Company Quick10K Filing
Quick10K
South Jersey Industries
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$31.95 92 $2,950
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-08 Earnings, Regulation FD, Exhibits
8-K 2019-05-08 Regulation FD, Exhibits
8-K 2019-04-29 Regulation FD, Exhibits
8-K 2019-04-26 Shareholder Vote
8-K 2019-04-11 Leave Agreement, Off-BS Arrangement
8-K 2019-03-15 Leave Agreement, Off-BS Arrangement
8-K 2019-02-06 Leave Agreement, Off-BS Arrangement
8-K 2019-01-17 Leave Agreement, Off-BS Arrangement
8-K 2019-01-15 Other Events
8-K 2019-01-14 Officers, Exhibits
8-K 2018-12-31 M&A, Exhibits
8-K 2018-12-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-30 M&A, Exhibits
8-K 2018-11-26 Regulation FD, Exhibits
8-K 2018-10-22 Regulation FD, Exhibits
8-K 2018-08-17 Officers, Exhibits
8-K 2018-08-08 Earnings, Regulation FD, Exhibits
8-K 2018-08-08 Regulation FD, Exhibits
8-K 2018-08-02 Officers, Exhibits
8-K 2018-07-05 Regulation FD, Exhibits
8-K 2018-07-03 Other Events, Exhibits
8-K 2018-07-01 Enter Agreement, M&A, Regulation FD, Exhibits
8-K 2018-06-27 Enter Agreement, Exhibits
8-K 2018-06-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-18 Regulation FD, Exhibits
8-K 2018-05-14 Regulation FD, Exhibits
8-K 2018-05-11 Shareholder Vote
8-K 2018-05-08 Regulation FD, Exhibits
8-K 2018-04-25 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-04-18 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-04-17 Regulation FD, Exhibits
8-K 2018-02-27 Regulation FD, Exhibits
8-K 2018-02-23 Regulation FD, Exhibits
8-K 2018-01-22 Regulation FD, Exhibits
8-K 2018-01-19 Enter Agreement, Off-BS Arrangement, Exhibits
BCO Brinks 3,880
EVBG Everbridge 2,550
EAT Brinker 1,580
AINV Apollo Investment 1,090
ANDE Andersons 974
VRAY Viewray 820
YRCW YRC Worldwide 197
MCC Medley Capital 176
WSTG Wayside Technology 56
APPO Alphapoint Technology 0
SJI 2019-03-31
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 sji-33119xex311.htm
EX-31.2 sji-33119xex312.htm
EX-31.3 sjg-33119ex313.htm
EX-31.4 sjg-33119ex314.htm
EX-32.1 sji-33119xex321.htm
EX-32.2 sji-33119xex322.htm
EX-32.3 sjg-33119ex323.htm
EX-32.4 sjg-33119ex324.htm

South Jersey Industries Earnings 2019-03-31

SJI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sji-33119x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ______________________
Commission
File Number
Exact name of registrant as
specified in its charter and principal
office address and telephone number
State of
Incorporation
I.R.S.
Employer
Identification No.
Securities registered pursuant to Section 12(b) of the Act (Title of each class):
Trading Symbol
Name of exchange on which registered
1-6364
South Jersey Industries, Inc.
1 South Jersey Plaza
Folsom, NJ 08037
(609) 561-9000
New Jersey
22-1901645
Common Stock - $1.25 par value per share
SJI
New York Stock Exchange
000-22211
South Jersey Gas Company
1 South Jersey Plaza
Folsom, NJ 08037
(609) 561-9000
New Jersey
21-0398330
None
N/A
N/A
Indicate by check mark whether each 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 such registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x   No o

Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that such registrant was required to submit such files). Yes x   No o

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
South Jersey Industries, Inc.:
 
Large accelerated filer   x
Accelerated filer      o
Non-accelerated filer     o 
Smaller reporting company      o
Emerging growth company      o
 
South Jersey Gas Company:
 
Large accelerated filer   o
Accelerated filer      o
Non-accelerated filer     x 
Smaller reporting company      o
Emerging growth company      o
 
If an emerging growth company, indicate by check mark if either registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Indicate by check mark whether either registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x
South Jersey Industries, Inc. (SJI) common stock ($1.25 par value) outstanding as of May 1, 2019 was 92,388,676 shares. South Jersey Gas Company common stock ($2.50 par value) outstanding as of May 1, 2019 was 2,339,139 shares. All of South Jersey Gas Company's outstanding shares of common stock are held by SJI Utilities, Inc, which is a wholly-owned subsidiary of SJI.
South Jersey Gas Company is a wholly-owned subsidiary of SJI Utilities, Inc. and meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q. As such, South Jersey Gas Company files its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.



TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page No.
Item 1.
Financial Statements (Unaudited)
 
South Jersey Industries, Inc.
 
 
 
 
 
 
 
 
 
 
South Jersey Gas Company
 
 
 
 
 
 
 
 
 
 
 
  South Jersey Industries, Inc. and South Jersey Gas Company - Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Note 19. Leases
 
Item 2.
 
 
Item 3.
Item 4.
PART II
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 6.
 
 
 



GLOSSARY OF TERMS AND ABBREVIATIONS

ACB
ACB Energy Partners, LLC
ACLE
AC Landfill Energy, LLC
Acquisition
The Company's acquisition of the assets of Elizabethtown Gas Company and Elkton Gas Company effective July 1, 2018, from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas
AFUDC
Allowance for Funds During Construction
AIRP
Accelerated Infrastructure Replacement Program
AMA
Asset Management Agreement
AOCL
Accumulated Other Comprehensive Loss
ARO
Asset Retirement Obligation
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Bcf
One billion cubic feet
BCLE
BC Landfill Energy, LLC
BGSS
Basic Gas Supply Service
BPU
New Jersey Board of Public Utilities
CEGR
Compounded Earnings Annual Growth Rate
CHP
Combined Heat and Power
CIP
Conservation Incentive Program
CLEP
Clean Energy Program
CODM
Chief Operating Decision Maker
DRP
Dividend Reinvestment Plan
dt
Decatherm
dts/d
Decatherms per day
EEP
Energy Efficiency Program
EET
Energy Efficiency Tracker
EGR
Earnings Growth Rate
ELK
Elkton Gas Company
EMI
Energy & Minerals, Inc.
EnerConnex
EnerConnex, LLC
Energenic
Energenic US, LLC
EnergyMark
EnergyMark, LLC
EPS
Earnings Per Share
ERIP
Early Retirement Incentive Program
ERISA
Employee Retirement Income Security Act of 1974
ETG
Elizabethtown Gas Company
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
GAAP
Generally Accepted Accounting Principles for financial reporting in the United States
IAM
International Association of Machinists and Aerospace Workers
IBEW
International Brotherhood of Electrical Workers
IIP
Infrastructure Investment Programs
LFGTE
Landfill Gas-to-Energy
LIBOR
London Interbank Offer Rate
LMP
Locational Marginal Price
Marina
Marina Energy, LLC

3


Mcf
One thousand cubic feet
Midstream
SJI Midstream, LLC
Millennium
Millennium Account Services, LLC
MPSC
Maryland Public Service Commission
MMdts
One million decatherms
MMmwh
One million megawatt hours
Morie
The Morie Company, Inc.
MTN
Medium Term Notes
MW
Megawatts
MWh
Megawatt-hours
Non-GAAP
The financial measures that are not prepared in accordance with U.S. GAAP
NPA
Note Purchase Agreement
NJEDA
New Jersey Economic Development Authority
NYMEX
New York Mercantile Exchange
OSS
Off-System Sales
PennEast
PennEast Pipeline, LLC
Potato Creek
Potato Creek, LLC
RAC
Remediation Adjustment Clause
ROE
Return on Equity
SBC
Societal Benefits Clause
SCLE
SC Landfill Energy, LLC
SEC
Securities and Exchange Commission
SERP
Supplemental Executive Retirement Plan
SHARP
Storm Hardening and Reliability Program
SJE
South Jersey Energy Company
SJES
South Jersey Energy Solutions, LLC
SJESP
South Jersey Energy Service Plus, LLC
SJEX
South Jersey Exploration, LLC
SJF
South Jersey Fuel, Inc.
SJG
South Jersey Gas Company
SJI
South Jersey Industries, Inc., or the Company
SJIU
SJI Utilities, Inc.
SJRG
South Jersey Resources Group, LLC
SRECs
Solar Renewable Energy Credits
SXLE
SX Landfill Energy, LLC
Tax Reform
Tax Cuts and Jobs Act which was enacted into law on December 22, 2017
TIC
Transportation Initiation Clause
TSA
Transition Services Agreement
TSR
Total Shareholder Return
Utilities
Represents SJI's three utility businesses: SJG, ETG, and ELK
UWUA
United Workers Union of America
VIE
Variable Interest Entity
WNC
Weather Normalization Clause



4



INTRODUCTION

FILING FORMAT

This Quarterly Report on Form 10-Q is a combined report being filed separately by two registrants: South Jersey Industries, Inc. (SJI) and South Jersey Gas Company (SJG). Information relating to SJI or any of its subsidiaries, other than SJG, is filed by SJI on its own behalf. SJG is only responsible for information about itself.

Except where the content clearly indicates otherwise, any reference in the report to "SJI," "the Company," "we," "us" or "our" is to the holding company or SJI and all of its subsidiaries, including SJG, which is a wholly-owned subsidiary of SJI Utilities, Inc. (which is wholly-owned by SJI).

Part 1 - Financial information in this Quarterly Report on Form 10-Q includes separate financial statements (i.e., balance sheets, statements of income, statements of comprehensive income, statements of equity and statements of cash flows) for SJI and SJG. The Notes to Unaudited Condensed Consolidated Financial Statements are presented on a combined basis for both SJI and SJG. Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) included under Item 2 is divided into two major sections: SJI and SJG.


5


Item 1. Condensed Consolidated Financial Statements
 
SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except for Per Share Data)
 
Three Months Ended
March 31,
 
2019
 
2018
Operating Revenues:
 
 
 
Utility
$
414,346

 
$
231,768

Nonutility
222,952

 
290,177

Total Operating Revenues
637,298

 
521,945

Operating Expenses:
 

 
 

Cost of Sales - (Excluding depreciation and amortization)
 

 
 

 - Utility
188,449

 
87,117

 - Nonutility
213,938

 
195,951

Operations
62,826

 
47,044

Maintenance
9,630

 
6,862

Depreciation
23,685

 
24,662

Energy and Other Taxes
4,217

 
2,439

Total Operating Expenses
502,745

 
364,075

Operating Income
134,553

 
157,870

 
 
 
 
Other Income and Expense
2,575

 
2,761

Interest Charges
(28,653
)
 
(13,972
)
Income Before Income Taxes
108,475

 
146,659

Income Taxes
(24,949
)
 
(36,415
)
Equity in Earnings of Affiliated Companies
2,173

 
1,062

Income from Continuing Operations
85,699

 
111,306

Loss from Discontinued Operations - (Net of tax benefit)
(62
)
 
(66
)
Net Income
$
85,637

 
$
111,240

 
 
 
 
Basic Earnings Per Common Share:
 

 
 

Continuing Operations
$
0.94

 
$
1.40

Discontinued Operations

 

Basic Earnings Per Common Share
$
0.94

 
$
1.40

 
 
 
 
Average Shares of Common Stock Outstanding - Basic
91,332

 
79,595

 
 
 
 
Diluted Earnings Per Common Share:
 

 
 

Continuing Operations
$
0.94

 
$
1.40

Discontinued Operations

 

Diluted Earnings Per Common Share
$
0.94

 
$
1.40

 
 
 
 
Average Shares of Common Stock Outstanding - Diluted
91,432

 
79,724


The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
 
 

6



SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In Thousands)
 
 
Three Months Ended
March 31,
 
2019
 
2018
Net Income
$
85,637

 
$
111,240

 
 
 
 
Other Comprehensive Income, Net of Tax:*
 

 
 

 
 
 
 
Unrealized Gain on Derivatives - Other
8

 
9

 
 
 
 
Other Comprehensive Income - Net of Tax*
8

 
9

 
 
 
 
Comprehensive Income
$
85,645

 
$
111,249

 
 
 
 

* Determined using a combined average statutory tax rate of approximately 27% and 25% in 2019 and 2018, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.



7


SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
 
 
Three Months Ended
March 31,
 
2019
 
2018
Net Cash Provided by Operating Activities
$
212,252

 
$
95,201

 
 
 
 
Cash Flows from Investing Activities:
 

 
 

Capital Expenditures
(121,887
)
 
(58,816
)
Proceeds from Sale of Property, Plant & Equipment
16,130

 

Investment in Long-Term Receivables
(3,408
)
 
(1,916
)
Proceeds from Long-Term Receivables
2,466

 
2,390

Purchase of Company-Owned Life Insurance

 
(279
)
Investment in Affiliate
(1,458
)
 
(3,975
)
Advances to Affiliate
(620
)
 

Net Repayment of Notes Receivable - Affiliate

 
1,065

 
 
 
 
Net Cash Used in Investing Activities
(108,777
)
 
(61,531
)
 
 
 
 
Cash Flows from Financing Activities:
 

 
 

Net Borrowings from (Repayments of) Short-Term Credit Facilities
84,621

 
(98,300
)
Proceeds from Issuance of Long-Term Debt
10,000

 
50,000

Principal Repayments of Long-Term Debt
(400,000
)
 

Payments for Issuance of Long-Term Debt
(798
)
 
(1,264
)
Net Settlement of Restricted Stock

 
(776
)
Proceeds from Sale of Common Stock
189,032

 

 
 
 
 
Net Cash Used in Financing Activities
(117,145
)
 
(50,340
)
 
 
 
 
Net Decrease in Cash, Cash Equivalents and Restricted Cash
(13,670
)
 
(16,670
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
31,679

 
39,695

 
 
 
 
Cash, Cash Equivalents and Restricted Cash at End of Period
$
18,009

 
$
23,025


The accompanying notes are an integral part of the condensed consolidated financial statements.












8


SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands)
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Property, Plant and Equipment:
 
 
 
Utility Plant, at original cost
$
4,427,438

 
$
4,341,113

Accumulated Depreciation
(799,637
)
 
(787,243
)
Nonutility Property and Equipment, at cost
152,270

 
152,232

Accumulated Depreciation
(53,992
)
 
(52,629
)
 
 
 
 
Property, Plant and Equipment - Net
3,726,079

 
3,653,473

 
 
 
 
Investments:
 

 
 

Available-for-Sale Securities
41

 
41

Restricted
7,649

 
1,649

Investment in Affiliates
79,243

 
76,122

 
 
 
 
Total Investments
86,933

 
77,812

 
 
 
 
Current Assets:
 

 
 

Cash and Cash Equivalents
10,360

 
30,030

Accounts Receivable
317,917

 
337,502

Unbilled Revenues
68,155

 
79,538

Provision for Uncollectibles
(20,753
)
 
(18,842
)
Notes Receivable - Affiliate
2,566

 
1,945

Natural Gas in Storage, average cost
26,613

 
60,425

Materials and Supplies, average cost
1,744

 
1,743

Prepaid Taxes
13,586

 
30,694

Derivatives - Energy Related Assets
29,180

 
54,021

Assets Held For Sale
37,532

 
59,588

Other Prepayments and Current Assets
33,807

 
26,548

 
 
 
 
Total Current Assets
520,707

 
663,192

 
 
 
 
Regulatory and Other Noncurrent Assets:
 

 
 

Regulatory Assets
624,187

 
662,969

Derivatives - Energy Related Assets
13,677

 
7,169

Notes Receivable - Affiliate
13,275

 
13,275

Contract Receivables
28,744

 
27,961

Goodwill
734,607

 
734,607

Other
115,153

 
116,119

 
 
 
 
Total Regulatory and Other Noncurrent Assets
1,529,643

 
1,562,100

 
 
 
 
Total Assets
$
5,863,362

 
$
5,956,577

 
The accompanying notes are an integral part of the condensed consolidated financial statements.

9


SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands)
 
March 31,
2019
 
December 31,
2018
Capitalization and Liabilities
 
 
 
Equity:
 
 
 
Common Stock
$
115,486

 
$
106,883

Premium on Common Stock
1,023,097

 
843,268

Treasury Stock (at par)
(275
)
 
(292
)
Accumulated Other Comprehensive Loss
(26,087
)
 
(26,095
)
Retained Earnings
402,333

 
343,258

 
 
 
 
Total Equity
1,514,554

 
1,267,022

 
 
 
 
Long-Term Debt
2,117,903

 
2,106,863

 
 
 
 
Total Capitalization
3,632,457

 
3,373,885

 
 
 
 
Current Liabilities:
 

 
 

Notes Payable
355,121

 
270,500

Current Portion of Long-Term Debt
333,909

 
733,909

Accounts Payable
332,876

 
410,463

Customer Deposits and Credit Balances
26,434

 
32,058

Environmental Remediation Costs
50,258

 
47,592

Taxes Accrued
10,715

 
5,881

Derivatives - Energy Related Liabilities
21,392

 
24,134

   Deferred Contract Revenues
1,772

 
1,772

Derivatives - Other Current
780

 
588

Dividends Payable
26,562

 

Interest Accrued
13,962

 
14,208

Pension Benefits
3,631

 
3,631

Other Current Liabilities
27,643

 
36,102

 
 
 
 
Total Current Liabilities
1,205,055

 
1,580,838

 
 
 
 
Deferred Credits and Other Noncurrent Liabilities:
 

 
 

Deferred Income Taxes - Net
111,614

 
85,836

Pension and Other Postretirement Benefits
110,049

 
110,112

Environmental Remediation Costs
204,645

 
206,058

Asset Retirement Obligations
81,032

 
80,163

Derivatives - Energy Related Liabilities
5,713

 
7,256

Derivatives - Other Noncurrent
8,898

 
7,285

Regulatory Liabilities
478,592

 
478,499

Other
25,307

 
26,645

 
 
 
 
Total Deferred Credits and Other Noncurrent Liabilities
1,025,850

 
1,001,854

 
 
 
 
Commitments and Contingencies  (Note 11)


 


 
 
 
 
Total Capitalization and Liabilities
$
5,863,362

 
$
5,956,577

 
The accompanying notes are an integral part of the condensed consolidated financial statements.


10


SOUTH JERSEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(In Thousands, Except for Per Share Data)


 
South Jersey Industries, Inc. and Subsidiaries
 
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Premium on Common Stock
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
 
$
106,883

 
$
843,268

 
$
(292
)
 
$
(26,095
)
 
$
343,258

 
$
1,267,022

Net Income
 

 

 

 

 
85,637

 
85,637

Other Comprehensive Loss, Net of Tax
 

 

 

 
8

 

 
8

Common Stock Issued or Granted Through Equity Offering or Stock Plans
 
8,603

 
179,829

 
17

 

 

 
188,449

Cash Dividends Declared - Common Stock ($0.29 per share)
 

 

 

 

 
(26,562
)
 
(26,562
)
Balance at March 31, 2019
 
$
115,486

 
$
1,023,097

 
$
(275
)
 
$
(26,087
)
 
$
402,333

 
$
1,514,554


 
South Jersey Industries, Inc. and Subsidiaries
 
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Premium on Common Stock
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
$
99,436

 
$
709,658

 
$
(271
)
 
$
(36,765
)
 
$
420,351

 
$
1,192,409

Net Income
 

 

 

 

 
111,240

 
111,240

Other Comprehensive Loss, Net of Tax
 

 

 

 
9

 

 
9

Common Stock Issued or Granted Through Equity Offering or Stock Plans
 
80

 
98

 
(3
)
 

 

 
175

Cash Dividends Declared - Common Stock ($0.28 per share)
 

 

 

 

 
(22,336
)
 
(22,336
)
Balance at March 31, 2018
 
$
99,516

 
$
709,756

 
$
(274
)
 
$
(36,756
)
 
$
509,255

 
$
1,281,497


The accompanying notes are an integral part of the condensed consolidated financial statements.

11




Disclosure of Changes in Accumulated Other Comprehensive Loss Balances (Unaudited)
(In Thousands)


 
 
Postretirement
Liability
Adjustment
 
Unrealized Gain
(Loss) on
Derivatives-Other (A)
 
Unrealized Gain
(Loss) on Available-
for-Sale Securities
 
Other
Comprehensive
Income (Loss) of
Affiliated
Companies
 
Accumulated
Other
Comprehensive
Loss
 
 
 

 
 

 
 

 
 

 
 

Balance at January 1, 2019
 
$
(25,626
)
 
$
(362
)
 
$
(10
)
 
$
(97
)
 
$
(26,095
)
   Changes During Period
 

 
8

 

 

 
8

Balance at March 31, 2019
 
$
(25,626
)
 
$
(354
)
 
$
(10
)
 
$
(97
)
 
$
(26,087
)
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
$
(36,262
)
 
$
(396
)
 
$
(10
)
 
$
(97
)
 
(36,765
)
   Changes During Period
 

 
9

 

 

 
9

Balance at March 31, 2018
 
$
(36,262
)
 
$
(387
)
 
$
(10
)
 
$
(97
)
 
$
(36,756
)

(A) Determined using a combined average statutory tax rate of 27% for 2019 and 25% for 2018.

The accompanying notes are an integral part of the condensed consolidated financial statements.


12


SOUTH JERSEY GAS COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands)

 
Three Months Ended
March 31,
 
 
2019
 
2018
Operating Revenues
$
272,198

 
$
234,459

 
 
 
 
Operating Expenses:
 
 
 
Cost of Sales (Excluding depreciation and amortization)
118,880

 
89,808

Operations
29,097

 
29,370

Maintenance
8,143

 
6,862

Depreciation
15,744

 
14,363

Energy and Other Taxes
1,989

 
1,255

 
 
 
 
Total Operating Expenses
173,853

 
141,658

 
 
 
 
Operating Income
98,345

 
92,801

 
 
 
 
Other Income and Expense
1,931

 
2,510

 
 
 
 
Interest Charges
(7,848
)
 
(6,728
)
 
 
 
 
Income Before Income Taxes
92,428

 
88,583

 
 
 
 
Income Taxes
(23,697
)
 
(21,836
)
 
 
 
 
Net Income
$
68,731

 
$
66,747



The accompanying notes are an integral part of the condensed financial statements.

 
 
 
 


13



SOUTH JERSEY GAS COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In Thousands)
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
Net Income
$
68,731

 
$
66,747

 
 
 
 
Other Comprehensive Income - Net of Tax: *
 
 
 
 
 
 
 
Unrealized Gain on Derivatives - Other
8

 
9

 
 
 
 
Other Comprehensive Income - Net of Tax *
8

 
9

 
 
 
 
Comprehensive Income
$
68,739

 
$
66,756

 
 
 
 

 
 
 
 
* Determined using a combined average statutory tax rate of approximately 27% and 25% in 2019 and 2018, respectively.
 
The accompanying notes are an integral part of the condensed financial statements.



14


SOUTH JERSEY GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
 
Three Months Ended
March 31,
 
 
2019
 
2018
Net Cash Provided by Operating Activities
$
87,752

 
$
44,492

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Capital Expenditures
(57,850
)
 
(54,960
)
Investment in Long-Term Receivables
(3,408
)
 
(1,916
)
Proceeds from Long-Term Receivables
2,466

 
2,390

 
 
 
 
Net Cash Used in Investing Activities
(58,792
)
 
(54,486
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Net Borrowings from (Repayments of) Short-Term Credit Facilities
(38,998
)
 
11,100

Proceeds from Issuance of Long-Term Debt
10,000

 
(5
)
 
 
 
 
Net Cash (Used in) Provided by Financing Activities
(28,998
)
 
11,095

 
 
 
 
Net Increase in Cash, Cash Equivalents and Restricted Cash
(38
)
 
1,101

Cash, Cash Equivalents and Restricted Cash at Beginning of Period
3,262

 
4,619

 
 
 
 
Cash, Cash Equivalents and Restricted Cash at End of Period
$
3,224

 
$
5,720

 
The accompanying notes are an integral part of the unaudited condensed financial statements.


15


SOUTH JERSEY GAS COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
(In Thousands)
 
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Property, Plant and Equipment:
 
 
 
Utility Plant, at original cost
$
2,958,656

 
$
2,907,202

Accumulated Depreciation
(535,551
)
 
(523,743
)
 
 
 
 
Property, Plant and Equipment - Net
2,423,105

 
2,383,459

 
 
 
 
Investments:
 
 
 
Restricted Investments
1,468

 
1,278

 
 
 
 
Total Investments
1,468

 
1,278

 
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
1,756

 
1,984

Accounts Receivable
146,185

 
101,572

Accounts Receivable - Related Parties
16,338

 
2,442

Unbilled Revenues
38,292

 
43,271

Provision for Uncollectibles
(13,968
)
 
(13,643
)
Natural Gas in Storage, average cost
3,504

 
16,336

Materials and Supplies, average cost
619

 
619

Prepaid Taxes
11,113

 
28,772

Derivatives - Energy Related Assets
2,076

 
5,464

Other Prepayments and Current Assets
18,888

 
11,280

 
 
 
 
Total Current Assets
224,803

 
198,097

 
 
 
 
Regulatory and Other Noncurrent Assets:
 
 
 
Regulatory Assets
454,542

 
492,365

Long-Term Receivables
26,428

 
25,531

Derivatives - Energy Related Assets

 
15

Other
20,047

 
17,491

 
 
 
 
Total Regulatory and Other Noncurrent Assets
501,017

 
535,402

 
 
 
 
Total Assets
$
3,150,393

 
$
3,118,236

 
The accompanying notes are an integral part of the condensed financial statements.

16


SOUTH JERSEY GAS COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
(In Thousands)
 
 
March 31, 2019
 
December 31, 2018
Capitalization and Liabilities
 
 
 
Equity:
 
 
 
Common Stock
$
5,848

 
$
5,848

Other Paid-In Capital and Premium on Common Stock
355,744

 
355,744

Accumulated Other Comprehensive Loss
(22,349
)
 
(22,357
)
Retained Earnings
737,518

 
668,787

 
 
 
 
Total Equity
1,076,761

 
1,008,022

 
 
 
 
Long-Term Debt
884,655

 
874,507

 
 
 
 
Total Capitalization
1,961,416

 
1,882,529

 
 
 
 
Current Liabilities:
 

 
 

Notes Payable
68,502

 
107,500

Current Portion of Long-Term Debt
18,909

 
18,909

Accounts Payable - Commodity
41,155

 
48,490

Accounts Payable - Other
44,701

 
52,966

Accounts Payable - Related Parties
6,058

 
12,563

Derivatives - Energy Related Liabilities
693

 
2,146

Derivatives - Other Current
391

 
343

Customer Deposits and Credit Balances
18,018

 
23,862

Environmental Remediation Costs
36,338

 
33,022

Taxes Accrued
7,012

 
1,891

Pension Benefits
3,597

 
3,597

Interest Accrued
4,842

 
7,134

Other Current Liabilities
7,759

 
9,444

 
 
 
 
Total Current Liabilities
257,975

 
321,867

 
 
 
 
Regulatory and Other Noncurrent Liabilities:
 

 
 

Regulatory Liabilities
278,827

 
286,539

Deferred Income Taxes - Net
349,676

 
325,886

Environmental Remediation Costs
113,703

 
115,049

Asset Retirement Obligations
80,756

 
79,890

Pension and Other Postretirement Benefits
96,497

 
96,053

Derivatives - Energy Related Liabilities
96

 
43

Derivatives - Other Noncurrent
6,191

 
5,524

Other
5,256

 
4,856

 
 
 
 
Total Regulatory and Other Noncurrent Liabilities
931,002

 
913,840

 
 
 
 
Commitments and Contingencies (Note 11)


 


 
 
 
 
Total Capitalization and Liabilities
$
3,150,393

 
$
3,118,236

 
The accompanying notes are an integral part of the condensed financial statements.

17


SOUTH JERSEY GAS COMPANY
STATEMENTS OF CHANGES IN COMMON EQUITY (UNAUDITED)
(In Thousands)


 
Three Months Ended March 31, 2019
 
Common Stock
 
Other Paid-In Capital and Premium on Common Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total
Balance at January 1, 2019
$
5,848

 
$
355,744

 
$
(22,357
)
 
$
668,787

 
$
1,008,022

Net Income

 

 

 
68,731

 
68,731

Other Comprehensive Loss, Net of Tax

 

 
8

 

 
8

Balance at March 31, 2019
$
5,848

 
$
355,744

 
$
(22,349
)
 
$
737,518

 
$
1,076,761


 
Three Months Ended March 31, 2018
 
Common Stock
 
Other Paid-In Capital and Premium on Common Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total
Balance at January 1, 2018
$
5,848

 
$
355,744

 
$
(25,997
)
 
$
585,838

 
$
921,433

Net Income

 

 

 
66,747

 
66,747

Other Comprehensive Loss, Net of Tax

 

 
9

 

 
9

Balance at March 31, 2018
$
5,848

 
$
355,744

 
$
(25,988
)
 
$
652,585

 
$
988,189


The accompanying notes are an integral part of the condensed financial statements.


Disclosure of Changes in Accumulated Other Comprehensive Loss Balances (Unaudited)
(In Thousands)


 
Postretirement Liability Adjustment
 
Unrealized Gain (Loss) on Derivatives (A)
 
Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2019
$
(21,901
)
 
$
(456
)
 
$
(22,357
)
Changes During Period

 
8

 
8

Balance at March 31, 2019
$
(21,901
)
 
$
(448
)
 
$
(22,349
)
 
 
 
 
 


Balance at January 1, 2018
$
(25,507
)
 
$
(490
)
 
$
(25,997
)
Changes During Period

 
9

 
9

Balance at March 31, 2018
$
(25,507
)
 
$
(481
)
 
$
(25,988
)

(A) Determined using a combined average statutory tax rate of 27% for 2019 and 25% for 2018.

The accompanying notes are an integral part of the condensed financial statements.


18


 Notes to Condensed Consolidated Financial Statements

1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

GENERAL - SJI provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:

SJIU is a holding company that owns SJG, and, as of July 1, 2018, ETG and ELK (see "Acquisition" below).

*
SJG is a regulated natural gas utility which distributes natural gas in the seven southernmost counties of New Jersey.

*
ETG is a regulated natural gas utility which distributes natural gas in seven counties in northern and central New Jersey.

*
ELK is a regulated natural gas utility which distributes natural gas in northern Maryland.

SJE acquires and markets electricity to retail end users. In November 2018, the Company sold SJE's retail gas businesses.

SJRG markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.

SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.

Marina develops and operates on-site energy-related projects. The significant wholly-owned subsidiaries of Marina include:

ACB, which owns and operates a natural gas fueled combined heating, cooling and power facility located in Atlantic City, New Jersey.

ACLE, BCLE, SCLE and SXLE, which own and operate LFGTE production facilities in Atlantic, Burlington, Salem and Sussex Counties located in New Jersey.

SJESP receives commissions on service contracts from a third party.

Midstream invests in infrastructure and other midstream projects, including a current project to build an approximately 118-mile natural gas pipeline in Pennsylvania and New Jersey.

BASIS OF PRESENTATION - SJI's condensed consolidated financial statements include the accounts of SJI, its wholly-owned subsidiaries (including SJG) and subsidiaries in which SJI has a controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Beginning as of the date of their acquisition, July 1, 2018, SJI is also reporting on a consolidated basis the combined operations of ETG and ELK.


19


As permitted by the rules and regulations of the SEC, the accompanying unaudited condensed consolidated financial statements of SJI and SJG contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These financial statements should be read in conjunction with SJI’s and SJG's Annual Reports on Form 10-K for the year ended December 31, 2018. In management’s opinion, the condensed consolidated financial statements of SJI and SJG reflect all normal recurring adjustments needed to fairly present their respective financial positions, operating results and cash flows at the dates and for the periods presented. SJI’s and SJG's businesses are subject to seasonal fluctuations and, accordingly, this interim financial information should not be the basis for estimating the full year’s operating results.

ACQUISITION - On July 1, 2018, SJI, through its wholly-owned subsidiary SJIU, acquired the assets of ETG and ELK from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (collectively, the "Acquisition"), for total consideration of $1.74 billion (see Note 17).

AGREEMENT TO SELL SOLAR ASSETS - On June 27, 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to sell its portfolio of solar energy assets (the “Transaction”) to a third-party buyer. As part of the Transaction, Marina has agreed to sell its distributed solar energy projects across New Jersey, Maryland, Massachusetts and Vermont (the “Projects”), along with the assets comprising the Projects. The sale of individual Projects is occurring on a rolling basis as the conditions precedent to each closing are satisfied. Also in connection with the Transaction, Marina is leasing certain of the Projects that have not yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes back from the buyer from the date each such project is acquired by the buyer until the later of the first anniversary of the applicable acquisition date and the fifth anniversary of the applicable placed-in-service date of the project.
During the first quarter 2019, four projects were sold for total consideration of $16.1 million, with a gain recognized on these projects of less than $0.1 million. The Company currently has four other projects that are a part of the Transaction and have not yet closed, but are expected to close in 2019. The Company also has two projects that are not part of the Transaction but are also expected to be sold in 2019. The value of all unsold solar assets is $37.5 million and is recorded as Assets Held For Sale on the condensed consolidated balance sheets as of March 31, 2019, where they will remain until they are transferred to a buyer.

IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. Such reviews are performed in accordance with FASB ASC Topic 360. An impairment loss is indicated if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value with the difference recorded within Operating Income on the condensed consolidated statements of income. Fair values can be determined by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques.

No impairments were identified at either SJI or SJG for the three months ended March 31, 2019 or 2018, respectively.

GAS EXPLORATION AND DEVELOPMENT - SJI 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. No impairment charges were recorded on these properties during the three months ended March 31, 2019 or 2018. As of both March 31, 2019 and December 31, 2018, $8.6 million related to interests in proved and unproved properties in Pennsylvania, net of amortization, is included with Nonutility Property and Equipment and Other Noncurrent Assets on the condensed consolidated balance sheets.
 
TREASURY STOCK - SJI uses the par value method of accounting for treasury stock. As of March 31, 2019 and December 31, 2018, SJI held 220,339 and 233,482 shares of treasury stock, respectively. These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.

AFUDC - SJI and SJG record AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new regulated facilities. While cash is not realized currently, AFUDC increases the regulated revenue requirement and is included in rate base and recovered over the service life of the asset through a higher rate base and higher depreciation.

INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with FASB ASC Topic 740 - “Income Taxes.” 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.



20


BUSINESS COMBINATION - The Company applies the acquisition method to account for business combinations. The consideration transferred for an acquisition is the fair value of the assets transferred, the liabilities incurred by the acquirer and the equity interests issued by the acquirer. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill (see Note 17).

GOODWILL - See Note 18.

AMA - On July 1, 2018, SJRG purchased from a third party an AMA whereby SJRG will manage the pipeline capacity of ETG. Total cash payment was $11.3 million. The AMA expires on March 31, 2022. Under the AMA, SJRG will pay ETG an annual fee of $4.25 million, plus additional profit sharing as defined in the AMA. The amounts received by ETG will be credited to its BGSS clause and returned to its ratepayers. The total purchase price was allocated as follows (in thousands):

Natural Gas in Storage
 
$
9,685

Intangible Asset
 
19,200

Profit Sharing - Other Liabilities
 
(17,546
)
   Total Consideration
 
$
11,339


As of March 31, 2019 and December 31, 2018, the balance of the intangible asset is $15.4 million and $16.6 million, respectively, and is recorded to Other Current and Noncurrent Assets on the condensed consolidated balance sheets of SJI, with the reduction being due to amortization. As of March 31, 2019 and December 31, 2018, the balance in the liability is $17.3 million and $17.0 million and is recorded to Regulatory Liabilities on the condensed consolidated balance sheets of SJI, with the change resulting from profit sharing earned.

CURRENT PORTION OF LONG-TERM DEBT - As of March 31, 2019 and December 31, 2018, SJI had $333.9 million and $733.9 million, respectively, of long-term debt that is due within one year, with the difference being $400.0 million in long-term debt that was paid down during the three months ended March 31, 2019 (see Note 14). Additional debt was paid down in April 2019 (see Note 20). SJI expects to further reduce its debt in 2019 using cash provided from the sale of the remaining solar assets, along with the sale of other assets considered non-core to its business. The remaining long-term debt that is due within one year is expected to be paid by utilizing funds provided from refinancing activity and from the revolving credit facility.

NEW ACCOUNTING PRONOUNCEMENTS - Other than as described below, no new accounting pronouncement had, or is expected to have, a material impact on the condensed consolidated financial statements of SJI, or the condensed financial statements of SJG.

In March 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize substantially all leases on their balance sheet as a right-of-use asset and corresponding lease liability, including leases accounted for as operating leases. Topic 842 also resulted in enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases. The accounting for leases by the lessor remains relatively the same. In connection with this new standard, the FASB has issued the following amendments to ASU 2016-02:

In January 2018, the FASB issued an amendment (ASU 2018-01) to clarify the application of the new lease guidance to land easements and provided relief concerning adoption efforts for existing land easements that are not accounted for as leases under current GAAP.

In July 2018, the FASB issued ASUs 2018-10 and 2018-11, which included a number of technical corrections and improvements to this standard, including an additional option for transition. The guidance initially required a modified retrospective transition method of adoption, under which lessees and lessors were to recognize and measure leases at the beginning of the earliest period presented. The additional, optional transition method allows an entity to initially apply the requirements of the lease standard at the adoption date, and avoid restating the comparative periods.


21


In December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors. The amendments in this ASU permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. A lessor making this election will exclude from the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures. The amendments in this ASU related to certain lessor costs also require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties, and require lessors to account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments, and record those reimbursed costs as revenue. Lastly, the amendments in this ASU related to recognizing variable payments for contracts with lease and nonlease components require lessors to allocate (rather than recognize as currently required) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements. The amendments in this ASU reinstate a Topic 840 explicit exception for lessors that are not manufacturers or dealers for determining fair value of the leased property in Topic 842. This exception specifies that such lessors will use their cost, reflecting any volume or trade discounts that may apply, as the fair value of the underlying asset. However, if significant time lapses between the acquisition of the underlying asset and lease commencement, those lessors will be required to apply the definition of fair value (exit price) in Topic 820. Lastly, the amendments in this ASU added an explicit exception to the Topic 250, Accounting Changes and Error Corrections, paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements.

The new guidance in ASU 2016-02, as well as all amendments discussed above, was effective for the Company beginning on January 1, 2019. The impact of adopting Topic 842 did not result in an adjustment to retained earnings as of January 1, 2019.

As of January 1, 2019, the Company designed the necessary changes to its existing processes and configured all system requirements to adopt the new standard and applied its provisions to all contracts using the optional transition method discussed above, and by applying certain transition practical expedients. The Company elected the “package of practical expedients,” which permits the Company to not reassess under Topic 842 the Company’s prior conclusions about lease identification, lease classification, and initial direct costs. The Company also elected the expedient not to evaluate existing or expired land easements under Topic 842 that were not previously accounted for as leases. The Company has elected not to use hindsight when determining the lease term at the effective date. The Company elected the short-term lease recognition exemption for all leases that qualify. For the leases that qualify, including leases effective at adoption, the Company will not recognize right-of-use assets or lease liabilities. The Company has elected the practical expedient to not separate lease and non-lease components for all leases. The Company’s non-lease components are primarily related to property maintenance on real estate leases, which varies based on future outcomes, and thus is recognized in rent expense when incurred. Additionally, the Company elected to apply a portfolio approach when establishing the discount rate for certain of its leases.

The Company has leases for the following classes of underlying assets: equipment, real estate (land and building), and fleet vehicles. After adopting Topic 842, SJI and SJG had operating right-of-use assets of approximately $3.1 million and $0.5 million, respectively, as of January 1, 2019, with operating lease liabilities of the same amounts. The Company did not have any finance leases.
The Company determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable. Otherwise, the Company uses its incremental borrowing rate, which is determined by using a portfolio approach based on the rate of interest in its existing collateralized term loan facility adjusted for lease term.
Rent expense for operating leases is recognized on a straight-line basis over the reasonably certain lease term based on the total lease payments and is included in Operations Expense in the condensed consolidated statements of income.
For all leases, rent payments that are based on a fixed index or rate are included in the measurement of right-of-use assets and lease liabilities using the index or rate at the lease commencement date. Rent payments that vary based on changes in future indexes or rates are expensed in the period incurred.

For more information on the Company's leases, see Note 19.


22


In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The amendments in this update are effective for annual and any interim impairment tests performed in periods beginning after December 31, 2019. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU is intended to improve the financial reporting of hedging relationships so that it represents a more faithful portrayal of an entity’s risk management activities (i.e. to help financial statement users understand an entity’s risk exposures and the manner in which hedging strategies are used to manage them), as well as to further simplify the application of the hedge accounting guidance in GAAP. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Tax Reform. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Reform and will improve the usefulness of information reported to financial statement users. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG. An election was not made to reclassify the income tax effects of Tax Reform from AOCL to retained earnings. SJI and SJG release income tax effects from AOCL on an individual unit of account basis.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU aligns the accounting for share-based payment awards issued to employees and nonemployees. Under the new guidance, equity-classified share-based payment awards issued to nonemployees are now measured on the grant date, instead of the previous requirement to remeasure the awards through the performance completion date. For performance conditions, compensation cost associated with the award are now recognized when achievement of the performance condition is probable, rather than upon achievement of the performance condition. The previous requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting was eliminated, except for awards in the form of convertible instruments. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on the timing of liquidation of an investee's assets and the description of measurement uncertainty at the reporting date. Entities are now required to disclose: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, the standard eliminates disclosure requirements with respect to: (1) the transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation process for Level 3 fair value measurements. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The new disclosure requirement for unrealized gains and losses, the range and weighted average of significant unobservable inputs and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively to all periods presented upon their effective date. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plan. This ASU eliminates requirements for certain disclosures such as the amount and timing of plan assets expected to be returned to the employer and the amount of future annual benefits covered by insurance contracts. The standard added new disclosures such as for sponsors of the defined benefit plans to provide information relating to the weighted-average interest crediting rate for cash balance plans and other plans with promised interest crediting rates and an explanation for significant gains or losses related to changes in the benefit obligations for the period. The standard is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.


23


In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this ASU permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this ASU for determining whether a decision-making fee is a variable interest require reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required by GAAP). These amendments will create alignment between determining whether a decision-making fee is a variable interest and determining whether a reporting entity within a related party group is the primary beneficiary of a VIE. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019 for public companies. Early adoption is permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this ASU provide codification improvements and further clarification on several topics, including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (discussed above), as well as ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10). Since SJI and SJG have adopted the amendments in ASU 2017-12 as of April 25, 2019 (the issuance date of ASU 2019-04), the effective date for the amendments to Topic 815 contained in ASU 2019-04 is as of the beginning of the first annual reporting period beginning after April 25, 2019. Early adoption is permitted, including adoption on any date on or after April 25, 2019. The amendments related to ASU 2016-01 are effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption in any interim period is permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.

2.
STOCK-BASED COMPENSATION PLAN:

Under SJI's 2015 Omnibus Equity Compensation Plan (Plan), shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. No options were granted or outstanding during the three months ended March 31, 2019 and 2018No stock appreciation rights have been issued under the plans. No restricted shares were granted during the three months ended March 31, 2019 to Officers and other key employees; SJI granted 185,214 restricted shares during the three months ended March 31, 2018 to Officers and other key employees under the Plan. Performance-based restricted shares vest over a three-year period and are subject to SJI achieving certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from 0% to 200% of the original shares granted.

SJI grants time-based shares of restricted stock, one-third of which vest annually over a three-year period and which are limited to a 100% payout. Vesting of time-based grants is contingent upon SJI achieving a ROE of at least 7% during the initial year of the grant and meeting the service requirement. Provided that the 7% ROE requirement is met in the initial year, payout is solely contingent upon the service requirement being met in years two and three of the grant. Beginning in 2018, the vesting and payout of time-based shares of restricted stock is solely contingent upon the service requirement being met in years one, two, and three of the grant. No time-based restricted stock was granted during the three months ended March 31, 2019. Officers and other key employees were granted 56,634 shares of time-based restricted stock during the three months ended March 31, 2018, which are included in the shares noted above.

SJI granted 96,240 performance-based and 81,631 time-based restricted shares to Officers and other key employees under the Plan in April 2019.

Grants containing market-based performance targets use SJI's TSR relative to a peer group to measure performance. As TSR-based grants 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 on a straight-line basis over the requisite three-year 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 fair value of TSR-based restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.


24


Earnings-based performance targets include pre-defined EGR and ROE goals to measure performance. Performance targets include pre-defined CEGR for SJI. As EGR-based, ROE-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite three-year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.

During the three months ended March 31, 2019 and 2018, SJI granted 30,028 and 26,416 restricted shares, respectively, to Directors. Shares issued to Directors vest over twelve months and contain no performance conditions. As a result, 100% of the shares granted generally vest.

The following table summarizes the nonvested restricted stock awards outstanding for SJI at March 31, 2019 and the assumptions used to estimate the fair value of the awards:

 
Grants
 
Shares Outstanding
 
Fair Value Per Share
 
Expected Volatility
 
Risk-Free Interest Rate
Officers & Key Employees -
2017 - TSR
 
42,214

 
$
32.17

 
20.8
%
 
1.47
%
 
2017 - CEGR, Time
 
56,741

 
$
33.69

 
N/A

 
N/A

 
2018 - TSR
 
56,411

 
$
31.05

 
21.9
%
 
2.00
%
 
2018 - CEGR, Time
 
94,729

 
$
31.23

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
 
Directors -
2019
 
30,028

 
$
26.89

 
N/A

 
N/A

 

 


 


 


 



Expected volatility is based on the actual 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 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 dividends are paid or credited to the holder during the requisite service period, the fair value of these awards are equal to the market value of the shares on the date of grant.

The following table summarizes the total stock-based compensation cost to SJI for the three months ended March 31, 2019 and 2018 (in thousands):

 
Three Months Ended
March 31,
 
2019
2018
Officers & Key Employees
$
750

$
1,100

Directors
202

206

Total Cost
952

1,306

 
 
 
Capitalized
(81
)
(101
)
Net Expense
$
871

$
1,205


As of March 31, 2019, there was $5.3 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the plans. That cost is expected to be recognized over a weighted average period of 1.4 years.


25


The following table summarizes information regarding restricted stock award activity for SJI during the three months ended March 31, 2019, excluding accrued dividend equivalents:

 
Officers and Other Key Employees
 
Directors
 
Weighted
Average
Fair Value
Nonvested Shares Outstanding, January 1, 2019
411,809

 
26,416

 
$
29.57

  Granted

 
30,028

 
$
26.89

  Cancelled/Forfeited
(14,181
)
 

 
$
31.73

  Vested
(147,533
)
 
(26,416
)
 
$
26.04

Nonvested Shares Outstanding, March 31, 2019
250,095

 
30,028

 
$
31.37


During the three months ended March 31, 2019 and 2018, SJI awarded 122,265 shares to its Officers and other key employees at a market value of $3.6 million, and 63,030 shares at a market value of $1.9 million, respectively. During the three months ended March 31, 2019 and 2018, SJI also awarded 26,416 and 30,394 shares to its Directors at a market value of $0.8 million and $1.0 million, respectively.

SJI has a policy of issuing new shares to satisfy its obligations under the Plan; therefore, there are no cash payment requirements resulting from the normal operation of the Plan. However, a change in control could result in such shares becoming nonforfeitable or immediately payable in cash. At the discretion of the Officers, Directors 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 condensed consolidated balance sheets.

SJG - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the three months ended March 31, 2019, no shares of restricted stock were granted; during the three months ended March 31, 2018, SJG officers and other key employees were granted 26,652 shares of SJI restricted stock. The cost of outstanding stock awards for SJG during the three months ended March 31, 2019 and 2018 was $0.1 million and $0.2 million, respectively. Approximately 60% of these costs were capitalized on SJG's condensed balance sheets to Utility Plant.

3.
AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS:

AFFILIATIONS — The following affiliated entities are accounted for under the equity method:

PennEast - Midstream has a 20% investment in PennEast, which is planning to construct an approximately 118-mile natural gas pipeline that will extend from Northeastern Pennsylvania into New Jersey.

Energenic - Marina and a joint venture partner formed Energenic, in which Marina has a 50% equity interest. Energenic developed and operated on-site, self-contained, energy-related projects. Energenic currently does not have any projects that are operational.

Millennium - SJI and a joint venture partner formed Millennium, in which SJI has a 50% equity interest. Millennium reads utility customers’ meters on a monthly basis for a fee.

Potato Creek - SJI and a joint venture partner formed Potato Creek, in which SJI has a 30% equity interest. Potato Creek owns and manages the oil, gas and mineral rights of certain real estate in Pennsylvania.

EnergyMark - SJE has a 33% investment in EnergyMark, an entity that acquires and markets natural gas to retail end users.

SJRG had net sales to EnergyMark of $13.9 million and $14.6 million for the three months ended March 31, 2019 and 2018, respectively.

EnerConnex - SJI has a 25% investment in EnerConnex, which is a retail and wholesale broker and consultant that matches end users with suppliers for the procurement of natural gas and electricity.


26


During the first three months of 2019 and 2018, SJI made net investments in unconsolidated affiliates of $2.1 million and $2.9 million, respectively.  As of March 31, 2019 and December 31, 2018, the outstanding balance of Notes Receivable – Affiliate was $15.8 million and $15.2 million, respectively. As of both March 31, 2019 and December 31, 2018, $13.6 million of these notes were secured by property, plant and equipment of the affiliates, accrue interest at 7.5% and are to be repaid through 2025. As of March 31, 2019 and December 31, 2018, the remaining $2.2 million and $1.6 million, respectively, of these notes are unsecured and accrue interest at variable rates.
    
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 SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of March 31, 2019, SJI had a net asset of approximately $79.2 million included in Investment in Affiliates on the condensed consolidated balance sheets related to equity method investees, in addition to Notes Receivable – Affiliate as discussed above. SJI’s maximum exposure to loss from these entities as of March 31, 2019, is limited to its combined investments in these entities and the Notes Receivable-Affiliate in the aggregate amount of $95.0 million.

DISCONTINUED OPERATIONS - Discontinued Operations consist of the environmental remediation activities related to the properties of SJF and the product liability litigation and environmental remediation activities related to the prior business of Morie. SJF is a subsidiary of 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 (see Note 11).

Summarized operating results of the discontinued operations for the three months ended March 31, 2019 and 2018, were (in thousands, except per share amounts):
 
Three Months Ended
March 31,
 
2019
 
2018
Loss before Income Taxes:
 
 
 
Sand Mining
$
(21
)
 
$
(40
)
Fuel Oil
(57
)
 
(42
)
Income Tax Benefits
16

 
16

Loss from Discontinued Operations — Net
$
(62
)
 
$
(66
)
Earnings Per Common Share from
 
 
 

Discontinued Operations — Net:
 
 
 

Basic and Diluted
$

 
$


SJG RELATED-PARTY TRANSACTIONS - There have been no significant changes in the nature of SJG’s related-party transactions since December 31, 2018. See Note 3 to the Financial Statements in Item 8 of SJI's and SJG’s Form 10-K for the year ended December 31, 2018 for a detailed description of the related parties and their associated transactions.

A summary of related-party transactions involving SJG, excluding pass-through items, included in SJG's Operating Revenues were as follows (in thousands):
 
Three Months Ended
March 31,
 
2019
 
2018
Operating Revenues/Affiliates:
 
 
 
SJRG
$
1,284

 
$
2,588

Marina
116

 
103

Other
20

 
23

Total Operating Revenue/Affiliates
$
1,420

 
$
2,714



27


Related-party transactions involving SJG, excluding pass-through items, included in SJG's Cost of Sales and Operating Expenses were as follows (in thousands):
 
Three Months Ended
March 31,
 
2019
 
2018
Costs of Sales/Affiliates (Excluding depreciation and amortization)
 
 
 
SJRG*
$
3,427

 
$
25,338

 
 
 
 
Operations Expense/Affiliates:
 
 
 
SJI
$
4,726

 
$
7,043

Millennium
763

 
697

Other
535

 
(115
)
Total Operations Expense/Affiliates
$
6,024

 
$
7,625


*These costs are included in either SJG's Cost of Sales on the condensed statements of income, or Regulatory Assets on the condensed balance sheets. As discussed in Note 1 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2018, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues – Nonutility on the condensed consolidated income statement.

4.
COMMON STOCK:

The following shares were issued and outstanding for SJI:

 
2019
Beginning Balance, January 1
85,506,218

New Issuances During the Period:
 

Settlement of Equity Forward Sale Agreement
6,779,661

Stock-Based Compensation Plan
102,797

Ending Balance, March 31
92,388,676


The par value ($1.25 per share) of stock issued was recorded in Common Stock and the net excess over par value of approximately $179.8 million was recorded in Premium on Common Stock. The increase is discussed under "Forward Shares" below.

There were 2,339,139 shares of SJG's common stock (par value $2.50 per share) outstanding as of March 31, 2019. SJG did not issue any new shares during the period. SJIU owns all of the outstanding common stock of SJG.

FORWARD SHARES - In the second quarter of 2018, SJI offered 12,669,491 shares of its common stock, par value $1.25 per share, at a public offering price of $29.50 per share. Of the offered shares, 5,889,830 shares were issued at closing. On January 15, 2019, SJI settled its equity forward sale agreement by physically delivering the remaining 6,779,661 shares of common stock and receiving net cash proceeds of approximately $189.0 million. The forward price used to determine cash proceeds received by SJI at settlement was calculated based on the initial forward sale price, as adjusted for underwriting fees, interest rate adjustments as specified in the equity forward agreement and any dividends paid on our common stock during the forward period.

CONVERTIBLE UNITS - In 2018, SJI issued and sold 5,750,000 Equity Units, initially in the form of Corporate Units, which included 750,000 Corporate Units pursuant to the underwriters’ option. Each Corporate Unit has a stated amount of $50 and is comprised of (a) a purchase contract obligating the holder to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, on the purchase contract settlement date, or April 15, 2021, subject to earlier termination or settlement, a certain number of shares of common stock; and (b) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of SJI’s 2018 Series A 3.70% Remarketable Junior Subordinated Notes due 2031. SJI will pay the holder quarterly contract adjustment payments at a rate of 3.55% per year on the stated amount of $50 per Equity Unit, in respect of each purchase contract, subject to the Company's right to defer these payments. The net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets.

28



SJI's EPS — SJI's 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 100,012 and 129,369 for the three months ended March 31, 2019 and 2018, respectively. These additional shares relate to SJI's restricted stock as discussed in Note 2, along with, for the three months ended March 31, 2019, the impact of the Equity Units discussed above, accounted for under the treasury stock method.

DIVIDENDS PER SHARE — SJI's dividends per share were $0.29 and $0.28 for the three months ended March 31, 2019 and 2018, respectively. Cash dividends were not declared or paid by SJG to SJI during the three months ended March 31, 2019 or 2018.

DRP — SJI offers a DRP which allows participating shareholders to purchase shares of SJI common stock by automatic reinvestment of dividends or optional purchases. SJI currently purchases shares on the open market to fund share purchases by DRP participants, and as a result SJI did not raise any equity capital through the DRP in 2018 or 2019. SJI does not intend to issue equity capital via the DRP in 2019.

5.
FINANCIAL INSTRUMENTS:

RESTRICTED INVESTMENTS — SJI and SJG maintain margin accounts with certain counterparties to support their risk management activities. The balances required to be held in these margin accounts increase as the net value of the outstanding energy-related contracts with the respective counterparties decrease. As of March 31, 2019 and December 31, 2018, SJI's balances (including SJG) in these accounts totaled $7.6 million and $1.6 million, respectively, held by the counterparties, which is recorded in Restricted Investments on the condensed consolidated balance sheets. As of March 31, 2019 and December 31, 2018, SJG's balance held by the counterparties totaled $1.5 million and $1.3 million and was recorded in Restricted Investments on the condensed balance sheets.

The carrying amounts of the Restricted Investments for both SJI and SJG approximate their fair values at March 31, 2019 and December 31, 2018, which would be included in Level 1 of the fair value hierarchy (see Note 13).

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):

 
 
As of March 31, 2019
Balance Sheet Line Item
 
SJI
SJG
Cash and Cash Equivalents
 
$
10,360

$
1,756

Restricted Investments
 
7,649

1,468

   Total cash, cash equivalents and restricted cash shown in the statement of cash flows
 
$
18,009

$
3,224


 
 
As of December 31, 2018
Balance Sheet Line Item
 
SJI
SJG
Cash and Cash Equivalents
 
$
30,030

$
1,984

Restricted Investments
 
1,649

1,278

   Total cash, cash equivalents and restricted cash shown in the statement of cash flows
 
$
31,679

$
3,262


NOTES RECEIVABLE-AFFILIATES - As of March 31, 2019, SJI had approximately $13.6 million included in Notes Receivable - Affiliate on the condensed consolidated balance sheets, due from Energenic, which is secured by its cogeneration assets for energy service projects. This note is subject to a reimbursement agreement that secures reimbursement for SJI, from its joint venture partner, of a proportionate share of any amounts that are not repaid.


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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 periods ranging from five to ten years, with no interest. The carrying amounts of such loans were $5.1 million and $5.3 million as of March 31, 2019 and December 31, 2018, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the condensed consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of $0.7 million as of both March 31, 2019 and December 31, 2018. The annualized amortization to interest is not material to SJI’s or SJG's condensed consolidated financial statements. The carrying amounts of these receivables approximate their fair value at March 31, 2019 and December 31, 2018, which would be included in Level 2 of the fair value hierarchy (see Note 13).

CREDIT RISK - As of March 31, 2019, SJI had approximately $14.5 million, or 33.9%, of the current and noncurrent Derivatives – Energy Related Assets transacted with two counterparties. These counterparties are investment-grade rated.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJI's and SJG's financial instruments approximate their fair values at March 31, 2019 and December 31, 2018, except as noted below.
For Long-Term Debt, in estimating the fair value, SJI and SJG use the present value of remaining cash flows at the balance sheet date. SJI and SJG based the estimates on interest rates available at the end of each period for debt with similar terms and maturities (Level 2 in the fair value hierarchy, see Note 13).

The estimated fair values of SJI's long-term debt (which includes SJG and all consolidated subsidiaries), including current maturities, as of March 31, 2019 and December 31, 2018, were $2.54 billion and $2.91 billion, respectively.  The carrying amounts of SJI's long-term debt, including current maturities, as of March 31, 2019 and December 31, 2018, were $2.45 billion and $2.84 billion, respectively. SJI's carrying amounts as of March 31, 2019 and December 31, 2018 are net of unamortized debt issuance costs of $25.9 million and $27.0 million, respectively.

The estimated fair values of SJG's long-term debt, including current maturities, as of March 31, 2019 and December 31, 2018, were $907.5 million and $895.1 million, respectively. The carrying amounts of SJG's long-term debt, including current maturities, as of March 31, 2019 and December 31, 2018, were $903.6 million and $893.4 million, respectively. The carrying amounts as of March 31, 2019 and December 31, 2018 are net of unamortized debt issuance costs of $6.7 million and $6.8 million, respectively.

OTHER FINANCIAL INSTRUMENTS - The carrying amounts of SJI's and SJG's other financial instruments approximate their fair values at March 31, 2019 and December 31, 2018.
6.
SEGMENTS OF BUSINESS:

SJI operates in several different reportable operating segments which reflect the financial information regularly evaluated by the CODM. These segments are as follows:

SJG utility operations consist primarily of natural gas distribution to residential, commercial and industrial customers in southern New Jersey.
ETG utility operations consist of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey.
ELK utility operations consist of natural gas distribution to residential, commercial and industrial customers in Maryland.
Wholesale energy operations include the activities of SJRG and SJEX.
Retail gas and other operations at SJE included natural gas acquisition and transportation service business lines. This business was sold on November 30, 2018.
Retail electric operations at SJE consist of electricity acquisition and transportation to commercial, industrial and residential customers.
On-site energy production consists of Marina's thermal energy facility and other energy-related projects. Also included in this segment are the activities of ACB, ACLE, BCLE, SCLE and SXLE.
Appliance service operations includes SJESP, which receives commissions on service contracts from a third party.
Midstream was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey.
Corporate & Services segment includes costs related to the Acquisition, along with other unallocated costs.
Intersegment represents intercompany transactions among the above SJI consolidated entities.
 

30


SJI groups its utility businesses under its wholly-owned subsidiary SJIU. This group consists of gas utility operations of SJG, ETG and ELK. SJI groups its nonutility operations into separate categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services includes on-site energy production and appliance service operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Information about SJI’s operations in different reportable operating segments is presented below (in thousands):

 
Three Months Ended
March 31,
 
2019
 
2018
Operating Revenues:
 
 
 
SJI Utilities:
 
 
 
   SJG Utility Operations
$
272,198

 
$
234,459

   ETG Utility Operations
140,174

 

   ELK Utility Operations
3,374

 

     Subtotal SJI Utilities
415,746

 
234,459

Energy Group:
 
 
 
     Wholesale Energy Operations
190,007

 
190,343

Retail Gas and Other Operations

 
40,201

Retail Electric Operations
22,691

 
44,035

     Subtotal Energy Group
212,698

 
274,579

Energy Services:
 
 
 
On-Site Energy Production
11,330

 
21,157

Appliance Service Operations
531

 
520

Subtotal Energy Services
11,861

 
21,677

Corporate and Services
9,371

 
13,000

Subtotal
649,676

 
543,715

Intersegment Sales
(12,378
)
 
(21,770
)
Total Operating Revenues
$
637,298

 
$
521,945


31



 
Three Months Ended
March 31,
 
2019
 
2018
Operating Income:
 

 
 

SJI Utilities: