SOUTH JERSEY INDUSTRIES INC - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-K
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T
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December 31,
2009
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from ____________to ______________.
Commission
File Number 1-6364
SOUTH
JERSEY INDUSTRIES, INC.
(Exact
name of registrant as specified in its charter)
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New
Jersey
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22-1901645
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(State
of incorporation)
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(IRS
employer identification no.)
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1
South Jersey Plaza, Folsom, New Jersey 08037
(Address
of principal executive offices, including zip code)
(609)
561-9000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Common
Stock
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($1.25
par value per share)
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New
York Stock Exchange
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(Title
of each class)
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(Name
of exchange on which registered)
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act: Yes T No £
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Act: Yes £ No T
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes T No £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes £ No £
SJI -
1
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. T
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer T
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Accelerated
filer £
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Non-accelerated
filer £ (Do not
check if a smaller reporting company)
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Smaller
reporting company £
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No T
The
aggregate market value of voting stock held by non-affiliates of the registrant
as of June 30, 2009 was $1,034,720,588. As of February 22, 2010, there were
29,812,932 shares of the registrant’s common stock outstanding.
Documents
Incorporated by Reference:
In Part I
of Form 10-K: None
In Part
II of Form 10-K: None
In Part
III of Form 10-K: Portions of the registrant’s proxy statement filed
within 120 days of the close of the registrant’s fiscal year in connection with
the registrant’s 2010 annual meeting of shareholders are incorporated by
reference into Part III of this Form 10-K.
SJI -
2
TABLE OF CONTENTS
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Page
No.
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PART
I
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Item
1.
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5 | ||
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Item
1A.
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15 | ||
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Item
1B.
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18 | ||
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Item
2.
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18 | ||
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Item
3.
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20 | ||
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Item
4.
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20 | ||
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Item
4A.
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20 | ||
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PART
II
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Item
5.
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21 | ||
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Item
6.
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23 | ||
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Item
7.
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24 | ||
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Item
7A.
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64 | ||
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Item
8.
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65 | ||
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Item
9.
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123 | ||
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Item
9A.
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123 | ||
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Item
9B.
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126 | ||
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PART
III
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Item
10.
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126 | ||
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Item
11.
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127 | ||
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Item
12.
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127 | ||
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Item
13.
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127 | ||
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Item
14.
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127 | ||
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PART
IV
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Item
15.
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128 | ||
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Forward
Looking Statements
Certain
statements contained in this Annual Report on form 10-K may qualify as
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All
statements other than statements of historical fact included in this Report
should be considered forward-looking statements made in good faith by the
Company and are intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. When used
in this Report, or any other of the Company’s documents or oral presentations,
words such as “anticipate”, “believe”, “expect”, “estimate”, “forecast”, “goal”,
“intend”, “objective”, “plan”, “project”, “seek”, “strategy” and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the
statements. These risks and uncertainties include, but are not limited to the
risks set forth under “Risk Factors” in Part I, Item 1A of this Annual Report on
Form 10-K and elsewhere throughout this Report. These cautionary statements
should not be construed by you to be exhaustive and they are made only as of the
date of this Report. While South Jersey Industries, Inc. (SJI or the Company)
believes these forward-looking statements to be reasonable, there can be no
assurance that they will approximate actual experience or that the expectations
derived from them will be realized. Further, SJI undertakes no obligation to
update or revise any of its forward-looking statements whether as a result of
new information, future events or otherwise.
Available
Information
The
Company’s Internet address is www.sjindustries.com.
We make available free of charge on or through our website SJI’s annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission (SEC). The SEC maintains an Internet site
that contains these reports at http://www.sec.gov.
Also, copies of SJI’s annual report will be made available, free of charge, upon
written request. The content on any web site referred to in this filing is not
incorporated by reference into this filing unless expressly noted
otherwise.
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Units
of Measurement
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For
Natural Gas:
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1
Mcf
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=
One thousand cubic feet
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1
MMcf
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=
One million cubic feet
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1
Bcf
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=
One billion cubic feet
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1dt
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=
One decatherm
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1
MMdts
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=
One million decatherms
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dts/d
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=
Decatherms per day
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MDWQ
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=
Maximum daily withdrawal quantity
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PART
I
Item 1.
Business
Description
of Business
The
registrant, South Jersey Industries, Inc. a New Jersey corporation, was formed
in 1969 for the purpose of owning and holding all of the outstanding common
stock of South Jersey Gas Company, a public utility, and acquiring and
developing non-utility lines of business.
SJI
currently provides a variety of energy related products and services primarily
through the following subsidiaries:
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South
Jersey Gas Company (SJG) is a regulated natural gas utility. SJG
distributes natural gas in the seven southernmost counties of New
Jersey.
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South
Jersey Resources Group, LLC (SJRG) markets wholesale natural gas storage,
commodity and transportation in the mid-Atlantic and southern
states.
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Marina
Energy, LLC (Marina) develops and operates on-site energy-related
projects.
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South
Jersey Energy Company (SJE) acquires and markets natural gas and
electricity to retail end users and provides total energy management
services to commercial and industrial
customers.
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South
Jersey Energy Service Plus, LLC (SJESP) provides residential and light
commercial service and installation of HVAC systems, plumbing services and
appliance repair and service/maintenance
contracts.
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Additional
Information on the nature of our business can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” under
Item 7 of this report.
Financial
Information About Reportable Segments
Information
regarding Reportable Segments is incorporated by reference to Note 7 of the
consolidated financial statements included under Item 8 of this
report.
Sources
and Availability of Raw Materials
South
Jersey Gas Company
Transportation and Storage
Agreements
SJG has
direct connections to the interstate natural gas pipeline systems of both
Transcontinental Gas Pipe Line Company, LLC (Transco) and Columbia Gas
Transmission, LLC (Columbia). During 2009, SJG purchased and had delivered
approximately 34.4 Million decatherms (MMdts) of natural gas for distribution to
both on-system and off-system customers. Of this total, 22.5 MMdts were
transported on the Transco pipeline system while 11.9 MMdts were transported on
the Columbia pipeline system. SJG also secures firm transportation and other
long term services from two additional pipelines upstream of the Transco and
Columbia systems. They include Columbia Gulf Transmission Company, LLC (Columbia
Gulf) and Dominion Transmission, Inc. (Dominion). Services provided by these
upstream pipelines are utilized to deliver gas into either the Transco or
Columbia systems for ultimate delivery to SJG. Services provided by all of the
above-mentioned pipelines are subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC). Unless otherwise indicated, our
intentions are to renew or extend these service agreements before they
expire.
Transco:
Transco
is SJG’s largest supplier of long-term gas transmission services which includes
both year-round and seasonal firm transportation (FT) service arrangements. When
combined, these FT services enable SJG to purchase gas from third parties and
have delivered to its city gate stations by Transco a total of 280,525 dts per
day (dts/d). Of this total, 133,917 dts/d is long-haul FT (where gas can be
transported from the production areas of the Southwest to the market areas of
the Northeast) while 146,608 dts/d is market area FT. The terms of SJG’s
year-round agreements extend for various periods through 2025. The terms of its
seasonal agreements vary in length with the longest extending into
2013.
Of the
280,525 dts/d of Transco services mentioned above, SJG has released a total of
89,800 dts/d of its long-haul FT and 25,565 dts/d of its market area FT
service. These releases were made in association with SJG’s
Conservation Incentive Program (CIP) discussed further under Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
SJG
currently has six long-term gas storage service agreements with Transco that,
when combined, are capable of storing approximately 5.0 MMdts. Through these
agreements, SJG can inject gas into market and production area storages during
periods of low demand and extract gas at a Maximum Daily Withdrawal Quantity
(MDWQ) of up to 107,407 dts during periods of high demand. The terms of these
storage service agreements extend for various periods from 2009 to
2013. During 2008, SJG released 17,433 dts/d of Transco SS-1 storage
demand and 1,353,159 dts of its SS-1 storage capacity (both represent 100
percent of this service) thereby reducing its Transco maximum daily storage
withdrawal quantity to 107,407 dts/d, and its storage capacity to approximately
5.0 MMdts. Also released was 17,433 dts/d of winter season firm
transportation service associated with SS-1 storage service.
Dominion:
SJG
currently subscribes to a single firm transportation service from Dominion under
Rate Schedule FTNN. This service facilitates the transportation of up
to 5,545 dts/d from various Appalachian aggregation points to Transco’s Leidy
Line for ultimate delivery to SJG city gate stations during the winter season
(November through March) each year. The initial primary term of this
agreement extends through October 31, 2010.
SJG also
subscribes to a firm storage service from Dominion, under its Rate Schedule
GSS. This storage has a MDWQ of 10,000 dts during the period between
November 16 and March 31 of each winter season, with an associated total storage
capacity of 423,000 dts. Gas withdrawn from Dominion GSS storage is
delivered through both the Dominion and Transco (Leidy Line) pipeline systems
for delivery to SJG service territory. The primary term of this
agreement extends through March 31, 2015.
Columbia:
SJG has
two firm transportation agreements with Columbia which, when combined, provide
for 45,022 dts/d of firm deliverability and extend through October 31,
2019. In 2009, SJG released 14,714 dts/d of this amount to SJRG in
conjunction with its CIP thereby reducing the availability of firm
transportation on the Columbia system to 30,308 dts/d.
SJG also
subscribes to a firm storage service (FSS) with Columbia under three separate
agreements, the longest of which extends through October 31,
2019. When combined, these three FSS storage agreements provide SJG
with a winter season MDWQ of 52,891 dts with an associated 3,473,022 dts of
storage capacity. During 2009, SJG released to SJRG 17,500 dts of its
FSS MDWQ along with 1,249,485 dts of its Columbia FSS storage
capacity. In addition, SJG also released to SJRG 17,500 dts of its
Columbia SST MDWQ transportation service which is associated with FSS
service. Both of these releases were made by SJG in connection with
its CIP.
Columbia
Gulf:
Entering
2009, SJG had one firm transportation agreement with Columbia Gulf which
provided up to 45,985 dts/d of firm deliverability in the winter season and
43,137 dts/d during the summer season. This service facilitates the
movement of gas from the production area in southern Louisiana to an
interconnect with the Columbia pipeline system at Leach, KY. During
2009, SJG permanently released this capacity to SJRG.
Gas
Supplies
SJG no
longer has any long-term gas supply agreements with third party
producer-suppliers. In recent years, due to increased liquidity in
the market place, SJG has replaced its long-term gas supply agreements with
short-term agreements and uses financial contracts secured through SJRG to hedge
against forward price risk. Short-term agreements typically extend
between one day and several months in duration. As such, its
long-term contracts were allowed to expire under their terms.
Supplemental Gas
Supplies
During
2009, SJG entered into two seasonal Liquefied Natural Gas (LNG) sales agreements
with two separate third party suppliers. The term of the first agreement which
was used during the 2009 summer season to refill SJG’s storage tank, extended
through November 30, 2009, and had an associated contract quantity of 250,000
dts. The second agreement was acquired to replenish LNG in storage during the
2009-2010 winter season. This agreement extends through March 31,
2010 and provides SJG with up to 250,000 dts of LNG.
SJG
operates peaking facilities which can store and vaporize LNG for injection into
its distribution system. SJG’s LNG facility has a storage capacity equivalent to
434,300 dts of natural gas and has an installed capacity to vaporize up to
96,750 dts of LNG per day for injection into its distribution
system.
Entering
2009, SJG operated a high-pressure pipe storage field at its New Jersey LNG
facility which was capable of storing 12,420 dts of gas and injecting up to
10,350 dts/d into SJG’s distribution system. During 2009, SJG retired
this high-pressure storage field as it was no longer required for peaking
services.
Peak-Day
Supply
SJG plans
for a winter season peak-day demand on the basis of an average daily temperature
of 2 degrees Fahrenheit (F). Gas demand on such a design day for the 2009-2010
winter season is estimated to be 459,139 dts. SJG projects that it has adequate
supplies and interstate pipeline entitlements to meet its design requirements.
SJG experienced its highest peak-day demand for calendar year 2009 of 429,281
dts on January 16th
while experiencing an average temperature of 12.22 degrees F that
day.
Natural Gas
Prices
SJG’s
average cost of natural gas purchased and delivered in 2009, 2008 and 2007,
including demand charges, was $8.38 per dt, $9.90 per dt and $9.07 per dt,
respectively.
South
Jersey Energy Company
Transportation and Storage
Agreements
Access to
gas suppliers and cost of gas are significant to the operations of SJE. No
material part of the business of SJE is dependent upon a single customer or a
few customers. SJE purchases delivered gas only, primarily from SJRG.
Consequently, SJE maintains no transportation or storage
agreements.
Electric
Supply
Due to
the liquidity in the market, SJE purchases delivered electric in the day-ahead
market through regional transmission organizations and consequently does not own
or operate any generation or transmission assets.
South
Jersey Resources Group
Transportation and Storage
Agreements
National
Fuel Gas Supply Corporation:
SJRG has
a long term storage service agreement with National Fuel Gas Supply Corporation
(National Fuel) which extends through March 31, 2010, under which up to
4,746,000 Mcf of gas may be stored. SJRG has an additional contract for 224,576
Mcf of capacity that expires March 31, 2023. Both agreements carry evergreen
continuation clauses on a year by year basis after expiration. Total injection
rights under the combined agreements total 29,623 Mcf/d and firm withdrawal
rights total 50,042 Mcf/d.
SJRG
holds long term firm transportation agreements with National Fuel associated
with the above-mentioned agreements. Under these agreements, National Fuel will
provide SJRG with a maximum daily injection transportation quantity of 29,623
Mcf/d with primary receipt points from Tennessee Gas Pipeline for delivery into
storage, and 50,042 of maximum daily withdrawal transportation quantity with a
primary receipt point of storage and a primary delivery point of
Transcontinental Gas Pipeline.
Transcontinental
Gas Pipeline:
SJRG has
a storage agreement with Transco for storage service at Transco’s WSS facility
which expires in October 2017. Under this evergreen contract, up to 24,500 Mcf/d
may be injected and up to 51,837 Mcf/d may be withdrawn. Total storage capacity
on the agreement is 4,406,000 Mcf.
SJRG has
a storage agreement with Transco for storage service at Transco’s SS-1 facility
which expires March 31, 2010. Under this evergreen contract, up to 17,433 Mcf/d
may be withdrawn in the winter period and up to 7,617 Mcf/d may be
injected during the summer period. Total storage capacity under the agreement is
1,353,159 Mcf. This service was released to SJRG by SJG as discussed
above.
SJRG has
a transportation agreement with Transco associated with the SS-1 storage
agreement mentioned above. Under this evergreen agreement, Transco will provide
SJRG with a maximum transportation quantity of 17,433 Mcf/d with receipts at
Leidy, Pennsylvania and deliveries in Zone 6 New Jersey. This transportation
agreement provides service only during the months of November to March each
year. This service was released to SJRG by SJG in 2008.
SJRG also
has a firm transportation agreement with Transco which expires September 30,
2010. Under this evergreen contract, Transco will provide SJRG with receipts at
various production points in Texas and Louisiana and deliveries in New Jersey
totaling 89,800 Mcf/d. This service was released to SJRG by SJG as
discussed above.
Dominion
Gas Transmission:
SJRG has
a firm transportation agreement with Dominion which expires October 31, 2022.
Under this agreement, Dominion will provide SJRG with 5,000 Mcf/d of deliveries
to Leidy, Pennsylvania and receipts at Lebanon, Ohio.
SJRG also
has a firm transportation agreement with Dominion related to SJRG’s Transco SS-1
storage. Under this contract, Dominion will provide receipts at Leidy,
Pennsylvania and deliveries to storage in the amount of 17,432 Mcf/d. This
evergreen contract expires March 31, 2011. This service was released
to SJRG by SJG in 2008.
Columbia
Gas Transmission:
SJRG
holds a firm transportation agreement with Columbia. Under this evergreened
agreement, Columbia provides receipts at Leach, Kentucky and deliveries of
14,714 Mcf/d to New Jersey.
SJRG
holds a storage agreement with Columbia for service under Columbia’s FSS rate
schedule. Under this evergreen agreement which expires October 31, 2010,
Columbia will provide SJRG with storage capacity of 1,249,485 Mcf. Under this
agreement, 17,500 Mcf/d may be withdrawn from storage and 9,996 Mcf/d may be
injected.
SJRG
holds firm transportation related to the above mentioned storage agreement which
provides for receipts at storage and deliveries to New Jersey of 17,500 Mcf/d.
This evergreen contract expires October 31, 2010. These services with Columbia
were released to SJRG by SJG as discussed above.
Columbia
Gulf Transmission:
SJRG
holds a firm transportation agreement with Columbia Gulf which expires October
31, 2019. Under this evergreen agreement, Columbia provides receipts in
Louisiana with deliveries at Leach, Kentucky in the amount of 15,000
Mcf/d. This service was released to SJRG by SJG as
discussed above.
Patents
and Franchises
South
Jersey Gas Company
SJG holds
nonexclusive franchises granted by municipalities in the seven-county area of
southern New Jersey that it serves. No other natural gas public utility
presently serves the territory covered by SJG’s franchises. Otherwise, patents,
trademarks, licenses, franchises and concessions are not material to the
business of SJG.
Seasonal
Aspects
South
Jersey Gas Company
SJG
experiences seasonal fluctuations in sales when selling natural gas for heating
purposes. SJG meets this seasonal fluctuation in demand from its firm customers
by buying and storing gas during the summer months, and by drawing from storage
and purchasing supplemental supplies during the heating season. As a result of
this seasonality, SJG’s revenues and net income are significantly higher during
the first and fourth quarters than during the second and third quarters of the
year.
Non-Utility
Companies
Among
SJI’s non-utility activities, wholesale and retail gas marketing have seasonal
patterns similar to SJG’s. Activities such as energy services and energy project
development do not follow seasonal patterns. Other activities such as retail
electric marketing and appliance service can have seasonal earnings patterns
that are different from the utility. While growth in the earnings contributions
from nonutility operations has improved SJI’s second and third quarter net
income levels, the first and fourth quarters remain the periods where most of
SJI’s revenue and net income is produced.
Working
Capital Practices
Reference
is made to “Liquidity and Capital Resources” included in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” of
this report.
Customers
No
material part of the Company’s business is dependent upon a single customer or a
few customers, the loss of which would have a material adverse effect on SJI
performance on a consolidated basis. One of SJI’s subsidiaries, Marina Energy,
does currently receive the majority of its revenues and income from one
customer. However, that customer is under a long-term contract through
2027.
Backlog
Backlog
is not material to an understanding of SJI’s business or that of any of its
subsidiaries.
Government
Contracts
No
material portion of the business of SJI or any of its subsidiaries is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of any government.
Competition
Information
on competition for SJI and its subsidiaries can be found in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” of this report.
Research
During
the last three fiscal years, neither SJI nor any of its subsidiaries engaged in
research activities to any material extent.
Environmental
Matters
Information
on environmental matters for SJI and its subsidiaries can be found in Note 14 of
the consolidated financial statements included under Item 8 of this
report.
Employees
SJI and
its subsidiaries had a total of 617 employees as of December 31, 2009. Of that
total, 332 employees are unionized. SJG and SJESP employees represented by the
International Brotherhood of Electrical Workers (“IBEW”) operate under a new
collective bargaining agreement that runs through February 2013. The
remaining unionized employees are represented by the International Association
of Machinists and Aerospace Workers (“IAM”). SJG
and SJESP employees represented by the IAM recently agreed to a new collective
bargaining agreement that expires in August 2014.
Financial
Information About Foreign and Domestic Operations and Export Sales
SJI has
no foreign operations and export sales have not been a significant part of SJI’s
business.
Item 1A.
Risk Factors
SJI and
its subsidiaries operate in an environment that involves risks, many of which
are beyond our control. SJI has identified the following risk factors that could
cause SJI’s operating results and financial condition to be materially adversely
affected. Investors should carefully consider these risk factors and should also
be aware that this list is not all inclusive of existing risks. In addition, new
risks may emerge at any time, and SJI cannot predict those risks or the extent
to which they may affect SJI’s businesses or financial performance.
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SJI is a holding company and
its assets consist primarily of investments in subsidiaries. Should
SJI’s subsidiaries be unable to pay dividends or make other payments to
SJI for financial, regulatory, legal or other reasons, SJI’s ability to
pay dividends on its common stock could be limited. SJI’s stock price
could be adversely affected as a
result.
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SJI’s business activities are
concentrated in southern New Jersey. Changes in the economies of
southern New Jersey and surrounding regions could negatively impact the
growth opportunities available to SJI and the financial condition of
customers and prospects of SJI.
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Changes in the regulatory
environment or unfavorable rate regulation at its utility may have an
unfavorable impact on SJI’s financial performance or
condition. SJI’s utility business is regulated by the
New Jersey Board of Public Utilities which has authority over many of the
activities of the business including, but not limited to, the rates it
charges to its customers, the amount and type of securities it can issue,
the nature of investments it can make, the nature and quality of services
it provides, safety standards and other matters. The extent to which the
actions of regulatory commissions restrict or delay SJG’s ability to earn
a reasonable rate of return on invested capital and/or fully recover
operating costs may adversely affect its results of operations, financial
condition and cash flows.
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SJI may not be able to respond
effectively to competition, which may negatively impact SJI’s financial
performance or condition. Regulatory initiatives may provide or
enhance opportunities for competitors that could reduce utility income
obtained from existing or prospective customers. Also, competitors in all
of SJI’s business lines may be able to provide superior or less costly
products or services based upon currently available or newly developed
technologies.
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Warm weather, high commodity
costs, or customer conservation initiatives could result in reduced demand
for some of SJI’s energy products and services. While SJI’s utility
currently has a conservation incentive program clause that protects its
revenues and gross margin against usage per customer that is lower than a
set level, the clause is currently approved as a pilot program through
2013. Should this clause expire without replacement, lower customer energy
utilization levels would likely reduce SJI’s net
income.
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High natural gas prices could
cause more of SJI’s receivables to be uncollectible. Higher levels
of uncollectibles from either residential or commercial customers would
negatively impact SJI’s income and could result in higher working capital
requirements.
|
|
|
•
|
SJI’s net income could decrease
if it is required to incur additional costs to comply with new
governmental safety, health or environmental legislation. SJI is
subject to extensive and changing federal and state laws and regulations
that impact many aspects of its business; including the storage,
transportation and distribution of natural gas, as well as the remediation
of environmental contamination at former manufactured gas plant
facilities.
|
|
|
•
|
Proposed climate change
legislation could impact SJI’s financial performance and
condition. Climate change is receiving ever increasing
attention from scientists and legislators alike. The debate is
ongoing as to the extent to which our climate is changing, the potential
causes of this change and its potential impacts. Some attribute
global warming to increased levels of greenhouse gases, which has led to
significant legislative and regulatory efforts to limit greenhouse gas
emissions. The outcome of proposed federal and state actions to address
global climate change could result in a variety of regulatory programs
including additional charges to fund energy efficiency activities or other
regulatory actions. These actions could affect the demand for
natural gas and electricity, result in increased costs to our business and
impact the prices we charge our customers. Because natural gas is a fossil
fuel with low carbon content, it is possible that future carbon
constraints could create additional demands for natural gas, both for
production of electricity and direct use in homes and
businesses. Any adoption by federal or state governments
mandating a substantial reduction in greenhouse gas emissions could have
far-reaching and significant impacts on the energy industry. We
cannot predict the potential impact of such laws or regulations on our
future consolidated financial condition, results of operations or cash
flows.
|
|
|
•
|
SJI’s wholesale commodity
marketing business is exposed to the risk that counterparties that owe
money or energy to SJI will not be able to meet their obligations for
operational or financial reasons. SJI could be forced to buy or
sell commodity at a loss as a result of such failure. Such a failure, if
large enough, could also impact SJI’s
liquidity.
|
|
|
•
|
Increasing interest rates will
negatively impact the net income of SJI. Several of SJI’s
subsidiaries are capital intensive, resulting in the incurrence of
significant amounts of debt financing. SJI has issued almost all of its
existing long-term debt at fixed rates or has utilized interest rate swaps
to mitigate changes in variable rates. However, new issues of
long-term debt and all variable rate short-term debt are exposed to the
impact of rising interest rates.
|
|
|
•
|
SJI has guaranteed certain
obligations of unconsolidated affiliates and is exposed to the risk that
these affiliates will not be able to meet performance and financial
commitments. SJI’s unconsolidated affiliates develop and
operate on-site energy related projects. SJI has guaranteed
certain obligations of these affiliates in connection with the development
and operation of the facilities. In the event that these
projects do not meet specified levels of operating performance or are
unable to meet certain financial obligations as they become due, SJI could
be required to make payments related to these
obligations.
|
|
•
|
The inability to obtain
capital, particularly short-term capital from commercial banks, could
negatively impact the daily operations and financial performance of SJI.
SJI uses short-term borrowings under committed and uncommitted
credit facilities provided by commercial banks to supplement cash provided
by operations, to support working capital needs, and to finance capital
expenditures, as incurred. If the customary
sources of short-term capital were no longer available due to market
conditions, SJI may not be able to meet its working capital and capital
expenditure requirements and borrowing costs could
increase.
|
|
|
•
|
A downgrade in SJG’s credit
rating could negatively affect its ability to access adequate and cost
effective capital. SJG’s ability to obtain adequate and cost
effective capital depends largely on its credit ratings, which are greatly
influenced by financial condition and results of operations. If the rating
agencies downgrade SJG’s credit ratings, particularly below investment
grade, SJG’s borrowing costs would increase. In addition, SJG would likely
be required to pay higher interest rates in future financings and
potential funding sources would likely decrease. To the extent that a
decline in SJG’s credit rating has a negative effect on SJI, SJI could be
required to provide additional support to certain counterparties of the
wholesale gas operations.
|
|
|
•
|
Hedging activities of the
company designed to protect against commodity price or interest rate risk
may cause fluctuations in reported financial results and SJI’s stock price
could be adversely affected as a result. Although SJI enters into
various contracts to hedge the value of energy assets, liabilities, firm
commitments or forecasted transactions, the timing of the recognition of
gains or losses on these economic hedges in accordance with accounting
principles generally accepted in the United States of America
does not always match up with the gains or losses on the items being
hedged. The difference in accounting can result in volatility in reported
results, even though the expected profit margin is essentially unchanged
from the dates the transactions were
consummated.
|
|
|
•
|
The inability to obtain natural
gas would negatively impact the financial performance of SJI.
Several of SJI’s subsidiaries have businesses based upon the ability to
deliver natural gas to customers. Disruption in the production of natural
gas or transportation of that gas to SJI from its suppliers, could prevent
SJI from completing sales to its
customers.
|
|
|
•
|
Transporting and storing
natural gas involves numerous risks that may result in accidents and other
operating risks and costs. SJI’s gas distribution activities
involve a variety of inherent hazards and operating risks, such as leaks,
accidents, mechanical problems, natural disasters or terrorist activities
which could cause substantial financial losses. In addition, these risks
could result in loss of human life, significant damage to property,
environmental pollution and impairment of operations, which in turn could
lead to substantial losses. In accordance with customary industry
practice, SJI maintains insurance against some, but not all, of these
risks and losses. The occurrence of any of these events not fully covered
by insurance could adversely affect SJI’s financial position, results of
operations and cash flows.
|
|
|
•
|
Adverse results in legal
proceedings could be detrimental to the financial condition of SJI.
The outcomes of legal proceedings can be
unpredictable and can result in adverse
judgments.
|
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
The
principal property of SJI consists of SJG’s gas transmission and distribution
systems that include mains, service connections and meters. The transmission
facilities carry the gas from the connections with Transco and Columbia to SJG’s
distribution systems for delivery to customers. As of December 31, 2009, there
were approximately 107.3 miles of mains in the transmission systems and 5,867
miles of mains in the distribution systems.
SJG owns
approximately 154 acres of land in Folsom, New Jersey which is the site of SJI’s
corporate headquarters. Approximately 140 acres of this property is deed
restricted. SJG also has office and service buildings at six other locations in
the territory. There is a liquefied natural gas storage and vaporization
facility at one of these locations.
As of
December 31, 2009, SJG’s utility plant had a gross book value of $1.3 billion
and a net book value, after accumulated depreciation, of $961.2 million. In
2009, $98.7 million was spent on additions to utility plant and there were
retirements of property having an aggregate gross book cost of $7.2
million.
Virtually
all of SJG’s transmission pipeline, distribution mains and service connections
are in streets or highways or on the property of others. The transmission and
distribution systems are maintained under franchises or permits or
rights-of-way, many of which are perpetual. SJG’s properties (other than
property specifically excluded) are subject to a lien of mortgage under which
its first mortgage bonds are outstanding. We believe these properties are well
maintained and in good operating condition.
Nonutility
property and equipment with a net book value of $111.9 million consists
primarily of Marina’s energy projects, in particular the thermal energy plant in
Atlantic City, N.J.
Energy
and Minerals Inc. (EMI) owns 235 acres of land in Vineland, New
Jersey.
South
Jersey Fuel, Inc., an inactive subsidiary, owns land and a building in Deptford
Township and owns real estate in Upper Township, New Jersey.
R&T
Castellini, Inc., an inactive subsidiary, owns land and buildings in Vineland,
New Jersey.
Item 3.
Legal Proceedings
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 probable settlement costs for these claims.
Among other actions, SJI is 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.
Item 4.
Submission Of Matters To A Vote of Security Holders
No matter
was submitted to a vote of security holders during the fourth quarter of the
2009 fiscal year.
Item 4A.
Executive Officers of the Registrant
Set forth
below are the names, ages and positions of our executive officers along with
their business experience during the past five years. All executive officers of
SJI are elected annually and serve at the discretion of the Board of Directors.
All information is as of the date of the filing of this report.
|
Name,
age and position with the Company
|
Period
Served
|
|
Edward J. Graham, Age
52
|
|
|
Chairman
|
April
2005 - Present
|
|
Chief
Executive Officer
|
February
2004 - Present
|
|
President
|
January
2003 - Present
|
|
David A. Kindlick, Age
55
|
|
|
Chief
Financial Officer
|
January
2002 - Present
|
|
Vice
President
|
June
1997 - Present
|
|
Jeffery E. DuBois, Age
51
|
|
|
Vice
President
|
January
2004 - Present
|
|
Michael J. Renna, Age
42
|
|
|
Vice
President
|
January
2004 - Present
|
|
Kevin D.
Patrick, Age 49
|
|
|
Vice
President
|
June
2007 - Present
|
|
Albertsons/Super
Valu
|
|
|
Division
CFO – Eastern Region
|
September
2004 – June 2006
|
|
Sharon M. Pennington,
Age 47
|
|
|
Vice
President
|
January
2008 - Present
|
|
Vice
President (SJI Services LLC)
|
January
2006 – December 2007
|
|
Assistant
Vice President (SJG)
|
April
2004 – December 2005
|
|
Gina M. Merritt-Epps,
Age 42
|
|
|
Corporate
Counsel and Secretary
|
May
2009 - Present
|
|
Assistant
General Counsel and Assistant Secretary
|
December
2007 - April 2009
|
|
Director,
Legal Affairs (SJI Services LLC)
|
June
2006 – November 2007
|
|
Atlantic
County Department of Law
|
|
|
Assistant
County Counsel
|
October
2002 – May 2006
|
PART
II
Item 5.
Market for the Registrant’s Common Equity,
Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Price of Common Stock and Related Information
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Quarter
Ended
|
Market
Price Per Share
|
|
Dividends
|
|
Quarter
Ended
|
Market
Price Per Share
|
|
Dividends
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
Declared
|
|
|
|
|
|
|
|
|
|
Declared
|
|
||||||
|
2009
|
|
High
|
|
|
Low
|
|
|
Per
Share
|
|
2008
|
|
High
|
|
|
Low
|
|
|
Per
Share
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
March 31
|
|
$
|
40.78
|
|
|
$
|
31.98
|
|
|
$
|
0.2975
|
|
March
31
|
|
$
|
38.41
|
|
|
$
|
31.90
|
|
|
$
|
0.2700
|
|
|
June 30
|
|
$
|
36.20
|
|
|
$
|
33.04
|
|
|
$
|
0.2975
|
|
June
30
|
|
$
|
39.36
|
|
|
$
|
35.31
|
|
|
$
|
0.2700
|
|
|
September 30
|
|
$
|
37.53
|
|
|
$
|
33.12
|
|
|
$
|
0.2975
|
|
September
30
|
|
$
|
38.99
|
|
|
$
|
33.10
|
|
|
$
|
0.2700
|
|
|
December 31
|
|
$
|
40.24
|
|
|
$
|
34.07
|
|
|
$
|
0.3300
|
|
December
31
|
|
$
|
40.58
|
|
|
$
|
25.19
|
|
|
$
|
0.2975
|
|
These
quotations are based on the list of composite transactions of the New York Stock
Exchange. Our stock is traded on the New York Stock Exchange under the symbol
SJI. We have declared and expect to continue to declare regular quarterly cash
dividends. As of December 31, 2009, the latest available date, our records
indicate that there were 7,324 shareholders of record.
Stock
Performance Graph
The
performance graph below illustrates a five year comparison of cumulative total
returns based on an initial investment of $100 in South Jersey Industries, Inc.
common stock, as compared with the S&P 500 Stock Index and the S&P
Utility Index for the period 2005 through 2009.
This
performance chart assumes:
|
|
·
|
$100
invested on December 31, 2004 in South Jersey Industries, Inc. common
stock, in the S&P 500 Stock Index and in the S&P Utility Index;
and
|
|
|
·
|
All
dividends are reinvested.
|
Information
required by this item is also found in Note 5 of the consolidated financial
statements included under Item 8 of this report.
SJI
has a stated goal of increasing its dividend by at least 6% to 7%
annually.
In
January 2009, non-employee members of SJI’s Board of Directors received an
aggregate of 9,559 shares of unregistered stock, valued at that time at
$384,893, as part of their compensation for serving on the Board.
Issuer Purchases of Equity
Securities
The
following table presents information about purchases by SJI of its own common
stock during the three months ended December 31, 2009:
|
Period
|
Total
Number of Shares Purchased1
|
Average
Price Paid Per Share1
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs2
|
Maximum
Number of Shares that May Yet be Purchased Under the Plans or
Programs2
|
|
|||||||||||
|
October
2009
|
|
|
29,153
|
|
|
$
|
35.3972
|
|
|
|
-
|
|
|
|
-
|
|
|
November
2009
|
|
|
4,740
|
|
|
$
|
35.6414
|
|
|
|
-
|
|
|
|
-
|
|
|
December
2009
|
|
|
23,695
|
|
|
$
|
39.9126
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
57,588
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
1The
total number of shares purchased and the average price paid per share represent
shares purchased in open market transactions under the South Jersey Industries
Dividend Reinvestment Plan (the “DRP”) by the administrator of the
DRP.
2On
September 22, 2008, SJI publicly announced a share repurchase program under
which the Company can purchase up to 5% of its currently outstanding common
stock over the next four years. As of December 31, 2009, no shares
have been purchased under this program.
Item 6.
Selected Financial Data
|
2009 HIGHLIGHTS
|
||||||||||||||||||||
|
Five-Year
Summary of Selected Financial Data
|
South
Jersey Industries, Inc. and Subsidiaries
|
|||||||||||||||||||
|
(In
Thousands Where Applicable)
|
Year
Ended December 31,
|
|||||||||||||||||||
|
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Operating
Results:
|
||||||||||||||||||||
|
Operating
Revenues
|
$ | 845,444 | $ | 961,977 | $ | 956,371 | $ | 931,428 | $ | 906,016 | ||||||||||
|
Operating
Income
|
$ | 111,110 | $ | 153,509 | $ | 129,623 | $ | 145,802 | $ | 86,818 | ||||||||||
|
Income
Attributable to South Jersey Industries, Inc. Shareholders
|
||||||||||||||||||||
|
Continuing
Operations
|
$ | 58,532 | $ | 77,178 | $ | 62,659 | $ | 72,250 | $ | 39,770 | ||||||||||
|
Discontinued
Operations - Net (1)
|
(427 | ) | (247 | ) | (391 | ) | (818 | ) | (669 | ) | ||||||||||
|
Net
Income Applicable to Common Stock
|
$ | 58,105 | $ | 76,931 | $ | 62,268 | $ | 71,432 | $ | 39,101 | ||||||||||
|
Total
Assets
|
$ | 1,782,008 | $ | 1,793,427 | $ | 1,529,441 | $ | 1,573,032 | $ | 1,441,712 | ||||||||||
|
Capitalization:
|
||||||||||||||||||||
|
Equity
|
$ | 544,564 | $ | 516,448 | $ | 481,520 | $ | 443,497 | $ | 394,039 | ||||||||||
|
Long-Term
Debt
|
312,793 | 332,784 | 357,896 | 358,022 | 319,066 | |||||||||||||||
|
Total
Capitalization
|
$ | 857,357 | $ | 849,232 | $ | 839,416 | $ | 801,519 | $ | 713,105 | ||||||||||
|
Ratio
of Operating Income to Fixed Charges (2)
|
5.9 | x | 6.0 | x | 4.8 | x | 5.3 | x | 4.1 | x | ||||||||||
|
Diluted
Earnings Per Common Share Attributable to South Jersey Industries, Inc.
Shareholders:
|
||||||||||||||||||||
|
(Based
on Average Diluted Shares Outstanding):
|
||||||||||||||||||||
|
Continuing
Operations
|
$ | 1.96 | $ | 2.59 | $ | 2.12 | $ | 2.47 | $ | 1.40 | ||||||||||
|
Discontinued
Operations - Net (1)
|
(0.02 | ) | (0.01 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | ||||||||||
|
Diluted
Earnings Per Common Share
|
$ | 1.94 | $ | 2.58 | $ | 2.10 | $ | 2.44 | $ | 1.38 | ||||||||||
|
Return
on Average Equity (3)
|
11.0 | % | 15.5 | % | 13.3 | % | 16.9 | % | 12.5 | % | ||||||||||
|
Share
Data:
|
||||||||||||||||||||
|
Number
of Shareholders of Record
|
7.3 | 7.5 | 7.7 | 7.9 | 8.1 | |||||||||||||||
|
Average
Common Shares
|
29,785 | 29,707 | 29,480 | 29,175 | 28,175 | |||||||||||||||
|
Common
Shares Outstanding at Year End
|
29,796 | 29,729 | 29,607 | 29,326 | 28,982 | |||||||||||||||
|
Dividend
Reinvestment Plan:
|
||||||||||||||||||||
|
Number
of Shareholders
|
5.1 | 5.1 | 5.3 | 5.3 | 5.3 | |||||||||||||||
|
Number
of Participating Shares
|
2,072 | 2,102 | 2,179 | 2,194 | 2,722 | |||||||||||||||
|
Book
Value at Year End
|
$ | 18.28 | $ | 17.33 | $ | 16.26 | $ | 15.12 | $ | 13.60 | ||||||||||
|
Dividends
Declared per Common Share
|
$ | 1.22 | $ | 1.11 | $ | 1.01 | $ | 0.92 | $ | 0.86 | ||||||||||
|
Market
Price at Year End
|
$ | 38.18 | $ | 39.85 | $ | 36.09 | $ | 33.41 | $ | 29.14 | ||||||||||
|
Dividend
Payout:
|
||||||||||||||||||||
|
From
Continuing Operations
|
62.2 | % | 42.6 | % | 47.3 | % | 37.2 | % | 60.9 | % | ||||||||||
|
From
Total Net Income
|
62.7 | % | 42.8 | % | 47.6 | % | 37.6 | % | 62.0 | % | ||||||||||
|
Market-to-Book
Ratio
|
2.1 | x | 2.3 | x | 2.2 | x | 2.2 | x | 2.1 | x | ||||||||||
|
Price
Earnings Ratio (3)
|
19.5 | x | 15.4 | x | 17.0 | x | 13.5 | x | 20.8 | x | ||||||||||
|
(1)
|
Represents
discontinued business segments: sand mining and distribution operations
sold in 1996 and fuel oil operations with related environmental
liabilities in 1986 (See Note 2 to Consolidated Financial
Statements).
|
|
(2)
|
Calculated
as Operating Income divided by Interest
Charges.
|
|
(3)
|
Calculated
based on Income from Continuing
Operations.
|
Item 7.
Management’s Discussion and Analysis of Financial Condition
and
Results of
Operations
OVERVIEW
— SJI is an energy services holding company that provides a variety of products
and services through the following wholly owned subsidiaries:
South
Jersey Gas Company (SJG)
SJG, a
New Jersey corporation, is an operating public utility company engaged in the
purchase, transmission and sale of natural gas for residential, commercial and
industrial use. SJG also sells natural gas and pipeline transportation capacity
(off-system sales) on a wholesale basis to various customers on the interstate
pipeline system and transports natural gas purchased directly from producers or
suppliers to their customers. SJG contributed approximately 67.5% of SJI’s net
income on a consolidated basis in 2009.
SJG’s
service territory covers approximately 2,500 square miles in the southern part
of New Jersey. It includes 112 municipalities throughout Atlantic, Cape May,
Cumberland and Salem Counties and portions of Burlington, Camden and Gloucester
Counties, with an estimated permanent population of 1.2 million. SJG benefits
from its proximity to Philadelphia, PA and Wilmington, DE on the western side of
its service territory and Atlantic City, NJ and the popular shore communities on
the eastern side. Economic development and housing growth have long been driven
by the development of the Philadelphia metropolitan area. In recent years,
housing growth in the eastern portion of the service territory increased
substantially and currently accounts for approximately half of SJG’s annual
customer growth. Economic growth in Atlantic City and the surrounding region has
been primarily driven by new gaming and non-gaming investments that emphasize
destination style attractions. While many of these new projects have been
suspended or postponed due to the current economic environment, the casino
industry is expected to remain a significant source of regional economic
development going forward. The ripple effect from Atlantic City typically
produces new housing, commercial and industrial construction. Combining with the
gaming industry catalyst has been the ongoing conversion of southern New
Jersey’s oceanfront communities from seasonal resorts to year round economies.
New and expanded hospitals, schools, and large scale retail developments
throughout the service territory have contributed to SJG’s growth. Presently,
SJG serves approximately 65% of households within its territory with natural
gas. SJG also serves southern New Jersey’s diversified industrial base that
includes processors of petroleum and agricultural products; chemical, glass and
consumer goods manufacturers; and high technology industrial
parks.
As of
December 31, 2009, SJG served a total of 343,566 residential, commercial and
industrial customers in southern New Jersey, compared with 340,136 customers at
December 31, 2008. No material part of SJG’s business is dependent upon a single
customer or a few customers. Gas sales, transportation and capacity release for
2009 amounted to 98.7 MMdts (million decatherms), of which 51.7 MMdts were firm
sales and transportation, 2.3 MMdts were interruptible sales and transportation
and 44.7 MMdts were off-system sales and capacity release. The breakdown of firm
sales and transportation includes 47.9% residential, 23.2% commercial, 23.9%
industrial, and 5.0% cogeneration and electric generation. At
year-end 2009, SJG served 320,290 residential customers, 22,802 commercial
customers and 474 industrial customers. This includes 2009 net additions of
3,264 residential customers and 166 commercial customers.
SJG makes
wholesale gas sales to gas marketers for resale and ultimate delivery to end
users. These “off-system” sales are made possible through the issuance of the
Federal Energy Regulatory Commission (FERC) Orders No. 547 and 636. Order No.
547 issued a blanket certificate of public convenience and necessity authorizing
all parties, which are not interstate pipelines, to make FERC jurisdictional gas
sales for resale at negotiated rates, while Order No. 636 allowed SJG to deliver
gas at delivery points on the interstate pipeline system other than its own city
gate stations and release excess pipeline capacity to third parties. During
2009, off-system sales amounted to 6.3 MMdts and capacity release amounted to
38.4 MMdts.
Supplies
of natural gas available to SJG that are in excess of the quantity required by
those customers who use gas as their sole source of fuel (firm customers) make
possible the sale and transportation of gas on an interruptible basis to
commercial and industrial customers whose equipment is capable of using natural
gas or other fuels, such as fuel oil and propane. The term “interruptible” is
used in the sense that deliveries of natural gas may be terminated by SJG at any
time if this action is necessary to meet the needs of higher priority customers
as described in SJG’s tariffs. In 2009, usage by interruptible customers,
excluding off-system customers amounted to 2.3 MMdts, approximately 2.4% of the
total throughput.
South
Jersey Energy Solutions, LLC
Effective
January 1, 2006, SJI established South Jersey Energy Solutions, LLC, (SJES) as a
direct subsidiary for the purpose of serving as a holding company for all of
SJI’s non-utility businesses. The following businesses are wholly owned
subsidiaries of SJES:
South Jersey Resources
Group, LLC (SJRG)
SJRG
markets natural gas storage, commodity and transportation assets on a wholesale
basis. Customers include energy marketers, electric and gas utilities and
natural gas producers. SJRG’s marketing activities occur mainly in the
mid-Atlantic and southern regions of the country. SJRG also conducts price risk
management activities by entering into a variety of physical and financial
transactions including forward contracts, swap agreements, option contracts and
futures contracts. In 2009, SJRG transacted 193.3 Bcf of natural gas. SJRG
contributed approximately 30.7% of SJI’s net income on a consolidated
basis.
Marina Energy, LLC
(Marina)
Marina
develops and operates energy-related projects. Marina's largest operating
project provides cooling, heating and emergency power to the Borgata Hotel
Casino & Spa in Atlantic City, NJ. Marina added service to Borgata’s
expanded facilities in July 2006 and service to a new hotel tower in June of
2008. Marina also has a 50% equity interest in LVE Energy Partners,
LLC which has entered into a contract to design, build, own and operate a
district energy system and central energy center for a planned resort in Las
Vegas, Nevada.
Marina’s
other recent projects include 51% equity interests in AC Landfill Energy, LLC
(ACLE) and WC Landfill Energy, LLC (WCLE), which operate a total of 9,200
kilowatts of landfill gas-fired electric production facilities, and 50% equity
interests in various partnerships that primarily operate landfill gas-fired
electric production facilities and solar
projects. Marina contributed approximately 7.8% of SJI’s net
income on a consolidated basis.
South Jersey Energy Company
(SJE)
SJE
provides services for the acquisition and transportation of natural gas and
electricity for retail end users and markets total energy management services.
As of December 31, 2009, SJE marketed natural gas and electricity to
approximately 13,600 customers, which consist of approximately 65% residential
customers and 35% commercial/industrial customers. Most customers served by SJE
are located within southern New Jersey, northwestern Pennsylvania and New
England. In 2009, SJE incurred a loss which was approximately (7.4%) of SJI’s
net income on a consolidated basis.
South Jersey Energy Service
Plus, LLC (SJESP)
SJESP
installs and services residential and light commercial HVAC systems, provides
plumbing services, and services appliances via the sale of appliance service
programs as well as on a time and materials basis. SJESP serves southern New
Jersey where it is the largest local HVAC service company with nearly 50
experienced, NATE certified technicians and installers. As of December 31, 2009,
SJESP had approximately 67,000 service contract customers, representing
approximately 157,000 service contracts for the repair and maintenance of major
appliances, such as house heaters, water heaters, gas ranges, and electric
central air conditioning units. SJESP contributed approximately 1.6% of SJI’s
net income on a consolidated basis.
Other
SJI
Services, LLC provides services such as information technology, human resources,
government relations, corporate communications, materials purchasing, fleet
management and insurance to SJI and its other subsidiaries.
Energy
& Minerals, Inc. (EMI) principally manages liabilities associated with
discontinued operations of nonutility subsidiaries.
SJI also
has a 50% joint venture investment with Conectiv Solutions, LLC in Millennium
Account Services, LLC (Millennium). Millennium provides meter reading services
to SJG and Atlantic City Electric Company in southern New Jersey.
Primary Factors Affecting
SJI’s Business
SJI’s
stated long-term goals are to: 1) Grow earnings per share from continuing
operations by an average of at least 6% to 7% per year; 2) Increase the dividend
on common stock by at least 6% to 7% annually; and 3) Maintain a low-to-moderate
risk platform. Management established those goals in conjunction with SJI’s
Board of Directors based upon a number of different internal and external
factors that characterize and influence SJI’s current and expected future
activities.
The
following is a summary of the primary factors we expect to have the greatest
impact on SJI’s performance and ability to achieve long-term goals going
forward:
Business
Model — In developing SJI’s current business model, our focus has been on our
core utility and natural extensions of that business. That focus enables us to
concentrate on business activities that match our core competencies. Going
forward we expect to pursue business opportunities that fit this
model.
Customer
Growth — Southern New Jersey, our primary area of operations, has not been
immune to the issues impacting the new housing market nationally. However, net
customers for SJG still grew 1.0% for 2009 as we increased our focus on customer
conversions. In 2009, the 3,053 consumers converting their
homes and businesses from other heating fuels, such as electric, propane or oil
represented over 50% of the total new customer acquisitions for the
year. In comparison, conversions over the past five years averaged
2,274 annually. Customers in our service territory typically base
their decisions to convert on comparisons of fuel costs, environmental
considerations and efficiencies. As such, SJG began a comprehensive
partnership with the State’s Office of Clean Energy to educate consumers on
energy efficiency and to promote the rebates and incentives available to natural
gas users.
Regulatory
Environment — SJG is primarily regulated by the New Jersey Board of Public
Utilities (BPU). The BPU sets the rates that SJG charges its rate-regulated
customers for services provided and establishes the terms of service under which
SJG operates. We expect the BPU to continue to set rates and establish terms of
service that will enable SJG to obtain a fair and reasonable return on capital
invested. The BPU approved a Conservation Incentive Program (CIP) effective
October 1, 2006, discussed in greater detail under Results of Operations, that
protects SJG’s net income from reductions in gas used by residential,
commercial, and small industrial customers.
Weather
Conditions and Customer Usage Patterns — Usage patterns can be affected by a
number of factors, such as wind, precipitation, temperature extremes and
customer conservation. SJG’s earnings are largely protected from fluctuations in
temperatures by the CIP. The CIP has a stabilizing effect on utility earnings as
SJG adjusts revenues when actual usage per customer experienced during an annual
period varies from an established baseline usage per customer. Our nonutility
gas retail marketing business is directly affected by weather conditions, as it
does not have regulatory mechanisms that address weather volatility. The impact
of different weather conditions on the earnings of our nonutility businesses is
dependent on a range of different factors. Consequently, weather may impact the
earnings of SJI’s various subsidiaries in different, or even opposite, ways.
Further, the profitability of individual subsidiaries may vary from year-to-year
despite experiencing substantially similar weather conditions.
Changes
in Natural Gas Prices — In recent years, prices for natural gas have become
increasingly volatile. The utility’s gas costs are passed on directly to
customers without any profit margin added by SJG. The price the utility charges
its periodic customers is set annually, with a regulatory mechanism in place to
make limited adjustments to that price during the course of a year. In the event
that gas cost increases would justify customer price increases greater than
those permitted under the regulatory mechanism, SJG can petition the BPU for an
incremental rate increase. High prices can make it more difficult for our
customers to pay their bills and may result in elevated levels of bad-debt
expense. Among our nonutility activities, the one most likely to be impacted by
changes in natural gas prices is our wholesale gas marketing business. Wholesale
gas marketing typically benefits from volatility in gas prices during different
points in time. The actual price of the commodity does not typically have an
impact on the performance of this business line. Our ability to add
and retain customers at our retail gas marketing business is affected by the
relationship between the price that the utility charges customers for gas and
the cost of gas available in the market at specific points in
time. However, retail gas marketing accounts for a very small portion
of SJI’s overall activities.
Energy
Project Development — Marina Energy, LLC, SJI’s energy project development
business, focuses on designing, building, owning and/or operating energy
production facilities on, or adjacent to, customer sites. That business is
currently involved with several projects that are either operating, or are under
development. Based upon our experience to date, market issues that impact the
reliability and price of electricity supplied by utilities, and discussions that
we are having regarding additional projects, we expect to continue to expand
this business. However, the price of natural gas also has a direct effect on the
economics of these projects. Further, our largest project
opportunities to date have been and are expected to continue to be in the casino
gaming industry. Consequently, the economic condition of that
industry is important to the near term prospects for obtaining additional
projects.
Changes
in Interest Rates — SJI has operated in a relatively low interest rate
environment over the past several years. Rising interest rates would raise the
expense associated with existing variable-rate debt and all issuances of new
debt. We have sought to mitigate the impact of a potential rising rate
environment by directly issuing fixed-rate debt, or by entering into derivative
transactions to hedge against rising interest rates.
Labor and
Benefit Costs — Labor and benefit costs have a significant impact on SJI’s
profitability. Benefit costs, especially those related to pension and health
care, have risen in recent years. We sought to manage these costs by revising
health care plans offered to existing employees, capping postretirement health
care benefits, and changing health care and pension packages offered to new
hires. We expect savings from these changes to gradually increase as new hires
replace retiring employees. Our workforce totaled 617 employees at the end of
2009, of which 53.8% of that total are under collective bargaining
agreements.
Balance
Sheet Strength — Our goal is to maintain a strong balance sheet with an average
annual equity-to-capitalization ratio of 50%. Our equity-to-capitalization
ratio, inclusive of short-term debt, was 50.0% and 47.5% at the end of 2009 and
2008, respectively. A strong balance sheet permits us to maintain the financial
flexibility necessary to take advantage of growth opportunities and to address
volatile economic and commodity markets while maintaining a low-to-moderate risk
platform.
CRITICAL
ACCOUNTING POLICIES — ESTIMATES AND ASSUMPTIONS — As described in the notes to
our consolidated financial statements, management must make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related disclosures. Actual results could differ from those
estimates. Five types of transactions presented in our consolidated financial
statements require a significant amount of judgment and estimation. These relate
to regulatory accounting, derivatives, environmental remediation costs, pension
and other postretirement benefit costs, and revenue recognition.
Regulatory
Accounting — SJI’s largest subsidiary, SJG, maintains its accounts according to
the Uniform System of Accounts as prescribed by the New Jersey Board of Public
Utilities (BPU). As a result of the ratemaking process, SJG is required to
follow Financial Accounting Standards Board (FASB) ASC Topic 980 – “Regulated
Operations.” SJG is required under Topic 980 to recognize the impact
of regulatory decisions on its financial statements. SJG is required under its
Basic Gas Supply Service clause (BGSS) to forecast its natural gas costs and
customer consumption in setting its rates. Subject to BPU approval, SJG is able
to recover or return the difference between gas cost recoveries and the actual
costs of gas through a BGSS charge to customers. SJG records any over/under
recoveries as a regulatory asset or liability on the consolidated balance sheets
and reflects it in the BGSS charge to customers in subsequent years. SJG also
enters into derivatives that are used to hedge natural gas purchases. The offset
to the resulting derivative assets or liabilities is also recorded as a
regulatory asset or liability on the consolidated balance
sheets.
The
Conservation Incentive Program (CIP) is a BPU approved pilot program that is
designed to eliminate the link between SJG’s profits and the quantity of natural
gas sold, and foster conservation efforts. With the CIP, SJG’s
profits are tied to the number of customers served and how efficiently we serve
them, thus allowing SJG to focus on encouraging conservation and energy
efficiency among our customers without negatively impacting net
income. The CIP tracking mechanism adjusts earnings based on weather
and also adjusts earnings where actual usage per customer experienced during an
annual period varies from an established baseline usage per
customer. Utility earnings are recognized during current periods
based upon the application of the CIP. The cash impact of variations
in customer usage will result in cash being collected from, or returned to,
customers during the subsequent CIP year, which runs from October 1 to September
30.
In
addition to the BGSS and the CIP, other regulatory assets consist primarily of
remediation costs associated with manufactured gas plant sites (discussed below
under Environmental Remediation Costs), deferred pension and other
postretirement benefit cost, and several other assets as detailed in Note 10 to
the consolidated financial statements. If there are changes in future regulatory
positions that indicate the recovery of such regulatory assets is not probable,
SJG would charge the related cost to earnings. Currently there are no such
anticipated changes at the BPU.
Derivatives
— SJI recognizes assets or liabilities for contracts that qualify as derivatives
that are entered into by its subsidiaries when contracts are executed. We record
contracts at their fair value in accordance with FASB ASC Topic 815 –
“Derivatives and Hedging.” We record changes in the fair value of the
effective portion of derivatives qualifying as cash flow hedges, net of tax, in
Accumulated Other Comprehensive Loss and recognize such changes in the income
statement when the hedged item affects earnings. Changes in the fair value of
derivatives not designated as hedges are recorded in earnings in the current
period. In 2007, we changed our policy to no longer designate energy-related
derivative instruments as cash flow hedges. Certain derivatives that result in
the physical delivery of the commodity may meet the criteria to be accounted for
as normal purchases and normal sales if so designated, in which case the
contract is not marked-to-market, but rather is accounted for when the commodity
is delivered. Due to the application of regulatory accounting principles under
GAAP, derivatives related to SJG’s gas purchases that are marked-to-market, are
recorded through the BGSS. SJG occasionally enters into financial
derivatives to hedge against forward price risk. These derivatives are recorded
at fair value with an offset to regulatory assets and liabilities through SJG’s
BGSS, subject to BPU approval (See Notes 9 and 10 to the consolidated financial
statements). We adjust the fair value of the contracts each reporting period for
changes in the market. As discussed in Note 15 of the consolidated
financial statements, energy-related derivative instruments are traded in both
exchange-based and non-exchange-based markets. Exchange-based contracts are
valued using unadjusted quoted market sources in active markets and are
categorized in Level 1 in the fair value hierarchy established by FASB ASC Topic
820 – “Fair Value Measurements and Disclosures.” Certain non-exchange-based
contracts are valued using indicative non-binding price quotations available
through brokers or from over-the-counter, on-line exchanges and are categorized
in Level 2. These price quotations reflect the average of the bid-ask mid-point
prices and are obtained from sources that management believes provide the most
liquid market. Management reviews and corroborates the price
quotations with at least one additional source to ensure the prices are
observable market information, which includes consideration of actual
transaction volumes, market delivery points, bid-ask spreads and contract
duration. Derivative instruments that are used to limit our exposure to changes
in interest rates on variable-rate, long-term debt are valued using quoted
prices on commonly quoted intervals, which are interpolated for periods
different than the quoted intervals, as inputs to a market valuation model.
Market inputs can generally be verified and model selection does not involve
significant management judgment, as a result, these instruments are categorized
in Level 2 in the fair value hierarchy. For non-exchange-based derivatives that
trade in less liquid markets with limited pricing information, model inputs
generally would include both observable and unobservable inputs. In
instances where observable data is unavailable, management considers the
assumptions that market participants would use in valuing the asset or
liability. This includes assumptions about market risks such as
liquidity, volatility and contract duration. Such instruments are
categorized in Level 3 in the fair value hierarchy as the model inputs generally
are not observable. Counterparty credit risk, and the credit risk of SJI, is
incorporated and considered in the valuation of all derivative instruments as
appropriate. The effect of counterparty credit risk and the credit risk of SJI
on the derivative valuations is not significant.
Environmental
Remediation Costs —We estimate a range of future costs based on projected
investigation and work plans using existing technologies. In preparing
consolidated financial statements, SJI records liabilities for future costs
using the lower end of the range of future costs because a single reliable
estimation point is not feasible due to the amount of uncertainty involved in
the nature of projected remediation efforts and the long period over which
remediation efforts will continue. We update estimates each year to take into
account past efforts, changes in work plans, remediation technologies,
government regulations and site specific requirements (See Note 14 to the
consolidated financial statements).
Pension
and Other Postretirement Benefit Costs — The costs of providing pension and
other postretirement employee benefits are impacted by actual plan experience as
well as assumptions of future experience. Employee demographics, plan
contributions, investment performance, and assumptions concerning mortality,
return on plan assets, discount rates and health care cost trends all have a
significant impact on determining our projected benefit obligations. We evaluate
these assumptions annually and adjust them accordingly. These adjustments could
result in significant changes to the net periodic benefit costs of providing
such benefits and the related liabilities recognized by SJI. In 2008, a 32 basis
point increase in the discount rate, higher than expected returns on plan assets
during 2007, and a pension contribution in the first quarter of 2008 reduced
such benefit costs in 2008. While the discount rate and expected
return on plan assets both decreased slightly in the determination of the 2009
benefit costs, the primary cost driver in 2009 was the erosion of plan assets
during 2008. As evidenced by the tables in Note 11, “Pension and
Other Postretirement Benefits”, the declines in the equity markets during 2008
resulted in significant unrealized losses in the assets of the
plans. Such losses caused the 2009 cost of providing such benefits to
more than double.
The
recognition of the unrealized losses originating in 2008 over the average
remaining service period of active plan participants will continue to cause the
cost of providing such plans to remain relatively high in 2010. While
additional pension contributions and improvements in equity markets during 2009
should partially offset this increase, a 50 basis point decrease in the expected
return on plan assets in 2010 will mitigate that benefit.
Revenue
Recognition — Gas and electricity revenues are recognized in the period the
commodity is delivered to customers. SJG, SJRG and SJE bill customers monthly. A
majority of SJG and SJE customers have their meters read on a cycle basis
throughout the month. For SJG and SJE retail customers that are not billed at
the end of each month, we record an estimate to recognize unbilled revenues for
gas/electricity delivered from the date of the last meter reading to the end of
the month. SJG’s and SJE’s unbilled revenue for natural gas is estimated each
month based on monthly deliveries into the system; unaccounted for natural gas
based on historical results; customer-specific use factors, when available;
actual temperatures during the period; and applicable customer rates. SJE’s
unbilled revenue for retail electricity is based on customer-specific use
factors and applicable customer rates. We bill SJG customers at rates approved
by the BPU. SJE and SJRG customers are billed at rates negotiated between the
parties.
We
recognize revenues related to SJESP’s appliance service contracts seasonally
over the full 12-month term of the contract. Revenues related to services
provided on a time and materials basis are recognized on a monthly basis as the
services are provided.
Marina
recognizes revenue on a monthly basis as services are provided and for on-site
energy production that is delivered to its customers.
The BPU
allows SJG to recover gas costs in rates through the Basic Gas Supply Service
(BGSS) price structure. SJG defers over/under recoveries of gas costs and
includes them in subsequent adjustments to the BGSS rate. These adjustments
result in over/under recoveries of gas costs being included in rates during
future periods. As a result of these deferrals, utility revenue recognition does
not directly translate to profitability. While SJG realizes profits on gas sales
during the month of providing the utility service, significant shifts in revenue
recognition may result from the various recovery clauses approved by the BPU.
This revenue recognition process does not shift earnings between periods, as
these clauses only provide for cost recovery on a dollar-for-dollar basis (See
Notes 9 and 10 to the consolidated financial statements).
In
January 2010, the BPU approved an extension of the Conservation Incentive
Program (CIP) through 2013. The CIP may be extended for a one year
period in the absence of a Board order taking any affirmative action to the
contrary. Each CIP year begins October 1 and ends September 30 of the subsequent
year. On a monthly basis during the CIP year, SJG records adjustments
to earnings based on weather and customer usage factors, as
incurred. Subsequent to each year, SJG makes filings with the BPU to
review and approve amounts recorded under the CIP. BPU approved cash
inflows or outflows generally will not begin until the next CIP year and have no
impact on earnings at that time.
NEW
ACCOUNTING PRONOUNCEMENTS — See detailed discussions concerning New Accounting
Pronouncements and their impact on SJI in Note 1 to the consolidated financial
statements.
RATES AND
REGULATION — As a public utility, SJG is subject to regulation by the New Jersey
Board of Public Utilities (BPU). Additionally, the Natural Gas Policy Act, which
was enacted in November 1978, contains provisions for Federal regulation of
certain aspects of SJG’s business. SJG is affected by Federal regulation with
respect to transportation and pricing policies applicable to pipeline capacity
from Transcontinental Gas Pipeline Corporation (SJG’s major supplier), Columbia
Gas Transmission Corporation, Columbia Gulf Transmission Company, and Dominion
Transmission, Inc., since such services are provided under rates and terms
established under the jurisdiction of the FERC. SJG’s retail sales are made
under rate schedules within a tariff filed with and subject to the jurisdiction
of the BPU. These rate schedules provide primarily for either block rates or
demand/commodity rate structures. SJG’s primary rate mechanisms include base
rates, the Basic Gas Supply Service Clause, Capital Investment Recovery Tracker
(CIRT), Energy Efficiency Tracker (EET) and the Conservation Incentive
Program.
Basic Gas
Supply Service Clause (BGSS) - In December 2002, the BPU approved the BGSS price
structure which gave SJG customers the ability to make more informed decisions
regarding their choices of an alternate supplier by having a utility price
structure that is more consistent with market conditions. The cost of gas
purchased from the utility by periodic consumers is set annually by the BPU
through a BGSS clause within the tariff. When actual gas costs experienced are
less than those charged to customers under the BGSS, customer bills in the
subsequent BGSS period(s) are reduced by returning the overrecovery with
interest. When actual gas costs are more than is recovered through rates, SJG is
permitted to charge customers more for gas in future periods to recover the
shortfall.
Capital
Investment Recovery Tracker (CIRT) – In April 2009, the BPU approved an
accelerated infrastructure investment program and an associated rate tracker,
which allows SJG to accelerate $103.0 million of capital spending into 2009 and
2010. The CIRT allows SJG to earn a return of, and return on,
investment as the capital is spent.
Energy
Efficiency Tracker (EET) – In July 2009, the BPU approved an energy efficiency
program to invest $17.0 million over two years in energy efficiency programs for
residential, commercial and industrial customers. Under this program,
SJG can recover incremental operating and maintenance expenses and earn a return
of, and return on, program investments.
Conservation
Incentive Program (CIP) - The CIP is a BPU approved pilot program that is
designed to eliminate the link between SJG profits and the quantity of natural
gas SJG sells, and foster conservation efforts. With the CIP, SJG’s profits are
tied to the number of customers served and how efficiently SJG serves them, thus
allowing SJG to focus on encouraging conservation and energy efficiency among
its customers without negatively impacting net income. The CIP
tracking mechanism adjusts earnings based on weather, and also adjusts SJG’s
earnings when actual usage per customer experienced during an annual period
varies from an established baseline usage per customer. In January
2010, the BPU approved an extension of the CIP through September
2013. The CIP may be extended for a one year period in the absence of
a Board order taking any affirmative action to the contrary with regard to the
pilot program.
Utility
earnings are recognized during current periods based upon the application of the
CIP. The cash impact of variations in customer usage will result in cash being
collected from, or returned to, customers during the subsequent CIP year, which
runs from October 1 to September 30.
The
effects of the CIP on SJG’s net income for the last three years and the
associated weather comparisons were as follows ($’s in millions):
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
||||
|
Net
Income Benefit:
|
|
|
|
|
|
|
|
|
|
|||
|
CIP
– Weather Related
|
|
$
|
0.8
|
|
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
CIP
– Usage Related
|
|
|
8.5
|
|
|
|
9.2
|
|
|
|
5.9
|
|
|
Total
Net Income Benefit
|
|
$
|
9.3
|
|
|
$
|
10.8
|
|
|
$
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weather
Compared to 20-Year Average
|
|
1.1%
warmer
|
|
|
4.7%
warmer
|
|
|
3.2%
warmer
|
|
|||
|
Weather
Compared to Prior Year
|
|
3.9%
colder
|
|
|
1.6%
warmer
|
|
|
13.8%
colder
|
|
|||
As part
of the CIP, SJG is required to implement additional conservation programs
including customized customer communication and outreach efforts, targeted
upgrade furnace efficiency packages, financing offers, and an outreach program
to speak to local and state institutional constituents. SJG is also required to
reduce gas supply and storage assets and their associated fees. Note that
changes in fees associated with supply and storage assets have no effect on
SJG’s net income as these costs are passed through directly to customers on a
dollar-for-dollar basis.
Earnings
accrued and payments received under the CIP are limited to a level that will not
cause SJG’s return on equity to exceed 10% (excluding earnings from off-system
gas sales and certain other tariff clauses) and the annualized savings attained
from reducing gas supply and storage assets.
Other
Rate Mechanisms - SJG’s tariff also contains provisions permitting the recovery
of environmental remediation costs associated with former manufactured gas plant
sites, energy efficiency and renewable energy program costs, consumer education
program costs and low-income program costs. These costs are recovered from
customers through the Societal Benefits Clause.
See
additional detailed discussions on Rates and Regulatory Actions in Note 9 to the
consolidated financial statements.
ENVIRONMENTAL
REMEDIATION — See detailed discussion concerning Environmental Remediation in
Note 14 to the consolidated financial statements.
COMPETITION
— SJG’s franchises are non-exclusive. Currently, no other utility provides
retail gas distribution services within SJG’s territory. SJG does not expect any
other utilities to do so in the foreseeable future because of the extensive
investment required for utility plant and related costs. SJG competes with oil,
propane and electricity suppliers for residential, commercial and industrial
users, with alternative fuel source providers (wind, solar and fuel cells) based
upon price, convenience and environmental factors, and with other
marketers/brokers in the selling of wholesale natural gas services. The market
for natural gas commodity sales is subject to competition due to deregulation.
We enhanced SJG’s competitive position while maintaining margins by using an
unbundled tariff. This tariff allows full cost-of-service recovery when
transporting gas for our customers. Under this tariff, SJG profits from
transporting, rather than selling, the commodity. SJG’s residential, commercial
and industrial customers can choose their supplier while we recover the cost of
service through transportation service (See Customer Choice Legislation
below).
SJRG
competes in the wholesale natural gas market against a wide array of competitors
on a cost competitive, term of service, and reliability basis. SJRG has been a
reliable energy provider in this arena for 14 years. There has been significant
consolidation of energy wholesale operations and large financial institutions
have also entered the marketplace. We expect this trend to continue in the near
term, which could result in downward pressure on the margins
available.
Marina
competes with other companies that develop and operate on-site energy
production. Marina also faces competition from customers’ preferences for
alternative technologies for energy production, as well as those customers that
address their energy needs internally.
SJE
competes with utilities and other third-party marketers to sell the unregulated
natural gas and electricity commodity to customers. Marketers compete largely on
price, which is driven by the commodity market. While the utilities are
typically indifferent as to where customers get their gas or electricity, the
price they set for the commodity they sell creates competition for SJE. Based on
its market share, SJE is one of the largest marketers of natural gas in southern
New Jersey as of December 31, 2009. In addition, similar to SJG, SJE faces
competition from other energy products.
SJESP
competes primarily with smaller, local contractors in southern New Jersey that
install residential and commercial HVAC systems and provide major appliance
repair and plumbing services. These contractors typically only serve their local
communities and do not serve the entire southern part of New
Jersey.
CUSTOMER
CHOICE LEGISLATION— All
residential natural gas customers in New Jersey can choose their natural gas
commodity supplier under the terms of the “Electric Discount and Energy
Competition Act of 1999”. This bill created the framework and necessary
time schedules for the restructuring of the state’s electric and natural gas
utilities. The Act established unbundling, where redesigned
utility rate structures allow natural gas and electric consumers to choose their
energy supplier. It also established time frames for instituting competitive
services for customer account functions and for determining whether basic gas
supply services should become competitive. Customers purchasing natural gas from
a provider other than the local utility (the “marketer”) are charged for the gas
costs by the marketer and charged for the transportation costs by the utility.
The total number of customers in SJG’s service territory purchasing natural gas
from a marketer averaged 28,379, 28,637 and 25,309 during 2009, 2008 and 2007
respectively.
RESULTS
OF OPERATIONS:
SJI
operates in several different reportable operating segments. Gas Utility
Operations (SJG) consists primarily of natural gas distribution to residential,
commercial and industrial customers. Wholesale Gas Operations include SJRG’s
activities. SJE is involved in both retail gas and retail electric activities.
Retail Gas and Other Operations include natural gas acquisition and
transportation service business lines. Retail Electric Operations consist of
electricity acquisition and transportation to commercial and industrial
customers. On-Site Energy Production consists of Marina’s thermal energy
facility and other energy-related projects. Appliance Service Operations
includes SJESP’s servicing of appliances via the sale of appliance service
programs as well as on a time and materials basis, and the installation of
residential and small commercial HVAC systems.
A
significant portion of the volatility in operating results is due to the impact
of the accounting methods associated with SJRG’s storage activities. SJRG
purchases and holds natural gas in storage to earn a profit margin from its
ultimate sale in the future. SJRG uses derivatives to mitigate commodity price
risk in order to substantially lock-in the profit margin that will ultimately be
realized. However, gas stored in inventory is accounted for at the lower of
average cost or market; the derivatives used to reduce the risk associated with
a change in the value of the inventory are accounted for at fair value, with
changes in fair value recorded in operating results in the period of change. As
a result, earnings are subject to volatility as the market price of derivatives
change, even when the underlying hedged value of the inventory is unchanged.
This volatility can be significant from period to period. Over time, gains or
losses on sale of gas in storage will be offset by losses or gains on the
derivatives, resulting in the realization of the profit margin expected when the
transactions were initiated.
Net
Income in 2009 decreased $18.8 million, or 24.5%, to $58.1 million
compared with 2008. This decrease was primarily due to:
|
|
·
|
a
58.6% decrease in income contribution from SJRG and SJE related to the
change in unrealized gains and losses on derivatives used to mitigate
price risk on natural gas and electric as discussed above, and under
Operating Revenues – Nonutility below,
respectively.
|
Net
Income in 2008 increased $14.7 million, or 23.6%, to $76.9 million
compared with 2007. This increase was primarily due to:
|
|
·
|
a
52.4% increase in gross margin generated by SJRG related to the increase
in storage and market area transportation assets under
contract.
|
These
changes are discussed in more detail below.
Operating
Revenues and Throughput— Utility — The following table summarizes the
composition of select gas utility data for the three years ended December 31 (in
thousands, except for customer and degree day data):
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
||||||||||||||||
|
Utility Throughput – dth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Firm
Sales -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Residential
|
|
|
22,736
|
|
|
|
23
|
%
|
|
|
21,530
|
|
|
|
15
|
%
|
|
|
22,523
|
|
|
|
16
|
%
|
|
Commercial
|
|
|
6,063
|
|
|
|
6
|
%
|
|
|
6,127
|
|
|
|
4
|
%
|
|
|
6,339
|
|
|
|
4
|
%
|
|
Industrial
|
|
|
331
|
|
|
|
1
|
%
|
|
|
188
|
|
|
|
-
|
|
|
|
193
|
|
|
|
-
|
|
|
Cogeneration
and electric generation
|
|
|
322
|
|
|
|
-
|
|
|
561
|
|
|
|
-
|
|
|
1,335
|
|
|
|
1
|
%
|
||
|
Firm
Transportation -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Residential
|
|
|
2,005
|
|
|
|
2
|
%
|
|
|
1,988
|
|
|
|
1
|
%
|
|
|
1,870
|
|
|
|
1
|
%
|
|
Commercial
|
|
|
5,930
|
|
|
|
6
|
%
|
|
|
5,687
|
|
|
|
4
|
%
|
|
|
5,927
|
|
|
|
4
|
%
|
|
Industrial
|
|
|
12,002
|
|
|
|
12
|
%
|
|
|
12,661
|
|
|
|
9
|
%
|
|
|
12,107
|
|
|
|
9
|
%
|
|
Cogeneration
and electric generation
|
|
|
2,290
|
|
|
|
2
|
%
|
|
|
2,536
|
|
|
|
2
|
%
|
|
|
3,088
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total
Firm Throughput
|
|
|
51,679
|
|
|
|
52
|
%
|
|
|
51,278
|
|
|
|
35
|
%
|
|
|
53,382
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Interruptible
Sales
|
|
|
5
|
|
|
|
-
|
|
|
|
35
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
Interruptible
Transportation
|
|
|
2,314
|
|
|
|
2
|
%
|
|
|
2,716
|
|
|
|
2
|
%
|
|
|
3,002
|
|
|
|
2
|
%
|
|
Off-System
|
|
|
6,282
|
|
|
|
7
|
%
|
|
|
9,632
|
|
|
|
7
|
%
|
|
|
17,686
|
|
|
|
13
|
%
|
|
Capacity
Release
|
|
|
38,387
|
|
|
|
39
|
%
|
|
|
80,665
|
|
|
|
56
|
%
|
|
|
67,430
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total
Throughput - Utility
|
|
|
98,667
|
|
|
|
100
|
%
|
|
|
144,326
|
|
|
|
100
|
%
|
|
|
141,568
|
|
|
|
100
|
%
|
|
Utility Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Firm
Sales-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Residential
|
|
$
|
318,143
|
|
|
|
66
|
%
|
|
$
|
320,401
|
|
|
|
57
|
%
|
|
$
|
342,809
|
|
|
|
54
|
%
|
|
Commercial
|
|
|
71,669
|
|
|
|
15
|
%
|
|
|
81,914
|
|
|
|
15
|
%
|
|
|
80,237
|
|
|
|
13
|
%
|
|
Industrial
|
|
|
3,824
|
|
|
|
1
|
%
|
|
|
5,434
|
|
|
|
1
|
%
|
|
|
8,381
|
|
|
|
1
|
%
|
|
Cogeneration
and electric generation
|
|
|
2,709
|
|
|
|
1
|
%
|
|
|
7,940
|
|
|
|
1
|
%
|
|
|
11,722
|
|
|
|
2
|
%
|
|
Firm
Transportation -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Residential
|
|
|
10,491
|
|
|
|
2
|
%
|
|
|
10,408
|
|
|
|
2
|
%
|
|
|
8,982
|
|
|
|
1
|
%
|
|
Commercial
|
|
|
19,722
|
|
|
|
4
|
%
|
|
|
18,286
|
|
|
|
3
|
%
|
|
|
17,299
|
|
|
|
3
|
%
|
|
Industrial
|
|
|
14,751
|
|
|
|
3
|
%
|
|
|
12,504
|
|
|
|
2
|
%
|
|
|
12,229
|
|
|
|
2
|
%
|
|
Cogeneration
and electric generation
|
|
|
2,272
|
|
|
|
-
|
|
|
|
1,682
|
|
|
|
-
|
|
|
|
1,847
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total
Firm Revenues
|
|
|
443,581
|
|
|
|
92
|
%
|
|
|
458,569
|
|
|
|
81
|
%
|
|
|
483,506
|
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Interruptible
Sales
|
|
|
89
|
|
|
|
-
|
|
|
|
403
|
|
|
|
-
|
|
|
|
785
|
|
|
|
-
|
|
|
Interruptible
Transportation
|
|
|
2,122
|
|
|
|
-
|
|
|
|
1,786
|
|
|
|
-
|
|
|
|
1,970
|
|
|
|
-
|
|
|
Off-System
|
|
|
32,978
|
|
|
|
7
|
%
|
|
|
90,430
|
|
|
|
16
|
%
|
|
|
131,586
|
|
|
|
22
|
%
|
|
Capacity
Release
|
|
|
4,282
|
|
|
|
1
|
%
|
|
|
15,549
|
|
|
|
3
|
%
|
|
|
11,208
|
|
|
|
2
|
%
|
|
Other
|
|
|
1,324
|
|
|
|
-
|
|
|
|
1,309
|
|
|
|
-
|
|
|
|
1,492
|
|
|
|
-
|
|
|
|
|
484,376
|
|
|
|
100
|
%
|
|
|
568,046
|
|
|
|
100
|
%
|
|
|
630,547
|
|
|
|
100
|
%
|
|
|
Less:
|
||||||||||||||||||||||||
|
Intercompany
Sales
|
|
|
4,112
|
|
|
|
|
|
|
|
7,855
|
|
|
|
|
|
|
|
19,540
|
|
|
|
|
|
|
Total
Utility Operating Revenues
|
|
|
480,264
|
|
|
|
|
|
|
|
560,191
|
|
|
|
|
|
|
|
611,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
289,740
|
|
|
|
|
|
|
|
375,549
|
|
|
|
|
|
|
|
433,495
|
|
|
|
|
|
|
Conservation
recoveries *
|
|
|
7,718
|
|
|
|
|
|
|
|
7,741
|
|
|
|
|
|
|
|
4,458
|
|
|
|
|
|
|
RAC
recoveries *
|
|
|
5,189
|
|
|
|
|
|
|
|
3,079
|
|
|
|
|
|
|
|
2,056
|
|
|
|
|
|
|
EET
recoveries*
|
190
|
-
|
-
|
|||||||||||||||||||||
|
Revenue
taxes
|
|
|
8,836
|
|
|
|
|
|
|
|
8,655
|
|
|
|
|
|
|
|
8,850
|
|
|
|
|
|
|
Utility
Margin
|
|
$
|
168,591
|
|
|
|
|
|
|
$
|
165,167
|
|
|
|
|
|
|
$
|
162,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
104,373
|
|
|
|
62
|
%
|
|
$
|
99,862
|
|
|
|
61
|
%
|
|
$
|
102,077
|
|
|
|
63
|
%
|
|
Commercial
and industrial
|
|
|
39,853
|
|
|
|
24
|
%
|
|
|
38,995
|
|
|
|
24
|
%
|
|
|
40,036
|
|
|
|
25
|
%
|
|
Cogeneration
and electric generation
|
|
|
2,251
|
|
|
|
1
|
%
|
|
|
1,997
|
|
|
|
1
|
%
|
|
|
2,212
|
|
|
|
1
|
%
|
|
Interruptible
|
|
|
144
|
|
|
|
-
|
|
|
|
143
|
|
|
|
-
|
|
|
|
195
|
|
|
|
-
|
|
|
Off-system
& capacity release
|
|
|
1,416
|
|
|
|
1
|
%
|
|
|
3,349
|
|
|
|
2
|
%
|
|
|
2,994
|
|
|
|
2
|
%
|
|
Other
revenues
|
|
|
2,511
|
|
|
|
1
|
%
|
|
|
2,440
|
|
|
|
1
|
%
|
|
|
1,952
|
|
|
|
1
|
%
|
|
Margin
before weather normalization & decoupling
|
|
|
150,548
|
|
|
|
89
|
%
|
|
|
146,786
|
|
|
|
89
|
%
|
|
|
149,466
|
|
|
|
92
|
%
|
|
CIRT
mechanism
|
|
|
2,198
|
|
|
|
1
|
%
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
||
|
CIP
mechanism
|
|
|
15,809
|
|
|
|
10
|
%
|
|
|
18,381
|
|
|
|
11
|
%
|
|
|
12,682
|
|
|
|
8
|
%
|
|
EET
mechanism
|
36
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Utility
Margin
|
|
$
|
168,591
|
|
|
|
100
|
%
|
|
$
|
165,167
|
|
|
|
100
|
%
|
|
$
|
162,148
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Number of Customers at Year
End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Residential
|
|
|
320,290
|
|
|
|
93
|
%
|
|
|
317,026
|
|
|
|
93
|
%
|
|
|
312,969
|
|
|
|
93
|
%
|
|
Commercial
|
|
|
22,802
|
|
|
|
7
|
%
|
|
|
22,636
|
|
|
|
7
|
%
|
|
|
22,220
|
|
|
|
7
|
%
|
|
Industrial
|
|
|
474
|
|
|
|
-
|
|
|
|
474
|
|
|
|
-
|
|
|
|
474
|
|
|
|
-
|
|
|
Total
Customers
|
|
|
343,566
|
|
|
|
100
|
%
|
|
|
340,136
|
|
|
|
100
|
%
|
|
|
335,663
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Annual
Degree Days:
|
|
|
4,588
|
|
|
|
|
|
|
4,417
|
|
|
|
|
|
|
|
4,488
|
|
|
|
|
|
*
Represents expenses for which there is a corresponding credit in operating
revenues. Therefore, such recoveries have no impact on our financial
results.
Throughput
— Utility - Total gas throughput decreased 45.7 MMdts, or 31.6%, from
2008 to 2009. Off-System sales (OSS) and capacity release volume
decreased substantially as SJG’s portfolio of assets available for such
activities has been reduced in each of the past 3 years under the Conservation
Incentive Program, as discussed under “Rates and Regulation.” As the
majority of profits from OSS and capacity release are returned to the ratepayers
via a BPU-approved sharing formula, the resulting impact of such decreased
activity on SJG earnings is greatly mitigated, as reflected in the margin table
above. Firm throughput increased in the residential market as a
result of 3.9% colder weather and the addition of 3,264 residential customers
during 2009. Total gas throughput increased 2.8 MMdts, or 1.9%,
from 2007 to 2008. This increase was driven by greater capacity
release activity during 2008 as market demand for such capacity had
increased. Firm throughput declined as a result of warmer weather and
customer conservation. As previously discussed, OSS volume decreased
substantially as SJG’s portfolio of assets available for such activities was
reduced. Changes in throughput in other customer categories were not
significant.
Operating
Revenues - Utility— Revenues decreased $79.9 million, or 14.3%, during 2009
compared with 2008, primarily due to lower OSS revenue after eliminating
intercompany transactions.
OSS and
capacity release revenue decreased by $57.5 million and $11.3 million,
respectively, during 2009 compared with 2008. These decreases
were primarily related to continued reductions in SJG’s portfolio of assets
available for such activities under the provisions of the CIP, as noted above
under “Throughput,” and a significant decrease in the average cost per unit sold
during 2009. The OSS unit sales prices declined from an average of
$9.39 per dt during 2008 to $5.25 per dt during 2009 due to significant declines
in the cost of natural gas during 2009. As reflected in the Margin table above,
the impact of lower OSS and capacity release did not have a material impact on
earnings as SJG is required to share 85% of the profits of such activity with
the ratepayers. Firm sales revenue decreased approximately $15.0
million during 2009 compared with 2008 also as a result of significantly
lower natural gas prices. The average cost of natural gas purchased
during 2009 was $7.52 per dt, representing a 27.5% decrease relative to the
average cost of $10.38 per dt in 2008. This decrease in natural gas
costs precipitated a customer refund of over-recovered gas costs through the
BPU-approved Basic Gas Supply Service (BGSS) in October 2009 totaling
approximately $20.4 million. While changes in gas costs, BGSS recoveries and
refunds, when applicable, may fluctuate from period to period, SJG does not
profit from the sale of the commodity. Therefore, corresponding
fluctuations in Operating Revenue or Cost of Sales have no impact on Company
profitability, as further discussed under “Margin.”
Revenues
for SJG decreased $50.8 million during 2008, compared with 2007, primarily
due to lower OSS revenue after eliminating intercompany
transactions.
OSS
revenue decreased $41.2 million as SJG’s portfolio of assets
available for OSS has been reduced under the CIP. Total firm revenues
decreased during 2008 compared with the same period in the prior year
primarily due to warmer weather and lower residential revenues resulting from a
lower Basic Gas Supply Service (BGSS) rate in effect during most of
2008. For nearly the entire year, the 2008 BGSS rate was 12.7% lower
than the rate in effect during the corresponding period in 2007. SJG
reduced its BGSS rate in October 2007 primarily due to a combination of actual
and forecasted decreases in wholesale gas costs. As previously
stated, the Company does not profit from the sale of the commodity; therefore,
the BGSS rate decrease did not have an impact on Company
profitability. Finally, the Company experienced lower sales to the
region’s electric utility, as their demand to consume natural gas to generate
electricity during the summer months decreased substantially. Since
the majority of the Company’s profits from electric generation sales are
contractually fixed, the decrease in volume and revenue had little impact on
profitability. Partially offsetting these decreases, SJG added 4,473
customers during the 12-month period ended December 31 2008, which represents a
1.3% increase in total customers.
Operating
Revenues — Nonutility 2009 vs. 2008 — Combined revenues for SJI’s nonutility
businesses, net of intercompany transactions, decreased by $36.6 million in
2009, compared with 2008.
SJE’s
revenues from retail gas, net of intercompany transactions, decreased by $65.5
million, or 37.8%, in 2009, compared with 2008 due mainly to a 56.1% decrease in
the average monthly NYMEX settle price. The majority of SJE’s natural gas
customer contracts are market-priced. In addition, as of December 31, 2009, SJE
was serving 8,772 residential and 871 commercial customers compared with 10,310
residential and 1,089 commercial customers as of December 31, 2008. Market
conditions continue to make it difficult to be competitive in these markets. We
continue to focus our marketing efforts on the pursuit of non-heat-sensitive
commercial customers in an effort to mitigate price volatility and weather
risk.
SJE’s
revenues from retail electricity, net of intercompany transactions, increased
$57.6 million, or 123.2%, in 2009, compared with 2008. Excluding the impact of
the net change in unrealized losses recorded on forward financial contracts due
to price volatility of $10.5 million, revenues increased $68.1 million or
145.6%. This increase was mainly due to the impact of SJE being the successful
bidder on a contract to supply retail electricity to over 400 school districts
located throughout the state of New Jersey beginning in April
2009. Partially offsetting this was a 51.9% decrease in the average
monthly Locational Marginal Price (LMP) per megawatt hour in 2009 compared with
2008. SJE uses forward financial contracts to mitigate commodity
price risk on fixed price electric contracts. In accordance with GAAP, the
forward financial contracts are recorded at fair value, with changes in fair
value recorded in earnings in the period of change. The related customer
contracts are not considered derivatives and therefore are not recorded in
earnings until the electric is delivered. As a result, earnings are subject to
volatility as the market price of the forward financial contracts change, even
when the underlying hedged value of the customer contract is unchanged. Over
time, gains or losses on the sale of the fixed price electric under contract
will be offset by losses or gains on the forward financial contracts, resulting
in the realization of the profit margin expected when the transactions were
initiated. Excluding the school bid, essentially all of SJE’s retail
electric customer contracts are market-priced.
SJRG’s
revenues, net of intercompany transactions, decreased $18.0 million in 2009,
compared with 2008. Excluding the impact of the net change in unrealized gains
and losses recorded on forward financial contracts of $13.0 million due to price
volatility, SJRG’s revenues decreased $5.0 million. A summary of SJRG’s revenue
is as follows (in millions):
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
SJRG
Revenue
|
|
$
|
97.1
|
|
|
$
|
115.1
|
|
|
$
|
(18.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
Unrealized Losses (Subtract: Unrealized Gains)
|
|
|
4.1
|
|
|
(8.9
|
)
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJRG
Revenue, Excluding Unrealized Losses (Gains)
|
|
$
|
101.2
|
|
|
$
|
106.2
|
|
|
$
|
(5.0)
|
|
The
decrease in revenues is mainly attributable to the timing of realized storage
hedge gains and losses. See Gross Margin - Nonutility. The decrease is partially
offset by a 9.2% increase in sales of storage volumes. As discussed in Note 1 to
the Consolidated Financial Statements, revenues and expenses related to the
energy trading activities of SJRG are presented on a net basis in Operating
Revenues – Nonutility.
Revenues
for Marina decreased $9.9 million, or 21.2%, in 2009 compared with 2008, due
mainly to significantly lower sales rates for chilled and hot water. Lower sales
rates were driven by lower underlying commodity prices. Volumetric hot water
production increased 3.9% and chilled water production increased 1.8% in 2009
compared with 2008. Additional production was mainly attributable to a full
year’s usage from Borgata’s Water Club tower which opened in June 2008. This was
offset by lower demand, particularly for chilled water, at Borgata’s other
facilities mainly driven by the impact of current economic conditions on resort
occupancy and significantly cooler temperatures in the summer of 2009 compared
with 2008.
Revenues
for SJESP decreased $0.3 million, or 1.5%, in 2009, compared with 2008, due
mainly to lower time and materials, plumbing and installation sales that were
negatively impacted by current depressed economic conditions. This was mostly
offset by revenues from a large commercial installation job and a price increase
to our warranty contracts that took effect April 1, 2008.
Operating
Revenues — Nonutility 2008 vs. 2007 — Combined revenues for SJI’s nonutility
businesses, net of intercompany transactions, increased by $56.4 million in
2008, compared with 2007.
SJE’s
revenues from retail gas, net of intercompany transactions, increased by $2.3
million in 2008, compared with 2007 due mainly to a 22% increase in volumes sold
by our retail gas marketing division located in northwestern Pennsylvania. We
contracted with several producers in the local production area to market their
natural gas, the volumes of which increased due to the expansion of drilling
activity in the area. This increase was mostly offset by lower
residential and commercial customer counts in New Jersey. As of December 31,
2008, we served 10,310 residential customers compared with 13,868 as of December
31, 2007. Market conditions have made it difficult to be competitive. SJE’s
commercial customer count also declined from 1,608 as of December 31, 2007
compared with 1,089 as of December 31, 2008, driven by the expiration of a large
municipal bid early in the fourth quarter of 2008. We continue to focus our
marketing efforts on the pursuit of non-heat-sensitive commercial customers in
an effort to mitigate price volatility and weather risk.
SJE’s
revenues from retail electricity, net of intercompany transactions, increased
$5.7 million in 2008, compared with 2007 due mainly to the acquisition of one
large customer in New Jersey and several commercial customers in the New England
area.
SJRG’s
revenues, net of intercompany transactions, increased $39.9 million in 2008,
compared with 2007. Excluding the impact of the net change in unrealized gains
and losses recorded on forward financial contracts of $5.1 million due to price
volatility, SJRG’s revenues increased $34.8 million. A summary of SJRG’s revenue
is as follows (in millions):
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
SJRG
Revenue
|
|
$
|
115.1
|
|
|
$
|
75.2
|
|
|
$
|
39.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Unrealized gains
|
|
|
(8.9
|
)
|
|
|
(3.8
|
)
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJRG
Revenue, Excluding unrealized gains
|
|
$
|
106.2
|
|
|
$
|
71.4
|
|
|
$
|
34.8
|
|
This
increase in revenues is mainly attributable to a 28.9% increase in sales of
storage volumes in 2008 compared with 2007. As discussed in Note 1 to the
Consolidated Financial Statements, revenues and expenses related to the energy
trading activities of SJRG are presented on a net basis in Operating Revenues –
Nonutility.
Revenues
for Marina increased $6.9 million in 2008, compared with 2007 due mainly to
higher rates on chilled and hot water and increased chilled water production.
Higher rates were driven by higher underlying commodity prices. The opening of
Borgata’s new Water Club tower in June and record warm temperatures in June and
July were the principal drivers of the increased chilled water
production. Our thermal plant produced a total of 27.8 million
ton hours of chilled water in 2008 which represents a 4.9% increase when
compared with the 26.5 million ton hours produced in 2007.
Revenues
for SJESP increased $2.0 million in 2008, compared with 2007 due mainly to the
increase in the number of plumbing, heating and cooling system installation jobs
completed and a price increase to our warranty contracts that took effect April
1, 2008.
Margin —
Utility — SJG’s margin is defined as natural gas revenues less natural gas
costs; volumetric and revenue based energy taxes; and regulatory rider expenses.
We believe that margin provides a more meaningful basis for evaluating utility
operations than revenues since natural gas costs, energy taxes and regulatory
rider expenses are passed through to customers, and therefore, have no effect on
margin. Natural gas costs are charged to operating expenses on the basis of
therm sales at the prices approved by the New Jersey Board of Public Utilities
through the BGSS tariff.
Total
margin in 2009 increased $3.4 million, or 2.1%, from 2008 primarily due to
customer additions of 3,430 and approval in 2009 of SJG’s Capital Investment
Recovery Tracker (CIRT), as discussed above under “Rates and
Regulation.” The CIRT allows SJG to earn a return on approved
infrastructure investments made under this program. Partially
offsetting these increases was a decrease in OSS and capacity release margins
due to continued reductions in SJG’s portfolio of assets available for such
activities as discussed above.
The CIP
protected $15.8 million of pre-tax margin that would have been lost due to lower
customer usage, compared with $18.4 million in 2008. Of these
amounts, $1.4 million and $2.7 million were related to weather variations and
$14.4 million and $15.7 million were related to other customer usage variations
in 2009 and 2008, respectively.
Total
margin in 2008 increased $3.0 million, or 1.9%, from 2007 primarily due to
customer additions, as noted above, increased margins from OSS and capacity
release, and increased profits earned through the Company’s Storage Incentive
Mechanism (SIM). The SIM allows the Company to retain 20% of
storage-related gains and losses as measured against an established
benchmark. The balance of these gains and losses are passed through
to customers as part of the BGSS.
The CIP
protected $18.4 million of pre-tax margin in 2008 that would have been lost due
to lower customer usage, compared with $12.7 million in 2007. Of
these amounts, $2.7 million and $2.6 million were related to weather variations
and $15.7 million and $10.1 million were related to other customer usage
variations in 2008 and 2007, respectively.
Gross
Margin — Nonutility — Gross margin for the nonutility businesses is defined as
revenue less all costs that are directly related to the production, selling and
delivery of the company’s products and services. These costs primarily include
natural gas and electric commodity costs as well as certain payroll and related
benefits. On the statements of consolidated income, revenue is reflected in
Operating Revenues - Nonutility and the costs are reflected in Cost of Sales -
Nonutility. As discussed in Note 1 to the Consolidated Financial Statements,
revenues and expenses related to the energy trading activities of SJRG are
presented on a net basis in Operating Revenues - Nonutility.
For 2009,
combined gross margins for the nonutility businesses, net of intercompany
transactions, decreased $36.4 million to $61.5 million compared with 2008. This
decrease is primarily due to the following:
|
|
·
|
Gross
margin for SJRG decreased $20.5 million in 2009 compared with 2008.
Excluding the impact of the net change in unrealized gains and losses
recorded on forward financial contracts as discussed above, gross margin
for SJRG decreased $8.3 million due mainly to the timing of realized hedge
gains and losses related to our storage assets. Storage assets allow SJRG
to lock in the differential between purchasing natural gas at low current
prices and selling equivalent quantities at higher future prices. Gross
margin is generated via seasonal pricing differentials. While this margin
will be attained over the transaction cycle, the timing of physical
injections and withdraws and related hedge settlements can cause earnings
fluctuations for accounting purposes due to the volatile nature of
wholesale gas prices. During the injection season of 2008, NYMEX prices
increased significantly. Typical to our business cycle, we entered into
financial hedges designed to protect our ultimate injection prices at a
time when NYMEX prices were relatively low. These contracts settled in the
injection months when the NYMEX had risen considerably and thus produced
significant realized hedge gains which were recorded into earnings. During
this period we purchased more expensive physical gas that was injected
into storage. During the injection season of 2009, just the opposite
occurred as NYMEX prices fell considerably and our hedge contracts were
settled at significant losses which were recorded into earnings. However,
during this period we were able to purchase physical injection gas at
relatively low prices.
|
Overall,
SJRG’s contribution to margin has continued to increase as we have expanded our
portfolio of storage and market area transportation assets under contract.
However, future margins could fluctuate significantly due to the volatile nature
of wholesale gas prices.
Storage
and transportation assets under contract as of December 31 are as
follows:
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|||
|
Storage
(Bcf)
|
|
|
12.2
|
|
|
|
12.2
|
|
|
|
10.0
|
|
|
Transportation
(dts/day)
|
|
|
153,000
|
|
|
|
124,375
|
|
|
|
69,429
|
|
|
|
·
|
Gross
Margin for Marina decreased $3.8 million in 2009 compared with 2008. Gross
margin as a percentage of Operating Revenues increased 3.9 percentage
points due mainly to a decrease in low-margin electric sales to Borgata.
As per our contract, the billing rates are designed to recover the
underlying commodity costs over time. However during interim periods,
certain components of the underlying commodity costs are not adjusted
proportionately.
|
|
|
·
|
Gross
margin from SJE’s retail gas sales decreased $2.8 million in 2009,
compared with 2008. Excluding the impact of a $0.6 million change in
unrealized gains/losses recorded on forward financial contracts, gross
margin decreased $2.2 million in 2009 compared with 2008 due mainly to
lower customer counts (See Operating Revenues – Nonutility) and tighter
margins due to increased competition. Also, during the first quarter of
2008, SJE partially recovered losses from a full requirements customer in
the commercial market that were recognized in 2006. Gross margin as a
percentage of Operating Revenues did not change significantly
in 2009 compared with
2008.
|
|
|
·
|
Gross
margin from SJE’s retail electricity sales decreased $8.9 million in 2009
compared with 2008. Excluding the impact of a $10.5 million increase in
unrealized losses recorded on forward financial contracts, gross margin
increased $1.6 million in 2009 compared with 2008. This increase was
mainly due to the impact of the school bid as mentioned in Operating
Revenues - Nonutility. Excluding the impact of the unrealized losses,
gross margin as a percentage of Operating Revenues decreased 2.1
percentage points in 2009 compared with 2008. Margins as a percentage of
Operating Revenues declined due to three main factors. First, we recovered
some previously expensed costs in 2008. Second, several of our larger
higher margin customers consumed significantly fewer volumes in 2009.
Third, charges for transmission and marginal losses were substantially
higher in 2009.
|
|
|
·
|
Gross
margin for SJESP decreased $0.1 million in 2009 compared with
2008. Gross margin as a percentage of Operating Revenues did
not change significantly between
years.
|
For 2008,
combined gross margins for the nonutility businesses, net of intercompany
transactions, increased $25.7 million to $97.9 million compared with 2007. This
increase is primarily due to the following:
|
|
·
|
Gross
Margin for SJRG increased $19.2 million in 2008, compared with 2007.
Excluding the impact of the net change in unrealized gains and losses
recorded on forward financial contracts as discussed above, gross margin
for SJRG increased $14.1 million in 2008 compared with 2007.
Operationally, margins increased significantly in 2008 due primarily to
favorable time spreads on storage and transportation asset positions that
were locked in and/or improved upon. Storage assets allow SJRG to lock in
the differential between purchasing natural gas at low current prices and
selling equivalent quantities at higher future prices. Gross margin is
generated via seasonal pricing differentials. Similar to storage,
transportation assets allow us to lock in the differential of transporting
natural gas from one delivery point to another. Overall, SJRG’s
contribution to margin has continued to increase as we have expanded our
portfolio of storage and market area transportation assets under contract.
Storage and transportation assets under contract as of December 31 is as
follows:
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|||
|
Storage
(Bcf)
|
|
|
12.2
|
|
|
|
10.0
|
|
|
|
9.6
|
|
|
Transportation
(dts/day)
|
|
|
124,375
|
|
|
|
69,429
|
|
|
|
34,311
|
|
However,
future margins could fluctuate significantly due to the volatile nature of
wholesale gas prices.
|
|
·
|
Gross
Margin for Marina increased $3.6 million in 2008 compared with 2007 due
mainly to the increase in sales volumes from the thermal plant discussed
in Operating Revenues – Nonutility. Gross margin as a percentage of
Operating Revenues did not change significantly in 2008 compared with
2007.
|
|
|
·
|
Gross
margin from SJE’s retail gas sales increased $2.2 million in 2008,
compared with 2007. Excluding the impact of a $0.6 million increase in
unrealized gains recorded on forward financial contracts, gross margin
increased $1.6 million in 2008 compared with 2007. Gross margin as a
percentage of Operating Revenues increased 1.3 percentage points in 2008
compared with 2007. Excluding the impact of unrealized gains, this
increase is due mainly to two main factors. First, SJE partially recovered
losses from a full requirements customer in the commercial market that
were recognized in 2006. Second, the 2008 margin reflects the impact of
our initiatives to actively capitalize on market volatility which resulted
in securing more attractive spreads, particularly in the first and fourth
quarters.
|
|
|
·
|
Gross
margin from SJE’s retail electricity sales were relatively flat in 2008
compared with 2007. Gross margin as a percentage of Operating Revenues
decreased 0.9 percentage points in 2008 compared with 2007 due mainly to
increased competition.
|
|
|
·
|
Gross
Margin for SJESP increased $0.4 million in 2008, compared with
2007. Gross margin as a percentage of Operating Revenues
decreased 2.1 percentage points in 2008 compared with 2007 due mainly to
increased competition and higher payroll-related, insurance and fleet
costs.
|
Operations
Expense — A summary of net changes in operations expense follows (in
thousands):
|
|
2009
vs. 2008
|
|
|
2008
vs. 2007
|
|
|||
|
Utility
|
|
$
|
6,422
|
|
|
$
|
4,375
|
|
|
Nonutility:
|
|
|
|
|
|
|
|
|
|
Wholesale
Gas
|
|
|
865
|
|
|
|
1,384
|
|
|
Retail
Gas and Other
|
|
|
(366
|
)
|
|
|
115
|
|
|
Retail
Electricity
|
|
|
584
|
|
|
(73
|
)
|
|
|
On-Site
Energy Production
|
|
|
1,311
|
|
|
|
1,443
|
|
|
Appliance
Service
|
|
|
586
|
|
|
|
(643
|
)
|
|
Total
Nonutility
|
|
|
2,980
|
|
|
|
2,226
|
|
|
Intercompany
Eliminations and Other
|
|
|
(105
|
)
|
|
|
(409
|
)
|
|
Total
Operations
|
|
$
|
9,297
|
|
|
$
|
6,192
|
|
Utility
Operations expense increased $6.4 million during 2009, as compared with
2008. This increase is primarily the result of a $4.0 million
increase in the cost of providing pension and other postretirement benefit plans
during 2009 due to significant losses in the assets of those plans during
2008. The Company also experienced moderate increases in insurance,
governance, compliance and employee compensation costs during
2009.
Utility
Operations expense increased $4.4 million during 2008, as compared with
2007. This increase is primarily the result of $3.3 million of
increased spending under the New Jersey Clean Energy Program (NJCEP) during 2008
compared to last year. Such costs are recovered on a
dollar-for-dollar basis; therefore, SJG experienced an offsetting increase in
revenues during the period. The BPU-approved NJCEP allows for full
recovery of costs, including carrying costs when applicable. As a
result, the increase in expense had no impact on net income. The Company also
experienced moderate increases in insurance, governance, compliance and employee
compensation costs which were partially offset by lower pension and other cost
reductions during 2008.
Nonutility
Wholesale Gas Operations expense increased in 2009 and 2008 compared with the
previous year due mainly to additional personnel costs and governance and
compliance costs to support continued growth.
Nonutility
On-Site Energy Production Operations expense increased in 2009 and 2008 compared
with the previous year due mainly to higher labor and operating costs at all
active projects, costs related to landfill projects and the thermal plant
expansion that began operations during 2008.
Nonutility
Appliance Service Operations expense decreased in 2008, compared with 2007, due
mainly to the benefit of several cost cutting initiatives that were implemented
towards the end of 2007.
Other
changes in Operations Expense during 2009 and 2008 were not
significant.
Other
Operating Expenses — A summary of changes in other consolidated operating
expenses (in thousands):
|
|
|
2009
vs. 2008
|
|
|
2008
vs. 2007
|
|
||
|
Maintenance
|
|
$
|
970
|
|
$
|
1,554
|
|
|
|
Depreciation
|
|
|
2,043
|
|
|
1,295
|
|
|
|
Energy
and Other Taxes
|
|
|
(390
|
)
|
|
|
(62
|
)
|
Maintenance
– Maintenance expense increased $1.0 million during 2009, compared with 2008;
and $1.6 million during 2008, compared with 2007; primarily due to higher levels
of Remediation Adjustment Clause (RAC) amortization. These costs are recovered
from ratepayers; therefore, SJG experienced an offsetting increase in revenue
during 2009 and 2008. There was an additional increase in 2008 as a
result of installing safety devices on certain residential meters aimed at
preventing unauthorized usage and maintenance of company
equipment.
Depreciation
Expense - Depreciation increased during 2009 and 2008, compared with the prior
year, due mainly to the increased investment in property, plant and equipment by
SJG and Marina.
Energy
and Other Taxes — Energy and Other Taxes decreased in 2009, compared with 2008,
primarily due to a reduction in real estate taxes at a company owned property
due to a reduction in assessed value. Energy and Other Taxes increased in 2008
compared with 2007 primarily due to higher energy-related taxes based on
increased taxable firm throughput and revenues in
2008. Other changes were not significant.
Other
Income and Expense — The change in other income and expense in 2009 and 2008
compared with the prior year was not significant.
Interest
Charges — Interest charges decreased by $6.7 million in 2009 as compared with
2008, and $1.5 million in 2008 as compared with 2007. The reduction in 2009 was
due primarily to lower interest rates on short and long-term debt that more than
offset higher average borrowing levels experienced during 2009. Higher
borrowings were incurred in 2009 mainly to support increased levels of capital
investment. The reduction in interest charges in 2008 as compared with 2007 was
due to lower interest rates on short-term debt and lower average levels of
short-term debt. Average short-term debt outstanding reduced in 2008 as
compared with 2007 due primarily to lower average natural gas inventory
levels at our commodity marketing business during 2008. Partially offsetting
these factors in 2008 were higher interest rates incurred on SJG’s auction-rate
debt during the first half of 2008 and $2.2 million of ineffectiveness on
interest rate swaps during the fourth quarter of 2008.
Discontinued
Operations — The losses are primarily comprised of environmental remediation and
product liability litigation associated with previously disposed of
businesses.
LIQUIDITY
AND CAPITAL RESOURCES:
Liquidity
needs are driven by factors that include natural gas commodity prices; the
impact of weather on customer bills; lags in fully collecting gas costs from
customers under the Basic Gas Supply Service charge; working capital needs of
our energy trading and marketing activities; the timing of construction and
remediation expenditures and related permanent financings; the timing of equity
contributions to unconsolidated affiliates; mandated tax payment dates; both
discretionary and required repayments of long-term debt; and the amounts and
timing of dividend payments.
Cash
Flows from Operating Activities — Liquidity needs are first met with net cash
provided by operating activities. Net cash provided by operating activities
totaled $175.2 million, $26.4 million and $147.8 million in 2009, 2008 and 2007,
respectively. Net cash provided by operating activities varies from year-to-year
primarily due to the impact of weather on customer demand and related gas
purchases, customer usage factors related to conservation efforts and the price
of the natural gas commodity, inventory utilization and gas cost recoveries. Net
cash provided by operating activities in 2009 was positively impacted by lower
unit gas costs and the impact of those costs on natural gas inventory
balances. The Company also incurred lower environmental remediation
costs in 2009 as compared with 2008. The lower environmental
remediation costs include a decrease in remediation expenditures as well as
increased insurance recoveries during 2009. Net cash provided by
operating activities in 2008 was negatively impacted by higher gas prices in the
first half of 2008 which resulted in significantly higher costs to fill our
natural gas inventories at both our utility and non-utility businesses than
experienced in 2007. The company also incurred higher environmental
remediation costs in 2008 compared with 2007. In addition, in
anticipation of a large transmission pipeline project in 2009, SJG purchased and
inventoried $9.3 million of pipe at the end of 2008. Finally, SJI made a $5.9
million pension contribution during 2008. No such contribution was
made in the prior year. The comparison of net cash provided by operating
activities between 2007 and 2006 was significantly impacted by the combination
of an increased income stream (excluding unrealized gains), and more favorable
inventory and payable positions in 2007. A significant portion of the unrealized
gains from 2006 were realized in 2007. Inventory levels declined by a greater
amount in 2007 due to a weather induced increase in heating demand at our
utility and greater storage withdrawals at our gas marketing
business.
Cash
Flows from Investing Activities — SJI has a continuing need for cash resources
and capital, primarily to invest in new and replacement facilities and
equipment. Net cash outflows for construction projects for 2009, 2008 and 2007
amounted to $109.3 million, $62.0 million and $55.5 million, respectively. We
estimate the net cash outflows for construction projects for 2010, 2011 and 2012
to be approximately $167.5 million, $58.5 million and $58.3 million,
respectively. The increase in the 2009 capital expenditures was a
direct result of SJG’s CIRT program, which began in 2009. See
additional details under “Rates and Regulation.”
In
support of its risk management activities, SJRG is required to maintain a margin
account with a national investment firm as collateral for its forward contracts,
swap agreements, options contracts and futures contracts. This margin account is
included in Restricted Investments or Margin Account Liability, depending upon
the value of the related financial contracts, (the change in the Margin Account
Liability is reflected in cash flows from Operating Activities) on the
consolidated balance sheets. The required amount of restricted investments
changes on a daily basis due to fluctuations in the market value of the related
outstanding contracts and are difficult to predict.
During
2009 and 2008, the Company provided advances to unconsolidated affiliates of
$26.8 million and $7.5 million, respectively. The purpose of the advances was to
cover certain project related costs of LVE Energy Partners, LLC (See Commitments
and Contingencies), to provide a portion of the financing needed to acquire a
central utility plant at a new casino in Pennsylvania and develop several
landfill gas-fired electric production facilities.
Cash
Flows from Financing Activities — Short-term borrowings under lines of credit
from commercial banks are used to supplement cash from operations, to support
working capital needs and to finance capital expenditures as incurred. From time
to time, short-term debt incurred to finance capital expenditures is refinanced
with long-term debt.
Credit
facilities and available liquidity as of December 31, 2009 were as follows (in
thousands):
|
Company
|
|
Total
Facility
|
|
|
Usage
(A)
|
|
|
Available
Liquidity
|
|
Expiration
Date
|
|||
|
|
|
|
|
|
|
|
|
|
|
||||
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
Credit Facility
|
|
$
|
100,000
|
|
|
$
|
85,000
|
|
|
$
|
15,000
|
|
August
2011
|
|
Line
of Credit
|
|
|
40,000
|
|
|
|
10,000
|
|
|
|
30,000
|
|
December
2010
|
|
Uncommitted
Bank Lines
|
|
|
55,000
|
|
|
|
14,400
|
|
|
|
40,600
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
SJG
|
|
|
195,000
|
|
|
|
109,400
|
|
|
|
85,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
SJI:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revolving
Credit Facility
|
|
$
|
200,000
|
|
|
$
|
162,000
|
|
|
$
|
38,000
|
|
August
2011
|
|
Uncommitted
Bank Lines
|
|
|
30,000
|
|
|
|
9,300
|
|
|
|
20,700
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
SJI
|
|
|
230,000
|
|
|
|
171,300
|
|
|
|
58,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
|
|
$
|
425,000
|
|
|
$
|
280,700
|
|
|
$
|
144,300
|
|
|
|
|
(A)
|
Includes
letters of credit in the amount of $82.0 million under the SJI revolving
credit facility and $2.1 million under the SJI uncommitted bank
lines.
|
The SJG
facilities are restricted as to use and availability specifically to SJG;
however, if necessary the SJI facilities can also be used to support SJG’s
liquidity needs. All committed facilities contain one financial covenant
regarding the ratio of total debt to total capitalization, measured on a
quarterly basis. SJI and SJG were in compliance with this covenant as of
December 31, 2009. Borrowings under these credit facilities are at market rates.
The weighted average borrowing cost, which changes daily, was 0.77%, 1.16% and
5.27% at December 31, 2009, 2008 and 2007, respectively. Based upon
the existing credit facilities and a regular dialogue with our banks, we believe
there will continue to be sufficient credit available to meet our business’
future liquidity needs.
SJI
supplements its operating cash flow and credit lines with both debt and equity
capital. Over the years, SJG has used long-term debt, primarily in the form of
First Mortgage Bonds and Medium Term Notes (MTN), secured by the same pool of
utility assets, to finance its long-term borrowing needs. These needs are
primarily capital expenditures for property, plant and equipment. In September
2009, SJG received approval from the New Jersey Board of Public Utilities to
issue up to $150.0 million in long-term debt by September 2011. SJG
intends to borrow $15.0 million in March 2010 and $45.0 million by June 2010 in
a delayed funding under a private placement. In November 2009, SJG completed an
early redemption of $9.9 million of 6.50% bonds due in 2016. SJG
redeemed this debt early to achieve significant interest expense savings due to
the low interest rates currently available to SJG.
In June
2008, SJG repurchased $25.0 million of its auction-rate securities at par by
drawing under its lines of credit. That action resulted in a $25.0
million reduction in long-term debt on SJG’s balance sheet. SJG
converted these repurchased auction-rate securities to variable rate demand
bonds and remarketed them to the public during the third quarter of 2008. No
other long-term debt was issued during 2008 or 2009.
SJI
raised equity capital over the past three years through its Dividend
Reinvestment Plan (DRP). Historically, participants in SJI's DRP received newly
issued shares. Through the end of March 2008, we offered a 2% discount on DRP
investments as it was the most cost-effective way to raise equity capital in the
quantities we were seeking. Due to our continued strong equity position,
beginning in April 2008, the 2% discount was not offered and DRP participants
began receiving shares purchased in the market. Through the DRP, SJI
raised $2.1 million of equity capital by issuing 60,390 shares in 2008, and $7.5
million of equity capital by issuing 212,428 shares in 2007. In
September 2008, we announced our intent to establish a stock repurchase program
for SJI that could result in the repurchase of up to 1.5 million shares of SJI
common stock at any time prior to October 2012. No purchases have
been made to date.
SJI’s
capital structure was as follows:
|
|
As
of December 31,
|
|
||||||
|
|
2009
|
|
|
2008
|
|
|||
|
|
|
|
|
|
|
|||
|
Equity
|
|
|
50.0
|
%
|
|
|
47.4
|
%
|
|
Long-Term
Debt
|
|
|
32.0
|
|
|
|
33.0
|
|
|
Short-Term
Debt
|
|
|
18.0
|
|
|
|
19.6
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
SJG’s
long-term, senior secured debt is rated “A” and “A2” by Standard & Poor’s
and Moody’s Investor Services, respectively. These ratings had not changed in at
least the past five years until Moody’s Investor Services raised SJG’s senior
secured debt rating to “A2” from “Baal” in August of 2009.
For 2009,
2008 and 2007, SJI paid quarterly dividends to its common shareholders. SJI has
paid dividends on its common stock for 58 consecutive years and has increased
that dividend each year for the last ten years. The Company currently looks to
grow that dividend by at least 6% to 7% per year and has a targeted payout ratio
of between 50% and 60%. In setting the dividend rate, the Board of Directors of
SJI considers future earnings expectations, payout ratio, and dividend yield
relative to those at peer companies as well as returns available on other
income-oriented investments.
COMMITMENTS
AND CONTINGENCIES — SJI has a continuing need for cash resources and capital,
primarily to invest in new and replacement facilities and equipment and for
environmental remediation costs. Net cash outflows for construction and
remediation projects for 2009 amounted to $109.3 million and $0.4 million,
respectively. We estimate net cash outflows for construction projects for 2010,
2011 and 2012, to be approximately $167.5 million, $58.5 million and $58.3
million, respectively. We estimate net cash outflows for remediation
projects for 2010, 2011 and 2012 to be approximately $23.6 million, $13.8
million and $9.6 million respectively. As discussed in Notes 9 and 14
to the consolidated financial statements, certain environmental costs are
subject to recovery from insurance carriers and ratepayers.
STANDBY
LETTERS OF CREDIT — As of December 31, 2009, SJI provided $84.1 million of
standby letters of credit through SJI’s revolving credit facility and
uncommitted bank line. Letters of credit in the amount of $62.3 million support
variable-rate demand bonds issued through the New Jersey Economic Development
Authority (NJEDA) to finance Marina’s initial thermal plant project and $8.7
million was posted to support SJI’s guaranty of LVE discussed below. The
additional outstanding letters of credit total $13.1 million, and were posted to
enable SJE to market retail electricity and for various construction activities.
The Company also provided two additional letters of credit under separate
facilities outside of the revolving credit facility. These letters of credit
consist of a $25.2 million letter of credit provided by SJG to support
variable-rate demand bonds issued through the NJEDA to finance the expansion of
SJG’s natural gas distribution system; and a $30.7 million letter of credit
provided by Marina to support a capital contribution obligation as discussed
above. These letters of credit expire in August 2010 and November 2010,
respectively.
SJG and
SJRG have certain commitments for both pipeline capacity and gas supply for
which they pay fees regardless of usage. Those commitments as of December 31,
2009, average $45.5 million annually and total $189.1 million over the
contracts’ lives. Approximately 28% of the financial commitments under these
contracts expire during the next five years. We expect to renew each of these
contracts under renewal provisions as provided in each contract. SJG recovers
all prudently incurred fees through rates via the Basic Gas Supply Service
clause.
The
following table summarizes our contractual cash obligations and their applicable
payment due dates as of December 31, 2009 (in thousands):
|
|
|
|
|
Up
to
|
|
|
Years
|
|
|
Years
|
|
|
More
than
|
|
||||||
|
Contractual Cash
Obligations
|
|
Total
|
|
|
1
Year
|
|
|
2
& 3
|
|
|
4
& 5
|
|
|
5
Years
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Long-Term
Debt
|
|
$
|
347,912
|
|
|
$
|
35,119
|
|
|
$
|
27,447
|
|
|
$
|
50,662
|
|
|
$
|
234,684
|
|
|
Interest
on Long-Term Debt
|
|
|
233,266
|
|
|
|
19,354
|
|
|
|
35,713
|
|
|
|
32,199
|
|
|
|
146,000
|
|
|
Capital
Contribution/Advances to Affiliates Obligation
|
|
|
42,400
|
|
|
|
42,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Operating
Leases
|
|
|
1,669
|
|
|
|
612
|
|
|
|
738
|
|
|
|
289
|
|
|
|
30
|
|
|
Commodity
Supply Purchase Obligations
|
|
|
557,847
|
|
|
|
337,910
|
|
|
|
111,768
|
|
|
|
26,888
|
|
|
|
81,281
|
|
|
New
Jersey Clean Energy Program (Note 9)
|
|
|
33,117
|
|
|
|
9,205
|
|
|
|
23,912
|
|
|
|
-
|
|
|
|
-
|
|
|
Other
Purchase Obligations
|
|
|
1,538
|
|
|
|
1,392
|
|
|
|
146
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
Contractual Cash Obligations
|
|
$
|
1,217,749
|
|
|
$
|
445,992
|
|
|
$
|
199,724
|
|
|
$
|
110,038
|
|
|
$
|
461,995
|
|
SJG’s
variable rate debt of $25.0 million has been included in the current portion of
long-term debt above. However, interest on long-term debt in the
table above includes the related interest obligations through maturity as well
as the impact of all interest rate swap agreements. Expected
environmental remediation costs, asset retirement obligations and the liability
for unrecognized tax benefits are not included in the table above as the total
obligation cannot be calculated due to the subjective nature of these costs and
the timing of anticipated payments. SJG’s regulatory obligation to
contribute $3.6 million annually to its other postretirement benefit plans’
trusts, less costs incurred directly by the company, is not included as the
duration is indefinite.
Capital
Contribution Obligation - In December 2007, Marina and its joint venture partner
agreed to each contribute approximately $30.4 million of equity to LVE as part
of its construction period financing (See Note 2 to the consolidated financial
statements). Marina’s obligation is secured by an irrevocable letter of credit
from a bank. The equity contribution is expected to be made in
2010. In September 2009, Marina and its joint venture partner agreed
to each contribute an additional $6.7 million of equity to LVE as discussed
below. This equity contribution is expected to be made in 2010, and
is also secured by an irrevocable letter of credit from a bank.
Off-Balance
Sheet Arrangements — An off-balance sheet arrangement is any contractual
arrangement involving an unconsolidated entity under which the company has
either made guarantees or has certain other interests or
obligations.
The
Company has recorded a liability of $8.8 million which is included in Other
Current Liabilities and Other Noncurrent Liabilities with a corresponding
increase in Investment in Affiliates on the consolidated balance sheets as of
December 31, 2009 for the fair value of the following guarantees:
|
·
|
In
April 2007, SJI guaranteed certain obligations of LVE Energy Partners, LLC
(LVE), an unconsolidated joint venture in which Marina has a 50% equity
interest. LVE entered into a 25-year contract with a resort
developer to design, build, own and operate a district energy system and
central energy center for a planned resort in Las Vegas,
Nevada. LVE began construction of the facility in 2007 and
expected to provide full energy services in 2010 when the resort was
originally scheduled to be completed. LVE suspended construction of the
district energy system and central energy center in January 2009 after the
resort developer’s August 2008 announcement that it was delaying the
completion of construction of the resort due to the difficult environment
in the capital markets and weak economic conditions. The resort
developer had indicated that it was considering different strategies to
move its project forward, including opening its project in phases and
obtaining a partner, but that it was unlikely construction would resume
during 2009. In October 2009, the resort developer announced that they do
not expect to resume construction on the project for three to five years.
They stated that they remain committed to having a significant presence on
the Las Vegas Strip as part of a long-term growth strategy and continue to
view this site as a major strategic
asset.
|
The
district energy system and central energy center are being financed by LVE with
debt that is non-recourse to SJI. In September 2009, LVE reached an agreement
with the banks that are financing the energy facilities to address defaults
under the financing agreements. These LVE defaults were caused by the resort
developer’s construction delay and the termination of an energy services
agreement by a hotel operator associated with the project. As a result of these
defaults, the banks had previously stopped funding the project. The terms of the
new agreement require SJI and its partner in this joint venture to guaranty the
payment of future interest costs by LVE through, at the latest, December 2010.
SJI and its partner in this joint venture have each provided the banks with a
$2.0 million irrevocable letter of credit from a bank to support this guaranty.
The maximum amount of remaining LVE interest costs to be paid by SJI under this
guaranty if payments are required, and SJI was the only guarantor, would be
approximately $10.7 million. In addition, SJI and its partner in this joint
venture each committed to provide approximately $8.9 million of additional
capital as of September 2009 to cover costs related to the termination of the
energy services agreement by a hotel operator and interest costs incurred since
August 2008 when the resort developer suspended construction. Of this amount,
$6.7 million was in the form of an irrevocable letter of credit from a bank and
the remaining $2.2 million was provided in cash in 2009. These funds are in
addition to the $30.4 million capital contribution obligation discussed above.
In turn, the banks waived all existing defaults under the financing agreements
and were relieved of their commitment to provide additional funding. LVE
continues to pursue a work around plan to address the project delay by the
resort developer and intends to seek additional financing to complete the
facility once construction of the resort resumes. The Energy Sales Agreement
between LVE and the resort developer includes a payment obligation by the resort
developer of certain fixed payments to be made to LVE beginning in the fourth
quarter of 2010. A portion of this payment obligation is guaranteed by the
parent of the resort developer. As of December 31, 2009, the Company
had a net liability of approximately $7.9 million included in Investment in
Affiliates, Other Current Liabilities and Other Noncurrent Liabilities on the
consolidated balance sheets related to this project in addition to unsecured
Notes Receivable – Affiliate of approximately $14.2 million due from LVE. As of
December 31, 2009, SJI's capital at risk is limited to its equity contributions,
contribution obligations and the unsecured notes receivable totaling
approximately $53.9 million. During 2009, SJI and its partner in this joint
venture each provided support to LVE of approximately $12.9 million to cover
project related costs.
As a
result of the construction delay, management has evaluated the investment in LVE
and concluded that the fair value of this investment continues to be in excess
of the carrying value as of December 31, 2009.
SJI
issued a performance guaranty for up to $180.0 million to the resort developer
to ensure that certain construction milestones relating to the development of
the thermal facility are met. As a result of achieving certain milestones, the
guaranty was reduced to $94.0 million as of December 31, 2009. Concurrently, SJI
is the beneficiary of a surety bond purchased by the project’s general
contractor that provides security to SJI in the event of missed construction
milestones. LVE has proposed a revised milestone schedule due to delays
announced by the resort developer. In addition, SJI has guaranteed the
obligations of LVE under certain insurance policies during the construction
period. The maximum amount that SJI could be obligated for, in the
event that LVE does not have sufficient resources to make deductible payments on
future claims under these insurance policies, is approximately $6.0
million. SJI has also guaranteed certain performance obligations of
LVE under the operating agreements between LVE and the resort developer, up to
$20.0 million each year for the term of the agreement, commencing with the first
year of operations. SJI and its partner in this joint venture have
entered into reimbursement agreements that secure reimbursement for SJI of a
proportionate share of any payments made by SJI on these
guarantees.
|
·
|
In
August 2007, SJI guaranteed certain obligations of BC Landfill Energy, LLC
(BCLE), an unconsolidated joint venture in which Marina has a 50% equity
interest. BCLE has entered into a 20-year agreement with a county
government to lease and operate a facility that will produce electricity
from landfill methane gas. The facility went online in the fourth quarter
of 2007. Although unlikely, the maximum amount that SJI could be obligated
for, in the event that BCLE does not meet minimum specified levels of
operating performance and no mitigating action is taken, or is unable to
meet certain financial obligations as they become due, is approximately
$4.0 million each year. SJI and its partner in this joint
venture have entered into reimbursement agreements that secure
reimbursement for SJI of a proportionate share of any payments made by SJI
on these guarantees. SJI holds a variable interest in BCLE but
is not the primary beneficiary.
|
Pending
Litigation — SJI is subject to claims arising in the ordinary course of business
and other legal proceedings. We accrue liabilities related to claims when we can
determine the amount or range of amounts of probable settlement costs. SJI has
been named in, among other actions, certain product liability claims related to
our former sand mining subsidiary. Management does not currently anticipate the
disposition of any known claims to have a material adverse effect on SJI’s
financial position, results of operations or liquidity.
MARKET
RISKS:
Commodity
Markets Risks — Certain regulated and nonregulated SJI subsidiaries are involved
in buying, selling, transporting and storing natural gas and buying and selling
retail electricity for their own accounts as well as managing these activities
for other third parties. These subsidiaries are subject to market risk due to
price fluctuations. To hedge against this risk, we enter into a variety of
physical and financial transactions including forward contracts, swaps, futures
and options agreements. To manage these transactions, SJI has a well-defined
risk management policy approved by our Board of Directors that includes
volumetric and monetary limits. Management reviews reports detailing activity
daily. Generally, the derivative activities described above are entered into for
risk management purposes.
SJG and
SJE transact commodities on a physical basis and typically do not enter into
financial derivative positions directly. SJRG manages risk in the natural gas
markets for these entities as well as for its own portfolio by entering into the
types of transactions noted above. As part of its gas purchasing strategy, SJG
uses financial contracts through SJRG to hedge against forward price risk. These
contracts are recoverable through SJG’s BGSS, subject to BPU approval. It is
management's policy, to the extent practical, within predetermined risk
management policy guidelines, to have limited unmatched positions on a deal or
portfolio basis while conducting these activities. As a result of holding open
positions to a minimal level, the economic impact of changes in value of a
particular transaction is substantially offset by an opposite change in the
related hedge transaction.
SJI has
entered into certain contracts to buy, sell, and transport natural gas and to
buy and sell retail electricity. For those derivatives not designated
as hedges, we recorded the net unrealized pre-tax (loss) gain of $(14.8)
million, $9.3 million and $3.6 million in earnings during the years
2009, 2008 and 2007, respectively, which are included with realized
gains and losses in Operating Revenues — Nonutility. The fair value
and maturity of these energy-trading contracts determined under the
mark-to-market method as of December 31, 2009 is as follows (in
thousands):
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Source of Fair Value
|
|
Maturity
< 1 Year
|
|
|
Maturity
1 - 3 Years
|
|
|
Maturity
Beyond 3 Years
|
|
|
Total
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Prices
actively quoted
|
|
$
|
18,780
|
|
|
$
|
5,104
|
|
|
$
|
48
|
|
|
$
|
23,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Prices
provided by other external sources
|
|
|
16,877
|
|
|
|
6,379
|
|
|
|
39
|
|
|
|
23,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Prices
based on internal models or other valuation methods
|
|
|
855
|
|
|
|
15
|
|
|
|
-
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Total
|
|
$
|
36,512
|
|
|
$
|
11,498
|
|
|
$
|
87
|
|
|
$
|
48,097
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Source of Fair Value
|
|
Maturity
< 1 Year
|
|
|
Maturity
1 - 3 Years
|
|
|
Maturity
Beyond 3 Years
|
|
|
Total
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Prices
actively quoted
|
|
$
|
13,828
|
|
|
$
|
4,554
|
|
|
$
|
-
|
|
|
$
|
18,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Prices
provided by other external sources
|
|
|
5,668
|
|
|
|
3,973
|
|
|
|
-
|
|
|
|
9,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Prices
based on internal models or other valuation methods
|
|
|
8,764
|
|
|
|
2,283
|
|
|
|
121
|
|
|
|
11,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Total
|
|
$
|
28,260
|
|
|
$
|
10,810
|
|
|
$
|
121
|
|
|
$
|
39,191
|
|
NYMEX
(New York Mercantile Exchange) is the primary national commodities exchange on
which natural gas is traded. Basis represents the price of a NYMEX natural gas
futures contract adjusted for the difference in price for delivering the gas at
another location. Contracted volumes of our NYMEX contracts are 1.4 million
decatherms (dts) with a weighted-average settlement price of $6.55 per
dt. Contracted volumes of our basis contracts are 10.0 million dts
with a weighted average settlement price of $0.72 per dt. Contracted
volumes of electric are 1.8 million mwh with a weighted average settlement price
of $66.49 per mwh.
A
reconciliation of SJI's estimated net fair value of energy-related derivatives
follows (in thousands):
|
Net
Derivatives — Energy Related Assets, January 1,
2009
|
|
$
|
16,289
|
|
|
Contracts
Settled During 2009, Net
|
|
|
(12,307
|
)
|
|
Other
Changes in Fair Value from Continuing and New Contracts,
Net
|
|
|
4,924
|
|
|
|
|
|
|
|
|
Net
Derivatives — Energy Related Assets, December 31,
2009
|
|
$
|
8,906
|
|
Interest Rate Risk — Our exposure to
interest-rate risk relates primarily to short-term, variable-rate borrowings.
Short-term, variable-rate debt outstanding at December 31, 2009 was $196.6
million and averaged $161.1 million during 2009. A hypothetical 100 basis point
(1%) increase in interest rates on our average variable-rate debt outstanding
would result in a $1.0 million increase in our annual interest expense, net of
tax. The 100 basis point increase was chosen for illustrative purposes, as it
provides a simple basis for calculating the impact of interest rate changes
under a variety of interest rate scenarios. Over the past five years, the change
in basis points (b.p.) of our average monthly interest rates from the beginning
to end of each year was as follows: 2009 - 29 b.p. decrease; 2008 - 397 b.p.
decrease; 2007 – 45 b.p. decrease; 2006 — 67 b.p. increase; and 2005 — 194 b.p.
increase. For December 2009, our average interest rate on
variable-rate debt was 0.75%.
We issue
long-term debt either at fixed rates or use interest rate derivatives to limit
our exposure to changes in interest rates on variable-rate, long-term debt. As
of December 31, 2009, the interest costs on all but $7.1 million of our
long-term debt was either at a fixed-rate or hedged via an interest rate
derivative. Consequently, interest expense on existing long-term debt is not
significantly impacted by changes in market interest rates. However, due to
market conditions during 2008, the demand for auction-rate securities was
disrupted resulting in increased interest rate volatility for tax-exempt
auction-rate debt. As a result, the $25.0 million of tax-exempt
auction-rate debt issued by the Company (and repurchased in June 2008) was
exposed to changes in interest rates that were not completely mitigated by the
related interest rate derivatives. The auction rate debt was converted to
another form of variable rate debt and resold in the public market in August
2008. In addition, during the fourth quarter of 2008 and the first quarter of
2009, as a result of unusual market conditions, the interest rate derivatives on
Marina’s variable rate demand bonds were not completely effective in mitigating
the risks resulting from changes in interest rates. Consequently, the Company
discontinued hedge accounting on these interest rate derivatives. All
of these interest rate derivatives remain in place and are expected to
substantially offset future changes in interest rates on the respective
securities.
As of December 31, 2009, SJI’s
active interest rate swaps were as follows:
|
Amount
|
|
|
Fixed
Interest Rate
|
|
Start
Date
|
Maturity
|
Type
|
Obligor
|
|||||
|
$
|
3,900,000
|
|
|
|
4.795%
|
|
12/01/2004
|
12/01/2014
|
Taxable
|
Marina
|
|||
|
$
|
8,000,000
|
|
|
|
4.775%
|
|
11/12/2004
|
11/12/2014
|
Taxable
|
Marina
|
|||
|
$
|
20,000,000
|
|
|
|
4.080%
|
|
11/19/2001
|
12/01/2011
|
Tax-exempt
|
Marina
|
|||
|
$
|
14,500,000
|
|
|
|
3.905%
|
|
03/17/2006
|
01/15/2026
|
Tax-exempt
|
Marina
|
|||
|
$
|
500,000
|
|
|
|
3.905%
|
|
03/17/2006
|
01/15/2026
|
Tax-exempt
|
Marina
|
|||
|
$
|
330,000
|
|
|
|
3.905%
|
|
03/17/2006
|
01/15/2026
|
Tax-exempt
|
Marina
|
|||
|
$
|
7,100,000
|
|
|
|
4.895%
|
|
02/01/2006
|
02/01/2016
|
Taxable
|
Marina
|
|||
|
$
|
12,500,000
|
|
|
|
3.430%
|
|
12/01/2006
|
02/01/2036
|
Tax-exempt
|
SJG
|
|||
|
$
|
12,500,000
|
|
|
|
3.430%
|
|
12/01/2006
|
02/01/2036
|
Tax-exempt
|
SJG
|
|||
Credit
Risk - As of December 31, 2009, approximately 44.5% of the current and
noncurrent Derivatives – Energy Related Assets or $21.4 million are with a
single retail counterparty. This counterparty has contracts with a large number
of diverse customers which minimizes the concentration of this risk. A portion
of these contracts may be assignable to SJI in the event of a default by the
counterparty.
As of
December 31, 2009, SJRG had $58.3 million of Accounts Receivable under sales
contracts. Of that total, 91% were with companies rated investment-grade, were
guaranteed by an investment-grade-rated parent or were with companies where we
have a collateral arrangement or insurance coverage. The remainder of the
Accounts Receivable were within approved credit limits.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risks
Information
required by this item can be found in the section entitled “Market Risks” on
page 61 of this report.
Item 8.
Financial Statements and Supplementary Data
|
Statements of Consolidated
Income
|
South
Jersey Industries, Inc. and Subsidiaries
|
|||||||||||
|
(In
Thousands Except for Per Share Data)
|
Year
Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Operating
Revenues:
|
||||||||||||
|
Utility
|
$ | 480,264 | $ | 560,191 | $ | 611,007 | ||||||
|
Nonutility
|
365,180 | 401,786 | 345,364 | |||||||||
|
Total
Operating Revenues
|
845,444 | 961,977 | 956,371 | |||||||||
|
Operating
Expenses:
|
||||||||||||
|
Cost
of Sales - (Excluding depreciation)
|
||||||||||||
|
-
Utility
|
289,740 | 375,549 | 433,495 | |||||||||
|
-
Nonutility
|
303,648 | 303,893 | 273,206 | |||||||||
|
Operations
|
89,066 | 79,769 | 73,577 | |||||||||
|
Maintenance
|
8,869 | 7,899 | 6,345 | |||||||||
|
Depreciation
|
31,280 | 29,237 | 27,942 | |||||||||
|
Energy
and Other Taxes
|
11,731 | 12,121 | 12,183 | |||||||||
|
Total
Operating Expenses
|
734,334 | 808,468 | 826,748 | |||||||||
|
Operating
Income
|
111,110 | 153,509 | 129,623 | |||||||||
|
Other
Income and Expense
|
1,411 | 890 | 2,401 | |||||||||
|
Interest
Charges
|
(18,992 | ) | (25,676 | ) | (27,215 | ) | ||||||
|
Income
Before Income Taxes
|
93,529 | 128,723 | 104,809 | |||||||||
|
Income
Taxes
|
(34,302 | ) | (51,948 | ) | (43,056 | ) | ||||||
|
Equity
in (Loss) Earnings of Affiliated Companies
|
(926 | ) | 176 | 885 | ||||||||
|
Income
from Continuing Operations
|
58,301 | 76,951 | 62,638 | |||||||||
|
Loss
from Discontinued Operations - (Net of tax benefit)
|
(427 | ) | (247 | ) | (391 | ) | ||||||
|
Net
Income
|
57,874 | 76,704 | 62,247 | |||||||||
|
Less: Net
Loss Attributable to Noncontrolling Interest in
Subsidiaries
|
231 | 227 | 21 | |||||||||
|
Net
Income - Attributable to South Jersey Industries, Inc.
Shareholders
|
$ | 58,105 | $ | 76,931 | $ | 62,268 | ||||||
|
Amounts
Attributable to South Jersey Industries, Inc. Shareholders
|
||||||||||||
|
Income
from Continuing Operations
|
$ | 58,532 | $ | 77,178 | $ | 62,659 | ||||||
|
Loss
from Discontinued Operations - (Net of tax
benefit)
|
(427 | ) | (247 | ) | (391 | ) | ||||||
|
Net
Income - Attributable to South Jersey Industries, Inc.
Shareholders
|
$ | 58,105 | $ | 76,931 | $ | 62,268 | ||||||
|
Basic
Earnings per Common Share Attributable to South Jersey Industries, Inc.
Shareholders:
|
||||||||||||
|
Continuing
Operations
|
$ | 1.97 | $ | 2.60 | $ | 2.13 | ||||||
|
Discontinued
Operations
|
(0.02 | ) | (0.01 | ) | (0.02 | ) | ||||||
|
Basic
Earnings per Common Share
|
$ | 1.95 | $ | 2.59 | $ | 2.11 | ||||||
|
Average
Shares of Common Stock Outstanding - Basic
|
29,785 | 29,707 | 29,480 | |||||||||
|
Diluted
Earnings per Common Share Attributable to South Jersey Industries, Inc.
Shareholders:
|
||||||||||||
|
Continuing
Operations
|
$ | 1.96 | $ | 2.59 | $ | 2.12 | ||||||
|
Discontinued
Operations
|
(0.02 | ) | (0.01 | ) | (0.02 | ) | ||||||
|
Diluted
Earnings per Common Share
|
$ | 1.94 | $ | 2.58 | $ | 2.10 | ||||||
|
Average
Shares of Common Stock Outstanding - Diluted
|
29,893 | 29,843 | 29,593 | |||||||||
|
Dividends
Declared per Common Share
|
$ | 1.22 | $ | 1.11 | $ | 1.01 | ||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
|
Statements of Consolidated Cash
Flows
|
South
Jersey Industries, Inc. and Subsidiaries
|
|||||||||||
|
(In
Thousands)
|
Year
Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Cash
Flows from Operating Activities:
|
||||||||||||
|
Net
Income
|
$ | 57,874 | $ | 76,704 | $ | 62,247 | ||||||
|
Loss
from Discontinued Operations
|
427 | 247 | 391 | |||||||||
|
Income
from Continuing Operations
|
58,301 | 76,951 | 62,638 | |||||||||
|
Adjustments
to Reconcile Income from Continuing Operations to Net Cash Provided by
|
||||||||||||
| Operating Activities: | ||||||||||||
|
Depreciation
and Amortization
|
39,447 | 35,665 | 32,865 | |||||||||
|
Net
Unrealized Loss (Gain) on Derivatives - Energy Related
|
14,815 | (9,317 | ) | (3,635 | ) | |||||||
|
Unrealized
Loss on Derivatives - Other
|
1,210 | 2,174 | - | |||||||||
|
Provision
for Losses on Accounts Receivable
|
2,728 | 2,332 | 2,603 | |||||||||
|
TAC/CIP
Receivable
|
5,376 | 2,641 | (7,946 | ) | ||||||||
|
Deferred
Gas Costs - Net of Recoveries
|
(7,910 | ) | 5,885 | 7,755 | ||||||||
|
Deferred
SBC Costs - Net of Recoveries
|
(119 | ) | 1,199 | 3,960 | ||||||||
|
Stock-Based
Compensation Expense
|
1,481 | 1,263 | 1,090 | |||||||||
|
Deferred
and Noncurrent Income Taxes - Net
|
21,917 | 23,014 | 12,030 | |||||||||
|
Environmental
Remediation Costs - Net
|
(449 | ) | (26,175 | ) | (10,926 | ) | ||||||
|
Gas
Plant Cost of Removal
|
(1,678 | ) | (1,463 | ) | (1,275 | ) | ||||||
|
Changes
in:
|
||||||||||||
|
Accounts
Receivable
|
(28,003 | ) | (14,293 | ) | (5,232 | ) | ||||||
|
Inventories
|
68,591 | (48,599 | ) | 21,459 | ||||||||
|
Prepaid
and Accrued Taxes - Net
|
(4,818 | ) | (7,022 | ) | 8,916 | |||||||
|
Accounts
Payable and Other Accrued Liabilities
|
(8,213 | ) | 14,018 | (5,036 | ) | |||||||
|
Margin
Account Liability
|
- | (4,112 | ) | 4,112 | ||||||||
|
Derivatives
- Energy Related
|
12,366 | (17,564 | ) | 21,050 | ||||||||
|
Other
Assets and Liabilities
|
(345 | ) | (8,931 | ) | 3,474 | |||||||
|
Cash
Flows from Discontinued Operations
|
493 | (1,277 | ) | (56 | ) | |||||||
|
Net
Cash Provided by Operating Activities
|
175,190 | 26,389 | 147,846 | |||||||||
|
Cash
Flows from Investing Activities:
|
||||||||||||
|
Capital
Expenditures
|
(109,307 | ) | (61,972 | ) | (55,539 | ) | ||||||
|
Net
Proceeds from Sale of (Purchase of) Restricted Investments in Margin
Account
|
25,883 | (29,731 | ) | 10,404 | ||||||||
|
Proceeds
from Sale of Restricted Investments from Escrowed Loan
Proceeds
|
- | 5,170 | 6,710 | |||||||||
|
Purchase
of Restricted Investments with Escrowed Loan Proceeds
|
- | (77 | ) | (523 | ) | |||||||
|
Investment
in Long-Term Receivables
|
(4,730 | ) | (5,558 | ) | (4,123 | ) | ||||||
|
Proceeds
from Long-Term Receivables
|
5,399 | 3,399 | 3,877 | |||||||||
|
Purchase
of Company Owned Life Insurance
|
(4,444 | ) | (4,287 | ) | (3,917 | ) | ||||||
|
Investment
in Affiliate
|
(3,999 | ) | (2,969 | ) | (7,463 | ) | ||||||
|
Return
of Investment in Affiliate
|
175 | 7,470 | 7,208 | |||||||||
|
Proceeds
from Sale of Investment in Affiliate
|
- | 58 | - | |||||||||
|
Advances
on Notes Receivable - Affilate
|
(26,780 | ) | (7,457 | ) | - | |||||||
|
Repayment
of Advances on Notes Receivable - Affiliate
|
2,897 | - | - | |||||||||
|
Net
Cash Used in Investing Activities
|
(114,906 | ) | (95,954 | ) | (43,366 | ) | ||||||
|
Cash
Flows from Financing Activities:
|
||||||||||||
|
Net
(Repayments of) Borrowings from Lines of Credit
|
(15,950 | ) | 94,260 | (76,310 | ) | |||||||
|
Proceeds
from Issuance of Long-Term Debt
|
- | 25,000 | - | |||||||||
|
Principal
Repayments of Long-Term Debt
|
(9,985 | ) | (25,106 | ) | (2,389 | ) | ||||||
|
Dividends
on Common Stock
|
(36,426 | ) | (32,914 | ) | (29,656 | ) | ||||||
|
Proceeds
from Sale of Common Stock
|
- | 2,076 | 7,484 | |||||||||
|
Payments
for Issuance of Long-Term Debt
|
(178 | ) | (320 | ) | - | |||||||
|
Other
|
303 | 666 | 137 | |||||||||
|
Net
Cash (Used in) Provided by Financing Activities
|
(62,236 | ) | 63,662 | (100,734 | ) | |||||||
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
(1,952 | ) | (5,903 | ) | 3,746 | |||||||
|
Cash
and Cash Equivalents at Beginning of Year
|
5,775 | 11,678 | 7,932 | |||||||||
|
Cash
and Cash Equivalents at End of Year
|
$ | 3,823 | $ | 5,775 | $ | 11,678 | ||||||
|
Supplemental
Disclosures of Cash Flow Information
|
||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
(Net of Amounts Capitalized)
|
$ | 20,519 | $ | 24,253 | $ | 27,025 | ||||||
|
Income
Taxes (Net of Refunds)
|
$ | 11,844 | $ | 35,363 | $ | 22,461 | ||||||
|
Supplemental
Disclosures of Non-Cash Investing Activities
|
||||||||||||
|
Capital
Expenditures acquired on account but unpaid as of year-end
|
$ | 19,934 | $ | 7,877 | $ | 4,797 | ||||||
|
Guarantee
of certain obligations of unconsolidated affiliates
|
$ | 6,852 | $ | - | $ | 1,985 | ||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
|
Consolidated Balance Sheets (In
Thousands) |
South
Jersey Industries, Inc. and Subsidiaries
|
|||||||
|
December 31,
|
||||||||
|
|
2009
|
2008
|
||||||
|
Assets
|
||||||||
|
Property,
Plant and Equipment:
|
||||||||
|
Utility
Plant, at original cost
|
$ | 1,275,792 | $ | 1,172,014 | ||||
|
Accumulated
Depreciation
|
(314,627 | ) | (295,432 | ) | ||||
|
Nonutility
Property and Equipment, at cost
|
132,119 | 121,658 | ||||||
|
Accumulated
Depreciation
|
(20,212 | ) | (15,632 | ) | ||||
|
Property,
Plant and Equipment - Net
|
1,073,072 | 982,608 | ||||||
|
Investments:
|
||||||||
|
Available-for-Sale
Securities
|
5,958 | 4,859 | ||||||
|
Restricted
|
5,215 | 31,098 | ||||||
|
Investment
in Affiliates
|
2,483 | 1,966 | ||||||
|
Total
Investments
|
13,656 | 37,923 | ||||||
|
Current
Assets:
|
||||||||
|
Cash
and Cash Equivalents
|
3,823 | 5,775 | ||||||
|
Accounts
Receivable
|
141,109 | 121,683 | ||||||
|
Unbilled
Revenues
|
58,598 | 52,907 | ||||||
|
Provision
for Uncollectibles
|
(6,268 | ) | (5,757 | ) | ||||
|
Notes
Receivable - Affiliate
|
502 | - | ||||||
|
Natural
Gas in Storage, average cost
|
99,697 | 162,387 | ||||||
|
Materials
and Supplies, average cost
|
6,877 | 12,778 | ||||||
|
Prepaid
Taxes
|
20,093 | 14,604 | ||||||
|
Derivatives
- Energy Related Assets
|
36,512 | 63,201 | ||||||
|
Other
Prepayments and Current Assets
|
7,412 | 7,506 | ||||||
|
Total
Current Assets
|
368,355 | 435,084 | ||||||
|
Regulatory
and Other Noncurrent Assets:
|
||||||||
|
Regulatory
Assets
|
240,462 | 270,434 | ||||||
|
Derivatives
- Energy Related Assets
|
11,585 | 19,712 | ||||||
|
Unamortized
Debt Issuance Costs
|
6,788 | 7,166 | ||||||
|
Notes
Receivable - Affiliate
|
30,838 | 7,457 | ||||||
|
Contract
Receivables
|
13,544 | 13,565 | ||||||
|
Other
|
23,708 | 19,478 | ||||||
|
Total
Regulatory and Other Noncurrent Assets
|
326,925 | 337,812 | ||||||
|
Total
Assets
|
$ | 1,782,008 | $ | 1,793,427 | ||||
|
Capitalization
and Liabilities
|
||||||||
|
Capitalization:
|
||||||||
|
Equity
|
$ | 544,564 | $ | 516,448 | ||||
|
Long-Term
Debt
|
312,793 | 332,784 | ||||||
|
Total
Capitalization
|
857,357 | 849,232 | ||||||
|
Current
Liabilities:
|
||||||||
|
Notes
Payable
|
196,600 | 212,550 | ||||||
|
Current
Portion of Long-Term Debt
|
35,119 | 25,112 | ||||||
|
Accounts
Payable
|
123,921 | 120,162 | ||||||
|
Customer
Deposits and Credit Balances
|
14,128 | 14,449 | ||||||
|
Environmental
Remediation Costs
|
23,639 | 13,670 | ||||||
|
Taxes
Accrued
|
6,518 | 5,510 | ||||||
|
Derivatives
- Energy Related Liabilities
|
28,260 | 50,925 | ||||||
|
Deferred
Income Taxes - Net
|
19,897 | 25,009 | ||||||
|
Deferred
Contract Revenues
|
6,081 | 5,840 | ||||||
|
Interest
Accrued
|
6,211 | 6,519 | ||||||
|
Pension
and Other Postretirement Benefits
|
1,109 | 1,031 | ||||||
|
Other
Current Liabilities
|
17,301 | 19,130 | ||||||
|
Total
Current Liabilities
|
478,784 | 499,907 | ||||||
|
Deferred
Credits and Other Noncurrent Liabilities:
|
||||||||
|
Deferred
Income Taxes - Net
|
215,346 | 184,294 | ||||||
|
Investment
Tax Credits
|
1,518 | 1,832 | ||||||
|
Pension
and Other Postretirement Benefits
|
69,141 | 80,835 | ||||||
|
Environmental
Remediation Costs
|
49,803 | 54,495 | ||||||
|
Asset
Retirement Obligations
|
23,229 | 22,553 | ||||||
|
Derivatives
- Energy Related Liabilities
|
10,931 | 15,699 | ||||||
|
Derivatives
- Other
|
5,823 | 14,088 | ||||||
|
Regulatory
Liabilities
|
50,193 | 50,447 | ||||||
|
Other
|
19,883 | 20,045 | ||||||
|
Total
Deferred Credits and Other Noncurrent Liabilities
|
445,867 | 444,288 | ||||||
|
Commitments
and Contingencies (Note 14)
|
||||||||
|
Total
Capitalization and Liabilities
|
$ | 1,782,008 | $ | 1,793,427 | ||||
The
accompanying notes are an integral part of the consolidated financial
statements.
|
Statements of Consolidated
Capitalization
(In
Thousands Except for Share Data)
|
South
Jersey Industries, Inc. and Subsidiaries
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Equity:
|
||||||||
|
Common
Stock: Par Value $1.25 per share; Authorized 60,000,000
shares;
|
||||||||
|
Outstanding
Shares: 29,796,232 (2009) and 29,728,697 (2008)
|
||||||||
|
Balance
at Beginning of Year
|
$ | 37,161 | $ | 37,010 | ||||
|
Common
Stock Issued or Granted Under Stock Plans
|
84 | 151 | ||||||
|
Balance
at End of Year
|
37,245 | 37,161 | ||||||
|
Premium
on Common Stock
|
254,503 | 252,495 | ||||||
|
Treasury
Stock (at par)
|
(183 | ) | (176 | ) | ||||
|
Accumulated
Other Comprehensive Loss
|
(19,469 | ) | (24,199 | ) | ||||
|
Retained
Earnings
|
271,505 | 249,973 | ||||||
|
Total
South Jersey Industries, Inc. Shareholders' Equity
|
543,601 | 515,254 | ||||||
|
Noncontrolling
Interest in Subsidiaries
|
963 | 1,194 | ||||||
|
Total
Equity
|
544,564 | 516,448 | ||||||
|
Long-Term
Debt: (A)
|
||||||||
|
South
Jersey Gas Company:
|
||||||||
|
First
Mortgage Bonds: (B)
|
||||||||
| 6.12% Series due 2010 | 10,000 | 10,000 | ||||||
| 6.74% Series due 2011 | 10,000 | 10,000 | ||||||
| 6.57% Series due 2011 | 15,000 | 15,000 | ||||||
| 4.46% Series due 2013 | 10,500 | 10,500 | ||||||
| 5.027% Series due 2013 | 14,500 | 14,500 | ||||||
| 4.52% Series due 2014 | 11,000 | 11,000 | ||||||
| 5.115% Series due 2014 | 10,000 | 10,000 | ||||||
| 5.387% Series due 2015 | 10,000 | 10,000 | ||||||
| 5.437% Series due 2016 | 10,000 | 10,000 | ||||||
| 6.50% Series due 2016 (C) | - | 9,873 | ||||||
| 4.60% Series due 2016 | 17,000 | 17,000 | ||||||
| 4.657% Series due 2017 | 15,000 | 15,000 | ||||||
| 7.97% Series due 2018 | 10,000 | 10,000 | ||||||
| 7.125% Series due 2018 | 20,000 | 20,000 | ||||||
| 5.587% Series due 2019 | 10,000 | 10,000 | ||||||
| 7.7% Series due 2027 | 35,000 | 35,000 | ||||||
| 5.55% Series due 2033 | 32,000 | 32,000 | ||||||
| 6.213% Series due 2034 | 10,000 | 10,000 | ||||||
| 5.45% Series due 2035 | 10,000 | 10,000 | ||||||
|
Series
A 2006 Bonds at variable rates due 2036 (D)
|
25,000 | 25,000 | ||||||
|
Marina
Energy LLC: (E)
|
||||||||
|
Series
A 2001 Bonds at variable rates due 2031
|
20,000 | 20,000 | ||||||
|
Series
B 2001 Bonds at variable rates due 2021
|
25,000 | 25,000 | ||||||
|
Series
A 2006 Bonds at variable rates due 2036
|
16,400 | 16,400 | ||||||
|
AC
Landfill Energy, LLC: (F)
|
||||||||
|
Bank
Term Loan, 6% due 2014
|
331 | 442 | ||||||
|
Mortgage
Bond, 4.19% due 2019
|
1,181 | 1,181 | ||||||
|
Total
Long-Term Debt Outstanding
|
347,912 | 357,896 | ||||||
|
Less
Current Maturities
|
(35,119 | ) | (25,112 | ) | ||||
|
Total
Long-Term Debt
|
312,793 | 332,784 | ||||||
|
Total
Capitalization
|
$ | 857,357 | $ | 849,232 | ||||
|
(A)
|
The
long-term debt maturities and sinking fund requirements for the succeeding
five years are as follows:
|
2010,
$10,119; 2011, $25,126; 2012, $2,321; 2013, $27,328 and 2014,
$23,334.
|
(B)
|
SJG's
First Mortgage dated October 1, 1947, as supplemented, securing the First
Mortgage Bonds constitutes a direct first mortgage lien on substantially
all utility plant.
|
|
(C)
|
In
November 2009 SJG retired its 6.5% First Mortgage Bonds at
par.
|
|
(D)
|
On
April 20, 2006, SJG issued $25.0 million of tax exempt, auction rate debt
through the New Jersey Economic Development Authority (NJEDA) under its
$150.0 million MTN Program. These bonds were repurchased by the Company in
June 2008 and remarketed to the public in August 2008 as variable rate
demand bonds with liquidity support provided by a letter of credit from a
commercial bank. As of December 31, 2008 and 2009, the respective letter
of credit expires in August of the subsequent year. Consequently, these
bonds are included in the current portion of long-term debt. Material
terms of the original bonds, such as the 2036 maturity date, floating rate
interest that resets weekly, and a first mortgage collateral position,
remain unchanged.
|
|
(E)
|
Marina
has issued $61.4 million of unsecured variable-rate revenue bonds through
the (NJEDA). The variable rates at December 31, 2009 for the Series A
2001, Series B 2001, and Series A 2006 bonds were 0.25%, 0.28% and 0.25%
respectively.
|
|
(F)
|
The
debt of AC Landfill Energy is secured by a first mortgage interest in
plant and equipment, and an assignment of rents and leases of the
facility.
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
Statements of Consolidated Changes In
Equity
|
||||||||||||||||||||||||||||
|
(In
Thousands)
|
South
Jersey Industries, Inc. and Subsidiaries
|
|||||||||||||||||||||||||||
|
Years
Ended December 31, 2007, 2008 & 2009
|
||||||||||||||||||||||||||||
|
|
Common
Stock
|
Premium
on Common Stock
|
Treasury
Stock
|
Accumulated
Other Comprehensive Loss
|
Retained
Earnings
|
Noncontrolling
Interest in Subsidiaries
|
Total
|
|||||||||||||||||||||
|
Balance
at January 1, 2007
|
$ | 36,657 | $ | 239,763 | $ | - | $ | (7,791 | ) | $ | 173,636 | $ | 461 | $ | 442,726 | |||||||||||||
|
Net
Income
|
62,268 | (21 | ) | 62,247 | ||||||||||||||||||||||||
|
Other
Comprehensive Loss, Net of Tax (a)
|
(2,524 | ) | (2,524 | ) | ||||||||||||||||||||||||
|
Common
Stock Issued or Granted Under Stock Plans
|
353 | 8,686 | (187 | ) | (125 | ) | 8,727 | |||||||||||||||||||||
|
Cash
Dividends Declared - Common Stock
|
(29,656 | ) | (29,656 | ) | ||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
37,010 | 248,449 | (187 | ) | (10,315 | ) | 206,123 | 440 | 481,520 | |||||||||||||||||||
|
Net
Income
|
76,931 | (227 | ) | 76,704 | ||||||||||||||||||||||||
|
Other
Comprehensive Loss, Net of Tax (a)
|
(13,884 | ) | (13,884 | ) | ||||||||||||||||||||||||
|
Contributions
to noncontrolling interest in subsidiaries
|
981 | 981 | ||||||||||||||||||||||||||
|
Common
Stock Issued or Granted Under Stock Plans
|
151 | 4,046 | 11 | (167 | ) | 4,041 | ||||||||||||||||||||||
|
Cash
Dividends Declared - Common Stock
|
(32,914 | ) | (32,914 | ) | ||||||||||||||||||||||||
|
Balance
at December 31, 2008
|
37,161 | 252,495 | (176 | ) | (24,199 | ) | 249,973 | 1,194 | 516,448 | |||||||||||||||||||
|
Net
Income
|
58,105 | (231 | ) | 57,874 | ||||||||||||||||||||||||
|
Other
Comprehensive Income, Net of Tax (a)
|
4,730 | 4,730 | ||||||||||||||||||||||||||
|
Common
Stock Issued or Granted Under Stock Plans
|
84 | 2,008 | (7 | ) | (147 | ) | 1,938 | |||||||||||||||||||||
|
Cash
Dividends Declared - Common Stock
|
(36,426 | ) | (36,426 | ) | ||||||||||||||||||||||||
|
Balance
at December 31, 2009
|
$ | 37,245 | $ | 254,503 | $ | (183 | ) | $ | (19,469 | ) | $ | 271,505 | $ | 963 | $ | 544,564 | ||||||||||||
|
Disclosure of Changes In Accumulated Other
Comprehensive Loss Balances (a)
|
||||||||||||||||||||
|
(In
Thousands)
|
Postretirement
Liability Adjustment
|
Unrealized
Gain (Loss) on Derivatives-Other
|
Unrealized
Gain (Loss) on Available-for-Sale Securities
|
Other
Comprehensive Income (Loss) of Affiliated Companies
|
Accumulated
Other Comprehensive Loss
|
|||||||||||||||
|
Balance
at January 1, 2007
|
$ | (7,156 | ) | $ | (842 | ) | $ | 207 | $ | - | $ | (7,791 | ) | |||||||
|
Changes
During Year
|
199 | (1,385 | ) | (195 | ) | (1,143 | ) | (2,524 | ) | |||||||||||
|
Balance
at December 31, 2007
|
(6,957 | ) | (2,227 | ) | 12 | (1,143 | ) | (10,315 | ) | |||||||||||
|
Changes
During Year
|
(6,877 | ) | (1,062 | ) | (730 | ) | (5,215 | ) | (13,884 | ) | ||||||||||
|
Balance
at December 31, 2008
|
(13,834 | ) | (3,289 | ) | (718 | ) | (6,358 | ) | (24,199 | ) | ||||||||||
|
Changes
During Year
|
1,208 | 958 | 533 | 2,031 | 4,730 | |||||||||||||||
|
Balance
at December 31, 2009
|
$ | (12,626 | ) | $ | (2,331 | ) | $ | (185 | ) | $ | (4,327 | ) | $ | (19,469 | ) | |||||
|
(a)
|
Determined
using a combined statutory tax rate of
41.08%
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
Statements of Consolidated Comprehensive
Income
|
South
Jersey Industries, Inc. and Subsidiaries
|
|||||||||||
|
(In
Thousands)
|
Year
Ended December 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
Income
|
$ | 57,874 | $ | 76,704 | $ | 62,247 | ||||||
|
Other
Comprehensive Income (Loss), Net of Tax: (a)
|
||||||||||||
|
Postretirement
Liability Adjustment
|
1,208 | (6,877 | ) | 199 | ||||||||
|
Unrealized
Gain (Loss) on Available-for-Sale Securities
|
533 | (730 | ) | (195 | ) | |||||||
|
Unrealized
Gain (Loss) on Derivatives - Other
|
958 | (1,062 | ) | (1,385 | ) | |||||||
|
Other
Comprehensive Income (Loss) of Affiliated Companies
|
2,031 | (5,215 | ) | (1,143 | ) | |||||||
|
Other
Comprehensive Income (Loss)- Net of Tax (a)
|
4,730 | (13,884 | ) | (2,524 | ) | |||||||
|
Comprehensive
Income
|
62,604 | 62,820 | 59,723 | |||||||||
|
Less:
Comprehensive Loss Attributable to Noncontrolling Interest in
Subsidiaries
|
231 | 227 | 21 | |||||||||
|
Comprehensive
Income Attributable to South Jersey Industries, Inc.
Shareholders
|
$ | 62,835 | $ | 63,047 | $ | 59,744 | ||||||
|
(a)
|
Determined
using a combined statutory tax rate of
41.08%.
|
The
accompanying notes are an integral part of the consolidated financial
statements.
Notes to
Consolidated Financial Statements
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
|
BASIS OF
PRESENTATION — The consolidated financial statements include the accounts of
South Jersey Industries, Inc. (SJI or the Company), its wholly owned
subsidiaries and subsidiaries in which we have a controlling interest. We
eliminate all significant intercompany accounts and transactions. In
management’s opinion, the consolidated financial statements reflect all normal
and recurring adjustments needed to fairly present SJI’s financial position and
operating results at the dates and for the periods presented.
EQUITY
INVESTMENTS — Marketable equity securities that are purchased as long-term
investments are classified as Available-for-Sale Securities and carried at their
fair value on our consolidated balance sheets. Any unrealized gains or losses
are included in Accumulated Other Comprehensive Loss. SJI, through wholly owned
subsidiaries, holds significant variable interests in several companies but is
not the primary beneficiary. Consequently, these investments are
accounted for under the equity method. In the event that losses and/or
distributions from these equity method investments exceed the carrying value,
and the Company is obligated to provide additional financial support, the excess
will be recorded as either a current or non-current liability on the
consolidated balance sheets. We include the operations of these affiliated
companies on a pre-tax basis in the statements of consolidated income under
Equity in Affiliated Companies (See Note 2).
ESTIMATES
AND ASSUMPTIONS — We prepare our consolidated financial statements to conform
with accounting principles generally accepted in the United States of America
(GAAP). Management makes estimates and assumptions that affect the amounts
reported in the consolidated financial statements and related disclosures.
Therefore, actual results could differ from those estimates. Significant
estimates include amounts related to regulatory accounting, energy derivatives,
environmental remediation costs, pension and other postretirement benefit costs,
and revenue recognition.
REGULATION
— South Jersey Gas Company (SJG) is subject to the rules and regulations of the
New Jersey Board of Public Utilities (BPU). See Note 9 for a detailed discussion
of SJG’s rate structure and regulatory actions. SJG maintains its accounts
according to the BPU's prescribed Uniform System of Accounts. SJG follows the
accounting for regulated enterprises prescribed by FASB ASC Topic 980
-“Regulated Operations.” In general, Topic 980 allows for the
deferral of certain costs (regulatory assets) and creation of certain
obligations (regulatory liabilities) when it is probable that such items will be
recovered from or refunded to customers in future periods. See Note 10 for a
detailed discussion of regulatory assets and liabilities.
OPERATING
REVENUES — Gas and electric revenues are recognized in the period the commodity
is delivered to customers. For SJG and South Jersey Energy (SJE) retail
customers that are not billed at the end of the month, we record an estimate to
recognize unbilled revenues for gas and electricity delivered from the date of
the last meter reading to the end of the month. South Jersey Resources Group,
LLC’s (SJRG) gas revenues are recognized in the period the commodity is
delivered. Unrealized gains and losses on energy related derivative instruments
are also recognized in operating revenues for SJRG. See further discussion under
Derivative Instruments. We recognize revenues related to South Jersey Energy
Service Plus, LLC (SJESP) appliance service contracts seasonally over the full
12-month terms of the contracts. Revenue related to services provided on a time
and materials basis is recognized on a monthly basis as the jobs are completed.
Marina Energy, LLC (Marina) recognizes revenue on a monthly basis as services
are provided, as lease income is earned, and for on-site energy production that
is delivered to its customers.
REVENUE
BASED TAXES — SJI collects certain revenue-based energy taxes from customers.
Such taxes include New Jersey State Sales Tax, Transitional Energy Facility
Assessment (TEFA) and Public Utilities Assessment (PUA). State sales tax is
recorded as a liability when billed to customers and is not included in revenue
or operating expenses. TEFA and PUA are included in both utility revenue and
cost of sales utility and totaled $8.8 million, $8.7 million, and $8.8 million
in 2009, 2008 and 2007, respectively.
ACCOUNTS
RECEIVABLE AND PROVISION FOR UNCOLLECTIBLE ACCOUNTS — Accounts receivable are
carried at the amount owed by customers. A provision for uncollectible accounts
is established based on our collection experience and an assessment of the
collectibility of specific accounts.
PROPERTY,
PLANT AND EQUIPMENT — For regulatory purposes, utility plant is stated at
original cost, which may be different than SJG’s cost if the assets were
acquired from another regulated entity. Nonutility plant is stated at cost. The
cost of adding, replacing and renewing property is charged to the appropriate
plant account.
ASSET
RETIREMENT OBLIGATIONS — The amounts included under Asset Retirement Obligations
(ARO) are primarily related to the legal obligations the Company has to cut and
cap gas distribution pipelines when taking those pipelines out of service in
future years. These liabilities are generally recognized upon the acquisition or
construction of the asset. The related asset retirement cost is capitalized
concurrently by increasing the carrying amount of the related asset by the same
amount as the liability. Changes in the liability are recorded for the passage
of time (accretion) or for revisions to cash flows originally estimated to
settle the ARO.
ARO
activity was as follows (in thousands):
|
|
|
2009
|
|
|
2008
|
|
||
|
AROs
as of January 1,
|
|
$
|
22,553
|
|
$
|
24,604
|
|
|
|
Accretion
|
|
|
507
|
|
|
|
441
|
|
|
Additions
|
193
|
136
|
|
|||||
|
Settlements
|
|
|
(24
|
)
|
|
|
(37
|
)
|
|
Revisions
in Estimated Cash Flows*
|
-
|
(2,591
|
)
|
|||||
|
ARO’s
as of December 31,
|
|
$
|
23,229
|
|
|
$
|
22,553
|
|
*A
corresponding reduction was made to Regulatory Assets, thus having no impact on
earnings.
DEPRECIATION
— We depreciate utility plant on a straight-line basis over the estimated
remaining lives of the various property classes. These estimates are
periodically reviewed and adjusted as required after BPU approval. The composite
annual rate for all depreciable utility property was approximately 2.3% in 2009,
2008, and 2007. The actual composite rate may differ from the approved rate as
the asset mix changes over time. Except for retirements outside of the normal
course of business, accumulated depreciation is charged with the cost of
depreciable utility property retired, less salvage. Nonutility property
depreciation is computed on a straight-line basis over the estimated useful
lives of the property, ranging up to 50 years. Gain or loss on the disposition
of nonutility property is recognized in operating income.
CAPITALIZED
INTEREST — SJG capitalizes interest on construction at the rate of return on the
rate base utilized by the BPU to set rates in its last base rate proceeding (See
Note 9). Marina capitalizes interest on construction projects in progress based
on the actual cost of borrowed funds. SJG’s amounts are included in Utility
Plant and Marina’s amounts are included in Nonutility Property and Equipment on
the consolidated balance sheets. Interest Charges are presented net of
capitalized interest on the consolidated statements of income. The amount
of interest capitalized by SJI for the years ended December 31, 2009, 2008 and
2007 was not significant.
IMPAIRMENT
OF LONG-LIVED ASSETS — We review the carrying amount of long-lived assets for
possible impairment whenever events or changes in circumstances indicate that
such amounts may not be recoverable. For the years ended 2009, 2008 and 2007, no
significant impairments were identified.
DERIVATIVE
INSTRUMENTS — SJI accounts for derivative instruments in accordance with FASB
ASC Topic 815 – “Derivatives and Hedging.” We record all derivatives,
whether designated in hedging relationships or not, on the consolidated balance
sheets at fair value unless the derivative contracts qualify for the normal
purchase and sale exemption. In general, if the derivative is designated as a
fair value hedge, we recognize the changes in the fair value of the derivative
and of the hedged item attributable to the hedged risk in earnings. We currently
have no fair value hedges. If the derivative is designated as a cash flow hedge,
we record the effective portion of the hedge in Accumulated Other Comprehensive
Loss and recognize it in the income statement when the hedged item affects
earnings. We recognize ineffective portions of the cash flow hedges immediately
in earnings. In 2007, we changed our policy to no longer designate
energy-related derivative instruments as cash flow hedges. We formally document
all relationships between hedging instruments and hedged items, as well as our
risk management objectives, strategies for undertaking various hedge
transactions and our methods for assessing and testing correlation and hedge
ineffectiveness. All hedging instruments are linked to the hedged asset,
liability, firm commitment or forecasted transaction. Due to the application of
regulatory accounting principles under FASB ASC Topic 980, gains and losses on
derivatives related to SJG’s gas purchases are recorded through the BGSS
clause.
Initially
and on an ongoing basis, we assess whether derivatives designated as hedges are
highly effective in offsetting changes in cash flows or fair values of the
hedged items. We discontinue hedge accounting prospectively if we decide to
discontinue the hedging relationship; determine that the anticipated transaction
is no longer likely to occur; or determine that a derivative is no longer highly
effective as a hedge. In the event that hedge accounting is discontinued, we
will continue to carry the derivative on the balance sheet at its current fair
value and recognize subsequent changes in fair value in current period earnings.
Unrealized gains and losses on the discontinued hedges that were previously
included in Accumulated Other Comprehensive Loss will be reclassified into
earnings when the forecasted transaction occurs, or when it is probable that it
will not occur.
Certain
SJI subsidiaries are involved in buying, selling, transporting and storing
natural gas and buying and selling retail electricity for their own accounts as
well as managing these activities for other third parties. These subsidiaries
are subject to market risk on expected future purchases and sales due to
commodity price fluctuations. The Company uses a variety of derivative
instruments to limit this exposure to market risk in accordance with strict
corporate guidelines. These derivative instruments include forward contracts,
swap agreements, options contracts and futures contracts. As of December 31,
2009, the Company had outstanding derivative contracts intended to limit the
exposure to market risk on 26.0 MMdts of expected future purchases of natural
gas, 23.2 MMdts of expected future sales of natural gas and 1.8 MMmwh of
expected future purchases of electricity. These contracts, which have not been
designated as hedging instruments under GAAP, are measured at fair value and
recorded in Derivatives — Energy Related Assets or Derivatives — Energy Related
Liabilities on the consolidated balance sheets. The net unrealized
pre-tax gains and losses for these energy related commodity contracts are
included with realized gains and losses in Operating Revenues –
Nonutility.
SJI
structured its subsidiaries so that SJG and SJE transact commodities on a
physical basis and typically do not directly enter into positions that
financially settle. SJRG performs this risk management function for these
entities and enters into the types of financial transactions noted above. As
part of its gas purchasing strategy, SJG uses financial contracts through SJRG
to hedge against forward price risk. The costs or benefits of these short-term
contracts are recoverable through SJG’s Basic Gas Supply Service (BGSS) clause,
subject to BPU approval. As of December 31, 2009 and 2008, SJG had $9.2 million
and $29.0 million of costs, respectively, included in its BGSS related to open
financial contracts.
Management
takes an active role in the risk management process and has developed policies
and procedures that require specific administrative and business functions to
assist in identifying, assessing and controlling various risks. Management
reviews any open positions in accordance with strict policies to limit exposure
to market risk.
SJI
presents revenues and expenses related to its energy trading activities on a net
basis in Operating Revenues — Nonutility in the consolidated statements of
income consistent with GAAP. This net presentation has no effect on operating
income or net income.
The
Company has also entered into interest rate derivatives to hedge exposure to
increasing interest rates and the impact of those rates on cash flows of
variable-rate debt. These interest rate derivatives, some of which have been
designated as hedging instruments under GAAP, are measured at fair value and
recorded in Derivatives-Other on the consolidated balance sheets. The fair value
represents the amount SJI would have to pay the counterparty to terminate these
contracts as of those dates. As of December 31, 2009, SJI’s
active interest rate swaps were as follows:
|
Notional
Amount
|
|
Fixed
Interest
Rate
|
Start
Date
|
Maturity
|
Type
of Debt
|
Obligor
|
||||||
|
$
|
3,900,000
|
|
4.795
|
%
|
12/01/2004
|
12/01/2014
|
Taxable
|
Marina
|
||||
|
$
|
8,000,000
|
|
4.775
|
%
|
11/12/2004
|
11/12/2014
|
Taxable
|
Marina
|
||||
|
$
|
20,000,000
|
|
4.080
|
%
|
11/19/2001
|
12/01/2011
|
Tax-exempt
|
Marina
|
||||
|
$
|
14,500,000
|
|
3.905
|
%
|
03/17/2006
|
01/15/2026
|
Tax-exempt
|
Marina
|
||||
|
$
|
500,000
|
|
3.905
|
%
|
03/17/2006
|
01/15/2026
|
Tax-exempt
|
Marina
|
||||
|
$
|
330,000
|
|
3.905
|
%
|
03/17/2006
|
01/15/2026
|
Tax-exempt
|
Marina
|
||||
|
$
|
7,100,000
|
|
4.895
|
%
|
02/01/2006
|
02/01/2016
|
Taxable
|
Marina
|
||||
|
$
|
12,500,000
|
|
3.430
|
%
|
12/01/2006
|
02/01/2036
|
Tax-exempt
|
SJG
|
||||
|
$
|
12,500,000
|
|
3.430
|
%
|
12/01/2006
|
02/01/2036
|
Tax-exempt
|
SJG
|
||||
The
interest rate derivatives that have been designated as cash flow hedges have
been determined to be highly effective. Therefore, the changes in
fair value of the effective portion of these swaps along with the cumulative
unamortized costs, net of taxes, have been recorded in Accumulated Other
Comprehensive Loss. These unrealized gains and losses will be reclassified into
earnings when the forecasted cash flows of the related variable-rate debt
occurs, or when it is probable that it will not occur. The ineffective portion
of these swaps have been included in Interest Charges.
The
unrealized gains and losses on the interest rate derivatives that have not been
designated as cash flow hedges have also been included in Interest Charges.
However, for selected interest rate derivatives at SJG, management believes
that, subject to BPU approval, the market value upon termination can be
recovered in rates and therefore these unrealized losses have been included in
Other Regulatory Assets in the consolidated balance sheets.
The fair
values of all derivative instruments, as reflected in the consolidated balance
sheets as of December 31, 2009 and 2008, are as follows (in
thousands):
|
Derivatives
not designated as hedging instruments under GAAP
|
2009
|
2008
|
||||||||||||||
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
|||||||||||||
|
Energy
related commodity contracts:
|
||||||||||||||||
|
Derivatives
– Energy Related – Current
|
$ | 36,512 | $ | 28,260 | $ | 63,201 | $ | 50,925 | ||||||||
|
Derivatives
– Energy Related – Non-Current
|
11,585 | 10,931 | 19,712 | 15,699 | ||||||||||||
|
Interest
rate contracts:
|
||||||||||||||||
|
Derivatives
- Other
|
- | 3,704 | - | 10,537 | ||||||||||||
|
Total
derivatives not designated as hedging instruments under
GAAP
|
48,097 | 42,895 | 82,913 | 77,161 | ||||||||||||
|
Derivatives
designated as hedging instruments under GAAP
|
||||||||||||||||
|
Interest
rate contracts:
|
||||||||||||||||
|
Derivatives
- Other
|
- | 2,119 | - | 3,551 | ||||||||||||
|
Total
derivatives designated as hedging instruments under GAAP
|
- | 2,119 | - | 3,551 | ||||||||||||
|
Total
Derivatives
|
$ | 48,097 | $ | 45,014 | $ | 82,913 | $ | 80,712 | ||||||||
The
effect of derivative instruments on the consolidated statements of income for
2009, 2008 and 2007 are as follows (in thousands):
|
Year
ended December 31,
|
||||||||||||
|
Derivatives
in Cash Flow Hedging Relationships
|
2009
|
2008
|
2007
|
|||||||||
|
Interest
Rate Contracts:
|
||||||||||||
|
Gains
or (losses) recognized in OCI on effective portion
|
$ | 164 | $ | (2,739 | ) | $ | (2,431 | ) | ||||
|
Losses
reclassified from accumulated OCI into income (a)
|
$ | (1,462 | ) | $ | (936 | ) | $ | (80 | ) | |||
|
Gains
or (losses) recognized in income on ineffective portion
(a)
|
- | - | - | |||||||||
(a)
Included in Interest Charges
|
Year
ended December 31,
|
||||||||||||
|
Derivatives
Not Designated as Hedging Instruments under GAAP
|
2009
|
2008
|
2007
|
|||||||||
|
Energy
related commodity contracts (a)
|
$ | (14,815 | ) | $ | 9,318 | $ | 3,636 | |||||
|
Interest
rate contracts (b)
|
1,210 | (2,173 | ) | - | ||||||||
|
Total
|
$ | (13,605 | ) | $ | 7,145 | $ | 3,636 | |||||
(a)
Included in Operating Revenues - Non Utility
(b)
Included in Interest Charges
Certain
of the Company's derivative instruments contain provisions that require
immediate payment or demand immediate and ongoing collateralization on
derivative instruments in net liability positions in the event of a material
adverse change in the credit standing of the Company. The aggregate fair value
of all derivative instruments with credit-risk-related contingent features that
are in a liability position on December 31, 2009, is $25.6
million. If the credit-risk-related contingent features
underlying these agreements were triggered on December 31, 2009, the Company
would have been required to settle the instruments immediately or post
collateral to its counterparties of approximately $20.4 million after offsetting
asset positions with the same counterparties under master netting
arrangements.
STOCK-BASED
COMPENSATION PLAN —
Under the Amended and Restated 1997 Stock-Based Compensation Plan, no more than
2,000,000 shares in the aggregate may be issued to SJI's officers (Officers),
non-employee directors (Directors) and other key employees. The plan will
terminate on January 26, 2015, unless terminated earlier by the Board of
Directors. No options were granted or outstanding during the years ended
December 31, 2009, 2008 and 2007 and no stock appreciation rights have been
issued under the plan. During the years ended December 31, 2009, 2008 and 2007,
SJI granted 41,437, 45,241, and 44,106 restricted shares to Officers and other
key employees, respectively. These restricted shares vest over a three-year
period and are subject to SJI achieving certain market based performance targets
as compared to a peer group average, which can cause the actual amount of shares
that ultimately vest to range from between 0% to 150% of the original share
units granted. SJI granted 9,559 and 8,667 restricted shares to Directors in
January 2009 and 2008 respectively. No shares were granted to
Directors in 2007. These shares vest over a three-year service period and
contain no performance conditions. As a result, 100% of the shares granted
generally vest.
As the
vesting requirements for officers and other key employees under the plan are
contingent upon market and service conditions, SJI is required to measure and
recognize stock-based compensation expense based on the fair value at the date
of grant for its share-based awards on a straight-line basis over the requisite
service period of each award. In addition, SJI identifies specific forfeitures
of share-based awards and compensation expense is adjusted accordingly over the
requisite service period. Compensation expense is not adjusted based on the
actual achievement of performance goals. The Company estimated the fair value of
Officers’ restricted stock awards on the date of grant using a Monte Carlo
simulation model.
The
following table summarizes the nonvested restricted stock awards outstanding at
December 31, 2009 and the assumptions used to estimate the fair value of the
awards:
|
|
Grant
|
Shares
|
|
Fair
Value
|
|
Expected
|
Risk-Free
|
|||
|
|
Date
|
Outstanding
|
|
Per
Share
|
|
Volatility
|
Interest
Rate
|
|||
|
|
|
|
|
|
|
|
|
|
||
|
Officers
&
|
Jan.
2008
|
42,144
|
|
$
|
34.030
|
|
21.7%
|
2.9%
|
||
|
Key
Employees
|
Jan.
2009
|
38,137
|
$
|
39.350
|
|
28.6%
|
1.2%
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Directors
-
|
Jan.
2008
|
7,704
|
|
$
|
36.355
|
|
-
|
-
|
||
|
|
Jan.
2009
|
8,690
|
|
$
|
40.265
|
|
-
|
-
|
||
Expected
volatility is based on the actual daily volatility of SJI’s share price over the
preceding three-year period as of the valuation date. The risk-free interest
rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the
three-year term of the Officers’ and other key employees’ restricted shares. As
notional dividend equivalents are credited to the holders, which are reinvested
during the three-year service period, no reduction to the fair value of the
award is required. As the Directors’ restricted stock awards contain no
performance conditions and notional dividend equivalents are credited to the
holder, which are reinvested during the three-year service period, the fair
value of these awards are equal to the market value of shares on the date of
grant.
The
following table summarizes the total stock based compensation cost for the years
ended December 31, 2009, 2008 and 2007 (in thousands):
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|||
|
Officers
& Key Employees
|
|
$
|
1,322
|
|
|
$
|
1,144
|
|
|
$
|
996
|
|
|
Directors
|
|
|
330
|
|
|
|
268
|
|
|
|
209
|
|
|
Total
Cost
|
|
|
1,652
|
|
|
|
1,412
|
|
|
|
1,205
|
|
|
Capitalized
|
|
|
(171
|
)
|
|
|
(149
|
)
|
|
|
(115
|
)
|
|
Net
Expense
|
|
$
|
1,481
|
|
|
$
|
1,263
|
|
|
$
|
1,090
|
|
As of
December 31, 2009, there was $1.8 million of total unrecognized compensation
cost related to nonvested share-based compensation awards granted under the
restricted stock plans. That cost is expected to be recognized over a weighted
average period of 1.7 years.
The
following table summarizes information regarding restricted stock award activity
during 2009 excluding accrued dividend equivalents:
|
|
Officers
&Key Employees
|
|
|
Directors
|
|
|
Weighted
Average Grant Date Fair Value
|
|||||
|
Nonvested
Shares Outstanding, January 1, 2009
|
|
|
83,103
|
|
|
|
17,928
|
|
|
$
|
32.386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Granted
|
|
|
41,437
|
|
|
|
9,559
|
|
|
$
|
39.522
|
|
|
Vested*
|
|
|
(37,605
|
)
|
|
|
(11,093
|
)
|
|
$
|
30.463
|
|
|
Cancelled/Forfeited
|
|
|
(6,654
|
)
|
|
|
-
|
|
|
$
|
35.930
|
|
|
Nonvested
Shares Outstanding, December 31, 2009
|
|
|
80,281
|
|
|
|
16,394
|
|
|
$
|
36.874
|
|
*Actual
shares expected to be awarded to officers and other key employees during the
first quarter of 2010, including dividend equivalents and adjustments for
performance measures, total 59,893 shares.
During
the years ended December 31, 2009 and 2008, SJI awarded 57,976 shares at a
market value of $2.3 million and 51,838 shares at a market value of $1.9
million, respectively. The Company has a policy of issuing new shares to satisfy
its obligations under these plans; therefore, there are no cash payment
requirements resulting from the normal operation of this plan. However, a change
in control could result in such shares becoming nonforefeitable or immediately
payable in cash. At the discretion of the officers and other key employees, the
receipt of vested shares can be deferred until future periods. These
deferred shares are included in Treasury Stock on the Statements of Consolidated
Capitalization.
GAS
EXPLORATION AND DEVELOPMENT - The Company capitalizes all costs associated with
gas property acquisition, exploration and development activities under the full
cost method of accounting. Capitalized costs include costs related to unproved
properties, which are not amortized until proved reserves are found or it is
determined that the unproved properties are impaired. All costs related to
unproved properties are reviewed quarterly to determine if impairment has
occurred. As of December 31, 2009, $3.5 million related to the acquisition of
interests in proved and unproved properties in Pennsylvania is included with
Nonutility Property and Equipment on the consolidated balance
sheets.
TREASURY
STOCK — SJI uses the par value method of accounting for treasury
stock. As of December 31, 2009 and 2008, SJI held 146,028 and 140,999
shares of treasury stock respectively. These shares are related to
deferred compensation arrangements where the amounts earned are held in the
stock of SJI.
INCOME
TAXES — Deferred income taxes are provided for all significant temporary
differences between the book and taxable basis of assets and liabilities in
accordance with FASB ASC Topic 740 - “Income Taxes” (See Note 3). A valuation
allowance is established when it is determined that it is more likely than not
that a deferred tax asset will not be realized.
CASH AND
CASH EQUIVALENTS — For purposes of reporting cash flows, highly liquid
investments with original maturities of three months or less are considered cash
equivalents.
NEW
ACCOUNTING PRONOUNCEMENTS — Other than as described below, no new accounting
pronouncement issued or effective during 2009 had, or is expected to have, a
material impact on the consolidated financial statements.
In
September 2006, the FASB issued new accounting guidance which defines fair
value, establishes a framework for measuring fair value in accounting principles
generally accepted in the United States of America, and expands disclosures
about fair value measurements. In October 2008, the FASB issued additional
guidance to provide clarification in a market that is not active and to provide
an example to illustrate key considerations in determining the fair value of a
financial asset in such a non-active market. This guidance was effective in
fiscal years beginning after November 15, 2007. However, for nonfinancial assets
and nonfinancial liabilities that are recognized or disclosed at fair value in
the financial statements on a nonrecurring basis, this guidance was effective in
fiscal years beginning after November 15, 2008. The adoption of this
guidance did not have a material effect on the Company’s consolidated financial
statements.
In
December 2007, the FASB issued new accounting guidance on noncontrolling
interests in consolidated financial statements. The new guidance requires all
entities to report noncontrolling (minority) interests in subsidiaries in the
same way—as equity in the consolidated financial statements. Moreover, this
guidance eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions. This guidance was effective for the first fiscal
year beginning after December 15, 2008. As a result of adopting
this guidance, we have disclosed on the face of our financial statements the
portion of equity and net income attributable to the noncontrolling interests in
consolidated subsidiaries. Additionally, we reclassified $1.2 million of
noncontrolling interests from Minority Interest to Equity on the December 31,
2008 consolidated balance sheet. The amount of net income attributable to
noncontrolling interests for 2008 and 2007 that was reclassed from Other Income
and Expense to Net Loss Attributable to Noncontrolling Interest in Subsidiaries
was not material. The adoption of this guidance modified our financial statement
presentation, but did not have an impact on our financial statement
results.
In March
2008, the FASB issued new accounting guidance on disclosures about derivative
instruments and hedging activities. This guidance requires disclosures of how
and why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted for and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. This guidance was effective for fiscal years
beginning after November 15, 2008. The adoption of this guidance did not have a
material effect on the Company’s consolidated financial
statements. See disclosures above.
In
December 2008, the FASB issued new accounting guidance on employers’ disclosures
about postretirement benefit plan assets. This guidance requires more detailed
disclosures about employers’ plan assets, including employers’ investment
strategies, major categories of plan assets, concentrations of risk within plan
assets, and valuation techniques used to measure the fair value of plan assets.
This guidance is effective for reporting periods ending after December 15, 2009.
The adoption of this guidance did not have a material effect on the Company’s
consolidated financial statements. See disclosures in Note
11.
In
December 2008, the Emerging Issue Task Force issued new accounting guidance on
equity method investment accounting considerations. In this guidance, the Task
Force considered the effects of existing guidance which became effective for
fiscal years beginning on or after December 15, 2008, on an entity’s application
of the equity method. Questions have arisen regarding the application of equity
method accounting guidance because of the significant changes to the guidance on
business combinations and subsidiary equity transactions and the increased use
of fair value measurements. The Task Force reached a consensus clarifying the
application of equity method accounting. This guidance was effective for
transactions occurring in fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. The adoption of this guidance
did not have a material effect on the Company’s consolidated financial
statements.
In June
2009, the FASB issued new accounting guidance on the consolidation of variable
interest entities (VIEs). Accordingly, companies will need to carefully
reconsider previous conclusions, including (1) whether an entity is a VIE, (2)
whether the company is the VIE’s primary beneficiary, and (3) what type of
financial statement disclosures are required. The new guidance is effective for
fiscal years beginning after November 15, 2009. Management does not believe that
the adoption of this guidance will have a material effect on the Company’s
consolidated financial statements.
In June
2009, the FASB issued new accounting guidance on The FASB Accounting Standards
Codification™ (the “Codification”) which has become the single official source
of authoritative, nongovernmental GAAP. The current GAAP hierarchy consists of
four levels of authoritative accounting and reporting guidance. The Codification
eliminates this hierarchy and replaces current GAAP (other than rules and
interpretive releases of the SEC) as used by all nongovernmental entities, with
just two levels of literature: authoritative and nonauthoritative. The
Codification was effective for interim and annual periods ending after September
15, 2009. Calendar year-end companies were required to initially apply the
Codification to their third-quarter interim financial statements. The
application of the Codification did not have a material effect on the Company’s
consolidated financial statements.
In August
2009, the FASB issued new accounting guidance for measuring the fair value of a
liability in circumstances in which a quoted price in an active market for the
identical liability is not available. In such instances, a reporting entity is
required to measure fair value utilizing a valuation technique that uses (i) the
quoted price of the identical liability when traded as an asset, (ii) quoted
prices for similar liabilities or similar liabilities when traded as assets, or
(iii) another valuation technique that is consistent with existing principles,
such as an income approach or market approach. The new accounting guidance also
clarifies that when estimating the fair value of a liability, a reporting entity
is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability. This guidance was effective for the period ending December 31, 2009
and did not have a material effect on the Company’s consolidated financial
statements.
|
2.
|
DISCONTINUED
OPERATIONS, AFFILIATIONS AND CONTROLLING
INTERESTS:
|
DISCONTINUED
OPERATIONS — Discontinued Operations consist of the environmental remediation
activities related to the properties of South Jersey Fuel, Inc. (SJF) and the
product liability litigation and environmental remediation activities related to
the prior business of The Morie Company, Inc. (Morie). SJF is a subsidiary of
Energy & Minerals, Inc. (EMI), an SJI subsidiary, which previously operated
a fuel oil business. Morie is the former sand mining and processing subsidiary
of EMI. EMI sold the common stock of Morie in 1996.
SJI
conducts tests annually to estimate the environmental remediation costs for
these properties.
Summarized
operating results of the discontinued operations for the years ended December
31, were (in thousands, except per share amounts):
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
||||
|
Loss
before Income Taxes:
|
|
|
|
|
|
|
|
|
|
|||
|
Sand
Mining
|
|
$
|
(289
|
)
|
|
$
|
(227
|
)
|
|
$
|
(411
|
)
|
|
Fuel
Oil
|
|
|
(362
|
)
|
|
|
(149
|
)
|
|
|
(95
|
)
|
|
Income
Tax Benefits
|
|
|
224
|
|
|
129
|
|
|
|
115
|
|
|
|
Loss
from Discontinued Operations
|
|
$
|
(427
|
)
|
|
$
|
(247
|
)
|
|
$
|
(391
|
)
|
|
Earnings
Per Common Share from
|
|
|
|
|
|
|
|
|
|
|
||
|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
||
|
Basic
and Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
AFFILIATIONS
— The following affiliated entities are accounted for under the equity
method:
SJI and
Conectiv Solutions, LLC formed Millennium Account Services, LLC in which SJI has
a 50% equity interest, to provide meter reading services in southern New
Jersey.
Marina
and a joint venture partner formed the following entities of which Marina has a
50% equity interest:
BC
Landfill Energy, LLC (BCLE) and SC Landfill Energy, LLC (SCLE) which lease and
operate facilities to produce electricity from landfill methane gas through 2027
and 2028 respectively.
LVE
Energy Partners, LLC (LVE), which has entered into a contract to design, build,
own and operate a district energy system and central energy center for a planned
resort in Las Vegas, Nevada.
Energenic
– US, LLC (Energenic), which will develop and operate on-site, self contained,
energy related projects.
During
2009 and 2008, the Company provided advances to unconsolidated affiliates of
$26.8 million and $7.5 million, respectively. The purpose of the advances was to
cover certain project related costs of LVE Energy Partners, LLC (See Note 14),
to provide a portion of the financing needed to acquire a central utility plant
at a new casino in Pennsylvania and develop several landfill gas-fired electric
production facilities. As of December 31, 2009 and 2008, the
outstanding balance on these Notes Receivable – Affiliate was $31.3 million and
$7.5 million respectively. Approximately $17.1 million of these notes are
secured by property, plant and equipment of the affiliates, accrue interest at
7.5% and are to be repaid through 2025. The remaining $14.2 million of these
notes are unsecured, and are either non-interest bearing or accrue interest at
variable rates and are to be repaid when the affiliate secures permanent
financing.
SJI holds
significant variable interests in these entities but is not the primary
beneficiary. Consequently, these entities are accounted for under the equity
method because the variable interests held by SJI will not absorb a majority of
the respective entity’s expected losses or receive a majority of the entity’s
expected residual returns. The net carrying amount of these variable interests
held by SJI is approximately $(4.7) million and is included in Investment in
Affiliates, Other Current Liabilities, and Other Noncurrent Liabilities on the
consolidated balance sheets as of December 31, 2009. SJI’s maximum exposure to
loss from these variable interests as of December 31, 2009 is limited to its
combined equity contributions and capital contribution obligations of
approximately $39.6 million and the Notes Receivable-Affiliate in the amount of
$31.3 million.
SJRG and
a joint venture partner formed Potato Creek, LLC (Potato Creek) in which SJRG
has a 30% equity interest. Potato Creek owns and manages the oil, gas
and mineral rights of certain real estate in Pennsylvania. The
mineral rights have been leased to a third party production
company.
CONTROLLING
INTERESTS IN JOINTLY OWNED PROJECTS — Marina and a joint venture partner formed
AC Landfill Energy, LLC (ACLE) and WC Landfill Energy, LLC (WCLE) to develop and
install methane-to-electric power generation systems at certain county-owned
landfills. Marina owns a 51% interest in ACLE and WCLE and accounts for these
entities as consolidated subsidiaries.
|
3.
|
INCOME
TAXES:
|
SJI files
a consolidated federal income tax return. State income tax returns are filed on
a separate company basis in states where SJI has operations and/or a requirement
to file. 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 (in thousands):
|
2009
|
|
2008
|
|
2007
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
Tax
at Statutory Rate
|
|
$
|
32,492
|
|
$
|
45,194
|
|
|
$
|
37,000
|
|
|
|
Increase
(Decrease) Resulting from:
|
|
|
|
|
|
|
|
|
|
|
||
|
State
Income Taxes
|
|
|
6,079
|
|
|
8,291
|
|
|
|
6,767
|
|
|
|
ESOP
|
|
|
(894)
|
|
|
(818
|
)
|
|
|
(749
|
)
|
|
|
Amortization
of Investment
|
|
|
|
|
|
|
|
|
|
|
||
|
Tax
Credits
|
|
|
(314)
|
|
|
(318
|
)
|
|
|
(320
|
)
|
|
|
Amortization
of Flowthrough
|
|
|
|
|
|
|
|
|
|
|
||
|
Depreciation
|
|
|
664
|
|
|
664
|
|
|
|
664
|
|
|
|
Renewable
Energy Credits
|
|
|
(3,660)
|
|
|
(391
|
)
|
|
|
(215
|
)
|
|
|
Other
- Net
|
|
|
(65)
|
|
|
(674
|
)
|
|
|
(91
|
)
|
|
|
Income
Taxes:
|
|
|
|
|
|
|
|
|
|
|
||
|
Continuing
Operations
|
|
|
34,302
|
|
|
51,948
|
|
|
|
43,056
|
|
|
|
Discontinued
Operations
|
|
|
(224)
|
|
|
(129
|
)
|
|
|
(115
|
)
|
|
|
Net
Income Taxes
|
|
$
|
34,078
|
|
$
|
51,819
|
|
|
$
|
42,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
provision for Income Taxes is comprised of the following (in
thousands):
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
2007
|
|
|||||
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7,396
|
|
$
|
19,684
|
|
|
$
|
23,620
|
|
|
|
State
|
|
|
5,303
|
|
|
9,568
|
|
|
|
7,726
|
|
|
|
Total
Current
|
|
|
12,699
|
|
|
29,252
|
|
|
|
31,346
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
||
|
Federal
|
|
|
17,867
|
|
|
19,839
|
|
|
|
9,344
|
|
|
|
State
|
|
|
4,050
|
|
|
3,175
|
|
|
|
2,686
|
|
|
|
Total
Deferred
|
|
|
21,917
|
|
|
23,014
|
|
|
|
12,030
|
|
|
|
Investment
Tax Credits
|
|
|
(314)
|
|
|
(318
|
)
|
|
|
(320
|
)
|
|
|
Income
Taxes:
|
|
|
|
|
|
|
|
|
|
|
||
|
Continuing
Operations
|
|
|
34,302
|
|
|
51,948
|
|
|
|
43,056
|
|
|
|
Discontinued
Operations
|
|
|
(224)
|
|
|
(129
|
)
|
|
|
(115
|
)
|
|
|
Net
Income Taxes
|
|
$
|
34,078
|
|
$
|
51,819
|
|
|
$
|
42,941
|
|
|
Investment
Tax Credits attributable to SJG are deferred and amortized at the annual rate of
3%, which approximates the life of related assets.
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 net deferred tax liabilities (assets) at December 31 (in
thousands):
|
|
2009
|
|
|
2008
|
|
|||
|
Current:
|
|
|
|
|
|
|
||
|
Deferred
Gas Costs - Net
|
|
$
|
4,122
|
|
$
|
4,122
|
|
|
|
Derivatives
/ Unrealized Gain
|
|
|
8,818
|
|
|
12,849
|
|
|
|
Conservation
Incentive Program
|
|
|
7,396
|
|
|
9,056
|
|
|
|
Other
|
|
|
(439)
|
|
|
(1,018
|
)
|
|
|
Current
Deferred Tax Liability - Net
|
|
$
|
19,897
|
|
$
|
25,009
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
||
|
Book
versus Tax Basis of Property
|
|
$
|
212,452
|
|
$
|
182,139
|
|
|
|
Deferred
Gas Costs - Net
|
|
|
7,567
|
|
|
5,470
|
|
|
|
Environmental
|
|
|
15,712
|
|
|
19,302
|
|
|
|
Deferred
Regulatory Costs
|
|
|
1,259
|
|
|
1,246
|
|
|
|
Deferred
State Tax
|
|
|
(9,369)
|
|
|
(7,692
|
)
|
|
|
Investment
Tax Credit Basis Gross-Up
|
|
|
(782)
|
|
|
(944
|
)
|
|
|
Deferred
Pension & Other Post Retirement Benefits
|
|
|
28,783
|
|
|
32,311
|
|
|
|
Pension
& Other Post Retirement Benefits
|
|
|
(25,776)
|
|
|
(32,550
|
)
|
|
|
Deferred
Revenues
|
|
|
(14,924)
|
|
|
(11,761
|
)
|
|
|
Derivatives/Unrealized Gain
|
|
|
(2,545)
|
|
|
(3,060
|
)
|
|
|
Other
|
|
|
2,969
|
|
|
(167
|
)
|
|
|
Noncurrent
Deferred Tax Liability - Net
|
|
$
|
215,346
|
|
$
|
184,294
|
|
|
On
January 1, 2007 SJI adopted new provisions of FASB ASC Topic 740 – “Income
Taxes.” As a result, SJI recognized a $0.8 million reduction to beginning
retained earnings as a cumulative effect adjustment and a noncurrent deferred
tax asset of $1.8 million. The total unrecognized tax benefits as of December
31, 2009 and 2008 were $1.1 million and $1.7 million respectively, which
excludes $1.0 million and $1.0 million of accrued interest and penalties
respectively.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
for the years ended December 31, is as follows (in thousands):
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|||
|
Balance
at January 1,
|
|
$
|
1,722
|
|
|
$
|
1,926
|
|
|
$
|
2,125
|
|
|
|
||||||||||||
|
Increase
as a result of tax positions taken in prior years
|
|
|
59
|
|
|
|
253
|
|
|
|
154
|
|
|
Decrease
due to a lapse in the statute of limitations
|
|
|
(683
|
)
|
|
|
(457
|
)
|
|
|
(353
|
)
|
|
|
||||||||||||
|
Balance
at December 31,
|
|
$
|
1,098
|
|
|
$
|
1,722
|
|
|
$
|
1,926
|
|
The
amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate is not significant. The Company’s policy is to
record interest and penalties related to unrecognized tax benefits as interest
expense and other expense respectively. These amounts were not significant in
2009, 2008 or 2007. There have been no significant changes to the unrecognized
tax benefits during 2009, 2008 or 2007 and the Company does not anticipate any
significant changes in the total unrecognized tax benefits within the next 12
months.
The
unrecognized tax benefits are primarily related to an uncertainty of state
income tax issues and the timing of certain deductions taken on the Company’s
income tax returns. Federal income tax returns from 2006 forward and
state income tax returns primarily from 2005 forward are open and subject to
examination.
|
4.
|
PREFERRED
STOCK:
|
REDEEMABLE
CUMULATIVE PREFERRED STOCK — SJI has 2,500,000 authorized shares of Preference
Stock, no par value, which has not been issued.
|
5.
|
COMMON
STOCK:
|
The
following shares were issued and outstanding at December 31:
|
|
2009
|
2008
|
2007
|
|||||||||
|
Beginning
of Year
|
29,728,697 | 29,607,802 | 29,325,593 | |||||||||
|
New
Issues During Year:
|
||||||||||||
|
Dividend
Reinvestment Plan
|
- | 60,390 | 212,428 | |||||||||
|
Stock-Based
Compensation Plan
|
67,535 | 60,505 | 69,781 | |||||||||
|
End
of Year
|
29,796,232 | 29,728,697 | 29,607,802 | |||||||||
The par
value ($1.25 per share) of stock issued was recorded in Common Stock and the net
excess over par value of approximately $2.0 million, $4.0 million and $8.7
million, respectively, was recorded in Premium on Common Stock.
EARNINGS
PER COMMON SHARE —Basic EPS is based on the weighted-average number of common
shares outstanding. The incremental shares required for inclusion in the
denominator for the diluted EPS calculation were 107,333, 136,123 and
112,750 shares for the years ended December 31, 2009, 2008 and 2007,
respectively. These shares relate to SJI’s restricted stock as discussed in Note
1.
DIVIDEND
REINVESTMENT PLAN (DRP) — Through April 2008, shares of common stock offered
through the DRP have been new shares issued directly by SJI. Beginning in April
2008, shares of common stock offered by the DRP have been purchased in open
market transactions.
|
6.
|
FINANCIAL
INSTRUMENTS:
|
RESTRICTED
INVESTMENTS — In accordance with the terms of the Marina and certain SJG loan
agreements, unused proceeds are required to be escrowed pending approved
construction expenditures. As of December 31, 2009 and 2008, the escrowed
proceeds, including interest earned, totaled $1.4 million.
SJRG
maintains a margin account with a national investment firm to support its risk
management activities. The balance required to be held in this margin account
increases as the net value of the outstanding energy related financial contracts
with this investment firm decreases. As of December 31, 2009 and 2008, the
balance of this account was $3.8 million and $29.7 million,
respectively. The carrying amounts of the Restricted Investments and
the Margin Account Liability approximate their fair values at December 31, 2009
and 2008.
LONG-TERM
RECEIVABLES — SJG provides financing to customers for the purpose of attracting
conversions to natural gas heating systems from competing fuel
sources. The terms of these loans call for customers to make monthly
payments over a period of up to five years with no interest. The
carrying amounts of such loans were $10.8 million and $10.1 million as of
December 31, 2009 and 2008, respectively. The current portion of these
receivables is reflected in Accounts Receivable and the non-current portion is
reflected in Contract Receivables on the consolidated balance sheets. The
carrying amounts noted above are net of unamortized discounts resulting from
imputed interest in the amount of $1.2 million as of both December 31, 2009 and
2008. The annual amortization to interest is not material to the
Company’s consolidated financial statements. The carrying amounts of
these receivables approximate their fair value at December 31, 2009 and
2008.
LONG-TERM
DEBT —Marina had previously issued $16.4 million of tax-exempt, variable-rate
bonds through the New Jersey Economic Development Authority (NJEDA), which
mature in March 2036. Proceeds of the bonds were used to finance the expansion
of Marina’s Atlantic City thermal energy plant. The interest rate on all but
$1.1 million of the bonds has been effectively fixed via interest rate swaps at
3.91% until January 2026. However, during the fourth quarter of 2008, these
interest rate swaps were not completely effective in mitigating the risks
resulting from changes in interest rates. Consequently, the Company incurred
approximately $2.2 million of additional interest expense during 2008 related to
the ineffective portion of these interest rate swaps. These swaps remain in
place and are expected to substantially offset future changes in interest
rates. The variable interest rate on the $1.1 million portion of the
bonds that remain unhedged was 0.25% as of December 31, 2009. These
bonds contain no financial covenants.
SJG had
previously issued $25.0 million of secured tax-exempt, auction-rate debt through
the NJEDA to finance infrastructure costs that qualify for tax-exempt financing.
SJG entered into forward-starting interest rate swap agreements commencing
December 1, 2006 through January 2036, under which SJG pays a fixed rate of
3.43% and receives variable rate payments from the swap counterparty at 67% of
the LIBOR rate. The debt was issued under SJG’s medium-term note
program. In June 2008, SJG used $25.0 million of its revolving credit facility
to repurchase these outstanding auction-rate Series A 2006 Bonds at par. Those
bonds were remarketed to the public in August 2008 as variable rate demand bonds
with liquidity support provided by a letter of credit from a commercial bank as
discussed in Note 14. The related borrowings under the revolver were repaid at
that time. Material terms of the original bonds, such as the 2036
maturity date, floating rate interest that resets weekly, and a first mortgage
collateral position, remain unchanged. These notes contain no
financial covenants.
We
estimated the fair values of SJI's long-term debt, including current maturities,
as of December 31, 2009 and 2008, to be $394.5 million and $436.6 million,
respectively. Carrying amounts as of December 31, 2009 and 2008, were $347.9
million and $357.9 million, respectively. We based 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.
CONCENTRATION
OF CREDIT RISK - As of December 31, 2009, approximately 44.5% of the current and
noncurrent Derivatives – Energy Related Assets or $21.4 million are with a
single retail counterparty. This counterparty has contracts with a large number
of diverse customers which minimizes the concentration of this risk. A portion
of these contracts may be assigned to SJI in the event of a default by the
counterparty.
OTHER
FINANCIAL INSTRUMENTS — The carrying amounts of SJI's other financial
instruments approximate their fair values at December 31, 2009 and
2008.
|
7.
|
SEGMENTS
OF BUSINESS:
|
SJI
operates in several different reportable operating segments. Gas Utility
Operations (SJG) consists primarily of natural gas distribution to residential,
commercial and industrial customers. Wholesale Gas Operations include SJRG’s
activities. SJE is involved in both retail gas and retail electric activities.
Retail Gas and Other Operations include natural gas acquisition and
transportation service business lines. Retail Electric Operations consist of
electricity acquisition and transportation to commercial and industrial
customers. On-Site Energy Production consists of Marina’s thermal energy
facility and other energy-related projects. Appliance Service Operations
includes SJESP’s servicing of appliances via the sale of appliance service
programs as well as on a time and materials basis, and the installation of
residential and small commercial HVAC systems. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. Intersegment sales and transfers are treated as
if the sales or transfers were to third parties, that is, at current market
prices.
Information
about SJI's operations in different reportable operating segments is presented
below (in thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Operating
Revenues:
|
||||||||||||
|
Gas
Utility Operations
|
$ | 484,376 | $ | 568,046 | $ | 630,547 | ||||||
|
Wholesale
Gas Operations
|
97,475 | 115,550 | 75,747 | |||||||||
|
Retail
Gas and Other Operations
|
109,414 | 177,342 | 174,043 | |||||||||
|
Retail
Electric Operations
|
113,606 | 60,046 | 51,098 | |||||||||
|
On-Site
Energy Production
|
37,031 | 46,980 | 40,084 | |||||||||
|
Appliance
Service Operations
|
18,900 | 19,184 | 17,224 | |||||||||
|
Corporate
& Services
|
19,948 | 18,221 | 14,778 | |||||||||
|
Subtotal
|
880,750 | 1,005,369 | 1,003,521 | |||||||||
|
Intersegment
Sales
|
(35,306 | ) | (43,392 | ) | (47,150 | ) | ||||||
|
Total
Operating Revenues
|
$ | 845,444 | $ | 961,977 | $ | 956,371 | ||||||
|
Operating
Income:
|
||||||||||||
|
Gas
Utility Operations
|
$ | 81,439 | $ | 84,417 | $ | 83,989 | ||||||
|
Wholesale
Gas Operations
|
29,601 | 50,985 | 33,156 | |||||||||
|
Retail
Gas and Other Operations
|
78 | 2,718 | 192 | |||||||||
|
Retail
Electric Operations
|
(7,459 | ) | 2,096 | 2,201 | ||||||||
|
On-Site
Energy Production
|
5,309 | 10,435 | 8,406 | |||||||||
|
Appliance
Service Operations
|
1,361 | 2,040 | 1,003 | |||||||||
|
Corporate
and Services
|
781 | 818 | 676 | |||||||||
|
Total
Operating Income
|
$ | 111,110 | $ | 153,509 | $ | 129,623 | ||||||
|
Depreciation
and Amortization:
|
||||||||||||
|
Gas
Utility Operations
|
$ | 34,507 | $ | 31,506 | $ | 29,317 | ||||||
|
Wholesale
Gas Operations
|
304 | 311 | 6 | |||||||||
|
Retail
Gas and Other Operations
|
21 | 18 | 13 | |||||||||
|
On-Site
Energy Production
|
3,804 | 3,097 | 2,955 | |||||||||
|
Appliance
Service Operations
|
306 | 301 | 280 | |||||||||
|
Corporate
and Services
|
505 | 432 | 294 | |||||||||
|
Total
Depreciation and Amortization
|
$ | 39,447 | $ | 35,665 | $ | 32,865 | ||||||
|
Interest
Charges:
|
||||||||||||
|
Gas
Utility Operations
|
$ | 16,442 | $ | 18,938 | $ | 20,985 | ||||||
|
Wholesale
Gas Operations
|
339 | 956 | 2,204 | |||||||||
|
Retail
Gas and Other Operations
|
16 | 111 | 190 | |||||||||
|
On-Site
Energy Production
|
1,928 | 5,541 | 3,698 | |||||||||
|
Corporate
and Services
|
780 | 1,704 | 3,772 | |||||||||
|
Subtotal
|
19,505 | 27,250 | 30,849 | |||||||||
|
Intersegment
Borrowings
|
(513 | ) | (1,574 | ) | (3,634 | ) | ||||||
|
Total
Interest Charges
|
$ | 18,992 | $ | 25,676 | $ | 27,215 | ||||||
|
Income
Taxes:
|
||||||||||||
|
Gas
Utility Operations
|
$ | 27,104 | $ | 26,508 | $ | 26,652 | ||||||
|
Wholesale
Gas Operations
|
12,456 | 20,738 | 12,786 | |||||||||
|
Retail
Gas and Other Operations
|
20 | 1,087 | 55 | |||||||||
|
Retail
Electric
|
(3,064 | ) | 853 | 883 | ||||||||
|
On-Site
Energy Production
|
(3,138 | ) | 1,486 | 1,851 | ||||||||
|
Appliance
Service Operations
|
601 | 890 | 489 | |||||||||
|
Corporate
and Services
|
323 | 386 | 340 | |||||||||
|
Total
Income Taxes
|
$ | 34,302 | $ | 51,948 | $ | 43,056 | ||||||
|
Property
Additions:
|
||||||||||||
|
Gas
Utility Operations
|
$ | 110,694 | $ | 56,198 | $ | 49,061 | ||||||
|
Wholesale
Gas Operations
|
27 | 2,707 | 330 | |||||||||
|
Retail
Gas and Other Operations
|
16 | 11 | 74 | |||||||||
|
On-Site
Energy Production
|
9,760 | 5,911 | 5,495 | |||||||||
|
Appliance
Service Operations
|
577 | 86 | 219 | |||||||||
|
Corporate
and Services
|
290 | 140 | 1,381 | |||||||||
|
Total
Property Additions
|
$ | 121,364 | $ | 65,053 | $ | 56,560 | ||||||
|
Identifiable
Assets:
|
||||||||||||
|
Gas
Utility Operations
|
$ | 1,357,062 | $ | 1,354,015 | ||||||||
|
Wholesale
Gas Operations
|
194,989 | 196,487 | ||||||||||
|
Retail
Gas and Other Operations
|
35,506 | 42,939 | ||||||||||
|
Retail
Electric Operations
|
13,433 | 5,594 | ||||||||||
|
On-Site
Energy Production
|
135,288 | 123,913 | ||||||||||
|
Appliance
Service Operations
|
18,832 | 17,704 | ||||||||||
|
Discontinued
Operations
|
1,215 | 1,409 | ||||||||||
|
Subtotal
|
1,756,325 | 1,742,061 | ||||||||||
|
Corporate
and Services
|
56,543 | 91,641 | ||||||||||
|
Intersegment
Assets
|
(30,860 | ) | (40,275 | ) | ||||||||
|
Total
Identifiable Assets
|
$ | 1,782,008 | 1,793,427 | |||||||||
|
8.
|
LEASES:
|
The
Company is considered to be the lessor of certain thermal energy generating
property and equipment under an operating lease which expires in May 2027. As of
December 31, 2009 and 2008 the carrying costs of this property and equipment
under operating lease was $75.3 million and $77.4 million, respectively, (net of
accumulated depreciation of $12.6 million and $10.3 million, respectively) and
is included in Nonutility Property and Equipment in the consolidated balance
sheets.
Minimum
future rentals to be received on non-cancelable leases as of December 31, 2009
for each of the next five years and in the aggregate are (in
thousands):
|
Year
ended December 31,
|
|
|
|
|
|
2010
|
|
$
|
5,396
|
|
|
2011
|
|
|
5,396
|
|
|
2012
|
|
|
5,396
|
|
|
2013
|
|
|
5,396
|
|
|
2014
|
|
|
5,396
|
|
|
Thereafter
|
|
|
67,002
|
|
|
Total
minimum future rentals
|
|
$
|
93,982
|
|
Minimum
future rentals do not include additional amounts to be received based on actual
use of the leased property.
|
9.
|
RATES
AND REGULATORY ACTIONS:
|
BASE
RATES — In July 2004 the BPU approved SJG’s current rate structure based on a
7.97% rate of return on rate base that included a 10.0% return on common
equity. SJG was also permitted to recover regulatory assets contained
in the petition and to reduce the composite depreciation rate from 2.9% to
2.4%. Included in the base rate increase was also a change to the
sharing of pre-tax margins on interruptible, off system sales, and
transportation. The sharing of pre-tax margins begins from dollar
one, with SJG retaining 20% through June 30, 2006. Effective July 1,
2006, the 20% retained by SJG decreased to 15% of such margins.
In
January 2010, SJG filed a base rate case with the BPU to increase its base rates
in order to obtain a certain level of return on the investment of capital.
Management expects the rate case to be concluded during 2010. SJG has not sought
a base rate increase from the BPU since the implementation of the base rate case
that was approved in July 2004.
RATE
MECHANISMS — SJG’s tariff, a schedule detailing the terms, conditions and rate
information applicable to the various types of natural gas service, as approved
by the BPU, has several primary rate mechanisms as discussed in detail
below:
Basic Gas
Supply Service (BGSS) Clause — The BGSS price structure was approved by the BPU
in January 2003, and allows SJG to recover all prudently incurred gas costs.
BGSS charges to customers can be either monthly or periodic (annual). Monthly
BGSS charges are applicable to large use customers and are referred to as
monthly because the rate changes on a monthly basis pursuant to a BPU-approved
formula based on commodity market prices. Periodic BGSS charges are applicable
to lower usage customers, which include all of SJG’s residential customers, and
are evaluated at least annually by the BPU. However, to some extent, more
frequent rate changes to the periodic BGSS are allowed. SJG collects gas costs
from customers on a forecasted basis and defers periodic over/underrecoveries to
the following BGSS year, which runs from October 1 though September 30. If SJG
is in a net cumulative undercollected position, gas costs deferrals are
reflected on the balance sheet as a regulatory asset. If SJG is in a net
cumulative overcollected position, amounts due back to customers are reflected
on the balance sheet as a regulatory liability. SJG pays interest on net
overcollected BGSS balances at the rate of return on rate base of 7.97% utilized
by the BPU to set rates in the last base rate proceeding.
Regulatory
actions regarding the BGSS were as follows:
|
|
·
|
June
2007 – SJG made the annual periodic BGSS filing with the BPU requesting a
$16.9 million, or 5.0%, decrease in gas cost recoveries in response to
decreasing wholesale gas costs and a $5.4 million benefit derived from the
Company electing not to extend the terms of two firm transportation
contracts beyond their primary
terms.
|
|
|
·
|
October
2007 – The BPU approved on a provisional basis, a $36.7 million, or 11%,
annual decrease in gas cost recoveries due to the continuing decrease in
wholesale gas costs subsequent to SJG’s June 2007
filing.
|
|
|
·
|
May
2008 – SJG made its annual periodic BGSS filing with the BPU requesting a
$73.7 million, or 23%, increase in gas cost recoveries in response to
increasing wholesale gas costs.
|
|
|
·
|
November
2008 – The BPU approved on a provisional basis, a $38.0 million, or 12%,
increase in gas costs recoveries reflecting a lower increase in gas costs
then originally projected in our May 2008
filing.
|
|
|
·
|
December
2008 – As part of a global settlement, the BPU approved on a provisional
basis, a decrease in gas cost recoveries of $9.0 million, or 3%, due to
the continued decline in projections in the wholesale gas
market.
|
|
|
·
|
June
2009 - SJG made its annual BGSS filing to the BPU requesting a $54.7
million reduction, or 17.5% decrease, in gas cost recoveries in response
to projected decreases in wholesale
gas.
|
|
|
·
|
August
2009 - The BPU issued an Order finalizing the 2008-2009 provisional BGSS
rates.
|
|
|
·
|
September
2009 - The BPU approved, on a provisional basis, a $54.7 million, or
17.5%, decrease in gas cost
recoveries.
|
Conservation
Incentive Program (CIP) - The primary purpose of the CIP is to promote
conservation efforts, without negatively impacting financial stability and to
base SJG’s profit margin on the number of customers rather than the amount of
natural gas distributed to customers. In October 2006, the BPU approved SJG’s
CIP as a three year pilot program. In January 2010, the BPU approved an
extension of this program through September 2013. Each CIP year
begins October 1 and ends September 30 of the subsequent year. On a monthly
basis during the CIP year, SJG records adjustments to earnings based on weather
and customer usage factors, as incurred. Subsequent to each year, SJG will make
filings with the BPU to review and approve amounts recorded under the CIP. BPU
approved cash inflows or outflows generally will not begin until the next CIP
year.
Regulatory
actions regarding the CIP were as follows:
|
|
·
|
June
2007 – SJG made the first annual CIP filing, requesting recovery of $14.3
million in deficiency, of which $9.6 million was non-weather
related.
|
|
|
·
|
October
2007 – The BPU approved on a provisional basis, recovery of $15.5 million
in deficiency, of which $9.1 million was non-weather
related.
|
|
|
·
|
May
2008 – SJG made its annual CIP filing, requesting recovery of $19.1
million, of which $14.1 million was non-weather
related.
|
|
|
·
|
December
2008 – As part of a global settlement, the BPU approved, on a provisional
basis, the recovery of CIP revenue of $20.4 million, of which $16.4
million was non-weather related.
|
|
|
·
|
June
2009 - SJG made its annual CIP filing to the BPU requesting recovery of
$13.4 million, which included a $13.7 million non-weather related
recovery, partially offset by a credit of $0.3 million which was weather
related.
|
|
|
·
|
August
2009 - The BPU issued an Order finalizing the 2008-2009 provisional CIP
rates.
|
|
|
·
|
September
2009 - The BPU approved, on a provisional basis, the recovery of CIP
revenue of $13.4 million.
|
Capital
Investment Recovery Tracker (CIRT) - In January 2009, SJG made a filing with the
BPU requesting approval for an accelerated infrastructure investment
program. The purpose of the CIRT was to accelerate $103.0 million of
capital expenditures from five years to two years. The petition
requested that the Company be allowed to earn a return of, and a return on, its
investment. Under the CIRT, 2009 spending was projected to be $70.5
million and 2010 spending was projected to be $32.5 million. On a
monthly basis during the CIRT year, SJG records adjustments to earnings based on
actual CIRT program expenditures, as incurred. Annually, SJG makes a
filing to the BPU for review and approval of expenditures recorded under the
CIRT.
|
|
·
|
January
2009 - SJG filed a petition with the BPU for approval of an accelerated
infrastructure investment program and associated rate tracker as discussed
above.
|
|
|
·
|
April
2009 – The BPU approved SJG’s petition for the CIRT, including a first
year estimated capital expenditure level of $70.5 million and estimated
revenue of $3.2 million.
|
|
|
·
|
November
2009 - SJG made its annual CIRT filing, requesting $10.6 million in
additional revenue.
|
|
|
·
|
December
2009 – The BPU approved, on a provisional basis, recovery of an additional
$9.9 million in CIRT revenue.
|
Energy
Efficiency Tracker (EET) - In January 2009, SJG filed a petition with the BPU
requesting approval of an energy efficiency program for residential, commercial
and industrial customers. Under this program, SJG will invest $17.0
million over two years in energy efficiency measures to be installed in customer
homes and businesses. SJG can recover incremental operating and maintenance
expenses and earn a return of, and return on, program investments. 2009 revenue
was projected to be $1.7 million.
|
|
·
|
January
2009 – SJG filed a petition with the BPU for approval of an energy
efficiency program as noted above.
|
|
|
·
|
July
2009 - The BPU approved SJG’s petition for the EET with a revenue recovery
of $1.3 million.
|
Societal
Benefits Clause (SBC) - The SBC allows SJG to recover costs related to several
BPU-mandated programs. Within the SBC are a Remediation Adjustment Clause (RAC),
a New Jersey Clean Energy Program (NJCEP), a Universal Service Fund (USF)
program and a Consumer Education Program (CEP).
Regulatory
actions regarding the SBC, with the exception of USF which requires separate
regulatory filings, were as follows:
|
|
·
|
December
2007 – SJG made the annual SBC filing, superseding the 2005 and 2006 SBC
filings, requesting a $7.4 million increase in annual SBC
recoveries.
|
|
|
·
|
December
2008 – As part of the global settlement, the BPU approved an increase in
the RAC portion of the SBC, resulting in an increase in revenue of $8.5
million. In addition, the BPU approved a reduction in the
interest rate utilized to calculate deferred tax on the
RAC.
|
|
|
·
|
January
2009 - SJG made its annual 2008-2009 SBC filing requesting $7.9 million
increase in SBC recoveries.
|
|
|
·
|
August
2009 - SJG made its annual 2009-2010 SBC filing, requesting a $15.5
million increase in SBC recoveries which includes a net increase in
Remediation Adjustment Clause, Clean Energy Program Clause and
Transportation Initiation Clause.
|
Remediation
Adjustment Clause (RAC) - The RAC recovers environmental remediation costs of 12
former gas manufacturing plants (See Note 14). The BPU allows SJG to recover
such costs over seven year amortization periods. The net between the amounts
actually spent and amounts recovered from customers is recorded as a regulatory
asset, Environmental Remediation Cost Expended - Net. Note that RAC activity
affects revenue and cash flows but does not directly affect earnings because of
the cost recovery over seven year amortization periods. As of December 31, 2009
and 2008, SJG reflected the unamortized remediation costs of $42.9 million and
$48.1 million respectively, on the consolidated balance sheets under Regulatory
Assets (See Note 10). Since implementing the RAC in 1992, SJG has recovered
$44.1 million through rates as of December 31, 2009.
New
Jersey Clean Energy Program (NJCEP) - This mechanism recovers costs associated
with SJG’s energy efficiency and renewable energy programs. In December 2004,
the BPU approved the statewide funding of the NJCEP of $745.0 million for the
years 2005 through 2008. Of this amount, SJG was responsible for approximately
$25.4 million over the four-year period. In August 2008, the BPU
approved the statewide funding of the NJCEP of $1.2 billion for the years 2009
through 2012. Of this amount SJG will be responsible for
approximately $41.5 million over the four-year period. NJCEP
adjustments affect revenue and cash flows but do not directly affect earnings as
related costs are deferred and recovered through rates on an on-going
basis.
Universal
Service Fund (USF) - The USF is a statewide program through which funds for the
USF and Lifeline Credit and Tenants Assistance Programs are collected from
customers of all New Jersey electric and gas utilities. USF adjustments affect
revenue and cash flows but do not directly affect earnings as related costs are
deferred and recovered through rates on an on-going basis.
Separate
regulatory actions regarding the USF were as follows:
|
|
·
|
July
2007 – SJG made its annual USF filing, along with the state’s other
electric and gas utilities, proposing to decrease annual statewide gas
revenues to $78.1 million. This rate proposal was approved by
the BPU in October 2007, on an interim basis, and was designed to decrease
the annual USF revenues by $3.4 million for SJG. The revised
rates were effective from October 5, 2007 through September 30,
2008.
|
|
|
·
|
June
2008 – SJG made its annual USF filing, along with the state’s other
electric and gas utilities, proposing to increase annual statewide gas
revenues to $97.3 million. This proposal is designed to
increase the annual USF revenue by $2.6 million for
SJG.
|
|
|
·
|
October
2008 – The BPU approved the statewide budget of $96.7 million for all of
the State’s gas utilities. SJG’s portion of this total is
approximately $8.8 million and increased rates were implemented effective
October 27, 2008 resulting in a $2.5 million increase to our annual USF
recoveries.
|
|
|
·
|
June
2009 - SJG made its annual USF filing, along with the state’s other
electric and gas utilities, proposing to decrease annual statewide gas
revenues by $39.1 million. This proposal was designed to
decrease SJG’s annual USF revenue by $4.9
million.
|
|
|
·
|
October
2009 – The BPU approved the statewide budget of $60.1 million for all of
the State’s gas utilities. SJG’s portion of this total is
approximately $5.1 million and decreased rates were implemented effective
October 12, 2009 resulting in a $4.1 million decrease to SJG’s annual USF
recoveries.
|
Other
Regulatory Matters -
Unbundling
- Effective January 10, 2000, the BPU approved full unbundling of SJG’s system.
This allows all natural gas consumers to select their natural gas commodity
supplier. As of December 31, 2009, 24,807 of SJG’s residential customers were
purchasing their gas commodity from someone other than SJG. Customers choosing
to purchase natural gas from providers other than the utility are charged for
the cost of gas by the marketer. The resulting decrease in utility 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 prudently
incurred natural gas costs through the BGSS. Unbundling did not change the fact
that SJG still recovers cost of service, including certain deferred costs,
through base rates.
Pipeline
Integrity - In October 2005, SJG filed a petition with the BPU to implement a
Pipeline Integrity Management Tracker (Tracker). The purpose of the Tracker is
to recover incremental costs to be incurred by SJG as a result of new federal
regulations, which are aimed at enhancing public safety and reliability. The
regulations require that utilities use a comprehensive analysis to assess,
evaluate, repair and validate the integrity of certain transmission lines in the
event of a leak or failure. As of December 31, 2009 and 2008, costs incurred
under this program totaled $1.2 million and $1.1 million, respectively, and are
included in Other Regulatory Assets (see Note 10). SJG
continues to engage in settlement negotiations in which we are proposing to
modify the original request and provide for deferred accounting treatment
of Pipeline Integrity related operating expenses. We
have proposed recovery of these deferred costs in our base rate case filed in
January 2010.
Filings
and petitions described above are still pending unless otherwise
indicated.
|
10.
|
REGULATORY
ASSETS & REGULATORY
LIABILITIES:
|
The
discussion under Note 9, Rates and Regulatory Actions, is integral to the
following explanations of specific regulatory assets and
liabilities.
Regulatory
Assets at December 31 consisted of the following items (in
thousands):
|
|
|
2009
|
|
|
2008
|
|
||
|
Environmental
Remediation Costs:
|
|
|
|
|
|
|
||
|
Expended
- Net
|
|
$
|
42,924
|
|
|
$
|
48,143
|
|
|
Liability
for Future Expenditures
|
|
|
69,056
|
|
|
|
64,093
|
|
|
Income
Taxes-Flowthrough Depreciation
|
|
|
1,752
|
|
|
|
2,729
|
|
|
Deferred
Asset Retirement Obligation Costs
|
|
|
22,438
|
|
|
|
21,901
|
|
|
Deferred
Gas Costs - Net
|
|
|
6,519
|
|
|
|
18,406
|
|
|
Deferred
Pension and Other Postretirement Benefit Costs
|
|
|
71,192
|
|
|
|
80,162
|
|
|
Conservation
Incentive Program Receivable
|
|
|
16,672
|
|
|
|
22,048
|
|
|
Societal
Benefit Costs Receivable
|
|
|
1,872
|
|
|
|
1,753
|
|
|
Premium
for Early Retirement of Debt
|
|
|
1,046
|
|
|
|
1,208
|
|
|
Other
Regulatory Assets
|
|
|
6,991
|
|
|
|
9,991
|
|
|
Total
Regulatory Assets
|
|
$
|
240,462
|
|
|
$
|
270,434
|
|
All
regulatory assets are or will be recovered through utility rate charges as
detailed in the following discussion. SJG is currently permitted to recover
interest on Environmental Remediation Costs and Societal Benefit Costs
Receivable while the other assets are being recovered without a return on
investment.
Environmental
Remediation Costs - SJG has two regulatory assets associated with environmental
costs related to the cleanup of 12 sites where SJG or their predecessors
previously operated gas manufacturing plants. The first asset, Environmental
Remediation Cost: Expended - Net, represents what was actually spent to clean up
the sites, less recoveries through the RAC and insurance carriers. These costs
meet the deferral requirements of GAAP as the BPU allows SJG to recover such
expenditures through the RAC. The other asset, Environmental Remediation Cost:
Liability for Future Expenditures, relates to estimated future expenditures
required to complete the remediation of these sites. SJG recorded
this estimated amount as a regulatory asset with the corresponding current and
noncurrent liabilities reflected on the consolidated balance sheets under the
captions Current Liabilities and Deferred Credits and Other Noncurrent
Liabilities. The BPU allows SJG to recover the deferred costs over seven-year
periods after they are spent.
Income
Taxes - Flowthrough Depreciation - This regulatory asset was created upon the
adoption of FASB ASC Topic 740 “Income Taxes” in 1993. The amount represents
unamortized excess tax depreciation over book depreciation on utility plant
because of temporary differences for which, prior to adoption, deferred taxes
previously were not provided. SJG previously passed these tax benefits through
to ratepayers and are recovering the amortization of the regulatory asset
through rates until 2011.
Deferred
Asset Retirement Obligation Costs - This regulatory asset was created with the
adoption of FASB ASC Topic 440 “Commitments” in 2005. This resulted in the
recording of asset retirement obligations (ARO’s) and additional utility plant,
primarily related to a legal obligation SJG has for certain safety requirements
upon the retirement of its gas distribution and transmission system. SJG
recovers asset retirement costs through rates charged to customers. All related
accumulated accretion and depreciation amounts for these ARO’s represent timing
differences in the recognition of retirement costs that SJG is currently
recovering in rates and, as such, SJG is deferring such differences as
regulatory assets.
Deferred
Gas Costs - Net -
Over/under collections of gas costs are monitored through the BGSS mechanism.
Net undercollected gas costs are classified as a regulatory asset and net
overcollected gas costs are classified as a regulatory liability. Derivative
contracts used to hedge SJG’s natural gas purchases are also included in the
BGSS, subject to BPU approval. See detailed discussion under Derivative
Instruments in Note 1.
Deferred
Pension and Other Postretirement Benefit Costs - The BPU
authorized SJG to recover costs related to postretirement benefits under the
accrual method of accounting consistent with GAAP. SJG deferred
amounts accrued prior to that authorization and are amortizing them as allowed
by the BPU over 15 years through 2012. The unamortized balance was $1.1 million
at December 31, 2009. Upon the adoption of FASB ASC Topic 715 “Compensation –
Retirement Benefits” in 2006, SJG’s regulatory asset was increased by $37.1
million representing the recognition of underfunded positions of SJG’s pension
and other postretirement benefit plans. Subsequent adjustments to
this balance occur annually to reflect changes in the funded positions of these
benefit plans caused by changes in actual plan experience as well as assumptions
of future experience (See Note 11).
Conservation
Incentive Program Receivable - The impact of the CIP is recorded as an
adjustment to earnings as incurred. The first year of cash recovery under the
CIP began October 2007.
Societal
Benefit Costs Receivable - At both December 31, 2009 and 2008, this regulatory
asset primarily represents cumulative costs less recoveries under the USF
program.
Premium
for Early Retirement of Debt - This regulatory asset represents unamortized debt
issuance costs related to long-term debt refinancings and a call premium
associated with the retirement of debt, all occurring in 2005 and 2004.
Unamortized debt issuance costs are being amortized over the term of the new
debt issue pursuant to regulatory approval by the BPU. The call premium is
expected to be approved for recovery through future rate
proceedings.
Other
Regulatory Assets - Some of the assets included in Other Regulatory Assets are
currently being recovered from ratepayers as approved by the BPU. Management
believes the remaining deferred costs are probable of recovery from ratepayers
through future utility rates.
Regulatory
Liabilities at December 31 consisted of the following items (in
thousands):
|
|
2009
|
|
|
2008
|
|
|||
|
Excess
Plant Removal Costs
|
|
$
|
48,715
|
|
|
$
|
48,820
|
|
|
Other
|
|
|
1,478
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
||
|
Total
Regulatory Liabilities
|
|
$
|
50,193
|
|
|
$
|
50,447
|
|
Excess
Plant Removal Costs – Represents amounts accrued in excess of actual utility
plant removal costs incurred to date, which SJG has an obligation to either
expend or return to ratepayers in future periods.
Other
Regulatory Liabilities – All other regulatory liabilities are subject to being
returned to ratepayers in future rate proceedings.
|
11.
|
PENSION
AND OTHER POSTRETIREMENT BENEFITS:
|
SJI has
several defined benefit pension plans and other postretirement benefit plans.
The pension plans provide annuity payments to the majority of full-time, regular
employees upon retirement. Participation in the Company’s qualified defined
benefit pension plans was closed to new employees beginning in 2003; however,
employees who are not eligible for these pension plans are eligible to receive
an enhanced version of SJI’s defined contribution plan. Certain SJI officers
also participate in a non-funded supplemental executive retirement plan (SERP),
a non-qualified defined benefit pension plan. The other postretirement benefit
plans provide health care and life insurance benefits to some
retirees.
Net
periodic benefit cost related to the employee and officer pension and other
postretirement benefit plans consisted of the following components (in
thousands):
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
||||||||||||||||||
|
|
|
2009
|
|
|
2008
|
2007
|
2009
|
2008
|
2007
|
|
||||||||||||||
|
Service
Cost
|
|
$
|
3,225
|
|
|
$
|
3,198
|
|
|
$
|
3,324
|
|
|
$
|
893
|
|
|
$
|
968
|
|
|
$
|
976
|
|
|
Interest
Cost
|
|
|
8,694
|
|
|
|
8,320
|
|
|
|
7,765
|
|
|
|
3,208
|
|
|
|
2,957
|
|
|
|
2,681
|
|
|
Expected
Return on Plan Assets
|
|
|
(7,553
|
)
|
|
|
(10,417
|
)
|
|
|
(9,998
|
)
|
|
|
(1,551
|
)
|
|
|
(2,195
|
)
|
|
|
(2,091
|
)
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Prior
Service Cost (Credits)
|
|
|
278
|
|
|
|
292
|
|
|
|
292
|
|
|
|
(355
|
)
|
|
|
(355
|
)
|
|
|
(355
|
)
|
|
Actuarial
Loss
|
|
|
5,405
|
|
|
|
1,608
|
|
|
|
1,923
|
|
|
|
1,896
|
|
|
|
744
|
|
|
|
606
|
|
|
Net
Periodic Benefit Cost
|
|
|
10,049
|
|
|
|
3,001
|
|
|
|
3,306
|
|
|
|
4,091
|
|
|
|
2,119
|
|
|
|
1,817
|
|
|
Capitalized
Benefit Costs
|
|
|
(3,798
|
)
|
|
|
(1,073
|
)
|
|
|
(1,131
|
)
|
|
|
(1,676
|
)
|
|
|
(765
|
)
|
|
|
(648
|
)
|
|
Total
Net Periodic Benefit Expense
|
|
$
|
6,251
|
|
|
$
|
1,928
|
|
|
$
|
2,175
|
|
|
$
|
2,415
|
|
|
$
|
1,354
|
|
|
$
|
1,169
|
|
Capitalized
benefit costs reflected in the table above relate to SJG’s construction
program.
Companies
with publicly traded equity securities that sponsor a postretirement benefit
plan are required to fully recognize, as an asset or liability, the overfunded
or underfunded status of its benefit plans and recognize changes in the funded
status in the year in which the changes occur. Changes in funded status are
generally reported in Other Comprehensive Loss; however, since SJG recovers all
prudently incurred pension and postretirement benefit costs from its ratepayers,
a significant portion of the charges resulting from the recording of additional
liabilities under this statement are reported as regulatory assets (See Note
10).
Details
of the activity within the Regulatory Asset and Accumulated Other Comprehensive
Loss associated with Pension and Other Postretirement Benefits are as follows
(in thousands):
| Regulatory Assets | Accumulated Other Comprehensive Loss (pre-tax) | |||||||||||||||
|
Pension
Benefits
|
Other
Postretirement Benefits
|
Pension
Benefits
|
Other
Postretirement Benefits
|
|||||||||||||
|
Balance
at January 1, 2008
|
$ | 20,533 | $ | 10,263 | $ | 11,052 | $ | 756 | ||||||||
|
Amounts
Arising during the Period:
|
||||||||||||||||
|
Net
Actuarial Loss
|
36,171 | 13,036 | 11,015 | 1,585 | ||||||||||||
|
Amounts
Amortized to Net Periodic Costs:
|
||||||||||||||||
|
Net
Actuarial Loss
|
(691 | ) | (677 | ) | (907 | ) | (61 | ) | ||||||||
|
Prior
Service (Cost) Credit
|
(239 | ) | 254 | (52 | ) | 94 | ||||||||||
|
Balance
at December 31, 2008
|
55,774 | 22,876 | 21,108 | 2,374 | ||||||||||||
|
Amounts
Arising during the Period:
|
||||||||||||||||
|
Net
Actuarial (Gain) Loss
|
(4,188 | ) | 610 | (357 | ) | 72 | ||||||||||
|
Prior
Service Cost
|
347 | - | 60 | - | ||||||||||||
|
Amounts
Amortized to Net Periodic Costs:
|
||||||||||||||||
|
Net
Actuarial Loss
|
(3,641 | ) | (1,746 | ) | (1,729 | ) | (142 | ) | ||||||||
|
Prior
Service (Cost) Credit
|
(228 | ) | 254 | (48 | ) | 94 | ||||||||||
|
Balance
at December 31, 2009
|
$ | 48,064 | $ | 21,994 | $ | 19,034 | $ | 2,398 | ||||||||
The
estimated costs that will be amortized from Regulatory Assets into net periodic
benefit costs in 2010 are as follows (in thousands):
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
||
|
Prior
Service Costs (Credits)
|
|
$
|
237
|
|
|
$
|
(254
|
)
|
|
Net
Actuarial Loss
|
|
$
|
3,137
|
|
|
$
|
1,409
|
|
The
estimated costs that will be amortized from Accumulated Other Comprehensive Loss
into net periodic benefit costs in 2010 are as follows (in
thousands):
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement
Benefits
|
|
||
|
Prior
Service Costs (Credits)
|
|
$
|
43
|
|
|
$
|
(101
|
)
|
|
Net
Actuarial Loss
|
|
$
|
1,623
|
|
|
$
|
179
|
|
A
reconciliation of the plans' benefit obligations, fair value of plan assets,
funded status and amounts recognized in SJI's consolidated balance sheets
follows (in thousands):
|
|
|
|
|
|
|
|
Other
Postretirement
|
|
||||||||
|
|
Pension
Benefits
|
|
|
Benefits
|
|
|||||||||||
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|||||
|
Change
in Benefit Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Benefit
Obligation at Beginning of Year
|
|
$
|
142,672
|
|
|
$
|
133,015
|
|
|
$
|
50,842
|
|
|
$
|
46,651
|
|
|
Service
Cost
|
|
|
3,225
|
|
|
|
3,198
|
|
|
|
893
|
|
|
|
968
|
|
|
Interest
Cost
|
|
|
8,694
|
|
|
|
8,320
|
|
|
|
3,208
|
|
|
|
2,957
|
|
|
Actuarial
Loss
|
|
|
1,943
|
|
|
|
5,408
|
|
|
4,329
|
|
|
|
3,552
|
||
|
Retiree
Contributions
|
|
|
-
|
|
|
|
-
|
|
|
|
193
|
|
|
|
164
|
|
|
Plan
Amendments
|
407
|
-
|
-
|
-
|
||||||||||||
|
Benefits
Paid
|
|
|
(7,933
|
)
|
|
|
(7,269
|
)
|
|
|
(3,327
|
)
|
|
|
(3,450
|
)
|
|
Benefit
Obligation at End of Year
|
|
$
|
149,008
|
|
|
$
|
142,672
|
|
|
$
|
56,138
|
|
|
$
|
50,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Change
in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Fair
Value of Plan Assets at Beginning of Year
|
|
$
|
88,276
|
|
|
$
|
120,414
|
|
|
$
|
22,815
|
|
|
$
|
31,251
|
|
|
Actual
Return on Plan Assets
|
|
|
14,027
|
|
|
(31,745
|
)
|
|
|
5,172
|
|
|
(8,910
|
)
|
||
|
Employer
Contributions
|
|
|
11,528
|
|
|
|
6,876
|
|
|
|
3,636
|
|
|
|
3,760
|
|
|
Retiree
Contributions
|
|
|
-
|
|
|
|
-
|
|
|
|
193
|
|
|
|
164
|
|
|
Benefits
Paid
|
|
|
(7,933
|
)
|
|
|
(7,269
|
)
|
|
|
(3,327
|
)
|
|
|
(3,450
|
)
|
|
Fair
Value of Plan Assets at End of Year
|
|
$
|
105,898
|
|
|
$
|
88,276
|
|
|
$
|
28,489
|
|
|
$
|
22,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Funded
Status at End of Year:
|
|
$
|
(43,110
|
)
|
|
$
|
(54,396
|
)
|
|
$
|
(27,649
|
)
|
|
$
|
(28,027
|
)
|
|
Amounts
Related to Unconsolidated Affiliate
|
|
|
169
|
|
|
|
261
|
|
|
340
|
|
|
|
296
|
|
|
|
Accrued
Net Benefit Cost at End of Year
|
|
$
|
(42,941
|
)
|
|
$
|
(54,135
|
)
|
|
$
|
(27,309
|
)
|
|
$
|
(27,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Amounts
Recognized in the Statement of Financial Position Consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Current
Liabilities
|
|
$
|
(1,109
|
)
|
|
$
|
(1,031
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Noncurrent
Liabilities
|
|
|
(41,832
|
)
|
|
|
(53,104
|
)
|
|
|
(27,309
|
)
|
|
|
(27,731
|
)
|
|
Net
Amount Recognized at End of Year
|
|
$
|
(42,941
|
)
|
|
$
|
(54,135
|
)
|
|
$
|
(27,309
|
)
|
|
$
|
(27,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Amounts
Recognized in Regulatory Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Prior
Service Costs (Credit)
|
|
$
|
1,500
|
|
|
$
|
1,381
|
|
|
$
|
(469
|
)
|
|
$
|
(723
|
)
|
|
Net
Actuarial Loss
|
|
|
46,564
|
|
|
|
54,393
|
|
|
|
22,463
|
|
|
|
23,599
|
|
|
|
$
|
48,064
|
|
|
$
|
55,774
|
|
|
$
|
21,994
|
|
|
$
|
22,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Amounts
Recognized in Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Comprehensive
Loss Consist of (pre-tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Prior
Service Costs (Credit)
|
|
$
|
246
|
|
|
$
|
236
|
|
|
$
|
(306
|
)
|
|
$
|
(400
|
)
|
|
Net
Actuarial Loss
|
|
|
18,788
|
|
|
|
20,872
|
|
|
|
2,704
|
|
|
|
2,774
|
|
|
|
$
|
19,034
|
|
|
$
|
21,108
|
|
|
$
|
2,398
|
|
|
$
|
2,374
|
|
|
The
projected benefit obligation (PBO) and accumulated benefit obligation (ABO) of
SJI’s qualified employee pension plans were $130.5 million and $117.4 million,
respectively, as of December 31, 2009, and $125.1 million and $112.1 million,
respectively, as of December 31, 2008. The ABO of these plans
exceeded the value of the plan assets as of December 31, 2009 and December 31,
2008. The value of these assets can be seen in the table above. The
PBO and ABO for SJI’s non-funded SERP were $18.5 million and $18.3 million,
respectively, as of December 31, 2009, and $17.5 million and $17.0 million,
respectively, as of December 31, 2008. The SERP is reflected in the tables above
and has no assets.
The
weighted-average assumptions used to determine benefit obligations at December
31 were:
|
|
Pension
Benefits
|
|
Other
Postretirement Benefits
|
|||||||||||||
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
||||
|
Discount
Rate
|
|
|
6.22
|
%
|
|
|
6.24
|
%
|
|
|
6.22
|
%
|
|
|
6.24
|
%
|
|
Rate
of Compensation Increase
|
|
|
3.60
|
%
|
|
|
3.60
|
%
|
|
|
-
|
|
|
|
-
|
|
The
weighted-average assumptions used to determine net periodic benefit cost for
years ended December 31 were:
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
||||||||||||||||||
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
||||||
|
Discount
Rate
|
|
|
6.24
|
%
|
|
|
6.36
|
%
|
|
|
6.04
|
%
|
|
|
6.24
|
%
|
|
|
6.36
|
%
|
|
|
6.04
|
%
|
|
Expected
Long-Term Return on Plan Assets
|
|
|
8.25
|
%
|
|
|
8.50
|
%
|
|
|
8.75
|
%
|
|
|
6.80
|
%
|
|
|
7.00
|
%
|
|
|
7.25
|
%
|
|
Rate
of Compensation Increase
|
|
|
3.60
|
%
|
|
|
3.60
|
%
|
|
|
3.60
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
All
obligations disclosed herein reflect the use of the RP 2000 mortality
tables.
The
discount rates used to determine the benefit obligations at December 31, 2009
and 2008, which are used to determine the net periodic benefit cost for the
subsequent year, were based on a portfolio model of high-quality instruments
with maturities that match the expected benefit payments under our pension and
other postretirement benefit plans.
The
expected long-term return on plan assets (“return”) has been determined by
applying long-term capital market projections provided by our pension plan
Trustee to the asset allocation guidelines, as defined in the Company’s
investment policy, to arrive at a weighted average return. For
certain other equity securities held by an investment manager outside of the
control of the Trustee, the return has been determined based on historic
performance in combination with long-term expectations. The return
for the other postretirement benefits plan is determined in the same manner as
discussed above; however, the expected return is reduced based on the taxable
nature of the underlying trusts.
The
assumed health care cost trend rates at December 31 were:
|
|
|
2009
|
|
|
2008
|
|
||
|
Medical
Care and Drug Cost Trend Rate Assumed for Next Year
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
Dental
Care Cost Trend Rate Assumed for Next Year
|
|
|
4.75
|
%
|
|
|
6.33
|
%
|
|
Rate
to which Cost Trend Rates are Assumed to Decline (the Ultimate Trend
Rate)
|
|
|
4.75
|
%
|
|
|
5.00
|
%
|
|
Year
that the Rate Reaches the Ultimate Trend Rate
|
|
2019
|
|
|
2012
|
|
||
Assumed
health care cost trend rates have a significant effect on the amounts reported
for SJI’s postretirement health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):
|
|
|
1-Percentage-Point
Increase
|
|
|
1-Percentage-Point
Decrease
|
|
||
|
Effect
on the Total of Service and Interest Cost
|
|
$
|
94
|
|
|
(79
|
)
|
|
|
Effect
on Postretirement Benefit Obligation
|
|
$
|
1,917
|
|
|
(1,722
|
)
|
|
PLAN
ASSETS — The Company’s overall investment strategy for pension plan assets is to
achieve a diversification by asset class, style of manager, and sector and
industry limits to achieve investment results that match the actuarially assumed
rate of return, while preserving the inflation adjusted value of the
plans. The Company has implemented this diversification strategy
primarily with commingled common/collective trust funds. The target
allocations for pension plan assets are 38 percent U.S. equity securities, 15
percent international equity securities, 27 percent fixed income investments,
and 20 percent to all other types of investments. Equity securities
include investments in large-cap, mid-cap and small-cap
companies. Fixed income securities include commingled
common/collective trust funds and group annuity contracts for pension
payments. Other types of investments include investments in hedge
funds, private equity funds, and real estate funds that follow several different
strategies.
The
strategy recognizes that risk and volatility are present to some degree with all
types of investments. We seek to avoid high levels of risk at the
total fund level through diversification by asset class, style of manager, and
sector and industry limits. Specifically prohibited investments
include, but are not limited to, venture capital, margin trading, commodities
and securities of companies with less than $250.0 million capitalization (except
in the small-cap portion of the fund where capitalization levels as low as $50.0
million are permissible). These restrictions are only applicable to
individual investment managers with separately managed portfolios and do not
apply to mutual funds or commingled trusts.
SJI
evaluated its pension and other postretirement benefit plans’ asset portfolios
for the existence of significant concentrations of credit risk as of December
31, 2009. Types of concentrations that were evaluated include, but
are not limited to, investment concentrations in a single entity, type of
industry, foreign country, and individual fund. As of December 31,
2009, there were no significant concentrations (defined as greater than 10
percent of plan assets) of risk in SJI’s pension and other postretirement
benefit plan assets.
GAAP
establishes a hierarchy that prioritizes fair value measurements based on the
types of inputs used for the various valuation techniques. This
hierarchy groups assets into three (3) distinct levels, as fully described in
Note 15, that will serve as the basis for presentation throughout the remainder
of this Note.
The fair
values of SJI’s pension plan assets at December 31, 2009 by asset category are
as follows (in thousands):
|
Asset
Category
|
Total
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||
|
Cash
/ Cash Equivalents:
|
||||||||||||||||
|
Common/Collective
Trust Funds (a)
|
$ | 526 | $ | - | $ | 526 | $ | - | ||||||||
|
STIF-Type
Instrument (b)
|
1,066 | 1,066 | - | |||||||||||||
|
Equity
securities:
|
||||||||||||||||
|
Common/Collective
Trust Funds (a)
|
49,487 | - | 49,487 | - | ||||||||||||
|
U.S.
Large-Cap (c)
|
6,510 | 6,510 | - | - | ||||||||||||
|
U.S.
Mid-Cap (c)
|
5,224 | 5,224 | - | - | ||||||||||||
|
U.S.
Small-Cap (c)
|
57 | 57 | - | - | ||||||||||||
|
International
(c)
|
510 | 510 | - | - | ||||||||||||
|
Fixed
Income:
|
||||||||||||||||
|
Common/Collective
Trust Funds (a)
|
22,629 | - | 22,629 | - | ||||||||||||
|
Guaranteed
Insurance Contract (d)
|
11,677 | - | - | 11,677 | ||||||||||||
|
Other
types of investments:
|
||||||||||||||||
|
Hedge
Funds (e)
|
1,101 | - | - | 1,101 | ||||||||||||
|
Private
Equity Fund (f)
|
2,704 | - | - | 2,704 | ||||||||||||
|
Real
Estate:
|
||||||||||||||||
|
Common/Collective
Trust Fund (g)
|
4,407 | - | - | 4,407 | ||||||||||||
|
Total
|
$ | 105,898 | $ | 12,301 | $ | 73,708 | $ | 19,889 | ||||||||
|
|
(a)
|
This
category represents common/collective trust fund investments through a
commingled employee benefit trust (excluding real
estate). These commingled funds are not traded publicly;
however, the underlying assets (stocks and bonds) held in these funds are
traded on active markets and prices for these assets are readily
observable. Holdings in these commingled funds are classified
as Level 2 investments.
|
|
|
(b)
|
This
category represents short-term investment funds held for the purpose
of funding disbursement payment arrangements. Underlying assets
are valued based on quoted prices in active markets, or where quoted
prices are not available, based on models using observable market
information. Since not all values can be obtained from quoted prices in
active markets, these funds are classified as Level 2
investments.
|
|
|
(c)
|
This
category of equity investments represents a managed portfolio of common
stock investments in five sectors: telecommunications, electric utilities,
gas utilities, water and energy. These common stocks are
actively traded on exchanges and price quotes for these shares are readily
available. These common stocks are classified as Level 1
investments.
|
|
|
(d)
|
This
category represents SJI’s Group Annuity contracts with a nationally
recognized life insurance company. The contracts are the assets
of the plan, while the underlying assets of the contracts are owned by the
contract holder. Valuation is based on a formula and
calculation specified within the contract. Since the valuation
is based on the reporting enity’s own
assumptions, these contracts are classified as Level 3
investments.
|
|
|
(e)
|
This
category represents a collection of underlying funds which are all
domiciled outside of the United States. Most of the underlying
fund managers are based in the U.S.; however, they do not necessarily
trade only in U.S. markets. It is important to note that
the SJI Pension Funds are in the process of divesting investments from
this fund of funds. The fair value of these funds is determined
by the underlying fund’s general partner or manager. These funds are
classified as Level 3 investments.
|
|
|
(f)
|
This
category represents a limited partnership which includes several
investments in U.S. leveraged buyout, venture capital, and special
situation funds. Fund valuations are reported on a 90 day lag
and, therefore, the value reported herein represents the market value as
of September 30, 2009. The fund’s investments are stated at
fair value, which is generally based on the valuations provided by the
general partners or managers of such investments. Fund
investments are illiquid and resale is restricted. These funds
are classified as Level 3
investments.
|
|
|
(g)
|
This
category represents real estate common/collective trust fund investments
through a commingled employee benefit trust. These commingled
funds are part of a direct investment in a pool of real estate
properties. These funds are valued by investment managers on a
periodic basis using pricing models that use independent appraisals from
sources with professional qualifications. Since these valuation
inputs are not highly observable, the real estate funds are classified as
Level 3 investments.
|
|
Fair
Value Measurement Using Significant
|
||||||||||||||||||||
|
Unobservable
Inputs (Level 3)
|
||||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
|
Guaranteed
|
Private
|
|||||||||||||||||||
|
Insurance
|
Hedge
|
Equity
|
Real
|
|||||||||||||||||
|
|
Contract
|
Funds
|
Funds
|
Estate
|
Total
|
|||||||||||||||
|
Balance
at December 31, 2008
|
$ | 12,349 | $ | 3,069 | $ | 2,836 | $ | 6,488 | $ | 24,742 | ||||||||||
|
Actual
return on plan assets:
|
||||||||||||||||||||
|
Relating
to assets still held at the reporting date
|
710 | (129 | ) | (275 | ) | (2,081 | ) | (1,775 | ) | |||||||||||
|
Relating
to assets sold during the period
|
23 | (441 | ) | - | - | (418 | ) | |||||||||||||
|
Purchases,
Sales and Settlements
|
(1,405 | ) | (1,398 | ) | 143 | - | (2,660 | ) | ||||||||||||
|
Balance
at December 31, 2009
|
$ | 11,677 | $ | 1,101 | $ | 2,704 | $ | 4,407 | $ | 19,889 | ||||||||||
As with
the pension plan assets, the Company’s overall investment strategy for
post-retirement benefit plan assets is to achieve a diversification by asset
class, style of manager, and sector and industry limits to achieve investment
results that match the actuarially assumed rate of return, while preserving the
inflation adjusted value of the plans. The Company has implemented
this diversification strategy entirely with mutual funds. The target
allocations for post-retirement benefit plan assets are 48 percent U.S. equity
securities, 15 percent international equity securities, and 37 percent fixed
income investments. Equity securities include investments in
large-cap, mid-cap and small-cap companies. Fixed income securities
include both investment grade and strategic bond mutual funds.
The fair
values of SJI’s other postretirement benefit plan assets at December 31, 2009 by
asset category are as follows (in thousands):
|
Asset
Category
|
Total
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||
|
Equity
Securities:
|
||||||||||||||||
|
U.S.
Large-Cap
|
$ | 10,295 | $ | 10,295 | $ | - | $ | - | ||||||||
|
U.S.
Mid & Small-Cap
|
3,563 | 3,563 | - | - | ||||||||||||
|
International
|
4,277 | 4,277 | - | - | ||||||||||||
|
Fixed
Income:
|
||||||||||||||||
|
Corporate
Bonds
|
10,354 | 10,354 | - | - | ||||||||||||
|
Total
|
$ | 28,489 | $ | 28,489 | $ | - | $ | - | ||||||||
All
investments above are holdings in mutual funds and actively traded on major
stock exchanges.
FUTURE
BENEFIT PAYMENTS — The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid during the following years (in
thousands):
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
||
|
2010
|
|
$
|
7,696
|
|
|
$
|
3,870
|
|
|
2011
|
|
$
|
7,767
|
|
|
$
|
4.111
|
|
|
2012
|
|
$
|
7,941
|
|
|
$
|
4,103
|
|
|
2013
|
|
$
|
8,236
|
|
|
$
|
4,223
|
|
|
2014
|
|
$
|
8,584
|
|
|
$
|
4,193
|
|
|
2015
– 2019
|
|
$
|
51,223
|
|
|
$
|
22,327
|
|
CONTRIBUTIONS
— SJI made a contribution of $10.4 million to its qualified employee pension
plans in 2009. SJI has no obligation to make a contribution in
2010. Payments related to the unfunded SERP plan are expected to approximate
$1.0 million in 2010. SJG has a regulatory obligation to contribute
approximately $3.6 million annually to its other postretirement benefit plans’
trusts, less costs incurred directly by the Company.
DEFINED
CONTRIBUTION PLAN — SJI offers an Employees’ Retirement Savings Plan (Savings
Plan) to eligible employees. SJI matches 50% of participants’ contributions up
to 6% of base compensation. For employees who are not eligible for participation
in SJI’s defined benefit pension plan, we match 50% of participants’
contributions up to 8% of base compensation. Employees not eligible for the
pension plans also receive a year-end contribution of $1,000 if 10 or fewer
years of service or $1,500 if more than 10 years of service. The amount expensed
and contributed for the matching provision of the Savings Plan approximated $1.0
million, $1.0 million, and $1.1 million for the years ended December 31, 2009,
2008 and 2007, respectively.
|
12.
|
RETAINED
EARNINGS:
|
SJG is
restricted as to the amount of cash dividends or other distributions that may be
paid on its common stock by an order issued by the BPU in July 2004 that granted
SJG an increase in base rates. Per the order, SJG is required to maintain total
common equity of no less than $289.2 million. SJG’s total common equity balance
was $431.5 million at December 31, 2009.
Various
loan agreements also contain potential restrictions regarding the amount of cash
dividends or other distributions that SJG may pay on its common stock. As of
December 31, 2009, these loan restrictions did not affect the amount that may be
distributed from either SJG’s or SJI’s retained earnings.
|
13.
|
UNUSED
LINES OF CREDIT:
|
Credit
facilities and available liquidity as of December 31, 2009 were as follows (in
thousands):
|
Company
|
|
Total
Facility
|
|
|
Usage
(A)
|
|
|
Available
Liquidity
|
|
Expiration
Date
|
|||
|
|
|
|
|
|
|
|
|
|
|
||||
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
Credit Facility
|
|
$
|
100,000
|
|
|
$
|
85,000
|
|
|
$
|
15,000
|
|
August
2011
|
|
Line
of Credit
|
|
|
40,000
|
|
|
|
10,000
|
|
|
|
30,000
|
|
December
2010
|
|
Uncommitted
Bank Lines
|
|
|
55,000
|
|
|
|
14,400
|
|
|
|
40,600
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
SJG
|
|
|
195,000
|
|
|
|
109,400
|
|
|
|
85,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
SJI:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revolving
Credit Facility
|
|
$
|
200,000
|
|
|
$
|
162,000
|
|
|
$
|
38,000
|
|
August
2011
|
|
Uncommitted
Bank Lines
|
|
|
30,000
|
|
|
|
9,300
|
|
|
|
20,700
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
SJI
|
|
|
230,000
|
|
|
|
171,300
|
|
|
|
58,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
|
|
$
|
425,000
|
|
|
$
|
280,700
|
|
|
$
|
144,300
|
|
|
|
(A)
|
Includes
letters of credit in the amount of $82.0 million under the SJI revolving
credit facility and $2.1 million under the SJI uncommitted bank
lines.
|
The SJG
facilities are restricted as to use and availability specifically to SJG;
however, if necessary the SJI facilities can also be used to support SJG’s
liquidity needs. All committed facilities contain one financial covenant
regarding the ratio of total debt to total capitalization, measured on a
quarterly basis. SJI and SJG were in compliance with this covenant as of
December 31, 2009. Borrowings under these credit facilities are at market rates.
The weighted average borrowing cost, which changes daily, was 0.77%, 1.16% and
5.27% at December 31, 2009, 2008 and 2007, respectively.
|
14.
|
COMMITMENTS
AND CONTINGENCIES:
|
GAS
SUPPLY CONTRACTS — In the normal course of business, SJG and SJRG have entered
into long-term contracts for natural gas supplies, firm transportation and gas
storage service. The earliest that any of these contracts expire is March 2010.
The transportation and storage service agreements with interstate pipeline
suppliers were made under FERC approved tariffs. SJRG’s cumulative obligation
for demand charges and reservation fees paid to suppliers for these services is
approximately $135,000 per month. SJG's cumulative obligation for demand charges
and reservation fees paid to suppliers for these services is approximately $4.0
million per month and is recovered on a current basis through the
BGSS.
CAPITAL
CONTRIBUTION OBLIGATION - In December 2007, Marina and its joint venture partner
agreed to each contribute approximately $30.4 million of equity to LVE as part
of its construction period financing. This equity contribution is expected to be
made in 2010, and is secured by an irrevocable letter of credit from a bank. In
September 2009, Marina and its joint venture partner agreed to each contribute
an additional $6.7 million of equity to LVE as discussed below. This equity
contribution is expected to be made in 2010, and is also secured by an
irrevocable letter of credit from a bank.
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 reasonably estimate the amount or range of amounts of probable settlement
costs or other charges. SJI has been named in, among other actions, certain
product liability claims related to our former sand mining subsidiary.
Management does not currently anticipate the disposition of any known claims to
have a material adverse effect on SJI’s financial position, results of
operations or liquidity.
COLLECTIVE
BARGAINING AGREEMENTS — Unionized personnel
represent 54% of our workforce at December 31, 2009. The
Company has collective bargaining agreements with two unions that represent
these employees: the International Brotherhood of Electrical Workers (“IBEW”)
Local 1293 and the International Association of Machinists and Aerospace Workers
(“IAM”) Local 76. SJG and SJESP employees represented by the IBEW
operate under a new collective bargaining agreement that runs through February
2013. The remaining unionized employees represented by the IAM
operate under a contract that runs through August 2014.
GUARANTEES
— As of December 31, 2009, SJI had issued $492.5 million of parental guarantees
on behalf of its subsidiaries. Of this total, $395.1 million expire within one
year, and $97.4 million expire after one year or have no expiration date. These
guarantees were issued to guarantee payment to third parties with whom our
subsidiaries have commodity supply contracts and for Marina’s construction and
operating activities. As of December 31, 2009, these guarantees support future
firm commitments and $56.6 million of the Accounts Payable recorded on our
consolidated balance sheet.
The
Company has recorded a liability of $8.8 million which is included in Other
Current Liabilities and Other Noncurrent Liabilities with a corresponding
increase in Investment in Affiliates on the consolidated balance sheets as of
December 31, 2009 for the fair value of the following guarantees:
|
·
|
In
April 2007, SJI guaranteed certain obligations of LVE Energy Partners, LLC
(LVE), an unconsolidated joint venture in which Marina has a 50% equity
interest. LVE entered into a 25-year contract with a resort
developer to design, build, own and operate a district energy system and
central energy center for a planned resort in Las Vegas,
Nevada. LVE began construction of the facility in 2007 and
expected to provide full energy services in 2010 when the resort was
originally scheduled to be completed. LVE suspended construction of the
district energy system and central energy center in January 2009 after the
resort developer’s August 2008 announcement that it was delaying the
completion of construction of the resort due to the difficult environment
in the capital markets and weak economic conditions. The resort
developer had indicated that it was considering different strategies to
move its project forward, including opening its project in phases and
obtaining a partner, but that it was unlikely construction would resume
during 2009. In October 2009, the resort developer announced that they do
not expect to resume construction on the project for three to five years.
They stated that they remain committed to having a significant presence on
the Las Vegas Strip as part of a long-term growth strategy and continue to
view this site as a major strategic
asset.
|
The
district energy system and central energy center are being financed by LVE with
debt that is non-recourse to SJI. In September 2009, LVE reached an agreement
with the banks that are financing the energy facilities to address defaults
under the financing agreements. These LVE defaults were caused by the resort
developer’s construction delay and the termination of an energy services
agreement by a hotel operator associated with the project. As a result of these
defaults, the banks had previously stopped funding the project. The terms of the
new agreement require SJI and its partner in this joint venture to guaranty the
payment of future interest costs by LVE through, at the latest, December 2010.
SJI and its partner in this joint venture have each provided the banks with a
$2.0 million irrevocable letter of credit from a bank to support this guaranty.
The maximum amount of remaining LVE interest costs to be paid by SJI under this
guaranty if payments are required, and SJI was the only guarantor, would be
approximately $10.7 million. In addition, SJI and its partner in this joint
venture each committed to provide approximately $8.9 million of additional
capital as of September 2009 to cover costs related to the termination of the
energy services agreement by a hotel operator and interest costs incurred since
August 2008 when the resort developer suspended construction. Of this amount,
$6.7 million was in the form of an irrevocable letter of credit from a bank and
the remaining $2.2 million was provided in cash in 2009. These funds are in
addition to the $30.4 million capital contribution obligation discussed above.
In turn, the banks waived all existing defaults under the financing agreements
and were relieved of their commitment to provide additional funding. LVE
continues to pursue a work around plan to address the project delay by the
resort developer and intends to seek additional financing to complete the
facility once construction of the resort resumes. The Energy Sales Agreement
between LVE and the resort developer includes a payment obligation by the resort
developer of certain fixed payments to be made to LVE beginning in the fourth
quarter of 2010. A portion of this payment obligation is guaranteed by the
parent of the resort developer. As of December 31, 2009, the Company
had a net liability of approximately $7.9 million included in Investment in
Affiliates, Other Current Liabilities and Other Noncurrent Liabilities on the
consolidated balance sheets related to this project in addition to unsecured
Notes Receivable – Affiliate of approximately $14.2 million due from LVE. As of
December 31, 2009, SJI's capital at risk is limited to its equity contributions,
contribution obligations and the unsecured notes receivable totaling
approximately $53.9 million. During 2009, SJI and its partner in this joint
venture each provided support to LVE of approximately $12.9 million to cover
project related costs.
As a
result of the construction delay, management has evaluated the investment in LVE
and concluded that the fair value of this investment continues to be in excess
of the carrying value as of December 31, 2009.
SJI
issued a performance guaranty for up to $180.0 million to the resort developer
to ensure that certain construction milestones relating to the development of
the thermal facility are met. As a result of achieving certain milestones, the
guaranty was reduced to $94.0 million as of December 31, 2009. Concurrently, SJI
is the beneficiary of a surety bond purchased by the project’s general
contractor that provides security to SJI in the event of missed construction
milestones. LVE has proposed a revised milestone schedule due to delays
announced by the resort developer. In addition, SJI has guaranteed the
obligations of LVE under certain insurance policies during the construction
period. The maximum amount that SJI could be obligated for, in the
event that LVE does not have sufficient resources to make deductible payments on
future claims under these insurance policies, is approximately $6.0
million. SJI has also guaranteed certain performance obligations of
LVE under the operating agreements between LVE and the resort developer, up to
$20.0 million each year for the term of the agreement, commencing with the first
year of operations. SJI and its partner in this joint venture have
entered into reimbursement agreements that secure reimbursement for SJI of a
proportionate share of any payments made by SJI on these
guarantees.
|
·
|
In
August 2007, SJI guaranteed certain obligations of BC Landfill Energy, LLC
(BCLE), an unconsolidated joint venture in which Marina has a 50% equity
interest. BCLE has entered into a 20-year agreement with a county
government to lease and operate a facility that will produce electricity
from landfill methane gas. The facility went online in the fourth quarter
of 2007. Although unlikely, the maximum amount that SJI could be obligated
for, in the event that BCLE does not meet minimum specified levels of
operating performance and no mitigating action is taken, or is unable to
meet certain financial obligations as they become due, is approximately
$4.0 million each year. SJI and its partner in this joint
venture have entered into reimbursement agreements that secure
reimbursement for SJI of a proportionate share of any payments made by SJI
on these guarantees.
|
STANDBY
LETTERS OF CREDIT — As of December 31, 2009, SJI provided $84.1 million of
standby letters of credit through SJI’s revolving credit facility and
uncommitted bank lines. Letters of credit in the amount of $62.3 million support
variable-rate demand bonds issued through the New Jersey Economic Development
Authority (NJEDA) to finance Marina’s initial thermal plant project and $8.7
million was posted to support SJI’s guaranty of LVE discussed above. The
additional outstanding letters of credit total $13.1 million, and were posted to
enable SJE to market retail electricity and for various construction activities.
The Company also provided two additional letters of credit under separate
facilities outside of the revolving credit facility. Those letters of credit
consist of a $25.2 million letter of credit provided by SJG to support
variable-rate demand bonds issued through the NJEDA to finance the expansion of
SJG’s natural gas distribution system; and a $30.7 million letter of credit
provided by Marina to support a capital contribution obligation as discussed
above. These letters of credit expire in August 2010 and November 2010,
respectively.
ENVIRONMENTAL
REMEDIATION COSTS — SJI incurred and recorded costs for environmental cleanup of
12 sites where SJG or its predecessors operated gas manufacturing plants. SJG
stopped manufacturing gas in the 1950s. SJI and some of its nonutility
subsidiaries also recorded costs for environmental cleanup of sites where SJF
previously operated a fuel oil business and Morie maintained equipment, fueling
stations and storage.
SJI
successfully entered into settlements with all of its historic comprehensive
general liability carriers regarding the environmental remediation expenditures
at the SJG sites. Also, SJG purchased a Cleanup Cost Cap Insurance Policy
limiting the amount of remediation expenditures that SJG will be required to
make at 11 of its sites. This policy will be in force until 2024 at 10 sites and
until 2029 at one site. The future cost estimates discussed hereafter are not
reduced by projected insurance recoveries from the Cleanup Cost Cap Insurance
Policy. The policy is limited to an aggregate amount of $50.0 million, of which
SJG has recovered $36.6 million through December 31, 2009. As
discussed in Note 9, the BPU allows SJG to recover environmental remediation
costs through the RAC.
Since the
early 1980s, SJI accrued environmental remediation costs of $240.2 million, of
which $166.8 million was spent as of December 31, 2009.
The
following table details the amounts expended and accrued for SJI’s environmental
remediation during the last two years (in thousands):
|
|
|
2009
|
|
|
2008
|
|
||
|
Beginning
of Year
|
|
$
|
68,165
|
|
|
$
|
77,905
|
|
|
Accruals
|
|
|
16,975
|
|
|
|
18,649
|
|
|
Expenditures
|
|
|
(11,698
|
)
|
|
|
(28,389
|
)
|
|
End
of Year
|
|
$
|
73,442
|
|
|
$
|
68,165
|
|
The
balances are segregated between current and noncurrent on the consolidated
balance sheets under the captions Current Liabilities and Deferred Credits and
Other Noncurrent Liabilities.
Management
estimates that undiscounted future costs to clean up SJG's sites will range from
$69.1 million to $248.6 million. Six of SJG’s sites comprise the majority of
these estimates, ranging from a low of $57.3 million to a high of $202.3
million. SJG recorded the lower end of this range, $69.1 million, as a liability
because a single reliable estimation point is not feasible due to the amount of
uncertainty involved in the nature of projected remediation efforts and the long
period over which remediation efforts will continue. 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. Significant risks surrounding these
estimates include unforeseen market price increases for remedial services,
property owner acceptance of remedy selection, regulatory approval of selected
remedy and remedial investigative findings.
The
remediation efforts at SJG’s six most significant sites include the
following:
Site 1 -
A remedial action work plan has been approved by the New Jersey
Department of Environmental Protection (NJDEP) for approval. Remaining steps to
remediate include regulatory permitting, approval and remedy implementation for
impacted soil, groundwater, and river sediments as well as acceptance of the
access agreements by affected property owners.
Site 2 -
Various remedial investigation and action activities, such as completed and
approved interim remedial measures and conceptual remedy selection, are ongoing
at this site. Remaining steps to remediate include remedy selection, regulatory
approval, and implementation for the remaining impacted soil and
groundwater.
Site 3 -
Remedial investigative activities are ongoing at this site. Remaining steps to
remediate include completing the remedial investigation of impacted soil and
groundwater in preparation for selecting the appropriate action and
implementation and gaining regulatory and property owner approval of the
selected remedy.
Site 4 -
Remedial action activities associated with groundwater are planned at this site.
Remaining steps to remediate include continuing implementation of the NJDEP
approved Remedial Action Work Plan of impacted groundwater.
Site 5 –
Various remedial investigation and action activities are ongoing at this
site. An interim remedial measure has been implemented and a remedial
action work plan has been prepared and submitted to the NJDEP for an off site
interim remedial measure. Remaining steps to implement the off site
interim remedial measure include regulatory approval, remedial investigation of
bay sediments, as well as acceptance of the selected remedy by affected property
owners. Remaining steps to remediate soil and groundwater include
completing the remedial investigation of impacted soil and groundwater in
preparation for selecting the appropriate action and implementation and gaining
regulatory and property owner approval of the selected remedy.
Site 6 –
Remedial investigative activities are ongoing at this site. Remaining
steps to remediate include completing the remedial investigation of impacted
soil and groundwater in preparation for selecting the appropriate action and
implementation and gaining regulatory and property owner approval of the
selected remedy.
With
Morie's sale, EMI assumed responsibility for environmental liabilities estimated
between $2.7 million and $8.6 million. The information available on these sites
is sufficient only to establish a range of probable liability and no point
within the range is more likely than any other. Therefore, EMI has accrued the
lower end of the range. Changes in the accrual are included in the statements of
consolidated income under Loss from Discontinued Operations.
SJI and
SJF estimated their potential exposure for the future remediation of four sites
where fuel oil operations existed years ago. Estimates for these sites range
from $1.6 million to $4.5 million. The lower end of this range has been recorded
under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities
as of December 31, 2009.
|
15.
|
FAIR
VALUE OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES:
|
GAAP
establishes a hierarchy that prioritizes fair value measurements based on the
types of inputs used for the various valuation techniques. The levels
of the hierarchy are described below:
|
Level
1:
|
Observable
inputs such as quoted prices in active markets for identical assets or
liabilities.
|
|
Level
2:
|
Inputs
other than quoted prices that are observable for the asset or liability,
either directly or indirectly; these include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not
active.
|
|
Level
3:
|
Unobservable
inputs that reflect the reporting entity’s own
assumptions.
|
Assessment
of the significance of a particular input to the fair value measurement requires
judgment and may affect the valuation of financial assets and financial
liabilities and their placement within the fair value hierarchy.
For
financial assets and financial liabilities measured at fair value on a recurring
basis, information about the fair value measurements for each major category as
of December 31, 2009 is as follows (in thousands):
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
||||
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Available-for-Sale
Securities (A)
|
|
$
|
5,958
|
|
|
$
|
5,958
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Derivatives
– Energy Related Assets (B)
|
|
|
48,097
|
|
|
|
23,933
|
|
|
|
23,295
|
|
|
|
869
|
|
|
|
$
|
54,055
|
|
|
$
|
29,891
|
|
|
$
|
23,295
|
|
|
$
|
869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Derivatives
– Energy Related Liabilities (B)
|
|
$
|
39,191
|
|
|
$
|
18,382
|
|
|
$
|
9,641
|
|
|
$
|
11,168
|
|
|
Derivatives
– Other (C)
|
|
|
5,823
|
|
|
|
-
|
|
|
|
5,823
|
|
|
|
-
|
|
|
|
|
$
|
45,014
|
|
|
$
|
18,382
|
|
|
$
|
15,464
|
|
|
$
|
11,168
|
|
(A)
Available-for-Sale Securities are valued using the quoted principal market close
prices that are provided by the trustees of these securities.
(B)
Derivatives – Energy Related Assets and Liabilities are traded in both
exchange-based and non-exchange-based markets. Exchange-based contracts are
valued using unadjusted quoted market sources in active markets and are
categorized in Level 1 in the fair value hierarchy. Certain non-exchange-based
contracts are valued using indicative price quotations available through brokers
or over-the-counter, on-line exchanges and are categorized in Level 2. These
price quotations reflect the average of the bid-ask mid-point prices and are
obtained from sources that management believes provide the most liquid market.
For non-exchange-based derivatives that trade in less liquid markets with
limited pricing information, model inputs generally would include both
observable and unobservable inputs. In instances where observable data is
unavailable, management considers the assumptions that market participants would
use in valuing the asset or liability. This includes assumptions about market
risks such as liquidity, volatility and contract duration. Such instruments are
categorized in Level 3 as the model inputs generally are not observable.
Management reviews and corroborates the price quotations to ensure the prices
are observable which includes consideration of actual transaction volumes,
market delivery points, bid-ask spreads and contract duration.
(C)
Derivatives – Other, include interest rate swaps that are valued using quoted
prices on commonly quoted intervals, which are interpolated for periods
different than the quoted intervals, as inputs to a market valuation model.
Market inputs can generally be verified and model selection does not involve
significant management judgment.
The
changes in fair value measurements of Derivatives – Energy Related Assets and
Liabilities at December 31, 2009 using significant unobservable inputs (Level 3)
are as follows (in thousands):
|
Balance
at January 1, 2009
|
|
$
|
101
|
|
|
Purchases,
Sales, Issuances, Settlements, net
|
(543
|
)
|
||
|
Total
gains (realized/unrealized) included in earnings
|
|
|
(9,857
|
)
|
|
Transfers
in and/or out of Level 3, net
|
-
|
|||
|
Balance
at December 31, 2009
|
|
$
|
(10,299
|
)
|
Total
gains for 2009 included in earnings, that are attributable to the change in
unrealized gains relating to those assets and liabilities still held as of
December 31, 2009, is $(9.9) million. These gains are included in
Operating Revenues-Nonutility on the statement of consolidated
income.
|
16.
|
AVAILABLE–FOR–SALE
SECURITIES:
|
The
Company's portfolio of investments consists of five highly diversified funds
which are not used for working capital purposes. These funds are in an
unrealized loss position as of December 31, 2009. Due to the nature of the
underlying securities, these funds as a whole are susceptible to changes in the
economy and have been adversely affected by the economic slowdown, particularly
during the fourth quarter of 2008 when the Company's investments became
impaired. The Company has evaluated the near-term prospects of the overall funds
in relation to the severity and duration of the impairment. Based on that
evaluation, the Company recorded an insignificant impairment loss during the
fourth quarter of 2008. The Company does not intend to sell the remaining funds,
and it is more likely than not it will not have to sell the remaining funds
before recovery of its cost basis. The Company does not consider these remaining
investments to be other-than-temporarily impaired at December 31,
2009.
The
following table shows the gross unrealized losses and fair value of the
Company's Available-for-Sale Securities with unrealized losses that are not
deemed to be other-than-temporarily impaired (in thousands), aggregated by
length of time that the individual funds have been in a continuous unrealized
loss position at December 31, 2009.
|
|
Less
than 12 Months
|
Greater
Than 12 Months
|
Total
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Marketable
Equity Securities
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
|
2009
|
$ | - | $ | - | $ | 4,493 | $ | 534 | $ | 4,493 | $ | 534 | ||||||||||||
|
2008
|
$ | 3,609 | $ | 1,218 | $ | - | $ | - | $ | 3,609 | $ | 1,218 | ||||||||||||
As of
December 31, 2009 and 2008, the total losses for securities with net losses
included in Accumulated Other Comprehensive Loss was $0.3 million and $0.7
million, respectively. As of December 31, 2009, securities with net
gains of $0.1 million were included in Accumulated Other Comprehensive Loss. As
of December 31, 2008, there were no securities with net gains included in
Accumulated Other Comprehensive Loss.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
South
Jersey Industries, Inc.
Folsom,
New Jersey
We have
audited the accompanying consolidated balance sheets and statements of
consolidated capitalization of South Jersey Industries, Inc. and subsidiaries
(the "Company") as of December 31, 2009 and 2008, and the related statements of
consolidated income, cash flows, changes in equity and comprehensive income
for each of the three years in the period ended December 31,
2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of South Jersey Industries, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 26, 2010 expressed an
unqualified opinion on the Company's internal control over financial
reporting.
/s/ Deloitte & Touche
LLP
Philadelphia,
Pennsylvania
February
26, 2010
Quarterly Financial Data
(Unaudited)
(Summarized
quarterly results of SJI's operations, in thousands except for per share
amounts)
|
2009
Quarter Ended
|
2008
Quarter Ended
|
|||||||||||||||||||||||||||||||
|
March 31
|
June 30
|
Sept. 30
|
Dec. 31
|
March 31
|
June 30
|
Sept. 30
|
Dec. 31
|
|||||||||||||||||||||||||
|
Operating
Revenues
|
$ | 362,176 | $ | 134,483 | $ | 127,087 | $ | 221,698 | $ | 348,047 | $ | 135,840 | $ | 210,413 | $ | 267,677 | ||||||||||||||||
|
Expenses:
|
||||||||||||||||||||||||||||||||
|
Cost
of Sales - (Excluding depreciation)
|
265,508 | 90,632 | 95,128 | 142,120 | 266,756 | 123,730 | 102,259 | 186,697 | ||||||||||||||||||||||||
|
Operations
and Maintenance Including Fixed Charges
|
37,621 | 35,524 | 35,523 | 39,539 | 35,047 | 33,248 | 32,926 | 41,360 | ||||||||||||||||||||||||
|
Income
Taxes
|
20,218 | 3,056 | (3,206 | ) | 14,234 | 17,164 | (9,286 | ) | 30,367 | 13,703 | ||||||||||||||||||||||
|
Energy
and Other Taxes
|
5,167 | 1,667 | 1,649 | 3,248 | 4,866 | 2,116 | 1,646 | 3,493 | ||||||||||||||||||||||||
|
Total
Expenses
|
328,514 | 130,879 | 129,094 | 199,141 | 323,833 | 149,808 | 167,198 | 245,253 | ||||||||||||||||||||||||
|
Other
Income and Expense
|
(1,974 | ) | 1,385 | (20 | ) | 1,094 | 497 | 582 | 584 | (597 | ) | |||||||||||||||||||||
|
Income
(Loss) from Continuing Operations
|
31,688 | 4,989 | (2,027 | ) | 23,651 | 24,711 | (13,386 | ) | 43,799 | 21,827 | ||||||||||||||||||||||
|
Loss
from Discontinued Operations - (Net of tax
benefit)
|
(19 | ) | (23 | ) | (16 | ) | (369 | ) | (24 | ) | (1 | ) | (76 | ) | (146 | ) | ||||||||||||||||
|
Net
Income (Loss)
|
31,669 | 4,966 | (2,043 | ) | 23,282 | 24,687 | (13,387 | ) | 43,723 | 21,681 | ||||||||||||||||||||||
|
Less:
Net (Income) Loss Attributable to Noncontrolling Interest in
Subsidiaries
|
(66 | ) | 42 | 169 | 86 | 1 | 105 | 59 | 62 | |||||||||||||||||||||||
|
Net
Income (Loss) - Attributable to South Jersey Industries, Inc.
Shareholders
|
$ | 31,603 | $ | 5,008 | $ | (1,874 | ) | $ | 23,368 | $ | 24,688 | $ | (13,282 | ) | $ | 43,782 | $ | 21,743 | ||||||||||||||
|
Amounts
Attributable to South Jersey Industries, Inc. Shareholders
|
||||||||||||||||||||||||||||||||
|
Income
(Loss) from Continuing Operations
|
$ | 31,622 | $ | 5,031 | $ | (1,858 | ) | $ | 23,737 | $ | 24,712 | $ | (13,281 | ) | $ | 43,858 | $ | 21,889 | ||||||||||||||
|
Loss
from Discontinued Operations - (Net of tax
benefit)
|
(19 | ) | (23 | ) | (16 | ) | (369 | ) | (24 | ) | (1 | ) | (76 | ) | (146 | ) | ||||||||||||||||
|
Net
Income (Loss) - Attributable to South Jersey Industries, Inc.
Shareholders
|
$ | 31,603 | $ | 5,008 | $ | (1,874 | ) | $ | 23,368 | $ | 24,688 | $ | (13,282 | ) | $ | 43,782 | $ | 21,743 | ||||||||||||||
|
Basic
Earnings Per Common Share Attributable to South Jersey Industries, Inc.
Shareholders:
|
||||||||||||||||||||||||||||||||
|
Continuing
Operations
|
$ | 1.06 | $ | 0.17 | $ | (0.06 | ) | $ | 0.80 | $ | 0.83 | $ | (0.45 | ) | $ | 1.48 | $ | 0.74 | ||||||||||||||
|
Discontinued
Operations
|
(0.00 | ) | (0.00 | ) | (0.00 | ) | (0.02 | ) | (0.00 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | ||||||||||||||||
|
Basic
Earnings Per Common Share
|
$ | 1.06 | $ | 0.17 | $ | (0.06 | ) | $ | 0.78 | $ | 0.83 | $ | (0.45 | ) | $ | 1.47 | $ | 0.73 | ||||||||||||||
|
Average
Shares of Common Stock Outstanding - Basic
|
29,752 | 29,796 | 29,796 | 29,796 | 29,640 | 29,728 | 29,729 | 29,729 | ||||||||||||||||||||||||
|
Diluted
Earnings Per Common Share Attributable to South Jersey Industries, Inc.
Shareholders:
|
||||||||||||||||||||||||||||||||
|
Continuing
Operations
|
$ | 1.06 | $ | 0.17 | $ | (0.06 | ) | $ | 0.79 | $ | 0.83 | $ | (0.45 | ) | $ | 1.47 | $ | 0.73 | ||||||||||||||
|
Discontinued
Operations
|
(0.00 | ) | (0.00 | ) | (0.00 | ) | (0.01 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||||||||||
|
Diluted
Earnings Per Common Share
|
$ | 1.06 | $ | 0.17 | $ | (0.06 | ) | $ | 0.78 | $ | 0.83 | $ | (0.45 | ) | $ | 1.47 | $ | 0.73 | ||||||||||||||
|
Average
Shares of Common Stock Outstanding - Diluted
|
29,851 | 29,902 | 29,796 | 29,916 | 29,764 | 29,728 | 29,865 | 29,886 | ||||||||||||||||||||||||
*The sum
of the quarters for 2009 and 2008 do not equal the year's total due to
rounding.
|
NOTE:
|
Because
of the seasonal nature of the business and the volatility from energy
related derivatives, statements for the 3-month periods are not indicative
of the results for a full
year.
|
Item 9.
Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure
None
Item 9A.
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
The
Company’s management, with the participation of its chief executive officer and
chief financial officer, evaluated the effectiveness of the design and operation
of the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2009. Based
on that evaluation, the Company’s chief executive officer and chief financial
officer concluded that the disclosure controls and procedures employed at the
Company are effective.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined under Exchange Act Rules 13a-15(f).
The Company’s internal control system is designed to provide reasonable
assurance to its management and board of directors regarding the preparation and
fair presentation of published financial statements. Under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control
- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation
under that framework, management concluded that our internal control over
financial reporting was effective as of December 31, 2009.
The
effectiveness of our internal control over financial reporting as of December
31, 2009 has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report which is included
under this Item 9A.
Changes
in Internal Control over Financial Reporting
There has
not been any change in the Company's internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the
fiscal quarter ended December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
South
Jersey Industries, Inc.
Folsom,
New Jersey
We have
audited the internal control over financial reporting of South Jersey
Industries, Inc. and subsidiaries (the "Company") as of December 31, 2009, based
on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation
of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the criteria
established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2009 of the Company and our report dated
February 26, 2010 expressed an unqualified opinion on those financial
statements.
/s/
Deloitte & Touche LLP
Philadelphia,
Pennsylvania
February
26, 2010
Item 9B.
Other Information
None
PART
III
Item 10.
Directors, Executive Officers and Corporate Governance
Information
concerning Directors may be found under the captions “Director Elections”,
“Nominees”, “Directors Continuing in Office”, and “Security Ownership” in our
definitive proxy statement for our 2010 Annual Meeting of Shareholders (the
“2010 Proxy Statement”), which will be filed within the Commission within 120
days after the close of our fiscal year. Such information is incorporated herein
by reference. Information required by this item relating to the executive
officers of SJI is set forth in Item 4-A of this report.
Code
of Ethics
The
Company has adopted a Code of Ethics for its Principal Executive, Financial and
Accounting Officers. It is available on SJI’s website, www.sjindustries.com
by clicking “Investors” and then “Corporate Governance.” We will post any
amendment to or waiver of the Code to our website.
Item 11.
Executive Compensation
Information
concerning executive compensation may be found under the captions “Compensation
Discussion and Analysis” of our 2010 Proxy Statement. Such information is
incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder
Matters
The
information in our 2010 Proxy Statement set forth under the caption “Security
Ownership” is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director
Independence
The
information in our 2010 Proxy Statement set forth under the caption “The Board
of Directors” and the subcaption “Certain Relationships” is incorporated herein
by reference.
Item 14.
Principal Accountant Fees and Services
The
information in our 2010 Proxy Statement set forth under the caption “Audit
Committee Report” is incorporated herein by reference.
PART
IV
Item 15.
Exhibits and Financial Statement Schedules
|
(a)
|
Listed
below are all financial statements and schedules filed as part of this
report:
|
1 - The
consolidated financial statements and notes to consolidated financial statements
together with the report thereon of Deloitte & Touche LLP, dated February
26, 2010, are filed as part of this report under Item 8- Financial Statements
and Supplementary Data.
2 -
Supplementary Financial Information
Information
regarding selected quarterly financial data can be found on page 122 of this
report.
Schedule
I - Supplemental Schedules as of December 31, 2009 and 2008 and for the three
years ended December 31, 2009, 2008, and 2007.
Report of
Independent Registered Public Accounting Firm of Deloitte & Touche LLP (page
133).
Schedule
II - Valuation and Qualifying Accounts (page 137).
All
schedules, other than that listed above, are omitted because the information
called for is included in the financial statements filed or because they are not
applicable or are not required.
|
(b)
|
List
of Exhibits (Exhibit Number is in Accordance with the Exhibit Table in
Item 601 of Regulation S-K).
|
|
Exhibit
Number
|
Description
|
Reference
|
|
|
(3)(a)(i)
|
Certificate
of Incorporation of South Jersey Industries, Inc., as amended through
April 19, 1984.
|
Incorporated
by reference from Exhibit (4)(a) of Form S-2 (2-91515).
|
|
|
(3)(a)(ii)
|
Amendment
to Certificate of Incorporation relating to two-for-one stock split
effective as of April 28, 1987.
|
Incorporated
by reference from Exhibit (4)(e)(1) of Form S-3
(33-1320).
|
|
|
(3)(a)(iii)
|
Amendment
to Certificate of Incorporation relating to director and officer
liability.
|
Incorporated
by reference from Exhibit (4)(e)(2) of Form S-3
(33-1320).
|
|
|
(3)(a)(iv)
|
Amendment
to Certificate of Incorporation relating to two-for-one stock split
effective as of June 30, 2005.
|
Incorporated
by reference from Exhibit 3 of Form 10-Q of SJI filed on May 10,
2005.
|
|
|
(3)(a)(v)
|
Amendment
to Certificate of Incorporation as of April 23, 2009 establishing the
annual election of the South Jersey Industries, Inc.
directors
|
Incorporated
by reference from Exhibit 99.2 of Form 8-K filed on April 28,
2009.
|
|
|
Bylaws
of South Jersey Industries, Inc. as amended and restated through April 23,
2009. (filed herewith)
|
|||
|
(4)(a)
|
Form
of Stock Certificate for common stock.
|
Incorporated
by reference from Exhibit (4)(a) of Form 10-K for 1985
(1-6364).
|
|
|
(4)(b)(i)
|
First
Mortgage Indenture dated October 1, 1947.
|
Incorporated
by reference from Exhibit (4)(b)(i) of Form 10-K for 1987
(1-6364).
|
|
|
(4)(b)(ii)
|
Nineteenth
Supplemental Indenture dated as of April 1, 1992.
|
Incorporated
by reference from Exhibit (4)(b)(xvii) of Form 10-K for 1992
(1-6364).
|
|
|
(4)(b)(iii)
|
Twenty-First
Supplemental Indenture dated as of March 1, 1997.
|
Incorporated
by reference from Exhibit (4)(b)(xviv) of Form 10-K for
1997(1-6364).
|
|
|
(4)(b)(iv)
|
Twenty-Second
Supplemental Indenture dated as of October 1, 1998.
|
Incorporated
by reference from Exhibit (4)(b)(ix) of Form S-3
(333-62019).
|
|
|
(4)(b)(v)
|
Twenty-Third
Supplemental Indenture dated as of September 1, 2002.
|
Incorporated
by reference from Exhibit (4)(b)(x) of Form S-3
(333-98411).
|
|
|
(4)(b)(vi)
|
Twenty-Fourth
Supplemental Indenture dated as of September 1, 2005.
|
Incorporated
by reference from Exhibit (4)(b)(vi) of Form S-3
(333-126822).
|
|
|
(4)(b)(vii)
|
Amendment
to Twenty-Fourth Supplemental Indenture dated as of March 31,
2006
|
Incorporated
by reference from Exhibit 4 of Form 8-K of SJG as filed April 26,
2006.
|
|
|
(4)(b)(viii)
|
Loan
Agreement by and between New Jersey Economic Development Authority and SJG
dated April 1, 2006.
|
Incorporated
by reference from Exhibit 10 of Form 8-K of SJG as filed April 26,
2006.
|
|
|
(4)(c)(i)
|
Medium
Term Note Indenture of Trust dated October 1, 1998.
|
Incorporated
by reference from Exhibit 4(e) of Form S-3 (333-62019).
|
|
|
(4)(c)(ii)
|
First
Supplement to Indenture of Trust dated as of June 29,
2000.
|
Incorporated
by reference from Exhibit 4.1 of Form 8-K of SJG dated July 12,
2001.
|
|
|
(4)(c)(iii)
|
Second
Supplement to Indenture of Trust dated as of July 5, 2000.
|
Incorporated
by reference from Exhibit 4.2 of Form 8-K of SJG dated July 12,
2001.
|
|
|
(4)(c)(iv)
|
Third
Supplement to Indenture of Trust dated as of July 9, 2001.
|
Incorporated
by reference from Exhibit 4.3 of Form 8-K of SJG dated July 12,
2001.
|
|
|
(10)(a)(i)
|
Gas
storage agreement (GSS) between South Jersey Gas Company and Transco dated
October 1, 1993.
|
Incorporated
by reference from Exhibit (10)(d) of Form 10-K for 1993
(1-6364).
|
|
Exhibit
Number
|
Description
|
Reference
|
|
|
(10)(a)(ii)
|
Gas
storage agreement (LG-A) between South Jersey Gas Company and Transco
dated June 3, 1974.
|
Incorporated
by reference from Exhibit (5)(f) of Form S-7 (2-56223).
|
|
|
(10)(a)(iii)
|
Gas
storage agreement (WSS) between South Jersey Resources Group LLC and
Transco dated May 1, 2006.
|
Incorporated
by reference from Exhibit (10)(a)(iii) of Form 10-K for
2008.
|
|
|
(10)(a)(iv)
|
Gas
storage agreement (LSS) between South Jersey Gas Company and Transco dated
October 1, 1993.
|
Incorporated
by reference from Exhibit (10)(i) of Form 10-K for 1993
(1-6364).
|
|
|
(10)(a)(v)
|
Gas
storage agreement (SS-1) between South Jersey Gas Company and Transco
dated May 10, 1987 (effective April 1, 1988).
|
Incorporated
by reference from Exhibit (10)(i)(a) of Form 10-K for 1988
(1-6364).
|
|
|
(10)(b)(i)
|
Gas
storage agreement (SS-2) between South Jersey Gas Company and Transco
dated July 25, 1990.
|
Incorporated
by reference from Exhibit (10)(i)(i) of Form 10-K for 1991
(1-6364).
|
|
|
(10)(b)(ii)
|
Amendment
to gas transportation agreement dated December 20, 1991 between South
Jersey Gas Company and Transco dated October 5, 1993.
|
Incorporated
by reference from Exhibit (10)(i)(k) of Form 10-K for 1993
(1-6364).
|
|
|
(10)(b)(iii)
|
CNJEP
Service agreement between South Jersey Gas Company and Transco dated June
27, 2005.
|
Incorporated
by reference frm Exhibit (10)(i)(l) of Form 10-K for
2005 (1-6364).
|
|
|
(10)(c)(i)
|
FTS
Service Agreement No. 38099 between South Jersey Gas Company and Columbia
Gas Transmission Corporation dated November 1, 1993.
|
Incorporated
by reference from Exhibit (10)(k)(n) of Form 10-K for 1993
(1-6364).
|
|
|
(10)(c)(ii)
|
NTS
Service Agreement No. 39305 between South Jersey Gas Company and Columbia
Gas Transmission Corporation dated November 1, 1993.
|
Incorporated
by reference from Exhibit (10)(k)(o) of Form 10-K for 1993
(1-6364).
|
|
|
(10)(c)(iii)
|
FSS
Service Agreement No. 38130 between South Jersey Gas Company and Columbia
Gas Transmission Corporation dated November 1, 1993.
|
Incorporated
by reference from Exhibit (10)(k)(p) of Form 10-K for 1993
(1-6364).
|
|
Exhibit
Number
|
Description
|
Reference
|
|
|
(10)(d)(i)
|
SST
Service Agreement No. 38086 between South Jersey Gas Company and Columbia
Gas Transmission Corporation dated November 1, 1993.
|
Incorporated
by reference from Exhibit (10)(k)(q) of Form 10-K for 1993
(1-6364).
|
|
|
(10)(e)(i)*
|
Deferred
Payment Plan for Directors of South Jersey Industries, Inc., South Jersey
Gas Company, Energy & Minerals, Inc., R&T Group, Inc. and South
Jersey Energy Company as amended and restated October 21,
1994.
|
Incorporated
by reference from Exhibit (10)(l) of Form 10-K for 1994
(1-6364).
|
|
|
(10)(e)(ii)*
|
Schedule
of Deferred Compensation Agreements.
|
Incorporated
by reference from Exhibit (10)(l)(b) of Form 10-K for 1997
(1-6364).
|
|
|
(10)(e)(iii)*
|
Form
of Officer Employment Agreement between certain officers and either South
Jersey Industries, Inc. or its subsidiaries.
|
Incorporated
by reference from Exhibit 10(e)(iii) of Form 10-K for
2008.
|
|
|
(10)(e)(iv)*
|
Schedule
of Officer Employment Agreements.
|
Incorporated
by reference from Exhibit 10(e)(iv) of Form 10-K for
2008.
|
|
|
(10)(f)(i)*
|
Officer
Severance Benefit Program for all Officers.
|
Incorporated
by reference from Exhibit (10)(l)(g) of Form 10-K for 1985
(1-6364).
|
|
|
Supplemental
Executive Retirement Program, as amended and restated effective January 1,
2009 and Form of Agreement between certain SJI or subsidiary officers.
(filed herewith)
|
|||
|
(10)(f)(iii)*
|
South
Jersey Industries, Inc. 1997 Stock-Based Compensation Plan (As Amended and
Restated Effective January 26, 2005).
|
Incorporated
by reference from Exhibit 10 of Form 10-Q of SJI as filed May 10,
2005.
|
|
|
(10)(g)(i)
|
Five-year
Revolving Credit Agreement for SJI.
|
Incorporated
by reference from Exhibit 10 of Form 8-K of SJI as filed August 25,
2006.
|
|
|
(10)(g)(ii)
|
Five-year
Revolving Credit Agreement for SJG.
|
Incorporated
by reference from Exhibit 10 of Form 8-K of SJG as filed on August 8,
2006.
|
|
|
(10)(g)(iii)
|
Letter
of Credit Reimbursement Agreement dated December 20, 2007.
|
Incorporated
by reference from Exhibit 10 (g) (iii) of Form 10-K for
2007.
|
|
|
(10)(g)(iv)
|
Loan
Agreement between Toronto Dominion (New York) LLC and SJG dated December
15, 2008.
|
Incorporated
by reference from Exhibit (10)(g)(iv) of Form 10-K for
2008.
|
|
|
Amendment
No. 1 dated December 14, 2009 to the Loan Agreement between Toronto
Dominion (New York) LLC and SJG. (filed herewith)
|
|||
|
Calculation
of Ratio of Earnings to Fixed Charges (Before Federal Income Taxes) (filed
herewith).
|
|||
|
(14)
|
Code
of Ethics.
|
Incorporated
by reference from Exhibit 14 of Form 10-K for 2007.
|
|
|
Subsidiaries
of the Registrant (filed herewith).
|
|||
|
Independent
Registered Public Accounting Firm’s Consent (filed
herewith).
|
|||
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
|
|||
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
|
|||
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
|
|||
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
|
* Constitutes a management contract or a compensatory plan or arrangement.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
SOUTH
JERSEY INDUSTRIES, INC.
|
|||
|
BY:
|
/s/ David A. Kindlick
|
||
|
David
A. Kindlick
|
|||
|
Vice
President & Chief Financial Officer
|
|||
|
Date:
February 26,
2010
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Edward J. Graham
|
President,
Chairman of the Board & Chief Executive Officer
|
February
26, 2010
|
||
|
(Edward
J. Graham)
|
(Principal
Executive Officer)
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
David A. Kindlick
|
Vice
President & Chief Financial Officer
|
February
26, 2010
|
||
|
(David
A. Kindlick)
|
(Principal
Financial and Accounting Officer)
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Gina Merritt-Epps
|
Corporate Counsel
&
|
February
26, 2010
|
||
|
(Gina
Merritt-Epps)
|
Secretary
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Shirli M. Billings
|
Director
|
February
26, 2010
|
||
|
(Shirli
M. Billings)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Helen R. Bosley
|
Director
|
February
26, 2010
|
||
|
(Helen
R. Bosley)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Thomas A. Bracken
|
Director
|
February
26, 2010
|
||
|
(Thomas
A. Bracken)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Keith S. Campbell
|
Director
|
February
26, 2010
|
||
|
(Keith
S. Campbell)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
W. Cary Edwards
|
Director
|
February
26, 2010
|
||
|
(W.
Cary Edwards)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Sheila Hartnett-Devlin
|
Director
|
February
26, 2010
|
||
|
(Sheila
Hartnett-Develin)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Walter M. Higgins, III
|
Director
|
February
26, 2010
|
||
|
(Walter
M. Higgins, III)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
William J. Hughes
|
Director
|
February
26, 2010
|
||
|
(William
J. Hughes)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Herman D. James
|
Director
|
February
26, 2010
|
||
|
(Herman
D. James)
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
Joseph H. Petrowski
|
Director
|
February
26, 2010
|
||
|
(Joseph
H. Petrowski)
|
|
|
||
|
|
|
|
||
|
|
|
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
South
Jersey Industries, Inc.
Folsom,
New Jersey
We have
audited the consolidated financial statements of South Jersey Industries, Inc.
and subsidiaries (the "Company") as of December 31, 2009 and 2008, and for each
of the three years in the period ended December 31, 2009, and the Company's
internal control over financial reporting as of December 31, 2009, and have
issued our reports thereon dated February 26, 2010; such consolidated financial
statements and reports are included elsewhere in this Form 10-K. Our audits also
included the financial statement schedules of the Company listed in Item 15(a)2. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth
therein.
/s/ Deloitte & Touche
LLP
Philadelphia,
Pennsylvania
February
26, 2010
|
SCHEDULE I - SOUTH JERSEY INDUSTRIES,
INC.
|
|
|||||||||||
|
STATEMENTS
OF INCOME
|
||||||||||||
|
(In
Thousands)
|
||||||||||||
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Operating
Revenues
|
|
$
|
10,238
|
|
|
$
|
9,176
|
|
|
$
|
7,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
9,005
|
|
|
|
7,945
|
|
|
|
6,120
|
|
|
Depreciation
|
|
|
135
|
|
|
|
139
|
|
|
|
106
|
|
|
Energy
and Other Taxes
|
|
|
258
|
|
|
|
243
|
|
|
|
175
|
|
|
Total
Operating Expenses
|
|
|
9,398
|
|
|
|
8,327
|
|
|
|
6,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Operating
Income
|
|
|
840
|
|
|
|
849
|
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Other
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Earnings of Subsidiaries
|
|
|
58,531
|
|
|
|
77,178
|
|
|
|
62,659
|
|
|
Other
|
|
|
(22
|
)
|
|
|
835
|
|
|
|
3,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Total
Other Income
|
|
|
58,509
|
|
|
|
78,013
|
|
|
|
65,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Interest
Charges
|
|
|
775
|
|
|
|
1,698
|
|
|
|
3,762
|
|
|
Income
Taxes
|
|
|
42
|
|
|
(14
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Income
from Continuing Operations
|
|
|
58,532
|
|
|
|
77,178
|
|
|
|
62,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Equity
in Undistributed Earnings of Discontinued Subsidiaries
|
|
|
(427
|
)
|
|
|
(247
|
)
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Net
Income
|
|
$
|
58,105
|
|
|
$
|
76,931
|
|
|
$
|
62,268
|
|
See South
Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial
Statements under Item 8.
|
SCHEDULE
I - SOUTH JERSEY INDUSTRIES, INC.
|
||||||||||||
|
STATEMENTS
OF COMPREHENSIVE INCOME
|
||||||||||||
|
(In
Thousands)
|
||||||||||||
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
58,105
|
|
|
$
|
76,931
|
|
|
$
|
62,268
|
|
|
Other
Comprehensive Income (Loss) – Net of Tax*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Liability Adjustment
|
|
|
1,208
|
|
|
(6,877
|
)
|
|
|
(199
|
)
|
|
|
Unrealized
Gain (Loss) on Available-for-Sale Securities
|
|
|
533
|
|
|
(730
|
)
|
|
|
(195
|
)
|
|
|
Unrealized
Gain (Loss) on Derivatives
|
|
|
2,989
|
|
|
(6,277
|
)
|
|
|
(2,528
|
)
|
|
|
Total
Other Comprehensive Income (Loss) – Net of Tax*
|
|
|
4,730
|
|
|
(13,884
|
)
|
|
|
(2,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Comprehensive
Income
|
|
$
|
62,835
|
|
|
$
|
63,047
|
|
|
$
|
59,744
|
|
* Determined
using a combined statutory tax rate of 41.08%
See South
Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial
Statements under Item 8.
|
SCHEDULE
I - SOUTH JERSEY INDUSTRIES, INC.
|
||||||||||||
|
STATEMENTS
OF RETAINED EARNINGS
|
||||||||||||
|
(In
Thousands)
|
||||||||||||
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
Earnings - Beginning
|
|
$
|
249,973
|
|
|
$
|
206,123
|
|
|
$
|
174,407
|
|
|
Cumulative
Effect Adjustment
|
|
|
-
|
|
|
|
-
|
|
|
(771
|
)
|
|
|
Retained
Earnings – Beginning, as adjusted
|
|
|
249,973
|
|
|
|
206,123
|
|
|
|
173,636
|
|
|
Net
Income
|
|
|
58,105
|
|
|
|
76,931
|
|
|
|
62,268
|
|
|
|
|
|
308,078
|
|
|
|
283,054
|
|
|
|
235,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Declared - Common Stock
|
|
|
(36,573
|
)
|
|
|
(33,081
|
)
|
|
|
(29,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
Earnings - Ending
|
|
$
|
271,505
|
|
|
$
|
249,973
|
|
|
$
|
206,123
|
|
See South
Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial
Statements under Item 8.
|
|
|
|
|
|
|
|
|
|
|
|||
|
SCHEDULE
I - SOUTH JERSEY INDUSTRIES, INC.
|
|
|||||||||||
|
STATEMENTS
OF CASH FLOWS
|
|
|||||||||||
|
FOR
THE TWELVE MONTHS ENDED DECEMBER 31,
|
|
|||||||||||
|
(In
Thousands)
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
CASH
PROVIDED BY OPERATING ACTIVITIES
|
|
$
|
13,650
|
|
|
$
|
15,454
|
|
|
$
|
20,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Repayment from (Advances to) Associated
Companies
|
|
|
39,030
|
|
|
(40,695
|
)
|
|
|
57,107
|
||
|
Capital
Expenditures
|
|
|
(53
|
)
|
|
|
(23
|
)
|
|
|
(50
|
)
|
|
Purchase
of Company Owned Life Insurance
|
|
|
(4,444
|
)
|
|
|
(4,287
|
)
|
|
|
(3,917
|
)
|
|
Other
|
|
|
-
|
|
|
|
365
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used In) Investing Activities
|
|
|
34,533
|
|
|
(44,640
|
)
|
|
|
53,140
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Borrowings from Associated Companies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,419
|
|
|
Net
(Repayments from) Borrowings Lines of Credits
|
|
|
(10,800
|
)
|
|
|
58,050
|
|
|
|
(51,150
|
)
|
|
Dividends
on Common Stock
|
|
|
(36,426
|
)
|
|
|
(32,914
|
)
|
|
|
(29,656
|
)
|
|
Proceeds
from Sale of Common Stock
|
|
|
-
|
|
|
|
2,076
|
|
|
|
7,484
|
|
|
Other
|
|
|
-
|
|
|
|
329
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash (Used in) Provided by Financing Activities
|
|
|
(47,226
|
)
|
|
|
27,541
|
|
|
(71,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
|
|
|
957
|
|
|
(1,645
|
)
|
|
|
1,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
662
|
|
|
|
2,307
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
1,619
|
|
|
$
|
662
|
|
|
$
|
2,307
|
|
Dividends
received from subsidiaries amounted to $10.0 million, $14.9 million, and $18.7
million, in 2009, 2008, and 2007 respectively.
See South
Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial
Statements under Item 8.
|
SCHEDULE
I - SOUTH JERSEY INDUSTRIES, INC.
|
|
|||||||
|
BALANCE
SHEETS
|
|
|||||||
|
(In
Thousands)
|
|
|||||||
|
|
|
2009
|
|
|
2008
|
|
||
|
Assets
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|||
|
Property
Plant and Equipment:
|
|
|
|
|
|
|
||
|
Nonutility
Property, Plant and Equipment, at cost
|
|
$
|
825
|
|
|
$
|
825
|
|
|
Accumulated
Depreciation
|
|
|
(595
|
)
|
|
|
(486
|
)
|
|
|
|
|
|
|
|
|
||
|
Property,
Plant and Equipment - Net
|
|
|
230
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
||
|
Investments:
|
|
|
|
|
|
|
|
|
|
Investments
in Subsidiaries
|
|
|
590,602
|
|
|
|
539,551
|
|
|
Available-for-Sale
Securities
|
|
|
17
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
||
|
Total
Investments
|
|
|
590,619
|
|
|
|
539,569
|
|
|
|
|
|
|
|
|
|
||
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
|
1,619
|
|
|
|
662
|
|
|
Receivable
from Associated Companies
|
|
|
30,314
|
|
|
|
70,177
|
|
|
Accounts
Receivable
|
|
|
48
|
|
|
|
21
|
|
|
Other
|
|
|
475
|
|
|
|
908
|
|
|
|
|
|
|
|
|
|
||
|
Total
Current Assets
|
|
|
32,456
|
|
|
|
71,768
|
|
|
|
|
|
|
|
|
|
||
|
Other
Noncurrent Assets
|
|
|
14,076
|
|
|
|
10,778
|
|
|
|
|
|
|
|
|
|
||
|
Total
Assets
|
|
$
|
637,381
|
|
|
$
|
622,454
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization and
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Common
Stock SJI
|
|
|
|
|
|
|
|
|
|
Par
Value $1.25 a share
|
|
|
|
|
|
|
|
|
|
Authorized
- 60,000,000 shares
|
|
|
|
|
|
|
|
|
|
Outstanding
– 29,728,697 shares and 29,607,802
|
|
$
|
37,245
|
|
|
$
|
37,161
|
|
|
Premium
on Common Stock
|
|
|
254,503
|
|
|
|
252,495
|
|
|
Treasury
Stock (at par)
|
|
|
(183
|
)
|
|
|
(176
|
)
|
|
Accumulated
Other Comprehensive Loss
|
|
|
(19,469
|
)
|
|
|
(24,199
|
)
|
|
Retained
Earnings
|
|
|
271,505
|
|
|
|
249,973
|
|
|
|
|
|
|
|
|
|
||
|
Total
Equity
|
|
|
543,601
|
|
|
|
515,254
|
|
|
|
|
|
|
|
|
|
||
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Notes
Payable - Banks
|
|
|
87,200
|
|
|
|
98,000
|
|
|
Payable
to Associated Companies
|
|
|
285
|
|
|
|
1,118
|
|
|
Accounts
Payable
|
|
|
216
|
|
|
|
239
|
|
|
Other
Current Liabilities
|
|
|
2,118
|
|
|
|
1,444
|
|
|
|
|
|
|
|
|
|
||
|
Total
Current Liabilities
|
|
|
89,819
|
|
|
|
100,801
|
|
|
|
|
|
|
|
|
|
||
|
Other
Noncurrent Liabilities
|
|
|
3,961
|
|
|
|
6,399
|
|
|
|
|
|
|
|
|
|
||
|
Total
Capitalization and Liabilities
|
|
$
|
637,381
|
|
|
$
|
622,454
|
|
See South
Jersey Industries, Inc. and Subsidiaries Notes to Consolidated Financial
Statements under Item 8.
|
SOUTH
JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|||||||||||||||||||
|
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
|
|
|||||||||||||||||||
|
(In
Thousands)
|
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Col.
A
|
|
Col.
B
|
|
Col.
C
|
|
|
Col.
D
|
|
|
Col.
E
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Additions
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Classification
|
|
Balance
at Beginning of Period
|
|
|
Charged
to Costs and Expenses
|
|
|
Charged
to Other Accounts - Describe (a)
|
|
|
Deductions
- Describe (b)
|
|
|
Balance
at End of Period
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Provision
for Uncollectible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts
for the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
December
31, 2009
|
|
$
|
5,757
|
|
|
$
|
2,728
|
|
|
$
|
595
|
|
$
|
2,812
|
|
|
$
|
6,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Uncollectible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
for the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$
|
5,491
|
|
|
$
|
2,332
|
|
|
$
|
279
|
|
|
$
|
2,345
|
|
|
$
|
5,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Uncollectible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
for the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$
|
5,224
|
|
|
$
|
2,603
|
|
|
$
|
725
|
|
|
$
|
3,061
|
|
|
$
|
5,491
|
|
(a)
Recoveries of accounts previously written off and minor
adjustments.
(b)
Uncollectible accounts written off.
SJI - 137