===============================================================================
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 December 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 (I.R.S. Employer Identification Number)
incorporation or organization)
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
February 1, 1996, was 17,997,537.
================================================================================
-1-
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED
DECEMBER 31,
----------------------
1994 1995
------ ------
(Thousands, except per share data)
OPERATING REVENUES ............................................................. $159,739 $126,047
-------- --------
OPERATING EXPENSES
Gas purchases ............................................................... 95,906 68,050
Operation and maintenance ................................................... 17,904 14,804
Depreciation and amortization ............................................... 5,867 5,715
Gross receipts tax, etc ..................................................... 15,611 13,474
Federal income taxes ........................................................ 6,163 5,553
-------- --------
Total operating expenses ....................................................... 141,451 107,596
-------- --------
OPERATING INCOME ............................................................... 18,288 18,451
Other expense, net ............................................................. 83 123
Interest charges, net .......................................................... 5,383 6,506
-------- --------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS .................................................................... 12,822 11,822
Preferred stock dividends ...................................................... 400 413
-------- --------
INCOME FROM CONTINUING OPERATIONS .............................................. 12,422 11,409
Loss from discontinued operations, net ......................................... -- 169
-------- --------
NET INCOME ..................................................................... $ 12,422 $ 11,240
======== ========
EARNINGS PER COMMON SHARE FROM
CONTINUING OPERATIONS ........................................................ $ .69 $ .65
Loss per common share from discontinued operations ............................. -- --
-------- --------
EARNINGS PER COMMON SHARE ...................................................... $ .69 $ .65
======== ========
DIVIDENDS PER COMMON SHARE ..................................................... $ .38 $ .38
======== ========
AVERAGE SHARES OUTSTANDING ..................................................... 17,910 17,419
======== ========
See Notes to Consolidated Financial Statements
-2-
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
DECEMBER 31,
1995 1994
-------- --------
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 12,422 $ 11,24
Adjustments to reconcile net income to cash flows
Depreciation and amortization............................................ 5,867 6,682
Amortization of deferred charges......................................... 2,014 497
Deferred income taxes.................................................... (8,348) 2,730
Change in working capital................................................ (10,761) (3,394)
Other, net............................................................... 5,917 (3,315)
------- --------
Net cash flows from operating activities..................................... 7,111 14,440
------- --------
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES
Proceeds from long-term debt............................................... 20,000 27,000
Proceeds from common stock................................................. 3,276 2,999
Payments of long-term debt ................................................ (68,450) --
Payments of common stock dividends......................................... (6,761) (6,575)
Net change in short-term debt.............................................. (8,900) (17,200)
--------- --------
Net cash flows (used in) from financing activities........................... (60,835) 6,224
--------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for
Utility plant............................................................ (12,856) (15,097)
Real estate properties................................................... (2,271) (646)
Oil and gas properties................................................... -- (643)
Equity investments....................................................... (789) (2,397)
Cost of removal.......................................................... (1,225) (1,124)
Proceeds from sale of assets............................................... 92,163 --
-------- --------
Net cash flows from (used in) investing activities......................... 75,022 (19,907)
-------- --------
Net change in cash and temporary investments............................... 21,298 757
Cash and temporary investments at September 30............................. 1,065 1,951
-------- --------
Cash and temporary investments at December 31.............................. $ 22,363 $ 2,708
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables................................................................ $(71,535) $(39,544)
Inventories................................................................ 8,305 4,394
Deferred gas costs......................................................... 14,504 9,404
Purchased gas.............................................................. 6,325 10,100
Accrued taxes.............................................................. 29,006 17,077
Customers' credit balances and deposits.................................... (1,369) 3,339
Other, net................................................................. 4,003 (8,164)
-------- --------
Total.................................................................. $(10,761) $ (3,394)
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid (received) for
Interest (net of amounts capitalized).................................... $ 6,575 $ 7,844
Income taxes............................................................. -- $ (1,148)
Non cash investing and financing activities
Capital lease............................................................. $ 31,850 --
See Notes to Consolidated Financial Statements
-3-
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1995 1995 1994
-------- -------- --------
(unaudited) (unaudited)
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant............................................. $778,327 $736,434 $706,687
Real estate properties.................................... 38,707 49,509 104,955
Oil and gas properties ................................... -- -- 63,750
-------- -------- --------
817,034 785,943 875,392
Accumulated depreciation and amortization ................ (189,101) (189,808) (224,648)
-------- -------- --------
Property, plant and equipment, net...................... 627,933 596,135 650,744
-------- -------- --------
CURRENT ASSETS
Cash and temporary investments............................ 22,363 1,065 2,708
Construction fund......................................... 12,500 12,500 --
Customer accounts receivable ............................. 61,725 20,196 40,592
Unbilled revenues......................................... 40,092 9,768 27,172
Allowance for doubtful accounts........................... (1,181) (422) (891)
Gas in storage, at average cost........................... 18,126 26,703 29,494
Materials and supplies, at average cost................... 8,715 8,443 6,738
Deferred gas costs........................................ 2,594 17,098 10,042
Prepaid state taxes....................................... 3,699 18,041 --
Assets held for sale, net................................. 1,495 66,997 --
Other..................................................... 7,526 5,512 8,884
-------- -------- -------
Total current assets................................... 177,654 185,901 124,739
-------- -------- --------
DEFERRED CHARGES AND OTHER
Equity investments........................................ 11,323 10,709 8,501
Regulatory assets......................................... 24,526 22,934 23,575
Other..................................................... 10,424 10,685 22,666
-------- -------- --------
Total deferred charges and other....................... 46,273 44,328 54,742
-------- -------- --------
Total assets........................................... $851,860 $826,364 $830,225
======== ======== ========
See Notes to Consolidated Financial Statements
-4-
NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1995 1995 1994
-------- -------- --------
(unaudited) (unaudited)
(Thousands)
CAPITALIZATION
Common stock equity....................................... $267,758 $258,919 $257,805
Redeemable preferred stock................................ 21,004 21,004 22,070
Long-term debt............................................ 315,627 352,227 325,590
-------- -------- --------
Total capitalization.................................... 604,389 632,150 605,465
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt...................... 2,364 2,364 4,238
Short-term debt .......................................... 27,500 16,400 49,800
Purchased gas ............................................ 35,429 29,104 25,050
Accounts payable and other................................ 39,886 33,817 30,653
Accrued taxes ............................................ 23,174 8,510 9,130
Customers' credit balances and deposits................... 14,671 16,040 17,819
-------- -------- --------
Total current liabilities............................... 143,024 106,235 136,690
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes .................................... 43,503 51,851 55,428
Deferred investment tax credits........................... 11,541 11,628 11,931
Deferred revenue.......................................... 22,842 3,300 --
Other..................................................... 26,561 21,200 20,711
-------- -------- --------
Total deferred credits ................................. 104,447 87,979 88,070
-------- -------- --------
Total capitalization and liabilities......................... $851,860 $826,364 $830,225
======== ======== ========
See Notes to Consolidated Financial Statements
-5-
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, 1995 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 1995 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 New Jersey
Resources Corporation (the Company) and its subsidiaries -- New Jersey Natural
Gas Company (NJNG), NJR Energy Services Corporation (Energy Services) and NJR
Development Company (NJR Development). New Jersey Natural Energy Company
(Natural Energy) and NJR Energy Corporation (NJR Energy) are wholly owned
subsidiaries of Energy Services and Commercial Realty & Resources Corp. (CR&R),
Paradigm Power, Inc. (PPI) and NJR Computer Technologies, Inc. are wholly owned
subsidiaries of NJR Development. 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
NJR Energy and its subsidiary, New Jersey Natural Resources Company (NJNR). The
Company has accounted for this segment as a discontinued operation and in
fiscal 1995 recorded an after-tax charge of $8.7 million, or $.49 per share.
This charge was 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.
In December 1995, NJR Energy sold its interests in all of its oil and gas
properties located in western Oklahoma, Kansas, Texas and Utah in two
transactions. The total sale price was $12.6 million and the proceeds were used
to reduce outstanding debt. In January 1996, NJR Energy sold its remaining
properties located in Eastern Oklahoma and Arkansas for $6.5 million. Operating
revenues for the discontinued operation were $2.5 million and $3.6 million for
the three months ended December 31, 1995 and 1994, respectively. At December 31,
1995, the net assets of the discontinued operation, consisting of remaining oil
and gas properties and related investments at estimated net realizable value of
$1.5 million, are classified as Assets held for sale, net in the Consolidated
Balance Sheets.
-6-
4. New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) 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 used and any resultant impairment
required would be measured based on the fair value of the asset. The Company is
evaluating the requirements of SFAS 121 which must be adopted by fiscal 1997 and
currently believes that they will not have a material impact on its results of
operations.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123), which establishes accounting and disclosure
requirements using a fair value based method of accounting for stock based
employee compensation plans. Under SFAS 123 the Company may either adopt the new
fair value based accounting method or continue the intrinsic value based method
established in Accounting Principles Board Opinion 25 and provide pro forma
disclosures of net income and earnings per share as if the accounting provisions
of SFAS 123 had been adopted. The Company plans to adopt only the disclosure
requirements of SFAS 123, which must be adopted by fiscal 1997. Therefore, such
adoption will have no effect on the Company's consolidated net earnings or cash
flow.
5. Capitalized Interest
Capitalized interest and total interest charges for the three months ended
December 31, 1995 and 1994, respectively, are as follows:
Three Months Ended
December 31,
1995 1994
------ ------
(Thousands)
Capitalized Interest ....................... $ 584 $ 516
====== ======
Total Interest Charges ..................... $6,304 $7,145
====== ======
6. Legal and Regulatory Proceedings
a. Various State Regulatory Proceedings
On November 22, 1995, the BPU approved a Stipulation Agreement relating to
the 1995 Remediation Rider (RA), Weather-Normalization Clause (WNC), Demand Side
Management Adjustment Clause (DSMAC) and Levelized Gas Adjustment Clause (LGA).
The approval of the Stipulation allowed recovery over seven years of gas
remediation costs incurred through June 1995 of $5.1 million, the collection of
the $1.9 million of gross margin that was accrued in fiscal 1995 due to the
impact of warmer than normal weather on the WNC and implementation of the
initial DSMAC which is designed to recover $3.5 million of deferred and
projected demand side management program costs. The Stipulation also provides
for the extension of the WNC on a permanent basis.
-7-
The Stipulation also settled the July 1995 LGA petition and included a
reduction of $5.2 million in gas costs, the continuation of NJNG's current
margin sharing formulae associated with its non-firm sales until the effective
date of the BPU Order in NJNG's 1997-98 LGA and approval for an extension of the
Financial Risk Management (FRM) Pilot Program designed to provide price
stability to NJNG's system supply portfolio. All of the costs and results of the
FRM program are to be recovered through the LGA.
As a result of the approval of the RA, WNC, DSMAC and LGA Stipulation,
NJNG's rates will not change.
b. 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
the remediation rider discussed in 6a. above, NJNG is recovering its
expenditures incurred through June 1995 over a seven-year period. Costs incurred
subsequent to June 30, 1995 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, at December 31, 1995, this amount is
reflected in both Regulatory Assets and Other Deferred Credits in the
Consolidated Balance Sheets. Estimates beyond this point cannot be made with
reasonable accuracy in view of changing technologies and governmental
regulations. However, the total cost to be incurred after the five-year period
could be significant. NJNG will continue to seek recovery of such costs through
the remediation rider.
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
-8-
proceedings.
c. 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 compensatory damages totaling $25.2 million from various plaintiffs.
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.
d. 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 continues to explore various disposal methods
for the tar emulsion/sand and gravel mixture.
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, 6b. Manufactured Gas
Plant Sites for a description of an action brought by NJNG against various
insurance carriers relating to insurance coverage of liability arising out of
these sites.
Based upon the gas remediation rider discussed in 6a. and 6b. above, NJNG
would attempt to seek recovery through the ratemaking process of any such
cleanup or remediation payments it might ultimately
-9-
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.
e. 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, 6b. Manufactured Gas Plant Sites, for a description of an action brought
by NJNG against various insurance carriers relating to 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, but would seek recovery of any such costs through the ratemaking
process. However, no assurance can be given as to the timing or extent of the
ultimate recovery of such costs. 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.
f. Iroquois
NJNR Pipeline Company (Pipeline), a 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. 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,
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, in December 1993, Iroquois
received a similar communication from the Army Corps of Engineers requesting
information regarding permit compliance in connection with certain aspects
-10-
of the pipeline construction. Iroquois is providing information to these
agencies in response to their requests.
Iroquois and its counsel have met 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.
Although no agreements have been reached regarding the disposition of these
matters, in October 1995, Iroquois informed its partners that it intended to
record a provision in its 1995 financial statements for an estimated liability
associated with these proceedings to reflect its current understanding of the
probable outcome. Accordingly, the Company recorded a provision of $560,000, or
$.03 per share, in its 1995 financial statements to reflect its proportionate
share of this probable liability.
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, 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 December 31, 1995 was $5.6 million.
g. 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, 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. In December 1992, the PaPUC issued a Final Order requiring the
Joint Venture, et al. to apply for a certificate of public convenience or to
cease and desist from providing service through the pipeline.
In January 1993, the Joint Venture, et al. filed a Petition for Review with
the Commonwealth Court of Pennsylvania (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 a second Petition for Review filed by the Joint Venture, et al.
challenging the lawfulness of the October 1992 action in light of the April 1989
tie vote. In July 1995, the Pennsylvania Supreme Court held that the April 1989
tie vote did not prohibit the PaPUC
-11-
from taking its vote in October 1992.
On November 30, 1995, the Commonwealth Court granted an application by
People's to lift the court's February 1993 stay. The Joint Venture, et al. are
currently examining their options in light of the above events.
In September 1993, People's 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 People's. It merely tolls
the statute of limitations and preserves any claim People's may have against the
defendants until resolution of the actions discussed above. This action may
concern a claim by People's for losses allegedly sustained as a result of the
activities of the Joint Venture, et al. 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.
In 1994, the Company wrote-off its $1 million investment in the Bessie-8
pipeline.
h. Securities and Exchange Commission (SEC)
On October 18, 1995, the SEC issued an Order Directing Private
Investigation and Designating Officers to Take Testimony in connection with
certain transactions engaged in by subsidiaries of the Company in early 1992. An
SEC investigation is a fact-finding inquiry and not an adversarial proceeding.
No adversarial proceedings have been commenced by the SEC. The Company is
cooperating with the Staff of the SEC in its investigation.
i. Long Branch Pier
In August 1988 and in 1989, NJNG and an electric utility were named
defendants in civil actions in New Jersey Superior Court commenced by the owners
of several businesses and stores destroyed in a fire at the Long Branch
Amusement Pier in New Jersey, which actions were subsequently consolidated. The
plaintiffs allege, among other things, that NJNG had lines beneath a boardwalk
which, the plaintiffs assert, reacted with faulty electric cables to cause the
fire that damaged the Pier. The several plaintiffs assert compensatory damages
against the defendants in an aggregate amount of approximately $35 million.
Pre-trial settlement conferences were unsuccessful and a trial on the issues of
liability commenced in October 1995. In January 1996, after two weeks of jury
deliberations, the court declared a mistrial. A new trial date has not been
scheduled. NJNG is examining its options in light of the mistrial.
NJNG is vigorously defending these matters and its liability insurance
carriers are participating in its defense. NJNG is unable to predict the outcome
of such matters but does not believe that their ultimate resolution will have a
material adverse effect on its consolidated financial condition or results of
operations.
j. Various
The Company is party to various claims, legal actions and complaints
arising in the ordinary course of business. In management's opinion, the
ultimate disposition of these matters will not have a material
-12-
adverse effect on its financial condition or results of operations.
7. Commitments and Contingent Liabilities
In March 1992, NJR Energy 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 has sold its natural gas reserves
pursuant to a plan to exit the oil and 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 producing reserve base. In connection with the second swap, NJR Energy
received $3.3 million, which is included in Deferred revenue and will be
amortized to income over the fifteen year life of the agreement. Under the terms
of the swap agreements, NJR Energy will pay to the counterparties the identical
fixed price it receives from the gas marketing company (the fixed price) in
exchange for the payment by the counterparties of an index price plus a spread
per mmbtu (the floating price) for the total volumes under the gas sales
contract. The swap agreements were effective as of November 1995, and will
expire on the same date as the underlying gas sales contract.
In order to secure the physical gas supply to meet the delivery
requirements under its gas sales contracts, NJR Energy entered into a long-term
purchase contract effective in November 1995, with a second gas marketing
company for the identical volumes it is obligated to sell under the
above-mentioned gas sales contract. NJR Energy has agreed to pay the supplier
the identical floating price it is receiving under the swap agreements. In
conjunction with this contract, NJR Energy received $1.9 million, which is
included in Deferred revenue and will be amortized to income over the life of
the agreement.
The net result of the above swap agreements and purchase contract is that
the Company has hedged both its price and volume risk associated with its
long-term, fixed-price sales 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 sales
contract compared with the floating price the Company is paying under the
purchase contract. However, the Company does not anticipate nonperformance by
the counterparties.
8. Other
At December 31, 1995 there were 17,928,239 shares of common stock
outstanding and the book value per share was $14.94.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications.
-13-
NEW JERSEY RESOURCES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995
RESULTS OF OPERATIONS
Consolidated net income for the quarter ended December 31, 1995 increased
by 11% to $12.4 million, compared with $11.2 million, for the same period last
year. Earnings per share for the quarter increased by 6% to $.69, compared with
$.65, for the same period last year. The increase in consolidated earnings 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
December 31,
1995 1994
------- --------
(Thousands)
Gross margin
Residential and commercial ................. $42,355 $41,004
Firm transportation ........................ 2,673 403
Interruptible and agency ................... 137 536
Off system and capacity release ............ 1,270 1,153
------- --------
Total gross margin ........................... $46,435 $43,096
======= =======
Operating income before income taxes ......... $23,606 $22,171
======= =======
Net income ................................... $12,677 $11,639
======= =======
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. Since fiscal 1993, NJNG's firm
gross margin has been subject to a weather-normalization clause (WNC) which
provides for a revenue adjustment if the weather varies by more than one-half of
one percent
-14-
from normal, or 10-year average, weather. The accumulated adjustment
from one heating season is billed or credited to customers in the subsequent
heating season.
Gross margin from sales to firm customers increased by $1.4 million, or 3%,
during the first fiscal quarter, compared with the same period last year due
primarily to a 21% increase in firm therm sales. The increase in firm therm
sales was due to the weather, which was 31% colder than last year, and the
impact of 12,224 customer additions during the twelve months ended December 31,
1995.
The weather for the three months was 17% colder than normal, or the 10-year
average. The impact of colder weather on gross margin was partially reduced by
the above-mentioned WNC. Under this rate mechanism, a total of $4.5 million of
gross margin was deferred for future refund to customers.
Firm Transportation
At December 31, 1995, NJNG provided firm transportation service to 1,275
commercial and industrial customers who chose this service. NJNG's gross margin
will not be negatively impacted by customers who utilize the firm transportation
service and purchase their gas from another supplier, as its tariffs are
designed such that no profit is earned on the commodity portion of sales to firm
customers.
Interruptible and Agency
NJNG services 55 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 7% and 6% of
total therm throughput in the three months ended December 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 formulae that govern these sales.
Under these formulae, 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
unregulated subsidiary, New Jersey Natural Energy Company. Margin from agency
sales agreements totalled $454,000 for the three months ended December 31, 1994.
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 82 million therms and generated $626,000 of
gross margin in the first
-15-
quarter of fiscal 1996, compared with 70 million therms and $599,000 of gross
margin in the same period a year ago. The capacity release program generated
gross margin of $644,000 and $554,000 in the three months ended December 31,
1995 and 1994, respectively. These increases were due primarily to greater sales
volume resulting from increased marketing efforts.
Operating Income Before Income Taxes and Net Income
Operating income before income taxes increased by $1.4 million, or 6%, in
the first quarter of fiscal 1996 compared with the same period last year, as
increased gross margin more than offset a 9% increase in operation and
maintenance expenses associated primarily with conservation program expenses and
the impact of growth on operations. Net income increased by $1 million, or 9%,
due to the higher operating income and lower net interest expense which was due
primarily to lower average interest rates.
NON-UTILITY OPERATIONS
MARKETING OPERATIONS
New Jersey Natural Energy Company (Natural Energy) was formed in 1995 to
facilitate the unregulated marketing of natural gas and fuel and capacity
management services. In June 1995, the agency sales function of NJNG was
transferred to Natural Energy. In August 1995, Natural Energy entered into a
three-year fuel management agreement with GPU Service Corporation to manage
their gas purchases and interstate pipeline capacity. Natural Energy's gross
margin totaled $1.4 million and net income totaled $562,000 for the three months
ended December 31, 1995.
REAL ESTATE OPERATIONS
CR&R's financial results are summarized as follows:
Three Months Ended
December 31,
1995 1994
-------------------
(Thousands)
Revenues ...................................... $ 1,868 $3,006
====== ======
Operating income (loss) before income taxes ... $ (651) $1,467
====== ======
Net loss ...................................... $(1,029) $(119)
======== ======
On November 8, 1995, CR&R sold certain of its real estate assets for $52.65
million in cash. The transaction also includes the issuance of options to the
buyer to purchase adjacent undeveloped land parcels at various prices. One
unsubdivided parcel of land was sold for an 11% interest only note of $5.8
million. Upon receipt of the subdivision, for which the process has begun and is
expected to be completed within one year, the $5.8 million note will be
cancelled and the land will be transferred back to CR&R. While the subdivision
is being sought, CR&R has leased the land back and is performing various site
-16-
improvements. This portion of the transaction will be accounted for under the
cost recovery method. This sale resulted in a pre-tax gain of $160,000, which is
included in Other expense, net. However, it also required the one-time write-off
of unamortized commissions and other costs totaling $1.8 million, which is
reflected in operating income before income taxes.
On December 22, 1995, CR&R sold a 157,000 square foot, Class A, office
building, in a sale-leaseback transaction for $31.85 million. CR&R's pre-tax
gain on this transaction is approximately $17.7 million which is included in
Deferred revenue and will be amortized over 25 years in accordance with
generally accepted accounting principles. The primary tenant of the facility,
NJNG, will lease the building under a long-term master lease agreement and will
continue to occupy a majority of the space in the building. Prior to the
transaction, NJNG leased about 79% of the building under a long-term lease.
NJR used the proceeds from these sales to reduce outstanding debt.
CR&R's financial results for the quarter ended December 31, 1995 decreased
compared with last year due primarily to the impact of the abovementioned
one-time write-off of costs associated with the asset sales.
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.
The financial results from continuing operations of NJR Energy are
summarized as follows:
Three Months Ended
December 31,
1995 1994
-------------------
(Thousands)
Revenues .......................................... $475 $ 304
==== =====
Operating income (loss) before income taxes ....... $432 $ (42)
==== =====
Net income (loss) ................................. $192 $(208)
==== ======
The improvement in NJR Energy's financial results is due primarily to lower
interest expense related to the debt that is estimated to remain after the sale
of the reserves. The Company plans to further reduce such debt from the 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).
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 credit facilities
-17-
with a number of banks totaling $145 million and has a $10 million credit
facility available on an offering basis. At December 31, 1995, $50.8 million was
outstanding under these agreements. The Company meets the common equity
requirements of each subsidiary through new issuances, including the proceeds
from its DRP.
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 $65
million with a number of commercial banks and has an additional $20 million line
of credit available on an offering basis. NJNG's lines of credit are adjusted
quarterly based upon its projected cash needs.
Remaining fiscal 1996 construction expenditures are estimated at $36
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 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.
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 an approximately 76,300 square foot
flex building on about 10 acres of land in its Monmouth Shores Corporate Park
(MSCP) which is expected to be completed in the second quarter of fiscal 1996.
The total project cost is expected to total $6.4 million, of which $5.5 million
has been expended through December 31, 1995. Such capital expenditures are
expected to be funded through temporary cash investments maintained by the
Company and internal generation.
OIL AND GAS
NJR Storage Corporation (Storage), a subsidiary of NJR Energy, is a 5.67%
partner 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 December 31, 1995, Storage's investment in MHP totaled $5.8
million and remaining investments in fiscal 1996 are expected to total $1.5
million. These expenditures are expected to be funded through temporary cash
investments maintained by the Company, proceeds from the Company's DRP and
internal generation.
-18-
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27-1 Financial Data Schedule
(b) Reports on Form 8-K
On October 12, 1995, the Company filed a Form 8-K regarding CR&R's
execution of a contract to sell certain of its real estate assets.
On December 1, 1995, the Company filed a Form 8-K regarding certain
amendments to its By-laws.
-19-
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: February 13, 1996 /s/ LAURENCE M. DOWNES
----------------- ---------------------
Laurence M. Downes
President and
Chief Executive Officer
Date: February 13, 1996 /s/ GLENN C. LOCKWOOD
----------------- --------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer