<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 March 31, 1998 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 May 6,
1998 was 17,815,959
<PAGE> 2
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
(Thousands, except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES ........... $266,586 $285,366 $486,981 $473,968
-------- -------- -------- --------
OPERATING EXPENSES
Gas purchases ............... 174,922 189,758 329,997 314,545
Operation and maintenance ... 19,853 21,076 40,070 40,728
Depreciation and amortization 7,058 6,183 14,115 12,312
Energy and other taxes ...... 14,134 18,725 27,033 31,767
State income taxes .......... 4,528 128 4,985 140
Federal income taxes ........ 13,006 15,539 18,934 21,971
-------- -------- -------- --------
Total operating expenses ... 233,501 251,409 435,134 421,463
-------- -------- -------- --------
OPERATING INCOME ............. 33,085 33,957 51,847 52,505
Other income, net ............ 457 79 1,775 159
Interest charges, net ........ 4,635 5,134 10,102 10,422
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS .............. 28,907 28,902 43,520 42,242
Preferred stock dividends .... 396 399 793 797
-------- -------- -------- --------
NET INCOME ................... $ 28,511 $ 28,503 $ 42,727 $ 41,445
======== ======== ======== ========
EARNINGS PER COMMON SHARE
BASIC .................. $ 1.61 $ 1.58 $ 2.40 $ 2.29
======== ======== ======== ========
DILUTED ................ $ 1.60 $ 1.57 $ 2.39 $ 2.29
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE ... $ .41 $ .40 $ .82 $ .80
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING
BASIC .................. 17,763 18,076 17,804 18,080
======== ======== ======== ========
DILUTED ................ 17,871 18,119 17,903 18,112
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE> 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SIX MONTHS ENDED
MARCH 31,
1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................... $ 42,727 $ 41,445
Adjustments to reconcile net income to cash flows
Depreciation and amortization .................. 14,115 12,312
Amortization of deferred charges ............... 421 704
Deferred income taxes .......................... 2,988 4,113
Change in working capital ...................... (30,500) (22,093)
Other, net ..................................... (6,100) (5,481)
-------- --------
Net cash flows from operating activities ......... 23,651 31,000
-------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from long-term debt .................... 46,345 3,900
Proceeds from common stock ...................... 2,159 208
Payments of long-term debt ...................... (38,045) (8,182)
Repurchase of treasury stock .................... (6,409) (1,539)
Payments of common stock dividends .............. (14,484) (14,299)
Net change in short-term debt ................... (580) 3,300
-------- --------
Net cash flows used in financing activities ...... (11,014) (16,612)
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for
Utility plant .................................. (18,538) (21,284)
Real estate properties ......................... (1,541) (522)
Equity investments and other ................... (5,248) (750)
Cost of removal ................................ (1,587) (2,430)
Proceeds from asset sales ....................... 15,600 7,031
-------- --------
Net cash flows used in investing activities ...... (11,314) (17,955)
-------- --------
Net change in cash and temporary investments ..... 1,323 (3,567)
Cash and temporary investments at September 30 ... 5,467 10,808
-------- --------
Cash and temporary investments at March 31 ....... $ 6,790 $ 7,241
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables ..................................... $(85,197) $(99,893)
Inventories ..................................... 16,692 31,899
Deferred gas costs .............................. 15,926 3,990
Purchased gas ................................... 1,134 20,600
Prepaid and accrued taxes, net .................. 35,478 41,772
Customers' credit balances and deposits ......... (10,354) (15,474)
Other, net ...................................... (4,179) (4,987)
-------- --------
Total ............................................ $(30,500) $(22,093)
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized) ........... $ 8,966 $ 12,258
Income taxes .................................... $ 3,946 $ 4,556
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30, MARCH 31,
1998 1997 1997
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Utility plant ........................... $ 871,755 $ 855,375 $ 830,682
Real estate properties .................. 24,421 22,897 37,593
--------- --------- ---------
896,176 878,272 868,275
Accumulated depreciation and amortization (229,756) (218,912) (209,590)
--------- --------- ---------
Property, plant and equipment, net ..... 666,420 659,360 658,685
--------- --------- ---------
CURRENT ASSETS
Cash and temporary investments .......... 6,790 5,467 7,241
Construction fund ....................... -- -- 6,500
Customer accounts receivable ............ 123,375 45,900 118,134
Unbilled revenues ....................... 14,459 3,998 18,107
Allowance for doubtful accounts ......... (2,728) (1,527) (2,442)
Gas in storage, at average cost ......... 17,754 34,152 8,559
Materials and supplies, at average cost . 5,151 5,445 6,318
Deferred gas costs ...................... 18,766 15,070 16,488
Prepaid state taxes ..................... -- 12,089 --
Assets held for sale, net ............... -- 13,386 --
Other ................................... 9,722 6,377 6,794
--------- --------- ---------
Total current assets ................... 193,289 140,357 185,699
--------- --------- ---------
DEFERRED CHARGES AND OTHER
Equity investments ...................... 7,107 7,086 15,685
Regulatory assets ....................... 38,283 38,635 37,765
Long-term deferred gas costs ............ -- 19,622 226
Other ................................... 23,127 14,001 9,384
--------- --------- ---------
Total deferred charges and other ....... 68,517 79,344 63,060
--------- --------- ---------
Total assets ..................... $ 928,226 $ 879,061 $ 907,444
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30, MARCH 31,
1998 1997 1997
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
CAPITALIZATION
Common stock equity .................... $306,799 $278,436 $300,172
Redeemable preferred stock ............. 20,760 20,760 20,880
Long-term debt ......................... 299,635 291,407 300,377
-------- -------- --------
Total capitalization ................. 627,194 590,603 621,429
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt ... 137 138 137
Short-term debt ........................ 47,420 48,000 38,300
Purchased gas .......................... 59,013 57,879 54,238
Accounts payable and other ............. 27,154 28,632 27,254
Dividends payable ...................... 7,287 7,161 7,238
Accrued taxes .......................... 35,941 5,781 31,507
Customers' credit balances and deposits. 3,172 13,526 8,371
-------- -------- --------
Total current liabilities ............. 180,124 161,117 167,045
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes .................. 59,718 63,501 56,123
Deferred investment tax credits ........ 10,818 10,934 11,106
Deferred revenue ....................... 19,962 20,551 21,164
Other .................................. 30,410 32,355 30,577
-------- -------- --------
Total deferred credits ................ 120,908 127,341 118,970
-------- -------- --------
Total capitalization and liabilities $928,226 $879,061 $907,444
======== ======== ========
</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, 1997 balance sheet data is derived from the audited
financial statements of New Jersey Resources Corporation (the Company). Although
management believes that the disclosures are adequate to make the information
presented not misleading, it is recommended that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's 1997 Annual Report on Form 10-K.
In the opinion of management, the information furnished reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the results of the interim periods. Because of the seasonal
nature of the Company's utility operations and other factors, the results of
operations for the interim periods presented are not indicative of the results
to be expected for the entire year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries -- New Jersey Natural Gas Company (NJNG), NJR Energy Holdings
Corporation (Energy Holdings) and NJR Development Company (NJR Development). New
Jersey Natural Energy Company (Natural Energy), NJR Energy Services Company
(Energy Services) and NJR Energy Corporation (NJR Energy) are wholly-owned
subsidiaries of Energy Holdings and Commercial Realty & Resources Corp. (CR&R),
is a wholly-owned subsidiary of NJR Development. Significant intercompany
accounts and transactions have been eliminated.
3. Discontinued Operations
In May 1995, the Company adopted a plan to exit the oil and natural gas
production business and pursue the sale of the reserves and related assets of
NJR Energy and its subsidiary, New Jersey Natural Resources Company. The Company
has accounted for this segment as a discontinued operation and in fiscal 1995
recorded an after-tax charge of $8.7 million, or $.49 per share. This charge was
based on estimates of the anticipated loss from operations until the assets were
sold, the estimated loss on the sale of the remaining reserves and other costs
related to the closing of its offices in Dallas and Tulsa.
In fiscal 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
The Company has adopted SFAS No. 128 "Earnings per Share" which
establishes standards for computing and presenting basic and diluted earnings
per share (EPS). SFAS No. 128 is effective for periods ending after December
15, 1997 and requires that all prior-period data presented to be restated. The
incremental shares, which relate to stock options and restricted stock, using
the treasury stock method, that were required for inclusion in the denominator
for the diluted EPS calculation were 107,783 and 99,672 for the three months
ended March 31, 1998 and 1997, respectively, and 43,576 and 32,572 for the six
months ended March 31, 1998 and 1997, respectively. The numerator for both the
basic and diluted calculation was net income. The impact was a one-cent
dilutive effect for the three and six months ended March 31, 1998 and the three
months ended March 31, 1997 and no impact for the six months ended March 31,
1997.
In June 1997, the Financial Accounting Standards Boards (FASB) issued SFAS
No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosure About
Segments of an Enterprise and Related Information." In February 1998, the FASB
also issued SFAS No. 132 "Employers Disclosures about Pensions and Other
Postretirement Benefits." These satements must be adopted by fiscal 1999. It is
management's opinion that these statements will not have a material effect on
either its financial condition or results of operations.
5. Capitalized Interest
The Company's capitalized interest totaled $183,000 and $311,000 for the
three months ended March 31, 1998 and 1997, respectively, and $376,000 and
$729,000 for the six months ended March 31, 1998 and 1997, respectively.
6. Legal and Regulatory Proceedings
a. Levelized Gas Adjustment (LGA)
In January 1998, the New Jersey Board of Public Utilities (BPU) approved an
interim settlement, representing an increase of approximately $13 million in LGA
revenues. This included the approval to collect $3.4 million of weather
normalization clause (WNC) margins accrued due to the impact of
warmer-than-normal weather during fiscal year 1997 and minimal adjustments to
its Remediation Adjustment and Demand Side Management Adjustment Clause factors.
The parties to the settlement are discussing the resolution of additional
matters such as expanding customer choice, extending margin-sharing incentives
and the allocation of LGA underrecovery among customer classes.
The BPU is currently performing an audit of NJNG's gas costs and related
accounts for the fiscal years 1991 through 1995. The Company expects this audit
to be finalized in fiscal 1998 and does not believe that the ultimate resolution
will have a material adverse effect on its consolidated financial condition or
results of operations.
6
<PAGE> 8
b. Postretirement Benefits Other Than Pensions
In January 1997, the BPU concluded a generic proceeding related to the
implementation of the provisions of SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (OPEB). SFAS 106 required that
publicly held companies change from the practice of accounting for OPEB costs on
a pay as you go basis to an accrual basis of accounting. The BPU's generic
proceeding provided for a Phase II proceeding in which each utility would
address the particular impact of SFAS 106 on its revenue requirements. In July
1997, NJNG filed a petition to recover an additional $900,000 in annual OPEB
costs with a proposed effective date no later than September 30, 1998. In
November 1997, NJNG revised the requested annual OPEB costs to $1.2 million to
reflect updated actuarial results and the imposition of state sales tax. NJNG
expects to receive approval to collect the additional annual cost by the end of
fiscal year 1998.
c. Gas Remediation
NJNG has identified eleven former manufactured gas plant (MGP) sites, dating
back to the late 1800's and early 1900's, which contain contaminated residues
from the former gas manufacturing operations. Ten of the eleven sites in
question were acquired by NJNG in 1952. All of the gas manufacturing operations
ceased at these sites at least since the mid-1950's and in some cases had been
discontinued many years earlier, and all of the old gas manufacturing facilities
were subsequently dismantled by NJNG or the former owner. NJNG is currently
involved in administrative proceedings with the New Jersey Department of
Environmental Protection (NJDEP) and local government authorities with respect
to the plant sites in question, and is participating in various studies and
investigations by outside consultants to determine the nature and extent of any
such contaminated residues and to develop appropriate programs of remedial
action, where warranted. Since October 1989, NJNG has entered into
Administrative Consent Orders or Memoranda of Agreement with the NJDEP covering
all eleven sites. These documents establish the procedures to be followed by
NJNG in developing a final remedial clean-up plan for each site.
Most of the cost of such studies and investigations is being shared under an
agreement with the former owner and operator of ten of the MGP sites. Through a
Remediation Rider approved by the BPU, NJNG is recovering its expenditures
incurred through June 1997 over a seven-year period. Costs incurred subsequent
to June 30, 1997 will be reviewed annually and, subject to BPU approval,
recovered over seven-year periods.
In March 1995, NJNG filed a complaint in New Jersey Superior Court against
various insurance carriers for declaratory judgment and for damages arising from
such defendants' breach of their contractual obligations to defend and/or
indemnify NJNG against liability for claims and losses (including defense costs)
alleged against NJNG relating to environmental contamination at the former MGP
sites and other sites. NJNG is seeking (i) a declaration of the rights, duties
and liabilities of the parties under various primary and excess liability
insurance policies purchased from the defendants by NJNG from 1951 through 1985,
and (ii) compensatory and other damages, including costs and fees arising out of
defendants' obligations under such insurance policies. The complaint was amended
in July 1996 to name Kaiser-Nelson Steel & Salvage Company (Kaiser-Nelson) and
its successors as additional defendants. In the amended complaint 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
7
<PAGE> 9
substances used, handled or generated by NJNG, or the predecessor in title, that
were removed from several of the MPG sites by Kaiser-Nelson, and (b) money
damages or compensatory relief for the harm caused by Kaiser-Nelson's
aforementioned actions. Discovery is proceeding in this matter. There can be no
assurance as to the outcome of these proceedings.
d. South Brunswick Asphalt, L.P.
NJNG has been named a defendant in a civil action commenced in New Jersey
Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated
companies, and two other non-affiliated companies, seeking damages arising from
alleged environmental contamination at three sites owned or occupied by the
plaintiffs. Specifically, the suit charges that tar emulsion removed from 1979
through 1983 by an affiliate of SBA (Seal Tite, Inc.) from NJNG's former gas
manufacturing plant sites has been alleged by the NJDEP to constitute a
hazardous waste and that the tar emulsion has contaminated the soil and ground
water at the three sites in question. In February 1991, the NJDEP issued letters
classifying the tar emulsion/sand and gravel mixture at each site as dry
industrial waste, a non-hazardous classification. In April 1996, in a meeting
with all parties to the litigation and the judge assigned to the case, the NJDEP
confirmed the non-hazardous classification, which will allow for conventional
disposal. In May 1997, SBA submitted applications to the NJDEP for permits to
allow SBA to recycle the tar emulsion/sand and gravel mixture at each site into
asphalt, to be used as a paving material. These applications are currently
under review by the NJDEP. The Company does not believe that the ultimate
resolution of these matters will have a material adverse effect on its
consolidated financial condition or results of operations.
e. Bessie-8
New Jersey Natural Resources Company (NJNR), a subsidiary of NJR Energy, 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 June 1997, People's filed a complaint in equity against the Joint Venture,
et al. in the Allegheny County Common Pleas Court. The complaint alleged, 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 sought unspecified money damages and
injunctive relief against the Joint Venture et al.
On February 28, 1998, Peoples, NJNR and others entered into a release and
settlement agreement whereby the parties settled all claims arising out of the
past operation of the Joint Venture. As a result, Peoples dismissed with
prejudice the complaint filed in the Court of Common Pleas of Allegheny County.
All costs related to this settlement had previously been reserved for in the
financial statements of the Company.
f. Various
The Company is party to various other claims, legal actions and complaints
arising in the ordinary course of business. In management's opinion, the
ultimate disposition of these matters will not have a material adverse effect on
its financial condition or results of operations.
8
<PAGE> 10
7. State of New Jersey Tax Reform
In July 1997, legislation was signed that reformed New Jersey's taxes
affecting energy companies. The legislation repealed the long-standing utility
gross receipts and franchise tax formula and replaced it with a state sales
tax, a corporate business tax and a transitional energy facilities assessment
which would become effective in January 1998. It required a rate filing by each
utility in September 1997 designed to implement the new tax structure. In
December 1997, the BPU approved NJNG's new rates implementing the new tax
structure on an interim basis. The BPU is expected to issue its final order in
July 1998. The transitional energy facilities assessment will be gradually
phased out starting in 1999 and ending in 2002. The new law requires that all
providers of energy in the state be subject to the sales and corporate business
taxes. Previously, non-utility providers of energy were not subject to a state
sales tax.
8. Long-Term Debt
NJNG has entered into loan agreements with the New Jersey Economic
Development Authority (the Authority) in which the Authority issues bonds to the
public. To secure its loans from the Authority, NJNG issues First Mortgage Bonds
with interest rates and maturity dates similar to the Authority's Bonds.
Under these agreements NJNG issued variable rate Series DD Bonds in October
1997 for $13.5 million and utilizing the proceeds from the series DD Bonds,
redeemed its $13.5 million 9% Series Q Bonds in December 1997. In January 1998,
NJNG issued variable rate Series EE and Series FF Bonds for $9.5 million and $15
million, respectively. The proceeds were utilized to redeem the $9.5 million
7.05% Series T and the $15 million 7.25% Series U Bonds on March 1, 1998.
In April 1998, NJNG entered into a loan agreement whereby the Authority
loaned NJNG the proceeds from its $18 million Natural Gas Facilities Revenue
Bonds, Series 1998C (the Revenue Bonds, collectively, the EDA Bonds). The rates
of interest on the EDA Bonds are variable, currently set at a weekly mode, and
may be changed by NJNG to daily, weekly, flexible or long-term interest rate
modes, not to exceed 10% per annum. The EDA Bonds mature on April 1, 2033. The
proceeds from the Revenue Bonds were deposited into a project construction fund
with the indenture trustee for the EDA Bonds. NJNG may obtain such funds in
reimbursement of its qualified expenditures relating to the project upon
delivering an equivalent amount of its Adjustable Rate Series GG First Mortgage
Bonds (Series GG Bonds) to the indenture trustee. On April 1, 1998, NJNG drew
down $2 million from the construction fund and issued $2 million of its Series
GG Bonds.
9. Other
At March 31, 1998 there were 17,774,344 shares of common stock outstanding
and the book value per share was $17.26.
Certain reclassifications have been made of previously reported amounts to
conform with current year classifications.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 1998
A. RESULTS OF OPERATIONS
Consolidated net income for the quarters ended March 31, 1998 and 1997 was
$28.5 million. Basic earnings per share (EPS) increased 2% to $1.61, compared
with $1.58 last year. Diluted EPS also increased 2% to $1.60, compared with
$1.57 last year. The increase in EPS was due to lower average shares outstanding
due to the Company's share repurchase program.
Consolidated net income for the six months ended March 31, 1998 increased by
3% to $42.7 million, compared with $41.4 million for the same period last year.
Basic EPS increased 5% to $2.40, compared with $2.29 last year. Diluted EPS
increased 4% to $2.39, compared with $2.29 last year. The increase in
consolidated earnings was attributed primarily to continued profitable customer
growth at the Company's principal subsidiary, NJNG, cost control measures and
the gain on the sale of a real estate property.
NJNG OPERATIONS
NJNG's financial results are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
-------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
Gross margin
Residential and commercial $66,273 $64,433 $107,823 $105,835
Firm transportation 6,286 4,892 11,884 8,818
Interruptible 188 364 318 504
Off-system and capacity release 1,706 2,164 3,062 3,922
------- ------- -------- --------
Total gross margin $74,453 $71,853 $123,087 $119,079
======= ======= ======== ========
Appliance service revenues $ 2,645 $ 2,595 $ 5,520 $ 5,028
======= ======= ======== ========
Operating income before
federal income taxes $49,290 $47,849 $ 70,409 $ 71,746
======= ======= ======== ========
Net income $27,900 $27,722 $ 41,635 $ 40,460
======= ======= ======== ========
</TABLE>
Gross Margin
As discussed in Note 7, effective January 1, 1998, changes in state tax laws
have impacted the amount and type of state taxes that are charged on a per therm
basis. Therefore, effective January 1, 1998 gross margin, is defined as gas
revenues less gas costs, sales tax and a transitional energy facilities
assessment (TEFA), which provides a more meaningful basis for evaluating utility
operations, since gas costs, sales tax and TEFA are passed through to customers
and, therefore, have no effect on earnings. Gas costs are charged to operating
expenses on the basis of therm sales at the base and LGA cost rates included in
NJNG's tariff. The LGA clause allows NJNG to recover gas costs that exceed the
level reflected in its base rates. Sales tax is calculated at 6% of revenue and
excludes sales to other utilities off-system sales
<PAGE> 12
and federal accounts while TEFA is calculated on a per-therm basis and excludes
sales to other utilities and off-system sales. Previous to January 1, 1998,
gross margin was defined as gas revenues less gas costs and gross receipts and
franchise taxes (GRFT), which provided a more meaningful basis for evaluating
utility operations, since gas costs and GRFT were passed through to customers
and, therefore, had no effect on earnings.
The gross margin when compared to prior periods will be different due to the
impact of the state law change described above.
Residential and Commercial
Since fiscal 1993, NJNG's margin has been substantially protected from the
effects of warm winter weather through a weather-normalization clause (WNC)
which provides for a revenue adjustment if the weather varies by more than
one-half of one percent from normal, or 20-year average weather. The WNC does
not protect the Company from declines in customer usage patterns. Customer
levels used in the WNC calculation were set at the conclusion of NJNG's last
base rate case in January 1994. The accumulated adjustment from one heating
season is billed or credited to customers in the subsequent year.
Gross margin from sales to firm customers increased by $1.8 million, or
approximately 3%, and $2 million, or approximately 2%, for the three and six
months ended March 31, 1998, respectively, compared with the same periods last
year. These increases were due to the impact of 12,388 customer additions during
the twelve months ended March 31, 1998 and the aforementioned change in state
taxes which more than offset lower therm sales. Firm therm sales for the six
months decreased by 6% compared with last year due to 8% warmer weather, and
the impact of residential, commercial and industrial customers switching to
firm transportation service, as described below.
The weather for the six months ended March 31, 1998 was 21% warmer than
normal, or the 20-year average. The impact of warmer weather on gross margin was
partially reduced by the WNC. Under this rate mechanism, a total of $9.8 million
of gross margin was accrued for future collection from customers.
Firm Transportation
Gross margin from firm transportation increased by $1.4 million, or 28%, and
$3 million, or 35%, for the three and six months ended March 31, 1998,
respectively, compared with the same periods last year. Transportation sales
increasedto 48 billion cubic feet (Bcf) from 36.6 Bcf for the six months ended
March 31, 1998 and 1997, respectively. This increase is due to the number of
residential, commercial and industrial customers utilizing this service
totaling 8,587 and 2,238 at March 31, 1998 and 1997, 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 47 customers through interruptible sales and/or transportation
tariffs. Sales made under the interruptible sales tariff are priced on
market-sensitive oil and gas parity rates. Although therms sold and transported
to interruptible customers represented 5% of total therm throughput in the six
months ended March 31, 1998 and 1997, they accounted for less than 1% of the
total gross margin in each period
11
<PAGE> 13
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 sales 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 21.6 Bcf and generated $1.1 million of gross
margin, and 36.3 Bcf and $1.9 million of gross margin, for the three and six
months ended March 31, 1998, respectively, compared with 17.1 Bcf and $1.5
million of gross margin, and 27 Bcf and $2.5 million gross margin, in the
respective periods last year. The capacity release program generated gross
margin of $594,000 and $1.2 million in the three and six months ended March 31,
1998, respectively, compared with $639,000 and $1.4 million in the same
respective periods last year. The decreases were due primarily to the warm
winter weather which resulted in lower margins per therm.
Operating Income Before Federal Income Taxes and Net Income
Operating income before federal income taxes increased by $1.4 million, or
3%, and net income increased by $178,000, or 1%, in the second quarter of
fiscal 1998, compared with the same period last year due primarily to customer
growth and lower operation and maintenance expenses, which more than offset an
increase in depreciation expense and interest charges from higher short-term
debt levels. The increase in depreciation is due primarily to a higher
depreciable plant balance, which includes a new customer information and
billing system (CIS) which was placed into service in August 1997.
Operating income before federal income taxes increased by $3 million, or 4%,
and net income increased by $1.2 million, or 3%, for the six months ended March
31, 1998, compared with the same period last year due to customer growth,
increased appliance service revenue and lower operating and maintenance
expenses.
The Year 2000 Issue
The Company has been evaluating the extent to which its computer systems will
be affected by the Year 2000 issue. There could be unforeseen costs that may
arise due to unexpected disruptions of the Company's operations if its computer
system is not Year 2000 compliant. Additionally, there could be adverse effects
on the Company due to the potential Year 2000 problems of vendors with whom the
Company conducts business. The Company has commenced discussions with its major
vendors regarding their plans to address the Year 2000 issue with a view to help
minimize any potential problems. With the implementation of NJNG's new CIS
system, the Company does not currently believe that the additional
12
<PAGE> 14
investment needed for its computer systems to be fully Year 2000 compliant will
have a material adverse affect on either its financial condition or results of
operations.
ENERGY HOLDINGS OPERATIONS
Energy Holdings' consolidated financial results, which include Natural Energy
and Energy Services, the Company's unregulated marketing and fuel and capacity
management subsidiaries, and the continuing operations of NJR Energy, which
consist primarily of its equity investment in the Iroquois Gas Transmission
System, L.P., are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
Revenues $52,989 $43,972 $105,295 $79,848
======= ======= ======== =======
Operating income before federal
income taxes $ 586 $ 2,032 $ 1,335 $ 2,689
======= ======= ======== =======
Net income $ 256 $ 1,152 $ 657 $ 1,356
======= ======= ======== =======
</TABLE>
Energy Holdings' revenues increased for the three and six months ended March
31, 1998, compared to the same period last year, reflecting primarily higher
fuel and capacity management sales. Operating income before federal income taxes
and net income decreased due primarily to lower margins from daily gas sales and
fuel management agreements combined with lower margin from retail sales.
Energy Holdings' gas under management totaled 23.7 Bcf and 47 Bcf, and retail
gas sales totaled 2.2 Bcf and 4.3 Bcf for the three and six months ended March
31, 1998, respectively, compared with gas under management of 16.3 Bcf and 30.6
Bcf, and retail gas sales of 3.5 Bcf and 5.9 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 Six Months Ended
March 31, March 31,
1998 1997 1998 1997
-----------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
Revenues $212 $ 615 $ 367 $ 1,712
==== ===== ====== =======
Other income, net $372 $ 172 $1,407 $ 172
==== ===== ====== =======
Net income (loss) $252 $(145) $ 524 $ (150)
==== ===== ====== =======
</TABLE>
In October 1997, CR&R sold a 280,000 square-foot office building for $15.6
million. Included in Other income, net is an after-tax gain of $900,000 related
to this transaction.
13
<PAGE> 15
In December 1995, CR&R sold a 157,000 square foot, office building for $31.85
million, in a sale-leaseback transaction. CR&R's pre-tax gain on this
transaction was approximately $17.8 million which is included in deferred
revenue on the consolidated balance sheet and is being amortized over 25 years
in accordance with generally accepted accounting principles and is included in
Other income, net. The primary tenant of the facility, NJNG, is leasing the
building under a long-term master lease agreement and continues to occupy a
majority of the space in the building. Prior to the transaction, NJNG leased
about 79% of the building under a long-term lease.
NJR used the proceeds from these sales to reduce outstanding debt.
B. LIQUIDITY AND CAPITAL RESOURCES`
In order to meet the working capital and external debt financing requirements
of its unregulated subsidiaries, as well as its own working capital needs, the
Company maintains committed credit facilities with a number of banks totaling
$135 million and has a $10 million credit facility available on an offering
basis. At March 31, 1998, $48.3 million was outstanding under these agreements.
NJNG satisfies its debt needs by issuing short-term and long-term debt based
upon its own financial profile. The Company meets the common equity requirements
of each subsidiary, if any, through new issuances of the Company's common stock,
including the proceeds from its Automatic Dividend Reinvestment Plan (DRP). In
April 1996, the DRP was amended to allow for the purchase of shares in the open
market to satisfy the plan's needs. The Company can switch funding options every
90 days.
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
state tax payments, through the issuance of commercial paper and short-term bank
loans. To support the issuance of commercial paper, NJNG maintains committed
credit facilities totaling $90 million with a number of commercial banks and has
an additional $10 million in lines of credit available on an offering basis.
Remaining fiscal 1998 construction expenditures are estimated at $31.1
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth, and general system renewals and
improvements. NJNG expects to finance these expenditures through internal
generation and the issuance of short-term debt. NJNG will pursue the refinancing
of other existing long-term debt and potentially issue new long-term debt, the
amount and timing of which will be affected by market conditions and other
factors.
ENERGY HOLDINGS
Energy Holdings does not currently expect any significant capital
expenditures or external financing requirements in fiscal 1998.
14
<PAGE> 16
NJR DEVELOPMENT
Remaining capital expenditures in fiscal 1998 are projected to be $500,000 in
connection with the construction of a 20,000 square-foot, build-to-suit office
building, supported by a ten-year lease. These expenditures are expected to be
funded through the Company's committed credit facilities.
CR&R's future capital expenditures will be limited to the fit-up of existing
tenant space, developing existing acreage and additional investments to preserve
the value of its existing real estate holdings.
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
Certain of the statements contained in this report (other than the financial
statements and other statements of historical fact), including, without
limitation, statements as to the adequacy of established reserves for the
discontinued operations, expected disposition of legal and regulatory
proceedings, effect of new accounting standards and impact of the Year 2000
computer issue are forward-looking statements. Forward-looking statements are
made based upon management's expectations and beliefs concerning future
developments and their potential effect upon the Company. There can be no
assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on the Company will be
those anticipated by management.
The Company wishes to caution readers that the assumptions which form the
basis for forward-looking statements with respect to or that may impact earnings
for fiscal 1998 and thereafter include many factors that are beyond the
Company's ability to control or estimate precisely, such as estimates of future
market conditions and the behavior of other market participants. Among the
factors that could cause actual results 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 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 March 31, 1998.
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: May 14, 1998 /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 THE NEW
JERSEY RESOURCES CORPORATION'S MARCH 31, 1998 FORM 10-Q, INCLUDING THE
CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS,
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF COMMON STOCK EQUITY AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 644,621
<OTHER-PROPERTY-AND-INVEST> 21,799
<TOTAL-CURRENT-ASSETS> 193,289
<TOTAL-DEFERRED-CHARGES> 68,517
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 928,226
<COMMON> 45,527
<CAPITAL-SURPLUS-PAID-IN> 202,494
<RETAINED-EARNINGS> 58,778
<TOTAL-COMMON-STOCKHOLDERS-EQ> 306,799
20,000
760
<LONG-TERM-DEBT-NET> 268,145
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 1,620
<COMMERCIAL-PAPER-OBLIGATIONS> 45,800
<LONG-TERM-DEBT-CURRENT-PORT> 137
0
<CAPITAL-LEASE-OBLIGATIONS> 31,490
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 253,475
<TOT-CAPITALIZATION-AND-LIAB> 928,226
<GROSS-OPERATING-REVENUE> 486,981
<INCOME-TAX-EXPENSE> 23,919
<OTHER-OPERATING-EXPENSES> 411,215
<TOTAL-OPERATING-EXPENSES> 435,134
<OPERATING-INCOME-LOSS> 51,847
<OTHER-INCOME-NET> 1,775
<INCOME-BEFORE-INTEREST-EXPEN> 53,622
<TOTAL-INTEREST-EXPENSE> 10,102
<NET-INCOME> 43,520
793
<EARNINGS-AVAILABLE-FOR-COMM> 42,727
<COMMON-STOCK-DIVIDENDS> 14,484
<TOTAL-INTEREST-ON-BONDS> 14,048
<CASH-FLOW-OPERATIONS> (23,651)
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.39
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NEW
JERSEY RESOURCES CORPORATION'S MARCH 31, 1998 FORM 10-Q, INCLUDING THE
CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS,
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF COMMON STOCK EQUITY AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1998 SEP-30-1998 SEP-30-1998
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-30-1997 DEC-31-1996
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0 0 0 0
<OTHER-PROPERTY-AND-INVEST> 0 0 0 0
<TOTAL-CURRENT-ASSETS> 0 0 0 0
<TOTAL-DEFERRED-CHARGES> 0 0 0 0
<OTHER-ASSETS> 0 0 0 0
<TOTAL-ASSETS> 0 0 0 0
<COMMON> 0 0 0 0
<CAPITAL-SURPLUS-PAID-IN> 0 0 0 0
<RETAINED-EARNINGS> 0 0 0 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0 0 0 0
0 0 0 0
0 0 0 0
<LONG-TERM-DEBT-NET> 0 0 0 0
<SHORT-TERM-NOTES> 0 0 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0 0 0
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0 0
<LEASES-CURRENT> 0 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 0 0 0 0
<TOT-CAPITALIZATION-AND-LIAB> 0 0 0 0
<GROSS-OPERATING-REVENUE> 0 0 0 0
<INCOME-TAX-EXPENSE> 0 0 0 0
<OTHER-OPERATING-EXPENSES> 0 0 0 0
<TOTAL-OPERATING-EXPENSES> 0 0 0 0
<OPERATING-INCOME-LOSS> 0 0 0 0
<OTHER-INCOME-NET> 0 0 0 0
<INCOME-BEFORE-INTEREST-EXPEN> 0 0 0 0
<TOTAL-INTEREST-EXPENSE> 0 0 0 0
<NET-INCOME> 0 0 0 0
0 0 0 0
<EARNINGS-AVAILABLE-FOR-COMM> 0 0 0 0
<COMMON-STOCK-DIVIDENDS> 0 0 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0 0 0
<CASH-FLOW-OPERATIONS> 0 0 0 0
<EPS-PRIMARY> 2.22 2.44 2.29 0.72
<EPS-DILUTED> 2.21 2.44 2.29 0.71
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NEW
JERSEY RESOURCES CORPORATION'S MARCH 31, 1998 FORM 10-Q, INCLUDING THE
CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS,
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF COMMON STOCK EQUITY AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1998 SEP-30-1998 SEP-30-1998
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0 0 0 0
<OTHER-PROPERTY-AND-INVEST> 0 0 0 0
<TOTAL-CURRENT-ASSETS> 0 0 0 0
<TOTAL-DEFERRED-CHARGES> 0 0 0 0
<OTHER-ASSETS> 0 0 0 0
<TOTAL-ASSETS> 0 0 0 0
<COMMON> 0 0 0 0
<CAPITAL-SURPLUS-PAID-IN> 0 0 0 0
<RETAINED-EARNINGS> 0 0 0 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0 0 0 0
0 0 0 0
0 0 0 0
<LONG-TERM-DEBT-NET> 0 0 0 0
<SHORT-TERM-NOTES> 0 0 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0 0 0
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0 0
<LEASES-CURRENT> 0 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 0 0 0 0
<TOT-CAPITALIZATION-AND-LIAB> 0 0 0 0
<GROSS-OPERATING-REVENUE> 0 0 0 0
<INCOME-TAX-EXPENSE> 0 0 0 0
<OTHER-OPERATING-EXPENSES> 0 0 0 0
<TOTAL-OPERATING-EXPENSES> 0 0 0 0
<OPERATING-INCOME-LOSS> 0 0 0 0
<OTHER-INCOME-NET> 0 0 0 0
<INCOME-BEFORE-INTEREST-EXPEN> 0 0 0 0
<TOTAL-INTEREST-EXPENSE> 0 0 0 0
<NET-INCOME> 0 0 0 0
0 0 0 0
<EARNINGS-AVAILABLE-FOR-COMM> 0 0 0 0
<COMMON-STOCK-DIVIDENDS> 0 0 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0 0 0
<CASH-FLOW-OPERATIONS> 0 0 0 0
<EPS-PRIMARY> 2.06 2.31 2.19 0.69
<EPS-DILUTED> 2.05 2.31 2.19 0.69
</TABLE>
