Folsom,
NJ - South Jersey Industries (NYSE:SJI) today
announced income from continuing operations for the third
quarter 2008 of $43.9 million, or $1.47 per share, compared
with income from continuing operations of $8.6 million, or
$0.29 per share, for the same quarter of 2007. For the first
nine months of 2008, SJI produced income from continuing
operations of $55.3 million, or $1.85 per share, compared
with $46.5 million, or $1.58 per share, for the comparable
2007 period.
SJI’s Economic Earnings from continuing operations
for the third quarter of 2008 were $1.1 million, or $0.04
per share, compared with a loss of $1.5 million, or $0.05
per share, for the same quarter in 2007. Economic Earnings
for the third quarter would have been higher were it not
for the timing impact of certain hedging contracts that will
now settle and benefit earnings in the fourth quarter of
2008. On an Economic Earnings basis, SJI’s income from
continuing operations for the first nine months of 2008 totaled
$47.9 million, up 11.3% from $43.0 million for the same period
in 2007. Economic Earnings per share from continuing operations
for the same period rose to $1.60 in 2008 from $1.46 in 2007.
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.)
“The cornerstones of our company – a well-capitalized
utility and our energy-centered non-utility businesses – coupled
with an ongoing corporate-wide focus on efficiency, provide
a strong foundation on which we continue to execute our long
term plans for growth,” said SJI Chairman and CEO Edward
J. Graham. “The strength of our year-to-date results,
combined with our expectations for a strong fourth quarter,
leaves us well positioned to deliver on the higher end of
our targeted 2008 Economic Earnings per Share growth of 6%
to 10% above the full year 2007 level of $2.09. As it does
every November as part of its strategic process, the board
of directors will consider these results, as well as future
prospects, when they meet later this month to discuss the
level of the dividend increase,” Graham continued.
SJI’s policy has been to increase dividends per share
by at least 6% to 7% annually.
SJI’s Third Quarter 2008 Highlights:
Economic Earnings
up $2.6 million for the quarter.
Reaffirmed 2008 Economic EPS growth guidance at
6% to 10% above 2007 Economic EPS of $2.09, with an emphasis
on achieving the higher end of the range. This translates
to Economic Earnings per share of $2.22 to $2.30 for 2008.
Hedged approximately $29.0 million of pre-tax
income for the 2008-2009 winter season from our combined
non-utility storage and pipeline capacity assets.
Maintained a strong balance sheet: equity-to-capitalization
rate was 50% at September 30, 2008, and has averaged 53%
for the year-to-date.
Maintained uninterrupted access to liquidity during
this period of market turmoil.
The board of directors authorized a Share Repurchase
Program.
South Jersey Gas was ranked second by J.D. Powers
and Associates in the Eastern Region in their 2008 Gas Utility
Residential Customer Satisfaction StudySM .
Non-Utility Posts Strong Results: Non-utility operations
reported income from continuing operations on a GAAP basis
of $45.7 million in the third quarter of 2008 compared with
$10.3 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 third quarter of
2008 was $2.9 million, compared with $0.2 million earned
for the third 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
gains from mark-to-market accounting at our asset management
and marketing business. Non-utility operations produced GAAP
income of $28.5 million and $20.1 million for the first nine
months of 2008 and 2007, respectively. Economic Earnings
from continuing operations at our non-utility businesses
grew to $21.1 million for the first nine months of 2008,
compared with $16.6 million for the same period in 2007.
Performance at our key non-utility business lines was as
follows:
• Asset Management & Marketing
- Economic Earnings in the third quarter of 2008 for this
business line rose to $0.2 million compared with a loss of
$1.6 million for the third quarter of 2007. Third quarter
Economic Earnings were impacted due to the timing of the
settlement of certain hedging contracts; the benefit locked
in by these contracts will now be realized in the fourth
quarter. For the first nine months of 2008 this business
contributed $15.1 million to Economic Earnings compared with
$12.9 million for the same period of 2007, an increase of
17.1%. Having 12.1 Bcf of gas storage capacity under management
and 122,500 dekatherms per day of pipeline capacity creates
opportunities for this business to lock in attractive margins
resulting from volatility in market pricing. Results for
2008 have benefited significantly from the increased value
of pipeline capacity, which served to offset market conditions
that produced tighter margins for storage capacity. We hedge
an initial profit margin on each transaction we enter into
and then seek to optimize those margins by taking advantage
of favorable market conditions. For the upcoming winter season
we have already hedged 100% of our storage capacity and transportation
capacity. Those hedges have locked in a minimum of $29 million
of pretax operating margin for this business, with the potential
to opportunistically trade around those assets to further
improve earnings.
• On-Site Energy Production - Our on-site energy production
business, Marina Energy, contributed $2.1 million to SJI’s
bottom line in the third quarter of 2008, compared with $1.3
million in the prior-year period. Marina’s year-to-date
2008 performance reflected improved operating performance
and higher chilled water throughput at our Atlantic City
thermal plant driven by increased cooling demand and the
opening of the Borgata’s new Water Club tower. For
the first nine months of 2008, this business contributed
$4.4 million, up 52% from $2.9 million for the same period
in 2007.
While the date on which Boyd
Gaming will resume construction on its Echelon Resort remains
uncertain due to current market conditions, we continue to
anticipate the successful completion of both Boyd’s facility and our thermal energy plant
serving it. Contractual commitments provided by Echelon and
Boyd should deliver payment streams to the project as early
as November 2010, regardless of the project’s operational
status. Looking to other energy project opportunities, SJI’s
fourth landfill gas-to-electricity project, a joint-venture
to develop a two megawatt facility for Salem County, NJ,
is slated to become operational in December 2008. We also
are developing a multi-million dollar solar project for an
educational facility, which is slated to begin operations
in 2009. We continue to pursue energy project opportunities
similar to these, as well as other combined heat and power
(CHP or cogeneration) projects, in-line with the recently
announced New Jersey Energy Master Plan. Medical, educational
and governmental facilities are particularly well suited
applications for these projects. 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 $0.6 million
in the third quarter 2008 compared with $0.5 million for
the prior-year period. For the year-to-date 2008, retail
services produced $1.5 million of net income compared with
$0.8 million for the first nine months of 2007. As reported
for the first half of the year, the combination of new sales
campaigns and realized operational efficiencies continued
to drive improved performance through the third quarter.
Utility Business Performance: South Jersey Gas posted a
third quarter 2008 net loss of $1.9 million compared with
a loss of $1.7 million in the third quarter of 2007. SJG
normally reports a loss in the third quarter due to lack
of heating demand. For the first nine months of 2008, SJG
reported net income of $26.6 million, up from the $26.4 million
posted for the same period in 2007. Performance drivers for
the quarter and the nine months were customer growth and
lower interest charges, offset by lower margins on gas sales
to electric utilities and higher depreciation expense.
• Conservation Incentive Program Results – The
CIP has protected $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 customers 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 4,214 customers during the 12- month period
ended September 30, 2008, for a total of 336,004. The 1.3%
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 $1.5 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 the 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 have seen a significant increase in conversion interest
that should benefit customer growth in 2009. 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 Financial Position Remains Strong: Our equity-to-capitalization
ratio, inclusive of short-term debt, was 50% at September
30, 2008, an improvement from 48% at the same point in 2007.
Strong earnings growth was the primary reason for the improvement.
The year-to-date average equity-to-capitalization ratio is
53%. Our goal remains for this ratio to average 50% annually.
SJI’s liquidity position also remains strong as we
have maintained uninterrupted access to external financing
sources during this period of market turmoil.
Share Repurchase Program Announced:
As announced earlier, the board of directors recently authorized
the repurchase of up to 5% of SJI’s outstanding shares over the next
four years. This program provides management with a tool
to optimize the company’s capital structure, demonstrating
our commitment to increasing shareholder value over the long
term as well as our belief in our future prospects.
South Jersey Gas Ranks in J.D.
Power and Associates Survey: South Jersey Gas ranked second
in the Eastern Region in the 2008 Gas Utility Residential
Customer Satisfaction StudySM . The study, now in its seventh
year, measures residential customer satisfaction with gas
utility companies across six factors: company image, communications,
price and value, billing and payment, customer service, and
field service.
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
September
30,
|
|
| |
2008
|
2007
|
|
| |
(in thousands) |
|
Income
From Continuing Operations |
$ 43,858 |
$ 8,564 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(42,363) |
(10,508) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(440)
|
406
|
|
| Economic Earnings |
$ 1,055
|
$ (1,538)
|
|
| |
|
|
|
Earnings per share
From Continuing Operations |
$ 1.47 |
$ 0.29 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(1.42) |
(0.35) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(0.01)
|
0.01
|
|
| Economic Earnings per share |
$ 0.04
|
$ (0.05)
|
|
| |
|
|
|
Non-Utility (Loss)Income
From Continuing Operations |
$ 45,663 |
$ 10,291 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(42,363) |
(10,508) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(440)
|
406
|
|
| Non-Utility Economic Earnings |
$ 2,860
|
$ 189
|
|
| |
|
|
|
Asset Management & Marketing (Loss)Income
From Continuing Operations |
$ 42,964 |
$ 8,479 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(42,363) |
(10,508) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(440)
|
406
|
|
| Asset Management & Marketing Economic
Earnings |
$ 161
|
$ (1,623)
|
|
| |
|
|
|
| |
Nine Months Ended
September 30,
|
|
| |
2008
|
2007
|
|
| |
(in thousands) |
|
Income
From Continuing Operations |
$ 55,289 |
$ 46,547 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(1,247) |
(5,196) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(6,169)
|
1,662
|
|
| Economic Earnings |
$ 47,873
|
$ 43,013
|
|
| |
|
|
|
Earnings per share
From Continuing Operations |
$ 1.85 |
$ 1.58 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(0.04) |
(0.18) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(0.21)
|
0.06
|
|
| Economic Earnings per share |
$ 1.60
|
$ 1.46
|
|
| |
|
|
|
Non-Utility (Loss)Income
From Continuing Operations |
$ 28,539 |
$ 20,104 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(1,247) |
(5,196) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(6,169)
|
1,662
|
|
| Non-Utility Economic Earnings |
$ 21,123
|
$ 16,570
|
|
| |
|
|
|
Asset Management & Marketing Income
From Continuing Operations |
$ 22,543 |
$ 16,423 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(1,247) |
(5,196) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
(6,169)
|
1,662
|
|
| Asset Management & Marketing Economic
Earnings |
$ 15,127
|
$ 12,889
|
|
| |
|
|
|
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, November 6, 2008 at 2:00 pm EDT
to discuss the company’s third quarter 2008 results
and future prospects. To participate in the conference call,
dial 1-888-680-0865 approximately 15 minutes ahead of the
scheduled time and enter the participant passcode 48187041.
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 passcode 46821457.
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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