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. (SJI), was organized under
the laws of the State of New Jersey; its principal location is 1 South
Jersey Plaza, Folsom, New Jersey 08037. SJI is not a public utility
company. It is primarily engaged in the business of owning and
holding a majority interest in other business enterprises.
SJI owns all of the outstanding common stock of South Jersey Gas
Company (SJG), which was organized under the laws of the State of New
Jersey. SJG's principal location is 1 South Jersey Plaza, Folsom, New
Jersey 08037. SJG 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.
SJI 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 1 South Jersey Plaza, Folsom, New
- cover page -
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. (SJF), which was organized under the laws of the State of New
Jersey. SJF's principal location is 1 South Jersey Plaza, Folsom, New
Jersey 08037. SJF is not a public utility company and is presently
inactive.
SJI owns all of the outstanding common stock of South Jersey Energy
Company (SJE), which was organized under the laws of the State of New
Jersey. SJE's principal location is 1 South Jersey Plaza, Folsom, New
Jersey 08037. SJE is not a public utility company. SJE provides
services for the acquisition, sale and transportation of natural gas
and electricity for industrial, commercial and residential users and
markets total energy management services.
SJE 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 1 South Jersey
Plaza, 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.
SJI 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 1 South Jersey Plaza, Folsom, New Jersey 08037.
R&T is not a public utility company. It holds the remaining assets
and liabilities of certain nonutility subsidiaries of SJI 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.
SJI does not own directly any properties used for the production,
transmission, and distribution of natural or manufactured gas or
electric energy.
The properties of SJG 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
- 2 -
facility, all of which are located in the State of New Jersey (except
that certain gas owned by SJG is stored outside the State and
transported when needed). There are 5,038 miles of distribution
mains. There are 92 miles of mains in the transmission system. In
1998, 270 miles of mains previously reported as transmission were
reclassified as distribution. No pipelines of SJG 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 1998, SJG distributed at retail to residential,
commercial and industrial customers 25,220,434 Mcf of natural
or manufactured gas and transported 28,384,108 Mcf of natural
gas purchased directly by its industrial, residential and
commercial customers. Retail distribution revenues were
$198.4 million and transportation revenues were $27.5 million.
SJG also sold 4,279,131 Mcf, or $9.9 million, 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 1998, SJG sold 22,636,748 Mcf, or $52.7 million, of
natural gas at wholesale to customers outside the borders of
the State of New Jersey.
Also, throughput related to capacity release amounted to
27,319,000 Mcf, or $6.0 million in revenues, in 1998.
(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 1998, SJG purchased approximately 54,317,000 Mcf of
natural gas from out-of-state sources at a total cost,
including related expenses, of $174.3 million.
During 1998, SJG purchased and had delivered to it
approximately 107,912 Mcf of liquefied natural gas by
over-the-road truck transport to SJG's LNG Storage and
Vaporization facility at McKee City, Atlantic County, New
Jersey, at a cost of $0.5 million.
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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
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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 1999.
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.
1 South Jersey Plaza
Folsom, New Jersey 08037
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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.
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<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<CAPTION>
South South
South Jersey Jersey Energy &
Jersey Gas Energy SJ Minerals, R&T Elim.
Industries, Company Company EnerTrade, Inc. Group, & Consd.
Inc. Consd. Consd. Inc. Consd. Inc. Total Adjust. Total
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Utility $0 $299,070 $0 $0 $0 $0 $299,070 ($1,032)[C] $298,038
Nonutility 256 0 151,280 833 822 0 153,191 (983)[C] 152,208
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Total Operating Revenues 256 299,070 151,280 833 822 0 452,261 (2,015) 450,246
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Operating Expenses:
Gas Purchased for Resale 0 174,822 0 0 0 0 174,822 (998)[C] 173,824
Utility Operations 0 42,268 0 0 0 0 42,268 0 42,268
Nonutility Operations 1,837 0 150,636 758 108 0 153,339 (49)[C] 153,290
Maintenance 9 5,282 8 0 0 0 5,299 0 5,299
Depreciation 5 17,120 11 1 7 0 17,144 (2)[D] 17,142
Current Federal and
State Income Taxes (1,425) 5,842 202 (4) (162) 0 4,453 0 4,453
Deferred Federal and
State Income Taxes 609 6,415 (35) 0 418 0 7,407 0 7,407
Other Taxes 54 10,343 60 0 21 0 10,478 0 10,478
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Total Operating Expenses 1,089 262,092 150,882 755 392 0 415,210 (1,049) 414,161
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Operating (Loss) Income (832) 36,978 398 78 430 0 37,051 (966) 36,085
Other Income:
Dividends from Subsidiaries 16,667 0 0 0 0 0 16,667 (16,667)[A] 0
Equity in Undistributed
Earnings of Subs (1,212) 0 0 0 0 0 (1,212) 1,212 [A] 0
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Income Before
Interest Charges 14,623 36,978 398 78 430 0 52,506 (16,421) 36,085
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Interest Charges:
Long-Term Debt 0 15,219 27 0 0 0 15,246 0 15,246
Short-Term Debt 781 3,437 161 85 0 0 4,464 (968)[C] 3,496
Other 27 412 0 0 0 0 439 0 439
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Total Interest Charges 808 19,068 188 85 0 0 20,149 (968) 19,181
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Income(Loss) from Continuing
Operations Before Preferred
Dividend Requirements of
of Subsidiary 13,815 17,910 210 (7) 430 0 32,357 (15,453) 16,904
Preferred Dividend
Requirements of Subsidiary 0 3,088 0 0 0 0 3,088 0 3,088
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Income(Loss) from
Continuing Operations 13,815 14,822 210 (7) 430 0 29,269 (15,453) 13,816
Equity in Undistributed
Earnings of Discontinued
Subsidiaries (2,830) 0 0 0 0 0 (2,830) 2,830 [A] 0
Loss from Discontinued
Operations - Net 0 0 0 0 (2,458) (372) (2,830) 0 (2,830)
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Net Income(Loss)
Applicable to
Common Stock $10,985 $14,822 $210 ($7) ($2,028) ($372) $23,609 ($12,623) $10,986
============ ========== ========= =========== ========== ========= ========== ========== ==========
<FN>
* SJ EnerTrade became a wholly-owned subsidiary of South Jersey Energy Company on July 1, 1998.
</FN>
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</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<CAPTION>
South South
South Jersey Jersey Energy &
Jersey Gas Energy SJ Minerals, R&T Elim.
Industries, Company Company EnerTrade, Inc. Group, & Consd.
Inc. Consd. Consd. Inc. Consd. Inc. Total Adjust. Total
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
<S>
Retained Earnings - Beginning $49,104 $56,120 ($297) $0 ($2,296) ($6,556) $96,075 ($47,037)[B] $49,038
Net Income (Loss) Applic to
Common Stock 10,984 14,822 210 (7) (2,028) (372) 23,609 (12,623) 10,986
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
60,088 70,942 (87) (7) (4,324) (6,928) 119,684 (59,660) 60,024
Dividends Declared -
Common Stock 15,517 16,667 0 0 0 0 32,184 (16,667)[C] 15,517
------------ ---------- --------- ----------- ---------- --------- ---------- ---------- ----------
Retained Earnings - Ending $44,571 $54,275 ($87) ($7) ($4,324) ($6,928) $87,500 ($42,993) $44,507
============ ========== ========= =========== ========== ========= ========== ========== ==========
<FN>
* SJ EnerTrade became a wholly-owned subsidiary of South Jersey Energy Company on July 1, 1998.
</FN>
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</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<S> <C> <C>
[A] Dividends from Subsidiaries $16,667
Investment in Subsidiaries 4,042
Equity in Undistributed Earnings
of Subsidiaries $1,212
Equity in Undistributed Earnings
of Discontinued Subsidiaries 2,830
Retained Earnings - Dividends Declared - Common Stock 16,667
To eliminate intercompany dividends paid and
equity in undistributed earnings recorded by
South Jersey Industries, Inc.
[B] Retained Earnings - 1/1/98 $47,037
Accumulated Deferred Federal Income Taxes - Noncurrent Liability 60
Accumulated Depreciation - 1/1/98 18
Investment in Subsidiaries $46,971
Nonutility Property 144
To eliminate prior inter-company gain and
retained earnings of subsidiaries at 1/1/98
previously recorded by South Jersey Industries,
Inc. under the equity method of accounting.
[C] Operating Revenues - Utility $1,032
Operating Revenues - Nonutility 983
Gas Purchased for Resale $998
Operating Expense - Nonutility 49
Interest Expense - Short-Term Debt 968
To eliminate intercompany revenue and expense.
[D] Accumulated Depreciation $2
Depreciation $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, 1998
(In Thousands)
<CAPTION>
South South
South Jersey Jersey Energy &
Jersey Gas Energy Minerals, R&T Elim.
Industries, Company Company Inc. Group, & Consd.
Inc. Consd. Consd. Consd. Inc. Total Adjust. Total
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $0 $678,675 $0 $0 $0 $678,675 $0 $678,675
Gas Plant Acquisition
Adjustment - Net 0 1,851 0 0 0 1,851 0 1,851
Gas Stored Underground 0 1,322 0 0 0 1,322 0 1,322
Accumulated Depreciation and
Amortization 0 (179,605) 0 0 0 (179,605) 0 (179,605)
Nonutility Property and
Equipment, at cost 1,675 0 71 1,379 0 3,125 (144)[4] 2,981
Accumulated Depreciation (160) 0 (17) (808) 0 (985) 20 [5] (965)
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Property, Plant and
Equipment - Net 1,515 502,243 54 571 0 504,383 (124) 504,259
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Investments:
Investments in Subsidiaries 177,319 0 0 0 0 177,319 (177,319)[1] 0
Available-for-Sale Securities 46 885 0 0 0 931 0 931
Investment in Affiliate 0 0 1,440 0 0 1,440 0 1,440
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Investments 177,365 885 1,440 0 0 179,690 (177,319) 2,371
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Current Assets:
Cash and Cash Equivalents 286 4,380 465 1,505 3 6,639 0 6,639
Notes Receivable -
Associated Companies 7,490 0 0 11,795 755 20,040 (20,040)[3] 0
Notes Receivable - Affiliate 0 0 4,350 0 0 4,350 0 4,350
Accounts Receivable 292 28,669 13,644 352 0 42,957 (357)[2,8] 42,600
Unbilled Revenues 0 18,998 491 0 0 19,489 0 19,489
Provision for Uncollectibles 0 (1,032) (115) (136) 0 (1,283) 0 (1,283)
Accounts Receivable -
Associated Companies 349 102 125 63 4 643 (643)[2] 0
Natural Gas in Storage,
Average Cost 0 27,619 0 0 0 27,619 0 27,619
Materials and Supplies,
Average Cost 0 4,051 0 0 0 4,051 0 4,051
Assets of Discontinued Businesses
Held for Disposal 0 0 0 336 574 910 0 910
Accumulated Deferred Income Taxes 5 672 29 0 7 713 (713)[6] 0
Prepaid Taxes 486 12,597 175 420 172 13,850 0 13,850
Prepayments and
Other Current Assets 14 1,638 172 22 15 1,861 0 1,861
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Current Assets 8,922 97,694 19,336 14,357 1,530 141,839 (21,753) 120,086
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Accounts Receivable - Merchandise 0 990 564 0 0 1,554 0 1,554
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Regulatory and Other
Non-Current Assets:
Gross Receipts & Franchise Taxes 0 3,585 0 0 0 3,585 0 3,585
Environmental Remediation Costs 0 78,091 0 0 0 78,091 0 78,091
Accumulated Deferred Income Taxes (92) 9,489 104 1,685 1,018 12,204 (12,204)[7] 0
Income Taxes -
Flowthrough Depreciation 0 13,021 0 0 0 13,021 0 13,021
Deferred Fuel Costs - Net 0 7,857 0 0 0 7,857 0 7,857
Deferred Postretirement
Benefit Costs 0 5,522 0 0 0 5,522 0 5,522
Other 0 10,922 0 827 0 11,749 0 11,749
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Regulatory and Other
Non-Current Assets (92) 128,487 104 2,512 1,018 132,029 (12,204) 119,825
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Assets $187,710 $730,299 $21,498 $17,440 $2,548 $959,495 ($211,400) $748,095
============ ========== ========= ========== ========== ========== =========== ==========
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SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(In Thousands)
South South
South Jersey Jersey Energy &
Jersey Gas Energy Minerals, R&T Elim.
Industries, Company Company Inc. Group, & Consd.
Inc. Consd. Consd. Consd. Inc. Total Adjust. Total
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Capitalization and Liabilities
Common Equity:
Common Stock SJI
Par Value $1.25 a share
Authorized - 20,000,000 shares
Outstanding - 10,778,990 shares $13,474 $0 $0 $0 $0 $13,474 $0 $13,474
Common Stock - Subsidiaries 0 5,848 50 13,283 1,000 20,181 (20,181)[1] 0
Premium on Common Stock 111,253 102,817 2,000 1,584 7,800 225,454 (114,201)[1] 111,253
Retained Earnings 44,571 54,275 (87) (4,323) (6,928) 87,508 (43,001)[1,4,5 44,507
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Common Equity 169,298 162,940 1,963 10,544 1,872 346,617 (177,383) 169,234
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Preferred Stock and
Securities of Subsidiary:
Series A, 4.70%- 2,100 shares 0 210 0 0 0 210 0 210
Series B, 8% -19,242 shares 0 1,924 0 0 0 1,924 0 1,924
8.35% Company - Guaranteed
Mandatorily Redeemable -
1,400,000 shares 0 35,000 0 0 0 35,000 0 35,000
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Preferred Stock and
Securities of Subsidiary 0 37,134 0 0 0 37,134 0 37,134
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Long-Term Debt (less current
maturities & sinking fund
requirements) 0 194,710 0 0 0 194,710 0 194,710
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Current Liabilities:
Notes Payable to Banks 0 97,000 0 0 0 97,000 0 97,000
Current Maturities of
Long-Term Debt 0 8,876 0 0 0 8,876 0 8,876
Notes Payable -
Associated Companies 12,550 0 7,460 30 0 20,040 (20,040)[3] 0
Accounts Payable 374 40,540 11,196 197 11 52,318 (358)[2,8] 51,960
Accounts Payable to
Associated Companies 253 283 83 16 7 642 (642)[2] 0
Customer Deposits 0 5,576 0 0 0 5,576 0 5,576
Accumulated Deferred Income Taxes 5 6,923 60 (3) 6 6,991 (713)[6] 6,278
Taxes Accrued 1 1,387 150 17 (24) 1,531 0 1,531
Environmental Remediation Costs 55 8,752 0 861 0 9,668 0 9,668
Interest Accrued 0 5,618 0 0 0 5,618 0 5,618
Dividends Declared 3,880 41 0 0 0 3,921 0 3,921
Other Current Liabilities 240 1,603 568 1,877 183 4,471 0 4,471
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Current Liabilities 17,358 176,599 19,517 2,995 183 216,652 (21,753) 194,899
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Deferred Credits and
Other Non-Current Liabilities:
Pension and Other
Postretirement Benefits 237 13,297 71 355 267 14,227 0 14,227
Deferred Income Taxes - Net 45 90,596 (53) 0 225 90,813 (12,264)[4,7] 78,549
Investment Tax Credit 0 5,239 0 0 0 5,239 0 5,239
Environmental Remediation Costs 192 44,187 0 3,546 0 47,925 0 47,925
Other 581 5,597 0 0 0 6,178 0 6,178
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Def. Credits and
Other Non-Current Liabilities 1,055 158,916 18 3,901 492 164,382 (12,264) 152,118
------------ ---------- --------- ---------- ---------- ---------- ----------- ----------
Total Capitalization
and Liabilities $187,710 $730,299 $21,498 $17,440 $2,548 $959,495 ($211,400) $748,095
============ ========== ========= ========== ========== ========== =========== ==========
- 12 -
</TABLE>
<TABLE>
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 1998
(In Thousands)
<S> <C> <C>
[1] Common Stock - Subsidiaries $20,181
Premium on Common Stock 114,201
Retained Earnings 42,937
Investment in Subsidiaries $177,319
To eliminate South Jersey Industries, Inc. investment in subsidiaries
which is maintained on the equity method of accounting.
[2] Accounts Payable - Associated Companies $642
Accounts Payable 3
Accounts Receivable - Associated Companies $643
Accounts Receivable 2
To eliminate intercompany accounts receivable and payable.
[3] Notes Payable - Associated Companies $20,040
Notes Receivable - Associated Companies $20,040
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 $20
Retained Earnings $20
To eliminate South Jersey Industries, Inc. depreciation on Millville property gain.
[6] Accumulated Deferred Income Taxes - Current Liability $713
Accumulated Deferred Income Taxes - Current Asset $713
To net current accumulated DFIT Asset and Liability
[7] Accumulated Deferred Income Taxes - Noncurrent Liability $12,204
Accumulated Deferred Income Taxes - Noncurrent Asset $12,204
To net noncurrent accumulated DFIT Asset and Liability
[8] Accounts Payable $355
Accounts Receivable $355
To eliminate intercompany gas receivable and payable between
South Jersey Gas Company and South Jersey Energy Company.
- 13 -
</TABLE>
<TABLE>
SOUTH JERSEY GAS COMPANY
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<CAPTION>
South Jersey Eliminations
South Jersey Gas Company & Consolidated
Gas Company Capital Trust Total Adjustments Total
------------- -------------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Utility $299,070 $0 $299,070 $0 $299,070
Nonutility 0 3,013 3,013 (3,013)[B] 0
------------- -------------- ---------- --------------- -------------
Total Operating Revenues 299,070 3,013 302,083 (3,013) 299,070
------------- -------------- ---------- --------------- -------------
Operating Expenses:
Gas Purchased for Resale 174,822 0 174,822 0 174,822
Utility Operations 42,268 0 42,268 0 42,268
Nonutility Operations 0 0 0 0 0
Maintenance 5,282 0 5,282 0 5,282
Depreciation 17,120 0 17,120 0 17,120
Current Federal and State Income Taxes 5,842 0 5,842 0 5,842
Deferred Federal and State Income Taxes 6,415 0 6,415 0 6,415
Other Taxes 10,343 0 10,343 0 10,343
------------- -------------- ---------- --------------- -------------
Total Operating Expenses 262,092 0 262,092 0 262,092
------------- -------------- ---------- --------------- -------------
Operating Income 36,978 3,013 39,991 (3,013) 36,978
Other Income:
Dividends from Subsidiary 90 0 90 (90)[A] 0
Equity in Undistributed Earnings of Subsidiary 0 0 0 0 0
------------- -------------- ---------- --------------- -------------
Income Before Interest Charges 37,068 3,013 40,081 (3,103) 36,978
------------- -------------- ---------- --------------- -------------
Interest Charges:
Long-Term Debt 18,232 0 18,232 (3,013)[B] 15,219
Short-Term Debt 3,437 0 3,437 0 3,437
Other 412 0 412 0 412
------------- -------------- ---------- --------------- -------------
Total Interest Charges 22,081 0 22,081 (3,013) 19,068
------------- -------------- ---------- --------------- -------------
Income from Continuing Operations Before
Preferred Dividend Requirements of Subsidiary 14,987 3,013 18,000 (90) 17,910
Preferred Dividend Requirements of Subsidiary 165 2,923 3,088 0 3,088
------------- -------------- ---------- --------------- -------------
Income from Continuing Operations 14,822 90 14,912 (90) 14,822
Equity in Undistributed Earnings of
Discontinued Subsidiaries 0 0 0 0 0
Loss from Discontinued Operations - Net 0 0 0 0 0
------------- -------------- ---------- --------------- -------------
Net Income Applicable to Common Stock $14,822 $90 $14,912 ($90) $14,822
============= ============== ========== =============== =============
- 14 -
</TABLE>
<TABLE>
SOUTH JERSEY GAS COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<CAPTION>
South Jersey Eliminations
South Jersey Gas Company & Consolidated
Gas Company Capital Trust Total Adjustments Total
------------- -------------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Retained Earnings - Beginning $56,120 $0 $56,120 $0 $56,120
Net Income Applic to Common Stock 14,822 90 14,912 (90) 14,822
------------- -------------- ---------- --------------- -------------
70,942 90 71,032 (90) 70,942
Dividends Declared - Common Stock 0 90 90 (90)[A] 0
------------- -------------- ---------- --------------- -------------
Retained Earnings - Ending $70,942 $0 $70,942 $0 $70,942
============= ============== ========== =============== =============
- 15 -
</TABLE>
<TABLE>
SOUTH JERSEY GAS COMPANY
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<S> <C> <C>
[A] Dividends from Subsidiary $90
Retained Earnings - Dividends Declared - Common Stock $90
To eliminate intercompany dividends
and interest paid
[B] Operating Revenues - Nonutility $3,013
Interest Expense - Long-Term Debt $3,013
To eliminate intercompany interest paid
- 16 -
</TABLE>
<TABLE>
SOUTH JERSEY GAS COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(In Thousands)
<CAPTION>
South
Jersey South Jersey Eliminations
Gas Gas Company & Consolidated
Company Capital Trust Total Adjustments Total
---------- -------------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $678,675 $0 $678,675 $0 $678,675
Gas Plant Acquisition Adjustment - Net 1,851 0 1,851 0 1,851
Gas Stored Underground 1,322 0 1,322 0 1,322
Accumulated Depreciation and Amortization (179,605) 0 (179,605) 0 (179,605)
Nonutility Property and Equipment, at cost 0 0 0 0 0
Accumulated Depreciation 0 0 0 0 0
---------- -------------- ---------- -------------- --------------
Property, Plant and Equipment - Net 502,243 0 502,243 0 502,243
---------- -------------- ---------- -------------- --------------
Investments:
Investment in Subsidiary 1,082 0 1,082 (1,082)[1] 0
Available-for-Sale Securities 885 0 885 0 885
Investment in Affiliate 0 0 0 0 0
---------- -------------- ---------- -------------- --------------
Total Investments 1,967 0 1,967 (1,082) 885
---------- -------------- ---------- -------------- --------------
Current Assets:
Cash and Cash Equivalents 4,380 0 4,380 0 4,380
Notes Receivable - Associated Companies 0 36,082 36,082 (36,082)[1] 0
Notes Receivable - Affiliate 0 0 0 0 0
Accounts Receivable 28,669 0 28,669 0 28,669
Unbilled Revenues 18,998 0 18,998 0 18,998
Provision for Uncollectibles (1,032) 0 (1,032) 0 (1,032)
Accounts Receivable - Associated Companies 102 0 102 0 102
Natural Gas in Storage, Average Cost 27,619 0 27,619 0 27,619
Materials and Supplies, Average Cost 4,051 0 4,051 0 4,051
Assets of Discontinued Businesses Held for Disposal 0 0 0 0 0
Accumulated Deferred Income Taxes 672 0 672 0 672
Prepaid Taxes 12,597 0 12,597 0 12,597
Prepayments and Other Current Assets 1,638 0 1,638 0 1,638
---------- -------------- ---------- -------------- --------------
Total Current Assets 97,694 36,082 133,776 (36,082) 97,694
---------- -------------- ---------- -------------- --------------
Accounts Receivable - Merchandise 990 0 990 0 990
---------- -------------- ---------- -------------- --------------
Regulatory and Other Non-Current Assets:
Gross Receipts & Franchise Taxes 3,585 0 3,585 0 3,585
Environmental Remediation Costs 78,091 0 78,091 0 78,091
Accumulated Deferred Income Taxes 9,489 0 9,489 0 9,489
Income Taxes - Flowthrough Depreciation 13,021 0 13,021 0 13,021
Deferred Fuel Costs - Net 7,857 0 7,857 0 7,857
Deferred Postretirement Benefit Costs 5,522 0 5,522 0 5,522
Other 10,922 0 10,922 0 10,922
---------- -------------- ---------- -------------- --------------
Total Regulatory and Other Non-Current Assets 128,487 0 128,487 0 128,487
---------- -------------- ---------- -------------- --------------
Total Assets $731,381 $36,082 $767,463 ($37,164) $730,299
========== ============== ========== ============== ==============
- 17 -
SOUTH JERSEY GAS COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(In Thousands)
South
Jersey South Jersey Eliminations
Gas Gas Company & Consolidated
Company Capital Trust Total Adjustments Total
---------- -------------- ---------- -------------- --------------
Capitalization and Liabilities
Common Equity:
Common Stock SJG
Par Value $2.50 a share
Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares 5,848 0 $5,848 $0 $5,848
Common Stock - Subsidiary 0 1,082 1,082 (1,082)[1] 0
Premium on Common Stock 102,817 0 102,817 0 102,817
Retained Earnings 54,275 0 54,275 0 54,275
---------- -------------- ---------- -------------- --------------
Total Common Equity 162,940 1,082 164,022 (1,082) 162,940
---------- -------------- ---------- -------------- --------------
Preferred Stock and Securities of Subsidiary:
Series A, 4.70%- 2,100 shares 210 0 210 0 210
Series B, 8% -19,242 shares 1,924 0 1,924 0 1,924
8.35% Company - Guaranteed Mandatorily
Redeemable - 1,400,000 shares 0 35,000 35,000 0 35,000
---------- -------------- ---------- -------------- --------------
Total Preferred Stock and Securities of Subsidiary 2,134 35,000 37,134 0 37,134
---------- -------------- ---------- -------------- --------------
Long-Term Debt (less current maturities
& sinking fund requirements) 230,792 0 230,792 (36,082)[1] 194,710
---------- -------------- ---------- -------------- --------------
Current Liabilities:
Notes Payable to Banks 97,000 0 97,000 0 97,000
Current Maturities of Long-Term Debt 8,876 0 8,876 0 8,876
Notes Payable - Associated Companies 0 0 0 0 0
Accounts Payable 40,540 0 40,540 0 40,540
Accounts Payable to Associated Companies 283 0 283 0 283
Customer Deposits 5,576 0 5,576 0 5,576
Accumulated Deferred Income Taxes 6,923 0 6,923 0 6,923
Taxes Accrued 1,387 0 1,387 0 1,387
Environmental Remediation Costs 8,752 0 8,752 0 8,752
Interest Accrued 5,618 0 5,618 0 5,618
Dividends Declared 41 0 41 0 41
Other Current Liabilities 1,603 0 1,603 0 1,603
---------- -------------- ---------- -------------- --------------
Total Current Liabilities 176,599 0 176,599 0 176,599
---------- -------------- ---------- -------------- --------------
Deferred Credits and Other Non-Current Liabilities:
Pension and Other Postretirement Benefits 13,297 0 13,297 0 13,297
Deferred Income Taxes - Net 90,596 0 90,596 0 90,596
Investment Tax Credit 5,239 0 5,239 0 5,239
Environmental Remediation Costs 44,187 0 44,187 0 44,187
Other 5,597 0 5,597 0 5,597
---------- -------------- ---------- -------------- --------------
Total Def. Credits and Other Non-Current Liabilities 158,916 0 158,916 0 158,916
---------- -------------- ---------- -------------- --------------
Total Capitalization and Liabilities $731,381 $36,082 $767,463 ($37,164) $730,299
========== ============== ========== ============== ==============
- 18 -
</TABLE>
<TABLE>
SOUTH JERSEY GAS COMPANY
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 1998
(In Thousands)
<S> <C> <C>
[1] Common Stock - Subsidiary $1,082
Long-Term Debt 36,082
Notes Receivable - Assoc. Co. $36,082
Investment in Subsidiary 1,082
To eliminate South Jersey Gas Company investment in subsidiary
which is maintained on the equity method of accounting.
- 19 -
</TABLE>
<TABLE>
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<CAPTION>
SJ Eliminations
South Jersey EnerTrade, & Consolidated
Energy Company Inc. Total Adjustments Total
--------------- -------------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Utility $0 $0 $0 $0 $0
Nonutility 148,485 2,825 151,310 (30)[B] 151,280
--------------- -------------- ---------- --------------- -------------
Total Operating Revenues 148,485 2,825 151,310 (30) 151,280
--------------- -------------- ---------- --------------- -------------
Operating Expenses:
Gas Purchased for Resale 0 0 0 0 0
Utility Operations 0 0 0 0 0
Nonutility Operations 148,143 2,523 150,666 (30)[B] 150,636
Maintenance 8 0 8 0 8
Depreciation 11 0 11 0 11
Current Federal and State Income Taxes 118 84 202 0 202
Deferred Federal and State Income Taxes (12) (23) (35) 0 (35)
Other Taxes 60 0 60 0 60
--------------- -------------- ---------- --------------- -------------
Total Operating Expenses 148,328 2,584 150,912 (30) 150,882
--------------- -------------- ---------- --------------- -------------
Operating Income 157 241 398 0 398
Other Income:
Dividends from Subsidiary 0 0 0 0 0
Equity in Undistributed Earnings of Subsidiary 92 0 92 (92)[A] 0
--------------- -------------- ---------- --------------- -------------
Income Before Interest Charges 249 241 490 (92) 398
--------------- -------------- ---------- --------------- -------------
Interest Charges:
Long-Term Debt 27 0 27 0 27
Short-Term Debt 12 149 161 0 161
Other 0 0 0 0 0
--------------- -------------- ---------- --------------- -------------
Total Interest Charges 39 149 188 0 188
--------------- -------------- ---------- --------------- -------------
Income from Continuing Operations Before
Preferred Dividend Requirements of Subsidiary 210 92 302 (92) 210
Preferred Dividend Requirements of Subsidiary 0 0 0 0 0
--------------- -------------- ---------- --------------- -------------
Income from Continuing Operations 210 92 302 (92) 210
Equity in Undistributed Earnings of
Discontinued Subsidiaries 0 0 0 0 0
Loss from Discontinued Operations - Net 0 0 0 0 0
--------------- -------------- ---------- --------------- -------------
Net Income Applicable to Common Stock $210 $92 $302 ($92) $210
=============== ============== ========== =============== =============
- 20 -
</TABLE>
<TABLE>
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<CAPTION>
South Jersey SJ Eliminations
Energy EnerTrade, & Consolidated
Company Inc. Total Adjustments Total
--------------- -------------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Retained Earnings - Beginning ($297) $0 ($297) $0 ($297)
Net Income Applic to Common Stock 210 92 302 (92)[A] 210
--------------- -------------- ---------- --------------- -------------
(87) 92 5 (92) (87)
Dividends Declared - Common Stock 0 0 0 0 0
--------------- -------------- ---------- --------------- -------------
Retained Earnings - Ending ($87) $92 $5 ($92) ($87)
=============== ============== ========== =============== =============
- 21 -
</TABLE>
<TABLE>
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<S> <C> <C>
[A] Investment in Subsidiary $92
Equity in Undistributed Earnings
of Subsidiary $92
To eliminate equity in undistributed
earnings recorded by South Jersey
Energy Company
[B] Operating Revenues - Nonutility $30
Operating Expense - Nonutility $30
To eliminate intercompany revenue and expense.
- 22 -
</TABLE>
<TABLE>
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(In Thousands)
<CAPTION>
South
Jersey SJ Eliminations
Energy EnerTrade, & Consolidated
Company Inc. Total Adjustments Total
---------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $0 $0 $0 $0 $0
Gas Plant Acquisition Adjustment - Net 0 0 0 0 0
Gas Stored Underground 0 0 0 0 0
Accumulated Depreciation and Amortization 0 0 0 0 0
Nonutility Property and Equipment, at cost 65 6 71 0 71
Accumulated Depreciation (15) (2) (17) 0 (17)
---------- ------------- --------- ------------- -------------
Property, Plant and Equipment - Net 50 4 54 0 54
---------- ------------- --------- ------------- -------------
Investments:
Investment in Subsidiary 185 0 185 (185)[1] 0
Available-for-Sale Securities 0 0 0 0 0
Investment in Affiliate 0 1,440 1,440 0 1,440
---------- ------------- --------- ------------- -------------
Total Investments 185 1,440 1,625 (185) 1,440
---------- ------------- --------- ------------- -------------
Current Assets:
Cash and Cash Equivalents 452 13 465 0 465
Notes Receivable - Associated Companies 0 0 0 0 0
Notes Receivable - Affiliate 0 4,350 4,350 0 4,350
Accounts Receivable 12,625 1,019 13,644 0 13,644
Unbilled Revenues 491 0 491 0 491
Provision for Uncollectibles (115) 0 (115) 0 (115)
Accounts Receivable - Associated Companies 130 0 130 (5)[2] 125
Natural Gas in Storage, Average Cost 0 0 0 0 0
Materials and Supplies, Average Cost 0 0 0 0 0
Assets of Discontinued Businesses Held for Disposal 0 0 0 0 0
Accumulated Deferred Income Taxes 29 0 29 0 29
Prepaid Taxes 81 94 175 0 175
Prepayments and Other Current Assets 169 3 172 0 172
---------- ------------- --------- ------------- -------------
Total Current Assets 13,862 5,479 19,341 (5) 19,336
---------- ------------- --------- ------------- -------------
Accounts Receivable - Merchandise 564 0 564 0 564
---------- ------------- --------- ------------- -------------
Regulatory and Other Non-Current Assets:
Gross Receipts & Franchise Taxes 0 0 0 0 0
Environmental Remediation Costs 0 0 0 0 0
Accumulated Deferred Income Taxes 79 25 104 0 104
Income Taxes - Flowthrough Depreciation 0 0 0 0 0
Deferred Fuel Costs - Net 0 0 0 0 0
Deferred Postretirement Benefit Costs 0 0 0 0 0
Other 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Total Regulatory and Other Non-Current Assets 79 25 104 0 104
---------- ------------- --------- ------------- -------------
Total Assets $14,740 $6,948 $21,688 ($190) $21,498
========== ============= ========= ============= =============
- 23 -
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(In Thousands)
South
Jersey SJ Eliminations
Energy EnerTrade, & Consolidated
Company Inc. Total Adjustments Total
---------- ------------- --------- ------------- -------------
Capitalization and Liabilities
Common Equity:
Common Stock SJE
No Par Value
Authorized - 2,500 shares
Outstanding - 500 shares $50 $0 $50 $0 $50
Common Stock - Subsidiary 0 1 1 (1)[1] 0
Premium on Common Stock 2,000 99 2,099 (99)[1] 2,000
Retained Earnings (87) 85 (2) (85)[1] (87)
---------- ------------- --------- ------------- -------------
Total Common Equity 1,963 185 2,148 (185) 1,963
---------- ------------- --------- ------------- -------------
Preferred Stock and Securities of Subsidiary:
Series A, 4.70%- 2,100 shares 0 0 0 0 0
Series B, 8% -19,242 shares 0 0 0 0 0
8.35% Company - Guaranteed Mandatorily 0 0 0 0 0
Redeemable - 1,400,000 shares 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Total Preferred Stock and Securities of Subsidiary 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Long-Term Debt (less current maturities
& sinking fund requirements) 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Current Liabilities:
Notes Payable to Banks 0 0 0 0 0
Current Maturities of Long-Term Debt 0 0 0 0 0
Notes Payable - Associated Companies 1,375 6,085 7,460 0 7,460
Accounts Payable 10,697 499 11,196 0 11,196
Accounts Payable to Associated Companies 36 52 88 (5)[2] 83
Customer Deposits 0 0 0 0 0
Accumulated Deferred Income Taxes 59 1 60 0 60
Taxes Accrued 110 40 150 0 150
Environmental Remediation Costs 0 0 0 0 0
Interest Accrued 0 0 0 0 0
Dividends Declared 0 0 0 0 0
Other Current Liabilities 483 85 568 0 568
---------- ------------- --------- ------------- -------------
Total Current Liabilities 12,760 6,762 19,522 (5) 19,517
---------- ------------- --------- ------------- -------------
Deferred Credits and Other Non-Current Liabilities:
Pension and Other Postretirement Benefits 71 0 71 0 71
Deferred Income Taxes - Net (54) 1 (53) 0 (53)
Investment Tax Credit 0 0 0 0 0
Environmental Remediation Costs 0 0 0 0 0
Other 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Total Def. Credits and Other Non-Current Liabilities 17 1 18 0 18
---------- ------------- --------- ------------- -------------
Total Capitalization and Liabilities $14,740 $6,948 $21,688 ($190) $21,498
========== ============= ========= ============= =============
- 24 -
</TABLE>
<TABLE>
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 1998
(In Thousands)
<S> <C> <C>
[1] Common Stock - Subsidiary $1
Premium on Common Stock 99
Retained Earnings 85
Investment in Subsidiary $185
To eliminate South Jersey Energy Company, Inc. investment in subsidiary
which is maintained on the equity method of accounting.
[2] Accounts Payable - Associated Companies $5
Accounts Receivable - Associated Companies $5
To eliminate intercompany accounts receivable and payable.
- 25 -
</TABLE>
<TABLE>
ENERGY & MINERALS, INC.
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<CAPTION>
Energy & South Jersey Eliminations
Minerals, Fuel Company, & Consolidated
Inc. Inc. Total Adjustments Total
----------- -------------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Utility $0 $0 $0 $0 $0
Nonutility 822 0 822 0 822
----------- -------------- ---------- --------------- -------------
Total Operating Revenues 822 0 822 0 822
----------- -------------- ---------- --------------- -------------
Operating Expenses:
Gas Purchased for Resale 0 0 0 0 0
Utility Operations 0 0 0 0 0
Nonutility Operations 108 0 108 0 108
Maintenance 0 0 0 0 0
Depreciation 7 0 7 0 7
Current Federal and State Income Taxes (162) 0 (162) 0 (162)
Deferred Federal and State Income Taxes 418 0 418 0 418
Other Taxes 21 0 21 0 21
----------- -------------- ---------- --------------- -------------
Total Operating Expenses 392 0 392 0 392
----------- -------------- ---------- --------------- -------------
Operating Income 430 0 430 0 430
Other Income:
Dividends from Subsidiary 0 0 0 0 0
Equity in Undistributed Earnings of Subsidiary 0 0 0 0 0
----------- -------------- ---------- --------------- -------------
Income Before Interest Charges 430 0 430 0 430
----------- -------------- ---------- --------------- -------------
Interest Charges:
Long-Term Debt 0 0 0 0 0
Short-Term Debt 0 0 0 0 0
Other 0 0 0 0 0
----------- -------------- ---------- --------------- -------------
Total Interest Charges 0 0 0 0 0
----------- -------------- ---------- --------------- -------------
Income from Continuing Operations Before
Preferred Dividend Requirements of Subsidiary 430 0 430 0 430
Preferred Dividend Requirements of Subsidiary 0 0 0 0 0
----------- -------------- ---------- --------------- -------------
Income from Continuing Operations 430 0 430 0 430
Equity in Undistributed Earnings of
Discontinued Subsidiary (55) 0 (55) 55 [A] 0
Loss from Discontinued Subsidiaries - Net (2,403) (55) (2,458) 0 (2,458)
----------- -------------- ---------- --------------- -------------
Net Loss Applicable to Common Stock ($2,028) ($55) ($2,083) $55 ($2,028)
=========== ============== ========== =============== =============
- 26 -
</TABLE>
<TABLE>
ENERGY & MINERALS, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<CAPTION>
Energy & South Jersey Eliminations
Minerals, Fuel Company, & Consolidated
Inc. Inc. Total Adjustments Total
----------- -------------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Retained Earnings - Beginning ($2,296) ($1,454) ($3,750) $1,454 [B] ($2,296)
Net Loss Applic to Common Stock (2,028) (55) (2,083) 55 [A] (2,028)
----------- -------------- ---------- --------------- -------------
(4,324) (1,509) (5,833) 1,509 (4,324)
Dividends Declared - Common Stock 0 0 0 0 0
----------- -------------- ---------- --------------- -------------
Retained Earnings - Ending ($4,324) ($1,509) ($5,833) $1,509 ($4,324)
=========== ============== ========== =============== =============
- 27 -
</TABLE>
<TABLE>
ENERGY & MINERALS, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(In Thousands)
<S> <C> <C>
[A] Equity in Undistributed Earnings $55
of Subsidiary
Investment in Subsidiary $55
To eliminate equity in undistributed
earnings recorded by Energy & Minerals, Inc.
[B] Retained Earnings - 1/1/98 $1,454
Investment in Subsidiary $1,454
To eliminate retained earnings of
subsidiary at 1/1/98 previously recorded
by Energy & Minerals, Inc. under the
equity method of accounting.
- 28 -
</TABLE>
<TABLE>
ENERGY & MINERALS, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(In Thousands)
<CAPTION>
Energy & South Jersey Eliminations
Minerals, Fuel Company & Consolidated
Inc. Inc. Total Adjustments Total
---------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Property, Plant and Equipment:
Utility Plant, at original cost $0 $0 $0 $0 $0
Gas Plant Acquisition Adjustment - Net 0 0 0 0 0
Gas Stored Underground 0 0 0 0 0
Accumulated Depreciation and Amortization 0 0 0 0 0
Nonutility Property and Equipment, at cost 871 508 1,379 0 1,379
Accumulated Depreciation (739) (69) (808) 0 (808)
---------- ------------- --------- ------------- -------------
Property, Plant and Equipment - Net 132 439 571 0 571
---------- ------------- --------- ------------- -------------
Investments:
Investment in Subsidiary (450) 0 (450) 450 [1] 0
Available-for-Sale Securities 0 0 0 0 0
Investment in Affiliate 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Total Investments (450) 0 (450) 450 0
---------- ------------- --------- ------------- -------------
Current Assets:
Cash and Cash Equivalents 1,503 2 1,505 0 1,505
Notes Receivable - Associated Companies 11,795 0 11,795 0 11,795
Notes Receivable - Affiliate 0 0 0 0 0
Accounts Receivable 352 0 352 0 352
Unbilled Revenues 0 0 0 0 0
Provision for Uncollectibles (136) 0 (136) 0 (136)
Accounts Receivable - Associated Companies 63 0 63 0 63
Natural Gas in Storage, Average Cost 0 0 0 0 0
Materials and Supplies, Average Cost 0 0 0 0 0
Assets of Discontinued Businesses Held for Disposal 336 0 336 0 336
Accumulated Deferred Income Taxes 1 0 1 (1)[2] 0
Prepaid Taxes 344 76 420 0 420
Prepayments and Other Current Assets 22 0 22 0 22
---------- ------------- --------- ------------- -------------
Total Current Assets 14,280 78 14,358 (1) 14,357
---------- ------------- --------- ------------- -------------
Accounts Receivable - Merchandise 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Regulatory and Other Non-Current Assets:
Gross Receipts & Franchise Taxes 0 0 0 0 0
Environmental Remediation Costs 0 0 0 0 0
Accumulated Deferred Income Taxes 1,552 444 1,996 (311)[3] 1,685
Income Taxes - Flowthrough Depreciation 0 0 0 0 0
Deferred Fuel Costs - Net 0 0 0 0 0
Deferred Postretirement Benefit Costs 0 0 0 0 0
Other 827 0 827 0 827
---------- ------------- --------- ------------- -------------
Total Regulatory and Other Non-Current Assets 2,379 444 2,823 (311) 2,512
---------- ------------- --------- ------------- -------------
Total Assets $16,341 $961 $17,302 $138 $17,440
========== ============= ========= ============= =============
- 29 -
ENERGY & MINERALS, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(In Thousands)
Energy & South Jersey Eliminations
Minerals, Fuel Company & Consolidated
Inc. Inc. Total Adjustments Total
---------- ------------- --------- ------------- -------------
Capitalization and Liabilities
Common Equity:
Common Stock EMI
No Par Value
Authorized - 500,000 shares
Outstanding - 98,341 shares $13,283 $0 $13,283 $0 $13,283
Common Stock - Subsidiary 0 0 0 0 0
Premium on Common Stock 1,584 1,059 2,643 (1,059)[1] 1,584
Retained Earnings (4,323) (1,509) (5,832) 1,509 [1] (4,323)
---------- ------------- --------- ------------- -------------
Total Common Equity 10,544 (450) 10,094 450 10,544
---------- ------------- --------- ------------- -------------
Preferred Stock and Securities of Subsidiary:
Series A, 4.70%- 2,100 shares 0 0 0 0 0
Series B, 8% -19,242 shares 0 0 0 0 0
8.35% Company - Guaranteed Mandatorily
Redeemable - 1,400,000 shares 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Total Preferred Stock and Securities of Subsidiary 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Long-Term Debt (less current maturities
& sinking fund requirements) 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Current Liabilities:
Notes Payable to Banks 0 0 0 0 0
Current Maturities of Long-Term Debt 0 0 0 0 0
Notes Payable - Associated Companies 0 30 30 0 30
Accounts Payable 161 36 197 0 197
Accounts Payable to Associated Companies 15 1 16 0 16
Customer Deposits 0 0 0 0 0
Accumulated Deferred Income Taxes (5) 3 (2) (1)[2] (3)
Taxes Accrued 0 17 17 0 17
Environmental Remediation Costs 616 245 861 0 861
Interest Accrued 0 0 0 0 0
Dividends Declared 0 0 0 0 0
Other Current Liabilities 1,877 0 1,877 0 1,877
---------- ------------- --------- ------------- -------------
Total Current Liabilities 2,664 332 2,996 (1) 2,995
---------- ------------- --------- ------------- -------------
Deferred Credits and Other Non-Current Liabilities:
Pension and Other Postretirement Benefits 355 0 355 0 355
Deferred Income Taxes - Net 254 57 311 (311)[3] 0
Investment Tax Credit 0 0 0 0 0
Environmental Remediation Costs 2,524 1,022 3,546 0 3,546
Other 0 0 0 0 0
---------- ------------- --------- ------------- -------------
Total Def. Credits and Other Non-Current Liabilities 3,133 1,079 4,212 (311) 3,901
---------- ------------- --------- ------------- -------------
Total Capitalization and Liabilities $16,341 $961 $17,302 $138 $17,440
========== ============= ========= ============= =============
- 30 -
</TABLE>
<TABLE>
ENERGY & MINERALS, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 1998
(In Thousands)
<S> <C> <C>
[1] Premium on Common Stock $1,059
Investment in Subsidiary 450
Retained Earnings $1,509
To eliminate Energy & Minerals, Inc. investment in subsidiary
which is maintained on the equity method of accounting.
[2] Accumulated Deferred Income Taxes - Current Liability $1
Accumulated Deferred Income Taxes - Current Asset $1
To net current accumulated DFIT Asset and Liability
[3] Accumulated Deferred Income Taxes - Noncurrent Liability $311
Accumulated Deferred Income Taxes - Noncurrent Asset $311
To net noncurrent accumulated DFIT Asset and Liability
- 31 -
</TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Consolidation - The consolidating financial statements include the accounts
of South Jersey Industries, Inc. (SJI) and its subsidiaries. All
significant intercompany accounts and transactions were eliminated.
Estimates and Assumptions - Our financial statements are prepared to
conform with generally accepted accounting principles. Management makes
estimates and assumptions that affect the amounts reported in the financial
statements and
related disclosures. Therefore, actual results could differ from those
estimates.
Regulation - South Jersey Gas Company (SJG) is subject to the rules and
regulations of the New Jersey Board of Public Utilities (BPU). We maintain
our accounts according to the BPU's prescribed Uniform System of Accounts
(See Note 7).
Revenues - SJG and South Jersey Energy Company (SJE) bill customers
monthly. For customers not billed at the end of each month, an accrual is
made to recognize unbilled revenues from the date of the last bill to the
end of the month.
The BPU allows SJG to recover the excess cost of gas sold over the cost
included in base rates through the Levelized Gas Adjustment Clause (LGAC).
We collect these costs on a forecasted basis upon BPU order. SJG defers
under- or over-recoveries of gas costs and includes them in the following
year's LGAC. We pay interest on overcollected LGAC balances based on SJG's
return on rate base determined in base rate proceedings.
SJG's tariff also includes a Temperature Adjustment Clause (TAC), a
Remediation Adjustment Clause (RAC) and a Demand Side Management Clause
(DSMC). Our TAC reduces the impact of temperature fluctuations on SJG and
its customers. The RAC recovers remediation costs of former gas
manufacturing plants and the DSMC recovers costs associated with our
conservation plan. TAC adjustments affect revenue, income and cash flows
since colder than normal weather can generate credits to customers, while
warmer than normal weather during the winter season can result in
additional billings. RAC adjustments do not directly affect earnings
because we defer and recover these costs through rates over 7-year
amortization periods (See Note 13). DSMC adjustments are not significant
and do not affect earnings.
Property, Plant & Equipment - For regulatory purposes, utility plant is
stated at original cost. Nonutility plant is stated at cost. The cost of
adding, replacing and renewing property is charged to the appropriate plant
account.
- 32 -
Depreciation and Amortization - We depreciate utility plant on a straight-
line basis over the estimated remaining lives of the various property
classes. These estimates are periodically reviewed and adjusted as required
after BPU approval. The composite annual rate for all depreciable utility
property was approximately 2.8% in 1998. Except for extraordinary
retirements, accumulated depreciation is charged with the cost of
depreciable utility property retired, and removal costs less salvage. The
gas plant acquisition adjustment is amortized on a straight-line basis over
40 years. The unamortized balance of $1.9 million at December 31, 1998, is
not included in rate base. Nonutility property depreciation is computed on
a straight-line basis over the estimated useful lives of the property,
ranging up to 35 years. Gain or loss on the disposition of nonutility
property is recognized in net income.
New Accounting Pronouncements - In June 1997, the FASB issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which became effective in 1998. This statement establishes standards for
reporting selected information about operating segments in SJI's interim
and annual financial statements. Adopting this statement did not
significantly change the presentation of SJI's financial information. We
adopted FASB No. 131 effective January 1, 1998 (See Note 8).
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits," to
standardize and simplify disclosure requirements about employers'
retirement benefit plans. SJI adopted this statement January 1, 1998 (See
Note 11).
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for our fiscal year
ending December 31, 2000. This statement establishes accounting and
reporting standards for derivative instruments, including those embedded in
other contracts, and for hedging activities. It requires recognizing
derivatives as assets or liabilities at fair value on the balance sheet.
We are currently evaluating the effects of FASB No. 133 on SJI's financial
condition and results of operations, which will vary based on our use of
derivative instruments at the time of adoption.
Income and Other Taxes - Deferred Income Taxes are provided for all
significant temporary differences between book and taxable income (See
Notes 5 & 6).
New Jersey adopted legislation reforming energy taxation in 1997. The law
eliminated the Gross Receipts & Franchise Tax (GRAFT) of approximately 13%
of utility revenue, replacing it with a combination of taxes. Beginning
January 1, 1998, retail sales and transportation of natural gas,
electricity and utility services are subject to the 6% State Sales and Use
Tax (SUT). Gas and electric utilities are also subject to the 9% State
Corporation Business Tax (CBT). To bridge the revenue gap the law created,
the State imposed a Transitional Energy Facilities Assessment (TEFA) on gas
volumes sold and transported. The TEFA will be phased out over 5 years
beginning January 1, 1999. The revised tax policy is expected to eliminate
- 33 -
tax differences between utility and non-utility suppliers, providing fair
competition and lower energy costs for consumers. The legislation required
SJG to prepay taxes which, primarily due to warmer weather, did not
materialize as expense during 1998. SJG will utilize the balance of these
prepayments in 1999. Additionally, the SUT is not included in reported
utility revenues or tax expense, as GRAFT was previously. Therefore, there
are equal reductions in these line items on the statement of consolidating
income (See Notes 6 & 7).
2. Preferred Stock and Securities of Subsidiary:
Redeemable Cumulative Preferred Stock - Annually, SJG is required to offer
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, SJG may not declare or pay
dividends or make distributions on its common stock. Preferred
Shareholders may elect a majority of SJG's directors if four or more
quarterly dividends are in arrears.
Mandatorily Redeemable Preferred Securities - In May 1997, SJG's statutory
trust subsidiary, SJG Capital Trust (Trust), sold $35.0 million of 8.35%
SJG-guaranteed Mandatorily Redeemable Preferred Securities. The Trust's
only assets are the 8.35% Deferrable Interest Subordinated Debentures
issued by SJG maturing April, 2037. This is also the maturity date of the
Preferred Securities. The Debentures and Preferred Securities are
redeemable at SJG's option at a price equal to 100% of the principal amount
at any time on or after April 30, 2002.
SJI has 2,500,000 authorized shares of Preference Stock, no par value,
which has not been issued. SJI has registered and reserved for issuance
15,000 shares of Series A Junior Participating Cumulative Preferred Stock
(Series A Preferred Stock) connected with adopting its Shareholder Rights
Plan (See Note 4).
3. Divestitures and Affiliations:
Divestitures - In December 1996, Energy & Minerals, Inc. (EMI), a SJI
subsidiary, sold the common stock of The Morie Company, Inc. (Morie), its
sand mining and processing subsidiary, for $55.3 million in cash. The net
book value of assets sold was approximately $27.9 million. We transferred
cash, certain real estate and other assets, along with certain liabilities
remaining after the sale, to EMI's books (See Note 13).
Also in December 1996, SJI developed a formal plan to discontinue the
operations of its construction and environmental services operations, R & T
Group, Inc. (R&T). SJI recognized a net loss of $2.4 million in 1996 on the
planned disposition of R&T's assets. In 1997, R&T sold all of its operating
assets, except some real estate.
- 34 -
In 1997 and 1998, SJI conducted tests to estimate the environmental
remediation costs for properties owned by South Jersey Fuel, Inc. (SJF), a
subsidiary of EMI, from its previously operated fuel oil business. SJI
reports the environmental remediation activity related to these properties
as discontinued operations. This reporting is consistent with previous
years (See Note 13).
Summarized operating results of the discontinued operations for 1998 were
(in thousands):
Loss before Income Taxes:
Sand Mining $ (3,697)
Construction (587)
Fuel Oil (72)
Income Tax Credits 1,526
--------
Loss from Discontinued Operations - Net $ (2,830)
========
Earnings per Common Share
from Discontinued Operations $ (0.26)
========
Affiliations - In 1996, SJF and Union Pacific Fuels, Inc. formed South
Jersey Resources Group, LLC (SJRG) to provide natural gas storage, peaking
services and transportation capacity for wholesale customers in New Jersey
and surrounding states. SJ EnerTrade, Inc. (EnerTrade) currently holds a
50% non-controlling interest in this affiliation and accounts for
the investment under the equity method.
In October 1998, SJI and Energy East Corporation announced plans to form a
jointly-owned limited liability company to market retail electricity and
energy management services. The LLC is intended to create significant
efficiencies and expand service capabilities for both companies in the
advent of electric utility restructuring legislation.
Also in October 1998, SJI and Conectiv announced plans for a joint customer
account services venture, Millennium Account Services, LLC, to provide
meter reading services in southern New Jersey beginning January 1999.
Customers should benefit from reduced meter reading costs resulting from
synergies that exist because of overlapping territories.
4. Common Stock:
SJI has 20,000,000 shares of authorized Common Stock. The following shares
were issued and outstanding:
- 35 -
Beginning of Year 10,771,413
New Issues During Year:
Employees' Stock Ownership Plan 3,875
Stock Option & Stock Appreciation
Rights Plan 1,952
Directors' Restricted Stock Plan 1,750
----------
End of Year 10,778,990
==========
The par value ($1.25 per share) of stock issued in 1998 was credited to
Common Stock. Net excess over par value of approximately $0.3 million was
credited to Premium on Common Stock.
Effective 1996, SJI adopted FASB Statement No. 123, "Accounting for Stock-
Based Compensation." This statement defines a fair value based method of
accounting for stock-based compensation. As permitted by the statement, we
elect to continue measuring compensation costs using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees." The pro forma effect of adopting the fair
value based method of accounting on net income and Earnings per Share (EPS)
is immaterial for the year ended December 31, 1998.
Stock Option and Stock Appreciation Rights Plan - Under this plan, not more
than 306,000 shares in the aggregate may be issued to SJI's officers and
other key employees. No options or stock appreciation rights may be granted
under the Plan after January 23, 2007. At December 31, 1998, SJI had 5,000
options outstanding, all exercisable at a price of $24.69 per share.
During 1998, 8,060 options were surrendered for the issuance of 1,952
shares. No options were granted in 1998. No stock appreciation rights were
issued under the Plan. Stock options outstanding at December 31, 1998, had
no effect on EPS.
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 SJI. As of December 31, 1998, SJI reserved 112,951
and 31,496 shares of authorized, but unissued, common stock for future
issuance to the DRP and ESOP, respectively.
Directors' Restricted Stock Plan - In September 1996, the board of
directors adopted a restricted stock plan. Under this Plan, SJI granted an
initial award of 13,800 shares in December 1996, at a market value of
$24.00 per share. The Plan also provides for annual awards and, in December
1998, we granted 1,750 additional shares. Initial awards vest over 5 years,
with 20% of those awards vesting annually. Annual awards vest on their
third anniversary. SJI holds shares issued as restricted stock until the
attached restrictions lapse. The stock's market value on the grant date is
recorded as compensation expense over the applicable vesting period.
- 36 -
Shareholder Rights Plan - In September 1996, the board of directors adopted
a shareholder rights plan providing for the distribution of one right for
each share of common stock outstanding on and after October 11, 1996. Each
right entitles its holder to purchase 1/1000 of one share of Series A
Preferred Stock at an exercise price of $90 (See Note 2).
The rights will not be exercisable until after a person or group acquires
10% or more of SJI's common stock. Each of the rights (except for those
held by the 10% holder) entitles the holder to purchase that number of
shares of SJI's common stock, or common stock of the acquiring company, at
a market value equal to two times the exercise price.
SJI may redeem the rights in whole, but not in part, for $.001 per right at
any time until ten days following the time the acquiring person or group
reached the 10% threshold. The rights will expire if not exercised or
redeemed by September 20, 2006.
5. Regulatory Assets and Deferred Credits:
Federal and Other Taxes: The primary asset created by adopting FASB
Statement 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 excess federal tax depreciation over book
depreciation on utility plant because of temporary differences for which,
prior to FASB No. 109, deferred taxes previously were not provided. SJG
previously flowed these tax benefits through in rates. SJG is recovering
the amortization of the regulatory asset through rates over 18 years which
began in December 1994.
The Investment Tax Credit (ITC) attributable to SJG was deferred and
continues to be amortized at the annual rate of 3%, which approximates the
life of related assets.
SJG deferred $11.8 million resulting from a change in the basis for
accruing GRAFT in 1978, and is amortizing it on a straight-line basis to
operations over 30 years beginning that same year.
6. Income and Other Taxes:
Total income taxes applicable to operations differs from the tax that would
have resulted by applying the statutory Federal Income Tax rate to 1998
pre-tax income for the following reasons (in thousands):
- 37 -
Tax at Statutory Rate $ 7,877
Increase (Decrease) Resulting from:
State Income Taxes 3,170
Amortization of ITC (393)
Tax Depreciation Under Book
Depreciation on Utility Plant 664
Other - Net 54
--------
Income Taxes as reported on the
Statements of Consolidated Income 11,860
Tax Associated with Discontinued Operations (1,526)
--------
Net Income Taxes $ 10,334
========
The provision for Income Taxes for 1998 is comprised of the following (in
thousands):
Current:
Federal $ 2,225
State 2,227
--------
Total Current 4,452
Deferred:
Federal -
Excess of Tax Depreciation Over
Book Depreciation - Net 5,308
Deferred Fuel Costs 1,397
Environmental Remediation Costs - Net 1,990
Amortization of Gross Receipts Taxes (155)
Alternative Minimum Tax (1,750)
Other - Net 68
State 943
--------
Total Deferred 7,801
ITC (393)
Income Taxes as reported on the --------
Statements of Consolidated Income 11,860
Tax Associated with Discontinued Operations (1,526)
--------
Net Income Taxes $ 10,334
========
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting and income tax purposes. Significant components of SJI's net
deferred tax liability at December 31, 1998 are as follows (in thousands):
- 38 -
Deferred Tax Liabilities:
Tax Depreciation Over Book Depreciation $ 66,966
Difference Between Book and Tax Basis of
Property 5,951
Deferred Fuel Costs 6,475
Deferred Regulatory Costs 776
Environmental Remediation Costs 7,925
Excess Protected 3,421
Gross Receipts Taxes 1,255
Other 1,277
---------
Total Deferred Tax Liabilities 94,046
Deferred Tax Assets:
Alternative Minimum Tax 3,135
ITC Basis Gross Up 2,802
Other 3,282
---------
Total Deferred Tax Assets 9,219
---------
Net Deferred Tax Liability $ 84,827
=========
The significant components of Other Taxes for 1998 are (in thousands):
TEFA $ 7,378
GRAFT 123
Other 2,977
---------
Total Other Taxes $ 10,478
=========
During 1998, SJG recorded an additional $12.0 million for SUT on utility
services through its consolidated balance sheet. As an agent for the
collection of SUT, we exclude these amounts from reported revenues and tax
expense (See Note 1).
7. Recent Regulatory Actions:
In July 1996, 1997 and 1998, SJG filed with the BPU to recover increased
remediation costs expended from August 1995 through July 1998 totaling $4.5
million. The BPU approved the 1996-1997 RAC filing in October 1998. We
updated the 1997-1998 RAC filing and included the results in the 1998-1999
RAC filing. The 1998-1999 RAC filing was updated in December 1998 to
request an increase of $5.0 million. Both filings are still pending at the
BPU.
In January 1997, the BPU granted SJG a total rate increase of $10.3
million. The $6.0 million base rate portion of the increase was based on a
9.62% rate of return on rate base, which included an 11.25% return on
common equity. The majority of this increase comes from residential and
- 39 -
small commercial customers. Part of the increase is recovered from service
fees which charge specific customers for costs they cause SJG to incur.
Additionally, SJG's threshold for sharing pre-tax margins generated by
interruptible and off-system sales and transportation (Sharing Formula)
increased from $4.0 million to $5.0 million. Later in 1997, the $5.0
million threshold increased by $500,000 - the annual revenue requirement
associated with completing a specific pipeline interconnection. At the end
of 1998, the threshold increased by $2.0 million, with the completion of
major construction projects. SJG keeps 100% of pre-tax margins up to the
threshold level and 20% of such margins above that level. In October 1998,
the BPU approved a revision to the Sharing Formula as part of an agreement
to modify SJG's TAC. The revision credits the first $750,000 above
the current threshold level to the LGAC customers. Thereafter, SJG keeps
20% of the pre-tax margins as it has historically.
As part of the tariff changes approved in the rate case, SJG began its
pilot program in April 1997, giving residential customers a choice of gas
supplier. During the initial enrollment period, which ended June 1997,
nearly 13,000 residential customers applied for this service. SJG began
transporting gas for these customers in August 1997. In June 1998, the BPU
expanded the number of potential participants to 25,000. There were 17,310
participants as of December 31, 1998. Participants' bills are reduced for
cost of gas charges and applicable taxes. The resulting decrease in
revenues is offset by a corresponding decrease in gas costs and taxes under
SJG's BPU-approved fuel clause. While the program reduces utility revenues,
it does not affect SJI's net income, financial condition or margins. We
also expanded the choices available to commercial and industrial customers,
including a new transportation tariff providing savings to qualified
customers.
In May 1997, SJG filed to recover additional postretirement benefit costs
of approximately $1.3 million annually. This recovery was approved in
December 1997 and began January 1998.
In September 1997, SJG filed with the BPU to adjust rates by replacing the
GRAFT with the SUT, CBT and TEFA (See Notes 1 & 5). The new rates were
effective January 1, 1998.
In September 1997 and 1998, SJG filed its annual LGAC, TAC and DSMC with
the BPU. The LGAC and DSMC cover the period November 1 through October 31
of each year. The TAC period runs from October 1 through May 31. In the
1997-1998 filing, SJG requested a $4.7 million increase in the annual LGAC
recovery which includes the 1996-1997 LGAC year. The 1997-1998 LGAC year
ended in October 1998 and the results of that year were rolled into the
1998-1999 LGAC filing. The 1998-1999 LGAC filing requested a decrease in
rates of $414,000 and resolution of prior filings. All filings are still
pending at the BPU. We believe the ultimate settlement of these filings
will not adversely affect SJI's financial position, results of operations
or liquidity.
- 40 -
In March 1998, the BPU approved new appliance service rates. The new rates
are competitive with those of other service providers in New Jersey and are
designed to increase earnings and cash flows. In April 1998, the BPU also
authorized SJG to offer new appliance service contract plans and to service
electric air conditioners.
In June 1998, SJG filed a petition with the BPU requesting a change to the
TAC. The request was granted in October 1998. As a result, SJG will
experience reduced fluctuations in income when weather is warmer or colder
than normal.
8. Segments of Business:
Information about SJI's operations in different industry segments for 1998
is presented below (in thousands):
Operating Revenues:
Gas Utility Operations $299,070
Other Industries 153,191
--------
Subtotal 452,261
Intersegment Sales (2,015)
--------
Total Operating Revenues $450,246
========
The significant portion of operating revenues from Other Industries is
attributable to SJE's wholesale electricity sales which began in January
1998. SJE exited this activity later in the year (See Note 3).
Operating Income:
Gas Utility Operations $ 49,234
Other Industries 640
---------
Subtotal 49,874
Income Taxes (11,860)
General Corporate Expense (1,929)
---------
Total Operating Income $ 36,085
=========
Depreciation, Depletion and Amortization:
Gas Utility Operations $ 19,014
Other Industries 28
Discontinued Operations 21
---------
Total $ 19,063
=========
- 41 -
Property Additions:
Gas Utility Operations $ 64,862
Other Industries 71
Discontinued Operations -
--------
Total $ 64,933
========
Identifiable Assets:
Gas Utility Operations $720,137
Other Industries 21,367
Discontinued Operations 2,380
--------
Subtotal 743,884
Corporate Assets 25,251
Intersegment Assets (21,040)
--------
Total Assets $748,095
========
SJI's interest expense relates primarily to SJG's borrowing and financing
activities. Interest income is essentially derived from borrowings between
the subsidiaries and is eliminated during consolidation. These amounts are
included in our statement of consolidating income and not shown above.
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 3).
Total Operating Revenues by industry segment include both sales to
unaffiliated customers, as reported in SJI's statement of consolidating
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, income taxes
and general corporate expenses, as shown on the statement of consolidating
income.
Identifiable Assets are those used in each segment of SJI's operations.
Corporate assets are principally cash and cash equivalents, land, buildings
and equipment held for corporate use.
9. Financial Instruments:
Long-Term Debt - The fair value of SJI's long-term debt, including current
maturities, as of December 31, 1998, is estimated to be $227.0 million
(carrying amount $203.6 million). This estimate is based on the interest
- 42 -
rates available to SJI at year end for debt with similar terms and
maturities. SJI retires debt when it is cost effective as permitted by the
debt agreements.
Other Financial Instruments - The carrying amounts of SJI's other financial
instruments approximate their fair values at December 31, 1998.
10. Unused Lines of Credit and Compensating Balances:
Unused lines of credit available at December 31, 1998, were approximately
$38.0 million. Borrowings under these lines of credit are at market rates.
The weighted borrowing cost, which changes daily, was approximately 5.81%
at December 31, 1998. Demand deposits are maintained with lending banks on
an informal basis and do not constitute compensating balances.
11. Pensions & Other Postretirement Benefits:
The following reflects the new disclosure requirements of FASB Statement
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits."
SJI has several defined benefit pension plans and other postretirement
benefit plans. The pension plans provide annuity payments to substantially
all full-time, regular employees upon retirement. The other postretirement
benefit plans provide health care and life insurance benefits to some
retired employees.
The BPU authorized SJG to recover costs related to postretirement benefits
other than pensions under the accrual method of accounting consistent with
FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." Amounts accrued prior to that authorization were
deferred and are being amortized as allowed by the BPU. The unamortized
balance amounting to $5.5 million at December 31, 1998 is recoverable in
rates. We are amortizing the major portion of this amount over 15 years
which started January 1998.
Net periodic benefit cost related to the pension and other postretirement
benefit insurance plans for 1998 consisted of the following components (in
thousands):
Pension Benefits Other Benefits
---------------- --------------
Service cost $1,912 $ 903
Interest cost 3,973 1,494
Expected return on plan assets (3,894) (417)
Amortization of transition obligation 72 796
Amortization of loss (gain) and other 292 (14)
------ ------
Net periodic benefit cost $2,355 $2,762
====== ======
- 43 -
A reconciliation of the Plans' benefit obligations, fair value of plan
assets, funded status and amounts recognized in SJI's consolidating balance
sheet follows (in thousands):
Pension Benefits Other Benefits
---------------- --------------
Change in Benefit Obligation:
Benefit obligation at beginning of year $56,753 $24,024
Service cost 1,912 903
Interest cost 3,973 1,494
Actuarial loss (gain) and other 3,783 (1,669)
Benefits paid (2,386) (504)
------- -------
Benefit obligation at end of year $64,035 $24,248
======= =======
Change in Plan Assets:
Fair value of plan assets at beginning
of year $46,875 $ 4,403
Actual return on plan assets 1,887 568
Employer contributions 1,600 2,505
Benefits paid (2,386) (504)
------- -------
Fair value of plan assets at end of year $47,976 $ 6,972
======= =======
Funded status $(16,059) $(17,276)
Unrecognized prior service cost 3,222 -
Unrecognized net transition obligation
assets 359 11,151
Unrecognized net loss (gain) and other 9,101 (1,105)
-------- --------
Accrued net benefit cost at end of year $ (3,377) $ (7,230)
======== ========
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets as of December 31, 1998, were $35.2
million, $28.4 million, and $26.2 million, respectively.
Assumptions used in the accounting for these plans were as follows (in
thousands):
Pension Benefits Other Benefits
---------------- --------------
Discount rate 6.75 6.75
Expected return on plan assets 9.00 9.00
Rate of compensation increase 4.10 -----
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation as of December 31, 1998, are: Medical and
Drug - 6.25% in 1998 for participants age 65 or older, grading to 5.5% in
- 44 -
2001, and 8.0% in 1998 for participants under age 65, grading to 5.5% in
2005. Dental - 7.25% in 1998, grading to 5.5% in 2005.
A 1% change in the assumed health care cost trend rates for SJI's
postretirement health care plans in 1998 would have the following effects:
Thousands of Dollars
1% Increase 1% Decrease
----------- -----------
Effect on the aggregate of the service
and interest cost components $397 $ (341)
Effect on the postretirement benefit
obligation $3,520 $(2,855)
12. Retained Earnings:
Restrictions exist under various loan agreements regarding the amount of
cash dividends or other distributions that we may pay on SJG's common
stock. SJI's total equity in its subsidiaries' retained earnings, which is
free of these restrictions, was approximately $42.7 million as of December
31, 1998.
13. Commitments and Contingencies:
Construction Commitments - SJI's estimated cost of construction and
environmental remediation programs for 1999 totals $53.2 million.
Commitments were made regarding these programs.
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 that any of these
contracts expires is 2000. The transportation and storage service
agreements between SJG and its interstate pipeline suppliers were made
under Federal Energy Regulatory Commission approved tariffs. SJG's
cumulative obligation for demand charges and reservation fees paid to
suppliers for these services is approximately $4.8 million per month,
recovered on a current basis through the LGAC.
Pending Litigation - SJI is subject to claims arising in the ordinary
course of business and other legal proceedings. We set up reserves when
these claims become apparent. We also maintain insurance and record
probable insurance recoveries relating to outstanding claims.
In 1996, a group of Atlantic City casinos filed a petition with the BPU
alleging overcharges of over $10.0 million, including interest. We reached
a settlement under which SJG will make no payments. The casinos issued
general releases to SJG and withdrew the petition in September 1998. In
return, SJG filed with the BPU to amend an existing rate schedule providing
the casinos with limited firm service which will better meet their needs.
- 45 -
Environmental Remediation Costs - SJI incurred and recorded costs for
environmental clean up of sites where SJG or its predecessors operated gas
manufacturing plants. SJG stopped manufacturing gas over 35 years ago. SJI
and some of its nonutility subsidiaries also recorded costs for
environmental clean up of sites where SJF previously operated a fuel oil
business and Morie maintained equipment, fueling stations and storage.
Since the early 1980s, SJI recorded environmental remediation costs of
$105.4 million, of which $47.8 million was spent as of December 31, 1998.
With the assistance of an outside consulting firm, we estimate that future
costs to clean up SJG's sites will range from $52.9 million to $160.3
million. We recorded the lower end of this range as a liability. It is
reflected on the 1998 consolidated balance sheet under the captions Current
Liabilities and Deferred Credits and Other Non-Current Liabilities (See
Note 1). SJG did not adjust the accrued liability for future insurance
recoveries, which management is pursuing. SJG received $4.2 million of
insurance recoveries as of December 31, 1998. We used these proceeds to
offset related legal fees and 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 costs 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 $98.6 million for the
remediation of these sites and spent $45.7 million through December 31,
1998.
SJG has two regulatory assets associated with environmental cost. The first
regulatory asset is titled Environmental Remediation Cost: Expended - Net.
These expenditures represent what was actually spent to clean up former gas
manufacturing plant sites. These costs meet the requirements of FASB
Statement No. 71, "Accounting for the Effects of Certain Types of
Regulation." The BPU allowed SJG to recover expenditures through July 1996
and petitions to recover costs through July 1998 are pending (See Note 7).
The other regulatory asset titled Environmental Remediation Cost: Liability
for Future Expenditures relates to estimated future expenditures determined
under the guidance of FASB Statement 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 on the
consolidating balance sheet under the captions, Current Liabilities and
Deferred Credits and Other Non-Current Liabilities. The deferred debit is a
regulatory asset under FASB No. 71. The BPU's intent, evidenced by current
practice, is to allow SJG to recover the deferred costs after they are
spent.
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, 1998, SJG's unamortized
remediation costs of $25.2 million are reflected on the consolidating
- 46 -
balance sheet under the caption Regulatory and Other Non-Current Assets.
Since BPU approval of the RAC in 1992, SJG recovered $16.3 million through
rates as of December 31, 1998 (See Note 7).
With Morie's sale, EMI assumed responsibility for environmental liabilities
which we estimate to range between $3.1 million and $9.7 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. Changes in the accrual are included in the statement of
consolidating income under the caption, Loss from Discontinued Operations -
Net.
SJI and SJF estimated their potential exposure for the future remediation
of four sites where fuel oil operations existed years ago. Estimates for
SJI's site range between $0.3 million and $0.9 million, while SJF's
estimated liability ranges from $1.3 million to $4.8 million for its three
sites. The lower ends of these ranges were recorded and are reflected on
the 1998 consolidating balance sheet under Current Liabilities and Deferred
Credits and Other Non-Current Liabilities as of December 31, 1998.
- 47 -
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).
- 48 -
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<ARTICLE> OPUR3
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-ASSETS> 748,095
<TOTAL-OPERATING-REVENUES> 450,246
<NET-INCOME> 10,986
</TABLE>
