Page 1 of 24
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 September 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 November 10, 1994, there were 10,714,911 shares of the
registrant's common stock outstanding.
Exhibit Index on page 24
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
September 30,
1994 1993
<S> <C> <C>
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $48,996 $41,806
Nonutility . . . . . . . . . . . . . . . . . . . 19,064 18,723
------------- -------------
Total Operating Revenues . . . . . . . . . . 68,060 60,529
------------- -------------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 31,435 24,148
Operations - Utility . . . . . . . . . . . . . . 9,336 8,818
Nonutility. . . . . . . . . . . . . 15,274 15,119
Maintenance. . . . . . . . . . . . . . . . . . . 2,290 2,508
Depreciation and Depletion . . . . . . . . . . . 4,180 3,887
Federal Income Taxes . . . . . . . . . . . . . . (1,067) (788)
State Gross Receipts & Franchise Taxes . . . . . 3,161 3,215
Other Taxes. . . . . . . . . . . . . . . . . . . 1,107 1,107
------------- -------------
Total Operating Expenses . . . . . . . . . . 65,716 58,014
------------- -------------
Operating Income . . . . . . . . . . . . . . . . . 2,344 2,515
Interest Charges . . . . . . . . . . . . . . . . . 3,877 3,259
------------- -------------
Loss Before Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . (1,533) (744)
Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 45 46
------------- -------------
Net Loss Applicable to Common Stock. . . . . . . . ($1,578) ($790)
============= =============
Average Shares of Common Stock Outstanding . . . . 10,455,714 9,713,245
============= =============
Loss Per Common Share. . . . . . . . . . . . . . . ($0.15) ($0.08)
============= =============
Dividends Declared Per Common Share. . . . . . . . $0.36 $0.36
============= =============
See notes to condensed consolidated financial statements.
- 3 -
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(In Thousands Except for Share Data)
Nine Months Ende
September 30,
1994 1993
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $219,194 $190,888
Nonutility . . . . . . . . . . . . . . . . . . . 55,154 48,238
------------- -------------
Total Operating Revenues . . . . . . . . . . 274,348 239,126
------------- -------------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 130,117 104,254
Operations - Utility . . . . . . . . . . . . . . 27,794 25,824
Nonutility. . . . . . . . . . . . . 46,477 41,466
Maintenance. . . . . . . . . . . . . . . . . . . 6,858 6,425
Depreciation, Depletion and Amortization . . . . 12,279 11,423
Income Taxes . . . . . . . . . . . . . . . . . . 4,430 4,265
State Gross Receipts & Franchise Taxes . . . . . 22,393 22,026
Other Taxes. . . . . . . . . . . . . . . . . . . 3,459 3,101
------------- -------------
Total Operating Expenses . . . . . . . . . . 253,807 218,784
------------- -------------
Operating Income . . . . . . . . . . . . . . . . . 20,541 20,342
Interest Charges . . . . . . . . . . . . . . . . . 11,721 10,848
------------- -------------
Income Before Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 8,820 9,494
Preferred Stock Dividend
Requirements of Subsidiary . . . . . . . . . . . 137 141
------------- -------------
Income Before Cumulative Effect of
a Change in Accounting Principle . . . . . . . . 8,683 9,353
Cumulative Effect of a Change
in Accounting Principle. . . . . . . . . . . . . 0 382
------------- -------------
Net Income Applicable to Common Stock. . . . . . . $8,683 $9,735
============= =============
Average Shares of Common Stock Outstanding . . . . 10,105,494 9,638,795
============= =============
Earnings Per Common Share
Before Cumulative Effect
of a Change in Accounting Principle. . . . . . $0.86 $0.97
Cumulative Effect of a Change in
Accounting Principle . . . . . . . . . . . . . 0.00 0.04
============= =============
Earnings Per Common Share . . . . . . . . . . $0.86 $1.01
============= =============
Dividends Declared Per Common Share. . . . . . . . $1.08 $1.07
============= =============
See notes to condensed consolidated financial statements.
- 4 -
</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
-----------------------------------------------------------------------------------------
(In Thousands)
<CAPTION>
September 30, December 31,
---------------------------------
1994 1993 1993
---------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
ASSETS
Property, Plant & Equipment:
Utility Plant, at original cost. . . . . . . . . . . $494,583 $462,498 $473,067
Accumulated Depreciation & Amortization. . . . . . (133,565) (124,241) (126,722)
Nonutility Property & Equipment, at cost . . . . . . 61,166 58,633 59,106
Accumulated Depreciation & Depletion . . . . . . . (31,937) (29,196) (30,065)
--------- --------- ---------
Property, Plant & Equipment - Net. . . . . . . 390,247 367,694 375,386
--------- --------- ---------
Available-for-Sale Securities. . . . . . . . . . . . . 908 917 917
--------- --------- ---------
Current Assets:
Cash and Cash Equivalents. . . . . . . . . . . . . . 8,028 3,410 9,935
Accounts Receivable. . . . . . . . . . . . . . . . . 24,768 20,640 31,026
Unbilled Revenues. . . . . . . . . . . . . . . . . . 4,027 5,273 18,502
Provision for Uncollectibles . . . . . . . . . . . . (1,048) (1,081) (1,026)
Natural Gas in Storage, average cost . . . . . . . . 21,866 11,669 12,202
Materials and Supplies, average cost . . . . . . . . 11,569 11,237 11,489
Assets Held for Disposal . . . . . . . . . . . . . . 340 346 345
Prepaid Gross Receipts and Franchise Taxes . . . . . 7,548 0 0
Other Current Assets . . . . . . . . . . . . . . . . 2,909 2,683 2,426
--------- --------- ---------
Total Current Assets . . . . . . . . . . . . . 80,007 54,177 84,899
--------- --------- ---------
Accounts Receivable - Merchandise. . . . . . . . . . . 1,857 2,218 2,221
--------- --------- ---------
Deferred Debits:
Gross Receipts and Franchise Taxes . . . . . . . . . 5,368 5,768 5,668
Environmental Remediation Costs. . . . . . . . . . . 27,763 23,306 26,223
Income Taxes - Flowthrough Depreciation. . . . . . . 17,043 18,998 17,296
Deferred Fuel Costs - Net. . . . . . . . . . . . . . 0 1,914 5,345
Postretirement Benefit Costs . . . . . . . . . . . . 7,463 2,937 3,902
Other. . . . . . . . . . . . . . . . . . . . . . . . 10,788 11,346 9,921
--------- --------- ---------
Total Deferred Debits. . . . . . . . . . . . . 68,425 64,269 68,355
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . . $541,444 $489,275 $531,778
========= ========= =========
See notes to condensed consolidated financial statements.
- 5 -
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
-----------------------------------------------------------------------------------------
(In Thousands)
September 30, December 31,
-------------------------------
1994 1993 1993
---------------------------------------------------------------------------- ---------
CAPITALIZATION AND LIABILITIES
Common Equity:
Common Stock . . . . . . . . . . . . . . . . . . . . $13,392 $12,252 $12,256
Premium on Common Stock. . . . . . . . . . . . . . . 110,056 94,328 94,381
Retained Earnings. . . . . . . . . . . . . . . . . . 31,659 31,801 33,889
--------- --------- ---------
Total Common Equity. . . . . . . . . . . . . . 155,107 138,381 140,526
--------- --------- ---------
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 . . . . . . . . . . . . . . . . . . . . 137,846 143,980 144,305
--------- --------- ---------
Current Liabilities:
Notes Payable to Banks . . . . . . . . . . . . . . . 91,050 70,300 82,750
Current Maturities of Long-Term Debt . . . . . . . . 7,234 8,166 8,230
Accounts Payable . . . . . . . . . . . . . . . . . . 28,748 19,078 27,814
Customer Deposits. . . . . . . . . . . . . . . . . . 5,761 5,634 5,781
Gross Receipts & Franchise Taxes Accrued . . . . . . 0 4,379 13,472
Environmental Remediation Costs. . . . . . . . . . . 4,999 2,273 3,624
Interest Accrued and
Other Current Liabilities . . . . . . . . . . . . . 5,246 6,309 9,707
--------- --------- ---------
Total Current Liabilities. . . . . . . . . . . 143,038 116,139 151,378
--------- --------- ---------
Deferred Credits:
Pension and Other Postretirement Benefits. . . . . . 10,532 4,939 6,602
Accumulated Deferred Income Taxes. . . . . . . . . . 64,268 62,089 63,648
Investment Tax Credits . . . . . . . . . . . . . . . 7,136 7,526 7,428
Deferred Revenues - Net. . . . . . . . . . . . . . . 3,734 0 0
Environmental Remediation Costs. . . . . . . . . . . 9,778 5,633 8,260
Other. . . . . . . . . . . . . . . . . . . . . . . . 7,511 8,004 7,047
--------- --------- ---------
Total Deferred Credits . . . . . . . . . . . . 102,959 88,191 92,985
--------- --------- ---------
Commitments and Contingencies (Notes 6 & 7)
Total. . . . . . . . . . . . . . . . . . $541,444 $489,275 $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>
Nine Months Ended
September 30,
-------------------
1994 1993
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock. . . . . . . . . . . $8,683 $9,735
Adjustments to Reconcile Net Income to Cash Flows:
Depreciation, Depletion and Amortization . . . . . . . . 14,337 13,429
Provision for Losses on Accounts Receivable. . . . . . . 704 681
Revenues and Fuel Costs Deferred - Net . . . . . . . . . 9,079 (14,875)
Deferred and Non-Current Federal Income Taxes
and Credits - Net . . . . . . . . . . . . . . . . . . . 766 1,553
Gain on Sale of Available-for-Sale Securities. . . . . . (119) 0
Cumulative Effect of a Change in Accounting Principle. . 0 (382)
Environmental Remediation Costs - Net. . . . . . . . . . 1,353 (71)
Changes in:
Accounts Receivable. . . . . . . . . . . . . . . . . . 20,051 17,287
Inventories. . . . . . . . . . . . . . . . . . . . . . (9,744) (1,360)
Prepayments and Other Current Assets . . . . . . . . . (478) (526)
Gross Receipts & Franchise Taxes Accrued . . . . . . . (21,020) (25,007)
Accounts Payable and Other Accrued Liabilities . . . . (3,547) (16,644)
Other - Net. . . . . . . . . . . . . . . . . . . . . . . (1,026) 1,389
-------- --------
Net Cash Provided by (Used in) Operating Activities . . . . . 19,039 (14,791)
-------- --------
Cash Flows from Investing Activities:
Proceeds from Sale of Available-for-Sale Securities. . . . 128 0
Capital Expenditures, Cost of Removal and Salvage. . . . . (26,982) (24,911)
-------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . (26,854) (24,911)
-------- --------
Cash Flows from Financing Activities:
Proceeds from Sale of Long-Term Debt . . . . . . . . . . . 0 35,000
Net Borrowings from Lines of Credit. . . . . . . . . . . . 8,300 9,200
Principal Repayments of Long-Term Debt . . . . . . . . . . (8,199) (9,777)
Dividends on Common Stock. . . . . . . . . . . . . . . . . (10,914) (10,343)
Proceeds from Sale of Common Stock . . . . . . . . . . . . 16,811 6,936
Repurchase of Preferred Stock. . . . . . . . . . . . . . . (90) (90)
-------- --------
Net Cash Provided by Financing Activities . . . . . . . . . . 5,908 30,926
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . (1,907) (8,776)
Cash and Cash Equivalents at Beginning of Period. . . . . . . 9,935 12,186
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . $8,028 $3,410
======== ========
Non Cash Investing and Financing Activities - During 1994, a capital lease
obligation of $744 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.
- 7 -
</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 $1.7 million and
$2.1 million for the three-month periods and $3.8 million
and $3.5 million for the nine-month periods ended September
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 6,031 4,941
Dividend Reinvestment &
Stock Purchase Plan 899,649 279,579
Stock Option & Stock
Appreciation Rights Plan 3,060 19,090
---------- ---------
Ending Balance September 30, 10,713,316 9,801,310
========== =========
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 $15,675,516 and $6,555,990 received for
such stock for the nine months ended September 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
-8-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 2. (Continued)
appreciation rights may be granted under the plan after
January 23, 1997. At September 30, 1994, the Company had
50,560 options outstanding, exercisable at prices from $17.16
to $24.69 per share. At September 30, 1993, the Company had
55,170 options outstanding, exercisable at prices from $17.16
to $24.69 per share. During the nine-month periods ended
September 30, 1994 and 1993, 3,060 and 19,090 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 September 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
$31.7 million at September 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 income 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 nine-month periods ended September 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 timing of the recovery
of this regulatory asset, which amounted to approximately
$7.5 million at September 30, 1994, is being addressed in
SJG's current base rate case proceeding (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 $18,300 for the three-month period and $2.1
million for the nine-month period ended September 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. The amount of these additional fixed
costs which have been flowed through to SJG, net of refunds,
was approximately $104,200 for the three-month period and
$203,400 for the nine-month period ended September 30, 1994.
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 is incurring 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 $0.8 million as of September 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
-11-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 6. (Continued)
Department of Environmental Protection 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. The Company is currently engaged in environmental
remediation activities related to these sites and, in
connection therewith, certain costs have been incurred and
recorded.
Through September 30, 1994, the Company has recorded
environmental remediation and other related costs of $33.8
million, of which $19.0 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 and two
additional settlements totalling $2.2 million are anticipated
during the year. 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 $31.8 million and $18.4
million, respectively, through September 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 $4.1
million through rates as of September 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).
-12-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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
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.
As of the date of this report, the case is ongoing.
Hearings have been completed and settlement talks are
underway.
Hearings were held as part of SJG's 1993 annual
Levelized Gas Adjustment Clause addressing the
reasonableness of SJG's gas purchasing practices. On
October 14, 1994, the Administrative Law Judge (ALJ)
found that SJG acted reasonably and had no criticism of
existing gas supply practices and policies. However,
recommendations were made by the ALJ as to the treatment
of profits from off-system sales and the level of gas
-13-
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 7. (Continued)
supplies contracted for by SJG which could result in
approximately $3.5 million of disallowed revenue. The
recommendations have been submitted to the BPU for a
final decision. SJG is in the process of resolving
these issues with the parties, along with its pending
base rate case, and is hopeful of an early resolution.
Any disallowance of revenue that could result from these
issues would be charged (net of income tax effect) to
net income. Management does not believes that the final
outcome would adversely affect financial condition,
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.
Third Quarter of 1994 Compared to Third Quarter of 1993
Utility Revenues increased in 1994 principally reflecting
increased off-system sales and increased transportation of natural
gas. Such increase was partially offset by decreases in firm
sales. Gross margin on utility sales (Utility revenues less gas
purchased for resale) decreased principally due to narrower
margins associated with off-system sales. Nonutility revenues
increased in 1994 principally due to increased sales by The Morie
Company, Inc. (Morie), the Company's sand mining and processing
subsidiary and South Jersey Energy Company (SJE), SJI's energy
service subsidiary, partially offset by a decrease in sales by
R & T Group, Inc. (R&T), SJI's general construction subsidiary.
Gas Purchased for Resale increased in 1994 due to higher
volumes of off-system sales of natural gas, partially offset by
the effect of lower unit prices. Utility Operations expense is
higher principally due to increases in payroll related expenses.
Interest charges increased in 1994 principally due to the
discontinuance of the deferral of carrying costs associated with
remediation expenditures and accelerated payments of gross
receipts and franchise taxes. This increase was partially offset
by lower interest on long-term debt due to lower levels of debt
outstanding.
Net Loss Applicable to Common Stock and Loss Per Common Share
are higher in 1994 principally due to the increased expenses
discussed above. Loss Per Common Share is also impacted by the
effect of a higher average number of shares outstanding.
First Nine Months of 1994 compared to First Nine Months of 1993
Utility Revenues increased in 1994 due to increased volumes
of gas sold and transported. In 1994, off-system sales were
considerably higher than 1993 and residential and commercial firm
sales also increased. Such increases were partially offset by
lower firm industrial and cogeneration sales, and lower
interruptible sales. Gross margin on utility sales (Utility
Revenues less Gas Purchased for Resale) decreased principally due
to narrower margins associated with off-system sales. SJG added
approximately 5100 customers from September 30, 1993 through
September 30, 1994. Gas volumes sold and transported in 1994
amounted to 56.4 million dekatherms compared with 43.9 million
-15-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
First Nine Months of 1994 compared to First Nine Months of 1993
(Continued)
dekatherms in 1993. The major portion of this increase in volumes
sold and transported in 1994 is due to wholesale marketing
activity (off-system sales) now permitted as a result of federal
action that permits the wholesale sale of natural gas and pipeline
capacity outside of SJG's traditional service area. Such sales
are made in a highly competitive market environment and are
subject to modest profit margins. 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. Nonutility revenues increased in 1994 due to
increased volume sales by Morie and SJE.
Gas Purchased for Resale increased in 1994 principally due to
the higher volume gas sales. Utility operation expenses are
higher primarily due to higher payroll related and insurance
costs. Nonutility operation cost is higher due to costs
associated with increased sales. Maintenance expense increased in
1994 principally due to increases in nonutility maintenance costs.
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 the higher volume gas sales
subject to this tax.
Interest charges increased in 1994 due to the effects of: an
increase in the level of short-term debt outstanding and increases
in short-term interest rates; higher levels of long-term debt
outstanding; and the discontinuance of the deferral of carrying
costs related to remediation expenditures and accelerated payments
of gross receipts and franchise taxes.
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.
Net Income Applicable to Common Stock and Earnings Per Share
are lower in 1994 principally due to the increases in operating
and interest costs described above. The decrease in Earnings Per
Share is also impacted by the effect of a higher average number of
common shares outstanding.
-16-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
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 carrying
costs associated with the 1993 payment as allowed by the New
Jersey Board of Public Utilities (BPU) and has petitioned the
BPU for continued recovery of such payments. 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 cash and accounts receivable at September 30,
1994 principally reflects increased sales from utility and
nonutility operations. The increase in natural gas inventory
is the result of timing differences relating to inventory
building for the 1994-1995 winter season and gas supply
requirements for off-system sales. 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 nine months ended September 30, 1994, cash flow from
overcollections increased cash flow by $9.1 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-Net" 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 $91.95 million was unused at September 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.
-17-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
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
dividends or as temporary short-term loans. Such activities
are not considered material in relation to the financial
statements taken as a whole.
The adoption of FASB No. 109 "Accounting for Income
Taxes" in 1993 resulted in the creation of a regulatory asset
and a deferred income tax liability 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 ("Income Taxes - Flow
through Depreciation"), 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, reflects an unfunded transition obligation of
$27.8 million which is being recognized over 20 years. The
majority of the postretirement benefit costs apply to SJG,
which, as prescribed by the BPU, has recorded a regulatory
asset of approximately $7.5 million at September 30, 1994
(See Note 4). This amount represents the excess of the
annual cost over the level of costs recovered under current
rates. The timing of the recovery 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 Nos. 106 and 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.
(See Note 5).
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 is incurring certain
transition costs that are associated with its pipeline
suppliers unbundling their services. Since not all suppliers
have yet established the basis or the method of billing
transition costs, SJG's total liability cannot be determined.
A net liability of approximately $0.8 million is recorded as
of September 30, 1994, representing identified transition
costs billable to SJG's customers through its LGAC.
(See Note 6).
-18-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
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
increased 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
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 were held as part of
SJG's 1993 annual Levelized Gas Adjustment Clause addressing
the reasonableness of its purchasing practices. On October
14, 1994, the Administrative Law Judge (ALJ) found that SJG
acted reasonably and had no criticism of existing gas supply
practices and policies. However, recommendations were made by
the ALJ as to the treatment of profits from off-system sales
and the level of gas supplies contracted for by SJG which
could result in approximately $3.5 million of disallowed
revenue. The recommendations have been submitted to the
BPU for a final decision. SJG is in the process of resolving
these issues with the parties, along with its pending base
rate case, and is hopeful of an early resolution. Any
disallowance of revenue that could result from these issues
would be charged (net of income tax effect) to net income.
Management does not believe the final outcome would adversely
affect financial condition, liquidity or debt covenants.
Through September 30, 1994, the Company has recorded
environmental remediation costs of $33.8 million, of which
$19.0 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
-19-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Liquidity (Continued)
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 and
two settlements totalling $2.2 million are expected to be
received by the end of 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 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 $31.8 million and $18.4 million, respectively,
through September 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 $4.1 million through rates as of September 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 $41.5 million for 1994, of which
$27.0 million has been expended through September 30, 1994.
Construction expenditures for 1995 and 1996 are estimated at
approximately $30.5 million and $35.0 million, respectively.
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 nine months of 1994, SJI issued 908,740 shares
of common stock through its various plans, including a Stock
Option and Stock Appreciation Rights Plan, its Dividend
Reinvestment and Stock Purchase Plan and Employees' Stock
Ownership Plan for approximately $16.8 million. A
substantial portion of these proceeds was received in June
and September 1994, thereby impacting the level of cash at
the end of those months. For the same period in 1993, SJI
issued 303,610 common shares for approximately $6.9 million
under such plans (shares issued reflect the 2 percent stock
dividend declared in the first quarter of 1993). New common
shares were issued for shares purchased through the various
plans in 1993 and the nine months ended September 30, 1994.
-20-
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition (Continued)
Capital Resources (Continued)
Beginning in November 1994, the Company expects to purchase
common shares in the open market to satisfy share purchase
requirements under its stock purchase plans.
On June 29, 1993, SJG sold $35.0 million of First
Mortgage Bonds, 6.95% Series. The proceeds of this issue
was 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.
-21-
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 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
a. Index to Exhibits on page 24.
b. No reports on Form 8-K were filed during the quarter for
which this report is filed.
-22-
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: November 10, 1994 By: /s/ Gerald S. Levitt
Gerald S. Levitt
Vice President and
Chief Financial Officer
Dated: November 10, 1994 By: /s/ William J. Smethurst, Jr.
William J. Smethurst, Jr.
Asst. Secretary & Asst. Treasurer
-23-
South Jersey Industries, Inc.
Index to Exhibits
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(Submitted only in electronic format to the
Securities and Exchange Commission).
-24-
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 361,018
<OTHER-PROPERTY-AND-INVEST> 30,137
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2,494
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<OTHER-OPERATING-EXPENSES> 249,377
<TOTAL-OPERATING-EXPENSES> 253,807
<OPERATING-INCOME-LOSS> 20,541
<OTHER-INCOME-NET> 0
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<EARNINGS-AVAILABLE-FOR-COMM> 8,683
<COMMON-STOCK-DIVIDENDS> 10,914
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