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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, 1997 Commission file number 1-8359
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2376465
(State or other jurisdiction of incorporation or organization) (I.R.S Employer Identification Number)
1415 WYCKOFF ROAD, WALL, NEW JERSEY - 07719 908-938-1480
(Address of principal 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 1,
1997 was 17,982,603.
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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,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
(Thousands, except per share data)
OPERATING REVENUES ............................................ $285,366 $235,735 $473,968 $397,281
-------- -------- -------- --------
OPERATING EXPENSES
Gas purchases ................................................. 189,758 141,923 314,545 237,829
Operation and maintenance ..................................... 21,076 20,654 40,728 40,365
Depreciation and amortization ................................. 6,183 5,786 12,312 11,653
Gross receipts tax,etc ........................................ 18,853 21,664 31,907 37,275
Federal income taxes........................................... 15,539 13,483 21,971 19,646
-------- -------- -------- --------
Total operating expenses....................................... 251,409 203,510 421,463 346,768
-------- -------- -------- --------
OPERATING INCOME .............................................. 33,957 32,225 52,505 50,513
Other income, net ............................................. 79 220 159 137
Interest charges, net.......................................... 5,134 5,104 10,422 10,487
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS ..................................................... 28,902 27,341 42,242 40,163
Preferred stock dividends ..................................... 399 400 797 800
-------- -------- -------- --------
NET INCOME .................................................... $ 28,503 $ 26,941 $ 41,445 $ 39,363
======== ======== ======== ========
EARNINGS PER COMMON SHARE ..................................... $ 1.58 $ 1.50 $ 2.29 $ 2.19
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE .................................... $ .40 $ .39 $ .80 $ .77
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING .................................... 18,090 18,001 18,087 17,955
======== ======== ======== ========
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
MARCH 31,
1997 1996
- --------------------------------------------------------------------------------
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................... $ 41,445 $ 39,363
Adjustments to reconcile net income to cash flows
Depreciation and amortization ................... 12,312 11,653
Amortization of deferred charges ................. 704 2,459
Deferred income taxes ............................ 4,113 (8,207)
Change in working capital ........................ (22,093) 24,057
Other, net ....................................... (5,481) (754)
-------- --------
Net cash flows from operating activities.......... 31,000 68,571
-------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from long-term debt ..................... 3,900 20,000
Proceeds from common stock........................ 208 5,873
Payments of long-term debt ....................... (8,182) (75,064)
Repurchase of treasury stock ..................... (1,539) --
Payments of common stock dividends ............... (14,299) (13,574)
Net change in short-term debt .................... 3,300 (36,400)
-------- --------
Net cash flows used in financing activities ...... (16,612) (99,165)
-------- --------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Expenditures for
Utility plant .................................... (21,284) (20,727)
Real estate properties ........................... (522) (3,285)
Equity investments ............................... (750) (1,419)
Cost of removal .................................. (2,430) (2,285)
Proceeds from asset sales ........................ 7,031 98,619
-------- --------
Net cash flows (used in) from investing activities (17,955) 70,903
-------- --------
Net change in cash and temporary investments ..... (3,567) 40,309
Cash and temporary investments at September 30 ... 10,808 1,065
-------- --------
Cash and temporary investments at March 31 ....... $ 7,241 $ 41,374
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables ...................................... $(99,893) $(94,049)
Inventories ...................................... 31,899 21,723
Deferred gas costs ............................... 3,990 20,829
Purchased gas .................................... 20,600 11,600
Prepaid and accrued taxes, net ................... 41,772 47,973
Customers' credit balances and deposits .......... (15,474) (1,029)
Other, net ....................................... (4,987) 17,010
-------- --------
Total ............................................ $(22,093) $ 24,057
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amount capitalized) ............. $ 12,258 $ 8,918
Income taxes ..................................... $ 4,556 $ 14,487
Non cash investing and financing activities
Capital lease .................................... -- $ 31,850
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
ASSETS
- ------------------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30, MARCH 31,
1997 1996 1996
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant ............................. $ 830,682 $ 811,484 $ 786,983
Real estate properties .................... 37,593 45,010 39,717
--------- --------- ---------
868,275 856,494 826,700
Accumulated depreciation and amortization . (209,590) (201,296) (193,770)
--------- --------- ---------
Property, plant and equipment, net ........ 658,685 655,198 632,930
--------- --------- ---------
CURRENT ASSETS
Cash and temporary investments ........... 7,241 10,808 41,374
Construction fund ......................... 6,500 6,500 12,500
Customer accounts receivable .............. 118,134 27,900 104,238
Unbilled revenues ......................... 18,107 6,884 20,752
Allowance for doubtful accounts ........... (2,442) (878) (1,840)
Gas in storage, at average cost ........... 8,559 39,484 4,641
Materials and supplies, at average cost ... 6,318 7,292 8,782
Deferred gas costs ........................ 16,488 20,478 --
Prepaid state taxes ....................... -- 16,297 --
Other ..................................... 6,794 5,197 5,222
--------- --------- ---------
Total current assets ...................... 185,699 139,962 195,669
--------- --------- ---------
DEFERRED CHARGES AND OTHER
Equity investments ........................ 15,685 13,924 12,411
Regulatory assets ......................... 37,765 37,150 36,322
Other ..................................... 9,610 8,953 10,255
--------- --------- ---------
Total deferred charges and other .......... 63,060 60,027 58,988
--------- --------- ---------
Total assets .............................. $ 907,444 $ 855,187 $ 887,587
========= ========= =========
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
- ---------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30, MARCH 31,
1997 1996 1996
(unaudited) (unaudited)
- ---------------------------------------------------------------------------------
(Thousands)
CAPITALIZATION
Common stock equity ..................... $300,172 $273,921 $290,321
Redeemable preferred stock............... 20,880 20,880 21,004
Long-term debt........................... 300,377 303,363 309,013
-------- -------- --------
Total capitalization .................... 621,429 598.164 620,338
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt..... 137 1,501 2,364
Short-term debt.......................... 38,300 35,000 --
Purchased gas............................ 54,238 33,638 55,668
Accounts payable and other............... 27,254 32,183 28,812
Dividends payable........................ 7,238 7,066 7,028
Accrued taxes............................ 31,507 6,032 38,442
Overrecovered gas costs.................. -- -- 3,731
Customers' credit balances and deposits.. 8,371 23,845 15,011
-------- -------- --------
Total current liabilities................ 167,045 139,265 151,056
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes.................... 56,123 52,010 43,644
Deferred investment tax credits.......... 11,106 11,280 11,454
Deferred revenue......................... 21,164 21,816 22,524
Other.................................... 30,577 32,652 38,571
-------- -------- --------
Total deferred credits................... 118,970 117,758 116,193
-------- -------- --------
Total capitalization and liabilities..... $907,444 $855,187 $887,587
======== ======== ========
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, 1996 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 1996 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 Services Corporation (Energy Services) and NJR Development Company (NJR
Development). New Jersey Natural Energy Company (Natural Energy) and NJR Energy
Corporation (NJR Energy) are wholly owned subsidiaries of Energy Services and
Commercial Realty & Resources Corp. (CR&R), Paradigm Power, Inc. 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. 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 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.
ln December 1995 and January 1996 NJR Energy sold its interests in all
of its oil and gas properties in three transactions for $19.6 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.
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4. New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), which requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. On October 1, 1996, the Company adopted SFAS
121 and there was no significant impact on its consolidated financial condition
or results of operations. The Company will continue to review the effects of
SFAS 121 whenever events or changes in circumstances dictate.
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation" (SFAS 123), which established 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 (APB
No. 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 has
elected to continue following APB No. 25 and provide the required pro forma
disclosures at year end. SFAS 123 had no effect on the Company's consolidated
financial condition or results of operations.
The Company is evaluating the requirements of SFAS No. 128 "Earnings
Per Share" and SFAS No. 129 "Disclosure of Information About Capital Structure"
which were issued by the FASB in February 1997 and must be adopted in fiscal
1998 and currently believes that they will not have a material impact on its
consolidated financial condition or results of operations.
5. Capitalized Interest
The Company's capitalized interest totaled $311,000 and $284,000 for
the three months ended March 31, 1997 and 1996, respectively. The capitalized
interest totaled $729,000 and $868,000 during the six months ended March 31,1997
and 1996, respectively.
6. Legal and Regulatory Proceedings
a. Aberdeen
Since June 1993, a total of six complaints, of which five are still
pending, 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 from NJNG and its
contractor. To date, NJNG and its contractors have received demands for
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 explosion 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
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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.
b. Gas Remediation
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 the former gas
manufacturing operations. Ten of the eleven sites in question were acquired by
NJNG from a predecessor in 1952, and the eleventh site was acquired by a
predecessor of NJNG in 1922. All of the gas manufacturing operations ceased at
these sites at least since the mid-1950's and in some cases had been
discontinued many years earlier, and all of the old gas manufacturing facilities
were subsequently dismantled by NJNG or its predecessors. NJNG is currently
involved in administrative proceedings with the New Jersey Department of
Environmental Protection and Energy (NJDEPE) and local government authorities
with respect to the plant sites in question, and is participating in various
studies and investigations by outside consultants to determine the nature and
extent of any such contaminated residues and to develop appropriate programs of
remedial action, where warranted. Since October 1989, NJNG has entered into
Administrative Consent Orders or Memoranda of Agreement with the NJDEPE covering
all eleven sites. These documents establish the procedures to be followed by
NJNG in developing a final remedial clean-up plan for each site.
Most of the cost of such studies and investigations is being shared under
an agreement with the former owner and operator of ten of the MGP sites. Through
a Remediation Rider approved by the Board of Public Utilities (BPU), NJNG is
recovering its expenditures incurred through June 1996 over a seven-year period.
Costs incurred subsequent to June 30, 1996 will be reviewed annually and,
subject to BPU approval, recovered over seven-year periods.
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 MPG sites by
Kaiser-Nelson, and (b) money damages or compensatory relief for the harm caused
by Kaiser-Nelson's aforementioned actions. There can be no assurance as to the
outcome of these proceedings.
c. South Brunswick Asphalt, L.P.
NJNG has been named a defendant in a civil action commenced in New Jersey
Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated
companies seeking damages arising from alleged environmental contamination at
three sites owned or occupied by SBA and its affiliated companies.
Specifically, the suit charges that tar emulsion removed from 1979 through 1983
by an affiliate of SBA (Seal Tite, Inc.) from NJNG's former gas manufacturing
plant sites has been alleged by the NJDEPE to constitute a hazardous waste and
that the tar emulsion has contaminated the soil and ground water at the three
sites in
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question. In February 1991, the NJDEPE. issued letters classifying the tar
emulsion/sand and gravel mixture at each site as dry industrial waste, a
non-hazardous classification. On April 4, 1996, in a meeting with all parties to
the litigation and the judge assigned to the case, the NJDEPE 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.
d. 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. In
April 1997, the Pennsylvania Supreme Court granted a petition for review of the
Commonwealth Court's decision, which had been filed by the Joint Venture et al.
Oral argument has not yet been scheduled.
In September 1993, Peoples instituted an action in the Court of Common
Pleas of Allegheny County against the Joint Venture, et al. by filing a
Praecipe for Writ of Summons. The Praecipe for Writ of Summons cannot and does
not contain any description of the claim being asserted by Peoples. It merely
tolls the statute of limitations and preserves any claim Peoples may have
against the defendants until resolution of the actions discussed above. This
action may concern a claim by Peoples for losses allegedly sustained as a
result of the activities of the Joint Venture, et al. However, there has been
no activity in this action and the nature of the action has not yet been
determined. NJNR is unable to predict the outcome of these matters. The Company
does not believe that the ultimate resolution of these matters will have a
material adverse effect on its consolidated financial condition or results of
operations.
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In 1994, the Company wrote-off its $1 million investment in the Bessie-8
pipeline.
e. South Jersey Gas Company
On March 5, 1997, South Jersey Gas Company (SJG) filed a complaint in New
Jersey Superior Court against NJNG seeking damages arising from an alleged
breach of warranty associated with certain natural gas utility assets that were
part of the sale of all assets owned by NJNG in Cape May County, New Jersey (the
Southern division) to SJG in 1983. Specifically, the complaint charges that
certain gas service line installations made by NJNG were not performed in
accordance with applicable laws or standards as expressly or implicitly
represented or warrantied in the contract for the sale and purchase. SJG is
seeking compensatory and other damages, including return of the purchase price
for the alleged deficient installations. NJNG is vigorously defending this
matter. There can be no assurance as to the outcome of these proceedings.
f. 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.
g. 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 consolidated financial condition or results of operations.
7. Other
At March 31, 1997 there were 18,081,603 shares of common stock outstanding
and the book value per share was $16.60.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications including revenue from appliance
service contracts which is now included in operating revenue. Previously, this
revenue was treated as a reduction to operation and maintenance expense. This
has no impact on operating income or net income.
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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, 1997
A. RESULTS OF OPERATIONS
Consolidated net income for the quarter ended March 31,1997 increased by 6%
to $28.5 million, or $ 1.58 per share, compared with $26.9 million, or $1.50 per
share, for the same period last year. Consolidated net income for the six months
ended March 31, 1997 increased by 5%, or $41.4 million or $2.29 per share,
compared with $39.4 million, or $2.19 per share, last year. The increase in
consolidated earnings was primarily attributed to continued profitable customer
growth at the Company's principal subsidiary, NJNG, and increased off-system and
capacity release sales.
NJNG OPERATIONS
NJNG's financial results are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
------------------------------------------------------
(Thousands)
Gross margin
Residential and commercial $64,433 $61,888 $105,835 $104,243
Firm transportation 4,892 4,498 8,818 7,171
Interruptible 364 52 504 189
Off-system and capacity release 2,164 1,522 3,922 2,792
------- ------- -------- --------
Total gross margin $71,853 $67,960 $119,079 $114,395
======= ======= ======== ========
Appliance service revenues* $ 2,595 $ 1,818 $ 5,028 $ 3,625
======= ======= ======== ========
Operating income before income taxes $47,849 $42,632 $ 71,746 $ 66,238
======= ======= ======== ========
Net income $27,722 $25,328 $ 40,460 $ 38,005
======= ======= ======== ========
- ----------
*Appliance service revenues have been reclassified to operating revenues from
operation and maintenance expense. This has no impact on operating income or
net income.
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 and
off-system sales.
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Residential and Commercial
Since fiscal 1993, NJNG's firm gross margin has been subject to a
weather-normalization clause (WNC) which until October 1996 provided for a
revenue adjustment if the weather varied by more than one-half of one percent
from normal, or 10-year average, weather. Since October 1996, 20-year average
weather has been used instead of the 10-year average weather as the basis for
the revenue adjustment. The accumulated adjustment from one heating season is
billed or credited to customers in the subsequent heating season
Gross margin from sales to firm customers interested by $2.5 million, or
approximately 4%, and $1.6 million or approximately 2%, for the three and six
months ended March 31, 1997, respectively, compared with the same period last
year. These increases were due to the impact of 11,302 customer additions for
the twelve months ended Match 31, 1997 and the WNC described above. The six
month increase more than offset a 12% decrease in firm therm sales compared with
last year due to 14% warmer weather, and the impact of commercial and industrial
customers switching to firm transportation service, as discussed below.
The weather for the six months ended March 31, 1997 was 4% warmer than
normal, or the 20-year average. Under the WNC a total of $2.8 million of gross
margin was accrued for future collection from customers.
Firm Transportation
Gross margin from firm transportation increased by $394,000, or 9%, and
$1.6 million, or 23%, for the three and six months ended March 31, 1997,
respectively, compared with the same periods last year, reflecting an increase
in the number of customers utilizing this service. At March 31, 1997 and 1996,
NJNG provided firm transportation service to 2,238 and 1,633 commercial and
industrial customers, respectively; NJNG's total gross margin is not negatively
impacted by customers who utilize its firm transportation service but purchase
their gas from another supplier, as NJNG's tariffs are designed such that no
profit is earned on the commodity portion of sales to firm customers, and all
customers who do purchase gas from another supplier continue to utilize NJNG for
transportation.
Interruptible
NJNG services 42 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 5% of total therm throughput
in the six months ended March 31, 1997 and 1996, respectively, they accounted
for less than 1% of the total gross margin in each period due to the regulated
margin-sharing formulas that govern these sales. Under these formulas, NJNG
retains 5% of the gross margin from transportation sales and 10% of the gross
margin from the interruptible sales, with the balance credited to residential
and commercial customers through the LGA clause.
Off-System and Capacity Release
In order to reduce the overall cost of its gas supply commitments, NJNG
has entered into contracts to sell gas to customers who are outside of its
franchise territory. These sales enable NJNG to spread its fixed demand costs,
which are charged by pipelines to access their supplies year-round, over a
larger and more diverse customer base. NJNG also participates in the capacity
release market on the interstate pipeline network when the capacity is not
needed for its own system requirements. NJNG retains 20% of the gross margin
from these sales.
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NJNG's off-system sales totaled 171 million therms and generated $1.5
million of gross margin and 270 million therms and $2.5 million of gross margin
in the three and six months ended March 31, 1997, respectively, compared with 76
million therms and $800,000 of gross margin and 158 million therms and $1.4
million gross margin in the same respective periods last year. The capacity
release program generated gross margin of $639,000 and $1.4 million in the three
and six months ended March 31, 1997 and 1996, respectively, compared with
$722,000 and $1.4 million in the comparable periods last year. The increase was
due primarily to greater therm sales.
Appliance Service Revenues
Revenues from appliance service contracts and service calls increased by
39% for the six months ended March 31, 1997 due to an overall 30% increase in
rates charged for such services effective April 1 1996 and the addition of
approximately 7,000, or 8%, service contracts during the twelve months ending
March 31, 1997. Costs related to this service work are primarily included in
operation and maintenance expense.
Operating Income Before Income Taxes and Net Income
Operating income before income taxes increased by $5.2 million, or 12%, and
net income increased by $2.4 million, or 9%, for the three months ended March
31, 1997, compared with the same period last year due to higher gross margin as
described above as well as a 1% reduction in operation and maintenance expense
due to lower conservation costs.
Operating income before taxes increased by $5.5 million, or 8%, and net
income increased by $2.5 million, or 6%, for the six months ended March 31,
1997, compared with the same period last year due to higher margins from
customer growth and appliance service revenues, which more than offset higher
depreciation and tax expenses.
ENERGY SERVICES OPERATIONS
Energy Services' consolidated financial results, which include Natural
Energy, the Company's unregulated marketing and fuel and capacity management
subsidiary, and the continuing operations of NJR Energy, which consist of equity
investments in the Iroquois Gas Transmission System, L.P. and Market Hub
Partners, L.P., are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
-------------------------------------------
(Thousands)
Revenues $43,972 $29,964 $79,848 $48,666
======= ======= ======= =======
Operating income before income taxes $ 2,032 $ 2,452 $ 2,689 $ 3,806
======= ======= ======= =======
Net income $ 1,152 $ 1,368 $ 1,356 $ 2,122
======= ======= ======= =======
Energy Services' revenues increased by 47% and 64% for the three and six
months ended March 31, 1997, respectively, compared to the same period last
year reflecting growth in Natural Energy's fuel and capacity management
services. Operating income before income taxes and net income decreased,
reflecting
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the impact of warmer weather and higher gas costs on Natural Energy's retail
marketing operation, which more than offset higher margin from its fuel and
capacity management services.
Natural Energy's retail gas sales totaled 3.3 billion cubic feet (bcf) and
5.8 bcf, and gas under management and wholesale gas sales totaled 16.3 bcf and
30.6 bcf, for the three and six months ended March 31, 1997, respectively,
compared with retail gas sales of 3.5 bcf and 5.9 bcf, and gas under management
of 3.7 bcf and 10.3 bcf in the comparable periods last year.
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,
1997 1996 1997 1996
-------------------------------------------
(Thousands)
Revenues $ 615 $ 576 $ 1,712 $ 2,444
===== ===== ======= =======
Operating income (loss) before income taxes $(174) $(128) $ 160 $ (779)
===== ===== ======= =======
Net loss $(145) $ (74) $ (150) $(1,103)
===== ===== ======= =======
In November 1995, CR&R sold certain of its real estate assets for $52.65
million in cash and issued options to the buyer to purchase adjacent undeveloped
land parcels at various prices. This transaction required the one-time write-off
of unamortized commissions and other costs totaling $1.8 million, which is
reflected in operating income (loss) before income taxes in the six months ended
March 31, 1997.
In December 1995, CR&R sold a 157,000 square foot, office building for
$31.85 million, in a sale-leaseback transaction. CR&R's pre-tax gain on this
transaction was approximately $17.8 million which is included in deferred
revenue on the consolidated balance sheet and is being amortized 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.
Prior to the transaction, NJNG leased about 79% of the building under a
long-term lease.
In January 1997, CR&R sold a 76,000 square foot, fully occupied, flex space
building and 11 acres of undeveloped land in two separate transactions totaling
$7.0 million, which approximated net book value.
NJR used the proceeds from these sales to reduce outstanding debt.
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 $135 million and has a $10 million credit facility available on an
offering basis. At March 31, 1997, $48.9 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. In April 1996, the Dividend
Reinvestment Plan (DRP) was amended to allow for the purchase of shares in the
open market to satisfy the
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plan's needs. Since July 1, 1996, shares needed for the DRP have been purchased
on the open market. The Company can switch funding options every 90 days.
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
GRFT 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 $75 million with a number of commercial banks and has
an additional $20 million in lines of credit available on an offering basis.
Remaining fiscal 1997 construction expenditures are estimated at $27
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth, and general system renewals and
improvements. NJNG expects to finance these expenditures through internal
generation, the issuance of short-term debt and a $5 million draw down of its
variable rate Series BB EDA Bonds, which is expected to be completed in August
1997. On March 28, 1997, NJNG redeemed the remaining $8.2 million of its 8.5%
Series P Bonds. NJNG will pursue the refinancing of other existing long-term
debt, the amount and timing of which will be affected by market conditions and
other factors.
ENERGY SERVICES
NJR Storage Corporation (Storage), a subsidiary of NJR Energy, is a 5.67%
partner in Market Hub Partners, L.P. (MHP) which is expected to develop, own and
operate a system of five natural gas market centers with high-deliverability
salt cavern storage facilities. The market centers are expected to be
strategically located in Texas, Louisiana, Mississippi, Michigan and
Pennsylvania. As of March 31, 1997, Storage's investment in MHP totaled $8.3
million. No significant capital contributions are currently expected in the
remainder of fiscal 1997.
NJR DEVELOPMENT
CR&R's future capital expenditures will be limited to the fit-up of
existing tenant space, the development of existing acreage and additional
investments, as approved by the Board of Directors, made for the purpose of
preserving the value of particular real estate holdings. In November 1996, CR&R
completed the construction of a 98,000 square foot addition to an existing
building at a total cost of approximately $5.4 million, of which $691,000 was
expended in fiscal 1997 net of tenant reimbursement. This additional space has
been pre-leased to the occupant of the existing building. In March 1997, the
Board of Directors approved the construction of a 20,000 square foot,
build-to-suit office building, supported by a ten-year lease, with an
incremental capital cost of $2.1 million of which $500.000 is expected to be
expended in fiscal 1997.
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides
a "safe harbor" for forward-looking statements where those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. Certain of the
statements contained in this report (other than the financial statements and
other statements of historical fact), including, without limitation, statements
as to the adequacy of established reserves for the discontinued operations,
expected disposition of legal and
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regulatory proceedings and expected investments in MHP are forward-looking
statements. Forward-looking statements 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 1997 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, 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.
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
10-1 Form of Indemnification Agreement
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, 1997.
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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 13, 1997 /s/ Laurence M. Downes
---------------------
Laurence M. Downes
Chairman, President and
Chief Executive Officer
Date: May 13, 1997 /s/ Glenn C. Lockwood
--------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer
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EXHIBIT INDEX
-------------
10-1 Form of Indemnification Agreement
27-1 Financial Data Schedule