<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 (I.R.S. Employer Identification Number)
of incorporation or organization)
1415 WYCKOFF ROAD, WALL, NEW JERSEY - 07719 732-938-1480
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES: X NO:
The number of shares outstanding of $2.50 par value Common Stock as of August 6,
1998 was 17,808,038.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
(Thousands, except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES ................. $113,432 $121,150 $600,413 $595,118
-------- -------- -------- --------
OPERATING EXPENSES
Gas purchases ..................... 74,089 80,459 404,086 395,004
Operation and maintenance ......... 18,151 18,405 58,221 59,133
Depreciation and amortization ..... 7,069 6,168 21,184 18,480
Energy and other taxes ............ 5,676 7,317 32,709 39,137
State income taxes ................ 289 141 5,274 228
Federal income taxes .............. 403 1,088 19,337 23,059
-------- -------- -------- --------
Total operating expenses ........ 105,677 113,578 540,811 535,041
-------- -------- -------- --------
OPERATING INCOME ................... 7,755 7,572 59,602 60,077
Other income, net .................. 379 348 2,154 507
Interest charges, net .............. 4,843 4,996 14,945 15,418
-------- -------- -------- --------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS .......................... 3,291 2,924 46,811 45,166
Preferred stock dividends .......... 397 398 1,190 1,195
-------- -------- -------- --------
NET INCOME ......................... $ 2,894 $ 2,526 $ 45,621 $ 43,971
======== ======== ======== ========
EARNINGS PER COMMON SHARE
BASIC ..................... $ .16 $ .14 $ 2.56 $ 2.44
======== ======== ======== ========
DILUTED ................... $ .16 $ .14 $ 2.55 $ 2.43
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE ......... $ .41 $ .40 $ 1.23 $ 1.20
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING
BASIC ..................... 17,790 17,957 17,799 18,039
======== ======== ======== ========
DILUTED ................... 17,899 18,025 17,902 18,086
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE> 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1998 1997
-------- --------
(Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................... $ 45,621 $ 43,971
Adjustments to reconcile net income to cash flows
Depreciation and amortization ................... 21,184 18,480
Amortization of deferred charges ................ 617 930
Deferred income taxes ........................... 13,895 5,678
Change in working capital ....................... (58,585) (3,994)
Other, net ...................................... (5,465) (6,756)
-------- --------
Net cash flows from operating activities ......... 17,267 58,309
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from long-term debt ..................... 78,445 --
Proceeds from common stock ....................... 4,240 291
Payments of long-term debt ....................... (38,165) (12,802)
Purchases of treasury stock ...................... (7,789) (6,168)
Payments of common stock dividends ............... (21,770) (21,537)
Net change in short-term debt .................... (5,200) (1,600)
-------- --------
Net cash flows from (used in) financing
activities .................................. 9,761 (41,816)
-------- --------
CASH FLOWS USED IN FROM INVESTING ACTIVITIES
Expenditures for
Utility plant .................................. (28,029) (32,426)
Real estate properties ......................... (1,648) (696)
Equity investments and other ................... (11,488) (1,430)
Cost of removal ................................ (2,260) (2,924)
Proceeds from asset sales ........................ 15,600 16,118
-------- --------
Net cash flows used in investing activities ...... (27,825) (21,358)
-------- --------
Net change in cash and temporary investments ..... (797) (4,865)
Cash and temporary investments at September 30 ... 5,467 10,808
-------- --------
Cash and temporary investments at June 30 ........ $ 4,670 $ 5,943
======== ========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables ...................................... $ (8,020) $(26,452)
Construction Fund ................................ (16,000) --
Inventories ...................................... (5,021) 27,205
Deferred gas costs ............................... 8,967 955
Purchased gas .................................... (15,759) 9,728
Prepaid and accrued taxes, net ................... (1,563) 10,482
Customers' credit balances and deposits .......... (8,982) (17,102)
Accounts payable ................................. (4,256) (8,463)
Other, net ....................................... (7,951) (347)
-------- --------
Total ............................................ $(58,585) $ (3,994)
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized) ........... $ 15,770 $ 16,603
Income taxes .................................... $ 6,163 $ 7,558
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30, JUNE 30,
1998 1997 1997
(unaudited) (unaudited)
--------- --------- ---------
(Thousands)
<S> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Utility plant ........................... $ 880,224 $ 855,375 $ 841,543
Real estate properties .................. 24,528 22,897 22,772
--------- --------- ---------
904,752 878,272 864,315
Accumulated depreciation and
amortization .......................... (235,089) (218,912) (213,207)
--------- --------- ---------
Property, plant and equipment, net ..... 669,663 659,360 651,108
--------- --------- ---------
CURRENT ASSETS
Cash and temporary investments .......... 4,670 5,467 5,943
Construction fund ....................... 16,000 -- 6,500
Customer accounts receivable ............ 50,719 45,900 60,550
Unbilled revenues ....................... 8,213 3,998 1,961
Allowance for doubtful accounts ......... (2,541) (1,527) (2,153)
Gas in storage, at average cost ......... 40,422 34,152 13,731
Materials and supplies, at average cost . 4,196 5,445 5,840
Deferred gas costs ...................... 14,038 15,070 19,523
Prepaid state taxes ..................... 11,926 12,089 15,041
Asset held for sale, net ................ -- 13,386 13,475
Other ................................... 7,872 6,377 6,369
--------- --------- ---------
Total current assets ................... 155,515 140,357 146,780
--------- --------- ---------
DEFERRED CHARGES AND OTHER
Equity investments .................... 9,087 7,086 6,921
Regulatory assets ..................... 39,234 38,635 38,357
Long-term deferred gas costs .......... 11,687 19,622 --
Other ................................. 34,599 14,001 11,454
--------- --------- ---------
Total deferred charges and other .... 94,607 79,344 56,732
--------- --------- ---------
Total assets ...................... $ 919,785 $ 879,061 $ 854,620
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30, JUNE 30,
1998 1997 1997
(unaudited) (unaudited)
-------- -------- --------
(Thousands)
<S> <C> <C> <C>
CAPITALIZATION
Common stock equity ................... $301,540 $278,436 $291,419
Redeemable preferred stock ............ 20,640 20,760 20,760
Long-term debt ........................ 331,735 291,407 291,977
-------- -------- --------
Total capitalization ................. 653,915 590,603 604,156
-------- -------- --------
CURRENT LIABILITIES
Current maturities of long-term debt .. 137 138 137
Short-term debt ....................... 42,800 48,000 33,400
Purchased gas ......................... 42,120 57,879 43,366
Accounts payable and other ............ 24,376 28,632 23,612
Dividends payable ..................... 7,305 7,161 7,174
Accrued taxes ........................ 10,826 5,781 15,258
Customers' credit balances
and deposits ........................ 4,544 13,526 6,743
-------- -------- --------
Total current liabilities ............ 132,108 161,117 129,690
-------- -------- --------
DEFERRED CREDITS
Deferred income taxes ................. 70,625 63,501 57,688
Deferred investment tax credits ....... 10,702 10,934 11,019
Deferred revenue ...................... 19,669 20,551 20,859
Other ................................. 32,766 32,355 31,208
-------- -------- --------
Total deferred credits ............... 133,762 127,341 120,774
-------- -------- --------
Total capitalization and
liabilities ........................ $919,785 $879,061 $854,620
======== ======== ========
</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 (NJNR). The
Company accounted for this segment as a discontinued operation and in fiscal
1995 recorded an after-tax charge of $8.7 million, or $.49 per share. This
charge was based on estimates of the anticipated loss from operations until the
assets were sold, the estimated loss on the sale of the remaining reserves and
other costs related to the closing of its offices in Dallas and Tulsa.
In 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.
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 109,191 and 68,025 for the three months
ended June 30, 1998 and 1997, respectively, and 102,368 and 40,965 for the nine
months ended June 30, 1998 and 1997, respectively. The numerator for both the
basic and diluted calculation was net income. The impact was a one-cent dilutive
5
<PAGE> 7
effect for the nine months ended June 30, 1998 and 1997 and no impact for the
three months ended June 30, 1998 and 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 statements 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. In June 1998, the FASB
issued SFAS No. 133 "Accounting for Derivative Investments and Hedging
Activities." This statement must be adopted for the quarter ended December 31,
1999. The Company is currently evaluating the effects of SFAS No. 133 on its
financial condition and results of operations, which will vary based on the
Company's use of derivative instruments at the time of adoption.
5. Capitalized Interest
The Company's capitalized interest totaled $163,000 and $242,000 for
the three months ended June 30, 1998 and 1997, respectively. Capitalized
interest totaled $539,000 and $971,000 during the nine months ended June 30,
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.
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.
6
<PAGE> 8
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 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
7
<PAGE> 9
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. Various
The Company is party to various other claims, legal actions and
complaints arising in the ordinary course of business. In management's opinion,
the ultimate disposition of these matters will not have a material adverse
effect on its financial condition or results of operations.
7. State of New Jersey Tax Reform
In July 1997, legislation was signed that reformed New Jersey's taxes
affecting energy companies. The legislation repealed the long-standing utility
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
became 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 issued its final order in July 1998 directing small
changes to the interim rates effective January 1, 1999. 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 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 EDA Bonds were
deposited into a project construction fund. 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 June 30, 1998 there were 17,771,807 shares of common stock
outstanding and the book value per share was $16.97.
Certain reclassifications have been made of previously reported amounts
to conform with current year classifications.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1998
A. RESULTS OF OPERATIONS
Consolidated net income for the quarter ended June 30, 1998 increased
by 15% to $2.9 million, compared with $2.5 million for the same period last
year. Basic and diluted earnings per share (EPS) increased by 14% to $.16,
compared with $.14 last year.
Consolidated net income for the nine months ended June 30, 1998
increased by 4% to $45.6 million, compared with $44 million for the same period
last year. Basic EPS increased 5% to $2.56, compared with $2.44 last year.
Diluted EPS also increased 5% to $2.55, compared with $2.43 last year. The
increase in consolidated earnings was primarily attributed to continued
profitable customer growth at the Company's principal subsidiary, NJNG, cost
control efforts 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 Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
------- ------- -------- --------
(Thousands)
<S> <C> <C> <C> <C>
Gross margin
Residential and commercial ............... $26,887 $25,324 $134,710 $131,160
Firm transportation ...................... 2,229 3,525 14,113 12,343
Interruptible ............................ 145 316 463 820
Off-system and capacity release .......... 960 718 4,022 4,640
------- ------- -------- --------
Total gross margin ......................... $30,221 $29,883 $153,308 $148,963
======= ======= ======== ========
Appliance service revenues ................. $ 1,583 $ 1,798 $ 7,103 $ 6,825
======= ======= ======== ========
Operating income before federal income
taxes .................................... $ 6,067 $ 7,322 $ 76,476 $ 79,068
======= ======= ======== ========
Net income ................................. $ 1,817 $ 1,880 $ 43,452 $ 42,340
======= ======= ======== ========
</TABLE>
Gross Margin
As discussed in Note 7 of the consolidated financial statements,
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 and federal accounts while TEFA is calculated on a
per-therm basis and excludes sales to other utilities and off-system sales.
Prior 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.
9
<PAGE> 11
The comparison of gross margin between periods will be impacted by the
state tax changes 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 $1.6 million, or
6%, and $3.6 million, or 3%, for the three and nine months ended June 30, 1998,
respectively, compared with the same periods last year. These increases were due
to the impact of 12,652 customer additions during the twelve months ended June
30, 1998 and the aforementioned changes in state taxes which more than offset
lower therm sales. Firm therm sales for the nine months decreased by 8% compared
with last year due to 11% warmer weather, and the impact of residential,
commercial and industrial customers switching to firm transportation service, as
described below.
The weather for the nine months ended June 30, 1998 was 11% 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 $11.6
million of gross margin was accrued for future collection from customers.
Firm Transportation
Gross margin from firm transportation customers decreased by $1.3
million, or 37% for the three months ended June 30, 1998 compared with the same
period last year, primarily due to the recording of imbalance volumes with
marketers. Gross margin from firm transportation customers increased by $1.8
million, or 14%, for the nine months ended June 30, 1998, compared with the
same periods last year, primarily due to increased sales. Transportation sales
increased to 5.6 billion cubic feet (Bcf) from 4.8 Bcf for the nine months
ended June 30, 1998 and 1997, respectively. At June 30, 1998 and 1997, NJNG
provided firm transportation service to 11,823 and 2,442 residential,
commercial and industrial customers, respectively. NJNG's total gross margin is
not negatively impacted by customers who utilize its firm transportation
service and purchase their gas from another supplier, as NJNG's tariffs are
designed such that no profit is earned on the commodity portion of sales to
firm customers, and all customers who do purchase gas from another supplier
continue to utilize NJNG for transportation.
Interruptible
NJNG services 49 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 nine months ended June 30, 1998 and 1997, 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 when the gas is not needed for system requirements. 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
10
<PAGE> 12
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 11.8 Bcf and generated $414,000 of
gross margin and 48.1 Bcf and $2.3 million of gross margin in the three and nine
months ended June 30, 1998, respectively, compared with 9.4 Bcf and $178,000 of
gross margin and 36.4 Bcf and $2.7 million gross margin in the respective
periods last year. The capacity release program generated gross margin of
$546,000 and $1.7 million in the three and nine months ended June 30, 1998,
compared with $540,000 and $1.9 million in the comparable periods last year. The
decreases were due primarily to the warmer weather which resulted in lower
margins per therm.
Operating Income Before Federal Income Taxes and Net Income
Operating income before federal income taxes decreased by $1.3 million,
or 17%, and net income decreased by $63,000, or 3%, for the three months ended
June 30, 1998, compared with the same period last year due to warmer weather and
increased depreciation expense due primarily to the new customer information and
billing system (CIS) which was placed in service in August 1997.
Operating income before federal income taxes decreased by $2.6 million,
or 3% for the nine months ended June 30, 1998, compared with the same period
last year, primarily due to the impact of warmer weather and higher depreciation
expense which more than offset customer growth, increased appliance service
revenues and lower operation and maintenance expense. Net income increased by
$1.1 million, or 3%, for the nine months ended June 30, 1998, compared with the
same period last year, primarily due to lower interest expense and lower federal
income taxes which more than offset the lower operating income before
federal income taxes.
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 consists primarily of its equity investment in the Iroquois Gas
Transmission System, L.P., are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- -----------------------
1998 1997 1998 1997
------- ------- -------- --------
(Thousands)
<S> <C> <C> <C> <C>
Revenues $25,502 $30,108 $130,797 $109,956
======= ======= ======== ========
Operating income before federal income taxes $ 1,588 $ 1,256 $ 2,923 $ 3,945
======= ======= ======== ========
Net income $ 820 $ 775 $ 1,477 $ 2,131
======= ======= ======== ========
</TABLE>
Energy Holdings' operating income before federal income taxes and net
income increased for the three months ended June 30, 1998, compared to the same
period last year, reflecting primarily higher margins from daily gas sales and
fuel management agreements. Operating income before federal income taxes and
net income decreased for the nine months ended June 30, 1998, reflecting higher
gas costs on Natural Energy's retail marketing operation, which more than
offset higher margin from its fuel and capacity management services.
Energy Holdings' gas under management totaled 14.6 Bcf and 61.6 Bcf,
and retail gas sales totaled 1.4 Bcf and 5.7 Bcf for the three and nine months
ended June 30, 1998, respectively, compared with gas under management of 19.8
Bcf and 50.4 Bcf, and retail gas sales of 1.9 Bcf and 7.7 Bcf in the comparable
periods last year.
11
<PAGE> 13
NJR DEVELOPMENT OPERATIONS
NJR Development's consolidated financial results, which consist solely
of CR&R's operations, are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
----- ----- ------ -------
(Thousands)
<S> <C> <C> <C> <C>
Revenues $ 190 $ 708 $ 557 $ 2,420
===== ===== ====== =======
Other income, net $ 113 $ 113 $1,520 $ 285
===== ===== ====== =======
Net (loss) income $ (13) $ (57) $ 511 $ (207)
===== ===== ====== =======
</TABLE>
In October 1997, CR&R sold a 280,000 square-foot office building for
$15.6 million. Included in Other income, net for the nine months ended June 30,
1998, is an after-tax gain of $900,000 related to this transaction.
In December 1995, CR&R sold a 157,000 square foot, office building for
$31.85 million, in a sale-leaseback transaction. CR&R's pre-tax gain on this
transaction was approximately $17.8 million which is included in deferred
revenue on the consolidated balance sheet and is being amortized to Other
income, net 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.
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 currently believes that the additional investment
needed for its computer systems to be fully Year 2000 compliant will not have a
material adverse affect on either its financial condition or results of
operations.
B. LIQUIDITY AND CAPITAL RESOURCES
In order to meet the working capital and external debt financing
requirements of its unregulated subsidiaries, as well as its own working capital
needs, the Company maintains committed credit facilities with a number of banks
totaling $135 million and has a $10 million credit facility available on an
offering basis. At June 30, 1998, $62.4 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.
12
<PAGE> 14
NJNG
The seasonal nature of NJNG's operations creates large short-term cash
requirements, primarily to finance gas purchases and customer accounts
receivable. NJNG obtains working capital for these requirements, as well as for
the temporary financing of construction expenditures, sinking fund needs and
GRFT payments, through the issuance of commercial paper and short-term bank
loans. To support the issuance of commercial paper, NJNG maintains committed
credit facilities totaling $90 million with a number of commercial banks and has
an additional $10 million in lines of credit available on an offering basis.
Remaining fiscal 1998 construction expenditures are estimated at $16
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth general system renewals and
improvements, and technology systems. NJNG expects to finance these
expenditures through internal generation and the issuance of short-term debt.
ENERGY HOLDINGS
Energy Holdings invested $2 million in May 1998 for an equity interest
in Capstone Turbine Corporation. Capstone is a developer of energy efficient
gas-fired microturbine units which produce electricity. Energy Holdings does not
currently expect any significant capital expenditures or external financing
requirements during the remainder of fiscal 1998.
NJR DEVELOPMENT
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. CR&R does not currently expect
any significant capital expenditures or external financing requirements during
the remainder of fiscal 1998.
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.
13
<PAGE> 15
While the Company periodically reassesses material trends and
uncertainties affecting the Company's results of operations and financial
condition in connection with its preparation of management's discussion and
analysis of results of operations and financial condition contained in its
quarterly and annual reports, the Company does not, by including this statement,
assume any obligation to review or revise any particular forward-looking
statement referenced herein in light of future events
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Information required by this Item is incorporated herein by reference
to Part I, Item 1, Note 6 - Legal and Regulatory Proceedings.
ITEM 2. Changes in Securities and Use of Proceeds
(c) Unregistered Sales
At the Company's 1996 Annual Meeting of Stockholders, The Company's
Long-Term Incentive Compensation Plan (the "Plan") was amended to include all
full-time employees of the Company and its subsidiaries as eligible Plan
participants. In the past, Company common stock offered pursuant to the terms of
the Plan was not registered with the SEC due to the fact that the Plan
participants were accredited investors and, accordingly, sales of stock under
the Plan were exempt from registration requirements. However, due to the 1996
amendment to the Plan, some of the current Plan participants are not accredited
investors. Prior to the Company's recent filing of a Registration Statement on
Form S-8 with respect to shares of common stock to be offered under the Plan,
the Company inadvertently engaged in two nonexempt unregistered sales of common
stock pursuant to the exercise of stock options under the Plan. Specifically, 45
shares of common stock were acquired on December 11, 1997 for $29.50 and 48
shares of common stock were acquired on April 7, 1998 for $29.50. On July 14,
1998, the Company filed a Registration Statement on Form S-8 (Reg. No.
333-59013) with respect to shares of common stock to be offered under the Plan
and, accordingly, there will be no further unregistered sales under the Plan.
ITEM 5. OTHER INFORMATION
The Securities and Exchange Commission (the Commission) recently
amended certain rules under the Securities Exchange Act of 1934, as amended,
affecting the use of discretionary proxy voting authority with respect to
stockholder proposals submitted to the Company for consideration at the
Company's next annual meeting.
Pursuant to the Company's bylaws and amended Rules 14a-5(e)(2) and
14a-4(c)(1), stockholder proposals submitted to the Company outside the
processes of Rule 14a-8 (i.e., the procedures for placing a stockholder's
proposal in the Company's proxy materials) with respect to the Company's 1999
annual meeting of stockholders will be considered untimely if not received by
the Company 75 days prior to the first anniversary of the preceding year's
meeting, that is November 13, 1998. If the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the stockholder, to be timely, must be delivered not
later than the 75th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is made.
Accordingly, the proxy with respect to the Company's 1999 annual meeting of
shareholders will confer discretionary authority to vote on any stockholder
proposals received by the Company after such date.
14
<PAGE> 16
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27-1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1998.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW JERSEY RESOURCES CORPORATION
Date: August 13, 1998 /s/Glenn C. Lockwood
--------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW JERSEY
RESOURCES CORPORATION'S JUNE 30, 1998 FORM 10-Q, INCLUDING THE CONSOLIDATED
STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS AND CONSOLIDATED
BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 647,775
<OTHER-PROPERTY-AND-INVEST> 21,888
<TOTAL-CURRENT-ASSETS> 155,515
<TOTAL-DEFERRED-CHARGES> 94,607
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 919,785
<COMMON> 45,664
<CAPITAL-SURPLUS-PAID-IN> 201,419
<RETAINED-EARNINGS> 54,457
<TOTAL-COMMON-STOCKHOLDERS-EQ> 301,540
20,000
640
<LONG-TERM-DEBT-NET> 300,245
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 42,800
<LONG-TERM-DEBT-CURRENT-PORT> 137
0
<CAPITAL-LEASE-OBLIGATIONS> 31,490
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 222,933
<TOT-CAPITALIZATION-AND-LIAB> 919,785
<GROSS-OPERATING-REVENUE> 600,413
<INCOME-TAX-EXPENSE> 24,611
<OTHER-OPERATING-EXPENSES> 516,200
<TOTAL-OPERATING-EXPENSES> 540,811
<OPERATING-INCOME-LOSS> 59,602
<OTHER-INCOME-NET> 2,154
<INCOME-BEFORE-INTEREST-EXPEN> 61,756
<TOTAL-INTEREST-EXPENSE> 14,945
<NET-INCOME> 46,811
1,190
<EARNINGS-AVAILABLE-FOR-COMM> 45,621
<COMMON-STOCK-DIVIDENDS> 21,770
<TOTAL-INTEREST-ON-BONDS> 13,711
<CASH-FLOW-OPERATIONS> 17,267
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.55
</TABLE>
