SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File Number 1-6364
SOUTH JERSEY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1901645
(State of incorporation) (IRS employer identification no.)
1 South Jersey Plaza, Folsom, New Jersey 08037
(Address of principal executive offices, including zip code)
(609) 561-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock New York Stock Exchange
($1.25 par value per share) Philadelphia Stock Exchange
(Title of each class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of approximately 9,435,700 shares of voting stock
held by non-affiliates of the registrant as of March 1, 1999 was $229,405,456.
As of March 1, 1999, there were 10,780,042 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference:
In Part I of Form 10-K: Pages 13, 20, 21, 22, 23 and 25 of 1998
Annual Report to Shareholders
In Part II of Form 10-K: Page 1 and Pages 12 through 26 of 1998 Annual
Report to Shareholders
In Part III of Form 10-K: Pages 2 through 6, and 8 through 10 of the
Proxy Statement dated March 12, 1999 for the
1999 Annual Meeting of Shareholders
- Title Page -
PART I
Item 1. Business
General
The registrant, South Jersey Industries, Inc. (SJI), a New Jersey
corporation, was formed in 1969 for the purpose of owning and holding all of the
outstanding common stock of South Jersey Gas Company (SJG), a public utility,
and acquiring and developing non-utility lines of business. South Jersey Energy
Company (SJE), a wholly-owned subsidiary of SJI, provides services for the
acquisition and transportation of natural gas and electricity for commercial,
industrial and residential users. SJ EnerTrade, Inc. (EnerTrade), a wholly-
owned subsidiary of SJE formed in 1997, 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. Energy &
Minerals, Inc. (EMI), a wholly-owned subsidiary of SJI, principally manages
temporary cash investments derived from the sale of certain non-utility
businesses and related assets in 1996 and 1997, manages liabilities associated
with the discontinued operations of non-utility subsidiaries and owns the stock
of South Jersey Fuel, Inc. (SJF), an inactive non-utility subsidiary.
Financial Information About Industry Segments
Information regarding Industry Segments is incorporated by reference to
Note 8 on page 23 of SJI's Annual Report to Shareholders for the year ended
December 31, 1998 which is attached to this report. See Item 14(c)(13).
Description of Business
SJI is engaged in the business of operating, through subsidiaries, various
business enterprises. SJI's most significant subsidiary is SJG.
South Jersey Gas Company
Background
SJG, a New Jersey corporation, is an operating 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 by some of
its customers.
SJG's service territory includes 112 municipalities throughout Atlantic,
Cape May, Cumberland and Salem Counties and portions of Burlington, Camden and
Gloucester Counties, with an estimated permanent population of 1.1 million.
SJG serves 267,065 residential, commercial and industrial customers (at
December 31, 1998) in southern New Jersey. Gas sales and transportation for
1998 amounted to approximately 80,521,000 Mcf (thousand cubic feet), of which
approximately 46,862,000 Mcf was firm sales and transportation, 6,743,000 Mcf
was interruptible sales and transportation and 26,916,000 Mcf was off-system
sales. The breakdown of firm sales includes 36.2% residential, 10.3%
commercial, 5.1% cogeneration and electric generation, .7% industrial and 47.7%
transportation. At year-end 1998, SJG served 248,210 residential customers,
18,457 commercial customers and 398 industrial customers. This includes 1998
net additions of 6,078 residential customers, 420 commercial customers and no
industrial customers.
SJI-2
Under an agreement with Conectiv Inc., an electric utility serving southern
New Jersey, SJG supplies natural gas to several electric generation facilities.
This gas service is provided under the terms of a firm electric service tariff
approved by the New Jersey Board of Public Utilities (BPU) on a demand/commodity
basis. In 1998, 2.5 Bcf (billion cubic feet) was delivered under this
agreement.
SJG serviced 7 cogeneration facilities in 1998. Combined sales and
transportation of natural gas to such customers amounted to approximately 6.0
Bcf in 1998.
SJG makes wholesale gas sales for resale to gas marketers for ultimate
delivery to end users. These "off-system" sales are made possible through the
issuance by the Federal Energy Regulatory Commission (FERC) of Orders No. 547
and 636. Order No. 547 issued a blanket certificate of public convenience and
necessity authorizing all parties, which are not interstate pipelines, to make
FERC jurisdictional gas sales for resale at negotiated rates, while Order No.
636 allowed SJG to deliver gas at delivery points on the interstate pipeline
system other than its own city gate stations and release excess pipeline
capacity to third parties. During 1998, off-system sales amounted to 26.9 Bcf.
Also in 1998, capacity release and storage throughput amounted to 27.3 Bcf.
Supplies of natural gas available to SJG that are in excess of the quantity
required by those customers who use gas as their sole source of fuel (firm
customers) make possible the sale and transportation of gas on an interruptible
basis to commercial and industrial customers whose equipment is capable of using
natural gas or other fuels, such as fuel oil and propane. The term
"interruptible" is used in the sense that deliveries of natural gas may be
terminated by SJG at any time if this action is necessary to meet the needs of
higher priority customers as described in SJG's tariffs. Usage by interruptible
customers, excluding off-system customers, in 1998 amounted to approximately 6.7
Bcf, approximately 6.2 percent of the total throughput.
No material part of SJG's business is dependent upon a single customer or a
few customers.
Service Territory
The majority of the SJG's residential customers reside in the northern and
western portions of its service territory in Burlington, Camden, Salem and
Gloucester counties. A majority of new customers reside in this section of the
service territory, which includes the residential suburbs of Wilmington and
Philadelphia. The franchise area to the east is centered on Atlantic City and
the neighboring resort communities in Atlantic and Cape May counties, which
experience large population increases in the summer months. The impact of the
casino gaming industry on the Atlantic City area has resulted in the creation of
new jobs and the expansion of the residential and commercial infrastructure
necessary to support a developing year-round economy. Atlantic City is
experiencing a second wave of development as a result of casino gaming. The
centerpiece of this development is the recently completed multipurpose
convention center, accompanied by planned major hotel and entertainment
complexes. These facilities will be used to attract large conventions as well
as making Atlantic City into a family resort on a year-round basis.
Manufacturers or processors of sand, glass, farm products, paints,
chemicals and petroleum products are located in the western and southern sectors
of the service territory. New commercial establishments and high technology
industrial parks and complexes are part of the economic growth of this area.
SJG's service area includes parts of the Pinelands region, a largely undeveloped
area in the heart of southern New Jersey. Future construction in this area is
expected to be limited by statute and by a master plan adopted by the New Jersey
Pinelands Commission; however, in terms of potential growth, significant
portions of SJG's service area are not affected by these limitations.
Rates and Regulation
As a public utility, SJG is subject to regulation by the BPU.
Additionally, the Natural Gas Policy Act, which was enacted in November 1978,
contains provisions for Federal regulation of certain aspects of SJG's business.
SJI-3
SJG is affected by Federal regulation with respect to transportation and pricing
policies applicable to its pipeline capacity from Transcontinental Gas Pipeline
Corporation (Transco), SJG's major supplier, Columbia Gas Transmission
Corporation (Columbia), CNG Transmission Corporation (CNG) and Equitrans, Inc.
(Equitrans), since such services are provided under rates and terms established
under the jurisdiction of the FERC.
Retail sales by SJG are made under rate schedules within a tariff filed
with and subject to the jurisdiction of the BPU. These rate schedules provide
primarily for either block rates or demand/commodity rate structures. The
tariff contains provisions permitting SJG to pass on to customers increases and
decreases in the cost of purchased gas supplies. The tariff also contains
provisions permitting the recovery of environmental remediation costs associated
with former manufactured gas plant sites and for the adjustment of revenues
due to the impact of "temperature" fluctuations as prescribed in SJG's tariff.
In August 1997, SJG initiated its BPU approved pilot program to give
residential customers a choice of gas supplier. The program included
approximately 17,310 residential customers as of year end 1998. SJG continues
to deliver the natural gas through its distribution system with no loss of
margins.
Revenue requirements for ratemaking purposes are established on the basis
of firm sales projections. 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 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 another $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. Additional information on regulatory affairs is
incorporated by reference to Notes 1, 5, 6, 7 and 13 of SJI's Annual Report to
Shareholders for the year ended December 31, 1998 which is attached to this
report. See Item 14(c)(13).
South Jersey Energy Company
SJE, a New Jersey corporation, is a wholly owned non-regulated subsidiary
of SJI and provides services for the acquisition and transportation of natural
gas for retail and end users and markets total energy management services.
During 1998, SJE also engaged in trading activities in the electric wholesale
market. However, as a result of an alliance with Energy East Corporation, SJE
ceased buying and selling wholesale electricity. The alliance enhances SJE's
ability to offer a variety of products and services, from large sale
cogeneration projects to retail electricity when regulation permits. In 1998,
SJE was profitable but did not contribute materially to SJI's bottom line.
SJ EnerTrade
EnerTrade, a New Jersey corporation established by SJI in 1997, is a wholly
owned non-regulated subsidiary of SJE and is engaged in providing 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.
Energy & Minerals, Inc.
EMI, a New Jersey corporation, is a holding company that owns all of the
outstanding common stock of SJF. SJF became inactive in 1997 and its business
of providing wholesale energy services was continued by EnerTrade.
SJI-4
R&T Group, Inc.
R&T Group, Inc. (R&T), a New Jersey corporation, was a holding company that
owned all the common stock of several construction subsidiaries. Operations of
the construction companies ended by 1997 and the subsidiaries were merged into
R&T. The financial statements include R&T as a discontinued operation (see Note
3 on page 21 of SJI's Annual Report to Shareholders for the year ended December
31, 1998 which is attached to this report). See Item 14(c)(13).
In 1998, SJI made no public announcement of, or otherwise made public
information about, a new product or industry segment that would require the
investment of a material amount of the assets of SJI or which otherwise was
material.
Raw Materials
South Jersey Gas Company
Transportation Contracts and Storage
SJG has direct connections to two interstate pipeline companies, Transco
and Columbia. During 1998, SJG purchased and had delivered approximately 51.7
Bcf of natural gas for distribution to both on-system and off-system customers.
Of this total, 38.6 Bcf was transported on the Transco pipeline system and 13.1
Bcf was transported on the Columbia pipeline system. SJG also secures firm
transportation and other long term services from four additional pipelines
upstream of the Transco and Columbia systems. They include: Columbia Gulf
Transmission Company (Columbia Gulf), Sempra Energy Trading Corp. (Sempra),
Texas Gas Transmission Corporation (Texas Gas) and Equitrans. Services provided
by these upstream pipelines are utilized to deliver gas into either the Transco
or Columbia systems for ultimate delivery to SJG. Services provided by all
of the above mentioned pipelines are subject to changes as directed by FERC
Order No. 636.
Transco:
Transco is SJG's largest supplier of long term gas transmission services.
These services include five year-round and one seasonal firm transportation (FT)
service arrangement. When combined, these services enable SJG to purchase from
third parties and have delivered to its city gate stations by Transco a total of
163,741 Thousand Cubic Feet of gas per day ("Mcf/d"). The terms of the year-
round agreements extend for various periods from 2002 to 2010 while the term of
the seasonal agreement extends to 2011.
SJG also has seven long-term gas storage service agreements with Transco
that, when combined, are capable of storing approximately 10.1 Bcf. Through
these services, SJG can inject gas into storage during periods of low demand and
withdraw gas at a rate of up to 86,972 Mcf per day during periods of high
demand. The terms of the storage service agreements extend for various periods
from 2001 to 2008.
Sempra:
SJG has separate gas sales and capacity management agreements with Sempra,
which were formerly with CNG Energy Service, Corp., which provide SJG with up to
9,662 Mcf per day of gas during the period November 16 through March 31 of each
year.
Columbia:
SJG has three firm transportation agreements with Columbia which, when
combined, provide for 43,500 Mcf/d of firm deliverability.
SJI-5
SJG also subscribes to a firm storage service from Columbia, to March 31,
2009, which provides a maximum withdrawal quantity of 19,807 Mcf/d during the
winter season with an associated 1,121,095 Mcf of storage capacity.
As part of addressing future winter season requirements, SJG entered into
an agreement with Columbia to subscribe to an incremental 31,296 Mcf/d of
storage deliverability with an additional 2,234,482 Mcf of storage capacity that
became available on April 1, 1998. The term of the agreement expires October
31, 2013. The FERC has approved Columbia's arrangements to provide such
services.
Equitrans:
SJG has a long term storage service provided by Equitrans, to April 1,
2002, under which up to 500,000 Mcf of gas may be stored during the summer
season and up to 4,783 Mcf/d may be withdrawn during the winter season. The gas
is delivered to SJG under firm transportation agreements with Equitrans, CNG and
Transco.
Gas Supplies
SJG has several long term gas supply agreements with various producers and
marketers that expire between 1999 and 2007. Under these agreements, SJG can
purchase up to 52,008,000 Mcf of natural gas per year. When advantageous, SJG
can purchase spot supplies of natural gas in place of or in addition to those
volumes reserved under long term agreements.
The following chart shows by percentage the actual sources of purchased gas
supply for each of the last three years:
1998 1997 1996
------ ------ ------
Long-Term Contract 61.8% 73.2% 83.5%
Spot 38.2% 26.8% 16.5%
------ ------ ------
Total 100.0% 100.0% 100.0%
Supplemental Gas Supplies
SJG has a long term LNG purchase agreement with a third party provider
which extends through October 31, 2000. For the 1998-1999 contract year, SJG's
annual contract quantity under the agreement is 279,070 Mcf. LNG purchases
are transported to SJG's McKee City, New Jersey LNG storage facility by truck.
SJG operates peaking facilities which can store and vaporize both LNG and
propane for injection into its distribution system. SJG's LNG facility has a
storage capacity equivalent to 404,000 Mcf of natural gas and has an installed
capacity to vaporize up to 90,000 Mcf of LNG per day for injection into its
distribution system.
SJG also maintains two propane-air plants that are located in Middle
Township and Ocean City, New Jersey. The combined maximum storage capacity of
these plants is 150,000 gallons of liquefied propane or the equivalent of
approximately 11,364 Mcf of natural gas.
SJG also operates a high pressure pipe storage field at its McKee City
facility which is capable of storing 12,000 Mcf of gas and injecting up to
10,000 Mcf/d of gas per day into SJG's distribution system.
Peak-Day Supply
SJG plans for a winter season peak-day demand on the basis of an average
daily temperature of 2 degrees F. Gas demand on such a design day was estimated
for the 1998-1999 winter season to be 412,001 Mcf versus a design day supply of
428,215 Mcf. On January 19, 1994, SJG experienced its highest peak-day demand
of 370,582 Mcf with an average temperature of 2.68 degrees F. In 1998, SJG
experienced a peak-day demand of 313,978 Mcf with an average temperature of
22.97 degrees F.
SJI-6
Gas Prices
SJG's average commodity cost of gas purchased in 1998 was $2.27 per Mcf.
EnerTrade and SJE
Access to gas suppliers and cost of gas are significant to EnerTrade's and
SJE's operations. No material part of the business of these companies is
dependent upon a single customer or a few customers.
Patents and Franchises
SJG holds nonexclusive franchises granted by municipalities in the seven
county area of southern New Jersey that it serves. No other natural gas public
utility presently serves the territory covered by SJG's franchises. Otherwise,
patents, trademarks, licenses, franchises and concessions are not material to
the business of SJI or any of its subsidiaries.
Seasonal Aspects
SJG experiences seasonal fluctuations in sales when selling natural gas for
heating purposes. SJG meets this seasonal fluctuation in demand from its firm
customers by buying and storing gas during the summer months, and by drawing
from storage and purchasing supplemental supplies during the heating season. As
a result of this seasonality, SJG's revenues and net income are significantly
higher during the first and fourth quarters than during the second and third
quarters of the year.
Working Capital Practices
As stated under Seasonal Aspects, SJG buys and stores natural gas during
the summer months. These purchases are financed by short-term loans which are
substantially paid down during the winter months when gas revenues are higher.
Reference is also made to "Liquidity" on page 13 of the SJI's Annual Report to
Shareholders for the year ended December 31, 1998 which is attached to this
report. See Item 14(c)(13).
Customers
No material part of the Company's business or that of any of its
subsidiaries is dependent upon a single customer or a few customers, the loss of
which would have a material adverse effect on any such business. See pages 3
and 7.
Backlog
Backlog is not material to an understanding of SJI's business or that of
any of its subsidiaries.
Government Contracts
No material portion of the business of SJI or any of its subsidiaries is
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of any government.
Competition
SJG's franchises are non-exclusive, however, currently no other utility is
providing service within its territory. SJG competes with oil, propane and
electricity suppliers for residential, commercial and industrial users. The
market for natural gas commodity sales is subject to competition as a result of
deregulation. Through its tariff, SJG has promoted competition while
maintaining its margins. Substantially all of SJG's profits are from the
SJI-7
transportation rather than the sale of the commodity. SJG believes it has been
a leader in addressing the changing marketplace. It maintains its focus on
being a low-cost provider of natural gas and energy services.
EnerTrade and SJE compete with a number of other marketers/brokers in the
selling of wholesale and retail natural gas and electricity, respectively.
Competition includes SJG, other utilities and alliances which include other
utility companies.
Research
During the last three fiscal years, neither SJI nor any of its subsidiaries
engaged in research activities to any material extent.
Environmental Matters
Information on environmental matters for SJI and its subsidiaries is
incorporated by reference to Note 13 on page 25 of the SJI's Annual Report to
Shareholders for the year ended December 31, 1998 which is attached to this
report. See Item 14(c)(13).
Employees
SJI and its subsidiaries had a total of 667 employees as of December 31,
1998.
Financial Information About Foreign and Domestic Operations and Export Sales
SJI has no foreign operations and export sales have not been a significant
part of SJI's business.
Item 2. Properties
The principal property of SJG consists of its gas transmission and
distribution systems that include mains, service connections and meters. The
transmission facilities carry the gas from the connections with Transco and
Columbia to SJG's distribution systems for delivery to customers. As of
December 31, 1998, there were approximately 92 miles of mains in the
transmission systems and 5,038 miles of mains in the distribution systems.
In 1998, 270 miles of mains previously reported as transmission were
reclassified as distribution.
SJG owns office and service buildings, including its corporate
headquarters, at eight locations in the territory, a liquefied natural gas
storage and vaporization facility, and two propane-air vaporization plants.
As of December 31, 1998, the SJG utility plant had a gross book value of
$680.0 million and a net book value, after accumulated depreciation, of $500.4
million. In 1998, $64.9 million was spent on additions to utility plant and
there were retirements of property having an aggregate gross book cost of $4.4
million. SJG construction and remediation expenditures for 1999 are currently
expected to approximate $52.2 million.
Virtually all of the SJG transmission pipeline, distribution mains and
service connections are in streets or highways or on the property of others.
The SJG transmission and distribution systems are maintained under franchises or
permits or rights-of-way, many of which are perpetual. The SJG properties
(other than property specifically excluded) are subject to a lien of mortgage
under which its first mortgage bonds are outstanding. Such properties are well
maintained and in good operating condition.
EMI owns commercial real estate in Millville, New Jersey and 235 acres of
land in Vineland, New Jersey.
SJF, an inactive subsidiary, owns real estate in Deptford Township and
Upper Township, New Jersey.
SJI-8
R&T, an inactive subsidiary, owns land and buildings in Vineland, New
Jersey and real estate in Pleasantville, New Jersey.
SJI owns approximately 139 acres of land in Folsom, New Jersey and
approximately 9.29 acres of land in Linwood, New Jersey.
Item 3. Legal Proceedings
SJI is subject to claims which arise in the ordinary course of its business
and other legal proceedings. In September 1998, SJI settled a claim that a
group of Atlantic City casinos filed with the BPU alleging overcharges of over
$10 million, including interest. Management of SJI believes that any pending or
potential legal proceedings will not materially affect its operations,
consolidated financial position or cash flow. Reference is made under
Commitments and Contingencies in Note 13 on page 25 of SJI's Annual Report to
Shareholders for the year ended December 31, 1998 which is attached to this
report. See Item 14(c)(13).
Item 4. Submission Of Matters To A Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the 1998 fiscal year.
Item 4-A. Executive Officers (Other Than Directors) of the Registrant
Name Age Positions with SJI
---- --- ------------------
Edward J. Graham 41 Vice President
David A. Kindlick 44 Vice President
Albert V. Ruggiero 50 Vice President
George L. Baulig 57 Secretary and Treasurer
There is no family relationship among the officers of the registrant.
Edward J. Graham was elected Vice President & Controller of SJG effective
June 1994, Vice President, Gas Management effective April 1995, and Senior Vice
President, Energy Management on April 1998. Mr. Graham was elected President of
SJ EnerTrade effective October 1997 and President of SJE effective October 1998.
Mr. Graham was elected Vice President of SJI in June 1998.
David A. Kindlick was elected Assistant Vice President, Revenue
Requirements of SJG effective October 1989, Vice President, Revenue Requirements
effective April 1992, Vice President, Rates and Budgeting effective April
1995, and Senior Vice President, Finance and Rates effective April 1998.
Mr. Kindlick was elected Vice President of SJI effective June 1997.
Albert V. Ruggiero was elected Vice President, Human Resources of SJG
effective April 1990, Vice President, Human Resources & External Affairs
effective April 1995 and Senior Vice President, Corporate Development effective
April 1998. Mr. Ruggiero was elected Vice President of SJI effective October
1998.
George L. Baulig was elected Secretary and Assistant Treasurer of SJI, SJG
and EMI effective November 1980. Mr. Baulig also serves as Secretary of R&T and
SJE, effective October 1989 to date. Mr. Baulig was elected Treasurer of SJI,
effective October 1996.
Executive officers of SJI are elected annually and serve at the pleasure of
the Board of Directors.
SJI-9
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
Information required by this item is incorporated by reference to Note 4 on
page 21 and the bottom of page 26 of SJI's Annual Report to Shareholders for the
year ended December 31, 1998 which is attached to this report. See Item
14(c)(13).
Item 6. Selected Financial Data
Information required by this item is incorporated by reference to page 1 of
SJI's Annual Report to Shareholders for the year ended December 31, 1998 which
is attached to this report. See Item 14(c)(13).
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Information required by this item is incorporated by reference to pages 12,
13, 14 and 15 of SJI's Annual Report to Shareholders for the year ended December
31, 1998 which is attached to this report. See Item 14(c)(13).
Item 8. Financial Statements and Supplementary Data
Information required by this item is incorporated by reference to pages 15
through 25 and the top of page 26 of SJI's Annual Report to Shareholders for the
year ended December 31, 1998 which is attached to this report. See Item
14(c)(13).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
SJI-10
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this item relating to the directors of SJI is
incorporated by reference to pages 2 through 6 of SJI's definitive Proxy
Statement, dated March 12, 1999, filed with the Commission, File number 1-6364,
in connection with SJI's 1999 Annual Meeting of Shareholders. Information
required by this item relating to the executive officers (other than Directors)
of SJI is set forth in Item 4-A of this report.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to pages 8
through 10 of SJI's definitive Proxy Statement, dated March 12, 1999, filed with
the Commission, File number 1-6364, in connection with SJI's 1999 Annual Meeting
of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to pages 2
through 5 of SJI's definitive Proxy Statement, dated March 12, 1999, filed with
the Commission, File number 1-6364, in connection with SJI's 1999 Annual Meeting
of Shareholders.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to page 6 of
SJI's definitive Proxy Statement, dated March 12, 1999, filed with the
Commission, File number 1-6364, in connection with SJI's 1999 Annual Meeting of
Shareholders.
SJI-11
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) Listed below are all financial statements and schedules filed as part of
this report:
1 - The consolidated financial statements and notes to consolidated
financial statements together with the report thereon of Deloitte & Touche LLP,
dated February 12, 1999, are incorporated herein by reference to pages 15
through 25 of SJI's Annual Report to Shareholders for the year ended December
31, 1998 which is attached to this report. See Item 14(c)(13).
2 - Supplementary Financial Information
Information regarding selected quarterly financial data is incorporated
herein by reference to page 26 of SJI's Annual Report to Shareholders for the
year ended December 31, 1998 which is attached to this report. See Item
14(c)(13).
Supplemental Schedules as of December 31, 1998, 1997 and 1996 and for the
three years ended December 31, 1998, 1997, and 1996:
The Independent Auditors' Report of Deloitte & Touche LLP, Auditors of SJI
(page 20)
Schedule II - Valuation and Qualifying Accounts (page 21)
(All Schedules, other than that listed above, are omitted because the
information called for is included in the financial statements filed or because
they are not applicable or are not required. Separate financial statements are
not presented because all consolidated subsidiaries are wholly-owned.)
3 - See Item 14(c)(13)
(b) Reports on Form 8-K - None.
(c) List of Exhibits (Exhibit Number is in Accordance with the Exhibit Table in
Item 601 of Regulation S-K)
Exhibit
Number
(1)(a) Medium Term Note Distribution Agreement. Incorporated by reference from
Exhibit (1)(a) of Form S-3 (333-62019).
(3)(a)(i) Certificate of Incorporation of South Jersey Industries, Inc., as
amended through April 19, 1984. Incorporated by reference from Exhibit (4)(a)
of Form S-2 (2-91515).
(3)(a)(ii) Amendment to Certificate of Incorporation relating to two-for-one
stock split effective as of April 28, 1987. Incorporated by reference from
Exhibit (4)(e)(1) of Form S-3 (33-1320).
(3)(a)(iii) Amendment to Certificate of Incorporation relating to director and
officer liability. Incorporated by reference from Exhibit (4)(e)(2) of Form S-3
(33-1320).
(3)(b) Bylaws of South Jersey Industries, Inc. as amended and restated through
October 23, 1998 (filed herewith).
SJI-12
Exhibit
Number
(4)(a) Form of Stock Certificate for common stock. Incorporated by reference
from Exhibit (4)(a) of Form 10-K for 1985 (1-6364).
(4)(a)(i) Rights Agreement dated as of September 20, 1996 between South Jersey
Industries, Inc. and The Farmers & Merchants National Bank of Bridgeton.
Incorporated by reference from Exhibit 99.1 of Form 8-A filed April 9, 1996
(1-6364).
(4)(b)(i) First Mortgage Indenture dated October 1, 1947. Incorporated by
reference from Exhibit (4)(b)(i) of Form 10-K for 1987 (1-6364).
(4)(b)(x) Twelfth Supplemental Indenture dated as of June 1, 1980.
Incorporated by reference from Exhibit 5(b) of Form S-7 (2-68038).
(4)(b)(xiv) Sixteenth Supplemental Indenture dated as of April 1, 1988, 10 1/4%
Series due 2008. Incorporated by reference from Exhibit (4)(b)(xv) of Form 10-Q
for the quarter ended March 31, 1988 (1-6364).
(4)(b)(xv) Seventeenth Supplemental Indenture dated as of May 1, 1989.
Incorporated by reference from Exhibit (4)(b)(xv) of Form 10-K for 1989
(1-6364).
(4)(b)(xvi) Eighteenth Supplemental Indenture dated as of March 1, 1990.
Incorporated by reference from Exhibit (4)(e) of Form S-3 (33-36581).
(4)(b)(xvii) Nineteenth Supplemental Indenture dated as of April 1, 1992.
Incorporated by reference from Exhibit (4)(b)(xvii) of Form 10-K for 1992
(1-6364).
(4)(b)(xviii) Twentieth Supplemental Indenture dated as of June 1, 1993.
Incorporated by reference from Exhibit (4)(b)(xviii) of Form 10-K for 1993
(1-6364).
(4)(b)(xix) Twenty-First Supplemental Indenture dated as of March 1, 1997.
Incorporated by reference from Exhibit (4)(b)(xviv) of Form 10-K for 1997
(1-6364).
(4)(b)(xx) Twenty-Second Supplemental Indenture dated as of October 1, 1998.
Incorporated by reference from Exhibit (4)(b)(ix) of Form S-3 (333-62019).
(4)(c) Indenture dated as of January 31, 1995; 8.60% Debenture Notes due
February 1, 2010. Incorporated by reference from Exhibit (4)(c) of Form 10-K
for 1994 (1-6364).
(4)(d) Certificate of Trust for SJG Capital Trust. Incorporated by reference
from Exhibit 3(a) of Form S-3 - SJG Capital Trust and South Jersey Gas Company
as filed March 27, 1997, as amended April 18, 1997 and April 23, 1997
(333-24065).
(4)(d)(i) Trust Agreement of SJG Capital Trust. Incorporated by reference from
Exhibit 3(b) of Form S-3 - SJG Capital Trust and South Jersey Gas Company as
filed March 27, 1997, as amended April 18, 1997 and April 23, 1997 (333-24065).
SJI-13
Exhibit
Number
(4)(d)(ii) Form of Amended and Restated Trust Agreement for SJG Capital Trust.
Incorporated by reference from Exhibit 3(c) of Form S-3 - SJG Capital Trust and
South Jersey Gas Company as filed March 27, 1997, as amended April 18, 1997 and
April 23, 1997 (333-24065).
(4)(d)(iii) Form of Preferred Security for SJG Capital Trust. Incorporated by
reference from Exhibit 4(a) of Form S-3 - SJG Capital Trust and South Jersey Gas
Company as filed March 27, 1997, as amended April 18, 1997 and April 23, 1997
(333-24065).
(4)(d)(iv) Form of Deferrable Interest Subordinated Debenture. Incorporated by
reference from Exhibit 4(b) of Form S-3 - SJG Capital Trust and South Jersey Gas
Company as filed March 27, 1997, as amended April 18, 1997 and April 23, 1997
(333-24065).
(4)(d)(v) Form of Deferrable Interest Subordinated Debenture. Incorporated by
reference from Exhibit 4(c) of Form S-3 - SJG Capital Trust and South Jersey Gas
Company as filed March 27, 1997, as amended April 18, 1997 and April 23, 1997
(333-24065).
(4)(d)(vi) Form of Guaranty Agreement between South Jersey Gas Company and SJG
Capital Trust. Incorporated by reference from Exhibit 4(d) of Form S-3 - SJG
Capital Trust and South Jersey Gas Company as filed March 27, 1997, as amended
April 18, 1997 and April 23, 1997 (333-24065).
(4)(e) Medium Term Note Indenture of Trust dated October 1, 1998. Incorporated
by reference from Exhibit 4(e) of Form S-3 (333-62019).
(9) None
(10)(d) Gas storage agreement (GSS) between South Jersey Gas Company and
Transco dated October 1, 1993. Incorporated by reference from Exhibit (10)(d)
of Form 10-K for 1993 (1-6364).
(10)(e) Gas storage agreement (S-2) between South Jersey Gas Company and
Transco dated December 16, 1953. Incorporated by reference from Exhibit (5)(h)
of Form S-7 (2-56223).
(10)(f) Gas storage agreement (LG-A) between South Jersey Gas Company and
Transco dated June 3, 1974. Incorporated by reference from Exhibit (5)(f) of
Form S-7 (2-56223).
(10)(h) Gas storage agreement (WSS) between South Jersey Gas Company and
Transco dated August 1, 1991. Incorporated by reference from Exhibit (10)(h) of
Form 10-K for 1991 (1-6364).
(10)(i) Gas storage agreement (LSS) between South Jersey Gas Company and
Transco dated October 1, 1993. Incorporated by reference from Exhibit (10)(i)
of Form 10-K for 1993 (1-6364).
SJI-14
Exhibit
Number
(10)(i)(a) Gas storage agreement (SS-1) between South Jersey Gas Company and
Transco dated May 10, 1987 (effective April 1, 1988). Incorporated by reference
from Exhibit (10)(i)(a) of Form 10-K for 1988 (1-6364).
(10)(i)(b) Gas storage agreement (ESS) between South Jersey Gas Company and
Transco dated November 1, 1993. Incorporated by reference from Exhibit
(10)(i)(b) of Form 10-K for 1993 (1-6364).
(10)(i)(c) Gas transportation service agreement between South Jersey Gas
Company and Transco dated April 1, 1986. Incorporated by reference from Exhibit
(10)(i)(c) of Form 10-K for 1989 (1-6364).
(10)(i)(e) Service agreement (FS) between South Jersey Gas Company and Transco
dated August 1, 1991. Incorporated by reference from Exhibit (10)(i)(e) of Form
10-K for 1991 (1-6364).
(10)(i)(f) Service agreement (FT) between South Jersey Gas Company and Transco
dated February 1, 1992. Incorporated by reference from Exhibit (10)(i)(f) of
Form 10-K for 1991 (1-6364).
(10)(i)(g) Service agreement (Incremental FT) between South Jersey Gas Company
and Transco dated August 1, 1991. Incorporated by reference from Exhibit
(10)(i)(g) of Form 10-K for 1991 (1-6364).
(10)(i)(i) Gas storage agreement (SS-2) between South Jersey Gas Company and
Transco dated July 25, 1990. Incorporated by reference from Exhibit (10)(i)(i)
of Form 10-K for 1991 (1-6364).
(10)(i)(j) Gas transportation service agreement between South Jersey Gas
Company and Transco dated December 20, 1991. Incorporated by reference from
Exhibit (10)(i)(j) of Form 10-K for 1993 (1-6364).
(10)(i)(k) Amendment to gas transportation agreement dated December 20, 1991
between South Jersey Gas Company and Transco dated October 5, 1993.
Incorporated by reference from Exhibit (10)(i)(k) of Form 10-K for 1993
(1-6364).
(10)(j)(a) Gas transportation service agreement (FTS) between South Jersey Gas
Company and Equitable Gas Company dated November 1, 1986. Incorporated by
reference from Exhibit (10)(j)(a) of Form 10-K for 1989 (1-6364).
(10)(k)(h) Gas transportation service agreement (TF) between South Jersey Gas
Company and CNG Transmission Corporation dated October 1, 1993. Incorporated by
reference from Exhibit (10)(k)(h) of Form 10-K for 1993 (1-6364).
(10)(k)(i) Gas purchase agreement between South Jersey Gas Company and ARCO Gas
Marketing, Inc. dated March 5, 1990. Incorporated by reference from Exhibit
(10)(k)(i) of Form 10-K for 1989 (1-6364).
SJI-15
Exhibit
Number
(10)(k)(k) Gas transportation service agreement (FTS-1) between South Jersey
Gas Company and Columbia Gulf Transmission Company dated November 1, 1993.
Incorporated by reference from Exhibit (10)(k)(k) of Form 10-K for 1993
(1-6364).
(10)(k)(l) Assignment agreement capacity and service rights (FTS-2) between
South Jersey Gas Company and Columbia Gulf Transmission Company dated November
1, 1993. Incorporated by reference from Exhibit (10)(k)(i) of Form 10-K for
1993 (1-6364).
(10)(k)(m) FTS Service Agreement No. 39556 between South Jersey Gas Company and
Columbia Gas Transmission Corporation dated November 1, 1993. Incorporated by
reference from Exhibit (10)(k)(m) of Form 10-K for 1993 (1-6364).
(10)(k)(n) FTS Service Agreement No. 38099 between South Jersey Gas Company and
Columbia Gas Transmission Corporation dated November 1, 1993. Incorporated by
reference from Exhibit (10)(k)(n) of Form 10-K for 1993 (1-6364).
(10)(k)(o) NTS Service Agreement No. 39305 between South Jersey Gas Company and
Columbia Gas Transmission Corporation dated November 1, 1993. Incorporated by
reference from Exhibit (10)(k)(o) of Form 10-K for 1993 (1-6364).
(10)(k)(p) FSS Service Agreement No. 38130 between South Jersey Gas Company and
Columbia Gas Transmission Corporation dated November 1, 1993. Incorporated by
reference from Exhibit (10)(k)(p) of Form 10-K for 1993 (1-6364).
(10)(k)(q) SST Service Agreement No. 38086 between South Jersey Gas Company and
Columbia Gas Transmission Corporation dated November 1, 1993. Incorporated by
reference from Exhibit (10)(k)(q) of Form 10-K for 1993 (1-6364).
(10)(k)(r) NS (Negotiated Sales) Service Agreement dated December 1, 1994
between South Jersey Gas Company and Transco Gas Marketing Company as agent for
Transcontinental Gas Pipeline. Incorporated by reference from Exhibit
(10)(k)(r) of Form 10-K for 1994 (1-6364).
(10)(l) Deferred Payment Plan for Directors of South Jersey Industries, Inc.,
South Jersey Gas Company, Energy & Minerals, Inc., R&T Group, Inc. and South
Jersey Energy Company as amended and restated October 21, 1994. Incorporated by
reference from Exhibit (10)(l) of Form 10-K for 1994 (1-6364).
(10)(l)(a) Form of Deferred Compensation Agreement between South Jersey
Industries, Inc. and/or a subsidiary and seven of its officers. Incorporated by
reference from Exhibit (10)(j)(a) of Form 10-K for 1980 (1-6364).
(10)(l)(b) Schedule of Deferred Compensation Agreements Incorporated by
reference from Exhibit (10)(l)(b) of Form 10-K for 1997 (1-6364).
SJI-16
Exhibit
Number
(10)(l)(d) Form of Officer Employment Agreement between certain officers and
either South Jersey Industries, Inc. or its subsidiaries. Incorporated by
reference from Exhibit (10)(l)(d) of Form 10-K for 1994 (1-6364).
(10)(l)(e) Schedule of Officer Employment Agreements (filed herewith).
(10)(l)(f) Officer Severance Benefit Program for all officers. Incorporated by
reference from Exhibit (10)(l)(g) of Form 10-K for 1985 (1-6364).
(10)(l)(g) Discretionary Incentive Bonus Program for all officers and
management employees. Incorporated by reference from Exhibit (10)(l)(h) of Form
10-K for 1985 (1-6364).
(10)(l)(h) The 1987 Stock Option and Stock Appreciation Rights Plan including
Form of Agreement. Incorporated by reference from Exhibit (10)(l)(i) of Form
10-K for 1987 (1-6364).
(10)(l)(i) Supplemental Executive Retirement Program, as amended and restated
effective July 1, 1997, and Form of Agreement between certain SJI or subsidiary
officers. Incorporated by reference from Exhibit (10)(l)(i) of Form 10-K for
1997 (1-6364).
(10)(l)(j) 1997 Stock Option and Stock Appreciation Rights Plan. Incorporated
by reference from Exhibit (10)(l)(j) of Form 10-K for 1997 (1-6364).
(11) Not applicable.
(12) Calculation of Ratio of Earnings to Fixed Charges (Before Federal Income
Taxes) (filed herewith).
(13) The Annual Report to Shareholders of SJI for the year ended December 31,
1998 is filed as an exhibit hereto solely to the extent portions are
specifically incorporated by reference herein (filed herewith).
(16) Not applicable.
(18) Not applicable.
(21) Subsidiaries of the Registrant (filed herewith).
(22) None.
(23) Independent Auditors' Consent (filed herewith).
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (submitted only in electronic format to the
Securities and Exchange Commission).
(99) None.
SJI-17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTH JERSEY INDUSTRIES, INC.
BY: /s/ David A. Kindlick
David A. Kindlick, Vice President
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Charles Biscieglia President and Chief Executive March 29, 1999
(Charles Biscieglia) Officer
/s/ David A. Kindlick Vice President March 29, 1999
(David A. Kindlick) (Principal Financial Officer)
/s/ William J. Smethurst, Jr. Assistant Secretary and Assistant March 29, 1999
(William J. Smethurst, Jr.) Treasurer
(Principal Accounting Officer)
/s/ George L. Baulig Secretary and Treasurer March 29, 1999
(George L. Baulig)
/s/ Anthony G. Dickson Director March 29, 1999
(Anthony G. Dickson)
/s/ Richard L. Dunham Director March 29, 1999
(Richard L. Dunham)
/s/ W. Cary Edwards Director March 29, 1999
(W. Cary Edwards)
SJI-18
Signature Title Date
/s/ Thomas L. Glenn, Jr. Director March 29, 1999
(Thomas L. Glenn, Jr.)
/s/ Herman D. James Director March 29, 1999
(Herman D. James)
/s/ Clarence D. McCormick Director March 29, 1999
(Clarence D. McCormick)
/s/ Frederick R. Raring Director March 29, 1999
(Federick R. Raring)
/s/ Shirli M. Vioni Director March 29, 1999
(Shirli M. Vioni)
SJI-19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
South Jersey Industries, Inc.:
We have audited the consolidated financial statements of South Jersey
Industries, Inc. and its subsidiaries as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, and have issued
our report thereon dated February 12, 1999; such financial statements and
report are included in your 1998 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of South Jersey Industries, Inc. and its subsidiaries, listed
in Item 14(a). This financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 12, 1999
SJI-20
<TABLE>
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ----------------------------------------------------------------------------------------------------------
Additions
-------------------------------
(1) (2)
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts - Deductions - End
Classification of Period Expenses Describe (a) Describe (b) of Period
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for Uncollectible
Accounts for the Year Ended
December 31, 1998 $1,529,511 $1,476,914 $411,430 $2,134,566 $1,283,289
Provision for Uncollectible
Accounts for the Year Ended
December 31, 1997 $1,425,062 $1,351,360 $623,647 $1,870,558 $1,529,511
Provision for Uncollectible
Accounts for the Year Ended
December 31, 1996 $982,031 $2,143,518 $376,919 $2,077,406 (c) $1,425,062
<FN>
(a) Recoveries of accounts previously written off and minor adjustments.
(b) Uncollectible accounts written off.
(c) Includes $379,297 reduction in provision resulting from the sale of The Morie Company, Inc. in 1996.
</FN>
</TABLE>
SJI-21
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, NJ 08037
Form 10-K FYE 12/31/98
EXHIBIT INDEX
Exhibit
Number
(1)(a) Medium Term Note Distribution Agreement. Incorporated by reference
from Exhibit (1)(a) of Form S-3 (333-62019).
(3)(a)(i) Certificate of Incorporation of South Jersey Industries,
Inc., as amended through April 19, 1984. Incorporated by reference
from Exhibit (4)(a) of Form S-2 (2-91515).
(3)(a)(ii) Amendment to Certificate of Incorporation relating to two-
for-one stock split effective as of April 28, 1987. Incorporated by
reference from Exhibit (4)(e)(1) of Form S-3 (33-1320).
(3)(a)(iii) Amendment to Certificate of Incorporation relating to
director and officer liability. Incorporated by reference from Exhibit
(4)(e)(2) of Form S-3 (33-1320).
(3)(b) Bylaws of South Jersey Industries, Inc. as amended and restated
through October 23, 1998 (filed herewith).
(4)(a) Form of Stock Certificate for common stock. Incorporated by
reference from Exhibit (4)(a) of Form 10-K for 1985 (1-6364).
(4)(a)(i) Rights Agreement dated as of September 20, 1996 between
South Jersey Industries, Inc. and The Farmers & Merchants National Bank
of Bridgeton. Incorporated by reference from Exhibit 99.1 of Form 8-A
filed April 9, 1996 (1-6364).
(4)(b)(i) First Mortgage Indenture dated October 1, 1947.
Incorporated by reference from Exhibit (4)(b)(i) of Form 10-K for 1987
(1-6364).
(4)(b)(x) Twelfth Supplemental Indenture dated as of June 1, 1980.
Incorporated by reference from Exhibit 5(b) of Form S-7 (2-68038).
(4)(b)(xiv) Sixteenth Supplemental Indenture dated as of April 1,
1988, 10 1/4% Series due 2008. Incorporated by reference from Exhibit
(4)(b)(xv) of Form 10-Q for the quarter ended March 31, 1988 (1-6364).
(4)(b)(xv) Seventeenth Supplemental Indenture dated as of May 1, 1989.
Incorporated by reference from Exhibit (4)(b)(xv) of Form 10-K for 1989
(1-6364).
(4)(b)(xvi) Eighteenth Supplemental Indenture dated as of March 1,
1990. Incorporated by reference from Exhibit (4)(e) of Form S-3
(33-36581).
(4)(b)(xvii) Nineteenth Supplemental Indenture dated as of April 1,
1992. Incorporated by reference from Exhibit (4)(b)(xvii) of Form 10-K
for 1992 (1-6364).
(4)(b)(xviii) Twentieth Supplemental Indenture dated as of June 1,
1993. Incorporated by reference from Exhibit (4)(b)(xviii) of Form
10-K for 1993(1-6364).
(4)(b)(xix) Twenty-First Supplemental Indenture dated as of March 1,
1997. Incorporated by reference from Exhibit (4)(b)(xviv) of Form 10-K
for 1997(1-6364).
SJI-22
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, NJ 08037
Form 10-K FYE 12/31/98
EXHIBIT INDEX
Exhibit
Number
(4)(b)(xx) Twenty-Second Supplemental Indenture dated as of October 1,
1998. Incorporated by reference from Exhibit (4)(b)(ix) of Form S-3
(333-62019).
(4)(c) Indenture dated as of January 31, 1995; 8.60% Debenture Notes
due February 1, 2010. Incorporated by reference from Exhibit (4)(c) of
Form 10-K for 1994 (1-6364).
(4)(d) Certificate of Trust for SJG Capital Trust. Incorporated by
reference from Exhibit (3)(a) of Form S-3 - SJG Capital Trust and South
Jersey Gas Company as filed March 27, 1997, as amended April 18, 1997
and April 23, 1997 (333-24065).
(4)(d)(i) Trust Agreement of SJG Capital Trust. Incorporated by
reference from Exhibit (3)(b) of Form S-3 - SJG Capital Trust and South
Jersey Gas Company as filed March 27, 1997, as amended April 18, 1997
and April 23, 1997 (333-24065).
(4)(d)(ii) Form of Amended and Restated Trust Agreement for SJG
Capital Trust. Incorporated by reference from Exhibit (3)(c) of Form
S-3 - SJG Capital Trust and South Jersey Gas Company as filed March 27,
1997, as amended April 18, 1997 and April 23, 1997 (333-24065).
(4)(d)(iii) Form of Preferred Security for SJG Capital Trust.
Incorporated by reference from Exhibit (4)(a) of Form S-3 - SJG Capital
Trust and South Jersey Gas Company as filed March 27, 1997, as amended
April 18, 1997 and April 23, 1997 (333-24065).
(4)(d)(iv) Form of Deferrable Interest Subordinated Debenture.
Incorporated by reference from Exhibit (4)(b) of Form S-3 - SJG Capital
Trust and South Jersey Gas Company as filed March 27, 1997, as amended
April 18, 1997 and April 23, 1997 (333-24065).
(4)(d)(v) Form of Deferrable Interest Subordinated Debenture.
Incorporated by reference from Exhibit (4)(c) of Form S-3 - SJG Capital
Trust and South Jersey Gas Company as filed March 27, 1997, as amended
April 18, 1997 and April 23, 1997 (333-24065).
(4)(d)(vi) Form of Guaranty Agreement between South Jersey Gas Company
and SJG Capital Trust. Incorporated by reference from Exhibit (4)(d)
of Form S-3 - SJG Capital Trust and South Jersey Gas Company as filed
March 27, 1997, as amended April 18, 1997 and April 23, 1997
(333-24065).
SJI-23
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, NJ 08037
Form 10-K FYE 12/31/98
EXHIBIT INDEX
Exhibit
Number
(4)(e) Medium Term Note Indenture of Trust dated October 1, 1998.
Incorporated by reference from Exhibit (4)(e) of Form S-3 (333-62019).
(9) None
(10)(d) Gas storage agreement (GSS) between South Jersey Gas Company
and Transco dated October 1, 1993. Incorporated by reference from
Exhibit (10)(d) of Form 10-K for 1993 (1-6364).
(10)(e) Gas storage agreement (S-2) between South Jersey Gas Company
and Transco dated December 16, 1953. Incorporated by reference from
Exhibit (5)(h) of Form S-7 (2-56223).
(10)(f) Gas storage agreement (LG-A) between South Jersey Gas Company
and Transco dated June 3, 1974. Incorporated by reference from Exhibit
(5)(f) of Form S-7 (2-56223).
(10)(h) Gas storage agreement (WSS) between South Jersey Gas Company
and Transco dated August 1, 1991. Incorporated by reference from
Exhibit (10)(h) of Form 10-K for 1991 (1-6364).
(10)(i) Gas storage agreement (LSS) between South Jersey Gas Company
and Transco dated October 1, 1993. Incorporated by reference from
Exhibit (10)(i) of Form 10-K for 1993 (1-6364).
(10)(i)(a) Gas storage agreement (SS-1) between South Jersey Gas
Company and Transco dated May 10, 1987 (effective April 1, 1988).
Incorporated by reference from Exhibit (10)(i)(a) of Form 10-K for 1988
(1-6364).
(10)(i)(b) Gas storage agreement (ESS) between South Jersey Gas
Company and Transco dated November 1, 1993. Incorporated by reference
from Exhibit (10)(i)(b) of Form 10-K for 1993 (1-6364).
(10)(i)(c) Gas transportation service agreement between South Jersey
Gas Company and Transco dated April 1, 1986. Incorporated by reference
from Exhibit (10)(i)(c) of Form 10-K for 1989 (1-6364).
(10)(i)(e) Service agreement (FS) between South Jersey Gas Company and
Transco dated August 1, 1991. Incorporated by reference from Exhibit
(10)(i)(e) of Form 10-K for 1991 (1-6364).
(10)(i)(f) Service agreement (FT) between South Jersey Gas Company and
Transco dated February 1, 1992. Incorporated by reference from Exhibit
(10)(i)(f) of Form 10-K for 1991 (1-6364).
(10)(i)(g) Service agreement (Incremental FT) between South Jersey Gas
Company and Transco dated August 1, 1991. Incorporated by reference
from Exhibit (10)(i)(g) of Form 10-K for 1991 (1-6364).
SJI-24
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, NJ 08037
Form 10-K FYE 12/31/98
EXHIBIT INDEX
Exhibit
Number
(10)(i)(i) Gas storage agreement (SS-2) between South Jersey Gas
Company and Transco dated July 25, 1990. Incorporated by reference
from Exhibit (10)(i)(i) of Form 10-K for 1991 (1-6364).
(10)(i)(j) Gas transportation service agreement between South Jersey
Gas Company and Transco dated December 20, 1991. Incorporated by
reference from Exhibit (10)(i)(j) of Form 10-K for 1993 (1-6364).
(10)(i)(k) Amendment to gas transportation agreement dated December
20, 1991 between South Jersey Gas Company and Transco dated October 5,
1993. Incorporated by reference from Exhibit (10)(i)(k) of Form 10-K
for 1993 (1-6364).
(10)(j)(a) Gas transportation service agreement (FTS) between South
Jersey Gas Company and Equitable Gas Company dated November 1, 1986.
Incorporated by reference from Exhibit (10)(j)(a) of Form 10-K for 1989
(1-6364).
(10)(k)(h) Gas transportation service agreement (TF) between South
Jersey Gas Company and CNG Transmission Corporation dated October 1,
1993. Incorporated by reference from Exhibit (10)(k)(h) of Form 10-K
for 1993 (1-6364).
(10)(k)(i) Gas purchase agreement between South Jersey Gas Company and
ARCO Gas Marketing, Inc. dated March 5, 1990. Incorporated by
reference from Exhibit (10)(k)(i) of Form 10-K for 1989 (1-6364).
(10)(k)(k) Gas transportation service agreement (FTS-1) between South
Jersey Gas Company and Columbia Gulf Transmission Company dated
November 1, 1993. Incorporated by reference from Exhibit (10)(k)(k) of
Form 10-K for 1993 (1-6364).
(10)(k)(l) Assignment agreement capacity and service rights (FTS-2)
between South Jersey Gas Company and Columbia Gulf Transmission Company
dated November 1, 1993. Incorporated by reference from Exhibit
(10)(k)(i) of Form 10-K for 1993 (1-6364).
(10)(k)(m) FTS Service Agreement No. 39556 between South Jersey Gas
Company and Columbia Gas Transmission Corporation dated November 1,
1993. Incorporated by reference from Exhibit (10)(k)(m) of Form 10-K
for 1993 (1-6364).
(10)(k)(n) FTS Service Agreement No. 38099 between South Jersey Gas
Company and Columbia Gas Transmission Corporation dated November 1,
1993. Incorporated by reference from Exhibit (10)(k)(n) of Form 10-K
for 1993 (1-6364).
SJI-25
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, NJ 08037
Form 10-K FYE 12/31/98
EXHIBIT INDEX
Exhibit
Number
(10)(k)(o) NTS Service Agreement No. 39305 between South Jersey Gas
Company and Columbia Gas Transmission Corporation dated November 1,
1993. Incorporated by reference from Exhibit (10)(k)(o) of Form 10-K
for 1993 (1-6364).
(10)(k)(p) FSS Service Agreement No. 38130 between South Jersey Gas
Company and Columbia Gas Transmission Corporation dated November 1,
1993. Incorporated by reference from Exhibit (10)(k)(p) of Form 10-K
for 1993 (1-6364).
(10)(k)(q) SST Service Agreement No. 38086 between South Jersey Gas
Company and Columbia Gas Transmission Corporation dated November 1,
1993. Incorporated by reference from Exhibit (10)(k)(q) of Form 10-K
for 1993 (1-6364).
(10)(k)(r) NS (Negotiated Sales) Service Agreement dated December 1,
1994 between South Jersey Gas Company and Transco Gas Marketing Company
as agent for Transcontinental Gas Pipeline. Incorporated by reference
from Exhibit (10)(k)(r) of Form 10-K for 1994 (1-6364).
(10)(l) Deferred Payment Plan for Directors of South Jersey
Industries, Inc., South Jersey Gas Company, Energy & Minerals, Inc.,
R&T Group, Inc. and South Jersey Energy Company as amended and restated
October 21, 1994. Incorporated by reference from Exhibit (10)(l) of
Form 10-K for 1994 (1-6364).
(10)(l)(a) Form of Deferred Compensation Agreement between South
Jersey Industries, Inc. and/or a subsidiary and seven of its officers.
Incorporated by reference from Exhibit (10)(j)(a) of Form 10-K for 1980
(1-6364).
(10)(l)(b) Schedule of Deferred Compensation Agreements. Incorporated
by reference from Exhibit (10)(l)(b) of Form 10-K for 1997 (1-6364).
(10)(l)(d) Form of Officer Employment Agreement between certain
officers and either South Jersey Industries, Inc. or its subsidiaries.
Incorporated by reference from Exhibit (10)(l)(d) of Form 10-K for 1994
(1-6364).
(10)(l)(e) Schedule of Officer Employment Agreements (filed herewith).
(10)(l)(f) Officer Severance Benefit Program for all officers.
Incorporated by reference from Exhibit (10)(l)(g) of Form 10-K for 1985
(1-6364).
(10)(l)(g) Discretionary Incentive Bonus Program for all officers and
management employees. Incorporated by reference from Exhibit
(10)(l)(h) of Form 10-K for 1985 (1-6364).
(10)(l)(h) The 1987 Stock Option and Stock Appreciation Rights Plan
including Form of Agreement. Incorporated by reference from Exhibit
(10)(l)(i) of Form 10-K for 1987 (1-6364).
SJI-26
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, NJ 08037
Form 10-K FYE 12/31/98
EXHIBIT INDEX
Exhibit
Number
(10)(l)(i) Supplemental Executive Retirement Program, as amended and
restated effective July 1, 1997, and Form of Agreement between certain
South Jersey Industries, Inc. or subsidiary officers. Incorporated by
reference from Exhibit (10)(l)(i) of Form 10-K for 1997 (1-6364).
(10)(l)(j) 1997 Stock Option and Stock Appreciation Rights Plan.
Incorporated by reference from Exhibit (10)(l)(j) of Form 10-K for 1997
(1-6364).
(11) Not applicable.
(12) Calculation of Ratio of Earnings to Fixed Charges (Before Federal
Income Taxes) (filed herewith).
(13) The Annual Report to Shareholders of the Company for the year
ended December 31, 1998 is filed as an exhibit hereto solely to
the extent portions are specifically incorporated by reference
herein (filed herewith).
(16) Not applicable.
(18) Not applicable.
(21) Subsidiaries of the Registrant (filed herewith).
(22) None.
(23) Independent Auditors' Consent (filed herewith).
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (submitted only in electronic format to
the Securities and Exchange Commission).
(99) None.
SJI-27
Exhibit (3)(b)
--------------
BYLAWS
(AMENDED AND RESTATED THROUGH OCTOBER 23, 1998)
SOUTH JERSEY INDUSTRIES, INC.
ARTICLE I
SHAREHOLDERS
1.1 Place of Meetings. Meetings of the shareholders shall be
held at such place as may be designated by the Board of Directors in the
notice of meeting.
1.2 Annual Meeting. An annual meeting of the shareholders for
the election of Directors and for other business shall be held on the next to
the last Thursday in April of each year, if not a legal holiday, and if a
legal holiday, then on the first day following which is not a legal holiday,
or on such other day as may be designated by the Board of Directors.
1.3 Special Meetings. Special meetings of the shareholders may be
called at any time by the President or by action of a majority of the Board of
Directors. Upon the application of the holder or holders of not less than 10%
of all shares entitled to vote at a meeting, the Superior Court, in an action
in which the court may proceed in a summary manner, for good cause shown, may
order a special meeting of the shareholder to be called and held at such time
and place, upon such notice and for the transaction of such business as may be
designated in such order.
1.4 Notice. Written notice of the time, place and purpose of every
meeting of shareholders shall be given not less than ten nor more than 60 days
before such meeting, either personally or by mail, by or at the direction of
the Chairman of the Board and Chief Executive Officer, the Secretary, or the
officer or persons calling the meeting, to each shareholder of record
entitled to vote at the meeting.
1.5 Quorum. At all meetings of shareholders, a majority of the
outstanding shares of capital stock entitled to vote, represented by
shareholders in person or by proxy, shall constitute a quorum for the
transaction of business. In the absence of a quorum, the shareholders present
in person or by proxy by majority vote may adjourn the meeting from time to
time without notice other than by oral announcement at the meeting, until a
quorum shall be present. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the original meeting.
1.6 Business at Meetings of Shareholders. Except as otherwise
provided by law, or in these Bylaws, the business which shall be conducted at
any meeting of the shareholders shall (a) have been specified in the written
notice of the meeting (or any supplement thereto) given by the Company, or (b)
be brought before the meeting at the direction of the Board of Directors or
the President, or (c) be brought before the meeting by the presiding officer
of the meeting unless either a majority of the Directors then in office or the
President object to such business being conducted at the meeting, or (d) have
been specified in a written notice given to the Secretary of the Company, by
- 1 -
or on behalf of any shareholder entitled to vote at the meeting (the
"Shareholder Notice"), in accordance with all of the following requirements:
(1) Each Shareholder Notice must be delivered to, or mailed and
received at, the principal executive offices of the Company (i) in the case of
an annual meeting that is called for a date that is within 30 days before or
after the anniversary date of the immediately preceding annual meeting of
shareholders, not less than 60 days nor more than 90 days prior to such
anniversary date, (ii) in the case of an annual meeting that is called for a
date that is not within 30 days before or after the anniversary date of the
immediately preceding annual meeting, not later than the close of business on
the tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made, whichever
comes first, and (iii) in the case of any special meeting of the shareholders,
not less than 60 days nor more than 90 days prior to the date of such meeting;
and
(2) Each such Shareholder Notice must set forth with particularity
(i) the names and business addresses of the shareholder submitting the
proposal (the "Proponent") and all persons acting in concert with the
Proponent; (ii) the name and address of the Proponent and the persons
identified in clause (i), as they appear on the Company's books (if they so
appear); (iii) the class and number of shares of the Company beneficially
owned by the Proponent and the persons identified in clause (i); (iv) a
description of the Shareholder Proposal containing all material information
relating thereto; (v) a representation that the Proponent is a holder of
record of the stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to bring the business
specified in the notice before the meeting; and (vi) such other information
as the Board of Directors reasonably determines is necessary or appropriate to
enable the Board of Directors and the shareholders of the Company to consider
the shareholder proposal. The presiding officer at any shareholders meeting
may determine, in his or her sole discretion, that any shareholder proposal
was not made in accordance with the procedures prescribed in these Bylaws or
is otherwise not in accordance with law, and if such officer should so
determine, such officer shall so declare at the meeting and the shareholder
proposal shall be disregarded.
ARTICLE II
DIRECTORS
2.1 Powers, Number, Classification and Election. The business and
affairs of the Company shall be conducted and managed by its Board of
Directors, which shall have all the powers of the Company except such as are
by statute, by the Certificate of Incorporation, or by these Bylaws conferred
upon or reserved to the shareholders. The number of Directors constituting
the entire Board of Directors shall be 9. The members of the Board of
Directors shall be divided into classes in the manner provided by Article
SEVENTH of the Company's Certificate of Incorporation and shall be elected and
serve for such terms of office as are provided therein.
- 2 -
2.2 Meetings.
(a) Place of Meetings. Meetings of the Board of Directors shall be
held at such place as may be designated by the Board or in the notice of the
meeting.
(b) Regular Meetings. Regular meetings of the Board of Directors
shall be held on such dates as may be fixed, from time to time, by a majority
of the Directors at a meeting or in writing without a meeting.
(c) Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board and Chief Executive
Officer or by a majority of the Board of Directors at a meeting or in writing
without a meeting.
(d) Notice. Notice of the time and place of every meeting, which
need not be in writing, shall be given to each Director at least two days
before the meeting.
(e) Quorum. At all meetings of the Board of Directors, or any
committee thereof, a majority of the total number of the members shall
constitute a quorum for the transaction of business, provided that a quorum
shall never be less than two persons. Except in cases in which it is by law,
by the Certificate of Incorporation, or by these Bylaws otherwise provided, a
majority of members present at a meeting of the full Board or of a committee
at which a quorum is present shall decide any questions that may come before
the meeting. In the absence of a quorum, the members present by majority vote
may adjourn the meeting from time to time without notice other than by oral
announcement at the meeting, until a quorum shall be present. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
2.3 Newly Created Directorships and Vacancies. Newly created
Directorships resulting from an increase in the number of Directors and
vacancies occurring in the Board of Directors for any reason may be filled by
vote of a majority of the Directors then in office, although less than a
quorum, or by a sole remaining director, at any meeting of the Board of
Directors. Newly created Directorships shall be assigned by the Board of
Directors to one of the classes described in Article SEVENTH of the Company's
Certificate of Incorporation in the manner provided in such Article. The
person so elected by the Board of Directors to fill a newly created
Directorship or a vacancy shall be elected to hold office until the next
succeeding annual meeting of shareholders and until his successor shall be
duly elected and qualified or until his earlier death, resignation or removal.
2.4 Committees. The Board of Directors may by resolution adopted by
a majority of the whole Board designate one or more committees, each committee
to consist of three or more Directors, one of whom shall be designated by the
Board as Chairman, and such alternate members (also Directors) as may be
designated by the Board. The Chairman of the Board and Chief Executive
Officer of the Company shall be ex officio a member of each such committee
unless the Board shall otherwise direct. The Board may provide by resolution
for compensation and payment of expenses to committee members and alternate
members. Any such committee, to the extent permitted by law and provided in
- 3 -
such resolution, shall have and exercise the authority of the Board of
Directors in the management of the business and affairs of the Company, and
shall have power to fix its own rules of procedure. In the absence or
disqualification of any member of a committee or other person authorized to
act as such, the member or members thereof present and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another Director to act at the meeting in the place of any such absent or
disqualified member.
2.5 Removal. No member of the Board of Directors may be
removed except for cause.
2.6 Nominations by Shareholders. Notwithstanding the provisions of
Section 2.1, nominations for the election of the Directors may be made at any
annual meeting or any special meeting of shareholders at which Directors are
to be elected by any shareholder of record entitled to vote at such meeting;
provided, however, that such shareholder must provide timely written notice
(the "Nomination Notice") to the Secretary of the Company in accordance with
the following requirements:
(1) Each Nomination Notice must be delivered to, or mailed or
received at, the principal executive offices of the Company (i) in the case of
an annual meeting that is called for a date that is within 30 days before or
after the anniversary date of the immediately preceding annual meeting of
shareholders, not less than 60 days nor more than 90 days prior to such
anniversary date, and (ii) in the case of an annual meeting that is called
for a date that is not within 30 days before or after the anniversary date of
the immediately preceding annual meeting, not later than the close of business
on the tenth day following the day on which notice of the date of the meeting
was mailed or public disclosure of the date of the meeting was made, whichever
comes first; and (iii) in the case of any special meeting of the shareholders,
not less than 60 days nor more than 90 days prior to the date of such meeting;
and
(2) Each Nomination Notice must set forth: (i) as to each individual
nominated, (A) the name, date of birth, business address and residence address
of such individual; (B) the business experience during the past five years of
such nominee, including his or her principal occupations and employment during
such period, the name and principal business of any corporation or other
organization in which such occupations and employment were carried on, and
such other information as to the nature of his or her responsibilities and
level of professional competence as may be sufficient to permit assessment of
his or her prior business experience; (C) whether the nominee is or has ever
been at any time a director, officer or owner of 5% or more of any class of
capital stock, partnership interests or other equity interest of any
corporation, partnership or other entity; (D) any directorships held by such
nominee in any company with a class of securities registered pursuant to
section 12 of the Securities Exchange Act of 1934, as amended, or subject to
the requirements of section 15(d) of such Act or any company registered as an
investment company under the Investment Company Act of 1940, as amended; (E)
whether, in the last five years, such nominee has been convicted in a criminal
proceeding or has been subject to a judgment, order, finding, decree of any
federal, state or other governmental entity, concerning any violation of
federal, state or other law, or any proceeding in bankruptcy, which
conviction, order, finding, decree or proceeding may be material to an
evaluation of the ability or integrity of the nominee; (F) a description of
all arrangements or understandings between the nominating shareholder (the
"Nominating Shareholder") and each nominee and any other person or persons
- 4 -
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the Nominating Shareholder; (G) such other
information regarding each nominee as would have been required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be
nominated, by the Board of Directors; and (H) the consent of each nominee to
serve as a Director of the Company if so elected; and (ii) as to the
Nominating Shareholder and any person acting in concert with the Nominating
Shareholder, (x) the names and business addresses of such Nominating
Shareholder and the persons identified in clause (ii); (ii) the name and
address of such Nominating Shareholder and the persons identified in clause
(ii), as they appear on the Company's books (if they so appear); (iii) the
class and number of shares of the Company beneficially owned by such
Nominating Shareholder and the persons identified in clause (ii). The
presiding officer at any shareholders meeting may determine, in his or her
sole discretion, that any nomination of any person was not made in accordance
with the procedures prescribed in these Bylaws or is otherwise not in
accordance with law, and if such officer should so determine, such officer
shall so declare at the meeting and the nomination shall be disregarded.
ARTICLE III
OFFICERS
3.1 Executive Officers. The Executive officers of the Company shall
be a President (who may be designated by resolution of the Board as the Chief
Executive Officer), one or more Vice Presidents (one or more of whom may be
designated as Executive Vice President or Senior Vice President), a Secretary
and a Treasurer. The Chairman of the Board may also be elected as an
Executive Officer and if so elected by the Board of Directors, may be
designated the Chief Executive Officer, in which case the President shall then
be the Chief Operating Officer. If the Chairman of the Board is elected as an
Executive Officer and is not designated by resolution of the Board as the
Chief Executive Officer, the President shall then be the Chief Executive
Officer. The Executive officers shall be elected annually by the Board of
Directors following the annual meeting of shareholders and each such officer
shall hold office until the corresponding meeting next year and until his
successor shall have been duly chosen and qualified, or until he shall resign
or shall have been removed. Any vacancy in any of the above-mentioned offices
may be filled for the unexpired term by the Board of Directors at any regular
or special meeting.
3.2 Authority, Duties and Compensation. The Executive officers shall
have such authority, perform such duties and serve for such compensation as
shall be provided in these Bylaws or as may be determined by resolution of the
Board of Directors. The Chairman of the Board and Chief Executive Officer
shall preside at all meetings of the Board of Directors and the shareholders
at which he is present, shall carry out policies adopted or approved by the
Board of Directors, shall have general charge and supervision of the business
of the Company, subject to the control of the Board of Directors, and may
perform any act and execute any instrument in the conduct of the business of
the Company. The other Executive Officers shall have the duties and powers
usually related to their offices, except as the Board of Directors or the
Chairman of the Board and Chief Executive Officer shall otherwise determine
from time to time.
- 5 -
3.3 Assistant and Subordinate Officers. The Board of Directors may
choose one or more Assistant Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such subordinate Officers
as it may deem desirable. Each Assistant and subordinate Officer, if any,
shall hold office for such period, shall have such authority and perform such
duties, and shall receive such compensation as the Board of Directors or
the Chairman of the Board and Chief Executive Officer, or such other Officer
as the Board shall so authorize, may prescribe.
3.4 Officers Holding Two or More Offices. Any two of the above-
mentioned offices may be held by the same person, but no officers shall
execute, acknowledge, or verify any instrument in more than one capacity, if
such instrument be required by statute, by the Certificate of Incorporation,
or by these Bylaws, to be executed, acknowledged, or verified by any two or
more officers.
ARTICLE IV
INDEMNIFICATION
4.1 Right to Indemnification. The Company shall indemnify any
corporate agent against his expenses and liabilities in connection with any
proceedings involving the corporate agent by reason of his being or having
been such a corporate agent to the extent that (a) such corporate agent is not
otherwise indemnified; and (b) the power to do so has been or may be granted
by statute; and for this purpose the Board of Directors may, and on request of
any such corporate agent shall be required to, determine in each case whether
or not the applicable standards in any such statute have been met, or such
determination shall be made by independent legal counsel if the Board so
directs or if the Board is not empowered by statute to make such
determination.
4.2 Prepayment of Expenses. To the extent that the power to do so
has been or may be granted by statute, the Company shall pay expenses incurred
by a corporate agent in connection with a proceeding in advance of the final
disposition of the proceeding upon receipt of an undertaking by or on behalf
of such corporate agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified as provided by statute.
4.3 Indemnification Not Exclusive. This indemnification shall not be
exclusive of any other rights to which a corporate agent may be entitled, both
as to any action in his official capacity or as to any action in another
capacity while holding such office, and shall inure to the benefits of the
heirs, executors or administrators of any such corporate agent.
4.4 Insurance and Other Indemnification. The Board of Directors
shall have the power to (a) purchase and maintain, at the Company's expense,
insurance on behalf of the Company and on behalf of others to the extent that
power to do so has been or may be granted by statute and (b) give other
indemnification to the extent permitted by law.
4.5 Definitions. As used in this Article,
(a) "corporate agent" means any person who is or was a Director,
officer, employee or agent of the Company and any person who is or was a
- 6 -
Director, officer, trustee, employee or agent of any other enterprise, serving
as such at the request of the Company, or the legal representative of any such
Director, officer, trustee, employee or agent;
(b) "other enterprise" means any domestic or foreign corporation,
other than the Company, and any partnership, joint venture, sole
proprietorship, trust or other enterprise whether or not for profit, served by
a corporate agent;
(c) "expenses" means reasonable costs, disbursements and counsel
fees;
d) "liabilities" means amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties;
(e) "proceedings" means any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and any
appeal therein and any inquiry or investigation which could lead to such
action, suit or proceeding.
ARTICLE V
SHARE CERTIFICATES AND
UNCERTIFICATED SHARES
5.1 Share Certificates. Except as provided in Section 5.4, every
shareholder of record shall be entitled to a share certificate representing
the shares held by him and such certificates shall conform to all applicable
provisions of law.
5.2 Transfer of Shares. The Board of Directors shall have power and
authority to make all such rules and regulations as it may deem expedient and
in accordance with law concerning the issue, transfer, and registration of
share certificates.
5.3 Mutilated, Lost or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Company alleged to have been mutilated,
lost or destroyed. When authorizing such issue of a new certificate, the
Board of Directors, in its discretion and as a condition precedent to the
issuance thereof, may prescribe such terms and conditions as it deems
expedient, and may require such indemnities as it deems adequate, to protect
the Company from any claim that may be made against it with respect to any
such certificate alleged to have been lost or destroyed.
5.4 Uncertificated Shares. The Board of Directors may provide that
some or all of the shares of any class or series of stock of the Company shall
be represented by uncertificated shares. Within 20 days after the issuance or
transfer of uncertificated shares, the Company shall send to the registered
owner thereof a written notice stating that the Company is organized under the
laws of New Jersey, the name of the person to whom the shares were issued, the
number and class, and the designation of the series, if any, of such shares,
and containing any other information required by law or deemed advisable by
the Company to be included in such notice. Except as otherwise expressly
provided by law, the rights and obligations of the holders of uncertificated
- 7 -
shares and the rights and obligations of the holders of certificates
representing shares of the same class and series shall be identical.
ARTICLE VI
MISCELLANEOUS
6.1 Fiscal Year. The fiscal year of the Company shall be the
calendar year, unless otherwise provided by the Board of Directors.
6.2 Amendments. These Bylaws may be amended or repealed (i) by
action of a majority of the Board of Directors at any regular or special
meeting of the Board of Directors, provided notice of any such alteration,
amendment, or repeal shall be given in the notice of any such meeting, (ii) or
except as otherwise provided in Article TENTH of the Certificate of
Incorporation of the Company, as amended, by action of the holders of a
majority of the outstanding shares of capital stock of the Company entitled
to vote generally in the election of Directors, considered for this purpose as
one class.
AMENDMENTS
Article I Section 1.2 Amended March 19, 1970
Article I Section 1.2 Amended April 16, 1970
Article II Section 2.1 Amended February l8, 1971
Article II Section 2.1 Amended June 22, 1972
Article II Section 2.1 Amended August 23, 1973
Article II Section 2.1 Amended February 20, 1975
Article II Section 2.1 Amended February 19, 1976
Article II Section 2.1 Amended February 17, 1977
Article II Section 2.1 Amended February 16, 1978
Article II Section 2.1 Amended February 15, 1979
Article II Section 2.1 Amended August 23, 1979
Article I Section 1.3 Amended November 16, 1979
Article I Section 1.4 Amended November 16, 1979
Article II Section 2.2 (c) Amended November 16, 1979
Article II Section 2.4 Amended November 16, 1979
Article III Section 3.1 Amended November 16, 1979
Article III Section 3.2 Amended November 16, 1979
Article III Section 3.3 Amended November 16, 1979
Article III Section 3.4 Amended November 16, 1979
Article V Section 5.1 Amended November 16, 1979
Article II Section 2.4 Amended October 24, 1980
Article II Section 2.1 Amended April 22, 1981 (Special Mtg.)
Article II Section 2.1 Amended October 23, 1981
Article III Section 3.1, 3.2, Amended October 23, 1981
and 3.3
Article II Section 2.1, 2.3 Amended January 21, 1983
Article II Section 2.5 Amended by including new section Jan.
21, 1983
Article IV Section 6.2 Amended January 21, 1983
Article II Section 2.1 Amended January 24, 1986
Article I Section 1.3 Amended April 18, 1989, eff. April
19, 1989 (Spl.Mtg.)
Article I Section 1.4 Amended April 18, 1989, eff. April 19,
1989 (Spl.Mtg.)
Article II Section 2.1 Amended April 18, 1989, eff. April 19,
1989 (Spl.Mtg.)
- 8 -
Article II Section 2.2 Amended April 18, 1989, eff. April
19, 1989 (Spl.Mtg.)
Article III Section 3.1 Amended April 18, 1989, eff. April
19, 1989 (Spl.Mtg.)
Article III Section 3.2 Amended April 18, 1989, eff. April
19, 1989 (Spl.Mtg.)
Article V Section 5.1 Amended April 18, 1989, eff. April 19,
1989 (Spl.Mtg.)
Article V Section 5.1 Amended November 17, 1989
Article V Section 5.4 Amended by including new section
November 17, 1989
Article II Section 2.1 Amended October 1, 1990.
Article II Section 2.1 Amended April 23, 1992.
Article II Section 2.1 Amended April 22, 1993.
Article II Section 2.1 Amended September 1, 1993.
Article II Section 2.1 Amended April 21, 1994.
Article II Section 2.1 Amended February 17, 1995.
Article I Section 1.3 and 1.4 Amended April 20, 1995.
Article II Section 2.2 (c) and 2.4 Amended April 20, 1995.
Article III Section 3.1, 3.2, Amended April 20, 1995.
and 3.3
Article II Section 2.1 Amended August 23, 1996.
Article II Section 2.1 Amended April 17, 1997.
Article I Section 1.3 Amended October 24, 1997.
Article I Section 1.6 Amended by adding new section October
24, 1997.
Article II Section 2.6 Amended by adding new section October
24, 1997.
Article II Section 2.1 Amended December 30, 1997.
Article III Section 3.1 Amended December 30, 1997.
Article II Section 2.1 Amended April 23, 1998.
Article II Section 2.1 Amended October 23, 1998.
Article III Section 3.1 Amended October 23, 1998.
- 9 -
Exhibit (10)(l)(e)
SOUTH JERSEY INDUSTRIES, INC.
SCHEDULE OF OFFICER AGREEMENTS
Pursuant to Rule 12b-31, the following sets forth the materials details
which differ in the Executive Employment Agreements, the form of which is filed
herewith as Exhibit (10)(l)(d).
<TABLE>
<CAPTION>
Date of Minimum
Name Capacities in Which Served Agreement Base Salary
- ------------------------- ------------------------------------------------------- --------- -----------
<S> <C> <C> <C>
George L. Baulig Secretary & Treasurer, South Jersey Industries, Inc.; 10/1/96 $125,000
Secretary, South Jersey Gas Company
Charles Biscieglia President, South Jersey Gas Company; Vice President, 10/1/96 167,000
South Jersey Industries, Inc.
Julius J. Bodrog President, Energy & Minerals, Inc.; Assistant Vice 10/1/96 104,000
President, South Jersey Gas Company; President, R&T
Group, Inc.
Edward J. Graham President, South Jersey Fuel, Inc.; Vice President, 8/1/96 110,000
South Jersey Gas Company
Richard J. Jackson Senior Vice President, Operations, South Jersey Gas 6/8/98 111,000
Company
David A. Kindlick Vice President, South Jersey Gas Company 10/1/96 115,000
Janet T. Nickels Senior Vice President, Marketing & Customer Services, 6/8/98 111,000
South Jersey Gas Company
Albert V. Ruggiero Vice President, South Jersey Gas Company 10/1/96 120,000
William J. Smethurst, Jr. Assistant Secretary & Assistant Treasurer, South Jersey 10/1/96 105,000
Industries, Inc. and Energy & Minerals, Inc.; Vice
President & Treasurer, South Jersey Gas Company;
Treasurer, South Jersey Energy Company
</TABLE>
<TABLE>
Exhibit 12
SOUTH JERSEY INDUSTRIES, INC.
Calculation of Ratio of Earnings from Continuing Operations to
Fixed Charges (Before Income Taxes)
(IN THOUSANDS)
<CAPTION>
Fiscal Year Ended December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income* $13,816 $18,429 $18,265 $14,874 $10,209
Income Taxes 11,860 10,739 10,171 8,753 5,400
Fixed Charges** 22,436 20,320 20,408 20,442 15,402
Capitalized Interest (167) (107) (114) (98) (120)
--------------------------------------------------
Total Available $47,945 $49,381 $48,730 $43,971 $30,891
==================================================
Total Available
- ---------------------- 2.1x 2.4x 2.4x 2.2x 2.0x
Fixed Charges
<FN>
* Net Income before Discontinued Operations.
** Includes interest and preferred securities dividend requirements of a subsidiary.
</FN>
</TABLE>
Exhibit 13
SOUTH JERSEY INDUSTRIES, INC.
1998 ANNUAL REPORT
"PARTNERS IN POWERING THE FUTURE"
- Front Cover -
Company Profile
South Jersey Industries, Inc. is an energy services holding company.
South Jersey Gas Company, SJI's principal subsidiary, is a regulated natural
gas distribution utility supplying natural gas and transportation services to
residential, commercial and industrial customers in southern New Jersey. Gas
Company also sells natural gas to wholesale customers in the interstate market
and provides appliance repair warranties through its Service Sentry program.
South Jersey Energy Company markets total energy management services,
including natural gas, electricity, demand-side management and consulting
services throughout the eastern United States. SJ EnerTrade, a subsidiary of
Energy Company, is a wholesale natural gas asset manager and marketer serving
the mid-Atlantic and southern regions of the country.
Table of Contents
1 Financial Highlights
2 Letter to Shareholders
4 The Power of Partnerships
6 Alliances with Energy Peers
8 Customer Relationships
10 Community Relationships
12 Management's Discussion
16 Consolidated Financial Statements
20 Notes to Consolidated Financial Statements
26 Quarterly Financial Data
27 Comparative Operating Statistics
28 SJI Directors and Officers
South Jersey Gas Company's Service Area
Corporate Headquarters Folsom, NJ
South Jersey Industries, Inc.
South Jersey Gas Company
South Jersey Energy Company
SJG Divisions Waterford, NJ
Glassboro, NJ
Pleasantville, NJ
Swainton, NJ
SJG Gas Advantage Stores Glassboro, NJ
Northfield, NJ
This report contains certain forward-looking statements concerning
projected, future financial performance, future operating performance, future
plans and courses of action and future economic conditions. All statements in
this report other than statements of historical fact are forward-looking
statements. These forward-looking statements are based upon management's
expectations and beliefs concerning future events impacting the company and
involve a number of risks and uncertainties. We caution that forward-looking
statements are not guarantees and actual results could differ materially from
those expressed or implied in the forward-looking statements.
A number of factors could cause the company's actual results to differ
materially from those anticipated, including but not limited to the following:
general economic conditions on an international, federal, state and local level;
weather conditions in the company's marketing areas; regulatory and court
decisions; competition in the company's regulated and deregulated activities;
the availability and cost of capital; the company's ability to maintain existing
and/or establish successful new alliances and joint ventures to take advantage
of marketing opportunities; costs and effects of unanticipated legal
proceedings; Year 2000 related costs or operating problems and environmental
liabilities; and changes in business strategies.
- Inside Front Cover -
<TABLE>
1998 Highlights
Five-Year Summary of Selected Financial Data
(In Thousands Where Applicable)
<CAPTION>
South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Results:
Operating Revenues:
Utility $298,038 $327,477 $329,295 $280,233 $298,030
Nonutility 152,208 21,090 26,163 23,930 31,692
-------- -------- -------- -------- --------
Total Operating Revenues $450,246 $348,567 $355,458 $304,163 $329,722
======== ======== ======== ======== ========
Operating Income $36,085 $38,642 $38,559 $35,218 $27,766
======== ======== ======== ======== ========
Income Applicable to Common Stock:
Continuing Operations (1) $13,816 $18,429 $18,265 $14,874 $10,209
Discontinued Operations - Net (2) (2,830) (2,633) 12,233 2,769 2,170
-------- -------- -------- -------- --------
Net Income Applicable to Common Stock $10,986 $15,796 $30,498 $17,643 $12,379
======== ======== ======== ======== ========
Total Assets $748,095 $670,601 $658,381 $604,309 $571,095
======== ======== ======== ======== ========
Capitalization:
Common Equity $169,234 $173,499 $172,731 $157,297 $154,972
Preferred Stock and Securities of Subsidiary 37,134 37,224 2,314 2,404 2,494
Long-Term Debt 194,710 176,360 149,736 168,721 153,086
-------- -------- -------- -------- --------
Total Capitalization $401,078 $387,083 $324,781 $328,422 $310,552
======== ======== ======== ======== ========
Ratio of Earnings from Continuing Operations
to Fixed Charges (Before Income Taxes) 2.15 2.44 2.40 2.16 2.02
======== ======== ======== ======== ========
Earnings Applicable to Common Stock
(Based on Average Shares):
Continuing Operations (1) $1.28 $1.71 $1.70 $1.39 $1.00
Discontinued Operations - Net (2) (0.26) (0.24) 1.14 0.26 0.21
-------- -------- -------- -------- --------
Earnings per Common Share $1.02 $1.47 $2.84 $1.65 $1.21
======== ======== ======== ======== ========
Return on Average Common Equity (3) 8.06% 10.65% 11.07% 9.53% 6.91%
======== ======== ======== ======== ========
Share Data:
Number of Shareholders 10.4 11.4 12.1 12.9 14.0
Average Common Shares 10,776 10,763 10,732 10,720 10,258
Common Shares Outstanding at Year End 10,779 10,771 10,757 10,722 10,715
Dividend Reinvestment and Stock Purchase Plan:
Number of Shareholders 5.5 6.0 6.1 6.5 6.6
Number of Participating Shares 1,371 1,440 2,845 2,932 2,941
Book Value at Year End $15.70 $16.11 $16.06 $14.67 $14.46
Cash Dividends Declared $1.44 $1.44 $1.44 $1.44 $1.44
Market Price at Year End $26 3/16 $30 5/16 $24 3/8 $23 1/8 $18 1/8
Dividend Payout:
From Continuing Operations 112.7% 84.1% 84.6% 103.8% 141.5%
From Total Net Income 141.2% 98.1% 50.7% 87.5% 116.7%
Market Price to Book Value 166.8% 188.2% 151.8% 157.6% 125.3%
Price Earnings Ratio (3) 20.46 17.73 14.34 16.64 18.13
<FN>
(1) Included in 1994 is the negative impact of a $3.5 million Customer Refund Obligation ordered by the BPU
which reduced 1994 earnings by $2.3 million, or $0.22 per share.
(2) Represents discontinued business segments: sand mining and distribution operations which were sold in
1996, construction operations which were sold in 1997 and fuel oil operations with related environmental
liabilities (See Note 3 to Consolidated Financial Statements).
(3) Calculated based on Income from Continuing Operations.
</FN>
</TABLE>
- 1 -
To Our Shareholders
SJI's net income from continuing operations was down approximately 25% from
last year. The primary reason for the lower earnings was less natural gas
consumption due to weather that was approximately 15% warmer than in 1997. In
1998, New Jersey experienced its warmest year on record. A comparison of net
income and earnings per share is as follows:
* SJI's net income from continuing operations was $13.8 million for 1998,
compared with $18.4 million in 1997.
* Earnings per share from continuing operations were $1.28, compared with $1.71
in the previous year.
* SJI's consolidated net earnings, including discontinued operations, amounted
to $11.0 million for 1998, compared with $15.8 million in 1997.
* Earnings per share, including discontinued operations, were $1.02 and $1.47
for 1998 and 1997, respectively.
To create greater earnings stability and minimize the effect of temperature
fluctuations, we pursued a change to our Temperature Adjustment Clause. The new
format, approved by state regulators in October, will significantly reduce
variations in customers' bills and in SJI's weather-related earnings in 1999
and thereafter. This is one of several important strategic initiatives we set
out to accomplish in 1998 to improve customer service, our competitive position
and bottom-line results.
Our Vision: Partners in Powering the Future
1998 was an exciting year of transition for SJI. We restructured our senior
management group to address the changing marketplace and dedicated substantial
time and attention to improving customer relations through teamwork. We're
working hard to become FedEx fast and Disney friendly. To compete more
effectively, we reassessed our business lines, acquired necessary planning and
marketing expertise and introduced products and services our customers need and
want. We offer these products and services through either our regulated or
unregulated businesses based on customer recognition and profitability.
We believe partnerships with shareholders, customers, employees, energy industry
peers, and the communities we serve are critical to our success. The theme of
our report, Partners in Powering the Future, reflects our commitment to
collaboration, alliances, customer-focused programs and community involvement
through relationships grounded in trust and common purpose. As the only
investor-owned energy company based in southern New Jersey, our goal is to
establish SJI as a preferred energy partner by proactively managing our
customers' energy needs through the design, development and delivery of
innovative energy solutions. We take great pride in our commitment to regional
development and the renaissance currently underway in Atlantic City.
Initiatives in the Deregulated Marketplace
New Jersey is on the forefront of energy deregulation in the nation, with a
new law to complete natural gas industry deregulation and begin electric
industry restructuring. Electricity consumers will have their choice of
suppliers, and services such as meter reading and billing will become
- 2 -
competitive. We've worked tirelessly to help mold legislation that is equitable,
balanced, and free of artificial barriers to competition.
Deregulation in this and other industries has reinforced our belief that
our attention and resources should be directed at our primary area of expertise
- -- energy and energy-related products and services. Having the organizational
agility and foresight to be one step ahead of our competitors is also critical.
Fulfilling customers' energy needs using a one-stop shopping approach through
the SJI family of companies is what customers want and what we can now deliver.
We've made customer satisfaction our top priority, modifying our approach,
systems and thinking to create the flexibility necessary to fill their needs.
Our business allies help us provide a full range of products without a large
capital investment. In 1998, we partnered with New Jersey Resources
Corporation, Conectiv Solutions, and Energy East Corporation. Through these
alliances we now maximize certain gas supply portfolio assets, deliver efficient
meter reading services and provide retail electricity and energy management
services. These partnerships generate new revenues, improve service to customers
and position us for future opportunities.
In pursuit of our new direction, we exited unprofitable segments of our
unregulated business. We restructured other segments to ensure their
profitability and consistency with the moderate risk tolerance appropriate for
SJI. We will evaluate all prospective ventures using similar criteria.
During the year, we established an SJI Energy Management Division which has
two primary functions. One is to identify, design and develop consumer products
and services along with the best delivery method; and the other ensures the most
effective management of SJI's valuable energy assets.
Despite financial results severely impacted by the warmest weather ever
recorded in New Jersey, we see 1998 as a year of great accomplishment. We are
confident that we have laid the groundwork for success through a series of
calculated actions which align the expectations of shareholders, management, the
board and other key stakeholders.
Our employees have displayed a willingness to change as the times demand,
and an energy and enthusiasm to see critical activities through to successful
conclusions. All of us are committed to a sustained improvement to your
investment. We thank you for your confidence and continued support.
Richard L. Dunham
Chairman of the Board
February 17, 1999
Charles Biscieglia
President and CEO
- 3 -
The Power of Partnerships
A handshake. The moment that defines the spirit of cooperation between
partners, stirring vivid images of collaboration, trust, synergy, loyalty.
Allies who each have something valuable to contribute to each other. Partners in
powering a future filled with endless possibilities for success.
At South Jersey Industries, Inc., we know our future is full of endless
possibilities. Our business provides us with many opportunities to form
partnerships of all types. We place high value on these relationships because we
believe they play an increasingly important role in our success. Consistent with
this belief, we formulated and implemented strategic initiatives designed to
improve the value of our shareholders' investment. We have always worked hard to
provide vital services for our customers and the communities we serve. Operating
in harmony with a vision and values that reflect realistic and achievable
aspirations helps us strengthen our relationships with key stakeholders. Our
ability to remain a constant, reliable source of energy and related services
through changing times will be the driving force in powering future
accomplishments. In our judgment, success is measured by how well you meet or
exceed the expectations of stakeholders. These expectations are closely linked
to and reflected in our vision, mission and corporate values statements.
Our Vision
SJI aspires to be an energy industry leader serving the collective good of
its shareholders, customers and employees. We will achieve our vision through
entrepreneurial leadership, strategic alliances, and an empowered employee base.
Our focus is on growth, innovation and service. Our goal is to be the energy
company of first choice for investors, customers and employees.
Our Mission
Our mission is maximizing long-term shareholder value by improving the
growth component of our stock and providing returns that exceed opportunities
defined by traditional regulation. We accomplish our business objectives through
the pursuit of our vision as a value-added provider of energy services and
products for our customers. We create value through customer-focused energy
solutions which are competitively priced, innovative and of high quality.
- 4 -
Our Values
SJI values its commitment to all of its stakeholders: shareholders,
employees, customers and the community. We will live up to our commitment
through innovation, performance, integrity, the highest standards of safety and
respect.
Challenges of Deregulation
As the national trend toward deregulating the energy industry unfolds,
maintaining and advancing the competitive edge of SJI and its subsidiaries
remains a top priority. Our industry and those who will determine the future
forms of a competitive energy sector must learn from the experiences of others
that have seen the deregulation process through to conclusion. Regulators will
need to approach each opportunity thoughtfully -- ensuring that the desired
results for energy consumers are balanced with the impacts on utility
companies, their employees, suppliers and the communities where they live, work
and contribute to the quality of life. The energy industry will change and we
are changing with it; traditional regulation will be replaced, at least in part,
with the opportunities and risks of competition. We welcome these challenges.
Because of the changes we made in 1998, we believe our companies are solidly
situated to compete in both regulated and deregulated arenas.
"Over the last two years, South Jersey Gas Company has become a very user-
friendly company and one of our greatest allies. Their response to questions and
concerns is faster than we've ever seen in the past. The energy industry is
competitive, and this is a company that wants to succeed in working with you."
Max Murasky, Senior Purchasing Agent,
Mannington Mills, Inc.
"The alliance and joint venture between our two companies combines the
electric wholesale and retail capabilities of NYSEG Solutions and the market
presence and brand recognition of South Jersey Energy Company to form a dominant
electric supplier in the New Jersey electric market. This type of joint venture
brings together the components that are required to be successful in the new,
competitive electric retail market."
Carl A. Taylor,
President of NYSEG Solutions, Inc.
"A local United Way is only as strong as the companies that support it. The
United Way of Atlantic County is viewed as a very strong organization and much
of that strength can be attributed to the role South Jersey Gas plays in our
success. South Jersey Gas Company not only provides outstanding corporate and
employee financial support, but they allow their employees the luxury of
volunteering their time and talents. We have been very fortunate to have some
great SJG volunteers in key leadership roles for our organization."
Scott Ferguson, Executive Director,
United Way of Atlantic County
- 5 -
Alliances With Energy Peers
1998 was a year of transition for SJI. Following the divestiture of our
non-energy related businesses in 1997, we began refocusing on building upon our
strengths and expertise in the energy field. We made the transition from a
diversified company to one concentrating on energy and energy-related products
and services. As part of this change, we seek alliances that allow us to offer
competitive, income-producing services with modest capital investment. As we
move into the next millennium we expect to gain a competitive edge through
these partnerships and the menu of expanded products and services that we will
offer our customers.
SJI's family of companies are particularly attractive as potential partners
due to our growing service territory and tremendous brand equity within the
geographic region we serve. These attributes are strong complements to the
resources or experiences of our current and potential allies. Deregulation has
stimulated the formation of alliances and we will undoubtedly see more of these
creative ventures as energy competition continues to unfold.
We have supported legislation that ultimately challenges all market players
to create a business environment fostering economic growth, environmental
sensitivity, safe and reliable energy service, and most importantly customer
choice. We believe the new energy law should pave the way for a better industry
and a better New Jersey. We responded to earlier federal deregulation and
anticipated deregulation at the state level by involving all of SJI's
subsidiaries in alliances at some level. Our 4-year venture with Union Pacific
Fuels remains strong and profitable. In 1998, we entered into three more
alliances in our ongoing effort to bring high quality energy-related products
and services to the marketplace.
We are seeking alliances that allow us to offer competitive, income-
producing services with modest capital investment. As we move into the next
millennium we expect to gain a competitive edge through these partnerships and
the menu of expanded products and services that we will offer our customers.
Gas Supply
South Jersey Gas Company and New Jersey Natural Gas Company of Wall, New
Jersey formed a unique alliance to create new marketing opportunities by pooling
each company's gas supply portfolio assets. This partnership allows the
companies to work jointly on interstate pipeline transactions to increase
operational efficiencies and enhance profitability. Each company's customers and
shareholders benefit from lower gas costs and incremental revenue opportunities.
Gas Company and NJNG officials believe the alliance is the first of its kind
among New Jersey's utilities. The two companies also embarked on a joint
purchasing arrangement for needed materials, supplies and facilities, resulting
in reduced unit costs for these items.
Meter Reading/Customer Account Services
SJI and Conectiv Solutions of Wilmington, Delaware, created a joint venture
to provide meter reading services in southern New Jersey. As equal venture
- 6 -
partners they established a new company, Millennium Account Services, LLC. In
January 1999, Millennium launched joint meter reading services in the Cape May
County, New Jersey area. Initially, meter readers from Conectiv and Gas Company
are performing the service for the new company. Utility customers benefit from
reduced meter reading costs while the LLC generates incremental income for the
two partners. Millennium's prospective target market is the mid-Atlantic region,
and the company may eventually provide a variety of customer account services
including meter services, billing and remittance processing. Deregulation in
the energy industry will open to competition many services traditionally
provided by utility monopolies. Under the new law, customer account services
could become competitive within the year. In forming Millennium, we anticipated
these changes and are prepared to compete in these emerging service markets.
Retail Electricity and Energy Management
South Jersey Energy Company and NYSEG Solutions Inc., a subsidiary of
Energy East Corporation of Binghamton, New York, announced plans to form a
jointly owned limited liability company to market retail electricity and energy
management services. The alliance anticipates significant efficiencies and
expanded service capabilities for both companies as the electric industry
restructures.
This partnership combines Energy Company's strong regional presence, brand
recognition, marketing and sales expertise with NYSEG Solutions' electric
trading and retail sales experience. Together, we will provide energy to retail
customers at competitive prices, along with a broad range of value-added
services. The new company creates a seamless electric distribution network for
targeted customers in New Jersey, Pennsylvania, Maryland, Delaware, Washington,
D.C. and Virginia providing creative, client-specific solutions through
superior products and services. The alliance facilitates SJI's plan to move away
from the wholesale electric trading business and toward the retail sector.
SJI management and employees are dedicated to maximizing long-term value
for shareholders through growth and profits. We add value for customers by
anticipating and effectively fulfilling their needs. Through strategic
partnerships we advance our objectives.
- 7 -
Customer Relationships
The most powerful partnerships for SJI's future are the long-term
relationships we enjoy with our customers. We redefined and broadened our
customer approach during the year. Our aim is to serve our customers' total
energy needs and to manage customer relationships through continuous,
personalized attention. By meeting often with key customer contacts and
listening to their plans and concerns, we can better anticipate their needs and
offer products and services which exceed their expectations.
The success of this approach was demonstrated in 1998 as we amicably
settled a $10 million claim by eight casino customers who believed we served
them under a less-than-optimal rate schedule. Under the settlement's terms, Gas
Company agreed to file an amended rate schedule which would improve the quality
of service to casinos during cold weather. Most importantly, we approached these
negotiations with a desire to understand and meet the needs of a valuable
customer group. As a byproduct, we gained a stronger relationship with these key
stakeholders. No doubt, this approach aided Energy Company in securing a 5-year
contract to manage the gas supply function for these Atlantic City casinos.
Team Approach to Marketing and Customer Relationships
SJI employs a team approach to customer relationship marketing, bringing a
broad portfolio of services to our large customers. To facilitate this approach,
we recently consolidated and restructured the marketing function at the SJI
level. Unifying our marketing efforts under the SJI brand, provides customers
with a one-stop shopping approach and an array of energy options. This approach
also advances the opportunity to grow revenues and income for Gas Company and
Energy Company.
The SJI approach situates Energy Company as the primary sales vehicle for
new energy products and services in the residential, commercial and industrial
sectors. Energy Company will use its expertise and that of its partners to
deliver effective energy solutions to customers. This strategy capitalizes on
internal strengths and seeks external expertise in selected arenas without the
need for extraordinary capital investment.
Energy Company's products and services include retail electricity, natural
gas and unique items like a WeatherProof utility bill providing customers with a
guaranteed price regardless of the weather. Our menu of products and services
includes HVAC consultation, consolidated billing, comprehensive energy
analyses, wholesale natural gas and demand-side management. These offerings
simplify the complexities of energy deregulation and save customers money.
Presently, Energy Company is southern New Jersey's leading residential natural
gas marketer and with its partners, successfully manages gas supplies for major
utilities in the Northeast, and other large customers.
Although large volume customers comprise less than 1% of Gas Company's
clients, they contribute over half its annual throughput. In recognition of
their importance, SJI's CEO and senior management team met with them to reaffirm
long-standing relations and renew dormant ones. These efforts, which will be
ongoing, cultivated win-win opportunities, as many customers increased firm
- 8 -
usage contracts with Gas Company and selected Energy Company to manage their
energy needs.
New Initiatives Implemented in 1998
SJI's plan to stabilize earnings and help secure its stock yield component
improved dramatically in 1998. In October, the Board of Public Utilities
approved an adjustment to Gas Company's Temperature Adjustment Clause which more
closely aligns revenues to normal temperatures. Consequently, Gas Company will
be compensated in warm winters and customers will be better insulated from the
financial impact of colder weather. Gas Company maintained its dedication to
cost control and accelerated its efforts to grow revenues and income. In doing
so, we have taken a fresh look at our residential customers' needs. The year's
most significant marketing efforts were aimed at expanding home appliance
service programs, including our Service Sentry warranty plans. To generate
sales, we executed a diversified marketing blueprint, including a creative
employee incentive plan. Enrollment in Service Sentry increased by 64% in less
than 9 months producing additional revenues for Gas Company. We will continue
to capitalize on consumer confidence in our company's service expertise to
increase enrollment in warranty programs and hourly billing revenues.
Natural gas conversions from other fuels also remains a profitable niche
due to high returns and generally, low capital investment requirements. This
year, we accomplished our first direct-marketing effort, targeting non-gas homes
situated near gas mains. Following closely was a mass marketing campaign
directed at all potential conversion customers. Together, these programs helped
promote strong growth for Gas Company, which added approximately 2,900 new
natural gas customers to its steadily expanding energy family.
In July, Gas Company's customer choice program expanded to a new maximum
level of 25,000 participants. At year end, 17,310 customers had enrolled. We
have asked the Board of Public Utilities to open the program to all of our
customers in 1999. Acquiring customers at a steady pace, Energy Company extended
its leadership position and now represents 10,667 of the 17,310 currently
participating.
Ready for the Millennium
In 1997, SJI began planning the remediation necessary to ensure its
critical systems will be Y2K ready. We will complete programming changes in the
first quarter of 1999, providing the rest of 1999 for testing. SJI is confident
in Gas Company's ability to provide uninterrupted natural gas service. The date-
sensitive system controlling our distribution system is designed to provide
continuous natural gas flow in the event of any software, hardware, or
communication link failure.
- 9 -
Community Relationships
As a company that serves a large region of New Jersey and the surrounding
states, our obligation to the community goes beyond simply providing energy
services. SJI's involvement in community activities is as diverse as the people
who make up the region where our employees live and work. We believe it is
important to be both a partner and a catalyst for change, whenever possible.
Our community support takes many forms as we offer our talents and dedicate our
resources.
Through our community relations initiatives, we work hard to improve the
social and economic well-being of our region. These efforts directly impact the
quality of life in our area. We are firmly convinced that being a good neighbor
is not only the right thing to do, but is also good business. Community
involvement initiatives befitting a concerned and responsible corporate
neighbor, are cornerstones to building goodwill and trust. By contributing to
the economic vitality of our region, the market for our products and services
will be expanded. Our role as a community partner is far reaching. We support a
large number of charitable, social and business organizations through corporate
contributions, sponsorships, volunteerism and educational activities.
Corporate Contributions
As a company and individually, we are committed to activities that provide
resources and services to build a better and safer community. Our corporate
contributions program provides funding to organizations in several categories
including health and human services, education, children and youth, as well as
arts and culture. We also contribute to civic and environmental organizations.
The company and our employees have a long history of generous support for the
United Way agencies in southern New Jersey. Institutions of higher learning such
as Rowan University, Rutgers University and Richard Stockton College receive
annual donations, largely to provide scholarships for deserving students. We
place a high value on these institutions that educate current and future
generations. In 1998, we began a rewarding relationship with Ronald McDonald
House of Southern New Jersey in Camden which provides a home-away-from-home for
families of critically ill children. Other organizations receiving our financial
support include local emergency response services and hospitals. Recently, we
dedicated a much needed waiting room for the new Critical Care Center at Shore
Memorial Hospital in Somers Point, New Jersey.
- 10 -
Sponsorships
Our sponsorship of major community-related programs is part of an
initiative to increase our recognition and visibility. In 1999, two programs
will be flagships for this endeavor. Through a major sponsorship of its Save a
Life program, we partnered with ABC's Philadelphia station to raise fire safety
awareness and carry out a massive smoke detector distribution effort in the
Delaware Valley. Also, we will become a significant supporter of educational
and cultural public television programming through a grant to New Jersey
Network.
Employee Volunteerism
While we believe it is important to fund organizations which have a proven
value to the community, we also believe in reaching out in more personal ways.
Our employees have a rich tradition of involvement in organizations ranging from
local United Ways to the Conserve Wildlife Foundation of New Jersey. We work
with these groups on many levels and are particularly proud of our employee
volunteer program titled, People Involved in Lending Our Talents. This program
directs resources toward fulfilling community needs which might otherwise go
unserved. Our volunteers selflessly give their free time to lend a hand. They
have done everything from assisting at a local food bank, to remodeling a
playroom at a shelter for domestic violence victims. Employees have helped
senior citizens with home improvement projects and participated in fund-raising
events for the March of Dimes and Big Brothers/Big Sisters. Not only do our
employees volunteer, but they are both enthusiastic and successful in enlisting
their family and friends, allowing the PILOT program to grow and flourish.
Educational Programs
We are actively involved with school children and their families throughout
the community. Our school program, designed to raise a generation of energy-wise
consumers, teaches children of all ages about the benefits of natural gas. To
support our energy education efforts, we participate in fairs, career days and
conduct special workshops for teachers.
We maintain a Consumer Advisory Council composed of individuals employed by
social service agencies throughout the region. The CAC has enabled us to develop
enriching relationships with caring community members who serve, among others,
low-income, elderly and disabled people. CAC members function as liaisons
between their constituents and Gas Company, communicating programs and policies
and working with our employees to ensure continued gas service.
Our community relations efforts are well-received. We have been recognized
by, and have received numerous commendations from, charitable and civic
organizations throughout the region. While recognition is rewarding, the
satisfaction gained from the helping hand offered, is often reward enough.
- 11 -
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Overview -- South Jersey Industries, Inc. (SJI) has two operating
subsidiaries, South Jersey Gas Company (SJG) and South Jersey Energy Company
(SJE). SJG is a regulated natural gas distribution company serving 267,065
customers at December 31, 1998, compared with 260,567 customers at December 31,
1997. SJE provides services for the acquisition and transportation of natural
gas for retail end users and markets total energy management services. In 1998,
SJE bought and sold electricity in the wholesale market. However, as a result of
an alliance with Energy East Corporation, SJE ceased buying and selling
wholesale electricity. SJE has one operating subsidiary, SJ EnerTrade
(EnerTrade). EnerTrade, formed in October 1997, 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
results of non-regulated energy service companies, SJE and EnerTrade, do not
contribute materially to SJI's financial statements at this time.
Competition -- SJG's franchises are non-exclusive. Currently, no other
utility provides retail gas distribution services within our territory. We do
not expect any other utilities to do so in the foreseeable future because of the
extensive investment required for utility plant and related costs. SJG competes
with oil, propane and electricity suppliers for residential, commercial and
industrial users. The market for natural gas sales is subject to competition as
a result of deregulation. We have enhanced SJG's competitive position while
maintaining margins by using an unbundled tariff. This tariff allows recovery of
the full cost of service, except for the variable cost of the gas commodity,
when transporting gas for our customers. Under this tariff, SJG profits from
transporting rather than selling the commodity. SJG's commercial and industrial
customers can choose their supplier while we recover the cost of service and
fixed gas costs primarily through transportation service. In June 1998, SJG
expanded its New Jersey Board of Public Utilities (BPU) approved pilot program
giving some residential customers a choice of gas suppliers (See "Pilot Program
- - Choice of Gas Supplier"). We believe SJG is a leader in addressing the
changing marketplace, while focusing on being a low-cost provider of natural gas
and energy services. SJE and EnerTrade actively arrange energy services
providing low-cost energy supplies in a highly competitive marketplace.
Pilot Program - Choice of Gas Supplier -- In April 1997, SJG began its BPU-
approved pilot program giving residential customers a choice of gas supplier.
During the initial enrollment period, which ended in June 1997, nearly 13,000
residential customers applied for this service. We 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 SJG's revenues is offset by a
corresponding decrease in gas costs and taxes under a BPU-approved fuel clause.
While the program reduces utility revenues, it does not affect SJG's net
income, financial condition or margins. Also, we expanded the choices available
to commercial and industrial customers, including a new transportation tariff
providing savings to qualified customers.
Energy Adjustment Clauses -- SJG's tariff includes a Levelized Gas
Adjustment Clause (LGAC), a Temperature Adjustment Clause (TAC), a Remediation
Adjustment Clause (RAC) and a Demand-Side Management Clause (DSMC). These
clauses permit us to adjust customer bills for changes in gas supply costs, to
reduce the impact of temperature fluctuations on SJG and its customers, to
recover remediation costs for former gas manufacturing plants and recover
conservation plan costs, respectively. The BPU-approved LGAC, RAC and DSMC
adjustments match revenues with expenses. TAC adjustments affect revenue, income
and cash flows since colder-than-normal weather can generate credits to
customers, while warmer-than-normal weather can result in additional billings to
customers. TAC adjustments related to the 1997-1998 TAC year did not materially
impact 1998's financial statements.
Status of Year 2000 Conversion -- We prepared a Year 2000 Impact and
Assessment Study and developed a detailed plan to enable SJI to be ready for
year 2000. "Ready" means that mission critical software, hardware, devices,
systems, facilities and business relationships are prepared to operate
satisfactorily through the end of 1999 and beyond. Also, we will have
contingency plans established to address any problems that arise. As of December
31, 1998, we revised approximately 74% of programming code. All revisions are
scheduled to be completed by April 1999, providing the remainder of the year for
testing. We believe that 90% of all, and 100% of our mission critical, embedded
technology is Y2K ready.
We contacted all vendors providing third party software and all have
indicated they are Y2K ready. SJI has also contacted all product and service
vendors regarding their Y2K readiness. Approximately 65% of all vendors have
indicated readiness. We are actively pursuing assurances that the remainder will
be Y2K ready. Total costs to address Y2K issues at SJI are estimated at $0.4
million, with $0.3 million having been spent through December 31, 1998.
The worst case scenario that concerns us the most is a temporary disruption
of service to our gas customers. Our gas distribution system can be operated
manually. We have received assurances from our two direct connect gas supply
pipelines that they are Y2K ready. We are seeking assurances from the companies
that supply gas to our system that they will be Y2K ready. We are preparing
contingency plans for use in the event that they are not ready. Contingency
plans have been or are being prepared to address Y2K related problems. All
contingency plans for high priority items such as service continuation, safety
and revenues are scheduled to be completed by July 1999.
While unexpected Y2K problems can occur, we do not anticipate any material
difficulty in achieving Y2K readiness based upon the nature of SJI's operating
and information systems and the state of planning and remediation. Any problems
that arise should be immaterial to our financial position or operating results.
Operating Revenues - Utility -- Revenues decreased $29.4 million in 1998
compared with 1997. In 1997, revenues declined $1.8 million from 1996. The
revenue decline in 1998 was due to weather that was 14.9% warmer than 1997 and
12.7% warmer than the 20-year average for our service territory. Temperatures in
1998 were the highest recorded since meteorologists began keeping records in
1894. Revenues were also reduced by state tax reform which lowered the tax
component in reported revenue and by customers using increased firm
transportation in lieu of firm gas sales. Revenue from transporting gas excludes
commodity costs. The lower tax component in reported revenue was offset by a
reduction in Other Taxes (See Notes 1 and 6). Our tariffs are structured so that
profits come from transporting gas, not the sale of the gas itself.
Consequently, while both the tax reform and the switch to firm transportation
reduced total revenues, neither affected our profits. Revenues from adding 6,498
customers were more than offset by the factors discussed above. The revenue
decrease in 1997 was due to weather that was 6.7% warmer than 1996 and increased
firm transportation service replacing firm sales. Our 1997 decline was partially
offset by increased base rates, 6,693 new customers, increased off-system sales
and increased capacity release revenues.
Operating Revenues - Nonutility -- Nonutility operating revenues increased
$131.1 million in 1998 compared with 1997, and decreased $5.1 million in 1997
versus 1996. The increase in 1998 was almost entirely from increased wholesale
electricity sales. While profitable, we discontinued our wholesale electricity
trading activities in late 1998 because we determined that our risks were
greater than possible rewards. The 1997 decrease was principally due to lower
commodity sales.
Gas Purchased for Resale -- Gas purchased for resale decreased $7.3 million
in 1998 compared with 1997 due principally to weather-related decreased sales
volumes and customers switching from gas sales to firm transportation. Gas
purchased for resale decreased $4.0 million in 1997 versus 1996 primarily due
to lower sales volumes. Gas supply sources include contract and open-market
purchases. SJG secures and maintains its own gas supplies to serve its
customers.
SJG has long-term contracts for natural gas supplies, firm transportation,
and firm gas storage service. The earliest any of these contracts expires is
October 2000. All transportation and storage service agreements between SJG and
its interstate pipeline suppliers were made under Federal Energy Regulatory
Commission (FERC) approved tariffs. SJG's cumulative obligation for demand
- 12 -
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.
Operations -- A summary of net changes in Operations and Maintenance -
Utility (in thousands):
1998 vs. 1997 1997 vs. 1996
------------- -------------
Other Production Expense $ (42) $ 123
Transmission 156 (35)
Distribution (37) (179)
Customer Accounts and Services 438 (322)
Sales (147) 126
Administration and General (1,345) 3,216
Other 9 (433)
------- -------
Total Net Change $ (968) $ 2,496
======= =======
Customer Accounts and Services costs increased in 1998 principally due to
an increase in payroll expense. This account decreased in 1997 principally due
to a 1996 charge to increase the reserve for uncollectible accounts and lower
payroll costs. Administrative and General costs decreased in 1998 principally
due to a $1.5 million death benefit liability recorded in 1997. This liability
became payable upon the death of SJI's president in December 1997. The decrease
was partially offset by increased employee benefits costs in 1998.
Other Operating Expenses -- A summary of principal changes in other
consolidated operating expenses (in thousands):
1998 vs. 1997 1997 vs. 1996
------------- -------------
Operation and Maintenance -
Nonutility $130,152 $ (3,625)
Depreciation 1,164 1,114
Income Taxes 1,121 568
Other Taxes (19,940) (3,506)
Changes in nonutility expenses principally reflect the impact of sales
volumes and commodity costs, with 1998 particularly impacted by wholesale
electricity sales. Depreciation is higher in each period due to increased
investment in property, plant and equipment by SJG. Income Tax changes reflect
the impact of changes in pre-tax income and of energy tax reform legislation
discussed under "Operating Revenues - Utility." Other taxes decreased because of
the energy tax reform legislation (See Note 6).
Interest Charges -- Interest charges increased in 1998, following a
decrease in 1997. The increase in 1998 was due to higher levels of short and
long-term debt outstanding. The increased debt was used primarily to finance
capital expenditures and to support higher levels of purchased gas inventories
resulting from unexpectedly warm weather throughout 1998. Interest charges were
reduced in 1997 because cash proceeds from the sale of a subsidiary and the
issuance of Mandatorily Redeemable Preferred Securities were used to reduce bank
debt outstanding.
Preferred Dividend Requirements of Subsidiary -- Preferred Dividends
increased in 1998 as the $35.0 million of 8.35% SJG-Guaranteed Mandatorily
Redeemable Preferred Securities issued in May 1997 were outstanding for the full
year (See "Capital Resources").
Discontinued Operations -- In December 1996, Energy & Minerals, Inc. (EMI),
an SJI subsidiary, sold The Morie Company, Inc.'s (Morie) common stock for
approximately $55.3 million in cash. The underlying book value was approximately
$27.9 million and the net gain on the transaction amounted to $15.0 million
(See Note 3). We used some of the proceeds to redeem subsidiary debt, including
$9.0 million of 9.66% Senior Notes and a bank note of approximately $2.0
million. Also, SJI sold the assets of certain R&T Group, Inc. (R&T)
subsidiaries in early 1997 for approximately $3.5 million. Assets were sold for
their approximate net book value. Based on a plan to discontinue or sell the R&T
companies, we reduced their recorded value in 1996 to estimated net realizable
value (net of income taxes). The profit or loss and the write down to net
realizable value are included under the caption Net (Loss) Gain on the Disposal
of Discontinued Operations (See Note 3). The sale of assets in 1996 impacts the
comparative financial information for 1997 and 1996. Also, in 1997, we recorded
additional costs of approximately $2.6 million for environmental remediation
expenditures for the previously operated fuel oil business of South Jersey Fuel,
Inc. (SJF) and for Morie (See Note 3).
The 1998 increase in loss from discontinued operations is principally due
to a product liability settlement and increased environmental cleanup costs. The
1997 decrease in income from discontinued operations is principally due to the
recording of liabilities for anticipated environmental cleanup costs.
Net Income Applicable to Common Stock -- Net income (in thousands) and
earnings per common share reflect the following changes:
1998 vs. 1997 1997 vs. 1996
------------- -------------
Income from Continuing Operations $(4,613) $ 164
Loss from Discontinued Operations (964) (1,459)
Net (Loss) Gain on Disposal of
Discontinued Operations 767 (13,407)
------- --------
Net Income Decrease $(4,810) $(14,702)
======= ========
Earnings per Common Share
Continuing Operations $ (0.43) $ 0.01
Discontinued Operations (0.02) (1.38)
------- --------
Earnings per Share Decrease $ (0.45) $ (1.37)
======= ========
The details affecting the changes in net income and earnings per share are
discussed under the appropriate captions above.
Liquidity -- The seasonal nature of gas operations; the timing of
construction and remediation expenditures and related permanent financing; as
well as mandated tax and sinking fund payment dates require large, short-term
cash requirements. These requirements are generally met by cash from operations
and short-term lines of credit. We maintain short-term lines of credit with a
number of banks, totaling $135.0 million of which $38.0 million was available at
December 31, 1998. The credit lines are uncommitted and unsecured with interest
rates at or below the prime rate.
The changes in cash flows from operating activities (in thousands):
1998 vs. 1997 1997 vs. 1996
------------- -------------
Increases/(Decreases):
Net Income $ (4,810) $(14,702)
Depreciation, Depletion and Amortization 951 (3,350)
Provision for Losses on Accounts Receivable 126 (792)
Revenues and Fuel Costs Deferred - Net (913) 4,449
Deferred and Non-Current Income
Taxes and Credits - Net 2,367 (4,365)
Net Pre-Tax Loss (Gain) on the Disposal
of Discontinued Operations (845) 23,465
Environmental Remediation Costs - Net (1,196) (1,112)
Accounts Receivable (12,716) 44
Inventories (1,650) 6,732
Prepayments and Other Current Assets 48 (973)
Prepaid and Accrued Taxes - Net (17,462) (4,681)
Accounts Payable and Other Accrued
Liabilities 4,125 (9,514)
Other - Net (618) 2,865
-------- --------
Net Cash Provided by Operating
Activities $(32,593) $ (1,934)
======== ========
Depreciation and Amortization are non-cash charges to income and do not
impact cash flow. Changes in depreciation cost reflect the effect of additions
and reductions to fixed assets.
Changes in Revenues and Fuel Costs Deferred - Net reflect the
undercollection of fuel costs resulting from weather-related reductions in gas
sales and regulatory delays in recovering fuel costs under the LGAC (See Note
7).
Changes in Deferred and Non-Current Income Taxes and Credits - Net
represent the differences between taxes accrued and amounts paid. Generally,
deferred income taxes related to deferred fuel costs will be paid in the next
year.
Decreases in Environmental Remediation Costs - Net represent the excess of
remediation expenditures over amounts collected under the RAC and insurance
recoveries.
Changes in Accounts Receivable are primarily due to the sale of wholesale
electricity by SJE. Weather and commodity prices also impact this account.
- 13 -
Changes impact cash flows when collected in subsequent periods.
Changes in Inventories reflect the impact of seasonal requirements,
temperatures and price changes.
Increases in Prepaid and Accrued Taxes - Net reflect the impact of excess
taxes paid over taxes accrued. However, significant timing differences exist in
cash flows during the year. As stated in Note 1, on January 1, 1998, the Gross
Receipts & Franchise Taxes were replaced with a 6% State Sales and Use Tax
(SUT), a 9% State Corporate Business Tax (CBT) on income before taxes and a
Transitional Energy Facilities Assessment (TEFA) on volumes of gas sold and
transported. The TEFA will be phased out over 5 years beginning January 1, 1999.
Approximately 50% of these taxes are paid in installments during the first half
of the year and the remaining 50% are paid on May 15 of each year. SJG uses
short-term borrowings to pay taxes, resulting in a temporary increase in the
short-term debt level. The carrying costs of timing differences are recognized
in base utility rates.
Changes in Accounts Payable and Other Current Liabilities reflect the
impact of timing differences between the accrual and payment of costs.
Cash flow from nonutility operations is generally retained by those
companies with amounts in excess of cash requirements passed up to SJI either as
dividends or as temporary short-term loans. Nonutility operations are service
oriented and do not require significant investment in capital facilities,
inventories or personnel. These operations are not considered material to the
financial statements.
Regulatory Matters
Rate Actions
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 small
commercial customers. We recover the increase from new miscellaneous service
fees which charge specific customers for costs they cause us to incur.
Additionally, our starting point for sharing pre-tax margins generated by
interruptible and off-system sales and transportation (Sharing Formula) was
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. In December 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 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 applicable threshold level to the LGAC customers.
Thereafter, SJG keeps 20% of the pre-tax margins as it has historically.
SJG calculates rates of return by weighting individual capital cost rates
by the proportion of each respective type of capital. This requires selecting
appropriate capital structure ratios and determining the cost rate for each
capital component as determined in each rate proceeding.
In setting a rate of return, the BPU must provide a utility and its
investors with a return on invested capital matching the risk so the utility can
access capital required to meet its public service responsibility.
Also in January 1997, the BPU approved SJG's request for a $2.5 million
revenue reduction through the TAC. This standard BPU procedure credits customers
with previously collected revenues exceeding those allowed by the TAC (See
"Energy Adjustment Clauses"). This revenue reduction reflects the TAC's normal
operation, as does the BPU's confirmation of the decrease.
In September 1997, SJG filed with the BPU to adjust rates by replacing the
GRAFT with the SUT, CBT and TEFA (See "Liquidity"). The new rates were effective
January 1, 1998.
SJG has an LGAC filing pending with the BPU requesting a $7.1 million rate
increase. This filing encompasses all of the adjustments filed for from the
1996-1997 LGAC filing through an updated 1998-1999 LGAC filing.
In March 1998, the BPU approved new appliance service rates. In April 1998,
the BPU also authorized SJG to offer new appliance service contract plans and to
service electric air conditioners. In January 1999, SJG filed for an increase in
our 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 June 1998, we 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.
In July 1998, SJG filed a motion to further unbundle natural gas service.
The BPU's order of June 1998 expanded the residential transportation pilot
program. It also directed SJG to make a filing addressing residential
unbundling which we did in November 1998. Many of the residential unbundling
issues also relate to the commercial and industrial transportation program. The
filing encompasses all issues surrounding both programs and is still outstanding
at the BPU.
Environmental Remediation
SJI incurred and recorded costs for environmental cleanup 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 cleanup 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. We spent $47.8 million as of December 31, 1998. With the
assistance of an outside consulting firm, we estimate that future costs to clean
up the SJG 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 consolidated
balance sheet under the captions, Current Liabilities and Deferred Credits and
Other Non-Current Liabilities. 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 remediation 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 costs. 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.
The other regulatory asset titled Environmental Remediation Cost: Liability
for Future Expenditures relates to estimated future expenditures determined
under FASB No. 5. This amount, which relates to former manufactured gas plant
sites, was recorded as a deferred debit with the corresponding amount reflected
on the consolidated 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 its 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 consolidated 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.
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. This amount was updated to $5.0 million in a December 1998 filing. 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. Both filings
are still pending at the BPU.
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.
- 14 -
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 consolidated
balance sheet under Current Liabilities and Deferred Credits and Other Non-
Current Liabilities as of December 31, 1998.
Other Regulatory Asset Recovery
Adopting FASB Statement No. 109, "Accounting for Income Taxes," in 1993
primarily resulted in creating a $17.6 million regulatory asset. SJG is
recovering the amortization of this asset through rates over 18 years which
began in December 1994. Also, SJI adopted FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," in 1993. The BPU
provided for partial recovery of costs associated with FASB No. 106 and
prescribed continued deferral of unrecovered costs until 1998. Beginning
January 1, 1998, the BPU approved full recovery of the net periodic benefit cost
as well as recovery of the regulatory asset, amounting to $5.5 million at
December 31, 1998, over 15 years.
Other
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.
SJI also maintains insurance and records 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 have 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 that will better meet their needs.
Financial Risk Management -- The regulated and unregulated natural gas
businesses of SJI and its three subsidiaries are subject to market risk due to
fluctuations in natural gas prices. To hedge against fluctuations, SJI and its
subsidiaries have at times entered into forward contracts. SJG recovers gas
costs through the LGAC, and hedges against price fluctuations by using forward
contracts. SJE entered up to 2-year fixed price contracts to sell natural gas
to retail customers but also hedged its risks on these transactions through
matching forward physical purchases. SJE engaged in wholesale electric trading
activities during 1998, but discontinued those activities and fully hedged all
remaining open positions as of December 31, 1998. The net profits realized from
those activities are reflected on SJI's book of accounts for 1998. EnerTrade has
no direct future or forward transactions but has an investment in South Jersey
Resources Group (SJRG) which enters into forward transactions to hedge storage
management and fixed-price sales transactions.
To manage these transactions, SJI has well-defined risk management policy
and procedures which include volumetric and monitoring limits. SJI and its
subsidiaries do not purchase or sell derivative financial instruments.
Capital Resources -- SJI has a continuing need for cash resources and
capital, primarily to invest in new and replacement facilities and equipment and
for environmental remediation costs. Net construction and remediation
expenditures for 1998 amounted to $70.0 million. The costs for 1999, 2000 and
2001 are estimated at approximately $53.2 million, $57.8 million and $56.7
million, respectively. We will fund these expenditures from several sources,
which may include cash generated by operations, temporary use of short-term
debt, sale of medium term notes, capital leases, RAC recoveries and sale of
equity.
In March 1997, SJG sold $35.0 million of First Mortgage Bonds, 7.7% Series
due 2027.
In May 1997, SJG's Delaware 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. 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.
In October 1998, SJG issued $30.0 million of debt under a $100 million
Medium Term Note Program. Notes totaling $10.0 million were issued at 6.12%,
maturing in 2010, and $20.0 million of notes issued at 7.125%, maturing in 2018.
The net proceeds of these note issuances were used to retire short-term debt and
to fund capital expenditures.
Other Events -- In October 1998, SJI and Energy East Corporation announced
plans to form a jointly owned limited liability company (LLC) 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. The new venture also
completes SJI's plans to shift its focus away from the wholesale electric
trading business and toward the retail sector.
Also in October 1998, SJI and Conectiv announced plans for a joint customer
account services venture, Millennium Account Services, LLC, that began providing
meter reading services in southern New Jersey in January 1999. The new venture
allows both companies to capitalize on synergies that exist because of
overlapping territories. Customers should benefit from reduced meter reading
costs.
Inflation -- In the ratemaking process, only the original cost of utility
plant is recoverable in revenues as depreciation. The excess cost of utility
plant, stated in terms of current cost over the original cost of utility plant,
is not presently recoverable. While the ratemaking process gives no recognition
to the current cost of replacing utility plants, SJG believes it will be allowed
to earn a return on the increased cost of its investment as replacement of the
facilities occurs.
Summary -- SJI is confident it will have sufficient cash flow to meet its
operating, capital and dividend needs and is taking and will take such actions
necessary to employ its resources effectively.
Independent Auditors' Report
To the Shareholders and
Board of Directors of
South Jersey Industries, Inc.:
We have audited the consolidated balance sheets of South Jersey Industries,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
statements of consolidated income, consolidated retained earnings and
consolidated cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of South Jersey Industries, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 12, 1999
- 15 -
<TABLE>
Statements of Consolidated Income
(In Thousands Except for Per Share Data)
<CAPTION>
South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating Revenues:
Utility (Notes 1 & 7) $ 298,038 $ 327,477 $ 329,295
Nonutility (Note 8) 152,208 21,090 26,163
--------- --------- ---------
Total Operating Revenues 450,246 348,567 355,458
--------- --------- ---------
Operating Expenses:
Gas Purchased for Resale 173,824 181,117 185,138
Operation and Maintenance - Utility (Note 11) 47,551 48,519 46,023
Nonutility 153,306 23,154 26,779
Depreciation (Note 1) 17,142 15,978 14,864
Income Taxes (Notes 1, 5 & 6) 11,860 10,739 10,171
Other Taxes (Notes 1 & 6) 10,478 30,418 33,924
--------- --------- ---------
Total Operating Expenses 414,161 309,925 316,899
--------- --------- ---------
Operating Income 36,085 38,642 38,559
--------- --------- ---------
Interest Charges:
Long-Term Debt 15,246 15,197 14,117
Short-Term Debt 3,496 2,550 5,533
Other 439 364 470
--------- --------- ---------
Total Interest Charges 19,181 18,111 20,120
--------- --------- ---------
Preferred Dividend Requirements of
Subsidiary (Note 2) 3,088 2,102 174
--------- --------- ---------
Income from Continuing Operations 13,816 18,429 18,265
Discontinued Operations: (Note 3)
Loss from Discontinued Operations - Net (2,830) (1,866) (407)
Net (Loss) Gain on the Disposal of Discontinued
Operations - (767) 12,640
--------- --------- ---------
Net Income Applicable to Common Stock $ 10,986 $ 15,796 $ 30,498
========= ========= =========
Average Shares of Common Stock Outstanding (Note 4) 10,776 10,763 10,732
========= ========= =========
Earnings Per Common Share: (Notes 3 & 4)
Continuing Operations $ 1.28 $ 1.71 $ 1.70
Discontinued Operations - Net (0.26) (0.24) 1.14
--------- --------- ---------
Earnings Per Common Share $ 1.02 $ 1.47 $ 2.84
========= ========= =========
Dividends Declared Per Common Share $ 1.44 $ 1.44 $ 1.44
========= ========= =========
Statements of Consolidated Retained Earnings
(In Thousands)
Year Ended December 31,
1998 1997 1996
--------- --------- ---------
Balance at Beginning of Year $ 49,038 $ 48,743 $ 33,705
Net Income Applicable to Common Stock 10,986 15,796 30,498
Dividends Declared - Common Stock (15,517) (15,501) (15,460)
--------- --------- ---------
Balance at End of Year (Note 12) $ 44,507 $ 49,038 $ 48,743
========= ========= =========
<FN>
The accompanying schedule and footnotes are an integral part of the financial statements.
</FN>
</TABLE>
- 16 -
<TABLE>
Statements of Consolidated Cash Flows
(In Thousands)
<CAPTION>
South Jersey Industries, Inc. and Subsidiaries
Year Ended December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income Applicable to Common Stock $ 10,986 $ 15,796 $ 30,498
Adjustments to Reconcile Net Income to Cash
Flows Provided by Operating Activities:
Depreciation, Depletion and Amortization 19,063 18,112 21,462
Provision for Losses on Accounts Receivable 1,477 1,351 2,143
Revenues and Fuel Costs Deferred - Net (4,183) (3,270) (7,719)
Deferred and Non-Current Income Taxes and
Credits - Net 7,725 5,358 9,723
Net Pre-Tax Loss (Gain) on the Disposal
of Discontinued Operations - 845 (22,620)
Environmental Remediation Costs - Net* (4,079) (2,883) (1,771)
Changes in:
Accounts Receivable (10,603) 2,113 2,069
Inventories (3,284) (1,634) (8,366)
Prepayments and Other Current Assets (41) (89) 884
Prepaid and Accrued Taxes - Net (13,107) 4,355 9,036
Accounts Payable and Other Accrued
Liabilities 4,526 401 9,915
Other - Net (1,120) (502) (3,367)
--------- --------- ---------
Net Cash Provided by Operating Activities 7,360 39,953 41,887
--------- --------- ---------
Cash Flows from Investing Activities:
Investment in Affiliate (591) - (1,000)
Loan to Affiliate 211 (1,761) (2,800)
Proceeds from the Sale of Assets - Net - 3,488 56,056
Taxes Paid on the Sale of Assets - Net - (9,807) -
(Purchase) Sale of Available-for-Sale
Securities (889) - 795
Capital Expenditures, Cost of Removal
and Salvage (65,869) (49,604) (43,218)
--------- --------- ---------
Net Cash (Used in) Provided by Investing
Activities (67,138) (57,684) 9,833
--------- --------- ---------
Cash Flows from Financing Activities:
Net Borrowings from (Repayments of) Lines
of Credit 51,100 (62,400) 32,000
Proceeds from Issuance of Long-Term Debt 30,000 35,618 -
Principal Repayments of Long-Term Debt (11,768) (6,603) (27,235)
Dividends on Common Stock (15,517) (15,501) (15,460)
Proceeds from Sale of Common Stock 160 320 383
Proceeds from the Issuance of Preferred
Securities - 35,000 -
Repurchase of Preferred Stock (90) (90) (90)
Payments for Issuance of Long-Term Debt
and Preferred Securities (557) (2,429) -
--------- --------- ---------
Net Cash Provided by (Used In) Financing
Activities 53,328 (16,085) (10,402)
--------- --------- ---------
Net (Decrease) Increase in Cash and Cash
Equivalents (6,450) (33,816) 41,318
Cash and Cash Equivalents at Beginning of Year 13,089 46,905 5,587
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 6,639 $ 13,089 $ 46,905
========= ========= =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest (Net of Amounts Applicable to LGAC
Overcollections and Amounts Capitalized) $ 21,651 $ 18,303 $ 21,879
Income Taxes (Net of Refunds) $ 11,099 $ 10,235 $ 2,626
<FN>
* Note 13 contains additional information relating to environmental remediation costs.
The accompanying schedule and footnotes are an integral part of the financial statements.
</FN>
</TABLE>
- 17 -
<TABLE>
Consolidated Balance Sheets
(In Thousands)
<CAPTION>
South Jersey Industries, Inc. and Subsidiaries
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Assets
Property, Plant and Equipment: (Note 1)
Utility Plant, at original cost $ 679,997 $ 619,489
Accumulated Depreciation (179,605) (167,176)
Gas Plant Acquisition Adjustment - Net 1,851 1,926
Nonutility Property and Equipment, at cost 2,981 3,332
Accumulated Depreciation (965) (1,033)
--------- ---------
Property, Plant and Equipment - Net 504,259 456,538
--------- ---------
Investments:
Available-for-Sale Securities (Note 9) 931 42
Investments in Affiliate 1,440 849
--------- ---------
Total Investments 2,371 891
--------- ---------
Current Assets:
Cash and Cash Equivalents (Notes 1 & 10) 6,639 13,089
Notes Receivable - Affiliate 4,350 4,561
Accounts Receivable 42,600 35,947
Unbilled Revenues (Note 1) 19,489 17,263
Provision for Uncollectibles (1,283) (1,530)
Natural Gas in Storage, average cost 27,619 23,877
Materials and Supplies, average cost 4,051 4,509
Prepaid Taxes 13,850 566
Prepayments and Other Current Assets 2,771 2,442
--------- ---------
Total Current Assets 120,086 100,724
--------- ---------
Accounts Receivable - Merchandise 1,554 1,998
--------- ---------
Regulatory and Other Non-Current Assets: (Note 1)
Environmental Remediation Costs: (Note 13)
Expended - Net 25,191 21,041
Liability for Future Expenditures 52,900 52,400
Gross Receipts & Franchise Taxes (Note 5) 3,585 4,028
Income Taxes - Flowthrough Depreciation (Note 5) 13,021 13,999
Deferred Fuel Costs - Net 7,857 3,674
Deferred Postretirement Benefit Costs (Notes 7 & 11) 5,522 6,150
Other 11,749 9,158
--------- ---------
Total Regulatory and Other Non-Current Assets 119,825 110,450
--------- ---------
Total Assets $ 748,095 $ 670,601
========= =========
Capitalization and Liabilities
Capitalization: (see Schedule)
Common Equity (Notes 4 & 12) $ 169,234 $ 173,499
Preferred Stock and Securities of Subsidiary (Note 2) 37,134 37,224
Long-Term Debt (Note 9) 194,710 176,360
--------- ---------
Total Capitalization 401,078 387,083
--------- ---------
Current Liabilities:
Notes Payable (Note 10) 97,000 45,900
Current Maturities of Long-Term Debt (Note 9) 8,876 8,994
Accounts Payable 51,960 49,142
Customer Deposits 5,576 5,871
Environmental Remediation Costs (Note 13) 9,668 16,511
Taxes Accrued 1,531 1,354
Interest Accrued and Other Current Liabilities 14,010 12,007
--------- ---------
Total Current Liabilities 188,621 139,779
--------- ---------
Deferred Credits and Other Non-Current Liabilities:
(Note 1)
Deferred Income Taxes - Net (Note 6) 84,827 78,631
Investment Tax Credits 5,239 5,632
Pension and Other Postretirement Benefits (Note 11) 14,227 11,747
Environmental Remediation Costs (Note 13) 47,925 40,511
Other 6,178 7,218
--------- ---------
Total Deferred Credits and Other Non-Current
Liabilities 158,396 143,739
--------- ---------
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities $ 748,095 $ 670,601
========= =========
<FN>
The accompanying schedule and footnotes are an integral part of the financial statements.
</FN>
</TABLE>
- 18 -
<TABLE>
Schedules of Consolidated Capitalization
(In Thousands Except for Share Data)
<CAPTION>
South Jersey Industries, Inc. and Subsidiaries
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Common Equity: (Notes 4 & 12)
Common Stock: Par Value $1.25 per share; Authorized 20,000,000 shares;
Outstanding Shares: 10,778,990 (1998) and 10,771,413 (1997) $ 13,474 $ 13,464
Premium on Common Stock 111,253 110,997
Retained Earnings 44,507 49,038
--------- ---------
Total Common Equity 169,234 173,499
--------- ---------
Preferred Stock and Securities of Subsidiary: (Note 2)
Redeemable Cumulative Preferred Stock:
South Jersey Gas Company, Par Value $100 per share
Authorized Shares: 46,404 (1998) and 47,304 (1997)
Outstanding Shares: Series A, 4.70% - 2,100 (1998) and 3,000 (1997) 210 300
Series B, 8.00% - 19,242 1,924 1,924
Company-Guaranteed Mandatorily Redeemable
Preferred Securities of Subsidiary Trust:
Par Value $25 per share, 1,400,000 shares Authorized and Outstanding 35,000 35,000
--------- ---------
Total Preferred Stock and Securities of Subsidiary 37,134 37,224
--------- ---------
Long-Term Debt: (A)
South Jersey Gas Company:
First Mortgage Bonds (B):
8.19% Series due 2007 20,454 22,727
101/4% Series due 2008 20,454 25,000
9% Series due 2010 26,250 28,438
6.12% Series due 2010 (C) 10,000 -
6.95% Series due 2013 35,000 35,000
7.125% Series due 2018 (C) 20,000 -
7.7% Series due 2027 35,000 35,000
Unsecured Notes:
Term Note, 8.47% due 2001 (D) 6,428 8,571
Debenture Notes, 8.6% due 2010 30,000 30,000
South Jersey Energy Company:
Promissory Notes - 618
--------- ---------
Total Long-Term Debt Outstanding 203,586 185,354
Less Current Maturities 8,876 8,994
--------- ---------
Total Long-Term Debt 194,710 176,360
--------- ---------
Total Capitalization $ 401,078 $ 387,083
========= =========
<FN>
(A) The long-term debt maturities and sinking fund requirements for the succeeding 5 years are as follows:
1999, $8,876,357; 2000, $8,876,357; 2001, $11,876,358; 2002, $9,733,573; and 2003, $12,883,500.
(B) SJG's First Mortgage dated October 1, 1947, as supplemented, securing the First Mortgage Bonds constitutes
a direct first mortgage lien on substantially all utility plant.
(C) On October 21, 1998, SJG issued $30.0 million of debt under a Medium Term Note Program established
October 5, 1998. Under this program, $10.0 million of the notes were issued at 6.12%, maturing in 2010,
and $20.0 million of notes were issued at 7.125%, maturing in 2018. A total of $100.0 million is
authorized to be issued under this program through December 2001.
(D) An additional $5.0 million revolving credit facility was available under the terms of this agreement
which expired December 31, 1997.
</FN>
</TABLE>
- 19 -
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
Consolidation -- The consolidated financial statements include the accounts
of South Jersey Industries, Inc. (SJI) and its subsidiaries. We were not
required to eliminate certain intercompany transactions, amounting to
approximately $1.9 million and $ 7.3 million, respectively, in 1997 and 1996. We
capitalized those amounts to utility plant or environmental remediation costs on
South Jersey Gas Company's (SJG) books of account. SJG recovers those amounts
through the rate-making process (See Note 1 3). All other significant
intercompany accounts and transactions were eliminated. SJI reclassified some
previously reported amounts to conform with current year classifications.
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 -- 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.
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, 1997 and 1996. 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 -- SJI adopted Financial Accounting Standards
Board (FASB) Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," in 1996. It requires the
review of long-lived assets for impairment whenever events or changes in
circumstances indicate that we may not recover the carrying amount of an asset.
We included the resulting impairment of R&T Group, Inc. (R&T) assets in
discontinued operations (See Note 3).
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 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 use 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 statements of consolidated
income (See Notes 6 & 7).
Statements of Cash Flows -- For purposes of reporting cash flows, highly
liquid investments with original maturities of 3 months or less are considered
cash equivalents.
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
- 20 -
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), an 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). The $15.0 million net after-tax gain on the
sale is included in the 1996 statement of consolidated income under the
caption, Net (Loss) Gain on the Disposal of Discontinued Operations. The sale
price was subject to customary post-closing entries resulting in a downward
after-tax adjustment of $0.6 million recorded in 1997.
Also in December 1996, SJI developed a formal plan to discontinue the
operations of its construction and environmental services operations, R & T
Group, Inc. 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. The proceeds from these sales approximated the net book
value of $3.5 million. Associated disposal costs of $189,500, or $123,200 after
taxes, are included in the 1997 statement of consolidated income. We reflect
these losses in the statements of consolidated income under the caption, Net
(Loss) Gain on the Disposal of Discontinued Operations.
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 were:
Thousands of Dollars
1998 1997 1996
-------- -------- --------
Operating Revenues:
Sand Mining $ - $ - $ 30,054
Construction - 4,928 17,081
-------- -------- --------
Total Operating Revenues $ - $ 4,928 $ 47,135
======== ======== ========
(Loss) Income before Income Taxes:
Sand Mining $ (3,697) $ (1,257) $ 68
Construction (587) 39 (1,348)
Fuel Oil (72) (1,725) -
Income Tax Credits 1,526 1,077 873
-------- -------- --------
Loss from Discontinued Operations - Net $ (2,830) $ (1,866) $ (407)
Earnings per Common Share ======== ======== ========
from Discontinued Operations $ (0.26) $ (0.17) $ (0.04)
======== ======== ========
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 (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:
1998 1997 1996
---------- ---------- ----------
Beginning of Year 10,771,413 10,756,679 10,722,171
New Issues During Year:
Employees' Stock Ownership Plan 3,875 4,770 5,945
Stock Option & Stock Appreciation
Rights Plan 1,952 9,514 14,163
Directors' Restricted Stock Plan 1,750 450 14,400
---------- ---------- ----------
End of Year 10,778,990 10,771,413 10,756,679
========== ========== ==========
The par value ($1.25 per share) of stock issued in 1998, 1997 and 1996 was
credited to Common Stock. Net excess over par value of approximately $0.3
million, $0.5 million, and $0.4 million, respectively, 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
1998, 1997 and 1996 fiscal years.
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, 1997 and 1996, SJI
had 5,000, 13,060 and 34,990 options outstanding, respectively, all exercisable
at prices from $17.16 to $24.69 per share. During 1997 and 1996, 4,311 and
14,550 options were exercised respectively, at prices from $17.16 to $17.89 per
share. In addition, during 1998 and 1997, 8,060 and 17,619 options were
surrendered for the issuance of 1,952 and 5,203 shares, respectively. No options
were granted in 1998, 1997 or 1996. No stock appreciation rights were issued
under the Plan. Stock options outstanding at December 31, 1998, 1997 and 1996,
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
- 21 -
share. The Plan also provides for annual awards and, in December 1998, 1997 and
1996, we granted 1,750, 450 and 600 additional shares, respectively. 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.
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 10 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 pre-tax
income for the following reasons:
Thousands of Dollars
1998 1997 1996
-------- -------- --------
Tax at Statutory Rate $ 7,877 $ 10,260 $ 9,947
Increase (Decrease) Resulting from:
State Income Taxes 3,170 23 16
Amortization of ITC (393) (393) (390)
Tax Depreciation Under Book
Depreciation on Utility Plant 664 664 664
Other - Net 542 185 (66)
-------- -------- --------
Income Taxes as reported on the
Statements of Consolidated Income 11,860 10,739 10,171
Tax Associated with
Discontinued Operations (1,526) (1,424) 7,657
-------- -------- --------
Net Income Taxes $ 10,334 $ 9,315 $ 17,828
======== ======== ========
The provision for Income Taxes is comprised of the following:
Thousands of Dollars
1998 1997 1996
-------- -------- --------
Current:
Federal $ 2,225 $ 4,964 $ (709)
State 2,227 97 16
-------- -------- --------
Total Current 4,452 5,061 (693)
-------- -------- --------
Deferred:
Federal -
Excess of Tax Depreciation Over
Book Depreciation - Net 5,308 4,162 4,610
Deferred Fuel Costs 1,397 349 3,340
Environmental Remediation Costs - Net 1,990 1,903 1,214
Amortization of Gross Receipts Taxes (155) (140) (140)
Alternative Minimum Tax (1,750) (304) 2,939
Other - Net 68 175 (709)
State 943 (74) -
-------- -------- --------
Total Deferred 7,801 6,071 11,254
-------- -------- --------
ITC (393) (393) (390)
-------- -------- --------
Income Taxes as reported on the
Statements of Consolidated Income 11,860 10,739 10,171
Tax Associated with Discontinued
Operations (1,526) (1,424) 7,657
-------- -------- --------
Net Income Taxes $ 10,334 $ 9,315 $ 17,828
======== ======== ========
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 are:
Thousands of Dollars
1998 1997
-------- --------
Deferred Tax Liabilities:
Tax Depreciation Over Book Depreciation $ 66,966 $ 62,945
Difference Between Book and Tax Basis of Property 5,951 5,579
Deferred Fuel Costs 6,475 5,078
Deferred Regulatory Costs 776 996
Environmental Remediation Costs 7,925 7,463
Excess Protected 3,421 3,485
Gross Receipts Taxes 1,255 1,424
Other 1,277 1,204
-------- --------
Total Deferred Tax Liabilities 94,046 88,174
-------- --------
Deferred Tax Assets:
Alternative Minimum Tax 3,135 1,542
ITC Basis Gross Up 2,802 3,004
Other 3,282 4,997
-------- --------
Total Deferred Tax Assets 9,219 9,543
-------- --------
Net Deferred Tax Liability $ 84,827 $ 78,631
======== ========
The significant components of Other Taxes are:
Thousands of Dollars
1998 1997 1996
-------- -------- --------
TEFA $ 7,378 $ - $ -
GRAFT 123 27,361 30,917
Other 2,977 3,057 3,007
-------- -------- --------
Total Other Taxes $ 10,478 $ 30,418 $ 33,924
======== ======== ========
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).
- 22 -
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.
We updated the 1998-1999 RAC filing in December 1998 requesting a $5.0 million
increase. Both filings are still pending at the BPU.
In September 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. We rolled the updated 1996-1997 LGAC year results into the
1997-1998 LGAC filed with the BPU in September 1997. The TAC credit resulted
from significantly colder weather during the TAC period from October 1, 1995
through May 31, 1996. The BPU approved the revenue reduction for the TAC credit
in January 1997. We credited customers bills in 1997, and the earnings impact
was reflected in 1996.
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 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 another $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 in 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 & 6). 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 we rolled the results of that year 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.
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 is
presented below:
Thousands of Dollars
1998 1997 1996
-------- -------- --------
Operating Revenues:
Gas Utility Operations $299,070 $327,548 $330,334
Other Industries 153,191 22,083 27,237
-------- -------- --------
Subtotal 452,261 349,631 357,571
Intersegment Sales (2,015) (1,064) (2,113)
-------- -------- --------
Total Operating Revenues $450,246 $348,567 $355,458
======== ======== ========
The increase in operating revenues from Other Industries is due primarily
to SJE's wholesale electricity sales which began in January 1998. SJE exited
this activity later in 1998 (See Note 3).
Thousands of Dollars
1998 1997 1996
-------- -------- --------
Operating Income:
Gas Utility Operations $ 49,234 $ 51,555 $ 49,476
Other Industries 640 (1,009) 308
Subtotal 49,874 50,546 49,784
Income Taxes (11,860) (10,739) (10,171)
General Corporate Expense (1,929) (1,165) (1,054)
Total Operating Income $ 36,085 $ 38,642 $ 38,559
Depreciation, Depletion and Amortization:
Gas Utility Operations $ 19,014 $ 17,867 $ 17,540
Other Industries 28 18 35
Discontinued Operations 21 227 3,887
Total $ 19,063 $ 18,112 $ 21,462
Property Additions:
Gas Utility Operations $ 64,862 $ 48,533 $ 39,384
Other Industries 71 141 6
Discontinued Operations - 1 2,841
Total $ 64,933 $ 48,675 $ 42,231
Identifiable Assets:
Gas Utility Operations $720,137 $649,113 $599,926
Other Industries 21,367 11,322 8,041
Discontinued Operations 2,380 2,993 9,341
Subtotal 743,884 663,428 617,308
Corporate Assets 25,251 23,664 67,018
Intersegment Assets (21,040) (16,491) (25,945)
Total Assets $748,095 $670,601 $658,381
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 statements of consolidated 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 statements of consolidated income,
- 23 -
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 statements of consolidated
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 values of SJI's long-term debt, including
current maturities, as of December 31, 1998 and 1997, are estimated to be $227.0
million and $205.8 million, respectively. Carrying amounts are $203.6 million
and $185.4 million, respectively. The estimates are based on the interest rates
available to SJI at the end of each year 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 and
1997.
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% and 6.06%
at December 31, 1998 and 1997, respectively. 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, consisted of the following components:
<TABLE>
<CAPTION>
Thousands of Dollars
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,912 $ 1,960 $ 1,916 $ 903 $ 994 $ 930
Interest cost 3,973 3,820 3,481 1,494 1,579 1,432
Expected return on
plan assets (3,894) (3,358) (3,145) (417) (272) (164)
Amortization of
transition obligation 72 72 72 796 796 796
Amortization of loss
(gain) and other 292 340 262 (14) - -
------- ------- ------- ------- ------- -------
Net periodic
benefit cost $ 2,355 $ 2,834 $ 2,586 $ 2,762 $ 3,097 $ 2,994
======= ======= ======= ======= ======= =======
</TABLE>
A reconciliation of the Plans' benefit obligations, fair value of plan
assets, funded status and amounts recognized in SJI's consolidated balance
sheets follows:
Thousands of Dollars
Pension Benefits Other Benefits
1998 1997 1998 1997
-------- -------- -------- --------
Change in Benefit Obligation:
Benefit obligation at
beginning of year $ 56,753 $ 50,735 $ 24,024 $ 21,677
Service cost 1,912 1,960 903 994
Interest cost 3,973 3,820 1,494 1,579
Plan amendments 0 1,681 0 0
Actuarial loss (gain) and other 3,783 820 (1,669) 635
Benefits paid (2,386) (2,263) (504) (861)
-------- -------- -------- --------
Benefit obligation at end of year $ 64,035 $ 56,753 $ 24,248 $ 24,024
======== ======== ======== ========
Change in Plan Assets:
Fair value of plan assets at
beginning of year $ 46,875 $ 40,335 $ 4,403 $ 2,835
Actual return on plan assets 1,887 6,103 568 448
Employer contributions 1,600 2,700 2,505 1,981
Benefits paid (2,386) (2,263) (504) (861)
-------- -------- -------- --------
Fair value of plan assets at
end of year $ 47,976 $ 46,875 $ 6,972 $ 4,403
======== ======== ======== ========
Funded status $(16,059) $ (9,878) $(17,276) $(19,621)
Unrecognized prior service cost 3,222 3,514 - -
Unrecognized net transition
obligation 359 430 11,151 11,947
Unrecognized net loss (gain)
and other 9,101 3,312 (1,105) 701
-------- -------- -------- --------
Accrued net benefit cost at
end of year $ (3,377) $ (2,622) $ (7,230) $ (6,973)
======== ======== ======== ========
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. As of December 31, 1997, the
accumulated benefit obligations did not exceed plan assets.
Assumptions used in the accounting for these plans were as follows:
Pension Benefits Other Benefits
1998 1997 1998 1997
-------- -------- -------- --------
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 9.00% 8.50% 9.00% 8.50%
Rate of compensation increase 4.10% 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 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)
- 24 -
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.
Environmental Remediation Costs -- SJI incurred and recorded costs for
environmental cleanup 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
cleanup 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 consolidated
balance sheets 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 consolidated 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 statements of consolidated 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
consolidated balance sheet under Current Liabilities and Deferred Credits and
Other Non-Current Liabilities as of December 31, 1998.
Management's Responsibilities for Financial Statements
South Jersey Industries, Inc.'s management is responsible for the integrity
and objectivity of SJI's financial statements and related disclosures. These
statements and disclosures were prepared using management's best judgment and
conform with generally accepted accounting principles.
The board of directors, acting through its audit committee, which is
composed of outside directors, oversees management's responsibilities for
accounting, internal control and financial reporting. The audit committee meets
periodically with management and the internal and independent auditors to
discuss auditing and financial matters, and to assure that each is carrying out
its responsibilities. The internal auditors and independent auditors have
access to the members of the audit committee at any time.
- 25 -
<TABLE>
Quarterly Financial Data (unaudited)
The summarized quarterly results of SJI's operations, in thousands except for per share amounts:
<CAPTION>
1998 Quarter Ended 1997 Quarter Ended
----------------------------------------- -----------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues $122,847 $ 71,663 $131,499 $124,237 $131,403 $ 62,312 $ 54,151 $100,701
-------- -------- -------- -------- -------- -------- -------- --------
Operating Expenses:
Operation and Maintenance
Including Fixed Charges 97,127 71,644 134,567 110,754 94,802 56,666 57,532 79,981
Income Taxes 9,436 (463) (1,697) 4,584 8,399 343 (2,024) 4,021
Other Taxes 3,928 2,036 1,603 2,911 13,154 5,301 3,126 8,837
-------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) from
Continuing Operations 12,356 (1,554) (2,974) 5,988 15,048 2 (4,483) 7,862
Discontinued Operations - Net (228) (2,368) (91) (143) (147) (173) (284) (2,029)
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (Loss) Applicable
to Common Stock $ 12,128 $ (3,922) $ (3,065) $ 5,845 $ 14,901 $ (171) $ (4,767) $ 5,833
======== ======== ======== ======== ======== ======== ======== ========
Earnings Per Common Share
(Based on Average Shares
Outstanding): (1)
Continuing Operations $ 1.15 $ (0.14) $ (0.27) $ 0.55 $ 1.39 $ 0.00 $ (0.42) $ 0.73
Discontinued Operations (0.02) (0.22) (0.01) (0.01) (0.01) (0.02) (0.02) (0.19)
-------- -------- -------- -------- -------- -------- -------- --------
Earnings Per Common Share $ 1.13 $ (0.36) $ (0.28) $ 0.54 $ 1.38 $ (0.02) $ (0.44) $ 0.54
======== ======== ======== ======== ======== ======== ======== ========
Average Shares Outstanding 10,774 10,775 10,776 10,778 10,760 10,762 10,763 10,767
======== ======== ======== ======== ======== ======== ======== ========
<FN>
(1) The sum of the quarters for 1998 and 1997 does not equal the year's total due to rounding.
NOTE: Because of the seasonal nature of the business, statements for the 3-month periods are not indicative of
the results for a full year.
</FN>
</TABLE>
<TABLE>
Market Price of Common Stock and Related Information
<CAPTION>
Dividends Dividends
Quarter Ended Market Price Per Share Declared Quarter Ended Market Price Per Share Declared
1998 High Low Per Share 1997 High Low Per Share
- ------------- ---------------------- --------- ------------- --------------------- ---------
<S> <C> <C> <C> <S> <C> <C> <C>
March 31 $ 30 3/4 $ 28 3/4 $0.36 March 31 $ 24 7/8 $ 21 3/8 $0.36
June 30 $ 30 $ 26 1/2 $0.36 June 30 $ 23 3/8 $ 21 $0.36
Sept. 30 $ 27 7/8 $ 22 $0.36 Sept. 30 $ 25 3/16 $ 22 3/8 $0.36
Dec. 31 $ 27 $ 25 $0.36 Dec. 31 $ 30 1/2 $ 24 5/16 $0.36
<FN>
These quotations are based on the list of composite transactions of the New York Stock Exchange. Our stock is traded on the New
York and Philadelphia stock exchanges under the symbol SJI. We have declared and expect to continue to declare regular quarterly
cash dividends. As of December 10, 1998, the latest available date, our stock records indicate that there were 10,420
shareholders.
</FN>
</TABLE>
- 26 -
<TABLE>
South Jersey Gas Company Comparative Operating Statistics
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Utility Operating Revenues (Thousands): (1)
Firm
Residential $ 147,274 $ 176,717 $ 177,673 $ 151,720 $ 151,857
Commercial 36,328 60,418 70,755 58,135 61,848
Industrial 4,175 5,535 7,540 6,014 8,349
Cogeneration & Electric Generation 8,119 5,249 16,173 15,725 19,301
Firm Transportation 24,893 15,966 10,473 13,930 18,092
--------- --------- --------- --------- ---------
Total Firm 220,789 263,885 282,614 245,524 259,447
Interruptible 2,506 6,085 7,256 6,786 6,610
Interruptible Transportation 2,598 3,507 2,630 2,778 2,985
Off-System 62,578 39,403 28,236 20,360 38,161
Capacity Release & Storage 6,031 8,533 4,349 3,374 2
Other 4,568 6,135 5,249 3,897 4,254
--------- --------- --------- --------- ---------
Intercompany Sales (1,032) (71) (1,039) (2,486) (13,429)
--------- --------- --------- --------- ---------
Total Utility Operating Revenues $ 298,038 $ 327,477 $ 329,295 $ 280,233 $ 298,030
========= ========= ========= ========= =========
Throughput (MMcf):
Firm
Residential 16,979 19,955 21,699 19,573 19,543
Commercial 4,826 8,067 10,117 8,945 9,276
Industrial 348 733 1,238 1,016 1,364
Cogeneration & Electric Generation 2,373 1,230 5,180 4,860 5,384
Firm Transportation 22,336 20,196 12,969 14,417 14,401
--------- --------- --------- --------- ---------
Total Firm Throughput 46,862 50,181 51,203 48,811 49,968
--------- --------- --------- --------- ---------
Interruptible 694 1,345 1,618 1,843 1,810
Interruptible Transportation 6,049 7,586 5,422 5,888 5,424
Off-System 26,916 14,462 8,571 9,590 16,840
Capacity Release & Storage 27,319 36,382 25,460 25,915 46
--------- --------- --------- --------- ---------
Total Throughput 107,840 109,956 92,274 92,047 74,088
========= ========= ========= ========= =========
Number of Customers at Year End:
Residential 248,210 242,132 236,008 230,446 224,394
Commercial 18,457 18,037 17,469 17,179 16,615
Industrial 398 398 397 397 397
--------- --------- --------- --------- ---------
Total Customers 267,065 260,567 253,874 248,022 241,406
========= ========= ========= ========= =========
Maximum Daily Sendout (MMcf) 314 355 325 335 370
========= ========= ========= ========= =========
Annual Degree Days 4,110 4,829 5,175 4,865 4,820
========= ========= ========= ========= =========
Normal Degree Days * 4,708 4,728 4,689 4,709 4,680
========= ========= ========= ========= =========
<FN>
* Average degree days recorded in SJG service territory during 20-year
period ended June 30 of prior year. Normal degree days for prior years have been
restated.
</FN>
</TABLE>
- 27 -
South Jersey Industries, Inc.
Board of Directors
Charles Biscieglia
Age 54 3+, 4+, 5+
President and CEO of SJI and SJG
Anthony G. Dickson
Age 50 1, 2, 3
President, New Jersey Manufacturers Insurance Company, West Trenton, N.J.
Richard L. Dunham
Age 69 3+, 4, 5+
Chairman of the Board of SJI; former Chairman of the Federal Power Commission
(now the Federal Energy Regulatory Commission), Washington, D.C.
W. Cary Edwards
Age 54 2, 3, 4
Managing Partner, law firm of Edwards, Caldwell & Poff, Hawthorne, N.J.
Thomas L. Glenn, Jr.
Age 64 1, 3*, 4
Chairman, Glenn Insurance, Inc., Absecon, N.J.
Herman D. James, Ph.D.
Age 55 1*, 2, 5
Distinguished Professor, Rowan University, Glassboro, N.J.
Clarence D. McCormick
Age 69 2*, 4*, 5
Chairman and CEO of The Farmers and Merchants National Bank of Bridgeton, N.J.,
and Chairman and President of Southern Jersey Bancorp of Delaware, Bridgeton,
N.J.
Frederick R. Raring
Age 61 1, 3
President, Seashore Supply Company, Atlantic City, N.J.
Shirli M. Vioni, Ph.D.
Age 58 1, 4, 5*
President, Billings-Vioni Management Associates, Gahanna, Ohio
1 Audit Committee
2 Compensation/Pension Committee
3 Environmental Committee
4 Executive Committee
5 Nominating Committee
* Committee Chair
+ Ex Officio
South Jersey Industries, Inc.
Officers
Richard L. Dunham
Chairman of the Board
Charles Biscieglia
President and CEO
Edward J. Graham
Vice President
David A. Kindlick
Vice President
Albert V. Ruggiero
Vice President
George L. Baulig
Secretary and Treasurer
William J. Smethurst, Jr.
Assistant Secretary and Assistant Treasurer
- 28 -
SJI Corporate Headquarters
1 South Jersey Plaza
Folsom, NJ 08037-9917
(609) 561-9000
TDD only 1-800-547-9085
www.sjindustries.com
e-mail: [email protected]
Transfer Agent and Registrar
First Union National Bank
Corporate Trust Client Services NC 1153
1525 West W. T. Harris Blvd. 3C3
Charlotte, NC 28288-1153
Dividend, Dividend Reinvestment and
Other Shareholder Inquiries
South Jersey Industries, Inc.
Shareholder Records Department
609-561-9000 ext. 4238 or 4321
Investor Relations
Stephen H. Clark, Director
609-561-9000 ext. 4260
Annual Meeting Information
The Annual Meeting of Shareholders will be held Thursday, April 22, 1999 at
10 a.m. at SJI's corporate headquarters.
South Jersey Industries, Inc. stock is traded on the New York and
Philadelphia stock exchanges under the trading symbol, SJI.
The information contained herein is not given in connection with any sale
or offer of, or solicitation of an offer to buy, any securities.
Dividend Reinvestment and Stock Purchase Plan
SJI's Dividend Reinvestment and Stock Purchase Plan provides record
shareholders of the company's common stock with a way to increase their
investment in SJI without payment of any brokerage commission or service charge.
Shareholders who participate in the Plan may purchase shares of common
stock by the automatic reinvestment of dividends. Optional purchases are
permitted each quarter up to a maximum of $100,000 in any calendar year as
prescribed in the Plan. Shares of common stock offered through the Plan are
currently purchased in the open market. The price of shares purchased under the
Plan will be determined by dividing the total cost of all shares purchased
during the investment period by the number of shares purchased. The offer and
sale of shares under the Plan will be made only through a Prospectus, which may
be obtained by contacting the Shareholder Records Department (address and phone
listed above).
- Inside Back Cover -
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, New Jersey 08037-9917
- Back Cover -
<TABLE>
Exhibit 21
SOUTH JERSEY INDUSTRIES, INC.
SUBSIDIARIES OF REGISTRANT
AS OF DECEMBER 31, 1998
<CAPTION>
Percentage of
Voting Securities State of
Owned by Parent Relationship Incorporation
--------------------------------------------------
<S> <C> <C> <C>
South Jersey Industries, Inc. Registrant Parent New Jersey
South Jersey Gas Company (3) 99.06 (1) New Jersey
Energy & Minerals, Inc. (3) 100 (1) New Jersey
South Jersey Energy Company (3) 100 (1) New Jersey
SJ EnerTrade, Inc. (3) 100 (1) New Jersey
R&T Group, Inc. (3) 100 (1) New Jersey
South Jersey Fuel, Inc. (3) 100 (2) New Jersey
<FN>
(1) Subsidiary of South Jersey Industries, Inc.
(2) Subsidiary of Energy & Minerals, Inc.
(3) Subsidiary included in financial statements
</FN>
</TABLE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-27132 and 33-58349 on Forms S-8 and Registration Statement No. 33-53127,
as amended, on Form S-3 of South Jersey Industries, Inc. of our reports dated
February 12, 1999, appearing in and incorporated by reference in this Annual
Report on Form 10-K of South Jersey Industries, Inc. for the year ended December
31, 1998.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 26, 1999
Exhibit 24
SOUTH JERSEY INDUSTRIES, INC.
POWER OF ATTORNEY
Each of the undersigned, in his capacity as an officer or director, or
both, as the case may be, of South Jersey Industries, Inc., a New Jersey
corporation, does hereby appoint Charles Biscieglia, David A. Kindlick and
George L. Baulig, and each of them, severally, as his or her true and lawful
attorneys or attorney to execute in his or her name, place and stead, in
his or her capacity as a director or officer, or both, as the case may be, of
said corporation, its Annual Report for the fiscal year ended December 31, 1998
on Form 10-K, pursuant to Section 13 of the Securities Exchange Act of 1934, and
any and all amendments thereto and instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and does hereby provide that each of said attorneys shall have power
to act hereunder with or without the other said attorneys, and shall have full
power of substitution and resubstitution and that each of said attorneys shall
have full power and authority to do and perform in the name and on behalf of the
undersigned in any and all capacities every act whatsoever required to be done
in the premises, as fully and to all intents and purposes as he or she might or
could do in person, hereby ratifying and approving the acts of said attorneys
and each of them.
IN WITNESS WHEREOF, the undersigned have executed this instrument, this
29th day of March 1999.
/s/ Richard L. Dunham
Richard L. Dunham, Chairman of the Board
/s/ Anthony G. Dickson
Anthony G. Dickson, Director
/s/ W. Cary Edwards
W. Cary Edwards, Director
/s/ Thomas L. Glenn
Thomas L. Glenn, Jr., Director
/s/ Herman D. James
Herman D. James, Director
Exhibit 24
Power of Attorney -- 10-K Page 2 of 2
/s/ Clarence D. McCormick
Clarence D. McCormick, Director
/s/ Frederick R. Raring
Frederick R. Raring, Director
/s/ Shirli M. Vioni
Shirli M. Vioni, Director
/s/ Charles Biscieglia
Charles Biscieglia, President and CEO
/s/ David A. Kindlick
David A. Kindlick, Vice President
/s/ George L. Baulig
George L. Baulig, Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> UT
<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-NET-UTILITY-PLANT> 502,243
<OTHER-PROPERTY-AND-INVEST> 2,016
<TOTAL-CURRENT-ASSETS> 120,086
<TOTAL-DEFERRED-CHARGES> 119,825
<OTHER-ASSETS> 3,925
<TOTAL-ASSETS> 748,095
<COMMON> 13,474
<CAPITAL-SURPLUS-PAID-IN> 111,253
<RETAINED-EARNINGS> 44,507
<TOTAL-COMMON-STOCKHOLDERS-EQ> 169,234
35,000
2,134
<LONG-TERM-DEBT-NET> 194,710
<SHORT-TERM-NOTES> 97,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 8,876
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 241,141
<TOT-CAPITALIZATION-AND-LIAB> 748,095
<GROSS-OPERATING-REVENUE> 450,246
<INCOME-TAX-EXPENSE> 11,860
<OTHER-OPERATING-EXPENSES> 402,301
<TOTAL-OPERATING-EXPENSES> 414,161
<OPERATING-INCOME-LOSS> 36,085
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 36,085
<TOTAL-INTEREST-EXPENSE> 19,181
<NET-INCOME> 10,986
3,088
<EARNINGS-AVAILABLE-FOR-COMM> 10,986
<COMMON-STOCK-DIVIDENDS> 15,517
<TOTAL-INTEREST-ON-BONDS> 15,246
<CASH-FLOW-OPERATIONS> 7,360
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
