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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 December 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 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 February
10, 1998 was 17,769,494
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- -----------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------------
(Thousands, except per share data)
OPERATING REVENUES ........................ $220,395 $188,601
-------- --------
OPERATING EXPENSES
Gas purchases ........................... 155,075 124,787
Operation and maintenance ............... 20,217 19,651
Depreciation and amortization ........... 7,057 6,129
Gross receipts tax, etc ................. 13,356 13,054
Federal income taxes .................... 5,928 6,432
-------- --------
Total operating expenses .................. 201,633 170,053
-------- --------
OPERATING INCOME .......................... 18,762 18,548
Other income, net ......................... 1,318 80
Interest charges, net ..................... 5,467 5,288
-------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS ... 14,613 13,340
Preferred stock dividends ................. 397 398
-------- --------
NET INCOME ................................ $ 14,216 $ 12,942
======== ========
EARNINGS PER COMMON SHARE .................
BASIC ............................... $ .80 $ .72
======== ========
DILUTED ............................. $ .79 $ .71
======== ========
DIVIDENDS PER COMMON SHARE ................ $ .41 $ .40
======== ========
AVERAGE SHARES OUTSTANDING
BASIC ............................... 17,844 18,084
======== ========
DILUTED ............................. 17,938 18,109
======== ========
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- ----------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------
(Thousands)
CASH FLOWS (USED IN) OPERATING ACTIVITIES
Net income ............................................. $ 14,216 $ 12,942
Adjustments to reconcile net income to cash flows
Depreciation and amortization ......................... 7,057 6,129
Amortization of deferred charges ...................... 203 457
Deferred income taxes ................................. 5,615 2,282
Change in working capital ............................. (39,288) (29,181)
Other, net ............................................ (4,080) (1,395)
-------- --------
Net cash flows (used in) operating activities ............ (16,277) (8,766)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt ........................... 13,500 --
Proceeds from common stock ............................. 13 --
Payments of long-term debt ............................. (20,500) (2,000)
Repurchase of treasury stock ........................... (1,300) (933)
Payments of common stock dividends ..................... (7,161) (7,066)
Net change in short-term debt .......................... 29,340 23,600
-------- --------
Net cash flows from financing activities ................. 13,892 13,601
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for
Utility plant ......................................... (9,079) (11,061)
Real estate properties ................................ (634) (231)
Equity investments .................................... -- (250)
Cost of removal ....................................... (535) (795)
Proceeds from sale of assets ........................... 15,200 --
-------- --------
Net cash flows from (used in) investing activities ....... 4,952 (12,337)
-------- --------
Net change in cash and temporary investments ............. 2,567 (7,502)
Cash and temporary investments at September 30 ........... 5,467 10,808
-------- --------
Cash and temporary investments at December 31 ............ $ 8,034 $ 3,306
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables ............................................ $(65,530) $(72,908)
Inventories ............................................ (3,685) 4,372
Deferred gas costs ..................................... (1,286) (10,655)
Purchased gas .......................................... 34,217 41,592
Accrued taxes .......................................... 12,740 15,445
Customers' credit balances and deposits ................ (4,381) (434)
Other, net ............................................. (11,363) (6,593)
-------- --------
Total .................................................... $(39,288) $(29,181)
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized) ................. $ 6,251 $ 6,526
Income taxes .......................................... -- $ 726
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
ASSETS
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1997 1997 1996
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant ............................... $ 863,339 $ 855,375 $ 821,541
Real estate properties ...................... 23,515 22,897 37,295
--------- --------- ---------
886,854 878,272 858,836
Accumulated depreciation and amortization ... (224,617) (218,912) (205,430)
--------- --------- ---------
Property, plant and equipment, net ......... 662,237 659,360 653,406
--------- --------- ---------
CURRENT ASSETS
Cash and temporary investments .............. 8,034 5,467 3,306
Construction fund ........................... -- -- 6,500
Customer accounts receivable ................ 88,073 45,900 83,831
Unbilled revenues ........................... 29,888 3,998 24,357
Allowance for doubtful accounts ............. (2,508) (1,527) (1,374)
Gas in storage, at average cost ............. 37,841 34,152 35,968
Materials and supplies, at average cost ..... 5,441 5,445 6,436
Deferred gas costs .......................... 5,659 15,070 31,133
Prepaid state taxes ......................... 133 12,089 4,369
Assets held for sale, net ................... -- 13,386 7,098
Other ....................................... 12,240 6,377 7,305
--------- --------- ---------
Total current assets ....................... 184,801 140,357 208,929
--------- --------- ---------
DEFERRED CHARGES AND OTHER
Equity investments .......................... 6,720 7,086 14,666
Regulatory assets ........................... 38,413 38,635 37,983
Long-term deferred gas costs ................ 30,043 19,622 208
Other ....................................... 17,487 14,001 8,761
--------- --------- ---------
Total deferred charges and other ........... 92,663 79,344 61,618
--------- --------- ---------
Total assets ......................... $ 939,701 $ 879,061 $ 923,953
========= ========= =========
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
- -----------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1997 1997 1996
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------
(Thousands)
CAPITALIZATION
Common stock equity ....................... $286,327 $278,436 $279,781
Redeemable preferred stock ................ 20,760 20,760 20,880
Long-term debt ............................ 284,407 291,407 301,363
-------- -------- --------
Total capitalization .................... 591,494 590,603 602,024
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt ...... 138 138 1,501
Short-term debt ........................... 77,340 48,000 58,600
Purchased gas ............................. 92,096 57,879 75,230
Accounts payable and other ................ 22,487 28,632 26,765
Dividends payable ......................... 7,322 7,161 7,233
Accrued taxes ............................. 6,565 5,781 9,549
Customers' credit balances and deposits ... 9,145 13,526 23,411
-------- -------- --------
Total current liabilities ................ 215,093 161,117 202,289
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes ..................... 69,116 63,501 54,292
Deferred investment tax credits ........... 10,847 10,934 11,193
Deferred revenue .......................... 20,253 20,551 21,505
Other ..................................... 32,898 32,355 32,650
-------- -------- --------
Total deferred credits ................... 133,114 127,341 119,640
-------- -------- --------
Total capitalization and liabilities ... $939,701 $879,061 $923,953
======== ======== ========
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, 1997 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 1997 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). New
Jersey Natural Energy Company (Natural Energy), NJR Energy Services Company
(Energy Services) 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. 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.
In 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
The Company has adopted SFAS No. 128 "Earnings per Share" which
establishes standards for computing and presenting earnings per share (EPS).
SFAS No. 128 is effective for periods ending after December 15, 1997 and
requires that all prior-period data presented to be restated. The incremental
shares, using the treasury stock method, that were required for inclusion in the
denominator for diluted EPS were 91,636 and 24,693 related to stock options and
restricted stock, for the three months ended December 31, 1997 and 1996,
respectively. The numerator for both the basic and diluted calculation was net
income. The impact was a one-cent dilutive effect for both the three months
ended December 31, 1997 and 1996.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosure About
Segments of an Enterprise and Related Information." The Company is evaluating
the requirements of SFAS 130 and SFAS 131 which must be adopted by fiscal 1999.
Since these statements primarily relate to disclosure information, it is
management's opinion that they will not have a material effect on either its
financial condition or results of operations.
5. Capitalized Interest
The Company's capitalized interest totaled $193,000 and $418,000 for the
three months ended December 31, 1997 and 1996, respectively.
6. Legal and Regulatory Proceedings
a. Levelized Gas Adjustment (LGA)
In January 1998, the New Jersey Board of Public Utilities (BPU) approved an
interim settlement, representing an increase of approximately $13 million in LGA
revenues. This included the approval to collect $3.4 million of weather
normalization clause (WNC) margins accrued due to the impact of
warmer-than-normal weather during fiscal year 1997 and minimal adjustments to
its Remediation Adjustment and Demand Side Management Adjustment Clause factors.
The parties to the settlement are discussing the resolution of additional
matters such as expanding customer choice, extending margin-sharing incentives
and the allocation of LGA underrecovery among customer classes.
The BPU is currently performing an audit of NJNG's gas costs and related
accounts for the fiscal years 1991 through 1995. The Company expects this audit
to be finalized in fiscal 1998 and does not believe that the ultimate resolution
will have a material adverse effect on its consolidated financial condition or
results of operations.
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b. Postretirement Benefits Other Than Pensions
In January 1997, the BPU concluded a generic proceeding related to the
implementation of the provisions of SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (OPEB). SFAS 106 required that
publicly held companies change from the practice of accounting for OPEB costs on
a pay as you go basis to an accrual basis of accounting. The BPU's generic
proceeding provided for a Phase II proceeding in which each utility would
address the particular impact of SFAS 106 on its revenue requirements. In July
1997, NJNG filed a petition to recover an additional $900,000 in annual OPEB
costs with a proposed effective date no later than September 30, 1998. In
November 1997, NJNG revised the requested annual OPEB costs to $1.2 million to
reflect updated actuarial results and the imposition of state sales tax. NJNG
expects to receive approval to collect the additional annual cost by the end of
fiscal year 1998.
c. Aberdeen
A total of six complaints were 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 alleged 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 sought compensatory
damages from NJNG and its contractor.
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. By February 4, 1998, all six complaints were settled. All settlement
amounts, less NJNG's self insured retention, were paid by insurers for NJNG and
its contractor.
d. 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 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 the former owner. 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.
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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 1997 over a seven-year period. Costs incurred subsequent
to June 30, 1997 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. NJNG is seeking (a) a declaration of
the rights, duties and liabilities of the parties under agreements with respect
to claims against NJNG 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. Discovery is proceeding in this matter. There can be no assurance as to
the outcome of these proceedings.
e. 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, and two other non-affiliated companies, seeking damages arising from
alleged environmental contamination at three sites owned or occupied by the
plaintiffs. Specifically, the suit charges that tar emulsion removed from 1979
through 1983 by an affiliate of SBA (Seal Tite, Inc.) from NJNG's former gas
manufacturing plant sites has been alleged by the NJDEP to constitute a
hazardous waste and that the tar emulsion has contaminated the soil and ground
water at the three sites in question. In February 1991, the NJDEP issued letters
classifying the tar emulsion/sand and gravel mixture at each site as dry
industrial waste, a non-hazardous classification. 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 material. These applications are currently under
review by NJDEP. The Company does not believe that the ultimate resolution of
these matters will have a material adverse effect on its consolidated financial
condition or results of operations.
f. 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.
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In April 1988, an Administrative Law Judge (ALJ) issued an initial decision
denying and dismissing People's complaint, "because the demonstrated activities
of the Bessie-8 joint venture are not within the jurisdiction of the PaPUC to
regulate". An initial decision is subject to adoption, modification or rejection
by the full PaPUC. In April 1989, alternative motions to adopt the ALJ's initial
decision or to subject the Joint Venture, et al. to the jurisdiction of the
PaPUC failed due to 2-2 tie votes. In October 1992, the PaPUC, on its own
initiative and without notice to any of the parties, determined in a 3-0 vote
that the Joint Venture, et al. are a "public utility" under the Pennsylvania
Public Utility Code and granted People's exceptions to the ALJ's April 1988
initial decision. In December 1992, the PaPUC issued a Final Order requiring the
Joint Venture, et al. to apply for a certificate of public convenience or to
cease and desist from providing service through the pipeline.
In January 1993, the Joint Venture, et al. filed two separate Petitions for
Review with the Commonwealth Court of Pennsylvania. The first Petition for
Review challenged the lawfulness of the PaPUC's action in October 1992 in light
of the April 1989 tie vote. On appeal of the Commonwealth Court's order
reversing the PaPUC, the Pennsylvania Supreme Court held that the April 1989 tie
vote did not preclude the PaPUC from taking its October 1992 vote.
The second Petition for Review challenged the merits of the PaPUC's
determination that the Joint Venture, et al. are a "public utility" under the
Pennsylvania Public Utility Code. In July 1996, a three-judge panel of the
Commonwealth Court, in a 2-1 decision, affirmed the PaPUC's determination that
the Joint Venture, et al. were a "public utility" under Pennsylvania law. The
Joint Venture, et al. filed a petition for review with the Pennsylvania Supreme
Court, which petition is now pending before the Court.
In September 1993, People's instituted an action in the Court of Common Pleas
of Allegheny County against the Joint Venture, et al. by filing a Praecipe for
Writ of Summons which merely tolled the statute of limitations and preserved any
claim People's may have against the defendants until resolution of the actions
discussed above. In June 1997, People's filed a complaint in equity against the
Joint Venture, et al. in the Allegheny County Common Pleas Court. The complaint
alleges, among other things, that the Joint Venture, et al. unlawfully provided
natural gas services without prior authorization of the PaPUC and tortiously
interfered with the contractual and business relations of various existing and
potential Peoples' customers. The complaint seeks unspecified money damages and
injunctive relief against the Joint Venture et al. The Company is unable to
predict the outcome of these matters but does not believe that the ultimate
resolution of these matters will have a material adverse effect on its
consolidated financial condition or results of operations.
In 1994, the Company wrote-off its $1 million investment in the Bessie-8
pipeline.
g. Securities and Exchange Commission
On January 2, 1998, the Company announced that it had reached a settlement
with the SEC in connection with the previously reported investigation by the SEC
into certain transactions engaged in by subsidiaries of the Company in 1992. In
the settlement, approved by the SEC on December 31, 1997, the Company agreed,
without admitting or denying the SEC's findings, to consent to the entry of an
administrative order finding that the Company had not fully complied with
Sections 10(b), 13(a) and 13(b) of the Securities Exchange Act of 1934 (the
Order). The Order agreed to by the Company does not
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impose any monetary penalty or require any restatement of the Company's
financial statements. In a related development, the Company's former Chairman
and CEO, Oliver G. Richard III, and three current officers, Laurence M. Downes,
Glenn C. Lockwood and Jay B. Corn, also entered into settlements with the SEC as
of December 31, 1997, in which they agreed, without admitting or denying the
SEC's findings, to consent to the entry of administrative orders finding that
they had caused the Company not to fully comply with Section 13(a) of the
Securities Exchange Act of 1934. These orders do not impose any fines or
penalties on these individuals.
h. 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.
7. State of New Jersey Tax Reform
In July 1997, legislation was signed that reformed New Jersey's taxes
affecting energy companies. The legislation repealed the long-standing utility
tax formula and replaced it with a state sales tax, a corporate business tax and
a transitional energy facilities assessment which would become effective in
January 1998. It required a rate filing by each utility in September 1997
designed to implement the new tax structure. In December 1997 the BPU approved
NJNG's new rates implementing the new tax structure on an interim basis. The new
rates have no effect on revenue or margin. The transitional energy facilities
assessment will be gradually phased out starting in 1999 and ending in 2002. The
new law requires that all providers of energy in the state be subject to the
sales and corporate business taxes. Previously, non-utility providers of energy
were not subject to a state sales tax.
8. Long-Term Debt
NJNG has entered into loan agreements with the New Jersey Economic
Development Authority (the Authority) in which the Authority issues bonds to the
public. To secure its loans from the Authority, NJNG issues First Mortgage Bonds
with interest rates and maturity dates similar to the Authority's bonds.
Under these agreements NJNG issued variable rate Series DD Bonds in October
1997 for $13.5 million and utilizing the proceeds from the series DD Bonds,
redeemed its $13.5 million 9% Series Q Bonds in December 1997. Additionally, in
January 1998, NJNG issued variable rate Series EE and Series FF Bonds for $9.5
million and $15 million, respectively. The proceeds will be utilized to redeem
the $9.5 million 7.05% Series T and the $15 million 7.25% Series U Bonds on
March 1, 1998.
9. Other
At December 31, 1997 there were 17,859,071 shares of common stock outstanding
and the book value per share was $16.03.
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 MONTHS ENDED DECEMBER 31, 1997
A. RESULTS OF OPERATIONS
Consolidated net income for the quarter ended December 31, 1997 increased by
10% to $14.2 million, compared with $12.9 million for the same period last year.
Basic earnings per share (EPS) increased 11% to $.80, compared with $.72 last
year. Diluted EPS also increased 11% to $.79, compared with $.71 last year. The
increase in consolidated earnings was attributed primarily to continued
profitable customer growth at the Company's principal subsidiary, NJNG, and
improved overall unregulated operating results.
NJNG OPERATIONS
NJNG's financial results are summarized as follows:
Three Months Ended
December 31,
1997 1996
------------------------
(Thousands)
Gross margin
Residential and commercial $41,550 $41,403
Firm transportation 5,598 3,926
Interruptible 130 140
Off-system and capacity release 1,356 1,758
------- -------
Total gross margin $48,634 $47,227
======= =======
Appliance service revenues $ 2,875 $ 2,432
======= =======
Operating income before income taxes $25,119 $23,897
======= =======
Net income $13,735 $12,738
======= =======
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 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 provides for a revenue adjustment if
the weather varies by more than one-half of one percent from normal, or 20-year
average weather. The accumulated adjustment from one heating season is billed or
credited to customers in the subsequent heating season.
Gross margin from sales to firm customers increased by $147,000 during the
first fiscal quarter, compared with the same period last year, due primarily to
a 4.7% increase in firm therm sales. The increase in firm therm sales was due to
the impact of 12,379 customer additions during the twelve months ended December
31, 1997 combined with increased customer usage. These results were impacted by
residential, commercial and industrial customers switching to firm
transportation service, as described below.
The weather for the three months ended December 31, 1997 was 3% colder than
normal, or the 20-year average. The impact of colder weather on gross margin was
partially reduced by the above-mentioned WNC. Under this rate mechanism, a total
of $394,000 of gross margin was deferred for future refund to customers.
Firm Transportation
Gross margin from firm transportation increased by $1.7 million, or 43%,
reflecting an increase in the number of customers utilizing this service. At
December 31, 1997 and 1996, NJNG provided firm transportation service to 8,200
and 2,153 residential, commercial and industrial customers, respectively. NJNG's
total gross margin is not negatively impacted by customers who utilize the firm
transportation service and purchase their gas from another supplier, as its
tariffs are designed such that no profit is earned on the commodity portion of
sales to firm customers and all customers who do purchase gas from another
supplier continue to utilize NJNG for transportation.
Interruptible
NJNG services 48 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 6% of total therm throughput in the three
months ended December 31, 1997 and 1996, 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
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pipeline network when the capacity is not needed for its own system
requirements. NJNG retains 20% of the gross margin from these sales.
NJNG's off-system sales totaled 14.6 billion cubic feet (Bcf) and NJNG
retained $766,000 of gross margin in the first quarter of fiscal 1998, compared
with 9.9 Bcf and $1 million of gross margin in the same period a year ago. The
capacity release program generated gross margin of $590,000 and $742,000 in the
three months ended December 31, 1997 and 1996, respectively. The decreases were
due primarily to lower margins per therm.
Operating Income Before Income Taxes and Net Income
Operating income before income taxes increased by $1.2 million and net income
increased by $997,000 in the first quarter of fiscal 1998, compared with the
same period last year due primarily to higher margins from customer growth,
improved usage and increased appliance service revenues, which more than offset
an increase in depreciation expense and interest charges from higher short-term
debt levels. The increase in depreciation is due primarily to a higher
depreciable plant balance, which includes a new customer information and
billing system (CIS) which was placed into service in August 1997.
The Year 2000 Issue
The Company has been evaluating the extent to which its computer systems
will be affected by the Year 2000 issue. With the implementation of NJNG's new
CIS system, the Company does not currently believe that the additional
investment needed for its computer systems to be Year 2000 compliant will have
a material adverse affect on either its financial condition or results of
operations.
ENERGY HOLDINGS OPERATIONS
Energy Holdings' consolidated financial results, which include Natural Energy
and Energy Services, the Company's unregulated marketing and fuel and capacity
management subsidiaries, 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
December 31,
1997 1996
------------------------
(Thousands)
Revenues $52,306 $35,876
======= =======
Operating income before income taxes $ 749 $ 657
======= =======
Net income $ 401 $ 204
======= =======
Energy Holdings revenues increased for the three months ended December 31,
1997, compared to the same period last year, reflecting primarily higher fuel
and capacity management sales. Operating income before income taxes and net
income increased due primarily to higher margins from daily gas sales and fuel
management agreements, partially offset by lower margin from retail sales.
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Energy Service's gas under management totaled 23.3 Bcf and 7.6 Bcf, and
retail gas sales totaled 2.1 Bcf and 2.5 Bcf for the three months ended December
31, 1997 and 1996, respectively.
NJR DEVELOPMENT OPERATIONS
NJR Development's consolidated financial results, which consist solely of
CR&R's operations, are summarized as follows:
Three Months Ended
December 31,
1997 1996
-----------------------------
(Thousands)
Revenues $ 155 $ 1,097
======= =======
Other income, net $ 1,035 $ 112
======= =======
Net income (loss) $ 272 $ (5)
======= =======
In October 1997, CR&R sold a 280,000 square-foot office building for $15.6
million. Included in Other income, net is an after-tax gain of $900,000 related
to this transaction.
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 and is included in
Other income, net. 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.
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 December 31, 1997, $33 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). In
April 1996, the DRP was amended to allow 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
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 $90 million with a number of commercial banks and has
an additional $10 million in lines of credit available on an offering basis.
Remaining fiscal 1998 construction expenditures are estimated at $41.5
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth, and general system renewals and
improvements. NJNG expects to finance these expenditures through internal
generation and the issuance of short-term debt. NJNG will pursue the refinancing
of other existing long-term debt and potentially issue new long-term debt, the
amount and timing of which will be affected by market conditions and other
factors.
ENERGY HOLDINGS
Energy Holdings does not currently expect any significant capital
expenditures or external financing requirements in fiscal 1998.
NJR DEVELOPMENT
Remaining capital expenditures in fiscal 1998 are projected to be $1.4
million in connection with the construction of a 20,000 square-foot,
build-to-suit office building, supported by a ten-year lease. These expenditures
are expected to be funded through the Company's committed credit facilities.
CR&R's future capital expenditures will be limited to the fit-up of existing
tenant space, developing existing acreage and additional investments to preserve
the value of its existing real estate holdings.
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, statements as to the adequacy of established reserves for the
discontinued operations, expected disposition of legal and regulatory
proceedings, effect of new accounting standards and impact of the Year 2000
computer issue 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 1998 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
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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 4. Submission of Matters to a Vote of Security Holders
On January 28, 1998, the shareowners voted upon the following matters at
the annual stockholder meeting.
(a) The election of four (4) directors, one (1) to serve for a one year
term expiring in 1999, one (1) to serve a two-year term expiring in 2000 and two
(2) to serve for three-year terms expiring in 2001, and until their respective
successors are duly elected and are qualified. The results of the voting were as
follows:
Director For Withheld
-------- --- --------
Charles G. Stalon 15,317,111 167,738
John J. Unkles, Jr. 15,303,298 181,551
Laurence M. Downes 15,318,517 166,332
Joe B. Foster 15,321,646 163,203
(b) The stockholders approved the action to retain Deloitte & Touche LLP
as auditors for the fiscal year ending September 30, 1998. The votes were as
follows:
For Against Abstain
--- ------- -------
15,337,605 66,733 80,511
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ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4. Twenty-Eighth Supplemental Indenture,
Dated as of January 1, 1998
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 December 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: February 13, 1998 /s/Glenn C. Lockwood
--------------------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer
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EXHIBIT INDEX
4. Twenty-Eighth Supplemental Indenture,
Dated as of January 1, 1998 (filed herewith)
27-1 Financial Data Schedule