Page 1 of 22
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000 Commission File Number 000-22211
SOUTH JERSEY GAS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 21-0398330
(State of incorporation) (IRS employer identification no.)
1 South Jersey Plaza, Folsom, NJ 08037
(Address of principal executive offices, including zip code)
(609) 561-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 7, 2000 there were 2,339,139 shares of the registrant's common
stock outstanding. All common shares are owned by South Jersey Industries,
Inc., the parent company of South Jersey Gas Company.
Exhibit Index on page 22
- Cover Page -
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements -- See Pages 3 through 12
SJG-2
<TABLE>
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except for Per Share Data)
<CAPTION>
Three Months Ended
June 30,
-----------------------
2000 1999
----------- ----------
<S> <C> <C>
Operating Revenues:
Utility $ 76,026 $ 66,101
Other 635 549
----------- ----------
Total Operating Revenues 76,661 66,650
----------- ----------
Operating Expenses:
Gas Purchased for Resale 52,948 43,324
Utility Operations 9,827 9,580
Other Operations 514 567
Maintenance 1,720 1,309
Depreciation 4,989 4,692
Income Taxes (258) 127
Other Taxes 2,036 1,832
----------- ----------
Total Operating Expenses 71,776 61,431
----------- ----------
Operating Income 4,885 5,219
----------- ----------
Interest Charges:
Long-Term Debt 3,686 3,917
Short-Term Debt and Other 1,172 959
----------- ----------
Total Interest Charges 4,858 4,876
----------- ----------
Income Before Preferred Dividend Requirements 27 343
Preferred Stock Dividend Requirements 40 42
Preferred Securities Dividend Requirements 730 730
----------- ----------
Net Loss Applicable to Common Stock $ (743) $ (429)
=========== ==========
Average Shares of Common Stock Outstanding 2,339 2,339
=========== ==========
Earnings Per Common Share $ (0.32) $ (0.18)
=========== ==========
Dividends Declared Per Common Share $ 1.79 $ 1.73
=========== ==========
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
SJG-3
<TABLE>
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except for Per Share Data)
<CAPTION>
Six Months Ended
June 30,
-----------------------
2000 1999
----------- ----------
<S> <C> <C>
Operating Revenues:
Utility $ 222,653 $ 200,688
Other 1,010 1,044
----------- ----------
Total Operating Revenues 223,663 201,732
----------- ----------
Operating Expenses:
Gas Purchased for Resale 141,766 121,998
Utility Operations 19,638 18,740
Other Operations 862 937
Maintenance 4,490 2,591
Depreciation 9,909 9,303
Income Taxes 12,350 12,845
Other Taxes 6,371 6,288
----------- ----------
Total Operating Expenses 195,386 172,702
----------- ----------
Operating Income 28,277 29,030
----------- ----------
Interest Charges:
Long-Term Debt 7,519 8,024
Short-Term Debt and Other 2,366 1,873
----------- ----------
Total Interest Charges 9,885 9,897
----------- ----------
Income Before Preferred Dividend Requirements 18,392 19,133
Preferred Stock Dividend Requirements 80 83
Preferred Securities Dividend Requirements 1,461 1,461
----------- ----------
Net Income Applicable to Common Stock $ 16,851 $ 17,589
=========== ==========
Average Shares of Common Stock Outstanding 2,339 2,339
=========== ==========
Earnings Per Common Share $ 7.20 $ 7.52
=========== ==========
Dividends Declared Per Common Share $ 3.59 $ 3.46
=========== ==========
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
SJG-4
<TABLE>
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
(Unaudited)
June 30, December 31,
-------------------------- -------------
2000 1999 1999
------------ ------------ -------------
<S> <C> <C> <C>
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $ 740,265 $ 702,116 $ 721,338
Accumulated Depreciation (200,076) (185,898) (192,240)
Gas Plant Acquisition Adjustment - Net 1,739 1,813 1,776
------------ ------------ -------------
Property, Plant and Equipment - Net 541,928 518,031 530,874
------------ ------------ -------------
Available-for-Sale Securities 1,955 1,031 1,662
------------ ------------ -------------
Current Assets:
Cash and Cash Equivalents 10,250 8,007 4,694
Accounts Receivable 47,938 31,392 37,066
Unbilled Revenues 5,127 6,709 21,294
Provision for Uncollectibles (860) (932) (932)
Natural Gas in Storage, average cost 24,649 20,121 26,840
Materials and Supplies, average cost 3,978 3,962 4,085
Prepaid Taxes 9,569 10,009 4,069
Prepayments and Other Current Assets 2,883 3,941 2,461
------------ ------------ -------------
Total Current Assets 103,534 83,209 99,577
------------ ------------ -------------
Accounts Receivable - Merchandise 490 851 684
------------ ------------ -------------
Regulatory and Other Non-Current Assets:
Environmental Remediation Costs:
Expended - Net 18,386 24,503 25,702
Liability for Future Expenditures 51,029 52,939 51,029
Gross Receipts and Franchise Taxes 2,919 3,363 3,141
Income Taxes - Flowthrough Depreciation 11,042 12,020 11,531
Deferred Fuel Cost - Net 13,615 - 13,174
Deferred Postretirement Benefit Costs 4,725 5,207 4,914
Other 6,911 7,866 7,951
------------ ------------ -------------
Total Regulatory and Other Non-Current Assets 108,627 105,898 117,442
------------ ------------ -------------
Total Assets $ 756,534 $ 709,020 $ 750,239
============ ============ =============
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
SJG-5
<TABLE>
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
(Unaudited)
June 30, December 31,
-------------------------- -------------
2000 1999 1999
------------ ------------ -------------
<S> <C> <C> <C>
Capitalization and Liabilities
Common Equity:
Common Stock, Par Value $2.50 per share:
Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares $ 5,848 $ 5,848 $ 5,848
Other Paid-In Capital and Premium on Common Stock 125,817 108,067 117,817
Retained Earnings 66,908 63,764 58,457
------------ ------------ -------------
Total Common Equity 198,573 177,679 182,122
------------ ------------ -------------
Preferred Stock and Securities:
Redeemable Cumulative Preferred - Par Value $100 per share,
Authorized 43,104, 45,504 and 45,504 shares, respectively
Outstanding:
Series A, 4.70% - 300, 1,200 and 1,200 shares 30 120 120
Series B, 8.00% - 17,742, 19,242 and 19,242 shares 1,774 1,924 1,924
Company-Guaranteed Mandatorily Redeemable
Preferred Securities of Subsidiary Trust
Par Value $25 per share, 1,400,000 shares
Authorized and Outstanding 35,000 35,000 35,000
------------ ------------ -------------
Total Preferred Stock and Securities 36,804 37,044 37,044
------------ ------------ -------------
Long-Term Debt 172,123 185,704 183,561
------------ ------------ -------------
Total Capitalization 407,500 400,427 402,727
------------ ------------ -------------
Current Liabilities:
Notes Payable 107,700 82,300 118,900
Current Maturities of Long-Term Debt 11,876 8,876 8,876
Accounts Payable 43,163 30,955 34,822
Customer Deposits 5,367 5,373 5,386
Environmental Remediation Costs 12,534 8,752 12,534
Taxes Accrued 5,223 6,891 634
Interest Accrued and Other Current Liabilities 5,949 6,983 10,422
------------ ------------ -------------
Total Current Liabilities 191,812 150,130 191,574
------------ ------------ -------------
Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes - Net 95,385 86,649 93,543
Environmental Remediation Costs 38,495 44,187 38,495
Pension and Other Postretirement Benefits 11,415 13,189 12,303
Investment Tax Credits 4,676 5,044 4,849
Deferred Revenues - Net - 3,777 -
Other 7,251 5,617 6,748
------------ ------------ -------------
Total Deferred Credits and Other Non-Current
Liabilities 157,222 158,463 155,938
------------ ------------ -------------
Commitments and Contingencies
Total Capitalization and Liabilities $ 756,534 $ 709,020 $ 750,239
============ ============ =============
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
SJG-6
<TABLE>
SOUTH JERSEY GAS COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 16,851 $ 17,589
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation and Amortization 11,515 10,740
Provision for Losses on Accounts Receivable 453 258
Revenues and Fuel Costs Deferred - Net (441) 9,286
Deferred and Non-Current Income Taxes and Credits - Net 2,068 194
Environmental Remediation Costs - Net 7,316 2,997
Changes in:
Accounts Receivable 4,770 9,309
Inventories 2,298 7,587
Prepayments and Other Current Assets (422) (1,674)
Prepaid and Accrued Taxes - Net (911) 8,091
Accounts Payable and Other Accrued Liabilities 3,849 (10,348)
Other - Net 408 2,531
---------- ----------
Net Cash Provided by Operating Activities 47,754 56,560
---------- ----------
Cash Flows from Investing Activities:
Capital Expenditures, Cost of Removal and Salvage (21,627) (25,513)
Purchase of Available-for-Sale Securities (293) (145)
---------- ----------
Net Cash Used in Investing Activities (21,920) (25,658)
---------- ----------
Cash Flows from Financing Activities:
Net Repayments of Lines of Credit (11,200) (14,700)
Principal Repayments of Long-Term Debt (8,438) (9,006)
Dividends on Common Stock (8,400) (8,100)
Repurchase of Preferred Stock (240) (90)
Additional Investment by Shareholder 8,000 5,250
---------- ----------
Net Cash Used in Financing Activities (20,278) (26,646)
---------- ----------
Net Increase in Cash and Cash Equivalents 5,556 4,256
Cash and Cash Equivalents at Beginning of Period 4,694 3,751
---------- ----------
Cash and Cash Equivalents at End of Period $ 10,250 $ 8,007
========== ==========
<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>
SJG-7
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Significant Accounting Practices:
Consolidation - The consolidated financial statements include the accounts
of South Jersey Gas Company (SJG) and its wholly-owned statutory trust
subsidiary, SJG Capital Trust. All significant intercompany accounts and
transactions were eliminated. We reclassified some previously reported
amounts to conform with current year classifications. In our opinion, the
condensed consolidated financial statements reflect all adjustments needed to
fairly present SJG's financial position and operating results at the dates and
for the periods presented. Our businesses are subject to seasonal fluctuations
and, accordingly, this interim financial information should not be the basis
for estimating the full year's operating results.
South Jersey Industries, Inc. (SJI) owns all of the outstanding common
stock of SJG.
Estimates and Assumptions - Our financial statements are prepared to
conform with generally accepted accounting principles. Management makes
estimates and assumptions that affect the amounts reported in the financial
statements and related disclosures. Therefore, actual results could differ
from those estimates.
New Accounting Pronouncement - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for the first quarter
of our fiscal year ending December 31, 2001. This statement establishes
accounting and reporting standards for derivative instruments, including those
embedded in other contracts, and for hedging activities. It requires
recognizing derivatives as assets or liabilities at fair value on the balance
sheet. We are currently evaluating the effects of FASB No. 133 on our
financial condition and results of operations, which will vary based on our use
of derivative instruments at the time of adoption.
Note 2. Income Taxes:
The significant components of federal and state income taxes reflected in
the condensed statements of consolidated income are as follows (in thousands):
SJG-8
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Current:
Federal $ (1,184) $ (140) $ 7,505 $ 9,217
State (113) 170 2,778 3,434
-------- -------- -------- --------
Total Current (1,297) 30 10,283 12,651
Deferred:
Federal 984 325 1,968 651
State 136 (131) 272 (262)
-------- -------- -------- --------
Total Deferred 1,120 194 2,240 389
Investment Tax Credit (81) (97) (173) (195)
-------- -------- -------- --------
Net Income Taxes $ (258) $ 127 $ 12,350 $ 12,845
======== ======== ======== ========
Note 3. Recent Regulatory Actions:
In January 1997, the Board of Public Utilities (BPU) granted SJG a
total rate increase of $10.3 million. The $6.0 million base rate portion of
the increase was based on a 9.62% rate of return on rate base, which included
an 11.25% return on common equity. Additionally, SJG's threshold for sharing
pre-tax margins generated by interruptible and off-system sales and
transportation (Sharing Formula) increased from $4.0 million to $5.0 million.
With the completion of major construction projects, this $5.0 million
threshold increased by $2.8 million to a total of $7.8 million. SJG keeps 100%
of pre-tax margins up to the threshold level and 20% of such margins above that
level. In October 1998, the BPU approved a revision to the Sharing Formula as
part of an agreement to modify SJG's Temperature Adjustment Clause (TAC). The
revision credits the first $750,000 above the current threshold level to the
Levelized Gas Adjustment Clause (LGAC) customers. Thereafter, SJG keeps 20% of
the pre-tax margins as it has historically.
In August 1998, SJG filed with the BPU to recover increased remediation
costs expended from August 1995 through July 1998. In September 1999, the BPU
approved the requested annual recovery level of $6.5 million. This represents
an annual increase of approximately $4.5 million over the recovery previously
included in rates. In July 1999, SJG filed its annual Remediation Adjustment
Clause (RAC) with the BPU requesting recovery of carrying costs on unrecovered
remediation costs and proposed no change in the current RAC rate for the next
3 years. In January 2000, the BPU approved the recovery of carrying costs on
unrecovered remediation costs and SJG's proposal to keep its current RAC rate
in effect through October, 2002.
SJG-9
In September 1998, SJG filed its annual LGAC, TAC and Demand Side
Management Clause (DSMC) with the BPU. The LGAC and DSMC cover the period
November 1 through October 31 of each year. The TAC period runs from October 1
through May 31. In May 1999, the BPU approved a $7.1 million increase in
rates as part of this filing, which included the results of the previous two
annual filings. In April 2000, SJG made its 1999-2000 TAC and LGAC filings and
anticipates making its 2000-2001 TAC, LG AC, RAC and DSMC filings during the
summer of 2000.
In February 1999, the Electric Discount and Energy Competition Act
became law. This law established "unbundling," where redesigned utility rate
structures allow natural gas and electric consumers to choose their energy
supplier. SJG filed its unbundling proposal in April 1999 and received final
BPU approval in January 2000.
Effective January 10, 2000, the BPU approved full unbundling of SJG's
system. This allows all natural gas consumers to select their natural gas
supplier. As of June 30, 2000, 52,056 of SJG's residential customers had
elected to purchase their gas commodity from someone other than us. The bills
of those using a gas supplier other than SJG are reduced for cost of gas
charges and applicable taxes. The resulting decrease in revenues is offset by
a corresponding decrease in gas costs and taxes under SJG's BPU-approved fuel
clause. SJI's net income, financial condition and margins are not affected as
a result of the unbundling.
In addition to allowing all customers to select their own supplier, the
unbundling settlement also created an incentive to customers to select a
supplier, other than SJG, in the form of a Market Development Credit (MDC).
This credit will be provided to customers over the next two years and will
approximate $2.5 million plus carrying costs through December 2001. The
majority of this credit was provided for on SJG's books as a Deferred Credit.
Therefore, the impact of the MDC will not materially impact future periods.
Also included in the proposal was the approved recovery of carrying
costs on the RAC, as previously discussed, and a modification to SJG's LGAC.
Under-recovered gas costs of $11.9 million as of October 31, 1999, and carrying
costs thereon, will be recovered over 3 years. The LGAC for the period
starting November 1999, will continue to operate as it has in the past.
In June 1999, SJG made an appliance service filing with the BPU to modify
SJG's existing service sentry plans, implement three new service sentry plans
and to implement flat rate pricing for its appliance service business. On
April 27, 2000, the BPU approved SJG's filing.
Effective June 9, 2000, SJG implemented price increases for its appliance
service business. The new rates are competitive with those of other service
providers in New Jersey.
SJG-10
Note 4. Retained Earnings:
Restrictions exist under various loan agreements regarding the amount of
cash dividends or other distributions that we may pay on our common stock.
SJG's retained earnings, which is free of these restrictions, was approximately
$65.1 million as of June 30, 2000.
Note 5. Commitments and Contingencies:
Construction Commitments - SJG's estimated net cost of construction and
environmental remediation programs for 2000 totals $49.8 million. Commitments
were made regarding these programs.
Pending Litigation - SJG is subject to claims arising in the ordinary
course of business and other legal proceedings. We set up reserves when these
claims become apparent. We also maintain insurance and record probable
insurance recoveries relating to outstanding claims.
Environmental Remediation Costs - SJG incurred and recorded costs for
environmental clean up of sites where SJG or its predecessors operated gas
manufacturing plants. SJG stopped manufacturing gas in the 1950s.
Since the early 1980s, SJG recorded environmental remediation costs of
$110.6 million, of which $59.6 million was spent as of June 30, 2000. With the
assistance of an outside consulting firm, we estimate that future costs to
clean up SJG's sites will range from $51.0 million to $161.3 million. We
recorded the lower end of this range as a liability. It is reflected on the
2000 consolidated balance sheet under the captions Current Liabilities and
Deferred Credits and Other Non-Current Liabilities. SJG did not adjust the
accrued liability for future insurance recoveries, which we have been
successful in pursuing. We used these proceeds to offset related legal fees
and to reduce the balance of deferred environmental remediation costs.
Recorded amounts include estimated costs based on projected investigation and
remediation work plans using existing technologies. Actual costs could differ
from the estimates due to the long-term nature of the projects, changing
technology, government regulations and site-specific requirements.
SJG has two regulatory assets associated with environmental cost. The
first asset is titled Environmental Remediation Cost: Expended - Net. These
expenditures represent what was actually spent to clean up former gas
manufacturing plant sites. These costs meet the requirements of FASB No. 71,
"Accounting for the Effects of Certain Types of Regulation." The BPU allows
SJG to recover such expenditures through July 1998 and petitions to recover
costs through July 1999 are pending.
SJG-11
The other asset titled Environmental Remediation Cost: Liability for
Future Expenditures relates to estimated future expenditures determined under
the guidance of FASB No. 5, "Accounting for Contingencies." This amount, which
relates to former manufactured gas plant sites, was recorded as a deferred
debit with the corresponding amount reflected on the consolidating balance
sheet under the captions Current Liabilities and Deferred Credits and Other
Non-Current Liabilities. The deferred debit is a regulatory asset under FASB
No. 71. The BPU's intent, evidenced by current practice, is to allow SJG to
recover the deferred costs after they are spent.
SJG files with the BPU to recover these costs in rates through its RAC.
The BPU has consistently allowed the full recovery over 7-year periods, and SJG
believes this will continue. As of June 30, 2000, SJG's unamortized
remediation costs of $18.4 million are reflected on the consolidated balance
sheets under the caption Regulatory and Other Non-Current Assets. Since
implementing the RAC in 1992, SJG recovered $23.5 million through rates as of
June 30, 2000.
Note 6. Other Paid-In Capital:
SJG received $8.0 million and $5.25 million as a contribution of capital
from SJI on June 30, 2000 and 1999, respectively. Also, on July 30, 1999, SJG
received an additional $9.75 million contribution from SJI. Contributions of
capital are credited to Other Paid-In Capital and Premium on Common Stock.
There have been no other changes in Common Stock during 2000 or 1999.
SJG-12
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Overview
South Jersey Gas Company (SJG) is a natural gas distribution company
serving 277,527 customers at June 30, 2000, compared with 270,433 customers at
June 30, 1999. SJG also makes off-system sales of natural gas on a wholesale
basis to various customers on the interstate pipeline system and transports
natural gas purchased directly from producers or suppliers for our own sales
and for some of our customers. South Jersey Industries, Inc. (SJI) owns all
of the common stock of SJG.
Forward-Looking Statements
This report contains certain forward-looking statements concerning
projected financial and operating performance, future plans and courses of
action and future economic conditions. All statements in this report other
than statements of historical fact are forward-looking statements. These
forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the company and involve a number of
risks and uncertainties. We caution that forward-looking statements are not
guarantees and actual results could differ materially from those expressed or
implied in the forward-looking statements. Also, in making forward-looking
statements, we assume no duty to update these statements should expectations
change or actual results and events differ from current expectations.
A number of factors could cause our actual results to differ materially
from those anticipated, including, but not limited to the following: general
economic conditions on an international, federal, state and local level;
weather conditions in our marketing areas; regulatory and court decisions;
competition in our regulated activities; the availability and cost of capital;
costs and effects of legal proceedings and environmental liabilities; and
changes in business strategies.
Customer Choice Legislation
Effective January 1, 2000, all residential natural gas customers in New
Jersey are able to choose their gas supplier under the terms of the Electric
Discount and Energy Competition Act of February 1999. Commercial and
industrial customers have had the ability to choose gas suppliers since 1987.
SJG's residential customers have been able to choose a gas supplier since April
of 1997 under a pilot program. As of June 30, 2000, 52,056 SJG residential
customers participated in the program. Customers' bills are reduced for cost
of gas charges and applicable taxes. The resulting decrease in SJG's revenues
is offset by a corresponding decrease in gas costs and taxes. While customer
choice can reduce utility revenues, it does not negatively affect SJG's net
income, financial condition or margins.
SJG-13
Energy Adjustment Clauses
SJG's BPU approved Temperature Adjustment Clause (TAC) had the
following impacts on 2000 and 1999 second quarter and six month net earnings:
2000 1999
------ ------
TAC Adjustment Increase to Net Income
($ in thousands)
Quarter Ended 6/30 $59 $(44)
Six Months Ended 6/30 $1,349 $1,232
While the revenue and income impacts of TAC adjustments are recorded as
incurred, cash inflows or outflows directly attributable to TAC adjustments
generally do not begin until the next TAC year. Each TAC year begins
October 1.
Results of Operations - Three and Six Months Ended June 30, 2000
Compared to Three and Six Months Ended June 30, 1999
Operating Revenues
Revenues increased $10.0 million and $21.9 million in the second
quarter and first six months of 2000 compared with the prior year periods.
The primary reasons for the increases were increased off-system sales, 7,094
additional customers and increased rates resulting from an increase in the
Levelized Gas Adjustment Clause (LGAC) to recover increased gas costs. These
factors more than offset revenue reductions due to the continued migration of
firm gas sales to firm transportation. Note, however, that SJG's tariffs are
structured so that profits are derived from the transportation of gas, not the
sale of the commodity. Consequently, the switch to firm transportation
reduced revenues but did not impact profitability.
Weather in the second quarter of 2000 was 4.6% colder than the prior
year period. Weather for the six month period was unchanged. Weather was 4.6%
colder and 5.0% warmer for the second quarter and first six months,
respectively, than the 20-year average. As a result of the TAC, revenues for
2000 will be closely tied to the 20-year normal temperatures and not actual
weather conditions due to our TAC.
The following is a comparison of operating revenue and throughput for
the three and six month periods ended June 30, 2000 vs. the same periods ended
June 30, 1999.
SJG-14
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Operating Revenues (Thousands):
Firm
Residential $22,224 $25,025 $ 92,897 $ 97,561
Commercial 5,212 5,016 21,492 21,201
Industrial 1,017 913 3,017 2,724
Cogeneration & Electric Generation 4,977 2,136 6,199 2,803
Firm Transportation 7,862 6,131 21,874 16,962
-------- -------- -------- --------
Total Firm Operating Revenues 41,292 39,221 145,479 141,251
Interruptible 333 653 832 993
Interruptible Transportation 361 362 845 895
Off-System 33,049 24,557 72,275 55,043
Capacity Release & Storage 567 856 2,428 1,730
Other 1,059 1,001 1,804 1,820
-------- -------- -------- --------
Total Operating Revenues $76,661 $66,650 $223,663 $201,732
======== ======== ======== ========
Throughput (MMcf):
Firm
Residential 2,302 2,696 10,783 11,579
Commercial 634 621 2,800 2,837
Industrial 50 37 156 159
Cogeneration & Electric Generation 1,113 679 1,251 750
Firm Transportation 6,349 5,875 14,814 12,664
-------- -------- -------- --------
Total Firm Throughput 10,448 9,908 29,804 27,989
Interruptible 56 137 105 244
Interruptible Transportation 737 831 1,577 1,934
Off-System 9,357 10,461 21,427 24,775
Capacity Release & Storage 9,395 8,038 19,934 11,359
-------- -------- -------- --------
Total Throughput 29,993 29,375 72,847 66,301
======== ======== ======== ========
Gas Purchased for Resale
Gas purchased for resale increased $9.6 million and $19.8 million for
the second quarter and first six months of 2000 compared with the same periods
in 1999 due principally to increased gas costs on off-system sales. SJG's gas
cost during the first three months of 2000 averaged $3.23/dt compared with
$2.33/dt in 1999. Unlike gas costs associated with off-system sales, changes
in the cost of gas sold to utility rate payers do not directly effect Gas
Purchased for Resale. Fluctuations in gas costs to rate payers not reflected
in current rates are deferred and addressed in future periods under a BPU
approved Levelized Gas Adjustment Clause (LGAC). Under the LGAC, fluctuations
in gas costs not covered currently are reflected in future customer rates.
Gas supply sources include contract and open-market purchases. SJG secures and
maintains its own gas supplies to serve its customers.
SJG-15
Operations
A summary of net changes in Utility Operations and Other Operations (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2000 vs. 1999 2000 vs. 1999
------------- -------------
Other Production Expense $4 $5
Transmission 29 19
Distribution 9 169
Appliance Service - Net 306 285
Customer Accounts and Services 166 451
Sales (25) (5)
Administration and General (242) (26)
Other (53) (75)
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$194 $823
======= =======
Appliance Service - Net increased due to service activity on new warranty
plans sold in the second quarter of 2000. Customer Accounts and Services costs
increased in the second quarter of 2000 due primarily to higher meter reading
expenses. We increased meter reading frequency to enhance customer service.
The six month period was also impacted by temporarily increased staffing levels
necessary to handle high call volumes related to the deregulation process in
New Jersey and higher bad debt expense. Administrative and General costs
decreased for the three month period from 1999 levels principally due to lower
employee welfare and pension costs, offsetting a change in the way management
fees are being charged from SJI to its subsidiaries.
Other Operating Expenses
A summary of principal changes in other consolidated operating expenses
(in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2000 vs. 1999 2000 vs. 1999
------------- -------------
Maintenance $411 $1,899
Depreciation 297 606
Income Taxes (385) (495)
Other Taxes 204 83
Maintenance was higher due to higher levels of Remediation Adjustment
Clause (RAC) amortization. This additional amortization expense is recovered
during the current period through rates (See Note 5 to the Condensed
Consolidated Financial Statements). Depreciation was higher due to increased
investment in property, plant and equipment by SJG.
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Interest Charges
Interest charges were slightly lower in the first half of 2000 compared
with the prior year period. Increased debt outstanding and higher interest
rates in 2000 were largely offset by recoveries of carrying costs associated
with unrecovered RAC and purchased gas costs. The debt was incurred primarily
to support the expansion and upgrade of SJG's gas transmission and distribution
system.
Net Income Applicable to Common Stock
The details affecting the changes in net income and earnings per share
are discussed under the appropriate captions above.
Liquidity
The seasonal nature of gas operations; the timing of construction and
remediation expenditures and related permanent financing; as well as mandated
tax and sinking fund payment dates require large, short-term cash requirements.
These requirements are generally met by cash from operations and short-term
lines of credit. We maintain short-term lines of credit with a number of
banks, totaling $140.0 million, of which $32.3 million was available at
June 30, 2000. The credit lines are uncommitted and unsecured with interest
rates typically available based upon the Federal Funds Rates or London
Interbank Offered Rates (LIBOR).
The changes in cash flows from operating activities (in thousands):
Six Months Ended
June 30,
2000 vs. 1999
-------------
Increases/(Decreases):
Net Income Applicable to Common Stock ($738)
Depreciation and Amortization 775
Provision for Losses on Accounts Receivable 195
Revenues and Fuel Costs Deferred - Net (9,727)
Deferred and Non-Current Income Taxes and
Credits - Net 1,874
Environmental Remediation Costs - Net 4,319
Accounts Receivable (4,539)
Inventories (5,289)
Prepayments and Other Current Assets 1,252
Prepaid and Accrued Taxes - Net (9,002)
Accounts Payable and Other Accrued Liabilities 14,197
Other - Net (2,123)
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Net Cash Provided by Operating Activities ($8,806)
=======
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Depreciation and Amortization are non-cash charges to income and do not
impact cash flow. Changes in depreciation cost reflect the effect of additions
and reductions to fixed assets.
Decreases in Revenues and Fuel Costs Deferred - Net reflect the impact
of payments or credits to customers for amounts previously overcollected and
the undercollection of fuel costs resulting from increases in natural gas
costs. Increases reflect the overcollection of fuel costs or the recovery of
previously deferred fuel costs.
Changes in Deferred and Non-Current Income Taxes and Credits - Net
represent the differences between taxes accrued and amounts paid. Generally,
deferred income taxes related to deferred fuel costs will be paid in the next
year.
Changes in Environmental Remediation Costs - Net represent the
differences between amounts expended for environmental remediation compared
with amounts collected under the RAC and insurance recoveries.
Changes in Accounts Receivable are primarily due to changes in off-system
sales activity and SJG's sales volumes. Weather and commodity prices are the
variables that primarily impact these sales. Changes impact cash flows when
collected in subsequent periods.
Changes in Inventories reflect the impact of seasonal requirements,
temperatures and commodity price changes.
Changes in Prepaid and Accrued Taxes - Net reflect the impact of
differences between taxes paid and taxes accrued. Significant timing
differences exist in cash flows during the year. Approximately 50% of SJG's
taxes are paid in installments during the first half of the year and the
remaining 50% are paid on May 15 of each year. SJG uses short-term borrowings
to pay taxes, resulting in a temporary increase in the short-term debt level.
The carrying costs of timing differences are recognized in base utility rates.
Changes in Accounts Payable and Other Current Liabilities reflect the
impact of timing differences between the accrual and payment of costs.
Changes in Other - Net reflect numerous changes in noncurrent assets
and liabilities, including accrued deferred income taxes.
Capital Resources
SJG has a continuing need for cash resources and capital, primarily to
invest in new and replacement facilities and equipment and for environmental
remediation costs. Net construction and remediation expenditures for the first
six months of 2000 amounted to $14.3 million. The costs for 2000, 2001 and
2002 are estimated at approximately $49.8 million, $45.5 million and $51.9
million, respectively. We expect to fund these expenditures from several
sources, which may include cash generated by operations, temporary use of
short-term debt, sale of medium-term notes, capital leases, RAC recoveries,
insurance recoveries and equity infusions from SJI.
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In June 2000, SJI contributed $8 million of equity capital to SJG.
In July 2000, SJG issued a total of $35 million of senior secured debt
under its Medium Term Note program (MTN). Notes totaling $15 million were
issued at 7.70%, maturing in 2015; notes totaling $10 million were issued at
7.97%, maturing in 2018; and notes totaling $10 million were issued at 7.90%,
maturing in 2030. The net proceeds of these note issuances were used to retire
short-term debt.
Ratio of Earnings to Fixed Charges
The company's ratio of earnings to fixed charges for each of the
periods indicated is as follows:
Twelve Months
Ended
Years Ended December 31, June 30,
------------------------------------------ --------
1995 1996 1997 1998 1999 2000
2.3x 2.5x 2.6x 2.2x 2.5x 2.5x
The ratio of earnings to fixed charges represents, on a pre-tax basis,
the number of times earnings cover fixed charges. Earnings consist of net
income, to which has been added fixed charges and taxes based on income of the
company, excluding the cumulative effect of an accounting change. Fixed
charges consist of interest charges and preferred securities dividend
requirements and an interest factor in rentals.
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PART II -- OTHER INFORMATION
Item l. Legal Proceedings
Information required by this Item is incorporated by reference to Part I,
Item 1, Note 5, beginning on page 11.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have interest rate risk exposure related to short-term debt. For
information regarding our exposure related to this risk, see Item 7A in our
Form 10-K for the year ended December 31, 1999. Our market risks have not
materially changed from December 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (submitted only in electronic
format to the Securities and Exchange Commission).
(b) On June 30, 2000, July 5, 2000 and July 6, 2000, South Jersey Gas
Company filed Forms 8-K in relation to the issuance of a total of
$35,000,000 of Secured Medium Term Notes. The company registered the
Notes under the Securities Act of 1933 pursuant to a Registration
Statement on Form S-3 (File No. 333-62019).
Items reported include:
Item 5. Other Events
Item 7. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTH JERSEY GAS COMPANY
(Registrant)
Dated: August 14, 2000 By: /s/ David A. Kindlick
David A. Kindlick
Senior Vice President, Finance & Rates
Dated: August 14, 2000 By: /s/ William J. Smethurst, Jr.
William J. Smethurst, Jr.
Vice President and Treasurer
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SOUTH JERSEY GAS COMPANY
Index to Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(Submitted only in electronic format to
the Securities and Exchange Commission).
SJG-22
