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 June 30, 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 August 9, 1995, there were 10,720,236 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)
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(In Thousands Except for Share Data)
<CAPTION>
Three Months Ended
June 30,
-------------------------
1995 1994
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<S> <C> <C>
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $49,233 $47,197
Nonutility . . . . . . . . . . . . . . . . . . . 19,616 20,148
----------- -----------
Total Operating Revenues . . . . . . . . . . 68,849 67,345
----------- -----------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 25,875 25,631
Operations - Utility . . . . . . . . . . . . . . 10,187 9,176
Nonutility. . . . . . . . . . . . . 15,284 16,057
Maintenance. . . . . . . . . . . . . . . . . . . 2,395 2,202
Depreciation and Depletion . . . . . . . . . . . 4,397 4,099
Federal Income Taxes . . . . . . . . . . . . . . (246) 125
Gross Receipts & Franchise Taxes . . . . . . . . 4,446 4,479
Other Taxes. . . . . . . . . . . . . . . . . . . 1,257 1,191
----------- -----------
Total Operating Expenses . . . . . . . . . . 63,595 62,960
----------- -----------
Operating Income . . . . . . . . . . . . . . . . . 5,254 4,385
Interest and Other Charges . . . . . . . . . . . . 5,413 3,886
----------- -----------
Net (Loss) Income Applicable to Common Stock . . . ($159) $499
=========== ===========
Average Shares of Common Stock Outstanding . . . . 10,718,712 9,974,210
=========== ===========
(Loss) Earnings Per Share - Common Stock . . . . . ($0.02) $0.05
=========== ===========
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 STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
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(In Thousands Except for Share Data)
Six Months Ended
June 30,
-------------------------
1995 1994
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $141,769 $170,198
Nonutility . . . . . . . . . . . . . . . . . . . 37,536 36,090
----------- -----------
Total Operating Revenues . . . . . . . . . . 179,305 206,288
----------- -----------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 65,349 98,683
Operations - Utility . . . . . . . . . . . . . . 20,014 18,458
Nonutility. . . . . . . . . . . . . 30,660 31,202
Maintenance. . . . . . . . . . . . . . . . . . . 4,619 4,568
Depreciation and Depletion . . . . . . . . . . . 8,706 8,099
Federal Income Taxes . . . . . . . . . . . . . . 6,988 5,497
Gross Receipts & Franchise Taxes . . . . . . . . 16,829 19,233
Other Taxes. . . . . . . . . . . . . . . . . . . 2,549 2,351
----------- -----------
Total Operating Expenses . . . . . . . . . . 155,714 188,091
----------- -----------
Operating Income . . . . . . . . . . . . . . . . . 23,591 18,197
Interest and Other Charges . . . . . . . . . . . . 10,532 7,936
----------- -----------
Net Income Applicable to Common Stock. . . . . . . $13,059 $10,261
=========== ===========
Average Shares of Common Stock Outstanding . . . . 10,718,172 9,930,383
=========== ===========
Earnings Per Share - Common Stock. . . . . . . . . $1.22 $1.03
=========== ===========
Dividends Declared Per Share - Common Stock. . . . $0.72 $0.72
=========== ===========
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>
June 30 December 31,
--------------------------------------
1995 1994 1994
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<S> <C> <C> <C>
ASSETS
Property, Plant & Equipment:
Utility Plant, at original cost. . . . . . . . . . . $523,010 $488,874 $506,409
Accumulated Depreciation & Amortization. . . . . . (141,003) (130,947) (136,112)
Nonutility Property & Equipment, at cost . . . . . . 65,225 60,569 63,613
Accumulated Depreciation & Depletion . . . . . . . (33,301) (31,520) (31,810)
----------- ----------- ------------
Property, Plant & Equipment - Net. . . . . . . 413,931 386,976 402,100
----------- ----------- ------------
Available-for-Sale Securities. . . . . . . . . . . . . 830 917 830
----------- ----------- ------------
Current Assets:
Cash and Cash Equivalents. . . . . . . . . . . . . . 960 11,860 14,208
Accounts Receivable. . . . . . . . . . . . . . . . . 35,477 39,843 35,213
Unbilled Revenues. . . . . . . . . . . . . . . . . . 3,418 3,083 15,154
Provision for Uncollectibles . . . . . . . . . . . . (1,003) (1,042) (991)
Natural Gas in Storage, average cost . . . . . . . . 11,549 8,972 17,082
Materials and Supplies, average cost . . . . . . . . 11,811 11,190 11,995
Assets Held for Disposal . . . . . . . . . . . . . . 339 342 339
Prepaid Gross Receipts and Franchise Taxes . . . . . 15,518 10,543 0
Prepayments and Other Current Assets . . . . . . . . 3,885 3,251 2,570
----------- ----------- ------------
Total Current Assets . . . . . . . . . . . . . 81,954 88,042 95,570
----------- ----------- ------------
Accounts Receivable - Merchandise. . . . . . . . . . . 2,377 2,224 2,015
----------- ----------- ------------
Deferred Debits:
Gross Receipts and Franchise Taxes . . . . . . . . . 5,068 5,468 5,268
Environmental Remediation Costs:
Expended - Net . . . . . . . . . . . . . . . . . . 11,244 14,437 13,361
Liability for Future Expenditures. . . . . . . . . 17,065 14,768 17,026
Income Taxes - Flowthrough Depreciation. . . . . . . 16,444 17,128 16,933
Deferred Postretirement Benefit Costs. . . . . . . . 7,721 6,297 6,567
Prepayment and Other . . . . . . . . . . . . . . . . 10,348 10,269 11,425
----------- ----------- ------------
Total Deferred Debits. . . . . . . . . . . . . 67,890 68,367 70,580
----------- ----------- ------------
Total. . . . . . . . . . . . . . . . . . $566,982 $546,526 $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)
June 30, December 31,
--------------------------------------
1995 1994 1994
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CAPITALIZATION AND LIABILITIES
Common Equity:
Common Stock . . . . . . . . . . . . . . . . . . . . $13,400 $13,066 $13,394
Premium on Common Stock. . . . . . . . . . . . . . . 110,152 105,897 110,081
Retained Earnings. . . . . . . . . . . . . . . . . . 36,839 37,001 31,497
----------- ----------- ------------
Total Common Equity. . . . . . . . . . . . . . 160,391 155,964 154,972
----------- ----------- ------------
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 . . . . . . . . . . . . . . . . . . . . 178,390 139,827 153,086
----------- ----------- ------------
Current Liabilities:
Notes Payable to Banks . . . . . . . . . . . . . . . 41,850 84,800 80,200
Current Maturities of Long-Term Debt . . . . . . . . 9,393 10,159 9,455
Accounts Payable . . . . . . . . . . . . . . . . . . 26,765 25,071 35,237
Customer Deposits. . . . . . . . . . . . . . . . . . 5,733 5,714 5,895
Environmental Remediation Costs. . . . . . . . . . . 6,933 5,009 5,175
Interest Accrued and
Other Current Liabilities . . . . . . . . . . . . . 11,680 9,902 12,225
----------- ----------- ------------
Total Current Liabilities. . . . . . . . . . . 102,354 140,655 148,187
----------- ----------- ------------
Deferred Credits and Other Non-Current Liabilities:
Pension and Other Postretirement Benefits. . . . . . 11,649 9,126 10,329
Accumulated Deferred Income Taxes - Net. . . . . . . 66,004 64,181 63,425
Investment Tax Credits . . . . . . . . . . . . . . . 6,612 7,233 6,807
Deferred Revenues:
Customer Refund Obligation . . . . . . . . . . . . 0 0 3,500
Other Deferred Revenues. . . . . . . . . . . . . . 21,672 9,870 9,338
Environmental Remediation Costs. . . . . . . . . . . 10,151 9,778 11,902
Other. . . . . . . . . . . . . . . . . . . . . . . . 7,355 7,398 7,055
----------- ----------- ------------
Total Deferred Credits
and Other Non-Current Liabilities. . . . . . 123,443 107,586 112,356
----------- ----------- ------------
Commitments and Contingencies (Note 6)
Total. . . . . . . . . . . . . . . . . . $566,982 $546,526 $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>
Six Months Ended
June 30,
-------------------
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock. . . . . . . . . . . . 13,059 10,261
Adjustments to Reconcile Net Income to Cash Flows:
Depreciation, Depletion and Amortization . . . . . . . . . 10,162 9,480
Provision for Losses on Accounts Receivable. . . . . . . . 467 368
Revenues and Fuel Costs Deferred - Net . . . . . . . . . . 8,834 15,215
Deferred and Non-Current Federal Income Taxes
and Credits - Net . . . . . . . . . . . . . . . . . . . . 1,935 638
Environmental Remediation Costs - Net. . . . . . . . . . . 2,085 (79)
Changes in:
Accounts Receivable. . . . . . . . . . . . . . . . . . . 11,017 6,250
Inventories. . . . . . . . . . . . . . . . . . . . . . . 5,717 2,481
Prepayments and Other Current Assets . . . . . . . . . . (1,315) (822)
Gross Receipts & Franchise Taxes Accrued - Net . . . . . (15,714) (24,015)
Accounts Payable and Other Accrued Liabilities . . . . . (8,983) (2,615)
Other - Net. . . . . . . . . . . . . . . . . . . . . . . . 1,335 (771)
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . 28,599 16,391
-------- --------
Cash Flows from Investing Activities:
Capital Expenditures, Cost of Removal and Salvage. . . . . . (20,963) (18,781)
-------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . . (20,963) (18,781)
-------- --------
Cash Flows from Financing Activities:
Proceeds from Sale of Long-Term Debt . . . . . . . . . . . . 30,000 0
Net (Repayments of) Borrowings from Lines of Credit. . . . . (38,350) 2,050
Principal Repayments of Long-Term Debt . . . . . . . . . . . (4,804) (2,821)
Dividends on Common Stock. . . . . . . . . . . . . . . . . . (7,717) (7,150)
Repurchase of Preferred Stock. . . . . . . . . . . . . . . . (90) (90)
-------- --------
Net Cash (Used In) Provided by Financing Activities . . . . . . (20,884) 4,315
-------- --------
Net (Decrease) Increase in Cash and Cash Equivalents. . . . . . (13,248) 1,925
Cash and Cash Equivalents at Beginning of Period. . . . . . . . 14,208 9,935
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . . $960 $11,860
======== ========
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During 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 $1.9 million and
$1.2 million for the three-month periods and $3.7 million and
$2.1 million for the six-month periods ended June 30, 1995
and 1994, 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 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 and the
adjustments described in Note 4) 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 5,025 4,364
Dividend Reinvestment &
Stock Purchase Plan 0 640,803
Stock Option & Stock
Appreciation Rights Plan 0 3,060
---------- ----------
Ending Balance June 30, 10,720,236 10,452,803
========== ==========
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 $70,597 and $11,516,676 received for such
stock for the six months ended June 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
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<PAGE>
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 June 30, 1995 and 1994, the Company had
50,560 options outstanding, exercisable at prices from $17.16
to $24.69 per share. During the six-month period ended June
30, 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 June 30, 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
$36.8 million at June 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 six-month periods ended June 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. 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 June 30, 1995. SJG is also
authorized to continue recording a regulatory asset for the
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 4. (Continued)
amount by which the cost exceeds the current level recovered
in rates. The recovery of this regulatory asset, which
amounted to approximately $6.0 million at June 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 $0.8 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 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. 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 $0.4 million is recorded as of
June 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
Department of Environmental Protection for information
regarding several sites at which SJG or predecessor companies
operated gas manufacturing plants or a nonutility subsidiary
- 10 -
<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 5. (Continued)
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 June 30, 1995, the Company has recorded
environmental remediation costs of $39.0 million, of which
$21.9 million has been expended. Management's estimate of the
remaining liability of approximately $17.1 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 $37.8 million and
$21.2 million, respectively, through June 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 $5.8
million through rates as of June 30, 1995. The balance of
such costs and payments, amounting to $1.2 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
----------------------------------
Second Quarter of 1995 Compared with Second Quarter of 1994
- -----------------------------------------------------------
Utility Revenues increased in 1995 principally due to
increased revenues from residential and commercial customers
resulting from the rate increase which became effective December
14, 1994 and an increase of approximately 7,100 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. The Morie Company, Inc.
(Morie), the Company's sand mining company, and R & T Group, Inc.
(R&T), SJI's general construction subsidiary experienced strong
and increased sales in 1995. Lower SJE sales did not
significantly affect net income since its sales are traditionally
low-margin.
Utility operating expense increased in 1995 reflecting,
principally, higher salary and employee benefit costs and
increases in other administrative and general costs. Nonutility
operating expense is lower in 1995 due the effect of lower SJE
product costs related to lower sales, partially offset by higher
product costs related to increased sales by Morie and R&T.
Interest and Other Charges increased in 1995 principally due
to higher levels of long-term debt outstanding and interest
resulting from the overcollection of gas costs from utility
customers. Short-term interest rates were generally higher in
1995; however, the Company experienced lower interest costs due to
lower levels of short-term debt outstanding.
The net loss in 1995 is principally due to increased interest
expense. Loss per share of common stock reflects the impact of
increased interest expense, offset by higher operating income.
Net loss per share of common stock also reflects the effect of a
higher average number of shares outstanding.
First Six Months of 1995 compared with First Six Months of 1994
- ---------------------------------------------------------------
Utility Revenues decreased in 1995 principally due to lower
sales volumes caused by warmer temperatures, partially offset by
the positive impact of the rate increase which became effective
December 14, 1994 and the impact of 6,800 additional customers.
Volumes sold and transported, other than off-system sales,
amounted to 29.9 million MCF in 1995 compared with 32.4 million
MCF in 1994. Off-system volumes amounted to 3.5 million MCF in
1995 compared with 7.1 million MCF in 1994. Despite the decrease
in off-system sales volume, the pre-tax margin retained by SJG was
$2.0 million in 1995 compared with $1.0 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 first $4.0 million of pre-tax off-system and
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
First Six Months of 1995 compared with First Six Months of 1994
- ---------------------------------------------------------------
(Continued)
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 Levelized
Gas Adjustment Clause (LGAC) period which ends October 31, 1995.
Nonutility revenues increased for Morie and R&T in 1995 reflecting
strong volume sales and higher construction and remediation
activity. SJE's revenues decreased during the period, however,
profit margins on its sales were stable.
Gas Purchased for Resale decreased due to lower unit costs
and lower volume sales.
The utility operating expense increase in 1995 is principally
due to increased payroll and employee benefit costs, partially
offset by lower distribution expenses due to a mild winter season.
The decrease in nonutility operating expense reflects the impact
of lower costs related to lower sales volumes by SJE and higher
costs by Morie and R&T related to increased sales volumes.
Depreciation is higher in 1995 due to increased investment in
property, plant and equipment. Gross Receipts and Franchise Taxes
are lower in 1995 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 an
increase in interest associated with overcollections of purchased
gas costs from utility customers. Such increase was offset by
lower short-term interest due to lower levels of short-term debt
outstanding, partially offset by the effect of higher short-term
interest rates.
The Company has 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. 106 is not expected to impact cash
flows or liquidity.
Utility and nonutility earnings both contributed
significantly 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
- 13 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
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 1995, SJG
issued $30.0 million of debenture notes, the proceeds of
which were principally used to reduce the level of short-term
debt related to accelerated tax payments. SJG recovers
the carrying costs associated with such debt in rates, as
allowed by the New Jersey Board of Public Utilities (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. 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 June 30, 1995,
compared with June 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 billing by R&T. The level of delinquent account
balances for residential and commercial utility customers
decreased in 1995 principally as a result of the application
of refunds due to customers from overcollection of gas costs.
The increase in natural gas inventory is principally a timing
difference relating to inventory building for the 1995-1996
winter season.
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 six months ended June 30, 1995, cash flow from
overcollections increased cash flow by $8.8 million, net of a
direct repayment to customers of $6.1 million. 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 $109.15 million was unused at June 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
- 14 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
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 amortization period of 18 years. Also,
FASB No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", requires an accrual basis of
accounting for retiree benefit payments during the years the
employee provides services. Its adoption in 1993, as
measured in accordance with the statement, results in an
actuarially computed unfunded transition obligation of $27.8
million which the Company has elected to recognize over a
period of 20 years. 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 ($6.0 million at June 30, 1995)
to 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 June 30, 1995. It is
not expected that the adoption of FASB Nos. 106 and 109 will
adversely impact liquidity or debt covenants.
During 1992, the FERC issued a series of orders
requiring all interstate pipelines to restructure their
services. Included in these orders is FERC Order No. 636
which required the pipelines to separate sales and
transportation services and to change their rate design.
Also, as a result of these orders, SJG will incur certain
transition costs that are associated with its pipeline
suppliers unbundling their services. 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 $0.4 million is recorded as of
June 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.
- 15 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
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
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 June 30, 1995, the Company has recorded
environmental remediation costs of $39.0 million, of which
$21.9 million has been expended. The remaining liability of
approximately $17.1 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 $37.8 million and $21.2
million, respectively, through June 30, 1995. SJG has
- 16 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition (Continued)
----------------------------------
Liquidity (Continued)
- ---------
established a regulatory asset for these costs and is
recovering such costs over 7-year amortization periods, as
authorized by the BPU. SJG has recovered $5.8 million
through rates as of June 30, 1995. The balance of such costs
and payments, amounting to $1.2 million and $0.7 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 for 1995 are estimated at $39.9 million of which
$20.9 million has been expended through June 30, 1995.
Construction expenditures for 1996 and 1997 are estimated at
approximately $58.0 million and $47.0 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 under 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 910,635 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: August 11, 1995 By: /s/ Gerald S. Levitt
-------------------------------
Gerald S. Levitt
Vice President and
Chief Financial Officer
Dated: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 382,007
<OTHER-PROPERTY-AND-INVEST> 31,924
<TOTAL-CURRENT-ASSETS> 81,954
<TOTAL-DEFERRED-CHARGES> 67,890
<OTHER-ASSETS> 3,207
<TOTAL-ASSETS> 566,982
<COMMON> 13,400
<CAPITAL-SURPLUS-PAID-IN> 110,152
<RETAINED-EARNINGS> 36,839
<TOTAL-COMMON-STOCKHOLDERS-EQ> 160,391
0
2,404
<LONG-TERM-DEBT-NET> 178,390
<SHORT-TERM-NOTES> 41,850
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 9,393
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 174,554
<TOT-CAPITALIZATION-AND-LIAB> 566,982
<GROSS-OPERATING-REVENUE> 179,305
<INCOME-TAX-EXPENSE> 6,988
<OTHER-OPERATING-EXPENSES> 148,726
<TOTAL-OPERATING-EXPENSES> 155,714
<OPERATING-INCOME-LOSS> 23,591
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 23,591
<TOTAL-INTEREST-EXPENSE> 10,532
<NET-INCOME> 13,059
0
<EARNINGS-AVAILABLE-FOR-COMM> 13,059
<COMMON-STOCK-DIVIDENDS> 7,717
<TOTAL-INTEREST-ON-BONDS> 7,878
<CASH-FLOW-OPERATIONS> 28,599
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
