<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 (I.R.S. Employer
incorporation or organization) 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 August 1,
1997 was 17,908,480.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
(Thousands, except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES .............. $121,150 $ 95,708 $595,118 $492,989
-------- -------- -------- --------
OPERATING EXPENSES
Gas purchases .................. 80,459 54,933 395,004 292,762
Operation and maintenance ...... 18,405 18,255 59,133 58,620
Depreciation and amortization... 6,168 5,779 18,480 17,432
Gross receipts tax, etc ........ 7,458 8,067 39,365 45,342
Federal income taxes ........... 1,088 907 23,059 20,553
-------- -------- -------- --------
Total operating expenses ...... 113,578 87,941 535,041 434,709
-------- -------- -------- --------
OPERATING INCOME ............... 7,572 7,767 60,077 58,280
Other income, net ............... 348 174 507 311
Interest charges, net ........... 4,996 5,312 15,418 15,799
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS ....................... 2,924 2,629 45,166 42,792
Preferred stock dividends ....... 398 400 1,195 1,200
-------- -------- -------- --------
NET INCOME ...................... $ 2,526 $ 2,229 $ 43,971 $ 41,592
======== ======== ======== ========
EARNINGS PER COMMON SHARE ....... $ .14 $ .12 $ 2.44 $ 2.31
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE ...... $ .40 $ .39 $ 1.20 $ 1.16
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING ...... 17,979 18,095 18,051 18,002
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
NINE MONTHS ENDED
JUNE 30,
1997 1996
- -------------------------------------------------------------------------------------
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income .......................................... $ 43,971 $ 41,592
Adjustments to reconcile net income to cash flows
Depreciation and amortization ...................... 18,480 17,432
Amortization of deferred charges ................... 930 2,923
Deferred income taxes .............................. 5,678 (4,353)
Change in working capital .......................... (3,994) 2,775
Other, net ......................................... (6,756) (4,376)
-------- --------
Net cash flows from operating activities ............ 58,309 55,993
-------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from long-term debt ....................... -- 20,000
Proceeds from common stock ......................... 291 6,733
Payments of long-term debt ......................... (12,802) (81,688)
Purchase of treasury stock ......................... (6,168) --
Payments of common stock dividends ................. (21,537) (20,602)
Net change in short-term debt ...................... (1,600) (23,200)
-------- --------
Net cash flows used in financing activities ......... (41,816) (98,757)
-------- --------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Expenditures for
Utility plant ..................................... (32,426) (33,110)
Real estate properties ............................ (696) (4,883)
Equity investments ................................ (1,430) (1,972)
Cost of removal ................................... (2,924) (2,979)
Proceeds from asset sales .......................... 16,118 98,619
-------- --------
Net cash flows (used in) from investing activities... (21,358) 55,675
-------- --------
Net change in cash and temporary investments ........ (4,865) 12,911
Cash and temporary investments at September 30 ...... 10,808 1,065
-------- --------
Cash and temporary investments at June 30 ........... $ 5,943 $ 13,976
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables ......................................... $(26,452) $(32,534)
Inventories ......................................... 27,205 6,335
Deferred gas costs .................................. 955 11,030
Purchased gas ....................................... 9,728 (2,088)
Prepaid and accrued taxes, net ...................... 10,482 5,640
Customers' credit balances and deposits ............. (17,102) 2,801
Other, net .......................................... (8,810) 11,591
-------- --------
Total ............................................... $ (3,994) $ 2,775
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized) ............... $ 16,603 $ 15,053
Income taxes ........................................ $ 7,558 $ 19,535
Non cash investing and financing activities
Capital lease ...................................... -- $ 31,850
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, JUNE 30,
1997 1996 1996
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
<S> <C> <C> <C>
Utility plant .............................. $ 841,543 $ 811,484 $ 798,357
Real estate properties ..................... 22,772 45,010 41,312
--------- --------- ---------
864,315 856,494 839,669
Accumulated depreciation and amortization .. (213,207) (201,296) (198,176)
--------- --------- ---------
Property, plant and equipment, net ........ 651,108 655,198 641,493
--------- --------- ---------
CURRENT ASSETS
Cash and temporary investments ............. 5,943 10,808 13,976
Construction fund .......................... 6,500 6,500 12,500
Customer accounts receivable ............... 60,550 27,900 58,555
Unbilled revenues .......................... 1,961 6,884 5,059
Allowance for doubtful accounts ............ (2,153) (878) (1,979)
Gas in storage, at average cost ............ 13,731 39,484 20,670
Materials and supplies, at average cost .... 5,840 7,292 8,141
Deferred gas costs ......................... 19,523 20,478 6,068
Prepaid state taxes ........................ 15,041 16,297 19,495
Asset held for sale, net ................... 13,475 -- --
Other ...................................... 6,369 5,197 5,899
--------- --------- ---------
Total current assets ...................... 146,780 139,962 148,384
--------- --------- ---------
DEFERRED CHARGES AND OTHER
Equity investments ....................... 6,921 13,924 12,570
Regulatory assets ........................ 38,357 37,150 36,101
Other .................................... 11,454 8,953 9,158
--------- --------- ---------
Total deferred charges and other ....... 56,732 60,027 57,829
--------- --------- ---------
Total assets ......................... $ 854,620 $ 855,187 $ 847,706
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, JUNE 30,
1997 1996 1996
(unaudited) (unaudited)
- ----------------------------------------------------------------------------------------
(Thousands)
CAPITALIZATION
<S> <C> <C> <C>
Common stock equity ...................... $291,419 $273,921 $286,362
Redeemable preferred stock ............... 20,760 20,880 20,880
Long-term debt ........................... 291,977 303,363 303,513
-------- -------- --------
Total capitalization .................... 604,156 598,164 610,755
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt ..... 137 1,501 1,364
Short-term debt .......................... 33,400 35,000 13,200
Purchased gas ............................ 43,366 33,638 39,940
Accounts payable and other ............... 23,612 32,183 26,110
Dividends payable ........................ 7,174 7,066 7,061
Accrued taxes ............................ 15,258 6,032 15,604
Customers' credit balances and deposits... 6,743 23,845 18,841
-------- -------- --------
Total current liabilities ............... 129,690 139,265 122,120
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes .................... 57,688 52,010 47,498
Deferred investment tax credits .......... 11,019 11,280 11,367
Deferred revenue ......................... 20,859 21,816 22,205
Other .................................... 31,208 32,652 33,761
-------- -------- --------
Total deferred credits .................. 120,774 117,758 114,831
-------- -------- --------
Total capitalization and liabilities... $854,620 $855,187 $847,706
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The preceding financial statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the SEC). The September 30, 1996 balance sheet data is derived from the audited
financial statements of New Jersey Resources Corporation (the Company). Although
management believes that the disclosures are adequate to make the information
presented not misleading, it is recommended that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's 1996 Annual Report on Form 10-K.
In the opinion of management, the information furnished reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the results of the interim periods. Because of the seasonal
nature of the Company's utility operations and other factors, the results of
operations for the interim periods presented are not indicative of the results
to be expected for the entire year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries -- New Jersey Natural Gas Company (NJNG), NJR Energy
Services Corporation (Energy Services) and NJR Development Company (NJR
Development). New Jersey Natural Energy Company (Natural Energy) and NJR Energy
Corporation (NJR Energy) are wholly owned subsidiaries of Energy Services and
Commercial Realty & Resources Corp. (CR&R), Paradigm Power, Inc. and NJR
Computer Technologies, Inc. are wholly owned subsidiaries of NJR Development.
Significant intercompany accounts and transactions have been eliminated.
3. Discontinued Operations
In May 1995, the Company adopted a plan to exit the oil and natural gas
production business and pursue the sale of the reserves and related assets of
NJR Energy and its subsidiary, New Jersey Natural Resources Company (NJNR). The
Company accounted for this segment as a discontinued operation and in fiscal
1995 recorded an after-tax charge of $8.7 million, or $.49 per share. This
charge was based on estimates of the anticipated loss from operations until the
assets were sold, the estimated loss on the sale of the remaining reserves and
other costs related to the closing of its offices in Dallas and Tulsa.
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.
4. New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), which requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. On October 1, 1996, the Company adopted SFAS
121 and there was no significant impact on its consolidated financial condition
or results of operations. The Company will continue to review the effects of
SFAS 121 whenever events or changes in circumstances dictate.
5
<PAGE> 7
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123), which established accounting and disclosure
requirements using a fair value-based method of accounting for stock-based
employee compensation plans. Under SFAS 123 the Company could either adopt the
new fair value-based accounting method or continue the intrinsic value-based
method established in Accounting Principles Board Opinion 25 (APB No. 25) and
provide pro forma disclosures of net income and earnings per share as if the
accounting provisions of SFAS 123 had been adopted. The Company elected to
continue following APB No. 25 and provide the required pro forma disclosures at
year end. SFAS 123 had no effect on the Company's consolidated financial
condition or results of operations.
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share" and
SFAS No. 129 "Disclosure of Information about Capital Structure" which must be
adopted by fiscal 1998. The Company currently believes that they will not have a
material impact on its consolidated financial condition or results of
operations. In June 1997, the FASB also 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 in fiscal 1999 and 1998
respectively, and since these statements are primarily disclosure related, the
Company currently believes that they will not have a significant effect on its
consolidated financial statements.
5. Capitalized Interest
The Company's capitalized interest totaled $242,000 and $271,000 for the
three months ended June 30, 1997 and 1996, respectively. Capitalized interest
totaled $971,000 and $1.1 million during the nine months ended June 30, 1997 and
1996, respectively.
6. Legal and Regulatory Proceedings
a. Levelized Gas Adjustment (LGA)
On July 31, 1997, NJNG filed a Petition with the Board of Public
Utilities (BPU) for a stable Levelized Gas Adjustment Billing factor (LGA). The
LGA filing included updates to its Gas Cost Recovery (GCR), Weather
Normalization Clause (WNC), Remediation Adjustment (RA), and Demand Side
Management Adjustment Clause (DSMAC) factors. The proposed two-year plan is
based upon NJNG purchasing a large portion of its gas commodity requirements on
a fixed-price basis and includes a two-year recovery of an estimated
under-recovered balance of $32.7 million as of September 30, 1997. In addition,
the Company proposed several modifications to the methodology for calculating
the WNC. The filing also includes a flexible pricing mechanism that would allow
the LGA billing factor to be adjusted, either up or down, if the projected
September 30, 1999 under or over-recovered balance varies by more than $5
million.
b. Postretirement Benefits Other Than Pensions (OPEB)
On January 8, 1997, the BPU concluded a generic proceeding related to the
implementation of the provisions of Financial Accounting Standard No. 106 (SFAS
106), "Employers' Accounting for Postretirement Benefits Other Than Pensions"
(OPEB). SFAS 106 requires publicly held companies to change from the practice of
accounting for OPEB 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
requirement. On July 23, 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.
c. Aberdeen
Since June 1993, a total of six complaints, of which three are still pending,
have been filed in New Jersey Superior Court against NJNG and its contractor by
persons alleging injuries arising out of a natural gas explosion
6
<PAGE> 8
and fire on June 9, 1993 at a residential building in Aberdeen Township, New
Jersey. The plaintiffs allege in their respective actions, among other things,
that the defendants were negligent or are strictly liable in tort in connection
with their maintaining, replacing or servicing natural gas facilities at such
building. The plaintiffs separately seek compensatory damages from NJNG and its
contractor. To date, NJNG and its contractors have received demands for damages
totaling $25.2 million from various plaintiffs.
In May 1994, the New Jersey Superior Court ordered that all causes of action
relating to the Aberdeen Township explosion be consolidated for purposes of
discovery.
NJNG's liability insurance carriers are participating in the defense of these
matters. NJNG is unable to predict the extent to which other claims will be
asserted against, or liability imposed on, NJNG. The Company does not believe
that the ultimate resolution of these matters will have a material adverse
effect on its consolidated financial condition or results of operations.
d. Gas Remediation
NJNG has identified eleven former manufactured gas plant (MGP) sites, dating
back to the late 1800's and early 1900's, which it acquired from predecessors,
and which contain contaminated residues from the former gas manufacturing
operations. Ten of the eleven sites in question were acquired by NJNG from a
predecessor in 1952, and the eleventh site was acquired by a predecessor of NJNG
in 1922. All of the gas manufacturing operations ceased at these sites at least
since the mid-1950's and in some cases had been discontinued many years earlier,
and all of the old gas manufacturing facilities were subsequently dismantled by
NJNG or its predecessors. NJNG is currently involved in administrative
proceedings with the New Jersey Department of Environmental Protection and
Energy (NJDEPE) and local government authorities with respect to the plant sites
in question, and is participating in various studies and investigations by
outside consultants to determine the nature and extent of any such contaminated
residues and to develop appropriate programs of remedial action, where
warranted. Since October 1989, NJNG has entered into Administrative Consent
Orders or Memoranda of Agreement with the NJDEPE covering all eleven sites.
These documents establish the procedures to be followed by NJNG in developing a
final remedial clean-up plan for each site.
Most of the cost of such studies and investigations is being shared under an
agreement with the former owner and operator of ten of the MGP sites. Through a
Remediation Rider approved by the BPU, NJNG is recovering its expenditures
incurred through June 1996 over a seven-year period. Costs incurred subsequent
to June 30, 1996 will be reviewed annually and, subject to BPU approval,
recovered over seven-year periods.
As of September 30, 1995, NJNG had estimated that it would incur additional
expenditures of $14 million over the next five years for further investigation
and remedial action at these sites and, accordingly reflected this amount in
both Regulatory assets and Other deferred credits. NJNG, with the assistance of
an outside consulting firm, has completed an environmental review of the sites,
including a review of its potential liability for investigation and remedial
action for periods significantly beyond the five year period. On the basis of
such review, NJNG has estimated that, exclusive of insurance recoveries, if any,
total future expenditures to remediate and monitor known MGP sites will range
from $27.5 million to $60 million. NJNG's estimates of these liabilities are
based upon currently available facts, existing technology and presently enacted
laws and regulations. Where available information is sufficient to estimate the
amount of the liability, it is NJNG's policy to accrue the full amount of such
estimate. Where the information is sufficient only to establish a range of
probable liability and no point within the range is more likely than the other,
it is NJNG's policy to accrue the lower end of the range. Accordingly, in the
second quarter of fiscal 1996, NJNG increased its accrued liability and
corresponding regulatory asset to $27.5 million. The actual costs to be incurred
by NJNG are dependent upon several factors, including final determination of
remedial action, changing technologies and governmental regulations, the
ultimate
7
<PAGE> 9
ability to pay of other responsible parties and any insurance recoveries. NJNG
will continue to seek recovery of such costs through the Remediation Rider.
In March 1995, NJNG filed a complaint in New Jersey Superior Court against
various insurance carriers for declaratory judgment and for damages arising from
such defendants' breach of their contractual obligations to defend and/or
indemnify NJNG against liability for claims and losses (including defense costs)
alleged against NJNG relating to environmental contamination at the former MGP
sites and other sites. NJNG is seeking (i) a declaration of the rights, duties
and liabilities of the parties under various primary and excess liability
insurance policies purchased from the defendants by NJNG from 1951 through 1985,
and (ii) compensatory and other damages, including costs and fees arising out of
defendants' obligations under such insurance policies. 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 MGP sites by Kaiser-Nelson, and (b) money damages or
compensatory relief for the harm caused by Kaiser-Nelson's aforementioned
actions. There can be no assurance as to the outcome of these proceedings.
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 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. On April 4, 1996, in a meeting with all parties to
the litigation and the judge assigned to the case, the NJDEPE confirmed the
non-hazardous classification, which may be disposed of by a number of
conventional methods, which are being explored by the parties.
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.
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
8
<PAGE> 10
Pennsylvania Supreme Court held that the April 1989 tie vote did not preclude
the PaPUC from taking its October 1992 vote.
The second Petition for Review challenged the merits of the PaPUC's
determination that the Joint Venture, et al. are a "public utility" under the
Pennsylvania Public Utility Code. In July 1996, a three-judge panel of the
Commonwealth Court, in a 2-1 decision, affirmed the PaPUC's determination that
the Joint Venture, et al. were a "public utility" under Pennsylvania law. In
April 1997, the Pennsylvania Supreme Court granted a petition for review of the
Commonwealth Court's decision, which had been filed by the Joint Venture et al.
The matter is now pending before the Pennsylvania Supreme 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. On June 16, 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. NJNR is unable to
predict the outcome of these matters. The Company does not believe that the
ultimate resolution of these matters will have a material adverse effect on its
consolidated financial condition or results of operations.
In 1994, the Company wrote-off its $1 million investment in the Bessie-8
pipeline.
g. South Jersey Gas Company
On March 5, 1997, South Jersey Gas Company (SJG) filed a complaint in New
Jersey Superior Court against NJNG seeking damages arising from an alleged
breach of warranty associated with certain natural gas utility assets that were
part of the sale of all assets owned by NJNG in Cape May County, New Jersey to
SJG in 1983. Specifically, the complaint charges that certain gas service line
installations made by NJNG were not performed in accordance with applicable laws
or standards as expressly or implicitly represented or warrantied in the
contract for the sale and purchase. SJG is seeking compensatory and other
damages, including return of the purchase price for the alleged deficient
installations. NJNG is vigorously defending this matter. There can be no
assurance as to the outcome of these proceedings.
h. Securities and Exchange Commission (SEC)
In October 1995, the SEC issued an Order Directing Private Investigation
and Designating Officers to Take Testimony in connection with certain
transactions engaged in by subsidiaries of the Company in early 1992. An SEC
investigation is a fact-finding inquiry and not an adversarial proceeding. No
adversarial proceedings have been commenced by the SEC. The Company is
cooperating with the Staff of the SEC in its investigation.
i. Various
The Company is party to various other claims, legal actions and complaints
arising in the ordinary course of business. In management's opinion, the
ultimate disposition of these matters will not have a material adverse effect on
its consolidated financial condition or results of operations.
9
<PAGE> 11
7. State of New Jersey Tax Reform
On July 14, legislation was signed that will reform New Jersey's taxes
affecting energy companies, effective January 1998. The legislation repeals the
long-standing utility tax formula and replaces it with a sales tax, corporate
business tax and a transitional energy facilities assessment. It requires that a
rate filing be made in September 1997 to implement the new tax structure. 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
sold in the state, will also be subject to the sales and corporate business
taxes. Previously, non-utility providers of energy were not subject to a sales
tax. The revised tax structure is designed to have no impact on earnings.
8. Other
At June 30, 1997 there were 17,937,780 shares of common stock outstanding
and the book value per share was $16.25.
In June 1997, CR&R entered into a contract to sell a 280,000-square-foot,
fully-occupied building. The transaction is expected to close in the fourth
fiscal quarter. Accordingly, as of June 30, 1997, the net book value of the
building has been classified as an asset held for sale, net on the consolidated
balance sheet.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications including revenue from appliance
service contracts which is now included in operating revenue. Previously, this
revenue was treated as a reduction to operation and maintenance expense. This
has no impact on operating income or net income.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1997
A. RESULTS OF OPERATIONS
Consolidated net income for the quarter ended June 30, 1997 increased by
14% to $2.5 million, or $.14 per share, compared with $2.2 million, or $.12 per
share, for the same period last year. Consolidated net income for the nine
months ended June 30, 1997 increased by 6%, to $44 million, or $2.44 per share,
compared with $41.6 million, or $2.31 per share, last year. The increase in
earnings was primarily attributed to continued profitable customer growth at the
Company's principal subsidiary, NJNG, and increased margin from off-system and
capacity release sales and higher appliance service revenue.
NJNG OPERATIONS
NJNG's financial results are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
-----------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
Gross margin
Residential and commercial .......... $ 25,324 $ 26,775 $131,160 $131,018
Firm transportation ................. 3,525 2,522 12,343 9,693
Interruptible ....................... 316 355 820 544
Off-system and capacity release ..... 718 891 4,640 3,683
-------- -------- -------- --------
Total gross margin .................... $ 29,883 $ 30,543 $148,963 $144,938
======== ======== ======== ========
Appliance service revenues* ........... $ 1,798 $ 1,252 $ 6,825 $ 4,877
======== ======== ======== ========
Operating income before income taxes... $ 7,322 $ 7,414 $ 79,068 $ 73,652
======== ======== ======== ========
Net income ............................ $ 1,880 $ 1,996 $ 42,340 $ 40,001
======== ======== ======== ========
</TABLE>
*Appliance service revenues have been reclassified to operating revenues from
operation and maintenance expense. This has no impact on operating income or net
income.
Gross Margin
Gross margin, defined as gas revenues less gas costs and gross receipts and
franchise taxes (GRFT), provides a more meaningful basis for evaluating utility
operations, since gas costs and GRFT are passed through to customers and,
therefore, have no effect on earnings. Gas costs are charged to operating
expenses on the basis of therm sales at the base and Levelized Gas Adjustment
(LGA) cost rates included in NJNG's tariff. The LGA clause allows NJNG to
recover gas costs that exceed the level reflected in its base rates. GRFT are
also calculated on a per-therm basis and exclude sales to other utilities and
off-system sales.
11
<PAGE> 13
Residential and Commercial
Since fiscal 1993, NJNG's firm gross margin has been subject to a
weather-normalization clause (WNC) which until October 1996 provided for a
revenue adjustment if the weather varied by more than one-half of one percent
from normal, or 10-year average weather. Since October 1996, 20-year average
weather has been used as the basis for the revenue adjustment. The accumulated
adjustment from one heating season is billed or credited to customers in the
subsequent heating season.
Gross margin from sales to firm customers decreased by $1.5 million, or
5.4%, for the three months ended June 30, 1997, compared with the
same period last year Gross margin increased by $142,000 or less than 1%, for
the nine months ended June 30, 1997, compared with the same period last year.
The three-month decrease was due to 5% warmer weather and lower average customer
usage which more than offset customer growth. The nine-month increase was due to
the impact of 11,574 customer additions for the twelve months ended June 30,
1997 and the WNC described above which more than offset a 10% decrease in firm
therm sales compared with last year due to 8% warmer weather. Both periods were
also impacted by commercial and industrial customers switching to firm
transportation service, as discussed below.
The weather for the nine months ended June 30, 1997 was 2% warmer than
normal, which under the WNC, resulted in a total of $1.4 million of gross margin
being accrued for future collection from customers.
Firm Transportation
Gross margin from firm transportation increased by $1 million, or 40%, and
by $2.7 million, or 27%, for the three and nine months ended June 30, 1997,
respectively, compared with the same periods last year, reflecting an increase
in the number of customers utilizing this service. At June 30, 1997 and 1996,
NJNG provided firm transportation service to 2,442 and 1,870 commercial and
industrial customers, respectively. NJNG's total gross margin is not negatively
impacted by customers who utilize its firm transportation service and purchase
their gas from another supplier, as NJNG's tariffs are designed such that no
profit is earned on the commodity portion of sales to firm customers, and all
customers who do purchase gas from another supplier continue to utilize NJNG for
transportation.
Interruptible
NJNG services 43 customers through interruptible sales and/or
transportation tariffs. Sales made under the interruptible sales tariff are
priced on market-sensitive oil and gas parity rates. Although therms sold and
transported to interruptible customers represented 5% and 7% of total therm
throughput in the nine months ended June 30, 1997 and 1996, respectively, they
accounted for less than 1% of the total gross margin in each period due to the
regulated margin-sharing formulas that govern these sales. Under these formulas,
NJNG retains 5% of the gross margin from transportation sales and 10% of the
gross margin from the interruptible sales, with the balance credited to
residential and commercial customers through the LGA clause.
Off-System and Capacity Release
In order to reduce the overall cost of its gas supply commitments, NJNG has
entered into contracts to sell gas to customers who are outside of its franchise
territory. These sales enable NJNG to spread its fixed demand costs, which are
charged by pipelines to access their supplies year-round, over a larger and more
diverse customer base. NJNG also participates in the capacity release market on
the interstate pipeline network when the capacity is not needed for its own
system requirements. NJNG retains 20% of the gross margin from these sales.
12
<PAGE> 14
NJNG's off-system sales totaled 94 million therms and generated $178,000 of
gross margin and 364 million therms and $2.7 million of gross margin in the
three and nine months ended June 30, 1997, respectively, compared with 43
million therms and $76,000 of gross margin and 201 million therms and $1.5
million gross margin in the respective periods last year. The capacity release
program generated gross margin of $540,000 and $1.9 million in the three and
nine months ended June 30, 1997 and 1996, respectively, compared with $815,000
and $2.2 million in the comparable periods last year. The overall nine month
increase was due primarily to an increase in therm sales.
Appliance Service Revenues
Revenues from appliance service contracts and service calls increased by
40% for the nine months ended June 30, 1997 due to an overall 30% increase in
rates charged for such services effective April 1, 1996 and the addition of
approximately 4,000, or 4%, service contracts during the twelve months ending
June 30, 1997. Costs related to this service work are primarily included in
operation and maintenance expense.
Operating Income Before Income Taxes and Net Income
Operating income before income taxes decreased by $92,000, or 1%, and net
income decreased by $116,000, or 6%, for the three months ended June 30, 1997,
compared with the same period last year due to lower gross margin.
Operating income before taxes increased by $5.4 million, or 7%, and net
income increased by $2.3 million, or 6%, for the nine months ended June 30,
1997, compared with the same period last year primarily due to higher margins
from customer growth, increased appliance service revenues and a $445,000
reduction in operation and maintenance expense, which more than offset higher
depreciation and tax expenses.
ENERGY SERVICES OPERATIONS
Energy Services' consolidated financial results, which include Natural
Energy, the Company's unregulated marketing and fuel and capacity management
subsidiary, and the continuing operations of NJR Energy, which includes an
equity investment in the Iroquois Gas Transmission System, L.P. are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
-----------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
Revenues .............................. $ 30,108 $ 18,200 $109,956 $ 66,866
======== ======== ======== ========
Operating income before income taxes... $ 1,256 $ 1,352 $ 3,945 $ 5,158
======== ======== ======== ========
Net income ............................ $ 775 $ 646 $ 2,131 $ 2,768
======== ======== ======== ========
</TABLE>
Energy Services' revenues increased by 65% and 64% for the three and nine
months ended June 30, 1997, respectively, compared to the same period last year
reflecting growth in Natural Energy's fuel and capacity management services.
Operating income before income taxes and net income decreased in the nine months
ended June 30, 1997, reflecting the impact of warmer weather and higher gas
costs on Natural Energy's retail marketing operation, which more than offset
higher margin from its fuel and capacity management services.
Natural Energy's retail gas sales totaled 1.9 billion cubic feet (bcf) and
7.7 bcf, and gas under management and wholesale gas sales totaled 19.8 bcf and
50.4 bcf, for the three and nine months ended June 30, 1997, respectively,
13
<PAGE> 15
compared with retail gas sales of 1.6 bcf and 7.5 bcf, and gas under management
of 6.4 bcf and 17.9 bcf in the comparable periods last year.
NJR DEVELOPMENT OPERATIONS
NJR Development's consolidated financial results, which consist solely of
CR&R's operations, are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
----------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
Revenues ..................................... $ 708 $ 624 $ 2,420 $ 3,068
======= ======= ======= =======
Operating income (loss) before income taxes... $ 41 $ 54 $ 201 $ (725)
======= ======= ======= =======
Net loss ..................................... $ (57) $ (14) $ (207) $(1,117)
======= ======= ======= =======
</TABLE>
In November 1995, CR&R sold certain of its real estate assets for $52.65
million in cash and issued options to the buyer to purchase adjacent undeveloped
land parcels at various prices. This transaction required the one-time write-off
of unamortized commissions and other costs totaling $1.8 million, which is
reflected in operating income (loss) before income taxes and net loss in the
nine months ended June 30, 1996.
In December 1995, CR&R sold a 157,000 square foot office building for
$31.85 million, in a sale-leaseback transaction. CR&R's pre-tax gain on this
transaction was approximately $17.8 million which is included in deferred
revenue on the consolidated balance sheet and is being amortized over 25 years
in accordance with generally accepted accounting principles. The primary tenant
of the facility, NJNG, is leasing the building under a long-term master lease
agreement and continues to occupy a majority of the space in the building. Prior
to the transaction, NJNG leased about 79% of the building under a long-term
lease.
In January 1997, CR&R sold a 76,000 square foot fully occupied, flex space
building and 11 acres of undeveloped land in two separate transactions totaling
$7.0 million, which approximated net book value.
The Company 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 June 30, 1997, $40.5 million was outstanding under these
agreements. NJNG satisfies its debt needs by issuing short-term and long-term
debt based upon its own financial profile. In April 1996, the Dividend
Reinvestment Plan (DRP) was amended to allow for the purchase of shares in the
open market to satisfy the plan's needs. Since July 1, 1996, shares needed for
the DRP have been purchased on the open market. The Company can switch funding
options every 90 days.
NJNG
The seasonal nature of NJNG's operations creates large short-term cash
requirements, primarily to finance gas purchases and customer accounts
receivable. NJNG obtains working capital for these requirements, as well as for
14
<PAGE> 16
the temporary financing of construction expenditures, sinking fund needs and
GRFT payments, through the issuance of commercial paper and short-term bank
loans. To support the issuance of commercial paper, NJNG maintains committed
credit facilities totaling $75 million with a number of commercial banks and has
an additional $20 million in lines of credit available on an offering basis.
Remaining fiscal 1997 construction expenditures are estimated at $15
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 the issuance of
short-term debt and a $6.5 million draw down of its variable rate Series BB EDA
Bonds, which is expected to be completed in September 1997. In March 1997, NJNG
utilized short-term debt to redeem the remaining $8.2 million of its 8.5% Series
P Bonds. In July 1997, NJNG filed an application with the New Jersey Economic
Development Authority (NJEDA) and BPU to refinance its $13.5 million 9% Series Q
Bonds, which is expected to occur in September 1997. NJNG will pursue the
refinancing of other existing long-term debt, the amount and timing of which
will be affected by market conditions and other factors.
ENERGY SERVICES
In May 1997, NJR Storage Corporation (Storage), a subsidiary of NJR Energy
sold its limited partnership interest in Market Hub Partners, L.P., a natural
gas storage project that was designed to develop, own and operate a system of
natural gas market centers with high-deliverability salt cavern storage
facilities for $9.1 million, which approximated its net book value. The proceeds
were used to reduce outstanding debt.
NJR DEVELOPMENT
CR&R's future capital expenditures will be limited to the fit-up of
existing tenant space, the development of existing acreage and additional
investments, as approved by the Board of Directors, made for the purpose of
preserving the value of particular real estate holdings. In November 1996, CR&R
completed the construction of a 98,000 square foot addition to an existing
building at a total cost of approximately $5.4 million, of which $691,000 was
expended in fiscal 1997, net of tenant reimbursements. This additional space has
been pre-leased to the occupant of the existing building. In June 1997, CR&R
entered into a contract to sell this property (see Footnote 8). In March 1997,
the Board of Directors approved the construction of a 20,000 square foot,
build-to-suit office building, supported by a ten-year lease, with an
incremental capital cost of $2.1 million of which $500,000 is expected to be
expended in fiscal 1997. Completion and occupancy is expected in April 1998.
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements where those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. Certain of the
statements contained in this report (other than the financial statements and
other statements of historical fact), including, without limitation, statements
as to the adequacy of established reserves for the discontinued operations,
expected disposition of legal and regulatory proceedings and expected
refinancing of NJNG's long-term debt are forward-looking statements.
Forward-looking statements are made based upon management's expectations and
beliefs concerning future developments and their potential effect upon the
Company. There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of future
developments on the Company will be those anticipated by management.
The Company wishes to caution readers that the assumptions which form the
basis for forward-looking statements with respect to or that may impact earnings
for fiscal 1997 and thereafter include many factors that are beyond the
Company's ability to control or estimate precisely, such as estimates of future
market conditions and
15
<PAGE> 17
the behavior of other market participants. Among the factors that could cause
actual results to differ materially from estimates reflected in such
forward-looking statements are weather conditions, economic conditions in NJNG's
service territory, fluctuations in energy-related commodity prices, conversion
activity and other marketing efforts, the conservation efforts of NJNG's
customers, the pace of deregulation of retail gas markets, competition for the
acquisition of gas, the regulatory and pricing policies of federal and state
regulatory agencies, the availability of Canada's reserves for export to the
United States and other regulatory changes.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its quarterly and
annual reports, the Company does not, by including this statement, assume any
obligation to review or revise any particular forward-looking statement
referenced herein in light of future events.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Information required by this Item is incorporated herein by reference
to Part I, Item 1, Note 6 - Legal and Regulatory Proceedings.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 June 30, 1997.
16
<PAGE> 18
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: August 13, 1997 /s/Laurence M. Downes
---------------------
Laurence M. Downes
Chairman, President and
Chief Executive Officer
Date: August 13, 1997 /s/Glenn C. Lockwood
--------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW JERSEY
RESOURCES CORPORATION'S JUNE 30, 1997 FORM 10-Q, INCLUDING THE CONSOLIDATED
STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS AND CONSOLIDATED
BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 630,938
<OTHER-PROPERTY-AND-INVEST> 20,170
<TOTAL-CURRENT-ASSETS> 146,780
<TOTAL-DEFERRED-CHARGES> 56,732
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 854,620
<COMMON> 45,445
<CAPITAL-SURPLUS-PAID-IN> 204,335
<RETAINED-EARNINGS> 41,639
<TOTAL-COMMON-STOCKHOLDERS-EQ> 291,419
20,000
760
<LONG-TERM-DEBT-NET> 260,345
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 33,400
<LONG-TERM-DEBT-CURRENT-PORT> 137
0
<CAPITAL-LEASE-OBLIGATIONS> 31,632
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 216,927
<TOT-CAPITALIZATION-AND-LIAB> 854,620
<GROSS-OPERATING-REVENUE> 595,118
<INCOME-TAX-EXPENSE> 23,059
<OTHER-OPERATING-EXPENSES> 511,982
<TOTAL-OPERATING-EXPENSES> 535,041
<OPERATING-INCOME-LOSS> 60,077
<OTHER-INCOME-NET> 507
<INCOME-BEFORE-INTEREST-EXPEN> 60,584
<TOTAL-INTEREST-EXPENSE> 15,418
<NET-INCOME> 45,166
1,195
<EARNINGS-AVAILABLE-FOR-COMM> 43,971
<COMMON-STOCK-DIVIDENDS> 21,537
<TOTAL-INTEREST-ON-BONDS> 15,024
<CASH-FLOW-OPERATIONS> 58,309
<EPS-PRIMARY> 2.44
<EPS-DILUTED> 2.44
</TABLE>
