SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2003 Commission file number 1-8359
For the quarterly period ended June 30, 2003 Commission file number 1-8359 NEW JERSEY RESOURCES CORPORATION
(Exact(Exact name of registrant as specified in its charter)NEW JERSEY 22-2376465 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 1415 WYCKOFF ROAD, WALL, NEW JERSEY - 07719 732-938-1480 (Address of principal executive offices) (Registrant's telephone number, including area code)
New Jersey
(State or other jurisdiction of incorporation or organization)22-2376465
(I.R.S. Employer Identification Number)1415 Wyckoff Road, Wall, New Jersey - 07719
(Address of principal executive offices)732-938-1480
(Registrant’s telephone number, including area code)Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES: [X] NO: [ ]
YES: X No: Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES: [X] NO: [ ]
YES: X No: The number of shares outstanding of $2.50 par value Common Stock as of
May 2,July 31, 2003 was27,126,769.27,202,388. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain
of thestatements contained in this report including, without limitation, those with respect to expected disposition of legal and regulatory proceedings, exposure under the Stagecoach agreement, expected capital expenditures, external financing requirements, the impact of changes in market rates of interest, matters relating totheremediation of manufactured gas plant (MGP) sites andtherecovery of related costs, and the impact of changes in market prices of commodities are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as"may," "intend," "expect," "continue,"“may,” “intend,” “expect,” “continue,” or comparable terminology and are made based upon theCompany'sCompany’s expectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with Company expectations or that the effect of future developments on the Company will be those anticipated by management.The Company wishes to caution readers that the assumptions that form the basis for forward-looking statements with respect to, or that may impact earnings for, fiscal 2003 and thereafter include many factors that are beyond the
Company'sCompany’s ability to control or estimate precisely, such as estimates of future market conditions, the behavior of other market participants and changes in interest rates. Among the factors that could cause actual results to differ materially from estimates reflected in such forward-looking statements are weather conditions and economic conditions, demographic changes inNJNG'sNJNG’s service territory, fluctuations in energy commodity prices, energy conversion activity and other marketing efforts, the conservation efforts ofNJNG'sNJNG’s customers, the pace of deregulation of retail gas markets, access to adequate supplies of natural gas, the regulatory and pricing policies of federal and state regulatory agencies, changes due to legislation at the federal and state level, the continued recoverability of environmental remediation expenditures, and other regulatory and economic policy changes.While the Company periodically reassesses material trends and uncertainties affecting the
Company'sCompany’s results of operations and financial condition in connection with its preparation ofmanagement'smanagement’s discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.1
TABLE OF CONTENTSPART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- -------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 2003 2002 2003 2002 - -------------------------------------------------------------------------------------------------------- (Thousands, except per share data)OPERATING REVENUES ............................ $ 1,152,101 $ 525,780 $ 1,820,880 $ 921,611 ----------- ----------- ----------- ----------- OPERATING EXPENSES Gas purchases ................................ 1,024,255 419,883 1,604,400 738,363 Operation and maintenance .................... 27,347 23,406 52,980 46,401 Depreciation and amortization ................ 8,002 7,538 16,083 15,969 Energy and other taxes ....................... 20,839 15,528 33,863 26,606 ----------- ----------- ----------- ----------- Total operating expenses ..................... 1,080,443 466,355 1,707,326 827,339 ----------- ----------- ----------- ----------- OPERATING INCOME .............................. 71,658 59,425 113,554 94,272 Other income .................................. (321) 873 377 2,048 Interest charges, net ......................... 3,456 4,070 7,785 8,455 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES .................... 67,881 56,228 106,146 87,865 Income tax provision .......................... 26,637 21,298 41,579 33,254 ----------- ----------- ----------- ----------- NET INCOME .................................... $ 41,244 $ 34,930 $ 64,567 $ 54,611 =========== =========== =========== =========== EARNINGS PER COMMON SHARE BASIC ....................................... $ 1.52 $ 1.30 $ 2.39 $ 2.04 =========== =========== =========== =========== DILUTED ..................................... $ 1.50 $ 1.29 $ 2.35 $ 2.01 =========== =========== =========== =========== DIVIDENDS PER COMMON SHARE .................... $ .31 $ .30 $ .62 $ .60 =========== =========== =========== =========== AVERAGE SHARES OUTSTANDING BASIC ...................................... 27,048 26,863 27,016 26,800 =========== =========== =========== =========== DILUTED .................................... 27,467 27,163 27,428 27,108 =========== =========== =========== ===========
Three Months Ended Nine Months Ended June 30, June 30, 2003 2002 2003 2002 (Thousands, except per share data) $ 369,660 $ 442,684 $ 2,191,290 $ 1,364,295 Gas purchases 318,293 396,304 1,923,443 1,134,667 Operation and maintenance 25,717 22,461 78,697 68,862 Depreciation and amortization 7,996 7,981 24,079 23,950 Energy and other taxes 7,989 6,213 41,852 32,819 Total operating expenses 359,995 432,959 2,068,071 1,260,298 9,665 9,725 123,219 103,997 Other income 637 2,149 1,014 4,197 Interest charges, net 2,958 4,054 10,743 12,509 7,344 7,820 113,490 95,685 Income tax provision 2,871 3,056 44,450 36,310 $ 4,473 $ 4,764 $ 69,040 $ 59,375 $ 0.16 $ .18 $ 2.55 $ 2.21 $ 0.16 $ .17 $ 2.51 $ 2.19 $ 0.31 $ 0.30 $ 0.93 $ 0.90 27,135 26,937 27,056 26,846 27,620 27,255 27,462 27,156 See Notes to Consolidated Financial Statements
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- ---------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED MARCH 31, (Thousands) 2003 2002 - ----------------------------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES Net income .......................................................... $ 64,567 $ 54,611 Adjustments to reconcile net income to cash flows Depreciation and amortization....................................... 16,083 15,969 Amortization of deferred charges.................................... 3,398 2,816 Deferred income taxes............................................... 12,217 2,315 Manufactured gas plant remediation costs ........................... (9,240) (6,197) Change in working capital........................................... 77,526 (42,366) Other, net.......................................................... (482) (383) --------- --------- Net cash flows from operating activities.............................. 164,069 26,765 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from common stock........................................... 5,470 6,639 Proceeds from long-term debt......................................... - 68,600 Proceeds from sale-leaseback transaction ............................ 5,294 20,631 Payments of long-term debt .......................................... (131,353) (815) Purchases of treasury stock.......................................... (912) (1,676) Payments of common stock dividends................................... (16,441) (15,867) Redemption of preferred stock........................................ (295) - Net change in short-term debt........................................ 8,400 (80,600) --------- --------- Net cash flows from financing activities.............................. (129,837) (3,088) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for Utility plant....................................................... (18,573) (20,368) Real estate properties and other.................................... (993) (318) Cost of removal .................................................... (1,318) (1,854) Proceeds from asset sales............................................ 1,046 1,014 --------- --------- Net cash flows from investing activities.............................. (19,838) (21,526) --------- --------- Net change in cash and temporary investments.......................... 14,394 2,151 Cash and temporary investments at September 30........................ 1,282 4,044 --------- --------- Cash and temporary investments at March 31............................ $ 15,676 $ 6,195 ========= ========= CHANGES IN COMPONENTS OF WORKING CAPITAL Receivables.......................................................... $(312,514) $(128,669) Inventories.......................................................... 23,446 27,752 Deferred gas costs................................................... (1,703) 12,672 Purchased gas........................................................ 297,224 48,814 Prepaid and accrued taxes, net....................................... 44,732 34,751 Customers' credit balances and deposits.............................. (15,251) (3,791) Accounts payable & other............................................. 15,191 (6,638) Broker margin accounts............................................... 33,818 (15,571) Other, net........................................................... (7,417) (11,686) --------- --------- Total................................................................. $ 77,526 $ (42,366) ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid for Interest (net of amounts capitalized)................................ $ 7,826 $ 7,288 Income taxes......................................................... $ 7,402 $ 27,428
Nine Months Ended June 30, (Thousands) 2003 2002 Net income $ 69,040 $ 59,375 Adjustments to reconcile net income to cash flows Depreciation and amortization 24,079 23,950 Amortization of deferred charges 4,193 3,502 Deferred income taxes 15,000 3,538 Manufactured gas plant remediation costs (16,377 ) (18,990 ) Changes in working capital 19,740 (49,816 ) Non-current regulatory assets 12,725 9,181 Other non-current assets 7,782 1,230 Other non-current liabilities (4,352 ) (1,763 ) Net cash flows from operating activities 131,830 30,207 Proceeds from common stock 8,110 9,224 Proceeds from long-term debt — 71,350 Proceeds from sale-leaseback transaction 5,294 20,631 Payments of long-term debt (131,796 ) (1,152 ) Purchases of treasury stock (1,170 ) (4,275 ) Payments of common stock dividends (24,830 ) (23,936 ) Redemption of preferred stock (295 ) (3 ) Net change in short-term debt 49,700 (71,600 ) Net cash flows from financing activities (94,987 ) 239 Expenditures for Utility plant (31,200 ) (31,320 ) Real estate properties and other (2,724 ) (300 ) Cost of removal (2,316 ) (3,245 ) Proceeds from sale of investments available for sale 1,046 1,014 Proceeds from asset sales — 3,300 Net cash flows from investing activities (35,194 ) (30,551 ) Net change in cash and temporary investments 1,649 (105 ) Cash and temporary investments at September 30 1,282 4,044 Cash and temporary investments at June 30 $ 2,931 $ 3,939 Receivables $ (1,918 ) $ (92,932 ) Construction fund — 3,600 Inventories (67,429 ) 2,840 Underrecovered gas costs (26,290 ) (7,661 ) Purchased gas 67,634 59,734 Prepaid and accrued taxes, net 15,502 10,130 Customers’ credit balances and deposits (4,642 ) 237 Accounts payable & other (1,481 ) (3,302 ) Broker margin accounts 25,408 (16,111 ) Other current assets 8,564 (6,784 ) Other current liabilities 4,392 433 Total $ 19,740 $ (49,816 ) Cash paid for Interest (net of amounts capitalized) $ 10,628 $ 12,343 Income taxes $ 11,978 $ 28,159 See Notes to Consolidated Financial Statements
3
CONSOLIDATED BALANCE SHEETS
ASSETS
- -------------------------------------------------------------------------------------- MARCH 31, MARCH 31, 2003 SEPTEMBER 30, 2002 (unaudited) 2002 (unaudited) - -------------------------------------------------------------------------------------- (Thousands)PROPERTY, PLANT AND EQUIPMENT Utility plant, at cost .................. $ 1,070,692 $ 1,053,086 $ 1,034,225 Real estate properties and other, at cost 26,137 25,144 27,075 ----------- ----------- ----------- 1,096,829 1,078,230 1,061,300 Accumulated depreciation and amortization (335,121) (321,833) (312,262) ----------- ----------- ----------- Property, plant and equipment, net ..... 761,708 756,397 749,038 ----------- ----------- ----------- CURRENT ASSETS Cash and temporary investments .......... 15,676 1,282 6,195 Construction fund ....................... - - 3,600 Customer accounts receivable ............ 462,517 158,591 171,502 Unbilled revenues ....................... 25,723 4,679 33,139 Allowance for doubtful accounts ......... (5,837) (4,395) (3,775) Regulatory assets ....................... 43,975 43,973 29,946 Gas in storage, at average cost ......... 62,630 86,340 93,158 Materials and supplies, at average cost.. 3,046 2,782 2,726 Prepaid state taxes ..................... 450 10,973 - Derivatives ............................. 18,925 8,136 10,645 Broker margin accounts .................. 2,104 38,943 44,469 Other ................................... 29,950 14,654 15,490 ----------- ----------- ----------- Total current assets ................... 659,159 365,958 407,095 ----------- ----------- ----------- DEFERRED CHARGES AND OTHER Equity investments ...................... 13,387 14,302 14,316 Regulatory assets ....................... 136,085 134,537 102,280 Derivatives ............................. 12,881 10,952 9,222 Other ................................... 29,414 37,158 37,907 ----------- ----------- ----------- Total deferred charges and other ....... 191,767 196,949 163,725 ----------- ----------- ----------- Total assets ........................ $ 1,612,634 $ 1,319,304 $ 1,319,858 =========== =========== ===========
June 30, June 30, 2003 September 30, 2002 (unaudited) 2002 (unaudited) (Thousands) Utility plant, at cost $ 1,082,740 $ 1,053,086 $ 1,043,730 Real estate properties and other, at cost 27,865 25,144 24,533 1,110,605 1,078,230 1,068,263 Accumulated depreciation and amortization (341,825 ) (321,833 ) (317,257 ) Property, plant and equipment, net 768,780 756,397 751,006 Cash and temporary investments 2,931 1,282 3,939 Customer accounts receivable 160,576 158,591 163,197 Unbilled revenues 6,341 4,679 6,770 Allowance for doubtful accounts (5,995 ) (4,395 ) (3,884 ) Regulatory assets 56,192 43,973 32,989 Gas in storage, at average cost 153,742 147,202 124,669 Materials and supplies, at average cost 2,809 2,782 2,967 Prepaid state taxes 9,771 10,973 6,174 Derivatives 32,081 8,136 5,214 Broker margin accounts 13,535 38,943 45,009 Other 20,161 14,654 14,591 Total current assets 452,144 426,820 401,635 Equity investments 14,582 14,302 14,751 Regulatory assets 141,951 134,537 127,109 Derivatives 20,234 10,952 10,796 Other 28,873 37,158 37,436 Total deferred charges and other 205,640 196,949 190,092 Total assets $ 1,426,564 $ 1,380,166 $ 1,342,733 See Notes to Consolidated Financial Statements
4
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
- ---------------------------------------------------------------------------------- MARCH 31, MARCH 31, 2003 SEPTEMBER 30, 2002 (unaudited) 2002 (unaudited) - ---------------------------------------------------------------------------------- (Thousands)CAPITALIZATION Common stock equity ..................... $ 424,972 $ 361,453 $ 372,839 Redeemable preferred stock .............. - 295 298 Long-term debt .......................... 269,118 370,628 415,822 ---------- ---------- ---------- Total capitalization ................... 694,090 732,376 788,959 ---------- ---------- ---------- CURRENT LIABILITIES Current maturities of long-term debt .... 2,393 26,942 26,922 Short-term debt ......................... 68,300 59,900 5,200 Purchased gas ........................... 466,006 168,782 184,754 Accounts payable and other .............. 33,437 34,688 28,906 Postretirement employee benefit liability 17,438 4,996 2,622 Dividends payable ....................... 8,389 8,072 8,069 Accrued taxes ........................... 54,577 15,025 45,717 Derivatives ............................. 19,192 25,397 35,337 Customers' credit balances and deposits . 12,391 23,642 10,632 ---------- ---------- ---------- Total current liabilities .............. 682,123 367,444 348,159 ---------- ---------- ---------- DEFERRED CREDITS Deferred income taxes ................... 108,090 92,435 77,067 Deferred investment tax credits ......... 8,975 9,148 9,323 Deferred revenue ........................ 14,219 15,019 15,820 Derivatives ............................. 13,694 6,612 5,307 Manufactured gas plant remediation ...... 65,830 65,830 53,840 Postretirement employee benefit liability 9,038 19,950 7,273 Other ................................... 16,575 10,490 14,110 ---------- ---------- ---------- Total deferred credits ................. 236,421 219,484 182,740 ---------- ---------- ---------- Total capitalization and liabilities. $1,612,634 $1,319,304 $1,319,858 ========== ========== ==========
June 30, June 30, 2003 September 30, 2002 (unaudited) 2002 (unaudited) (Thousands) Common stock equity $ 435,085 $ 361,453 $ 372,023 Redeemable preferred stock — 295 295 Long-term debt 273,675 370,628 418,215 Total capitalization 708,760 732,376 790,533 Current maturities of long-term debt 2,393 26,942 26,942 Short-term debt 104,600 59,900 14,200 Purchased gas 236,416 229,644 202,514 Accounts payable and other 33,207 34,688 24,779 Postretirement employee benefit liability 9,388 4,996 10,085 Dividends payable 8,415 8,072 8,075 Accrued taxes 35,514 15,025 27,732 Derivatives 11,713 25,397 36,551 Customers’ credit balances and deposits 19,000 23,642 14,660 Total current liabilities 460,646 428,306 365,538 Deferred income taxes 117,937 92,435 79,605 Deferred investment tax credits 8,888 9,148 9,236 Deferred revenue 13,819 15,019 15,420 Derivatives 23,755 6,612 12,510 Manufactured gas plant remediation 65,830 65,830 53,840 Postretirement employee benefit liability 10,359 19,950 8,132 Other 16,570 10,490 7,919 Total deferred credits 257,158 219,484 186,662 Total capitalization and liabilities $ 1,426,564 $ 1,380,166 $ 1,342,733 See Notes to Consolidated Financial Statements
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three Months Ended Nine Months Ended June 30, June 30, 2003 2002 2003 2002 (Thousands) Net income $ 4,473 $ 4,764 $ 69,040 $ 59,375 Other comprehensive income: Change in fair value of equity investments, net of tax of $(320), $(26), $(11) and $113 463 38 16 (163 ) Change in fair value of derivatives, net of tax of $(7,589), $(1,764), $(16,392) and $15,589 10,987 2,555 22,130 (22,572 ) Other comprehensive income 11,450 2,593 22,146 (22,735 ) Comprehensive income $ 15,923 $ 7,357 $ 91,186 $ 36,640 See Notes to Consolidated Financial Statements
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The September 30, 2002 balance sheet data is derived from the audited financial statements of New Jersey Resources Corporation (NJR or the Company).
Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is recommended that theseThese financial statements should be read in conjunction with the financial statements and the notes thereto included in theCompany'sCompany’s 2002 Annual Report on Form 10-K.In the opinion of management, the information furnished reflects all adjustments necessary for a fair statement of the results of the interim periods. Because of the seasonal nature of the
Company'sCompany’s utility operations and NJR Energy Services Company (Energy Services) operations, and other factors, the results of operations for the interim periods presented are not indicative of the results to be expected for the entire year.Certain reclassifications have been made of previously reported amounts to conform to current year classifications.
2. New Accounting Standards
In
December 2002,May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial AccountingStandardStandards (SFAS) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities.” The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim reporting period after June 15, 2003. The statement requires an issuer to classify a financial instrument as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. These obligations include, but are not limited too, mandatorily redeemable stock, obligations to repurchase company shares, and other obligations payable in company stock. The Company has completed its assessment of the effect of the pronouncement and has determined that none of its financial instruments contain obligations payable in Company stock and, therefore, the adoption of SFAS No. 150 will not have an impact on its financial condition, results of operations or cash flows.In April 2003, the FASB issued SFAS No.149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities.” (SFAS 149). SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003. This amendment, among other things, further defines SFAS No. 133, “Accounting For Derivative Instruments and Hedging Activities,” as amended (SFAS 133) and clarifies several implementation issues. The Company is currently assessing the impact of the pronouncement. In Management’s opinion, the adoption of SFAS No. 149 will not have a material adverse effect on its financial condition, results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148,
"Accounting“Accounting for Stock-Based Compensation-Transition andDisclosure,"Disclosure” (SFAS 148), an amendment of FASB StatementNoNo. 123. SFAS 148 provides implementation guidance for the adoption of SFAS No. 123,"Accounting“Accounting for Stock-Based Compensation,"” (SFAS 123), which the Company adopted as of October 1, 2002. The Company has complied with the guidelines of SFAS 148 with respect to the adoption and disclosure of SFAS 123 (See Note6.-Earnings6. – Earnings Per Share (EPS)).7
The Company completed its assessment of SFAS No. 143,
"Accounting“Accounting for Asset RetirementObligations"Obligations” (SFAS 143), which became effective October 1,2002,2002. SFAS 143 addresses the accounting andbasedreporting for legal obligations associated with the retirement of tangible long-lived assets, and the associated asset retirement costs. Based on its analysis, the Companydoes not expect this statement to have a material effect on its financial position, resultsdetermined that it has no such legal obligations. However, as ofoperations, or cash flows. SFAS 143 requires the Company to disclose certain asset retirement information. As of March 31,June 30, 2003, September 30, 2002, andMarch 31,June 30, 2002, the Company had asset retirement costs recovered through rates in excess of actual costs incurred totaling$70.5$71.5 million, $67.8 million, and$66.2$67.0 million, respectively, which are included in Accumulated depreciation on the Consolidated BalanceSheets.Sheets in accordance with SFAS No. 71 “Accounting for the Effects of Certain Types of Regulation.”In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” This Interpretation provides guidance on the identification and consolidation of variable interest entities (VIEs), whereby consolidation is achieved through means other than through control. The Company has completed an analysis of FIN 46 and has determined that there are no VIEs requiring consolidation.
In November 2002, the FASB issued Interpretation No. 45,
"Guarantor's“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,"” (FIN 45). FIN 45 clarifies the requirements of SFAS No. 5,"Accounting“Accounting forContingencies"Contingencies” (SFAS 5), related to aguarantorsguarantor’s accounting for, and disclosures of, the issuance of certain types of guarantees (see Note 11.-– Commitments and Contingent Liabilities). The Company has completed an analysis of FIN 45 and has determined that there were no guarantees for unrelated third parties. NJR has issued parental guarantees for certainsupplytransactions entered into by Energy Services. As ofMarch 31,June 30, 2003, there were parental guarantees covering approximately$32$186 million ofparental guarantees related tofirmcommitments. 6In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements." This Interpretation provides guidancecommitments not yet reflected in accounts payable on theidentification and consolidation of variable interest entities (VIEs), whereby control is achieved through means other than through voting rights. The Company has completed an analysis of FIN 46 and has determined that it does not have any VIEs.Consolidated Balance Sheet.3. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, New Jersey Natural Gas Company (NJNG), Energy Services, NJR Retail Holdings Corporation (Retail Holdings), NJR Capital Services Corporation (Capital) and NJR Service Corporation. Significant intercompany transactions and accounts have been eliminated.
The Retail and Other segment include Retail Holdings and its wholly owned subsidiary, NJR Home Services Company (Home Services). Home Services has a wholly owned subsidiary, NJR Plumbing Services Company. Retail and Other also includes Capital and its wholly owned subsidiaries, Commercial Realty & Resources Corp. (CR&R), NJR Investment Company and NJR Energy Corporation (NJR Energy).
4. Capitalized and Deferred Interest
The
Company'sCompany’s capitalized interest totaled$65,000$66,000 and$106,000$55,000 for the three months endedMarch 31,June 30, 2003 and 2002, respectively, and$146,000$212,000 and$228,000$283,000 for thesixnine months endedMarch 31,June 30, 2003 and 2002, respectively, at the following average interest rates 1.35 percent, 1.84 percent, 1.58 percent and 2.37 percent, respectively. These amounts are included in construction work in progress and are reflected in the Income Statement as a reduction to interest expense, net. NJNG does not capitalize a cost of equity for its utility plant construction activities.8
Pursuant to a New Jersey Board of Public Utilities (BPU) order,
NJNG'sNJNG’s carrying costs are recoverable on uncollected balances related to underrecovered gas costs through October 31, 2001 and its MGP remediation expenditures (see Note5c.-Manufactured5c. – Manufactured Gas Plant Remediation). Accordingly, Other income included deferred interest of$547,000$536,000 and$658,000$685,000 for the three months endedMarch 31,June 30, 2003 and 2002, respectively, and$1.1$1.6 million and$1.5$2.2 million for thesixnine months endedMarch 31,June 30, 2003 and 2002, respectively, for carrying costs related to remediation and underrecovered gas costs.5. Legal and Regulatory Proceedings
a. Energy Deregulation Legislation
In February 1999, the Electric Discount and Energy Competition Act (EDECA), which provides the framework for
therestructuringofNewJersey'sJersey’s energy market, became law. In March 2001, the BPU issued a written order that approved a stipulationagreementamong various parties to fully openNJNG'sNJNG’s residential markets to competition, restructure its rates to segregate its Basic Gas Supply Service (BGSS), the component of rates whereby NJNG provides the commodity to the customer, and delivery (i.e., transportation) prices as required by EDECA and expand an incentive for residential and small commercial customers to switch to transportation service.In June 2001, the BPU initiated a proceeding regarding the provision of BGSS. In July 2001, NJNG submitted a BGSS proposal that provides additional customer choices, including various pricing options. In January 2002, the BPU issued an order, which stated that BGSS could be provided by suppliers other
7than the state'sstate’s natural gas utilities, butat this time itBGSS should be provided by thestate'sstate’s natural gasutilities.utilities until further BPU action. The parties are currently discussingNJNG'sNJNG’s July 2001 proposal.In March 2003, the BPU approved a permanent statewide Universal Service Fund (USF) program effective July 1, 2003. The USF program was established for all gas and electric utilities in New Jersey for the benefit of low-income customers. Eligible customers will receive a credit toward their utility bill, the cost of which will be recovered through a USF rider.The BPU is required to audit the
state'sstate’s energy utilities competitive services business every two years. The primary purpose of the audit is to ensure that NJNG and its affiliates offeringcompetitiveunregulated retail services do not have any unfair competitive advantage over non-affiliated providers ofcompetitivesimilar retail services. In June 2002, the BPU initiated a compliance audit. In March 2003, an independent consulting firm, engaged by the BPU, completed its audit of NJNG. The audit report found that NJNG and its affiliates do not have an unfair competitive advantage over other competitive service providers. It also confirmed that NJNG has established and maintained effective accounting, functional and management separation between itself and its affiliates. The audit has been submitted to the BPU for approval.b. BGSS and Other Adjustment Clauses
On October 17, 2002, NJNG filed a
BGSSrequest with the BPU for a 3 percent BGSS price increase reflecting higher projected wholesale natural gas costs, to be effective December 1, 2002 and the opportunity for an additional adjustment in February 2003 to address potential changes in market conditions. The filing also requested an extension of the BGSS margin-sharing incentives. In lieu of the December price change, NJNG updated the BGSS request in January 2003 to seek a 6 percent price increase, effective February 1, 2003. On February 5, 2003, NJNG received a provisional 6 percent price increase subject to refund withinterest, reflecting higher projected gas costs.interest. The parties to the BGSS proceeding continue to review the filing to extend the BGSS incentives beyond October 31, 2003. The BPU is expected to issue a final order on these matters by October 31, 2003.9
NJNG is eligible to receive incentives for reducing BGSS costs through a series of margin-sharing programs that include off-system sales, capacity release, and portfolio-enhancing programs. On October 30, 2002, the BPU approved an agreement whereby the existing 85/15 margin sharing between customers and shareowners for off-system sales, capacity release and financial risk management transactions was extended through October 31, 2003. As part of this agreement, the portfolio-enhancing programs, which include an incentive for the permanent reduction of the cost of capacity, continued to receive 60/40 sharing treatment between customers and shareowners for transactions completed on or before December 31, 2002. Any new transactions under the portfolio-enhancing programs that became effective after January 1, 2003, are not eligible
under the portfolio-enhancing programs.for margin sharing. NJNG believes that the elimination of the portfolio-enhancing program will not have a material effect on its financial position, results of operations or cash flows. NJNG also believes as part of the BGSSproceedingsproceeding discussed above, that it can replace these programs with new incentive-based programs that will not have a material effect on its financial position, results of operations or cashflows, however,flows. However, no assurance can be given as to the ultimate resolution of these matters.On January 6, 2003, the BPU approved a
genericstatewide BGSS agreementwhich requires thatrequiring all New Jersey natural gas utilities to make an annual filing by June 1 for review of BGSS and a potential price change to be effective October1 and, after1. After proper notice and BPU action on the June filing,will allowthe agreement allows natural gas utilities to increase residential and small commercial customer BGSS prices up to 5 percent on a self-implementing basis on December 1 and February 1. On May 1, 2003, NJNG submitted its annual BGSS filing, seeking an 8.8 percent increase reflecting higher wholesale natural gas costs. The BPU is expected toberule on this filing in August, with a likely effective date of September 1, 2003.In March 2003, the BPU approved a permanent statewide Universal Service Fund (USF) program effective July 1,
2003 reflecting higher wholesale2003. The USF program was established for all natural gascosts. 8and electric utilities in New Jersey for the benefit of low-income customers. Eligible customers will receive a credit toward their utility bill. The administrative cost of the program together with the credits applied to eligible customers will be recovered through a USF Rider. NJNG would recover carrying costs on deferred USF balances, if any. NJNG is also involved in various proceedings associated with several other adjustment clauses (e.g., Transportation Initiation Clause (TIC) and New Jersey Clean Energy Program, formerly known as Comprehensive Resource Analysis), which in
NJNG'sNJNG’s opinion will not have a material adverse effect on its financial condition or results of operations.NJNG has proposed a Smart Growth pilot program for Asbury Park and Long Branch that would invest new capital in the infrastructure of these cities.
NJNG'sNJNG’s proposal features a recovery mechanism referred to as the Targeted Revitalization Infrastructure Program (TRIP), which would provide a current return on and returnof the newlyany capital investedcapital.in this program. NJNG estimates that it will invest approximately$7$14 million in Asbury Park and Long Branch under this program. The BPU is currently reviewing this proposal.In June 2003, the BPU approved a 10-year transportation agreement between NJNG
has also filed for approval of a special transportation priceandagreement for service to theOcean Peaking Power,Plant,LLC to provide transportation service to a new natural gas-fired electric generationfacility locatedplant adjacent to its existing cogeneration plant in Lakewood,New Jersey,N.J. NJNG’s transportation agreement with Ocean Peaking Power, LLC, whichis expected to commence commercial operationbecame effective June 1, 2003, will benefit customers byJune 2003. The BPU is currently reviewingproviding additional credits against natural gas costs, with sales principally made during non-peak times. Gross10
margins from these sales over the
proposalfirst four years will be shared with customers andis expected to issue an order by June 2003.NJNG on a 50/50 basis.c. Manufactured Gas Plant (MGP) Remediation
NJNG has identified 11 former MGP sites, dating back to the late 1800s and early 1900s, which contain contaminated residues from the former gas manufacturing operations. Ten of the 11 sites in question were acquired by NJNG in 1952.
All of the gasGas manufacturing operations ceased at these sites at least by the mid-1950s and, in some cases, had been discontinued many yearsearlier, and allearlier. All of the former gas manufacturing facilities were subsequently dismantled by NJNG or the previous owners. Since October 1989, NJNG has entered into Administrative Consent Orders or Memoranda of Agreement with the New Jersey Department of Environmental Protection (NJDEP) covering all 11 sites. These orders and agreements establish the procedures to be followed by NJNG in developing a final remedialclean-upcleanup plan for each site. NJNG is currently involved in administrative proceedings with the NJDEP with respect to the plant sites in question, and is participating in various studies and investigations by outside consultants to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted.Until September 2000, most of the cost of such studies and investigations had been shared under an agreement with the former owner and operator of 10 of the MGP sites. In September 2000, a revised agreement was executed pursuant to which NJNG is responsible for two of the sites, while the former owner is responsible for the remaining eight sites. Also in September 2000, NJNG purchased a 20-year cost-containment insurance policy for its two remaining sites. NJNG continues to participate in the investigation and remedial action for
onethe MGP site that was not subject to the original cost-sharing agreement.TheIn June 1992, the BPU approved a Remediation Riderinthrough which NJNG recovers its remediation expenses over a 7-year period. NJNG is currently recovering its remediation expenditures incurred through June 30, 1998. Costs incurred subsequent to June 30, 1998, including carrying costs on deferred expenditures, will be recovered over rolling seven-year periods, subject to BPU approval In September 1999NJNG filed for recovery of remediation expenditures incurred through June 30, 1999. Inand January 2001, NJNG filed for recovery of remediation expenditures incurredthroughin the years ended June 30,2000.1999 and 2000, respectively. In March 2003, NJNG filed testimony for recovery of remediation expenditures for the 2-year period ending June 30, 2002. The BPU is currently reviewing these three filings and, while NJNG believes that all costs are probable of recovery, no assurance can be given as to the ultimate resolution of this matter. As ofMarch 31,June 30, 2003,$116.1$123.4 million of previously incurred and accrued remediation and carrying costs, net of recoveries from customers and insurance,recoveries,is included in Regulatory assets on the Consolidated Balance Sheet.In March 1995, NJNG instituted an action for declaratory relief against 24 separate insurance companies in the Superior Court of New Jersey, Docket
numberNo. OCM-L-859-95. These insurance9carriers provided comprehensive general liability coverage to NJNG from 1951 through 1985. The complaint was amended in July 1996 to name Kaiser-Nelson Steel and Salvage Company (Kaiser-Nelson) and its successors as additional defendants. In September 2001, NJNG reached a favorable settlement with the insurance carrier that provided the majority of NJNG'sNJNG’s coverage. This settlement involves a significant cash payment to NJNG that will be paid in four installments. NJNG has now dismissed or reached a settlement with all of its insurance carriers. NJNG continues to pursue its claim against Kaiser-Nelson for environmental damages caused byKaiser-Nelson'sKaiser-Nelson’s decommissioning of structures at several MGP sites. The trial has been postponed pending resolution of variouspre-trialpretrial motions. No assurance can be given as to the ultimate resolution of this matter.11
d. Long Branch MGP Site Litigation
On July 1, 2003, 124 complaints were filed in the Superior Court of New Jersey, Monmouth County Law Division, Docket No. MON-L-2883-03, against NJNG and the Company, among others, alleging personal injuries stemming from the operation and remediation of the former MGP site in Long Branch, N.J. The relief sought, which has yet to be quantified by plaintiffs, includes compensatory damages, the establishment of a medical monitoring fund, disgorgement of profits, cost of cleanup and remediation, and punitive damages.
The former owner, which is a co-defendant, has made a demand on NJNG for indemnification as a result of an agreement entered between NJNG and the co-defendant, whereby NJNG assumed responsibility for the Long Branch site.
The Company’s insurance carriers have been notified of the claim. One of the insurance carriers has advised the Company that it will provide legal defense coverage, subject to a reservation of rights regarding certain allegations in the complaints.
The Company believes that liabilities incurred or associated with this matter, excluding intentional acts and punitive damages if any, are recoverable either through insurance or may be recoverable through the Remediation Rider (see note 5c. Manufactured Gas Plant (MGP) Remediation) however, no assurance can be given as to the ultimate resolution of this matter or the impact on the Company’s financial condition, results of operations or cash flows.
e. Various
The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In the
Company'sCompany’s opinion, the ultimate disposition of these matters will not have a material adverse effect on its financial condition,orresults ofoperations.operations or cash flows.6. Earnings Per Share (EPS)
In accordance with SFAS No. 128
"Earnings“Earnings Per Share,"” which established standards for computing and presenting basic and diluted EPS, the incremental shares required for inclusion in the denominator for the diluted EPS calculation were419,349484,607 and300,635317,872 for the three months endedMarch 31,June 30, 2003 and 2002, respectively, and412,523406,803 and308,252310,050 for thesixnine months endedMarch 31,June 30, 2003 and 2002, respectively. These shares relate to stock options and restricted stock and were calculated using the treasury stock method. The numerator for each applicable basic and diluted EPS calculation was net income.EffectiveIn October
1,2002, the Companyhasadopted the fair value method of recording stock-based compensation under SFAS123, which is considered the preferred method of accounting.123. The Company adopted the prospective application of SFAS 123 for options granted after October 1, 2002, the cost of which will be expensed through the income statement based on the fair value of the award at the grant date. TheCompany recognized $53,000 of expense for the six months ended March 31, 2003, related to stock options granted after October 1, 2002. Thefollowing is acomparisonreconciliation of theas reportedAs Reported andpro formaPro Forma net income for options granted prior to October 1, 2002, which are accounted for under Accounting Principles Board Opinion No. 25"Accounting“Accounting for Stock Issued to Employees." 10”
Three Months Ended Six Months Ended March 31, March 31, 2003 2002 2003 2002 --------------------------------------------- (Thousands)As Reported: Net income $ 41,244 $ 34,930 $ 64,567 $ 54,611 ========= ========= ========= ========= Earnings Per Share-Basic $ 1.52 $ 1.30 $ 2.39 $ 2.04 ========= ========= ========= ========= Earnings Per Share-Diluted $ 1.50 $ 1.29 $ 2.35 $ 2.01 ========= ========= ========= ========= Pro Forma for options issued prior to October 1, 2002: Net income $ 40,778 $ 34,418 $ 64,101 $ 54,099 ========= ========= ========= ========= Earnings Per Share-Basic $ 1.51 $ 1.28 $ 2.37 $ 2.01 ========= ========= ========= ========= Earnings per Share-Diluted $ 1.48 $ 1.27 $ 2.34 $ 1.99 ========= ========= ========= =========12
Three Months Ended Nine Months Ended June 30, June 30, 2003 2002 2003 2002 (Thousands) Net Income, as reported $ 4,473 $ 4,764 $ 69,040 $ 59,375 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 31 — 62 — Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (153 ) (160 ) (468 ) (487 ) Pro forma Net Income $ 4,351 $ 4,604 $ 68,634 $ 58,888 Earnings Per Share: Basic – as reported $ .16 $ .18 $ 2.55 $ 2.21 Basic – pro forma $ .16 $ .17 $ 2.54 $ 2.19 Diluted – as reported $ .16 $ .17 $ 2.51 $ 2.19 Diluted – pro forma $ .16 $ .17 $ 2.50 $ 2.17 7. Construction Fund and Long-Term Debt
OnIn December
23,2002, the Company entered into $380 million of committed credit facilities with several banks, which replaced $335 million of credit agreements. The NJR portion of the facility consists of $100 million with a 364-day term and an $80 million revolving credit facility with a 3-year term expiring January2006, and the2006. The NJNG portion of the facility consists of $150 million with a 364-day term and a $50 million revolving credit facility with a 3-year term expiring January 2006. The NJR facilities are used to finance unregulated operations.NJNG'sNJNG’s facilities are used to support its commercial paper borrowings. Consistent withNJNG'sNJNG’s intent to maintain a portion of its commercial paper borrowings on a long-term basis, and as supported by its long-term revolving credit facility,$25$30 million, $25 million and $50 million of commercial paper borrowings are included in Long-term debt on the Consolidated Balance Sheets atMarch 31,June 30, 2003, September 30, 2002 andMarch 31,June 30, 2002, respectively.In July 2002, the New Jersey Economic Development Authority (EDA) approved $12 million of new funds to finance
NJNG's northern divisionconstruction over the next threeyears. Onyears in NJNG’s northern division. In March25,2003, NJNG filed a petition with the BPU for authority to issue and deliverover the next three yearsFirst Mortgage Bonds, Private Placement Bonds or Medium Term Notes in the principal amount up to $100million.million over the next three years. NJNG expectstheBPUto approveaction on the filing by September 30, 2003.UponSubsequent to BPU and final EDA approval, NJNGwillexpects to enter into a loan agreementwithwhereby the EDAandwould loan NJNG the13
proceeds from its $12 million Natural Gas Facilities Revenue Bonds, which NJNG would deposit into a construction fund. NJNG expects to then immediately draw down $4
million. As of March 31, 2003, NJNG has not issued any debt under this facility.million from the construction fund.In July 2002, NJNG entered into $97.1 million of interest-rate caps with several banks at a rate of 3.25 percent, expiring in July 2004. These caps are designed to limit
NJNG'sNJNG’s variable rate debt exposure for all of its outstanding tax exempt EDA Bonds. The Company accounts for the interest-rate caps as a cash flow hedge with changes in fair value accounted for in Other comprehensive income.In fiscal 2002, NJNG entered into an agreement with a financing company whereby NJNG received $20.6 million related to the
sale and leasebacksale-leaseback of a portion of its meters. In December 2002, NJNG11received $5.3 million under this agreement in connection with the sale-leaseback of its vintage 2001 meters. NJNG has the ability to continue the sale-leaseback meter program on an annual basis. In December 2002,
NJNG'sNJNG’s $25 million, 7.5 percent Series V First Mortgage Bonds matured.8. Segment Reporting
The Natural Gas Distribution segment consists of regulated energy and off-system and capacity management operations. The Energy Services segment consists of unregulated fuel and capacity management and wholesale marketing operations. The Retail and Other segment consist of service, sales and installation of appliances, commercial real estate development, investment and other corporate activities.
Three Months Ended Six Months Ended March 31, March 31, -------------------------------------------------------- 2003 2002 2003 2002 -------------------------------------------------------- (Thousands)Operating Revenues Natural Gas Distribution $ 334,795 $ 289,609 $ 560,879 $ 509,557 Energy Services 814,654 231,581 1,253,466 402,469 Retail and Other 5,182 4,612 10,181 9,705 ----------- ----------- ----------- ----------- Subtotal 1,154,631 525,802 1,824,526 921,731 Intersegment revenues * (2,530) (22) (3,646) (120) ----------- ----------- ----------- ----------- Total $ 1,152,101 $ 525,780 $ 1,820,880 $ 921,611 =========== =========== =========== =========== Operating Income Natural Gas Distribution $ 58,434 $ 53,002 $ 93,232 $ 83,000 Energy Services 12,461 5,222 19,381 8,747 Retail and Other 763 1,201 941 2,525 -------------------------------------------------------- Total $ 71,658 $ 59,425 $ 113,554 $ 94,272 =========== =========== =========== ===========
Three Months Ended Nine Months Ended June 30, June 30, 2003 2002 2003 2002 (Thousands) Operating Revenues Natural Gas Distribution $ 120,055 $ 144,199 $ 680,934 $ 653,756 Energy Services 244,479 294,185 1,498,695 696,654 Retail and Other 5,149 4,330 15,330 14,035 Subtotal 369,683 442,714 2,194,959 1,364,445 Intersegment revenues * (23 ) (30 ) (3,669 ) (150 ) Total $ 369,660 $ 442,684 $ 2,191,290 $ 1,364,295 Operating Income Natural Gas Distribution $ 9,450 $ 7,267 $ 102,682 $ 90,267 Energy Services (522 ) 1,785 18,859 10,532 Retail and Other 737 673 1,678 3,198 Total $ 9,665 $ 9,725 $ 123,219 $ 103,997 Net Income Natural Gas Distribution $ 4,507 $ 3,062 $ 58,191 $ 51,415 Energy Services (98 ) 853 11,056 6,024 Retail and Other 64 849 (207 ) 1,936 Total $ 4,473 $ 4,764 $ 69,040 $ 59,375 * Consists of transactions between subsidiaries that are eliminated in consolidation.
14
The
Company'sassets of each of the Company’s various business segments are detailed below:
As of As of As of March 31, 2003 September 30, 2002 March 31, 2002 ---------------------------------------------------- (Thousands)Assets Natural Gas Distribution $1,134,926 $1,059,417 $1,054,556 Energy Services 398,724 207,964 213,586 Retail and Other 78,984 51,923 51,716 ------------ ---------- ---------- Total $1,612,634 $1,319,304 $1,319,858 ============ ========== ==========
As of As of As of June 30, 2003 September 30, 2002 June 30, 2002 (Thousands) Assets Natural Gas Distribution $ 1,130,916 $ 1,059,417 $ 1,032,101 Energy Services 222,272 268,826 266,565 Retail and Other 73,376 51,923 44,067 Total $ 1,426,564 $ 1,380,166 $ 1,342,733 9.Investments
Included in Equity investments on the Consolidated Balance Sheet is the
Company'sCompany’s less-than-1-percent ownership interest in the Capstone Turbine Corporation (Capstone), a developer of microturbines. In July 2001, the Company entered into a 5-year zero-premium collar to hedge changes in thevaluefuture cash flows associated with the sale of12100,000 shares of its investment in Capstone.Capstone at the settlement date in 2006. The collar consists of a purchased put option with a strike price of $9.97 per share and a sold call option with a strike price of $24.16 per share for 100,000 shares. The Companyentered into this transaction to hedge its anticipated sale of 100,000 shares of Capstone at the settlement date in 2006 and, accordingly,accounts for the transaction as a cash flow hedge with changes in fair value accounted for in Other comprehensive income. The change in Other comprehensive income for thesixnine months endedMarch 31,June 30, 2003, was a$5,000$14,000 unrealizedgainloss related to this collar. ThroughMarch 31,June 30, 2003, Accumulated other comprehensive income includes an$846,000$827,000 unrealized gain related to this collar. In July 2002, the Company sold all of its unhedged Capstone shares and realized an after-tax loss of $449,000.In March 2003, the Company had an after-tax loss of approximately $341,000 related to the sale of equity investments.10. Comprehensive Income
The components of Comprehensive income are as follows:
Three Months Ended Six Months Ended March 31, March 31, 2003 2002 2003 2002 -------------------------------------------- (Thousands)Comprehensive Income: Net income $ 41,244 $ 34,930 $ 64,567 $ 54,611 -------- -------- -------- -------- Other comprehensive income: Change in fair value of equity investments, net $ 78 $ (821) $ (446) $ (201) Change in fair value of derivatives, net 3,700 (18,233) 10,443 (25,127) -------- -------- -------- -------- Total Other comprehensive income $ 3,778 $(19,054) $ 9,997 $(25,328) -------- -------- -------- -------- Comprehensive income $ 45,022 $ 15,876 $ 74,564 $ 29,283 ======== ======== ======== ======== Accumulated Other Comprehensive Income: Beginning balance $ (6,155) $ 4,786 $(12,374) $ 11,060 Other comprehensive income 3,778 (19,054) 9,997 (25,328) -------- -------- -------- -------- Ending balance $ (2,377) $(14,268) $ (2,377) $(14,268) ======== ======== ======== ========The amounts included in Other comprehensive income related to natural gas instruments, which have been designated cash flow hedges, will reduce or
be charged toincrease gas costs as the underlying physical transactionsettles.occurs. Based on the amount recorded in Accumulated other comprehensive income atMarch 31,June 30, 2003,$3.2$10.4 million is expected to be recorded as a decrease to gas costs for the remainder of fiscal 2003. For the three months endedMarch 31,June 30, 2003 and 2002,$33.8$8.3 millionwas chargedand$16$1.5 million was credited to gas costs, respectively, and for thesixnine months endedMarch 31,June 30, 2003 and 2002,$54.3$46 million was charged and$31.3$32.8 million was credited to gas costs, respectively.13TheThese cash flow hedgesdescribed abovecover various periods of time ranging fromMayAugust 2003 to October 2010.11. Commitments and Contingent Liabilities
NJNG is involved with
theenvironmental investigations and remedial actions at certain MGP sites (see Note 5c.-– Manufactured Gas Plant (MGP)Remediation)Remediation and Note 5d. – Long Branch MGP Site Litigation). In July 2002, with the assistance of an outside consulting firm, NJNG updated an environmental review of the sites, includinga review ofevaluating its potential liability for investigation and remedial action. On the basis of such review, NJNG estimates that, exclusive of any insurance recoveries, total future expenditures to remediate and monitor known MGP sites will range from $65.8 million to $83.3 million.NJNG'sNJNG’s estimate of these liabilities is based upon currently available facts, existing technology15
and presently enacted laws and
regulations; however,regulations. However, actual costs may differ materially from these estimates. Where available information is sufficient to estimate the amount of the liability, it isNJNG'sNJNG’s policy to accrue the full amount of such estimate. Where the information is sufficient only to establish a range of probable liability and no point within the range is more likely than any other, it isNJNG'sNJNG’s policy to accrue the lower end of the range. Accordingly, NJNG has recorded an MGP remediation liabilityof $65.8 millionand a corresponding Regulatory asset of$50.3$65.8 millionnet of insurance recoveries,on the Consolidated Balance Sheet. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, and the ultimate ability of other responsible parties to pay. NJNG believes all such costs are recoverable through a Remediation Rider, however, no assurance can be given as to the ultimate resolution of this matter.Energy Services has entered into a marketing and management agreement for the Stagecoach storage project. Stagecoach is a high-injection/high-withdrawal facility in New York
Statewith 12 billion cubic feet (Bcf) of working gas capacity and interstate pipeline connections to the Northeast markets. Stagecoach received Federal Energy Regulatory Commission (FERC) certification for full operations in June 2002.Energy Services is the
exclusiveagent for marketing Stagecoach services for a 10-year period, subject to termination rights, ending March 31, 2012. During this period, Energy Services has agreed to arrange contracts for, or purchase at fixed prices, sufficient services to provide Stagecoach with revenues of approximately $22 million annually from April 1, 2003, to March 31, 2012. Stagecoach can require Energy Services to make the foregoing purchases only if Stagecoach is capable of providing the underlying services and must notify Energy Services of its intent to sell services under the aforementioned contract by November 30 of the prior annual period.In addition,Energy Services believes that the price at which it would be required to purchase these services is currently below market. Stagecoach did not notify Energy Services of its intent to sell services for the annual period ended March 31,2004 and therefore2004. Therefore, Energy Services has no purchase obligation related to this period. Energy Services has reached 1- to3-year5-year agreements with Stagecoach customers with varying expiration dates, the last of which isOctoberMarch 31,2005.2008. The value of these services total6869 percent and1415 percent of theCompany'sCompany’s potential purchase obligation for the annual periods ended March 31, 2005 andMarch 31,2006, respectively.In August 2002, NJNG, in connection with its system requirements, was awarded 2-year agreements for Stagecoach storage and transportation
services.services ending July 31, 2004. These agreements were awarded pursuant to an open bid process.The NJNG agreements represent an additional 35 percent of the required level of services for the 2-year period ending July 31, 2004. 14Due to the price levels of the potential purchase obligations to Energy Services, as compared with current market prices, and the current and expected level of contracts, the Company does not currently believe that the potential purchase obligation in the Stagecoach agreement will result in any material future losses.
Additionally, underUnder the Stagecoach agreement, Energy Services is also required to provide
to,and maintainat, the Stagecoach facility2 Bcf of firm base gasand to manage up to 3 Bcf of interruptible base gasat the Stagecoach facility for the term of the agreement.16
12. Regulatory Assets
At
each of March 31,June 30, 2003, September 30, 2002, andMarch 31,June 30, 2002, respectively, the Company had the following regulatory assets on the Consolidated Balance Sheets:
As of As of As of March 31, September 30, March 31, 2003 2002 2002 ----------------------------------- (Thousands)Regulatory assets-current Underrecovered gas costs $ 44,910 $ 33,912 $ 18,888 Weather-normalization clause (935) 10,061 11,058 --------- --------- --------- $ 43,975 $ 43,973 $ 29,946 ========= ========= ========= Regulatory assets - non-current Remediation costs Expended, net $ 50,316 $ 42,187 $ 24,445 Liability for future expenditures 65,830 65,830 53,840 Underrecovered gas costs 5,823 15,118 16,781 Postretirement benefit costs 3,172 3,322 3,473 Weather-normalization clause - 4,858 4,101 Derivatives 10,551 2,562 - Other 393 660 (360) --------- --------- --------- $ 136,085 $ 134,537 $ 102,280 ========= ========= =========
As of As of As of June 30, September 30, June 30, (Thousands) 2003 2002 2002 Regulatory assets – current Underrecovered gas costs $ 60,202 $ 33,912 $ 22,996 Weather-normalization clause (4,010 ) 10,061 9,993 $ 56,192 $ 43,973 $ 32,989 Regulatory assets – non-current Remediation costs Expended, net $ 57,613 $ 42,187 $ 37,433 Liability for future expenditures 65,830 65,830 53,840 Underrecovered gas costs 3,966 15,118 15,570 Postretirement benefit costs 3,096 3,322 3,398 Weather-normalization clause — 4,858 5,518 Derivatives 10,517 2,562 11,414 Other 929 660 (64 ) $ 141,951 $ 134,537 $ 127,109 If there are changes in regulatory positions that indicate the recovery of regulatory assets is not probable, the related cost would be charged to income.
13. Other
At
March 31,June 30, 2003, there were27,072,73127,147,401 shares of common stock outstanding and the book value per share was$15.70. 15$16.03. 17
ITEM 2.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE ANDSIXNINE MONTHS ENDEDMARCH 31,JUNE 30, 2003RESULTS OF OPERATIONS
Consolidated net income for the quarter ended
March 31,June 30, 2003,increased 18decreased 6 percent to$41.2$4.5 million, compared with$34.9$4.8 million for the same period last year. Basic EPS decreased 11 percent to $.16, compared with $.18 last year. Diluted EPS decreased 6 percent to $.16, compared with $.17 last year.Consolidated net income for the nine months ended June 30, 2003, increased 16 percent to $69 million, compared with $59.4 million for the same period last year. Basic EPS increased
1715 percent to$1.52,$2.55, compared with$1.30$2.21 last year. Diluted EPS increased1615 percent to$1.50,$2.51, compared with$1.29$2.19 last year.ConsolidatedThe decrease in consolidated net income for the
sixthree months endedMarch 31,June 30, 2003,increased 18 percentwas attributable to$64.6 million, compared with $54.6 million fora $.02 per share gain related to thesamesale of real estate in the three month periodlast year. Basic EPS increased 17 percent to $2.39, compared with $2.04 last year. Diluted EPS increased 17 percent to $2.35, compared with $2.01 last year.ended June 30, 2002, and lower NJR Energy Services Company (Energy Services) results, partially offset by higher results at New Jersey Natural Gas Company (NJNG), New Jersey Resources Corporation’s (NJR or the Company) principal subsidiary.The increase in consolidated net income
in bothfor thethree and sixnine months endedMarch 31,June 30, 2003, was attributable primarily to colder weather and continued profitable customer growth atNew Jersey Resources Corporation's (NJR or the Company) principal subsidiary, New Jersey Natural Gas Company (NJNG),NJNG, and highermarginsearnings from increasedtransportationstorage andstorage assetscapacity utilization atNJREnergyServices Company (Energy Services).Services.NATURAL GAS DISTRIBUTION OPERATIONS
The Natural Gas Distribution segment consists solely of the
Company'sCompany’s principal subsidiary, NJNG, which provides regulated energy services to customers in central and northern New Jersey and participates in the off-system sales and capacity release markets.NJNG'sNJNG’s financial results are summarized as follows:
Three Months Ended Six Months Ended March 31, March 31, 2003 2002 2003 2002 ----------------------------------------- (Thousands)Revenue $334,795 $289,609 $560,879 $509,557 ======== ======== ======== ======== Gross margin Residential and commercial $ 75,514 $ 71,528 $129,480 $121,480 Transportation 11,617 7,643 19,614 13,726 -------- -------- -------- -------- Total firm margin 87,131 79,171 149,094 135,206 Off-system and capacity management 1,706 1,241 2,924 2,876 Interruptible 79 210 298 422 -------- -------- -------- -------- Total gross margin 88,916 80,622 152,316 138,504 Operation and maintenance expense 22,033 19,594 42,083 38,736 Depreciation and amortization 7,799 7,337 15,681 15,573 Other taxes not reflected in gross margin 650 689 1,320 1,195 -------- -------- -------- -------- Operating income $ 58,434 $ 53,002 $ 93,232 $ 83,000 ======== ======== ======== ======== Other income $ 299 $ 463 $ 702 $ 1,564 ======== ======== ======== ======== Net income $ 34,161 $ 31,219 $ 53,684 $ 48,353 ======== ======== ======== ========16
Three Months Ended Nine Months Ended June 30, June 30, 2003 2002 2003 2002 (Thousands) Operating revenue $ 120,055 $ 144,199 $ 680,934 $ 653,756 Gross margin Residential and commercial 30,414 28,042 159,894 149,522 Transportation 6,526 4,930 26,140 18,656 Total firm margin 36,940 32,972 186,034 168,178 Off-system and capacity management 1,245 886 4,169 3,762 Interruptible 231 237 529 659 Total gross margin 38,416 34,095 190,732 172,599 Operation and maintenance expense 20,561 18,400 62,644 57,136 Depreciation and amortization 7,799 7,786 23,480 23,359 Other taxes not reflected in gross margin 606 642 1,926 1,837 Operating income $ 9,450 $ 7,267 $ 102,682 $ 90,267 Other income $ 607 $ 861 $ 1,309 $ 2,425 Net income $ 4,507 $ 3,062 $ 58,191 $ 51,415 18
Gross Margin
Gross margin is defined as gas revenues less gas purchases, sales tax and a Transitional Energy Facilities Assessment (TEFA), which is included in Energy and other taxes on the Consolidated Statements of Income. NJNG believes that gross margin provides a more meaningful basis for evaluating utility operations than does revenues since gas costs, sales tax and TEFA are passed through to customers and, therefore, have no effect on gross
margin.margin dollars. Gas costs are charged to operating expenses on the basis of therm sales at the rates included inNJNG'sNJNG’s tariff. The Basic Gas Supply Service (BGSS) allows NJNG to recover gas costs that exceed the level reflected in its base rates. Sales tax is calculated at 6 percent of revenue and excludes sales to cogeneration facilities, other utilities, off-system sales and federal accounts. TEFA is calculated on a per-therm basis and excludes sales to cogeneration facilities, other utilities and off-system sales. Sales tax and TEFA, which are presented gross in the Consolidated Statements of Income, totaled$19.9$7 million and$31.9$38.9 million for the three andsixnine months endedMarch 31,June 30, 2003, respectively, compared with$14.4$5.1 million and$24.5$29.6 million for the same periods last year. These increases are due to the increase in sales, discussed below.Firm Margin
Residential and commercial, which NJNG considers to be firm gross margin, is subject to a Weather Normalization Clause (WNC), which provides for a revenue adjustment if the weather varies by more than one-half of 1 percent from normal, or 20-year average, weather. The WNC does not fully protect NJNG from factors such as unusually warm weather and declines in customer usage patterns, which were set at the conclusion of
NJNG'sNJNG’s last base rate case in January 1994. The accumulated adjustment from one heating season (i.e., October through May) is billed or credited to customers in subsequent periods. This mechanism reduces the variability of both customer bills andNJNG'sNJNG’s earnings due to weather fluctuations. The components of gross margin from firm customers are affected by customers switching between sales service and transportation service.NJNG'sNJNG’s total gross margin is not affected negatively by customers who
utilizeuse its transportation service and purchasetheirgas from another supplier because its tariff is designed such that no profit is earned on the commodity portion of sales to firm customers. All customers who purchase gas from another supplier continue toutilizeuse NJNG for transportation service.Total firm margin increased
$8$4 million, or1012 percent, and$13.9$17.9 million, or1011 percent, for the three andsixnine months endedMarch 31,June 30, 2003, respectively, compared with the same periods lastyear,year. This was due primarily to3338 percent and 35 percent colder weather than the three andsixnine months from last year, respectively, and continued customer growth.The weather for the
sixnine months endedMarch 31,June 30, 2003 was1214 percent colder than normal, which, in accordance with the WNC, resulted in the deferral of$7.4$8.9 million of gross margin to berefundedcredited toNJNG'sNJNG’s customers in the future. For thesixnine months endedMarch 31,June 30, 2002,the 1817 percent warmer-than-normal weather resulted in$14.8$16.4 million of additional margin being accrued for future recovery under the WNC. AtMarch 31,June 30, 2003, NJNG had anet $935,000cumulative $4 million inaccrueddeferred WNC margin to berefundedcredited to its customers through fiscal2004, which takes into account previous year activity.2004. NJNG estimates that for thesixnine months endedMarch 31,June 30, 2003, the colder weather resulted in approximately$2.2$4.6 million of additional margin beyond the amount captured in the WNC. For the same period last year, NJNG estimates that approximately$3.6$6.2 million of margin was lost due to the warmer-than-normal weather.19
Gross margin from sales to residential and commercial customers increased
$4$2.4 million, or5.68.5 percent, and$8$10.4 million, or6.66.9 percent, for the three andsixnine months endedMarch 31,June 30, 2003, respectively, compared17with the same periods last year. The increase was due primarily to the colder weather and the impact of 10,53610,414 customer additions during the 12 months endedMarch 31,June 30, 2003. Sales to residential and commercial customers were27.48.9 Bcf and44.553.4 Bcf for the three andsixnine months endedMarch 31,June 30, 2003, compared with20.66.7 Bcf and33.740.4 Bcf for the same periods last year.Gross margin from transportation service increased
$4$1.6 million, or5233 percent, and$5.9$7.5 million, or4340 percent, for the three andsixnine months endedMarch 31,June 30, 2003, compared with the same periods last year. NJNG transported 1.9 Bcf and 9.7 Bcf for the three and nine months ended June 30, 2003, respectively, compared with 1.3 Bcf and 6.4 Bcf, in the same periods last year. Theincrease wasincreases were due primarily to an increase in customers utilizing the transportation service, combined with the colder weather.NJNG transported 4.8 Bcf and 7.8 Bcf for the three and six months ended March 31, 2003, respectively, compared with 3 Bcf and 5.1 Bcf, in the same periods last year.NJNG had
21,52118,480 and10,03510,879 residential customers and4,9774,833 and3,4765,126 commercial customers using transportation service atMarch 31,June 30, 2003 and 2002, respectively. The increase in the number of transportation customers was due primarily to increased activity by third-party suppliers.Off-System and Capacity Management
To reduce the overall cost of its gas supply commitments, NJNG has entered into contracts to sell natural gas to customers outside its franchise territory when the gas is not needed for system requirements. These off-system sales enable NJNG to spread its fixed demand costs, which are charged by pipelines to access their supplies year round, over a larger and more diverse customer base. NJNG also participates in the capacity release market on the interstate pipeline network when the capacity is not needed for its firm system requirements. Effective October 1, 1998, through
DecemberOctober 31,2002,2003, NJNGretainedretains 15 percent of the gross margin from these sales, with 85 percent credited to firm customers through the BGSS.On October 30, 2002, the BPU approved an agreement whereby this program was extended through October 31, 2003.An incentive mechanism designed to reduce the fixed cost of
NJNG'sNJNG’s gas supply portfolio also became effective October 1, 1998. Any savings achieved through the permanent reduction or replacement of capacity or other servicesiswas shared between customers and shareowners. Under this program, NJNG retained 40 percent of the savings for the first 12 months following any transaction and 15 percent for the remaining period through December 31, 2002, with 60 percent and 85 percent, respectively, credited to firm sales customers through the BGSS. On October 30, 2002, the BPU approved an agreement whereby any transactions under this program entered into before December 31, 2002, continue to receive 60/40 sharing treatment between customers and shareowners. Any new transactions that become effective after January 1, 2003, would not be eligible under this program. NJNG believes that the elimination of this program will not have a material effect on its financial position, results of operations or cash flows.The Financial Risk Management (FRM) program is designed to provide price stability to
NJNG'sNJNG’s system supply portfolio. The FRM program includes an incentive mechanism designed to encourage the use of financial instruments to hedgeNJNG'sNJNG’s gas costs, with an 80/20 percent sharing of the costs and results between customers and shareowners, respectively, throughDecember 31, 2002. On October 30, 2002, the BPU approved an agreement whereby this program was extended throughOctober 31, 2003.NJNG believes as part of
theits BGSS proceedings that it can replace these programs with new incentive-based programs,thatwhich will not have a material effect on its financial position, results of operations or cashflows, however,flows. However, no assurance can be given as to the ultimate resolution of this matter.NJNG'sNJNG’s off-system sales, capacity management and FRM programs totaled
12.43.8 Bcf and generated$1.7$1.2 million of gross margin, and26.430.2 Bcf and$2.9$4.2 million of gross margin, for the three andsixnine months1820
ended
March 31,June 30, 2003, compared with30.219.4 Bcf and$1.2 million$886,000 of gross margin, and56.475.8 Bcf and$2.9$3.8 million of gross margin for the respective periods last year. Theincreaseincreases in marginwaswere due primarily to the permanent reduction in fixed demand costs, which is part of the portfolio-enhancing program discussed above. The decreases in volumes were due primarily to the colder weather, which required more of NJNG’s capacity to be used for firm sales.Interruptible
NJNG serves
4951 customers through interruptible sales and/or transportation tariffs. Sales made under the interruptible sales tariff are priced on market-sensitive energy parity rates. Although therms sold and transported to interruptible customers represented3.74.7 percent and4.75.7 percent of total throughput for thesixnine months endedMarch 31,June 30, 2003 and 2002, respectively, they accounted for less than 1 percent of the total gross margin in each period due to the margin-sharing formulas that govern these sales. Under these formulas, NJNG retains 10 percent of the gross margin from interruptible sales and 5 percent of the gross margin from interruptible transportation sales, with 90 percent and 95 percent, respectively, credited to firm sales customers through the BGSS. Interruptible sales were .2 Bcf and.1.6 Bcf for thesixnine months endedMarch 31,June 30, 2003 and 2002, respectively. In addition, NJNG transported2.84.4 Bcf and4.66.8 Bcf for thesixnine months endedMarch 31,June 30, 2003 and 2002, respectively, for its interruptible customers.Operation & Maintenance (O&M) Expense
O&M expense increased
$2.4$2.2 million, or12.412 percent, and$3.3$5.5 million, or8.610 percent, for the three andsixnine months endedMarch 31,June 30, 2003, compared with the same periods last year. The increases in O&M expense were due primarily to higher labor, pension and insurance costs.Operating Income
Operating income increased
$5.4$2.2 million, or10.230 percent, and$10.2$12.4 million, or12.314 percent, for the three andsixnine months endedMarch 31,June 30, 2003, compared with the same periods last year. The increase was due primarily to the increase intotalgross margin discussed above, which more than offset the increased O&M.Net Income
Net income increased
$2.9$1.4 million, or947 percent, and$5.3$6.8 million, or1113 percent for the three andsixnine months endedMarch 31,June 30, 2003, compared with the same periods last year. The increases were due primarily to the higher operating income discussed above. Theincrease wasincreases were partially offset byan increase inhigher income taxes caused by the increase in pre-tax income, and a decrease in deferred carrying costs ondeferredregulatory assets,caused by lower interest rates,which is included in Otherincome.income, caused by lower interest rates.ENERGY SERVICES OPERATIONS
Energy Services provides unregulated wholesale energy services, including natural gas supply, pipeline capacity and storage management to customers in New Jersey and in states from the Gulf Coast to New England and Canada.
Energy
Services'Services’ natural gas marketing activities include contracting to buy natural gas from suppliers at various points of receipt, aggregating natural gas supplies and arranging for their transportation, negotiating the sale of natural gas and matching natural gas receipts and deliveries based on volumes21
required by clients. Energy
Services'Services’ customers include energy marketers, utilities, natural gas producers and pipeline and storage operators, among others.19
Three Months Ended Six Months Ended March 31, March 31, 2003 2002 2003 2002 ------------------------------------------------- (Thousands)Revenues $ 814,654 $ 231,581 $1,253,466 $ 402,469 Gas purchases 800,713 225,256 1,231,316 391,724 ---------- ---------- ---------- ---------- Gross margin 13,941 6,325 22,150 10,745 Operation and maintenance expense 1,401 1,035 2,619 1,860 Depreciation and amortization 49 51 99 103 Other taxes 30 17 51 35 ---------- ---------- ---------- ---------- Operating income $ 12,461 $ 5,222 $ 19,381 $ 8,747 ========== ========== ========== ========== Net income $ 7,283 $ 3,035 $ 11,154 $ 5,171 ========== ========== ========== ==========Energy
Services' revenues increasedServices’ financial results are summarized as follows:
Three Months Ended Nine Months Ended June 30, June 30, 2003 2002 2003 2002 (Thousands) Operating revenue $ 244,479 $ 294,185 $ 1,498,695 $ 696,654 Gas purchases 243,696 291,345 1,475,762 683,069 Gross margin 783 2,840 22,933 13,585 Operation and maintenance expense 1,226 984 3,845 2,844 Depreciation and amortization 50 52 149 155 Other taxes 29 19 80 54 Operating income $ (522 ) $ 1,785 $ 18,859 $ 10,532 Net income $ (98 ) $ 853 $ 11,056 $ 6,024 Natural gas sold and managed by Energy Services totaled 43.5 Bcf and 259.5 Bcf for the three and
sixnine months endedMarch 31,June 30, 2003, respectively, compared with 82.2 Bcf and 230 Bcf for the same periods last year.Energy Services’ revenues, gross margin and income decreased for the three months ended June 30, 2003, compared to the same periods last year, due primarily to
an increaselower gas in storage available for marketing. The colder-than-normal winter weather provided marketing opportunities that utilized a majority of the gas in storage during the winter period, resulting in fewer assets available for marketing in thewholesale price of natural gas and higher gas volumes sold and managed. This increase in revenue created a corresponding increase in accounts receivable and gas purchases.subsequent reporting period.Energy
Services'Services’ revenues, gross marginoperating incomeandnetincome increased for thethree and sixnine months endedMarch 31,June 30, 2003, comparedwithto the same periods last year,as a result of increased capacity management, storage assets, and volatility in the natural gas commodity markets. Energy deliveries totaled 114.2 Bcf and 216 Bcf for the three and six months ended March 31, 2003, respectively, compared with 86.9 Bcf and 147.8 Bcf for the same periods last year. The increases weredue primarily toadditional volumes from pipelinevolatile wholesale prices this past winter, which contributed to increased basis (i.e., capacity), financial andstorage capacity transactions,daily trading gross margins. These increases more than offset the higher labor costs, which are included in Operation andadditional sales to wholesale customers.maintenance expense.22
RETAIL AND OTHER OPERATIONS
Retail and other consists primarily of NJR Home Services Company (Home Services), which provides service, sales and installation of appliances to approximately 130,000 customers, Commercial Realty & Resources Corp. (CR&R), which develops commercial real estate, and NJR Energy, which consists primarily of equity investments in Capstone Turbine Corporation (Capstone), and the Iroquois Gas Transmission System, L.P. (Iroquois). The consolidated financial results of Retail and other are summarized as follows:
Three Months Ended Six Months Ended March 31, March 31, 2003 2002 2003 2002 ------------------------------------------- (Thousands)Revenues $ 5,182 $ 4,612 $ 10,181 $ 9,705 ======== ======== ======== ======== Other (loss) income $ (443) $ 485 $ (173) $ 581 ======== ======== ======== ======== Net (loss) income $ (200) $ 676 $ (271) $ 1,087 ======== ======== ======== ========
Three Months Ended Nine Months Ended June 30, June 30, 2003 2002 2003 2002 (Thousands) Operating revenue $ 5,149 $ 4,330 $ 15,330 $ 14,035 Other income (loss) $ 41 $ 1,379 $ (364 ) $ 1,960 Net income (loss) $ 64 $ 849 $ (207 ) $ 1,936 Retail and other operations revenues for the three and
sixnine months endedMarch 31,June 30, 2003 increased compared with the same periods last year due primarily to increased installation business at Home Services.20NetOther income and net income for the three and
sixnine months endedMarch 31,June 30, 2003 decreased compared with the same periods last year due primarily to$341,000 after-taxa pre-tax loss of $570,000 on the sale of equity investments incurred during the second fiscal quarter of 2003 andhigher pension and insurance costs. The March 2002 results included an after-taxa pre-tax gain of$302,000 associated with$885,000 on the sale of realestate.estate recognized in the third fiscal quarter of 2002.In 1996, CR&R entered into
athe sale-leasebacktransaction thatof the Company’s corporate headquarters, which generated a pre-tax gain of $17.8million, whichmillion. This gain is included in Deferred revenue and is being amortized to Other income over the 25-year term of the lease. The primary tenant of the facility, NJNG, is leasing the building under a long-term master lease agreement and continues to occupy a majority of the space in the building.In April 2003, Home Services reached an agreement with the union on a 4-year collective bargaining agreement, which provides, among other things, for an annual increase in base wages of 2.5 percent. Effective April 3, 2004, the annual increase in wages will be 3 percent with an additional 0.5 percent in incentive compensation, if certain performance measures are met. Effective April 3, 2005 and 2006, the annual increase in wages will be 3 percent.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its common equity requirements, if any, through
new issuancesissuance of its common stock, including the proceeds from its Automatic Dividend Reinvestment Plan (DRP). The DRP allows the Company to use newly issued shares to satisfy its funding requirements. The Company also has the option of using shares purchased on the open market.23
In order to meet the working capital and external debt financing requirements of its unregulated subsidiaries, as well as its own working capital needs, the Company maintains committed credit facilities with several banks.
OnIn December23,2002, the Company entered into committed credit facilities totaling $380 million. The NJR portion of the facility consists of $100 million with a 364-day term and a $80 million revolving credit facility with a 3-year term expiring in January 2006. AtMarch 31,June 30, 2003, there was$45$36.2 million outstanding under these agreements. NJNG satisfies its debt needs by issuing short- and long-term debt based upon its own financial profile.DueAt September 30, 2002, the Company recorded an additional minimum pension liability of $14.8 million, which is included in Postretirement employee benefit liability on the Consolidated Balance Sheet. This minimum liability resulted from a decrease in the fair value of plan assets, which was due primarily to declining stock market values,
the Company's pension plan assets have decreased. Further,and a decrease in the discount rateutilized to compute the estimated pension liability also declined, resulting in increased pension liabilities. Consequently, the Company recorded a minimum pension liability at September 30, 2002.and expected asset return assumptions. In order tomitigate this situation,increase the funding level of the plans, the Companyanticipates makingmade tax-deductible contributions to its pension plans of$7$7.7 million through June 2003, and anticipates making an additional tax-deductible contribution of approximately $6 million inJune 2003 andSeptember2003, respectively.2003. If market performance is less than anticipated, additional fundinglevelsmay be required.21The following table is a summary of contractual cash obligations and their applicable payment due dates.
Payments Due by Period Less than 1 1-3 4-5 Contractual Obligations Total Year Years Years After 5 Years - ------------------------------------------------------------------------------------------------------------------------- (Thousands)Long-term debt $ 217,845 - $ 50,000 - $ 167,845 Capital lease obligations 53,666 $ 2,393 7,813 $ 2,880 40,580 Operating leases 8,283 2,642 4,185 644 812 Short-term debt 68,300 68,300 - - - Potential storage obligations 159,676 1,672 46,191 43,992 67,821 Gas supply purchase obligations 923,674 178,535 432,237 142,801 170,101 ---------- ---------- ---------- ---------- ---------- Total contractual cash obligations $1,431,444 $ 253,542 $ 540,426 $ 190,317 $ 447,159 ========== ========== ========== ========== ==========
Payments Due by Period Less than 1-3 4-5 After Contractual Obligations Total 1 Year Years Years 5 Years (Thousands) Long-term debt $ 222,845 — $ 55,000 — $ 167,845 Capital lease obligations 53,223 $ 2,393 7,764 $ 2,908 40,158 Operating leases 8,313 2,603 4,319 682 709 Short-term debt 104,600 104,600 — — — Remediation obligations 8,691 8,691 — — — Construction obligations 26,994 26,994 — — — Potential storage obligations 158,839 1,956 52,492 43,902 60,489 Gas supply purchase obligations 1,275,799 502,554 391,089 91,829 290,327 Total contractual cash obligations $ 1,859,304 $ 649,791 $ 510,664 $ 139,321 $ 559,528 NATURAL GAS DISTRIBUTION
The seasonal nature of
NJNG'sNJNG’s operations creates large short-term cash requirements, primarily to finance gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, as well as for the temporary financing of construction and gas remediation expenditures and energy tax payments, through operations, the issuance of commercial paper, and short-term bank loans. The NJNG portion of the committed credit facility, totaling $200 million, consists of $150 million with a 364-day term and a $50 million revolving credit facility with a 3-year term expiring in January 2006.24
This facility is used to support the issuance of commercial paper. At June 30, 2003, NJNG had $68.4 million outstanding under these agreements. In December 2002, NJNG received $5.3 million in connection with the
sale-leasebacksale leaseback of its vintage 2001 meters under a financing agreement.Remaining fiscal 2003 construction expenditures are estimated at
$31$19.3 million. These expenditures will be incurred for services, mains and meters to supportNJNG'sNJNG’s continued customer growth, and general system renewals and improvements. In addition, NJNG estimates additional Manufactured Gas Plant (MGP) remediation expenditures of approximately$16.5$7.5 million (see Note5c -5c. – Manufactured Gas Plant Remediation).NJNG expects to finance these expenditures through
internal generation andthe issuance of short- and long-term debt. The timing and mix of any external financings will be geared toward achieving a common equity ratio that is consistent with maintaining its current short- and long-term credit ratings.22Credit Ratings
The table below summarizes
NJNG'sNJNG’s credit ratings issued by two rating entities, Standard andPoor'sPoor’s Rating Information Service, a division of McGraw-Hill (Standard &Poor's)Poor’s), andMoody'sMoody’s Investor Service, Inc.(Moody's)(Moody’s).
- ------------------------------------------------------------Standard & Poor's Moody's - ------------------------------------------------------------Poor’s Moody’s Corporate Rating A N/A - ------------------------------------------------------------Commercial Paper A-1 P-1 - ------------------------------------------------------------Senior Secured A+ A2 - ------------------------------------------------------------Ratings Outlook Positive Stable - ------------------------------------------------------------Our Standard & Poor’s Senior Secured rating is an investment grade rating and is the seventh highest rating within the investment grade category. Our Moody’s Senior Secured rating is also an investment grade rating and is the eighth highest rating within the investment grade category. Moody’s and Standard and Poor’s give the Company’s commercial paper the highest rating within the Commercial Paper investment grade category. Investment grade ratings are generally divided into three groups: high, upper medium, and medium. NJR’s Senior Secured ratings fall into the upper medium group, while the commercial paper ratings fall into the high group.
In June 2003, Moody’s placed NJNG’s Senior Secured debt ratings under review for possible upgrade and confirmed the P-1 Commercial Paper rating.
NJNG is not party to any lending agreements that would accelerate the maturity date of any obligation due to a failure to maintain any specific credit rating.
A rating set forth above is not a recommendation to buy, sell or hold the Company’s securities and may be subject to revision or withdrawal at any time. Each rating set forth above should be evaluated independently of any other rating.
25
ENERGY SERVICES
Energy Services does not currently anticipate any significant capital expenditures in 2003, however, the use of high-injection/high-withdrawal storage facilities and pipeline park and loan arrangements combined with the related hedging activities in the volatile natural gas market may create significant short-term cash requirements, which are funded by NJR’s position of the
Company.committed credit facilities.RETAIL AND OTHER
In December 2002, CR&R
hassigned a 15-year lease to construct a 200,000-square-foot build-to-suit building in the Monmouth Shores Corporate Office Park II. Totalconstructioncapital expenditures for the project are estimated at $22.5 million, with an expected completion date in the third fiscal quarter of 2004. These expenditures will be financed throughthe NJRNJR’s portion of the committed credit facilities.ExpendituresCapital expenditures for the projectthrough March 31,in fiscal 2003 has totaled$946,000, excluding$2.6 million, and an additional $2.7 million is expected to be incurred during thecostremaining three months ofthe land.fiscal 2003.CRITICAL ACCOUNTING POLICIES
The following is a description of the most important generally accepted accounting principles in the United States of America that are used by the Company. Management believes that it exercises good judgment in selecting and applying accounting principles. The consolidated financial statements of the Company include estimates. Actual results in the future may differ from such estimates. The
Company'sCompany’s Critical Accounting Policies are described below.Regulatory Assets & Liabilities
The
Company'sCompany’s largest subsidiary, NJNG, maintains its accounts in accordance with the Uniform System of Accounts as prescribed by the New Jersey Board of Public Utilities (BPU). As a result of the ratemaking process, NJNG is required to follow SFAS No. 71,"Accounting“Accounting for the Effects of Certain Types ofRegulation"Regulation” (SFAS 71) and, as a result, the accounting principles applied by NJNG differ in23certain respects from those applied by unregulated businesses. NJNG is required under SFAS 71 to record the impact of regulatory decisions on its financial statements. NJNG'sNJNG’s BGSS, formerly known as the Levelized Gas Adjustment clause, requires it to project its gas costs over the subsequent 12 months and recover the difference, if any, of such projected costs compared with those included in rates through a BGSS charge to customers. Any under- or over-recoveries are treated as a Regulatory asset or liability and reflected in the BGSS in subsequent years. NJNG also enters into derivatives that are used to hedge gas purchases, and the offset to the resulting derivative assets or liabilities are recorded as a Regulatory asset or liability.In addition to the BGSS, other regulatory assets include
theremediation costs associated with MGP sites, which are discussed below under Environmental Items, and the WNC, which is discussed in the Natural Gas Distribution Operations segment of the MD&A. If there are changes in future regulatory positions that indicate the recovery of such regulatory assets is not probable, the related cost would be charged to income.26
Derivatives
Derivative activities are recorded in accordance with SFAS No. 133,
"Accounting“Accounting For Derivative Instruments and Hedging Activities,"” as amended (SFAS 133) under which the Company records the fair value of derivatives held as assets and liabilities. The changes in the fair value of the effective portion of derivatives qualifying as cash flow hedges are recorded, net of tax, in Other comprehensive income, a component of Common stock equity. Under SFAS 133, the Company also has certain derivative instruments that do not qualify ascash flowhedges. The change in fair value of these derivatives is recorded in earnings. In addition, the changes in the fair value of the ineffective portion of derivatives qualifying for hedge accounting are recorded as an increase or decrease in gas costs or interest expense, as applicable, based on the nature of the derivatives. The derivatives that NJNGutilizesuses to hedge its gas purchasing activities are recoverable through its BGSS. Accordingly, the offset to the change in fair value of these derivatives is recorded as a Regulatory asset or liability. The Company has not designated any derivatives as fair value hedges as ofMarch 31,June 30, 2003.The fair value of derivative investments is determined by reference to quoted market prices of listed contracts, published quotations or quotations from independent parties. In the absence thereof, the Company utilizes mathematical models based on current and historical data. The effect on annual earnings of valuations from our mathematical models is expected to be immaterial.
In providing its unregulated fuel and capacity management and wholesale marketing services, Energy Services enters into physical contracts to buy and sell natural gas. These contracts qualify as normal purchases and sales under SFAS 133 in that they provide for the purchase or sale of natural gas that will be delivered in quantities expected to be used or sold by Energy Services over a reasonable period in the normal course of business. Accordingly, Energy Services accounts for these contracts under settlement accounting.
Environmental Items
NJNG
periodicallyannually updates the environmental review of its MGP sites, including a review of its potential liability for investigation and remedial action, based on assistance from an outside consulting firm. On the basis of such review, NJNG estimates expenditures to remediate and monitor these MGP sites, exclusive of any insurance recoveries.NJNG'sNJNG’s estimate of these liabilities is based upon currently24available facts, existing technology and presently enacted laws and regulations. Where available information is sufficient to estimate the amount of the liability, it is NJNG'sNJNG’s policy to accrue the full amount of such estimate.Where the information is sufficient only to establish a range of probable liability and no point within the range is more likely than any other, it is
NJNG'sNJNG’s policy to accrue the lower end of the range. Since NJNG believes that recovery of these expenditures, as well as related litigation costs,areis probable through the regulatory process, in accordance with SFAS 71, it has recorded a Regulatory asset corresponding to the accrued liability. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and any insurance recoveries. If there are changes in future regulatory positions that indicate the recovery of such regulatory asset is not probable, the related cost would be charged to income. As ofMarch 31,June 30, 2003,$116.1$123.4 million of previously incurred and accrued remediation costs, net of recoveries from customers and insurance,recoveries,is included in Regulatory assets on the Consolidated Balance Sheet.27
Unbilled Revenue
Revenues related to the sale of natural gas are generally recorded when natural gas is delivered to customers. However, the determination of natural gas sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of natural gas delivered to customers since the date of the last meter read are estimated, and the corresponding unbilled revenue is recorded. This unbilled revenue is estimated each month based on monthly natural gas delivered into the system, unaccounted for gas based on historical results, and applicable customer rates.
Postretirement Employee Benefits
The
Company'sCompany’s costs of providing postretirement employee benefits (see Note9.-Employee9. – Employee Benefit Plans in theCompany'sCompany’s 2002 Annual Report on Form 10-K) are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience.Postretirement employee benefit costs, for example, are impacted by actual employee demographics (including age, compensation levels, and employment periods), the level of contributions made to the plans, and the return on plan assets. Changes made to the provisions of the plans may also impact current and future postretirement employee benefit costs. Postretirement employee benefit costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets, health care cost trends, and discount rates used in determining the projected benefit obligations. In determining postretirement employee benefit obligations and cost amounts, assumptions can change from period to period, which could result in material changes to net postretirement employee benefit periodic
costcosts and related liability recognized by the Company.The
Company'sCompany’s postretirement employee benefit plan assets consist primarily of corporate equities and obligations, U.S. Government obligations and cash equivalents. Fluctuations in actual equity market returns as well as changes in interest rates may result in increased or decreased postretirement employee benefit costs in future periods. Postretirement employee benefit expenses are recorded on the Operations and maintenance line on the Consolidated Statements of Income.New Accounting Policies
25The Company has discussed its new accounting standards and their potential impact in Note
2 -2. – New Accounting Standards, to the Consolidated Financial Statements.2628
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKFINANCIAL RISK MANAGEMENT
Commodity Market Risks
Natural gas is a nationally traded commodity, and its prices are determined effectively by the New York Mercantile Exchange (NYMEX) and over-the-counter markets. The prices on the NYMEX and over-the-counter markets generally reflect the notional balance of natural gas supply and demand, but are also influenced significantly from time to time by other events.
The regulated and unregulated natural gas businesses of the Company and its subsidiaries are subject to market risk due to fluctuations in the price of natural gas. To hedge against such fluctuations, the Company and its subsidiaries have entered into futures contracts, options agreements and over-the-counter swap agreements. To manage these instruments, the Company has well-defined risk management policies and procedures, which include daily monitoring of volumetric limits and monetary guidelines. The
Company'sCompany’s natural gas businesses are conducted through three of its operating subsidiaries. First, NJNG is a regulated utility whose recovery of gas costs is protected by the BGSS, which utilizes futures, options and swaps to hedge against price fluctuations. Second, using futures and swaps, Energy Services hedges purchases and sales of storage gas and transactions with wholesale customers. Finally, NJR Energy has entered into several swap transactions to hedge the 10 remaining years of an 18-year fixed-price contract to sell approximately 20.9 Bcf of natural gas (Gas Sale Contract) to a gas marketing company.NJR Energy has hedged both its price and physical delivery risks associated with the Gas Sale Contract. To hedge its price risk, NJR Energy entered into two swap agreements, effective November 1995. Under the terms of these swap agreements, NJR Energy will pay to its swap counterparties the identical fixed price it receives from the gas marketing company in exchange for the payment by such swap counterparties of a floating price based on an index price plus a spread per Mmbtu for the total volumes under the Gas Sale Contract. In order to hedge its physical delivery risk, NJR Energy entered into a purchase contract with a second gas marketing company for the identical volumes that it is obligated to sell under the Gas Sale Contract, under which it pays the identical floating price it receives under the swap agreements mentioned above.
The following table reflects the changes in the fair market value of commodity derivatives from September 30, 2002 to
March 31,June 30, 2003.
Balance Increase Less Balance September 30, (Decrease) in Fair Amounts March 31, 2002 Market Value Settled 2003 ----------------------------------------------------------- (Thousands)NJNG $ (2,564) $ 2,800 $ 10,787 $(10,551) Energy Services (14,689) (31,967) (43,880) (2,776) NJR Energy 3,362 10,920 2,897 11,385 -------- -------- -------- -------- Total $(13,891) $(18,247) $(30,196) $ (1,942) ======== ======== ======== ========27
Balance Increase Less Balance September 30, (Decrease) in Fair Amounts June 30, 2002 Market Value Settled 2003 (Thousands) NJNG $ (2,564 ) $ 1,196 $ 9,149 $ (10,517 ) Energy Services (14,689 ) (23,022 ) (44,919 ) 7,208 NJR Energy 3,362 20,374 4,407 19,329 Total $ (13,891 ) $ (1,452 ) $ (31,363 ) $ 16,020 There were no contracts originated and valued at fair market value and no changes in methods of valuations during the
sixnine months endedMarch 31,June 30, 2003.29
The following is a summary of fair market value of commodity derivatives at
March 31,June 30, 2003, by method of valuation and by maturity.
After Remaining Fiscal Fiscal Fiscal Total Fiscal 2003 2004 2005-2007 2007 Fair Value ---------------------------------------------------------- (Thousands)Price based on NYMEX $ (2,983) $(10,696) $ (5,948) $ (398) $(20,025) Price based on over-the-counter published quotations 6,202 5,046 6,155 1,154 18,557 Price based upon models - - 562 (1,036) (474) -------- -------- -------- -------- -------- $ 3,219 $ (5,650) $ 769 $ (280) $ (1,942) ======== ======== ======== ======== ========
After Remaining Fiscal Fiscal Fiscal Total Fiscal 2003 2004 2005-2007 2007 Fair Value (Thousands) Price based on NYMEX $ 18,447 $ (10,787 ) $ (14,371 ) $ (2,854 ) $ (9,565 ) Price based on over-the-counter published quotations 2,427 8,716 10,912 3,429 25,484 Price based upon models — — 188 (87 ) 101 $ 20,874 $ (2,071 ) $ (3,271 ) $ 488 $ 16,020 The following is a summary of commodity derivatives by type as of
March 31,June 30, 2003:
Amounts included in Volume Price per Derivatives (Bcf) Mmbtu (Thousands) ---------------------------------------------------NJNG Futures 3.7 $ 3.95 - 5.72 $ 4,967 Options 1.5 $ 3.00 - 10.00 1,220 Swaps 34.6 - (16,738) Energy Services Futures 1.9 $ 2.85 - 4.43 (4,034) Swaps 46.7 - 1,258 NJR Energy Swaps 22.1 - 11,385 ---------- $ (1,942) ==========
Amounts included in Volume Price per Derivatives (Bcf) Mmbtu (Thousands) NJNG Futures 3.2 $ 5.411 - $5.849 $ 17,489 Options 10.6 $ 3.783 - $11.59 (814 ) Swaps 33.5 — (27,192 ) Energy Services Futures 19.0 $ 4.623 - $5.924 2,284 Options 25.0 $ 5.221 - $5.3172 670 Swaps 42.8 — 4,254 NJR Energy Swaps 20.1 — 19,329 $ 16,020 The Company uses a value-at-risk (VAR) model to assess the market risk of its net futures, swaps and options positions. The VAR at
March 31,June 30, 2003, using the variance-covariance method with a 95 percent28confidence level and a one-day1-day holding period, was$870,000.$793,000. The VAR with a 99 percent confidence level and a 10-day holding period was$3.9$3.5 million. The calculated VAR represents an estimate of the potential change in the value of the net positions. These estimates may not be indicative of actual results since actual market fluctuations may differ from forecasted fluctuations.Interest Rate Risk
-– Long-Term DebtAt
March 31,June 30, 2003, the Company (excluding NJNG) had no variable rate long-term debt.30
At
March 31,June 30, 2003, NJNG had total variable-rate, long-term debt outstanding of$122.1$127.1 million, of which $97.1 million has been hedged by the purchase of a 3.25-percent interest-rate cap through July 2004. According to theCompany'sCompany’s sensitivity analysis, atMarch 31,June 30, 2003,NJNG'sNJNG’s annual interest rate exposure on the $97.1 million, based on the difference between current average rates and the3.25 percent3.25-percent interest-rate cap, is limited to$215,000,$296,000, net of tax. If interest rates were to change by 1 percent on the remaining$25$30 million of variable rate debt atMarch 31,June 30, 2003,NJNG'sNJNG’s annual interest expense, net of tax, would change by$148,000. 29$177,000. 31
ITEM 4. CONTROLS AND PROCEDURES
WithinAs of the
90-dayend of the periodprior to the date ofreported on in this report, we have undertaken an evaluationwas carried out,under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, in all material respects, with respect to the recording, processing, summarizing and reporting, within the time periods specified in theSEC'sSEC’s rules and forms, of information required to be disclosed by us in the reports that we file or submit under the Exchange Act.There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation described above.
3032
PART II
-– OTHER INFORMATIONITEMItem 1.Legal Proceedings
Information required by this Item is incorporated herein by reference to Part I, Item 1, Note
4-5. – Legal and Regulatory Proceedings.ITEM 4. Submission of Matters to a Vote of Security Holders (a) An annual meeting of shareholders was held on February 26, 2003. (c) The shareholders voted upon the following matters at the February 26, 2003 annual shareholders meeting: (i) The election of five (5) directors, four for terms expiring in 2006, and one for a term expiring in 2004. The results of the voting were as follows:
Director For Withheld - -------- --- --------Hazel S. Gluck 21,103,116 323,528 James T. Hackett 21,122,992 303,652 J. Terry Strange 21,180,958 245,686 Gary W. Wolf 21,017,102 409,542 George R. Zoffinger 21,149,221 277,423(ii) The approval of the action to retain Deloitte & Touche LLP as auditors for the fiscal year ending September 30, 2003. The results of the voting were as follows:
For Against Abstain --- ------- -------20,796,477 463,522 166,645ITEMItem 6.Exhibits and Reports on Form 8-K
(a) Exhibits
99-1 Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act* 99-2 Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act* * This certificate accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 or any other provision of the Securities Exchange Act of 1934, as amended.
4-1 The First Amendment to the $200 million revolving credit agreement by and among NJNG and PNC Bank, as agent, dated December 23, 2002 4-2 The First Amendment to the $180 million revolving credit agreement by and among New Jersey Resources Corporation and PNC Bank, as agent, dated December 23, 2002 31-1 Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act 31-2 Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act 32-1 Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act* 32-2 Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act* (b) Reports on Form 8-K
On February 7, 2003, a report on Form 8-K was filed by the Company furnishing under Item 9 information disclosed pursuant to Regulation FD. 31On April 24, 2003, a report on Form 8-K was filed by the Company furnishing under Item 9 information disclosed pursuant to Regulation FD (Item 12, Results of Operations and Financial Condition).
On May 5, 2003, a report on Form 8-K was filed by the Company furnishing under Item 9 information disclosed pursuant to Regulation FD.
32On July 24, 2003, a report on Form 8-K was filed by the Company furnishing under Item 9 information disclosed pursuant to Regulation FD (Item 12, Results of Operations and Financial Condition).
* This certificate accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 or any other provision of the Securities Exchange Act of 1934, as amended. 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NEW JERSEY RESOURCES CORPORATION Date: May 12, 2003 /s/Glenn C. Lockwood -------------------- Glenn C. Lockwood Senior Vice President and Chief Financial Officer 33CERTIFICATIONS I, Laurence M. Downes, certify that: 1) I have reviewed this Quarterly Report on Form 10-Q of New Jersey Resources Corporation; 2) Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3) Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; 4) The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a.) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b.) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and c.) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a.) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b.) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6) The Registrant's other certifying officers and I have indicated in this Quarterly Report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 By: /s/Laurence M. Downes --------------------- Laurence M. Downes Chairman & Chief Executive Officer
NEW JERSEY RESOURCES CORPORATION Date: August 13, 2003 /s/ Glenn C. Lockwood Glenn C. Lockwood Senior Vice President and Chief Financial Officer 34
CERTIFICATIONS I, Glenn C. Lockwood, certify that: 1) I have reviewed this Quarterly Report on Form 10-Q of New Jersey Resources Corporation; 2) Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3) Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; 4) The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a.) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b.) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and c.) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a.) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b.) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6) The Registrant's other certifying officers and I have indicated in this Quarterly Report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 By: /s/Glenn C. Lockwood -------------------- Glenn C. Lockwood Senior Vice President, Chief Financial Officer 35