-----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, SPfcgwBsuUxrw/qJSTVgTHpio71aJuLdYmbCn9iNLy1dnt1ltn9lEO5/D/iRno13 t5LFdC/OpKVW8LqMngcePQ== 0000091928-99-000003.txt : 19990330 0000091928-99-000003.hdr.sgml : 19990330 ACCESSION NUMBER: 0000091928-99-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH JERSEY INDUSTRIES INC CENTRAL INDEX KEY: 0000091928 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 221901645 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06364 FILM NUMBER: 99576130 BUSINESS ADDRESS: STREET 1: 1 SO JERSEY PLZ STREET 2: RTE 54 CITY: FOLSOM STATE: NJ ZIP: 08037 BUSINESS PHONE: 6095619000 MAIL ADDRESS: STREET 1: 1 SO JERSEY PLZ STREET 2: RTE 54 CITY: FOLSOM STATE: NJ ZIP: 08037 FORMER COMPANY: FORMER CONFORMED NAME: SOUTH JERSEY GAS CO DATE OF NAME CHANGE: 19700507 FORMER COMPANY: FORMER CONFORMED NAME: ATLANTIC CITY GAS CO DATE OF NAME CHANGE: 19680301 10-K 1 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 SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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 - ---------------------------------------------------------------------------------------------------------- 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 (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.
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 EX-3.B 2 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 - EX-10.L.E 3 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).
Date of Minimum Name Capacities in Which Served Agreement Base Salary - ------------------------- ------------------------------------------------------- --------- ----------- 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
EX-12 4 Exhibit 12 SOUTH JERSEY INDUSTRIES, INC. Calculation of Ratio of Earnings from Continuing Operations to Fixed Charges (Before Income Taxes) (IN THOUSANDS)
Fiscal Year Ended December 31, -------------------------------------------------- 1998 1997 1996 1995 1994 -------------------------------------------------- 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 * Net Income before Discontinued Operations. ** Includes interest and preferred securities dividend requirements of a subsidiary.
EX-13 5 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 - 1998 Highlights Five-Year Summary of Selected Financial Data (In Thousands Where Applicable)
South Jersey Industries, Inc. and Subsidiaries Year Ended December 31, 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- 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 (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.
- 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 - Statements of Consolidated Income (In Thousands Except for Per Share Data)
South Jersey Industries, Inc. and Subsidiaries Year Ended December 31, 1998 1997 1996 --------- --------- --------- 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 ========= ========= ========= The accompanying schedule and footnotes are an integral part of the financial statements.
- 16 - Statements of Consolidated Cash Flows (In Thousands)
South Jersey Industries, Inc. and Subsidiaries Year Ended December 31, 1998 1997 1996 --------- --------- --------- 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 * Note 13 contains additional information relating to environmental remediation costs. The accompanying schedule and footnotes are an integral part of the financial statements.
- 17 - Consolidated Balance Sheets (In Thousands)
South Jersey Industries, Inc. and Subsidiaries December 31, 1998 1997 --------- --------- 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 ========= ========= The accompanying schedule and footnotes are an integral part of the financial statements.
- 18 - Schedules of Consolidated Capitalization (In Thousands Except for Share Data)
South Jersey Industries, Inc. and Subsidiaries December 31, 1998 1997 --------- --------- 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 ========= ========= (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.
- 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:
Thousands of Dollars Pension Benefits Other Benefits 1998 1997 1996 1998 1997 1996 ------- ------- ------- ------- ------- ------- 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 ======= ======= ======= ======= ======= =======
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 - Quarterly Financial Data (unaudited) The summarized quarterly results of SJI's operations, in thousands except for per share amounts:
1998 Quarter Ended 1997 Quarter Ended ----------------------------------------- ----------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 -------- -------- -------- -------- -------- -------- -------- -------- 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 ======== ======== ======== ======== ======== ======== ======== ======== (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.
Market Price of Common Stock and Related Information
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 - ------------- ---------------------- --------- ------------- --------------------- --------- 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 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.
- 26 - South Jersey Gas Company Comparative Operating Statistics
1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- 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 ========= ========= ========= ========= ========= * 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.
- 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: sji@aol.com 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 - EX-21 6 Exhibit 21 SOUTH JERSEY INDUSTRIES, INC. SUBSIDIARIES OF REGISTRANT AS OF DECEMBER 31, 1998
Percentage of Voting Securities State of Owned by Parent Relationship Incorporation -------------------------------------------------- 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 (1) Subsidiary of South Jersey Industries, Inc. (2) Subsidiary of Energy & Minerals, Inc. (3) Subsidiary included in financial statements
EX-23 7 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 EX-24 8 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 EX-27 9 SJI EXHIBIT 27
UT 1,000 12-MOS DEC-31-1998 DEC-31-1998 PER-BOOK 502,243 2,016 120,086 119,825 3,925 748,095 13,474 111,253 44,507 169,234 35,000 2,134 194,710 97,000 0 0 8,876 0 0 0 241,141 748,095 450,246 11,860 402,301 414,161 36,085 0 36,085 19,181 10,986 3,088 10,986 15,517 15,246 7,360 1.02 1.02 -----END PRIVACY-ENHANCED MESSAGE-----