U-3A-2 1 u3a201.txt SOUTH JERSEY INDUSTRIES FORM U-3A-2 P/E 12/31/01 FILE NO. _____________ FORM U-3A-2 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC STATEMENT BY HOLDING COMPANY CLAIMING EXEMPTION UNDER RULE U-3A-2 FROM THE PROVISIONS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 TO BE FILED ANNUALLY PRIOR TO MARCH 1 SOUTH JERSEY INDUSTRIES, INC. hereby files with the Securities and Exchange Commission, pursuant to Rule 2, its statement claiming exemption as a holding company from the provisions of the Public Utility Holding Company Act of 1935. In support of such claim for exemption, the following information is submitted: 1. Name, State of organization, location and nature of business of claimant and every subsidiary thereof other than any exempt wholesale generator (EWG) or foreign utility company in which claimant directly or indirectly holds an interest. The claimant, South Jersey Industries, Inc. (SJI), was organized under the laws of the State of New Jersey; its principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. SJI is not a public utility company. It is primarily engaged in the business of owning and holding a majority interest in other business enterprises. SJI owns all of the outstanding common stock of South Jersey Gas Company (SJG), which was organized under the laws of the State of New Jersey. SJG's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. SJG is a public utility company engaged in the purchase, transmission and sale of natural and mixed gases for residential, commercial, and industrial use in an area of approximately 2,500 square miles in the southern part of New Jersey. SJG also makes off-system sales of natural gas on a wholesale basis to various customers on the interstate pipeline system and transports natural gas purchased directly from producers or suppliers for its own sales and for some of its customers. SJG also assigns or buys capacity for the purchase or transportation of natural gas. - 1 - SJI has a 100% ownership interest in South Jersey Resources Group, LLC (SJRG) which was formed on April 1, 1996 under the laws of the State of Delaware. SJRG's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. SJRG is not a public utility company. It provides services for the sale of natural gas to energy marketers, electric and gas utilities and other wholesale users in the mid-Atlantic and southern regions of the country. SJI owns all of the outstanding common stock of South Jersey Energy Company (SJE), which was organized on January 15, 1973 under the laws of the State of New Jersey. SJE's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. SJE is not a public utility company. SJE provides services for the acquisition, sale and transportation of natural gas and electricity for industrial, commercial and residential users and markets total energy management services. SJE also markets an air quality monitoring system that tests for hazardous airborne particulate on a real-time basis through AirLogics, LLC. SJE owns a 50% interest in AirLogics, LLC (AirLogics), a joint venture with GZA GeoEnvironmental, Inc., formed on April 1, 2000 under the laws of the State of Delaware. AirLogics' principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. AirLogics is not a public utility company. It markets a proprietary air monitoring system designed to assist companies involved in environmental clean-up activities. SJE owns all of the outstanding common stock of SJ EnerTrade, Inc. (EnerTrade) which was formed on October 22, 1997 under the laws of the State of New Jersey. EnerTrade's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. EnerTrade is not a public utility company. It provides services for the sale of natural gas to the casino industry in Atlantic City, New Jersey. SJE also has a 50% investment in South Jersey Energy Solutions, LLC (SJES), a joint venture with Energy East Solutions, Inc. formed June 1, 1999 under the laws of the State of Delaware. SJES's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. SJES is not a public utility company. It sells electricity on a retail basis in the mid-Atlantic states. SJI owns a 50% interest in Millennium Account Services, LLC (Millennium), a joint venture with Conectiv Solutions, LLC formed January 4, 1999 under the laws of the State of Delaware. Millennium's principal location is 2 Regulus Drive, Suite B, Turnersville, New Jersey 08012. Millennium is not a public utility company. It provides meter reading services in southern New Jersey. SJI owns all of the outstanding common stock of Marina Energy LLC (Marina) which was formed on October 1, 2000 under the laws of the State of New Jersey. Marina's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. Marina was established to develop energy related projects in southern New Jersey. Marina is not a public utility company. - 2 - SJI owns all of the outstanding common stock of Energy & Minerals, Inc. (EMI), which was organized under the laws of the State of New Jersey. EMI's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. EMI is not a public utility company. It principally owns real estate and the stock of an inactive nonutility subsidiary. EMI owns all of the outstanding common stock of South Jersey Fuel, Inc. (SJF), which was organized under the laws of the State of New Jersey. SJF's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. SJF is not a public utility company and is presently inactive. SJI owns all of the outstanding common stock of R&T Group, Inc. (R&T), which was organized under the laws of the State of New Jersey. R&T's principal location is 1 South Jersey Plaza, Folsom, New Jersey 08037. R&T is not a public utility company. It holds the remaining assets and liabilities of certain nonutility subsidiaries of SJI which were merged into R&T in 1997. R&T is presently inactive. Neither the claimant or any of its subsidiaries is an EWG nor do they hold a direct or indirect interest in a foreign utility company. 2. A brief description of the properties of claimant and each of its subsidiary public utility companies used for the generation, transmission, and distribution of electric energy for sale, or for the production, transmission, and distribution of natural or manufactured gas, indicating the location of principal generating plants, transmission lines, producing fields, gas manufacturing plants, and electric and gas distribution facilities, including all such properties which are outside the State in which claimant and its subsidiaries are organized and all transmission or pipelines which deliver or receive electric energy or gas at the borders of such State. SJI does not own directly any properties used for the production, transmission, and distribution of natural or manufactured gas or electric energy. The properties of SJG used for the production, transmission, and distribution of natural or manufactured gas include mains, service connections and meters, supplemental gas storage facilities, and an LNG storage and vaporization facility, all of which are located in the State of New Jersey (except that certain gas owned by SJG is stored outside the State and transported when needed). There are 5,200 miles of distribution mains. There are 92 miles of mains in the transmission system. No pipelines of SJG deliver or receive gas at the borders of the State of New Jersey. 3. The following information for the last calendar year with respect to claimant and each of its subsidiary public utility companies: (a) Number of Kwh of electric energy sold (at retail or wholesale) and Mcf of natural or manufactured gas distributed at retail. - 3 - During 2001, SJG distributed at retail to residential, commercial and industrial customers 26,908 MMcf of natural or manufactured gas and transported 24,723 MMcf of natural gas purchased directly by its industrial, residential and commercial customers. Retail distribution revenues were $291.1 million and transportation revenues were $30.8 million. SJG also sold 4,211 MMcf, or $20.0 million, of natural gas at wholesale for resale within the State of New Jersey. (b) Number of Kwh of electric energy and Mcf of natural or manufactured gas distributed at retail outside the State in which each company is organized. None (c) Number of Kwh of electric energy and Mcf of natural or manufactured gas sold at wholesale outside the State in which each such company is organized, or at the State line. During 2001, SJG sold 25,906 MMcf, or $125.6 million, of natural gas at wholesale to customers outside the borders of the State of New Jersey. Also, throughput related to capacity release amounted to 27,187 MMcf, or $5.6 million in revenues, in 2001. (d) Number of Kwh of electric energy and Mcf of natural or manufactured gas purchased outside the State in which each such company is organized or at the State line. During 2001, SJG purchased approximately 58,913 MMcf of natural gas from out-of-state sources at a total cost, including related expenses, of $335.8 million. During 2001, SJG purchased and had delivered to it approximately 202 MMcf of liquefied natural gas by over-the-road truck transport to SJG's LNG Storage and Vaporization facility at McKee City, Atlantic County, New Jersey, at a cost of $1.8 million. 4. The following information for the reporting period with respect to claimant and each interest it holds directly or indirectly in an EWG or a foreign utility company, stating monetary amounts in United States dollars: (a) Name, location, business address and description of the facilities used by the EWG or foreign utility company for the generation, transmission and distribution of electric energy for sale or for the distribution at retail of natural or manufactured gas. The claimant has no direct or indirect interest or investment of any kind in, or has any sales, service or construction contracts of any kind with, an EWG or a foreign utility company. - 4 - (b) Name of each system company that holds an interest in such EWG or foreign utility company; and description of the interest held. No system company holds any direct or indirect interest in an EWG or foreign utility company. (c) Type and amount of capital invested, directly or indirectly, by the holding company claiming exemption; any direct or indirect guarantee of the security of the EWG or foreign utility company by the holding company claiming exemption; and any debt or other financial obligation for which there is recourse, directly or indirectly, to the holding company claiming exemption or another system company, other than the EWG or foreign utility company. The claimant holding company has no capital invested, directly or indirectly; nor does it directly or indirectly guarantee any security debt of an EWG or foreign utility company; nor debt or other financial obligation for which there is recourse, directly or indirectly, to the holding company claiming exemption on another system company. (d) Capitalization and earnings of the EWG or foreign utility company during the reporting period. None (e) Identify any service, sales or construction contract(s) between the EWG or foreign utility company and a system company, and describe the services to be rendered or goods sold and fees or revenues under such agreement(s). None - 5 - EXHIBIT A A consolidating statement of income and retained earnings of the claimant and its subsidiary companies for the last calendar year, together with a consolidating balance sheet of claimant and its subsidiary companies as of the close of such calendar year. The above-named claimant has caused this statement to be duly executed on its behalf by its authorized officer on this 28th day of February 2002. SOUTH JERSEY INDUSTRIES, INC. /s/ David A. Kindlick DAVID A. KINDLICK Vice President, Treasurer & Chief Financial Officer CORPORATE SEAL ATTEST: /s/ George L. Baulig GEORGE L. BAULIG Vice President & Corporate Secretary Name, title and address of officer to whom notices and correspondence concerning this statement should be addressed: George L. Baulig, Vice President & Corporate Secretary South Jersey Industries, Inc. 1 South Jersey Plaza Folsom, New Jersey 08037 - 6 - EXHIBIT B EWG ORGANIZATIONAL CHART Not applicable. See response to Item 4. - 7 - SOUTH JERSEY INDUSTRIES, INC. CONSOLIDATING STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands)
South South South South Jersey Jersey Jersey Energy & Jersey Gas Energy Resources Marina Minerals R & T Elimin. Indust. Company Company Group Energy Inc. Group & Consd. Inc. Consd. Consd. LLC LLC Consd. Inc. Total Adjust. Total -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Operating Revenues: Utility $0 $475,918 $0 $0 $0 $0 $0 $475,918 ($30,258)[C]$445,660 Nonutility 2,372 0 94,629 367,086 15 158 0 464,260 (72,579)[C] 391,681 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Total Operating Revenues 2,372 475,918 94,629 367,086 15 158 0 940,178 (102,837) 837,341 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Operating Expenses: Cost of Gas Sold - Utility 0 335,783 0 0 0 0 0 335,783 (30,196)[C] 305,587 Cost of Sales - Nonutility 0 0 88,149 360,793 0 0 0 448,942 (70,465)[C] 378,477 Operations 1,549 40,423 2,449 1,516 0 35 0 45,972 (1,341)[C] 44,631 Maintenance 0 7,771 0 0 0 0 0 7,771 0 7,771 Depreciation 57 21,136 16 0 0 0 0 21,209 0 21,209 Energy and Other Taxes 154 10,396 46 0 0 9 0 10,605 0 10,605 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Total Operating Expenses 1,760 415,509 90,660 362,309 0 44 0 870,282 (102,002) 768,280 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Operating Income 612 60,409 3,969 4,777 15 114 0 69,896 (835) 69,061 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Other Income: Equity in Affiliated Companies 566 0 138 0 0 0 0 704 0 704 Dividends from Subsidiaries 20,418 0 0 0 0 0 0 20,418 (20,418)[A] 0 Equity in Undistributed Earnings of Subs 6,325 0 0 0 0 0 0 6,325 (6,325)[A] 0 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Total Other Income 27,309 0 138 0 0 0 0 27,447 (26,743) 704 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Interest Charges: Long-Term Debt 0 17,519 0 0 0 0 0 17,519 0 17,519 Short-Term Debt and Other 716 2,607 201 326 5 0 0 3,855 (835)[C] 3,020 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Total Interest Charges 716 20,126 201 326 5 0 0 21,374 (835) 20,539 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Preferred Dividend Requirements of Subsidiary 0 3,062 0 0 0 0 0 3,062 0 3,062 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Income Before Income Taxes 27,205 37,221 3,906 4,451 10 114 0 72,907 (26,743) 46,164 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Income Taxes: Current Federal and State Income Taxes (369) 10,539 1,449 664 4 (302) 0 11,985 0 11,985 Deferred Federal and State Income Taxes 557 5,155 116 1,137 0 345 0 7,310 0 7,310 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Total Income Taxes 188 15,694 1,565 1,801 4 43 0 19,295 0 19,295 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Income from Continuing Operations 27,017 21,527 2,341 2,650 6 71 0 53,612 (26,743) 26,869 Equity in Undistributed Earnings of Discontinued Subsidiaries (455) 0 0 0 0 0 0 (455) 455 [A] 0 Discontinued Operations - Net 0 (207) (680) 0 0 389 43 (455) 0 (455) Cumulative Effect of Accounting Change - Net 0 0 0 148 0 0 0 148 0 148 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Net Income Applicable to Common Stock $26,562 $21,320 $1,661 $2,798 $6 $460 $43 $52,850 ($26,288) $26,562 ======== ========= ======== ========= ======= ========= ======== ========= ========= =========
- 8 - SOUTH JERSEY INDUSTRIES, INC. CONSOLIDATING STATEMENT OF RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands)
South South South South Jersey Jersey Jersey Energy & Jersey Gas Energy Resources Marina Minerals R & T Elimin. Indust. Company Company Group Energy Inc. Grop & Consd. Inc. Consd. Consd. LLC LLC Consd. Inc. Total Adjust. Total -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Retained Earnings - Beginning $58,004 $65,435 $1,148 $0 $0 ($13,955) ($7,054) $103,578 ($45,574)[B] $58,004 Net Income Applicable to Common Stock 26,562 21,320 1,661 2,798 6 460 43 52,850 (26,288) 26,562 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- 84,566 86,755 2,809 2,798 6 (13,495) (7,011) 156,428 (71,862) 84,566 Dividends Declared - Common Stock 17,348 17,500 2,917 0 0 0 0 37,765 (20,417)[A] 17,348 -------- --------- -------- --------- ------- --------- -------- --------- --------- --------- Retained Earnings - Ending $67,218 $69,255 ($108) $2,798 $6 ($13,495) ($7,011) $118,663 ($51,445) $67,218 ======== ========= ======== ========= ======= ========= ======== ========= ========= =========
- 9 - SOUTH JERSEY INDUSTRIES, INC. CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands) [A] Dividends from Subsidiaries $20,417 Equity in Undistributed Earnings of Subsidiaries 6,325 Investment in Subsidiaries $5,870 Equity in Undistributed Earnings of Discontinued Subsidiaries 455 Retained Earnings - Dividends Declared - Common Stock 20,417 To eliminate intercompany dividends paid and equity in undistributed earnings recorded by South Jersey Industries, Inc. [B] Retained Earnings - 1/1/01 $45,574 Investment in Subsidiaries $45,574 To eliminate retained earnings of subsidiaries at 1/1/01 previously recorded by South Jersey Industries, Inc. under the equity method of accounting. [C] Operating Revenues - Utility $30,258 Operating Revenues - Nonutility 72,579 Cost of Gas Sold - Utility $30,196 Cost of Sales - Nonutility 70,465 Operations 1,341 Interest Expense - Short-Term Debt and Other 835 To eliminate intercompany revenue and expense.
- 10 - SOUTH JERSEY INDUSTRIES, INC. CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001 (In Thousands)
South South South South Jersey Jersey Jersey Energy & Jersey Gas Energy Resources Marina Minerals R & T Elimin. Indust. Company Company Group Energy Inc. Group, & Consd. Inc. Consd. Consd. LLC LLC Consd. Inc. Total Adjust. Total --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Assets Property, Plant and Equipment: Utility Plant, at original cost $0 $802,491 $0 $0 $0 $0 $0 $802,491 $0 $802,491 Gas Plant Acquisition Adjustment - Net 0 1,627 0 0 0 0 0 1,627 0 1,627 Gas Stored Underground 0 1,322 0 0 0 0 0 1,322 0 1,322 Accumulated Depreciation and Amortization 0 (221,457) 0 0 0 0 0 (221,457) 0 (221,457) Nonutility Property and Equipment, at cost 1,828 0 96 62 20,753 1,379 0 24,118 0 24,118 Accumulated Depreciation (153) 0 (45) (8) 0 (852) 0 (1,058) 0 (1,058) --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Property, Plant and Equipment - Net 1,675 583,983 51 54 20,753 527 0 607,043 0 607,043 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Investments: Investments in Subsidiaries 222,244 0 0 0 0 0 0 222,244 (222,244)[1] 0 Available-for-Sale Securities 46 3,093 0 0 0 0 0 3,139 0 3,139 Restricted 0 0 0 8,599 14,363 0 0 22,962 0 22,962 Investment in Affiliates 843 0 526 0 0 0 0 1,369 0 1,369 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Investments 223,133 3,093 526 8,599 14,363 0 0 249,714 (222,244) 27,470 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Current Assets: Cash and Cash Equivalents 139 3,276 292 80 10 165 3 3,965 0 3,965 Notes Receivable - Associated Companies 24,323 0 264 0 0 3,120 1,501 29,208 (29,208)[3] 0 Notes Receivable-Affiliate 0 0 280 0 0 0 0 280 0 280 Accounts Receivable 13 39,006 14,667 23,688 0 1,003 0 78,377 (11,627)[2,6] 66,750 Unbilled Revenues 0 32,397 2,584 0 0 0 0 34,981 0 34,981 Provision for Uncollectibles 0 (1,916) (175) (570) 0 0 0 (2,661) 0 (2,661) Accounts Receivable - Associated Companies 1,753 238 366 0 0 8 4 2,369 (2,369)[2] 0 Natural Gas in Storage, Average Cost 0 59,778 0 0 0 0 0 59,778 0 59,778 Materials and Supplies, Average Cost 0 3,818 0 0 0 0 0 3,818 0 3,818 Assets of Discontinued Businesses Held for Disposal 0 0 0 0 0 0 242 242 0 242 Accumulated Deferred Income Taxes 1 0 45 298 0 1 0 345 (345)[4] 0 Prepaid Taxes 0 4,650 0 0 0 0 0 4,650 0 4,650 Energy Trading Assets 0 0 0 47,187 0 0 0 47,187 0 47,187 Prepayments and Other Current Assets 68 2,800 155 5 37 24 5 3,094 0 3,094 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Current Assets 26,297 144,047 18,478 70,688 47 4,321 1,755 265,633 (43,549) 222,084 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Regulatory and Other Non-Current Assets: Gross Receipts & Franchise Taxes 0 2,254 0 0 0 0 0 2,254 0 2,254 Environmental Remediation Costs 0 61,621 0 0 0 0 0 61,621 0 61,621 Accumulated Deferred Income Taxes 120 0 41 0 0 1,937 97 2,195 (2,195)[5] 0 Income Taxes - Flowthrough Depreciation 0 9,575 0 0 0 0 0 9,575 0 9,575 Deferred Fuel Costs - Net 0 36,798 0 0 0 0 0 36,798 0 36,798 Deferred Postretirement Benefit Costs 0 4,158 0 0 0 0 0 4,158 0 4,158 Energy Trading Assets 0 0 0 3,554 0 0 0 3,554 0 3,554 Derivatives 0 0 0 0 509 0 0 509 0 509 Other Regulatory Assets 0 2,386 0 0 0 0 0 2,386 0 2,386 Other 51 10,087 0 0 0 15 0 10,153 240 [7] 10,393 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Regulatory and Other Non-Current Assets 171 126,879 41 3,554 509 1,952 97 133,203 (1,955) 131,248 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Assets $251,276 $858,002 $19,096 $82,895 $35,672 $6,800 $1,852 $1,255,593 ($267,748) $987,845 ========= ========= ======== ======== ======== ======== ======= ============ ========== =========
- 11 - SOUTH JERSEY INDUSTRIES, INC. CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001 (In Thousands)
South South South South Jersey Jersey Jersey Energy & Jersey Gas Energy Resources Marina Minerals R & T Elimin. Indust. Company Company Group Energy Inc. Group, & Consd. Inc. Consd. Consd. LLC LLC Consd. Inc. Total Adjust. Total --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Capitalization and Liabilities Common Equity: Common Stock SJI Par Value $1.25 a share Authorized - 20,000,000 shares Outstanding - 11,860,990 shares $14,826 $0 $0 $0 $0 $0 $0 $14,826 $0 $14,826 Common Stock - Subsidiaries 0 5,848 50 0 0 13,282 1,000 20,180 (20,180)[1] 0 Premium on Common Stock 140,348 132,817 3,500 2,918 2,000 1,584 7,800 290,967 (150,619)[1] 140,348 Capital Stock Expense (419) 0 0 0 0 0 0 (419) 0 (419) Accumulated Other Comprehensive Loss 0 (1,724) 0 0 301 0 0 (1,423) (264)[7] (1,687) Retained Earnings 67,218 69,255 (108) 2,798 6 (13,495) (7,011) 118,663 (51,445)[1] 67,218 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Common Equity 221,973 206,196 3,442 5,716 2,307 1,371 1,789 442,794 (222,508) 220,286 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Preferred Stock and Securities of Subsidiary: Series B, 8% - 16,904 shares 0 1,690 0 0 0 0 0 1,690 0 1,690 8.35% Company - Guaranteed Mandatorily Redeemable - 1,400,000 shares 0 35,000 0 0 0 0 0 35,000 0 35,000 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Preferred Stock and Securities of Subsidiary 0 36,690 0 0 0 0 0 36,690 0 36,690 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Long-Term Debt (less current maturities & sinking fund requirements) 0 230,247 0 0 29,000 0 0 259,247 0 259,247 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Current Liabilities: Notes Payable - Banks 16,860 135,500 0 0 0 0 0 152,360 0 152,360 Notes Payable - Affiliate 0 0 25 0 0 0 0 25 0 25 Current Maturities of Long-Term Debt 0 9,733 0 0 0 0 0 9,733 0 9,733 Notes Payable - Associated Companies 4,885 0 5,908 16,865 1,200 350 0 29,208 (29,208)[3] 0 Accounts Payable 687 31,459 8,210 17,073 2,790 3 0 60,222 (11,983)[2,6] 48,239 Accounts Payable to Associated Companies 534 933 322 101 37 73 13 2,013 (2,013)[2] 0 Customer Deposits 0 5,976 0 0 0 0 0 5,976 0 5,976 Accumulated Deferred Income Taxes 13 25,504 24 1,435 0 (5) 3 26,974 (345)[4] 26,629 Taxes Accrued (376) 2,904 814 (319) 4 (38) (246) 2,743 0 2,743 Environmental Remediation Costs 27 11,052 0 0 0 240 0 11,319 0 11,319 Interest Accrued 0 5,722 0 0 0 0 0 5,722 0 5,722 Dividends Declared 4,389 34 0 0 0 0 0 4,423 0 4,423 Energy Trading Liabilities 0 0 0 38,991 0 0 0 38,991 0 38,991 Other Current Liabilities 1,231 1,995 141 86 126 384 21 3,984 0 3,984 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Current Liabilities 28,250 230,812 15,444 74,232 4,157 1,007 (209) 353,693 (43,549) 310,144 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Deferred Credits and Other Non-Current Liabilities: Pension and Other Postretirement Benefits 298 17,567 155 0 0 348 257 18,625 688 [7] 19,313 Deferred Income Taxes - Net 48 86,321 55 0 208 449 15 87,096 (2,379)[5,7] 84,717 Investment Tax Credits 0 4,166 0 0 0 0 0 4,166 0 4,166 Environmental Remediation Costs 59 37,739 - - - 3,625 - 41,423 - 41,423 Energy Trading Liabilities 0 0 0 2,947 0 0 0 2,947 0 2,947 Other 648 8,264 0 0 0 0 0 8,912 0 8,912 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Def. Credits and Other Non-Current Liabilities 1,053 154,057 210 2,947 208 4,422 272 163,169 (1,691) 161,478 --------- --------- -------- -------- -------- -------- ------- ------------ ---------- --------- Total Capitalization and Liabilities $251,276 $858,002 $19,096 $82,895 $35,672 $6,800 $1,852 $1,255,593 ($267,748) $987,845 ========= ========= ======== ======== ======== ======== ======= ============ ========== =========
- 12 - SOUTH JERSEY INDUSTRIES, INC. CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS BALANCE SHEET - DECEMBER 31, 2001 [1] Common Stock - Subsidiaries $20,180 Premium on Common Stock 150,619 Retained Earnings 51,444 Investment in Subsidiaries $222,245 To eliminate South Jersey Industries, Inc. investment in subsidiaries which is maintained on the equity method of accounting. [2] Accounts Payable - Associated Companies $2,013 Accounts Payable 357 Accounts Receivable - Associated Companies $2,369 Accounts Receivable 1 To eliminate intercompany accounts receivable and payable. [3] Notes Payable - Associated Companies $29,208 Notes Receivable - Associated Companies $29,208 To eliminate intercompany short-term notes between South Jersey Industries, Inc. and Subsidiaries [4] Accumulated Deferred Income Taxes - Current Liability $345 Accumulated Deferred Income Taxes - Current Asset $345 To net current accumulated DFIT asset and liability [5] Accumulated Deferred Income Taxes - Non Current Liability $2,195 Accumulated Deferred Income Taxes - Non Current Asset $2,195 To net noncurrent accumulated DFIT asset and liability [6] Accounts Payable $11,626 Accounts Receivable $11,626 To eliminate intercompany gas receivable and payable. [7] Other Non-Current Assets $240 Accumulated Other Comprehensive Income 264 Accumulated Deferred Income Taxes - Non-Current Liability 184 Pension and Other Postretirement Benefits $688 To record minimum pension liability.
- 13 - SOUTH JERSEY GAS COMPANY CONSOLIDATING STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands)
South Jersey Eliminations South Jersey Gas Company & Consolidated Gas Company Capital Trust Total Adjustments Total ------------ ------------- ------------ ------------ ------------ Operating Revenues: Utility $479,091 $0 $479,091 ($3,173)[A,B,C] $475,918 Nonutility 0 3,013 3,013 (3,013)[A] 0 ------------ ------------ ------------ ------------ ------------ Total Operating Revenues 479,091 3,013 482,104 (6,186) 475,918 ------------ ------------ ------------ ------------ ------------ Operating Expenses: Cost of Gas Sold - Utility 335,783 0 335,783 0 335,783 Cost of Sales - Nonutility 0 0 0 0 0 Operations 40,276 0 40,276 147 [C] 40,423 Maintenance 7,771 0 7,771 0 7,771 Depreciation 21,136 0 21,136 0 21,136 Energy and Other Taxes 10,396 0 10,396 0 10,396 ------------ ------------ ------------ ------------ ------------ Total Operating Expenses 415,362 0 415,362 147 415,509 ------------ ------------ ------------ ------------ ------------ Operating Income 63,729 3,013 66,742 (6,333) 60,409 ------------ ------------ ------------ ------------ ------------ Other Income: Equity in Affiliated Companies 0 0 0 0 0 Dividends from Subsidiaries 0 0 0 0 0 Equity in Undistributed Earnings of Subs 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Total Other Income 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Interest Charges: Long-Term Debt 20,532 0 20,532 (3,013)[A] 17,519 Short-Term Debt and Other 5,837 0 5,837 (3,230)[B] 2,607 ------------ ------------ ------------ ------------ ------------ Total Interest Charges 26,369 0 26,369 (6,243) 20,126 ------------ ------------ ------------ ------------ ------------ Preferred Dividend Requirements of Subsidiary 139 2,923 3,062 0 3,062 ------------ ------------ ------------ ------------ ------------ Income Before Income Taxes 37,221 90 37,311 (90) 37,221 ------------ ------------ ------------ ------------ ------------ Income Taxes: Current Federal and State Income Taxes 10,539 0 10,539 0 10,539 Deferred Federak and State Income Taxes 5,155 0 5,155 0 5,155 ------------ ------------ ------------ ------------ ------------ Total Income Taxes 15,694 0 15,694 0 15,694 Income from Continuing Operations 21,527 90 21,617 (90) 21,527 Equity in Undistributed Earnings of Discontinued Subsidiaries 0 0 0 0 0 Discontinued Operations - Net (207) 0 (207) 0 (207) Cumulative Effect of Accounting Change - Net 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Net Income Applicable to Common Stock $21,320 $90 $21,410 ($90) $21,320 ============ ============ ============ ============ ============
- 14 - SOUTH JERSEY GAS COMPANY CONSOLIDATING STATEMENT OF RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands)
South Jersey Eliminations South Jersey Gas Company & Consolidated Gas Company Capital Trust Total Adjustments Total ------------ ------------- ------------ ------------ ------------ Retained Earnings - Beginning $65,435 $0 $65,435 $0 $65,435 Net Income Applicable to Common Stock 21,320 90 21,410 (90) 21,320 ------------ ------------ ------------ ------------ ------------ 86,755 90 86,845 (90) 86,755 Dividends Declared - Common Stock 17,500 90 17,590 (90)[A] 17,500 ------------ ------------ ------------ ------------ ------------ Retained Earnings - Ending $69,255 $0 $69,255 $0 $69,255 ============ ============ ============ ============ ============
- 15 - SOUTH JERSEY GAS COMPANY CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands) [A] Operating Revenues - Utility $90 Operating Revenues - Nonutility 3,013 Interest Expense - Long-Term Debt $3,013 Retained Earnings - Dividends Declared - Common Stock 90 To eliminate intercompany dividends and interest [B] Operating Revenues - Utility 3,230 Interest Expense - Short-Term Debt & Other 3,230 To reclass carrying cost recoveries [C] Operations 147 Operating Revenues - Utility 147 To reclass profits from appliance service
- 16 - SOUTH JERSEY GAS COMPANY CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001 (In Thousands)
South Jersey Eliminations South Jersey Gas Company & Consolidated Gas Company Capital Trust Total Adjustments Total ------------ ------------- ----------- ------------ ------------ Assets Property, Plant and Equipment: Utility Plant, at original cost $802,491 $0 $802,491 $0 $802,491 Gas Plant Acquisition Adjustment - Net 1,627 0 1,627 0 1,627 Gas Stored Underground 1,322 0 1,322 0 1,322 Accumulated Depreciation and Amortization (221,457) 0 (221,457) 0 (221,457) Nonutility Property and Equipment, at cost 0 0 0 0 0 Accumulated Depreciation 0 0 0 0 0 ------------ ------------- ----------- ------------ ------------ Property, Plant and Equipment - Net 583,983 0 583,983 0 583,983 ------------ ------------- ----------- ------------ ------------ Investments: Investments in Subsidiaries 1,082 0 1,082 (1,082)[1] 0 Available-for-Sale Securities 3,093 0 3,093 0 3,093 Restricted 0 0 0 0 0 Investment in Affiliates 0 0 0 0 0 ------------ ------------- ----------- ------------ ------------ Total Investments 4,175 0 4,175 (1,082) 3,093 ------------ ------------- ----------- ------------ ------------ Current Assets: Cash and Cash Equivalents 3,276 0 3,276 0 3,276 Notes Receivable - Associated Companies 0 36,082 36,082 (36,082)[1] 0 Notes Receivable - Affiliate 0 0 0 0 0 Accounts Receivable 39,006 0 39,006 0 39,006 Unbilled Revenues 32,397 0 32,397 0 32,397 Provision for Uncollectibles (1,916) 0 (1,916) 0 (1,916) Accounts Receivable - Associated Companies 238 0 238 0 238 Natural Gas in Storage, Average Cost 59,778 0 59,778 0 59,778 Materials and Supplies, Average Cost 3,818 0 3,818 0 3,818 Assets of Discontinued Businesses Held for Disposal 0 0 0 0 0 Accumulated Deferred Income Taxes 857 0 857 (857)[6] 0 Prepaid Taxes 4,672 0 4,672 (22)[4] 4,650 Dividends Receivable 0 0 0 0 0 Energy Trading Assets 0 0 0 0 0 Prepayments and Other Current Assets 2,800 0 2,800 0 2,800 ------------ ------------- ----------- ------------ ------------ Total Current Assets 144,926 36,082 181,008 (36,961) 144,047 ------------ ------------- ----------- ------------ ------------ Regulatory and Other Non-Current Assets: Gross Receipts & Franchise Taxes 2,254 0 2,254 0 2,254 Environmental Remediation Costs 61,972 0 61,972 (351)[3] 61,621 Accumulated Deferred Income Taxes 10,390 0 10,390 (10,390)[5,6] 0 Income Taxes - Flowthrough Depreciation 9,575 0 9,575 0 9,575 Deferred Fuel Costs - Net 59,910 0 59,910 (23,112)[2,3] 36,798 Deferred Postretirement Benefit Costs 4,158 0 4,158 0 4,158 Unamortized Debit Discount and Expense 5,957 0 5,957 0 5,957 Energy Trading Assets 0 0 0 0 0 Derivatives 0 0 0 0 0 Other Regulatory Assets 0 0 0 2,386 [9] 2,386 Other 4,237 0 4,237 (107)[8,9] 4,130 ------------ ------------- ----------- ------------ ------------ Total Regulatory and Other Non-Current Assets 158,453 0 158,453 (31,574) 126,879 ------------ ------------- ----------- ------------ ------------ Total Assets $891,537 $36,082 $927,619 ($69,617) $858,002 ============ ============= =========== ============ ============
- 17 - SOUTH JERSEY GAS COMPANY CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001 (In Thousands)
South Jersey Eliminations South Jersey Gas Company & Consolidated Gas Company Capital Trust Total Adjustments Total ------------ ------------- ----------- ------------ ------------ Capitalization and Liabilities Common Equity: Common Stock SJG Par Value $2.50 a share Authorized - 4,000,000 shares Outstanding - 2,339,139 shares $5,848 $0 $5,848 $0 $5,848 Common Stock - Subsidiary 0 1,082 1,082 (1,082)[1] 0 Premium on Common Stock 132,817 0 132,817 0 132,817 Capital Stock Expense 0 0 0 0 0 Accumulated Other Comprehensive Loss 0 0 0 (1,724)[8] (1,724) Retained Earnings 69,255 0 69,255 0 69,255 ------------ ------------- ----------- ------------ ------------ Total Common Equity 207,920 1,082 209,002 (2,806) 206,196 ------------ ------------- ----------- ------------ ------------ Preferred Stock and Securities of Subsidiary: Series B, 8% -16,904 shares 1,690 0 1,690 0 1,690 8.35% Company - Guaranteed Mandatorily Redeemable - 1,400,000 shares 0 35,000 35,000 0 35,000 ------------ ------------- ----------- ------------ ------------ Total Preferred Stock and Securities of Subsidiary 1,690 35,000 36,690 0 36,690 ------------ ------------- ----------- ------------ ------------ Long-Term Debt (less current maturities & sinking fund requirements) 266,329 0 266,329 (36,082)[1] 230,247 ------------ ------------- ----------- ------------ ------------ Current Liabilities: Notes Payable - Banks 135,500 0 135,500 0 135,500 Notes Payable - Affiliate 0 0 0 0 0 Current Maturities of Long-Term Debt 9,733 0 9,733 0 9,733 Notes Payable - Associated Companies 0 0 0 0 0 Accounts Payable 31,459 0 31,459 0 31,459 Accounts Payable to Associated Companies 933 0 933 0 933 Customer Deposits 5,976 0 5,976 0 5,976 Accumulated Deferred Income Taxes 22,168 0 22,168 3,336 [6,7] 25,504 Taxes Accrued 4,873 0 4,873 (1,969)[4,5] 2,904 Environmental Remediation Costs 11,052 0 11,052 0 11,052 Interest Accrued 5,722 0 5,722 0 5,722 Dividends Delcared 34 0 34 0 34 Energy Trading Liabilities 0 0 0 0 0 Other Current Liabilities 1,995 0 1,995 0 1,995 ------------ ------------- ----------- ------------ ------------ Total Current Liabilities 229,445 0 229,445 1,367 230,812 ------------ ------------- ----------- ------------ ------------ Deferred Credits and Other Non-Current Liabilities: Pension and Other Postretirement Benefits 12,365 0 12,365 5,202 [8] 17,567 Deferred Income Taxes - Net 100,156 0 100,156 (13,835)[6,7,8] 86,321 Investment Tax Credits 4,166 0 4,166 0 4,166 Deferred Revenues - Net 23,463 0 23,463 (23,463)[2] 0 Environmental Remediation Costs 37,739 - 37,739 - 37,739 Energy Trading Liabilities 0 0 0 0 0 Other 8,264 0 8,264 0 8,264 ------------ ------------- ----------- ------------ ------------ Total Def. Credits and Other Non-Current Liabilities 186,153 0 186,153 (32,096) 154,057 ------------ ------------- ----------- ------------ ------------ Total Capitalization and Liabilities $891,537 $36,082 $927,619 ($69,617) $858,002 ============ ============= =========== ============ ============
- 18 - SOUTH JERSEY GAS COMPANY CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS BALANCE SHEET - DECEMBER 31, 2001 (In Thousands) [1] Common Stock - Subsidiary $1,082 Long-Term Debt 36,082 Notes Receivable - Assoc. Co. $36,082 Investment in Subsidiary 1,082 To eliminate South Jersey Gas Company investment in subsidiary which is maintained on the equity method of accounting. [2] Deferred Revenue - Net 23,463 Deferred Fuel Costs - Net 23,463 To net deferred fuel costs [3] Deferred Fuel Costs - Net 351 Environmental Remediation Costs 351 To net environmental costs with deferred RAC recoveries [4] Taxes Accrued 22 Prepaid Taxes 22 To net Sales & Use tax [5] Taxes Accrued 1,947 Accumulated Deferred Income Taxes 1,947 To record alternative minimum tax [6] Accumulated Deferred Income Tax 857 Accumulated Deferred Income Tax 8,443 Accumulated Deferred Income Tax 857 Accumulated Deferred Income Tax 8,443 To net current and long-term portions of accumulated deferred income tax [7] Accumulated Deferred Income Tax 4,193 Accumulated Deferred Income Tax 4,193 To reclassify current deferred state taxes [8] Accumulated Deferred Income Tax 1,199 Other Comprehensive Income 1,724 Other Non-Current Assets 2,279 Pen & Other Post Retirement Ben Reserve 5,202 To record additional pension liability [9] Other Regulatory Assets 2,386 Other Assets Non-Current 2,386 To reclassify other regulatory assets
- 19 - SOUTH JERSEY ENERGY COMPANY CONSOLIDATING STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands)
SJ Eliminations South Jersey EnerTrade, & Consolidated Energy Company Inc. Total Adjustments Total ------------- ------------ ------------ ------------ ------------ Operating Revenues: Utility $0 $0 $0 $0 $0 Nonutility 85,776 10,292 96,068 (1,439)[C] 94,629 ------------- ------------ ------------ ------------ ------------ Total Operating Revenues 85,776 10,292 96,068 (1,439) 94,629 ------------- ------------ ------------ ------------ ------------ Operating Expenses: Cost of Gas Sold - Utility 0 0 0 0 0 Cost of Sales - Nonutility 79,647 9,941 89,588 (1,439)[C] 88,149 Operations 2,344 105 2,449 0 2,449 Maintenance 0 0 0 0 0 Depreciation 16 0 16 0 16 Energy and Other Taxes 46 0 46 0 46 ------------- ------------ ------------ ------------ ------------ Total Operating Expenses 82,053 10,046 92,099 (1,439) 90,660 ------------- ------------ ------------ ------------ ------------ Operating Income 3,723 246 3,969 0 3,969 ------------- ------------ ------------ ------------ ------------ Other Income: Equity in Affiliated Companies (48) 186 138 0 138 Dividends from Subsidiaries 0 0 0 0 0 Equity in Undistributed Earnings of Subs 258 0 258 (258)[A] 0 ------------- ------------ ------------ ------------ ------------ Total Other Income 210 186 396 (258) 138 ------------- ------------ ------------ ------------ ------------ Interest Charges: Long-Term Debt 0 0 0 0 0 Short-Term Debt and Other 183 18 201 0 201 ------------- ------------ ------------ ------------ ------------ Total Interest Charges 183 18 201 0 201 ------------- ------------ ------------ ------------ ------------ Preferred Dividend Requirements of Subsidiary 0 0 0 0 0 ------------- ------------ ------------ ------------ ------------ Income Before Income Taxes 3,750 414 4,164 (258) 3,906 ------------- ------------ ------------ ------------ ------------ Income Taxes: Current Federal and State Income Taxes 1,357 92 1,449 0 1,449 Deferred Federal and State Income Taxes 52 64 116 0 116 ------------- ------------ ------------ ------------ ------------ Total Income Taxes 1,409 156 1,565 0 1,565 ------------- ------------ ------------ ------------ ------------ Income from Continuing Operations 2,341 258 2,599 (258) 2,341 Equity in Undistributed Earnings of Discontinued Subsidiaries 0 0 0 0 0 Discontinued Operations - Net (680) 0 (680) 0 (680) Cumulative Effect of Accounting Change - Net 0 0 0 0 0 ------------- ------------ ------------ ------------ ------------ Net Income Applicable to Common Stock $1,661 $258 $1,919 ($258) $1,661 ============= ============ ============ ============ ============
- 20 - SOUTH JERSEY ENERGY COMPANY CONSOLIDATING STATEMENT OF RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands)
South Jersey SJ Eliminations Energy EnerTrade, & Consolidated Company Inc. Total Adjustments Total ------------- ------------ ------------ ------------ ------------ Retained Earnings - Beginning $1,148 $1,438 $2,586 ($1,438)[B] $1,148 Net Income Applicable to Common Stock 1,661 258 1,919 (258)[A] 1,661 ------------- ------------ ------------ ------------ ------------ 2,809 1,696 4,505 (1,696) 2,809 Dividends Declared - Common Stock 2,917 2,917 5,834 (2,917)[A] 2,917 ------------- ------------ ------------ ------------ ------------ Retained Earnings - Ending ($108) ($1,221) ($1,329) $1,221 ($108) ============= ============ ============ ============ ============
- 21 - SOUTH JERSEY ENERGY COMPANY CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands) [A] Investment in Subsidiary $3,175 Equity in Undistributed Earnings of Subsidiary $258 Retained Earnings - Dividends Declared - Common Stock $2,917 To eliminate intercompany dividends and equity in undistributed earnings recorded by South Jersey Energy Company. [B] Retained Earnings $1,438 Investment in Subsidiary $1,438 To eliminate retained earnings of subsidiary at 1/1/2001 previously recorded by South Jersey Energy Company, Inc. under the equity method of accounting. [C] Operating Revenues - Nonutility $1,439 Operating Expense - Nonutility $1,439 To eliminate intercompany revenue and expense.
- 22 - SOUTH JERSEY ENERGY COMPANY CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001 (In Thousands)
SJ Eliminations South Jersey EnerTrade, & Consolidated Energy Company Inc. Total Adjustments Total -------------- ------------ ------------ ------------ ------------ Assets Property, Plant and Equipment: Utility Plant, at original cost $0 $0 $0 $0 $0 Gas Plant Acquisition Adjustment - Net 0 0 0 0 0 Gas Stored Underground 0 0 0 0 0 Accumulated Depreciation and Amortization 0 0 0 0 0 Nonutility Property and Equipment, at cost 94 2 96 0 96 Accumulated Depreciation (44) (1) (45) 0 (45) ------------ ------------ ------------ ------------ ------------ Property, Plant and Equipment - Net 50 1 51 0 51 ------------ ------------ ------------ ------------ ------------ Investments: Investments in Subsidiaries 379 0 379 (379)[1] 0 Available-for-Sale Securities 0 0 0 0 0 Restricted 0 0 0 0 0 Investment in Affiliates 526 0 526 0 526 ------------ ------------ ------------ ------------ ------------ Total Investments 905 0 905 (379) 526 ------------ ------------ ------------ ------------ ------------ Current Assets: Cash and Cash Equivalents 283 9 292 0 292 Notes Receivable - Associated Companies 0 264 264 0 264 Notes Receivable - Affiliate 280 0 280 0 280 Accounts Receivable 13,990 677 14,667 0 14,667 Unbilled Revenues 2,584 0 2,584 0 2,584 Provision for Uncollectibles (175) 0 (175) 0 (175) Accounts Receivable - Associated Companies 7 359 366 0 366 Natural Gas in Storage, Average Cost 0 0 0 0 0 Materials and Supplies, Average Cost 0 0 0 0 0 Assets of Discontinued Businesses Held for Disposal 0 0 0 0 0 Accumulated Deferred Income Taxes 45 0 45 0 45 Prepaid Taxes 0 0 0 0 0 Dividends Receivable 0 0 0 0 0 Energy Trading Assets 0 0 0 0 0 Prepayments and Other Current Assets 153 2 155 0 155 ------------ ------------ ------------ ------------ ------------ Total Current Assets 17,167 1,311 18,478 0 18,478 ------------ ------------ ------------ ------------ ------------ Regulatory and Other Non-Current Assets: Gross Receipts & Franchise Taxes 0 0 0 0 0 Environmental Remediation Costs 0 0 0 0 0 Accumulated Deferred Income Taxes 37 4 41 0 41 Income Taxes - Flowthrough Depreciation 0 0 0 0 0 Deferred Fuel Costs - Net 0 0 0 0 0 Deferred Postretirement Benefit Costs 0 0 0 0 0 Energy Trading Assets 0 0 0 0 0 Derivatives 0 0 0 0 0 Other Regulatory Assets 0 0 0 0 0 Other 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Total Regulatory and Other Non-Current Assets 37 4 41 0 41 ------------ ------------ ------------ ------------ ------------ Total Assets $18,159 $1,316 $19,475 ($379) $19,096 ============ ============ ============ ============ ============
- 23 - SOUTH JERSEY ENERGY COMPANY CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001 (In Thousands)
SJ Eliminations South Jersey EnerTrade, & Consolidated Energy Company Inc. Total Adjustments Total -------------- ------------ ------------ ------------ ------------ Capitalization and Liabilities Common Equity: Common Stock SJE No Par Value Authorized - 2,500 shares Outstanding - 500 shares $50 $0 $50 $0 $50 Common Stock - Subsidiaries 0 1 1 (1)[1] 0 Premium on Common Stock 3,500 1,599 5,099 (1,599)[1] 3,500 Capital Stock Expense 0 0 0 0 0 Accumulated Other Comprehensive Income 0 0 0 0 0 Retained Earnings (108) (1,221) (1,329) 1,221 [1] (108) ------------ ------------ ------------ ------------ ------------ Total Common Equity 3,442 379 3,821 (379) 3,442 ------------ ------------ ------------ ------------ ------------ Preferred Stock and Securities of Subsidiary: Series B, 8% -16,904 shares 0 0 0 0 0 8.35% Company - Guaranteed Mandatorily Redeemable - 1,400,000 shares 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Total Preferred Stock and Securities of Subsidiary 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Long-Term Debt (less current maturities & sinking fund requirements) 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Current Liabilities: Notes Payable - Banks 0 0 0 0 0 Notes Payable - Affiliate 25 0 25 0 25 Current Maturities of Long-Term Debt 0 0 0 0 0 Notes Payable - Associated Companies 5,908 0 5,908 0 5,908 Accounts Payable 7,729 481 8,210 0 8,210 Accounts Payable to Associated Companies 313 9 322 0 322 Customer Deposits 0 0 0 0 0 Accumulated Deferred Income Taxes 23 1 24 0 24 Taxes Accrued 392 422 814 0 814 Environmental Remediation Costs 0 0 0 0 0 Interest Accrued 0 0 0 0 0 Dividends Delcared 0 0 0 0 0 Energy Trading Liabilities 0 0 0 0 0 Other Current Liabilities 141 0 141 0 141 ------------ ------------ ------------ ------------ ------------ Total Current Liabilities 14,531 913 15,444 0 15,444 ------------ ------------ ------------ ------------ ------------ Deferred Credits and Other Non-Current Liabilities: Pension and Other Postretirement Benefits 153 2 155 0 155 Deferred Income Taxes - Net 33 22 55 0 55 Investment Tax Credits 0 0 0 0 0 Environmental Remediation Costs - - 0 - 0 Energy Trading Liabilities 0 0 0 0 0 Other 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Total Def. Credits and Other Non-Current Liabilities 186 24 210 0 210 ------------ ------------ ------------ ------------ ------------ Total Capitalization and Liabilities $18,159 $1,316 $19,475 ($379) $19,096 ============ ============ ============ ============ ============
- 24 - SOUTH JERSEY ENERGY COMPANY CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS BALANCE SHEET - DECEMBER 31, 2001 (In Thousands)) [1] Common Stock - Subsidiary $1 Premium on Common Stock 1,599 Retained Earnings $1,221 Investment in Subsidiary $379 To eliminate South Jersey Energy Company, Inc. investment in subsidiary which is maintained on the equity method of accounting.
- 25 - ENERGY & MINERALS, INC. CONSOLIDATING STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands)
South Jersey Eliminations Energy & Fuel & Consolidated Minerals, Inc. Company, Inc. Total Adjustments Total ------------- ------------ ------------ ------------ ------------ Operating Revenues: Utility $0 $0 $0 $0 $0 Nonutility 158 0 158 0 158 ------------- ------------ ------------ ------------ ------------ Total Operating Revenues 158 0 158 0 158 ------------- ------------ ------------ ------------ ------------ Operating Expenses: Cost of Gas Sold - Utility 0 0 0 0 0 Cost of Sales - Nonutility 0 0 0 0 0 Operations 35 0 35 0 35 Maintenance 0 0 0 0 0 Depreciation 0 0 0 0 0 Energy and Other Taxes 9 0 9 0 9 ------------- ------------ ------------ ------------ ------------ Total Operating Expenses 44 0 44 0 44 ------------- ------------ ------------ ------------ ------------ Operating Income 114 0 114 0 114 ------------- ------------ ------------ ------------ ------------ Other Income: Equity in Affiliated Companies 0 0 0 0 0 Dividends from Subsidiaries 0 0 0 0 0 Equity in Undistributed Earnings of Subs (74) 0 (74) 74 0 ------------- ------------ ------------ ------------ ------------ Total Other Income (74) 0 (74) 74 0 ------------- ------------ ------------ ------------ ------------ Interest Charges: Long-Term Debt 0 0 0 0 0 Short-Term Debt and Other 0 0 0 0 0 ------------- ------------ ------------ ------------ ------------ Total Interest Charges 0 0 0 0 0 ------------- ------------ ------------ ------------ ------------ Preferred Dividend Requirements of Subsidiary 0 0 0 0 0 ------------- ------------ ------------ ------------ ------------ Income Before Income Taxes 40 0 40 74 114 ------------- ------------ ------------ ------------ ------------ Income Taxes: Current Federal and State Income Taxes (302) 0 (302) 0 (302) Deferred Federal and State Income Taxes 345 0 345 0 345 ------------- ------------ ------------ ------------ ------------ Total Income Taxes 43 0 43 0 43 ------------- ------------ ------------ ------------ ------------ Income from Continuing Operations (3) 0 (3) 74 71 Equity in Undistributed Earnings of Discontinued Subsidiaries 0 0 0 0 0 Discontinued Operations - Net 463 (74) 389 0 389 Cumulative Effect of Accounting Change - Net 0 0 0 0 0 ------------- ------------ ------------ ------------ ------------ Net Income Applicable to Common Stock $460 ($74) $386 $74 $460 ============= ============ ============ ============ ============
- 26 - ENERGY & MINERALS, INC. CONSOLIDATING STATEMENT OF RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands)
South Jersey Eliminations Energy & Fuel & Consolidated Minerals, Inc. Company, Inc. Total Adjustments Total ------------- ------------ ------------ ------------ ------------ Retained Earnings - Beginning ($13,955) ($1,638) ($15,593) $1,638 [B] ($13,955) Net Income Applicable to Common Stock 460 (74) 386 74 [A] 460 ------------- ------------ ------------ ------------ ------------ (13,495) (1,712) (15,207) 1,712 (13,495) Dividends Declared - Common Stock 0 0 0 0 0 ------------- ------------ ------------ ------------ ------------ Retained Earnings - Ending ($13,495) ($1,712) ($15,207) $1,712 ($13,495) ============= ============ ============ ============ ============
- 27 - ENERGY & MINERALS, INC. CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 (In Thousands) [A] Equity in Undistributed Earnings $74 of Subsidiary Investment in Subsidiary $74 To eliminate equity in undistributed earnings recorded by Energy & Minerals, Inc. [B] Retained Earnings - 1/1/2001 $1,638 Investment in Subsidiaries $1,638 To eliminate retained earnings of subsidiary at 1/1/2000 previously recorded by Energy & Minerals, Inc. under the equity method of accounting.
- 28 - ENERGY & MINERALS, INC. CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001 (In Thousands)
Energy & South Jersey Eliminations Minerals, Fuel Company & Consolidated Inc. Inc. Total Adjustments Total ------------ ------------ ------------ ------------ ------------ Assets Property, Plant and Equipment: Utility Plant, at original cost $0 $0 $0 $0 $0 Gas Plant Acquisition Adjustment - Net 0 0 0 0 0 Gas Stored Underground 0 0 0 0 0 Accumulated Depreciation and Amortization 0 0 0 0 0 Nonutility Property and Equipment, at cost 871 508 1,379 0 1,379 Accumulated Depreciation (764) (88) (852) 0 (852) ------------ ------------ ------------ ------------ ------------ Property, Plant and Equipment - Net 107 420 527 0 527 ------------ ------------ ------------ ------------ ------------ Investments: Investments in Subsidiaries (654) 0 (654) 654 [1] 0 Available-for-Sale Securities 0 0 0 0 0 Restricted 0 0 0 0 0 Investment in Affiliates 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Total Investments (654) 0 (654) 654 0 ------------ ------------ ------------ ------------ ------------ Current Assets: Cash and Cash Equivalents 159 6 165 0 165 Notes Receivable - Associated Companies 3,120 0 3,120 0 3,120 Notes Receivable - Affiliate 0 0 0 0 0 Accounts Receivable 1,003 0 1,003 0 1,003 Unbilled Revenues 0 0 0 0 0 Provision for Uncollectibles 0 0 0 0 0 Accounts Receivable - Associated Companies 8 0 8 0 8 Natural Gas in Storage, Average Cost 0 0 0 0 0 Materials and Supplies, Average Cost 0 0 0 0 0 Assets of Discontinued Businesses Held for Disposal 0 0 0 0 0 Accumulated Deferred Income Taxes 1 0 1 0 1 Prepaid Taxes 0 0 0 0 0 Dividends Receivable 0 0 0 0 0 Energy Trading Assets 0 0 0 0 0 Prepayments and Other Current Assets 24 0 24 0 24 ------------ ------------ ------------ ------------ ------------ Total Current Assets 4,315 6 4,321 0 4,321 ------------ ------------ ------------ ------------ ------------ Regulatory and Other Non-Current Assets: Gross Receipts & Franchise Taxes 0 0 0 0 0 Environmental Remediation Costs 0 0 0 0 0 Accumulated Deferred Income Taxes 1,486 451 1,937 0 1,937 Income Taxes - Flowthrough Depreciation 0 0 0 0 0 Deferred Fuel Costs - Net 0 0 0 0 0 Deferred Postretirement Benefit Costs 0 0 0 0 0 Energy Trading Assets 0 0 0 0 0 Derivatives 0 0 0 0 0 Other Regulatory Assets 0 0 0 0 0 Other 15 0 15 0 15 ------------ ------------ ------------ ------------ ------------ Total Regulatory and Other Non-Current Assets 1,501 451 1,952 0 1,952 ------------ ------------ ------------ ------------ ------------ Total Assets $5,269 $877 $6,146 $654 $6,800 ============ ============ ============ ============ ============
- 29 - ENERGY & MINERALS, INC. CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001 (In Thousands)
Energy & South Jersey Eliminations Minerals, Fuel Company & Consolidated Inc. Inc. Total Adjustments Total ------------ ------------ ------------ ------------ ------------ Capitalization and Liabilities Common Equity: Common Stock EMI No Par Value Authorized - 500,000 shares Outstanding - 98,341 shares $13,282 $0 $13,282 $0 $13,282 Common Stock - Subsidiaries 0 0 0 0 0 Premium on Common Stock 1,584 1,058 2,642 (1,058)[1] 1,584 Capital Stock Expense 0 0 0 0 0 Accumulated Other Comprehensive Income 0 0 0 0 0 Retained Earnings (13,495) (1,712) (15,207) 1,712 [1] (13,495) ------------ ------------ ------------ ------------ ------------ Total Common Equity 1,371 (654) 717 654 1,371 ------------ ------------ ------------ ------------ ------------ Preferred Stock and Securities of Subsidiary: Series B, 8% -16,904 shares 0 0 0 0 0 8.35% Company - Guaranteed Mandatorily Redeemable - 1,400,000 shares 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Total Preferred Stock and Securities of Subsidiary 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Long-Term Debt (less current maturities & sinking fund requirements) 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Current Liabilities: Notes Payable - Banks 0 0 0 0 0 Notes Payable - Affiliate 0 0 0 0 0 Current Maturities of Long-Term Debt 0 0 0 0 0 Notes Payable - Associated Companies 0 350 350 0 350 Accounts Payable 3 0 3 0 3 Accounts Payable to Associated Companies 47 26 73 0 73 Customer Deposits 0 0 0 0 0 Accumulated Deferred Income Taxes (5) 0 (5) 0 (5) Taxes Accrued (6) (32) (38) 0 (38) Environmental Remediation Costs 40 200 240 0 240 Interest Accrued 0 0 0 0 0 Dividends Delcared 0 0 0 0 0 Energy Trading Liabilities 0 0 0 0 0 Other Current Liabilities 370 14 384 0 384 ------------ ------------ ------------ ------------ ------------ Total Current Liabilities 449 558 1,007 0 1,007 ------------ ------------ ------------ ------------ ------------ Deferred Credits and Other Non-Current Liabilities: Pension and Other Postretirement Benefits 348 0 348 0 348 Deferred Income Taxes - Net 399 50 449 0 449 Investment Tax Credits 0 0 0 0 0 Environmental Remediation Costs 2,702 923 3,625 - 3,625 Energy Trading Liabilities 0 0 0 0 0 Other 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ Total Def. Credits and Other Non-Current Liabilities 3,449 973 4,422 0 4,422 ------------ ------------ ------------ ------------ ------------ Total Capitalization and Liabilities $5,269 $877 $6,146 $654 $6,800 ============ ============ ============ ============ ============
- 30 - ENERGY & MINERALS, INC. CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS BALANCE SHEET - DECEMBER 31, 2001 (In Thousands) [1] Premium on Common Stock $1,058 Investment in Subsidiary 654 Retained Earnings $1,712 To eliminate Energy & Minerals, Inc. investment in subsidiary which is maintained on the equity method of accounting.
- 31 - SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS CONTAINED IN REGISTRANT'S FORM 10-K 1. Summary of Significant Accounting Policies: Consolidation - The consolidated financial statements include the accounts of South Jersey Industries, Inc. (SJI) and its subsidiaries. All significant intercompany accounts and transactions were eliminated. SJI reclassified some previously reported amounts to conform with current year classifications. Equity-Based Investments in Affiliates - SJI, either directly or through its wholly-owned subsidiaries, currently holds a 50% non-controlling interest in several affiliated companies and accounts for the investments under the equity method. The operations of these affiliated companies are included in the statements of consolidated income under the caption, Equity in Affiliated Companies (See Note 3). Estimates and Assumptions - Our financial statements are prepared to conform with generally accepted accounting principles. Management makes estimates and assumptions that affect the amounts reported in the financial statements and related disclosures. Therefore, actual results could differ from those estimates. Regulation - South Jersey Gas Company (SJG) is subject to the rules and regulations of the New Jersey Board of Public Utilities (BPU). We maintain our accounts according to the BPU's prescribed Uniform System of Accounts (See Note 10). Revenues - SJG and South Jersey Energy Company (SJE) bill customers monthly. For customers not billed at the end of each month, an accrual is made to recognize unbilled revenues from the date of the last bill to the end of the month. The BPU allows SJG to recover the excess cost of gas sold over the cost included in base rates through the Levelized Gas Adjustment Clause (LGAC). We collect these costs on a forecasted basis upon BPU order. SJG defers under- or over-recoveries of gas costs and includes them in the following year's LGAC or other similar recovery mechanism. We pay interest on overcollected LGAC balances based on SJG's approved return on rate base (See Note 10). SJG's tariff also includes a Temperature Adjustment Clause (TAC), a Remediation Adjustment Clause (RAC) and a Comprehensive Resource Analysis Clause (CRA). Our TAC reduces the impact of temperature fluctuations on SJG and its customers. The RAC recovers remediation costs of former gas manufacturing plants and the CRA recovers costs associated with our conservation plan. TAC adjustments affect revenue, income and cash flows since colder-than-normal weather can generate credits to customers, while - 32 - warmer-than-normal weather can result in additional billings. RAC adjustments do not directly affect earnings because we defer and recover these costs through rates over 7-year amortization periods (See Notes 10 & 14). CRA adjustments are not significant and do not affect earnings. Property, Plant & Equipment - For regulatory purposes, utility plant is stated at original cost. Nonutility plant is stated at cost. The cost of adding, replacing and renewing property is charged to the appropriate plant account. Depreciation and Amortization - We depreciate utility plant on a straight- line basis over the estimated remaining lives of the various property classes. These estimates are periodically reviewed and adjusted as required after BPU approval. The composite annual rate for all depreciable utility property was approximately 2.8% in 2001, 2000 and 1999. Except for extraordinary retirements, accumulated depreciation is charged with the cost of depreciable utility property retired and removal costs less salvage. Nonutility property depreciation is computed on a straight-line basis over the estimated useful lives of the property, ranging up to 35 years. Gain or loss on the disposition of nonutility property is recognized in net income. Impairment of Long-Lived Assets - We review the carrying amount of an asset for possible impairment whenever events or changes in circumstances indicate that such amount may not be recoverable. For the years ended 2001, 2000 and 1999, no such circumstances were identified. Energy Trading Activities & Derivative Instruments - SJI's regulated and unregulated subsidiaries are involved in the buying, selling, transporting and storing of natural gas and buying and selling of retail electricity for their own accounts as well as managing these activities for others. As such, these subsidiaries are subject to market risk due to fluctuations in price. To manage this risk, our companies enter into a variety of physical and financial transactions including forward contracts, swaps, futures, and options agreements. SJI structured its subsidiaries so that SJG and SJE transact commodities on a physical basis only and do not directly enter into financially- settling positions. South Jersey Resources Group, LLC (SJRG) performs this risk management function for these entities and enters into the types of transactions noted above. Management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in identifying, assessing and controlling various risks. Management reviews any open positions in accordance with strict policies to limit exposure to market risk. Effective January 1, 2001, SJI adopted Financial Accounting Standards Board (FASB) Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. All derivatives, whether designated in hedging relationships or not, must be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the - 33 - changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative are recorded in other comprehensive income and recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. As permitted under Statement No. 133, SJI has elected not to designate any energy-related derivative instruments as fair value or cash flow hedges. No activities of SJG and SJE are considered subject to the fair value recognition requirements of Statement No. 133. SJRG manages its portfolio purchases and sales, as well as natural gas in storage, using a variety of instruments that include forward contracts, swap agreements, option contracts and futures contracts. Because SJRG's transactions will not necessarily settle physically, Statement No. 133 requires that such transactions be accounted for pursuant to the mark-to- market method of accounting. Under this method of accounting, SJRG measures the difference between the contract price and the fair value of the contracts and records these as Energy Trading Assets or Energy Trading Liabilities on our consolidated balance sheets. As of December 31, 2001, the net unrealized pre-tax gain of $3.4 million on energy trading contracts, determined under the mark-to-market method, is included in Cost of Sales - Nonutility. The Cumulative Effect of a Change in Accounting Principle - Net of $148,000 relates to the adoption of Statement No. 133 on January 1, 2001. In November 2001, we entered into two interest rate swap contracts. The first swap effectively provides us with a fixed interest rate of 4.08% on Marina Energy LLC's (Marina) tax-exempt Series A variable rate bonds for a 10-year period. The second swap effectively fixes the interest rate of Marina's taxable Series B variable rate bonds at 4.55% for a 6-year period. The notional amount of this second swap decreases by $3.0 million per year beginning in December 2005. We entered into interest rate swap agreements to hedge the exposure to increasing rates with respect to our variable rate debt. The differential to be paid or received as a result of these swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense. These interest rate swaps are accounted for as cash flow hedges. As of December 31, 2001, the market value of these swaps was $508,679, which represents the amount we would have to pay the counterparty to terminate these contracts as of that date. This balance is included on the 2001 consolidated balance sheet under the caption Derivatives. As of December 31, 2001, we calculated the swaps to be highly effective; therefore, the offset to the hedge asset is recorded, net of taxes, in Accumulated Other Comprehensive Loss (See Note 8). Fair value of the derivative investments is determined by reference to quoted market prices of listed contracts, published quotations or quotations from independent parties. - 34 - New Accounting Pronouncements - In June 2001, the FASB issued Statement No. 141, "Business Combinations", Statement No. 142, "Goodwill and Other Intangible Assets" and Statement No. 143, "Accounting for Asset Retirement Obligations." Statement No. 141 applies to all business combinations initiated after June 30, 2001. Statement No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. Statement No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. Statement No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SJI expects to adopt Statement Nos. 141 and 142 in 2002 and Statement No. 143 in 2003. In August 2001, the FASB also issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective in 2003. This statement prescribes that a single accounting model be used for valuing long-lived assets to be disposed of and broadens the presentation of discontinued operations. We are currently evaluating the effects of these pronouncements; however, they are not expected to materially impact SJI's financial condition or results of operations. Income Taxes - Deferred income taxes are provided for all significant temporary differences between book and taxable income (See Notes 5 & 6). Other Regulatory Assets - Other Regulatory Assets at December 31, 2001 and 2000 consisted of the following items: Thousands of Dollars 2001 2000 ------- ------- Environmental Remediation Costs: (Notes 10 & 14) Expended - Net $12,831 $18,474 Liability for Future Expenditures 48,790 51,029 Income Taxes - Flowthrough Depreciation (Note 6) 9,575 10,553 Postretirement Benefit Costs (Note 11) 4,158 4,536 Gross Receipts and Franchise Taxes (Note 6) 2,254 2,698 Other 2,386 1,985 ------- ------- Total Regulatory Assets $79,994 $89,275 ======= ======= Statements of Consolidated Cash Flows - For purposes of reporting cash flows, highly liquid investments with original maturities of three months or less are considered cash equivalents. - 35 - 2. Preferred Stock and Securities of Subsidiary: Redeemable Cumulative Preferred Stock - Annually, SJG is required to offer to purchase 1,500 shares of its Cumulative Preferred Stock, Series B at par value, plus accrued dividends. SJG may not declare or pay dividends or make distributions on its common stock if preferred stock dividends are in arrears. Preferred shareholders may elect a majority of SJG's directors if four or more quarterly dividends are in arrears. Mandatorily Redeemable Preferred Securities - In 1997, SJG's statutory trust subsidiary, SJG Capital Trust (Trust), sold $35 million of 8.35% SJG-Guaranteed Mandatorily Redeemable Preferred Securities. The Trust's only assets are the 8.35% Deferrable Interest Subordinated Debentures issued by SJG maturing April 2037. This is also the maturity date of the Preferred Securities. The Debentures and Preferred Securities are redeemable at SJG's option at a price equal to 100% of the principal amount at any time on or after April 30, 2002. SJI has 2,500,000 authorized shares of Preference Stock, no par value, which has not been issued. SJI has registered and reserved for issuance 15,000 shares of Series A Junior Participating Cumulative Preferred Stock (Series A Preferred Stock) connected with its Shareholder Rights Plan (See Note 4). 3. Divestitures and Affiliations: Divestitures - In 1996, Energy & Minerals, Inc. (EMI), an SJI subsidiary, sold the common stock of The Morie Company, Inc. (Morie), its sand mining and processing subsidiary (See Note 14). In 1997, R&T Group, Inc., SJI's construction subsidiary, sold all its operating assets, except some real estate. SJI conducts tests annually to estimate the environmental remediation costs for properties owned by South Jersey Fuel, Inc. (SJF), an EMI subsidiary, from its previously operated fuel oil business. SJI reports the environmental remediation activity related to these properties as discontinued operations. This reporting is consistent with previous years (See Note 14). In 1998, SJE actively traded electricity in the wholesale market, but ceased this activity later that same year and formally exited this segment in 1999. In 2001, SJG formally discontinued the merchandising segment of its operations. We have accrued and reflected a liability for anticipated future period expenses of $108,000 in the 2001 amounts in the table below. - 36 - Summarized operating results of the discontinued operations were: Thousands of Dollars 2001 2000 1999 ------ ------ ------ Operating Revenues - Merchandising $1,016 $1,193 $1,536 ====== ====== ====== Income (Loss) before Income Taxes: Sand Mining $ 719 $ (155) $ (216) Construction 78 8 (195) Fuel Oil (113) (123) (89) Wholesale Electric (1,150) (488) (8) Merchandising (351) (128) 25 Income Tax Credits 362 329 209 ------ ------ ------ Loss from Discontinued Operations-Net $ (455) $ (557) $ (274) ====== ====== ====== Earnings Per Common Share from Discontinued Operations - Net $(0.03) $(0.05) $(0.02) ====== ====== ====== Positive results from sand mining operations in 2001 reflect a settlement with our insurance carrier for previously incurred costs. Wholesale Electric losses increased in 2001 due to the settlement of a creditor claim in bankruptcy. Affiliations - In 1996, we formed SJRG to provide natural gas storage, peaking services and transportation capacity for wholesale customers in New Jersey and surrounding states. Prior to January 1, 2001, SJ EnerTrade, Inc., a wholly owned subsidiary of SJE, and UPR Energy Marketing, Inc. (UPR) each held a 50% non-controlling interest in SJRG. In January 2001, SJRG became a wholly owned subsidiary of SJI when UPR redeemed its 50% interest in SJRG for the book value of its investment of $2.9 million. In 2001, SJRG's operations are included on a consolidated basis. Prior to January 1, 2001, SJI's investment in SJRG was accounted for on the equity method. Had the activity of SJRG been fully consolidated in 2000 and 1999, we would have reported Nonutility Revenues as $229.3 million and $122.0 million, respectively. We would have reported Cost of Sales - Nonutility as $221.0 million and $116.2 million, respectively. In January 1999, SJI and Conectiv Solutions, LLC, formed Millennium Account Services, LLC to provide meter reading services in Southern New Jersey. In June 1999, SJE and Energy East Solutions, Inc. formed South Jersey Energy Solutions, LLC (SJES) to market retail electricity and energy management services. SJES began supplying retail electric during the first quarter of 2000. - 37 - In April 2000, SJE and GZA GeoEnvironmental, Inc. formed AirLogics, LLC to market a jointly developed air monitoring system designed to assist companies involved in environmental cleanup activities. In October 2000, SJI formed Marina, a wholly owned subsidiary, to develop, construct and operate a $50 million thermal energy plant. In December 2000, Marina entered into a 20-year contract with Marina District Development Corporation to supply heat, hot water and cooling to The Borgata Resort. The plant is scheduled for completion in July 2003. 4. Common Stock: SJI has 20,000,000 shares of authorized Common Stock. The following shares were issued and outstanding: 2001 2000 1999 ---------- ---------- ---------- Beginning of Year 11,499,701 11,152,175 10,778,990 New Issues During Year: Dividend Reinvestment Plan 354,809 335,427 367,622 Employees' Stock Ownership Plan 3,707 3,917 4,144 Stock Option, Stock Appreciation Rights and Restricted Stock Award Plan 604 5,545 31 Directors' Restricted Stock 2,169 2,637 1,388 ---------- ---------- ---------- End of Year 11,860,990 11,499,701 11,152,175 ========== ========== ========== We credited the par value ($1.25 per share) of stock issued in 2001, 2000 and 1999 to Common Stock. We credited the net excess over par value of approximately $10.6 million, $8.5 million and $9.6 million, respectively, to Premium on Common Stock. Effective 1996, SJI adopted FASB No. 123, "Accounting for Stock-Based Compensation." This statement defines a fair value based method of accounting for stock-based compensation. As permitted by the statement, we elect to continue measuring compensation costs using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The pro forma effect of adopting the fair value based method of accounting on net income and Earnings Per Share (EPS) is less than $0.01 per share for 2001, 2000 and 1999. Dividend Reinvestment Plan (DRP) and Employees' Stock Ownership Plan (ESOP) - Effective June 1999, newly issued shares of common stock offered through the DRP are issued directly by SJI. Prior to this date, these shares were purchased in the open market. All shares offered through the ESOP continue to be issued directly by SJI. As of December 31, 2001, SJI reserved 1,504,225 and 19,728 shares of authorized, but unissued, common stock for future issuance to the DRP and ESOP, respectively. - 38 - Stock Option, Stock Appreciation Rights and Restricted Stock Award Plan - Under this plan, no more than 306,000 shares in the aggregate may be issued to SJI's officers and other key employees. No options or stock appreciation rights may be granted under the Plan after November 22, 2006. At December 31, 2001, 2000 and 1999, SJI had 2,000, 4,500 and 4,500 options outstanding, respectively, all exercisable at $24.69 per share. No options were granted in 2001, 2000 or 1999. No stock appreciation rights were issued under the Plan. In 1999, we amended the Plan to include restricted stock awards. In 1999, we granted 5,545 restricted shares and subsequently issued them in 2000. In 2001 and 2000, we granted 44,384 and 10,267 restricted shares, respectively. Earnings Per Common Share - We present basic EPS based on the weighted- average number of common shares outstanding. Our stock options and restricted stock outstanding at December 31, 2001, 2000 and 1999 do not dilute our EPS as calculated in accordance with FASB No. 128, "Earnings Per Share." Directors' Restricted Stock Plan - Under this Plan, SJI grants annual awards to outside directors which vest over three years. SJI holds shares issued as restricted stock until the attached restrictions lapse. We record the stock's market value on the grant date as compensation expense over the applicable vesting period. Shareholder Rights Plan - In September 1996, the board of directors adopted a shareholder rights plan providing for the distribution of one right for each share of common stock outstanding on and after October 11, 1996. Each right entitles its holder to purchase 1/1000 of one share of Series A Preferred Stock at an exercise price of $90 (See Note 2). The rights will not be exercisable until after a person or group acquires 10% or more of SJI's common stock and expire if not exercised or redeemed by September 20, 2006. 5. Income Taxes: Total income taxes applicable to operations differs from the tax that would have resulted by applying the statutory Federal Income Tax rate to pre-tax income for the following reasons: - 39 - Thousands of Dollars 2001 2000 1999 -------- -------- -------- Tax at Statutory Rate $ 14,667 $ 13,555 $ 12,082 Increase (Decrease) Resulting from: State Income Taxes 4,391 4,873 3,893 Amortization of ITC (347) (335) (390) Tax Depreciation Under Book Depreciation on Utility Plant 664 664 664 Other - Net (80) (46) 169 -------- -------- -------- Income Taxes: Continuing Operations 19,295 18,711 16,418 Discontinued Operations (362) (329) (209) Cumulative Effect of a Change in Accounting Principle 103 - - -------- -------- -------- Net Income Taxes $ 19,036 $ 18,382 $ 16,209 ======== ======== ======== The provision for Income Taxes is comprised of the following: Thousands of Dollars 2001 2000 1999 -------- -------- -------- Current: Federal $ 8,306 $ 2,801 $ 6,143 State 3,678 2,052 3,216 -------- -------- -------- Total Current 11,984 4,853 9,359 -------- -------- -------- Deferred: Federal: Excess of Tax Depreciation Over Book Depreciation - Net 4,668 5,220 5,496 Deferred Fuel Costs 794 12,157 1,909 Environmental Costs - Net (1,850) (2,504) (1,058) Alternative Minimum Tax 2,851 (1,694) 676 Benefit of State Tax 251 (984) (236) Other - Net 226 (823) (15) State 718 2,821 677 -------- -------- -------- Total Deferred 7,658 14,193 7,449 -------- -------- -------- ITC (347) (335) (390) -------- -------- -------- Income Taxes: Continuing Operations 19,295 18,711 16,418 Discontinued Operations (362) (329) (209) Cumulative Effect of a Change in Accounting Principle 103 - - -------- -------- -------- Net Income Taxes $ 19,036 $ 18,382 $ 16,209 ======== ======== ======== - 40 - The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following deferred tax liabilities at December 31: Thousands of Dollars 2001 2000 ------- ------- Current: Deferred Fuel Costs $25,054 $24,519 Derivatives / Unrealized Gain 1,435 - Other 140 (69) ------- ------- Current Deferred Tax Liability - Net $26,629 $24,450 ======= ======= Non-Current: Book versus Tax Basis of Property 85,569 81,715 Environmental 2,761 5,144 Excess Protected 3,225 3,290 Deferred Regulatory Costs 1,660 1,387 Minimum Pension Liability (1,382) - Deferred State Tax (2,126) (1,925) ITC Basis Gross Up (2,249) (2,428) Alternative Minimum Tax (1,080) (4,895) Other (1,661) (1,701) ------- ------- Non-Current Deferred Tax Liability - Net $84,717 $80,587 ======= ======= 6. Federal and Other Regulatory Tax Assets and Deferred Credits: The primary asset created by adopting FASB Statement No. 109, "Accounting for Income Taxes," was Income Taxes - Flowthrough Depreciation in the amount of $17.6 million as of January 1, 1993. This amount represented excess tax depreciation over book depreciation on utility plant because of temporary differences for which, prior to Statement No. 109, deferred taxes previously were not provided. SJG previously passed these tax benefits through to ratepayers. SJG is recovering the amortization of the regulatory asset through rates over 18 years which began in December 1994. The Investment Tax Credit (ITC) attributable to SJG was deferred and continues to be amortized at the annual rate of 3%, which approximates the life of related assets. SJG deferred $11.8 million resulting from a change in the basis for accruing the Gross Receipts & Franchise Tax in 1978 and is amortizing it on a straight-line basis to operations over 30 years beginning that same year. - 41 - 7. Financial Instruments: Restricted Investments - In accordance with the terms of Marina's bond agreements, we are required to invest unused proceeds in high-quality, highly-liquid investments pending approved construction expenditures. As of December 31, 2001, these proceeds totalled $14.4 million. SJRG maintains a margin account with a national investment firm to support its energy trading activities. As of December 31, 2001, the account balance approximated $8.6 million. Long-Term Debt - We estimate the fair values of SJI's long-term debt, including current maturities, as of December 31, 2001 and 2000, to be $288.0 and $219.1 million, respectively. Carrying amounts are $269.0 and $216.9 million, respectively. We base the estimates on interest rates available to SJI at the end of each year for debt with similar terms and maturities. SJI retires debt when it is cost effective as permitted by the debt agreements. Other Financial Instruments - The carrying amounts of SJI's other financial instruments approximate their fair values at December 31, 2001 and 2000. 8. Comprehensive Income: The components of comprehensive income are as follows: Thousands of Dollars 2001 2000 1999 ------- ------- ------- Net Income Applicable to Common Stock $26,562 $24,184 $21,688 ======= ======= ======= Other Comprehensive (Loss) Income: Minimum Pension Liability Adjustment - Net (1,988) - - Change in Fair Value of Derivatives - Net 301 - - ------- ------- ------- Total Other Comprehensive Loss (1,687) - - ------- ------- ------- Comprehensive Income $24,875 $24,184 $21,688 ======= ======= ======= 9. Segments of Business: Information about SJI's operations in different industry segments is presented below: - 42 - Thousands of Dollars 2001 2000 1999 -------- -------- -------- Operating Revenues: Gas Utility Operations $475,918 $446,303 $349,518 Wholesale Gas Operations 367,086 - - Retail Gas and Other Operations 97,174 83,607 48,920 -------- -------- -------- Subtotal 940,178 529,910 398,438 Intersegment Sales (102,837) (15,963) (7,360) -------- -------- -------- Total Operating Revenues $837,341 $513,947 $391,078 ======== ======== ======== Operating Income: Gas Utility Operations $ 60,409 $ 62,789 $ 59,455 Wholesale Gas Operations 4,778 - - Retail Gas and Other Operations 3,984 3,488 1,360 General Corporate (110) 205 744 -------- -------- -------- Total Operating Income $ 69,061 $ 66,482 $ 61,559 ======== ======== ======== Depreciation and Amortization: Gas Utility Operations $ 23,332 $ 22,986 $ 21,676 Wholesale Gas Operations 8 - - Retail Gas and Other Operations 78 99 59 Discontinued Operations 28 19 30 -------- -------- -------- Total Depreciation and Amortization $ 23,446 $ 23,104 $ 21,765 ======== ======== ======== Property Additions: Gas Utility Operations $ 47,799 $ 47,116 $ 47,390 Wholesale Gas Operations 61 - - Retail Gas and Other Operations 163 275 390 Thermal Energy Operations 17,915 2,985 - -------- -------- -------- Total Property Additions $ 65,938 $ 50,376 $ 47,780 ======== ======== ======== Identifiable Assets: Gas Utility Operations $858,002 $842,082 $750,239 Wholesale Gas Operations 82,596 - - Retail Gas and Other Operations 19,092 22,138 14,049 Thermal Energy Operations 35,672 2,985 - Discontinued Operations 2,182 2,243 2,326 -------- -------- -------- Subtotal 997,544 869,448 766,614 Corporate Assets 33,505 20,338 15,744 Intersegment Assets (43,204) (19,807) (15,433) -------- -------- -------- Total Identifiable Assets $987,845 $869,979 $766,925 ======== ======== ======== - 43 - 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 and electricity acquisition and transportation service companies. Thermal Energy Operations consist of Marina's construction and related financing activities (See Note 3). SJI's interest expense relates primarily to SJG's borrowing and financing activities. Interest income is essentially derived from borrowings between the subsidiaries and is eliminated during consolidation. 10. Regulatory Actions: In January 1997, the BPU granted SJG a 9.62% rate of return on rate base, which included an 11.25% return on common equity. Additionally, SJG's threshold for sharing pre-tax margins generated by interruptible and off-system sales and transportation (Sharing Formula) increased. SJG keeps 100% of pre-tax margins up to the threshold level of $7.8 million and 20% of margins above that level. In 1998, the BPU revised the Sharing Formula to credit the first $750,000 above the current threshold level to the LGAC customers. Thereafter, SJG keeps 20% of the pre-tax margins as it has historically. In September 1999, the BPU approved an annual recovery level of $6.5 million for remediation costs expended from August 1995 through July 1998. This represents an annual increase of approximately $4.5 million over the recovery previously included in rates. In January 2000, the BPU approved the recovery of carrying costs on unrecovered remediation costs and a proposal by SJG to keep its current RAC rate in effect through October 2002. However, due to substantial RAC insurance recoveries, in October 2001, SJG filed for a RAC rate decrease. This proposal would reduce the annual recovery level to $4.2 million, if approved. Effective January 10, 2000, the BPU approved full unbundling of SJG's system. This allows all natural gas consumers to select their natural gas supplier. As of December 31, 2001, 39,998 of SJG's residential customers were purchasing their gas commodity from someone other than SJG. The bills of those using a gas supplier other than SJG are reduced for cost of gas charges and applicable taxes. SJG's net income, financial condition and margins are not affected as a result of the unbundling. The BPU approved a modification to SJG's LGAC whereby under-recovered gas costs of $11.9 million as of October 31, 1999, and carrying costs thereon, are being recovered over three years beginning January 2000. On November 16, 2000, the BPU approved an increase in SJG's LGAC in response to unprecedented natural gas price run-ups during 2000. The impact of the initial increase was approximately 19% to a typical residential heating customer. The BPU also approved the creation of a - 44 - flexible pricing mechanism, allowing additional 2% increases each month from December 2000 through July 2001. On November 15, 2001, SJG filed for a $17.6 million reduction to its LGAC and for recovery of a 3-year net deficiency in the TAC amounting to $2.7 million. The BPU approved the LGAC reduction effective December 1, 2001. Also on December 1, 2001, SJG implemented recovery of its October 31, 2001 under-recovered gas costs. We will recover $48.9 million over three years including interest accrued since April 1, 2001. We will also recover interest for the 3-year amortization period at a rate of 5.75%. 11. Pensions & Other Postretirement Benefits: SJI has several defined benefit pension plans and other postretirement benefit plans. The pension plans provide annuity payments to substantially all full-time, regular employees upon retirement. The other postretirement benefit plans provide health care and life insurance benefits to some retirees. The BPU authorized SJG to recover costs related to postretirement benefits other than pensions under the accrual method of accounting consistent with FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." We deferred amounts accrued prior to that authorization and are amortizing them as allowed by the BPU. The unamortized balance of $4.2 million at December 31, 2001 is recoverable in rates. We are amortizing this amount over 15 years which started January 1998. Net periodic benefit cost related to the pension and other postretirement benefit insurance plans consisted of the following components: Thousands of Dollars Pension Benefits Other Benefits 2001 2000 1999 2001 2000 1999 ------ ------ ------ ------ ------ ------ Service Cost $2,120 $1,988 $2,245 $1,063 $ 996 $1,098 Interest Cost 4,923 4,577 4,211 1,898 1,746 1,593 Expected Return on Plan Assets (5,314) (4,790) (4,280) (895) (726) (675) Amortization of Transition Obligation 72 72 72 772 772 772 Amortization of Loss (Gain) and Other 372 320 436 (3) (78) - ------ ------ ------ ------ ------ ------ Net Periodic Benefit Cost $2,173 $2,167 $2,684 $2,835 $2,710 $2,788 ====== ====== ====== ====== ====== ====== A reconciliation of the Plans' benefit obligations, fair value of plan assets, funded status and amounts recognized in SJI's consolidated balance sheets follows: - 45 - Thousands of Dollars Pension Benefits Other Benefits 2001 2000 2001 2000 -------- -------- -------- -------- Change in Benefit Obligations: Benefit Obligation at Beginning of Year $ 64,086 $ 59,530 $ 24,807 $ 22,841 Service Cost 2,120 1,988 1,063 996 Interest Cost 4,923 4,577 1,898 1,746 Actuarial Loss and Other 4,606 991 1,606 311 Benefits Paid (3,195) (3,000) (745) (1,087) -------- -------- -------- -------- Benefit Obligation at End of Year $ 72,540 $ 64,086 $ 28,629 $ 24,807 ======== ======== ======== ======== Change in Plan Assets: Fair Value of Plan Assets at Beginning of Year $ 60,084 $ 53,320 $ 11,970 $ 9,472 Actual Return on Plan Assets (9,031) 7,261 (619) 652 Employer Contributions 2,500 2,503 2,859 2,933 Benefits Paid (3,195) (3,000) (745) (1,087) -------- -------- -------- -------- Fair Value of Plan Assets at End of Year $ 50,358 $ 60,084 $ 13,465 $ 11,970 ======== ======== ======== ======== Funded Status $(22,182) $ (4,002) $(15,164) $(12,837) Unrecognized Prior Service Cost 3,536 3,082 - - Unrecognized Net Obligation Assets from Transition 143 215 8,489 9,261 Unrecognized Net Loss (Gain) and Other 15,609 (2,516) (63) (3,186) -------- -------- -------- -------- Accrued Net Benefit Cost at End of Year $ (2,894) $ (3,221) $ (6,738) $ (6,762) ======== ======== ======== ======== The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plan with accumulated benefit obligations in excess of plan assets as of December 31, 2001 were $38.1 million, $32.0 million and $27.9 million, respectively. As of December 31, 2000, the accumulated benefit obligations did not exceed plan assets. Assumptions used in the accounting for these plans were: - 46 - Pension Benefits Other Benefits 2001 2000 2001 2000 ----- ----- ----- ----- Discount Rate 7.25% 7.75% 7.25% 7.75% Expected Return on Plan Assets 9.00% 9.00% 7.50% 7.50% Rate of Compensation Increase 4.10% 4.60% - - The assumed health-care cost trend rates used in measuring the accumulated postretirement benefit obligation as of December 31, 2001 are: Medical and Drug - 5.5% in 2001 for participants age 65 or older, remaining level thereafter; and 6.5% in 2001 for participants under age 65, grading to 5.5% in 2005; Dental - 6.5% in 2001, grading to 5.5% in 2005. A 1% change in the assumed health-care cost trend rates for SJI's postretirement health care plans in 2001 would have the following effects: Thousands of Dollars 1% Increase 1% Decrease Effect on the aggregate of the service and interest cost components $ 404 $ (331) Effect on the postretirement benefit obligation $ 3,182 $(2,642) 12. Retained Earnings: Restrictions exist under various loan agreements regarding the amount of cash dividends or other distributions that SJG may pay on its common stock. SJI's total equity in its subsidiaries' retained earnings, which is free of these restrictions, was $65.4 million as of December 31, 2001. 13. Unused Lines of Credit and Compensating Balances: Unused lines of credit available at December 31, 2001 were $42.6 million. Borrowings under these lines of credit are at market rates. The weighted borrowing cost, which changes daily, was 3.08% and 7.37% at December 31, 2001 and 2000, respectively. We maintain demand deposits with lending banks on an informal basis and they do not constitute compensating balances. 14. Commitments and Contingencies: Construction and Environmental - SJI's estimated net cost of construction and environmental remediation programs for 2002 totals $91.5 million. Commitments were made regarding some of these programs. - 47 - Gas Supply Contracts - SJG, in the normal course of business, has entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The earliest that any of these contracts expires is 2002. The transportation and storage service agreements between SJG and its interstate pipeline suppliers were made under Federal Energy Regulatory Commission approved tariffs. SJG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services is approximately $4.6 million per month, recovered on a current basis through the LGAC. Pending Litigation - SJI is subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities when these claims become apparent for amounts we believe these claims may be settled. We also maintain insurance and record probable insurance recoveries relating to outstanding claims. In management's opinion, the ultimate disposition of these claims will not have a material adverse effect on SJI's financial position, results of operations or liquidity. Standby Letters of Credit - SJI provided a $17 million standby letter of credit to Marina District Development Corporation in support of Marina's contractual obligations to construct the thermal energy plant and to supply heat, hot water and cooling to The Borgata Resort. This letter of credit was reduced to $14.3 million as of December 30, 2001. As of December 31, 2001, SJI also provided $29 million of standby letters of credit supporting the variable rate demand bonds issued through the New Jersey Economic Development Authority by Marina. A commercial bank has committed to issuing up to $46 million of annually renewing letters of credit to support development of Marina's thermal plant project. Environmental Remediation Costs - SJI incurred and recorded costs for environmental clean up of sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and some of its nonutility subsidiaries also recorded costs for environmental 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 for a 25-year period at 10 sites and for a 30-year period at one site. The following future cost estimates were not reduced by insurance recoveries from settlements or the Cleanup Cost Cap Insurance Policy. Since the early 1980s, SJI accrued environmental remediation costs of $132.9 million, of which $80.1 million was spent as of December 31, 2001. - 48 - With the assistance of a consulting firm, we estimate that future costs to clean up SJG's sites will range from $48.8 million to $143.5 million. We recorded the lower end of this range as a liability. It is reflected on the 2001 consolidated balance sheet under the captions Current Liabilities and Deferred Credits and Other Non-Current Liabilities. Recorded amounts include estimated costs based on projected investigation and remediation work plans using existing technologies. Actual costs could differ from the estimates due to the long-term nature of the projects, changing technology, government regulations and site-specific requirements. The major portion of accrued environmental costs relate to the clean up of SJG's former gas manufacturing sites. SJG has two regulatory assets associated with environmental costs (See Note 1). The first asset is titled Environmental Remediation Cost: Expended - Net. These expenditures represent what was actually spent to clean up former gas manufacturing plant sites. These costs meet the requirements of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." The BPU allows SJG to recover expenditures through the RAC (See Note 10). The other asset titled Environmental Remediation Cost: Liability for Future Expenditures relates to estimated future expenditures determined under the guidance of FASB Statement No. 5, "Accounting for Contingencies." We recorded this amount, which relates to former manufactured gas plant sites, as a deferred debit with the corresponding amount reflected on the consolidated balance sheet under the captions Current Liabilities and Deferred Credits and Other Non-Current Liabilities. The deferred debit is a regulatory asset under Statement No. 71. The BPU's intent, evidenced by current practice, is to allow SJG to recover the deferred costs after they are spent over 7-year periods. As of December 31, 2001, we reflected SJG's unamortized remediation costs of $12.8 million on the consolidated balance sheet under the caption Regulatory Assets. Since implementing the RAC in 1992, SJG recovered $29.2 million through rates (See Note 10). With Morie's sale, EMI assumed responsibility for environmental liabilities estimated between $2.7 million and $8.8 million. The information available on these sites is sufficient only to establish a range of probable liability and no point within the range is more likely than any other. Therefore, EMI continues to accrue the lower end of the range. Changes in the accrual are included in the statements of consolidated income under the caption Loss from Discontinued Operations - Net. SJI and SJF estimated their potential exposure for the future remediation of four sites where fuel oil operations existed years ago. Estimates for SJI's site range between $0.1 million and $0.4 million, while SJF's estimated liability ranges from $1.1 million to $4.9 million for its three sites. We recorded the lower ends of these ranges on the 2001 consolidated balance sheet under Current Liabilities and Deferred Credits and Other Non-Current Liabilities as of December 31, 2001. - 49 -