Page 1 of 29
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, 1997
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 13, 1997, there were 10,762,298 shares of the
registrant's common stock outstanding.
Exhibit Index on page 29
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -- See Pages 3 through 6
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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
March 31,
-------------------------
1997 1996
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<S> <C> <C>
Operating Revenues:
Utility. . . . . . . . . . . . . . . . . . . . . $120,594 $139,349
Nonutility . . . . . . . . . . . . . . . . . . . 4,825 10,611
----------- -----------
Total Operating Revenues . . . . . . . . . . 125,419 149,960
----------- -----------
Operating Expenses:
Gas Purchased for Resale . . . . . . . . . . . . 63,882 78,767
Operations - Utility . . . . . . . . . . . . . . 9,810 9,618
Nonutility. . . . . . . . . . . . . 4,984 10,458
Maintenance. . . . . . . . . . . . . . . . . . . 1,471 1,261
Depreciation . . . . . . . . . . . . . . . . . . 3,888 3,632
Federal Income Taxes . . . . . . . . . . . . . . 8,345 9,180
Gross Receipts & Franchise Taxes . . . . . . . . 12,379 14,473
Other Taxes. . . . . . . . . . . . . . . . . . . 791 818
----------- -----------
Total Operating Expenses . . . . . . . . . . 105,550 128,207
----------- -----------
Operating Income . . . . . . . . . . . . . . . . . 19,869 21,753
Interest and Other Charges . . . . . . . . . . . . 4,876 4,942
----------- -----------
Income from Continuing Operations. . . . . . . . . 14,993 16,811
----------- -----------
Discontinued Operations:
Income(Loss) from Discontinued Operations - Net. 31 (862)
Net Loss on the Disposal
of Discontinued Operations. . . . . . . . . . . (123) (723)
----------- -----------
Net Income Applicable to Common Stock. . . . . . 14,901 15,226
=========== ===========
Average Shares of Common Stock Outstanding . . . . 10,760,121 10,724,398
=========== ===========
Earnings(Loss) Per Common Share:
Continuing Operations. . . . . . . . . . . . . . $1.39 $1.57
Discontinued Operations - Net. . . . . . . . . . (0.01) (0.15)
----------- -----------
Earnings Per Common Share . . . . . . . . . . $1.38 $1.42
=========== ===========
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 CONSOLIDATED BALANCE SHEET
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(In Thousands) (Unaudited)
<CAPTION>
March 31, December 31,
--------------------------------------
1997 1996 1996
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<S> <C> <C> <C>
ASSETS
- ------
Property, Plant & Equipment:
Utility Plant, at original cost. . . . . . . . . . . $589,255 $549,057 $579,304
Accumulated Depreciation . . . . . . . . . . . . . (160,755) (148,727) (157,682)
Nonutility Property & Equipment, at cost . . . . . . 3,326 60,448 3,342
Accumulated Depreciation & Depletion . . . . . . . (1,048) (35,240) (1,060)
----------- ----------- ------------
Property, Plant & Equipment - Net. . . . . . . 430,778 425,538 423,904
----------- ----------- ------------
Investment in Affiliate. . . . . . . . . . . . . . . . 1267 0 1286
----------- ----------- ------------
Current Assets:
Cash and Cash Equivalents. . . . . . . . . . . . . . 13,852 4,270 46,905
Notes Receivable - Affiliate . . . . . . . . . . . . 1,500 0 2,800
Accounts Receivable. . . . . . . . . . . . . . . . . 55,638 76,754 38,714
Unbilled Revenues. . . . . . . . . . . . . . . . . . 13,052 15,049 17,855
Provision for Uncollectibles . . . . . . . . . . . . (1,555) (988) (1,425)
Natural Gas in Storage, average cost . . . . . . . . 6,403 2,094 22,638
Materials and Supplies, average cost . . . . . . . . 4,069 11,382 4,114
Assets of Discontinued Businesses Held for Disposal. 2,999 0 4,966
Prepaid Gross Receipts & Franchise Taxes . . . . . . 0 0 1,602
Prepayments and Other Current Assets . . . . . . . . 1,376 2,749 1,773
----------- ----------- ------------
Total Current Assets . . . . . . . . . . . . . 97,334 111,310 139,942
----------- ----------- ------------
Accounts Receivable - Merchandise. . . . . . . . . . . 1,804 2,597 1,999
----------- ----------- ------------
Deferred Debits:
Environmental Remediation Costs:
Expended - Net . . . . . . . . . . . . . . . . . . 15,864 12,062 15,566
Liability for Future Expenditures. . . . . . . . . 41,700 21,830 41,700
Gross Receipts & Franchise Taxes . . . . . . . . . . 4,361 4,768 4,468
Income Taxes - Flowthrough Depreciation. . . . . . . 14,732 15,710 14,977
Deferred Postretirement Benefit Costs. . . . . . . . 5,354 4,848 5,153
Other. . . . . . . . . . . . . . . . . . . . . . . . 8,056 9,776 9,386
----------- ----------- ------------
Total Deferred Debits. . . . . . . . . . . . . 90,067 68,994 91,250
----------- ----------- ------------
Total Assets . . . . . . . . . . . . . . $621,250 $608,439 $658,381
=========== =========== ============
See notes to condensed consolidated financial statements.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
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(In Thousands) (Unaudited)
<CAPTION>
March 31, December 31,
--------------------------------------
1997 1996 1996
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<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Common Equity:
Common Stock . . . . . . . . . . . . . . . . . . . . $13,453 $13,408 $13,446
Premium on Common Stock. . . . . . . . . . . . . . . 110,687 110,272 110,542
Retained Earnings. . . . . . . . . . . . . . . . . . 59,770 45,070 48,743
----------- ----------- ------------
Total Common Equity. . . . . . . . . . . . . . 183,910 168,750 172,731
----------- ----------- ------------
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value
$100 a share:
Authorized - 48,204, 49,104
and 48,204 shares
Outstanding -
Series A, 4.70% -- 3,900, 4,800
and 3,900 shares. . . . . . . 390 480 390
Series B, 8.00% -- 19,242 shares . . . . . . . . 1,924 1,924 1,924
----------- ----------- ------------
Total Preferred Stock. . . . . . . . . . . . . 2,314 2,404 2,314
----------- ----------- ------------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . 182,548 166,354 149,736
----------- ----------- ------------
Current Liabilities:
Notes Payable to Banks . . . . . . . . . . . . . . . 37,200 65,275 108,300
Current Maturities of Long-Term Debt . . . . . . . . 6,603 9,360 6,603
Accounts Payable . . . . . . . . . . . . . . . . . . 30,287 41,909 50,301
Customer Deposits. . . . . . . . . . . . . . . . . . 5,932 5,684 6,050
Gross Receipts & Franchise Taxes Accrued . . . . . . 10,475 10,474 0
Environmental Remediation Costs. . . . . . . . . . . 9,377 6,895 9,377
Federal Income Taxes Accrued . . . . . . . . . . . . 5,365 7,703 4,417
Interest Accrued and
Other Current Liabilities . . . . . . . . . . . . . 9,759 7,934 13,693
----------- ----------- ------------
Total Current Liabilities. . . . . . . . . . . 114,998 155,234 198,741
----------- ----------- ------------
Deferred Credits and Other Non-Current Liabilities:
Deferred Income Taxes - Net. . . . . . . . . . . . . 76,395 68,364 75,821
Investment Tax Credits . . . . . . . . . . . . . . . 5,926 6,319 6,025
Deferred Revenues. . . . . . . . . . . . . . . . . . 3,391 9,119 0
Pension and Other Postretirement Benefits. . . . . . 10,991 9,880 10,218
Environmental Remediation Costs. . . . . . . . . . . 34,327 14,942 34,353
Other. . . . . . . . . . . . . . . . . . . . . . . . 6,450 7,073 8,442
----------- ----------- ------------
Total Deferred Credits
and Other Non-Current Liabilities. . . . . . 137,480 115,697 134,859
----------- ----------- ------------
Commitments and Contingencies
Total Capitalization and Liabilities . . $621,250 $608,439 $658,381
=========== =========== ============
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,
-------------------
1997 1996
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock. . . . . . . . . . . 14,901 15,226
Adjustments to Reconcile Net Income to Cash Flows
Provided by Operating Activities:
Depreciation, Depletion and Amortization . . . . . . . . 4,567 5,377
Provision for Losses on Accounts Receivable. . . . . . . 195 138
Revenues and Fuel Costs Deferred - Net . . . . . . . . . 3,795 1,804
Deferred and Non-Current Federal Income Taxes
and Credits - Net . . . . . . . . . . . . . . . . . . . 748 41
Environmental Remediation Costs - Net. . . . . . . . . . (298) (289)
Net Pre-Tax Loss on the Disposal
of Discontinued Operations. . . . . . . . . . . . . . . 0 1,097
Changes in:
Accounts Receivable. . . . . . . . . . . . . . . . . . (11,991) (26,166)
Inventories. . . . . . . . . . . . . . . . . . . . . . 16,280 13,304
Prepayments and Other Current Assets . . . . . . . . . 397 347
Gross Receipts & Franchise Taxes . . . . . . . . . . . 12,077 14,123
Accounts Payable and Other Accrued Liabilities . . . . (23,118) 1,618
Other - Net. . . . . . . . . . . . . . . . . . . . . . . 216 1,674
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . 17,769 28,294
-------- --------
Cash Flows from Investing Activities:
Repayments of Loan to Affiliate. . . . . . . . . . . . . . 1,300 0
Proceeds from the Sale of Assets - Net . . . . . . . . . . 1,165 0
Proceeds from Sale of Available-for-Sale Securities. . . . 0 795
Capital Expenditures, Cost of Removal and Salvage. . . . . (11,239) (8,069)
-------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . (8,774) (7,274)
-------- --------
Cash Flows from Financing Activities:
Proceeds from Sale of Long-Term Debt . . . . . . . . . . . 35,000 0
Net Repayments of Lines of Credit. . . . . . . . . . . . . (71,100) (11,025)
Principal Repayments of Long-Term Debt . . . . . . . . . . (2,188) (7,539)
Dividends on Common Stock. . . . . . . . . . . . . . . . . (3,874) (3,861)
Proceeds from Sale of Common Stock . . . . . . . . . . . . 114 88
-------- --------
Net Cash Used in Financing Activities . . . . . . . . . . . . (42,048) (22,337)
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . (33,053) (1,317)
Cash and Cash Equivalents at Beginning of Period. . . . . . . 46,905 5,587
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . $13,852 $4,270
======== ========
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. Significant Accounting Practices:
Consolidation -- 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, 1997 and 1996, respectively, were not
required to be eliminated. Those 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 below) necessary for a fair
presentation of the financial position and operating results
of the Company 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.
Estimates and Assumptions -- The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the
financial statements and related disclosures and, therefore,
actual results could differ from those estimates.
In February 1997, the Financial Accounting Standards
Board (FASB) issued FASB No. 128, "Earnings per Share", which
is effective for financial statements for periods ending
after December 15, 1997. FASB No. 128 supersedes previous
reporting requirements on Earnings per Share (EPS) and
replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all
entities with a complex capital structure. The impact from
the adoption of FASB No. 128 is not expected to have a
material impact on the Company's EPS.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 2. Divestitures:
On December 3, 1996, Energy & Minerals, Inc. (EMI), a
subsidiary of SJI, sold the common stock of The Morie
Company, Inc. (Morie), its sand mining and processing
subsidiary, in a cash transaction for approximately $55.3
million. The net book value of assets sold was approximately
$27.9 million. Cash, certain real estate and other
miscellaneous assets, along with certain liabilities,
remaining after the sale were transferred to the books of
EMI.
In December 1996, the Company developed a formal plan to
discontinue the operations of its construction and
environmental services operations, R & T Group, Inc. (R & T)
and its five subsidiaries. In two separate sales on January
9, 1997, and on April 4, 1997, R & T sold all of its
operating assets, except certain real estate. The aggregate
proceeds from these sales, approximately $3.5 million,
approximated the net book value of the assets at the date of
sale. Associated disposal costs of $189,500, or $123,200
after taxes, are included in the condensed statement of
consolidated income under the caption "Net Loss on the
Disposal of Discontinued Operations".
Summarized operating results of the discontinued
operations for the three months ended March 31, 1997 and 1996
were (in thousands):
1997 1996
Operating Revenues: -------- --------
Sand Mining $ 0 $ 6,527
Construction 3,154 3,160
-------- --------
Total Operating Revenues $ 3,154 $ 9,687
======== ========
Income(Loss) before Income Taxes:
Sand Mining $ 23 $ (733)
Construction 25 (599)
Income Tax (Expense)Credits (17) 470
-------- --------
Income(Loss) from
Discontinued Operations $ 31 $ (862)
======== ========
Income(Loss) per Common Share
from Discontinued Operations $ 0.00 $ (0.08)
======== ========
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 2. Divestitures: (Continued)
The 1996 results of operations have been restated to reflect
the accounting for these segments as Discontinued Operations.
Note 3. Common Stock:
The Company has 20,000,000 shares of Common Stock
authorized of which the following shares were issued and
outstanding:
1997 1996
---------- ----------
Beginning Balance January 1, 10,756,679 10,722,171
Issued during period:
Employees' Stock Ownership Plan 2,559 3,083
Stock Option & Stock
Appreciation Rights Plan 3,060 1,000
---------- ----------
Ending Balance March 31, 10,762,298 10,726,254
========== ==========
The par value ($1.25 per share) of the stock issued in
1997 and 1996 has been credited to common stock and the net
excess over par value of $144,856 and $83,167 for the three
months ended March 31, 1997 and 1996, respectively, has been
credited to Premium on Common Stock.
Effective January 1, 1996, the Company adopted FASB No.
123, "Accounting for Stock-Based Compensation". This
statement defines a fair value based method of accounting for
stock-based compensation. However, the Company has elected,
as permitted by the statement, to continue to measure
compensation costs using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Accordingly, there was no impact
from the adoption of FASB No. 123 on the Company's financial
statements. The Company has determined that the pro forma
effect of adoption of the fair value based method of
accounting on net income and earnings per share would be
immaterial for the three months ended March 31, 1997 and
1996.
Stock Option and Stock Appreciation Rights Plan - Under
this plan, 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 January 23, 2007. At
March 31, 1997 and 1996, the Company had 31,930 and 48,540
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 3. Common Stock (Continued):
options outstanding, respectively, exercisable at prices from
$17.16 to $24.69 per share. During the three-month period
ended March 31, 1997 and 1996, 3,060 and 1,000 options were
exercised, respectively, at a price of $17.89 per share. No
options were granted in 1997 or 1996. No stock appreciation
rights have been issued under the plan. The stock options
outstanding at March 31, 1997 and 1996, did not have a
material effect on the earnings per share calculations.
Dividend Reinvestment and Stock Purchase Plan (DRP) and
Employees' Stock Ownership Plan (ESOP) - Shares of common
stock offered through the DRP are currently purchased in the
open market. All shares offered through the ESOP are issued
directly by the Company. As of March 31, 1997, 294,087 and
37,582 shares of authorized, but unissued, Common Stock were
reserved for future issuance to the DRP and ESOP,
respectively.
Directors' Restricted Stock Plan - On September 20,
1996, the Board of Directors adopted a restricted stock plan.
Under this plan, an initial award of 13,800 shares was
granted on December 4, 1996, at a market value of $24.00 per
share. The plan also provides for annual awards and, on
December 5, 1996, 600 additional shares were granted at a
market value of $24.125 per share. There have been no awards
in 1997. Initial awards will vest over a five-year period,
with 20 percent of such awards vesting per year. Annual
awards will vest on the third anniversary of each award.
Shares issued as restricted stock are held by the Company
until the attached restrictions lapse. The market value of
the stock on the date granted is recorded as compensation
expense over the applicable vesting period.
Shareholder Rights Plan - On September 20, 1996, the
Board of Directors adopted a shareholder rights plan that
provides for the distribution of one right for each share of
common stock outstanding on October 11, 1996. Each right
entitles its holder to purchase 1/1000 of one share of Series
A Stock at an exercise price of $90.
The rights plan provides that when a person or group
acquires 10 percent or more of the Company's common stock,
each of the rights (except for those held by the 10 percent
holder) becomes the right upon payment of the exercise price
to receive that number of shares of the Company's common
stock, or common stock of the acquiring company, which have a
market value equal to two times the exercise price.
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 3. Common Stock (Continued):
The rights may be redeemed by the Company for $.001 per
right at any time prior to the time the acquiring person or
group reaches the 10 percent threshold. If the rights are not
exercised or redeemed by September 20, 2006, they will
expire.
Note 4. Retained Earnings:
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 SJG.
The Company's aggregate equity in its subsidiaries' retained
earnings which is free of these restrictions was
approximately $54.4 million as of March 31, 1997.
Note 5. Commitments and Contingencies:
Gas Supply Contracts - SJG, in the normal course of
conducting business, has entered into long-term contracts for
natural gas supplies, firm transportation, and gas storage
service. The earliest expiration of any of the gas supply
contracts is 1998. All of the transportation and storage
service agreements between SJG and its interstate pipeline
suppliers are provided under Federal Energy Regulatory
Commission (FERC) approved tariffs. SJG's cumulative
obligation for demand charges paid to its suppliers for all
of these services is approximately $5.2 million per month
which is recovered on a current basis through the LGAC.
Pending Litigation - The Company is subject to claims
which arise in the ordinary course of its business and other
legal proceedings. A group of Atlantic City casinos filed a
petition with the BPU on January 16, 1996, alleging
overcharges of over $10.0 million, including interest.
Management believes that charges to the casinos were based on
applicable tariffs and that the casinos were not qualified
under less expensive rate schedules, as claimed. Management
believes that the ultimate impact of these actions will not
materially affect SJI's financial position, results of
operations or liquidity.
Environmental Remediation Costs - The Company has
incurred and recorded certain costs for environmental
remediation of sites where SJG or predecessor companies
operated gas manufacturing plants. Manufactured gas
operations were terminated at all SJG sites more than 30
years ago. Certain of SJI's nonutility subsidiaries have also
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 5. Commitments and Contingencies (Continued)
recorded costs for environmental remediation of sites where
SJF previously operated a fuel oil business and Morie
maintained equipment fueling stations and storage.
Since the early 1980s, the Company has recorded
environmental remediation costs of $74.8 million, of which
$31.0 million has been expended as of March 31, 1997. SJG,
with the assistance of an outside consulting firm, estimates
that total future expenditures to remediate SJG's sites will
range from $41.7 million to $150.2 million. The lower end of
this range has been recorded as a liability and is reflected
on the condensed consolidated balance sheet under the
captions "Current Liabilities" and "Deferred Credits and
Other Non-Current Liabilities". Recorded environmental
remediation costs of SJG do not directly affect earnings
because those costs are deferred and, when expended,
recovered through rates over 7-year amortization periods as
authorized by the BPU. Amounts accrued for future
expenditures have not been adjusted for future insurance
recoveries, which management is pursuing. SJG has received
$4.2 million of insurance recoveries as of March 31, 1997.
These proceeds were first used to offset legal fees incurred
in connection with those recoveries and the excess was used
to reduce the balance of deferred environmental remediation
costs. Recorded amounts include estimated costs to be
incurred based on projected investigation and remediation
work plans using existing technologies. Actual expenditures
could differ from the estimates due to the long-term nature
of the projects and changing technology, government
regulations and site specific requirements.
The major portion of the recorded environmental
remediation costs relate to the remediation of SJG's former
gas manufacturing sites. SJG has recorded $71.9 million for
the remediation of these sites, of which $30.2 million has
been expended through March 31, 1997. As a result of the
7-year recovery mechanism, SJG does not expense environmental
costs for former gas manufacturing sites when incurred and
defers costs to be recovered. SJG has two regulatory assets
associated with environmental cost. The first regulatory
asset is titled "Environmental Remediation Cost: Expended -
Net". These expenditures represent actual cost incurred to
remediate former gas manufacturing plant sites. These costs
meet the requirements of FASB No. 71, "Accounting for the
Effects of Certain Types of Regulation". The BPU has allowed
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<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 5. Commitments and Contingencies (Continued)
recovery of these expenditures through July 1995 and a
petition to recover these costs through July 1996 is pending
before the BPU.
The other regulatory asset titled "Environmental
Remediation Cost: Liability for Future Expenditures" relates
to estimated future expenditures determined under the
guidance of FASB No. 5, "Accounting for Contingencies". This
amount, which relates to former manufactured gas plant sites
has been recorded as a deferred debit with the corresponding
amount reflected in Current Liabilities and Deferred Credits
and Other Non-Current Liabilities, as appropriate. The
deferred debit is a regulatory asset under FASB No. 71
because the BPU's intent, as evidenced by its current
practice, is to provide recovery sufficient in amount to
recover the deferred costs after they have been expended.
SJG makes annual filings with the BPU to recover these
costs in rates. The BPU has consistently allowed the full
recovery over such 7-year periods, and SJG believes the BPU
will continue to do so. As of March 31, 1997, SJG has
unamortized remediation expenditures of $15.9 million which
are reflected on the balance sheet under the caption
"Deferred Debits". Since BPU approval of the RAC mechanism
in August 1992, SJG has recovered $10.1 million through rates
as of March 31, 1997.
With Morie's sale, EMI assumed responsibility for
environmental liabilities which are estimated to range
between $2.0 million and $4.0 million. The information
available on these sites was sufficient only to establish a
range of probable liability and no point within the range is
more likely than any other, therefore, EMI accrued the lower
end of the range.
Note 6. Recent Regulatory Action:
On January 27, 1997, the BPU granted SJG a rate increase
of $6.0 million based on a 9.62 percent rate of return on
rate base, which included an 11.25 percent return on equity.
Revenue requirements for ratemaking purposes are established
on the basis of firm and interruptible sales projections.
The majority of this increase will come from residential and
small commercial customers. As part of this rate increase,
SJG is allowed to retain the first $5.0 million of pre-tax
margins generated by interruptible and off-system sales and
- 13 -
<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 6. Recent Regulatory Action (Continued):
transportation and 20 percent of pre-tax margins above that
level. In 1997 and 1998, this $5.0 million threshold will be
increased by the annual revenue requirement associated with
specified major construction projects. These sharing formula
improvements are expected to result in additional rate relief
of approximately $1.4 million in 1997 and $1.8 million in
1998. In May 1997, SJG filed to recover additional post-
retirement benefit costs of approximately $1.2 million
annually. This recovery is expected to begin in 1998. In
addition, part of the increase will be recovered from
customers through new service fees which charge specific
customers for costs which they cause SJG to incur.
In addition to the rate increase, the BPU approved a
revenue reduction in SJG's Temperature Adjustment Clause, a
mechanism designed to reduce the impact of extreme
fluctuations in temperatures on SJG and its customers. For
the period ended May 31, 1996, weather in SJG's service area
was significantly colder than the 20-year average, resulting
in a $2.5 million credit due to customers' bills which is
reflected in the 1996 results of operations.
As part of the tariff changes approved, SJG initiated
its BPU approved pilot program in April 1997 to give
residential customers a choice of gas supplier. The program
will be open to the first 10,000 residential customers who
apply for this service and is designed to run until June 30,
1998, or later if approved by the BPU. Under the applicable
rate schedule, amounts billed to participants in the program
will be reduced for cost of gas charges and applicable gross
receipts taxes. This decrease in revenues will be offset by
a corresponding decrease in SJG's gas costs and taxes under
SJG's BPU-approved fuel clause. Accordingly, SJG believes
that the program will not affect its net income, financial
condition or margins. In addition, because the program
affects only 4% of SJG's residential customers, and not all
of those customers may elect to purchase gas from other
suppliers, SJG believes that any reduction in revenue will
not be material. SJG further expanded the choices available
to commercial and industrial customers.
Note 7. Financing Activities:
On March 21, 1997, SJG sold $35.0 million of its First
Mortgage Bonds, 7.7% Series due 2027.
- 14 -
<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Note 8. Subsequent Event:
On May 2, 1997, SJG's statutory Delaware trust
subsidiary, SJG Capital Trust, sold $35.0 million of 8.35%
SJG-obligated Mandatorily Redeemable Preferred Securities.
The Trust solely holds as an asset the 8.35% Deferrable
Interest Subordinated Debentures issued by SJG which mature
on April 30, 2037, the maturity date of the Preferred
Securities. The Debentures and Preferred Securities are
redeemable at the option of SJG at a redemption price equal
to 100% of the principal amount thereof at any time on or
after April 30, 2002.
- 15 -
<PAGE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Overview
The wholly owned operating subsidiaries of South Jersey
Industries include South Jersey Gas Company (SJG), Energy &
Minerals, Inc. (EMI) and South Jersey Energy Company (SJE).
SJG is a natural gas distribution company serving 255,900
customers at March 31, 1997, compared with 249,300 customers at
March 31, 1996. Seasonal aspects affect SJG's reported revenues,
inventories, receivables, operating expenses and cash flows, which
are usually greater during the first and fourth quarters of the
year. EMI is a holding company engaged in the wholesale marketing
of natural gas through its energy service subsidiary, South Jersey
Fuel, Inc. (SJF). SJE provides services for the acquisition and
transportation of natural gas for retail end users.
Competition
SJG franchises are non-exclusive. However, currently no other
utility is providing retail gas distribution services within its
territory. SJG does not expect any other utilities to do so in the
foreseeable future because of the extensive investment required for
utility plant and related costs. SJG competes with oil, propane and
electricity suppliers for residential, commercial and industrial
users. The market for natural gas sales is subject to competition
as a result of deregulation. SJG has enhanced its competitive
position while maintaining its margins through its initiative in
obtaining an unbundled tariff which isolates the variable cost of
the gas commodity component within SJG's rate structure. Under this
tariff, substantially all of SJG's profits are derived from the
transportation rather than the sale of the commodity since SJG does
not generally add a profit mark-up to the cost of the commodity.
Therefore, SJG is able to offer its commercial and industrial
customers flexibility regarding choice of gas supply while SJG
continues to recover its cost of service and fixed gas costs while
providing and charging for transportation service. In April 1997,
SJG initiated its BPU-approved pilot program to give certain of its
residential customers a choice of gas suppliers (See "Operating
Revenues -Utility"). In all of these respects, SJG has been a
leader in addressing the changing marketplace while maintaining its
focus on being a low-cost provider of natural gas and energy
services. SJE and SJF are also active participants in arranging
energy services designed to provide low-cost energy supplies. It is
the intent of the SJI companies to develop creative initiatives and
propose meaningful regulatory and tax reforms designed to benefit
its customers and shareholders.
Energy Adjustment Clauses
SJG's tariff includes a Levelized Gas Adjustment Clause
("LGAC"), a Temperature Adjustment Clause ("TAC") and a
Remediation Adjustment Clause ("RAC"). Such clauses are designed
to permit adjustments for changes in gas supply costs, reduce the
impact of extreme fluctuations in temperatures on SJG and its
- 16 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Energy Adjustment Clauses (Continued)
customers, and recover costs incurred in the remediation of former
gas manufacturing plants. The BPU approved LGAC and RAC
adjustments do not directly affect earnings because revenues are
adjusted to match costs. The Company's base rates are designed
based on twenty-year normal temperatures. When actual
temperatures are colder than the twenty-year average, the Company
sells more gas than was anticipated generating higher revenues and
net income. Conversely, when actual temperatures are warmer than
normal, the Company sells less gas and revenues and net income are
lower than projected.
The TAC dampens the effect of these peaks and valleys (and
thus moderates the effect of weather extremes on SJG's revenues)
by giving customers a credit against higher usage in colder
weather and giving SJG a surcharge on lower usage in warmer
weather. TAC adjustments therefore affect revenue, income and
cash flows.
Results of Operations - First Quarter Ended March 31, 1997
Compared to First Quarter Ended March 31, 1996
Operating Revenues - Utility
In 1997, revenues decreased $18.8 million from 1996. The
revenue decrease is principally due to lower volume firm and
off-system sales resulting from weather which was approximately
14.2 percent warmer than 1996. The impact of lower volume sales
was partially offset by capacity release revenue, an average net
increase of approximately 6,400 customers and an increase in rates
effective January 27, 1997. Total sales margin (revenues less
cost of gas, gross receipts and income taxes) decreased in 1997
principally due to the decreased firm revenues.
In April 1997, SJG initiated its BPU approved pilot program
to give residential customers a choice of gas supplier. The
program will be open to the first 10,000 residential customers who
apply for this service and is designed to run until June 30, 1998,
or later if approved by the BPU. Under the applicable rate
schedule, amounts billed to participants in the program will be
reduced for cost of gas charges and applicable gross receipts
taxes. This decrease in revenues will be offset by a
corresponding decrease in SJG's gas costs and taxes under SJG's
BPU-approved fuel clause. Accordingly, SJG believes that the
program will not affect its net income, financial condition or
margins. In addition, because the program affects only 4% of
SJG's residential customers, and not all of those customers may
elect to purchase gas from other suppliers, SJG believes that any
reduction in revenue will not be material.
The following is a summary of changes in operating revenue
and throughput by major category for the 1997 quarter compared
with 1996 (before the elimination of intersegment sales):
- 17 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Operating Revenues - Utility (Continued)
1997 vs. 1996
-------------
Operating Revenues (Thousands):
Firm
Residential $ (6,179)
Commercial (4,027)
Industrial (647)
Cogeneration & Electric Generation (3,290)
Firm Transportation 69
------------
Total Firm (14,074)
Interruptible 542
Interruptible Transportation 413
Off-System (8,406)
Capacity Release & Storage 1,703
Other 215
------------
Total Operating Revenues $(19,607)
============
Throughput (MMcf):
Firm
Residential (1,420)
Commercial (849)
Industrial (119)
Cogeneration & Electric Generation (1,105)
Firm Transportation 1,526
------------
Total Firm Throughput (1,967)
Interruptible 94
Interruptible Transportation 777
Off-System (1,597)
Capacity Release & Storage 7,062
------------
Total Throughput 4,369
============
Operating Revenues - Nonutility
Nonutility revenues decreased $5.8 million in the first
quarter of 1997 compared to the same period in 1996, principally
due to lower commodity volumes of energy product sales.
Gas Purchased for Resale
Gas purchased for resale decreased $14.9 million in 1997
compared with 1996 due principally to lower volume sales. Sources
of gas supply include both contract and open-market purchases.
SJG is responsible for securing and maintaining its own gas
supplies to serve its customers.
SJG has entered into long-term contracts for natural gas
supplies, firm transportation, and firm gas storage service. The
earliest expiration of any of these contracts is 1998. All of the
- 18 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Gas Purchased for Resale (Continued)
transportation and storage service agreements between SJG and its
interstate pipeline suppliers are provided under tariffs approved
by the Federal Energy Regulatory Commission. SJG's cumulative
obligation for demand charges for all of these services is
approximately $5.3 million per month which is recovered on a
current basis through its LGAC.
Operations
A summary of net changes in utility operations for the 1997
quarter compared with the year preceding is as follows (in
thousands):
1997 vs. 1996
-------------
Other Production Expense $ (19)
Transmission (8)
Distribution 53
Customer Accounts and Services 20
Sales 50
Administration and General 180
Other (84)
------
$ 192
======
Administrative and General costs increased in 1997
principally due to increased salary and employee benefit costs,
partially offset by decreases in outside service costs.
Nonutility operations decreased by $5.5 million in the first
quarter of 1997 compared to the same period in 1996 principally
due to the decrease in commodity sales.
Other Operating Expenses
A summary of principal changes in other expenses for the 1997
quarter compared with the same quarter in the preceding year is as
follows (in thousands):
1997 vs. 1996
-------------
Maintenance $ 210
Depreciation 256
Federal Income Taxes - Net (835)
Gross Receipts & Franchise
and Other Taxes (2,121)
The increase in maintenance expense is principally due to
increased utility production plant maintenance. Depreciation is
higher in 1997 principally due to increased investment in
property, plant and equipment by SJG. Federal Income Tax changes
- 19 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Other Operating Expenses (Continued)
reflect the impact of changes in pre-tax income. The changes in
Gross Receipts & Franchise Taxes in 1997 are due to changes in
volumes of gas sold, which are subject to those taxes.
Interest and Other Charges
Interest charges decreased slightly in 1997 compared with
1996. The decrease is principally due to the effects of lower
levels of long-term debt outstanding, partially offset by higher
levels of short-term debt outstanding.
Discontinued Operations
Income from discontinued operations amounted to $31,000 for
the three months ended March 31, 1997 compared to a loss of
$862,000 for the same period in 1996 (See Note 2, Divestitures).
Also, the net loss on the sale of discontinued operations
decreased from $723,000 in 1996 to $123,000 in 1997. This change
principally reflects a write-down of goodwill in 1996.
Net Income Applicable to Common Stock
Net Income (in thousands) and earnings per common shares
reflect the following changes:
1997 vs. 1996
-------------
Income from Continuing Operations
(Decrease) $(1,818)
Net Gain on Disposal of Discontinued
Operations 600
Income from Discontinued Operations 893
------------
Net Income Increase (Decrease) $ (325)
============
Earnings per Common Share
Continuing Operations (Decrease) $ (0.18)
Discontinued Operations 0.14
------------
Earnings per Share Decrease $ (0.04)
============
The details affecting the decrease in net income and earnings
per share are discussed under the appropriate captions above.
Liquidity
The seasonal nature of gas operations, the timing of
construction and remediation expenditures and related permanent
financing, as well as mandated tax and sinking fund payment dates
require large short-term cash requirements. These are generally
met by cash from operations and short-term lines of credit. The
Company maintains short-term lines of credit with a number of
- 20 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Liquidity (Continued)
banks, aggregating $163.0 million of which $125.8 million was
available at March 31, 1997. The credit lines are uncommitted and
unsecured with interest rates below the prime rate.
The changes in cash flows from operating activities are as
follows:
Quarter Ended
March 31,
-------------
1997 vs. 1996
-------------
Increases/(Decreases):
Net Income $ (325)
Depreciation, Depletion and Amortization (810)
Revenues and Fuel Costs Deferred - Net 1,991
Deferred and Non-Current Federal
Income Taxes - Net 707
Environmental Remediation Costs-Net (9)
Accounts Receivable 14,175
Inventories 2,976
Gross Receipts & Franchise Taxes (2,046)
Accounts Payable and Other Accrued
Liabilities (24,736)
Other - Net (2,448)
--------
$(10,525)
========
Depreciation and Amortization are non-cash charges to income
and do not impact cash flow. Changes in depreciation cost reflect
the effect of additions and reductions to fixed assets.
Increases in Revenues and Fuel Costs Deferred - Net reflect
the impact of overcollection of fuel costs or the recovery of
previously deferred fuel costs. Decreases reflect the impact of
payments or credits to customers for amounts previously
overcollected or the undercollection of fuel costs resulting from
increases in natural gas costs.
Increases in Deferred and Non-Current Federal Income Taxes
and Credits - Net represent the excess of taxes accrued over
amounts paid. Decreases reflect the impact of taxes paid in
excess of amounts accrued. Generally, deferred income taxes
related to deferred fuel costs will be paid in the next year.
Changes in Environmental Remediation Costs - Net represent
the difference between amounts collected under the RAC and through
insurance recoveries and remediation expenditures.
Changes in Accounts Receivable are generally weather and
price related. Increases generate cash flows when collected in
subsequent periods.
- 21 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Liquidity (Continued)
Changes in Inventory reflect the impact of seasonal
requirements, temperatures and price changes.
Changes in Gross Receipts & Franchise Taxes reflect the impact
of the excess of taxes paid over taxes accrued. However, there
are significant timing differences in cash flows during the year
since SJG must pay the full year's tax on April 1 of each year and
amortize any prepaid tax over the remainder of the year, on the
basis of gas volumes sold. SJG uses short-term borrowings to make
these tax payments and, accordingly, this results in a temporary
increase in the short-term debt level. The carrying costs for
these timing differences are recognized in base utility rates.
Changes in Accounts Payable and Other Current Liabilities
reflect the impact of timing differences between the accrual and
payment of costs.
Cash flows from nonutility operations are generally retained
by those companies with amounts in excess of cash requirements
being passed up to SJI either as dividends or as temporary short-
term loans. Nonutility operations are service oriented and do not
require significant investment in capital facilities, inventories
or personnel. Such operations are not considered material to the
financial statements.
EMI has assumed responsibility for the environmental
liabilities of The Morie Company, Inc. (Morie), a subsidiary which
was sold in 1996. The environmental liabilities are estimated to
range between $2.0 million and $4.0 million. EMI has accrued the
lower end of the range under the guidance of FAS 5 "Accounting for
Contingencies".
Regulatory Matters
On January 27, 1997, the BPU granted SJG a rate increase of
$6.0 million based on a 9.62 percent rate of return on rate base,
which included an 11.25 percent return on equity. Revenue
requirements for ratemaking purposes are established on the basis
of firm and interruptible sales projections. The majority of this
increase will come from residential and small commercial customers.
As part of this rate increase, SJG is allowed to retain the first
$5.0 million of pre-tax margins generated by interruptible and off-
system sales and transportation and 20 percent of pre-tax margins
above that level. In 1997 and 1998, this $5.0 million threshold
will be increased by the annual revenue requirement associated with
specified major construction projects. These sharing formula
improvements are expected to result in additional rate relief of
approximately $1.4 million in 1997 and $1.8 million in 1998. In
May 1997, SJG filed to recover additional post-retirement benefit
costs of approximately $1.2 million annually. This recovery is
expected to begin in 1998. In addition, part of the increase will
be recovered from customers through new service fees which charge
specific customers for costs which they cause SJG to incur.
- 22 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Regulatory Matters (Continued)
Rates of return are calculated by weighting SJG's individual
capital cost rates by the proportion of each respective type of
capital. This requires the selection of appropriate capital
structure ratios and a determination of the cost rate for each
capital component which are determined in each rate proceeding.
In setting a rate of return, the BPU must provide a utility
and its investors with a return that is commensurate with the risk
to which the invested capital is exposed so that the utility has
access to the capital required to meet its public service
responsibility.
Also on January 27, 1997, the BPU approved SJG's request for
a $2.5 million revenue reduction through the TAC, which is the
standard BPU procedure used to credit customers with excess
revenues, previously collected from customers, which were in
excess of allowed revenues determined under the TAC. See Energy
Adjustment Clauses. This revenue reduction reflects the normal
operation of the TAC, as does the BPU's confirmation of the
decrease.
In April 1996, SJG received BPU approval to increase its
rates to recover approximately $8.0 million of increased natural
gas costs through the LGAC.
The adoption of FASB No. 109, "Accounting for Income Taxes"
in 1993 primarily resulted in the creation of a regulatory asset
and a deferred income tax liability. As a result of positions
taken in the 1994 rate case, the amortization of the asset is
being recovered through rates over an 18-year period which began
in December 1994. Also, FASB No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", adopted by SJG in
1993, requires an accrual basis of accounting for retiree benefit
payments during the years of employment. SJG has elected to
recognize the unfunded transition obligation over a 20-year period
which began in 1993. SJG had previously recovered these costs
through rates on a pay-as-you-go basis. A December 1994 BPU order
provided for partial recovery of costs associated with FASB No.
106 and prescribes continued deferral of unrecovered costs. SJG
was initially seeking recovery of this asset in its recently
completed rate proceeding; however, the BPU initiated a generic
proceeding to address the recovery of these costs by all utilities
in the State. Phase I of the generic proceeding was completed in
January 1997 and SJG has made a prescribed filing with the
BPU to recover additional postretirement benefit costs of
approximately $1.2 million annually, beginning in 1998. Also,
beginning in 1995, an external trust was established towards
funding postretirement benefit costs for the purpose of
contributing costs recovered from ratepayers as authorized by the
BPU. Rate recovery in excess of SJG's pay-as-you-go requirement
is contributed to the trust and provides no operating benefit to
SJG except to the extent that trust income would reduce future net
- 23 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Regulatory Matters (Continued)
periodic cost. Contributions to the trust amounted to $2.1
million in 1996. The balance of this regulatory asset amounted to
$5.4 million at March 31, 1997.
SJG has incurred and recorded certain costs for environmental
remediation of sites where SJG or predecessor companies operated
gas manufacturing plants. Manufactured gas operations were
terminated at all SJG sites more than 30 years ago.
Since the early 1980's, the Company has recorded
environmental remediation costs of $74.8 million, of which $31.0
million has been expended as of March 31, 1997. SJG, with the
assistance of an outside consulting firm, estimates that total
future expenditures to remediate the sites will range from $41.7
million to $150.2 million. The lower end of this range has been
recorded as a liability and is reflected on the balance sheet
under the captions "Current Liabilities" and "Deferred Credits and
Other Non-Current Liabilities". Recorded environmental
remediation costs of SJG do not directly affect earnings because
those costs are deferred and, when expended, recovered through
rates over 7-year amortization periods as authorized by the BPU.
Amounts accrued for future expenditures have not been adjusted for
future insurance recoveries, which management is pursuing. SJG
has received $4.2 million of insurance recoveries as of March 31,
1997. These proceeds were first used to offset legal fees
incurred in connection with those recoveries and the excess was
used to reduce the balance of deferred environmental remediation
costs. Recorded amounts include estimated costs to be incurred
based on projected investigation and remediation work plans using
existing technologies. Actual expenditures could differ from the
estimates due to the long-term nature of the projects and changing
technology, government regulations and site specific requirements.
The major portion of the recorded environmental remediation
costs relate to the remediation of SJG's former gas manufacturing
sites. SJG has recorded $71.9 million for the remediation of
these sites, of which $30.2 million has been expended through
March 31, 1997. As a result of the 7-year recovery mechanism, SJG
does not expense environmental costs for former gas manufacturing
sites when incurred and defers costs to be recovered. SJG has two
regulatory assets associated with environmental cost. The first
regulatory asset is titled "Environmental Remediation Cost:
Expended - Net". These expenditures represent actual costs
incurred to remediate former gas manufacturing plant sites. These
costs meet the requirements of FASB No. 71, "Accounting for the
Effects of Certain Types of Regulation". The BPU has allowed
recovery of these expenditures through July 1995 and a petition to
recover these costs through July 1996 is pending before the BPU.
The other regulatory asset titled "Environmental Remediation
Cost: Liability for Future Expenditures" relates to estimated
future expenditures determined under the guidance of FAS 5
"Accounting for Contingencies". This amount, which relates to
former manufactured gas plant sites has been recorded as a
- 24 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Regulatory Matters (Continued)
deferred debit with the corresponding amount reflected in Current
Liabilities and Deferred Credits and Other Non-Current
Liabilities, as appropriate. The deferred debit is a regulatory
asset under FAS 71 because the BPU's intent, as evidenced by its
current practice, is to provide recovery sufficient in amount to
recover the deferred costs after they have been expended.
SJG makes annual filings with the BPU to recover expended
remediation costs in rates. The BPU has consistently allowed the
full recovery over such seven-year periods, and SJG believes the
BPU will continue to do so. As of March 31, 1997, SJG has
unamortized remediation expenditures of $15.9 million which are
reflected on the balance sheet under the caption "Deferred
Debits." Since BPU approval of the RAC mechanism in August 1992,
SJG has recovered $10.1 million through rates as of March 31,
1997.
SJG is subject to claims which arise in the ordinary course
of its business and other legal proceedings. A group of Atlantic
City casinos filed a petition with the BPU on January 16, 1996
alleging overcharges of over $10.0 million, including interest.
Management believes that charges to the casinos were based on
applicable tariffs and that the casinos were not qualified under
less expensive rate schedules as claimed. Management believes
that the ultimate impact of these actions will not materially
affect SJG's financial position or results of operations.
Capital Resources
SJG has a continuing need for cash resources and capital,
primarily to invest in new and replacement facilities and
equipment for the remediation of former coal gas manufacturing
sites. Total construction and remediation expenditures for 1997
are estimated at $57.7 million, of which $12.3 million was
expended through March 31, 1997. The costs for 1998 and 1999 are
estimated at approximately $65.0 million and $58.9 million,
respectively. These investments are expected to be funded from
several sources, which may include cash generated by operations,
temporary use of short-term debt, sale of first mortgage bonds and
capital leases.
On March 21, 1997, SJG sold $35.0 million of its First
Mortgage Bonds, 7.7% Series due 2027.
On May 2, 1997, SJG's Delaware statutory trust subsidiary,
SJG Capital Trust, sold $35.0 million of 8.35% SJG-obligated
Mandatorily Redeemable Preferred Securities. The Trust solely
holds as an asset the 8.35% Deferrable Interest Subordinated
Debentures issued by SJG which mature on April 30, 2037. The
Debentures and Preferred Securities are redeemable at the option
of SJG at a redemption price equal to 100% of the principal amount
thereof at any time on or after April 30, 2002.
- 25 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Capital Resources (Continued)
In January 1996, SJG redeemed a total of $5,258,000 of its
8-1/4% Series First Mortgage Bonds maturing in 1996 and 1998. In
April 1996, SJG redeemed the remaining balance of its 9.2% Series
First Mortgage Bonds due 1998 amounting to $2,667,000.
Shareholder Rights Plan - On September 20, 1996, the Board of
Directors adopted a shareholder rights plan that provides for the
distribution of one right for each share of common stock outstanding
on October 11, 1996. Each right entitles its holder to purchase
1/1000 of one share of Series A Stock at an exercise price of $90.
The rights plan provides that when a person or group acquires
10 percent or more of the Company's common stock, each of the
rights (except for those held by the 10 percent holder) becomes
the right upon payment of the exercise price to receive that
number of shares of the Company's common stock, or common stock of
the acquiring company, which have a market value equal to two
times the exercise price.
The rights may be redeemed by the Company for $.001 per right
at any time prior to the time the acquiring person or group
reaches the 10 percent threshold. If the rights are not exercised
or redeemed by September 20, 2006, they will expire.
Inflation
The ratemaking process provides that only the original cost
of utility plant is recoverable in revenues as depreciation.
Therefore, the excess cost of utility plant, stated in terms of
current cost over the original cost of utility plant, is not
presently recoverable. While the ratemaking process gives no
recognition to the current cost of replacing utility plant, based
on past practices, SJG believes it will be allowed to earn on the
increased cost of its net investment as replacement of facilities
actually occurs.
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.
- 26 -
<PAGE>
PART II -- OTHER INFORMATION
Item l. Legal Proceedings
Information required by this Item is incorporated by
reference to Part I, Item 1, Note 5, on pages 11 through 13,
excluding the first paragraph of the Note, regarding
contingencies, including pending litigation and the
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.
- 27 -
<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 13, 1997 By: /s/ George L. Baulig
George L. Baulig
Secretary & Treasurer
Dated: May 13, 1997 By: /s/ William J. Smethurst, Jr.
William J. Smethurst, Jr.
Assistant Secretary & Assistant
Treasurer
- 28 -
<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).
- 29 -
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 428,500
<OTHER-PROPERTY-AND-INVEST> 3,545
<TOTAL-CURRENT-ASSETS> 97,334
<TOTAL-DEFERRED-CHARGES> 90,067
<OTHER-ASSETS> 1,804
<TOTAL-ASSETS> 621,250
<COMMON> 13,453
<CAPITAL-SURPLUS-PAID-IN> 110,687
<RETAINED-EARNINGS> 59,770
<TOTAL-COMMON-STOCKHOLDERS-EQ> 183,910
0
2,314
<LONG-TERM-DEBT-NET> 182,548
<SHORT-TERM-NOTES> 37,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 6,603
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 208,675
<TOT-CAPITALIZATION-AND-LIAB> 621,250
<GROSS-OPERATING-REVENUE> 125,419
<INCOME-TAX-EXPENSE> 8,345
<OTHER-OPERATING-EXPENSES> 97,205
<TOTAL-OPERATING-EXPENSES> 105,550
<OPERATING-INCOME-LOSS> 19,869
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 19,869
<TOTAL-INTEREST-EXPENSE> 4,876
<NET-INCOME> 14,901
0
<EARNINGS-AVAILABLE-FOR-COMM> 14,901
<COMMON-STOCK-DIVIDENDS> 3,874
<TOTAL-INTEREST-ON-BONDS> 3,374
<CASH-FLOW-OPERATIONS> (10,525)
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
