-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VHazzrl3r0orw1CQ0eZshuUO8bxTRe9qWmsV6aEcRVIm3koXtrY6o9vyc2WyaGog 8knjSOWmsTBfi3RjhJnycg== 0001035216-00-000002.txt : 20000516 0001035216-00-000002.hdr.sgml : 20000516 ACCESSION NUMBER: 0001035216-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH JERSEY GAS CO/NEW CENTRAL INDEX KEY: 0001035216 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 210398330 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22211 FILM NUMBER: 633098 BUSINESS ADDRESS: STREET 1: NUMBER ONE SOUTH JERSEY PLAZA STREET 2: ROUTE 54 CITY: FOLSOM STATE: NJ ZIP: 08037 BUSINESS PHONE: 6095619000 MAIL ADDRESS: STREET 1: NUMBER ONE SOUTH JERSEY PLAZA STREET 2: ROUTE 54 CITY: FOLSOM STATE: NJ ZIP: 08037 10-Q 1 Page 1 of 21 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 2000 Commission File Number 1-12899 SOUTH JERSEY GAS COMPANY (Exact name of registrant as specified in its charter) New Jersey 22-0398330 (State of incorporation) (IRS employer identification no.) 1 South Jersey Plaza, Folsom, NJ 08037 (Address of principal executive offices, including zip code) (609) 561-9000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of May 5, 2000 there were 2,339,139 shares of the registrant's common stock outstanding. All common shares are owned by South Jersey Industries, Inc., the parent company of South Jersey Gas Company. Exhibit Index on page 21 - Title Page - PART I FINANCIAL INFORMATION Item 1. Financial Statements -- See Pages 3 through 11 SJG-2 SOUTH JERSEY GAS COMPANY AND SUBSIDIARY CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (In Thousands Except for Per Share Data)
Three Months Ended March 31, ------------------------ 2000 1999 ---------- ---------- Operating Revenues: Utility $146,627 $134,587 Other 375 495 ---------- ---------- Total Operating Revenues 147,002 135,082 ---------- ---------- Operating Expenses: Gas Purchased for Resale 88,818 78,674 Utility Operations 9,811 9,160 Other Operations 348 370 Maintenance 2,770 1,282 Depreciation 4,920 4,611 Income Taxes 12,608 12,718 Other Taxes 4,335 4,456 ---------- ---------- Total Operating Expenses 123,610 111,271 ---------- ---------- Operating Income 23,392 23,811 Interest Charges: Long-Term Debt 3,833 4,107 Short-Term Debt and Other 1,194 914 ---------- ---------- Total Interest Charges 5,027 5,021 Income Before Preferred Dividend Requirements 18,365 18,790 Preferred Stock Dividend Requirements 40 41 Preferred Securities Dividend Requirements 731 731 ---------- ---------- Net Income Applicable to Common Stock $17,594 $18,018 ========== ========== Average Shares of Common Stock Outstanding 2,339 2,339 ========== ========== Earnings Per Common Share $7.52 $7.70 ========== ========== Dividends Declared Per Common Share $1.80 $1.73 ========== ========== The accompanying footnotes are an integral part of the financial statements.
SJG-3 SOUTH JERSEY GAS COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)
(Unaudited) March 31, December 31, ----------------------- ------------- 2000 1999 1999 ---------- ---------- ------------- Assets - ------ Property, Plant and Equipment: Utility Plant, at original cost $729,901 $691,669 $721,338 Accumulated Depreciation (195,958) (183,041) (192,240) Gas Plant Acquisition Adjustment - Net 1,757 1,832 1,776 ---------- ---------- ------------- Property, Plant and Equipment - Net 535,700 510,460 530,874 ---------- ---------- ------------- Available-for-Sale Securities 1,701 886 1,662 ---------- ---------- ------------- Current Assets: Cash and Cash Equivalents 335 1,552 4,694 Accounts Receivable 61,552 53,848 37,066 Unbilled Revenues 15,557 16,862 21,294 Provision for Uncollectibles (860) (932) (932) Natural Gas in Storage, average cost 10,182 11,864 26,840 Materials and Supplies, average cost 3,952 3,821 4,085 Prepaid Taxes - - 4,069 Prepayments and Other Current Assets 2,254 2,060 2,461 ---------- ---------- ------------- Total Current Assets 92,972 89,075 99,577 ---------- ---------- ------------- Accounts Receivable - Merchandise 599 903 684 ---------- ---------- ------------- Regulatory and Other Non-Current Assets: Environmental Remediation Costs: Expended - Net 17,840 21,679 25,702 Liability for Future Expenditures 51,029 52,939 51,029 Gross Receipts and Franchise Taxes 3,030 3,474 3,141 Income Taxes - Flowthrough Depreciation 11,286 12,264 11,531 Deferred Fuel Cost - Net 6,517 - 13,174 Deferred Postretirement Benefit Costs 4,820 5,365 4,914 Other 6,734 8,401 7,951 ---------- ---------- ------------- Total Regulatory and Other Non-Current Assets 101,256 104,122 117,442 ---------- ---------- ------------- Total Assets $732,228 $705,446 $750,239 ========== ========== ============= The accompanying footnotes are an integral part of the financial statements.
SJG-4 SOUTH JERSEY GAS COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)
(Unaudited) March 31, December 31, ----------------------- ------------- 2000 1999 1999 ---------- ---------- ------------- Capitalization and Liabilities - ------------------------------ Common Equity: Common Stock, Par Value $2.50 per share: Authorized - 4,000,000 shares Outstanding - 2,339,139 shares $5,848 $5,848 $5,848 Other Paid-In Capital and Premium on Common Stock 117,817 102,817 117,817 Retained Earnings 71,851 68,243 58,457 ---------- ---------- ------------- Total Common Equity 195,516 176,908 182,122 ---------- ---------- ------------- Preferred Stock and Securities: Redeemable Cumulative Preferred - Par Value $100 per share, Authorized 45,504,46,404 and 45,504 shares, respectively Outstanding: Series A, 4.70% - 1,200, 2,100 and 1,200 shares 120 210 120 Series B, 8.00% - 19,242 shares 1,924 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 35,000 ---------- ---------- ------------- Total Preferred Stock and Securities 37,044 37,134 37,044 ---------- ---------- ------------- Long-Term Debt 181,373 192,523 183,561 ---------- ---------- ------------- Total Capitalization 413,933 406,565 402,727 ---------- ---------- ------------- Current Liabilities: Notes Payable 82,000 59,000 118,900 Current Maturities of Long-Term Debt 8,876 8,876 8,876 Accounts Payable 28,739 31,179 34,822 Customer Deposits 5,462 5,506 5,386 Environmental Remediation Costs 12,534 8,752 12,534 Taxes Accrued 15,729 15,172 634 Interest Accrued and Other Current Liabilities 7,955 7,675 10,422 ---------- ---------- ------------- Total Current Liabilities 161,295 136,160 191,574 ---------- ---------- ------------- Deferred Credits and Other Non-Current Liabilities: Deferred Income Taxes - Net 94,467 86,789 93,543 Environmental Remediation Costs 38,495 44,187 38,495 Pension and Other Postretirement Benefits 12,705 13,767 12,303 Investment Tax Credits 4,757 5,141 4,849 Deferred Revenues - Net - 7,505 - Other 6,576 5,332 6,748 ---------- ---------- ------------- Total Deferred Credits and Other Non-Current Liabilities 157,000 162,721 155,938 ---------- ---------- ------------- Commitments and Contingencies Total Capitalization and Liabilities $732,228 $705,446 $750,239 ========== ========== ============= The accompanying footnotes are an integral part of the financial statements.
SJG-5 SOUTH JERSEY GAS COMPANY AND SUBSIDIARY CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (In Thousands)
Three Months Ended March 31, ------------------------- 2000 1999 ---------- ---------- Cash Flows from Operating Activities: Net Income Applicable to Common Stock $17,594 $18,018 Adjustments to Reconcile Net Income to Cash Flows Provided by Operating Activities: Depreciation and Amortization 5,829 5,001 Provision for Losses on Accounts Receivable 72 63 Revenues and Fuel Costs Deferred - Net 6,657 12,507 Deferred and Non-Current Income Taxes and Credits - Net 1,029 97 Environmental Remediation Costs - Net 7,862 6,328 Changes in: Accounts Receivable (18,893) (23,105) Inventories 16,791 15,985 Prepayments and Other Current Assets 207 207 Prepaid and Accrued Taxes - Net 19,164 26,381 Accounts Payable and Other Accrued Liabilities (8,474) (9,299) Other - Net 1,067 2,899 ---------- ---------- Net Cash Provided by Operating Activities 48,905 55,082 ---------- ---------- Cash Flows from Investing Activities: Purchase of Available-for-Sale Securities (39) - Capital Expenditures, Cost of Removal and Salvage (9,937) (13,044) ---------- ---------- Net Cash Used in Investing Activities (9,976) (13,044) ---------- ---------- Cash Flows from Financing Activities: Net Repayments of Lines of Credit (36,900) (38,000) Principal Repayments of Long-Term Debt (2,188) (2,187) Dividends on Common Stock (4,200) (4,050) ---------- ---------- Net Cash Used in Financing Activities (43,288) (44,237) ---------- ---------- Net Decrease in Cash and Cash Equivalents (4,359) (2,199) Cash and Cash Equivalents at Beginning of Period 4,694 3,751 ---------- ---------- Cash and Cash Equivalents at End of Period $335 $1,552 ========== ========== The accompanying footnotes are an integral part of the financial statements.
SJG-6 Notes To Condensed Consolidated Financial Statements (Unaudited) Note 1. Significant Accounting Practices: Consolidation - The consolidated financial statements include the accounts of South Jersey Gas Company (SJG) and its wholly-owned statutory trust subsidiary, SJG Capital Trust. All significant intercompany accounts and transactions were eliminated. SJG reclassified some previously reported amounts to conform with current year classifications. In the company's opinion, the condensed consolidated financial statements reflect all adjustments needed to fairly present SJG's financial position and operating results at the dates and for the periods presented. SJG's businesses are subject to seasonal fluctuations and, accordingly, this interim financial information should not be the basis for estimating the full year's operating results. South Jersey Industries, Inc. (SJI) owns all of the outstanding common stock of SJG. 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. New Accounting Pronouncement - In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for the first quarter of our fiscal year ending December 31, 2001. 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 the Company's financial condition and results of operations, which will vary based on our use of derivative instruments at the time of adoption. Note 2. Income Taxes: The significant components of federal and state income taxes reflected in the condensed statements of consolidated income for the three months ended March 31, 2000 and 1999 are as follows (in thousands): SJG-7 Three Months Ended March 31, ----------------------- 2000 1999 -------- -------- Current: Federal $ 8,689 $ 9,357 State 2,891 3,265 -------- -------- Total Current 11,580 12,622 Deferred: Federal 984 325 State 136 (131) -------- -------- Total Deferred 1,120 194 Investment Tax Credit (92) (98) -------- -------- Net Income Taxes $ 12,608 $ 12,718 ======== ======== Note 3. Recent Regulatory Actions: In January 1997, the Board of Public Utilities (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. 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. With the completion of major construction projects, this $5.0 million threshold increased by $2.8 million to a total of $7.8 million. 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 Temperature Adjustment Clause (TAC). The revision credits the first $750,000 above the current threshold level to the Levelized Gas Adjustment Clause (LGAC) customers. Thereafter, SJG keeps 20% of the pre-tax margins as it has historically. Effective January 10, 2000, the BPU approved full unbundling of SJG's system. This allows all natural gas consumers to select their natural gas supplier. As of March 31, 2000, 47,281 of SJG's residential customers had elected to purchase their gas commodity from someone other than us. The bills of those using a gas supplier other than SJG 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. SJI's net income, financial condition and margins are not affected. SJG-8 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 experiences reduced fluctuations in income when weather is warmer or colder than normal. In August 1998, SJG filed with the BPU to recover increased remediation costs expended from August 1995 through July 1998. In September 1999, the BPU approved the requested annual recovery level of $6.5 million. This represents an annual increase of approximately $4.5 million over the recovery previously included in rates. In July 1999, SJG filed its annual RAC with the BPU requesting recovery of carrying costs on unrecovered remediation costs and proposed no change in the current RAC rate for the next 3 years. In January 2000, the BPU approved the recovery of carrying costs on unrecovered remediation costs and SJG's proposal to keep its current RAC rate in effect through October 2002. In September 1998, SJG filed its annual LGAC, TAC and Demand Side Management Clause (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 May 1999, the BPU approved a $7.1 million increase in rates as part of this filing, which included the results of the previous two annual filings. In April 2000, SJG made a TAC and LGAC filing and anticipates making TAC, LGAC and DSMC filings during the summer of 2000. In February 1999, the Electric Discount and Energy Competition Act became law. This law established unbundling, where redesigned utility rate structures allow natural gas and electric consumers to choose their energy supplier. SJG filed its unbundling proposal in April 1999 and received BPU approval of its settlement in January 2000. In addition to allowing all customers to select their own supplier effective January 10, 2000, the unbundling settlement also created an incentive to customers to select a supplier, other than SJG, in the form of a Market Development Credit (MDC). This credit will be provided to customers over the next two years and will approximate $2.5 million plus carrying costs through December 2001. The majority of this credit was provided for on SJG's books as a Deferred Credit. Therefore, the MDC will not materially impact future periods. Also included in the settlement was the approved recovery of carrying costs on the RAC, as previously discussed, and a modification to SJG's LGAC. Under-recovered gas costs of $11.9 million as of October 31, 1999, and carrying costs thereon, will be recovered over 3 years. The LGAC for the period starting November 1999, will continue to operate as it has in the past. SJG-9 Note 4. 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. SJG's retained earnings, which is free of these restrictions, was approximately $65.8 million as of March 31, 2000. Note 5. Commitments and Contingencies: Construction Commitments - The estimated net cost of construction and environmental remediation programs of SJG for 2000 totals $49.8 million. Commitments were made regarding these programs. Pending Litigation - SJG 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. Environmental Remediation Costs - SJG incurred and recorded costs for environmental clean up of sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. Since the early 1980s, SJG recorded environmental remediation costs of $109.1 million, of which $58.1 million was spent as of March 31, 2000. With the assistance of an outside consulting firm, we estimate that future costs to clean up SJG's sites will range from $51.0 million to $161.3 million. We recorded the lower end of this range as a liability. It is reflected on the 2000 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 we have been successful in pursuing. 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. SJG has two regulatory assets associated with environmental cost. The first 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 No. 71, "Accounting for the Effects of Certain Types of Regulation." The BPU allows SJG to recover expenditures through July 1998 and petitions to recover costs through July 1999 are pending. The other asset titled Environmental Remediation Cost: Liability for Future Expenditures relates to estimated future expenditures determined under the guidance of FASB No. 5, "Accounting for Contingencies." This amount, which relates to former manufactured gas plant sites, was recorded as a deferred debit with the corresponding amount reflected on the consolidating balance sheet under the captions, Current Liabilities and Deferred Credits and Other Non-Current Liabilities. The deferred debit is a SJG-10 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 March 31, 2000, SJG's unamortized remediation costs of $17.8 million are reflected on the consolidated balance sheet under the caption Regulatory and Other Non-Current Assets. Since implementing the RAC in 1992, SJG recovered $22.5 million through rates as of March 31, 2000. SJG-11 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Overview South Jersey Gas Company (SJG) is a natural gas distribution company serving 276,088 customers at March 31, 2000, compared with 269,108 customers at March 31, 1999. SJG also makes off-system sales of natural gas on a wholesale basis to various customers on the interstate pipeline system and transports natural gas purchased directly from producers or suppliers for our own sales and for some of our customers. South Jersey Industries, Inc. (SJI) owns all of the common stock of SJG. Forward Looking Statements This report contains certain forward-looking statements concerning projected financial and 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 made 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. Also, in making forward-looking statements, we assume no duty to update these statements should expectations change or actual results and events differ from current expectations. A number of factors could cause our 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 activities; the availability and cost of capital; costs and effects of legal proceedings and environmental liabilities; and changes in businesss strategies. Customer Choice Legislation Effective January 1, 2000, all residential natural gas customers in New Jersey are able to choose their gas supplier under the terms of the Electric Discount and Energy Competition Act of February 1999. Commercial and industrial customers have had the ability to choose gas suppliers since 1987. SJG's residential customers have been able to choose a gas supplier since April of 1997 under a pilot program. As of March 31, 2000, 47,281 SJG residential customers participated in the program . Customers' 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. While customer choice can reduce utility revenues, it does not negatively affect SJG's net income, financial condition or margins. SJG-12 Energy Adjustment Clauses SJG's BPU approved Temperature Adjustment Clause (TAC) had the following impacts on 2000 and 1999 first quarter net earnings: 2000 1999 -------- -------- TAC Adjustment Increase to Net Income ($ in thousands) Quarter Ended 3/31 $1,290 $1,276 While the revenue and income impacts of TAC adjustments are recorded as incurred, cash inflows or outflows directly attributable to TAC adjustments generally do not begin until the next TAC year. Each TAC year begins October 1. Results of Operations - Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 - --------------------------------------------- Operating Revenues Revenues increased $11.9 million in the first quarter of 2000 compared with the prior year period. The primary reasons for the increase were increased off-system sales and 6,980 additional customers. These factors more than offset revenue reductions due to the continued migration of firm gas sales to firm transportation. Note, however, that SJG's tariffs are structured so that profits are derived from the transportation of gas, not the sale of the commodity. Consequently, the switch to firm transportation reduced revenues but did not impact profitability. Weather in the first quarter of 2000 was 1.1% warmer than the prior year period. Weather was 7.3% warmer for the first quarter than the 20-year average. Revisions to SJG's TAC that became effective in October 1998 significantly reduced the weather related volatility in our revenues. Revenues for 2000 will be closely tied to the 20-year normal temperatures and not actual weather conditions. The following is a comparison of operating revenue and throughput for the three month period ended March 31, 2000 vs. the same period ended March 31, 1999. SJG-13 1st Quarter ----------- 2000 1999 -------- -------- Operating Revenues (Thousands): Firm Residential $70,673 72,536 Commercial 16,280 16,185 Industrial 2,000 1,811 Cogeneration & Electric Generation 1,222 667 Firm Transportation 14,012 10,831 -------- -------- Total Firm Operating Revenues 104,187 102,030 Interruptible 499 340 Interruptible Transportation 484 533 Off-System 39,226 30,486 Capacity Release & Storage 1,861 874 Other 745 819 --------- --------- Total Operating Revenues $147,002 $135,082 ========= ========= Throughput (MMcf): Firm Residential 8,481 8,883 Commercial 2,166 2,216 Industrial 106 122 Cogeneration & Electric Generation 138 71 Firm Transportation 8,465 6,789 -------- -------- Total Firm Throughput 19,356 18,081 Interruptible 49 107 Interruptible Transportation 840 1,103 Off-System 12,070 14,314 Capacity Release & Storage 10,539 3,321 -------- -------- Total Throughput 42,854 36,926 ======== ======== Gas Purchased for Resale Gas purchased for resale increased $10.1 million for the first quarter of 2000 compared with the same period in 1999 due principally to increased sales volumes, particularly to off-system customers. SJG's gas cost during the first three months of 2000 averaged $2.87/dt compared with $1.96/dt in 1999. However, changes in gas costs do not directly effect Gas Purchased for Resale. Fluctuations in gas costs not reflected in current rates are deferred and addressed in future periods under a BPU approved Levelized Gas Adjustment Clause (LGAC). Under the LGAC, fluctuations in gas costs not covered currently are reflected in future customer rates. Gas supply sources include contract and open-market purchases. SJG secures and maintains its own gas supplies to serve its customers. SJG-14 Operations A summary of net changes in Utility Operations and Other Operations (in thousands): Three Months Ended March 31, 2000 vs. 1999 ------------- Other Production Expense $1 Transmission (10) Distribution 139 Customer Accounts and Services 285 Sales 20 Administration and General 216 Other (22) ------- $629 ======= Customer Accounts and Services costs increased in the first quarter of 2000 due to temporarily increased staffing levels necessary to handle high call volumes related to the deregulation process in New Jersey and higher bad debt expense. Administrative and General costs increased for the three month period from 1999 levels principally due to a change in the way management fees are being charged from SJI to its subsidiaries. Other Operating Expenses A summary of principal changes in other consolidated operating expenses (in thousands): Three Months Ended March 31, 2000 vs. 1999 ------------- Maintenance $1,488 Depreciation 309 Income Taxes (110) Other Taxes (121) Maintenance is higher due to higher levels of Remediation Adjustment Clause (RAC) amortization. This additional amortization expense is recovered during the current period through rates (See Regulatory Matters). Depreciation is higher due to increased investment in property, plant and equipment by SJG. SJG-15 Interest Charges Interest charges were flat in the first quarter of 2000 compared with the prior year period. Increased debt outstanding and higher interest rates in 2000 were largely offset by recoveries of carrying costs associated with unrecovered RAC and purchased gas costs. The debt was incurred primarily to support the expansion and upgrade of SJG's gas transmission and distribution system. Net Income Applicable to Common Stock 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 $130.0 million, of which $48.0 million was available at March 31, 2000. The credit lines are uncommitted and unsecured with interest rates typically available based upon the Federal Funds Rates or London Interbank Offered Rates (LIBOR). The changes in cash flows from operating activities (in thousands): Three Months Ended March 31, 2000 vs. 1999 ------------- Increases/(Decreases): Net Income Applicable to Common Stock ($424) Depreciation and Amortization 828 Provision for Losses on Accounts Receivable 9 Revenues and Fuel Costs Deferred - Net (5,850) Deferred and Non-Current Income Taxes and Credits - Net 932 Environmental Remediation Costs-Net 1,534 Accounts Receivable 4,212 Inventories 806 Prepayments and Other Current Assets 0 Prepaid and Accrued Taxes - Net (7,217) Accounts Payable and Other Accrued Liabilities 825 Other - Net (1,832) ------- Net Cash Provided by Operating Activities ($6,177) ======= SJG-16 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. Decreases in Revenues and Fuel Costs Deferred - Net reflect the impact of payments or credits to customers for amounts previously overcollected and the undercollection of fuel costs resulting from increases in natural gas costs. Increases reflect the overcollection of fuel costs or the recovery of previously deferred fuel costs. 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. Changes in Environmental Remediation Costs - Net represent the differences between amounts expended for environmental remediation compared with amounts collected under the RAC and insurance recoveries. Changes in Accounts Receivable are primarily due to changes in off-system sales activity and SJG's sales volumes. Weather and commodity prices are the ariables that primarily impact these sales. Changes impact cash flows when collected in subsequent periods. Changes in Inventories reflect the impact of seasonal requirements, temperatures and commodity price changes. Changes in Prepaid and Accrued Taxes - Net reflect the impact of differences between taxes paid and taxes accrued. Significant timing differences exist in cash flows during the year. Approximately 50% of SJG's 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. Changes in Other - Net reflect numerous changes in noncurrent assets and liabilities, including accrued deferred income taxes. Regulatory Matters Rate Actions In February 1999, the Electric Discount and Energy Competition Act (the Act) was signed into law in New Jersey. This bill created the framework and necessary time schedules for the restructuring of the state's electric and natural gas utilities. The Act established unbundling, where redesigned utility rate structures allow natural gas and electric consumers to choose their energy supplier. It also established time frames for instituting SJG-17 competitive services for customer accounting functions and to determine whether basic gas supply services should become competitive. SJG received BPU approval of its unbundling settlement in January 2000. In addition to allowing all customers to select their own gas supplier, the approval incented customers to choose a supplier other than SJG with a Market Development Credit (MDC). This credit is available to customers through December 2001. The credit, approximately $2.5 million plus carrying costs, appears on our books as a Deferred Credit. Therefore, the MDC will not materially impact future periods. The unbundling settlement also provided SJG with the ability to recover carrying costs on unrecovered remediation costs under the RAC, while holding the current RAC rate in effect through October 2002. Our RAC rate last changed in September 1999. SJG's LGAC was also modified by the unbundling process. Under-recovered gas costs of $11.9 million as of October 31, 1999, and related carrying costs, will be recovered over 3 years. The LGAC for the period starting November 1999, continues to operate as it has in the past. The Act also contains numerous provisions requiring the BPU to promulgate and adopt a variety of standards related to implementing the Act. These required standards address fair competition, affiliate relations, accounting, competitive services, supplier licensing, consumer protection and aggregation. In March 2000, the BPU issued Interim Standards in response to the Act. We believe the standards will not have a material adverse affect on the company. Other matters are incorporated by reference to Note 3 to the condensed consolidated financial statements included as part of this report. Capital Resources SJG 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 the first three months of 2000 amounted to $2.1 million. The costs for 2000, 2001 and 2002 are estimated at approximately $49.8 million, $45.5 million and $51.9 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, insurance recoveries and equity infusions from SJI. SJG-18 PART II OTHER INFORMATION Item l. Legal Proceedings Information required by this Item is incorporated by reference to Part I, Item 1, Note 5, beginning on page 10. Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has interest rate risk exposure related to short-term debt. For information regarding SJG's exposure related to market risk, see Item 7A in SJG's most recently filed Form 10-K. SJG's market risks have not materially changed from December 31, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 Financial Data Schedule (submitted only in electronic format to the Securities and Exchange Commission). SJG-19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTH JERSEY GAS COMPANY (Registrant) Dated: May 15, 2000 By: /s/ David A. Kindlick David A. Kindlick Senior Vice President, Finance & Rates Dated: May 15, 2000 By: /s/ William J. Smethurst, Jr. William J. Smethurst, Jr. Vice President and Treasurer SJG-20 SOUTH JERSEY GAS COMPANY Index to Exhibits Exhibit Number Description -------------- ----------- 27 Financial Data Schedule (Submitted only in electronic format to the Securities and Exchange Commission). SJG-21 EX-27 2 SJG EXHIBIT 27
UT 1,000 3-MOS DEC-31-2000 MAR-31-2000 PER-BOOK 535,700 1,701 92,972 101,256 599 732,228 5,848 117,817 71,851 195,516 35,000 2,044 181,373 82,000 0 0 8,876 0 0 0 227,419 732,228 147,002 12,608 111,002 123,610 23,392 0 23,392 5,027 18,365 771 17,594 4,200 3,833 48,905 7.52 7.52
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