Folsom,
NJ - South Jersey Industries (NYSE: SJI)
today announced a loss from continuing operations for the
second quarter 2008 of $13.3 million, or $0.45 per share,
compared with income from continuing operations of $10.8
million, or $0.37 per share, for the same quarter of 2007.
The loss reflected the impact of a net mark-to-market loss
of $20.9 million, or $0.70 per share, on the derivatives
we use to hedge the activities of our commodity asset management
and marketing businesses. This non-cash loss had been virtually
eliminated by July 31, 2008 due to a decrease in natural
gas prices.
SJI’s
Economic Earnings from continuing operations for the second
quarter of 2008 were $7.6 million, up 23% from $6.2 million
for the same quarter in 2007. Economic Earnings per share
from continuing operations rose to $0.26 from $0.21 in
the comparison of second quarters for 2008 and 2007, respectively.
The non-GAAP measure, Economic Earnings, adjusts income
from continuing operations by eliminating all unrealized
gains and losses on commodity derivative transactions and
adjusts for realized gains and losses attributed to hedges
on inventory transactions. (Please refer to the Explanation
and Reconciliation of Non-GAAP Financial Measures at the
end of this release.)
“Performance year-to-date leaves SJI well positioned
to achieve its targeted 2008 Economic Earnings per share
growth of between 6% and 10% above the 2007 level of $2.09,” said
SJI Chairman & CEO Edward Graham. “Strong performance
at key non-utility businesses, coupled with a corporate wide
focus on boosting efficiency, drove our performance for the
second quarter of 2008. Despite the challenges of the current
economic environment, SJI continues to have bright prospects
for the remainder of 2008 and beyond,” continued Graham.
For the
first six months of 2008, SJI produced income from continuing
operations of $11.4 million, or $0.38 per share, compared
with $38.0 million, or $1.29 per share, for the comparable
2007 period. On an Economic Earnings basis, SJI’s
income from continuing operations for the first six months
of 2008 totaled $46.8 million, up 4.9% from $44.6 million.
Economic Earnings per share from continuing operations for
the same periods rose to $1.57 in 2008 from $1.51 in 2007.
While Economic Earnings for the first half of 2007 benefited
from strong performance at SJRG, that performance also produced
related hedge losses of $3.3 million between July and October
of 2007. Since 2008’s profits have no offsetting hedge
losses affecting future periods, SJI’s Economic Earnings
performance for the first half of 2008 reflects a 13% improvement
when compared to the results of the same 2007 period net
of related, subsequent losses.
SJI’s
Second Quarter 2008 Highlights:
Economic
Earnings per share up 21% for the quarter.
Reaffirmed
2008 Economic EPS growth guidance at 6% to 10% above 2007
Economic EPS.
Continued
to strengthen the balance sheet: equity-to-capitalization
ratio was 51.8% at June 30, 2008 compared with 50.2% at
June 30, 2007.
Hedged
attractive margins for the 2008-2009 winter season from
our combined storage and pipeline capacity assets.
Non-Utility
Posts Strong Results: Non-utility operations
reported a loss from continuing operations on a GAAP basis
of $16.8 million in the second quarter of 2008 compared with
$6.9 million of income from continuing operations for the
same period in 2007. On an Economic Earnings basis, non-utility
income from continuing operations for the second quarter
of 2008 was $4.1 million, compared with $2.3 million earned
for the second quarter of 2007. The increase in Economic
Earnings was due primarily to strong performance at our asset
management and marketing, on-site energy production, and
appliance service businesses. GAAP results reflected the
impact of unrealized losses from mark-to-market accounting.
Non-utility operations showed a GAAP loss of $17.1 million
and net income of $9.8 million for the first six months of
2008 and 2007, respectively. Economic Earnings from continuing
operations at our non-utility businesses grew to $18.3 million
for the first six months of 2008, compared with $16.4 million
for the same period in 2007. While Economic Earnings for
the first six months of 2007 benefited from strong first
quarter performance at SJRG, it also produced related hedge
losses of $3.3 million between July and October. Performance
at our key non-utility business lines was as follows:
• Asset Management & Marketing - The commodity
marketing business added $2.7 million to SJI’s Economic
Earnings in the second quarter of 2008, compared with $1.5
million for the second quarter of 2007. The income contribution
for the first six months of 2008 was $15.0 million compared
with $14.5 million for the same period of 2007. Having 11.7
Bcf of gas storage capacity under management and 111,000
decatherms per day of pipeline capacity creates opportunities
for this business to lock in attractive margins resulting
from volatility in market pricing. Results for 2008 benefited
significantly from the increased value of pipeline capacity,
which served to offset market conditions that produced thin
margins for storage capacity. We hedge an initial profit
margin on each transaction we enter into and then seek to
build upon those margins by taking advantage of favorable
market conditions. For the upcoming winter season we have
already hedged 80% of our storage capacity and 90% of our
transportation capacity. Those hedges have locked in $26.3
million of operating income for this business.
• On-Site Energy
Production - Our on-site energy production
business, Marina Energy, contributed $1.2 million to SJI’s
bottom line in the second quarter of 2008, compared with
$0.8 million in the prior-year period. Marina’s 2008
performance reflected improved operating performance and
higher chilled water throughput at our Atlantic City thermal
plant. For the year-to-date this business contributed $2.4
million, up from $1.6 million for the same period in 2007.
As announced
last week, the fourth quarter 2010 opening of Boyd Gaming’s Echelon Resort in Las Vegas has been
pushed back 9 to 12 months and will have a like effect on
our joint venture energy project that will serve Echelon.
Based on Boyd’s stated commitment to this project,
and contracted commitments from both Boyd and Echelon, we
remain confident in the project’s ultimate completion
and financial benefit to Marina. SJI’s fourth landfill
gas-to-electricity project, a joint-venture to develop a
two megawatt facility for Salem County, NJ, is on target
to be operational during the fall of 2008. We continue to
pursue energy project opportunities with a substantial number
of proposed gaming projects in Atlantic City, Las Vegas and
tribal areas. Marina develops, owns and operates on-site
energy plants. We expect these projects to provide annuity-like
income streams under long-term contracts.
• Retail Services – Retail
services, which include appliance warranty and repair,
HVAC installation and meter reading, contributed $0.2 million
in the second quarter 2008 compared with breakeven performance
for the prior year period. For the year-to-date 2008, retail
services produced $0.9 million of net income compared with
$0.3 million for the first six months of 2007. As reported
in the first quarter, the combination of new sales campaigns
and realized operational efficiencies drove the improved
performance.
Utility
Business Performance: South Jersey Gas posted second quarter
2008 net income of $3.4 million compared with $3.9 million
in the second quarter of 2007. For the first six months
of 2008, SJG reported net income of $28.5 million, up from
the $28.2 million posted for the same period in 2007. Performance
drivers for the quarter and the six months were customer
growth and lower interest charges, offset by lower off-system
sales, corporate allocations from SJG’s
parent, and higher depreciation expense.
• Conservation
Incentive Program Results – The
CIP provided a $2.8 million benefit to SJG’s second
quarter net income and $9.0 million for the year-to-date
by offsetting the impacts of reduced customer utilization
levels. The CIP has enabled SJG to actively promote energy
conservation in our service territory, helping our customer’s
lower their energy bills. In addition, our customers are also
benefiting under the CIP from reduced costs achieved within
our gas supply and storage portfolio.
• Customer
Growth - South Jersey Gas added 4,559 customers
during the 12- month period ended June 30, 2008, for a
total of 336,410. The 1.4% increase was achieved despite
the significant slowdown in the new housing construction
market nationwide. Customers added in the past 12 months
are anticipated to contribute approximately $1.6 million
to net income annually. Natural gas remains the fuel of
choice within our service territory, with over 95% of all
new homes constructed using natural gas as their primary
heating source. The clean burning characteristics of natural
gas and an almost 50% price advantage currently enjoyed by
natural gas heat over alternative heating fuels typically
used in our market should also support our efforts to acquire
new customers in both the new housing and conversion markets.
We also expect a continuation of the trend of obtaining
strong margins from new commercial customers that we have
experienced in recent years. For the future, substantial
new economic development planned for the Atlantic City market
is also expected to positively impact housing demand in our
service territory.
SJI’s
Balance Sheet Remains Strong: Our equity-to-capitalization
ratio, inclusive of short-term debt, was 51.8% at June
30, 2008, an improvement from 50.2% at the same point in
2007. Strong earnings growth was the primary reason for
the improvement. Our goal remains for this ratio to average
50% annually.
Explanation and Reconciliation
of Non-GAAP Financial Measures:
This press release includes
the non-generally accepted accounting principles (“non-GAAP”)
financial measures of Economic Earnings, Economic Earnings
per share, Non-Utility Economic Earnings, and Asset Management & Marketing
Economic Earnings. The accompanying schedule provides a reconciliation
of these non-GAAP financial measures to the most directly
comparable financial measures calculated and presented in
accordance with United States generally accepted accounting
principles ("GAAP"). The non-GAAP financial measures
should not be considered as an alternative to GAAP measures,
such as net income, operating income, earnings per share
from continuing operations or any other GAAP measure of liquidity
or financial performance.
We define Economic Earnings
as: Income from continuing operations, (1) less the change
in unrealized gains and plus the change in unrealized losses,
as applicable and in each case after tax, on all commodity
derivative transactions that we are marking to market, and
(2) adjusting for realized gains and losses, as applicable
and in each case after tax, on all hedges attributed to inventory
transactions to align them with the related cost of inventory
in the period of withdrawal. Economic Earnings is a significant
performance metric used by our management to indicate the
amount and timing of income from continuing operations that
we expect to earn related to commodity transactions. Specifically,
we believe that this financial measure indicates to investors
the profitability of all portions of these transactions and
not just the portion that is subject to mark-to-market valuation
measurement. Considering only one side of the transaction
can produce a false sense as to the profitability of our
commodity marketing activities, as no change in value is
reflected for the non-derivative portion of the transaction.
The following table presents a reconciliation of our income
from continuing operations and earnings per share from continuing
operations to Economic Earnings and Economic Earnings per
share:
| |
Three Months Ended
June
30,
|
|
| |
2008
|
2007
|
|
| |
(in thousands) |
|
(Loss)Income
From Continuing Operations |
$ (13,281) |
$ 10,810 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
25,573 |
(6,087) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(4,668)
|
1,473
|
|
| Economic Earnings |
$ 7,624
|
$ 6,196
|
|
| |
|
|
|
Earnings per share
From Continuing Operations |
$ (0.45) |
$ 0.37 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
.87 |
(0.21) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(0.16)
|
0.05
|
|
| Economic Earnings per share |
$ 0.26
|
$ 0.21
|
|
| |
|
|
|
Non-Utility (Loss)Income
From Continuing Operations |
($ 16,771) |
$ 6,902 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
25,573 |
(6,087) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(4,668)
|
1,473
|
|
| Non-Utility Economic Earnings |
$ 4,134
|
$ 2,288
|
|
| |
|
|
|
Asset Management & Marketing Income
From Continuing Operations |
($ 18,162) |
$ 6,090 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
25,573 |
(6,087) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(4,668)
|
1,473
|
|
| Asset Management & Marketing Economic
Earnings |
$ 2,743
|
$ 1,476
|
|
| |
|
|
|
| |
Six Months Ended
June 30,
|
|
| |
2008
|
2007
|
|
| |
(in thousands) |
|
Income
From Continuing Operations |
$ 11,431 |
$ 37,984 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
41,115 |
5,312 |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(5,729)
|
1,255
|
|
| Economic Earnings |
$ 46,817
|
$ 44,551
|
|
| |
|
|
|
Earnings per share
From Continuing Operations |
$ 0.38 |
$ 1.29 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
1.38 |
0.18 |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(0.19)
|
0.04
|
|
| Economic Earnings per share |
$ 1.57
|
$ 1.51
|
|
| |
|
|
|
Non-Utility (Loss)Income
From Continuing Operations |
($ 17,124) |
$ 9,812 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
41,115 |
5,312 |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(5,729)
|
1,255
|
|
| Non-Utility Economic Earnings |
$ 18,262
|
$ 16,379
|
|
| |
|
|
|
Asset Management & Marketing Income
From Continuing Operations |
($ 20,431) |
$ 7,944 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
41,115 |
5,312 |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(5,729)
|
1,255
|
|
| Asset Management & Marketing Economic
Earnings |
$ 14,955
|
$ 14,511
|
|
| |
|
|
|
Webcast and Conference Call Details
South
Jersey Industries’ President and CEO, Edward
J. Graham, will be hosting an open conference call and webcast
on Thursday, August 7, 2008 at 2:00 pm EDT to discuss the
Company’s second quarter 2008 results and future prospects.
To participate in the conference call, dial 1-888-679-8033
approximately 15 minutes ahead of the scheduled time and
enter the participant passcode 22072514. To access the webcast
simply visit the South Jersey Industries website at http://www.sjindustries.com
, click on Investors and then click on the webcast icon.
A recorded version of the webcast will be available at SJI’s
website. A rebroadcast of the conference call will also be
available by calling 1-888-286-8010 and entering the code:
47327333. SJI encourages shareholders, media and members of
the financial community to listen to the conference call or
webcast.
Forward-Looking Statement
This
news release contains forward-looking statements. All statements
other than statements of historical fact included in this
press release 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
press release words such as “anticipate”, “believe”, “expect”, “estimate”, “forecast”, “goal”, “intend”, “objective”, “plan”, “project”, “seek”, “strategy” and
similar expressions are intended to identify forward-looking
statements. Such forward-looking statements are subject to
risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in the
statements. These risks and uncertainties include, but are
not limited to, the following: general economic conditions
on an international, national, state and local level; weather
conditions in our marketing areas; changes in commodity costs;
the timing of new projects coming online; changes in the
availability of natural gas; “non-routine” or “extraordinary” disruptions
in our distribution system; regulatory, legislative and court
decisions; competition; the availability and cost of capital;
costs and effects of legal proceedings and environmental
liabilities; the failure of customers, suppliers or business
partners to fulfill their contractual obligations; and changes
in business strategies. SJI assumes no duty to update these
statements should actual events differ from expectations.
About South Jersey
Industries
South Jersey Industries
(NYSE: SJI)
is an energy services holding company for utility and non-regulated
businesses. A
member of the KLD Global Climate 100 Index, SJI offers solutions
to global warming through renewable energy, clean technology
and efficiency. South Jersey Gas, one of the fastest
growing natural gas utilities in the nation, strongly advocates
the efficient use of energy while safely and reliably delivering
natural gas in southern New Jersey. South Jersey Energy Solutions,
the parent of SJI’s non-regulated businesses, provides
innovative, environmentally friendly energy solutions that
help customers control energy costs. South Jersey Energy
acquires and markets natural gas and electricity for retail
customers and offers energy-related services. Marina Energy
develops and operates energy projects including thermal facilities
serving hot and chilled water for casinos, cogeneration facilities
and landfill gas-to-electricity facilities. South
Jersey Resources Group provides wholesale commodity marketing
and risk management services. South Jersey Energy
Service Plus installs, maintains and services heating, air
conditioning and water heating systems, services appliances,
installs solar systems and performs energy audits. For more
information about SJI and its subsidiaries, visit http://www.sjindustries.com.
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