-----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, KXDIuQGkIa+gLiSB4iyHjZFNQkdSpXtmD612mdNHn0mS519OB3dOAJMdGaUHjWDf akWIstGFeuevVRc341BdLA== /in/edgar/work/20000814/0001035216-00-000003/0001035216-00-000003.txt : 20000921 0001035216-00-000003.hdr.sgml : 20000921 ACCESSION NUMBER: 0001035216-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH JERSEY GAS CO/NEW CENTRAL INDEX KEY: 0001035216 STANDARD INDUSTRIAL CLASSIFICATION: [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: 697757 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 0001.txt Page 1 of 22 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 June 30, 2000 Commission File Number 000-22211 SOUTH JERSEY GAS COMPANY (Exact name of registrant as specified in its charter) New Jersey 21-0398330 (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 August 7, 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 22 - Cover Page - PART I -- FINANCIAL INFORMATION Item 1. Financial Statements -- See Pages 3 through 12 SJG-2 SOUTH JERSEY GAS COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In Thousands, Except for Per Share Data)
Three Months Ended June 30, ----------------------- 2000 1999 ----------- ---------- Operating Revenues: Utility $ 76,026 $ 66,101 Other 635 549 ----------- ---------- Total Operating Revenues 76,661 66,650 ----------- ---------- Operating Expenses: Gas Purchased for Resale 52,948 43,324 Utility Operations 9,827 9,580 Other Operations 514 567 Maintenance 1,720 1,309 Depreciation 4,989 4,692 Income Taxes (258) 127 Other Taxes 2,036 1,832 ----------- ---------- Total Operating Expenses 71,776 61,431 ----------- ---------- Operating Income 4,885 5,219 ----------- ---------- Interest Charges: Long-Term Debt 3,686 3,917 Short-Term Debt and Other 1,172 959 ----------- ---------- Total Interest Charges 4,858 4,876 ----------- ---------- Income Before Preferred Dividend Requirements 27 343 Preferred Stock Dividend Requirements 40 42 Preferred Securities Dividend Requirements 730 730 ----------- ---------- Net Loss Applicable to Common Stock $ (743) $ (429) =========== ========== Average Shares of Common Stock Outstanding 2,339 2,339 =========== ========== Earnings Per Common Share $ (0.32) $ (0.18) =========== ========== Dividends Declared Per Common Share $ 1.79 $ 1.73 =========== ========== The accompanying footnotes are an integral part of the financial statements.
SJG-3 SOUTH JERSEY GAS COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In Thousands, Except for Per Share Data)
Six Months Ended June 30, ----------------------- 2000 1999 ----------- ---------- Operating Revenues: Utility $ 222,653 $ 200,688 Other 1,010 1,044 ----------- ---------- Total Operating Revenues 223,663 201,732 ----------- ---------- Operating Expenses: Gas Purchased for Resale 141,766 121,998 Utility Operations 19,638 18,740 Other Operations 862 937 Maintenance 4,490 2,591 Depreciation 9,909 9,303 Income Taxes 12,350 12,845 Other Taxes 6,371 6,288 ----------- ---------- Total Operating Expenses 195,386 172,702 ----------- ---------- Operating Income 28,277 29,030 ----------- ---------- Interest Charges: Long-Term Debt 7,519 8,024 Short-Term Debt and Other 2,366 1,873 ----------- ---------- Total Interest Charges 9,885 9,897 ----------- ---------- Income Before Preferred Dividend Requirements 18,392 19,133 Preferred Stock Dividend Requirements 80 83 Preferred Securities Dividend Requirements 1,461 1,461 ----------- ---------- Net Income Applicable to Common Stock $ 16,851 $ 17,589 =========== ========== Average Shares of Common Stock Outstanding 2,339 2,339 =========== ========== Earnings Per Common Share $ 7.20 $ 7.52 =========== ========== Dividends Declared Per Common Share $ 3.59 $ 3.46 =========== ========== 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) June 30, December 31, -------------------------- ------------- 2000 1999 1999 ------------ ------------ ------------- Assets Property, Plant and Equipment: Utility Plant, at original cost $ 740,265 $ 702,116 $ 721,338 Accumulated Depreciation (200,076) (185,898) (192,240) Gas Plant Acquisition Adjustment - Net 1,739 1,813 1,776 ------------ ------------ ------------- Property, Plant and Equipment - Net 541,928 518,031 530,874 ------------ ------------ ------------- Available-for-Sale Securities 1,955 1,031 1,662 ------------ ------------ ------------- Current Assets: Cash and Cash Equivalents 10,250 8,007 4,694 Accounts Receivable 47,938 31,392 37,066 Unbilled Revenues 5,127 6,709 21,294 Provision for Uncollectibles (860) (932) (932) Natural Gas in Storage, average cost 24,649 20,121 26,840 Materials and Supplies, average cost 3,978 3,962 4,085 Prepaid Taxes 9,569 10,009 4,069 Prepayments and Other Current Assets 2,883 3,941 2,461 ------------ ------------ ------------- Total Current Assets 103,534 83,209 99,577 ------------ ------------ ------------- Accounts Receivable - Merchandise 490 851 684 ------------ ------------ ------------- Regulatory and Other Non-Current Assets: Environmental Remediation Costs: Expended - Net 18,386 24,503 25,702 Liability for Future Expenditures 51,029 52,939 51,029 Gross Receipts and Franchise Taxes 2,919 3,363 3,141 Income Taxes - Flowthrough Depreciation 11,042 12,020 11,531 Deferred Fuel Cost - Net 13,615 - 13,174 Deferred Postretirement Benefit Costs 4,725 5,207 4,914 Other 6,911 7,866 7,951 ------------ ------------ ------------- Total Regulatory and Other Non-Current Assets 108,627 105,898 117,442 ------------ ------------ ------------- Total Assets $ 756,534 $ 709,020 $ 750,239 ============ ============ ============= The accompanying footnotes are an integral part of the financial statements.
SJG-5 SOUTH JERSEY GAS COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)
(Unaudited) June 30, 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 125,817 108,067 117,817 Retained Earnings 66,908 63,764 58,457 ------------ ------------ ------------- Total Common Equity 198,573 177,679 182,122 ------------ ------------ ------------- Preferred Stock and Securities: Redeemable Cumulative Preferred - Par Value $100 per share, Authorized 43,104, 45,504 and 45,504 shares, respectively Outstanding: Series A, 4.70% - 300, 1,200 and 1,200 shares 30 120 120 Series B, 8.00% - 17,742, 19,242 and 19,242 shares 1,774 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 36,804 37,044 37,044 ------------ ------------ ------------- Long-Term Debt 172,123 185,704 183,561 ------------ ------------ ------------- Total Capitalization 407,500 400,427 402,727 ------------ ------------ ------------- Current Liabilities: Notes Payable 107,700 82,300 118,900 Current Maturities of Long-Term Debt 11,876 8,876 8,876 Accounts Payable 43,163 30,955 34,822 Customer Deposits 5,367 5,373 5,386 Environmental Remediation Costs 12,534 8,752 12,534 Taxes Accrued 5,223 6,891 634 Interest Accrued and Other Current Liabilities 5,949 6,983 10,422 ------------ ------------ ------------- Total Current Liabilities 191,812 150,130 191,574 ------------ ------------ ------------- Deferred Credits and Other Non-Current Liabilities: Deferred Income Taxes - Net 95,385 86,649 93,543 Environmental Remediation Costs 38,495 44,187 38,495 Pension and Other Postretirement Benefits 11,415 13,189 12,303 Investment Tax Credits 4,676 5,044 4,849 Deferred Revenues - Net - 3,777 - Other 7,251 5,617 6,748 ------------ ------------ ------------- Total Deferred Credits and Other Non-Current Liabilities 157,222 158,463 155,938 ------------ ------------ ------------- Commitments and Contingencies Total Capitalization and Liabilities $ 756,534 $ 709,020 $ 750,239 ============ ============ ============= The accompanying footnotes are an integral part of the financial statements.
SJG-6 SOUTH JERSEY GAS COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Six Months Ended June 30, ----------------------- 2000 1999 ---------- ---------- Cash Flows from Operating Activities: Net Income Applicable to Common Stock $ 16,851 $ 17,589 Adjustments to Reconcile Net Income to Cash Flows Provided by Operating Activities: Depreciation and Amortization 11,515 10,740 Provision for Losses on Accounts Receivable 453 258 Revenues and Fuel Costs Deferred - Net (441) 9,286 Deferred and Non-Current Income Taxes and Credits - Net 2,068 194 Environmental Remediation Costs - Net 7,316 2,997 Changes in: Accounts Receivable 4,770 9,309 Inventories 2,298 7,587 Prepayments and Other Current Assets (422) (1,674) Prepaid and Accrued Taxes - Net (911) 8,091 Accounts Payable and Other Accrued Liabilities 3,849 (10,348) Other - Net 408 2,531 ---------- ---------- Net Cash Provided by Operating Activities 47,754 56,560 ---------- ---------- Cash Flows from Investing Activities: Capital Expenditures, Cost of Removal and Salvage (21,627) (25,513) Purchase of Available-for-Sale Securities (293) (145) ---------- ---------- Net Cash Used in Investing Activities (21,920) (25,658) ---------- ---------- Cash Flows from Financing Activities: Net Repayments of Lines of Credit (11,200) (14,700) Principal Repayments of Long-Term Debt (8,438) (9,006) Dividends on Common Stock (8,400) (8,100) Repurchase of Preferred Stock (240) (90) Additional Investment by Shareholder 8,000 5,250 ---------- ---------- Net Cash Used in Financing Activities (20,278) (26,646) ---------- ---------- Net Increase in Cash and Cash Equivalents 5,556 4,256 Cash and Cash Equivalents at Beginning of Period 4,694 3,751 ---------- ---------- Cash and Cash Equivalents at End of Period $ 10,250 $ 8,007 ========== ========== The accompanying footnotes are an integral part of the financial statements.
SJG-7 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. We reclassified some previously reported amounts to conform with current year classifications. In our 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. Our 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 our 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 are as follows (in thousands): SJG-8 Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Current: Federal $ (1,184) $ (140) $ 7,505 $ 9,217 State (113) 170 2,778 3,434 -------- -------- -------- -------- Total Current (1,297) 30 10,283 12,651 Deferred: Federal 984 325 1,968 651 State 136 (131) 272 (262) -------- -------- -------- -------- Total Deferred 1,120 194 2,240 389 Investment Tax Credit (81) (97) (173) (195) -------- -------- -------- -------- Net Income Taxes $ (258) $ 127 $ 12,350 $ 12,845 ======== ======== ======== ======== 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. 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 Remediation Adjustment Clause (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. SJG-9 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 its 1999-2000 TAC and LGAC filings and anticipates making its 2000-2001 TAC, LG AC, RAC 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 final BPU approval in January 2000. 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 June 30, 2000, 52,056 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 as a result of the unbundling. In addition to allowing all customers to select their own supplier, 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 impact of the MDC will not materially impact future periods. Also included in the proposal 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. In June 1999, SJG made an appliance service filing with the BPU to modify SJG's existing service sentry plans, implement three new service sentry plans and to implement flat rate pricing for its appliance service business. On April 27, 2000, the BPU approved SJG's filing. Effective June 9, 2000, SJG implemented price increases for its appliance service business. The new rates are competitive with those of other service providers in New Jersey. SJG-10 Note 4. Retained Earnings: Restrictions exist under various loan agreements regarding the amount of cash dividends or other distributions that we may pay on our common stock. SJG's retained earnings, which is free of these restrictions, was approximately $65.1 million as of June 30, 2000. Note 5. Commitments and Contingencies: Construction Commitments - SJG's estimated net cost of construction and environmental remediation programs 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 $110.6 million, of which $59.6 million was spent as of June 30, 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 such expenditures through July 1998 and petitions to recover costs through July 1999 are pending. SJG-11 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 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 June 30, 2000, SJG's unamortized remediation costs of $18.4 million are reflected on the consolidated balance sheets under the caption Regulatory and Other Non-Current Assets. Since implementing the RAC in 1992, SJG recovered $23.5 million through rates as of June 30, 2000. Note 6. Other Paid-In Capital: SJG received $8.0 million and $5.25 million as a contribution of capital from SJI on June 30, 2000 and 1999, respectively. Also, on July 30, 1999, SJG received an additional $9.75 million contribution from SJI. Contributions of capital are credited to Other Paid-In Capital and Premium on Common Stock. There have been no other changes in Common Stock during 2000 or 1999. SJG-12 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 277,527 customers at June 30, 2000, compared with 270,433 customers at June 30, 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 our marketing areas; regulatory and court decisions; competition in our regulated activities; the availability and cost of capital; costs and effects of legal proceedings and environmental liabilities; and changes in business 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 June 30, 2000, 52,056 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-13 Energy Adjustment Clauses SJG's BPU approved Temperature Adjustment Clause (TAC) had the following impacts on 2000 and 1999 second quarter and six month net earnings: 2000 1999 ------ ------ TAC Adjustment Increase to Net Income ($ in thousands) Quarter Ended 6/30 $59 $(44) Six Months Ended 6/30 $1,349 $1,232 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 and Six Months Ended June 30, 2000 Compared to Three and Six Months Ended June 30, 1999 Operating Revenues Revenues increased $10.0 million and $21.9 million in the second quarter and first six months of 2000 compared with the prior year periods. The primary reasons for the increases were increased off-system sales, 7,094 additional customers and increased rates resulting from an increase in the Levelized Gas Adjustment Clause (LGAC) to recover increased gas costs. 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 second quarter of 2000 was 4.6% colder than the prior year period. Weather for the six month period was unchanged. Weather was 4.6% colder and 5.0% warmer for the second quarter and first six months, respectively, than the 20-year average. As a result of the TAC, revenues for 2000 will be closely tied to the 20-year normal temperatures and not actual weather conditions due to our TAC. The following is a comparison of operating revenue and throughput for the three and six month periods ended June 30, 2000 vs. the same periods ended June 30, 1999. SJG-14 Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Operating Revenues (Thousands): Firm Residential $22,224 $25,025 $ 92,897 $ 97,561 Commercial 5,212 5,016 21,492 21,201 Industrial 1,017 913 3,017 2,724 Cogeneration & Electric Generation 4,977 2,136 6,199 2,803 Firm Transportation 7,862 6,131 21,874 16,962 -------- -------- -------- -------- Total Firm Operating Revenues 41,292 39,221 145,479 141,251 Interruptible 333 653 832 993 Interruptible Transportation 361 362 845 895 Off-System 33,049 24,557 72,275 55,043 Capacity Release & Storage 567 856 2,428 1,730 Other 1,059 1,001 1,804 1,820 -------- -------- -------- -------- Total Operating Revenues $76,661 $66,650 $223,663 $201,732 ======== ======== ======== ======== Throughput (MMcf): Firm Residential 2,302 2,696 10,783 11,579 Commercial 634 621 2,800 2,837 Industrial 50 37 156 159 Cogeneration & Electric Generation 1,113 679 1,251 750 Firm Transportation 6,349 5,875 14,814 12,664 -------- -------- -------- -------- Total Firm Throughput 10,448 9,908 29,804 27,989 Interruptible 56 137 105 244 Interruptible Transportation 737 831 1,577 1,934 Off-System 9,357 10,461 21,427 24,775 Capacity Release & Storage 9,395 8,038 19,934 11,359 -------- -------- -------- -------- Total Throughput 29,993 29,375 72,847 66,301 ======== ======== ======== ======== Gas Purchased for Resale Gas purchased for resale increased $9.6 million and $19.8 million for the second quarter and first six months of 2000 compared with the same periods in 1999 due principally to increased gas costs on off-system sales. SJG's gas cost during the first three months of 2000 averaged $3.23/dt compared with $2.33/dt in 1999. Unlike gas costs associated with off-system sales, changes in the cost of gas sold to utility rate payers do not directly effect Gas Purchased for Resale. Fluctuations in gas costs to rate payers 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-15 Operations A summary of net changes in Utility Operations and Other Operations (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2000 vs. 1999 2000 vs. 1999 ------------- ------------- Other Production Expense $4 $5 Transmission 29 19 Distribution 9 169 Appliance Service - Net 306 285 Customer Accounts and Services 166 451 Sales (25) (5) Administration and General (242) (26) Other (53) (75) ------- ------- $194 $823 ======= ======= Appliance Service - Net increased due to service activity on new warranty plans sold in the second quarter of 2000. Customer Accounts and Services costs increased in the second quarter of 2000 due primarily to higher meter reading expenses. We increased meter reading frequency to enhance customer service. The six month period was also impacted by 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 decreased for the three month period from 1999 levels principally due to lower employee welfare and pension costs, offsetting 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 Six Months Ended June 30, June 30, 2000 vs. 1999 2000 vs. 1999 ------------- ------------- Maintenance $411 $1,899 Depreciation 297 606 Income Taxes (385) (495) Other Taxes 204 83 Maintenance was higher due to higher levels of Remediation Adjustment Clause (RAC) amortization. This additional amortization expense is recovered during the current period through rates (See Note 5 to the Condensed Consolidated Financial Statements). Depreciation was higher due to increased investment in property, plant and equipment by SJG. SJG-16 Interest Charges Interest charges were slightly lower in the first half 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 $140.0 million, of which $32.3 million was available at June 30, 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): Six Months Ended June 30, 2000 vs. 1999 ------------- Increases/(Decreases): Net Income Applicable to Common Stock ($738) Depreciation and Amortization 775 Provision for Losses on Accounts Receivable 195 Revenues and Fuel Costs Deferred - Net (9,727) Deferred and Non-Current Income Taxes and Credits - Net 1,874 Environmental Remediation Costs - Net 4,319 Accounts Receivable (4,539) Inventories (5,289) Prepayments and Other Current Assets 1,252 Prepaid and Accrued Taxes - Net (9,002) Accounts Payable and Other Accrued Liabilities 14,197 Other - Net (2,123) ------- Net Cash Provided by Operating Activities ($8,806) ======= SJG-17 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 variables 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. 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 six months of 2000 amounted to $14.3 million. The costs for 2000, 2001 and 2002 are estimated at approximately $49.8 million, $45.5 million and $51.9 million, respectively. We expect to 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 In June 2000, SJI contributed $8 million of equity capital to SJG. In July 2000, SJG issued a total of $35 million of senior secured debt under its Medium Term Note program (MTN). Notes totaling $15 million were issued at 7.70%, maturing in 2015; notes totaling $10 million were issued at 7.97%, maturing in 2018; and notes totaling $10 million were issued at 7.90%, maturing in 2030. The net proceeds of these note issuances were used to retire short-term debt. Ratio of Earnings to Fixed Charges The company's ratio of earnings to fixed charges for each of the periods indicated is as follows: Twelve Months Ended Years Ended December 31, June 30, ------------------------------------------ -------- 1995 1996 1997 1998 1999 2000 2.3x 2.5x 2.6x 2.2x 2.5x 2.5x The ratio of earnings to fixed charges represents, on a pre-tax basis, the number of times earnings cover fixed charges. Earnings consist of net income, to which has been added fixed charges and taxes based on income of the company, excluding the cumulative effect of an accounting change. Fixed charges consist of interest charges and preferred securities dividend requirements and an interest factor in rentals. SJG-19 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 11. Item 3. Quantitative and Qualitative Disclosures About Market Risk We have interest rate risk exposure related to short-term debt. For information regarding our exposure related to this risk, see Item 7A in our Form 10-K for the year ended December 31, 1999. Our 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). (b) On June 30, 2000, July 5, 2000 and July 6, 2000, South Jersey Gas Company filed Forms 8-K in relation to the issuance of a total of $35,000,000 of Secured Medium Term Notes. The company registered the Notes under the Securities Act of 1933 pursuant to a Registration Statement on Form S-3 (File No. 333-62019). Items reported include: Item 5. Other Events Item 7. Exhibits SJG-20 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: August 14, 2000 By: /s/ David A. Kindlick David A. Kindlick Senior Vice President, Finance & Rates Dated: August 14, 2000 By: /s/ William J. Smethurst, Jr. William J. Smethurst, Jr. Vice President and Treasurer SJG-21 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-22 EX-27 2 0002.txt SJG EXHIBIT 27
UT 1,000 6-MOS DEC-31-2000 JUN-30-2000 PER-BOOK 541,928 1,955 103,534 108,627 490 756,534 5,848 125,817 66,908 198,573 35,000 1,804 172,123 107,700 0 0 11,876 0 0 0 229,462 756,534 223,663 12,350 183,036 195,386 28,277 0 28,277 9,885 18,392 1,541 16,851 8,400 7,519 47,754 7.20 7.20
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