FILE NO. _____________
FORM U-3A-2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
STATEMENT BY HOLDING COMPANY CLAIMING EXEMPTION UNDER
RULE U-2 FROM THE PROVISIONS OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
TO BE FILED ANNUALLY PRIOR TO MARCH 1
SOUTH JERSEY INDUSTRIES, INC.
hereby files with the Securities and Exchange Commission,
pursuant to Rule U-2, its statement claiming exemption as a
holding company from the provisions of the Public Utility
Holding Company Act of 1935. In support of such claim for
exemption, the following information is submitted:
1. Name, state of organization, location and nature of business
of claimant and every subsidiary thereof other than any exempt
wholesale generator (EWG) or foreign utility company in which
claimant directly or indirectly holds an interest.
The claimant, South Jersey Industries, Inc. (the Company), was
organized under the laws of the State of New Jersey; its
principal location is Number One South Jersey Plaza, Route 54,
Folsom, New Jersey 08037. The Company is not a public utility
company. It is primarily engaged in the business of owning and
holding a majority interest in other business enterprises.
The Company owns all of the outstanding common stock of South
Jersey Gas Company (Gas Company or SJG), which was organized
under the laws of the State of New Jersey. Gas Company's
principal location is Number One South Jersey Plaza, Route 54,
Folsom, New Jersey 08037. Gas Company is a public utility
company engaged in the purchase, transmission and sale of
natural gas for residential, commercial, and industrial use in
an area of approximately 2,500 square miles in the southern part
of New Jersey. SJG also makes off-system sales of natural gas
on a wholesale basis to various customers on the interstate
pipeline system and transports natural gas purchased directly
from producers or suppliers for its own sales and for some of
its customers. SJG also assigns or buys capacity for the
purchase or transportation of natural gas.
- 1 -
The Company owns all of the outstanding common stock of Energy
& Minerals, Inc. (EMI), which was organized under the laws of
the State of New Jersey. EMI's principal location is Number One
South Jersey Plaza, Route 54, Folsom, New Jersey 08037. EMI is
not a public utility company. It principally owns real estate,
temporary cash investments and the stock of an inactive
nonutility subsidiary.
EMI owns all of the outstanding common stock of South Jersey
Fuel, Inc. (Fuel Company), which was organized under the laws of
the State of New Jersey. Fuel Company's principal location is
Number One South Jersey Plaza, Route 54, Folsom, New Jersey
08037. Fuel Company is not a public utility company and is
presently inactive.
The Company owns all of the outstanding common stock of South
Jersey Energy Company (Energy Company), which was organized
under the laws of the State of New Jersey. Energy Company's
principal location is Number One South Jersey Plaza, Route 54,
Folsom, New Jersey 08037. Energy Company is not a public
utility company. Energy Company provides services for the
acquisition, sale and transportation of natural gas and
electricity for industrial, commercial and residential users.
The Company owns all of the outstanding common stock of SJ
EnerTrade (EnerTrade) which was formed on October 22, 1997 under
the laws of the State of New Jersey. EnerTrade's principal
location is Number One South Jersey Plaza, Route 54, Folsom, New
Jersey 08037. EnerTrade is not a public utility company. It
provides services for the sale of natural gas to energy
marketers, electric and gas utilities, and other wholesale users
in the mid-Atlantic and southern regions of the country.
The Company owns all of the outstanding stock of R&T Group,
Inc. (R&T), which was organized under the laws of the State of
New Jersey. R&T's principal location is Number One South Jersey
Plaza, Route 54, Folsom, New Jersey 08037. R&T is not a public
utility company. It holds the remaining assets and liabilities
of certain nonutility subsidiaries of the Company which were
merged into R&T in 1997. R&T is presently inactive.
Neither the claimant or any of its subsidiaries is an EWG nor
do they hold a direct or indirect interest in a foreign utility
company.
2. A brief description of the properties of claimant and each
of its subsidiary public utility companies used for the
generation, transmission, and distribution of electric energy
for sale, or for the production, transmission, and distribution
of natural or manufactured gas, indicating the location of
principal generating plants, transmission lines, producing
fields, gas manufacturing plants, and electric and gas
distribution facilities, including all such properties which are
outside the State in which claimant and its subsidiaries are
organized and all transmission or pipelines which deliver or
receive electric energy or gas at the borders of such State.
The Company does not own directly any properties used for the
production, transmission, and distribution of natural or
manufactured gas or electric energy.
- 2 -
The properties of Gas Company used for the production,
transmission, and distribution of natural or manufactured gas
include mains, service connections and meters, supplemental gas
storage facilities, two liquefied propane plants, and an LNG
storage and vaporization facility, all of which are located in
the State of New Jersey (except that certain gas owned by Gas
Company is stored outside the State and transported when
needed). There are 4,652 miles of distribution mains. There
are 343 miles of mains in the transmission system. No pipelines
of Gas Company deliver or receive gas at the borders of the
State of New Jersey.
3. The following information for the last calendar year with
respect to claimant and each of its subsidiary public utility
companies:
(a) Number of Kwh of electric energy sold (at retail or
wholesale) and Mcf of natural or manufactured gas distributed
at retail.
During 1997, Gas Company distributed at retail to residential,
commercial and industrial customers 31,330,000 Mcf of natural or
manufactured gas and transported 27,782,000 Mcf of natural gas
purchased directly by its industrial, residential and commercial
customers. Gas Company also sold 2,193,500 Mcf of natural gas
at wholesale for resale within the State of New Jersey.
(b) Number of Kwh of electric energy and Mcf of natural or
manufactured gas distributed at retail outside the State in
which each company is organized.
None
(c) Number of Kwh of electric energy and Mcf of natural or
manufactured gas sold at wholesale outside the State in which
each such company is organized, or at the State line.
During 1997, Gas Company sold 12,268,600 Mcf of natural gas at
wholesale to customers outside the borders of the State of New
Jersey.
Also, throughput related to capacity release and storage
amounted to 36,382,400 Mcf in 1997.
(d) Number of Kwh of electric energy and Mcf of natural or
manufactured gas purchased outside the State in which each such
company is organized or at the State line.
During 1997, Gas Company purchased approximately 46,726,900
Mcf of natural gas from out-of-state sources.
During 1997, Gas Company purchased and had delivered to it
approximately 229,656 Mcf of liquefied natural gas for transport
- 3 -
by over-the-road truck transport to Gas Company's LNG Storage
and Vaporization facility at McKee City, Atlantic County, New
Jersey.
4. The following information for the reporting period with
respect to claimant and each interest it holds directly or
indirectly in an EWG or a foreign utility company stating
monetary amounts in United States dollars:
(a) Name, location, business address and description of the
facilities used by the EWG or foreign utility company for the
generation, transmission and distribution of electric energy for
sale or for the distribution at retail of natural or
manufactured gas.
The claimant has no direct or indirect interest or investment
of any kind in, or has any sales, service or construction
contracts of any kind with, an EWG or a foreign utility company.
(b) Name of each system company that holds an interest in such
EWG or foreign utility company; and description of the interest
held.
No system company holds any direct or indirect interest in an
EWG or foreign utility company.
(c) Type and amount of capital invested, directly or
indirectly, by the holding company claiming exemption; any
direct or indirect guarantee of the security of the EWG or
foreign utility company by the holding company claiming
exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding
company claiming exemption or another system company, other than
the EWG or foreign utility company.
The claimant holding company has no capital invested, directly
or indirectly; nor does it directly or indirectly guarantee any
security debt of an EWG or foreign utility company; nor debt or
other financial obligation for which there is recourse, directly
or indirectly, to the holding company claiming exemption on
another system company.
(d) Capitalization and earnings of the EWG or foreign utility
company during the reporting period.
None
(e) Identify any service, sales or construction contract(s)
between the EWG or foreign utility company and a system company,
and describe the services to be rendered or goods sold and fees
or revenues under such agreement(s).
None
- 4 -
EXHIBIT A
A consolidating statement of income and retained earnings of the
claimant and its subsidiary companies for the last calendar
year, together with a consolidating balance sheet of claimant
and its subsidiary companies as of the close of such calendar
year.
The above-named claimant has caused this statement to be duly
executed on its behalf by its authorized officer on this 26th
day of February 1998.
SOUTH JERSEY INDUSTRIES, INC.
DAVID A. KINDLICK
Vice President
CORPORATE SEAL
ATTEST:
GEORGE L. BAULIG
Secretary and Treasurer
Name, title and address of officer to whom notices and
correspondence concerning this statement should be addressed:
George L. Baulig, Secretary and Treasurer
South Jersey Industries, Inc.
Number One South Jersey Plaza
Route 54
Folsom, New Jersey 08037
- 5 -
EXHIBIT B
FINANCIAL DATA SCHEDULE
Consolidated Financial Data Schedule filed via EDGAR as part of
this report on Form U-3A-2.
- 6 -
EXHIBIT C
EWG ORGANIZATIONAL CHART
Not applicable. See response to Item 4.
- 7 -
<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(In Thousands)
<CAPTION>
South
South Jersey South Energy & R & T
Jersey Gas Jersey Minerals, Group, Elim.
Industries, Company Energy SJ Inc. Inc. & Consd.
Inc. Consd. Company EnerTrade Consd. Consd. Total Adjust. Total
--------- --------- --------- --------- --------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Utility $0 $327,548 $0 $0 $0 $0 $327,548 ($71)[C] $327,477
Nonutility 309 0 20,515 0 1,259 0 22,083 (993)[C] 21,090
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Total Operating Revenues 309 327,548 20,515 0 1,259 0 349,631 (1,064) 348,567
--------- --------- --------- --------- --------- -------- --------- --------- ----------
OPERATING EXPENSE
Gas Purchased for Resale 0 181,166 0 0 0 0 181,166 (48)[C] 181,118
Operation - Utility 0 43,059 0 0 0 0 43,059 (23)[C] 43,036
Operation - Nonutility 1,739 0 21,218 0 293 0 23,250 (114)[C] 23,136
Maintenance 8 5,482 10 0 0 0 5,500 0 5,500
Depreciation 4 15,963 4 0 9 0 15,980 (2)[D] 15,978
Current Federal Income Taxes (570) 5,461 (192) 0 265 0 4,964 0 4,964
Deferred and Non-Current
Federal Income Taxes (217) 6,098 (62) 0 (67) 0 5,752 0 5,752
Gross Receipts & Franchise
Taxes 0 27,808 0 0 0 0 27,808 0 27,808
Other Taxes 41 2,515 (34) 0 111 0 2,633 0 2,633
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Total Operating Expenses 1,005 287,552 20,944 0 611 0 310,112 (187) 309,925
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Operating (Loss)Income (696) 39,996 (429) 0 648 0 39,519 (877) 38,642
OTHER INCOME
Dividends from Subsidiaries 41,272 0 0 0 0 0 41,272 (41,272)[A] 0
Equity in Undistributed
Earnings of Subs (21,415) 0 0 0 0 0 (21,415) 21,415 [A] 0
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Income(Loss) Before
Interest Charges 19,161 39,996 (429) 0 648 0 59,376 (20,734) 38,642
--------- --------- --------- --------- --------- -------- --------- --------- ----------
INTEREST CHARGES
Long-Term Debt 0 15,165 34 0 0 0 15,199 (2)[C] 15,197
Short-Term Debt 704 2,497 8 0 218 0 3,427 (877)[C] 2,550
Other 30 334 0 0 0 0 364 0 364
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Total Interest Charges 734 17,996 42 0 218 0 18,990 (879) 18,111
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Income(Loss) from Continuing
Operations before Pref Stock
Dividend Requirements of Subs 18,427 22,000 (471) 0 430 0 40,386 (19,855) 20,531
Pref Stock Dividend Requiremnts
of Subsidiary 0 2,102 0 0 0 0 2,102 0 2,102
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Income(Loss) from
Continuing Operations 18,427 19,898 (471) 0 430 0 38,284 (19,855) 18,429
Equity in Undistributd Earnings
of Discontinued Subsidiaries (2,633) 0 0 0 0 0 (2,633) 2,633 [A] 0
(Loss)Income from Discontinued
Operations - Net 0 0 0 0 (1,889) 23 (1,866) 0 (1,866)
Loss on Sale of Discontinued
Operations - Net 0 0 0 0 (644) (123) (767) 0 (767)
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Net Income(Loss) Applicable to
Common Stock $15,794 $19,898 ($471) $0 ($2,103) ($100) $33,018 ($17,222) $15,796
========= ========= ========= ========= ========= ======== ========= ========= ==========
- 8 -
</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(In Thousands)
<CAPTION>
South
South Jersey South Energy & R & T
Jersey Gas Jersey Minerals, Group, Elim.
Industries, Company Energy SJ Inc. Inc. & Consd.
Inc. Consd. Company EnerTrade Consd. Consd. Total Adjust. Total
--------- --------- --------- --------- --------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $48,811 $51,522 $173 $0 $25,780 ($6,456) $119,830 ($71,087)[B] $48,743
Net Income(Loss) Applicable to
Common Stock 15,794 19,898 (471) 0 (2,103) (100) 33,018 (17,222)[C] 15,796
--------- --------- --------- --------- --------- -------- --------- --------- ----------
64,605 71,420 (298) 0 23,677 (6,556) 152,848 (88,309) 64,539
Dividends Declared - Cash 15,501 15,300 0 0 25,972 0 56,773 (41,272)[C] 15,501
--------- --------- --------- --------- --------- -------- --------- --------- ----------
Balance at End of Period $49,104 $56,120 ($298) $0 ($2,295) ($6,556) $96,075 ($47,037) $49,038
========= ========= ========= ========= ========= ======== ========= ========= ==========
- 9 -
</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(In Thousands)
<S> <C> <C>
[A] Dividends from Subsidiaries $41,272
Investment in Subsidiaries 24,048
Equity in Undistributed Earnings of Discontinued Subs $2,633
Retained Earnings - Dividends Paid - Cash 41,272
Equity in Undistributed Earnings of Subsidiaries 21,415
To eliminate intercompany dividends paid and
equity in undistributed earnings recorded by
South Jersey Industries, Inc.
[B] Retained Earnings - 1/1/97 $71,087
Accumulated Deferred Federal Income Taxes - Noncurrent Liability 60
Accumulated Depreciation & Depletion - 1/1/97 16
Investment in Subsidiaries $71,019
Nonutility Property 144
To eliminate prior inter-company gain and
retained earnings of subsidiaries at 1/1/97
previously recorded by South Jersey Industries,
Inc. under the equity method of accounting.
[C] Operating Revenues - Utility $71
Operating Revenues - Nonutility 993
Gas Purchased for Resale $48
Operating Expense - Utility 23
Operating Expense - Nonutility 114
Interest Expense - Short-Term Debt 877
Interest Expense - Long-Term Debt 2
To eliminate intercompany revenue and expense.
[D] Accumulated Depreciation & Depletion $2
Depreciation, Depletion & Amortization $2
To eliminate South Jersey Industries, Inc.
depreciation on Millville property gain.
- 10 -
</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(In Thousands)
<CAPTION>
South
South Jersey South Energy & R & T
Jersey Gas Jersey Minerals, Group, Elim.
Industries, Company Energy SJ Inc. Inc. & Consd.
Inc. Consd. Company EnerTrade Consd. Consd. Total Adjust. Total
--------- --------- -------- --------- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
PROPERTY, PLANT & EQUIPMENT
Utility Plant, orig cost $0 $618,167 $0 $0 $0 $0 $618,167 $0 $618,167
Gas Plant Acq Adjustment 0 1,926 0 0 0 0 1,926 0 1,926
Gas Stored Underground 0 1,322 0 0 0 0 1,322 0 1,322
Accum Deprec & Amort 0 (167,176) 0 0 0 0 (167,176) 0 (167,176)
Nonutility Property &
Equipment, at cost 1,649 0 55 3 1,769 0 3,476 (144)[4] 3,332
Accum Depreciation &
Depletion (160) 0 (28) (1) (862) 0 (1,051) 18 [5] (1,033)
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Property, Plant &
Equipment - Net 1,489 454,239 27 2 907 0 456,664 (126) 456,538
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
INVESTMENTS
Investments in Subs 181,453 0 0 0 0 0 181,453 (181,453)[1] 0
Investment in Affiliate 0 0 0 849 0 0 849 0 849
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Total Investments 181,453 0 0 849 0 0 182,302 (181,453) 849
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
CURRENT ASSETS
Cash & Temp Cash Invest 21 6,596 451 100 5,785 136 13,089 0 13,089
N/R - Assoc Companies 5,460 0 0 0 8,600 1,539 15,599 (15,599)[3] 0
N/R - Affiliate 0 0 0 4,561 0 0 4,561 0 4,561
Accounts Receivable 2 30,033 4,648 39 890 345 35,957 (10)[2,8] 35,947
Unbilled Revenues 0 17,263 0 0 0 0 17,263 0 17,263
Provisions for Uncollect 0 (1,032) (42) 0 (170) (286) (1,530) 0 (1,530)
A/R - Assoc Companies 540 82 19 0 228 13 882 (882)[2] 0
Natural Gas in Storage,
Average Cost 0 23,877 0 0 0 0 23,877 0 23,877
Materials & Supplies,
Average Cost 0 4,509 0 0 0 0 4,509 0 4,509
Assets Held for Disposal 0 0 0 0 0 622 622 0 622
Accum Deferred Income Taxes 5 814 20 0 0 0 839 (839)[6] 0
Prepaid Gross Receipts &
Franchise Tax 0 566 0 0 0 0 566 0 566
Other Prepayments and
Current Assets 55 1,661 117 1 28 0 1,862 0 1,862
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Total Current Assets 6,083 84,369 5,213 4,701 15,361 2,369 118,096 (17,330) 100,766
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
NON-CURRENT ACCOUNTS
RECEIVABLE - Merchandise 0 1,449 549 0 0 0 1,998 0 1,998
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
NON-CURRENT ASSETS
Gross Receipts and
Franchise Taxes 0 4,028 0 0 0 0 4,028 0 4,028
Environmental Remediation
Costs 0 73,441 0 0 0 0 73,441 0 73,441
Accum Deferred Income Taxes 655 6,947 120 0 1,782 702 10,206 (10,206)[7] 0
Depreciation Flowthrough
Pre-1976 0 13,999 0 0 0 0 13,999 0 13,999
Deferred Fuel Costs - Net 0 3,674 0 0 0 0 3,674 0 3,674
Def. Post-Retirement
Benefit Costs 0 6,150 0 0 0 0 6,150 0 6,150
Other 3 8,578 0 0 577 0 9,158 0 9,158
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Total Deferred Debits 658 116,817 120 0 2,359 702 120,656 (10,206) 110,450
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Total $189,683 $656,874 $5,909 $5,552 $18,627 $3,071 $879,716 ($209,115) $670,601
========= ========= ======== ========= ========= ======== ========= ========== ==========
- 11 -
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(In Thousands)
South
South Jersey South Energy & R & T
Jersey Gas Jersey Minerals, Group, Elim.
Industries, Company Energy SJ Inc. Inc. & Consd.
Inc. Consd. Company EnerTrade Consd. Consd. Total Adjust. Total
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
CAPITALIZATION & LIABILITIES
COMMON EQUITY
Common Stock SJI
Par Value $1.25 a share
Authorized-20,000,000 shares
Outstanding - 10,771,413
and 10,756,679 shares $13,464 $0 $0 $0 $0 $0 $13,464 $0 $13,464
Common Stock - Subsidiaries 0 5,848 50 1 13,283 1,000 20,182 (20,182)[1] 0
Premium on Common Stock 110,997 102,817 2,000 99 1,584 7,800 225,297 (114,300)[1] 110,997
Retained Earnings 49,104 56,120 (298) 0 (2,295) (6,556) 96,075 (47,037)[1,4, 49,038
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Total Common Equity 173,565 164,785 1,752 100 12,572 2,244 355,018 (181,519) 173,499
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
PREFERRED STOCK
Series A, 4.70%-3,000 shares 0 300 0 0 0 0 300 0 300
Series B, 8% - 19,242 shares 0 1,924 0 0 0 0 1,924 0 1,924
8.35% Company-Obligated
Mandatorily Redeemable -
1,400,000 shares 0 35,000 0 0 0 0 35,000 0 35,000
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Total Preferred Stock 0 37,224 0 0 0 0 37,224 0 37,224
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
L-T-D (less current maturities
& sinking fund requirements) 0 175,860 500 0 0 0 176,360 0 176,360
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
CURRENT LIABILITIES
Notes Payable to Banks 0 45,900 0 0 0 0 45,900 0 45,900
Current Maturities of L-T-D 0 8,876 118 0 0 0 8,994 0 8,994
N/P - Associated Companies 10,139 0 165 5,295 0 0 15,599 (15,599)[3] 0
Accounts Payable 807 45,098 3,242 0 0 4 49,151 (9)[2,8] 49,142
A/P to Assoc. Companies 167 484 30 157 33 12 883 (883)[2] 0
Customer Deposits 0 5,871 0 0 0 0 5,871 0 5,871
Accum. Deferred Income Taxes 4 5,536 38 0 9 1 5,588 (5,588)[6,9] 0
Environment Remediation Cost 108 14,373 0 0 2,030 0 16,511 0 16,511
Interest Accrued 0 5,349 0 0 0 0 5,349 0 5,349
Dividends Declared 3,877 42 0 0 0 0 3,919 0 3,919
Other Current Liabilities (123) 2,340 34 0 1,306 536 4,093 0 4,093
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Total Current Liabilities 14,979 133,869 3,627 5,452 3,378 553 161,858 (22,079) 139,779
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
DEFERRED CREDIT & NON-CURRENT
LIABILITIES
Pension and Other Post-
Retirement Benefits Reserve 209 10,798 106 0 410 224 11,747 0 11,747
Accum Deferred Income Taxes 102 84,072 (76) 0 0 50 84,148 (5,517)[4,6, 78,631
Investment Tax Credit 0 5,632 0 0 0 0 5,632 0 5,632
Environment Remediation Cost 0 0 0 0 0 0 0 0 0
Other 218 38,027 0 0 2,266 0 40,511 0 40,511
610 6,607 0 0 1 0 7,218 0 7,218
Total Deferred Credit & --------- --------- -------- --------- --------- -------- --------- ---------- ----------
Non-Current Liabilities 1,139 145,136 30 0 2,677 274 149,256 (5,517) 143,739
--------- --------- -------- --------- --------- -------- --------- ---------- ----------
Total $189,683 $656,874 $5,909 $5,552 $18,627 $3,071 $879,716 ($209,115) $670,601
========= ========= ======== ========= ========= ======== ========= ========== ==========
- 12 -
</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 1997
(In Thousands)
<S> <C> <C>
[1] Common Stock - Subsidiaries $20,182
Premium on Common Stock 114,300
Retained Earnings 46,971
Investment in Subsidiaries $181,453
To eliminate South Jersey Industries, Inc. investment in subs
which is maintained on the equity method of accounting.
[2] Accounts Payable - Associated Companies $883
Accounts Payable 3
Accounts Receivable - Associated Companies $882
Accounts Receivable 4
To eliminate intercompany accounts receivable and payable.
[3] Notes Payable - Associated Companies $15,599
Notes Receivable - Associated Companies $15,599
To eliminate intercompany short-term notes between
South Jersey Industries, Inc. and Subsidiaries
[4] Retained Earnings $84
Accumulated Deferred Income Taxes - Noncurrent Liability 60
Non-Utility Property $144
To eliminate South Jersey Gas Company gain and related deferred
taxes on sale of Millville property to South Jersey Industries, Inc.
[5] Accumulated Depreciation & Depletion $18
Retained Earnings $18
To eliminate South Jersey Industries, Inc. depreciation on Millville
property gain.
[6] Accumulated Deferred Income Taxes - Current Liability $839
Accumulated Deferred Income Taxes - Current Asset $839
To net current accumulated DFIT asset and liability
[7] Accumulated Deferred Income Taxes - Noncurrent Liability $10,206
Accumulated Deferred Income Taxes - Noncurrent Asset $10,206
To net noncurrent accumulated DFIT asset and liability
[8] Accounts Payable $6
Accounts Receivable $6
To eliminate intercompany gas receivable and payable
between South Jersey Gas Company and South Jersey Energy Company.
[9] Accumulated Deferred Income Taxes - Current Liability $4,749
Accumulated Deferred Income Taxes - Noncurrent Liab $4,749
To net current and noncurrent accumulated DFIT liability
- 13 -
</TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS
1. Summary of Significant Accounting Practices:
Consolidation - The consolidated financial statements include
the accounts of South Jersey Industries, Inc. (SJI or the
Company) and all of its subsidiaries. Certain intercompany
transactions, amounting to approximately $1.9 million in 1997
were not required to be eliminated. That amount was capitalized
to utility plant or environmental remediation costs on the South
Jersey Gas Company (SJG) books of account and is recoverable by
SJG through the rate-making process (See Note 13). 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.
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. Therefore, actual results could differ from
those estimates.
Regulation - SJG is subject to the rules and regulations of
the New Jersey Board of Public Utilities (BPU) and maintains its
accounts in accordance with the prescribed Uniform System of
Accounts of that Board (See Note 6).
Utility Revenues - SJG bills most of its customers on a
monthly cycle basis, although certain commercial and industrial
customers are billed at or near the end of each month. An
accrual is made to recognize the unbilled revenues from the date
of the last bill to the end of period.
In accordance with a BPU order, SJG is allowed to recover the
excess cost of gas sold over the cost included in base rates
through the Levelized Gas Adjustment Clause (LGAC). This
collection is made on a forecasted basis upon BPU order.
Under-recoveries and over-recoveries of gas costs are deferred
and included in the determination of the following year's LGAC.
Interest is paid on overcollected LGAC balances based on SJG's
return on rate base as determined in its base rate proceedings.
SJG's tariff also includes a Temperature Adjustment Clause (TAC)
and a Remediation Adjustment Clause (RAC). These clauses are
designed to reduce the impact of extreme fluctuations in
temperatures on SJG and its customers, and recover costs
incurred in the remediation of former gas manufacturing plants,
respectively. TAC adjustments affect revenue, income and cash
flows since extremely cold weather can generate credits to
customers, while extremely warm weather during the winter season
- 14 -
can result in additional billings to customers. RAC adjustments
do not directly affect earnings because costs are deferred and
recovered through rates over 7-year amortization periods (See
Note 13).
Property, Plant & Equipment - Utility plant is stated at
original cost as defined for regulatory purposes; nonutility
plant is stated at cost. The cost of additions, replacements and
renewals of property is charged to the appropriate plant account.
New Accounting Pronouncements - In February 1997, the 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 when those amounts are different. The adoption of FASB
No. 128 did not have an impact on the Company's EPS (See Note 4).
In June 1997, the FASB issued FASB No. 130, "Reporting
Comprehensive Income". This statement, which establishes
standards for reporting and disclosure of comprehensive income,
is effective for annual periods beginning after December 15,
1997. The Company currently has no additional items qualifying
as other comprehensive income under FASB No. 130 and, therefore,
believes its adoption will not have any impact on the Company's
financial position on results of operations.
In June 1997, the FASB also issued FASB No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which
is also effective for fiscal years beginning after December 15,
1997. This statement establishes standards for the reporting of
selected information about operating segments in the Company's
interim and annual financial statements. The Company is
evaluating whether the adoption of this statement will result in
any change to its presentation of financial information. The
Company expects to adopt FASB No. 131 effective January 1, 1998;
however, as permitted by this statement, segment information
will not be reported in interim financial statements until 1999.
Depreciation and Amortization - Depreciation of utility plant
is provided on a straight-line basis over the estimated
remaining lives of the various classes of property. These
estimates are periodically reviewed and adjustments are made as
required after BPU approval. The composite rate per annum for
all depreciable utility property was approximately 2.8 percent
in 1997. Generally, with the exception of extraordinary
retirements, accumulated depreciation is charged with the cost
of depreciable utility property retired, together with removal
costs less salvage. The gas plant acquisition adjustment is
being amortized on a straight-line basis over a 40-year period.
The unamortized balance amounting to $1.9 million at December
31, 1997, is not included in rate base. Depreciation of
nonutility property is computed generally on a straight-line
basis over the estimated useful lives of the property, ranging
up to 35 years. Any gain or loss realized upon the disposition
of nonutility property is recognized in determining net income.
- 15 -
Federal Income and Other Taxes - Deferred Income Taxes are
provided for all significant temporary differences between book
and taxable income (See Notes 5 & 8).
On July 14, 1997, legislation reforming the taxation of energy
in New Jersey was adopted. The new law eliminates the Gross
Receipts & Franchise Tax (equivalent to approximately 13 percent
of utility revenue) and replaces it with a combination of taxes.
Beginning January 1, 1998, retail sales of natural gas and
electricity and utility services, including transportation, will
be subject to the 6 percent State Sales and Use Tax. Utilities
will also be subject to the 9 percent State Corporation Business
Tax on income before taxes. To bridge the revenue gap created by
the new tax law, the State will impose a Transitional Energy
Facilities Assessment (TEFA) on volumes of gas sold and
transported. The TEFA will be phased out over a 5-year period
beginning January 1, 1999 and ending January 1, 2003. It is
expected that the revised tax policy will eliminate tax
disparities between utility and non-utility suppliers, providing
fair competition and lower energy costs for the consumer. The
adoption of the new legislation will not materially affect the
Company's financial position, results of operations or liquidity
(See Note 6).
Statements of Cash Flows - For purposes of reporting cash
flows, all highly liquid investments with original maturities of
three months or less are considered cash equivalents.
2. Divestitures and Affiliations:
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 (See Note 13). The sale
price was subject to customary post-closing entries resulting in
a downward adjustment of $0.6 million which was recorded in 1997.
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. As a result, the Company recognized a net loss of
$2.4 million, net of applicable income tax credits of $1.3
million, on the planned disposition of R & T's assets.
Additionally, 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
consolidated income statement for 1997. These losses are
reflected in the consolidated income statement under the caption
"Net (Loss)Gain on the Disposal of Discontinued Operations".
- 16 -
In 1997, the Company performed additional testing to arrive at
an estimate of the cost to perform environmental cleanup and
remediation of properties owned by South Jersey Fuel, Inc.
(SJF), a subsidiary of EMI, as part of its previously operated
fuel oil business. Also in 1997, SJ EnerTrade, Inc. (EnerTrade)
was created as a direct subsidiary of SJI to assume SJF's gas
marketing activity, including its affiliation with South Jersey
Resources Group LLC (SJRG). The gas marketing activities are
shown as part of continuing operations; the environmental
remediation activity related to properties used in the
previously operated fuel oil business are reported as part of
discontinued operations consistent with the reporting in
previous years of other costs related to the discontinued fuel
oil business (See also Note 13).
Summarized operating results of the discontinued operations for
1997 were (in thousands):
Operating Revenues:
Sand Mining $ -
Construction 4,928
------
Total Operating Revenues $4,928
======
(Loss) Income before Income Taxes:
Sand Mining $(1,257)
Construction 39
Fuel Oil (See Note 13) (1,725)
Income Tax Credits 1,077
-------
Loss from Discontinued Operations $(1,866)
=======
Loss per Common Share from Discontinued
Operations $(0.17)
=======
Affiliations - On April 1, 1996, SJF and Union Pacific Fuels,
Inc. joined efforts in the formation of SJRG, to provide
natural gas storage, peaking services and transportation
capacity for wholesale customers in New Jersey and surrounding
states. EnerTrade currently holds a 50 percent non-controlling
interest in this affiliation and, accordingly, accounts for the
investment under the equity method.
3. Preferred Stock and Securities of Subsidiary:
Redeemable Cumulative Preferred Stock - SJG is required to
offer annually to purchase 900 and 1,500 shares of its
Cumulative Preferred Stock, Series A and Series B, respectively,
at par value, plus accrued dividends.
If preferred stock dividends are in arrears, no dividends may be
declared or paid, or other distribution made on the SJG Common
Stock. If four or more quarterly dividends are in arrears, the
Preferred Shareholders may elect a majority of SJG's directors.
- 17 -
Mandatorily Redeemable Preferred Securities - On May 2, 1997,
SJG's statutory trust subsidiary, SJG Capital Trust (Trust),
established in the State of Delaware on March 24, 1997, sold
$35.0 million of 8.35 percent SJG-guaranteed Mandatorily
Redeemable Preferred Securities. The Trust holds as its only
asset the 8.35 percent Deferrable Interest Subordinated
Debentures issued by SJG which mature on April 30, 2037, which
is also 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 percent of the
principal amount thereof at any time on or after April 30, 2002.
The Company has 2,500,000 authorized shares of Preference Stock,
no par value, none of which has been issued. The Company has
registered and reserved for the issuance of 15,000 shares of
Series A Junior Participating Cumulative Preferred Stock (Series
A Stock) in connection with the adoption of the Company's
Shareholder Rights Plan (See Note 4).
4. Common Stock:
The Company has 20,000,000 shares of Common Stock authorized of
which the following shares were issued and outstanding:
Beginning of Year 10,756,679
New Issues During Year:
Employees' Stock Ownership Plan 4,770
Stock Option & Stock Appreciation Rights Plan 9,514
Directors' Restricted Stock Plan 450
----------
End of Year 10,771,413
==========
The par value ($1.25 per share) of the stock issued in 1997 was
credited to common stock and the net excess over par value of
approximately $0.5 million was 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
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 year ended December 31, 1997.
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 December 31,
1997, the Company had 13,060 options outstanding exercisable at
- 18 -
prices from $17.89 to $24.69 per share. During 1997, 4,311
options were exercised, at prices from $17.16 to $17.89 per
share. In addition, during 1997, 17,619 options were
surrendered for the issuance of 5,203 shares. No options were
granted in 1997. No stock appreciation rights were issued under
the plan. The stock options outstanding at December 31, 1997,
did not have an effect on the earnings per share calculations
(See Note 1).
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 December 31, 1997, 208,647 and
35,371 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, in December 1997, 450 additional
shares were granted. Initial awards will vest over a 5-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 entitles its holder to
purchase 1/1000 of one share of Series A Stock at an exercise
price of $90 (See Note 3).
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.
- 19 -
5. Federal Income Taxes:
Income tax expense applicable to operations for 1997 differs
from the tax that would have resulted by applying the statutory
rate to income from operations before Federal Income Tax for the
following reasons (in thousands):
Tax at Statutory Rate $ 10,260
(Decrease)Increase Resulting from:
Amortization of Investment Tax Credits (ITC) (393)
Liberalized Depreciation Under Book
Depreciation on Utility Plant 664
Other - Net 185
--------
Federal Income Taxes as reported on the
Statements of Consolidated Income 10,716
Tax Associated with Discontinued Operations (674)
--------
Net Federal Income Taxes $ 10,042
========
The provision for Federal Income Taxes for 1997 is comprised of
the following (in thousands):
Current $ 4,964
Deferred:
Excess of Tax Depreciation Over Book Depreciation - Net 4,162
Deferred Fuel Costs 349
Environmental Remediation Costs - Net 1,903
Amortization of Gross Receipts Taxes (140)
Alternative Minimum Tax (304)
Other - Net 175
-------
Total Deferred 6,145
-------
ITC (393)
-------
Federal Income Taxes as reported
on the Statements of Consolidated Income 10,716
Tax Associated with Discontinued Operations (674)
-------
Net Federal Income Taxes $10,042
=======
- 20 -
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's net deferred tax liability at December 31, 1997, are
as follows (in thousands):
Deferred Tax Liabilities:
Tax Depreciation Over Book Depreciation $ 62,945
Difference Between Book and Tax Basis of Property 5,579
Deferred Fuel Costs 5,078
Deferred Regulatory Costs 996
Environmental Remediation Costs 7,463
Excess Protected 3,485
Gross Receipts Taxes 1,424
Other 1,204
--------
Total Deferred Tax Liabilities 88,174
--------
Deferred Tax Assets:
Alternative Minimum Tax 1,542
ITC Basis Gross Up 3,004
Other 4,997
--------
Total Deferred Tax Assets 9,543
--------
Net Deferred Tax Liability $ 78,631
========
6. Recent Regulatory Actions:
On June 20, 1996, SJG received approval from the BPU to recover
environmental remediation costs incurred during the 2-year
period ended July 31, 1995, totaling $1.5 million, net of
insurance recoveries. On July 31, 1996 and 1997, SJG made its
annual filings with the BPU to recover remediation costs
expended during the period of August 1995 through July 1997
totaling $1.6 million. Both filings were subsequently updated
and are still pending at the BPU (See Note 13).
On September 6, 1996, SJG made its annual LGAC and TAC filings
with the BPU proposing a decrease to the LGAC of $1.4 million
and a credit resulting from the TAC of $2.5 million. The TAC
credit resulted from significantly colder weather in SJG's
service area during the TAC period running from October 1, 1995
through May 31, 1996. The BPU approved the revenue reduction for
the TAC credit on January 27, 1997. While customers received the
credit in their bills during 1997, the earnings impact was
reflected in the 1996 results of operations.
- 21 -
On January 27, 1997, the BPU granted SJG a base 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 common equity.
The majority of this increase comes from residential and small
commercial customers. Part of the increase is recovered from new
miscellaneous service fees which charge specific customers for
costs they cause SJG to incur. Additionally, SJG is now allowed
to retain the first $5.5 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 1998, this $5.5
million threshold will increase 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 $0.3 million
in 1998 and $1.8 million in 1999.
As part of the tariff changes approved in the rate case, SJG
initiated its pilot program in April 1997, giving residential
customers a choice of gas supplier. During the enrollment
period, which ended June 30, 1997, nearly 13,000 residential
customers applied for this service. Transportation of gas for
these customers began on August 1, 1997. Participant's bills
are reduced for certain cost of gas charges and applicable
taxes. The resulting decrease in revenues is offset by a
corresponding decrease in SJG's gas costs and taxes under SJG's
BPU-approved fuel clause. The program does not affect its net
income, financial condition or margins. In addition, because the
program affects only 5 percent of SJG's residential customers,
any reduction in revenue is not material. Also, SJG further
expanded the choices available to commercial and industrial
customers, including a new transportation tariff providing
savings to qualified customers.
On May 5, 1997, SJG filed with the BPU to update rates related
to appliance service charges, including a profit margin. The new
rates are competitive with other service providers in New Jersey
and are designed to increase earnings and cash flows to SJG over
the current rates. The filing is pending.
On May 13, 1997, SJG filed to recover additional post-retirement
benefit costs of approximately $1.3 million annually. This
recovery was approved on December 17, 1997, and began January 1,
1998 (See Note 9).
On September 9, 1997, SJG filed with the BPU to adjust rates by
replacing the current State Gross Receipts and Franchise Tax
components with a Sales and Use Tax, a Corporation Business Tax
and a Transitional Energy Facilities Assessment. The new rates
became effective January 1, 1998, on an interim basis subject to
refund upon final BPU order which is expected in early 1998.
On September 12, 1997, SJG made its annual LGAC, TAC and Demand
Side Management Clause (DSMC) filings with the BPU for the
period November 1997 through October 1998. In this filing, SJG
requested an increase in the annual level of LGAC recovery of
$4.7 million which is inclusive of the $1.4 million proposed
decrease filed in 1996. It also requested that the 1996-1997
filing be resolved simultaneously with this filing. Both filings
are still pending at the BPU.
- 22 -
7. Segments of Business:
Information about the Company's operations in different industry
segments for 1997 is presented below (in thousands):
Operating Revenues:
Gas Utility Operations $327,548
Other Industries 22,083
--------
Total 349,631
Intersegment Sales (1,064)
--------
Consolidated Operating Revenues $348,567
========
Operating Income:
Gas Utility Operations $ 51,555
Other Industries (942)
--------
Total 50,613
Federal Income Taxes (10,716)
General Corporate Expense (1,255)
--------
Total Operating Income $ 38,642
========
Depreciation, Depletion and Amortization:
Gas Utility Operations $ 17,867
Other Industries 18
Discontinued Operations 227
--------
Total $ 18,112
========
Property Additions:
Gas Utility Operations $ 48,533
Other Industries 141
Discontinued Operations 1
--------
Total $ 48,675
========
Identifiable Assets:
Gas Utility Operations $649,113
Other Industries 11,322
Discontinued Operations 2,993
--------
Total 663,428
Corporate Assets 23,664
Intersegment Assets (16,491)
--------
Total Assets $670,601
========
- 23 -
Gas utility operations consist primarily of natural gas
distribution to residential, commercial and industrial
customers. Other industries include the natural gas and electric
acquisition and transportation service companies (See Note 2).
Total operating revenues by industry segment include both sales
to unaffiliated customers, as reported in the Company's
statements of consolidated income, and intercompany sales, which
are accounted for at the fair market value of the goods or
services rendered.
Operating income is total revenues less operating expenses,
Federal Income Taxes, and general corporate expenses, as shown
on the statements of consolidated income.
Identifiable assets are those assets that are used in each
segment of the Company's operations. Corporate assets are
principally cash and cash equivalents, land, buildings and
equipment held for corporate use.
8. Regulatory Assets and Deferred Credits - Federal and Other
Taxes:
The primary asset created as a result of adopting FASB No. 109,
"Accounting for Income Taxes", was income taxes - flowthrough
depreciation in the amount of $17.6 million as of January 1,
1993. This amount represented the recording of the net tax
effect of excess liberalized depreciation over book depreciation
on utility plant because of temporary differences for which,
prior to FASB No. 109, deferred taxes had not previously been
provided. These tax benefits were previously flowed through in
rates. As a result of positions taken in the 1994 rate case, the
amortization of the regulatory asset is being recovered through
rates over an 18-year period which began in December 1994.
The ITC attributable to SJG was deferred and continues to be
amortized at the annual rate of 3 percent, which approximates
the life of the related assets.
Effective March 1, 1978, SJG began and continued to accrue
through 1991 for Gross Receipts and Franchise Taxes (GRAFT) on
current revenues rather than on the previous basis of prior
period revenues. The one-time increase resulting from this
change has been deferred and is being amortized on a
straight-line basis to operations over a 30-year period. In June
1991, New Jersey adopted GRAFT legislation accelerating tax
payments, the carrying costs on which are being recovered from
ratepayers. The legislation also changed the basis of the tax to
gas volumes rather than percentage of revenue (See Note 1).
9. Retirement Benefit Plans & Other:
Pensions - SJI and its subsidiaries have several defined
benefit retirement plans that provide annuity payments to
substantially all full-time regular employees upon retirement.
The companies pay the entire cost of the plans. Approximately 53
percent of the plans' assets are invested in securities which
provide for fixed income and a return of principal. The
remaining assets are invested in professionally managed common
- 24 -
stock portfolios. Net periodic pension cost for 1997, including
the amortization of the cost of past service benefits over a period
of approximately 30 years, included the following components
(in thousands):
Service cost - benefits earned during the period $ 1,960
Interest cost on projected benefit obligation 3,820
Actual return on plan assets (6,103)
Net amortization and deferral 3,157
--------
Net periodic pension cost $ 2,834
========
Assumptions as of December 31 were:
Discount rate 7.25%
Rate of increase in compensation levels 4.1%
Expected long term rate of return on assets 8.5%
Due to the positive performance of the capital markets in 1997,
the actual return on plan assets increased significantly
compared with prior years. In accordance with FASB 87,
"Employers' Accounting for Pensions", the amounts in excess of
the expected return of 8.5 percent is deferred and will be
recognized over future periods.
A reconciliation of the funded status of the plans to the amount
recognized in the consolidated balance sheet for 1997 is
presented below (in thousands):
Actuarial present value of plan benefits
Vested benefits $(44,885)
Non-vested benefits (291)
Impact of estimated future compensation changes (11,577)
--------
Projected plan benefits (56,753)
Plan assets at fair value 46,875
--------
Projected plan benefits in excess of plan assets (9,878)
Unrecognized net loss 3,312
Unrecognized prior service costs 3,514
Unrecognized net obligation at January 1 430
--------
Net Pension liability recognized in the
consolidated balance sheet $ (2,622)
========
Postretirement Benefits Other Than Pensions - The Company and
its subsidiaries provide postretirement health care and life
insurance benefits to certain retired employees. Effective
January 1, 1993, the Company adopted FASB No. 106, "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
- 25 -
these benefits, which are principally health care, on a
pay-as-you-go (PAYGO) basis. The Company elected to recognize
the unfunded transition obligation over a 20-year period.
The majority of the Company's costs apply to SJG, which
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 BPU also approved recovery of previously deferred
1993 and 1994 service costs over a 5-year period beginning in
December 1994. Beginning in 1995, an external trust was
established to fund a portion of the obligation recovered from
ratepayers as a part of the BPU settlement. Gross contributions
to this trust totaled $2.0 million in 1997. SJG was also
authorized to continue recording a regulatory asset for the
amount by which the cost exceeded the level recovered in rates.
The balance of this regulatory asset, which amounted to
approximately $6.1 million at December 31, 1997, will be
recovered from ratepayers over a 15-year period beginning
January 1, 1998, as approved by the BPU in December 1997. At
that time, the BPU also approved full recovery of the net
periodic benefit costs. The additional annual recovery of
approximately $1.3 million will be contributed to the external
trust and provides no operating benefit to SJG except to the
extent that trust income would reduce future net postretirement
benefit costs (See Note 6).
A reconciliation of the accumulated postretirement benefit
obligation to the amount recognized in the Consolidated Balance
Sheet for 1997 is presented below (in thousands):
Service cost - benefits earned during the period $ 994
Actual return on plan assets (272)
Interest cost on accumulated postretirement benefit
obligation 1,579
Amortization of transition obligation 796
------
Subtotal 3,097
Other Adjustments -
------
Net postretirement benefit costs as reported
in the consolidated Financial Statements $3,097
======
The amount expensed in 1997 was $1.5 million.
The following table sets forth the life and health care plans'
funded status at December 31, 1997. Actuarial present value of
accumulated postretirement benefit obligations (in thousands):
- 26 -
Retirees $ (5,631)
Other active plan participants (18,393)
--------
Accumulated postretirement benefit obligation (24,024)
Fair value of plan assets 4,403
--------
Accumulated postretirement benefit obligation
in excess of plan assets (19,621)
Unrecognized net loss 701
Unrecognized transition obligation 11,947
--------
Postretirement benefit liability recognized
in the consolidated balance sheet $ (6,973)
========
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation as of December 31,
1997, are as follows: Medical and Drug - 7.4 percent for
participants age 65 or older and 10.15 percent for participants
under age 65 in 1997, both grading to 5.75 percent in 2008.
Dental - 7.42 percent in 1997, grading to 5.75 percent in 2003.
If the health care cost trend rate assumptions were increased by
1 percent, the accumulated postretirement benefit obligation as
of December 31, 1997, would be increased by $3.4 million. The
effect of this change on the sum of the service cost and
interest cost would be an increase of $0.5 million. An assumed
discount rate of 7.25 percent and an expected return on plan
assets of 8.5 percent were used in determining the accumulated
postretirement benefit obligation as of December 31, 1997.
Employment Contracts - With the death of the Company's
president in 1997, certain benefits became payable under the
provisions of his employment contract. The total of these
benefits, approximately $1.5 million, has been accrued as of
December 31, 1997. Under a separate contract, life insurance
proceeds of approximately $0.2 million payable to the Company
were also recorded. The benefit expense is reflected in the
statement of consolidated income for the year 1997 under the
caption "Operation and Maintenance - Utility".
10. Financial Instruments:
Long-Term Debt - The fair values of the Company's long-term
debt, including current maturities, as of December 31, 1997, is
estimated to be $205.8 million (carrying amount $185.4 million).
This is estimated based on the interest rates available to the
Company at year end for debt with similar terms and remaining
maturities. The Company retires higher cost debt whenever it is
cost effective to do so within the constraints of the respective
debt covenants.
- 27 -
Other Financial Instruments - The carrying amounts of the
Company's other financial instruments approximate their fair
values at December 31, 1997.
11. Unused Lines of Credit and Compensating Balances:
Unused lines of credit available at December 31, 1997, were
approximately $84.1 million. Borrowings under these lines of
credit are at market rates. The weighted cost of such
borrowings, which usually changes each business day,
approximated 6.06 percent at December 31, 1997. Demand deposits
are maintained with lending banks on an informal basis and do
not constitute compensating balances.
12. 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 $47.1 million as of
December 31, 1997.
13. Commitments and Contingencies:
Construction Commitments - The estimated cost of construction
and environmental remediation programs of SJI and its
subsidiaries for the year 1998 aggregates $63.9 million and, in
connection therewith, certain commitments have been made.
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 1999.
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 and reservation
fees paid to its suppliers for all of these services is
approximately $4.6 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 the Company's
financial position, results of operations or liquidity.
Environmental Remediation Costs - The Company incurred and
recorded certain costs for environmental remediation of sites
where SJG or predecessor companies operated gas manufacturing
plants. SJG terminated manufactured gas operations at all sites
- 28 -
more than 35 years ago. SJI and certain of its nonutility subsidiaries
have also 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 $96.2 million, of which $39.2 million was
expended as of December 31, 1997. The Company, with the
assistance of an outside consulting firm, estimates that total
future expenditures to remediate SJG's sites will range from
$52.4 million to $165.6 million. The lower end of this range was
recorded as a liability and is reflected on the 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
were not adjusted for future insurance recoveries, which
management is pursuing. SJG received $4.2 million of insurance
recoveries as of December 31, 1997. SJG first used these
proceeds to offset legal fees incurred in connection with those
recoveries and used the excess to reduce the balance of deferred
environmental remediation costs. Recorded amounts include
estimated costs 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, changing technology, government regulations and
site specific requirements.
The major portion of recorded environmental costs relate to the
cleanup of SJG's former gas manufacturing sites. SJG recorded
$90.2 million for the remediation of these sites, of which $37.8
million was expended through December 31, 1997.
As a result of the 7-year RAC recovery mechanism, SJG does not
expense environmental remediation costs 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 allowed recovery of these
expenditures through July 1995 and petitions to recover these
costs through July 1997 are pending (See Note 6).
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 was 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 to
recover the deferred costs after they are expended.
- 29 -
SJG files with the BPU to recover these costs in rates through
its RAC. The BPU has consistently allowed the full recovery
over 7-year periods, and SJG believes this will continue. As of
December 31, 1997, SJG's unamortized remediation expenditures of
$21.0 million are reflected on the balance sheet under the
caption "Regulatory and Other Non-Current Assets". Since BPU
approval of the RAC mechanism in August 1992, SJG recovered
$12.6 million through rates as of December 31, 1997 (See Note 6).
With Morie's sale, EMI assumed responsibility for environmental
liabilities which are currently estimated to range between $2.8
million and $15.5 million. The information available on these
sites is sufficient only to establish a range of probable
liability and no point within the range is more likely than any
other, therefore, EMI continues to accrue the lower end of the
range. The 1997 increase in the accrual of $0.8 million, $0.5
million after taxes, is included in the consolidated income
statement under the caption "(Loss)Income from Discontinued
Operations - Net".
As a result of additional testing performed during 1997, both
SJI and the discontinued operations of SJF have also estimated
their potential exposure for the future environmental
remediation of four sites where fuel oil operations had been
conducted years ago. Estimates for SJI's site range between $0.3
million and $1.1 million while SJF's estimated liability ranges
from $1.5 million to $4.2 million for the remaining three sites.
The lower end of these ranges have been recorded and are
reflected in Current Liabilities and Deferred Credits and Other
Non-Current Liabilities as of December 31, 1997. SJI's charge is
included in the statement of consolidated income as operating
expense while SJF's charge is reflected under the caption
"(Loss)Income from Discontinued Operations - Net" (See Note 2).
- 30 -
South Jersey Industries, Inc.
Index to Exhibits
Exhibit Number Description
27 Financial Data Schedule (Exhibit B)
(Submitted only in electronic format
to the Securities and Exchange Commission).
- 31 -
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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