-----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, VctGQydwVFl/LOLXgExFiLE+5KL0YUPWPzQaN7UJlPggKGMLcW4Q3+redZCh3Bjm R+7L4Xpa2znFTLYJ6mc6Yw== 0000091928-02-000004.txt : 20020415 0000091928-02-000004.hdr.sgml : 20020415 ACCESSION NUMBER: 0000091928-02-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 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: 1934 Act SEC FILE NUMBER: 001-06364 FILM NUMBER: 02589841 BUSINESS ADDRESS: STREET 1: 1 SOUTH JERSEY PLAZA STREET 2: ROUTE 54 CITY: FOLSOM STATE: NJ ZIP: 08037 BUSINESS PHONE: 609-561-9000 MAIL ADDRESS: STREET 1: 1 SOUTH JERSEY PLAZA STREET 2: ROUTE 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 i10k01.txt SOUTH JERSEY INDUSTRIES FORM 10K P/E 12/31/01 ================================================================================ 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, 2001 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 ($1.25 par value per share) New York 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. [ ] The aggregate market value of approximately 10,561,400 shares of voting stock held by non-affiliates of the registrant as of March 1, 2002 was $322,651,000. As of March 1, 2002, there were 11,921,563 shares of the registrant's common stock outstanding. Documents Incorporated by Reference: In Part I of Form 10-K: Pages 14, 20, 23, 24 and 25 of 2001 Annual Report to Shareholders In Part II of Form 10-K: Pages 1 and 12 through 26 of 2001 Annual Report to Shareholders In Part III of Form 10-K: Pages 1 through 11 of the Proxy Statement dated March 11, 2001 for the 2002 Annual Meeting of Shareholders ================================================================================ 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. SJI provides a variety of energy related products and services through the following wholly owned subsidiaries: South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG distributes natural gas in the seven southernmost counties of New Jersey. SJG also: - makes off-system sales of natural gas on a wholesale basis to various customers on the interstate pipeline system; - transports natural gas purchased directly from producers or suppliers for its own sales and for some of its customers; and - services appliances via the sale of appliance warranty programs as well as on a time and materials basis. South Jersey Energy Company (SJE) acquires and markets natural gas and electricity to retail end users and provides total energy management services to commercial and industrial customers. SJE has one subsidiary, SJ EnerTrade (EnerTrade), that primarily sells natural gas to the casino industry in Atlantic City, N.J. SJE operates South Jersey Energy Solutions, LLC, equally owned with Energy East Solutions, Inc., which markets retail electricity in New Jersey. SJE also markets an air quality monitoring system through AirLogics, LLC. SJE and GZA GeoEnvironmental, Inc., an environmental consulting firm, each have a 50% equity interest in AirLogics. South Jersey Resources Group, LLC (SJRG) markets wholesale natural gas storage, commodity and transportation in the mid-Atlantic and southern states. SJRG became a wholly owned subsidiary on January 1, 2001 when SJI acquired the 50% ownership interest in SJRG formerly owned by UPR Energy Marketing. Prior to then, SJI held a 50% ownership interest in the company. Marina Energy LLC (Marina) develops and plans to operate energy-related projects in southern New Jersey. Marina's initial project, the development of a facility to provide cooling, heating and hot water to The Borgata Resort in Atlantic City, is currently under construction. SJI also has a joint venture investment with Conectiv Solutions, LLC in Millennium Account Services, LLC (Millennium). Millennium provides meter reading services to SJG and Conectiv Power Delivery in southern New Jersey. Energy & Minerals, Inc. (EMI) principally manages liabilities associated with discontinued operations of non-utility subsidiaries. Financial Information About Industry Segments Information regarding Industry Segments is incorporated by reference to Note 9 on page 23 of SJI's Annual Report to Shareholders for the year ended December 31, 2001 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. SJI-2 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 1.2 million. SJG serves 288,008 residential, commercial and industrial customers (at December 31, 2001) in southern New Jersey. Gas sales, transportation and capacity release for 2001 amounted to approximately 108,935 MMcf (million cubic feet), of which approximately 48,786 MMcf was firm sales and transportation, 2,845 MMcf was interruptible sales and transportation and 57,304 MMcf was off-system sales and capacity release. The breakdown of firm sales includes 35.6% residential, 15.5% commercial, 3.1% cogeneration and electric generation, .5% industrial and 45.3% transportation. At year-end 2001, SJG served 268,046 residential customers, 19,542 commercial customers and 420 industrial customers. This includes 2001 net additions of 6,425 residential customers, 223 commercial customers and 10 industrial customers. 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 2001, 2.1 Bcf (billion cubic feet) was delivered under this agreement. SJG serviced 7 cogeneration facilities in 2001. Combined sales and transportation of natural gas to such customers amounted to approximately 4.0 Bcf in 2001. 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 of the Federal Energy Regulatory Commission (FERC) 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 2001, off-system sales amounted to 30.1 Bcf. Also in 2001, capacity release and storage throughput amounted to 27.2 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 2001 amounted to approximately 2.8 Bcf, approximately 2.6 percent of the total throughput. No material part of SJG's business is dependent upon a single customer or a few customers. SJI-3 Service Territory The majority of 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. Construction is progressing on the first new casino/hotel in 13 years, marking the beginning of another round of development in the city. 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. 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 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. The tariff also contains provisions permitting SJG to pass on to customers increases and decreases in the cost of purchased gas supplies. The cost of gas purchased from the utility by consumers has historically been set annually by the BPU under a Levelized Gas Adjustment Clause (LGAC) within SJG's tariff. When actual gas costs experienced by SJG are less than those charged to customers under the LGAC, customer bills in the subsequent LGAC period(s) are adjusted to provide credits for the overrecovery with interest. When actual gas costs are more than is recovered through rates, SJG is permitted to charge customers more for gas in future periods for the underrecovery. While SJG has not normally been permitted to recover the cost associated with financing the underrecovered amounts, a March 2001 BPU ruling permits SJG to recover unrecovered gas costs as of October 31, 2001 with interest at 5.75% over a three-year period. The action by the BPU was taken in response to unprecedented high gas costs experienced in 2000 and early 2001 and in consideration of requiring SJG to spread recovery of those costs over the three year period. In February, 1999, the Electric Discount and Energy Competition Act (the Act) was signed into law in New Jersey. This bill created the framework and necessary time schedules for the restructuring of the state's electric and natural gas utilities. The Act established unbundling, where redesigned utility rate structures allow natural gas and electric consumers to choose their energy supplier. It also established time frames for instituting competitive services for customer account functions and for determining whether basic gas supply services should become competitive. SJI-4 SJG received BPU approval of its unbundling proposal in January 2000. In addition to allowing all customers to select their own gas supplier, the approval also provided SJG with the ability to recover carrying costs on unrecovered remediation costs under the Remediation Adjustment Clause (RAC), while holding the current RAC rate in effect through October 2002. Our RAC rate last changed in September 1999. SJG's LGAC was also modified by the unbundling process. Underrecovered gas costs of $11.9 million as of October 31, 1999, and related carrying costs, are being recovered through 2002. The Act also contains numerous provisions requiring the BPU to promulgate and adopt a variety of standards related to implementing the Act. These required standards address fair competition, affiliate relations, accounting, competitive services, supplier licensing, consumer protection and aggregation. In March 2000, the BPU issued Interim Standards in response to the Act. The BPU has undertaken an extensive comment, meeting and audit process to address the concerns of all impacted parties. SJG actively participated in the process, and we believe the final standards will not have a material adverse affect on the company. Additional information on regulatory affairs is incorporated by reference to Notes 1, 10, and 14 of SJI's Annual Report to Shareholders for the year ended December 31, 2001 which is attached to this report. See Item 14(c)(13). South Jersey Energy Company SJE, a New Jersey corporation established by SJI in 1973, is a wholly owned non-utility subsidiary of SJI and provides services for the acquisition and transportation of natural gas for retail and end users, markets total energy management services, and markets an air quality monitoring system. As of December 31, 2001, SJE marketed natural gas to 28,820 customers, of which 27,749 were residential customers. All of SJE's residential gas customers and most of its commercial and industrial customers are located within southern New Jersey. Electric customers at year end 2001 totaled four, all of which were commercial accounts. In 2001, SJE was profitable and contributed approximately 6.3% on a consolidated basis to SJI's net income. The majority of this contribution was derived from retail gas marketing. South Jersey Resources Group SJRG is a wholly owned non-utility subsidiary of SJI, formed in 1996. SJRG markets natural gas storage, commodity and transportation assets on a wholesale basis. Customers include energy marketers, electric and gas utilities and natural gas producers. SJRG's marketing activities occur mainly in the mid-Atlantic and southern regions of the country. SJRG also provides commodity risk management services to other SJI subsidiaries. In 2001, SJRG transacted 6.4 Bcf of natural gas. SJRG contributed approximately 10.5% on a consolidated basis to SJI's net income. Marina Energy Marina's initial project is an energy plant that will provide for the thermal needs of The Borgata Resort in Atlantic City. The facility consists of a production facility and a distribution and interconnection system to be located in the area of Atlantic City referred to as Renaissance Point. The Marina Thermal Facility is located on an approximate 3/4-acre site off of Route 30 (Absecon Blvd.) and between Tennessee and New York Avenues in Atlantic City. The production facility will consist of hot and chilled water production equipment, emergency electric generating equipment and related equipment. The facility is located adjacent to the Borgata site and in close proximity to other potential customer sites. The distribution system will consist of both hot and chilled water piping, manholes, valves, heat exchangers, controls and electrical devices. The system will commence within the Marina Thermal Facility and will run throughout the Renaissance Point area and terminate at various customer facilities. Construction of the Marina Thermal Facility is expected to be completed in April, 2003 with service commencing in the summer of 2003. The Marina Thermal Facility will have the capacity to produce and distribute 20,000 tons of chilled SJI-5 water and 300 million British Thermal Units per hour of hot water to customers in the Renaissance Point area of the City. The Marina Thermal Facility is capable of serving multiple customers within the Renaissance Point area. Raw Materials South Jersey Gas Company Transportation and Storage Agreements SJG has direct connections to two interstate pipeline companies, Transco and Columbia. During 2001, SJG purchased and had delivered approximately 66.0 Bcf of natural gas for distribution to both on-system and off-system customers. Of this total, 51.3 Bcf was transported on the Transco pipeline system and 14.7 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 four year-round and one seasonal firm transportation (FT) service arrangements. When combined, these services enable SJG to purchase from third parties and have delivered to its city gate stations by Transco a total of 164,089 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 market area storage during periods of low demand and withdraw gas at a rate of up to 86,973 Mcf per day during periods of high demand. The terms of the storage service agreements extend for various periods from 2002 to 2008. Sempra: SJG has separate gas sales and capacity management agreements with Sempra, 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. SJG also subscribes to a firm storage service from Columbia, to March 31, 2009, which provides a maximum withdrawal quantity of 51,102 Mcf/d during the winter season with an associated 3,355,557 Mcf of storage capacity. Equitrans: SJG has a one year storage service agreement with Equitrans which provides up to 5,314 Mcf/d from a total storage quantity of 504,831 Mcf. The gas is delivered to SJG under a firm transportation agreement with Transco. SJI-6 Gas Supplies SJG has several long term gas supply agreements with various producers and marketers that expire between 2002 and 2006. Under these agreements, SJG can purchase up to 17,350,098 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: 2001 2000 1999 ------------------------------------------ Long-Term Contract 29.8% 65.3% 76.8% Spot 70.2% 34.7% 23.2% ------------------------------------------ Total 100.0% 100.0% 100.0% Supplemental Gas Supplies SJG entered into a Liquified Natural Gas (LNG) purchase agreement with a third party provider which extends through October 31, 2003. For the 2001-2002 contract year, SJG's annual contract quantity under the agreement is 186,047 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 LNG 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 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 2001-2002 winter season to be 470,385 Mcf versus a design day supply of 503,909 Mcf. On February 22, 2001, SJG experienced its highest peak-day demand for the year of 325,739 Mcf with an average temperature of 24.66 degrees F. Commodity Prices SJG's average commodity cost of gas purchased in 2001, 2000 and 1999 was $4.95 per Mcf, $4.32 per Mcf and $2.30 per Mcf, respectively. South Jersey Energy Company Transportation and Storage Agreements Access to gas suppliers and cost of gas are significant to the operations of SJE and its subsidiary, EnerTrade. No material part of the business of SJE is dependent upon a single customer or a few customers. SJE purchases delivered gas only, primarily from SJRG. Consequently, SJE maintains no transportation or storage agreements. SJI-7 South Jersey Resources Group Transportation and Storage Agreements National Fuel Gas Supply Corporation: SJRG has a long-term storage service agreement with National Fuel Gas Supply Corporation (National Fuel) with a primary term which extends through March 31, 2005, under which up to 1,207,729 Mcf of gas may be stored during the summer season and up to 9,684 Mcf/d may be withdrawn during the winter season. SJRG also has a long-term firm transportation agreement with National Fuel associated with the above mentioned storage service, with a primary term which extends through March 31, 2005. Under this agreement, National Fuel will provide SJRG with a maximum daily injection transportation quantity of 7,344 Mcf with primary receipt points on Tennessee Gas Pipeline and National Fuel's system storage. The agreement also provides for a maximum daily withdrawal transportation quantity of 9,684 Mcf with primary delivery points on Transcontinental Gas Pipe Line and National Fuel's system storage. SJRG also has a long-term capacity assignment of firm pipeline capacity on the Columbia Gulf System. This agreement expires in October 2004. Patents and Franchises South Jersey Gas Company 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 SJG. South Jersey Energy Company AirLogics, LLC received a patent from the United States Patent Office on its perimeter air monitoring system in September of 2000. Seasonal Aspects South Jersey Gas Company 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. Non-Utility Companies Among SJI's non-utility activities, retail gas marketing has a seasonal pattern similar to SJG's. Other activities, such as wholesale gas marketing, air monitoring and energy services, do not follow seasonal patterns. However, these activities are not yet significant enough to materially alter SJI's historical earnings pattern. Working Capital Practices Reference is made to "Liquidity and Capital Resources" on page 14 of the SJI's Annual Report to Shareholders for the year ended December 31, 2001 which is attached to this report. SJI-8 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. 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 South Jersey Gas Company 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 transportation rather than the sale of the commodity. SJG has maintained its focus on being a low-cost provider of natural gas and energy services. SJG also competes with other marketers/brokers in the selling of wholesale natural gas services. Non-Utility Companies SJE competes with a number of other marketers/brokers in selling retail natural gas. SJE competes effectively based upon a combination of effective customer acquisition efforts and pricing. Competition includes SJG, other utilities, and alliances which include other utility companies. SJRG competes with other wholesale gas marketers based upon a combination of familiarity with the markets we serve and price. 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 14 on page 25 of the SJI Annual Report to Shareholders for the year ended December 31, 2001 which is attached to this report. Employees SJI and its subsidiaries had a total of 644 employees as of December 31, 2001. Following the expiration of a labor contract, the 354 members of our largest union commenced a work stoppage on November 9, 2000. The remaining 47 unionized employees walked out on December 13, 2000. SJG's unionized employees returned to work on January 17, 2001, agreeing to a new 4-year contract. Key elements of the contract include employee contributions toward healthcare costs, revised wage structures for new employees and revisions to sick-time policies. SJI-9 During the work stoppage, operation critical work was conducted mostly by SJI's non-union personnel. As a result of the nature of SJG's operations, the work stoppage did not materially effect the operational or financial condition of SJG or SJI. 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. Forward Looking Statements This report contains certain forward-looking statements concerning projected financial and operating performance, future plans and courses of action, and future economic conditions. All statements in this report other than statements of historical fact are forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and actual results could differ materially from those expressed or implied in the forward-looking statements. Also, in making forward-looking statements, we assume no duty to update these statements should expectations change or actual results and events differ from current expectations. A number of factors could cause our actual results to differ materially from those anticipated, including, but not limited to the following: general economic conditions on an international, national, state and local level; weather conditions in our marketing areas; changes in commodity costs; regulatory and court decisions; competition in our utility and non-utility activities; the availability and cost of capital; our ability to maintain existing joint ventures to take advantage of marketing opportunities; costs and effects of legal proceedings and environmental liabilities; the failure of customers or suppliers to fulfill their contractual obligations; and changes in business strategies. Item 2. Properties The principal property of SJI consists of SJG's 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, 2001, there were approximately 92 miles of mains in the transmission systems and 5,200 miles of mains in the distribution systems. SJG owns office and service buildings, including its corporate headquarters, at seven locations in the territory and a liquefied natural gas storage and vaporization facility. As of December 31, 2001, SJG's utility plant had a gross book value of $805.4 million and a net book value, after accumulated depreciation, of $584.0 million. In 2001, $47.8 million was spent on additions to utility plant and there were retirements of property having an aggregate gross book cost of $7.8 million. SJG's construction and remediation expenditures for 2002 are currently expected to approximate $60.1 million. SJI's total construction and remediation expenditures for 2002 are expected to total $91.5 million. The portion not associated with SJG is primarily due to anticipated expenditures related to the development of the thermal plant at Marina Energy. Virtually all of SJG's transmission pipeline, distribution mains and service connections are in streets or highways or on the property of others. The transmission and distribution systems are maintained under franchises or permits or rights-of-way, many of which are perpetual. SJG's properties (other than property specifically excluded) are subject to a lien of mortgage under which its first mortgage bonds are outstanding. We believe these properties are well maintained and in good operating condition. EMI owns 235 acres of land in Vineland, New Jersey. SJI-10 South Jersey Fuel, Inc., an inactive subsidiary, owns real estate in Deptford Township and Upper Township, New Jersey. R&T Castellini, Inc., an inactive subsidiary, owns land and buildings in Vineland, New Jersey. SJI owns approximately 139 acres of land in Folsom, New Jersey, approximately 9.29 acres of land in Linwood, New Jersey and a commercial office building in Chester, Pennsylvania. Item 3. Legal Proceedings SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities when these claims become apparent. SJI also maintains insurance and records probable insurance recoveries relating to outstanding claims. In our opinion these claims will not materially adversely affect SJI. 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 2001 fiscal year. Item 4-A. Executive Officers of the Registrant Name Age Positions with SJI -------------------- ----- --------------------------------------- Charles Biscieglia 57 Chairman of the Board, President and Chief Executive Officer Edward J. Graham 44 Vice President David A. Kindlick 47 Vice President & Treasurer Albert V. Ruggiero 53 Vice President George L. Baulig 60 Vice President & Corporate Secretary Charles Biscieglia was elected Assistant Vice President, Commercial Operations of SJG in May 1981, Vice President, Commercial Operations in November 1983, Senior Vice President, Operations in April 1987, Executive Vice President and Chief Operating Officer in April 1991 and President and Chief Executive Officer in March 1998. Mr. Biscieglia was elected Vice President of SJI in April 1997, President and Chief Executive Officer in October 1998 and Chairman, President and Chief Executive Officer in January 2000. Edward J. Graham was elected Vice President & Controller of SJG in June 1994, Vice President, Gas Management in April 1995, and Senior Vice President, Energy Management in April 1998. Mr. Graham was elected President of SJ EnerTrade in October 1997 and President of SJE in October 1998. Mr. Graham was elected Vice President of SJI in June 1998, and Executive Vice President and Chief Operating Officer in January 2002. David A. Kindlick was elected Assistant Vice President, Revenue Requirements of SJG in October 1989, Vice President, Revenue Requirements in April 1992, Vice President, Rates and Budgeting in April 1995, Senior Vice President, Finance and Rates in April 1998, and Executive Vice President and Chief Financial Officer in January 2002. Mr. Kindlick was elected Vice President of SJI in June 1997, Vice President and Treasurer in April 2001, and Vice President, Treasurer and Chief Financial Officer in January 2002. SJI-11 Albert V. Ruggiero was elected Vice President, Human Resources of SJG in April 1990, Vice President, Human Resources & External Affairs in April 1995, Senior Vice President, Corporate Development in April 1998, and Executive Vice President and Chief Administrative Officer in January 2002. Mr. Ruggiero was elected Vice President of SJI in October 1998. George L. Baulig was elected Secretary and Assistant Treasurer of SJI, SJG and EMI in November 1980 and Treasurer of SJI in October 1996. Mr. Baulig also serves as Secretary of R&T and SJE, since October 1989 to date. Mr. Baulig was elected Senior Vice President and Corporate Secretary of SJG in April 1998. Mr. Baulig was elected Vice President of SJI in April 1999 and at the same time relinquished the Treasurer's title. Executive officers of SJI are elected annually and serve at the pleasure of the Board of Directors. SJI-12 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 22 of SJI's Annual Report to Shareholders for the year ended December 31, 2001 which is attached to this report. 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, 2001 which is attached to this report. 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 through 15 of SJI's Annual Report to Shareholders for the year ended December 31, 2001 which is attached to this report. Item 7A. Quantitative and Qualitative Disclosures about Market Risks Information required by this item is incorporated by reference to the section entitled "Financial Risk Management" on page 15 of SJI's Annual Report to Shareholders for the year ended December 31, 2001, which is attached to this report. 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, 2001 which is attached to this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None SJI-13 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 1 through 5 of SJI's definitive Proxy Statement, dated March 11, 2002, filed in connection with SJI's 2002 Annual Meeting of Shareholders. Information required by this item relating to the executive officers 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 11 of SJI's definitive Proxy Statement, dated March 11, 2002, filed in connection with SJI's 2002 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 5, 6 and 7 of SJI's definitive Proxy Statement, dated March 11, 2002, filed in connection with SJI's 2001 Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions None SJI-14 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 13, 2002, are incorporated herein by reference to pages 15 through 25 of SJI's Annual Report to Shareholders for the year ended December 31, 2001 which is attached to this report. 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, 2001 which is attached to this report. Supplemental Schedules as of December 31, 2001, 2000 and 1999 and for the three years ended December 31, 2001, 2000, and 1999: The Independent Auditors' Report of Deloitte & Touche LLP, Auditors of SJI (page 23). Schedule I - Statement of Income, Statement of Comprehensive Income, Statement of Retained Earnings and Statement of Cash Flows of SJI (pages 24, 25 and 26). Schedule II - Valuation and Qualifying Accounts (page 27). 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. 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 Description Reference Number (3)(a)(i) Certificate of Incorporation of Incorporated by reference from South Jersey Industries, Inc., as Exhibit (4)(a) of Form S-2 amended through April 19, 1984. (2-91515). (3)(a)(ii) Amendment to Certificate of Incorporated by reference from Incorporation relating to Exhibit (4)(e)(1) of Form S-3 two-for-one stock split effective (33-1320). as of April 28, 1987. (3)(a)(iii) Amendment to Certificate of Incorporated by reference from Incorporation relating to director Exhibit (4)(e)(2) of Form S-3 and officer liability. (33-1320). (3)(ii) Bylaws of South Jersey Industries, Incorporated by reference from Inc. as amended and restated Exhibit (3)(ii) of Form 10-K for through November 17, 2000. 2000 (1-6364).
SJI-15
Exhibit Number Description Reference (4)(a) Form of Stock Certificate for Incorporated by reference from common stock. Exhibit (4)(a) of Form 10-K for 1985 (1-6364). (4)(a)(i) Rights Agreement dated as of Incorporated by reference from September 20, 1996 between South Exhibit 99.1 of Form 8-A filed Jersey Industries, Inc. and The April 9, 1996 (1-6364). Farmers & Merchants National Bank of Bridgeton. (4)(b)(i) First Mortgage Indenture dated Incorporated by reference from October 1, 1947. Exhibit (4)(b)(i) of Form 10-K for 1987 (1-6364). (4)(b)(x) Twelfth Supplemental Indenture Incorporated by reference from dated as of June 1, 1980. Exhibit 5(b) of Form S-7 (2-68038). (4)(b)(xiv) Sixteenth Supplemental Indenture Incorporated by reference from dated as of April 1, 1988, 10 1/4% Exhibit (4)(b)(xv) of Form 10-Q Series due 2008. for the quarter ended March 31, 1988 (1-6364). (4)(b)(xv) Seventeenth Supplemental Indenture Incorporated by reference from dated as of May 1, 1989. Exhibit (4)(b)(xv) of Form 10-K for 1989 (1-6364). (4)(b)(xvi) Eighteenth Supplemental Indenture Incorporated by reference from dated as of March 1, 1990. Exhibit (4)(e) of Form S-3 (33-36581). (4)(b)(xvii) Nineteenth Supplemental Indenture Incorporated by reference from dated as of April 1, 1992. Exhibit (4)(b)(xvii) of Form 10-K for 1992 (1-6364). (4)(b)(xviii) Twentieth Supplemental Indenture Incorporated by reference from dated as of June 1, 1993. Exhibit (4)(b)(xviii) of Form 10-K for 1993(1-6364). (4)(b)(xix) Twenty-First Supplemental Incorporated by reference from Indenture dated as of March 1, Exhibit (4)(b)(xviv) of Form 10-K 1997. for 1997(1-6364). (4)(b)(xx) Twenty-Second Supplemental Incorporated by reference from Indenture dated as of October 1, Exhibit (4)(b)(ix) of Form S-3 1998. (333-62019). (4)(c) Indenture dated as of January 31, Incorporated by reference from 1995; 8.60% Debenture Notes due Exhibit (4)(c) of Form 10-K for February 1, 2010. 1994 (1-6364). (4)(d) Certificate of Trust for SJG Incorporated by reference from Capital Trust. 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 Incorporated by reference from Trust. 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-16
Exhibit Number Description Reference (4)(d)(ii) Form of Amended and Restated Trust Incorporated by reference from Agreement for SJG Capital Trust. 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 Incorporated by reference from Capital Trust. 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 Incorporated by reference from Subordinated Debenture. 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 Incorporated by reference from Subordinated Debenture. 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 Incorporated by reference from South Jersey Gas Company and SJG Exhibit 4(d) of Form S-3 - SJG Capital Trust. 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 Incorporated by reference from Trust dated October 1, 1998. Exhibit 4(e) of Form S-3 (333-62019). (9) None (10)(d) Gas storage agreement (GSS) Incorporated by reference from between South Jersey Gas Company Exhibit (10)(d) of Form 10-K for and Transco dated October 1, 1993. 1993 (1-6364). (10)(e) Gas storage agreement (S-2) Incorporated by reference from between South Jersey Gas Company Exhibit (5)(h) of Form S-7 and Transco dated December 16, (2-56223). 1953. (10)(f) Gas storage agreement (LG-A) Incorporated by reference from between South Jersey Gas Company Exhibit (5)(f) of Form S-7 and Transco dated June 3, 1974. (2-56223). (10)(h) Gas storage agreement (WSS) Incorporated by reference from between South Jersey Gas Company Exhibit (10)(h) of Form 10-K for and Transco dated August 1, 1991. 1991 (1-6364). (10)(i) Gas storage agreement (LSS) Incorporated by reference from between South Jersey Gas Company Exhibit (10)(i) of Form 10-K for and Transco dated October 1, 1993. 1993 (1-6364).
SJI-17
Exhibit Number Description Reference (10)(i)(a) Gas storage agreement (SS-1) Incorporated by reference from between South Jersey Gas Company Exhibit (10)(i)(a) of Form 10-K and Transco dated May 10, 1987 for 1988 (1-6364). (effective April 1, 1988). (10)(i)(b) Gas storage agreement (ESS) Incorporated by reference from between South Jersey Gas Company Exhibit (10)(i)(b) of Form 10-K and Transco dated November 1, 1993. for 1993 (1-6364). (10)(i)(c) Gas transportation service Incorporated by reference from agreement between South Jersey Gas Exhibit (10)(i)(c) of Form 10-K Company and Transco dated April 1, for 1989 (1-6364). 1986. (10)(i)(e) Service agreement (FS) between Incorporated by reference from South Jersey Gas Company and Exhibit (10)(i)(e) of Form 10-K Transco dated August 1, 1991. for 1991 (1-6364). (10)(i)(f) Service agreement (FT) between Incorporated by reference from South Jersey Gas Company and Exhibit (10)(i)(f) of Form 10-K Transco dated February 1, 1992. for 1991 (1-6364). (10)(i)(g) Service agreement (Incremental FT) Incorporated by reference from between South Jersey Gas Company Exhibit (10)(i)(g) of Form 10-K and Transco dated August 1, 1991. for 1991 (1-6364). (10)(i)(i) Gas storage agreement (SS-2) Incorporated by reference from between South Jersey Gas Company Exhibit (10)(i)(i) of Form 10-K and Transco dated July 25, 1990. for 1991 (1-6364). (10)(i)(j) Gas transportation service Incorporated by reference from agreement between South Jersey Gas Exhibit (10)(i)(j) of Form 10-K Company and Transco dated December for 1993 (1-6364). 20, 1991. (10)(i)(k) Amendment to gas transportation Incorporated by reference from agreement dated December 20, 1991 Exhibit (10)(i)(k) of Form 10-K between South Jersey Gas Company for 1993 (1-6364). and Transco dated October 5, 1993. (10)(j)(a) Gas transportation service Incorporated by reference from agreement (FTS) between South Exhibit (10)(j)(a) of Form 10-K Jersey Gas Company and Equitable for 1989 (1-6364). Gas Company dated November 1, 1986. (10)(k)(h) Gas transportation service Incorporated by reference from agreement (TF) between South Exhibit (10)(k)(h) of Form 10-K Jersey Gas Company and CNG for 1993 (1-6364). Transmission Corporation dated October 1, 1993. (10)(k)(i) Gas purchase agreement between Incorporated by reference from South Jersey Gas Company and ARCO Exhibit (10)(k)(i) of Form 10-K Gas Marketing, Inc. dated March 5, for 1989 (1-6364). 1990.
SJI-18
Exhibit Number Description Reference (10)(k)(k) Gas transportation service Incorporated by reference from agreement (FTS-1) between South Exhibit (10)(k)(k) of Form 10-K Jersey Gas Company and Columbia for 1993 (1-6364). Gulf Transmission Company dated November 1, 1993. (10)(k)(l) Assignment agreement capacity and Incorporated by reference from service rights (FTS-2) between Exhibit (10)(k)(i) of Form 10-K South Jersey Gas Company and for 1993 (1-6364). Columbia Gulf Transmission Company dated November 1, 1993. (10)(k)(m) FTS Service Agreement No. 39556 Incorporated by reference from between South Jersey Gas Company Exhibit (10)(k)(m) of Form 10-K and Columbia Gas Transmission for 1993 (1-6364). Corporation dated November 1, 1993. (10)(k)(n) FTS Service Agreement No. 38099 Incorporated by reference from between South Jersey Gas Company Exhibit (10)(k)(n) of Form 10-K and Columbia Gas Transmission for 1993 (1-6364). Corporation dated November 1, 1993. (10)(k)(o) NTS Service Agreement No. 39305 Incorporated by reference from between South Jersey Gas Company Exhibit (10)(k)(o) of Form 10-K and Columbia Gas Transmission for 1993 (1-6364). Corporation dated November 1, 1993. (10)(k)(p) FSS Service Agreement No. 38130 Incorporated by reference from between South Jersey Gas Company Exhibit (10)(k)(p) of Form 10-K and Columbia Gas Transmission for 1993 (1-6364). Corporation dated November 1, 1993. (10)(k)(q) SST Service Agreement No. 38086 Incorporated by reference from between South Jersey Gas Company Exhibit (10)(k)(q) of Form 10-K and Columbia Gas Transmission for 1993 (1-6364). Corporation dated November 1, 1993. (10)(k)(r) NS (Negotiated Sales) Service Incorporated by reference from Agreement dated December 1, 1994 Exhibit (10)(k)(r) of Form 10-K between South Jersey Gas Company for 1994 (1-6364). and Transco Gas Marketing Company as agent for Transcontinental Gas Pipeline. (10)(l)* Deferred Payment Plan for Incorporated by reference from Directors of South Jersey Exhibit (10)(l) of Form 10-K for Industries, Inc., South Jersey Gas 1994 (1-6364). Company, Energy & Minerals, Inc., R&T Group, Inc. and South Jersey Energy Company as amended and restated October 21, 1994. (10)(l)(a)* Form of Deferred Compensation Incorporated by reference from Agreement between South Jersey Exhibit (10)(j)(a) of Form 10-K Industries, Inc. and/or a for 1980 (1-6364). subsidiary and seven of its officers. (10)(l)(b)* Schedule of Deferred Compensation Incorporated by reference from Agreements. Exhibit (10)(l)(b) of Form 10-K for 1997 (1-6364).
SJI-19
Exhibit Number Description Reference (10)(l)(d)* Form of Officer Employment Incorporated by reference from Agreement between certain officers Exhibit (10)(l)(d) of Form 10-K and either South Jersey for 1999 (1-6364). Industries, Inc. or its subsidiaries. (10)(l)(e)* Schedule of Officer Employment Incorporated by reference from Agreements. Exhibit (10)(l)(e) of Form 10-K for 1999 (1-6364). (10)(l)(f)* Officer Severance Benefit Program Incorporated by reference from for all officers. Exhibit (10)(l)(g) of Form 10-K for 1985 (1-6364). (10)(l)(g)* Discretionary Incentive Bonus Incorporated by reference from Program for all officers and Exhibit (10)(l)(h) of Form 10-K management employees. for 1985 (1-6364). (10)(l)(h)* The 1987 Stock Option and Stock Incorporated by reference from Appreciation Rights Plan including Exhibit (10)(l)(i) of Form 10-K Form of Agreement. for 1987 (1-6364). (10)(l)(i)* Supplemental Executive Retirement Incorporated by reference from Program, as amended and restated Exhibit (10)(l)(i) of Form 10-K effective July 1, 1997, and Form for 1997 (1-6364). of Agreement between certain SJI or subsidiary officers. (10)(l)(j)* 1997 Stock Option and Stock Incorporated by reference from Appreciation Rights Plan. Exhibit (10)(l)(j) of Form 10-K for 1999 (1-6364). (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, 2001 is filed as an exhibit hereto solely to the extent portions are specifically incorporated by reference herein (filed herewith). (21) Subsidiaries of the Registrant (filed herewith). (23) Independent Auditors' Consent (filed herewith). (24) Power of Attorney (filed herewith). * Constitutes a management contract or a compensatory plan or arrangement.
SJI-20 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, Treasurer and Chief Financial Officer Date March 25, 2002 -------------------------- 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 Chairman of the Board, President March 25, 2002 - --------------------------- and Chief Executive Officer (Charles Biscieglia) /s/ David A. Kindlick Vice President, Treasurer and March 25, 2002 - --------------------------- Chief Financial Officer (David A. Kindlick) (Principal Financial Officer) /s/ George L. Baulig Vice President & Corporate March 25, 2002 - --------------------------- Secretary (George L. Baulig) /s/ Shirli M. Billings Director March 25, 2002 - --------------------------- (Shirli M. Billings) /s/ Keith S. Campbell Director March 25, 2002 - --------------------------- (Keith S. Campbell) /s/ Sheila Hartnett-Devlin Director March 25, 2002 - --------------------------- (Sheila Hartnett-Devlin) SJI-21 Signature Title Date /s/ Richard L. Dunham Director March 25, 2002 - --------------------------- (Richard L. Dunham) /s/ W. Cary Edwards Director March 25, 2002 - --------------------------- (W. Cary Edwards) /s/ Thomas L. Glenn, Jr. Director March 25, 2002 - --------------------------- (Thomas L. Glenn, Jr.) /s/ Herman D. James Director March 25, 2002 - --------------------------- (Herman D. James) /s/ Clarence D. McCormick Director March 25, 2002 - --------------------------- (Clarence D. McCormick) /s/ Frederick R. Raring Director March 25, 2002 - --------------------------- (Frederick R. Raring) SJI-22 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, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, and have issued our report thereon dated February 13, 2002; such financial statements and report are included in your 2001 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of South Jersey Industries, Inc. and its subsidiaries, listed in Item 14(a) 2. These financial statement schedules are 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 13, 2002 SJI-23 SCHEDULE 1 - SOUTH JERSEY INDUSTRIES, INC. STATEMENT OF INCOME (In Thousands)
2001 2000 1999 -------------- -------------- -------------- Operating Revenues $2,372 $2,121 $2,445 Operating Expenses: Operations 1,549 1,341 1,471 Maintenance 0 15 12 Depreciation 57 27 26 Energy and Other Taxes 154 95 69 -------------- -------------- -------------- Total Operating Expenses 1,760 1,478 1,578 Operating Income 612 643 867 -------------- -------------- -------------- Other Income: Equity in Affiliated Companies 566 437 180 Equity in Earnings of Subs 26,743 24,354 21,803 -------------- -------------- -------------- Total Other Income 27,309 24,791 21,983 -------------- -------------- -------------- Interest Charges 716 463 758 Income Taxes 188 230 130 -------------- -------------- -------------- Income from Continuing Operations 27,017 24,741 21,962 Equity in Undistributed Earnings of Discontinued Subsidiaries (455) (557) (274) -------------- -------------- -------------- Net Income Applicable to Common Stock $26,562 $24,184 $21,688 ============== ============== ============== See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements incorporated by reference in Part II, Item 8.
SCHEDULE 1 - SOUTH JERSEY INDUSTRIES, INC. Statement of Comprehensive Income (In Thousands)
2001 2000 1999 -------------- -------------- -------------- Net Income Applicable to Common Stock $26,562 $24,184 $21,688 -------------- -------------- -------------- Other Comprehensive Loss: Minimum Persion Liability Adjustment - Net (32) 0 0 -------------- -------------- -------------- Total Other Comprehensive Loss (32) 0 0 -------------- -------------- -------------- Comprehensive Income $26,530 $24,184 $21,688 See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements incorporated by reference in Part II, Item 8.
SCHEDULE 1 - SOUTH JERSEY INDUSTRIES, INC. Statement of Retained Earnings (In Thousands)
2001 2000 1999 -------------- -------------- -------------- Retained Earnings - Beginning $58,004 $50,467 $44,507 Net Income Applicable to Common Stock 26,562 24,184 21,688 -------------- -------------- -------------- 84,566 74,651 66,195 Dividends Declared - Common Stock (17,348) (16,647) (15,728) -------------- -------------- -------------- Retained Earnings - Ending $67,218 $58,004 $50,467 ============== ============== ============== See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements incorporated by reference in Part II, Item 8.
SJI-24 SCHEDULE 1 - SOUTH JERSEY INDUSTRIES, INC. STATEMENT OF CASH FLOWS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001
2001 2000 1999 ------------ ------------ ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income Applicable to Common Stock $26,562 $24,184 $21,688 ------------ ------------ ---------------- Adjustments to Reconcile Net Income to Cash Flows Provided by Operating Activities: Equity in Earnings of Subsidiaries (26,290) (23,873) (21,514) Depreciation and Amortization 63 32 11 Deferred and Non-Current Income Taxes and Credits - Net 557 38 92 Environmental Remedition Costs - Net (5) (74) (82) Changes in: Accounts Receivable 4,369 (297) (3,793) Receivables with Associated Companies - Net (218) (549) (356) Prepayments and Other Current Assets 35 (67) (2) Prepaid and Accrued Taxes - Net (488) 41 555 Accounts Payables & Other Current Liabilities (867) (199) 2,878 Other - Net 34 338 (1,014) ------------ ------------ ---------------- Total Cash Provided by Operating Activities 3,753 (426) (1,537) ------------ ------------ ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Return of Investment (Investment in) Affiliates 53 (637) (259) Capital Expenditures, Cost of Removal and Salvage (134) (152) 0 Dividends from Subsidiaries 17,501 16,800 25,950 Equity Infusion To Subsidiaries (8,500) (10,000) (15,000) ------------ ------------ ---------------- Net Cash Used in Investing Activities 8,920 6,011 10,691 ------------ ------------ ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Repayments of Associated Companies (17,602) (2,814) (4,082) Net Borrowings from Lines of Credits 9,560 6,250 1,050 Dividends on Common Stock (17,347) (16,647) (15,728) Proceeds from Sale of Common Stock 10,953 8,857 10,011 ------------ ------------ ---------------- Net Cash Used in Financing Activities (14,436) (4,354) (8,749) ------------ ------------ ---------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,764) 1,231 405 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,903 672 267 ------------ ------------ ---------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $139 $1,903 $672 ============ ============ ================ See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements incorporated by reference in Part II, Item 8.
SJI-25 SCHEDULE 1 - SOUTH JERSEY INDUSTRIES, INC. BALANCE SHEET (In Thousands)
2001 2000 ---------------- -------------- Assets Property Plant and Equipment: Nonutility Property, Plant and Equipment, at cost $1,828 $1,734 Accumulated Depreciation (153) (110) ---------------- -------------- Property, Plant and Equipment - Net 1,675 1,624 ---------------- -------------- Investments: Investments in Subsidiaries 222,244 204,956 Available-for-Sale Securities 46 46 Investment in Affiliates 843 896 ---------------- -------------- Total Investments 223,133 205,898 ---------------- -------------- Current Assets: Cash and Cash Equivalents 139 1,903 Notes Receivable - Associated Companies 24,323 6,565 Accounts Receivable 13 182 Accounts Receivable - Associated Companies 1,753 1,211 Dividends Receivable 0 4,200 Other 69 100 ---------------- -------------- Total Current Assets 26,297 14,161 ---------------- -------------- Other Non-Current Assets 483 770 ---------------- -------------- Total Assets $251,588 $222,453 ================ ============== Capitalization and Liabilities Common Equity: Common Stock SJI Par Value $1.25 a share Authorized - 20,000,000 shares Outstanding - 11,860,990 shares and 11,499,701 $14,826 $14,375 Premium on Common Stock 139,929 129,360 Accumulated Other Comprehensive Income (32) 0 Retained Earnings 67,218 58,004 ---------------- -------------- Total Common Equity 221,941 201,739 ---------------- -------------- Current Liabilities: Notes Payable - Banks 16,860 7,300 Notes Payable - Associated Companies 4,885 4,729 Accounts Payable 687 446 Accounts Payable to Associated Companies 534 209 Taxes Accrued (376) 112 Dividends Declared 4,389 4,197 Other Current Liabilities 1,271 2,584 ---------------- -------------- Total Current Liabilities 28,250 19,577 ---------------- -------------- Other Non-Current Liabilities 1,397 1,137 ---------------- -------------- Total Capitalization and Liabilities $251,588 $222,453 ================ ============== See South Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements incorporated by reference in Part II, Item 8.
SJI-26 SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
Col. A Col. B Col. C Col. D Col. E - ------------------------------------------------------------------------------------------------------------------------ Additions --------------------------------------- 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, 2001 $2,043 $2,667 $387 $2,436 $2,661 Provision for Uncollectible Accounts for the Year Ended December 31, 2000 $1,117 $2,280 $231 $1,585 $2,043 Provision for Uncollectible Accounts for the Year Ended December 31, 1999 $1,283 $952 $336 $1,454 $1,117 (a) Recoveries of accounts previously written off and minor adjustments. (b) Uncollectible accounts written off.
SJI-27 EX-12 3 iex12.txt SOUTH JERSEY INDUSTRIES EX 12 TO FORM 10K 12/31/01 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, ---------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------------------------------------------------------------------------------------- Net Income* $26,869 $24,741 $21,962 $13,506 $18,460 Income Taxes 19,295 18,711 16,418 11,703 10,761 Fixed Charges** 24,101 24,392 24,300 22,436 20,320 Capitalized Interest (500) (26) (390) (167) (107) ---------------------------------------------------------------------------------------- Total Available $69,765 $67,818 $62,290 $47,478 $49,434 ======================================================================================== Total Available 2.9x 2.8x 2.6x 2.1x 2.4x - ---------------------------------------- Fixed Charges * Net Income before Discontinued Operations. ** Includes interest and preferred securities dividend requirements of a subsidiary.
EX-13 4 iex13.txt SOUTH JERSEY INDUSTRIES EX 13 TO FORM 10K 12/31/01 Exhibit 13 ---------- South Jersey Industries 2001 Annual Report to Shareholders ---------------------------------- Safe. Strong. Dependable. Rock Solid. ---------------------------------- South Jersey Industries "Where we put all of our energy" - Front Cover - Company Profile. South Jersey Industries (NYSE: SJI) is an energy services holding company for South Jersey Gas, South Jersey Energy, South Jersey Resources Group, LLC and Marina Energy LLC. South Jersey Gas provides natural gas utility service to residential, commercial and industrial customers in the seven southern counties of New Jersey. The company also sells natural gas to wholesale customers in the interstate market. SJG provides HVAC and appliance repair service and warranty programs. South Jersey Energy is a licensed, deregulated energy supplier for residential, commercial and industrial customers; provides energy consultation services to help commercial and industrial facilities reduce their overall energy costs; and provides companies with a real-time environmental air monitoring system used during environmental clean ups. South Jersey Resources Group provides wholesale natural gas trading, sales, storage management, peaking services, transportation capacity and natural gas portfolio management. Marina Energy develops energy-related projects in New Jersey. Currently, the company is constructing a $50 million thermal energy plant in Atlantic City, N.J. to serve the needs of new casino expansion projects. To learn more about SJI and its subsidiaries, please visit www.sjindustries.com. Table of Contents Financial Highlights . . . . . . . . . . . . . . . . . . . . 1 Chairman's Letter to Shareholders . . . . . . . . . . . . . .2 Management's Discussion . . . . . . . . . . . . . . . . . . .12 Consolidated Financial Statements . . . . . . . . . . . . . .16 Notes to Consolidated Financial Statements . . . . . . . . . 20 Quarterly Financial Data . . . . . . . . . . . . . . . . . . 26 Comparative Operating Statistics . . . . . . . . . . . . . . 27 SJI Directors and Officers . . . . . . . . . . . . . . . . . 28 SJI Corporate Headquarters 1 South Jersey Plaza Folsom, NJ 08037-9917 609-561-9000 TDD only 1-800-547-9085 www.sjindustries.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 Shareholder Records Department Call toll-free: 1-888-SJI-3100 E-mail: sharehld@sjindustries.com Investor Relations Stephen H. Clark, Director 609-561-9000 ext. 4260 sclark@sjindustries.com Annual Meeting Information The Annual Meeting of Shareholders will be held Thursday, April 18, 2002 at 10:00 a.m. at Renault Winery, 72 North Bremen Avenue, Egg Harbor/Galloway, N.J. - Inside Front Cover - 2001 HIGHLIGHTS Five-Year Summary of Selected Financial Data (In Thousands Where Applicable)
South Jersey Industries, Inc. and Subsidiaries Year Ended December 31, 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Operating Results: Operating Revenues $ 837,341 $ 513,947 $ 391,078 $ 331,317 $ 348,160 Operating Income $ 69,061 $ 66,482 $ 61,559 $ 46,958 $ 49,871 Income Applicable to Common Stock: Continuing Operations $ 26,869 $ 24,741 $ 21,962 $ 13,506 $ 18,460 Discontinued Operations - Net (1) (455) (557) (274) (2,520) (2,664) Cumulative Effect of a Change in Accounting Principle - Net 148 - - - - Net Income Applicable to Common Stock $ 26,562 $ 24,184 $ 21,688 $ 10,986 $ 15,796 Total Assets $ 987,845 $ 869,979 $ 766,925 $ 748,095 $ 670,601 Capitalization: Common Equity $ 220,286 $ 201,739 $ 185,275 $ 169,234 $ 173,499 Preferred Stock and Securities of Subsidiary 36,690 36,804 37,044 37,134 37,224 Long-Term Debt 259,247 204,981 183,561 194,710 176,360 Total Capitalization $ 516,223 $ 443,524 $ 405,880 $ 401,078 $ 387,083 Ratio of Operating Income to Fixed Charges 2.9 2.7 2.6 2.1 2.5 Earnings Applicable to Common Stock (Based on Average Shares): Continuing Operations $ 2.29 $ 2.17 $ 2.01 $ 1.25 $ 1.72 Discontinued Operations - Net (1) (0.03) (0.05) (0.02) (0.23) (0.25) Cumulative Effect of a Change in Accounting Principle - Net 0.01 - - - - Earnings per Common Share $ 2.27 $ 2.12 $ 1.99 $ 1.02 $ 1.47 Return on Average Common Equity (2) 12.7% 12.8% 12.4% 7.9% 10.7% Share Data: Number of Shareholders of Record 8.7 9.1 9.7 10.4 11.4 Average Common Shares 11,716 11,401 10,922 10,776 10,763 Common Shares Outstanding at Year End 11,861 11,500 11,152 10,779 10,771 Dividend Reinvestment Plan: Number of Shareholders 5.0 5.0 5.4 5.5 6.0 Number of Participating Shares 1,280 1,273 2,518 1,371 1,440 Book Value at Year End $ 18.57 $ 17.54 $ 16.61 $ 15.70 $ 16.11 Dividends Declared $ 1.48 $ 1.46 $ 1.44 $ 1.44 $ 1.44 Market Price at Year End $ 32.60 $ 29.75 $ 28.44 $ 26.19 $ 30.31 Dividend Payout: From Continuing Operations 63.9% 66.6% 71.0% 114.9% 83.9% From Total Net Income 64.6% 68.1% 71.9% 141.2% 98.1% Market-to-Book 1.8 1.7 1.7 1.7 1.9 Price Earnings Ratio (2) 14.2 13.7 14.1 20.9 17.7 (1) Represents discontinued business segments: merchandising operations discontinued in 2001, wholesale electric operations discontinued in 1999, construction operations sold in 1997, sand mining and distribution operations sold in 1996 and fuel oil operations with related environmental liabilities in 1986 (See Note 3 to Consolidated Financial Statements). (2) Calculated based on Income from Continuing Operations.
- 1 - Safe. Strong. Dependable. Dear Shareholders, We're very pleased to announce that our company, South Jersey Industries, reached an important milestone that few companies have achieved. In 2001, we marked our 50th consecutive year of paying dividends either in cash or in stock. Thanks to hard work and adherence to our strategy, shareholders enjoyed a total return on their investment of almost 15 percent this year, including dividends and appreciation. SJI achieved record net income and earnings per share from continuing operations for the third consecutive year. Consolidated net income from continuing operations reached $26.9 million compared with $24.7 million in 2000, nearly a 9 percent increase. Earnings per share from continuing operations rose to $2.29 from $2.17 in 2000. In 1998, we set a goal to exceed the projected 5-6 percent industry annual growth predictions and we're proud to have achieved that goal in each of the past three years. While South Jersey Gas' results were slightly lower than last year, the earnings consistency of our regulated distribution operations offers a solid platform for SJI's earnings year after year. Despite November and December of 2001 being about 18 percent warmer than normal, the Temperature Adjustment Clause helped to stabilize earnings and insulate the company from the full impact of warmer weather. In 2001, outstanding performance by our non-regulated companies exceeded our earnings expectations by 58 percent and contributed 20 percent to SJI's bottom line. The non-regulated companies under the SJI umbrella generated higher profits with the largest earnings contributions coming from South Jersey Energy and South Jersey Resources Group, LLC. Energy services and wholesale and retail gas marketing activities, as well as other diversified energy projects, kept us at the forefront as a valued energy partner to the region's key businesses and industries. SJI -- Safe, Strong, Dependable. In a year in which our country experienced one of history's worst national tragedies, pushing a faltering domestic economy into recession, many companies and entire industries reported depressed earnings and lower market values for their common stock. As stock prices spiraled downward, SJI stock rose to $32.60 at year end, compared with $29.75 at year end 2000. As interest rates rapidly declined, we continued to be a preferred investment for shareholders seeking stable income with an element of proven and consistent growth. For the 5-year period ending 2001, SJI produced compounded annual growth of 11.8 percent, beating the Standard & Poor's 500 Index of 10.7 percent and the 7.7 percent reported for S&P's Utility Index. In a market which severely tested investor resolve and the underlying strength of even the most respected blue chip corporations, SJI proved to be an investment you can count on. For us, success in growing earnings is linked to the way we mix and balance our investments in traditional and nontraditional market opportunities. Many of you invest in SJI for its regulated utility component and through SJG this stable low risk source of earnings continues to provide the lion's share of SJI's bottom line. But in recent years, we've also demonstrated an ability to deliver added shareholder value by engaging in moderate risk, growth- oriented opportunities within our region and in our field of recognized - 2 - expertise -- energy. In 1999, our non-regulated companies' contribution to earnings totaled about 5 percent. At the close of 2001, that contribution reached 20 percent, far surpassing our expectations. Assessing our approach, A.G. Edwards said, "We must credit SJI management for doing a fine job of planning and executing a solid growth strategy based on optimizing a fast growing utility growth market while profitably growing modest non-regulated contributions." A Rock Solid Future for SJG For South Jersey Gas, 2001 marked a year of strategic development -- both internally and externally. We added customers, expanded services, identified new markets and strengthened business resources and infrastructure. SJG is ready for continued growth in 2002 and beyond. At SJI, our utility remains the cornerstone of our corporation. Built on a foundation of "people first and foremost," SJG's long-standing commitment to delivery of safe, reliable natural gas has resulted in strong allegiances with our residential, commercial and industrial customers. The specific needs of those customers may be satisfied through our wholesale gas business segment, through customer-oriented partnerships or by our appliance repair service team. Representing 80 percent of SJI's earnings, SJG services a geographic area which continues to see extraordinary growth fueled by Atlantic City's casino industry. A catalyst for employment, housing, ancillary business growth and incubator commercial ventures, the casino industry in Atlantic City posted 2001 revenues which exceeded those of its Las Vegas counterpart. In one of the most difficult years for tourism in the last half century, for the 23rd consecutive year the city's casinos still managed an increase in earnings. With the new Borgata resort and several casino expansion projects well underway, New Jersey's gaming industry will continue to stimulate development and growth in the southern counties for the foreseeable future. For SJG, this service area provides the kind of potential envied by many other utilities around the nation. The ongoing construction of new homes in the eastern corridor of SJG's service territory means new natural gas customers. The National Association of Home Builders reported that, nationwide, 2001 construction permits were 20 percent higher than the prior year. That report accurately depicts the housing market trend in southern New Jersey. Housing starts in Atlantic County's Townships of Galloway, Egg Harbor and Hamilton increased by a healthy 37 percent in 2001. Population growth in Cape May County, especially in the mainland areas of Middle, Upper and Dennis Townships, bodes well for the future of the distribution and appliance service business segments. In the western portion of our service area, Gloucester and Salem counties had a residential housing increase of nearly 17 percent over 2000. In 2001, SJG added 6,658 customers, a growth rate of 2.4 percent which exceeds the industry average. Although 2001 was largely marked by unfavorable economic indicators, SJG's conversion rates were only slightly less than last year. Conversions in 2001 totaled 1,861 compared with 2,128 in 2000. Moreover, we exceeded our expectations for new commercial sales volumes adding approximately 766,000 decatherms to annual throughput. New home and conversion customers increased SJG's customer base to 288,008 at year end. Through extensive reorganization and operational redesign, we're better positioned to capture a greater share of this market and have targeted 3,500 new conversion customers for 2002. With the expected residential growth in the service territory in 2002, we've likewise projected increased growth in the commercial sector. Already, the construction of residential housing near major highways has prompted the development of many new commercial enterprises serving those consumers. Our 2002 forecast for both large commercial and industrial markets predicts moderate but steady growth. Over the past three to five years, we've successfully maintained a high market share and increased sales by adding new customers as they were identified. Having reached a high level of saturation in these markets, SJG's ability to grow sales here will be directly correlated to the growth in these markets themselves. In 2002 and beyond, we do expect to see additional revenues from the adaptation of newer technologies such as desiccant cooling, natural gas vehicles, cogeneration and fuel cells. - 3 - Customer Focused. Looking ahead to the region's future energy requirements, we expect electric generation and cogeneration to play important roles in meeting those needs and natural gas to be the fuel of choice for all future generation projects. By mid-2002, one large client should be up and operating an 8.5 megawatt plant using natural gas supplied by us. This plant and others like it in various stages of planning and design will have a positive, recurring impact on revenues and earnings. With a rock solid base of long-term customers and a history of steady growth and dependability, SJG's role as SJI's foundation for the future is well secured. Proactive Sales Force To better capitalize on known opportunities in our service area, we've reengineered SJG's sales function with help from an outside firm specializing in sales organizations. This extensive 8-month effort, which involved many disciplines from within the company, was finalized and fully implemented in January 2002. First, we'll become more assertive in securing new customers by tying pay to bottom line results, appropriately incenting our new sales force. Next, we streamlined the process itself. We now target a 2-week period between the customer's initial request for gas service and final installation. That's an 8-week reduction from the sale-to-delivery timeline under the old process. Eliminating steps from the former process will improve our ability to serve customers without negatively impacting operations. Lastly, we automated the sale-to-delivery process ensuring efficiency and improving customer responsiveness. Customized software, designed specifically to meet the needs of SJG's sales operations, will enable us to eliminate time- consuming and duplicative processes and accelerate an informed decision-making process. This initiative has allowed us to confidently increase our sales projections from new and conversion customers, thereby providing a valuable, near-term return on the resources invested. Wholesale Gas Sales A strong contributor to SJG's success, our wholesale gas marketing operation exceeded management's expectations by reporting significant growth in 2001. Since its inception in 1993, the off-system sales division, which manages our pipeline assets and storage capacity, has consistently produced high returns at low levels of risk for investors. Taking advantage of market price fluctuations and skillfully managing the accumulated energy assets at their disposal, our expert traders pursue and capitalize on available opportunities in the wholesale marketplace. In 2001, we executed profitable transactions which produced pre-tax, pre-sharing earnings of $19.8 million, a 22 percent increase over the prior year's results. Powerful Partnerships An excellent example of a low-risk, high-return opportunity is SJI's joint venture with Conectiv Solutions, LLC -- Millennium Account Services, LLC. 2001 marked the third straight year of improved profitability for the company with the partners sharing pre-tax earnings of $1.1 million. - 4 - For SJG, one of Millennium's utility customers, attention to quality control this year paid off in outstanding results for the utility. Millennium earned performance bonuses from the utility by producing meter read rates among the highest ever recorded for SJG. Moreover, since it's inception in January 1999, SJG saved over $1 million in operational costs while improving service to our customers. To ensure that customers continue receiving the highest quality service, we will upgrade our meter reading technology in early 2002 with innovative Itron hardware and software. To support that investment, Millennium recently negotiated new 5-year agreements with its customers. By improving our efficiency, we were able to offer customers extraordinarily attractive rates while ensuring our long-term revenue stream. Building on our recent successes with business partners, SJI allied itself with Measurement Solutions International - Northeast, LLC for metering and measurement services. Our partnership with MSI-NE financially benefits us on two levels. First, as a customer, SJG realizes a cost savings from having MSI-NE provide measurement and metering services to us. Their size, experience and scope allow them to better manage and deliver shop, sampling and analysis services as well as optimize purchasing and inventory functions. Secondly, as a minority equity partner in MSI-NE, SJI has a vested interest in the operation's profitability. Over time, we believe this partnership with MSI-NE will prove to be the kind of win-win relationship we strive to achieve. Customized Appliance Repair Services For over 50 years, South Jersey homeowners have relied on SJG to keep their household appliances operating safely and efficiently. Continued demand for our expert appliance repair services translates into additional profitability for SJG. As the needs of our customers change and the demand for specialized services grows, we modify and revamp our offers and operations to keep pace. By recognizing customers' needs and responding to their wishes, we improve customer satisfaction, increase our own productivity and create the conditions necessary to improve this business line's earnings. This attention to the consumer gained us a larger share of the appliance service warranty market. In 2001, we added 2,083 new Service Sentry warranty customers. To remain competitive, we've diversified product lines, centralized our parts distribution and inventory function and created a separate call center and dispatch service to better meet the needs of consumers. A strong 2002 for this business segment is predicted. Using advanced research data, we developed a marketing strategy targeted to cross-sell appliance repair services with other complementary services to residential customers. We've identified and segmented customer groups with a higher propensity to purchase these services and designed a series of direct mail campaigns specifically for this audience. We forecast a high rate of response to these targeted initiatives. Consumer Confidence and Satisfaction Keeping consumer confidence and satisfaction at the forefront of our corporate thinking, we implemented several initiatives in our Customer Care Center during the past two years to better assist those who rely upon us for prompt, reliable gas service. Through collective bargaining in 2000, we negotiated a part-time employment agreement with the collective bargaining agent enabling CCC to expand available resources in a cost-efficient manner. Next, we extended CCC's hours of operation to better serve our growing customer base. Lastly, we added new menu options to more efficiently direct incoming telephone calls and reduce wait times. Additional initiatives are slated for 2002 to further advance our level of customer service. One initiative is the outsourcing of our collections department. This initiative will help us improve our response time as we'll reassign collection representatives to the customer service function. Operating efficiencies will result and customers' needs will be better attended. A second initiative calls for an interactive telephone voice response system and expanded website capabilities that allow for around-the-clock self-service for our customers' convenience. Finally, we'll conduct a comprehensive study of our consumers to determine the level of service they anticipate so that future initiatives will be guided by customer expectations. - 5 - Innovative. Non-Regulated Companies -- A Piece Of The Rock Energy industry restructuring has provided a myriad of opportunities for SJI's non-regulated companies for a number of years and will continue to do so. Creating market opportunities and capitalizing on them, South Jersey Energy, Marina Energy LLC and South Jersey Resources Group, LLC have greatly enhanced SJI's ability to provide greater value to shareholders. Wherever possible, our companies employ a team approach to fill the needs of all types of consumers in the southern New Jersey region from individual homeowners to large businesses. Comprehensive Energy Solutions The energy industry has become more challenging and complex with each passing year. We see more companies, even entire industries, seeking outside specialists to address their evolving energy needs. Our holistic approach to energy management coupled with our expertise and reputation puts SJI in a unique position to fill this demand in our region. The recent trend of companies seeking a comprehensive solution for their energy needs bodes well for SJI. We're ready, willing and able to provide customers with the level of service they want and need. If needed, we can completely manage all aspects of a business' energy activities. Customers find this appealing because many lack the time and staff to effectively manage the related energy functions. Importantly, engaging SJI as their energy partner helps clients dedicate their time and talents to their core business activities. This improves their profitability while we deliver the best energy solutions and value to them. This customer-focused strategy and the results we've delivered for customers have propelled SJI to the forefront of the energy industry in southern New Jersey and set us apart from our competition. It involves a noteworthy shift away from the traditional one-size-fits-all utility approach to a mindset where individual customer needs and the desire for a long-term partnership drives each proposal. We have the talent, the relationships, strategic partners and an unwavering commitment to our region's customers. Other energy providers would be hard pressed to duplicate what we've created. Many examples exist of the success SJI has enjoyed from our energy management strategy. What follows is an overview of some key projects that demonstrate that strategy at work. Marina Energy Groundbreaking No project better illustrates our corporate philosophy of teamwork than the Marina Energy Thermal project. In mid-October, we officially broke ground on the thermal facility, located in Atlantic City's burgeoning Renaissance Pointe area. A new $50 million plant will soon provide hot and chilled water necessary for all of The Borgata Resort's heating, cooling and domestic hot water needs. The project requires the involvement of three wholly-owned SJI subsidiaries and creates multiple income streams for decades to come. The new facility will use natural gas supplied by SJE and delivered by SJG. Marina Energy, who will own and operate the plant, was also awarded a 20-year contract to supply the casino resort's electricity. - 6 - In September 2001, Marina Energy issued $29 million of taxable and tax- exempt bonds through the New Jersey Economic Development Authority. The interest rate environment has resulted in financing costs substantially below initial projections. Through timely financing, we were able to improve the economics of a project that already offered an attractive return. Revenue from the project will total hundreds of millions of dollars over the contract term. More importantly, this project will generate positive income for SJI in 2003, its first year of operation. We anticipate significant additional business as further development plans for the marina district materialize, providing our companies with viable prospects for the future. The Borgata contract and others like it support our financial objective for 2003 and thereafter, with non-regulated businesses generating at least 20 percent of SJI's earnings. The 26,000 square-foot Marina Thermal facility project and the contract with The Borgata illustrate another significant element of our corporate philosophy -- building strong and enduring relationships with business allies, customers and the communities where we live and work. We're all very excited about the bricks and mortar and the technology we'll employ to ensure the highest quality of service at the facility. But for SJI, the greatest value comes in the partnership we've built with the fine people at The Borgata and the relationships we hope to build with those that will help further develop the Renaissance Pointe area in the years ahead. Kevin Sullivan, vice president of planning and project manager for The Borgata, expressed his feelings about SJI's energy management philosophy. "We thought it was best to pick one experienced company to provide all of our energy. It allows us to focus on what we know best, which is providing an entertaining gaming and hotel experience. We don't have to worry about the energy at all." Are there opportunities beyond the gaming industry for projects of this magnitude? We believe there are. As business and industry continue to expand in our region, the benefits of centralized services with a single energy partner should become apparent. One solution is to optimize a core energy facility like the Marina Thermal project by having it serve the energy needs of several large customers. Developers are beginning to understand that an off-site plant can result in a much more efficient use of space and business capital. Relying on SJI as their energy expert can help large customers mitigate their financial exposure in a volatile energy market and maximize the efficiency of the energy they use regardless of market conditions. This approach can relieve clients of significant and complex tasks, allowing customers to concentrate on their core businesses. - 7 - Solutions Oriented. Energy Management at Work A cooler Sands Casino Hotel was made possible thanks to major energy improvements by SJE. This project demonstrates our span of capabilities and comprehensive approach to energy management. We're completing an overhaul of the Sands' cooling units and internal lighting systems by replacing them with new, high-efficiency units. As a result, the resort improves its bottom line, reduces its energy demand and decreases harmful emissions to the environment. The project called for SJE to replace three 600-ton chillers and three cooling towers, upgrade the hotel's domestic hot water system and replace or retrofit approximately 10,000 lighting fixtures. Through these energy efficiency improvements, the Sands saves about $680,000 a year in energy costs while reducing emissions contributing to acid rain, smog and greenhouse gases by an estimated 72 million pounds. With energy representing a significant cost of doing business, enterprises like the Sands are looking for ways to reduce or control both their energy bills and related equipment costs. By assessing various alternative approaches to achieve those ends, a combination of actions produced a single creative solution for this casino operator. Natural Gas Sales -- Commercial/Industrial Following a competitive bidding process, SJE was awarded a 2-year contract by the State of New Jersey to supply natural gas for government facilities statewide. We will supply firm and interruptible natural gas for state government and state-affiliated agencies, such as hospitals, transit facilities and prisons. This contract, our largest to date, will generate $20 million in revenue. The fact that we've been awarded such a large statewide contract is an indication of our reputation for reliability and service quality. Moreover, it marks a tremendous growth opportunity as we partner with our home state. This contract is just the latest good news for SJE. We were also the successful bidder for several other energy supplier contracts in the second half of the year. These contracts and others like it help SJE and SJI achieve our financial objectives as we build upon each success and add to a stable foundation of customers and partners. Residential Natural Gas Sales Through New Jersey Energy Choice, we market natural gas supplies to residential customers at a savings versus the utility's price-to-compare. To maximize opportunities in New Jersey's deregulated residential market, SJE created the Community Rewards Program which teams SJE with community organizations. - 8 - Benefits are threefold as customers win with lower natural gas bills, community organizations win by earning money to support their projects and SJE wins by adding a profitable retail customer at a reasonable acquisition cost. For the customer, the process is seamless with SJE providing the natural gas and SJG continuing to deliver the gas to the premises. The customer continues to receive one monthly bill and write one check for all services rendered. After a hiatus in 2000, when market prices were significantly higher than the utility's regulated rate, SJE's return to the burgeoning residential natural gas market has been very successful. On the strength of the Community Rewards Program and other marketing efforts, we've built a residential customer base of over 32,000. Each new customer added has a direct and positive impact on our bottom line and we're just beginning to tap the potential of over 268,000 residential gas customers living in the southern part of our state. SJE's Future Growth SJE's strategy of comprehensive, team-oriented energy solutions, along with our geographic location, provides us with a powerful platform for growth with housing and attendant retail commercial development remaining strong. Atlantic City, already a prime area for SJE's commercial ventures, is within driving distance for over 30 million adults. According to the Atlantic City Convention and Visitor's Bureau, over 33 million people visited the city in 2000. Atlantic City's market extends 200 miles and encompasses some of the nation's major metropolitan areas, including New York City, Philadelphia, Baltimore and Washington D.C. The entertainment and gaming industry is expected to grow in Atlantic City, particularly in the Renaissance Pointe area, which will clearly mean additional opportunities for us. Approximately 18 million people live within a 150-mile radius of our Folsom, N.J. headquarters. We've selectively set our sights beyond southern New Jersey into neighboring Pennsylvania. The Pennsylvania Public Utility Commission has granted us license to provide retail electricity throughout the Commonwealth. Deregulation, a large population and the presence of the Pennsylvania, New Jersey, Maryland Interconnection combine to make our expansion into the area favorable at this time. Wholesale Gas Marketing Stepping beyond New Jersey's borders, SJI's wholesale natural gas marketing arm, South Jersey Resources Group serves a growing number of customers in the northeast and mid-Atlantic regions. Operating under stringent guidelines to manage associated risks, SJRG produced excellent results in 2001. Through effective management of its gas portfolio, SJRG far exceeded management's expectations in 2001 by contributing nearly $2.8 million to SJI's bottom line. - 9 - Rock Solid. A Commitment to Community Strong companies need strong communities to thrive. Not suprisingly, community service has been an integral part of our history and mission for over 90 years. Through our community service initiatives, we work to improve the social and economic well-being of our region which has a direct impact on the quality of life in our area. Our role as a community partner takes many forms. We provide financial support to a large number of charitable, social, educational and business organizations. We serve as volunteers, often in leadership roles on boards and committees, other times in direct service to those in need. Throughout the years, we've encouraged and supported community involvement by our employees who, today, take part in over 200 community groups from planning boards to youth athletic clubs. One partnership of which we're particularly proud is our employees' long history of generous support for the United Way agencies in southern New Jersey. This year, I had the honor of serving as Campaign Chair of the United Way of Atlantic County. It was very gratifying to know that I represented SJI employees, for whom community service is a way of life, not just something that they do in their spare time. We're also especially proud of our employees' quick response to the September 11th tragedy. Through their efforts, thousands of dollars were donated and much needed supplies provided to the relief effort. Additionally, they conducted fundraisers and organized events to aid victims' families. A culture and tradition of community involvement culminated in SJI winning The Press of Atlantic City's Bailey Award in 2001. Named for George Bailey, the central character of the classic Christmas movie "It's a Wonderful Life," the award is presented annually by The Press to a local business that contributes generously to the community. We were honored and humbled to receive this prestigious award. This recognition is truly a tribute to our selfless employees who work hard not only at their jobs, but at helping others. A Unified Vision Over the years, SJI has experienced success and faced difficult challenges. While we're proud of our accomplishments, we also recognize that the path to future success will be paved with change. Shareholders will continue to expect improving financial results and customers will demand higher levels of service. We intend to meet those challenges. In doing so, we'll concentrate on improving our productivity and testing our business creativity each and every day. At SJI, we know that each of us must make adjustments in the way we work, the way we think and the methods we employ if our company is to continue to prosper in a complex and changing business environment. To help us maintain and advance our competitive position and create the agility needed to meet aggressive business objectives, we recently began a culture change initiative by retaining a change-management firm to assist us in the effort. With The Davies Consulting Group facilitating the process, we've gathered employee perspectives and created a team to lead the company toward a collectively defined vision of the SJI of tomorrow. Made up of employees from all levels of the company, union leaders and senior management, these - 10 - dedicated men and women have defined the characteristics needed to create the desired corporate culture and developed a unified vision for the years ahead. We've already met with our 650 SJI employees in small groups to share our plans, solicit their input and ideas and give them a sense as to how we'll proceed. In 2002, we'll create a plan of action and move forward. As we grow and change, we look forward to becoming an even stronger company that you as shareholders and every other key stakeholder can count on. SJI will always strive to be best-in-class as a reliable investment, energy partner and corporate citizen. We greatly appreciate your support and would like to acknowledge two important individuals who played key roles in our success and who will be leaving those roles in 2002. Richard L. Dunham has served as a director since 1984. In 1998, during an important period of transition for SJI, at the request of the Board of Directors, Dick stepped out of retirement and into service as Chief Executive Officer. His leadership, guidance and friendship will long be remembered by his fellow Board members and the company's senior management. George L. Baulig, SJI's vice president and corporate secretary, will be retiring in 2002. Starting as an operations clerk in 1960, George has dedicated nearly 42 years to ensuring the success of our company. While these gentlemen are retiring from active service, they will always remain a part of the SJI family. We appreciate their unwavering commitment to the growth and prosperity of our company and wish them well in the years ahead. As always, we thank you for your continued support and for sharing our vision of a rock solid future. Sincerely, Charles Biscieglia Chairman, President and CEO South Jersey Industries February 13, 2002 - 11 - Management's Discussion and Analysis of Financial Condition and Results of Operations Overview -- South Jersey Industries, Inc. (SJI) is an energy services holding company that provides a variety of products and services through the following wholly owned subsidiaries: South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG distributed natural gas in the seven southernmost counties of New Jersey to 288,008 customers at December 31, 2001 compared with 281,350 customers at December 31, 2000. SJG also: . makes off-system sales of natural gas on a wholesale basis to various customers on the interstate pipeline system; . transports natural gas purchased directly from producers or suppliers for its own sales and for some of its customers; and . services appliances via the sale of appliance warranty programs as well as on a time and materials basis. South Jersey Energy Company (SJE) acquires and markets natural gas and electricity to retail end users and provides total energy management services to commercial and industrial customers. SJE has one subsidiary, SJ EnerTrade (EnerTrade), that primarily sells natural gas to the casino industry in Atlantic City, N.J. SJE operates South Jersey Energy Solutions, LLC, equally owned with Energy East Solutions, Inc., which markets retail electricity in New Jersey. SJE also markets an air quality monitoring system through AirLogics, LLC. SJE and GZA GeoEnvironmental, Inc., an environmental consulting firm, each have a 50% equity interest in AirLogics. South Jersey Resources Group, LLC (SJRG) markets wholesale natural gas storage, commodity and transportation in the mid-Atlantic and southern states. Marina Energy LLC (Marina) develops and plans to operate energy-related projects in southern New Jersey. Marina's initial project, the development of a facility to provide cooling, heating and hot water to The Borgata Resort in Atlantic City, is currently under construction. SJI also has a joint venture investment with Conectiv Solutions, LLC in Millennium Account Services, LLC (Millennium). Millennium provides meter reading services to SJG and Conectiv Power Delivery in southern New Jersey. As described in the footnotes to our consolidated financial statements, management must make estimates and assumptions that affect the amounts reported in the financial statements and related disclosures. Actual results could differ from those estimates. Three types of transactions presented in our consolidated financial statements require a significant amount of judgment and estimation. These relate to regulatory assets, energy trading activities and environmental remediation costs. The New Jersey Board of Public Utilities (BPU) has reviewed and approved most of the items shown as regulatory assets through specific orders. Other items represent costs which were not yet BPU-approved for recovery, but are the subject of current or future filings. In recording these costs as regulatory assets, management believes the costs will be allowable under existing rate- making concepts that are embodied in current rate orders received by SJG. However, ultimate recovery is subject to BPU approval. Beginning January 1, 2001, SJI recognizes assets or liabilities for the energy-related contracts entered into by its non-regulated subsidiary, SJRG, when the contracts are executed. We record contracts at their fair value in accordance with FASB Statement No. 133. We adjust the fair value of the contracts each reporting period for changes in the market. We derive the fair value for most of the energy-related contracts from markets where the contracts are actively traded and quoted. For other contracts, SJI uses published market surveys and in certain cases, independent parties to obtain quotes concerning the contracts' current value. Market quotes tend to be more plentiful for those contracts maturing in two years or less. The vast majority of our contracts do not extend beyond two years. An outside consulting firm assists us in estimating future costs for environmental remediation activities. We estimate future costs based on projected investigation and work plans using existing technologies. Developing a single reliable estimation point is not feasible because of the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. Therefore, we estimate a range of future costs. In preparing financial statements, SJI records liabilities for future costs using the lower end of the range. We update estimates each year to take into account past efforts, changes in work plans and remediation technologies. Forward-Looking Statements -- This report contains certain forward-looking statements concerning projected financial and operating performance, future plans and courses of action and future economic conditions. All statements in this report other than statements of historical fact are forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and actual results could differ materially from those expressed or implied in the forward-looking statements. Also, in making forward-looking statements, we assume no duty to update these statements should expectations change or actual results and events differ from current expectations. A number of factors could cause our actual results to differ materially from those anticipated including, but not limited to, the following: general economic conditions on an international, national, state and local level; weather conditions in our marketing areas; changes in commodity costs; regulatory and court decisions; competition in our utility and non-utility activities; the availability and cost of capital; our ability to maintain existing joint ventures to take advantage of marketing opportunities; costs and effects of legal proceedings and environmental liabilities; the failure of customers or suppliers to fulfill their contractual obligations; and changes in business strategies. 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 due to deregulation. We enhanced SJG's competitive position while maintaining margins by using an unbundled tariff. This tariff allows full cost- of-service recovery, 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 residential, commercial and industrial customers can choose their supplier while we recover the cost of service through transportation service (see Customer Choice Legislation). SJE, EnerTrade, SJRG and Marina actively arrange energy services and provide low- cost energy supplies in a highly competitive marketplace. Competitors of SJI's non-utility businesses are often much larger companies with substantially greater resources. SJI's subsidiaries successfully compete by focusing on providing services where we have a high level of expertise in geographic areas with which we are very familiar. Customer Choice Legislation -- Effective January 10, 2000, all residential natural gas customers in New Jersey can choose their gas supplier under the terms of the Electric Discount and Energy Competition Act of 1999. Commercial and industrial customers have had the ability to choose gas suppliers since 1987. As of December 31, 2001, 39,998 SJG residential customers chose a natural gas supplier other than the utility, an increase from 35,657 at December 31, 2000. The number of customers buying natural gas from third party marketers fell to 31,395 in May 2001 as marketers were unable to offer natural gas at prices competitive with those available under regulated utility tariffs. During Spring 2001, the market price of natural gas became comparable to SJG's prices and decreased further as the year progressed. Consequently, third party marketers increased customer acquisition efforts and their number of customers rebounded. The bills of customers choosing to purchase natural gas from providers other than the utility are reduced for cost of gas charges and applicable taxes. The resulting decrease in SJG's revenues is offset by a corresponding decrease in gas costs and taxes. While customer choice can reduce utility revenues, it does not negatively affect SJG's net income or financial condition. SJI has benefited from customer choice legislation as SJE has successfully competed for and profited from gas commodity customers it has obtained. Temperature Adjustment Clause -- SJG's BPU-approved Temperature Adjustment Clause (TAC) increased net earnings by $2.0 million in 2001. In 2000, the TAC reduced net income by $0.9 million and in 1999, the TAC increased net earnings by $2.0 million. While we record the revenue and income impact of TAC adjustments as incurred, cash inflows or outflows directly attributable to TAC adjustments generally occur the next TAC year beginning October 1. - 12 - Operating Revenues - Utility -- Revenues increased $14.0 million in 2001 compared with the prior year. The increase was primarily due to higher rates resulting from an increase in the Levelized Gas Adjustment Clause (LGAC) that reflected higher gas costs, the return of residential customers to firm gas sales from transportation and 6,658 additional customers. Early in the year, a large number of residential customers who purchased natural gas from other providers resumed purchasing natural gas from SJG as marketers were unable to offer competitive prices. These increases offset a decrease in off-system revenues. The decrease was due to lower average prices for natural gas sold during the year. Significantly lower gas prices experienced during the third and fourth quarters essentially offset the higher natural gas prices experienced during the first six months. The volume of gas sold off-system was also lower in 2001 than in 2000. In 2000, revenues increased $87.3 million versus 1999. This was due primarily to higher off-system sales, 7,451 additional customers and higher LGAC rates to recover increased gas costs at SJG. These factors more than offset revenue reductions due to the continued migration of firm gas sales to firm transportation. Note, however, that SJG's tariffs are structured so we derive profits from transporting gas, not selling the commodity. Consequently, the switch to firm transportation reduced revenues but did not impact profitability. As a result of SJG's TAC, revenues from utility ratepayers are closely tied to 20-year normal temperatures calculated under the TAC and not actual weather conditions. However, as a general rule, revenues continue to be positively impacted by colder weather and negatively impacted by warmer weather. Weather in 2001 was 9.0% warmer than in 2000. Weather was also 5.3% warmer for the year than the 20-year TAC average. Revenues in 2001 were negatively impacted by the weather. Weather in 2000 was 10.6% colder than the prior year. Weather was also 4.1% colder in 2000 than the approved 20-year TAC average. Total gas throughput decreased 17.8% to 108,935 million cubic feet (MMcf) in 2001. Throughput in 2000 rose 5.3% to 132,528 MMcf compared with 1999. Results in 2001 were due to decreased capacity release, off-system sales, transportation and residential activity. Off-system and capacity release throughput declined primarily because we canceled a high volume, low margin supply and storage contract effective April 2001. The throughput rise in 2000 was primarily due to colder weather. Operating Revenues - Nonutility -- Nonutility operating revenues increased by $309.4 million to $391.7 million in 2001 compared with $82.3 million in 2000. Most of the increase, $296.8 million, was due to SJRG becoming a wholly owned subsidiary of SJI as of January 1, 2001. Results at SJRG are now consolidated into SJI. Prior to this year, SJI recorded only its share of SJRG's net income under the equity method of accounting. Had SJRG been fully consolidated in 2000 and 1999, we would have reported nonutility revenues of $229.3 million and $122.0 million, respectively. Higher natural gas prices for SJE also contributed to the increase compared with 2000. Revenues increased by $35.5 million in 2000 compared with 1999. That increase was due to higher wholesale gas sales, retail gas sales to residential customers and Atlantic City casinos as well as sales of our air monitoring products and services. Cost of Gas Sold - Utility -- Cost of gas sold - utility increased $17.6 million in 2001 compared with 2000. Higher gas costs for both local distribution and off-system sales were responsible for the increase, which were partially offset by lower volumes sold. SJG's gas cost during 2001 averaged $4.78 per decatherm (dt) compared with $4.18/dt in 2000 and $2.38/dt in 1999. SJG was able to pass a portion of higher gas costs on to local distribution customers through BPU-approved increases in our LGAC rates. Unlike gas costs associated with off-system sales, changes in the unit cost of gas sold to utility ratepayers do not directly affect cost of gas sold - utility. Fluctuations in gas costs to ratepayers not reflected in current rates are deferred and addressed in future periods under a BPU-approved LGAC. Under the LGAC, fluctuations in gas costs not covered currently are reflected in future customer rates. Gas supply sources include contract and open-market purchases. SJG secures and maintains its own gas supplies to serve its customers. We do not anticipate any difficulty renewing or replacing expiring contracts under substantially similar terms and conditions. Cost of Sales - Nonutility -- Cost of sales - nonutility increased $306.3 million in 2001 compared with $75.6 million in 2000 due to consolidation of SJRG's expenses, described in the Operating Revenues - Nonutility section, and higher natural gas costs for the period. SJRG's expenses, primarily purchased natural gas, totaled $293.9 million. Had SJRG been fully consolidated in 2000 and 1999, we would have reported nonutility cost of sales of $221.0 million and $116.2 million, respectively. Cost of sales - nonutility rose $32.5 million in 2000 due to increased costs related to higher retail gas sales and air monitoring products and services. Cost of sales - nonutility were reduced by the unrealized pre-tax gain in energy trading contracts of $3.4 million as of December 31, 2001. No adjustments of this type were made in years prior to 2001. See the Market Risks section for additional detail regarding these contracts. Operations -- A summary of net changes in operations (in thousands): 2001 vs. 2000 2000 vs. 1999 Utility: Other Production Expense $ (9) $ (2) Transmission 30 (59) Distribution 283 (818) Customer Accounts and Services 492 1,084 Sales 18 (67) Administration and General (2,345) 608 Other 195 22 Nonutility 1,697 291 --------- --------- Total Operations $ 361 $ 1,059 ========= ========= Distribution expenses decreased significantly in 2000 as we avoided costs related to our unionized workforce in late 2000. The decrease resulted from a work stoppage that ran from November 8, 2000 to January 17, 2001. We recognized expenses related to performing critical operational functions during the work stoppage under Administration and General. Offsetting these expenses in the Administration and General account in 2000 was a reallocation of costs among other expense categories. The reallocation was BPU-mandated through New Jersey's energy deregulation process. Approximately two-thirds of the Administration and General account's decline in 2001 was work stoppage related. The remainder was due to a reallocation of benefits to individual cost centers. Customer Accounts and Services expenses rose in 2001 due to the absence of almost two months of payroll expenses in 2000 as a result of the work stoppage. Also contributing to the rise were higher meter reading costs resulting from customer additions and fewer estimated meter reads. The change in 2000 related to increased bad debt reserves anticipating account collection difficulties in 2001 as a direct result of rising gas costs. Nonutility expenses rose primarily due to recognition of SJRG's activities on a consolidated basis. Last year, we recognized these activities under the equity method of accounting. Other Operating Expenses -- A summary of principal changes in other consolidated operating expenses (in thousands): 2001 vs. 2000 2000 vs. 1999 Maintenance $ (49) $ 1,743 Depreciation $ 1,041 $ 1,200 Energy and Other Taxes $ (1,008) $ 476 Maintenance expense increased in 2000 primarily due to higher levels of Remediation Adjustment Clause (RAC) amortization. RAC-related expenses do not affect earnings as an offsetting amount is recognized in revenues. Depreciation was higher due to SJG's increased investment in property, plant and equipment. Changes in Energy and Other Taxes relate primarily to changes in volumes of gas sold and transported by SJG. Interest Charges -- Interest charges were lower in 2001 compared with the prior year due primarily to reductions in short-term rates on line of credit borrowings experienced during 2001. Lower interest rates and recoveries of carrying costs associated with the unrecovered RAC and purchased gas costs more than offset interest on higher levels of short- and long-term debt outstanding. We incurred the debt primarily to support expanding and upgrading SJG's gas transmission and distribution system as well as higher levels of unrecovered gas costs and receivables resulting from increased gas prices. Interest expense was higher in 2000 than in 1999 due primarily to higher levels of debt outstanding and interest rates. Discontinued Operations -- Loss from discontinued operations decreased in 2001 primarily due to the settlement of a lawsuit with an insurance carrier to recover previously incurred costs at an operation we sold in 1996. This was offset by the settlement of a complaint in bankruptcy court against SJE filed by Power Company of America Liquidating Trust (PCA). PCA was a wholesale - 13 - electricity trading company with which SJE did business. Also included in the loss were costs associated with discontinuing SJG's appliance merchandising activities. The higher loss in 2000 compared with 1999 was due primarily to legal expenses related to PCA. Net Income Applicable to Common Stock -- Net income for 2001 was $26.6 million, or $2.27 per share, as compared with $24.2 million, or $2.12 per share and $21.7 million, or $1.99 per share in 2000 and 1999, respectively. Reasons for the increases in net income in 2001 and 2000 are discussed in detail above. Regulatory Matters -- Rate Actions: In response to a dramatic rise in gas prices during 2000 and early 2001, the BPU granted SJG a series of increases in its LGAC between November 2000 and July 2001. The total bill for a typical residential heating customer rose 19% in November 2000 and an additional 2% per month between December 2000 and July 2001 as a result of the LGAC increases. Despite the rate increases, SJG's underrecovered gas costs totaled $48.5 million by March 2001. On March 30, 2001, the BPU issued an order establishing a new Gas Cost Underrecovery Adjustment Clause (GCUA) to recover the balance as of October 31, 2001 of underrecovered gas costs over three years commencing December 1, 2001. The GCUA is an additional component of the LGAC. The GCUA balance as of October 31, 2001 totaled $48.9 million. In addition, the BPU permitted SJG to recover interest carrying costs on the underrecovered balance. Interest costs were recovered at a rate of 5.5% between April 1, 2001 and November 30, 2001. The recoverable interest rate on the GCUA balance rose to 5.75% effective December 1, 2001. In the second half of 2001, gas costs softened sufficiently for SJG in November to file for a 5.6% LGAC decrease. The filing was approved and implemented effective December 1, 2001. The LGAC decrease offset the 5.2% GCUA rate increase that also became effective on December 1, 2001. SJG has operated under its current TAC since October 1998. Under this Temperature Adjustment Clause, revenues from utility ratepayers are closely, but not exactly, tied to a 20-year average temperature calculation. Warmer- than-normal weather results in the utility recognizing revenues for which cash won't be received from ratepayers until the following TAC year. Colder-than- normal weather requires SJG to defer revenues in excess of the 20-year norm with ratepayers receiving credits to their bills for the overage in the following TAC year. Each TAC year runs from October 1 through May 31. Because of warmer-than-normal weather experienced during the 2000-2001 TAC year, SJG filed in November 2001 to recover $2.7 million under the TAC. The BPU has not yet acted on that filing. Environmental Remediation: SJI incurred and recorded costs for environmental clean up of sites where SJG or its predecessors operated manufactured gas plants (MGP). SJG stopped manufacturing gas in the 1950s. SJI and some of its nonutility subsidiaries also recorded costs for environmental clean up of sites where we previously operated a fuel oil business and also where we maintained equipment, fueling stations and storage. We successfully entered into settlements with all of SJG's historic comprehensive general liability carriers regarding environmental remediation expenditures at former MGP sites. As part of these settlements, SJG purchased an insurance policy that caps its remediation expenditures at 11 of these sites. The insurance policy is in force for 25 years at 10 sites and 30 years at one site. We believe that all costs incurred net of insurance recoveries relating to SJG's MGP sites will be recovered through rates under SJG's RAC. The RAC currently permits SJG to recover incurred costs in equal installments over 7-year periods with carrying costs. As of December 31, 2001, SJG has $12.8 million of remediation costs not yet reflected in rates. Other matters are incorporated by reference to Note 14 to the consolidated financial statements included as part of this report. Litigation -- SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities when these claims become apparent. SJI also maintains insurance and records probable insurance recoveries relating to outstanding claims. In our opinion these claims will not materially adversely affect SJI. Liquidity and Capital Resources -- Liquidity needs at SJI are driven by factors that include natural gas commodity prices; lags in fully collecting gas costs from customers under the LGAC clause; working capital needs of our energy trading activities; the timing of construction and remediation expenditures and related permanent financings; mandated tax payment dates; and requirements to repay long-term debt. We first seek to meet liquidity needs with cash from operations. Net cash provided by operating activities totaled $10.7 million, $37.7 million and $41.7 million in 2001, 2000 and 1999, respectively. The majority of the 2001 change resulted from significantly higher-cost gas placed into inventory during the year. We utilize short-term borrowings under lines of credit from commercial banks to supplement cash from operations where necessary. Lines of credit available to SJI totaled $195.0 million at December 31, 2001, of which $152.4 million was utilized. All but $10 million of these lines are made available through five commercial banks on an uncommitted basis. The banks and SJI review and renew the lines annually. The $10 million line is extended on a committed basis, maturing May 2003, by a sixth commercial bank. $175 million of these lines were exclusively for SJG's use. SJI has long- standing relationships with all of these banks and we believe, based upon ongoing dialogue, that there will continue to be sufficient credit available to meet our business' future liquidity needs. SJI supplements its operating cash flow and credit lines with both debt and equity capital. Over the years, SJG has utilized long-term debt, primarily in the form of First Mortgage Bonds, to finance its long-term needs. These needs are primarily capital expenditures for property, plant and equipment. Since 1998, SJG has financed these needs via a Medium Term Note (MTN) program, secured in similar fashion to the First Mortgage Bonds. In July 2001, SJG issued the final $35 million of notes available under that program in three transactions: $10 million at 6.74% maturing 2011; $15 million at 6.57% maturing 2011; and $10 million at 6.50% maturing 2016. We used note proceeds to retire short-term debt. We anticipate establishing a new MTN program during 2002. Current maturities on long-term debt over the next five years are as follows: $9.7 million in 2002; $12.9 million per year in 2003 through 2005; and $11.2 million in 2006. In September 2001, Marina issued $20 million of tax-exempt and $9 million of taxable variable rate demand bonds through the New Jersey Economic Development Authority (EDA). The tax-exempt and taxable bonds mature in 2031 and 2021, respectively. Marina has EDA approval to issue up to an additional $16 million of taxable bonds and, in fact, issued an additional $10 million of taxable bonds in January 2002. Investors in the bonds receive liquidity and credit support via a letter of credit provided by a commercial bank. We are using the proceeds of this bond issuance to fund project development and construction costs for the thermal energy plant being constructed by Marina to serve The Borgata Resort which is scheduled to open in Summer 2003. Construction of the thermal plant is currently ahead of schedule. In November, we took advantage of attractive long-term interest rates and executed interest rate swaps to fix the rates on the $29 million of Marina bonds then outstanding. Our cost on the tax-exempt bonds is 5.03% for 10 years and 5.65% on the taxable bonds for six years. SJI has raised equity capital over the past three years through its Dividend Reinvestment Plan (DRP). Participants in SJI's DRP receive newly issued shares. We offer a 2% discount on DRP investments because it is the most cost-effective way for us to raise equity capital in the quantities we are seeking. Through the DRP, SJI raised $9.6 million of equity capital by issuing 354,809 shares in 2001 and $9.1 million of equity capital by issuing 335,427 in 2000. We anticipate raising approximately $10 million of equity capital through the DRP in 2002. Capital Expenditures, Commitments and Contingencies -- Capital Expenditures: 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 2001 amounted to $61.4 million. We estimate the net costs for 2002, 2003 and 2004 at approximately $91.5 million, $70.2 million and $59.2 million, respectively. Increases in expenditure estimates in 2002 and 2003, compared with 2001 and 2004, reflect construction costs associated with the Marina Energy Thermal Plant. Commitments and Contingencies: SJI made certain commitments to The Borgata Resort relating to the development of the Marina Thermal Energy Project. In the event that certain construction milestones are not met, SJI is obligated to make specific payments to The Borgata, per the the construction contract. As of December 31, 2001, SJI's financial obligation to The Borgata under this contract totaled $28.6 million, of which 50% was supported by a standby letter of credit. To date, construction is proceeding ahead of schedule as outlined in - 14 - the contract and we do not anticipate problems in meeting any scheduled construction milestones. SJI's obligation under the contract will total $5 million by mid-2003. SJI is obligated on the letters of credit supporting the variable rate demand bonds issued through the EDA by Marina. A commercial bank has committed to issuing up to $46 million of annually renewing letters of credit to support the development of Marina's thermal plant project. The letter of credit agreement contains certain financial covenants measured on a quarterly basis. SJI was in compliance with these covenants as of December 31, 2001. SJG has certain commitments for both pipeline capacity and gas supply for which it pays fees regardless of usage. Those commitments as of December 31, 2001 average $51.2 million annually and total $335.7 million over the contracts' lives. Approximately 70% of the financial commitment under these contracts expires during the next five years. SJG recovers all prudently incurred fees through rates via the LGAC. From time to time, SJI enters into operating leases to finance the use of a variety of assets, including vehicles, telecommunications equipment and copiers. SJI's operating lease obligations for the next five years are: $526,000 in 2002; $470,000 in 2003; $347,000 in 2004; $189,000 in 2005; and $38,000 in 2006. SJI has provided credit support for SJRG in certain circumstances. Market Risks -- Commodity Market Risks: Certain regulated and unregulated SJI subsidiaries are involved in buying, selling, transporting and storing natural gas for their own accounts as well as managing these activities for others. As such, these subsidiaries are subject to market risk due to price fluctuations. To hedge against this risk, we enter into a variety of physical and financial transactions including forward contracts, swaps, futures and options agreements. To manage these transactions, SJI has a well-defined risk management policy approved by our Board of Directors that includes volumetric and monetary limits. Management reviews reports detailing trading activity daily. All derivative activities described above are entered into for risk management, not trading, purposes. SJI's subsidiaries are structured so that SJG and SJE transact commodities on a physical basis only and enter into no financial derivative positions directly. SJRG manages risk for these entities as well as for its own portfolio by entering into the types of transactions noted above. It is management's policy, to the extent that is practical, to have no unmatched positions on a deal or portfolio basis while conducting these activities. As a result of holding open positions to a minimal level, the financial impact to SJRG of changes in value of a particular transaction is substantially offset by an opposite change in the related hedge transaction. As of December 31, 2001, 42% of the counterparties with which SJRG had unsettled sales contracts carried investment grade ratings. The remaining counterparties carried no external ratings, however, over half had corporate parents with investment grade ratings. SJRG has entered into certain contracts for the purchase, sale, storage and transportation of natural gas. The net unrealized pre-tax gain on these contracts on January 1, 2001 was $250,742. The net unrealized pre-tax gain on the energy trading contracts of $3.4 million at December 31, 2001 primarily is derived from contracts entered into during 2001 and is included as a reduction to cost of gas - nonutility. SJRG's contracts are typically less than 12 months long. The fair value of these contracts determined under the mark-to-market method as of December 31, 2001 is as follows: Assets Maturity Maturity Source of Fair Value < 1 Year 1-3 Years Total - --------------------------------- ------------ ------------ ------------ Prices Actively Quoted NYMEX $ 31,057,446 $ 1,882,866 $ 32,940,312 Other External Sources Basis 9,143,208 1,580,871 10,724,079 Other Methods Inventory 6,986,589 89,681 7,076,270 ------------ ------------ ------------ Total $ 47,187,243 $ 3,553,418 $ 50,740,661 ============ ============ ============ Liabilities Maturity Maturity Source of Fair Value < 1 Year 1-3 Years Total - --------------------------------- ------------ ------------ ------------ Prices Actively Quoted NYMEX $(29,994,124) $ (2,093,706) $(32,087,830) Other External Sources Basis (7,153,782) (853,272) (8,007,054) Other Methods Inventory (1,843,064) (1,843,064) ------------ ------------ ------------ Total $(38,990,970) $ (2,946,978) $(41,937,948) ============ ============ ============ NYMEX (New York Mercantile Exchange) is the primary national commodities exchange on which natural gas is traded. Basis represents the price of a NYMEX natural gas futures contract adjusted for the difference in price for delivering the gas at another location. Inventory represents the market value of natural gas held in storage determined through a combination of the NYMEX and Basis methods. Contracts valued under the inventory method in the preceding chart include gas inventory with a cost of $5.1 million. Interest Rate Risk: Our exposure to interest rate risk relates primarily to short-term, variable rate borrowings. A hypothetical 100 basis point increase in interest rates on $152.4 million of variable rate debt outstanding at December 31, 2001 would result in an $899,000 increase in our interest expense net of tax. Our long-term debt is primarily issued at fixed rates and, consequently, interest expense to the company is not significantly impacted by changes in market interest rates. Other than the newly issued Marina bonds, our debt was issued with provisions that do not permit us to pre-pay a material amount of such debt during the next 12 months to take advantage of changes in interest rates. Independent Auditors' Report To the Shareholders and Board of Directors of South Jersey Industries, Inc.: We have audited the consolidated balance sheets and statements of consolidated capitalization of South Jersey Industries, Inc. and subsidiaries as of December 31, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Philadelphia, Pennsylvania February 13, 2002 - 15 - Statements of Consolidated Income (In Thousands Except for Per Share Data)
South Jersey Industries, Inc. and Subsidiaries Year Ended December 31, 2001 2000 1999 --------- --------- --------- Operating Revenues: Utility (Notes 1 & 10) $ 445,660 $ 431,641 $ 344,307 Nonutility (Note 3) 391,681 82,306 46,771 --------- --------- --------- Total Operating Revenues 837,341 513,947 391,078 --------- --------- --------- Operating Expenses: Cost of Gas Sold - Utility 305,587 288,002 207,047 Cost of Sales - Nonutility (Notes 1 & 3) 378,477 75,592 43,079 Operations 44,631 44,270 43,211 Maintenance 7,771 7,820 6,077 Depreciation (Note 1) 21,209 20,168 18,968 Energy and Other Taxes 10,605 11,613 11,137 --------- --------- --------- Total Operating Expenses 768,280 447,465 329,519 --------- --------- --------- Operating Income 69,061 66,482 61,559 --------- --------- --------- Equity in Affiliated Companies (Notes 1 & 3) 704 1,336 731 --------- --------- --------- Interest Charges: Long-Term Debt 17,519 16,124 15,721 Short-Term Debt and Other 3,020 5,168 5,105 --------- --------- --------- Total Interest Charges 20,539 21,292 20,826 --------- --------- --------- Preferred Dividend Requirements of Subsidiary (Note 2) 3,062 3,074 3,084 --------- --------- --------- Income Before Income Taxes 46,164 43,452 38,380 Income Taxes (Notes 1, 5 & 6) 19,295 18,711 16,418 --------- --------- --------- Income from Continuing Operations 26,869 24,741 21,962 Loss from Discontinued Operations - Net (Note 3) (455) (557) (274) Cumulative Effect of a Change in Accounting Principle - Net (Note 1) 148 - - --------- --------- --------- Net Income Applicable to Common Stock $ 26,562 $ 24,184 $ 21,688 ========= ========= ========= Average Shares of Common Stock Outstanding (Note 4) 11,716 11,401 10,922 ========= ========= ========= Earnings Per Common Share: (Notes 1, 3 & 4) Continuing Operations $ 2.29 $ 2.17 $ 2.01 Discontinued Operations - Net (0.03) (0.05) (0.02) Cumulative Effect of a Change in Accounting Principle - Net 0.01 - - --------- --------- --------- Earnings Per Common Share $ 2.27 $ 2.12 $ 1.99 ========= ========= ========= Dividends Declared Per Common Share $ 1.48 $ 1.46 $ 1.44 ========= ========= =========
Statements of Consolidated Retained Earnings (In Thousands)
South Jersey Industries, Inc. and Subsidiaries Year Ended December 31, 2001 2000 1999 --------- --------- --------- Balance at Beginning of Year $ 58,004 $ 50,467 $ 44,507 Net Income Applicable to Common Stock 26,562 24,184 21,688 Dividends Declared - Common Stock (17,348) (16,647) (15,728) --------- --------- --------- Balance at End of Year (Note 12) $ 67,218 $ 58,004 $ 50,467 ========= ========= ========= The accompanying 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, 2001 2000 1999 --------- --------- --------- Cash Flows from Operating Activities: Net Income Applicable to Common Stock $ 26,562 $ 24,184 $ 21,688 Adjustments to Reconcile Net Income to Cash Flows Provided by Operating Activities: Depreciation and Amortization 23,446 23,104 21,765 Unrealized Gain on Energy Trading (3,429) - - Provision for Losses on Accounts Receivable 2,667 2,280 952 Revenues and Fuel Costs Deferred - Net (7,988) (15,636) (7,665) Deferred and Non-Current Income Taxes and Credits - Net 7,310 13,845 7,112 Environmental Remediation Costs - Net* 5,452 7,019 1,496 Changes in: Accounts Receivable 22,427 (60,995) (4,041) Inventories (27,602) (4,843) 519 Prepayments and Other Current Assets (233) 75 216 Prepaid and Accrued Taxes - Net 574 1,025 8,813 Accounts Payable and Other Accrued Liabilities (36,817) 45,415 (11,775) Other - Net (1,640) 2,216 2,598 --------- --------- --------- Net Cash Provided by Operating Activities 10,729 37,689 41,678 --------- --------- --------- Cash Flows from Investing Activities: Return of Investment in (Investment in) Affiliates 164 (2,201) (811) Repayment of Loan from Affiliate 800 1,595 1,700 Proceeds from the Sale of Assets - Net - - 594 Purchase of Available-for-Sale Securities (766) (832) (776) Purchase of Restricted Investments (22,962) - - Capital Expenditures, Cost of Removal and Salvage (66,859) (50,834) (48,736) --------- --------- --------- Net Cash Used in Investing Activities (89,623) (52,272) (48,029) --------- --------- --------- Cash Flows from Financing Activities: Net Borrowings from Lines of Credit 31,160 1,250 22,950 Proceeds from Issuance of Long-Term Debt 64,000 35,000 - Principal Repayments of Long-Term Debt (11,877) (10,580) (11,149) Dividends on Common Stock (17,348) (16,647) (15,728) Proceeds from Sale of Common Stock 10,953 8,857 10,011 Repurchase of Preferred Stock (114) (240) (90) Payments for Issuance of Long-Term Debt (1,142) (1,464) - --------- --------- --------- Net Cash Provided by Financing Activities 75,632 16,176 5,994 --------- --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents (3,262) 1,593 (357) Cash and Cash Equivalents at Beginning of Year 7,227 5,634 5,991 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 3,965 $ 7,227 $ 5,634 ========= ========= ========= Supplemental Disclosures of Cash Flow Information Cash paid during the year for: Interest (Net of Amounts Capitalized) $ 20,662 $ 24,219 $ 25,264 Income Taxes (Net of Refunds) $ 6,480 $ 4,838 $ 4,423 * Notes 10 and 14 contain additional information relating to environmental remediation costs. The accompanying footnotes are an integral part of the financial statements.
- 17 - Consolidated Balance Sheets (In Thousands)
South Jersey Industries, Inc. and Subsidiaries Year Ended December 31, 2001 2000 --------- --------- Assets Property, Plant and Equipment: (Note 1) Utility Plant, at original cost $ 805,440 $ 765,561 Accumulated Depreciation (221,457) (208,292) Nonutility Property and Equipment, at cost 24,118 6,042 Accumulated Depreciation (1,058) (988) --------- --------- Property, Plant and Equipment - Net 607,043 562,323 --------- --------- Investments: Available-for-Sale Securities (Note 7) 3,139 2,540 Restricted (Note 7) 22,962 - Investments in Affiliates (Note 3) 1,369 4,451 --------- --------- Total Investments 27,470 6,991 --------- --------- Current Assets: Cash and Cash Equivalents (Notes 1 & 13) 3,965 7,227 Accounts Receivable 66,750 81,185 Unbilled Revenues (Note 1) 34,981 45,022 Provision for Uncollectibles (2,661) (2,043) Natural Gas in Storage, average cost 59,778 31,957 Materials and Supplies, average cost 3,818 4,037 Prepaid Taxes 4,650 3,960 Energy Trading Assets (Note 1) 47,187 - Prepayments and Other Current Assets 3,616 4,183 --------- --------- Total Current Assets 222,084 175,528 --------- --------- Regulatory and Other Non-Current Assets: (Note 1) Deferred Fuel Costs - Net (Note 10) 36,798 28,810 Other Regulatory Assets 79,994 89,275 Energy Trading Assets 3,554 - Derivatives 509 - Other 10,393 7,052 --------- --------- Total Regulatory and Other Non-Current Assets 131,248 125,137 --------- --------- Total Assets $ 987,845 $ 869,979 ========= ========= Capitalization and Liabilities Capitalization: Common Equity (Notes 4 & 12) $ 220,286 $ 201,739 Preferred Stock and Securities of Subsidiary (Note 2) 36,690 36,804 Long-Term Debt (Note 7) 259,247 204,981 --------- --------- Total Capitalization 516,223 443,524 --------- --------- Current Liabilities: Notes Payable (Note 13) 152,360 121,200 Current Maturities of Long-Term Debt (Note 7) 9,733 11,876 Accounts Payable 48,239 84,004 Customer Deposits 5,976 5,366 Environmental Remediation Costs (Note 14) 11,319 17,286 Taxes Accrued 2,743 1,479 Energy Trading Liabilities (Note 1) 38,991 - Deferred Income Taxes - Net (Note 5) 26,629 24,450 Interest Accrued and Other Current Liabilities 14,154 15,816 --------- --------- Total Current Liabilities 310,144 281,477 --------- --------- Deferred Credits and Other Non-Current Liabilities: Deferred Income Taxes - Net (Note 5) 84,717 80,587 Investment Tax Credits (Note 6) 4,166 4,513 Pension and Other Postretirement Benefits (Note 11) 19,313 13,394 Environmental Remediation Costs (Note 14) 41,423 37,886 Energy Trading Liabilities (Note 1) 2,947 - Other 8,912 8,598 --------- --------- Total Deferred Credits and Other Non-Current Liabilities 161,478 144,978 --------- --------- Commitments and Contingencies (Note 14) Total Capitalization and Liabilities $ 987,845 $ 869,979 ========= ========= The accompanying footnotes are an integral part of the financial statements.
- 18 - Statements of Consolidated Capitalization (In Thousands Except for Per Share Data)
South Jersey Industries, Inc. and Subsidiaries Year Ended December 31, 2001 2000 --------- --------- Common Equity: (Notes 4 & 12) Common Stock: Par Value $1.25 per share; Authorized 20,000,000 shares; Outstanding Shares: 11,860,990 (2001) and 11,499,701 (2000) Balance at Beginning of Year $ 14,375 $ 13,940 Stock Plans 451 435 --------- --------- Balance at End of Year 14,826 14,375 Premium on Common Stock 139,929 129,360 Accumulated Other Comprehensive Loss (Note 8) (1,687) - Retained Earnings 67,218 58,004 --------- --------- Total Common Equity 220,286 201,739 --------- --------- Preferred Stock and Securities of Subsidiary: (Note 2) Redeemable Cumulative Preferred Stock: South Jersey Gas Company, Par Value $100 per share Authorized Shares: 41,966 (2001) and 43,104 (2000) Outstanding Shares: Series A, 4.7% - 0 (2001) and 300 (2000) - 30 Series B, 8% - 16,904 (2001) and 17,742 (2000) 1,690 1,774 South Jersey Gas Company - Guaranteed Manditorily 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 36,690 36,804 --------- --------- Long-Term Debt: (A) South Jersey Gas Company: First Mortgage Bonds: (B) 8.19% Series due 2007 13,635 15,908 10.25% Series due 2008 9,658 11,931 9% Series due 2010 19,687 21,875 6.12% Series due 2010 10,000 10,000 6.74% Series due 2011 (C) 10,000 - 6.57% Series due 2011 (C) 15,000 - 6.95% Series due 2013 35,000 35,000 7.7% Series due 2015 15,000 15,000 6.50% Series due 2016 (C) 10,000 - 7.97% Series due 2018 10,000 10,000 7.125% Series due 2018 20,000 20,000 7.7% Series due 2027 35,000 35,000 7.9% Series due 2030 10,000 10,000 Unsecured Notes: Term Note, 8.47% due 2001 - 2,143 Debenture Notes, 8.6% due 2010 27,000 30,000 Marina Energy LLC: (D) Series A Bonds at variable rates due 2031 20,000 - Series B Bonds at variable rates due 2021 9,000 - --------- --------- Total Long-Term Debt Outstanding 268,980 216,857 Less Current Maturities 9,733 11,876 --------- --------- Total Long-Term Debt 259,247 204,981 --------- --------- Total Capitalization $ 516,223 $ 443,524 ========= ========= (A) The long-term debt maturities and sinking fund requirements for the succeeding five years are as follows: 2002, $9,733; 2003, $12,884; 2004, $12,884; 2005, $12,884; and 2006, $11,177. (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) In July 2001, SJG issued the remaining $35 million of debt under its Medium Term Note Program established in 1998. (D) In September 2001, Marina issued $29 million of variable rate revenue bonds through the New Jersey Economic Development Authority. The variable rates at December 31, 2001 for the Series A and Series B bonds were 1.40% and 2.00%, respectively. In January 2002, Marina issued an additional $10,000,000 of taxable Series B variable rate bonds. Marina will use the proceeds for construction of its thermal energy plant (Notes 1 & 3). The accompanying footnotes are an integral part of the financial statements.
- 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. All significant intercompany accounts and transactions were eliminated. SJI reclassified some previously reported amounts to conform with current year classifications. Equity-Based Investments in Affiliates -- SJI, either directly or through its wholly-owned subsidiaries, currently holds a 50% non-controlling interest in several affiliated companies and accounts for the investments under the equity method. The operations of these affiliated companies are included in the statements of consolidated income under the caption, Equity in Affiliated Companies (See Note 3). Estimates and Assumptions -- Our financial statements are prepared to conform with generally accepted accounting principles. Management makes estimates and assumptions that affect the amounts reported in the financial statements and related disclosures. Therefore, actual results could differ from those estimates. Regulation -- South Jersey Gas Company (SJG) is subject to the rules and regulations of the New Jersey Board of Public Utilities (BPU). We maintain our accounts according to the BPU's prescribed Uniform System of Accounts (See Note 10). 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 or other similar recovery mechanism. We pay interest on overcollected LGAC balances based on SJG's approved return on rate base (See Note 10). SJG's tariff also includes a Temperature Adjustment Clause (TAC), a Remediation Adjustment Clause (RAC) and a Comprehensive Resource Analysis Clause (CRA). 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 CRA 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 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 Notes 10 & 14). CRA adjustments are not significant and do not affect earnings. Property, Plant and 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 2001, 2000 and 1999. Except for extraordinary retirements, accumulated depreciation is charged with the cost of depreciable utility property retired and removal costs le ss salvage. 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. Impairment of Long-Lived Assets -- We review the carrying amount of an asset for possible impairment whenever events or changes in circumstances indicate that such amount may not be recoverable. For the years ended 2001, 2000 and 1999, no such circumstances were identified. Energy Trading Activities and Derivative Instruments -- SJI's regulated and unregulated subsidiaries are involved in buying, selling, transporting and storing natural gas and buying and selling retail electricity for their own accounts as well as managing these activities for others. As such, these subsidiaries are subject to market risk due to fluctuations in price. To manage this risk, our companies enter into a variety of physical and financial transactions including forward contracts, swaps, futures and options agreements. SJI structured its subsidiaries so that SJG and SJE transact commodities on a physical basis only and do not directly enter into financially-settling positions. South Jersey Resources Group, LLC (SJRG) performs this risk management function for these entities and enters into the types of transactions noted above. Management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in identifying, assessing and controlling various risks. Management reviews any open positions in accordance with strict policies to limit exposure to market risk. Effective January 1, 2001, SJI adopted Financial Accounting Standards Board (FASB) Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. All derivatives, whether designated in hedging relationships or not, must be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative are recorded in other comprehensive income and recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. As permitted under Statement No. 133, SJI has elected not to designate any energy-related derivative instruments as fair value or cash flow hedges. No activities of SJG and SJE are considered subject to the fair value recognition requirements of Statement No. 133. SJRG manages its portfolio purchases and sales, as well as natural gas in storage, using a variety of instruments that include forward contracts, swap agreements, option contracts and futures contracts. Because SJRG's transactions will not necessarily settle physically, Statement No. 133 requires that such transactions be accounted for pursuant to the mark-to-market method of accounting. Under this method of accounting, SJRG measures the difference between the contract price and the fair value of the contracts and records these as Energy Trading Assets or Energy Trading Liabilities on our consolidated balance sheets. As of December 31, 2001, the net unrealized pre-tax gain of $3.4 million on energy trading contracts, determined under the mark-to-market method, is included in Cost of Sales -- Nonutility. The Cumulative Effect of a Change in Accounting Principle -- Net of $148,000 relates to the adoption of Statement No. 133 on January 1, 2001. In November 2001, we entered into two interest rate swap contracts. The first swap effectively provides us with a fixed interest rate of 4.08% on Marina Energy LLC's (Marina) tax-exempt Series A variable rate bonds for a 10-year period. The second swap effectively fixes the interest rate of Marina's taxable Series B variable rate bonds at 4.55% for a 6-year period. The notional amount of this second swap decreases by $3.0 million per year beginning in December 2005. We entered into interest rate swap agreements to hedge the exposure to increasing rates with respect to our variable rate debt. The differential to be paid or received as a result of these swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense. These - 20 - interest rate swaps are accounted for as cash flow hedges. As of December 31, 2001, the market value of these swaps was $508,679, which represents the amount we would have to pay the counterparty to terminate these contracts as of that date. This balance is included on the 2001 consolidated balance sheet under the caption Derivatives. As of December 31, 2001, we calculated the swaps to be highly effective; therefore, the offset to the hedge asset is recorded, net of taxes, in Accumulated Other Comprehensive Loss (See Note 8). Fair value of the derivative investments is determined by reference to quoted market prices of listed contracts, published quotations or quotations from independent parties. New Accounting Pronouncements -- In June 2001, the FASB issued Statement No. 141, "Business Combinations", Statement No. 142, "Goodwill and Other Intangible Assets" and Statement No. 143, "Accounting for Asset Retirement Obligations." Statement No. 141 applies to all business combinations initiated after June 30, 2001. Statement No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. Statement No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. Statement No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SJI expects to adopt Statement Nos. 141 and 142 in 2002 and Statement No. 143 in 2003. In August 2001, the FASB also issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective in 2003. This statement prescribes that a single accounting model be used for valuing long-lived assets to be disposed of and broadens the presentation of discontinued operations. We are currently evaluating the effects of these pronouncements; however, they are not expected to materially impact SJI's financial condition or results of operations. Income Taxes -- Deferred income taxes are provided for all significant temporary differences between book and taxable income (See Notes 5 & 6). Other Regulatory Assets -- Other Regulatory Assets at December 31, 2001 and 2000 consisted of the following items: Thousands of Dollars 2001 2000 -------- -------- Environmental Remediation Costs: (Notes 10 & 14) Expended - Net $ 12,831 $ 18,474 Liability for Future Expenditures 48,790 51,029 Income Taxes - Flowthrough Depreciation (Note 6) 9,575 10,553 Postretirement Benefit Costs (Note 11) 4,158 4,536 Gross Receipts and Franchise Taxes (Note 6) 2,254 2,698 Other 2,386 1,985 -------- -------- Total Regulatory Assets $ 79,994 $ 89,275 ======== ======== Statements of Consolidated Cash Flows -- For purposes of reporting cash flows, highly liquid investments with original maturities of three 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 1,500 shares of its Cumulative Preferred Stock, Series B at par value, plus accrued dividends. SJG may not declare or pay dividends or make distributions on its common stock if preferred stock dividends are in arrears. Preferred shareholders may elect a majority of SJG's directors if four or more quarterly dividends are in arrears. Mandatorily Redeemable Preferred Securities -- In 1997, SJG's statutory trust subsidiary, SJG Capital Trust (Trust), sold $35 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 its Shareholder Rights Plan (See Note 4). 3. Divestitures and Affiliations: Divestitures -- In 1996, Energy & Minerals, Inc. (EMI), an SJI subsidiary, sold the common stock of The Morie Company, Inc. (Morie), its sand mining and processing subsidiary (See Note 14). In 1997, R&T Group, Inc., SJI's construction subsidiary, sold all its operating assets, except some real estate. SJI conducts tests annually to estimate the environmental remediation costs for properties owned by South Jersey Fuel, Inc. (SJF), an EMI subsidiary, 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 14). In 1998, SJE actively traded electricity in the wholesale market, but ceased this activity later that same year and formally exited this segment in 1999. In 2001, SJG formally discontinued the merchandising segment of its operations. We have accrued and reflected a liability for anticipated future period expenses of $108,000 in the 2001 amounts in the table below. Summarized operating results of the discontinued operations were: Thousands of Dollars 2001 2000 1999 ------- ------- ------- Operating Revenues - Merchandising $ 1,016 $ 1,193 $ 1,536 ======= ======= ======= Income (Loss) before Income Taxes: Sand Mining $ 719 $ (155) $ (216) Construction 78 8 (195) Fuel Oil (113) (123) (89) Wholesale Electric (1,150) (488) (8) Merchandising (351) (128) 25 Income Tax Credits 362 329 209 ------- ------- ------- Loss from Discontinued Operations - Net $ (455) $ (557) $ (274) ======= ======= ======= Earnings Per Common Share from Discontinued Operations - Net $ (0.03) $ (0.05) $ (0.02) ======= ======= ======= Positive results from sand mining operations in 2001 reflect a settlement with our insurance carrier for previously incurred costs. Wholesale Electric losses increased in 2001 due to the settlement of a creditor claim in bankruptcy. Affiliations -- In 1996, we formed SJRG to provide natural gas storage, peaking services and transportation capacity for wholesale customers in New Jersey and surrounding states. Prior to January 1, 2001, SJ EnerTrade, Inc., a wholly owned subsidiary of SJE, and UPR Energy Marketing, Inc. (UPR) each held a 50% non-controlling interest in SJRG. In January 2001, SJRG became a wholly owned subsidiary of SJI when UPR redeemed its 50% interest in SJRG for the book value of its investment of $2.9 million. In 2001, SJRG's operations are included on a consolidated basis. Prior to January 1, 2001, SJI's investment in SJRG was accounted for on the equity method. Had the activity of SJRG been fully consolidated in 2000 and 1999, we would have reported Nonutility Revenues as $229.3 million and $122.0 million, respectively. We would have reported Cost of Sales - Nonutility as $221.0 million and $116.2 million, respectively. In January 1999, SJI and Conectiv Solutions, LLC, formed Millenium Account Services, LLC to provide meter reading services in southern New Jersey. - 21 - In June 1999, SJE and Energy East Solutions, Inc. formed South Jersey Energy Solutions, LLC (SJES) to market retail electricity and energy management services. SJES began supplying retail electricity during the first quarter of 2000. In April 2000, SJE and GZA GeoEnvironmental, Inc. formed AirLogics, LLC to market a jointly developed air monitoring system designed to assist companies involved in environmental clean-up activities. In October 2000, SJI formed Marina, a wholly owned subsidiary, to develop, construct and operate a $50 million thermal energy plant. In December 2000, Marina entered into a 20-year contract with Marina District Development Corporation to supply heat, hot water and cooling to The Borgata Resort. The plant is scheduled for completion in Summer 2003. 4. Common Stock: SJI has 20,000,000 shares of authorized Common Stock. The following shares were issued and outstanding: 2001 2000 1999 ---------- ---------- ---------- Beginning of Year 11,499,701 11,152,175 10,778,990 New Issues During Year: Dividend Reinvestment Plan 354,809 335,427 367,622 Employees' Stock Ownership Plan 3,707 3,917 4,144 Stock Option, Stock Appreciation Rights and Restricted Stock Award Plan 604 5,545 31 Directors' Restricted Stock 2,169 2,637 1,388 ---------- ---------- ---------- End of Year 11,860,990 11,499,701 11,152,175 ========== ========== ========== We credited the par value ($1.25 per share) of stock issued in 2001, 2000 and 1999 to Common Stock. We credited the net excess over par value of approximately $10.6 million, $8.5 million and $9.6 million, respectively, to Premium on Common Stock. Effective 1996, SJI adopted FASB 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 less than $0.01 per share for 2001, 2000 and 1999. Dividend Reinvestment Plan (DRP) and Employees' Stock Ownership Plan (ESOP) -- Effective June 1999, newly issued shares of common stock offered through the DRP are issued directly by SJI. Prior to this date, these shares were purchased in the open market. All shares offered through the ESOP continue to be issued directly by SJI. As of December 31, 2001, SJI reserved 1,504,225 and 19,728 shares of authorized, but unissued, common stock for future issuance to the DRP and ESOP, respectively. Stock Option, Stock Appreciation Rights and Restricted Stock Award Plan -- Under this plan, no 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 November 22, 2006. At December 31, 2001, 2000 and 1999, SJI had 2,000, 4,500 and 4,500 options outstanding, respectively, all exercisable at $24.69 per share. No options were granted in 2001, 2000 or 1999. No stock appreciation rights were issued under the Plan. In 1999, we amended the Plan to include restricted stock awards. In 1999, we granted 5,545 restricted shares and subsequently issued them in 2000. In 2001 and 2000, we granted 44,384 and 10,267 restricted shares, respectively. Earnings Per Common Share -- We present basic EPS based on the weighted- average number of common shares outstanding. Our stock options and restricted stock outstanding at December 31, 2001, 2000 and 1999 do not dilute our EPS as calculated in accordance with FASB No. 128, "Earnings Per Share." Directors' Restricted Stock Plan -- Under this Plan, SJI grants annual awards to outside directors which vest over three years. SJI holds shares issued as restricted stock until the attached restrictions lapse. We record the stock's market value on the grant date 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 and expire if not exercised or redeemed by September 20, 2006. 5. Income 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 2001 2000 1999 ---------- ---------- ---------- Tax at Statutory Rate $ 14,667 $ 13,555 $ 12,082 Increase (Decrease) Resulting from: State Income Taxes 4,391 4,873 3,893 Amortization of ITC (347) (335) (390) Tax Depreciation Under Book Depreciation on Utility Plant 664 664 664 Other - Net (80) (46) 169 ---------- ---------- ---------- Income Taxes: Continuing Operations 19,295 18,711 16,418 Discontinued Operations (362) (329) (209) Cumulative Effect of a Change in Accounting Principle 103 - - ---------- ---------- ---------- Net Income Taxes $ 19,036 $ 18,382 $ 16,209 ========== ========== ========== The provision for Income Taxes is comprised of the following: Thousands of Dollars 2001 2000 1999 ---------- ---------- ---------- Current: Federal $ 8,306 $ 2,801 $ 6,143 State 3,678 2,052 3,216 ---------- ---------- ---------- Total Current 11,984 4,853 9,359 ---------- ---------- ---------- Deferred: Federal: Excess of Tax Depreciation Over Book Depreciation - Net 4,668 5,220 5,496 Deferred Fuel Costs 794 12,157 1,909 Environmental Costs - Net (1,850) (2,504) (1,058) Alternative Minimum Tax 2,851 (1,694) 676 Benefit of State Tax 251 (984) (236) Other - Net 226 (823) (15) State 718 2,821 677 ---------- ---------- ---------- Total Deferred 7,658 14,193 7,449 ---------- ---------- ---------- ITC (347) (335) (390) ---------- ---------- ---------- Income Taxes: Continuing Operations 19,295 18,711 16,418 Discontinued Operations (362) (329) (209) Cumulative Effect of a Change in Accounting Principle 103 - - ---------- ---------- ---------- Net Income Taxes $ 19,036 $ 18,382 $ 16,209 ========== ========== ========== - 22 - The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following deferred tax liabilities at December 31: Thousands of Dollars 2001 2000 -------- -------- Current: Deferred Fuel Costs $ 25,054 $ 24,519 Derivatives / Unrealized Gain 1,435 - Other 140 (69) -------- -------- Current Deferred Tax Liability - Net $ 26,629 $ 24,450 ======== ======== Non-Current: Book versus Tax Basis of Property 85,569 81,715 Environmental 2,761 5,144 Excess Protected 3,225 3,290 Deferred Regulatory Costs 1,660 1,387 Minimum Pension Liability (1,382) - Deferred State Tax (2,126) (1,925) ITC Basis Gross Up (2,249) (2,428) Alternative Minimum Tax (1,080) (4,895) Other (1,661) (1,701) -------- -------- Non-Current Deferred Tax Liability - Net $ 84,717 $ 80,587 ======== ======== 6. Federal and Other Regulatory Tax Assets and Deferred Credits: 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 tax depreciation over book depreciation on utility plant because of temporary differences for which, prior to Statement No. 109, deferred taxes previously were not provided. SJG previously passed these tax benefits through to ratepayers. 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 the Gross Receipts & Franchise Tax in 1978 and is amortizing it on a straight-line basis to operations over 30 years beginning that same year. 7. Financial Instruments: Restricted Investments -- In accordance with the terms of Marina's bond agreements, we are required to invest unused proceeds in high-quality, highly- liquid investments pending approved construction expenditures. As of December 31, 2001, these proceeds totalled $14.4 million. SJRG maintains a margin account with a national investment firm to support its energy trading activities. As of December 31, 2001, the account balance approximated $8.6 million. Long-Term Debt -- We estimate the fair values of SJI's long-term debt, including current maturities, as of December 31, 2001 and 2000, to be $288.0 and $219.1 million, respectively. Carrying amounts are $269.0 and $216.9 million, respectively. We base the estimates on 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, 2001 and 2000. 8. Comprehensive Income: The components of comprehensive income are as follows: Thousands of Dollars 2001 2000 1999 ---------- ---------- ---------- Net Income Applicable to Common Stock $ 26,562 $ 24,184 $ 21,688 ---------- ---------- ---------- Other Comprehensive (Loss) Income: Minimum Pension Liability Adjustment - Net (1,988) - - Change in Fair Value of Derivatives - Net 301 - - ---------- ---------- ---------- Total Other Comprehensive Loss (1,687) - - ---------- ---------- ---------- Comprehensive Income $ 24,875 $ 24,184 $ 21,688 ========== ========== ========== 9. Segments of Business: Information about SJI's operations in different industry segments is presented below: Thousands of Dollars 2001 2000 1999 ---------- ---------- ---------- Operating Revenues: Gas Utility Operations $ 475,918 $ 446,303 $ 349,518 Wholesale Gas Operations 367,086 - - Retail Gas and Other Operations 97,174 83,607 48,920 ---------- ---------- ---------- Subtotal 940,178 529,910 398,438 Intersegment Sales (102,837) (15,963) (7,360) ---------- ---------- ---------- Total Operating Revenues $ 837,341 $ 513,947 $ 391,078 ========== ========== ========== Operating Income: Gas Utility Operations $ 60,409 $ 62,789 $ 59,455 Wholesale Gas Operations 4,778 - - Retail Gas and Other Operations 3,984 3,488 1,360 General Corporate (110) 205 744 ---------- ---------- ---------- Total Operating Income $ 69,061 $ 66,482 $ 61,559 ========== ========== ========== Depreciation and Amortization: Gas Utility Operations $ 23,332 $ 22,986 $ 21,676 Wholesale Gas Operations 8 - - Retail Gas and Other Operations 78 99 59 Discontinued Operations 28 19 30 ---------- ---------- ---------- Total Depreciation and Amortization $ 23,446 $ 23,104 $ 21,765 ========== ========== ========== Property Additions: Gas Utility Operations $ 47,799 $ 47,116 $ 47,390 Wholesale Gas Operations 61 - - Retail Gas and Other Operations 163 275 390 Thermal Energy Operations 17,915 2,985 - ---------- ---------- ---------- Total Property Additions $ 65,938 $ 50,376 $ 47,780 ========== ========== ========== Identifiable Assets: Gas Utility Operations $ 858,002 $ 842,082 $ 750,239 Wholesale Gas Operations 82,596 - - Retail Gas and Other Operations 19,092 22,138 14,049 Thermal Energy Operations 35,672 2,985 - Discontinued Operations 2,182 2,243 2,326 ---------- ---------- ---------- Subtotal 997,544 869,448 766,614 Corporate Assets 33,505 20,338 15,744 Intersegment Assets (43,204) (19,807) (15,433) ---------- ---------- ---------- Total Identifiable Assets $ 987,845 $ 869,979 $ 766,925 ========== ========== ========== Gas Utility Operations consist primarily of natural gas distribution to residential, commercial and industrial customers. Wholesale Gas Operations include SJRG's activities. Retail Gas and Other Operations include natural gas - 23 - and electricity acquisition and transportation service companies. Thermal Energy Operations consist of Marina's construction and related financing activities (See Note 3). 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. 10. Regulatory Actions: In January 1997, the BPU granted SJG a 9.62% rate of return on rate base, which included an 11.25% return on common equity. Additionally, SJG's threshold for sharing pre-tax margins generated by interruptible and off-system sales and transportation (Sharing Formula) increased. SJG keeps 100% of pre-tax margins up to the threshold level of $7.8 million and 20% of margins above that level. In 1998, the BPU revised the Sharing Formula to credit 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. In September 1999, the BPU approved an annual recovery level of $6.5 million for remediation costs expended from August 1995 through July 1998. This represents an annual increase of approximately $4.5 million over the recovery previously included in rates. In January 2000, the BPU approved the recovery of carrying costs on unrecovered remediation costs and a proposal by SJG to keep its current RAC rate in effect through October 2002. However, due to substantial RAC insurance recoveries, in October 2001, SJG filed for a RAC rate decrease. This proposal would reduce the annual recovery level to $4.2 million, if approved. Effective January 10, 2000, the BPU approved full unbundling of SJG's system. This allows all natural gas consumers to select their natural gas supplier. As of December 31, 2001, 39,998 of SJG's residential customers were purchasing their gas commodity from someone other than SJG. The bills of those using a gas supplier other than SJG are reduced for cost of gas charges and applicable taxes. SJG's net income, financial condition and margins are not affected as a result of the unbundling. The BPU approved a modification to SJG's LGAC whereby under-recovered gas costs of $11.9 million as of October 31, 1999, and carrying costs thereon, are being recovered over three years beginning January 2000. On November 16, 2000, the BPU approved an increase in SJG's LGAC in response to unprecedented natural gas price run-ups during 2000. The impact of the initial increase was approximately 19% to a typical residential heating customer. The BPU also approved the creation of a flexible pricing mechanism, allowing additional 2% increases each month from December 2000 through July 2001. On November 15, 2001, SJG filed for a $17.6 million reduction to its LGAC and for recovery of a 3-year net deficiency in the TAC amounting to $2.7 million. The BPU approved the LGAC reduction effective December 1, 2001. Also on December 1, 2001, SJG implemented recovery of its October 31, 2001 under- recovered gas costs. We will recover $48.9 million over three years including interest accrued since April 1, 2001. We will also recover interest for the 3-year amortization period at a rate of 5.7 5%. 11. Pensions & 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 retirees. 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." We deferred amounts accrued prior to that authorization and are amortizing them as allowed by the BPU. The unamortized balance of $4.2 million at December 31, 2001 is recoverable in rates. We are amortizing 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 2001 2000 1999 2001 2000 1999 ------- ------- ------- ------- ------- ------- Service Cost $ 2,120 $ 1,988 $ 2,245 $ 1,063 $ 996 $ 1,098 Interest Cost 4,923 4,577 4,211 1,898 1,746 1,593 Expected Return on Plan Assets (5,314) (4,790) (4,280) (895) (726) (675) Amortization of Transition Obligation 72 72 72 772 772 772 Amortization of Loss (Gain) and Other 372 320 436 (3) (78) - ------- ------- ------- ------- ------- ------- Net Periodic Benefit Cost $ 2,173 $ 2,167 $ 2,684 $ 2,835 $ 2,710 $ 2,788 ======= ======= ======= ======= ======= ======= 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 2001 2000 2001 2000 -------- -------- -------- -------- Change in Benefit Obligations: Benefit Obligation at Beginning of Year $ 64,086 $ 59,530 $ 24,807 $ 22,841 Service Cost 2,120 1,988 1,063 996 Interest Cost 4,923 4,577 1,898 1,746 Actuarial Loss and Other 4,606 991 1,606 311 Benefits Paid (3,195) (3,000) (745) (1,087) -------- -------- -------- -------- Benefit Obligation at End of Year $ 72,540 $ 64,086 $ 28,629 $ 24,807 ======== ======== ======== ======== Change in Plan Assets: Fair Value of Plan Assets at Beginning of Year $ 60,084 $ 53,320 $ 11,970 $ 9,472 Actual Return on Plan Assets (9,031) 7,261 (619) 652 Employer Contributions 2,500 2,503 2,859 2,933 Benefits Paid (3,195) (3,000) (745) (1,087) -------- -------- -------- -------- Fair Value of Plan Assets at End of Year $ 50,358 $ 60,084 $ 13,465 $ 11,970 ======== ======== ======== ======== Funded Status $(22,182) $ (4,002) $(15,164) $(12,837) Unrecognized Prior Service Cost 3,536 3,082 - - Unrecognized Net Obligation Assets from Transition 143 215 8,489 9,261 Unrecognized Net Loss (Gain) and Other 15,609 (2,516) (63) (3,186) -------- -------- -------- -------- Accrued Net Benefit Cost at End of Year $ (2,894) $ (3,221) $ (6,738) $ (6,762) ======== ======== ======== ======== 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, 2001 were $38.1 million, $32.0 million and $27.9 million, respectively. As of December 31, 2000, the accumulated benefit obligations did not exceed plan assets. Assumptions used in the accounting for these plans were: Pension Benefits Other Benefits 2001 2000 2001 2000 -------- -------- -------- -------- Discount Rate 7.25% 7.75% 7.25% 7.75% Expected Return on Plan Assets 9.00% 9.00% 7.50% 7.50% Rate of Compensation Increase 4.10% 4.60% - - - 24 - The assumed health-care cost trend rates used in measuring the accumulated postretirement benefit obligation as of December 31, 2001 are: Medical and Drug -- 5.5% in 2001 for participants age 65 or older, remaining level thereafter; and 6.5% in 2001 for participants under age 65, grading to 5.5% in 2005; Dental -- 6.5% in 2001, 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 2001 would have the following effects: Thousands of Dollars 1% Increase 1% Decrease Effect on the aggregate of the service and interest cost components $ 404 (331) Effect on the postretirement benefit obligation $ 3,182 $(2,642) 12. Retained Earnings: Restrictions exist under various loan agreements regarding the amount of cash dividends or other distributions that SJG may pay on its common stock. SJI's total equity in its subsidiaries' retained earnings, which is free of these restrictions, was $65.4 million as of December 31, 2001. 13. Unused Lines of Credit and Compensating Balances: Unused lines of credit available at December 31, 2001 were $42.6 million. Borrowings under these lines of credit are at market rates. The weighted borrowing cost, which changes daily, was 3.08% and 7.37% at December 31, 2001 and 2000, respectively. We maintain demand deposits with lending banks on an informal basis and they do not constitute compensating balances. 14. Commitments and Contingencies: Construction and Environmental -- SJI's estimated net cost of construction and environmental remediation programs for 2002 totals $91.5 million. Commitments were made regarding some of these programs. Gas Supply Contracts -- SJG, in the normal course of 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 2002. 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 $4.6 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 accrue liabilities when these claims become apparent for amounts we believe these claims may be settled. We also maintain insurance and record probable insurance recoveries relating to outstanding claims. In management's opinion, the ultimate disposition of these claims will not have a material adverse effect on SJI's financial position, results of operations or liquidity. Standby Letters of Credit -- SJI provided a $17 million standby letter of credit to Marina District Development Corporation in support of Marina's contractual obligations to construct the thermal energy plant and to supply heat, hot water and cooling to The Borgata Resort. This letter of credit was reduced to $14.3 million as of December 31, 2001. As of December 31, 2001, SJI also provided $29 million of standby letters of credit supporting the variable rate demand bonds issued through the New Jersey Economic Development Authority by Marina. A commercial bank has committed to issuing up to $46 million of annually renewing letters of credit to support development of Marina's thermal plant project. Environmental Remediation Costs -- SJI incurred and recorded costs for environmental clean up of sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and some of its nonutility subsidiaries also recorded costs for environmental clean up of sites where SJF previously operated a fuel oil business and Morie maintained equipment, fueling stations and storage. SJI successfully entered into settlements with all of its historic comprehensive general liability carriers regarding the environmental remediation expenditures at the SJG sites. Also, SJG purchased a Cleanup Cost Cap Insurance Policy limiting the amount of remediation expenditures that SJG will be required to make at 11 of its sites. This Policy will be in force for a 25-year period at 10 sites and for a 30-year period at one site. The following future cost estimates were reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance Policy. Since the early 1980s, SJI accrued environmental remediation costs of $132.9 million, of which $80.1 million was spent as of December 31, 2001. With the assistance of a consulting firm, we estimate that future costs to clean up SJG's sites will range from $48.8 million to $143.5 million. We recorded the lower end of this range as a liability. It is reflected on the 2001 consolidated balance sheet under the captions Current Liabilities and Deferred Credits and Other Non-Current Liabilities. 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 accrued environmental costs relate to the clean up of SJG's former gas manufacturing sites. SJG has two regulatory assets associated with environmental costs (See Note 1). The first asset is titled Environmental Remediation Cost: Expended - Net. These expenditures represent what was actually spent to clean up former gas manufacturing plant sites. These costs meet the requirements of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." The BPU allows SJG to recover expenditures through the RAC (See Note 10). The other 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." We recorded this amount, which relates to former manufactured gas plant sites, 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 Statement No. 71. The BPU's intent, evidenced by current practice, is to allow SJG to recover the deferred costs after they are spent over 7-year periods. As of December 31, 2001, we reflected SJG's unamortized remediation costs of $12.8 million on the consolidated balance sheet under the caption Regulatory Assets. Since implementing the RAC in 1992, SJG has recovered $29.2 million through rates (See Note 10). With Morie's sale, EMI assumed responsibility for environmental liabilities estimated between $2.7 million and $8.8 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 $0.1 million and $0.4 million, while SJF's estimated liability ranges from $1.1 million to $4.9 million for its three sites. We recorded the lower ends of these ranges on the 2001 consolidated balance sheet under Current Liabilities and Deferred Credits and Other Non-Current Liabilities as of December 31, 2001. - 25 - Quarterly Financial Data (Unaudited) Summarized quarterly results of SJI's operations, in thousands except for per share amounts:
2001 Quarter Ended 2000 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 --------- --------- --------- --------- --------- --------- --------- --------- Operating Revenues $ 341,939 $ 217,863 $ 107,646 $ 169,893 $ 167,189 $ 88,150 $ 75,069 $ 183,539 --------- --------- --------- --------- --------- --------- --------- --------- Expenses: Operation and Maintenance Including Fixed Charges 300,760 216,294 112,435 151,787 130,153 86,710 80,309 163,046 Income Taxes 15,482 127 (2,387) 6,073 13,634 242 (2,545) 7,380 Energy and Other Taxes 4,476 1,908 1,446 2,775 4,383 2,078 1,700 3,452 --------- --------- --------- --------- --------- --------- --------- --------- Total Expenses 320,718 218,329 111,494 160,635 148,170 89,030 79,464 173,878 --------- --------- --------- --------- --------- --------- --------- --------- Other Income 513 310 72 (191) 63 863 410 - --------- --------- --------- --------- --------- --------- --------- --------- Income (Loss) from Continuing Operations 21,734 (156) (3,776) 9,067 19,082 (17) (3,985) 9,661 Discontinued Operations - Net (200) (84) (36) (135) (101) (119) (133) (204) Cumulative Effect of a Change in Accounting Principle - Net 148 - - - - - - - --------- --------- --------- --------- --------- --------- --------- --------- Net Income (Loss) Applicable to Common Stock $ 21,682 $ (240) $ (3,812) $ 8,932 $ 18,981 $ (136) $ (4,118) $ 9,457 ========= ========= ========= ========= ========= ========= ========= ========= Earnings Per Common Share (1) (Based on Average Shares Outstanding): Continuing Operations 1.88 (0.01) (0.32) 0.76 1.69 - (0.35) 0.84 Discontinued Operations - Net (0.02) (0.01) - (0.01) (0.01) (0.01) (0.01) (0.02) Cumulative Effect of a Change in Accounting Principle - Net 0.01 - - - - - - - --------- --------- --------- --------- --------- --------- --------- --------- Earnings Per Common Share $ 1.87 $ (0.02) $ (0.32) $ 0.75 $ 1.68 $ (0.01) $ (0.36) $ 0.82 ========= ========= ========= ========= ========= ========= ========= ========= Average Shares Outstanding 11,583 11,670 11,769 11,841 11,284 11,361 11,462 11,498 (1) The sum of the quarters for 2001 and 2000 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
Quarter Ended Market Price Per Share Dividends Declared Quarter Ended Market Price Per Share Dividends Declared 2001 High Low Per Share 2000 High Low Per Share March 31 $ 32.25 $ 27.60 $ 0.370 March 31 $ 29.63 $ 27.56 $ 0.365 June 30 $ 31.55 $ 29.05 $ 0.370 June 30 $ 28.81 $ 24.50 $ 0.365 Sept. 30 $ 32.96 $ 29.30 $ 0.370 Sept. 30 $ 29.25 $ 26.06 $ 0.365 Dec. 31 $ 34.10 $ 30.41 $ 0.370 Dec. 31 $ 30.13 $ 28.25 $ 0.365 These quotations are based on the list of composite transactions of the New York Stock Exchange. Our stock is traded on the New York Stock Exchange under the symbol SJI. We have declared and expect to continue to declare regular quarterly cash dividends. As of December 31, 2001, the latest available date, our records indicate that there were 8,663 shareholders.
- 26 - South Jersey Gas Company Comparative Operating Statistics
2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Operating Revenues (Thousands): Firm Residential $ 201,531 $ 172,418 $ 152,946 $ 147,274 $ 176,717 Commercial 76,416 49,669 35,064 36,328 60,418 Industrial 4,250 5,265 4,879 4,175 5,535 Cogeneration & Electric Generation 7,405 11,016 8,496 8,119 5,249 Firm Transportation 29,565 38,213 33,125 24,893 15,966 --------- --------- --------- --------- --------- Total Firm Revenues 319,167 276,581 234,510 220,789 263,885 Interruptible 1,485 1,695 1,645 2,506 6,085 Interruptible Transportation 1,268 1,531 1,724 2,598 3,507 Off-System 145,530 160,208 104,142 62,578 39,403 Capacity Release & Storage 5,596 4,411 4,193 6,031 8,533 Other 2,871 1,877 3,304 3,395 5,291 Intercompany Sales (30,257) (14,662) (5,211) (1,032) (71) --------- --------- --------- --------- --------- Total Operating Revenues $ 445,660 $ 431,641 $ 344,307 $ 296,865 $ 326,633 ========= ========= ========= ========= ========= Throughput (MMcf): Firm Residential 17,390 19,124 17,741 16,979 19,955 Commercial 7,544 6,191 4,634 4,826 8,067 Industrial 248 282 246 348 733 Cogeneration & Electric Generation 1,519 2,046 2,316 2,373 1,230 Firm Transportation 22,085 26,114 25,143 22,336 20,196 --------- --------- --------- --------- --------- Total Firm Throughput 48,786 53,757 50,080 46,862 50,181 --------- --------- --------- --------- --------- Interruptible 207 207 383 694 1,345 Interruptible Transportation 2,638 3,022 3,628 6,049 7,586 Off-System 30,117 38,097 42,480 26,916 14,462 Capacity Release & Storage 27,187 37,445 29,247 27,319 36,382 --------- --------- --------- --------- --------- Total Throughput 108,935 132,528 125,818 107,840 109,956 ========= ========= ========= ========= ========= Number of Customers at Year End: Residential 268,046 261,621 254,601 248,210 242,132 Commercial 19,542 19,319 18,894 18,457 18,037 Industrial 420 410 404 398 398 --------- --------- --------- --------- --------- Total Customers 288,008 281,350 273,899 267,065 260,567 ========= ========= ========= ========= ========= Maximum Daily Sendout (MMcf) 326 375 324 314 355 ========= ========= ========= ========= ========= Annual Degree Days 4,495 4,942 4,468 4,110 4,829 ========= ========= ========= ========= ========= Normal Degree Days * 4,625 4,639 4,664 4,708 4,728 ========= ========= ========= ========= ========= * Average degree days recorded in SJG's service territory during 20-year period ended June 30 of prior year.
- 27 - South Jersey Industries Board of Directors. Shirli M. Billings, Ph.D. Director since 1983, Age 61 (1, 4, 5*) President, Leadership Learning Academy, Lakeland, Fla. Charles Biscieglia Director since 1998, Age 57 (3+, 4*, 5+) Chairman, President and CEO of South Jersey Industries and President and CEO of South Jersey Gas, Folsom, N.J. Sheila Hartnett-Devlin Director since 1999, Age 43 (1, 2) Executive Vice President of Fiduciary Trust Company International, New York, N.Y. Richard L. Dunham Director since 1984, Age 72 (2, 4, 5) Former Chairman of the Board, now retired Former Chairman of the Federal Power Commission (now the Federal Energy Regulatory Commission), Washington, D.C. W. Cary Edwards Director from April 1990 to January 1993 and September 1993 to present, Age 57 (2, 3, 4) Managing Partner, law firm of Edwards & Caldwell, Hawthorne, N.J. Thomas L. Glenn, Jr. Director since 1986, Age 67 (1, 3*, 4) Co-Chairman and Treasurer, Glenn Insurance, Inc., Absecon, N.J. Herman D. James, Ph.D. Director since 1990, Age 58 (1*, 2, 5) Distinguished Professor, Rowan University, Glassboro, N.J. Clarence D. McCormick Director since 1979, Age 72 (2*, 4, 5) Retired Chairman and CEO of The Farmers and Merchants National Bank of Bridgeton, N.J. and Retired Chairman and President of Southern Jersey Bancorp of Delaware, Bridgeton, N.J. Frederick R. Raring Director since 1995, Age 64 (1, 3, 5) President, Seashore Supply Company, Ocean City, N.J. Keith S. Campbell Director since 2000, Age 47 (3, 5) Chairman, Mannington Mills, Salem, N.J. 1 Audit Committee 2 Compensation/Pension Committee 3 Environmental Committee 4 Executive Committee 5 Nominating Committee * Committee Chair + Ex Officio South Jersey Industries Officers. Charles Biscieglia Chairman, President and CEO George L. Baulig Vice President and Corporate Secretary Edward J. Graham Vice President David A. Kindlick Vice President and Treasurer Albert V. Ruggiero Vice President Richard H. Walker, Jr. Assistant Secretary - 28 - South Jersey Gas Officers. Charles Biscieglia President and CEO George L. Baulig Sr. Vice President & Corporate Secretary Richard J. Jackson Sr. Vice President, Operations David A. Kindlick Sr. Vice President, Finance & Treasurer Janet T. Nickels Sr. Vice President, Gas Sales & Customer Services Albert V. Ruggiero Sr. Vice President, Corporate Development Julius J. Bodrog Vice President, Risk Management Patrick T. Finnigan Vice President, Information Systems Samuel A. Pignatelli Vice President, Data Processing & Materials Management Earl H. Siegman Vice President, Economic Development Charles F. Dippo Assistant Vice President, Engineering Services Anthony M. Tetto Assistant Vice President, Distribution Operations Richard H. Walker, Jr. Assistant Secretary Dividend Reinvestment Plan SJI's Dividend Reinvestment Plan provides record shareholders of SJI's common stock with a way to increase their investment in the company without payment of any brokerage commission or service charge. Shareholders participating in the Plan may purchase shares of common stock by the automatic reinvestment of dividends and optional purchases. The Plan is now available to any person who, upon enrollment, agrees to become a shareholder by purchasing at least $100 of SJI common stock. Optional purchases may be made 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 newly issued or treasury common stock that the Plan acquires directly from SJI currently at a 2 percent discount. The price will be 98 percent of the average of the closing sale prices for SJI's common stock for each of the last 12 days the common stock was traded prior to the purchase date, as published in The Wall Street Journal. The offer and sale of shares under the Plan will be made only through a prospectus, obtainable by contacting the Shareholder Records Department. Direct Deposit of Dividends (Electronic Funds Transfer) Stockholders of record can have immediate access to dividend funds. Your dividend funds can be deposited directly into your checking or savings account. Confirmation of dividend receipts will appear on your monthly bank statements. South Jersey Industries stock is traded on the New York Stock Exchange 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. - Inside Back Cover - 1 South Jersey Plaza Folsom, New Jersey 08037-9917 www.sjindustries.com 609-561-9000 - Back Cover - EX-21 5 iex21.txt SOUTH JERSEY INDUSTRIES EX 21 TO FORM 10K 12/31/01 Exhibit 21 SOUTH JERSEY INDUSTRIES, INC. SUBSIDIARIES OF REGISTRANT AS OF DECEMBER 31, 2001
Percentage of Voting Securities State of Owned by Parent Relationship Incorporation -------------------------------------------------------------------------- South Jersey Industries, Inc. Registrant Parent New Jersey South Jersey Gas Company (4) 99.28 (1) New Jersey Marina Energy LLC (4) 100 (1) New Jersey South Jersey Energy Company (4) 100 (1) New Jersey South Jersey Resources Group, LLC (4) 100 (1) Delaware SJ EnerTrade, Inc. (4) 100 (2) New Jersey Energy & Minerals, Inc. (4) 100 (1) New Jersey R&T Group, Inc. (4) 100 (1) New Jersey South Jersey Fuel, Inc. (4) 100 (3) New Jersey (1) Subsidiary of South Jersey Industries, Inc. (2) Subsidiary of South Jersey Energy Company (3) Subsidiary of Energy & Minerals, Inc. (4) Subsidiary included in financial statements
EX-23 6 iex23.txt SOUTH JERSEY INDUSTRIES EX 23 TO FORM 10K 12/31/01 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 13, 2002, 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, 2001. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania March 25, 2002 EX-24 7 iex24.txt SOUTH JERSEY INDUSTRIES EX 24 TO FORM 10K 12/31/01 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, 2001 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 25th day of March 2002. /s/ Charles Biscieglia ------------------------------------------------- Charles Biscieglia, Chairman of the Board, President and Chief Executive Officer /s/ Shirli M. Billings ------------------------------------------------- Shirli M. Billings, Director /s/ Keith S. Campbell ------------------------------------------------- Keith S. Campbell, Director /s/ Sheila Hartnett-Devlin ------------------------------------------------- Sheila Hartnett-Devlin, Director /s/ Richard L. Dunham ------------------------------------------------- Richard L. Dunham, Director Exhibit 24 Power of Attorney -- 10-K Page 2 of 2 /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 /s/ Clarence D. McCormick ------------------------------------------------- Clarence D. McCormick, Director /s/ Frederick R. Raring ------------------------------------------------- Frederick R. Raring, Director /s/ George L. Baulig ------------------------------------------------- George L. Baulig, Vice President & Corporate Secretary /s/ David A. Kindlick ------------------------------------------------- David A. Kindlick, Vice President, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----