to enhance service to our
transportation customers and their marketers. Through efforts such as
these, we achieve greater throughput, profits and improved customer
service.
INSERT: Modified Bar Chart - Earnings Per Common Share from
continuuing Operations and Dividends Declared (Dollars) for
years 1992 -1996. (located at upper left hand corner of page
7)
* Earnings - Range from $1.55 to $1.70
** Dividends - Range from $1.412 to $1.440
Our Off-System Sales Division markets various gas services to
customers outside of our service area when gas supplies and pipeline
capacity are not required to serve our firm customers. In 1996, our
total sales and capacity release volumes in the off-system marketplace
amounted to 34.0 billion cubic feet which generated pre-tax profits of
$11.6 million. Under our existing sharing formula, the combined
profits from off-system and interruptible sales generated pre-tax
profits of $6.9 million for shareholders and $8.1 million as a credit
to gas costs for our customers.
Consistent with a focus on quality service, we reorganized our
marketing function, creating a large account group which concentrates
on attracting and retaining large-volume customers who are among the
most desirable to our competitors. This group focuses on schools,
colleges, government buildings, casinos, acute and ambulatory health
care facilities and other commercial and industrial customers.
INSERT: Photograph of Atlantic City, NJ shore line (located at lower
right hand corner of page 7)
Title -- The renaissance of expansion taking place in
Atlantic City will contribute significantly to Gas
Company's position as one of the fastest growing
natural gas utilities in the nation.
-7-
Rate Case Settlement
To succeed in the competitive marketplace, Gas Company has refined
its tariff to take maximum advantage of deregulation at the federal
and state levels. In our January 1996 base rate filing, we proposed
the development and expansion of alternative revenue sources, the
modification of unbundled services and the initiation of cost-
causation rate strategies, all market-driven approaches.
In January 1997, we settled this rate case when the New Jersey
Board of Public Utilities approved a $6.0 million base rate increase,
with an 11.25 percent return on equity. We estimate the final value of
settlement to be approximately $10.3 million in increased revenues.
We improved the sharing formula for interruptible and off-system
sales and transportation margins to return a greater portion of those
margins to our shareholders. Some existing service fees were increased
and several new service fees were established to ensure that we are
properly reimbursed by the customers who use those services.
Innovative rate design coupled with improvements in the sharing
formula and service fees, enabled us to stabilize the customers' rates
in highly competitive markets.
Residential customers will benefit from deregulation through a new
program which will allow up to 10,000 of them to choose a natural gas
supplier other than Gas Company. Our program ensures the suppliers'
financial integrity and, if necessary, permits those customers to
return to Gas Company as their supplier without service interruption.
While the program will give residential customers new choices, it will
not adversely impact Gas Company's earnings.
We have fine-tuned our unbundling process to provide increased
flexibility for our customers who choose to purchase their gas
supplies from other providers. Regardless of those new or expanded
customer choices, in all markets our bottom line is indifferent to the
customer's choice of the commodity provider.
INSERT: Photograph of Boiler Room (located at center left hand side
of page)
Title -- SJI's non-regulated companies are dedicated to
helping commercial and industrial customers manage
their facilities, including boiler rooms. This is
just one of the specialized services we offer.
-8-
Non-Regulated Energy Companies
To excel over the competition, Gas Company and SJI's non-regulated
energy companies must offer new services related to acquiring and
transporting natural gas from the well-head to the burner tip. Using
our collective expertise to provide these services, we can help our
customers manage their businesses more cost effectively and provide
shareholders with increased profits.
INSERT: Passage on left hand side of page 9 --
To excel over the competition, Gas Company and SJI's non-
regulated energy companies must offer new services related to
acquiring and transporting natural gas from the well-head to
the burner tip.
South Jersey Energy Company
Since 1987, South Jersey Energy Company has assisted commercial
and industrial customers in acquiring and transporting natural gas
supplies. Over the years, Energy Company has expanded these services
throughout the mid-Atlantic region, and recently began offering total
energy management services. To strengthen our position in this market,
we established an alliance with Keyspan Energy Management Systems, a
Brooklyn Union Gas Company subsidiary.
Initially, we are targeting commercial, industrial, government and
other institutional facilities to market these services. Flexible
energy management contracts will meet each customer's specific needs.
For example, we could purchase the heating and cooling plant for new
or existing buildings if the customer requires capital. We may become
an equity partner in the plant, or we could arrange a lease-purchase
agreement on the equipment. We will aggressively pursue long-term
agreements to manage energy facilities, as well as provide natural gas
and electricity at competitive rates. Providing our customers with
outstanding energy services and tangible savings is our goal.
South Jersey Fuel, Inc.
South Jersey Fuel, Inc. operates in the wholesale marketplace,
targeting large users, utilities and marketing companies. We acquire
gas supplies and pipeline capacity from throughout the eastern United
States and Canada, re-package the components, and sell a complete
service.
In April 1996, South Jersey Fuel and Union Pacific Fuels, formed
South Jersey Resources Group, LLC to market natural gas storage,
peaking services and transportation capacity. Since its formation,
South Jersey Resources has successfully marketed its services in the
Northeast. In addition to selling natural gas and pipeline capacity,
we manage significant natural gas storage assets in southern gas-
producing states. Through a combination of storage, Canadian supplies
and pipeline capacity, we secured profitable commitments for services
through the winter of 1996-1997. Our storage rights in the southern
region of the country position us to take advantage of highly
profitable market opportunities as they arise. We will continue to
build our business by combining strategic physical resources and
expertise to offer marketable gas supplies and management services in
our target markets.
-9-
Management's Discussion and Analysis of Results of Operations and
Financial Condition
Overview -- South Jersey Industries, Inc. (SJI) has four wholly
owned subsidiaries, South Jersey Gas Company (SJG); Energy &
Minerals, Inc. (EMI); South Jersey Energy Company (SJE); and R & T
Group, Inc. (R&T). SJG is a natural gas distribution company
serving 253,874 customers at December 31, 1996, compared with
248,022 customers at December 31, 1995. EMI is a holding company
principally engaged in the wholesale marketing of natural gas
through its energy service subsidiary, South Jersey Fuel, Inc.
(SJF). SJE provides services for the acquisition and
transportation of natural gas for retail end users. SJE also
markets total energy management services. The results of
operations of the Company's other nonutility operating companies
are not material to the Company's financial statements taken as a
whole.
As described under Sale of Capital Assets and Income from
Discontinued Operations, the financial statements reflect the sale
of EMI's sand mining and processing subsidiary, The Morie Company,
Inc. (Morie), and the sale and write down of certain assets of
R&T. The accompanying financial statements report the remaining
fixed assets and results of operations under the classification of
discontinued operations (See Note 2).
Seasonal aspects affect reported revenues, inventories,
receivables, operating expenses and cash flows of SJI's
subsidiaries, principally utility operations which are usually
greater during the first and fourth quarters of the year.
Competition -- SJG franchises are non-exclusive, however,
currently no other utility is providing service within its
territory. SJG competes with oil, propane and electricity
suppliers for residential, commercial and industrial users. The
market for natural gas sales is subject to competition as a result
of deregulation. Through its tariff, SJG has promoted competition
while maintaining its margins. Substantially all of SJG's profits
are from the transportation rather than the sale of the commodity.
SJG believes it has been a leader in addressing the changing
marketplace. It maintains its focus on being a low-cost provider
of natural gas and energy services. Also, SJE and SJF have aimed
at increasing their operations in the areas of off-system gas
sales and energy services in a highly competitive marketplace.
Energy Adjustment Clauses -- SJG's tariff includes a Levelized
Gas Adjustment Clause (LGAC), a Temperature Adjustment Clause
(TAC) and a Remediation Adjustment Clause (RAC). These clauses are
designed to permit adjustments for changes in gas supply costs,
reduce the impact of extreme fluctuations in temperatures on SJG
and its customers, and recover costs incurred in the remediation
of former gas manufacturing plants. New Jersey Board of Public
Utilities (BPU) approved LGAC and RAC adjustments do not directly
affect earnings because revenues are adjusted to match costs. TAC
adjustments do affect revenue, income and cash flows since
extremely cold weather can generate credits to customers, while
extremely warm weather during the winter season can result in
additional billings to customers.
Results of Operations:
Operating Revenues - Utility -- In 1996, revenues increased $49.1
million over 1995. Revenues decreased $17.8 million when
comparing 1995 with 1994. In 1996, the revenue increase is
principally due to greater firm sales resulting from weather which
was 6.4 percent colder than 1995 and a net increase of
approximately 5,900 customers. Total sales margin 1 was lower in
1996 principally due to increased revenues from off-system sales
and capacity release programs. While off-system sales decreased
in 1996, those sales had a positive impact due to increased
margins. Utility revenues decreased in 1995 principally due to
lower off-system and firm gas sales, partially offset by the
impact of a rate increase effective December 14, 1994 (See
Regulatory Matters). However, sales margin increased in 1995
principally due to that rate increase and the addition of
approximately 6,600 customers.
INSERT: Footnote 1 - Revenues less cost of gas, gross receipts
and income taxes.
Utility revenue changes also reflect the impact of commodity
prices for purchased gas as implemented through the LGAC. Average
commodity prices were as follows (per Mcf):
1996 1995 1994
----- ----- -----
Twelve month period
ended December 31, $2.93 $1.91 $2.18
===== ===== =====
Operating Revenues - Nonutility -- Revenues increased by
approximately $2.2 million in 1996 compared with 1995 as a result
of higher volume sales by SJF and the effect of increased prices
due to higher commodity costs. Revenues decreased by $7.8 million
for 1995 compared with 1994 principally due to lower energy-
related sales.
Gas Purchased for Resale -- Gas purchased for resale increased
$41.4 million in 1996 compared with 1995 and decreased by $30.6
million in 1995 compared with 1994. Sources of gas supply include
both contract and open-market purchases. The principal causes are
based on price and volume changes as described under Operating
Revenues - Utility. SJG is responsible for securing and
maintaining its own gas supplies to serve its customers.
SJG has entered into long-term contracts for natural gas
supplies, firm transportation, and 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. SJG's cumulative
obligation for demand charges for all of these services is
approximately $5.3 million per month which is recovered on a
current basis through its LGAC.
Operation and Maintenance - Utility -- A summary of net changes
for the years ended December 31, 1996 and 1995, compared with the
year preceding is as follows (in thousands):
1996 vs. 1995 1995 vs. 1994
------------- -------------
Other Production Expense $ 171 $ (2)
Transmission 83 (32)
Distribution 474 15
Customer Accounts and Services 186 573
Sales (32) (36)
Administration and General (994) 2,930
Other (243) 98
------ ------
$(355) $3,546
====== ======
Distribution costs increased in 1996 principally due to
greater distribution main markout and leak survey activities. The
1996 reduction in administrative and general costs was principally
due to decreased data processing, employee welfare and regulatory
costs. Increased administrative and general expense for 1995 was
principally due to higher labor, employee welfare and regulatory
costs. The increase in employee welfare costs was principally
related to the recording of approximately $1.2 million of
additional post-retirement benefit costs other than pension.
However, this cost is offset by revenues as provided in SJG's 1994
rate increase (See Regulatory Matters and Note 9).
Other Operating Expenses -- A summary of principal changes in
other consolidated expenses for the years ended December 31, 1996
and 1995, compared with the preceding year is as follows (in
thousands):
1996 vs. 1995 1995 vs. 1994
------------- -------------
Operation and Maintenance -
Nonutility $2,312 $(7,702)
Depreciation 1,016 1,001
Federal Income Taxes 1,402 2,128
Gross Receipts & Franchise
and Other Taxes 2,229 (1,338)
Nonutility expense increased in 1996 due to higher volumes
sold and increased product costs. The decrease in 1995 was due to
lower commodity sales.
-10-
Depreciation is higher in 1996 and 1995 principally due to
increased investment in property, plant and equipment by SJG.
Federal Income Tax changes reflect the impact of changes in
pre-tax income from continuing operations.
The changes in Gross Receipts & Franchise Taxes in 1996 and
1995 are due to changes in volumes of gas sold, which are subject
to those taxes.
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. Customers received this refund
through the 1994-1995 LGAC (See Note 4).
Interest and Other Charges -- Interest charges decreased slightly
in 1996 compared with 1995. The decrease is principally due to
lower levels of long-term debt outstanding and LGAC
overcollections, partially offset by the effects of higher levels
of short-term debt outstanding. Interest charges increased by
$5.1 million in 1995 compared with 1994, principally due to
increased levels of long-term debt, higher interest rates and
levels of LGAC overcollections.
Sale of Capital Assets and Income from Discontinued Operations --
In 1996, EMI sold Morie's common stock for approximately $55.3
million. The underlying book value was approximately $27.9 million
and the net gain on the transaction amounted to $15.0 million,
after deducting income taxes of $11.3 million and selling costs of
$1.1 million (See Note 2). A portion of the sale proceeds was used
to redeem subsidiary debt, including $9.0 million of 9.66% Senior
Notes and a bank note of approximately $2.0 million. Also, the
assets of certain R&T subsidiaries were sold in January 1996 and
January 1997 for approximately $1.5 million. The net book value of
the assets sold amounted to approximately $1.9 million. In
connection with a plan to discontinue or sell the R&T companies,
R&T's recorded value was reduced in 1996 to reflect the net
realizable value (net of income taxes). The profit or loss and
the write down to net realizable value, net of inventories, are
included under the caption Net Gain on the Disposal of
Discontinued Operations (See Note 2).
The 1996 decrease in income from discontinued operations is
principally due to recording a liability for anticipated
environmental remediation expenses, insurance claims and
termination costs.
Net Income Applicable to Common Stock -- Net income (in thousands)
and earnings per common share reflect the following changes:
1996 vs. 1995 1995 vs. 1994
------------- -------------
Income from Continuing
Operations $ 3,391 $4,665
Net Gain on Disposal of
Discontinued Operations 12,640 -
(Loss) Income from
Discontinued Operations (3,176) 599
------- -------
Net Income Increase $12,855 $5,264
======= =======
Earnings per Common Share
Continuing Operations $0.31 $0.39
Discontinued Operations 0.88 0.05
------- -------
Earnings per Share Increase $1.19 $0.44
======= =======
The details affecting the increase in net income and earnings
per share are discussed under the appropriate captions above.
Liquidity -- The seasonal nature of gas operations, the timing of
construction and remediation expenditures and related permanent
financing, as well as mandated tax and sinking fund payment dates
require large short-term cash requirements. These are generally
met by cash from operations and short-term lines of credit. The
Company maintains short-term lines of credit with a number of
banks, aggregating $152.0 million at December 31, 1996. The
credit lines are uncommitted and unsecured with interest rates
below the prime rate.
Changes in cash flows are principally due to the following.
The net increase in Cash and Cash Equivalents in 1996 is
principally due to the sale of capital assets, partially offset by
repayment of nonutility debt. The write down of recorded assets to
net realizable value did not impact cash flows.
Depreciation, Depletion and Amortization are non-cash charges
to income and do not impact cash flow. Increases in depreciation
cost reflect the effect of additions to fixed assets.
Increases in Revenues and Fuel Costs Deferred - Net reflect
the impact of overcollection of fuel costs or the recovery of
previously deferred fuel costs. Decreases reflect the impact of
payments or credits to customers for amounts previously
overcollected or the undercollection of fuel costs resulting from
increases in natural gas costs.
Increases in Deferred and Non-Current Federal Income Taxes
and Credits - Net represent the excess of taxes accrued over
amounts paid. Decreases reflect the impact of taxes paid in
excess of amounts accrued. Generally, deferred income taxes
related to deferred fuel costs will be paid in the next year.
Changes in Environmental Remediation Costs - Net represent
the difference between amounts collected under the RAC and through
insurance recoveries, and remediation expenditures.
Changes in Accounts Receivable are generally weather and
price related. Increases generate cash flows when collected in
subsequent periods.
Changes in Inventory reflect the impact of seasonal
requirements, temperature and price changes.
Changes in Gross Receipts & Franchise Taxes reflect the
impact of the excess of taxes paid over taxes accrued. However,
there are significant timing differences in cash flows during the
year since SJG must pay the full year's tax on April 1 of each
year and amortize any prepaid tax over the remainder of the year,
on the basis of gas volumes sold. SJG uses short-term borrowings
to make these tax payments and, accordingly, this results in a
temporary increase in the short-term debt level. The carrying
costs for these timing differences are recognized in base utility
rates.
Changes in Accounts Payable and Other Current Liabilities
reflect the impact of timing differences between the accrual and
payment of costs.
Cash flow from nonutility operations is generally retained in
the nonutility companies with amounts in excess of cash
requirements passed up to the Company either as dividends or as
temporary short-term loans. These activities are not considered
material in relation to the financial statements.
Regulatory Matters -- On December 14, 1994, the BPU granted SJG a
rate increase of $12.1 million based on a 9.51 percent return on
rate base, which included an 11.5 percent return on equity. Nearly
the entire increase came from the residential, commercial and
small industrial customer classes. In addition, SJG was allowed to
retain the first $4.0 million of combined pre-tax interruptible
and off-system margins and 20 percent of margins above that level.
On January 27, 1997, the BPU granted SJG a rate increase of
$6.0 million based on a rate of return of 9.62 percent including
an 11.25 percent return on equity (See Note 14). As part of this
rate increase, SJG is allowed to retain the first $5.0 million of
combined pre-tax margins generated by interruptible and off-system
sales and 20 percent of pre-tax margins generated by sales above
that level. In 1997 and 1998, this $5.0 million threshold will be
increased by the annual revenue requirement associated with
completed major construction projects. These sharing formula
improvements are projected to result in additional rate relief of
approximately $1.4 million in 1997 and $1.8 million beginning in
1998. In 1997, SJG will file to recover additional post-
retirement benefit costs of approximately $1.1 million annually.
This recovery is expected to begin in 1998.
On that same date, the BPU also approved SJG's request for a
$2.5 million revenue reduction through the TAC.
In April 1996, SJG received BPU approval to increase its
rates to recover approximately $8.0 million of increased natural
gas costs through the LGAC.
The adoption of FASB No. 109, "Accounting for Income Taxes"
in 1993 primarily resulted in the creation of a regulatory asset
and a deferred income tax liability. 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. 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
Company has elected to recognize the unfunded transition
obligation over a 20-year period
-11-
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. A December 1994 BPU order
provided for partial recovery of costs associated with FASB No.
106 and prescribes continued deferral of unrecovered costs. SJG
was initially seeking recovery of this asset in its current rate
proceedings; however, the BPU initiated a generic proceeding to
address the recovery of these costs by all utilities in the State
(See Note 9). Also, beginning in 1995, an external trust was
established for the purpose of contributing costs recovered from
ratepayers resulting from a settlement with the BPU.
Contributions to the trust amounted to $2.1 million in both 1996
and 1995. The balance of the regulatory asset amounted to $5.2
million at December 31, 1996.
The Company has incurred and recorded certain costs for
environmental remediation of sites where SJG or predecessor
companies operated gas manufacturing plants. Manufactured gas
operations were terminated at all SJG sites more than 30 years
ago. Certain of SJI's nonutility subsidiaries have also recorded
costs for environmental remediation of sites where SJF previously
operated a fuel oil business and Morie maintained equipment
fueling stations and storage.
Since the early 1980s, the Company has recorded environmental
remediation costs of $73.6 million, of which $29.9 million has
been expended as of December 31, 1996. The Company, with the
assistance of an outside consulting firm, estimates that total
future expenditures to remediate SJG's sites will range from $41.7
million to $150.2 million. The lower end of this range has been
recorded as a liability and is reflected on the consolidated
balance sheet under the captions Current Liabilities and Deferred
Credits and Other Non-Current Liabilities. Recorded environmental
remediation costs of SJG do not directly affect earnings because
those costs are deferred and, when expended, recovered through
rates over 7-year amortization periods. Amounts accrued for
future expenditures have not been adjusted for future insurance
recoveries, which management is pursuing. SJG has received $4.2
million of insurance recoveries as of December 31, 1996. These
proceeds were first used to offset legal fees incurred in
connection with those recoveries and the excess was used to reduce
the balance of deferred environmental remediation costs. Recorded
amounts include estimated costs to be incurred based on projected
investigation and remediation work plans using existing
technologies. Actual expenditures could differ from the estimates
due to the long-term nature of the projects and changing
technology, government regulations and site specific requirements.
The major portion of the recorded environmental remediation
costs relate to the remediation of SJG's former gas manufacturing
sites. SJG has recorded $70.8 million for the remediation of
these sites, of which $29.1 million has been expended through
December 31, 1996. SJG has established a regulatory asset for
these costs and is recovering amounts expended over 7-year
amortization periods, as authorized by the BPU. As of December
31, 1996, SJG has unamortized remediation expenditures of $15.6
million which are reflected on the consolidated balance sheet
under the caption Deferred Debits. Since BPU approval of the RAC
mechanism in August 1992, SJG has recovered $9.3 million through
rates as of December 31, 1996.
With Morie's sale, EMI assumed responsibility for
environmental liabilities which are estimated to range between
$2.0 million and $4.0 million. The information available on these
sites was sufficient only to establish a range of probable
liability and no point within the range is more likely than any
other, therefore, EMI accrued the lower end of the range (See Note
13).
The Company is subject to claims which arise in the ordinary
course of its business and other legal proceedings. A group of
Atlantic City casinos filed a petition with the BPU on January 16,
1996, alleging overcharges of over $10.0 million, including
interest. Management believes that the ultimate liability with
respect to these actions will not materially affect the Company's
financial position or results of operations.
Capital Resources -- The Company has a continuing need for cash
resources and capital, primarily to invest in new and replacement
facilities and equipment for the remediation of former coal gas
manufacturing sites for its utility subsidiary. Total
construction and remediation expenditures for 1997 are estimated
at $59.6 million. 1998 and 1999 costs are estimated at
approximately $65.7 million and $59.7 million, respectively. These
investments are expected to be funded from several sources, which
may include cash generated by operations, temporary use of short-
term debt, sale of first mortgage bonds, sale of common stock,
sale of preferred stock and capital leases. The Company's
specific financing plans for 1997 include equity investment of
approximately $25.6 million in SJG.
In January 1996, SJG redeemed a total of $5,258,000 of its 8
1/4% Series First Mortgage Bonds maturing in 1996 and 1998. In
April 1996, SJG redeemed the remaining balance of its 9.2% Series
First Mortgage Bonds due 1998, amounting to $2,667,000. In January
1995, SJG issued $30.0 million of 8.6% Debenture Notes maturing
February 1, 2010.
A shareholder rights plan is in effect beginning September
20, 1996, extending through September 20, 2006 (See Note 8).
Inflation -- The impact of inflation on nonutility operations
tends to follow the movement of general price changes. 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, 1996 and
1995, 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, 1996.
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, 1996
and 1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 19, 1997
-12-
Statements of Consolidated Income South Jersey Industries, Inc. and Subsidiaries
(In Thousands Except for Per Share Data) Year Ended December 31,
1996 1995 1994
--------- --------- ---------
Operating Revenues:
Utility (Notes 1 & 4) $329,295 $280,233 $298,030
Nonutility 26,163 23,930 31,692
--------- --------- ---------
Total Operating Revenues 355,458 304,163 329,722
--------- --------- ---------
Operating Expenses:
Gas Purchased for Resale 185,138 143,788 174,434
Operation and Maintenance - Utility 46,023 46,378 42,832
Nonutility 26,779 24,467 32,169
Depreciation (Note 1) 14,864 13,848 12,847
Federal Income Taxes (Notes 1 & 5) 10,155 8,753 6,625
Gross Receipts & Franchise Taxes and Other Taxes (Note 7) 33,940 31,711 33,049
--------- --------- ---------
Total Operating Expenses 316,899 268,945 301,956
--------- --------- ---------
Operating Income 38,559 35,218 27,766
--------- --------- ---------
Interest and Other Charges:
Long-Term Debt 14,117 15,022 12,003
Short-Term Debt 5,533 3,489 2,817
Other (Note 6) 644 1,833 462
--------- --------- ---------
Total Interest and Other Charges 20,294 20,344 15,282
--------- --------- ---------
Customer Refund Obligation - Net (Notes 4 & 5) - - 2,275
--------- --------- ---------
Income from Continuing Operations 18,265 14,874 10,209
Discontinued Operations (Note 2):
(Loss)Income from Discontinued Operations - Net (407) 2,769 2,170
Net Gain on the Disposal of Discontinued Operations 12,640 - -
--------- --------- ---------
Net Income Applicable to Common Stock $ 30,498 $ 17,643 $ 12,379
========= ========= =========
Average Shares of Common Stock Outstanding (Note 8) 10,732 10,720 10,258
========= ========= =========
Earnings Per Common Share: (Notes 2 & 8)
Continuing Operations $ 1.70 $ 1.39 $ 1.00
Discontinued Operations - Net 1.14 0.26 0.21
--------- --------- ---------
Earnings Per Common Share $ 2.84 $ 1.65 $ 1.21
========= ========= =========
Cash Dividends Declared Per Common Share $ 1.44 $ 1.44 $ 1.44
========= ========= =========
Statements of Consolidated Retained Earnings (In Thousands) Year Ended December 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
Balance at Beginning of Year $ 33,705 $ 31,497 $ 33,889
Net Income Applicable to Common Stock 30,498 17,643 12,379
Cash Dividends Declared - Common Stock (15,460) (15,435) (14,771)
--------- --------- ---------
Balance at End of Year (Note 12) $ 48,743 $ 33,705 $ 31,497
========= ========= =========
<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,
1996 1995 1994
--------- --------- ---------
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 30,498 $ 17,643 $ 12,379
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation, Depletion and Amortization 21,462 20,722 19,142
Provision for Losses on Accounts Receivable 2,143 1,265 1,293
Revenues and Fuel Costs Deferred - Net (7,719) (5,523) 18,183
Deferred and Non-Current Federal Income Taxes
and Credits - Net 9,723 4,326 (928)
Net Pre-Tax Gain on the Disposal of Discontinued Operations (22,620) - -
Environmental Remediation Costs - Net (1,771) 1,544 1,029
Changes in:
Accounts Receivable 2,069 (16,676) (2,167)
Inventories (8,366) 2,297 (6,093)
Prepayments and Other Current Assets 884 (483) 200
Prepaid Gross Receipts & Franchise Taxes - Net 2,047 (3,845) (13,276)
Accounts Payable and Other Accrued Liabilities 16,904 8,451 9,859
Other - Net (3,367) 5,073 (1,846)
--------- --------- ---------
Net Cash Provided by Operating Activities 41,887 34,794 37,775
--------- --------- ---------
Cash Flows from Investing Activities:
Investment in Affiliate (1,000) - -
Loan to Affiliate (2,800) - -
Proceeds from the Sale of Assets - Net 56,056 - -
Proceeds from the Sale of Available-for-Sale Securities 795 - 128
Capital Expenditures, Cost of Removal and Salvage (43,218) (44,607) (41,750)
--------- --------- ---------
Net Cash Provided by (Used in) Investing Activities 9,833 (44,607) (41,622)
--------- --------- ---------
Cash Flows from Financing Activities:
Net Borrowings from (Repayments of) Lines of Credit 32,000 (3,900) (2,550)
Principal Repayments of Long-Term Debt (27,235) (9,500) (8,307)
Dividends on Common Stock (15,460) (15,435) (14,771)
Repurchase of Preferred Stock (90) (90) (90)
Proceeds from Sale of Long-Term Debt - 30,000 17,000
Proceeds from Sale of Common Stock 383 117 16,838
--------- --------- ---------
Net Cash (Used In) Provided by Financing Activities (10,402) 1,192 8,120
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 41,318 (8,621) 4,273
Cash and Cash Equivalents at Beginning of Year 5,587 14,208 9,935
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 46,905 $ 5,587 $ 14,208
========= ========= =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest (Net of Amounts Applicable to LGAC
Overcollections and Amounts Capitalized) $ 21,879 $ 18,409 $ 16,941
Income Taxes (Net of Refunds) $ 2,626 $ 6,907 $ 4,660
<FN>
Supplemental Disclosures of Non-cash Investing and Financing Activities:
* During 1996, 1995, and 1994, capital lease obligations of $321, $212 and $1,313, respectively, were incurred by
R & T Group, Inc. in connection with its Master Lease Agreement for various items of construction equipment.
* Note 13 contains additional information relating to environmental remediation costs.
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,
1996 1995
---------- ----------
Assets
Property, Plant and Equipment: (Note 1)
Utility Plant, at original cost $ 577,304 $ 540,649
Accumulated Depreciation (157,682) (145,954)
Gas Plant Acquisition Adjustment - Net 2,000 2,075
Nonutility Property and Equipment, at cost 3,342 60,665
Accumulated Depreciation and Depletion (1,060) (34,736)
---------- ----------
Property, Plant and Equipment - Net 423,904 422,699
---------- ----------
Investment in Affiliate (Note 2) 1,286 -
---------- ----------
Current Assets:
Cash and Cash Equivalents (Notes 1 & 11) 46,905 5,587
Notes Receivable - Affiliate 2,800 -
Accounts Receivable 38,714 44,909
Unbilled Revenues (Note 1) 17,855 20,860
Provision for Uncollectibles (1,425) (982)
Natural Gas in Storage, average cost 22,638 14,763
Materials and Supplies, average cost 4,114 12,017
Assets of Discontinued Businesses Held for Disposal 4,966 -
Prepaid Gross Receipts & Franchise Taxes 1,602 3,649
Prepayments and Other Current Assets 1,773 3,884
---------- ----------
Total Current Assets 139,942 104,687
---------- ----------
Accounts Receivable - Merchandise 1,999 2,305
---------- ----------
Deferred Debits: (Note 1)
Environmental Remediation Costs: (Note 13)
Expended - Net 15,566 11,773
Liability for Future Expenditures 41,700 24,823
Gross Receipts & Franchise Taxes (Note 7) 4,468 4,868
Income Taxes - Flowthrough Depreciation (Notes 1 & 5) 14,977 15,955
Deferred Postretirement Benefit Costs (Notes 4 & 14) 5,153 4,726
Other 9,386 12,473
---------- ----------
Total Deferred Debits 91,250 74,618
---------- ----------
Total Assets $ 658,381 $ 604,309
========== ==========
Capitalization and Liabilities
Capitalization: (see Schedule)
Common Equity (Notes 8 & 12) $ 172,731 $ 157,297
Redeemable Cumulative Preferred Stock (Note 6) 2,314 2,404
Long-Term Debt 149,736 168,721
---------- ----------
Total Capitalization 324,781 328,422
---------- ----------
Current Liabilities:
Notes Payable (Note 11) 108,300 76,300
Current Maturities of Long-Term Debt 6,603 14,532
Accounts Payable 50,301 44,472
Customer Deposits 6,050 5,707
Environmental Remediation Costs (Note 13) 9,377 7,032
Federal Income Taxes Accrued 4,417 299
Interest Accrued and Other Current Liabilities 13,693 11,134
---------- ----------
Total Current Liabilities 198,741 159,476
---------- ----------
Deferred Credits and Other Non-Current Liabilities: (Note 1)
Deferred Income Taxes - Net (Note 5) 75,821 68,353
Investment Tax Credits 6,025 6,417
Deferred Revenues (Note 4) - 7,315
Pension and Other Postretirement Benefits (Note 9) 10,218 9,293
Environmental Remediation Costs (Note 13) 34,353 17,798
Other 8,442 7,235
---------- ----------
Total Deferred Credits and Other Non-Current Liabilities 134,859 116,411
---------- ----------
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities $ 658,381 $ 604,309
========== ==========
<FN>
The accompanying schedule and footnotes are an integral part of the financial statements.
</FN>
-15-
Schedule of Consolidated Capitalization South Jersey Industries, Inc. and Subsidiaries
(In Thousands Except for Share Data) December 31,
1996 1995
--------- ---------
Common Equity: (Notes 8 & 12)
Common Stock: Par Value $1.25 per share; Authorized 20,000,000 shares;
Outstanding Shares: 10,756,679 (1996) and 10,722,171 (1995) $ 13,446 $ 13,403
Premium on Common Stock 110,542 110,189
Retained Earnings 48,743 33,705
--------- ---------
Total Common Equity 172,731 157,297
--------- ---------
Redeemable Cumulative Preferred Stock: (Note 6)
South Jersey Gas Company, Par Value $100 per share
Authorized Shares: 48,204 (1996) and 49,104 (1995)
Outstanding Shares: Series A, 4.70% - 3,900 (1996) and 4,800 (1995) 390 480
Series B, 8.00% - 19,242 1,924 1,924
--------- ---------
Total Redeemable Cumulative Preferred Stock 2,314 2,404
--------- ---------
Long-Term Debt: (A)
South Jersey Gas Company:
First Mortgage Bonds (B):
8 1/4% Series due 1996 (C) - 1,998
8 1/4% Series due 1998 (C) - 3,260
9.2% Series due 1998 (D) - 2,667
8.19% Series due 2007 25,000 25,000
10 1/4% Series due 2008 25,000 25,000
9% Series due 2010 30,625 32,813
6.95% Series due 2013 35,000 35,000
Unsecured Notes:
Term Note, 8.47% due 2001 (E) 10,714 12,857
Debenture Notes, 8.6% due 2010 30,000 30,000
Energy & Minerals, Inc.: (F)
Senior Notes, 9.66% due 2000 - 4,375
Note, 7% due 2001 - 2,000
R & T Group, Inc.:
Senior Notes, 9.66% due 2000 (F) - 6,875
Master Lease Agreement - 1,408
--------- ---------
Total Long-Term Debt Outstanding 156,339 183,253
Less Current Maturities 6,603 14,532
--------- ---------
Total Long-Term Debt 149,736 168,721
--------- ---------
Total Capitalization $324,781 $328,422
========= =========
<FN>
(A) The long-term debt maturities and sinking fund requirements for the succeeding five years are as follows:
1997, $6,603,357; 1998, $8,876,357; 1999, $8,876,357; 2000, $8,876,357; and 2001, $11,876,358.
(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 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.
(D) On April 1, 1996, SJG redeemed $2,666,668 of the 9.2% Series due 1998, with a premium of $62,874.
(E) An additional $5,000,000 revolving credit facility is available under the terms of this agreement.
(F) These notes were redeemed using part of the proceeds from the sale of The Morie Company, Inc. (See Note 2).
</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. (SJI or the Company) and all of its subsidiaries.
Certain intercompany transactions, amounting to approximately $7.3 million, $6.9
million and $6.2 million, respectively, in 1996, 1995 and 1994, were not
required to be eliminated. Those amounts were capitalized to utility plant or
environmental remediation costs on the South Jersey Gas Company (SJG) books of
account and are recoverable through the rate-making process (See Note 13). 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. Therefore, actual results could differ from
those estimates.
Regulation - SJG is subject to the rules and regulations of the New Jersey Board
of Public Utilities (BPU) and maintains its accounts in accordance with the
prescribed Uniform System of Accounts of that Board (See Notes 4 & 14).
Utility Revenues - SJG bills most of its customers on a monthly cycle basis,
although certain commercial and 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 included in base rates through the Levelized Gas Adjustment
Clause (LGAC). This collection is made on a forecasted basis 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.
SJG's tariff also includes a Temperature Adjustment Clause (TAC) and a
Remediation Adjustment Clause (RAC). These clauses are designed to reduce the
impact of extreme fluctuations in temperatures on SJG and its customers, and
recover costs incurred in the remediation of former gas manufacturing plants,
respectively. TAC adjustments affect revenue, income and cash flows since
extremely cold weather can generate credits to customers, while extremely warm
weather during the winter season can result in additional billings to customers
(See Note 14). RAC adjustments do not directly affect earnings because costs are
deferred and recovered through rates over 7-year amortization periods (See Note
13).
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". The Company
adopted this statement in 1996. It 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 was
included in discontinued operations. 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 BPU approval. The composite rate per annum for all depreciable
utility property was approximately 2.8 percent in 1996, 1995 and 1994.
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 $2.0 million at December 31, 1996, 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 Income Taxes are provided for all
significant temporary differences between book and taxable income (See Notes 5
& 7).
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. Divestitures and Affiliations:
Divestitures - On December 3, 1996, Energy & Minerals, Inc. (EMI), a subsidiary
of SJI, sold the common stock of The Morie Company, Inc. (Morie), its sand
mining and processing subsidiary, in a cash transaction for approximately $55.3
million. The sale price is subject to customary post-closing adjustments to be
determined after the sale. The net book value of assets sold was approximately
$27.9 million. Cash, certain real estate and other miscellaneous assets, along
with certain liabilities, remaining after the sale were transferred to the books
of EMI (See Note 13). The gain on the sale of $15.0 million, net of applicable
income taxes of $11.3 million and selling costs of $1.1 million, is included in
the consolidated income statement under the caption "Net Gain on the Disposal of
Discontinued Operations".
In December 1996, the Company developed a formal plan to discontinue the
operations of its construction and environmental services operations, R & T
Group, Inc. (R & T) and its five subsidiaries. As a result, the Company
recognized a net loss of $2.4 million, net of applicable income tax credits of
$1.3 million, on the planned disposition of R & T's assets. This loss is
reflected in the consolidated income statement under the caption "Net Gain on
the Disposal of Discontinued Operations".
Summarized operating results of the discontinued operations were:
Thousands of Dollars
1996 1995 1994
-------- -------- --------
Operating Revenues:
Sand Mining $ 30,054 $ 32,249 $ 30,951
Construction 17,081 18,335 14,337
-------- -------- --------
Total Operating Revenues $ 47,135 $ 50,584 $ 45,288
======== ======== ========
(Loss) Income before Income Taxes:
Sand Mining $ 68 $ 3,592 $ 3,443
Construction (1,348) 11 (770)
Income Tax Credits (Expense) 873 (834) (503)
-------- -------- --------
(Loss) Income from Discontinued Operations $ (407) $ 2,769 $ 2,170
======== ======== ========
(Loss) Income per Common Share
from Discontinued Operations $ (0.04) $ 0.26 $ 0.21
======== ======== ========
The 1995 and 1994 results of operations have been restated to reflect the
accounting for these segments as Discontinued Operations.
Affiliations - On April 1, 1996, South Jersey Fuel, Inc. (SJF), a subsidiary of
EMI, and Union Pacific Fuels, Inc. joined efforts in the formation of South
Jersey Resources Group LLC, to provide natural gas storage, peaking services and
transportation capacity for wholesale customers in New Jersey and surrounding
states. SJF holds a 50 percent non-controlling interest in this affiliation and,
accordingly, accounts for the investment under the equity method.
-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
1996 1995 1994
-------- -------- --------
Operating Revenues:
Gas Utility Operations $330,334 $282,719 $311,459
Other Industries 27,237 23,982 31,711
-------- -------- --------
Total 357,571 306,701 343,170
Intersegment Sales (2,113) (2,538) (13,448)
-------- -------- --------
Consolidated Operating Revenues $355,458 $304,163 $329,722
======== ======== ========
Operating Income:
Gas Utility Operations $ 49,476 $ 44,716 $ 35,109
Other Industries 327 556 834
-------- -------- --------
Total 49,803 45,272 35,943
Federal Income Taxes (10,155) (8,753) (6,625)
General Corporate Expense (1,089) (1,301) (1,552)
-------- -------- --------
Total Operating Income $ 38,559 $ 35,218 $ 27,766
======== ======== ========
Depreciation, Depletion and Amortization:
Gas Utility Operations $ 17,540 $ 16,672 $ 14,741
Other Industries 35 40 124
Discontinued Operations 3,887 4,010 4,277
-------- -------- --------
Total $ 21,462 $ 20,722 $ 19,142
======== ======== ========
Property Additions:
Gas Utility Operations $ 39,384 $ 40,078 $ 35,633
Other Industries 6 1 50
Discontinued Operations 2,841 3,628 5,243
-------- -------- --------
Total $ 42,231 $ 43,707 $ 40,926
======== ======== ========
Identifiable Assets:
Gas Utility Operations $599,926 $549,458 $509,828
Other Industries 8,041 5,703 4,621
Discontinued Operations 9,341 52,821 53,677
-------- -------- --------
Total 617,308 607,982 568,126
Corporate Assets 67,018 11,981 13,320
Intersegment Assets (25,945) (15,654) (10,351)
-------- -------- --------
Total Assets $658,381 $604,309 $571,095
======== ======== ========
Gas utility operations consist primarily of natural gas distribution to
residential, commercial and industrial customers. Other industries include the
natural gas acquisition and transportation service companies (See Note 2).
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
equivalents, and land, buildings and equipment held for corporate use.
4. Recent Regulatory Actions:
On December 14, 1994, the BPU granted SJG a rate increase of $12.1 million based
on a 9.51 percent 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 margins above that level. 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
SJG's 1994 rate case and 1993-1994 LGAC. Customers received the $3.5 million
refund through the 1994-1995 LGAC.
On April 10, 1996, SJG received approval from the BPU to increase its rates by
approximately $8.0 million, or 2.9 percent, through its LGAC. The primary reason
for the LGAC increase was higher natural gas costs incurred by the Company
during November and December 1995 due to weather that was colder than normal.
The BPU also approved an agreement among the parties to the case that the
renegotiations of its gas supply agreements were reasonable and that the parties
will not challenge the reasonableness or prudence of the agreements as
originally made or as renegotiated.
On June 20, 1996, SJG received approval from the BPU to recover environmental
remediation costs incurred during the two-year period ended July 31, 1995,
totaling $1.5 million, net of insurance recoveries (See Note 13).
5. Federal Income Taxes:
Income tax expense applicable to operations differs from the tax that would have
resulted by applying the statutory rate to income from operations before Federal
Income Tax for the following reasons:
Thousands of Dollars
1996 1995 1994
------- ------- -------
Tax at Statutory Rate $ 9,947 $ 8,269 $ 6,688
Increase (Decrease) Resulting from:
Amortization of Investment Tax Credits (ITC) (390) (390) (377)
Liberalized Depreciation Under Book
Depreciation on Utility Plant 664 664 264
Other - Net (66) 210 50
------- ------- -------
Federal Income Taxes as reported
on the Statements of
Consolidated Income 10,155 8,753 6,625
------- ------- -------
Tax on Customer Refund Obligation - - (1,225)
Tax Associated with Discontinued Operations 5,887 621 184
------- ------- -------
Net Federal Income Taxes $16,042 $ 9,374 $ 5,584
======= ======= =======
The provision for Federal Income Taxes is comprised of the following:
Thousands of Dollars
1996 1995 1994
------- ------- -------
Current $ (709) $ 4,506 $ 7,876
------- ------- -------
Deferred:
Excess of Tax Depreciation Over
Book Depreciation - Net 4,610 4,059 3,664
Deferred Fuel Costs 3,340 1,380 (5,536)
Environmental Remediation Costs - Net 1,214 (556) (207)
Amortization of Gross Receipts Taxes (140) (136) (136)
Alternative Minimum Tax 2,939 - 972
Other - Net (709) (110) 369
------- ------- -------
Total Deferred 11,254 4,637 (874)
------- ------- -------
ITC (390) (390) (377)
------- ------- -------
Federal Income Taxes as reported
on the Statements of
Consolidated Income 10,155 8,753 6,625
------- ------- -------
Tax on Customer Refund Obligation - - (1,225)
Tax Associated with Discontinued Operations 5,887 621 184
------- ------- -------
Net Federal Income Taxes $16,042 $ 9,374 $ 5,584
======= ======= =======
-18-
Notes to Consolidated Financial Statements, Continued
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. Significant components of
the Company's net deferred tax liability at December 31, 1996 and 1995, are as
follows:
Thousands of Dollars
1996 1995
------- -------
Deferred Tax Liabilities:
Tax Depreciation Over Book Depreciation $60,527 $59,793
Difference Between Book and Tax Basis of Property 5,215 4,756
Deferred Fuel Costs 4,720 1,380
Deferred Regulatory Costs 1,189 1,335
Environmental Remediation Costs 5,332 4,118
Excess Protected 3,550 3,632
Gross Receipts Taxes 1,564 1,704
Other 2,351 1,932
------- -------
Total Deferred Tax Liabilities 84,448 78,650
------- -------
Deferred Tax Assets:
Alternative Minimum Tax 1,102 5,472
ITC Basis Gross Up 3,207 3,409
Other 4,318 1,416
------- -------
Total Deferred Tax Assets 8,627 10,297
------- -------
Net Deferred Tax Liability $75,821 $68,353
======= =======
6. 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,
plus accrued dividends.
The preferred stock dividend requirements of SJG amounting to approximately $0.2
million for the years 1996, 1995 and 1994 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. 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. The Company has registered and reserved for the
issuance of 15,000 shares of Series A Junior Participating Cumulative Preferred
Stock (Series A Stock) in connection with the adoption of the Company's
Shareholder Rights Plan (See Note 8).
7. Deferred Debits and Credits - Federal and Other Taxes:
The primary asset created as a result of adopting FASB No. 109, "Accounting for
Income Taxes", was income taxes - flowthrough depreciation in the amount of
$17.6 million as of January 1, 1993. This amount represented 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. 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 and continued to accrue through 1991 for
Gross Receipts and Franchise Taxes (GRAFT) on current revenues rather than on
the previous basis of prior period revenues. 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, New Jersey adopted
GRAFT legislation accelerating tax payments, the carrying costs on which are
being recovered from ratepayers. The legislation also changed the basis to gas
volumes rather than percentage of revenue.
8. Common Stock:
The Company has 20,000,000 shares of Common Stock authorized of which the
following shares were issued and outstanding:
1996 1995 1994
---------- --------- ---------
Beginning of Year 10,722,171 10,715,211 9,804,576
New Issues During Year:
Dividend Reinvestment and
Stock Purchase Plan - - 899,649
Employees' Stock Ownership Plan 5,945 6,960 7,926
Stock Option & Stock Appreciation
Rights Plan 14,163 - 3,060
Directors' Restricted Stock Plan 14,400 - -
---------- ---------- ----------
End of Year 10,756,679 10,722,171 10,715,211
========== ========== ==========
The average shares of Common Stock outstanding for 1996, 1995, and 1994 were
10,732,397, 10,719,609 and 10,257,848, respectively.
The par value ($1.25 per share) of the stock issued in 1996, 1995 and 1994 has
been credited to common stock and the net excess over par value of approximately
$0.4 million, $0.1 million and $15.7 million, respectively, has been credited to
Premium on Common Stock.
Effective January 1, 1996, the Company adopted FASB No. 123, "Accounting for
Stock-Based Compensation". This statement defines a fair value based method of
accounting for stock-based compensation. However, the Company has elected, as
permitted by the statement, to continue to measure compensation costs using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees". Accordingly, there was no impact
from the adoption of FASB No. 123 on the Company's financial statements. The
Company has determined that the pro forma effect of adoption of the fair value
based method of accounting on net income and earnings per share would be
immaterial for the years ended December 31, 1996, 1995 and 1994.
Stock Option and Stock Appreciation Rights Plan - Under this plan, 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, 2007. At December 31,
1996 and 1995, the Company had 34,990 and 49,540 options outstanding,
respectively, exercisable at prices from $17.16 to $24.69 per share. During 1996
and 1994, 14,550 and 3,060 options were exercised, respectively, at a price of
$17.89 per share. No options were exercised in 1995. No options were granted in
1996, 1995 or 1994. No stock appreciation rights have been issued under the
plan. The stock options outstanding at December 31, 1996, 1995, and 1994, did
not have a material effect on the earnings per share calculations.
Dividend Reinvestment and Stock Purchase Plan (DRP) and Employees' Stock
Ownership Plan (ESOP) - Shares of common stock offered through the DRP are
currently purchased in the open market. Prior to 1995, shares offered pursuant
to the DRP were purchased directly from the Company. All shares offered through
the ESOP are issued directly by the Company. As of December 31, 1996, 399,093
and 40,141 shares of authorized, but unissued, Common Stock were reserved for
future issuance to the DRP and ESOP, respectively.
Directors' Restricted Stock Plan - On September 20, 1996, the Board of Directors
adopted a restricted stock plan. Under this plan, an initial award of 13,800
shares was granted on December 4, 1996, at a market value of $24.00 per share.
The plan also provides for annual awards and, on December 5, 1996, 600
additional shares were granted at a market value of $24.125 per share. Initial
awards will vest over a five-year period, with 20 percent of such awards vesting
per year. Annual awards will vest on the third anniversary of each award. Shares
issued as restricted stock are held by the Company until the attached
restrictions lapse. The market value of the stock on the date granted is
recorded as compensation expense over the applicable vesting period.
Shareholder Rights Plan - On September 20, 1996, the Board of Directors adopted
a shareholder rights plan that provides for the distribution of one right for
each share of common stock outstanding
-19-
Notes to Consolidated Financial Statements, Continued
on October 11, 1996. Each right entitles its holder to purchase 1/1000 of one
share of Series A Stock at an exercise price of $90 (See Note 6).
The rights plan provides that when a person or group acquires 10 percent or more
of the Company's common stock, each of the rights (except for those held by the
10 percent holder) becomes the right upon payment of the exercise price to
receive that number of shares of the Company's common stock, or common stock of
the acquiring company, which have a market value equal to two times the exercise
price.
The rights may be redeemed by the Company for $.001 per right at any time prior
to the time the acquiring person or group reaches the 10 percent threshold. If
the rights are not exercised or redeemed by September 20, 2006, they will
expire.
9. Retirement Benefit Plans:
Pensions - SJI and its subsidiaries have several defined benefit retirement
plans that provide annuity payments to substantially all full-time regular
employees upon retirement. The companies pay the entire cost of the plans.
Approximately 60 percent of the plans' assets are invested in securities which
provide for fixed income and a return of principal. The remaining assets are
invested in professionally managed common stock portfolios. Net periodic pension
cost, including the amortization of the cost of past service benefits over a
period of approximately 30 years, included the following components:
Thousands of Dollars
1996 1995 1994
------ ------ ------
Service cost - benefits earned during the period $1,916 $1,736 $1,738
Interest cost on projected benefit obligation 3,481 3,183 2,932
Actual return on plan assets (3,336) (3,245) (1,169)
Net amortization and deferral 525 730 (1,292)
------ ------ ------
Net periodic pension cost $2,586 $2,404 $2,209
====== ====== ======
Assumptions as of December 31 were:
Discount rate 7.25%-7.50% 7.25%-7.50% 7.25%-7.50%
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%
The following table sets forth the plans' funded status at December 31, 1996 and
1995.
Actuarial present value of benefit obligations:
Thousands of Dollars
1996 1995
-------- --------
Vested benefit obligation $(39,078) $(37,608)
======== ========
Accumulated benefit obligation $(39,392) $(37,899)
======== ========
Projected benefit obligation $(50,735) $(48,198)
Plan assets at fair value 40,335 37,831
-------- --------
Projected benefit obligation in excess of plan assets (10,400) (10,367)
Unrecognized net loss 5,297 4,903
Prior service cost not yet recognized
in net periodic pension cost 2,113 2,415
Unrecognized net obligation at January 1 502 958
-------- --------
Pension liability recognized in
the consolidated balance sheet $ (2,488) $ (2,091)
======== ========
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 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 to fund a portion of the obligation recovered
from ratepayers as a part of the BPU settlement. Gross contributions to this
trust totaled $2.1 million in both 1996 and 1995. However, due to the timing of
1995 contributions, 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 $5.2
million at December 31, 1996, is being addressed in SJG's current base rate case
proceeding and a BPU generic proceeding. It is expected that the regulatory
asset will be recovered from ratepayers (See Note 14). Net postretirement
benefit cost consisted of the following components:
Thousands of Dollars
1996 1995 1994
------- ------- -------
Service cost - benefits earned during the period $ 930 $ 878 $ 834
Actual return on plan assets (164) (26) -
Interest cost on accumulated
postretirement benefit obligation 1,432 1,320 1,219
Amortization of transition obligation 796 796 796
------- ------- -------
Subtotal 2,994 2,968 2,849
Other Adjustments - (2,690) 662
------- ------- -------
Net postretirement benefit costs as reported
in the Consolidated Financial Statements $ 2,994 $ 278 $ 3,511
======= ======= =======
The amounts expensed in 1996, 1995 and 1994 were $1.7 million, $1.7 million and
$0.5 million, respectively.
The following table sets forth the life and health care plans' funded status at
December 31, 1996 and 1995.
Actuarial present value of accumulated postretirement benefit obligations:
Thousands of Dollars
1996 1995
-------- --------
Retirees $ (4,933) $ (4,606)
Other active plan participants (16,744) (15,322)
-------- --------
Accumulated postretirement benefit obligation (21,677) (19,928)
Fair value of plan assets 2,835 1,433
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets (18,842) (18,495)
Unrecognized net loss/(gain) 242 (56)
Unrecognized transition obligation 12,743 13,540
-------- --------
Postretirement benefit liability recognized
in the consolidated balance sheet $ (5,857) $ (5,011)
======== ========
In 1995, 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 corrected data. The effects of the recalculation
were recorded in 1995 since the changes did not materially affect previously
reported net income or retained earnings.
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation as of December 31, 1996, are as follows:
Medical and Drug - 7.55 percent for participants age 65 or older and 10.55
percent for participants under age 65 in 1996, both grading to 5.75 percent in
2008. Dental - 7.69 percent in 1996, 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, 1996, would be
increased by $3.1 million. The effect of this change on the sum of the service
cost and interest cost would be an increase of $0.4 million. An assumed discount
rate of
-20-
Notes to Consolidated Financial Statements, Continued
7.5 percent and an expected return on plan assets of 8.5 percent were used in
determining the accumulated postretirement benefit obligation as of December 31,
1996 and 1995.
10. Financial Instruments:
Long-Term Debt - The fair values of the Company's long-term debt, including
current maturities, as of December 31, 1996 and 1995, are estimated to be $166.6
million and $204.6 million, respectively (carrying amounts $156.3 million and
$183.3 million, respectively). They 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.
Other Financial Instruments - The carrying amounts of the Company's other
financial instruments approximate their fair values at December 31, 1996 and
1995.
11. Unused Lines of Credit and Compensating Balances:
Unused lines of credit available at December 31, 1996, were approximately $43.7
million. Borrowings under these lines of credit are at market rates which
approximated 5.85 and 6.0 percent at December 31, 1996 and 1995, respectively.
Demand deposits are maintained with lending banks on an informal basis and do
not constitute compensating balances.
12. 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
SJG. As of December 31, 1996, SJG's restrictions do not affect the amount that
may be distributed from SJI's retained earnings.
13. Commitments and Contingencies:
Construction Commitments - The estimated cost of construction and environmental
remediation programs of SJI and its subsidiaries for the year 1997 aggregates
$59.6 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 natural gas supplies, firm transportation,
and 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 $5.3 million per month which is recovered on a current basis
through the LGAC.
Pending Litigation - The Company is subject to claims which arise in the
ordinary course of its business and other legal proceedings. A group of Atlantic
City casinos filed a petition with the BPU on January 16, 1996, alleging
overcharges of over $10.0 million including interest. Management believes that
the ultimate liability with respect to these actions will not materially affect
the Company's financial position or results of operations.
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. Manufactured gas operations were terminated
at all SJG sites more than 30 years ago. Certain of SJI's nonutility
subsidiaries have also recorded costs for environmental remediation of sites
where SJF previously operated a fuel oil business and Morie maintained equipment
fueling stations and storage.
Since the early 1980s, the Company has recorded environmental remediation costs
of $73.6 million, of which $29.9 million has been expended as of December 31,
1996. The Company, with the assistance of an outside consulting firm, estimates
that total future expenditures to remediate SJG's sites will range from $41.7
million to $150.2 million. The lower end of this range has been recorded as a
liability and is reflected on the consolidated balance sheet under the captions
"Current Liabilities" and "Deferred Credits and Other Non-Current Liabilities".
Recorded environmental remediation costs of SJG do not directly affect earnings
because those costs are deferred and, when expended, recovered through rates
over 7-year amortization periods. Amounts accrued for future expenditures have
not been adjusted for future insurance recoveries, which management is pursuing.
SJG has received $4.2 million of insurance recoveries as of December 31, 1996.
These proceeds were first used to offset legal fees incurred in connection with
those recoveries and the excess was used to reduce the balance of deferred
environmental remediation costs. Recorded amounts include estimated costs to be
incurred based on projected investigation and remediation work plans using
existing technologies. Actual expenditures could differ from the estimates due
to the long-term nature of the projects and changing technology, government
regulations and site specific requirements.
The major portion of the recorded environmental remediation costs relate to the
remediation of SJG's former gas manufacturing sites. SJG has recorded $70.8
million for the remediation of these sites, of which $29.1 million has been
expended through December 31, 1996. SJG has established a regulatory asset for
these costs and is recovering amounts expended over 7-year amortization periods,
as authorized by the BPU. As of December 31, 1996, SJG has unamortized
remediation expenditures of $15.6 million which are reflected on the
consolidated balance sheet under the caption "Deferred Debits". Since BPU
approval of the RAC mechanism in August 1992, SJG has recovered $9.3 million
through rates as of December 31, 1996.
With Morie's sale, EMI assumed responsibility for environmental liabilities
which are estimated to range between $2.0 million and $4.0 million. The
information available on these sites was sufficient only to establish a range of
probable liability and no point within the range is more likely than any other,
therefore, EMI accrued the lower end of the range.
14. Subsequent Events:
On January 27, 1997, the BPU granted SJG a rate increase of $6.0 million based
on a 9.62 percent rate of return on rate base, which included an 11.25 percent
return on equity. The majority of this increase will come from residential and
small commercial customers. As part of this rate increase, SJG now retains the
first $5.0 million of pre-tax margins generated by interruptible and off-system
sales and transportation, as well as 20 percent of pre-tax margins above that
level. In 1997 and 1998, this $5.0 million threshold will be increased by the
annual revenue requirement associated with specified major construction
projects. In 1997, SJG will file to recover additional postretirement benefit
costs of approximately $1.1 million annually. This recovery is expected to begin
in 1998 (See Note 9).
As part of the tariff changes approved, SJG further expanded the choices
available to commercial and industrial customers. During 1997, SJG will also
implement a firm transportation pilot program for up to 10,000 residential
customers. This program will have no impact on net income.
In addition to the rate increase, the BPU approved a revenue reduction in SJG's
Temperature Adjustment Clause, a mechanism designed to reduce the impact of
extreme fluctuations in temperature on SJG and its customers. For the period
ended May 31, 1996, weather in SJG's service area was significantly colder than
the 20-year average resulting in a $2.5 million credit due to customers' bills
which is already reflected in the 1996 results of operations.
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. 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 1996 and 1995 are presented below:
1996 Quarter Ended 1995 Quarter Ended
------------------------------------------ ------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
--------- --------- --------- --------- --------- --------- --------- ---------
Operating Revenues $149,960 $ 59,325 $ 44,856 $101,317 $ 98,812 $ 54,113 $ 47,960 $103,278
--------- --------- --------- --------- --------- --------- --------- ---------
Operating Expenses:
Operation and Maintenance
Including Fixed Charges 108,678 56,638 47,326 80,456 65,143 51,158 50,466 82,058
Federal Income Taxes 9,180 (935) (2,021) 3,931 7,307 (630) (1,893) 3,969
Gross Receipts & Franchise
and Other Taxes 15,291 5,546 3,437 9,666 13,099 5,108 3,261 10,243
--------- --------- --------- --------- --------- --------- --------- ---------
Income (Loss) from
Continuing Operations 16,811 (1,924) (3,886) 7,264 13,263 (1,523) (3,874) 7,008
Discontinued Operations - Net (1,585) 1,157 1,532 11,129 (46) 1,364 1,025 426
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Applicable
to Common Stock $ 15,226 $ (767) $ (2,354) $ 18,393 $ 13,217 $ (159) $ (2,849) $ 7,434
========= ========= ========= ========= ========= ========= ========= =========
Earnings (Loss) Per Common
Share (Based on Average
Shares Outstanding): (1)
Continuing Operations $ 1.57 $ (0.18) $ (0.36) $ 0.67 $ 1.24 $ (0.14) $ (0.36) $ 0.65
Discontinued Operations (0.15) 0.11 0.14 1.04 (0.01) 0.13 0.09 0.04
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings (Loss) Per
Common Share $ 1.42 $ (0.07) $ (0.22) $ 1.71 $ 1.23 $ (0.01) $ (0.27) $ 0.69
========= ========= ========= ========= ========= ========= ========= =========
Average Shares Outstanding 10,724 10,728 10,732 10,745 10,718 10,719 10,720 10,722
<FN>
(1) The sum of the quarters for 1995 does not equal the total due to rounding.
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
1996 High Low Per Share 1995 High Low Per Share
------------- -------- -------- --------- ------------- -------- -------- ---------
March 31 23 1/2 20 7/8 $0.36 March 31 20 1/8 17 7/8 $0.36
June 30 23 3/4 21 1/4 $0.36 June 30 21 1/8 19 3/8 $0.36
Sept. 30 24 20 1/8 $0.36 Sept. 30 21 3/8 18 3/4 $0.36
Dec. 31 24 5/8 23 $0.36 Dec. 31 23 1/2 19 7/8 $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 10, 1996, the latest available date, the stock records indicate that there were 12,153
shareholders.
</FN>
-22-
South Jersey Gas Company Comparative Operating Statistics
1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- ---------
Operating Revenues (Thousands): *
Firm
Residential $177,673 $151,720 $151,857 $142,409 $131,749 $117,904
Commercial 70,755 58,135 61,848 57,392 56,774 51,833
Industrial 7,540 6,014 8,349 13,609 16,195 11,474
Cogeneration & Electric Generation 16,173 15,725 19,301 23,726 24,110 12,899
Firm Transportation 10,473 13,930 18,092 13,746 11,120 10,252
--------- --------- --------- --------- --------- ---------
Total Firm 282,614 245,524 259,447 250,882 239,948 204,362
Interruptible 7,256 6,786 6,610 11,299 8,283 9,425
Interruptible Transportation 2,630 2,778 2,985 2,412 2,837 2,891
Off-System 28,236 20,360 38,161 8,788 - -
Capacity Release & Storage 4,349 3,374 2 - - -
Other 5,249 3,897 4,254 4,200 4,190 3,618
--------- --------- -------- -------- -------- --------
Total Operating Revenues $330,334 $282,719 $311,459 $277,581 $255,258 $220,296
========= ========= ========= ========= ========= =========
Throughput (MMcf):
Firm
Residential 21,699 19,573 19,543 19,368 18,748 16,442
Commercial 10,117 8,945 9,276 9,182 9,686 8,812
Industrial 1,238 1,016 1,364 2,599 3,341 2,412
Cogeneration & Electric Generation 5,180 4,860 5,384 6,741 8,629 4,593
Firm Transportation 12,969 14,417 14,401 10,194 8,739 6,858
--------- --------- --------- --------- --------- ---------
Total Firm Throughput 51,203 48,811 49,968 48,084 49,143 39,117
--------- --------- --------- --------- --------- ---------
Interruptible 1,618 1,843 1,810 3,105 2,333 2,613
Interruptible Transportation 5,422 5,888 5,424 4,328 5,455 5,519
Off-System 8,571 9,590 16,840 3,563 - -
Capacity Release & Storage 25,460 25,915 46 - - -
--------- --------- --------- --------- --------- ---------
Total Throughput 92,274 92,047 74,088 59,080 56,931 47,249
========= ========= ========= ========= ========= =========
Number of Customers at Year End:
Residential 236,008 230,446 224,394 218,484 212,939 207,366
Commercial 17,492 17,179 16,615 16,206 15,849 15,629
Industrial 374 397 397 377 394 393
--------- --------- --------- --------- --------- ---------
Total Customers 253,874 248,022 241,406 235,067 229,182 223,388
========= ========= ========= ========= ========= =========
Maximum Daily Sendout (MMcf) 325 335 370 318 290 277
========= ========= ========= ========= ========= =========
Annual Degree Days 5,175 4,865 4,820 4,953 4,916 4,195
========= ========= ========= ========= ========= =========
Normal Degree Days ** 4,593 4,559 4,453 4,445 4,409 4,557
========= ========= ========= ========= ========= =========
<FN>
* Before the elimination of intersegment sales.
** 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 72 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 48 3, 4, 5
President, New Jersey Manufacturers Insurance Company and New
Jersey Re-Insurance Company, West Trenton, N.J.
Richard L. Dunham Director since 1984, Age 67 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 52 2, 3, 5
Partner, law firm of Edwards, Caldwell & Poff, Hawthorne, N.J.
Thomas L. Glenn, Jr. Director since 1986, Age 62 1, 3*, 5*
Chairman, Glenn Insurance, Inc., Absecon, N.J.
Vincent E. Hoyer Director since 1990, Age 72 2, 4, 5
Consultant; formerly President (now retired) of New Jersey
Manufacturers Insurance Company, West Trenton, N.J.
Herman D. James, Ph.D. Director since 1990, Age 53 3, 4
President, Rowan College of New Jersey, Glassboro, N.J.
Clarence D. McCormick Director since 1979, Age 67 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 62 1, 2, 4
President, Massachusetts Maritime Academy, Buzzards Bay, Mass.
Jackson Neall Director since 1990, Age 72 3, 4, 5
Retired; former real estate appraiser and registered builder
Frederick R. Raring Director since 1995, Age 59 3, 4, 5
President, Seashore Supply Company, Atlantic City, N. J.
William F. Ryan Director since 1977, Age 62 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 56 3, 4*
President, Billings-Vioni Management Associates, Columbus, Ohio
1 Executive Committee
2 Compensation/Pension Committee
3 Audit Committee
4 Management Development Committee
5 Environmental Committee
* Committee Chair
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 Treasurer
William J. Smethurst, Jr.
Assistant Secretary and Assistant Treasurer
-24-
Inside Back Cover
SJI Corporate Headquarters
Number One South Jersey Plaza, Route 54
Folsom, NJ 08037-9917
(609) 561-9000
TDD only 1-800-547-9085
www.sjindustries.com
Transfer Agent and Registrar
First Union National Bank of North Carolina
Client Services Group
230 South Tryon Street, CMC-11
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
17, 1997 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
INSERT: LOGO of SJI
South Jersey Industries, Inc.
Number One South Jersey Plaza
Route 54
Folsom, New Jersey 08037