SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 Commission file number 1-8359
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2376465
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification Number)
1415 Wyckoff Road, Wall, New Jersey--07719 908-938-1480
(Address of principal Registrant's telephone number,
executive offices) including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
YES: X No:
The number of shares outstanding of $2.50 par value Common Stock as of May 1,
1996, was 18,090,353.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
(Thousands, except per share data)
OPERATING REVENUES..................................... $233,917 $197,329 $393,656 $326,294
-------- -------- -------- --------
OPERATING EXPENSES
Gas purchases......................................... 141,923 110,358 237,829 181,326
Operation and maintenance............................. 18,836 14,738 36,740 29,542
Depreciation and amortization......................... 5,786 5,708 11,653 11,423
Gross receipts tax, etc............................... 21,664 20,802 37,275 34,276
Federal income taxes.................................. 13,483 13,519 19,646 19,072
-------- -------- -------- --------
Total operating expenses............................. 201,692 165,125 343,143 275,639
-------- -------- -------- --------
OPERATING INCOME....................................... 32,225 32,204 50,513 50,655
Other income (expense), net............................ 220 (18) 137 (141)
Interest charges, net.................................. 5,104 6,094 10,487 12,600
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS ............................................. 27,341 26,092 40,163 37,914
Preferred stock dividends.............................. 400 413 800 826
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS 26,941 25,679 39,363 37,088
Loss from discontinued operations, net................. -- (185) -- (354)
-------- -------- -------- --------
NET INCOME ............................................ $ 26,941 $ 25,494 $ 39,363 $ 36,734
======== ======== ======== ========
EARNINGS PER COMMON SHARE FROM
CONTINUING OPERATIONS.................................. $1.50 $1.46 $2.19 $2.12
Loss per common share from discontinued
operations............................................. -- (.01) -- (.02)
----- ----- ----- -----
EARNINGS PER COMMON SHARE.............................. $1.50 $1.45 $2.19 $2.10
===== ===== ===== =====
DIVIDENDS PER COMMON SHARE............................. $ .39 $ .38 $ .77 $ .76
===== ===== ===== =====
AVERAGE SHARES OUTSTANDING............................. 18,001 17,550 17,955 17,485
====== ====== ====== ======
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Six Months Ended
March 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................................. $ 39,363 $ 36,734
Adjustments to reconcile net income to cash flows
Depreciation and amortization.......................................................... 11,653 13,483
Amortization of deferred charges....................................................... 2,459 1,012
Deferred income taxes.................................................................. (8,207) 936
Change in working capital.............................................................. 24,057 42,276
Other, net............................................................................. (754) (2,043)
-------- --------
Net cash flows from operating activities................................................. 68,571 92,398
-------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from long-term debt............................................................ 20,000 26,650
Proceeds from common stock.............................................................. 5,873 5,807
Payments of long-term debt ............................................................. (75,064) (2,070)
Payments of common stock dividends...................................................... (13,574) (13,205)
Net change in short-term debt........................................................... (36,400) (67,000)
-------- --------
Net cash flows used in financing activities.............................................. (99,165) (49,818)
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for
Utility plant.......................................................................... (20,727) (28,869)
Real estate properties................................................................. (3,285) (1,250)
Oil and gas properties................................................................. -- (939)
Equity investments..................................................................... (1,419) (2,397)
Cost of removal ....................................................................... (2,285) (2,339)
Proceeds from asset sales............................................................... 98,619 --
-------- --------
Net cash flows from (used in) investing activities....................................... 70,903 (35,794)
-------- --------
Net change in cash and temporary investments............................................. 40,309 6,786
Cash and temporary investments at September 30........................................... 1,065 1,951
-------- --------
Cash and temporary investments at March 31............................................... $ 41,374 $ 8,737
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables............................................................................. $(94,049) $(60,259)
Inventories............................................................................. 21,723 23,504
Deferred gas costs...................................................................... 20,829 36,523
Purchased gas........................................................................... 11,600 11,168
Prepaid and accrued taxes, net.......................................................... 47,973 45,884
Customers' credit balances and deposits................................................. (1,029) (8,998)
Other, net.............................................................................. 17,010 (5,546)
-------- --------
Total.................................................................................... $ 24,057 $ 42,276
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized)................................................... $ 8,918 $ 12,982
Income taxes............................................................................ $ 14,487 $ 4,523
Non cash investing and financing activities
Capital lease........................................................................... $ 31,850 --
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
March 31, September 30, March 31,
1996 1995 1995
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant.......................................... $ 786,983 $ 736,434 $ 719,402
Real estate properties................................. 39,717 49,509 105,561
Oil and gas properties................................. -- -- 64,045
--------- --------- ---------
826,700 785,943 889,008
Accumulated depreciation and amortization.............. (193,770) (189,808) (229,521)
--------- --------- ---------
Property, plant and equipment, net.................... 632,930 596,135 659,487
--------- --------- ---------
CURRENT ASSETS
Cash and temporary investments......................... 41,374 1,065 8,737
Construction fund...................................... 12,500 12,500 -
Customer accounts receivable........................... 94,071 20,196 66,728
Unbilled revenues...................................... 30,919 9,768 22,166
Allowance for doubtful accounts........................ (1,840) (422) (1,306)
Gas in storage, at average cost........................ 4,641 26,703 10,652
Materials and supplies, at average cost................ 8,782 8,443 6,470
Deferred gas costs..................................... -- 17,098 --
Prepaid state taxes.................................... -- 18,041 --
Assets held for sale, net.............................. -- 66,997 --
Other.................................................. 5,222 5,512 5,795
--------- --------- ---------
Total current assets.................................. 195,669 185,901 119,242
--------- --------- ---------
DEFERRED CHARGES AND OTHER
Equity investments.................................... 12,411 10,709 8,708
Regulatory assets..................................... 36,322 22,934 22,566
Other................................................. 10,255 10,685 12,524
--------- --------- ---------
Total deferred charges and other.................... 58,988 44,328 43,798
--------- --------- ---------
Total assets..................................... $ 887,587 $ 826,364 $ 822,527
========= ========= =========
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
March 31, September 30, March 31,
1996 1995 1995
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
(Thousands)
CAPITALIZATION
Common stock equity................................ $290,321 $258,919 $279,387
Redeemable preferred stock......................... 21,004 21,004 21,285
Long-term debt..................................... 309,013 352,227 323,877
-------- -------- --------
Total capitalization.............................. 620,338 632,150 624,549
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt............... 2,364 2,364 4,238
Short-term debt.................................... -- 16,400 --
Purchased gas...................................... 40,704 29,104 26,118
Accounts payable and other......................... 50,804 33,817 30,230
Accrued taxes...................................... 38,442 8,510 37,937
Overrecovered gas costs............................ 3,731 -- 8,081
Customers' credit balances and deposits............ 15,011 16,040 5,482
-------- -------- --------
Total current liabilities......................... 151,056 106,235 112,086
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes ............................ 43,644 51,851 53,634
Deferred investment tax credits.................... 11,454 11,628 11,831
Deferred revenue................................... 22,524 3,300 --
Other.............................................. 38,571 21,200 20,427
-------- -------- --------
Total deferred credits............................ 116,193 87,979 85,892
-------- -------- --------
Total capitalization and liabilities............. $887,587 $826,364 $822,527
======== ======== ========
See Notes to Consolidated Financial Statements
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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 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. 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 for $12.6 million. The proceeds from these sales were used to
reduce outstanding debt. In January 1996, NJR Energy sold its remaining oil and
gas properties, located in Eastern Oklahoma and Arkansas, for $6.5 million.
These sales are subject to purchase price adjustments which are expected to be
finalized in the third fiscal quarter. Based upon the results of the asset sales
and costs incurred to date, the Company currently estimates that the reserve
established in fiscal 1995 for the discontinued operations is adequate.
Operating revenues for the discontinued operations were $3.4 million and $6.8
million for the six months ended March 31, 1996 and March 31, 1995,
respectively.
4. New Accounting Standard
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
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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
resulting 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 consolidated financial condition or 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 financial condition
or results of operations.
5. Capitalized Interest
Capitalized interest and total interest charges for the three and six
months ended March 31, 1996 and 1995, respectively, are as follows:
Three Months Ended, Six Months Ended,
March 31, March 31,
1996 1995 1996 1995
--------------------------- -----------------------------
(Thousands)
Capitalized Interest $ 284 $ 565 $ 868 $ 1,081
====== ====== ======= =======
Total Interest Charges $5,388 $6,831 $11,692 $13,976
====== ====== ======= =======
6. Legal and Regulatory Proceedings
a. 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 by 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 (the NJDEP) and local government authorities with respect to the MGP
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 NJDEP covering all eleven sites. These
documents establish the procedures to be followed by NJNG in developing a final
remedial clean-up plan for each site.
Most of the cost of such studies and investigations is being shared under
an agreement with the former owner and operator of ten of the MGP sites. Through
a Remediation Rider approved by the Board of
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Public Utilities (BPU), 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.
As of December 31, 1995, NJNG had estimated that it would incur additional
expenditures of $14 million over the next five years for further investigation
and remedial action at these sites and, accordingly reflected this amount in
both Regulatory assets and Other deferred credits. NJNG, with the assistance of
an outside consulting firm, has recently completed an environmental review of
the sites, including a review of its potential liability for investigation and
remedial action for periods significantly beyond the five year period. On the
basis of such review, NJNG has estimated that, exclusive of insurance
recoveries, if any, total future expenditures to remediate and monitor known MGP
sites will range from $27.5 million to $60 million. NJNG's estimates of these
liabilities are based upon currently available facts, existing technology and
presently enacted laws and regulations. Where available information is
sufficient to estimate the amount of the liability, it is NJNG's policy to
accrue the full amount of such estimate. Where the information is sufficient
only to establish a range of probable liability and no point within the range is
more likely than the other, it is NJNG's policy to accrue the lower end of the
range. Accordingly, at March 31, 1996, NJNG has increased its accrued liability
and corresponding regulatory asset to $27.5 million. The actual costs to be
incurred by NJNG are dependent upon several factors, including final
determination of remedial action, changing technologies and governmental
regulations, the ultimate ability to pay of other responsible parties and any
insurance recoveries. 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 proceedings.
b. 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.
c. 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. and its affiliated companies
(SBA) seeking damages arising from alleged environmental contamination at three
sites owned or occupied by SBA. 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 NJDEP 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 NJDEP
issued letters classifying the tar emulsion/sand and gravel mixture at each site
as dry industrial
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waste, a non-hazardous classification. On April 4, 1996, in a meeting with all
parties to the litigation and the judge assigned to the case, the NJDEP
confirmed the non-hazardous classification, which will allow for conventional
disposal. Non-hazardous waste may be disposed of by a number of conventional
methods, which are being explored by the parties.
NJNG's liability insurance carrier has assumed defense of this action but
has denied coverage for SBA's claims. See above, 6a. 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 NJDEP 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 NJDEP notified NJNG that it was removing NJNG without prejudice as a
respondent to such NJDEP Directive and Notice.
d. Bridgeport Rental and Oil Service
In January 1992, NJNG was advised of allegations that certain waste oil
from its former MGP 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, 6a.
Manufactured Gas Plant (MGP) 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.
e. 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 U.S. - Canadian
border in upstate New York to Long Island.
Iroquois was informed by the U.S. Attorney's Offices for the Northern,
Southern and Eastern Districts of New York that an investigation was 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.
In addition, in conjunction with the Environmental Protection Agency, a
criminal investigation was initiated by the U.S. Attorney's Office for the
Northern District of New York.
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In December 1993, Iroquois received notification from the Enforcement Staff
of the Federal Energy Regulatory Commission Office of the General Counsel
(Enforcement) that Enforcement commenced a preliminary, non-public investigation
concerning matters related to Iroquois' construction of certain of its pipeline
facilities. 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 of the pipeline
construction.
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.
Iroquois has informed the Company that it is in the process of negotiating
a final settlement with the Government regarding certain environmental and
safety allegations asserted by the Government. Iroquois anticipates that a
potential settlement will be reached in the near future. If the proposed
settlement is finalized, the Company anticipates that future costs associated
with the Government's allegations will not have a material adverse effect on the
Company's consolidated financial condition on results of operations. Pipeline's
investment in Iroquois as of March 31, 1996 was $6.1 million.
f. 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 from taking its October 1992 vote.
-9-
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.
g. Securities and Exchange Commission (SEC)
In October 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.
h. 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 (the 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.
Subsequently thereto, the Company and the electric utility have settled two of
the complaints. A new trial date for the remaining complaints has been scheduled
for September 3, 1996.
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.
i. Various
The Company is party to various claims, legal actions and complaints
arising in the ordinary course
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of business. In management's opinion, the ultimate disposition of these matters
will not have a material adverse effect on the Company's consolidated financial
condition or results of operations.
7. Other
At March 31, 1996, there were 18,021,189 shares of common stock outstanding
and the book value per share was $16.11.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 1996
A. RESULTS OF OPERATIONS
Consolidated net income from continuing operations for the quarter ended
March 31, 1996 increased by 5% to $26.9 million, or $1.50 per share, compared
with $25.7 million, or $1.46 per share, for the same period last year.
Consolidated net income from continuing operations for the six months ended
March 31, 1996 increased by 6%, to $39.4 million, or $2.19 per share, compared
with $37.1 million, or $2.12 per share, last year.
UTILITY OPERATIONS
NJNG's financial results are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- --------
(Thousands)
Gross margin
Residential and commercial $61,888 $60,801 $104,243 $101,805
Firm transportation 4,498 1,436 7,171 1,839
Interruptible and agency 52 1,089 189 1,625
Off system and capacity release 1,522 1,676 2,792 2,829
------- ------- -------- --------
Total gross margin $67,960 $65,002 $114,395 $108,098
======= ======= ======== ========
Operating income before income taxes $42,632 $43,881 $ 66,238 $ 66,052
======= ======= ======== ========
Net income $25,328 $25,863 $ 38,005 $ 37,502
======= ======= ======== ========
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-
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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 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 $1.1 million, or
approximately 2%, and $2.4 million, or approximately 2%, for the three and six
months ended March 31, 1996, respectively, compared with a year ago due
primarily to an increase in firm therm sales.
Therm sales to firm customers increased from 213 million and 342 million
for the three and six months ended March 31, 1995, respectively, to 236 million
and 393 million for the comparable periods this year. The increase in firm therm
sales in both periods was due to the weather, which was 20% colder than last
year, the impact of 11,113 customer additions during the twelve months ended
March 31, 1996, and higher average customer usage.
The weather for the six months ended March 31, 1996 was 14% colder than
normal, or the 10-year average. The impact of colder weather on gross margin was
partially mitigated by the above-mentioned WNC. Under this rate mechanism, a
total of $10.3 million of gross margin was deferred for refund to customers in
fiscal 1997.
Firm Transportation
At March 31, 1996, NJNG provided firm transportation service to 1,663
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 5% of total
therm throughput in the six months ended March 31, 1996 and 1995, 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 Natural Energy.
Margin from agency sales agreements totalled $1.0 and $1.4 million for the three
and six months ended March 31, 1995, 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
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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 76 million therms and generated $800,000 of
gross margin and 158 million therms and $1.4 million of gross margin in the
three and six months ended March 31, 1996, respectively, compared with 68
million therms and $888,000 of gross margin and 138 million therms and $1.5
million of gross margin in the comparable periods last year. The decrease in
margin per therm was due primarily to increased competition. The capacity
release program generated gross margin of $722,000 and $1.4 million in the three
and six months ended March 31, 1996, respectively, compared with $788,000 and
$1.3 million in the comparable periods last year.
Operating Income Before Income Taxes and Net Income
Operating income before income taxes decreased by $1.2 million, or 3%, and
net income decreased by $535,000, or 2%, for the three months ended March 31,
1996, compared with the same period last year, primarily due to increased
operation and maintenance expenses associated with the much colder than normal
winter weather, and the transfer of agency income in 1995, which more than
offset higher gross margin.
Operating income before taxes increased by $186,000, or less than 1%, and
net income increased by $503,000, or 1%, for the six months ended March 31,
1996, compared with the same period last year due primarily to higher gross
margin and lower interest costs, which more than offset higher operation and
maintenance expenses and the transfer of agency income in 1995.
NON-UTILITY OPERATIONS
MARKETING OPERATIONS
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 retail gas sales totaled 3.5 billion cubic feet (bcf)
and 5.9 bcf and gas under management totaled 3.7 bcf and 10.3 bcf for the three
and six months ended March 31, 1996, respectively. Natural Energy's gross margin
totaled $2.5 million and $3.9 million and net income totaled $1.2 million and
$1.7 million for the three and six months ended March 31, 1996, respectively.
REAL ESTATE OPERATIONS
CR&R's financial results are summarized as follows:
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Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1996 1995 1996 1995
----- ------ ------- ------
(Thousands)
Revenues $ 576 $3,196 $ 2,444 $6,202
===== ====== ======= ======
Operating income (loss) before income taxes $(128) $1,623 $ (779) $3,090
===== ====== ======= ======
Net income (loss) $ (74) $ 38 $(1,103) $ (81)
===== ====== ======= ======
On November 8, 1995, CR&R sold certain of its real estate assets for $52.65
million in cash. The transaction also included 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
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 income, 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 in the six months ended March
31, 1996.
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 was approximately $17.7 million which is included in
Deferred revenue and is being 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.
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:
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Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1996 1995 1996 1995
---- ----- ------ ------
(Thousands)
Revenues $628 $ 217 $1,103 $ 521
==== ===== ====== =====
Operating income before income taxes $587 $ 37 $1,019 $ 169
==== ===== ====== =====
Net income (loss) $175 $(272) $ 367 $(480)
==== ===== ====== =====
The improvement in NJR Energy's financial results is due primarily to lower
interest expense as the proceeds from the sales of the reserves were used to
reduce outstanding debt. The Company plans to further reduce such debt from the
cash flow generated by NJR Energy's equity investments and from proceeds of
sales of the Company's common stock through its Automatic Dividend Reinvestment
Plan (DRP).
B. 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 with a number
of banks totaling $145 million and has a $10 million credit facility available
on an offering basis. At March 31, 1996, $45.5 million was outstanding under
these agreements. NJNG issues short and long term debt based upon its own
financial profile. The Company meets the common equity requirements of each
subsidiary through new issuances of the Company's common stock, 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 $50
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 $27
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth, and general and information 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.
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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, in 1994, the Board
of Directors approved the construction of an approximately 76,300 square foot
flex building on approximately 10 acres of land in CR&R's Monmouth Shores
Corporate Park (MSCP) which was substantially completed as of March 31, 1996.
The total project cost is expected to total $6.7 million, of which $5.8 million
has been expended through March 31, 1996. CR&R will also construct a 98,000
square foot addition to an existing building at an incremental cost of
approximately $5.4 million. This additional space has been pre-leased to the
occupant of the existing building and is expected to be completed in January
1997. 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 March 31, 1996, Storage's investment in MHP totaled $6.3
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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information required by this Item is incorporated herein by reference to
Part I, Item 1, Note 6 Legal and Regulatory Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
On February 14, 1996, the stockholders voted upon the following matters at
the annual stockholder meeting.
(a) The election of four (4) directors, one (1) to serve for a one year
term expiring in 1997, and three (3) to serve for three-year terms expiring in
1999 and until their respective successors are duly elected and are qualified.
The results of the voting were as follows:
Director For Against
-------- --- -------
Richard S. Sambol 14,654,334 269,246
Leonard S. Coleman 14,619,195 304,385
Lester D. Johnson 14,621,699 301,881
Dorothy K. Light 14,675,953 247,627
(b) The stockholders approved a proposal to amend the Company's Executive
Long-Term Incentive Compensation Plan. The votes were as follows:
For Against Abstain
--- ------- -------
13,382,352 1,122,828 418,400
(c) The stockholders approved a proposal to amend the Restated Certificate
to increase the authorized number of shares of Common Stock. The votes were as
follows:
For Against Abstain
--- ------- -------
13,069,267 1,560,072 294,242
(d) The stockholders approved a proposal to amend the Restated Certificate
to increase the authorized number of shares of Preferred Stock. The votes were
as follows:
For Against Abstain
--- ------- -------
9,701,058 3,348,881 340,001
(e) The stockholders approved the action to retain Deloitte & Touche LLP as
auditors for the fiscal year ending September 30, 1996. The votes were as
follows:
For Against Abstain
--- ------- -------
14,627,035 119,850 170,696
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27-1 Financial Data Schedule
(b) Reports of Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW JERSEY RESOURCES CORPORATION
Date: May 14, 1996 /s/ Laurence M. Downes
---------- ----------------------
Laurence M. Downes
President and
Chief Executive Officer
Date: May 14, 1996 /s/ Glenn C. Lockwood
----------- ---------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer
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