Page 1 of 19
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 March 31, 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 May 11, 1994, there were 9,972,839 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 12
- 2 -
<TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
- - -----------------------------------------------------------------------------------
(In Thousands Except for Share Data)
<CAPTION>
Three Months Ende
March 31,
-----------------------------
1994 1993
- - -----------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $123,001 $102,444
Nonutility . . . . . . . . . . . . . . . . . . . 15,942 11,003
------------- -------------
Total Operating Revenues . . . . . . . . . . 138,943 113,447
------------- -------------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 73,051 54,730
Operations - Utility . . . . . . . . . . . . . . 9,283 8,363
Nonutility. . . . . . . . . . . . . 15,146 10,715
Maintenance. . . . . . . . . . . . . . . . . . . 2,365 1,919
Depreciation and Depletion . . . . . . . . . . . 4,000 3,716
Federal Income Taxes . . . . . . . . . . . . . . 5,372 5,168
State Gross Receipts & Franchise Taxes . . . . . 14,754 14,079
Other Taxes. . . . . . . . . . . . . . . . . . . 1,160 915
------------- -------------
Total Operating Expenses . . . . . . . . . . 125,131 99,605
------------- -------------
Operating Income . . . . . . . . . . . . . . . . . 13,812 13,842
------------- -------------
Interest Charges . . . . . . . . . . . . . . . . . 4,003 3,681
------------- -------------
Income Before Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 9,809 10,161
------------- -------------
Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 46 47
------------- -------------
Income Before Cumulative Effect
of a Change in Accounting Principle. . . . . . . 9,763 10,114
------------- -------------
Cumulative Effect of a Change in
Accounting Principle . . . . . . . . . . . . . . 0 382
------------- -------------
Net Income Applicable to Common Stock. . . . . . . $9,763 $10,496
============= =============
Average Shares of Common Stock Outstanding . . . . 9,886,557 9,567,353
============= =============
Earnings Per Common Share:
Before Cumulative Effect
of a Change in Accounting Principle. . . . . . $0.99 $1.06
Cumulative Effect of a Change in
Accounting Principle . . . . . . . . . . . . . 0.00 0.04
------------- -------------
Earnings Per Common Share . . . . . . . . . . $0.99 $1.10
============= =============
Dividends Declared Per Common Share. . . . . . . . $0.360 $0.35
============= =============
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>
March 31, December 31,
--------------------------------
1994 1993 1993
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Property, Plant & Equipment:
Utility Plant, at original cost. . . . . . . . . . . $479,949 $448,845 $473,067
Accumulated Depreciation & Amortization. . . . . . (129,570) (119,910) (126,722)
Nonutility Property & Equipment, at cost . . . . . . 59,694 57,702 59,106
Accumulated Depreciation & Depletion . . . . . . . (30,716) (28,024) (30,065)
--------- --------- ----------
Property, Plant & Equipment - Net. . . . . . . 379,357 358,613 375,386
--------- --------- ----------
Available-for-Sale Securities. . . . . . . . . . . . . 917 917 917
--------- --------- ----------
Current Assets:
Cash and Cash Equivalents. . . . . . . . . . . . . . 9,659 8,965 9,935
Accounts Receivable. . . . . . . . . . . . . . . . . 57,525 46,370 31,026
Unbilled Revenues. . . . . . . . . . . . . . . . . . 12,792 12,686 18,502
Provision for Uncollectibles . . . . . . . . . . . . (1,033) (1,077) (1,026)
Natural Gas in Storage, average cost . . . . . . . . 2,367 990 12,202
Materials and Supplies, average cost . . . . . . . . 10,984 11,230 11,489
Assets Held for Disposal . . . . . . . . . . . . . . 343 349 345
Prepayments and Other. . . . . . . . . . . . . . . . 2,088 1,874 2,426
--------- --------- ----------
Total Current Assets . . . . . . . . . . . . . 94,725 81,387 84,899
--------- --------- ----------
Accounts Receivable - Merchandise. . . . . . . . . . . 2,150 2,627 2,221
--------- --------- ----------
Deferred Debits:
Gross Receipts and Franchise Taxes . . . . . . . . . 5,568 5,968 5,668
Environmental Remediation Costs. . . . . . . . . . . 26,047 15,114 26,223
Income Taxes - Flowthrough Depreciation. . . . . . . 17,212 15,839 17,296
Deferred Fuel Costs - Net. . . . . . . . . . . . . . 0 0 5,345
Postretirement Benefit Costs . . . . . . . . . . . . 4,886 949 3,902
Other. . . . . . . . . . . . . . . . . . . . . . . . 9,118 12,426 9,921
--------- --------- ----------
Total Deferred Debits. . . . . . . . . . . . . 62,831 50,296 68,355
--------- --------- ----------
Total. . . . . . . . . . . . . . . . . . $539,980 $493,840 $531,778
========= ========= ==========
See notes to condensed consolidated financial statements.
- 4 -
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
- - ---------------------------------------------------------------------------------------
(In Thousands) March 31, December 31,
--------------------------------
1994 1993 1993
- - --------------------------------------------------------------------------- ----------
CAPITALIZATION AND LIABILITIES
Common Equity:
Common Stock . . . . . . . . . . . . . . . . . . . . $12,464 $12,038 $12,256
Premium on Common Stock. . . . . . . . . . . . . . . 97859 90586 94381
Retained Earnings. . . . . . . . . . . . . . . . . . 40093 39528 33889
--------- --------- ----------
Total Common Equity. . . . . . . . . . . . . . 150416 142152 140526
--------- --------- ----------
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value
$100 a share:
Authorized - 50,904, 51,804
and 50,904 shares
Outstanding -
Series A, 4.70% -- 6,600, 7,500
and 6,600 shares. . . . . . . 660 750 660
Series B, 8% -- 19,242, 19,242 0 0 0
and 19,242 shares. . . . . . . . 1924 1924 1924
--------- --------- ----------
Total Preferred Stock. . . . . . . . . . . . . 2584 2674 2584
--------- --------- ----------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . 142035 118800 144305
--------- --------- ----------
Current Liabilities:
Notes Payable to Banks . . . . . . . . . . . . . . . 51600 44200 82750
Current Maturities of Long-Term Debt . . . . . . . . 10391 8065 8230
Accounts Payable . . . . . . . . . . . . . . . . . . 27284 24982 27814
Customer Deposits. . . . . . . . . . . . . . . . . . 5867 5677 5781
Gross Receipts & Franchise Taxes Accrued . . . . . . 28557 43762 13904
Environmental Remediation Costs. . . . . . . . . . . 3645 0 3624
Interest Accrued and
Other Current Liabilities . . . . . . . . . . . . . 11073 10521 9275
--------- --------- ----------
Total Current Liabilities. . . . . . . . . . . 138417 137207 151378
--------- --------- ----------
Deferred Credits:
Pension and Other Postretirement Benefits. . . . . . 7757 2945 6602
Accumulated Deferred Income Taxes. . . . . . . . . . 64105 58217 63648
Investment Tax Credits . . . . . . . . . . . . . . . 7331 7721 7428
Deferred Revenues. . . . . . . . . . . . . . . . . . 12056 16291 0
Environmental Remediation Costs. . . . . . . . . . . 8190 0 8260
Other. . . . . . . . . . . . . . . . . . . . . . . . 7089 7833 7047
--------- --------- ----------
Total Deferred Credits . . . . . . . . . . . . 106528 93007 92985
--------- --------- ----------
Total. . . . . . . . . . . . . . . . . . $539,980 $493,840 $531,778
========= ========= ==========
See notes to condensed consolidated financial statements.
- 5 -
</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
- - -------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
Three Months Ended
March 31,
-------------------
1994 1993
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock. . . . . . . . . . . $9,763 $10,496
Adjustments to Reconcile Net Income to Cash Flows:
Depreciation, Depletion and Amortization . . . . . . . . 4,704 4,300
Provision for Losses on Accounts Receivable. . . . . . . 157 122
Revenues and Fuel Costs Deferred - Net . . . . . . . . . 17,401 3,330
Deferred and Non-Current Federal Income Taxes
and Credits - Net . . . . . . . . . . . . . . . . . . . 512 455
Cumulative Effect of a Change in Accounting Principle. . 0 (382)
Environmental Remediation Costs - Net. . . . . . . . . . 127 215
Changes in:
Accounts Receivable. . . . . . . . . . . . . . . . . . (20,939) (15,301)
Inventories. . . . . . . . . . . . . . . . . . . . . . 10,340 9,326
Prepayments and Other Current Assets . . . . . . . . . 340 280
Gross Receipts & Franchise Taxes Accrued . . . . . . . 14,653 13,918
Accounts Payable and Other Accrued Liabilities . . . . 1,354 (6,027)
Other - Net. . . . . . . . . . . . . . . . . . . . . . . 607 1,152
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . 39,019 21,884
-------- --------
Cash Flows from Investing Activities:
Capital Expenditures, Cost of Removal and Salvage. . . . . (8,163) (7,750)
0 0
Net Cash Used in Investing Activities . . . . . . . . . . . . (8,163) (7,750)
0 0
Cash Flows from Financing Activities: 0 0
0 0
Net Repayments of Lines of Credit. . . . . . . . . . . . . (31,150) (16,900)
Principal Repayments of Long-Term Debt . . . . . . . . . . (110) (58)
Dividends on Common Stock. . . . . . . . . . . . . . . . . (3,559) (3,377)
Proceeds from Sale of Common Stock . . . . . . . . . . . . 3,687 2,980
-------- --------
Net Cash Used In Financing Activities . . . . . . . . . . . . (31,132) (17,355)
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . (276) (3,221)
Cash and Cash Equivalents at Beginning of Period. . . . . . . 9,935 12,186
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . $9,659 $8,965
======== ========
See notes to condensed consolidated financial statements
- 6 -
</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 $1.0 million and
$0.9 million for the three-month periods ended March 31, 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 2,716 2,499
Dividend Reinvestment &
Stock Purchase Plan 161,179 127,161
Stock Option & Stock
Appreciation Rights Plan 3,060 3,060
--------- ---------
Ending Balance March 31, 9,971,531 9,630,420
========= =========
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 $3,478,217 and $2,814,085 received for such
stock for the three months ended March 31, 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
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 2. (Continued)
January 23, 1997. At March 31, 1994, the Company had 50,560
options outstanding, exercisable at prices from $17.16 to
$24.69 per share. At March 31, 1993, the Company had 61,200
options outstanding, exercisable at prices from $17.16 to
$17.89 per share. During each of the three-month periods
ended March 31, 1994 and 1993, 3,060 options were exercised
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 March 31, 1994 and 1993 did not have a
material effect on the earnings per share calculations. 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
$40.1 million at March 31, 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.
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
periods ended March 31, 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 BRC 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 $4.9 million at March 31, 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, "Employer's 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 Board of Regulatory Commissioners (BRC)
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
are being passed through on a current basis. The majority of
the costs billed on a fixed basis have been paid to a
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 6. (Continued)
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 $1.5 million for the three-month
period ended March 31, 1993. No such costs have been flowed
through to SJG during the three-month period ended March 31,
1994; however, based on current estimates and information
available, there are additional fixed costs of approximately
$1.1 million to be billed to SJG under this stipulation.
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 Federal Energy Regulatory
Commission (FERC). SJG's cumulative obligations for demand
charges paid to its suppliers for all of these services is
approximately $5.0 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, which have yet to be determined, that are
associated with its pipeline suppliers unbundling their
services. 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 and Energy for
information regarding several sites at which SJG or
predecessor companies operated gas manufacturing plants or a
nonutility subsidiary previously operated a fuel oil
business. Manufactured gas operations were terminated at all
SJG sites more than 30 years ago. Through March 31, 1994,
the Company has recorded environmental and remediation costs
of $29.3 million, of which $17.5 million has been expended.
Management's estimate of the remaining liability of
approximately $11.8 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.
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 6. (Continued)
Recorded amounts include estimated costs to be incurred
through 1996 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 1996 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 $27.3 million and $16.9 million,
respectively, through March 31, 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 BRC. SJG has recovered $3.0 million through rates as
of March 31, 1994. The balance of such costs and payments,
amounting to $2.0 million and $.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
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 BRC rate order
allowing recovery of the costs associated with the
acceleration of these tax payments through 1993. SJG
petitioned the BRC for recovery of the impact of 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 BRC 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
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).
Hearings are being held as part of SJG's annual
levelized gas adjustment clause addressing the
reasonableness of SJG's gas purchasing practices. The
New Jersey Department of the Public Advocate ("Public
Advocate") filed testimony in these hearings seeking to
disallow approximately $10.0 million per year of gas
purchase related costs. The Public Advocate contends
that SJG should not have acquired certain pipeline
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 7. (Continued)
capacity and should have acquired gas supplies with less
flexibility and under shorter term contracts. If the
BRC granted all or a material part of the disallowance
sought by the Public 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 Public Advocate is unfounded and its
management has testified that had it followed the Public
Advocate's proposal, it would have jeopardized its
ability to meet its obligation to serve its firm
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.
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
First Quarter of 1994 Compared to First Quarter of 1993
Utility Revenues are higher in 1994 compared to 1993
primarily due to increases in residential and general service firm
sales by South Jersey Gas Company (SJG), SJI's natural gas
distribution subsidiary. Utility revenues also reflect higher
unit costs of gas purchased for resale. The increases are
attributed to 8.9% colder temperatures and approximately 6,000
additional customers. Nonutility revenues are higher in 1994
primarily due to higher sales by South Jersey Energy Company
(SJE), SJI's energy service subsidiary. The Morie Company, Inc.
(Morie), the Company's sand mining and processing subsidiary, and
R & T Group, Inc. (R & T), SJI's general construction subsidiary,
also experienced increased sales. In the first quarter of 1994,
the Temperature Adjustment Clause (TAC) resulted in the deferral
of approximately $2.4 million of revenues to be returned to SJG
customers.
Gas Purchased for Resale increased in 1994 due to higher
volume sales and higher unit costs. Utility operation expenses
are higher primarily due to higher general and administrative
costs and distribution expense. Nonutility operation expenses
increased mainly due to increases in cost of sales related to
increased sales volumes by SJE. Maintenance expense increased in
1994 due to increases in SJG's production and distribution
maintenance.
State Gross Receipts and Franchise Taxes are higher in 1994
due to higher unit sales of natural gas, the basis on which such
taxes are levied.
Interest charges increased in 1994 principally due to higher
debt levels and an increase in short-term borrowing rates.
Partially offsetting the increase in interest expense was lower
interest associated with overcollections of purchased natural gas
costs from customers and lower average interest rates on long-term
debt balances.
Net income was lower in 1994 compared to 1993 principally due
to increased costs as described above and the impact of the
cumulative change in accounting recorded in 1993. Earnings per
share were also affected by a higher number of shares outstanding.
Liquidity
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 of the year, reflecting the
impact of higher sales resulting from colder temperatures.
The increase in the accounts receivable balance at March 31,
1994, compared with March 31, 1993, is principally due to
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
higher sales in the first quarter of 1994. Sand mining and
construction operations are usually greater during the second
and third quarters of the year, reflecting higher demand for
sand products and construction services during periods of
warmer temperatures.
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. As described in Note 6, cash
flow is impacted in the second quarter in 1993 and 1994 by
accelerated gross receipts and franchise tax payments of
$15.4 and $12.2 million, respectively to the State of New
Jersey. The effect of accelerated tax payments are reflected
in the Condensed Statements of Consolidated Cash Flows. SJG
recovers the costs associated with such payments in rates as
allowed by the BRC.
In other tax matters, the enactment of The Omnibus
Budget Reconciliation Act of 1993 did not have a material
effect on the liquidity of SJI or its subsidiaries.
"Revenues and Fuel Costs Deferred - Net" reflect amounts
collected in excess of the tariff established under South
Jersey Gas Company's Levelized Gas Adjustment Clause (LGAC).
Increases in this amount represent increases in working
capital while decreases, reflecting repayment of
overcollections to customers, represent decreases in working
capital. "Deferred Fuel Costs" represent amounts
undercollected from customers under the LGAC. Cash flows
from operations were increased by $17.4 million for the
period ended March 31, 1994.
Short-term bank lines of credit aggregate $136.25
million of which $84.65 million was unused at March 31, 1994.
The credit lines are uncommitted and unsecured with
borrowings thereunder being at 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.
In February 1992, the Financial Accounting Standard
Board (FASB) issued Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" and its
adoption in 1993 resulted in the creation of a regulatory
asset and an increase in deferred income tax liability in the
like amount of approximately $17.6 million as of January 1,
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
1993. Management believes that as the amortization of the
asset occurs, such amortization will be recoverable through
rates, thereby offsetting any tax payments due related to the
effects of previous flowthrough depreciation. Also FASB No.
106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" which was adopted in 1993, requires an accrual
basis of accounting for postretirement benefits. In
accordance with the statement, the projected annual cost in
1994 is $5.6 million, including a $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 New
Jersey Board of Regulatory Commissioners (BRC), has recorded
a regulatory asset in the amount of approximately $4.9
million (See Note 4), representing the excess of the annual
cost over the level of costs recovered under current rates.
The recovery of this regulatory asset will be addressed in
SJG's current base rate case proceeding and it is expected
that the recovery of such asset will be included in base
rates. Consequently, it is not expected that the adoption of
FASB No. 106 will adversely impact liquidity or debt
covenants. In addition, the application of FASB 112,
"Employers' Accounting for Postemployment Benefits", which
became effective in 1994, was not immaterial to 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. These orders required the pipelines to separate
sales and transportation services and to change their rate
design. 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, will replace one
hundred 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 profit opportunities. Although the impact of such
sales on net income was not material in 1993, or the first
quarter of 1994, it is expected that the SJI companies'
resources and experience in this area should result in
increasing revenues and profits in future years.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
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
services. 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 $5.0 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 Department of the
Public Advocate ("Public 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 Public 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.
There are presently gas-producer-state regulations which
could limit natural gas production. SJG has not experienced
any limitations in its ability to obtain supplies at
competitive prices and compete with other energy suppliers in
the market place on an ongoing basis.
Through December 31, 1993, the Company has recorded
environmental and remediation costs of $29.3 million, of which
$17.5 million has been expended, and the remaining liability of
approximately $11.8 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. Recorded amounts include
estimated costs to be incurred through 1996 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, are not included,
however, the total costs to be incurred after 1996 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 $27.3 million and $16.9 million,
respectively, through March 31, 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
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
BRC. SJG has recovered $3.0 million through rates as of March 31,
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 approximately $32.8 million for
1994, of which $8.2 million has been expended through March
31, 1994. Construction expenditures over the next three
years, including environmental remediation, 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 Company plans to continue the sale of common stock
under its Dividend Reinvestment and Stock Purchase Plan, the
proceeds of which will be used for general corporate
purposes. In the three months ended March 31, 1994, SJI
issued 166,955 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 $3.7
million. In the three months ended March 31, 1993, SJI
issued 132,720 common shares for approximately $3.0 million
under such plans (shares issued reflect a 2% stock dividend
declared in the first quarter of 1993). On April 13, 1994,
SJI increased the level of optional cash contributions from
$6,000 per quarter to $100,000 annually. Any impact on cash
flow from the possible exercise of options referred to in
Note 2 is estimated to be immaterial.
On June 29, 1993, SJG sold $35.0 million of its First
Mortgage Bonds, 6.95% Series, the proceeds of which were used
to reduce short-term debt incurred in connection with SJG's
construction program.
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.
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 9, 10, and 11
regarding contingent liabilities related to remediation and
clean-up of certain sites which included manufactured gas
operations and to Part I, Item 1, Note 7 on pages 11 and 12
as to the petition for rate increase and hearings being held
as part of SJG's annual levelized gas adjustment clause.
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.
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: May 11, 1994 By: /s/ Gerald S. Levitt
-------------------------------
Gerald S. Levitt
Vice President and
Chief Financial Officer
Dated: May 11, 1994 By: /s/ Richard B. Tonielli
-------------------------------
Richard B. Tonielli
Treasurer
