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 June 30, 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 (I.R.S. Employer
incorporation or organization) Identification Number)
1415 Wyckoff Road, Wall, New Jersey - 07719 908-938-1480
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
YES: [X] No: [ ]
The number of shares outstanding of $2.50 par value Common Stock as of August 1,
1995, was 17,777,346.
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1995 1994 1995 1994
------ ------- ----- -----
(Thousands, except per share data)
OPERATING REVENUES........................................ $76,262 $75,137 $404,618 $433,410
------- ------- -------- --------
OPERATING EXPENSES
Gas purchases............................................ 42,264 38,852 225,652 250,253
Operation and maintenance................................ 14,610 15,317 44,356 47,765
Depreciation and amortization............................ 5,710 5,320 17,135 16,409
Gross receipts tax, etc.................................. 7,018 7,505 41,318 47,743
Federal income taxes..................................... 18 993 19,006 18,970
------- ------- -------- --------
Total operating expenses............................... 69,620 67,987 347,467 381,140
------- ------- -------- --------
OPERATING INCOME.......................................... 6,642 7,150 57,151 52,270
Other income, net......................................... 693 2,282 750 2,033
Interest charges, net..................................... 5,747 5,640 18,358 15,593
------- ------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS OF SUBSIDIARY..... 1,588 3,792 39,543 38,710
Preferred stock dividends................................. 403 416 1,229 1,249
------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS ........................ 1,185 3,376 38,314 37,461
DISCONTINUED OPERATIONS
Loss from operations, net................................ -- (74) (395) (364)
Loss from disposal, including provision for estimated
operating losses during phase-out period, less
applicable income tax benefits of $4,665. ............. (8,665) -- (8,665) --
Cumulative effect of change in
accounting for income taxes............................ -- -- -- 721
------- ------- -------- --------
NET INCOME (LOSS) ....................................... $(7,480) $ 3,302 $ 29,254 $ 37,818
======= ======= ======== ========
EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS..... $.07 $.20 $2.18 $2.20
Loss per common share from discontinued operations....... (.49) (.01) (.51) (.02)
Cumulative effect of change in accounting for
income taxes .......................................... -- -- -- .04
----- ---- ----- -----
EARNINGS (LOSS) PER COMMON SHARE......................... $(.42) $.19 $1.67 $2.22
===== ==== ===== =====
DIVIDENDS PER COMMON SHARE............................... $.38 $.38 $1.14 $1.14
===== ==== ===== =====
AVERAGE SHARES OUTSTANDING............................... 17,672 17,158 17,547 17,035
====== ====== ====== ======
See Notes to Consolidated Financial Statements
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
June 30,
------------------
1995 1994
------ -------
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................. $ 29,254 $ 37,818
Adjustments to reconcile net income to cash flows
Depreciation and amortization........................... 20,279 20,940
Loss from disposal of discontinued operations........... 8,665 --
Amortization of deferred charges........................ 1,520 1,770
Deferred income taxes................................... 2,230 9,488
Cumulative effect of change in accounting for income
taxes................................................. -- (721)
Change in working capital............................... 30,168 (22,780)
Other, net.............................................. 1,603 (3,585)
-------- ---------
Net cash flows from operating activities.................. 93,719 42,930
-------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from long-term debt............................. 25,000 41,651
Proceeds from common stock............................... 8,360 9,231
Payments of long-term debt and preferred stock........... (6,493) (17,151)
Payments of common stock dividends....................... (19,883) (19,309)
Net change in short-term debt............................ (50,600) (18,100)
-------- ---------
Net cash flows used in financing activities ............... (43,616) (3,678)
-------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for
Utility plant ........................................... (38,957) (34,398)
Real estate properties................................... (2,404) (2,205)
Oil and gas properties................................... (1,195) (1,517)
Equity investments....................................... (4,507) --
Proceeds from sale of assets............................. -- 2,000
Cost of removal and other................................ (3,378) (2,030)
-------- ---------
Net cash flows used in investing activities................ (50,441) (38,150)
-------- ---------
Net change in cash and temporary investments............... (338) 1,102
Cash and temporary investments at September 30............. 1,951 1,555
-------- ---------
Cash and temporary investments at June 30.................. $ 1,613 $ 2,657
======== =========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables.............................................. $(10,407) $(19,192)
Inventories.............................................. 18,904 13,363
Deferred gas costs....................................... 25,039 7,978
Purchased gas............................................ 5,269 (5,701)
Accrued taxes............................................ 3,439 (15,505)
Customers' credit balances and deposits.................. (4,888) (1,431)
Other, net............................................... (7,188) (2,292)
-------- ---------
Total................................................. $ 30,168 $(22,780)
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized).................... $ 18,948 $ 15,247
Income taxes............................................. $ 4,805 $ 5,948
See Notes to Consolidated Financial Statements
2
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, September 30, June 30,
1995 1994 1994
-------- ------------- ----------
(unaudited) (unaudited)
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant........................ $728,805 $691,757 $671,696
Real estate properties............... 106,715 104,309 104,575
Oil and gas properties .............. -- 63,224 63,507
-------- -------- --------
835,520 859,290 839,778
Accumulated depreciation and
amortization....................... (193,941) (218,913) (215,304)
-------- -------- --------
Property, plant and equipment, net... 641,579 640,377 624,474
-------- -------- --------
CURRENT ASSETS
Cash and temporary investments....... 1,613 1,951 2,657
Customer accounts receivable......... 31,868 18,805 41,590
Unbilled revenues.................... 8,543 9,136 2,528
Allowance for doubtful accounts...... (1,175) (657) (1,368)
Gas in storage, at average cost...... 14,289 33,483 23,081
Materials and supplies, at
average cost....................... 7,433 7,143 7,929
Prepaid state taxes.................. 21,038 11,077 15,766
Deferred gas costs................... 3,983 16,008 6,308
Net assets of discontinued
operations......................... 14,936 -- --
Other................................ 5,857 6,285 6,462
-------- -------- --------
Total current assets............. 108,385 103,231 104,953
-------- -------- --------
DEFERRED CHARGES AND OTHER ............ 43,140 53,739 44,518
-------- -------- --------
Total assets..................... $793,104 $797,347 $773,945
======== ======== ========
See Notes to Consolidated Financial Statements
3
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
June 30, September 30, June 30,
1995 1994 1994
---------- ------------- ----------
(unaudited) (unaudited)
(Thousands)
CAPITALIZATION
Common stock equity.................. $267,682 $250,163 $258,687
Redeemable preferred stock........... 21,015 22,070 22,070
Long-term debt....................... 322,327 323,590 301,690
-------- -------- --------
Total capitalization............. 611,024 595,823 582,447
-------- -------- --------
CURRENT LIABILITIES
Current maturities of
long-term debt...................... 3,564 4,315 4,403
Short-term debt....................... 12,900 42,000 36,800
Purchased gas......................... 20,219 14,950 19,114
Accounts payable and other............ 32,870 36,163 31,626
Accrued taxes......................... 16,530 3,130 11,507
Customers' credit balances
and deposits........................ 9,592 14,480 10,208
-------- -------- --------
Total current liabilities......... 95,675 115,038 113,658
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes ............... 50,263 52,698 48,111
Deferred investment tax credits....... 11,730 12,025 12,129
Other................................. 24,412 21,763 17,600
-------- -------- --------
Total deferred credits............ 86,405 86,486 77,840
-------- -------- --------
Total capitalization and
liabilities..................... $793,104 $797,347 $773,945
======== ======== ========
See Notes to Consolidated Financial Statements
4
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
In June 1995, the Company formed NJR Energy Services Corporation (Energy
Services), a non-utility sub-holding company, to better segregate its
energy-related, non-utility operations and a subsidiary of Energy Services, New
Jersey Natural Energy Company (Natural Energy), to facilitate the unregulated
marketing of natural gas and related services. The agency sales function of New
Jersey Natural Gas Company (NJNG) was transferred to Natural Energy in the third
quarter. The consolidated financial statements include the accounts of the
Company and its subsidiaries -- NJNG, Energy Services 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. In the fourth quarter of fiscal 1995, NJR Energy and PPI
will be transferred to Energy Services. Significant intercompany accounts and
transactions have been eliminated.
3. Discontinued Operations
In May 1995, the Company adopted a plan to exit the oil and natural gas
production business and pursue the sale of the reserves and related assets of
its affiliates, NJR Energy and New Jersey Natural Resources Company (NJNR). The
Company has accounted for this segment as a discontinued operation and has
recorded an after-tax charge of $8.7 million, or $.49 per share, in the third
fiscal quarter. This charge is based on estimates of the anticipated loss from
operations until the assets are sold, the estimated loss on the sale of the
remaining reserves and other costs related to the closing of its offices in
Dallas and Tulsa. The Company expects to complete the sale of its reserves
within one year and use the proceeds to reduce outstanding debt. Operating
revenues for the discontinued operation were $3 million and $9.8 million for the
three and nine months ended June 30, 1995 and $3.4 million and $10 million for
the three and nine months ended June 30, 1994. At June 30, 1995, the net assets
of the discontinued operation, consisting of oil and gas properties and related
investments at estimated net realizable value, are classified as current assets.
4. 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.
5
5. 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.
6. Capitalized Interest
Capitalized interest and total interest charges for the three and nine
months ended June 30, 1995 and 1994, respectively, are as follows:
Three Months Ended, Nine Months Ended,
June 30, June 30,
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
(Thousands)
Capitalized Interest $ 842 $ 453 $ 1,923 $ 2,128
====== ====== ======= =======
Total Interest Charges $6,305 $6,236 $20,281 $18,087
====== ====== ======= =======
7. Legal and Regulatory Proceedings
a. Levelized Gas Adjustment Clause (LGA)
- ----------------------------------------
On July 26, 1995, NJNG filed its annual LGA with the New Jersey Board of
Public Utilities (BPU). The filing supports a $4.8 million annual decrease in
gas costs beginning October 1, 1995 and the continuation of both NJNG's margin
sharing formulae associated with its off-system gas and capacity sales and the
Financial Risk Management Program (FRM) designed to provide price stability to
the systems' gas supply portfolio. In addition, NJNG proposed an incentive plan
for a limited portion of its gas purchased to be injected into storage wherein
purchase price differences from an established benchmark would be shared between
customers and shareholders.
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.
6
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
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
7
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 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. 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.
One of the SBA sites was 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. In June 1995,
the NJDEPE notified NJNG that it was removing NJNG without prejudice as a
respondent to such NJDEPE Directive and Notice.
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, 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.
8
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 June 30, 1995 was
$6.2 million.
i. Bessie-8
- -----------
NJNR and others (the Joint Venture, et al.) were named in a complaint filed
by the People's Natural Gas Company (People's) before the Pennsylvania Public
Utility Commission (PaPUC). People's sought a determination that the Joint
Venture, et al. were a public utility subject to the jurisdiction of the PaPUC
and an order prohibiting natural gas service until proper PaPUC authorization
was obtained.
In April 1988, an Administrative Law Judge (ALJ) issued an initial decision
denying and dismissing People's complaint, "because the demonstrated activities
of the Bessie-8 joint venture are not within the jurisdiction of the PaPUC to
regulate". An initial decision is subject to adoption, modification or rejection
by the full PaPUC. In April 1989,
9
alternative motions to adopt the ALJ's initial decision or to subject the
Joint Venture, et al. to the jurisdiction of the PaPUC failed due to 2-2 tie
votes. In October 1992, the PaPUC, on its own initiative and without notice to
any of the parties, determined in a 3-0 vote that the Joint Venture, et al. are
a "public utility" under the Pennsylvania Public Utility Code and granted
People's exceptions to the ALJ's April 1988 initial decision. This determination
would require the Joint Venture, et al. to apply to the PaPUC for a certificate
of public convenience within 30 days of the entry of the Final Order, or to
cease and desist from providing service on the pipeline. In December 1992, the
PaPUC issued a Final Order and extended the deadline to file for a certificate
of public convenience within 60 days. In February 1993, the Joint Venture, et
al. filed a motion with the Commonwealth Court of Pennsylvania (Commonwealth
Court) requesting that the effectiveness of the Final Order be stayed pending
court appeals. In February 1993, this motion was granted.
In October 1992, the Joint Venture, et al. filed a Petition for Review in
the nature of a declaratory judgment action in the Commonwealth Court seeking
among other things, a declaratory order that the April 1989 tie vote constituted
a final action dismissing Peoples' complaint. Oral argument was held in March
1993. In January 1993, the Joint Venture, et al. filed a second Petition for
Review with the Commonwealth Court challenging the merits of the PaPUC's
determination that the Joint Venture, et al. are a "public utility" under the
Pennsylvania Public Utility Code. In February 1993, the Commonwealth Court
stayed the PaPUC's order requiring the Joint Venture, et al. to file for a
certificate of public convenience and necessity, pending the outcome of the
March 1993 oral argument. On July 2, 1993, the Commonwealth Court issued an
order denying People's motion to lift the stay pending appeal. On December 16,
1993, the Commonwealth Court granted the Joint Venture, et al. a declaratory
judgment that the April 1989 tie vote constituted a final action dismissing
Peoples' complaint. Peoples and the PaPUC have appealed this decision to the
Pennsylvania Supreme Court. In July 1995, the Pennsylvania Supreme Court
reversed the Commonwealth Court, holding that the tie vote by the PaPUC cannot
constitute final action on Peoples' complaint and that the PaPUC was not
prohibited from taking its vote in October 1992. The Joint Venture, et al. are
currently examining their options in light of the Pennsylvania Supreme Court's
ruling.
In September 1993, Peoples instituted an action in the Court of Common
Pleas of Allegheny County against the Joint Venture, et al. by filing a Praecipe
for Writ of Summons. The Praecipe for Writ of Summons cannot and does not
contain any description of the claim being asserted by Peoples. It merely tolls
the statute of limitations and preserves any claim Peoples may have against the
defendants until resolution of the actions discussed above. This action may
concern a claim by Peoples for losses allegedly sustained as a result of the
Bessie-8 joint venture activities. However, there has been no activity in this
action and the nature of the action has not yet been determined. NJNR is unable
to predict the outcome of these matters. 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.
j. 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 on
its financial condition or results of operations.
8. Commitments and Contingent Liabilities
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 October
1994, in conjunction with a shift in capital allocation policy, NJR Energy
entered into a swap agreement which hedges its risk for sales volumes under the
contract which are in excess of the estimated production from existing reserves.
As discussed in Note 3. Discontinued Operations, NJR Energy plans to sell its
reserves pursuant to a plan to exit the oil and natural gas production business.
In June 1995, NJR Energy entered into a second swap agreement in order to hedge
its risk for sales volumes under such contract that would have otherwise been
fulfilled by its reserves. NJR Energy received a cash payment of $3.3 million in
conjunction with this swap agreement which, at June 30, 1995, is included in
Other deferred credits and will be amortized to income over the fifteen year
life of the
10
agreement. Under the swap agreements, commencing November 1995 until the
expiration of the gas supply contract, NJR Energy will pay to the counterparties
the identical fixed price it receives from the gas marketing company in exchange
for the payment by the counterparties of an index price plus a spread per mmbtu
for the total volumes under the gas supply contract. The respective obligations
of NJR Energy and the counterparties under the swap agreements are guaranteed,
subject to a maximum amount, by the Company and the respective counterparties'
parent corporations. In the event of nonperformance by the counterparties and
their parent corporations, NJR Energy's financial results would be impacted by
the difference, if any, between the fixed price it is receiving under the gas
contract compared with the price of natural gas in the spot market. However, the
Company does not anticipate nonperformance by the counterparties.
9. Other
At June 30, 1995, there were 17,690,396 shares of common stock outstanding
and the book value per share was $15.13.
Certain reclassification have been made of previously reported amounts to
conform with current year classifications.
10. Subsequent Event
In August 1995, NJNG entered into a loan agreement with the New Jersey
Economic Development Authority (the Authority) under which the Authority loaned
to NJNG the proceeds from the Authority's $25 million Natural Gas Facilities
Refunding Revenue Bonds, Series 1995A (the Refunding Bonds) and its $16 million
Natural Gas Facilities Revenue Bonds, Series 1995B (the Revenue Bonds,
collectively, the EDA Bonds). The rates of interest on the EDA Bonds are
variable, currently set at a daily mode, and may be changed from time to time by
NJNG to daily, weekly, flexible or long-term interest rate modes, not to exceed
12% per annum. The EDA Bonds mature on August 1, 2030. To provide initial
liquidity support for the mandatory and optional tender provisions of the EDA
Bonds, NJNG also entered into a standby bond purchase agreement with a bank. To
secure its loan from the Authority, NJNG issued $25 million of its First
Mortgage Bonds, Adjustable Rate Series AA and $3.5 million of its First Mortgage
Bonds, Adjustable Rate Series BB (Series BB Bonds), with interest rates and
maturity dates similar to those of the Refunding Bonds and Revenue Bonds,
respectively. The proceeds from the Refunding Bonds are being held in escrow to
be used for the expected redemption in September 1995 of NJNG's $25 million, 8
1/2% Series R First Mortgage Bonds due 2018. The proceeds from the Revenue Bonds
were deposited into a project construction fund with the indenture trustee for
the EDA Bonds. NJNG may obtain such funds in reimbursement of its qualified
expenditures relating to the project upon delivering an equivalent amount of its
Series BB Bonds to the indenture trustee. The $3.5 million of Series BB Bonds,
together with the remaining $12.5 million of proceeds from the Revenue Bonds in
the project construction fund, are held as security for the Revenue Bonds.
11
NEW JERSEY RESOURCES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1995
RESULTS OF OPERATIONS
The Company's consolidated results for the three and nine months ended June
30, 1995 were a loss of $.42 per share and income of $1.67 per share,
respectively, compared with income of $.19 per share and $2.22 for the same
periods last year. As discussed in Note 3. Discontinued Operations, the results
of the three and nine months ended June 30, 1995 include a charge of $8.7
million, or $.49 per share, associated with the Company's decision to exit the
oil and gas production business. The results for the nine months ended June 30,
1994 included a non-cash credit of $.04 per share from the adoption of SFAS 109,
"Accounting for Income Taxes".
Earnings from continuing operations were $1.2 million, or $.07 per share,
and $38.3 million, or $2.18 per share, for the three and nine months ended June
30, 1995, respectively, compared with $3.4 million, or $.20 per share, and $37.5
million, or $2.20 per share, for the same periods last year. Last year's results
from continuing operations for both periods included a one-time gain from the
termination of a power purchase agreement of $.13 per share. Excluding the
effect of this one-time gain, earnings per share from continuing operations were
unchanged for the three months ended June 30, 1995 and increased by 5% for the
nine months ended June 30, 1995 compared with the same periods last year.
UTILITY OPERATIONS
NJNG's financial results are summarized as follows:
Three Months Ended, Nine Months Ended,
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(Thousands)
Gross margin
Residential and commercial $24,592 $26,858 $128,251 $127,865
Interruptible and agency (1,362) 378 248 822
Off system and capacity release 561 368 3,390 2,964
------- ------- -------- --------
Total gross margin $23,791 $27,604 $131,889 $131,651
======= ======= ======== ========
Operating income before income taxes $ 3,715 $ 6,707 $ 69,767 $ 66,967
======== ======= ======== ========
Net income $ (75) $ 1,259 $ 37,427 $ 35,734
======== ======= ======== ========
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 1994, NJNG received
12
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 $2.3 million, or 8%,
for the three months ended June 30, 1995, compared with a year ago, due
primarily to a less than 1% decrease in firm therm sales which more than offset
customer growth.
Gross margin from sales to firm customers increased slightly for the nine
months ended June 30, 1995, compared with last year, due primarily to the impact
of customer growth and 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 nine-month period.
The decline in firm therm sales in both periods was due to the weather,
which was 4% warmer than last year, and lower average customer usage, which more
than offset the impact of 13,125 customer additions during the twelve months
ended June 30, 1995. Average customer usage was approximately 8% lower than
expected due to the consistently warmer-than-normal weather experienced
throughout the nine months ended June 30, 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 nine months ended June 30, 1995 was 2% 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 $1.9 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 $4 million has
been credited to customers as of June 30, 1995.
Interruptible and Agency
NJNG services 35 customers through interruptible sales and/or
transportation tariffs and through May 31, 1995 served 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 6% of
total therm throughput in the nine months ended June 30, 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.
In June 1995, the agency sales function was transferred to the Company's
newly formed unregulated subsidiary, New Jersey Natural Energy Company. Margin
from agency sales agreements totalled $258,000 and $533,000 for the three and
nine months ended June 30, 1994, respectively.
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 system 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 53 million therms and generated $63,000 of
gross margin and 191 million therms and $1.5 million of gross margin for the
three and nine months ended June 30, 1995, respectively, compared with 37
million therms and $102,000 of gross margin and 206 million therms and $2
million of gross margin in the comparable periods last year. The decreases in
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
$500,000 and $1.8 million in the three and nine months ended June 30, 1995,
respectively, compared with $266,000 and $1 million in the comparable periods
last year. These increases were due primarily to increased marketing efforts.
13
Operating Income Before Income Taxes and Net Income
Operating income before income taxes decreased by $3 million and net income
decreased by $1.3 million in the three months ended June 30, 1995, compared with
last year, due primarily to the lower firm margin and the transfer of the agency
sales function.
Operating income before income taxes increased by $2.8 million and net
income increased by $1.7 million for the nine months ended June 30, 1995,
compared with last year, due to lower operation and maintenance expenses
resulting primarily from lower health care and inventory costs which more than
offset increased net interest expense, which was due primarily to higher
short-term interest rates and lower capitalized interest.
NON-UTILITY OPERATIONS
REAL ESTATE OPERATIONS
CR&R's financial results are summarized as follows:
Three Months Ended, Nine Months Ended,
June 30, June 30,
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
(Thousands)
Revenues $3,177 $2,928 $9,379 $9,270
====== ====== ====== ======
Operating income before income taxes $1,563 $1,157 $4,653 $4,158
====== ====== ====== ======
Income (loss) before SFAS 109 $ (16) $ 55 $ (97) $ 258
====== ====== ====== ======
Net income (loss) $ (16) $ 55 $ (97) $ 918
====== ====== ====== ======
Earnings for the nine months ended June 30, 1994 include the cumulative
effect of adopting SFAS 109 which was a non-cash credit to net income of
$660,000. See Note 5 -- Income Taxes for a discussion of this change in
accounting principle.
Operating income before income taxes for the three and nine months ended
June 30, 1995 increased by $406,000 and $495,000, respectively, compared with
the same periods last year, reflecting primarily lower maintenance expenses
resulting from the mild winter.
In the first quarter of fiscal 1995, CR&R determined that the book value of
its undeveloped land inventory had 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 nine months ended June 30, 1995
include a pre-tax allowance of $444,000 and $1.4 million, 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 nine months ended June 30, 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.
Net income before the effect of SFAS 109 for the three and nine months
ended June 30, 1995, decreased by $71,000 and $355,000, respectively, reflecting
primarily the aforementioned land allowances and an increase in net interest
expense due to higher floating interest rates, which more than offset the higher
operating income.
Since June 30, 1994, CR&R's inventory of completed space has remained
unchanged at 914,200 square feet. The occupancy rate as of June 30, 1995 and
1994 was 96%.
14
OIL AND GAS OPERATIONS
See Note 3. Discontinued Operations for a discussion of the Company's
decision to exit the oil and gas production business and account for this
segment as a discontinued operation. NJR Energy's continuing operations consist
of its equity investments in the Iroquois Gas Transmission System, L.P. and the
Market Hub Partners, L.P.
NJR Energy's financial results from continuing operations are summarized as
follows:
Three Months Ended, Nine Months Ended,
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(Thousands)
Revenues $ 281 $ 166 $ 802 $ 621
===== ===== ===== =====
Operating income before income taxes $ 110 $ (45) $ 279 $ (7)
===== ===== ===== =====
Net loss $(156) $(233) $(636) $(591)
===== ===== ===== =====
The net loss in all periods is due to the interest expense related to the
debt that is estimated to remain after the sale of the reserves. The Company
plans to use cash flow generated by NJR Energy's equity investments and to make
additional contributions from proceeds of the Company's Dividend Reinvestment
and Customer Stock Purchase Plan (DRP) to reduce such debt.
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 June 30, 1995, $115.8 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 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 $7
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 expects to finance these expenditures through 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. See Note 10. Subsequent Events for a discussion of recent financing and
refinancing activity.
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
NJR Energy formed NJR Storage Corporation (Storage) in December 1994 and
announced its participation in Market Hub Partners, L.P. (MHP) which 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 June 30, 1995, Storage's 5.67% equity investment in MHP
totaled $4 million. Storage expects to invest an additional $3.5 million in MHP
over the next two years.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information required by this Item is incorporated by reference to
Note 7 -- Legal and Regulatory Proceedings.
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 a report on Form 8-K Item 5. -- Other Items, dated May
19, 1995 with respect to the announcement that it will exit the oil and natural
gas production business and pursue the sale of the reserves and related assets
of its affiliates, NJR Energy Corporation and New Jersey Natural Resources
Company.
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: August 11, 1995 /s/Laurence M. Downes
----------------------------------------
Laurence M. Downes
President, Chief Executive Officer
and Chief Financial Officer
Date: August 11, 1995 /s/Glenn C. Lockwood
-----------------------------------------
Glenn C. Lockwood
Vice President, Controller
and Chief Accounting Officer
18