SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995 Commission file number 1-8359
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2376465
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification Number)
1415 Wyckoff Road, Wall, New Jersey--07719 908-938-1480
(Address of principal Registrant's telephone number,
executive offices) including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
YES: X No:
The number of shares outstanding of $2.50 par value Common Stock as of May 1,
1995, was 17,667,316.
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
-------- -------- -------- --------
(Thousands, except per share data)
OPERATING REVENUES.................................................... $194,331 $223,342 $324,276 $359,870
-------- -------- -------- --------
OPERATING EXPENSES
Gas purchases....................................................... 105,375 130,447 175,469 208,433
Operation and maintenance........................................... 15,947 18,690 32,144 34,384
Depreciation and amortization....................................... 6,801 7,714 13,483 14,450
Gross receipts tax, etc............................................. 20,806 25,209 34,300 40,238
Federal income taxes................................................ 13,245 12,146 18,482 17,312
-------- -------- -------- --------
Total operating expenses.......................................... 162,174 194,206 273,878 314,817
-------- -------- -------- --------
OPERATING INCOME...................................................... 32,157 29,136 50,398 45,053
Other income (expense), net........................................... 16 97 57 (249)
Interest charges, net................................................. 6,266 5,543 12,895 10,176
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS OF SUBSIDIARY ................ 25,907 23,690 37,560 34,628
Preferred stock dividends............................................. 413 416 826 833
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES........................................................ 25,494 23,274 36,734 33,795
Cumulative effect of change in accounting for income taxes............ -- -- -- 721
-------- -------- -------- --------
NET INCOME ........................................................... $ 25,494 $ 23,274 $ 36,734 $ 34,516
======== ======== ======== ========
EARNINGS PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR INCOME TAXES............................... $1.45 $1.37 $2.10 $1.99
Cumulative effect of change in accounting for
income taxes ........................................................ -- -- -- .04
-------- -------- -------- --------
EARNINGS PER COMMON SHARE............................................. $1.45 $1.37 $2.10 $2.03
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE............................................ $.38 $.38 $.76 $.76
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING............................................ 17,550 17,034 17,485 16,973
======== ======== ======== ========
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See Notes to Consolidated Financial Statements
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
March 31,
1995 1994
-------- --------
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................................... $ 36,734 $ 34,516
Adjustments to reconcile net income to cash flows
Depreciation and amortization............................................................... 13,483 14,450
Amortization of deferred charges............................................................ 1,012 1,267
Deferred income taxes....................................................................... 936 6,746
Cumulative effect of change in accounting for income taxes.................................. -- (721)
Change in working capital................................................................... 42,276 15,277
Other, net.................................................................................. (2,043) (2,716)
-------- --------
Net cash flows from operating activities........................................................ 92,398 68,819
-------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from long-term debt.................................................................. 26,650 45,250
Proceeds from common stock.................................................................... 5,807 6,374
Payments of long-term debt and preferred stock................................................ (2,070) (15,206)
Payments of common stock dividends............................................................ (13,205) (12,828)
Net change in short-term debt................................................................. (67,000) (54,900)
-------- --------
Net cash flows used in financing activities..................................................... (49,818) (31,310)
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for
Utility plant............................................................................... (28,869) (21,321)
Real estate properties...................................................................... (1,250) (1,230)
Oil and gas properties...................................................................... (939) (1,163)
Equity investments.......................................................................... (2,397) --
Cost of removal and other................................................................... (2,339) (1,339)
-------- --------
Net cash flows used in investing activities..................................................... (35,794) (25,053)
-------- --------
Net change in cash and temporary investments.................................................... 6,786 12,456
Cash and temporary investments at September 30.................................................. 1,951 1,555
-------- --------
Cash and temporary investments at March 31...................................................... $ 8,737 $ 14,011
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables................................................................................... $(60,259) $(74,701)
Inventories................................................................................... 23,504 29,249
Deferred gas costs............................................................................ 36,523 19,933
Purchased gas................................................................................. 11,168 2,607
Accrued taxes................................................................................. 45,884 43,788
Customers' credit balances and deposits....................................................... (8,998) 196
Other, net.................................................................................... (5,546) (5,795)
-------- --------
Total........................................................................................... $ 42,276 $ 15,277
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized)......................................................... $ 12,982 $ 8,950
Income taxes.................................................................................. $ 4,523 $ 4,101
See Notes to Consolidated Financial Statements
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NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, September 30, March 31,
1995 1994 1994
(unaudited) (unaudited)
----------- ------------- -----------
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant....................................... $719,402 $691,757 $659,359
Real estate properties.............................. 105,561 104,309 103,599
Oil and gas properties.............................. 64,045 63,224 65,718
-------- -------- --------
889,008 859,290 828,676
Accumulated depreciation and amortization........... (229,521) (218,913) (211,428)
-------- -------- --------
Property, plant and equipment, net................. 659,487 640,377 617,248
-------- -------- --------
CURRENT ASSETS
Cash and temporary investments...................... 8,737 1,951 14,011
Customer accounts receivable........................ 66,728 18,805 79,754
Unbilled revenues................................... 22,166 9,136 22,805
Allowance for doubtful accounts..................... (1,306) (657) (1,808)
Gas in storage, at average cost..................... 10,652 33,483 7,314
Materials and supplies, at average cost............. 6,470 7,143 7,810
Deferred gas costs.................................. -- 16,008 --
Prepaid state taxes................................. -- 11,077 --
Other............................................... 5,795 6,285 6,951
-------- -------- --------
Total current assets............................... 119,242 103,231 136,837
-------- -------- --------
DEFERRED CHARGES AND OTHER .......................... 43,798 53,739 42,479
-------- -------- --------
Total assets...................................... $822,527 $797,347 $796,564
======== ======== ========
See Notes to Consolidated Financial Statements
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NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
March 31, September 30, March 31,
1995 1994 1994
(unaudited) (unaudited)
----------- ------------- -----------
(Thousands)
CAPITALIZATION
Common stock equity............................ $279,387 $250,163 $258,360
Redeemable preferred stock..................... 21,285 22,070 22,340
Long-term debt................................. 323,877 323,590 306,964
-------- -------- --------
Total capitalization.......................... 624,549 595,823 587,664
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt........... 4,238 4,315 4,514
Short-term debt................................ -- 42,000 --
Purchased gas.................................. 26,118 14,950 27,422
Accounts payable and other..................... 30,230 36,163 28,558
Accrued taxes.................................. 37,937 3,130 55,034
Overrecovered gas costs........................ 8,081 -- 6,795
Customers' credit balances and deposits........ 5,482 14,480 11,835
-------- -------- --------
Total current liabilities.................... 112,086 115,038 134,158
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes ........................ 53,634 52,698 45,369
Deferred investment tax credits................ 11,831 12,025 12,225
Other.......................................... 20,427 21,763 17,148
-------- -------- --------
Total deferred credits........................ 85,892 86,486 74,742
-------- -------- --------
Total capitalization and liabilities....... $822,527 $797,347 $796,564
======== ======== ========
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See Notes to Consolidated Financial Statements
NEW JERSEY RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The preceding financial statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the SEC). The September 30, 1994 balance sheet data is derived from the audited
financial statements of New Jersey Resources Corporation (the Company). Although
management believes that the disclosures are adequate to make the information
presented not misleading, it is recommended that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's 1994 Annual Report on Form 10-K.
In the opinion of management, the information furnished reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the results of the interim periods. Because of the seasonal
nature of the Company's utility operations and other factors, the results of
operations for the interim periods presented are not indicative of the results
to be expected for the entire year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of 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.
3. New Accounting Standard
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), which
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing this review an undiscounted operating cash flow
before interest test is to be used and any resultant impairment required would
be measured based on the fair value of the asset. The Company is currently
evaluating the potential impact of SFAS 121, which must be adopted by fiscal
1997.
4. Income Taxes
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109)
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 share, in the first fiscal quarter of fiscal 1994. 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.
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5. Capitalized Interest
Capitalized interest and total interest charges for the six months ended
March 31, 1995 and 1994, respectively, are as follows:
Three Months Ended, Six Months Ended,
March 31, March 31,
------------------- -------------------
1995 1994 1995 1994
------- ------- ------- -------
(Thousands)
Capitalized Interest ........... $ 565 $ 741 $ 1,081 $ 1,675
====== ====== ======= =======
Total Interest Charges ......... $6,831 $6,284 $13,976 $11,851
====== ====== ======= =======
6. Legal and Regulatory Proceedings
a. Levelized Gas Adjustment Clause (LGA)
- ----------------------------------------
In December 1994, the New Jersey Board of Public Utilities (BPU) approved a
stipulated agreement which included recovery over a two-year period of all
transition costs incurred through September 1994 associated with interstate
pipelines complying with FERC Order 636. As a result of these and other gas
costs expected to be recovered in excess of one year, $1 million of deferred gas
costs has been classified as Deferred Charges and Other on the Consolidated
Balance Sheet at March 31, 1995.
The stipulation also included the continuation of NJNG's margin-sharing
formulae associated with its non-firm sales and the approval of a Financial Risk
Management Pilot Program (FRM) to provide price stability to NJNG's supply
portfolio. All of the costs and results of the FRM are to be recovered through
the LGA.
b. Weather-Normalization Clause
- -------------------------------
See Management's Discussion and Analysis of Financial Condition and Results
of Operations--Utility Operations-Residential and Commercial for a discussion of
the continuation of NJNG's weather-normalization clause.
c. Manufactured Gas Plant (MGP) Sites
- -------------------------------------
NJNG has identified eleven former manufactured gas plant (MGP) sites,
dating back to the late 1800's and early 1900's, which it acquired from
predecessors, and which contain contaminated residues from former gas
manufacturing operations. All of the gas manufacturing operations ceased at
these sites at least since the mid-1950's and in some cases had been
discontinued many years earlier, and all of the old gas manufacturing facilities
were subsequently dismantled by NJNG or its predecessors. NJNG is currently
involved in administrative proceedings with the New Jersey Department of
Environmental Protection and Energy (the NJDEPE) and local government
authorities with respect to the plant sites in question, and is participating in
various studies and investigations by outside consultants to determine the
nature and extent of any such contaminated residues and to develop appropriate
programs of remedial action, where warranted. Since October 1989, NJNG has
entered into Administrative Consent Orders or Memoranda of Agreement with the
NJDEPE covering all eleven sites. These documents establish the procedures to be
followed by NJNG in developing a final remedial clean-up plan for each site.
Most of the cost of such studies and investigations is being shared under
an agreement with the former owner and operator of ten of the MGP sites. Through
a remediation rider, which was originally approved by the BPU in its June 1992
base rate order and updated in December 1994, NJNG is recovering $5.7 million of
expenditures incurred through June 1994 over a seven-year period. Costs incurred
subsequent to June 30, 1994 will be reviewed annually and, subject to BPU
approval, recovered over seven-year periods.
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
-6-
charges and other and Other deferred credits in the Consolidated Balance Sheets.
In March 1995, NJNG filed a complaint in New Jersey Superior Court against
various insurance carriers for declaratory judgment and for damages arising from
such defendants' breach of their contractual obligations to defend and/or
indemnify NJNG against liability for claims and losses (including defense costs)
alleged against NJNG relating to environmental contamination at the former MGP
sites and other sites. NJNG is seeking (i) a declaration of the rights, duties
and liabilities of the parties under various primary and excess liability
insurance policies purchased from the defendants by NJNG from 1951 through 1985,
and (ii) compensatory and other damages, including costs and fees, arising out
of defendants' obligations under such insurance policies. There can be no
assurance as to the outcome of these proceedings.
d. Aberdeen
- ------------
Since June 1993, a total of six complaints have been filed in New Jersey
Superior Court against NJNG and its contractor by persons alleging injuries
arising out of a natural gas explosion and fire on June 9, 1993, at a
residential building in Aberdeen Township, New Jersey. The plaintiffs allege in
their respective actions, among other things, that the defendants were negligent
or are strictly liable in tort in connection with their maintaining, replacing
or servicing natural gas facilities at such building. The plaintiffs separately
seek unspecified compensatory and punitive damages from NJNG and its contractor.
In May 1994, the New Jersey Superior Court ordered that all causes of
action relating to the Aberdeen Township incident be consolidated for purposes
of discovery.
NJNG's liability insurance carriers are participating in the defense of
these matters. NJNG is unable to predict the extent to which other claims will
be asserted against, or liability imposed on, NJNG. The Company does not believe
that the ultimate resolution of these matters will have a material adverse
effect on its consolidated financial condition or results of operations.
e. Carnegie
- -----------
In March 1993, NJNG was named a defendant in a civil action commenced by
Carnegie Natural Gas Company (Carnegie) in the U.S. District Court for the
Western District of Pennsylvania. This action challenges NJNG's decision to
terminate the June 18, 1986 "Service Agreement for Sales Service under Rate
Schedule LVWS" (LVWS Service Agreement) between Carnegie and NJNG effective
March 31, 1994, pursuant to a "market-out" clause. The LVWS Service Agreement
would otherwise have expired on March 31, 2001. Carnegie seeks, among other
things, a declaratory judgment that the contract termination was void. Claims of
tortious interference with contractual relations and abuse of process are also
asserted and unspecified damages and punitive damages are also sought. In April
1993, Carnegie filed a motion for summary judgment on the contract termination
claim. In May 1993, NJNG filed a response opposing Carnegie's motion, as well as
a cross motion for summary judgment on all claims. In January 1994, a federal
magistrate issued a recommended decision denying Carnegie's motion for summary
judgment. In addition, the magistrate granted NJNG's motion for summary judgment
on Carnegie's tortious interference claim and denied NJNG's motion for summary
judgment on the contract termination and abuse of process claims. Both parties
filed objections to various aspects of the magistrate's recommended decision,
which were denied by order of a federal district court judge in March 1994. In
July 1994, Carnegie served a motion for a preliminary injunction requiring NJNG
to continue making payments pursuant to the contract during the pendency of the
litigation. In September 1994, the magistrate issued a recommended decision
denying Carnegie's motion for a preliminary injunction, stating that Carnegie
had not met its burden of establishing a likelihood of success on the merits of
the lawsuit and of establishing that it would suffer irreparable harm by NJNG's
failure to make payments. Carnegie filed
-7-
an objection to the magistrate's recommended decision, which was denied by
order of a federal district court judge in November 1994. Pretrial discovery has
been completed. The parties are now awaiting the scheduling of a trial date by
the court. NJNG is unable to predict the outcome of this matter. The Company
does not believe that the ultimate resolution of this matter will have a
material adverse effect on its consolidated financial condition or results of
operations.
f. South Brunswick Asphalt, L.P.
- --------------------------------
NJNG has been named a defendant in a civil action commenced in New Jersey
Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated
companies seeking damages arising from alleged environmental contamination at
three sites owned or occupied by SBA and its affiliated companies. Specifically,
the suit charges that tar emulsion removed from 1979 through 1983 by an
affiliate of SBA (Seal Tite, Inc.) from NJNG's former gas manufacturing plant
sites has been alleged by the NJDEPE to constitute a hazardous waste and that
the tar emulsion has contaminated the soil and ground water at the three sites
in question. In February 1991, the NJDEPE issued letters classifying the tar
emulsion/sand and gravel mixture at each site as dry industrial waste, a
non-hazardous classification.
NJNG's liability insurance carrier has assumed defense of this action but
has denied coverage for SBA's claims. See above, c. Manufactured Gas Plant (MGP)
Sites, for a description of an action brought by NJNG against various insurance
carriers relating to certain insurance coverage of liability arising out of
these sites. Based upon the gas remediation rider approved by the BPU in June
1992, NJNG believes that such costs should be recoverable through the ratemaking
process, but recognizes that such recovery is not assured.
One of the SBA sites is the subject of a NJDEPE Directive and Notice
alleging that the tar emulsion/sand and gravel mixture was a contributing factor
to the contamination of ground water at a residential community. The NJDEPE is
seeking reimbursement under the New Jersey Spill Compensation and Control Act of
cleanup, remediation and related costs, estimated by the NJDEPE at approximately
$20 million. NJNG is contesting the NJDEPE directive on the grounds, among
others, that any such alleged ground water contamination was not caused by tar
emulsions removed from NJNG's former gas plant manufacturing sites. NJNG's
liability insurance carriers, which have been defending the civil action, have
denied coverage for these claims. See above, c. Manufactured Gas Plant (MGP)
Sites, for a description of an action brought by NJNG against various insurance
carriers relating to certain insurance coverage of liability arising out of
these sites. NJNG would attempt to seek recovery through the ratemaking process
of any such cleanup or remediation payments it might ultimately be required to
make, but recognizes that such recovery is not assured. There can be no
assurance as to the outcome of these proceedings. The Company does not believe
that the ultimate resolution of these matters will have a material adverse
effect on its consolidated financial condition or results of operations.
g. Bridgeport Rental and Oil Service
- ------------------------------------
In January 1992, NJNG was advised of allegations that certain waste oil
from its former manufactured gas plant site in Wildwood, New Jersey may have
been sent by a demolition contractor to the Bridgeport Rental and Oil Service
site in Logan Township, New Jersey. That site has been designated a Superfund
site and is currently the subject of two lawsuits pending in the U.S. District
Court in New Jersey. NJNG has notified its insurance carriers and NJNG has
agreed to participate in settlement discussions as a non-party litigant. See
above, c. Manufactured Gas Plant (MGP) Sites, for a description of an action
brought by NJNG against various insurance carriers relating to certain insurance
coverage of liability arising out of these sites. NJNG is currently unable to
predict the extent, if any, to which it may have cleanup or other liability with
respect to this matter. NJNG would attempt to seek recovery through the
ratemaking process of any such cleanup or remediation payments it might
ultimately be required to make,
-8-
but recognizes that such recovery is not assured. There can be no assurance
as to the outcome of these proceedings. The Company does not believe that the
ultimate resolution of these matters will have a material adverse effect on its
consolidated financial condition or results of operations.
h. Iroquois
- -----------
NJNR Pipeline Company (Pipeline), 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 pipeline from the
Canadian border in Upstate New York to Long Island.
Iroquois has been informed by the U.S. Attorney's Offices for the Northern,
Southern and Eastern Districts of New York that an investigation is underway to
determine whether or not Iroquois committed civil violations of the Federal
Clean Water Act and/or its Corps of Engineers permit during construction of the
pipeline. No proceedings in connection with this civil investigation have been
commenced by the federal government against Iroquois.
In addition, in conjunction with the Environmental Protection Agency, a
criminal investigation has been initiated by the U.S. Attorney's Office for the
Northern District of New York concerning actions taken by Iroquois in the
construction of the pipeline. To date, no criminal charges have been filed.
Iroquois has publicly stated that it believes the pipeline construction and
right-of-way activities were conducted in a responsible manner. Nevertheless, in
the absence of a negotiated resolution, Iroquois deems it probable that the U.S.
Attorney will seek indictments and, in them, substantial fines and other
sanctions.
In December 1993, Iroquois received notification from the Enforcement Staff
of the Federal Energy Regulatory Commission Office of the General Counsel
(Enforcement) that Enforcement has commenced a preliminary, non-public
investigation concerning matters related to Iroquois' construction of certain of
its pipeline facilities. Enforcement has requested information regarding certain
aspects of the pipeline construction. In addition, Iroquois has received similar
communications from the Army Corps of Engineers, the Department of
Transportation and the staff of the New York Public Service Commission
requesting information in connection with certain aspects of the pipeline
construction. Iroquois is providing information to these agencies in response to
their requests.
Iroquois and its counsel have met and expect to continue to meet with those
conducting the civil and criminal investigations, from time to time, both to
gain an informed understanding of the focus and direction of the investigations
in order to defend itself and, if and when appropriate, to explore a range of
possible resolutions acceptable to all parties. Since no understandings or
agreements have been reached, Iroquois has not made a provision in its financial
statements for any dollar liability associated with these proceedings. Iroquois
believes, however, that a global resolution of the federal civil and criminal
investigations could involve fines and other monetary sanctions that would be
material to the financial condition of Iroquois.
Pipeline is unable to predict the outcome of these proceedings and
investigations. Based upon information currently available to the Company
concerning the above matters involving Iroquois and Pipeline's 2.8% equity
interest, the Company does not believe that their ultimate resolution will have
a material adverse effect on the Company's consolidated financial condition or
results of operations. Pipeline's investment in Iroquois as of March 31, 1995
was $5.9 million.
i. Various
- ----------
The Company is party to various other 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
-9-
on its financial condition or results of operations.
7. Other
At March 31, 1995, there were 17,573,073 shares of common stock outstanding
and the book value per share was $15.90.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications.
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NEW JERSEY RESOURCES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 1995
RESULTS OF OPERATIONS
Consolidated net income for the quarter ended March 31, 1995 increased by
10% to $25.5 million, or $1.45 per share, compared with $23.3 million, or $1.37
per share, for the same period last year. Consolidated net income for the six
months ended March 31, 1995 increased by 6%, to $36.7 million, or $2.10 per
share, compared with $34.5 million, or $2.03 per share, last year. Consolidated
net income for the six months ended March 31, 1994, included a non-cash credit
of $721,000, or $.04 per share, from the effect of adopting SFAS 109,
"Accounting for Income Taxes". Excluding the effect of adopting SFAS 109,
earnings for the six months ended March 31, 1995 increased by 9% compared with a
year ago.
The increase in consolidated earnings for both the three and six months
ended March 31, 1995 was attributable primarily to the higher financial results
of the Company's principal subsidiary, New Jersey Natural Gas Company (NJNG).
UTILITY OPERATIONS
NJNG's financial results are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
------- ------- -------- --------
(Thousands)
Gross margin
Residential and commercial ....... $62,252 $62,916 $103,659 $101,053
Interruptible and agency ......... 1,074 249 1,610 398
Off system and capacity release .. 1,676 1,390 2,829 2,596
------- ------- -------- --------
Total gross margin ................. $65,002 $64,555 $108,098 $104,047
======= ======= ======== ========
Operating income before income taxes $43,881 $41,268 $ 66,052 $ 60,260
======= ======= ======== ========
Net income ......................... $25,863 $24,126 $ 37,502 $ 34,475
======= ======= ======== ========
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 weather-sensitive. In NJNG's June 1992 base rate
order, the BPU approved a weather-normalization clause (WNC) on a two-year
experimental basis effective October 1, 1992. The 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
-11-
1994, NJNG received approval from the BPU to continue the clause on an
interim basis pending a final BPU order.
Gross margin from sales to firm customers decreased by $664,000, or 1%, for
the three months ended March 31, 1995, compared with a year ago due primarily to
a 15% decrease in firm therm sales which more than offset customer growth.
Gross margin from sales to firm customers increased by $2.6 million, or
2.6%, for the six months ended March 31, 1995, compared with last year due
primarily to the impact of higher base rates which more than offset an 11%
decrease in firm therm sales. NJNG received a base rate increase of $7.5
million, or 2%, effective in January 1994 which increased gross margin by
approximately $2 million for the six-month period.
The decline in firm therm sales in both periods was due to the weather,
which was 12% warmer than last year, and lower average customer usage, which
more than offset the impact of 12,859 customer additions during the twelve
months ended March 31, 1995. Average customer usage was approximately 6% lower
than expected due to the consistently warmer-than-normal weather experienced
throughout the six months ended March 31, 1995, which was the third warmest
winter in NJNG's history. The usage level embedded in rates is not protected by
the WNC.
The weather for the six months ended March 31, 1995 was 5% warmer than
normal, or the 10-year average. The impact of warmer weather on gross margin was
partially mitigated by the above-mentioned WNC. Under this rate mechanism, a
total of $2.7 million of gross margin was accrued for future recovery from
customers in fiscal 1995. This contrasts with the activity under the WNC during
the two years ended September 30, 1994 when, due to colder-than-normal weather,
NJNG deferred a total of $4.2 million of gross margin, of which $3.7 million has
been credited to customers as of March 31, 1995.
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. Although therms sold and transported
to interruptible customers represented 5% and 4% of total therm throughput in
the six months ended March 31, 1995 and 1994, respectively, they accounted for
less than 1% of the total gross margin in each period due to the regulated
margin-sharing formulas that govern these sales. Under these formulas, NJNG
retains 5% of the gross margin from transportation sales and 10% of the gross
margin from the interruptible sales with the balance credited to residential and
commercial customers through the LGA clause.
Margin from agency sales agreements totalled $453,000 and $1.4 million for
the three and six months ended March 31, 1995, respectively, compared with
$176,000 and $275,000 in the same periods last year.
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 68 million therms and generated $888,000 of
gross margin and 138 million therms and $1.5 million of gross margin in the
three and six months ended March 31, 1995, respectively, compared with 91
million therms and $1 million of gross margin and 169 million therms and $1.9 of
gross margin in the comparable periods last year. The decreases in sales and
margin per therm were due primarily to increased competition and a change in the
margin-sharing formula. The capacity release program generated gross margin of
$787,000 and $1.3 million in the three and six months ended March 31, 1995,
respectively, compared with $454,000 and $727,000 in the comparable periods last
year. These increases were due primarily to increased marketing efforts.
-12-
Operating Income Before Income Taxes and Net Income
Operating income before income taxes increased by $2.6 million, or 6%, and
by $5.8 million, or 10%, in the three and six months ended March 31, 1995,
respectively, compared with the same periods last year, primarily due to the
increased gross margin and lower operation and maintenance expenses.
Net income increased by $1.7 million, or 7%, and by $3 million, or 9%, for
the three and six months ended March 31, 1995, respectively, compared with the
same periods last year as the higher operating income more than offset increased
net interest expense in both periods, which was due primarily to higher
short-term interest rates and lower capitalized interest.
NON-UTILITY OPERATIONS
Paradigm Resources Corporation (PRC) was formed in 1992 as a sub-holding
company to better segregate the Company's utility and non-utility operations.
PRC includes the accounts of CR&R, NJR Energy and PPI.
The financial results of PRC are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
(Thousands)
Revenues ................................. $6,577 $6,286 $13,497 $12,519
====== ====== ======= =======
Operating income before income taxes ..... $1,342 $148 $2,414 $2,054
====== ==== ====== ======
Income (loss) before SFAS 109 ............ $(416) $(714) $(914) $(617)
====== ====== ====== ======
Net income (loss) ........................ $(416) $(714) $(914) $122
====== ====== ====== ====
REAL ESTATE OPERATIONS
CR&R's financial results are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
(Thousands)
Revenues ................................. $3,196 $3,213 $6,202 $6,342
====== ====== ====== ======
Operating income before income taxes ..... $1,623 $1,419 $3,090 $3,001
====== ====== ====== ======
Income (loss) before SFAS 109 ............ $38 $247 $(81) $203
=== ==== ===== ====
Net income (loss) ........................ $38 $247 $(81) $863
=== ==== ===== ====
Earnings for the six months ended March 31, 1994 include the cumulative
effect of adopting SFAS 109 which was a non-cash credit to net income of
$660,000. See Note 4 - Income Taxes for a discussion of this change in
accounting principle.
Operating income before income taxes for the three and six months ended
March 31, 1995 increased by $203,000 and $88,000, respectively, compared with
the same periods last year, reflecting primarily lower maintenance expenses
resulting from the mild winter which more than offset slightly lower revenues
due to tenant rollover activity.
-13-
CR&R has determined that the book value of its undeveloped land inventory
has reached its estimated net realizable value based upon its development
strategy. CR&R is required to continue capitalizing carrying charges on its
undeveloped land inventory until it is developed. Therefore, CR&R's results for
the three and six months ended March 31, 1995 include a pre-tax allowance of
$455,000 and $953,000, respectively, associated with the carrying costs of
CR&R's undeveloped land inventory. Additional allowances for these capitalized
carrying charges will continue until the land is developed. Results for the six
months ended March 31, 1994 include pre-tax costs of $653,000 associated with
the October 1993 redemption of CR&R's remaining $13.8 million outstanding
principal of its 11 5/8% mortgage. These costs are reflected net of tax in Other
income (expense), net on the Consolidated Statements of Income.
Net income before the effect of SFAS 109 for the three and six months ended
March 31, 1995, decreased by $208,000 and $283,000, respectively, reflecting
primarily the aforementioned land allowances and an increase in net interest
expense of $77,000 and $231,000, respectively, due to higher floating interest
rates, which more than offset the slightly higher operating income.
Since March 31, 1994, CR&R's inventory of completed space has remained
unchanged at 914,200 square feet. The occupancy rate as of March 31, 1995 and
1994 was 96%.
OIL AND GAS OPERATIONS
NJR Energy's financial results are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
(Thousands)
Revenues ............................... $3,381 $3,073 $7,295 $6,177
====== ====== ====== ======
Operating loss before income taxes ..... $(169) $(1,145) $(446) $(695)
====== ======== ====== ======
Net loss before SFAS 109 ............... $(409) $(874) $(874) $(648)
====== ====== ====== ======
Net loss ............................... $(409) $(874) $(874) $(569)
====== ====== ====== ======
Earnings for the six months ended March 31, 1994 include the cumulative
effect of adopting SFAS 109 which was a non-cash credit to net income of
$79,000. See Note 4 - Income Taxes for a discussion of this change in accounting
principle.
NJR Energy's earnings for the three and six months ended March 31, 1994
included a pre-tax write-down of $1 million related to the Bessie-8 pipeline
investment.
Excluding the 1994 write-down, NJR Energy's operating loss increased by
$24,000 and $751,000 for the three and six months ended March 31, 1995
reflecting declining production and lower average gas prices which more than
offset higher average oil prices.
-14-
Production and price information are as follows:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1995 1994 1995 1994
------ ------ ------ ------
Gas production (mmcf) ......... 723 947 1,448 1,883
Avg. gas price (mcf) .......... $ 1.79 $ 1.79 $ 1.77 $ 1.84
Oil production (mmbl) ......... 27.9 28.4 53.9 62.7
Avg. oil price (bbl) .......... $16.61 $13.81 $16.56 $15.07
NJR Energy's proved reserves at March 31, 1995 totaled 20.3 bcf of natural
gas and 1.8 million barrels of oil.
NJR Energy's ability to improve its financial results in the future is
dependent on several factors including changes in oil and gas prices, the
performance of reserve acquisitions, the results of development activity, the
resolution of the Iroquois investigation, as discussed in Note 6 - Legal and
Regulatory Proceedings - h. Iroquois, and other investments in areas such as gas
gathering, storage and marketing, the amount and type of which will be
determined by market and other conditions. NJR Energy's results of operations
are expected to continue to be adversely impacted by one or a combination of
these factors. The Company is continuing to evaluate its strategic alternatives
with regard to this business segment.
LIQUIDITY AND CAPITAL RESOURCES
In order to meet the working capital and external debt financing
requirements of its non-regulated subsidiaries, as well as its own working
capital needs, the Company maintains committed bank credit facilities totaling
$145 million and has a $10 million credit facility available on an offering
basis. At March 31, 1995, $120.5 million was outstanding under these agreements.
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). In March 1995, the
Company registered an additional 1.53 million shares of common stock for
issuance and sale under the DRP with the Securities and Exchange Commission.
UTILITY
The seasonal nature of NJNG's operations creates large short-term cash
requirements, primarily to finance gas purchases and customer accounts
receivable. NJNG obtains working capital for these requirements, as well as for
the temporary financing of construction expenditures, sinking fund needs and
accelerated GRFT payments mandated by changes in 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 $60
million with a number of commercial banks and has an additional $25 million in
lines of credit available on an offering basis. NJNG's lines of credit are
adjusted quarterly based upon its projected cash needs.
Remaining fiscal 1995 construction expenditures are estimated at $16
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth, and general system renewals and
improvements. NJNG also has additional capital requirements of approximately $48
million resulting from the acceleration of GRFT payments to the State of New
Jersey. NJNG expects to finance these expenditures through internal generation,
the issuance of short and long-term debt and proceeds from the Company's DRP,
the amount and timing of which will be affected by market conditions and other
factors.
NJNG will also pursue the refinancing of existing long-term debt, the
amount and timing of which will be affected by market conditions and other
factors.
-15-
NON UTILITY
REAL ESTATE
CR&R's 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. Under these parameters, the Board of
Directors has approved the construction of a 77,400 square foot flex building on
10 acres of land in its Monmouth Shores Corporate Park (MSCP) at an expected
cost of $5.5 million in fiscal 1995. MSCP currently has 74 acres of undeveloped
land. Such capital expenditures are expected to be funded through bank loans
obtained by the Company and internal generation.
OIL AND GAS
In April 1994 the Company announced that it 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.
Consistent with this strategy, NJR Energy formed NJR Storage Corporation
(Storage) in December 1994 and announced its participation in a partnership with
affiliates of Tejas Power Corporation, NIPSCO Industries, Inc., Dayton Power and
Light, Inc. and Public Service Enterprise Group to form Market Hub Partners,
L.P. (MHP). MHP is expected to develop, own and operate a system of five natural
gas market centers with high-deliverability salt cavern storage facilities. The
market centers are expected to be strategically located in Texas, Louisiana,
Mississippi, Michigan and Pennsylvania. As of March 31, 1995, Storage's 5.67%
equity investment in MHP totaled $2.2 million. Storage expects to invest an
additional $5.3 million in MHP over the next two years.
Remaining capital expenditures for the development of oil and gas reserves
in fiscal 1995 are expected to total up to $2.9 million, depending on market
conditions, the evaluation of strategic alternatives and other factors. These
expenditures are expected to be funded through bank loans obtained by the
Company, proceeds from the Company's DRP and internal generation.
-16-
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Information required by this Item is incorporated by reference to Note 5 -
Legal and Regulatory Proceedings.
Item 4. Submission of Matters to a Vote of Securities Holders
On March 8, 1995, the stockholders voted for the following matters at the
annual stockholder meeting.
(a) The election of four (4) directors to serve for three-year terms
expiring in 1998 and until their respective successors have been duly elected.
The results of the voting were as follows:
Director For Against
- -------- --- -------
Joe B. Foster ....................... 14,326,543 273,773
Charles G. Stalon ................... 14,304,102 296,215
Oliver G. Richard III ............... 14,323,889 276,427
John J. Unkles ...................... 14,320,116 280,200
(b) The stockholders approved a proposal to adopt an Outside Director
Restricted Stock And Stock Option Program. The results were as follows:
For Against Abstain
---------- --------- -------
12,463,381 1,652,762 484,173
(c) The stockholders approved the action to retain Deloitte & Touche LLP as
auditors for the fiscal year ending September 30, 1995. The results were as
follows:
For Against Abstain
---------- ------- -------
14,301,774 116,495 182,048
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27-1 Financial Data Schedule
(b) Reports of Form 8-K
The Company filed two reports on Form 8-K, under Item 5 - Other Events,
dated March 15, 1995 and March 21, 1995 with respect to the resignation of Mr.
Oliver G. Richard III, its Chairman, President and Chief Executive Officer and
the appointment of Bruce Coe as Chairman, President and Chief Executive
Officer, respectively.
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW JERSEY RESOURCES CORPORATION
Date: May 9, 1995 /s/ LAURENCE M. DOWNES
----------- ---------------------
Laurence M. Downes
Senior Vice President and
Chief Financial Officer
Date: May 9, 1995 /s/ GLENN C. LOCKWOOD
----------- --------------------
Glenn C. Lockwood
Vice President, Controller
and Chief Accounting Officer
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW JERSEY RESOURCES CORPORATION
Date: May 9, 1995
------------ --------------------------
Laurence M. Downes
Senior Vice President and
Chief Financial Officer
Date: May 9, 1995
------------ -------------------------
Glenn C. Lockwood
Vice President, Controller
and Chief Accounting Officer