Financial Highlights New Jersey Resources Corporation
(Thousands, except per share data)
Fiscal Years Ended September 30, 1994 1993 (A) 1992 (A)
- - ------------------------------------------------------------------------------------------------------------------------------------
Operating Results
Operating Revenues ................................................................ $498,749 $454,746 $400,738
Operating Income .................................................................. $ 53,931 $ 48,900 $ 45,544
Income Before Cumulative Effect of Change in
Accounting for Income Taxes ..................................................... $ 32,274 $ 27,162 $ 22,247
Net Income ........................................................................ $ 32,995 $ 27,162 $ 22,247
Return on Average Equity .......................................................... 13.2% 11.7% 12.3%
-------- -------- --------
Common Stock Information
Earnings per Share Before Cumulative Effect of Change
in Accounting for Income Taxes .................................................. $ 1.89 $ 1.64 $ 1.55
Earnings per Share ................................................................ $ 1.93 $ 1.64 $ 1.55
Annual Dividend Rate at Year End .................................................. $ 1.52 $ 1.52 $ 1.52
Market Price at Year End .......................................................... $ 21.13 $ 29.13 $ 22.38
Book Value per Share .............................................................. $ 14.46 $ 13.69 $ 13.18
Shares Outstanding at Year End .................................................... 17,303 16,820 16,286
Average Shares Outstanding ........................................................ 17,096 16,607 14,334
-------- -------- --------
Utility Operating Data
Customers at Year End ............................................................. 340 330 321
Firm Sales (billion cubic feet) ................................................... 50.5 47.4 45.2
Total Throughput (billion cubic feet) ............................................. 105.4 75.8 64.0
Gross Margin ...................................................................... $152,323 $136,458 $128,870
-------- -------- --------
(A) Restated to reflect the change in accounting principle by NJR Energy for
its oil and gas operations to the successful efforts method from the full
cost method.
[Bar Graphs Here]
1
[Bar Graphs Here]
21
Consolidated Financial Statistics New Jersey Resources Corporation
(Thousands, except per share data)
Income Statements 1994 1993(A) 1992(A) 1991(A) 1990(A) 1989(A)
- - --------------------------------------------------------------------------------------------------------------------------------
Operating Revenues ..................................... $498,749 $454,746 $400,738 $335,593 $324,773 $329,881
-------- -------- -------- -------- -------- --------
Operating Expenses
Gas purchases ........................................ 279,529 252,041 205,920 168,042 165,185 178,172
Operation and maintenance ............................ 69,057 61,707 59,719 59,378 56,559 49,285
Depreciation and amortization ........................ 27,595 25,405 23,918 23,460 20,713 16,085
Exploratory dry hole costs ........................... 29 2,017 2,184 2,689 3,513 4,374
Gross receipts tax, etc. ............................. 53,757 52,719 52,612 45,489 44,273 43,743
Federal income taxes ................................. 14,851 11,957 10,841 4,295 4,379 6,422
-------- ------- -------- -------- -------- --------
Total operating expenses ............................... 444,818 405,846 355,194 303,353 294,622 298,081
-------- ------- -------- -------- -------- --------
Operating Income ....................................... 53,931 48,900 45,544 32,240 30,151 31,800
Other Income, Net ...................................... 2,208 713 574 (316) 43 392
Interest Charges, Net .................................. 22,203 20,429 21,407 22,518 20,174 17,728
--------- -------- -------- -------- -------- --------
Income Before Preferred Stock Dividends ................ 33,936 29,184 24,711 9,406 10,020 14,464
Preferred stock dividends .............................. 1,662 2,022 2,464 1,012 948 962
--------- -------- -------- -------- -------- --------
Income Before Cumulative Effect of Change in Accounting
for Income Taxes ..................................... 32,274 27,162 22,247 8,394 9,072 13,502
Cumulative effect of change in accounting
for income taxes ..................................... 721 - - - - -
-------- -------- -------- -------- -------- --------
Net Income ............................................. $ 32,995 $ 27,162 $ 22,247 $ 8,394 $ 9,072 $ 13,502
======== ======== ======== ======== ======== ========
Common Stock Data
Earnings per share before cumulative effect of
change in accounting for income taxes ............... $ 1.89 $ 1.64 $ 1.55 $ .61 $ .68 $ 1.19
Earnings per share ................................... $ 1.93 $ 1.64 $ 1.55 $ .61 $ .68 $ 1.19
Dividends declared per share ......................... $ 1.52 $ 1.52 $ 1.52 $ 1.50 $ 1.44 $ 1.36
Payout ratio ......................................... 79% 93% 98% 246% 212% 114%
Market price at year end ............................. $ 21.13 $ 29.13 $ 22.38 $ 19.75 $ 18.00 $ 19.50
Dividend yield at year end ........................... 7.2% 5.2% 6.8% 7.7% 8.2% 7.2%
Price-earnings ratio ................................. 11 18 14 32 27 16
Book value per share ................................. $ 14.46 $ 13.69 $ 13.18 $ 11.80 $ 12.41 $ 12.95
Market-to-book ratio at year end ..................... 1.5 2.1 1.7 1.7 1.5 1.5
Shares outstanding at year end (thousands) ........... 17,303 16,820 16,286 13,965 13,520 13,181
Average shares outstanding (thousands) ............... 17,096 16,607 14,334 13,750 13,378 11,343
Number of shareholder accounts ....................... 19,218 19,319 18,521 17,585 16,175 15,759
======== ======== ======== ======== ======== ========
Return on Average Equity ............................. 13.2% 11.7% 12.3% 4.9% 5.2% 9.4%
======== ======== ======== ======== ======== ========
Capitalization
Common stock equity .................................. $250,163 $230,313 $214,703 $164,731 $167,723 $170,649
Redeemable preferred stock ........................... 22,070 22,340 32,610 32,880 13,150 13,420
Long-term debt ....................................... 323,590 310,996 251,955 262,737 227,782 208,655
-------- -------- -------- -------- -------- --------
Total .................................................. $595,823 $563,649 $499,268 $460,348 $408,655 $392,724
======== ======== ======== ======== ======== ========
Property, Plant and Equipment
Utility plant ........................................ $691,757 $637,580 $588,908 $552,519 $514,457 $457,812
Accumulated depreciation ............................. (168,299) (155,618) (141,364) (127,047) (114,153) (103,005)
Real estate properties ............................... 104,309 102,369 99,522 96,832 90,979 81,261
Accumulated depreciation ............................. (12,602) (10,660) (8,758) (7,577) (5,847) (4,236)
Oil and gas properties ............................... 63,224 64,576 57,398 53,423 48,097 32,898
Accumulated amortization ............................. (38,012) (32,597) (28,478) (24,241) (18,863) (14,372)
-------- -------- -------- -------- -------- --------
Property, plant and equipment, net ..................... $640,377 $605,650 $567,228 $543,909 $514,670 $450,358
======== ======== ======== ======== ======== ========
Capital Expenditures
Utility plant ........................................ $ 54,506 $ 53,420 $ 37,864 $ 43,014 $ 54,776 $ 57,869
Real estate properties ............................... 2,619 2,869 4,397 6,321 9,727 19,782
Oil and gas properties ............................... 1,517 9,216 5,333 8,016 18,712 7,162
-------- -------- -------- -------- --------- --------
Total .................................................. $ 58,642 $ 65,505 $ 47,594 $ 57,351 $ 83,215 $ 84,813
======== ======== ======== ======== ========= ========
Total Assets ........................................... $797,347 $738,662 $668,605 $651,861 $603,857 $528,382
======== ======== ======== ======== ========= ========
(A) Restated to reflect the change in accounting principle by NJR Energy for
its oil and gas operations to the successful efforts method from the full
cost method.
22
Operating Statistics New Jersey Natural Gas Company
1994 1993 1992 1991 1990 1989
- - --------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (Thousands)
Residential .......................................... $ 308,196 $ 284,638 $ 263,108 $220,752 $ 221,575 $ 222,548
Commercial, industrial and other ..................... 87,958 81,285 73,809 65,048 62,027 60,002
Firm transportation .................................. 255 - - - - -
--------- --------- --------- -------- --------- ---------
Total firm ............................................. 396,409 365,923 336,917 285,800 283,602 282,550
Interruptible and agency ............................... 9,431 7,817 11,671 14,539 16,727 15,788
JCP&L and PSE&G ........................................ 6,214 13,298 7,799 15,709 9,544 19,336
--------- --------- --------- -------- --------- ---------
Total system ........................................... 412,054 387,038 356,387 316,048 309,873 317,674
Off system ............................................. 68,267 49,549 26,716 1,744 1,727 1,222
--------- --------- --------- -------- --------- ---------
Total .................................................. $ 480,321 $ 436,587 $ 383,103 $317,792 $ 311,600 $ 318,896
========= ========= ========= ======== ========= =========
Throughput (Thousands of Therms)
Residential .......................................... 385,144 363,440 347,859 297,106 336,245 331,245
Commercial, industrial and other ..................... 119,343 110,468 104,175 90,047 96,224 91,891
Firm transportation .................................. 868 - - - - -
--------- --------- --------- -------- --------- ---------
Total firm ............................................. 505,355 473,908 452,034 387,153 432,469 423,136
Interruptible and agency ............................... 58,698 50,146 51,079 56,734 52,694 51,034
JCP&L and PSE&G ........................................ 22,985 25,410 18,232 65,169 36,589 69,217
--------- --------- --------- -------- --------- ---------
Total system throughput ................................ 587,038 549,464 521,345 509,056 521,752 543,387
Off system and capacity release ........................ 467,275 208,369 118,198 3,880 4,250 6,280
--------- --------- --------- -------- --------- ---------
Total throughput ....................................... 1,054,313 757,833 639,543 512,936 526,002 549,667
========= ========= ========= ======== ========= =========
Customers at Year End
Residential .......................................... 318,003 309,215 300,327 292,551 286,862 281,244
Commercial, industrial and other ..................... 21,938 21,112 20,307 19,605 19,287 18,266
Firm transportation .................................. 27 - - - - -
--------- --------- --------- -------- --------- ---------
Total firm ............................................. 339,968 330,327 320,634 312,156 306,149 299,510
Interruptible and agency ............................... 35 33 33 39 36 32
JCP&L and PSE&G ........................................ 2 3 3 2 2 1
Off system ............................................. 9 4 4 1 1 1
--------- --------- --------- -------- --------- ---------
Total .................................................. 340,014 330,367 320,674 312,198 306,188 299,544
========= ========= ========= ======== ========= =========
Interest Coverage Ratio ................................ 3.63 3.50 3.23 2.08 2.33 2.85
========= ========= ========= ======== ========= =========
Average Therm Use per Customer
Residential .......................................... 1,211 1,175 1,158 1,016 1,172 1,178
Commercial ........................................... 5,287 5,013 4,899 4,245 4,663 4,691
========= ========= ========= ======== ========= =========
Degree Days ............................................ 5,064 5,048 4,965 4,208 4,937 5,107
Weather as a Percent of Normal ......................... 102% 103% 97% 79% 92% 95%
Maximum Day System Sendout (Thousands of therms) ....... 5,320 4,203 3,971 3,707 4,109 3,639
Number of Employees .................................... 814 796 771 774 766 774
========= ========= ========= ======== ========= =========
Two-Year Stock History
The range of high and low sales prices as reported in The Wall Street Journal
and dividends paid per share were as follows:
1994 1993 Dividends Paid
--------------------- ------------------- --------------------
Fiscal Quarter High Low High Low 1994 1993
- - --------------------------------------------------------------------------------------------------------------------------------
First .................................................. $ 29 1/4 $ 24 $ 25 1/8 $ 22 $ .38 $ .38
Second ................................................. 27 3/8 24 1/4 28 1/8 24 .38 .38
Third .................................................. 25 21 5/8 28 1/8 25 1/8 .38 .38
Fourth ................................................. 22 7/8 20 5/8 29 1/2 26 3/8 .38 .38
========= ========= ========= ======== ========= =========
23
Management's Discussion and Analysis of Financial
Conditions and Results of Operations New Jersey Resources Corporation
Results of Consolidated Operations
Consolidated Net income increased to a record $33 million during 1994,
compared with $27.2 million in 1993 and $22.2 million in 1992. The earnings
increase in each year was primarily the result of the impact of customer growth,
base rate increases, higher margins from non-core markets and colder weather on
New Jersey Natural Gas Company (NJNG), the principal subsidiary of New Jersey
Resources Corporation (the Company). Fiscal 1994 results include earnings of
$2.1 million, or $.13 per share, associated with the termination of a power
purchase agreement, non-cash earnings of $721,000, or $.04 per share, due to the
adoption of Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" (SFAS 109) and an after-tax charge of $650,000, or $.04 per share,
due to a write-off of a pipeline investment. Prior years' results have been
restated to reflect a change in accounting principle by NJR Energy Corporation
(NJR Energy) for its oil and gas operations to the successful efforts method
from the full cost method.
Earnings per share increased to $1.93 during 1994, compared with $1.64 in
1993 and $1.55 in 1992, reflecting the increased net income, which more than
offset a 3% increase in the average number of shares outstanding in 1994. The
Company's return on average equity was 13.2% in 1994, compared with 11.7% in
1993 and 12.3% in 1992.
Dividends declared per share were $1.52 in 1994, 1993 and 1992. The earnings
improvement resulted in the payout ratio being lowered to 79% in 1994, compared
with 93% in 1993 and 98% in 1992.
Utility Operations As a result of Federal Energy Regulatory Commission Order No.
636 (Order 636), which is designed to increase competition in the natural gas
industry, interstate pipeline companies were required to unbundle their sales
and transportation services. The transition to a more deregulated interstate
pipeline market has provided NJNG the opportunity to purchase and manage its
own, specifically tailored gas supply portfolio, and to resell its pipeline
capacity to other customers during off-peak periods. The recovery of costs
incurred by the interstate pipeline companies in connection with implementing
Order 636, which have been passed through to NJNG, is discussed in Note 7 to the
Consolidated Financial Statements.
NJNG's financial results are summarized as follows:
(Thousands) 1994 1993 1992
- - ----------------------------------------------------------------
Gross margin
Residential and commercial $ 147,028 $ 133,773 $ 126,840
Interruptible and agency 1,844 932 441
Off system and capacity
release 3,451 1,753 1,589
---------- ---------- ----------
Total gross margin $ 152,323 $ 136,458 $ 128,870
========== ========== ==========
Operating income before
income taxes $ 65,663 $ 56,773 $ 51,384
========== ========== ==========
Net income $ 32,142 $ 27,551 $ 23,199
========== ========== ==========
Gross Margin Gross margin, defined as gas revenues less gas costs and gross
receipts and franchise taxes (GRFT), provides a more meaningful basis for
evaluating utility operations since gas costs and GRFT are passed through to
customers and, therefore, have no effect on earnings. Gas costs are charged to
operating expenses on the basis of therm sales at the base and Levelized Gas
Adjustment (LGA) cost rates included in NJNG's tariff. The LGA clause allows
NJNG to recover gas costs that exceed the level reflected in its base rates.
GRFT are also calculated on a per-therm basis and exclude sales to other
utilities.
Residential and Commercial Through fiscal 1992, gross margin from firm (i.e.,
residential and commercial) customers was weathersensitive. In NJNG's June 1992
base rate order, the New Jersey Board of Public Utilities (the BPU) approved a
weather-normalization clause on a two-year experimental basis effective October
1, 1992. This clause provides for a revenue adjustment if the weather varies by
more than one-half of one percent from normal, or 10-year average, weather. The
accumulated adjustment from one heating season (i.e., October-April) is billed
or credited to customers in the subsequent heating season. In October 1994, NJNG
received approval from the BPU to continue the clause on an interim basis
pending a final BPU order.
The increases in gross margin of $13.3 million, or 10%, in 1994 and $6.9
million, or 5%, in 1993 from sales to firm customers were due primarily to the
impact of customer growth, base rate increases and colder weather.
Therm sales to firm customers increased by 6% to 504 million in 1994,
compared with 474 million in 1993 and 452 million in 1992. The increase in therm
sales was due to continued customer growth and the weather, which was slightly
colder in 1994 and 4% colder in 1993, compared with the respective prior year.
NJNG added 11,222 and 9,306 new customers in 1994 and 1993, and converted the
heating systems of another 798 and 1,305 existing customers in each year,
respectively. The growth in 1994 represents an annual increase of approximately
21 million therms, or 4%, in sales to firm customers. NJNG expects to maintain a
customer growth rate of more than 3% in the future.
NJNG received base rate increases of $7.5 million in January 1994 and $2.2
million in June 1992, which increased gross margin by $5.5 million in 1994 and
by $2.2 million in 1993.
In 1995 and 1996, NJNG expects to add 11,500 and 11,700 new customers,
respectively, and convert to natural gas heat an additional 1,000 existing
customers each year. This would result in a sales increase of approximately 18
million therms per year, assuming normal weather and average use, and would
increase gross margin under present rates by approximately $5.3 million per
year. Future therm sales will continue to be affected by weather, the economic
conditions in NJNG's service territory, con-
24
New Jersey Resources Corporation
version activity and other marketing efforts, as well as the conservation
efforts of NJNG's customers.
The weather in 1994 was 2% colder than normal which, due to the
aforementioned weather-normalization clause, resulted in $2.7 million of gross
margin being deferred for credit to customers in fiscal 1995. In 1993, $1.5
million of gross margin was deferred and credited to customers in 1994.
If the weather had been normal in 1992, net income would have been higher by
approximately $3 million, or $.21 cents per share.
Firm Transportation As of September 30, 1994, NJNG provided firm transportation
service to 27 customers. Effective November 1, 1994, the firm transportation
tariffs were revised and expanded to enable additional commercial and industrial
customers to choose this service. NJNG's gross margin will not be negatively
impacted by customers choosing to utilize the firm transportation service and
purchasing their gas from another supplier, as NJNG's tariffs are designed such
that no profit is earned on the commodity portion of sales to firm customers.
Interruptible and Agency NJNG services 35 customers through interruptible sales
and/or transportation tariffs and serves certain of these customers through
agency sales agreements. Sales made under the interruptible sales tariff are
priced on market-sensitive oil and gas parity rates. Interruptible therm sales
were 42 million in 1994, compared with 38 million in 1993 and 47 million in
1992. In addition, NJNG transported 38 million therms in 1994, 37 million in
1993 and 22 million in 1992 for its interruptible customers. Margin from agency
sales agreements totalled $1.4 million in 1994 and $790,000 in 1993.
Although therms sold and transported to interruptible customers represented
8% of total therm throughput in 1994 and 10% in 1993, they accounted for less
than 1% of the total gross margin in each year due primarily to the regulated
margin-sharing formulas that govern these sales. Under these formulas, NJNG
retained none of the gross margin from transportation sales through April 1992,
and 5% thereafter, and 10% of the gross margin from the interruptible sales,
with the balance credited to residential and commercial customers through the
LGA clause.
Off System and Capacity Release In order to reduce the overall cost of its
gas supply commitments, NJNG has entered into contracts to sell gas to customers
who are outside of its franchise territory. These 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 own system requirements. Effective January 1994,
NJNG retains 20% of the gross margin from off-system sales and capacity release.
NJNG's off-system sales totaled 260 million therms and generated $2.2 million of
gross margin in 1994, compared with 208 million therms and $1.8 million of gross
margin in 1993 and 118 million therms and $1.6 million of gross margin in 1992.
Off-system sales improved each year due primarily to increased marketing
efforts, while the margin per therm declined in 1994 due to a change in the
regulated margin-sharing formula and increased competition. The capacity release
program generated $1.2 million of gross margin in 1994.
Operating Income Before Income Taxes Operating income before income taxes
increased by 16% to $66 million in 1994 and by 10% to $56.8 million in 1993 as
the increased gross margin more than offset higher operation and maintenance
expenses associated primarily with the impact of growth on operations.
Summary The 17% increase in NJNG's earnings in 1994 reflected a base rate
increase, continued customer growth and higher margins from non-core markets.
NJNG realizes that continuous base rate increases cannot be relied upon for
future earnings growth. NJNG expects to continue to generate incremental margins
from growth in its core markets and aggressively pursue new markets to diversify
and improve its demand profile while continuing its cost containment programs,
as it remains committed to providing a proper return to its investors. Also, the
continuation of the weather-normalization clause will reduce the variability of
both customer bills and NJNG's earnings due to weather fluctuations.
Non-Utility Operations
Paradigm Resources Corporation (PRC) In 1992, PRC was formed as a sub-holding
company to better segregate the Company's utility and non-utility operations.
PRC includes the accounts of Commercial Realty & Resources Corp. (CR&R), NJR
Energy and Paradigm Power, Inc. (PPI).
The financial results of PRC are summarized as follows:
(Thousands) 1994 1993 1992
- - --------------------------------------------------------------
Revenues $ 21,906 $ 21,572 $ 21,590
Operating income before
income taxes $ 2,758 $ 3,850 $ 4,595
Income before SFAS 109 $ 104 $ (806) $ (864)
Net income $ 843 $ (806) $ (864)
========= ========= =========
Non-utility income before SFAS 109 improved to $104,000 in 1994 compared with a
loss of $806,000 in 1993 due primarily to the positive impact of the termination
of a power purchase agreement on the results of PPI.
CR&R The financial results of CR&R are summarized as follows:
(Thousands) 1994 1993 1992
- - --------------------------------------------------------------
Revenues $ 12,466 $ 12,554 $ 12,530
Operating income before
income taxes $ 5,426 $ 5,976 $ 6,187
Income before SFAS 109 $ 349 $ 464 $ 1,105
Net income $ 1,009 $ 464 $ 1,105
========= ========= =========
25
New Jersey Resources Corporation
CR&R's earnings before SFAS 109 decreased by $115,000 in 1994 as expenses
associated with evaluating CR&R's strategic alternatives more than offset lower
interest costs realized from re-financing activity.
CR&R's 1992 results include an after-tax gain of $467,000 related to the sale
of a construction and lease contract.
CR&R's completed space totaled 914,200 square feet in each of the past three
years. The occupancy rate of CR&R's total portfolio at year end totaled 97% in
1994 and 1993 compared with 93% in 1992. In addition, the occupied space at
September 30, 1994 was supported by leases having a remaining average term of
six years.
CR&R believes that its high occupancy rate and current base of cash flow will
enable it to meet its debt service requirements as it manages its existing
properties and considers various alternatives for its real estate assets. CR&R's
future earnings will be negatively impacted by carrying costs associated with
its undeveloped land inventory. CR&R's ability to maintain its current earnings
and cash flow levels is dependent on several factors, including changes in
interest rates and maintaining occupancy and rental rates as its portfolio of
leases is scheduled to roll-over.
NJR Energy The financial results of NJR Energy are summarized as follows:
(Thousands) 1994 1993 1992
- - -------------------------------------------------------------------------------
Revenues $ 9,440 $ 9,018 $ 9,060
Operating loss
before income taxes $ (2,335) $ (1,871) $ (1,509)
Loss before SFAS 109 $ (2,189) $ (1,008) $ (1,886)
Net loss $ (2,110) $ (1,008) $ (1,886)
========= ========= =========
In April 1994, the Company announced its plans to reallocate much of the capital
previously dedicated to the development of natural gas and oil reserves to
investments with closer strategic ties to the rest of its energy businesses. No
further exploration is planned. Potential investment opportunities may include
gas gathering, storage and marketing, as well as other investments designed to
capitalize on the post-Order 636 investment environment. In connection with this
strategic shift, as discussed in Note 1 to the Consolidated Financial
Statements, the Company has changed the method by which it accounts for its oil
and gas operations to the successful efforts method from the full cost method.
NJR Energy's loss before SFAS 109 increased to $2.2 million in 1994, compared
with a loss of $1 million in 1993, due primarily to the $1 million pre-tax
write-off of its investment in the Bessie-8 pipeline, which was determined to be
impaired, and higher depreciation, depletion and amortization which more than
offset lower exploratory dry hole costs.
Production in 1994 increased to 3.5 billion cubic feet (Bcf) of natural gas
and 112,000 barrels of oil compared with 3 Bcf and 97,000 barrels in 1993 and
3.7 Bcf and 99,000 barrels in 1992. The increase in production in 1994 was due
primarily to a $5 million acquisition of 56 properties from Marathon Oil Company
which was completed in August 1993. Average natural gas prices improved to $1.80
per thousand cubic feet (Mcf) in 1994, compared with $1.68 in 1993 and $1.54 in
1992. The average price of oil decreased to $15.70 per barrel in 1994 from
$19.16 in 1993 and $19.68 in 1992. NJR Energy's ability to improve its earnings
in the future is dependent on several factors including changes in oil and gas
prices and interest rates, the performance of reserve acquisitions and the
results of development activity and other investments in areas such as gas
gathering, storage and marketing, the amount and timing of which will be
determined by market and other conditions.
PPI In 1992, PPI was formed to pursue investment opportunities in natural
gas-fueled cogeneration and independent power production projects. In July 1993,
a subsidiary of PPI entered into an agreement with an affiliate of Destec
Energy, Inc. (Harriman Energy) to jointly develop a proposed 57-megawatt,
natural gas-fired cogeneration project in Harriman, New York (the Northway
Project). Harriman Energy had agreed to sell electricity to Orange & Rockland
Utilities, Inc. (Orange & Rockland) pursuant to a 25-year power purchase
agreement entered into in May 1991, as supplemented. The Northway Project had
entered into a 20-year gas supply agreement with NJNG. In June 1994, Harriman
Energy agreed to terminate the power purchase agreement with Orange & Rockland.
PPI's share of the net proceeds from this transaction is estimated at $4.2
million, to be received over three years, plus interest. Accordingly, after
related taxes and expenses, a gain of $2.1 million, or $.13 per share, is
included in Other Income, Net in the Consolidated Income Statements.
Liquidity and Capital Resources
Consolidated The Company is responsible for meeting the common equity
requirements of each subsidiary through new issuances, including the proceeds
from its Dividend Reinvestment and Customer Stock Purchase Plan (DRP). During
1994, the Company raised $12.1 million from its DRP compared with $13.2 million
in 1993 and $12 million in 1992. In September 1992, the Company also raised $37
million from a public offering. The Company provides the debt requirements for
its non-regulated companies, while NJNG issues short-term and long-term debt
based upon its own financial profile.
It is the Company's objective to maintain a consolidated capital structure
that reflects the different characteristics of each business segment and
provides adequate financial flexibility for accessing capital markets as
required. Based upon its existing mix of investments, it is the Company's goal
to maintain a common equity ratio in a range of 40% to 45%.
In order to meet the working capital and external debt financing requirements
of the non-regulated companies, as well as its own working capital needs, the
Company maintains committed credit facilities totaling $145 million with a
number of banks and
26
New Jersey Resources Corporation
has a $10 million credit facility available on an offering basis. At September
30, 1994, a total of $118.2 million was outstanding under these agreements.
At September 30, the Company's consolidated capital structure was as follows:
1994 1993
- - -------------------------------------------------------------------------------
Common stock equity 42% 41%
Preferred stock 4 4
Long-term debt 54 55
------ ------
Total 100% 100%
====== ======
NJNG The seasonal nature of the Company's utility 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 expenditures, sinking fund
needs and accelerated GRFT payments mandated by New Jersey law, through the
issuance of commercial paper and short-term bank loans. To support the issuance
of commercial paper, NJNG maintains committed credit facilities totaling $71
million with a number of commercial banks and has an additional $15 million in
lines of credit available on an offering basis. NJNG's lines of credit are
adjusted quarterly based upon its projected cash needs.
Capital Requirements NJNG's capital requirements for 1992 through 1994 and
projected amounts through 1996 are as follows:
Maturities and
Construction redemption of Redemption of
(Thousands) expenditures long-term debt preferred stock Total
- - -------------------------------------------------------------------------------
1992 $ 37,864 $ 5,189 $ 270 $ 43,323
1993 53,420 21,379 10,270 85,069
1994 54,506 14,064 270 68,840
1995 44,400 9,560 270 54,230
1996 43,500 7,360 270 51,130
The level of construction expenditures has resulted primarily from the need for
services, mains and meters to support NJNG's continued customer growth, and
general system renewals and improvements. NJNG also had additional capital
requirements in 1993 and 1994 of approximately $25 million annually resulting
from the acceleration of GRFT payments to the State of New Jersey. Optional
redemption activity included $10.5 million of First Mortgage Bonds in 1994 and
$17.4 million of First Mortgage Bonds and $10 million of preferred stock in
1993. Based on current market conditions, NJNG expects to optionally redeem the
remaining $6 million balance of its 10.85% Series M Bonds in 1995 and the
remaining $4 million balance of its 10% Series N Bonds in 1996.
Financing
(Thousands) 1994 1993 1992
- - -------------------------------------------------------------------------------
Cash flow $ 65,619 $ 48,389 $ 48,714
External financing
Common stock $ 10,887 $ 13,218 $ 40,010
Long-term debt $ 44,500 $ 39,300 $ 4,000
========= ======== ========
Cash flow, defined as net cash flows from operating activities before the change
in working capital and other, net, represents the cash generated from operations
available for capital expenditures, dividends, working capital and other
requirements. Cash flow increased by 31% in 1994 due primarily to higher
earnings and higher deferred tax benefits. Cash flow decreased by 1% in 1993 due
to the reversal of certain deferred tax benefits, which more than offset higher
earnings.
Common equity financing each year consisted of proceeds from the Company's
DRP and $28 million of the proceeds from the Company's public offering in
September 1992.
NJNG's external financing requirements in 1995 and 1996 are expected to
average about $35 million annually, which will be met through additional
issuances of short-term and long-term debt and common equity contributions by
the Company. In October 1993, NJNG received approval from the BPU to issue up to
$75 million of First Mortgage Bonds under a Medium-Term Note (MTN) program, of
which $30 million was issued in November 1993 and $25 million of 8.25% Series Z
First Mortgage Bonds due 2004 were issued in October 1994. The timing and mix of
these issuances will be geared toward achieving a common equity ratio of 53% for
NJNG, which is consistent with maintaining NJNG's current short-term and
long-term credit ratings and providing access to external capital.
PRC Capital requirements and financing activity for PRC from 1992 through 1994
were as follows:
(Thousands) 1994 1993 1992
- - -------------------------------------------------------------------------------
Capital expenditures $ 4,136 $ 12,085 $ 9,730
Maturities and redemption of
long-term debt $ 13,842 $ 2,241 $ 126
Cash flow $ 11,764 $ 5,885 $ 8,369
External financing
Common stock $ 1,200 - $ 8,730
Long-term debt $ 7,225 $ 8,509 $ (5,306)
======== ========== ==========
27
New Jersey Resources Corporation
CR&R Capital requirements and financing activity for CR&R from 1992 through
1994 were as follows:
(Thousands) 1994 1993 1992
- - -------------------------------------------------------------------------------
Capital expenditures $ 2,619 $ 2,869 $ 4,397
Maturities and redemption of
long-term debt $ 13,842 $ 2,241 $ 126
Cash flow $ 3,987 $ 2,883 $ 3,724
External financing
Long-term debt $ 12,108 $ 2,091 $ 1,538
======== ========= =========
As a result of the strategic re-evaluation conducted by the Company in 1992,
CR&R's construction program has been limited to the fit-up of existing tenant
space and the development of previously committed projects.
External financing activity in 1994 included the refinancing of its remaining
11 5/8%, $13.8 million mortgage and in 1993 included the refinancing of its
remaining 12 3/4%, $2.1 million mortgage. Funds for both refinancings were
obtained from the Company's bank credit facilities.
Capital expenditures are projected to be $9.3 million in 1995 and $3 million
in 1996 in connection with the fit-up of existing tenant space and development
of existing acreage. Such expenditures are expected to be funded through
internal generation and bank loans obtained by the Company.
NJR Energy NJR Energy's capital requirements and financing activity for 1992
through 1994 were as follows:
(Thousands) 1994 1993 1992
- - --------------------------------------------------------------------------------
Capital expenditures and
investments $ 1,979 $ 9,512 $ 6,208
Cash flow $ 4,783 $ 3,323 $ 4,746
External financing
Common stock $ 1,200 - $ 8,730
Long-term debt $ (5,179) $ 6,143 $ (6,885)
========= ========= =========
NJR Energy's 1994 capital spending was devoted primarily to development
activity. During 1993, NJR Energy's capital spending included participation in
the drilling of 10 wells to develop existing properties, of which 8 were
completed as commercially productive, and 4 exploratory wells, none of which
were commercially successful. NJR Energy's 1993 capital expenditures included
the August 1993 acquisition of 56 oil and gas properties for $5 million. This
acquisition added proved reserves of 6.9 Bcf of natural gas and 295,000 barrels
of oil, and included the assumption of operations on 45 of the properties.
In connection with the strategic shift in capital allocation away from the
exploration for reserves, NJR Energy removed a total of 16.3 Bcf and 515,000
barrels of oil from its base of proved reserves. Accordingly, NJR Energy's base
of proved natural gas reserves at September 30, 1994 decreased to 21.6 Bcf,
compared with 41.4 Bcf at September 30, 1993 and proved oil reserves decreased
to 1.8 million barrels at September 30, 1994, compared with 2.4 million barrels
a year ago.
Cash flow increased to $4.8 million in 1994 compared with $3.3 million in
1993 and $4.7 million in 1992 due primarily to higher revenues from increased
production and the utilization of federal alternative minimum tax (AMT) credits.
Cash flow declined in 1993 due primarily to higher federal AMT.
NJR Energy received $1.2 million of DRP proceeds in 1994 and $8.7
million of proceeds from the Company's public offering in September 1992.
Capital expenditures in 1995 and 1996 are projected to be $3.8 million
annually for the development of proved undeveloped reserves and approximately
$10 million over the next two years for investments in areas such as gas
gathering, marketing and storage. Such expenditures are expected to be funded
through internal generation and the issuance of additional debt and equity by
the Company, the timing and mix of which will be decided by market and other
conditions.
PPI No capital investments were made as of September 30, 1994. External
financing for PPI's future capital investments is expected to be initially
provided by the Company, the timing and mix of which will be determined by
market and other conditions.
Effects of Inflation Under the ratemaking process, the recovery of plant costs
through depreciation and the allowed return on plant investment are limited to
levels based upon the historical cost of utility plant, which is significantly
less than current replacement costs. The Company believes, based on past
practices, that NJNG will be allowed to earn on the increased cost of its
investment when replacement of the facilities is included in rate base. The
Company's other operations have not been significantly affected by inflation.
Summary The Company is confident that it will have adequate cash flow and proper
access to both the short-term and long-term capital needed to meet the projected
capital and dividend requirements of each subsidiary. The Company and NJNG will
continue to explore various alternatives to reduce its overall cost of capital.
In addition, NJNG remains committed to providing quality service to its
customers and a fair return to the Company's shareholders, without the need of
continuous base rate increases. Non-regulated investments are expected to
generate improved earnings and cash flow in the future.
28
Financial Statement Responsibility New Jersey Resources Corporation
The management of New Jersey Resources Corporation and its subsidiaries is
responsible for the integrity and objectivity of the financial statements and
related disclosures of the Company. These statements and disclosures have been
prepared using management's best judgment and are in conformity with generally
accepted accounting principles applied on a consistent basis. The financial
statements have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report.
To meet its responsibilities with respect to financial information,
management maintains and enforces a system of financial accounting controls,
which is designed to give reasonable assurance as to the reliability of the
financial records and the protection of assets. This system is augmented by
written policies and procedures, an organizational structure that provides for
appropriate division of responsibility and careful selection and training of
personnel. This system is also tested by the Company's Internal Audit
Department. Management believes the system is effective and provides reasonable
assurance that all transactions are properly recorded.
In addition, the Company has a Code of Conduct that requires all employees
to maintain the highest level of ethical standards and requires key management
personnel to formally declare their compliance with the Code annually.
The Board of Directors, through its Audit Committee, which is currently
composed of six outside directors, oversees management's responsibilities for
accounting, internal controls and financial reporting. The Audit Committee meets
periodically with management, the internal auditors and independent auditors to
discuss auditing and financial matters and to assure that each is carrying out
its responsibilities. Both the internal and independent auditors have access to
the Audit Committee at any time.
Independent Auditors' Report
To the Shareholders and Board of Directors of New Jersey Resources Corporation:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of New Jersey Resources Corporation and its
subsidiaries as of September 30, 1994 and 1993 and the related consolidated
statements of income, common stock equity and cash flows for each of the three
years in the period ended September 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statments based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at September 30,
1994 and 1993 and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994
the Company changed its method of accounting for income taxes to conform with
Statement of Financial Accounting Standards No. 109, changed its method of
accounting for the costs of postretirement benefits other than pensions to
conform with Statement of Financial Accounting Standards No. 106, and changed
the method of accounting for oil and gas activities from the full cost method to
the successful efforts method and restated the 1993 and 1992 consolidated
financial statements for the change.
Parsippany, New Jersey
October 31, 1994
29
Consolidated Statements of Income New Jersey Resources Corporation
(Thousands, except per share data)
For the Years Ended September 30, 1994 1993(A) 1992(A)
- - -------------------------------------------------------------------------------------------------------------
Operating Revenues ..................................................... $ 498,749 $ 454,746 $ 400,738
--------- --------- ---------
Operating Expenses
Gas purchases ........................................................ 279,529 252,041 205,920
Operation and maintenance ............................................ 69,057 61,707 59,719
Depreciation and amortization ........................................ 27,595 25,405 23,918
Exploratory dry hole costs ........................................... 29 2,017 2,184
Gross receipts tax, etc .............................................. 53,757 52,719 52,612
Federal income taxes ................................................. 14,851 11,957 10,841
--------- --------- ---------
Total operating expenses ............................................... 444,818 405,846 355,194
--------- --------- ---------
Operating Income ....................................................... 53,931 48,900 45,544
Other Income, Net ...................................................... 2,208 713 574
--------- --------- ---------
Interest Charges, Net
Long-term debt ....................................................... 20,997 19,952 19,742
Short-term debt and other ............................................ 1,206 477 1,665
--------- --------- ---------
Total interest charges, net ............................................ 22,203 20,429 21,407
--------- --------- ---------
Income Before Preferred Stock Dividends ................................ 33,936 29,184 24,711
Preferred stock dividends .............................................. 1,662 2,022 2,464
--------- --------- ---------
Income Before Cumulative Effect of Change in Accounting for Income Taxes 32,274 27,162 22,247
Cumulative effect of change in accounting for income taxes ............. 721 -- --
--------- --------- ---------
Net Income ............................................................. $ 32,995 $ 27,162 $ 22,247
========= ========= =========
Earnings per Common Share Before Cumulative Effect of Change
in Accounting for Income Taxes ....................................... $ 1.89 $ 1.64 $ 1.55
Cumulative effect of change in accounting for income taxes ............. .04 -- --
--------- --------- ---------
Earnings per Common Share .............................................. $ 1.93 $ 1.64 $ 1.55
========= ========= =========
Dividends per Common Share ............................................. $ 1.52 $ 1.52 $ 1.52
========= ========= =========
Average Shares Outstanding ............................................. 17,096 16,607 14,334
========= ========= =========
Consolidated Statements of Common Stock Equity
Number of Common Premium on ESOP Term Retained
(Thousands) Shares Stock Common Stock Loan and Other Earnings (A)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1991 ........................ 13,965 $ 34,913 $128,381 $(2,234) $ 3,671
Net income ........................................... 22,247
Public sale of common stock .......................... 1,725 4,313 32,417
Common stock issued under stock plans ................ 596 1,489 10,555
Cash dividends declared .............................. (21,780)
Reduction of ESOP term loan and other ................ 731
------ -------- -------- -------- --------
Balance at September 30, 1992 ........................ 16,286 40,715 171,353 (1,503) 4,138
Net income ........................................... 27,162
Common stock issued under stock plans ................ 534 1,335 11,643
Cash dividends declared .............................. (25,283)
Reduction of ESOP term loan and other ................ 753
Balance at September 30, 1993 ........................ 16,820 42,050 182,996 (750) 6,017
Net income ........................................... 32,995
Common stock issued under stock plans ................ 483 1,206 10,918
Cash dividends declared .............................. (26,019)
Reduction of ESOP term loan and other ................ 750
------ -------- -------- -------- --------
Balance at September 30, 1994 ........................ 17,303 $ 43,256 $193,914 $ - $ 12,993
====== ======== ======== ======== ========
(A) Restated to reflect the change in accounting principle by NJR Energy for its
oil and gas operations to the successful efforts method from the full cost
method. The accompanying notes are an integral part of these statements.
30
Consolidated Statements of Cash Flows New Jersey Resources Corporation
(Thousands)
For the Years Ended September 30, 1994 1993(A) 1992(A)
- - -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income ........................................................................ $ 32,995 $ 27,162 $ 22,247
Adjustments to reconcile net income to cash flows
Depreciation and amortization ................................................... 27,595 25,405 23,918
Amortization of deferred charges ................................................ 2,701 1,381 1,319
Deferred income taxes ........................................................... 14,075 (980) 8,115
Exploratory dry hole costs ...................................................... 29 2,017 2,184
Cumulative effect of change in accounting for income taxes ...................... (721) - -
Change in working capital ....................................................... (30,711) (44,399) (4,482)
Other, net ...................................................................... (4,523 (1,616) (3,299)
--------- -------- ---------
Net cash flows from operating activities ............................................ 41,440 8,970 50,002
--------- -------- ---------
Cash Flows from Financing Activities
Proceeds from long-term debt ...................................................... 50,250 49,200 4,000
Proceeds from common stock ........................................................ 12,087 13,218 48,740
Payments of long-term debt ........................................................ (28,580 (24,295 (11,569
Payments of preferred stock ....................................................... (270) (10,270) (270)
Payments of common stock dividends ................................................ (25,836) (24,426) (21,553)
Net change in short-term debt ..................................................... 12,100 54,900 (21,400)
--------- -------- ---------
Net cash flows from financing activities ............................................ 19,751 58,327 (2,052)
--------- -------- ---------
Cash Flows used in Investing Activities
Expenditures for
Utility plant ................................................................... (54,506) (58,270) (37,864)
Contribution from cogeneration developer ........................................ - 4,850 -
Real estate properties .......................................................... (2,619) (2,869) (4,397)
Oil and gas properties .......................................................... (1,517) (9,216) (5,333)
Cost of removal and other ......................................................... (5,337) (2,048) (1,043)
Proceeds from sale of assets ...................................................... 3,184 - -
--------- --------- ---------
Net cash flows used in investing activities ......................................... (60,795) (67,553) (48,637)
--------- ---------- ---------
Net change in cash and temporary investments ........................................ 396 (256) (687)
Cash and temporary investments at beginning of the year ............................. 1,555 1,811 2,498
--------- -------- ---------
Cash and temporary investments at end of the year ................................... $ 1,951 $ 1,555 $ 1,811
========= ======== =========
Changes in Components of Working Capital
Receivables ....................................................................... $ (4,055) $ (1,473) $ (3,283)
Inventories ....................................................................... 3,747 (8,374) 47
Deferred gas costs ................................................................ (6,560) (19,566) 5,729
Purchased gas ..................................................................... (9,865) 4,958 1,879
Accrued and prepaid taxes, net .................................................... (19,193) (20,879) (3,349)
Customers' credit balances and deposits ........................................... 2,841 (1,582 (8,601)
Other, net ........................................................................ 2,374 2,51 3,096
--------- ------- ---------
Total ............................................................................... $ (30,711) $(44,99) $ (4,482)
========= ======= =========
Supplemental Disclosures of Cash Flows Information
Cash paid during the year for
Interest (net of amount capitalized) .............................................. $ 19,455 $ 18,725 $ 20,905
Income taxes ...................................................................... $ 6,734 $ 9,930 $ 2,710
Non-cash investing and financing activities
Note receivable converted to oil and gas properties ............................... - - $ 830
========= ======== =========
(A) Restated to reflect the change in accounting principle by NJR Energy for
its oil and gas operations to the successful efforts method from the full
cost method. The accompanying notes are an integral part of these
statements.
31
Consolidated Balance Sheets New Jersey Resources Corporation
(Thousands)
September 30, 1994 1993(A)
- - ------------------------------------------------------------------------------------------------------------------------------------
Assets
Property, Plant and Equipment
Utility plant, at original cost ................................................................. $691,757 $ 637,580
Real estate properties, at cost ................................................................. 104,309 102,369
Oil and gas properties .......................................................................... 63,224 64,576
859,290 804,525
Accumulated depreciation and amortization ......................................................... (218,913) (198,875)
-------- ---------
Property, plant and equipment, net ................................................................ 640,377 605,650
-------- ---------
Current Assets
Cash and temporary investments .................................................................. 1,951 1,555
Customer accounts receivable .................................................................... 18,805 16,719
Unbilled revenues ............................................................................... 9,136 10,037
Allowance for doubtful accounts ................................................................. (657) (684)
Gas in storage, at average cost ................................................................. 33,483 37,282
Materials and supplies, at average cost ......................................................... 7,143 7,091
Prepaid state taxes ............................................................................. 11,077 -
Deferred gas costs .............................................................................. 16,008 22,891
Other ........................................................................................... 6,285 6,250
-------- ---------
Total current assets .............................................................................. 103,231 101,141
-------- ---------
Deferred Charges and Other ........................................................................ 53,739 31,871
-------- ---------
Total Assets ...................................................................................... $797,347 $ 738,662
======== =========
Capitalization and Liabilities
Capitalization
Common stock equity ............................................................................. $250,163 $ 230,313
Redeemable preferred stock ...................................................................... 22,070 22,340
Long-term debt .................................................................................. 323,590 310,996
-------- ---------
Total capitalization ............................................................................ 595,823 563,649
-------- ---------
Current Liabilities
Current maturities of long-term debt ............................................................ 4,315 4,650
Short-term debt ................................................................................. 42,000 20,900
Purchased gas ................................................................................... 14,950 24,815
Accounts payable and other ...................................................................... 36,163 33,571
Accrued taxes ................................................................................... 3,130 11,246
Customers' credit balances and deposits ......................................................... 14,480 11,639
-------- ---------
Total current liabilities ......................................................................... 115,038 106,821
-------- ---------
Deferred Credits
Deferred income taxes ........................................................................... 52,698 39,344
Deferred investment tax credits ................................................................. 12,025 12,419
Other ........................................................................................... 21,763 16,429
-------- ---------
Total deferred credits ............................................................................ 86,486 68,192
-------- ---------
Commitments and Contingent Liabilities (Note 9)
Total Capitalization and Liabilities .............................................................. $797,347 $ 738,662
======== =========
(A) Restated to reflect the change in accounting principle by NJR Energy for
its oil and gas operations to the successful efforts method from the full
cost method. The accompanying notes are an integral part of these
statements.
32
Consolidated Statements of Capitalization New Jersey Resources Corporation
(Thousands)
September 30, 1994 1993(A)
- - ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equity
Common stock, $2.50 par value; authorized 25,000,000 shares;
outstanding shares 1994, 17,302,584; 1993, 16,819,826 $ 43,256 $ 42,050
Premium on common stock 193,914 182,996
Term loan of Employee Stock Ownership Plan and other - (750
Retained earnings 12,993 6,017
-------- --------
Total common stock equity 250,163 230,313
-------- --------
Redeemable Preferred Stock
New Jersey Natural Gas Company
$100 par value, cumulative; authorized shares
1994, 530,700; 1993, 533,400; outstanding shares
4-3/4% series - 1994, 9,500; 1993, 11,000 950 1,100
5.65% series - 1994, 11,200; 1993, 12,400 1,120 1,240
7.72% series - 1994 and 1993, 200,000 20,000 20,000
-------- --------
Total redeemable preferred stock 22,070 22,340
-------- --------
Long-Term Debt
New Jersey Natural Gas Company
First Mortgage Bonds Maturity date
10-1/2% Series L August 1, 2014 - 10,500
10.85% Series M September 1, 2000 6,000 7,200
10% Series N May 1, 2001 6,000 7,000
8.5% Series P March 1, 2002 9,545 10,908
9% Series Q December 1, 2017 13,500 13,500
8-1/2% Series R June 1, 2018 25,000 25,000
10.10% Series S June 1, 2009 20,000 20,000
7.05% Series T March 1, 2016 9,545 9,545
7.25% Series U March 1, 2021 15,000 11,000
7.50% Series V December 1, 2002 25,000 25,000
5-3/8% Series W August 1, 2023 10,300 10,300
6.27% Series X November 1, 2008 30,000 -
6.25% Series Y August 1, 2024 10,500 -
Short-term debt refinanced 25,000 34,000
Capital lease obligations - 77
-------- --------
Total 205,390 184,030
-------- --------
New Jersey Resources Corporation
Revolving Credit Agreements, at floating rates October 1, 1995-October 1, 1996 118,200 126,292
7.9% Term loan of Employee Stock Ownership Plan May 1, 1995 - 674
-------- --------
Total 118,200 126,966
-------- --------
Total long-term debt 323,590 310,996
-------- --------
Total Capitalization $595,823 $563,649
======== ========
(A) Restated to reflect the change in accounting principle by NJR Energy for
its oil and gas operations to the successful efforts method from the full
cost method. The accompanying notes are an integral part of these
statements.
33
New Jersey Resources Corporation
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation The Consolidated Financial Statements include the
accounts of New Jersey Resources Corporation (the Company) and its subsidiaries
- - --New Jersey Natural Gas Company (NJNG) and Paradigm Resources Corporation
(PRC). Commercial Realty & Resources Corp. (CR&R), NJR Energy Corporation (NJR
Energy) and Paradigm Power, Inc. (PPI) are wholly owned subsidiaries of PRC.
Significant intercompany accounts and transactions have been eliminated.
Regulatory Accounting The Company'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 (the BPU). As a result of the ratemaking
process, the accounting principles applied by NJNG differ in certain respects
from those applied by nonregulated businesses.
Utility Plant and Depreciation Depreciation is computed on a straight-line basis
for financial statement purposes, using rates based on the estimated average
lives of the various classes of depreciable property. The composite rate of
depreciation was 3% of average depreciable property in 1994, 3.27% in 1993 and
3.24% in 1992. When depreciable properties are retired, the original cost
thereof, plus cost of removal less salvage, is charged to accumulated
depreciation.
Oil and Natural Gas Properties As disclosed on Form 10-K/A, filed in April 1994,
NJR Energy changed the method of accounting for its oil and gas operations to
the successful efforts method from the full cost method.
Under the successful efforts method of accounting, proved leasehold costs are
capitalized and amortized over the proved developed and undeveloped reserves on
a units-of-production basis. Successful drilling costs and developmental dry
holes are capitalized and amortized over the proved developed reserves on a
units-of-production basis. Unproved leasehold costs are capitalized and are not
amortized, pending an evaluation of their exploration potential. Unproved
leasehold costs are assessed periodically to determine if an impairment of the
cost of significant individual properties has occurred. The cost of an
impairment is charged to expense in the period in which it occurs. Costs
incurred for exploratory dry holes, geological and geophysical work and delay
rentals are charged to expense as incurred.
The Consolidated Balance Sheets as of September 30, 1993 and 1992, and the
related Consolidated Statements of Income, Common Stock Equity and Cash Flows
for each of the two years in the period ended September 30, 1993 and related
notes to the Consolidated Financial Statements have been restated to show the
effects of NJR Energy's change in accounting principle for its oil and gas
properties to the successful efforts method of accounting from the full cost
method. The change to the successful efforts method of accounting resulted in a
decrease of $17.2 million and $15.9 million in retained earnings as of September
30, 1993 and 1992, respectively, by restating previously issued financial
statements. The effect of this change was to decrease previously reported net
income and earnings per share of common stock by the following amounts:
(Thousands, except per share data) 1993 1992
- - --------------------------------------------------------------------------------
Net income, as previously reported $ 28,497 $ 23,459
Effect of change in accounting (1,335) (1,212)
-------- --------
Net income, as restated $ 27,162 $ 22,247
======== ========
Earnings per common share,
as previously reported $ 1.72 $ 1.64
Effect of change in accounting (.08) (.09)
-------- --------
Earnings per common share, as restated $ 1.64 $ 1.55
======== ========
Utility Revenues Customers are billed through monthly cycle billings on the
basis of one month's actual or estimated usage. Revenues are based upon service
rendered.
Gas Purchases NJNG's tariff includes a Levelized Gas Adjustment (LGA) clause,
which is normally revised on an annual basis. Under this clause, NJNG projects
its cost of gas, net of supplier refunds and credits from non-firm sales and
transportation activities, over the subsequent 12 months and recovers the
excess, if any, of such projected costs over those included in its base rates
through monthly levelized charges to customers. Any under-or over-recoveries are
deferred and reflected in the LGA clause in the subsequent year.
Gross Receipts Tax, Etc. Gross receipts tax, etc. consists principally of New
Jersey gross receipts and franchise taxes (GRFT), which are eventually paid to
the municipalities in which NJNG has utility plant facilities, and a surtax paid
to the state. These taxes are calculated on a per-therm basis and are paid in
lieu of personal property and state income taxes. Such amounts represent
approximately 90% of the Gross receipts tax, etc. figures.
Federal Income Taxes Through September 30, 1993, deferred federal income taxes
were provided for timing differences between book and taxable income, except
that NJNG provided such taxes only to the extent permitted for ratemaking
purposes. Effective October 1, 1993, deferred federal income taxes are
calculated in conformance with Statement of Financial Accounting Standards
(SFAS) No. 109, (See Note 6: Federal Income Taxes).
Investment tax credits have been deferred and are being amortized as a
reduction to the tax provision over the average lives of the related property.
34
New Jersey Resources Corporation
Capitalized Interest The Company's capitalized interest totaled $2.6 million in
1994, $3.2 million in 1993 and $3.3 million in 1992.
Deferred Charges Included in Deferred Charges and Other is $8 million related to
items that are being amortized through rates over remaining time periods ranging
from 1 to 9 years. No return is being earned on the unamortized balance. See
Note 9: Commitments and Contingent Liabilities for a discussion of manufactured
gas plant (MGP) remediation costs.
Statements of Cash Flows For purposes of reporting cash flows, all temporary
investments with maturities of three months or less are considered cash
equivalents.
New Accounting Standards See Note 6: Federal Income Taxes and Note 8: Employee
Benefit Plans for a discussion of the impact of SFAS No. 109, "Accounting for
Income Taxes" and SFAS 106, "Employees Accounting for Postretirement Benefits
Other Than Pensions", respectively, both of which were adopted by the Company
effective October 1, 1993.
2. Common Stock
At September 30, 1994, there were 517,033 shares reserved for issuance under the
Company's Dividend Reinvestment and Customer Stock Purchase, Employee Stock
Ownership and Retirement Savings Plans.
In January 1994, shareholders approved an amendment to the Executive
Long-Term Incentive Compensation Plan (the Plan) increasing the number of shares
reserved for issuance to key employees at the discretion of the Board of
Directors from 250,000 to 750,000. In 1994, a total of 1,209 shares were issued
and, at September 30, 1994, there were 584,120 shares reserved for issuance or
grant under the plan. All options granted under the Plan have been non-qualified
stock options, allow for the purchase of common stock at prices equal to the
average market value for the 20 trading days preceding the date of grant, vest
over four years and must be exercised within ten years.
The following table summarizes the stock option activity for the past three
years:
Shares Price Range
- - --------------------------------------------------------------
Outstanding at
September 30, 1991 and 1992 23,672 $ 19.01
Granted 67,264 $ 22.25
--------- --------------------
Outstanding at
September 30, 1993 90,936 $ 19.01 - $ 22.25
Granted 57,222 $ 6.00
Exercised (1,220 $ 22.25
Forfeited (8,449 $ 22.25 - $ 26.00
--------- --------------------
Outstanding at
September 30, 1994 138,489 $ 19.01 - $ 26.00
========= ====================
Exercisable at
September 30, 1994 32,804 $ 19.01 - $ 22.25
========= ====================
3. Redeemable Preferred Stock
Under the terms of its preferred stock agreements, NJNG purchases 1,500 shares
of the 4-3/4% series and 1,200 shares of the 5.65% series annually, at par plus
accumulated dividends. Both series are redeemable at NJNG's option for $102 per
share plus accumulated dividends at any time. The 7.72% series is subject to
mandatory redemption in 2001 and optional redemption from 1998 to 2000 at prices
declining from $101.72 to $100 per share plus accumulated dividends.
Preferred stockholders are entitled to one vote per share on all NJNG matters
and have priority as to dividends. The agreements prohibit the distribution of
common stock dividends unless NJNG is in compliance with all their provisions.
In addition, whenever preferred dividends are in arrears in an amount equal to
four quarterly dividends, preferred stockholders may elect a number of directors
necessary to constitute one less than a majority of NJNG's Board of Directors,
until such dividends are paid in full.
The Company has 200,000 shares of authorized and unissued $100 par value
preferred stock.
4. Long-Term Debt, Dividends and Retained Earnings Restrictions
Annual redemption requirements for the next five years are as follows: 1995,
$4.3 million; 1996, $91.8 million; 1997, $33.6 million; 1998, $3.6 million and
1999, $5.4 million.
NJNG's mortgage secures its first mortgage bonds and represents a lien on
substantially all its property, including gas supply contracts. Certain
indentures supplemental to the mortgage include restrictions as to cash
dividends and other distributions on NJNG's common stock, which restrictions
apply so long as certain series of first mortgage bonds are outstanding. Under
the most restrictive provision, approximately $19.9 million of NJNG's retained
earnings was available at September 30, 1994.
In March 1994, under its loan agreement with the New Jersey Economic
Development Authority (the Authority), NJNG received the final $4 million of the
proceeds from the Authority's 7.25% Series 1991B Bonds and issued a like amount
of its 7.25% Series U Bonds. In March 1991, NJNG entered into a loan agreement
with the Authority under which the Authority issued $15 million of its 7.25%
Series 1991B Bonds due March 2021 and deposited the proceeds into a construction
fund with an indenture trustee. NJNG issues first mortgage bonds, with interest
rates and maturity dates matching those of the revenue bonds, as it receives
funds from the indenture trustee in reimbursement of qualified expenditures up
to the principal amount of the bonds issued by the Authority. Any remaining
balance in the construction fund, together with the first mortgage bonds issued
by NJNG, are held by the indenture trustee as security for the Authority's
revenue bonds. NJNG is obligated at all times to secure all payments on the
Authority's revenue bonds.
35
New Jersey Resources Corporation
In September 1994, NJNG entered into a loan agreement with the Authority under
which the Authority issued $10.5 million of its 6.25% Series 1994A Bonds due
2024 and NJNG issued a like amount of its 6.25% Series Y First Mortgage Bonds.
NJNG used the proceeds from its Series Y Bonds to redeem the $10.5 million, 10
1/2% Series L Bonds due 2014.
In October 1993, NJNG received approval from the BPU to issue up to $75
million of First Mortgage Bonds under a Medium-Term Note (MTN) Program. In
November 1993, NJNG issued $30 million of its 6.27% Series X First Mortgage
Bonds due 2008 under the MTN Program. In October 1994, NJNG issued $25 million
of its 8.25% Series Z First Mortgage Bonds due 2004 under the MTN Program and
used the proceeds to reduce its outstanding short-term debt. Accordingly, at
September 30, 1994, $25 million of short-term debt has been reclassified as
long-term debt for financial reporting purposes.
In October 1993, CR&R used proceeds from floating rate bank loans obtained by
the Company under its revolving credit facilities to optionally redeem the
remaining $13.8 million outstanding principal amount of its 11 5/8% mortgage.
At September 30, 1994, the Company had seven committed revolving credit
agreements totaling $145 million which provide for bank loans at negotiable
rates at or below the prime rate. At September 30, 1994, a total of $118.2
million was outstanding under these agreements of which $88.2 million matures in
1996 and $30 million matures in 1997.
The Company has entered into two interest rate swap agreements, having an
aggregate notional amount of $45 million, to eliminate the impact of changes in
interest rates on a portion of its floating rate long-term debt. These
agreements effectively fix the Company's interest rate on $30 million of its
floating rate revolving credit facilities at 9% through 1996, and on $15 million
of its floating rate revolving credit facilities at 9.5% through 1999. In the
event of nonperformance by the counterparties, the Company's interest cost on
the $45 million of long-term debt would revert to a floating rate based on a
three- or six-month LIBOR. However, the Company does not anticipate
nonperformance by the counterparties. The differential to be paid or received is
accrued as interest rates change and is recognized over the life of the interest
rate swap agreements.
The Company's remaining long-term debt outstanding under revolving credit
agreements at September 30, 1994 and 1993 totaled $73.2 million and $67.5
million, with a weighted average interest rate of 5.3% and 3.7%, respectively.
SFAS 107, "Fair Value of Financial Instruments", requires disclosure of the
estimated fair value of an entity's financial instrument assets and liabilities.
The fair value of cash and temporary investments, accounts receivable, accounts
payable, commercial paper and borrowings under revolving credit facilities are
estimated to equal their carrying amounts due to the short maturity of those
instruments. The estimated fair value of long-term debt is based on quoted
market prices for similar issues and the fair value of interest rate swap
agreements is based on the estimated amount the Company would receive or pay to
terminate the agreements. At September 30, 1994, the carrying amount of
long-term debt was $303 million with a fair market value of $304 million and the
Company would have to pay approximately $1.2 million to terminate its interest
rate swap agreements.
5. Short-Term Debt and Credit Facilities
Committed credit facilities of NJNG support the issuance of commercial paper and
provide for bank loans at negotiable rates at or below the prime rate. These
credit facilities total $71 million, and require commitment fees on the unused
amounts. In addition, the Company has $10 million and NJNG has $15 million in
lines of credit that are available on an offering basis without payment of a
commitment fee. NJNG's lines of credit are adjusted quarterly based upon its
projected cash needs.
A comparison of pertinent data follows:
(Thousands) 1994 1993 1992
- - --------------------------------------------------------------
Bank credit facilities $ 71,000 $ 71,000 $ 65,000
Maximum amount outstanding $ 74,000 $ 56,600 $ 49,200
Average daily amount outstanding
Notes payable to banks $ 9,200 $ 3,900 $ 2,700
Commercial paper $ 30,300 $ 7,900 $ 17,000
Weighted average interest rate
Notes payable to banks 4.00 3.34 4.75
Commercial paper 3.88% 3.24% 4.61%
Amount outstanding at year end
Notes payable to banks $ 5,000 $ 5,000 -
Commercial paper $ 62,000 $ 49,900 -
Interest rate at year end
Notes payable to banks 4.88% 3.22% -
Commercial paper 4.93% 3.22% -
======== ======== =======
6. Federal Income Taxes
The Company's federal income tax returns have been examined by the Internal
Revenue Service (IRS) through 1991 and all significant matters have been
settled.
Effective October 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes" which requires the implementation of a liability method for the
financial reporting of income taxes, as compared with the deferred method. Under
the liability method, deferred tax balances must be recorded for all temporary
differences and are adjusted to reflect changes in tax rates. Previously,
deferred tax balances were not recorded for certain ratemaking items and were
not adjusted to reflect changes in tax rates. The cumulative effect of adopting
SFAS 109 on the Company's nonregulated operations was a credit to net income of
$721,000, or $.04 per
36
New Jersey Resources Corporation
share. The effect on NJNG was to decrease its deferred tax liability by $375,000
with an offsetting regulatory liability as the Company believes it is probable
that the effects of SFAS 109 on NJNG will be payable to customers in the future.
Federal income tax expense applicable to current operations differs from the
amount computed by applying the statutory rate to pre-tax income as follows:
(Thousands) 1994 1993 1992
- - --------------------------------------------------------------------------------
Tax expense at statutory rate (35% in 1994,
34.75% in 1993 and 34% in 1992) $17,490 $14,394 $12,247
Increase (reduction) resulting from
Depreciation and cost of removal (1,032) (234) 145
Amortization of investment tax credits (394) (411) (427)
Section 29 tax credits (398) (616) (110)
Other 372 (829) (667)
------- ------- -------
Provision for Federal income taxes $16,038 $12,304 $11,188
======= ======= =======
The provision for federal income taxes is composed of the following:
(Thousands) 1994 1993 1992
- - --------------------------------------------------------------------------------
Current $ 7,610 $ 7,685 $ 2,153
------- ------- -------
Deferred
Excess tax depreciation 5,723 5,405 6,026
Gross receipts and franchise taxes (3,580) (3,555) 6,956
Alternative minimum tax 1,057 (367) (1,371)
Contributions 1,943 (1,593) 38
Deferred gas costs 2,322 6,645 (2,253)
Installment sale 1,327 - -
Deferred charges and other 30 (1,505) 66
------- ------- -------
Total deferred 8,822 5,030 9,462
------- ------- -------
Amortization of investment
tax credits (394) (411) (427)
------- ------- -------
Total provision $16,038 $12,304 $11,188
======= ======= =======
Charged to: Operating expenses $14,851 $11,957 $10,841
Other income, net 1,187 347 347
------- ------- -------
Total provision $16,038 $12,304 $11,188
======= ======= =======
At September 30, 1994, the Company had an alternative minimum tax (AMT) credit
of $6.8 million available for an indefinite carryforward period against future
federal income taxes payable to the extent that regular federal income taxes
payable exceeds AMT payable.
The tax effects of significant temporary differences comprising the
Company's net deferred income tax liability at September 30, 1994 and 1993, were
as follows:
(Thousands) 1994 1993
- - -------------------------------------------------------------------------------
Current (assets) liabilities
Deferred gas costs $ 5,603 $ 7,853
Gross receipts and franchise taxes - 3,580
Other (1,598) (1,799)
------- -------
Current deferred tax liability, net $ 4,005 $ 9,634
======= =======
Non-current (assets) liabilities
Property-related items $65,708 $55,526
Installment sale 1,327 -
Customer contributions (4,399) (4,589)
Capitalized overhead and interest (4,400) (4,649)
Alternative minimum tax (6,825 (7,882)
Unamortized investment tax credits (4,341) -
Deferred charges and other 5,628 938
------- -------
Non-current deferred tax liability, net $52,698 $39,344
======= =======
7. Regulatory Issues
In April 1993, NJNG filed a petition with the BPU seeking additional annual
revenues of approximately $26.9 million, or 7.1%, in base rates. The filing
reflected primarily the incremental capital and operating costs associated with
NJNG's continued customer growth, general system expansion and New Jersey tax
law changes. The filing included a 12.5% return on equity and a rate base of
$541 million, compared with a 12.2% return on equity and a $389 million rate
base previously reflected in its base rates. On January 5, 1994, the BPU
approved a stipulated agreement which authorized a $7.5 million base rate
increase and included a 11.5% return on common equity and a rate base of $492
million. Also included in the stipulation was a continuation of NJNG's
margin-sharing formula for sales to JCP&L and other interruptible customers and
transportation services and, effective January 5, 1994, the margin-sharing
formula for off-system sales and capacity release was established to credit 80%
to firm customers and 20% to be retained by NJNG.
In May 1993, NJNG filed an incentive-ratemaking petition with the BPU which
was designed to avoid the need for frequent base rate filings while improving
overall service to its customers. It included measurable benchmarks in areas
such as construction costs, operation and maintenance expenses, gas purchases
and customer service. In connection with the January 1994 base rate case
stipulation, NJNG withdrew its incentive-ratemaking petition.
37
New Jersey Resources Corporation
In July 1993, NJNG filed a petition with the BPU to increase its annual LGA
revenues by $4.8 million, or 1.3%, reflecting primarily higher-than-expected
natural gas prices. In November 1993, the BPU approved the $4.8 million increase
effective December 1, 1993, which included recovery of NJNG's share of
transition costs paid through September 1993 associated with interstate natural
gas pipelines complying with Order 636, over two years.
In July 1994, NJNG filed a petition with the BPU to increase its annual LGA
revenues by $8.8 million, or 2%, reflecting primarily additional transition
costs and costs associated with demand side management programs. A decision is
expected in the first quarter of fiscal 1995. NJNG has incurred a total of $19.1
million of transition costs through September 30, 1994, of which $11.6 million
is being recovered over a two-year period pursuant to NJNG's November 1993 LGA
order. As a result of these and other gas costs expected to be recovered in
excess of one year, $13.5 million of deferred gas costs has been classified as
Deferred Charges and Other in the Consolidated Balance Sheet at September 30,
1994.
In October 1994, the BPU approved a $2.7 million credit to customers,
reflecting the second year's results of its weather-normalization clause and the
continuation of the clause on an interim basis pending a final BPU order. The
weather-normalization clause provides for a revenue adjustment if the weather
varies by more than one-half of one percent from the 10-year average, or normal,
weather. The accumulated adjustment from one heating season (i.e., October
April) is billed or credited to customers in the subsequent heating season. The
weather in 1994 was 2% colder than normal. At September 30, 1994, the $2.7
million credit is included in Customers' credit balances and deposits in the
Consolidated Balance Sheet. During 1994, $1.5 million was credited to customers
representing the fiscal 1993 weather-normalization adjustment.
8. Employee Benefit Plans
Pension Plans The Company has two trusteed, noncontributory defined benefit
retirement plans covering all regular, full-time employees with more than one
year of service. Plan benefits are based on years of service and average
compensation during the last five years of employment. The Company makes annual
contributions to the plans consistent with the funding requirements of federal
law and regulations.
The components of the net pension cost are as follows:
(Thousands) 1994 1993 1992
- - --------------------------------------------------------------------------------
Service cost - benefits earned
during the period $1,733 $1,550 $1,440
Interest cost on projected
benefit obligation 2,812 2,662 2,441
Return on plan assets (3,160) (2,910) (2,711)
Net amortization and deferral (159) (183) (229)
------ ------ ------
Net cost $1,226 $1,119 $ 941
====== ====== ======
Plan assets consist primarily of corporate equities and obligations, U.S.
Government obligations and cash equivalents. A reconciliation of the funded
status of the plans to the amounts recognized in the Consolidated Balance Sheets
is presented below:
(Thousands) 1994 1993
- - --------------------------------------------------------------------------------
Plan assets at fair value $37,070 $37,747
------- -------
Actuarial present value of plan benefits
Vested benefits 25,060 26,202
Non vested benefits 1,565 1,724
Impact of estimated future
compensation changes 8,850 10,618
------- -------
Projected plan benefits 35,475 38,544
------- -------
Plan assets in excess of projected
plan benefits 1,595 (797)
Unrecognized net assets at
beginning of the year (2,975) (3,282)
Unrecognized prior service costs 1,733 1,478
Unrecognized net (gain) loss (1,655) 2,064
------- -------
Net pension liability recognized in the
Consolidated Balance Sheets $(1,302) $ (537)
======= =======
The assumptions used in determining the actuarial present value of the projected
benefit obligation were as follows:
1994 1993
- - --------------------------------------------------------------------------------
Discount rate 8.5% 7.5%
Compensation increase 5.0% 5.0%
Long-term rate of return on plan assets 9.0% 9.0%
=== ===
Employee Stock Ownership Plan The Company established an Employee Stock
Ownership Plan (ESOP) in September 1985 that purchased 488,376 shares of common
stock for allocation to employees over a 10-year period. To finance this
purchase, the trustee of the ESOP borrowed $6.7 million through a 10-year term
loan that is secured by the unallocated shares and guaranteed by the Company.
The Company accrued $659,000 in 1994, $648,000 in 1993 and $578,000 in 1992 for
contribution to the ESOP.
Other Postretirement Benefits Effective October 1, 1993, the Company adopted
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS 106). SFAS 106 requires an accrual method of accounting for
postretirement benefits, similar to that presently in effect for pension
plans.
38
New Jersey Resources Corporation
Previously, certain health care and life insurance benefits were charged
to expense when paid. Under the accrual method, the cost of providing
postretirement benefits will be recognized over the employee's service period.
The Company's transition obligation associated with SFAS 106 is $8.6 million,
which is being amortized over 20 years, and its annual expense has increased
from approximately $400,000 to $1.5 million, of which over 95% relates to NJNG.
As part of its January 1994 base rate order, NJNG is permitted to recover
approximately 50% of its SFAS 106 expense currently and defer the balance with
ultimate recovery of the deferred portion no later than that prescribed by
generally accepted accounting principles. At September 30, 1994, $766,000 of
SFAS 106 expenses were deferred and are included in Deferred Charges and Other
in the Consolidated Balance Sheet.
The components of the accumulated postretirement benefit obligation (APBO) as of
September 30, 1994 and October 1, 1993 are as follows:
(Thousands) September 30, 1994 October 1, 1993
- - --------------------------------------------------------------------------------
Retirees $(1,459) $(1,648)
Fully eligible participants (2,707) (2,648)
Other active participants (4,815) (4,304)
------- -------
Total APBO (8,981) (8,600)
Plan assets 177 -
Unrecognized net gain (170) -
Unrecognized transition obligation 8,170 8,600
------- -------
Net liability recognized in the
Consolidated Balance Sheets $ (804) $ -
======= =======
The annual net postretirement benefit cost, effective with the January 1994 base
rate order, is comprised of the following:
(Thousands)
- - --------------------------------------------------------------------------------
Service Cost $369
Interest Cost 678
Amortization of transition obligation 430
Deferral of current expense (708)
----
Total annual net expense $769
====
The assumed health care cost trend rate used in measuring the APBO as of
September 30, 1994 was 13% in 1995 declining 1% each year to 7% in 1999 and then
remaining constant at 6.5% in 2000 and thereafter for participants under age 65.
For participants age 65 and older the trend rate was 10% in 1995 declining 1%
each year to 7% in 1996 and then remaining constant at 6.5% in 1997 and
thereafter. A 1% increase in the trend rates would increase the APBO as of
September 30, 1994 by $1.4 million and would increase the annual service and
interest costs by $200,000. The assumed discount rate used in determining the
APBO was 8% at October 1, 1993 and 8.5% at September 30, 1994.
9. Commitments and Contingent Liabilities
Capital expenditures are estimated at $68 million and $59 million in fiscal 1995
and 1996, respectively, and primarily consist of NJNG's construction program to
support its customer growth and maintain its distribution system. Over the next
two years, the Company's non-utility capital expenditures are expected to be
focused on investment opportunities designed to capitalize on the post-Order 636
investment environment such as gas gathering, storage and marketing, as well as
development costs and equity investments in natural gas-fired cogeneration
plants. Real estate capital expenditures will be limited to the fit-up of
existing tenant space, the development of existing acreage and additional
investments, approved by the Board of Directors, made for the purpose of
preserving the value of particular real estate holdings.
NJNG is participating in environmental investigations and the preparation
of proposals for remedial action at 11 former manufactured gas plants (MGP)
sites. Through a remediation rider which was approved in its June 1992 base rate
order, NJNG is recovering $3 million of expenditures incurred through June 1993
over a seven-year period. Additional costs of $2.7 million have been incurred
through June 1994, which are also expected to be recovered over seven years,
subject to BPU approval. At September 30, 1994, NJNG estimates that it will
incur additional expenditures of approximately $14 million over the next five
years for further investigation and remedial action at these sites. Accordingly,
this amount is reflected in both Deferred Charges and Other and Other Deferred
Credits in the Consolidated Balance Sheets.
In March 1992, NJR Energy and the Company entered into long-term,
fixed-price contracts to sell natural gas to a gas marketing company. In
conjunction with the shift in capital allocation policy as discussed in
Management's Discussion and Analysis, NJR Energy entered into a swap agreement
in October 1994 which hedges its risk for sales volumes under the contract which
are in excess of the estimated production from existing reserves. Under the swap
agreement, commencing in November 1995 until the expiration of the contract, NJR
Energy will pay to the counterparty the identical fixed price it receives from
the gas marketing company in exchange for the payment by the counterparty of an
index price plus a spread per mmbtu for the excess volumes. The respective
obligations of NJR Energy and counterparty under the swap agreement are
guaranteed, subject to a maximum amount, by the Company and counterparty's
parent corporation, respectively. In the event of nonperformance by the
counterparty and its parent corporation, NJR Energy's revenues would be impacted
by the difference between the fixed price it is receiving under the gas contract
compared with the price of natural gas in the spot market for the volumes it
does not produce. However, the Company does not anticipate nonperformance by the
counterparty.
39
New Jersey Resources Corporation
NJNR Pipeline Company, a wholly owned subsidiary of NJR Energy, owns a 2.8%
equity interest in the Iroquois Gas Transmission System, L.P. (Iroquois) which
has constructed and is operating a 375-mile, natural gas pipeline from the
Canadian border to Long Island. The Company has guaranteed a pro-rata share of a
debt service letter of credit obtained by Iroquois which totalled $1 million at
September 30, 1994. The Company does not expect to incur any cash requirements
under the guarantee.
The Company is party to various claims, legal actions and complaints arising
in the ordinary course of business. In management's opinion, the ultimate
disposition of these matters will not have a material adverse effect on either
its financial condition or results of operations.
10. Business Segment Data
Information related to the Company's various business segments, excluding
capital expenditures, which are presented in the Consolidated Statements of Cash
Flows, is detailed below:
(Thousands) 1994 1993 1992
- - --------------------------------------------------------------------------------
Operating revenues
Natural gas distribution $480,321 $436,587 $383,103
Real estate 12,466 12,554 12,530
Oil and gas 9,440 9,018 9,060
-------- -------- --------
Total before eliminations 502,227 458,159 404,693
Eliminations (intersegment revenues) (3,478) (3,413) (3,955)
-------- -------- --------
Total $498,749 $454,746 $400,738
======== ======== ========
Depreciation and amortization
Natural gas distribution $ 19,270 $ 19,070 $ 17,602
Real estate 1,941 1,924 1,834
Oil and gas 6,234 4,202 4,272
PPI and other 150 209 210
-------- -------- --------
Total $ 27,595 $ 25,405 $ 23,918
======== ======== ========
Operating income before income taxes
Natural gas distribution $ 65,663 $ 56,773 $ 51,384
Real estate 5,426 5,976 6,187
Oil and gas (2,335) (1,871) (1,509)
PPI and other 28 (21) 323
-------- -------- --------
Total $ 68,782 $ 60,857 $ 56,385
======== ======== ========
Assets at year end
Natural gas distribution $660,166 $597,508 $531,902
Real estate 94,516 94,608 93,817
Oil and gas 33,506 41,391 38,706
PPI and other 9,159 5,155 4,180
-------- -------- --------
Total $797,347 $738,662 $668,605
======== ======== ========
11. Selected Quarterly Data (Unaudited)
A summary of financial data for each fiscal quarter of 1994 and 1993 follows.
Due to the seasonal nature of the Company's utility business, quarterly amounts
vary significantly during the year. In the opinion of management, the
information furnished reflects all adjustments necessary for a fair presentation
of the results of the interim periods.
(Thousands, First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------
1994
Operating revenues $136,145 $222,784 $75,605 $64,215
Operating income 15,917 29,136 7,219 1,659
Net income before SFAS 109 10,521 23,274 3,302 (4,823)
Net income 11,242 23,274 3,302 (4,823)
Earnings per common share
before SFAS 109 .62 1.37 .19 (.28)
Earnings per common share .66 1.37 .19 (.28)
======== ======== ======= =======
1993
Operating revenues $132,647 $189,465 $75,734 $56,900
Operating income 15,445 27,759 5,912 (216)
Net income 9,740 21,973 861 (5,412)
Earnings per common share .59 1.33 .05 (.32)
======== ======== ======= =======
40
Directors and Senior Officers New Jersey Resources Corporation
New Jersey Resources Corporation
Directors
Roger E. Birk, 64 (C,E)
President (retired)
Federal National Mortgage Association (1986)
Bruce G. Coe, 64 (A,C,D,E)
President
New Jersey Business and Industry
Association (1984)
Joe B. Foster, 60 (C)
Chairman and Chief Executive Officer
Newfield Exploration Company (1994)
Warren R. Haas, 67 (B,D)
Vice President (retired)
Merrill Lynch Specialists, Inc. (1987)
Dr. Shirley A. Jackson, 48 (A,B,C,E)
Professor of Physics
Rutgers University (1982)
Dorothy K. Light, 57 (B,E)
Corporate Vice President and Secretary
The Prudential Insurance
Company of America (1990)
Donald E. O'Neill, 68 (A,D,E)
Chairman, International Division
and Executive Vice President (retired)
Warner-Lambert Company (1982)
Oliver G. Richard III, 42 (A)
Chairman of the Board and
Chief Executive Officer
New Jersey Resources Corporation (1991)
Richard S. Sambol, 68 (A,C,D)
President
Sambol Construction Corporation (1990)
Charles G. Stalon, 65 (B)
Independent Consultant
on Energy Regulation (1994)
Thomas B. Toohey, 70 (B,C)
President, Chief Operating Officer and
Chief Financial Officer (retired)
New Jersey Resources Corporation (1986)
John J. Unkles, Jr., 64 (B,D)
Managing Director (retired)
Tucker Anthony, Inc. (1982)
Duncan Thecker, 79
President
Duncan Thecker Associates
Director Emeritus (1982)
Senior Officers
Oliver G. Richard III, 42
Chairman of the Board
and Chief Executive Officer (1991)
Peter M. Schwolsky, 48
Executive Vice President, Law and
Corporate Development (1991)
Laurence M. Downes, 37
Senior Vice President
and Chief Financial Officer (1985)
Oleta J. Harden, 45
Senior Vice President and Corporate
Secretary (1984)
Glenn C. Lockwood, 33
Vice President and Controller (1988)
41
New Jersey Resources Corporation
New Jersey Natural Gas Company
Directors
Bruce G. Coe
Laurence M. Downes
Warren R. Haas
Dorothy K. Light
Donald E. O'Neill
Oliver G. Richard III
Richard S. Sambol
Peter M. Schwolsky
Senior Officers
Oliver G. Richard III, 42
President and Chief Executive Officer (1991)
Laurence M. Downes, 37
Executive Vice President, Finance (1985)
Francis X. Colford, 42
Senior Vice President,
Accounting and Financial Control (1978)
Gary A. Edinger, 44
Senior Vice President, Gas Supply (1972)
Oleta J. Harden, 45
Senior Vice President, Corporate Secretary
and General Counsel (1984)
Thomas J. Kononowitz, 52
Senior Vice President, Marketing and
Consumer Services (1963)
Carl W. Porter, 45
Senior Vice President, Operations (1992)
Hugo C. Bottino, 43
Vice President, Human Resources (1981)
Timothy C. Hearne, 38
Vice President and Treasurer (1985)
John Huff, 51
Vice President, Information Systems (1979)
David M. Klucsik, 39
Vice President, Government Affairs (1984)
Mary Ann Martin, 59
Vice President, Consumer and Community Relations (1959)
Paradigm Power, Inc.
Dr. Michael J. Gluckman, 57
President and Chief Executive Officer (1992)
Peter F. McEwan, 53
Vice President, Project Development (1993)
NJR Energy Corporation
Stephen J. Harvey, 34
President and Chief Executive Officer (1993)
Tommy L. Sprinkle, 56
Vice President, Engineering (1994)
Commercial Realty & Resources Corp.
James M. Bollerman, 40
President and Chief Executive Officer (1981)
John Lishak, Jr., 54
Senior Vice President, Marketing (1981)
Brian FitzPatrick, 39
Vice President and Treasurer (1980)
New Jersey Resources Corporation congratulates
Bruce G. Coe, NJR Director and 1994 recipient of the New Jersey Alliance for
Action President's Award. The Alliance for Action annually recognizes
individuals who make outstanding contributions to New Jersey's quality of life
and economic well-being.
(A) Member of Executive Committee
(B) Member of Audit Committee
(C) Member of Finance and Pension Investment Committee
(D) Member of Compensation and Benefits Committee
(E) Member of Nominating Committee
Date represents year of affiliation.
41--(continued)
Shareholder Information New Jersey Resources Corporation
Annual Meeting
The annual meeting of New Jersey Resources Corporation shareholders will be
held at 10:30 a.m. on Wednesday, March 8, 1995, at the Garden State Arts
Reception Center. The Garden State Arts Center is located at Exit 116 of the
Garden State Parkway in Holmdel, New Jersey.
Stock Listing
New Jersey Resources Corporation common stock is traded on the New York
Stock Exchange under the symbol NJR. The stock appears as NewJerRes or NJRsc in
the stock tables found in many daily newspapers and business publications.
Investor and Media Information
Members of the financial community who would like information about the
Company are invited to contact Timothy C. Hearne, Vice President and Treasurer,
at 908. 938. 1098, or Dennis R. Puma, Manager, Investor Relations, at 908. 938.
1229. Members of the media are invited to contact Catherine M. Downey, Manager,
Corporate Communications, at 908. 938. 7866.
Employee Environmental Committee
The Company has a dedicated Employee Environmental Committee. Many thanks
to Adele Tresten (Chairperson, 1993) and Joyce Notte (Chairperson, 1994).
Stock Transfer Agent and Registrar
The Transfer Agent and Registrar for New Jersey Resources Corporation's
common stock is The First National Bank of Boston (Bank of Boston). Shareholders
with questions about account activity such as cash contributions or stock
transfers should contact the Bank's investor relations representatives between
the hours of 8 a.m. and 7 p.m. eastern time by calling toll-free: 800. 736. 3001
or 800. 952. 9245 TTY/TDD service for the hearing impaired.
Correspondence with the Bank should be addressed to:
The First National Bank of Boston
Investor Relations
Mail Stop 45-02-09
P.O. Box 644
Boston, MA 02102 0644
Dividends
Dividends on common stock are declared quarterly by the Board of Directors.
Shareholders of record will receive their dividend checks directly from the Bank
of Boston unless they have elected to re-invest their dividends through our
Automatic Dividend Reinvestment Plan.
New Jersey Resources now offers DIRECT DEPOSIT of dividends into your bank
account so the funds are available the same day they are paid. This eliminates
the worry of lost, stolen, or mail-delayed checks. Contact the Bank of Boston at
800. 736. 3001 for details and an authorization form.
Automatic Dividend Reinvestment Plan
New Jersey Resources Corporation offers an Automatic Dividend Reinvestment
and Customer Stock Purchase Plan. It provides shareholders, eligible employees
of the Company and residential customers of New Jersey Natural Gas Company and
their eligible family members the convenient opportunity to reinvest their
common stock dividends, plus an additional amount not exceeding $30,000 per
year, in additional common stock without payment of any brokerage or other fees.
Highlights of the Plan include:
* No fee to join the Plan.
* Cash contributions of as little as $25, to a maximum of $30,000
annually.
* Investments of cash contributions are made on the first and fifteenth
day of each month. A "safekeeping" feature which allows shareholders
to have the Bank of Boston hold their certificates.
Details are contained in the Plan prospectus, which may be obtained from the
Bank of Boston or from the Investor Relations Department, New Jersey Resources
Corporation, 1415 Wyckoff Road, P.O. Box 1468, Wall, New Jersey 07719. The
telephone number is 908.938.1230.
Non-customer authorization forms to join the Plan must be obtained from the
Bank of Boston. Customers of New Jersey Natural Gas Company desiring to join the
Plan must obtain authorization forms directly from the Company at the address
and/or telephone number above.
10-K Annual Report
New Jersey Resources Corporation files its annual report on Form 10-K with the
Securities and Exchange Commission. The report is available to shareholders upon
written request to the Investor Relations Department, New Jersey Resources
Corporation, 1415 Wyckoff Road, P.O. Box 1468, Wall, New Jersey 07719.
This annual report was printed on recycled paper.
42