Folsom, Feb. 27, 2019 (GLOBE NEWSWIRE) --

Investor Contact: 
Daniel Fidell 
609-561-9000 x7027 
dfidell@sjindustries.com 
  
Media Contact: 
Marissa Travaline 
609-561-9000 x4227 
mtravaline@sjindustries.com 

FOR IMMEDIATE RELEASE

SJI Reports 2018 Results; Initiates Guidance

FOLSOM, NJ (February 27, 2019) - SJI (NYSE: SJI) today reported operating results for its 2018 full year and fourth quarter ended December 31, 2018.  Highlights include:

  • 2018 GAAP earnings per diluted share of $0.21 per share compared to $(0.04) in 2017
  • Record Economic Earnings* per diluted share of $1.38 compared to $1.23 in 2017 including impacts of acquisitions and divestitures
  • Significant transformational accomplishments in 2018, reflecting shift to heavily-regulated growth model
  • Dividend increased to an annualized $1.15 per share in December
  • Long-term rate base growth of 8-10% and economic earnings growth of 6-8% affirmed
  • 2019 economic earnings per diluted share expected to be $1.05-$1.15 driven by regulated operations
  • 2020 economic earnings expected in line with long-term forecast provided in October and significantly above 2018 results, with formal guidance to be provided in conjunction with our 1Q'19 earnings release on May 8

“The success of our business transformation efforts over several years have positioned us for top-tier, regulated-driven economic EPS growth of 6-8% annually,” said Michael Renna, SJI President and Chief Executive Officer.  "We are excited by the changes underway at SJI and look forward to delivering on key regulatory and operational initiatives throughout 2019. These initiatives will provide the foundation for growth and exceptional performance on behalf of our customers and shareholders," added Renna.

YEAR TO DATE RESULTS        
  Twelve Months Ended December 31, 2018 Twelve Months Ended December 31, 2017
  GAAPGAAPEconomicEconomic GAAPGAAPEconomicEconomic
  EarningsEPSEarningsEPS EarningsEPSEarningsEPS
South Jersey Gas $82.9$0.98$82.9$0.98 $72.6 $0.91 $72.6$0.91
Elizabethtown Gas  (5.0) (0.06) 5.8  0.07          
Elkton Gas  (0.2)   0.1            
SJI Utilities  77.7  0.92  88.8  1.05   72.6  0.91  72.6 0.91 
           
Midstream  3.1  0.04  3.1  0.04   4.6  0.06  4.6  0.06 
Energy Group  60.4  0.72  42.6  0.50   (21.8) (0.27) 21.3  0.27 
Energy Services  (75.9) (0.90) (0.6) (0.01)  (59.8) (0.75) (2.7) (0.03)
Other  (47.4) (0.56) (17.7) (0.21)  1.0  0.01  2.3  0.03 
Total $17.9$0.21$116.2$1.38 $(3.4)$(0.04)$98.1$1.23
           
Average Shares Outstanding (Diluted)   84.471   84.471    79.541   79.541 
* Non-GAAP, see "Explanation and Reconciliation of Non-GAAP Financial Measures."   
Note: Earnings and average shares outstanding are in millions. Amounts and/or EPS may not add due to rounding.  

2018 Key Accomplishments

Elizabethtown Gas (ETG) and Elkton Gas (ELK) Acquisitions

  • Seamless process, with financing and closing in less than nine months, and full integration expected Q1'20

Execution of Regulatory Initiatives

  • Multi-year extensions of SHARP infrastructure and energy efficiency programs for South Jersey Gas Company (SJG); Infrastructure Investment Program (IIP) proposal for ETG filed with NJBPU in October

Business Transformation/Balance Sheet Strengthening

  • Sale of non-core solar and retail gas marketing assets, with cash proceeds deployed for debt repayment

Growth from Core Non-Regulated Operations

  • Record wholesale results driven by cold weather; three additional fuel management contracts operational

New Long-Term Growth Metrics

  • Expected long-term 8-10% rate base growth and 6-8% economic EPS growth

2018 Results

For the twelve-month period ended December 31, 2018, SJI reported consolidated GAAP earnings of $17.9 million ($0.21 per share) compared to a net loss of $3.4 million ($0.04 per share) in the prior year period.

SJI uses the non-GAAP measure of Economic Earnings when discussing results. We believe this presentation provides clarity into the continuing earnings of our business. A full explanation and reconciliation of economic earnings is provided under “Explanation and Reconciliation of Non-GAAP Financial Measures” later in this report and in our 10-K for the year ending December 31, 2018.

For the twelve-month period ended December 31, 2018, economic earnings were $116.2 million ($1.38 per share) compared to $98.1 million ($1.23 per share) last year.

Gas Utilities

The SJI Utilities (SJIU) segment includes the gas distribution operations of SJG, ETG and ELK. Given partial year contributions from ETG and ELK, full year earnings performance relative to the prior year is not comparable. 2018 GAAP earnings were $77.7 million. GAAP earnings include $15.3 million in customer bill credits ($11.1 million after-tax) for ETG and ELK, consistent with acquisition approvals. 2018 economic earnings, which exclude the bill credits, were $88.8 million. Both 2018 GAAP and economic earnings reflect the addition of Elizabethtown Gas and Elkton Gas operating activities which contributed $5.9 million to earnings.

South Jersey Gas

Operating Performance. GAAP earnings and economic earnings are the same for SJG. 2018 earnings were $82.9 million compared with $72.6 million in 2017. The $10.3 million improvement reflects higher utility margin partially offset by higher operating costs.

Utility margin increased $11.9 million during 2018 compared with 2017. We define utility margin, a non-GAAP measure, as natural gas revenues less natural gas costs, regulatory rider expenses and related volumetric and revenue-based energy taxes.  Margin improvement was driven by customer growth, our base rate case settlement, and the roll-in of investments from infrastructure replacement programs.

Utility operating costs increased $1.6 million compared with last year, excluding expenses for clean energy, energy efficiency and environmental remediation programs that are offset by an equal amount in revenues. Higher costs reflect a combination of higher depreciation, interest and operation and maintenance expenses primarily aimed at improving efficiency and productivity for the benefit of our customers. Higher depreciation reflects capital investment in infrastructure and customer growth.

Customer Growth. SJG added more than 7,400 new customers over the last 12 months and now serves more than 391K customers. SJG’s 1.9% growth rate compares favorably to our peers and remains driven by gas conversions (~75% of new customer additions) from alternate fuels such as oil and propane.

Infrastructure Modernization. Through infrastructure replacement programs, SJG enhances the safety and reliability of our system while earning our authorized utility return on approved investments in a timely manner.

  • Our Accelerated Infrastructure Replacement Program (AIRP) authorizes investment of $302.5 million over the five year period from 2016-2021 for important infrastructure replacement upgrades. Our most recent annual investment of $60.4 million for the period July 2017 to June 2018 was rolled into SJG rates effective October 1, 2018.
  • SJG invested $7 million in our Storm Hardening and Reliability Program (SHARP) in 2018. The current program was approved in May and authorizes investment of $100 million from 2018-2021 for four projects to enhance the safety, redundancy and resiliency of the distribution system along our coastal communities. We expect to invest more than $45 million in 2019 under this program.

BL England.  RC Cape May Holdings, LLC has communicated the firm’s intent not to proceed with re-powering the former BL England facility with natural gas.

  • SJG's proposed ~$115M, 22-mile intrastate pipeline project would have supplied natural gas to the BL England generating facility and provided a secondary supply of natural gas to over 142,000 customers in Atlantic and Cape May counties who are currently served by a single feed. The pipeline was approved by the NJBPU in December 2015 and the New Jersey Pinelands Commission in February 2017.
  • We are disappointed by this notice but remain committed to meeting the vitally important needs of the residents and businesses in southern-most New Jersey. Delaying needed reliability and resiliency investments compromises SJG's ability to provide uninterrupted service to its customers.
  • We’ve already begun to explore alternatives that will allow for a secondary supply of natural gas, needed to create reliability and resiliency for the 142,000 customers in Atlantic and Cape May counties who count on us to heat their homes and provide hot meals and hot water for their families. We expect to share additional details as these alternatives clarify in future periods.
  • SJI does not expect this announcement to impact our long-term growth metrics given additional capital growth opportunities we anticipate over the next decade.

Elizabethtown Gas

Operating Performance.  GAAP earnings and economic earnings are typically the same for ETG. However, 2018 GAAP earnings of $(5.0) million includes a non-recurring $15 million customer bill credit ($10.8 million after-tax) consistent with acquisition approval. 2018 economic earnings were $5.8 million reflecting our ownership as of July 1, 2018. Note that seasonality of our gas distribution business heavily skews profit margin to the first half of the year while operating expenses are absorbed on a straight-line basis through the year. Utility margin of $70.0 million was driven by customer growth and revenue from the 2017 base rate case offset by costs associated with the planned exit of the company’s current transition service agreement with Southern Company (SO) and interest expense.

Customer Growth.  ETG added more than 2,000 net customers over the last 12 months and now serves more than 293K customers. ETG’s 0.8% growth rate has historically been driven by a balanced mix of new construction and gas conversions from alternate fuels such as oil and propane.

Infrastructure Modernization. Consistent with acquisition approval, ETG was required to develop a plan, in concert with the Staff of the New Jersey Board of Public Utilities (NJBPU), to address remaining aging infrastructure at ETG. On October 29, 2018 ETG filed a $518 million, five-year infrastructure replacement program proposal with the NJBPU. The design of ETG's Infrastructure Investment Plan (IIP) includes a request for timely recovery of our investment on a semi-annual basis through a separate rider recovery mechanism. A final decision from the NJBPU is anticipated in 2019.

Elkton Gas

GAAP earnings and economic earnings are typically the same for ELK. However, 2018 GAAP earnings of $(0.2) million includes a non-recurring $0.3M customer bill credit consistent with acquisition approval. 2018 economic earnings were $0.1 million. Utility margin from customer growth and infrastructure investment was offset by operating costs and interest expense. In June 2018, ELK filed a base rate case application with the Maryland Public Service Commission (MPSC). In February, the MPSC authorized an annual revenue increase of $0.09 million based on a 9.8% ROE and 50.0% equity component.

Midstream

The Midstream segment is primarily comprised of our 20% equity investment in the PennEast Pipeline (PennEast). PennEast is a planned $1B+, 1 Bcf, approximately 120-mile interstate pipeline running from the Marcellus region of Pennsylvania into New Jersey.  GAAP income from continuing operations and economic earnings are the same for Midstream. 2018 earnings were $3.1 million compared with $4.6 million in 2017, reflecting Allowance for Funds Used During Construction (AFUDC) related to the project.

In September 2015, PennEast submitted an application to FERC for a permit to proceed with construction. In January 2018, the Certificate of Public Convenience and Necessity was approved by the FERC.  This authorized PennEast to construct, install, own, operate and maintain this pipeline. While opponents of the project have filed a variety appeals and several are still pending, a December 2018 ruling from the U.S. District Court of New Jersey allowed PennEast to proceed with survey work that is expected to enable it to complete and submit permit applications to the NJDEP.  We expect to make additional investments in similar midstream projects.

Energy Group

The Energy Group segment includes our non-regulated operations engaged in fuel supply management services, wholesale gas marketing, and retail marketing. 2018 GAAP earnings were $60.4 million compared with $(21.8) million in 2017. 2018 economic earnings were $42.6 million compared with $21.3 million in 2017.

  • Fuel management activities contributed 2018 economic earnings of $8.6 million compared with $5.8 million in 2017 driven by a larger portfolio of operating contracts (eight) compared with last year (five).
  • Wholesale marketing contributed 2018 economic earnings of $35.0 million compared with $15.8 million in 2017, driven by higher margins on daily energy trading activities and volatility due to extremely cold weather. As of December 31, 2018, wholesale energy operations held 8.6 Bcf of storage and 0.56 Bcf/d of transportation under contract compared with 8.7 Bcf of storage and 0.58 Bcf/d as of December 31, 2017.
  • Retail marketing contributed a loss in 2018 economic earnings of $1.2 million compared with a loss of $0.5 million in 2017. In December 2018, we sold our retail gas marketing assets to UGI Energy Services for total cash proceeds of $15 million as part of our shift in business strategy.

Energy Services

The Energy Services segment consists of our non-regulated energy production portfolio including solar, combined heat and power (CHP) and landfill gas-to-electric assets, as well as our account services business. 2018 GAAP earnings were $(75.9) million compared with $(59.8) million in 2017. 2018 economic earnings were $(0.6) million compared with $(2.7) million in 2017.

  • Energy production contributed a loss in 2018 economic earnings of $2.8 million compared with a loss of $3.2 million in 2017 driven by CHP/Landfill under-performance and the sale of our solar assets in June 2018 to an entity managed by Goldman Sachs Asset Management (GSAM). As previously communicated, we no longer view energy production as core to our growth strategy and we are evaluating options to optimize the value of our remaining businesses.
  • Account services contributed 2018 economic earnings of $2.1 million compared with $0.4 million in 2017, partially mitigating energy production results.

Fourth Quarter 2018 Results

For the three months ended December 31, 2018, SJI reported consolidated GAAP earnings of $46.1 million ($0.53 per share) compared to $4.1 million ($0.05 per share) in the prior year period.  Economic earnings for fourth quarter 2018 were $33.5 million ($0.39 per share) compared to $40.0 million ($0.50 per share) last year.

Fourth Quarter Results       
  Three Months Ended December 31, 2018 Three Months Ended December 31, 2017
  GAAPGAAPEconomicEconomic GAAPGAAPEconomicEconomic
  EarningsEPSEarningsEPS EarningsEPSEarningsEPS
South Jersey Gas $23.6 $0.27 $23.6 $0.27  $29.6 $0.37 $29.6 $0.37 
Elizabethtown Gas 12.8 0.15 12.8 0.15      
Elkton Gas 0.2  0.2       
SJI Utilities 36.6 0.4236.6 0.42  29.6 0.37 29.6 0.37 
           
Midstream 1.1 0.01 1.1 0.01  0.9 0.01 0.9 0.01 
Energy Group 21.4 0.25 4.5 0.05  5.2 0.07 11.7 0.15 
Energy Services 4.3 0.05 0.4   (31.0)(0.39)(2.8)(0.04)
Other (17.3)(0.20)(9.1)(0.11) (0.6)(0.01)0.6 0.01 
Total $46.1 $0.53 $33.5 $0.39  $4.1 $0.05 $40.0 $0.50 
           
Average Shares Outstanding (Diluted)  86.389  86.389   79.705  79.705 
* Non-GAAP, see "Explanation and Reconciliation of Non-GAAP Financial Measures."  
Note: Earnings and average shares outstanding are in millions. Amounts and/or EPS may not add due to rounding.  

Gas Utilities

Fourth quarter 2018 GAAP and economic earnings were $36.6 million. As a reminder, given partial year contributions from ETG and ELK, fourth quarter earnings performance relative to the prior year is not comparable. Both GAAP and economic earnings for fourth quarter 2018 reflect the addition of ETG and ELK operating activities which contributed earnings of $13.0 million.

SJG earnings were $23.6 million compared with $29.6 million in the prior year. The quarterly variance reflects higher operating costs partially offset by higher utility margin, driven by the same factors as full-year 2018 results.  ETG earnings were $12.8 million, reflecting utility margin from customer growth and revenue from the 2017 base rate case offset by costs associated with the planned exit of the company’s current transition service agreement with Southern Company (SO) and interest expense. ELK earnings were $0.2 million, reflecting utility margin from customer growth and infrastructure investment offset by operating costs and interest expense.

Midstream

Fourth quarter 2018 earnings were $1.1 million compared with $0.9 million in the prior year, reflecting Allowance for Funds Used During Construction (AFUDC) related to the project.

Energy Group

Fourth quarter 2018 GAAP earnings were $21.4 million compared with $5.2 million in the prior year.  Fourth quarter 2018 economic earnings were $4.5 million compared with $11.7 million in the prior year.

  • Fuel management activities contributed economic earnings of $2.3 million compared with $1.7 million the prior year driven by a larger portfolio of contracts (eight) compared with last year (five).
  • Wholesale marketing contributed economic earnings of $2.1 million compared with $10.7 million last year, driven by much less favorable weather and tighter margins on daily energy trading activities.
  • Retail marketing contributed economic earnings of $0.0 million compared with a loss of $0.8 million last year, reflecting the sale of retail gas marketing assets in December.

Energy Services

Fourth quarter 2018 GAAP earnings were $4.3 million compared with a loss of $31.0 million in the prior year. Fourth quarter 2018 economic earnings were $0.4 million compared with a loss of $2.8 million in the prior year.

  • Energy production contributed a loss in economic earnings of $0.1 million compared with a loss of $3.3 million last year primarily reflecting our June 2018 agreement to sell our solar assets.
  • Account services economic earnings of $0.5 million were consistent with the prior year.

Balance Sheet and Cash Flow

SJI remains committed to a capital structure that supports our regulated-driven capital spending plan while maintaining a balanced equity-to-total capitalization, ample liquidity and a solid investment grade credit rating.

At December 31, 2018, equity-to-total capitalization was 28.9% compared with 27.9% at September 30, 2018 and 43.7% at December 31, 2017, reflecting acquisition financing. As previously communicated, our growth plan embeds conversion of mandatory convertible equity units due 2021 ($287.5 million). Including conversion, our adjusted equity-to-total capitalization ratio, a non-GAAP measure, was 35.3% at December 31, 2018.

Our balance sheet strengthening activities remain a core focus and have continued into 2019:

  • On January 15, 2019, we settled our equity forward sale agreement by physically delivering 6,779,661 shares of common stock and receiving net cash proceeds of approximately $189 million. We deployed a majority of these proceeds for debt repayment in late January.
  • In 2019, we have also deployed a majority of more than $300 million in cash proceeds from the sale of our solar and retail gas marketing assets for debt repayment.
  • We expect additional debt repayment from the sale of any additional non-core, non-regulated assets.

For the year ended December 31, 2018, net cash from operating activities was $143.6 million compared to $190.3 million in the prior year period, reflecting lower utility customer collections and higher costs for environmental remediation partially offset by increased Energy Group collections driven by cold weather in Q1'18. Net cash used in investing activities was $1.8 billion compared with $287.3 million in the prior year period, reflecting our acquisition of ETG and ELK, timing of utility infrastructure upgrades, and investment to support customer growth. Net cash provided by financing activities was $1.6 billion compared to $104.7 million in the prior year period, primarily reflecting acquisition-related debt and equity financing.

As of December 31, 2018, SJI had total borrowing facilities of $860 million, with $277 million drawn and $582 million in available liquidity.

Dividends

On November 19, 2018, the SJI board of directors voted to increase the company's regular quarterly dividend to an annualized rate of $1.15 per share, that was payable December 27, 2018, to shareholders of record on December 10, 2018. SJI has continuously paid a cash dividend since 1950 and has increased the dividend each of the last 20 years. Our targeted payout is 55-65% of economic earnings.

Financial Guidance

2019

SJI expects 2019 economic earnings to be in the range of $98 million to $107 million, or $1.05 to $1.15 per diluted share.  Economic earnings guidance primarily reflects 1) costs associated with the transition services agreement we have with Southern which we intend to exit by early 2020, 2) financing and operational requirements associated with our ETG/ELK acquisitions and divestitures of non-core nonregulated businesses and 3) timing associated with the execution and implementation of our regulatory strategy. Regulated operations are expected to contribute 80-85% of economic earnings excluding acquisition-related interest costs. Capital expenditures are expected to be ~$525 million in 2019, with more than 97 percent of expenditures supporting regulated operations and projects. SJI ended 2018 with $582 million of capacity under its revolving credit facility and, following our equity forward draw in February, does not anticipate any additional equity issuances in 2019.

2020

SJI expects 2020 economic earnings in line with our long-term forecast provided in October and significantly above 2018 results, with formal guidance to be provided in conjunction with our 1Q'19 earnings release on May 8. 2020 economic earnings are expected to benefit from our exit from the transition services agreement, accelerated utility customer growth and infrastructure replacement at both SJG and ETG, execution of our regulatory strategy including recovery of base utility investment, a reshaping of our wholesale portfolio including the expiration of legacy marketing contracts and lower operating costs driven by 2019 business transformation activities. Capital expenditures are expected to be ~$540 million in 2020, with more than 97 percent of expenditures supporting regulated operations and projects. SJI anticipates an equity issuance of $125 million to support a utility redundancy project in 2020.

Long-Term Guidance Reaffirmed

SJI expects economic earnings per share to increase by an average of 6 to 8 percent annually between 2018 and 2022; however, the timing and frequency of regulatory filings will impact the growth rate in any individual year. SJI’s rate base is expected to grow an average of 8 to 10 percent per year between 2018 and 2022. Capital expenditures are expected to be in the range of $500 million to $600 million per year between 2018 and 2022, with approximately 97 percent of expenditures supporting regulated operations and projects. SJI expects its average annual dividend growth rate to be ~3 percent between 2018 and 2022, with a target dividend payout ratio of 55 to 65 percent of economic earnings, all subject to its board of directors' approval.

Our financial guidance for the periods discussed above assume a continued conservative future view of wholesale markets, potential for revisions to PennEast construction schedules, and RC Cape May Holdings intent to discontinue the re-powering of the BL England facility with natural gas. Our financial guidance is also subject to the risks and uncertainties identified below under “Forward-Looking Statements.”

Conference Call and Webcast

SJI will host a conference call and webcast on Thursday, February 28 to discuss our fiscal 2018 full year and fourth quarter financial results. To access the call, please dial the applicable number approximately 5-10 minutes prior to the start time.

Date/Time:         Thursday, February 28, 11:00 a.m. ET

Dial-In:               Toll Free:  877-376-9937; Toll: 629-228-0738

Passcode:            4294045

The call will also be webcast in a listen-only format for the media and general public. The webcast can be accessed at www.sjindustries.com under Events & Presentations. A replay of the webcast will be available on our website at www.sjindustries.com under Event & Presentations.

About SJI

SJI (NYSE: SJI), an energy services holding company based in Folsom, NJ, delivers energy services to its customers through three primary subsidiaries. SJI Utilities, SJI’s regulated natural gas utility business, delivers safe, reliable, affordable natural gas to more than 690,000 South Jersey Gas, Elizabethtown Gas and Elkton Gas customers in New Jersey and Maryland. SJI’s non-utility businesses within South Jersey Energy Solutions promote efficiency, clean technology and renewable energy by providing customized wholesale commodity marketing and fuel management services; and developing, owning and operating on-site energy production facilities. SJI Midstream houses the company’s interest in the PennEast Pipeline Project. Visit sjindustries.com for more information about SJI and its subsidiaries.

Forward Looking Statements and Risk Factors

This news release, including information incorporated by reference, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position, expected sources of incremental margin, strategy, financing needs, future capital expenditures and the outcome or effect of ongoing litigation, are forward-looking. This Quarterly Report uses words such as "anticipate," "believe," "expect," "estimate," "forecast," "goal," "intend," "objective," "plan," "project," "seek," "strategy," "target," "will" and similar expressions to identify forward-looking statements.  These forward-looking statements are based on the beliefs and assumptions of management at the time that these statements were prepared and are inherently uncertain.  Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These risks and uncertainties include, but are not limited to, general economic conditions on an international, national, state and local level; weather conditions in SJI’s marketing areas; changes in commodity costs; changes in the availability of natural gas; “non-routine” or “extraordinary” disruptions in SJI’s 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. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements, are described in greater detail under the heading “Item 1A. Risk Factors” in SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2018 and in any other SEC filings made by SJI or SJG during 2018 and prior to the filing of this earnings release. No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date they are made. SJI and SJG undertake no obligation to revise or update any forward-looking statements, whether as result of new information, future events or otherwise, except as required by law.

Explanation of Non-GAAP Financial Measures

Management uses the non-generally accepted accounting principles (non-GAAP) financial measures of Economic Earnings and Economic Earnings Per Share when evaluating the results of operations for its operations. These 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, (i) less the change in unrealized gains and plus the change in unrealized losses on all derivative transactions; (ii) less realized gains and plus realized losses 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; (iii) less the impact of transactions, contractual arrangements or other events where management believes period to period comparisons of SJI's operations could be difficult or potentially confusing. With respect to part (iii) of the definition of Economic Earnings:

                For the year ended December 31, 2018, Economic Earnings excludes impairment charges, including charges taken in 2018 on solar generating facilities (which was primarily driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets) along with Landfill Gas-to-Energy (LFGTE) assets (which was primarily driven by the remaining carrying value of these assets no longer being recoverable.  For the year ended December 31, 2017, Economic Earnings excludes impairment charges on solar generating facilities, LFGTE long-lived assets, LFGTE assets customer relationships, and goodwill.

                For the years ended December 31, 2018 and 2017, Economic Earnings excludes the impact of a May 2017 jury verdict stemming from a pricing dispute with a gas supplier over costs, including interest charges and legal fees incurred, along with the realized difference in the market value of the commodity (including financial hedges).

                For the years ended December 31, 2018 and 2017, Economic Earnings excludes various costs related to the Acquisition,  a series of agreements whereby Marina agreed to sell its portfolio of solar energy assets to a third-party buyer, and the agreement to sell the assets of SJE's retail gas business.

                For the year ended December 31, 2018, Economic Earnings excludes approximately $15.3 million (pre-tax) of credits to ETG and ELK customers that was required as part of the Acquisition.

                For the year ended December 31, 2018, Economic Earnings excludes costs incurred on the Company's Early Retirement Incentive Program (ERIP) as well as the benefit of amending the Company's Other Postretirement Employee Benefit Plan (OPEB).

                For the year ended December 31, 2017, Economic Earnings also excludes the impact of a 2017 settlement of a legal claim stemming from a dispute related to a three-year capacity management contract with a counterparty, including legal fees incurred, along with the impact of a favorable FERC decision over a tariff rate dispute with a counterparty, including interest earned.

                For the year ended December 31, 2017, Economic Earnings excludes an approximately $2.4 million pre-tax loss related to a new interest rate derivative and amendments made to an existing interest rate derivative linked to unrealized losses previously recorded in Accumulated Other Comprehensive Loss (AOCL). SJI reclassified this amount from AOCL to Interest Charges on the consolidated statements of income as a result of the prior hedged transactions being deemed probable of not occurring. Since the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings.

                For the year ended December 31, 2017, Economic Earnings excludes the impact of one-time tax adjustments, most notably related to the Tax Reform.

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, contractual arrangements  and other events that management believes make period to period comparisons of SJI's operations difficult or potentially confusing. Specifically regarding derivatives, 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. We believe that 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.

Reconciliation of Non-GAAP Financial Measures

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 (in thousands, except per share data):

 201820172016
    
Income (Loss) from Continuing Operations$17,903 $(3,404)$119,061 
Minus/Plus:   
Unrealized Mark-to-Market (Gains) Losses on Derivatives(35,846)14,226 (27,550)
Realized Losses on Inventory Injection Hedges 332 683 
Loss on Property, Plant and Equipment (A)105,280 91,299  
Net Losses from Legal Proceedings (B)5,910 56,075  
Acquisition/Sale Costs (C)34,674 19,564  
Customer Credits (D)15,333   
ERIP and OPEB (E)6,733   
Other (F) 2,227 (165)
Income Taxes (G)(33,753)(70,834)10,813 
Additional Tax Adjustments (H) (11,420) 
    
Economic Earnings$116,234 $98,065 $102,842 
    
Earnings (Loss) per Share from Continuing Operations$0.21 $(0.04)$1.56 
Minus/Plus:   
Unrealized Mark-to-Market (Gains) Losses on Derivatives(0.42)0.18 (0.36)
Realized Losses on Inventory Injection Hedges  0.01 
Loss on Property, Plant and Equipment (A)1.24 1.14  
Net Losses from Legal Proceedings (B)0.07 0.70  
Acquisition/Sale Costs (C)0.41 0.25  
Customer Credits (D)0.18   
ERIP and OPEB (E)0.08   
Other (F) 0.03  
Income Taxes (G)(0.39)(0.89)0.13 
Additional Tax Adjustments (H) (0.14) 
    
Economic Earnings per Share$1.38 $1.23 $1.34 

(A) Represents impairment charges taken in 2018 on solar generating facilities (which was primarily driven by the purchase price in the agreement to sell solar assets being less than the carrying amount of the assets) along with LFGTE assets (which was primarily driven by the remaining carrying value of these assets no longer being recoverable.  Also represents impairment charges taken in 2017 on solar generating facilities, LFGTE long-lived assets, LFGTE assets customer relationships, and goodwill.

(B)  Represents net losses from three separate legal proceedings: (a) charges in 2017 and 2018, including interest, legal fees and the realized difference in the market value of the commodity (including financial hedges) resulting from a ruling in a legal proceeding related to a pricing dispute between SJI and a gas supplier that began in October 2014; (b) a charge in 2017, including legal fees, resulting from a settlement with a counterparty over a dispute related to a three-year capacity management contract; and (c) a gain taken in 2017 resulting from a favorable FERC decision, including interest, over a tariff rate dispute with a counterparty, whereby SJI contended that the counterparty was overcharging for storage demand charges over a ten-year period.

(C) Represents costs incurred on the agreement to acquire the assets of ETG and ELK, including legal, consulting and other professional fees.  Also included here are costs incurred on the sale of solar and SJE assets, partially offset by gains recorded on the sale of solar assets.

(D)  Represents credits to ETG and ELK customers that were required as part of the Acquisition.

(E)   Represents costs incurred on the Company's ERIP as well as the benefit of amending the Company's OPEB.  

(F) Included in this amount are amendments made to an existing interest rate derivative linked to unrealized losses previously recorded in AOCL. SJI reclassified this amount from AOCL to Interest Charges on the consolidated statements of income as a result of the prior hedged transactions being deemed probable of not occurring. Since the economic impact will not be realized until future periods, this amount is excluded from Economic Earnings.  Also included is additional depreciation expense within Economic Earnings on a solar generating facility where an impairment charge was recorded in the past, which reduced the depreciable basis and recurring depreciation expense, and the related reduction in depreciation expense was added back in prior years. 

(G)  Determined using a combined average statutory tax rate of approximately 25%, 39% and 40% for 2018, 2017 and 2016, respectively.

(H)  Represents one-time tax adjustments, most notably for Tax Reform.

Summary of Utility Margin

The following tables summarize Utility Margin for the years ended December 31 for SJG, for the period since Acquisition for ETG, which is July 1, 2018 through December 31, 2018 (in thousands):

SJG:

 December 31, 2018 December 31, 2017 December 31, 2016
Utility Margin:           
Residential$213,026  70% $180,106  62% $162,820  62%
Commercial and Industrial89,172  29% 76,491  26% 69,396  26%
Cogeneration and Electric Generation4,975  1% 4,762  1% 4,898  2%
Interruptible105    63    79   
Off-system Sales & Capacity Release4,434  2% 5,051  2% 4,731  2%
Other Revenues1,942  1% 2,107  1% 2,213  1%
  Margin Before Weather Normalization & Decoupling313,654  103% 268,580  92% 244,137  93%
  CIP mechanism(12,382) (4)% 20,062  7% 16,615  6%
  EET mechanism2,998  1% 3,717  1% 3,558  1%
  Utility Margin**$304,270  100% $292,359  100% $264,310  100%

ETG:

Utility Operating Revenues: 
Firm & Interruptible Sales - 
Residential$80,215 
Commercial & Industrial26,784 
Firm & Interruptible Transportation - 
Residential508 
Commercial & Industrial15,148 
Other2,949 
Total Firm & Interruptible Revenues125,604 
Less: 
Total Cost of Sales - Utility (Excluding depreciation)53,491 
Regulatory Rider Expenses*2,068 
Utility Margin**$70,045 
  
Utility Margin: 
Residential$43,293 
Commercial & Industrial26,034 
Regulatory Rider Expenses*718 
Utility Margin**$70,045 
  
Degree Days1,724

*Represents expenses for which there is a corresponding credit in operating revenues.  Therefore, such recoveries have no impact on ETG's financial results.
  **Utility Margin is a non-GAAP financial measure and is further defined above.  The definition of Utility Margin is the same for SJG, ETG and ELK gas utility operations.

Statements of Consolidated Income
(In Thousands Except for Per Share Data)

 South Jersey Industries, Inc. and Subsidiaries
 
Year Ended December 31,
 
2018 2017 2016
Operating Revenues:
     
Utility$670,715  $512,482  $453,819 
Nonutility970,623  730,586  582,681 
Total Operating Revenues1,641,338  1,243,068  1,036,500 
Operating Expenses:     
Cost of Sales - (Excluding depreciation and amortization)     
 - Utility258,781  199,660  167,154 
 - Nonutility796,627  646,567  413,833 
Operations256,862  169,767  147,056 
Impairment Charges105,280  91,299   
Maintenance32,162  19,727  17,549 
Depreciation96,723  100,718  90,389 
Energy and Other Taxes9,537  6,487  6,342 
Net Gain on Sales of Assets(15,379)    
Total Operating Expenses1,540,593  1,234,225  842,323 
Operating Income100,745  8,843  194,177 
      
Other Income and Expense2,404  11,041  5,088 
Interest Charges(90,296) (54,019) (31,449)
Income (Loss) Before Income Taxes12,853  (34,135) 167,816 
Income Taxes(561) 24,937  (54,151)
Equity in Earnings of Affiliated Companies5,611  5,794  5,396 
Income (Loss) from Continuing Operations17,903  (3,404) 119,061 
Loss from Discontinued Operations - (Net of tax benefit)(240) (86) (251)
Net Income (Loss)$17,663  $(3,490) $118,810 
      
Basic Earnings (Loss) per Common Share:     
Continuing Operations$0.21  $(0.04) $1.56 
Discontinued Operations     
Basic Earnings (Loss) per Common Share$0.21  $(0.04) $1.56 
      
Average Shares of Common Stock Outstanding - Basic83,693  79,541  76,362 
      
Diluted Earnings (Loss) per Common Share:     
Continuing Operations$0.21  $(0.04) $1.56 
Discontinued Operations     
Diluted Earnings (Loss) per Common Share$0.21  $(0.04) $1.56 
      
Average Shares of Common Stock Outstanding - Diluted84,471  79,541  76,475 

Statements of Consolidated Cash Flows (In Thousands)

 South Jersey Industries, Inc. and Subsidiaries
 
Year Ended December 31,
 
2018 2017 2016
Cash Flows from Operating Activities:
     
Net Income (Loss)$17,663  $(3,490) $118,810 
Loss from Discontinued Operations240  86  251 
Income (Loss) from Continuing Operations17,903  (3,404) 119,061 
Adjustments to Reconcile Income from Continuing Operations to Net Cash Provided by Operating Activities:     
  Net Gain on Sales of Assets(15,379) (2,563)  
  Impairment Charges105,280  91,299   
  Loss on Extinguishment of Debt  543   
  Depreciation and Amortization132,914  123,486  109,818 
  Net Unrealized (Gain) Loss on Derivatives - Energy Related(34,447) 13,667  (26,935)
  Unrealized (Gain) Loss on Derivatives - Other(1,337) 677  (647)
  Provision for Losses on Accounts Receivable7,977  6,949  6,907 
  CIP Receivable/Payable32,523  915  (24,943)
  Deferred Gas Costs - Net of Recoveries(46,495) (28,092) 11,753 
  Deferred SBC Costs - Net of Recoveries311  (5,578) (7,102)
  Stock-Based Compensation Expense4,144  4,254  3,892 
  Deferred and Noncurrent Income Taxes - Net10,392  10,082  55,789 
  Environmental Remediation Costs - Net of Recoveries(59,307) (39,860) (39,731)
  Gas Plant Cost of Removal(11,184) (7,062) (6,070)
  Pension Contribution  (10,000)  
  Changes in:     
  Accounts Receivable(106,283) 21  (67,160)
  Inventories566  5,589  387 
  Prepaid and Accrued Taxes - Net13,418  (23,366) 4,253 
  Accounts Payable and Other Accrued Liabilities114,371  58,858  112,199 
  Derivatives - Energy Related5,208  899  6,723 
  Other Assets and Liabilities(26,999) (6,989) 4,477 
  Cash Flows from Discontinued Operations7  (4) (44)
      
Net Cash Provided by Operating Activities143,583  190,321  262,627 
      
Cash Flows from Investing Activities:     
Capital Expenditures(341,120) (272,965) (279,423)
Cash Paid for Acquisition, Net of Cash Acquired(1,740,285)    
Cash Paid for Purchase of New Contract(11,339)    
Proceeds from Sale of Property, Plant and Equipment310,644  3,547   
Investment in Long-Term Receivables(8,643) (9,324) (10,886)
Proceeds from Long-Term Receivables9,813  9,861  10,014 
Notes Receivable  22,884  9,916 
Purchase of Company-Owned Life Insurance(1,298) (9,180) (2,398)
Investment in Affiliate(9,524) (29,636) (12,943)
  Return of Investment in Affiliate    4,750 
Advances on Notes Receivable - Affiliate  (2,451)  
  Net Repayment of Notes Receivable - Affiliate2,967    672 
      
Net Cash Used in Investing Activities(1,788,785) (287,264) (280,298)
      
Cash Flows from Financing Activities:     
Net (Repayments of) Borrowings from Short-Term Credit Facilities(75,900) 50,300  (135,600)
Proceeds from Issuance of Long-Term Debt2,432,500  450,000  61,000 
Payments for Issuance of Long-Term Debt(21,574) (14,204) (147)
Principal Repayments of Long-Term Debt(768,909) (293,309) (49,366)
Dividends on Common Stock(94,756) (87,308) (82,380)
Net Settlement of Restricted Stock(776) (751) (387)
Proceeds from Sale of Common Stock173,750    214,426 
Payments for the Issuance of Common Stock(7,149)    
Payment of Lease Obligation    (10,600)
      
Net Cash Provided by (Used in) Financing Activities1,637,186  104,728  (3,054)
      
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash(8,016) 7,785  (20,725)
Cash, Cash Equivalents and Restricted Cash at Beginning of Year39,695  31,910  52,635 
      
Cash, Cash Equivalents and Restricted Cash at End of Year$31,679  $39,695  $31,910 
      
Supplemental Disclosures of Cash Flow Information     
  Cash paid (received) during the year for:     
  Interest (Net of Amounts Capitalized)$84,792  $51,456  $32,372 
  Income Taxes (Refunds) Paid$(20,004) $(8,348) $194 
      
Supplemental Disclosures of Non-Cash Investing Activities     
  Capital Expenditures acquired on account but unpaid as of year-end$44,184  $32,253  $39,130 
  Notes Receivable Exchanged for Accounts Payable$  $3,841  $10,168 

Consolidated Balance Sheets
(In Thousands)

 South Jersey Industries, Inc. and Subsidiaries
 
December 31,
 
2018 2017
Assets
   
Property, Plant and Equipment:   
Utility Plant, at original cost$4,341,113  $2,652,244 
Accumulated Depreciation(787,243) (498,161)
Nonutility Property and Equipment, at cost152,232  741,027 
Accumulated Depreciation(52,629) (194,913)
    
Property, Plant and Equipment - Net3,653,473  2,700,197 
    
Investments:   
Available-for-Sale Securities41  36 
Restricted1,649  31,876 
Investment in Affiliates76,122  62,292 
    
Total Investments77,812  94,204 
    
Current Assets:   
Cash and Cash Equivalents30,030  7,819 
Accounts Receivable337,502  202,379 
Unbilled Revenues79,538  73,377 
Provision for Uncollectibles(18,842) (13,988)
Notes Receivable - Affiliate1,945  4,913 
Natural Gas in Storage, average cost60,425  48,513 
Materials and Supplies, average cost1,743  4,239 
Prepaid Taxes30,694  41,355 
Derivatives - Energy Related Assets54,021  42,139 
Assets Held For Sale59,588   
Other Prepayments and Current Assets26,548  28,247 
    
Total Current Assets663,192  438,993 
    
Regulatory and Other Noncurrent Assets:   
Regulatory Assets662,969  469,224 
Derivatives - Energy Related Assets7,169  5,988 
Notes Receivable - Affiliate13,275  13,275 
Contract Receivables27,961  28,721 
Goodwill734,607  3,578 
Other116,119  110,906 
    
Total Regulatory and Other Noncurrent Assets1,562,100  631,692 
    
Total Assets$5,956,577  $3,865,086 


 2018 2017
Capitalization and Liabilities
   
Equity:   
Common Stock:  Par Value $1.25 per share; Authorized 120,000,000 shares; Outstanding Shares: 85,506,218 (2018) and 79,549,080 (2017)   
  Balance at Beginning of Year$99,436  $99,347 
  Common Stock Issued or Granted Under Stock Plans7,447  89 
  Balance at End of Year106,883  99,436 
Premium on Common Stock843,268  709,658 
Treasury Stock (at par)(292) (271)
Accumulated Other Comprehensive Loss(26,095) (36,765)
Retained Earnings343,258  420,351 
    
Total Equity1,267,022  1,192,409 
    
Long-Term Debt2,106,863  1,122,999 
    
Total Capitalization3,373,885  2,315,408 
    
Current Liabilities:   
Notes Payable270,500  346,400 
Current Portion of Long-Term Debt733,909  63,809 
Accounts Payable410,463  284,899 
Customer Deposits and Credit Balances32,058  43,398 
Environmental Remediation Costs47,592  66,372 
Taxes Accrued5,881  2,932 
Derivatives - Energy Related Liabilities24,134  46,938 
Derivatives - Other Current588  748 
Deferred Contract Revenues1,772  259 
Interest Accrued14,208  9,079 
Pension Benefits3,631  2,388 
Other Current Liabilities36,102  15,860 
    
Total Current Liabilities1,580,838  883,082 
    
Deferred Credits and Other Noncurrent Liabilities:   
Deferred Income Taxes - Net85,836  86,884 
Pension and Other Postretirement Benefits110,112  101,544 
Environmental Remediation Costs206,058  106,483 
Asset Retirement Obligations80,163  59,497 
Derivatives - Energy Related Liabilities7,256  6,025 
Derivatives - Other Noncurrent7,285  9,622 
Regulatory Liabilities478,499  287,105 
Other26,645  9,436 
    
Total Deferred Credits and Other Noncurrent Liabilities1,001,854  666,596 
    
Commitments and Contingencies   
    
Total Capitalization and Liabilities$5,956,577  $3,865,086