SOUTH JERSEY INDUSTRIES INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - December 6, 2018

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Exhibit 99.1

Unaudited Pro Forma Condensed Consolidated Financial Information

On June 27, 2018 (the “Effective Date”), South Jersey Industries, Inc. (“SJI” or the “Company”), a New Jersey corporation, through its indirectly wholly-owned subsidiary, Marina Energy LLC, a New Jersey limited liability company (“Marina”), entered into a series of agreements whereby Marina will sell its portfolio of solar energy assets (the “Transaction”) to an entity managed by Goldman Sachs Asset Management (the “Buyer”). As part of the Transaction, Marina has agreed to sell the 76 distributed solar energy projects located at 143 sites across New Jersey, Maryland, Massachusetts and Vermont with total capacity of approximately 204 megawatts (the “Projects”). Total consideration for the Transaction is approximately $350.0 million in cash, which consists of approximately $287.4 million for the sale of solar assets and approximately $62.6 million for the sale of certain Solar Renewable Energy Credits (“SRECs”).

To facilitate the Transaction, Marina and the Buyer entered into a Purchase Agreement, dated as of the Effective Date (the “Purchase Agreement”), pursuant to which Marina will sell the assets comprising the Projects or, in some cases, 100% of the equity interest of certain special purpose companies wholly-owned by Marina that own the assets comprising certain Projects, for an aggregate purchase price of approximately $287.4 million. The sale of individual projects will occur on a rolling basis as conditions precedent to each closing, including certain regulatory filings and receipt of consents to assignment of project contracts and permits, are satisfied. Depending on the timing of closing with respect to individual Projects, the individual purchase prices for those Projects may be adjusted to account for Project revenues retained by Marina during the period prior to such closings, with a maximum aggregate downward adjustment of approximately $5.4 million. The Purchase Agreement contains customary representations, warranties, covenants, and conditions precedent to closing of the sales. The Company currently expects the majority of the Projects will satisfy all closing conditions on or before December 31, 2018.

On October 12, 2018, SJI and the Buyer completed the first divestiture of certain Projects for which the required consents and permits were satisfied (the “First Tranche”). The First Tranche consisted of 50 sites across New Jersey, Massachusetts, and Vermont with total capacity of 31.4 megawatts. Total consideration (excluding transaction costs) associated with the First Tranche is approximately $66.8 million in cash. Of this total, $8.9 million was received in July 2018 related to the sale of certain SRECs. The First Tranche did not constitute a significant disposition for purposes of Item 2.01 of Form 8-K.

On October 31, 2018, SJI and the Buyer completed the second divestiture of certain Projects for which the required consents and permits were satisfied (the “Second Tranche”). The Second Tranche consisted of 15 sites across New Jersey and Vermont with total capacity of 34.9 megawatts. Total consideration (excluding transaction costs) in aggregate associated with the Second Tranche is approximately $68.1 million in cash. Of this total, $8.3 million was received in July 2018 related to the sale of certain SRECs. The Second Tranche did not constitute a significant disposition for purposes of Item 2.01 of Form 8-K.

On November 30, 2018, SJI and the Buyer completed the third divestiture of certain Projects for which the required consents and permits were satisfied (the “Third Tranche” and collectively with the First Tranche and Second Tranche, “Q4 2018 Tranches”). The Third Tranche consisted of 13 sites across Maryland, New Jersey, and Vermont with total capacity of 58.1 megawatts. Total consideration (excluding transaction costs) in aggregate associated with the Q4 2018 Tranches is $196.7 million in cash. Approximately $61.8 million relates to the Third Tranche. Of this total, $16.9 million was received in July 2018 related to the sale of certain SRECs. In the aggregate, the Q4 2018 Tranches constituted a significant disposition for purposes of Item 2.01 of Form 8-K.

Divestiture of the Assets Sold

Because the Q4 2018 Tranches are considered a significant disposition for purposes of Item 2.01 of Form 8-K, the Company prepared the accompanying unaudited pro forma condensed consolidated financial statements in accordance with Article 11 of Regulation S-X. The Company determined that the Transaction does not qualify for discontinued operations accounting under financial statement presentation authoritative guidance.

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2018, is based on the historical financial statements of the Company as of September 30, 2018, after giving effect to the Q4 2018 Tranches as if they had occurred on September 30, 2018. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2018 and the year ended December 31, 2017, are based on the historical financial statements of the Company for such periods after giving effect to the Q4 2018 Tranches as if they had occurred on January 1, 2017. The pro forma adjustments are based on available information and certain assumptions that the Company believes are reasonable as of the date of this Current Report on Form 8-K. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed consolidated financial statements.

The preparation of the unaudited pro forma condensed consolidated financial information is based on financial statements prepared in accordance with accounting principles generally accepted in the United States, or “GAAP” standards, which are subject to change and interpretation. These principles require the use of estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ materially from those estimates.

The pro forma financial statements are presented for informational purposes only and do not purport to represent what the results of operations or financial condition would have been had the Q4 2018 Tranches actually occurred on the dates indicated, nor do they purport to project the results of operations or financial condition of the company for any future period or as of any future date. In addition, the pro forma financial statements were based on and should be read in conjunction with:


 ·
the audited consolidated financial statements of the Company as of and for the year ended December 31, 2017 and the related notes, included in the Company’s Annual Report on Form 10-K/A filed with the SEC on March 1, 2018;


·
the unaudited consolidated financial statements of the Company as of and for the nine months ended September 30, 2018 and the related notes, included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 7, 2018.

Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2018
(in thousands)

   
Historical
SJI
    
Pro Forma
Adjustments
      
Pro Forma
  
                     
Assets
                    
Property, Plant and Equipment:
                    
Utility Plant, at original cost
  
$
4,200,565
    
$
-
      
$
4,200,565
  
Accumulated Depreciation
    
(781,824
)
    
-
        
(781,824
)
Nonutility Property and Equipment, net
    
111,362
      
-
        
111,362
  
Property, Plant and Equipment — Net
    
3,530,103
      
-
        
3,530,103
  
                           
Investments:
                          
Total Investments
    
84,849
      
-
        
84,849
  
                           
Current Assets:
                          
Cash and Cash Equivalents
    
3,314
      
-
        
3,314
  
Restricted Cash
    
-
      
-
        
-
  
Accounts Receivable, net
    
233,134
      
(2,157
)
(b)
    
230,977
  
Natural Gas in Storage, average cost
    
84,373
      
-
        
84,373
  
Materials and Supplies, average cost
    
4,574
      
-
        
4,574
  
Assets Held for Sale
    
329,622
      
(188,396
)
(a)
    
141,226
  
Other Prepayments and Current Assets
    
82,302
      
(357
)
(b)
    
81,945
  
Total Current Assets
    
737,319
      
(190,910
)
      
546,409
  
                           
Regulatory and Other Noncurrent Assets:
                          
Regulatory Assets
    
628,977
      
-
        
628,977
  
Goodwill and Identifiable Intangible Assets
    
759,826
      
-
        
759,826
  
Other
    
173,448
      
-
        
173,448
  
Total Regulatory and Other Noncurrent Assets
    
1,562,251
      
-
        
1,562,251
  
Total Assets
  
$
5,914,522
    
$
(190,910
)
    
$
5,723,612
  
                           
Capitalization and Liabilities
                          
Equity:
                          
Common Stock
  
$
106,883
    
$
-
      
$
106,883
  
Premium on Common Stock
    
843,064
      
-
        
843,064
  
Treasury Stock (at par)
    
(287
)
    
-
        
(287
)
Accumulated Other Comprehensive Loss
    
(36,740
)
    
-
        
(36,740
)
Retained Earnings
    
321,912
      
10,597
  
(d)
    
332,509
  
Total Equity
    
1,234,832
      
10,597
        
1,245,429
  
Long—Term Debt
    
1,281,000
      
-
        
1,281,000
  
Total Capitalization
    
2,515,832
      
10,597
        
2,526,429
  
                           
Current Liabilities:
                          
Notes Payable
    
421,400
      
-
        
421,400
  
Current Portion of Long—Term Debt
    
1,482,734
      
(191,967
)
(c)
    
1,290,767
  
Accounts Payable
    
383,465
      
(1,428
)
(b)
    
382,037
  
Other Current Liabilities
    
183,555
      
3,722
  
(b),(d)
    
187,277
  
Total Current Liabilities
    
2,471,154
      
(189,673
)
      
2,281,481
  
                           
Deferred Credits and Other Noncurrent Liabilities:
                          
Deferred Income Taxes – Net
    
85,840
      
(11,834
)
(b)
    
74,006
  
Regulatory Liabilities
    
481,512
      
-
        
481,512
  
Other
    
360,184
      
-
        
360,184
  
Total Deferred Credits and Other Noncurrent Liabilities
    
927,536
      
(11,834
)
      
915,702
  
Total Capitalization and Liabilities
  
$
5,914,522
    
$
(190,910
)
    
$
5,723,612
  

Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Nine Months Ended September 30, 2018
(in thousands, except per share amounts)

   
Historical
SJI
    
Pro Forma
Adjustments
      
Pro Forma
  
                     
Operating Revenues:
                    
Utility
  
$
392,849
    
$
-
      
$
392,849
  
Nonutility
    
658,906
      
(18,756
)
(e)
    
640,150
  
Total Operating Revenues
    
1,051,755
      
(18,756
)
      
1,032,999
  
Operating Expenses:
                          
Cost of Sales – (Excluding depreciation)
                          
— Utility
    
128,536
      
-
        
128,536
  
— Nonutility
    
533,440
      
-
        
533,440
  
Operations
    
179,464
      
(6,113
)
(f)
    
173,351
  
Impairment Charges
    
99,233
      
(51,986
)
(g)
    
47,247
  
Maintenance
    
22,276
      
(1,005
)
(h)
    
21,271
  
Depreciation
    
71,783
      
(8,616
)
(i)
    
63,167
  
Energy and Other Taxes
    
6,277
      
(505
)
(j)
    
5,772
  
Total Operating Expenses
    
1,041,009
      
(68,225
)
      
972,784
  
Operating Income
    
10,746
      
49,469
        
60,215
  
                           
Other Income and Expense
    
5,141
      
-
        
5,141
  
Interest Charges
    
(60,067
)
    
1,518
  
(l)
    
(58,549
)
Income Before Income Taxes
    
(44,180
)
    
50,987
        
6,807
  
Income Taxes
    
12,206
      
(11,305
)
(m)
    
901
  
Equity in Earnings of Affiliates
    
3,845
      
-
        
3,845
  
Income from Continuing Operations
  
$
(28,129
)
  
$
39,682
      
$
11,553
  
                           
Basic Earnings Per Common Share:
                          
Continuing Operations
  
$
(0.34
)
             
$
0.14
  
                           
Average Shares of Common Stock Outstanding – Basic
    
83,082
                
83,082
  
                           
Diluted Earnings Per Common Share:
                          
Continuing Operations
  
$
(0.34
)
             
$
0.14
  
                           
Average Shares of Common Stock Outstanding – Diluted
    
83,082
                
83,082
  

Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Year Ended December 31, 2017
(in thousands, except per share amounts)

   
Historical
SJI
    
Pro Forma
Adjustments
      
Pro Forma
  
                     
Operating Revenues:
                    
Utility
  
$
512,482
    
$
-
      
$
512,482
  
Nonutility
    
730,586
      
(38,707
)
(e)
    
691,879
  
Total Operating Revenues
    
1,243,068
      
(38,707
)
      
1,204,361
  
Operating Expenses:
                          
Cost of Sales – (Excluding depreciation)
                          
— Utility
    
199,660
      
-
        
199,660
  
— Nonutility
    
646,567
      
-
        
646,567
  
Operations
    
174,200
      
(2,914
)
(f)
    
171,286
  
Impairment Charges
    
91,299
      
(54,698
)
(g)
    
36,601
  
Maintenance
    
19,727
      
(1,470
)
(h)
    
18,257
  
Depreciation
    
100,718
      
(24,972
)
(i)
    
75,746
  
Energy and Other Taxes
    
6,487
      
(275
)
(j)
    
6,212
  
Total Operating Expenses
    
1,238,658
      
(84,329
)
      
1,154,329
  
Operating Income
    
4,410
      
45,622
        
50,032
  
                           
Other Income and Expense
    
15,474
      
(24
)
(k)
    
15,450
  
Interest Charges
    
(54,019
)
    
-
        
(54,019
)
(Loss) income Before Income Taxes
    
(34,135
)
    
45,598
        
11,463
  
Income Taxes
    
24,937
      
(17,121
)
(m)
    
7,816
  
Equity in Earnings of Affiliates
    
5,794
      
-
        
5,794
  
(Loss) Income from Continuing Operations
  
$
(3,404
)
  
$
28,477
      
$
25,073
  
                           
Basic Earnings Per Common Share:
                          
Continuing Operations
  
$
(0.04
)
             
$
0.32
  
                           
Average Shares of Common Stock Outstanding – Basic
    
79,541
                
79,541
  
                           
Diluted Earnings Per Common Share:
                          
Continuing Operations
  
$
(0.04
)
             
$
0.32
  
                           
Average Shares of Common Stock Outstanding – Diluted
    
79,541
                
79,541
  

NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements reflect the following adjustments:

Unaudited Pro Forma Condensed Consolidated Balance Sheet

“Historical SJI” – represents the historical condensed consolidated balance sheet of SJI as of September 30, 2018.


 (a)
To eliminate the Company’s divestiture of solar assets related to the Q4 2018 Tranches as of September 30, 2018, which were previously classified as held for sale.


(b)
Reflects adjustments for assets purchased or liabilities assumed by the Buyer. The Buyer purchased or assumed accounts receivable, prepaid assets reflected within the Other Prepayments and Current Assets line item, accounts payable, accrued legal expenses and deferred rent reflected within the Other Current Liabilities line item, and deferred income taxes.


(c)
Reflects total net proceeds from the sale of assets included in the Q4 2018 Tranches that were used to partially pay down the Company’s $475.0 million in aggregate principal amount of Floating Rate Senior Notes due 2019 on the one-year anniversary of the date of initial issuance, which at the Company’s option, bears interest at a variable base rate or a variable LIBOR (“Floating Rate Notes”).

(In thousands)
  
For the Nine Months Ended
September 30, 2018
  
       
Purchase price of Projects included in Q4 2018 Tranches
  
$
162,605
  
Purchase price of SRECs included in Q4 2018 Tranches
    
34,117
  
Less: transaction costs
    
(4,755
)
Total net proceeds
  
$
191,967
  


(d)
To record the gain on sale of the Q4 2018 Tranches, net of tax effect, as illustrated in the table below. As the gain is directly attributable to the Transaction and is not expected to have a continuing impact on the Company’s operations, the estimated gain is only reflected on the unaudited pro forma condensed consolidated balance sheet. The income tax associated with the estimated gain has been included within the Other Current Liabilities line item.

(In thousands)
  
For the Nine Months Ended
September 30, 2018
  
       
Net proceeds from Q4 2018 Tranches
  
$
191,967
  
Less: cost basis of assets sold
    
(177,450
)
Gain on sale, before tax
    
14,517
  
Less: income tax payable
    
(3,920
)
Net gain on sale of assets of the Q4 2018 Tranches
  
$
10,597
  

Unaudited Pro Forma Condensed Consolidated Statements of Operations

“Historical SJI” – represents the historical condensed consolidated statements of operations of SJI for the nine months ended September 30, 2018 and the year ended December 31, 2017.


 (e)
To eliminate the historical revenues of the assets sold within the Q4 2018 Tranches.

(f)
To eliminate the historical direct operations cost of the assets sold within the Q4 2018 Tranches. No pro forma adjustment was made for historical indirect overhead costs that were allocated down to Marina.

(g)
To eliminate the historical impairment expense recorded for each of the assets sold within the Q4 2018 Tranches.


(h)
To eliminate the historical direct maintenance expense of the assets sold within the Q4 2018 Tranches. No pro forma adjustment was made for historical indirect maintenance expense that was allocated down to Marina.

(i)
To eliminate the historical depreciation expense recorded of the assets sold within the Q4 2018 Tranches.

(j)
To eliminate the historical energy and other tax expense recorded for the assets sold within the Q4 2018 Tranches. No pro forma adjustment was made for historical indirect energy and other tax expense that was allocated down to Marina.

(k)
To eliminate historical other income and expense recorded for the assets sold within the Q4 2018 Tranches.

(l)
To reflect the reduction of interest expense as a result of the partial pay down of the Floating Rate Notes using the net proceeds from the Q4 2018 Tranches for the nine months ended September 30, 2018.

(m)
To eliminate the historical income tax expense of the assets sold within the Q4 2018 Tranches, as well as adjustments to record the income tax impacts of the pro forma adjustments using blended statutory tax rates of 27.0% and 38.5% for the nine months ended September 30, 2018 and for the year ended December 31, 2017, respectively. This rate does not reflect SJI’s effective tax rate, which includes other items and may be significantly different than the rates assumed for purposes of preparing these statements for a variety of reasons.


SOUTH JERSEY INDUSTRIES INC Reports