FILE NO. _____________
FORM U-3A-2
2002
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 sold electricity on a retail basis in the
mid-Atlantic states. In May 2002, SJES ceased selling electricity.
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 has a 100% ownership interest in 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
- 2 -
Plaza, Folsom, New Jersey 08037. Marina develops and operates energy
related projects in southern New Jersey. Marina is not a public utility
company.
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 5,282 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 -
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.
During 2002, SJG distributed at retail to residential,
commercial and industrial customers 23,178 MMcf of natural or
manufactured gas and transported 29,659 MMcf of natural gas
purchased directly by its industrial, residential and
commercial customers. Retail distribution revenues were $241.6
million and transportation revenues were $51.0 million. SJG
also sold 11,434 MMcf, or $48.1 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 2002, SJG sold 18,546 MMcf, or $67.6 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
38,048 MMcf, or $5.4 million in revenues, in 2002.
(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 2002, SJG purchased approximately 54,897 MMcf of
natural gas from out-of-state sources at a total cost,
including related expenses, of $274.4 million.
During 2002, SJG purchased and had delivered to it
approximately 180 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 $1.7 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:
- 4 -
(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.
(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 27th day of February 2003.
SOUTH JERSEY INDUSTRIES, INC.
/s/ David A. Kindlick
-----------------------------------
DAVID A. KINDLICK
Vice President, Treasurer & Chief
Financial Officer
CORPORATE SEAL
ATTEST:
/s/ Richard H. Walker, Jr., Esquire
-----------------------------------
RICHARD H. WALKER, JR., ESQUIRE
Corporate Secretary & Corporate Counsel
Name, title and address of officer to whom notices and correspondence concerning
this statement should be addressed:
Richard H. Walker, Jr., Esquire
Corporate Secretary & Corporate Counsel
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, 2002
(In Thousands)
South South South
South Jersey Jersey Jersey Energy &
Jersey Gas Energy Resources Marina Minerls, 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 $417,263 $0 $0 $0 $0 $0 $417,263 ($31,143)[C] $386,120
Nonutility 1,482 0 113,128 4,998 852 95 0 120,555 (1,549)[C] 119,006
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Total Operating Revenues 1,482 417,263 113,128 4,998 852 95 0 537,818 (32,692) 505,126
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Operating Expenses:
Cost of Gas Sold - Utility 0 274,406 0 0 0 0 0 274,406 (31,065)[C] 243,341
Cost of Sales - Nonutility 0 0 105,242 0 0 0 0 105,242 0 105,242
Operations 1,901 42,958 3,662 705 425 24 0 49,675 (1,565)[C] 48,110
Maintenance 0 6,101 0 0 0 0 0 6,101 0 6,101
Depreciation 61 22,350 17 13 10 0 0 22,451 0 22,451
Energy and Other Taxes 174 10,574 48 0 0 10 0 10,806 0 10,806
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Total Operating Expenses 2,136 356,389 108,969 718 435 34 0 468,681 (32,630) 436,051
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Operating Income (654) 60,874 4,159 4,280 417 61 0 69,137 (62) 69,075
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Other Income:
Equity in Affiliated Companies 746 0 195 0 0 0 0 941 0 941
Dividends from Subsidiaries 10,700 0 0 0 0 0 0 10,700 (10,700)[A] 0
Equity in Undistributed
Earnings of Subs 17,958 0 0 0 0 0 0 17,958 (17,958)[A] 0
Other 718 334 44 62 15 0 0 1,173 (639)[C] 534
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Total Other Income 30,122 334 239 62 15 0 0 30,772 (29,297) 1,475
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Interest Charges 519 17,556 168 116 19 0 0 18,378 (702)[C] 17,676
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Preferred Dividend Requirements
of Subsidiary 0 3,058 0 0 0 0 0 3,058 0 3,058
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Income Before Income Taxes 28,949 40,594 4,230 4,226 413 61 0 78,473 (28,657) 49,816
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Income Taxes:
Current Federal and State
Income Taxes (792) 6,275 532 2,077 (2,066) 34 0 6,060 0 6,060
Deferred Federal and State
Income Taxes 329 11,096 1,162 (401) 2,178 (20) 0 14,344 0 14,344
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Total Income Taxes (463) 17,371 1,694 1,676 112 14 0 20,404 0 20,404
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Income from Continuing
Operations 29,412 23,223 2,536 2,550 301 47 0 58,069 (28,657) 29,412
Equity in Undistributed Earnings
of Discontinued Subsidiaries (424) 0 0 0 0 0 0 (424) 424 [A] 0
Discontinued Operations - Net 0 (30) 0 0 0 (383) (11) (424) 0 (424)
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Net Income Applicable to
Common Stock $28,988 $23,193 $2,536 $2,550 $301 ($336) ($11) $57,221 ($28,233) $28,988
======== ========= ======== ========= ======= ========= ======== ========= ========= =========
- 8 -
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
South South South
South Jersey Jersey Jersey Energy &
Jersey Gas Energy Resources Marina Minerls, R & T Elimin.
Indust. Company Company Group, Energy Inc. Group, & Consd.
Inc. Consd. Consd. LLC LLC Consd. Inc. Total Adjust. Total
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Retained Earnings - Beginning $67,218 $69,255 ($108) $2,798 $6 ($13,495) ($7,011) $118,663 ($51,445)[B] $67,218
Net Income Applicable to
Common Stock 28,988 23,193 2,536 2,550 301 (336) (11) 57,221 (28,233) 28,988
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
96,206 92,448 2,428 5,348 307 (13,831) (7,022) 175,884 (79,678) 96,206
Dividends Declared - Common
Stock 18,204 10,700 0 0 0 0 0 28,904 (10,700)[A] 18,204
-------- --------- -------- --------- ------- --------- -------- --------- --------- ---------
Retained Earnings - Ending $78,002 $81,748 $2,428 $5,348 $307 ($13,831) ($7,022) $146,980 ($68,978) $78,002
======== ========= ======== ========= ======= ========= ======== ========= ========= =========
- 9 -
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
[A] Dividends from Subsidiaries $10,700
Equity in Undistributed Earnings
of Subsidiaries 17,958
Investment in Subsidiaries $17,534
Equity in Undistributed Earnings
of Discontinued Subsidiaries 424
Retained Earnings - Dividends Declared 10,700
To eliminate intercompany dividends paid and equity in
undistributed earnings recorded by South Jersey
Industries, Inc.
[B] Retained Earnings - 1/1/02 51,445
Investment in Subsidiaries 51,445
To eliminate retained earnings of subsidiaries at
1/1/02 previously recorded by South Jersey Industries,
Inc. under the equity method of accounting.
[C] Operating Revenues - Utility 31,143
Operating Revenues - Nonutility 1,549
Other Income 639
Cost of Gas Sold - Utility 31,064
Operations 1,565
Interest Charges 702
To eliminate intercompany revenue and expense.
- 10 -
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(In Thousands)
South South South
South Jersey Jersey Jersey Energy &
Jersey Gas Energy Resources Marina Minerls, 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 $846,865 $0 $0 $0 $0 $0 $846,865 $0 $846,865
Accum. Depreciation
and Amortization 0 (236,813) 0 0 0 0 0 (236,813) 0 (236,813)
Nonutility Property &
Equipment, at cost 1,249 0 90 61 54,678 1,380 492 57,950 0 57,950
Accum. Depreciation (203) 0 (48) (20) (10) (870) (277) (1,428) 0 (1,428)
--------- --------- -------- -------- -------- -------- ------- ----------- ---------- -----------
Property, Plant &
Equipment - Net 1,046 610,052 42 41 54,668 510 215 666,574 0 666,574
--------- --------- -------- -------- -------- -------- ------- ---------- ---------- -----------
Investments:
Investments in Subs 242,278 0 0 0 0 0 0 $242,278 (242,278)[1] 0
Available-for-Sale
Securities 55 3,407 0 0 0 0 0 3,462 0 3,462
Restricted 0 0 0 0 2,080 0 0 2,080 0 2,080
Investment in
Affiliates 1,128 0 721 0 0 0 0 1,849 0 1,849
--------- --------- -------- -------- -------- -------- ------- ---------- ---------- -----------
Total Investments 243,461 3,407 721 0 2,080 0 0 249,669 (242,278) 7,391
--------- --------- -------- -------- -------- -------- ------- ---------- ---------- -----------
Current Assets:
Cash & Cash Equivalnts 521 3,580 50 37 90 6 7 $4,291 0 4,291
Notes Receivable -
Associated Companies 31,390 0 0 16,085 0 3,710 1,685 52,870 (52,870)0 0
Notes Receivable -
Affiliate 0 0 135 0 0 0 0 135 0 135
Accounts Receivable 30 61,495 27,628 22,379 0 0 0 111,532 (17,427)0 94,105
Unbilled Revenues 0 27,570 5,967 0 0 0 0 33,537 0 33,537
Provision for
Uncollectibles 0 (2,816) (144) (210) 0 0 0 (3,170) 0 (3,170)
Accounts Receivable -
Associated Companies 1,604 350 3 27 0 7 3 1,994 (1,994)0 0
Natural Gas in
Storage, Average Cost 0 40,769 721 0 0 0 0 41,490 0 41,490
Materials & Supplies,
Average Cost 0 4,156 0 0 0 0 0 4,156 0 4,156
Assets of Discontinued
Businesses Held for
Disposal 660 0 0 0 0 0 0 660 0 660
Accumulated Deferred
Income Taxes 8 0 34 127 0 0 0 169 (169)[4] 0
Energy Trading Assets 0 0 6,246 29,202 0 0 0 35,448 (6,359)[8] 29,089
Prepaid Taxes 0 2,440 0 0 0 0 0 2,440 0 2,440
Prepaid Pension 750 0 268 0 0 0 0 1,018 (1,018)]7] 0
Other Prepayments and
Current Assets 75 3,435 1,956 6 484 5 5 5,966 0 5,966
--------- --------- -------- -------- -------- -------- ------- ---------- ---------- -----------
Total Current
Assets 35,038 140,979 42,864 67,653 574 3,728 1,700 292,536 (79,837) 212,699
--------- --------- -------- -------- -------- -------- ------- ---------- ---------- -----------
Regulatory and Other
Non-Current Assets:
Gross Receipts &
Franchise Taxes 0 1,811 0 0 0 0 0 1,811 0 1,811
Environmental
Remediation Costs 0 54,681 0 0 0 0 0 54,681 0 54,681
Accumulated Deferred
Income Taxes 175 0 224 0 517 1,962 103 2,981 (2,981)[5] 0
Income Taxes -
Flowthrough Deprec. 0 8,597 0 0 0 0 0 8,597 0 8,597
Deferred Fuel Costs -
Net 0 31,594 0 0 0 0 0 31,594 0 31,594
Deferred Postretiremnt
Benefit Costs 0 3,780 0 0 0 0 0 3,780 0 3,780
Energy Trading Assets 0 0 1,407 2,721 0 0 0 4,128 (1,361)[8] 2,767
Other Regulatory Assts 0 6,450 0 0 0 0 0 6,450 (1,609)[8] 4,841
Unamortized Debt
Discount and Expense 0 5,660 0 0 1,426 0 0 7,086 0 7,086
Other 57 7,314 0 0 2,168 15 0 9,554 385 [7] 9,939
--------- --------- -------- -------- -------- -------- ------- ---------- ---------- -----------
Total Regulatory &
Other Non-Current
Assets 232 119,887 1,631 2,721 4,111 1,977 103 130,662 (5,566) 125,096
--------- --------- -------- -------- -------- -------- ------- ---------- ---------- -----------
Total Assets $279,777 $874,325 $45,258 $70,415 $61,433 $6,215 $2,018 $1,339,441 ($327,681) $1,011,760
========= ========= ======== ======== ======== ======== ======= ========== ========== ===========
- 11 -
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(In Thousands)
South South South
South Jersey Jersey Jersey Energy &
Jersey Gas Energy Resources Marina Minerls, 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 -
12,206,474 $15,258 $0 $0 $0 $0 $0 $0 $15,258 $0 $15,258
Common Stock - Subs 0 5,848 50 0 0 13,283 1,000 20,181 (20,181)[1] 0
Premium on Com. Stock 150,999 135,317 3,500 2,918 2,000 1,584 7,800 304,118 (153,119)[1] 150,999
Capital Stock Expense (565) 0 0 0 0 0 0 (565) 0 (565)
Accumulated Other
Comprehensive (Loss)
Income 0 (8,689) 0 5,027 (1,438) 0 0 (5,100) (802)[7] (5,902)
Retained Earnings 78,002 81,748 2,428 5,348 307 (13,831) (7,022) 146,980 (68,978)[1] 78,002
--------- --------- -------- -------- -------- -------- ------- ----------- ---------- -----------
Total Common Equity 243,694 214,224 5,978 13,293 869 1,036 1,778 480,872 (243,080) 237,792
--------- --------- -------- -------- -------- -------- -------- ----------- ---------- -----------
Preferred Stock and
Securities of Subs.:
Series B, 8% - 16,904
shares 0 1,690 0 0 0 0 0 1,690 0 1,690
8.35% Company -
Guaranteed Mandatrly
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) 0 199,016 0 0 39,000 0 0 238,016 0 238,016
--------- --------- -------- -------- -------- -------- ------- ----------- ---------- -----------
Current Liabilities:
Notes Payable - Banks 12,600 153,900 0 0 0 0 0 166,500 0 166,500
Current Maturities of
Long-Term Debt 0 10,696 0 0 0 0 0 10,696 0 10,696
Notes Payable -
Associated Companies 21,480 0 12,875 0 18,100 415 0 52,870 (52,870)]3] 0
Accounts Payable 786 42,124 18,250 32,327 859 23 1 94,370 (17,713)[2,6] 76,657
Accounts Payable to
Associated Companies 282 942 141 69 243 29 2 1,708 (1,708)[2] 0
Customer Deposits 0 6,924 0 0 0 0 0 6,924 0 6,924
Accumulated Deferred
Income Taxes 18 19,844 1,339 3,796 0 (13) 3 24,987 (169)[4] 24,818
Taxes Accrued (888) 4,212 (1,065) 686 (1,924) (117) (12) 892 0 892
Environmental
Remediation Costs 18 4,852 0 0 0 234 0 5,104 0 5,104
Interest Accrued 0 5,452 0 0 0 0 0 5,452 0 5,452
Dividends Declared 0 34 0 0 0 0 0 34 0 34
Energy Trading
Liabilities 0 0 5,653 17,880 0 0 0 23,533 (7,968)[8] 15,565
Derivatives 0 142 0 0 0 0 0 142 0 142
Other Current
Liabilities 132 2,620 423 57 152 443 21 3,848 0 3,848
--------- --------- -------- -------- -------- -------- ------- ----------- ---------- -----------
Total Current
Liabilities 34,428 251,742 37,616 54,815 17,430 1,014 15 397,060 (80,428) 316,632
--------- --------- -------- -------- -------- -------- ------- ----------- ---------- -----------
Deferred Credits & Other
Non-Current Liabilties:
Pension and Other
Postretiremnt Benefts 436 14,206 164 0 0 84 215 15,105 723 [7] 15,828
Deferred Income Taxes
- Net 379 98,536 351 0 1,703 446 10 101,425 (3,535)[5.7] 97,890
Investment Tax Credits 0 3,819 0 0 0 0 0 3,819 0 3,819
Environmental
Remediation Costs 57 43,359 0 0 0 3,635 0 47,051 0 47,051
Energy Trading
Liabilities 0 0 1,149 2,307 0 0 0 3,456 (1,361)[8] 2,095
Derivatives 0 0 0 0 2,431 0 0 2,431 0 2,431
Other 783 12,733 0 0 0 0 0 13,516 0 13,516
--------- --------- -------- -------- -------- -------- ------- ----------- ---------- -----------
Total Def. Credits &
Other Non-Current
Liabilities 1,655 172,653 1,664 2,307 4,134 4,165 225 186,803 (4,173) 182,630
--------- --------- -------- -------- -------- -------- ------- ----------- ---------- -----------
Total
Capitalization
and Liabilities $279,777 $874,325 $45,258 $70,415 $61,433 $6,215 $2,018 $1,339,441 ($327,681) $1,011,760
========= ========= ======== ======== ======== ======== ======= =========== ========== ===========
- 12 -
SOUTH JERSEY INDUSTRIES, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 2002
[1] Common Stock - Subsidiaries $20,181
Premium on Common Stock 153,119
Retained Earnings 68,978
Investment in Subsidiaries $242,278
To eliminate South Jersey Industries, Inc. investment in subsidiaries
which is maintained on the equity method of accounting.
[2] Accounts Payable - Associated Companies 1,708
Accounts Payable 492
Accounts Receivable - Associated Companies 1,994
Accounts Receivable 206
To eliminate intercompany accounts receivable and
payable.
[3] Notes Payable - Associated Companies 52,870
Notes Receivable - Associated Companies 52,870
To eliminate intercompany short-term notes between
South Jersey Industries, Inc. and Subsidiaries
[4] Accumulated Deferred Income Taxes - Current Liability 169
Accumulated Deferred Income Taxes - Current Asset 169
To net current accumulated DFIT asset and liability
[5] Accumulated Deferred Income Taxes - Noncurrent liability 2,981
Accumulated Deferred Income Taxes - Noncurrent Asset 2,981
To net noncurrent accumulated DFIT asset and liability
[6] Accounts Payable 17,221
Accounts Receivable 17,221
To eliminate intercompany gas receivable and payable
between South Jersey Gas Company, South Jersey Energy
Company and SJ EnerTrade.
[7] Other Noncurrent Assets 385
Accumulated Other Comprehensive (Loss) Income 802
Accumulated Deferred Income Taxes - Noncurrent Liability 554
Prepaid Pension 1,018
Pension and Other Postretirement Benefits 723
To record minmum pension liability
[8] Energy Trading Liabilities - Current 7,968
Energy Trading Liabilities - Non-Current 1,361
Energy Trading Assets - Current 1,359
Energy Trading Assets - Non-Current 1,361
Other Regulatory Assets 1,605
To eliminate mark-to-market of gas contracts between
South Jersey Energy Comp
- 13 -
SOUTH JERSEY GAS COMPANY
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
South Jersey Eliminations
South Jersey Gas Company & Consolidated
Gas Company Capital Trust Total Adjustments Total
---------------- ---------------- ---------------- -------------- ---------------
Operating Revenues:
Utility $415,641 $0 $415,641 $1,622 [C] $417,263
Nonutility 0 3,013 3,013 (3,013) [A] 0
---------------- ---------------- ---------------- -------------- ---------------
Total Operating Revenues 415,641 3,013 418,654 (1,391) 417,263
---------------- ---------------- ---------------- -------------- ---------------
Operating Expenses:
Cost of Gas Sold - Utility 274,406 0 274,406 0 274,406
Cost of Sales - Nonutility 0 0 0 0 0
Operations 41,336 0 41,336 1,622 [C] 42,958
Maintenance 6,101 0 6,101 0 6,101
Depreciation 22,350 0 22,350 0 22,350
Energy and Other Taxes 10,574 0 10,574 0 10,574
---------------- ---------------- ---------------- -------------- ---------------
Total Operating Expenses 354,767 0 354,767 1,622 356,389
---------------- ---------------- ---------------- -------------- ---------------
Operating Income 60,874 3,013 63,887 (3,013) 60,874
---------------- ---------------- ---------------- -------------- ---------------
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
Other 3,601 0 3,601 (3,267)[A,B,D] 334
---------------- ---------------- ---------------- -------------- ---------------
Total Other Income 3,601 0 3,601 (3,267) 334
---------------- ---------------- ---------------- -------------- ---------------
Interest Charges 23,796 0 23,796 (6,240)[A,B] 17,556
---------------- ---------------- ---------------- -------------- ---------------
Preferred Dividend Requirements of
Subsidiary 135 2,923 3,058 0 3,058
---------------- ---------------- ---------------- -------------- ---------------
Income Before Income Taxes 40,544 90 40,634 (40) 40,594
---------------- ---------------- ---------------- -------------- ---------------
Income Taxes:
Current Federal and State Income
Taxes 6,255 0 6,255 20 [D] 6,275
Deferred Federal and State Income
Taxes 11,096 0 11,096 0 11,096
---------------- ---------------- ---------------- -------------- ---------------
Total Income Taxes 17,351 0 17,351 20 17,371
Income from Continuing Operations 23,193 90 23,283 (60) 23,223
Equity in Undistributed Earnings of
Discontinued Subsidiaries 0 0 0 0 0
Discontinued Operations - Net 0 0 0 (30) [D] (30)
Cumulative Effect of Accounting
Change - Net 0 0 0 0 0
---------------- ---------------- ---------------- -------------- ---------------
Net Income Applicable to
Common Stock $23,193 $90 $23,283 ($90) $23,193
================ ================ ================ ============== ===============
- 14 -
SOUTH JERSEY GAS COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
South Jersey Eliminations
South Jersey Gas Company & Consolidated
Gas Company Capital Trust Total Adjustments Total
---------------- ---------------- ---------------- -------------- ----------------
Retained Earnings - Beginning $69,255 $0 $69,255 $0 $69,255
Net Income Applicable to Common
Stock 23,193 90 23,283 (90) 23,193
---------------- ---------------- ---------------- -------------- ----------------
92,448 90 92,538 (90) 92,448
Dividends Declared - Common Stock 10,700 90 10,790 (90) [A] 10,700
---------------- ---------------- ---------------- -------------- ----------------
Retained Earnings - Ending $81,748 $0 $81,748 $0 $81,748
================ ================ ================ ============== ================
- 15 -
SOUTH JERSEY GAS COMPANY
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
[A] Other Income $90
Operating Revenues - Nonutility 3,013
Interest Expense $3,013
Retained Earnings - Dividends Declared - Common Stock 90
To eliminate intercompany dividends
and interest
[B] Other Income 3,227
Interest Expense 3,227
To reclass carrying cost recoveries
[C] Operations 1,622
Operating Revenues - Utility 1,622
To reclass reclass profits from appliance service
[D] Current Federal and State Income Taxes 20
Discontinued Operations-Net 30
Other Income 50
To properly present income from merchandising
- 16 -
SOUTH JERSEY GAS COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(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 $846,865 $0 $846,865 $0 $846,865
Gas Plant Acquisition Adjustment - Net 0 0 0 0 0
Gas Stored Underground 0 0 0 0 0
Accumulated Depreciation and Amortization (236,813) 0 (236,813) 0 (236,813)
Nonutility Property and Equipment, at cost 0 0 0 0 0
Accumulated Depreciation 0 0 0 0 0
------------- ------------- ------------- ------------- ------------
Property, Plant and Equipment - Net 610,052 0 610,052 0 610,052
------------- ------------- ------------- ------------- ------------
Investments:
Investments in Subsidiaries 1,082 0 1,082 (1,082) [1] 0
Available-for-Sale Securities 3,407 0 3,407 0 3,407
Restricted 0 0 0 0 0
Investment in Affiliates 0 0 0 0 0
------------- ------------- ------------- ------------- ------------
Total Investments 4,489 0 4,489 (1,082) 3,407
------------- ------------- ------------- ------------- ------------
Current Assets:
Cash and Cash Equivalents 3,580 0 3,580 0 3,580
Notes Receivable - Associated Companies 0 36,082 36,082 (36,082) [1] 0
Notes Receivable - Affiliate 0 0 0 0 0
Accounts Receivable 61,495 0 61,495 0 61,495
Unbilled Revenues 27,570 0 27,570 0 27,570
Provision for Uncollectibles (2,816) 0 (2,816) 0 (2,816)
Accounts Receivable - Associated Companies 350 0 350 0 350
Natural Gas in Storage, Average Cost 40,769 0 40,769 0 40,769
Materials and Supplies, Average Cost 4,156 0 4,156 0 4,156
Assets of Discontinued Businesses Held for
Disposal 0 0 0 0 0
Accumulated Deferred Income Taxes 1,382 0 1,382 (1,382) [3] 0
Prepaid Taxes 2,316 0 2,316 124 [4] 2,440
Energy Trading Assets 0 0 0 0 0
Prepaid Pension 13,000 0 13,000 (13,000) [5] 0
Prepayments and Other Current Assets 3,435 0 3,435 0 3,435
------------- ------------- ------------- ------------- ------------
Total Current Assets 155,237 36,082 191,319 (50,340) 140,979
------------- ------------- ------------- ------------- ------------
Regulatory and Other Non-Current Assets:
Gross Receipts & Franchise Taxes 1,811 0 1,811 0 1,811
Environmental Remediation Costs 54,681 0 54,681 0 54,681
Accumulated Deferred Income Taxes 9,461 0 9,461 (9,461) [3] 0
Income Taxes - Flowthrough Depreciation 8,597 0 8,597 0 8,597
Deferred Fuel Costs - Net 48,893 0 48,893 (17,299) [2,6] 31,594
Deferred Postretirement Benefit Costs 3,780 0 3,780 0 3,780
Unamortized Debit Discount and Expense 5,660 0 5,660 0 5,660
Energy Trading Assets 0 0 0 0 0
Other Regulatory Assets 6,450 0 6,450 0 6,450
Other 4,462 0 4,462 2,852 [5] 7,314
------------- ------------- ------------- ------------- ------------
Total Regulatory and Other Non-Current
Assets 143,795 0 143,795 (23,908) 119,887
------------- ------------- ------------- ------------- ------------
Total Assets $913,573 $36,082 $949,655 ($75,330) $874,325
============= ============= ============= ============= ============
- 17 -
SOUTH JERSEY GAS COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(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 135,317 0 135,317 0 135,317
Capital Stock Expense 0 0 0 0 0
Accumulated Other Comprehensive Loss (233) 0 (233) (8,456) [5] (8,689)
Retained Earnings 81,748 0 81,748 0 81,748
------------- ------------- ------------- ------------- ------------
Total Common Equity 222,680 1,082 223,762 (9,538) 214,224
------------- ------------- ------------- ------------- ------------
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) 235,098 0 235,098 (36,082) [1] 199,016
------------- ------------- ------------- ------------- ------------
Current Liabilities:
Notes Payable - Banks 153,900 0 153,900 0 153,900
Current Maturities of Long-Term Debt 10,696 0 10,696 0 10,696
Notes Payable - Associated Companies 0 0 0 0 0
Accounts Payable 42,124 0 42,124 0 42,124
Accounts Payable to Associated Companies 942 0 942 0 942
Customer Deposits 6,924 0 6,924 0 6,924
Accumulated Deferred Income Taxes 21,226 0 21,226 (1,382) [3] 19,844
Taxes Accrued 4,088 0 4,088 124 [4] 4,212
Environmental Remediation Costs 4,852 0 4,852 0 4,852
Interest Accrued 5,452 0 5,452 0 5,452
Dividends Delcared 34 0 34 0 34
Derivatives 142 0 142 0 142
Other Current Liabilities 2,620 0 2,620 0 2,620
------------- ------------- ------------- ------------- ------------
Total Current Liabilities 253,000 0 253,000 (1,258) 251,742
------------- ------------- ------------- ------------- ------------
Deferred Credits and Other Non-Current
Liabilities:
Pension and Other Postretirement Benefits 10,057 0 10,057 4,149 [5] 14,206
Deferred Income Taxes - Net 113,838 0 113,838 (15,302) [3,5] 98,536
Investment Tax Credits 3,819 0 3,819 0 3,819
Deferred Revenues - Net 20,145 0 20,145 (20,145) [2] 0
Environmental Remediation Costs 43,359 0 43,359 0 43,359
Energy Trading Liabilities 0 0 0 0 0
Derivatives 0 0 0 0 0
Other 9,887 0 9,887 2,846 [6] 12,733
------------- ------------- ------------- ------------- ------------
Total Def. Credits and Other Non-Current
Liabilities 201,105 0 201,105 (28,452) 172,653
------------- ------------- ------------- ------------- ------------
Total Capitalization and Liabilities $913,573 $36,082 $949,655 ($75,330) $874,325
============= ============= ============= ============= ============
- 18 -
SOUTH JERSEY GAS COMPANY
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 2002
(In Thousands)
[1] Common Stock - Subsidiary $1,082
Long-Term Debt 36,082
Notes Receivable - Assoc. Co. $36,082
Investment in Associated Company 1,082
To eliminate South Jersey Gas Company investment in
subsidiary which is maintained on the equity method of
accounting.
[2] Deferred Revenues-Net 20,145
Deferred Fuel Costs-Net 20,145
To net deferred fuel costs
[3] Accumulated Deferred Income Tax - Current Liabilities 1,382
Accumulated Deferred Income Tax - Def Cr. and
Non-Current Liabilities 9,461
Accumulated Deferred Income Tax - Current Asset 1,382
Accumulated Deferred Income Tax - Non-Current Asset 9,461
To net current and long term portions of accumulated
deferred income tax
[4] Prepaid Taxes 124
Accrued Taxes 124
To reclassify
[5] Intangible Assets 2,852
Accumulated Other Comprehensive Loss 8,456
Deferred FIT 4,554
Deferred CBT 1,287
Prepaid Pension 13,000
Pension Liability 4,149
To record SJG minimum pension liability
[6] Deferred Fuel Costs 2,846
Def Credits and Non-Current Liability-Other 2,846
To reclass overcollected taxes
- 19 -
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
SJ Eliminations
South Jersey EnerTrade, & Consolidated
Energy Company Inc. Total Adjustments Total
---------------- ---------------- ---------------- -------------- ----------------
Operating Revenues:
Utility $0 $0 $0 $0 $0
Nonutility 105,734 7,394 113,128 0 113,128
---------------- ---------------- ---------------- -------------- ----------------
Total Operating Revenues 105,734 7,394 113,128 0 113,128
---------------- ---------------- ---------------- -------------- ----------------
Operating Expenses:
Cost of Gas Sold - Utility 0 0 0 0 0
Cost of Sales - Nonutility 98,246 6,996 105,242 0 105,242
Operations 3,635 27 3,662 0 3,662
Maintenance 0 0 0 0 0
Depreciation 17 0 17 0 17
Energy and Other Taxes 48 0 48 0 48
---------------- ---------------- ---------------- -------------- ----------------
Total Operating Expenses 101,946 7,023 108,969 0 108,969
---------------- ---------------- ---------------- -------------- ----------------
Operating Income 3,788 371 4,159 0 4,159
---------------- ---------------- ---------------- -------------- ----------------
Other Income:
Equity in Affiliated Companies 195 0 195 0 195
Dividends from Subsidiaries 0 0 0 0 0
Equity in Undistributed Earnings
of Subs 238 0 238 (238) [A] 0
Other 44 0 44 0 44
---------------- ---------------- ---------------- -------------- ----------------
Total Other Income 477 0 477 (238) 239
---------------- ---------------- ---------------- -------------- ----------------
Interest Charges 168 0 168 0 168
---------------- ---------------- ---------------- -------------- ----------------
Preferred Dividend Requirements of
Subsidiary 0 0 0 0 0
---------------- ---------------- ---------------- -------------- ----------------
Income Before Income Taxes 4,097 371 4,468 (238) 4,230
---------------- ---------------- ---------------- -------------- ----------------
Income Taxes:
Current Federal and State Income
Taxes 384 148 532 0 532
Deferred Federal and State Income
Taxes 1,177 (15) 1,162 0 1,162
---------------- ---------------- ---------------- -------------- ----------------
Total Income Taxes 1,561 133 1,694 0 1,694
---------------- ---------------- ---------------- -------------- ----------------
Income from Continuing Operations 2,536 238 2,774 (238) 2,536
Equity in Undistributed Earnings of
Discontinued Subsidiaries 0 0 0 0 0
Discontinued Operations - Net 0 0 0 0 0
Cumulative Effect of Accounting
Change - Net 0 0 0 0 0
---------------- ---------------- ---------------- -------------- ----------------
Net Income Applicable to
Common Stock $2,536 $238 $2,774 ($238) $2,536
================ ================ ================ ============== ================
- 20 -
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
South Jersey SJ Eliminations
Energy EnerTrade, & Consolidated
Company Inc. Total Adjustments Total
---------------- ---------------- ---------------- -------------- ----------------
Retained Earnings - Beginning ($108) ($1,221) ($1,329) $1,221 [B] ($108)
Net Income Applicable to Common
Stock 2,536 238 2,774 (238) [A] 2,536
---------------- ---------------- ---------------- -------------- ----------------
2,428 (983) 1,445 983 2,428
Dividends Declared - Common Stock 0 0 0 0 0
---------------- ---------------- ---------------- -------------- ----------------
Retained Earnings - Ending $2,428 ($983) $1,445 $983 $2,428
================ ================ ================ ============== ================
- 21 -
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
[A] Investment in Subsidiary $238
Equity in Undistributed Earnings of Subsidiary $238
To eliminate intercompany dividends and equity in
undistributed earnings recorded by South Jersey Energy
Company.
[B] Retained Earnings 1,221
Investment in Subsidiary 1,221
To eliminate retained earnings of subsidiary at 1/1/2002
previously recorded by South Jersey Energy Company,
Inc. under the equity method of accounting.
- 22 -
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(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 87 3 90 0 90
Accumulated Depreciation (46) (2) (48) 0 (48)
-------------- ------------ ------------ ------------ ------------
Property, Plant and Equipment - Net 41 1 42 0 42
-------------- ------------ ------------ ------------ ------------
Investments:
Investments in Subsidiaries 617 0 617 (617) [1] 0
Available-for-Sale Securities 0 0 0 0 0
Restricted 0 0 0 0 0
Investment in Affiliates 721 0 721 0 721
-------------- ------------ ------------ ------------ ------------
Total Investments 1,338 0 1,338 (617) 721
-------------- ------------ ------------ ------------ ------------
Current Assets:
Cash and Cash Equivalents 50 0 50 0 50
Notes Receivable - Associated Companies 0 0 0 0 0
Notes Receivable - Affiliate 135 0 135 0 135
Accounts Receivable 26,377 1,251 27,628 0 27,628
Unbilled Revenues 5,967 0 5,967 0 5,967
Provision for Uncollectibles (144) 0 (144) 0 (144)
Accounts Receivable - Associated Companies 2 1 3 0 3
Natural Gas in Storage, Average Cost 721 0 721 0 721
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 34 0 34 0 34
Prepaid Taxes 0 0 0 0 0
Energy Trading Assets 6,246 0 6,246 0 6,246
Prepaid Pension 268 0 268 0 268
Prepayments adn Other Current Assets 1,953 3 1,956 0 1,956
-------------- ------------ ------------ ------------ ------------
Total Current Assets 41,609 1,255 42,864 0 42,864
-------------- ------------ ------------ ------------ ------------
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 220 4 224 0 224
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 1,407 0 1,407 0 1,407
Other Regulatory Assets 0 0 0 0 0
Other 0 0 0 0 0
-------------- ------------ ------------ ------------ ------------
Total Regulatory and Other Non-Current
Assets 1,627 4 1,631 0 1,631
-------------- ------------ ------------ ------------ ------------
Total Assets $44,615 $1,260 $45,875 ($617) $45,258
============== ============ ============ ============ ============
- 23 -
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(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 Loss 0 0 0 0 0
Retained Earnings 2,428 (983) 1,445 983 [1] 2,428
-------------- ------------ ------------ ------------ ------------
Total Common Equity 5,978 617 6,595 (617) 5,978
-------------- ------------ ------------ ------------ ------------
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 12,750 125 12,875 0 12,875
Accounts Payable 17,763 487 18,250 0 18,250
Accounts Payable to Associated Companies 141 0 141 0 141
Customer Deposits 0 0 0 0 0
Accumulated Deferred Income Taxes 1,316 23 1,339 0 1,339
Taxes Accrued (1,074) 9 (1,065) 0 (1,065)
Environmental Remediation Costs 0 0 0 0 0
Interest Accrued 0 0 0 0 0
Dividends Declared 0 0 0 0 0
Energy Trading Liabilities 5,653 0 5,653 0 5,653
Other Current Liabilities 423 0 423 0 423
-------------- ------------ ------------ ------------ ------------
Total Current Liabilities 36,972 644 37,616 0 37,616
-------------- ------------ ------------ ------------ ------------
Deferred Credits and Other Non-Current
Liabilities:
Pension and Other Postretirement Benefits 162 2 164 0 164
Deferred Income Taxes - Net 354 (3) 351 0 351
Investment Tax Credits 0 0 0 0 0
Environmental Remediation Costs 0 0 0 0 0
Energy Trading Liabilities 1,149 0 1,149 0 1,149
Derivatives 0 0 0 0 0
Other 0 0 0 0 0
-------------- ------------ ------------ ------------ ------------
Total Def. Credits and Other Non-Current
Liabilities 1,665 (1) 1,664 0 1,664
-------------- ------------ ------------ ------------ ------------
Total Capitalization and Liabilities $44,615 $1,260 $45,875 ($617) $45,258
============== ============ ============ ============ ============
- 24 -
SOUTH JERSEY ENERGY COMPANY
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 2002
(In Thousands))
[1] Common Stock - Subsidiary $1
Premium on Common Stock 1,599
Retained Earnings $983
Investment in Subsidiary 617
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, 2002
(In Thousands)
South Eliminations
Energy & Jersey Fuel & Consolidated
Minerals, Inc. Company, Inc. Total Adjustments Total
-------------- -------------- ------------ ------------- --------------
Operating Revenues:
Utility $0 $0 $0 $0 $0
Nonutility 95 0 95 0 95
-------------- -------------- ------------ ------------- --------------
Total Operating Revenues 95 0 95 0 95
-------------- -------------- ------------ ------------- --------------
Operating Expenses:
Cost of Gas Sold - Utility 0 0 0 0 0
Cost of Sales - Nonutility 0 0 0 0 0
Operations 24 0 24 0 24
Maintenance 0 0 0 0 0
Depreciation 0 0 0 0 0
Energy and Other Taxes 10 0 10 0 10
-------------- -------------- ------------ ------------- --------------
Total Operating Expenses 34 0 34 0 34
-------------- -------------- ------------ ------------- --------------
Operating Income 61 0 61 0 61
-------------- -------------- ------------ ------------- --------------
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 (80) 0 (80) 80 [A] 0
Other 0 0 0 0 0
-------------- -------------- ------------ ------------- --------------
Total Other Income (80) 0 (80) 80 0
-------------- -------------- ------------ ------------- --------------
Interest Charges 0 0 0 0 0
-------------- -------------- ------------ ------------- --------------
Preferred Dividend Requirements of Subsidiary 0 0 0 0 0
-------------- -------------- ------------ ------------- --------------
Income Before Income Taxes (19) 0 (19) 80 61
-------------- -------------- ------------ ------------- --------------
Income Taxes:
Current Federal and State Income Taxes 34 0 34 0 34
Deferred Federal and State Income Taxes (20) 0 (20) 0 (20)
-------------- -------------- ------------ ------------- --------------
Total Income Taxes 14 0 14 0 14
-------------- -------------- ------------ ------------- --------------
Income from Continuing Operations (33) 0 (33) 80 47
Equity in Undistributed Earnings of
Discontinued Subsidiaries 0 0 0 0 0
Discontinued Operations - Net (303) (80) (383) 0 (383)
Cumulative Effect of Accounting Change - Net 0 0 0 0 0
-------------- -------------- ------------ ------------- --------------
Net Income Applicable to Common Stock ($336) ($80) ($416) $80 ($336)
============== ============== ============ ============= ==============
- 26 -
ENERGY & MINERALS, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
South Eliminations
Energy & Jersey Fuel & Consolidated
Minerals, Inc. Company, Inc. Total Adjustments Total
-------------- -------------- ------------ ------------- --------------
Retained Earnings - Beginning ($13,495) ($1,712) ($15,207) $1,712 [B] ($13,495)
Net Income Applicable to Common Stock (336) (80) (416) 80 [A] (336)
-------------- -------------- ------------ ------------- --------------
(13,831) (1,792) (15,623) 1,792 (13,831)
Dividends Declared - Common Stock 0 0 0 0 0
-------------- -------------- ------------ ------------- --------------
Retained Earnings - Ending ($13,831) ($1,792) ($15,623) $1,792 ($13,831)
============== ============== ============ ============= ==============
- 27 -
ENERGY & MINERALS, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
[A] Equity in Undistributed Earnings $80
of Subsidiary
Investment in Subsidiary $80
To eliminate equity in undistributed earnings recorded
by Energy & Minerals, Inc.
[B] Retained Earnings - 1/1/2002 1,712
Investment in Subsidiaries 1,712
To eliminate retained earnings of subsidiary at
1/1/2002 previously recorded by Energy & Minerals, Inc.
under the equity method of accounting.
- 28 -
ENERGY & MINERALS, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(In Thousands)
South Jersey Eliminations
Energy & Fuel Company & Consolidated
Minerals, 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 872 508 1,380 0 1,380
Accumulated Depreciation (776) (94) (870) 0 (870)
-------------- ------------ ----------- ------------ -------------
Property, Plant and Equipment - Net 96 414 510 0 510
-------------- ------------ ----------- ------------ -------------
Investments:
Investments in Subsidiaries (734) 0 (734) 734 [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 (734) 0 (734) 734 0
-------------- ------------ ----------- ------------ -------------
Current Assets:
Cash and Cash Equivalents 0 6 6 0 6
Notes Receivable - Associated Companies 3,710 0 3,710 0 3,710
Notes Receivable - Affiliate 0 0 0 0 0
Accounts Receivable 0 0 0 0 0
Unbilled Revenues 0 0 0 0 0
Provision for Uncollectibles 0 0 0 0 0
Accounts Receivable - Associated Companies 7 0 7 0 7
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 0 0 0 0 0
Prepaid Taxes 0 0 0 0 0
Energy Trading Assets 0 0 0 0 0
Prepayments and Other Current Assets 4 1 5 0 5
-------------- ------------ ----------- ------------ -------------
Total Current Assets 3,721 7 3,728 0 3,728
-------------- ------------ ----------- ------------ -------------
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 1,492 470 1,962 0 1,962
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
Other Regulatory Assets 0 0 0 0 0
Other 15 0 15 0 15
-------------- ------------ ----------- ------------ -------------
Total Regulatory and Other Non-Current
Assets 1,507 470 1,977 0 1,977
-------------- ------------ ----------- ------------ -------------
Total Assets $4,590 $891 $5,481 $734 $6,215
============== ============ =========== ============ =============
- 29 -
ENERGY & MINERALS, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(In Thousands)
South Jersey Eliminations
Energy & Fuel Company & Consolidated
Minerals, Inc. Inc. Total Adjustments Total
-------------- ------------ ----------- ------------ -------------
Capitalization and Liabilities
Common Equity:
Common Stock EMI
No Par Value
Authorized - 500,000 shares
Outstanding - 98,341 shares $13,283 $0 $13,283 $0 $13,283
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 Loss 0 0 0 0 0
Retained Earnings (13,831) (1,792) (15,623) 1,792 [1] (13,831)
-------------- ------------ ----------- ------------ -------------
Total Common Equity 1,036 (734) 302 734 1,036
-------------- ------------ ----------- ------------ -------------
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 0 415 415 0 415
Accounts Payable 22 1 23 0 23
Accounts Payable to Associated Companies 17 12 29 0 29
Customer Deposits 0 0 0 0 0
Accumulated Deferred Income Taxes (13) 0 (13) 0 (13)
Taxes Accrued (117) 0 (117) 0 (117)
Environmental Remediation Costs 39 195 234 0 234
Interest Accrued 0 0 0 0 0
Dividends Declared 0 0 0 0 0
Energy Trading Liabilities 0 0 0 0 0
Other Current Liabilities 422 21 443 0 443
-------------- ------------ ----------- ------------ -------------
Total Current Liabilities 370 644 1,014 0 1,014
-------------- ------------ ----------- ------------ -------------
Deferred Credits and Other Non-Current
Liabilities:
Pension and Other Postretirement Benefits 84 0 84 0 84
Deferred Income Taxes - Net 397 49 446 0 446
Investment Tax Credits 0 0 0 0 0
Environmental Remediation Costs 2,703 932 3,635 0 3,635
Energy Trading Liabilities 0 0 0 0 0
Derivatives 0 0 0 0 0
Other 0 0 0 0 0
-------------- ------------ ----------- ------------ -------------
Total Def. Credits and Other Non-Current
Liabilities 3,184 981 4,165 0 4,165
-------------- ------------ ----------- ------------ -------------
Total Capitalization and Liabilities $4,590 $891 $5,481 $734 $6,215
============== ============ =========== ============ =============
- 30 -
ENERGY & MINERALS, INC.
CONSOLIDATING ADJUSTMENTS AND ELIMINATIONS
BALANCE SHEET - DECEMBER 31, 2002
(In Thousands)
[1] Premium on Common Stock $1,058
Investment in Subsidiary 734
Retained Earnings $1,792
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. We eliminated all
significant intercompany accounts and transactions. SJI reclassified some
previously reported amounts to conform with current year classifications.
Equity Investments - We classify equity investments purchased as long-term
investments as Available-for-Sale Securities on our consolidated balance
sheets and/or carry them at their estimated fair value with any changes in
unrealized gains or losses included in Other Comprehensive Income (See Note
8). 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. We include the
operations of these affiliated companies in the statements of consolidated
income under the caption, Equity in Affiliated Companies (See Note 3).
Estimates and Assumptions - We prepare our financial statements to conform
with generally accepted accounting principles. Management makes estimates and
assumptions that affect the amounts reported in the financial statements and
related disclosures. Therefore, actual results could differ from those
estimates.
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 9). SJG follows the accounting for regulated enterprises prescribed
by the Financial Accounting Standards Board (FASB) Statement No. 71,
"Accounting for the Effects of Certain Types of Regulation." In general,
Statement No. 71 allows deferral of certain costs and creation of certain
obligations when it is probable that these items will be recovered from or
refunded to customers in future periods.
Revenues - SJG, South Jersey Energy Company (SJE) and South Jersey Resources
Group, LLC (SJRG) bill customers monthly for gas deliveries. For SJG and SJE
retail customers not billed at the end of each month, we make an accrual to
recognize unbilled revenues from the date of the last bill to the end of the
month. We defer and recognize revenues related to SJG's appliance warranty
contracts over the full 12-month term of the contract as earned.
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
over/under-recoveries of gas costs and includes them in the following year's
- 32 -
LGAC or other similar recovery mechanism. We pay interest on overcollected
LGAC balances based on SJG's approved return on rate base (See Note 9).
SJG's tariff also includes a Temperature Adjustment Clause (TAC), a
Remediation Adjustment Clause (RAC) and a Comprehensive Resource Analysis
Clause (CRA). Our TAC reduces the impact of temperature fluctuations on SJG
and its customers. The RAC recovers remediation costs of former gas
manufacturing plants and the CRA recovers costs associated with our
conservation plan. TAC adjustments affect revenue, income and cash flows
since colder-than-normal weather can generate credits to customers, while
warmer-than-normal weather can result in additional billings. RAC adjustments
do not directly affect earnings because we defer and recover these costs
through rates over 7-year amortization periods (See Notes 9 & 14). CRA
adjustments are also deferred and do not affect earnings, as these costs are
recovered through rates on an ongoing basis.
Property, Plant and Equipment - For regulatory purposes, utility plant is
stated at original cost. Nonutility plant is stated at cost. The cost of
adding, replacing and renewing property is charged to the appropriate plant
account.
Depreciation and Amortization - We depreciate utility plant on a
straight-line basis over the estimated remaining lives of the various
property classes. We periodically review and adjust these estimates as
required after BPU approval. The composite annual rate for all depreciable
utility property was approximately 2.9% in 2002 and 2.8% in 2001 and 2000.
Except for extraordinary retirements, accumulated depreciation is charged
with the cost of depreciable utility property retired and removal costs less
salvage. We compute nonutility property depreciation on a straight-line basis
over the estimated useful lives of the property, ranging up to 20 years. We
recognize gain or loss on the disposition of nonutility property 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 2002, 2001 and
2000, no such circumstances were identified.
Energy Trading Activities and Derivative Instruments - SJI's regulated and
unregulated subsidiaries are involved in buying, selling, transporting and
storing natural gas and buying and selling retail electricity for their own
accounts as well as managing these activities for others. These subsidiaries
are subject to market risk due to price fluctuations. To manage this risk,
our companies enter into a variety of physical and financial transactions
including forward contracts, swap agreements, option contracts and futures
contracts.
SJI structured its subsidiaries so that SJG and SJE transact commodities on a
physical basis only and do not directly enter into financially settling
positions. SJRG performs this risk management function for these entities and
enters into the types of transactions noted above. Management takes an active
- 33 -
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 FASB Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended. We must
record all derivatives, whether designated in hedging relationships or not,
on the balance sheet at fair value. If the derivative is designated as a fair
value hedge, we recognize the changes in the fair value of the derivative and
of the hedged item attributable to the hedged risk in earnings. If the
derivative is designated as a cash flow hedge, we record the effective
portion of changes in the fair value of the derivative in other comprehensive
income and recognize it in the income statement when the hedged item affects
earnings. We recognize ineffective portions of changes in the fair value of
cash flow hedges in earnings. As permitted under Statement No. 133, SJI has
elected to designate certain energy-related derivative instruments as cash
flow hedges.
SJRG manages its portfolio of purchases and sales, as well as natural gas in
storage, using a variety of instruments that include forward contracts, swap
agreements, option contracts and futures contracts. Because SJRG's
transactions will not necessarily settle physically, SJRG accounts for these
contracts at fair value under Emerging Issues Task Force (EITF) Issue No.
98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities" or Statement No. 133. 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. For the years ended December
31, 2002 and 2001, we included the net unrealized pre-tax (loss) gain of
$(0.5) million and $3.4 million, respectively, on energy trading contracts
determined under the mark-to-market method, in Operating Revenues -
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.
Beginning in 2002, SJI has presented revenues and expenses from trading in
physical power contracts on a net basis in our consolidated statements of
income consistent with recent changes in EITF Issue No. 02-03. Consequently,
we classified Operating Revenues - Nonutility and Cost of Sales - Nonutility
for the year ended December 31, 2001 to conform with this presentation.
Because of the difficulty in obtaining certain information, we determined
this presentation by netting the energy contract related revenue and expense
transactions of SJRG. As a result, we based certain nonutility costs of sales
on the transfer prices between SJRG and SJE. Management believes these
transfer prices are generally at market, but has had no policy that they be
at market. There is no effect on operating income or net income from the
above changes in presentation.
- 34 -
On October 25, 2002, the EITF rescinded its consensus in Issue No. 98-10
effective for transactions entered into after that date, with a cumulative
effect adjustment for previously existing transactions to be recognized in
the quarter beginning January 1, 2003. As a result of the recision, SJI will
only mark-to-market those energy-related contracts that meet the definition
of a derivative in Statement No. 133. Energy-related contracts that do not
meet the definition of a derivative would be accounted for using the accrual
basis of accounting. The effect of this change in accounting will result in a
net charge of $426,338 shown as a cumulative effect adjustment effective
January 1, 2003. Furthermore, management will designate any contract entered
into after December 31, 2002 to hedge physical gas in storage as a cash flow
hedge and will account for them accordingly.
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.
In January 2002, Marina issued an additional $10.0 million of taxable Series
B variable rate bonds. In April 2002, we entered into an interest rate swap
contract that effectively fixes the interest rate on these bonds at 4.62% for
a 4-year period. The notional amount of this swap decreases to $8.0 million
in December 2003, then to $3.9 million in December 2004, and terminates in
December 2005.
Also in April 2002, SJG entered into two interest rate swap contracts that
effectively fix the interest rate at 3.57% through March 15, 2003 on $40.0
million of SJG's debt outstanding under its bank lines.
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 is recognized as an adjustment to interest expense.
We account for these interest rate swaps as cash flow hedges. As of December
31, 2002 and 2001, the market value of these swaps was $(2.6) and $0.5
million, respectively, which represents the amount we would have to pay/be
paid by the counterparty to terminate these contracts as of those dates. We
include these balances on the 2002 and 2001 consolidated balance sheets under
the caption Derivatives. As of December 31, 2002 and 2001, we calculated the
swaps to be highly effective; therefore, we record the offset to the hedge
asset, net of taxes, in Accumulated Other Comprehensive Loss (See Note 8).
We determined the fair value of derivative instruments by reference to quoted
market prices of listed contracts, published quotations or quotations from
independent parties.
- 35 -
New Accounting Pronouncements - In June 2001, the FASB issued Statement No.
142, "Goodwill and Other Intangible Assets" and Statement No. 143,
"Accounting for Asset Retirement Obligations."
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. It provides that intangible assets with finite useful lives be
amortized and that goodwill and intangible assets with indefinite lives not
be amortized, but rather be tested at least annually for impairment. In 1983,
SJG acquired certain gas distribution and operating facilities with an excess
of purchase price over net book value of $2.9 million, which was being
amortized over 40 years. This acquisition adjustment is deemed to have an
indefinite useful life. Accordingly, SJG ceased amortizing the premium on
January 1, 2002 upon adoption of Statement No. 142, leaving a carrying amount
of $1.6 million, which we reflect in the caption Utility Plant on the
consolidated balance sheets. The premium amortization approximated $75,000 in
2001 and 2000.
Statement No. 143, which will be adopted in 2003, establishes accounting and
reporting standards for legal obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SJG has
certain easements and right-of-way agreements that qualify as legal
obligations under Statement No. 143. However, it is our intent to maintain
these agreements in perpetuity; therefore, no change in SJG's current
accounting practices is required at this time.
SJG recovers certain asset retirement costs through rates charged to
customers as an approved component of depreciation expense. When we retire
depreciable properties, we charge the original cost thereof, plus cost of
removal less salvage, to accumulated depreciation. As of December 31, 2002,
SJG had accrued amounts in excess of actual removal costs incurred totaling
$41.4 million which is included in utility plant accumulated depreciation. We
do not expect the adoption of this statement to materially affect SJI's
financial condition or results of operations.
In August 2001, the FASB also issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which became effective in 2002.
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. The adoption of this statement did not affect SJI's
financial condition or results of operations nor do we expect its ongoing
application to materially affect SJI's financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which is effective for exit or
disposal activities initiated after December 31, 2002. We do not expect the
adoption of this statement to materially affect SJI's financial condition or
results of operations.
- 36 -
In November 2002, the FASB released Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." See section on Parental Guarantees
under Note 14, Commitment and Contingencies, for discussion.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which is effective for
SJI's 2002 annual financial statements and subsequent interim financial
reporting. This statement provides alternate methods of transitioning for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, it requires prominent disclosures about
the method of accounting for stock-based employee compensation and the effect
of the method used on reported results. The provisions of this statement
currently have no impact on SJI's financial statements (See Note 4).
Income Taxes - Deferred income taxes are provided for all significant
temporary differences between book and taxable income (See Notes 5 & 13).
Other Regulatory Assets - Other Regulatory Assets at December 31, 2002 and
2001 consisted of the following items:
Years Thousands of Dollars
Remaining 2002 2001
---------- --------------------------
Environmental Remediation Costs:
(Notes 9 & 14)
Expended - Net 7 $ 6,470 $ 12,831
Liability for Future Expenditures - 48,211 48,790
Income Taxes - Flowthrough
Depreciation (Note 5) 9 8,597 9,575
Postretirement Benefit Costs (Note 11) 10 3,780 4,158
Gross Receipts and Franchise
Taxes (Note 5) 4 1,811 2,254
Other - 4,841 2,386
--------------------------
Total Other Regulatory Assets $ 73,710 $ 79,994
==========================
Each item separately identified is being recovered through utility rate
charges without a return on investment over the period indicated. The
majority of the assets reflected above under the caption "Other" is currently
subject to filings with the BPU requesting recovery. Management believes that
all such deferred costs will be permitted to be recovered from ratepayers
through future utility rates.
In addition, SJG has one significant regulatory liability for overcollected
taxes totaling $2.8 million and $1.6 million, including interest, as of
December 31, 2002 and 2001, respectively. We include these amounts in the
caption "Other" under the heading Deferred Credits and Other Non-Current
Liabilities and are subject to being returned to ratepayers in future rate
proceedings.
- 37 -
Statements of Consolidated Cash Flows - For purposes of reporting cash flows,
highly liquid investments with original maturities of three months or less
are considered cash equivalents.
2. Preferred Stock and Securities of Subsidiary:
Redeemable Cumulative Preferred Stock - Annually, SJG is required to offer to
purchase 1,500 shares of its Cumulative Preferred Stock, Series B at par
value, plus accrued dividends. SJG may not declare or pay dividends or make
distributions on its common stock if preferred stock dividends are in
arrears. Preferred shareholders may elect a majority of SJG's directors if
four or more quarterly dividends are in arrears.
Mandatorily Redeemable Preferred Securities - In 1997, SJG's statutory trust
subsidiary, SJG Capital Trust (Trust), sold $35 million of 8.35%
SJG-Guaranteed Mandatorily Redeemable Preferred Securities. The Trust's only
assets are the 8.35% Deferrable Interest Subordinated Debentures issued by
SJG maturing April 2037. This is also the maturity date of the Preferred
Securities. The Debentures and Preferred Securities are redeemable at SJG's
option at a price equal to 100% of the principal amount.
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.
- 38 -
SJG operated two retail stores which sold natural gas appliances. The stores
were intended to provide gas customers with access to and choice among
natural gas appliances. In 2001, SJG formally discontinued this merchandising
segment of its operations as those appliances are readily available from
other retailers.
Summarized operating results of the discontinued operations were:
Thousands of Dollars
2002 2001 2000
---------------------------------
Operating Revenues - Merchandising $ 26 $ 1,016 $ 1,193
=================================
(Loss) Income before Income Taxes:
Sand Mining $ (467) $ 719 $ (155)
Construction (17) 78 8
Fuel Oil (122) (113) (123)
Electric - (1,150) (488)
Merchandising (50) (351) (128)
Income Taxes 232 362 329
---------------------------------
Loss from Discontinued Operations - Net $ (424) $ (455) $ (557)
=================================
Earnings Per Common Share from
Discontinued Operations - Net $ (0.03) $ (0.03) $ (0.05)
=================================
Losses from sand mining are mainly comprised of environmental remediation and
product liability litigation associated with Morie's prior activities.
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.,
an SJE subsidiary, 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, we included SJRG's
operations on a consolidated basis. Prior to January 1, 2001, we accounted
for SJI's investment in SJRG on the equity method.
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. (EES) formed South Jersey
Energy Solutions, LLC (SJES) to market retail electricity and energy
management services. SJES began supplying retail electric during 2000, and
ceased active operations in May 2002.
- 39 -
In April 2000, SJE and GZA GeoEnvironmental, Inc. formed Air Logics, 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 $56.6 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:
2002 2001 2000
-------------------------------------
Beginning of Year 11,860,990 11,499,701 11,152,175
New Issues During Year:
Dividend Reinvestment Plan 338,518 354,809 335,427
Employees' Stock Ownership Plan 4,162 3,707 3,917
Stock Option, Stock Appreciation
Rights and Restricted Stock
Award Plan 590 604 5,545
Directors' Restricted Stock 2,214 2,169 2,637
-------------------------------------
End of Year 12,206,474 11,860,990 11,499,701
=====================================
We credited the par value ($1.25 per share) of stock issued in 2002, 2001 and
2000 to Common Stock. We credited the net excess over par value of
approximately $10.5 million, $10.6 million and $8.5 million, respectively, to
Premium on Common Stock.
Earnings Per Common Share - We present basic EPS based on the
weighted-average number of common shares outstanding. EPS are presented in
accordance with FASB Statement No. 128, "Earnings Per Share," which
establishes standards for computing and presenting basic and diluted EPS. The
incremental shares required for inclusion in the denominator for the diluted
EPS calculation were 77,866, 34,254 and 9,664 shares for the years ended
December 31, 2002, 2001 and 2000, respectively. These shares relate to
restricted stock and stock options and were calculated using the treasury
stock method.
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,
2002, 2001 and 2000, SJI had -0-, 2,000 and 4,500 options outstanding,
respectively, all exercisable at $24.69 per share. No options were granted in
2002, 2001 or 2000. When granted, SJI values stock options to employees using
- 40 -
the intrinsic value method. No stock appreciation rights were issued under
the Plan. In 1999, we amended the Plan to include restricted stock awards. In
2002, 2001 and 2000, we granted 26,034, 44,384 and 10,267 restricted shares,
respectively. These restricted shares vest over a 3-year period and, with the
exception of the 2000 award, are subject to SJI achieving certain performance
targets. The annual expense associated with these awards was $579,900 in 2002
and $61,300 in both 2001 and 2000.
Dividend Reinvestment Plan (DRP) and Employees' Stock Ownership Plan (ESOP) -
Newly issued shares of common stock offered through the DRP are issued
directly by SJI. All shares offered through the ESOP are also issued directly
by SJI. As of December 31, 2002, SJI reserved 1,165,707 and 15,566 shares of
authorized, but unissued, common stock for future issuance to the DRP and
ESOP, respectively.
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. The annual expense associated with this plan was
approximately $67,000 for each of the past three years.
Shareholder Rights Plan - In 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 will expire if not exercised or redeemed by September 20,
2006.
5. 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 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 -
6. 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, 2002 and 2001, these residual proceeds totaled $2.1 and $14.4 million,
respectively.
SJRG maintains a margin account with a national investment firm to support
its energy trading activities. As of December 31, 2002, the account reflected
a $2.4 million balance due to changes in the market value of outstanding
contracts. The balance approximated $8.6 million as of December 31, 2001.
Long-Term Debt - We estimate the fair values of SJI's long-term debt,
including current maturities, as of December 31, 2002 and 2001, to be $291.4
and $288.0 million, respectively. Carrying amounts are $248.7 and $269.0
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, 2002 and 2001.
7. Segments of Business:
Information about SJI's operations in different industry segments is
presented below:
Thousands of Dollars
2002 2001 2000
-----------------------------------
Operating Revenues:
Gas Utility Operations $ 417,262 $ 475,462 $ 445,818
Wholesale Gas Operations 4,998 6,144 -
Retail Gas and Other Operations 114,706 96,752 82,761
On-Site Energy Production 852 - -
-----------------------------------
Subtotal 537,818 578,358 528,579
Intersegment Sales (32,692) (32,372) (15,963)
-----------------------------------
Total Operating Revenues $ 505,126 $ 545,986 $ 512,616
===================================
Operating Income:
Gas Utility Operations $ 60,874 $ 60,463 $ 62,618
Wholesale Gas Operations 4,280 4,628 -
Retail Gas and Other Operations 4,159 3,824 3,352
On-Site Energy Production 416 - -
General Corporate (654) (371) (506)
-----------------------------------
Total Operating Income $ 69,075 $ 68,544 $ 65,464
===================================
- 42 -
Depreciation and Amortization:
Gas Utility Operations $ 24,730 $ 23,332 $ 22,986
Wholesale Gas Operations 12 8 -
Retail Gas and Other Operations 84 78 99
On-Site Energy Production 10 - -
Discontinued Operations 28 28 19
-----------------------------------
Total Depreciation and
Amortization $ 24,864 $ 23,446 $ 23,104
===================================
Property Additions:
Gas Utility Operations $ 49,646 $ 47,799 $ 47,116
Wholesale Gas Operations - 61 -
Retail Gas and Other Operations 138 163 275
On-Site Energy Production 33,925 17,915 2,985
-----------------------------------
Total Property Additions $ 83,709 $ 65,938 $ 50,376
===================================
Identifiable Assets:
Gas Utility Operations $ 872,716 $ 859,586 $ 842,082
Wholesale Gas Operations 62,569 82,596 -
Retail Gas and Other Operations 44,732 19,092 22,138
On-Site Energy Production 60,916 35,672 2,985
Discontinued Operations 2,335 2,182 2,243
------------------------------------
Subtotal 1,043,268 999,128 869,448
Corporate Assets 40,783 33,505 20,338
Intersegment Assets (72,291) (43,204) (19,807)
-------------------------------------
Total Identifiable Assets $1,011,760 $ 989,429 $ 869,979
=====================================
Gas Utility Operations consists 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. On-Site
Energy Production consists 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.
- 43 -
8. Comprehensive Income:
The components of comprehensive income are as follows:
Thousands of Dollars
2002 2001 2000
-----------------------------------
Net Income Applicable to Common Stock $ 28,988 $ 26,562 $ 24,184
===================================
Other Comprehensive (Loss) Income:
Minimum Pension Liability
Adjustment - Net * (7,271) (1,988) -
Change in Fair Value of
Investments - Net * (149) - -
Change in Fair Value of Energy
Trading Assets / Liabilities - Net* 5,027 - -
Change in Fair Value of Other
Derivatives - Net * (1,822) 301 -
-----------------------------------
Total Other Comprehensive Loss (4,215) (1,687) -
-----------------------------------
Comprehensive Income $ 24,773 $ 24,875 $ 24,184
===================================
* Determined using an effective tax rate of 40.85%.
9. 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 increased. Currently, SJG keeps 100% of
pre-tax margins up to the threshold level of $7.8 million. The next $750,000
is credited to the LGAC. Thereafter, SJG keeps 20% of the pre-tax margins as
it has historically.
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, 2002, 92,543 of SJG's customers were purchasing their gas
commodity from someone other than SJG. Customers choosing to purchase natural
gas from providers other than the utility are charged for the cost of gas by
the marketer, not the utility. The resulting decrease in SJG's revenues is
offset by a corresponding decrease in gas costs. While customer choice can
reduce utility revenues, it does not negatively affect SJG's net income or
financial condition. The BPU continues to allow for full recovery of natural
gas costs through the LGAC as well as other costs of service, including
deferred costs, through tariffs.
In November 2001, SJG filed for a $2.7 million rate increase to recover the
cash related to a 3-year net deficiency in the TAC. Additionally, in
September 2002, SJG filed for an $8.6 million rate increase to recover the
- 44 -
cash related to a TAC deficiency resulting from warmer-than-normal weather
for the 2001-2002 winter.
Also in November 2001, SJG filed for a $17.6 million reduction to its LGAC.
The BPU approved the LGAC reduction effective December 1, 2001 and
concurrently approved recovery of SJG's October 31, 2001 underrecovered gas
cost balance. As a result, SJG will recover $48.9 million over three years
plus interest accrued since April 1, 2001. SJG will also recover interest for
the 3-year amortization period at a rate of 5.75%. In May 2002, SJG received
approval from the BPU to reduce its overcollected LGAC balance by another
$17.6 million through a customer refund. This refund did not affect SJG's net
income or financial condition. In September 2002, SJG filed with the BPU to
maintain its current LGAC rate through October 2003.
During 2002, the BPU convened a gas policy group to address Basic Gas Supply
Service (BGSS), which is the gas supply service being provided by the natural
gas utility. On December 18, 2002, the BPU approved the proposed BGSS price
structure which was submitted by the gas policy group. When the BGSS is
implemented in 2003, customers will be able to make more informed decisions
about choosing an alternate supplier by having a utility price structure that
more currently reflects market conditions. Further, BGSS will provide SJG
with more pricing flexibility, through automatic rate changes, resulting in
the reduction of over/under-recoveries. The BGSS approved price structure
will replace the current LGAC pricing structure. However, other LGAC-related
mechanisms, such as deferred accounting treatment, the sharing of pre-tax
margins generated by interruptible and off-system sales and transportation,
and the allowance for full recovery of natural gas costs, will remain in
place under BGSS.
In August 2002, SJG filed for a Societal Benefits Clause (SBC) rate increase.
The SBC recovers costs related to BPU-mandated programs, including
environmental remediation costs that are recovered through its RAC; energy
efficiency and renewable energy program costs recovered through its CRA
Clause (renamed in December 2002 as the New Jersey Clean Energy Programs);
consumer education program costs; and low income program costs. If approved,
the rate increase filed would provide for an annual recovery level of $13.7
million, representing an annual increase of approximately $7.0 million over
the $6.7 million recovery currently included in rates.
Also in August 2002, SJG filed a petition with the BPU to transfer its
appliance service business from the regulated utility into a newly created
unregulated company. As filed, the newly created company would have the
flexibility to be more responsive to competition and customer needs by
expanding and modifying its service offerings in an unregulated environment.
- 45 -
10. Unused Lines of Credit and Compensating Balances:
Unused lines of credit available at December 31, 2002 were $30.5 million.
Borrowings under these lines of credit are at market rates. The weighted
borrowing cost, which changes daily, was 2.28% and 3.08% at December 31, 2002
and 2001, respectively. We maintain demand deposits with lending banks on an
informal basis and they do not constitute compensating balances.
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.
In 2002, we changed the actuarial valuation measurement date for our pension
plans from September 30 to December 31 to conform to the measurement date
used for our postretirement health care plans and to better reflect the
actual pension balances as of SJI's balance sheet dates. This change had no
significant effect on 2002 or prior years' pension expense.
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
$3.8 million at December 31, 2002 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
2002 2001 2000 2002 2001 2000
-----------------------------------------------------------------------
Service Cost $ 2,237 $ 2,120 $ 1,988 $ 1,131 $ 1,063 $ 996
Interest Cost 5,029 4,923 4,577 2,355 1,898 1,746
Expected Return on
Plan Assets (4,567) (5,314) (4,790) (1,046) (895) (726)
Amortization of
Transition Obligation 72 72 72 772 772 772
Amortization of Loss
(Gain) and Other 838 372 320 73 (3) (78)
-----------------------------------------------------------------------
Net Periodic
Benefit Cost $ 3,609 $ 2,173 $ 2,167 $ 3,285 $ 2,835 $ 2,710
=======================================================================
- 46 -
A reconciliation of the plans' benefit obligations, fair value of plan
assets, funded status and amounts recognized in SJI's consolidated balance
sheets follows:
Thousands of Dollars
Pension Benefits Other Benefits
2002 2001 2002 2001
------------------------------------------
Change in Benefit Obligations:
Benefit Obligation at Beginning
of Year $ 72,540 $ 64,086 $ 28,629 $ 24,807
Service Cost 2,237 2,120 1,131 1,063
Interest Cost 5,029 4,923 2,355 1,898
Actuarial Loss (Gain)
and Other 5,738 4,606 (103) 1,606
Benefits Paid (4,438) (3,195) (1,039) (745)
------------------------------------------
Benefit Obligation at
End of Year $ 81,106 $ 72,540 $ 30,973 $ 28,629
==========================================
Change in Plan Assets:
Fair Value of Plan Assets at
Beginning of Year $ 50,358 $ 60,084 $ 13,465 $ 11,970
Actual
Return on Plan Assets (3,508) (9,031) (1,529) (619)
Employer Contributions 20,700 2,500 2,939 2,859
Benefits Paid (4,438) (3,195) (1,040) (745)
------------------------------------------
Fair Value of Plan Assets at
End of Year $ 63,112 $ 50,358 $ 13,835 $ 13,465
==========================================
Funded Status: $(17,994) $(22,182) $(17,138) $(15,164)
Unrecognized Prior
Service Cost 3,165 3,536 - -
Unrecognized Net
Transition Obligation 72 143 7,718 8,489
Unrecognized Net
Loss (Gain) and Other 28,955 15,609 2,337 (63)
------------------------------------------
Accrued Net Benefit Cost at
End of Year $ 14,198 $ (2,894) $ (7,083) $ (6,738)
==========================================
Amounts Recognized in the
Statement of Financial Position
Consist of:
Accrued Benefit Liability $ (4,693) $ (8,785) $ (7,083) $ (6,738)
Intangible Asset 3,237 2,521 - -
Accumulated Other
Comprehensive Income 15,654 3,370 - -
------------------------------------------
Net Amount Recognized
at End of Year $ 14,198 $ (2,894) $ (7,083) $ (6,738)
==========================================
- 47 -
The accumulated benefit obligation of SJI's pension plans at December 31,
2002 and 2001 was $67.8 million and $59.1 million, respectively.
At December 31, 2002 and 2001, SJI recorded additional minimum pension
liabilities of $18.9 million and $5.9 million, respectively, which we
reflected in the consolidated balance sheets under the caption Pension and
Other Postretirement Benefits. These liability adjustments resulted from
decreases in the fair value of plan assets, which were due to the declining
stock market, and decreases in the discount rates over the past two years.
SJI also has unqualified pension plans provided to certain officers and
outside directors which are unfunded. The aggregate accrued net benefit
obligation of such plans as of December 31, 2002 and 2001 was $3.9 million
and $3.7 million, respectively.
Assumptions used in the accounting for these plans were:
Pension Benefits Other Benefits
2002 2001 2002 2001
---------------------------------------
Discount Rate 6.75% 7.25% 6.75% 7.25%
Expected Return on Plan Assets 9.00% 9.00% 7.50% 7.50%
Rate of Compensation Increase 3.60% 4.10% -- --
The assumed health-care cost trend rates used in measuring the accumulated
postretirement benefit obligation as of December 31, 2002 are: Medical and
Drug - 7.5% in 2002 for participants age 65 or older; and 12.0% in 2002 for
participants under age 65; Dental - 7.5% in 2002. All three of these rates
grade to 5.0% in 2016 and remain level thereafter.
A 1% change in the assumed health-care cost trend rates for SJI's
postretirement health care plans in 2002 would have the following effects:
Thousands of Dollars
1% Increase 1% Decrease
----------- -----------
Effect on the aggregate of the
service and interest cost components $ 515 $ (423)
Effect on the postretirement benefit
obligation $4,670 $(4,836)
- 48 -
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 $76.2 million as of December 31, 2002.
13. Income Taxes:
Total income taxes applicable to operations differ from the tax that would
have resulted by applying the statutory Federal Income Tax rate to pre-tax
income for the following reasons:
Thousands of Dollars
2002 2001 2000
------------------------------------
Tax at Statutory Rate $ 17,436 $ 16,157 $ 15,208
Increase (Decrease) Resulting from:
State Income Taxes 3,143 2,857 3,167
ESOP (489) - -
Amortization of Investment Tax Credit (347) (347) (335)
Tax Depreciation Under Book
Depreciation on Utility Plant 664 664 664
Other - Net (3) (36) 5
------------------------------------
Income Taxes:
Continuing Operations 20,404 19,295 18,709
Discontinued Operations (232) (362) (329)
Cumulative Effect of a Change
in Accounting Principle - 103 -
------------------------------------
Net Income Taxes $ 20,172 $ 19,036 $ 18,380
====================================
The provision for Income Taxes is comprised of the following:
Thousands of Dollars
2002 2001 2000
--------------------------------------
Current:
Federal $ 3,044 $ 8,306 $ 2,801
State 3,017 3,678 2,052
--------------------------------------
Total Current 6,061 11,984 4,853
--------------------------------------
Deferred:
Federal:
Excess of Tax Depreciation Over
Book Depreciation - Net 10,960 4,668 5,220
Deferred Fuel Costs (3,728) 794 12,157
Environmental Costs - Net (1,490) (1,850) (2,504)
Alternative Minimum Tax (495) 2,851 (1,694)
Benefit of State Tax 636 251 (984)
Prepaid Pension 5,743 - -
Deferred Regulatory Costs 1,543 175 69
Other - Net (297) 51 (894)
State 1,818 718 2,821
--------------------------------------
Total Deferred 14,690 7,658 14,191
--------------------------------------
Investment Tax Credit (347) (347) (335)
--------------------------------------
Income Taxes:
Continuing Operations 20,404 19,295 18,709
Discontinued Operations (232) (362) (329)
Cumulative Effect of a Change
in Accounting Principle - 103 -
--------------------------------------
Net Income Taxes $ 20,172 $ 19,036 $ 18,380
======================================
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
2002 2001
--------------------------
Current:
Deferred Fuel Costs $ 20,368 $ 25,054
Derivatives / Unrealized Gain 3,595 1,435
Other 855 140
--------------------------
Current Deferred Tax Liability - Net $ 24,818 $ 26,629
==========================
Non-Current:
Book versus Tax Basis of Property 98,839 85,569
Prepaid Pension 7,117 -
Environmental 878 2,761
Excess Protected 3,160 3,225
Deferred Regulatory Costs 3,873 1,660
Minimum Pension Liability (6,395) (1,382)
Deferred State Tax (2,678) (2,126)
Investment Tax Credit Basis Gross Up (2,070) (2,249)
Alternative Minimum Tax (2,089) (1,080)
Other (2,745) (1,661)
--------------------------
Non-Current Deferred Tax Liability - Net $ 97,890 $ 84,717
==========================
- 50 -
14. Commitments and Contingencies:
Construction and Environmental - SJI's estimated net cost of construction and
environmental remediation programs for 2003 totals $57.8 million. Commitments
were made regarding some of these programs.
Gas Supply Contracts - SJG, in the normal course of business, has entered
into long-term contracts for natural gas supplies, firm transportation and
gas storage service. The earliest that any of these contracts expires is
2003. 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
$4.0 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 related to
these claims when we can determine the amount or range of amounts of likely
settlement costs for those claims. Among other actions, SJI has been named in
certain product liability claims related to our former sand mining
subsidiary. Management does not currently anticipate the disposition of any
known claims to have a material adverse effect on SJI's financial position,
results of operations or liquidity.
Parental Guarantees - In 2002, the FASB released Interpretation No. 45 (FIN
45) "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
companies to disclose the nature of its guarantees or indemnification
agreements for interim and year-end financial statements ending after
December 15, 2002. As of December 31, 2002, SJI had issued $96.6 million of
parental guarantees on behalf of its subsidiaries. Nearly two-thirds of these
guarantees expire within one year with the remainder having no expiration
date. The vast majority of these guarantees was issued as a guarantee of
payment to third parties with whom our subsidiaries have commodity supply
contracts. As of December 31, 2002, these guarantees support $13.5 million of
the Accounts Payable recorded on our consolidated balance sheet. As part of
our risk management policy, we also require parental guarantees from trading
counterparties as applicable. These arrangements are typical in our industry.
SJI has also issued two parental guarantees totaling $7.1 million related to
Marina's construction activity.
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 $6.4 million as of December 31, 2002.
- 51 -
As of December 31, 2002, SJI also provided $39 million of standby letters of
credit supporting the variable rate demand bonds issued through the New
Jersey Economic Development Authority by Marina. Commercial banks have
committed to issue up to $46 million of annually renewing letters of credit
to support development of Marina's thermal plant project.
Environmental Remediation Costs - SJI incurred and recorded costs for
environmental clean up of sites where SJG or its predecessors operated gas
manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and
some of its nonutility subsidiaries also recorded costs for environmental
clean up of sites where SJF previously operated a fuel oil business and Morie
maintained equipment, fueling stations and storage.
SJI successfully entered into settlements with all of its historic
comprehensive general liability carriers regarding the environmental
remediation expenditures at the SJG sites. Also, SJG purchased a Cleanup Cost
Cap Insurance Policy limiting the amount of remediation expenditures that SJG
will be required to make at 11 of its sites. This policy will be in force
until 2024 at 10 sites and until 2029 at one site.
Since the early 1980s, SJI accrued environmental remediation costs of $137.2
million, of which $85.1 million has been spent as of December 31, 2002. With
the assistance of a consulting firm, we estimate that future costs to clean
up SJG's sites will range from $48.2 million to $143.9 million. We recorded
the lower end of this range as a liability. It is reflected on the 2002
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 Statement No.
71. The BPU allows SJG to recover expenditures through the RAC (See Note 9).
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 sheets 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.
- 52 -
As of December 31, 2002, we reflected SJG's unamortized remediation costs of
$6.5 million on the consolidated balance sheet under the caption Regulatory
Assets. Since implementing the RAC in 1992, SJG has recovered $34.8 million
through rates (See Note 9).
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 $0.3 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 consolidated balance sheet
under Current Liabilities and Deferred Credits and Other Non-Current
Liabilities as of December 31, 2002.
- 53 -