SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 (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 August 7,
1996, was 18,117,156.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- -------- -------
(Thousands, except per share data)
OPERATING REVENUES ................................ $94,456 $74,444 $488,112 $400,738
------- ------- -------- --------
OPERATING EXPENSES
Gas purchases .................................... 54,933 40,446 292,762 221,772
Operation and maintenance ........................ 17,003 14,539 53,743 44,081
Depreciation and amortization .................... 5,779 5,709 17,432 17,132
Gross receipts tax, etc........................... 8,067 7,012 45,342 41,288
Federal income taxes ............................. 907 50 20,553 19,122
------- ------- -------- --------
Total operating expenses .................... 86,689 67,756 429,832 343,395
------- ------- -------- --------
OPERATING INCOME .................................. 7,767 6,688 58,280 57,343
Other income, net ................................. 174 658 311 517
Interest charges, net ............................. 5,312 5,734 15,799 18,334
------- ------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS ........... 2,629 1,612 42,792 39,526
Preferred stock dividends ......................... 400 403 1,200 1,229
------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS ................. 2,229 1,209 41,592 38,297
Loss from discontinued operations, net ............ -- (24) -- (378)
Loss on disposal, including provision for estimated
operating losses during phase-out period, less
applicable income tax benefits of $4,665 ........ -- (8,665) -- (8,665)
------- ------- -------- --------
NET INCOME (LOSS) ................................. $ 2,229 $(7,480) $ 41,592 $ 29,254
======= ======= ======== ========
EARNINGS PER COMMON SHARE FROM
CONTINUING OPERATIONS ............................. $.12 $.07 $2.31 $2.18
Loss per common share from discontinued operations -- (.49) -- (.51)
------- ------- -------- --------
EARNINGS (LOSS) PER COMMON SHARE .................. $.12 $(.42) $2.31 $1.67
==== ===== ===== =====
DIVIDENDS PER COMMON SHARE ........................ $.39 $.38 $1.16 $1.14
==== ===== ===== =====
AVERAGE SHARES OUTSTANDING ........................ 18,095 17,672 18,002 17,547
======= ======= ======= =======
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
------ ------
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................... $ 41,592 $ 29,254
Adjustments to reconcile net income to cash flows
Depreciation and amortization....................................... 17,432 20,279
Loss from disposal of discontinued operations....................... -- 8,665
Amortization of deferred charges.................................... 2,923 1,520
Deferred income taxes............................................... (4,353) 2,230
Change in working capital........................................... 2,775 30,168
Other, net.......................................................... (4,376) 1,603
-------- --------
Net cash flows from operating activities.............................. 55,993 93,719
-------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from long-term debt......................................... 20,000 25,000
Proceeds from common stock........................................... 6,733 8,360
Payments of long-term debt and preferred stock ...................... (81,688) (6,493)
Payments of common stock dividends................................... (20,602) (19,883)
Net change in short-term debt........................................ (23,200) (50,600)
-------- --------
Net cash flows used in financing activities........................... (98,757) (43,616)
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for
Utility plant....................................................... (33,110) (38,957)
Real estate properties.............................................. (4,883) (2,404)
Oil and gas properties.............................................. -- (1,195)
Equity investments.................................................. (1,972) (4,507)
Cost of removal .................................................... (2,979) (3,378)
Proceeds from asset sales............................................ 98,619 --
-------- --------
Net cash flows from (used in) investing activities.................... 55,675 (50,441)
-------- --------
Net change in cash and temporary investments.......................... 12,911 (338)
Cash and temporary investments at September 30........................ 1,065 1,951
-------- --------
Cash and temporary investments at June 30............................. $13,976 $ 1,613
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables.......................................................... $(32,534) $(10,407)
Inventories.......................................................... 6,335 18,904
Deferred gas costs................................................... 11,030 25,039
Purchased gas........................................................ (2,088) 5,269
Prepaid and accrued taxes, net....................................... 5,640 3,439
Customers' credit balances and deposits.............................. 2,801 (4,888)
Other, net........................................................... 11,591 (7,188)
-------- --------
Total................................................................. $ 2,775 $ 30,168
======== ========
Cash paid for
Interest (net of amounts capitalized)................................ $15,053 $ 18,948
Income taxes......................................................... $19,535 $ 4,805
Non cash investing and financing activities
Capital lease........................................................ $31,850 --
See Notes to Consolidated Financial Statements
-2-
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, SEPTEMBER 30, JUNE 30,
1996 1995 1995
---------- ------------ ----------
(unaudited) (unaudited)
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant ............................ $ 798,357 $ 736,434 $ 728,805
Real estate properties ................... 41,312 49,509 106,715
--------- --------- ---------
839,669 785,943 835,520
Accumulated depreciation and amortization. (198,176) (189,808) (193,941)
--------- --------- ---------
Property, plant and equipment, net ...... 641,493 596,135 641,579
--------- --------- ---------
CURRENT ASSETS
Cash and temporary investments ........... 13,976 1,065 1,613
Construction fund ........................ 12,500 12,500 --
Customer accounts receivable ............. 54,409 20,196 31,868
Unbilled revenues ........................ 9,205 9,768 8,543
Allowance for doubtful accounts .......... (1,979) (422) (1,175)
Gas in storage, at average cost .......... 20,670 26,703 14,289
Materials and supplies, at average cost .. 8,141 8,443 7,433
Deferred gas costs ....................... 6,068 17,098 3,983
Prepaid state taxes ...................... 19,495 18,041 21,038
Assets held for sale, net ................ -- 66,997 14,936
Other .................................... 5,899 5,512 5,857
--------- --------- ---------
Total current assets .................... 148,384 185,901 108,385
--------- --------- ---------
DEFERRED CHARGES AND OTHER
Equity investments ...................... 12,570 10,709 10,440
Regulatory assets ....................... 36,101 22,934 22,638
Other ................................... 9,158 10,685 10,062
--------- --------- ---------
Total deferred charges and other ...... 57,829 44,328 43,140
--------- --------- ---------
Total assets ....................... $ 847,706 $ 826,364 $ 793,104
========= ========= =========
See Notes to Consolidated Financial Statements
-3-
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
JUNE 30, SEPTEMBER 30, JUNE 30,
1996 1995 1995
----------- ------------ -----------
(unaudited) (unaudited)
(Thousands)
CAPITALIZATION
Common stock equity ..................... $286,362 $258,919 $267,682
Redeemable preferred stock .............. 20,880 21,004 21,015
Long-term debt .......................... 303,513 352,227 322,327
-------- -------- --------
Total capitalization ................... 610,755 632,150 611,024
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt .... 1,364 2,364 3,564
Short-term debt ......................... 13,200 16,400 12,900
Purchased gas ........................... 27,016 29,104 20,219
Accounts payable and other .............. 46,095 33,817 32,870
Accrued taxes ........................... 15,604 8,510 16,530
Customers' credit balances and deposits . 18,841 16,040 9,592
-------- -------- --------
Total current liabilities .............. 122,120 106,235 95,675
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes ................... 47,498 51,851 50,263
Deferred investment tax credits ......... 11,367 11,628 11,730
Deferred revenue ........................ 22,205 3,300 --
Other ................................... 33,761 21,200 24,412
-------- -------- --------
Total deferred credits ................. 114,831 87,979 86,405
-------- -------- --------
Total capitalization and liabilities .. $847,706 $826,364 $793,104
======== ======== ========
See Notes to Consolidated Financial Statements
-4-
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 and January 1996 NJR Energy sold its interests in all of
its oil and gas properties in three transactions for $19.4 million. The proceeds
from these sales were used to reduce outstanding debt. 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 $3.9 million
and $9.8 million for the nine months ended June 30, 1996 and 1995, respectively.
-5-
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 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 it 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 nine
months ended June 30, 1996 and 1995, respectively, are as follows:
Three Months Ended, Nine Months Ended,
June 30, June 30,
----------------- ------------------
1996 1995 1996 1995
------ ------ ------ ------
(Thousands)
Capitalized Interest ............. $271 $842 $1,139 $1,923
==== ==== ====== ======
Total Interest Charges ........... $5,246 $6,305 $16,938 $20,281
====== ====== ======= =======
6. Legal and Regulatory Proceedings
a. Levelized Gas Adjustment Clause (LGA)
On July 31, 1996, NJNG filed for a net $8 million, or 2%, increase in its
Levelized Gas Adjustment clause (LGA). This LGA filing included updated factors
for its Gas Cost Recovery factor (GCR), Weather Normalization Clause (WNC),
Remediation Adjustment Clause (RA) and Demand Side Management Adjustment Clause
(DSMAC). The GCR factor increased by $21.2 million due to the increase in gas
costs resulting primarily from the cold winter weather. This increase is
partially offset by a $12 million credit from the WNC, which also reflects the
margin impact of 15% colder than normal winter weather. In addition, the Company
requested certain modifications to its WNC to update various factors to more
appropriately reflect current customers' usage and weather. A decision is
expected in the first quarter of fiscal 1997.
-6-
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 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 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, in the second quarter of fiscal 1996, NJNG 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.
-7-
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. 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 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.
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.
e. 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
-8-
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 U.S.-Canadian
border in upstate New York to Long Island.
In 1992, 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 Iroquois had 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.
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 after extensive discussions with the
involved government agencies, Iroquois has entered into a series of settlement
agreements to resolve all pending investigations relating to pipeline
construction. On May 23, 1996, Iroquois' agent for pipeline construction,
Iroquois Pipeline Operating Company (IPOC) entered a plea of guilty to four
felony violations of the Clean Water Act in the Northern District of New York.
Four former IPOC employees, including two former officers, also entered guilty
pleas to Clean Water Act misdemeanors. On the same date, the United States
lodged civil consent decrees resolving related civil claims against IPOC in the
Northern, Southern and Eastern Districts of New York, and the District of
Connecticut. Although not a named defendant, Iroquois signed the plea agreement
and consent decrees and is bound by their terms.
On May 21, 1996, the Department of Transportation approved a Consent Order
and Agreement with IPOC, and on May 23, 1996, the Federal Energy Regulatory
Commission approved a Stipulation and Consent Agreement with Iroquois resolving
those agencies' investigations relating to pipeline construction. Related to the
resolution of the federal investigations, on April 18, 1996, the New York Public
Service Commission entered an order terminating its investigation relating to
construction and referred the matter to its Office of General Counsel for
appropriate action. On May 8, 1996, Iroquois entered a Settlement Agreement with
the New York Public Service Commission, the New York State Department of
Environmental Conservation, and the New York State Attorney General resolving
potential State violations relating to pipeline construction.
-9-
Under the federal and state settlements, Iroquois and IPOC are paying a
total of $22 million in criminal fines, civil penalties, and other payments. In
addition, Iroquois and IPOC have agreed to implement remedial and monitoring
programs under the supervision of the Army Corps of Engineers, the Department of
Transportation, and the Federal Energy Regulatory Commission.
The various settlement agreements are contingent upon the entry of the
civil consent decrees by the federal district courts in the four federal
jurisdictions, following an opportunity for public comment. The Company's
proportionate share of the final settlement agreement was substantially
reflected in the abovementioned provision recorded in 1995. Pipeline's
investment in Iroquois as of June 30, 1996 was $5.7 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 by the Joint Venture, et.al. 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 two separate Petitions for
Review with the Commonwealth Court of Pennsylvania. The first Petition for
Review challenged the lawfulness of the PaPUC's action in October 1992 in light
of the April 1989 tie vote. On appeal of the Commonwealth Court's order
reversing the PaPUC, the Pennsylvania Supreme Court held that the April 1989 tie
vote did not preclude the PaPUC from taking its October 1992 vote.
The second Petition for Review challenged the merits of the PaPUC's
determination that the Joint Venture, et al. are a "public utility" under the
Pennsylvania Public Utility Code. In July 1996, a three-judge panel of the
Commonwealth Court, in a 2-1 decision, affirmed the PaPUC's determination that
the Joint Venture, et al. were a "public utility" under Pennsylvania law. The
Joint Venture, et al. filed an application for reargument before the full
Commonwealth Court on July 26, 1996, which application is now pending before the
court.
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
-10-
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)
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.
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 (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.
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 adverse effect on
the Company's consolidated financial condition or results of operations.
7. Other
At June 30, 1996, there were 18,112,254 shares of common stock outstanding
and the book value per share was $15.81.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1996
A. RESULTS OF OPERATIONS
Consolidated net income from continuing operations for the quarter ended
June 30, 1996 increased to $2.2 million, or $.12 per share, compared with $1.2
million, or $.07 per share, for the same period last year. Consolidated net
income from continuing operations for the nine months ended June 30, 1996
increased to $41.6 million, or $2.31 per share, compared with $38.3 million, or
$2.18 per share, last year. The increases in both periods were due primarily to
improved results in the Company's principal subsidiary, NJNG, as well as its
unregulated energy services company, NJNE.
UTILITY OPERATIONS
NJNG's financial results are summarized as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------- -------------------
1996 1995 1996 1995
------- ------- -------- --------
(Thousands)
Gross margin
Residential and commercial .......... $26,775 $23,142 $131,018 $124,947
Firm transportation ................. 2,522 1,465 9,693 3,304
Interruptible and agency ............ 355 (1,377) 544 248
Off system and capacity release ..... 891 561 3,683 3,390
------- ------- -------- --------
Total gross margin .................... $30,543 $23,791 $144,938 $131,889
======= ======= ======== ========
Operating income before income taxes .. $7,414 $3,715 $73,652 $69,767
====== ====== ======= =======
Net income ............................ $1,996 $(75) $40,001 $37,427
====== ===== ======= =======
Gross Margin
Gross margin, defined as gas revenues less gas costs and gross receipts and
franchise taxes (GRFT), provides a more meaningful basis for evaluating utility
operations since gas costs and GRFT are passed through to customers and,
therefore, have no effect on earnings. Gas costs are charged to operating
expenses on the basis of therm sales at the base and Levelized Gas Adjustment
(LGA) cost rates included in NJNG's tariff. The LGA clause allows NJNG to
recover gas costs that exceed the level reflected in its base rates. GRFT are
also calculated on a per-therm basis and exclude sales to other utilities.
Residential and Commercial
Through fiscal 1992, gross margin from firm (i.e., residential and
commercial) customers was weathersensitive. 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
-12-
or credited to customers in the subsequent heating season.
Gross margin from sales to firm customers increased by $3.6 million, or
16%, and $6.1 million, or 5%, for the three and nine months ended June 30, 1996,
respectively, compared with a year ago due primarily to an increase in firm
therm sales.
Therm sales to firm customers increased to 75 million and 468 million for
the three and nine months ended June 30, 1996, respectively, from 65 million and
407 million for the comparable periods last year. The increase in firm therm
sales in both periods was due to the weather, which was 17% colder than last
year, the impact of 10,727 customer additions during the twelve months ended
June 30, 1996, and higher average customer usage.
The weather for the nine months ended June 30, 1996 was 15% 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 $12 million of gross margin was deferred during the nine months ended,
June 30, 1996 for refund to customers in fiscal 1997.
Firm Transportation
At June 30, 1996, NJNG provided firm transportation service to 1,870
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 54 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 nine months ended June 30, 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 $100,000 and $1.6 million for the
three and nine months ended June 30, 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 fixed demand costs, which are
charged by pipelines to access their capacity 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 with the balance credited to
residential and commercial customers through the LGA Clause.
-13-
NJNG's off-system sales totaled 43 million therms and generated $76,000 of
gross margin and 201 million therms and $1.5 million of gross margin in the
three and nine months ended June 30, 1996, respectively, compared with 53
million therms and $63,000 of gross margin and 191 million therms and $1.5
million of gross margin in the comparable periods last year. The decrease in
margin per therm for the nine months ended June 30, 1996, was due primarily to
increased competition. The capacity release program generated gross margin of
$815,000 and $2.2 million in the three and nine months ended June 30, 1996,
respectively, compared with $498,000 and $1.8 million in the comparable periods
last year.
Operating Income Before Income Taxes
Operating income before income taxes increased by $3.7 million and $3.9
million for the three and nine months ended June 30, 1996, respectively, as the
increase to gross margin more than offset higher operating costs associated
primarily with the impact of growth on operations.
Net Income
Net income increased by $2.1 million and $2.6 million for the three and
nine months ended June 30, 1996, respectively, due to higher gross margin in
1996 and the transfer of agency income in June 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 1.6 billion cubic feet (bcf)
and 7.5 bcf and gas under management totaled 6.4 bcf and 17.9 bcf for the three
and nine months ended June 30, 1996, respectively. Natural Energy's gross margin
totaled $2 million and $5.4 million and net income totaled $558,000 and $2.3
million for the three and nine months ended June 30, 1996, respectively.
-14-
REAL ESTATE OPERATIONS
CR&R's financial results are summarized as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------- ------------------
1996 1995 1996 1995
---- ------ ------ ------
(Thousands)
Revenues ......................... $624 $3,177 $3,068 $9,379
==== ====== ====== ======
Operating income (loss)
before income taxes ............ $54 $1,563 $(725) $4,158
=== ====== ====== ======
Net loss ......................... $(14) $(16) $(1,117) $(97)
===== ===== ======== =====
In November 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, which is expected to be received in
the forth fiscal quarter, 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 nine months ended June 30, 1996.
In December 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.
-15-
The financial results from continuing operations of NJR Energy are
summarized as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------- ----------------
1996 1995 1996 1995
---- ---- ------- ----
(Thousands)
Revenues ............................... $564 $281 $1,667 $802
==== ==== ====== ====
Operating income before income taxes ... $506 $110 $1,525 $279
==== ==== ====== ====
Net income (loss) ...................... $88 $(156) $455 $(636)
=== ====== ==== ======
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.
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 June 30, 1996, $45 million was outstanding under these
agreements. NJNG issues short and long term debt based upon its own financial
profile. The Company generally meets the common equity requirements of each
subsidiary through new issuances of the Company's common stock, including the
proceeds from its Automatic Dividend Reinvestment Plan (DRP). In April 1996, the
DRP was amended to allow for the purchase of shares in the open market to fund
the plan. Effective July 1, 1996, shares needed for the DRP were purchased in
the open market. The Company can switch back to issuing new shares at any time
after September 30, 1996.
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 $15
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-term debt and a $6 million draw down
of its variable rate Series BB EDA Bonds, which was completed in August 1996.
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.
-16-
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 June 30, 1996. The
total project cost is expected to total $6.8 million, of which $6.6 million has
been expended through June 30, 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 June 30, 1996, Storage's investment in MHP totaled $6.9
million. No additional capital expenditures are expected in fiscal 1996.
-17-
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 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
June 30, 1996.
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NEW JERSEY RESOURCES CORPORATION
Date: August 13, 1996 /s/ LAURENCE M. DOWNES
-------------------------------------
Laurence M. Downes
President and
Chief Executive Officer
Date: August 13, 1996 /s/ GLENN C. LOCKWOOD
-------------------------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer
-19-