<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 Commission file number 1-8359
ended December 31, 1996
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 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, 1997 was 18,084,162.
<PAGE> 2
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------
(Thousands, except per share data)
<S> <C> <C>
OPERATING REVENUES............................................. $186,169 $159,739
-------- --------
OPERATING EXPENSES
Gas purchases................................................ 124,787 95,906
Operation and maintenance.................................... 17,219 17,904
Depreciation and amortization................................ 6,129 5,867
Gross receipts tax, etc...................................... 13,054 15,611
Federal income taxes......................................... 6,432 6,163
-------- --------
Total operating expenses....................................... 167,621 141,451
-------- --------
OPERATING INCOME............................................... 18,548 18,288
Other income, net.............................................. 80 (83)
Interest charges, net.......................................... 5,288 5,383
-------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS 13,340 12,822
Preferred stock dividends...................................... 398 400
-------- --------
NET INCOME..................................................... $12,942 $12,422
======== ========
EARNINGS PER COMMON SHARE...................................... $ .72 $ .69
======== ========
DIVIDENDS PER COMMON SHARE..................................... $ .40 $ .38
======== ========
AVERAGE SHARES OUTSTANDING..................................... 18,084 17,910
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE> 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
1996 1995
- -------------------------------------------------------------------------------------
(Thousands)
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 12,942 $ 12,422
Adjustments to reconcile net income to cash flows
Depreciation and amortization 6,129 5,867
Amortization of deferred charges 457 2,014
Deferred income taxes 2,282 (8,348)
Change in working capital (29,181) (10,761)
Other, net (1,395) 5,917
-------- --------
Net cash flows (used in) from operating activities (8,766) 7,111
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from long-term debt - 20,000
Proceeds from common stock - 3,276
Payments of long-term debt (2,000) (68,450)
Repurchase of treasury stock (933) -
Payments of common stock dividends (7,066) (6,761)
Net change in short-term debt 23,600 (8,900)
-------- --------
Net cash flows from (used in) financing activities 13,601 (60,835)
-------- --------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Expenditures for
Utility plant (11,061) (12,856)
Real estate properties (231) (2,271)
Equity investments (250) (789)
Cost of removal (795) (1,225)
Proceeds from sale of assets - 92,163
-------- --------
Net cash flows (used in) from investing activities (12,337) 75,022
-------- --------
Net change in cash and temporary investments (7,502) 21,298
Cash and temporary investments at September 30 10,808 1,065
-------- --------
Cash and temporary investments at December 31 $ 3,306 $ 22,363
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables $(72,908) $(71,535)
Inventories 4,372 8,305
Deferred gas costs (10,655) 14,504
Purchased gas 41,592 12,789
Accrued taxes 15,445 29,006
Customers' credit balances and deposits (434) (1,369)
Other, net (6,593) (2,461)
-------- --------
Total $(29,181) $(10,761)
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized) $ 6,526 $ 6,575
Income taxes $ 726 -
Non cash investing and financing activities
Capital lease - $ 31,850
</TABLE>
2
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1996 1995
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Utility plant..................................... $821,541 $811,484 $778,327
Real estate properties............................ 37,295 45,010 38,707
-------- -------- --------
858,836 856,494 817,034
Accumulated depreciation and amortization (205,430) (201,296) (189,101)
-------- -------- --------
Property, plant and equipment, net............... 653,406 655,198 627,933
-------- -------- --------
CURRENT ASSETS
Cash and temporary investments.................... 3,306 10,808 22,363
Construction fund................................. 6,500 6,500 12,500
Customer accounts receivable...................... 83,831 27,900 69,781
Unbilled revenues................................. 24,357 6,884 32,036
Allowance for doubtful accounts................... (1,374) (878) (1,181)
Gas in storage, at average cost................... 35,968 39,484 18,126
Materials and supplies, at average cost........... 6,436 7,292 8,715
Deferred gas costs................................ 31,133 20,478 2,594
Prepaid state taxes............................... 4,369 16,297 3,699
Assets held for sale, net......................... 7,098 - 1,495
Other............................................. 7,305 5,197 7,526
-------- -------- --------
Total current assets............................. 208,929 139,962 177,654
-------- -------- --------
DEFERRED CHARGES AND OTHER
Equity investments................................ 14,666 13,924 11,323
Regulatory assets................................. 37,983 37,150 24,526
Other............................................. 8,969 8,953 10,424
-------- -------- --------
Total deferred charges and other................. 61,618 60,027 46,273
-------- -------- --------
Total assets............................... $923,953 $855,187 $851,860
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1996 1995
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
CAPITALIZATION
Common stock equity................................ $279,781 $273,921 $267,758
Redeemable preferred stock......................... 20,880 20,880 21,004
Long-term debt..................................... 301,363 303,363 315,627
-------- -------- --------
Total capitalization.............................. 602,024 598,164 604,389
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt............... 1,501 1,501 2,364
Short-term debt.................................... 58,600 35,000 27,500
Purchased gas ..................................... 75,230 33,638 41,893
Accounts payable and other......................... 26,765 32,183 26,609
Dividends payable.................................. 7,233 7,066 6,813
Accrued taxes...................................... 9,549 6,032 23,174
Customers' credit balances and deposits............ 23,411 23,845 14,671
-------- -------- --------
Total current liabilities......................... 202,289 139,265 143,024
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes.............................. 54,292 52,010 43,503
Deferred investment tax credits.................... 11,193 11,280 11,541
Deferred revenue................................... 21,505 21,816 22,842
Other.............................................. 32,650 32,652 26,561
-------- -------- --------
Total deferred credits............................ 119,640 117,758 104,447
-------- -------- --------
Total capitalization and liabilities........... $923,953 $855,187 $851,860
======== ======== ========
</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 New Jersey
Resources Corporation (the Company) and its subsidiaries -- New Jersey Natural
Gas Company (NJNG), NJR Energy Services Corporation (Energy Services) and NJR
Development Company (NJR Development). New Jersey Natural Energy Company
(Natural Energy) and NJR Energy Corporation (NJR Energy) are wholly owned
subsidiaries of Energy Services and Commercial Realty & Resources Corp. (CR&R),
Paradigm Power, Inc. and NJR Computer Technologies, Inc. are wholly owned
subsidiaries of NJR Development. Significant intercompany accounts and
transactions have been eliminated.
3. Discontinued Operations
In May 1995, the Company adopted a plan to exit the oil and natural gas
production business and pursue the sale of the reserves and related assets of
NJR Energy and its subsidiary, New Jersey Natural Resources Company. The Company
has accounted for this segment as a discontinued operation and in fiscal 1995
recorded an after-tax charge of $8.7 million, or $.49 per share. This charge was
based on estimates of the anticipated loss from operations until the assets were
sold, the estimated loss on the sale of the remaining reserves and other costs
related to the closing of its offices in Dallas and Tulsa.
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.
5
<PAGE> 7
4. New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), which requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. On October 1, 1996, the Company adopted SFAS
121 and there was no significant impact on its consolidated financial condition
or results of operations. The Company will continue to review the effects of
SFAS 121 whenever events or changes in circumstances dictate.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123), which established accounting and disclosure
requirements using a fair value-based method of accounting for stock-based
employee compensation plans. Under SFAS 123 the Company may either adopt the new
fair value-based accounting method or continue the intrinsic value-based method
established in Accounting Principles Board Opinion 25 (APB No. 25) and provide
pro forma disclosures of net income and earnings per share as if the accounting
provisions of SFAS 123 had been adopted. The Company has elected to continue
following APB No. 25 and provide the required pro forma disclosures at year end.
SFAS 123 had no effect on the Company's consolidated financial condition or
results of operations.
5. Capitalized Interest
The Company's capitalized interest totaled $418,000 and $584,000 for the
three months ended December 31, 1996 and 1995, respectively.
6. Legal and Regulatory Proceedings
a. Aberdeen
Since June 1993, a total of six complaints, of which five are still pending,
have been filed in New Jersey Superior Court against NJNG and its contractor by
persons alleging injuries arising out of a natural gas explosion and fire on
June 9, 1993, at a residential building in Aberdeen Township, New Jersey. The
plaintiffs allege in their respective actions, among other things, that the
defendants were negligent or are strictly liable in tort in connection with
their maintaining, replacing or servicing natural gas facilities at such
building. The plaintiffs separately seek compensatory damages from NJNG and its
contractor. To date, NJNG and its contractors have received demands for damages
totaling $25.2 million from various plaintiffs.
In May 1994, the New Jersey Superior Court ordered that all causes of action
relating to the Aberdeen Township explosion be consolidated for purposes of
discovery.
NJNG's liability insurance carriers are participating in the defense of these
matters. NJNG is unable to predict the extent to which other claims will be
asserted against, or liability imposed on, NJNG. The 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.
6
<PAGE> 8
b. Gas Remediation
NJNG has identified eleven former manufactured gas plant (MGP) sites, dating
back to the late 1800's and early 1900's, which it acquired from predecessors,
and which contain contaminated residues from the former gas manufacturing
operations. Ten of the eleven sites in question were acquired by NJNG from a
predecessor in 1952, and the eleventh site was acquired by a predecessor of NJNG
in 1922. All of the gas manufacturing operations ceased at these sites at least
since the mid-1950's and in some cases had been discontinued many years earlier,
and all of the old gas manufacturing facilities were subsequently dismantled by
NJNG or its predecessors. NJNG is currently involved in administrative
proceedings with the New Jersey Department of Environmental Protection and
Energy (NJDEPE) and local government authorities with respect to the plant sites
in question, and is participating in various studies and investigations by
outside consultants to determine the nature and extent of any such contaminated
residues and to develop appropriate programs of remedial action, where
warranted. Since October 1989, NJNG has entered into Administrative Consent
Orders or Memoranda of Agreement with the NJDEPE covering all eleven sites.
These documents establish the procedures to be followed by NJNG in developing a
final remedial clean-up plan for each site.
Most of the cost of such studies and investigations is being shared under an
agreement with the former owner and operator of ten of the MGP sites. Through a
Remediation Rider approved by the Board of Public Utilities (BPU), NJNG is
recovering its expenditures incurred through June 1996 over a seven-year period.
Costs incurred subsequent to June 30, 1996 will be reviewed annually and,
subject to BPU approval, recovered over seven-year periods.
In March 1995, NJNG filed a complaint in New Jersey Superior Court against
various insurance carriers for declaratory judgment and for damages arising from
such defendants' breach of their contractual obligations to defend and/or
indemnify NJNG against liability for claims and losses (including defense costs)
alleged against NJNG relating to environmental contamination at the former MGP
sites and other sites. NJNG is seeking (i) a declaration of the rights, duties
and liabilities of the parties under various primary and excess liability
insurance policies purchased from the defendants by NJNG from 1951 through 1985,
and (ii) compensatory and other damages, including costs and fees arising out of
defendants' obligations under such insurance policies. The complaint was amended
in July 1996 to name Kaiser-Nelson Steel & Salvage Company (Kaiser-Nelson) and
its successors as additional defendants. The Company is seeking (a) a
declaration of the rights, duties and liabilities of the parties under
agreements with respect to claims against the Company that allege property
damage caused by various substances used, handled or generated by NJNG or the
predecessor in title that were removed from several of the 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.
7
<PAGE> 9
c. South Brunswick Asphalt, L.P.
NJNG has been named a defendant in a civil action commenced in New Jersey
Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated
companies seeking damages arising from alleged environmental contamination at
three sites owned or occupied by SBA and its affiliated companies. Specifically,
the suit charges that tar emulsion removed from 1979 through 1983 by an
affiliate of SBA (Seal Tite, Inc.) from NJNG's former gas manufacturing plant
sites has been alleged by the NJDEPE to constitute a hazardous waste and that
the tar emulsion has contaminated the soil and ground water at the three sites
in question. In February 1991, the NJDEPE issued letters classifying the tar
emulsion/sand and gravel mixture at each site as dry industrial waste, a
non-hazardous classification. On April 4, 1996, in a meeting with all parties to
the litigation and the judge assigned to the case, the NJDEPE confirmed the
non-hazardous classification, which will allow for conventional disposal.
Non-hazardous waste may be disposed of by a number of conventional methods,
which are being explored by the parties.
d. 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 (BROS)
site in Logan Township, New Jersey. That site was designated a Superfund site
and is currently the subject of two lawsuits pending in the U.S. District Court
in New Jersey. NJNG notified its insurance carriers and participated in
settlement discussions as a non-party litigant. See above 6b. - Gas Remediation,
for a description of an action brought by NJNG against various insurance
carriers relating to insurance coverage of liability arising out of these sites.
The two lawsuits have been settled. The consent decree was approved and entered
on January 17, 1997. NJNG's share of the settlement was $2,150,000, of which 60%
will be paid by the former owner and operator of the former MGP site in
Wildwood. The Company expects to recover the remaining 40% of costs through its
Remediation Rider, subject to BPU approval. Although it is expected that the
funds paid and placed in trust to reimburse the United States for cleanup costs
to date and to fund the site remediation to conclusion are more than adequate
for that purpose, the consent decree provides, according to a formula set forth
therein, for a reopener for assessment of additional costs in excess of the
present estimated amount to complete the cleanup, which is expected to last many
years. The consent decree provides contribution protection from any claims by
parties later brought into the case. However, only after the cleanup is
completed will the final site release be effective to all of the settling
parties, including 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.
e. 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, et al. to the jurisdiction of the
PaPUC failed due to 2-2 tie votes. In October 1992, the
8
<PAGE> 10
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 a Petition for Review with
the Commonwealth Court of Pennsylvania (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 a second Petition for Review filed by the Joint Venture, et al.
challenging the lawfulness of the October 1992 action in light of the April 1989
tie vote. In July 1995, the Pennsylvania Supreme Court held that the April 1989
tie vote did not prohibit the PaPUC from taking its vote in October 1992.
In November 1995, the Commonwealth Court granted an application by People's
to lift the court's February 1993 stay. The Joint Venture, et al. are currently
examining their options in light of the above events.
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. The Praecipe for Writ of Summons cannot and does not
contain any description of the claim being asserted by People's. It merely tolls
the statute of limitations and preserves any claim People's may have against the
defendants until resolution of the actions discussed above. This action may
concern a claim by People's for losses allegedly sustained as a result of the
activities of the Joint Venture, et al. However, there has been no activity in
this action and the nature of the action has not yet been determined. NJNR is
unable to predict the outcome of these matters. The Company does not believe
that the ultimate resolution of these matters will have a material adverse
effect on its consolidated financial condition or results of operations.
In 1994, the Company wrote-off its $1 million investment in the Bessie-8
pipeline.
f. Securities and Exchange Commission (SEC)
In October 1995, the SEC issued an Order Directing Private Investigation
and Designating Officers to Take Testimony in connection with certain
transactions engaged in by subsidiaries of the Company in early 1992. An SEC
investigation is a fact-finding inquiry and not an adversarial proceeding. No
adversarial proceedings have been commenced by the SEC. The Company is
cooperating with the Staff of the SEC in its investigation.
g. Long Branch Pier
In August 1988 and in 1989, NJNG and an electric utility were named
defendants in civil actions in New Jersey Superior Court commenced by the owners
of several businesses and stores destroyed in a fire at the Long Branch
Amusement Pier (the Pier) in New Jersey, which actions were subsequently
consolidated. The plaintiffs allege, among other things, that NJNG had lines
beneath a boardwalk which, the plaintiffs assert, reacted with faulty electric
cables to cause the fire that damaged the Pier. The several plaintiffs assert
compensatory damages against the defendants in an aggregate amount of
approximately $35 million. Pre-trial settlement conferences were unsuccessful
and a trial on the issues of liability commenced in October 1995. In January
1996, after two weeks of jury deliberations, the court declared a
9
<PAGE> 11
mistrial. Subsequently thereto, the Company and the electric utility have
jointly settled all of the complaints.
h. Various
The Company is party to various other claims, legal actions and complaints
arising in the ordinary course of business. In management's opinion, the
ultimate disposition of these matters will not have a material adverse effect on
its consolidated financial condition or results of operations.
7. Other
At December 31, 1996 there were 18,084,162 shares of common stock
outstanding and the book value per share was $15.47.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications.
8. Subsequent Event
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
$7.3 million, which approximated net book value. Accordingly, as of December 31,
1996, the net book value of these assets have been classified as assets held for
sale, net on the consolidated balance sheet. The Company used the proceeds from
these sales to reduce outstanding debt.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
A. RESULTS OF OPERATIONS
Consolidated net income for the quarter ended December 31, 1996 increased
by 4% to $12.9 million, or $.72 per share, compared with $12.4 million, or $.69
per share, for the same period last year. The increase in consolidated earnings
was attributed to continued profitable customer growth at the Company's
principal subsidiary, NJNG, increased off-system and capacity release sales, as
well as improved results from its real estate subsidiary, CR&R.
NJNG OPERATIONS
NJNG's financial results are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
-------- -------
(Thousands)
<S> <C> <C>
Gross margin
Residential and commercial $41,403 $42,355
Firm transportation 3,926 2,673
Interruptible and agency 140 137
Off-system and capacity release 1,758 1,270
------- -------
Total gross margin $47,227 $46,435
======= =======
Operating income before income taxes $23,897 $23,606
======= =======
Net income $12,738 $12,677
======= =======
</TABLE>
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.
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 varies by more than one-half of one percent
from normal, or 10-year average, weather. Effective October 1996, 20-year
average weather is used instead of the 10-year average weather. The accumulated
adjustment from one heating season is billed or credited to customers in the
subsequent heating season.
11
<PAGE> 13
Gross margin from sales to firm customers decreased by $952,000, or 2%,
during the first fiscal quarter, compared with the same period last year due
primarily to a 13% decrease in firm therm sales. The decrease in firm therm
sales was due to the weather, which was 10% warmer than last year, and the
impact of commercial and industrial customers switching to firm transportation
service, partially offset by the impact of 10,926 customer additions during the
twelve months ended December 31, 1996.
The weather for the three months ended December 31, 1996 was 3% colder than
normal, or the 20-year average. The impact of colder weather on gross margin was
partially reduced by the above-mentioned WNC. Under this rate mechanism, a total
of $457,000 of gross margin was deferred for future refund to customers.
Firm Transportation
Gross margin from firm transportation increased by $1.3 million, or 47%,
reflecting an increase in the number of customers utilizing this service. At
December 31, 1996 and 1995, NJNG provided firm transportation service to 2,153
and 1,275 commercial and industrial customers, respectively. NJNG's total gross
margin is not negatively impacted by customers who utilize the firm
transportation service and purchase their gas from another supplier, as its
tariffs are designed such that no profit is earned on the commodity portion of
sales to firm customers and all customers who do purchase gas from another
supplier continue to utilize NJNG for transportation.
Interruptible
NJNG services 41 customers through interruptible sales and/or
transportation tariffs. Sales made under the interruptible sales tariff are
priced on market-sensitive oil and gas parity rates. Although therms sold and
transported to interruptible customers represented 6% and 7% of total therm
throughput in the three months ended December 31, 1996 and 1995, 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.
NJNG's off-system sales totaled 99 million therms and generated $1 million
of gross margin in the first quarter of fiscal 1997, compared with 82 million
therms and $626,000 of gross margin in the same period a year ago. The capacity
release program generated gross margin of $742,000 and $644,000 in the three
months ended December 31, 1996 and 1995, respectively. These increases were due
primarily to greater sales volume resulting from increased utilization.
12
<PAGE> 14
Operating Income Before Income Taxes and Net Income
Operating income before income taxes increased by $291,000 and net income
increased by $61,000, in the first quarter of fiscal 1997 compared with the same
period last year due to the higher off-system margins and appliance service
revenues, which more than offset an increase in operation and maintenance costs
and depreciation expense associated with customer growth and system expansion.
ENERGY SERVICES OPERATIONS
Energy Services' consolidated financial results, which include Natural
Energy, the Company's unregulated marketing and fuel and capacity management
subsidiary, and the continuing operations of NJR Energy, which consist of its
equity investments in the Iroquois Gas Transmission System, L.P. and the Market
Hub Partners, L.P. are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
-----------------------------
(Thousands)
<S> <C> <C>
Revenues $ 35,876 $ 18,702
========= =========
Operating income before income taxes $ 657 $ 1,354
========= =========
Net income $ 204 $ 754
========= =========
</TABLE>
Energy Services revenues increased over 90% for the three months ended
December 31, 1996 compared to the same period last year reflecting growth in
Natural Energy's fuel and capacity management services. Operating income before
income taxes and net income decreased, reflecting 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 2.5 billion cubic feet (bcf) and
2.5 bcf, and gas under management totaled 7.6 bcf and 5.9 bcf for the three
months ended December 31, 1996 and 1995, respectively.
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
December 31,
1996 1995
-----------------------------
(Thousands)
<S> <C> <C>
Revenues $ 1,097 $ 1,868
======== =========
Operating income (loss) before income taxes $ 334 $ (651)
======== =========
Net loss $ (5) $ (1,029)
======== =========
</TABLE>
13
<PAGE> 15
In November 1995, CR&R sold certain of its real estate assets for $52.65
million in cash and issued options to the buyer to purchase adjacent undeveloped
land parcels at various prices. This transaction required the one-time write-off
of unamortized commissions and other costs totaling $1.8 million, which is
reflected in operating income (loss) before income taxes in the three months
ended December 31, 1995.
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.
NJR used the proceeds from these sales to reduce outstanding debt.
B. LIQUIDITY AND CAPITAL RESOURCES
In order to meet the working capital and external debt financing
requirements of its unregulated subsidiaries, as well as its own working capital
needs, the Company maintains committed credit facilities with a number of banks
totaling $135 million and has a $10 million credit facility available on an
offering basis. At December 31, 1996, $43 million was outstanding under these
agreements. NJNG satisfies its debt needs by issuing short-term and long-term
debt based upon its own financial profile. The Company meets the common equity
requirements of each subsidiary, if any, through new issuances of the Company's
common stock, including the proceeds from its Automatic Dividend Reinvestment
Plan (DRP). In April 1996, the DRP was amended to allow for the purchase of
shares in the open market to satisfy the plan's needs. Effective July 1, 1996,
shares needed for the DRP have been purchased on the open market. The Company
can switch funding options every 90 days.
NJNG
The seasonal nature of NJNG's operations creates large short-term cash
requirements, primarily to finance gas purchases and customer accounts
receivable. NJNG obtains working capital for these requirements, as well as for
the temporary financing of construction expenditures, sinking fund needs and
GRFT payments, through the issuance of commercial paper and short-term bank
loans. To support the issuance of commercial paper, NJNG maintains committed
credit facilities totaling $75 million with a number of commercial banks and has
an additional $20 million in lines of credit available on an offering basis.
Remaining fiscal 1997 construction expenditures are estimated at $43
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth, and general system renewals and
improvements. NJNG expects to finance these expenditures through internal
generation, the issuance of short-term debt and a $5 million draw down of its
variable rate Series BB EDA Bonds, which is expected to be completed in August
1997. Based on current market conditions, NJNG also expects to optionally redeem
the remaining $8.2 million of its 8.5% Series P Bonds in 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.
14
<PAGE> 16
ENERGY SERVICES
NJR Storage Corporation (Storage), a subsidiary of NJR Energy, is a 5.67%
partner in Market Hub Partners, L.P. (MHP) which is expected to develop, own and
operate a system of five natural gas market centers with high-deliverability
salt cavern storage facilities. The market centers are expected to be
strategically located in Texas, Louisiana, Mississippi, Michigan and
Pennsylvania. As of December 31, 1996, Storage's investment in MHP totaled $8.2
million. No other significant capital contributions are currently expected in
the remainder of fiscal 1997.
NJR DEVELOPMENT
CR&R's future capital expenditures will be limited to the fit-up of
existing tenant space, the development of existing acreage and additional
investments, as approved by the Board of Directors, made for the purpose of
preserving the value of particular real estate holdings. In November 1996, CR&R
completed the construction of a 98,000 square foot addition to an existing
building at a total cost of approximately $5.4 million, of which $231,000 was
expended in fiscal 1997. This additional space has been pre-leased to the
occupant of the existing building. No other significant capital expenditures are
currently expected in the remainder of fiscal 1997.
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements where those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. Certain of the
statements contained in this report (other than the financial statements and
other statements of historical fact), including, without limitation, statements
as to management expectations and beliefs are forward-looking statements.
Forward-looking statements are made based upon management's expectations and
beliefs concerning future developments and their potential effect upon the
Company. There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of future
developments on the Company will be those anticipated by management.
The Company wishes to caution readers that the assumptions which form the
basis for forward-looking statements with respect to or that may impact earnings
for fiscal 1997 and thereafter include many factors that are beyond the
Company's ability to control or estimate precisely, such as estimates of future
market conditions and the behavior of other market participants. Among the
factors that could cause actual results to differ materially from estimates
reflected in such forward-looking statements are weather conditions, economic
conditions in NJNG's service territory, fluctuations in energy-related commodity
prices, conversion activity and other marketing efforts, the conservation
efforts of NJNG's customers, the pace of deregulation of retail gas markets,
competition for the acquisition of gas, the regulatory and pricing policies of
federal and state regulatory agencies, the availability of Canada's reserves for
export to the United States and other regulatory changes.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its quarterly and
annual reports, the Company does not, by including this statement, assume any
obligation to review or revise any particular forward-looking statement
referenced herein in light of future events.
15
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Information required by this Item is incorporated herein by reference
to Part I, Item 1, Note 6 - Legal and Regulatory Proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
On January 29, 1997, the shareowners voted upon the following matters
at the annual stockholder meeting.
(a) The election of five (5) directors, one (1) to serve for a one
year term expiring in 1998, and four (4) to serve for three-year terms expiring
in 2000, and until their respective successors are duly elected and are
qualified. The results of the voting were as follows:
<TABLE>
<CAPTION>
Director For Withheld
-------- --- --------
<S> <C> <C>
Warren R. Haas 15,228,746 150,983
Bruce G. Coe 15,235,228 144,501
Hazel S. Gluck 15,170,476 209,253
Gary W. Wolf 15,216,518 144,501
George S. Zoffinger 15,235,159 144,569
</TABLE>
(b) The stockholders approved the action to retain Deloitte & Touche
LLP as auditors for the fiscal year ending September 30, 1997. The votes were as
follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
15,207,416 83,037 89,276
</TABLE>
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 December 31, 1996.
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: February 13, 1997 /s/Laurence M. Downes
---------------------
Laurence M. Downes
Chairman, President and
Chief Executive Officer
Date: February 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 DECEMBER 31, 1996 FROM 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 620,317
<OTHER-PROPERTY-AND-INVEST> 33,089
<TOTAL-CURRENT-ASSETS> 208,929
<TOTAL-DEFERRED-CHARGES> 61,618
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 923,953
<COMMON> 45,295
<CAPITAL-SURPLUS-PAID-IN> 208,930
<RETAINED-EARNINGS> 25,556
<TOTAL-COMMON-STOCKHOLDERS-EQ> 279,781
20,000
880
<LONG-TERM-DEBT-NET> 269,513
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 2,400
<COMMERCIAL-PAPER-OBLIGATIONS> 56,200
<LONG-TERM-DEBT-CURRENT-PORT> 1,501
0
<CAPITAL-LEASE-OBLIGATIONS> 31,700
<LEASES-CURRENT> 137
<OTHER-ITEMS-CAPITAL-AND-LIAB> 261,841
<TOT-CAPITALIZATION-AND-LIAB> 923,953
<GROSS-OPERATING-REVENUE> 186,169
<INCOME-TAX-EXPENSE> 6,432
<OTHER-OPERATING-EXPENSES> 161,189
<TOTAL-OPERATING-EXPENSES> 167,621
<OPERATING-INCOME-LOSS> 18,548
<OTHER-INCOME-NET> 80
<INCOME-BEFORE-INTEREST-EXPEN> 18,628
<TOTAL-INTEREST-EXPENSE> 5,288
<NET-INCOME> 13,340
398
<EARNINGS-AVAILABLE-FOR-COMM> 12,942
<COMMON-STOCK-DIVIDENDS> 7,066
<TOTAL-INTEREST-ON-BONDS> 15,332
<CASH-FLOW-OPERATIONS> (8,766)
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
