-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ko+YSWK7M3v0ZQ5LYDsWHcm2tGdA9zoPl7TDGKqEXvnQt6NKp2qlSBB7stzcC5jF r3oivwaSsJ5HvzY8Og8Syw== 0000950110-96-000870.txt : 19960813 0000950110-96-000870.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950110-96-000870 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW JERSEY RESOURCES CORP CENTRAL INDEX KEY: 0000356309 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 222376465 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08359 FILM NUMBER: 96608971 BUSINESS ADDRESS: STREET 1: 1415 WYCKOFF ROAD STREET 2: PO BOX 1468 CITY: WALL STATE: NJ ZIP: 07719 BUSINESS PHONE: 9089381494 MAIL ADDRESS: STREET 1: 1350 CAMPUS PKWY STREET 2: P O BOX 1468 CITY: WALL STATE: NJ ZIP: 07719 10-Q 1 QUARTERLY REPORT 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, 1996 Commission file number 1-8359 NEW JERSEY RESOURCES CORPORATION (Exact name of registrant as specified in its charter) NEW JERSEY 22-2376465 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 1415 WYCKOFF ROAD, WALL, NEW JERSEY - 07719 908-938-1480 (Address of principal executive offices) (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: X NO: The number of shares outstanding of $2.50 par value Common Stock as of August 7, 1996, was 18,117,156. PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 1996 1995 1996 1995 ------- ------- -------- ------- (Thousands, except per share data) OPERATING REVENUES ................................ $94,456 $74,444 $488,112 $400,738 ------- ------- -------- -------- OPERATING EXPENSES Gas purchases .................................... 54,933 40,446 292,762 221,772 Operation and maintenance ........................ 17,003 14,539 53,743 44,081 Depreciation and amortization .................... 5,779 5,709 17,432 17,132 Gross receipts tax, etc........................... 8,067 7,012 45,342 41,288 Federal income taxes ............................. 907 50 20,553 19,122 ------- ------- -------- -------- Total operating expenses .................... 86,689 67,756 429,832 343,395 ------- ------- -------- -------- OPERATING INCOME .................................. 7,767 6,688 58,280 57,343 Other income, net ................................. 174 658 311 517 Interest charges, net ............................. 5,312 5,734 15,799 18,334 ------- ------- -------- -------- INCOME BEFORE PREFERRED STOCK DIVIDENDS ........... 2,629 1,612 42,792 39,526 Preferred stock dividends ......................... 400 403 1,200 1,229 ------- ------- -------- -------- INCOME FROM CONTINUING OPERATIONS ................. 2,229 1,209 41,592 38,297 Loss from discontinued operations, net ............ -- (24) -- (378) Loss on disposal, including provision for estimated operating losses during phase-out period, less applicable income tax benefits of $4,665 ........ -- (8,665) -- (8,665) ------- ------- -------- -------- NET INCOME (LOSS) ................................. $ 2,229 $(7,480) $ 41,592 $ 29,254 ======= ======= ======== ======== EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS ............................. $.12 $.07 $2.31 $2.18 Loss per common share from discontinued operations -- (.49) -- (.51) ------- ------- -------- -------- EARNINGS (LOSS) PER COMMON SHARE .................. $.12 $(.42) $2.31 $1.67 ==== ===== ===== ===== DIVIDENDS PER COMMON SHARE ........................ $.39 $.38 $1.16 $1.14 ==== ===== ===== ===== AVERAGE SHARES OUTSTANDING ........................ 18,095 17,672 18,002 17,547 ======= ======= ======= =======
See Notes to Consolidated Financial Statements -1- CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED JUNE 30, ----------------------- 1996 1995 ------ ------ (Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income .......................................................... $ 41,592 $ 29,254 Adjustments to reconcile net income to cash flows Depreciation and amortization....................................... 17,432 20,279 Loss from disposal of discontinued operations....................... -- 8,665 Amortization of deferred charges.................................... 2,923 1,520 Deferred income taxes............................................... (4,353) 2,230 Change in working capital........................................... 2,775 30,168 Other, net.......................................................... (4,376) 1,603 -------- -------- Net cash flows from operating activities.............................. 55,993 93,719 -------- -------- CASH FLOWS USED IN FINANCING ACTIVITIES Proceeds from long-term debt......................................... 20,000 25,000 Proceeds from common stock........................................... 6,733 8,360 Payments of long-term debt and preferred stock ...................... (81,688) (6,493) Payments of common stock dividends................................... (20,602) (19,883) Net change in short-term debt........................................ (23,200) (50,600) -------- -------- Net cash flows used in financing activities........................... (98,757) (43,616) -------- -------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Expenditures for Utility plant....................................................... (33,110) (38,957) Real estate properties.............................................. (4,883) (2,404) Oil and gas properties.............................................. -- (1,195) Equity investments.................................................. (1,972) (4,507) Cost of removal .................................................... (2,979) (3,378) Proceeds from asset sales............................................ 98,619 -- -------- -------- Net cash flows from (used in) investing activities.................... 55,675 (50,441) -------- -------- Net change in cash and temporary investments.......................... 12,911 (338) Cash and temporary investments at September 30........................ 1,065 1,951 -------- -------- Cash and temporary investments at June 30............................. $13,976 $ 1,613 ======== ======== CHANGES IN COMPONENTS OF WORKING CAPITAL Receivables.......................................................... $(32,534) $(10,407) Inventories.......................................................... 6,335 18,904 Deferred gas costs................................................... 11,030 25,039 Purchased gas........................................................ (2,088) 5,269 Prepaid and accrued taxes, net....................................... 5,640 3,439 Customers' credit balances and deposits.............................. 2,801 (4,888) Other, net........................................................... 11,591 (7,188) -------- -------- Total................................................................. $ 2,775 $ 30,168 ======== ======== Cash paid for Interest (net of amounts capitalized)................................ $15,053 $ 18,948 Income taxes......................................................... $19,535 $ 4,805 Non cash investing and financing activities Capital lease........................................................ $31,850 --
See Notes to Consolidated Financial Statements -2- CONSOLIDATED BALANCE SHEETS ASSETS
JUNE 30, SEPTEMBER 30, JUNE 30, 1996 1995 1995 ---------- ------------ ---------- (unaudited) (unaudited) (Thousands) PROPERTY, PLANT AND EQUIPMENT Utility plant ............................ $ 798,357 $ 736,434 $ 728,805 Real estate properties ................... 41,312 49,509 106,715 --------- --------- --------- 839,669 785,943 835,520 Accumulated depreciation and amortization. (198,176) (189,808) (193,941) --------- --------- --------- Property, plant and equipment, net ...... 641,493 596,135 641,579 --------- --------- --------- CURRENT ASSETS Cash and temporary investments ........... 13,976 1,065 1,613 Construction fund ........................ 12,500 12,500 -- Customer accounts receivable ............. 54,409 20,196 31,868 Unbilled revenues ........................ 9,205 9,768 8,543 Allowance for doubtful accounts .......... (1,979) (422) (1,175) Gas in storage, at average cost .......... 20,670 26,703 14,289 Materials and supplies, at average cost .. 8,141 8,443 7,433 Deferred gas costs ....................... 6,068 17,098 3,983 Prepaid state taxes ...................... 19,495 18,041 21,038 Assets held for sale, net ................ -- 66,997 14,936 Other .................................... 5,899 5,512 5,857 --------- --------- --------- Total current assets .................... 148,384 185,901 108,385 --------- --------- --------- DEFERRED CHARGES AND OTHER Equity investments ...................... 12,570 10,709 10,440 Regulatory assets ....................... 36,101 22,934 22,638 Other ................................... 9,158 10,685 10,062 --------- --------- --------- Total deferred charges and other ...... 57,829 44,328 43,140 --------- --------- --------- Total assets ....................... $ 847,706 $ 826,364 $ 793,104 ========= ========= =========
See Notes to Consolidated Financial Statements -3- CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES JUNE 30, SEPTEMBER 30, JUNE 30, 1996 1995 1995 ----------- ------------ ----------- (unaudited) (unaudited) (Thousands) CAPITALIZATION Common stock equity ..................... $286,362 $258,919 $267,682 Redeemable preferred stock .............. 20,880 21,004 21,015 Long-term debt .......................... 303,513 352,227 322,327 -------- -------- -------- Total capitalization ................... 610,755 632,150 611,024 -------- -------- -------- CURRENT LIABILITIES Current maturities of long-term debt .... 1,364 2,364 3,564 Short-term debt ......................... 13,200 16,400 12,900 Purchased gas ........................... 27,016 29,104 20,219 Accounts payable and other .............. 46,095 33,817 32,870 Accrued taxes ........................... 15,604 8,510 16,530 Customers' credit balances and deposits . 18,841 16,040 9,592 -------- -------- -------- Total current liabilities .............. 122,120 106,235 95,675 -------- -------- -------- DEFERRED CREDITS Deferred income taxes ................... 47,498 51,851 50,263 Deferred investment tax credits ......... 11,367 11,628 11,730 Deferred revenue ........................ 22,205 3,300 -- Other ................................... 33,761 21,200 24,412 -------- -------- -------- Total deferred credits ................. 114,831 87,979 86,405 -------- -------- -------- Total capitalization and liabilities .. $847,706 $826,364 $793,104 ======== ======== ======== See Notes to Consolidated Financial Statements -4- 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, 1995 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 1995 Annual Report on Form 10-K. In the opinion of management, the information furnished reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results of the interim periods. Because of the seasonal nature of the Company's utility operations and other factors, the results of operations for the interim periods presented are not indicative of the results to be expected for the entire year. 2. Principles of Consolidation The consolidated financial statements include the accounts of New Jersey Resources Corporation and its subsidiaries -- New Jersey Natural Gas Company (NJNG), NJR Energy Services Corporation (Energy Services) and NJR Development Company (NJR Development). New Jersey Natural Energy Company (Natural Energy) and NJR Energy Corporation (NJR Energy) are wholly owned subsidiaries of Energy Services. Commercial Realty & Resources Corp. (CR&R), Paradigm Power, Inc. (PPI) and NJR Computer Technologies, Inc. are wholly owned subsidiaries of NJR Development. Significant intercompany accounts and transactions have been eliminated. 3. Discontinued Operations In May 1995, the Company adopted a plan to exit the oil and natural gas production business and pursue the sale of the reserves and related assets of NJR Energy and its subsidiary, New Jersey Natural Resources Company (NJNR). The Company 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 are sold, the estimated loss on the sale of the remaining reserves and other costs related to the closing of its offices in Dallas and Tulsa. In December 1995 and January 1996 NJR Energy sold its interests in all of its oil and gas properties in three transactions for $19.4 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. Operating revenues for the discontinued operations were $3.9 million and $9.8 million for the nine months ended June 30, 1996 and 1995, respectively. -5- 4. New Accounting Standard In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing this review an undiscounted operating cash flow before interest test is used and any resulting impairment required would be measured based on the fair value of the asset. The Company is evaluating the requirements of SFAS 121 which must be adopted by fiscal 1997 and currently believes that it will not have a material impact on its consolidated financial condition or results of operations. In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), which establishes accounting and disclosure requirements using a fair value based method of accounting for stock based employee compensation plans. Under SFAS 123 the Company may either adopt the new fair value based accounting method or continue the intrinsic value based method established in Accounting Principles Board Opinion 25 and provide pro forma disclosures of net income and earnings per share as if the accounting provisions of SFAS 123 had been adopted. The Company plans to adopt only the disclosure requirements of SFAS 123, which must be adopted by fiscal 1997. Therefore, such adoption will have no effect on the Company's consolidated financial condition or results of operations. 5. Capitalized Interest Capitalized interest and total interest charges for the three and nine months ended June 30, 1996 and 1995, respectively, are as follows: Three Months Ended, Nine Months Ended, June 30, June 30, ----------------- ------------------ 1996 1995 1996 1995 ------ ------ ------ ------ (Thousands) Capitalized Interest ............. $271 $842 $1,139 $1,923 ==== ==== ====== ====== Total Interest Charges ........... $5,246 $6,305 $16,938 $20,281 ====== ====== ======= ======= 6. Legal and Regulatory Proceedings a. Levelized Gas Adjustment Clause (LGA) On July 31, 1996, NJNG filed for a net $8 million, or 2%, increase in its Levelized Gas Adjustment clause (LGA). This LGA filing included updated factors for its Gas Cost Recovery factor (GCR), Weather Normalization Clause (WNC), Remediation Adjustment Clause (RA) and Demand Side Management Adjustment Clause (DSMAC). The GCR factor increased by $21.2 million due to the increase in gas costs resulting primarily from the cold winter weather. This increase is partially offset by a $12 million credit from the WNC, which also reflects the margin impact of 15% colder than normal winter weather. In addition, the Company requested certain modifications to its WNC to update various factors to more appropriately reflect current customers' usage and weather. A decision is expected in the first quarter of fiscal 1997. -6- b. Manufactured Gas Plant (MGP) Sites NJNG has identified eleven former manufactured gas plant (MGP) sites, dating back to the late 1800's and early 1900's, which it acquired from predecessors, and which contain contaminated residues from former gas manufacturing operations. All of the gas manufacturing operations ceased at these sites by the mid-1950's, and in some cases had been discontinued many years earlier, and all of the old gas manufacturing facilities were subsequently dismantled by NJNG or its predecessors. NJNG is currently involved in administrative proceedings with the New Jersey Department of Environmental Protection (the NJDEP) and local government authorities with respect to the MGP 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 Board of Public Utilities (BPU), NJNG is recovering its expenditures incurred through June 1995 over a seven-year period. Costs incurred subsequent to June 30, 1995 will be reviewed annually and, subject to BPU approval, recovered over seven-year periods. As of December 31, 1995, NJNG had estimated that it would incur additional expenditures of $14 million over the next five years for further investigation and remedial action at these sites and, accordingly reflected this amount in both Regulatory assets and Other deferred credits. NJNG, with the assistance of an outside consulting firm, has recently completed an environmental review of the sites, including a review of its potential liability for investigation and remedial action for periods significantly beyond the five year period. On the basis of such review, NJNG has estimated that, exclusive of insurance recoveries, if any, total future expenditures to remediate and monitor known MGP sites will range from $27.5 million to $60 million. NJNG's estimates of these liabilities are based upon currently available facts, existing technology and presently enacted laws and regulations. Where available information is sufficient to estimate the amount of the liability, it is NJNG's policy to accrue the full amount of such estimate. Where the information is sufficient only to establish a range of probable liability and no point within the range is more likely than the other, it is NJNG's policy to accrue the lower end of the range. Accordingly, in the second quarter of fiscal 1996, NJNG increased its accrued liability and corresponding regulatory asset to $27.5 million. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability to pay of other responsible parties and any insurance recoveries. NJNG will continue to seek recovery of such costs through the Remediation Rider. In March 1995, NJNG filed a complaint in New Jersey Superior Court against various insurance carriers for declaratory judgment and for damages arising from such defendants' breach of their contractual obligations to defend and/or indemnify NJNG against liability for claims and losses (including defense costs) alleged against NJNG relating to environmental contamination at the former MGP sites and other sites. NJNG is seeking (i) a declaration of the rights, duties and liabilities of the parties under various primary and excess liability insurance policies purchased from the defendants by NJNG from 1951 through 1985, and (ii) compensatory and other damages, including costs and fees arising out of defendants' obligations under such insurance policies. There can be no assurance as to the outcome of these proceedings. -7- c. Aberdeen Since June 1993, a total of six complaints have been filed in New Jersey Superior Court against NJNG and its contractor by persons alleging injuries arising out of a natural gas explosion and fire on June 9, 1993, at a residential building in Aberdeen Township, New Jersey. The plaintiffs allege in their respective actions, among other things, that the defendants were negligent or are strictly liable in tort in connection with their maintaining, replacing or servicing natural gas facilities at such building. The plaintiffs separately seek compensatory damages totaling $25.2 million from various plaintiffs. In May 1994, the New Jersey Superior Court ordered that all causes of action relating to the Aberdeen Township incident be consolidated for purposes of discovery. NJNG's liability insurance carriers are participating in the defense of these matters. NJNG is unable to predict the extent to which other claims will be asserted against, or liability imposed on, NJNG. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial condition or results of operations. d. 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. and its affiliated companies (SBA) seeking damages arising from alleged environmental contamination at three sites owned or occupied by SBA. 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. On April 4, 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. Non-hazardous waste may be disposed of by a number of conventional methods, which are being explored by the parties. One of the SBA sites was the subject of a NJDEP Directive and Notice alleging that the tar emulsion/sand and gravel mixture was a contributing factor to the contamination of ground water at a residential community. In June 1995, the NJDEP notified NJNG that it was removing NJNG without prejudice as a respondent to such NJDEP Directive and Notice. e. Bridgeport Rental and Oil Service In January 1992, NJNG was advised of allegations that certain waste oil from its former MGP site in Wildwood, New Jersey may have been sent by a demolition contractor to the Bridgeport Rental and Oil Service site in Logan Township, New Jersey. That site has been designated a Superfund site and is currently the subject of two lawsuits pending in the U.S. District Court in New Jersey. NJNG has notified its insurance carriers and NJNG has agreed to participate in settlement discussions as a non-party litigant. See above, 6a. Manufactured Gas Plant (MGP) Sites, for a description of an action brought by NJNG against various insurance carriers relating to insurance coverage of liability arising out of these sites. NJNG is currently unable to predict the extent, if any, to which it may have cleanup or other liability with respect to this matter, but would seek recovery of any such costs through the ratemaking process. However, no assurance can be given as to the timing or extent of the ultimate recovery of such costs. The Company does not believe that the ultimate resolution of these matters will have a material -8- adverse effect on its consolidated financial condition or results of operations. f. Iroquois NJNR Pipeline Company (Pipeline), a subsidiary of NJR Energy, owns a 2.8% equity interest in the Iroquois Gas Transmission System, L.P. (Iroquois) which has constructed and is operating a 375-mile pipeline from the U.S.-Canadian border in upstate New York to Long Island. In 1992, Iroquois was informed by the U.S. Attorney's Offices for the Northern, Southern and Eastern Districts of New York that an investigation was underway to determine whether Iroquois had committed civil violations of the Federal Clean Water Act and/or its Corps of Engineers permit during construction of the pipeline. In addition, in conjunction with the Environmental Protection Agency, a criminal investigation was initiated by the U.S. Attorney's Office for the Northern District of New York. In December 1993, Iroquois received notification from the Enforcement Staff of the Federal Energy Regulatory Commission Office of the General Counsel (Enforcement) that Enforcement commenced a preliminary, non-public investigation concerning matters related to Iroquois' construction of certain of its pipeline facilities. In addition, in December 1993, Iroquois received a similar communication from the Army Corps of Engineers requesting information regarding permit compliance in connection with certain aspects of the pipeline construction. In October 1995, Iroquois informed its partners that it intended to record a provision in its 1995 financial statements for an estimated liability associated with these proceedings to reflect its current understanding of the probable outcome. Accordingly, the Company recorded a provision of $560,000, or $.03 per share, in its 1995 financial statements to reflect its proportionate share of this probable liability. Iroquois has informed the Company that after extensive discussions with the involved government agencies, Iroquois has entered into a series of settlement agreements to resolve all pending investigations relating to pipeline construction. On May 23, 1996, Iroquois' agent for pipeline construction, Iroquois Pipeline Operating Company (IPOC) entered a plea of guilty to four felony violations of the Clean Water Act in the Northern District of New York. Four former IPOC employees, including two former officers, also entered guilty pleas to Clean Water Act misdemeanors. On the same date, the United States lodged civil consent decrees resolving related civil claims against IPOC in the Northern, Southern and Eastern Districts of New York, and the District of Connecticut. Although not a named defendant, Iroquois signed the plea agreement and consent decrees and is bound by their terms. On May 21, 1996, the Department of Transportation approved a Consent Order and Agreement with IPOC, and on May 23, 1996, the Federal Energy Regulatory Commission approved a Stipulation and Consent Agreement with Iroquois resolving those agencies' investigations relating to pipeline construction. Related to the resolution of the federal investigations, on April 18, 1996, the New York Public Service Commission entered an order terminating its investigation relating to construction and referred the matter to its Office of General Counsel for appropriate action. On May 8, 1996, Iroquois entered a Settlement Agreement with the New York Public Service Commission, the New York State Department of Environmental Conservation, and the New York State Attorney General resolving potential State violations relating to pipeline construction. -9- Under the federal and state settlements, Iroquois and IPOC are paying a total of $22 million in criminal fines, civil penalties, and other payments. In addition, Iroquois and IPOC have agreed to implement remedial and monitoring programs under the supervision of the Army Corps of Engineers, the Department of Transportation, and the Federal Energy Regulatory Commission. The various settlement agreements are contingent upon the entry of the civil consent decrees by the federal district courts in the four federal jurisdictions, following an opportunity for public comment. The Company's proportionate share of the final settlement agreement was substantially reflected in the abovementioned provision recorded in 1995. Pipeline's investment in Iroquois as of June 30, 1996 was $5.7 million. g. Bessie-8 NJNR and others (the Joint Venture, et al.) were named in a complaint filed by the People's Natural Gas Company (People's) before the Pennsylvania Public Utility Commission (PaPUC). People's sought a determination that the Joint Venture, et al. were a public utility subject to the jurisdiction of the PaPUC and an order prohibiting natural gas service by the Joint Venture, et.al. until proper PaPUC authorization was obtained. In April 1988, an Administrative Law Judge (ALJ) issued an initial decision denying and dismissing People's complaint, "because the demonstrated activities of the Bessie-8 joint venture are not within the jurisdiction of the PaPUC to regulate". An initial decision is subject to adoption, modification or rejection by the full PaPUC. In April 1989, alternative motions to adopt the ALJ's initial decision or to subject the Joint Venture, et al. to the jurisdiction of the PaPUC failed due to 2-2 tie votes. In October 1992, the PaPUC, on its own initiative and without notice to any of the parties, determined in a 3-0 vote that the Joint Venture, et al. are a "public utility" under the Pennsylvania Public Utility Code and granted People's exceptions to the ALJ's April 1988 initial decision. In December 1992, the PaPUC issued a Final Order requiring the Joint Venture, et al. to apply for a certificate of public convenience or to cease and desist from providing service through the pipeline. In January 1993, the Joint Venture, et al. filed two separate Petitions for Review with the Commonwealth Court of Pennsylvania. The first Petition for Review challenged the lawfulness of the PaPUC's action in October 1992 in light of the April 1989 tie vote. On appeal of the Commonwealth Court's order reversing the PaPUC, the Pennsylvania Supreme Court held that the April 1989 tie vote did not preclude the PaPUC from taking its October 1992 vote. The second Petition for Review challenged the merits of the PaPUC's determination that the Joint Venture, et al. are a "public utility" under the Pennsylvania Public Utility Code. In July 1996, a three-judge panel of the Commonwealth Court, in a 2-1 decision, affirmed the PaPUC's determination that the Joint Venture, et al. were a "public utility" under Pennsylvania law. The Joint Venture, et al. filed an application for reargument before the full Commonwealth Court on July 26, 1996, which application is now pending before the court. In September 1993, People's instituted an action in the Court of Common Pleas of Allegheny County against the Joint Venture, et al. by filing a Praecipe for Writ of Summons. The Praecipe for Writ of Summons cannot and does not contain any description of the claim being asserted by People's. It merely tolls the statute of limitations and preserves any claim People's may have against the defendants until resolution of the actions discussed above. This action may concern a claim by People's for losses allegedly sustained as a result of the activities of the Joint Venture, et al. However, there has been no activity in this action and the nature of -10- the action has not yet been determined. NJNR is unable to predict the outcome of these matters. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial condition or results of operations. In 1994, the Company wrote-off its $1 million investment in the Bessie-8 pipeline. h. Securities and Exchange Commission (SEC) In October 1995, the SEC issued an Order Directing Private Investigation and Designating Officers to Take Testimony in connection with certain transactions engaged in by subsidiaries of the Company in early 1992. An SEC investigation is a fact-finding inquiry and not an adversarial proceeding. No adversarial proceedings have been commenced by the SEC. The Company is cooperating with the Staff of the SEC in its investigation. i. Long Branch Pier In August 1988 and in 1989, NJNG and an electric utility were named defendants in civil actions in New Jersey Superior Court commenced by the owners of several businesses and stores destroyed in a fire at the Long Branch Amusement Pier (the Pier) in New Jersey, which actions were subsequently consolidated. The plaintiffs allege, among other things, that NJNG had lines beneath a boardwalk which, the plaintiffs assert, reacted with faulty electric cables to cause the fire that damaged the Pier. The several plaintiffs assert compensatory damages against the defendants in an aggregate amount of approximately $35 million. Pre-trial settlement conferences were unsuccessful and a trial on the issues of liability commenced in October 1995. In January 1996, after two weeks of jury deliberations, the court declared a mistrial. Subsequently thereto, the Company and the electric utility have settled two of the complaints. A new trial date for the remaining complaints has been scheduled for September 3, 1996. NJNG is vigorously defending these matters and its liability insurance carriers are participating in its defense. NJNG is unable to predict the outcome of such matters but does not believe that their ultimate resolution will have a material adverse effect on its consolidated financial condition or results of operations. j. Various The Company is party to various claims, legal actions and complaints arising in the ordinary course of business. In management's opinion, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial condition or results of operations. 7. Other At June 30, 1996, there were 18,112,254 shares of common stock outstanding and the book value per share was $15.81. Certain reclassifications have been made of previously reported amounts to conform with current year classifications. -11- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED JUNE 30, 1996 A. RESULTS OF OPERATIONS Consolidated net income from continuing operations for the quarter ended June 30, 1996 increased to $2.2 million, or $.12 per share, compared with $1.2 million, or $.07 per share, for the same period last year. Consolidated net income from continuing operations for the nine months ended June 30, 1996 increased to $41.6 million, or $2.31 per share, compared with $38.3 million, or $2.18 per share, last year. The increases in both periods were due primarily to improved results in the Company's principal subsidiary, NJNG, as well as its unregulated energy services company, NJNE. UTILITY OPERATIONS NJNG's financial results are summarized as follows: Three Months Ended Nine Months Ended June 30, June 30, ---------------- ------------------- 1996 1995 1996 1995 ------- ------- -------- -------- (Thousands) Gross margin Residential and commercial .......... $26,775 $23,142 $131,018 $124,947 Firm transportation ................. 2,522 1,465 9,693 3,304 Interruptible and agency ............ 355 (1,377) 544 248 Off system and capacity release ..... 891 561 3,683 3,390 ------- ------- -------- -------- Total gross margin .................... $30,543 $23,791 $144,938 $131,889 ======= ======= ======== ======== Operating income before income taxes .. $7,414 $3,715 $73,652 $69,767 ====== ====== ======= ======= Net income ............................ $1,996 $(75) $40,001 $37,427 ====== ===== ======= ======= Gross Margin Gross margin, defined as gas revenues less gas costs and gross receipts and franchise taxes (GRFT), provides a more meaningful basis for evaluating utility operations since gas costs and GRFT are passed through to customers and, therefore, have no effect on earnings. Gas costs are charged to operating expenses on the basis of therm sales at the base and Levelized Gas Adjustment (LGA) cost rates included in NJNG's tariff. The LGA clause allows NJNG to recover gas costs that exceed the level reflected in its base rates. GRFT are also calculated on a per-therm basis and exclude sales to other utilities. Residential and Commercial Through fiscal 1992, gross margin from firm (i.e., residential and commercial) customers was weathersensitive. Since fiscal 1993, NJNG's firm gross margin has been subject to 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 10-year average, weather. The accumulated adjustment from one heating season is billed -12- or credited to customers in the subsequent heating season. Gross margin from sales to firm customers increased by $3.6 million, or 16%, and $6.1 million, or 5%, for the three and nine months ended June 30, 1996, respectively, compared with a year ago due primarily to an increase in firm therm sales. Therm sales to firm customers increased to 75 million and 468 million for the three and nine months ended June 30, 1996, respectively, from 65 million and 407 million for the comparable periods last year. The increase in firm therm sales in both periods was due to the weather, which was 17% colder than last year, the impact of 10,727 customer additions during the twelve months ended June 30, 1996, and higher average customer usage. The weather for the nine months ended June 30, 1996 was 15% colder than normal, or the 10-year average. The impact of colder weather on gross margin was partially mitigated by the above-mentioned WNC. Under this rate mechanism, a total of $12 million of gross margin was deferred during the nine months ended, June 30, 1996 for refund to customers in fiscal 1997. Firm Transportation At June 30, 1996, NJNG provided firm transportation service to 1,870 commercial and industrial customers who chose this service. NJNG's gross margin will not be 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. Interruptible and Agency NJNG services 54 customers through interruptible sales and/or transportation tariffs and through May 31, 1995 served certain of these customers through agency sales agreements. 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, 1996 and 1995, they accounted for less than 1% of the total gross margin in each period due to the regulated margin-sharing formulae that govern these sales. Under these formulae, 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. In June 1995, the agency sales function was transferred to Natural Energy. Margin from agency sales agreements totalled $100,000 and $1.6 million for the three and nine months ended June 30, 1995, respectively. 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 capacity 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. Effective January 1994, NJNG retains 20% of the gross margin from off-system sales and capacity release with the balance credited to residential and commercial customers through the LGA Clause. -13- NJNG's off-system sales totaled 43 million therms and generated $76,000 of gross margin and 201 million therms and $1.5 million of gross margin in the three and nine months ended June 30, 1996, respectively, compared with 53 million therms and $63,000 of gross margin and 191 million therms and $1.5 million of gross margin in the comparable periods last year. The decrease in margin per therm for the nine months ended June 30, 1996, was due primarily to increased competition. The capacity release program generated gross margin of $815,000 and $2.2 million in the three and nine months ended June 30, 1996, respectively, compared with $498,000 and $1.8 million in the comparable periods last year. Operating Income Before Income Taxes Operating income before income taxes increased by $3.7 million and $3.9 million for the three and nine months ended June 30, 1996, respectively, as the increase to gross margin more than offset higher operating costs associated primarily with the impact of growth on operations. Net Income Net income increased by $2.1 million and $2.6 million for the three and nine months ended June 30, 1996, respectively, due to higher gross margin in 1996 and the transfer of agency income in June 1995. NON-UTILITY OPERATIONS MARKETING OPERATIONS Natural Energy was formed in 1995 to facilitate the unregulated marketing of natural gas and fuel and capacity management services. In June 1995, the agency sales function of NJNG was transferred to Natural Energy. In August 1995, Natural Energy entered into a three-year fuel management agreement with GPU Service Corporation to manage their gas purchases and interstate pipeline capacity. Natural Energy's retail gas sales totaled 1.6 billion cubic feet (bcf) and 7.5 bcf and gas under management totaled 6.4 bcf and 17.9 bcf for the three and nine months ended June 30, 1996, respectively. Natural Energy's gross margin totaled $2 million and $5.4 million and net income totaled $558,000 and $2.3 million for the three and nine months ended June 30, 1996, respectively. -14- REAL ESTATE OPERATIONS CR&R's financial results are summarized as follows: Three Months Ended Nine Months Ended June 30, June 30, ---------------- ------------------ 1996 1995 1996 1995 ---- ------ ------ ------ (Thousands) Revenues ......................... $624 $3,177 $3,068 $9,379 ==== ====== ====== ====== Operating income (loss) before income taxes ............ $54 $1,563 $(725) $4,158 === ====== ====== ====== Net loss ......................... $(14) $(16) $(1,117) $(97) ===== ===== ======== ===== In November 1995, CR&R sold certain of its real estate assets for $52.65 million in cash. The transaction also included the issuance of options to the buyer to purchase adjacent undeveloped land parcels at various prices. One unsubdivided parcel of land was sold for an 11% interest only note of $5.8 million. Upon receipt of the subdivision, which is expected to be received in the forth fiscal quarter, the $5.8 million note will be cancelled and the land will be transferred back to CR&R. While the subdivision is being sought, CR&R has leased the land back and is performing various site improvements. This portion of the transaction will be accounted for under the cost recovery method. This sale resulted in a pre-tax gain of $160,000, which is included in Other income, net. However, it also required the one-time write-off of unamortized commissions and other costs totaling $1.8 million, which is reflected in operating income before income taxes in the nine months ended June 30, 1996. In December 1995, CR&R sold a 157,000 square foot, Class A, office building, in a sale-leaseback transaction for $31.85 million. CR&R's pre-tax gain on this transaction was approximately $17.7 million which is included in Deferred revenue and is being amortized over 25 years in accordance with generally accepted accounting principles. The primary tenant of the facility, NJNG, will lease the building under a long-term master lease agreement and will continue 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. OIL AND GAS OPERATIONS See Note 3. Discontinued Operations for a discussion of the Company's decision to exit the oil and gas production business and account for this segment as a discontinued operation. NJR Energy's continuing operations consist of its equity investments in the Iroquois Gas Transmission System, L.P. and the Market Hub Partners, L.P. -15- The financial results from continuing operations of NJR Energy are summarized as follows: Three Months Ended Nine Months Ended June 30, June 30, ------------- ---------------- 1996 1995 1996 1995 ---- ---- ------- ---- (Thousands) Revenues ............................... $564 $281 $1,667 $802 ==== ==== ====== ==== Operating income before income taxes ... $506 $110 $1,525 $279 ==== ==== ====== ==== Net income (loss) ...................... $88 $(156) $455 $(636) === ====== ==== ====== The improvement in NJR Energy's financial results is due primarily to lower interest expense as the proceeds from the sales of the reserves were used to reduce outstanding debt. The Company plans to further reduce such debt from the cash flow generated by NJR Energy's equity investments. B. LIQUIDITY AND CAPITAL RESOURCES In order to meet the working capital and external debt financing requirements of its non-regulated subsidiaries, as well as its own working capital needs, the Company maintains committed credit facilities with a number of banks totaling $145 million and has a $10 million credit facility available on an offering basis. At June 30, 1996, $45 million was outstanding under these agreements. NJNG issues short and long term debt based upon its own financial profile. The Company generally meets the common equity requirements of each subsidiary 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 fund the plan. Effective July 1, 1996, shares needed for the DRP were purchased in the open market. The Company can switch back to issuing new shares at any time after September 30, 1996. UTILITY The seasonal nature of NJNG's operations creates large short-term cash requirements, primarily to finance gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, as well as for the temporary financing of construction expenditures, sinking fund needs and accelerated GRFT payments mandated by changes in New Jersey law, through the issuance of commercial paper and short-term bank loans. To support the issuance of commercial paper, NJNG maintains committed credit facilities totaling $50 million with a number of commercial banks and has an additional $20 million line of credit available on an offering basis. NJNG's lines of credit are adjusted quarterly based upon its projected cash needs. Remaining fiscal 1996 construction expenditures are estimated at $15 million. These expenditures will be incurred for services, mains and meters to support NJNG's continued customer growth, and general and information system renewals and improvements. NJNG expects to finance these expenditures through internal generation, the issuance of short-term debt and a $6 million draw down of its variable rate Series BB EDA Bonds, which was completed in August 1996. NJNG will also pursue the refinancing of existing long-term debt, the amount and timing of which will be affected by market conditions and other factors. -16- NON UTILITY REAL ESTATE CR&R's capital expenditures will be limited to the fit-up of existing tenant space, the development of existing acreage and additional investments, approved by the Board of Directors, made for the purpose of preserving the value of particular real estate holdings. Under these parameters, in 1994, the Board of Directors approved the construction of an approximately 76,300 square foot flex building on approximately 10 acres of land in CR&R's Monmouth Shores Corporate Park (MSCP) which was substantially completed as of June 30, 1996. The total project cost is expected to total $6.8 million, of which $6.6 million has been expended through June 30, 1996. CR&R will also construct a 98,000 square foot addition to an existing building at an incremental cost of approximately $5.4 million. This additional space has been pre-leased to the occupant of the existing building and is expected to be completed in January 1997. Such capital expenditures are expected to be funded through temporary cash investments maintained by the Company and internal generation. OIL AND GAS NJR Storage Corporation (Storage), a subsidiary of NJR Energy, is a 5.67% partner in Market Hub Partners, L.P. (MHP) which is expected to develop, own and operate a system of five natural gas market centers with high-deliverability salt cavern storage facilities. The market centers are expected to be strategically located in Texas, Louisiana, Mississippi, Michigan and Pennsylvania. As of June 30, 1996, Storage's investment in MHP totaled $6.9 million. No additional capital expenditures are expected in fiscal 1996. -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 of Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended June 30, 1996. -18- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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, 1996 /s/ LAURENCE M. DOWNES ------------------------------------- Laurence M. Downes President and Chief Executive Officer Date: August 13, 1996 /s/ GLENN C. LOCKWOOD ------------------------------------- Glenn C. Lockwood Senior Vice President and Chief Financial Officer -19- EX-27.1 2 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW JERSEY RESOURCES CORPORATION'S JUNE 30, 1996 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. 1000 9-mos SEP-30-1996 APR-01-1996 JUN-30-1996 PER-BOOK 604,456 37,037 148,384 57,829 0 847,706 45,281 209,709 31,361 286,351 20,000 880 303,513 0 6,200 7,000 1,364 0 31,850 0 190,548 847,706 488,112 20,553 409,279 429,832 58,280 311 58,591 15,799 42,792 1,200 41,592 20,602 12,063 55,993 2.31 2.31
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