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, 1993 Commission file number 1-8359
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2376465
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1415 Wyckoff Road, Wall, New Jersey - 07719 908-938-1480
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
YES: X No:
The number of shares outstanding of $2.50 par value Common Stock as of February
1, 1994 was 17,032,536.
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NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
December 31,
1993 1992
- --------------------------------------------------------------------------------
(Thousands)
OPERATING REVENUES . . . . . . . $136,145 $132,647
-------- --------
OPERATING EXPENSES
Gas purchases . . . . . . . . . . 77,718 73,670
Operation and maintenance . . . . 15,550 15,706
Depreciation and amortization . . 6,895 6,454
Gross receipts tax, etc. . . . . 15,029 16,146
Federal income taxes . . . . . . 5,120 5,030
-------- --------
Total operating expenses . . . 120,312 117,006
-------- --------
OPERATING INCOME . . . . . . . . . 15,833 15,641
OTHER EXPENSE, NET . . . . . . . . 346 23
INTEREST CHARGES, NET . . . . . . . 4,633 5,068
-------- --------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS OF SUBSIDIARY . . . . . 10,854 10,550
Preferred stock dividends . . . . . 417 614
-------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING . . . . . . . . 10,437 9,936
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES . . . . . . . . . . . 1,030 -
-------- --------
NET INCOME AVAILABLE FOR COMMON STOCK $ 11,467 $ 9,936
======== ========
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING $.62 $.61
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES . . . . . . . . . .06 -
--- ---
EARNINGS PER COMMON SHARE . . . . . . $.68 $.61
==== ====
DIVIDENDS PER COMMON SHARE . . . . . . $.38 $.38
==== ====
AVERAGE SHARES OUTSTANDING . . . . . . 16,911 16,410
====== ======
See Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
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NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
December 31,
1993 1992
- --------------------------------------------------------------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES (Thousands)
Net income available for common stock . $11,467 $ 9,936
Adjustments to reconcile net income to cash flows
Depreciation and amortization . . . . 6,895 6,454
Amortization of deferred charges . . . 543 308
Deferred income taxes . . . . . . . . 695 669
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . (1,030) -
Change in working capital . . . . . . (23,334) (7,138)
Other, net . . . . . . . . . . . . . . (2,126) 1,669
------- -------
Net cash flows used in operating activities (6,890) 11,898
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt . . . . . . 44,050 29,100
Proceeds from common stock . . . . . . . 3,304 3,355
Payments of long-term debt . . . . . . (13,842) (9,672)
Payments of common stock dividends . . . (6,392) (5,533)
Net change in short-term debt . . . . . (6,900) -
------- -------
Net cash flows from financing activities 20,220 17,250
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for
Utility plant . . . . . . . . . . . . . (11,472) (9,317)
Contribution from cogeneration developer - 4,850
Real estate properties . . . . . . . . (696) (894)
Oil and gas properties . . . . . . . . (533) (1,745)
Cost of removal and other . . . . . . . (454) (432)
------- -------
Net cash flows used in investing activities (13,155) (7,538)
------- -------
Net change in cash and temporary investments 175 21,610
Cash and temporary investments at September 30 1,555 1,811
------- -------
Cash and temporary investments at December 31 $ 1,730 $23,421
======= =======
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables . . . . . . . . . . . . . . $(44,604) $(45,235)
Inventories . . . . . . . . . . . . . . 5,182 4,206
Deferred gas costs . . . . . . . . . . . (1,038) 9,615
Purchased gas . . . . . . . . . . . . . 3,671 7,204
Accrued taxes . . . . . . . . . . . . . 17,836 22,936
Customers' credit balances and deposits 2,866 (2,696)
Other, net . . . . . . . . . . . . . . . (7,247) (3,168)
-------- --------
Total . . . . . . . . . . . . . . . . . . $(23,334) $ (7,138)
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized) . $4,892 $4,684
Income taxes . . . . . . . . . . . . . $ - $ 306
See Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
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NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
- --------------------------------------------------------------------------------
December 31, September 30, December 31,
1993 1993 1992
(unaudited) (unaudited)
- --------------------------------------------------------------------------------
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant . . . . . . . . . $649,353 $637,580 $590,846
Real estate properties . . . . 103,065 102,369 100,396
Oil and gas properties . . . . 91,135 90,602 82,504
-------- -------- --------
843,553 830,551 773,746
Accumulated depreciation and
amortization . . . . . . . . (204,099) (197,912) (183,386)
-------- -------- --------
Property, plant and equipment,
net . . . . . . . . . . . . 639,454 632,639 590,360
-------- -------- --------
CURRENT ASSETS
Cash and temporary investments 1,730 1,555 23,421
Customer accounts receivable . 38,470 16,719 38,432
Unbilled revenues . . . . . . . 33,356 10,037 32,456
Allowance for doubtful accounts (1,164) (684) (1,174)
Gas in storage, at average cost 30,586 37,282 25,190
Materials and supplies, at
average cost . . . . . . . . 8,605 7,091 6,603
Deferred gas costs . . . . . . 15,256 22,891 (6,290)
Other . . . . . . . . . . . . . 8,744 6,250 7,766
-------- -------- --------
Total current assets . . . . 135,583 101,141 126,404
-------- -------- --------
DEFERRED CHARGES AND OTHER . . . 42,035 31,871 30,880
-------- -------- --------
Total assets . . . . . . . $817,072 $765,651 $747,644
======== ======== ========
See Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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NEW JERSEY RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, September 30, December 31,
1993 1993 1992
(unaudited) (unaudited)
- --------------------------------------------------------------------------------
(Thousands)
CAPITALIZATION
Common stock equity . . . . . . $255,938 $247,548 $237,802
Redeemable preferred stock . . 22,340 22,340 32,610
Long-term debt . . . . . . . . 311,128 310,996 271,726
-------- -------- --------
Total capitalization . . . . 589,406 580,884 542,138
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term
debt . . . . . . . . . . . . 4,622 4,650 4,710
Short-term debt . . . . . . . 44,000 20,900 -
Purchased gas . . . . . . . . 28,486 24,815 27,401
Accounts payable and other . . 28,862 33,571 28,917
Accrued taxes . . . . . . . . 29,082 11,246 55,061
Customers' credit balances and
deposits . . . . . . . . . . 14,505 11,639 10,525
-------- -------- --------
Total current liabilities . . 149,557 106,821 126,614
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes . . . . 48,763 49,098 50,036
Deferred investment tax credits 12,322 12,419 12,731
Other . . . . . . . . . . . . . 17,024 16,429 16,125
-------- -------- --------
Total deferred credits . . . 78,109 77,946 78,892
-------- -------- --------
Total capitalization and
liabilities . . . . . . . $817,072 $765,651 $747,644
======== ======== ========
See Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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NEW JERSEY RESOURCES CORPORATION
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, 1993 balance sheet data is derived from audited
financial statements. 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 New Jersey Resources Corporation's
(the Company) 1993 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) and Paradigm
Resources Corporation (Paradigm). Commercial Realty & Resources Corp. (CR&R),
NJR Energy Corporation (NJR Energy) and Paradigm Power, Inc. (Paradigm Power)
are wholly owned subsidiaries of Paradigm. New Jersey Natural Resources
Company (NJNR), NJNR Pipeline Company (Pipeline), Natural Resources Compressor
Company (Compressor) and NJRE Operating Company are wholly owned subsidiaries
of NJR Energy. Lighthouse One, Inc. is a wholly owned subsidiary of Paradigm
Power. Significant intercompany accounts and transactions have been
eliminated.
3. Changes in Accounting
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109)
and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS 106).
a. Income Taxes
- ---------------
SFAS 109 requires the implementation of a liability method for the financial
reporting of income taxes, as compared with the deferred method. Under the
liability method, deferred tax balances must be recorded irrespective of
ratemaking treatment and are adjusted to reflect changes in tax rates.
Previously, deferred tax balances were not recorded for certain ratemaking
items and were not adjusted to reflect changes in tax rates. The cumulative
effect of adopting SFAS 109 on the Company's nonregulated operations was a
credit to net income of $1 million, or $.06 per share. The effect on NJNG was
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to decrease its deferred tax liability by $375,000 with an offsetting
regulatory liability as the Company believes it is probable that the effects of
SFAS 109 on NJNG will be payable to customers in the future.
The tax effects of significant temporary differences comprising the
Company's net deferred income tax liability at October 1, 1993, upon adoption
of SFAS 109, were as follows:
Property related items $67,538
Customer contributions (4,589)
Capitalized overhead and interest (4,720)
Unamortized investment tax credits (4,347)
Alternative minimum taxes (7,882)
Deferred charges and other 1,693
-------
Total net deferred tax liability $47,693
=======
The provision for federal income taxes for the three months ended December
31, 1993 is composed of the following:
Current expense $9,616
Deferred expense (4,587)
Amortization of investment tax credits (99)
-------
Total provision $4,930
=======
Charged to:
Operating expenses $5,120
Other expense, net (190)
-------
Total provision $4,930
=======
b. Other Postretirement Benefits
- --------------------------------
SFAS 106 requires an accrual method of accounting for postretirement
benefits, similar to that presently in effect for pension plans. Previously,
certain health care and life insurance benefits were charged to expense when
paid. Under the accrual method, the cost of providing postretirement benefits
will be recognized over the employee's service period. The Company's
transition obligation associated with SFAS 106 is $8.6 million, which will be
amortized over 20 years, and its annual expense will increase from
approximately $400,000 to $1.5 million, of which over 95% relates to NJNG. As
part of its January 1994 base rate order, NJNG is permitted to recover
approximately 50% of its SFAS 106 expense currently and defer the balance with
ultimate recovery of the deferred portion no later than that prescribed by
generally accepted accounting principles. At December 31, 1993, $266,000 of
SFAS 106 expenses were deferred and are included in Deferred charges and other
on the Consolidated Balance Sheet.
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The components of the accumulated postretirement benefit obligation as of
October 1, 1993 and the estimated cost in fiscal 1994 are as follows:
Accumulated Postretirement Benefits Obligation (APBO)
Retirees $1,648
Fully eligible participants 2,648
Other active participants 4,304
------
Total APBO $8,600
======
There were no plan assets as of October 1, 1993.
Annual Net Postretirement Benefit Cost
Service cost $ 369
Interest cost 678
Amortization of transition obligation 430
Deferral of current expense (797)
-----
Total annual net expense $ 680
=====
The assumed health care cost trend rate used in measuring the APBO as of
October 1, 1993 was 12% in 1994 declining 1% each year to 7% in 1999 and then
remaining constant at 6.5% in 2000 and thereafter for participants under age
65. For participants age 65 and older the trend rate was 9% in 1994 declining
1% each year to 7% in 1996 and then remaining constant at 6.5% in 1997 and
thereafter. A 1% increase in the trend rates would increase the APBO as of
October 1, 1993 by $1.4 million and would increase the annual service and
interest costs by $200,000. The assumed discount rate used in determining the
APBO was 8%.
4. Capitalized Interest
Capitalized interest and total interest charges for the three months ended
December 31, 1993 and 1992, respectively, are as follows:
Three Months Ended
December 31,
1993 1992
------------------
(Thousands)
Capitalized Interest $934 $650
==== ====
Total Interest Charges $5,567 $5,718
====== ======
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5. Legal and Regulatory Proceedings
a. Base Rate Case
- -----------------
In April 1993, NJNG filed a petition with the Board of Regulatory
Commissioners (BRC) seeking additional annual revenues of approximately $26.9
million, or 7.1%, in base rates. The filing reflected primarily the
incremental capital and operating costs associated with NJNG's continued
customer growth, general system expansion and New Jersey tax law changes. The
filing included a 12.5% return on equity and a rate base of $541 million,
compared with 12.2% return on equity and a $389 million rate base previously
reflected in its base rates. On January 5, 1994, the BRC approved a stipulated
agreement which authorizes a $7.5 million base rate increase and includes an
11.5% return on common equity and a rate base of $492 million. Also included
in the stipulation was a continuation of NJNG's margin sharing formula for
sales to JCP&L and other interruptible customers and transportation services
and, effective January 5, 1994, the margin sharing formula for off-system and
capacity release sales will be 80% credited to firm customers and 20% retained
by NJNG.
b. Incentive Ratemaking
- -----------------------
In May 1993, NJNG filed an incentive ratemaking plan petition with the BRC
which was designed to avoid the need for frequent base rate filings while
improving overall service to its customers. In connection with the January
1994 base rate case stipulation, NJNG withdrew its incentive ratemaking
petition.
c. Levelized Gas Adjustment Clause (LGA)
- ----------------------------------------
In July 1993, NJNG filed a petition with the BRC to increase its annual LGA
revenues by $4.8 million, or 1.3%, reflecting primarily higher-than-expected
natural gas prices. On November 24, 1993, the BRC approved the $4.8 million
increase effective December 1, 1993, which includes recovery of NJNG's share of
transition costs associated with interstate natural gas pipelines complying
with FERC Order 636, over two years. Accordingly, $8.7 million of deferred gas
costs has been classified as Deferred charges and other on the Consolidated
Balance Sheet at December 31, 1993.
d. Manufactured Gas Plant (MGP) Sites
- -------------------------------------
NJNG has identified eleven former manufactured gas plant (MGP) sites, dating
back to the late 1800's and early 1900's, which it acquired from predecessors,
and which contain contaminated residues from former gas manufacturing
operations. All of the gas manufacturing operations ceased at these sites 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 (the 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
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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. NJNG's
expenditures through June 1992 for environmental investigations and preparation
of proposals for remedial action at the former gas plant sites totaled
approximately $8.2 million, of which $5.4 million had been recovered through
rates. Through a remediation rider, which was approved by the BRC in its June
1992 base rate order, NJNG will recover the unamortized balance of $2.8 million
over a seven-year period. Costs incurred subsequent to June 30, 1992 will be
reviewed annually and, subject to BRC approval, recovered over seven-year
periods. A total of $670,000 of such costs are included in a pending gas
remediation filing.
NJNG estimates that it will incur additional expenditures of approximately
$10 million over the next five years for further investigation and remedial
action at these sites. Accordingly, this amount is reflected in both Deferred
charges and other and Other deferred credits in the Consolidated Balance
Sheets.
e. Aberdeen
- ------------
In December 1993, a complaint was filed against NJNG, its contractor and as
yet unidentified parties by persons alleging injuries caused by a natural gas
explosion and fire on June 9, 1993 at a residential building in Aberdeen
Township, New Jersey. The plaintiffs (a decedent, his administratrix ad
prosequendum and his guardian) are seeking to recover compensatory and punitive
damages in unspecified amounts from the defendants. The complaint alleges,
among other things, that the defendants were negligent or are strictly liable
in tort for their alleged failure to control, repair and maintain natural gas
facilities at such building. Reference is made to the Company's Annual Report
on Form 10-K for the year ended September 30, 1993 for information relating to
four complaints previously filed against NJNG arising out of the Aberdeen fire.
NJNG has notified its liability insurance carriers of these matters. NJNG
is unable to predict the extent to which other claims will be asserted against,
or liability imposed on, NJNG. The Company does not believe that the ultimate
resolution of these matters will have a material adverse effect on its
consolidated financial condition or results of operations.
f. Carnegie
- ------------
In March 1993, NJNG was named a defendant in a civil action commenced by
Carnegie Natural Gas Company (Carnegie) in the U.S. District Court for the
Western District of Pennsylvania. This action challenges NJNG's decision to
terminate the June 18, 1986 "Service Agreement for Sales Service under Rate
Schedule LVWS" (LVWS Service Agreement) between Carnegie and NJNG effective
March 31, 1994, pursuant to a "market-out" clause. The LVWS Service Agreement
would otherwise have expired on March 31, 2001. Carnegie seeks, among other
things, a declaratory judgment that the contract termination was void. Claims
of tortious interference with contractual relations and abuse of process are
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also asserted and unspecified damages and punitive damages are also sought. In
April 1993, Carnegie filed a motion for summary judgment on the contract
termination claim. In May 1993, NJNG filed a response opposing Carnegie's
motion, as well as a cross motion for summary judgment on all claims. On
January 21, 1994 a federal magistrate issued a recommended decision denying
Carnegie's motion for summary judgment. In addition, the magistrate granted
NJNG's motion for summary judgment on Carnegie's tortious interference claim
and denied NJNG's motion for summary judgment on the contract termination and
abuse of process claims. The recommended decision is subject to objections
being filed by the parties. NJNG is unable to predict the outcome of this
matter. 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.
g. 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 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. NJNG is presently exploring various disposal
methods for the tar emulsion/sand and gravel mixture.
NJNG's liability insurance carrier has assumed defense of this action but
has denied coverage for SBA's claims. Although management is considering legal
action against the carrier, NJNG believes that the total cost to remove and
dispose of the tar emulsion/sand and gravel mixture from all three sites would
be immaterial. Based upon the gas remediation rider approved by the BRC in
June 1992, NJNG believes that such costs should be recoverable through the
ratemaking process.
One of the SBA sites is the subject of a NJDEPE Directive and Notice
alleging that the tar emulsion/sand and gravel mixture was a contributing
factor to the contamination of ground water at a residential community. The
NJDEPE is seeking reimbursement under the New Jersey Spill Compensation and
Control Act of cleanup, remediation and related costs, estimated by the NJDEPE
at approximately $20 million. NJNG is contesting the NJDEPE directive on the
grounds, among others, that any such alleged ground water contamination was not
caused by tar emulsions removed from NJNG's former gas plant manufacturing
sites. NJNG's liability insurance carriers, which have been defending the
civil action, have denied coverage for these claims and NJNG intends to contest
this position. NJNG would attempt to seek recovery through the ratemaking
process of any such cleanup or remediation payments it might ultimately be
required to make, but recognizes that such recovery is not assured. There can
be no assurance as to the outcome of these proceedings. The Company does not
believe that the ultimate resolution of these matters will have a material
adverse effect on its consolidated financial condition or results of
operations.
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h. Bridgeport Rental and Oil Service
- -------------------------------------
In January 1992, NJNG was advised of allegations that certain waste oil from
its former manufactured gas plant site in Wildwood, New Jersey may have been
sent by a demolition contractor to the Bridgeport Rental and Oil Service site
in Logan Township, New Jersey. That site has been designated a Superfund site
and is currently the subject of two lawsuits pending in the U.S. District Court
in New Jersey. NJNG has notified its insurance carriers and is investigating
this matter. NJNG is currently unable to predict the extent, if any, to which
it may have cleanup or other liability with respect to this matter, but would
seek recovery of any such costs through the ratemaking process. However, no
assurance can be given as to the timing or extent of the ultimate recovery of
such costs. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on its consolidated financial
condition or results of operations.
i. Iroquois
- -----------
Pipeline owns a 2.8% equity interest in the Iroquois Gas Transmission
System, L.P. (Iroquois) which has constructed and is operating a 375-mile
pipeline from the Canadian border in Upstate New York to Long Island.
Iroquois has been informed by the U.S. Attorney's Offices for the Northern,
Southern and Eastern Districts of New York that an investigation is underway to
determine whether or not Iroquois committed civil violations of the Federal
Clean Water Act and/or its Corps of Engineers permit during construction of the
pipeline.
In addition, in conjunction with the Environmental Protection Agency (EPA),
a criminal investigation has been initiated by the U.S. Attorney's Office for
the Northern District of New York. To date, no criminal charges have been
filed.
On December 3, 1993, Iroquois received notification from the Enforcement
Staff of the Federal Energy Regulatory Commission Office of the General Counsel
(Enforcement) that Enforcement has commenced a preliminary, non-public
investigation concerning matters related to Iroquois' construction of certain
of its pipeline facilities. Enforcement has requested information regarding
certain aspects of the pipeline construction. In addition, on December 27,
1993, Iroquois received a similar communication from the Army Corps of
Engineers requesting information regarding permit compliance in connection with
certain aspects of the pipeline construction. Iroquois is evaluating and
responding to these requests for information and intends to work with these
agencies to allay their concerns. To date, no proceedings have been commenced
against Iroquois in connection with these agency inquiries.
Iroquois has publicly stated that it believes the pipeline construction and
right-of-way activities were conducted in a responsible manner and that its
environmental program complied with or exceeded applicable standards for the
industry. The foregoing proceedings and investigations have not affected the
pipeline's operations.
Pipeline is unable to predict the outcome of these proceedings and
investigations. Based upon information currently available to the Company
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concerning the above matters involving Iroquois, the Company does not believe
that their ultimate resolution will have a material adverse effect on the
Company's consolidated financial condition or results of operations.
Pipeline's investment in Iroquois as of December 31, 1993 was $5.2 million.
j. Bessie-8
- -----------
NJNR and others (the Joint Venture, et al.) were named in a complaint filed
-- ---
by the People's Natural Gas Company (People's) before the Pennsylvania Public
Utility Commission (PaPUC). People's sought a determination that the Joint
Venture, et al. were a public utility subject to the jurisdiction of the PaPUC
-- ---
and an order prohibiting natural gas service until proper PaPUC authorization
was obtained.
In April 1988, an Administrative Law Judge (ALJ) issued an initial decision
denying and dismissing People's complaint, "because the demonstrated activities
of the Bessie-8 joint venture are not within the jurisdiction of the PaPUC to
regulate". An initial decision is subject to adoption, modification or
rejection by the full PaPUC. In April 1989, alternative motions to adopt the
ALJ's initial decision or to subject the Joint Venture 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. This determination would require the Joint Venture, et al.
to apply to the PaPUC for a certificate of public convenience within 30 days of
the entry of the Final Order, or to cease and desist from providing service on
the pipeline. In December 1992, the PaPUC issued a Final Order and extended
the deadline to file for a certificate of public convenience within 60 days.
In February 1993, the Joint Venture, et al. filed a motion with the
-- ---
Commonwealth Court of Pennsylvania (Commonwealth Court) requesting that the
effectiveness of the Final Order be stayed pending court appeals. In February
1993, this motion was granted.
In October 1992, the Joint Venture, et al. filed a Petition for Review in
-- ---
the nature of a declaratory judgment action in the Commonwealth Court seeking
among other things, a declaratory order that the April 1989 tie vote
constituted a final action dismissing Peoples' complaint. Oral argument was
held in March 1993. In January 1993, the Joint Venture, et al. filed a second
-- ---
Petition for Review with the Commonwealth Court challenging the merits of the
PaPUC's determination that the Joint Venture, et al. are a "public utility"
-- ---
under the Pennsylvania Public Utility Code. In February 1993, the Commonwealth
Court stayed the PaPUC's order requiring the Joint Venture, et al. to file for
-- ---
a certificate of public convenience and necessity, pending the outcome of the
March 1993 oral argument. In July 1993, the Commonwealth Court issued an order
denying People's motion to lift the stay pending appeal. In December 1993, the
Commonwealth Court granted the Joint Venture a declaratory judgment that the
April 1989 tie vote constituted a final action dismissing Peoples' complaint.
In January 1994, Peoples and the PaPUC appealed this decision to the
Pennsylvania Supreme Court.
In September 1993 Peoples instituted an action in the Court of Common Pleas
of Allegheny County against the Joint Venture and its members 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
<PAGE>
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tolls the statute of limitations and preserves any claim Peoples may have
against the defendants. This action may concern a claim by Peoples for losses
allegedly sustained as a result of the Bessie-8 joint venture activities.
However, there has been no activity in this action and the nature of the action
has not yet been determined. NJNR is unable to predict the outcome of these
matters. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on its consolidated financial
condition or results of operations.
In January 1992, Bethlehem Steel Corporation announced its intention to sell
the Johnstown plant and, effective June 1, 1993, Bethlehem discontinued gas
purchases from the Joint Venture, et al. The portion of the pipeline used to
-- ---
provide gas to Bethlehem was shut-in to preserve its structural integrity.
Field production is currently being sold into the interstate natural gas market
at spot prices.
NJNR is considering potential alternatives for the pipeline and believes
that an impairment reserve for its investment in the pipeline will not be
necessary. At December 31, 1993, NJNR's net investment in the Bessie-8
pipeline was $1 million.
k. Various
- ----------
The Company is party to various claims, legal actions and complaints arising
in the ordinary course of business. In management's opinion, the ultimate
disposition of these matters will not have a material adverse effect on its
financial condition or results of operations.
6. Long-Term Debt
On October 1, 1993, CR&R used proceeds from bank loans obtained by the
Company to redeem the remaining $13.8 million outstanding principal amount of
its 11 5/8% mortgage.
In November 1993, NJNG issued $30 million of its 6.27% Series X First
Mortgage Bonds due November 2008 under its Medium-Term Note program and used
the proceeds to reduce outstanding short-term debt.
Under its loan agreement with the New Jersey Economic Development Authority,
NJNG expects to issue an additional $4 million of its 7.25% Series U Bonds
within the next twelve months. Accordingly, $4 million of its outstanding
short-term debt at December 31, 1993 has been reclassified as long-term debt
for financial reporting purposes.
7. Other
At December 31, 1993, there were 16,937,202 common shares outstanding and
book value per share was $15.11.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications.
<PAGE>
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NEW JERSEY RESOURCES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1993
RESULTS OF OPERATIONS
Earnings for the quarter ended December 31, 1993 include the cumulative
effect of adopting Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes", which was a non-cash credit to consolidated net
income of $1 million, or $.06 per share. See Note 3 -Changes in Accounting on
page 5 for a discussion of this change in accounting principles.
Consolidated net income before the effect of adopting SFAS 109, for the
three months ended December 31, 1993, increased by 5% to $10.4 million compared
with $9.9 million during the same period last year. Earnings per share, before
the effect of SFAS 109, for the first fiscal quarter of 1994 increased by 2% to
$.62 compared with $.61 in fiscal 1993.
The increase in consolidated earnings before the effect of SFAS 109 was
attributable primarily to the higher financial results of the Company's
principal subsidiary, New Jersey Natural Gas Company (NJNG).
UTILITY OPERATIONS
NJNG's financial results are summarized as follows:
Three Months Ended
December 31,
1993 1992
------------------
(Thousands)
Gross margin
Residential and commercial $38,137 $38,527
JCP&L and other interruptible 149 118
Off system and capacity release 1,206 684
------- -------
Total gross margin 39,492 39,329
Operating expenses 20,500 20,351
Interest charges, net 3,158 3,383
Federal income taxes 5,141 5,116
Preferred dividends and other, net 344 560
------- -------
Net income $10,349 $ 9,919
======= =======
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,
<PAGE>
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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.
Through December 1991, NJNG accrued approximately 14% of all revenues
(excluding sales to other utilities) for GRFT, which are paid in lieu of
personal property and state income taxes. As a result of changes in New Jersey
tax law, commencing in January 1992, GRFT is calculated on a per-therm basis
(excluding sales to other utilities).
Residential and Commercial Sales
In NJNG's June 1992 base rate order, the BRC approved a weather-
normalization clause on a two-year experimental basis effective October 1,
1992. Such clause provides for a revenue adjustment if the weather varies by
more than one-half of one percent from normal, or 10-year average, weather.
The accumulated adjustment from one heating season (October-April) will be
billed or credited to customers in the subsequent heating season. This clause
will reduce the weather-sensitivity of gross margin from firm (i.e. residential
and commercial) customers.
Gross margin from sales to firm customers decreased by $390,000, or 1%, to
$38.1 million during the first fiscal quarter, compared with the same period
last year due primarily to a 2% decrease in firm therm sales. This decline was
due to the weather, which was 7% warmer than last year, and lower average
customer usage, which more than offset the impact of 9,517 customer additions
during the twelve months ended December 31, 1993.
The weather for the first fiscal quarter was 3% warmer than normal which,
due to the aforementioned weather-normalization clause, did not significantly
impact gross margin. The weather for the quarter ended December 31, 1992 was
6% colder than normal which resulted in the weather normalization clause
reducing gross margin by $1 million.
Operating Expenses
Operating expenses increased by $149,000, or 1%, for the three months ended
December 31, 1993 due primarily to higher depreciation associated with NJNG's
growing utility plant, which more than offset lower operation and maintenance
expenses.
Interest Charges, Net
Interest charges, net for the three months ended December 31, 1993,
decreased by $225,000, or 7%, due primarily to lower average interest rates.
<PAGE>
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REAL ESTATE OPERATIONS
CR&R's financial results are summarized as follows:
Three Months Ended
December 31,
1993 1992
------------------
(Thousands)
Revenues $3,129 $3,064
Operating expenses
Depreciation 482 461
Other 1,065 1,134
------ ------
Operating income 1,582 1,469
Other expenses 653 116
Interest charges, net 1,000 1,302
Federal income taxes (27) 12
------ ------
Net income (loss) before accounting
change (44) 39
Effect of SFAS 109 660 -
------- ------
Net income $ 616 $ 39
======= ======
Earnings for the quarter ended December 31, 1993 include the cumulative
effect of adopting SFAS 109 which was a non-cash credit to net income of
$660,000. See Note 3 - Changes in Accounting on page 5 for a discussion of
this change in accounting principles.
In evaluating the results of real estate operations, it is appropriate to
analyze net income adjusted for depreciation which better reflects the cash
flow being generated by its income-producing properties. This approach is
common in the real estate industry since cash flow is generally used to
evaluate asset performance.
Other expenses represent the costs associated with the October 1993
redemption of CR&R's remaining $13.8 million outstanding principal of its 11
5/8% mortgage and the December 1992 redemption of its remaining $2.1 million
outstanding principal of its 12.75% mortgage.
Excluding redemption costs from both periods, net income before the effect
of SFAS 109 adjusted for depreciation increased by $475,000, or 77%, reflecting
lower financing costs resulting from the mortgage redemption activity and the
maintenance of a high occupancy rate.
Since December 31, 1992, CR&R's inventory of completed space has remained
unchanged at 914,200 square feet. The occupancy rate as of December 31, 1993
and December 31, 1992 was 96%.
Interest charges, net decreased by $302,000 for the three months ended
December 31, 1993 due to lower average interest rates resulting from the
abovementioned mortgage redemption activity.
<PAGE>
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EXPLORATION AND PRODUCTION OPERATIONS
NJR Energy's financial results are summarized as follows:
Three Months Ended
December 31,
1993 1992
------------------
(Thousands)
Revenues $2,721 $2,361
Operating expenses 2,401 2,273
------ ------
Operating income 320 88
Interest charges, net 393 308
Federal income taxes (215) (158)
------ ------
Net income (loss) before accounting
change 142 (62)
Effect of SFAS 109 388 -
------ ------
Net income (loss) $ 530 $ (62)
====== =======
Earnings for the quarter ended December 31, 1993 include the cumulative
effect of adopting SFAS 109 which was a non-cash credit to net income of
$388,000. See Note 3 - Changes in Accounting on page 5 for a discussion of
this change in accounting principles.
NJR Energy's operating income increased by $232,000 for the three months
ended December 31, 1993 due primarily to the impact of higher production and
higher natural gas prices, which more than offset lower oil prices. Natural
gas production increased to .9 billion cubic feet (bcf) in the first quarter
compared with .8 bcf a year ago, and oil production increased to 34,300 barrels
compared with 22,000 barrels. These increases were due to the impact of the $5
million acquisition of 56 properties from Marathon Oil Company in August 1993.
NJR Energy's proved reserves at December 31, 1993 totaled 40.6 bcf of natural
gas and 2.2 million barrels of oil.
Average natural gas and oil prices during the period were $1.89 per thousand
cubic feet (mcf) and $16.11 per barrel compared with $1.70 per mcf and $20.49
per barrel, respectively, during the same period a year ago.
NJR Energy's interest charges, net for the three months ended December 31,
1993, increased by 28% due to higher average debt levels associated with the
Marathon acquisition.
Federal income taxes were favorably impacted by permanent tax benefits
associated with the development of properties eligible for the tight sands tax
credit.
NJR Energy's ability to continue to improve its earnings in the future is
dependent on several factors including changes in natural gas and oil prices,
the performance of reserve acquisitions and other investments, the amount and
type of which will be determined by market and other conditions.
<PAGE>
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LIQUIDITY AND CAPITAL RESOURCES
In order to meet the working capital and external debt financing
requirements of its non-regulated subsidiaries, as well as its own working
capital needs, the Company maintains committed bank credit facilities totaling
$145 million and has a $10 million credit facility available on an offering
basis. At December 31, 1993, $126.5 million was outstanding under these
facilities.
UTILITY
The seasonal nature of NJNG's operations creates large short-term cash
requirements, primarily to finance gas purchases and customer accounts
receivable. NJNG obtains working capital for these requirements, as well as
for the temporary financing of construction expenditures, sinking fund needs
and accelerated GRFT payments mandated by changes in New Jersey law, through
the issuance of commercial paper and short-term bank loans. To support the
issuance of commercial paper, NJNG maintains committed credit facilities
totaling $71 million with a number of commercial banks and has an additional
$15 million line of credit available on an offering basis. NJNG's lines of
credit are adjusted quarterly based upon its projected cash needs.
Remaining fiscal 1994 construction expenditures are estimated at $43.5
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 also has additional capital requirements in 1994 of
approximately $25 million resulting from the acceleration of GRFT payments to
the State of New Jersey. NJNG expects to finance these expenditures through
internal generation, the issuance of short and long-term debt and proceeds from
the Company's Dividend Reinvestment and Customer Stock Purchase Plan (DRP), the
amount and timing of which will be affected by market conditions and other
factors.
NJNG will also pursue the refinancing of existing long-term debt, the amount
and timing of which will be affected by market conditions and other factors.
INDEPENDENT POWER
In July 1993, the Company announced that Lighthouse One, Inc. entered into
an agreement with a subsidiary of Destec Energy, Inc. to jointly develop a 57
megawatt, natural gas fired cogeneration project in Harriman, New York (the
Northway Project). No significant development expenditures for this project
are expected in fiscal 1994. The Northway Project has entered into a twenty-
year gas supply agreement with NJNG. Pending various regulatory approvals, the
project is currently scheduled to begin construction in 1995, and commence
operation in 1996.
<PAGE>
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REAL ESTATE
As a result of the Company's strategic re-evaluation, CR&R's capital
expenditures are expected to be limited to the fit-up of existing tenant space
and the development of previously committed projects, subject to additional
investments, approved by the Board of Directors, made for the purpose of
preserving the value of particular real estate holdings, or made on a build-to-
suit basis in accordance with acceptable commitments from existing or
prospective tenants or buyers. Such remaining capital expenditures for fiscal
1994 are estimated at $4 million and are expected to be funded through internal
generation and bank loans obtained by the Company.
EXPLORATION & PRODUCTION
As a result of the Company's strategic re-evaluation, NJR Energy will focus
a larger percentage of its future capital expenditures on reserve acquisitions
and development of activities, rather than exploration projects. Such
remaining capital expenditures for fiscal 1994 are expected to total up to $16
million, depending on market conditions and other factors. These expenditures
are expected to be funded through bank loans obtained by the Company, proceeds
from the Company's DRP and internal generation.
<PAGE>
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information required by this Item is incorporated by reference to Note 5
- - Legal and Regulatory Proceedings beginning on Page 8.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, under Item 5 - Other
Events, dated January 5, 1994, with respect to the settlement of New Jersey
Natural Gas Company's base rate case.
<PAGE>
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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 11, 1994 /s/Laurence M. Downes
----------------- --------------------------------
Laurence M. Downes
Senior Vice President and
Chief Financial Officer
Date: February 11, 1994 /s/Glenn C. Lockwood
----------------- --------------------------------
Glenn C. Lockwood
Vice President, Controller
and Chief Accounting Officer
