Page 1 of 22
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1994
Commission File Number 1-6364
SOUTH JERSEY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1901645
(State or other jurisdiction of (I.R.S. Employer's
incorporation of organization) Identification No.)
Number One South Jersey Plaza, Route 54, Folsom, NJ 08037
(Address of principal executive offices) (Zip Code)
(609) 561-9000
(Registrant's telephone number, including area code)
Former name, former address, and former fiscal year, if changed
since last report
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 9, 1994, there were 10,454,374 shares of the
registrant's common stock outstanding.
No Exhibits are required with this Report
and there is no Exhibit Index.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -- See Pages 3 through 14
- 2 -
<TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
- - -------------------------------------------------------------------------------------
(In Thousands Except for Share Data)
<CAPTION>
Three Months Ended
June 30,
- - -------------------------------------------------------------------------------------
1994 1993
-----------------------------
<S> <C> <C>
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $47,197 $46,638
Nonutility . . . . . . . . . . . . . . . . . . . 20,148 18,512
------------- -------------
Total Operating Revenues . . . . . . . . . . 67,345 65,150
------------- -------------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 25,631 25,377
Operations - Utility . . . . . . . . . . . . . . 9,176 8,643
Nonutility. . . . . . . . . . . . . 16,057 15,633
Maintenance. . . . . . . . . . . . . . . . . . . 2,202 1,998
Depreciation and Depletion . . . . . . . . . . . 4,099 3,819
Federal Income Taxes . . . . . . . . . . . . . . 125 (115)
State Gross Receipts & Franchise Taxes . . . . . 4,479 4,732
Other Taxes. . . . . . . . . . . . . . . . . . . 1,191 1,078
------------- -------------
Total Operating Expenses . . . . . . . . . . 62,960 61,165
------------- -------------
Operating Income . . . . . . . . . . . . . . . . . 4,385 3,985
Interest Charges . . . . . . . . . . . . . . . . . 3,840 3,908
------------- -------------
Income Before Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 545 77
Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 46 47
------------- -------------
Net Income Applicable to Common Stock. . . . . . . $499 $30
============= =============
Average Shares of Common Stock Outstanding . . . . 9,974,210 9,635,788
============= =============
Earnings Per Common Share . . . . . . . . . . $0.05 $0.00
============= =============
Dividends Declared Per Common Share. . . . . . . . $0.36 $0.36
============= =============
See notes to condensed consolidated financial statements.
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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
- - -------------------------------------------------------------------------------------
(In Thousands Except for Share Data)
Six Months Ended
June 30,
- - -------------------------------------------------------------------------------------
1994 1993
-----------------------------
Utility. . . . . . . . . . . . . . . . . . . . . $170,198 $149,082
Nonutility . . . . . . . . . . . . . . . . . . . 36,090 29,515
------------- -------------
Total Operating Revenues . . . . . . . . . . 206,288 178,597
------------- -------------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 98,683 80,107
Operations - Utility . . . . . . . . . . . . . . 18,458 17,006
Nonutility. . . . . . . . . . . . . 31,202 26,347
Maintenance. . . . . . . . . . . . . . . . . . . 4,568 3,917
Depreciation and Depletion . . . . . . . . . . . 8,099 7,535
Federal Income Taxes . . . . . . . . . . . . . . 5,497 5,053
State Gross Receipts & Franchise Taxes . . . . . 19,233 18,811
Other Taxes. . . . . . . . . . . . . . . . . . . 2,351 1,994
------------- -------------
Total Operating Expenses . . . . . . . . . . 188,091 160,770
------------- -------------
Operating Income . . . . . . . . . . . . . . . . . 18,197 17,827
Interest Charges . . . . . . . . . . . . . . . . . 7,844 7,589
------------- -------------
Income Before Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 10,353 10,238
Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 92 94
------------- -------------
Income Before Cumulative Effect
of a Change in Accounting Principle. . . . . . . 10,261 10,144
Cumulative Effect of a Change in
Accounting Principle . . . . . . . . . . . . . . 0 382
------------- -------------
Net Income Applicable to Common Stock. . . . . . . $10,261 $10,526
============= =============
Average Shares of Common Stock Outstanding . . . . 9,930,383 9,601,570
============= =============
Earnings Per Common Share:
Before Cumulative Effect
of a Change in Accounting Principle. . . . . . $1.03 $1.06
Cumulative Effect of a Change in
Accounting Principle . . . . . . . . . . . . . 0.00 0.04
------------- -------------
Earnings Per Common Share . . . . . . . . . . $1.03 $1.10
============= =============
Dividends Declared Per Common Share. . . . . . . . $0.720 $0.713
============= =============
See notes to condensed consolidated financial statements.
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</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
- - ----------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
June 30, December 31,
-------------------- ----------
1994 1993 1993
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
- - ------
Property, Plant & Equipment:
Utility Plant, at original cost. . . . . . . . . . . $487,826 $455,418 $473,067
Accumulated Depreciation & Amortization. . . . . . (130,947) (121,703) (126,722)
Nonutility Property & Equipment, at cost . . . . . . 60,569 58,504 59,106
Accumulated Depreciation & Depletion . . . . . . . (31,520) (28,663) (30,065)
--------- --------- ---------
Property, Plant & Equipment - Net. . . . . . . 385,928 363,556 375,386
--------- --------- ---------
Available-for-Sale Securities. . . . . . . . . . . . . 917 917 917
--------- --------- ---------
Current Assets:
Cash and Cash Equivalents. . . . . . . . . . . . . . 11,860 4,093 9,935
Accounts Receivable. . . . . . . . . . . . . . . . . 39,843 32,457 31,026
Unbilled Revenues. . . . . . . . . . . . . . . . . . 3,083 3,215 18,502
Provision for Uncollectibles . . . . . . . . . . . . (1,042) (1,083) (1,026)
Natural Gas in Storage, average cost . . . . . . . . 10,020 4,511 12,202
Materials and Supplies, average cost . . . . . . . . 11,190 11,679 11,489
Assets Held for Disposal . . . . . . . . . . . . . . 342 348 345
Prepaid Gross Receipts and Franchise Taxes . . . . . 10,543 0 0
Other Current Assets . . . . . . . . . . . . . . . . 3,251 3,178 2,426
--------- --------- ---------
Total Current Assets . . . . . . . . . . . . . 89,090 58,398 84,899
--------- --------- ---------
Accounts Receivable - Merchandise. . . . . . . . . . . 2,224 2,266 2,221
--------- --------- ---------
Deferred Debits:
Gross Receipts and Franchise Taxes . . . . . . . . . 5,468 5,868 5,668
Environmental Remediation Costs. . . . . . . . . . . 29,205 15,015 26,223
Income Taxes - Flowthrough Depreciation. . . . . . . 17,128 15,839 17,296
Deferred Fuel Costs - Net. . . . . . . . . . . . . . 0 0 5,345
Postretirement Benefit Costs . . . . . . . . . . . . 6,297 1,951 3,902
Other. . . . . . . . . . . . . . . . . . . . . . . . 10,269 11,822 9,921
--------- --------- ---------
Total Deferred Debits. . . . . . . . . . . . . 68,367 50,495 68,355
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . . $546,526 $475,632 $531,778
========= ========= =========
See notes to condensed consolidated financial statements.
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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
- - ----------------------------------------------------------------------------------------
(In Thousands)
June 30, December 31,
-------------------- ----------
1994 1993 1993
- - ----------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
- - ------------------------------
Common Equity:
Common Stock . . . . . . . . . . . . . . . . . . . . $13,066 $12,127 $12,256
Premium on Common Stock. . . . . . . . . . . . . . . 105,897 92,116 94,381
Retained Earnings. . . . . . . . . . . . . . . . . . 37,001 36,088 33,889
--------- --------- ---------
Total Common Equity. . . . . . . . . . . . . . 155,964 140,331 140,526
--------- --------- ---------
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value
$100 a share:
Authorized - 50,004, 50,904
and 50,904 shares
Outstanding -
Series A, 4.70% -- 5,700, 6,600
and 6,600 shares. . . . . . . 570 660 660
Series B, 8% -- 19,242, 19,242
and 19,242 shares. . . . . . . . 1,924 1,924 1,924
--------- --------- ---------
Total Preferred Stock. . . . . . . . . . . . . 2,494 2,584 2,584
--------- --------- ---------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . 139,827 151,091 144,305
--------- --------- ---------
Current Liabilities:
Notes Payable to Banks . . . . . . . . . . . . . . . 84,800 48,400 82,750
Current Maturities of Long-Term Debt . . . . . . . . 10,159 8,329 8,230
Accounts Payable . . . . . . . . . . . . . . . . . . 25,071 24,440 27,814
Customer Deposits. . . . . . . . . . . . . . . . . . 5,714 5,666 5,781
Gross Receipts & Franchise Taxes Accrued . . . . . . 0 1,235 13,472
Environmental Remediation Costs. . . . . . . . . . . 5,009 0 3,624
Interest Accrued and
Other Current Liabilities . . . . . . . . . . . . . 9,902 8,017 9,707
--------- --------- ---------
Total Current Liabilities. . . . . . . . . . . 140,655 96,087 151,378
--------- --------- ---------
Deferred Credits:
Pension and Other Postretirement Benefits. . . . . . 9,126 3,827 6,602
Accumulated Deferred Income Taxes. . . . . . . . . . 64,181 58,295 63,648
Investment Tax Credits . . . . . . . . . . . . . . . 7,233 7,623 7,428
Deferred Revenues. . . . . . . . . . . . . . . . . . 9,870 7,668 0
Environmental Remediation Costs. . . . . . . . . . . 9,778 0 8,260
Other. . . . . . . . . . . . . . . . . . . . . . . . 7,398 8,126 7,047
--------- --------- ---------
Total Deferred Credits . . . . . . . . . . . . 107,586 85,539 92,985
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . . $546,526 $475,632 $531,778
========= ========= =========
See notes to condensed consolidated financial statements.
- 6 -
</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
- - ----------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
-------------------
1994 1993
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock. . . . . . . . . . . $10,261 $10,526
Adjustments to Reconcile Net Income to Cash Flows:
Depreciation, Depletion and Amortization . . . . . . . . 9,480 8,847
Provision for Losses on Accounts Receivable. . . . . . . 368 360
Revenues and Fuel Costs Deferred - Net . . . . . . . . . 15,215 (5,293)
Deferred and Non-Current Federal Income Taxes
and Credits - Net . . . . . . . . . . . . . . . . . . . 638 1,179
Cumulative Effect of a Change in Accounting Principle. . 0 (382)
Environmental Remediation Costs - Net. . . . . . . . . . (79) 314
Changes in:
Accounts Receivable. . . . . . . . . . . . . . . . . . 6,250 7,851
Inventories. . . . . . . . . . . . . . . . . . . . . . 2,481 5,356
Other Current Assets . . . . . . . . . . . . . . . . . (822) (1,023)
Current Gross Receipts & Franchise Taxes - Net . . . . (24,015) (28,152)
Accounts Payable and Other Accrued Liabilities . . . . (2,615) (9,541)
Other - Net. . . . . . . . . . . . . . . . . . . . . . . (771) 1,114
-------- --------
Net Cash Provided by (Used in) Operating Activities . . . . . 16,391 (8,844)
-------- --------
Cash Flows from Investing Activities:
Capital Expenditures, Cost of Removal and Salvage. . . . . (18,781) (16,709)
-------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . (18,781) (16,709)
-------- --------
Cash Flows from Financing Activities:
Proceeds from Sale of Long-Term Debt . . . . . . . . . . . 0 35,000
Net Borrowings from (Repayments of) Lines of Credit. . . . 2,050 (12,700)
Principal Repayments of Long-Term Debt . . . . . . . . . . (2,821) (2,503)
Dividends on Common Stock. . . . . . . . . . . . . . . . . (7,150) (6,846)
Proceeds from Sale of Common Stock . . . . . . . . . . . . 12,326 4,599
Repurchase of Preferred Stock. . . . . . . . . . . . . . . (90) (90)
-------- --------
Net Cash Provided by Financing Activities . . . . . . . . . . 4,315 17,460
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents. . . . . 1,925 (8,093)
Cash and Cash Equivalents at Beginning of Period. . . . . . . 9,935 12,186
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . $11,860 $4,093
======== ========
Non Cash Investing and Financing Activities - During 1994, a capital lease
obligation of $272 was incurred when one of the Company's subsidiaries
entered into a lease for new vehicles and equipment.
See notes to condensed consolidated financial statements
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</TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1.
The condensed consolidated financial statements include
the accounts of South Jersey Industries, Inc. (the Company
or SJI) and all of its subsidiaries. Certain intercompany
transactions, amounting to approximately $1.2 million and
$1.3 million for the three-month periods and $2.1 million
and $2.3 million for the six-month periods ended June 30,
1994 and 1993, respectively, were not eliminated. Such
amounts were capitalized to utility plant or environmental
remediation costs on the South Jersey Gas Company (SJG) books
of account (See Note 6). 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. In the opinion of management, the condensed
consolidated financial statements reflect all adjustments
(which include only normal recurring adjustments and the
adjustments described in Notes 4 and 5) necessary for a fair
statement of the financial position and the operating results
at the dates and for the periods presented. The businesses
of the Company are subject to seasonal fluctuations and,
accordingly, this interim financial information should not be
considered a basis for estimating the results of operations
for the full year.
Note 2.
The Company has 20,000,000 shares of Common Stock
authorized of which the following shares were issued and
outstanding:
1994 1993
Beginning Balance January 1, 9,804,576 9,497,700
Issued during period:
Employees' Stock Ownership Plan 4,364 3,743
Dividend Reinvestment &
Stock Purchase Plan 640,803 193,271
Stock Option & Stock
Appreciation Rights Plan 3,060 6,870
---------- ---------
Ending Balance June 30, 10,452,803 9,701,584
========== =========
The par value ($1.25 share) of the stock issued in 1994
and 1993 has been credited to Common Stock and the net excess
over par value of $11,516,676 and $4,343,785 received for
such stock for the six months ended June 30, 1994 and 1993,
respectively, has been credited to Premium on Common Stock.
The Company has a Stock Option and Stock Appreciation
Rights Plan under which not more than 306,000 shares in the
aggregate may be issued to officers and other key employees
of the Company and its subsidiaries. No options or stock
appreciation rights may be granted under the plan after
-8-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 2. (Continued)
January 23, 1997. At June 30, 1994, the Company had 50,560
options outstanding, exercisable at prices from $17.16 to
$24.69 per share. At June 30, 1993, the Company had 57,390
options outstanding, exercisable at prices from $17.16 to
$17.89 per share. During the six-month periods ended June
30, 1994 and 1993, 3,060 and 6,870 options were exercised,
respectively, at a price of $17.89 per share. On September
16, 1993, the Company granted options on 10,000 shares
exercisable at $24.69, the fair market value on the date of
grant. No options were granted in 1994. No stock
appreciation rights have been issued under the plan. The
stock options outstanding at June 30, 1994 and 1993 did not
have a material effect on the earnings per share calcula-
tions. The Company also has a Dividend Reinvestment and
Stock Purchase Plan and an Employees' Stock Ownership Plan.
Note 3.
There are certain restrictions under various loan
agreements as to the amount of cash dividends or other
distributions that may be paid on the common stock of certain
subsidiaries. At the consolidated level, however, there were
no restrictions on the Company's aggregate equity in its
subsidiaries' retained earnings which totaled approximately
$37.0 million at June 30, 1994.
Note 4.
In February 1992, the Financial Accounting Standards
Board issued FASB No. 109 entitled "Accounting for Income
Taxes". The Company adopted this statement in 1993. Its
adoption resulted in the recording on the balance sheet of
additional assets and liabilities, with the difference being
credited to earnings as a cumulative effect change in
accounting principle. The primary asset created as a result
of adopting FASB No. 109 is income taxes - flowthrough
depreciation in the amount of $17,632,400 as of January 1,
1993. This amount represents the recording of the net tax
effect of excess liberalized depreciation over book
depreciation on utility plant because of temporary
differences for which, prior to FASB No. 109, deferred taxes
had not previously been provided. These tax benefits were
previously flowed through in rates and management believes
that as the amortization of the asset occurs, it will be
recoverable through rates. Management is seeking such
recovery as part of its January 7, 1994 petition for a
general base rate increase (See Note 7).
The cumulative effect of this change as of January 1,
1993, was to increase income by $382,100, or $0.04 per share.
Restatement of prior years for the effect of FASB No. 109
would not have materially changed previously reported
earnings.
-9-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 4. (Continued)
The Company and its subsidiaries provide postretirement
health care and life insurance benefits to certain retired
employees. The aggregate amounts paid during the three-month
and six-month periods ended June 30, 1994 and 1993 were not
material.
Effective January 1, 1993, the Company adopted FASB No.
106 entitled "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 basis.
The Company has elected to recognize the unfunded transition
obligation of approximately $27.8 million over a period of
twenty years.
The majority of the Company's costs apply to its utility
subsidiary, SJG, which is currently recovering these costs on
a pay-as-you-go basis through its rates. SJG is recording a
regulatory asset pursuant to a Board of Public Utilities
(BPU) order for the amount by which the cost exceeds the
current level recovered in rates. The recovery of this
regulatory asset, which amounted to approximately $6.3
million at June 30, 1994, is being addressed in SJG's current
base rate case proceeding and it is expected that the
recovery will be included in base rates (See Note 7).
Note 5.
FASB No. 112, "Employers' Accounting for Postemployment
Benefits" became effective in 1994. This statement requires
the Company to accrue the estimated cost of benefits provided
by an employer to former or inactive employees after
employment, but before retirement, during the years the
employee provides services. The adoption of FASB No. 112 did
not have a material effect on the results of operations or
financial position of the Company.
The Company also adopted FASB No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", which
became effective in 1994. Adoption of this statement had no
impact on the results of operations or financial position of
the Company.
Note 6.
In May 1990, the BPU approved the stipulation entered
into by the parties which allowed SJG to collect 100 percent
of its gas costs which reflect producer-supplier take-or-pay
costs from ratepayers. All costs billed by pipeline
suppliers on a volumetric basis were passed through on a
current basis through July 1993. The majority of the costs
-10-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 6. (Continued)
billed on a fixed basis have been paid to a pipeline over a
3-year period, but are being recovered from ratepayers over a
6-year period without interest. This recovery mechanism
started in November 1990. The amount of these costs which
have been flowed through to SJG, net of refunds, was
approximately $0.5 million for the three-month period and
$2.0 million for the six-month period ended June 30, 1993.
As previously disclosed, SJG had anticipated being billed
additional fixed costs of approximately $1.1 million under
this stipulation. However, on June 24, 1994 the United
States Courts of Appeals issued an order overturning a
previous Federal Energy Regulatory Commission (FERC) ruling
which allowed for the recovery of take-or-pay costs by one of
SJG's pipelines. This order has been remanded to the FERC
for further action.
SJG, in the normal course of conducting business, has
entered into long-term contracts for the supply of natural
gas, firm transportation, and long-term firm gas storage
service. The earliest expiration of any of these contracts
is 1997; however, the initial primary term of this agreement
can be extended annually through October 1999. All of the
transportation and storage service agreements between SJG and
its interstate pipeline suppliers are provided under tariffs
on file with, and approved by, the FERC. SJG's cumulative
obligations for demand charges paid to its suppliers for all
of these services is approximately $4.4 million per month
which is recovered on a current basis through its Levelized
Gas Adjustment Clause (LGAC).
During 1992, the FERC issued a series of orders
requiring all interstate pipelines to restructure their
services. Included in these orders is FERC Order No. 636
which required pipelines to separate their sales and
transportation services and change their rate design. Also,
as a result of these orders, SJG will incur certain
transition costs that are associated with its pipeline
suppliers unbundling their services. Although SJG's total
liability for such costs cannot yet be determined, a
liability of approximately $0.9 million as of June 30, 1994,
is recorded on the consolidated balance sheet. This amount
represents the estimated remaining balance of such transition
costs which are being billed to SJG by a pipeline over a 2-
year period which began in April 1994. SJG expects to
recover any costs resulting from these orders through its
LGAC.
SJI and its subsidiaries have responded to requests from
the U.S. Environmental Protection Agency and the New Jersey
Department of Environmental Protection for information
regarding several sites at which SJG or predecessor companies
operated gas manufacturing plants or a nonutility subsidiary
-11-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 6. (Continued)
previously operated a fuel oil business. Manufactured gas
operations were terminated at all SJG sites more than 30
years ago. Through June 30, 1994, the Company has recorded
environmental and remediation costs of $33.1 million, of
which $18.3 million has been expended. Management's estimate
of the remaining liability of approximately $14.8 million is
reflected on the consolidated balance sheet under the
captions "Current Liabilities" and "Deferred Credits". Such
amounts have not been adjusted for potential insurance
recovery, which management is pursuing. The first of such
insurance recoveries, amounting to $1.5 million, was received
by SJG on July 7, 1994. Recorded amounts include estimated
costs to be incurred through 1997 based on projected
investigation and remediation work plans using existing
technologies. Estimates beyond this time cannot be made on a
reliable basis due to changing technology, government
regulations and site specific requirements and, therefore,
have not been recorded; however, the total costs to be
incurred after 1997 may be substantial. The major portion of
such costs relate to the remediation of former gas
manufacturing sites of SJG, which has recorded and expended
amounts of $31.1 million and $17.7 million, respectively,
through June 30, 1994. SJG has established a regulatory
asset for these costs and is recovering its costs as expended
over 7-year amortization periods, as authorized by the BPU.
SJG has recovered $3.6 million through rates as of June 30,
1994. The balance of such costs and payments, amounting to
$2.0 million and $0.6 million, respectively, relates to other
environmental related costs including nonutility sites
previously used in fuel oil operations.
In June 1991, new gross receipts and franchise tax
(GRAFT) legislation was adopted in New Jersey. The new
legislation accelerated the tax payments to a current year
basis which required SJG to make additional annual payments
of $15.4 million and $12.2 million on April 1, 1993 and April
4, 1994, respectively. In 1992, SJG received a BPU rate
order allowing recovery of the carrying costs associated with
the acceleration of these tax payments through 1993. SJG
petitioned the BPU for recovery of the impact of the carrying
cost from the accelerated payment in 1994 as part of its
current base rate filing (See Note 7).
Note 7.
On January 7, 1994, SJG petitioned the BPU for a general
base rate increase of approximately $26.6 million based on a
projected overall rate of return of 10.36 percent, including
a 12.75 percent return on equity. As part of this petition,
SJG is seeking recovery of the carrying costs on expenditures
for environmental remediation of former gas manufacturing
sites and on the accelerated payment of gross receipts and
franchise taxes in 1994. In addition, SJG is seeking
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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 7. (Continued)
recovery of the additional cost of providing postretirement
benefits other than pensions in an effort to begin funding
its increasing liability for such costs (See Note 4).
At the same time this case was filed, SJG also filed
"Motion for Summary Decision" regarding three selected
issues: (i) ratemaking recognition of the 1994 cash working
capital impacts on GRAFT payments related to recent
legislation; (ii) ratemaking recognition of the carrying
costs associated with the Remediation Adjustment Clause; and
(iii) a determination that the BPU strive to award SJG
sufficient rate relief so that its securities will receive at
least an "A" rating.
Also filed with this case was a "Motion for Expedited
Handling" related to (i) the extension of expansion of SJG's
Economic Development Rate; and (ii) an increase in the gas
air conditioning credit in the LGAC.
On June 23, 1994, in response to SJG's filed motions,
the BPU issued an "Order on Motions". In summary, the BPU
ordered that (i) the ratemaking recognition of the 1994 cash
working capital impacts on GRAFT payments issue be moved into
the rate case proceedings at the Office of Administrative Law
(OAL); (ii) authorization to recover carrying charges on the
unamortized remediation costs be denied; however, this is
still subject to appeal; (iii) SJG's request that the issue
of rate relief sufficient to obtain an "A" rating be
transmitted to the OAL for additional evidentiary hearings;
and (iv) SJG's Economic Development/Air Conditioning Rate
Design package be retained for prompt resolution by the BPU.
Hearings were held as part of SJG's annual
levelized gas adjustment clause addressing the
reasonableness of SJG's gas purchasing practices. The
New Jersey Division of the Ratepayer Advocate (Ratepayer
Advocate) filed testimony in these hearings seeking to
disallow approximately $10.0 million of gas purchase
related costs. The Ratepayer Advocate contends that SJG
should not have acquired certain pipeline capacity and
should have acquired gas supplies with less flexibility
and under shorter term contracts. If the BPU granted
all or a material part of the disallowance sought by the
Ratepayer Advocate, SJG's (and therefore the Company's)
results of operations would be materially and adversely
affected. SJG believes that the testimony introduced by
the Ratepayer Advocate is unfounded and its management
has testified that had it followed the Ratepayer
Advocate's proposal, it would have jeopardized its
ability to meet its obligation to serve its firm
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SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 7. (Continued)
customers. Also, SJG has presented testimony through an
independent expert of national reputation that both its
capacity purchasing and gas supply purchasing practices
are reasonable and prudent. Management believes that
its position will be sustained and that its gas and
capacity purchasing practices are reasonable, prudent
and in the best interests of its customers. Management
does not expect that the outcome of these hearings will
have a material effect on the results of operations of
the Company or adversely affect liquidity or debt
covenants.
-14-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
General
Seasonal aspects affect reported revenues, operating expenses
and cash flows of the Company's subsidiaries. Utility operations
are usually greater during the first and fourth quarters of the
year, while sand mining and construction operations are usually
greater during the second and third quarters of the year.
Second Quarter of 1994 Compared to Second Quarter of 1993
Utility Revenues increased in 1994 principally reflecting off
system sales and a reduction in temperature adjustment clause
customer credits (see six-month comparison for discussion of
temperature adjustment clause). Nonutility revenues increased in
1994 principally due to increased sales by The Morie Company, Inc.
(Morie), the Company's sand mining and processing subsidiary.
South Jersey Energy Company (SJE), SJI's energy service
subsidiary, and R & T Group, Inc. (R&T), SJI's general
construction subsidiary, also increased sales in 1994.
State Gross Receipts and Franchise Taxes are lower in 1994
due to the lower unit sales subject to this tax.
Net income is higher in 1994 principally due to increased
nonutility net income. Earnings per average share of common stock
is higher due to the increased net income, partially offset by a
higher average number of shares outstanding.
First Six Months of 1994 compared to First Six Months of 1993
Utility Revenues increased in 1994 due to increased volumes
of gas sold and transported, including off system sales. Total
volumes of gas sold and transported in 1994 amounted to
approximately 39.5 million Mcf compared to 30.4 million Mcf in
1993. Off system sales amounted to 7.1 million Mcf in 1994. The
increased revenues in 1994 were partially offset by temperature
adjustment clause credits to be passed back to customers as a
result of colder temperatures experienced in 1994. This clause
serves the purpose of insulating SJG from the earnings impact of
extremely warm temperatures and insulating customers from the
effects of extremely cold temperatures. SJG added approximately
3,300 customers in 1994 compared to 3,100 in 1993. Nonutility
revenues increased in 1994 due to increased sales by Morie and
SJE.
Gas Purchased for Resale increased in 1994 principally due to
higher volume gas sales. Utility operation expenses are higher
primarily due to higher administrative and general costs.
Maintenance expense increased in 1994 principally due to increases
in SJG's production and distribution costs. Nonutility operation
expenses are higher in 1994 principally due to costs associated
with increased sales.
-15-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
First Six Months of 1994 compared to First Six Months of 1993
(Continued)
Depreciation is higher in 1994 due to increased investment in
property, plant and equipment. State Gross Receipts and Franchise
Taxes are higher in 1994 due to higher volume gas sales subject to
this tax.
Interest charges increased in 1994 due to an increase of the
level of long-term debt outstanding, partially offset by a
decrease in interest associated with overcollections of purchased
natural gas cost.
In 1993, the Company implemented FASB No. 109, "Accounting
for Income Taxes", which resulted in an increase in net income of
$382,100 (See Note 4). The Company also implemented FASB No.
106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", which resulted in the recording of a regulatory asset
for the level of costs not currently recovered in rates (See Note
4). The implementation of FASB No. 109 and FASB No. 106 is not
expected to impact cash flows or liquidity.
Liquidity
Management anticipates that future operations will
continue to generate sufficient cash flows to meet its
operating needs, pay dividends, repay current portions of
long-term debt, and finance a portion of the Company's
planned capital expenditures. Cash flow and the level of
short-term debt has been impacted by the acceleration of
gross receipts and franchise tax payments amounting to $15.4
million in 1993 and $12.2 million in 1994. SJG has recovered
the costs associated with such payments in 1993 in rates as
allowed by the New Jersey Board of Public Utilities (BPU) and
has petitioned the BPU for continued recovery. In addition,
SJG plans to enter into longer-term bank credit arrangements
and plans to issue unsecured medium-term notes to reduce
levels of short-term debt which were impacted by the
accelerated tax payments and environmental remediation
expenditures as discussed below. Such financing plans are
subject to the approval of the BPU.
Seasonal aspects of the Company's subsidiary operations
affect cash flows, revenues and operating expenses and,
generally, the level of current assets and current
liabilities. Utility operations are usually greater during
the first and fourth quarters, reflecting the impact of
higher sales resulting from colder temperatures. The
increase in accounts receivable at June 30, 1994 principally
reflects increased utility billings related to colder
temperatures, higher large volume natural gas sales and
transportation and receivables related to off system sales.
The level of accounts receivable also reflects an increase in
residential and commercial utility delinquencies, however,
customers appear to be systematically paying down their
balances during the summer months. The increase in natural
-16-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued))
gas inventory is principally a timing difference relating to
inventory building for the 1994-1995 winter season. Sand
mining and construction operations are usually greater during
the second and third quarters, reflecting higher demand for
sand products and construction services during warmer
weather.
Cash flows from operations are impacted by amounts
collected in excess of, or undercollections from, tariffs
established under SJG's Levelized Gas Adjustment Clause
(LGAC). Overcollections represent increases in cash flow
while undercollections reflect decreases in cash flow. For
the six months ended June 30, 1994, cash flow from
overcollections increased cash flow by $15.2 million. This
amount will be subject to recovery by SJG's customers in the
1994-1995 LGAC recovery period. Overcollections are
reflected in the balance sheet under the caption "Deferred
Revenues" and undercollections are reflected in the balance
sheet under the caption "Deferred Fuel Costs - Net".
Short-term bank lines of credit aggregate $183.0 million
of which $98.2 million was unused at June 30, 1994. The
credit lines are uncommitted and unsecured, with borrowings
thereunder being effected for various terms of less than one
year, at interest rates less than the prime rate of interest,
in effect at the time of borrowing.
Cash flow from nonutility operations is generally
retained in the nonutility companies with amounts in excess
of cash requirements being passed up to the Company either as
a dividend or as a temporary short-term loan. Such
activities are not considered material in relation to the
financial statements taken as a whole.
The adoption of FASB No. 109 "Accounting for Income
Taxes" in 1993 resulted in the creation of a regulatory asset
and a deferred income tax liability with the net difference
being credited to income as a cumulative effect of a change
in accounting principle. It is expected that as the
amortization of the asset occurs, such amortization will be
recoverable through rates (See Note 4). Also, FASB No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions", requires an accrual basis of accounting for such
benefits. Its adoption in 1993, as measured in accordance
with the statement, results in a projected annual cost of
$5.6 million in 1994, including $1.4 million amortization of
the actuarially computed unfunded transition obligation of
$27.8 million. The unfunded transition obligation is being
recognized over 20 years. The majority of the postretirement
benefit costs apply to SJG, which, as prescribed by the BPU
is recorded as a regulatory asset and amounts to
approximately $6.3 million at June 30, 1994 (See Note 4).
This amount represents the excess of the annual cost over the
level of costs recovered under current rates. The recovery
-17-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
of this regulatory asset is addressed in the base rate case
filed with the BPU in January 1994, and it is expected that
the recovery of such asset will be included in base rates
(See Note 7). It is not expected that the adoption of FASB
No. 106 and No. 109 will adversely impact liquidity or debt
covenants. In addition, the application of FASB No. 112,
Employers' Accounting for Postemployment Benefits", and FASB
No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" which became effective in 1994, did not
have a material effect on the Company's financial statements
and cash flows.
During 1992, the FERC issued a series of orders
requiring all interstate pipelines to restructure their
services. Included in these orders is FERC Order No. 636
which required the pipelines to separate sales and
transportation services and to change their rate design.
Also, as a result of these orders, SJG will incur certain
transition costs that are associated with its pipeline
suppliers unbundling their services. Although SJG's total
liability for such cannot yet be determined, a liability of
approximately $0.9 million is recorded as of June 30, 1994.
This amount represents the estimated remaining balance of
transition costs which are being billed by a pipeline over a
2-year period beginning April 1994.
Under FERC Order No. 636, as amended, SJG is responsible
for securing and maintaining its own gas supplies from
producers and other suppliers. SJG has entered into several
contracts which, when combined, replaced 100 percent of long-
term gas supplies previously purchased from interstate
pipelines. SJG does not expect any adverse impact on its
operations, cash flows or liquidity from the implementation
of FERC Order No. 636. SJG expects to recover any costs
resulting from these orders through its LGAC.
The FERC's actions unbundling the services of natural
gas pipelines under Orders No. 636 and 547 were designed to
increase competition by providing greater access by buyers
and sellers to pipeline systems. As a result, companies such
as SJG and SJE have greater flexibility in marketing gas,
transportation and storage capacity, thereby providing
greater business opportunities.
SJG, in the normal course of conducting business, has
entered into long-term contracts for the supply of natural
gas, firm transportation, and long-term firm gas storage
service. The earliest expiration of any of these contracts
is 1997; however, the initial primary term of this agreement
can be extended annually through October 1999. All of the
transportation and storage service agreements between SJG and
its interstate pipeline suppliers are provided under tariffs
on file with, and approved by, the FERC. SJG's cumulative
obligations for demand charges paid to its suppliers for all
-18-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
of these services is approximately $4.4 million per month
which is recovered on a current basis through its LGAC.
As described in Note 7, hearings are being heard as part
of SJG's annual LGAC addressing the reasonableness of SJG's
gas purchasing practices. The New Jersey Division of the
Ratepayer Advocate (Ratepayer Advocate) has filed testimony
seeking to disallow approximately $10.0 million per year of
gas purchase costs, an amount material to results of
operations and cash flows. SJG believes that the testimony
introduced by the Ratepayer Advocate is unfounded and has
presented testimony, through an independent expert of
national reputation, that both its capacity purchasing and
gas supply purchasing practices are reasonable and prudent.
Management does not expect that the outcome of these hearings
will have a material effect on the results of operations of
the Company or adversely affect its liquidity or debt
covenants.
Through June 30, 1994, the Company has recorded
environmental remediation costs of $33.1 million, of which
$18.3 million has been expended. The remaining liability of
approximately $14.8 million is reflected in the balance sheet
under the captions "Current Liabilities" and "Deferred
Credits". Such amounts have not been adjusted for potential
insurance recovery, which management is pursuing (on July 7,
1994, SJG received an insurance recovery of $1.5 million).
Recorded amounts include estimated costs to be incurred
through 1997 based on projected investigation and remediation
work plans using existing technologies. Estimates beyond
this time cannot be made on a reliable basis due to changing
technology, government regulations and site specific
requirements and, therefore, have not been recorded; however,
the total costs to be incurred after 1997 could be
substantial. The major portion of such costs relate to the
remediation of former gas manufacturing sites of SJG, which
has recorded and expended amounts of $31.1 million and $17.7
million, respectively, through June 30, 1994. SJG has
established a regulatory asset for these costs and is
recovering its cost over 7-year amortization periods, as
authorized by the BPU. SJG has recovered $3.6 million
through rates as of June 30, 1994. The balance of such costs
and payments, amounting to $2.0 million and $0.6 million,
respectively, relates to other environmental related costs
including nonutility sites previously used in fuel oil
operations.
Capital Resources
The Company has a continuing need for cash resources and
capital, primarily to invest in new and replacement equipment
and facilities for its utility subsidiary. Total
construction expenditures for utility and nonutility
operations are estimated at $40.2 million for 1994, of which
-19-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Capital Resources (Continued)
$18.8 million has been expended through June 30, 1994.
Construction expenditures for 1995 and 1996 are estimated at
a level of approximately $33.0 million annually. Such
investment is expected to be funded from several sources,
including cash generated by operations, temporary use of
short-term debt, sale of first mortgage bonds, sale of common
stock and capital leases.
The proceeds of the Company's Dividend Reinvestment and
Stock Purchase Plan are used for general corporate purposes.
In the first six months of 1994, SJI issued 648,227 shares of
common stock through its various plans, including a Stock
Option and Stock Appreciation Rights Plan, its Dividend
Reinvestment and Stock Purchase Plan and Employees' Stock
Ownership Plan for approximately $12.3 million. A
substantial portion of these proceeds was received in June
1994, thereby impacting the level of cash at June 30, 1994.
For the same period in 1993, SJI issued 203,884 common shares
for approximately $4.6 million under such plans (shares
issued reflect the 2 percent stock dividend declared in the
first quarter of 1993).
On June 29, 1993, SJG sold $35.0 million of its First
Mortgage Bonds, 6.95% Series, and on April 29, 1992, SJG sold
$25.0 million of First Mortgage Bonds, 8.19% Series. The
proceeds of such issues were used to reduce short-term debt
incurred in connection with SJG's construction program.
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.
-20-
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Information required by this Item is incorporated by
reference to Part I, Item 1, Note 6, on pages 11 and 12
regarding contingent liabilities related to remediation and
clean-up of certain sites which included manufactured gas
operations; Note 7 on pages 12, 13 and 14 regarding SJG's
petition for rate increase filed on January 7, 1994 and
hearings held as part of SJG's levelized gas adjustment
clause as it relates to the reasonableness of SJG's gas
purchasing practices.
Item 6. Exhibits and Reports on Form 8-K
b. No reports on Form 8-K were filed during the quarter for
which this report is filed.
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SOUTH JERSEY INDUSTRIES, INC.
(Registrant)
Dated: August 9, 1994 By: /s/ Gerald S. Levitt
Gerald S. Levitt
Vice President and
Chief Financial Officer
Dated: August 9, 1994 By: /s/ Richard B. Tonielli
Richard B. Tonielli
Treasurer
-22-
