Page 1 of 20
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, 1995
Commission File Number 1-6364
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SOUTH JERSEY INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 22-1901645
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(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
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(Address of principal executive offices) (Zip Code)
(609) 561-9000
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(Registrant's telephone number, including area code)
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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, 1995, there were 10,721,846 shares of the
registrant's common stock outstanding.
Exhibit Index on page 20
<PAGE>
PART I - FINANCIAL INFORMATION
--------------------------------
Item 1. Financial Statements -- See Pages 3 through 11
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<PAGE>
<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,
-------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $43,219 $48,996
Nonutility . . . . . . . . . . . . . . . . . . . 17,107 19,064
----------- -----------
Total Operating Revenues . . . . . . . . . . 60,326 68,060
----------- -----------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 25,702 31,435
Operations - Utility . . . . . . . . . . . . . . 10,046 9,336
Nonutility. . . . . . . . . . . . . 13,065 15,274
Maintenance. . . . . . . . . . . . . . . . . . . 2,324 2,290
Depreciation and Depletion . . . . . . . . . . . 4,489 4,180
Federal Income Taxes . . . . . . . . . . . . . . (1,566) (1,067)
Gross Receipts & Franchise Taxes . . . . . . . . 2,668 3,161
Other Taxes. . . . . . . . . . . . . . . . . . . 1,112 1,107
----------- -----------
Total Operating Expenses . . . . . . . . . . 57,840 65,716
----------- -----------
Operating Income . . . . . . . . . . . . . . . . . 2,486 2,344
Interest and Other Charges . . . . . . . . . . . . 5,335 3,922
----------- -----------
Net Loss Applicable to Common Stock. . . . . . . . ($2,849) ($1,578)
=========== ===========
Average Shares of Common Stock Outstanding . . . . 10,720,244 10,455,714
=========== ===========
Loss Per Common Share. . . . . . . . . . . . . . . ($0.27) ($0.15)
=========== ===========
Dividends Declared Per Common Share. . . . . . . . $0.36 $0.36
=========== ===========
See notes to condensed consolidated financial statements.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
- -------------------------------------------------------------------------------
(In Thousands Except for Share Data)
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1995 1994
<S> <C> <C>
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $184,988 $219,194
Nonutility . . . . . . . . . . . . . . . . . . . 54,643 55,154
----------- -----------
Total Operating Revenues . . . . . . . . . . 239,631 274,348
----------- -----------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 91,051 130,117
Operations - Utility . . . . . . . . . . . . . . 30,060 27,794
Nonutility. . . . . . . . . . . . . 43,725 46,477
Maintenance. . . . . . . . . . . . . . . . . . . 6,943 6,858
Depreciation and Depletion . . . . . . . . . . . 13,195 12,278
Federal Income Taxes . . . . . . . . . . . . . . 5,422 4,430
Gross Receipts & Franchise Taxes . . . . . . . . 19,497 22,393
Other Taxes. . . . . . . . . . . . . . . . . . . 3,661 3,459
----------- -----------
Total Operating Expenses . . . . . . . . . . 213,554 253,806
----------- -----------
Operating Income . . . . . . . . . . . . . . . . . 26,077 20,542
Interest and Other Charges . . . . . . . . . . . . 15,867 11,858
----------- -----------
Net Income Applicable to Common Stock. . . . . . . $10,210 $8,684
=========== ===========
Average Shares of Common Stock Outstanding . . . . 10,718,863 10,105,494
=========== ===========
Earnings Per Common Share. . . . . . . . . . . . . $0.95 $0.86
=========== ===========
Dividends Declared Per Common Share. . . . . . . . $1.08 $1.08
=========== ===========
See notes to condensed consolidated financial statements.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
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(In Thousands)
<CAPTION>
September 30, December 31,
--------------------------------------
1995 1994 1994
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<S> <C> <C> <C>
ASSETS
Property, Plant & Equipment:
Utility Plant, at original cost. . . . . . . . . . . $532,302 $495,631 $506,409
Accumulated Depreciation & Amortization. . . . . . (143,416) (133,565) (136,112)
Nonutility Property & Equipment, at cost . . . . . . 65,405 61,166 63,613
Accumulated Depreciation & Depletion . . . . . . . (33,976) (31,937) (31,810)
----------- ----------- ------------
Property, Plant & Equipment - Net. . . . . . . 420,315 391,295 402,100
----------- ----------- ------------
Available-for-Sale Securities. . . . . . . . . . . . . 830 908 830
----------- ----------- ------------
Current Assets:
Cash and Cash Equivalents. . . . . . . . . . . . . . 1,543 8,028 14,208
Accounts Receivable. . . . . . . . . . . . . . . . . 18,272 24,768 35,213
Unbilled Revenues. . . . . . . . . . . . . . . . . . 4,233 4,027 15,154
Provision for Uncollectibles . . . . . . . . . . . . (977) (1,048) (991)
Natural Gas in Storage, average cost . . . . . . . . 20,056 20,818 17,082
Materials and Supplies, average cost . . . . . . . . 11,585 11,569 11,995
Assets Held for Disposal . . . . . . . . . . . . . . 339 340 339
Prepaid Gross Receipts and Franchise Taxes . . . . . 12,977 7,548 0
Prepayments and Other Current Assets . . . . . . . . 3,331 2,909 2,570
----------- ----------- ------------
Total Current Assets . . . . . . . . . . . . . 71,359 78,959 95,570
----------- ----------- ------------
Accounts Receivable - Merchandise. . . . . . . . . . . 2,147 1,857 2,015
----------- ----------- ------------
Deferred Debits:
Gross Receipts and Franchise Taxes . . . . . . . . . 4,968 5,368 5,268
Environmental Remediation Costs:
Expended - Net . . . . . . . . . . . . . . . . . . 11,421 13,000 13,361
Liability for Future Expenditures. . . . . . . . . 23,440 14,763 17,026
Income Taxes - Flowthrough Depreciation. . . . . . . 16,199 17,043 16,933
Deferred Postretirement Benefit Costs. . . . . . . . 7,188 7,463 6,567
Prepayment and Other . . . . . . . . . . . . . . . . 10,074 10,788 11,425
----------- ----------- ------------
Total Deferred Debits. . . . . . . . . . . . . 73,290 68,425 70,580
----------- ----------- ------------
Total. . . . . . . . . . . . . . . . . . $567,941 $541,444 $571,095
=========== =========== ============
See notes to condensed consolidated financial statements.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
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(In Thousands)
<CAPTION>
September 30, December 31,
--------------------------------------
1995 1994 1994
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<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
Common Equity:
Common Stock . . . . . . . . . . . . . . . . . . . . $13,402 $13,392 $13,394
Premium on Common Stock. . . . . . . . . . . . . . . 110,182 110,056 110,081
Retained Earnings. . . . . . . . . . . . . . . . . . 30,131 31,659 31,497
----------- ----------- ------------
Total Common Equity. . . . . . . . . . . . . . 153,715 155,107 154,972
----------- ----------- ------------
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value
$100 a share:
Authorized - 49,104, 50,004
and 50,004 shares
Outstanding -
Series A, 4.70% -- 4,800, 5,700
and 5,700 shares. . . . . . . 480 570 570
Series B, 8.00% -- 19,242 shares . . . . . . . . 1,924 1,924 1,924
----------- ----------- ------------
Total Preferred Stock. . . . . . . . . . . . . 2,404 2,494 2,494
----------- ----------- ------------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . 174,107 137,846 153,086
----------- ----------- ------------
Current Liabilities:
Notes Payable to Banks . . . . . . . . . . . . . . . 55,700 91,050 80,200
Current Maturities of Long-Term Debt . . . . . . . . 11,305 7,234 9,455
Accounts Payable . . . . . . . . . . . . . . . . . . 31,925 28,748 35,237
Customer Deposits. . . . . . . . . . . . . . . . . . 5,415 5,761 5,895
Environmental Remediation Costs. . . . . . . . . . . 8,068 4,999 5,175
Interest Accrued and
Other Current Liabilities . . . . . . . . . . . . . 6,563 5,246 12,225
----------- ----------- ------------
Total Current Liabilities. . . . . . . . . . . 118,976 143,038 148,187
----------- ----------- ------------
Deferred Credits and Other Non-Current Liabilities:
Pension and Other Postretirement Benefits. . . . . . 11,886 10,532 10,329
Accumulated Deferred Income Taxes - Net. . . . . . . 67,299 64,268 63,425
Investment Tax Credits . . . . . . . . . . . . . . . 6,514 7,136 6,807
Deferred Revenues:
Customer Refund Obligation . . . . . . . . . . . . 4,837 0 3,500
Other Deferred Revenues. . . . . . . . . . . . . . 4,181 3,734 9,338
Environmental Remediation Costs. . . . . . . . . . . 15,385 9,778 11,902
Other. . . . . . . . . . . . . . . . . . . . . . . . 8,637 7,511 7,055
----------- ----------- ------------
Total Deferred Credits
and Other Non-Current Liabilities. . . . . . 118,739 102,959 112,356
----------- ----------- ------------
Commitments and Contingencies (Note 5)
Total. . . . . . . . . . . . . . . . . . $567,941 $541,444 $571,095
=========== =========== ============
See notes to condensed consolidated financial statements.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
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<CAPTION>
Nine Months Ended
September 30,
-------------------
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock. . . . . . . . . . . 10,210 8,684
Adjustments to Reconcile Net Income to Cash Flows:
Depreciation, Depletion and Amortization . . . . . . . . 15,393 14,337
Provision for Losses on Accounts Receivable. . . . . . . 885 704
Revenues and Fuel Costs Deferred - Net . . . . . . . . . (3,820) 9,079
Deferred and Non-Current Federal Income Taxes
and Credits - Net . . . . . . . . . . . . . . . . . . . 2,902 766
Gain on Sale of Available-for-Sale Securities. . . . . . 0 (119)
Environmental Remediation Costs - Net. . . . . . . . . . 1,902 1,353
Changes in:
Accounts Receivable. . . . . . . . . . . . . . . . . . 26,963 20,051
Inventories. . . . . . . . . . . . . . . . . . . . . . (2,564) (9,744)
Prepayments and Other Current Assets . . . . . . . . . (761) (478)
Gross Receipts & Franchise Taxes . . . . . . . . . . . (13,173) (21,020)
Accounts Payable and Other Accrued Liabilities . . . . (9,454) (3,547)
Other - Net. . . . . . . . . . . . . . . . . . . . . . . 4,016 (1,027)
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . 32,499 19,039
-------- --------
Cash Flows from Investing Activities:
Proceeds from Sale of Available-for-Sale Securities. . . . 0 0
Capital Expenditures, Cost of Removal and Salvage. . . . . (31,913) (26,982)
-------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . (31,913) (26,854)
-------- --------
Cash Flows from Financing Activities:
Proceeds from Sale of Long-Term Debt . . . . . . . . . . . 30,000 0
Net Borrowings from Lines of Credit. . . . . . . . . . . . (24,500) 8,300
Principal Repayments of Long-Term Debt . . . . . . . . . . (7,194) (8,199)
Dividends on Common Stock. . . . . . . . . . . . . . . . . (11,576) (10,914)
Proceeds from Sale of Common Stock . . . . . . . . . . . . 109 16,811
Repurchase of Preferred Stock. . . . . . . . . . . . . . . (90) (90)
-------- --------
Net Cash (Used in) Provided by Financing Activities . . . . . (13,251) 5,908
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . (12,665) (1,907)
Cash and Cash Equivalents at Beginning of Period. . . . . . . 14,208 9,935
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . $1,543 $8,028
======== ========
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During 1995, a capital lease obligation of $65 was incurred by R & T Group, Inc.
in connection with its Master Lease Agreement for various items of construction
equipment.
See notes to condensed consolidated financial statements.
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</TABLE>
<PAGE>
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 $1.8 million and
$1.7 million for the three-month periods and $5.5 million
and $3.8 million for the nine-month periods ended September
30, 1995 and 1994, respectively, were not required to be
eliminated. Such amounts were capitalized to utility plant
or environmental remediation costs on the South Jersey Gas
Company (SJG) books of account and are recoverable by SJG
through the rate-making process (See Note 5). 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)
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:
1995 1994
---- ----
Beginning Balance January 1, 10,715,211 9,804,576
Issued during period:
Employees' Stock Ownership Plan 6,635 6,031
Dividend Reinvestment &
Stock Purchase Plan 0 899,649
Stock Option & Stock
Appreciation Rights Plan 0 3,060
---------- ----------
Ending Balance September 30, 10,721,846 10,713,316
========== ==========
The par value ($1.25 share) of the stock issued in 1995
and 1994 has been credited to Common Stock and the net excess
over par value of $100,966 and $15,675,516 received for such
stock for the nine months ended September 30, 1995 and 1994,
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
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 2. (Continued)
January 23, 1997. At September 30, 1995 and 1994, the
Company had 50,560 options outstanding, exercisable at prices
from $17.16 to $24.69 per share. During the nine-month
period ended September 30, 1994, 3,060 options were exercised
at a price of $17.89 per share. No options were granted in
1995 and 1994. No stock appreciation rights have been issued
under the plan. The stock options outstanding at September
30, 1995 and 1994 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
$30.1 million at September 30, 1995.
Note 4.
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, 1995 and 1994 were
not material.
In 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 (PAYGO) basis. The Company
has elected to recognize the unfunded transition obligation
over a period of twenty years.
The majority of the Company's costs apply to its utility
subsidiary, SJG, which has previously recovered these costs
on a PAYGO basis through its rates. As part of SJG's 1994
base rate case settlement, SJG was granted full recovery of
the current service cost component of the annual cost in
addition to continued recovery of PAYGO costs. The Board of
Public Utilities (BPU) also approved recovery of previously
deferred 1993 and 1994 service costs totaling $2.0 million
over a 5-year period beginning December 1994 ($1.7 million
remaining at September 30, 1995). Beginning in 1995, an
external trust was established for the purpose of
contributing costs recovered from the ratepayers as a result
of the settlement with the BPU. Contributions to this trust
totaled $0.7 million as of September 30, 1995. SJG is also
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 4. (Continued)
authorized to continue recording a regulatory asset for the
amount by which the cost exceeds the current level recovered
in rates. The recovery of this regulatory asset, which
amounted to approximately $5.5 million at September 30, 1995,
will be addressed in SJG's next base rate case proceeding and
it is expected that the recovery will be included in base
rates.
Note 5.
In May 1990, the BPU approved a stipulation which allows
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
recovered on a current basis. Costs billed on a fixed basis
are being recovered from ratepayers over a 6-year period
without interest. This recovery mechanism started in
November 1990. SJG anticipates being billed additional fixed
costs of approximately $0.5 million by its pipelines and also
expects to recover such costs through its Levelized Gas
Adjustment Clause (LGAC).
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 the gas supply
contracts is 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 $4.4
million per month which is recovered on a current basis
through the 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. 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
liability of approximately $0.3 million is recorded as of
September 30, 1995, representing identified transition costs
being billed to SJG by a pipeline over a 2-year period which
began in April 1994. SJG expects to recover such 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
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 5. (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 some of these sites and, in
connection therewith, certain costs have been incurred and
recorded.
Through September 30, 1995, the Company has recorded
environmental remediation costs of $46.1 million, of which
$22.7 million has been expended. Management's estimate of the
remaining liability of approximately $23.4 million is
reflected on the consolidated balance sheet under the
captions "Current Liabilities" and "Deferred Credits and
Other Non-Current Liabilities". Such amounts have not been
adjusted for future insurance recoveries, which management is
pursuing. Insurance recoveries, amounting to $2.7 million
and $1.5 million, were received in 1995 and 1994,
respectively. These proceeds were first used to offset legal
fees incurred in connection with such recoveries and the
excess was used to reduce the balance of deferred
environmental remediation costs. Recorded amounts include
estimated costs to be incurred over the next three years
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 this three-year period
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 $45.1 million and
$22.0 million, respectively, through September 30, 1995. 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 $6.4
million through rates as of September 30, 1995. The balance
of such costs and payments, amounting to $1.0 million and
$0.7 million, respectively, relates to other environmental
related costs including nonutility sites previously used in
fuel oil operations.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition
----------------------------------
Third Quarter of 1995 Compared with Third Quarter of 1994
- ---------------------------------------------------------
Utility Revenues decreased in 1995 principally due to the
effect of lower sales volume and a lower unit cost for natural gas
purchases, partially offset by increased revenues from
residential and general service customers resulting from the rate
increase which became effective on December 14, 1994 and an
increase of approximately 7,300 customers. Revenues were slightly
impacted in 1995 by decreases in customer usage per degree day.
Nonutility revenues decreased in 1995 principally due to lower
sales by South Jersey Energy Company (SJE), SJI's energy service
subsidiary. R & T Group, Inc. (R&T), SJI's general construction
subsidiary, experienced increased sales in 1995 while the sales
level at The Morie Company, Inc. (Morie), the Company's sand
mining subsidiary, were at approximately the same level as 1994.
Lower SJE sales did not significantly impact net income since its
sales are traditionally low-margin.
Gas purchased for resale decreased in 1995, principally
reflecting lower unit sales volume and a lower unit cost for
natural gas. Nonutility operating expense is lower in 1995 due to
the effect of lower SJE product costs related to lower sales.
Interest and Other Charges increased in 1995 principally due
to higher levels of long-term debt outstanding.
The net loss in 1995 is principally due to increased interest
expense. Earnings from the combination of utility off-system and
interruptible sales reached the stipulated pre-tax cap of $4.0
million in May, 1995. Consequently, 80% of profits over this
level will benefit customers in the next Levelized Gas Adjustment
Clause (LGAC) adjustment year, which begins November 1, 1995. As
a result, net income retained by SJG from these markets was
$564,700 below last year for the quarter. Loss per share of
common stock reflects the impact of increased interest expense,
partially offset by higher operating income.
First Nine Months of 1995 compared with First Nine Months of 1994
- -----------------------------------------------------------------
Utility Revenues decreased in 1995 principally due to lower
sales volumes caused by warmer temperatures and the lower cost of
natural gas, partially offset by the positive impact of increased
transportation of gas for large volume customers, the rate
increase which became effective December 14, 1994, and the
addition of 7,000 customers. Volumes sold and transported, other
than off-system sales, amounted to 39.8 million MCF in 1995
compared with 42.3 million MCF in 1994. Off-system volumes
amounted to 6.2 million MCF in 1995 compared with 11.9 million MCF
in 1994. Despite the decrease in off-system sales volume, the
pre-tax margin retained by SJG was $2.1 million in 1995 compared
with $1.3 million in 1994. This is primarily the result of the
aforementioned rate increase which now includes revenues generated
from the release of pipeline capacity to users outside SJG's
distribution system. As stipulated, SJG is allowed to retain the
- 12 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
First Nine Months of 1995 compared with First Nine Months of 1994
- -----------------------------------------------------------------
(Continued)
first $4.0 million of pre-tax off-system and interruptible margins
combined and 20% of such margins above that level. The $4.0
million cap was surpassed in May 1995 and SJG will retain 20% of
such margins for the remainder of the LGAC period which ends
October 31, 1995. In 1995, nonutility revenues reflect record
sales by Morie and almost a 60 percent increase in sales by R&T.
Such revenue increases were more than offset by lower SJE
revenues, however, lower SJE sales did not significantly impact
net income since its sales are traditionally low-margin.
Gas Purchased for Resale decreased due to lower unit costs
and lower volume sales.
The increase in utility operating expense in 1995 is
principally due to increases in costs related to payroll, employee
benefits and the amortization of deferred regulatory costs which
became effective with the December 1994 rate case settlement.
Employee benefits include the impact of costs associated with the
implementation of FASB No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," as authorized by the
BPU beginning December 1994. SJG continues to record a regulatory
asset for the level of such postretirement benefit costs not
currently recovered in rates (See Note 4). The decrease in
nonutility operating expense principally reflects the impact of
lower costs related to lower sales volumes by SJE and higher costs
of Morie and R&T which were related to increased sales.
Depreciation is higher in 1995 due to increased investment in
property, plant and equipment. Federal income taxes are higher
due to the increase in income while Gross Receipts and Franchise
Taxes are lower due to lower volume gas sales subject to this tax.
Interest charges increased in 1995 principally due to an
increase of the level of long-term debt outstanding and higher
interest on overcollections of gas costs.
Utility and nonutility earnings both contributed to the 1995
increase in net income applicable to common stock. Improved
operating margins by SJG, Morie and R&T were factors in such
increase. Earnings per average share outstanding increased in
1995 due to increased net income, partially offset by the effect
of a higher average number of common shares outstanding.
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 had been impacted by the
acceleration of gross receipts and franchise tax payments. In
January 1995, SJG issued $30.0 million of debenture notes, the
- 13 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
proceeds of which were principally used to reduce the level of
short-term debt related to accelerated tax payments.
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. 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. The decrease in accounts receivable at September
30, 1995, compared with September 30, 1994, principally reflects
repayments to customers on overcollection of gas costs and the
effect of lower SJE revenues, partially offset by the effect of
increased billings by R&T and Morie.
Cash flows from operations are impacted by amounts collected
in excess of, or undercollections from, tariffs established under
SJG's LGAC and its Temperature Adjustment Clause. Overcollections
represent increases in cash flow while undercollections reflect
decreases in cash flow. For the nine months ended September 30,
1995, refunds to customers of overcollections aggregated $11.5
million, some of which were applied directly to balances due from
utility customers. The balance of overcollections will be subject
to recovery by SJG's customers in the 1995-1996 LGAC recovery
period. Overcollections are reflected in the balance sheet under
the caption "Other Deferred Revenues".
Short-term bank lines of credit aggregate $151.0 million of
which $95.3 million was unused at September 30, 1995. The credit
lines are uncommitted and unsecured, with borrowings thereunder
being effected for various terms of less than one year, at
interest rates less than the prime rate of interest, in effect at
the time of borrowing.
Cash flow from nonutility operations is generally retained in
the nonutility companies with amounts in excess of cash
requirements being passed up to the Company either as a dividend
or as 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. As the amortization of
the asset occurs, such amortization will be recoverable
through rates over an 18 year amortization period. Also,
FASB No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", adopted by the Company in
1993, requires an accrual basis of accounting for retiree
benefit payments during the years the employee provides
services. The actuarially computed unfunded transition
obligation as measured in accordance with the statement,
- 14 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
amounted to $23.6 million at January 1, 1993. The Company
has elected to recognize the unfunded transition obligation
over a 20-year period beginning in 1993. The majority of the
postretirement benefit costs apply to SJG, which had
previously recovered these costs through rates on a pay-as-
you-go basis. The BPU order of December 1994 provides for
partial recovery of costs associated with FASB No. 106 and
prescribes continued deferral of unrecovered costs amounting
to $7.2 million at September 30, 1995. Of this amount, $1.7
million is subject to recovery over a 5-year period beginning
in December 1994 and the remaining balance will be addressed
in SJG's next rate case (See Note 4). Also, beginning in
1995, an external trust was established for the purpose of
contributing costs recovered from the ratepayers as a result
of the settlement with the BPU. Contributions to this trust
totaled $0.7 million as of September 30, 1995. It is not
expected that the adoption of FASB Nos. 106 and 109 will
adversely impact liquidity or debt covenants.
The FERC has 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. As a result of these orders,
SJG will incur 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 liability of approximately $0.3
million is recorded as of September 30, 1995, representing
identified transition costs being billed to SJG by a pipeline
over a 2-year period beginning April 1994. SJG expects to
recover such costs through its LGAC (See Note 5).
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 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.
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
- 15 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
service. The earliest expiration of any of these contracts
is 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 (See Note 5).
Certain supply agreements are entered into with third
parties under which SJG has no responsibility except to store
natural gas and permit withdrawals by such third parties. A
fee is charged for this service by SJG; however, SJG may, at
its option, withdraw such gas for its own use at pre-defined
unit rates. In connection with the 1994 global settlement
with the BPU, a focused management audit is being conducted
by the BPU concentrating on SJG's gas planning and purchasing
practices. Management believes that its practices are
appropriate and does not expect that the results of the
focused audit will result in any material changes to its
practices.
Through September 30, 1995, the Company has recorded
environmental remediation costs of $46.1 million, of which
$22.7 million has been expended. The remaining liability of
approximately $23.4 million is reflected in the balance sheet
under the captions "Current Liabilities" and "Deferred
Credits and Other Non-Current Liabilities". Such amounts
have not been adjusted for future insurance recoveries, which
management is pursuing. SJG has realized insurance
recoveries of $4.2 million which are offset against legal
costs and deferred remediation costs as prescribed by the
BPU. Recorded amounts include estimated costs to be incurred
over the next three years 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 thereafter 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 $45.1 million and $22.0
million, respectively, through September 30, 1995. SJG has
established a regulatory asset for these costs and will
recover such costs over 7-year amortization periods, as
authorized by the BPU. SJG has recovered $6.4 million
through rates as of September 30, 1995. The balance of such
costs and payments, amounting to $1.0 million and $0.7
million, respectively, relates to other environmental related
costs including nonutility sites previously used in fuel oil
operations.
- 16 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
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 for 1995 are estimated at $45.0 million of which
$31.9 million has been expended through September 30, 1995.
Construction expenditures for 1996 and 1997 are estimated at
approximately $49.0 million and $54.0 million, respectively.
Such investments are 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.
Beginning in November 1994, the Company began to
purchase common shares in the open market to satisfy share
purchase requirements for its dividend reinvestment and stock
purchase plan. This action reduces the dilutive effect
resulting from the issuance of new common shares. Prior to
such date, proceeds of the Company's Dividend Reinvestment
and Stock Purchase Plan resulting from the sale of new issue
common stock were available for general corporate purposes.
In 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 (See Note 2).
In 1994, SJG entered into a bank credit facility under
which it issued a $15.0 million unsecured term note and under
which SJG can borrow an additional $5.0 million under a
revolving credit facility. The term note matures December
31, 2001, and is payable in seven consecutive year-end
installments beginning in 1995. In January 1995, SJG issued
$30.0 million of 8.6% Debenture Notes maturing February 1,
2010.
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.
- 17 -
<PAGE>
PART II -- OTHER INFORMATION
------------------------------
Item 1. Legal Proceedings
-----------------
Information required by this Item is incorporated by
reference to Part I, Item 1, Note 5, on pages 10 and 11
regarding contingent liabilities related to remediation and
clean-up of certain sites which included manufactured gas
operations.
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.
- 18 -
<PAGE>
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, 1995 By: /s/ Gerald S. Levitt
-------------------------------
Gerald S. Levitt
Vice President and
Chief Financial Officer
Dated: November 10, 1995 By: /s/ Richard B. Tonielli
-------------------------------
Richard B. Tonielli
Treasurer
- 19 -
<PAGE>
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).
- 20 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 388,886
<OTHER-PROPERTY-AND-INVEST> 32,259
<TOTAL-CURRENT-ASSETS> 71,359
<TOTAL-DEFERRED-CHARGES> 73,290
<OTHER-ASSETS> 2,147
<TOTAL-ASSETS> 567,941
<COMMON> 13,402
<CAPITAL-SURPLUS-PAID-IN> 110,182
<RETAINED-EARNINGS> 30,131
<TOTAL-COMMON-STOCKHOLDERS-EQ> 153,715
0
2,404
<LONG-TERM-DEBT-NET> 174,107
<SHORT-TERM-NOTES> 55,700
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 11,305
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 170,710
<TOT-CAPITALIZATION-AND-LIAB> 567,941
<GROSS-OPERATING-REVENUE> 239,631
<INCOME-TAX-EXPENSE> 5,422
<OTHER-OPERATING-EXPENSES> 208,132
<TOTAL-OPERATING-EXPENSES> 213,554
<OPERATING-INCOME-LOSS> 26,077
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 26,077
<TOTAL-INTEREST-EXPENSE> 15,867
<NET-INCOME> 10,210
0
<EARNINGS-AVAILABLE-FOR-COMM> 10,210
<COMMON-STOCK-DIVIDENDS> 11,576
<TOTAL-INTEREST-ON-BONDS> 11,851
<CASH-FLOW-OPERATIONS> 32,499
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
