2013-02-28 15:09:22 -
FOR IMMEDIATE RELEASE
Telephone: 609-561-9000
Investor Relations Contact: Stephen Clark x 4260
e-mail: sclark@sjindustries.com
Media Contact: Joanne Brigandi x 4240
e-mail: jbrigandi@sjindustries.com
February 28, 2013
SJI Reports Fourth Quarter and Record Full Year 2012 Results
2012 Economic Earnings Grow 7%
Folsom, NJ - South Jersey Industries (NYSE: SJI) today announced GAAP income
from continuing operations for the full year 2012 of $92.8 million, or $3.01 per
share, as compared with $89.9 million, or $2.99 per share, in the full year
2011. For the fourth quarter of 2012, GAAP income from continuing operations was
$25.6 million or $0.81 per share, as compared with income of $37.0 million, or
$1.22 per share last year. GAAP results reflect the impact of mark-to-market
transactions primarily related to derivatives and inventory injection hedges.
Income from continuing operations on an Economic Earnings basis for the full
year 2012 was $93.3 million, an increase of 7 percent, as compared with $87.0
million for the same period last year. 2012 Economic Earnings per share was
$3.03 per share, an increase of 5 percent, as compared with Economic Earnings of
$2.89 per share in 2011. The difference in the growth rates for Economic
Earnings and Economic Earnings per share reflects the issuance of new shares
during 2012. On an Economic Earnings basis for the fourth quarter of 2012, SJI
reported income from continuing operations of $30.6 million, or $0.98 per share,
as compared with $31.8 million, or $1.05 per share, during the same period last
year.
"SJI's 2012 performance was clearly rooted in the actions we have taken over the
past several years," said SJI Chairman & CEO Edward J. Graham. "Strong
performance at the utility due to the benefit from our infrastructure investment
programs, coupled with our highest level of customer growth since 2006, which
was driven by record conversions, provided the foundation for 2012 performance.
The results from our non-utility businesses reflect the earnings from our
strategic energy project investments as well as the repositioning of our
wholesale commodity marketing business. Our continued focus on utility
infrastructure investment, our demonstrated expertise in energy project
development and management, and the game-changing opportunity afforded by our
proximity to the Marcellus will drive SJI's future prospects," continued Graham.
SJI's goal remains to grow average long-term Economic Earnings and dividends by
at least 6 percent to 7 percent annually. Since we last updated these goals in
2006, SJI has averaged growth above its long-term goals.
A reconciliation of Economic Earnings to net income for the 3- and 12-month
periods ended December 31, 2012 and 2011 is detailed below. The non-GAAP
measure, Economic Earnings, makes adjustments to income from continuing
operations. Please refer to the Explanation and Reconciliation of Non-GAAP
Financial Measures at the end of this release for more information.
Three Months Ended Twelve Months Ended
December 31 December 31
--------------------------- ----------------------------
2012 2011 2012 2011
---------- -------------- ----------- --------------
(In thousands except per (In thousands except per
share data) share data)
Income from
Continuing
Operations $ 25,569 $ 36,986 $ 92,776 $ 89,859
(Minus)/Plus:
Unrealized
Mark-to-Market
Losses/(Gains) on
Derivatives 3,606 (5,023) (854) (2,815)
Realized
Losses/(Gains) on
Inventory
Injection Hedges 23 (183) (11) (61)
Unrealized
Loss on Property,
Plant & Equipment 1,402 - 1,402 -
---------- -------------- ----------- --------------
Economic Earnings $ 30,600 $ 31,780 $ 93,313 $ 86,983
---------- -------------- ----------- --------------
Earnings per
Share from
Continuing
Operations $ 0.81 $ 1.22 $ 3.01 $ 2.99
(Minus)/Plus:
Unrealized
Mark-to-Market
Losses/(Gains) on
Derivatives 0.12 (0.16) (0.03) (0.10)
Realized
(Gain) on
Inventory
Injection Hedges - (0.01) - -
Unrealized
Loss on Property,
Plant & Equipment 0.05 - 0.05 -
---------- -------------- ----------- --------------
Economic Earnings $ 0.98 $ 1.05 $ 3.03 $ 2.89
per Share
---------- -------------- ----------- --------------
Utility Business Performance: South Jersey Gas posted net income for the full
year 2012 of $58.2 million, an increase of 10 percent as compared with $52.9
million last year. Net income for the fourth quarter of 2012 was $19.4 million
compared with net income of $19.3 million in the fourth quarter of 2011. There
is no difference between SJG's GAAP net income and Economic Earnings. 2012
results benefited from the impact of incremental investments under
infrastructure programs (CIRT) and residential customer growth.
* Regulatory Update - Earlier this month, the New Jersey Board of Public
Utilities approved a new four year accelerated infrastructure investment
program that permits investments of $35.3 million annually, for a total of
$141.2 million. This program extension runs through 2016. SJG has had
programs in place since 2009 that accelerated planned capital expenditures
to enhance the delivery of safe and reliable service. This program creates
jobs and allows SJG to earn a return on these infrastructure investments as
we spend those dollars. These projects focus on the replacement of bare
steel and cast iron distribution infrastructure.
In 2012, SJG spent approximately $49.2 million on infrastructure replacement
projects and experienced a net income benefit of approximately $2.0 million
directly from those investments. SJG recovers the cost of these improvements
through rate adjustments as these investments are rolled into base rates.
* Customer Growth - South Jersey Gas added 6,002 net customers during the 12-
month period ended December 31, 2012, for a total of 357,306 customers. SJG
achieved this 1.7 percent increase in customers, its highest level of
customer growth since 2006, primarily through converting over 5,200
customers to natural gas from other fuel sources. Given the demonstrated
cost advantage from using natural gas as compared to other fuel choices, we
are targeting an additional 5,500 customer conversions during 2013. Over the
past few years, conversion activity has enabled SJG to consistently produce
customer growth well above the industry average. We expect this trend to
continue as we have identified approximately 145,000 conversion prospects in
our service territory.
Non-Utility Results: Our non-utility businesses reported net income from
continuing operations on a GAAP basis of $34.5 million for 2012, compared with
$37.0 million in 2011. For the fourth quarter of 2012, income from continuing
operations on a GAAP basis was $6.1 million compared with income of $17.7
million in the same period last year. GAAP results are heavily affected by the
impact of mark-to-market accounting rules on our retail and wholesale commodity
marketing businesses.
For the 12-months ended December 31, 2012, non-utility income from continuing
operations on an Economic Earnings basis was $35.1 million, compared with $34.1
million in 2011. During the fourth quarter, non-utility operations contributed
$11.2 million as compared with $12.5 million last year.
We report results for our non-utility businesses under two business categories:
Wholesale Energy and Retail Energy. Wholesale Energy is comprised of South
Jersey Resources Group, including our activities involving the Marcellus Shale.
Retail Energy is comprised of Marina Energy, South Jersey Energy and the
remaining non-utility businesses, all of which serve the end-user. Performance
in these businesses was as follows:
* Retail Energy- Retail Energy reported income from continuing operations on a
GAAP basis of $35.7 million for the full year 2012 as compared with $26.0
million for the same period in 2011. For the fourth quarter of 2012, income
from continuing operations on a GAAP basis was $9.2 million as compared with
$8.8 million in 2011.
This business added $30.4 million in Economic Earnings to SJI's bottom line for
the full year 2012 as compared with $28.3 million in 2011. Economic Earnings for
the fourth quarter of 2012 were $9.6 million, compared with $11.5 million in the
prior-year period. Fourth quarter and full year results were driven by the
recognition of the investment tax credits associated with a number of renewable
energy projects. For the full year 2012, SJI recognized $26.0 million of
investment tax credits as compared with $21.4 million last year. Investment tax
credits taken in the fourth quarter 2012 totaled $8.7 million versus $12.2
million last year.
South Jersey Energy (SJE), our retail commodity marketing business, on a full
year basis, produced income from continuing operations on a GAAP basis of $7.4
million, as compared with $1.8 million last year. For the fourth quarter of
2012, income from continuing operations was $0.8 million as compared with a loss
of $2.4 million in 2011. For the full year 2012, this business added $1.6
million of Economic Earnings as compared with $3.7 million in 2011. For the
quarter, SJE produced Economic Earnings of $0.3 million as compared with $0.8
million last year. Operating results on both a quarterly and a full-year basis
decreased primarily due to lower volumes, tighter margins and weather impacts,
coupled with the end of a major electricity contract in May 2012. During the
third and fourth quarters of 2012, SJE signed many smaller electricity contracts
that equate in the aggregate to the total volume sold under the contract that
ended in May. As a result, we expect 2013 results to be positively impacted.
On a GAAP basis, Marina Energy's consolidated income from continuing operations
for 2012, which include its share of earnings generated through Energenic, was
$27.6 million as compared with $21.6 million last year. Results for the fourth
quarter 2012 were $7.6 million as compared with $11.4 million in the fourth
quarter of 2011. On an Economic Earnings basis, full year 2012 income was $28.1
million as compared with $22.0 million last year. Full year results include
investment tax credits of $26.0 million and $21.4 million for 2012 and 2011,
respectively. For the fourth quarter, this business produced Economic Earnings
of $8.6 million, down from $11.0 million last year. Fourth quarter results
included investment tax credits of $8.7 million and $12.1 million for 2012 and
2011, respectively. Energenic is a joint venture between Marina Energy and its
long-time partner, DCO Energy. 2012 performance was adversely impacted by
depressed Solar Renewable Energy Credit (SREC) trading values that have since
started to recover. In addition, results were negatively impacted by the costs
we incurred in preparation for Super Storm Sandy as well as the lost revenue
opportunities immediately following the storm, and the expensing of costs
associated with the Hartford Steam acquisition, which was completed in April
2012. Strong operating performance at Hartford Steam and the district energy
facility which serves an upscale resort in Atlantic City offset these impacts.
Marina Energy completed 16 solar projects during the fourth quarter of 2012,
producing an aggregate of 24.1 megawatts of electricity located throughout New
Jersey and Massachusetts. The net cost to complete these projects was
approximately $91 million. Combined with our previously operating solar
projects, we now manage approximately 49 megawatts of solar capacity that
generate in the aggregate just under 60,000 SREC's annually.
Marina/Energenic is currently developing six solar projects in New Jersey that
are scheduled to be completed in 2013. These projects will provide just over 24
megawatts when completed, at an estimated cost of $74 million.
Energenic's fuel cell project in Hartford, CT is progressing with an anticipated
completion date in 2014. This fuel cell will supply electricity to locations
currently buying steam and chilled water from our Hartford Steam facility. We
estimate construction costs to be $8 million, with a projected output of 1.4
megawatts. A second fuel cell is under consideration.
The Montclair State University CHCP project, where Energenic is developing a new
combined heating, cooling, and power system for the Montclair State campus, is
also progressing. This project, estimated at approximately $91 million to
complete, will provide natural gas-fired electric generation, chilled water, and
steam for heat. The steam, condensate, and chilled water will be delivered to
and returned from campus buildings via the new energy distribution system. The
majority of the campus' electricity requirements will be satisfied by the onsite
plant, which will be designed to operate continuously, producing electric power
of approximately 5.4 megawatts. We expect the construction project to employ
approximately 400 workers with an anticipated completion date in the second half
of 2013.
Demand for renewable and natural gas-fired energy projects remains strong. As a
result of our demonstrated expertise in the design, construction and operation
of complex energy projects, we are actively engaged in a number of discussions
on potential projects totaling over 180 megawatts on both the local and national
level.
* Wholesale Energy - For the full year 2012, wholesale energy posted a loss
from continuing operations on a GAAP basis of $1.2 million compared with
income of $11.0 million for the same period in 2011. For the fourth quarter,
wholesale energy reported a loss from continuing operations on a GAAP basis
of $3.1 million compared with income of $8.9 million in the same period last
year.
On a year-to-date basis, the wholesale energy business produced Economic
Earnings of $4.7 million, as compared with $5.8 million during 2011. Economic
Earnings for the fourth quarter 2012 reflected income of $1.5 million for this
upstream business, as compared with income of $1.0 million in the fourth quarter
of 2011. Wholesale gas marketing continues to be impacted by the same thin
storage spreads experienced industry-wide as seasonal variations in natural gas
prices and the value of transportation assets are not as robust as in prior
years. The focus of our wholesale business has shifted to managing producer
services and gas marketing opportunities throughout the Northeast with less
emphasis on traditional storage and transportation optimization strategies.
In support of that initiative, we recently announced that South Jersey Resources
Group (SJRG) executed a long-term contract to supply fuel management services
with West Deptford Energy, part of the LS Power Group, for the West Deptford
Energy Station. This 738 megawatt (nominal) natural gas-fired, combined-cycle
electric generating facility in West Deptford Township, N.J. is currently under
construction and plans to enter commercial operations in 2014. Under the terms
of the 15-year contract, SJRG will provide natural gas supplies and services
associated with managing those supplies for this facility and will hold
exclusive rights to supply and serve a planned expansion of an additional 400
megawatts if constructed. In addition, SJRG is actively negotiating several
similar arrangements for producer services.
SJI's Balance Sheet Remains Strong: Our average equity-to-capitalization ratio
was 44 percent as calculated for the four quarters of 2012 as compared with 48
percent in 2011. Our equity-to-capitalization ratio was 43 percent at December
31, 2012, primarily due to borrowing levels supporting working capital
requirements elevated by very warm weather and our increased level of
infrastructure investment at the utility as well as non-utility energy project
investment in 2012, as compared with 46 percent at the same point in 2011. Our
goal remains for this ratio to average at least 50 percent annually. In support
of that goal, SJI revised its dividend reinvestment plan at the end of the
second quarter 2011 from purchasing shares used in the program in the open
market to using newly issued shares. Between dividend reinvestment and optional
cash purchases made through the plan, SJI raised equity capital of $28.7 million
and $70.2 million during the fourth quarter and full year 2012, respectively.
During 2013, we expect to raise up to $40 million through the dividend
reinvestment program. We anticipate that SJI's equity-to-capitalization ratio
will improve on both an actual and an average basis as a result of this
additional equity, collections under utility regulatory clauses that were
delayed in 2012 and other refinancing activities which we anticipate will lower
short-term borrowings.
Webcast and Conference Call Details: South Jersey Industries' President and CEO,
Edward J. Graham, will host an open conference call and webcast on Thursday,
February 28, 2013 at 11:00AM EST to discuss the company's fourth quarter and
full year 2012 results and future prospects. To participate in the conference
call, please pre-register by going to the South Jersey Industries website,
www.sjindustries.com , click on Investors and then on the pre-
registration link. This will allow you to set-up an event reminder as well as
generate a PIN to expedite your inclusion into the conference call when dialing
in.
Approximately 15 minutes ahead of the scheduled call time, dial 1-888-680-0869,
enter the participant pass code 88220168 and the PIN you received during pre-
registration. To access the webcast, simply visit the South Jersey Industries
website at
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 pass code 35721312. 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), a member of
the MSCI Global Climate Index, offers solutions to climate change and helps
customers control energy costs. South Jersey Gas, one of the nation's fastest
growing natural gas utilities, delivers clean, efficient natural gas and
promotes energy efficiency to customers in southern New Jersey. SJI's non-
regulated businesses, under South Jersey Energy Solutions, promote efficiency,
clean technology and renewable energy by developing and operating on-site energy
production facilities; acquiring and marketing natural gas and electricity for
retail customers; providing wholesale commodity marketing and risk management
services; and offering HVAC and other energy-efficiency related services. For
more information about SJI and its subsidiaries, visit
www.sjindustries.com.
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, Wholesale Energy Economic Earnings, Retail Energy
Economic Earnings, South Jersey Energy Economic Earnings and Marina Energy
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 derivative transactions, and (2)
less realized gains and plus realized losses, as applicable and in each case
after tax, on all commodity derivative transactions attributed to expected
purchases of gas in storage to match the recognition of these gains and losses
with the recognition of the related cost of the gas in storage in the period of
withdrawal, and (3) less the impact of transactions or contractual arrangements
where the true economic impact will be realized in a future period.
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 after taking into account the impact of derivative instruments on
the related transactions and transactions or contractual arrangements where the
true economic impact will be realized in a future period. Specifically, we
believe that this financial measure indicates to investors the profitability of
the entire derivative related transaction and not just the portion that is
subject to mark-to-market valuation under GAAP. Considering only the change in
market value on the derivative side of the transaction can produce a false sense
as to the ultimate profitability of the total transaction 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 Twelve Months Ended
December 31 December 31
---------------------------- ----------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
(In thousands except per (In thousands except per
share data) share data)
Income from
Continuing
Operations $ 25,569 $ 36,986 $ 92,776 $ 89,859
Minus/Plus:
Unrealized
Mark-to-Market
Losses/(Gains)
on Derivatives 3,606 (5,023) (854) (2,815)
Realized
Losses/(Gains)
on Inventory
Injection Hedges 23 (183) (11) (61)
Unrealized
Loss on
Property, Plant
& Equipment 1,402 - 1,402 -
------------ ------------ ------------ ------------
Economic $ 30,600 $ 31,780 $ 93,313 $ 86,983
Earnings
------------ ------------ ------------ ------------
Earnings per
Share from
Continuing
Operations $ 0.81 $ 1.22 $ 3.01 $ 2.99
Minus/Plus:
Unrealized
Mark-to-Market
Losses/(Gains)
on Derivatives 0.12 (0.16) (0.03) (0.10)
Realized
(Gain) on
Inventory
Injection Hedges - (0.01) - -
Unrealized
Loss on
Property, Plant
& Equipment 0.05 - 0.05 -
------------ ------------ ------------ ------------
Economic
Earnings per $ 0.98 $ 1.05 $ 3.03 $ 2.89
Share
------------ ------------ ------------ ------------
Three Months Ended Twelve Months Ended
December 31 December 31
---------------------------- ----------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
(In thousands except per (In thousands except per
share data) share data)
Non-Utility
Income From
Continuing
Operations $ 6,127 $ 17,683 $ 34,535 $ 36,970
Minus/Plus:
Unrealized
Mark-to-Market
Losses/(Gains)
on Derivatives 3,606 (5,023) (854) (2,815)
Realized
Losses/(Gains)
on Inventory
Injection Hedges 23 (183) (11) (61)
Unrealized
Loss on
Property, Plant
& Equipment 1,402 - 1,402 -
------------ ------------ ------------ ------------
Non-Utility
Economic 11,158 12,477
Earnings $ $ $ 35,072 $ 34,094
------------ ------------ ------------ ------------
Wholesale Energy
(Loss)/Income
From Continuing
Operations $ (3,086) $ 8,924 $ (1,210) $ 10,960
(Minus)/Plus:
Unrealized Mark-
to-Market
Losses/(Gains)
on Commodity
Derivatives 4,581 (7,772) 5,900 (5,078)
Realized
Losses/(Gains)
on Inventory
Injection Hedges 23 (183) (11) (61)
------------ ------------ ------------ ------------
Wholesale Energy
Economic
Earnings $ 1,518 $ 969 $ 4,679 $ 5,821
------------ ------------ ------------ ------------
Three Months Ended Twelve Months Ended
December 31 December 31
---------------------------- --------------------------
2012 2011 2012 2011
------------ ------------ ----------- -----------
(In thousands except per (In thousands except per
share data) share data)
Retail Energy
Income From
Continuing
Operations $ 9,213 $ 8,759 $ 35,745 $ 26,010
Minus/Plus:
Unrealized
Mark-to-Market
(Gains)/Losses
on Derivatives (975) (2,749) (6,754) 2,263
Unrealized
Loss on
Property, Plant
& Equipment 1,402 - 1,402 -
------------ ------------ ----------- -----------
Retail Energy
Economic
Earnings $ 9,640 $ 11,508 $ 30,393 $ 28,273
------------ ------------ ----------- -----------
Marina Energy
Income From
Continuing
Operations $ 7,638 $ 11,401 $ 27,633 $ 21,607
(Minus)/Plus:
Unrealized Mark-
to-Market
(Gains)/Losses
on Derivatives (451) (416) (968) 365
Unrealized
Loss on
Property, Plant
& Equipment 1,402 - 1,402 -
------------ ------------ ----------- -----------
Marina Energy
Economic
Earnings $ 8,589 $ 10,985 $ 28,067 $ 21,972
------------ ------------ ----------- -----------
South Jersey
Energy
Income/(Loss)
From Continuing
Operations $ 832 $ (2,366) $ 7,371 $ 1,844
(Minus)/Plus:
Unrealized Mark-
to-Market
(Gains)/Losses on
Commodity
Derivatives (524) 3,165 (5,786) 1,898
------------ -------------- -------------- ---------
South Jersey
Energy Economic
Earnings $ 308 $ 799 $ 1,585 $ 3,742
------------ -------------- -------------- ---------
###
SJI 4th Quarter 2012 Earnings Statement:
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