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 March 31, 1995
Commission File Number 1-6364
------
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 May 11, 1995, there were 10,718,712 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
--------------------
-2-
<PAGE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
- --------------------------------------------------------------------------------------
(In Thousands Except for Share Data)
<CAPTION>
Three Months Ended
March 31,
------------------------------
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $92,537 $123,001
Nonutility . . . . . . . . . . . . . . . . . . . 17,919 15,942
------------- -------------
Total Operating Revenues . . . . . . . . . . 110,456 138,943
------------- -------------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 39,473 73,051
Operations - Utility . . . . . . . . . . . . . . 9,827 9,283
Nonutility. . . . . . . . . . . . . 15,378 15,146
Maintenance. . . . . . . . . . . . . . . . . . . 2,224 2,365
Depreciation and Depletion . . . . . . . . . . . 4,309 4,000
Federal Income Taxes . . . . . . . . . . . . . . 7,234 5,372
Gross Receipts & Franchise Taxes . . . . . . . . 12,384 14,754
Other Taxes. . . . . . . . . . . . . . . . . . . 1,292 1,160
------------- -------------
Total Operating Expenses . . . . . . . . . . 92,121 125,131
------------- -------------
Operating Income . . . . . . . . . . . . . . . . . 18,335 13,812
Interest and Other Charges . . . . . . . . . . . . 5,118 4,049
------------- -------------
Net Income to Applicable to Common Stock . . . . . $13,217 $9,763
============= =============
Average Shares of Common Stock Outstanding . . . . 10,717,632 9,886,557
============= =============
Earnings Per Share - Common Stock. . . . . . . . . $1.23 $0.99
============= =============
Dividends Declared Per Share - Common Stock. . . . $0.36 $0.36
============= =============
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>
March 31, December 31,
---------------------------------
1995 1994 1994
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<S> <C> <C> <C>
ASSETS
Property, Plant & Equipment:
Utility Plant, at original cost. . . . . . . . . . . $514,269 $480,997 $506,409
Accumulated Depreciation & Amortization. . . . . . (138,600) (129,570) (136,112)
Nonutility Property & Equipment, at cost . . . . . . 64,097 59,694 63,613
Accumulated Depreciation & Depletion . . . . . . . (32,587) (30,716) (31,810)
--------- --------- ---------
Property, Plant & Equipment - Net. . . . . . . 407,179 380,405 402,100
--------- --------- ---------
Available-for-Sale Securities. . . . . . . . . . . . . 830 917 830
--------- --------- ---------
Current Assets:
Cash and Cash Equivalents. . . . . . . . . . . . . . 4,452 9,659 14,208
Accounts Receivable. . . . . . . . . . . . . . . . . 49,098 57,525 35,213
Unbilled Revenues. . . . . . . . . . . . . . . . . . 11,547 12,792 15,154
Provision for Uncollectibles . . . . . . . . . . . . (997) (1,033) (991)
Natural Gas in Storage, average cost . . . . . . . . 2,356 1,319 17,082
Materials and Supplies, average cost . . . . . . . . 11,276 10,984 11,995
Assets Held for Disposal . . . . . . . . . . . . . . 339 343 339
Prepayments and Other Current Assets . . . . . . . . 2,392 2,088 2,570
--------- --------- ---------
Total Current Assets . . . . . . . . . . . . . 80,463 93,677 95,570
--------- --------- ---------
Accounts Receivable - Merchandise. . . . . . . . . . . 2,552 2,150 2,015
--------- --------- ---------
Deferred Debits:
Gross Receipts and Franchise Taxes . . . . . . . . . 5,168 5,568 5,268
Environmental Remediation Costs:
Expended - Net . . . . . . . . . . . . . . . . . . 12,116 14,733 13,361
Liability for Future Expenditures. . . . . . . . . 17,598 11,314 17,026
Income Taxes - Flowthrough Depreciation. . . . . . . 16,688 17,212 16,933
Deferred Postretirement Benefit Costs. . . . . . . . 7,221 4,886 6,567
Prepayment and Other . . . . . . . . . . . . . . . . 10,939 9,118 11,425
--------- --------- ---------
Total Deferred Debits. . . . . . . . . . . . . 69,730 62,831 70,580
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . . $560,754 $539,980 $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)
March 31, December 31,
---------------------------------
1995 1994 1994
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CAPITALIZATION AND LIABILITIES
Common Equity:
Common Stock . . . . . . . . . . . . . . . . . . . . $13,399 $12,464 $13,394
Premium on Common Stock. . . . . . . . . . . . . . . 110,122 97,859 110,081
Retained Earnings. . . . . . . . . . . . . . . . . . 40,857 40,093 31,497
--------- --------- ---------
Total Common Equity. . . . . . . . . . . . . . 164,378 150,416 154,972
--------- --------- ---------
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value
$100 a share:
Authorized - 50,004, 50,904
and 50,004 shares
Outstanding -
Series A, 4.70% -- 5,700, 6,600
and 5,700 shares. . . . . . . 570 660 570
Series B, 8.00% -- 19,242 shares . . . . . . . . 1,924 1,924 1,924
--------- --------- ---------
Total Preferred Stock. . . . . . . . . . . . . 2,494 2,584 2,494
--------- --------- ---------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . 180,857 142,035 153,086
--------- --------- ---------
Current Liabilities:
Notes Payable to Banks . . . . . . . . . . . . . . . 11,100 51,600 80,200
Current Maturities of Long-Term Debt . . . . . . . . 9,429 10,391 9,455
Accounts Payable . . . . . . . . . . . . . . . . . . 19,498 27,284 35,237
Customer Deposits. . . . . . . . . . . . . . . . . . 5,898 5,867 5,895
Gross Receipts & Franchise Taxes Accrued . . . . . . 12,282 27,925 196
Environmental Remediation Costs. . . . . . . . . . . 5,149 3,645 5,175
Interest Accrued and
Other Current Liabilities . . . . . . . . . . . . . 15,588 11,705 12,029
--------- --------- ---------
Total Current Liabilities. . . . . . . . . . . 78,944 138,417 148,187
--------- --------- ---------
Deferred Credits and Other Non-Current Liabilities:
Pension and Other Postretirement Benefits. . . . . . 11,854 7,757 10,329
Accumulated Deferred Income Taxes - Net. . . . . . . 64,717 64,105 63,425
Investment Tax Credits . . . . . . . . . . . . . . . 6,710 7,331 6,807
Deferred Revenues:
Customer Refund Obligation . . . . . . . . . . . . 3,500 0 3,500
Other Deferred Revenues. . . . . . . . . . . . . . 27,877 12,056 9,338
Environmental Remediation Costs. . . . . . . . . . . 12,474 8,190 11,902
Other. . . . . . . . . . . . . . . . . . . . . . . . 6,949 7,089 7,055
--------- --------- ---------
Total Deferred Credits
and Other Non-Current Liabilities. . . . . . 134,081 106,528 112,356
--------- --------- ---------
Commitments and Contingencies (Notes 6 & 7)
Total. . . . . . . . . . . . . . . . . . $560,754 $539,980 $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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(In Thousands)
<CAPTION> Three Months Ended
March 31,
--------------------
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock. . . . . . . . . . . . $13,217 $9,763
Adjustments to Reconcile Net Income to Cash Flows:
Depreciation, Depletion and Amortization . . . . . . . . . 5,013 4,704
Provision for Losses on Accounts Receivable. . . . . . . . 173 157
Revenues and Fuel Costs Deferred - Net . . . . . . . . . . 18,539 17,401
Deferred and Non-Current Federal Income Taxes
and Credits - Net . . . . . . . . . . . . . . . . . . . . 969 512
Environmental Remediation Costs - Net. . . . . . . . . . . 1,219 127
Changes in:
Accounts Receivable. . . . . . . . . . . . . . . . . . . (10,445) (20,939)
Inventories. . . . . . . . . . . . . . . . . . . . . . . 15,445 11,388
Prepayments and Other Current Assets . . . . . . . . . . 178 340
Gross Receipts & Franchise Taxes Accrued - Net . . . . . 12,086 14,021
Accounts Payable and Other Accrued Liabilities . . . . . (12,177) 1,986
Other - Net. . . . . . . . . . . . . . . . . . . . . . . . 812 (441)
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . 45,029 39,019
-------- --------
Cash Flows from Investing Activities:
Capital Expenditures, Cost of Removal and Salvage. . . . . . (9,573) (8,163)
-------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . . (9,573) (8,163)
-------- --------
Cash Flows from Financing Activities:
Proceeds from Sale of Long-Term Debt . . . . . . . . . . . . 30,000 0
Net Repayments of Lines of Credit. . . . . . . . . . . . . . (69,100) (31,150)
Principal Repayments of Long-Term Debt . . . . . . . . . . . (2,301) (110)
Dividends on Common Stock. . . . . . . . . . . . . . . . . . (3,857) (3,559)
Proceeds from Sale of Common Stock . . . . . . . . . . . . . 46 3,687
-------- --------
Net Cash Used In Financing Activities . . . . . . . . . . . . . (45,212) (31,132)
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . . (9,756) (276)
Cash and Cash Equivalents at Beginning of Period. . . . . . . . 14,208 9,935
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . . $4,452 $9,659
======== ========
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the first quarter of 1995, a capital lease obligation of $46 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
$1.0 million for the three-month periods ended March 31, 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 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 Note 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:
1995 1994
---- ----
Beginning Balance January 1, 10,715,211 9,804,576
Issued during period:
Employees' Stock Ownership Plan 3,501 2,716
Dividend Reinvestment &
Stock Purchase Plan 0 161,179
Stock Option & Stock
Appreciation Rights Plan 0 3,060
---------- ---------
Ending Balance March 31, 10,718,712 9,971,531
========== =========
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 $41,288 and $3,478,217 received for such
stock for the three months ended March 31, 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
- 7 -
<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 2. (Continued)
January 23, 1997. At March 31, 1995 and 1994, the Company
had 50,560 options outstanding, exercisable at prices from
$17.16 to $24.69 per share. During the three-month period
ended March 31, 1994, 3,060 options were exercised at a price
of $17.89 per share. No options were granted in 1994. No
stock appreciation rights have been issued under the plan.
The stock options outstanding at March 31, 1995 and 1994 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
$40.9 million at March 31, 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
periods ended March 31, 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 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 pay-as-you-go 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 pay-as-you-go 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. SJG is
also 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 $5.3 million at March 31,
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.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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.
In 1994, the Company also adopted FASB No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities", which requires the Company, among other things,
to account for certain of its investments at fair market
value. Adoption of this statement did not have a material
effect 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
billed on a fixed basis have been paid 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. SJG anticipates being billed additional fixed costs of
approximately $1.1 million under this stipulation; however,
the order allowing for such cost recovery by one of SJG's
pipelines has been remanded to the Federal Energy Regulatory
Commission (FERC) for further action. The amount of these
additional fixed costs which have been flowed through to SJG,
net of refunds, was approximately $0.1 million for the three
months ended March 31, 1995. No costs were flowed through to
SJG for the three months ended March 31, 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 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 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 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
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 6. (Continued)
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. 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 $0.5 million is recorded as of
March 31, 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
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 March 31, 1995, the Company has recorded
environmental remediation costs of $38.6 million, of which
$21.0 million has been expended. Management's estimate of the
remaining liability of approximately $17.6 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 $1.5 million,
were received by SJG in July 1994 and an additional $1.5
million was received in January 1995. 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 $37.5 million and
$20.4 million, respectively, through March 31, 1995. SJG has
established a regulatory asset for these costs and is
recovering its costs as expended over 7-year amortization
- 10 -
<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 6. (Continued)
periods, as authorized by the BPU. SJG has recovered $5.3
million through rates as of March 31, 1995. The balance of
such costs and payments, amounting to $1.1 million and $0.6
million, respectively, relates to other environmental related
costs including nonutility sites previously used in fuel oil
operations.
As part of SJG's rate increase effective December 14,
1994, a capital structure test was implemented. The parties
stipulated that by February 28, 1995, SJG's common equity
balance would increase by $6.0 million as a result of an
equity infusion; and its long-term debt balance would
increase by $45.0 million as a result of new debt issues.
SJG has satisfied all requirements of the capital structure
test by February 28, 1995 as stipulated.
Note 7.
On April 7, 1995, SJG received approval from the BPU to
reduce its rates by approximately $8.8 million or 2.9%. The
change consists of a $7.0 million decrease to SJG's LGAC and
a $1.8 million reduction to its Temperature Adjustment Clause
(TAC). As part of this reduction, in May 1995, firm
customers will receive a one-time credit of approximately
$6.1 million, based on their usage between November 1994 and
March 1995. The balance of the decrease will come to
customers through rate reductions effective April 7, 1995.
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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
-----------------------------------
First Quarter of 1995 Compared with First Quarter of 1994
- ---------------------------------------------------------
Utility Revenues are lower in 1995 compared to 1994
principally due to a decrease in gas volumes sold due to weather
which was approximately 15% warmer than 1994. Revenues were also
lower due to lower unit costs for purchased gas which costs are
reflected in utility revenues. Approximately 21.3 million
dekatherms were sold and transported during the first quarter of
1995 compared with 25.8 million dekatherms during the same period
in 1994. More than offsetting the earnings impact of lower volume
sales was the impact of the rate increase granted to South Jersey
Gas Company by the New Jersey Board of Public Utility
Commissioners which became effective on December 14, 1994. The
new rates increased margins on sales to residential, commercial
and small industrial customers.
Nonutility Revenues increased in 1995 principally due to
higher volume sales by The Morie Company, Inc. (Morie), the
Company's sand mining and processing subsidiary, and increased
revenue by R&T Group, Inc. (R&T), the Company's utility and
general construction subsidiary. Warmer weather in 1995 had a
positive impact for both Morie and R&T since this contributed to
an increase in construction activity during the first quarter.
Profit margins for both Morie and R&T increased in 1995.
The increase in nonutility revenues was partially offset by a
decrease in revenues by South Jersey Energy Company, the Company's
energy service subsidiary, primarily resulting from lower prices
for product sales. Sales margin increased slightly in 1995.
The decrease in Gas Purchased for Resale in 1995 is due to
the impact of lower unit gas costs and lower volume sales.
Utility costs, included in the expense category, Operations,
show an increase in 1995 principally due to increased salaries and
employee welfare costs. Nonutility Operations cost increased in
1995 principally due to costs associated with higher product and
contract sales by Morie and R&T.
Depreciation is higher in 1995 due to increased investment in
property plant and equipment.
Federal Income Taxes are higher in 1995 principally due to
the increase in net income.
Gross Receipts and Franchise Taxes decreased in 1995
principally due to a decrease in volumes of gas sold, the
principal basis for this tax.
Interest Charges increased in 1995 principally due to higher
levels of long-term debt outstanding and the effects of increased
long and short-term interest rates.
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Net income and earnings per share were higher in 1995
principally due to increased margins on sales from utility and
nonutility operations. The increase in earnings per share was
partially offset by the effect of a higher number of common shares
outstanding in 1995.
Liquidity
- ---------
Seasonal aspects of the Company's subsidiary operations
affect cash flows, revenues and operating expenses and,
generally, the level of current assets and current
liabilities. Utility operations are usually greater during
the first and fourth quarters of the year, reflecting the
impact of higher sales resulting from colder weather. Sand
mining and construction operations are usually greater during
the second and third quarters of the year, reflecting higher
demand for sand products and construction services during
periods of warmer temperatures. The decrease in the accounts
receivable balance at March 31, 1995, compared with March 31,
1994, is principally due to lower unit sales in the first
quarter of 1995. The accounts payable decrease at March 31,
1995, compared to March 31, 1994, was principally due to a
decrease in gas purchase volumes and lower unit prices for
gas purchases.
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 is impacted in April
of each year by the payment of the estimated gross receipt
and franchise tax payment for the full year. The last of an
accelerated tax payment program mandated by the State of New
Jersey was completed in 1994 with a payment of $12.2 million.
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.
During the quarter ended March 31, 1995, net cash flows
increased by $18.5 million, primarily due to the LGAC. At
March 31, 1995, the balance of overcollections of
approximately $27.9 million and the customer refund
obligation of $3.5 million, will be subject to recovery by
SJG's customers in the 1994-1995 and 1995-1996 LGAC periods.
In May 1995, firm customers will receive a credit of $6.1
million related to LGAC overcollections and $2.7 million will
be returned to customers through rate reductions effective
April 7, 1995. The balance of overcollections will be
considered in the LGAC filing for the 1995-1996 LGAC year.
Overcollections are reflected in the balance sheet under the
caption "Deferred Revenues".
- 13 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
Short-term bank lines of credit aggregate $183.0 million
of which $171.9 million was unused at March 31, 1995. The
credit lines are uncommitted and unsecured with borrowings
thereafter being at various terms of less than one year at
interest rates less than the prime rate of interest in effect
at the time of borrowing.
Cash flow from nonutility operations is generally
retained in the nonutility companies with amounts in excess
of cash requirements being passed up to the Company either as
a dividend or as a temporary short-term loan. Such
activities are not considered material in relation to the
financial statements taken as a whole.
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 ("Income Taxes - Flowthrough
Depreciation"), such amortization will be recoverable through
rates over an amortization period of 18 years. 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, reflected 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 $7.2 million
at March 31, 1995. This amount represents the excess of the
annual cost over the level of costs recovered under current
rates. The BPU order of December 1994 prescribes continued
deferral of unrecovered costs for consideration in SJG's next
base rate case proceeding and it is expected that the
recovery of this regulatory asset will be included in base
rates. To the extent such costs are recoverable in rates,
the BPU order provides for a separate trust fund for the
management of revenues and costs associated with such
postretirement benefits. The adoption of FASB Nos. 109 and
106 has not adversely impacted 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.
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. 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
- 14 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
basis or the method of billing transition costs, SJG's total
liability cannot be determined. A liability of approximately
$0.5 million is recorded as of March 31, 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 through its LGAC.
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 the costs
resulting from these orders through its LGAC.
The FERC's action 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.
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 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 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. Certain
storage and 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.
Through March 31, 1995, the Company has recorded
environmental remediation costs of $38.6 million, of which
$21.0 million has been expended. The remaining liability of
approximately $17.6 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 $3.0 million which are offset against legal
costs and deferred remediation costs as prescribed by the
BPU. Recorded amounts include estimated costs to be incurred
during the next three years based on projected investigation
- 15 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
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 the three-year
period 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 $37.5
million and $20.4 million, respectively, through March 31,
1995. SJG has established a regulatory asset for these costs
which are recoverable over 7-year amortization periods, as
authorized by the BPU. SJG has recovered $5.3 million
through rates as of March 31, 1995. The balance of such
costs and payments, amounting to $1.1 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 were $41.4 million in 1994. Construction
expenditures for 1995 are estimated at approximately $37.0
million of which $9.6 has been expended through March 31,
1995. Construction expenditures are estimated at $40.0
million annually in 1996 and 1997. 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 were used for general corporate purposes.
In the quarter ended March 31, 1994, SJI issued 166,955
shares of common stock through its various plans, including a
Stock Option and Stock Appreciation Rights Plan, its Dividend
Reinvestment and Stock Purchase Plan and Employee's Stock
Ownership Plan, for approximately $3.7 million. Beginning in
November 1994, the Company began to purchase common shares in
the open market to satisfy share purchase requirements under
its dividend reinvestment and stock purchase plan. This
action reduces the potential diluent effect resulting from
the issuance of new common shares. New common shares
continue to be issued in connection with the Employee's Stock
Ownership Plan, however, such issuances are not material to
the financial statements.
- 16 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Capital Resources (Continued)
- -----------------
In 1994, SJG entered into a bank credit facility under
which it issued a $15 million unsecured term note and under
which SJG can borrow an additional $5.0 million under a
revolving credit facility. The revolving credit facility was
unused at March 31, 1995. 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 8.60% Debenture Notes maturing February 1,
2010. The proceeds from these financings were principally
used to pay down short-term bank borrowings which were
temporarily used to fund the accelerated tax payments and
environmental remediation expenditures as previously
discussed.
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 l. Legal Proceedings
-----------------
Information required by this Item is incorporated by
reference to Part I, Item 1, Note 6, 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: May 11, 1995 By: /s/ Gerald S. Levitt
-------------------------------
Gerald S. Levitt
Vice President and
Chief Financial Officer
Dated: May 11, 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 375,669
<OTHER-PROPERTY-AND-INVEST> 31,510
<TOTAL-CURRENT-ASSETS> 80,463
<TOTAL-DEFERRED-CHARGES> 69,730
<OTHER-ASSETS> 3,382
<TOTAL-ASSETS> 560,754
<COMMON> 13,398
<CAPITAL-SURPLUS-PAID-IN> 110,122
<RETAINED-EARNINGS> 40,857
<TOTAL-COMMON-STOCKHOLDERS-EQ> 164,377
0
2,494
<LONG-TERM-DEBT-NET> 165,857
<SHORT-TERM-NOTES> 11,100
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 9,429
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 192,497
<TOT-CAPITALIZATION-AND-LIAB> 560,754
<GROSS-OPERATING-REVENUE> 110,456
<INCOME-TAX-EXPENSE> 7,234
<OTHER-OPERATING-EXPENSES> 84,887
<TOTAL-OPERATING-EXPENSES> 92,121
<OPERATING-INCOME-LOSS> 18,335
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 18,335
<TOTAL-INTEREST-EXPENSE> 5,118
<NET-INCOME> 13,217
0
<EARNINGS-AVAILABLE-FOR-COMM> 13,217
<COMMON-STOCK-DIVIDENDS> 3,858
<TOTAL-INTEREST-ON-BONDS> 3,506
<CASH-FLOW-OPERATIONS> 44,984
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
