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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, 2000 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 732-938-1480
(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 May 8,
2000 was 17,654,389.
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
-------- -------- -------- --------
(Thousands, except per share data)
OPERATING REVENUES ........................ $368,988 $327,315 $632,426 $571,905
-------- -------- -------- --------
OPERATING EXPENSES
Gas purchases ........................... 268,179 229,419 462,160 405,756
Operation and maintenance ............... 22,719 20,770 43,326 41,849
Depreciation and amortization ........... 7,808 7,401 15,789 14,800
Energy and other taxes .................. 14,797 16,032 24,841 26,512
-------- -------- -------- --------
Total operating expenses ................. 313,503 273,622 546,116 488,917
-------- -------- -------- --------
OPERATING INCOME .......................... 55,485 53,693 86,310 82,988
Other income, net ......................... 119 346 564 898
Interest charges, net ..................... 4,843 5,403 10,019 10,741
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ................ 50,761 48,636 76,855 73,145
Income tax provision ...................... 18,913 18,289 28,828 27,555
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS ... 31,848 30,347 48,027 45,590
Preferred stock dividends ................. 7 10 15 101
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS ......... 31,841 30,337 48,012 45,489
Income from discontinued operations ....... 828 -- 828 --
-------- -------- -------- --------
NET INCOME ................................ $ 32,669 $ 30,337 $ 48,840 $ 45,489
======== ======== ======== ========
EARNINGS PER COMMON SHARE-BASIC
INCOME FROM CONTINUING OPERATIONS .... $ 1.80 $ 1.70 $ 2.71 $ 2.55
======== ======== ======== ========
NET INCOME ........................... $ 1.85 $ 1.70 $ 2.75 $ 2.55
======== ======== ======== ========
EARNINGS PER COMMON SHARE-DILUTED
INCOME FROM CONTINUING OPERATIONS .... $ 1.79 $ 1.69 $ 2.69 $ 2.53
======== ======== ======== ========
NET INCOME ........................... $ 1.84 $ 1.69 $ 2.74 $ 2.53
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE ................ $ .43 $ .42 $ .86 $ .84
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING
BASIC ................................ 17,684 17,869 17,732 17,856
======== ======== ======== ========
DILUTED .............................. 17,787 17,976 17,850 17,972
======== ======== ======== ========
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................... $ 48,840 $ 45,489
Adjustments to reconcile net income to cash flows
Depreciation and amortization ...................... 15,789 14,800
Amortization of deferred charges ................... 3,722 1,653
Deferred income taxes .............................. (1,510) 2,049
Change in working capital .......................... 31,812 9,041
Other, net ......................................... (8,645) (2,314)
-------- --------
Net cash flows from operating activities ............. 90,008 70,718
-------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from common stock .......................... 4,058 4,576
Payments of long-term debt .......................... (2,582) (7,377)
Repurchase of treasury stock ........................ (9,634) (1,989)
Payments of common stock dividends .................. (15,114) (14,811)
Payments of preferred stock ......................... -- (20,000)
Net change in short-term debt ....................... (36,400) (6,600)
-------- --------
Net cash flows used in financing activities .......... (59,672) (46,201)
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for
Utility plant ...................................... (24,940) (22,951)
Real estate properties ............................. (281) (89)
Equity investments and other ....................... (250) --
Cost of removal .................................... (2,579) (2,008)
Proceeds from asset sales ........................... 556 --
-------- --------
Net cash flows used in investing activities .......... (27,494) (25,048)
-------- --------
Net change in cash and temporary investments ......... 2,842 (531)
Cash and temporary investments at September 30 ....... 2,123 2,476
-------- --------
Cash and temporary investments at March 31 ........... $ 4,965 $ 1,945
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables ......................................... $(54,070) $(94,438)
Inventories ......................................... 29,109 43,144
Deferred gas costs .................................. 17,812 42,493
Purchased gas ....................................... 19,055 19,610
Prepaid and accrued taxes, net ...................... 33,193 26,608
Customers' credit balances and deposits ............. (8,966) (8,042)
Accounts payable .................................... 974 (7,692)
Other, net .......................................... (5,295) (12,642)
-------- --------
Total ................................................ $ 31,812 $ 9,041
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized) ............... $ 9,536 $ 10,102
Income taxes ........................................ $ 7,676 $ 10,292
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, SEPTEMBER 30, MARCH 31,
2000 1999 1999
(unaudited) (unaudited)
----------- ----------- -----------
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant, at cost ...................... $ 965,789 $ 941,490 $ 917,713
Real estate properties and other, at cost ... 26,600 26,326 26,148
----------- ----------- -----------
992,389 967,816 943,861
Accumulated depreciation and amortization ... (274,297) (262,372) (252,739)
----------- ----------- -----------
Property, plant and equipment, net ......... 718,092 705,444 691,122
----------- ----------- -----------
CURRENT ASSETS
Cash and temporary investments .............. 4,965 2,123 1,945
Construction fund ........................... 12,100 12,100 16,000
Customer accounts receivable ................ 123,598 80,974 129,815
Unbilled revenues ........................... 15,753 2,950 17,540
Allowance for doubtful accounts ............. (3,010) (1,684) (2,189)
Gas in storage, at average cost ............. 6,717 35,718 9,579
Materials and supplies, at average cost ..... 3,609 3,717 3,920
Prepaid state taxes ......................... -- 4,749 --
Deferred gas costs .......................... -- -- 6,129
Other ....................................... 12,183 8,598 16,980
----------- ----------- -----------
Total current assets ....................... 175,915 149,245 199,719
----------- ----------- -----------
DEFERRED CHARGES AND OTHER
Equity investments .......................... 9,276 8,813 9,009
Regulatory assets ........................... 72,721 64,063 40,726
Long-term deferred gas costs ................ -- 9,744 --
Other ....................................... 24,462 22,703 30,813
----------- ----------- -----------
Total deferred charges and other ........... 106,459 105,323 80,548
----------- ----------- -----------
Total assets ......................... $ 1,000,466 $ 960,012 $ 971,389
=========== =========== ===========
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
MARCH 31, SEPTEMBER 30, MARCH 31,
2000 1999 1999
(unaudited) (unaudited)
---------- ---------- ----------
(Thousands)
CAPITALIZATION
Common stock equity ........................ $ 331,126 $ 302,169 $ 322,067
Redeemable preferred stock ................. 520 520 640
Long-term debt ............................. 284,980 287,723 319,364
---------- ---------- ----------
Total capitalization ...................... 616,626 590,412 642,071
---------- ---------- ----------
CURRENT LIABILITIES
Current maturities of long-term debt ....... 20,479 20,318 1,957
Short-term debt ............................ 25,300 61,700 54,100
Purchased gas .............................. 97,884 78,829 67,071
Accounts payable and other ................. 29,473 28,499 22,014
Dividends payable .......................... 7,611 7,465 7,510
Accrued taxes .............................. 31,816 2,138 6,995
Overrecovered gas costs .................... 4,739 3,369 --
Customers' credit balances and deposits .... 6,504 15,470 5,610
---------- ---------- ----------
Total current liabilities ................. 223,806 217,788 165,257
---------- ---------- ----------
DEFERRED CREDITS
Deferred income taxes ...................... 62,957 65,559 90,698
Deferred investment tax credits ............ 10,019 10,293 10,532
Deferred revenue ........................... 22,013 23,020 18,810
Long-term overrecovered gas costs .......... 6,698 -- 10,200
Other ...................................... 58,347 52,940 33,821
---------- ---------- ----------
Total deferred credits .................... 160,034 151,812 164,061
---------- ---------- ----------
Total capitalization and liabilities ... $1,000,466 $ 960,012 $ 971,389
========== ========== ==========
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, 1999 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 1999 Annual Report on Form 10-K.
In the opinion of management, the information furnished reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the results of the interim periods. Because of the seasonal
nature of the Company's utility operations and other factors, the results of
operations for the interim periods presented are not indicative of the results
to be expected for the entire year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries -- New Jersey Natural Gas Company (NJNG), NJR Energy
Holdings Corporation (Energy Holdings) and NJR Development Company (NJR
Development). NJR Energy Services Company (Energy Services), New Jersey Natural
Energy Company (Natural Energy) and NJR Energy Corporation (NJR Energy) are
wholly-owned subsidiaries of Energy Holdings and Commercial Realty & Resources
Corp. (CR&R), is a wholly-owned subsidiary of NJR Development. Significant
intercompany accounts and transactions have been eliminated.
3. New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Investments and Hedging Activities," which must be adopted by the
quarter ending December 31, 2000. The Company has created a project team to
perform a detailed evaluation of the effects of SFAS No. 133 on its financial
condition and results of operations. The impact of SFAS No. 133 on the Company's
future results will vary based on the use of derivative instruments during any
given reporting period following the time of adoption.
The Company has adopted Emerging Issues Task Force 98-10 "Accounting for
Contracts Involved in Energy Trading and Risk Management Activities," the impact
of which was immaterial to the Company's financial condition and results of
operations.
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4. Capitalized Interest
The Company's capitalized interest totaled $287,000 and $179,000 for the
three months ended March 31, 2000 and 1999, respectively, and $541,000 and
$361,000 for the six months ended March 31, 2000 and 1999, respectively.
5. Legal and Regulatory Proceedings
a. Energy Deregulation Legislation
In February 1999, the Electric Discount and Energy Competition Act (the
Act), which provides the framework for the restructuring of New Jersey's energy
markets, became law. In January 2000, the New Jersey Board of Public Utilities
(the BPU), verbally approved a stipulation agreement among various parties to
fully open NJNG's residential markets to competition, restructure its rates to
segregate its Basic Gas Supply (BGS) Service and Delivery service prices as
required by the Act, and expand an incentive for residential and small
commercial customers to switch to transportation service. The stipulation
agreement also extends incentives for NJNG's off-system sales and capacity
management programs through December 31, 2002. Additionally, NJNG received
approval to recover carrying costs on its expenditures associated with
remediating its former manufactured gas plants. These expenditures are recovered
over rolling seven-year periods and are subject to annual BPU review and
approval.
The Act also allows continuation of each utility's role as a gas supplier
at least until December 31, 2002. The BPU must determine the ongoing role of
each utility in providing gas supply services by January 1, 2002. The Act allows
natural gas utilities to provide competitive services (e.g., appliance
services). By December 31, 2000 the BPU is expected to decide whether certain
customer account services (i.e., meter reading, billing and collections) should
be competitive.
b. Levelized Gas Adjustment (LGA) and Other Adjustment Clauses
In September 1999, NJNG filed to reduce its LGA by less than 1%, reflecting
a proposal to decrease the Prior Gas Cost Adjustment (PGCA) and Transportation
Education and Implementation (TEI), partially offset by a minor increase to its
Remediation Adjustment (RA) factor. No change was proposed for the Gas Cost
Recovery (GCR), Demand Side Management (DSM) and Weather Normalization Clause
(WNC) factors. The rate restructuring mandated by the Act discussed in Note 5a
Energy Deregulation Legislation above, did not impact the rates of any of the
individual clauses.
In August 1999, NJNG filed a Comprehensive Resource Analysis (CRA) plan
pursuant to a BPU order. The CRA, which will replace NJNG's current DSM program,
includes funding for class I renewables (e.g., fuel cells), and has a program
cost of $2.9 million recoverable through rates. The BPU is currently evaluating
two separate stipulations filed in this proceeding.
c. Gas Remediation
NJNG has identified eleven former manufactured gas plant (MGP) sites, dating
back to the late 1800's and early 1900's, which contain contaminated residues
from the former gas manufacturing operations. Ten of the eleven sites in
question were acquired by NJNG in 1952. All of the gas manufacturing operations
ceased at these sites at least by the mid-1950's and in some cases had been
discontinued many
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years earlier, and all of the old gas manufacturing facilities were subsequently
dismantled by NJNG or the former owners. NJNG is currently involved in
administrative proceedings with the New Jersey Department of Environmental
Protection (NJDEP) and local government authorities with respect to the plant
sites in question, and is participating in various studies and investigations by
outside consultants to determine the nature and extent of any such contaminated
residues and to develop appropriate programs of remedial action, where
warranted. Since October 1989, NJNG has entered into Administrative Consent
Orders or Memoranda of Agreement with the 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 BPU, NJNG is recovering its expenditures
incurred through June 30, 1998 over a seven-year period. Costs incurred
subsequent to June 30, 1998, including carrying costs on the deferred
expenditures, as noted above, will be reviewed annually and recovered over
rolling seven-year periods, subject to BPU approval.
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. The complaint was amended
in July 1996 to name Kaiser-Nelson Steel & Salvage Company (Kaiser-Nelson) and
its successors as additional defendants. The Company is seeking (a) a
declaration of the rights, duties and liabilities of the parties under
agreements with respect to claims against the Company that allege property
damage caused by various substances used, handled or generated by NJNG or the
predecessor in title that were removed from several of the MGP sites by
Kaiser-Nelson, and (b) money damages or compensatory relief for the harm caused
by Kaiser-Nelson's aforementioned actions. Discovery is proceeding in this
matter. There can be no assurance as to the outcome of these proceedings.
d. South Brunswick Asphalt, L.P.
NJNG has been named as a defendant in a civil action commenced in New Jersey
Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated
companies seeking damages arising from alleged environmental contamination at
three sites owned or occupied by SBA and its affiliated companies. Specifically,
the suit charges that tar emulsion removed from 1979 to 1983 by an affiliate of
SBA (Seal Tite Corp.) 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. In April 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. In May 1997, SBA
submitted applications to NJDEP for permits to allow SBA to recycle the tar
emulsion/sand and gravel mixture at each site into asphalt, to be used as a
paving materials. In July 1998, SBA filed an amended complaint adding NJDEP to
the proceedings to facilitate the resolution of these applications. Following
service of
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SBA's amended complaint, NJDEP filed a motion for dismissal of the amended
complaint, but has not formally granted or denied SBA's permit applications. In
March 1999, the court granted NJDEP's motion in part and denied NJDEP's motion
in part, and directed SBA to file a more definite statement of its claims for
equitable relief against NJDEP, including its request that a mandatory
injunction be imposed compelling NJDEP to issue the subject permits. SBA has
filed a more definite statement of its claims, and NJDEP has renewed its motion
to dismiss the amended complaint. In its motion, NJDEP alleges, among other
things, that it has not acted upon SBA's applications for permits to recycle the
tar emulsion/sand and gravel mixture because SBA has not submitted completed
applications for these permits. This allegation is denied by SBA. NJDEP's motion
to dismiss is pending in the Superior Court and it is not known when the Court
will issue a decision. 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. Combe Fill South Landfill
NJNG has been joined as a third-party defendant in two civil actions
commenced in October 1998 in the U.S. District Court for the District of New
Jersey by the U.S. Environmental Protection Agency and NJDEP. These two actions
seek recovery of costs expended in connection with, and for continuation of the
cleanup of, the Combe Fill South Landfill, a Superfund site in Chester, New
Jersey. The plaintiffs claim that hazardous waste NJNG is alleged to have
generated was sent to the site. There are approximately 180 defendants and
third-party defendants in the actions thus far. Each third-party complaint seeks
damages under CERCLA Section 113 and the New Jersey Spill Act, declaratory
relief holding each third-party defendant strictly liable, and contribution and
indemnification under the common law of the United States and New Jersey. No
specific monetary demands or scope of cleanup work have been set forth to date.
NJNG is in the process of investigating the allegations, formulating its
position with respect thereto and has agreed to participate in an alternate
dispute resolution process encouraged by the Court. Its insurance carriers have
been notified and one has agreed to assume responsibility for the legal
expenses, while reserving its rights with regard to liability. NJNG is currently
unable to predict the extent, if any, to which it may have cleanup or other
liability with respect to these civil actions, but would seek recovery of any
such costs through the ratemaking process. No assurance can be given as to the
timing or extent of the ultimate recovery of any such costs.
f. Various
The Company is party to various other claims, legal actions and complaints
arising in the ordinary course of business. In management's opinion, the
ultimate disposition of these matters will not have a material adverse effect on
its financial condition or results of operations.
6. Earnings Per Share
The Company has adopted SFAS No. 128 "Earnings per Share" which establishes
standards for computing and presenting basic and diluted earnings per share
(EPS). The incremental shares required for inclusion in the denominator for the
diluted EPS calculation were 102,588 and 107,617 for the three months ended
March 31, 2000 and 1999, respectively, and 118,098 and 116,348 for the six
months ended March 31, 2000 and 1999, respectively. These shares relate to stock
options and restricted stock and were calculated using the treasury stock
method. The numerator for each applicable basic and diluted calculation was
income from continuing operations and net income, respectively.
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7. Long-Term Debt
In April 1998, NJNG entered into a loan agreement whereby the New Jersey
Economic Development Authority loaned NJNG the proceeds from its $18 million
Natural Gas Facilities Revenue Bonds, Series 1998C, which were deposited into a
construction fund. NJNG may draw down on these funds in reimbursement for
certain qualified expenditures. In April 1999 and 2000, NJNG drew down $3.9
million and $4.5 million, respectively, from the construction fund and issued a
like amount of its Series GG Bonds.
8. 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 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 were 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. Based
upon actual proceeds received from the sale of the assets and costs incurred,
net of insurance recoveries received in January 2000, the Company closed out its
reserve balance and reported income from discontinued operations of $828,000, or
$.05 per share, in the quarter ended March 31, 2000.
9. Segment Reporting
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
(Thousands)
Operating Revenues
Natural gas distribution $ 269,817 $ 256,371 $ 470,343 $ 434,969
Energy holdings 99,179 73,743 162,466 141,862
Real estate 278 233 555 484
--------- --------- --------- ---------
Subtotal 369,274 330,347 633,364 577,315
Intersegment revenues (286) (3,032) (938) (5,410)
--------- --------- --------- ---------
Total $ 368,988 $ 327,315 $ 632,426 $ 571,905
========= ========= ========= =========
Operating Income
Natural gas distribution $ 52,480 $ 51,919 $ 81,685 $ 78,880
Energy holdings 2,060 1,278 2,886 2,087
Real estate (222) (154) (526) (227)
Other 1,167 288 2,265 1,828
--------- --------- --------- ---------
Total $ 55,485 $ 53,331 $ 86,310 $ 82,568
========= ========= ========= =========
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As of As of As of
March 31, 2000 September 30, 1999 March 31, 1999
-------------- ------------------ --------------
(Thousands)
Assets
Natural gas distribution $ 928,870 $ 883,072 $ 886,793
Energy holdings 37,303 46,371 44,821
Real estate 22,407 22,396 22,140
Other 11,886 8,173 17,635
---------- ---------- ----------
Total $1,000,466 $ 960,012 $ 971,389
========== ========== ==========
10. Other
At March 31, 2000 there were 17,622,669 shares of common stock outstanding
and the book value per share was $18.79.
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, 2000
A. RESULTS OF OPERATIONS
Consolidated income from continuing operations for the quarter ended March
31, 2000 increased 5% to $31.8 million, compared with $30.3 million for the same
period last year. Basic EPS from continuing operations increased 5.9% to $1.80,
compared with $1.70 last year. Diluted EPS from continuing operations also
increased 5.9% to $1.79, compared with $1.69 last year.
Consolidated income from continuing operations for the six months ended
March 31, 2000 increased 5.5% to $48 million, compared with $45.5 million for
the same period last year. Basic EPS from continuing operations increased 6.3%
to $2.71, compared with $2.55 last year. Diluted EPS from continuing operations
also increased 6.3% to $2.69, compared with $2.53 last year.
The increase in consolidated earnings from continuing operations in both
the three and six months ended March 31, 2000 was attributed primarily to
continued profitable customer growth and higher average customer usage at the
Company's principal subsidiary, NJNG, and improved overall unregulated operating
results.
Consolidated net income for the three and six months ended March 31, 2000
includes $828,000, or $.05 per share, of income from discontinued operations
representing the final true-up of the Company's reserve established in 1995 in
conjunction with exiting the gas exploration and production business. This
income represents the excess of proceeds received from the sale of the assets
and the costs incurred, net of insurance recoveries received in January 2000,
compared with the estimates made in 1995.
NJNG OPERATIONS
NJNG's financial results are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
-------- -------- -------- --------
(Thousands)
Gross margin
Residential and commercial $ 66,589 $ 64,665 $110,889 $108,344
Firm transportation 12,337 11,240 21,586 18,399
-------- -------- -------- --------
Total firm margin 78,926 75,905 132,475 126,743
Interruptible 198 150 418 298
Off-system and capacity management 1,278 1,694 2,842 3,015
-------- -------- -------- --------
Total gross margin $ 80,402 $ 77,749 $135,735 $130,056
======== ======== ======== ========
Appliance service revenues $ 3,044 $ 2,862 $ 6,130 $ 5,919
======== ======== ======== ========
Operating income $ 52,480 $ 51,919 $ 81,685 $ 78,880
======== ======== ======== ========
Net income $ 30,476 $ 29,932 $ 45,976 $ 44,050
======== ======== ======== ========
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Gross Margin
Gross margin is defined as gas revenues less gas costs, sales tax and a
Transitional Energy Facilities Assessment (TEFA). Gross margin provides a more
meaningful basis for evaluating utility operations, since gas costs, sales tax
and TEFA 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 rates included in NJNG's tariff. The LGA clause allows NJNG to
recover gas costs that exceed the level reflected in its base rates. Sales tax
is calculated at 6% of revenue and excludes off-system sales, sales to other
utilities and federal accounts. TEFA is calculated on a per therm basis and
excludes sales to other utilities, off-system sales and federal accounts.
Firm Margin
Residential and commercial (i.e., firm) gross margin is subject to the WNC,
which provides for a revenue adjustment if the weather varies by more than
one-half of 1% from normal, or 20-year average, weather. The WNC does not fully
protect NJNG from factors such as unusually warm weather and declines in
customer usage patterns, which were set at the conclusion of NJNG's last base
rate case in January 1994. The accumulated adjustment from one heating season
(i.e., October-May) is billed or credited to customers in subsequent periods.
This mechanism reduces the variability of both customer bills and NJNG's
earnings due to weather fluctuations.
The components of gross margin from firm customers are being impacted by
customers switching from sales service to firm transportation service. NJNG's
total gross margin is not negatively impacted by customers who utilize its firm
transportation service and purchase their gas from another supplier. This is due
to NJNG's tariff which is designed such that no profit is earned on the
commodity portion of sales to firm customers, and all customers who purchase gas
from another supplier continue to utilize NJNG for transportation.
Total firm margin increased by 4% and 5% for the three and six months ended
March 31, 2000, respectively, compared with the same periods last year,
reflecting customer growth and higher average customer usage.
The weather for the six months ended March 31, 2000 was 8% warmer than
normal, which, in accordance with the WNC, resulted in $7.5 million of gross
margin being accrued for future recovery from customers. At March 31, 2000, NJNG
had $18.9 million in accrued WNC margins to be collected from its customers in
fiscal 2001 and 2002.
Gross margin from sales to firm customers increased $1.9 million, or 2.9%,
and $2.5 million, or 2.3%, for the three and six months ended March 31, 2000,
respectively, compared with the same periods last year. The increase in gross
margin for both periods was due primarily to the impact of 11,734 customer
additions during the twelve months ended March 31, 2000, and the impact of the
WNC.
Sales to firm customers were 20.5 billion cubic feet (Bcf) and 33.1 Bcf for
the three and six months ended March 31, 2000, compared with 20.4 Bcf and 32.7
Bcf for the same period last year. The increase in sales was due to continued
customer growth.
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Gross margin from firm transportation increased $1.1 million, or 9.8%, and
$3.2 million, or 17.3%, for the three and six months ended March 31, 2000,
respectively, compared with the same periods last year as more customers chose
this service. NJNG transported 4.7 Bcf and 7.9 Bcf for the three and six months
ended March 31, 2000, respectively, compared with 4.2 Bcf and 6.7 Bcf, in the
same periods last year.
The growth in the number of firm transportation customers is due primarily
to NJNG's participation in an open, competitive market which allows residential
customers to change natural gas suppliers. Under this program 30,120 and 27,051
residential customers and 4,176 and 4,283 commercial customers were using this
service at March 31, 2000 and 1999, respectively.
Interruptible
NJNG services 51 customers through interruptible sales and/or
transportation tariffs. 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 3.5% and 3% of total therm
throughput in the six months ended March 31, 2000 and 1999, respectively, they
accounted for less than 1% of the total gross margin in each period due to the
regulated margin-sharing formulas that govern these sales. Under these formulas,
NJNG retains 10% of the gross margin from the interruptible sales and 5% of the
gross margin from transportation sales, with the balance credited to firm sales
customers through the LGA clause.
Off-System and Capacity Management
In order to reduce the overall cost of its gas supply commitments, NJNG has
entered into contracts to sell gas to customers outside its franchise territory
when the gas is not needed for system requirements. These sales enable NJNG to
spread its fixed demand costs, which are charged by pipelines to access their
supplies year round, over a larger and more diverse customer base. NJNG also
participates in the capacity release market on the interstate pipeline network
when the capacity is not needed for its own system requirements. Effective
October 1, 1998 through December 31, 2002, NJNG will retain 15% of the gross
margin from these sales with the balance credited to firm sales customers
through the LGA clause.
In order to reduce the fixed cost of NJNG's gas supply portfolio, savings
achieved through the permanent reduction or replacement of capacity or other
services will be shared between customers and shareholders. Under this program,
NJNG retains 40% of the savings for the first 12 months following any
transaction and retains 15% of the savings for the remaining period through
December 31, 2002, with the balances credited to firm sales customers through
the LGA clause.
NJNG's off-system and capacity management sales totaled 32.4 Bcf and
generated $1.3 million of gross margin, and 68.4 Bcf and $2.8 million of gross
margin, for the three and six months ended March 31, 2000, respectively,
compared with 41.7 Bcf and $1.7 million of gross margin, and 80.3 Bcf and $3
million of gross margin, in the respective periods last year. The decrease was
due primarily to the warmer-than-normal weather, which increased the
availability of supply and capacity and resulted in lower margins per therm.
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Operating Income
Operating income increased $561,000, or 1%, and $2.8 million or 3.6% for
the three and six months ended March 31, 2000, respectively, compared with the
same periods last year, primarily due to the increase in gross margin discussed
above and increased appliance service revenues, which more than offset an
increase in operation and maintenance and depreciation expenses.
Net Income
Net income increased $544,000, or 1.8%, and $1.9 million, or 4.4%, for the
three and six months ended March 31, 2000, respectively, compared with the same
periods last year, primarily due to the higher operating income discussed above
and lower financing costs primarily due to lower debt levels.
ENERGY HOLDINGS OPERATIONS
Energy Holdings' consolidated financial results, which include Energy
Services and Natural Energy, the Company's unregulated fuel and capacity
management and retail marketing subsidiaries, respectively, and the continuing
operations of NJR Energy, which consist primarily of its equity investment in
the Iroquois Gas Transmission System, L.P., are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
-------- -------- -------- --------
(Thousands)
Revenues $107,054 $ 84,217 $170,341 $159,623
======== ======== ======== ========
Operating income $ 2,060 $ 1,278 $ 2,886 $ 2,087
======== ======== ======== ========
Net income $ 2,168 $ 433 $ 2,866 $ 1,346
======== ======== ======== ========
Energy Holdings revenues and income increased for the three and six months
ended March 31, 2000, compared to the same periods last year, reflecting
primarily increased storage management activity and higher daily gas sales
which more than offset the expiration of a fuel management contract at Energy
Services.
Energy Holdings gas sales and managed gas totaled 29.9 Bcf and 55.4 Bcf,
and retail gas sales totaled 1.2 Bcf and 2.4 Bcf for the three and six months
ended March 31, 2000, respectively, compared with gas sales and managed gas of
37.8 Bcf and 68.3 Bcf, and retail gas sales of 3.1 Bcf and 5 Bcf in the
comparable periods last year. The decline in gas under management was primarily
due to the expiration of a fuel management contract. In November 1999, Natural
Energy sold its commercial customer contracts and currently serves over 14,500
residential customers.
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NJR DEVELOPMENT OPERATIONS
NJR Development's consolidated financial results, which consist solely of
CR&R's operations, are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
----- ----- ----- -----
(Thousands)
Revenues $ 278 $ 233 $ 555 $ 484
===== ===== ===== =====
Other income, net $ 103 $ 103 $ 161 $ 205
===== ===== ===== =====
Net income (loss) $ (42) $ (10) $(192) $ 17
===== ===== ===== =====
In 1996, CR&R entered into a sale-leaseback transaction which generated a
pre-tax gain of $17.8 million, which is included in Deferred revenue and is
being amortized to Other income, net over 25 years in accordance with generally
accepted accounting principles. The primary tenant of the facility, NJNG, is
leasing the building under a long-term master lease agreement and continues to
occupy a majority of the space in the building.
The decrease in net income for the three and six months ended March 31,
2000 compared with the same periods last year is due primarily to marketing
costs associated with CR&R's remaining undeveloped land portfolio.
THE YEAR 2000 ISSUE
The Company developed and implemented a plan to address Year 2000 issues
facing the Company. The Company has not experienced any material incidents
during the transition to Year 2000. All computers, infrastructure and business
systems have been running smoothly following the transition to Year 2000. The
Company will continue to closely monitor the Year 2000 issue and does not
believe that there will be any future incidents.
B. LIQUIDITY AND CAPITAL RESOURCES
In order to meet the working capital and external debt financing
requirements of its unregulated subsidiaries, as well as its own working capital
needs, the Company maintains committed credit facilities with a number of banks
totaling $90 million. At March 31, 2000, $56.3 million was outstanding under
these agreements. NJNG satisfies its debt needs by issuing short-term and
long-term debt based upon its own financial profile. The Company meets the
common equity requirements of each subsidiary, if any, through new issuances of
the Company's common stock, including the proceeds from its Automatic Dividend
Reinvestment Plan (DRP). The DRP also allows for the purchase of shares in the
open market to satisfy the plan's needs. The Company can switch funding options
every 90 days.
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NJNG
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
energy tax payments, through the issuance of commercial paper and short-term
bank loans. To support the issuance of commercial paper, NJNG maintains
committed credit facilities totaling $100 million.
Remaining fiscal 2000 construction expenditures are estimated at $27.5
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth, and general system renewals and
improvements. Through March 31, 2000, NJNG has incurred $11.1 million in
remediating its former manufactured gas plants. NJNG estimates additional
remediation expenditures of approximately $14 million for the remaining six
months of fiscal 2000.
NJNG expects to finance these expenditures through internal generation,
the issuance of short-term and long-term debt and equity contributions from
NJR. The timing and mix of these issuances will be geared toward maintaining a
common equity ratio of approximately 50%, which is consistent with maintaining
its current short-term and long-term credit ratings.
ENERGY HOLDINGS
Energy Holdings does not currently expect any significant capital
expenditures or external financing requirements in fiscal 2000.
NJR DEVELOPMENT
CR&R's capital expenditures are projected to be $600,000 in 2000 and $2.9
million in 2001 in connection with the construction of a 35,000 square-foot
build-to-suit office building. CR&R is simultaneously negotiating the sale of
the building and adjacent undeveloped acreage, the terms of which would at least
recover the construction costs and land investment.
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ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
FINANCIAL RISK MANAGEMENT
Commodity Market Risks
The regulated and unregulated natural gas businesses of the Company and its
subsidiaries are subject to market risk due to fluctuations in the price of
natural gas. To hedge against such fluctuations, the Company and its
subsidiaries have entered into futures contracts, options agreements and
over-the-counter swap agreements. The Company's natural gas businesses are
conducted through three of its operating subsidiaries. First, NJNG is a
regulated utility whose recovery of gas costs is protected by the LGA, but to
further hedge against price fluctuations, utilizes futures and options through
its financial risk management program. Second, Energy Services has also hedged
its commitments to purchase natural gas for sale to retail marketers and hedged
purchases and sales of storage gas and fixed price sales to wholesale
customers. Finally, NJR Energy has entered into a long-term, fixed-price
contract to sell approximately 23.8 Bcf of natural gas to a gas marketing
company at prices ranging from $2.73 to $4.41 per Mmbtu.
Natural gas is a nationally traded commodity, and its prices are effectively
determined by the New York Mercantile Exchange (NYMEX) and over-the-counter
markets. The prices on the NYMEX and over-the-counter markets generally reflect
the notional balance of natural gas supply and demand, but are also influenced
significantly from time to time by other events.
Summary of NJNG & NJRES commodity derivatives:
Deferred
Unrealized
Volume Price per Gain
in Bcf Mmbtu in Thousands
------ ----- ------------
NJNG
Futures 9.4 $2.27-$3.01 $3,895
Swaps 3.7 $ 61
Options 1.4 $2.45-$4.25 $ 578
Energy Services
Futures 4.2 $2.10-$2.91 $5,438
Swaps 36.9 $1,673
Options 0.3 $2.25-$2.95 $ 5
NJR Energy has hedged both its price and physical delivery risks associated
with its long-term, fixed-price sales contract with a gas marketing company (the
"Gas Sale Contract"). To hedge its price risk, NJR Energy entered into two swap
agreements. Under the terms of these two swap agreements, NJR Energy will pay to
the counterparties the identical fixed price it receives from the gas marketing
company in exchange for the payment by the counterparties of an index price plus
a spread per Mmbtu for the total
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volumes under the Gas Sale Contract. The swap agreements were effective as of
November 1995. In order to hedge its physical delivery risk, NJR Energy entered
into a purchase contract with a second gas marketing company for the identical
volumes it is obligated to sell under the Gas Sale Contract. NJR Energy has
agreed to pay this second gas marketing company the identical floating price it
receives under the swap agreements mentioned above.
To manage these instruments, the Company has well-defined risk management
policies and procedures, which include volumetric limits and monetary
guidelines.
All of the futures contracts, options and swap agreements described above
are held for hedging rather than trading purposes except for 150,000 Mmbtu of
options held by Energy Services. With respect to futures contracts, options and
swap agreements, the Company has performed a sensitivity analysis to estimate
its exposure to market risk arising from natural gas price fluctuations using
the net futures positions and the net swaps positions. Futures contracts,
options and swap agreements are substantially all settled at the NYMEX
settlement date and the related natural gas quantity is purchased or sold in the
physical market and, therefore, their notional values, which represent the
absolute sum of all outstanding natural gas futures contracts or swap
agreements, as the case may be, are not accurate measurements of risk to the
Company from those futures contracts or swap agreements.
Summary of effects of theoretical 10% change in market value:
March 31,
2000 1999
------ ------
(Thousands)
Futures $2,603 $5,000
Swaps $2,259 $ 404
Options $ 405 $ 25
However, any such additional changes in value under the futures contracts and
the swap agreements would be substantially offset by a corresponding change on
the related underlying contracts that are being hedged.
Interest Rate Risk
NJNG has total variable rate debt of $97 million, of which $56 million has
been hedged by the purchase of a 6.5% interest rate cap through the year 2003.
According to the Company's sensitivity analysis, NJNG's annual interest rate
exposure on the $56 million, based on the difference between current average
rates and the 6.5% interest rate cap, is limited to $1.1 million, net of tax. If
interest rates were to change by 100 basis points on the remaining $41 million
of variable rate debt, NJNG's interest expense, net of tax, would change by
$242,000. The Company also has variable rate debt of $56 million, if interest
rates were to change by 100 basis points, annual interest expense, net of tax,
would change by $332,000.
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INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
Certain of the statements contained in this report (other than the financial
statements and other statements of historical fact), including, without
limitation, expected disposition of legal and regulatory proceedings, effect of
new accounting standards, impact of the Year 2000 computer issue, and expected
sale of the office building are forward-looking statements. Forward-looking
statements can also be identified by the use of forward-looking terminology such
as "may", "intend", "expect", or "continue" or comparable terminology and are
made based upon management's expectations and beliefs concerning future
developments and their potential effect upon the Company. There can be no
assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on the Company will be
those anticipated by management.
The Company wishes to caution readers that the assumptions which form the
basis for forward-looking statements with respect to or that may impact earnings
for fiscal 2000 and thereafter include many factors that are beyond the
Company's ability to control or estimate precisely, such as estimates of future
market conditions and the behavior of other market participants. Among the
factors that could cause actual results to differ materially from estimates
reflected in such forward-looking statements are weather conditions, economic
conditions in NJNG's service territory, fluctuations in energy-related commodity
prices, conversion activity and other marketing efforts, the conservation
efforts of NJNG's customers, the pace of deregulation of retail gas markets,
competition for the acquisition of gas, the regulatory and pricing policies of
federal and state regulatory agencies, changes due to legislation at the federal
and state levels, the availability of Canada's reserves for export to the United
States and other regulatory changes.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its quarterly and
annual reports, the Company does not, by including this statement, assume any
obligation to review or revise any particular forward-looking statement
referenced herein in light of future events.
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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 5 - Legal and Regulatory Proceedings.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4-1 Revolving Credit and Term Loan agreement between New Jersey
Resources Corporation and PNC Bank, amended January 31, 2000
4-2 Committed Line of Credit Agreement between New Jersey Resources
Corporation and PNC Bank, dated January 31, 2000
10-1 Long-Term Incentive Compensation Plan, as amended
27-1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 2000.
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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 12, 2000 /s/Glenn C. Lockwood
---------------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer
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