-----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, S3tSR+/sy8bA6gKJMBM5f6WFqRYbW1xBSDbCKq5BsrM55jvZtxVJ9cAY1reVIKAo wjlY4xByyJ36eHd9Ts1IxA== 0000091928-05-000032.txt : 20050510 0000091928-05-000032.hdr.sgml : 20050510 20050510155714 ACCESSION NUMBER: 0000091928-05-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050510 DATE AS OF CHANGE: 20050510 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06364 FILM NUMBER: 05816605 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-Q 1 sji10q0305.txt SOUTH JERSEY INDUSTRIES FORM 10-Q P/E MARCH 31, 2005 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to __________________ 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, NJ 08037 (Address of principal executive offices, including zip code) (609) 561-9000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] As of May 6, 2005, there were 13,976,730 shares of the registrant's common stock outstanding. ================================================================================ SJI-1 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements -- See Pages 3 through 25 SJI-2 SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In Thousands Except for Per Share Data) Three Months Ended March 31, ------------------------- 2005 2004 ----------- ----------- Operating Revenues: Utility $ 212,167 $ 197,414 Nonutility 116,403 110,196 ----------- ----------- Total Operating Revenues 328,570 307,610 ----------- ----------- Operating Expenses: Cost of Sales - Utility 141,975 132,250 Cost of Sales - Nonutility 103,141 100,989 Operations 20,197 16,101 Maintenance 1,493 1,345 Depreciation 5,873 6,600 Energy and Other Taxes 5,158 4,872 ----------- ----------- Total Operating Expenses 277,837 262,157 ----------- ----------- Operating Income 50,733 45,453 Other Income and Expense 384 721 Interest Charges 5,305 4,960 ----------- ----------- Income Before Income Taxes 45,812 41,214 Income Taxes 19,114 16,911 Equity in Affiliated Companies 194 156 ----------- ----------- Income from Continuing Operations 26,892 24,459 Loss from Discontinued Operations - Net (144) (140) ----------- ----------- Net Income $ 26,748 $ 24,319 =========== =========== Basic Earnings Per Common Share: Continuing Operations $ 1.93 $ 1.83 Discontinued Operations - Net (0.01) (0.01) ----------- ----------- Basic Earnings Per Common Share $ 1.92 $ 1.82 =========== =========== Average Shares of Common Stock Outstanding - Basic 13,900 13,392 Diluted Earnings Per Common Share: Continuing Operations $ 1.92 $ 1.82 Discontinued Operations - Net (0.01) (0.01) ----------- ----------- Diluted Earnings Per Common Share $ 1.91 $ 1.81 =========== =========== Average Shares of Common Stock Outstanding - Diluted 14,000 13,461 Dividends Declared per Common Share $ 0.425 $ 0.405 =========== =========== The accompanying footnotes are an integral part of the financial statements. SJI-3 SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Continued) (In Thousands Except for Per Share Data) Three Months Ended March 31, ------------------------ 2005 2004 ----------- ----------- Pro Forma Earnings Per Share Based on Approved Stock Split (See Note 3): Basic Earnings Per Common Share: Continuing Operations $ 0.967 $ 0.913 Discontinued Operations - Net (0.005) (0.005) ----------- ----------- Basic Earnings Per Common Share $ 0.962 $ 0.908 =========== =========== Average Shares of Common Stock Outstanding - Basic 27,800 26,784 Diluted Earnings Per Common Share: Continuing Operations $ 0.960 $ 0.908 Discontinued Operations - Net (0.005) (0.005) ----------- ----------- Diluted Earnings Per Common Share $ 0.955 $ 0.903 =========== =========== Average Shares of Common Stock Outstanding - Diluted 28,000 26,922 Dividends Declared per Common Share $ 0.213 $ 0.203 =========== =========== The accompanying footnotes are an integral part of the financial statements. SJI-4 SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (In Thousands) Three Months Ended March 31, ---------------------- 2005 2004 ---------- ----------- Net Income $ 26,748 $ 24,319 ---------- ---------- Other Comprehensive (Loss) Income, Net of Tax:* Change in Fair Value of Investments (43) (275) Change in Fair Value of Derivatives - Other 385 (253) Change in Fair Value of Derivatives - Energy Related (43) 90 ---------- ---------- Other Comprehensive Income (Loss) - Net of Tax* 299 (438) ---------- ---------- Comprehensive Income $ 27,047 $ 23,881 ========== ========== * Determined using a combined statutory tax rate of 40.85%. The accompanying footnotes are an integral part of the financial statements. SJI-5
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) Three Months Ended March 31, ---------------------- 2005 2004 ---------- ---------- Cash Flows from Operating Activities: Net Income $ 26,748 $ 24,319 Adjustments to Reconcile Net Income to Cash Flows Provided by Operating Activities: Depreciation and Amortization 6,585 7,220 Unrealized Gain on Derivatives - Energy Related (4,143) (1,958) Provision for Losses on Accounts Receivable 2,313 335 Revenues and Fuel Costs Deferred - Net 442 10,916 Deferred and Non-Current Income Taxes and Credits - Net 5,501 4,511 Environmental Remediation Costs - Net (370) (219) Gas Plant Cost of Removal (165) (178) Changes in: Accounts Receivable (33,592) (39,480) Inventories 64,627 48,899 Other Prepayments and Current Assets (10) 1,805 Prepaid and Accrued Taxes - Net 21,864 18,063 Accounts Payable and Other Accrued Liabilities (4,503) 22,807 Other Assets 4,300 898 Other Liabilities 2,112 (8,085) ---------- ---------- Net Cash Provided by Operating Activities 91,709 89,853 ---------- ---------- Cash Flows from Investing Activities: Return of Investment in Affiliate 6 44 Affiliate Repayment of Loan 195 370 Proceeds from Minority Interest 6 - Proceeds from Sale of Restricted Investments 13,379 4,022 Capital Expenditures (17,528) (12,096) ---------- ---------- Net Cash Used in Investing Activities (3,942) (7,660) ---------- ---------- Cash Flows from Financing Activities: Net Repayments of Lines of Credit (59,900) (68,700) Principal Repayments of Long-Term Debt (10,500) (4,500) Dividends on Common Stock (6,176) (5,488) Proceeds from Sale of Common Stock 735 12,970 Payments for Issuance of Long-Term Debt (51) (43) Premium for Early Retirement of Debt (184) - ---------- ---------- Net Cash Used in Financing Activities (76,076) (65,761) ---------- ---------- Net Increase in Cash and Cash Equivalents 11,691 16,432 Cash and Cash Equivalents at Beginning of Period 5,272 4,364 ---------- ---------- Cash and Cash Equivalents at End of Period $ 16,963 $ 20,796 ========== ========== The accompanying footnotes are an integral part of the financial statements.
SJI-6
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited) March 31, December 31, ----------------------------- 2005 2004 ------------- ------------- Assets Property, Plant and Equipment: Utility Plant, at original cost $ 967,469 $ 957,287 Accumulated Depreciation (227,870) (224,506) Nonutility Property and Equipment, at cost 76,348 71,129 Accumulated Depreciation (4,535) (4,040) ------------- ------------- Property, Plant and Equipment - Net 811,412 799,870 ------------- ------------- Investments: Available-for-Sale Securities 5,235 5,310 Restricted 218 13,597 Investment in Affiliates 1,936 1,942 ------------- ------------- Total Investments 7,389 20,849 ------------- ------------- Current Assets: Cash and Cash Equivalents 16,963 5,272 Accounts Receivable 156,452 113,778 Unbilled Revenues 36,183 45,857 Provision for Uncollectibles (5,216) (3,495) Natural Gas in Storage, average cost 14,588 79,281 Materials and Supplies, average cost 5,423 5,357 Prepaid Taxes 217 6,104 Derivatives - Energy Related Assets 23,901 25,677 Derivatives - Other 5,931 1,549 Other Prepayments and Current Assets 4,481 4,491 ------------- ------------- Total Current Assets 258,923 283,871 ------------- ------------- Regulatory and Other Non-Current Assets: Regulatory Assets 71,790 72,635 Prepaid Pension 27,574 28,589 Derivatives - Energy Related Assets 3,037 5,230 Derivatives - Other 58 197 Unamortized Debt Discount and Expense 8,967 8,894 Contract Receivables 15,538 16,153 Other 6,927 7,046 ------------- ------------- Total Regulatory and Other Non-Current Assets 133,891 138,744 ------------- ------------- Total Assets $ 1,211,615 $ 1,243,334 ============= ============= The accompanying footnotes are an integral part of the financial statements.
SJI-7
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited) March 31, December 31, ---------------------------- 2005 2004 ------------- ------------- Capitalization and Liabilities Common Equity: Common Stock $ 17,414 $ 17,350 Premium on Common Stock 214,836 212,212 Accumulated Other Comprehensive Income 3,752 3,453 Retained Earnings 131,969 111,397 ------------- ------------- Total Common Equity 367,971 344,412 Preferred Stock of Subsidiary 1,690 1,690 Long-Term Debt 321,414 328,914 ------------- ------------- Total Capitalization 691,075 675,016 ------------- ------------- Minority Interest 232 227 ------------- ------------- Current Liabilities: Notes Payable 32,400 92,300 Current Maturities of Long-Term Debt 2,348 5,348 Accounts Payable 107,628 118,836 Customer Deposits 9,128 8,846 Environmental Remediation Costs 16,601 13,810 Taxes Accrued 21,396 5,419 Derivatives - Energy Related Liabilities 5,793 18,233 Derivatives - Other 8,257 1,393 Deferred Income Taxes - Net 10,069 7,082 Interest Accrued and Other Current Liabilities 20,670 14,052 ------------- ------------- Total Current Liabilities 234,290 285,319 ------------- ------------- Deferred Credits and Other Non-Current Liabilities: Deferred Income Taxes - Net 145,671 143,068 Investment Tax Credits 3,046 3,129 Pension and Other Postretirement Benefits 12,976 13,103 Environmental Remediation Costs 39,810 41,181 Derivatives - Energy Related Liabilities 2,022 3,637 Derivatives - Other 738 1,540 Regulatory Liabilities 70,259 63,836 Other 11,496 13,278 ------------- ------------- Total Deferred Credits and Other Non-Current Liabilities 286,018 282,772 ------------- ------------- Commitments and Contingencies (Note 11) Total Capitalization and Liabilities $ 1,211,615 $ 1,243,334 ============= ============= The accompanying footnotes are an integral part of the financial statements.
SJI-8 Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Summary of Significant Accounting Policies: Consolidation -- The condensed consolidated financial statements include the accounts of South Jersey Industries, Inc. (SJI), its wholly owned subsidiaries and a subsidiary in which we have a controlling interest. We eliminated all significant intercompany accounts and transactions. In our opinion, the condensed consolidated financial statements reflect all adjustments needed to fairly present SJI's financial position and operating results at the dates and for the periods presented. Our businesses are subject to seasonal fluctuations and, accordingly, this interim financial information should not be the basis for estimating the full year's operating results. These financial statements should be read in conjunction with SJI's 2004 Form 10K and annual report. Equity Investments -- We classify equity investments purchased as long-term investments as Available-for-Sale Securities on our condensed consolidated balance sheets and carry them at their fair value with any unrealized gains or losses included in Accumulated Other Comprehensive Income. SJI, either directly or through its wholly owned subsidiaries, currently holds a 50% non-controlling interest in two affiliated companies and accounts for the investments under the equity method. We include the operations of these affiliated companies on a pre-tax basis in the statements of condensed consolidated income under Equity in Affiliated Companies. Estimates and Assumptions -- We prepare our financial statements 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. Significant estimates include amounts related to regulatory accounting, energy derivatives, environmental remediation costs, pension and other postretirement benefit costs, and revenue recognition. 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. SJG follows the accounting for regulated enterprises prescribed by the Financial Accounting Standards Board (FASB) Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In general, Statement No. 71 allows deferral of certain costs and creation of certain obligations when it is probable that these items will be recovered from or refunded to customers in future periods. Revenues -- Gas and electric revenues are recognized in the period the commodity is delivered and customers are billed monthly. For SJG and South Jersey Energy (SJE) retail customers not billed at the end of each month, we record an estimate to recognize unbilled revenues for gas and electricity delivered from the date of the last meter reading to the end of the month. We defer and recognize revenues related to South Jersey Energy Service Plus, LLC (SJESP) appliance service contracts seasonally over the full 12-month term of the contract. SJI-9 Marina Energy LLC (Marina) recognizes revenue on a monthly basis as services are provided and for on-site energy production that is delivered to its customers. The BPU allows SJG to recover all prudently incurred gas costs through the Basic Gas Supply Service (BGSS) clause. We collect these costs on a forecasted basis upon BPU order. SJG defers over/under-recoveries of gas costs and includes them in the following year's BGSS or other similar recovery mechanism. We pay interest on overcollected BGSS balances at the rate of return on rate base utilized by the BPU to set rates in its last base rate proceeding. SJG's tariff also includes a Temperature Adjustment Clause (TAC), a Remediation Adjustment Clause (RAC), a New Jersey Clean Energy Program (NJCEP) and a Universal Service Fund (USF) program. Our TAC reduces the impact of temperature fluctuations on SJG and its customers. The RAC recovers environmental remediation costs of former gas manufacturing plants and the NJCEP recovers costs associated with our energy efficiency and renewable energy programs. The USF is a statewide customer assistance program that utilizes utilities as a collection agent. 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 related costs through rates over 7-year amortization periods. NJCEP and USF adjustments are also deferred and do not affect earnings, as related costs and customer credits are recovered through rates on an ongoing basis. Accounts Receivable and Provision for Uncollectible Accounts -- Accounts receivable are carried at the amount owed by customers. A provision for uncollectible accounts was established based on our collection experience and an assessment of the collectibility of specific accounts. Property, Plant and Equipment -- For regulatory purposes, utility plant is stated at original cost, which may be different than SJG's cost if the assets were acquired from another regulated entity. Nonutility plant is stated at cost. The cost of adding, replacing and renewing property is charged to the appropriate plant account. Depreciation -- 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. Except for extraordinary retirements, accumulated depreciation is charged with the cost of depreciable utility property retired less salvage (See Asset Retirement Costs). Nonutility property depreciation is computed on a straight-line basis over the estimated useful lives of the property, ranging up to 50 years. Gain or loss on the disposition of nonutility property is recognized in net income. Capitalized Interest -- SJG capitalizes interest on construction at the rate of return on rate base utilized by the BPU to set rates in its last base rate proceeding. SJG capitalized interest of $0.3 million and $0.2 million in the three months ended March 31, 2005 and 2004, respectively. These amounts are included in Utility Plant on the condensed consolidated balance sheets. All capitalized interest is reflected on the statements of condensed consolidated income as a reduction of Interest Charges. SJI-10 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 three months ended March 31, 2005 and the year ended December 31, 2004, we did not identify any significant impairments. Energy Trading Activities and Derivative Instruments -- Certain SJI 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. These subsidiaries are subject to market risk due to price fluctuations. To manage this risk, our companies enter into a variety of physical and financial transactions including forward contracts, swap agreements, option contracts and futures contracts. SJI structured its subsidiaries so that SJG and SJE transact commodities on a physical basis and typically do not directly enter into positions that financially settle. South Jersey Resources Group (SJRG) performs this risk management function for these entities and enters into the types of financial transactions noted above. As part of its gas purchasing strategy, SJG occasionally uses financial contracts to hedge against forward price risk. The costs or benefits of these short-term contracts are recoverable through SJG's BGSS, subject to BPU approval. As of March 31, 2005 and December 31, 2004, SJG had $(4.9) million and $0.5 million of (benefits) costs, respectively, included in its BGSS related to open financial contracts (See Caption Regulatory Assets & Regulatory Liabilities). 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. SJI accounts for derivative instruments in accordance with FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. We record all derivatives, whether designated in hedging relationships or not, on the condensed consolidated balance sheets at fair value unless the derivative contracts qualify for the normal purchase and sale exemption. If the derivative is designated as a fair value hedge, we recognize the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk in earnings. We currently have no fair value hedges. If the derivative is designated as a cash flow hedge, we record the effective portion of the hedge in Accumulated Other Comprehensive Income and recognize it in the income statement when the hedged item affects earnings. We recognize ineffective portions of the cash flow hedges immediately in earnings. For the three months ended March 31, 2005, the ineffective portions of the derivatives designated as cash flow hedges were $1.0 million and recorded in Operating Revenues - Nonutility. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives, strategies for undertaking various hedge transactions and our methods for assessing and testing correlation and hedge ineffectiveness. All hedging instruments are linked to the hedged asset, liability, firm commitment or forecasted transaction. We also assess whether these derivatives are highly effective in offsetting changes in cash flows or fair values of the hedged items. We discontinue hedge accounting prospectively if we decide to discontinue the hedging relationship; determine that the anticipated transaction is no longer likely to occur; or if we determine that a derivative is no longer highly effective as a hedge. In the event that hedge accounting is discontinued, we will continue to carry the derivative on the balance sheet at its current fair value and recognize subsequent changes in fair value in current period earnings. SJI-11 Unrealized gains and losses on the discontinued hedges that were previously included in Accumulated Other Comprehensive Income will be reclassified into earnings. As permitted under Statement No. 133, SJI has elected to designate certain energy-related derivative instruments as cash flow hedges which protect against the price variability of our forecasted sales and purchases of natural gas. Based on the amount recorded in Accumulated Other Comprehensive Income at March 31, 2005, we expect $7.3 million to be recorded as an increase in revenues in the next twelve months. As of March 31, 2005, hedges for future forecasted transactions exist into 2006. SJRG manages its portfolio of 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. SJI measures the fair value of the contracts and records these as Derivatives -- Energy Related Assets or Derivatives -- Energy Related Liabilities on our condensed consolidated balance sheets. For those derivatives not designated as hedges, we recorded the net unrealized pre-tax gain of $4.1 million and $2.0 million in earnings during the three months ended March 31, 2005 and 2004, respectively, which are included with realized gains and losses in Operating Revenues -- Nonutility. SJI presents revenues and expenses related to its trading derivatives on a net basis in Operating Revenues -- Nonutility in our condensed consolidated statements of income consistent with Emerging Issues Task Force (EITF) Issue No. 02-03, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." There is no effect on operating income or net income from the above presentation. 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's tax-exempt Series A variable rate bonds for a 10-year period. The second swap effectively fixed 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. In January 2002, Marina issued an additional $10.0 million of taxable Series B variable rate bonds through the New Jersey Economic Development Authority. In April 2002, we entered into an interest rate swap contract that effectively fixed the interest rate on these bonds at 4.62% for a 4-year period. The notional amount of this swap decreased to $8.0 million in December 2003, then decreased to $3.9 million in December 2004, and terminates in December 2005. In November 2004, we entered into two additional interest rate swap contracts against Marina's taxable Series B variable rate bonds for a 10-year period. The swaps effectively provide us with a fixed interest rate of 4.80% on $3.9 million and 4.78% on $8.0 million of the bonds, respectively. From time to time we enter into interest rate swap agreements to hedge 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 is recognized as an adjustment to Interest Charges. We account for these interest rate swaps as cash flow hedges. In November 2004, we entered into a derivative transaction known as a "Treasury SJI-12 Lock" to hedge against the impact of possible interest rate increases on a $10.0 million, 30-year debt issuance by SJG planned for July 2005. As of March 31, 2005 and December 31, 2004, the market value of these swaps was $(1.2) million and $(1.9) million, respectively, which represents the amount we would have to pay the counterparty to terminate these contracts as of those dates. We include these balances on the condensed consolidated balance sheets under Derivatives -- Other. As of March 31, 2005 and December 31, 2004, we calculated the swaps to be highly effective as defined under Statement No. 133, therefore; we record the changes in fair value of the swaps, net of taxes, in Accumulated Other Comprehensive Income. We determined the fair value of derivative instruments by reference to quoted market prices of listed contracts, published quotations or quotations from independent parties. Stock Compensation -- Prior to 2003, SJI valued stock options to employees using the intrinsic value method. Effective in 2003, SJI adopted the policy of accounting for this compensation using the fair value based method on a prospective basis. At this time, SJI has no stock options outstanding. Asset Retirement Costs -- SJG has certain easements and right-of-way agreements that qualify as legal obligations under FASB Statement No. 143, "Accounting for Asset Retirement Obligations." However, as it is our intent to maintain these agreements in perpetuity, we have not recorded any liabilities associated with these agreements. SJG recovers certain asset retirement costs through rates charged to customers. As of March 31, 2005 and December 31, 2004, SJG had accrued amounts in excess of actual removal costs incurred totaling $47.5 million and $47.3 million, respectively, which in accordance with Statement No. 143, we recorded as Regulatory Liabilities on the condensed consolidated balance sheets. New Accounting Pronouncements --Effective in 2003, SJI adopted the policy of accounting for share-based compensation using the fair value based method on a prospective basis. This method calls for expensing the estimated fair value of a stock option. In December 2004, the FASB issued Statement No. 123(R), "Share-Based Payment" which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. While this statement is not effective until reporting periods beginning after January 1, 2006, SJI has completed its assessment of Statement No. 123(R) and has determined that it does not have any impact on our accounting for share-based payments. In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary Assets, an amendment to APB Opinion No. 29, Accounting for Nonmonetary Transactions." This statement redefines the types of nonmonetary exchanges that require fair value measurement. Statement No. 153 is effective for nonmonetary transactions entered into on and after July 1, 2005; however, we do not expect it to have any impact on SJI's consolidated financial statements. In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations." This interpretation clarifies the term "conditional asset retirement obligation" as used in FASB Statement No. 143, "Accounting for Asset Retirement Obligations," and is effective for fiscal years ending after December 15, 2005. Management is currently evaluating the effect of this standard, but does not anticipate the adoption of this interpretation to have a material effect on our consolidated financial statements. SJI-13 Regulatory Assets & Regulatory Liabilities -- Regulatory Assets at March 31, 2005 and December 31, 2004 consisted of the following items (in thousands): Years Remaining As of March 31, December 31, March 31, 2005 2005 2004 --------------------------------------- Environmental Remediation Costs: Expended - Net Various $ 5,644 $ 5,281 Liability for Future Expenditures - 52,473 51,046 Income Taxes - Flowthrough Depreciation 6 6,397 6,641 Postretirement Benefit Costs 8 2,929 3,024 Gross Receipts and Franchise Taxes 2 813 924 Societal Benefit Charges Various 2,084 4,562 Other - 1,450 1,157 ---------------------- Total Regulatory Assets $ 71,790 $ 72,635 ====================== Each item separately identified above is being recovered through utility rate charges. SJG is currently permitted to recover interest on its Environmental Remediation and Societal Benefit Costs while the other assets are being recovered without a return on investment over the period indicated. Some of the assets reflected within the above caption "Other" are currently being recovered from ratepayers as approved by the BPU. Management believes that the remaining deferred costs are probable of recovery from ratepayers through future utility rates. Regulatory Liabilities at March 31, 2005 and December 31, 2004 consisted of the following items (in thousands): March 31, December 31, 2005 2004 ----------------------------- Deferred Gas Revenues - Net $ 18,235 $ 12,334 Excess Plant Removal Costs 47,542 47,345 Overcollected State Taxes 3,910 3,871 Other 572 286 ----------------------------- Total Regulatory Liabilities $ 70,259 $ 63,836 ============================= Deferred Gas Revenues - Net represent SJG's net overcollected gas costs and are monitored through SJG's BGSS mechanism. Derivatives used to hedge SJG's natural gas purchases are recoverable through its BGSS, subject to BPU approval. We record the offset to the change in fair value of these contracts as a Regulatory Asset or Regulatory Liability accordingly. SJI-14 Excess Plant Removal Costs represent amounts accrued in excess of actual utility plant removal costs incurred to date. All other amounts are subject to being returned to ratepayers in future rate proceedings. Cash and Cash Equivalents -- For purposes of reporting cash flows, highly liquid investments with original maturities of three months or less are considered cash equivalents. Reclassifications -- SJI reclassified some previously reported amounts to conform with current year classifications. Such reclassifications include the move of $2.1 million of certain operating expenses previously included in Utility Revenue to Cost of Sales - Utility and Operations Expense for the three months ended March 31, 2004. These amounts are considered immaterial to the overall presentation of SJI's condensed consolidated statements of income. Note 2. 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. 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. Summarized operating results of the discontinued operations for the three months ended March 31 were (in thousands): 2005 2004 ------------------------------ Loss before Income Taxes: Sand Mining $ (212) $ (213) Fuel Oil (10) (3) Income Tax Credits 78 76 ------------------------------ Loss from Discontinued Operations - Net $ (144) $ (140) ============================== Basic and Diluted Earnings Per Common Share from Discontinued Operations - Net $ (0.01) $ (0.01) ============================== Losses from sand mining are mainly comprised of environmental remediation and product liability litigation associated with Morie's prior activities. Affiliations -- SJI and Conectiv Solutions, LLC formed Millennium Account Services, LLC to provide meter reading services in southern New Jersey. SJE and GZA GeoEnvironmental, Inc. formed AirLogics, LLC to market a jointly developed air monitoring system designed to assist companies involved in environmental cleanup activities. SJI-15 In April 2004, Marina and DCO Energy, LLC (DCO) formed AC Landfill Energy, LLC (ACLE) to develop and install a 1,400 kilowatt methane-to-electric power generation system at a county-owned landfill in Egg Harbor Township, NJ. Marina owns a 51% interest in ACLE and consolidates ACLE's balance sheet and results of operations accordingly. Commercial operation of the plant began in March 2005. In March 2005, Marina and DCO formed WC Landfill Energy, LLC (WCLE) to develop and install a 3,800 kilowatt methane-to-electric power generation system at a county-owned landfill in White Township, NJ. Marina owns a 51% interest in WCLE and consolidates WCLE's balance sheet and results of operations accordingly, as applicable. Commercial operation of the plant is targeted for the end of 2005. Note 3. Common Stock: Amendment to the Certificate of Incorporation to Increase the Number of Authorized Shares -- On March 3, 2005, the Board of Directors authorized an amendment to SJI's Certificate of Incorporation to increase the authorized number of shares of Common Stock from 20,000,000 shares to 60,000,000 shares. This amendment was approved by SJI's shareholders at SJI's annual meeting of shareholders held on April 21, 2005. The principal purpose of the increase is to permit a two-for-one split of all the issued shares of SJI's Common Stock with a record date of June 10, 2005. Share-related information is reported on a pro forma basis on the condensed consolidated income statement reflecting the stock split. All other share-related information contained in this report is presented on a pre-split basis. SJI has 20,000,000 shares of authorized Common Stock. The following shares were issued and outstanding:
March 31, December 31, 2005 2004 --------------- --------------- Beginning Balance, January 1 13,879,968 Beginning Balance, January 1 13,229,001 New Issues During Year: New Issues During Year: Dividend Reinvestment Plan 14,053 Dividend Reinvestment Plan 616,301 Stock-Based Compensation Plan 37,287 Stock-Based Compensation Plan 32,056 Directors' Restricted Stock - Directors' Restricted Stock 2,610 --------------- --------------- Ending Balance, March 31 13,931,308 Ending Balance, December 31 13,879,968 =============== ===============
We credited the par value ($1.25 per share) of stock issued during the three months ended March 31, 2005 and the year ended December 31, 2004 to Common Stock. We credited the net excess over par value of approximately $2.6 million for the three months ended March 31, 2005 and $25.9 million for the year ended December 31, 2004 to Premium on Common Stock. Earnings Per Common Share -- We present basic EPS based on the weighted-average number of common shares outstanding. EPS is presented in accordance with FASB Statement No. 128, "Earnings Per Share," which establishes standards for computing and presenting basic and diluted EPS. The incremental SJI-16 shares required for inclusion in the denominator for the diluted EPS calculation were 112,707 and 68,938 shares for the three months ended March 31, 2005 and 2004, respectively. These shares relate to SJI's restricted stock as discussed below. Stock-Based Compensation Plan -- Under the Amended and Restated 1997 Stock-Based Compensation Plan as recently amended and restated by our Board of Directors and approved by our shareholders on April 21, 2005, no more than 1,000,000 shares in the aggregate may be issued to SJI's officers, non-employee directors and other key employees. The plan will terminate on January 26, 2015 unless terminated earlier by the Board of Directors. No options were granted or outstanding during the three months ended March 31, 2005 and 2004. No stock appreciation rights have been issued under the plan. In the first quarter of 2005 and 2004, we granted 19,158 and 21,899 restricted shares, respectively. These restricted shares vest over a 3-year period and are subject to SJI achieving certain performance targets. Dividend Reinvestment Plan (DRP)-- Newly issued shares of common stock offered through the DRP are issued directly by SJI. As of March 31, 2005, SJI reserved 1,048,622 shares of authorized, but unissued, common stock for future issuance to the DRP. Note 4. Preferred Stock: On March 30, 2005, SJG provided notice of its intent to redeem its Redeemable Cumulative Preferred 8% Series of preferred stock. The total amount outstanding as of the May 1, 2005 redemption date was $1.69 million. Note 5. Financial Instruments: Restricted Investments -- In accordance with the terms of ACLE's loan agreements, we were required to escrow unused proceeds pending approved construction expenditures. As of March 31, 2005, the escrowed proceeds totaled $218,000. SJRG maintains a margin account with a national investment firm to support its risk management activities. As of March 31, 2005, SJRG had a payable balance of $3.1 million in this account due to changes in the market value of outstanding contracts. This balance is reflected under the caption Accounts Payable on the condensed consolidated balance sheet. As of December 31, 2004, the balance of this account was $13.0 million. Note 6. Segments of Business: Information about SJI's operations in different industry segments for the three months ended March 31 is presented below (in thousands): 2005 2004 ------------------------------- Operating Revenues: Gas Utility Operations $ 214,537 $ 199,791 Wholesale Gas Operations 11,560 5,711 Retail Gas and Other Operations 75,027 83,518 Retail Electric Operations 22,698 17,081 On-Site Energy Production 5,370 6,112 Appliance Service Operations 3,425 2,468 ------------------------------- SJI-17 Subtotal 332,617 314,681 Intersegment Sales (4,047) (7,071) ------------------------------- Total Operating Revenues $ 328,570 $ 307,610 =============================== Operating Income: Gas Utility Operations $ 43,160 $ 38,810 Wholesale Gas Operations 4,700 89 Retail Gas and Other Operations 303 4,142 Retail Electric Operations 434 614 On-Site Energy Production 1,624 1,594 Appliance Service Operations 698 332 General Corporate (186) (128) ------------------------------- Total Operating Income $ 50,733 $ 45,453 =============================== Depreciation and Amortization: Gas Utility Operations $ 6,069 $ 6,783 Wholesale Gas Operations 4 4 Retail Gas and Other Operations 30 32 Retail Electric Operations - - On-Site Energy Production 446 401 Appliance Service Operations 36 - Discontinued Operations - - ------------------------------- Total Depreciation and Amortization $ 6,585 $ 7,220 =============================== Property Additions: Gas Utility Operations $ 12,110 $ 11,065 Wholesale Gas Operations - 15 Retail Gas and Other Operations 8 40 Retail Electric Operations - - On-Site Energy Production 5,391 981 Appliance Service Operations 27 - ------------------------------- Total Property Additions $ 17,536 $ 12,101 =============================== March 31, December 31, 2005 2004 ------------------------------- Identifiable Assets: Gas Utility Operations $ 1,001,756 $ 1,007,587 Wholesale Gas Operations 77,528 103,689 Retail Gas and Other Operations 57,653 53,880 Retail Electric Operations 13,692 12,580 On-Site Energy Production 89,382 84,616 Appliance Service Operations 11,708 11,640 Discontinued Operations 411 413 ------------------------------ Subtotal 1,252,130 1,274,405 SJI-18 Corporate Assets 43,612 46,674 Intersegment Assets (84,127) (77,745) ------------------------------- Total Identifiable Assets $ 1,211,615 $ 1,243,334 =============================== 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 acquisition and transportation service companies. Retail Electric Operations consist of electricity acquisition and transportation to retail, commercial and industrial customers. On-Site Energy Production consists of Marina's thermal energy facility and other energy-related projects. Appliance Service Operations include the servicing of appliances via the sale of appliance service programs as well as on a time and materials basis and the installation of residential and small commercial HVAC systems. SJI's interest expense relates primarily to SJG's and Marina's borrowing and financing activities. Interest income is essentially derived from borrowings between the subsidiaries and is eliminated during consolidation. Note 7. Regulatory Actions: Base Rates -- In January 1997, the BPU granted SJG rate relief, which was predicated in part upon a 9.62% rate of return on rate base that included an 11.25% return on common equity. This rate relief provided for cost-of-service recovery, including deferred costs, through base rates. Additionally, SJG's threshold for sharing pre-tax margins generated by interruptible and off-system sales and transportation increased. As a result of this case, SJG kept 100% of pre-tax margins up to the threshold level of $7.8 million. The next $750,000 was credited to customers through the Basic Gas Supply Service (BGSS) clause. Thereafter, SJG kept 20% of the pre-tax margins as it had historically. On July 7, 2004, the BPU granted SJG a base rate increase of $20.0 million, which was predicated in part upon a 7.97% rate of return on rate base that included a 10.0% return on common equity. The increase, effective July 8, 2004, was designed to provide an incremental $8.5 million on an annualized basis to net income. SJG was also permitted to recover regulatory assets contained in its petition and to reduce its composite depreciation rate from 2.9% to 2.4%. Included in the base rate increase was a change to the sharing of pre-tax margins on interruptible and off-system sales and transportation. SJG now recovers through its base rates the $7.8 million that it had previously recovered through the sharing of pre-tax margins. As a result, the sharing of pre-tax margins now begins from dollar one, with SJG retaining 20%. Moreover, SJG now shares pre-tax margins from on-system capacity release sales, in addition to the interruptible and off-system sales and transportation. Effective July 1, 2006, the 20% retained by SJG will decrease to 15% of such margins. As part of the overall settlement effective July 8, 2004, SJG reduced rates in several rate clauses that were no longer needed by SJG to recover costs. SJG was either no longer incurring or had already recovered the specific costs that these clauses were designed to recover. Since revenues raised under these clauses were for cost recovery only and had no profit margin built in, SJI-19 their elimination has no impact on SJG's net income. However, SJG's customers' bills are estimated to decline by $38.9 million annually due to the elimination of these clauses, more than offsetting the base rate increase awarded. Pending Audits -- The BPU issued an order under which it will perform a competitive services audit and a management audit that includes a focused review of SJG's gas supply and purchasing practices. The audits, which commenced in October 2004, are mandated by statute to be conducted at predetermined intervals. Management does not currently anticipate the outcome of these audits, which are nearing completion, to materially affect SJI's financial position, results of operations or liquidity. Appliance Service Business -- On July 23, 2004, the BPU approved SJG's petition and related agreements to transfer its appliance service business from the regulated utility. In anticipation of this transfer, SJI formed South Jersey Energy Service Plus, LLC (SJESP) to perform appliance repair services after BPU approval of the transfer. SJESP purchased certain assets and assumed certain liabilities required to perform these repair services from SJG for the net book value of $1.2 million on September 1, 2004. The agreements also called for SJESP to pay an additional $1.5 million to SJG. SJG credited this $1.5 million to customers through the Remediation Adjustment Clause (RAC), which had no earnings impact on SJG. The $1.5 million is considered an intangible asset by SJESP and is being amortized on a straight-line basis over a 12-year period, which commenced as of the transfer date. The amortization period was based on a study performed by an independent consultant. The study results indicate the benefit period is linked to residential homeowner moving rates based on U.S. Census Bureau and regional information. Other Regulatory Matters -- Effective January 10, 2000, the BPU approved full unbundling of SJG's system. This allows all natural gas consumers to select their natural gas commodity supplier. As of March 31, 2005, 85,207 of SJG's residential customers were purchasing their gas commodity from someone other than SJG. Customers choosing to purchase natural gas from providers other than the utility are charged for the cost of gas by the marketer, not the utility. The resulting decrease in SJG's revenues is offset by a corresponding decrease in gas costs. While customer choice can reduce utility revenues, it does not negatively affect SJG's net income or financial condition. Unbundling did not change the fact that SJG still recovers cost of service, including deferred costs, through base rates. In December 2001, the BPU approved recovery of SJG's October 31, 2001 underrecovered gas cost balance of $48.9 million plus accrued interest since April 1, 2001 at a rate of 5.75%. SJG finished recovering this balance upon the settlement of its rate case in July 2004. In March 2003, the BPU approved a statewide Universal Service Fund (USF) program through which funds for the USF and Lifeline Credit and Tenants Assistance (Lifeline) Programs would be collected from customers of all New Jersey electric and gas utilities. In April 2004, SJG made its annual USF filing, along with the state's other electric and gas utilities, proposing a statewide USF budget of $105.5 million, which was later updated to $113.0. In June 2004, the BPU approved the statewide budget of $113.0 million and the increased rates were implemented effective July 1, 2004, resulting in a $3.9 million increase to SJG's annual USF recoveries. In April 2005, SJG made its annual USF filing, along with the state's other electric and gas utilities, proposing a statewide USF budget of $129.0 million. SJI-20 In February 2004, SJG filed notice with the BPU to reduce its gas cost revenues collected under the BGSS by approximately $5.0 million, via a rate reduction, in addition to a $20.8 million bill credit to customers. Both the rate reduction and bill credit were approved and implemented in March 2004. In June 2004, SJG made its annual BGSS filing with the BPU requesting a $4.9 million increase in gas cost recoveries. In October 2004, the requested increase was approved on a provisional basis. In February 2005, SJG filed notice with the BPU to provide for an $11.4 million bill credit to customers. The bill credit was implemented in March 2005. In September 2004, SJG filed for a $2.6 million reduction to its annual Societal Benefits Clause (SBC) recovery level. The SBC recovers costs related to BPU-mandated programs, including environmental remediation costs recovered through SJG's RAC; energy efficiency and renewable energy program costs recovered through SJG's New Jersey Clean Energy Programs (NJCEP); consumer education program costs; and low income program costs recovered through the Universal Service Fund. In December 2004, the BPU approved the statewide funding of the NJCEP of $745.0 million for the years 2005 through 2008. Of this amount, SJG will be responsible for approximately $25.4 million over the four year period. Amounts not yet expended have been included in the Contractual Cash Obligations table included in Note 11. Filings and petitions described above are still pending unless otherwise indicated. Note 8. Pension & Other Postretirement Benefits: SJI has several defined benefit pension plans and other postretirement benefit plans. The pension plans provide annuity payments to the majority of full-time, regular employees upon retirement. Newly hired employees do not qualify for participation in the defined benefit pension plans. New hires are eligible to receive an enhanced version of the Company's defined contribution plan (401-K). The other postretirement benefit plans provide health care and life insurance benefits to some retirees. Net periodic benefit cost for the three months ended March 31, 2005 and 2004 related to the pension and other postretirement benefit plans consisted of the following components (in thousands): Other Postretirement Pension Benefits Benefits 2005 2004 2005 2004 ----------------------------------------------- Service Cost $ 998 $ 735 $ 409 $ 377 Interest Cost 1,953 1,425 704 629 Expected Return on Plan Assets (2,741) (1,774) (409) (350) Amortization of Transition Obligation - - - 193 Amortization of Loss and Other 704 444 38 44 ---------------------------------------------- Net Periodic Benefit Cost $ 914 $ 830 $ 742 $ 893 ============================================== SJI-21 The table above includes benefit costs capitalized by SJG related to its construction program. Capitalized pension benefit costs totaled $386,300 and $275,500 for the three months ended March 31, 2005 and 2004, respectively. Capitalized other postretirement benefit costs totaled $247,900 and $258,300 for the three months ended March 31, 2005 and 2004, respectively. As of November 2004, SJI implemented caps on the amount of the premium we pay for all employees eligible for postretirement health care. Employees are responsible for those costs which exceed the premium caps. As a result of these caps, we were able to reduce our postretirement benefit costs other than pension. Future Benefit Payments -- The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (in thousands): Other Pension Benefits Postretirement Benefits 2005 $ 4,209 $ 1,522 2006 4,397 1,737 2007 4,621 1,970 2008 4,898 2,187 2009 5,205 2,386 2010-2014 32,748 13,837 Contributions -- SJI expects to make no contributions to its pension plan in 2005; however, unfavorable changes in investment performance and discount rates during the year may ultimately result in a contribution at the end of the year. SJG also has a regulatory obligation to contribute $3.6 million annually to its other post retirement benefit plans, less costs incurred directly by the company. Note 9. 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. As of March 31, 2005 and December 31, 2004, SJG's loan restrictions did not affect the amount that may be distributed from either SJG's or SJI's retained earnings. SJG is restricted as to the amount of cash dividends or other distributions that may be paid on its common stock by an order issued by the BPU in July 2004, that granted SJG an increase in base rates. Per the order, SJG is required to maintain total common equity of no less than $289.0 million. SJG's total common equity balance was $323.5 million at March 31, 2005. Note 10. Unused Lines of Credit and Compensating Balances: Bank credit lines available to SJI totaled $266.0 million at March 31, 2005, of which $38.8 million, inclusive of $6.4 million of letters of credit, was used. Those bank facilities consist of a $100.0 million revolving credit facility that expires in August 2006 and $76.0 million of uncommitted bank lines available to SJG; and a $60.0 million revolving credit facility that expires in August 2007, and $30.0 million of uncommitted bank lines available to SJI. The SJI-22 amount of the revolving credit to SJI was increased by $20.0 million and the expiration date was extended to 2007 in August 2004. The revolving credit facilities contain certain financial covenants measured on a quarterly basis. SJI and SJG were in compliance with these covenants as of March 31, 2005. Borrowings under these lines of credit are at market rates. The weighted borrowing cost, which changes daily, was 3.33% and 3.02% at March 31, 2005 and December 31, 2004, respectively. We maintain demand deposits with lending banks on an informal basis and they do not constitute compensating balances. Note 11. Commitments and Contingencies: Contractual Cash Obligations -- The following table summarizes our contractual cash obligations and their applicable payment due dates as of March 31, 2005 (in thousands):
Up to Years Years More than Contractual Obligations Total 1 Year 2 & 3 4 & 5 5 Years -------------------------------------------------------------------- Long-Term Debt $ 323,762 $ 2,348 $ 4,737 $ 220 $ 316,457 Interest on Long-Term Debt 298,776 19,440 38,307 37,907 203,122 Operating Leases 727 332 337 42 16 Construction Obligations 22,341 22,341 -- -- -- Commodity Supply Purchase Obligations 348,494 168,827 88,224 67,076 24,367 New Jersey Clean Energy Program (Note 7) 22,971 4,573 12,649 5,749 -- Other Purchase Obligations 3,213 3,150 63 -- -- ------------------------------------------------------------------- Total Contractual Cash Obligations $ 1,020,284 $ 221,011 $ 144,317 $ 110,994 $ 543,962 ===================================================================
Expected environmental remediation costs are not included in the table above due to the subjective nature of such costs and the timing of anticipated payments. SJG's regulatory obligation to contribute $3.6 million annually to its postretirement benefit plans other than pensions, less costs incurred directly by the company, is not included as the duration is indefinite. As a result, the total obligation cannot be calculated. As discussed in Note 8 - Contributions, SJI does not currently expect to make a pension contribution in 2005. Furthermore, future pension contributions beyond 2005 cannot be determined at this time. Construction and Environmental -- SJI's estimated net cost of construction and environmental remediation programs for 2005 totals $87.2 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 March 2006. The transportation and storage service agreements between SJG and SJI-23 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 $4.1 million per month, recovered on a current basis through the BGSS. Pending Litigation -- SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to these claims when we can determine the amount or range of amounts of likely settlement costs for those claims. SJI has been named in, among other actions, certain product liability claims related to our former sand mining subsidiary. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on SJI's financial position, results of operations or liquidity. Parental Guarantees --As of March 31, 2005, SJI had issued $226.0 million of parental guarantees on behalf of its subsidiaries. Of this total, $167.2 million expire within one year, $1.0 million expire between one and two years and $57.8 million have no expiration date. The vast majority of these guarantees were issued to guarantee payment to third parties with whom our subsidiaries have commodity supply contracts. These contracts contain netting provisions which permit us to net the ultimate cash payment for monthly buys and sells from/to counterparties. As of March 31, 2005, these guarantees support future firm commitments and $49.1 million of the Accounts Payable recorded on our condensed consolidated balance sheet. As part of our risk management policy, we also require parental guarantees from trading counterparties as applicable. These arrangements are typical in our industry. SJI has also issued five parental guarantees totaling $30.2 million related to Marina's construction and operating activities. Standby Letters of Credit -- As of March 31, 2005, SJI provided $46.0 million of standby letters of credit from four commercial banks supporting the variable rate demand bonds issued through the New Jersey Economic Development Authority to finance 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 March 31, 2005. Also, as of March 31, 2005, SJI has issued four letters of credit totaling $6.4 million. Three of these letters were posted to two different utilities to enable SJE to market retail electricity within the respective utilities' service territories. The remaining letter was posted related to the construction activity of ACLE. Environmental Remediation Costs -- SJI incurred and recorded costs for environmental cleanup of 12 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 cleanup 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 until 2024 at 10 sites and until 2029 at one site. The new future cost estimates discussed hereafter are not reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance Policy. SJI-24 Since the early 1980s, SJI accrued environmental remediation costs of $155.9 million, of which $99.5 million was spent as of March 31, 2005. With the assistance of a consulting firm, we estimate that undiscounted future costs to clean up SJG's sites will range from $51.9 million to $191.4 million. We recorded the lower end of this range as a liability because a single reliable estimation point is not feasible due to the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. It is reflected on the March 31, 2005 condensed consolidated balance sheet under Current Liabilities and Deferred Credits and Other Noncurrent 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 cleanup of SJG's former gas manufacturing sites. SJG has two regulatory assets associated with environmental costs. The first asset, Environmental Remediation Cost: Expended -- Net, represents what was actually spent to clean up former gas manufacturing plant sites. These costs meet the requirements of Statement No. 71. The BPU allows SJG to recover expenditures through the RAC. The other asset, 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 regulatory asset under Statement No. 71 with the corresponding amount reflected on the condensed consolidated balance sheet under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities. 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 March 31, 2005, we reflected SJG's unamortized remediation costs of $5.6 million on the condensed consolidated balance sheet under Regulatory Assets. Since implementing the RAC in 1992, SJG has recovered $44.5 million through rates. With Morie's sale, EMI assumed responsibility for environmental liabilities estimated between $2.8 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 has accrued the lower end of the range. Changes in the accrual are included in the statements of condensed consolidated income under 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 these sites range from $1.2 million to $5.0 million. We recorded the lower ends of these ranges on the 2005 condensed consolidated balance sheet under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities as of March 31, 2005. ` SJI-25 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) 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: 1) South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG distributed natural gas in the seven southernmost counties of New Jersey to 316,094 customers at March 31, 2005 compared with 307,044 customers at March 31, 2004. SJG also: * sells natural gas and pipeline transportation capacity (off-system sales) 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 * serviced appliances via the sale of appliance service programs, as well as on a time and materials basis through September 1, 2004, at which time the business line was transferred out of SJG and into South Jersey Energy Service Plus, LLC. 2) 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 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. 3) South Jersey Resources Group, LLC (SJRG) markets wholesale natural gas storage, commodity and transportation in the mid-Atlantic and southern states. SJRG also conducts price-risk management activities by entering into a variety of physical and financial transactions including forward contracts, swap agreements, option contracts and futures contracts. SJRG performs this risk management function for SJG and SJE and enters into the types of financial transactions noted above. 4) Marina Energy LLC (Marina) develops and operates energy-related projects. Marina's largest project, the development of a facility to provide cooling, heating and hot water to the Borgata Hotel Casino & Spa in Atlantic City, began commercial operations in July 2003. Marina also owns a 51% equity interest in AC Landfill Energy, LLC (ACLE). ACLE was formed with DCO Energy, LLC (DCO) to develop and install a 1,400 kilowatt methane-to-electric power generation system at a county-owned landfill in Egg Harbor Township, NJ. Commercial operation of the plant began in March 2005. Marina also owns a 51% equity interest in WC Landfill Energy, LLC (WCLE). WCLE was formed with DCO to develop and install a 3,800 kilowatt methane-to-electric power generation system at a county-owned landfill in White Township, NJ. Commercial operation of the plant is targeted for the end of 2005. SJI-26 5) South Jersey Energy Service Plus, LLC (SJESP) installs residential and small commercial HVAC systems and services appliances via the sale of appliance service programs as well as on a time and materials basis in southern New Jersey. 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. Forward-Looking Statement and Risk Factors: Certain statements contained in this Quarterly Report on Form 10-Q may qualify as "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report should be considered forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of the Company's documents or oral presentations, words such as "anticipate", "believe", "expect", "estimate", "forecast", "goal", "intend", "objective", "plan", "project", "seek", "strategy" and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include, but are 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; changes in the availability of natural gas; regulatory and court decisions; competition; the availability and cost of capital; 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. A discussion of these risks and uncertainties may be found in the Company's Form 10-K for the year ended December 31, 2004. Accordingly, while the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, the Company undertakes no obligation to update or revise any of its forward-looking statements whether as a result of new information, future events or otherwise. Critical Accounting Policies Estimates and Assumptions -- As described in the footnotes to our condensed 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. SJI's Form 10-K for the year ended December 31, 2004 describes five critical accounting policies within the section Management's Discussion and Analysis that require a significant amount of judgment and estimation. These relate to regulatory accounting, energy derivatives, environmental remediation costs, pension and other postretirement employee benefit costs, and revenue recognition. New Accounting Pronouncements -- See detailed discussions concerning New Accounting Pronouncements and their impact on SJI in Note 1 to the condensed consolidated financial statements. SJI-27 Temperature Adjustment Clause -- A BPU-approved Temperature Adjustment Clause (TAC) decreased SJG's net income by $0.9 million and $0.7 million for the three months ended March 31, 2005 and 2004, respectively, due to lower than normal temperatures. The clause mitigates the effect of variations in heating season temperatures from historical norms. While we record the revenue and income impacts of TAC adjustments as incurred, cash inflows or outflows directly attributable to TAC adjustments generally do not begin until the next clause year. Each TAC year begins October 1. Recent Regulatory Actions -- See detailed discussion concerning Recent Regulatory Actions in Note 7 to the condensed consolidated financial statements. Environmental Remediation -- SJI incurred and recorded costs for environmental cleanup of 12 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 cleanup 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 until 2024 at 10 sites and until 2029 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 Remediation Adjustment Clause (RAC). The RAC currently permits SJG to recover incurred costs in equal installments over 7-year periods with carrying costs. As of March 31, 2005, SJG has $5.6 million of remediation costs not yet recovered through rates. Other matters are discussed in Note 11 to the condensed consolidated financial statements included as part of this report. Results of Operations Operating Revenues -- Utility -- Revenues, net of intercompany transactions, increased $14.8 million during the first quarter of 2005 compared with the same period last year primarily due to two factors. First, SJG added 9,050 customers during the 12-month period ended March 31, 2005, which represents a 2.9% increase in total customers. Second, 20% of the residential customers purchasing their gas from a source other than SJG migrated back to utility sales service. The number of residential transportation customers decreased from 106,620 at March 31, 2004, to 85,207 at March 31, 2005 as third party marketers are finding it difficult to compete with the utility under current market conditions. This migration of customers from transportation service back to sales service has a direct impact on utility revenues as charges for gas costs are included in sales revenues and not in transportation revenues. However, since gas costs are passed on directly to customers without any profit margin added by SJG, the change in customer utilization of gas marketers did not impact SJG's profitability. Partially offsetting these factors were lower customer utilization rates combined with 1.5% warmer weather in the first quarter of 2005 compared with the same period in 2004, a $6.4 million decrease in Off-System Sales (OSS) SJI-28 revenues, and the impact of the July 2004 rate case settlement on revenues. The decrease in the OSS revenues was the direct impact of lower sales volume. This was partially offset by an increase in capacity release activity during the period. Capacity release allows SJG to sell any unused capacity for a profit, but the revenues from such activities are much lower than those from OSS since no commodity is included in the sale. Finally, SJG's revenues were lower due to the impact of the July 2004 settlement of several matters before the BPU. This settlement increased SJG's base rates and at the same time SJG reduced rates in several clauses that were no longer needed to recover costs. SJG was either no longer incurring or had already recovered the specific costs that these clauses were designed to recover. Since revenues raised under these clauses were for cost recovery only and had no profit margin built in, their elimination has no impact on SJG's net income. The base rate increase discussed above, and in greater detail in Note 7 to the condensed consolidated financial statements, had the impact of increasing utility margins (revenues less gas costs and associated energy taxes) by approximately $3.9 million during the first quarter of 2005 compared with the same period last year. As a result of SJG's Temperature Adjustment Clause (TAC), revenues from utility ratepayers are closely tied to 20-year normal temperatures calculated under the clause and not actual temperatures. While the clause significantly reduces fluctuations in revenues related to temperature, as a general rule, revenues continue to be positively impacted by colder weather and negatively impacted by warmer weather. Weather during the first three months of 2005 was 1.5% warmer than in 2004, and 5.9% colder than the 20-year TAC average. Total gas throughput increased 10.9% to 47.0 billion cubic feet (Bcf) from March 31, 2004 to March 31, 2005. The higher throughput was primarily due to a significant increase in capacity release activity during the first quarter of 2005. While revenues from such activities are not as high as those including the actual sale of commodity, contributions to margins are still comparable. The following is a comparison of operating revenue and throughput for the three months ended March 31: 2005 2004 ------ ------ Operating Revenues (thousands): Firm Residential $ 97,171 $ 81,141 Commercial 35,204 23,966 Industrial 2,055 2,317 Cogeneration & Electric Generation 849 419 Firm Transportation 24,757 32,869 -------------- -------------- Total Firm Operating Revenues 160,036 140,712 -------------- -------------- Interruptible 415 288 Interruptible Transportation 599 295 Off-System 48,905 55,352 Capacity Release & Storage 4,192 2,727 Appliance Service - 2,136 Other 390 750 Intercompany Sales (2,370) (4,846) -------------- -------------- SJI-29 Total Operating Revenues $ 212,167 $ 197,414 ============== ============== Throughput (MMcf): Firm Residential 8,304 7,488 Commercial 3,353 2,431 Industrial 100 92 Cogeneration & Electric Generation 65 25 Firm Transportation 10,233 12,212 -------------- -------------- Total Firm Throughput 22,055 22,248 -------------- -------------- Interruptible 38 34 Interruptible Transportation 855 576 Off-System 6,663 7,833 Capacity Release & Storage 17,354 11,662 -------------- -------------- Total Throughput 46,965 42,353 ============== ============== Operating Revenues -- Nonutility -- Revenues, net of intercompany transactions, increased by $6.2 million for the first quarter 2005 compared with the first quarter of 2004. Most of the increase was due to a $5.5 million increase in SJRG's revenues for the quarter ended March 31, 2005 compared with the quarter ended March 31, 2004 due mainly to sales volume growth, highlighted by additional storage capacity, and higher gas prices. SJESP's revenues increased $2.8 million for the quarter ended March 31, 2005 compared with the quarter ended March 31, 2004 due mainly to the transfer of SJG's appliance service business in September 2004. SJE's revenues from retail gas decreased by $7.4 million due mainly to the decrease of over 16,300 residential and 3,100 commercial gas customers resulting from unfavorable market conditions experienced over the preceding twelve months. The market price for gas has been above the price charged by SJG to its customers, causing SJE to currently suspend its gas marketing efforts. Revenues from retail electric increased $6.5 million due to the addition of several industrial customers and higher commodity prices for the quarter ended March 31, 2005. Cost of Sales -- Utility -- Cost of sales, net of intercompany transactions, increased $9.7 million during the first quarter of 2005 compared with the same period in 2004 due principally to the increase in SJG's total customer base and the impact of the migration of customers from transportation service back to sales service as discussed in detail under Operating Revenues - Utility. This increase was partially offset by lower Off-System Sales (OSS) volume. While changes in gas costs associated with OSS directly impact cost of sales, changes in the unit cost of gas sold to utility ratepayers do not always directly affect cost of sales. We defer fluctuations in gas costs to ratepayers not reflected in current rates to future periods under a BPU-approved Basic Gas Supply Service (BGSS) price structure. SJI-30 Gas supply sources include contract and open-market purchases. SJG secures and maintains its own gas supplies to serve its sales 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, net of intercompany transactions, increased $2.2 million for the first quarter of 2005 compared with the first quarter of 2004 due mainly to SJRG's growth and higher electric costs as described in the Operating Revenues -- Nonutility section. Operations Expense -- A summary of increases in operations expense, net of intercompany transactions for the three months ended March 31 follows (in thousands): 2005 vs. 2004 ------------- Utility $ 1,540 ------------- Nonutility: Wholesale Gas 42 Retail Gas and Other 1,098 On-Site Energy Production 83 Appliance Service 1,088 ------------- Total Nonutility 2,311 Corporate 245 ------------- Total Operations $ 4,096 ============= Utility Operations expense increased $1.5 million during the first quarter of 2005 compared to the same period in 2004 primarily as a result of higher bad debt expense which increased by $0.9 million. During the first quarter of 2005, SJG increased its reserve for uncollectible accounts by $0.7 million to address the increase in the accounts receivable balances at March 31, 2005 compared with March 31, 2004. During the first quarter of 2004, the BPU approved a BGSS refund of $20.8 million which improved our accounts receivable aging significantly, resulting in a reduction in SJG's reserve of approximately $0.1 million in that period. SJG provided customers with an additional BGSS refund in March 2005 in the amount of $11.3 million. While this refund also improved the accounts receivable aging at March 31, 2005, it was significantly less than the prior year refund. In addition, the month of March 2005 was 24% colder than March 2004. As collection on March sales is recovered on a cycle basis, a large portion is not recovered until April; therefore, the increase in billed sales in March 2005 directly impacts the amount outstanding as of the end of the quarter. The remaining increase in operations expense primarily resulted from higher administrative and general expenses (A&G). A&G increased as a result of higher employee benefit costs; increased regulatory expenses resulting from amortizations approved in the July 2004 rate case settlement; and a 2004 reduction of SJG's reserve for outstanding claims in the amount of $0.3 million following a period of favorable claims settlements. It should be noted that the amortizations of approximately $0.1 million resulting from the rate case settlement were included in rate recovery from its customers and had no impact on net income. Nonutility Retail Gas and Other Operations expenses increased for the quarter ended March 31, 2005 compared with the quarter ended March 31, 2004 due SJI-31 mainly to a significant uncollectible reserve adjustment following a bankruptcy declaration by one of SJE's industrial gas customers. Appliance Service Operations expenses increased as the business began independent operations in September 2004. Other Operating Expenses -- A summary of principal changes in other consolidated operating expenses for the three months ended March 31 (in thousands): 2005 vs. 2004 ------------- Maintenance $ 148 Depreciation (727) Energy and Other Taxes 286 Depreciation decreased for the three months ended March 31, 2005 compared with the three months ended March 31, 2004 due mainly to a reduction in SJG's depreciation expense resulting from lower depreciation rates approved by the BPU as part of its recent rate case settlement. SJG's composite depreciation rate was reduced from 2.9% to 2.4% effective July 2004. The increase in Energy and Other Taxes for the three months ended March 31, 2005 compared with the three months ended March 31, 2004 relates primarily to increases in taxable volumes of gas sold and transported by SJG and higher revenue-based taxes as reflected under the caption, "Operating Revenues -- Utility." Interest Charges -- Interest charges increased for the quarter ended March 31, 2005 compared to the quarter ended March 31, 2004 primarily due to higher average interest rates on short-term bank debt and higher levels of long-term fixed rate debt. The impact of these factors was partially mitigated by lower levels of short-term bank debt outstanding during the 2005 quarter. Debt is incurred primarily to expand and upgrade SJG's gas transmission and distribution system, to support seasonal working capital needs related to inventories and customer receivables, and to develop energy projects. Discontinued Operations -- The losses are primarily comprised of environmental remediation and product liability litigation associated with previously disposed businesses. Net Income -- Net income increased $2.4 million, or 10.0%, to $26.7 million for the quarter ended March 31, 2005 as compared with $24.3 million for the quarter ended March 31, 2004. We discuss the reasons for the increases in net income in detail above. Liquidity and Capital Resources -- Liquidity needs at SJI are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the Basic Gas Supply Service charge; working capital needs of our energy trading and marketing activities; the timing of construction and remediation expenditures and related permanent financings; mandated tax payment dates; and both discretionary and required repayments of long-term debt. SJI-32 Liquidity needs are first met with net cash provided by operating activities. Net cash provided by operating activities varies from year to year primarily due to the impact of weather on customer demand and related gas purchases, inventory utilization and gas cost recoveries. In addition to annual fluctuations, SJI's operations are also subject to seasonal fluctuations. Significant changes in the balances of current assets and current liabilities can occur from the end of one reporting period to another as evidenced by the changes on the condensed consolidated balance sheets. Cash inflows generally increase during the first quarter as a result of collections on winter season accounts receivable and the increased use of gas in storage to serve customers. Much of this cash is used to pay down short-term notes payable to banks and cover dividend requirements. SJI also ends each calendar year in a prepaid tax position due to mandatory prepayment requirements on all state taxes. Such prepayments are credited against amounts otherwise due during the first quarter; thus, further improving first quarter liquidity. Sales during the first quarter historically exceed any other quarter during the year. As a result, accounts receivable is generally at its highest as of March 31 as compared to any other quarter end. Unlike billed sales, customer receivables associated with unbilled revenue will track temperatures during the last month of the reporting period. As such, unbilled revenues will generally be highest at the end of the fourth quarter as weather is colder in the month of December compared with March, June, and September. We use short-term borrowings under lines of credit from commercial banks to supplement cash from operations, to support working capital needs and to finance capital expenditures as incurred. From time to time, we refinance short-term debt incurred to finance capital expenditures with long-term debt. Bank credit lines available to SJI totaled $266.0 million at March 31, 2005, of which $38.8 million, inclusive of $6.4 million of letters of credit, was used. Those bank facilities consist of a $100.0 million revolving credit facility that expires in August 2006, and $76.0 million of uncommitted bank lines available to SJG; and a $60.0 million revolving credit facility that expires in August 2007, and $30.0 million of uncommitted bank lines available to SJI. The amount of the revolving credit available to SJI was increased by $20.0 million and the expiration date was extended to 2007 in August 2004. We increased the SJI revolving credit in anticipation of greater working capital needs due to anticipated growth at our nonutility operations over the next two years. The revolving credit facilities contain certain financial covenants measured on a quarterly basis. SJI and SJG were in compliance with these covenants as of March 31, 2005. Based upon the existing credit facilities and a regular dialogue with our banks, we believe 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 used long-term debt, primarily in the form of First Mortgage Bonds and Medium Term Notes (MTN), secured by the same pool of utility assets, to finance its long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment. Under a $150.0 million MTN program established in December 2002, SJG issued SJI-33 $110.0 million of long-term debt in 2003. SJG issued the remaining $40.0 million of notes under the MTN program in August 2004 at an average interest rate of 5.66% and an average maturity of 17 years. We used the proceeds of all of the issues to refinance short-term debt outstanding to commercial banks and to redeem certain high interest bearing securities. In addition, SJG redeemed $15.0 million of its 7.7% MTN in July 2004. We anticipate establishing a new MTN program by mid-2005. 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 as it is the most cost-effective way to raise equity capital in the quantities we are seeking. Through the DRP, SJI raised $0.7 million of equity capital by issuing 14,053 shares for the three months ended March 31, 2005 and $36.2 million of equity capital by issuing 616,301 shares for the twelve months ended December 31, 2004. We anticipate raising a total of approximately $15.0 million of equity capital through the DRP in 2005. On March 30, 2005, SJG provided notice of its intent to redeem its Redeemable Cumulative Preferred 8% Series of preferred stock. The total amount outstanding as of the May 1, 2005 redemption date was $1.69 million. On March 3, 2005, the Board of Directors authorized an amendment to SJI's Certificate of Incorporation to increase the authorized number of shares of Common Stock from 20,000,000 shares to 60,000,000 shares. This authorization was approved by SJI's shareholders vote at SJI's annual meeting of shareholders held on April 21, 2005. The principal purpose of the increase is to permit a two-for-one split of all the issued shares of SJI's Common Stock with a record date of June 10, 2005. As the market price of SJI's shares of Common Stock has increased, our Board believes that a stock split would result in a market price for the Common Stock that would be more attractive to a broader spectrum of investors and, therefore, would benefit both SJI and our existing stockholders through greater liquidity in the market. SJI's Board of Directors also believes that it is advisable and in our best interest to have available additional authorized but unissued shares of Common Stock in an amount adequate to provide for our future needs. Our Board believes that the availability of additional authorized shares will enable it to act with flexibility when and as the need arises to issue additional shares in the future without the delays necessitated by having to obtain shareholder approval at that time. For further discussion on the approved stock split, see Note 3 to the condensed consolidated financial statements. SJI's capital structure, excluding preferred stock which was immaterial, was as follows: As of As of March 31, December 31, 2005 2004 ------ ----- Common Equity 51% 45% Long-Term Debt 44% 42% Short-Term Debt 5% 13% ----- ---- Total 100% 100% ===== ==== SJG's long-term, senior secured debt is rated "A" and "Baa1" by Standard & Poor's and Moody's Investor Services, respectively. These ratings have not changed in the past five years. SJI-34 SJG is restricted as to the amount of cash dividends or other distributions that may be paid on its common stock by an order issued by the BPU in July 2004, that granted SJG an increase in base rates. Per the order, SJG is required to maintain total common equity of no less than $289.0 million. SJG's total common equity balance was $323.5 million at March 31, 2005. 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. Construction and remediation expenditures for the three months ended March 31, 2005 amounted to $16.1 million. We estimate the net costs for 2005, 2006 and 2007 at approximately $87.2 million, $48.4 million and $46.0 million, respectively. Commitments and Contingencies -- SJI is obligated on the letters of credit supporting the Variable Rate Demand Bonds issued through the New Jersey Economic Development Authority by Marina. A syndicate of four commercial banks has issued $46.0 million of letters of credit to provide credit support for those bonds, the proceeds of which were used for 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 March 31, 2005. SJG has certain commitments for both pipeline capacity and gas supply for which it pays fees regardless of usage. Those commitments as of March 31, 2005 average $43.9 million annually and total $200.9 million over the contracts' lives. Approximately 24% of the financial commitment under these contracts expires during the next five years. We expect to renew each of these contracts under renewal provisions as provided in each contract. SJG recovers all prudently incurred fees through rates via the Basic Gas Supply Service clause. Also, as of March 31, 2005, SJI has issued four letters of credit totaling $6.4 million. Three of these letters were posted to two different utilities to enable SJE to market retail electricity within the respective utilities' service territories. The remaining letter was posted related to the construction activity of AC Landfill Energy, LLC. Off-Balance Sheet Arrangements -- SJI has no off-balance sheet financing arrangements. Parental Guarantees -- As of March 31, 2005, SJI had issued $226.0 million of parental guarantees on behalf of its subsidiaries. Of this total, $167.2 million expire within one year, $1.0 million expire between one and two years and $57.8 million have no expiration date. The vast majority of these guarantees were issued as guarantees of payment to third parties with whom our subsidiaries have commodity supply contracts. These contracts contain netting provisions which permit us to net the ultimate cash payment for monthly buys and sells from/to counterparties. As of March 31, 2005, these guarantees support future firm commitments and $49.1 million of the Accounts Payable recorded on our condensed consolidated balance sheet. As part of our risk management policy, we also require parental guarantees from trading counterparties as applicable. These arrangements are typical in our industry. SJI has also issued five parental guarantees totaling $30.2 million related to Marina's construction and operating activities. SJI-35 Pending Litigation -- SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to claims when we can determine the amount or range of amounts of likely settlement costs for those claims. SJI has been named in, among other actions, certain product liability claims related to our former sand mining subsidiary. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on SJI's financial position, results of operations or liquidity. Contract Modifications -- On September 27, 2004, Marina signed an agreement with the Borgata to amend the terms of the original contract dated December 12, 2000. As provided under this new agreement, Marina paid the Borgata $3.5 million on September 28, 2004 to remove the liquidating damages provision from the Energy Services Agreement and eliminate the requirement for a Letter of Credit from the Operations Agreement. The payment of $3.5 million is being amortized on a straight-line basis over the remaining term of the original 20-year contract. Prompted by its most recent expansion project, Borgata extended its agreement with Marina to provide increased energy services to its growing Atlantic City resort. The new 20-year contract covers service to both the existing and new facilities and significantly increases the demand for energy services provided by Marina. Borgata's 500,000 square foot expansion is expected to open by mid-2006. Marina expects to spend approximately $23.0 million to expand its Atlantic City, NJ thermal plant to serve the expanded resort. SJI-36 Item 3. Quantitative and Qualitative Disclosures About Market Risks of the Company (Unaudited) Commodity Market Risks -- Certain regulated and unregulated SJI 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. 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 activity daily. Generally, the derivative activities described above are entered into for risk management purposes. SJG and SJE transact commodities on a physical basis and typically do not enter into 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. As part of its gas purchasing strategy, SJG occasionally uses financial contracts to hedge against forward price risk. These contracts are recoverable through SJG's BGSS, subject to BPU approval. It is management's policy, to the extent practical, within predetermined risk management policy guidelines, to have limited 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 March 31, 2005, SJRG had $23.8 million of Accounts Receivable under sales contracts. Of that total, 83% were with companies rated investment-grade, were guaranteed by an investment-grade-rated parent or were with companies where we have a collateral arrangement. The remainder of the accounts receivable were within approved credit limits. SJRG and SJE entered into certain contracts to purchase, sell, and transport natural gas. For those derivatives not designated as hedges, we recorded the net unrealized pre-tax gain of $4.1 million and $2.0 million in earnings during the three months ended March 31, 2005 and 2004, respectively, which are included with realized gains and losses in Operating Revenues -- Nonutility. SJRG's and SJE's contracts are typically less than 12 months long. SJE entered into two longer-term gas supply contracts with two of its larger customers. These contracts were reviewed and approved by SJI's Risk Management Committee after being satisfied that our exposure to price and credit risk had been sufficiently mitigated. The fair value and maturity of all these energy trading and hedging contracts determined under the mark-to-market method as of March 31, 2005 is as follows (in thousands):
SJI-37 Assets Maturity Maturity Beyond Source of Fair Value < 1 Year 1 - 3 Years 3 Years Total ----------- ----------- ---------- ----------- Prices Actively Quoted NYMEX: Trading $ 6,350 $ 1,424 $ 323 $ 8,097 Hedging 8,713 143 -- 8,856 --------------------------------------------------- Subtotal 15,063 1,567 323 16,953 --------------------------------------------------- Other External Sources Basis: Trading 8,312 1,043 104 9,459 Hedging 526 -- -- 526 --------------------------------------------------- Subtotal 8,838 1,043 104 9,985 --------------------------------------------------- Total $ 23,901 $ 2,610 $ 427 $ 26,938 ===================================================
Liabilities Maturity Maturity Beyond Source of Fair Value < 1 Year 1 - 3 Years 3 Years Total -------- ------------ ---------- ----------- Prices Actively Quoted NYMEX: Trading $ 2,440 $ 1,406 $ 298 $ 4,144 Hedging 3 -- -- 3 --------------------------------------------------- Subtotal 2,443 1,406 298 4,147 --------------------------------------------------- Other External Sources Basis: Trading 3,241 289 29 3,559 Hedging 109 -- -- 109 --------------------------------------------------- Subtotal 3,350 289 29 3,668 --------------------------------------------------- Total $ 5,793 $ 1,695 $ 327 $ 7,815 ===================================================
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. A reconciliation of SJI's estimated net fair value of energy-related derivatives, including energy trading and hedging contracts, follows (in thousands): Net Derivatives -- Energy Related Assets, January 1, 2005 $ 9,037 Contracts Settled During Quarter Ended March 31, 2005, Net 1,918 Other Changes in Fair Value from Continuing and New Contracts, Net 8,168 ----------- Net Derivatives -- Energy Related Assets, March 31, 2005 $ 19,123 =========== Interest Rate Risk -- Our exposure to interest-rate risk relates primarily to short-term, variable rate borrowings. Short-term, variable rate debt outstanding at March 31, 2005 was $32.4 million and averaged $30.7 million during the first quarter of 2005. A hypothetical 100 basis point (1%) increase in interest rates on our average variable rate debt outstanding would result in a $181,100 increase in our annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of our average monthly interest rates from the beginning to end of each year was as follows: 2004 -- 115 b.p. increase; 2003 -- 28 b.p. decrease; 2002 - -- 74 b.p. decrease; 2001 -- 383 b.p. decrease; and 2000 -- 83 b.p. increase. For March 2005, our average interest rate on variable rate debt was 3.30%. SJI-38 SJG primarily issues long-term debt at fixed rates and, consequently, interest expense on existing debt is not significantly impacted by changes in market interest rates. SJG redeemed, at par, $7.5 million of 8.6% debenture notes in February 2005. In November 2004, SJG entered into a derivative transaction known as a "Treasury Lock" to hedge against the impact of possible interest rate increases on a $10.0 million, 30-year debt issuance by SJG planned for July 2005. The only other long-term debt outstanding, exclusive of that issued by the utility, consists of the New Jersey Economic Development Authority bonds used to finance the construction of Marina's thermal energy plant and long-term bank loans used to finance the construction of a landfill gas cogeneration project. The bonds for the thermal plant were issued at floating rates that reset weekly. Subsequent to issuance, we entered into interest rate swap contracts that, as of March 31, 2005, effectively fixed the rate on $20.0 million of tax-exempt debt at 4.08% through 2011; and fixed the rates on $9.0 million, $3.9 million, $8.0 million and $3.9 million of taxable debt at 4.55%, 4.62%, 4.80% and 4.78%, respectively. The swaps on the taxable debt expire at various times between 2005 and 2014. The long-term debt for the landfill gas cogeneration project totaled $2.0 million and amortizes over 15 years at fixed rates. SJI-39 Item 4. Controls and Procedures SJI management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. No change in SJI's internal control over financial reporting occurred during SJI's first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II -- OTHER INFORMATION Item l. Legal Proceedings Information required by this Item is incorporated by reference to Part I, Item 1, Note 11, beginning on page 23. Item 6. Exhibits (a) Exhibits Exhibit No. Description 3 South Jersey Industries Certificate of Amendment of the Certificate of Incorporation, dated May 5, 2005. 10 South Jersey Industries, Inc. 1997 Stock-Based Compensation Plan (as amended and restated effective April 21, 2005). 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act. SJI-40 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act. 32.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). 32.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). SJI-41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTH JERSEY INDUSTRIES, INC. (Registrant) Dated: May 10, 2005 By: /s/ Edward J. Graham ---------------------------------------------- Edward J. Graham Chairman, President & Chief Executive Officer Dated: May 10, 2005 By: /s/ David A. Kindlick ---------------------------------------------- David A. Kindlick Vice President & Chief Financial Officer SJI-42 EX-3 2 iex3.txt SJI CERTIFICATE OF AMENDMENT DATED MAY 5, 2005 SOUTH JERSEY INDUSTRIES, INC. Certificate of Amendment of the Certificate of Incorporation To: The Secretary of State of the State of New Jersey Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3) of Title 14A, Corporations, General, of the New Jersey Statutes, the undersigned corporation executes the following Certificate of Amendment of its Certificate of Incorporation. 1. The name of the corporation is South Jersey Industries, Inc. ("Company"). 2. The amendment to the Certificate of Incorporation, which is set forth in full in the following resolution, was duly adopted by the shareholders of the Company on April 21, 2005. RESOLVED, That upon receiving approval of shareholders of the Company, Article Third of the Company's Certificate of Incorporation would be amended and restated in its entirety as follows: "THIRD: The aggregate number of shares which the corporation shall have authority to issue is 62,500,000 shares, divided into two classes consisting of 60,000,000 shares of common stock ("Common Stock"), $1.25 par value per share, and 2,500,000 shares of preference stock ("Preference Stock"), without par value." 3. At the time of the action of the shareholders: a) The total outstanding stock of the Company consisted of 13,887,257 shares of Common Stock. b) The number of such shares entitled to vote was 13,887,257. 4. In the action taken by the shareholders: c) The number of shares voted in favor of the amendment was 11,964,571. d) The number of such shares voted against the amendment was 319,156. 5. Upon the record date of June 10, 2005, each of the then issued shares of Common Stock of the Company, par value $1.25 per share (including any shares thereof held in the treasury of the Company), shall be changed and reclassified into two shares of Common Stock of the Company, par value $1.25 per share. There shall then be issued to and in the name of each holder of such a certificate an additional certificate for the same number of shares of Common Stock of the Company, par value $1.25 per share, so that each such holder will hold certificates representing two shares of Common Stock of the Company, par value $1.25 per share, immediately after such record date for each one share of Common Stock of the Company, par value $1.25 per share, represented by certificates held by him immediately prior to such record date. 6. The effective date of the foregoing amendment to the Certificate of Incorporation of the Company shall be the close of business on May 5, 2005. Dated: May 5, 2005 SOUTH JERSEY INDUSTRIES, INC. By: /s/ Richard H. Walker, Jr. ------------------------------------- Richard H. Walker, Jr. VP, Corp. Counsel & Corp. Secretary EX-10 3 iex10.txt SJI 1997 STOCK-BASED COMPENSATION PLAN AS AMENDED SOUTH JERSEY INDUSTRIES, INC. 1997 STOCK-BASED COMPENSATION PLAN (As Amended and Restated Effective January 26, 2005) 1. Purpose Of Plan The purpose of the Plan is to enable the Company to recognize the contributions made to the Company by employees (including employees who are members of the Board of Directors) and non-employee directors of the Company by providing such persons with additional incentive to devote themselves to the future success of the Company and to improve the ability of the Company to attract, retain and motivate persons upon whom the Company's sustained growth and financial success depend, by: (i) providing incentive compensation opportunities competitive with those of other major companies; (ii) providing performance-related incentives that motivate superior performance; and (iii) providing such persons with the opportunity to acquire or increase their ownership interest in the Company and to thereby acquire a greater stake in the Company and a closer identity with it. 2. Definitions (a) "Award" means an award of Options, SARs, or Restricted Stock. (b) "Board" means the board of directors of the Parent Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means the committee described in Paragraph 5. (e) "Company" means South Jersey Industries, Inc. and each of its Subsidiary Companies. (f) "Date of Grant" means the date on which an Option, SAR or Restricted Stock Award is granted. (g) "Dividend Equivalent" means the right to receive the equivalent value (in Shares) of dividends that are paid on Restricted Stock and reinvested in Shares. (h) "Eligible Participant" means an employee of the Company or a director of the Parent Company as determined in accordance with Paragraph 7. (i) "Fair Market Value" means on any given date the mean between the highest and lowest prices of actual sales of Shares on the principal national securities exchange on which the Shares are listed on such date or, if there are no such sales on such date, the mean between the closing bid and asked prices of the Shares on such exchange on such date. (j) "Holder" means a person to whom (i) an SAR has been granted under the Plan, which SAR has not been exercised and has not expired or terminated, or (ii) a Restricted Stock Award has been granted, which Award has not become vested or been forfeited. (k) "Incentive Stock Option" means an Option granted under the Plan, designated by the Committee at the time of such grant as an Incentive Stock Option and containing the terms specified herein for Incentive Stock Options. (l) "Non-Qualified Option" means an Option granted under the Plan, designated by the Committee at the time of such grant as a Non-Qualified Option and containing the terms specified herein for Non-Qualified Options. (m) "Option" means any stock option granted under the Plan and described either in Paragraph 3(a) or 3(b). (n) "Optionee" means a person to whom an Option has been granted under the Plan, which Option has not been exercised and has not expired or terminated. (o) "Parent Company" means South Jersey Industries, Inc. (p) "Performance Goal" means the annual consolidated earnings per share from the Company's continuing operations, or any other goal that is established at the discretion of the Committee including, among other things: (i) the price of Shares, (ii) the market share of the Company (or any business unit thereof), (iii) sales by the Company (or any business unit thereof), (iv) return on equity of the Company, or (v) costs of the Company (or any business unit thereof). The Committee shall have sole discretion to determine specific targets within each category of Performance Goals. (q) "Restriction Period" means the period during which Restricted Stock awarded under the Plan is subject to forfeiture. (r) "Restricted Stock" means Shares awarded by the Company under Paragraph 11 of the Plan and described in Paragraph 3(d). (s) "SAR" means a stock appreciation right granted under the Plan and described in Paragraph 3(c). (t) "Share" or "Shares" means a share or shares of Common Stock of the Parent Company. (u) "Subsidiary Companies" means all corporations that, at the time in question, are subsidiary corporations of the Parent Company within the meaning of section 425(f) of the Code. (v) "Ten Percent Shareholder" means a person who on the Date of Grant owns, either directly or within the meaning of the attribution rules contained in section 425(d) of the Code, stock possessing more than ten percent of the total combined voting power of all classes of stock of his or her employer corporation or of its parent or subsidiary corporations, as defined respectively in sections 425(e) and (f) of the Code. (w) "Value" of a SAR means the excess of the Fair Market Value of a Share on the date of exercise of such SAR over the Fair Market Value of a Share on the Date of Grant of such SAR. 3. Rights To Be Granted Rights that may be granted under the Plan are: (a) Incentive Stock Options, which give the Optionee the right for a specified time period to purchase a specified number of Shares for a price not less than their Fair Market Value on the Date of Grant; (b) Non-Qualified Options, which give the Optionee the right for a specified time period to purchase a specified number of Shares for a price determined by the Committee on the Date of Grant; (c) SARs, which give the Holder the right for a specified time period, without payment to the Company, to receive the Value of such SARs, to be paid in cash or Shares or a combination of cash and Shares, the number and amount of which shall be determined pursuant to Paragraph 8(e) below. (d) Restricted Stock Awards, which give the Holder a specific number of Shares which are either (i) awarded upon the Company's achievement of Performance Goals established by the Committee, or (ii) awarded, subject to forfeiture if the Company fails to achieve Performance Goals established by the Committee. 4. Stock Subject To Plan Not more than 1,000,000 Shares in the aggregate may be delivered pursuant to the Plan upon exercise of Options or SARs or pursuant to Restricted Stock Awards. The Shares so delivered may, at the option of the Company, be either treasury Shares or Shares originally issued for such purpose. If an Option or an SAR covering Shares terminates or expires without having been exercised in whole or in part, other Options or SARs may be granted covering the Shares as to which the Option or SAR was not exercised. If a Restricted Stock Award is forfeited, other Restricted Stock Awards may be granted covering the Shares which were forfeited. 5. Administration Of Plan The Plan shall be administered by the Compensation/Pension Committee of the Board or such other committee, consisting of two or more directors who, unless the Board determines otherwise, are "outside directors" (within the meaning of Section 162(m) of the Code) and "non-employee directors" (within the meaning of Rule 16b-3(b)(3)(i) under the Securities Exchange Act of 1934) as may be determined by the Board. 6. Grant of Rights The Committee may grant Options, SARs, Restricted Stock Awards or all of the foregoing to Eligible Participants. 7. Eligibility (a) An Option may be granted to those Eligible Participants who are designated by the Committee as eligible to receive an Option. (b) An Incentive Stock Option shall not be granted to a Ten Percent Shareholder except on such terms concerning the option price and period of exercise as are provided in Paragraphs 8(a) and 8(f) with respect to such a person. A Non-Qualified Option shall not be granted to a Ten Percent Shareholder. (c) A Restricted Stock Award may be granted to those Eligible Participants who are designated by the Committee as eligible to receive a Restricted Stock Award. (d) No Eligible Participant may be granted in any calendar year Awards covering more than 300,000 Shares. 8. Option and SAR Agreements and Terms All Options and SARs shall be granted within ten years from January 26, 2005 and be evidenced by Option agreements or SARs agreements which shall be executed on behalf of the Parent Company and by the respective Optionees or Holders. The terms of each such agreement shall be determined from time to time by the Committee, consistent, however, with the following: (a) Option Price. The option price per Share shall be determined by the Committee but, in the case of Incentive Stock Option, shall not be less than 100% of the Fair Market Value of such Share on the Date of Grant. With respect to any Incentive Stock Option granted to a Ten Percent Shareholder, the option price per Share shall not be less than 110% of the Fair Market Value of such Share on the Date of Grant. (b) Restrictions on Transferability. No Option or SAR shall be transferable otherwise than by will or the laws of descent and distribution and, during the lifetime of the Optionee or Holder, shall be exercisable only by him or her. Upon the death of an Optionee or Holder, the person to whom the rights shall have passed by will or by the laws of descent and distribution may exercise any Options or SARs only in accordance with the provisions of Paragraph 8(f). (c) Payment Upon Exercise of Options. Full payment for Shares purchased upon the exercise of an Option shall be made in cash or, at the election of the Optionee and as the Committee may, in its sole discretion, approve, either (i) by surrendering Shares with an aggregate Fair Market Value equal to the aggregate option price, (ii) by delivering such combination of Shares and cash as the Committee may, in its sole discretion, approve or (iii) at the election of the Optionee, and if the Committee, in its sole discretion approves, by surrendering the Option in exchange for issuance of a number of shares equal to the difference between the exercise price of the Option and the Fair Market Value of the Shares subject to the Option. (d) Issuance of Certificates Upon Exercise of Options; Payment of Cash. Only whole Shares shall be issuable upon exercise of Options. Any right to a fractional Share shall be satisfied in cash. Upon payment of the option price, a certificate for the number of whole Shares and a check for the Fair Market Value on the date of exercise of any fractional Share to which the Optionee is entitled shall be delivered to such Optionee by the Parent Company; provided, however, that in the case of the exercise of a Non-Qualified Option, the Optionee has remitted to his employer an amount, determined by such employer, necessary to satisfy applicable federal, state or local tax-withholding requirements, or made other arrangements with his or her employer for the satisfaction of such tax-withholding requirements. The Parent Company shall not be obligated to deliver any certificates for Shares until such Shares have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which outstanding Shares of such class at the time are listed nor until there has been compliance with such laws or regulations as the Parent Company may deem applicable. The Parent Company shall use its best efforts to effect such listing and compliance. (e) Issuance of Certificates Upon Exercise of SARs; Payment of Cash. Upon exercise of an SAR, its Value shall be payable in cash, or in Shares or such combination of cash and Shares as is selected by the Holder and approved by the Committee in its sole discretion. Any Shares that may be due upon exercise of an SAR shall be delivered to the Holder by the Parent Company and any payment of cash shall be made by the employer of the Holder. The employer of the Holder shall deduct from the amount of any cash so payable an amount necessary to satisfy applicable federal, state, or local tax-withholding requirements. If no cash is payable (or if the amount of cash payable is insufficient to satisfy applicable tax-withholding requirements), no Shares shall be delivered by the Parent Company to the Holder until the Holder remits to his or her employer an amount, determined by such employer, necessary to satisfy applicable federal, state, or local tax-withholding requirements or makes other arrangements for the satisfaction of such tax-withholding requirements. The Parent Company shall not be obligated to deliver any certificates for Shares until such Shares have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which outstanding Shares of such class at the time are listed nor until there has been compliance with such laws or regulations as the Parent Company may deem applicable. The Parent Company shall use its best efforts to effect such listing and compliance. (f) Periods of Exercise of Options and SARs. An Option or SAR shall be exercisable in whole or in part at such time as may be determined by the Committee and stated in the Option or SAR agreement; provided, however, that, unless otherwise determined by the Committee, no Option or SAR shall be exercisable before one year or after five years from the Date of Grant in the case of an Option or SAR granted to a Ten Percent Shareholder, or before one year or after ten years from the Date of Grant in all other cases, except as provided below: (i) In the event that an Optionee or Holder ceases to be employed by the Company for any reason other than retirement, disability (as determined by the Committee) or death, any Option or SAR held by such Optionee or Holder shall not be exercisable after the date the Optionee or Holder ceases to be employed by the Company unless otherwise determined by the Committee and set forth in the Option or SAR agreement or a written amendment thereto; provided, however, that in no event shall an Option or SAR be exercisable after five years from the Date of Grant in the case of a Ten Percent Shareholder or after ten years from the Date of Grant in all other cases; (ii) If an Optionee or Holder ceases to be employed by the Company, and if such cessation of employment is due to the disability (as determined by the Committee) or the retirement of the Optionee or Holder, he or she shall have the right to exercise his or her Options or SARs until the last day of the sixth month following cessation of employment, or such longer period as the Committee may determine and set out in writing, even if the date of exercise is within any time period prescribed by the Plan prior to which such Option or SAR shall not be exercisable; provided, however, that in no event shall an Option or SAR be exercisable after five years from the Date of Grant in the case of a Ten Percent Shareholder or after ten years from the Date of Grant in all other cases; (iii) In the event that an Optionee or Holder ceases to be employed by the Company by reason of his or her death, any Incentive Stock Option, Non-Qualified Option or SAR held by such Optionee or Holder shall be exercisable, the person to whom the rights of the Optionee shall be passed by will or by the laws of descent and distribution, until the last day of the twelfth month following the date of the Optionee's or Holder's death, or such longer period as the Committee may determine and set out in writing, even if the date of exercise is within any time period prescribed by the Plan prior to which such Option or SAR shall not be exercisable; provided, however, that in no event shall an Option or SAR be exercisable after five years from the Date of Grant in the case of a Ten Percent Shareholder or after ten years from the Date of Grant in all other cases. (g) Date of Exercise. The date of exercise of an Option or SAR shall be the date on which written notice of exercise, addressed to the Parent Company at its main office to the attention of its Secretary, is hand delivered, telecopied or mailed, first class postage prepaid; provided, however, that the Parent Company shall not be obligated to deliver any certificates for Shares pursuant to the exercise of an Option or SAR until the Optionee shall have made payment in full of the option price for such Shares. Each such exercise shall be irrevocable when given. Each notice of exercise must (i) specify the Incentive Stock Option, Non-Qualified Option, SAR, or combination thereof, being exercised; (ii) must, in the case of the exercise of an Option, include a statement of preference (which shall not be binding on the Committee) as to the manner in which payment to the Parent Company shall be made (Shares or cash or a combination of Shares and cash); and (iii) must, in the case of the exercise of an SAR, include a statement of preference (which shall not be binding on the Committee) as to the manner in which payment to the Holder shall be made other than only in cash (Shares or cash or a combination of Shares and cash). (h) Termination of Employment. For purposes of the Plan, a transfer of an employee between two employers, each of which is a Company, shall not be deemed a termination of employment. (i) Multiple Grants of Incentive Stock Options, Non-Qualified Options and SARs. The grant, exercise, termination or expiration of any Incentive Stock Option, Non-Qualified Option or SAR shall have no effect upon any other Incentive Stock Option, Non-Qualified Option or SAR held by the same Optionee or Holder; provided, however, that the Committee may, in its sole discretion, provide in the Option agreement or SARs agreement that the exercise of a certain number of SARs is conditioned upon the exercise of a certain number of Options or provide that an SAR shall otherwise be attached to Options granted under the Plan. All SARs which are attached to Options shall be subject to the following terms: (A) such SAR shall expire no later than the Option to which it is attached; (B) such SAR shall be for an amount no more than the excess of the Fair Market Value of the Shares subject to the attached Option on the date such SAR is exercised over the option price of such Option; (C) such SAR shall be subject to the same restrictions on transferability as the Option to which it is attached; (D) such SAR shall be exercisable only when the Option to which it attached is eligible to be exercised; (E) such SAR shall be exercisable only when the Fair Market Value of the Shares subject to the attached Option exceeds the option price of such Option; and (F) such SAR shall expire upon the exercise of the Option to which it is attached. Upon exercise of an SAR which is attached to an Option, the Option to which the SAR is attached shall expire. 9. Limitation on Grant of Incentive Stock Options The aggregate Fair Market Value (determined as of the time options are granted) of the Shares for which any employee may be granted Incentive Stock Options that first become exercisable in any one calendar year under the Plan and any other plan of his or her employer corporation and its parent and subsidiary corporations, as defined respectively in Sections 425(e) and (f) of the Code, shall not exceed $100,000. 10. Rights As Shareholders With Respect to Options and SARs Neither an Optionee nor a Holder shall have any right as a shareholder with respect to any Shares subject to his or her Options or SARs until the date of the issuance of a stock certificate to him or her for such Shares. 11. Restricted Stock Awards The grant of a Restricted Stock Award shall be subject to the following terms and conditions: (a) Grant of Restricted Stock Award. Any Restricted Stock granted under the Plan shall be evidenced by an agreement executed by the Company and the Holder, which agreement shall conform to the requirements of the Plan, and shall specify (i) the number of Shares subject to the Award, (ii) the Restriction Period applicable to each Award, (iii) the events that will give rise to a forfeiture of the Award, (iv) the Performance Goals that must be achieved in order for the restriction to be removed from the Award, (v) the extent to which the Holder's right to receive the Shares under the Award will be forfeited if the Performance Goals are not met, and (vi) whether the Restricted Stock is subject to a vesting schedule. The agreement may contain such other provisions not inconsistent with the terms of the Plan as the Committee shall deem advisable. (b) Delivery of Restricted Stock. Upon determination of the number of shares of Restricted Stock that are to be granted to the Holder, the Committee shall direct that a certificate or certificates representing the number of Shares be issued to the Holder with the Holder designated as the registered owner. The certificate(s) representing such shares shall be legended as to restrictions on the sale, transfer, assignment, or pledge of the Restricted Stock during the Restriction Period and deposited by the Holder, together with a stock power endorsed in blank, with the Company. (c) Dividend Equivalents. Notwithstanding any provision of the Plan to the contrary, a Holder who has been granted a Restricted Stock Award pursuant to this Paragraph 11 may, at the discretion of the Committee, be credited as of dividend payment dates during the Restriction Period with Dividend Equivalents with respect to the Shares underlying the Restricted Stock Award. Such Dividend Equivalents shall be credited to an account established on behalf of the Holder by the Company. The Dividend Equivalents credited under this Paragraph (c) shall be notionally reinvested in Shares and shall be converted into additional Shares under such formula, at such time, and subject to such limitations as may be determined by the Committee. (d) Receipt of Common Stock. At the end of the Restriction Period, the Committee shall determine, in light of the terms and conditions set forth in the Restricted Stock agreement, the number of shares of Restricted Stock with respect to which the restrictions imposed hereunder shall lapse. The Restricted Stock with respect to which the restrictions shall lapse shall be converted to unrestricted Shares by the removal of the restrictive legends from the Restricted Stock. Thereafter, Shares equal to the number of shares of the Restricted Stock with respect to which the restrictions hereunder shall lapse shall be delivered to the Holder. The Committee may, in its sole discretion, modify or accelerate the vesting and delivery of shares of Restricted Stock. (e) Termination By Reason of Death, Disability or Retirement. Unless otherwise determined by the Committee, if a Holder ceases to be employed by the Company and such cessation of employment is due to the Holder's death, disability (as determined by the Committee) or retirement, the vested portion of the Restricted Stock, if any, shall become nonforfeitable. The non-vested portion of the Restricted Stock shall be forfeited as of the date of such termination of employment. (f) Other Termination. Unless otherwise determined by the Committee at the time of grant, if a Holder ceases to be employed by the Company and such cessation of employment is due to any reason other than for death, disability (as determined by the Committee), or retirement, any Restricted Stock with respect to which the Restriction Period has not expired shall be forfeited. 12. Changes in Capitalization In the event of a stock dividend, stock split, recapitalization, combination, subdivision, issuance of rights, or other similar corporate change, the Board shall make appropriate adjustments in the aggregate number of Shares that may be covered by Options, SARs or Restricted Stock Awards under the Plan, the number of Shares subject to, and the option price of, each then-outstanding Option, the number of then-outstanding SARs and the Fair Market Value of Shares upon which the Value of such SARs is based, and the number of Shares subject to each then-outstanding Restricted Stock Award. 13. Mergers, Dispositions and Certain Other Transactions If, during the term of any Option or SAR, or during the Restricted Period of any Restricted Stock Award, the Parent Company or any of the Subsidiary Companies shall be merged into or consolidated with or otherwise combined with or acquired by another person or entity, or there is a divisive reorganization or a liquidation or partial liquidation of the Parent Company, the Parent Company may choose to take no action with regard to the Options, SARs or Restricted Stock Awards outstanding or, notwithstanding any other provision of the Plan, to take any of the following courses of action: (a) Not less than 15 days or more than 60 days prior to any such transaction, all Optionees and Holders shall be notified that their Options and SARs shall expire on the 15th day after the date of such notice, in which event all Optionees and Holders shall have the right to exercise all of their Options and SARs prior to such new expiration date; or (b) The Parent Company shall provide in any agreement with respect to any such merger, consolidation, combination or acquisition that the surviving, new or acquiring corporation shall grant options and stock appreciation rights to the Optionees and Holders to acquire shares, or stock appreciation rights in shares in such corporation with respect to which the excess of the fair market value of the shares of such corporation immediately after the consummation of such merger, consolidation, combination or acquisition over the option price, or the value of such stock appreciation rights, shall not be greater than the excess of the Fair Market Value of the Shares over the option price of Options (or, in the case of an SAR, the Value of such SAR) , immediately prior to the consummation of such merger, consolidation, combination or acquisition; or (c) The Parent Company shall provide that all Restricted Stock Awards that are outstanding on the date of the merger, consolidation, combination or acquisition shall become nonforfeitable or immediately payable in cash; or (d) The Parent Company shall take such other action as the Board shall determine to be reasonable under the circumstances in order to permit Optionees and Holders to realize the value of rights granted to them under the Plan. 14. Plan Not To Affect Employment Neither the Plan nor any Award shall confer upon any employee of the Company any right to continue in the employment of the Company. 15. Interpretation The Committee shall have the power to interpret the Plan and to make and amend rules for putting it into effect and administering it. It is intended that the Incentive Stock Options granted under the Plan shall constitute incentive stock options within the meaning of section 422A of the Code, that the Non-Qualified Options and Restricted Stock Awards shall constitute property subject to federal income tax pursuant to the provisions of section 83 of the Code and that the Plan shall qualify for the exemption available under Rule 16b-3 (or any similar rule) of the Securities and Exchange Commission. The provisions of the Plan shall be interpreted and applied insofar as possible to carry out such intent. 16. Amendments (a) The Plan may be amended by the Board, but any amendment that increases the aggregate number of Shares that may be issued pursuant to the Plan upon exercise of Options or SARs or upon the grant of a Restricted Stock Award (otherwise than pursuant to Paragraph 12), that changes the class of Eligible Participants, or that otherwise requires the approval of the shareholders of the Parent Company in order to maintain the exemption available under Rule 16b-3 (or any similar rule) of the Securities Exchange Act of 1934, shall require the approval of the holders of such portion of the shares of the capital stock of the Parent Company present and entitled to vote on such amendment as is required by applicable state law and the terms of the Parent Company's Articles of Incorporation, as then in effect, to make the amendment effective. No outstanding Option, SAR or Restricted Stock Award shall be affected by any such amendment without the written consent of the Optionee, Holder, or other person then entitled to exercise such Option or SAR or receive Shares pursuant to such Restricted Stock Award. (b) Subject to the provisions of the Plan, the Committee may amend any Option agreement, SARs agreement or Restricted Stock agreement, subject to the consent of the affected Optionee or Holder if such amendment is not favorable to the Optionee or Holder or if such amendment has the effect of changing an Incentive Stock Option to a Non Qualified Option, except that the consent of the Optionee or Holder shall not be required for any amendment made pursuant to Paragraph 13 hereof. 17. Compliance with Section 162(m) of the Code This Plan is intended to comply with Section 162(m) of the Code with respect to qualified performance-based Awards that may be awarded by the Committee to Eligible Participants. For this purpose, an Award shall constitute qualified performance-based compensation to the extent that it is granted by the Committee on account of the attainment of one or more preestablished, objective performance goals established by the Committee, the material terms of which are disclosed to the shareholders of the Parent Company and satisfaction of such performance goals are certified by the Committee. 18. Securities Laws The Committee shall have the power to make each Award under the Plan subject to such conditions as it deems necessary or appropriate to comply with the then-existing requirements of the Securities Act of 1933 or the Securities Exchange Act of 1934, including Rule 16b-3 (or any similar rule), of the Securities and Exchange Commission. 19. Effective Date and Term of Plan The Plan shall expire no later than January 26, 2015, unless sooner terminated by the Board. Any Incentive Stock Option granted before the approval of the Plan by the Parent Company's shareholders shall be expressly conditioned upon, and shall not be exercisable until, such shareholder approval. 20. General Each Option, SAR or Restricted Stock Award shall be evidenced by a written instrument containing such terms and conditions not inconsistent with the Plan as the Committee may determine. The issuance of Shares on the exercise of an Option or SAR, or pursuant to a Restricted Stock Award, shall be subject to all of the applicable requirements of the New Jersey Business Corporation Act and other applicable laws, including federal or state securities laws, and all Shares issued under the Plan shall be subject to the terms and restrictions contained in the Articles of Incorporation of the Parent Company, as amended from time to time. Among other things, the Optionee or Holder may be required to deliver an invest-ment representation to the Company in connection with any exercise of an Option or SAR, or in connection with the receipt of Shares pursuant to a Restricted Stock Award, or to agree to refrain from selling or otherwise disposing of the Shares required for a specified period of time or on specified terms. 21. Indemnification Service on the Committee shall constitute service as a member of the Board. Each member of the Committee shall be entitled, without further act on his or her part, to indemnity from the Parent Company and limitation of liability to the fullest extent provided by applicable law and by the Parent Company's Articles of Incorporation and/or By laws in connection with or arising out of any action, suit or proceeding with respect to the administration of the Plan or the granting of Awards hereunder in which he or she may be involved by reason of his or her being or having been a member of the Committee, whether or not he or she continues to be such member of the Committee at the time of the action, suit or proceeding. EX-31.1 4 iex311.txt SJI CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 31.1 CERTIFICATION I, Edward J. Graham, certify that: 1. I have reviewed this report on Form 10-Q for the period ended March 31, 2005, of South Jersey Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 10, 2005 /s/ Edward J. Graham ---------------------------------------- Edward J. Graham Chairman, President & Chief Executive Officer EX-31.2 5 iex312.txt SJI CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 31.2 CERTIFICATION I, David A. Kindlick, certify that: 1. I have reviewed this report on Form 10-Q for the period ended March 31, 2005, of South Jersey Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 10, 2005 /s/ David A. Kindlick -------------------------------------------- David A. Kindlick Vice President & Chief Financial Officer EX-32.1 6 iex321.txt SJI CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q of South Jersey Industries, Inc. (the "Company") for the period ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward J. Graham, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Edward J. Graham - ------------------------------------ Name: Edward J. Graham Title: Chief Executive Officer May 10, 2005 EX-32.2 7 iex322.txt SJI CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q of South Jersey Industries, Inc. (the "Company") for the period ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David A. Kindlick, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ David A. Kindlick - ------------------------------------- Name: David A. Kindlick Title: Chief Financial Officer May 10, 2005 -----END PRIVACY-ENHANCED MESSAGE-----